<PAGE>
As filed with the Securities and Exchange Commission on July 23, 1996
Registration No.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------------------------------------------
CENTURY BANCORP, INC.
(Exact name of Registrant as specified in its charter)
North Carolina 6036 56-1981518
(State or other juris- (Primary Standard (I.R.S. Employer
diction of incorpora- Industrial Identification Number)
tion or organization) Classification Code Number)
22 Winston Street
Post Office Box 989
Thomasville, North Carolina 27361-0989
(910) 475-4663
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
----------------------
JAMES G. HUDSON, JR., President
Century Bancorp, Inc.
22 Winston Street
Post Office Box 989
Thomasville, North Carolina 27361-0989
(910) 475-4663
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
EDWARD C. WINSLOW III
RANDALL A. UNDERWOOD
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
2000 Renaissance Plaza
Post Office Box 26000
Greensboro, North Carolina 27420
--------------------
Approximate date of commencement of the proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
-----------------------
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
Title of Each Class Proposed Proposed Amount of
of Securities to be Amount to Maximum Maximum Registration
Registered be Registered Offering Aggregate Fee
Price Offering
Per Share Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value 357,075/(1)/ $50.00 $17,853,750 $6,156.47
================================================================================
</TABLE>
(1) The estimated maximum number of shares to be registered is based upon the
maximum of the valuation range of Home Savings, SSB and the Registrant, as
established by an independent appraisal, divided by the proposed offering
price per share.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant said Section 8(a)
may determine.
================================================================================
<PAGE>
CENTURY BANCORP, INC.
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Item Caption or Location
Number in Prospectus
- ------ -------------------------------------------
<C> <S> <C>
1 Forepart of the
Registration Statement and Front Cover Page
Outside Front Cover Page
of Prospectus
2 Inside Front and Outside
Back Cover Pages of Inside Front Cover Page; Table of
Prospectus Contents; Outside Back Cover Page
3 Summary Information, Risk
Factors and Ratio of Summary; Selected Financial and Other Data
Earnings to Fixed Charges of Home Savings; Risk Factors
4 Use of Proceeds Summary; Use of Proceeds
5 Determination of Offering Summary; The Conversion
Price
6 Dilution Not Applicable
7 Selling Security Holders Not Applicable
8 Plan of Distribution Summary; Use of Proceeds; The Conversion
9 Description of Securities Dividend Policy; Description of Capital
to be Registered Stock; Anti-Takeover Provisions Affecting
The Holding Company and Home Savings
10 Interests of Named Experts Not Applicable
and Counsel
11 Information with Respect Summary; Selected Financial and Other Data
to the Registrant of Home Savings; Century Bancorp, Inc.;
Home Savings, SSB; Dividend Policy; Market
for Common Stock; Management's Discussion
and Analysis of Financial Condition and
Results of Operation; Business of the
Holding Company; Business of Home Savings;
Management of the Holding Company;
Management of Home Savings; Financial
Statements
12 Disclosure of Commission
Position on Not Applicable
Indemnification for
Securities Act Liabilities
</TABLE>
<PAGE>
PROSPECTUS
CENTURY BANCORP, INC.
(Proposed Holding Company for Home Savings, SSB)
UP TO 357,075 SHARES OF COMMON STOCK
Century Bancorp, Inc., a North Carolina corporation (the "Holding
Company"), is offering up to 357,075 shares of its common stock, no par value
(the "Common Stock"), in connection with the conversion of Home Savings, SSB
("Home Savings") from a North Carolina-chartered mutual savings bank to a North
Carolina-chartered stock savings bank (the "Conversion"). The purchase price
for the Common Stock is $50.00 per share. As part of the Conversion, the
Holding Company will become the sole stockholder and parent holding company of
Home Savings. See "THE
(cover continued on next page)
FOR INFORMATION ON HOW TO SUBSCRIBE FOR SHARES OF COMMON STOCK,
CALL THE STOCK INFORMATION CENTER AT (910) _____________,
_____________
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED
BY EACH PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE _____.
_____________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC"), THE ADMINISTRATOR, SAVINGS INSTITUTIONS
DIVISION, NORTH CAROLINA DEPARTMENT OF COMMERCE (THE "ADMINISTRATOR"), ANY STATE
SECURITIES COMMISSION, OR THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE
"FDIC"); NOR HAS THE SEC, THE ADMINISTRATOR, ANY SUCH STATE COMMISSION, OR THE
FDIC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS (THE "PROSPECTUS").
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR SAVINGS
DEPOSITS AND ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY.
<TABLE>
<CAPTION>
===================================================================================================================================
ESTIMATED UNDERWRITING,
MARKETING AND OTHER FEES AND ESTIMATED NET CONVERSION
PURCHASE PRICE EXPENSES/(3)/ PROCEEDS/(4)/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share at Minimum......................... $50.00 $3.01 $46.99
Per Share at Midpoint........................ $50.00 $2.78 $47.22
Per Share at Maximum......................... $50.00 $2.60 $47.40
Per Share at Maximum, as adjusted............ $50.00 $2.44 $47.56
Total at Minimum/(1)/........................ $11,475,000 $692,000 $10,783,000
Total at Midpoint/(1)/....................... $13,500,000 $749,000 $12,751,000
Total at Maximum/(1)/........................ $15,525,000 $807,000 $14,718,000
Total at Maximum, as adjusted /(2)/.......... $17,853,750 $873,000 $16,980,750
====================================================================================================================================
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by JMP
Financial, Inc. ("JMP Financial") dated July 8, 1996, which states that the
estimated aggregate pro forma market value of the Holding Company and Home
Savings ranged from $11,475,000 to $15,525,000 ("Valuation Range") or
between 229,500 and 310,500 shares of Common Stock at the purchase price of
$50.00 per share, which is the amount to be paid for each share of Common
Stock purchased in the Offerings (as hereinafter defined). See "THE
CONVERSION -- Purchase Price of Common Stock and Number of Shares Offered."
(2) As adjusted to give effect to an increase in the number of shares that
could be sold in the Conversion due to an increase of up to 15% above the
maximum of the Valuation Range and the related increase of up to 15% above
the maximum number of shares which may be offered in the Conversion at such
maximum, without the resolicitation of subscribers or any right to cancel
or modify subscription orders, to reflect changes in market and financial
conditions following commencement of the Subscription Offering (as
hereinafter defined).
(3) Consists of the estimated costs to Home Savings and the Holding Company
arising from the Conversion, including estimated fixed expenses of
approximately $366,000 (including reimbursable out-of-pocket expenses to be
paid to Trident Securities, Inc.) and management and marketing fees and
commissions to be paid to Trident Securities, Inc. Total fees and
commissions to be paid to Trident Securities, Inc. are estimated to be
between $325,890 and $507,047 at the minimum and maximum, as adjusted, of
the Valuation Range, respectively. See "PRO FORMA DATA" for the
assumptions used to arrive at these estimates. Trident Securities, Inc.
may be deemed to be an underwriter, and such fees may be deemed to be
underwriting fees. Home Savings and the Holding Company have agreed to
indemnify Trident Securities, Inc. against certain claims or liabilities,
including claims under the Securities Act of 1933, as amended. See "THE
CONVERSION -- Marketing Arrangements."
(4) Includes estimated net proceeds from the sale of 8% of the shares to be
issued which are expected to be purchased by Home Savings' Employee Stock
Ownership Plan (the "ESOP") with funds loaned to the ESOP by the Holding
Company. Actual net proceeds may vary substantially from the estimated
amount, depending upon the number of shares sold respectively in the
Subscription Offering and any Community Offering and in any Syndicated
Community Offering (as hereinafter defined), actual expenses and other
factors. See "USE OF PROCEEDS," "CAPITALIZATION," "PRO FORMA DATA" and "THE
CONVERSION -- Purchase Price of Common Stock and Number of Shares Offered."
TRIDENT SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS ________________, 1996.
<PAGE>
CONVERSION." Rights ("Subscription Rights") to subscribe for shares of Common
Stock of the Holding Company in a subscription offering (the "Subscription
Offering") have been granted to certain depositors and borrowers of Home
Savings, Home Savings' Employee Stock Ownership Plan (the "ESOP") and certain
others in accordance with Home Savings' Plan of Holding Company Conversion (the
"Plan of Conversion"). The Subscription Offering will expire at 12:00 Noon,
Eastern Time, on __________________, 1996, unless extended by Home Savings and
the Holding Company with the approval of the Administrator (the "Expiration
Time"). See "THE CONVERSION -- Subscription Offering." SUBSCRIPTION RIGHTS ARE
NOT TRANSFERABLE; PERSONS WHO ATTEMPT TO TRANSFER SUBSCRIPTION RIGHTS MAY LOSE
THEIR RIGHT TO PURCHASE COMMON STOCK AND MAY BE SUBJECT TO OTHER SANCTIONS. SEE
"THE CONVERSION --CERTAIN RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS; FALSE
OR MISLEADING ORDER FORMS."
Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered for sale in a community offering (the "Community Offering") to
members of the general public with priority being given to natural persons or
trusts of natural persons residing in Davidson County, North Carolina (the
"Local Community"), including IRAs, Keogh accounts and similar retirement
accounts established for the benefit of natural persons who are residents of the
Local Community. The Community Offering, if one is held, may begin at any time
after the beginning of the Subscription Offering and may terminate at the
Expiration Time or at any time thereafter, but not later than
____________________, 1996, unless further extended with the consent of the
Administrator. See "THE CONVERSION -- Community Offering."
It is anticipated that any shares of Common Stock not subscribed for in the
Subscription and Community Offerings will be offered to certain members of the
general public on a best efforts basis through a selected dealers arrangement
(the "Syndicated Community Offering"). The Subscription, Community and
Syndicated Community Offerings are referred to collectively as the "Offerings."
Home Savings and the Holding Company have engaged Trident Securities, Inc.
("Trident Securities") as financial advisor and to assist in the sale of shares
of Common Stock, on a best efforts basis, in the Offerings. Trident Securities
is under no obligation to purchase any shares of Common Stock in any of the
Offerings. See "THE CONVERSION -- Marketing Arrangements."
The sale of the Common Stock in the Subscription and Community Offerings,
and in the Syndicated Community Offering, if necessary, must be completed within
45 days after the Expiration Time unless such period is extended with the
approval of the Administrator. In the event such an extension is approved,
subscribers would be resolicited. SUBJECT TO THE FOREGOING, AN EXECUTED STOCK
ORDER FORM, ONCE RECEIVED BY HOME SAVINGS, IS IRREVOCABLE AND MAY NOT BE
MODIFIED, AMENDED OR RESCINDED WITHOUT THE CONSENT OF HOME SAVINGS. See "THE
CONVERSION -- Exercise of Subscription Rights and Purchases in the Community
Offering."
The Conversion and the acceptance of subscriptions are, among other things,
contingent upon approval of the Conversion by Home Savings' members at a special
meeting scheduled to be held on ________________, 1996 (the "Special Meeting")
and upon the sale of shares of Common Stock for an aggregate purchase price of
not less than $11,475,000 nor more than $17,853,750. See "THE CONVERSION --
Offering of Common Stock."
The Boards of Directors and management of Home Savings and the Holding
Company make no recommendation concerning whether any person or entity should
purchase shares of Common Stock. Subscribers are urged to consult with their
own financial advisors with respect to suitability of an investment in the
Common Stock. Also, Trident Securities makes no recommendation relating to such
investment. See "RISK FACTORS -- No Opinion or Recommendation by Sales Agent."
A Stock Information Center has been established at Home Savings'
headquarters office at 22 Winston Street, Thomasville, North Carolina, in an
area separate from Home Savings' banking operations. The telephone number of
the Stock Information Center is (910) _____________.
2
<PAGE>
HOME SAVINGS, SSB
THOMASVILLE, NORTH CAROLINA
[MAP OF NORTH CAROLINA WITH
DAVIDSON COUNTY HIGHLIGHTED]
3
<PAGE>
SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by the more detailed information and financial statements appearing
elsewhere herein. Certain terms used in this summary are defined elsewhere
herein.
CENTURY BANCORP, INC. The Holding Company is a North Carolina
corporation recently organized by the Board of
Directors of Home Savings to acquire all of the
capital stock that Home Savings will issue upon
its conversion from the mutual to stock form of
ownership. The conversion of Home Savings to stock
form, the issuance of Home Savings' capital stock
to the Holding Company, and the offer and sale of
the Common Stock of the Holding Company are
referred to in this Prospectus as the
"Conversion." The Holding Company has not as yet
engaged in any business. Upon completion of the
Conversion, its business will initially consist
solely of owning Home Savings, investing the
proceeds of the Conversion that are retained by
the Holding Company and holding the indebtedness
to be outstanding from the ESOP. The Holding
Company has received the approval of the
Administrator and the Board of Governors of the
Federal Reserve System (the "Federal Reserve") to
acquire Home Savings.
The executive office of the Holding Company is
located at 22 Winston Street, Thomasville, North
Carolina, and its telephone number is (910) 475-
4663.
HOME SAVINGS, SSB Home Savings is a North Carolina-chartered mutual
savings bank headquartered in Thomasville, North
Carolina and has been in operation since 1915.
Home Savings has been a member of the Federal Home
Loan Bank ("FHLB") system, and its deposits have
been federally insured since the late 1950's. Home
Savings' deposits are now insured by the Savings
Association Insurance Fund (the "SAIF") of the
FDIC to the maximum amount permitted by law.
Home Savings conducts business through one full
service office in Thomasville, North Carolina.
Home Savings' primary market area consists of the
communities within a 10-mile radius of its office,
which includes portions of Davidson, Randolph and
Guilford counties in North Carolina. At March 31,
1996, Home Savings had total assets of $80.4
million, net loans of $53.7 million, deposits of
$68.9 million and retained earnings of $11.1
million.
Home Savings is primarily engaged in the business
of attracting deposits from the general public and
using such deposits to make mortgage loans secured
by one-to-four family residential real estate
located in Home Savings' primary market area. Home
Savings also makes home equity line of credit
loans, multi-family residential loans, commercial
loans, construction loans, loans secured by
deposit accounts, and various types of consumer
loans. Home Savings is a portfolio lender in that
it does not originate its fixed or adjustable rate
loans for sale in the secondary market. See
"BUSINESS OF HOME SAVINGS." Home Savings has been
and intends to continue to be a community-oriented
financial institution offering a variety of
financial services to meet the needs of the
communities it serves.
Highlights of Home Savings' operations include:
* Profitability. For the nine months ended
March 31, 1996 and the fiscal years ended
June 30, 1995, 1994 and 1993, Home Savings
had net income of $478,000, $921,000, $1.2
million and $1.1 million, respectively, and a
4
<PAGE>
return on average assets of 0.81%, 1.25%,
1.59% and 1.55%, respectively. Future
profitability of Home Savings will be
affected by changes in market interest rates
and other factors. See "RISK FACTORS."
* Capital Position. As of March 31, 1996, Home
Savings' ratios of Tier I capital to total
assets and total capital to risk-weighted
assets were 13.85% and 29.36%, respectively,
which substantially exceeded the FDIC's
requirements. On such date, Home Savings'
ratio of net worth to total assets,
calculated under the Administrator's
regulations, was 14.48%, which substantially
exceeded the North Carolina requirement. See
"SUPERVISION AND REGULATION -- Regulation of
Home Savings -- Capital Requirements
Applicable to Home Savings."
* Emphasis on One- to Four-Family Residential
Lending. Historically, Home Savings has been
predominantly a one-to-four family
residential lender. As of March 31, 1996,
78.5% of Home Savings' loan portfolio, before
net items, was composed of permanent one-to-
four family residential loans and 8.3% of its
loan portfolio, before net items, was
composed of construction and home equity
loans.
* Asset Quality. On March 31, 1996 and June 30,
1995, Home Savings' ratio of nonperforming
assets to total assets was 1.03% and 1.21%,
respectively. See "BUSINESS OF HOME
SAVINGS --Lending Activities --Nonperforming
Assets and Asset Classification."
* Control of General and Administrative
Expenses. Home Savings strives to control its
non-interest expenses. For the nine months
ended March 31, 1996 and the year ended June
30, 1995, Home Savings' ratio of non-interest
expense to average total assets was 1.55% and
1.33%, respectively.
* Interest Rate Risk. Home Savings has a
significant amount of interest rate risk;
however, management believes its interest
rate risk is at an acceptable level given
Home Savings' capital position and historical
results of operations. As of March 31, 1996,
Home Savings' one-year interest sensitivity
gap was a negative 45.54% of total interest-
earning assets. Other modeling used by Home
Savings indicates that, as of March 31, 1996,
its net portfolio value (present values of
cash flows from assets, liabilities and off-
balance sheet items) would decrease by 32% in
the event of an instantaneous and permanent
200 basis point increase in market interest
rates and would increase by 33% in the event
of a 200 basis point decrease in market
interest rates. Such modeling also indicates
that, as of March 31, 1996, such a 200 basis
point increase in market interest rates would
result in a 10% decrease in net interest
income and that a 200 basis point decrease in
such rates would result in a 10% increase in
net interest income. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS --
Asset/Liability Management."
THE CONVERSION Home Savings was organized and has operated as a
traditional savings institution. It recognizes
that the banking and financial services industries
are in the process of fundamental changes,
reflecting changes in the local, national and
international economies, technological changes and
changes in state and federal laws. As a
5
<PAGE>
result, for several years Home Savings has been
studying the environment in which it operates and
its strategic options.
As a result of its study of its strategic options,
Home Savings adopted the Plan of Conversion, which
provides for conversion of the bank from a North
Carolina-chartered mutual savings bank to a North
Carolina-chartered stock savings bank. Home
Savings believes that converting the bank from the
mutual to stock form and organizing the Holding
Company will provide increased flexibility for
Home Savings and the Holding Company to react to
changes in their operating environment.
Consummation of the Conversion is contingent upon
receipt of the approvals of the Administrator and
the Federal Reserve which are necessary for the
Holding Company to acquire Home Savings and the
approvals of the FDIC and the Administrator which
are necessary for Home Savings to convert from
mutual to stock form. The Administrator has
conditionally approved the Conversion and the
Holding Company's acquisition application, subject
to approval by Home Savings' members and
satisfaction of certain other conditions. The
Federal Reserve has conditionally approved the
Holding Company's acquisition application, subject
to the satisfaction of certain conditions. The
FDIC has issued a notice of non-objection with
respect to the Conversion, subject to certain
conditions. See "THE CONVERSION -- General."
If the Conversion is not approved by the members
at the Special Meeting or an adjournment thereof,
no Common Stock will be issued, Home Savings will
remain a North Carolina-chartered mutual savings
bank, all subscription funds will be returned
promptly plus interest at Home Savings' passbook
rate, and all deposit withdrawal authorizations
will be cancelled without any action on the part
of subscribers or purchasers.
The existing management of Home Savings and the
Holding Company believes that it will be in the
best interests of Home Savings, the Holding
Company and the stockholders of the Holding
Company for the Holding Company to remain an
independent financial institution. Assuming the
consummation of the Conversion, the Holding
Company and Home Savings intend to pursue the
business strategy described in this Prospectus
with the goal of enhancing shareholder value over
the long term. Neither the Holding Company nor
Home Savings has any existing plan to consider any
business combination, and neither company has any
agreement or understanding with respect to any
possible business combination.
THE OFFERINGS Pursuant to the Plan of Conversion, between
229,500 shares and 357,075 shares of Common Stock
are being offered by the Holding Company at the
price of $50.00 per share in the Subscription
Offering to the following persons in the following
order of priority: (i) Home Savings' depositors as
of March 31, 1995 who had aggregate deposits at
the close of business on such date of at least $50
("Eligible Account Holders"); (ii) Home Savings'
Employee Stock Ownership Plan (the "ESOP"); (iii)
Home Savings' depositors as of _______________,
1996 (the "Supplemental Eligibility Record Date"),
who had aggregate deposits at the close of
business on such date of at least $50
("Supplemental Eligible Account Holders"); (iv)
Home Savings' depositor and borrower members as of
_________________, 1996, who are not Eligible
Account Holders or Supplemental Eligible Account
Holders ("Other Members"); and (v) directors,
officers and employees of Home Savings who are not
Eligible Account Holders, Supplemental Eligible
Account
6
<PAGE>
Holders or Other Members. Beneficial owners of
individual retirement accounts ("IRAs"), Keogh
savings accounts and other similar retirement
accounts have been deemed to be holders of such
accounts for purposes of the exercise of
Subscription Rights. Subscription Rights received
in any of the foregoing categories will be
subordinate to the Subscription Rights received by
those in a prior category. See "THE CONVERSION --
Subscription Offering."
Shares of Common Stock not subscribed for in the
Subscription Offering will be offered in a
Community Offering to members of the general
public, with priority given to natural persons or
trusts of natural persons who are residents of the
Local Community, including IRAs, Keogh accounts
and similar retirement accounts established for
the benefit of natural persons who are residents
of the Local Community. The Holding Company and
Home Savings have the absolute right to reject
orders in the Community Offering in whole or in
part. See "THE CONVERSION -- Community Offering."
If there is a Community Offering, it is
anticipated that all shares of Common Stock not
subscribed for in the Community Offering will be
offered for sale by the Holding Company to the
general public in the Syndicated Community
Offering. See "THE CONVERSION -- Syndicated
Community Offering."
THE SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS
IN THE SUBSCRIPTION OFFERING EXPIRE AT THE
EXPIRATION TIME, WHICH IS 12:00 NOON., EASTERN
TIME, ON _______________, 1996, UNLESS EXTENDED.
THE COMMUNITY OFFERING, IF ANY, MAY COMMENCE AT
ANY TIME AFTER THE COMMENCEMENT OF THE
SUBSCRIPTION OFFERING AND MAY TERMINATE AT THE
EXPIRATION TIME OR AT ANY TIME THEREAFTER, BUT NOT
LATER THAN _________________, 1996, UNLESS
EXTENDED WITH THE APPROVAL OF THE ADMINISTRATOR.
STOCK PURCHASE LIMITATIONS The maximum aggregate number of shares of Common
Stock for which any person or entity (other than
the ESOP), together with associates, and persons
acting in concert, may subscribe in the Offerings
is 5,000 shares. However, Home Savings' Board of
Directors has the right, at any time prior to
completion of the Conversion, to decrease the
5,000 share maximum purchase limitation to an
amount not less than 1% of the shares issued in
the Conversion or increase such 5,000 share
limitation to an amount up to 5% of the shares
issued in the Conversion. Any decrease or increase
in the maximum purchase limitation will be without
notice to, or resolicitation of, subscribers and
without a resolicitation of proxies in connection
with the Special Meeting. The ESOP may purchase up
to 8% of the shares of Common Stock issued in the
Conversion (between 18,360 and 24,840 shares
assuming the issuance of between 229,500 and
310,500 shares). If because there is an
oversubscription or for any other reason the ESOP
is unable to purchase in the aggregate up to 8% of
the shares of Common Stock issued in the
Conversion, it is expected that the ESOP will
purchase shares of Common Stock in the open market
so that after such purchases a number of shares of
Common Stock up to 8% of the number of shares
issued in the Conversion will have been acquired
by the ESOP. See "RISK FACTORS -- Cost of ESOP."
No person or entity may subscribe for less than 10
shares of Common Stock, or an aggregate dollar
amount of less than $500.
The term "acting in concert" is defined in the
Plan to mean: (i) knowing participation in a joint
activity or interdependent conscious parallel
action towards a common goal, whether or not
pursuant to an express agreement, with respect to
the purchase, ownership, voting or sale of Common
Stock; or (ii) a combination or
7
<PAGE>
pooling of voting or other interests in the
securities of the Holding Company for a common
purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement,
whether written or otherwise. The Holding Company
and Home Savings may presume that certain persons
are acting in concert based upon, among other
things, joint account relationships and the fact
that such persons have filed joint Schedules 13D
with the SEC with respect to other companies. The
term "associate" of a person is defined in the
Plan to mean: (i) any corporation or organization
(other than Home Savings, the Holding Company or
any of their majority-owned subsidiaries of which
such person is an officer or partner or is,
directly or indirectly, the beneficial owner of
10% or more of any class of equity securities;
(ii) any trust or other estate in which such
person has a substantial beneficial interest or as
to which such person serves as trustee or in a
similar fiduciary capacity (excluding tax-
qualified employee plans and charitable trusts
which are exempt from federal taxation pursuant to
Section 501(c)(3) of the Internal Revenue Code, as
amended); and (iii) any relative or spouse of such
person, or any relative of such spouse, who either
has the same home as such person or who is a
director or officer of Home Savings, the Holding
Company or any of their parents or subsidiaries.
See "THE CONVERSION -- Minimum and Maximum
Purchase Limitations."
SUBSCRIPTION RIGHTS; PURCHASE
OF SHARES Subscription Rights are exercisable and purchases
may be made in the Offerings only by returning the
original of the stock order form accompanying this
Prospectus (the "Stock Order Form") properly
completed with full payment for the aggregate
dollar amount of Common Stock desired. Stock Order
Forms and required payments for purchases in the
Subscription Offering must be received prior to
the Expiration Time. Copies of the Stock Order
Form, including facsimile copies, will not be
accepted. Stock Order Forms and required payments
for purchases in the Community Offering must be
delivered prior to the time the Community Offering
terminates, which may be at the Expiration Time or
at any time thereafter (but not later than
______________, 1996). Payment may be made in cash
(if delivered in person to any office of Home
Savings), by check, bank draft, negotiable order
of withdrawal or money order, or by authorization
of withdrawal from deposit accounts maintained
with Home Savings, other than negotiable order of
withdrawal or other demand deposit accounts.
Payment may not be made by wire transfer.
Subscription payments made in cash, by check, bank
draft, negotiable order of withdrawal or money
order will earn interest at Home Savings' passbook
savings rate from the date payment in good funds
is received by Home Savings until the completion
or termination of the Conversion or, in the case
of an order submitted in the Community Offering,
until it is determined that such order cannot or
will not be accepted. Subscription payments made
by authorization of withdrawal from a deposit
account at Home Savings will continue to earn
interest at the applicable contractual rate until
the Conversion is completed or terminated; such
funds will be otherwise unavailable to the
depositor. Payment for Common Stock may be made
from funds in an IRA, Keogh or similar account at
Home Savings only if the beneficial owner of such
account directs Home Savings to transfer that
account to a self-directed account in the name of
an independent trustee. Persons wishing to use
their Home Savings IRA's to purchase shares of
Common Stock must visit the Stock Information
Center on or before _____________, 1996 in order
for the necessary paperwork for such purchases to
be completed and executed prior to the Expiration
Time. No early withdrawal penalties will be
incurred in connection with payments made through
authorization of withdrawals from certificate
accounts, including IRA, Keogh and similar
retirement accounts. However, if after such
8
<PAGE>
withdrawal the applicable minimum balance
requirement ceases to be satisfied, such
certificate account will be cancelled and the
remaining balance thereof will earn interest at
Home Savings' passbook savings rate. See "THE
CONVERSION -- Exercise of Subscription Rights and
Purchases in the Community Offering."
NON-TRANSFERABILITY OF
SUBSCRIPTION RIGHTS The Subscription Rights granted under the Plan of
Conversion are non-transferable. Subscription
Rights may be exercised only by the person to whom
they are issued and only for his or her own
account. Persons exercising Subscription Rights
are required to certify that they are purchasing
shares for their own accounts within the purchase
limitations set forth in the Plan of Conversion
and that they have no agreement or understanding
for the sale or transfer of such shares. See "THE
CONVERSION -- Certain Restrictions on Transfer of
Subscription Rights; False or Misleading Order
Forms."
APPRAISAL The Plan of Conversion requires that the aggregate
purchase price of the Common Stock be based upon
an independent valuation of the estimated
aggregate pro forma market value of the Holding
Company and Home Savings. JMP Financial, Inc.
("JMP Financial"), an independent financial
consulting firm, has advised Home Savings and the
Holding Company that in its opinion, at July 8,
1996, the Valuation Range of the aggregate
estimated pro forma market value of the Holding
Company and Home Savings was from $11,475,000 to
$15,525,000. The appraisal will be reviewed and,
if appropriate, revised by JMP Financial upon
conclusion of the Offerings. The appraisal by JMP
Financial is not intended and should not be
construed as a recommendation of any kind as to
the advisability of purchasing the Common Stock.
See "MARKET FOR COMMON STOCK," "PRO FORMA DATA"
and "THE CONVERSION -- Purchase Price of Common
Stock and Number of Shares Offered."
STOCK PRICING AND NUMBER OF
SHARES TO BE OFFERED The purchase price of the Common Stock offered in
the Subscription Offering and the price at which
the Common Stock is sold in the Community and
Syndicated Community Offerings, if any, will be
$50.00 per share. The aggregate dollar amount of
Common Stock that may be sold in the Conversion
will be determined by the Board of Directors of
Home Savings and the Holding Company based upon
the independent appraisal of the pro forma market
value of the Holding Company and Home Savings
prepared by JMP Financial. Depending on market and
financial conditions following commencement of the
Subscription Offering, the number of shares
offered and sold in the Conversion may be
increased or decreased. With the consent of the
Administrator and the FDIC and in order to reflect
changes in market and financial conditions
following commencement of the Subscription
Offering, the aggregate purchase price of the
shares of Common Stock issued in the Conversion
may be increased, without any solicitation of
subscriptions or right to cancel, rescind or
change subscription orders, to up to 15% above the
maximum of the Valuation Range. However, the
aggregate dollar amount of Common Stock that may
be sold in the Conversion will not be more than
$17,853,750 or less than $11,475,000 without a
resolicitation of subscribers. Any change in the
total dollar amount of the Offerings outside of
the current Valuation Range will be subject to the
receipt of an updated appraisal confirming such
valuation and regulatory approvals. See "THE
CONVERSION -- Purchase Price of Common Stock and
Number of Shares Offered."
9
<PAGE>
USE OF PROCEEDS The net proceeds from the sale of the Common Stock
in the Conversion, including shares purchased by
the ESOP with funds loaned by the Holding Company,
are estimated to be between $10,783,000 and
$14,718,000, depending upon the actual expenses of
the Conversion and other factors. See "PRO FORMA
DATA." The Holding Company intends to use a
portion of the net proceeds of the Offerings
(estimated between $918,000 and $1,242,000
assuming the ESOP's purchase of between 18,360 and
24,840 shares at $50.00 per share) to fund the
loan made to the ESOP to purchase shares of Common
Stock in the Conversion. After deducting the
amount of such loan from the proceeds, the Holding
Company is expected to retain approximately 50% of
the remaining net proceeds from the issuance of
the Common Stock. The Holding Company will
initially invest these proceeds primarily in
interest-earning deposits, U.S. government,
federal agency and other marketable securities and
mortgage-backed securities. See "USE OF PROCEEDS."
The remainder of the net proceeds from the sale of
the Common Stock will be paid by the Holding
Company to Home Savings in exchange for all of the
capital stock of Home Savings. The net proceeds
paid to Home Savings will become part of Home
Savings' general funds, and will initially be
invested in mortgage and other loans, mortgage-
backed securities and investments consisting
primarily of U.S. government and federal agency
obligations, interest-earning deposits and other
marketable securities in accordance with Home
Savings' lending and investment policies.
Net proceeds will also be used for other general
corporate purposes. Home Savings and the Holding
Company may consider opening one or more branch
offices or acquiring other financial institutions
in its primary market area and other nearby
communities, and such proceeds could be used for
such purposes. However, the Holding Company and
Home Savings have no current plans to open any
additional office or to acquire any other
financial institution.
If Home Savings' proposed Management Recognition
Plan (the "MRP") is approved by the stockholders
of the Holding Company, the MRP will acquire a
number of shares of Common Stock equal to 4% of
the number of shares issued in the Conversion. See
"MANAGEMENT OF HOME SAVINGS -- Proposed Management
Recognition Plan." Such shares may either be
acquired in the open market or acquired through
the Holding Company's issuance of authorized but
unissued shares. In either event, it is expected
that the MRP will acquire such shares reasonably
promptly after the MRP is approved by the
stockholders. In the event shares are acquired in
the open market, the funds for such purchase may
be provided by Home Savings from the proceeds of
the Conversion. It is estimated that between 9,180
and 12,420 shares will be acquired by the MRP,
assuming the issuance of between 229,500 and
310,500 shares in the Conversion. If all such
shares were acquired by the MRP in the open
market, and if such shares were acquired at a
price of $50.00 per share, Home Savings would
contribute between $459,000 and $621,000,
respectively, to the MRP for this purpose.
Additional shares would be acquired if the number
of shares issued in the Conversion exceeds
310,500, and the price per share paid by the MRP
could be more or less than $50.00 per share, which
would change the total contribution to the MRP
accordingly. See "RISK FACTORS -- Cost and
Possible Dilutive Effect of the MRP and Stock
Option Plan" and "MANAGEMENT OF HOME SAVINGS --
Proposed Management Recognition Plan."
10
<PAGE>
If the Holding Company's Stock Option Plan and
Trust (the "Stock Option Plan") is approved by the
stockholders of the Holding Company, the Stock
Option Plan could acquire in the open market a
number of shares equal to 10% of the number of
shares issued in the Conversion, which shares will
be held to satisfy options granted under such
plan. Such shares could be acquired after options
are granted and prior to the time options vest
under the Stock Option Plan. To the extent the
Stock Option Plan does not acquire sufficient
shares in the open market to satisfy options
granted under the Stock Option Plan, the Holding
Company will reserve authorized but unissued
shares for this purpose. See "MANAGEMENT OF HOME
SAVINGS -- Proposed Stock Option Plan." The funds
for any purchases in the open market may be
provided by the Holding Company or Home Savings
from the proceeds of the Conversion. It is
estimated that between 22,950 and 31,050 shares
will be acquired by the Stock Option Plan in the
open market and/or reserved for issuance by the
Holding Company, assuming the issuance of between
229,500 and 310,500 shares in the Conversion. If
shares are acquired in the open market, the
Holding Company or Home Savings would contribute
between $1,147,500 and $1,552,500, respectively,
to the Stock Option Plan for this purpose,
assuming such shares are acquired at a price of
$50.00 per share. Additional shares would be
acquired if the number of shares issued in the
Conversion exceeds 310,500, and the price could be
more or less than $50.00 per share, which would
change the contribution to the Stock Option Plan
accordingly. See "RISK FACTORS -- Cost and
Possible Dilutive Effect of the MRP and Stock
Option Plan" and "MANAGEMENT OF HOME SAVINGS --
Proposed Stock Option Plan."
DIVIDENDS Following the Conversion, the Holding Company
currently expects to pay quarterly cash dividends
on the Common Stock at a rate to be determined. In
addition, the Holding Company may determine from
time to time that it is prudent to pay special
nonrecurring cash dividends. Payment of dividends
will be subject to determination and declaration
by the Holding Company's Board of Directors. The
Board of Directors will periodically review its
dividend policy in view of the operating results
and financial condition of the Holding Company and
Home Savings, net worth and capital requirements,
regulatory restrictions, tax consequences,
industry standards, and general economic
conditions, and it will authorize cash dividends
to be paid if it deems such payment appropriate
and in compliance with applicable law. There can
be no assurance that dividends will in fact be
paid on the Common Stock or that, if paid, such
dividends will not be reduced or eliminated in
future periods. See "DIVIDEND POLICY." Within the
first year after completion of the Conversion, the
Holding Company may not pay any dividend or make
any distribution that represents, or is
characterized as, or is treated for income tax
purposes as a return of capital. The ability of
the Holding Company to pay dividends may be
dependent upon the Holding Company's receipt of
dividends from Home Savings. Home Savings' ability
to pay dividends is restricted. See "SUPERVISION
AND REGULATION -- Regulation of Home Savings --
Restrictions on Dividends and Other Capital
Distributions." In addition, see "TAXATION" for a
discussion of federal income tax provisions that
may limit the ability of Home Savings to pay
dividends to the Holding Company without incurring
a recapture tax.
MARKET FOR COMMON STOCK Neither the Holding Company nor Home Savings has
ever issued stock before and, due to the
relatively small size of the Offerings, it is
unlikely that an active and liquid trading market
will develop. Upon the consummation of the
Conversion, the Holding Company will review the
eligibility of the Common Stock for quotation on
the Nasdaq SmallCap Market. In the event that the
Common Stock is eligible
11
<PAGE>
for quotation on the Nasdaq SmallCap Market, the
Holding Company will apply to have the Common
Stock quoted on the Nasdaq SmallCap Market. There
can be no assurance, however, that any such
application will be approved or that the Common
Stock will be quoted on the Nasdaq SmallCap
Market. If the Common Stock is quoted on the
Nasdaq SmallCap Market, Trident Securities intends
to act as a market maker and to encourage at least
one other market maker to make a market in the
Common Stock. In the event the Common Stock does
not qualify for quotation on the Nasdaq SmallCap
Market, the Holding Company intends to list the
Common Stock over-the-counter through the National
Daily Quotation System "Pink Sheets" published by
the National Quotation Bureau, Inc., and the
Holding Company intends to request that Trident
Securities undertake to match offers to buy and
offers to sell the Common Stock. There can be no
assurance that timely or accurate quotations will
be available in the "Pink Sheets." In addition,
the existence of a public trading market will
depend upon the presence in the market of both
willing buyers and willing sellers at any given
time. Due to the small number of shares of Common
Stock being offered in the Conversion and the
concentration of ownership, it is unlikely that an
active or liquid trading market for the Common
Stock will develop and be maintained. Further, the
absence of an active and liquid trading market may
make it difficult to sell the Common Stock and may
have an adverse effect on the price of the Common
Stock. Purchasers should consider the potentially
illiquid and long-term nature of their investment
in the shares offered hereby. See "MARKET FOR
COMMON STOCK."
STOCK OWNERSHIP BY
MANAGEMENT The directors and executive officers of the
Holding Company and of Home Savings and their
associates currently anticipate subscribing for
Common Stock in the aggregate amount of
$1,115,000, or 22,300 shares. As a result, such
persons anticipate subscribing for 9.72% to 7.18%
of the shares of Common Stock issued in the
Conversion based upon the maximum and minimum of
the Valuation Range, respectively. See
"ANTICIPATED STOCK PURCHASES BY MANAGEMENT." In
addition, it is expected that the ESOP will
subscribe for 8% of the shares of Common Stock
issued in the Conversion (between 18,360 and
24,840 shares, assuming the issuance of between
229,500 and 310,500 shares). See "MANAGEMENT OF
HOME SAVINGS -- Employee Stock Ownership Plan." It
is expected that directors and certain employees
of the Holding Company and Home Savings will also
receive restricted stock grants under the MRP for
a number of shares of Common Stock equal to 4% of
the number of shares issued in the Conversion and
will receive options under the Stock Option Plan
to purchase a number of shares of Common Stock
equal to 10% of the number of shares issued in the
Conversion, if such plans are approved by the
stockholders of the Holding Company at a meeting
of stockholders following the Conversion. See "--
Benefits to Directors and Officers" and
"MANAGEMENT OF HOME SAVINGS -- Proposed Management
Recognition Plan" and "-- Proposed Stock Option
Plan."
BENEFITS TO DIRECTORS AND
EXECUTIVE OFFICERS In connection with the Conversion, certain
benefits will be provided to directors, officers
and employees of Home Savings.
Employment Agreement. In connection with the
Conversion, Home Savings expects to enter into an
employment agreement with James G. Hudson, Jr.,
President, Chief Executive Officer and Treasurer.
The employment agreement with Mr. Hudson provides
for an initial annual salary of $93,600. See
"MANAGEMENT OF HOME SAVINGS -- Employment
Agreement."
12
<PAGE>
Special Termination Agreements. In connection with
the Conversion, the Holding Company expects to
enter into Special Termination Agreements with
John E. Todd, Vice President, and Drema A.
Michael, Secretary and Assistant Treasurer. The
Special Termination Agreements provide for the
payment to such officers of an amount equal to two
times their salary and bonuses for the most
recently completed calendar year if, within two
years after a change in control, the officer is
terminated without cause or if the officer
terminates their employment after certain changes
in their employment circumstances. See "MANAGEMENT
OF HOME SAVINGS -- Special Termination Agreements"
Restricted Stock Grants. Pursuant to the MRP,
which is expected to be adopted by the Boards of
Directors of the Holding Company and Home Savings,
directors and certain employees of Home Savings
could receive restricted stock grants of a number
of shares of Common Stock equal to 4% of the
shares issued in the Conversion (between 9,180 and
12,420 shares, assuming the issuance of between
229,500 and 310,500 shares). Assuming that the
shares issued pursuant to the MRP had a value of
$50.00 per share, such shares would have a value
of between $459,000 and $621,000.
Under applicable regulations, if the proposed MRP
is submitted to and approved by the stockholders
of the Holding Company within one year after
consummation of the Conversion, (i) no employee of
Home Savings (including Mr. Hudson, Mr. Todd and
Ms. Michael) could receive more than 25% of the
shares issued under the MRP, or 3,105 shares,
assuming the issuance of 310,500 shares in the
Conversion, (ii) the four non-employee directors
of Home Savings could receive restricted stock
grants for an aggregate of not more than 20% of
the shares issued under the MRP, or 2,484 shares,
assuming the issuance of 310,500 shares in the
Conversion and (iii) none of the four non-employee
directors of Home Savings could receive
individually more than 5% of the shares issued
under the MRP, or 621 shares, assuming the
issuance of 310,500 shares in the Conversion.
Assuming the MRP shares had a value of $50.00 per
share, 3,105 shares would have a value of
$155,250, 2,484 shares would have a value of
$124,200 and 621 shares would have a value of
$31,050. If the MRP is submitted to and approved
by the Holding Company's stockholders more than
one year after consummation of the Conversion, the
regulatory percentage limitations set forth above
would not apply.
Shares granted under the MRP will be forfeited
unless recipients of grants satisfy certain
vesting requirements, and the MRP will only be
effective if approved by the stockholders of the
Holding Company at a meeting of stockholders to be
held no sooner than six months following the
Conversion. Recipients of restricted stock under
the MRP will not have to pay for their restricted
shares. See "MANAGEMENT OF HOME SAVINGS --
Proposed Management Recognition Plan."
Stock Options. Pursuant to the Stock Option Plan
which is expected to be adopted by the Boards of
Directors of the Holding Company and Home Savings,
directors and certain employees of Home Savings
could receive options to purchase a number of
shares of Common Stock equal to 10% of the shares
issued in the Conversion (between 22,950 and
31,050 shares, assuming the issuance of between
229,500 and 310,500 shares).
Under applicable regulations, if the proposed
Stock Option Plan is submitted to and approved by
the stockholders of the Holding Company within one
year after
13
<PAGE>
consummation of the Conversion, (i) no employee of
Home Savings (including Mr. Hudson, Mr. Todd and
Ms. Michael) could receive more than 25% of the
options issued under the Stock Option Plan, or
options to purchase 7,762 shares, assuming the
issuance of 310,500 shares in the Conversion, (ii)
the four non-employee directors of Home Savings
could receive not more than 20% of the options
issued under the Stock Option Plan, or options to
purchase 6,210 shares, assuming the issuance of
310,500 shares in the Conversion, and (iii) none
of the four non-employee directors of Home Savings
could receive individually more than 5% of the
options issued under the Stock Option Plan, or
options to purchase 1,552 shares, assuming the
issuance of 310,500 shares in the Conversion. If
the Stock Option Plan is submitted to and approved
by the Holding Company's stockholders more than
one year after consummation of the Conversion, the
regulatory percentage limitations set forth above
would not apply.
Options granted under the Stock Option Plan will
be forfeited unless recipients satisfy certain
vesting requirements. The Stock Option Plan will
only be effective if approved by the stockholders
of the Holding Company at a meeting of
stockholders to be held no sooner than six months
following the Conversion. The exercise price of
the options will be the fair market value of the
Common Stock at the time the options are granted
(which will be after the Stock Option Plan is
approved by the Holding Company's stockholders),
and the options will have terms of 10 years or
less. Recipients of options under the Stock Option
Plan will not have to pay for the options issued
to them. See "MANAGEMENT OF HOME SAVINGS --
Proposed Stock Option Plan."
ESOP. In connection with the Conversion, Home
Savings has established the ESOP. As part of the
Conversion, the ESOP intends to borrow funds from
the Holding Company and to use such funds to
purchase 8% of the shares of Common Stock to be
issued in the Conversion, estimated to be between
18,360 and 24,840 shares, assuming the issuance of
between 229,500 and 310,500 shares. See
"MANAGEMENT OF HOME SAVINGS -- Employee Stock
Ownership Plan."
ANTI-TAKEOVER PROVISIONS The Articles of Incorporation and Bylaws of the
Holding Company and Home Savings contain certain
restrictions that are intended to discourage non-
negotiated attempts to acquire control of the
Holding Company or Home Savings. The Board of
Directors of the Holding Company believes that
these provisions encourage potential acquirors to
negotiate directly with the Board of Directors.
However, these provisions may discourage an
attempt to acquire control of the Holding Company
which a majority of the stockholders might deem to
be in their best interests or in which they might
receive a premium over the then market price of
their shares. These provisions may also render the
removal of a director or the entire Board of
Directors of the Holding Company more difficult
and may deter or delay changes in control which
have not received the requisite approval of the
Holding Company's Board of Directors. Other
factors, such as voting control of directors and
officers and agreements with employees, may also
have an anti-takeover effect. See "RISK FACTORS --
Anti-Takeover Considerations" and "ANTI-TAKEOVER
PROVISIONS AFFECTING THE HOLDING COMPANY AND HOME
SAVINGS."
RISK FACTORS Special attention should be given to the "RISK
FACTORS" section of this Prospectus, which
discusses the possible effects of changes in
interest rates on Home Savings and the thrift
industry in general, Home Savings' high volume of
deposits exceeding $100,000, anticipated low
return on equity following the
14
<PAGE>
Conversion, importance of key employers, the
recapitalization of the SAIF, its impact on
deposit insurance premiums and a potential
recapitalization fee, proposed recapture of bad
debt reserves, the limited market for the Common
Stock, the cost of the ESOP, the cost and possible
dilutive effect of the MRP and Stock Option Plan,
potential financial institution regulation and
legislation, competition, certain anti-takeover
considerations, income tax consequences of
Subscription Rights, the possibility of a delay in
completing the offering and issuing the shares of
Common Stock and certain other matters that
potential purchasers should consider before
deciding whether to subscribe for the Common Stock
offered hereby.
15
<PAGE>
SELECTED FINANCIAL
AND OTHER DATA OF HOME SAVINGS
Set forth below are summaries of historical financial and other data
of Home Savings. This information is derived in part from, and should be read
in conjunction with, the Financial Statements and Notes to Financial Statements
of Home Savings presented elsewhere herein and with the section of this
Prospectus entitled "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS." All averages presented in this Prospectus have been
calculated on a monthly basis unless otherwise stated. The information at and
for the nine-month periods ended March 31, 1996 and 1995 has been derived from
unaudited financial statements and, in the opinion of management, reflects all
adjustments (which comprise only normal recurring accruals) necessary for a fair
presentation for such interim periods. The operating data for the nine-month
period ended March 31, 1996 is not necessarily indicative of the results to be
expected for the full year.
16
<PAGE>
<TABLE>
<CAPTION>
At or for the
Nine Months
Ended March 31, At or for the Year Ended June 30,
-------------------- --------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(Unaudited) (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Financial condition data:
Total assets $80,386 $73,285 $75,508 $73,843 $70,864 $65,947 $59,28 2
Investments (1) 23,702 13,876 18,852 18,012 15,833 13,729 11,275
Loans receivable, net 53,741 53,701 54,020 53,802 53,566 50,120 46,529
Deposits 68,907 62,664 64,448 63,937 62,129 58,205 52,315
Retained earnings 11,136 10,320 10,640 9,610 8,439 7,370 6,506
Operating data:
Interest income $ 4,383 $ 3,985 $ 5,371 $ 5,337 $ 5,402 $ 5,439 $ 5,429
Interest expense 2,661 2,001 2,788 2,487 2,736 3,472 3,779
-------- -------- -------- -------- -------- -------- --------
Net interest income 1,722 1,984 2,583 2,850 2,666 1,967 1,650
Provision for loan losses 130 75 105 114 165 87 39
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision
for loan losses 1,592 1,909 2,478 2,736 2,501 1,880 1,611
Non-interest income 42 5 15 40 40 97 48
Non-interest expense 914 698 979 910 833 775 676
-------- -------- -------- -------- -------- -------- --------
Income before income taxes 720 1,216 1,514 1,866 1,708 1,202 983
Income tax expense 242 481 593 694 639 421 332
-------- -------- -------- -------- -------- -------- --------
Net income $ 478 $ 735 $ 921 $ 1,172 $ 1,069 $ 781 $ 651
======== ======== ======== ======== ======== ======== ========
Other selected data:
Number of outstanding loans 1,476 1,560 1,317 1,783 1,992 1,987 1,580
Number of deposit accounts 5,306 5,143 4,715 5,241 5,250 4,989 4,239
Number of full-service offices open 1 1 1 1 1 1 1
Return on average assets (2) 0.81% 1.35% 1.25% 1.59% 1.55% 1.24% 1.17%
Return on average equity (2) 5.83% 9.89% 9.15% 12.82% 13.37% 11.22% 10.48%
Average equity to average assets 13.94% 13.53% 13.68% 12.43% 11.56% 11.06% 11.17%
Interest rate spread (2) 2.36% 3.24% 3.10% 3.55% 3.53% 2.64% 2.26%
Net yield on average interest-earning
assets (2) 3.01% 3.72% 3.61% 3.97% 3.97% 3.22% 3.03%
Average interest-earning assets to
average interest-bearing liabilities 113.86% 112.85% 113.08% 112.12% 110.59% 110.09% 111.11%
Ratio of non-interest expense to
average total assets (2) 1.55% 1.27% 1.33% 1.24% 1.20% 1.23% 1.22%
Nonperforming assets to total assets 1.03% 1.32% 1.21% 2.32% 2.53% 1.09% 0.78%
Nonperforming loans to total loans 0.92% 1.80% 1.56% 2.98% 2.99% 1.11% 0.96%
Allowance for loan losses to total
loans 0.93% 0.69% 0.74% 0.55% 0.37% 0.19% 0.10%
Allowance for loan losses to
nonperforming loans 100.80% 38.29% 47.68% 18.38% 12.43% 17.06% 10.02%
Provision for loan losses to total
loans receivable, net 0.24% 0.14% 0.19% 0.21% 0.31% 0.17% 0.09%
Net charge-offs to average loans
outstanding 0.06% 0.00% 0.00% 0.03% 0.12% 0.08% 0.03%
Retained earnings to total assets 13.85% 14.08% 14.09% 13.01% 11.91% 11.18% 10.97%
Average equity to average assets 13.94% 13.53% 13.68% 12.43% 11.56% 11.06% 11.17%
</TABLE>
(1) Includes interest-bearing deposits, federal funds sold, FHLB stock and
investment securities.
(2) Annualized
17
<PAGE>
RISK FACTORS
THE FOLLOWING FACTORS, IN ADDITION TO THE INFORMATION PRESENTED ELSEWHERE
IN THIS PROSPECTUS, SHOULD BE CONSIDERED BY INVESTORS BEFORE DECIDING WHETHER TO
PURCHASE THE COMMON STOCK OFFERED HEREBY.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATEs
The results of operations of Home Savings, as with savings institutions
generally, are dependent to a large degree on its net interest income, which is
generally the difference between interest income from loans and investments and
interest expense on deposits and borrowings. Home Savings' interest income and
interest expense are significantly affected by general economic conditions and
by policies of the federal government and various regulatory agencies.
In recent years, the assets of many savings institutions, including Home
Savings, have been negatively "gapped"--which means that the dollar amount of
interest-bearing liabilities which reprice within specific time periods, either
through maturity or rate adjustment, exceeds the dollar amount of interest-
earning assets which reprice within such time periods. As a result, the net
interest income of these savings institutions, including Home Savings, would be
expected to be negatively impacted by increases in interest rates.
Some thrift and banking institutions have a positive gap, which means that
the amount of interest-earning assets maturing or otherwise repricing within
specific time periods generally exceeds the amount of interest-bearing
liabilities maturing or otherwise repricing within such periods. Accordingly,
in a rising interest rate environment, absent the effect of other factors, those
institutions would expect to experience a larger increase in the yield on their
assets relative to the cost of their liabilities, thus their net interest income
should be positively affected.
At March 31, 1996, Home Savings' cumulative one year gap as a percentage of
total interest-earning assets was a negative 45.54%. Home Savings' computes its
gap position without using certain prepayment, deposit decay and other
assumptions sometimes used in such computations. The results of Home Savings'
gap computations could be substantially different if these or other assumptions
were used.
In addition to the interest rate gap analysis discussed above, Home
Savings' management monitors interest rate sensitivity through the use of a
model which estimates the change in net portfolio value ("NPV") and net interest
income in response to a range of assumed changes in market interest rates. NPV
is the present value of expected cash flows from assets, liabilities and off-
balance sheet items. The model estimates the effect on Home Savings' NPV and
net interest income of instantaneous and permanent 100 to 400 basis point
increases and decreases in market interest rates. Home Savings' Board of
Directors has established maximum acceptable decreases in NPV and net interest
income for various rate scenarios. Computations as of March 31, 1996, based
upon information provided by the FHLB of Atlanta, indicated that a 200 basis
point increase in interest rates would result in a 32% decrease in Home Savings'
NPV and a 200 basis point decrease in interest rates would result in a 33%
increase in Home Savings' NPV. Such computations also indicate that the same
200 basis point increase in interest rates would result in a 10% decrease in net
interest income and that the 200 basis point decrease in interest rates would
result in a 10% increase in net interest income. Computations of the prospective
effects of hypothetical interest rate changes in determining the effect on NPV
and net interest income are based on numerous assumptions, including relative
levels of market interest rates, loan prepayments and deposit decay and should
not be relied upon as indicative of actual results. Further, such computations
and the gap computations described above do not incorporate any actions
management may undertake in response to changes in interest rates. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION -- Asset/Liability Management."
The computations described above indicate that Home Savings' asset and
liability structure presents significant interest rate risk and that Home
Savings' portfolio value and net interest income would be negatively impacted by
increases in interest rates. However, because of Home Savings' capital position
and historical results of operations, Home Savings' management did not consider
Home Savings' interest rate risk position as of March 31, 1996 to be
unacceptable.
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Home Savings' results of operations will continue to be significantly
affected by changes in interest rates due, among other factors, to (i) the fact
that a large percentage of Home Savings' adjustable rate assets only reprice
once a year, (ii) the fact that Home Savings originates significant amounts of
fixed rate mortgage loans and does not sell such loans in the secondary market,
(iii) the fact that a large percentage of Home Savings' deposit accounts are
subject to immediate repricing or to repricing within one year, (iv) the fact
that Home Savings' interest-earning assets and interest-bearing liabilities
reprice at different times and with different frequencies, (v) the effects of
periodic and lifetime interest rate caps on Home Savings' interest-earning
assets, (vi) the fact that interest rates on Home Savings' assets and
liabilities respond differently to economic, market and competitive factors, and
(vii) the fact that sustained high levels of interest rates may adversely affect
real estate and lending markets in general. Changes in the level of interest
rates also can affect the amount of loans originated by Home Savings. Changes in
interest rates also can result in disintermediation, which is the flow of funds
away from savings institutions into direct investments, such as U.S. government
and corporate securities, and other investment vehicles which, because of the
absence of federal deposit insurance premiums and reserve requirements,
generally can pay higher rates of interest than savings institutions. Home
Savings does not originate its fixed rate or adjustable rate loans for sale, or
sell its loans in the secondary market, and this tends to increase its exposure
to interest rate risk. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Asset/Liability Management."
HIGH LEVEL OF DEPOSITS OF $100,000 OR MORE
At March 31, 1996, $13.5 million of Home Savings' certificate of deposit
accounts, or 26.3% of all of its certificate of deposit accounts, were for
balances of $100,000 or more. Such deposit accounts, which are frequently
referred to as "jumbo" deposits, are generally considered to be more interest
rate sensitive than other deposits. As a result, it would generally be
expected that a significant amount of such jumbo deposits could be withdrawn
from Home Savings if higher rates could be obtained elsewhere. Home Savings
does not solicit or accept brokered deposits. Home Savings believes that most
of the jumbo deposits at Home Savings are held by long-time local customers of
the institution.
ANTICIPATED LOW RETURN ON EQUITY FOLLOWING CONVERSION
At March 31, 1996, Home Savings' ratio of equity to assets was 13.85%. On
a pro forma basis at March 31, 1996, assuming the sale of 310,500 shares of
Common Stock in the Conversion, the Holding Company's ratio of equity to assets
would have been 25.73%. With its higher capital position as a result of the
Conversion, it is doubtful that the Holding Company will be able to quickly
deploy the capital raised in the Conversion in loans and other assets in a
manner consistent with its business plan and operating philosophies and in a
manner which will generate earnings to support its high capital position. As a
result, it is expected that the Holding Company's return on equity initially
will be below industry norms. Consequently, investors expecting a return on
equity which will meet or exceed industry norms for the foreseeable future
should carefully evaluate and consider the risk that such returns will not be
achieved.
Following the Conversion, the Holding Company may consider plans to reduce
capital if the opportunities to deploy it are not found. Such plans may include
payment of cash dividends and repurchasing shares. Any such steps would be
taken based on conditions as they exist following the Conversion and in
compliance with applicable regulations which limit the Holding Company's ability
to pay dividends and repurchase its stock. See "USE OF PROCEEDS," "DIVIDEND
POLICY" and "SUPERVISION AND REGULATION -- Regulation of the Holding Company --
General" and "-- Dividend Limitations" and "SUPERVISION AND REGULATION --
Regulation of Home Savings -- Restrictions on Dividends and Other Capital
Distributions."
IMPORTANCE OF KEY EMPLOYERS
The High Point and Thomasville, North Carolina area is considered to be the
furniture capital of the world. As a result, the furniture industry is a key
employer in Home Savings' primary market area. Thomasville Furniture
Industries, Inc., a Thomasville, North Carolina furniture manufacturer, is by
far the largest employer in Thomasville, North Carolina. As a result, any
adverse changes in the furniture industry in general or in the business of
Thomasville Furniture Industries, Inc., could have an adverse impact upon Home
Savings' primary market area. Any such changes
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could adversely affect real estate values in Home Savings' primary market area,
increase unemployment and increase rates of delinquencies in Home Savings' loan
portfolio.
RECAPITALIZATION OF SAIF, ITS IMPACT ON SAIF PREMIUMS AND POSSIBLE ONE-TIME
RECAPITALIZATION FEE
As a SAIF-insured institution, Home Savings is subject to insurance
assessments imposed by the FDIC. Effective January 1, 1993, the FDIC replaced
its uniform assessment rate with a transitional risk-based assessment schedule
issued by the FDIC, which imposes assessments ranging from 23 cents to 31 cents
per $100 of domestic deposits. The actual assessment to be paid by each SAIF
member is based on the institution's assessment risk classification, which is
based on whether the institution is considered "well capitalized," "adequately
capitalized" or "undercapitalized" (as such terms have been defined in federal
regulations), and whether such institution is considered by its supervisory
agency to be financially sound or to have supervisory concerns. The FDIC also
may impose special assessments on SAIF members to repay amounts borrowed from
the U.S. Treasury or for any other reason deemed necessary by the FDIC. The
assessment rate on deposits could further increase over a 15-year period.
Financial institutions such as Home Savings which are members of the SAIF,
are required to pay higher deposit insurance premiums than financial
institutions which are members of the BIF, primarily commercial banks, because
the BIF has higher reserves than the SAIF and has been responsible for fewer
troubled institutions. The FDIC Board of Directors has recently approved a new
risk-based premium schedule that will reduce assessment rates for commercial
banks and will leave assessment rates for financial institutions such as Home
Savings at current levels. This will increase the disparity between SAIF and
BIF assessments. Annual assessments for BIF members in the lowest risk category
are now only $2,000. Home Savings paid deposit insurance premiums of $145,000
and $144,000 in fiscal 1995 and 1994, respectively. In announcing this rule,
the FDIC noted that the premium differential may have adverse consequences for
SAIF members, including reduced earnings and an impaired ability to raise funds
in the capital markets. In addition, SAIF members, such as Home Savings, could
be placed at a substantial competitive disadvantage to BIF members with respect
to pricing of loans and deposits and the ability to achieve lower operating
costs. Several alternatives to mitigate the effect of the BIF/SAIF premium
disparity have been suggested by the federal banking regulators, by members of
Congress and by industry groups.
Legislation supported by the thrift industry has been introduced in the
United States Congress providing for a one-time fee for SAIF members only equal
to approximately 85 cents per $100 of domestic deposits. If enacted by
Congress, the premium would have the effect of immediately reducing the capital
of SAIF-member institutions by the amount of the fee. It is anticipated that
SAIF-member institutions would not be allowed to amortize the expense of the
one-time fee over a period of years. Based upon Home Savings' deposits as of
March 31, 1996, the proposed one-time fee would equal approximately $543,000 on
a before tax basis. A significant increase in SAIF insurance premiums or a
significant one-time fee to recapitalize the SAIF would likely have an adverse
effect on the operating expenses and results of operations of Home Savings.
Management cannot predict whether the legislation will be enacted, or, if
enacted, the amount of any one-time fee or whether ongoing SAIF premiums will be
reduced to a level equal to that of BIF premiums. See "SUPERVISION AND
REGULATION -- Regulation of Home Savings -- Insurance of Deposit Accounts."
PROPOSED RECAPTURE OF BAD DEBT RESERVES
Proposed federal legislation would eliminate future bad debt deductions and
would require thrifts to recapture into income over a six-year period their
post-1987 additions to their bad debt tax reserves, thereby generating
additional tax liability. Under this proposal, a special provision suspends
recapture of post-1987 excess reserves for up to two years if, during those
years, the institution satisfies a "residential loan requirement." At March 31,
1996, Home Savings' post-1987 excess reserves amounted to approximately
$301,000. It is uncertain when or if the proposed legislation will be passed,
and, if passed, in what form the legislation would be passed. See "TAXATION --
Federal Income Taxation."
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LIMITED MARKET FOR THE COMMON STOCK
It is anticipated that immediately following completion of the Conversion
the Holding Company will have no more than 357,075 shares of Common Stock issued
and outstanding if the pro forma appraised valuation of the Holding Company and
Home Savings is increased by 15% above the maximum of the Valuation Range. Upon
the consummation of the Conversion, the Holding Company will review the
eligibility of the Common Stock for quotation on the Nasdaq SmallCap Market. In
the event that the Common Stock is eligible for quotation on the Nasdaq SmallCap
Market, the Holding Company will apply to have the Common Stock quoted on the
Nasdaq SmallCap Market. There can be no assurance, however, that any such
application will be approved or that the Common Stock will be quoted on the
Nasdaq SmallCap Market. If the Common Stock is quoted on the Nasdaq SmallCap
Market, Trident Securities intends to act as a market maker and will attempt to
enlist at least one other market maker to make a market in the Common Stock. In
the event the Common Stock does not qualify for quotation on the Nasdaq SmallCap
Market, the Holding Company intends to list the Common Stock over-the-counter
through the National Daily Quotation System "Pink Sheets" published by the
National Quotation Bureau, Inc., and the Holding Company will request that
Trident Securities undertake to match offers to buy and offers to sell the
Common Stock. There can be no assurance that timely or accurate quotations will
be available in the "Pink Sheets." In addition, the existence of a public
trading market will depend upon the presence in the market place of both willing
buyers and willing sellers at any given time. The presence of a sufficient
number of buyers and sellers at any given time is a factor over which neither
the Holding Company nor any broker or dealer has control. Due to the small
number of shares of Common Stock being offered in the Conversion and the
concentration of ownership, it is unlikely that an active or liquid trading
market for the Common Stock will develop and be maintained. Purchasers of
Common Stock should recognize that the absence of an active and liquid trading
market may make it difficult to sell the Common Stock and may have an adverse
effect on the price. Purchasers should consider the potentially illiquid and
long-term nature of their investment in the shares offered hereby. See "MARKET
FOR COMMON STOCK."
COST OF ESOP
It is expected that the ESOP will purchase 8% of the shares of Common Stock
issued in the Conversion with funds borrowed from the Holding Company. See
"MANAGEMENT OF HOME SAVINGS -- Employee Stock Ownership Plan." Assuming the
issuance of 310,500 shares in the Conversion, it is expected that 24,840 shares
will be purchased by the ESOP, which--if such shares are acquired at $50.00 per
share--would have a value of $1,242,000. If, because there is an
oversubscription for shares of Common Stock or for any other reason, the ESOP is
unable to purchase in the Conversion 8% of the total number of shares offered in
the Conversion, then the Board of Directors of the Holding Company intends to
approve the purchase by the ESOP in the open market after the Conversion, of
such shares as are necessary for the ESOP to own a number of shares equal to 8%
of the shares of Common Stock issued in the Conversion. In such event, the
actual cost of the ESOP may be more or less than the amounts set forth above
because the ESOP will be purchasing its shares in the open market and the price
paid for its shares will depend upon the price at which shares can be acquired
in the open market.
It is anticipated that the ESOP will borrow from the Holding Company the
amounts necessary to purchase its shares. Home Savings anticipates contributing
approximately $180,000 annually to the ESOP (assuming the issuance of 310,500
shares in the Conversion and assuming that the ESOP acquires its shares at
$50.00 per share) to enable the ESOP to meet its principal and interest
obligations under the loan. It is expected that the ESOP loan will be fully
repaid within 10 years. The purchase of Common Stock by the ESOP will reduce
the pro forma stockholders' equity of Home Savings. See "PRO FORMA DATA."
In November 1993, the American Institute of Certified Public Accountants
approved Statement of Position ("SOP") 93-6, "Employers' Accounting for Employee
Stock Ownership Plans." SOP 93-6, among other things, changes the measure of
compensation recorded by employers from the cost of ESOP shares to the fair
value of ESOP shares. Since the fair value of the shares following the Offerings
cannot be predicted, Home Savings cannot reasonably estimate the impact of SOP
93-6 on its financial statements. While an increase in such fair value will
cause an increase in ESOP-related expenses for accounting purposes, an increase
in the fair value of the shares should not increase the actual out-of-pocket
cost to Home Savings of the ESOP. Also, earnings per share will be increased as
a result of the implementation
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of SOP 93-6 because only shares which have been committed to be released by the
ESOP are included as outstanding shares in the computation.
COST AND POSSIBLE DILUTIVE EFFECT OF THE MRP AND STOCK OPTION PLAN
It is expected that the stockholders of the Holding Company will be asked
to approve the Stock Option Plan and the MRP at a meeting of stockholders after
the Conversion. Under the MRP, directors and certain employees of Home Savings
would be awarded an aggregate amount of Common Stock equal to 4% of the shares
issued in the Conversion. Under the Stock Option Plan, directors and certain
employees of Home Savings would be granted options to purchase an aggregate
amount of Common Stock equal to 10% of the shares issued in the Conversion at
exercise prices equal to the market price of the Common Stock on the date of
grants. Shares issued to directors and certain employees under the MRP and the
Stock Option Plan may be from authorized but unissued shares of Common Stock or
they may be purchased in the open market. In the event the shares issued under
the MRP and the Stock Option Plan consist of newly issued shares of Common
Stock, the interests of existing stockholders would be diluted. If 310,500
shares of the Common Stock are issued in the Conversion, it is expected that
options to acquire 31,050 shares of the Common Stock could be granted under the
Stock Option Plan, and awards of an additional 12,420 shares could be made under
the MRP. At the maximum of the Valuation Range, if all shares under the MRP and
the Stock Option Plan were newly issued, the exercise price was $50.00 for the
shares issued pursuant to the options, and all of the options were exercised,
the number of outstanding shares of Common Stock would increase from 310,500 to
353,970, the pro forma book value per share of the outstanding Common Stock at
March 31, 1996 would have been $73.92 compared with $79.27 if such plans did not
exist, and the pro forma net income per share of the outstanding Common Stock
for the fiscal year ended June 30, 1995 would have been $3.82 compared with
$4.49 if such plans did not exist. The cost of the shares acquired by the MRP
will be expensed equally over the five year vesting period set forth in the MRP.
If 310,500 shares of Common Stock are issued in the Conversion and the MRP
acquired 12,420 shares at a cost of $50.00 per share, the total annual expense
of the MRP would be $124,200 per year. See "PRO FORMA DATA" and "MANAGEMENT OF
HOME SAVINGS -- Proposed Management Recognition Plan" and "-- Proposed Stock
Option Plan."
FINANCIAL INSTITUTION REGULATION AND POSSIBLE LEGISLATION
Home Savings is subject to extensive regulation and supervision as a North
Carolina-chartered savings bank. In addition, the Holding Company, as a bank
holding company, is subject to extensive regulation and supervision. Any change
in the regulatory structure or the applicable statutes or regulations, whether
by the Administrator, the Federal Reserve, the FDIC, the North Carolina
Legislature or the Congress, could have a material impact on the Holding
Company, Home Savings, or Home Savings' Conversion.
Congress currently has under consideration various proposals to consolidate
the regulatory functions of the four federal banking agencies: the Office of
Thrift Supervision, the FDIC, the Office of the Comptroller of the Currency and
the Federal Reserve. The outcome of efforts to effect regulatory consolidation
is uncertain. Therefore, Home Savings is unable to determine the extent to
which legislation, if enacted, would affect its business.
COMPETITION
Home Savings' market area is a highly competitive market, and Home Savings
faces significant competition both in attracting deposits and in originating
loans. Home Savings faces direct competition from a number of financial
institutions, many with a state-wide or regional presence, and, in some cases, a
national presence. Competition arises from other savings institutions,
commercial banks, credit unions and other providers of financial services, many
of which are significantly larger than Home Savings and, therefore, have greater
financial and marketing resources than Home Savings. Management estimates that,
based upon 1995 comparative data, Home Savings had 15.7% of the deposits in
Thomasville, North Carolina and 5.5% of the deposits in Davidson County, North
Carolina. See "BUSINESS OF HOME SAVINGS -- Competition."
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ANTI-TAKEOVER CONSIDERATIONS
PROVISIONS IN THE ARTICLES OF INCORPORATION AND BYLAWS. The Holding
Company's Articles of Incorporation and Bylaws contain certain provisions that
may discourage attempts to acquire control of the Holding Company that are not
negotiated with the Holding Company's Board of Directors. These provisions may
result in the Holding Company being less attractive to a potential acquiror and
may result in stockholders receiving less for their shares than otherwise might
be available in the event of a takeover attempt. In addition, these provisions
may have the effect of discouraging takeover attempts that some stockholders
might deem to be in their best interests, including takeover proposals in which
stockholders might receive a premium for their shares over the then-current
market price, as well as making it more difficult for individual stockholders or
a group of stockholders to elect directors or to remove incumbent management.
The Holding Company's Board of Directors believes, however, that these
provisions are in the best interests of the Holding Company and its stockholders
because such provisions encourage potential acquirors to negotiate directly with
the Board of Directors, which the Board of Directors believes is in the best
position to act on behalf of all stockholders.
These provisions include, among others, that (1) the Board of Directors has
the authority to change the number of directors within a range from five to 15;
(2) stockholders who intend to nominate a candidate for election to the Board of
Directors must give advance notice to the Secretary of the Holding Company; (3)
terms for directors will be staggered at any time that the number of directors
exceeds nine; (4) certain merger, consolidation, or other business combinations
(as defined in the Articles of Incorporation) must receive the affirmative vote
of at least 75% of the Continuing Directors (as defined in the Articles of
Incorporation); (5) special meetings of stockholders may be called only by the
Chairman of the Board, the Chief Executive Officer, the President or by the
Board of Directors and (6) directors may be removed from office prior to the end
of their term only for cause.
In addition, the Articles of Incorporation do not provide for cumulative
voting for any purpose. As a result, a majority of shareholders will be able to
approve matters presented to the shareholders for consideration, except such
matters as require more than a majority vote for approval. The Holding
Company's Articles of Incorporation state that the Board of Directors, without
the approval of the stockholders, may authorize the issuance of shares of
preferred stock with such voting rights, designations, preferences, limitations
and relative rights as the Board of Directors shall determine. As a result, the
Board of Directors has the power, to the extent consistent with its fiduciary
duties, to issue preferred stock to persons friendly to management or otherwise
in order to impede attempts by third parties to acquire voting control of the
Holding Company and to impede other transactions not favored by management. The
amended Certificate of Incorporation and Bylaws of Home Savings upon its
conversion to stock form also contain certain provisions that might discourage
potential takeover attempts of Home Savings. See "ANTI-TAKEOVER PROVISIONS
AFFECTING THE HOLDING COMPANY AND HOME SAVINGS."
REGULATORY PROVISIONS. Regulations of the Administrator contain provisions
that, for a period of three years after the Conversion is consummated, prohibit
any person from directly or indirectly acquiring or offering to acquire
beneficial ownership of more than 10% of any class of equity security of the
Holding Company or Home Savings, with certain exceptions, without the prior
approval of the Administrator. If any person should acquire beneficial
ownership of more than 10% of any class of equity security without prior
approval, any shares beneficially owned in excess of 10% would not be counted as
shares entitled to vote and would not be voted in connection with any matter
submitted to the stockholders for a vote. Regulations provide that the
Administrator will give his approval of such an acquisition during the first
year after the Conversion only to protect the safety and soundness of the
Holding Company and Home Savings. Approval will be given during the second and
third years after the Conversion upon a finding by the Administrator that (i)
the acquisition is necessary to protect the safety and soundness of the Holding
Company and Home Savings or the Board of Directors of the Holding Company
supports the acquisition and (ii) the acquiror is of good character and
integrity and possesses satisfactory managerial skills, after the acquisition
the acquiror will be a source of financial strength to the Holding Company and
Home Savings, and the interests of the public will not be adversely affected by
the acquisition. Approval is not required for (i) any offer with a view toward
public resale made exclusively to the Holding Company or its underwriters or the
selling group acting on its behalf or (ii) any offer to acquire or acquisition
of beneficial ownership of more than 10% of the common stock of the Holding
Company by a corporation whose
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ownership is or will be substantially the same as the ownership of the Holding
Company, provided that the offer or acquisition is made more than one year
following the consummation of the Conversion. See "ANTI-TAKEOVER PROVISIONS
AFFECTING THE HOLDING COMPANY AND HOME SAVINGS."
The Change in Bank Control Act, together with North Carolina regulations,
require that the consent of the Administrator and Federal Reserve be obtained
prior to any person or company acquiring "control" of a savings bank or a
savings bank holding company. Control is conclusively presumed to exist if,
among other things, an individual or company acquires the power, directly or
indirectly, to direct the management or policies of the Holding Company or Home
Savings or to vote 25% or more of any class of voting stock. Control is
rebuttably presumed to exist under the Change in Bank Control Act if, among
other things, a person acquires more than 10% of any class of voting stock and
(i) the issuer's securities are registered under Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as the Holding Company's
securities will be, or (ii) the person would be the single largest stockholder.
Restrictions applicable to the operations of bank holding companies and
conditions imposed by the Federal Reserve in connection with its approval of
such acquisitions may deter potential acquirors from seeking to obtain control
of the Holding Company. See "SUPERVISION AND REGULATION -- Regulation of the
Holding Company."
VOTING CONTROL OF OFFICERS, DIRECTORS AND EMPLOYEES. Directors and
executive officers of Home Savings and the Holding Company and their associates
expect to purchase approximately 9.72% to 7.18% of the shares of Common Stock
issued in the Conversion based upon the minimum and the maximum of the Valuation
Range, respectively. See "ANTICIPATED STOCK PURCHASES BY MANAGEMENT."
In addition, it is expected that the ESOP will acquire a number of shares
equal to 8% of the shares issued in the Conversion. Employees will vote the
shares allocated to them under the ESOP. The ESOP trustees (directors of Home
Savings) will vote unallocated shares, and allocated shares for which no voting
instructions have been received, in their discretion, subject to the provisions
of the Employee Retirement Income Security Act of 1974, as amended.
Under the proposed MRP, if approved by the stockholders of the Holding
Company, a number of shares equal to 4% of the shares issued in the Conversion
could be issued to directors and certain employees of Home Savings. Such shares
could be purchased in the open market or could be issued out of authorized but
unissued shares. Recipients of shares under the MRP will have voting control
over such shares regardless of whether such shares have vested. See "MANAGEMENT
OF HOME SAVINGS -- Proposed Management Recognition Plan." Under the proposed
Stock Option Plan, if approved by the stockholders of the Holding Company,
directors and certain employees of Home Savings could receive options to
purchase a number of shares equal to 10% of the shares issued in the Conversion.
Shares to fund such options could be acquired in the open market or could be
acquired through the issuance of authorized but unissued shares. If shares are
acquired in the open market and held by the Stock Option Plan prior to the
exercise of options under the Plan, holders of unexercised options will have
voting control over the shares held to fund their options. See "MANAGEMENT OF
HOME SAVINGS -- Proposed Stock Option Plan." As a result, through the ESOP, MRP
and Stock Option Plan, directors, officers and employees of Home Savings could
have voting control over a number of shares equal to up to 22% of the shares
issued in the Conversion, in addition to the shares expected to be purchased
directly by directors, executive officers and their associates as described
above. Because the Holding Company's Articles of Incorporation requires the
affirmative vote of 75% of the outstanding shares entitled to vote in order to
approve certain mergers, consolidations or other business combinations, the
directors, officers and employees, as a group, could effectively block such
transactions. See "ANTI-TAKEOVER PROVISIONS AFFECTING THE HOLDING COMPANY AND
HOME SAVINGS -- The Holding Company -- Supermajority Voting Provisions."
AGREEMENTS WITH EMPLOYEES. In connection with the Conversion, Home Savings
will enter into an employment agreement with James G. Hudson, Jr., President,
Chief Executive Officer and Treasurer and will enter into Special Termination
Agreements with John E. Todd, Vice President, and Drema A. Michael, Secretary
and Treasurer. See "MANAGEMENT OF HOME SAVINGS -- Employment Agreement" and
"Special Termination Agreements." In addition, Home Savings intends to adopt a
Severance Plan which would benefit its employees in the event there is a change
in control of the Holding Company or Home Savings. See "MANAGEMENT OF HOME
SAVINGS -- Severance Plan." The existence of the employment agreement, special
termination agreements and severance plans may tend to discourage mergers,
consolidations, acquisitions or other transactions that would result in a change
in control of the Holding Company or Home Savings. See "ANTI-TAKEOVER
PROVISIONS AFFECTING THE HOLDING
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COMPANY AND HOME SAVINGS -- The Holding Company -- Anti-Takeover Effect of
Employment Agreement, Special Termination Agreements and Benefit Plans."
INCOME TAX CONSEQUENCES OF SUBSCRIPTION RIGHTS
If the Subscription Rights granted in connection with the Conversion are
deemed to have an ascertainable value, receipt of such rights will be taxable to
recipients who exercise such Subscription Rights, either as ordinary income or
capital gain, in an amount not in excess of such value. Whether such
Subscription Rights are considered to have any ascertainable value is an
inherently factual determination. Home Savings has received an opinion from JMP
Financial stating that the Subscription Rights do not have any value. The
opinion of JMP Financial is not binding on the Internal Revenue Service ("IRS").
See "THE CONVERSION -- Income Tax Consequences."
POSSIBLE DELAYS IN CONSUMMATION OF THE CONVERSION
Consummation of the Conversion is contingent upon receipt of approvals from
the Administrator and Federal Reserve. In addition, the Conversion cannot be
consummated until the FDIC issues a notice of non-objection with respect to the
transaction and until the Conversion has been approved by the members of Home
Savings. Final regulatory approval is subject to receipt and review of an
updated appraisal from JMP Financial which considers the results of the
Offerings and any material developments occurring subsequent to the most recent
appraisal submitted in connection with the Conversion.
Accordingly, consummation of the Conversion and issuance of certificates
for shares of Common Stock could be delayed if receipt of the final regulatory
approval is delayed or not obtained. Until the Conversion is consummated, no
shares of Common Stock may be traded. If all necessary approvals are not
obtained, all subscription funds held will be returned with interest and all
withdrawal authorizations will be terminated.
NO OPINION OR RECOMMENDATION BY SALES AGENT
Home Savings has engaged Trident Securities to consult with and advise Home
Savings with respect to the Conversion and to assist, on a best-efforts basis,
in connection with the solicitation of subscriptions and purchase orders for
shares of Common Stock in the Offerings. Trident Securities has not prepared or
delivered any opinion or recommendation with respect to the suitability of the
Common Stock or the appropriateness of the amount of Common Stock to be issued
in the Conversion. The engagement of Trident Securities by Home Savings and the
work performed pursuant to such engagement should not be construed by purchasers
of the Common Stock as constituting an opinion or recommendation relating to
such investment and should not be construed as a verification of the accuracy or
completeness of the information contained in this Prospectus.
CENTURY BANCORP, INC.
The Holding Company was incorporated under North Carolina law in July 1996
at the direction of Home Savings for the purpose of acquiring and holding all of
the outstanding capital stock of Home Savings to be issued in connection with
the Conversion. The Holding Company has received conditional approval from the
Federal Reserve and the Administrator to become a bank holding company and as
such will be subject to regulation by the Federal Reserve and the Administrator.
The holding company structure will give the Holding Company greater flexibility
than Home Savings currently has to expand and diversify its business activities,
although there are no current plans regarding expansion or diversification. See
"SUPERVISION AND REGULATION -- Regulation of the Holding Company."
Prior to completion of the Conversion, the Holding Company will not own any
material assets or transact any material business. Upon completion of the
Conversion, on an unconsolidated basis, the Holding Company will have no
significant assets other than the stock of Home Savings acquired in the
Conversion, the loan receivable with respect to the loan made to the ESOP to
enable the ESOP to purchase shares of Common Stock in the Conversion, and the
portion of the net proceeds from the sale of Common Stock in the Conversion
which are retained by it. The Holding Company will have no significant
liabilities upon completion of the Conversion. The management of the Holding
Company is set
25
<PAGE>
forth under "MANAGEMENT OF THE HOLDING COMPANY." The executive office of the
Holding Company is located at the headquarters office of Home Savings at 22
Winston Street, Thomasville, North Carolina.
The existing management of the Holding Company believes that it will be in
the best interests of the Holding Company, Home Savings and the Holding
Company's stockholders for the Holding Company to remain an independent company.
HOME SAVINGS, SSB
Home Savings is a North Carolina-chartered mutual savings bank. Home
Savings was organized in 1915. Home Savings has been a member of the FHLB system
and its deposits have been federally insured since the late 1950's. The deposits
of Home Savings are insured by the SAIF of the FDIC to the maximum amount
permitted by law.
Home Savings is a member of the FHLB of Atlanta, which is one of the 12
regional banks for federally insured savings institutions and other eligible
members comprising the FHLB system. As a North Carolina-chartered savings bank,
Home Savings is regulated by the Administrator. Home Savings is further subject
to certain regulations of the FDIC with respect to certain other matters and, as
a subsidiary of the Holding Company, will be indirectly subject to regulation by
the Federal Reserve. See "SUPERVISION AND REGULATION -- Regulation of the
Holding Company" and "-- Regulation of Home Savings."
Home Savings conducts business through its full service office in
Thomasville, North Carolina. Home Savings' primary market area encompasses the
communities within a 10-mile radius of its office, which includes portions of
Davidson, Randolph and Guilford counties in North Carolina. At March 31, 1996,
Home Savings had total assets of $80.4 million, net loans of $53.7 million,
deposits of $68.9 million and retained earnings of $11.1 million.
Home Savings is a community-oriented financial institution which offers a
variety of financial services to meet the needs of the communities it serves.
Home Savings is principally engaged in the business of attracting deposits from
the general public and using such deposits to make one-to-four family
residential real estate loans, multi-family residential and commercial loans,
construction loans, home equity line of credit loans and other loans and
investments.
Revenues of Home Savings are derived primarily from interest on loans.
Home Savings also receives interest income from its investments, mortgage-backed
securities and interest-earning deposit balances. Home Savings also receives
non-interest income from transaction and service fees and other sources. The
major expenses of Home Savings are interest on deposits and general and
administrative expenses such as compensation and employee benefits, federal
deposit insurance premiums, data processing expenses and occupancy and related
expenses.
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock cannot
be determined until the Conversion is completed, it is presently estimated that
such net proceeds will be between $10,783,000 and $14,718,000, based on the
current Valuation Range. If the gross proceeds of the shares sold are increased
to 15% above the maximum of the Valuation Range, it is estimated that net
proceeds will equal $16,980,750. See "PRO FORMA DATA" for the assumptions used
to arrive at these amounts. The actual net proceeds may vary materially from
the estimated amounts described herein. The estimated amount of net proceeds
includes proceeds from the sale of the shares which are expected to be purchased
by the ESOP in the Subscription Offering at $50.00 per share with funds borrowed
from the Holding Company. The amount loaned to the ESOP to enable such
purchases is estimated to range from $918,000 (if 229,500 shares are issued) to
$1,242,000 (if 310,500 shares are issued). If for any reason the ESOP is unable
to purchase its shares in the Subscription Offering, the ESOP is expected to
purchase its shares in the open market--in which event the cost of the purchases
may be higher or lower because the purchase price per share may be higher or
lower than $50.00. See "MANAGEMENT OF HOME SAVINGS -- Employee Stock Ownership
Plan."
After first deducting the amount of the net proceeds used by the Holding
Company to make the loan to the ESOP (estimated to range from $918,000 to
$1,242,000), it is expected that the Holding Company will retain
26
<PAGE>
approximately 50% of the remaining net proceeds of the Offerings and will pay
the balance of the net proceeds to Home Savings in exchange for all of the
common stock of Home Savings to be issued in connection with the Conversion. The
Holding Company expects to use the portion of the net proceeds it retains for
working capital and investment purposes. The Holding Company does not expect to
have significant operating expenses and anticipates that it will initially
invest the net proceeds it retains primarily in interest-earning deposits, U.S.
government, federal agency and other marketable securities and mortgage-backed
securities. The types and amounts of such investments will vary from time to
time based upon the interest rate environment, asset/liability mix
considerations and other factors. The net proceeds retained by the Holding
Company could be used to support the future expansion of operations of the
Holding Company through acquisitions of other financial institutions or their
branches in or near Home Savings' primary market area. The Holding Company has
no current plans or pending agreements or understandings regarding any such
acquisitions, and there are no pending negotiations regarding any such
acquisitions at this time.
Net proceeds paid to Home Savings initially will become part of Home
Savings' general funds and will be invested primarily in mortgage, consumer and
other loans, mortgage-backed securities and investments consisting primarily of
interest-earning deposit balances, U.S. government and federal agency
obligations and other marketable securities in accordance with Home Savings'
lending and investment policies. The relative amounts to be invested in each of
these types of investments will depend upon loan demand, rates of return and
asset/liability matching considerations at the time the investments are to be
made. Management is not able to predict the yields which will be produced by
the investment of the proceeds of the Offerings because such yields will be
significantly influenced by general economic conditions and the interest rate
environment existing at the time the investments are made. Remaining net
proceeds paid to Home Savings will be used for general corporate purposes.
The proceeds of the Offerings will result in an increase in Home Savings'
net worth and regulatory capital and may enhance the potential for growth
through increased lending and investment activities, branch acquisitions,
business combinations or otherwise. Payments for shares of Common Stock of the
Holding Company made through the withdrawal of existing deposit accounts at Home
Savings will not result in the receipt of new funds for investment by Home
Savings.
Upon completion of the Conversion, the Board of Directors will have the
authority to adopt stock repurchase plans, subject to statutory and regulatory
requirements. Based upon facts and circumstances which may arise following the
Conversion, the Board of Directors may determine to repurchase stock in the
future. Such facts and circumstances may include but are not limited to (i)
market and economic factors such as the price at which the Common Stock is
trading, the volume of trading, the attractiveness of other investment
alternatives in terms of the rates of return and risks involved in the
investments, (ii) the ability to increase the book value and earnings per share
of the remaining outstanding shares, and improve the Holding Company's return on
equity; (iii) the reduction of dilution to stockholders caused by having to
issue additional shares to cover the exercise of stock options or to fund
employee stock benefit plans; and (iv) any other circumstances in which
repurchases would be in the best interests of the Holding Company and its
stockholders.
Any stock repurchases will be subject to the determination of the Board of
Directors that both the Holding Company and Home Savings will be capitalized in
excess of applicable regulatory requirements after any such repurchases and that
capital will be adequate taking into account, among other things, the level of
nonperforming assets and other risks, the Holding Company's and Home Savings'
current and projected results of operations and asset/liability structure, the
economic environment and tax and other regulatory considerations. No stock
repurchases may be made within one year after the Conversion without the
approval of the Administrator. Federal regulations require that the Holding
Company must notify the Federal Reserve prior to repurchasing Common Stock for
in excess of 10% of its net worth during any 12 month period. The Holding
Company does not intend to repurchase any Common Stock during the first year
following the Conversion.
If the MRP is approved by the stockholders of the Holding Company, the MRP
will acquire a number of shares of Common Stock equal to 4% of the number of
shares issued in the Conversion. See "MANAGEMENT OF HOME SAVINGS -- Proposed
Management Recognition Plan." Such shares may be acquired in the open market or
acquired through the Holding Company's issuance of authorized but unissued
shares. In the event shares are acquired in the open market, the funds for such
purchase may be provided by Home Savings from the proceeds of the Conversion.
It is estimated that between 9,180 and 12,420 shares will be acquired by the
MRP, assuming the issuance of between 229,500
27
<PAGE>
and 310,500 shares, respectively, in the Conversion. If all such shares were
acquired by the MRP in the open market, and if such shares were acquired at a
price of $50.00 per share, Home Savings would contribute between $459,000 and
$621,000, respectively, to the MRP for this purpose.
If the Stock Option Plan is approved by the stockholders of the Holding
Company, the Stock Option Plan could acquire a number of shares of Common Stock
in the open market equal to 10% of the number of shares issued in the
Conversion. These shares would be held by the Stock Option Plan for issuance
upon the exercise of stock options. To the extent the Stock Option Plan does not
acquire sufficient shares to satisfy options granted under the Stock Option
Plan, the Holding Company will reserve authorized but unissued shares for this
purpose. See "MANAGEMENT OF HOME SAVINGS -- Proposed Stock Option Plan." In the
event shares are acquired in the open market, the funds for such purchase may be
provided by the Holding Company or Home Savings from the proceeds of the
Conversion. It is estimated that between 22,950 and 31,050 shares will be
acquired by the Stock Option Plan, assuming the issuance of between 229,500 and
310,500 shares, respectively, in the Conversion. If all such shares were
acquired by the Stock Option Plan in the open market, and if such shares were
acquired at a price of $50.00 per share, the Holding Company or Home Savings
would contribute between $1,147,500 and $1,552,500, respectively, to the Stock
Option Plan for this purpose.
DIVIDEND POLICY
Upon Conversion, the Board of Directors of the Holding Company will have
the authority to declare dividends on the Common Stock, subject to statutory and
regulatory requirements. The Holding Company now expects to pay quarterly cash
dividends on the Common Stock at a rate to be determined. In addition, the
Board of Directors may determine from time to time that it is prudent to pay
special nonrecurring cash dividends. Special cash dividends, if paid, may be in
addition to, or in lieu of, regular cash dividends. The Holding Company's Board
of Directors will periodically review its policy concerning dividends.
Declarations of dividends, if any, by the Board of Directors will depend upon a
number of factors, including investment opportunities available to the Holding
Company and Home Savings, capital requirements, regulatory limitations, the
Holding Company's and Home Savings' results of operations and financial
condition, tax considerations and general economic conditions. Upon review of
such considerations, the Board of Directors of the Holding Company may authorize
dividends to be paid in the future if it deems such payment appropriate and in
compliance with applicable law and regulation. No assurances can be given that
any dividends will in fact be paid on the Common Stock or, if dividends are
paid, that they will not be reduced or discontinued in the future.
Within the first year after completion of the Conversion, the Holding
Company cannot pay any dividend or make any distribution that represents, or is
characterized as, or is treated for tax purposes as a return of capital.
The sources of income to the Holding Company initially will consist of
earnings on the capital retained by the Holding Company and dividends paid by
Home Savings to the Holding Company, if any. Consequently, future declarations
of cash dividends by the Holding Company may depend upon dividend payments by
Home Savings to the Holding Company, which payments are subject to various
restrictions. Under current North Carolina regulations, Home Savings could not
declare or pay a cash dividend if the effect thereof would be to reduce its net
worth to an amount which is less than the minimum required by the FDIC and the
Administrator. In addition, for a period of five years after the consummation
of the Conversion, Home Savings will be required, under existing regulations, to
obtain the prior written approval of the Administrator before it can declare and
pay a cash dividend on its capital stock in an amount in excess of one-half of
the greater of (i) its net income for the most recent fiscal year, or (ii) the
average of its net income after dividends for the most recent fiscal year and
not more than two of the immediately preceding fiscal years, if applicable. See
"SUPERVISION AND REGULATION -- Regulation of Home Savings -- Restrictions on
Dividends and Other Capital Distributions." As a result of this limitation, if
Home Savings had been a stock institution at the end of fiscal 1995, it could
not have paid a dividend in excess of $527,000 without the approval of the
Administrator. As a converted institution, Home Savings also will be subject to
the regulatory restriction that it will not be permitted to declare or pay a
dividend on or repurchase any of its capital stock if the effect thereof would
be to cause its regulatory capital to be reduced below the amount required for
the liquidation account established in connection with the Conversion. See "THE
CONVERSION -- Effects of Conversion -- Liquidation Rights" and "-- Liquidation
Rights After the Conversion." Also, see "TAXATION -- Federal Income Taxation"
for a discussion of federal income tax provisions that may limit the ability of
Home Savings to pay dividends to the Holding Company without incurring a
recapture tax.
28
<PAGE>
MARKET FOR COMMON STOCK
Neither the Holding Company nor Home Savings has ever issued stock before,
and, due to the relatively small size of the offering, it is unlikely that an
active and liquid trading market will develop. Upon the consummation of the
Conversion, the Holding Company will review the eligibility of the Common Stock
for quotation on the Nasdaq SmallCap Market. In the event that the Common Stock
is eligible for quotation on the Nasdaq SmallCap Market, the Holding Company
will apply to have the Common Stock quoted on the Nasdaq SmallCap Market. There
can be no assurance, however, that any such application will be approved or that
the Common Stock will be quoted on the Nasdaq SmallCap Market. If the Common
Stock is quoted on the Nasdaq SmallCap Market, Trident Securities intends to act
as a market maker and to encourage at least one other market maker to make a
market in the Common Stock. In the event the Common Stock does not qualify for
quotation on the Nasdaq SmallCap Market, the Holding Company intends to list the
Common Stock over-the-counter through the National Daily Quotation System "Pink
Sheets" published by the National Quotation Bureau, Inc., and the Holding
Company intends to request Trident Securities undertake to match offers to buy
and offers to sell the Common Stock. There can be no assurance that timely or
accurate quotations will be available in the "Pink Sheets." In addition, the
existence of a public trading market will depend upon the presence in the market
of both willing buyers and willing sellers at any given time. Due to the small
number of shares of Common Stock being offered in the Conversion and the
concentration of ownership, it is unlikely that an active or liquid trading
market for the Common Stock will develop and be maintained. Further, the absence
of an active and liquid trading market may make it difficult to sell the Common
Stock and may have an adverse effect on the price of the Common Stock.
Purchasers should consider the potentially illiquid and long-term nature of
their investment in the shares offered hereby.
CAPITALIZATION
The following tables present the historical capitalization of Home Savings
at March 31, 1996 and June 30, 1995 and the pro forma capitalization of the
Holding Company at such dates after giving effect to the sale of the Common
Stock and application of the assumptions set forth under "PRO FORMA DATA,"
assuming that 229,500, 270,000, 310,500 and 357,075 shares of Common stock are
sold at $50.00 per share (the minimum, midpoint, maximum and 15% above the
maximum of the current Valuation Range). A change in the number of shares
issued in the Conversion may materially affect such pro forma capitalization.
See "USE OF PROCEEDS" and "THE CONVERSION -- Purchase Price of Common Stock and
Number of Shares Offered."
29
<PAGE>
<TABLE>
<CAPTION>
The Holding Company Pro Forma Capitalization at March 31, 1996
Based Upon Sale of
--------------------------------------------------------------------------
229,500 270,000 310,500 357,075
shares at a shares at a shares at a shares at a
Historical price of price of price of price of
Capitalization $50.00 per share $50.00 per share $50.00 per share $50.00 per share(1)
-------------- ---------------- ---------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
(In Thousands)
Deposits (2) $68,907 $ 68,907 $ 68,907 $ 68,907 $ 68,907
======= ======== ======== ======== ========
Stockholders' equity
Common stock, no par value:
Authorized shares: 20,000,000
Assumed outstanding shares as
shown in column headings (3) $ -- $ 10,783 $ 12,751 $ 14,718 $ 16,981
Preferred stock:
Authorized shares: 5,000,000
No shares outstanding -- -- -- -- --
Additional paid-in capital
Less: Common stock to be
acquired by the MRP (4) -- (459) (540) (621) (714)
Less: Common stock to be
acquired by the ESOP (4) -- (918) (1,080) (1,242) (1,428)
Retained earnings (5) 11,136 11,136 11,136 11,136 11,136
------- -------- -------- -------- --------
Total $11,136 $ 20,542 $ 22,267 $ 23,991 $ 25,975
======= ======== ======== ======== ========
Total deposits and stockholders' equity $80,043 $ 89,449 $ 91,174 $ 92,898 $ 94,882
======= ======== ======== ======== ========
</TABLE>
(1) Represents the number of shares of Common Stock that would be issued in the
Conversion after giving effect to a 15% increase in maximum valuation in
the Valuation Range.
(2) Withdrawals from deposit accounts for the purchase of Common Stock are not
reflected. Any such withdrawals would reduce pro forma deposits by the
amount of such withdrawals.
(3) Does not reflect the issuance of any shares of Common Stock reserved for
issuance pursuant to Home Savings' stock option plan. See "MANAGEMENT OF
HOME SAVINGS -- Proposed Stock Option Plan."
(4) Assumes that 8% of the shares of Common Stock offered hereby will be
purchased by the ESOP in the Conversion. The funds used to acquire the ESOP
shares will be borrowed from the Holding Company. Assumes that, after the
Conversion, a number of shares equal to 4% of the shares of Common Stock
offered hereby will be purchased by the MRP with funds contributed by Home
Savings. The Common Stock acquired by both the ESOP and the MRP is
reflected as a reduction of stockholders' equity. See "MANAGEMENT OF HOME
SAVINGS -- Employee Stock Ownership Plan -- Proposed Management Recognition
Plan."
(5) Retained earnings is net of unrealized holding gains or losses on
available-for-sale securities.
30
<PAGE>
<TABLE>
<CAPTION>
The Holding Company Pro Forma Capitalization at June 30, 1995
Based Upon Sale of
----------------------------------------------------------------------------
229,500 270,000 310,500 357,075
shares at a Shares at a Shares at a Shares at a
Historical price of price of price of price of
Capitalization $50.00 per share $50.00 per share $50.00 per share $50.00 per share(1)
-------------- ---------------- ---------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
(In Thousands)
Deposits (2) $64,448 $ 64,448 $ 64,448 $ 64,448 $ 64,448
======= ======== ======== ======== ========
Stockholders' equity
Common stock, no par value:
Authorized shares: 20,000,000
Assumed outstanding shares as
shown in column headings (3) $ -- $ 10,783 $ 12,751 $ 14,718 $ 16,981
Preferred stock:
Authorized shares: 5,000,000
No shares outstanding -- -- -- -- --
Additional paid-in capital
Less: Common stock to be acquired
by the MRP (4) -- (459) (540) (621) (714)
Less: Common stock to be acquired
by the ESOP (4) -- (918) (1,080) (1,242) (1,428)
Retained earnings (5) 10,640 10,640 10,640 10,640 10,640
------- -------- -------- -------- --------
Total $10,640 $ 20,046 $ 21,771 $ 23,495 $ 25,479
======= ======== ======== ======== ========
Total deposits and stockholders'
equity $75,088 $ 84,494 $ 86,219 $ 87,943 $ 89,927
======= ======== ======== ======== ========
</TABLE>
(1) Represents the number of shares of Common Stock that would be issued in
theeConversion after giving effect to a 15% increase in maximum valuation
in the Valuation Range.
(2) Withdrawals from deposit accounts for the purchase of Common Stock are not
reflected. Any such withdrawals would reduce pro forma deposits by the
amount of such withdrawals.
(3) Does not reflect the issuance of any shares of Common Stock reserved for
issuance pursuant to Home Savings' stock option plan. See "MANAGEMENT OF
HOME SAVINGS -- Proposed Stock Option Plan."
(4) Assumes that 8% of the shares of Common Stock offered hereby will be
purchased by the ESOP in the Conversion. The funds used to acquire the ESOP
shares will be borrowed from the Holding Company. Assumes that, after the
Conversion, a number of shares equal to 4% of the shares of Common Stock
offered hereby will be purchased by the MRP with funds contributed by Home
Savings. The Common Stock acquired by both the ESOP and the MRP is
reflected as a reduction of stockholders' equity. See "MANAGEMENT OF HOME
SAVINGS --Employee Stock Ownership Plan -- Proposed Management Recognition
Plan."
(5) Retained earnings is net of unrealized holding gains or losses on
available-for-sale securities.
31
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $10,783,000 and $14,718,000 (including net
proceeds from shares expected to be purchased by the ESOP with funds borrowed
from the Holding Company), based upon the following assumptions: (i) 18.46%,
16.89%, 15.73% and 14.72% of the Common Stock sold in the Conversion at the
minimum, midpoint, maximum and 15% above the maximum, respectively, of the
Valuation Range will be sold to the ESOP, directors and executive officers and
their associates as defined in the Plan of Conversion (and that Trident
Securities will not receive certain compensation with respect to such sales),
and none of the shares of Common Stock will be sold in any Syndicated Community
Offering pursuant to selected dealer agreements; (ii) fees will be payable to
Trident Securities with respect to the Subscription and Community Offerings as
described in "THE CONVERSION -- Marketing Arrangements;" and (iii) Conversion
expenses, excluding the fees and commissions to Trident Securities, will be
approximately $366,000. Actual net proceeds may vary depending upon the number
of shares sold to the ESOP and to directors, executive officers and their
associates, the number of shares, if any, sold in the Syndicated Community
Offering pursuant to selected dealer arrangements and the actual expenses of the
Conversion. Payments for shares made through withdrawals from existing Home
Savings deposit accounts will not result in the receipt of new funds for
investment by Home Savings. However, capital will increase and interest-bearing
liabilities will decrease by the amount of such withdrawals. See "THE
CONVERSION -- Purchase Price of Common Stock and Number of Shares Offered."
Under the Plan of Conversion, the Common Stock must be sold at an aggregate
price equal to not less than the minimum nor more than the maximum of the
Valuation Range based upon an independent appraisal. The Valuation Range as of
July 8, 1996 is from a minimum of $11,475,000 to a maximum of $15,525,000 with a
midpoint of $13,500,000. However, with the consent of the Administrator and the
FDIC, the aggregate price of the Common Stock sold may be increased to up to 15%
above the maximum of the Valuation Range, or to $17,853,750, without a
resolicitation and without any right to cancel, rescind or change subscription
orders, to reflect changes in market and financial conditions following
commencement of the Subscription Offering. See "THE CONVERSION -- Purchase
Price of Common Stock and Number of Shares Offered."
Pro forma consolidated net earnings and book value of the Holding Company
at or for the year ended June 30, 1995 and for the nine months ended March 31,
1996 have been based upon the following assumptions: (i) the sale of shares of
Common Stock in connection with the Conversion occurred at July 1, 1994 and
yielded net proceeds available for investment of $9,406,000, $11,131,000,
$12,855,000 and $14,838,000 (based upon the issuance of 229,500, 270,000,
310,500 and 357,075 shares, respectively, at $50.00 per share) on such date; and
(ii) such net proceeds were invested on a consolidated basis at the beginning of
the period at a yield of 5.44%, which represents the average one-year treasury
constant maturity rate for the last week of March 1996. The Holding Company did
not use the arithmetic average of Home Savings' weighted-average yield on
interest-earning assets and weighted-average interest rate paid on deposits
during the nine months ended March 31, 1996. Management believes that the one-
year Treasury rate is a more appropriate rate for purposes of preparing the pro
forma data because proceeds from the Conversion are expected to be initially
invested in instruments with similar yields and maturities. The effect of
withdrawals from deposit accounts for the purchase of Common Stock has not been
reflected. Such withdrawals have no effect on pro forma stockholders' equity,
and management does not believe that such withdrawals will have a material
impact on pro forma net earnings or pro forma net earnings per share. In
calculating pro forma net earnings, an effective tax rate of 39% has been
assumed, resulting in a yield after taxes of 3.32%. Historical and pro forma
per share amounts have been calculated by dividing Home Savings' historical
amounts and the Holding Company's pro forma amounts by the indicated number of
shares of Common Stock, assuming that such number of shares had been outstanding
during the entire period.
The following pro forma information is not intended to represent the market
value of the Common Stock, the value of net assets and liabilities or of future
results of operations. The assumption regarding investment yields should not be
considered indicative of actual yields for future periods. The following
information is not intended to be used as a basis for projection of results of
operations for future periods.
32
<PAGE>
<TABLE>
<CAPTION>
At or For the Nine Months Ended March 31, 1996
----------------------------------------------------------------------------
229,500 270,000 310,500 357,075
shares at $50.00 shares at $50.00 shares at $50.00 shares at $50.00
per share per share per share per share
(Minimum) (Midpoint) (Maximum) (15% above Max.)
---------------- ---------------- ---------------- ----------------
(Dollars in Thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds $ 11,475 $ 13,500 $ 15,525 $ 17,854
Less Offering expenses and commissions (692) (749) (807) (873)
-------- -------- -------- --------
Estimated net conversion proceeds (1) 10,783 12,751 14,718 16,981
Less shares to be acquired by ESOP (2) (918) (1,080) (1,242) (1,428)
Less shares to be acquired by MRP (3) (459) (540) (621) (714)
-------- -------- -------- --------
Adjusted estimated net conversion proceeds $ 9,406 $ 11,131 $ 12,855 $ 14,839
======== ======== ======== ========
Pro forma net income:
Historical net income $ 478 $ 478 $ 478 $ 478
Pro Forma adjustments:
Pro forma income on net proceeds (1) 234 277 320 369
Pro forma ESOP adjustments (2) (42) (49) (57) (65)
Pro forma MRP adjustments (3) (42) (49) (57) (65)
-------- -------- -------- --------
Pro forma net income $ 628 $ 657 $ 684 $ 717
======== ======== ======== ========
Pro forma net income per share (5):
Historical net income per share $ 2.25 $ 1.91 $ 1.66 $ 1.44
Pro forma adjustments:
Pro forma income on net proceeds 1.10 1.11 1.11 1.12
Pro forma ESOP adjustments (2) (0.20) (0.20) (0.20) (0.20)
Pro forma MRP adjustments (3) (0.20) (0.20) (0.20) (0.20)
-------- -------- -------- --------
Pro forma net income per share $ 2.95 $ 2.62 $ 2.37 $ 2.16
======== ======== ======== ========
Pro forma net income per share, without
implementation of SOP 93-6 $ 2.74 $ 2.43 $ 2.20 $ 2.01
======== ======== ======== ========
Ratio of price per share to pro forma income per share
(5)(6) 12.72 14.30 15.79 17.34
======== ======== ======== ========
Pro forma stockholders' equity (book value) (4):
Historical retained earnings $ 11,136 $ 11,136 $ 11,136 $ 11,136
Estimated net conversion proceeds 10,783 12,751 14,718 16,981
Less shares to be acquired by:
ESOP (2) (918) (1,080) (1,242) (1,428)
MRP (3) (459) (540) (621) (714)
-------- -------- -------- --------
Pro forma stockholders' equity (4) $ 20,542 $ 22,267 $ 23,991 $ 25,975
======== ======== ======== ========
Pro forma stockholders' equity per share (4):
Historical retained earnings $ 48.52 $ 41.25 $ 35.87 $ 31.19
Estimated net conversion proceeds 46.99 47.22 47.40 47.55
Less shares to be acquired by:
ESOP (2) (4.00) (4.00) (4.00) (4.00)
MRP (3) (2.00) (2.00) (2.00) (2.00)
-------- -------- -------- --------
Pro forma stockholders' equity per share (4) $ 89.51 $ 82.47 $ 77.27 $ 72.74
======== ======== ======== ========
Pro forma price to book value 55.86% 60.63% 64.71% 68.74%
======== ======== ======== ========
Number of shares used to calculate income per share (5) 212,976 250,560 288,144 331,366
======== ======== ======== ========
Number of shares used to calculate stockholders'
equity per share(4) 229,500 270,000 310,500 357,075
======== ======== ======== ========
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended June 30, 1995
-------------------------------------------------------------------------
229,500 270,000 310,500 357,075
shares at $50.00 shares at $50.00 shares at $50.00 shares at $50.00
per share per share per share per share
(Minimum) (Midpoint) (Maximum) (15% above Max.)
---------------- ---------------- ---------------- ----------------
(Dollars in Thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds $ 11,475 $ 13,500 $ 15,525 $ 17,854
Less Offering expenses and commissions (692) (749) (807) (873)
-------- -------- -------- --------
Estimated net conversion proceeds (1) 10,783 12,751 14,718 16,981
Less shares to be acquired by ESOP (2) (918) (1,080) (1,242) (1,428)
Less shares to be acquired by MRP (3) (459) (540) (621) (714)
-------- -------- -------- --------
Adjusted estimated net conversion proceeds $ 9,406 $ 11,131 $ 12,855 $ 14,839
======== ======== ======== ========
Pro forma net income:
Historical net income $ 921 $ 921 $ 921 $ 921
Pro Forma adjustments:
Pro forma income on net proceeds (1) 312 369 427 492
Pro forma ESOP adjustments (2) (56) (66) (76) (87)
Pro forma MRP adjustments (3) (56) (66) (76) (87)
-------- -------- -------- --------
Pro forma net income $ 1,121 $ 1,158 $ 1,196 $ 1,239
======== ======== ======== ========
Pro forma net income per share (5):
Historical net income per share $ 4.32 $ 3.68 $ 3.20 $ 2.78
Pro forma adjustments:
Pro forma income on net proceeds 1.46 1.46 1.47 1.48
Pro forma ESOP adjustments (2) (0.26) (0.26) (0.26) (0.26)
Pro forma MRP adjustments (3) (0.26) (0.26) (0.26) (0.26)
-------- -------- -------- --------
Pro forma net income per share $ 5.26 $ 4.62 $ 4.15 $ 3.74
======== ======== ======== ========
Pro forma net income per share, without
implementation of SOP 93-6 $ 4.89 $ 4.29 $ 3.85 $ 3.47
======== ======== ======== ========
Ratio of price per share to pro forma income per share 9.51 10.82 12.05 13.37
(5) ====== ====== ====== ======
Pro forma stockholders' equity (book value) (4):
Historical retained earnings $ 10,640 $ 10,640 $ 10,640 $ 10,640
Estimated net conversion proceeds 10,783 12,751 14,718 16,981
Less shares to be acquired by:
ESOP (2) (918) (1,080) (1,242) (1,428)
MRP (3) (459) (540) (621) (714)
-------- -------- -------- --------
Pro forma stockholders' equity (4) $ 20,046 $ 21,771 $ 23,495 $ 25,479
======== ======== ======== ========
Pro forma stockholders' equity per share (4):
Historical retained earnings $ 46.36 $ 39.41 $ 34.27 $ 29.80
Estimated net conversion proceeds 46.99 47.22 47.40 47.55
Less shares to be acquired by:
ESOP (2) (4.00) (4.00) (4.00) (4.00)
MRP (3) (2.00) (2.00) (2.00) (2.00)
-------- -------- -------- --------
Pro forma stockholders' equity per share (4) $ 87.35 $ 80.63 $ 75.67 $ 71.35
======== ======== ======== ========
Pro forma price to book value 57.24% 62.01% 66.08% 70.08%
====== ====== ====== ======
Number of shares used to calculate income per share (5) 212,976 250,560 288,144 331,366
======= ======= ======= =======
Number of shares used to calculate stockholders'
equity per share (4) 229,500 270,000 310,500 357,075
======= ======= ======= =======
</TABLE>
34
<PAGE>
(1) Subject to approval by the Holding Company's stockholders at a meeting to
be held no sooner than six months after the Conversion, 10% of the shares
issued in the Conversion may be reserved for issuance to directors,
officers, and employees under the Stock Option Plan. In lieu of reserving
shares for issuance, the Stock Option Plan may purchase shares in the open
market to be delivered upon the exercise of options. Because management
cannot reasonably estimate the number of options which might be exercised
or the option exercise price or whether the shares will be purchased in the
open market, no provision for the Stock Option Plan has been made in the
preceding pro forma calculations. At 15% above the maximum of the
Valuation Range, it is expected that options to acquire 35,708 shares of
the Common Stock could be granted under the Stock Option Plan. If all
shares under the Stock Option Plan were newly issued, the exercise price
was $50.00 for the shares issued pursuant to the options, and all of the
options were exercised, the number of outstanding shares of Common Stock
would increase from 357,075 to 392,783 and the pro forma earnings per share
of the outstanding Common Stock for the year ended June 30, 1995 (based on
shares released for the period pursuant to SOP 93-6) would have been $3.54
compared with $3.74 if the Stock Option Plan did not exist. See
"MANAGEMENT OF HOME SAVINGS -- Proposed Stock Option Plan."
(2) It is assumed that 8% of the shares of Common Stock in the Conversion will
be purchased by the ESOP. Pro forma ESOP adjustments assume that 10% of
the shares will be committed to be released each year, and that expense is
reduced by a 39% tax rate. See "MANAGEMENT OF HOME SAVINGS -- Employee
Stock Ownership Plan."
(3) It is assumed that the MRP will purchase a number of shares equal to 4% of
the shares of Common Stock issued in the Conversion for issuance to
directors, officers and employees, subject to approval by the Holding
Company's stockholders at a meeting to be held no sooner than six months
after Conversion. Pro forma MRP adjustments assume that expense will be
amortized over five years, and that expense is reduced by a 39% tax rate.
See "MANAGEMENT OF HOME SAVINGS -- Proposed Management Recognition Plan."
(4) The retained earnings of Home Savings will be substantially restricted
after the Conversion. See "DIVIDEND POLICY," "SUPERVISION AND
REGULATION -- Regulation of Home Savings -- Restrictions on Dividends and
Other Capital Distributions." Pursuant to SOP 93-6, stockholders' equity
per share is calculated based on all ESOP shares issuable.
(5) Earnings per share is calculated based on the number of shares outstanding
indicated in the previous tables which include shares to be acquired by the
ESOP and the MRP. Pursuant to SOP 93-6, earnings per share is calculated
based on the ESOP shares released for the period according to scheduled
contributions. In order to show the effect of SOP 93-6, earnings per share
also calculated on all ESOP shares issuable is included in the table.
(6) Pro forma net earnings per share have been annualized for purposes of this
ratio.
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
Home Savings is subject to the North Carolina savings bank requirement that
net worth, computed in accordance with the requirements of the Administrator,
equal or exceed 5% of total assets. As of March 31, 1996, Home Savings' net
worth, computed in accordance with such requirements, was 14.48% of total
assets. In addition, Home Savings is subject to the capital requirements of the
FDIC. The FDIC requires that institutions which receive the highest rating
during their examination process and are not experiencing or anticipating
significant growth must maintain a leverage ratio of Tier I capital to total
assets (as defined in FDIC regulations) of at least 3%. All other institutions
are required to maintain a ratio of 1% or 2% above the 3% minimum with an
absolute minimum leverage ratio of not less than 4%. The FDIC also imposes
requirements that (i) the ratio of Tier I capital to risk-weighted assets equal
at least 4% and (ii) the ratio of total capital to risk-weighted assets equal at
least 8%. As demonstrated in the table below, Home Savings exceeds the FDIC
Tier I and risk-based capital requirements and North Carolina capital
requirements on a historical and pro forma basis.
35
<PAGE>
The following table presents (i) Home Savings' historical regulatory
capital position on March 31, 1996 and (ii) Home Savings' pro forma regulatory
capital position on such date after giving effect to the assumptions set forth
under "PRO FORMA DATA" and "CAPITALIZATION" and further assuming that the
Holding Company will retain 50% of the net proceeds of the Common Stock sold in
the Conversion after deducting the amount necessary to fund the loan to the
ESOP.
36
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA REGULATORY CAPITAL POSITIONS AT MARCH 31, 1996
----------------------------------------------------------------------------------
HOME SAVINGS'
HISTORICAL 229,500 270,000 310,500 357,075
REGULATORY CAPITAL SHARES SOLD AT SHARES SOLD AT SHARES SOLD AT SHARES SOLD AT
POSITION AT PRICE OF $50.00 PRICE OF $50.00 PRICE OF $50.00 PRICE OF $50.00
MARCH 31, 1996 PER SHARE PER SHARE PER SHARE PER SHARE
-------------------- ------------------- -------------------- ------------------- ------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF
REGULATORY REGULATORY REGULATORY REGULATORY REGULATORY
AMOUNT ASSETS (1) AMOUNT ASSETS (1) AMOUNT ASSETS (1) AMOUNT ASSETS (1) AMOUNT ASSETS(1)
------ ---------- ------ ---------- ------ --------- ------ --------- ------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tier 1 (leverage) capital $11,136 13.85% $15,610 18.39% $16,431 19.18% $17,253 19.95% $18,198 20.81%
Tier 1 (leverage) capital
requirement (2) 3,215 4.00% 3,394 4.00% 3,427 4.00% 3,460 4.00% 3,498 4.00%
------- ------ ------- ------ ------- ------ ------- ------ ------- -------
Excess $ 7,921 9.85% $12,216 14.39% $13,004 15.18% $13,793 15.95% $14,700 16.81%
======= ====== ======= ====== ======= ====== ======= ====== ======= =======
Tier 1 risk adjusted
capital $11,136 28.09% $15,610 30.85% $16,431 32.36% $17,253 33.87% $18,198 35.60%
Tier 1 risk adjusted
capital requirement 1,586 4.00% 2,024 4.00% 2,031 4.00% 2,037 4.00% 2,045 4.00%
------- ------ ------- ------ ------- ------ ------- ------ ------- -------
Excess $ 9,550 24.09% $13,586 26.85% $14,400 28.36% $15,216 29.87% $16,153 31.60%
======= ====== ======= ====== ======= ====== ======= ====== ======= =======
Total risk based capital $11,637 29.36% $16,111 31.84% $16,932 33.35% $17,754 34.86% $18,699 36.58%
Total risk based capital
requirement 3,171 8.00% 4,048 8.00% 4,062 8.00% 4,075 8.00% 4,090 8.00%
------- ------ ------- ------ ------- ------ ------- ------ ------- -------
Excess $ 8,466 21.36% $12,063 23.84% $12,870 25.35% $13,679 26.86% $14,609 28.58%
======= ====== ======= ====== ======= ====== ======= ====== ======= =======
NC regulatory capital $11,637 14.48% $16,111 16.15% $16,932 16.84% $17,754 17.51% $18,699 18.27%
NC regulatory capital
requirement 4,019 5.00% 4,243 4.25% 4,284 4.26% 4,325 4.27% 4,372 4.27%
------- ------ ------- ------ ------- ------ ------- ------ -------- -------
Excess $ 7,618 9.48% $11,868 11.90% $12,648 12.58% $13,429 13.24% $14,327 14.00%
======= ====== ======= ====== ======= ====== ======= ====== ======== =======
</TABLE>
__________________________
(1) For the Tier 1 (leverage) capital and North Carolina regulatory capital
calculations, percent of total average assets. For the Tier 1 risk-based
capital and total risk-based capital calculations, percent of total risk-
weighted assets. Net proceeds (after ESOP and MRP) were assumed to be
invested in short-term treasury securities (0% risk-weight) and one-to-
four family residential mortgage loans (50% risk-weight) with a weighted
average risk-weight of 2%.
(2) As a North Carolina-chartered savings bank, Home Savings is subject to the
capital requirements of the FDIC and the Administrator. The FDIC requires
state-chartered savings banks, including Home Savings, to have a minimum
leverage ratio of Tier 1 capital to total assets of at least 3%; provided,
however, that all institutions, other than those (i) receiving the highest
rating during the examination process and (ii) not anticipating any
significant growth, are required to maintain a ratio of 1% to 2% above the
stated minimum, with an absolute minimum leverage ratio of at least 4%.
For the purposes of this table, Home Savings has assumed that its leverage
capital requirement is 4% of total average assets.
37
<PAGE>
STOCK PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS
Directors, officers and employees of Home Savings will be entitled to
subscribe for shares of Common Stock in the Subscription Offering in their
capacities as such and to the extent they qualify as Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members. Shares purchased by
such persons will be purchased at the same price per share--$50.00--that will be
paid by other purchasers in the Offerings. They may also purchase Common Stock
in the Community Offering or in the Syndicated Community Offering, if any,
subject to the maximum purchase limitations applicable to all purchasers of
shares in the Conversion.
The following table sets forth for each of the executive officers and
directors of Home Savings who intends to purchase Common Stock, and for all
executive officers and directors as a group (including in each case all
"associates" of such persons) the aggregate dollar amount of Common Stock for
which such director or executive officer has informed Home Savings he intends to
subscribe. The amounts reflected in the table are estimates only and the actual
shares of Common Stock actually subscribed for by the listed individuals may
differ from the amounts reflected in the table. The following table assumes that
270,000 shares of Common Stock will be issued and that sufficient shares will be
available to satisfy the subscriptions of Home Savings' executive officers and
directors.
<TABLE>
<CAPTION>
ANTICIPATED
ANTICIPATED NUMBER
AMOUNT OF SHARES AS A PERCENT
TO BE PAID TO BE OF SHARES
NAME FOR SHARES PURCHASED (1) ISSUED
- ---- ---------- ------------- ------------
<S> <C> <C> <C>
Henry H. Darr, Jr., Director $ 250,000 5,000 1.85%
James G. Hudson, Jr., Director, President, Chief
Executive Officer and Treasurer 100,000 2,000 0.74
John R. Hunnicutt, Director (2) 250,000 5,000 1.85
F. Stuart Kennedy, Director 250,000 5,000 1.85
Milton T. Riley, Jr., Director 250,000 5,000 1.85
Drema A. Michael, Secretary and Assistant Treasurer 15,000 300 0.11
---------- ------ ----
$1,115,000 22,300 8.26%
Total ========== ====== ====
</TABLE>
_________________________
(1) Subscriptions by the ESOP are not aggregated with shares of Common Stock
purchased by the executive officers and directors listed above. See
"MANAGEMENT OF HOME SAVINGS -- Employee Stock Ownership Plan." Also,
grants under the proposed MRP and shares subject to option under the Stock
Option Plan, if approved by the stockholders of the Holding Company at a
meeting of stockholders following the Conversion, are not aggregated with
shares of Common Stock purchased by the executive officers and directors
listed above. It is expected that the ESOP will acquire 8% of the shares
issued in the Conversion. Recipients of shares under the ESOP will have
voting control over the shares allocated to them, and trustees of the ESOP
(directors of Home Savings) will have voting control over unallocated
shares. See "MANAGEMENT OF HOME SAVINGS -- Employee Stock Ownership Plan."
Under the proposed MRP, if approved by the stockholders of the Holding
Company, a number of shares equal to 4% of the shares issued in the
Conversion could be issued to directors and certain employees of Home
Savings. Such shares could be purchased in the open market or could be
issued out of authorized but unissued shares. Recipients of shares under
the MRP will have voting control over such shares regardless of whether
such shares have vested. See "MANAGEMENT OF HOME SAVINGS -- Proposed
Management Recognition Plan." Under the proposed Stock Option Plan, if
approved by the stockholders of the Holding Company, directors and certain
employees of Home Savings could receive options to purchase a number of
shares equal to 10% of the shares issued in the Conversion.
38
<PAGE>
Shares to fund such options could be acquired in the open market or could
be acquired through the issuance of authorized but unissued shares. If
shares are acquired in the open market and held by the Stock Option Plan
prior to the exercise of options under the Plan, holders of unexercised
options will have voting control over the shares held to fund their
options. See "MANAGEMENT OF HOME SAVINGS -- Proposed Stock Option Plan."
(2) Mr. Hunnicutt, who became a director in 1995, was not a depositor as of
March 31, 1995, and is not an Eligible Account Holder entitled to first
priority in the Subscription Offering.
Without the prior written consent of the Administrator, shares of Common
Stock purchased by directors or executive officers of Home Savings in the
Conversion cannot be sold during a period of one year following the Conversion,
except upon death of the director or executive officer. Such restriction also
applies to any shares issued to such person as a stock dividend, stock split or
otherwise with respect to any of such originally restricted stock.
In addition, the North Carolina conversion regulations provide that
directors and executive officers and their associates are prohibited from
purchasing outstanding shares of Common Stock for a period of three years
following the Conversion, except from or through a broker or dealer registered
with the SEC or Secretary of State of North Carolina, unless the prior written
approval of the Administrator is obtained. This provision does not apply to
negotiated transactions involving more than 1% of the Holding Company's
outstanding Common Stock or to purchases of stock made by or held by one or more
tax-qualified or non-tax-qualified employee stock benefit plans of Home Savings
or the Holding Company which may be attributable to individual executive
officers or directors. Purchases and sales of Common Stock by officers and
directors will also be subject to the short-swing trading prohibitions contained
in Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act"),
and the short-swing trading and other rules promulgated pursuant to the Exchange
Act.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of Home Savings. The information contained in this section
should be read in conjunction with the Financial Statements, the accompanying
Notes to Financial Statements and the other sections contained in this
Prospectus.
The Holding Company was incorporated under North Carolina law in June 1996
at the direction of Home Savings for the purpose of acquiring and holding all of
the outstanding stock of Home Savings to be issued in the Conversion. The
Holding Company's principal business activities after the Conversion are
expected to be conducted solely through Home Savings.
Home Savings' results of operations depend primarily on net interest
income, which is the difference between interest income from interest-earning
assets and interest expense on interest-bearing liabilities. Home Savings'
operations are affected to a much lesser degree by non-interest income, such as
transaction and other service fee income, and other sources of income. Home
Savings' principal operating expenses, aside from interest expense, consist of
compensation and employee benefits, office occupancy costs, data processing
expenses and federal deposit insurance premiums.
CAPITAL RESOURCES AND LIQUIDITY
The objective of Home Savings' liquidity management is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion. Liquidity management addresses Home
Savings' ability to meet deposit withdrawals on demand or at contractual
maturity, to repay borrowings as they mature, and to fund new loans and
investments as opportunities arise.
39
<PAGE>
Home Savings' primary sources of internally generated funds are principal
and interest payments on loans receivable, cash flows generated from operations,
and cash flows generated by investments, including mortgage-backed securities.
External sources of funds include increases in deposits and advances from the
FHLB of Atlanta. In recent years, advances from the FHLB of Atlanta have not
been a primary source of liquidity for Home Savings.
North Carolina-chartered savings banks must maintain liquid assets equal to
at least 10% of total assets. The computation of liquidity under North Carolina
regulation allows the inclusion of mortgage-backed securities and investments
with readily marketable value, including investments with maturities in excess
of five years. Home Savings believes that it will have sufficient funds
available to meet its anticipated future loan commitments as well as other
liquidity needs.
Following the Conversion, the Holding Company will initially conduct no
business other than holding the capital stock of Home Savings and the loan it
will make to the ESOP. In order to provide sufficient funds for its operations,
the Holding Company expects to retain at the Holding Company level and invest
50% of the net proceeds of the Conversion remaining after making the loan to the
ESOP. In the future, the Holding Company's primary source of funds, other than
income from its investments and principal and interest payments received from
the ESOP with respect to the ESOP loan, is expected to be dividends from Home
Savings. As a North Carolina-chartered stock savings bank, Home Savings may not
declare or pay a cash dividend on or repurchase any of its capital stock if the
effect of such transaction would be to reduce the net worth of the institution
to an amount which is less than the minimum amount required by applicable
federal and state regulations. At March 31, 1996, Home Savings was in compliance
with all applicable capital requirements. In addition, for a period of five
years after the Conversion, Home Savings must obtain written approval from the
Administrator before declaring or paying a cash dividend on its capital stock in
an amount in excess of one-half of the greater of (i) its net income for the
most recent fiscal year end, or (ii) the average of its net income after
dividends for the most recent fiscal year end and not more than two of the
immediately preceding fiscal year ends. As a result of this limitation, if Home
Savings had been a stock institution at the end of fiscal 1995, it could not
have paid a cash dividend in excess of $527,000 without approval of the
Administrator. Within the first year after completion of the Conversion, Home
Savings may not pay any dividend or make any distribution that represents, or is
characterized as, or is treated for tax purposes as a return of capital. In
addition, after the Conversion, Home Savings will be subject to the restriction
that it will not be permitted to declare or pay a cash dividend on or repurchase
any of its capital stock if the effect thereof would be to cause its net worth
to be reduced below the amount required for the liquidation account to be
established in connection with the Conversion. See "THE CONVERSION -- Effects of
Conversion -- Liquidation Rights -- Liquidation Rights After the Conversion."
OPERATING STRATEGY
The primary goals of management are to increase Home Savings'
profitability, monitor its capital position and enhance its banking franchise.
Home Savings' results of operations are dependent primarily on net interest
income, which is the difference between the income earned on its interest-
earning assets, such as loans and investments, and the cost of its interest-
bearing liabilities, consisting of deposits. Home Savings' operations are
affected to a much lesser degree by non-interest income, such as transaction and
other service fee income, and other sources of income. Home Savings' net income
is also affected by, among other things, provisions for loan losses and
operating expenses. Home Savings' principal operating expenses, aside from
interest expense, consist of compensation and employee benefits, office
occupancy costs, data processing expenses and federal deposit insurance
premiums. Home Savings' results of operations are also significantly affected by
general economic and competitive conditions, particularly changes in market
interest rates, government legislation and policies concerning monetary and
fiscal affairs, housing and financial institutions and the attendant actions of
regulatory authorities.
In guiding the operations of Home Savings, management has implemented
various strategies designed to continue the institution's profitability while
maintaining its safety and soundness. These strategies include: (i) emphasizing
one-to-four family residential lending; (ii) maintaining asset quality; (iii)
controlling operating expenses; and (iv) monitoring interest-rate risk. It is
anticipated, subject to market conditions, that the strategies presently in
place will be continued following completion of the Conversion.
40
<PAGE>
EMPHASIS ON ONE-TO-FOUR FAMILY RESIDENTIAL HOUSING. Historically, Home
Savings has been predominantly a one-to-four family residential lender. As of
March 31, 1996, approximately 78.5% of its loan portfolio, before net items, was
composed of permanent one-to-four family residential loans. As of such date, an
additional 8.3% of its loan portfolio, before net items, was composed of
construction loans and home equity loans. As a result, Home Savings has
developed expertise in mortgage loan underwriting and origination. Home Savings
has established methods to expand its loan originations through contacts with
realtors, homebuilders and past and present customers. The institution also uses
advertising and community involvement to gain exposure within the communities it
operates. As of March 31, 1996, approximately 30.4% of Home Savings' loan
portfolio, before net items, was composed of adjustable rate loans.
MAINTENANCE OF ASSET QUALITY. At March 31, 1996, Home Savings' ratio of
nonperforming assets to total assets was 1.03%. Since June 30, 1990, annual net
loan charge-offs have averaged 0.06% of average loans outstanding. Home Savings
has attempted to maintain asset quality through its underwriting and collection
procedures.
MONITORING OF INTEREST-RATE RISK. Although Home Savings' has a significant
"negative gap" and its net interest income would likely be negatively impacted
by increases in interest rates, management considers its interest rate exposure
to be at an acceptable level, given Home Savings' historical operating results
and capital position. However, in order to reduce the impact on Home Savings'
net interest income resulting from changes in interest rates, as described
below, management has implemented several strategies. See "-- Interest Rate
Risk."
CONTROL OF GENERAL AND ADMINISTRATIVE EXPENSES. Home Savings closely
monitors its general and administrative expenses and seeks to control them while
maintaining the necessary personnel to properly serve its customers. Since June
30, 1990, Home Savings' ratio of general and administrative expenses to average
assets has averaged 1.28%.
INTEREST RATE RISK
Home Savings' asset/liability management, or interest rate risk management,
program is focused primarily on evaluating and managing the composition of its
assets and liabilities in view of various interest rate scenarios. Factors
beyond Home Savings' control, such as market interest rates and competition, may
also have an impact on Home Savings' interest income and interest expense.
In the absence of other factors, the yield or return associated with Home
Savings' earning assets generally will increase from existing levels when
interest rates rise over an extended period of time, and conversely interest
income will decrease when interest rates decrease. In general, interest expense
will increase when interest rates rise over an extended period of time, and
conversely interest expense will decrease when interest rates decrease.
Therefore, by controlling the increases and decreases in its interest income and
interest expense which are brought about by changes in market and interest
rates, Home Savings can significantly influence its net interest income.
INTEREST RATE GAP ANALYSIS. As a part of Home Savings' interest rate risk
management policy, Home Savings calculates an interest rate "gap." Interest rate
"gap" analysis is a common, though imperfect, measure of interest rate risk,
which measures the relative dollar amounts of interest-earning assets and
interest-bearing liabilities which reprice within a specific time period, either
through maturity or rate adjustment. The "gap" is the difference between the
amounts of such assets and liabilities that are subject to repricing. A
"negative" gap for a given period means that the amount of interest-bearing
liabilities maturing or otherwise repricing within that period exceeds the
amount of interest-earning assets maturing or otherwise repricing within the
same period. Accordingly, in a declining interest rate environment, an
institution with a negative gap would generally be expected, absent the effects
of other factors, to experience a lower decrease in the yield of its assets
relative to the cost of its liabilities and its income should be positively
affected. Conversely, the cost of funds for an institution with a negative gap
would generally be expected to increase more quickly than the yield on its
assets in a rising interest rate environment, and such institution's net
interest income generally would be expected to be adversely affected by rising
interest rates. Changes in interest rates generally have the opposite effect on
an institution with a "positive gap."
41
<PAGE>
Home Savings' one year interest sensitivity gap as a percentage of total
interest-earning assets at March 31, 1996 was a negative 45.54%. At March 31,
1996, Home Savings' three year and five-year cumulative interest sensitivity
gaps as a percentage of total interest-earning assets were a negative 46.61% and
negative 40.96%, respectively.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at March 31, 1996 which are projected
to reprice or mature in each of the future time periods shown. Except as stated
below, the amounts of assets and liabilities shown which reprice or mature
within a particular period were determined in accordance with the contractual
terms of the assets or liability. Loans with adjustable rates are shown as being
due at the end of the next upcoming adjustment period. Passbook accounts, money
market deposit accounts and negotiable order of withdrawal or other transaction
accounts are assumed to be subject to immediate repricing and depositor
availability and have been placed in the shortest period. In making the gap
computations, none of the assumptions sometimes made regarding prepayment rates
and deposit decay rates have been used for any other interest-earning assets or
interest-bearing liabilities. In addition, the table does not reflect scheduled
principal payments which will be received throughout the lives of the loans. The
interest rate sensitivity of Home Savings' assets and liabilities illustrated in
the following table would vary substantially if different assumptions were used
or if actual experience differs from that indicated by such assumptions.
<TABLE>
<CAPTION>
Terms to Repricing at March 31, 1996
----------------------------------------------------------------
More Than More Than
1 Year 1 Year to 3 Years to More Than
or Less 3 Years 5 Years 5 Years Total
-------- --------- ---------- --------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable:
Adjustable rate residential 1-4 family $ 9,567 $ 16 $ -- $ -- $ 9,583
Fixed rate residential 1-4 family 559 523 1,148 31,255 33,485
Other secured - real estate - fixed -- 40 57 3,653 3,750
Other secured - real estate - adjustable 6,882 -- -- -- 6,882
Other loans 33 273 236 -- 542
Interest-bearing deposits 6,659 -- -- -- 6,659
Investments 4,300 3,723 2,968 5,438 16,429
FHLB common stock -- -- -- 614 614
-------- -------- -------- ------- -------
Total interest-earning assets $ 28,000 $ 4,575 $ 4,409 $40,960 $77,944
======== ======== ======== ======= =======
INTEREST-BEARING LIABILITIES:
Deposits:
Passbook and statement accounts $ 5,143 $ -- $ -- $ -- $ 5,143
NOW and money market checking accounts 12,048 -- -- -- 12,048
Non-interest-bearing accounts 294 -- -- -- 294
Certificate accounts 46,012 5,410 -- -- 51,422
-------- -------- -------- ------- -------
Total interest-bearing liabilities $ 63,497 $ 5,410 $ -- $ -- $68,907
======== ======== ======== ======= =======
INTEREST SENSITIVITY GAP PER PERIOD $(35,497) $ (835) $ 4,409 $40,960 $ 9,037
CUMULATIVE INTEREST SENSITIVITY GAP $(35,497) $(36,332) $(31,923) $ 9,037 $ 9,037
CUMULATIVE GAP AS A PERCENTAGE OF TOTAL
INTEREST-EARNING ASSETS (45.54)% (46.61)% (40.96)% 11.59% 11.59%
CUMULATIVE INTEREST-EARNING ASSETS AS A
PERCENTAGE OF INTEREST-BEARING LIABILITIES 40.63% 47.27% 53.67% 113.11% 113.11%
</TABLE>
NET PORTFOLIO VALUE AND NET INTEREST INCOME ANALYSIS. In addition to the
interest rate gap analysis as discussed above, management monitors Home Savings'
interest rate sensitivity through the use of a model which
42
<PAGE>
estimates the change in net portfolio value ("NPV") and net interest income in
response to a range of assumed changes in market interest rates. NPV is the
present value of expected cash flows from assets, liabilities, and off-balance
sheet items. The model estimates the effect on Home Savings' NPV and net
interest income of instantaneous and permanent 100 to 400 basis point increases
and decreases in market interest rates.
The following table presents information regarding possible changes in Home
Savings' NPV as of March 31, 1996, based on information provided by the FHLB of
Atlanta's interest rate risk model.
<TABLE>
<CAPTION>
CHANGE IN NET PORTFOLIO VALUE
INTEREST RATES ------------------------------------------------
IN BASIS POINTS
(RATE SHOCK) AMOUNT $ CHANGE % CHANGE
--------------- ------ -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Up 400 $ 3,820 $(7,429) (66)%
Up 300 5,726 (5,523) (49)
Up 200 7,632 (3,617) (32)
Up 100 9,441 (1,808) (16)
Static 11,249 -- --
Down 100 13,110 1,861 17
Down 200 14,972 3,723 33
Down 300 16,501 5,252 47
Down 400 18,031 6,782 60
</TABLE>
The following table presents the predicted effects, based on the FHLB of
Atlanta's interest rate risk model, on Home Savings' net interest income as of
March 31, 1996 of instantaneous and permanent 100 to 400 basis point changes in
market interest rates.
43
<PAGE>
<TABLE>
<CAPTION>
CHANGE IN NET INTEREST INCOME
INTEREST RATES ---------------------------------------
IN BASIS POINTS
(RATE SHOCK) AMOUNT $ CHANGE % CHANGE
--------------- ------ --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Up 400 $1,503 $(508) (25)%
Up 300 1,657 (354) (18)
Up 200 1,811 (200) (10)
Up 100 1,911 (100) (5)
Static 2,011 -- --
Down 100 2,115 104 5
Down 200 2,220 209 10
Down 300 2,262 251 12
Down 400 2,304 293 15
</TABLE>
Computations of prospective effects of hypothetical interest rate changes
are based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposit decay, and should not be relied upon as
indicative of actual results. Further, the computations do not reflect any
actions management may undertake in response to changes in interest rates.
The tables set forth above indicate that, in the event of a 200 basis point
decrease in interest rates, Home Savings would be expected to experience a 33%
increase in NPV and a 10% increase in net interest income. In the event of a 200
basis point increase in interest rates, Home Savings would be expected to
experience a 32% decrease in NPV and a 10% decrease in net interest income.
Certain shortcomings are inherent in the method of analysis presented in
both the NPV and net interest income computations and in the gap computations
presented in the tables above. Although certain assets and liabilities may have
similar maturities or periods within which they will reprice, they may react
differently to changes in market interest rates. The interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, adjustable-rate mortgages have interest rate caps
which restrict changes in interest rates on a short-term basis and over the life
of the assets. The proportion of adjustable-rate loans could be reduced in
future periods if market interest rates should decline and remain at lower
levels for a sustained period due to increased refinancing activity. Further, in
the event of a change in interest rates, prepayment and early withdrawal levels
would likely deviate significantly from those assumed in the tables. Finally,
the ability of many borrowers to service their adjustable-rate debt may decrease
in the event of a sustained interest rate increase.
Management did not view Home Savings' interest rate sensitivity position at
March 31, 1996 to be unacceptable in view of Home Savings' historical results of
operations and highly capitalized position. Nevertheless, in order to maintain
its interest rate risk position within levels management believes to be
acceptable, Home Savings has begun (i) attempting to originate adjustable rate
loans when market conditions permit, (ii) maintaining a short-term investment
portfolio; and (iii) attempting to lengthen deposit maturities. In addition,
checking and transaction accounts are generally considered to be less interest
rate sensitive deposits. As a result, Home Savings has begun to emphasize the
origination
44
<PAGE>
of those accounts - even though an increase in such accounts will not improve
Home Savings' one year interest rate sensitivity gap, as Home Savings presently
computes its interest rate gap, because, for purposes of such computation, all
of such accounts are assumed to reprice within one year.
Home Savings does not originate its fixed rate or adjustable rate loans for
sale, or sell its loans, in the secondary market. This tends to increase its
exposure to interest rate risk.
NET INTEREST INCOME
Net interest income represents the difference between income derived from
interest-earning assets and interest expense incurred on interest-bearing
liabilities. Net interest income is affected by both (i) the difference between
the rates of interest earned on interest-earning assets and the rates paid on
interest-bearing liabilities ("interest rate spread") and (ii) the relative
amounts of interest-earning assets and interest-bearing liabilities ("net
earning balance"). The following table sets forth information relating to
average balances of Home Savings' assets and liabilities for the nine-month
periods ended March 31, 1996 and 1995 and for the years ended June 30, 1995,
1994 and 1993. For the periods indicated, the table reflects the average yield
on interest-earning assets and the average cost of interest-bearing liabilities
(derived by dividing income or expense by the monthly average balance of
interest-earning assets or interest-bearing liabilities, respectively) as well
as the net yield on interest-earning assets (which reflects the impact of the
net earning balance).
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
March 31, 1996 March 31, 1995
------------------------------------- -----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- -------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing balances $ 6,913 $ 260 5.02% $ 1,245 $ 41 4.43%
Investments 15,354 675 5.86% 16,314 662 5.41%
Loans 54,066 3,448 8.50% 53,625 3,282 8.16%
------- ------ ------ ------
Total interest-earning assets 76,333 4,383 7.65% 71,184 3,985 7.47%
Other assets 2,084 2,057
------- -------
Total Assets $78,417 $73,241
======= =======
Interest-bearing liabilities:
Deposits $67,042 2,661 5.29% $63,080 2,001 4.23%
Other liabilities 440 ------ 251 ------
Retained earnings 10,935 9,910
------- -------
Total liabilities and retained earnings $78,417 $73,241
======= =======
Net interest income and interest rate spread $1,722 2.36% $1,984 3.24%
====== ======
Net yield on average interest-earning assets 3.01% 3.72%
Ratio of average interest-earning assets to
average interest-bearing liabilities 113.86% 112.85%
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30, 1995 Year Ended June 30, 1994 Year Ended June 30, 1993
----------------------------- ----------------------------- -----------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- ------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Interest-bearing balances $ 1,789 $ 82 4.59% $ 5,178 $ 154 2.99% $ 5,445 $ 157 2.87%
Investments 15,974 879 5.50% 13,362 697 5.21% 9,464 500 5.82%
Loans 53,718 4,410 8.21% 53,301 4,486 8.42% 52,298 4,695 8.98%
------- ------- ------- ------ -------
Total interest-earning
assets 71,481 5,371 7.51% 71,841 5,337 7.43% 67,207 5,402 8.04%
Other assets 2,083 1,747 1,965
------- ------- -------
Total assets $73,564 $73,588 $69,172
======= ======= =======
Interest-bearing
liabilities:
Deposits $63,210 2,788 4.41% $64,074 2,487 3.88% $60,772 2,736 4.51%
------ ------ ------
Other liabilities 286 370 405
Retained earnings 10,068 9,144 7,995
------- ------- -------
Total liabilities and
retained earnings $73,564 $73,588 $69,172
======= ======= =======
Net interest income and
interest rate spread $2,583 3.10% $2,850 3.55% $2,666 3.53%
====== ====== ======
Net yield on average
interest-earning assets 3.61% 3.97% 3.97%
Ratio of average
interest-earning assets
to average
interest-bearing
liabilities 113.08% 112.12% 110.59%
</TABLE>
46
<PAGE>
RATE/VOLUME ANALYSIS
The following table analyzes the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. The table distinguishes between (i) changes
attributable to volume (changes in volume multiplied by the prior period's
rate), (ii) changes attributable to rate (changes in rate multiplied by the
prior period's volume), and (iii) net change (the sum of the previous columns).
The change attributable to both rate and volume (changes in rate multiplied by
changes in volume) has been allocated equally to both the changes attributable
to volume and the changes attributable to rate.
47
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
March 31, 1996 vs. 1995 June 30, 1995 vs. 1994
------------------------------------ ------------------------------------
Increase (Decrease) Due To Increase (Decrease) Due To
------------------------------------ ------------------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Interest-bearing balances $ 201 $ 18 $ 219 $(129) $ 56 $ (73)
Investments (41) 53 12 140 43 183
Loans 28 139 167 35 (111) (76)
------- ------ ------ ------ ------ ------
Total interest income 188 210 398 46 (12) 34
Interest expense:
Deposits 142 518 660 (36) 337 301
------- ------ ------ ------ ------ ------
Net interest income $ 46 $(308) $(262) $ 82 $(349) $(267)
======= ====== ====== ===== ====== ======
<CAPTION>
Year Ended
June 30, 1994 vs. 1993
------------------------------------
Increase (Decrease) Due To
------------------------------------
Volume Rate Total
------ ---- -----
(In Thousands)
<S> <C> <C> <C>
Interest income:
Interest-bearing balances $ (8) $ 6 $ (2)
Investments 215 (69) 146
Loans 87 (296) (209)
------ ------ ------
Total interest income 294 (359) (65)
Interest expense:
Deposits 138 (388) (250)
------ ------ ------
Net interest income $ 156 $ 29 $ 185
===== ===== =====
</TABLE>
48
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1996 AND AT JUNE 30, 1995 AND
1994
Home Savings has experienced consistent moderate asset growth as total
assets have increased from $73.8 million at June 30, 1994 to $75.5 million at
June 30, 1995, to $80.4 million at March 31, 1996. Net loans receivable have
remained relatively unchanged, increasing from $53.8 million at June 30, 1994 to
$54.0 million at June 30, 1995, and then decreasing to $53.7 million at March
31, 1996, as loan demand has not maintained pace with Home Savings' deposit
growth. During the same period, investments increased from $18.0 million at
June 30, 1994 to $18.9 million at June 30, 1995, to $23.7 million at March 31,
1996.
Deposits increased from $63.9 million at June 30, 1994 to $64.4 million at
June 30, 1995, to $68.9 million at March 31, 1996. This increase in deposits
provided funds to support the growth in investments described in the preceding
paragraph.
Retained earnings totalled $9.6 million, $10.6 million and $11.1 million at
June 30, 1994 and 1995 and March 31, 1996, respectively. At March 31, 1996,
Home Savings was required to maintain net worth to total assets of 5% under the
Administrator's regulations, and Home Savings had net worth of $11.6 million, or
net worth to total assets of 14.4%. Additionally, at March 31, 1996, Home
Savings had Tier 1 risk adjusted capital, leverage capital and total risk-based
capital of $11.1 million, $11.1 million and $11.6 million, respectively,
exceeding the regulatory capital requirements by $9.6 million, $7.9 million and
$8.5 million, respectively.
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND
1995
NET INCOME. Home Savings' net income for the nine months ended March 31,
1996 and 1995 was $478,000 and $735,000, respectively. The principal factors
causing this decrease for 1996 as compared with 1995 was a $262,000 decrease in
net interest income and a $217,000 increase in general and administrative
expenses.
NET INTEREST INCOME. Net interest income decreased from $2.0 million for
the nine months ended March 31, 1995 to $1.7 million for the nine months ended
March 31, 1996. While interest rates generally trended upward during both
periods, the rate of increase was more pronounced during the nine months ended
March 31, 1996. Since Home Savings' deposits are generally more rate sensitive
than its interest-earning assets, this more rapid interest rate rise caused the
cost of deposit interest to increase more rapidly than the yield on interest-
earning assets. Additionally, because of relatively flat loan demand in Home
Savings' primary market area, the growth in average interest-earning assets
during the nine months ended March 31, 1996 as compared with the same period
during the prior year was principally in investments which generally provide
lower yields than loans. The weighted average cost of deposits increased
from 4.23% during the nine months ended March 31, 1995 to 5.29% during the
nine months ended March 31, 1996, while the weighted average yield on interest-
earning assets rose from 7.47% to 7.65%, causing the interest rate spread to
decline from 3.24% during the nine months ended March 31, 1995 to 2.36% during
the nine months ended March 31, 1996.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $130,000 and
$75,000 for the nine month periods ended March 31, 1996 and 1995, respectively.
The provisions and the resulting loan loss allowances are amounts Home Savings'
management believes will be adequate to absorb possible losses on existing
loans. At March 31, 1996 and March 31, 1995, Home Savings' loan loss allowances
totalled $501,000 and $371,000, respectively, representing 100.80% and 38.29%,
respectively, of nonperforming loans at such dates. Loans are charged off
against the allowance when management believes collectibility is unlikely,
although management continues to actively pursue collection of loans which have
been charged off. Management decisions regarding the provision and resulting
allowance are based both on prior loan loss experience and other factors, such
as existing loan levels and types of loans outstanding, nonperforming loans,
industry standards and general economic conditions. Home Savings experienced a
net loan charge-off of $30,000 during the nine months ended March 31, 1996 as
compared with a net recovery of loans previously charged off of $1,000 during
the nine months ended March 31, 1995.
OTHER INCOME. Other income, which historically has not been a significant
component of total income for Home Savings, increased from $4,000 during the
nine months ended March 31, 1995 to $42,000 during the nine months
49
<PAGE>
ended March 31, 1996, with substantially all of the increase relating to losses
of $37,000 from sales of investments during the nine months ended March 31,
1995, as management sold certain low yielding investments in light of an
expected continued rise in market interest rates.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $914,000 and $698,000 for the nine month periods ended March 31, 1996 and
1995, respectively, an increase of $216,000 during the period ending in 1996.
The principal components of this increase were increases of $89,000 and $80,000,
respectively, in compensation and benefits and in the provision for loss on
foreclosed real estate. The increase in compensation and benefits consisted of
both increases in basic salary levels and increases in the costs of benefits
such as group insurance and retirement. Foreclosed real estate is initially
recorded based upon appraised values. However, based upon actual selling prices
of comparable properties and low buyer interest at appraised values, management
determined it to be appropriate to reduce the carrying values of certain
foreclosed properties during the nine months ended March 31, 1996.
INCOME TAXES. Income tax expense decreased from $481,000 for the nine
months ended March 31, 1995 to $242,000 for the nine months ended March 31,
1996, with the decrease being primarily attributable to the decrease in income
before income taxes, and to a lesser extent attributable to a substantial
reduction in state income taxes because of an increase in the relative
percentage of nontaxable federal interest to income before income taxes.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND
1993
NET INCOME. Home Savings' net income for the years ended June 30, 1995,
1994 and 1993 was $921,000, $1.2 million and $1.1 million, respectively. Net
income was positively affected in both 1993 and 1994 by an overall sustained
downward trend in interest rates. Home Savings recorded its highest historical
level of net income in fiscal 1994, with net interest income also at an historic
high, before trending downward in fiscal 1995. This decline in net interest
income, combined with an increase in general and administrative expenses and
losses arising from the sales of certain investments, is primarily responsible
for the decrease in net income in fiscal 1995.
NET INTEREST INCOME. Net interest income decreased to $2.6 million in
fiscal 1995 from $2.9 million in fiscal 1994 and $2.7 million in fiscal 1993.
This trend in net interest income reflects the trend in interest rate spread,
which was 3.10% during fiscal 1995, 3.55% during fiscal 1994 and 3.53% during
fiscal 1993. Because Home Savings' deposits are more rate sensitive than are
its interest-earning assets, particularly its loan portfolio, interest margins
generally increase during periods of declining rates and decrease during periods
of increasing rates. During the second half of the fiscal year ended June 30,
1994, a sustained downward trend in interest rates in general, which had begun
prior to 1993, came to an end, with an overall upward trend in rates being
maintained during the balance of 1994 and throughout 1995. The reversal in the
rate trend in fiscal 1994 had begun to negatively impact or increase interest
costs during the latter part of that fiscal year, but on balance for fiscal 1994
the decrease in interest costs was substantially larger than the decrease in
interest income. The impact of increasing rates was more dramatic in fiscal
1995, as an increase in interest income of $34,000 was more than offset by an
increase in interest costs of $301,000.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $105,000,
$114,000 and $165,000 for the years ended June 30, 1995, 1994 and 1993,
respectively. The provisions and the resulting loan loss allowances are amounts
management believes will be adequate to absorb possible losses on existing
loans. At June 30, 1995, 1994 and 1993, Home Savings' loan loss allowances
totalled $401,000, $295,000 and $198,000, respectively, representing 47.68%,
18.38% and 12.37%, respectively, of nonperforming loans at such dates. Loans
are charged off against the allowance when management believes collectibility is
unlikely, although management continues to actively pursue collection of loans
which have been charged off. Management decisions regarding the provision and
resulting allowance are based both on prior loan loss experience and other
factors, such as existing loan levels and types of loans outstanding,
nonperforming loans, industry standards and general economic conditions. Home
Savings experienced net loan charge-offs of $17,000 and $62,000 during the years
ended June 30, 1994 and 1993, respectively, as compared with a net recovery of
loans previously charged off of $1,000 during the year ended June 30, 1995.
50
<PAGE>
OTHER INCOME. Other income decreased to $15,000 in fiscal 1995 from
$40,000 in both fiscal 1993 and 1994, principally as a result of losses of
$37,000 from sales of investments, as management sold certain lower yielding
investments in light of an expected continued rise in market interest rates.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $979,000 in fiscal 1995 from $910,000 in fiscal 1994 and $833,000
in fiscal 1993, representing increases of $69,000 and $77,000 for 1995 and 1994,
respectively. The 1995 and 1994 increases were principally attributable to
increases in personnel costs of $53,000 and $56,000, respectively. Personnel
costs rose as a result of a combination of normal compensation adjustments and
increased costs for fringe benefits.
INCOME TAXES. Income tax expense decreased to $593,000 in fiscal 1995 from
$694,000 in fiscal 1994 and $639,000 in fiscal 1993. The fluctuations were
primarily attributable to corresponding fluctuations in income before income
taxes.
POSSIBLE INSURANCE PREMIUM SURCHARGE
Legislation has been introduced in the United States Congress which would
require financial institutions which are members of SAIF to pay a one-time
premium currently estimated to be approximately 85 cents per $100 of domestic
deposits. If enacted, this premium or surcharge would have the effect of
reducing the capital of SAIF-member institutions by the amount of the fee, net
of any income tax benefit, and would reduce earnings in the fiscal year during
which such fee was enacted into law. Based upon Home Savings' deposits as of
March 31, 1996, the proposed one-time premium or surcharge would equal
approximately $543,000 before income taxes. Management cannot predict whether
the proposed legislation will be enacted by Congress or, if enacted, the amount
of the one-time premium or surcharge. See "RISK FACTORS -- Recapitalization of
SAIF, its Impact on SAIF Premiums and Possible One-Time Recapitalization Fee"
and "SUPERVISION AND REGULATION -- Regulation of Home Savings -- Insurance of
Deposit Accounts."
PROPOSED RECAPTURE OF BAD DEBT RESERVES
Proposed federal legislation would eliminate future bad debt deductions and
would require thrifts to recapture into income over a six-year period their
post-1987 additions to their bad debt tax reserves, thereby generating
additional tax liability. Under this proposal, a special provision suspends
recapture of post-1987 excess reserves for up to two years if, during those
years, the institution satisfies a "residential loan requirement." At June 30,
1995, Home Savings' post-1987 excess reserves amounted to approximately
$301,000. It is uncertain when or if the proposed legislation will be passed,
and, if passed, in what form the legislation would be passed. See "RISK FACTORS
- -- Proposed Recapture of Bad Debt Reserves" and "TAXATION -- Federal Income
Taxation."
IMPACT OF INFLATION AND CHANGING PRICES
The Financial Statements and Notes thereto presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time and due to inflation. The impact of inflation is
reflected in the increased cost of Home Savings' operations. Unlike most
industrial companies, nearly all the assets and liabilities of Home Savings are
monetary in nature. As a result, interest rates have a greater impact on Home
Savings' performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the price of goods and services
IMPACT OF NEW ACCOUNTING STANDARDS
ACCOUNTING FOR POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS. Statement of
Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions," was issued by the Financial
Accounting Standards Board ("FASB") in December 1990. The statement is
effective for fiscal years beginning after December 15, 1992, except that the
application of the statement for certain small nonpublic enterprises
51
<PAGE>
such as Home Savings and certain other entities is delayed to fiscal years
beginning after December 15, 1994. SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," was issued by the FASB in November 1992. The statement
is effective for fiscal years beginning after December 15, 1994. The statements
generally require a calculation of the actuarial present value of anticipated
benefits to be provided and an accrual and allocation of those benefits through
a charge to operating expense in the periods in which employees must render the
services to receive such benefits. Currently, Home Savings does not offer any
postretirement benefit plans or postemployment benefit plans. However, in the
future, such plans may be offered and the provisions of SFAS Nos. 106 and 112
would apply.
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. SFAS No. 107,
"Disclosure about Fair Value of Financial Instruments," was issued by the FASB
in December 1991 and is effective for years ending after December 15, 1995. The
statement requires, among other things, disclosure of the fair value of
financial instruments, both assets and liabilities recognized and not recognized
in the statement of financial condition, for which it is practicable to estimate
fair value. Home Savings plans to adopt the disclosure requirements of SFAS No.
107 on June 30, 1996.
IMPAIRMENT OF LONG-LIVED ASSETS. In March 1995, the FASB issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of." The statement is effective for years beginning
after December 15, 1995 and requires, among other things, recognition of
impairment of long-lived assets, if any, based upon the difference between the
undiscounted expected future cash flows and the carrying value. Further, the
statement requires that long-lived assets to be disposed of be reported at the
lower of carrying amount or fair value less costs to sell. Home Savings plans
to adopt the provisions of SFAS No. 121 on July 1, 1996 and management does not
believe the adoption of this statement will have a material effect on Home
Savings' financial position or results of operations.
MORTGAGE SERVICING RIGHTS. In May 1995, the FASB issued SFAS No. 122,
"Accounting for Mortgage Servicing Rights." SFAS No. 122 is effective for years
beginning after December 15, 1995. Earlier application is permitted. The
statement will require, among other things, Home Savings to capitalize the
estimated fair value of servicing rights on loans originated for sale, and
amortize such amount over the estimated servicing life of the loan. Management
has not determined when it will adopt the provisions of SFAS No. 122 but has
determined that the effect of adoption on Home Savings' financial condition and
results of operations would be immaterial.
ACCOUNTING FOR STOCK-BASED COMPENSATION. In November 1995, the FASB issued
SFAS No. 123, "Accounting for Awards of Stock-Based Compensation to Employees."
SFAS No. 123 is effective for years beginning after December 15, 1995.
Earlier application is permitted. The statement defines a fair value-based
method of accounting for an employee stock option or similar equity instrument,
encourages all entities to adopt that method of accounting for an employee stock
option or similar equity instrument and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value-based method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("Opinion 25").
Under the fair value-based method, compensation cost is measured at the grant
date based on the value of the award and is recognized over the service period,
which is usually the vesting period. Under the intrinsic value-based method,
compensation cost is the excess, if any, of the quoted market price of the stock
at the grant date or other measurement date over the amount an employee must pay
to acquire the stock. Most fixed stock option plans - the most common type of
stock compensation plan - have no intrinsic value at grant date, and under
Opinion 25 no compensation cost is recognized for them. Compensation cost is
recognized for other types of stock-based compensation plans under Opinion 25,
including plans with variable, usually performance-based, features. This
statement requires that an employer's financial statements include certain
disclosures about stock-based employee compensation arrangements regardless of
the method used to account for them. Management has not determined when it will
adopt the provisions of SFAS No. 123 and has not estimated the effect of
adoption on Home Savings' financial condition or results of operations.
ACCOUNTING FOR EMPLOYEE STOCK OWNERSHIP PLANS. The Accounting Standards
Division of the AICPA approved SOP 93-6, "Employers' Accounting for Employee
Stock Ownership Plans," which is effective for fiscal years beginning after
December 31, 1993 and applies to shares of capital stock of sponsoring employers
acquired by employee stock ownership plans after December 31, 1992 that had not
been committed to be released as of January 1, 1992. SOP
52
<PAGE>
93-6, among other things, changed the measure of compensation recorded by
employers from the cost of employee stock ownership plan shares to the fair
value of such shares. To the extent that the fair value of the ESOP shares,
committed to be released directly to compensate employees, differs from the cost
of such shares, compensation expenses and a related charge or credit to
additional paid-in capital will be reported in Home Savings' financial
statements.
BUSINESS OF THE HOLDING COMPANY
Prior to the Conversion, the Holding Company will not transact any material
business. Following the Conversion, in addition to directing, planning and
coordinating the business activities of Home Savings, the Holding Company will
invest the proceeds of the Conversion which are retained by it. See "USE OF
PROCEEDS." Upon consummation of the Conversion, the Holding Company will have no
significant assets other than the shares of Home Savings' capital stock acquired
in the Conversion, the loan receivable held with respect to its loan to the ESOP
and that portion of the net proceeds of the Conversion retained by it, and it
will have no significant liabilities. Cash flow to the Holding Company will be
dependent upon investment earnings from the net proceeds retained by it,
payments on the ESOP loan and any dividends received from Home Savings.
Initially, the Holding Company will neither own nor lease any property, but will
instead use the premises, equipment and furniture of Home Savings. At the
present time, the Holding Company does not intend to employ any persons other
than its officers (who are not anticipated to be separately compensated by the
Holding Company), but will utilize the support staff of Home Savings from time
to time. Additional employees will be hired as appropriate to the extent the
Holding Company expands its business in the future. In the future, the Holding
Company may consider using some of the proceeds of the Conversion retained by it
to expand its operations in its existing primary market and other nearby areas
by acquiring other financial institutions or their branches. The Holding Company
has no current plans with respect to any such acquisitions, however. Existing
management of the Holding Company believes that it is in the best interest of
the Holding Company and its shareholders for the Holding Company to remain an
independent company.
BUSINESS OF HOME SAVINGS
GENERAL
Home Savings is engaged primarily in the business of attracting deposits
from the general public and using such deposits to make mortgage loans secured
by real estate. Home Savings makes one-to-four family residential real estate
loans, loans secured by multi-family residential and commercial real property,
construction loans and home equity line of credit loans. Home Savings also
makes a limited number of loans which are not secured by real property, such as
loans secured by pledged deposit accounts and various types of consumer loans.
Home Savings' primary source of revenue is interest income from its lending
activities. Home Savings' other major sources of revenue are interest and
dividend income from investments and mortgage-backed securities, interest income
from its interest-earning deposit balances in other depository institutions, and
transaction and fee income from its lending and deposit activities. The major
expenses of Home Savings are interest on deposits and general and administrative
expenses such as employee compensation and benefits, federal deposit insurance
premiums, data processing expenses and occupancy expenses.
As a North Carolina-chartered savings bank, Home Savings is subject to
examination and regulation by the FDIC and the Administrator. Upon consummation
of the Conversion, Home Savings, as a subsidiary of the Holding Company, will be
subject to indirect regulation by the Federal Reserve. The business and
regulation of Home Savings are subject to legislative and regulatory changes
from time to time, such as those resulting from the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") and the Federal Deposit
Insurance Corporation Improvement Act of 1991 (the "1991 Banking Law"). See
"SUPERVISION AND REGULATION -- Regulation of Home Savings."
53
<PAGE>
MARKET AREA
Home Savings' primary market area consists of the communities in a 10-mile
radius around its office in Thomasville, North Carolina. This area includes
portions of Davidson, Randolph and Guilford counties in North Carolina.
Employment in Home Savings' primary market area is diversified among
manufacturing, agricultural, retail and wholesale trade, government, services
and utilities. The High Point-Thomasville area of North Carolina is considered
to be the furniture capital of the world, so the economy of Home Savings'
primary market area is greatly affected by the furniture and home furnishings
industry. Thomasville Furniture Industries, Inc. is the largest employer in
Thomasville. Other major employers include Community General Hospital and
Parkdale Mills. Based upon 1995 comparative data, Home Savings had 15.7% of the
deposits in Thomasville and 5.5% of the deposits in Davidson County.
LENDING ACTIVITIES
GENERAL. Home Savings' primary source of revenue is interest and fee
income from its lending activities, consisting primarily of mortgage loans for
the purchase or refinancing of one-to-four family residential real property
located in its primary market area. Home Savings also makes loans secured by
multi-family and commercial properties, construction loans, home equity loans,
savings account loans and various types of consumer loans. Only 1% of Home
Savings' loan portfolio, before net items, is not secured by real estate. On
March 31, 1996, Home Savings' largest single outstanding loan had a balance of
approximately $532,000. In addition to interest earned on loans, Home Savings
receives fees in connection with loan originations, loan servicing, loan
modifications, late payments, loan assumptions and other miscellaneous services.
Home Savings generally does not sell its loans; both fixed and adjustable rate
loans are originated with the intention that they will be held in Home Savings'
loan portfolio.
LOAN PORTFOLIO COMPOSITION. Home Savings' net loan portfolio totalled
approximately $53.7 million at March 31, 1996 representing 66.9% of Home
Savings' total assets at such date. At March 31, 1996, 78.5% of Home Savings'
loan portfolio, before net items, was composed of one-to four-family residential
mortgage loans. Multi-family residential and commercial real estate loans
represented 16.7% of Home Savings' loan portfolio, before net items, on such
date. Construction loans and home equity loans represented 6.2% and 2.1%,
respectively, of Home Savings' loan portfolio, before net items, on such date.
As of March 31, 1996, 30.4% of the loans in Home Savings' loan portfolio had
adjustable interest rates.
The following table sets forth the composition of Home Savings' loan
portfolio by type of loan at the dates indicated.
54
<PAGE>
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------------
At March 31, 1996 1995 1994 1993
------------------- -------------------- ------------------- --------------------
% of % of % of % of
Amount Total Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Type of loan:
Real estate loans:
One-to four-family residential $42,179 78.49% $41,006 75.91% $41,082 76.36% $40,261 75.16%
Multi-family residential and 8,965 16.68% 10,039 18.58% 9,990 18.57% 9,491 17.72%
commercial 3,323 6.18% 3,111 5.76% 3,608 6.70% 4,601 8.59%
Construction 1,136 2.11% 1,136 2.10% 924 1.72% 839 1.57%
Home equity lines of credit ------- ------- ------- ------- ------- ------- ------- --------
Total real estate loans 55,603 103.46% 55,292 102.35% 55,604 103.35% 55,192 103.04%
------- ------- ------- ------- ------- ------- ------- --------
Other loans:
Consumer loans 342 0.64% 335 0.62% 557 1.03% 440 0.82%
Loans secured by deposits 200 0.37% 252 0.47% 358 0.67% 226 0.42%
------- ------- ------- ------- ------- ------- ------- --------
Total other loans 542 1.01% 587 1.09% 915 1.70% 666 1.24%
------- ------- ------- ------- ------- ------- ------- --------
Total loans 56,145 104.47% 55,879 103.44% 56,519 105.05% 55,858 104.28%
Less:
Construction loans in process 1,657 3.08% 1,215 2.25% 2,178 4.05% 1,894 3.54%
Deferred loan origination fees 246 0.46% 243 0.45% 244 0.45% 199 0.37%
Allowance for loan losses 501 0.93% 401 0.74% 295 0.55% 199 0.37%
------- ------- ------- ------- ------- ------- ------- --------
$53,741 100.00% $54,020 100.00% $53,802 100.00% $53,566 100.00%
======= ======= ======= ======= ======= ======= ======= ========
</TABLE>
55
<PAGE>
The following table sets forth the time to contractual maturity of Home
Savings' loan portfolio at March 31, 1996. Loans which have adjustable rates
are shown as being due in the period during which rates are next subject to
change, while fixed rate and other loans are shown as due in the period of
contractual maturity. Demand loans, loans having no stated maturity and
overdrafts are reported as due in one year or less. The table does not include
prepayments or scheduled principal repayments. Amounts in the table are net of
loans in process and are net of unamortized loan fees.
<TABLE>
<CAPTION>
At March 31, 1996
------------------------------------------------------------------
More Than More Than
1 Year 1 Year to 3 Years to More Than
or Less 3 Years 5 Years 5 Years Total
-------- --------- ---------- --------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Real estate loans:
Adjustable rate residential 1-4 family $ 9,567 $ 16 $ -- $ -- $ 9,583
Fixed rate residential 1-4 family 559 523 1,148 31,255 33,485
Other real estate loans - adjustable 6,882 -- -- -- 6,882
Other real estate loans - fixed -- 40 57 3,653 3,750
Other loans 33 273 236 -- 542
Less:
Allowance for loan losses (501) -- -- -- (501)
------- ---- ------ ------- -------
$16,540 $852 $1,441 $34,908 $53,741
======= ==== ====== ======= =======
</TABLE>
The following table sets forth the dollar amount at March 31, 1996 of all
loans maturing or repricing on or after March 31, 1997 which have fixed or
adjustable interest rates.
<TABLE>
<CAPTION>
Fixed Adjustable
Rates Rates
----- ----------
(In Thousands)
<S> <C> <C>
Real estate loans $32,926 $16
Other loans 4,259 --
------- ---
$37,185 $16
======= ===
</TABLE>
ORIGINATION AND SALE OF LOANS. Historically, Home Savings has generally
not originated its one-to-four family residential mortgage or other loans with
the intention that they will be sold in the secondary market. Although Home
Savings believes that many of its one-to-four family residential loans could be
sold in the secondary market, some of such loans could be sold only after Home
Savings incurred certain costs and/or discounted the purchase price. As a
result, Home Savings' loan portfolio is less liquid than would be the case if it
was composed entirely of loans originated in conformity with secondary market
requirements.
The table below sets forth Home Savings' loan origination, purchase and
sale activity and loan portfolio repayment experience during the periods
indicated.
56
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31, YEAR ENDED JUNE 30,
----------- -------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Loans receivable, net, beginning of period $54,020 $53,802 $53,566 $50,120
Loan originations:
One-to four-family residential 7,251 5,370 10,530 11,679
Multi-family residential and commercial 1,322 1,415 1,116 2,701
Construction 912 1,497 1,284 1,283
Home equity lines of credit 137 295 395 268
Consumer loans 159 272 279 442
Loans secured by deposits 111 224 383 303
-------- ------- -------- --------
Total loan originations 9,892 9,073 13,987 16,676
Loans purchased 0 0 0 0
Loan sales 0 0 0 0
Principal repayments (10,068) (8,750) (13,622) (13,121)
Other changes, net (1) (103) (105) (129) (109)
-------- ------- -------- --------
Loans receivable, net, end of period $53,741 $54,020 $ 53,802 $ 53,566
======= ======= ======== ========
</TABLE>
(1) Includes changes in deferred loan fees and the allowance for loan losses.
57
<PAGE>
ONE-TO-FOUR FAMILY RESIDENTIAL REAL ESTATE LENDING. Home Savings' primary
lending activity, which it intends to continue to emphasize, is the origination
of fixed and adjustable rate first mortgage loans to enable borrowers to
purchase or refinance one-to-four family residential real property. Consistent
with Home Savings' emphasis on being a community-oriented financial institution,
it is and has been Home Savings' strategy to focus its lending efforts in its
primary market area. On March 31, 1996, approximately 78.5% of Home Savings'
real estate loan portfolio, before net items, consisted of one-to-four family
residential real estate loans. These include both loans secured by detached
single-family residences and condominiums and loans secured by housing
containing not more than four separate dwelling units. Of such loan amounts,
28.6% had adjustable interest rates.
Home Savings originates conventional mortgage loans secured by owner
occupied property in amounts of up to 97% of the value of the property. Private
mortgage insurance is generally required if the loan amount exceeds 80% of the
value of the property. The loans have both fixed and adjustable rates. The
maximum term for fixed rate loans is 15 years, and the maximum term for
adjustable rate loans is 25 years. Home Savings also makes fixed rate loans
requiring a balloon payment at the end of 10 years and having a 30-year
amortization schedule. The interest rates on adjustable rate loans are
generally adjustable every year and are tied to the one-year United States
treasury bill rate. The loans have rate caps which limit the amount of changes
at the time of each adjustment and over the lives of the loans. Home Savings
offers loans which require monthly payments and loans which require payments
every two weeks, in which event the payment is drafted from an existing Home
Savings deposit account.
Adjustable rate loans are generally considered to involve a greater degree
of credit risk than fixed rate loans because borrowers may have difficulty
meeting their payment obligations if interest rates and required payment amounts
increase substantially. Substantially all of the fixed-rate loans in Home
Savings' mortgage loan portfolio have due on sale provisions allowing Home
Savings to declare the unpaid balance due and payable in full upon the sale or
transfer of an interest in the property securing the loan.
While one-to-four family residential loans are normally originated for up
to 25 year terms, such loans customarily remain outstanding for substantially
shorter periods because borrowers often prepay their loans in full upon sale of
the property pledged as security or upon refinancing the original loan. Thus,
average loan maturity is a function of, among other factors, the level of
purchase and sale activity in the real estate market, prevailing interest rates,
and the interest rates payable on outstanding loans.
Home Savings generally requires title insurance for its one-to-four family
residential loans. Home Savings also generally requires that fire and extended
coverage casualty insurance (and, if appropriate, flood insurance) be maintained
in an amount at least equal to the loan amount or replacement cost of the
improvements on the property securing the loans, whichever is greater.
MULTI-FAMILY RESIDENTIAL AND COMMERCIAL REAL ESTATE LENDING. On March 31,
1996, Home Savings had $9.0 million outstanding in 78 loans secured by multi-
family residential and commercial properties, comprising approximately 16.7% of
its loan portfolio, before net items, as of that date. These loans are secured
by apartments, office, retail and other commercial real estate and by church
properties in Home Savings' primary market area and have fixed and adjustable
interest rates. These loans generally do not exceed 75% of the appraised value
of the real estate securing the loans. Multi-family residential loans have
terms of up to 20 years, if the interest rate is adjustable, or 15 years, if the
interest rate is fixed. Commercial real estate loans have terms of up to 15
years if the interest rate is adjustable, or 10 years, if the interest rate is
fixed. The adjustable rate loans generally use the same index and rate change
limitations and are as used in one-to-four family residential lending. See "--
One-to-Four Family Residential Real Estate Lending." Home Savings generally
requires title insurance in connection with its multi-family residential and
commercial real estate loans. Home Savings also generally requires that fire
and extended coverage casualty insurance (and, if appropriate, flood insurance)
be maintained in an amount at least equal to the loan amount or the replacement
cost of the improvements on the property securing the loans, whichever is
greater. Loans secured by multi-family and commercial real estate generally are
larger than one-to-four family residential loans and involve a greater degree of
risk. Payments on these loans depend to a large degree on results of operations
and management of the properties and may be affected to a greater extent by
adverse conditions in the real estate market or the economy in general. Home
Savings intends to continue to make significant amounts of multi-family
residential and commercial real estate loans.
58
<PAGE>
CONSTRUCTION LENDING. Home Savings makes construction loans for the
construction of single-family dwellings, and for the construction of multi-
family and commercial buildings. The aggregate outstanding balance of such
loans on March 31, 1996 was approximately $3.3 million, representing
approximately 6.2% of Home Savings' loan portfolio, before net items. Some of
these loans were made to persons who are constructing properties for the purpose
of occupying them; others were made to builders who were constructing properties
for sale. Loans made to builders are generally "pure construction" loans which
require the payment of interest during the construction period of generally one
year or less and the payment of the principal in full at the end of the
construction period. Loans made to individual property owners are both pure
construction loans and "construction-permanent" loans which generally provide
for the payment of interest only during a construction period, after which the
loans convert to a permanent loan at fixed or adjustable interest rates having
terms similar to one-to-four family residential loans.
Construction loans for one-to-four family real estate to be occupied by the
borrower generally have a maximum loan-to-value ratio of 80% of the appraised
value of the property. Other construction loans are made at loan to value
ratios of up to 75%. Title insurance is generally required for construction
loans. In addition, Home Savings generally requires builders risk or casualty
insurance (and, if appropriate, flood insurance) on such loans.
Construction loans are generally considered to involve a higher degree of
risk than long-term financing secured by real estate which is already occupied.
A lender's risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at the completion of
construction and the estimated cost (including interest) of construction. If
the estimate of construction costs proves to be inaccurate, the lender may be
required to advance funds beyond the amount originally committed in order to
permit completion of construction. If the estimate of anticipated value proves
to be inaccurate, the lender may have security which has value insufficient to
assure full repayment. In addition, repayment of loans made to builders to
finance construction of properties is often dependent upon the builder's ability
to sell the property once construction is completed.
HOME EQUITY LENDING. At March 31, 1996, Home Savings had approximately
$1.1 million in home equity line of credit loans, representing approximately
2.1% of its loan portfolio, before net items. Home Savings' home equity lines
of credit have adjustable interest rates tied to prime interest rates plus a
margin. The home equity lines of credit require the payments of principal and
interest monthly, and all outstanding amounts must be paid in full at the end of
10 years. Home equity lines of credit are generally secured by subordinate
liens against residential real property. Home Savings requires title opinions
from attorneys in connection with these loans. Home Savings requires that fire
and extended coverage casualty insurance (and, if appropriate, flood insurance)
be maintained in an amount at least sufficient to cover its loan. Home equity
loans are generally limited so that the amount of such loans, along with any
senior indebtedness, does not exceed 80% of the value of the real estate
security. Because home equity loans involve revolving lines of credit which can
be drawn over a period of time, Home Savings faces risks associated with changes
in the borrower's financial condition. Because home equity loans have
adjustable interest rates with no rate caps (other than usury limitations),
increased delinquencies could occur if interest rate increases occur and
borrowers are unable to satisfy higher payment requirements.
CONSUMER LOANS. Home Savings offers various consumer loans, including home
improvement loans, automobile loans and other secured loans. Home Savings
generally does not make unsecured loans. At March 31, 1996, Home Savings'
consumer loan portfolio totalled $342,000, representing 0.64% of its total loan
portfolio, before net items. Automobile loans generally have terms not
exceeding 60 months, have fixed interest rates and do not exceed 90% of the fair
market value of the automobile securing the loan. Home improvement loans are
generally secured by a subordinate lien on the property being improved, do not
exceed 80% of the value of such property less the amount secured by any prior
liens, and have terms of no more than 10 years. Consumer lending usually
involves more risk than residential mortgage lending because payment patterns
are more significantly influenced by general economic conditions and because any
collateral for such loans frequently consists of depreciating property.
LOANS SECURED BY DEPOSITS. Home Savings also offers loans secured by
deposit accounts. At March 31, 1996, such loans totalled $200,000, representing
0.37% of Home Savings' loan portfolio, before net items. The interest rates on
these loans are variable and are generally 2% above the interest rate being paid
on the deposit account serving as collateral. The maximum amounts of these
loans is generally 90% of the related deposit account.
59
<PAGE>
LOAN SOLICITATION, PROCESSING AND UNDERWRITING. Loan originations are
derived from a number of sources such as referrals from real estate brokers,
present depositors and borrowers, builders, attorneys, walk-in customers and in
some instances, other lenders.
During its loan approval process, Home Savings assesses the applicant's
ability to make principal and interest payments on the loan and the value of the
property securing the loan. Home Savings obtains detailed written loan
applications to determine the borrower's ability to repay and verifies responses
on the loan application through the use of credit reports, financial statements,
and other confirmations. Under current practice, the responsible officer or
loan officer of Home Savings analyzes the loan application and the property
involved, and an appraiser inspects and appraises the property. Home Savings
generally requires independent fee appraisals on loans originated primarily on
the basis of real estate collateral. Home Savings also obtains information
concerning the income, financial condition, employment and the credit history of
the applicant.
All real estate loans, except home equity loans, must be approved by Home
Savings' loan committee which includes three members of its Board of Directors.
Home equity and consumer loans, up to specified limits, may be approved by loan
officers. All loans must be reported to the Board of Directors monthly.
Normally, upon approval of a residential mortgage loan application, Home
Savings gives a commitment to the applicant that it will make the approved loan
at a stipulated rate any time within a 45-day period. The loan is typically
funded at such rate of interest and on other terms which are based on market
conditions existing as of the date of the commitment. As of March 31, 1996,
Home Savings had $773,000 in such unfunded mortgage loan commitments. In
addition, on such date Home Savings had $1.7 million in undisbursed construction
loans and $487,000 in unfunded commitments for unused lines of credit.
INTEREST RATES, TERMS, POINTS AND FEES. Interest rates and fees charged on
Home Savings' loans are affected primarily by the market demand for loans,
competition, the supply of money available for lending purposes and Home
Savings' cost of funds. These factors are affected by, among other things,
general economic conditions and the policies of the federal government,
including the Federal Reserve, tax policies and governmental budgetary matters.
In addition to earning interest on loans, Home Savings receives fees in
connection with originating loans. Fees for loan servicing, loan modifications,
late payments, loan assumptions and other miscellaneous services in connection
with loans are also charged by Home Savings.
NONPERFORMING ASSETS AND ASSET CLASSIFICATION. When a borrower fails to
make a required payment on a loan and does not cure the delinquency promptly,
the loan is classified as delinquent. In this event, the normal procedure
followed by Home Savings is to make contact with the borrower at prescribed
intervals in an effort to bring the loan to a current status, and late charges
are assessed as allowed by law. In most cases, delinquencies are cured
promptly. If a delinquency is not cured, Home Savings normally, subject to any
required prior notice to the borrower, commences foreclosure proceedings. If
the loan is not reinstated within the time permitted for reinstatement, or the
property is not redeemed prior to sale, the property may be sold at a
foreclosure sale. In foreclosure sales, Home Savings may acquire title to the
property through foreclosure, in which case the property so acquired is offered
for sale and may be financed by a loan involving terms more favorable to the
borrower than those normally offered. Any property acquired as a result of
foreclosure or by deed in lieu of foreclosure is classified as real estate owned
until such time as it is sold or otherwise disposed of by Home Savings to
recover its investment. As of March 31, 1996, Home Savings recorded $333,000 in
real estate acquired in settlement of loans. Real estate acquired through, or
in lieu of, loan foreclosure is initially recorded at the lower of cost or fair
value at the date of foreclosure, establishing a new cost basis. After
foreclosure, valuations are periodically performed by management, and the real
estate is carried at the lower of cost or fair value minus costs to sell. Costs
relating to the development and improvement of the property are capitalized, and
costs relating to holding the property are charged to expenses. See Note A to
"Notes to Financial Statements."
Interest on loans is recorded as borrowers' monthly payments become due.
Accrual of interest on loans is suspended when interest becomes 90 days past due
or earlier when, in management's judgment, doubts exist as to the
60
<PAGE>
collectibility of additional interest. Interest more than 90 days past due is
reserved. Loans begin accruing interest again when interest is brought current.
The following table sets forth information with respect to nonperforming
assets identified by Home Savings, including nonaccrual loans and real estate
owned at the dates indicated.
<TABLE>
<CAPTION>
At
March 31, At June 30,
--------- --------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-performing loans $ 497 $ 841 $1,605 $1,601 $ 557 $ 449
Foreclosed real estate 333 71 111 193 161 12
----- ----- ------ ------ ----- -----
Total non-performing assets $ 830 $ 912 $1,716 $1,794 $ 718 $ 461
===== ===== ====== ====== ===== =====
Non-performing assets to total assets 1.03% 1.21% 2.32% 2.53% 1.09% 0.78%
===== ===== ====== ====== ===== =====
</TABLE>
Applicable regulations require Home Savings to "classify" its own assets on
a regular basis. In addition, in connection with examinations of savings
institutions, regulatory examiners have authority to identify problem assets
and, if appropriate, classify them. Problem assets are classified as
"substandard," "doubtful" or "loss," depending on the presence of certain
characteristics as discussed below.
An asset is considered "substandard" if not adequately protected by the
current net worth and paying capacity of the obligor or the collateral pledged,
if any. "Substandard" assets include those characterized by well-defined
weakness with possible risk of loss if the deficiency is not corrected. Assets
classified as "doubtful" have all of the weaknesses inherent in those classified
"substandard" with the added characteristic that the weaknesses present make
"collection or liquidation in full," on the basis of currently existing facts,
conditions, and values, "highly questionable." Assets classified "loss" are
those considered "uncollectible" and of such little value that their continuance
as assets without the establishment of a loss reserve is not warranted.
As of March 31, 1996, Home Savings had approximately $766,000 of loans
internally classified as "substandard," no loans classified as "doubtful" and no
loans classified as "loss." Total classified loans as of June 30, 1995 and 1994
were approximately $931,000 and approximately $1.9 million, respectively.
When an insured institution classifies problem assets as either substandard
or doubtful, it is required to establish general allowances for loan losses in
an amount deemed prudent by management. These allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities and the risks associated with particular problem assets.
When an insured institution classifies problem assets as "loss," it charges off,
or writes down the balance of, the asset. Home Savings' determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the FDIC and the Administrator which can order the
establishment of additional loss allowances.
ALLOWANCE FOR LOAN LOSSES. In originating loans, Home Savings recognizes
that credit losses will be experienced and that the risk of loss will vary with,
among other things, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a secured loan, the
quality of the security for the loan as well as general economic conditions. It
is management's policy to maintain an adequate allowance for loan losses based
on, among other things, Home Savings' historical loan loss experience,
evaluation of economic conditions and regular reviews of delinquencies and loan
portfolio quality. Specific allowances are provided for individual loans when
ultimate collection is considered questionable by management after reviewing the
current status of loans which are contractually past due and considering the net
realizable value of the security for the loans.
61
<PAGE>
Management continues to actively monitor Home Savings' asset quality, to
charge off loans against the allowance for loan losses when appropriate and to
provide specific loss reserves when necessary. Although management believes it
uses the best information available to make determinations with respect to the
allowance for loan losses, future adjustments may be necessary if economic
conditions differ substantially from the economic conditions in the assumptions
used in making the initial determinations.
The following table describes the activity related to Home Savings'
allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
Nine Months
Ended March 31, Year Ended June 30,
----------------- -----------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 401 $ 295 $ 295 $ 198 $ 95
----- ----- ----- ----- -----
Loans charged off:
Real estate 31 1 1 90 49
Other -- -- -- 14 13
----- ----- ----- ----- -----
Total loans charged off 31 1 1 104 62
Recoveries:
Real estate -- 2 1 84 --
Other 1 -- 1 3 --
----- ----- ----- ----- -----
Net loans charged off (recovered) 30 (1) (1) 17 62
----- ----- ----- ----- -----
Provision for loan losses 130 75 105 114 165
----- ----- ----- ----- -----
Balance at end of period $ 501 $ 371 $ 401 $ 295 $ 198
===== ===== ===== ===== =====
Ratio of net charge-offs (recoveries) to average loans outstanding during
the period 0.06% --% --% 0.03% 0.12%
===== ===== ===== ===== =====
</TABLE>
The following table sets forth the composition of the allowance for loan
losses by type of loan at the dates indicated. The allowance is allocated to
specific categories of loans for statistical purposes only, and may be applied
to loan losses incurred in any loan category.
62
<PAGE>
<TABLE>
<CAPTION>
AT MARCH 31, AT JUNE 30,
--------------------------------------- ---------------------------------------
1996 1995
--------------------------------------- ---------------------------------------
PERCENT OF AMOUNT PERCENT OF AMOUNT
ALLOWANCE OF LOANS ALLOWANCE OF LOANS
AMOUNT OF TO TOTAL TO GROSS AMOUNT OF TO TOTAL TO GROSS
ALLOWANCE ALLOWANCE LOANS ALLOWANCE ALLOWANCE LOANS
--------- --------- -------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One-to four-family residential $211 42.12% 75.13% $164 40.90% 73.38%
Multi-family residential and
commercial 90 17.96% 15.97% 100 24.94% 17.97%
Construction 17 3.39% 5.91% 19 4.74% 5.57%
Home equity lines of credit 11 2.20% 2.02% 11 2.74% 2.03%
---- ------- ------- ---- ------- -------
Total real estate loans 329 65.67% 99.03% 294 73.32% 98.95%
---- ------- ------- ---- ------- -------
Other loans:
Consumer loans 12 2.39% 0.61% 12 2.99% 0.60%
Loans secured by deposits -- 0.00% 0.36% -- 0.00% 0.45%
---- ------- ------- ---- ------- -------
Total other loans 12 2.39% 0.97% 12 2.99% 1.05%
---- ------- ------- ---- ------- -------
Unallocated 160 31.94% -- 95 23.69% --
---- ------- ------- ---- ------- -------
Total allowance for loan losses $501 100.00% 100.00% $401 100.00% 100.00%
---- ------- ------- ---- ------- -------
<CAPTION>
AT JUNE 30, AT JUNE 30,
--------------------------------------- ---------------------------------------
1994 1993
--------------------------------------- ---------------------------------------
PERCENT OF AMOUNT PERCENT OF AMOUNT
ALLOWANCE OF LOANS ALLOWANCE OF LOANS
AMOUNT OF TO TOTAL TO GROSS AMOUNT OF TO TOTAL TO GROSS
ALLOWANCE ALLOWANCE LOANS ALLOWANCE ALLOWANCE LOANS
--------- --------- -------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One-to four-family residentiaL $123 41.69% 72.69% $ 90 45.45% 72.08%
Multi-family residential and
commercial 75 25.42% 17.68% 42 21.21% 16.99%
Construction 14 4.75% 6.38% 27 13.64% 8.24%
Home equity lines of credit 9 3.05% 1.63% 8 4.04% 1.50%
---- ------- ------- ---- ------- -------
Total real estate loans 221 74.91% 98.38% 167 84.34% 98.81%
---- ------- ------- ---- ------- -------
Other loans:
Consumer loans 13 4.41% 0.99% 16 8.08% 0.79%
Loans secured by deposits -- 0.00% 0.63% -- 0.00% 0.40%
---- ------- ------- ---- ------- -------
Total other loans 13 4.41% 1.62% 16 8.08% 1.19%
---- ------- ------- ---- ------- -------
Unallocated 61 20.68% -- 15 7.58% --
---- ------- ------- ---- ------- -------
Total allowance for loan losses $295 100.00% 100.00% $198 100.00% 100.00%
==== ======= ======= ==== ======= =======
</TABLE>
63
<PAGE>
INVESTMENT SECURITIES
Interest and dividend income from investment securities generally provides
the second largest source of income to Home Savings after interest on loans. In
addition, Home Savings receives interest income from deposits in other
financial institutions. At March 31, 1996, Home Savings' investment portfolio
totalled approximately $23.7 million and consisted of U.S. government and agency
securities, mortgage-backed securities, municipal bonds, interest-earning
deposits in other financial institutions, and stock of the Federal Home Loan
Mortgage Corporation and Federal Home Loan Bank of Atlanta.
Investments in mortgage-backed securities involve a risk that, because of
changes in the interest rate environment, actual prepayments will be greater
than estimated prepayments over the life of the security, which may require
adjustments to the amortization of any premium or accretion of any discount
relating to such instruments, thereby reducing the net yield on such securities.
There is also reinvestment risk associated with the cash flows from such
securities. In addition, the market value of such securities may be adversely
affected by changes in interest rates.
The FASB has issued SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" which addresses the accounting and reporting for
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. These investments are to be classified
in three categories and accounted for as follows: (1) debt securities that the
entity has the positive intent and ability to hold to maturity are classified as
held-to-maturity and reported at amortized cost; (2) debt and equity securities
that are bought and held principally for the purpose of selling them in the near
term are classified as trading securities and reported at fair value, with net
unrealized gains and losses included in earnings; and (3) debt and equity
securities not classified as either held-to-maturity or trading securities are
classified as securities available-for-sale and reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate
component of equity. At March 31, 1996, Home Savings had no trading securities.
Home Savings adopted SFAS No. 115 as of July 1, 1994. The adoption affected
only the held-to-maturity and available-for-sale classifications, with net
unrealized securities losses on the securities available-for-sale of $202,874,
net of related deferred tax assets of $104,511, reported as a separate component
of equity in its financial statements at July 1, 1994. See Note B of "Notes to
Consolidated Financial Statements."
The amortized cost of securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest
income from investments. Interest and dividends are included in interest income
from investments. Realized gains and losses, and declines in value judged to be
other than temporary are included in net securities gains (losses). The cost of
securities sold is based on the specific identification method. Prior to the
adoption of SFAS No. 115, Home Savings stated its debt securities at amortized
cost and its marketable equity securities at the lower of cost or market.
Accumulated changes in net unrealized losses on marketable equity securities
were included in retained earnings.
As a member of the FHLB of Atlanta, Home Savings is required to maintain an
investment in stock of the FHLB of Atlanta equal to the greater of 1% of Home
Savings' outstanding home loans or 5% of its outstanding advances from the FHLB
of Atlanta. No ready market exists for such stock, which is carried at cost.
As of March 31, 1996, Home Savings' investment in stock of the FHLB of Atlanta
was $614,000.
North Carolina regulations require Home Savings to maintain a minimum
amount of liquid assets which may be invested in specified short-term
securities. See "SUPERVISION AND REGULATION -- Regulation of Home Savings --
Liquidity." Home Savings is also permitted to make certain other securities
investments.
Home Savings' current investment policy provides that investment decisions
will be made by James G. Hudson, Jr., President, Chief Executive Officer and
Treasurer, and ratified by the Board of Directors. The investment policy
provides that the objectives of the investment portfolio are to: (i) provide
and maintain liquidity within regulatory guidelines, (ii) maintain a balance of
high quality, diversified investments, (iii) provide collateral for pledging
requirements, (iv) serve as a counter-cyclical balance to earnings, (v) maximize
returns without sacrificing liquidity and safety, (vi) purchase securities and
originate loans for investment purposes only, (vii) invest the majority of Home
64
<PAGE>
Savings' funds in first mortgage loans, Federal Home Loan Mortgage Corporation
participation certificates and United States government and agency obligations,
and (viii) to hold securities until maturity unless it is financially feasible
to do otherwise.
The following table sets forth certain information regarding Home Savings'
investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
At March 31, At June 30,
------------ ------------------------------
1996 1995 1994 1993
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. government and agency securities $ 5,485 $ 6,021 $ -- $ --
Mortgage-backed securities 4,127 2,389 -- --
Municipal bonds 616 -- -- --
FHLMC stock 314 254 -- --
------- ------- ------- -------
Total securities available for sale 10,542 8,664 -- --
------- ------- ------- -------
Securities held to maturity:
U.S. government and agency securities 5,507 4,756 13,059 9,224
Mortgage-backed securities -- -- 2,822 1,692
Municipal bonds 380 377 -- --
FHLMC stock -- -- 14 14
------- ------- ------- -------
Total securities held to maturity 5,887 5,133 15,895 10,930
------- ------- ------- -------
Total investment securities 16,429 13,797 15,895 10,930
Interest-earning balances in other banks 6,659 4,441 1,503 4,313
Federal Home Loan Bank stock 614 614 614 590
------- ------- ------- -------
Total investments $23,702 $18,852 $18,012 $15,833
======= ======= ======= =======
</TABLE>
At March 31, 1996, the market value of Home Savings' investment securities
available for sale and held to maturity were $10.5 million and $5.9 million,
respectively.
The following table sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of Home Savings'
investment portfolio as of March 31, 1996.
65
<PAGE>
<TABLE>
<CAPTION>
After One Year After One Year
One Year or Less Through Five Years Through Five Years
----------------------- -------------------- --------------------
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
-------- ------- -------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. government and agency securities $ 1,500 5.36% $ 3,985 5.70% $ -- --
Mortgage-backed securities -- -- -- -- 1,677 6.30%
Municipal bonds -- -- 616 4.35% -- --
FHLMC stock -- -- -- -- -- --
Securities held to maturity:
U.S. government and agency securities 2,801 5.50% 2,706 6.04% -- --
Municipal bonds -- -- -- -- -- --
Other:
Interest-earning balances in other banks 6,659 5.35% -- -- -- --
Federal Home Loan Bank stock -- -- -- -- -- --
------- ---- ------ ---- ------ ----
$10,960 5.39% $7,307 5.71% $1,677 6.30%
======= ==== ====== ==== ====== ====
<CAPTION>
After Ten Years Total
-------------------- -------------------
Carrying Average Carrying Average
Value Yield Value Yield
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. government and agency securities $ -- -- $ 5,485 5.61%
Mortgage-backed securities 2,450 6.67% 4,127 6.52%
Municipal bonds -- -- 616 4.35%
FHLMC stock 314 1.41% 314 1.41%
Securities held to maturity:
U.S. government and agency securities -- -- 5,507 5.77%
Municipal bonds 380 6.20% 380 6.20%
Other:
Interest-earning balances in other banks -- -- 6,659 5.35%
Federal Home Loan Bank stock 614 7.25% 614 7.25%
------- ---- ------- ----
$ 3,758 6.28% $23,702 5.69
======= ==== ======== ====
</TABLE>
66
<PAGE>
DEPOSITS AND BORROWINGS
GENERAL. Deposits are the primary source of Home Savings' funds for
lending and other investment purposes. In addition to deposits, Home Savings
derives funds from loan principal repayments, interest payments, investment
income and principal repayments, interest from its own interest-earning
deposits, interest income and repayments from mortgage-backed securities and
otherwise from its operations. Loan repayments are a relatively stable source
of funds while deposit inflows and outflows may b e significantly influenced by
general interest rates and money market conditions. Borrowings may be used on a
short-term basis to compensate for reductions in the availability of funds from
other sources. They may also be used on a longer term basis for general
business purposes.
DEPOSITS. Home Savings attracts both short-term and long-term deposits
from the general public by offering a variety of accounts and rates. Home
Savings offers passbook savings accounts, statement savings accounts, negotiable
order of withdrawal accounts, money market demand accounts, non-interest-bearing
accounts, and fixed interest rate certificates with varying maturities. At
March 31, 1996, 74.63% of Home Savings' deposits consisted of certificate
accounts, 7.46% consisted of passbook and statement savings accounts, 17.48%
consisted of interest-bearing transaction accounts and 0.43% consisted of
noninterest-bearing transaction accounts. Deposit flows are greatly influenced
by economic conditions, the general level of interest rates, competition, and
other factors, including the restructuring of the thrift industry. Home
Savings' savings deposits traditionally have been obtained primarily from its
primary market area. Home Savings utilizes traditional marketing methods to
attract new customers and savings deposits, including print media advertising
and direct mailings. Home Savings does not advertise for deposits outside of
its local market area or utilize the services of deposit brokers.
The following table sets forth information relating to Home Savings'
deposit flows during the periods shown and deposits at the end of such periods.
<TABLE>
<CAPTION>
At or for the Nine Months At or for the Year
Ended March 31, Ended June 30,
------------------------- ------------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Total deposits at beginning of period $64,448 $63,937 $63,937 $62,129 $58,205
Net increase (decrease) before interest
credited 3,091 (2,373) (990) 405 2,349
Interest credited 1,368 1,100 1,501 1,403 1,575
------- ------- ------- ------- -------
Total deposits at end of period $68,907 $62,664 $64,448 $63,937 $62,129
======= ======= ======= ======= =======
</TABLE>
The following table sets forth certain other information regarding Home
Savings' savings deposits at the dates indicated.
67
<PAGE>
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995 June 30, 1994
------------------------- ------------------------- ---------------------------
Weighted Weighted Weighted
Average % of Average % of Average % of
Amount Rate Total Amount Rate Total Amount Rate Total
------ ------- ----- ------ ------- ----- ------ ------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand accounts:
Passbook and statement accounts $ 5,143 3.00% 7.46% $ 5,248 3.00% 8.14% $ 5,660 3.00% 8.85%
NOW accounts 2,268 2.75% 3.29% 1,885 2.75% 2.93% 1,973 2.75% 3.09%
Money market demand accounts 9,780 3.90% 14.19% 10,498 3.68% 16.29% 13,060 3.23% 20.43%
Non-interest bearing accounts 294 -- 0.43% 299 -- 0.46% 106 -% .16%
------- ------- ------- ------- ------- -------
Total demand deposits 17,485 3.42% 25.37% 17,930 3.32% 27.82% 20,799 3.11% 32.53%
------- ------- ------- ------- ------- -------
Certificate accounts with original
maturities of:
6 months 9,541 5.28% 13.85% 10,026 5.93% 15.56% 9,248 3.69% 14.46%
12 months 15,748 5.83% 22.85% 13,944 5.54% 21.64% 14,593 4.08% 22.82
18 months 958 5.95% 1.39% 969 5.23% 1.50% 915 4.26% 1.43%
24 months 1,985 5.81% 2.88% 1,781 5.45% 2.76% 964 4.89% 1.51%
30 months 903 5.57% 1.31% 984 5.03% 1.53% 1,088 4.95% 1.70%
36 months 4,539 5.59% 6.59% 3,725 5.38% 5.78% 3,414 5.32% 5.34%
IRA certificates 4,232 6.00% 6.14% 3,624 5.35% 5.62% 3,724 4.41% 5.83%
Jumbo ($100,000 or more) 13,516 6.03% 19.62% 11,465 6.01% 17.79% 9,192 4.20% 14.38%
------- ------- ------- ------- ------- -------
Total certificates 51,422 5.77% 74.63% 46,518 5.69% 72.18% 43,138 4.19% 67.47%
------- ------- ------- ------- ------- -------
Total deposits $68,907 5.17% 100.00% $64,448 5.03% 100.00% $63,937 3.84% 100.00%
======= ===== ======= ======= ===== ======= ======= ===== =======
</TABLE>
68
<PAGE>
The following table presents the maturities and weighted average rates paid
on all certificates of deposit as of March 31, 1996:
<TABLE>
<CAPTION>
Amount Due During the Year Ending March 31,
-------------------------------------------------------------------------------------------
1997 1998 1999 Total
----------------- --------------------- ------------------- ------------------
Weighted Weighted Weighted Weighted
Amount Rate Amount Rate Amount Rate Amount Rate
------- -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Certificate accounts with original maturities of:
6 months $ 9,541 5.28% $ -- -- $ -- -- $ 9,541 5.28%
12 months 15,748 5.83% -- -- -- -- 15,748 5.83%
18 months 560 6.20% 398 5.60% -- -- 958 5.95%
24 months 1,302 5.67% 683 6.07% -- -- 1,985 5.81%
30 months 358 4.67% 244 6.46% 301 5.92% 903 5.57%
36 months 2,570 5.26% 623 5.51% 1,346 6.26% 4,539 5.59%
IRA certificates 3,000 6.05% 1,232 5.89% -- -- 4,232 6.00%
Jumbo ($100,000 or more) 12,933 6.00% 283 6.14% 300 7.00% 13,516 6.03%
------- ------ ------ -------
$46,012 5.74% $3,463 5.88% $1,947 6.32% $51,422 5.77%
======= ===== ====== ===== ====== ===== ======= =====
</TABLE>
69
<PAGE>
The following table presents the maturities and weighted average rates paid
on all time certificates of deposit as of June 30, 1995:
<TABLE>
<CAPTION>
Amount Due During the Year Ending June 30,
-----------------------------------------------------------------------------------------
1996 1997 1998 Total
----------------- ------------------- ------------------- ------------------
Weighted Weighted Weighted Weighted
Amount Rate Amount Rate Amount Rate Amount Rate
------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Certificate accounts with original maturities of:
6 months 10,026 5.93% $ -- -- $ -- -- $10,026 5.93%
12 months 13,944 5.54% -- -- -- -- 13,944 5.54%
18 months 636 4.68% 333 6.28% -- -- 969 5.23%
24 months 669 4.83% 1,112 5.82% -- -- 1,781 5.45%
30 months 811 4.79% 49 5.26% 124 6.52% 984 5.03%
36 months 747 5.30% 2,501 5.25% 477 6.19% 3,725 5.38%
IRA certificates 2,272 4.83% 1,352 6.23% -- -- 3,624 5.35%
Jumbo ($100,000 or more) 11,264 6.01% 201 5.88% -- -- 11,465 6.01%
------- ------ ---- -------
$40,369 5.68% $5,548 5.69% $601 6.26% $46,518 5.69%
======= ===== ====== ===== ==== ===== ======= =====
</TABLE>
70
<PAGE>
Based upon historical experience, Home Savings expects that a substantial
percentage of its time deposits coming due within twelve months after March 1996
will be renewed.
As of March 31, 1996, the aggregate amount of time certificates of deposit
in amounts greater than or equal to $100,000 outstanding was $13.5 million,
representing 26.3% of all certificates of deposit on such date. Management
believes that most of these deposits are held by long-time, local customers of
Home Savings. Some of these deposits were deposits of state and local
governments which are subject to rebidding from time to time and to
securitization requirements. The following table presents the maturity of these
time certificates of deposit at such date.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
3 Months or less $ 4,331
Over 3 months through 6 months 2,786
Over 6 months through 12 months 5,816
Over 12 months 583
-------
Total $13,516
=======
</TABLE>
BORROWINGS. Although it has not done so in several years, Home Savings
may obtain advances from the FHLB of Atlanta to supplement its liquidity needs.
The FHLB system functions in a reserve credit capacity for savings institutions.
As a member, Home Savings is required to own capital stock in the FHLB of
Atlanta and is authorized to apply for advances from the FHLB of Atlanta on the
security of that stock and a floating lien on certain of its real estate secured
loans and other assets. Each credit program has its own interest rate and range
of maturities. Depending on the program, limitations on the amount of advances
are based either on a fixed percentage of an institution's net worth or on the
FHLB of Atlanta's assessment of the institution's creditworthiness. At March
31, 1996, Home Savings had no outstanding borrowings.
SUBSIDIARIES
As a North Carolina-chartered savings bank, Home Savings is able to invest
up to 10% of its total assets in subsidiary service corporations. However, any
investment in service corporations which would cause Home Savings to exceed an
investment of 3% of assets must receive prior approval of the FDIC. Home
Savings has one subsidiary which is not active and has never engaged in any
business.
PROPERTIES
The following table sets forth the location of Home Savings' headquarters
office in Thomasville, North Carolina, as well as certain other information
relating to this office as of March 31, 1996:
<TABLE>
<CAPTION>
Net Book
Value of
Property or Owned or
Improvements Leased
------------ --------
<S> <C> <C>
22 Winston Street
Thomasville, North Carolina 27360 $629,750 Owned
</TABLE>
The total net book value of Home Savings' furniture, fixtures and equipment
at March 31, 1996 was $131,511.
LEGAL PROCEEDINGS
From time to time, Home Savings is a party to legal proceedings which arise
in the ordinary course of its business. Most commonly, such proceedings are
commenced by Home Savings to enforce obligations owed to it. From
71
<PAGE>
time to time, claims are asserted against Home Savings directly or as defenses
and counterclaims in actions filed by Home Savings. At this time, Home Savings
is not a party to any legal proceeding which is expected to have a material
effect on its financial condition or results of operations.
COMPETITION
Home Savings faces strong competition both in attracting deposits and
making real estate and other loans. Its most direct competition for deposits
has historically come from other savings institutions, credit unions and
commercial banks located in its primary market area, including large financial
institutions which have greater financial and marketing resources available to
them. As of March 31, 1996, there were eight depository institutions with 13
offices in Thomasville, North Carolina. Based upon 1995 comparative data, Home
Savings had 15.7% of the deposits in Thomasville, and 5.5% of the deposits in
Davidson County. Home Savings has also faced additional significant competition
for investors' funds from short-term money market securities and other
corporate and government securities. The ability of Home Savings to attract and
retain savings deposits depends on its ability to generally provide a rate of
return, liquidity and risk comparable to that offered by competing investment
opportunities.
Home Savings experiences strong competition for real estate loans from
other savings institutions, commercial banks, and mortgage banking companies.
Home Savings competes for loans primarily through the interest rates and loan
fees it charges, the efficiency and quality of services it provides borrowers,
and its more flexible underwriting standards. Competition may increase as a
result of the continuing reduction of restrictions on the interstate operations
of financial institutions.
EMPLOYEES
As of March 31, 1996, Home Savings had 11 full-time employees. Home
Savings provides its employees with basic and major medical insurance, life
insurance, sick leave and vacation benefits. In addition, Home Savings
maintains a defined benefit pension plan which covers all full time employees of
at least 21 years of age who have completed five months continuous service. See
"MANAGEMENT OF HOME SAVINGS -- Pension Plan" and Note G of the "Notes to
Financial Statements."
In connection with the Conversion, Home Savings has adopted the ESOP, which
will provide benefits to employees of Home Savings. See "MANAGEMENT OF HOME
SAVINGS -- Employee Stock Ownership Plan." Also, the Boards of Directors of the
Holding Company and Home Savings plan to adopt, and stockholders of the Holding
Company will be asked to approve, the MRP and the Stock Option Plan at a meeting
of stockholders following the Conversion. See "MANAGEMENT OF HOME SAVINGS --
Proposed Management Recognition Plan" and "-- Proposed Stock Option Plan."
Employees are not represented by any union or collective bargaining group,
and Home Savings considers its employee relations to be good.
TAXATION
FEDERAL INCOME TAXATION
Savings institutions such as Home Savings are subject to the taxing
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), for
corporations, as modified by certain provisions specifically applicable for
financial or thrift institutions. Income is reported using the accrual method
of accounting. The maximum corporate federal income tax rate is 35%.
Thrift institutions which qualify under certain definitional tests and
other conditions of the Code are permitted certain favorable provisions
regarding their deductions from taxable income for annual additions to their bad
debt reserve. A reserve may be established for bad debts on qualifying real
property loans (generally loans secured by
72
<PAGE>
interests in real property improved or to be improved) under (i) a method based
on a percentage of the institution's taxable income, as adjusted (the
"percentage of taxable income method") or (ii) a method based on actual loss
experience (the "experience method"). The reserve for nonqualifying loans is
computed using the experience method.
The percentage of taxable income method is limited to 8% of taxable income.
This method may not raise the reserve to exceed 6% of qualifying real property
loans at the end of the year. Moreover, the additions for qualifying real
property loans, when added to nonqualifying loans, cannot exceed 12% of the
amount by which total deposits or withdrawable accounts exceed the sum of
surplus, undivided profits and reserves at the beginning of the year. The
experience method is the amount necessary to increase the balance of the reserve
at the close of the year to the greater of (i) the amount which bears the same
ratio to loans outstanding at the close of the year as the total net bad debts
sustained during the current and five preceding years bear to the sum of the
loans outstanding at the close of such six years or (ii) the balance in the
reserve account at the close of the last taxable year beginning before 1988
(assuming that the loans outstanding have not declined since such date).
In order to qualify for the percentage of income method, an institution
must have at least 60% of its assets as "qualifying assets" which generally
include, cash, obligations of the United States government or an agency or
instrumentality thereof or of a state or political subdivision, residential real
estate-related loans, or loans secured by savings accounts and property used in
the conduct of its business. In addition, it must meet certain other
supervisory tests and operate principally for the purpose of acquiring savings
and investing in loans.
Institutions which become ineligible to use the percentage of income method
must change to either the reserve method or the specific charge-off method that
applies to banks. Large institutions, those generally exceeding $500 million in
assets, must convert to the specific charge-off method. Proposed regulations
require ratable inclusion in income of excess reserves over a six-year period in
the event of ineligibility. In computing its bad debt reserve for federal
income taxes, Home Savings elected to use the percentage of income method in the
fiscal year 1993 and the reserve method in fiscal years 1994 and 1995.
Bad debt reserve balances in excess of the balance computed under the
experience method or amounts maintained in a supplemental reserve built up prior
to 1962 ("excess bad debt reserve") require inclusion in taxable income upon
certain distributions to its shareholders. Distributions in redemption or
liquidation of stock or distributions with respect to its stock in excess of
earnings and profits accumulated in years beginning after December 31, 1951, are
treated as a distribution from the excess bad debt reserve. When such a
distribution takes place and it is treated as from the excess bad debt reserve,
the thrift is required to reduce its reserve by such amount and simultaneously
recognize the amount as an item of taxable income increased by the amount of
income tax imposed on the inclusion. Dividends not in excess of earnings and
profits accumulated since December 31, 1951 will not require inclusion of part
or all of the bad debt reserve in taxable income. Home Savings has accumulated
earnings and profits since December 31, 1951 and has an excess in its bad debt
reserve. Distributions in excess of current and accumulated earnings and
profits will increase taxable income. Net retained earnings at June 30, 1995
includes approximately $1.5 million for which no provision for federal income
tax has been made.
Legislation currently pending before the U.S. Congress contains a provision
that repeals the reserve method of accounting for thrift bad debt reserves
(including the percentage of taxable income method) for tax years beginning
after December 31, 1995. This would require Home Savings to account for bad
debts using the specific charge-off method. Under the proposed legislation, the
change in accounting method that eliminates the reserve method would trigger bad
debt reserve recapture for post-1987 excess reserves over a six-year period. At
June 30, 1995, Home Savings' post-1987 excess reserves amounted to approximately
$301,000. A special provision suspends recapture of post-1987 excess reserves
for up to two years if, during those years, the institution satisfies a
"residential loan requirement." This requirement would be met if the principal
amount of the institution's residential loans exceeds a base year amount, which
is determined by reference to the average of the institution's loans during the
six taxable years ending before January 1, 1996. However, notwithstanding this
special provision, recapture would be required to begin no later than the first
taxable year beginning after December 31, 1997. Management cannot predict
whether the legislation providing for the recapture of bad debt reserves will be
enacted, or, if enacted, the final form of such legislation and its ultimate
impact on Home Savings. See "RISK FACTORS -- Proposed Recapture of Bad Debt
Reserves."
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Home Savings may also be subject to the corporate alternative minimum tax
("AMT"). This tax is applicable only to the extent it exceeds the regular
corporate income tax. The AMT is imposed at the rate of 20% of the corporation's
alternative minimum taxable income ("AMTI") subject to applicable statutory
exemptions. AMTI is calculated by adding certain tax preference items and making
certain adjustments to the corporation's regular taxable income. Preference
items and adjustments generally applicable to financial institutions include,
but are not limited to, the following: (i) the excess of the bad debt deduction
over the amount that would have been allowable on the basis of actual
experience; (ii) interest on certain tax-exempt bonds issued after August 7,
1986; and (iii) 75% of the excess, if any, of a corporation's adjusted earnings
and profits over its AMTI (as otherwise determined with certain adjustments).
Net operating loss carryovers, subject to certain adjustments, may be utilized
to offset up to 90% of the AMTI. Credit for AMT paid may be available in future
years to reduce future regular federal income tax liability. Home Savings has
not been subject to the AMT in recent years.
Home Savings' federal income tax returns have not been audited in the last
ten tax years.
STATE AND LOCAL TAXATION
Under North Carolina law, the corporate income tax is 7.75% of federal
taxable income as computed under the Code, subject to certain prescribed
adjustments. In addition, for tax years beginning in 1991, 1992, 1993 and 1994,
corporate taxpayers were required to pay a surtax equal to 4%, 3%, 2% and 1%,
respectively, of the state income tax otherwise payable by it. An annual state
franchise tax is imposed at a rate of 0.15% applied to the greatest of the
institutions (i) capital stock, surplus and undivided profits, (ii) investment
in tangible property in North Carolina or (iii) appraised valuation of property
in North Carolina.
SUPERVISION AND REGULATION
REGULATION OF THE HOLDING COMPANY
GENERAL. The Holding Company was organized for the purpose of acquiring
and holding all of the capital stock of Home Savings to be issued in the
Conversion. As a savings bank holding company subject to the Bank Holding
Company Act of 1956, as amended ("BHCA"), the Holding Company will become
subject to certain regulations of the Federal Reserve. Under the BHCA, the
Holding Company's activities and those of its subsidiaries are limited to
banking, managing or controlling banks, furnishing services to or performing
services for its subsidiaries or engaging in any other activity which the
Federal Reserve determines to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. The BHCA prohibits the
Holding Company from acquiring direct or indirect control of more than 5% of the
outstanding voting stock or substantially all of the assets of any bank or
savings bank or merging or consolidating with another bank holding company or
savings bank holding company without prior approval of the Federal Reserve.
Additionally, the BHCA prohibits the Holding Company from engaging in, or
acquiring ownership or control of, more than 5% of the outstanding voting stock
of any company engaged in a nonbanking business unless such business is
determined by the Federal Reserve to be so closely related to banking as to be
properly incident thereto. The BHCA generally does not place territorial
restrictions on the activities of such nonbanking related activities.
Similarly, Federal Reserve approval (or, in certain cases, non-disapproval)
must be obtained prior to any person acquiring control of the Holding Company.
Control is conclusively presumed to exist if, among other things, a person
acquires more than 25% of any class of voting stock of the Holding Company or
controls in any manner the election of a majority of the directors of the
Holding Company. Control is presumed to exist if a person acquires more than
10% of any class of voting stock and the stock is registered under Section 12 of
the Exchange Act or the acquiror will be the largest shareholder after the
acquisition.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by law and regulatory
policy that are designed to minimize potential loss to the depositors of such
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depository institutions and the FDIC insurance funds in the event the depository
institution becomes in danger of default or in default. For example, under the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("1991 Banking
Law"), to avoid receivership of an insured depository institution subsidiary, a
bank holding company is required to guarantee the compliance of any insured
depository institution subsidiary that may become "undercapitalized" with the
terms of any capital restoration plan filed by such subsidiary with its
appropriate federal banking agency up to the lesser of (i) an amount equal to 5%
of the institution's total assets at the time the institution became
undercapitalized or (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all acceptable capital
standards as of the time the institution fails to comply with such capital
restoration plan. Under a policy of the Federal Reserve with respect to bank
holding company operations, a bank holding company is required to serve as a
source of financial strength to its subsidiary depository institutions and to
commit resources to support such institutions in circumstances where it might
not do so absent such policy. The Federal Reserve under the BHCA also has the
authority to require a bank holding company to terminate any activity or to
relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a
bank) upon the Federal Reserve's determination that such activity or control
constitutes a serious risk to the financial soundness and stability of any bank
subsidiary of the bank holding company.
In addition, the "cross-guarantee" provisions of the Federal Deposit
Insurance Act, as amended ("FDIA") require insured depository institutions under
common control to reimburse the FDIC for any loss suffered by either the SAIF or
the BIF as a result of the default of a commonly controlled insured depository
institution or for any assistance provided by the FDIC to a commonly controlled
insured depository institution in danger of default. The FDIC may decline to
enforce the cross-guarantee provisions if it determines that a waiver is in the
best interest of the SAIF or the BIF or both. The FDIC's claim for damages is
superior to claims of stockholders of the insured depository institution or its
holding company but is subordinate to claims of depositors, secured creditors
and holders of subordinated debt (other than affiliates) of the commonly
controlled insured depository institutions.
No stock repurchases may be made within one year after the Conversion
without the approval of the Administrator. Also, the Holding Company must
notify the Federal Reserve prior to repurchasing Common Stock for in excess of
10% of its net worth during any 12 month period.
As a result of the Holding Company's ownership of Home Savings, the Holding
Company will be registered under the savings bank holding company laws of North
Carolina. Accordingly, the Holding Company is also subject to regulation and
supervision by the Administrator.
CAPITAL ADEQUACY GUIDELINES FOR HOLDING COMPANIES. The Federal Reserve has
adopted capital adequacy guidelines for bank holding companies and banks that
are members of the Federal Reserve system and have consolidated assets of $150
million or more. For bank holding companies with less than $150 million in
consolidated assets, the guidelines are applied on a bank-only basis unless the
parent bank holding company (i) is engaged in nonbank activity involving
significant leverage or (ii) has a significant amount of outstanding debt that
is held by the general public.
Bank holding companies subject to the Federal Reserve's capital adequacy
guidelines are required to comply with the Federal Reserve's risk-based capital
regulations. Under these regulations, the minimum ratio of total capital to
risk-weighted assets (including certain off-balance sheet activities, such as
standby letters of credit) is 8%. At least half of the total capital is
required to be "Tier I capital," principally consisting of common stockholders'
equity, noncumulative perpetual preferred stock, and a limited amount of
cumulative perpetual preferred stock, less certain goodwill items. The
remainder ("Tier II capital") may consist of a limited amount of subordinated
debt, certain hybrid capital instruments and other debt securities, perpetual
preferred stock, and a limited amount of the general loan loss allowance. In
addition to the risk-based capital guidelines, the Federal Reserve has adopted a
minimum Tier I (leverage) capital ratio, under which a bank holding company must
maintain a minimum level of Tier I capital to average total consolidated assets
of at least 3% in the case of a bank holding company which has the highest
regulatory examination rating and is not contemplating significant growth or
expansion. All other bank holding companies are expected to maintain a Tier I
(leverage) capital ratio of at least 1% to 2% above the stated minimum.
The 1991 Banking Law requires each federal banking agency, including the
Federal Reserve, to revise its risk-based capital standards within 18 months of
enactment of the statute to ensure that those standards take adequate account
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of interest rate risk, concentration of credit risk and the risks of non-
traditional activities, as well as reflect the actual performance and expected
risk of loss on multi-family mortgages. In December 1994, the federal banking
agencies jointly issued final regulations effective January 17, 1995, revising
the risk-based capital rules to take account of interest rate risk.
DIVIDEND LIMITATIONS. In connection with the Conversion, the FDIC has
required the Holding Company and Home Savings to agree that, during the first
year after consummation of the Conversion, the Holding Company will not pay any
dividend or make any other distribution to its stockholders which represents, is
characterized as or is treated for federal tax purposes as, a return of capital.
CAPITAL MAINTENANCE AGREEMENT. In connection with the Administrator's
approval of the Holding Company's application to acquire control of Home
Savings, the Holding Company was required to execute a Capital Maintenance
Agreement whereby it has agreed to maintain Home Savings' capital in an amount
sufficient to enable Home Savings to satisfy all regulatory capital
requirements.
FEDERAL SECURITIES LAW. The Holding Company has filed with the SEC a
Registration Statement under the Securities Act of 1933, as amended (the
"Securities Act"), for the registration of the Common Stock to be issued in the
Conversion. The Holding Company intends to register the Common Stock with the
SEC pursuant to Section 12 of the Exchange Act. Upon such registration, the
proxy and tender offer rules, insider trading reporting requirements and
restrictions, annual and periodic reporting and other requirements of the
Exchange Act will be applicable to the Holding Company.
REGULATION OF HOME SAVINGS
GENERAL. Federal and state legislation and regulation have significantly
affected the operations of federally insured savings institutions and other
federally regulated financial institutions in the past several years and have
increased competition among savings institutions, commercial banks and other
providers of financial services. In addition, federal legislation has imposed
new limitations on investment authority, and higher insurance and examination
assessments on savings institutions and has made other changes that may
adversely affect the future operations and competitiveness of savings
institutions with other financial institutions, including commercial banks and
their holding companies. The operations of regulated depository institutions,
including Home Savings, will continue to be subject to changes in applicable
statutes and regulations from time to time.
Home Savings is a North Carolina-chartered savings bank, is a member of the
FHLB system, and its deposits are insured by the FDIC through the SAIF. It is
subject to examination and regulation by the FDIC and the Administrator and to
regulations governing such matters as capital standards, mergers, establishment
of branch offices, subsidiary investments and activities, and general investment
authority. Generally, North Carolina-chartered savings banks whose deposits are
insured by the SAIF are subject to restrictions with respect to activities and
investments, transactions with affiliates and loans-to-one borrower similar to
those applicable to SAIF-insured savings associations. Such examination and
regulation is intended primarily for the protection of depositors and the
federal deposit insurance funds.
Home Savings is subject to various regulations promulgated by the Federal
Reserve including, without limitation, Regulation B (Equal Credit Opportunity),
Regulation D (Reserves), Regulation E (Electronic Fund Transfers), Regulation O
(Loans to Executive Officers, Directors and Principal Shareholders), Regulation
Z (Truth in Lending), Regulation CC (Availability of Funds) and Regulation DD
(Truth in Savings). As holders of loans secured by real property and as owners
of real property, financial institutions, including Home Savings, may be subject
to potential liability under various statutes and regulations applicable to
property owners generally, including statutes and regulations relating to the
environmental condition of real property.
The FDIC has extensive enforcement authority over North Carolina-chartered
savings banks, including Home Savings. This enforcement authority includes,
among other things, the ability to assess civil money penalties, to issue cease
and desist or removal orders and to initiate injunctive actions. In general,
these enforcement actions may be initiated in response to violations of laws and
regulations and unsafe or unsound practices.
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The grounds for appointment of a conservator or receiver for a North
Carolina savings bank on the basis of an institution's financial condition
include: (i) insolvency, in that the assets of the savings bank are less than
its liabilities to depositors and others; (ii) substantial dissipation of assets
or earnings through violations of law or unsafe or unsound practices; (iii)
existence of an unsafe or unsound condition to transact business; (iv)
likelihood that the savings bank will be unable to meet the demands of its
depositors or to pay its obligations in the normal course of business; and (v)
insufficient capital or the incurring or likely incurring of losses that will
deplete substantially all of the institution's capital with no reasonable
prospect of replenishment of capital without federal assistance.
TRANSACTIONS WITH AFFILIATES. Under current federal law, transactions
between Home Savings and any affiliate are governed by Sections 23A and 23B of
the Federal Reserve Act. An affiliate of Home Savings is any company or entity
that controls, is controlled by or is under common control with the savings
bank. Upon consummation of the Conversion, Home Savings will be an affiliate of
the Holding Company. Generally, Sections 23A and 23B (i) establish certain
collateral requirements for loans to affiliates; (ii) limit the extent to which
the savings institution or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such savings institution's
capital stock and surplus, and contain an aggregate limit on all such
transactions with all affiliates to an amount equal to 20% of such capital stock
and surplus and (iii) require that all such transactions be on terms
substantially the same, or at least as favorable, to the savings institution or
the subsidiary as those provided to a nonaffiliate. The term "covered
transaction" includes the making of loans or other extensions of credit to an
affiliate, the purchase of assets from an affiliate, the purchase of, or an
investment in, the securities of an affiliate, the acceptance of securities of
an affiliate as collateral for a loan or extension of credit to any person, or
issuance of a guarantee, acceptance or letter of credit on behalf of an
affiliate.
Further, current federal law has extended to savings banks the restrictions
contained in Section 22(h) of the Federal Reserve Act with respect to loans to
directors, executive officers and principal stockholders. Under Section 22(h),
loans to directors, executive officers and stockholders who own more than 10% of
a savings bank, and certain affiliated entities of any of the foregoing, may not
exceed, together with all other outstanding loans to such person and affiliated
entities, the savings bank's loans-to-one borrower limit as established by
federal law (as discussed below). Section 22(h) also prohibits loans above
amounts prescribed by the appropriate federal banking agency to directors,
executive officers and stockholders who own more than 10% of a savings bank, and
their respective affiliates, unless such loan is approved in advance by a
majority of the board of directors of the savings bank. Any "interested"
director may not participate in the voting. The Federal Reserve has prescribed
the loan amount (which includes all other outstanding loans to such person), as
to which such prior board of director approval is required, as being the greater
of $25,000 or 5% of unimpaired capital and unimpaired surplus (up to $500,000).
Further, pursuant to Section 22(h) the Federal Reserve requires that loans to
directors, executive officers, and principal stockholders be made on terms
substantially the same as offered in comparable transactions to other persons
and not involve more than the normal risk of repayment or present other
unfavorable features.
INSURANCE OF DEPOSIT ACCOUNTS. The FDIC administers two separate deposit
insurance funds. The SAIF maintains a fund to insure the deposits of
institutions the deposits of which were insured by the Federal Savings and Loan
Insurance Corporation (the "FSLIC") prior to the enactment of FIRREA, and the
BIF maintains a fund to insure the deposits of institutions the deposits of
which were insured by the FDIC prior to the enactment of FIRREA. Home Savings is
a member of the SAIF of the FDIC.
As a SAIF-insured institution, Home Savings is subject to insurance
assessments imposed by the FDIC. Effective January 1, 1993, the FDIC replaced
its uniform assessment rate with a transitional risk-based assessment schedule
issued by the FDIC pursuant to the 1991 Banking Law, which imposes assessments
ranging from 23 cents to 31 cents per $100 of an institution's average
assessment base. The actual assessment to be paid by each SAIF member is based
on the institution's assessment risk classification, which is based on whether
the institution is considered "well capitalized," "adequately capitalized" or
"undercapitalized" (as such terms have been defined in federal regulations), and
whether such institution is considered by its supervisory agency to be
financially sound or to have supervisory concerns. Under the 1991 Banking Law,
the FDIC also may impose special assessments on SAIF members to repay amounts
borrowed from the U.S. Treasury or for any other reason deemed necessary by the
FDIC. As a result of the 1991 Banking Law, the assessment rate on deposits
could further increase over a 15 year period.
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Financial institutions such as Home Savings which are members of the SAIF,
are required to pay higher deposit insurance premiums than financial
institutions which are members of the BIF, primarily commercial banks, because
the BIF has higher reserves than the SAIF and has been responsible for fewer
troubled institutions. The FDIC Board of Directors has recently approved a new
risk-based premium schedule that will reduce assessment rates for commercial
banks, will leave assessment rates for financial institutions such as Home
Savings at current levels, and will increase the disparity between SAIF and BIF
assessments. Annual assessments for BIF members in the lowest risk category
have been reduced to $2,000. In announcing this rule, the FDIC noted that the
premium differential may have adverse consequences for SAIF members, including
reduced earnings and an impaired ability to raise funds in the capital markets.
In addition, SAIF members, such as Home Savings, could be placed at a
substantial competitive disadvantage to BIF members with respect to pricing of
loans and deposits and the ability to achieve lower operating costs. Several
alternatives to mitigate the effect of the BIF/SAIF premium disparity have been
suggested by the federal banking regulators, by members of Congress and by
industry groups.
The Balanced Budget Act of 1995, which was passed by the United States
Congress but vetoed by the President for reasons unrelated to the SAIF
recapitalization, provided for a one-time assessment that would fully capitalize
the SAIF, currently estimated to be 85 cents per $100 of an institution's
assessment base. It is unknown whether this legislation will be enacted or that
premiums for either BIF or SAIF members will be adjusted in the future by the
FDIC or by legislative action. If a special assessment as described above were
to be required, it would result in a one-time charge to Home Savings estimated
at $543,000, assuming the special assessment is based on deposits held at March
31, 1996. Management cannot predict whether the legislation will be enacted,
or, if enacted, the amount of any one-time fee or whether ongoing SAIF premiums
will be reduced to a level equal to that of BIF premiums.
Home Savings incurred deposit insurance expense of $145,000 and $144,000 in
fiscal 1995 and 1994, respectively. A significant increase in SAIF insurance
premiums or a significant one-time fee to recapitalize the SAIF would likely
have an adverse effect on the operating expenses and results of operations of
Home Savings.
COMMUNITY REINVESTMENT ACT. Home Savings, like other financial
institutions, is subject to the Community Reinvestment Act ("CRA"). A purpose of
the CRA is to encourage financial institutions to help meet the credit needs of
its entire community, including the needs of low- and moderate-income
neighborhoods. During Home Savings' last compliance examination, Home Savings
received a "satisfactory" rating with respect to CRA compliance. Home Savings'
rating with respect to CRA compliance would be a factor to be considered by the
Federal Reserve and FDIC in considering applications submitted by Home Savings
to acquire branches or to acquire or combine with other financial institutions
and take other actions and, if such rating was less than "satisfactory," could
result in the denial of such applications.
The federal banking regulatory agencies have issued a revision of the CRA
regulations, which became effective on January 1, 1996, to implement a new
evaluation system that rates institutions based on their actual performance in
meeting community credit needs. Under the regulations, a savings bank will
first be evaluated and rated under three categories: a lending test, an
investment test and a service test. For each of these three tests, the savings
bank will be given a rating of either "outstanding," "high satisfactory," "low
satisfactory," "needs to improve" or "substantial non-compliance." A set of
criteria for each rating has been developed and is included in the regulation.
If an institution disagrees with a particular rating, the institution has the
burden of rebutting the presumption by clearly establishing that the quantative
measures do not accurately present its actual performance, or that demographics,
competitive conditions or economic or legal limitations peculiar to its service
area should be considered. The ratings received under the three tests will be
used to determine the overall composite CRA rating. The composite ratings will
be the same as those that are currently given: "outstanding," "satisfactory,"
"needs to improve" or "substantial non-compliance."
CAPITAL REQUIREMENTS APPLICABLE TO HOME SAVINGS. The FDIC requires Home
Savings to have a minimum leverage ratio of Tier I capital (principally
consisting of common stockholders' equity, noncumulative perpetual preferred
stock and minority interests in consolidated subsidiaries, less certain
intangible and goodwill items), to total assets of at least 3%; provided,
however that all institutions, other than those (i) receiving the highest rating
during the examination process and (ii) not anticipating or experiencing any
significant growth, are required to maintain a ratio of 1% or 2% above the
stated minimum, with an absolute minimum leverage ratio of not less than 4%. The
FDIC also
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requires Home Savings to have a ratio of total capital to risk-weighted assets,
including certain off-balance sheet activities, such as standby letters of
credit, of at least 8%. At least half of the total capital is required to be
Tier I capital. The remainder (Tier II capital) may consist of a limited amount
of subordinated debt, certain hybrid capital instruments, other debt securities,
certain types of preferred stock and a limited amount of general loan loss
allowance.
An institution which fails to meet minimum capital requirements may be
subject to a capital directive which is enforceable in the same manner and to
the same extent as a final cease and desist order, and must submit a capital
plan within 60 days to the FDIC. If the leverage ratio falls to 2% or less, the
institution may be deemed to be operating in an unsafe or unsound condition,
allowing the FDIC to take various enforcement actions, including possible
termination of insurance or placement of the institution in receivership.
The Administrator requires that net worth equal at least 5% of total
assets. Intangible assets must be deducted from net worth and assets when
computing compliance with this requirement.
At March 31, 1996, Home Savings complied with each of the capital
requirements of the FDIC and the Administrator. For a description of Home
Savings' required and actual capital levels on March 31, 1996, see "HISTORICAL
AND PRO FORMA CAPITAL COMPLIANCE."
The 1991 Banking Law requires each federal banking agency to revise its
risk-based capital standards within 18 months of enactment of the statute to
ensure that those standards take adequate account of interest rate risk,
concentration of credit risk, and the risk of nontraditional activities, as well
as reflect the actual performance and expected risk of loss on multi-family
mortgages. On September 14, 1993, the agencies issued a joint notice of
proposed rulemaking soliciting comment on proposed revisions to the risk-based
capital rules to take account of interest rate risk. The notice proposes
alternative approaches for determining the additional amount of capital, if any,
that a bank may be required to have as a result of interest rate risk. The
first approach would reduce a bank's risk-based capital ratios by an amount
based on its measured exposure to interest rate risk in excess of a specified
threshold. The second approach would assess the need for additional capital
on a case-by-case basis, considering both the level of measured exposure and
qualitative risk factors. In February 1994, the federal banking agencies
proposed amendments to their respective risk-based capital requirements that
would explicitly identify concentration of credit risk and certain risks arising
from nontraditional activities, and the management of such risks, as important
factors to consider in assessing an institution's overall capital adequacy. The
proposed amendments do not, however, mandate any specific adjustments to the
risk-based capital calculations as a result of such factors. Home Savings
cannot assess at this point the impact the proposal would have on its capital
requirements.
In December 1994, the FDIC adopted a final rule changing its risk-based
capital rules to recognize the effect of bilateral netting agreements in
reducing the credit risk of two types of financial derivatives - interest and
exchange rate contracts. Under the rule, savings banks are permitted to net
positive and negative mark-to-market values of rate contracts with the same
counterparty, subject to legally enforceable bilateral netting contracts that
meet certain criteria. This represents a change from the prior rules which
recognized only a very limited form of netting. Home Savings does not
anticipate that this rule will have a material effect upon its financial
condition or results of operations.
LOANS TO ONE BORROWER. Home Savings is subject to the Administrator's
loans-to-one borrower limits. Under these limits, no loans and extensions of
credit to any borrower outstanding at one time and not fully secured by readily
marketable collateral shall exceed 15% of the net worth of the savings bank.
Loans and extensions of credit fully secured by readily marketable collateral
may comprise an additional 10% of net worth. Notwithstanding the limits just
described, savings banks may make loans to one borrower, for any purpose, in an
amount of up to $500,000. A savings institution also is authorized to make
loans to one borrower to develop domestic residential housing units, not to
exceed the lesser of $30 million, or 30% of the savings institution's net worth,
provided that (i) the purchase price of each single-family dwelling in the
development does not exceed $500,000; (ii) the savings institution is in
compliance with its fully phased-in capital requirements; (iii) the loans comply
with applicable loan-to-value requirements; (iv) the aggregate amount of loans
made under this authority does not exceed 150% of net worth; and (v) the
institution's regulator issues an order permitting the savings institution to
use this higher limit. These limits also authorize a savings bank to make
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loans-to-one borrower to finance the sale of real property acquired in
satisfaction of debts in an amount up to 50% of net worth.
As of March 31, 1996, the largest aggregate amount of loans which Home
Savings had to any one borrower was $1.1 million. Home Savings had no loans
outstanding which management believes violate the applicable loans-to-one
borrower limits.
LIMITATIONS ON RATES PAID FOR DEPOSITS. Regulations promulgated by the
FDIC pursuant to the 1991 Banking Law place limitations on the ability of
insured depository institutions to accept, renew or roll over deposits by
offering rates of interest which are significantly higher than the prevailing
rates of interest on deposits offered by other insured depository institutions
having the same type of charter in such depository institution's normal market
area. Under these regulations, "well capitalized" depository institutions may
accept, renew or roll such deposits over without restriction, "adequately
capitalized" depository institutions may accept, renew or roll such deposits
over with a waiver from the FDIC (subject to certain restrictions on payments of
rates) and "undercapitalized" depository institutions may not accept, renew or
roll such deposits over. The definitions of "well capitalized," "adequately
capitalized" and "undercapitalized" are the same as the definitions adopted by
the FDIC to implement the corrective action provisions of the 1991 Banking Law.
See " -- Regulation of Home Savings -- 1991 Banking Law."
FEDERAL HOME LOAN BANK SYSTEM. The FHLB system provides a central credit
facility for member institutions. As a member of the FHLB of Atlanta, Home
Savings is required to own capital stock in the FHLB of Atlanta in an amount at
least equal to the greater of 1% of the aggregate principal amount of its unpaid
residential mortgage loans, home purchase contracts and similar obligations at
the end of each calendar year, or 5% of its outstanding advances (borrowings)
from the FHLB of Atlanta. On March 31, 1996, Home Savings was in compliance with
this requirement with an investment in FHLB of Atlanta stock of $614,000.
FEDERAL RESERVE SYSTEM. Federal Reserve regulations require savings banks,
not otherwise exempt from the regulations, to maintain reserves against their
transaction accounts (primarily negotiable order of withdrawal accounts) and
certain nonpersonal time deposits. The reserve requirements are subject to
adjustment by the Federal Reserve. As of March 31, 1996, Home Savings was in
compliance with the applicable reserve requirements of the Federal Reserve.
RESTRICTIONS ON ACQUISITIONS. Federal law generally provides that no
"person," acting directly or indirectly or through or in concert with one or
more other persons, may acquire "control," as that term is defined in FDIC
regulations, of a state savings bank without giving at least 60 days' written
notice to the FDIC and providing the FDIC an opportunity to disapprove the
proposed acquisition. Pursuant to regulations governing acquisitions of
control, control of an insured institution is conclusively deemed to have been
acquired, among other things, upon the acquisition of more than 25% of any
class of voting stock. In addition, control is presumed to have been acquired,
subject to rebuttal, upon the acquisition of more than 10% of any class of
voting stock. Such acquisitions of control may be disapproved if it is
determined, among other things, that (i) the acquisition would substantially
lessen competition; (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the savings bank or prejudice the
interests of its depositors; or (iii) the competency, experience or integrity of
the acquiring person or the proposed management personnel indicates that it
would not be in the interest of the depositors or the public to permit the
acquisition of control by such person.
For three years following completion of the Conversion, North Carolina
conversion regulations require the prior written approval of the Administrator
before any person may directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of an equity security of Home
Savings. If any person were to so acquire the beneficial ownership of more than
10% of any class of any equity security without prior written approval, the
securities beneficially owned in excess of 10% would not be counted as shares
entitled to vote and would not be voted or counted as voting shares in
connection with any matter submitted to stockholders for a vote. Approval is
not required for (i) any offer with a view toward public resale made exclusively
to Home Savings or its underwriters or the selling group acting on its behalf or
(ii) any offer to acquire or acquisition of beneficial ownership of more than
10% of the common stock of Home Savings by a corporation whose ownership is or
will be substantially the same as the ownership of Home Savings, provided that
the offer or acquisition is made more than one year following the
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consummation of the Conversion. The regulation provides that within one year
following the Conversion, the Administrator would approve the acquisition of
more than 10% of beneficial ownership only to protect the safety and soundness
of the institution. During the second and third years after the Conversion, the
Administrator may approve such an acquisition upon a finding that (i) the
acquisition is necessary to protect the safety and soundness of the Holding
Company and Home Savings or the Boards of Directors of the Holding Company and
Home Savings support the acquisition and (iii) the acquiror is of good character
and integrity and possesses satisfactory managerial skills, the acquiror will be
a source of financial strength to the Holding Company and Home Savings and the
public interests will not be adversely affected.
LIQUIDITY. Home Savings is subject to the Administrator's requirement that
the ratio of liquid assets to total assets equal at least 10%. The computation
of liquidity under North Carolina regulation allows the inclusion of mortgage-
backed securities and investments which, in the judgment of the Administrator,
have a readily marketable value, including investments with maturities in excess
of five years. At March 31, 1996, Home Savings' liquidity ratio, calculated in
accordance with North Carolina regulations, was approximately 24.8%.
ADDITIONAL LIMITATIONS ON ACTIVITIES. Recent FDIC law and regulations
generally provide that Home Savings may not engage as principal in any type of
activity, or in any activity in an amount, not permitted for national banks, or
directly acquire or retain any equity investment of a type or in an amount not
permitted for national banks. The FDIC has authority to grant exceptions from
these prohibitions (other than with respect to non-service corporation equity
investments) if it determines no significant risk to the insurance fund is posed
by the amount of the investment or the activity to be engaged in and if Home
Savings is and continues to be in compliance with fully phased-in capital
standards. National banks are generally not permitted to hold equity investments
other than shares of service corporations and certain federal agency securities.
Moreover, the activities in which service corporations for savings banks are
permitted to engage are limited to those of service corporations for national
banks.
Savings banks are also required to notify the FDIC at least 30 days prior
to the establishment or acquisition of any subsidiary, or at least 30 days prior
to conducting any such new activity. Any such activities must be conducted in
accordance with the regulations and orders of the FDIC and the Administrator.
Savings banks are also generally prohibited from directly or indirectly
acquiring or retaining any corporate debt security that is not of investment
grade (generally referred to as "junk bonds").
1991 BANKING LAW. The 1991 Banking Law became effective on December 19,
1991. Among other things, the 1991 Banking Law provided increased funding for
the BIF and provided for expanded regulation of depository institutions and
their affiliates, including bank holding companies.
The 1991 Banking Law provided the federal banking agencies with broad
powers to take corrective action to resolve problems of insured depository
institutions. The extent of these powers will depend upon whether the
institutions in question are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," or "critically
undercapitalized." Under the FDIC regulations applicable to Home Savings, an
institution is considered "well capitalized" if it has (i) a total risk-based
capital ratio of 10% or greater, (ii) a Tier I risk-based capital ratio of 6% or
greater, (iii) a leverage ratio of 5% or greater and (iv) is not subject to any
order or written directive to meet and maintain a specific capital level for any
capital measure. An "adequately capitalized" institution is defined as one that
has (i) a total risk-based capital ratio of 8% or greater, (ii) a Tier I risk-
based capital ratio of 4% or greater and (iii) a leverage ratio of 4% or greater
(or 3% or greater in the case of an institution with the highest examination
rating and which is not experiencing or anticipating significant growth). An
institution is considered (A) "undercapitalized" if it has (i) a total risk-
based capital ratio of less than 8%, (ii) a Tier I risk-based capital ratio of
less than 4% or (iii) a leverage ratio of less than 4% (or 3% and is not
experiencing or anticipating significant growth); (B) "significantly
undercapitalized" if the institution has (i) a total risk-based capital ratio of
less than 6%, (ii) a Tier I risk-based capital ratio of less than 3% or (iii) a
leverage ratio of less than 3% and (C) "critically undercapitalized" if the
institution has a ratio of tangible equity to total assets equal to or less than
2%.
To facilitate the early identification of problems, the 1991 Banking Law
required the federal banking agencies to review and, under certain
circumstances, prescribe more stringent accounting and reporting requirements
than those
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required by generally accepted accounting principles. The FDIC issued a final
rule, effective July 2, 1993, implementing those provisions.
The 1991 Banking Law further requires the federal banking agencies to
develop regulations requiring disclosure of contingent assets and liabilities
and, to the extent feasible and practicable, supplemental disclosure of the
estimated fair market value of assets and liabilities. The 1991 Banking Law also
requires annual examinations of all insured depository institutions by the
appropriate federal banking agency, with some exceptions for small, well-
capitalized institutions and state chartered institutions examined by state
regulators. Moreover, the 1991 Banking Law, as modified by the Federal Housing
Enterprises Financial Security and Soundness Act, requires the federal banking
agencies to set operational and managerial, asset quality, earnings and stock
valuation standards for insured depository institutions and depository
institution holding companies, as well as compensation standards (but not dollar
levels of compensation) for insured depository institutions that prohibit
excessive compensation, fees or benefits to officers, directors, employees, and
principal stockholders. In July 1992, the federal banking agencies issued a
joint advance notice of proposed rulemaking soliciting comments on all aspects
of the implementation of these standards in accordance with the 1991 Banking
Law, including whether the compensation standards should apply to depository
institution holding companies. An interagency notice of proposed rulemaking was
issued in November 1993. However, sections of the Riegle Community Development
and Regulatory Improvement Act of 1994 will affect the nature and scope of the
proposed regulations, and eliminates the requirement that the regulations apply
to depository institution holding companies.
The foregoing necessarily is a general description of certain provisions of
the 1991 Banking Law and does not purport to be complete.
INTERSTATE BANKING. A bank holding company or savings bank holding company
and its subsidiaries are currently prohibited from acquiring any voting shares
of, or interest in, any banks or savings banks located outside of the state in
which the operations of the holding company's subsidiaries are located, unless
the acquisition is specifically authorized by the statutes of the state in which
the target bank is located. However, in September 1994, Congress passed the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"). The Interstate Banking Act permits adequately
capitalized bank holding companies and savings bank holding companies to acquire
control of banks and savings banks in any state beginning on September 29, 1995,
one year after the effectiveness of the Interstate Banking Act. North Carolina
adopted nationwide reciprocal interstate acquisition legislation in 1994.
Such interstate acquisitions are subject to certain restrictions. States
may require the bank or savings bank being acquired to have been in existence
for a certain length of time but not in excess of five years. In addition, no
bank or saving bank may acquire more than 10% of the insured deposits in the
United States or more than 30% of the insured deposits in any one state, unless
the state has specifically legislated a higher deposit cap. States are free to
legislate stricter deposit caps and, at present, 18 states have deposit caps
lower than 30%.
The Interstate Banking Act also provides for interstate branching. The
McFadden Act of 1927 established state lines as the ultimate barrier to
geographic expansion of a banking network by branching. The Interstate Banking
Act withdraws these barriers, effective June 1, 1997, allowing interstate
branching in all states, provided that a particular state has not specifically
prohibited interstate branching by legislation prior to such time. Unlike
interstate acquisitions, a state may prohibit interstate branching if it
specifically elects to do so by June 1, 1997. States may choose to allow
interstate branching prior to June 1, 1997 by opting-in to a group of states
that permits these transactions. These states generally allow interstate
branching via a merger of an out-of-state bank with an in-state bank, or on a de
novo basis. North Carolina has enacted legislation permitting interstate
branching transactions.
It is anticipated that the Interstate Banking Act will increase competition
within the market in which Home Savings now operates, although the extent to
which such competition will increase in such market or the timing of such
increase cannot be predicted. In addition, there can be no assurance as to
whether, or in what form, legislation may be enacted in North Carolina in
reaction to the Interstate Banking Act or what impact such legislation or the
Interstate Banking Act might have upon Home Savings.
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The Interstate Banking Act also modifies the controversial safety and
soundness provisions contained in Section 39 of the 1991 Banking Law which
required the banking regulatory agencies to promulgate regulations governing
such topics as internal controls, loan documentation, credit underwriting,
interest rate exposure, asset growth, compensation and fees and other matters
those agencies determine to be appropriate. The legislation exempts bank
holding companies from these provisions and requires the agencies to prepare
guidelines, as opposed to regulations, dealing with these areas. It also gives
more discretion to the banking regulatory agencies in prescribing standards for
banks' asset quality, earnings and stock valuation.
The Interstate Banking Act also expands current exemptions from the
requirement that banks be examined on a 12-month cycle. Exempted banks will be
inspected every 18 months. Other provisions address paperwork reduction and
regulatory improvements, small business and commercial real estate loan
securitization, truth-in-lending amendments regarding high cost mortgages,
strengthening of the independence of certain financial regulatory agencies,
money laundering, flood insurance reform and extension of certain statutes of
limitations.
RESTRICTIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS. A North
Carolina-chartered stock savings bank may not declare or pay a cash dividend on,
or repurchase any of, its capital stock if the effect of such transaction would
be to reduce the net worth of the institution to an amount which is less than
the minimum amount required by applicable federal and state regulations. In
addition, a North Carolina-chartered stock savings bank, for a period of five
years after its conversion from mutual to stock form, must obtain the written
approval from the Administrator before declaring or paying a cash dividend on
its capital stock in an amount in excess of one-half of the greater of (i) the
institution's net income for the most recent fiscal year end, or (ii) the
average of the institution's net income after dividends for the most recent
fiscal year end and not more than two of the immediately preceding fiscal year
ends, if applicable.
Also, without the prior written approval of the Administrator, a North
Carolina-chartered stock savings bank, for a period of five years after its
conversion from mutual to stock form, may not repurchase any of its capital
stock. The Administrator will give approval to repurchase only upon a showing
that the proposed repurchase will not adversely affect the safety and soundness
of the institution. Under FDIC regulations, stock repurchases may be made
during the first year after the Conversion only after receipt of FDIC approval.
In addition, Home Savings is not permitted to declare or pay a cash
dividend or repurchase any of its capital stock if the effect thereof would be
to cause its net worth to be reduced below the amount required for the
liquidation account established in connection with Home Savings' conversion from
mutual to stock ownership.
RESTRICTIONS ON BENEFIT PLANS. FDIC regulations provide that for a period
of one year from the date of the Conversion, Home Savings may not implement or
adopt a stock option plan or restricted stock plan, other than a tax-qualified
plan or ESOP, unless: (1) the plans are fully disclosed in the Conversion proxy
soliciting and stock offering material, (2) all such plans are approved by a
majority of the Holding Company's stockholders prior to implementation and no
earlier than six months following the Conversion, (3) for stock option plans,
the exercise price must be at least equal to the market price of the stock at
the time of grant, and (4) for restricted stock plans, no stock issued in
connection with the Conversion may be used to fund the plan.
The FDIC regulations provide that, in reviewing plans submitted to the
stockholders within one year after the consummation of the Conversion, the FDIC
will presume that excessive compensation will result if stock based benefit
plans fail to satisfy percentage limitations on management stock-based benefit
plans set forth in the regulations of the Office of Thrift Supervision ("OTS").
Those regulations provide that (1) for stock option plans, the total number of
shares for which options may be granted may not exceed 10% of the shares
issued in the Conversion, (2) for restricted stock plans, the shares issued may
not exceed 3% of the shares issued in the Conversion (4% for institutions with
tangible capital of 10% or greater after the Conversion), (3) the aggregate
amount of stock purchased by the ESOP shall not exceed 10% (8% for well-
capitalized institutions utilizing a 4% restricted stock plan), (4) no
individual employee may receive more than 25% of the available awards under any
plan, and (5) directors who are not employees may not receive more than 5%
individually or 30% in the aggregate of the awards under any plan. The awards
and grants to be made under the MRP and Stock Option Plan will conform to these
requirements if such plans are submitted for stockholder approval within one
year after the Conversion is consummated.
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OTHER NORTH CAROLINA REGULATION. As a North Carolina-chartered savings
bank, Home Savings derives its authority from, and is regulated by, the
Administrator. The Administrator has the right to promulgate rules and
regulations necessary for the supervision and regulation of North Carolina
savings banks under his jurisdiction and for the protection of the public
investing in such institutions. The regulatory authority of the Administrator
includes, but is not limited to: the establishment of reserve requirements; the
regulation of the payment of dividends; the regulation of stock repurchases, the
regulation of incorporators, stockholders, directors, officers and employees;
the establishment of permitted types of withdrawable accounts and types of
contracts for savings programs, loans and investments; and the regulation of the
conduct and management of savings banks, chartering and branching of
institutions, mergers, conversions and conflicts of interest. North Carolina law
requires that Home Savings maintain federal deposit insurance as a condition of
doing business.
The Administrator conducts regular examinations of North Carolina-chartered
savings banks. The purpose of such examinations is to assure that institutions
are being operated in compliance with applicable North Carolina law and
regulations and in a safe and sound manner. These examinations are usually
conducted on a joint basis with the FDIC. In addition, the Administrator is
required to conduct an examination of any institution when he has good reason to
believe that the standing and responsibility of the institution is of doubtful
character or when he otherwise deems it prudent. The Administrator is empowered
to order the revocation of the license of an institution if he finds that it has
violated or is in violation of any North Carolina law or regulation and that
revocation is necessary in order to preserve the assets of the institution and
protect the interests of its depositors. The Administrator has the power to
issue cease and desist orders if any person or institution is engaging in, or
has engaged in, any unsafe or unsound practice or unfair and discriminatory
practice in the conduct of its business or in violation of any other law, rule
or regulation.
A North Carolina-chartered savings bank must maintain net worth, computed
in accordance with the Administrator's requirements, of 5% of total assets and
liquidity of 10% of total assets, as discussed above. Additionally, a North
Carolina-chartered savings bank is required to maintain general valuation
allowances and specific loss reserves in the same amounts as required by the
FDIC.
Subject to limitation by the Administrator, North Carolina-chartered
savings banks may make any loan or investment or engage in any activity which is
permitted to federally chartered institutions. However, a North Carolina-
chartered savings bank cannot invest more than 15% of its total assets in
business, commercial, corporate and agricultural loans. In addition to such
lending authority, North Carolina-chartered savings banks are authorized to
invest funds, in excess of loan demand, in certain statutorily permitted
investments, including but not limited to (i) obligations of the United States,
or those guaranteed by it; (ii) obligations of the State of North Carolina;
(iii) bank demand or time deposits; (iv) stock or obligations of the federal
deposit insurance fund or a FHLB; (v) savings accounts of any savings
institution as approved by the board of directors; and (vi) stock or obligations
of any agency of the State of North Carolina or of the United States or of any
corporation doing business in North Carolina whose principal business is to make
education loans.
North Carolina law provides a procedure by which savings institutions may
consolidate or merge, subject to approval of the Administrator. The approval is
conditioned upon findings by the Administrator that, among other things, such
merger or consolidation will promote the best interests of the members or
stockholders of the merging institutions. North Carolina law also provides for
simultaneous mergers and conversions and for supervisory mergers conducted by
the Administrator.
MANAGEMENT OF THE HOLDING COMPANY
The Board of Directors of the Holding Company currently consists of five
directors: Henry H. Darr, Jr., James G. Hudson, Jr., John R. Hunnicutt, F.
Stuart Kennedy and Milton T. Riley. Each of these persons is also a director of
Home Savings, and biographical information with respect to each is set forth
under "MANAGEMENT OF HOME SAVINGS -- Directors." Each director is elected for a
one-year term. However, at such time, if any, as the number of directors is at
least nine, the Articles of Incorporation and Bylaws of the Holding Company
provide for staggered
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elections so that approximately one-third of the directors will each be
initially elected to one, two and three-year terms, respectively, and
thereafter, all directors will be elected to terms of three years each.
The executive officers of the Holding Company, each of whom is also
currently an executive officer of Home Savings, and each of whom serves at the
discretion of the Board of Directors of the Holding Company, are as follows:
<TABLE>
<CAPTION>
AGE AT POSITION HELD
NAME MARCH 31, 1996 WITH THE HOLDING COMPANY
---- -------------- ------------------------
<S> <C> <C>
James G. Hudson, Jr. 56 President, Chief Executive Officer
and Treasurer
John E. Todd 50 Vice President
Drema A. Michael 42 Secretary and Assistant Treasurer
</TABLE>
Biographical information with respect to each of these officers is set
forth below under "MANAGEMENT OF HOME SAVINGS -- Executive Officers." There are
no other employees of the Holding Company. No officer, director or employee of
the Holding Company has received remuneration from the Holding Company to date,
and it is currently expected that no compensation will be paid by the Holding
Company after the Conversion. Information concerning the principal occupations
and employment of, and compensation paid by Home Savings to, the directors and
executive officers of the Holding Company is set forth under "MANAGEMENT OF HOME
SAVINGS." See "MANAGEMENT OF HOME SAVINGS -- Employment Agreement" and "--
Special Termination Agreements" for a description of certain agreements expected
to be entered into with the executive officers of the Holding Company and Home
Savings.
MANAGEMENT OF HOME SAVINGS
DIRECTORS
The direction and control of Home Savings, as a mutual North Carolina-
chartered savings bank, has been vested in its five-member Board of Directors
elected by the depositor and borrower members of Home Savings. Upon conversion
of Home Savings to capital stock form, each director of Home Savings immediately
prior to the Conversion will continue to serve as a director of Home Savings as
a stock institution. All directors currently serve for one-year terms. Home
Savings' proposed Bylaws, which would become effective after the Conversion,
provide for staggered elections of its directors, if and when the number of
directors shall equal at least nine, so that approximately one-third of the
directors would be elected each year for three-year terms. Upon consummation of
the Conversion, the Holding Company will own all of the issued and outstanding
shares of capital stock of Home Savings, and the Holding Company will elect the
directors of Home Savings. The Holding Company now plans to nominate and re-
elect all members of Home Savings' existing board of directors when their
existing terms expire. The following table sets forth certain information with
respect to the persons who currently serve as members of the Board of Directors
of Home Savings.
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<PAGE>
<TABLE>
<CAPTION>
AGE ON
MARCH 31, PRINCIPAL OCCUPATION DIRECTOR
NAME 1996 DURING LAST FIVE YEARS SINCE
---- --------- ---------------------- --------
<S> <C> <C> <C>
Henry H. Darr, Jr. 55 President, J. L. Darr & Son, 1980
Inc.
James G. Hudson, Jr. 56 President, Chief Executive 1972
Officer and Treasurer of Home
Savings
John R. Hunnicutt 59 President, McThom, Inc. and 1995
McLex, Inc., licensees of
McDonalds Corporation
F. Stuart Kennedy 70 Chairman of the Board, Rex 1971
Oil Company
Milton T. Riley, Jr. 58 Personal investments; 1992
previously partner with
Dixon, Odom & Co., certified
public accountants
Mr. Darr and Mr. Kennedy are cousins.
</TABLE>
BOARD MEETINGS AND COMMITTEES
Home Savings' Board of Directors has regular monthly meetings, and held 12
regular and special meetings in the fiscal year ended June 30, 1995. The Board
has also established three committees to whom certain responsibilities have been
delegated - an Executive Committee, an Audit Committee, and a Loan Committee.
No director attended fewer than 75% of the total number of Board meetings and
meetings of Board committees on which he served during the year ended June 30,
1995.
During fiscal 1996, Home Savings formed an Executive Committee which is
composed of directors Kennedy, Riley and Hudson. The Executive Committee makes
recommendations to the full Board and acts on policies adopted by the full Board
in the absence of a meeting of the entire Board.
Home Savings' Audit Committee is composed of director Riley and Drema H.
Michael, Home Savings' Secretary and Assistant Treasurer. This committee is
responsible for meeting with and retaining independent auditors, overseeing the
adequacy of internal controls, insuring compliance with Home Savings' policies
and procedures and with generally accepted accounting principles. The Audit
Committee meets on an as needed basis, and during the fiscal year ended June 30,
1995, met two times.
Home Savings' Loan Committee is composed of any three directors of Home
Savings and meets on an as needed basis to approve loans underwritten by Home
Savings' loan officers. During the fiscal year ended June 30, 1995, the loan
committee met 15 times.
DIRECTORS' FEES
For their service on Home Savings' Board of Directors, all members of Home
Savings' Board of Directors receive $800 per meeting attended. In addition, all
non-employee directors who serve on Board committees receive $150 per meeting
for their service. Board fees are subject to adjustment annually.
Existing members of the Board of Directors may also receive additional
benefits following the Conversion. See "-- Proposed Management Recognition
Plan" and "-- Proposed Stock Option Plan."
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EXECUTIVE OFFICERS
Home Savings has three executive officers. The following table sets forth
certain information with respect to such executive officers:
<TABLE>
<CAPTION>
AGE ON POSITIONS AND OCCUPATIONS EMPLOYED BY
NAME MARCH 31, 1996 DURING LAST FIVE YEARS HOME SAVINGS SINCE
---- -------------- ------------------------- ------------------
<S> <C> <C> <C>
James G. Hudson, Jr. 56 President, Chief Executive Officer 1972
and Treasurer
John E. Todd 50 Vice President 1979
Drema A. Michael 42 Secretary and Assistant Treasurer 1974
</TABLE>
EXECUTIVE COMPENSATION
The following table sets forth for the fiscal year ended June 30, 1995
certain information as to the cash compensation earned by (i) the chief
executive officer of Home Savings and (ii) all other executive officers of Home
Savings whose cash compensation exceeded $100,000 (there were none), for
services in all capacities.
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND COMPENSATION ALL OTHER
PRINCIPAL POSITION SALARY BONUS ($)/1/ COMPENSATION
------------------ ------ ----- ---------- ------------
<S> <C> <C> <C> <C>
James G. Hudson, Jr. $90,000 $19,323 --- $30,400/2/
President, Chief Executive Officer,
Treasurer and Director
</TABLE>
____________________
/1/ Under the "Other Annual Compensation" category, perquisites for the fiscal
year ended June 30, 1995 did not exceed the lesser of $50,000, or 10% of
salary and bonus as reported for Mr. Hudson.
/2/ Includes (a) directors' fees of $5,400; and (b) $25,000 accrued under
supplemental income agreements established for the benefit of Mr. Hudson.
BONUS COMPENSATION
Home Savings has approved a bonus compensation plan pursuant to which James
G. Hudson, Jr., President, Chief Executive Officer and Treasurer, receives bonus
compensation equal to 1% of Home Savings' income before taxes and John E. Todd,
Vice President, and Drema A. Michael, Secretary and Assistant Treasurer, are
each entitled to receive bonuses equal to 0.5% of Home Savings' income before
taxes. In addition, employees receive annual discretionary holiday bonuses.
PENSION PLAN
Home Savings maintains a non-contributory defined benefit pension plan
("Pension Plan") for the benefit of all of its employees who have completed five
(5) months of service and who are at least twenty-one (21) years of age. Under
the Pension Plan, Home Savings annually contributes an actuarially determined
amount to provide a benefit for each participant at retirement.
Participants are fully vested in amounts contributed to the Pension Plan on
their behalf by Home Savings after completing six (6) years of service, as
follows: 1 year of service, 0%; 2 years, 20%; 3 years, 40%; 4 years, 60%; 5
years, 80%; 6 years or more, 100%. Benefits under the plan are payable in the
event of the participant's retirement, death, disability or termination of
employment.
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Normal retirement age under the Pension Plan is the later of (a) age 65 or
(b) the fifth anniversary of the date an employee first became a participant in
the Pension Plan ("Normal Retirement Age"). Subject to certain restrictions on
maximum benefits required by federal law, upon reaching Normal Retirement Age,
each participant will receive a retirement benefit in the form of a straight
life annuity, with 120 months guaranteed, determined pursuant to a formula which
takes into consideration a participant's "average monthly compensation," years
of service with Home Savings, and the participant's expected benefits from
Social Security. For purposes of the Pension Plan, a participant's "average
monthly compensation" is defined as his or her compensation converted to a
monthly amount and then averaged over the five (5) consecutive plan years which
produce the highest monthly average within the last ten (10) completed years of
participation, excluding the five (5) years immediately preceding the
participant's retirement date. The plan also offers early retirement to
participants who have completed twenty (20) years of service and who are at
least fifty-five (55) years of age.
The following table shows the retirement benefit payable for a range of
compensation and years of service for a person who retires at Normal Retirement
Age. These are hypothetical benefits based upon the plan's normal benefit
formula.
<TABLE>
<CAPTION>
Earnings Credited for
Retirement Benefits Years of Service at Normal Retirement
--------------------- -------------------------------------------------
10 20 30 35
-- -- -- --
<S> <C> <C> <C> <C>
$ 25,000............... $ 3,453 $ 6,906 $10,359 $11,050
$ 35,000............... 5,269 10,537 15,806 16,860
$ 45,000............... 7,235 14,470 21,705 23,152
$ 55,000............... 9,201 18,402 27,603 29,444
$ 65,000............... 11,167 22,335 33,502 35,736
$ 75,000............... 13,134 26,267 39,401 42,028
$100,000............... 18,049 36,099 54,148 57,758
$125,000............... 22,965 45,930 68,895 73,488
$150,000............... 28,173 55,761 83,934 89,218
</TABLE>
The benefits listed above are annual amounts and are based on the assumption
that the participant is age 65. As of June 30, 1996, James G. Hudson, Jr. had
23 years of service under the Pension Plan.
SUPPLEMENTAL INCOME PLANS
Home Savings has entered into two separate Supplemental Income Agreements
with James G. Hudson, Jr., President, Chief Executive Officer and Treasurer.
These agreements provide that Mr. Hudson will provide certain specified monthly
payments for 15 years upon reaching 65 years of age. In the event of Mr.
Hudson's death before all payments have been made, benefits would be payable to
designated beneficiaries. In addition, if Mr. Hudson should die prior to
reaching 65 years of age, certain monthly payments would be made for a 15-year
period to designated beneficiaries. In the event Mr. Hudson terminates his
employment, for reasons other than death, prior to reaching 65 years of age, the
monthly retirement benefit payment would be reduced. The benefits payable under
the Supplemental Income Agreements are funded by the purchase of life insurance.
During the fiscal year ended June 30, 1995, Home Savings accrued $25,000 towards
the cost of the benefits to be provided to Mr. Hudson under the supplemental
income plans.
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OTHER BENEFITS
Home Savings provides its employees with group medical, dental, life and
disability insurance benefits. Employees are also provided with vacation,
holiday and sick leave.
EMPLOYMENT AGREEMENT
In connection with the Conversion, Home Savings will enter into an
employment agreement with James G. Hudson, Jr., President, Chief Executive
Officer and Treasurer, in order to establish his duties and compensation and to
provide for his continued employment with Home Savings. The agreement will
provide for an initial annual base salary of $93,600. The agreement will
provide for an initial term of employment of three years. Commencing on the
first anniversary date and continuing on each anniversary date thereafter,
following a performance evaluation of the employee, the agreement may be
extended for an additional year so that the remaining term shall be three years
unless written notice of non-renewal is given by the Board of Directors. The
agreement also provides that base salary shall be reviewed by the Board of
Directors not less often than annually. In the event of a change in control (as
defined below), Mr. Hudson's base salary shall be increased by at least 6%
annually and the agreement will automatically be extended so that it will have a
three year term after the change in control. In addition, the employment
agreement provides for profitability and discretionary bonuses and participation
in all other pension, profit-sharing or retirement plans maintained by Home
Savings or by the Holding Company for employees of Home Savings, as well as
fringe benefits normally associated with Mr. Hudson's office. The employment
agreement provides that it may be terminated by Home Savings for cause, as
defined in the agreement, and that it may otherwise be terminated by Home
Savings (subject to vested rights) or by Mr. Hudson.
The employment agreement provides that the nature of Mr. Hudson's
compensation, duties or benefits cannot be diminished following a change in
control of Home Savings or the Holding Company. For purposes of the employment
agreement, a change in control generally will occur if (i) after the effective
date of the employment agreement, any "person" (as such term is defined in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act) directly or indirectly,
acquires beneficial ownership of voting stock, or acquires irrevocable proxies
or any combination of voting stock and irrevocable proxies, representing 25% or
more of any class of voting securities of either the Holding Company or Home
Savings, or acquires in any manner control of the election of a majority of the
directors of either the Holding Company or Home Savings, (ii) either the Holding
Company or Home Savings consolidates or merges with or into another corporation,
association or entity, or is otherwise reorganized, where neither the Holding
Company nor Home Savings is the surviving corporation in such transaction, or
(iii) all or substantially all of the assets of either the Holding Company or
Home Savings are sold or otherwise transferred to, or are acquired by, any other
entity or group.
The employment agreement could have the effect of making it less likely
that Home Savings or the Holding Company will be acquired by another entity.
See "ANTI-TAKEOVER PROVISIONS AFFECTING THE HOLDING COMPANY AND HOME SAVINGS --
The Holding Company -- Anti-Takeover Effect of Employment Agreement, Special
Termination Agreements and Benefit Plans."
SPECIAL TERMINATION AGREEMENTS
In connection with the Conversion, the Holding Company will enter into
special termination agreements with John E. Todd, Vice President of Home
Savings, and Drema A. Michael, Secretary and Assistant Treasurer of Home
Savings. Such agreements are intended to ensure that Home Savings will be able
to maintain a stable and competent management base after the Conversion. The
continued success of Home Savings depends, to a significant degree, on the skill
and competence of its officers.
The special termination agreements provide for payment to the covered
officer only in the event of a change in control of the Holding Company or Home
Savings followed by termination of the officer's employment by Home Savings
within 24 months for other than "cause," as such term is defined in the
agreements, or in the event therein are certain specified changes in the
officer's employment circumstances within 24 months following a change in
control of Home Savings or the Holding Company and the officer terminates his or
her employment. In the event of such a
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termination of employment, the officer is entitled to payment in an amount equal
to two times his or her salary and bonuses for income tax purposes for the most
recent calendar year, payable in a lump sum or in equal monthly payments. The
initial term of each of these agreements is for a period commencing upon the
effective date of the Conversion and ending three calendar years later. At the
end of each anniversary date of the agreements, they may be extended for another
year so that the remaining term shall be three years unless written notice of
non-renewal is given by the Holding Company's Board of Directors. For purposes
of the special termination agreements, "change in control" has the same meaning
as in the employment agreement to be entered into with Mr. Hudson. See "--
Employment Agreement."
The special termination agreements could have the effect of making it less
likely that Home Savings or the Holding Company will be acquired by another
entity. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY AND HOME
SAVINGS -- The Holding Company -- Anti-Takeover Effect of Employment Agreement,
Special Termination Agreements and Benefit Plans."
SEVERANCE PLAN
In connection with the Conversion, Home Savings' Board of Directors plans
to adopt a Severance Plan for the benefit of its employees. The Severance Plan
provides that in the event there is a "change in control" (as defined in the
Severance Plan) of Home Savings or the Holding Company and (i) Home Savings or
any successor of Home Savings terminates the employment of any full time
employee of Home Savings in connection with, or within 24 months after the
change in control, other than for "cause" (as defined in the Severance Plan), or
(ii) an employee terminates his or her employment with Home Savings or any
successor following a decrease in the level of such employee's annual base
salary rate or a transfer of such employee to a location more than 40 miles
distant from the employee's primary work station within 24 months after a change
in control, the employee shall be entitled to a severance benefit equal to the
greater of (a) an amount equal to two weeks' salary at the employee's existing
salary rate multiplied times the employee's number of complete years of service
as a Home Savings employee or (b) the amount of one month's salary at the
employee's salary rate at the time of termination, subject to a maximum payment
equal to one half of the employee's annual salary. Officers of Home Savings
who, at the time of a "change in control," are parties to employment agreements
having a remaining term of more than two years are not covered by the Severance
Plan.
EMPLOYEE STOCK OWNERSHIP PLAN
Home Savings has established the ESOP for its eligible employees. The ESOP
will become effective upon the Conversion. Employees with one year of service
with Home Savings who have attained age 21 are eligible to participate. As part
of the Conversion, the ESOP intends to borrow funds from the Holding Company and
use the funds to purchase up to 8% of the shares of Common Stock to be issued in
the Conversion, estimated to be between 18,360 and 24,840 shares assuming the
issuance of between 229,500 and 310,500 shares. If, because of an
oversubscription for shares of Common Stock or for any other reason, the ESOP is
unable to purchase in the Conversion 8% of the total number of shares offered in
the Conversion, then the Board of Directors of the Holding Company intends to
approve the purchase by the ESOP in the open market after the Conversion of such
shares as are necessary for the ESOP to acquire a number of shares equal to 8%
of the shares of Common Stock issued in the Conversion.
Collateral for the Holding Company's loan to the ESOP will be the Common
Stock purchased by the ESOP. It is expected that the loan will be repaid
principally from Home Savings' discretionary contributions to the ESOP within 10
years. Dividends, if any, paid on shares held by the ESOP may also be used to
reduce the loan. It is anticipated that the interest rate for the loan will be
a commercially reasonable rate at the time of the loan inception. The loan will
not be guaranteed by Home Savings. Shares purchased by the ESOP and pledged as
security for the loan will be held in a suspense account for allocation among
participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense account in
an amount proportional to the repayment of the ESOP loan will be allocated among
ESOP participants on the basis of relative compensation in the year of
allocation. Benefits will vest in full upon five years of service with credit
given for years of service prior to the Conversion. Benefits are payable upon
death or disability. Home Savings' contributions to the ESOP are not fixed, so
benefits payable and corresponding expenses under the ESOP cannot be determined
although benefits payable and
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corresponding expenses have been estimated in preparing the pro forma
computations set forth in this Prospectus. See "PRO FORMA DATA."
In connection with the establishment of the ESOP, the Holding Company will
establish a committee of the Board of Directors to administer the ESOP.
Trustees for the ESOP will also be appointed prior to the Conversion. The ESOP
committee may instruct the trustees regarding investment of funds contributed to
the ESOP. Participating employees shall instruct the trustees as to the voting
of all shares allocated to their respective accounts and held in the ESOP. The
unallocated shares held in the suspense account, and all allocated shares for
which voting instructions are not received, will be voted by the trustees in
their discretion subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended.
The ESOP may be considered an "anti-takeover" device since the ESOP may
become the owner of a sufficient percentage of the total outstanding Common
Stock of the Holding Company that the vote or decision whether to tender shares
of the ESOP may be used as a defense in a contested takeover. See "ANTI-
TAKEOVER PROVISIONS AFFECTING THE HOLDING COMPANY AND Home Savings -- The
Holding Company -- Anti-Takeover Effect of Employment Agreements and Benefit
Plans."
PROPOSED MANAGEMENT RECOGNITION PLAN
The Boards of Directors of the Holding Company and Home Savings intend to
adopt the MRP, subject to approval of the stockholders of the Holding Company at
a meeting to be held no sooner than six months following the Conversion. The
MRP will serve as a means of providing the directors and certain employees of
Home Savings with an ownership interest in the Holding Company in a manner
designed to encourage such persons to continue their service to Home Savings.
All directors and certain employees of Home Savings would receive benefits under
the MRP. Upon stockholder approval of the MRP, the Holding Company and Home
Savings expect to fund the MRP with a number of shares of Common Stock equal to
4% of the shares issued in the Conversion. Such shares would be provided by the
issuance of authorized but unissued shares of Common Stock or shares purchased
by the MRP in the open market. Shares issued to recipients under the MRP will
be restricted and subject to forfeiture as described below.
To the extent that the MRP acquires authorized but unissued shares of
Common Stock after the Conversion, the interests of existing shareholders will
be diluted. Recipients would not be required to pay for shares issued to them
under the MRP. Assuming the issuance of 310,500 shares in the Conversion and
receipt of stockholder approval, 12,420 shares would be issued pursuant to the
MRP. Under applicable regulations, if the proposed MRP is submitted to and
approved by the stockholders of the Holding Company within one year after
consummation of the Conversion, (i) no employee of Home Savings (including Mr.
Hudson, Mr. Todd and Ms. Michael) could receive more than 25% of the shares
issued under the MRP, or 3,105 shares, assuming the issuance of 310,500 shares
in the Conversion, (ii) the four non-employee directors of Home Savings could
receive restricted stock grants for an aggregate of not more than 20% of the
shares issued under the MRP, or 2,484 shares, assuming the issuance of 310,500
shares in the Conversion and (iii) none of the four non-employee directors of
Home Savings could receive individually more than 5% of the shares issued under
the MRP, or 621 shares, assuming the issuance of 310,500 shares in the
Conversion. If the MRP is submitted to and approved by the Holding Company's
stockholders more than one year after consummation of the Conversion, the
regulatory percentage limitations set forth above would not apply.
After the grant of shares of Common Stock under the MRP, recipients will be
entitled to vote all vested and unvested shares and receive all dividends and
other distributions with respect thereto. The MRP will provide that 20% of the
shares granted will vest and become nonforfeitable on the first anniversary of
the date of the grant under the MRP, and 20% will vest and become nonforfeitable
on each subsequent anniversary date, so that the shares would be completely
vested at the end of five years after the date of grant. Grants of Common Stock
under the MRP will immediately vest upon the disability or death of a recipient.
If the MRP is submitted to the Holding Company's stockholders and approved
by them more than one year after the consummation of the Conversion, the MRP may
provide that grants of Common Stock under the MRP will become automatically
vested upon retirement or upon a change in control of the Holding Company or
Home Savings. In such
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event, it is expected that "change in control" would have the same meaning as is
set forth in the employment agreement with James G. Hudson, Jr. See "--
Employment Agreement."
Until shares become vested, the right to direct the voting of such shares
and the right to receive dividends thereon may not be sold, assigned,
transferred, exchanged, pledged or otherwise encumbered. If the recipient of
shares under the MRP terminates his service to Home Savings prior to the time
shares become vested (and such shares are not automatically vested under the
MRP), unvested shares would be forfeited to the MRP and would be subject to
future allocations to others. In addition, the recipient would be required to
repay all dividends received with respect to shares that did not become vested.
It is expected that the MRP will provide that it cannot be terminated upon a
change in control of the Holding Company or Home Savings unless the acquiror
provides for an equivalent benefit.
If the MRP is approved by the stockholders, Home Savings expects to
recognize a compensation expense for the MRP awards in the amount of the fair
market value of the Common Stock granted. The expense would be recognized pro
rata over the years during which shares vest. The recipients of stock grants
would be required to recognize ordinary income equal to the fair market value of
the stock. The stock grants would be made in recognition of the recipients'
past service to Home Savings and as an incentive for their continued
performance.
PROPOSED STOCK OPTION PLAN
The Boards of Directors of the Holding Company and Home Savings intend to
adopt the Stock Option Plan, subject to approval of the stockholders of the
Holding Company at a meeting to be held no sooner than six months following the
Conversion.
Upon stockholder approval of the Stock Option Plan, the trustees under the
Stock Option Plan could acquire in the open market a number of shares of Common
Stock equal to 10% of shares issued in the Conversion. Such shares could be
acquired prior to the time options vest or are exercised under the Stock Option
Plan, or they could be acquired after the options vest and upon their exercise.
In lieu of purchasing shares in the open market, the Holding Company could issue
authorized but unissued shares of Common Stock to satisfy options. The Holding
Company will reserve for issuance the maximum number of shares of Common Stock
to be issued under the Plan (less any shares acquired by the Stock Option Plan
in the open market). Assuming the issuance of between 229,500 and 310,500
shares in the Conversion, an aggregate of between 22,950 and 31,050 shares of
Common Stock would be reserved for issuance and/or purchased in the open market
to be issued upon the exercise of options granted under the Stock Option Plan.
Assuming the Stock Option Plan is approved by the stockholders of the
Holding Company, the Stock Option Plan would be administered by a committee of
the Holding Company's Board of Directors. Options granted under the Stock
Option Plan will have an option exercise price of not less than the fair market
value of the Common Stock on the date the options are granted. Options granted
under the Stock Option Plan will have a term of ten years, will not be
transferable except upon death and will continue to be exercisable upon
retirement, death or disability. Options granted under the Stock Option Plan
will have a vesting schedule which will provide that 20% of the options granted
would vest and become nonforfeitable on the first anniversary of the date of the
option grant and 20% will vest and become nonforfeitable on each subsequent
anniversary date, so that the options would be completely vested at the end of
five years after the date of the option grant. Options will become 100% vested
upon death or disability. In addition, if the Stock Option Plan is submitted to
and approved by the Holding Company's stockholders more than one year after
consummation of the Conversion, the Stock Option Plan may provide that options
will become automatically vested upon retirement or upon a change in control of
the Holding Company or Home Savings. In such event, it is expected that "change
in control" would have the same meaning as is set forth in the employment
agreement with James G. Hudson, Jr. See "-- Employment Agreement." The Stock
Option Plan will provide that the Plan cannot be terminated upon a change in
control of the Holding Company or Home Savings unless the acquiror provides for
an equivalent benefit to holders of unvested options.
Under applicable regulations, if the proposed Stock Option Plan is
submitted to and approved by the stockholders of the Holding Company within one
year after consummation of the Conversion, (i) no employee of Home Savings
(including Mr. Hudson, Mr. Todd and Ms. Michael) could receive more than 25% of
the options issued under
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the Stock Option Plan, or options to purchase 7,762 shares, assuming the
issuance of 310,500 shares in the Conversion, (ii) the four non-employee
directors of Home Savings could receive not more than 20% of the options issued
under the Stock Option Plan, or options to purchase 6,210 shares, assuming the
issuance of 310,500 shares in the Conversion, and (iii) none of the four non-
employee directors of Home Savings could receive individually more than 5% of
the options issued under the Stock Option Plan, or options to purchase 1,552
shares, assuming the issuance of 310,500 shares in the Conversion. If the Stock
Option Plan is submitted to and approved by the Holding Company's stockholders
more than one year after consummation of the Conversion, the regulatory
percentage limitations set forth above would not apply.
Options granted to employees under the Stock Option Plan may be "incentive
stock options" which are designed to result in beneficial tax treatment to the
employee but no tax deduction to the Holding Company or Home Savings. The
holder of an incentive stock option generally is not taxed for federal income
tax purposes on either the grant or the exercise of the option. However, the
optionee must include in his or her federal alternative minimum tax income any
excess (the "Bargain Element") of the acquired common stock's fair market value
at the time of exercise over the exercise price paid by the optionee.
Furthermore, if the optionee sells, exchanges, gives or otherwise disposes of
such common stock (other than in certain types of transactions) either within
two years after the option was granted or within one year after the option was
exercised (an "Early Disposition"), the optionee generally must recognize the
Bargain Element as compensation income for regular federal income tax purposes.
Any gain realized on the disposition in excess of the Bargain Element is subject
to recognition under the usual rules applying to dispositions of property. If a
taxable sale or exchange is made after such holding periods are satisfied, the
difference between the exercise price and the amount realized upon the
disposition of the common stock generally will constitute a capital gain or loss
for tax purposes. If an optionee exercises an incentive stock option and
delivers shares of common stock as payment for part or all of the exercise price
of the stock purchased ("Payment Stock"), no gain or loss generally will be
recognized with respect to the Payment Stock; provided, however, if the Payment
Stock was acquired pursuant to the exercise of an incentive stock option, the
optionee will be subject to recognizing as compensation income the Bargain
Element on the Payment Stock as an Early Disposition if the exchange for the new
shares occurs prior to the expiration of the holding periods for the Payment
Stock. The Holding Company generally would not recognize gain or loss or be
entitled to a deduction upon either the grant of an incentive stock option or
the optionee's exercise of an incentive stock option. However, if there is an
Early Disposition, the Holding Company generally would be entitled to deduct the
Bargain Element as compensation paid the optionee.
Options granted to directors under the Stock Option Plan would be "non-
qualified stock options." In general, the holder of a non-qualified stock
option will recognize compensation income equal to the amount by which the fair
market value of the common stock received on the date of exercise exceeds the
sum of the exercise price and any amount paid for the non-qualified stock
option. If the optionee elects to pay the exercise price in whole or in part
with common stock, the optionee generally will not recognize any gain or loss on
the common stock surrendered in payment of the exercise price. The Holding
Company would not recognize any income or be entitled to claim any deduction
upon the grant of a non-qualified stock option. At the time the optionee is
required to recognize compensation income upon the exercise of the non-qualified
stock option, the Holding Company would recognize a compensation expense and be
entitled to claim a deduction in the amount equal to such compensation income.
It is expected that the Stock Option Plan will provide that after an option
has been granted, the optionee will be entitled to direct the trustees (three
directors of Home Savings) as to the voting of all shares of Common Stock held
by the trustees to satisfy vested and unvested options which have been granted
to the optionee. In the event a tender offer is made for shares held by the
trustees to satisfy vested and unvested options granted to an optionee, the
optionee will be able to instruct the trustees' response. Any shares held by
the trustees to satisfy options not yet granted shall be voted or tendered by
the trustees in their discretion.
It is expected that the Stock Option Plan will provide that any cash
dividends or other distributions paid or made with respect to shares of Common
Stock held by the trustees in trust under the Stock Option Plan, plus earnings
on such amounts, less amounts retained by the trustees to pay the expenses of
such trust, will be paid by the trustees to the Holding Company.
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If the Stock Option Plan is approved by the stockholders of the Holding
Company, the options granted to employees and directors pursuant to the Stock
Option Plan would be issued in recognition of the recipients' past service to
Home Savings and as an incentive for their continued performance. No cash
consideration will be paid for the options.
CERTAIN INDEBTEDNESS AND TRANSACTIONS OF MANAGEMENT
Home Savings makes loans to executive officers and directors of Home
Savings in the ordinary course of its business. These loans are made on the
same terms, including interest rates and collateral, as those then prevailing
for comparable transactions with nonaffiliated persons, and do not involve more
than the normal risk of collectibility or present any other unfavorable
features. Applicable regulations prohibit Home Savings from making loans to
executive officers and directors of Home Savings on terms more favorable than
could be obtained by persons not affiliated with Home Savings. Home Savings'
policy concerning loans to executive officers and directors complies with such
regulations. The aggregate unpaid principal balance of loans to directors and
officers and their affiliates outstanding at March 31, 1996 totals approximately
$417,000 and represents 1.74% of pro forma consolidated stockholders' equity of
the Holding Company at March 31, 1996, assuming the sale of 310,500 shares of
Common Stock.
DESCRIPTION OF CAPITAL STOCK
THE HOLDING COMPANY
The Holding Company is authorized to issue 20,000,000 shares of Common
Stock and 5,000,000 shares of preferred stock. Neither the authorized Common
Stock nor the authorized preferred stock has any par value.
COMMON STOCK. General. THE HOLDING COMPANY'S COMMON STOCK WILL REPRESENT
NONWITHDRAWABLE CAPITAL, WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL
NOT BE INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL ENTITY. Upon payment of
the purchase price for the Common Stock, all such stock will be duly authorized,
validly issued, fully paid, and nonassessable.
Dividends. The holders of the Holding Company's Common Stock will be
entitled to receive and share ratably in such dividends on Common Stock as may
be declared by the Board of Directors of the Holding Company out of funds
legally available therefor, subject to applicable statutory and regulatory
restrictions. See "SUPERVISION AND REGULATION -- Regulation of the Holding
Company -- Restrictions on Dividends." The ability of the Holding Company to
pay dividends may be dependent on the receipt of dividends from Home Savings.
See "DIVIDEND POLICY," "SUPERVISION AND REGULATION -- Regulation of Home Savings
- -- Restrictions on Dividends and Other Capital Distributions," and "TAXATION."
Stock Repurchases. The shares of Common Stock do not have any redemption
provisions. The Holding Company may not, for a period of at least one year from
the effective date of the Conversion, without the approval of the Administrator,
repurchase any of its capital stock. Such approval shall be given only upon a
showing that the proposed repurchase will not adversely affect the safety and
soundness of Home Savings. Stock repurchases are also subject to North Carolina
regulations regarding capital distributions.
Voting Rights. Upon Conversion, the holders of Common Stock, as the only
class of capital stock of the Holding Company then outstanding, will possess
exclusive voting rights with respect to the Holding Company. Such holders will
have the right to elect the Holding Company's Board of Directors and to act on
such other matters as are required to be presented to stockholders under North
Carolina law or as are otherwise presented to them. Each holder of Common Stock
will be entitled to one vote per share. The holders of Common Stock will have
no right to vote their shares cumulatively in the election of directors. As a
result, the holders of a majority of the shares of Common Stock will have the
ability to elect all of the directors on the Holding Company's Board of
Directors.
Liquidation Rights. In the event of a liquidation, dissolution or winding
up of the Holding Company, the holders of Common Stock of the Holding Company
would be entitled to ratably receive, after payment of or making of
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adequate provisions for, all debts and liabilities of the Holding Company and
after the rights, if any, of preferred stockholders of the Holding Company, all
remaining assets of the Holding Company available for distribution.
Preemptive Rights. Holders of the Common Stock of the Holding Company will
not be entitled to preemptive rights with respect to any shares which may be
issued by the Holding Company.
Shares Owned by Directors and Executive Officers. All shares of Common
Stock issued in the Conversion to directors and executive officers of the
Holding Company and Home Savings will contain a restriction providing that such
shares may not be sold without the written permission of the Administrator for a
period of one year following the date of purchase, except in the event of death
of the director or the executive officer.
PREFERRED STOCK. None of the 5,000,000 shares of the Holding Company's
authorized preferred stock have been issued and none will be issued in the
Conversion. Such stock may be issued in one or more series with such rights,
preferences and designations as the Board of Directors of the Holding Company
may from time to time determine subject to applicable law and regulations. If
and when such shares are issued, holders of such shares may have certain
preferences, powers and rights (including voting rights) senior to the rights of
the holders of the Common Stock. The Board of Directors can (without
stockholder approval) issue preferred stock with voting and conversion rights
which could, among other things, adversely affect the voting power of the
holders of the Common Stock and assist management in impeding an unfriendly
takeover or attempted change in control of the Holding Company that some
stockholders may consider to be in their best interests but to which management
is opposed. See "ANTI-TAKEOVER PROVISIONS AFFECTING THE HOLDING COMPANY AND
HOME SAVINGS --The Holding Company -- Restrictions in Articles of Incorporation
and Bylaws." The Holding Company has no current plans to issue preferred stock.
RESTRICTIONS ON ACQUISITION. Acquisitions of the Holding Company and
acquisitions of the capital stock of the Holding Company are restricted by
provisions in the Articles of Incorporation and Bylaws of the Holding Company
and by various federal and state laws and regulations. See "ANTI-TAKEOVER
PROVISIONS AFFECTING THE HOLDING COMPANY AND HOME SAVINGS -- The Holding Company
- -- Restrictions in Articles of Incorporation and Bylaws" and "-- Regulatory
Restrictions."
HOME SAVINGS
COMMON STOCK. After consummation of the Conversion, Home Savings will be
authorized to issue 100,000 shares of common stock, no par value ("Home Savings
Common Stock"). The Home Savings Common Stock will represent nonwithdrawable
capital, will not be an account of an insurable type, and will not be insured by
the FDIC or any other governmental entity.
DIVIDENDS. The payment of dividends by Home Savings is subject to
limitations which are imposed by North Carolina law and regulations. See
"DIVIDEND POLICY" and "SUPERVISION AND REGULATION -- Regulation of Home Savings
- -- Restrictions on Dividends and Other Capital Distributions." In addition,
federal income tax law considerations may affect the ability of Home Savings to
pay dividends and make other capital distributions. See "TAXATION." The
holders of Home Savings Common Stock will be entitled to receive and share
ratably in such dividends on the Home Savings Common Stock as may be declared by
the Board of Directors of Home Savings out of funds legally available therefor,
subject to applicable statutory and regulatory restrictions.
VOTING RIGHTS. As a mutual North Carolina-chartered savings bank, Home
Savings currently has no stockholders, and voting rights in Home Savings are
currently held by Home Savings' members (depositors and borrowers). Members
elect Home Savings' Board of Directors and vote on such other matters as are
required to be presented to them under North Carolina law.
Upon Conversion, the Holding Company, as sole stockholder of Home Savings,
will possess the exclusive voting rights with respect to the Home Savings Common
Stock, will elect Home Savings' Board of Directors and will act on such other
matters as are required to be presented to stockholders under North Carolina law
or as are otherwise
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presented to stockholders by Home Savings' Board of Directors. The holders of
Home Savings Common Stock will have no right to vote their shares cumulatively
in the election of directors of Home Savings.
LIQUIDATION RIGHTS. After the Conversion, in the event of any liquidation,
dissolution or winding up of Home Savings, the Holding Company, as holder of all
of Home Savings' outstanding capital stock, would be entitled to receive all
remaining assets of Home Savings available for distribution, after payment of or
making of adequate provisions for, all debts and liabilities of Home Savings
(including all deposit accounts and accrued interest thereon) and after
distribution of the balance in the liquidation account established in connection
with the Conversion to Eligible Account Holders and Supplemental Eligible
Account Holders. See "THE CONVERSION -- Effects of Conversion -- Liquidation
Rights."
PREEMPTIVE RIGHTS. Holders of the Home Savings Common Stock will not be
entitled to preemptive rights with respect to any shares which may be issued by
Home Savings.
RESTRICTIONS ON ACQUISITION. Acquisitions of Home Savings and acquisitions
of its capital stock are restricted by various federal and state laws and
regulations. See "ANTI-TAKEOVER PROVISIONS AFFECTING THE HOLDING COMPANY AND
HOME SAVINGS -- Home Savings."
ANTI-TAKEOVER PROVISIONS AFFECTING THE HOLDING COMPANY AND HOME SAVINGS
THE HOLDING COMPANY
RESTRICTIONS IN ARTICLES OF INCORPORATION AND BYLAWS. The Articles of
Incorporation and Bylaws of the Holding Company contain certain provisions that
are intended to encourage a potential acquiror to negotiate any proposed
acquisition of the Holding Company directly with the Holding Company's Board of
Directors. An unsolicited non-negotiated takeover proposal can seriously
disrupt the business and management of a corporation and cause it great expense.
Accordingly, the Board of Directors believes it is in the best interests of the
Holding Company and its stockholders to encourage potential acquirors to
negotiate directly with management. The Board of Directors believes that these
provisions will encourage such negotiations and discourage hostile takeover
attempts. It is also the Board of Directors' view that these provisions should
not discourage persons from proposing a merger or transaction at prices
reflective of the true value of the Holding Company and that otherwise is in the
best interests of all stockholders. However, these provisions may have the
effect of discouraging offers to purchase the Holding Company or its securities
which are not approved by the Board of Directors but which certain of the
Holding Company's stockholders may deem to be in their best interests or
pursuant to which stockholders would receive a substantial premium for their
shares over the current market prices. As a result, stockholders who might
desire to participate in such a transaction may not have an opportunity to do
so. Such provisions will also render the removal of the current Board of
Directors and management more difficult. The Boards of Directors of Home
Savings and the Holding Company believe these provisions are in the best
interests of the stockholders because they will assist the Holding Company's
Board of Directors in managing the affairs of the Holding Company in the manner
they believe to be in the best interests of stockholders generally and because a
company's board of directors is often best able in terms of knowledge regarding
the company's business and prospects, as well as resources, to negotiate the
best transaction for its stockholders as a whole.
The following description of certain of the provisions of the Articles of
Incorporation and Bylaws of the Holding Company is necessarily general and
reference should be made in each instance to such Articles of Incorporation and
Bylaws. See "ADDITIONAL INFORMATION" regarding how to obtain a copy of these
documents.
Board of Directors. The Bylaws of the Holding Company provide that the
number of directors shall not be less than five nor more than 15. The initial
number of directors is five, but such number may be changed by resolution of the
Board of Directors. These provisions have the effect of enabling the Board of
Directors to elect directors friendly to management in the event of a non-
negotiated takeover attempt and may make it more difficult for a person seeking
to acquire control of the Holding Company to gain majority representation on the
Board of Directors in a relatively short
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period of time. The Holding Company believes these provisions to be important to
continuity in the composition and policies of the Board of Directors.
The Articles of Incorporation provide that, if and when the number of
directors is at least nine, there will be staggered elections of directors so
that the directors will each be initially elected to one, two or three-year
terms, and thereafter (so long as the number of directors is nine or more) all
directors will be elected to terms of three years each. This provision also has
the effect of making it more difficult for a person seeking to acquire control
of the Holding Company to gain majority representation on the Board of
Directors.
The Bylaws of the Holding Company provide that directors may be removed
prior to the end of their term only for cause.
Cumulative Voting. The Articles of Incorporation do not provide for
cumulative voting for any purpose. Cumulative voting in election of directors
entitles a stockholder to cast a total number of votes equal to the number of
directors to be elected multiplied by the number of his or her shares and to
distribute that number of votes among such number of nominees as the stockholder
chooses. The absence of cumulative voting for directors limits the ability of a
minority stockholder to elect directors. Because the holder of less than a
majority of the Holding Company's shares cannot be assured representation on the
Board of Directors, the absence of cumulative voting may discourage
accumulations of the Holding Company's shares or proxy contests that would
result in changes in the Holding Company's management. The Board of Directors
believes that (i) elimination of cumulative voting will help to assure
continuity and stability of management and policies; (ii) directors should be
elected by a majority of the stockholders to represent the interests of the
stockholders as a whole rather than be the special representatives of particular
minority interests; and (iii) efforts to elect directors representing specific
minority interests are potentially divisive and could impair the operations of
the Holding Company.
Special Meetings. The Bylaws of the Holding Company provide that special
meetings of stockholders of the Holding Company may be called by the Chairman of
the Board, the Chief Executive Officer, the President, or by the Board of
Directors. If a special meeting is not called by such persons or entities,
stockholder proposals cannot be presented to the stockholders for action until
the next annual meeting.
Capital Stock. The Articles of Incorporation of the Holding Company
authorize the issuance of 20,000,000 shares of common stock and 5,000,000 shares
of preferred stock. The shares of common stock and preferred stock authorized
in addition to the number of shares of Common Stock to be issued pursuant to the
Conversion were authorized to provide the Holding Company's Board of Directors
with flexibility to issue additional shares, without further stockholder
approval, for proper corporate purposes, including financing, acquisitions,
stock dividends, stock splits, director and employee stock options, grants of
restricted stock to directors and certain employees and other appropriate
purposes. However, issuance of additional authorized shares may also have the
effect of impeding or deterring future attempts to gain control of the Holding
Company.
The Board of Directors also has sole authority to determine the terms of
any one or more series of preferred stock, including voting rights, conversion
rates, dividend rights, and liquidation preferences, which could adversely
affect the voting power of the holders of the Common Stock and discourage an
attempt to acquire control of the Holding Company. The Board of Directors does
not intend to issue any preferred stock, except on terms which it deems to be in
the best interests of the Holding Company and its stockholders. However, the
Board of Directors has the power, to the extent consistent with its fiduciary
duties, to issue preferred stock to persons friendly to management or otherwise
in order to impede attempts by third parties to acquire voting control of the
Holding Company and to impede other transactions not favored by management. The
Board of Directors currently has no plans for the issuance of additional shares
of Common Stock (except for such shares as may be necessary to fund the MRP and
the Stock Option Plan) or of shares of preferred stock.
Director Nominations. The Bylaws of the Holding Company require a
stockholder who intends to nominate a candidate for election to the Board of
Directors at a stockholders' meeting to give written notice to the Secretary of
the Holding Company at least 50 days (but not more than 90 days) in advance of
the date of the meeting at which such
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nominations will be made. The nomination notice is also required to include
specified information concerning the nominee and the proposing stockholder. The
Board of Directors of the Holding Company believes that it is in the best
interests of the Holding Company and its stockholders to provide sufficient time
for the Board of Directors to study all nominations and to determine whether to
recommend to the stockholders that such nominees be considered.
SUPERMAJORITY VOTING PROVISIONS. The Holding Company's Articles of
Incorporation require the affirmative vote of 75% of the outstanding shares
entitled to vote to approve a merger, consolidation, or other business
combination, unless the transaction is approved, prior to consummation, by the
vote of at least 75% of the number of the Continuing Directors (as defined in
the Articles of Incorporation) on the Holding Company's Board of Directors.
"Continuing Directors" generally includes all members of the Board of Directors
who are not affiliated with any individual, partnership, trust or other person
or entity (or the affiliates and associates of such person or entity) which is a
beneficial owner of 10% or more of the voting shares of the Holding Company.
This provision could tend to make the acquisition of the Holding Company more
difficult to accomplish without the cooperation or favorable recommendation of
the Holding Company's Board of Directors.
ANTI-TAKEOVER EFFECT OF EMPLOYMENT AGREEMENT, SPECIAL TERMINATION
AGREEMENTS AND BENEFIT PLANS. The existence of the ESOP may tend to discourage
takeover attempts because employees participating under the ESOP and the
trustees of the ESOP will effectively control the voting of the large block of
shares held by the ESOP. See "MANAGEMENT OF HOME SAVINGS -- Employee Stock
Ownership Plan." Also, if approved by the stockholders of the Holding Company
at a meeting of stockholders following the Conversion, the MRP and the Stock
Option Plan will provide for the ownership of additional shares of Common Stock
by the employees and the directors of Home Savings and for voting control by
directors and certain employees over shares held by the MRP and Stock Option
Plan which are attributable to grants made to them under such plans even though
the grants are not yet vested. See "MANAGEMENT OF HOME SAVINGS -- Proposed
Management Recognition Plan" and "-- Proposed Stock Option Plan."
Through the ESOP, MRP and Stock Option Plan, directors, officers and
employees of Home Savings could have voting control over a number of shares
equal to up to 22% of the shares issued in the Conversion, in addition to the
shares purchased outright by such persons. See "STOCK PURCHASES BY DIRECTORS
AND EXECUTIVE OFFICERS." Because the Holding Company's Articles of
Incorporation require the affirmative vote of 75% of the outstanding shares
entitled to vote in order to approve certain mergers, consolidations or other
business combinations, the officers and directors, as a group, could effectively
block such transactions. See "-- The Holding Company -- Supermajority Voting
Provisions."
The existence of the employment agreement and special termination
agreements with employees could make a business combination with Home Savings
more costly and could discourage such transactions. See "MANAGEMENT OF HOME
SAVINGS -- Employment Agreement" and "MANAGEMENT OF HOME SAVINGS -- Special
Termination Agreements."
REGULATORY RESTRICTIONS. Applicable North Carolina regulations provide
that for a period of three years following the Conversion, the prior written
approval of the Administrator will be required before any person may, directly
or indirectly, acquire beneficial ownership of or make any offer to acquire any
stock or other equity security of the Holding Company if, after the acquisition
or consummation of such offer, such person would be the beneficial owner of more
than 10% of such class of stock or other class of equity security of the Holding
Company. If any person were to so acquire the beneficial ownership of more than
10% of any class of any equity security without prior written approval, the
securities beneficially owned in excess of 10% would not be counted as shares
entitled to vote and would not be voted or counted as voting shares in
connection with any matter submitted to stockholders for a vote. Approval is
not required for (i) any offer with a view toward public resale made exclusively
to the Holding Company or its underwriters or the selling group acting on its
behalf or (ii) any offer to acquire or acquisition of beneficial ownership of
more than 10% of the common stock of the Holding Company by a corporation whose
ownership is or will be substantially the same as the ownership of the Holding
Company, provided that the offer or acquisition is made more than one year
following the consummation of the Conversion. The regulation provides that
within one year following the Conversion, the Administrator would approve the
acquisition of more than 10% of beneficial ownership only to
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protect the safety and soundness of the institution. During the second and third
years after the Conversion, the Administrator may approve such an acquisition
upon a finding that (i) the acquisition is necessary to protect the safety and
soundness of the Holding Company and Home Savings or the Board of Directors of
the Holding Company and Home Savings support the acquisition and (ii) the
acquiror is of good character and integrity and possesses satisfactory
managerial skills, the acquiror will be a source of financial strength to the
Holding Company and Home Savings and the public interests will not be adversely
affected.
The Change in Bank Control Act, together with North Carolina regulations,
require that the consent of the Administrator and Federal Reserve be obtained
prior to any person or company acquiring "control" of a North Carolina-chartered
savings bank or a North Carolina-chartered savings bank holding company. Upon
acquiring control, such acquiror will be deemed to be a bank holding company.
Control is conclusively presumed to exist if, among other things, an individual
or company acquires the power, directly or indirectly, to direct the management
or policies of the Holding Company or Home Savings or to vote 25% or more of any
class of voting stock. Control is rebuttably presumed to exist under the Change
in Bank Control Act if, among other things, a person acquires more than 10% of
any class of voting stock, and the issuer's securities are registered under
Section 12 of the Exchange Act or the person would be the single largest
stockholder. Restrictions applicable to the operations of bank holding
companies and conditions imposed by the Federal Reserve in connection with its
approval of such acquisitions may deter potential acquirors from seeking to
obtain control of the Holding Company. See "SUPERVISION AND REGULATION --
Regulation of the Holding Company."
HOME SAVINGS
Upon consummation of the Conversion, Home Savings will become a wholly-
owned subsidiary of the Holding Company, and, consequently, restrictions on the
acquisition of Home Savings would have a more limited effect than if Home
Savings' common stock were held directly by the stockholders purchasing in the
Conversion. However, restrictions on the acquisition of Home Savings may
discourage takeover attempts of the Holding Company in order to gain immediate
control of Home Savings.
REGULATORY RESTRICTIONS. The Administrator and the Federal Reserve have
conditionally approved the Holding Company's acquisition of all of the stock of
Home Savings issued in the Conversion. For three years following completion of
a conversion, North Carolina conversion regulations require the prior written
approval of the Administrator before any person may directly or indirectly offer
to acquire or acquire the beneficial ownership of more than 10% of any class of
an equity security of a converting state savings bank such as Home Savings. If
any person were to so acquire the beneficial ownership of more than 10% of any
class of any equity security without prior written approval, the securities
beneficially owned in excess of 10% would not be counted as shares entitled to
vote and would not be voted or counted as voting shares in connection with any
matter submitted to stockholders for a vote. Approval is not required for (i)
any offer with view toward public resale made exclusively to Home Savings or its
underwriters or the selling group acting on its behalf or (ii) any offer to
acquire or acquisition of beneficial ownership of more than 10% of the common
stock of Home Savings by a corporation whose ownership is or will be
substantially the same as the ownership of Home Savings, provided that the offer
or acquisition is made more than one year following the consummation of the
Conversion. Similarly, Federal Reserve approval is required before any person
or entity may acquire "control" of Home Savings. See "-- The Holding Company--
Regulatory Restrictions."
BOARD OF DIRECTORS. The amended Articles of Incorporation of Home Savings
upon consummation of the Conversion will provide that the number of directors
may be no less than five. The initial number of directors will be five, but
such number may be changed by resolution of the Board of Directors. This
provision has the effect of enabling the Board of Directors to elect directors
friendly to management in the event of a non-negotiated takeover attempt. Home
Savings' Bylaws also provide for staggered elections of directors if and when
the total number of directors is at least nine. These provisions are designed
to make it more difficult for a person seeking to acquire control of Home
Savings to gain majority representation on the Board of Directors in a
relatively short period of time. Home Savings believes these provisions to be
important to continuity in the composition and policies of its Board of
Directors.
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THE CONVERSION
THE BOARD OF DIRECTORS OF HOME SAVINGS HAS ADOPTED AND THE ADMINISTRATOR HAS
APPROVED COMPLETION OF THE TRANSACTIONS DESCRIBED IN THE PLAN OF CONVERSION
SUBJECT TO APPROVAL BY THE MEMBERS OF HOME SAVINGS AND TO THE SATISFACTION OF
CERTAIN OTHER CONDITIONS. APPROVAL BY THE ADMINISTRATOR DOES NOT CONSTITUTE A
RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION BY THE ADMINISTRATOR.
GENERAL
Home Savings was organized and has operated as a traditional savings and
loan association. It recognizes that the banking and financial services
industries are in the process of fundamental changes, reflecting changes in the
local, national and international economies, technological changes and changes
in state and federal laws. As a result, for several years Home Savings has been
studying the environment in which it operates and its strategic options.
As a result of its study of its strategic options, Home Savings adopted the
Plan of Conversion. Home Savings believes that converting the bank from the
mutual to stock form and organizing the Holding Company will provide increased
flexibility for Home Savings and the Holding Company to react to changes in
their operating environment, regardless of the strategies ultimately chosen.
The existing management of Home Savings and the Holding Company believes
that it will be in the best interests of Home Savings, the Holding Company and
the stockholders of the Holding Company for the Holding Company to remain an
independent financial institution. Assuming the consummation of the Conversion,
the Holding Company and Home Savings intend to pursue the business strategy
described in this Prospectus with the goal of enhancing shareholder value over
the long term. Neither the Holding Company nor Home Savings has any existing
plan to consider any business combination, and neither company has any agreement
or understanding with respect to any possible business combination.
The Board of Director's adoption of the Plan of Conversion is subject to
approval by the members of Home Savings and receipt of required regulatory
approvals. Pursuant to the Plan of Conversion, Home Savings will be converted
from a North Carolina-chartered mutual savings bank to a North Carolina-
chartered stock savings bank and will become a wholly-owned subsidiary of the
Holding Company. The Holding Company will issue the Common Stock to be sold in
the Conversion and will use that portion of the net proceeds thereof which it
does not retain to purchase the capital stock of Home Savings. By letter dated
_______________, 1996, the Administrator approved the Plan of Conversion,
subject to approval by the members of Home Savings and satisfaction of certain
other conditions. The Special Meeting will be held on _____________, 1996 for
the purpose of considering approval of the Plan of Conversion.
Consummation of the Conversion is contingent also upon receipt of the
approvals of the Federal Reserve and the Administrator for the Holding Company
to acquire Home Savings. Those approvals have been received. The Conversion
cannot be consummated until the expiration of the Bank Merger Act of 1956
waiting period which began to run upon approval by the Federal Reserve of the
Holding Company's application and expires _____________, 1996. Finally,
consummation of the Conversion is contingent upon receipt from the FDIC of a
final non-objection letter with respect to the transaction. The FDIC has issued
a conditional notification that it does not intend to object to the Conversion.
The following is a summary of all material provisions of the Plan of
Conversion. It is qualified in its entirety by the provisions of the Plan of
Conversion, which contains a more detailed description of the terms of the
Conversion. The Plan of Conversion is attached as Attachment I to Home Savings'
Proxy Statement for the Special Meeting which has been delivered to all members
of Home Savings. The Plan of Conversion can also be obtained by written request
from Home Savings. See "ADDITIONAL INFORMATION."
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PURPOSES OF CONVERSION
Home Savings, as a mutual savings bank, now has no stockholders and no
authority to issue capital stock. By converting to the stock form of
organization, Home Savings will be structured in the form used by most
commercial banks, other business entities and a substantial number of savings
institutions. Conversion to a North Carolina-chartered capital stock savings
bank and the formation of a holding company offers a number of advantages which
may be important to the future and performance of Home Savings, including (i) a
larger capital base for Home Savings' operations, (ii) an enhanced future access
to capital markets and (iii) an opportunity for depositors of Home Savings to
become stockholders of the Holding Company.
After completion of the Conversion, the unissued common and preferred stock
authorized by the Holding Company's Articles of Incorporation will permit the
Holding Company, subject to market conditions, to raise additional equity
capital through further sales of securities. Following the Conversion, the
Holding Company will also be able to use stock-related incentive programs to
attract, retain and provide incentives for qualified directors and executive and
other personnel of the Holding Company and Home Savings. See "MANAGEMENT OF
HOME SAVINGS -- Employee Stock Ownership Plan," "-- Proposed Management
Recognition Plan" and "-- Proposed Stock Option Plan."
Formation of the Holding Company will provide greater flexibility than Home
Savings would otherwise have to expand and diversify its business activities
through existing or newly formed subsidiaries, or through acquisitions of, or
mergers with, both mutual and stock institutions, as well as other companies.
However, there are no current plans, arrangements, understandings or agreements
regarding any such business combinations.
EFFECTS OF CONVERSION
GENERAL. Each person with a deposit account in Home Savings has pro rata
rights, based upon the balance in his or her account, in the net worth of Home
Savings upon liquidation. However, this right is tied to the depositor's
account and has no tangible market value separate from such deposit account.
Further, Home Savings' depositors can realize value with respect to their
interests only in the unlikely event that Home Savings is liquidated and has a
positive net worth. In such an event, the depositors of record at that time, as
owners, would share pro rata in any residual surplus after other claims,
including those with respect to the deposit accounts of depositors, are paid.
Upon Home Savings' conversion to stock form, its Certificate of
Incorporation will be amended to authorize the issuance of permanent
nonwithdrawable capital stock to represent the ownership of Home Savings,
including its net worth. THE CAPITAL STOCK WILL BE SEPARATE AND APART FROM
DEPOSIT ACCOUNTS AND WILL NOT BE INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL
ENTITY. Certificates will be issued to evidence ownership of the capital stock.
All of the outstanding capital stock of Home Savings will be acquired by the
Holding Company, which in turn will issue its Common Stock to purchasers in the
Conversion. The stock certificates issued by the Holding Company will be
transferable and, therefore, subject to applicable law, the stock could be sold
or traded if a purchaser is available with no effect on any deposit account the
seller may hold at Home Savings.
VOTING RIGHTS. Under Home Savings' current Certificate of Incorporation
and Bylaws, deposit account holders and borrowers have voting rights with
respect to certain matters relating to Home Savings, including the election of
directors. After the Conversion, (i) neither deposit account holders nor
borrowers will have voting rights with respect to Home Savings and will
therefore not be able to elect directors of Home Savings or control its affairs;
(ii) voting rights with respect to Home Savings will be vested in the Holding
Company as the sole stockholder of Home Savings; and (iii) voting rights with
respect to the Holding Company will be vested in the Holding Company's
stockholders. Each purchaser of Common Stock will be entitled to vote on any
matters to be considered by the Holding Company's stockholders. For a
description of the voting rights of the holders of Common Stock, see
"DESCRIPTION OF CAPITAL STOCK."
DEPOSIT ACCOUNTS AND LOANS. The account balances, interest rates and other
terms of deposit accounts at Home Savings and the existing deposit insurance
coverage of such accounts will not be affected by the Conversion (except to the
extent that a depositor directs Home Savings to withdraw funds to pay for his or
her Common Stock).
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Furthermore, the Conversion will not affect any loan account, the balances,
interest rates, maturities or other terms of these accounts, or the obligations
of borrowers under their individual contractual arrangements with Home Savings.
CONTINUITY. Home Savings will continue without interruption, during and
after completion of the Conversion, to provide its services to depositors and
borrowers pursuant to existing policies and will maintain its office operated by
the existing management and employees of Home Savings.
LIQUIDATION RIGHTS. In the unlikely event of a complete liquidation of
Home Savings, either before or after Conversion, account holders would have
claims for the amount of their deposit accounts, including accrued interest, and
would receive the protection of deposit insurance up to applicable limits. In
addition to deposit insurance coverage, depositor liquidation rights before and
after Conversion would be as follows:
Liquidation Rights Prior to the Conversion. Prior to the Conversion, in
the event of a complete liquidation of Home Savings, each holder of a deposit
account in Home Savings would receive such holder's pro rata share of any assets
of Home Savings remaining after payment of claims of all creditors (including
the claims of all depositors to the withdrawal value of their accounts,
including accrued interest). Such holder's pro rata share of such remaining
assets, if any, would be in the same proportion of such assets as the value of
such holder's deposit account was to the total value of all deposit accounts in
Home Savings at the time of liquidation.
Liquidation Rights After the Conversion. As required by North Carolina
conversion regulations, the Plan of Conversion provides that, upon completion of
the Conversion, a memorandum account called a "Liquidation Account" will be
established for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders. The amount of the Liquidation Account will be equal
to the net worth of Home Savings as of the date of its latest statement of
financial condition contained in the final prospectus relating to the sale of
shares of Common Stock in the Conversion. Under applicable regulations, Home
Savings will not be permitted to pay dividends on, or repurchase any of, its
capital stock if its net worth would thereby be reduced below the aggregate
amount then required for the Liquidation Account. See "DIVIDEND POLICY" and
SUPERVISION AND REGULATION -- Regulation of Home Savings -- Restrictions on
Dividends and Other Capital Distributions." After the Conversion, Eligible
Account Holders and Supplemental Eligible Account Holders will be entitled, in
the event of a liquidation of Home Savings, to receive liquidating distributions
of any assets remaining after payment of all creditors' claims (including the
claims of all depositors to the withdrawal values of their deposit accounts,
including accrued interest), before any distributions are made on Home Savings'
capital stock, equal to their proportionate interests at that time in the
Liquidation Account.
Each Eligible Account Holder and Supplemental Eligible Account Holder will
have an initial interest ("subaccount balance") in the Liquidation Account for
each deposit account held as of March 31, 1995 (the Eligibility Record Date) or
as of __________________, 1996 (the Supplemental Eligibility Record Date),
respectively. Each initial subaccount balance will be the amount determined by
multiplying the total opening balance in the Liquidation Account by the
Qualifying Deposit (a deposit of at least $50 as of the Eligibility Record Date
or Supplemental Eligibility Record Date, as applicable) of such deposit account
divided by the total of all Qualifying Deposits on that date. If the amount in
the deposit account on any subsequent annual closing date of Home Savings is
less than the balance in such deposit account on any other annual closing date
or the balance in such an account on the Eligibility Record Date or Supplemental
Eligibility Record Date, as the case may be, this interest in the Liquidation
Account will be reduced by an amount proportionate to any such reduction, and
will not thereafter be increased despite any subsequent increase in the related
deposit account. An Eligible Account Holder's or Supplemental Eligible Account
Holder's interest in the Liquidation Account will cease to exist if the deposit
account is closed. The Liquidation Account will never increase and will be
correspondingly reduced as the interests in the Liquidation Account are reduced
or cease to exist. In the event of a liquidation, any assets remaining after
the above liquidation rights of Eligible Account Holders and Supplemental
Eligible Account Holders are satisfied would be distributed to the Holding
Company, as sole stockholder of Home Savings.
A merger, consolidation, sale of bulk assets or similar combination or
transaction with another FDIC-insured depository institution, whether or not
Home Savings is the surviving institution, would not be viewed as a complete
liquidation for purposes of distribution of the Liquidation Account. In any such
transaction, the Liquidation Account
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would be assumed by the surviving institution to the full extent authorized by
regulations of the Administrator as then in effect.
OFFERING OF COMMON STOCK
As part of the Conversion, the Holding Company is making the Subscription
Offering of Common Stock in the priorities and to the persons described below
under "-- Subscription Offering." In addition, any shares which remain
unsubscribed for in the Subscription Offering will be offered in the Community
Offering to members of the general public, with priority being given to natural
persons and trusts of natural persons residing or located in the Local
Community, including IRAs, Keogh accounts and similar retirement accounts
established for the benefit of natural persons who are residents of the Local
Community. See "-- Community Offering." If necessary, all shares of Common
Stock not purchased in the Subscription Offering and Community Offering, if any,
may be offered for sale to the general public through a syndicate of registered
broker-dealers as selected dealers to be managed by Trident Securities. See "--
Syndicated Community Offering." The Plan of Conversion requires that the
aggregate dollar amount of the Common Stock sold equal not less than the minimum
nor more than the maximum of the Valuation Range which is established in
connection with the Conversion; provided, however, with the consent of the
Administrator and the FDIC the aggregate dollar amount of the Common Stock sold
may be increased to as much as 15% above the maximum of the Valuation Range,
without a resolicitation of subscribers or any right to cancel subscriptions, in
order to reflect changes in market and financial conditions following
commencement of the Subscription Offering. See "-- Purchase Price of Common
Stock and Number of Shares Offered." If the Syndicated Community Offering is
not feasible or successful and Common Stock having an aggregate value of at
least the minimum of the Valuation Range is not subscribed for in the
Subscription and Community Offerings, the Holding Company will consult with the
Administrator to determine an appropriate alternative method of selling all
shares of Common Stock offered in the Conversion and not subscribed for in the
Offerings. The same per share price ($50.00) will be paid by purchasers in the
Subscription, Community and Syndicated Community Offerings.
The Subscription Offering will expire at the Expiration Time, which is
12:00 noon, Eastern Time, on _________________, 1996, unless, with the approval
of the Administrator, the offering period is extended by the Holding Company and
Home Savings. The Community Offering, if any, may begin at any time after the
Subscription Offering begins and will terminate at the Expiration Time or at any
time thereafter, but not later than ___________________, 1996, unless extended
with the approval of the Administrator. The Syndicated Community Offering, if
any, or other sale of all shares not subscribed for in the Subscription and
Community Offerings, will be made as soon as practicable following the
Expiration Time. The sale of the Common Stock must, under the North Carolina
conversion regulations, be completed within 45 days after the Expiration Time
unless such period is extended with the approval of the Administrator. In the
event such an extension is approved, subscribers would be given the opportunity
to increase (subject to maximum purchase limitations), decrease (subject to
minimum purchase limitations) or rescind their subscriptions. In such event,
substantial additional printing, legal and accounting expenses may be incurred
in completing the Conversion.
The commencement and completion of any required Community or Syndicated
Community Offering will be subject to market conditions and other factors beyond
the Holding Company's control. Accordingly, no assurance can be given that any
required Community or Syndicated Community Offering or other sale of Common
Stock will be commenced at any particular time or as to the length of time that
will be required to complete the sale of all shares of Common Stock offered, and
significant changes may occur in the estimated pro forma market value of the
Common Stock, together with corresponding changes in the offering price, the
number of shares being offered, and the net proceeds realized from the sale of
the Common Stock. The Plan of Conversion requires that the Conversion be
completed within 24 months after the date of approval of the Plan of Conversion
by Home Savings' members.
SUBSCRIPTION OFFERING
In accordance with North Carolina conversion regulations, non-transferable
Subscription Rights have been granted under the Plan of Conversion to the
following persons in the following order of priority: (i) Home Savings'
Eligible Account Holders, who are depositors as of March 31, 1995 who had
aggregate deposits at the close of business
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on such date of at least $50 ("Qualifying Deposits"); (ii) the ESOP; (iii) Home
Savings' Supplemental Eligible Account Holders, who are depositors as of
_____________, 1996 who had Qualifying Deposits on such date; (iv) Home Savings'
Other Members, who are depositor and borrower members as of _______________,
1996, the voting record date for the Special Meeting, who are not Eligible
Account Holders or Supplemental Eligible Account Holders; and (v) directors,
officers and employees of Home Savings who are not Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members, in the priorities and
subject to the limitations described herein. All subscriptions received will be
subject to the availability of Common Stock after satisfaction of subscriptions
of all persons having prior rights in the Subscription Offering, and to the
maximum purchase limitations and other terms and conditions set forth in the
Plan of Conversion and described below.
IN ORDER TO ENSURE PROPER IDENTIFICATION OF SUBSCRIPTION RIGHTS, IT IS THE
RESPONSIBILITY OF SUBSCRIBERS IN THE SUBSCRIPTION OFFERING TO PROVIDE CORRECT
ACCOUNT VERIFICATION INFORMATION ON THE STOCK ORDER FORM.
ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder has been granted,
without payment therefor, non-transferable Subscription Rights to purchase
Common Stock up to the maximum purchase limitation described in "-- Minimum and
Maximum Purchase Limitations." If Eligible Account Holders subscribe for more
shares of Common Stock than are available for purchase, the shares offered will
first be allocated among the subscribing Eligible Account Holders so as to
enable each subscribing Eligible Account Holder to the extent possible, to
purchase the number of shares necessary to make his or her total allocation of
Common Stock equal to the lesser of 20 shares of Common Stock or the number of
shares subscribed for by such Eligible Account Holder. Any shares remaining
after such allocation will be allocated among the subscribing Eligible Account
Holders whose subscriptions remain unsatisfied in the proportion that each such
Eligible Account Holder's Qualifying Deposits bears to the total of the
Qualifying Deposits of all such Eligible Account Holders.
ESOP. The ESOP has been granted, without payment therefor, Subscription
Rights to purchase a number of shares of Common Stock up to 8% of the aggregate
number of shares issued in the Conversion. The ESOP is expected to purchase 8%
of the number of shares to be issued in the Conversion. If, because of an
oversubscription for shares of Common Stock or for any other reason, the ESOP is
unable to purchase in the Conversion 8% of the total number of shares offered in
the Conversion, then the Board of Directors of the Holding Company intends to
approve the purchase by the ESOP in the open market after the Conversion, of
such shares as are necessary for the ESOP to acquire a number of shares equal to
8% of the shares of Common Stock issued in the Conversion.
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent that shares remain
available for purchase after satisfaction of subscriptions of Eligible Account
Holders and the ESOP, each Supplemental Eligible Account Holder has been
granted, without payment therefor, non-transferable Subscription Rights to
purchase Common Stock up to the maximum purchase limitation described in "--
Minimum and Maximum Purchase Limitations." If Supplemental Eligible Account
Holders subscribe for more shares of Common Stock than are available for
purchase, the shares offered will first be allocated among the subscribing
Supplemental Eligible Account Holders so as to enable each subscribing
Supplemental Eligible Account Holder to the extent possible, to purchase the
number of shares necessary to make his or her total allocation of Common Stock
equal to the lesser of 20 shares of Common Stock or the number of shares
subscribed for by such Supplemental Eligible Account Holder. Any shares
remaining after such allocation will be allocated among the subscribing
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion that each such Supplemental Eligible Account Holder's Qualifying
Deposits bears to the total of the Qualifying Deposits of all such Supplemental
Eligible Account Holders.
OTHER MEMBERS. To the extent that shares remain available for purchase
after satisfaction of subscriptions of Eligible Account Holders, the ESOP and
Supplemental Eligible Account Holders, members of Home Savings as of
___________________, 1996 (the voting record date for the Special Meeting),
other than Eligible Account Holders and Supplemental Eligible Account Holders
(Other Members) have each been granted, without payment therefor, non-
transferable Subscription Rights to purchase Common Stock up to the maximum
purchase limitation described in "--Minimum and Maximum Purchase Limitations."
If Other Members subscribe for more shares of Common Stock than remain available
for purchase by Other Members, shares will be allocated among the subscribing
Other Members in the
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proportion that the number of votes eligible to be cast by each Other Member
bears to the total number of votes eligible to be cast at the Special Meeting.
EMPLOYEES, OFFICERS, AND DIRECTORS. To the extent that shares remain
available for purchase after satisfaction of subscriptions of Eligible Account
Holders, the ESOP, Supplemental Eligible Account Holders and Other Members, Home
Savings' employees, officers and directors who are not Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members have each been granted,
without payment therefor, non-transferable Subscription Rights to purchase
Common Stock up to the maximum purchase limitation described in "-- Minimum and
Maximum Purchase Limitations." If more shares are subscribed for by such
employees, officers and directors than are available for purchase by them, the
available shares will be allocated among subscribing employees, officers and
directors pro rata on the basis of the amount of their respective subscriptions.
COMMUNITY OFFERING
Any shares of Common Stock which remain unsubscribed for in the
Subscription Offering may be offered by the Holding Company to members of the
general public in the Community Offering, which may commence at any time after
commencement of the Subscription Offering, with priority given to natural
persons and trusts of natural persons residing or located in Davidson County in
North Carolina (the Local Community), including IRA accounts, Keogh accounts and
similar retirement accounts established for the benefit of natural persons who
are residents of, the Local Community. The Community Offering may terminate the
Expiration Time or at any time thereafter, but no later than _______________,
1996, unless further extended with the consent of the Administrator. THE
OPPORTUNITY TO SUBSCRIBE FOR SHARES OF COMMON STOCK IN THE COMMUNITY OFFERING IS
SUBJECT TO THE RIGHT OF HOME SAVINGS AND THE HOLDING COMPANY, IN THEIR SOLE
DISCRETION, TO ACCEPT OR REJECT ANY SUCH ORDERS, IN WHOLE OR IN PART, EITHER AT
THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE FOLLOWING THE
TERMINATION OF THE COMMUNITY OFFERING. In the event Home Savings and the Holding
Company reject any such orders after receipt, subscribers will be promptly
notified and all funds submitted with subscriptions will be returned with
interest at Home Savings' passbook savings rate.
In the event that subscriptions by subscribers in the Community Offering
whose orders would otherwise be accepted exceed the shares available for
purchase in the Community Offering, then subscriptions of natural persons and
trusts of natural persons residing in the Local Community, including IRAs, Keogh
accounts and similar retirement accounts established for the benefit of natural
persons who are residents of the Local Community ("First Priority Community
Subscribers") will be filled in full up to applicable purchase limitations (to
the extent such subscriptions are not rejected by Home Savings and the Holding
Company) prior to any allocation to other subscribers in the Community Offering.
In the event of an oversubscription by First Priority Community Subscribers
whose orders would otherwise be accepted, shares of Common Stock will be
allocated first to each First Priority Community Subscriber whose order is
accepted in full or in part by Home Savings and the Holding Company in the
entire amount of such order up to a number of shares no greater than 5,000
shares, which number shall be determined by the Board of Directors of Home
Savings prior to the time the Conversion is consummated with the intent to
provide for a wide distribution of shares among such subscribers. Any shares
remaining after such allocation will be allocated to each First Priority
Community Subscriber whose order is accepted in full or in part on an equal
number of shares basis until all orders are filled. Such allocation shall also
be applied to subscriptions by other subscribers in the Community Offering, in
the event shares are available for such subscribers but there is an
oversubscription by them.
IN ORDER TO ENSURE PROPER ALLOCATION OF SHARES IN THE EVENT OF AN
OVERSUBSCRIPTION, IT IS THE RESPONSIBILITY OF SUBSCRIBERS IN THE COMMUNITY
OFFERING TO PROVIDE CORRECT ADDRESSES OF RESIDENCE ON THE STOCK ORDER FORM.
SYNDICATED COMMUNITY OFFERING
The Plan of Conversion provides that, if necessary, all shares of Common
Stock not purchased in the Subscription and Community Offerings, if any, may be
offered for sale to the general public in a Syndicated Community Offering
through a syndicate of registered broker-dealers as selected dealers ("Selected
Dealers") to be formed and
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managed by Trident Securities acting as agent of the Holding Company in the sale
of the Common Stock. THE HOLDING COMPANY AND HOME SAVINGS HAVE THE RIGHT TO
REJECT ORDERS, IN WHOLE OR IN PART, IN THEIR SOLE DISCRETION IN THE SYNDICATED
COMMUNITY OFFERING. Neither Trident Securities nor any registered broker-dealer
shall have any obligation to take or purchase any shares of the Common Stock in
the Syndicated Community Offering; however, Trident Securities has agreed to use
its best efforts in the sale of shares in the Syndicated Community Offering.
Common Stock sold in the Syndicated Community Offering will be sold at the
purchase price of $50.00 per share which is the same price as all other shares
being offered in the Conversion.
It is estimated that the Selected Dealers will receive a negotiated
commission based on the amount of Common Stock sold by the Selected Dealer,
payable by the Holding Company. During the Syndicated Community Offering,
Selected Dealers may only solicit indications of interest from their customers
to place orders with the Holding Company
as of a certain date (the "Order Date") for the purchase of shares of Common
Stock. When and if Trident Securities and the Holding Company believe that
enough indications and orders have been received in the Offerings to consummate
the Conversion, Trident Securities will request, as of the Order Date, Selected
Dealers to submit orders to purchase shares for which they have received
indications of interest from their customers. Selected Dealers will send
confirmations of the orders to such customers on the next business day after the
Order Date. Selected Dealers will debit the accounts of their customers on a
date which will be three business days from the Order Date ("Debit Date").
Customers who authorize Selected Dealers to debit their brokerage accounts are
required to have the funds for payment in their account on but not before the
Debit Date. On the next business day following the Debit Date, Selected Dealers
will remit funds to the account that the Holding Company established for each
Selected Dealer. After payment has been received by the Holding Company from
Selected Dealers, funds will earn interest at Home Savings' passbook savings
rate until the consummation of the Conversion. In the event the Conversion is
not consummated as described above, funds with interest will be returned
promptly to the Selected Dealers, who, in turn, will promptly credit their
customers' brokerage accounts.
The Syndicated Community Offering may close at any time after the
Expiration Time at the discretion of Home Savings and the Holding Company, but
in no case later than __________________, 1996.
FRACTIONAL SHARES
In making allocations in the event of oversubscriptions, all computations
will be rounded down to the nearest whole share; no fractional shares will be
issued. Excess and other amounts sent by subscribers which are not used to
satisfy subscriptions will be refunded with interest at Home Savings' passbook
savings rate, and amounts designated for withdrawal from deposit accounts will
be released.
PURCHASE PRICE OF COMMON STOCK AND NUMBER OF SHARES OFFERED
The purchase price of shares of Common Stock sold in the Subscription
Offering, Community Offering and Syndicated Community Offering will be $50.00
per share. The purchase price was determined by the Boards of Directors of the
Holding Company and Home Savings in consultation with Home Savings' financial
advisor and sales agent, Trident Securities, and was based upon a number of
factors. The North Carolina regulations governing conversions of North
Carolina-chartered mutual savings banks to stock form require that the aggregate
purchase price of the shares of Common Stock of the Holding Company sold in
connection with the Conversion be equal to not less than the minimum, nor more
than the maximum, of the Valuation Range which is established by an independent
appraisal in the Conversion and is described below; provided, however, that with
the consent of the Administrator and the FDIC the aggregate purchase price of
the Common Stock sold may be increased to up to 15% above the maximum of the
Valuation Range, without a resolicitation of subscribers or any right to cancel,
rescind or change subscription orders, to reflect changes in market and
financial conditions following commencement of the Subscription Offering.
FDIC rules with respect to appraisals require that the independent
appraisal must include a complete and detailed description of the elements of
the appraisal report, justification for the methodology employed and sufficient
support for the conclusions reached. The appraisal report must include a full
discussion of each peer group member and documented analytical evidence
supporting variances from peer group statistics. The appraisal report must also
include
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a complete analysis of the converting institution's pro forma earnings, which
should include the institution's full potential once it fully deploys the
capital from the conversion pursuant to its business plan.
Home Savings has retained JMP Financial, an independent appraisal firm
experienced in the valuation and appraisal of savings institutions and their
holding companies, to prepare an appraisal of the pro forma market value of Home
Savings and the Holding Company and to assist Home Savings in preparing a
business plan. For its services in determining such valuation and assisting
with the business plan, JMP Financial will receive an aggregate fee of $30,000,
plus $2,500 for each written opinion or update of its appraisal, and will be
reimbursed for its out-of-pocket expenses.
JMP Financial has informed Home Savings that its appraisal has been made in
reliance upon the information contained in this Prospectus, including the
financial statements of Home Savings. JMP Financial has further informed Home
Savings that it also considered the following factors, among others, in making
the appraisal: (i) the present and projected operating results and financial
condition of the Holding Company and Home Savings; (ii) the economic and
demographic conditions in Home Savings' existing market area; (iii) certain
historical, financial and other information relating to Home Savings; (iv) the
proposed dividend policy of the Holding Company; (v) a comparative evaluation of
the operating and financial statistics of Home Savings with those of other
savings institutions; (vi) the aggregate size of the offering of the Common
Stock; and (vii) the trading market for the securities of institutions JMP
Financial believes to be comparable in relevant respects to the Holding Company
and Home Savings and general conditions in the markets for such securities. In
addition, JMP Financial has advised Home Savings that it has considered the
effect of the Conversion on the net worth and earnings potential of the Holding
Company and Home Savings.
On the basis of its consideration of the above factors, JMP Financial has
advised Home Savings that, in its opinion, at July 8, 1996, the Valuation Range
of Home Savings and the Holding Company was from a minimum of $11,475,000 to a
maximum of $15,525,000, with a midpoint of $13,500,000. Based upon such
valuation and a purchase price for shares offered in the Conversion of $50.00
per share, the number of shares to be offered ranges from a minimum of 229,500
shares to a maximum of 310,500 shares, with a midpoint of 270,000 shares.
The Board of Directors of Home Savings has reviewed the methodology and
assumptions used by JMP Financial in preparing the appraisal and has determined
that the Valuation Range, as well as the methodology and assumptions used, were
reasonable and appropriate.
Upon completion of the Offerings, JMP Financial will confirm or update its
valuation of the estimated aggregate pro forma market value of Home Savings and
the Holding Company. Based on the confirmed or updated appraisal, a
determination will be made of the total number of shares of Common Stock which
shall be offered and sold in the Conversion.
With the consent of the Administrator and the FDIC, the aggregate price of
the shares sold in the Conversion may be increased by up to 15% above the
maximum of the Valuation Range, or to $17,853,750 (357,075 shares), without a
resolicitation of subscribers and without any right to cancel, rescind or change
subscription orders, to reflect changes in market and financial conditions
following commencement of the Subscription Offering.
No sale of shares of Common Stock may be consummated unless, after the
expiration of the offering period, JMP Financial confirms to Home Savings, the
Holding Company, the Administrator and the FDIC, that, to the best of its
knowledge, nothing of a material nature has occurred which, taking into account
all relevant factors, would cause JMP Financial to conclude that the aggregate
purchase price of the Common Stock sold in the Conversion is incompatible with
its estimate of the aggregate pro forma market value of Home Savings and the
Holding Company at the conclusion of the Offerings. If the aggregate pro forma
market value of Home Savings and the Holding Company as of such date is within
the Valuation Range (or, with the consent of the Administrator and FDIC, not
more than 15% above the maximum of the Valuation Range), then such pro forma
market value will determine the number of shares of Common Stock to be sold in
the Conversion. If there has occurred a change in the aggregate pro forma
market value of Home Savings and the Holding Company so that the aggregate pro
forma market value is below the minimum of the Valuation Range or more than 15%
above the maximum of the Valuation Range, a resolicitation of subscribers may
be made based
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upon a new Valuation Range, the Plan of Conversion may be terminated or such
other actions as the Administrator and the FDIC may permit may be taken.
In the event of a resolicitation, subscribers would be given a specified
time period within which to respond to the resolicitation. If a subscriber
fails to respond to the resolicitation by the end of such period, the
subscription of such subscriber will be cancelled, funds submitted with the
subscription will be refunded promptly with interest at Home Savings' passbook
savings rate, and holds on accounts from which withdrawals were designated will
be released. Any such resolicitation will be by means of an amended prospectus
filed with the SEC. A resolicitation may delay completion of the Conversion.
If the Plan of Conversion is terminated, all funds will be returned promptly
with interest at Home Savings' passbook savings rate from the date payment was
deemed received, and holds on funds authorized for withdrawal from deposit
accounts will be released. See "-- Exercise of Subscription Rights and
Purchases in the Community Offering."
THE VALUATION BY JMP FINANCIAL IS NOT INTENDED, AND MUST NOT BE CONSTRUED,
AS A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING COMMON
STOCK. JMP FINANCIAL DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS AND
OTHER INFORMATION PROVIDED BY HOME SAVINGS, NOR DID JMP FINANCIAL VALUE
INDEPENDENTLY THE ASSETS OR LIABILITIES OF HOME SAVINGS. THE VALUATION CONSIDERS
HOME SAVINGS AS A GOING CONCERN AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF
THE LIQUIDATION VALUE OF HOME SAVINGS OR THE HOLDING COMPANY. MOREOVER, BECAUSE
SUCH VALUATION IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A NUMBER
OF MATTERS, ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME TO TIME, NO ASSURANCE
CAN BE GIVEN THAT PERSONS PURCHASING SUCH SHARES IN THE CONVERSION WILL
THEREAFTER BE ABLE TO SELL SHARES AT PRICES IN THE RANGE OF THE FOREGOING
VALUATION OF THE PRO FORMA MARKET VALUE THEREOF.
A copy of the complete appraisal by JMP Financial is on file and available
for inspection at the office of the Savings Institutions Division of the North
Carolina Department of Commerce, Tower Building, Suite 301, 1110 Navaho Drive,
Raleigh, North Carolina 27609. A copy is also available for inspection at the
Stock Information Center. A copy of the appraisal has also been filed as an
exhibit to the Registration Statement filed with the SEC with respect to the
Common Stock offered hereby. See "ADDITIONAL INFORMATION."
EXERCISE OF SUBSCRIPTION RIGHTS AND PURCHASES IN COMMUNITY OFFERING
In order for Subscription Rights to be effectively exercised in the
Subscription Offering and in order to purchase in the Subscription Offering, the
original signed Stock Order Form, accompanied by the required payment for the
aggregate dollar amount of Common Stock desired or appropriate instructions
authorizing withdrawal from one or more Home Savings deposit accounts (other
than negotiable order of withdrawal accounts or other demand deposit accounts),
must be received by Home Savings by the Expiration Time, which is 12:00 noon,
Eastern Time, on __________________, 1996. Subscription Rights (i) for which
Home Savings does not receive original signed Stock Order Forms by the
Expiration Time (unless such time is extended), or (ii) for which Stock Order
Forms are executed defectively or are not accompanied by full payment (or
appropriate withdrawal instructions) for subscribed shares, will expire whether
or not Home Savings has been able to locate the persons entitled to such rights.
Copies of the Stock Order Form, including copies sent by facsimile, will not be
accepted. In order to purchase in the Community Offering, the Stock Order Form,
accompanied by the required payment for the aggregate dollar amount of Common
Stock desired or appropriate instructions authorizing withdrawal from one or
more Home Savings deposit accounts (other than negotiable order of withdrawal
accounts or other demand deposit accounts), must be received by Home Savings
prior to the time the Community Offering terminates, which could be at any time
at or subsequent to the Expiration Time. No orders will be accepted from
persons who do not have Subscription Rights in the Subscription Offering unless
a Community Offering is commenced.
Persons wishing to use funds in a Home Savings IRA to purchase Common Stock
must visit the Stock Information Center on or before __________________, 1996 in
order to complete that purchase so that the necessary forms may be forwarded for
execution and returned prior to the Expiration Time.
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AN EXECUTED STOCK ORDER FORM ONCE RECEIVED BY HOME SAVINGS, MAY NOT BE
MODIFIED, AMENDED OR RESCINDED WITHOUT THE CONSENT OF HOME SAVINGS. Home
Savings has the right to extend the subscription period subject to applicable
regulations, unless otherwise ordered by the Administrator, or to waive or
permit correction of incomplete or improperly executed Stock Order Forms, but
does not represent that it will do so.
The amount to be remitted with the Stock Order Form shall be the aggregate
dollar amount that a subscriber or purchaser desires to invest in the
Subscription and Community Offerings. Payment must accompany all completed
Stock Order Forms submitted in the Subscription and Community Offerings in order
for subscriptions to be valid. See "-- Purchase Price of Common Stock and
Number of Shares Offered."
Payment for shares will be permitted to be made by any of the following
means: (i) in cash, if delivered in person to either office of Home Savings;
(ii) by check, bank draft, negotiable order of withdrawal or money order,
provided that the foregoing will only be accepted subject to collection and
payment; or (iii) by appropriate authorization of withdrawal from any deposit
account in Home Savings (other than a negotiable order of withdrawal account or
other demand deposit account). PAYMENT MAY NOT BE MADE BY WIRE TRANSFER. IN
ORDER TO ENSURE PROPER IDENTIFICATION OF SUBSCRIPTION RIGHTS AND PROPER
ALLOCATIONS IN THE EVENT OF AN OVERSUBSCRIPTION, IT IS THE RESPONSIBILITY OF
SUBSCRIBERS TO PROVIDE CORRECT ACCOUNT VERIFICATION INFORMATION ON THE STOCK
ORDER FORM. STOCK ORDER FORMS SUBMITTED BY UNAUTHORIZED PURCHASERS OR IN
AMOUNTS EXCEEDING PURCHASE LIMITATIONS WILL NOT BE HONORED.
For purposes of determining the withdrawal balance of deposit accounts from
which withdrawals have been authorized, such withdrawals will be deemed to have
been made upon receipt of appropriate authorization therefor, but interest will
be paid by Home Savings on the amount deemed to have been withdrawn at the
contractual rate of interest paid on such accounts until the date on which the
Conversion is completed or terminated.
Interest will be paid by Home Savings on payments for Common Stock made in
cash or by check, bank draft, negotiable order of withdrawal or money order at
Home Savings' passbook savings rate. Such interest shall be paid from the date
the order is accepted for processing and payment in good funds is received by
Home Savings until consummation or termination of the Conversion. Home Savings
shall be entitled to invest all amounts paid on subscriptions for Common Stock
for its own account until completion or termination of the Conversion. Home
Savings may not knowingly lend funds or otherwise extend credit to any person to
purchase Common Stock.
The Stock Order Forms contain appropriate means by which authorization of
withdrawals from deposit accounts may be made to pay for subscribed shares.
Once such a withdrawal has been authorized, none of the designated withdrawal
amount may be withdrawn (except by Home Savings as payment for Common Stock)
until the Conversion is completed or terminated. Savings accounts will be
permitted to be established for the purpose of making payment for subscribed
shares of Common Stock. Funds authorized for withdrawal will continue to earn
interest at the applicable contract interest rate until completion or
termination of the Conversion or, in the case of an order submitted in the
Community Offering, until it is determined that such order cannot or will not be
accepted. Notwithstanding any regulatory provision regarding penalties for
early withdrawal from certificate accounts, payment for subscribed shares of
Common Stock will be permitted through authorization of withdrawals from such
accounts without the assessment of such penalties. However, if after such
withdrawal the applicable minimum balance requirement ceases to be satisfied,
such certificate account will be cancelled and the remaining balance thereof
will earn interest at Home Savings' passbook savings rate.
Upon completion or termination of the Conversion, Home Savings will return
to subscribers all amounts paid with subscriptions which are not applied to the
purchase price for shares, plus interest at its passbook savings rate from the
date good funds are received until the consummation or termination of the
Conversion, and Home Savings will release deposit account withdrawal orders
given in connection with the subscriptions to the extent funds are not withdrawn
and applied toward the purchase of shares.
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DELIVERY OF STOCK CERTIFICATES
Certificates representing Common Stock issued in the Conversion will be
mailed by the Holding Company's transfer agent to persons entitled thereto at
the address of such persons appearing on the Stock Order Form as soon as
practicable following consummation of the Conversion. Any certificates returned
as undeliverable will be held by the Holding Company until claimed by persons
legally entitled thereto or otherwise disposed of in accordance with applicable
law. Until certificates for Common Stock are available and delivered to
subscribers, subscribers may not be able to sell the shares of Common Stock for
which they have subscribed, even though trading of the Common Stock may have
commenced.
PERSONS IN NON-QUALIFIED OR FOREIGN JURISDICTIONS
The Holding Company will make reasonable efforts to comply with the
securities laws of all states of the United States in which Eligible Account
Holders, Supplemental Eligible Account Holders, or Other Members entitled to
subscribe for shares of Common Stock reside. However, no shares of Common Stock
or Subscription Rights under the Plan of Conversion will be offered or sold in a
foreign country, or in a state in the United States (i) where a small number of
persons otherwise eligible to subscribe for shares under the Plan of Conversion
reside or (ii) if the Holding Company determines that compliance with the
securities laws of such state would be impracticable for reasons of cost or
otherwise, including, but not limited to, a requirement that the Holding
Company, Home Savings or any employee or representative thereof register as a
broker, dealer, agent or salesperson or register or otherwise qualify the
Subscription Rights or Common Stock for sale in such state. No payments will be
made in lieu of the granting of Subscription Rights to persons residing in such
jurisdictions.
MARKETING ARRANGEMENTS
Home Savings has retained Trident Securities to consult with and advise
Home Savings and the Holding Company and to assist the Holding Company, on a
best-efforts basis, in the marketing of shares in the Offerings. Trident
Securities is a broker-dealer registered with the SEC and a member of the
National Association of Securities Dealers, Inc. ("NASD"). Trident Securities
is headquartered in Raleigh, North Carolina, and its telephone number is (919)
781-8900. Trident Securities will assist Home Savings and the Holding Company
in the Conversion as follows: (i) it will act as marketing advisor with respect
to the Subscription Offering and will represent the Company as placement agent
on a best-efforts basis in the sale of the Common Stock in the Community
Offering and Syndicated Community Offering; (ii) members of its staff will
conduct training sessions to ensure that directors, officers and employees of
Home Savings are knowledgeable regarding the Conversion process; and (iii) it
will provide assistance in the establishment and supervision of the Stock
Information Center, including training staff to properly record and tabulate
orders for the purchase of Common Stock and to appropriately respond to customer
inquiries.
For rendering its services, Home Savings has agreed to pay Trident
Securities (a) a management fee equal to 1% of the aggregate dollar amount of
Common Stock sold in the Offerings; (b) a commission equal to 2.0% of the
aggregate dollar amount of Common Stock sold in the Subscription Offering,
excluding shares purchased by the ESOP, directors, executive officers and their
"associates" (as defined in the Plan of Conversion); and (c) a commission equal
to 2.0% of the aggregate dollar amount of Common Stock sold by Trident
Securities in the Community Offering, excluding shares sold by other NASD member
firms under Selected Dealers agreements. Home Savings has also agreed to pay to
Selected Dealers, if any, negotiated commissions. Home Savings has paid Trident
Securities $10,000 toward amounts due to such agent.
Home Savings has agreed to reimburse Trident Securities for its reasonable
out-of-pocket expenses, including but not limited to travel, communications,
legal fees and postage, and to indemnify Trident Securities against certain
claims or liabilities, including certain liabilities under the Securities Act.
Trident has agreed that Home Savings is not required to pay its legal fees to
the extent they exceed $30,000 or its other out of pocket expenses to the extent
they exceed $10,000. Total fees and commissions to Trident Securities are
expected to be between $325,890 and $507,047 at the minimum and 15% above the
maximum, respectively, of the Valuation Range. See "PRO FORMA DATA" for the
assumptions used to determine these estimates.
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Sales of Common Stock will be made primarily by registered representatives
affiliated with Trident Securities or by the broker-dealers managed by Trident
Securities. In addition, subject to applicable law, executive officers of the
Holding Company and Home Savings may participate in the solicitation of offers
to purchase Common Stock. Other employees of Home Savings may participate in the
Offerings in clerical capacities, providing administrative support in effecting
sales transactions and answering questions of a mechanical nature relating to
the proper execution of the Stock Order Form. Other questions of prospective
purchasers, including questions as to the advisability or nature of the
investment, will be directed to registered representatives. Such other employees
have been instructed not to solicit offers to purchase Common Stock or provide
advice regarding the purchase of Common Stock. A Stock Information Center will
be established in Home Savings' office, in an area separate from Home Savings'
banking operations. Employees will inform prospective purchasers that their
questions should be directed to the Stock Information Center and will provide
such persons with the telephone number of the Stock Information Center. Stock
orders will be accepted at Home Savings' office and will be promptly forwarded
to the Stock Information Center for processing. Sales of Common Stock by
registered representatives will be made from the Stock Information Center. In
addition, Home Savings may hire one or more temporary clerical persons to assist
in typing, opening mail, answering the phone, and with other clerical duties. An
employee of Home Savings will also be present at the Stock Information Center to
process funds and answer questions regarding payment for stock, including
verification of account numbers in the case of payment by withdrawal
authorization and similar matters. Subject to applicable state law, the Holding
Company will rely on Rule 3a4-1 under the Exchange Act, and sales of Common
Stock will be conducted within the requirements of Rule 3a4-1, so as to permit
officers and current full and part-time Home Savings employees to participate in
the sale of Common Stock. No officer, director or employee of the Holding
Company or Home Savings will be compensated in connection with his or her
participation by the payment of commissions or other remuneration based either
directly or indirectly on the transactions in the Common Stock.
The engagement of Trident Securities and the work performed by Trident
Securities pursuant to its engagement, including a due diligence investigation,
should not be construed by purchasers of Common Stock as constituting an
endorsement or recommendation relating to such investment or a verification of
the accuracy or completeness of information contained in this Prospectus.
MINIMUM AND MAXIMUM PURCHASE LIMITATIONS
Each person subscribing for Common Stock in the Conversion must subscribe
for at least 10 shares of the Common Stock to be offered in the Conversion. In
addition, the maximum number of shares of Common Stock which may be purchased in
the Conversion by any person, together with all associates of such person, or
group of persons otherwise acting in concert, is 5,000 shares; provided,
however, that the ESOP may purchase up to 8% of the number of shares offered in
the Conversion (24,840 shares, assuming the issuance of 310,500 shares). Any
shares held by the ESOP and attributed to a natural person shall not be
aggregated with other shares purchased directly by or otherwise attributable to
that natural person. The Board of Directors of Home Savings may in its absolute
discretion (i) reduce the 5,000 share maximum purchase limitation to an amount
not less than 1% of the number of shares offered and sold in the Conversion or
(ii) increase the 5,000 share maximum purchase limitation to an amount of up to
5% of the shares of Common Stock offered and sold. Any reduction or increase in
the maximum purchase limitation by Home Savings' Board of Directors may occur
at any time prior to consummation of the Conversion, either before or after the
Special Meeting on _________________, 1996. In the event the 5,000 share
maximum purchase limitation is increased, any subscriber in the Subscription,
Community or Syndicated Community Offering who has subscribed for 5,000 shares,
and certain other large subscribers in the discretion of the Holding Company,
shall be given the opportunity to increase their subscriptions up to the then
applicable maximum purchase limitation.
The Plan of Conversion further provides that for purposes of the foregoing
limitations the term "associate" is used to indicate any of the following
relationships with a person:
(i) any relative or spouse of such person, or any relative of such
spouse, who has the same home as such person or who is a director or
officer of Home Savings, the Holding Company or any subsidiary of
Home Savings or of the Holding Company;
111
<PAGE>
(ii) any corporation or organization (other than Home Savings, the
Holding Company or a majority-owned subsidiary of Home Savings or
the Holding Company) of which the person is an officer or partner or
is, directly or indirectly, the beneficial owner of 10% or more of
any class of equity security; and
(iii) any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as a trustee
or in a similar fiduciary capacity, except for any tax-qualified
employee stock benefit plan or any charitable trust which is exempt
from federal taxation pursuant to Section 501(c)(3) of the Code.
For purposes of the foregoing limitations, (i) directors and officers of
Home Savings or the Holding Company shall not be deemed to be associates or a
group of persons acting in concert solely as a result of their serving in such
capacities, (ii) the ESOP will not be deemed to be acting in concert with any of
its trustees for purposes of determining the number of shares which any such
trustee, individually, may purchase and (iii) shares of Common Stock held by the
ESOP and attributed to an individual will not be aggregated with other shares
purchased directly by, or otherwise attributable to, that individual.
For purposes of the foregoing limitations, persons will be deemed to be
"acting in concert" if they are (i) knowingly participating in a joint activity
or interdependent conscious parallel action towards a common goal (whether or
not pursuant to an express agreement), with respect to the purchase, ownership,
voting or sale of Common Stock or (ii) engaged in a combination or pooling of
voting or other interests in the securities of the Holding Company for a common
purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise. The Holding Company and Home
Savings may presume that certain persons are acting in concert based upon, among
other things, joint account relationships and the fact that such persons have
filed joint Schedules 13D with the SEC with respect to other companies.
APPROVAL, INTERPRETATION, AMENDMENT AND TERMINATION
Under the Plan of Conversion, the Administrator's approval thereof, and
applicable North Carolina conversion regulations, consummation of the Conversion
is subject to satisfaction of certain conditions, including the following: (i)
approval of the Plan of Conversion by the affirmative vote of a majority of the
votes eligible to be cast by members of Home Savings at the Special Meeting;
(ii) sale of shares of Common Stock for an aggregate purchase price equal to
not less than the minimum or more than the maximum of the Valuation Range unless
the aggregate purchase price is increased to as much as 15% above the maximum
with the consent of the Administrator and FDIC, and (iii) receipt by the Holding
Company and Home Savings of favorable opinions of counsel or other tax advisor
as to the federal and state tax consequences of the Conversion. See "-- Income
Tax Consequences."
If all conditions for consummation of the Conversion are not satisfied, no
Common Stock will be issued, Home Savings will continue to operate as a North
Carolina-chartered mutual savings bank, all subscription funds will be promptly
returned with interest at Home Savings' passbook savings rate, and all deposit
withdrawal authorizations (and holds placed on such accounts) will be cancelled.
In such an event, the Holding Company would not acquire control of Home Savings.
All interpretations by Home Savings and the Holding Company of the Plan of
Conversion and of the Stock Order Forms and related materials for the
Subscription and Community Offerings will be final, subject to the authority of
the Administrator. Home Savings and the Holding Company may reject Stock Order
Forms that are not properly completed. However, the Holding Company and Home
Savings retain the right, but will not be required, to waive irregularities in
submitted Stock Order Forms or to require the submission of corrected Stock
Order Forms or the remittance of full payment for all shares subscribed for by
such dates as they may specify. In addition, the Plan of Conversion may be
substantively amended by a two-thirds vote of Home Savings' Board of Directors
at any time prior to the Special Meeting, and at any time thereafter by a two-
thirds vote of Home Savings' Board of Directors with the concurrence of the
Administrator. If Home Savings determines upon the advice of counsel and after
consultation with the Administrator that any such amendment is material,
subscribers would be given the opportunity to increase, decrease or cancel their
subscriptions. Also, as required by the regulations of the Administrator, the
Plan of Conversion provides
112
<PAGE>
that the transactions contemplated thereby may be terminated by a two-thirds
vote of Home Savings' Board of Directors at any time prior to the Special
Meeting and may be terminated by a two-thirds vote of Home Savings' Board of
Directors at any time thereafter but prior to the completion of the Conversion
with the concurrence of the Administrator, notwithstanding approval of the Plan
of Conversion by the Members at the Special Meeting.
CERTAIN RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS; FALSE OR MISLEADING
ORDER FORMS
THE SUBSCRIPTION RIGHTS GRANTED UNDER THE PLAN OF CONVERSION ARE NON-
TRANSFERABLE. SUBSCRIPTION RIGHTS MAY BE EXERCISED ONLY BY THE PERSON TO WHOM
THEY ARE ISSUED AND ONLY FOR HIS OR HER OWN ACCOUNT. Persons exercising
Subscription Rights are required to certify that they are purchasing shares for
their own accounts within the purchase limitations set forth in the Plan of
Conversion and that they have no agreement or understanding for the sale or
transfer of such shares.
The Plan of Conversion provides that, if Home Savings' Board of Directors
determines that a subscriber (i) has submitted a false or misleading information
on his or her Stock Order Form or otherwise in connection with the attempted
purchase of shares, (ii) has attempted to purchase shares of Common Stock in
violation of provisions of the Plan of Conversion or (iii) fails to cooperate
with attempts by Home Savings or the Holding Company or their employees or
agents to verify information with respect to purchase rights, the Board of
Directors may reject the order of such subscriber.
INCOME TAX CONSEQUENCES
Home Savings has received an opinion from its special counsel, Brooks,
Pierce, McLendon, Humphrey & Leonard, L.L.P., of Greensboro, North Carolina, to
the effect that for federal income tax purposes: (i) the Conversion will
constitute a tax free reorganization with respect to Home Savings and no gain or
loss will be recognized by Home Savings either in its mutual or stock form; (ii)
no gain or loss will be recognized by Home Savings upon the purchase of Home
Savings' stock by the Holding Company or upon the sale by the Holding Company of
its Common Stock; (iii) no gain or loss will be recognized by Home Savings'
depositors with respect to their deposit accounts at Home Savings as a
consequence of the Conversion; (iv) the tax basis of depositors' deposit
accounts at Home Savings will not be changed as a result of the Conversion; (v)
assuming the Subscription Rights have no value, no gain or loss will be
recognized by Eligible Account Holders, Supplemental Eligible Account Holders,
Other Members, or directors, officers and employees of Home Savings upon either
the issuance to them of the Subscription Rights or the exercise or lapse
thereof; (vi) no gain or loss will be recognized by Eligible Account Holders or
Supplemental Eligible Account Holders upon the distribution to them of interests
in the Liquidation Account; (vii) assuming the Subscription Rights have no
value, the tax basis for Common Stock purchased in the Conversion will be the
amount paid therefor; and (viii) the tax basis of interests in the Liquidation
Account will be zero. Home Savings has been further advised by its special
counsel, Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., that the tax
effects of the Conversion under North Carolina tax laws will be consistent with
the federal income tax consequences.
Several of the foregoing legal opinions are premised on the assumption that
the Subscription Rights will have no value. Home Savings has been advised by
JMP Financial that, in its opinion, the Subscription Rights will not have any
value, based on the fact that such rights are acquired by the recipients without
cost, are non-transferable, are of short duration and afford the recipients the
right only to purchase Common Stock at a price equal to its estimated fair
market value as of the date such rights are issued, which will be the same price
paid by all purchasers in the Conversion. The opinion of JMP Financial is not
binding on the IRS and if the Subscription Rights were ultimately determined to
have ascertainable value, recipients of Subscription Rights would have to
include in gross income an amount equal to the value of the Subscription Rights
received by them. The basis of the Common Stock purchased pursuant to
Subscription Rights would be increased by the amount of income realized with
respect to the receipt or exercise of the Subscription Rights. Moreover,
recipients of Subscription Rights could then have to report the transaction to
the IRS. Each Eligible Account Holder, Supplemental Eligible Account Holder,
Other Member or other recipient of Subscription Rights is encouraged to consult
with his, her or its own tax advisor as to the tax consequences in the event the
Subscription Rights are deemed to have ascertainable value.
113
<PAGE>
No legal opinion has been or will be received with respect to any tax
consequences of the Conversion not specifically described above, including the
tax consequences to Eligible Account Holders, Supplemental Eligible Account
Holders, Other Members, other recipients of Subscription Rights or purchasers of
Common Stock under the laws of any other state, local or foreign taxing
jurisdiction to which they may be subject. Special counsel expresses no opinion
regarding the value of the Subscription Rights.
LEGAL OPINIONS
The validity of the issuance of the Common Stock in the Conversion will be
passed upon for the Holding Company by its special counsel, Brooks, Pierce,
McLendon, Humphrey & Leonard, L.L.P., Greensboro, North Carolina, which firm has
also rendered its opinion to Home Savings concerning certain federal and North
Carolina income tax aspects of the Conversion as described herein under "THE
CONVERSION -- Income Tax Consequences." Certain legal matters will be passed
upon for Trident Securities by Thacher Proffitt & Wood, Washington, D.C.
EXPERTS
The Financial Statements of Home Savings as of June 30, 1995 and 1994, and
for each of the years in the three-year period ended June 30, 1995 included
herein have been included herein in reliance upon the report of Dixon, Odom &
Co., L.L.P., independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
JMP Financial has consented to being named as an expert herein and to the
summary herein of its appraisal report as to the estimated pro forma market
value of Home Savings and the Holding Company and its opinion with respect to
Subscription Rights.
REGISTRATION REQUIREMENTS
The Holding Company will register its Common Stock with the SEC pursuant to
Section 12 of the Exchange Act in connection with the Conversion and will not
deregister the Common Stock for a period of three years following the completion
of the Conversion. Upon such registration, the proxy and tender offer rules,
insider trading reporting requirements and restrictions, annual and periodic
reporting and other requirements of the Exchange Act will be applicable to the
Holding Company.
ADDITIONAL INFORMATION
The Holding Company has filed a registration statement with the SEC on Form
S-1 under the Securities Act, with respect to the Common Stock offered hereby.
As permitted by the rules and regulations of the SEC, this Prospectus does not
contain all of the information set forth in the registration statement. Such
information can be examined and copied at the public reference facilities of the
SEC located at Room 1024, 450 Fifth Street, N. W., Washington, D.C. 20549, and
at the regional offices of the SEC at 75 Park Place, Fourteenth Floor, New York,
New York 10007 and Room 3190, John C. Kluczynski Building, 230 South Dearborn
Street, Chicago, Illinois 60604. Copies of such material can be obtained by mail
from the SEC at prescribed rates from the Public Reference Section of the SEC at
450 Fifth Street, N. W., Washington, D.C. 20549. The statements contained in
this Prospectus as to the contents of any contract or other document filed as an
exhibit to the registration statement are, of necessity, brief descriptions
thereof and are not necessarily complete; each such statement is qualified by
reference to such contract or document.
Home Savings has filed an Application to Convert a Mutual Savings Bank
to a Stock Owned Savings Bank with the Administrator. Pursuant to the North
Carolina conversion regulations, this Prospectus omits certain information
contained in such Application. The Application, which contains a copy of JMP
Financial's appraisal, may be inspected
114
<PAGE>
at the office of the Administrator, Savings Institutions Division, North
Carolina Department of Commerce, Tower Building, Suite 301, 1110 Navaho Drive,
Raleigh, North Carolina 27609. Copies of the Plan of Conversion, which includes
a copy of Home Savings' proposed Amended Certificate of Incorporation and Stock
Bylaws, and copies of the Holding Company's Articles of Incorporation and Bylaws
are available for inspection at each office of Home Savings and may be obtained
by writing to Home Savings at Post Office Box 989, Thomasville, North Carolina
27361-0989; Attention: James G. Hudson, Jr., President, or by telephoning Home
Savings at (910) 475-4663. A copy of JMP Financial's independent appraisal is
also available for inspection at the Stock Information Center.
115
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS:
Statements of Financial Condition at June 30, 1995 and 1994 F-2
Statements of Operations for the Years Ended June 30, 1995, 1994 and 1993 F-3
Statements of Retained Earnings for the Years Ended June 30, 1995, 1994 and 1993 F-4
Statements of Cash Flows for the Years Ended June 30, 1995, 1994 and 1993 F-5
Notes to Financial Statements for the Years Ended June 30, 1995, 1994 and 1993 F-7
Statements of Financial Condition at March 31, 1996 and 1995 (Unaudited) F-21
Statements of Operations for the Nine Months Ended March 31, 1996 and 1995 (Unaudited) F-22
Statements of Retained Earnings for the Nine Months Ended March 31, 1996 and 1995 (Unaudited) F-23
Statements of Cash Flows for the Nine Months Ended March 31, 1996 and 1995 (Unaudited) F-24
Notes to Financial Statements for the Nine Months Ended March 31, 1996 and 1995 (Unaudited) F-26
</TABLE>
All schedules are omitted because of the absence of the conditions under which
they are required or because the required information is included in the
Financial Statements of Home Savings or related notes. No financial statements
are provided for the Holding Company since it was not in operation for any of
the periods presented.
116
<PAGE>
[LETTERHEAD OF DIXON; ODOM & CO.; L.L.P. APPEARS HERE]
Cerifited Public Accounts
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Home Savings, SSB
Thomasville, North Carolina
We have audited the accompanying statements of financial condition of Home
Savings, SSB as of June 30, 1995 and 1994 and the related statements of
operations, retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Home Savings, SSB at June 30,
1995 and 1994, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
As discussed in Note A to the financial statements, on July 1, 1994, the Bank
changed its method of accounting for investment securities to adopt the
provisions of Statement of Financial Accounting Standards No. 115.
/s/ Dixon, Odom & Co, L.L.P.
High Point, North Carolina
July 21, 1995, except for Note L,
as to which the date is May 7, 1996
========
Page F-1
<PAGE>
=================================
HOME SAVINGS, SSB
STATEMENTS OF FINANCIAL CONDITION
June 30, 1995 and 1994
- ---------------------------------
<TABLE>
<CAPTION>
ASSETS 1995 1994
----------- -----------
<S> <C> <C>
Cash on hand and in banks $ 1,172,327 $ 639,968
Interest-bearing balances in other banks 4,441,361 1,503,550
Investment securities available for sale, at fair value
(amortized cost of $8,485,774) (Note B) 8,664,147 -
Investment securities held to maturity, at amortized cost
(fair value of $5,165,480 and $15,739,201 at June 30, 1995
and 1994, respectively) (Note B) 5,133,282 15,894,829
Loans receivable, net (Note C) 54,019,888 53,801,866
Accrued interest receivable 508,978 486,047
Premises and equipment, net (Note D) 758,851 771,500
Stock in the Federal Home Loan Bank of Atlanta, at cost 613,700 613,700
Foreclosed real estate 71,002 110,500
Other assets 123,986 21,129
----------- -----------
$75,507,522 $73,843,089
=========== ===========
LIABILTIES AND RETAINED EARNINGS
LIABILITIES
Deposit accounts (Note F) $64,448,183 $63,937,046
Accrued interest payable 103,543 72,243
Advance payment by borrowers for property taxes
and insurance 99,976 72,679
Deferred income taxes 23,132 -
Accrued expenses and other liabilities 192,768 150,849
----------- -----------
TOTAL LIABILITIES 64,867,602 64,232,817
Commitments and contingencies (Notes C and K)
Retained earnings - substantially restricted (Notes I and J) 10,639,920 9,610,272
----------- -----------
$75,507,522 $73,843,089
=========== ===========
</TABLE>
See accompanying notes. Page F-2
- --------------------------------------------------------------------------------
<PAGE>
========================================
HOME SAVINGS, SSB
STATEMENTS OF OPERATIONS
Years Ended June 30, 1995, 1994 and 1993
- ----------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Loans $4,409,784 $4,485,940 $4,695,057
Investments and deposits in other banks 961,373 851,388 706,712
---------- ---------- ----------
TOTAL INTEREST INCOME 5,371,157 5,337,328 5,401,769
INTEREST EXPENSE ON DEPOSIT
ACCOUNTS (Note F) 2,788,018 2,487,128 2,736,412
---------- ---------- ----------
NET INTEREST INCOME 2,583,139 2,850,200 2,665,357
PROVISION FOR LOAN LOSSES (Note C) 105,000 114,274 165,351
---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,478,139 2,735,926 2,500,006
---------- ---------- ----------
OTHER INCOME (EXPENSES)
Service charges and other fees 31,776 35,491 49,004
Loss on sale of investments (36,735) (5,194) -
Gain (loss) on sale of foreclosed real estate 1,656 6,948 (10,940)
Other 18,357 3,238 1,800
---------- ---------- ----------
15,054 40,483 39,864
---------- ---------- ----------
TOTAL INCOME 2,493,193 2,776,409 2,539,870
---------- ---------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES
Compensation and benefits 503,094 449,614 394,045
Occupancy 84,694 85,358 69,693
Data processing expenses 87,400 87,540 87,739
Federal deposit insurance premiums 145,201 144,454 109,754
Other expenses 158,988 143,472 171,415
---------- ---------- ----------
TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES 979,377 910,438 832,646
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,513,816 1,865,971 1,707,224
INCOME TAXES (Note I) 592,600 694,300 638,700
---------- ---------- ----------
NET INCOME $ 921,216 $1,171,671 $1,068,524
========== ========== ==========
</TABLE>
See accompying notes. Page F-3
- --------------------------------------------------------------------------------
<PAGE>
========================================
HOME SAVINGS, SSB
STATEMENTS OF RETAINED EARNINGS
Years Ended June 30, 1995, 1994 and 1993
- ----------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
BALANCE, BEGINNING $ 9,610,272 $8,438,601 $7,370,077
Initial effect of adoption of accounting change,
net of deferred income tax assets of $104,511
(Note B) (202,874) - -
Unrealized gain on available for sale securities,
net of deferred income tax liabilities of $174,452
(Note B) 311,306 - -
Net income 921,216 1,171,671 1,068,524
----------- ---------- ----------
BALANCE, ENDING $10,639,920 $9,610,272 $8,438,601
=========== ========== ==========
</TABLE>
See accompying notes. Page F-4
- --------------------------------------------------------------------------------
<PAGE>
========================================
HOME SAVINGS, SSB
STATEMENTS OF CASH FLOWS
Years Ended June 30, 1995, 1994 and 1993
- ----------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 921,216 $ 1,171,671 $ 1,068,524
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 35,661 44,668 45,876
Deferred income taxes (38,469) (73,738) 18,169
Deferred compensation 25,000 25,000 25,000
Amortization of discounts and premiums on securities 49,382 (58,019) 9,175
Provision for loan losses 105,000 114,274 165,351
Loss on sale of investment securities 36,735 5,194 -
(Gain) loss on sale of real estate acquired in foreclosure (1,656) (6,948) 10,940
Loss on disposal of fixed assets - 830 -
Stock dividends from Federal Home Loan Bank - (23,900) (25,000)
Change in assets and liabilities
Increase in accrued interest receivable (22,931) (15,761) (70,248)
(Increase) decrease in income tax refunds receivable (71,641) 27,340 (27,340)
(Increase) decrease in prepaid expenses and other
assets (39,385) 4,180 (301)
Increase in accrued interest on savings accounts 31,300 23,178 1,833
Increase (decrease) in other liabilities 16,919 7,278 (139,454)
----------- ----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,047,131 1,245,247 1,082,525
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of held to maturity investment securities (1,426,310) (9,498,855) (6,368,611)
Proceeds from sales and maturities of held to maturity
investment securities 3,653,295 4,587,334 1,880,481
Purchases of available for sale investment securities (2,500,000) - -
Proceeds from sales and maturities of available for sale
investment securities 2,462,500 - -
Net increase in long-term loans to customers (348,024) (491,978) (3,635,479)
Proceeds from sale of real estate acquired in foreclosure 66,156 154,374 24,060
Purchases of fixed assets (23,012) (14,462) (51,709)
----------- ----------- -----------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 1,884,605 (5,263,587) (8,151,258)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits (2,868,840) 175,479 3,139,130
Net increase in certificate accounts 3,379,977 1,632,126 785,084
Increase in advances from borrowers 27,297 9,627 19,451
----------- ----------- -----------
NET CASH PROVIDED BY 538,434 1,817,232 3,943,665
FINANCING ACTIVITIES ----------- ----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 3,470,170 (2,201,108) (3,125,068)
CASH AND CASH EQUIVALENTS,
BEGINNING 2,143,518 4,344,626 7,469,694
----------- ----------- -----------
CASH AND CASH $ 5,613,688 $ 2,143,518 $ 4,344,626
EQUIVALENTS, ENDING =========== =========== ===========
</TABLE>
See accompanying notes. Page F-5
- --------------------------------------------------------------------------------
<PAGE>
========================================
HOME SAVINGS, SSB
STATEMENTS OF CASH FLOWS
Years Ended June 30, 1995, 1994 and 1993
- ----------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $2,756,718 $2,463,950 $2,734,579
========== ========== ==========
Income taxes $ 718,925 $ 724,652 $ 800,533
========== ========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
ACTIVITIES
Loans receivable transferred to real estate acquired
in settlement of loans $ 25,002 $ 163,611 $ 55,792
========== ========== ==========
Unrealized gain on investment securities available for
sale, net of deferred income tax of $69,941 $ 108,432 $ - $ -
========== ========== ==========
</TABLE>
<PAGE>
=============================
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Home Savings, SSB (the Bank) conform to
generally accepted accounting principles and to general practice within the
savings bank industry. The following is a description of the more significant
accounting and reporting policies that the Bank follows in preparing its
financial statements.
Organization and Operations
- ---------------------------
Home Savings, SSB was chartered by the State of North Carolina in 1915. The
Bank maintains offices and conducts its primary business in Thomasville,
Davidson County, North Carolina. The Bank primarily engages in attracting
savings deposits from the general public and uses the funds to originate loans
for the purchase, financing or improvement of residential real estate. The Bank
also makes loans secured by deposit accounts, commercial real estate and
consumer products.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include cash on hand and in banks and interest-bearing
balances in other banks with original maturities of three months or less.
Investments and Mortgage-Backed Securities
- ------------------------------------------
The Bank adopted the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS No. 115"), as of July 1, 1994. Under SFAS No. 115, management determines
the appropriate classification of investments and mortgage-backed securities at
the time of purchase and reevaluates such designation at each reporting date.
Securities are classified as held-to-maturity when the Bank has both the
positive intent and ability to hold the securities to maturity. Held-to-
maturity securities are stated at amortized cost. Securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-sale
securities are stated at fair value, with the unrealized gains and losses, net
of tax, reported in a separate component of retained earnings. The Bank has no
trading securities.
The amortized cost of securities classified as held-to-maturity or available-
for-sale is adjusted for amortization of premiums and accretion of discounts to
maturity, or in the case of mortgage-backed securities, over the estimated life
of the security. Such amortization is included in interest income from
investments. Interest and dividends are included in interest income from
investments. Realized gains and losses, and declines in value judged to be
other-than-temporary are included in net securities gains (losses). The cost of
securities sold is based on the specific identification method.
Prior to the adoption of SFAS No. 115, the Bank stated its debt securities at
amortized cost and its marketable equity securities (mutual funds) at the lower
of aggregate cost or market. Accumulated changes in net unrealized losses on
marketable equity securities were included in retained earnings.
Note B to the financial statements provides further information about the effect
of adopting SFAS No. 115.
Page F-7
- --------------------------------------------------------------------------------
<PAGE>
=============================
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans Receivable
- ----------------
Loans receivable are carried at their principal amount outstanding, net of
deferred loan origination fees.
Interest on loans is recorded as borrowers' monthly payments become due.
Accrual of interest income on loans is suspended when, in management's judgment,
doubts exist as to the collectibility of principal and interest. Loans are
returned to accrual status when management determines, based on an evaluation of
the underlying collateral together with the borrower's payment record and
financial condition, that the borrower has the capability and intent to meet the
contractual obligations of the loan agreement.
Loan fees are accounted for in accordance with Statement of Financial Accounting
Standards No. 91. Loan origination fees and certain direct loan origination
costs are being deferred and the net amount amortized as an adjustment of the
related loans' yield over the contractual life of the related loans using a
level-yield method. Unamortized net loan fees or costs on loans sold are
recorded as gain or loss on sale in the year of disposition.
Allowance for Loan Losses
- -------------------------
The Bank provides for loan losses on the allowance method. Accordingly, all
loan losses are charged to the related allowance and all recoveries are credited
to it. Additions to the allowance for loan losses are provided by charges to
operations based on various factors which, in management's judgment, deserve
current recognition in estimating possible losses. Such factors considered by
management include the market value of the underlying collateral, growth and
composition of the loan portfolio, the relationship of the allowance for loan
losses to outstanding loans, delinquency trends, and economic conditions.
Management evaluates the carrying value of loans periodically and the allowance
is adjusted accordingly. While management uses the best information available
to make evaluations, future adjustments to the allowance may be necessary if
conditions differ substantially from the assumptions used in making the
evaluations.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses.
Such agencies may require the Bank to recognize additions to the allowance based
on their judgments of information available to them at the time of their
examination.
Premises and Equipment
- ----------------------
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation of premises and equipment is recorded on a straight-line basis over
the estimated useful lives of the related assets.
Page F-8
- --------------------------------------------------------------------------------
<PAGE>
=============================
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Premises and Equipment (Continued)
- ---------------------------------
Expenditures for maintenance and repairs are charged to expense as incurred,
while those for improvements are capitalized. The costs and accumulated
depreciation relating to premises and equipment retired or otherwise disposed of
are eliminated from the accounts, and any resulting gains or losses are credited
or charged to earnings.
Investment in Federal Home Loan Bank Stock
- ------------------------------------------
As a requirement for membership, the Bank invests in stock of the Federal Home
Loan Bank of Atlanta (FHLB) in the amount of 1% of its outstanding residential
loans or 5% of its outstanding advances from the FHLB, whichever is greater. At
June 30, 1995, the Bank owned 6,137 shares of the FHLB's $100 par value capital
stock.
Real Estate Acquired In Settlement of Loans
- -------------------------------------------
Real estate acquired in settlement of loans represents real estate acquired
through foreclosure or deed in lieu thereof and is initially recorded at the
lower of cost (principal balance of the former mortgage loan) or estimated fair
value. Management evaluates the carrying value of real estate acquired in
settlement of loans periodically and carrying values are reduced when they
exceed net realizable value. Costs relating to the development and improvement
of property are capitalized, whereas those costs relating to holding the
property are charged to expense.
Income Taxes
- ------------
During the year ended June 30, 1994, the Bank adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No. 109").
Under SFAS No. 109, deferred income taxes or benefits are provided on temporary
differences between the financial statement carrying values and the tax bases of
assets and liabilities. The cumulative effect of this change in accounting
principle is not significant and is included in determining net income for the
year ended June 30, 1994. Financial statements for prior years have not been
restated. For prior years, the provision for income taxes was based on income
and expenses included in the statements of operations, with differences between
taxes so computed and taxes payable under applicable statutes and regulations
classified as deferred taxes arising from timing differences.
Retirement Plan
- ---------------
The Bank has a noncontributory defined contribution retirement plan covering
substantially all of its employees. The Bank's policy is to fund retirement
plan contributions as accrued.
Page F-9
- --------------------------------------------------------------------------------
<PAGE>
=============================
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
New Accounting Pronouncements
- -----------------------------
The FASB has issued SFAS No. 107, "Disclosure about Fair Value of Financial
Instruments." SFAS No. 107 requires disclosures in financial statements of the
fair value of all financial instruments, including assets and liabilities both
on- and off-balance sheet, for which it is practicable to estimate such fair
value. Descriptive information pertinent to estimating the value of financial
instruments for which it is not practicable to estimate fair value would also be
required. Since the Bank's total assets were less than $150 million at June 30,
1993, adoption of SFAS No. 107 will not be required until the year ending June
30, 1996.
The FASB has issued SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," which requires that creditors value all loans for which it is probable
that the creditor will be unable to collect all amounts due according to the
terms of the loan agreement based on the discounted expected future cash flows.
This discounting would be at the loan's effective interest rate. The income
recognition provisions of SFAS No. 114 have subsequently been amended by SFAS
No. 118, which permits companies to continue using existing income recognition
policies with respect to impaired loans upon adopting SFAS No. 114. SFAS No.
114 and SFAS No. 118 apply prospectively for fiscal years beginning after
December 15, 1994. Management does not expect that adoption of SFAS No. 114 and
SFAS No. 118 will have a material impact on the Bank's financial statements.
The FASB has issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that
long-lived assets and certain identifiable intangible to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an assets may not be recoverable. In
evaluating recoverability, if estimated future cash flows, undiscounted and
without interest charges, are less than the carrying amount of the asset, an
impairment loss is recognized. SFAS No. 121 also requires that certain long-
lived assets and certain identifiable intangibles to be disposed of be reported
at the lower of carrying amount or fair value less cost to sell. SFAS No. 121
applies prospectively for fiscal years beginning after December 15, 1995.
Management does not expect that adoption of SFAS No. 121 will have a material
impact on the Bank financial statements.
Page F-10
- --------------------------------------------------------------------------------
<PAGE>
=============================
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (Continued)
New Accounting Pronouncements (Continued)
- ----------------------------------------
The FASB has also issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights," an amendment of FASB Statement No. 65, which provides guidance for the
capitalization of originated as well as purchased mortgage servicing rights and
the measurement of impairment of those rights. SFAS No. 122 requires that an
entity recognize as separate assets the rights to service mortgage loans for
others, however those servicing rights are acquired. SFAS No. 122 also requires
that an entity assess its capitalized mortgage servicing rights for impairment
based on the fair value of those rights. It should stratify its mortgage
servicing rights based on one or more predominant risk characteristics of the
underlying loans, and recognize impairment through a valuation allowance for
each impaired stratum. SFAS No. 122 applies prospectively for fiscal years
beginning after December 15, 1995. Management has not assessed the impact that
adoption of SFAS No. 122 will have on the Bank's financial statements.
NOTE B - INVESTMENT SECURITIES
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 115 ("SFAS No. 115"), "Accounting for Certain
Investments in Debt and Equity Securities." This statement addresses the
accounting and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. These
investments are to be classified in three categories and accounted for as
follows: (1) debt securities that the entity has the positive intent and
ability to hold to maturity are classified as held-to-maturity and reported at
amortized cost; (2) debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are classified as
trading securities and reported at fair value, with net unrealized gains and
losses included in earnings; and (3) debt and equity securities not classified
as either held-to-maturity or trading securities are classified as securities
available-for-sale and reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of retained
earnings.
The Bank adopted SFAS No. 115 on July 1, 1994. The adoption affected only the
held-to-maturity and available-for-sale classifications, with the net unrealized
securities losses on the securities available-for-sale of $202,874, net of
deferred tax assets of $104,511, reported as a separate decrease in retained
earnings. The adoption had no effect on previously reported net income. The
Bank has no trading securities.
Page F-11
- --------------------------------------------------------------------------------
<PAGE>
=============================
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE B - INVESTMENT SECURITIES (Continued)
The following is a summary of the securities portfolios by major classification:
<TABLE>
<CAPTION>
June 30, 1995
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Securities available-for-sale:
U. S. government securities and obligations
of U. S. government agencies $ 6,017,028 $ 4,357 $ - $ 6,021,385
Mortgage-backed securities 2,454,294 314 65,534 2,389,074
Equity securities 14,452 239,236 - 253,688
----------- ------------ ----------- ------------
$ 8,485,774 $ 243,907 $ 65,534 $ 8,664,147
=========== ============ =========== ============
Securities held-to-maturity:
U. S. government securities and obligations
of U. S. government agencies $ 4,756,312 $ 12,500 $ 15,234 $ 4,753,578
Municipal bonds 376,970 34,932 - 411,902
----------- ------------ ----------- ------------
$ 5,133,282 $ 47,432 $ 15,234 $ 5,165,480
=========== ============ =========== ============
June 30, 1994
------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ------------ ------------
Securities held-to-maturity:
U. S. government securities and obligations
of U. S. government agencies $13,058,957 $ 4,517 $ 177,459 $ 12,886,015
Mortgage-backed securities 2,821,420 1,740 193,219 2,629,941
Equity securities 14,452 208,793 - 223,245
----------- ------------ ------------ ------------
$15,894,829 $ 215,050 $ 370,678 $ 15,739,201
=========== ============ ============ ============
</TABLE>
The amortized cost and fair values of debt securities available for sale and
held to maturity at June 30, 1995 by contractual maturity are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Securities Available for Sale Securities Held to Maturity
------------------------------- -----------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Due within one year $ 2,508,513 $ 2,499,200 $ 1,249,516 $ 1,238,447
Due after one year through five years 3,508,515 3,522,185 3,506,796 3,515,131
Due after ten years - - 376,970 411,902
Mortgage-backed securities 2,454,294 2,389,074 - -
----------- ------------ ------------- ------------
$ 8,471,322 $ 8,410,459 $ 5,133,282 $ 5,165,480
=========== ============ ============= ============
</TABLE>
Page F-12
- --------------------------------------------------------------------------------
<PAGE>
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
NOTE B - INVESTMENT SECURITIES (Continued)
The accounting change relating to investment securities which the Bank adopted
on July 1, 1994 is discussed in Note A. The change in unrealized gain/loss on
investment securities available for sale during the year ended June 30, 1995,
including the related effects on deferred income taxes and retained earnings,
follows:
<TABLE>
<CAPTION>
Deferred Increase
Unrealized Income (Decrease)
Holding Tax Asset in Retained
Gain (Loss) (Liability) Earnings
----------- ----------- -----------
<S> <C> <C> <C>
Initial effect of adoption of accounting change $ (307,385) $ 104,511 $ (202,874)
Unrealized appreciation on available-for-sale
securities during the year 485,758 (174,452) 311,306
---------- --------- -----------
$ 178,373 $ (69,941) $ 108,432
========== ========= ===========
</TABLE>
Proceeds from sales and maturities of investment securities available for sale
during the year ended June 30, 1995 were $2,462,500. Gross losses of $36,735
were realized on those sales.
Proceeds from maturities of investments securities held to maturity during the
year ended June 30, 1995 were $3,300,000.
During the year ended June 30, 1994, the Bank sold securities for total proceeds
of $494,806, resulting in gross realized losses of $5,194.
Securities with a carrying value of $2,816,841 and $3,348,461 and a fair value
of $2,813,094 and $3,313,862 at June 30, 1995 and 1994, respectively, were
pledged to secure public monies on deposit as required by law.
Page F-13
- --------------------------------------------------------------------------------
<PAGE>
=============================
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE C - LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Type of loan:
Real estate loans:
One-to-four family residential $ 41,006,594 $ 41,082,273
Multi-family residential and commercial 10,039,100 9,990,052
Construction 3,110,600 3,607,700
Home equity lines of credit 1,135,685 923,990
------------ ------------
Total real estate loans 55,291,979 55,604,015
------------ ------------
Other loans:
Consumer loans 335,052 557,102
Loans secured by deposits 252,013 358,051
------------ ------------
Total other loans 587,065 915,153
------------ ------------
Total loans 55,879,044 56,519,168
Less:
Construction loans in process 1,214,802 2,178,193
Net deferred loan fees 243,307 244,547
Allowance for loan losses 401,047 294,562
------------ ------------
$ 54,019,888 $ 53,801,866
============ ============
The allowance for loan losses is summarized as follows:
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
Balance at beginning of year $ 294,562 $ 198,362 $ 94,861
Provision for loan losses 105,000 114,274 165,351
Charge-offs - (104,176) (61,850)
Recoveries 1,485 86,102 -
----------- ----------- -----------
Balance at end of year $ 401,047 $ 294,562 $ 198,362
=========== =========== ===========
</TABLE>
At June 30, 1995, the Bank had mortgage loan commitments outstanding of $782,000
and pre-approved but unused lines of credit totaling $464,500. In management's
opinion, these commitments, and undisbursed proceeds on construction loans in
process reflected above, represent no more than normal lending risk to the Bank
and will be funded from normal sources of liquidity.
Page F-14
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<PAGE>
=============================
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE D - PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Land $ 61,703 $ 61,703
Building and improvements 735,416 735,416
Office furniture, fixtures and equipment 212,122 211,143
Automotive equipment 24,475 24,475
----------- -----------
1,033,716 1,032,737
Accumulated depreciation (274,865) (261,237)
----------- -----------
$ 758,851 $ 771,500
=========== ===========
</TABLE>
NOTE E - FEDERAL INSURANCE OF DEPOSITS
Eligible deposit accounts are insured up to $100,000 by the Federal Deposit
Insurance Corporation.
NOTE F - DEPOSIT ACCOUNTS
A comparative summary of deposit accounts at June 30, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
---------------------------- --------------------------
Weighted Weighted
Balance Avg. Rate Balance Avg. Rate
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Demand deposits:
Negotiable orders of withdrawal $ 1,885,180 2.75% $ 1,973,113 2.75%
Passbook and statement accounts 5,248,439 3.00 5,659,674 3.15
Money market checking 10,497,681 3.68 13,059,701 3.33
Non-interest-bearing checking 298,963 - 106,615 -
----------- -----------
17,930,263 3.32 20,799,103 3.21
Certificates of deposit 46,517,920 5.69 43,137,943 4.23
----------- -----------
Total deposit accounts $64,448,183 5.03% $63,937,046 3.90%
=========== ===========
</TABLE>
A summary of certificate accounts by maturity as of June 30, 1995 follows:
<TABLE>
<CAPTION>
Less than $100,000
$ 100,000 or More Total
----------- ----------- -----------
<S> <C> <C> <C>
July 1, 1995 - June 30, 1996 $29,104,884 $11,263,900 $40,368,784
July 1, 1996 - June 30, 1997 5,346,846 201,104 5,547,950
July 1, 1997 - June 30, 1998 601,186 - 601,186
----------- ----------- -----------
Total certificate accounts $35,052,916 $11,465,004 $46,517,920
=========== =========== ===========
</TABLE>
Page F-15
- --------------------------------------------------------------------------------
<PAGE>
=============================
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE F - DEPOSIT ACCOUNTS (Continued)
Interest expense on deposits for the years ended June 30 is summarized as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Passbook accounts $ 160,155 $ 175,542 $ 191,499
NOW accounts 46,579 44,102 39,794
Money market accounts 429,681 462,896 507,058
Certificates of deposit 2,157,269 1,810,072 2,002,426
---------- ---------- ----------
2,793,684 2,492,612 2,740,777
Penalties for early withdrawal 5,666 5,484 4,365
---------- ---------- ----------
$2,788,018 $2,487,128 $2,736,412
========== ========== ==========
</TABLE>
NOTE G - PENSION PLAN
The Bank established a pension plan for the benefit of its employees on March 1,
1973. The pension plan covers all full-time employees who have completed five
months continuous service with the Bank. The plan is funded by the purchase of
level premium insurance policies and an annual contribution to an auxiliary
fund. The pension cost for the years ended June 30, 1995, 1994 and 1993 was
$43,721, $39,069 and $13,023, respectively.
A comparison of accumulated plan benefits and plan net assets as of the most
recent plan valuation dates (March 1, 1995 and 1994) is presented below:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Actuarial present value of accumulated plan benefits
Vested $ 289,384 $ 307,402
Nonvested 2,729 6,159
--------- ---------
$ 292,113 $ 313,561
========= =========
Net assets available for plan benefits $ 252,597 $ 180,567
========= =========
</TABLE>
The weighted average assumed rate of return used in determining the actuarial
present value of accumulated plan benefits was 7% in 1995 and 1994.
Page F-16
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<PAGE>
==============================
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- ------------------------------
NOTE H - DEFERRED COMPENSATION
The Bank has a deferred compensation plan for its executive officer. The plan
provides benefits upon disability, death or attainment of a certain age. The
Bank has made current provision for future payments under this plan, and the
related liability and deferred income tax benefits are included in the
accompanying financial statements. Expenses associated with this plan were
$25,000 for each of the years ended June 30, 1995, 1994 and 1993.
NOTE I - INCOME TAXES
During the year ended June 30, 1994, the Bank adopted SFAS No. 109, "Accounting
for Income Taxes." The cumulative effect of the change in accounting principle
is included in determining net income for the year ended June 30, 1994 and is
not significant. Financial statements for prior years have not been restated.
Prior to the year ended June 30, 1994, the provision for income taxes was based
on income and expenses included in the statements of operations, with
differences between taxes so computed and taxes payable under applicable
statutes and regulations classified as deferred taxes arising from timing
differences (the deferred method as required by the American Institute of
Certified Public Accountants Accounting Principles Board Opinion No. 11). SFAS
No. 109 requires the use of the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of temporary differences, by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax bases of existing assets
and liabilities. Temporary differences giving rise to deferred taxes relate to
property and equipment, deferred loan fees and costs, FHLB of Atlanta stock
dividends, deferred compensation, bad debt reserves, and unrealized gains
(losses) on investment securities available for sale.
The components of income tax expense are as follows for the years ended June 30,
1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Current tax expense $ 631,069 $ 768,038 $ 620,531
---------- ---------- ----------
Deferred tax expense (benefit)
Tax on temporary differences 31,472 (73,738) 18,169
Less tax on unrealized gain on investment
securities available for sale allocated
directly to retained earnings (69,941) - -
---------- ---------- ----------
Net deferred tax benefit included in
operations 38,469) (73,738) 18,169
---------- ---------- ----------
$ 592,600 $ 694,300 $ 638,700
========== ========== ==========
</TABLE>
Page F-17
- --------------------------------------------------------------------------------
<PAGE>
==============================
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- ------------------------------
NOTE I - INCOME TAXES (Continued)
The differences between the provision for income taxes and the amount computed
by applying the statutory federal income tax rate to income before income taxes
were as follows for the years ended June 30, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Income tax at federal statutory rate $ 515,000 $ 634,000 $ 580,000
State income tax, net of federal tax benefit 46,000 60,300 50,000
Other 31,600 - 8,700
---------- ---------- ----------
$ 592,600 $ 694,300 $ 638,700
========== ========== ==========
</TABLE>
Deferred tax assets and liabilities arising from temporary differences at June
30, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets relating to:
Loan fees and costs $ 74,013 $ 95,373
Deferred compensation 58,000 48,000
Bad debt reserves 38,659 -
---------- ----------
Gross deferred tax assets 170,672 143,373
Valuation allowance - -
---------- ----------
Net deferred tax assets 170,672 143,373
---------- ----------
Deferred tax liabilities relating to:
Bad debt reserves - (22,681)
Property and equipment (19,031) (7,691)
FHLB stock dividends (104,832) (104,832)
Net unrealized gain on securities available for sale (69,941) -
---------- ----------
Total deferred tax liabilities (193,804) (135,204)
---------- ----------
Net deferred tax asset (liability) $ (23,132) $ 8,169
========== ==========
</TABLE>
Page F-18
- --------------------------------------------------------------------------------
<PAGE>
==============================
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- ------------------------------
NOTE J - RETAINED EARNINGS AND CAPITAL REQUIREMENTS
The Bank is subject to a North Carolina savings bank capital requirement of at
least 5% of total assets. The Bank's capital to total assets ratio is 14.1% at
June 30, 1995. In addition, the Bank is subject to the capital requirements of
the FDIC. The FDIC requires the Bank to maintain (i) a Tier 1 capital to risk-
weighted assets ratio of 4% and (ii) a risk-based capital requirement of 8%. The
FDIC also imposes a minimum leverage ratio requirement which varies from 3% to
5%, depending on the institution. At June 30, 1995, the Bank exceeded the
maximum requirement.
NOTE K - CONCENTRATION OF CREDIT RISK AND OFF-BALANCE SHEET RISK
The Bank generally originates single-family residential loans within its primary
lending area of Davidson County. The Bank's underwriting policies require such
loans to be made at no greater than 80% loan-to-value based upon appraised
values unless private mortgage insurance is obtained. These loans are secured by
the underlying properties.
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit on mortgage loans,
standby letters of credit and equity lines of credit. Those instruments involve,
to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the statements of financial condition. The contract or
notional amounts of those instruments reflect the extent of involvement the Bank
has in particular classes of financial instruments.
A summary of the contract amount of the Bank's exposure to off-balance sheet
risk as of June 30, 1995 is as follows:
<TABLE>
<S> <C>
Financial instruments whose contract amounts represent
credit risk:
Commitments to extend credit, mortgage loans $ 782,000
Undisbursed construction loans 1,215,000
Undisbursed lines of credit 464,500
</TABLE>
NOTE L - PLAN OF CONVERSION
On May 7, 1996, the Board of Directors of the Bank unanimously adopted a Plan of
Holding Company Conversion whereby the Bank will convert from a North Carolina-
chartered mutual savings bank to a North Carolina-chartered stock savings bank
and will become a wholly-owned subsidiary of a holding company formed in
connection with the conversion. The holding company will issue common stock to
be sold in the conversion and will use that portion of the net proceeds thereof
which it does not retain to purchase the capital stock of the Bank. The Plan is
subject to approval by regulatory authorities and the members of the Bank at a
special meeting.
Page F-19
- --------------------------------------------------------------------------------
<PAGE>
==============================
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- ------------------------------
NOTE L - PLAN OF CONVERSION (Continued)
The stockholders of the holding company will be asked to approve a proposed
stock option plan and a proposed management recognition plan at a meeting of the
stockholders after the conversion. Shares issued to directors and employees
under these plans may be from authorized but unissued shares of common stock or
they may be purchased in the open market. In the event that options or shares
are issued under these plans, such issuances will be included in the earnings
per share calculation, thus, the interests of existing stockholders would be
diluted.
At the time of conversion, the Bank will establish a liquidation account in an
amount equal to its net worth as reflected in its latest statement of financial
condition used in its final conversion prospectus. The liquidation account will
be maintained for the benefit of eligible deposit account holders who continue
to maintain their deposit accounts in the Bank after conversion. Only in the
event of a complete liquidation will each eligible deposit account holder be
entitled to receive a subaccount balance for deposit accounts then held before
any liquidation distribution may be made with respect to common stock. Dividends
paid by the Bank subsequent to the conversion cannot be paid from this
liquidation account.
The Bank may not declare or pay a cash dividend on or repurchase any of its
common stock if its net worth would thereby be reduced below either the
aggregate amount then required for the liquidation account or the minimum
regulatory capital requirements imposed by federal and state regulations.
If the conversion is ultimately successful, conversion costs will be accounted
for as a reduction of the stock proceeds. If the conversion is unsuccessful,
conversion costs will be charged to the Bank's operations.
Page F-20
- --------------------------------------------------------------------------------
<PAGE>
==============================================
HOME SAVINGS, SSB
STATEMENTS OF FINANCIAL CONDITION (Unaudited)
March 31, 1996 and 1995
- ----------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1996 1995
----------- -----------
<S> <C> <C>
Cash on hand and in banks $ 1,214,120 $ 1,176,347
Interest-bearing balances in other banks 6,658,676 804,175
Investment securities available for sale, at fair value
(amortized cost of $10,334,150 and $8,564,707 at
March 31, 1996 and 1995, respectively) 10,542,565 8,526,203
Investment securities held to maturity, at amortized cost
(fair value of $5,931,207 and $6,885,937 at March 31, 1996
and 1995, respectively) 5,886,324 6,932,242
Loans receivable, net 53,740,509 53,700,770
Accrued interest receivable 496,002 527,591
Premises and equipment, net 761,261 760,255
Stock in the Federal Home Loan Bank of Atlanta, at cost 613,700 613,700
Foreclosed real estate 332,874 71,002
Other assets 139,695 172,218
----------- -----------
$80,385,726 $73,284,503
=========== ===========
</TABLE>
LIABILITIES AND RETAINED EARNINGS
<TABLE>
<S> <C> <C>
LIABILITIES
Deposit accounts $68,906,936 $62,663,710
Accrued interest payable 93,964 84,913
Advance payment by borrowers for property taxes
and insurance 80,825 71,037
Accrued expenses and other liabilities 168,262 145,181
----------- -----------
TOTAL LIABILITIES 69,249,987 62,964,841
Retained earnings - substantially restricted 11,135,739 10,319,662
----------- -----------
$80,385,726 $73,284,503
=========== ===========
</TABLE>
See accompanying notes. Page F-21
- --------------------------------------------------------------------------------
<PAGE>
==========================================
HOME SAVINGS, SSB
STATEMENTS OF OPERATIONS (Unaudited)
Nine Months Ended March 31, 1996 and 1995
- ------------------------------------------
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
INTEREST INCOME
Loans $ 3,448,250 $ 3,281,504
Investments and deposits in other banks 934,876 703,807
----------- -----------
TOTAL INTEREST INCOME 4,383,126 3,985,311
INTEREST EXPENSE ON DEPOSIT ACCOUNTS 2,660,786 2,000,988
---------- ----------
NET INTEREST INCOME 1,722,340 1,984,323
PROVISION FOR LOAN LOSSES 130,000 75,000
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,592,340 1,909,323
---------- ----------
OTHER INCOME (EXPENSES)
Service charges and other fees 20,136 21,904
Loss on sale of investments - (36,735)
Gain (loss) on sale of foreclosed real estate (2,067) 1,692
Other 23,915 17,397
---------- ----------
41,984 4,258
---------- ----------
TOTAL INCOME 1,634,324 1,913,581
---------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES
Compensation and benefits 425,480 336,344
Occupancy 59,060 58,351
Data processing expenses 67,886 66,895
Federal deposit insurance premiums 110,878 109,350
Provision for loss on foreclosed real estate 80,000 -
Other expenses 171,194 127,037
---------- ----------
TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES 914,498 697,977
---------- ----------
INCOME BEFORE INCOME TAXES 719,826 1,215,604
INCOME TAXES 242,300 480,800
---------- ----------
NET INCOME $ 477,526 $ 734,804
========== ==========
</TABLE>
See accompanying notes. Page F-22
- --------------------------------------------------------------------------------
<PAGE>
============================================
HOME SAVINGS, SSB
STATEMENTS OF RETAINED EARNINGS (Unaudited)
Nine Months Ended March 31, 1996 and 1995
- --------------------------------------------
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
BALANCE, BEGINNING $10,639,920 $ 9,610,272
Initial effect of adoption of accounting change,
net of deferred income tax assets of $104,511 - (202,874)
Unrealized gain on investment securities available
for sale, net of deferred income tax liabilities
of $11,749 and $91,421, respectively 18,293 177,460
Net income 477,526 734,804
----------- -----------
BALANCE, ENDING $11,135,739 $10,319,662
=========== ===========
</TABLE>
<PAGE>
============================================
HOME SAVINGS, SSB
STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended March 31, 1996 and 1995
- --------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 477,526 $ 734,804
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 31,333 25,476
Deferred income taxes (37,000) (8,000)
Deferred compensation 17,000 18,000
Amortization of discounts and premiums on securities 14,238 43,621
Provision for loan losses 130,000 75,000
Provision for loss on foreclosed real estate 80,000 -
Loss on sale of investment securities - 36,735
(Gain) loss on sale of real estate acquired in foreclosure 2,067 (1,656)
Gain on disposal of fixed assets (5,000) -
Change in assets and liabilities
(Increase) decrease in accrued interest receivable 12,976 (41,544)
Increase in other assets (13,590) (129,999)
Increase (decrease) in accrued interest payable (9,579) 12,670
Decrease in accrued expenses and other liabilities (41,506) (23,668)
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 658,465 741,439
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of held to maturity investment securities (2,582,410) (1,445,216)
Proceeds from maturities of held to maturity investment securities 1,834,697 1,500,000
Purchases of available for sale investment securities (4,105,678) (2,481,094)
Proceeds from sales and maturities of available for sale
investment securities 2,237,735 2,743,834
Net (increase) decrease in long-term loans to customers (253,857) 1,094
Proceeds from sale of real estate acquired in foreclosure 59,297 66,156
Purchases of fixed assets (33,743) (14,231)
Proceeds from sale of fixed assets 5,000 -
----------- -----------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (2,838,959) 370,543
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits 445,647 (3,203,263)
Net increase in certificate accounts 4,013,106 1,929,927
Decrease in advances from borrowers (19,151) (1,642)
----------- -----------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES 4,439,602 (1,274,978)
----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 2,259,108 (162,996)
CASH AND CASH EQUIVALENTS,
BEGINNING 5,613,688 2,143,518
----------- -----------
CASH AND CASH
EQUIVALENTS, ENDING $ 7,872,796 $ 1,980,522
=========== ===========
</TABLE>
See accompanying notes. Page F-24
- --------------------------------------------------------------------------------
<PAGE>
==========================================
HOME SAVINGS, SSB
STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended March 31, 1996 and 1995
- ------------------------------------------
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $2,670,365 $1,988,318
========== ==========
Income taxes, net of refunds $ 180,415 $ 575,925
========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
Loans receivable transferred to real estate acquired in
settlement of loans $ 403,236 $ 25,002
========== ==========
Unrealized loss on available for sale investment securities,
net of deferred income tax asset of $13,090 $ - $ 25,414
========== ==========
Unrealized gain on investment securities available for sale,
net of deferred income tax liability of $11,749 $ 18,293 $ -
========== ==========
</TABLE>
See accompanying notes. Page F-25
- --------------------------------------------------------------------------------
<PAGE>
====================================
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
March 31, 1996 and 1995 (Unaudited)
- ------------------------------------
NOTE A - BASIS OF PRESENTATION
All adjustments considered necessary for a fair presentation of the results for
the interim periods presented have been included (such adjustments are normal
and recurring in nature). Operating results for the nine months ended March 31,
1996 are not necessarily indicative of the results that may be expected for the
year ending June 30, 1996.
NOTE B - ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
Effective July 1, 1995, as required, the Bank adopted the provisions of SFAS No.
114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan: Income Recognition and
Disclosures." The adoption of SFAS Nos. 114 and 118 did not have a material
impact on the Bank's financial condition or results of operations.
NOTE C - PLAN OF CONVERSION
On May 7, 1996, the Board of Directors of the Bank approved a proposed plan to
convert the Bank from a North Carolina-chartered mutual savings bank to a North
Carolina-chartered stock savings bank. The proposed Plan of Conversion
contemplates the organization of a holding company which will acquire and own
all the shares of the Bank issued in the conversion. The Plan of Conversion is
subject to the approval of various regulatory agencies.
At the time of the conversion, the Bank will establish a liquidation account in
an amount equal to its net worth as reflected in its latest statement of
financial condition used in its final conversion offering circular. The
liquidation account will be maintained for the benefit of eligible deposit
account holders who continue to maintain their deposit accounts in the Bank
after conversion. Only in the event of a complete liquidation will each
eligible deposit account holder be entitled to receive a liquidation account in
the amount of the then current adjusted subaccount balance for the deposit
accounts then held before any liquidation distribution may be made with respect
to common stock. Dividends paid by the Bank subsequent to the conversion cannot
be paid from this liquidation account.
The Bank may not declare or pay a cash dividend on or repurchase any of its
common stock if its net worth would thereby be reduced below either the
aggregate amount then required for the liquidation account or the minimum
regulatory capital requirements imposed by federal and state regulations.
If the conversion is ultimately successful, conversion costs will be accounted
for as a reduction of the stock sale proceeds. If the conversion is
unsuccessful, conversion costs will be charged to the Bank's operations.
Page F-26
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<S> <C>
=============================================== =====================================
No dealer, salesperson or any other individual
or entity has been authorized to give any Up To
information or to make any representation not 357,075 Shares
contained in this Prospectus in connection
with the offering made hereby, and, if given
or made, any such other information or
representation must not be relied upon as
having been authorized by Century Bancorp,
Inc. or Home Savings, SSB. This Prospectus
does not constitute an offer to sell, or a
solicitation of an offer to buy, any of the CENTURY
securities offered hereby, or any other BANCORP, INC.
securities, to any person in any jurisdiction (Proposed Holding Company for
in which such offer or solicitation is not Home Savings, SSB)
authorized or in which the person making such
offer or solicitation is not authorized to do
so, or to any person to whom it is unlawful
to make such offer or solicitation in such
jurisdiction. Neither the delivery of this
Prospectus nor any sale hereunder shall under
any circumstances create any implication that
there has been no change in the affairs of
Century Bancorp, Inc. or Home Savings, SSB
since any of the dates as of which
information is furnished herein or since the
date hereof.
_____________________________
TABLE OF CONTENTS
Page
----
Summary...................................... 4
Selected Financial and Other Data
of Home Savings............................ 16
Risk Factors................................. 18
Century Bancorp, Inc......................... 25 Common Stock
Home Savings, SSB............................ 26
Use of Proceeds.............................. 26
Dividend Policy.............................. 28
Market for Common Stock...................... 29 PROSPECTUS
Capitalization............................... 29
Pro Forma Data............................... 32
Historical and Pro Forma Capital Compliance.. 35
Anticipated Stock Purchases by Management.... 38
Management's Discussion and Analysis of Trident Securities, Inc.
Financial Condition and Results of Operations 39
Business of the Holding Company.............. 53
Business of Home Savings..................... 53
Taxation..................................... 72
Supervision and Regulation................... 74
Management of the Holding Company............ 84
Management of Home Savings................... 85 ________________, 1996
Description of Capital Stock................. 94
Anti-Takeover Provisions Affecting the
Holding Company and Home Savings............ 96
The Conversion............................... 100
Legal Opinions............................... 114
Experts...................................... 114
Registration Requirements.................... 114
Additional Information....................... 114
Index to Consolidated Financial Statements... 116
Until ________________, 1996, all dealers
effecting transactions in the registered
securities, whether or not participating in
this distribution, may be required to deliver
a prospectus when acting as underwriters and
with respect to their unsold allotments or
subscriptions.
============================================= =====================================
</TABLE>
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Set forth below is an estimate of the amount of fees and expenses
(other than fees and commissions payable to the selling agent) to be incurred in
connection with the issuance and distribution of the shares.
<TABLE>
<S> <C>
Registration and Filing Fees .......................................................... $22,000
Postage and Printing .................................................................. 50,000
Accounting Fees and Expenses .......................................................... 50,000
Fees and Expenses Payable to Appraiser and Business Plan Consultant ................... 36,000
Legal Fees ............................................................................ 125,000
Sales Agent Expenses .................................................................. 40,000
Conversion Data Processing ............................................................ 8,000
Stock Transfer Agent Fees and Costs of Stock Certificates ............................. 10,000
Miscellaneous ......................................................................... 25,000
--------
$366,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers.
The Registrant's Articles of Incorporation provide that, to the fullest
extent permitted by the North Carolina Business Corporation Act (the "NCBCA"),
no person who serves as a director shall be personally liable to the Registrant
or any of its stockholders or otherwise for monetary damages for breach of any
duty as director. The Registrant's By-laws state that any person who at any
time serves or has served as a director, officer, employee or agent of the
Registrant, or any such person who serves or has served at the request of the
Registrant as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, or
as a trustee or administrator under an employee benefit plan, shall have a right
to be indemnified by the Registrant to the fullest extent permitted by law
against liability and litigation expense arising out of such status or
activities in such capacity. "Liability and litigation expense" shall include
costs and expenses of litigation (including reasonable attorneys' fees),
judgments, fines and amounts paid in settlement which are actually and
reasonably incurred in connection with or as a consequence of any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, including appeals.
Sections 55-8-50 through 55-8-58 of the NCBCA contain provisions
prescribing the extent to which directors and officers shall or may be
indemnified. Section 55-8-51 of the NCBCA permits a corporation, with certain
exceptions, to indemnify a present or former director against liability if (i)
the director conducted himself in good faith, (ii) the director reasonably
believed (x) that the director's conduct in the director's official capacity
with the corporation was in its best interests and (y) in all other cases the
director's conduct was at least not opposed to the corporation's best interests,
and (iii) in the case of any criminal proceeding, the director had no reasonable
cause to believe the director's conduct was unlawful. A corporation may not
indemnify a director in connection with a proceeding by or in the
II-1
<PAGE>
right of the corporation in which the director was adjudged liable to the
corporation or in connection with a proceeding charging improper personal
benefit to the director. The above standard of conduct is determined by the
board of directors, or a committee or special legal counsel or the shareholders
as prescribed in Section 55-8-55.
Sections 55-8-52 and 55-8-26 of the NCBCA require a corporation to
indemnify a director or officer in the defense of any proceeding to which the
director or officer was a party against reasonable expenses when the director or
officer is wholly successful in the director's or officer's defense, unless the
articles of incorporation provide otherwise. Upon application, the court may
order indemnification of the director or officer if the director or officer is
adjudged fairly and reasonably so entitled under Section 55-8-54.
In addition, Section 55-8-57 permits a corporation to provide for
indemnification of directors, officers, employees or agents, in its articles of
incorporation or bylaws or by contract or resolution, against liability in
various proceedings and to purchase and maintain insurance policies on behalf of
these individuals.
The foregoing is only a general summary of certain aspects of North
Carolina law dealing with indemnification of directors and officers and does not
purport to be complete. It is qualified in its entirety by reference to the
relevant statutes, which contain detailed specific provisions regarding the
circumstances under which and the person for whose benefit indemnifications
shall or may be made.
Item 15. Recent Sales of Unregistered Securities.
In July, 1996, Registrant sold one share of common stock, no par value per
share, to James G. Hudson, Jr. for an aggregate purchase price of $10.00. Such
sale was exempt from registration under Section 4(2) of Securities Act of 1933.
Item 16. Exhibits.
The following exhibits and financial statement schedules are filed herewith
or will, as noted, be filed by amendment.
II-2
<PAGE>
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No.
(Per Exhibit
Tables in
Item 601 of
Regulation S-K) Description
--------------- -----------
<S> <C>
1.1 Engagement letter dated May 23, 1996 between Home Savings, SSB
and Trident Securities, Inc.
1.2 Form of Sales Agency Agreement among Century Bancorp, Inc.,
Home Savings, SSB and Trident Securities, Inc. (to be filed subsequently)
2.1 Amended and Restated Plan of Holding Company Conversion of Home
Savings, SSB
3.1 Articles of Incorporation of Century Bancorp, Inc.
3.2 Bylaws of Century Bancorp, Inc.
4.1 Forms of Stock Certificate for Century Bancorp, Inc. and Home
Savings, Inc., SSB (to be filed subsequently)
5.1 Opinion of Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
as to legality of securities to be registered hereby
8.1 Opinion of Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
as to federal and state tax consequences
8.2 Opinion of JMP Financial, Inc. as to the value of subscription
rights
10.1 Letter Agreement dated April 10, 1996 between Home Savings,
SSB and JMP Financial, Inc. for appraisal services
10.2 Form of Employment Agreement to be entered into between Home
Savings, Inc., SSB and James G. Hudson, Jr.
10.3 Forms of Special Termination Agreements to be entered into
between Century Bancorp, Inc. and John E. Todd and Drema A. Michael
10.4 Forms of Employee Stock Ownership Plan and Trust of Home
Savings, Inc., SSB
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.5 Form of the Management Recognition Plan of Home Savings, Inc., SSB if the Plan is adopted and approved by
the stockholders of Century Bancorp, Inc. within one year after the conversion of Home Savings, SSB to
stock form
10.6 Form of Registrant's Stock Option Plan and Trust if the Plan and Trust are adopted and approved by the
stockholders of Century Bancorp, Inc. within one year after the conversion of Home Savings, SSB to stock
form
10.7 Form of Home Savings, SSB Severance Plan
10.8 Form of Capital Maintenance Agreement between Century Bancorp,
Inc. and Home Savings, Inc., SSB
24.1 Consent of Dixon, Odom & Co., L.L.P.
24.2 Consent of JMP Financial, Inc.
24.3 Consent of Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
27.1 Financial Data Schedule
28.1 Appraisal Report of JMP Financial, Inc.
28.2 Form of Stock Order Form (to be filed subsequently)
</TABLE>
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
Item 17. Undertakings.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
II-4
<PAGE>
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs
is contained in periodic reports filed by the registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of Regulation S-X at the start of any delayed offering or
throughout a continuous offering.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Thomasville, State of
North Carolina, on the 18th day of July, 1996.
CENTURY BANCORP, INC.
By: /s/ James G. Hudson, Jr.
----------------------------------------------
James G. Hudson, Jr.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Date: July 18, 1996 By: /s/ James G. Hudson, Jr.
------------------------------------------------
James G. Hudson, Jr., President and Director
(Chief Executive Officer and Treasurer)
Date: July 18, 1996 By: /s/ Drema A. Michael
------------------------------------------------
Drema A. Michael, Secretary and Assistant
Treasurer (Principal Accounting Officer
and Principal Financial Officer)
Date: July 18, 1996 By: /s/ John R. Hunnicutt
------------------------------------------------
John R. Hunnicutt, Director
Date: July 18, 1996 By: /s/ F. Stuart Kennedy
------------------------------------------------
F. Stuart Kennedy, Director
Date: July 18, 1996 By: /s/ Milton T. Riley
------------------------------------------------
Milton T. Riley, Director
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Exhibit No.
(Per Exhibit
Tables in
Item 601 of Sequential
Regulation S-K) Description Page No.
- --------------- ----------- ----------
<S> <C> <C>
1.1 Engagement letter dated May 23, 1996 between Home
Savings, SSB and Trident Securities, Inc.
1.2 Form of Sales Agency Agreement among Century Bancorp, Inc.,
Home Savings, SSB and Trident Securities, Inc. (to be filed
subsequently)
2.1 Amended and Restated Plan of Holding Company Conversion of
Home Savings, SSB
3.1 Articles of Incorporation of Century Bancorp, Inc.
3.2 Bylaws of Century Bancorp, Inc.
4.1 Forms of Stock Certificate for Century Bancorp, Inc. and
Home Savings, Inc., SSB (to be filed subsequently)
5.1 Opinion of Brooks, Pierce, McLendon, Humphrey & Leonard,
L.L.P. as to legality of securities to be registered hereby
8.1 Opinion of Brooks, Pierce, McLendon, Humphrey & Leonard,
L.L.P. as to federal and state tax consequences
8.2 Opinion of JMP Financial, Inc. as to the value of subscription
rights
10.1 Letter Agreement dated April 10, 1996 between Home
Savings, SSB and JMP Financial, Inc. for appraisal services
10.2 Form of Employment Agreement to be entered into between
Home Savings, Inc., SSB and James G. Hudson, Jr.
10.3 Forms of Special Termination Agreements to be entered into
between Century Bancorp, Inc. and John E. Todd and Drema
A. Michael
10.4 Forms of Employee Stock Ownership Plan and Trust of Home
Savings, Inc., SSB
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequential
Page No.
----------
<S> <C> <C>
10.5 Form of the Management Recognition Plan of Home
Savings, Inc., SSB if the Plan is adopted and approved
by the stockholders of Century Bancorp, Inc. within one year
after the conversion of Home Savings, SSB to stock form
10.6 Form of Registrant's Stock Option Plan and Trust if the Plan
and Trust are adopted and approved by the stockholders of
Century Bancorp, Inc. within one year after the conversion of
Home Savings, SSB to stock form
10.7 Form of Home Savings, SSB Severance Plan
10.8 Form of Capital Maintenance Agreement between Century
Bancorp, Inc. and Home Savings, Inc., SSB
24.1 Consent of Dixon, Odom & Co., L.L.P.
24.2 Consent of JMP Financial, Inc.
24.3 Consent of Brooks, Pierce, McLendon, Humphrey & Leonard,
L.L.P.
28.1 Appraisal Report of JMP Financial, Inc.
28.2 Form of Stock Order Form (to be filed subsequently)
</TABLE>
<PAGE>
EXHIBIT 1.1
LETTERHEAD OF
TRIDENT SECURITIES, INC.
May 8, 1996
Board of Directors
Home Savings, SSB
22 Winston Street
Thomasville, North Carolina 27361
RE: Conversion Stock Marketing Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between Trident
Securities, Inc. ("Trident") and Home Savings, SSB, Thomasville, North Carolina
(the "Bank") concerning our investment banking services in connection with the
conversion of the Bank from a mutual to a capital stock form of organization.
Trident is prepared to assist the Bank in connection with the offering of its
shares of common stock during the subscription offering and community offering
as such terms are defined in the Bank's Plan of Conversion. The specific terms
of the services contemplated hereunder shall be set forth in a definitive sales
agency agreement (the "Agreement") between Trident and the Bank to be executed
on the date the offering circular/prospectus is declared effective by the
appropriate regulatory authorities. The price of the shares during the
subscription offering and community offering will be the price established by
the Bank's Board of Directors, based upon an independent appraisal as approved
by the appropriate regulatory authorities, provided such price is mutually
acceptable to Trident and the Bank.
In connection with the subscription offering and community offering, Trident
will act as financial advisor and exercise its best efforts to assist the Bank
in the sale of its common stock during the subscription offering and community
offering. Additionally, Trident may enter into agreements with other National
Association of Securities Dealers, Inc., ("NASD") member firms to act as
selected dealers, assisting in the sale of the common stock. Trident and the
Bank will determine the selected dealers to assist the Bank during the community
offering. At the appropriate time, Trident in conjunction with its counsel,
will conduct an examination of the relevant documents and records of the Bank as
Trident deems necessary and appropriate. The Bank will make all documents,
records and other information deemed necessary by Trident or its counsel
available to them upon request.
For its services hereunder, Trident will receive the following compensation and
reimbursement from the Bank:
1. A management fee in the amount of one percent (1.0%) of the aggregate
dollar amount of capital stock sold in both the subscription offering
and community offering.
<PAGE>
Board of Directors
May 8, 1996
Page 2
2. A commission equal to two percent (2.0%) of the aggregate dollar
amount of capital stock sold in the subscription offering, excluding
any shares of conversion stock sold to the Bank's directors, executive
officers and the employee stock ownership plan. Additionally,
commissions will be excluded on those shares sold to "associates" of
the Bank's directors and executive officers. The term "associates" as
used herein shall have the same meaning as that found in the Bank's
Plan of Conversion.
3. A commission equal to two percent (2.0%) of the aggregate dollar
amount of capital stock sold by Trident in the community offering
excluding shares sold by other NASD member firms under selected
dealer's agreements.
4. For stock sold by other NASD member firms under selected dealer's
agreements, the commission shall not exceed a fee to be agreed upon
jointly by Trident and the Bank to reflect market requirements at the
time of the stock allocation in a Syndicated Community Offering.
5. The foregoing fees and commissions are to be payable to Trident at
closing as defined in the Agreement to be entered into between the
Bank and Trident.
6. Trident shall be reimbursed for allocable expenses incurred by them,
including legal fees, whether or not the Agreement is consummated.
Trident's out-of-pocket expenses will not exceed $10,000 and its legal
fees will not exceed $30,000. The Bank will forward to Trident a check
in the amount of $10,000 as an advance payment to defray the allocable
expenses of Trident.
It further is understood that the Bank will pay all other expenses of the
conversion including but not limited to its attorneys' fees, NASD filing fees,
and filing and registration fees and fees of either Trident's attorneys or the
attorneys relating to any required state securities law filings, telephone
charges, air freight, rental equipment, supplies, transfer agent charges, fees
relating to auditing and accounting and costs of printing all documents
necessary in connection with the foregoing.
For purposes of Trident's obligation to file certain documents and to make
certain representations to the NASD in connection with the conversion, the Bank
warrants that: (a) the Bank has not privately placed any securities within the
last 18 months; (b) there have been no material dealings within the last 12
months between the Bank and any NASD member or any person related to or
associated with any such member; (c) none of the officers or directors of the
Bank has any affiliation with the NASD; (d) except as contemplated by this
engagement letter with Trident, the Bank has no financial or management
consulting contracts outstanding with any other person; (e) the Bank has not
granted Trident a right of first refusal with respect to the underwriting of any
future offering of the Bank stock; and (f) there has been no intermediary
between Trident and the Bank in connection with the public offering of the
Bank's shares, and no person is being compensated in any manner for providing
such service.
<PAGE>
Board of Directors
May 8, 1996
Page 3
The Bank agrees to indemnify and hold harmless Trident and each person, if any,
who controls the firm against all losses, claims, damages or liabilities, joint
or several and all legal or other expenses reasonably incurred by them in
connection with the investigation or defense thereof (collectively, "Losses"),
to which they may become subject under the securities laws or under the common
law, that arise out of or are based upon the conversion or the engagement
hereunder of Trident. If the foregoing indemnification is unavailable for any
reason, the Bank agrees to contribute to such Losses in the proportion that its
financial interest in the conversion bears to that of the indemnified parties.
If the Agreement is entered into with respect to the common stock to be issued
in the conversion, the Agreement will provide for indemnification, which will be
in addition to any rights that Trident or any other indemnified party may have
at common law or otherwise. The indemnification provision of this paragraph
will be superseded by the indemnification provisions of the Agreement entered
into by the Bank and Trident.
This letter is merely a statement of intent and is not a binding legal agreement
except as to paragraph (6) above with regard to the obligation to reimburse
Trident for allocable expenses to be incurred prior to the execution of the
Agreement and the indemnity described in the preceding paragraph. While Trident
and the Bank agree in principle to the contents hereof and propose to proceed
promptly, and in good faith, to work out the arrangements with respect to the
proposed offering, any legal obligations between Trident and the Bank shall be
only as set forth in a duly executed Agreement. Such Agreement shall be in form
and content satisfactory to Trident and the Bank, as well as their counsel, and
Trident's obligations thereunder shall be subject to, among other things, there
being in Trident's opinion no material adverse change in the condition or
obligations of the Bank or no market conditions which might render the sale of
the shares by the Bank hereby contemplated inadvisable.
Please acknowledge your agreement to the foregoing by signing below and
returning to Trident one copy of this letter along with the advance payment of
$10,000. This proposal is open for your acceptance for a period of thirty (30)
days from the date hereof.
Yours very truly,
TRIDENT SECURITIES, INC.
By: /s/ R. Lee Burrows, Jr.
-------------------------
R. Lee Burrows, Jr.
Managing Director
Agreed and accepted to this 23 day
----
of May , 1996.
--------
HOME SAVINGS, SSB
By: /s/ James G. Hudson, Jr.
--------------------------
James G. Hudson, Jr.
President and CEO
<PAGE>
EXHIBIT 2.1
AMENDED AND RESTATED
PLAN OF HOLDING COMPANY CONVERSION
OF
HOME SAVINGS, SSB
THOMASVILLE, NORTH CAROLINA
FROM MUTUAL TO STOCK ORGANIZATION
I. GENERAL
On May 7, 1996, the Board of Directors of Home Savings, SSB, Thomasville,
North Carolina (the "Savings Bank") adopted a Plan of Holding Company Conversion
pursuant to which the Savings Bank will convert from a North Carolina-chartered
mutual savings bank to a North Carolina-chartered capital stock savings bank and
simultaneously become a wholly-owned subsidiary of Century Bancorp, Inc., a
savings bank holding company organized under North Carolina law.
This Amended and Restated Plan of Holding Company Conversion adopted by
the Board of Directors of the Savings Bank on July 18, 1996 (the "Plan") amends,
supercedes and replaces the Plan of Holding Company Conversion previously
adopted on May 7, 1996.
This Plan is subject to the prior approval of the Administrator, Savings
Institutions Division, North Carolina Department of Commerce, and must be
adopted by the affirmative vote of the members of the Savings Bank holding not
less than a majority of the total outstanding votes eligible to be cast. In
addition, in order to consummate the conversion herein described, this Plan must
be filed with the Federal Deposit Insurance Corporation ("FDIC") and must not
have been objected to by the FDIC in accordance with applicable FDIC
regulations.
II. DEFINITIONS
As used in this Plan, the terms set forth below have the following
meanings:
A. Acting in Concert: The term "acting in concert" means (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal, whether or not pursuant to an express agreement, with
respect to the purchase, ownership, voting or sale of Common Stock; or (ii) a
combination or pooling of voting or other interests in the securities of the
Holding Company for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. The
Holding Company and the Savings Bank may presume that certain persons are acting
in concert based upon, among other things, joint account relationships and the
fact that such persons have filed joint Schedules 13D with the SEC with respect
to other companies.
B. Actual Purchase Price: The actual price per share, determined as
provided in Article VI hereof, at which the shares of common stock of the
Holding Company will be issued and sold by the Holding Company to subscribers.
C. Administrator: Administrator, Savings Institutions Division, North
Carolina Department of Commerce.
<PAGE>
D. Affiliate: The term "affiliate" of, or a person "affiliated with," a
specified person, means a person that directly or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
the person specified.
E. Aggregate Valuation Range: The range of value for the aggregate
number of shares of common stock of the Holding Company to be offered in the
Conversion, which range is established pursuant to Article VI hereof and which
shall be from a low of 15 percent below the estimated aggregate pro forma market
value of the Savings Bank and the Holding Company to a high of 15 percent above
the estimated aggregate pro forma market value of the Savings Bank and the
Holding Company, as such range may be amended from time to time by an
independent appraiser.
F. Amended Charter: The Savings Bank's North Carolina stock savings bank
charter in the form permitted by the Administrator.
G. Applications: The Savings Bank's Application to Convert a Mutual
Savings Bank to a Stock Owned Savings Bank and the Holding Company's Acquisition
Application, including amendments thereto, as filed with the Administrator
pursuant to the Regulations.
H. Associate: The term "Associate," when used to indicate a relationship
with any Person, means (i) any corporation or organization (other than the
Savings Bank, the Holding Company or any of their majority-owned subsidiaries)
of which such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of any class of equity securities, (ii)
any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity, except for a tax-qualified employee stock benefit plan or a charitable
trust which is exempt from federal taxation pursuant to Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended, and (iii) any relative or spouse of
such Person, or any relative of such spouse, who has the same home as such
Person or who is a director or officer of the Savings Bank, the Holding Company,
or any of their parents or subsidiaries.
I. Charter: The North Carolina mutual savings bank charter of Home
Savings, SSB.
J. Community Offering: The offering for sale of shares of Conversion
Stock to the general public, subsequent to termination of the Subscription
Offering, with priority given to natural persons and trusts of natural persons
residing in the Local Community (including Retirement Accounts established for
the benefit of natural persons who area are residents of such area).
K. Conversion: The conversion of the Savings Bank to a North Carolina-
chartered stock savings bank, the deposit accounts of which will be insured by
the SAIF of the FDIC, pursuant to, and in accordance with, the Regulations, the
Plan and the Applications.
L. Conversion Stock: The shares of common stock of the Holding Company
to be issued and sold in the Conversion.
M. Converted Savings Bank: Home Savings, Inc., SSB, the North Carolina
capital stock savings bank resulting from the Conversion.
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N. Directors: The Board of Directors of the Savings Bank, the Converted
Savings Bank or the Holding Company (as applicable).
O. Eligibility Record Date: The close of business on March 31, 1995.
P. Eligible Account Holder: The holder of a Qualifying Deposit on the
Eligibility Record Date, with the beneficial owner of a Retirement Account being
deemed the holder thereof.
Q. ESOP: The Savings Bank's tax-qualified Employee Stock Ownership Plan
adopted by the Board of Directors of the Savings Bank to be effective upon
consummation of the Conversion.
R. Executive Officer: An officer of the Savings Bank, the Converted
Savings Bank or the Holding Company (as applicable) performing a policy-making
function for such entity.
S. FDIC: The Federal Deposit Insurance Corporation.
T. Federal Reserve Board: The Board of Governors of the Federal Reserve
System.
U. First Priority Community Subscribers: Natural persons and trusts of
natural persons residing in the Local Community, including Retirement Accounts
established for the benefit of natural persons residing in the Local Community.
V. Holding Company: The North Carolina corporation under the name of
Century Bancorp, Inc. which, upon completion of the Conversion, will become a
savings bank holding company owning all of the outstanding capital stock of the
Converted Savings Bank.
W. Liquidation Account: That account established by the Converted
Savings Bank pursuant to Article XI of this Plan.
X. Local Community: Davidson County in North Carolina.
Y. Market Maker: A dealer (i.e., any person who engages directly or
indirectly as agent, broker or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another person)
who, with respect to a particular security, (i) regularly publishes bona fide,
competitive bid and offer quotations in a recognized inter-dealer quotation
system; or (ii) furnishes bona fide competitive bid and offer quotations on
request; and (iii) is ready, willing, and able to effect transactions in
reasonable quantities at its quoted prices with other brokers or dealers.
Z. Members: All persons or entities who qualify as members of the
Savings Bank pursuant to its Charter and bylaws prior to the Conversion,
including beneficial owners of Retirement Accounts at the Savings Bank.
AA. Notice: The Savings Bank's Notice of Intent to Convert to Stock
Form, including amendments thereto, as filed with the FDIC pursuant to 12 C.F.R.
Part 303.
3
<PAGE>
BB. Order Forms: The order forms to be used to subscribe for Conversion
Stock in the Subscription and Community Offerings pursuant to the Plan.
CC. Other Members: The following as of the Voting Record Date: (1)
holders of Savings Accounts at the Savings Bank (other than Eligible Account
Holders and Supplemental Eligible Account Holders), with the beneficial owners
of Retirement Accounts being deemed the holders of such accounts, and (2) those
Persons or entities (other than Eligible Account Holders and Supplemental
Eligible Account Holders) who are borrowers from the Savings Bank whose
borrowings are still in existence as of the Voting Record Date.
DD. Person: An individual, a corporation, a partnership, an
association, a joint stock company, a trust, an unincorporated organization, or
a government or political subdivision thereof.
EE. Plan: This Plan of Holding Company Conversion and any duly adopted
amendments thereto.
FF. Prospectus: The document containing information about and a
description of the Savings Bank, the Holding Company, this Plan and the process
of issuing the Conversion Stock, which may be combined with proxy statements for
the Members and distributed in the Subscription Offering and which may be
distributed to the general public in the Community Offering and Syndicated
Community Offering.
GG. Proxy Statement: The written information distributed by the Savings
Bank to the Members in its solicitation of their votes in connection with
consideration of the Plan at the Special Meeting, which written information may
be in summary form.
HH. Qualifying Deposit: A balance of $50 or more in any Savings Account
in the Savings Bank as of the Eligibility Record Date or the Supplemental
Eligibility Record Date, as applicable. Each deposit account which is deemed to
be a separate account for purposes of FDIC insurance shall be deemed to be a
separate account for purposes of determining whether a Qualifying Deposit
exists.
II. Regulations: The Rules and Regulations of the Administrator set
forth in North Carolina Administrative Code Title 4, Chapter 16, Subchapter 16G.
JJ. Retirement Accounts: Individual retirement accounts, Keogh savings
accounts or similar retirement accounts.
KK. SAIF: The Savings Association Insurance Fund of the FDIC.
LL. Savings Accounts: Withdrawable deposits, certificates or other
savings and deposit accounts of the Savings Bank, including money market deposit
accounts and negotiable order of withdrawal accounts, held by Members. Each
such deposit, certificate or other deposit account which is deemed to be a
separate account for FDIC insurance shall be deemed to be a separate Savings
Account for purposes of the Plan.
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<PAGE>
MM. Savings Bank: Home Savings, SSB, Thomasville, North Carolina, a
North Carolina-chartered mutual savings bank.
NN. SEC: The Securities and Exchange Commission.
OO. Special Meeting: The Special Meeting of Members called for the
purpose of considering approval of the Plan.
PP. Subscription Offering: The offering of shares of Conversion Stock
to Eligible Account Holders, the ESOP, Supplemental Eligible Account Holders,
Other Members, and Directors, officers and employees of the Savings Bank
pursuant to the Plan.
QQ. Subscription Rights: Non-transferable, non-negotiable, personal
rights distributed, without payment, to Eligible Account Holders, the ESOP,
Supplemental Eligible Account Holders, Other Members, and Directors, officers
and employees of the Savings Bank to subscribe for shares of Conversion Stock in
the Subscription Offering pursuant to the Plan.
RR. Supplemental Eligibility Record Date: The last day of the calendar
quarter preceding the approval of the Applications by the Administrator, if the
establishment of such date is required by the Regulations.
SS. Supplemental Eligible Account Holder: The holder of a Qualifying
Deposit (other than an Executive Officer or Director of the Savings Bank or any
Associate of such Person), on the Supplemental Eligibility Record Date, with the
beneficial owner of a Retirement Account being deemed the holder thereof.
TT. Syndicated Community Offering: The offering for sale of shares of
Conversion Stock to the general public through a syndicate of registered broker-
dealers to be formed and managed by the sales agent in the Subscription Offering
and Community Offering.
UU. Voting Record Date: The date fixed by the Board of Directors of the
Savings Bank for determining Members entitled to vote at the Special Meeting.
III. STEPS PRIOR TO SUBMISSION OF PLAN OF CONVERSION TO THE MEMBERS FOR
APPROVAL
Prior to submission of the Plan to the Members of the Savings Bank for
approval, the Savings Bank must receive the Administrator's approval of the
Applications and the FDIC must have issued a notice of non-objection to the
proposed conversion or the time period for FDIC review and objection shall have
expired without objection by the FDIC. The following steps must be taken prior
to such regulatory approvals:
A. The Board of Directors of the Savings Bank shall adopt and approve
the Plan by the affirmative vote of not less than two-thirds of its members.
5
<PAGE>
B. The Savings Bank shall notify its members of the adoption of the Plan
by publishing a statement in a newspaper having a general circulation in the
communities in which the Savings Bank maintains offices or by mailing a letter
to each of its Members.
C. Copies of the Plan shall be made available for inspection at each
office of the Savings Bank.
D. The Holding Company shall submit an application to the Federal
Reserve Board pursuant to Federal law for permission to become a savings bank
holding company in order to enable it to acquire 100% of the capital stock of
the Converted Savings Bank, and such application shall be approved and any
required waiting period shall have expired.
E. The Savings Bank shall submit the requisite number of copies of the
Applications to the Administrator and the requisite number of copies of the
Notice to the FDIC. Upon receipt of advice from the Administrator that the
Applications have been received, are properly executed and not materially
incomplete, the Savings Bank shall publish a "Notice of Filing of an Application
for Holding Company Conversion" in a newspaper of general circulation in each
community in which the Savings Bank maintains an office. The Savings Bank also
shall prominently display a copy of such notice in each of its offices.
F. The Savings Bank shall obtain an opinion of counsel or tax advisor or
a favorable ruling from the Internal Revenue Service to the effect that the
Conversion of the Savings Bank from a North Carolina-chartered mutual savings
bank to a North Carolina-chartered capital stock savings bank, the sale of the
Conversion Stock to subscribers in the Subscription, Community and Syndicated
Community Offerings and the issuance of the shares of common stock of the
Converted Savings Bank to the Holding Company, all in accordance with the terms
of the Plan, should not result in any gain or loss for federal or North Carolina
income tax purposes, to the Savings Bank, the Converted Savings Bank, the
Holding Company or the Members of the Savings Bank. Receipt of a favorable
opinion or ruling is a condition precedent to completion of the Conversion.
G. The Holding Company shall file a registration statement with the SEC
with respect to the Conversion Stock to be offered pursuant to the Plan and such
registration statement shall be declared effective.
IV. MEETING OF MEMBERS
Upon receipt of Administrator approval of the Applications and (i)
receipt from the FDIC of a conditional intention to issue a notice of non-
objection or (ii) expiration of the time period for FDIC review and objection
without receipt of an objection by the FDIC, a Special Meeting of the Members of
the Savings Bank shall be scheduled in accordance with the Savings Bank's bylaws
for the purpose of voting on approval of the Plan. Promptly after receipt of
Administrator approval and at least 20 days, but not more than 45 days, prior to
the Special Meeting, the Savings Bank will distribute proxy solicitation
materials to all Members as of the Voting Record Date. The proxy materials will
include the Proxy Statement and the Prospectus and other documents authorized
for use by the regulatory authorities and may also include a copy of the Plan,
the Amended Charter and other materials as provided in Article VII hereof.
6
<PAGE>
At the Special Meeting, an affirmative vote of not less than a majority
of the total votes entitled to be cast by the Savings Bank's Members will be
required for approval of the Plan. Voting may be in person or by proxy. The
Administrator shall be promptly notified of the results of the vote of the
Members at the Special Meeting.
V. PROCEDURE
The Conversion Stock shall be offered for sale in the Subscription
Offering to Eligible Account Holders, the ESOP, Supplemental Eligible Account
Holders, Other Members, and Directors, officers and employees of the Savings
Bank. The Subscription Offering may commence concurrently with or during the
solicitation of proxies for the Special Meeting. The Community Offering may
commence at any time following commencement of the Subscription Offering. The
Syndicated Community Offering, if any, may commence concurrently with or during
the Community Offering or as promptly thereafter as is practicable. The
Subscription Offering may be closed before the Special Meeting, provided that
the offer and sale of the Conversion Stock shall be conditioned upon approval of
the Plan by the Members at the Special Meeting.
The period for the Subscription Offering shall not be less than 20 days
nor more than 45 days, unless extended by the Savings Bank and the Holding
Company. Any unsubscribed shares of Conversion Stock are to be offered for sale
to the general public in the Community Offering with priority being given to
natural persons and trusts of natural persons residing in the Local Community,
including Retirement Accounts established for the benefit of natural persons who
reside in such area. The Community Offering may commence, subject to the
availability of shares, at any time following commencement of the Subscription
Offering. Any shares of Conversion Stock offered but not subscribed for in the
Subscription and Community Offerings may, in the discretion of the Savings Bank
and the Holding Company, be offered for sale in the Syndicated Community
Offering. Completion of the sale of all shares of Conversion Stock not sold in
the Subscription Offering shall occur within 45 days after termination of the
Subscription Offering, subject to extension of such 45-day period by the Savings
Bank and the Holding Company with the approval of the Administrator. The Boards
of Directors of the Savings Bank and the Holding Company may seek one or more
extensions of such 45-day period if necessary to complete the sale of all shares
of Conversion Stock. In connection with any such extension, subscribers shall be
permitted to increase, decrease or rescind their subscriptions to the extent
required by the Administrator in approving the extensions. As provided in
Article XIII hereof, completion of the sale of all shares of Conversion Stock
must occur in any event within 24 months after the date of the Special Meeting.
VI. STOCK OFFERING
A. Purchase Price and Number of Shares of Conversion Stock
-------------------------------------------------------
The total number of shares and the subscription price per share of the
Conversion Stock being issued and sold by the Holding Company in the Conversion
will be determined by the Holding Company. The aggregate purchase price at which
all shares of the Conversion Stock will be sold in the Conversion will be based
upon the aggregate pro forma market value of the Converted Savings Bank and the
Holding Company after giving effect to the issuance of the Conversion Stock, as
determined by an independent appraisal. The aggregate purchase price will be
within the Aggregate
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<PAGE>
Valuation Range as stated in the approval or amended approval of the Plan by the
Administrator; provided, however, that with the consent of the Administrator and
the FDIC, the aggregate purchase price of the Conversion Stock sold may be
increased to up to 15% above the maximum of the Aggregate Valuation Range,
without any resolicitation of subscribers or any right to cancel, rescind or
change subscription orders, to reflect changes in market and financial
conditions following commencement of the Subscription Offering. The appraisal
will be made by an investment banking or financial consulting firm selected by
the Savings Bank and which is experienced and expert in the area of savings
institution appraisals. Such appraisal will be updated prior to the commencement
of the Subscription Offering, if necessary, and will be further updated upon
completion of the later of the Subscription Offering, the Community Offering or
the Syndicated Community Offering.
The Actual Purchase Price per share at which the Conversion Stock will be
offered to subscribers in the Subscription, Community and Syndicated Community
Offerings will be determined by the Holding Company immediately prior to the
commencement of the Subscription Offering. All shares of Conversion Stock sold
in the Conversion will be sold at the same price per share.
B. Method of Offering Shares
-------------------------
On the date Order Forms are mailed, Subscription Rights to purchase
shares will be issued at no cost to Eligible Account Holders, the ESOP,
Supplemental Eligible Account Holders (if applicable), Other Members, and
Directors, officers and employees of the Savings Bank pursuant to priorities
established by this Plan and the Regulations. With respect to Eligible Account
Holders, Supplemental Eligible Account Holders and Voting Members who are
beneficial owners of Retirement Accounts, such persons have the right to
exercise Subscription Rights only to the extent Subscription Rights granted with
respect to such Retirement Accounts are not exercised directly by such
Retirement Accounts. Each subscriber shall purchase the number of whole shares
indicated on the Order Form of such subscriber, subject to the purchase
limitations set forth herein, and any excess amounts shall be refunded. To the
extent that shares are available, no subscriber will be allowed to purchase
Conversion Stock having an aggregate purchase price of less than $500.
The priorities established by applicable Regulations for the purchase of
shares are as follows:
1. Category No. 1: Eligible Account Holders
Each Eligible Account Holder shall receive, without payment, Subscription
Rights to purchase an amount of Conversion Stock equal to the maximum purchase
limitation set forth in Section D.1 of this Article. Subscription Rights of
Eligible Account Holders shall be superior to those of all other subscription
rights granted in the Conversion. In the event of an oversubscription for the
Conversion Stock among Eligible Account Holders, shares shall be allocated among
Eligible Account Holders as follows. The Conversion Stock shall be allocated
among subscribing Eligible Account Holders so as to permit each such Eligible
Account Holder, to the extent possible, to purchase the lesser of (a) the number
of shares for which such Eligible Account Holder subscribed, or (b) 100 shares.
Any shares remaining after that allocation shall be allocated among subscribing
Eligible Account Holders whose subscriptions remain unsatisfied in the
proportion that the amount of Qualifying Deposits of each such Eligible Account
Holder bears to the total amount of Qualifying Deposits of all Eligible Account
Holders whose subscriptions remain unsatisfied. If the amount so
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<PAGE>
allocated exceeds the amount subscribed for by any one or more Eligible Account
Holders, the excess shall be reallocated (one or more times as necessary) among
those Eligible Account Holders whose subscriptions are still not fully satisfied
on the same principle described above until all available shares have been
allocated or all subscriptions satisfied. All computations shall be rounded
down to the nearest whole share.
2. Category No. 2: ESOP
The ESOP shall receive, without payment, Subscription Rights to purchase
a number of shares of Conversion Stock equal to eight percent (8%) of the total
number of shares of Conversion Stock offered and sold in the Conversion.
Subscription Rights received pursuant to this Category shall be subordinated to
all Subscription Rights received pursuant to Category No. 1 above. In the event
there is an oversubscription of shares of Conversion Stock and, as a result, the
ESOP is unable to purchase in the Conversion eight percent (8%) of the total
number of shares offered and sold in the Conversion, then the Board of Directors
of the Holding Company intends to, and shall be authorized to, approve the
purchase by the ESOP in the open market after the Conversion, of such shares as
are necessary for the ESOP to purchase a number of shares equal to eight percent
(8%) of the total number of shares of Conversion Stock issued in the Conversion.
Any purchases made by the ESOP may be purchased with funds borrowed by the ESOP
from the Holding Company.
3. Category No. 3: Supplemental Eligible Account Holders
In the event that the Eligibility Record Date is more than 15 months
prior to the date of the latest amendment of the Applications filed prior to
Administrator approval, then, and only in that event, each Supplemental Eligible
Account Holder of the Savings Bank shall receive, without payment, Subscription
Rights to purchase an amount of Conversion Stock equal to the maximum purchase
limitation set forth in Section D.1 of this Article. Subscription Rights
received pursuant to this Category shall be subordinated to all Subscription
Rights received pursuant to Category Nos. 1 and 2. Any Subscription Rights
received by an Eligible Account Holder in accordance with Category No. 1 shall
reduce, to the extent thereof, the Subscription Rights to be distributed to such
account holder pursuant to this Category.
In the event of an oversubscription for the Conversion Stock, shares
shall be allocated among the Supplemental Eligible Account Holders as follows.
The Conversion Stock shall be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each such Supplemental Eligible Account Holder,
to the extent possible, to purchase the lesser of (including the number of
shares, if any allocated in accordance with Category No. 1) (a) the number of
shares for which such Supplemental Eligible Account Holder subscribed, or (b)
100 shares. Any shares remaining after that allocation shall be allocated among
subscribing Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the Qualifying Deposits of each
such Supplemental Eligible Account Holder bears to the total amount of
Qualifying Deposits of all Supplemental Eligible Account Holders whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more Supplemental Eligible Account Holders, the
excess shall be reallocated (one or more times as necessary) among those
Supplemental Eligible Account Holders whose subscriptions are still not fully
satisfied on the same principle
9
<PAGE>
described above until all available shares have been allocated or all
subscriptions satisfied. All computations shall be rounded down to the nearest
whole share.
4. Category No. 4: Other Members
Each Other Member shall receive, without payment, Subscription Rights to
purchase an amount of Conversion Stock equal to the maximum purchase limitation
set forth in Section D.1 of this Article. Subscription Rights received pursuant
to this Category shall be subordinated to all Subscription Rights received
pursuant to Category Nos. 1-3.
In the event of an oversubscription for shares of Conversion Stock under
this Category, the Conversion Stock available shall be allocated among the
subscribing Other Members whose subscriptions are not satisfied in the
proportion that the number of votes eligible to be cast by each such Other
Member at the Special Meeting bears to the total number of votes eligible to be
cast by all Other Members whose subscriptions remain unsatisfied. If the amount
so allocated exceeds the amount subscribed for by any one or more Other Member,
the excess shall be reallocated (one or more times as necessary) among those
Other Members whose subscriptions are still not satisfied on the same principle
described above until all available shares have been allocated or all
subscriptions satisfied. All computations shall be rounded down to the nearest
whole share.
5. Category No. 5: Directors, Officers and Employees
Each Director and officer of the Savings Bank, and each employee of the
Savings Bank, as of the date of the commencement of the Subscription Offering
shall receive, without payment, Subscription Rights to purchase an amount of
Conversion Stock equal to the maximum purchase limitation set forth in Section
D.1 of this Article. Subscription Rights received pursuant to this Category
shall be subordinated to all Subscription Rights received pursuant to Category
Nos. 1-4. Any Subscription Rights received by a Director, officer or employee in
accordance with Category Nos. 1, 3, or 4 shall reduce, to the extent thereof,
the Subscription Rights to be distributed to such Director, officer or employee
pursuant to this Category.
In the event of an oversubscription for shares of Conversion Stock under
this Category, the shares available shall be allocated among the subscribing
Directors, officers and employees of the Savings Bank whose subscriptions are
not satisfied pro rata on the basis of the amounts of their respective
subscriptions. All computations shall be rounded down to the nearest whole
share.
6. Category No. 6: Community Offering
Any shares of Conversion Stock not purchased through the exercise of
Subscription Rights received pursuant to Category Nos. 1-5 above may be sold to
the general public in a Community Offering. The Community Offering may
commence, subject to the availability of shares, at any time following
commencement of the Subscription Offering and may terminate at any time
thereafter. The Community Offering must be completed within 45 days after the
last day of the Subscription Offering, unless extended by the Savings Bank and
the Holding Company with the approval of the Administrator.
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The Savings Bank and the Holding Company may accept or reject, in whole
or in part, orders received in the Community Offering in their sole discretion.
In the event that subscriptions by subscribers in the Community Offering
whose orders would otherwise be accepted exceed the shares available for
purchase in the Community Offering, then
(i) subscriptions of First Priority Community Subscribers will
be filled in full up to applicable purchase limitations (to
the extent such subscriptions are not rejected by the
Savings Bank and the Holding Company),
(ii) then subscriptions of other subscribers in the Community
Offering will be filled up to applicable purchase
limitations (to the extent such subscriptions are not
rejected by the Savings Bank and the Holding Company).
In the event of an oversubscription by First Priority Community
Subscribers whose orders would otherwise be accepted, shares of Conversion Stock
will be allocated first to each First Priority Community Subscriber whose order
is accepted in full or in part by the Savings Bank and the Holding Company in
the entire amount of such order up to a number of shares no greater than the
number which would have an aggregate purchase price of $250,000, which number
shall be determined by the Board of Directors of the Savings Bank prior to the
time the Conversion is consummated with the intent to provide for a wide
distribution of shares among such subscribers. Any shares remaining after such
allocation will be allocated to each First Priority Community Subscriber whose
order is accepted in full or in part on an equal number of shares basis until
all orders are filled. Such allocation shall also be applied to subscriptions by
other subscribers in the Community Offering, in the event shares are available
for subscribers in such category but there is an oversubscription within such
category. All computations shall be rounded down to the nearest whole share. No
Person, directly or indirectly or with an Associate or a group acting in
concert, may subscribe for or purchase more than the amount equal to the maximum
purchase limitations set forth in Section D.1 of this Article.
The Conversion Stock to be offered in this Category No. 6 will be offered
and sold in a manner that will achieve the widest distribution of such stock.
7. Category No. 7: Syndicated Community Offering
If necessary, all shares of Conversion Stock not purchased in the
Subscription and Community Offerings, if any, may, at the option of the Savings
Bank and Holding Company, be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
as selected dealers to be formed and managed by the sales agent in the
Subscription and Community Offerings. The Holding Company and Savings Bank have
the right to reject orders, in whole or part, in their sole discretion in the
Syndicated Community Offering. During the Syndicated Community Offering, shares
of Conversion Stock will be sold subject to such conditions, terms and
procedures as may be determined by the Holding Company and the Savings Bank.
Shares of Conversion Stock sold in the Syndicated Community Offering will be
sold in a manner calculated to achieve the widest distribution of Conversion
Stock.
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The Syndicated Community Offering may close as early as the Community
Offering, or thereafter at the discretion of the Savings Bank and the Holding
Company. The Syndicated Community Offering may run concurrently with the
Community Offering or subsequent to such offering.
D. Additional Limitations Upon Purchases of Shares of Conversion Stock
The following additional limitations and exceptions shall apply to all
purchases of Conversion Stock in the Conversion:
1. The aggregate purchase price of shares of Conversion Stock purchased
by any Person, together with all Associates thereof, or a group of Persons
acting in concert, shall not exceed $250,000 (which limit may be decreased or
increased by the Board of Directors of the Savings Bank in accordance with
Section D.4 of this Article) provided, however, that the ESOP may purchase in
the aggregate a number of shares not more than eight percent (8%) of the total
number of shares of Conversion Stock offered and sold in the Conversion. Any
shares held by the ESOP and attributed to a natural person shall not be
aggregated with other shares purchased directly by or otherwise attributable to
that natural person.
2. The Boards of Directors of the Savings Bank and Holding Company will
not be deemed to be Associates or a group acting in concert solely as a result
of membership on the Boards of Directors.
3. To the extent that Conversion Stock is available, no subscriber will
be allowed to purchase Conversion Stock having an aggregate purchase price of
less than $500.
4. Either before or subsequent to approval of the Plan by the Members
and prior to consummation of the sale of the Conversion Stock, the Board of
Directors of the Savings Bank may, in its sole discretion, (i) increase the
maximum individual purchase limitation set forth in Section D.1 of this Article
to an amount not greater than five percent (5%) of the aggregate purchase price
of shares of Conversion Stock offered and sold in the Conversion or (ii) reduce
such maximum individual purchase limitation to an amount not less than one
percent (1%) of the aggregate purchase price of shares of Conversion Stock
offered and sold in the Conversion, each without further approval of the
Members.
5. Each person purchasing Conversion Stock in the Conversion shall be
deemed to confirm that such purchase does not conflict with the purchase
limitations under the Plan or otherwise imposed by law, rule or regulation.
6. Subscription Rights to purchase the Conversion Stock received by
Executive Officers and Directors of the Savings Bank and their Associates, based
on their increased deposits in the Savings Bank in the one year period preceding
the Eligibility Record Date shall be subordinated to all other subscriptions
involving the exercise of Subscription Rights to purchase the Conversion Stock
pursuant to Category No. 1.
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E. Restrictions on and Other Characteristics of Stock Being Sold
1. Transferability. Conversion Stock purchased by Directors or
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Executive Officers of the Converted Savings Bank shall not be sold or otherwise
disposed of for value for a period of not less than one year from the date of
purchase without written permission of the Administrator, except for any
disposition of such shares following the death of the original purchaser.
The Conversion Stock issued by the Holding Company to Directors and
Executive Officers of the Converted Savings Bank shall bear a legend giving
appropriate notice of the one-year holding period restriction. This legend will
state as follows:
The shares of stock evidenced by this Certificate may not be sold,
except in the event of the death of the registered holder, for a
period of one year from the date of this certificate without the
prior written consent of the Administrator, Savings Institutions
Division, North Carolina Department of Commerce.
In addition, the Holding Company shall give appropriate instructions to
the transfer agent with respect to the applicable restrictions relating to the
transfer of restricted stock. Any shares subsequently issued as a stock
dividend, stock split, or otherwise with respect to any such restricted stock,
shall be subject to the same holding period restrictions for Directors and
Executive Officers of the Converted Savings Bank as may be then applicable to
such restricted stock.
No Director, Executive Officer or Associate of a Director or Executive
Officer of the Converted Savings Bank shall purchase any outstanding shares of
common stock of the Holding Company for a period of three years following the
Conversion without the prior written approval of the Administrator, except (a)
through a broker or dealer registered with the SEC or the Secretary of State of
North Carolina or (b) in a "negotiated transaction" involving more than one
percent of the then outstanding shares of capital stock of the Holding Company
or (c) through the purchase of common stock made by and held by one or more tax-
qualified or non-tax-qualified employee stock benefit plans of the Converted
Savings Bank or the Holding Company which may be attributable to Executive
Officers or Directors. As used herein, the term "negotiated transaction" means a
transaction in which the securities are offered and the terms and arrangements
relating to any sale are arrived at through direct communications between the
seller or any Person acting on his or her behalf and the purchaser or his or her
investment representative. The term "investment representative" shall mean a
professional investment advisor acting as agent for the purchaser and
independent of the seller and not acting on behalf of the seller in connection
with the transaction.
2. Repurchase and Dividend Rights. Subject to the Regulations and
regulations of the FDIC, the Converted Savings Bank may not declare or pay a
cash dividend on or repurchase any of its capital stock if the effect thereof
would cause the regulatory capital of the Converted Savings Bank to be reduced
below (a) the amount required for the Liquidation Account or (b) the net worth
requirements of the Administrator or the minimum capital requirements of the
FDIC. As set forth in the Regulations and regulations of the FDIC, there exist
additional limitations on the ability of the Converted Savings Bank to pay
dividends and repurchase stock without the written approval of the Administrator
and the FDIC.
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The above limitations shall not preclude payments of dividends or
repurchases of capital stock by the Converted Savings Bank or the Holding
Company in the event applicable federal or state regulatory limitations are
liberalized subsequent to the Conversion.
3. Voting Rights. After the Conversion, holders of Savings Accounts
and obligors on loans will not have voting rights in the Converted Savings Bank.
Exclusive voting rights shall be vested in the Holding Company as the owner of
all of the capital stock of the Converted Savings Bank. Each holder of common
stock of the Holding Company will be entitled to vote on any matter coming
before the stockholders of the Holding Company for consideration and will be
entitled to one vote for each share of common stock of the Holding Company owned
by such stockholder.
4. Preemptive Rights. Holders of common stock of the Holding Company
shall not have preemptive rights to acquire additional or treasury shares of the
Holding Company. Holders of common stock of the Converted Savings Bank shall
not have preemptive rights to acquire additional or treasury shares of the
Savings Bank.
F. Mailing of Offering Materials and Collation of Subscriptions
After (i) approval of the Plan by the Administrator, (ii) receipt of a
notice of non-objection by the FDIC or expiration of the time period for FDIC
review and objection without receipt of an objection from the FDIC and (iii) the
SEC's declaration of the effectiveness of the registration statement containing
the Prospectus, the Holding Company shall distribute the Prospectus and Order
Forms for the purchase of shares to holders of Subscription Rights in accordance
with the terms of the Plan.
As set forth in the Prospectus, each such recipient of an Order Form will
be given a period of not less than 20 days nor more than 45 days from the date
of mailing, unless extended, to properly complete, execute and return the Order
Form to the Savings Bank on behalf of the Holding Company. Self-addressed,
postage-paid return envelopes will accompany these forms when mailed. The
Savings Bank will collate the returned executed forms upon completion of the
subscription period. Failure of any eligible subscriber in the Subscription or
Community Offerings to return a properly completed and executed Order Form with
full payment for all shares subscribed for within the prescribed time limits
shall be deemed a waiver and a release by such person of any rights to purchase
shares hereunder.
The Savings Bank may require a Person to provide evidence satisfactory to
the Savings Bank that such Person qualifies as an Eligible Account Holder,
Supplemental Eligible Account Holder, Other Member, or First Priority Community
Subscriber, as the case may be. All determinations as to whether a Person
qualifies to purchase in a particular category shall be made by the Savings Bank
in its sole discretion and shall be final and conclusive.
If the Board of Directors of the Savings Bank determines that a
subscriber (i) has submitted false or misleading information on an Order Form or
otherwise, (ii) has attempted to purchase shares of Conversion Stock in
violation of provisions of this Plan or applicable law or (iii) has failed to
cooperate with attempts by the Savings Bank, its employees or agents to verify
information with respect to purchase rights, such Board of Directors may reject
the order of such subscriber.
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G. Method of Payment
Payment for all shares of Conversion Stock subscribed for in the
Subscription and Community Offerings may be made in cash, if delivered in
person, by check or money order, or if the subscriber has a Savings Account
(other than a demand deposit or NOW account), by withdrawal authorization from
the Savings Account for the purchase amount. Unless payment is to be made by
withdrawal from a Savings Account, it shall accompany the Order Forms.
Notwithstanding the foregoing, the ESOP shall not be required to make payment
for shares subscribed for until the date set for consummation of the Conversion,
provided that, at the time the ESOP submits its Order Form, it has obtained a
commitment from the Holding Company or an independent third party lender to loan
it the funds necessary to satisfy its order.
If a subscriber authorizes the withdrawal from his or her Savings
Account, the funds may be withdrawn from the subscriber's Savings Account at any
time after receipt of the subscriber's stock order form and will continue to
earn interest at the applicable rate for such Savings Account until the
Conversion is completed or terminated. The withdrawal will be given effect only
to the extent necessary to satisfy the subscription at a price equal to the
aggregate Actual Purchase Price of the Conversion Stock sold to the subscriber.
The Savings Bank will allow subscribers to purchase shares of Conversion Stock
by withdrawing funds from certificate accounts without the assessment of early
withdrawal penalties. In the case of early withdrawal of only a portion of such
account, the certificate evidencing such account shall be canceled if the
remaining balance of the account is less than the applicable minimum balance
requirement. In that event, the remaining balance will earn interest at the
passbook savings rate. This waiver of the early withdrawal penalty is applicable
only to withdrawals made in connection with the purchase of Conversion Stock
under the Plan.
A subscriber who is the beneficial owner of a Retirement Account may pay
for shares of Conversion Stock subscribed for by authorizing and directing the
Savings Bank on the Order Form to roll over the subscriber's Retirement Account
to a self-directed Retirement Account at an independent trustee, who shall then
be directed to make a withdrawal from such Retirement Account in an amount equal
to the Actual Purchase Price of such shares. Such shares shall then become part
of the Retirement Account estate.
All amounts received for the purchase of Conversion Stock in the
Subscription Offering and the Community Offering (other than by charge against
the Subscriber's account or as provided above) shall be placed in a special
escrow account with the Savings Bank. The Savings Bank shall pay interest to the
subscriber at the passbook savings rate on such amounts paid to purchase
Conversion Stock from the date payment is received until the Conversion is
completed or terminated, as the case may be. The Savings Bank shall deliver all
amounts received for the purchase of Conversion Stock in the Subscription
Offering and the Community Offering to the Holding Company on the date the
Conversion is consummated.
H. Undelivered, Defective or Late Order Forms: Insufficient Payment
If an Order Form in the Subscription or Community Offering (a) is not
delivered and is returned by the United States Postal Service (or the Savings
Bank is unable to locate the addressee); (b) is not received by the Savings Bank
or is received by the Savings Bank after the date specified
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for receipt therein; (c) is defectively completed or executed; (d) is not
accompanied by the total required payment for the shares of Conversion Stock
subscribed for (including cases in which the subscriber's Savings Account is
insufficient to cover the amount of such required payment pursuant to a
withdrawal authorization) or (e) is not accompanied by immediately available
funds, the Subscription Rights and other rights to purchase of the person to
whom such rights have been granted will be deemed waived and will not be
honored. The Savings Bank may, but will not be required to, waive any
irregularity relating to any Order Form or require the submission of a corrected
Order Form or the remittance of full payment for subscribed shares by such date
as the Savings Bank may specify. Subscription orders, once tendered, cannot be
revoked. The Savings Bank's interpretation of the terms and conditions of this
Plan and acceptability of the Order Forms will be final.
I. Members in Non-Qualified States or in Foreign Countries
The Holding Company will make reasonable efforts to comply with the
securities laws of all states of the United States in which Eligible Account
Holders, Supplemental Eligible Account Holders, or Other Members entitled to
subscribe for shares of Conversion Stock reside. However, the Holding Company
shall not elect to offer or sell shares of Conversion Stock or Subscription
Rights under the Plan of Conversion in a foreign country, and may elect not to
offer or sell shares of Conversion Stock or Subscription Rights in a state in
the United States (i) where a small number of persons otherwise eligible to
subscribe for shares under this Plan reside or (ii) if the Holding Company
determines that compliance with the securities laws of such state would be
impracticable for reasons of cost or otherwise, including, but not limited to, a
requirement that the Holding Company, the Savings Bank or any employee or
representative thereof register as a broker, dealer, agent or salesperson or
register or otherwise qualify the Subscription Rights or Conversion Stock for
sale in such state. No payments will be made in lieu of the granting of
Subscription Rights to persons residing in such jurisdictions.
J. Acquisition of Capital Stock of the Converted Savings Bank
One half of the net proceeds from the sale of the Conversion Stock (after
such net proceeds is reduced by the amount of any loan made by the Holding
Company to the ESOP), will be used by the Holding Company to purchase all of the
outstanding capital stock of the Converted Savings Bank.
VII. AMENDED CHARTER AND BYLAWS
As part of the Conversion and this Plan, the Amended Charter and new
bylaws of the Converted Savings Bank will be adopted to authorize the Converted
Savings Bank to operate as a North Carolina capital stock savings bank under the
name Home Savings, Inc., SSB. The Amended Charter and bylaws for the Converted
Savings Bank are attached hereto as Annex I and Annex II, respectively. By
approving the Plan, the Members will thereby approve the Amended Charter and
bylaws. Accordingly, the Amended Charter and bylaws may be amended in the same
manner as the Plan pursuant to Article XIII.
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VIII. CONSUMMATION OF CONVERSION
After approval of the Plan by the Members, completion of the issuance and
sale of the Conversion Stock, and provided the Amended Charter and new bylaws
have been filed with and approved by the Administrator, the Conversion will
become effective. The effective time of such Conversion will be the date of
completion of such issuance and sale unless a later date is specified by the
Savings Bank. The Conversion shall constitute a change of form of organization
of the Savings Bank and shall not impair or affect any contracts, rights,
liabilities, obligations, interest and relations of whatever kind of the Savings
Bank.
The Conversion of the Savings Bank from a North Carolina-chartered mutual
savings bank to a North Carolina-chartered capital stock savings bank shall be
deemed to be an extension of the corporate existence of the Savings Bank, and
all property of the Savings Bank including all its rights, title and interest in
and to all property of whatever kind, whether real, personal or mixed, and
things in action, and every right, privilege, interest and asset of any
conceivable value or benefit then existing, belonging or pertaining to it, or
which would inure to it, shall immediately by act of law and without any
conveyance or transfer, and without any further act or deed, be vested in and
become the property of the Converted Savings Bank, which shall have, hold and
enjoy the same in its own right as fully and to the same extent as the same was
possessed, held and enjoyed by the Savings Bank, and the Converted Savings Bank
shall succeed to all the rights, obligations and relations of the Savings Bank.
IX. REGISTRATION AND MARKET MAKING
Upon completion of the Conversion, the Conversion Stock will be
registered with the SEC pursuant to the Securities Exchange Act of 1934, as
amended. In connection with the registration, the Holding Company hereby
undertakes not to deregister such stock for a period of three years thereafter.
The Holding Company will use its best efforts to encourage and assist a
Market Maker to establish and maintain a market for the shares of the Conversion
Stock. The Holding Company will also use its best efforts to list the Conversion
Stock on a national or regional securities exchange or on the National
Association of Securities Dealers Inc. Automated Quotation System.
X. STATUS OF SAVINGS ACCOUNTS AND LOANS SUBSEQUENT TO CONVERSION
All Savings Accounts will retain the same status after Conversion as
these accounts had prior to Conversion. Each Savings Account holder shall
retain, without payment, a Savings Account or Accounts in the Converted Savings
Bank, equal in amount to the withdrawable value of such account holder's Savings
Account or Accounts in the Savings Bank prior to Conversion. All Savings
Accounts will continue to be insured by the SAIF of the FDIC up to the
applicable limits of insurance coverage. All loans shall retain the same status
after Conversion as such loans had prior to Conversion.
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XI. LIQUIDATION ACCOUNT
After the Conversion, holders of Savings Accounts and borrowers will not
have voting rights in the Converted Savings Bank and will not be entitled to
share in the residual assets after liquidation of the Converted Savings Bank.
However, pursuant to the Regulations, the Savings Bank shall, at the time of
Conversion, establish a Liquidation Account on the records of the Converted
Savings Bank in an amount equal to its total regulatory capital as of the date
of the latest statement of financial condition contained in the final Prospectus
used in connection with the Conversion or such other amount as shall be required
by the Regulations. The function of the Liquidation Account is to establish a
priority on liquidation and, except as provided in Article VI.E.2 above, the
existence of the Liquidation Account shall not operate to restrict the use or
applications of any of the net worth, regulatory capital or other accounts of
the Converted Savings Bank.
The Liquidation Account shall be maintained by the Converted Saving Bank
subsequent to Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders (as applicable) who maintain Savings
Accounts in the Converted Savings Bank. Each Eligible Account Holder and
Supplemental Eligible Account Holder shall, with respect to each Savings Account
held, have a related inchoate interest in a portion of the Liquidation Account
balance (the "subaccount balance").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder or a Supplemental Eligible Account Holder shall be determined by
multiplying the total opening balance in the Liquidation Account by a fraction,
of which the numerator is the amount of the Qualifying Deposits in the related
Savings Account on the Eligibility Record Date or the Supplemental Eligibility
Record Date (as applicable) and of which the denominator is the total amount of
all Qualifying Deposits of all Eligible Account Holders or Supplemental Eligible
Account Holders (as applicable) on such dates. Each such initial subaccount
balance in the Liquidation Account shall never be increased, but shall be
subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing date subsequent to the Eligibility Record Date or Supplemental
Eligibility Record Date (as applicable) is less than the lesser of (a) the
deposit balance in such Savings Account at the close of business on any previous
annual closing date subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date, as applicable, or (b) the amount of the
Qualifying Deposit in such Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, as applicable, then the subaccount balance
for such Savings Account shall be adjusted by reducing such subaccount balance
in an amount proportionate to the reduction in such deposit balance. In the
event of a downward adjustment, the subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. The subaccount balance of a Savings Account holder shall be
maintained for as long as the Savings Account holder maintains an account with
the same social security number with the Converted Savings Bank.
In the event of a complete liquidation of the Converted Savings Bank (and
only in such event), each Eligible Account Holder and Supplemental Eligible
Account Holder, as applicable, shall be entitled to receive a liquidation
distribution from the Liquidation Account in the amount of the
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then current adjusted subaccount balances for Savings Accounts then held, after
the payment of creditors of the Converted Savings Bank, including deposit
account holders, but before any liquidation distribution may be made to the
Converted Savings Bank's stockholders. No merger, consolidation, purchase of
bulk assets with assumption of deposit accounts and other liabilities, or
similar combination or transaction with or by another FDIC-insured institution
shall be considered to be a complete liquidation for this purpose. In such
transactions, the Liquidation Account shall be assumed by the surviving
institution.
XII. MANAGEMENT
The Savings Bank or the Holding Company have entered or will enter into
contracts of employment with selected executives; the Savings Bank intends to
adopt and approve the ESOP; and, subject to approval of the stockholders of the
Holding Company, the Holding Company intends to approve and adopt stock option
plans for employees and directors of the Holding Company and/or the Savings Bank
and a management recognition plan providing for the issuance of restricted stock
of the Holding Company to certain employees and directors of the Holding Company
and/or the Savings Bank.
XIII. AMENDMENT OR TERMINATION OF PLAN
If necessary or desirable, the Plan may be amended at any time prior to
submission of the Plan and proxy materials to the Members by a two-thirds vote
of the Board of Directors of the Savings Bank. After submission of the Plan and
proxy materials to the Members, the Plan may be amended by a two-thirds vote of
the Board of Directors of the Savings Bank, but only with the concurrence of the
Administrator.
In the event that mandatory new regulations pertaining to conversions are
adopted by the Administrator or FDIC prior to the completion of the Conversion,
the Plan will be amended as provided above to conform to the new mandatory
regulations without a re-solicitation of proxies or another Special Meeting. In
the event that new conversion regulations adopted by the Administrator or FDIC
prior to completion of the Conversion contain optional provisions, the Plan may
be amended as provided above to utilize such optional provisions without a re-
solicitation of proxies or another Special Meeting.
The Plan may be terminated by a two-thirds vote of the Board of Directors
of the Savings Bank at any time prior to the Special Meeting, and at any time
following such Special Meeting with the concurrence of the Administrator. The
Plan shall terminate automatically if the sale of all shares of Conversion Stock
required to be sold is not completed within 12 months of the date of the Special
Meeting, unless the Administrator agrees in writing to an extension of up to an
additional 12 months.
By adoption of the Plan, the Members authorize the Board of Directors of
the Savings Bank to amend or terminate the Plan under the circumstances set
forth above.
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XIV. EXPENSES OF THE CONVERSION
The Savings Bank will use its best efforts to assure that expenses
incurred in connection with the Conversion shall be reasonable.
XV. PROHIBITION ON EXTENSIONS OF CREDIT
The Savings Bank, the Holding Company or any subsidiary of either of them
may not knowingly loan funds or otherwise extend unsecured credit or credit
secured by the Holding Company's Conversion Stock to any person to purchase
shares of Conversion Stock.
XVI. CONTRIBUTIONS TO TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS
The Savings Bank may make scheduled discretionary contributions to the
ESOP or any other tax-qualified employee stock benefit plan, provided such
contributions do not cause the Savings Bank to fail to meet its net worth
requirements.
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ANNEX I
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
HOME SAVINGS, INC., SSB
ARTICLE I
The name of the corporation is Home Savings, Inc., SSB (the "Savings
Bank").
ARTICLE II
The principal office of the Savings Bank shall be located at 22 Winston
Street, Thomasville, Davidson County, North Carolina. The street address of the
registered office of the Savings Bank is 22 Winston Street, Thomasville, North
Carolina, the mailing address of the registered office of the Savings Bank is
P.O. Box 989, Thomasville, North Carolina 27361-0989, and the name of the
registered agent at the address is James G. Hudson, Jr.
ARTICLE III
The period of duration of the Savings Bank is perpetual.
ARTICLE IV
The purposes for which the Savings Bank is organized are to pursue any and
all of the lawful objectives of a stock savings bank chartered under the
provisions of the General Statutes of North Carolina and to exercise all of the
express, implied, and incidental powers conferred thereby and by all acts
amendatory thereof and supplemental thereto, subject to the constitutions and
laws of the State of North Carolina and the United States as they are now in
effect, or as they may hereafter be amended, and subject to all lawful and
applicable rules, regulations and orders of appropriate regulatory authorities.
ARTICLE V
The Savings Bank shall have authority to issue 100,000 shares of stock.
These shares shall be all of one class, designated as common stock with no par
value.
ARTICLE VI
The minimum amount of consideration to be received for its shares of stock
before the Savings Bank shall commence business as a stock savings bank is $100.
<PAGE>
ARTICLE VII
The shareholders of the Savings Bank do not have preemptive rights to
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acquire additional or treasury shares of the Savings Bank.
ARTICLE VIII
Pursuant to the requirements of the rules and regulations of the
Administrator of the Savings Institutions Division, North Carolina Department of
Commerce, the Savings Bank shall establish and maintain a liquidation account
for the benefit of its "Eligible Account Holders" and "Supplemental Eligible
Account Holders," if applicable, as defined in the Plan of Holding Company
Conversion adopted by the Savings Bank in connection with its conversion to the
stock form of ownership. In the event of a complete liquidation of the Savings
Bank, it shall comply with such rules and regulations with respect to the amount
and the priorities on liquidation of each Eligible Account Holder's or
Supplemental Eligible Account Holder's inchoate interest in the liquidation
account, to the extent it is still in existence; provided, however, that an
Eligible Account Holder's or Supplemental Eligible Account Holder's inchoate
interest in the liquidation account shall not entitle such person or entity to
any voting rights at meetings of the Savings Bank's shareholders.
ARTICLE IX
The business and affairs of the Savings Bank shall be managed by a Board of
Directors. The number of directors shall be fixed by the Savings Bank's Bylaws
but shall not be less than five (5). Terms of directors may be classified as
stated in the Savings Bank's Bylaws.
ARTICLE X
To the fullest extent that the law of North Carolina as it exists on the
effective date of this Article, or as it may thereafter be amended, permits the
elimination of liability of directors, no director of the Savings Bank shall be
personally liable to the Savings Bank or any of its shareholders for monetary
damages for any breach of duty as a director. No amendment to or repeal of this
Article shall apply to or have any effect on the liability or alleged liability
of any director of the Savings Bank for or with respect to any act or failure to
act on the part of such director occurring prior to such amendment or repeal.
The provisions of this Article shall not be deemed to limit or preclude
indemnification of a director by the Savings Bank for any liability of a
director which has not been eliminated by the provisions of this Article.
2
<PAGE>
ARTICLE XI
Any addition, alteration or amendment to this Charter shall be made in
accordance with the provisions of Chapter 54C of the General Statutes of North
Carolina and any amendments thereto.
HOME SAVINGS, INC., SSB
ATTEST:
By: _______________________________________
By:____________________________ James G. Hudson, Jr., President
______________ Secretary
STATE OF NORTH CAROLINA
COUNTY OF _________________
This is to certify that on this ________ day of __________________, 1996,
before me, a Notary Public, personally appeared JAMES G. HUDSON, JR. and
____________________, each of whom, being by me first duly sworn, declared that
he signed the foregoing instrument in the capacity indicated, that he was
authorized so to sign, and that the statements contained therein are true.
Witness my hand and official seal, this ____ day of ________________, 1996.
_____________________________________________
Notary Public
(OFFICIAL SEAL)
My Commission Expires: _____________________
3
<PAGE>
ANNEX II
BYLAWS
OF
HOME SAVINGS, INC., SSB
ARTICLE I.
OFFICES
-------
Section 1. Principal Office. The principal office of the Savings Bank
--------- ----------------
shall be located at 22 Winston Street, Thomasville, North Carolina 27360.
Section 2. Registered Office. The registered office of the Savings Bank
--------- -----------------
required by law to be maintained in the State of North Carolina may be, but need
not be, identical with the principal office.
ARTICLE II.
MEETING OF SHAREHOLDERS
-----------------------
Section 1. Place of Meetings. All meetings of shareholders shall be held
--------- -----------------
at the principal office of the Savings Bank, or at such other place, either
within or without the State of North Carolina, as shall be designated in the
notice of the meeting or agreed upon by a majority of the shareholders entitled
to vote thereat.
Section 2. Annual Meetings. The annual meeting of shareholders shall be
--------- ---------------
held during the first five calendar months following the end of the Savings
Bank's fiscal year, or any day (except Saturday, Sunday or a legal holiday)
during that period as shall be determined by the Board of Directors, for the
purpose of electing directors of the Savings Bank, receiving annual reports of
officers, and transacting such other business as may be properly brought before
the meeting.
Section 3. Substitute Annual Meeting. If the annual meeting shall not be
--------- -------------------------
held on the date designated by these Bylaws, a substitute annual meeting may be
called in accordance with the provisions of Section 4 of this Article II. A
meeting so called shall be designated and treated for all purposes as the annual
meeting.
Section 4. Special Meetings. Special meetings of the shareholders may be
--------- ----------------
called at any time by the President, or a majority of the Board of Directors by
giving notice as hereinafter provided, and, unless the Savings Bank shall at
such time have a class of shares registered under
<PAGE>
Section 12 of the Securities Exchange Act of 1934, as amended, shall be called
by any of the foregoing pursuant to the written request of the holders of not
less than one-tenth of all votes entitled to be cast on any issue proposed to be
considered at the meeting.
Section 5. Notice of Meetings. Written or printed notice stating the
--------- ------------------
time, place and date of the meeting shall be delivered not less than ten (10)
nor more than sixty (60) days before the date thereof, either in person or by
mail, by or at the direction of the Board of Directors, the President or the
Secretary to each shareholder of record entitled to vote at such meeting unless
applicable law or the Saving Bank's articles of incorporation require that such
notice shall be given to all shareholders with respect to such meeting. If
mailed, such notice shall be deemed to be effective when deposited in the United
States mail, correctly addressed to the shareholder at the shareholder's address
as it appears on the current record of shareholders of the Savings Bank, with
postage thereon prepaid.
In the case of an annual or substitute annual meeting, the notice of
meeting need not specifically state the business to be transacted thereat unless
such a statement expressly is required by the provisions of the North Carolina
Business Corporation Act. In the case of a special meeting, the notice of
meeting specifically shall state the purpose or purposes for which the meeting
is called.
If any meeting of shareholders is adjourned to a different date, time or
place, notice need not be given of the new date, time or place if the new date,
time or place is announced at the meeting before adjournment and if a new record
date is not fixed for the adjourned meeting. If a new record date for the
adjourned meeting is or must be fixed pursuant to North Carolina law, notice of
the adjourned meeting must be given as provided in this Section to persons who
are shareholders as of the new record date.
Section 6. Waiver of Notice. Any shareholder may waive notice of any
--------- ----------------
meeting before or after the meeting. The waiver must be in writing, signed by
the shareholder, and delivered to the Savings Bank for inclusion in the minutes
or filing with the corporate records. A shareholder's attendance, in person or
by proxy, at a meeting (a) waives objection to lack of notice or defective
notice of the meeting, unless the shareholder or the shareholder's proxy at the
beginning of the meeting objects to holding the meeting or transacting business
thereat, and (b) waives objection to consideration of a particular matter at the
meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder or his proxy objects to considering the matter
before it is voted upon.
Section 7. Voting List. Before each meeting of shareholders, an
--------- -----------
alphabetical list of the shareholders entitled to notice of such meeting shall
be prepared by the Secretary of the Savings Bank. The list shall be arranged by
voting group and within each voting group by class or series of shares and show
the address of and number of shares held by each shareholder. The list shall be
kept on file at the principal office of the Savings Bank for the period
beginning two (2) business days after notice of the meeting is given and
continuing through the meeting, and shall be available for inspection by any
shareholder or the agent or attorney of any shareholder at any time prior to the
meeting during regular business hours and at any time during the meeting or any
adjournment thereof.
2
<PAGE>
Section 8. Voting Group. All shares of one or more classes or series
--------- ------------
that under the Savings Bank's articles of incorporation or the North Carolina
Business Corporation Act are entitled to vote and be counted together
collectively on a matter at a meeting of shareholders constitute a voting group.
All shares entitled by the Savings Bank's articles of incorporation or the North
Carolina Business Corporation Act to vote generally on a matter are for that
purpose a single voting group. Classes or series of shares shall not be entitled
to vote separately by voting group unless expressly authorized by the Savings
Bank's articles of incorporation or specifically required by law.
Section 9. Quorum. Shares entitled to vote generally as a single voting
--------- ------
group or as a separate voting group may take action on a matter at the meeting
of shareholders only if a quorum of those shares is present at the meeting. A
majority of the votes entitled to be cast on the matter by the voting group
shall constitute a quorum of that voting group for action on that matter.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
In the absence of a quorum at the opening of any meeting of shareholders,
such meeting may be adjourned from time to time by a vote of a majority of the
votes cast on the motion to adjourn; and at any adjourned meeting any business
may be transacted which might have been transacted at the original meeting if a
quorum exists with respect to the matter proposed.
Section 10. Proxies. Shares may be voted either in person or by one or
---------- -------
more agents authorized by a written proxy executed by the shareholder or by the
shareholder's duly authorized attorney-in-fact. A proxy shall not designate as a
holder any corporation or partnership including any person acting on behalf of
any corporation or partnership, or any person other than a living natural
person. However, a proxy may designate the holder of a specified title or
office, if a natural person, or a committee composed solely of natural persons,
including a committee composed of the Board of Directors of the Savings Bank.
Section 11. Voting of Shares. Subject to the provisions of the Savings
---------- ----------------
Bank's articles of incorporation, each outstanding share shall be entitled to
one vote on each matter submitted to a vote at a meeting of shareholders.
Except in the election of directors as provided in Section 3 of Article
III, if a quorum exists, action on a matter by a voting group at a meeting of
shareholders is approved if the votes cast within the voting group favoring the
action exceed the votes cast opposing the action, unless a greater vote is
required by law or the Savings Bank's articles of incorporation or these Bylaws.
Section 12. Informal Action by Shareholders. Any action which may be
---------- -------------------------------
taken at a meeting of shareholders may be taken without a meeting if one or more
written consents, setting forth the action so taken, shall be signed by all of
the persons who would be entitled to vote upon such action at a meeting, and
delivered to the Secretary of the Savings Bank for inclusion in the minutes or
filing with the corporate records.
3
<PAGE>
If the Savings Bank is required by law to give notice to nonvoting
shareholders of action to be taken by unanimous written consent of the voting
shareholders, then the Savings Bank shall give the nonvoting shareholders, if
any, written notice of the proposed action at least ten (10) days before the
action is taken.
ARTICLE III.
DIRECTORS
---------
Section 1. General Powers. The business and affairs of the Savings Bank
--------- --------------
shall be managed by the Board of Directors or by such Executive Committee as the
Board may establish.
Section 2. Number, Term and Qualifications. The number of Directors of
--------- -------------------------------
the Savings Bank shall be no less than five (5) and no more than nine (9), with
the exact number to be fixed from time to time by the Board of Directors. Each
Director shall hold office until his death, resignation, retirement, removal,
disqualification, or his successor shall have been elected and qualified.
Section 3. Election of Directors. Except as provided in Section 5 of
--------- ---------------------
this Article III, the directors shall be elected at the annual meeting of
shareholders, and those persons who receive the highest number of votes at a
meeting at which a quorum is present shall be deemed to have been elected. If
any shareholder so demands, election of directors shall be by ballot. At all
times when the number of directors shall be nine (9) or more, the Board of
Directors shall be divided into three (3) classes, as nearly equal in number as
possible, and each class shall be elected for staggered terms of three (3) years
or until successors are duly elected and qualified.
Section 4. Removal. Any director may be removed at any time with or
--------- -------
without cause by a vote of shareholders holding a majority of the votes entitled
to be cast at an election of the directors. If any directors are so removed, new
directors may be elected at the same meeting.
Section 5. Vacancies. Any vacancy occurring in the Board of Directors,
--------- ---------
including without limitation a vacancy resulting from an increase in the number
of directors or from the failure by the shareholders to elect the full
authorized number of directors, may be filled by the shareholders, a majority of
the remaining directors, though less than a quorum, or by the sole remaining
director. A director elected to fill a vacancy shall be elected to serve the
remaining term of the director replaced, or if a director is not elected to
replace a previously elected director, the new director shall be elected to
serve until the next shareholders' meeting at which directors are elected. The
shareholders may elect a director at any time to fill any vacancy not filled by
the directors.
Section 6. Compensation. The Board of Directors may provide for the
--------- ------------
compensation of directors for their services as such and for the payment or
reimbursement of any or all expenses incurred by them in connection with such
services.
4
<PAGE>
ARTICLE IV.
MEETINGS OF DIRECTORS
---------------------
Section 1. Regular Meetings. A regular meeting of the Board of Directors
--------- ----------------
shall be held immediately after, and at the same place as, the annual meeting of
shareholders. In addition, the Board of Directors may provide, by resolution,
the time and place, either within or without the State of North Carolina, for
the holding of additional regular meetings.
Section 2. Special Meetings. Special meetings of the Board of Directors
--------- ----------------
may be called by or at the request of the President, Vice President acting in
his absence or incapacity, or any three Directors, upon notice either in person
or by mail. Such meetings shall be held either within or without the State of
North Carolina as fixed by the person or persons calling any such meeting.
Section 3. Notice of Meetings. The applicable provisions of North
--------- ------------------
Carolina law shall govern meetings of the Board of Directors, notice of
meetings, waiver of notice, quorums and actions of the Board of Directors.
Section 4. Quorum. A majority of the number of directors shall
--------- ------
constitute a quorum for the transaction of business at any meeting of the Board
of Directors.
Section 5. Manner of Acting. Except as otherwise provided in these
--------- ----------------
Bylaws, the act of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
Section 6. Presumption of Assent. A director of the Savings Bank who is
--------- ---------------------
present at a meeting of the Board of Directors at which action on any matter is
taken shall be presumed to have assented to the action unless his contrary vote
is recorded or his dissent is otherwise entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the Secretary of the Savings Bank immediately
after the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
Section 7. Informal Action by Directors. Action taken by the directors
--------- ----------------------------
without a meeting is nevertheless Board action if written consent to the action
is signed by all the directors and filed with the minutes of the proceedings of
the Board or other corporate records, whether done before or after the actions
are taken.
ARTICLE V.
OFFICERS
--------
Section 1. Officers of the Savings Bank. The officers of the Savings
--------- ----------------------------
Bank shall consist of a President, a Secretary, a Treasurer, and such Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers as
the Board of Directors may from time to time elect. Any two or
5
<PAGE>
more offices may be held by the same person, except the offices of President and
Secretary, but no officer may act in any more than one capacity where action of
two or more officers is required.
Section 2. Election and Term. The officers of the Savings Bank shall be
--------- -----------------
elected by the Board of Directors. Such election may be held at any regular or
special meeting of the Board. Each officer shall hold office until his death,
resignation, retirement, removal, disqualification or his successor is elected
and qualified.
Section 3. Removal. Any officer or agent elected or appointed by the
--------- -------
Board of Directors may be removed by the Board whenever in its judgment the best
interests of the Savings Bank will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Section 4. President. The President shall be the principal executive
--------- ---------
officer and managing officer of the Savings Bank and, subject to the control of
the Board of Directors, shall supervise and control all of the business and
affairs of the Savings Bank. He or she shall sign, with the Secretary, an
Assistant Secretary, or with any other proper officer authorized by the Board of
Directors and whose signature is required, certificates for shares of the
Savings Bank and any deeds, mortgages, bonds, contracts, or other instruments
which may be lawfully executed on behalf of the Savings Bank, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be delegated by the Board of
Directors or these Bylaws to some other officer or agent of the Savings Bank;
and, in general, he or she shall perform all duties incident to the office of
the President and such other duties as may be prescribed by the Board of
Directors from time to time.
Section 5. Vice Presidents. In the absence of the President or in the
--------- ---------------
event of his death, inability or refusal to act, the Vice Presidents, unless
otherwise determined by the Board of Directors, shall perform the duties of the
President, and when so acting shall have all the powers of and be subject to all
the restrictions upon the President. Any Vice President, with any other proper
officer whose signature is required, may sign certificates for shares of the
Savings Bank and shall perform such other duties as from time to time may be
assigned to him or her by the President or Board of Directors.
Section 6. Secretary. The Secretary shall: (a) keep the minutes of the
--------- ---------
meetings of shareholders and of the Board of Directors in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these Bylaws or as required by law; (c) be custodian of
the corporate records and of the seal of the Savings Bank and see that the seal
of the Savings Bank is affixed to all documents the execution of which on behalf
of the Savings Bank under its seal is duly authorized; (d) have general charge
of the stock transfer books of the Savings Bank and shall keep, at the
registered or principal office of the Savings Bank a record of shareholders
showing the name and address of each shareholder and the number and class of the
shares held by each; (e) be authorized, with any other proper officer, to sign
certificates for shares of the Savings Bank and shall sign such other
instruments as may require the Secretary's signature; and (f) in general perform
all duties incident to the office of Secretary and such other duties as from
time to time may be assigned to him or her by the President or by the Board of
Directors.
6
<PAGE>
Section 7. Assistant Secretaries. In the absence of the Secretary or in
--------- ---------------------
the event of his or her death, inability or refusal to act, the Assistant
Secretaries, unless otherwise determined by the Board of Directors, shall
perform the duties of the Secretary, and when so acting shall have all the
powers of and be subject to all the restrictions upon the Secretary. Any
Assistant Secretary, with any other proper officer, may sign certificates for
shares of the Savings Bank. They shall perform such other duties as may be
assigned to them by the Secretary, by the President, or by the Board of
Directors.
Section 8. Treasurer. The Treasurer shall: (a) have charge and custody
--------- ---------
of and be responsible for all funds and securities of the Savings Bank; receive
and give receipts for money due and payable to the Savings Bank from any source
whatsoever, and deposit all such moneys in the name of the Savings Bank in such
depositories as shall be selected by the Board of Directors of the Savings Bank;
(b) have authority, with any other proper officer, to sign certificates for
shares of the Savings Bank; and (c) in general perform all of the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him by the President or by the Board of Directors, or by
these Bylaws.
Section 9. Assistant Treasurers. In the absence of the Treasurer or in
--------- --------------------
the event of his or her death, inability or refusal to act, the Assistant
Treasurers, unless otherwise determined by the Board of Directors, shall perform
the duties of the Treasurer, and when so acting shall have all the powers of and
be subject to all the restrictions upon the Treasurer. Any Assistant Treasurer,
with any other proper officer, may sign certificates for shares of the Savings
Bank. They shall perform such other duties as may be assigned to them by the
Treasurer, by the President, or by the Board of Directors.
ARTICLE VI.
CONTRACTS, LOANS, CHECKS AND DEPOSITS
-------------------------------------
Section 1. Contracts. The Board of Directors may authorize any officer
--------- ---------
or officers, agent or agents, to enter into any contract or execute and deliver
any instruments in the name of and on behalf of the Savings Bank, and such
authority may be general or confined to specific instances.
Section 2. Loans. No loan shall be contracted on behalf of the Savings
--------- -----
Bank and no evidences of indebtedness shall be issued in its name unless
authorized by Article VI of these Bylaws or authorized by a resolution of the
Board of Directors. Such authority may be general or confined to specific
instances.
Section 3. Checks and Drafts. All checks, drafts or other orders for the
--------- -----------------
payment of money issued in the name of the Savings Bank shall be signed by such
President or such other officer or officers, agent or agents of the Savings Bank
and in such manner as shall from time to time be determined by resolution of the
Board of Directors.
7
<PAGE>
Section 4. Deposits. All funds of the Savings Bank not otherwise
--------- --------
employed shall be deposited from time to time to the credit of the Savings Bank
in such depositories as the Board of Directors shall direct.
ARTICLE VII.
DEPOSIT ACCOUNTS
----------------
Section 1. Classes of Deposit Accounts. The Savings Bank may issue as
--------- ---------------------------
many classes of deposit accounts as the Board of Directors shall establish,
subject to such regulations and limitations as the Administrator of the Savings
Institutions Division of the North Carolina Department of Commerce and the
Federal Deposit Insurance Corporation may prescribe. Such classes of deposit
accounts may include passbook accounts, certificate accounts, NOW accounts,
trust accounts, demand accounts and such other accounts as are permitted by law.
The minutes of the meetings of the Board of Directors of the Savings Bank shall
define each class of deposit account being offered to the public and shall show
all changes made in the class or classes of deposit accounts available to the
customers of the Savings Bank.
Section 2. Withdrawals. The Savings Bank shall have the right to pay the
--------- -----------
withdrawal value of its deposit accounts at any time upon written application
therefor and to pay the holders thereof the withdrawal value thereof. Upon
receipt of a written application from any holder of a deposit account of all or
any part of the withdrawal value thereof, the Savings Bank shall within thirty
(30) days pay the amount requested. If the Savings Bank is unable to pay all
withdrawals requested at the end of thirty (30) days from the date of such
requests, it shall then pay all withdrawals requested in accordance with the
applicable provisions of the General Statutes of North Carolina, as amended, and
the regulations of the Federal Deposit Insurance Corporation. Holders of deposit
accounts for which application for withdrawal has been made shall remain holders
of deposit accounts until paid and shall not become creditors.
When a certificate or agreement between the Savings Bank and the account
holder specifies a particular period of time for notice of withdrawals,
withdrawals shall be made in accordance with such certificate or agreement.
Section 3. Forced Retirement. If so provided in the deposit account
--------- -----------------
contract, the Savings Bank may redeem all or any part of its deposit accounts
which have not been pledged as security for loans. The Savings Bank shall give
at least thirty (30) days notice of such redemption by certified mail addressed
to the holder of each deposit account at his or her last address as recorded on
the books of the Savings Bank. The Savings Bank may not redeem any of its
deposit accounts when it has any request for withdrawal which has been on file
and unpaid for more than thirty (30) days. Also, the Savings Bank may not redeem
any fixed-term deposit accounts which have not matured. The redemption price of
each deposit account redeemed shall be the full value thereof, as determined by
the Board of Directors, but in no event shall the redemption price be less than
the withdrawal amount of such deposit accounts. If notice of redemption is duly
given and sufficient funds are available for such redemption, interest shall
cease to accrue on the deposit account as of the redemption date. After the
redemption date all rights with respect to the deposit account shall
8
<PAGE>
terminate, except for the right of the deposit account holder to receive the
redemption price thereof without interest.
Section 4. New Account Books. The Savings Bank may issue a new account
--------- -----------------
book or certificate, or other evidence of ownership of a deposit account, in the
name of the holder of record at any time when requested by such holder or his or
her legal representative upon proof satisfactory to the Savings Bank that the
original account book or certificate has been lost or destroyed. Such proof of
loss shall ordinarily include a written verification by the holder or his or her
legal representative that the account book or certificate has been lost or
destroyed and the account has not been pledged or assigned. Such new account
book or certificate shall expressly state that it is issued in lieu of the one
lost or destroyed and that the Savings Bank shall in no way be liable thereafter
on account of the original book or certificate. When issuing such a new account
book or certificate, the Savings Bank may, at its option, require the holder of
record to give to the Savings Bank a bond in such sum as it may direct, or such
other indemnification as it may dictate, in order to indemnify the Savings Bank
against any loss that might result from the issuance of the new account book,
certificate, or other evidence of ownership of a deposit account.
ARTICLE VIII.
LOANS AND INVESTMENTS
---------------------
Section 1. General Lending Authority. Funds of the Savings Bank shall be
--------- -------------------------
loaned in compliance with the General Statutes of North Carolina, the
regulations promulgated by the Administrator of the Savings Institutions
Division of the North Carolina Department of Commerce and applicable federal
statutes and regulations, and in such sums and at such times as the Board of
Directors may determine.
Section 2. Manner of Making Loans. The Board of Directors shall
--------- ----------------------
establish and maintain procedures by which loans are to be considered, approved,
and made by the Savings Bank. Such loan procedures may be amended by resolution
of the Board of Directors.
The Board of Directors may establish a Loan Committee to implement the
Board's loan procedures and to consider and approve loans.
The Board of Directors may designate one or more of the Savings Bank's
officers to serve as Loan Officers. Such Loan Officers shall have authority to
approve loans as determined by the Board.
All actions taken on loan applications to the Savings Bank shall be
reported to the Board of Directors at its meeting next following such actions.
Section 3. Appraisals. The Board of Directors shall cause all loans
--------- ----------
secured by real estate to be appraised and approved as provided by law.
9
<PAGE>
ARTICLE IX.
CERTIFICATES FOR SHARES AND THEIR TRANSFER
------------------------------------------
Section 1. Certificate For Shares. If the shares of the Savings Bank are
--------- ----------------------
represented by certificates, the certificates shall be in such form as required
by law and as determined by the Board of Directors and shall be signed by the
President or any Vice President and either the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer. All certificates for
shares shall be numbered consecutively or otherwise identified and shall
indicate thereon a reference to any and all restrictive conditions of said
shares. Certificates representing shares of the Savings Bank may be issued to
every shareholder for the fully paid shares owned thereby; the name and address
of the persons to whom they are issued, the number of shares, and the date of
issue shall be entered on the stock transfer books of the Savings Bank. If the
shares are not represented by certificates, then within a reasonable time after
issuance or transfer of such shares, the Savings Bank shall deliver to the
shareholder to whom such shares have been issued or transferred a written
statement of the information required by law to be on certificates.
Section 2. Transfer of Shares. If the shares are represented by
--------- ------------------
certificates, transfer of shares shall be made on the stock transfer books of
the Savings Bank only upon surrender of the certificates for the shares sought
to be transferred by the record holder thereof or by such shareholder's duly
authorized agent, transferee or legal representative. All certificates
surrendered for transfer shall be cancelled before new certificates for the
transferred shares shall be issued. If the shares are not represented by
certificates, transfer of shares shall be made on the stock transfer books of
the Savings Bank only upon the furnishing of proper evidence of authority to
transfer by the holder of record thereof or such shareholder's duly authorized
agent, transferee or legal representative. Transfer of shares may be restricted
by an agreement of the shareholder(s).
Section 3. Fixing Record Date. The Board of Directors of the Savings
--------- ------------------
Bank may fix a date selected by it as the record date for one or more voting
groups in order to determine (a) the shareholders entitled to notice of a
meeting of shareholders, (b) the shareholders entitled to demand a special
meeting, if any, (c) the shareholders entitled to vote, or (d) the shareholders
entitled to take any other action. A record date fixed under this Section may
not be more than seventy (70) days before the meeting or action requiring a
determination of shareholders.
A determination of shareholders entitled to notice of or to vote at a
meeting of shareholders is effective for any adjournment of the meeting unless
the Board of Directors fixes a new record date for the adjourned meeting, which
it must do if the meeting is adjourned to a date more than one hundred twenty
(120) days after the date fixed for the original meeting.
If no record date is fixed by the Board of Directors for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders,
the close of business on the day before the first notice of the meeting is
delivered to shareholders shall be the record date for such determination of
shareholders.
Section 4. Lost Certificates. The Board of Directors may authorize the
--------- -----------------
issuance of a new share certificate in place of a certificate theretofore issued
by the Savings Bank claimed to have been
10
<PAGE>
lost or destroyed, upon receipt of an affidavit of such fact from the person
claiming the loss or destruction. When authorizing such issuance of a new
certificate, the Board shall require the claimant to give the Savings Bank a
bond in such sum as the Board may direct to indemnify the Savings Bank against
loss from any claim with respect to the certificate claimed to have been lost or
destroyed; provided, however, that the Board, by resolution reciting the
circumstances justifying such action, may authorize the issuance of the new
certificate without requiring such a bond.
Section 5. Holder of Record. Except as otherwise required by law, the
--------- ----------------
Savings Bank may treat as the absolute owner of shares and as the person
exclusively entitled to receive notification and distributions, to vote and
otherwise to exercise the rights, powers, and privileges of ownership of such
shares, the person in whose name the shares stand of record on its books.
Section 6. Reacquired Shares. Shares of the Savings Bank that have been
--------- -----------------
issued and thereafter reacquired by the Savings Bank shall constitute authorized
but unissued shares.
ARTICLE X.
GENERAL PROVISIONS
------------------
Section 1. Distributions. The Board of Directors from time to time may
--------- -------------
authorize, and the Savings Bank may pay, distributions and share dividends on
the Savings Bank's outstanding shares in the manner and upon the terms and
conditions provided by law and by the Savings Bank's articles of incorporation.
Section 2. Seal. The corporate seal of the Savings Bank shall consist of
--------- ----
two concentric circles between which is the name of the Savings Bank and in the
center of which is inscribed SEAL; and such seal, as impressed on the margin
hereof, is hereby adopted as the corporate seal of the Savings Bank.
Section 3. Indemnity. In addition to any indemnification required or
--------- ---------
permitted by law, and except as otherwise provided in these Bylaws, any person
who at any time serves or has served as a director, officer, employee, partner,
trustee or agent of the Savings Bank and any such person who serves or has
served at the request of the Savings Bank as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or as a trustee or administrator under an employee benefit plan,
shall have a right to be indemnified by the Savings Bank to the full extent
allowed by applicable law against liability and litigation expense arising out
of such status or activities in such capacity. "Liability and litigation
expense" shall include costs and expenses of litigation (including reasonable
attorneys' fees), judgments, fines and amounts paid in settlement which are
actually and reasonably incurred in connection with or as a consequence of any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, including appeals.
Promptly after the final disposition or termination of any matter which
involves liability or litigation expense as described above or at such earlier
time as it sees fit, the Savings Bank shall determine whether any person
described in this Section 3 is entitled to indemnification thereunder.
11
<PAGE>
Such determination shall be limited to the following issues: (i) whether the
persons to be indemnified are persons described in this Section 3, (ii) whether
the liability or litigation expense incurred arose out of the status or
activities of such persons as described in this Section 3, (iii) whether
liability was actually incurred and litigation expense was actually and
reasonably incurred, and (iv) whether the indemnification requested is not
permitted by applicable law. Such determination shall be made by a majority vote
of directors who were not parties to the action, suit or proceeding (or, in
connection with "threatened" actions, suits or proceedings, who were not
"threatened parties"). If at least two such disinterested directors are not
obtainable, or, even if obtainable, if at least half of the number of
disinterested directors so direct, such determination shall be made by
independent legal counsel in written opinion.
Litigation expense incurred by a person described in this Section 3 in
connection with a matter described in this Section 3 shall be paid by the
Savings Bank in advance of the final disposition or termination of such matter,
if the Savings Bank receives an undertaking, dated, in writing and signed by the
person to be indemnified, to repay all such sums unless such person is
ultimately determined to be entitled to be indemnified by the Savings Bank as
provided in this Section 3. Requests for payments in advance of final
disposition or termination shall be submitted in writing unless this requirement
is waived by the Savings Bank.
Notwithstanding the foregoing, no advance payment shall be made as to any
payment or portion of a payment for which the determination is made that the
person requesting payment will not be entitled to indemnification. Such
determination may be made only by a majority vote of disinterested directors or
by independent legal counsel as next provided. If there are not at least two
disinterested directors, the notice of all requests for advance payment shall be
delivered for review to independent legal counsel for the Savings Bank. Such
counsel shall have the authority to disapprove any advance payment or portion of
a payment for which it plainly appears that the person requesting payment will
not be entitled to indemnification.
The Savings Bank shall not be obligated to indemnify persons described in
this Section 3 for any amounts paid in settlement unless the Savings Bank
consents in writing to the settlement. The Savings Bank shall not unreasonably
withhold its consent to proposed settlements. The Savings Bank's consent to a
proposed settlement shall not constitute an agreement by the Savings Bank that
any person is entitled to indemnification hereunder. The Savings Bank shall
waive the requirement of this section for its written consent as fairness and
equity may require.
A person described in this Section 3 may apply to the Savings Bank in
writing for indemnification or advance expenses. Such applications shall be
addressed to the Secretary or, in the absence of the Secretary, to any officer
of the Savings Bank. The Savings Bank shall respond in writing to such
applications as follows: to a request for indemnity under this Section 3, within
ninety days after receipt of the application; to a request for advance expenses
under this Section 3, within fifteen days after receipt of the application.
If any action is necessary or appropriate to authorize the Savings Bank to
pay the indemnification required by these Bylaws, the Board of Directors shall
take such action, including (i) making a good faith evaluation of the
indemnification request, (ii) giving notice to, and obtaining approval by, the
shareholders of the Savings Bank, and (iii) taking any other action.
12
<PAGE>
The right to indemnification or advance expenses provided herein shall be
enforceable in any court of competent jurisdiction. A legal action may be
commenced if a claim for indemnity or advance expenses is denied in whole or in
part, or upon the expiration of the time periods provided above. In any such
action, if the claimant establishes the right to indemnification, he or she
shall also have the right to be indemnified against the litigation expense
(including, without limitation, reasonable attorneys' fees) of such action.
As provided by N.C. Gen. Stat. (S)55-8-57, the Savings Bank shall have the
power to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Savings Bank, or who is or was
serving at the request of the Savings Bank as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or as a trustee or administrator under an employee benefit plan,
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the Savings Bank
has the power to indemnify him against such liability.
The right to indemnification provided herein shall not be deemed exclusive
of any other rights to which any persons seeking indemnity may be entitled apart
from the provisions of this bylaw, except there shall be no right to
indemnification as to any liability or litigation expense for which such person
is entitled to receive payment under any insurance policy other than a
directors' and officers' liability insurance policy maintained by the Savings
Bank. Such right inures to the benefit of the heirs and legal representatives of
any persons entitled to such right. Any person who at any time after the
adoption of this bylaw serves or has served in any status or capacity described
in this Section 3, shall be deemed to be doing or to have done so in reliance
upon, and as consideration for, the right of indemnification provided herein.
Any repeal or modification hereof shall not affect any rights or obligations
then existing. The right provided herein shall not apply as to persons serving
institutions which are hereafter merged into or combined with the Savings Bank,
except after the effective date of such merger or combination and only as to
status and activities after such date.
If this Article or any portion hereof shall be invalidated on any ground by
any court or agency of competent jurisdiction, then the Savings Bank shall
nevertheless indemnify each person described in this Section 3 to the full
extent permitted by the portion of this Article that is not invalidated and also
to the full extent (not exceeding the benefits described herein) permitted or
required by other applicable law.
Section 4. Fiscal Year. The fiscal year of the Savings Bank shall be the
--------- -----------
twelve-month period which ends on June 30th.
Section 5. Amendments. Except as otherwise provided herein, or required
--------- ----------
by law, these Bylaws may be amended or repealed and new Bylaws may be adopted by
the affirmative vote of a majority of the Directors then holding office at any
regular or special meeting of the Board of Directors. No bylaw adopted, amended
or repealed by the shareholders shall be readopted, amended or repealed by the
Board of Directors unless the Savings Bank's articles of incorporation or a
bylaw adopted by the shareholders authorizes the Board of Directors to adopt,
amend or repeal that particular bylaw or the Bylaws generally.
13
<PAGE>
The shareholders may amend or repeal these Bylaws even though these Bylaws
also may be amended or repealed by the Board of Directors.
Adopted this _____ day of _____________, 1996.
_______________________________________________
Secretary
14
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
CENTURY BANCORP, INC.
ARTICLE I
The name of the corporation is Century Bancorp, Inc. (the
"Corporation").
ARTICLE II
Section 2.1. Total Authorized Shares of Capital Stock. The
----------- ----------------------------------------
Corporation shall have authority to issue a total of 25,000,000 shares of
capital stock, none of which shall have any par value, divided into classes as
follows:
Class Number of Shares
----- ----------------
Common Stock 20,000,000
Preferred Stock 5,000,000
Section 2.2. Common Stock. The shares of Common Stock shall be of
----------- ------------
one and the same class. Subject to the rights of holders of the Preferred Stock
as determined by the Board of Directors pursuant to Section 2.3 hereof and by
the North Carolina Business Corporation Act ("NCBCA") as now constituted or
hereafter amended, the holders of shares of Common Stock shall have one vote per
share on all matters on which holders of shares of Common Stock are entitled to
vote and shall be entitled to participate pro rata after preferential rights of
holders of Preferred Stock in the distribution of the net assets of the
Corporation upon dissolution.
Section 2.3. Preferred Stock. The shares of Preferred Stock may be
----------- ---------------
issued from time to time by the Corporation, and the Board of Directors may
create and divide such shares into series within that class, and such shares and
the shares of each such series shall have such voting powers, full or limited,
or no voting powers, and such designations, preferences, limitations and
relative rights (or qualifications, conditions or restrictions thereon) as the
Board of Directors may and hereby is authorized to determine.
<PAGE>
ARTICLE III
The street address and county of the initial registered office of the
Corporation is 22 Winston Street, Thomasville, Davidson County, North Carolina
27360. The mailing address of the initial registered office of the Corporation
is Post Office Box 989, Thomasville, North Carolina 27361-0989. The name of the
initial registered agent is James G. Hudson, Jr.
ARTICLE IV
The name and address of the incorporator is as follows:
James G. Hudson, Jr.
22 Winston Street
P.O. Box 989
Thomasville, North Carolina 27361-0989
ARTICLE V
To the fullest extent permitted by the NCBCA as it exists or may
hereafter be amended, no person who is serving or has served as a director of
the Corporation shall be personally liable to the Corporation or any of its
shareholders or otherwise for monetary damages for breach of any duty as a
director. No amendment or repeal of this Article, nor the adoption of any
provision to these Articles of Incorporation inconsistent with this Article,
shall eliminate or reduce the protection granted herein with respect to any
matter that occurred prior to such amendment, repeal, or adoption. The
provisions of this Article shall not be deemed to limit or preclude
indemnification of a director by the Corporation for any liability of a director
which has not been eliminated by the provisions of this Article.
2
<PAGE>
ARTICLE VI
The provisions of Article 9 and Article 9A of the NCBCA entitled "The
North Carolina Shareholder Protection Act" and "The North Carolina Control Share
Acquisition Act," respectively, shall not be applicable to the Corporation.
ARTICLE VII
Section 7.1. Definitions and Terms With Respect to Article VII. For
----------- -------------------------------------------------
purposes of this Article VII, the following definitions shall apply:
(a) The terms "Business Combination" shall mean any transaction in
connection with (i) a combination or merger of the Corporation, (ii) the
acquisition of more than ten percent (10%) of the Corporation's outstanding
Voting Shares, or (iii) a purchase or sale of a substantial portion of the
assets of the Corporation or a Subsidiary thereof (a purchase or sale of 20% or
more of the total assets of the Corporation or a Subsidiary as of the end of the
most recent quarterly period being deemed as "substantial") in each case, as
applicable, which requires the approval of, or notice to and absence of
objection by (i) any federal or state regulatory authority of banks, savings
banks, savings and loan associations or their holding companies, (ii) the
Federal Trade Commission or the Anti-Trust Division of the United States
Department of Justice, or (iii) the shareholders of the Corporation, but
excluding any reorganization, acquisition, merger, purchase or sale of assets,
or combination initiated by the Corporation upon the vote of at least fifty-one
percent (51%) of the Continuing Directors.
(b) The term "Continuing Director" shall mean any member of the Board
of Directors of the Corporation who is not a Related Person and is not
affiliated with the Related Person and was a member of the Board of Directors
prior to the time that the Related Person became a Related Person, and any
successor of a Continuing Director who is unaffiliated with the Related Person
and is recommended to succeed a Continuing Director by a majority of the
Continuing Directors.
3
<PAGE>
(c) The term "Person" shall mean an individual, a corporation, a
limited liability company, a partnership, an association, a joint stock company,
a trust, or an unincorporated organization or similar company, and also includes
a syndicate or any group of any of the foregoing formed or acting together in
concert for the purpose of acquiring, holding or disposing of the equity
securities or assets of the Corporation or any Subsidiary.
(d) The term "Related Person" shall mean any individual, partnership,
corporation, trust or other person or entity (together with its "affiliates" and
"associates," as defined in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended (the "1934 Act")) which as
of the date of its offer with respect to a Business Combination is a "beneficial
owner" (as defined in Rule 13d-3 under the 1934 Act) in the aggregate of ten
percent (10%) or more of the outstanding Voting Shares of the Corporation. A
Related Person shall be deemed to have acquired a share of the Voting Stock of
the Corporation at the time when such Related Person became the beneficial owner
thereof.
(e) The term "Subsidiary" shall mean any corporation or other entity
of which the Person in question owns not less than fifty percent (50%) of any
class of equity securities, directly or indirectly.
(f) The term "Voting Shares" shall mean any shares of the authorized
stock of the Corporation entitled to vote generally in the election of
directors.
(g) The term "Whole Board of Directors" shall mean the total number of
directors which the Corporation would have if there were no vacancies on the
Board.
Section 7.2. Rights of Shareholders. The affirmative vote of the
----------- ----------------------
holders of seventy-five percent (75%) or more of the outstanding Voting Shares,
voting separately as a class, shall be required for the approval or
authorization of any Business Combination, provided, however, that the seventy-
five
4
<PAGE>
percent (75%) voting requirement shall not be applicable and such Business
Combination may be approved by the shareholder vote required by law and any
other provision of these Articles of Incorporation if the Business Combination
is approved by the Board of Directors of the Corporation by the affirmative vote
of (a) at least seventy-five percent (75%) of the Whole Board of Directors, and
(b) if such Business Combination is proposed by a Related Person, at least
seventy-five percent (75%) of the Continuing Directors, in either case at a duly
called or convened regular or special meeting of the Board of Directors.
Section 7.3. Fiduciary Obligations. Nothing contained in this
----------- ---------------------
Article VII shall be construed to relieve any Related Person from any fiduciary
obligation imposed by law or equity.
Section 7.4. Standards of Board of Directors' Evaluation of an Offer.
----------- -------------------------------------------------------
The Board of Directors of the Corporation, when evaluating any offer of another
Person to effect a Business Combination shall, in connection with the exercise
of its judgment in determining what is in the best interests of the Corporation
and its shareholders, give due consideration to all relevant factors, including,
without limitation: (i) the social and economic effects of acceptance of such
offer on its depositors, borrowers, other customers, employees, and creditors of
the Corporation and its Subsidiaries, and on the communities in which the
Corporation and its Subsidiaries operate or are located; (ii) the ability of the
Corporation and its Subsidiaries to fulfill the objectives of a bank and/or
savings bank and/or savings and loan association holding company, as applicable,
and of commercial banking and/or savings bank and/or savings and loan entities,
as applicable, under applicable federal and state statutes and regulations;
(iii) the business and financial condition and prospects and earnings prospects
of the Person or Persons proposing the Business Combination, including, but not
limited to, debt service and other existing financial obligations, financial
obligations to be incurred in connection with the Business Combination, and
other likely financial obligations of such Person or Persons, and the possible
effect of such
5
<PAGE>
conditions and prospects upon the Corporation and its Subsidiaries and the
communities in which the Corporation and its Subsidiaries are located; (iv) the
competence, experience, and integrity of the Person or Persons proposing the
Business Combination and its or their management; and (v) the prospects for
successful conclusion of the proposed Business Combination. The provisions of
this Article VII shall be deemed solely to grant discretionary authority to the
Board of Directors and shall not be deemed to provide any constituency the right
to be considered or to compel the consideration of its interests.
Section 7.5. Amendment and Repeal of Article VII. Notwithstanding
----------- -----------------------------------
any other provision of these Articles of Incorporation or the Bylaws of the
Corporation (and notwithstanding the fact that a lesser percentage may be
specified by law) any amendment, change or repeal of this Article VII, or any
other amendment of these Articles of Incorporation which will have the effect of
modifying or permitting circumvention of this Article VII, shall require the
affirmative vote of the holders of at least seventy-five percent (75%) of the
then outstanding Voting Shares of the Corporation, voting separately as a class;
provided, however, that this restriction shall not apply to, and such seventy
five percent (75%) vote shall not be required for, any such amendment, change or
repeal recommended to shareholders of the Corporation by the affirmative vote of
at least (a) seventy-five percent (75%) of the Whole Board of Directors, and (b)
if at such time there shall be a Related Person, at least seventy-five percent
(75%) of the Continuing Board of Directors, and in either such event such
amendment, change or repeal so recommended shall require only the vote, if any,
required under the applicable provisions of the NCBCA.
ARTICLE VIII
Section 8.1. Board of Directors. The number of directors of the
----------- ------------------
Corporation shall be fixed from time to time as provided in the Corporation's
Bylaws.
In the first election of directors, and in all elections thereafter,
that the total number of directors as fixed pursuant to the Corporation's Bylaws
is nine (9) or more, the directors shall be divided into three
6
<PAGE>
(3) classes, as nearly equal as possible in number as may be, to serve in the
first instance for terms of one, two and three years, respectively, from the
date such class of directors takes office or until their earlier death,
resignation, retirement, removal or disqualification or until their successors
shall be elected and shall qualify, and thereafter the successors in each class
of directors shall be elected for terms of three (3) years or until their
earlier death, resignation, retirement, removal, or disqualification or until
their successors shall be elected and shall qualify. In the event of any
increase or decrease in the number of directors at a time that the directors are
so classified, the additional or eliminated directorships shall be classified or
chosen so that all classes of directors shall remain or become as nearly equal
as possible in number. At all times that the number of directors, as fixed
pursuant to the Corporation's Bylaws, is less than nine (9), each director shall
be elected to a term ending as of the next succeeding annual meeting of
shareholders or until his or her earlier death, resignation, retirement, removal
or disqualification or until his or her successor shall be elected and shall
qualify.
Any vacancy occurring in the Board of Directors, including without
limitation a vacancy resulting from an increase in the number of directors or
from the failure by the shareholders to elect the full authorized number of
directors, may be filled by the Board of Directors. If the directors remaining
in office do not constitute a quorum, the directors may fill the vacancy by the
affirmative vote of a majority of the remaining directors or by the sole
remaining director. If the vacant office was held by a director elected by
voting group, only the remaining director or directors elected by that voting
group or the holders of shares of that voting group are entitled to fill the
vacancy.
Section 8.2. Initial Board of Directors. The number of directors
----------- --------------------------
constituting the initial Board of Directors of the Corporation shall be five (5)
and the names and addresses of the persons who are to serve as directors of the
Corporation until the first meeting of shareholders or until their successors
are elected and qualify are:
7
<PAGE>
Name Address
---- -------
Henry H. Darr P.O. Box 7163
High Point, North Carolina 27264
John R. Hunnicutt 1014 Pine Needle Lane
Thomasville, North Carolina 27360
James G. Hudson, Jr. 22 Winston Street
P.O. Box 989
Thomasville, North Carolina 27361-0989
F. Stuart Kennedy P.O. Box 1050
Thomasville, North Carolina 27360
Milton T. Riley 605 Burke Trail
Thomasville, North Carolina 27360
Section 8.3. Removal of Directors. The shareholders may remove a
----------- --------------------
director prior to the end of the director's term only for cause.
This the 10 day of July, 1996.
--------
By:/s/ James G. Hudson, Jr.
-------------------------------------------
James G. Hudson, Jr.
Incorporator
8
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
CENTURY BANCORP, INC.
ARTICLE I
OFFICES
-------
Section 1. Principal Office. The principal office of the corporation
----------------
shall be located at such place as the Board of Directors may fix from time to
time.
Section 2. Registered Office. The registered office of the corporation
-----------------
required by law to be maintained in the State of North Carolina may be, but need
not be, identical with the principal office.
Section 3. Other Offices. The corporation may have offices at such other
-------------
places, either within or without the State of North Carolina, as the Board of
Directors may designate or as the affairs of the corporation may require from
time to time.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
Section 1. Place of Meetings. All meetings of shareholders shall be held
-----------------
at the principal office of the corporation, or at such other place, either
within or without the State of North Carolina, as shall in each case be (i)
fixed by the Chief Executive Officer, the President, the Chairman of the Board,
or the Board of Directors and designated in the notice of the meeting or (ii)
agreed upon by a majority of the shareholders entitled to vote at the meeting.
Section 2. Annual Meetings. The annual meeting of shareholders shall be
---------------
held during the first five (5) calendar months following the end of the
corporation's fiscal year, on any day (except Saturday, Sunday, or a legal
holiday) during that period as shall be determined by the Board of Directors,
for the purpose of electing directors of the corporation and for the transaction
of such other business as may be properly brought before the meeting.
Section 3. Substitute Annual Meeting. If the annual meeting shall not be
-------------------------
held within the time designated by these Bylaws, a substitute annual meeting may
be called in accordance with the provisions of Section 4 of this Article II. A
meeting so called shall be designated and treated for all purposes as the annual
meeting.
Section 4. Special Meetings. Special meetings of the shareholders may be
----------------
called at any time by the Chief Executive Officer, the President, the Chairman
of the Board of Directors or the Board of Directors.
<PAGE>
Section 5. Notice of Meetings. Written notice stating the date, time, and
------------------
place of the meeting shall be given not less than ten (10) nor more than sixty
(60) days before the date of any shareholders' meeting, either by personal
delivery, or by mail by or at the direction of the Chief Executive Officer, the
President, the Chairman of the Board of Directors or the Board of Directors, to
each shareholder entitled to vote at such meeting, provided that such notice
must be given to all shareholders with respect to any meeting at which a merger
or share exchange is to be considered and in such other instances as required by
law. If mailed, such notice shall be deemed to be effective when deposited in
the United States mail, correctly addressed to the shareholder at the
shareholder's address as it appears on the current record of shareholders of the
corporation, with postage thereon prepaid.
In the case of a special meeting, the notice of meeting shall include a
description of the purpose or purposes for which the meeting is called; but, in
the case of an annual or substitute annual meeting, the notice of meeting need
not include a description of the purpose or purposes for which the meeting is
called unless such a description is required by the provisions of Chapter 55 of
the North Carolina General Statutes.
When a meeting is adjourned to a different date, time or place, notice need
not be given of the new date, time or place if the new date, time or place is
announced at the meeting before adjournment and if a new record date is not
fixed for the adjourned meeting. If a new record date is fixed for the
adjourned meeting (which must be done if the new date is more than 120 days
after the date of the original meeting), notice of the adjourned meeting must be
given as provided in this Section 5 to persons who are shareholders as of the
new record date.
Section 6. Waiver of Notice. Any shareholder may waive notice of any
----------------
meeting before or after the meeting. The waiver must be in writing, signed by
the shareholder, and delivered to the corporation for inclusion in the minutes
or filing with the corporate records. A shareholder's attendance, in person or
by proxy, at a meeting (i) waives objection to lack of notice or defective
notice of the meeting, unless the shareholder or his proxy at the beginning of
the meeting objects to holding the meeting or transacting business at the
meeting, and (ii) waives objection to consideration of a particular matter at
the meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder or his proxy objects to considering the matter
before it is voted upon.
Section 7. Shareholders' List. Before each meeting of shareholders, the
------------------
Secretary of the corporation shall prepare an alphabetical list of the
shareholders entitled to notice of such meeting. The list shall be arranged by
voting group (and within each voting group by class or series of shares) and
show the address of and number of shares held by each shareholder. The list
shall be kept on file at the principal office of the corporation, or at a place
identified in the meeting notice in the city where the meeting will be held, for
the period beginning two (2) business days after notice of the meeting is given
and continuing through the meeting, and shall be available for inspection by any
shareholder, his agent or attorney, at any time during regular business hours.
The list shall also be available at the meeting and shall be subject to
inspection by any shareholder, his agent or attorney, at any time during the
meeting or any adjournment thereof.
Section 8. Fixing Record Date. The Board of Directors may fix a date
------------------
selected by them as the record date for one (1) or more voting groups in order
to determine the shareholders entitled to notice of a shareholders' meeting, to
vote, or to take any other action. Such record date may not be more than
2
<PAGE>
seventy (70) days before the meeting or action requiring a determination of
shareholders. A determination of shareholders entitled to notice of or to vote
at a shareholders' meeting is effective for any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
which it must do if the meeting is adjourned to a date more than 120 days after
the date fixed for the original meeting.
If no record date is fixed by the Board of Directors for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders,
the close of business on the day before the first notice of the meeting is
delivered to shareholders shall be the record date for such determination of
shareholders.
Section 9. Voting Groups. All shares of one (1) or more classes or series
-------------
that, under the Articles of Incorporation or the North Carolina Business
Corporation Act, are entitled to vote and be counted together collectively on a
matter at a meeting of shareholders constitute a voting group. All shares
entitled by the Articles of Incorporation or the North Carolina Business
Corporation Act to vote generally on a matter are for that purpose a single
voting group. Classes or series of shares shall not be entitled to vote
separately by voting group unless expressly authorized by the Articles of
Incorporation or specifically required by law.
Section 10. Quorum. Shares entitled to vote as a separate voting group
------
may take action on a matter at the meeting only if a quorum of those shares
exists. A majority of the votes entitled to be cast on the matter by the voting
group constitutes a quorum of that voting group for action on that matter.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
In the absence of a quorum at the opening of any meeting of shareholders,
such meeting may be adjourned from time to time by the vote of a majority of the
votes cast on the motion to adjourn; and, subject to the provisions of Section 5
of this Article II, at any adjourned meeting any business may be transacted that
might have been transacted at the original meeting if a quorum exists with
respect to the matter proposed.
Section 11. Proxies. Shares may be voted either in person or by one (1)
-------
or more proxies authorized by a written appointment of proxy signed by the
shareholder or by his duly authorized attorney in fact. An appointment of proxy
is valid for eleven months from the date of its execution, unless a different
period is expressly provided in the appointment form.
Section 12. Voting of Shares. Subject to the provisions of the Articles
----------------
of Incorporation, each outstanding share shall be entitled to one (1) vote on
each matter voted on at a meeting of shareholders.
Except in the election of directors as governed by the provisions of
Section 4 of Article III, if a quorum exists, action on a matter by a voting
group is approved if the votes cast within the voting group favoring the action
exceed the votes cast opposing the action, unless a greater vote is required by
law or the Articles of Incorporation or these Bylaws.
3
<PAGE>
Absent special circumstances, shares of the corporation are not entitled to
vote if they are owned, directly or indirectly, by a second corporation in which
the corporation owns, directly or indirectly, a majority of the shares entitled
to vote for directors of the second corporation; provided that this provision
does not limit the power of the corporation or such second corporation to vote
shares held by it in a fiduciary capacity.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 1. General Powers. All corporate powers shall be exercised by or
--------------
under the authority of, and the business and affairs of the corporation shall be
managed under the direction of, the Board of Directors.
Section 2. Number and Qualification. The number of directors of the
------------------------
corporation shall not be less than five (5) nor more than fifteen (15), with the
exact number to be fixed from time to time by the Board of Directors.
Section 3. Nominations. At any meeting of shareholders at which directors
-----------
are to be elected, nominations for election to the Board of Directors may be
made by the Board of Directors or, subject to the conditions described below, by
any holder of shares entitled to be voted at that meeting in the election of
directors. To be eligible for consideration at the meeting of shareholders, all
nominations, other than those made by the Board of Directors, shall be in
writing and must be delivered to Secretary of the corporation not less than
fifty (50) days nor more than ninety (90) days prior to the meeting at which
such nominations will be made; provided, however, that if less than twenty-one
(21) days' notice of the meeting is given to shareholders, such nominations must
be delivered to the Secretary of the corporation not later than the close of
business on the seventh day following the day on which the notice of meeting was
mailed.
Section 4. Election. Except as provided in Section 7 of this Article III,
--------
the directors shall be elected at the annual meeting of shareholders. Those
persons who receive the highest number of votes at a meeting at which a quorum
is present shall be deemed to have been elected.
Section 5. Terms of Directors. Each initial director shall hold office
------------------
until the earliest of the first shareholders' meeting at which directors are
elected, or until such director's death, resignation, or removal.
At all times that the number of directors is less than nine (9), each
director shall be elected to a term ending as of the next succeeding annual
meeting of shareholders or until his or her earlier death, resignation,
retirement, removal or disqualification or until his or her successor shall be
elected and shall qualify.
In the first election of directors that the total number of directors is
nine (9) or more, the directors shall be divided into three (3) classes, as
nearly equal as possible in number as may be, to serve in the first instance for
terms of one (1), two (2) and three (3) years, respectively, from the date such
class of
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directors takes office or until their earlier death, resignation, retirement,
removal or disqualification or until their successors shall be elected and shall
qualify, and thereafter the successors in each class of directors shall be
elected for terms of three (3) years or until their earlier death, resignation,
retirement, removal, or disqualification or until their successors shall be
elected and shall qualify. In the event of any increase or decrease in the
number of directors at a time that the directors are so classified, the
additional or eliminated directorships shall be classified or chosen so that all
classes of directors shall remain or become as nearly equal as possible in
number.
Notwithstanding the provisions of this Section 5, a decrease in the number
of directors does not shorten an incumbent director's term. Despite the
expiration of a director's term, such director shall continue to serve until a
successor shall be elected and qualified or until there is a decrease in the
number of directors.
Section 6. Removal. Any director may be removed from office at any time
-------
prior to expiration of his term, only for cause, by a vote of the shareholders
if the number of votes cast to remove such director exceeds the number of votes
cast not to remove him. If a director is elected by a voting group of
shareholders, only the shareholders of that voting group may participate in the
vote to remove him. A director may not be removed by the shareholders at a
meeting unless the notice of that meeting states that the purpose, or one (1) of
the purposes, of the meeting is removal of the director. If any directors are
so removed, new directors may be elected at the same meeting.
Section 7. Vacancies. Any vacancy occurring in the Board of Directors,
---------
including without limitation a vacancy resulting from an increase in the number
of directors or from the failure by the shareholders to elect the full
authorized number of directors, may be filled by the Board of Directors. If the
directors remaining in office do not constitute a quorum, the directors may fill
the vacancy by the affirmative vote of a majority of the remaining directors or
by the sole remaining director. If the vacant office was held by a director
elected by voting group, only the remaining director or directors elected by
that voting group or the holders of shares of that voting group are entitled to
fill the vacancy. A director elected to fill a vacancy shall be elected to
serve the remaining term of the director replaced, or if a director is not
elected to replace a previously elected director, the new director shall be
elected to serve until the next shareholders' meeting at which directors are
elected.
Section 8. Chairman of the Board of Directors. There may be a Chairman of
----------------------------------
the Board of Directors elected by the directors from their number at any meeting
of the Board of Directors. The Chairman shall serve in such position at the
pleasure of the Board of Directors. The Chairman shall preside at all meetings
of the Board of Directors and shareholders, serve as a member of any executive
committee of the Board of Directors, and perform such other duties as may be
directed by the Board of Directors.
Section 9. Compensation. The Board of Directors may provide for the
------------
compensation of directors for their services as such and for the payment or
reimbursement of any or all expenses incurred by them in connection with such
services.
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ARTICLE IV
MEETINGS AND COMMITTEES OF DIRECTORS
------------------------------------
Section 1. Regular Meetings. A regular meeting of the Board of Directors
----------------
shall be held immediately after, and at the same place as, the annual meeting of
shareholders. In addition, the Board of Directors may provide, by resolution,
the time and place, either within or without the State of North Carolina, for
the holding of additional regular meetings.
Section 2. Special Meetings. Special meetings of the Board of Directors
----------------
may be called by or at the request of the Chairman of the Board or the President
if such officer is also a director, or by any three (3) or more directors. Such
a meeting may be held either within or without the State of North Carolina, as
fixed by the person or persons calling the meeting.
Section 3. Notice of Meetings. Regular meetings of the Board of Directors
------------------
may be held without notice. The person or persons calling a special meeting of
the Board of Directors shall, at least two (2) days before the meeting, give or
cause to be given notice thereof by any usual means of communication. Such
notice need not specify the purpose for which the meeting is called. Any duly
convened regular or special meeting may be adjourned by the directors to a later
time without further notice.
Section 4. Waiver of Notice. Any director may waive notice of any meeting
----------------
before or after the meeting. The waiver must be in writing, signed by the
director entitled to the notice, and be delivered to the corporation for
inclusion in the minutes or for filing with the corporate records. A director's
attendance at or participation in a meeting waives any required notice of such
meeting unless the director at the beginning of the meeting, or promptly upon
arrival, objects to holding the meeting or to transacting business at the
meeting and does not thereafter vote for or assent to action taken at the
meeting.
Section 5. Quorum. Unless the Articles of Incorporation or these Bylaws
------
provide otherwise, a majority of the number of directors fixed by or pursuant to
these Bylaws shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, or if no number is so fixed, a majority of
the number of directors in office immediately before the meeting begins shall
constitute a quorum.
Section 6. Manner of Acting. Except as otherwise provided in the Articles
----------------
of Incorporation or these Bylaws, including Section 9 of this Article IV, the
affirmative vote of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
Section 7. Presumption of Assent. A director who is present at a meeting
---------------------
of the Board of Directors or a committee of the Board of Directors when
corporate action is taken is deemed to have assented to the action taken unless
(i) he objects at the beginning of the meeting, or promptly upon his arrival, to
holding it or to transacting business at the meeting, or (ii) his dissent or
abstention from the action taken is entered in the minutes of the meeting, or
(iii) he files written notice of his dissent or abstention with the presiding
officer of the meeting before its adjournment or with the corporation
immediately after the adjournment of the meeting. Such right of dissent or
abstention is not available to a director who votes in favor of the action
taken.
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Section 8. Action Without Meeting. Action required or permitted to be
----------------------
taken at a meeting of the Board of Directors may be taken without a meeting if
the action is taken by all members of the Board of Directors. The action must
be evidenced by one (1) or more written consents signed by each director before
or after such action, describing the action taken, and included in the minutes
or filed with the corporate records.
Section 9. Committees of the Board of Directors. The Board of Directors
------------------------------------
may create such committees of the Board of Directors as it shall consider
appropriate, including without limitation those committees specifically provided
for in these Bylaws. The creation of a committee of the Board of Directors and
appointment of members to it must by approved by the greater of (i) a majority
of the number of directors in office when the action is taken or (ii) the number
of directors required to take action pursuant to Section 6 of this Article IV.
Each committee of the Board of Directors must have two (2) or more members and,
to the extent authorized by law, shall have such duties and authority as may be
described in these Bylaws or otherwise specified by the Board of Directors.
Each committee member shall serve at the pleasure of the Board of Directors.
The provisions in these Bylaws governing meetings, actions without meeting and
other requirements of the Board of Directors shall also apply to any committees
of the Board of Directors established pursuant to these Bylaws.
Section 10. Executive Committee. There may be a standing committee of the
-------------------
Board of Directors to be known as the Executive Committee and consisting of not
fewer than three (3) directors, one (1) of whom shall be the Chairman of the
Board of Directors and one (1) of whom shall be the President of the
corporation, if such officer is also a director. Except as limited by Section 9
of this Article IV or otherwise limited by law, the Executive Committee is
empowered to act for and on behalf of the Board of Directors in any and all
matters in the interim between meetings of the Board of Directors. Within the
powers conferred upon it, action by the Executive Committee shall be as binding
upon the corporation as if performed by the full Board of Directors. Such
actions shall be reported to the Board of Directors for review at its next
meeting following such action. The committee shall meet as often as it
considers necessary or advisable.
Section 11. Audit Committee. There may be a standing committee of the
---------------
Board of Directors to be known as the Audit Committee and consisting of not
fewer than three (3) directors. The Audit Committee shall supervise examination
of the assets and the liabilities and the internal audit program of the
corporation and its subsidiaries, cause outside audits to be performed on the
financial statements of the corporation, and shall make periodic reports to the
Board of Directors.
ARTICLE V
OFFICERS
--------
Section 1. Officers of the Corporation. The officers of the corporation
---------------------------
shall consist of a President, a Secretary, a Treasurer, and such Vice Presidents
or other officers (including assistant officers) as may from time to time be
appointed by or under the authority of the Board of Directors. Any two (2) or
more offices may be held by the same person, but no officer may act in more than
one (1) capacity where action of two (2) or more officers is required.
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Section 2. Appointment and Term. The officers of the corporation shall be
--------------------
appointed by the Board of Directors or by a duly appointed officer authorized by
the Board of Directors to appoint one (1) or more officers. Each officer shall
hold office until his death, resignation, retirement, removal, disqualification,
or his successor shall have been appointed.
Section 3. Compensation of Officers. The compensation of all officers of
------------------------
the corporation shall be fixed by or under the authority of the Board of
Directors, and no officer shall serve the corporation in any other capacity and
receive compensation therefor unless such additional compensation shall be duly
authorized. The appointment of an officer does not itself create contract
rights.
Section 4. Removal. Any officer may be removed by the Board of Directors
-------
at any time with or without cause; but such removal shall not itself affect the
officer's contract rights, if any, with the corporation except to the extent, if
any, specified in any such contract.
Section 5. Resignation. An officer may resign at any time by
-----------
communicating his resignation to the corporation, orally or in writing. A
resignation is effective when communicated unless it specifies in writing a
later effective date. If a resignation is made effective at a later date that
is accepted by the corporation, the Board of Directors may fill the pending
vacancy before the effective date if the Board of Directors provides that the
successor does not take office until the effective date. An officer's
resignation does not affect the corporation's contract rights, if any, with the
officer except to the extent, if any, specified in any such contract.
Section 6. Bonds. The Board of Directors may by resolution require any
-----
officer, agent, or employee of the corporation to give bond to the corporation,
with sufficient sureties, conditioned on the faithful performance of the duties
of his respective office or position, and to comply with such other conditions
as may from time to time be required by the Board of Directors.
Section 7. President. The President shall be the principal executive
---------
officer of the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the corporation. He shall sign, with the Secretary, an Assistant
Secretary, or any other proper officer of the corporation thereunto authorized
by the Board of Directors, certificates for shares of the corporation, any
deeds, mortgages, bonds, contracts, or other instruments which the Board of
Directors has authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors or by
these Bylaws to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed, and in general he shall
perform all duties incident to the office of the President and such other duties
as may be prescribed by the Board of Directors from time to time. The President
shall be entitled to attend all regular and special meetings and meetings of
committees of the Board of Directors. If the President of the corporation is
also a director of the corporation, he shall serve as a member of the Executive
Committee.
Section 8. Vice Presidents. In the absence of the President or in the
---------------
event of his death, inability or refusal to act, the Vice Presidents, unless
otherwise determined by the Board of Directors, shall perform the duties of the
President, and when so acting shall have all the powers of and be subject to all
the restrictions upon the President. Any Vice President (or Assistant Vice
President) may sign, with the Secretary, an Assistant Secretary, or any other
proper officer of the corporation thereunto authorized by the Board of
Directors, certificates for shares of the corporation and any other instruments
which may
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<PAGE>
be signed by the President, and shall perform such other duties as from time to
time may be prescribed by the President or Board of Directors.
Section 9. Secretary. The Secretary shall: (i) keep the minutes of the
---------
meetings of shareholders, of the Board of Directors, and of all committees of
the Board of Directors, in one or more books provided for that purpose; (ii) see
that all notices are duly given in accordance with the provisions of these
Bylaws or as required by law; (iii) maintain and authenticate the records of the
corporation and be custodian of the seal of the corporation and see that the
seal of the corporation is affixed to all documents the execution of which on
behalf of the corporation under its seal is duly authorized; (iv) sign with the
President or a Vice President, certificates for shares of the corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors; (v) maintain or cause to be maintained, and have general charge of,
the stock transfer books of the corporation; (vi) prepare or cause to be
prepared shareholder lists prior to each meeting of shareholders as required by
law; (vii) attest the signature or certify the incumbency or signature of any
officer of the corporation; and (viii) in general perform all duties incident to
the office of secretary and such other duties as from time to time may be
prescribed by the President or by the Board of Directors.
Section 10. Treasurer. The Treasurer shall be, and may be designated as
---------
such as, the corporation's Chief Financial Officer, and shall: (i) have charge
and custody of and be responsible for all funds and securities of the
corporation; receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, and deposit all such moneys in the name
of the corporation in such depositories as shall be selected in accordance with
the provisions of Section 4 of Article VI of these Bylaws; (ii) maintain, or
cause to be maintained, appropriate accounting records as required by law; (iii)
prepare, or cause to be prepared, annual financial statements of the corporation
that include a balance sheet as of the end of the fiscal year and income and
cash flow statement for that year, which statements, or a written notice of
their availability, shall be mailed to each shareholder within 120 days after
the end of such fiscal year; and (iv) in general perform all of the duties
incident to the office of treasurer and such other duties as from time to time
may be prescribed by the President or by the Board of Directors.
Section 11. Assistant Officers. In the absence of a duly appointed
------------------
officer of the corporation, or in the event of his death, inability or refusal
to act, any person appointed by the Board of Directors and designated by title
as an assistant to that officer, unless otherwise determined by the Board of
Directors, may perform the duties of, and when so acting shall have all the
powers of and be subject to all the restrictions upon, that officer. Such
assistant officers shall perform such other duties as from time to time may be
prescribed by the President or by the Board of Directors.
ARTICLE VI
CONTRACTS, LOANS, CHECKS, AND DEPOSITS
--------------------------------------
Section 1. Contracts. The Board of Directors may authorize any officer or
---------
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and such
authorization may be general or confined to specific instances. Also, the Board
of Directors may limit, condition, restrict or deny such authority to any
officer or officers, or any agent or agents.
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<PAGE>
Section 2. Loans. No loans shall be contracted on behalf of the
-----
corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or confined
to specific instances.
Section 3. Checks and Drafts. All checks, drafts, or other orders for the
-----------------
payment of money, issued in the name of the corporation, shall be signed by such
officer or officers, agent or agents of the corporation and in such manner as
shall from time to time be determined by the Board of Directors.
Section 4. Deposits. All funds of the corporation not otherwise employed
--------
shall be deposited from time to time to the credit of the corporation in such
depositories as may be selected by or under the authority of the Board of
Directors.
ARTICLE VII
SHARES AND THEIR TRANSFER
-------------------------
Section 1. Certificate For Shares. The Board of Directors may authorize
----------------------
the issuance of some or all of the shares of the corporation's classes or series
without issuing certificates to represent such shares. If shares are
represented by certificates, the certificates shall be in such form as required
by law and as determined by the Board of Directors. Certificates shall be
signed, either manually or in facsimile, by the President or a Vice President,
and by the Secretary or Treasurer or an Assistant Secretary or an Assistant
Treasurer. All certificates for shares shall be consecutively numbered or
otherwise identified and entered into the stock transfer books of the
corporation. When shares are represented by certificates, the corporation shall
issue and deliver, to each shareholder to whom such shares have been issued or
transferred, certificates representing the shares owned by him. When shares are
not represented by certificates, then within a reasonable time after the
issuance or transfer of such shares, the corporation shall send the shareholder
to whom such shares have been issued or transferred a written statement of the
information required by law to be on certificates.
Section 2. Stock Transfer Books. The corporation shall keep or cause to
--------------------
be kept a book or set of books, to be known as the stock transfer books of the
corporation, containing the name of each shareholder of record, together with
such shareholder's address and the number and class or series of shares held by
him. Transfers of shares of the corporation shall be made only on the stock
transfer books of the corporation (i) by the holder of record thereof or by his
legal representative, who shall provide proper evidence of authority to
transfer; (ii) by his attorney authorized to effect such transfer by power of
attorney duly executed and filed with the Secretary; and (iii) on surrender for
cancellation of the certificate for such shares (if the shares are represented
by certificates).
Section 3. Lost Certificates. The Board of Directors may direct a new
-----------------
certificate to be issued in place of any certificate theretofore issued by the
corporation claimed to have been lost or destroyed, upon receipt of an affidavit
of such fact from the person claiming the certificate to have been lost or
destroyed. When authorizing such issue of a new certificate, the Board of
Directors shall require that the owner of such lost or destroyed certificate, or
his legal representative, give the corporation a bond in such sum and with such
surety or other security as the Board of Directors may direct as indemnity
against any claims that may be made against the corporation with respect to the
certificate claimed to
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<PAGE>
have been lost or destroyed, except where the Board of Directors by resolution
finds that in the judgment of the Board of Directors the circumstances justify
omission of a bond.
Section 4. Distribution or Share Dividend Record Date. The Board of
------------------------------------------
Directors may fix a date as the record date for determining shareholders
entitled to a distribution or share dividend. If no record date is fixed by the
Board of Directors for such determination, it is the date the Board of Directors
authorizes the distribution or share dividend.
Section 5. Holder of Record. Except as otherwise required by law, the
----------------
corporation may treat the person in whose name the shares stand of record on its
books as the absolute owner of the shares and the person exclusively entitled to
receive notification and distributions, to vote, and to otherwise exercise the
rights, powers, and privileges of ownership of such shares.
Section 6. Shares Held by Nominees. The corporation shall recognize the
-----------------------
beneficial owner of shares registered in the name of the nominee as the owner
and shareholder of such shares for certain purposes if the nominee in whose name
such shares are registered files with the Secretary a written certificate in a
form prescribed by the corporation, signed by the nominee, indicating the
following: (i) the name, address, and taxpayer identification number of the
nominee; (ii) the name, address, and taxpayer identification number of the
beneficial owner; (iii) the number and class or series of shares registered in
the name of the nominee as to which the beneficial owner shall be recognized as
the shareholder; and (iv) the purposes for which the beneficial owner shall be
recognized as the shareholder.
The purposes for which the corporation shall recognize the beneficial owner
as the shareholder may include the following: (i) receiving notice of, voting
at, and otherwise participating in shareholders' meetings; (ii) executing
consents with respect to the shares; (iii) exercising dissenters' rights under
the North Carolina Business Corporation Act; (iv) receiving distributions and
share dividends with respect to the shares; (v) exercising inspection rights;
(vi) receiving reports, financial statements, proxy statements, and other
communications from the corporation; (vii) making any demand upon the
corporation required or permitted by law; and (viii) exercising any other rights
or receiving any other benefits of a shareholder with respect to the shares.
The certificate shall be effective ten (10) business days after its receipt
by the corporation and until it is changed by the nominee, unless the
certificate specifies a later effective time or an earlier termination date.
If the certificate affects less than all of the shares registered in the
name of the nominee, the corporation may require the shares affected by the
certificate to be registered separately on the books of the corporation and be
represented by a share certificate that bears a conspicuous legend stating that
there is a nominee certificate in effect with respect to the shares represented
by that share certificate.
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ARTICLE VIII
GENERAL PROVISIONS
------------------
Section 1. Distributions. The Board of Directors may from time to time
-------------
authorize, and the corporation may grant, distributions and share dividends to
its shareholders pursuant to law and subject to any provisions with respect
thereto in its Articles of Incorporation.
Section 2. Seal. The corporate seal of the corporation shall consist of
----
two concentric circles between which is the name of the corporation and in the
center of which is inscribed SEAL; and such seal, as impressed or affixed on the
margin hereof, is hereby adopted as the corporate seal of the corporation.
Section 3. Fiscal Year. The fiscal year of the corporation shall be fixed
-----------
by the Board of Directors.
Section 4. Amendments. Except as otherwise provided in the Articles of
----------
Incorporation or by law, these Bylaws may be amended or repealed and new Bylaws
may be adopted by the Board of Directors.
No Bylaw adopted, amended, or repealed by the shareholders shall be
readopted, amended, or repealed by the Board of Directors, unless the Articles
of Incorporation or a Bylaw adopted by the shareholders authorizes the Board of
Directors to adopt, amend, or repeal that particular Bylaw or the Bylaws
generally.
Section 5. Definitions. Unless the context otherwise requires, terms used
-----------
in these Bylaws shall have the meanings assigned to them in the North Carolina
Business Corporation Act to the extent defined therein.
ARTICLE IX
INDEMNIFICATION
---------------
In addition to any indemnification required or permitted by law, and except
as otherwise provided in these Bylaws, any person who at any time serves or has
served as a director, officer, employee or agent of the corporation and any such
person who serves or has served at the request of the corporation as a director,
officer, employee, partner, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or as a trustee or
administrator under an employee benefit plan, shall have a right to be
indemnified by the corporation to the full extent allowed by applicable law
against liability and litigation expense arising out of such status or
activities in such capacity. "Liability and litigation expense" shall include
costs and expenses of litigation (including reasonable attorneys' fees),
judgments, fines and amounts paid in settlement which are actually and
reasonably incurred in connection with or as a consequence of any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, including appeals.
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<PAGE>
Promptly after the final disposition or termination of any matter which
involves liability or litigation expense as described above or at such earlier
time as it sees fit, the corporation shall determine whether any person
described in this Article IX is entitled to indemnification thereunder. Such
determination shall be limited to the following issues: (i) whether the persons
to be indemnified are persons described in this Article IX, (ii) whether the
liability or litigation expense incurred arose out of the status or activities
of such persons as described in this Article IX, (iii) whether liability was
actually incurred and/or litigation expense was actually and reasonably
incurred, and (iv) whether the indemnification requested is permitted by
applicable law. Such determination shall be made by a majority vote of
directors who were not parties to the action, suit or proceeding (or, in
connection with "threatened" actions, suits or proceedings, who were not
"threatened parties"). If at least two such disinterested directors are not
obtainable, or, even if obtainable, if at least half of the number of
disinterested directors so direct, such determination shall be made by
independent legal counsel in written opinion.
Litigation expense incurred by a person described in this Article IX in
connection with a matter described in this Article IX may be paid by the
corporation in advance of the final disposition or termination of such matter,
if the corporation receives an undertaking, dated, in writing and signed by the
person to be indemnified, to repay all such sums unless such person is
ultimately determined to be entitled to be indemnified by the corporation as
provided in this Article IX. Requests for payments in advance of final
disposition or termination shall be submitted in writing unless this requirement
is waived by the corporation.
Notwithstanding the foregoing, no advance payment shall be made as to any
payment or portion of a payment for which the determination is made that the
person requesting payment will not be entitled to indemnification. Such
determination may be made only by a majority vote of disinterested directors or
by independent legal counsel as next provided. If there are not at least two
disinterested directors, the notice of all requests for advance payment shall be
delivered for review to independent legal counsel for the corporation. Such
counsel shall have the authority to disapprove any advance payment or portion of
a payment for which it appears that the person requesting payment will not be
entitled to indemnification.
The corporation shall not be obligated to indemnify persons described in
this Article IX for any amounts paid in settlement unless the corporation
consents in writing to the settlement. The corporation shall not unreasonably
withhold its consent to proposed settlements. The corporation's consent to a
proposed settlement shall not constitute an agreement by the corporation that
any person is entitled to indemnification thereunder. The corporation may waive
the requirement of this section for its written consent as fairness and equity
may require.
A person described in this Article IX may apply to the corporation in
writing for indemnification or advance expenses. Such applications shall be
addressed to the Secretary or, in the absence of the Secretary, to any officer
of the corporation. The corporation shall respond in writing to such
applications as follows: to a request for indemnity under this Article IX,
within ninety days after receipt of the application; to a request for advance
expenses under this Article IX, within fifteen days after receipt of the
application.
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If any action is necessary or appropriate to authorize the corporation to
pay the indemnification required by these Bylaws, the Board of Directors shall
take such action, including (i) making a good faith evaluation of the
indemnification request, (ii) giving notice to, and obtaining approval by, the
shareholders of the corporation, and (iii) taking any other action.
The right to indemnification or advance expenses provided herein shall be
enforceable in any court of competent jurisdiction. A legal action may be
commenced if a claim for indemnity or advance expenses is denied in whole or in
part, or upon the expiration of the time periods provided above. In any such
action, if the claimant establishes the right to indemnification, he or she
shall also have the right to be indemnified against the litigation expense
(including, without limitation, reasonable attorneys' fees) of such action.
As provided by N.C. Gen. Stat. (S)55-8-57, the corporation shall have the
power to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or who is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or as a trustee or administrator under an employee benefit plan,
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the corporation
has the power to indemnify him against such liability.
The right to indemnification provided herein shall not be deemed exclusive
of any other rights to which any persons seeking indemnity may be entitled apart
from the provisions of this bylaw, except there shall be no right to
indemnification as to any liability or litigation expense for which such person
is entitled to receive payment under any insurance policy other than a
directors' and officers' liability insurance policy maintained by the
corporation. Such right inures to the benefit of the heirs and legal
representatives of any persons entitled to such right. Any person who at any
time after the adoption of this bylaw serves or has served in any status or
capacity described in this Article IX shall be deemed to be doing or to have
done so in reliance upon, and as consideration for, the right of indemnification
provided herein. Any repeal or modification hereof shall not affect any rights
or obligations then existing. The right provided herein shall not apply as to
persons serving institutions which are hereafter merged into or combined with
the corporation, except after the effective date of such merger or combination
and only as to status and activities after such date.
If this Article or any portion hereof shall be invalidated on any ground by
any court or agency of competent jurisdiction, then the corporation shall
nevertheless indemnify each person described in this Article IX to the full
extent permitted by the portion of this Article that is not invalidated and also
to the full extent (not exceeding the benefits described herein) permitted or
required by other applicable law.
Adopted this the 18th day of July, 1996.
/s/ Drema A. Michael
---------------------------------
Secretary
14
<PAGE>
EXHIBIT 5.1
LETTERHEAD OF
BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD, L.L.P.
July 18, 1996
Board of Directors
Century Bancorp, Inc.
22 Winston Street
P.O. Box 989
Thomasville, North Carolina 27361-0989
Re: Registration Statement on Form S-1 under the Securities Act of 1933,
as amended
Gentlemen:
As special counsel to Century Bancorp, Inc. (the "Holding Company"), the
proposed parent holding company of Home Savings, SSB ("Home Savings"),
Thomasville, North Carolina, we are rendering this opinion to you in connection
with the acquisition by the Holding Company of Home Savings, upon the conversion
of Home Savings from a North Carolina-chartered mutual savings bank to a North
Carolina-chartered capital stock savings bank (the "Conversion"). As part of
the Conversion, the Holding Company will file with the Securities and Exchange
Commission a Registration Statement on Form S-1 (the "Registration Statement")
under the Securities Act of 1933, as amended, for the offering and sale by the
Holding Company of its no par common stock, having an estimated aggregate dollar
value represented to us as being between $11,475,000 and $17,853,750 (the
"Shares").
In our capacity as special counsel, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the Articles of
Incorporation, Bylaws and corporate resolutions of the Holding Company, the
Amended and Restated Plan of Holding Company Conversion, the Registration
Statement and all exhibits thereto and the relevant provisions of Chapters 54C
and 55 of the North Carolina General Statutes and the Securities Act of 1933, as
amended, and the regulations promulgated under all the aforesaid statutes, as we
have considered necessary as a basis for the opinions given herein. In
addition, we have made reasonable inquiries of the officers of Home Savings and
the Holding Company as to all relevant items. In all examinations of documents,
we have assumed the genuineness of all original documents and all signatures and
the conformity to original documents of all copies submitted to us as certified,
conformed or photostatic copies. On the basis of such examination, we are of
the opinion that, when the Holding Company has received full payment for the
Shares as described in the Registration
<PAGE>
Board of Directors
Century Bancorp, Inc.
July 18, 1996
Page 2
Statement, all requisite corporate action will have been taken with respect to
the issuance and sale of the Shares and the Shares will be validly authorized
and issued, fully-paid and nonassessable shares of common stock of the Holding
Company.
This opinion is furnished by us solely for your benefit and for the benefit
of the purchasers of the Shares of the Holding Company in connection with the
Conversion, and may not be quoted or relied upon by, nor copies be delivered to,
any person or entity, or used for any other purpose, without our prior express
written consent.
We hereby consent to the use of this opinion in connection with the
registration of the offering and sale of the Shares with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, and to the
reference to us in the Registration Statement and the Prospectus included
therein.
Very truly yours,
/s/ Brooks, Pierce, McLendon, Humphrey &
Leonard, L.L.P.
BROOKS, PIERCE, McLENDON,
HUMPHREY & LEONARD, L.L.P.
<PAGE>
LETTERHEAD OF
BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD, L.L.P.
July 18, 1996 EXHIBIT 8.1
Board of Directors
Home Savings, SSB
22 Winston Street
P.O. Box 989
Thomasville, North Carolina 27361-0989
Re: Conversion of Home Savings, SSB from a North Carolina-chartered mutual
savings bank to a North Carolina-chartered stock savings bank and its
simultaneous acquisition by Century Bancorp, Inc., a North Carolina
savings bank holding company
Members of the Board:
You have requested our opinions regarding certain income tax consequences
in connection with the proposed conversion of Home Savings, SSB ("Home Mutual")
from a North Carolina-chartered mutual savings bank with federally insured
deposit accounts to Home Savings, Inc., SSB, a North Carolina-chartered stock
savings bank with federally insured deposit accounts ("Home"), and the
simultaneous acquisition of Home as a wholly-owned subsidiary by Century
Bancorp, Inc., a savings bank holding company organized under North Carolina law
("Holding Company"). This reorganization and conversion of Home Mutual and
acquisition of Home by the Holding Company shall be referred to as the
"Conversion". Terms not otherwise defined in this letter shall have the
meanings assigned to them in the Amended and Restated Plan of Conversion adopted
by the Board of Directors of Home Mutual on July 18, 1996 (the "Plan").
In connection with our opinions, we have reviewed copies of applications
filed by Home Mutual and the Holding Company with the Administrator, North
Carolina Savings Institutions Division, to effect the Conversion (the
"Applications"), Chapters 54C and 105 of the North Carolina General Statutes,
and applicable federal laws, rules and regulations, including the Internal
Revenue Code of 1986, as amended ("Code"). We have examined the Plan, Home
Mutual's existing Certificate of Incorporation and Bylaws, the Second Amended
Certificate of Incorporation for Home, the Bylaws for Home, the corporate
minutes approving the Conversion and related records of Home Mutual. We have
also examined the Holding Company's Articles of Incorporation, Bylaws, corporate
minutes approving the Conversion and related records. In addition, we have
examined certificates of officials of Home Mutual, Home and the Holding Company,
the Registration Statement of the Holding Company on Form S-1, which the Holding
Company intends to file with the Securities and Exchange Commission on or about
July 22, 1996 (the
<PAGE>
Board of Directors
Home Savings, SSB
July 18, 1996
Page 2
"Registration Statement") containing a proposed Prospectus (hereinafter referred
to as the "Prospectus") and such other documents as we have deemed necessary or
appropriate for purposes of giving the opinions set forth in this letter. We
have assumed the authenticity of all documents presented to us as originals, the
conformity to the originals of all documents presented to us as copies, and the
genuineness of all signatures of individuals, and we know of no reason such
assumptions are unwarranted for purposes of the opinions expressed herein. We
have assumed that all statements made in the above-described documents are
accurate and complete, and will be accurate and complete at all times from now
through the consummation of the Conversion. We have not independently verified
any factual matter relating to the Conversion in connection with the preparation
of our opinions herein and, accordingly, such opinions do not take into account
any matters not set forth herein which might have been disclosed by independent
verification. We have further assumed that the Conversion will be consummated
pursuant to the terms of the Plan.
In issuing the opinions set forth below, we have also assumed the accuracy
of the following representations of Home Mutual:
1. The fair market value of the deposit accounts and the interest in the
Liquidation Account received by each Eligible Account Holder and
Supplemental Eligible Account Holder in Home pursuant to the
Conversion will, in each instance, be equal to the fair market value
of the deposit accounts and the proprietary interest of each such
Eligible Account Holder and Supplemental Eligible Account Holder in
Home Mutual surrendered in the Conversion. The aggregate fair market
value of the deposit accounts and interests in the Liquidation Account
held by Eligible Account Holders as of the close of business on the
Eligibility Record Date will equal or exceed 99% of the aggregate fair
market value of all deposit accounts in Home Mutual (including
accounts of less than $50) as of the close of business on that date.
The aggregate fair market value of the deposit accounts and interests
in the Liquidation Account held by Supplemental Eligible Account
Holders, officers and directors of Home Mutual and their associates as
of the close of business on the Supplemental Eligibility Record Date
will equal or exceed 99% of the aggregate fair market value of all
deposit accounts in Home Mutual (including accounts of less than $50)
as of the close of business on that date.
2. The Subscription Rights to purchase Conversion Stock received in the
Conversion by each recipient have no fair market value. This
assumption is based upon your representation and the opinion of JMP
Financial, Inc. that such Subscription Rights have no fair market
value because they will be acquired by recipients without cost, are
nontransferable and afford the recipients the right only to purchase
Conversion Stock at a price equal to its estimated fair market value
as of the date such rights are issued, which will be the same price
paid by all purchasers in the Conversion.
<PAGE>
Board of Directors
Home Savings, SSB
July 18, 1996
Page 3
3. Immediately following the Conversion, the Eligible Account Holders and
Supplemental Eligible Account Holders will own all of the outstanding
interests in the Liquidation Account and will own such interests
solely by reason of their ownership of deposits and proprietary
interests in Home Mutual on the Eligibility Record Date and
Supplemental Eligibility Record Date, respectively. Pursuant to the
Plan, no additional interests in the Liquidation Account shall be
issued following the Conversion.
4. Immediately following the consummation of the Conversion, Home will
possess the same assets and liabilities as Home Mutual held
immediately before the Conversion, plus proceeds from the sale of
Conversion Stock less proceeds retained by the Holding Company, less
assets used to pay expenses incurred in the Conversion. Assets of Home
Mutual used to pay expenses of the Conversion and all distributions
(except for regular, normal interest payments made by Home Mutual
immediately before the Conversion) in the aggregate will constitute
less than 1% of the net assets of Home Mutual.
5. Except for Home Mutual's agreement to sell all of Home's issued and
outstanding common stock to the Holding Company in the Conversion, at
the time of the Conversion, Home Mutual will not have outstanding any
warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire stock in Home Mutual.
6. Home has no plan or intention to reacquire any of its common stock
issued to the Holding Company in the Conversion. Home has no plan or
intention to issue additional shares of its common stock following the
Conversion. The common stock of Home issued to the Holding Company in
the Conversion will not be callable or subject to a put option.
7. Home has no plan or intention to sell or otherwise dispose of any of
the assets of Home Mutual acquired in the Conversion, except for
dispositions made in the ordinary course of business.
8. The liabilities of Home Mutual assumed by Home and the liabilities, if
any, to which the transferred assets are subject were incurred by Home
Mutual in the ordinary course of its business and are associated with
the assets transferred.
9. Following the Conversion, Home will continue the historic business of
Home Mutual, will use a significant portion of Home Mutual's historic
business assets in Home's business, and will continue to engage in the
same business in substantially the same manner as engaged in by Home
Mutual before the Conversion.
<PAGE>
Board of Directors
Home Savings, SSB
July 18, 1996
Page 4
10. Home Mutual and Home (treated as one entity for purposes of this
representation) and the Holding Company will each pay their own
expenses attributable to the Conversion.
11. Home Mutual is not under the jurisdiction of a court as a debtor under
(i) Title 11 of the United States Code, or (ii) a receivership,
foreclosure, or similar proceeding in a federal or state court.
12. None of the compensation received by an employee of Home Mutual or
Home who is also an Eligible Account Holder, Supplemental Eligible
Account Holder or Other Member will be separate consideration for, or
allocable to, his or her status as an Eligible Account Holder,
Supplemental Eligible Account Holder or Other Member. None of the
interests in the Liquidation Account of Home received by an employee
of Home Mutual or Home who is an Eligible Account Holder or
Supplemental Eligible Account Holder will be separate consideration
for, or allocable to, any employment agreement or arrangement. All
compensation paid to Eligible Account Holders and Supplemental
Eligible Account Holders who are also employees of Home Mutual or Home
will be for services actually rendered and commensurate with amounts
paid to third parties bargaining at arm's-length for similar services.
Officers, directors and other employees may in the future be issued
restricted common stock of the Holding Company for future services
pursuant to the proposed Management Recognition Plan of the Holding
Company described in the Prospectus ("MRP").
13. No Eligible Account Holder or Supplemental Eligible Account Holder
will be excluded from participating in the Liquidation Account.
14. The Holding Company has no plan or intention to redeem or otherwise
acquire any of the Conversion Stock to be issued pursuant to the
Conversion, except as disclosed in the Prospectus regarding possible
purchases to fund the ESOP, MRP and stock option plans. The Holding
Company has no plan or intention to sell or otherwise dispose of the
common stock of Home received by it in the Conversion. The Conversion
Stock issued in the Conversion will not be callable or subject to a
put option.
15. At the time of Conversion, the fair market value of the assets of Home
Mutual on a going-concern basis will equal or exceed the amount of its
liabilities plus the amount of liabilities to which its assets are
subject. Immediately before the Conversion, Home Mutual will have a
positive net worth.
16. No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders or any other grantee of
Subscription Rights in lieu of (i) Subscription Rights for Conversion
Stock, or (ii) an interest in the Liquidation Account of Home.
<PAGE>
Board of Directors
Home Savings, SSB
July 18, 1996
Page 5
17. There is no plan or intention for Home to be liquidated or merged with
another corporation following the Conversion.
18. The Conversion described herein is motivated by valid business
purposes and not by tax avoidance purposes.
19. After the Conversion, Home will continue the corporate existence and
business of Home Mutual with only the following changes:
(i) An amended and restated Certificate of Incorporation to allow for
the issuance of capital stock of Home, and
(ii) New corporate Bylaws.
20. There exists no intercorporate indebtedness between Home Mutual and
Home (treated as one entity for purposes of this representation) and
the Holding Company, that was issued, acquired, or will be settled at
a discount.
21. In the Conversion, the Holding Company will acquire 100% of the issued
and outstanding common stock of Home.
22. Neither Home Mutual and Home (treated as one entity for purposes of
this representation) nor the Holding Company is an "investment
company," as defined in Section 368(a)(2)(F)(iii) and (iv) of the
Code.
Based upon the foregoing assumptions, our opinions with respect to the
federal and North Carolina income tax consequences of the Conversion are as
follows (for purposes of the opinions set forth below, Eligible Account Holders
shall include, if applicable pursuant to the Plan, Supplemental Eligible Account
Holders):
1. The Conversion of Home Mutual from a North Carolina-chartered mutual
savings bank to a North Carolina-chartered stock savings bank will
qualify as a reorganization within the meaning of Section 368(a) of
the Code, and neither Home Mutual nor Home will recognize any gain or
loss as a result of such reorganization. Revenue Ruling 80-105, 1980-1
C.B. 78. Home Mutual in its form as a North Carolina-chartered mutual
savings bank and Home in its form as a North Carolina-chartered stock
savings bank will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code.
2. Home's basis in each of Home Mutual's assets will be the same as Home
Mutual's basis immediately prior to the Conversion. Section 362(b) of
the Code.
<PAGE>
Board of Directors
Home Savings, SSB
July 18, 1996
Page 6
3. No gain or loss will be recognized by the Holding Company upon receipt
of money in exchange for the shares of the Conversion Stock issued
pursuant to the exercise of the Subscription Rights issued therefor.
Section 1032(a) of the Code.
4. No gain or loss will be recognized by Home upon receipt of money from
the Holding Company in exchange for the shares of its common stock to
be issued to the Holding Company in the Conversion. Section 1032(a) of
the Code.
5. The holding period of the Home assets after the Conversion will
include the period during which the assets were held by Home Mutual
prior to the Conversion. Section 1223(2) of the Code.
6. Gain or loss, if any, will be realized by an Eligible Account Holder
on the exchange of such person's deposit account and proprietary
interest in Home Mutual for (i) a withdrawable deposit account in Home
in the same dollar amount as such person's deposit account in Home
Mutual immediately prior to the Conversion, (ii) such person's
interest in the Liquidation Account of Home, and (iii) Subscription
Rights to purchase the Conversion Stock. Such gain, if any, will be
recognized by an Eligible Account Holder only to the extent of the
fair market value of such person's interest in the Subscription Rights
received. Section 1001 of the Code. You have represented to us that
the Subscription Rights to purchase Conversion Stock have no fair
market value. Accordingly, gain recognized by an Eligible Account
Holder as a result of the Conversion is limited to an amount not in
excess of the fair market value of such person's interest in the
Subscription Rights received in the Conversion. Paulsen v.
----------
Commissioner, 469 U.S. 131, 139 (1985), quoting Society for Savings v.
------------ ----------------------
Bowers, 349 U.S. 143, 150 (1955).
------
7. The basis of the deposit account in Home received by an Eligible
Account Holder will be the cost of such deposit account. The cost
basis of such deposit account in Home (i) will be equal to the fair
market value of such deposit account in Home and (ii) will be equal to
such person's basis in his or her deposit account in Home Mutual
exchanged therefor. Section 1012 of the Code.
8. The basis of the interest in the Liquidation Account received by an
Eligible Account Holder will be equal to the cost of such interest.
The cost of the Liquidation Account will be the fair market value of
the proprietary interest in Home Mutual given for the Liquidation
Account. Section 1012 of the Code. An interest in the Liquidation
Account will be deemed to have no value, or nominal, if any, fair
market value. Paulsen v. Commissioner, 469 U.S. 131, 139 (1985)
-----------------------
(quoting Society for Savings v. Bowers, 349 U.S. 143, 150 (1955)).
-----------------------------
<PAGE>
Board of Directors
Home Savings, SSB
July 18, 1996
Page 7
9. The basis of Subscription Rights received by an Eligible Account
Holder will be zero, increased by the gain, if any, recognized on
their receipt. Section 1012 of the Code. Gain is recognized only to
the extent of the fair market value of the Subscription Rights. You
have represented to us that the Subscription Rights to purchase
Conversion Stock have no fair market value. Accordingly, the basis of
the Subscription Rights received by an Eligible Account Holder will be
zero.
10. The basis of the Conversion Stock purchased pursuant to the exercise
of Subscription Rights will be the purchase price thereof. Section
1012 of the Code.
11. The holding period of the Conversion Stock acquired through the
exercise of Subscription Rights will commence upon the date of such
exercise. Section 1223(6) of the Code.
12. For purposes of Section 381 of the Code, Home will be treated just as
Home Mutual would have been treated had there been no reorganization
of Home Mutual from a North Carolina-chartered mutual savings bank to
a North Carolina-chartered stock savings bank. Accordingly, and with
regard only to the reorganization of Home Mutual into Home, the tax
attributes of Home Mutual enumerated in Section 381(c) of the Code
shall be taken into account by Home as if there had been no
reorganization. Treasury Regulation (S)1.381(b)(1)(a)(2).
13. For North Carolina income tax purposes, the Conversion will be treated
in a manner identical to the way the Conversion is treated pursuant to
the Code. Sections 105-130.3, 105-130.5, 105-134.5, and 105-134.6 of
the North Carolina General Statutes.
No opinion is expressed with regard to the following:
1. The tax treatment of any aspect of the Conversion that is not
specifically set forth and addressed in the foregoing opinions.
2. The status, including without limitation, the tax treatment, of Home
Mutual's and Home's bad-debt reserves before or after the Conversion.
3. For purposes of Section 381 of the Code, the effect upon Home Mutual
and Home of the acquisition of all of the common stock of Home by the
Holding Company in the Conversion.
The opinions herein expressed represent only our best judgments with
respect to the interpretation of published material and are not binding upon the
Internal Revenue Service or the courts. Our opinions are limited to matters of
North Carolina and federal law.
<PAGE>
Board of Directors
Home Savings, SSB
July 18, 1996
Page 8
The opinions contained herein are rendered solely for your benefit and for
the benefit of purchasers of Conversion Stock and may not be used for any other
purpose whatsoever or relied upon by, published or communicated to any other
party without our prior written consent in each instance. We hereby consent to
the inclusion of this letter as an exhibit to the Applications being filed by
Home Mutual with the Administrator and as an exhibit to the Registration
Statement.
Sincerely,
BROOKS, PIERCE, McLENDON
HUMPHREY & LEONARD, L.L.P.
By:/s/ Howard L. Williams
------------------------------------------
Howard L. Williams
<PAGE>
EXHIBIT 8.2
LETTERHEAD OF
JMP FINANCIAL, INC.
July 18, 1996
Board of Directors
Home Savings Bank, SSB
22 Winston Street
Box 989
Thomasville, NC 27361-0989
Dear Sirs:
Terms used in this letter not otherwise defined herein have the same
meanings for such terms in the Plan of the Holding Company Conversion (the "Plan
of Conversion") adopted by the Board of Directors of Home Savings Bank, SSB,
Thomasville, North Carolina ("Home Savings" or the "Bank"), under which the Bank
will convert from a mutual savings bank to a stock savings bank and issue all of
the Bank's stock to Century Bancorp, Inc. (the "Holding Company").
Simultaneously, the Holding Company will issue shares of common stock (the
"Common Stock").
We understand that in accordance with the Plan of Conversion, subscription
rights to purchase shares of Common Stock in the Holding Company are to be
issued to (1) Eligible Account Holders, (2) the Bank's tax qualified employee
stock ownership plan, (3) Supplemental Eligible Account Holders, (4) Other
Members, and (5) employees, officers, and directors of Home Savings. Based
solely upon our observation that the subscription rights will be available to
such parties without cost, will be legally non-transferable and of short
duration and will afford such parties the right only to purchase shares of
Common Stock at the same price to be paid by members of the general public in
the Community Offering, but without undertaking any independent investigation of
state or federal laws or the position of the Internal Revenue Service with
respect to such issue, we are of the belief that:
(1) the subscription rights have no ascertainable market value; and
(2) the price at which the subscription rights are exercisable will not
be more or less than the pro forma market value of the shares upon
issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates and other external forces (e.g.
natural disasters or significant global events) occur from time to time and may
materially affect the value of thrift stocks as a whole or the Holding Company's
value. Accordingly, no assurance can be given that persons who subscribe to
shares of Common Stock of the Conversion will thereafter be able to sell such
shares at the same price paid in the Subscription Offering.
Sincerely,
/s/John M. Palffy
John M. Palffy
Principal
<PAGE>
EXHIBIT 10.1
LETTERHEAD OF
JMP FINANCIAL, INC.
April 10, 1996
Mr. James G. Hudson, Jr.
Chief Executive Officer
Home Savings Bank SSB
22 Winston
Thomasville, North Carolina 27361
BY FAX (910) 476-8889
Dear Mr. Hudson:
JMP Financial, Inc. ("JMP") is pleased to present this Agreement to Home
Savings (the "Bank" or "Home Savings") to act as appraiser in its mutual-to-
stock conversion and to prepare a business plan for the Bank in accordance with
state and federal regulations. JMP is pleased to have the opportunity to
associate itself with Home Savings and believes that it is uniquely suited to
serve the needs of Home Savings.
Services Provided
- -----------------
JMP Financial will provide an initial appraisal of the fair market value of
Home Savings and will update this appraisal as required by Home Savings or its
regulators according to the terms of this agreement.
JMP Financial will also prepare a business plan for Home Savings in
compliance with federal regulations for filing with its application for
conversion.
Fees
- ----
JMP's fees for appraisal services will be $17,500 and its fees for the
business plan will be $12,500. Home Savings shall also reimburse JMP for its
reasonable out-of-pocket expenses of JMP as they are accrued.
Fees shall be payable according to the following schedule:
<TABLE>
<S> <C> <C> <C>
. Upon execution of this Agreement -- $10,000
. Upon filing of the Appraisal -- $ 7,500
. Upon filing of the Business Plan -- $ 7,500
. Upon the earlier of closing of conversion to stock form or one year after execution of this
Agreement -- All remaining fees and expenses.
</TABLE>
Home Savings agrees to pay to JMP a fee of $2500 for each written opinion
or update required by the Bank or its regulators on behalf of the Bank pursuant
to its mutual-to-stock conversion and performed by JMP after the filing of the
original appraisal.
<PAGE>
Indemnification
- ---------------
The Bank agrees to indemnify and hold harmless JMP and each of its
officers, directors, employees and agents, and each person who controls JMP
within the meaning of Section 15 of the Securities Act of 1933, against any and
all loss, claim, damage, liability and expense (including reasonable attorney's
fees) arising in connection with the performance of JMP's responsibilities
thereunder, including any litigation arising from this Agreement or involving
the subject matter hereof. Provided, however, that the Bank shall have no
liability to JMP to the extent that any loss, claim, damage liability, or
expense is found by a court of proper jurisdiction to have resulted from the
willful misconduct, bad faith or gross negligence of JMP or any of its agents.
Further, JMP shall notify the Bank promptly of the assertion of any claim
against its in connection with the performance of JMP's responsibilities in
connection with the conversion of the Bank from mutual-to-stock form or arising
under this Agreement or involving the subject matter hereof. The Bank agrees
that the indemnification and reimbursement commitment set forth in this
agreement shall apply upon written notice to the Bank and regardless of whether
JMP is a formal party to any such lawsuits or other proceedings; that JMP is
entitled to separate counsel of its choice in connection with any of the matters
to which such commitment relate; and that such commitments shall extend upon the
same terms set forth in this agreement, to any controlling person, director,
officer, employee or agent of JMP and shall survive any termination of this
Agreement.
Confidentiality
- ---------------
As part of this Agreement JMP agrees to hold all information provided by
the Bank and to conduct all discussions with others in the strictest confidence
possible in keeping with the performance of its services contemplated hereby.
Reliance Upon Information Provided by Home Savings
- --------------------------------------------------
Home Savings understands that all analysis, opinions, conclusions and
recommendations which are to be proffered by JMP will rely on the accuracy of
information from and representations made by the bank and its employees and
officers.
Notices
- -------
All notices required or permitted hereunder shall be in writing and shall
be deemed delivered when personally served, or, three days, after being
deposited in the United States mail, registered or certified, return receipt
requested, as addressed as follows
If to JMP Financial, Inc.
-------------------------
JMP Financial, Inc.
753 Grand Marais
Grosse Pointe Park, Mi. 48230
Attn: Mr. John M. Palffy
<PAGE>
Page 3
Mr. Hudson
April 10, 1996
If to Home Savings Bank, SSB
----------------------------
Home Savings Bank SSB
22 Winston
Thomasville, North Carolina 27361
Mr. Jim Hudson
Complete Agreement
- ------------------
This Agreement sets forth the entire understanding among the parties as to
the subject matter hereof and supersedes any other understanding or arrangement,
written or oral, express or implied, between the parties.
Effectiveness of Agreement - Separability
- -----------------------------------------
If any provision of this Agreement is held to be void, unenforceable,
unlawful or invalid, all of the other provisions hereof nevertheless continue in
full force and effect as if such void, unenforceable, unlawful or invalid
provisions were omitted. If any provision hereof shall be held to be void,
unenforceable, or invalid by reason of the scope thereof, then such provision
shall be construed and enforced to the extent of the fullest valid and
enforceable scope thereof.
Amendments
- ----------
This Agreement may not be amended except by written instrument signed by an
officer or all parties at the time of the amendment, any other attempted
amendments or supplements shall have no force or effect.
We look forward to working with you and are prepared to proceed as soon as
you deem it appropriate. If this Agreement meets with your approval please
indicate so by executing below.
Very truly yours,
/s/ JMP Financial, Inc.
JMP FINANCIAL, INC.
/s/ John Michael Palffy
John Michael Palffy
President
ACKNOWLEDGMENT AND ACCEPTANCE
- -----------------------------
Home Savings Bank SSB
By: /s/ James G. Hudson, Jr.
Its: President
<PAGE>
EXHIBIT 10.2
HOME SAVINGS, INC., SSB
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into as of _______________,1996, by and between HOME
SAVINGS, INC., SSB (hereinafter referred to as the "Savings Bank") and JAMES G.
HUDSON, JR. (hereinafter referred to as the "Officer") and is joined in by
CENTURY BANCORP, INC., the parent holding company of the Savings Bank
(hereinafter referred to as the "Holding Company").
WHEREAS, the Officer has heretofore been employed by the Savings Bank as
its President, Chief Executive Officer and Treasurer; and
WHEREAS, the Savings Bank is a state-chartered stock savings bank and the
wholly-owned subsidiary of the Holding Company; and
WHEREAS, the Savings Bank desires to retain the services of the Officer as
the President, Chief Executive Officer and Treasurer of the Savings Bank upon
the terms and conditions set forth herein; and
WHEREAS, the services of the Officer, his experience and knowledge of the
affairs of the Savings Bank, and his reputation and contacts in the industry and
the local community are extremely valuable to the Savings Bank; and
WHEREAS, the Savings Bank wishes to attract and retain such well-qualified
executives and it is in the best interest of the Savings Bank and of the Officer
to secure the continued services of the Officer notwithstanding any change in
control of the Savings Bank or the Holding Company; and
WHEREAS, the Savings Bank considers the establishment and maintenance of a
sound and vital management to be part of its overall corporate strategy and to
be essential to protecting and enhancing the best interests of the Holding
Company, the Savings Bank and their stockholders; and
WHEREAS, the parties desire to enter into this Agreement in order to set
forth the terms and conditions of the Officer's employment relationship with the
Savings Bank.
<PAGE>
NOW, THEREFORE, for and in consideration of the premises and mutual
promises, covenants and conditions hereinafter set forth and other good and
valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, the parties hereby do agree as follows:
1. Employment. The Savings Bank hereby agrees to employ the Officer and
----------
the Officer hereby agrees to accept employment, upon the terms and conditions
stated herein, as the President and Chief Executive Officer of the Savings Bank.
The Officer shall render such administrative and management services to the
Savings Bank as are customarily performed by persons situated in a similar
executive capacity. The Officer shall promote the business of the Savings Bank
and perform such other duties as shall, from time to time, be reasonably
prescribed by the Board of Directors of the Savings Bank (the "Board").
2. Compensation. The Savings Bank shall pay the Officer during the term
------------
of this Agreement, as compensation for all service rendered by him to the
Savings Bank, a base salary at the rate of $93,600 per annum, payable in
cash not less frequently than monthly; provided that the rate of such salary
shall be reviewed by the Board prior to January 1, 1997 and not less often than
annually thereafter. Such rate of salary, or increased rate of salary, as the
case may be, may be further increased from time to time in such amounts as the
Board, in its discretion, may decide. In determining salary increases, the Board
shall compensate the Officer for increases in the cost of living and may also
provide for performance or merit increases. Participation in incentive
compensation, deferred compensation, discretionary bonus, profit-sharing,
retirement, stock option and other employee benefit plans that the Savings Bank
or the Holding Company have adopted or may from time to time adopt, and
participation in any fringe benefits, shall not reduce the salary payable to the
Officer under this Section. The Officer will be entitled to such customary
fringe benefits, vacation and sick leave as are consistent with the normal
practices and established policies of
2
<PAGE>
the Savings Bank. In the event of a Change of Control (as defined in Section
10), the Officer's rate of salary shall be increased not less than six percent
(6%) annually during the term of this Agreement.
3. Bonus Compensation. During the term of this Agreement, the Officer
------------------
shall be entitled in an equitable manner with all other key management personnel
of the Savings Bank, to such discretionary bonuses as may be authorized,
declared and paid by the Savings Bank to the Savings Bank's key management
employees. In addition, the Officer shall be entitled to participate in any
other bonus compensation plans adopted by the Directors of the Savings Bank and
applicable to key management personnel. No other compensation provided for in
this Agreement shall be deemed a substitute for the Officer's right to such
discretionary and other bonuses when and as declared by the Directors of the
Savings Bank.
4. Participation in Retirement and Employee Benefit Plans; Fringe
--------------------------------------------------------------
Benefits.
- -------- The Officer shall be entitled to participate in any plan relating to
deferred compensation, stock awards, stock options, stock purchases, pension,
thrift, profit sharing, group life insurance, medical and dental coverage,
disability coverage, education, or other retirement or employee benefits that
the Savings Bank or the Holding Company have adopted, or may, from time to time
adopt, for benefit of their executive employees and for employees generally,
subject to the eligibility rules of such plans.
The Officer shall also be entitled to participate in any other fringe
benefits which are now or may be or become applicable to the Officer or the
Savings Bank's other executive employees. The Savings Bank shall pay all
reasonable expenses incurred by the Officer and his wife in attending the annual
conventions of the North Carolina Community Bankers Association and Americas
Community Bankers and their successor organizations, and the Savings Bank shall
pay all reasonable expenses incurred by the Officer in attending such other
meetings at which the Savings Bank deems the Officer's attendance to be
desirable. In addition, the Officer shall be entitled to participate in any
other benefits which are
3
<PAGE>
commensurate with the duties and responsibilities to be performed by the Officer
under this Agreement. Additionally, the Officer shall be entitled to such
vacation and sick leave as shall be established under uniform employee policies
promulgated by the Directors. The Savings Bank shall reimburse the Officer for
all out-of-pocket reasonable and necessary business expenses which the Officer
may incur in connection with his services on behalf of the Savings Bank.
The Officer shall be furnished with an automobile of make, model and age
consistent with prior practice of the Savings Bank, which automobile may be used
by the Officer for business and personal purposes. The Savings Bank shall pay
to the Colonial Country Club and to the Thomasville Rotary Club all membership
dues and assessments associated with the Officer's regular membership in such
clubs.
5. Term. The initial term of employment under this Agreement shall be for
----
the period commencing upon the effective date of this Agreement and ending three
(3) calendar years from the effective date of this Agreement. On each
anniversary of the effective date of this Agreement, the term of this Agreement
shall automatically be extended for an additional one year period beyond the
then effective expiration date unless written notice from the Savings Bank or
the Officer is received 90 days prior to an anniversary date advising the other
party that this Agreement shall not be further extended; provided that the
Directors shall review the Officer's performance annually and make a specific
determination pursuant to such review to renew this Agreement prior to the 90
day notice period.
6. Loyalty. The Officer shall devote his full efforts and entire business
-------
time to the performance of his duties and responsibilities under this Agreement.
The Officer agrees that he will hold in confidence all knowledge or
information of a confidential nature with respect to the respective businesses
of the Holding Company, the Savings Bank or of their subsidiaries, if any,
received by him during the term of this Agreement and will not disclose or make
use
4
<PAGE>
of such information, except in the ordinary course of his duties under this
Agreement, without the prior written consent of the Holding Company or the
Savings Bank.
7. Standards. The Officer shall perform his duties and responsibilities
---------
under this Agreement in accordance with such reasonable standards expected of
employees with comparable positions in comparable organizations and as may be
established from time to time by the Board. The Savings Bank will provide the
Officer with the working facilities and staff customary for similar executives
and necessary for him to perform his duties.
8. Termination and Termination Pay.
-------------------------------
(a) The Officer's employment under this Agreement shall be terminated upon
the death of the Officer during the term of this Agreement, in which event, the
Officer's estate shall be entitled to receive the compensation due the Officer
through the last day of the calendar month in which his death shall have
occurred and for a period of one month thereafter.
(b) The Officer's employment under this Agreement may be terminated at any
time by the Officer upon sixty (60) days' written notice to the Board of
Directors. Upon such termination, the Officer shall be entitled to receive
compensation through the effective date of such termination.
(c) The Board may terminate the Officer's employment at any time, but any
termination by the Board, other than termination for cause, shall not prejudice
the Officer's right to compensation or other benefits under this Agreement for
the remaining period which would have been covered by this Agreement if such
termination had not occurred. The Officer shall have no right to receive
compensation or other benefits for any period after termination for "cause."
Termination for "cause" shall include termination because of the Officer's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of
5
<PAGE>
any law, rule, regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provisions of this
Agreement.
9. Additional Regulatory Requirements.
----------------------------------
(a) If the Officer is suspended and/or temporarily prohibited from
participating in the conduct of the Savings Bank's affairs by a notice served
under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(3) and (g)(1)), the Savings Bank's obligations under this
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the Savings
Bank shall (i) pay the Officer all of the compensation withheld while its
contract obligations were suspended and (ii) reinstate (in whole or in part) any
of its obligations which were suspended.
(b) If the Officer is removed and/or permanently prohibited from
participating in the conduct of the Savings Bank's affairs by an order issued
under Section 8(e)(4) of Section 8(g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Savings Bank under
this Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(c) If the Savings Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act (12 U.S.C. (S) 1818(x)(1)), all obligations under
this Agreement shall terminate as of the date of default, but this paragraph
shall not affect any vested rights of the contracting parties.
(d) All obligations under this Agreement shall be terminated, except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the Savings Bank, (i) by the Federal Deposit Insurance
Corporation (the "Corporation"), at the time the Corporation enters into an
agreement to provide assistance to or on behalf of the Savings Bank under the
authority contained in Section 13(c) of the Federal Deposit Insurance Act (12
U.S.C. (S) 1818(c)); or (ii) by the Administrator
6
<PAGE>
of the Savings Institution Division of the North Carolina Department of Commerce
(the "Administrator"), at the time the Administrator approves a supervisory
merger to resolve problems related to operation of the Savings Bank or when the
Savings Bank is determined by the Administrator to be in an unsafe or unsound
condition. Any rights of the parties that have already vested, however, shall
not be affected by such action.
10. Change in Control.
-----------------
(a) In the event of a "Change in Control" (as defined in Subsection (b)
below), the term of employment under this Agreement shall automatically be
extended for a period of three (3) years beginning on the date of the Change in
Control, and the acquiror shall be bound by the terms of this Agreement and
shall be prohibited, during the remainder of the term of this Agreement, from:
(i) Assigning Officer any duties and/or responsibilities that are
inconsistent with his position, duties, responsibilities or status at
the time of the Change in Control or with his reporting
responsibilities or equivalent titles with the Savings Bank in effect
at such time; or
(ii) Adjusting Officer's annual base salary rate other than in
accordance with the provisions of Section 2 of this Agreement; or
(iii) Reducing in level, scope or coverage or eliminating Officer's
life insurance, medical or hospitalization insurance, disability
insurance, profit sharing plans, stock option plans, stock purchase
plans, deferred compensation plans, bonus compensation plans,
management retention plans, retirement plans or similar plans or
benefits or other benefits being provided by the Savings Bank or the
Holding Company to the Officer as of the effective date of the Change
in Control; or
(iv) Transferring Officer to a location more than forty (40) miles
distant from Officer's primary work station at the time of a Change in
Control, without the Officer's express written consent.
(b) For the purposes of this Agreement, the term "Change in Control" shall
mean any of the following events:
(i) a change in control of a nature that would be required to be
reported by the Holding Company in response to Item 1 of the Current
7
<PAGE>
Report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Exchange Act; or
(ii) such time as any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Holding Company or Savings Bank
representing 25 percent or more of the combined voting power of the
outstanding Common Stock of the Holding Company or Common Stock of the
Savings Bank, as applicable; or
(iii) individuals who constitute the Board or board of directors of
the Holding Company on the date hereof (the "Incumbent Board" and
"Incumbent Holding Company Board," respectively) cease for any reason
to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board or Incumbent Holding Company Board, as
applicable, or whose nomination for election by the Savings Bank's or
Holding Company's shareholders was approved by the Savings Bank's or
Holding Company's Board of Directors or Nominating Committee, as
applicable, shall be considered as though he or she were a member of
the Incumbent Board or Incumbent Holding Company Board, as applicable;
or
(iv) either the Holding Company or the Savings Bank consolidates or
merges with or into another corporation, association or entity or is
otherwise reorganized, where neither the Holding Company nor the
Savings Bank, respectively, is the surviving corporation in such
transaction; or
(v) all or substantially all of the assets of either the Holding
Company or the Savings Bank are sold or otherwise transferred to or
are acquired by any other entity or group.
Notwithstanding the other provisions of this Section 10, a transaction or
event shall not be considered a Change in Control if, prior to the consummation
or occurrence of such transaction or event, Officer and Savings Bank agree in
writing that the same shall not be treated as a Change in Control for purposes
of this Agreement.
(c) In the event any dispute shall arise between the Officer and the
Savings Bank as to the terms or interpretation of this Agreement, including this
Section 10, whether instituted by formal legal
8
<PAGE>
proceedings or otherwise, including any action taken by the Officer to enforce
the terms of this Section 10 or in defending against any action taken by the
Savings Bank, the Savings Bank shall reimburse the Officer for all costs and
expenses incurred in such proceedings or actions, including attorney's fees, in
the event the Officer prevails in any such action.
11. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of the Savings Bank which shall acquire, directly
or indirectly, by conversion, merger, consolidation, purchase or otherwise, all
or substantially all of the assets of the Holding Company or the Savings Bank.
(b) Since the Savings Bank is contracting for the unique and personal
skills of the Officer, the Officer shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Savings Bank.
12. Modification; Waiver; Amendments. No provision of this Agreement may
--------------------------------
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing, signed by the Officer and on behalf of the Savings Bank
by such officer as may be specifically designated by the Directors. No waiver
by either party hereto, at any time, of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. No amendments or
additions to this Agreement shall be binding unless in writing and signed by
both parties, except as herein otherwise provided.
13. Applicable Law. This Agreement shall be governed in all respects
--------------
whether as to validity, construction, capacity, performance or otherwise, by the
laws of North Carolina, except to the extent that federal law shall be deemed to
apply.
9
<PAGE>
14. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first hereinabove written.
HOME SAVINGS, INC., SSB
By:_______________________________________________
Chairman of the Board
--------------------------------------------(SEAL)
James G. Hudson, Jr.
The foregoing Agreement is consented and agreed to by Century Bancorp,
Inc., the parent holding company of Home Savings, Inc., SSB.
CENTURY BANCORP, INC.
By:_______________________________________________
Chairman of the Board
10
<PAGE>
EXHIBIT 10.3
SPECIAL TERMINATION AGREEMENT
THIS AGREEMENT entered into as of __________________________, 1996, by and
between CENTURY BANCORP, INC., a North Carolina corporation (the "Holding
Company") and JOHN E. TODD (the "Officer").
WHEREAS, the Officer is employed by Home Savings, Inc., SSB, a North
Carolina-chartered savings bank (the "Savings Bank") as its Vice President; and
WHEREAS, the Savings Bank is the wholly-owned subsidiary of the Holding
Company; and
WHEREAS, the services of the Officer, his experience and knowledge of the
affairs of the Savings Bank, and his reputation and contacts in the industry are
extremely valuable to the Savings Bank and the Holding Company; and
WHEREAS, the Holding Company and the Savings Bank wish to attract and
retain such well-qualified executives and it is in the best interests of the
Holding Company and the Savings Bank and of the Officer to secure the continued
services of the Officer notwithstanding any change in control of the Savings
Bank or the Holding Company; and
WHEREAS, the Holding Company considers the establishment and maintenance of
a sound and vital management to be part of its overall corporate strategy and to
be essential to protecting and enhancing the best interests of the Savings Bank,
the Holding Company and their shareholders; and
WHEREAS, the parties desire to enter into this Agreement to provide the
Officer with security in the event of a change in control of the Savings Bank or
the Holding Company in order to ensure the continued loyalty of the Officer.
NOW, THEREFORE, for and in consideration of the promises and mutual
promises, covenants and conditions hereinafter set forth, and other good and
valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, the parties hereby to agree as follows:
<PAGE>
1. TERM. The initial term of this Agreement shall be for a period of three
----
(3) years commencing upon the date of execution of this Agreement. On each
anniversary of the effective date of this Agreement, the term of this Agreement
shall automatically be extended for an additional one year period beyond the
then effective expiration date unless written notice from the Holding Company to
the Officer is received 90 days prior to an anniversary date advising the
Officer that this Agreement shall not be further extended; provided that the
directors of the Holding Company shall review the Officer's performance annually
and make a specific determination pursuant to such review to renew this
Agreement prior to the 90 day notice period. The Officer shall have rights and
benefits pursuant to this Agreement only if a change in control occurs during
the term of this Agreement. In such event, the Officer shall have the rights
set forth below with respect to any termination of employment or "Termination
Event" (as defined below) even though the termination or Termination Event shall
occur after the expiration of the terms of this Agreement.
1. Change in Control.
-----------------
(a) In the event of a termination of the Officer's employment in
connection with, or within twenty-four (24) months after, a "Change in
Control" (as defined in Subparagraph (e) below) of the Savings Bank or the
Holding Company, for reasons other than for "cause" (as defined in
Subparagraph (b) below), the Officer shall be entitled to receive the
amount set forth in Subparagraph (d) below. Said sum shall be payable as
provided in Subparagraph (f) below.
(b) For purposes of this Agreement, termination for "cause" shall
include termination because of the Officer's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, or willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order.
2
<PAGE>
(c) The Officer shall have the right to terminate his employment
with the Savings Bank upon the occurrence of any of the following events
(the "Termination Events") within twenty-four (24) months following a
Change in Control of the Holding Company or the Savings Bank:
(i) Officer is assigned any duties and/or
responsibilities that are inconsistent with his
position, duties, responsibilities or status at
the time of the Change in Control or with his
reporting responsibilities or titles with the
Savings Bank in effect at such time; or
(ii) Officer's annual base salary rate is reduced
below the annual amount in effect as of the
effective date of a Change in Control or as the
same shall have been increased from time to time
following such effective date; or
(iii) Officer's life insurance, medical or
hospitalization insurance, disability insurance,
stock option plans, stock purchase plans, deferred
compensation plans, management retention plans,
retirement plans or similar plans or benefits or
other benefits being provided by the Savings Bank
or the Holding Company to the Officer as of the
effective date of the Change in Control are
reduced in their level, scope or coverage, or any
such insurance, plans or benefits are eliminated,
unless such reduction or elimination applies
proportionately to all salaried employees of the
Savings Bank or the Holding Company who
participated in such benefits prior to such Change
in Control; or
(iv) Officer is transferred to a location which is
more than forty (40) miles distant from his
current principal work location, without the
Officer's express written consent.
A Termination Event shall be deemed to have occurred on
the date such action or event is implemented or takes effect.
(d) In the event that the Officer's employment is
terminated as set forth in Paragraphs 2(a) or 2(c), the Holding
Company will be obligated to pay or cause to be paid to Officer
an
3
<PAGE>
amount equal to two (2.0) times the Officer's salary and bonuses from the
Savings Bank and Holding Company for the most recently completed calendar
year prior to such termination.
(e) For the purposes of this Agreement, the term "Change
in Control" shall mean: (i) a change in control of a nature that
would be required to be reported in response to Item 1 of the
Current Report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Exchange Act; (ii) such
time as any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Holding Company or Savings Bank
representing 25 percent or more of the combined voting power of
the outstanding Common Stock of the Holding Company or
outstanding common stock of the Savings Bank, as applicable; or
(iii) individuals who constitute the board of directors of the
Holding Company or board of directors of the Savings Bank on the
date hereof (the "Incumbent Board" and "Incumbent Savings Bank
Board," respectively) cease for any reason to constitute at least
a majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a
vote of at least three-quarters of the directors comprising the
Incumbent Board or Incumbent Savings Bank Board, as applicable,
or whose nomination for election by the Holding Company's or
Savings Bank's shareholders was approved by the Holding Company's
or Savings Bank's board of directors or Nominating Committee,
shall be considered as though he or she were a member of the
Incumbent Board or Incumbent Savings Bank Board, as applicable;
or (iv) either the Holding Company or the Savings Bank
consolidates or merges with or into another corporation,
association or entity or is otherwise reorganized, where neither
the Holding Company nor the Savings Bank, respectively, is the
surviving corporation in such transaction or; or (v) all or
substantially all of the assets of either the Holding Company or
the Savings Bank are sold or otherwise transferred to or are
acquired by any other entity or group.
4
<PAGE>
Notwithstanding the other provisions of this Paragraph 2, a
transaction or event shall not be considered a Change in Control if, prior
to the consummation of occurrence of such transaction or event, Officer and
Holding Company agree in writing that the same shall not be treated as a
Change in Control for purposes of this Agreement. In addition, the Holding
Company's acquisition of all of the stock of the Savings Bank and initial
public offering in connection with the conversion of the Savings Bank from
the mutual to the stock form of ownership shall not be considered a change
in control.
(f) Such amounts payable pursuant to this Paragraph 2 shall be
paid, at the irrevocable option of the Officer, as follows:
Participant's Initials
----------------------
(i) ___________________ Payment in a lump-sum.
(ii) ___________________ Payment in monthly installments over a fixed
reasonable period of time. Such payments shall
begin within thirty (30) days following the
calendar month in which the Officer terminates
his employment with the Savings Bank.
(g) Following a Termination Event which gives rise to the Officer's
rights hereunder, the Officer shall have twelve (12) months from the date
of occurrence of the Termination Event to terminate his employment with the
Savings Bank pursuant to this Paragraph 2. Any such termination shall be
deemed to have occurred only upon delivery to the Savings Bank (or to any
successor corporation) of written notice of termination which describes the
Change in Control and Termination Event. If the Officer does not so
terminate his employment with the Savings Bank within such twelve (12)
month period, he shall thereafter have no further rights hereunder with
respect to that Termination Event, but shall retain rights, if any,
hereunder with respect to any other Termination Event as to which such
period has not expired.
5
<PAGE>
(h) It is the intent of the parties hereto that all payments made
pursuant to this Agreement be deductible by the Holding Company for federal
income tax purposes and not result in the imposition of an excise tax on
the Officer. Notwithstanding anything contained in this Agreement to the
contrary, any payments to be made to or for the benefit of the Officer
which are deemed to be "parachute payments" as that term is defined in
Section 280G of the Code, shall be modified or reduced to the extent deemed
to be necessary by the Holding Company's Board of Directors to avoid the
imposition of excise taxes on the Officer under Section 4999 of the Code or
the disallowance of a deduction to the Holding Company under Section
280G(a) of the Code.
(i) In the event any dispute shall arise between th Officer and the
Holding Company as to the terms or interpretation of this Agreement,
including this Paragraph 2, whether instituted by formal legal proceedings
or otherwise, including any action taken by the Officer to enforce the
terms of this Paragraph 2 or in defending against any action taken by the
Holding Company, the Holding Company shall reimburse the Officer for all
costs and expenses incurred in such proceedings or actions, including
attorney's fees, in the event the Officer prevails in any such action.
2. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon any corporate or other successor of the Holding Company
which shall acquire, directly or indirectly, by conversion, merger,
consolidation, purchase or otherwise, all or substantially all of the assets of
the Holding Company.
3. Modification; Waiver; Amendments. No provision of this Agreement may
--------------------------------
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by the Officer and the Holding Company,
except as herein otherwise provided. No waiver by either party hereto, at any
time, of any breach by the other party hereto of, or compliance with, any
condition
6
<PAGE>
or provision of this agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same or
at any prior or subsequent time. With the exception of Paragraph 2(f) of this
Agreement which may not be amended, no amendments or additions to this Agreement
shall be binding unless in writing and signed by both parties, except as herein
otherwise provided.
4. Applicable Law. This Agreement shall be governed in all respects
--------------
whether as to validity, construction, capacity, performance or otherwise, by the
laws of North Carolina, except to the extent that federal law shall be deemed to
apply.
5. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first hereinabove written.
CENTURY BANCORP, INC.
(CORPORATE SEAL)
By: _______________________________
__________ President
ATTEST:
________________________
______Secretary
____________________________________(SEAL)
JOHN E. TODD
7
<PAGE>
EXHIBIT 10.3
SPECIAL TERMINATION AGREEMENT
THIS AGREEMENT entered into as of __________________________, 1996, by and
between CENTURY BANCORP, INC., a North Carolina corporation (the "Holding
Company") and DREMA A. MICHAEL (the "Officer").
WHEREAS, the Officer is employed by Home Savings, Inc., SSB, a North
Carolina-chartered savings bank (the "Savings Bank") as its Secretary and
Assistant Treasurer; and
WHEREAS, the Savings Bank is the wholly-owned subsidiary of the Holding
Company; and
WHEREAS, the services of the Officer, her experience and knowledge of the
affairs of the Savings Bank, and her reputation and contacts in the industry are
extremely valuable to the Savings Bank and the Holding Company; and
WHEREAS, the Holding Company and the Savings Bank wish to attract and
retain such well-qualified executives and it is in the best interests of the
Holding Company and the Savings Bank and of the Officer to secure the continued
services of the Officer notwithstanding any change in control of the Savings
Bank or the Holding Company; and
WHEREAS, the Holding Company considers the establishment and maintenance of
a sound and vital management to be part of its overall corporate strategy and to
be essential to protecting and enhancing the best interests of the Savings Bank,
the Holding Company and their shareholders; and
WHEREAS, the parties desire to enter into this Agreement to provide the
Officer with security in the event of a change in control of the Savings Bank or
the Holding Company in order to ensure the continued loyalty of the Officer.
NOW, THEREFORE, for and in consideration of the promises and mutual
promises, covenants and conditions hereinafter set forth, and other good and
valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, the parties hereby to agree as follows:
<PAGE>
1. TERM. The initial term of this Agreement shall be for a period of three
----
(3) years commencing upon the date of execution of this Agreement. On each
anniversary of the effective date of this Agreement, the term of this agreement
shall automatically be extended for an additional one year period beyond the
then effective expiration date unless written notice from the Holding Company to
the Officer is received 90 days prior to an anniversary date advising the
Officer that this Agreement shall not be further extended; provided that the
Directors of the Holding Company shall review the Officer's performance annually
and make a specific determination pursuant to such review to renew this
Agreement prior to the 90 day notice period. The Officer shall have rights and
benefits pursuant to this Agreement only if a Change in Control occurs during
the term of this Agreement. In such event, the Officer shall have the rights
set forth below with respect to any termination of employment or "terminationT
Event" (as defined below) even though the termination or Termination Event shall
occur after the expiration of the terms of this Agreement.
1. Change in Control.
-----------------
(a) In the event of a termination of the Officer's employment in
connection with, or within twenty-four (24) months after, a "Change in
Control" (as defined in Subparagraph (e) below) of the Savings Bank or the
Holding Company, for reasons other than for "cause" (as defined in
Subparagraph (b) below), the Officer shall be entitled to receive the
amount set forth in Subparagraph (d) below. Said sum shall be payable as
provided in Subparagraph (f) below.
(b) For purposes of this Agreement, termination for "cause" shall
include termination because of the Officer's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, or willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order.
2
<PAGE>
(c) The Officer shall have the right to terminate her employment
with the Savings Bank upon the occurrence of any of the following events
(the "Termination Events") within twenty-four (24) months following a
Change in Control of the Holding Company or the Savings Bank:
(i) Officer is assigned any duties and/or
responsibilities that are inconsistent with her
position, duties, responsibilities or status at the
time of the Change in Control or with his reporting
responsibilities or titles with the Savings Bank in
effect at such time; or
(ii) Officer's annual base salary rate is reduced
below the annual amount in effect as of the effective
date of a Change in Control or as the same shall have
been increased from time to time following such
effective date; or
(iii) Officer's life insurance, medical or
hospitalization insurance, disability insurance,
stock option plans, stock purchase plans, deferred
compensation plans, management retention plans,
retirement plans or similar plans or benefits or
other benefits being provided by the Savings Bank or
the Holding Company to the Officer as of the
effective date of the Change in Control are reduced
in their level, scope or coverage, or any such
insurance, plans or benefits are eliminated, unless
such reduction or elimination applies proportionately
to all salaried employees of the Savings Bank or the
Holding Company who participated in such benefits
prior to such Change in Control; or
(iv) Officer is transferred to a location which is
more than forty (40) miles distant from her current
principal work location, without the Officer's
express written consent.
A Termination Event shall be deemed to have occurred on
the date such action or event is implemented or takes effect.
(d) In the event that the Officer's employment is terminated as set
forth in Paragraphs 2(a) or 2(c), the Holding Company will be obligated to
pay or cause to be paid to Officer an
3
<PAGE>
amount equal to two (2.0) times the Officer's salary and bonuses from
the Savings Bank and Holding Company for the most recently completed
calendar year prior to such termination.
(e) For the purposes of this Agreement, the term "Change in
Control" shall mean: (i) a change in control of a nature that would be
required to be reported in response to Item 1 of the Current Report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Exchange Act; (ii) such time as any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Holding Company or Savings Bank
representing 25 percent or more of the combined voting power of the
outstanding Common Stock of the Holding Company or outstanding common stock
of the Savings Bank, as applicable; or (iii) individuals who constitute the
board of directors of the Holding Company or board of directors of the
Savings Bank on the date hereof (the "Incumbent Board" and "Incumbent
Savings Bank Board," respectively) cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of at
least three-quarters of the directors comprising the Incumbent Board or
Incumbent Savings Bank Board, as applicable, or whose nomination for
election by the Holding Company's or Savings Bank's shareholders was
approved by the Holding Company's or Savings Bank's board of directors or
Nominating Committee, shall be considered as though he or she were a member
of the Incumbent Board or Incumbent Savings Bank Board, as applicable; or
(iv) either the Holding Company or the Savings Bank consolidates or merges
with or into another corporation, association or entity or is otherwise
reorganized, where neither the Holding Company nor the Savings Bank,
respectively, is the surviving corporation in such transaction or; or (v)
all or substantially all of the assets of either the Holding Company or the
Savings Bank are sold or otherwise transferred to or are acquired by any
other entity or group.
4
<PAGE>
Notwithstanding the other provisions of this Paragraph 2, a
transaction or event shall not be considered a Change in Control if, prior to
the consummation of occurrence of such transaction or event, Officer and Holding
Company agree in writing that the same shall not be treated as a Change in
Control for purposes of this Agreement. In addition, the Holding Company's
acquisition of all of the stock of the Savings Bank and initial public offering
in connection with the conversion of the Savings Bank from the mutual to the
stock form of ownership shall not be considered a change in control.
(f) Such amounts payable pursuant to this Paragraph 2 shall be
paid, at the irrevocable option of the Officer, as follows:
Participant's Initials
- ----------------------
(i) ___________________ Payment in a lump-sum.
(ii) ___________________ Payment in monthly installments over a fixed
reasonable period of time. Such payments shall
begin within thirty (30) days following the
calendar month in which the Officer terminates his
employment with the Savings Bank.
(g) Following a Termination Event which gives rise to the Officer's
rights hereunder, the Officer shall have twelve (12) months from the date
of occurrence of the Termination Event to terminate her employment with the
Savings Bank pursuant to this Paragraph 2. Any such termination shall be
deemed to have occurred only upon delivery to the Savings Bank (or to any
successor corporation) of written notice of termination which describes the
Change in Control and Termination Event. If the Officer does not so
terminate her employment with the Savings Bank within such twelve (12)
month period, she shall thereafter have no further rights hereunder with
respect to that Termination Event, but shall retain rights, if any,
hereunder with respect to any other Termination Event as to which such
period has not expired.
5
<PAGE>
(h) It is the intent of the parties hereto that all payments made
pursuant to this Agreement be deductible by the Holding Company for federal
income tax purposes and not result in the imposition of an excise tax on
the Officer. Notwithstanding anything contained in this Agreement to the
contrary, any payments to be made to or for the benefit of the Officer
which are deemed to be "parachute payments" as that term is defined in
Section 280G of the Code, shall be modified or reduced to the extent deemed
to be necessary by the Holding Company's Board of Directors to avoid the
imposition of excise taxes on the Officer under Section 4999 of the Code or
the disallowance of a deduction to the Holding Company under Section
280G(a) of the Code.
(i) In the event any dispute shall arise between the Officer and
the Holding Company as to the terms or interpretation of this Agreement,
including this Paragraph 2, whether instituted by formal legal proceedings
or otherwise, including any action taken by the Officer to enforce the
terms of this Paragraph 2 or in defending against any action taken by the
Holding Company, the Holding Company shall reimburse the Officer for all
costs and expenses incurred in such proceedings or actions, including
attorney's fees, in the event the Officer prevails in any such action.
2. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
----------------------
and be binding upon any corporate or other successor of the Holding Company
which shall acquire, directly or indirectly, by conversion, merger,
consolidation, purchase or otherwise, all or substantially all of the assets of
the Holding Company.
3. Modification; Waiver; Amendments. No provision of this Agreement may
--------------------------------
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by the Officer and the Holding Company,
except as herein otherwise provided. no waiver by either party hereto, at any
time, of any breach by the other party hereto of, or compliance with, any
condition
6
<PAGE>
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same or
at any prior or subsequent time. With the exception of paragraph 2(f) of this
Agreement which may not be amended, no amendments or additions to this Agreement
shall be binding unless in writing and signed by both parties, except as herein
otherwise provided.
4. APPLICABLE LAW. This Agreement shall be governed in all respects
--------------
whether as to validity, construction, capacity, performance or otherwise, by the
laws of North Carolina, except to the extent that federal law shall be deemed to
apply.
5. SEVERABILITY. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first hereinabove written.
CENTURY BANCORP, INC.
(CORPORATE SEAL)
By: _______________________________
__________ President
ATTEST:
________________________
______Secretary
____________________________________(SEAL)
DREMA A. MICHAEL
7
<PAGE>
EXHIBIT 10.4
EMPLOYEE STOCK OWNERSHIP PLAN
OF
HOME SAVINGS, INC., SSB
Prepared By:
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
Greensboro, North Carolina
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
DEFINITIONS AND CONSTRUCTION...................................................2
EMPLOYEE PARTICIPANTS.........................................................12
EMPLOYER CONTRIBUTIONS........................................................13
ALLOCATIONS...................................................................19
TERMINATION OF SERVICE-PARTICIPANT VESTING....................................25
TIME AND METHOD OF PAYMENT OF BENEFITS........................................31
EMPLOYER SECURITIES...........................................................36
EMPLOYER ADMINISTRATIVE PROVISIONS............................................42
ADMINISTRATION COMMITTEE......................................................43
PARTICIPANT ADMINISTRATIVE PROVISIONS.........................................47
FIDUCIARIES' DUTIES...........................................................51
DISCONTINUANCE, AMENDMENT AND TERMINATION.....................................55
THE TRUST.....................................................................58
TOP HEAVY RULES...............................................................59
MISCELLANEOUS.................................................................63
</TABLE>
<PAGE>
NATURE OF PLAN
HOME SAVINGS, INC., SSB (the "Company"), in order to provide its eligible
employees with an opportunity to share in the growth and prosperity of the
Company and to accumulate capital for their retirement through the acquisition
of a proprietary interest in the Company, establishes the Employee Stock
Ownership Plan of Home Savings, Inc., SSB
<PAGE>
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.01 DEFINITIONS. For the purpose of this Plan, the following
-----------
definitions shall apply unless the context requires otherwise:
(a) "Accounts or Account" shall mean the separate accounts
-------------------
maintained by the Administration Committee or Trustee to record the
interest of a Participant under the Plan.
(b) "Accrued Benefit" shall mean the amount standing in a
---------------
Participant's Account(s) as of any date derived from both Employer
contributions and Employee contributions, if any.
(c) "Act" shall mean the Employee Retirement Income Security Act
---
of 1974, as amended from time to time.
(d) "Active Participant" shall mean for each Plan Year any
------------------
Employee who satisfies the eligibility requirements of Article II and who
completes at least one thousand (1,000) Hours of Service during such Plan
Year.
(e) "Administration Committee" shall mean the Plan Administration
------------------------
Committee as from time to time constituted.
(f) "Anniversary Date" shall mean the last day of the Plan Year.
----------------
(g) "Beneficiary" shall mean any person or fiduciary designated by
-----------
a Participant who is or may become entitled to a benefit under the Plan
following the death of the Participant. A Beneficiary who becomes entitled
to a benefit under the Plan remains a Beneficiary under the Plan until the
Trustee has fully distributed his benefit to him. A Beneficiary's right to
(and the Plan Administrator's, Administration Committee's or Trustee's duty
to provide to the Beneficiary) information or data concerning the Plan does
not arise until he first becomes entitled to receive a benefit under the
Plan.
(h) "Board of Directors" shall mean the Board of Directors of Home
------------------
Savings, Inc., SSB unless otherwise indicated or the context otherwise
requires.
(i) "Break in Service" shall occur in any Plan Year during which a
----------------
Participant does not complete more than five hundred (500) Hours of
Service, determined as of the end of the Plan Year.
(j) "Code" shall mean the Internal Revenue Code of 1986, as
----
amended from time to time.
2
<PAGE>
(k) "Company" shall mean Home Savings, Inc., SSB or any successor
-------
thereto which shall adopt this Plan.
(l) "Compensation" shall mean, except as specifically provided
------------
elsewhere in this Plan, the Participant's earned income, wages, salaries,
fees for professional service and other amounts received for personal
services actually rendered in the course of employment with the Employer
maintaining the plan (including, but not limited to, commissions paid
salesmen, compensation for services on the basis of a percentage of
profits, commissions on insurance premiums, tips, bonuses, fringe benefits
and reimbursements or other expense allowances under a nonaccountable plan
and elective contributions). "Elective contributions" are amounts
excludible from the Employee's gross income under Code (S) 402(a)(8)
(relating to a Code (S) 401(k) arrangement), Code (S) 402(h) (relating to a
simplified employee pension), Code (S) 125 (relating to a cafeteria plan)
or Code (S) 403(b) (relating to a tax-sheltered annuity) and contributed at
the Employee's election. The term "Compensation" does not include:
(i) Employer contributions (other than "elective
contributions") to a plan of deferred compensation to the extent
the contributions are not included in the gross income of the
Employee for the taxable year in which contributed, on behalf of an
Employee to a simplified employee pension plan to the extent such
contributions are excludible from the Employee's gross income, and
any distributions from a plan of deferred compensation, regardless
of whether such amounts are includible in the gross income of the
Employee when distributed.
(ii) Amounts realized from the exercise of a non-qualified
stock option, or when restricted stock (or property) held by an
Employee either becomes freely transferable or is no longer subject
to a substantial risk of forfeiture.
(iii) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option.
(iv) Other amounts which receive special tax benefits,
such as premiums for group term life insurance (but only to the
extent that the premiums are not includible in the gross income of
the Employee), or contributions made by an Employer (whether or not
under a salary reduction agreement) towards the purchase of an
annuity contract described in Code (S) 403(b) (whether or not the
contributions are excludible from the gross income of the
Employee), other than "elective contributions".
Any reference in this Plan to Compensation is a reference to the
definition in this Section 1.01(l), unless the Plan reference specifies a
modification to this definition. The Administration Committee will take
into account only Compensation actually paid for the relevant period.
3
<PAGE>
The Administration Committee must take into account only the first
$150,000 for Plan Years beginning after December 31, 1993 (or such larger
amount as the Commissioner of Internal Revenue may prescribe) of any
Participant's Compensation. The $150,000 Compensation limitation applies
to the combined Compensation of the Employee and of any family member
aggregated with the Employee for purposes of determining who is an "Highly
Compensated Employee" and who is either (i) the Employee's spouse; or (ii)
the Employee's lineal descendant under the age of nineteen (19) years. If
the $150,000 Compensation limitation applies to the combined Compensation
of the Employee and one or more family members, the Administration
Committee will apply the contribution and allocation provisions of Article
III by prorating the $150,000 limitation among the affected individuals in
proportion to each such individual's Compensation determined prior to
application of this limitation.
For purposes of determining whether the Plan discriminates in favor
of Highly Compensated Employees, Compensation means Compensation as defined
in this Section 1.01(l), without regard to any exceptions. For purposes of
this nondiscrimination definition, the Employer may elect to include all
elective contributions made by the Employer on behalf of the Employees. The
Employer's election to include elective contributions must be consistent
and uniform with respect to Employees and all plans of the Employer of any
particular Plan Year. The Employer may make this election to include
elective contributions for nondiscrimination testing purposes, irrespective
of whether the Employer includes elective contributions in the general
Compensation definition applicable to the Plan.
(m) "Disqualified Person" shall have the same meaning as ascribed
-------------------
to the term under Code (S) 4975(e)(2).
(n) "Effective Date" of this Plan shall be the _____ day of
--------------
_____________, 1996, except as otherwise noted.
(o) "Employee" shall mean any person on the payroll of the
--------
Employer whose wages from the Employer are subject to withholding for
purposes of Federal income taxes and for purposes of the Federal Insurance
Contributions Act. Notwithstanding the foregoing, Employee shall not
include any person on the payroll of the Employer who is included in a unit
of employees covered by an agreement which the Secretary of Labor finds to
be a collective bargaining agreement between employee representatives and
the Employer, if there is evidence that retirement benefits were the
subject of good faith bargaining between such employee representatives and
the Employer. The term "employee representatives" does not include any
organization more than half the members of which are owners, officers or
executives of the Employer.
(p) "Employer" shall mean the Company and any corporation or other
--------
organization that is affiliated (as defined in Section 407(d)(7) of the
Act) with the Company which duly adopts the Plan with the approval of the
Company.
4
<PAGE>
(q) "Employer Securities" shall mean the common stock issued by
-------------------
Century Bancorp, Inc. which shares constitute "employer securities" under
Code (S) 409(l).
(r) "Employer Securities Account" shall mean a separate account
---------------------------
maintained for each Participant and consisting of his allocable share of
Employer Securities allocated to each Participant under the Plan.
(s) "Employment Commencement Date" shall mean the date on which an
----------------------------
Employee first performs an Hour of Service for the Employer.
(t) "Exempt Loan" shall mean a loan made to this Plan by a
-----------
Disqualified Person, or a loan to this Plan which a Disqualified Person
guarantees, provided the loan satisfies the requirements of Treas. Reg. (S)
54.4975-7(b).
(u) "Fiscal Year" shall mean the Employer's taxable year for
-----------
federal income tax purposes.
(v) "Former Participant" shall mean any individual who has been a
------------------
Participant hereunder and who has not yet received the entire benefit to
which he is entitled under the Plan.
(w) "General Investment Account" shall mean a separate account
--------------------------
maintained for each Participant and consisting of his allocable share of
Employer contributions, forfeitures, earnings of the Trust allocable to
such account, and realized and unrealized gains and losses allocable to
such account, less any amounts distributed to the Participant or his
Beneficiary from such account and which have not been invested in Employer
Securities.
(x) "Highly Compensated Employee" shall mean an Employee who,
---------------------------
during the Plan Year or during the preceding twelve (12)-month period:
(i) is a more than five percent (5%) owner of the Employer
(applying the constructive ownership rules of Code (S) 318);
(ii) has Compensation in excess of $75,000 (as adjusted by
the Commissioner of Internal Revenue for the relevant year);
(iii) has Compensation in excess of $50,000 (as adjusted by
the Commissioner of Internal Revenue for the relevant year) and is
part of the top-paid twenty percent (20%) group of Employees (based
on Compensation for the relevant year); or
5
<PAGE>
(iv) has Compensation in excess of fifty percent (50%) of
the dollar amount prescribed in Code (S) 415(b)(1)(A) (relating to
defined benefit plans) and is an officer of the Employer.
If the Employee satisfies the definition in clause (ii), (iii) or
(iv) in the Plan Year but not during the preceding twelve (12) -month
period and does not satisfy clause (i) in either period, the Employee is a
Highly Compensated Employee only if he is one of the 100 most highly
compensated Employees for the Plan Year. The number of officers taken into
account under clause (iv) will not exceed the greater of three (3) or ten
percent (10%) of the total number (after application of the exclusions
under Code (S) 414(q)) of Employees, but no more than fifty (50) officers.
If no Employee satisfies the Compensation requirement in clause (iv) for
the relevant year, the Administration Committee will treat the highest paid
officer as satisfying clause (iv) for that year.
For purposes of this definition, "Compensation" means Compensation
as defined in Section 1.01(l) but must include: (i) elective deferrals
under a Code (S) 401(k) arrangement or under a simplified employee pension
plan maintained by the Employer; and (ii) amounts paid by the Employer
which are not currently includible in the Employee's gross income because
of Code (S) 125 (cafeteria plans) or (S) 403(b)(tax-sheltered annuities).
The Administration Committee must make the determination of who is a Highly
Compensated Employee, including the determinations of the number and
identity of the top paid twenty percent (20%) group, the top 100 paid
Employees, the number of officers includible in clause (iv) and the
relevant Compensation, consistent with Code (S) 414(q) and regulations
issued under that Code section. The Employer may make a calendar year
election to determine the Highly Compensated Employees for the Plan Year,
as prescribed by Treasury regulations. A calendar year election must apply
to all plans and arrangements of the Employer. For purposes of applying any
nondiscrimination test required under the Plan or under the Code, in a
manner consistent with applicable Treasury regulations, the Administration
Committee will not treat as a separate Employee a family member (a spouse,
a lineal ascendant or descendant, or a spouse of a lineal ascendant or
descendant) of a Highly Compensated Employee described in clause (i) of
this Section 1.01(x), or a family member of one of the ten (10) Highly
Compensated Employees with the greatest Compensation for the Plan Year, but
will treat the Highly Compensated Employee and all family members as a
single Highly Compensated Employee. This aggregation rule applies to a
family member even if that family member is a Highly Compensated Employee
without family aggregation.
The term "Highly Compensated Employee" also includes any former
Employee who separated from Service (or has a deemed separation from
Service, as determined under Treasury regulations) prior to the Plan Year,
performs no Service for the Employer during the Plan Year, and was a Highly
Compensated Employee either for the separation year or any Plan Year ending
on or after his fifty-fifth (55th) birthday. If the former Employee's
separation from Service occurred prior to January 1, 1987, he is a Highly
Compensated Employee only if he satisfied clause (i) of this Section
1.01(x) or received Compensation in
6
<PAGE>
excess of $50,000 during: (i) the year of his separation from Service (or
the prior year); or (ii) any year ending after his fifty-fourth (54th)
birthday.
(y) "Hour of Service" shall mean:
---------------
(i) Each Hour of Service for which the Employer, either
directly or indirectly, pays an Employee, or for which the Employee
is entitled to payment, for the perfor mance of duties during the
Plan Year. The Administration Committee shall credit Hours of
Service under this paragraph (i) to the Employee for the Plan Year
in which the Employee performs the duties, irrespective of when
paid;
(ii) Each Hour of Service for back pay, irrespective of
mitigation of damages, to which the Employer has agreed or for
which the Employee has received an award. The Administration
Committee shall credit Hours of Service under this paragraph (ii)
to the Employee for the Plan Year(s) to which the award or the
agreement pertains rather than for the Plan Year in which the
award, agreement or payment is made; and
(iii) Each Hour of Service for which the Employer, either
directly or indirectly, pays an Employee, or for which the Employee
is entitled to payment (irrespective of whether the employment
relationship is terminated), for reasons other than for the
performance of duties during a Plan Year, such as leave of absence,
vacation, holiday, sick leave, illness, incapacity (including
disability), layoff, jury duty or military duty. The Administration
Committee shall not credit more than five hundred one (501) Hours
of Service under this paragraph (iii) to an Employee on account of
any single continuous period during which the Employee does not
perform any duties (whether or not such period occurs during a
single Plan Year). The Administration Committee shall credit Hours
of Service under this paragraph (iii) in accordance with the rules
of paragraphs (b) and (c) of Labor Reg. (S) 2530.200b-2, which the
Plan, by this reference, specifically incorporates in full within
this paragraph (iii).
The Administration Committee shall not credit an Hour of Service
under more than one (1) of the above paragraphs. Furthermore, if the
Administration Committee is to credit Hours of Service to an Employee for
the twelve (12) month period beginning with the Employee's Employment
Commencement Date or with an anniversary of such date, then the twelve (12)
month period shall be substituted for the term "Plan Year" wherever the
latter term appears in this Section 1.01(y). The Administration Committee
shall resolve any ambiguity with respect to the crediting of an Hour of
Service in favor of the Employee.
The Administration Committee shall credit every Employee with Hours
of Service on the basis of the "actual" method. For purposes of the Plan,
"actual" method means the determination of Hours of Service from records of
hours worked and hours for which the Employer makes payment or for which
payment is due from the Employer. An Employee
7
<PAGE>
or Participant for whom hourly records are not maintained shall be credited
with forty-five (45) Hours of Service, if compensated weekly, ninety-five
(95) Hours of Service, if compensated semimonthly, or one hundred ninety
(190) Hours of Service, if compensated monthly, for each period described
above if the Employee were hourly rated and would have been credited with
one Hour of Service under paragraphs (i), (ii) and (iii) above.
Solely for purposes of determining whether the Employee incurs a
Break in Service under any provision of this Plan, the Administration
Committee shall credit Hours of Service during an Employee's unpaid absence
period due to maternity or paternity leave. The Administration Committee
shall consider an employee on maternity or paternity leave if the
Employee's absence is due to the Employee's pregnancy, the birth of the
Employee's child, the placement with the Employee of an adopted child, or
the care of the Employee's child immediately following the child's birth or
placement. The Administration Committee shall credit Hours of Service under
this paragraph on the basis of the number of Hours of Service the Employee
would receive if he were paid during the absence period or, if the
Administration Committee cannot determine the number of Hours of Service
the Employee would receive, on the basis of eight (8) hours per day during
the absence period. The Administration Committee only shall credit the
number of Hours of Service (up to 501 Hours of Service) necessary to
prevent an Employee's Break in Service. The Administration Committee shall
credit all Hours of Service described in this paragraph to the computation
period in which the absence period begins or, if the Employee does not need
these Hours of Service to prevent a Break in Service in the computation
period in which his absence period begins, the Administration Committee
shall credit these Hours of Service to the immediately following
computation period.
(z) "Leave of Absence" shall mean any period of absence from the
----------------
active employment of the Employer due to jury duty and compulsory service
in the Armed Forces of the United States if the Employee returns to active
Service with the Employer within ninety (90) days after he first becomes
eligible for release from such active duty. A Leave of Absence may be
granted by the Employer for sickness, accident, vacation, disability, or
other similar reasons under rules established by it and uniformly applied
by it to all indivi duals similarly situated. If the Employee does not
return to active Service with the Employer within thirty (30) days of the
termination of his Leave of Absence, his Service will be deemed to have
ceased on the date his absence first commenced.
(aa) "Loan Suspense Account" shall mean an account established for
---------------------
the crediting and holding of Employer Securities purchased with the
proceeds of an Exempt Loan during the pledge period and repayment of the
Exempt Loan.
(bb) "Nonforfeitable" shall mean a Participant's or Beneficiary's
--------------
unconditional claim, legally enforceable against the Plan, for the
Participant's Accrued Benefit.
8
<PAGE>
(cc) "Participant" shall mean an Employee or former Employee who
-----------
has an account balance under the Plan, or an Employee who has met the
eligibility requirements of the Plan.
(dd) "Plan" shall mean the Employee Stock Ownership Plan of Home
----
Savings, Inc., SSB as established herein and amended from time to time.
(ee) "Plan Administrator" shall mean the Company unless the
------------------
Employer designates another person to hold the position of Plan
Administrator. In addition to his other duties, the Plan Administrator
shall have full responsibility for compliance with the reporting and
disclosure rules under the Act as respects this Agreement.
(ff) "Plan Entry Date" shall mean the first day of the Plan Year
---------------
and the first day of the seventh month of the Plan Year.
(gg) "Plan Year" shall mean the fiscal year of the Plan which shall
---------
be the twelve month period ending on the 28th day of February of each year.
(hh) "Related Group" shall mean the Employers as defined in Section
-------------
1.02.
(ii) "Segregated Account" shall mean the Participant Account which
------------------
is divided or segregated for investment or accounting purposes as required
by the Plan for which a special treatment is required.
(jj) "Service" shall mean any period of time the Employee is in the
-------
employ of the Employer, including any period the Employee is on Leave of
Absence authorized by the Employer under a uniform non-discriminatory
policy applicable to all Employees.
(kk) "Suspense Account" shall mean the Employer contributions and
----------------
forfeitures which can not be allocated pursuant to Article III.
(ll) "Trust" shall mean the separate Trust established to hold,
-----
administer, and invest the contributions made under the Plan.
(mm) "Trust Agreement" shall mean the agreement between the
---------------
Employer and the Trustee or any successor Trustee establishing the Trust
and specifying the duties of the Trustee.
(nn) "Trust Fund" shall mean all property of every kind held or
----------
acquired by the Trustee under the Trust Agreement, other than incidental
benefit insurance contracts.
(oo) "Trustee" shall mean the persons or entities from time to time
-------
appointed as Trustee under the Trust Agreement.
9
<PAGE>
(pp) "Valuation Date" shall mean the Anniversary Date of each Plan
--------------
Year or such other dates as the Administration Committee shall from time to
time require. Unless otherwise specified in the Plan, the Administration
Committee will make all Plan allocations for a particular Plan Year as of
the Valuation Date for that Plan Year.
1.02 CONTROLLED BUSINESSES/LEASED EMPLOYEES. If the Employer is a member
--------------------------------------
of a Related Group, the Plan shall treat all employees of the members of such
Related Group as if employed by a single employer for purposes of determining
Years of Service for participation and vesting. An employee shall receive no
credit for Years of Service for purposes of benefit accrual unless employed by a
member of the "Related Group" which adopts the Plan. A Related Group is a
controlled group of corporations (as defined in Code (S) 414(b)), trades or
businesses (whether or not incorporated) which are under common control (as
defined in Code (S) 414(c)) or an affiliated service group (as defined in Code
(S) 414(m) or in Code (S) 414(o)).
The Plan also shall treat an Employee who is a Leased Employee as an
employee of the Employer. However, the Employer shall treat contributions or
benefits provided the Leased Employee by the leasing organization as
contributions or benefits provided by the Employer to the extent attributable to
services the Leased Employee performed for the Employer. A "Leased Employee" is
an individual (who otherwise is not an employee of the Employer) who, pursuant
to a leasing agreement between the Employer and any other person, has performed
services for the Employer (or for the Employer and any persons related to the
Employer within the meaning of Code (S) 144(a)(3)) on a substantially full-time
basis for at least one year and who performs services historically performed by
employees in the Employer's business field.
Notwithstanding the preceding provisions of this paragraph, the Plan shall
not treat an employee as a Leased Employee if, prior to the application of this
exception, twenty percent (20%) or less of the Employer's Employees (other than
Highly Compensated Employees) are leased employees, and the leasing organization
covers the employee in a money purchase pension plan providing immediate
participation for all employees of the leasing organization (other than
employees who perform substantially all of their services for the leasing
organization or whose compensation from the leasing organization in each Plan
Year during the four-year period ending with the Plan Year is less than $1,000),
full immediate vesting, and a nonintegrated contribution formula equal to at
least ten percent (10%) of the employee's compensation without regard to
employment by the leasing organization on a specified date.
1.03 CHANGE IN NON-PARTICIPATING STATUS. If an Employee does not
----------------------------------
participate in the Plan by reason of employment within an excluded
classification, service with the Employer will be counted for purposes of
determining participation and vesting should the Employee's status change to a
non-excluded classification.
1.04 SERVICE FOR PREDECESSOR EMPLOYER. If the Employer maintains the
--------------------------------
plan of a predecessor employer, the Plan shall treat service of the Employee
with the predecessor
10
<PAGE>
employer as service with the Employer. If the Plan the Employer maintains is
not the plan of a predecessor employer, no credit shall be given unless
specifically provided for in this Plan.
1.05 WORD USAGE. Words used in the masculine shall apply to the feminine
----------
where applicable, and wherever the context of the Plan dictates, the plural
shall be read as the singular and the singular as the plural.
1.06 CONSTRUCTION. It is the intention of the Employer that the Plan be
------------
qualified under the provisions of the Code and the Act and all provisions hereof
shall be construed to that result.
11
<PAGE>
ARTICLE II
EMPLOYEE PARTICIPANTS
2.01 ELIGIBILITY. Each Employee shall become a Participant in the Plan
-----------
on the Plan Entry Date (if he is employed on that date) coincident with or
immediately following the date on which he completes five (5) months of Service
with the Employer. Employees otherwise eligible on the Effective Date shall
begin participation immediately.
2.02 MONTH OF SERVICE - PARTICIPATION. For purposes of participation
--------------------------------
under Section 2.01, an Employee will be deemed to have completed five (5) months
of service if he is in the employ of the Employer at any time five (5) months
after his Employment Commencement Date.
2.03 BREAK IN SERVICE - PARTICIPATION. For purposes of participation in
--------------------------------
the Plan, the Plan shall not apply any Break in Service rules.
2.04 PARTICIPATION UPON RE-EMPLOYMENT. A Participant whose employment
--------------------------------
terminates shall re-enter the Plan as a Participant on the date of his re-
employment. An Employee who terminates his employment after satisfying the
eligibility requirements of the Plan but before becoming a Participant shall
enter the Plan as a Participant on the later of the Plan Entry Date on which he
would have entered the Plan had he not terminated employment, or the date of his
re-employment. Any other Employee whose employment terminates and who is
subsequently re-employed shall become a Participant in accordance with the
provisions of Sections 2.01 and 2.02.
2.05 OMISSION OF ELIGIBLE EMPLOYEE. If, in any fiscal year, any Employee
-----------------------------
who should be included as a Participant in the Plan is erroneously omitted and
discovery of such omission is not made until after a contribution by the
Employer for the year has been made and allocated, the Employer shall make a
subsequent contribution with respect to the omitted Employee in the amount which
the Employer would have contributed with respect to him had he not been omitted.
Such contribution shall be made regardless of whether or not it is deductible in
whole or in part in any taxable year under applicable provisions of the Internal
Revenue Code by the Employer.
2.06 INCLUSION OF INELIGIBLE EMPLOYEE. If, in any fiscal year, any
--------------------------------
person who should not have been included as a Participant in the Plan is
erroneously included and discovery of such incorrect inclusion is not made until
after a contribution for the year has been made and allocated, the Employer
shall not be entitled to recover the contribution made with respect to the
ineligible person regardless of whether or not a deduction is allowable with
respect to such contribution. In such event, the amount contributed with respect
to the ineligible person shall constitute a forfeiture for the Plan Year in
which the discovery is made.
12
<PAGE>
ARTICLE III
EMPLOYER CONTRIBUTIONS
3.01 EMPLOYER CONTRIBUTIONS. For each Plan Year that ends with or within
----------------------
the Employer's taxable year, the Employer shall contribute to the Trust such
amount as the Board of Directors may from time to time deem advisable. The
Employer shall make all contributions without regard to current or accumulated
earnings and profits for the taxable year or years ending with or within such
Plan Year. The Employer's contribution shall not exceed the Maximum Permissible
Amount as hereinafter defined.
3.02 DETERMINATION OF CONTRIBUTION. The Employer, from its records,
-----------------------------
shall determine the amount of any contributions to be made by it to the Trust
under the terms of the Plan; provided however, the contribution of the Employer
shall be paid in cash to the extent needed to provide the Trust with cash
sufficient to pay any currently maturing obligations under any Exempt Loan,
notwithstanding the discretion of the Board of Directors.
3.03 TIME AND METHOD OF PAYMENT OF CONTRIBUTION. The Employer may pay
------------------------------------------
its contribution for each Plan Year in one (1) or more installments, without
interest. The Employer's contribution for any Plan Year shall be due on the last
day of its taxable year with or within which such Plan Year ends, and, unless
paid before, shall be payable then or as soon thereafter as practicable, but not
later than the time prescribed by law for filing the Employer's federal income
tax return (including extensions thereof) for such taxable year, without
interest. Contributions made after the end of the Plan Year but prior to the
filing of the Employer's federal income tax return shall be deemed a
contribution for the Employer's taxable year to which such tax return relates,
unless the contribution shall be accompanied by the Employer's signed statement
to the Trustee that payment is on account of another taxable year. Contributions
shall be paid in cash or in Employer Securities. All contributions for each Plan
Year shall be deemed to be paid as of the last day of such Plan Year.
3.04 RETURN OF EMPLOYER CONTRIBUTIONS. Notwithstanding any provision
--------------------------------
herein to the contrary (other than Section 2.06), upon the Employer's request, a
contribution which was made upon a mistake of fact, conditioned upon initial
qualification of the Plan, or disallowed as a deduction under Code (S) 404 shall
be returned to the Employer within one year after payment of the contribution or
denial of the qualification or deduction, as the case may be. The Trustee will
not increase the amount of the Employer contribution returnable under this
Section 3.04 for any earnings attributable to the contribution, but the Trustee
will decrease the Employer contribution returnable for any losses attributable
to it. The Trustee may require the Employer to furnish it whatever evidence the
Trustee deems necessary to enable the Trustee to confirm the amount the Employer
has requested be returned is properly returnable under ERISA.
3.05 LIMITATIONS ON ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. The amount of
----------------------------------------------------
Annual Additions which the Administration Committee may allocate under this Plan
on
13
<PAGE>
a Participant's behalf for a Limitation Year may not exceed the Maximum
Permissible Amount. If the amount the Employer otherwise would contribute to
the Participant's Account would cause the Annual Additions for the Limitation
Year to exceed the Maximum Permissible Amount, the Employer will reduce the
amount of its contribution so the Annual Additions for the Limitation Year will
equal the Maximum Permissible Amount. If an allocation of Employer
contributions, pursuant to Section 3.04, would result in an Excess Amount (other
than an Excess Amount resulting from the circumstances described in Section
3.05(b)) to the Participant's Account, the Administration Committee will
reallocate the Excess Amount to the remaining Participants who are eligible for
an allocation of Employer contributions for the Plan Year in which the
Limitation Year ends. The Administration Committee will make this reallocation
on the basis of the allocation method under the Plan as if the Participant whose
Account otherwise would receive the Excess Amount is not eligible for an
allocation of Employer Contributions.
(a) Estimation of Compensation. Prior to the determination of the
--------------------------
Participant's actual Compensation for a Limitation Year, the Administration
Committee may determine the Maximum Permissible Amount on the basis of the
Participant's estimated annual Compensation for such Limitation Year. The
Administration Committee must make this determination on a reasonable and
uniform basis for all Participants similarly situated. The Administration
Committee must reduce any Employer contributions (including any allocation
of forfeitures) based on estimated annual Compensation by any Excess
Amounts carried over from prior years. As soon as is administratively
feasible after the end of the Limitation Year, the Administration Committee
will determine the Maximum Permissible Amount for such Limitation Year on
the basis of the Participant's actual Compensation for such Limitation
Year.
(b) Disposition of Excess Amount. If, pursuant to Section
----------------------------
3.05(a), or because of the allocation of forfeitures, there is an Excess
Amount with respect to a Participant for a Limitation Year, the
Administration Committee will dispose of such Excess Amount as follows:
(1) The Administration Committee will return any
nondeductible voluntary Employee contributions to the Participant
to the extent that the return would reduce the Excess Amount.
(2) If, after the application of paragraph (1), an Excess
Amount still exists, and the Plan covers the Participant at the end
of the Limitation Year, then the Administration Committee will use
the Excess Amount(s) to reduce future Employer contributions
(including any allocation of forfeitures) under the Plan for the
next Limitation Year and for each succeeding Limitation Year, as is
necessary, for the Participant.
(3) If, after the application of paragraph (1), an Excess
Amount still exists, and the Plan does not cover the Participant at
the end of the Limitation Year,
14
<PAGE>
then the Administration Committee will hold the Excess Amount
unallocated in a suspense account. The Administration Committee
will apply the suspense account to reduce Employer contributions
(including allocation of forfeitures) for all remaining
Participants in the next Limitation Year, and in each succeeding
Limitation Year if necessary.
(4) The Administration Committee will not distribute any
Excess Amount(s) to Participants or to former Participants.
(c) More Than One Plan. The Employer may contribute under another
------------------
defined contribution plan in addition to its contributions under this Plan.
If the Administration Committee allocated an Excess Amount to a
Participant's Account on an allocation date of this Plan which coincides
with an allocation date of the other defined contribution plan, the
Administration Committee will attribute the total Excess Amount allocated
as of such date to the other defined contribution plan.
(d) Defined Benefit Plan Limitation. If the Participant presently
-------------------------------
participates, or has ever participated under a defined benefit plan
maintained by the Employer, then the sum of the defined benefit plan
fraction and the defined contribution plan fraction for the Participant for
that Limitation Year must not exceed 1.0. To the extent necessary to
satisfy this limitation, the Employer will reduce its contribution or
allocation on behalf of the Participant to the defined contribution plan
under which the Participant participates and then, if necessary, the
Participant's projected annual benefit under the defined benefit plan under
which the Participant participates.
3.06 DEFINITIONS - ARTICLE III. For purposes of this Article III,
-------------------------
the following terms have the following meanings:
(a) "100% Limitation" - If the 100% Limitation applies, the
Administration Committee must determine the denominator of the defined
benefit plan fraction and the denominator of the defined contribution plan
fraction by substituting 100% for 125%. The 100% limitation applies only
if: (i) the Plan's top heavy ratio exceeds 90%; or (ii) the Plan's top
heavy ratio is greater than 60%, and the Employer does not provide extra
minimum benefits which satisfy Code (S) 416(h)(2).
(b) "Annual Addition" - The sum of the following amounts allocated
on behalf of a Participant for a Limitation Year: (i) all Employer
contributions; (ii) all forfeitures; and (iii) all Employee contributions.
Except to the extent provided in Treasury regulations, Annual Additions
include excess contributions described in Code (S) 401(k) and excess
aggregate contributions described in Code (S) 401(m), irrespective of
whether the Plan distributes or forfeits such excess amounts. Excess
deferrals under Code (S) 402(g) are not Annual Additions unless distributed
after the correction period described in Code (S) 402(g). Annual Additions
also include Excess Amounts reapplied to reduce Employer contributions
15
<PAGE>
under Section 3.05. Amounts allocated after March 31, 1984, to an
individual medical account (as defined in Code (S) 415(l)(2)) included as
part of a defined benefit plan maintained by the Employer are Annual
Additions. Furthermore, Annual Additions include contributions paid or
accrued after December 31, 1985, for taxable years ending after December
31, 1985, attributable to post-retirement medical benefits allocated to the
separate account of a key employee (as defined in Code (S) 419A(d)(3))
under a welfare benefit fund (as defined in Code (S) 419(e)) maintained by
the Employer, but only for purposes of the dollar limitation applicable to
the Maximum Permissible Amount.
(c) "Compensation" - Compensation as determined under the general
definition of Compensation in Section 1.01 except it does not include
elective contributions.
(d) "Defined benefit plan" - A retirement plan which does not
provide for individual accounts for Employer contributions. The
Administration Committee must treat all defined benefit plans (whether or
not terminated) maintained by the Employer as a single plan.
(e) "Defined Benefit Plan Fraction" -
Projected annual benefit of the Participant
under the defined benefit plan(s)
--------------------------------------------------------------
The lesser of (i) 125% (subject to the "100% Limitation"
in paragraph (a)) of the dollar limitation
in effect under Code (S) 415(b)(1)(A) for
the Limitation Year, or (ii) 140% of the
Participant's average Compensation for his
high three (3) consecutive Years of Service
To determine the denominator of this fraction, the Administration
Committee will make any adjustment required under Code (S) 415(b) and will
determine a Year of Service as a Plan Year in which the Employee completed
at least 1,000 Hours of Service. The "projected annual benefit" is the
annual retirement benefit (adjusted to an actuarially equivalent straight
life annuity if the plan expresses such benefit in a form other than a
straight life annuity or qualified joint and survivor annuity) of the
Participant under the terms of the defined benefit plan on the assumptions
he continues employment until his normal retirement age (or current age, if
later) as stated in the defined benefit plan, his compensation continues at
the same rate as in effect in the Limitation Year under consideration until
the date of his normal retirement age and all other relevant factors used
to determine benefits under the defined benefit plan remain constant as of
the current Limitation Year for all future Limitation Years.
CURRENT ACCRUED BENEFIT. If the Participant accrued benefits in
one or more defined benefit plans maintained by the Employer which were in
existence on May 5, 1986, the
16
<PAGE>
dollar limitation used in the denominator of this fraction will not be less
than the Participant's Current Accrued Benefit. A Participant's Current
Accrued Benefit is the sum of the annual benefits under such defined
benefit plans which the Participant had accrued as of the end of the 1986
Limitation Year (the last Limitation Year beginning before January 1,
1987), determined without regard to any change in the terms or conditions
of the Plan made after May 5, 1986, and without regard to any cost of
living adjustment occurring after May 5, 1986. This Current Accrued
Benefit rule applies only if the defined benefit plans individually and in
the aggregate satisfied the requirements of Code (S) 415 as in effect at
the end of the 1986 Limitation Year.
(f) "Defined contribution plan" - A retirement plan which provides
for an individual account for each participant and for benefits based
solely on the amount contributed to the participant's account, and any
income, expenses, gains and losses, and any forfeitures of accounts of
other participants which the plan may allocate to such participant's
account. The Administration Committee must treat all defined contribution
plans (whether or not terminated) maintained by the Employer as a single
plan. Solely for the purposes of the limitations of this Article III, the
Administration Committee will treat employee contributions made to a
defined benefit plan maintained by the Employer as a separate defined
contribution plan. The Administration Committee also will treat as a
defined contribution plan an individual medical account (as defined in Code
(S) 415(l)(2)) included as part of a defined benefit plan maintained by the
Employer and, for taxable years ending after December 31, 1985, a welfare
benefit fund under Code (S) 419(e) maintained by the Employer to the extent
there are post-retirement medical benefits allocated to the separate
account of a key employee (as defined in Code (S) 419(d)(3)).
(g) "Defined Contribution Plan Fraction" -
The sum, as of the close of the Limitation Year,
of the Annual Additions to the Participant's
Account under the defined contribution plan(s)
----------------------------------------------------------------
The sum of the lesser of the following amounts determined
for the Limitation Year and for each prior Year of Service
with the Employer: (i) 125% (subject to the "100% Limitation"
in paragraph (a)) of the dollar limitation in effect under
Code (S) 415(c)(1)(A) for the Limitation Year (determined
without regard to the special dollar limitations for employee
stock ownership plans), or (ii) 35% of the Participant's
Compensation for the Limitation Year
For purposes of determining the defined contribution plan fraction,
the Administra tion Committee will not recompute Annual Additions in
Limitation Years beginning prior to January 1, 1987, to treat all Employee
contributions as Annual Additions. If the Plan satisfied Code (S) 415 for
Limitation Years beginning prior to January 1, 1987, the
17
<PAGE>
Administration Committee will redetermine the defined contribution plan
fraction and the defined benefit plan fraction as of the end of the 1986
Limitation Year, in accordance with this Section 3.06. If the sum of the
redetermined fractions exceeds 1.0, the Administration Committee will
subtract permanently from the numerator of the defined contribution plan
fraction an amount equal to the product of (1) the excess of the sum of the
fractions over 1.0, times (2) the denominator of the defined contribution
plan fraction. In making the adjustment, the Administration Committee must
disregard any accrued benefit under the defined benefit plan which is in
excess of the Current Accrued Benefit. This Plan continues any
transitional rules applicable to the determination of the defined
contribution plan fraction under the Employer's Plan as of the end of the
1986 Limitation Year.
(h) "Employer" - The Employer that adopts this Plan and any
related employers described in Section 1.02. Solely for purposes of
applying the limitations of this Article III, the Administration Committee
will determine related employers described in Section 1.02 by modifying
Code (S) 414(b) and (c) in accordance with Code (S) 415(h).
(i) "Excess Amount" - The excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Permissible Amount.
(j) "Limitation Year" - The Plan Year. If the Employer amends the
Limitation Year to a different 12 consecutive month period, the new
Limitation Year must begin on a date within the Limitation Year for which
the Employer makes the amendment, creating a short Limitation Year.
(k) "Maximum Permissible Amount" - The lesser of (i) $30,000 (or,
if greater, one-fourth of the defined benefit dollar limitation under Code
(S) 415(b)(1)(A)), or (ii) 25% of the Participant's Compensation for the
Limitation Year. If there is a short Limitation Year because of a change in
Limitation Year, the Administration Committee will multiply the $30,000 (or
adjusted) limitation by the following fraction:
Number of months in the short Limitation Year
---------------------------------------------------
12
18
<PAGE>
ARTICLE IV
ALLOCATIONS
4.01 PARTICIPANT ACCOUNTS. For each Participant, the Administration
--------------------
Committee shall establish an Employer Securities Account to reflect a
Participant's interest in Employer Securities held by the Trust and shall
establish an account designated as the General Investments Account to reflect
the Participant's interest in the Trust Fund attributable to assets other than
Employer Securities.
If a Participant re-enters the Plan subsequent to his having a Forfeiture
Break in Service, a separate Account for the Participant's pre-Forfeiture Break
in Service Accrued Benefit and a separate Account for his post-Forfeiture Break
in Service Accrued Benefit, unless the Participant's entire Accrued Benefit
under the Plan is one hundred percent (100%) Nonforfeitable, shall be
maintained.
4.02 VALUATION OF ACCOUNTS. The value of each Participant's Accrued
---------------------
Benefit shall consist of that proportion of the net worth (at fair market value)
of the Trust Fund which the net credit balance in his Account bears to the total
net credit balance in the Accounts of all Participants. For purposes of a
distribution under the Plan, the value of a Participant's Accrued Benefit
attributable to his General Investment Account shall be its value as of the
Valuation Date, or other valuation date, immediately preceding the date of the
distribution.
As of the Anniversary Date of each Plan Year, the Administration Committee
first shall reduce the General Investments Accounts (excluding segregated
Accounts) for any forfeitures arising under Section 5.05 and then shall allocate
the net income (or net loss) from the Trust and the increase or decrease in the
fair market value of the assets of the Trust for the Plan Year pro rata to the
General Investments Accounts of the Participants under the Plan as the General
Investments Accounts stood at the beginning of the current Plan Year, but
excluding the amount of any General Investments Account which the Trustee has
fully distributed since the immediately preceding Valuation Date or utilized for
the purchase of Employer Securities. In making its allocations, the
Administration Committee shall exclude Employer Securities allocated to Employer
Securities Accounts, stock dividends on allocated Employer Securities, and
payments by the Trust on an Exempt Loan. The Administration Committee shall
include as income any cash dividends on Employer Securities except cash
dividends which the Administration Committee has directed the Trustee to
distribute in accordance with Section 7.03.
A segregated investment account receives all income it earns and bears all
expense or loss it incurs. As of the Valuation Date, the Administration
Committee must reduce a segregated investment account for any forfeiture arising
under Section 5.05 after the Administration Committee has made all other
allocations, changes or adjustments to such Account for the Plan Year.
19
<PAGE>
In making a forfeiture reduction, the Administration Committee shall
forfeit pro rata from a Participant's General Investments Account and from any
segregated investment account before making a forfeiture from his Employer
Securities Account.
4.03 ALLOCATIONS TO PARTICIPANTS' ACCOUNTS. Subject to the limitations of
-------------------------------------
Article III, Code (S) 415, and Section 4.08 of the Plan:
(a) Employer Securities Account. As of the Anniversary Date of
---------------------------
each Plan Year, the Administration Committee first shall reduce the
Employer Securities Accounts for any forfeitures arising under Section 5.05
and then shall credit the Employer Securities Account maintained for each
Participant with the Participant's allocable share of Employer Securities
(including fractional shares) purchased and paid for by the Trust or
contributed in kind to the Trust, with any forfeitures of Employer
Securities and with any stock dividends on Employer Securities allocated to
his Employer Securities Account. Employer Securities purchased or
contributed in kind shall be allocated as of the Anniversary Date among the
Participants in accordance with the ratio of the Participant's Compensation
to the total Compensation of all Participants. The Administration Committee
shall allocate Employer Securities acquired with an Exempt Loan in
accordance with Section 4.04. Except as otherwise specifically provided in
Section 4.04, the Administration Committee shall base allocations to the
Participants' Accounts on dollar values expressed as shares of Employer
Securities or on the basis of actual shares where there is a single class
of Employer Securities. Employer Securities purchased with the proceeds of
the General Investment Account will be allocated directly to the same
Participant's Employer Securities Account.
(b) General Investments Account. Employer contributions and
---------------------------
forfeitures not allocated under Section 4.03 (a) above shall be allocated
as of the Anniversary Date among the Participants in accordance with the
ratio of the Participant's Compensation to the total Compensation of all
Participants.
(c) Dividends on Employer Securities. The Administration Committee
--------------------------------
will allocate any cash dividends the Employer pays with respect to Employer
Securities to the General Investments Accounts of Participants in the same
ratio, determined on the dividend declaration date, that Employer
Securities allocated to a Participant's Employer Securities Account bear to
the Employer Securities allocated to all Employer Securities Accounts. The
Administration Committee will not allocate to the General Investments
Accounts any cash dividends the Employer directs the Trustee to apply to
the payment of an Exempt Loan nor any cash dividends the Administration
Committee directs the Trustee to distribute in accordance with Section
7.03. If the Employer directs the Trustee to apply cash dividends on
Employer Securities to the payment of an Exempt Loan, the Administration
Committee first will allocate the released Employer Securities to the
Participants' Employer Securities Accounts in the same ratio, determined on
the dividend declaration date, that Employer Securities allocated to a
Participant's Employer Securities Account bear to the Employer Securities
allocated to all Employer Securities Accounts. This first allocation of
released
20
<PAGE>
Employer Securities must equal the greater of the shares of released
Employer Securities equal to the fair market value of the cash dividends
attributable to the allocated Employer Securities, or equal to the number
of shares of all released Employer Securities attributable to the cash
dividends on allocated Employer Securities. If any released Employer
Securities remain unallocated after the first allocation, the
Administration Committee will allocate these remaining released Employer
Securities under this Section 4.03 as if the Employer has made an Employer
contribution equal to the amount of the cash dividend attributable to the
unallocated Employer Securities.
4.04 EXEMPT LOAN PROCEEDS ALLOCATION LIMITATION. In withdrawing assets
------------------------------------------
from the Loan Suspense Account, the Trustee shall apply the provisions of Treas.
Reg. (S)(S) 54.4975-7(b)(8) and (15) as if all securities in the Loan Suspense
Account were encumbered. Upon the payment of any portion of the loan, the
Trustee shall effect the release of assets in the Loan Suspense Account from
encumbrances. For each Plan Year during the duration of the loan, the number of
Employer Securities released must equal the number of encumbered Employer
Securities held immediately before release for the current Plan Year multiplied
by a fraction. The numerator of the fraction is the amount of principal and
interest paid for the Plan Year. The denominator of the fraction is the sum of
the numerator plus the principal and interest to be paid for all future Plan
Years. The number of future Plan Years under the loan must be definitely
ascertainable and must be determined without taking into account any possible
extension or renewal periods. If the interest rate under the loan is variable,
the interest to be paid in future Plan Years must be computed by using the
interest rate applicable as of the end of the Plan Year. If collateral includes
more than one (1) class of Employer Securities, the number of Employer
Securities of each class to be released for a Plan Year must be determined by
applying the same fraction to each such class. The Administration Committee
shall allocate assets withdrawn from the Loan Suspense Account to the Accounts
of Participants who otherwise share in the allocation of the Employer's
contribution for the Plan Year for which the Trustee has paid the portion of the
loan resulting in the release of the assets. The Administration Committee
consistently shall make this allocation as of each Anniversary Date on the basis
of non-monetary units, taking into account the relative Compensation of all such
Participants for such Plan Year.
The Administration Committee may also elect at the initiation of the Exempt
Loan to have the Employer Securities released from the Loan Suspense Account
solely with reference to principal payments. However, if release is determined
with reference to principal payments only, the following additional rules apply:
(1) the Exempt Loan must provide for annual payments of principal and interest
at a cumulative rate that is not less rapid at any time than level annual
payments of such amounts for 10 years; (2) interest included in any payment is
disregarded only to the extent that it would be determined to be interest under
standard loan amortization tables; and (3) the entire duration of the Exempt
Loan repayment period does not exceed 10 years, even in the event of a renewal,
extension or refinancing of the Exempt Loan.
4.05 EXCESS ALLOCATIONS. The excess amount of any allocations shall be
------------------
distributed or reallocated as provided in Article III.
21
<PAGE>
4.06 EMPLOYER CONTRIBUTIONS CONSIDERED MADE ON LAST DAY OF PLAN YEAR. For
purposes of this Article IV, the Employer's contribution under the Plan which
remains unallocated on the last day of any Plan Year will be considered to have
been made on the last day of that year, regardless of when paid to the Trustee.
4.07 ACCRUAL OF BENEFITS. The Administration Committee shall determine a
-------------------
Participant's Accrued Benefit on the basis of the Limitation Year. In
allocating Employer contributions and forfeitures to a Participant's Accounts,
the Administration Committee shall only take into account the Compensation
earned during that part of the Limitation Year the Employee is actually a
Participant in the Plan.
4.08 PARTICIPANTS TO WHOM EMPLOYER CONTRIBUTIONS AND FORFEITURES WILL BE
-------------------------------------------------------------------
ALLOCATED. The Employer contributions for any Limitation Year, plus any
- ---------
forfeitures which arose under the Plan during that year, will be allocated among
and credited to the Accounts of:
(a) Participants who complete 1,000 Hours of Service during the
Limitation Year and who are in the employ of the Employer on the
Anniversary Date; provided, however, that an Employee who enters or re-
enters the Plan as a Participant on any date other than the first day of
the Limitation Year shall be considered to have completed 1,000 Hours of
Service for purposes of allocation of Employer contributions and
Forfeitures for the Limitation Year in which he enters or re-enters the
Plan as a Participant;
(b) Participants on Leave of Absence on the Anniversary Date who
received Compensation from the Employer during the Limitation Year; and
(c) Participants who died, retired, or became permanently disabled
during the Limitation Year who received Compensation from the Employer
during that year.
(d) Highly Compensated Participants, otherwise qualifying for an
allocation, shall be limited to no more than one-third (1/3) of the
contributions which are deductible under Code (S) 404(a)(9)(B) and
forfeitures of Employer Securities purchased with proceeds of an Exempt
Loan, which limitations shall be applied pro rata to the limited Highly
Compensated Participants.
Notwithstanding the foregoing, in the case of a sale to the Plan in which a
seller elects nonrecognition of gain under Code (S) 1042 of Employer Securities,
no portion of such Employer Securities acquired may be allocated or accrue
(directly or indirectly under any plan of the Employer meeting the requirements
of (S) 401(a) of the Code) during the "nonallocation period" to
(i) any Participant who makes an election under (S) 1042 of the Code,
22
<PAGE>
(ii) any individual who is related to the Participant within the meaning
of (S) 267(b) of the Code (this provision shall not apply to lineal
descendants of the electing Participant if the aggregate amount
allocated to the benefit of all such lienal descendants during the
"nonallocation period" does not exceed more than five percent (5%) of
the Employer Securities (or amounts allocated in lieu thereof) held
by the Plan which are attributable to the sale to the Plan by the
Participant related to such descendants (within the meaning of (S)
267(c) of the Code) or
(iii) any other person who owns (after application of Code (S) 318(a) and
without regard to the employee trust exception of Code (S)
318(a)(2)(B(i)) more than twenty-five percent (25%) of any class of
outstanding stock of the Employer which issued such Employer
Securities or of any corporation which is a member of the same
controlled group of corporations or of the total value of such class
of outstanding stock of any such corporation as defined in (S) 409 of
the Code.
The "nonallocation period" shall mean the period beginning on the date of the
sale of the Employer Securities and ending on the later of the date which is 10
years after the date of sale or the date of the plan allocation attributable to
the final payment of the Exempt Loan.
4.09 EQUITABLE ALLOCATIONS. If the Administration Committee determines in
---------------------
making any valuation, allocation, correction or addition of interest to any
Account under the provisions of the Plan that the strict application of the
provisions of the Plan will not produce an equitable and nondiscriminatory
allocation among the Accounts of the Participants, it may modify any procedure
specified in the Plan for the purpose of achieving an equitable and
nondiscriminatory allocation in accordance with the general concepts of the
Plan; provided, however, that any such modification shall not reduce any
Participant's Accrued Benefit and shall be consistent with the provisions of (S)
401(a)(4) of the Code. Should the Administration Committee in good faith deter
mine that certain expenses of administration paid by the Trustee during the Plan
Year under consideration are not general, ordinary, and usual and should not
equitably be borne by all Participants, but should be borne only by one or more
Participants, for whom or because of whom such expenses were incurred, the
Administration Committee shall make suitable adjustments by debiting the
particular Account or Accounts of such one or more Participants, Former
Participants, or Beneficiaries; provided, however, that any such adjustment must
be nondiscriminatory and consistent with the provisions of (S) 401(a) of the
Code.
4.10 VALUATION OF THE TRUST FUND. The Administration Committee shall
---------------------------
direct the Trustee, as of each Valuation Date, and at such other date or dates
deemed necessary by the Administration Committee, to determine the net worth of
the assets comprising the Trust Fund. In determining such net worth, the
Trustee shall value the assets comprising the Trust Fund at their fair market
value as of the Valuation Date. With respect to activities carried on by the
Plan, an independent appraiser meeting requirements similar to those prescribed
by regulations under Code (S) 170(a)(1) must perform all valuations of Employer
Securities which are not readily tradeable on an established securities market.
The valuation requirement of the immediately preceding sentence
23
<PAGE>
applies to all Employer Securities acquired by the Plan. Fair market value of
Employer Securities means the value (i) determined as of the date of the
exercise of an option if the exercise is by a Disqualified Person, or (ii) in
all other cases, determined as of the most recent Valuation Date.
4.11 ALLOCATION DOES NOT CREATE RIGHTS. No Participant shall acquire any
---------------------------------
right to or interest in any specific asset of the Trust as a result of the
allocations provided for in the Plan.
24
<PAGE>
ARTICLE V
TERMINATION OF SERVICE-PARTICIPANT VESTING
5.01 NORMAL RETIREMENT. A Participant's Normal Retirement Age
-----------------
(hereinafter so-called) is age sixty-five (65). A Participant who remains in
the employ of the Employer after attaining Normal Retirement Age shall continue
to participate in Employer contributions until the date of his actual
retirement. Upon termination of a Participant's employment for any reason after
attaining Normal Retirement Age, the Administration Committee shall direct the
Trustee to make payment of the full value of the Participant's Accrued Benefit
to him at such times and in such manner as provided in Article VI hereof. The
value of the Participant's Accrued Benefit shall be determined as of the
Anniversary Date which is on or, if not on, immediately follows the date of the
Participant's employment termination. Provided however, the Trustee may, at the
direction of the Administration Committee, value the Participant's Accrued
Benefit as of the Anniversary Date immediately preceding the date of the
Participant's employment termination, for purposes of making an immediate
distribution to the Participant of his Accrued Benefit, and shall make a
subsequent lump sum distribution to the Participant of any additional benefit
accruing subsequent to the date of his termination through and including the
Valuation Date immediately following the date of the Participant's termination
of employment. Immediate distributions may be reduced by the Trustee to take
into account declines in market value.
5.02 EARLY RETIREMENT. A Participant who is at least fifty-five (55)
----------------
years of age and who has completed twenty (20) Years of Service may elect to
take early retirement. In the event that a Participant makes such an election,
the Administration Committee shall direct the Trustee to make payment of the
full value of the Participant's Accrued Benefit to him at such times and in such
manner as provided in Article VI hereof. The value of the Participant's Accrued
Benefit shall be determined as of the Anniversary Date which is on or, if not
on, immediately follows the date of the Participant's employment termination.
Provided however, the Trustee may, at the direction of the Administration
Committee, value the Participant's Accrued Benefit as of the Anniversary Date
immediately preceding the date of the Participant's employment termination, for
purposes of making an immediate distribution to the Participant of his Accrued
Benefit, and shall make a subsequent lump sum distribution to the Participant of
any additional benefit accruing subsequent to the date of his termination
through and including the Valuation Date immediately following the date of the
Participant's termination of employment. Immediate distributions may be reduced
by the Trustee to take into account declines in market value.
5.03 DISABILITY. A Participant who becomes permanently disabled shall
----------
have the full value of his Accrued Benefit paid to him at such times and in such
manner as provided in Article VI hereof. The value of a disabled Participant's
Accrued Benefit shall be determined as of the Valuation Date which is on, or if
not on, which immediately follows the date of the Participant's termination of
employment due to disability. Provided however, the Trustee may, at the
direction of the Administration Committee, value the Participant's Accrued
Benefit as of the Valuation Date immediately preceding the date of the
Participant's employment termination, for purposes of making
25
<PAGE>
an immediate distribution to the Participant of his Accrued Benefit, and shall
make a subsequent lump sum distribution to the Participant of any additional
benefit accruing subsequent to the date of his termination through and including
the Valuation Date immediately following the date of the Participant's
termination of employment. A Participant shall be considered "disabled" if he
suffers from a physical or mental condition resulting from bodily injury,
disease, or mental disorder which renders him incapable of continuing his usual
and customary employment with the Employer. The disability of a Participant
shall be determined by a licensed physician chosen by the Administration
Committee. The Administration Committee shall apply the provisions of this
Section 5.03 in a non-discriminatory, consistent and uniform manner.
5.04 DEATH. Upon the death of a Participant, his Beneficiary shall be
-----
entitled to receive the full value of the deceased Participant's Accrued Benefit
determined as of the Valuation Date which is on or, if not on, which immediately
follows the date of such Participant's death, at such times and in such manner
as provided in Article VI hereof. Provided however, the Trustee may, at the
direction of the Administration Committee, value the Participant's Accrued
Benefit as of the Valuation Date immediately preceding the date of the
Participant's death, for purposes of making an immediate distribution to the
Participant's Beneficiary of his Accrued Benefit, and shall make a subsequent
lump sum distribution to said Beneficiary of any additional benefit accruing
subsequent to the date of the Participant's death through and including the
Valuation Date immediately following the date of the Participant's death.
5.05 TERMINATION OF SERVICE PRIOR TO NORMAL RETIREMENT AGE. If a
-----------------------------------------------------
Participant's employment terminates prior to Normal Retirement Age for any
reason other than death or permanent disability, then for each Year of Service
he shall receive a percentage of his Accrued Benefit derived from Employer
contributions and forfeitures allocated to Participant Accounts (the balance
being a forfeiture) equal to the following percentage:
---------------------------------------------------------
Years of Service Percentage of Accrued
With the Employer Benefit Payable
---------------------------------------------------------
Less than 1 year 0%
1 year but less than 2 0%
2 years but less than 3 20%
3 years but less than 4 40%
4 years but less than 5 60%
5 years but less than 6 80%
6 years or more 100%
---------------------------------------------------------
26
<PAGE>
Forfeitures shall be reallocated among the remaining Participants who are
entitled to share in Employer contributions and forfeitures for the Plan Year in
which such forfeiture occurs in accordance with the provisions of Section 4.08.
A Participant shall be 100% vested in his Accounts upon the attainment of Normal
Retirement Age, death or permanent disability.
5.06 YEAR OF SERVICE - VESTING. For purposes of vesting under Section
---------------
5.05, Year of Service means any Plan Year during which an Employee completes not
less than 1,000 Hours of Service.
5.07 BREAK IN SERVICE - VESTING. For purposes of this Article V, a
--------------------------
Participant incurs a "Break in Service" if during any Plan Year he does not
complete more than 500 Hours of Service.
5.08 INCLUDED YEARS OF SERVICE - VESTING. For purposes of determining
-----------------------------------
"Years of Service" under Section 5.06, the Plan takes into account all Years of
Service an Employee completes with the Employer except any Year of Service
before a Break in Service if the number of consecutive Breaks in Service equals
or exceeds the greater of five (5) or the aggregate number of Years of Service
prior to the Break. This exception applies only if the Participant is 0% vested
in his Accrued Benefit derived from Employer contributions at the time he has a
Break in Service. Furthermore, the aggregate number of Years of Service before a
Break in Service does not include Years of Service not required to be taken into
account under this exception by reason of any prior Break in Service.
For the sole purpose of determining a Participant's nonforfeitable
percentage of his Accrued Benefit derived from Employer contributions which
accrued for his benefit prior to a Forfeiture Break in Service, the Plan
disregards any Year of Service after the Participant first incurs a Forfeiture
Break in Service. The Participant incurs a Forfeiture Break in Service when he
incurs five (5) consecutive Breaks in Service.
The Plan does not apply the Break in Service rule under Code (S)
411(a)(6)(B). Therefore, an Employee need not complete a Year of Service after a
Break in Service before the Plan takes into account the Employee's otherwise
includible Years of Service under this Section 5.08.
5.09 FORFEITURE OCCURS. A Participant's forfeiture, if any, of his
-----------------
Accrued Benefit derived from Employer contributions occurs under the Plan on the
earlier of:
(a) The last day of the Plan Year in which the Participant first
incurs a Forfeiture Break in Service; or
(b) The date the Participant receives a cash-out distribution.
The Administration Committee determines the percentage of a Participant's
Accrued Benefit forfeiture, if any, under this Section 5.09 solely by reference
to the vesting schedule of Section 5.05.
27
<PAGE>
A Participant does not forfeit any portion of his Accrued Benefit for any other
reason or cause except as expressly provided by this Section 5.09 or as provided
under the Plan's unclaimed account procedure.
5.10 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS/ RESTORATION
--------------------------------------------------------------------
OF FORFEITED ACCRUED BENEFIT. If, pursuant to Article VI, a partially-vested
- ----------------------------
Participant receives a cash-out distribution before he incurs a Forfeiture Break
in Service (as defined in Section 5.08), the cash-out distribution will result
in an immediate forfeiture of the nonvested portion of the Participant's Accrued
Benefit derived from Employer contributions, as provided in Section 5.09. A
partially-vested Participant is a Participant whose Nonforfeitable percentage
determined under Section 5.05 is less than 100%. A cash-out distribution is a
distribution of the entire present value of the Participant's Nonforfeitable
Accrued Benefit.
(a) Restoration and Conditions upon Restoration. A partially-
-------------------------------------------
vested Participant who is re-employed by the Employer after receiving a
cash-out distribution of the Nonforfeitable percentage of his Accrued
Benefit may repay the Trustee the amount of the cash-out distribution
attributable to Employer contributions, unless the Participant no longer
has a right to restoration under the requirements of this Section 5.10. If
a partially-vested Participant makes the cash-out distribution repayment,
the Administration Committee, subject to the conditions of this Section
5.10(a), must restore his Accrued Benefit attributable to Employer
contributions to the same dollar amount as the dollar amount of his Accrued
Benefit on the Valuation Date, or other valuation date, immediately
preceding the date of the cash-out distribution, unadjusted for any gains
or losses occurring subsequent to that Valuation Date, or other valuation
date. Restoration of the Participant's Accrued Benefit includes restoration
of all Code (S) 411(d)(6) protected benefits with respect to that restored
Accrued Benefit, in accordance with applicable Treasury regulations.
The Administration Committee will not restore a re-employed
Participant's Accrued Benefit under this Section 5.10(a) if:
(1) five (5) years or more have elapsed since the
Participant's first re-employment date with the Employer following
the cash-out distribution; or
(2) the Participant incurred a Forfeiture Break in Service
(as defined in Section 5.08). This condition also applies if the
Participant makes repayment within the Plan Year in which he incurs
the Forfeiture Break in Service and that Forfeiture Break in
Service would result in a complete forfeiture of the amount the
Administration Committee otherwise would restore.
(b) Time and Method of Restoration. If neither of the two
------------------------------
conditions preventing restoration of the Participant's Accrued Benefit
applies, the Administration Committee will restore the Participant's
Accrued Benefit as of the Plan Year Valuation Date coincident with
28
<PAGE>
or immediately following the repayment. To restore the Participant's
Accrued Benefit, the Administration Committee, to the extent necessary,
will allocate to the Participant's Account:
(1) first, from the amount, if any, of Participant
forfeitures the Administration Committee would otherwise allocate
under Section 5.05;
(2) second, from the amount, if any, of the Trust Fund net
income or gain for the Plan Year; and
(3) third, from the Employer contribution for the Plan Year
to the extent made under a discretionary formula.
To the extent the amounts described in clauses (1), (2) and (3) are
insufficient to enable the Administration Committee to make the required
restoration, the Employer must contribute, without regard to any
requirement or condition of Section 3.01, the additional amount necessary
to enable the Administration Committee to make the required restoration.
If, for a particular Plan Year, the Administration Committee must restore
the Accrued Benefit of more than one re-employed Participant, then the
Administration Committee will make the restoration allocations to each such
Participant's Account in the same proportion that a Participant's restored
amount for the Plan Year bears to the restored amount for the Plan Year of
all re-employed Participants. The Administration Committee will not take
into account any allocation under this Section 5.10 in applying the
limitation on allocations under Article III.
(c) 0% Vested Participant. The deemed cash-out rule applies to a
---------------------
0% vested Participant. A 0% vested Participant is a Participant whose
Accrued Benefit derived from Employer contributions is entirely forfeitable
at the time of his separation from Service. Under the deemed cash-out rule,
the Administration Committee will treat the 0% vested Participant as having
received a cash-out distribution on the date of the Participant's
separation from Service or, if the Participant's Account is entitled to an
allocation of Employer contributions for the Plan Year in which he
separates from Service, on the last day of that Plan Year. For purposes of
applying the restoration provisions of this Section 5.10, the
Administration Committee will treat the 0% vested Participant as repaying
his cash-out "distribution" on the first date of his re-employment with the
Employer.
5.11 SEGREGATED INVESTMENT ACCOUNT FOR REPAID AMOUNT. Until the
-----------------------------------------------
Administration Committee restores the Participant's Accrued Benefit, as
described in Section 5.10, the Trustee will invest the cash-out amount the
Participant has repaid in a segregated investment account maintained solely for
that Participant. The Trustee must invest the amount in the Participant's
segregated investment account in Federally insured interest bearing savings
account(s) or time deposit(s) (or a combination of both), or in other fixed
income investments. Until commingled with the balance of the Trust Fund on the
date the Administration Committee restores the Participant's Accrued Benefit,
the Participant's segregated investment account remains a part of
29
<PAGE>
the Trust, but it alone shares in any income it earns and it alone bears any
expense or loss it incurs. The Administration Committee will direct the Trustee
to repay to the Participant as soon as is administratively practicable the full
amount of the Participant's segregated investment account if the Administration
Committee determines either of the conditions of Section 5.10(a) prevents
restoration as of the applicable Valuation Date, notwithstanding the
Participant's repayment.
30
<PAGE>
ARTICLE VI
TIME AND METHOD OF PAYMENT OF BENEFITS
6.01 DISTRIBUTION AND PAYMENT REQUIREMENTS. Unless the Participant elects
-------------------------------------
in writing to have the Trustee apply other distribution provisions of the Plan,
the Trustee must distribute the Nonforfeitable portion of the Participant's
Accrued Benefit no later than the time prescribed by this Section 6.01,
irrespective of any other provision of the Plan. The distribution provisions of
this Section 6.01 are subject to the consent and form of distribution
requirements of the Plan.
(a) Retirement, Disability and Death. If the Participant separates
--------------------------------
from Service by reason of the attainment of Normal Retirement Age, death,
or disability, the Administration Committee will direct the Trustee to
commence distribution of the Accrued Benefit not later than the 60th day
after the close of the Plan Year in which the applicable event occurs or
separation from Service, if later.
(b) Other Separation from Service. If the Participant separates
-----------------------------
from Service for any reason other than by reason of the attainment of
Normal Retirement Age, death or disability, the Administration Committee
will direct the Trustee to commence distribution of the Participant's
Nonforfeitable Accrued Benefit not later than one year after the close of
the fifth Plan Year following the Plan Year in which the Participant
separated from Service. If the Participant resumes employment with the
Employer on or before the last day of the fifth Plan Year following the
Plan Year of his separation from Service, the mandatory distribution
provisions of this paragraph (b) do not apply. For purposes of this Section
6.01(b), the Accrued Benefit does not include any Employer Securities
acquired with the proceeds of an Exempt Loan until the close of the Plan
Year in which the borrower repays the Exempt Loan in full.
(c) Required Beginning Date. If any distribution commencement date
-----------------------
described under Paragraph (a) of this Section 6.01, either by Plan
provision or by Participant election (or nonelection), is later than the
Participant's Required Beginning Date, the Administration Committee instead
must direct the Trustee to make distribution under this Section 6.01 on the
Participant's Required Beginning Date. A Participant's Required Beginning
Date is the April 1 following the close of the calendar year in which the
Participant attains age 70 1/2. A mandatory distribution at the
Participant's Required Beginning Date will be in lump sum unless an
alternate method is provided for in the Plan.
(d) Distribution in Excess of $3500. No distribution shall be made
-------------------------------
to a Participant without the Participant's consent if the Nonforfeitable
Accrued Benefit shall exceed $3500, unless the Participant shall have
attained Normal Retirement Age.
31
<PAGE>
(e) Death of the Participant. The Administration Committee will
------------------------
direct the Trustee, in accordance with this Section, to distribute to the
Participant's Beneficiary the Participant's Nonforfeitable Accrued Benefit
remaining in the Trust at the time of the Participant's death subject to
the requirements of Code (S) 401(a)(9) and any regulations issued
thereunder.
(1) Deceased Participant's Nonforfeitable Accrued Benefit
-----------------------------------------------------
Does Not Exceed $3,500. The Administration Committee must direct
----------------------
the Trustee to distribute the deceased Participant's Nonforfeitable
Accrued Benefit in lump sum, as soon as administratively
practicable following the Participant's death or, if later, the
date on which the Administration Committee receives notification of
or otherwise confirms the Participant's death.
(2) Deceased Participant's Nonforfeitable Accrued Benefit
------------------------------------------------------
Exceeds $3,500. The Administration Committee will direct the
--------------
Trustee to distribute the deceased Participant's Nonforfeitable
Accrued Benefit at the time and in the method elected by the
Participant or, if applicable, by the Beneficiary, as permitted
under this Article VI. In the absence of an election the
Administration Committee will direct the Trustee to distribute the
Participant's undistributed Nonforfeitable Accrued Benefit in lump
sum on the first distribution date following the close of the Plan
Year in which the Participant's death occurs or, if later, the
first distribution date following the date the Administration
Committee receives notification of or otherwise confirms the
Participant's death.
If the death benefit is payable in full to the Participant's
surviving spouse, the surviving spouse, in addition to the distribution
options provided in this Section, may elect, if available, distribution at
any time or in any form this Article VI would permit for a Participant.
(f) Distribution Date. A distribution date, unless otherwise
-----------------
specified within the Plan, is the first day of each month of each Plan Year
or as soon as administratively practicable thereafter.
6.02 ELECTION AND MANNER OF PAYMENT. Not earlier than ninety (90) days,
------------------------------
but not later than thirty (30) days, before the Participant's distribution date,
the Administration Committee shall provide a benefit notice to the Participant.
The notice shall explain the options and material features available to the
Participant regarding the benefit distribution and the Participant's right to
defer distribution until attainment of Normal Retirement Age.
The Administration Committee will direct the Trustee to make distribution
of the Accrued Benefit in a lump sum. In the event any part of the Accrued
Benefit is subject to the "put option" of Section 7.01 and the distribution for
all Participants exceeds $50,000, the Administrative Committee may defer
payment of the distribution over a period of years, not exceeding five (5) years
32
<PAGE>
from the date a Participant is entitled to receive his Accrued Benefit. The
Administrative Committee shall make its decision to defer payment of the
distribution over the deferred period based upon the availability of liquid
assets of the Trust and the Company which will be required in the distributions.
If a Participant's Accrued Benefit attributable to Employer Securities exceeds
$500,000, the maximum payment period, subject to a contrary election by the
Participant, is five (5) years plus one additional year (but no more than five
(5) additional years) for each $100,000 (or fraction of $100,000) by which the
Employer Securities Account exceeds $500,000. The Administration Committee will
apply this Section 6.02 by adjusting the $500,000 and $100,000 limitations by
the adjustment factor prescribed by the Secretary of the Treasury under Code (S)
415(d).
6.03 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES. The
-----------------------------------------------------------
joint and survivor annuity requirements do not apply to this Plan. The Plan does
not provide any annuity distribution to Participants nor to surviving spouses.
6.04 DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS. Nothing contained in
---------------------------------------------
this Plan prevents the Trustee, in accordance with the direction of the
Administration Committee, from complying with the provisions of a qualified
domestic relations order (as defined in Code (S) 414(p)). This Plan specifically
permits distribution to an alternate payee under a qualified domestic relations
order at any time, irrespective of whether the Participant has attained his
earliest retirement age (as defined under Code (S) 414(p)) under the Plan. A
distribution to an alternate payee prior to the Participant's attainment of
earliest retirement age is available only if: (1) the order specifies
distribution at that time or permits an agreement between the Plan and the
alternate payee to authorize an earlier distribution; and (2) if the present
value of the alternate payee's benefits under the Plan exceeds $3,500, and the
order requires, the alternate payee consents to any distribution occurring prior
to the Participant's attainment of earliest retirement age. Nothing in this
Section 6.05 permits a Participant to receive distribution at a time otherwise
not permitted under the Plan nor does it permit the alternate payee to receive a
form of payment not permitted under the Plan.
The Administration Committee must establish reasonable procedures to
determine the qualified status of a domestic relations order. Upon receiving a
domestic relations order, the Administration Committee promptly will notify the
Participant and any alternate payee named in the order, in writing, of the
receipt of the order and the Plan's procedures for determining the qualified
status of the order. Within a reasonable period of time after receiving the
domestic relations order, the Administration Committee must determine the
qualified status of the order and must notify the Participant and each alternate
payee, in writing, of its determination. The Administration Committee must
provide notice under this paragraph by mailing to the individual's address
specified in the domestic relations order, or in a manner consistent with
applicable regulations.
If any portion of the Participant's Nonforfeitable Accrued Benefit is
payable during the period the Administration Committee is making its
determination of the qualified status of the domestic relations order, the
Administration Committee must make a separate accounting of the amounts payable.
If the Administration Committee determines the order is a qualified domestic
relations order within eighteen (18) months of the date amounts first are
payable following receipt of the order, the
33
<PAGE>
Administration Committee will direct the Trustee to distribute the payable
amounts in accordance with the order. If the Administration Committee does not
make its determination of the qualified status of the order within the 18-month
determination period, the Administration Committee will direct the Trustee to
distribute the payable amounts in the manner the Plan would distribute if the
order did not exist and will apply the order prospectively if the Administration
Committee later determines the order is a qualified domestic relations order.
To the extent it is not inconsistent with the provisions of the qualified
domestic relations order, the Administration Committee may direct the Trustee to
invest any partitioned amount in a segregated subaccount or separate account and
to invest the account in Federally insured, interest-bearing savings account(s)
or time deposit(s) (or a combination of both), or in other fixed income
investments. A segregated subaccount remains a part of the Trust, but it alone
shares in any income it earns, and it alone bears any expense or loss it incurs.
The Trustee will make any payments or distributions required under this Section
6.04 by separate benefit checks or other separate distribution to the alternate
payee(s).
6.05 DISTRIBUTION DEMAND FOR EMPLOYER SECURITIES. Distribution of a
-------------------------------------------
Participant's benefit may be made in cash or Employer Securities or both,
provided, however, that if a Participant or Beneficiary so demands, such benefit
shall be distributed only in the form of Employer Securities. Prior to making a
distribution of benefits, the Administrator shall advise the Participant or his
Beneficiary, in writing, of the right to demand that benefits be distributed
solely in Employer Securities.
If a Participant or Beneficiary demands that benefits be distributed solely
in Employer Securities, distribution of a Participant's benefit will be made
entirely in whole shares or other units of Employer Securities. Any balance in
a Participant's General Investment Account will be applied to acquire for
distribution the maximum number of whole shares or other units of Employer
Securities at the then fair market value. Any fractional unit value unexpended
will be distributed in cash. If Employer Securities are not available for
purchase by the Trustee, then the Trustee shall hold such balance until Employer
Securities are acquired and then make such distribution, subject to this
Article.
If the charter or bylaws of the Company restrict the ownership of
substantially all outstanding shares of Employer Securities to current Employees
and the Trust, the distribution of a Participant's Accrued Benefit may be made
entirely in cash without granting him the right to demand distribution in
Employer Securities. Alternatively, Employer Securities may be distributed
subject to the requirement that they be immediately resold to the Company under
payment terms that comply with Section 7.01.
Any balance in a Participant's segregated investment account is not subject
to the demand right that benefits be distributed in the form of Employer
Securities.
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The Trustee will make distribution from the Trust only on instructions from
the Plan Administrator.
6.06 ROLLOVER OF LUMP SUM DISTRIBUTION. This Section applies to all
---------------------------------
distributions other than the distribution of Employer Securities.
Notwithstanding any provision of the Plan to the contrary that would otherwise
limit a distributee's election under this Article, a distributee may elect, at
the time and in the manner prescribed by the Plan Administrator, to have any
portion of an eligible rollover distribution paid directly to an eligible
retirement plan specified by the distributee in a direct rollover.
For purposes of this Section, the following definitions apply:
(a) "Eligible rollover distribution." An eligible rollover
distribution is any distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover distribution does
not include: (i) any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for the life
(or life expectancy) of the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's designated beneficiary,
or for a specified period of ten (10) years or more; (ii) any distribution to
the extent such distribution is required under Code (S)401(a)(9); and (iii) the
portion of any distribution that is not includible in gross income (determined
without regard to the exclusion of net unrealized appreciation with respect to
Employer Securities).
(b) "Eligible retirement plan." An eligible retirement plan is an
individual retirement account described in Code (S)408(a), an individual
retirement annuity described in Code (S)408(b), an annuity plan described in
Code (S)403(a), or a qualified trust described in Code (S)401(a), that accepts
the distributee's eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an eligible retirement
plan is an individual retirement account or individual retirement annuity.
(c) "Distributee." A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's surviving spouse and
the Employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code (S)414(p),
are distributees with regard to the interest of the spouse or former spouse.
(d) "Direct rollover." A direct rollover is a payment by the Plan
to the eligible retirement plan specified by the distributee.
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ARTICLE VII
EMPLOYER SECURITIES
7.01 PUT OPTION. The Employer will issue a "put option" to each
----------
Participant receiving a distribution of Employer Securities from the Trust if
the Employer Securities are not publicly traded. The put option will permit the
Participant to sell the Employer Securities to the Employer, at any time during
two option periods, at the current fair market value.
The first put option period runs for a period of at least sixty (60) days
commencing on the date of distribution of Employer Securities to the
Participant. The second put option period runs for a period of at least sixty
(60) days commencing after the new determination of the fair market value of
Employer Securities by the Administration Committee and notice to the
Participant of the new fair market value. A Disqualified Person shall be
required to wait for the determination of the next current fair market value
determination as required by Section 4.10.
If a Participant (or his Beneficiary) exercises his put option, the
Employer must purchase the Employer Securities at fair market value upon the
terms provided under this Section 7.01. The Employer may grant the Trust an
option to assume the Employer's rights and obligations at the time a Participant
exercises an option under this Section 7.01.
If the Employer (or the Trustee, at the direction of the Administration
Committee) exercises an option to purchase a Participant's Employer Securities
pursuant to an offer given under this Section 7.01, the purchaser(s) must make
payment in lump sum or, if the distribution to the Participant (or to his
Beneficiary) constitutes a Total Distribution, in substantially equal
installments over a period not exceeding five (5) years, subject to the
Participant's election for a longer payment period than five (5) years. A "Total
Distribution" to a Participant (or to a Beneficiary) is the distribution, within
one taxable year of the recipient, of the entire balance to the Participant's
credit under the Plan.
In the case of a distribution which is not a Total Distribution or which is
a Total Distribution with respect to which the purchaser(s) will make payment in
lump sum, the purchaser(s) must pay the Participant (or Beneficiary) the fair
market value of the Employer Securities repurchased no later than thirty (30)
days after the date the Participant (or Beneficiary) exercises the put option.
In the case of a Total Distribution with respect to which the purchaser(s) will
make installment payments, the purchaser(s) must make the first installment
payment no later than thirty (30) days after the Participant (or Beneficiary)
exercises the put option. For installment amounts not paid within thirty (30)
days of the exercise of the put option, the purchaser(s) must evidence the
balance of the purchase price by executing a promissory note, delivered to the
selling Participant at the Closing. The note delivered at Closing must bear a
reasonable rate of interest, determined as of the Closing Date, and the
purchaser(s) must provide adequate security. The note must provide for equal
annual installments with interest payable with each installment, the first
installment being due and payable one year after the Closing Date. The note
further must provide for acceleration in the event of thirty
36
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(30) days' default of the payment on interest or principal and must grant to the
maker of the note the right to prepay the note in whole or in part at any time
or times without penalty; provided however, the purchaser(s) may not have the
right to make any prepayment during the calendar year or fiscal year of the
Participant (or Beneficiary) in which the Closing Date occurs.
In the case of a purchase from a Disqualified Person, all purchases of
Employer Securities shall be made at prices which, in the judgment of an
Independent Appraiser, do not exceed the fair market value of such shares as of
the date of the transaction.
The requirements of this Section 7.01 shall not apply to the distribution
of any portion of a Participant's Accrued Benefit which has been diversified or
transferred to another plan pursuant to the provisions of Section 7.02 hereof.
Notwithstanding the foregoing, the foregoing shall not be applicable to a
financial institution as defined in Code (S) 581 which is prohibited from
redeeming or purchasing its own securities, if the Participant has been provided
the option to receive its distribution from the Plan in cash.
The protections and rights described in this Section 7.01 are nonterminable
with respect to all Employer Securities acquired with an Exempt Loan. Should
this Plan cease to be an employee stock ownership plan, or should the Exempt
Loan be repaid, Employer Securities acquired with the proceeds of an Exempt Loan
will continue to be subject to the provisions of this Section 7.01 after the
loan is paid.
7.02 DIVERSIFICATION OF INVESTMENTS. Within ninety (90) days after the
------------------------------
close of each Plan Year in the Qualified Election Period, each Participant who
has attained age fifty-five (55) and has completed ten (10) years of
participation under the Plan shall be permitted to direct the Plan as to the
investment of at least twenty-five percent (25%) of the number of shares ever
allocated to the Employer Securities Account, less those shares previously
diversified and or distributed. In the case of the sixth (6th) year of the
Qualified Election Period, the preceding sentence shall be applied by
substituting "fifty percent (50%)" for "twenty-five percent (25%)." The
Participant's direction shall be effective no later than ninety (90) days after
the close of the Plan Year.
For purposes of this Section, Qualified Election Period shall mean the six
(6) Plan Year periods beginning with the Plan Year in which the Participant was
first eligible to make the election.
The Administration Committee shall offer at least three (3) investment
options (not inconsistent with regulations prescribed by Internal Revenue
Service regulations) to each Participant who makes an election under this
Section 7.02 and such funds shall be held in a segregated investment account
under the General Investment Account.
In lieu of offering such investment options, the Administration Committee
may direct that all amounts subject to Participant elections under this Section
7.02 be distributed to Participants.
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All such distributions shall be distributed within ninety (90) days after the
close of the Plan Year and shall be subject to the requirements of Article VI of
this Plan.
In lieu of receiving a cash distribution under this Section 7.02, a
Participant may direct the Plan to transfer his distribution to another
qualified plan of the Company which accepts such transfers, provided that such
plan permits employee-directed investments and does not invest in Employer
Securities to a substantial degree. Such transfer shall be made within ninety
(90) days after the close of the Plan Year.
7.03 CASH DIVIDENDS. Cash dividends, if any, on shares of Employer
--------------
Securities allocated to Participant Accounts may be accumulated in the Trust or
may be paid to Participants currently as determined in the discretion of the
Board of Directors of the Company, exercised in a uniform and nondiscriminatory
manner. Provided that if the Plan is primarily invested in Employer Securities,
it is intended that the Company shall be allowed a deduction with respect to any
dividends paid on shares of Employer Securities of any class held by the Plan on
the record date to the extent such dividends are paid in cash directly to the
Participants, or their Beneficiaries, or are paid to the Plan and are
distributed from the Plan to the Participants or their Beneficiaries not later
than ninety (90) days after the close of the Plan Year in which paid. Provided
further that if the Plan is primarily invested in Employer Securities, it is
also intended that the Company shall be allowed a deduction for any dividends
paid on shares of Employer Securities (whether or not allocated) and used to
make payments on an Exempt Loan, provided that in the case of dividends paid on
allocated shares, Employer Securities having a fair market value equal to the
dividends will be allocated to such Participants for the year in which such
dividends would otherwise have been allocated to such Participants.
7.04 RIGHT OF FIRST REFUSAL. If any Participant (or Beneficiary) who
----------------------
receives Employer Securities which are not publicly traded, under this Plan
desires to dispose of any of his Employer Securities for any reason during his
lifetime (whether by sale, assignment, gift or any other method of transfer), he
first must offer the Employer Securities for sale to the Employer. The
Administration Committee may require a Participant (or Beneficiary) entitled to
a distribution of Employer Securities to execute an appropriate stock transfer
agreement (evidencing the right of first refusal) prior to receiving a
certificate for Employer Securities.
In the case of an offer by a third party, the offer of the Employer is
subject to all the terms and conditions set forth in Section 7.01, based on the
price equal to the fair market value per share and payable in accordance with
the terms of Section 7.01, unless the selling price and terms offered to the
Participant by the third party are more favorable to the Participant than the
selling price and terms of Section 7.01, in which event, the selling price and
terms of the offer of the third party apply. The Employer must give written
notice to the offering Participant of its acceptance of the Participant's offer
within fourteen (14) days after the Participant has given written notice to the
Employer, or the Employer's rights under this Section 7.04 will lapse. The
Employer may grant the Plan the option to assume the Employer's rights and
obligations with respect to all or any part of the Employer Securities offered
to the Employer under this Section 7.04.
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7.05 VOTING EMPLOYER SECURITIES. The Trustee shall vote all Employer
--------------------------
Securities held by it as part of the Plan assets unless provided otherwise
hereinafter:
(a) If any agreement entered into by the Trust provides for voting
of any shares of Employer Securities pledged as security for any obligation
of the Plan, then such shares of Employer Securities shall be voted in
accordance with such agreement. Otherwise, the Trustee shall vote the
Employer Securities pledged.
(b) If the Employer has a registration-type class of securities,
each Participant or Beneficiary shall be entitled to direct the Trustee as
to the manner in which the Employer Securities which are allocated to the
Employer Securities Account of such Participant or Beneficiary is to be
voted.
(c) If the Employer does not have a registration-type class of
securities, each Participant or Beneficiary in the Plan shall be entitled
to direct the Trustee as to the manner in which voting rights on shares of
Employer Securities which are allocated to the Employer Securities Account
of such Participant or Beneficiary are to be exercised with respect to any
corporate matter which involves the voting of such shares with respect to
the approval or disapproval of any corporate merger or consolidation,
recapitalization, reclassification, liquidation, dissolution, sale of
substantially all assets of a trade or business, or such similar
transaction as prescribed in applicable regulations.
(d) If the Employer does not have a registration-type class of
securities and the by-laws of the Employer require the Plan to vote an
issue in a manner that reflects a one-man, one-vote philosophy, each
Participant or Beneficiary shall be entitled to cast one vote on an issue
and the Trustee shall vote the shares held by the Plan in proportion to the
results of the votes cast on the issue by the Participants and
Beneficiaries. The Trustee may not vote Employer Securities which a
Participant or Beneficiary, pursuant to this Section, fails to exercise
unless compelled to by Department of Labor rules and regulations.
(e) For purposes of this Section 7.05, the term "registration-type
class of securities" means: (i) a class of securities required to be
registered under Section 12 of the Securities Exchange Act of 1934; and
(ii) a class of securities which would be required to be so registered
except for the exemption from registration provided in subsection (g)(2)(H)
of such Section 12.
7.06 LOANS TO PURCHASE EMPLOYER SECURITIES. The Trustee is specifically
-------------------------------------
authorized to borrow money or to assume indebtedness for the purpose of
acquiring Employer Securities, subject to the following terms and conditions
which shall apply to the Exempt Loan:
(a) The Trustee will use the proceeds of the loan within a
reasonable time after receipt only for any or all of the following
purposes: (i) to acquire Employer Securities, (ii) to repay such loan, or
(iii) to repay a prior Exempt Loan. Except as provided in this Section
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<PAGE>
7.06, no Employer Security acquired with the proceeds of an Exempt Loan may
be subject to a put, call or other option, or buy-sell or similar
arrangement while held by and when distributed from this Plan, whether or
not this Plan is then an employee stock ownership plan.
(b) The interest rate of the Exempt Loan may not be more than a
reasonable rate of interest.
(c) Any collateral the Trustee pledges to the creditor must
consist only of the assets purchased by the borrowed funds and those assets
the Trust used as collateral on the prior Exempt Loan repaid with the
proceeds of the current Exempt Loan.
(d) The creditor may have no recourse against the Trust under the
Exempt Loan except with respect to such collateral given for the Exempt
Loan, contributions (other than contributions of Employer Securities) that
the Employer makes to the Trust to meet its obligations under the Exempt
Loan, and earnings attributable to such collateral and the investment of
such contributions. The payment made with respect to an Exempt Loan by the
Plan during a Plan Year must not exceed an amount equal to the sum of such
contributions and earnings received during or prior to the year less such
payments in prior years. The Administration Committee and the Trustee must
account separately for such contributions and earnings in the books of
account of the Plan until the Trust repays the Exempt Loan.
(e) In the event of default upon the loan, the value of Plan
assets transferred in satisfaction of the Exempt Loan must not exceed the
amount of the default, and if the lender is a Disqualified Person, the
Exempt Loan must provide for transfer of Plan assets upon default only upon
and to the extent of the failure of the Plan to meet the payment schedule
of the Exempt Loan.
(f) The Trustee must add and maintain all assets acquired with the
proceeds of an Exempt Loan in a Loan Suspense Account. In withdrawing
assets from the Loan Suspense Account, the Trustee will apply the
provisions of Treas. Reg. (S)(S) 54.4975-7(b)(8) and (15) as if all
securities in the Loan Suspense Account were encumbered. Upon the payment
of any portion of the loan, the Trustee will effect the release of assets
in the Loan Suspense Account from encumbrances. For each Plan Year during
the duration of the Exempt Loan, the number of Employer Securities released
must equal the number of encumbered Employer Securities held immediately
before release for the current Plan Year multiplied by a fraction. The
numerator of the fraction is the amount of principal and interest paid for
the Plan Year. The denominator of the fraction is the sum of the numerator
plus the principal and interest to be paid for all future Plan Years. The
number of future Plan Years under the loan must be definitely ascertainable
and must be determined without taking into account any possible extension
or renewal periods. If the interest rate under the Exempt Loan is
variable, the interest to be paid in future Plan Years must be computed by
using the interest rate applicable as of the end of the Plan Year. If
collateral includes more than one
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<PAGE>
class of Employer Securities, the number of Employer Securities of each
class to be released for a Plan Year must be determined by applying the
same fraction to each such class. The Administration Committee will
allocate assets withdrawn from the Loan Suspense Account to the Accounts of
Participants who otherwise share in the allocation of the Employer's
contribution for the Plan Year for which the Trustee has paid the portion
of the Exempt Loan resulting in the release of the assets. The
Administration Committee consistently will make this allocation as of each
Anniversary Date on the basis of non-monetary units, taking into account
the relative Compensation of all such Participants for such Plan Year.
The Administration Committee may also elect at the initiation of the
Exempt Loan to have the Employer Securities released from the Loan Suspense
Account solely with reference to principal payments. However, if release
is determined with reference to principal payments only, the following
additional rules apply: (1) the Exempt Loan must provide for annual
payments of principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts for ten (10)
years; (2) interest included in any payment is disregarded only to the
extent that it would be determined to be interest under standard loan
amortization tables; and (3) the entire duration of the Exempt Loan
repayment period does not exceed ten (10) years, even in the event of a
renewal, extension or refinancing of the Exempt Loan.
(g) The loan must be for a specific term and may not be payable at
the demand of any person except in the case of default.
(h) Notwithstanding the fact this Plan ceases to be an employee
stock ownership plan, Employer Securities acquired with the proceeds of an
Exempt Loan will continue after the Trustee repays the loan to be subject
to the provisions of Section 7.01 and 7.04 (if applicable) as required by
Treas. Reg. (S)(S) 54.4975-7(b)(4), (10), (11) and (12) relating to put,
call or other options and to buy-sell or similar arrangements, and shall
not be subjected to any additional puts, calls, options, buy-sell or
similar arrangements while held by or when distributed from the Plan,
except to the extent provided therein.
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ARTICLE VIII
EMPLOYER ADMINISTRATIVE PROVISIONS
8.01 INFORMATION. The Employer shall, upon request or as may be
-----------
specifically required hereunder, furnish or cause to be furnished, all of the
information or documentation which is necessary or required by the
Administration Committee and Trustee to perform their respective duties and
functions under the Plan. The Employer's records as to the current information
the Employer furnishes to the Administration Committee and Trustee shall be
conclusive as to all persons.
8.02 NO LIABILITY. The Employer assumes no obligation or responsibility
------------
to any of the Employees, Participants, or Beneficiaries for any act of, or
failure to act, on the part of the Administration Committee (unless the Employer
is the Administration Committee), or the Plan Administrator (unless the Employer
is the Plan Administrator).
8.03 EMPLOYER ACTION. Any action required of the Employer shall be by
---------------
resolution of its Board of Directors or by a person authorized to act by Board
resolution.
8.04 INDEMNITY. The Employer agrees it will indemnify and save harmless
---------
the Board of Directors, individual Trustee(s), and the members of the
Administration Committee, and each of them, from and against any and all loss
resulting from liability to which the Board of Directors, individual Trustee(s),
and the Administration Committee, or the members of the Board of Directors and
Administration Committee, may be subjected by reason of any act or conduct
(except willful or reckless misconduct) in their official capacities in the
administration of this Plan or Trust or both, including all expenses reasonably
incurred in their defense, in case the Employer fails to provide such defense.
The indemnification provisions of this Section 8.04 shall not relieve the Board
of Directors, individual Trustee(s), or any members of the Administration
Committee from any liability each may have under the Act for breach of a
fiduciary duty.
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ARTICLE IX
ADMINISTRATION COMMITTEE
9.01 APPOINTMENT OF COMMITTEE. The Employer shall appoint an
------------------------
Administration Committee to administer the Plan, the members of which may or may
not be Participants in the Plan.
9.02 TERM. Each member of the Administration Committee shall serve until
----
his successor is appointed. Any member of the Administration Committee may be
removed by the Board of Directors, with or without cause, which shall have the
power to fill any vacancy which may occur. An Administration Committee member
may resign upon written notice to the Employer.
9.03 COMPENSATION. The members of the Administration Committee shall
------------
serve without compensation for services as such, but the Employer shall pay all
expenses, including the expenses for any bond required under Act (S) 412. To
the extent such expenses are not paid by the Employer, they shall be paid by the
Trustee from the Trust Fund.
9.04 POWERS OF ADMINISTRATION COMMITTEE. The Administration Committee
----------------------------------
shall have the following powers and duties, which it shall exercise under the
Plan in a uniform and nondiscriminatory manner:
(a) To direct the administration of the Plan in accordance with
the provisions herein set forth;
(b) To adopt rules of procedure and regulations necessary for the
administration of the Plan provided the rules are not inconsistent with the
terms of the Plan;
(c) To determine all questions with regard to rights of Employees,
Participants, and Beneficiaries under the Plan, including but not limited
to rights of eligibility of an Employee to participate in the Plan, the
value of a Participant's Accrued Benefit, and the Accrued Benefit of each
Participant;
(d) To enforce the terms of the Plan and the rules and regulations
it adopts;
(e) To direct the Trustee as respects the crediting and
distribution of the Trust and all other matters within its discretion as
provided in the Trust Agreement;
(f) To review and render decisions respecting a claim for (or
denial of a claim for) a benefit under the Plan;
(g) To furnish the Employer with information which the Employer
may require for tax or other purposes;
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(h) To engage the service of counsel (who may, if appropriate, be
counsel for the Employer) and agents whom it may deem advisable to assist
it with the performance of its duties;
(i) To prescribe procedures to be followed by distributees in
obtaining benefits;
(j) To receive from the Employer and from Employees such
information as shall be necessary for the proper administration of the
Plan;
(k) To receive and review reports of the financial condition and
of the receipts and disbursements of the Trust Fund from the Trustee;
(l) To establish a nondiscriminatory policy which the Trustee
shall observe in making loans, if any, to Participants;
(m) To maintain, or cause to be maintained, separate Accounts in
the name of each Participant to reflect each Participant's Accrued Benefit
under the Plan;
(n) To select a secretary, who need not be a member of the
Administration Committee;
(o) To interpret and construe the Plan;
(p) To select the issuing company or companies from which
insurance contracts, if any, shall be purchased as provided herein; and to
determine the form, type, and kind of such contract;
(q) To engage the services of an Investment Manager or Managers
(as defined in Act (S) 3(38)), each of whom shall have full power and
authority to manage, acquire or dispose of (or direct the Trustee with
respect to such acquisition or disposition) any plan asset under its
control; and
(r) To direct the Trustee in the investment, reinvestment, and
disposition of the Trust Fund as provided in the Trust Agreement.
9.05 MANNER OF ACTION. The decision of a majority of the members of the
----------------
Administration Committee appointed and qualified shall control. In case of a
vacancy in the membership of the Administration Committee, the remaining members
of the Administration Committee may exercise any and all of the powers,
authorities, duties, and discretions conferred upon such Administration
Committee pending the filling of the vacancy. The Administration Committee may,
but need not, call or hold formal meetings. Any decisions made or action taken
pursuant to written approval of a majority of the then members shall be
sufficient. The Administration Committee shall maintain adequate records of its
decisions.
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9.06 AUTHORIZED REPRESENTATIVE. The Administration Committee may
-------------------------
authorize any one of its members, or its secretary, to sign on its behalf any
notice, directions, applications, certificates, consents, approvals, waivers,
letters, or other documents. The Administration Committee must evidence this
authority by an instrument signed by all its respective members and filed with
the Trustee.
9.07 NONDISCRIMINATION. The Administration Committee shall administer
-----------------
the Plan in a uniform, nondiscriminatory manner for the exclusive benefit of the
Participants and their Beneficiaries.
9.08 INTERESTED MEMBER. No member of the Administration Committee may
-----------------
decide or determine any matter concerning the distribution, nature, or method of
settlement of his own benefits under the Plan unless there is only one person
acting alone in the capacity as the Administration Committee.
9.09 FUNDING POLICY. The Administration Committee shall review, not less
--------------
often than annually, all pertinent Employee information and Plan data in order
to establish the funding policy of the Plan and to determine the appropriate
methods of carrying out the Plan's objectives. The Administration Committee
shall communicate annually to the Trustee and to any Plan Investment Manager the
Plan's short-term and long-term financial needs so investment policy can be
coordinated with Plan financial requirements.
9.10 INDIVIDUAL STATEMENT. As soon as practicable after the Valuation
--------------------
Date of each Plan Year but within the time prescribed by the Act and the
regulations under the Act, the Administration Committee will deliver to each
Participant (and to each Beneficiary) a statement reflecting the condition of
his Accrued Benefit in the Trust as of that date and such other information the
Act requires be furnished the Participant or Beneficiary. No Participant,
except a member of the Administration Committee, shall have the right to inspect
the records reflecting the Account of any other Participant.
9.11 BOOKS AND RECORDS. The Administration Committee shall maintain, or
-----------------
cause to be maintained, records which will adequately disclose at all times the
state of the Trust Fund and of each separate interest therein. The books,
forms, and methods of accounting shall be the responsibility of the
Administration Committee.
9.12 UNCLAIMED ACCOUNT PROCEDURE. Neither the Trustee nor the
---------------------------
Administration Committee shall be obliged to search for, or ascertain the
whereabouts of, any Participant or Beneficiary. The Administration Committee,
by certified or registered mail addressed to his last known address of record
with the Administration Committee or the Employer, shall notify any Participant
or Beneficiary that he is entitled to a distribution under this Plan, and the
notice shall quote the provisions of this Section. If the Participant or
Beneficiary fails to claim his distributive share or make his whereabouts known
in writing to the Administration Committee within six (6) months from the date
of mailing of the notice, or before this Plan is terminated or discontinued,
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<PAGE>
whichever should first occur, the Administration Committee shall direct the
Trustee to segregate the Participant's unclaimed Accrued Benefit in a segregated
interest bearing Account in the name of the Participant or Beneficiary. The
Administration Committee shall then notify the Social Security Administration of
the Participant's (or Beneficiary's) failure to claim the distribution to which
he is entitled. The Administration Committee shall request the Social Security
Administration to notify the Participant (or Beneficiary) in accord with the
procedures it has established for this purpose. The segregated Account shall be
entitled to all income it earns and shall bear all expense or loss it incurs.
46
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ARTICLE X
PARTICIPANT ADMINISTRATIVE PROVISIONS
10.01 BENEFICIARY DESIGNATION. Any Participant may from time to time
-----------------------
designate, in writing, any person or persons, contingently or successively, to
whom the Trustee shall pay his Accrued Benefit in the event of his death. A
Participant's Beneficiary designation shall not be valid unless the
Participant's spouse consents to the Beneficiary designation. A Participant's
Beneficiary designation does not require spousal consent if the Participant's
spouse is the Participant's designated Beneficiary, or if the Participant and
his spouse were not married throughout the one-year period ending on the date of
the Participant's death. The spousal consent shall be in a manner consistent
with (S) 401(a)(11) and (S) 417(a)(2)(A) of the Code, shall be in writing, shall
acknowledge the effect of the consent, and shall be witnessed by a notary public
or the Plan Administrator (or his representative). The Administration Committee
shall prescribe the form for the written designation of Beneficiary and, upon
the Participant's filing the form with the Administration Committee, it
effectively shall revoke all designations filed prior to that date by the same
Participant.
10.02 NO BENEFICIARY DESIGNATION. If a Participant fails to name a
--------------------------
Beneficiary in accordance with Section 10.01, or if the Beneficiary named by a
Participant predeceases him or dies before complete distribution of the
Participant's Accrued Benefit, then the Trustee shall pay the Participant's
Accrued Benefit in accordance with Article VII hereof in the following order of
priority:
(a) To the Participant's surviving spouse;
(b) To the Participant's surviving children, including adopted
children, in equal shares;
(c) To the Participant's surviving parents, in equal shares; or
(d) To the legal representative of the estate of the last to die
of the Participant and his Beneficiary.
The Administration Committee shall direct the Trustee as to the method and
to whom the Trustee shall make payment under this Section 10.02.
10.03 PERSONAL DATA TO ADMINISTRATION COMMITTEE. Each Participant and
-----------------------------------------
Beneficiary must furnish to the Administration Committee evidence, data, or
information as the Administration Committee considers necessary or desirable for
the purpose of administering the Plan. The provisions of this Plan are
effective for the benefit of each Participant upon the condition precedent that
each Participant will furnish promptly full, true, and complete evidence, data,
and information when requested by the Administration Committee, provided the
Administration Committee shall advise each Participant of the effect of his
failure to comply with its request.
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10.04 ADDRESS FOR NOTIFICATION. Each Participant and each Beneficiary of
------------------------
a deceased Participant shall file with the Administration Committee, in writing,
his post office address, and each subsequent change of such post office address.
Any payment or distribution hereunder, and any communication addressed to a
Participant or his Beneficiary, mailed to the last address filed with the
Administration Committee, or if no such address has been filed, then to the last
address indicated on the records of the Employer, shall be deemed to have been
delivered to the Participant or his Beneficiary on the date that such
distribution or communication is deposited in the United States Mail, postage
prepaid.
10.05 ASSIGNMENT OR ALIENATION. Subject to Code (S) 414(p) relating to
------------------------
qualified domestic relations orders, no benefit payable under the Plan shall be
subject in any manner to alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, including any such liability which is for alimony or
other payments for the support of a spouse or former spouse, or for any other
relative of the Participant, prior to actually being received by the person
entitled to the benefit under the terms of the Plan. The Trust Fund shall not
in any manner be liable for, or subject to, the debts, contracts, liabilities,
engagements, or torts of any person entitled to benefits hereunder.
10.06 LITIGATION AGAINST THE TRUST. If any legal action which is filed
----------------------------
against the Trustee, Board of Directors, or the Administration Committee, or
against any member or members of the Administration Committee or Board of
Directors, by or on behalf of any Participant or Beneficiary, results adversely
to the Participant or to the Beneficiary, the Trustee shall reimburse itself,
the Board of Directors, Administration Committee, and any member or members of
the Administration Committee or Board of Directors, all costs and fees expended
by it or them by surcharging all costs and fees against the same payable under
the Plan to the Participant or to the Beneficiary, but only to the extent a
court of competent jurisdiction specifically authorizes and directs any such
surcharges.
10.07 INFORMATION AVAILABLE. Any Participant in the Plan or any
---------------------
Beneficiary may examine copies of the summary plan description, the latest
annual report, any bargaining agreement, this Plan, contracts, or any other
instrument under which the Plan was established or is operated. The
Administration Committee will maintain all of the items listed in this Section
in its office, or in such other place or places as may be designated from time
to time in order to comply with the regulations issued under the Act, for
examination during reasonable business hours. Upon the written request of a
Participant or Beneficiary, the Administration Committee shall furnish him with
a copy of any item listed in this Section. The Administration Committee may
make a reasonable charge to the requesting person for the copy so furnished.
10.08 BENEFICIARY'S RIGHT TO INFORMATION. A Beneficiary's right to (and
----------------------------------
the Administration Committee's duty to provide to the Beneficiary) information
or data concerning the Plan shall not arise until he first becomes entitled to
receive a benefit under the Plan.
48
<PAGE>
10.09 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. The Administration
---------------------------------------
Committee shall provide adequate notice in writing to any Participant or to any
Beneficiary ("Claimant") whose claim for benefits under the Plan has been
denied. The Administration Committee's notice to the Claimant shall set forth:
(a) The specific reason for the denial;
(b) Specific references to pertinent Plan provisions on which the
Administration Committee based its denial;
(c) A description of any additional material and information
needed for the Claimant to perfect his claim and an explanation of why the
material or information is needed;
(d) A statement that the Claimant may;
(i) Request a review upon written application to the
Administration Committee;
(ii) Review pertinent Plan documents; and
(iii) Submit issues and comments in writing; and
(e) That any appeal the Claimant wishes to make of the adverse
determination must be in writing to the Administration Committee within
seventy-five (75) days after receipt of the Administration Committee's
notice of denial of benefits. The Administration Committee's notice must
further advise the Claimant that his failure to appeal the action to the
Administration Committee in writing within the seventy-five (75)-day period
will render the Administration Committee's determination final, binding,
and conclusive.
If the Claimant should appeal to the Administration Committee, he, or his
duly authorized representative, may submit, in writing, whatever issues and
comments he, or his duly authorized representative, feels are pertinent. The
Administration Committee shall re-examine all facts related to the appeal and
make a final determination as to whether the denial of benefits is justified
under the circumstances. The Administration Committee shall advise the Claimant
of its decision within sixty (60) days of the Claimant's written request for
review, unless special circumstances (such as a hearing) would make a rendering
of a decision within the sixty (60) day limit infeasible, but in no event shall
the Administration Committee render a decision respecting a denial for a claim
for benefits later than one hundred twenty (120) days after its receipt of a
request for review. A written statement stating the decision on review, the
specific reasons for the decision, and the specific Plan provisions on which the
decision is based shall be mailed or delivered to the Claimant within such sixty
(60) (or one hundred twenty (120)) day period.
49
<PAGE>
The Administration Committee's notice of denial of benefits shall identify
the name of each member of the Administration Committee and the name and address
of the Administration Commit tee member to whom the Claimant may forward his
appeal.
10.10 NO RIGHTS IMPLIED. Nothing contained in this Plan, or any
-----------------
modification or amendment to the Plan, or in the creation of any benefit, or the
payment of any benefit, shall give any Employee, Participant, or any Beneficiary
any right to continue employment, or any legal or equitable right against the
Employer or any officer, director, or Employee of the Employer, or its agents or
employees, except as expressly provided by the Plan, or the Act.
10.11 NOTICE OF CHANGE OF TERMS. The Plan Administrator, within the time
-------------------------
prescribed by the Act and the applicable regulations, shall furnish all
Participants and Beneficiaries a summary description of any material amendment
to the Plan or notice of discontinuance of the Plan and all other information
required by the Act to be furnished without charge.
50
<PAGE>
ARTICLE XI
FIDUCIARIES' DUTIES
11.01 NAMED FIDUCIARY. The "Named Fiduciary" of the Plan shall consist of
---------------
the following:
(a) The Employer;
(b) The Administration Committee;
(c) The Trustee; and
(d) Such other person or persons that are designated to carry out
fiduciary responsibilities under the Plan in accordance with Section
11.03(c) hereof.
Any person or group of persons may serve in more than one fiduciary capacity
with respect to the Plan. A Named Fiduciary may employ one or more persons to
render advice with regard to any responsibility such Named Fiduciary has under
the Plan.
11.02 ALLOCATION OF RESPONSIBILITIES. The powers and responsibilities of
------------------------------
the Named Fiduciary are hereby allocated as indicated below:
(a) Employer. The Employer shall be responsible for all functions
--------
assigned or reserved to it under the Plan and Trust Agreement. Any
authority assigned or reserved to the Employer under the Plan and Trust
Agreement shall be exercised by resolution of the Employer's Board of
Directors.
(b) Administration Committee. The Administration Committee shall
------------------------
have the responsibility and authority to control the operation and
administration of the Plan in accordance with the terms of the Plan and
Trust Agreement, except with respect to duties and responsibilities
specifically allocated to other fiduciaries. The Administration Committee
shall have the responsibility and authority to control the investment of
the Trust Fund in accordance with the terms of the Plan and Trust
Agreement, except with respect to duties and responsibilities specifically
allocated to other fiduciaries. The Administration Committee shall have
the authority to issue written directions to the Trustee to the extent
provided in the Trust Agreement. The Trustee shall follow the
Administration Committee's directions unless it is clear that the actions
to be taken under those directions would be violations of applicable
fiduciary standards or would be contrary to the terms of the Plan or Trust
Agreement.
(c) Trustee. The Trustee shall have the duties and
-------
responsibilities set out in the Trust Agreement, subject, however, to
direction by the Administration Committee as set out in the Trust
Agreement.
51
<PAGE>
(d) Allocation. Powers and responsibilities may be allocated to
----------
other fiduciaries in accordance with Section 11.03 hereof, or as otherwise
provided herein or in the Trust Agreement.
This Article is intended to allocate to each Named Fiduciary the individual
responsibility for the prudent execution of the functions assigned to it, and
none of such responsibilities or any other responsibility shall be shared by two
or more of such Named Fiduciaries unless such sharing shall be provided by a
specified provision of the Plan or Trust Agreement.
11.03 PROCEDURES FOR DELEGATION AND ALLOCATION OF RESPONSIBILI TIES.
-------------------------------------------------------------
Fiduciary responsibilities may be allocated as follows:
(a) The Administration Committee may specifically allocate
responsibilities to a specified member or members of the Administration
Committee.
(b) The Administration Committee may designate a person or persons
other than a Named Fiduciary to carry out fiduciary responsibilities under
the Plan. This authority shall not cause any person or persons employed to
perform ministerial acts and services for the Plan to be deemed fiduciaries
of the Plan.
(c) The Administration Committee may appoint an Investment Manager
or managers to manage (including the power to acquire and dispose of) the
assets of the Plan (or a portion thereof).
(d) If at any time there be more than one Trustee serving under
the Trust Agreement, such Trustees may allocate specific responsibilities,
obligations, or duties among themselves in such manner as they shall agree.
Any allocation of responsibilities pursuant to this Section shall be made by
filing a written notice thereof with the Administration Committee specifically
designating the person or persons to whom such responsibilities or duties are
allocated and specifically setting out the particular duties and
responsibilities with respect to which the allocation or designation is made.
11.04 GENERAL FIDUCIARY STANDARDS. Subject to Section 11.05 hereof, a
---------------------------
Named Fiduciary shall discharge his duties with respect to the Plan solely in
the interest of the Participants and their Beneficiaries,
(a) for the exclusive purpose of providing benefits to
Participants and their Beneficiaries and defraying reasonable expenses of
administering the Plan; and
(b) with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity
and familiar with such matters would use in the conduct of any enterprise
of a like character and with like aims; and
52
<PAGE>
(c) by diversifying the investments of the Plan, other than the
investment in Employer Securities, so as to minimize the risk of large
losses, unless under the circumstances it is clearly prudent not to do so;
and
(d) in accordance with the documents and instruments governing the
Plan, insofar as such documents and instruments are consistent with the
provisions of Title I of the Act.
11.05 LIABILITY AMONG CO-NAMED FIDUCIARIES.
------------------------------------
(a) General. Except for any liability which he may have under the
-------
Act, a fiduciary shall not be liable for the breach of a fiduciary duty or
responsibility by another fiduciary of the Plan except in the following
circumstances:
(i) He participates knowingly in, or knowingly undertakes
to conceal, an act or omission of such other fiduciary, knowing
such act or omission is a breach;
(ii) By his failure to comply with the general fiduciary
standards set out in Section 11.04 hereof in the administration of
his specific responsibilities which give rise to his status as a
fiduciary to commit a breach; or
(iii) He has knowledge of a breach by such other fiduciary
and he does not undertake reasonable efforts under the
circumstances to remedy the breach.
(b) Co-Trustees. In the event that there are two or more Trustees
-----------
serving under the Trust Agreement, each should use reasonable care to
prevent a Co-Trustee from committing a breach of fiduciary responsibility
and they shall jointly manage and control assets of the Plan, except that
in the event of an allocation of responsibilities, obligations, or duties,
a Trustee to whom such responsibilities, obligations, or duties have not
been allocated shall not be liable to any person by reason of this Section,
either individually or as a Trustee, for any loss resulting to the Plan
arising from the acts or omissions on the part of the Trustee to whom such
responsibilities, obligations, or duties have been allocated.
(c) Liability Where Allocation is in Effect. To the extent that
---------------------------------------
fiduciary responsibilities are specifically allocated by a Named Fiduciary,
or pursuant to the express terms hereof, to any person or persons, then
such Named Fiduciary shall not be liable for any act or omission of such
person in carrying out such responsibility except to the extent that the
Named Fiduciary violated Section 11.04 hereof: (i) with respect to such
allocation or designation, (ii) with respect to the establishment or
implementation of the procedure for making such an allocation or
designation, (iii) in continuing the allocation or designation, or (iv) the
Named Fiduciary would otherwise be liable in accordance with this Section
11.05.
53
<PAGE>
(d) Liability of Trustee Following Administration Committee
-------------------------------------------------------
Directions. No Trustee shall be liable for following instructions of the
Administration Committee given pursuant to Section 11.02(b) and (c) hereof.
(e) No Responsibility for Employer Action. Neither the Trustee
-------------------------------------
nor the Administration Committee shall have any obligation or
responsibility with respect to any action required by the Plan to be taken
by the Employer, any Participant or eligible Employee, or the failure of
any of the above persons to act or make any payment or contribu tion, or to
otherwise provide any benefit contemplated under this Plan, nor shall the
Trustee or the Administration Committee be required to collect any
contribution required under the Plan, or determine the correctness of the
amount of any Employer contribution.
(f) No Duty to Inquire. Neither the Trustee nor the
------------------
Administration Committee shall have any obligation to inquire into or be
responsible for any action or failure to act on the part of others.
(g) Liability of Trustee Where Investment Manager Appointed. If
-------------------------------------------------------
an Investment Manager has been appointed pursuant to Section 11.03(c)
hereof, then neither the Trustee nor the Administration Committee shall be
liable for the acts or omissions of such Investment Manager, or be under
any obligation to invest or otherwise manage any assets of the Plan which
are subject to the management of such Investment Manager.
(h) Successor Fiduciary. No Named Fiduciary shall be liable with
-------------------
respect to any breach of fiduciary duty if such breach was committed before
he became a Named Fiduciary or after he ceased to be a Named Fiduciary.
54
<PAGE>
ARTICLE XII
DISCONTINUANCE, AMENDMENT AND TERMINATION
12.01 DISCONTINUANCE. The Employer shall have the right, at any time, to
--------------
suspend or discontinue its contribution under the Plan.
12.02 AUTHORITY TO AMEND THE PLAN. The Employer may amend the Plan at any
---------------------------
time. However, it shall be impossible, at any time before the satisfaction of
all liabilities hereunder, for any monies to revert to the Employer or be used
for any purpose other than the exclusive benefit of the Participants and persons
claiming through them.
Provided however, that the amendment of the Plan (including any
Restatement) shall not:
(a) revise the vested Accrued Benefit of a Participant determined
as of the later of the date such amendment is adopted, or the date such
amendment becomes effective, if such revised vested Accrued Benefit is less
than that computed under the Plan without regard to such amendment; or
(b) revise the vesting schedule under the Plan unless each
Participant having at least three (3) years or more of Service is permitted
to elect within a reasonable period after the adoption of such amendment to
have his vested Accrued Benefit computed under the Plan without regard to
such amendment. For Plan Years beginning prior to January 1, 1989, the
election described above applies only to Participants having at least five
(5) Years of Service with the Employer. A reasonable period for purposes of
this Section 12.02(b) shall be a period which begins no later than the date
the Plan amendment is adopted and ends no later than the last to occur of
the following:
(i) sixty (60) days after the day the Plan amendment is
adopted;
(ii) sixty (60) days after the day on which the Plan
amendment becomes effective; or
(iii) sixty (60) days after a Participant is issued written
notice of the Plan amendment.
Provided further, no amendment shall:
(a) Authorize or permit any of the Trust Fund (other than the part
which is required to pay taxes and administration expenses) to be used for
or diverted to purposes other than for the exclusive benefit of the
Participants or their Beneficiaries;
55
<PAGE>
(b) Cause or permit any portion of the Trust Fund to revert to or
become the property of the Employer;
(c) Increase the duties or responsibilities of the Trustee or the
Administration Committee without the written consent of the affected
Trustee or the affected member of the Administration Committee.
The Employer shall make all amendments in writing. Each amendment shall state
the date to which it is either retroactively or prospectively effective.
12.03 TERMINATION. The Employer shall have the right to terminate the
-----------
Plan at any time. The Plan shall terminate upon the first to occur of the
following:
(a) The date terminated by action of the Board of Directors;
(b) The date the Employer shall be judicially declared bankrupt or
insolvent; or
(c) The dissolution, merger, consolidation, or reorganization of
the Employer or the sale by the Employer of all or substantially all of its
assets, unless the successor or purchaser makes provisions to continue the
Plan, in which event the successor or purchaser shall be substituted as the
Employer under this Plan.
12.04 VESTING ON TERMINATION OR SUSPENSION. Notwithstanding any other
------------------------------------
provision of the Plan to the contrary, upon the date of full or partial
termination of the Plan, or, upon complete discontinuance of contributions to
the Plan, an affected Participant's right to his Accrued Benefit shall be one
hundred percent (100%) Nonforfeitable. The Administration Committee shall
interpret and administer this Section 12.04 in accord with the intent and scope
of the regulations issued under Code (S) 411(d)(3).
12.05 PROCEDURE ON TERMINATION. In the event of termination of the Plan
------------------------
or permanent discontinuance of Employer contributions, the Employer shall, in
its sole discretion, authorize any one of the following procedures:
(a) Continue Plan. To continue the Plan in operation in all
-------------
respects until the Trustee has distributed all benefits under the Plan,
except that no further persons shall become Participants, no further
Employee contributions shall be made, all Accounts shall be fully vested,
and no further payments shall be made except in distribution of the Trust
Fund and payment of administration expenses; or
(b) Liquidate Plan. To wind up and liquidate the Plan and Trust
--------------
and distribute the assets thereof after deduction of all expenses to the
Participants, Former Participants, and Beneficiaries in accordance with
their respective Accounts as then constituted. If the
56
<PAGE>
Employer makes no election before termination, then this subsection (b)
will govern distribution of the Trust Fund.
12.06 MERGER. The Trustee shall not consent to, or be a party to, any
------
merger or consolidation with another plan, or to a transfer of assets or
liabilities to another plan, unless immediately after the merger, consolidation,
or transfer, the surviving Plan provides each Participant a benefit equal to or
greater than the benefit each Participant would have received had the Plan
terminated immediately before the merger, consolidation, or transfer.
12.07 NOTICE OF CHANGE OF TERMS. The Administration Committee, within the
-------------------------
time prescribed by the Act and applicable regulations, shall furnish all
Participants and Beneficiaries a summary description of any material amendment
to the Plan or notice of discontinuance of the Plan and all other information
required by the Act to be furnished without charge.
12.08 INITIAL QUALIFICATION. Notwithstanding any other provisions of this
---------------------
Plan, the Employer's adoption of this Plan is subject to the condition precedent
that the Plan initially shall be approved and deemed qualified by the Internal
Revenue Service as satisfying the requirements of (S) 401(a) of the Code and
that the Trust shall be entitled to exemption under the provisions of (S)
501(a). In the event the Employer shall fail to secure such initial
determination, the contributions made by the Employer together with any income
received or accrued thereon less any expenses paid shall be returned to the
Employer and the Plan and Trust shall terminate. No Participant or Beneficiary
shall have any right or claim to the Trust Fund or to any benefit under the Plan
before the Internal Revenue Service initially determines that the Plan and Trust
qualify under the provisions of (S)(S) 401(a) and 501(a) of the Code.
12.09 REVERSION OF EXCESS ACCOUNT. Notwithstanding any provisions
---------------------------
contained herein to the contrary, the Employer reserves the right to recover
upon the termination of the Plan and Trust Fund any amounts held in an excess
account that cannot be allocated to the accounts of Participants and their
Beneficiaries in the year of termination because of the limitations contained in
Article III of the Plan and (S) 415 of the Code after the satisfaction of all
fixed and contingent obligations to Participants and their Beneficiaries under
the Plan.
57
<PAGE>
ARTICLE XIII
THE TRUST
13.01 PURPOSE OF THE TRUST FUND. A Trust Fund has been created and will
-------------------------
be maintained for the purposes of the Plan, and the assets thereof shall be
invested in accordance with the terms of the Trust Agreement. The primary
purpose of the Plan is for the investment in Employer Securities. The Trustee
will apply contributions to pay any outstanding obligations of the Trust
incurred for the purchase of Employer Securities or they may be applied to
purchase additional Employer Securities from current shareholders, treasury
shares, or newly issued shares from the Company. All contributions will be paid
into the Trust Fund, and all benefits under the Plan will be paid from the Trust
Fund.
13.02 APPOINTMENT OF TRUSTEE. Trustee(s) shall be appointed by the Board
----------------------
of Directors to administer the Trust Fund. The Trustee's obligations, duties,
and responsibilities shall be governed solely by the terms of the Trust
Agreement.
13.03 EXCLUSIVE BENEFIT OF PARTICIPANTS. Subject to Sections 3.04 and
---------------------------------
12.08 hereof, the Trust Fund will be used and applied only in accordance with
the provisions of the Plan to provide the benefits thereof, and no part of the
corpus or income of the Trust Fund shall be used for or diverted to purposes
other than for the exclusive benefit of the Participants and their Beneficiaries
and with respect to expenses of administration. Notwithstanding the preceding
sentence, as provided in Section 12.09 hereof, the Employer reserves the right
to recover any amounts held in an excess account at the termination of the Trust
Fund that cannot be allocated to the accounts of Participants and their
Beneficiaries in the year of termination because of the limitations contained in
Article III of the Plan and (S) 415 of the Code.
13.04 BENEFITS SUPPORTED ONLY BY THE TRUST FUND. Any person having any
-----------------------------------------
claim under the Plan will look solely to the assets of the Trust Fund for
satisfaction.
58
<PAGE>
ARTICLE XIV
TOP HEAVY RULES
14.01 MINIMUM EMPLOYER CONTRIBUTION. If this Plan is top heavy in any
-----------------------------
Plan Year, the Plan guarantees a minimum contribution (subject to the provisions
of this Article XIV) of three percent (3%) of Compensation for each Non-Key
Employee who is a Participant employed by the Employer on the Valuation Date of
the Plan Year, without regard to Hours of Service completed by such Participant
during the Plan Year. The Plan satisfies the guaranteed minimum contribution
for the Non-Key Employee if the Non-Key Employee's contribution rate is at least
equal to the minimum contribution. For purposes of this paragraph, a Non-Key
Employee Participant includes any Employee otherwise eligible to participate in
the Plan but who is not a Participant because his Compensation does not exceed a
specified level.
If the contribution rate for the Key Employee with the highest contribution
rate is less than three percent (3%), the guaranteed minimum contribution for
Non-Key Employees shall equal the highest contribution rate received by a Key
Employee. The contribution rate is the sum of Employer contributions (not
including Employer contributions to Social Security) and forfeitures allocated
to the Participant's Account for the Plan Year divided by his Compensation for
the Plan Year. For purposes of determining the minimum contribution, the
Administration Committee shall consider contributions made to any plan pursuant
to a salary reduction agreement or similar arrangement as Employer
contributions. To determine the contribution rate, the Administration Committee
shall consider all qualified top heavy defined contribution plans maintained by
the Employer as a single plan.
14.02 ADDITIONAL CONTRIBUTION. If the contribution rate for the Plan Year
-----------------------
with respect to a Non-Key Employee described in Section 14.01 is less then the
minimum contribution, the Employer will increase its contribution for such
Employee to the extent necessary so his contribution rate for the Plan Year will
equal the guaranteed minimum contribution. The Administration Committee shall
allocate the additional contribution to the Account of the Non-Key Employee for
whom the Employer makes the contribution.
14.03 DETERMINATION OF TOP HEAVY STATUS. The Plan is top heavy for a Plan
---------------------------------
Year if the top heavy ratio as of the Determination Date exceeds sixty percent
(60%). The top heavy ratio is a fraction, the numerator of which is the sum of
the present value of Accrued Benefits of all Key Employees as of the
Determination Date, the contributions due as of the Determination Date, and
distributions made within the five (5) Plan Year period ending on the
Determination Date, and the denominator of which is a similar sum determined for
all Employees. The Administration Committee shall calculate the top heavy ratio
by disregarding the Accrued Benefit of any Non-Key Employee who was formerly a
Key Employee. The Administration Committee shall calculate the top heavy ratio
by disregarding the Accrued Benefit (including distributions, if any, of the
Accrued Benefit) of an individual who has not performed any service for the
Employer during the five (5) Plan Year period ending on the Determination Date.
The Administration Committee shall calculate
59
<PAGE>
the top heavy ratio, including the extent to which it must take into account
distributions, rollovers and transfers, in accordance with Code (S) 416 and the
regulations under that Code section.
If the Employer maintains other qualified plans (including a simplified
employee pension plan), this Plan is top heavy only if it is a part of the
Required Aggregation Group, and the top heavy ratio for both the Required
Aggregation Group and the Permissive Aggregation Group exceeds sixty percent
(60%). The Administration Committee will calculate the top heavy ratio in the
same manner as required by the first paragraph of this Section 14.03, taking
into account all plans within the Aggregation Group. To the extent the
Administration Committee must take into account distribu tions to a
Participant, the Administration Committee shall include distributions from a
terminated plan which would have been part of the Required Aggregation Group if
it were in existence on the Determination Date. The Administration Committee
shall calculate the present value of Accrued Benefits and the other amounts the
Administration Committee must take into account under defined benefit plans or
simplified employee pension plans included within the group in accordance with
the terms of those plans, Code (S) 416 and the regulations under that Code
section. If an aggregated plan does not have a valuation date coinciding with
the Determination Date, the Administration Committee shall value the Accrued
Benefits in the aggregated plan as of the most recent valuation date falling
within the twelve-month period ending on the Determination Date. The
Administration Committee shall calculate the top heavy ratio with reference to
the Determination Dates that fall within the same calendar year.
14.04 LIMITATION ON ALLOCATIONS. If, during any Limitation Year, this
-------------------------
Plan is top heavy, the Administration Committee shall apply the limitations of
Article III to a Participant by substituting "100%" for "125%" each place it
appears in Section 3.06. This Section 14.04 shall not apply if:
(a) The contribution rate for a Non-Key Employee who participates
only in the defined contribution plan(s) would satisfy Section 14.01 if the
Administration Committee substituted four percent (4%) for three percent
(3%).
(b) A Non-Key Employee who participates in the top heavy defined
benefit plan(s) receives an extra minimum contribution or benefit which
satisfies Code (S) 416(h)(2); and
(c) The top heavy ratio does not exceed ninety percent (90%).
14.05 DEFINITIONS. For purposes of applying the provisions of this
-----------
Article XIV:
(a) "Key Employee" shall mean, as of any Determination Date, any
Employee or former Employee (or Beneficiary of such Employee) who, at any
time during the Plan Year (which includes the Determination Date) or during
the preceding four (4) Plan Years, is an officer (having annual
Compensation in excess of 150% of the Code (S) 415(c)(1)(A) limitation in
effect for any such Plan Years) of the Employer, one of the Employees
(having
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<PAGE>
annual Compensation in excess of the Code (S) 415(c)(1)(A) limitation in
effect for any such Plan Years) owning the ten (10) largest interests in
the Employer, a more than five percent (5%) owner of the Employer, or a
more than one percent (1%) owner of the Employer who has annual
Compensation of more than $150,000. The constructive ownership rules of
Code (S) 318 (or the principles of that section, in the case of an
unincorporated Employer,) will apply to determine ownership in the
Employer. The Administration Committee will make the determination of who
is a Key Employee in accordance with Code (S) 416(i) and the regulations
under that Code section.
(b) "Non-Key Employee" is an Employee who does not meet the
definition of Key Employee.
(c) "Compensation" shall mean the first $200,000 (or, beginning
January 1, 1988, such larger amount as the Commissioner of Internal Revenue
may prescribe) of Compen sation as defined in Section 3.06(c).
(d) "Required Aggregation Group" means:
(1) Each qualified plan of the Employer in which at least
one (1) Key Employee participates; and
(2) Any other qualified plan of the Employer which enables a
plan described in (1) to meet the requirements of Code (S)
401(a)(4) or Code (S) 410.
(e) "Permissive Aggregation Group" is the Required Aggregation
Group plus any other qualified plans maintained by the Employer, but only
if such group would satisfy in the aggregate the requirements of Code (S)
401(a)(4) and Code (S) 410. The Administration Committee shall determine
which plans to take into account in determining the Permissive Aggregation
Group.
(f) "Employer" shall mean all the members of a controlled group of
corporations (as defined in Code (S) 414(b)), of a commonly controlled
group of trades or businesses (whether or not incorporated) (as defined in
Code (S) 414(c)), or an affiliated service group (as defined in Code (S)
414(m)), of which the Employer is a part. However, the Administration
Committee shall not aggregate ownership interests in more than one member
of a related group to determine whether an individual is a Key Employee
because of his ownership interest in the Employer.
(g) "Determination Date" for any Plan Year is the Valuation Date
of the preceding Plan Year or, in the case of the first Plan Year of the
Plan, the Valuation Date of that Plan Year.
61
<PAGE>
14.06 MINIMUM VESTING. For any Plan Year in which this Plan is top heavy,
---------------
the minimum vesting schedule will automatically apply to the Plan. The minimum
vesting schedule applies to all benefits within the meaning of (S) 411(a)(7) of
the Code except those attributable to Employee contributions, including benefits
accrued before the effective date of Code (S) 416 and benefits accrued before
the Plan became top heavy. Further, no reduction in vested benefits may occur
in the event the Plan's status as top heavy changes for any Plan Year. However,
this Section does not apply to the Accrued Benefit of any Employee who does not
have an Hour of Service after the Plan has initially become top heavy, and such
Employee's Accrued Benefit attributable to Employer contributions and
forfeitures will be determined without regard to this Section.
The nonforfeitable interest of each Employee in his or her Accrued Benefit
attributable to Employer contributions shall be determined on the basis of the
following:
20% vesting after 2 years of service
40% vesting after 3 years of service
60% vesting after 4 years of service
80% vesting after 5 years of service
100% vesting after 6 years of service
Should the Plan cease to be top heavy, the above-stated vesting schedule shall
revert to that stated in Article VI subject to the conditions of Article XII and
it shall be deemed that all Participants having three (3) or more years of
Service shall have elected to retain the schedule stated in this Section.
14.07 NONAPPLICATION OF THIS ARTICLE. If the Participant is provided with
------------------------------
the minimum benefit required by (S) 416 of the Code which is subject to the
above-stated vesting schedule in another plan of the Employer, the provisions of
this Article XIV will have no application.
62
<PAGE>
ARTICLE XV
MISCELLANEOUS
15.01 EXECUTION OF RECEIPTS AND RELEASES. Any payment to any Participant,
----------------------------------
or to his legal representative or Beneficiary, in accordance with the provisions
of the Plan, shall to the extent thereof be in full satisfaction of all claims
hereunder against the Plan and Trust. The Administration Committee may require
such a Participant, legal representative, or Beneficiary, as a condition
precedent to such payment, to execute a receipt and release therefor in such
form as it shall determine.
15.02 NO GUARANTEE OF INTERESTS. Neither the Trustee, the Administration
-------------------------
Committee, nor the Employer guarantee the Trust Fund from loss or depreciation.
The Employer does not guarantee the payment of any money which may be due or may
become due to any person from the Trust Fund. The liability of the
Administration Committee and the Trustee to make any payment from the Trust Fund
is limited to the then available assets of the Trust.
15.03 PAYMENT OF EXPENSES. All expenses incident to the administration,
-------------------
termination, protection of the Plan and Trust, including but not limited to
legal, accounting, and Trustee fees, shall be paid by the Employer, except that
in case of failure of the Employer to pay the expenses, they will be paid from
the Trust Fund, and until paid, shall constitute a first and prior claim and
lien against the Trust Fund.
15.04 EMPLOYER RECORDS. Records of the Employer as to an Employee's or
----------------
Participant's period of employment, termination of employment and the reason
therefor, leaves of absence, re-employment, and compensation will be conclusive
on all persons, unless determined to be incorrect.
15.05 INTERPRETATIONS AND ADJUSTMENTS. To the extent permitted by law, an
-------------------------------
interpretation of the Plan and a decision of any matter within the Named
Fiduciary's discretion made in good faith is binding on all persons. A
misstatement or other mistake of fact shall be corrected when it becomes known
and the person responsible shall make such adjustment on account thereof as he
considers equitable and practicable.
15.06 UNIFORM RULES. In the administration of the Plan, uniform rules
-------------
will be applied to all Participants similarly situated.
15.07 EVIDENCE. Evidence required of anyone under the Plan may be by
--------
certificate, affidavit, document, or other information which the person acting
on it considers pertinent and reliable, and signed, made or presented by the
proper party or parties.
15.08 SEVERABILITY. In the event any provision of the Plan shall be held
------------
to be illegal or invalid for any reason, the illegal or invalid provisions of
the Plan shall be fully severable and the
63
<PAGE>
Plan shall be construed and enforced as if the illegal or invalid provision had
never been included herein.
15.09 NOTICE. Any notice required to be given herein by the Trustee, the
------
Employer, or the Administration Committee, shall be deemed delivered, when (a)
personally delivered, or (b) placed in the United States mail, postage prepaid,
in an envelope addressed to the last known address of the person to whom the
notice is given.
15.10 WAIVER OF NOTICE. Any person entitled to notice under the Plan may
----------------
waive the notice.
15.11 SUCCESSORS. The Plan shall be binding upon all persons entitled to
----------
benefits under the Plan, their respective heirs and legal representatives, upon
the Employer, its successors and assigns, and upon the Trustee, the
Administration Committee, and their successors.
15.12 HEADINGS. The titles and headings of Articles and Sections are
--------
included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
15.13 GOVERNING LAW. All questions arising with respect to the provisions
-------------
of this Agreement shall be determined by application of the laws of the State of
North Carolina except to the extent North Carolina law is preempted by Federal
statute.
Signed the _____ day of ______________, 1996, effective as of the _____ day
of _______________, 1996.
HOME SAVINGS, INC., SSB
By: ______________________________
President
ATTEST:
____________________________
______ Secretary
64
<PAGE>
EMPLOYEE STOCK OWNERSHIP TRUST
OF
HOME SAVINGS, INC., SSB
Prepared By:
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
Greensboro, North Carolina
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page #
------
<S> <C> <C>
RECITALS ....................................................................1
TITLE AND DESCRIPTIONS ......................................................2
1.01 TITLE ...........................................................2
-----
1.02 TERMS DEFINED IN PLAN ...........................................2
---------------------
1.03 WORD USAGE ......................................................2
----------
PLAN AND TRUST COMPLEMENTARY ................................................3
2.01 COMPLEMENTARY ...................................................3
-------------
2.02 INTENT TO QUALIFY ...............................................3
-----------------
CONTRIBUTIONS ...............................................................4
3.01 CONTRIBUTIONS ...................................................4
-------------
3.02 COMMINGLING OF FUNDS ............................................4
--------------------
PAYMENTS FROM TRUST FUND ....................................................5
4.01 DISTRIBUTIONS ...................................................5
-------------
4.02 DIRECTION BY PLAN ADMINISTRATOR .................................5
-------------------------------
4.03 TRUST FUND FOR EXCLUSIVE BENEFIT OF PARTICIPANTS ................5
------------------------------------------------
4.04 LIABILITY FOR PAYMENTS ..........................................5
----------------------
4.05 RETURN OF EMPLOYER CONTRIBUTIONS ................................5
--------------------------------
4.06 PAYMENT IN THE EVENT OF DISABILITY OR INCAPACITY ................5
------------------------------------------------
INVESTMENT OF TRUST FUND ....................................................7
5.01 INVESTMENTS .....................................................7
-----------
5.02 INVESTMENT MANAGER ..............................................7
------------------
5.03 DIRECTION OF INVESTMENTS ........................................8
------------------------
5.04 SEPARATE INVESTMENT ACCOUNTS ....................................9
----------------------------
5.05 INVESTMENT IN POOLED FUND .......................................9
-------------------------
POWERS OF THE TRUSTEE ......................................................10
6.01 INVESTMENT POWERS ..............................................10
-----------------
6.02 ANCILLARY TRUSTEE ..............................................12
-----------------
ADMINISTRATIVE PROVISIONS ..................................................14
7.01 ACCOUNTS AND RECORDS ...........................................14
--------------------
7.02 INTENTION TO QUALIFY ...........................................14
--------------------
7.03 PLAN ADMINISTRATOR ACTION ......................................14
-------------------------
7.04 VALUATION OF TRUST .............................................14
------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
7.05 EMPLOYER ACTION ................................................15
---------------
7.06 RELIANCE ON WRITTEN INSTRUMENT .................................15
------------------------------
7.07 LIABILITY FOR PAYMENT OF FUNDS..................................15
------------------------------
7.08 LIABILITY OF TRUSTEE ...........................................15
--------------------
7.09 COURT PROCEEDINGS ..............................................15
-----------------
7.10 PARTIES TO LITIGATION ..........................................15
---------------------
7.11 THIRD PARTY ....................................................15
-----------
7.12 AUTHORIZATION WITH RESPECT TO TAXES ............................16
-----------------------------------
7.13 CONSULTATION WITH COUNSEL ......................................16
-------------------------
7.14 NO INTEREST IN EMPLOYER ........................................16
-----------------------
7.15 FEES AND EXPENSES ..............................................16
-----------------
7.16 BONDING OF TRUSTEE .............................................16
------------------
7.17 RELATIONSHIP OF FIDUCIARIES ....................................16
---------------------------
7.18 PRUDENT MAN RULE ...............................................17
----------------
7.19 ALIENATION .....................................................17
----------
7.20 LIMITATION ON LIABILITY - IF INVESTMENT MANAGER
-----------------------------------------------
APPOINTED .................................................17
---------
7.21 INSURANCE COMPANY PROTECTED ....................................17
---------------------------
TRUSTEE LIABILITY ..........................................................18
8.01 TRUSTEE LIABILITY ..............................................18
-----------------
SUBSTITUTION OF TRUSTEE ....................................................19
9.01 TRUSTEE ........................................................19
-------
9.02 RESIGNATION ....................................................19
-----------
9.03 REMOVAL ........................................................19
-------
9.04 SUCCESSION OF TRUSTEE ..........................................19
---------------------
9.05 MERGER OF CORPORATE TRUSTEE ....................................19
---------------------------
AMENDMENT AND TERMINATION ..................................................20
10.01 AMENDMENT ......................................................20
---------
10.02 TERMINATION ....................................................20
-----------
10.03 SUSPENSION OF CONTRIBUTIONS ....................................20
---------------------------
10.04 MERGER OR CONSOLIDATION ........................................20
-----------------------
10.05 REVERSION OF SUSPENSE ACCOUNT ..................................20
-----------------------------
OTHER EMPLOYERS; SUCCESSOR EMPLOYERS .......................................21
11.01 ADOPTION BY OTHER EMPLOYERS ....................................21
---------------------------
11.02 CONTINUATION BY EMPLOYER'S SUCCESSOR ...........................21
------------------------------------
MISCELLANEOUS PROVISIONS ...................................................22
12.01 CONTRIBUTIONS NOT RECOVERABLE ..................................22
-----------------------------
12.02 LIMITATIONS ON PARTICIPANTS' RIGHTS ............................22
-----------------------------------
12.03 INDEMNIFICATION OF INDIVIDUAL TRUSTEE ..........................22
-------------------------------------
12.04 RECEIPT OF RELEASE .............................................22
------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
12.05 ACCEPTANCE .....................................................22
----------
12.06 ACCOUNTING PERIOD ..............................................22
-----------------
12.07 TITLE OF TRUST ASSETS ..........................................22
---------------------
12.08 NOTICE .........................................................23
------
12.09 HEADINGS .......................................................23
--------
12.10 GOVERNING LAW ..................................................23
-------------
12.11 EXECUTIONS AND COUNTERPARTS ....................................23
---------------------------
</TABLE>
<PAGE>
EMPLOYEE STOCK OWNERSHIP TRUST
OF
HOME SAVINGS, INC., SSB
This Agreement by and between HOME SAVINGS, INC., SSB, a North Carolina
corporation (the "Employer" and sometimes referred to herein as the "Company"),
and the undersigned Trustee(s) (the "Trustee").
RECITALS
--------
WHEREAS, HOME SAVINGS, INC., SSB has adopted an Employee Stock Ownership
Plan for the benefit of its employees;
NOW, THEREFORE, the Employee Stock Ownership Trust of Home Savings, Inc.,
SSB is hereby adopted in its entirety so that it shall provide as follows:
1
<PAGE>
ARTICLE I
TITLE AND DESCRIPTIONS
1.01 TITLE. This Trust Agreement shall be known as the Employee
-----
Stock Ownership Trust of Home Savings, Inc., SSB.
1.02 TERMS DEFINED IN PLAN. The definitions set forth in the Plan
---------------------
are hereby incorporated by reference.
1.03 WORD USAGE. Words used in the masculine shall apply to the
----------
feminine where applicable, and wherever the context of the Plan dictates, the
plural shall be read as the singular and the singular as the plural.
2
<PAGE>
ARTICLE II
PLAN AND TRUST COMPLEMENTARY
2.01 COMPLEMENTARY. This Trust Agreement is established effective
-------------
as of the 1st day of January, 1996. The Trustee's rights, powers, titles,
duties, responsibilities, discretions, and immunities shall be governed solely
by this Trust Agreement except as specifically referenced in the provisions of
the Plan.
2.02 INTENT TO QUALIFY. The Plan and Trust are intended to satisfy
-----------------
the requirements of Sections 401 and 501 of the Code and the requirements of the
Act, and all provisions hereof shall be construed to that result.
3
<PAGE>
ARTICLE III
CONTRIBUTIONS
3.01 CONTRIBUTIONS. The Trustee shall receive all contributions
-------------
made to it in cash or in other property acceptable to it. All contributions so
received together with the income therefrom and any other increment thereon
shall be held, managed, and administered by the Trustee pursuant to the terms of
the Plan and Trust without distinction between principal and income. The Trustee
shall be accountable to the Employer for the funds contributed to it by the
Employer, but shall have no duty to administer the Plan nor to determine that
the contributions received from the Employer comply with the provisions of the
Plan or that the assets of the Trust are adequate to provide any benefit payable
pursuant to the Plan. The Trustee shall not be obligated to collect any
contributions from the Employer, nor be obligated to see that funds deposited
with it are deposited according to the provisions of the Plan.
3.02 COMMINGLING OF FUNDS. Unless otherwise directed by the Plan
--------------------
Administrator, the Trustee shall hold, invest, and administer the Trust assets
as a single fund without identification of any part of the Trust assets to the
Employer or to any Participant or group of Participants or their Beneficiaries.
4
<PAGE>
ARTICLE IV
PAYMENTS FROM TRUST FUND
4.01 DISTRIBUTIONS. Payments shall be made from the Trust Fund by
-------------
the Trustee to such persons, in such manner, at such times, and in such amounts
as the Plan Administrator shall from time to time direct in writing, provided,
however, the Trustee may withhold compliance with the Plan Administrator's
direction to the extent that, and so long as, the Trustee shall deem such
withholding necessary to insure payment of the Trustee's expenses or to protect
the Trustee against liability for taxes or any other liability.
4.02 DIRECTION BY PLAN ADMINISTRATOR. The Trustee shall not be
-------------------------------
liable for any distribution made or acts done by it pursuant to written
directions of the Plan Administrator. The Trustee shall not be obligated to
inquire as to whether any payee or distributee is entitled to any payment or
whether the distribution is proper or within the terms of the Plan, or as to the
manner of making any payment or distribution. The Trustee shall be accountable
only to the Plan Administrator for any payment or distribution made by it on the
order or direction of the Plan Administrator.
4.03 TRUST FUND FOR EXCLUSIVE BENEFIT OF PARTICIPANTS. Subject to
------------------------------------------------
Section 4.05 hereof, it shall be impossible, at any time, for any part of the
Trust Fund, other than such part as is required to pay taxes and administration
expenses, to revert to the Employer, or to be used for, or diverted to, purposes
other than for the exclusive benefit of the Participants, Former Participants,
or their Beneficiaries prior to the satisfaction of all liabilities under the
Plan. The term "liability" as used herein includes both fixed and contingent
obligations owed to the Participants and their Beneficiaries. It shall be
impossible for the Employer to recover any portion of the Trust Fund other than
such amounts, if any, as may remain in the Trust Fund because of erroneous
actuarial calculations, after the satisfaction of all fixed and contingent
obligations to Participants and their Beneficiaries under the Plan.
4.04 LIABILITY FOR PAYMENTS. The liability of the Trustee to make
----------------------
payments from the Trust Fund is limited to the available assets of the Trust.
4.05 RETURN OF EMPLOYER CONTRIBUTIONS. Notwithstanding any
--------------------------------
provisions herein to the contrary, upon the Employer's request, a contribution
which was made upon a mistake of fact, conditioned upon qualification of the
Plan, or upon deductibility of the contribution under Section 404 of the Code,
shall be returned to the Employer within one year after payment of the
contribution, denial of the qualification, or disallowance of the deduction (to
the extent disallowed), as the case may be.
4.06 PAYMENT IN THE EVENT OF DISABILITY OR INCAPACITY. If any
------------------------------------------------
person entitled to benefits hereunder (the "Payee") shall be under a legal
disability, or, in the sole judgment of the Plan Administrator, shall be unable
to apply such payment in furtherance of his own interest
5
<PAGE>
and advantage, payments hereunder may be made in any one or more of the
following ways as directed by the Plan Administrator:
(a) To the Payee directly;
(b) To the guardian of his person or his estate;
(c) To a relative of the Payee, to be expended for his benefit; or
(d) To the custodian of the Payee under any Uniform Gifts (or
Transfers) to Minors Act.
The Trustee shall not be obligated to determine whether any Payee is a minor or
is so incapacitated, but may rely on the Plan Administrator's directions as to
payment of benefits. The Plan Administrator's determination of minority or
incapacity of the Payee shall be final. Any payment made by the Trustee pursuant
to the powers herein conferred shall operate as a complete discharge of all
obligations of the Trustee and the Plan Administrator, to the extent of the
distributions so made.
6
<PAGE>
ARTICLE V
INVESTMENT OF TRUST FUND
5.01 INVESTMENTS. The Trust Fund, except such estimated amounts as
-----------
in the opinion of the Trustee are required by current payments and expenses,
shall be invested and reinvested by the Trustee without distinction between
principal and income in Employer Securities unless specifically provided to the
contrary. It is specifically acknowledged that the purpose of this Trust is to
invest in Employer Securities as provided in the Act. Subject to the provisions
of this Article V and Article VI hereof, the Trustee is authorized to invest and
reinvest the Trust Fund in such bonds, notes, debentures, mortgages, interest-
bearing accounts and certificates (including those maintained by the Trustee, if
the Trustee is a bank), investment trust certificates, preferred or common
stock, real estate, savings and loan accounts, interest in oil, gas and
minerals, Insurance Contracts, with or without cash surrender value, or in such
other property, real, personal or mixed, either within or without the state of
North Carolina, without being limited by any statute or rule of law regarding
investments by trustees. The Trustee may invest in any common collective trust
fund or pooled investment fund (which could constitute a permissible investment
with respect to the Plan) maintained by any bank (including itself, if the
Trustee is a bank) in North Carolina or in any other state of the United States.
The Trustee may hold any portion of the Trust Fund in cash for a reasonable
period pending investment or payment of expenses or benefits. The Trustee shall
have the further right, to the extent permissible under applicable law and the
Plan, to (a) purchase, sell, exchange, and retain preferred or common stocks or
other marketable obligations, consisting of bonds, debentures, notes,
certificates, or other evidences of indebtedness, issued by an Employer or by an
Affiliate and (b) acquire and hold parcels or real property (and related
personal property) which is leased, or is to be leased, to an Employer or to an
Affiliate. For the purposes of this Section, an Affiliate shall mean any
corporation which is an Affiliate (within the meaning of Section 407(d)(7) of
the Act) of any Employer.
5.02 INVESTMENT MANAGER. The Plan Administrator is given the power
------------------
to appoint one or more Investment Managers (herein so called) to exercise full
investment management authority with respect to all or a portion of the assets
of the Trust Fund and to authorize payment of the fees and expenses of such
Investment Manager from the assets of the Trust Fund. In the event the Plan
Administrator exercises this right, the Plan Administrator shall certify to the
Trustee and such Investment Manager the scope of the duties and responsibilities
of the Investment Manager. Such Investment Manager shall be either (a)
registered as an investment adviser under the Invest ment Advisers Act of 1940,
(b) a bank, as defined in the Investment Advisers Act of 1940, or (c) an
insurance company qualified to manage, acquire or dispose of plan assets under
the laws of more than one state. Upon its appointment, the Investment Manager
shall certify and acknowledge in writing to the Plan Administrator and the
Trustee that he is a fiduciary with respect to the Plan and Trust, and that he
has assumed the duties and responsibilities conferred upon him by the Plan
Administrator. The duties, responsibilities, and authority of any such
Investment Manager may be revoked or modified by the Plan Administrator at any
time by written notice to such Investment Manager and to the Trustee. Any
Investment Manager duly appointed and authorized by the Plan
7
<PAGE>
Administrator, shall, during the period of his appointment, possess fully and
absolutely those powers, rights, and duties of the Trustee (to the extent
delegated by the Plan Administrator and to the extent permissible under the
terms of this Trust Agreement) with respect to the investment or reinvestment of
that portion of the plan assets over which such Investment Manager has
investment management authority. During any period of time when such Investment
Manager is so appointed and serving, and with respect to those assets of the
Trust Fund over which such Investment Manager exercises investment management
authority, the Trustee's responsibility shall be limited to holding such assets
as a custodian, providing accounting services, disbursing benefits as
authorized, and executing such investment instructions only as directed by such
Investment Manager. The Trustee shall not be responsible for any acts or
omissions of such Investment Manager. Any certificates or other instrument duly
signed by such Investment Manager (or the authorized representative of such
Investment Manager), purporting to evidence any instruction, direction or order
of such Investment Manager with respect to the investment of those assets of the
Plan over which the Investment Manager has investment management authority shall
be accepted by the Trustee as conclusive proof thereof. The Trustee shall also
be fully protected in acting in good faith upon any notice, instruction,
direction, order, certification, opinion, letter, telegram, or other document
believed by the Trustee to be genuine and to be by such Investment Manager (or
the authorized representative of such Investment Manager). The Trustee shall not
be liable for any action taken or omitted by such Investment Manager or for any
mistakes of judgment or other action made, taken or omitted by the Trustee in
good faith upon direction of such Investment Manager.
5.03 DIRECTION OF INVESTMENTS. Notwithstanding any provision contained
------------------------
herein to the contrary, the Plan Administrator shall have the right and power at
any time and from time to time (but shall not be obliged) to direct the Trustee
in writing to purchase, sell, lease, retain, or otherwise act for the Trustee in
regard to any property, real, personal, or mixed, tangible or intangible and the
Trustee shall comply with and carry out such directions without being liable or
responsible in any way for any losses or unfavorable results resulting from its
compliance with such directions; provided that:
(a) So long as, and to the extent that, the Plan Administrator
fails to deliver directions to the Trustee under this Section, the Trustee
shall manage, control, invest, and reinvest the Trust Fund under the powers
granted in Article VI hereof with the same force and effect as if this
Section were not a part of this Agreement.
(b) No person dealing with the Trustee shall be required to
determine whether any sale or purchase by the Trustee has been authorized
or directed by the Plan Administrator, but each person shall be fully
protected in dealing with the Trustee in the same manner as if this Section
were not a part of this Agreement; and
(c) The Plan Administrator shall not direct the Trustee to invest
in the stocks, bonds, notes, debentures, or other obligations of an
Employer or any of its subsidiaries, whether domestic or foreign, nor
direct the purchase of any such investment or any other property from, or
sell to, an Employer or any of its subsidiaries without first obtaining a
prior
8
<PAGE>
ruling from the Internal Revenue Service that such purchase or sale would
not adversely affect the qualified status of this Trust under Section
401(a) of the Code. The Trustee, in its sole discretion, may refuse to
comply with any direction of the Plan Administrator which the Trustee deems
to be improper or contrary to the provisions of the Plan or any applicable
Federal or state statutes.
5.04 SEPARATE INVESTMENT ACCOUNTS. The Plan Administrator may direct
----------------------------
the Trustee to maintain separate Investment Accounts (herein so called) for each
Participant and Beneficiary. The Administration Committee may direct the Trustee
as to the investment of each separate Investment Account and the Trustee shall
be fully protected with respect to any investment so made. If separate
Investment Accounts are established, as of the Valuation Date for each
Limitation Year, the Trustee shall allocate and credit the net income (or net
loss) of each Participant's segregated Investment Account solely to such
Investment Account.
5.05 INVESTMENT IN POOLED FUND. If a bank is acting as Trustee, the
-------------------------
Plan Administrator may specifically authorize the Trustee to invest all or any
portion of the assets comprising the Trust Fund in any collective investment
trust which at the time of the investment provides for the pooling of the assets
of plans described in Section 401(a) of the Code. This authorization applies
solely to a collective investment trust the Trustee maintains and only if the
Trustee has received a determination letter from the Internal Revenue Service to
the effect the collective investment trust is exempt from Federal income tax.
The provisions of the collective investment trust agreement, as amended by the
Trustee from time to time, are by this reference incorporated within the Plan
and this Trust. The provisions of the collective investment trust shall govern
any investment of Plan assets in that trust.
9
<PAGE>
ARTICLE VI
POWERS OF THE TRUSTEE
6.01 INVESTMENT POWERS. Subject to the provisions of Article VIII,
-----------------
the Trustee is authorized and empowered, but not by way of limitation, with the
following powers, rights, and duties:
(a) Property Transactions. To sell, exchange, convey, transfer,
---------------------
or dispose of and also to grant options with respect to any property,
whether real or personal, at any time held by it, and any sale may be made
by private contract or by public auction, and no person dealing with the
Trustee shall be bound to see to the application of the purchase money or
to inquire into the validity, expediency, or propriety of any such sale or
other disposition.
(b) Operation and Lease. To retain, manage, operate, repair, and
-------------------
improve and to mortgage or lease for any period and on such terms as the
Trustee shall deem proper any real estate or personal property held by the
Trustee, including power to demolish any buildings or other improvements in
whole or in part; to erect buildings or other improvements; to make leases
that may extend beyond the term of the Trust; and to foreclose, extend,
renew, assign, release or partially release and discharge mortgages or
other liens.
(c) Vote. To vote in person or by proxy, with or without power of
----
substitution, any stocks, bonds, or other securities held in Trust.
(d) Stock Rights. To exercise any options appurtenant to any
------------
stocks, bonds, or other securities for the conversion thereof into other
stocks, bonds or securities, or to exercise any rights to subscribe for
additional stocks, bonds, or other securities and to make any and all
necessary payments thereof; to join in, dissent from, or oppose the
reorganization, recapitalization, consolidation, sale, or merger of
corporations or properties in which it may be interested as Trustee, upon
such terms and conditions as it may deem wise and to accept any securities
which may be issued upon any such reorganization, recapitalization,
consolidation, sale, or merger and thereafter to hold the same.
(e) Bank Trustee: Transaction by Trustee with Itself. If the
-------------------------------------------------
Trustee is a bank, to contract or otherwise enter into transactions between
itself as Trustee and as a bank, between itself as Trustee and the
Employer, its subsidiaries and affiliates or any of them, or between itself
as Trustee and any other institution for which it then, theretofore, or
thereafter may be acting as Trustee, subject to the provisions of the Act.
(f) Borrow. To borrow money from any source in such amounts and
------
upon such terms and for such purposes as the Trustee may determine and in
connection therewith to execute promissory notes, mortgages, or other
obligations and to pledge or mortgage any Trust assets as security.
10
<PAGE>
(g) Cash. To retain in cash so much of the Trust Fund as it may
----
deem advisable to satisfy liquidity needs of the Plan and to deposit any
cash held in the Trust Fund in a bank account without liability for the
highest rate of interest available, including, if a bank is acting as
Trustee, specified authority to invest in deposits of the Trustee.
(h) Investments. To invest and reinvest all or any part of the
-----------
Trust Fund in bonds, debentures, mortgages, notes, common or preferred
stocks, with or without par value, real estate, and such other property as
the Trustee deems proper.
(i) Mineral Investments. To purchase, convey, lease, and
-------------------
otherwise deal with oil, gas and other minerals, mineral rights, and
royalties; to operate and develop oil, gas, and other mineral properties
and interest, including, but not limited to, the power to make and release
oil, gas, and mineral leases and subleases; to make mineral deeds and
royalty transfers; to create, reserve and dispose of overriding royalties,
oil payments, gas payments, and any other interests; to execute division
orders and transfer orders; to enter into development and drilling
contracts, operating agreements and utilization agreements; and to make
agreements for present or future pooling of any and all interests in oil,
gas and other minerals.
(j) Agents. To employ and compensate accountants, attorneys,
------
brokers, attorneys-in-fact, attorneys-at-law, tax specialists, appraisers,
and other advisers and agents deemed by the Trustee necessary or
appropriate for the proper administration of the Trust created hereunder.
(k) Nominee. To hold securities or other property in the name of
-------
the Trustee or its nominee, or in another form as it may deem best, with or
without disclosing the trust relationship.
(l) Documents. To make, execute and deliver any and all contracts,
---------
deeds, leases, waivers, releases, guaranties, pledges, conveyances, powers
of attorney, or other instruments necessary or proper for the
accomplishment of any of the powers herein granted.
(m) Litigation. To begin, maintain, or defend any litigation
----------
necessary in connection with the administration of the Plan, except that
the Trustee shall not be obliged or required to do so unless indemnified to
its satisfaction.
(n) Compromise Claims. To compromise, arbitrate, contest, or
-----------------
abandon any claims or demands.
(o) Taxes. To file all tax returns required of the Trustee and
-----
pay any estate, inheritance, income, or other tax, charge or assessment
attributable to any benefit payable under the Plan required of the Trustee;
to defer making payment of any tax, charge, or
11
<PAGE>
assessment if it is indemnified to its satisfaction in the premises; and to
require before making any payment a release or other document from any
lawful taxing authority.
(p) Retention of Funds. To retain any funds or property subject
------------------
to any dispute, and to decline to make payment or delivery of the funds or
property until final adjudication is made by a court of competent
jurisdiction.
(q) Common Funds. To invest in undivided interests, in common
------------
with any other trust, or trusts, however created, or any other individual,
or individuals, including invest ments in so-called "common funds", or in
partnerships or joint ventures, operated or created by any person, trust,
or corporation.
(r) Loans. To invest in loans to a Participant in accord with the
-----
loan policy established by the Plan Administrator, provided any loan is
adequately secured, bears a reasonable rate of interest, provides for
repayment within a specified time, and otherwise conforms to the
Participant loan exemption provided by the Code.
(s) General Authorization. To exercise all the further rights,
---------------------
powers, options, and privileges granted, provided for, or vested in
trustees generally under applicable Federal and North Carolina laws, as
amended from time to time, it being intended that, except as herein
otherwise provided, the powers conferred upon the Trustee herein shall not
be construed as being in limitation of any authority conferred by law, but
shall be construed as in addition thereto.
Notwithstanding anything in the Plan or Trust to the contrary, the Trustee shall
not be required by any fiduciary to engage in any action, nor make any
investment which constitutes a prohibited transaction or is otherwise contrary
to the provisions of Sections 406, 407, 408, and 2003 of the Act, or which is
otherwise contrary to law or the terms of the Plan or Trust.
6.02 ANCILLARY TRUSTEE. Whenever and as often as the Trustee deems such
-----------------
action desirable, it may by written instrument appoint any person or corporation
in any State of the United States to act as "Ancillary Trustee" with respect to
any portion of the Trust Fund then held or about to be acquired on behalf of the
Trust. Each such Ancillary Trustee shall have such rights, powers, duties, and
discretions as are delegated to it by the Trustee, but shall exercise the same
subject to limitations or further directions of the Trustee as shall be
specified in the instrument evidencing its appointment.
The Ancillary Trustee may resign or may be removed by the Trustee as to all
or any portion of the assets so held at any time or from time to time by written
instrument delivered one to the other, and the Trustee may thereupon appoint
another Ancillary Trustee as successor to whom such assets shall be transferred,
or may itself receive such assets in termination of the Ancillary Trusteeship to
that extent. Each Ancillary Trustee shall be accountable solely to the Trustee.
The
12
<PAGE>
Trustee may pay the Ancillary Trustee reasonable compensation and may absolve it
from any requirement that it post bond or other security.
13
<PAGE>
ARTICLE VII
ADMINISTRATIVE PROVISIONS
7.01 ACCOUNTS AND RECORDS. The Trustee shall maintain accurate records
--------------------
and accounts of all transactions hereunder, which shall be available at all
reasonable times for inspection or audit by any person or persons designated by
the Plan Administrator. If the Plan Administrator so directs, the Trustee shall
submit to the Plan Administrator such interim valuations, reports, or other
information as the Plan Administrator may reasonably require. Within ninety (90)
days following (a) the close of each Plan Year or (b) the effective date of the
removal or resignation of the Trustee, the Trustee shall file with the Plan
Administrator a written account setting forth all transactions effected by it
subsequent to the end of the period for the last previous report and account, in
such form and detail as the Plan Administrator may request. The approval of any
such report and account by the Plan Administrator shall be a full acquittance
and discharge by the Plan Administrator of the Trustee with respect to the
matters therein set forth. Nothing herein contained, however, shall be deemed to
preclude the Trustee from its right to have its accounts judicially settled by a
court of competent jurisdiction, in which event only the Trustee and the
Employer shall be necessary parties.
7.02 INTENTION TO QUALIFY. It is intended that this Trust and Plan
--------------------
constitute a qualified trust under Section 401(a) of the Code and that this
Trust constitutes a tax-exempt trust under Section 501 of the Code, and until
advised to the contrary in writing, the Trustee may assume that the Trust is so
qualified and is entitled to the exemption from Federal income taxes provided
for in said sections. In the event the Trustee at any time believes such
exemption to be uncertain, the Trustee may take such steps and withhold such
payments as it deems necessary to protect itself.
7.03 PLAN ADMINISTRATOR ACTION. The Employer shall promptly notify the
-------------------------
Trustee of the name of the Plan Administrator as of the date of this Agreement
and of any subsequent changes in the Plan Administrator. In the absence of any
notification of changes, the Trustee may assume that the Plan Administrator is
the same as last reported by the Employer to the Trustee. The Plan Administrator
shall furnish the Trustee with all the necessary factual information required by
it to perform its duties as Trustee hereunder, including a specimen signature of
the Plan Administrator. The Trustee shall not be required to verify the facts so
furnished by the Plan Administrator. The Trustee, in following the directions of
the Plan Administrator, is authorized to act upon the written instructions of
the Plan Administrator and shall not be liable for its acts with respect to
payments from the Trust Fund when following such instructions or directions, or
for failure to act in the absence of such instructions or directions.
7.04 VALUATION OF TRUST. The Trustee shall value the Trust Fund as of
------------------
the end of the Plan Year to determine the fair market value of its assets. The
Trustee shall value the Trust Fund on such other date(s) as may be necessary for
the purpose of the Plan and Trust.
14
<PAGE>
7.05 EMPLOYER ACTION. Any action by an Employer hereunder, pursuant to
---------------
the Plan, shall be evidenced by a certified copy of a resolution of its Board of
Directors, or by written instrument executed by any person authorized by the
Board of Directors to take such action, and the Trustee shall be fully protected
in acting in accordance with such written instrument or resolution delivered to
it.
7.06 RELIANCE ON WRITTEN INSTRUMENT. The Trustee shall be fully
------------------------------
protected in acting upon any instrument, certificate, resolution, instruction,
direction, order, opinion, letter, telegram, or other document believed by it to
be genuine, and to be signed or presented by the proper person or persons, and
the Trustee shall be under no duty to make any investigation or inquiry as to
any statement contained in any such writing but may accept the same as
conclusive evidence of the truth and accuracy of the statements therein
contained.
7.07 LIABILITY FOR PAYMENT OF FUNDS. The Trustee shall not be liable
------------------------------
for its action in making payment or delivery of any cash or other property to
any person at the direction of the Plan Administrator and, in the event of
litigation, the Trustee shall not be liable for declining to make delivery
thereof until final adjudication shall be made in a court of competent
jurisdiction by agreement of the parties. The Trustee, at its discretion, may
bring any action in the nature of an interpleader, but shall not be obligated to
do so.
7.08 LIABILITY OF TRUSTEE. The Trustee shall not be liable for any
--------------------
action taken or omitted upon direction of the Plan Administrator or the
Employer. If at any given time the Plan Administrator or the Employer should
fail to give directions or instructions to the Trustee as provided in this
Agreement, the Trustee shall act or refrain from acting without such directions
or instructions and may exercise its own discretion and judgment as seems
appropriate and advisable under the circumstances in carrying out the purposes
of this Agreement, without liability to the Plan Administrator or the Employer
therefor.
7.09 COURT PROCEEDINGS. The Trustee may institute, maintain, or defend
-----------------
any litigation necessary in connection with the administration of the Trust
Fund, provided, the Trustee shall be under no duty or obligation to do so unless
it shall have been indemnified to its satisfaction against all expenses and
liabilities which it may sustain or reasonably anticipate by reason thereof. All
costs and expenses of litigation for which the Trustee would be liable shall be
paid by the Employer, or if not paid by the Employer, from the Trust Fund.
7.10 PARTIES TO LITIGATION. Except as otherwise provided by the Act,
---------------------
only the Employer, the Plan Administrator, and the Trustee shall be necessary
parties to any court proceeding involving the Trustee or the Trust Fund. No
Participant or Beneficiary shall be entitled to any notice of process unless
required by the Act. Any final judgment entered in any proceeding shall be
binding upon the Employer, the Plan Administrator, the Trustee, Participants,
and Beneficiaries.
7.11 THIRD PARTY. No person dealing with the Trustee shall be obligated
-----------
to see to the proper application of any money paid or property delivered to the
Trustee, or to inquire whether the
15
<PAGE>
Trustee has acted pursuant to any of the terms of the Plan. Each person dealing
with the Trustee may act upon any notice, request, or representation in writing
by the Trustee, or by the Trustee's duly authorized agent, and shall not be
liable to any person whomever in so doing. The certificate of the Trustee that
it is acting in accordance with the Plan shall be conclusive in favor of the
person relying on the certificate.
7.12 AUTHORIZATION WITH RESPECT TO TAXES. The Trustee may pay out of
-----------------------------------
the Trust Fund all real and personal property taxes, income taxes, and other
taxes of any and all kinds levied or assessed under existing or future laws
against the Trust Fund, or against the Trustee by reason of its office. The
Trustee is further authorized, but not required, to withhold from distribu tions
to any payee such sum as the Trustee may reasonably estimate as necessary to
cover Federal and states taxes for which the Trustee may be liable, which are,
or may be, assessed with regard to the amount distributable to such payee. Prior
to making any payment or distribution hereunder, the Trustee may require such
releases or other documents from any lawful taxing authority and may require
such indemnity from any payee or distributee as the Trustee shall reasonably
deem necessary for its protection.
7.13 CONSULTATION WITH COUNSEL. Trustee may consult with legal counsel,
-------------------------
who may be counsel for the Employer, if appropriate, with respect to any of its
rights, duties, or obligations hereunder.
7.14 NO INTEREST IN EMPLOYER. Neither the creation of this Trust nor
-----------------------
anything contained in this Agreement shall be construed as giving any person
entitled to benefits hereunder or other employee of the Employer any equity or
other interest in the assets, business, or affairs of the Employer.
7.15 FEES AND EXPENSES. The Trustee shall be reimbursed for all of its
-----------------
expenses and shall be paid such reasonable fees as may be agreed upon from time
to time by the Employer and the Trustee. Such fees and compensation shall be
paid from the Trust Fund if not paid by the Employer; provided, however, that
any person who already receives full-time pay from the Employer shall not
receive any fees for his services as Trustee.
7.16 BONDING OF TRUSTEE. The Trustee shall not be required to furnish
------------------
any bond or security for the performance of its powers and duties hereunder,
unless, irrespective of this provision, the Trustee is required to do so by
state or Federal statute or regulation.
7.17 RELATIONSHIP OF FIDUCIARIES. It is the intent of all fiduciaries
---------------------------
under the Plan and Trust that each fiduciary shall be solely responsible for its
own acts or omissions. Except to the extent imposed by the Act or the Code, no
fiduciary shall have the duty to question whether any other fiduciary is
fulfilling all of the responsibilities imposed upon such other fiduciary by the
Act or by any regulations or rulings issued thereunder. No fiduciary shall have
any liability for a breach of fiduciary responsibility of another fiduciary with
respect to the Plan and this Trust unless he participates knowingly in such
breach, knowingly undertakes to conceal such breach, has actual
16
<PAGE>
knowledge of such breach and fails to take reasonable remedial action to remedy
said breach or, through his negligence in performing his own specific fiduciary
responsibilities which give rise to his status as a fiduciary, has enabled such
other fiduciary to commit a breach of the latter's fiduciary responsibilities.
7.18 PRUDENT MAN RULE. The Trustee, the Plan Administrator, and all
----------------
other Fiduciaries with respect to the Plan and Trust are required to discharge
their duties solely in the interests of Participants and Beneficiaries and for
the exclusive purpose of providing benefits to Participants and Beneficiaries
and defraying reasonable expenses of administration with the care, skill,
prudence, and diligence, under the circumstances then prevailing, that a prudent
man acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of like character and with like aims by diversifying
the investments so as to minimize the risks of large losses unless under the
circumstances it is clearly prudent not to do so, and in accordance with the
Plan, this Trust Agreement, the rules and directions of the Plan Administrator
and the provisions of the Act.
7.19 ALIENATION. Except as otherwise provided in the Plan, the
----------
benefits, proceeds, payments, or claims of any Participant or Beneficiary
payable from the Trust assets shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
charge, garnishment, execution, or levy of any kind, either voluntary or
involuntary, including any such liability which is for alimony or other payments
for support of a spouse or former spouse. Any attempt to anticipate, alienate,
sell, transfer, assign, pledge, encumber, garnish, levy, or otherwise dispose of
or execute upon any right or benefit payable hereunder shall be void. The Trust
assets shall not in any manner be liable for or subject to the debts, contracts,
liabilities, engagements, or torts of any Participant entitled to benefits
hereunder and such benefits shall not be considered an asset of the Participant
in the event of his insolvency or bankruptcy.
7.20 LIMITATION ON LIABILITY - IF INVESTMENT MANAGER APPOINTED. The
---------------------------------------------------------
Trustee shall not be liable for the acts or omissions of any Investment Manager
or Managers the Plan Administrator may appoint, nor shall the Trustee be under
any obligation to invest or otherwise manage any assets of the Plan which is
subject to the management of a properly appointed Investment Manager.
7.21 INSURANCE COMPANY PROTECTED. No insurance company shall be under
---------------------------
any duty to inquire into the terms of this Trust Agreement or see to the
application of any proceeds of insurance paid to the Trustee pursuant to any
policy of insurance payable to this Trust. The receipt of the Trustee for any
such payment shall be a full and complete acquittance to the insurance company
making payment.
17
<PAGE>
ARTICLE VIII
TRUSTEE LIABILITY
8.01 TRUSTEE LIABILITY. Notwithstanding any provision in this Trust
-----------------
Agreement to the contrary, the Trustee shall be subject to the standards of
conduct, and shall have the powers and immunities set out in Article VI of the
Plan.
18
<PAGE>
ARTICLE IX
SUBSTITUTION OF TRUSTEE
9.01 TRUSTEE. There shall be one or more individual Trustees or one
-------
corporate Trustee, or any combination thereof, as determined from time to time
by the Company. Each Trustee shall serve until a successor Trustee shall be
named by the Company or until such Trustee's resignation, death, incapacity, or
removal, in which event the Company shall name a successor Trustee. The word
"Trustee" as used herein, shall include the original and any successor Trustee
or Trustees, whether corporate or individual.
9.02 RESIGNATION. Any Trustee may resign at any time upon giving sixty
-----------
(60) days' written notice in advance to the Company and to the Plan
Administrator unless such notice shall be waived.
9.03 REMOVAL. The Company, by giving thirty (30) days' written notice
-------
notice in advance to the Trustee, may remove any Trustee with or without cause.
9.04 SUCCESSION OF TRUSTEE. Each successor Trustee shall succeed to
---------------------
the title to the Trust vested in his predecessor by accepting in writing his
appointment as successor Trustee and filing the acceptance with the former
Trustee and the Plan Administrator without the signing or filing of any further
statement. The resigning or removed Trustee, upon receipt of acceptance in
writing of the Trust by the successor Trustee, shall execute all documents and
do all acts necessary to vest the title of record in any successor Trustee. Each
successor Trustee shall have and enjoy all of the powers, both discretionary and
ministerial, conferred under this Agreement upon his predecessor. No successor
Trustee shall be personally liable for any act or failure to act of any
predecessor Trustee.
9.05 MERGER OF CORPORATE TRUSTEE. If any corporate Trustee should,
---------------------------
before or after qualification, change its name, become consolidated or merged
with another corporation or otherwise should reorganize, any resulting
corporation which succeeds to the fiduciary business of such corporate Trustee
shall become a Trustee hereunder in lieu of such corporate Trustee.
19
<PAGE>
ARTICLE X
AMENDMENT AND TERMINATION
10.01 AMENDMENT. The Company shall have the right at any time by an
---------
instrument in writing to amend the Trust in any manner provided no amendment
shall:
(a) Authorize or permit any of the Trust Fund (other than the part
which is required to pay taxes and administration expenses) to be used for
or diverted to purposes other than for the exclusive benefit of the
Participants or their Beneficiaries.
(b) Cause or permit any portion of the Trust Fund to revert to or
become the property of the Employer.
(c) Increase the duties or responsibilities of the Trustee without
the written consent of the affected Trustee.
10.02 TERMINATION. This Trust may be terminated at any time by the
-----------
Company by delivery to the Trustee of a copy of the resolution of the Board of
Directors specifying such termina tion. In the event of termination of the
Trust, the Trustee shall distribute all property then constituting the Trust
Fund, less any amounts constituting charges against the Trust Fund, in such
manner and at such times as may be directed by the Plan Administrator. This
Trust shall automatically terminate when no cash or other property remains in
the Trust.
10.03 SUSPENSION OF CONTRIBUTIONS. Nothing in this Agreement shall be
---------------------------
construed to prevent the Employer from suspending contributions to the Trust for
any period whatsoever or permanently. Such a suspension, whether temporary or
permanent, shall not, of itself, terminate the Trust.
10.04 MERGER OR CONSOLIDATION. The Plan and this Trust shall not be
-----------------------
merged or consolidated with, nor shall its assets or liabilities be transferred
to, any other plan unless each Participant in the Plan (if the Plan then
terminated) would receive a benefit immediately after the merger, consolidation
or transfer which is equal to or greater than the benefit such Participants,
respectively, would have been entitled to receive immediately before the merger,
consolidation, or transfer (if the Plan had been terminated). Where the
foregoing requirements are satisfied the Plan and this Trust may be merged or
consolidated with another qualified plan and trust.
10.05 REVERSION OF SUSPENSE ACCOUNT. Notwithstanding any provisions
-----------------------------
contained herein to the contrary, the Employer reserves the right upon
termination of the Plan and trust to recover any amounts held in a Suspense
Account that cannot be allocated to the accounts of Participants and their
Beneficiaries in the year of termination because of the limitations contained in
Article III of the Plan and Section 415 of the Code after the satisfaction of
all fixed and contingent obligations to Participants and their Beneficiaries
under the Plan.
20
<PAGE>
ARTICLE XI
OTHER EMPLOYERS; SUCCESSOR EMPLOYERS
11.01 ADOPTION BY OTHER EMPLOYERS. Pursuant to the Plan, any business
---------------------------
entity, which is eligible to and does in fact adopt the Plan, may pursuant to
resolutions of its board of directors, adopt this Trust by written instrument,
duly executed, acknowledged, and delivered to the Trustee, the Plan
Administrator, and the Board of Directors of the Company.
11.02 CONTINUATION BY EMPLOYER'S SUCCESSOR. Any corporation succeeding
------------------------------------
to the interest of an Employer by sale, transfer, consolidation, merger, or
bankruptcy, may elect to continue this Trust by adopting this Trust Agreement
and assuming the duties and responsibilities of the Plan and Trust, or such
corporation may establish a separate plan and trust for the continuation of
benefits for its employees in which event the Trust Fund, held on behalf of the
Employees or the prior Employer, shall (subject to Section 10.04 hereof) be
transferred to the trustee of the new trust.
21
<PAGE>
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.01 CONTRIBUTIONS NOT RECOVERABLE. Except where contributions are
-----------------------------
required to be returned to the Employer by the provisions of the Plan as
permitted or required by the Act or by the Code, no part of the principal or
income of this Trust shall be used for, or diverted to, purposes other than the
exclusive benefit of Participants or Beneficiaries.
12.02 LIMITATIONS ON PARTICIPANTS' RIGHTS. Participation in this
-----------------------------------
Trust shall not give the Employee the right to be retained as an Employee of the
Employer or any right or interest in this Trust other than as herein provided.
The Employer reserves the right to dismiss any Employee without any liability
for any claim either against this Trust, except to the extent provided herein,
or against the Employer. All benefits payable hereunder shall be provided solely
from the assets of the Trust.
12.03 INDEMNIFICATION OF INDIVIDUAL TRUSTEE. The Employer hereby
-------------------------------------
agrees to indemnify and hold harmless any individual Trustee for any claim,
suit, judgment, or liability arising from the performance of the Trustee
hereunder and as otherwise required by the Plan, so long as such claim, suit,
judgment, or liability does not result from the willful or reckless misconduct
of the individual Trustee. The Trustee assumes no obligation or responsibility
with respect to any action required by this Trust Agreement or by the Plan on
the part of the Employer.
12.04 RECEIPT OF RELEASE. Any payment to any Participant or
------------------
Beneficiary in accordance with the provisions of this Trust shall, to the extent
thereof, be in full satisfaction of all claims against the Trustee, the Plan
Administrator, and the Employer and the Trustee may require such Participant or
Beneficiary, as a condition precedent to such payment, to execute a receipt and
release to such effect.
12.05 ACCEPTANCE. The Trustee accepts the Trust created under the
----------
Plan and agrees to perform the obligations imposed therein.
12.06 ACCOUNTING PERIOD. This Trust shall adopt for accounting
-----------------
purposes the fiscal year beginning January 1 of each year and ending on the last
day of December.
12.07 TITLE OF TRUST ASSETS. The legal and equitable title and ownership
---------------------
of all assets at any time constituting a part of the Trust Fund shall be and
remain with the Trustee and neither the Employer nor any Participant shall ever
have legal or equitable estate therein, save and except that a Participant shall
be entitled to receive distributions as and when lawfully made under the terms
of the Plan and this Trust.
22
<PAGE>
12.08 NOTICE. Any notices required to be given herein by the Trustee
------
shall be deemed delivered when placed in the United States mails, postage
prepaid, in an envelope addressed to the last known address of the person to
whom the notice is given.
12.09 HEADINGS. The titles and headings of Articles and Sections are
--------
included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
12.10 GOVERNING LAW. All questions arising with respect to the
-------------
provisions of this Agreement shall be determined by application of the laws of
the State of North Carolina except to the extent North Carolina law is
superseded by Federal statute.
12.11 EXECUTIONS AND COUNTERPARTS. This Agreement may be executed in a
---------------------------
number of counterparts, each of which shall be deemed an original.
IT WITNESS WHEREOF, this Agreement has been executed this the _____ day of
___________________, 1996, effective as of the _____ day of ___________________,
1996.
A S E M P L O Y E R
--------------------
HOME SAVINGS, INC., SSB
By: _____________________________________
President
ATTEST:
_____________________________
___________ Secretary
(Corporate Seal)
A S T R U S T E E
------------------
______________________________(SEAL)
______________________________(SEAL)
______________________________(SEAL)
______________________________(SEAL)
23
<PAGE>
EXHIBIT 10.5
HOME SAVINGS, INC., SSB
MANAGEMENT RECOGNITION PLAN
Home Savings, Inc., SSB, a North Carolina chartered savings bank (the
"Bank"), does herein set forth the terms of its Management Recognition Plan
(the "Plan").
1. Purpose of this Plan. The purpose of this Plan is to provide to the
--------------------
directors, officers and employees (the "Participants") of the Bank and of any
corporation or other entity of which the Bank owns, directly or indirectly, not
less than fifty percent (50%) of any class of the equity securities thereof (a
"Subsidiary"), an ownership interest in the Bank's parent holding company,
Century Bancorp, Inc. (the "Corporation") by making awards (hereinafter referred
to as "Awards" or singularly, "Award") of shares of common stock of the
Corporation (the "Common Stock"). The Board of Directors of the Bank (the
"Board") and the Board of Directors of the Corporation believe that
participation in the ownership of the Corporation will induce Participants to
continue to serve the Bank or any Subsidiary as directors, officers and/or
employees and encourage them to contribute to the future growth and profits of
the Bank and the Corporation. In addition, the existence of this Plan will make
it possible for the Bank and its Subsidiaries to attract capable individuals to
serve as directors or officers of the Bank and its Subsidiaries. The Board
believes that the existence of this Plan will provide incentives to the
directors, officers and employees of the Bank and any Subsidiaries which will
contribute materially to the success of such companies.
2. Administration of this Plan.
---------------------------
(a) This Plan shall be administered by a committee of the Board (the
"Committee") which shall consist of not less than three non-employee members of
the Board who are "disinterested persons" as described in Rule 16b-3(c)(2)(i) of
the Rules and Regulations under the Securities Exchange Act of 1934 (the
"Exchange Act"). In the absence of a duly appointed Committee, the Plan shall
be administered by those members of the Board who are "disinterested persons,"
and by the Board if there are less than three "disinterested persons." The
Committee shall have full power and authority to construe, interpret and
administer this Plan. All actions, decisions, determinations, or
interpretations of the Committee shall be final, conclusive, and binding upon
all parties. Members of the Committee shall serve at the pleasure of the Board.
(b) The Committee shall decide (i) to whom Awards shall be made under
this Plan, except as provided in subparagraph 3(b) and paragraph 5 hereof, (ii)
the number of shares of Common Stock subject to each award except as provided in
subparagraph 3(b) and paragraph 5 hereof, (iii) the number of additional shares,
if any, to be purchased or allocated for the purposes of this Plan, (iv) the
determination of leaves of absence which may be granted to Participants without
constituting a termination of their employment for purposes of the Plan and (v)
such additional terms and conditions for Awards as the Committee shall deem
appropriate, including, without limitation, any determinations as to the
restrictions or conditions on transfer of shares of Common Stock that are
necessary or appropriate to satisfy all applicable securities laws, rules,
regulations, and listing requirements.
(c) The Committee may designate any officers or employees of the Bank
or of any Subsidiary to assist in the administration of this Plan. The Committee
may authorize such individuals to execute documents on its behalf and may
delegate to them such other ministerial and limited discretionary duties as the
Committee may see fit.
1
<PAGE>
(d) Any unallocated, undistributed or forfeited shares of Common
Stock held under this Plan shall be held by ________________________,
_____________________ and ____________________ (the "Trustees") and any
successor or successors who from time to time may be appointed by the Board.
3. Shares of Common Stock Available Under the Plan.
-----------------------------------------------
(a) The Plan shall acquire a number of shares of Common Stock of the
Corporation equal to four percent (4%) of the shares of Common Stock issued in
connection with the conversion of the Bank from a North Carolina chartered
mutual savings bank to a North Carolina chartered stock savings bank on
_____________, 1996 (the "Conversion"). Such shares of Common Stock may be
purchased by the Plan in the open market, or, subject to approval of the Board
of Directors of the Corporation, may be acquired through the issuance by the
Corporation to the Plan of authorized but unissued shares of Common Stock on
such terms as may be approved by the Committee and the Board of Directors of the
Corporation. Such shares (the "Plan Shares") shall be held by the Trustees
until they have been allocated and distributed pursuant to the terms of this
Plan.
(b) Upon the purchase of the Plan Shares as provided in subparagraph
(a) above, such Plan Shares shall be allocated as provided in paragraph 5
hereof.
4. Eligibility. The Participants in this Plan to whom Awards may be made
-----------
shall be the following: members of the Board, members of the Board of Directors
of any Subsidiary, and such officers and employees of the Bank and/or of any
Subsidiary as may be designated by the Board. Notwithstanding the foregoing, no
member of the Committee is eligible to receive any grants or any awards of
shares under this Plan during the one-year period prior to serving on the
Committee or during such service, except for Awards of Plan Shares which are
distributed pursuant to the provisions of paragraph 5 hereof.
In addition, (i) no individual participant shall be awarded more than
twenty-five (25) percent of the Plan Shares to be issued pursuant to this Plan,
(ii) no participant who is a non-employee director of the Bank or a Subsidiary
shall be awarded more than five (5) percent of the Plan Shares to be issued
pursuant to this Plan and (iii) all participants who are non-employee directors
of the Bank or a Subsidiary shall be awarded no more than thirty (30) percent of
the Plan Shares to be issued pursuant to this Plan.
5. Award of Plan Shares. Subject to the provisions of paragraph 7 hereof,
--------------------
effective after this Plan is approved by a majority of the shareholders of the
Corporation, the Plan Shares shall be awarded and distributed to Participants
listed in, and in the amounts set forth in Exhibit A. Awards of Plan Shares
under this Plan shall be effective upon execution and delivery of the Stock
Grant Agreement described in paragraph 7.
6. Vesting of Shares.
-----------------
(a) Shares granted under this Plan shall vest and the right of a
Participant to the Plan Shares shall be nonforfeitable in accordance with the
following schedule:
2
<PAGE>
<TABLE>
<CAPTION>
Date When Plan Shares Percentage of Plan
Become Vested Shares Vested
--------------------- -------------------
<S> <C>
First Anniversary of Award of Plan Shares 20%
Second Anniversary of Award of Plan Shares 20%
Third Anniversary of Award of Plan Shares 20%
Fourth Anniversary of Award of Plan Shares 20%
Fifth Anniversary of Award of Plan Shares 20%
</TABLE>
(b) In determining the number of shares vested under the above vesting
schedule, a Participant shall not receive fractional shares. If the product
resulting from multiplying the vested percentage times the allocated shares
results in a fractional share, then a Participant's vested right shall be
rounded down to the nearest whole number of shares.
(c) In the event any Participant shall no longer be either a
director or an employee of the Bank or any Subsidiary for any reason, other than
as provided in subparagraph 6(d)below, and such Participant does not have a 100%
vested interest in his or her shares under the Plan, then any shares which are
not vested, based upon the applicable schedule in subparagraph 6(a) above, shall
be forfeited and, provided this Plan has not terminated pursuant to paragraph 18
below, shall be available again for Awards to Participants as may be determined
by the Committee.
(d) In the event that a Participant shall no longer be an employee or
a director of the Bank or any Subsidiary because of such Participant's
disability or death, prior to the date when all shares allocated to him or her
would be 100% vested in accordance with the schedule in subparagraph 6(a) above,
then, notwithstanding the foregoing schedule in subparagraph 6(a) above, all
shares allocated to such Participant shall immediately become fully vested and
nonforfeitable. For purposes of this Plan, the term "disability" shall be
defined in the same manner as such term is defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended (the "Code").
7. Action Required of Participants.
-------------------------------
(a) If required by the Committee, each Participant receiving an
Award of shares under this Plan shall represent to and agree with the
Corporation, the Bank, the Committee and the Trustees (i) that he is acquiring
such shares on his own behalf as an investment and not with a present intention
of distribution or re-sale and (ii) that there shall be placed upon the
certificates representing such shares a legend setting forth these
representations and agreements or a reference thereto. Such shares shall be
transferable thereafter only if the proposed transfer shall be permissible under
this Plan and if, in the opinion of counsel for the Corporation, such transfer
shall at such time be in compliance with all applicable federal and state
securities laws and regulations.
(b) Each Participant receiving an Award of Plan Shares under this Plan
shall deliver to the Bank a Stock Grant Agreement, substantially in the form
attached hereto as Exhibit B, as modified as the Committee deems necessary or
desirable (a "Stock Grant Agreement"), which shall be signed by such
Participant.
3
<PAGE>
8. Restrictions.
------------
(a) Plan Shares subject to an award made under this Plan shall forth-
with, after the Participant makes any representations required by paragraph 7
hereof, be issued in a certificate or certificates for such shares which shall
be prepared in the name of such Participant or any transferee permitted by
paragraph 12(a) (a "Permitted Transferee"). Such Participant or transferee shall
thereupon be a shareholder with respect to all of the shares represented by such
certificate or certificates and shall have all of the rights of a shareholder
with respect to all of such shares, including the right to vote such shares and
to receive all dividends and other distributions with respect thereto subject to
possible forfeiture as set forth in paragraph 6 and subject to the provisions of
paragraph 10 hereof.
(b) Certificates of stock representing shares subject to an Award made
under this Plan shall be imprinted with a legend to the effect that the shares
represented are subject to restrictions on transfer and potential forfeiture in
accordance with the terms of the Stock Grant Agreement and this Plan, and the
transfer agent for Common Stock shall be instructed to that effect with respect
to such shares. In aid of such restrictions, the Participant or Permitted
Transferee shall, immediately upon receipt of the certificate or certificates,
deposit such certificate or certificates together with a stock power or other
instrument of transfer, appropriately endorsed in blank, with the Trustees or
with such other escrow agent as may be designated by the Trustees, with the
expenses of any such escrow arrangement to be borne by the Bank.
(c) In addition, all Plan Shares which are awarded with respect to
Participants who are directors or executive officers of the Bank, without the
written consent of the Administrator of the Savings Institutions Division of the
North Carolina Department of Commerce, may not be sold during a period of one
year following the effective date of the Conversion, except upon death of the
director or executive officer. Certificates of stock representing Plan Shares
awarded with respect to Participants who are directors and executive officers of
the Bank (including those transferred to Permitted Transferees) shall be
imprinted with a legend to that effect, and the transfer agent for such Plan
Shares shall be instructed to that effect with respect to such shares.
(d) In the event that, as the result of a stock split or stock
dividend or combination of shares or any other change or exchange for other
securities by reclassification, reorganization, merger, consolidation,
recapitalization, or otherwise, a Participant or Permitted Transferee shall, as
the owner of the shares subject to an Award made under this Plan and subject to
the restrictions hereunder, be entitled to new or additional or different shares
of Common Stock or other securities, the certificate or certificates for, or
other evidence of, such new or additional or different shares or other
securities, together with a stock power or other instrument of transfer
appropriately endorsed, shall also be imprinted with one or more legends as
provided in subparagraph 8(b) and 8(c) above and deposited by such Participant
or Permitted Transferee with the Trustees, and all provisions of this Plan
relating to vesting, restrictions and lapse of restrictions herein set forth
shall thereupon be applicable to such new or additional or different shares or
other securities to the extent applicable to the shares with respect to which
they were distributed; provided, however, that if a Participant or Permitted
Transferee should receive rights, warrants or fractional interests in respect of
any of such shares then being held under the terms of this Plan, such rights or
warrants may be held, exercised, sold or otherwise disposed of, and such
fractional interests may be settled, by such Participant or Permitted Transferee
free and clear of the restrictions herein set forth.
4
<PAGE>
(e) The restriction to which shares subject to an Award made under
this Plan shall be subject is that if the directorship or employment of the
Participant with respect to whom an Award is made (whichever position resulted
in the Award) should be terminated for any reason during the "restricted period"
(as defined in subparagraph 12(b) hereof), except as otherwise specifically
provided in paragraph 6 hereof, the Participant's or Permitted Transferee's
interest in the shares issued under this Plan shall be forfeited as provided in
the applicable schedule in subparagraph 6(a) hereof.
9. Effect of Award on Status of Participant. The fact that an Award is
----------------------------------------
made to a Participant under this Plan shall not confer on such Participant any
right to continued service on the Board or on the Board of Directors of any
Subsidiary, nor any right to continued employment with the Bank or any
Subsidiary; nor shall it limit the right of the Bank, the Corporation, or any
Subsidiary to remove such Participant from any such boards, or to terminate his
or her employment at any time.
10. Voting Rights; Dividends; Other Distributions. After an Award of Plan
---------------------------------------------
Shares to a Participant or Permitted Transferee, the Participant or Permitted
Transferee shall have the full power to vote all of the Plan Shares held by the
Trustees in his name from time to time and shall be entitled to receive all cash
dividends declared upon any such Plan Shares held by the Trustees in his name
from time to time. All shares of Common Stock or other securities, including
but not limited to stock dividends, issued in respect of such Plan Shares or in
substitution thereof, whether by the Corporation or by another issuer, shall be
held by the Trustees and shall be subject to all terms and conditions of this
Plan and shall be redelivered to a Participant or Permitted Transferee or
delivered as instructed by the Committee under the same circumstances as the
shares with respect to, or in substitution for, which they were issued;
provided, however, that if a Participant or Permitted Transferee should receive
rights, warrants or fractional interests in respect of any of the shares held by
the Trustees in his name, such rights or warrants may be held, exercised, sold
or otherwise disposed of, and such fractional interests may be settled, by such
Participants or Permitted Transferees free and clear of the restrictions herein
set forth.
Notwithstanding the foregoing, if a Participant or Permitted Transferee
hereunder forfeits any Plan Shares pursuant to the terms of this Plan, the
Participant or Permitted Transferee, as applicable, shall, within 30 days after
the effective date of such forfeiture, pay the Corporation an amount equal to
the dividends received by such Participant or Permitted Transferee with respect
to such forfeited Plan Shares. In the alternative, at the option of the Bank or
a Subsidiary, the amount to be repaid may be withheld by the Bank or Subsidiary
from the final compensation or fees payable to the Participant.
11. Adjustment Upon Changes in Capitalization; Dissolution or Liquidation.
---------------------------------------------------------------------
In the event of a change in the number or type of shares of Common Stock
outstanding, or in the event shares of Common Stock are decreased, changed into
or exchanged for securities of a different entity, by reason of a
reclassification, recapitalization, reorganization, or other similar capital
adjustment; merger or consolidation of the Corporation; or the sale by the
Corporation of all or a substantial portion of its assets, or the occurrence of
any other event which could affect the implementation of this Plan and the
realization of its objectives, the number or kind of shares subject to Awards
which have occurred, or could occur, under this Plan shall be proportionately
and equitably adjusted by the Committee.
5
<PAGE>
12. Non-Transferability.
-------------------
(a) Any shares subject to an Award made under this Plan shall not be
sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of
during the "restricted period." Nothing herein shall preclude a Participant from
making a gift of any such shares to a spouse, child, stepchild, grandchild,
parent or sibling, or legal dependent of such Participant, to a trust of which
the beneficiary or beneficiaries of the trust shall be either a person
designated herein or such Participant, or to a civic or charitable organization
designated by the Participant; provided, however, that any such shares so given
by a Participant shall remain subject to the restrictions, obligations and
conditions set forth in this Plan, including, but not limited to, the escrow
provisions set forth in paragraph 8(b). In addition, such shares may be tendered
in response to a tender offer for or a request or invitation to tenders of
greater than fifty percent (50%) of the outstanding Common Stock and may be
surrendered in a merger, consolidation or share exchange involving the
Corporation; provided, however, in each case, that except as otherwise provided
herein, the securities or other consideration received in exchange therefor
shall thereafter be subject to the restrictions and conditions set forth in this
Plan, including, but not limited to, the escrow provisions set forth in
paragraph 8(b).
(b) The term "restricted period" with respect to shares subject to
an Award made under this Plan shall be the period commencing on the date of
making such Award of such shares to a Participant and ending on the date on
which such shares are no longer subject to forfeiture as provided in paragraph 6
hereof. The date of making an Award shall be the date of execution by a
Participant of a Stock Grant Agreement in the form referred to in subparagraph
7(b) hereof.
13. Impact of Award on Other Benefits of Participant. The value of any
------------------------------------------------
Award, either on the date of the Award or at the time such shares become vested,
shall not be includable as compensation or earnings for purposes of any other
benefit plan offered by the Bank, the Corporation or any Subsidiary.
14. Corporate Action. The making of an Award under this Plan shall not
----------------
affect in any way the right or power of the Corporation or its shareholders or
the Bank or its shareholders or any Subsidiary or its shareholders to make or
authorize any adjustment, recapitalization, reorganization, or other change in
the Corporation's, the Bank's or any Subsidiary's capital structure or its
business, or any merger or consolidation of the Corporation, the Bank or any
Subsidiary, or the issuance of any bonds, debentures, preferred or other capital
stock or rights with respect thereto, or the dissolution or liquidation of the
Corporation, the Bank or any Subsidiary, or any sale or transfer of all or any
part of the Corporation's, the Bank's or any Subsidiary's assets or business.
15. Tax Withholding. The Bank, the Corporation or any Subsidiary shall
---------------
have the right to deduct or otherwise effect a withholding of any amount
required by federal or state laws to be withheld with respect to the making of
an Award or the sale of shares acquired under this Plan in order for the Bank,
the Corporation or any Subsidiary to obtain a tax deduction otherwise available
as a consequence of such Award or sale, as the case may be.
16. Exculpation and Indemnification. In connection with this Plan, no
-------------------------------
member of the Board, no member of the Board of Directors of the Corporation, no
member of the Committee and no Trustee shall be personally liable for any act or
omission to act in his capacity as a member of the Board, the
6
<PAGE>
Board of Directors of the Corporation or the Committee or as a Trustee, nor for
any mistake in judgment made in good faith, unless arising out of, or resulting
from, such person's own bad faith, willful misconduct, or criminal acts. To the
extent permitted by applicable law and regulation, the Bank shall indemnify,
defend and hold harmless the members of the Board, the members of the Board of
Directors of the Corporation and the Committee and each Trustee and each other
officer or employee of the Bank, the Corporation or of any Subsidiary to whom
any duty or power relating to the administration or interpretation of this Plan
may be assigned or delegated, from and against any and all liabilities
(including any amount paid in settlement of a claim with the approval of the
Board) and any costs or expenses (including counsel fees) incurred by such
persons arising out of, or as a result of, any act or omission to act in
connection with the performance of such person's duties, responsibilities, and
obligations under this Plan, other than such liabilities, costs, and expenses as
may arise out of, or result from, the bad faith, willful misconduct, or criminal
acts of such persons.
17. Amendment and Modification of this Plan. The Board may at any time,
---------------------------------------
and from time to time, amend or modify this Plan (including the form of Stock
Grant Agreement) in any respect; provided, however, any amendment or
modification of this Plan shall not in any manner affect any Award of shares
theretofore made to a Participant under this Plan without the consent of such
Participant or any permitted transferee of such Participant and further provided
that no amendment shall be made to paragraph 5 of the Plan more than once every
six months other than to comport with changes in the Code, Employee Retirement
Income Security Act or the rules thereunder.
18. Termination and Expiration of this Plan. This Plan may be abandoned,
---------------------------------------
suspended, or terminated, in whole or in part, at any time by the Board;
provided, however, that abandonment, suspension, or termination of this Plan
shall not affect any Award theretofore made under this Plan; and provided
further, that in no event shall this Plan be terminated at the time of or
following any merger or consolidation of the Corporation or the Bank, unless and
until the surviving entity shall have made provision for an equivalent benefit
for all the then current participants in the Plan. Unless sooner terminated,
this Plan shall terminate at the close of business on the day that is the tenth
(10th) anniversary of the date of approval of the Plan by a majority of the
shareholders of the Corporation; and no Award of shares may be made under this
Plan thereafter. Such termination shall not effect any Award of shares
theretofore made. In the event that the Board terminates this Plan in whole,
any shares held by the Trustees pursuant to paragraph 2(d) which have not been
allocated to eligible Participants, together with any other assets held by the
Trustees in their capacities as such, shall revert to the Bank.
19. Effective Date. This Plan has been adopted by the Board to be
--------------
effective as of the date of approval of the Plan by a majority of the
shareholders of the Corporation as required by the regulations of the Federal
Deposit Insurance Corporation.
20. Captions and Headings; Gender and Number. Captions and paragraph
----------------------------------------
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein, are not a part hereof, and shall not serve as a
basis for interpretation or construction of this Plan. As used herein, the
masculine gender shall include the feminine and neuter, and the singular number
shall include the plural, and vice versa, whenever such meanings are
appropriate.
21. Expenses of Administration of Plan. All costs and expenses incurred
----------------------------------
in the operation and administration of this Plan shall be borne by the Bank or
by a Subsidiary.
7
<PAGE>
22. Governing Law. Without regard to the principles of conflicts of laws,
-------------
the laws of the State of North Carolina shall govern and control the validity,
interpretation, performance, and enforcement of this Plan.
23. Inspection of Plan. A copy of this Plan, and any amendments thereto,
------------------
shall be maintained by the Secretary of the Bank and shall be shown to any
proper person making inquiry about it.
8
<PAGE>
EXHIBIT A
Percentage of Total
Name Plan Shares/1/
---- ---------------------
___________________
/1/Total Plan Shares shall be equal to four percent (4%) of the number
of shares of Common Stock issued by the Corporation in connection with the
Conversion.
<PAGE>
EXHIBIT B
STATE OF NORTH CAROLINA
COUNTY OF DAVIDSON
STOCK GRANT AGREEMENT
THIS STOCK GRANT AGREEMENT (the "Agreement") is made and entered into as
of the ____ of ___________________, _______ (the "Effective Date"), by and among
Home Savings, Inc., SSB (the "Bank"), a North Carolina corporation,
_______________________ (the "Participant") and ______________________,
___________________ and ____________________ (the "Trustees").
WHEREAS, a Management Recognition Plan (the "Plan") was adopted by the
Board of Directors of the Bank (the "Bank") and approved by the Board of
Directors and by a majority of the shareholders of Century Bancorp, Inc., the
holding company of the Bank (the "Corporation").
WHEREAS, it has been determined that it is desirable and in the best
interest of the Bank to make an award (the "Award") of certain shares of the
Common Stock of the Corporation, under the Plan, to the Participant, subject to
certain restrictions as specified below; and
WHEREAS, capitalized terms not otherwise defined herein shall have the same
meaning given to such terms in the Plan.
NOW, THEREFORE, the Parties agree as follows:
1. Date of Award. The date of making the Award under this Agreement is
-------------
the _____ day of _________________, ______. This Award has been made in
recognition of the Participant's status and service as a ____________________ of
_____________________________________________. The Participant is ____ or _____
is not a director or executive officer of the Bank.
2. Receipt by Participant. The Participant acknowledges receipt of
----------------------
________________________________ (__________) shares of Common Stock (the
"Restricted Stock"), and agrees to the execution of stock powers or such other
transfer authorizations as the Committee shall request, in blank, covering the
Restricted Stock to be held by the Trustees until the Restricted Stock becomes
vested and nonforfeitable pursuant to the Plan and this Agreement.
3. Investment Representation and Transfer Restrictions.
---------------------------------------------------
(a) Investment Representation. Participant makes and agrees to the
-------------------------
investment representation, if any, attached hereto as Annex A, and the Committee
may cause a legend to be placed on any certificate representing any of the
shares of Restricted Stock to make appropriate reference to such representation.
(b) Securities Law and Regulations. The Participant agrees that the
-------------------------------
Restricted Stock shall be subject to such stop-transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations,
and other requirements of the Securities and Exchange Commission, any stock
exchange or interdealer quotation system upon which the Common Stock is then
listed and any other applicable federal or state securities laws, rules or
regulations, and the Committee may cause a
<PAGE>
legend or legends to be placed on any certificate representing any of the shares
of Restricted Stock to make appropriate reference to such restrictions.
(c) Other Transfer Restrictions. If paragraph 1 above states that
---------------------------
Participant is a director or an executive officer of the Bank and if less than
one year has passed since the consummation of the Conversion (defined below),
the Participant agrees with the Bank that each certificate representing any of
the Restricted Stock may bear a legend, substantially in the form attached as
Annex B hereto, to the effect that, during the one year period following the
effective date of the conversion of the Bank from a North Carolina chartered
mutual savings bank to a North Carolina chartered stock savings bank (the
"Conversion"), the Restricted Stock represented thereby may not be sold without
the written consent of the Administrator of the Savings Institutions Division,
North Carolina Department of Commerce, except upon the death of the Participant.
4. Receipt by the Trustees. The Trustees acknowledge receipt from the
-----------------------
Participant of the Restricted Stock, registered in the name of the Participant,
and acknowledge receipt of stock powers executed in blank by the Participant
covering all of the Restricted Stock. The Restricted Stock shall be held by the
Trustees and distributed or transferred in accordance with the Plan and as set
forth herein.
5. Vesting and Delivery of Restricted Stock by the Trustees.
--------------------------------------------------------
(a) Periodic Vesting. Restricted Stock shall vest and become
----------------
nonforfeitable in accordance with the Plan.
(b) Delivery of Restricted Stock to the Participant. After (i) the
-----------------------------------------------
date on which shares of Restricted Stock have become vested as provided in the
Plan, the Committee shall instruct the Trustees to deliver to the Participant,
the Participant's designee, such other person as shall have been designated as
Participant's beneficiary in accordance with this Agreement, or any other
permitted recipient pursuant to the Plan, as applicable, certificates
representing the shares of Restricted Stock which have become vested and
nonforfeitable, as the Committee shall determine, free from any restrictions
imposed by this Agreement other than such restrictions and conditions as may be
deemed necessary by the Committee pursuant to paragraph 3 above.
(c) Delivery of Forfeited Restricted Stock. If the Restricted Shares,
--------------------------------------
or any of them, are forfeited pursuant to the Plan, the Board shall instruct the
Trustees concerning the disposition of such forfeited shares. Thereafter such
forfeited shares shall cease to be subject to this Agreement.
6. Repayment of Dividends. If the Participant hereunder forfeits any
----------------------
shares of Restricted Stock pursuant to the Plan, the Participant shall, within
30 days after the effective date of such forfeiture, pay the Corporation an
amount equal to the dividends received by the Participant with respect to
forfeited shares of Restricted Stock as set forth in the Plan. In the
alternative, at the option of the Bank or a Subsidiary, the amount to be repaid
may be withheld by the Bank or Subsidiary from the final compensation or fees
payable to the Participant. Each acceptance by a Participant of dividends with
respect to Restricted Shares still subject to forfeiture shall constitute a
reaffirmation of the agreements set forth in this paragraph 6.
2
<PAGE>
7. Designation of Beneficiary. The Participant hereby designates the
--------------------------
person(s) described on Annex C as the beneficiary or beneficiaries who shall be
entitled to receive the Restricted Stock, if any, distributable to the
Participant upon his death. The Participant may, from time to time, revoke or
change his beneficiary designation without the consent of any prior beneficiary,
if any, by filing a new designation with the Committee. The last such
designation received by the Committee shall be controlling; provided, however,
that no designation, or change or revocation thereof, shall be effective unless
received by the Committee prior to the Participant's death, and in no event
shall it be effective as of a date prior to such receipt.
If no such beneficiary designation is in effect at the time of the
Participant's death, or if no designated beneficiary survives the Participant,
or if such designation conflicts with law, the Participant's estate shall be
deemed to have been designated his beneficiary and shall receive the Restricted
Stock, if any, distributable to the Participant upon his death. If the
Committee is in doubt as to the right of any person to receive such
distribution, the Committee may direct the Trustees to retain the Restricted
Stock, without liability for any interest in respect thereof, until the rights
thereto are determined, or the Committee may direct the transfer of such
Restricted Stock into any court of appropriate jurisdiction and such transfer
shall be deemed a complete discharge of the obligations of the Bank, the
Corporation, the Committee and Trustees hereunder.
8. Effect of Award on Status of Participant. The fact that an Award has
----------------------------------------
been made to the Participant under this Plan shall not confer on the Participant
any right to continued service on the Board, on the board of directors of the
Corporation or on the board of directors of any Subsidiary, nor to continued
employment with the Bank, the Corporation or any Subsidiary; nor shall it limit
the right of the Bank, the Corporation or of any Subsidiary to remove the
Participant from any such boards, or to terminate his employment at any time
without prior notice.
9. Impact of Award on Other Benefits of Participant. The value of the
------------------------------------------------
Restricted Stock on the date of the Award or at the time the Restricted Stock
becomes vested, shall not be includable as compensation or earnings for purposes
of any other benefit plan offered by the Bank, the Corporation or any
Subsidiary.
10. Tax Withholding. All Restricted Stock distributed pursuant to this
---------------
Agreement shall be subject to applicable federal, state and local withholding
for taxes. The Participant expressly acknowledges and agrees to such
withholding without regard to whether the Restricted Stock may then be sold or
otherwise transferred by the Participant.
11. Notices. Any notices or other communications required or permitted to
-------
be given under this Agreement shall be in writing and shall be deemed to have
been sufficiently given if delivered personally or three business days after
deposit in the United States mail as Certified Mail, return receipt requested,
properly addressed and postage prepaid, if to the Bank, the Committee or the
Trustees at the Bank's principal office address at Post Office Box 989, 22
Winston Street, Thomasville, North Carolina 27361-0989; and, if to the
Participant, at his last address appearing on the books of the Bank. The Bank
and the Participant may change their address or addresses by giving written
notice of such change as provided herein. Any notice or other communication
hereunder shall be deemed to have been given on the date actually delivered or
as of the third (3rd) business day following the date mailed as set forth above,
as the case may be.
3
<PAGE>
12. Construction Controlled by Plan. The Plan, a copy of which is
-------------------------------
attached hereto as Annex D, is incorporated herein by reference. The Award of
Restricted Shares shall be subject to the terms and conditions of the Plan, and
the Participant hereby assumes and agrees to comply with all of the obligations
imposed upon the Participant in the Plan. This Agreement shall be construed so
as to be consistent with the Plan; and the provisions of the Plan shall be
deemed to be controlling in the event that any provision hereof should appear to
be inconsistent therewith.
13. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be valid and enforceable under
applicable law, but if any provision of this Agreement is determined to be
unenforceable, invalid or illegal, the validity of any other provision or part
thereof shall not be affected thereby and this Agreement shall continue to be
binding on the parties hereto as if such unenforceable, invalid or illegal
provision or part thereof had not been included herein.
14. Governing Law. Without regard to the principles of conflicts of laws,
-------------
the laws of the State of North Carolina shall govern and control the validity,
interpretation, performance, and enforcement of this Agreement.
15. Modification of Agreement; Waiver. This Agreement may be modified,
---------------------------------
amended, suspended or terminated, and any terms, representations or conditions
may be waived, but only by a written instrument signed by each of the parties
hereto or their successors in interest. No waiver hereunder shall constitute a
waiver with respect to any subsequent occurrence or other transaction hereunder
or of any other provision hereof.
16. Binding Effect. This Agreement shall be binding upon and shall inure
--------------
to the benefit of the parties hereto, and their respective heirs, legatees,
personal representatives, executors, and administrators, successors and assigns.
17. Entire Agreement. This Agreement and the Plan constitute and embody
----------------
the entire understanding and agreement of the parties hereto and, except as
otherwise provided hereunder, there are no other agreements or understandings,
written or oral, in effect between the parties hereto relating to the matters
addressed herein.
18. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when executed and delivered shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
19. Substitution of Trustee. In the event any new trustee is substituted
-----------------------
for any Trustee pursuant to the Plan, such substitute trustee shall also be
substituted as a Trustee hereunder.
4
<PAGE>
IN WITNESS WHEREOF, the Bank has caused this instrument to be executed in
its corporate name by its President, or one of its Vice Presidents, and attested
by its Secretary or one of its Assistant Secretaries, and its corporate seal to
be hereto affixed, all by, authority of its Board of Directors first duly given;
and each individual party hereto has hereunto set his hand and adopted as his
seal the typewritten word "SEAL" appearing beside his name, all done this the
day and year first above written.
HOME SAVINGS, INC., SSB
By:_________________________________
___________________President
ATTEST:
- -----------------------------------------
______________________ Secretary
[Corporate Seal]
PARTICIPANT
------------------------------(SEAL)
------------------------------(SEAL)
TRUSTEE
------------------------------(SEAL)
TRUSTEE
------------------------------(SEAL)
TRUSTEE
5
<PAGE>
ANNEX A
Investment Representation
-------------------------
<PAGE>
ANNEX B
Form of Legend
--------------
The shares represented by this certificate are subject to restrictions on
transfer and, for a period ending ______________, 1997, may not be sold without
the written permission of the Administrator of the Savings Institutions
Division, North Carolina Department of Commerce, except in the event of the
death of the holder thereof.
<PAGE>
ANNEX C
Management Recognition Plan
---------------------------
Beneficiary Designation Form
----------------------------
As Beneficiary to receive any shares of stock distributable on my behalf
pursuant to the Home Savings, Inc., SSB Management Recognition Plan, I hereby
designate the following:
Name Address Relationship
Primary Beneficiary:
----------------------------------------------------------
----------------------------------------------------------
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Contingent Beneficiary:
(if any)
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If more than one primary beneficiary is named, shares will be paid in equal
shares to surviving primary beneficiaries. Should the contingent beneficiaries
be eligible to receive the benefits (i.e., all primary beneficiaries are
deceased), such benefits will be paid in equal shares to such surviving
contingent beneficiaries.
Name of Spouse if not given above:
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- --------------------------------------- -------------------------------------
Witness Participant
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Date
<PAGE>
ANNEX D
Management Recognition Plan
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<PAGE>
EXHIBIT 10.6
CENTURY BANCORP, INC.
STOCK OPTION PLAN AND TRUST AGREEMENT
THIS IS THE CENTURY BANCORP, INC. STOCK OPTION PLAN ("Plan") AND TRUST
AGREEMENT (the "Trust") of Century Bancorp, Inc. (the "Corporation"), a North
Carolina corporation, with its principal office in Thomasville, Davidson County,
North Carolina, adopted by the Board of Directors of the Corporation and
effective upon the approval of the Plan by a majority of the shareholders of the
Corporation and the receipt of all necessary regulatory approvals, under which
options may be granted from time to time to eligible directors and employees of
the Corporation, Home Savings, Inc., SSB (the "Bank") and of any corporation or
other entity of which either the Corporation or the Bank owns, directly or
indirectly, not less than fifty percent (50%) of any class of equity securities
(a "Subsidiary"), to purchase shares of common stock of the Corporation ("Common
Stock"), subject to the provisions set forth as follows:
1. PURPOSE OF THE PLAN. The purpose of the Plan is to aid the
-------------------
Corporation, the Bank and any Subsidiary in attracting and retaining capable
directors and employees and to provide a long range incentive for directors and
employees to remain in the management of the Corporation, the Bank or any
Subsidiary, to perform at increasing levels of effectiveness and to acquire a
permanent stake in the Corporation with the interest and outlook of an owner.
These objectives will be promoted through the granting of options to acquire
shares of Common Stock pursuant to the terms of this Plan.
2. ADMINISTRATION. The Plan shall be administered by the committee (the
--------------
"Committee"), who are three members of the Board of Directors of the Corporation
(the "Board") who are "disinterested persons" as described in Rule 16b-
3(c)(2)(i) of the Rules and Regulations under the Securities Act of 1934 (the
"Exchange Act"). Members of the Committee shall serve at the pleasure of the
Board. In the absence at any time of a duly appointed Committee, this Plan
shall be administered by those members of the Board who are "disinterested
persons," and by the Board if there are less than three "disinterested persons."
The Committee may designate any officers or employees of the Corporation, the
Bank or any Subsidiary to assist in the administration of the Plan and to
execute documents on behalf of the Committee and perform such other ministerial
duties as may be delegated to them by the Committee.
The Trust shall have three Trustees who shall be appointed by the Board and
shall serve at the pleasure of the Board.
Subject to the provisions of the Plan, the determinations or the
interpretation and construction of any provision of the Plan by the Committee
shall be final and conclusive upon all persons affected thereby. By way of
illustration and not of limitation, the Committee shall have the discretion (a)
to construe and interpret the Plan and all options granted hereunder and to
determine the terms and provisions (and amendments thereof) of the options
granted under the Plan (which need not be identical); (b) to define the terms
used in the Plan and in the options granted hereunder; (c) to prescribe, amend
and rescind the rules and regulations relating to the Plan; (d) to determine the
individuals to whom and the time or times at which such options shall be granted
(except for the options described in paragraph 6), the number of shares to be
subject to each option (except for the options described in paragraph 6), the
option price, and the determination of leaves of absence which may be granted to
participants without constituting a termination of their employment for the
purposes
<PAGE>
of the Plan; and (e) to make all other determinations necessary or advisable for
the administration of the Plan.
It shall be in the discretion of the Committee to grant options which
qualify as "incentive stock options" (as that term is defined in Section 422 of
the Internal Revenue Code of 1986, as amended) or which do not qualify as
incentive stock options and which will be given tax treatment as "nonqualified
stock options" (herein referred to collectively as "options;" however, whenever
reference is specifically made only to "incentive stock options" or
"nonqualified stock options," such reference shall be deemed to be made to the
exclusion of the other). Any options granted which fail to satisfy the
requirements for incentive stock options shall become nonqualified stock
options.
3. STOCK AVAILABLE FOR OPTIONS. In the discretion of the Committee, the
---------------------------
stock to be subject to options under the Plan shall be authorized but unissued
shares of Common Stock which are issued to and held by the Trust or which are
issued directly to optionees upon exercise of options and/or shares of Common
Stock which are acquired by the Trust in the open market either before or after
the exercise of options under this Plan. It is contemplated that shares of
Common Stock may be acquired by the Trust upon the grant of options under the
Plan and prior to the time options become vested under the terms of the Plan.
The total number of shares of Common Stock for which options may be granted
under the Plan is the number of shares equal to ten percent (10%) of the total
number of shares of Common Stock issued by the Corporation in connection with
the conversion of the Bank from a North Carolina mutual savings bank to a North
Carolina stock savings bank on __________________, 1996 (the "Conversion").
Such number of shares is subject to any capital adjustments as provided in
Section 15. In the event that an option granted under the Plan is forfeited,
released, expires or is terminated unexercised as to any shares covered thereby,
such shares thereafter shall be available for the granting of options under the
Plan; however, if the forfeiture, expiration, release or termination date of an
option is beyond the term of existence of the Plan as described in Section 22,
then any shares covered by forfeited, unexercised, released or terminated
options shall not reactivate the existence of the Plan and therefore may not be
available for additional grants under the Plan. The Corporation, until the
Trust has acquired all shares of Common Stock necessary to satisfy options
granted under the Plan, will reserve and keep available a number of shares of
Common Stock sufficient to satisfy the requirements of the Plan.
4. CONTRIBUTIONS TO TRUST. The Board shall determine the amount (or the
----------------------
method of computing the amount) and timing of any contributions by the
Corporation, the Bank and any Subsidiary to the Trust established under this
Plan. Such amounts may be paid in cash or in shares of Common Stock and shall
be paid to the Trust at the designated time of contribution. No contributions
by participants under the Plan shall be permitted.
Except for amounts distributed to the Trust pursuant to Section 17 (which
shall be invested as set forth in Section 18), the Trustees shall, after paying
the expenses of the Trust, invest all of the Trust's assets primarily in Common
Stock. Upon the direction of the Committee, a number of shares up to the
aggregate number of shares of Common Stock available for distribution pursuant
to this Plan, as set forth in Section 3 above, shall be acquired by the Trustees
subsequent to approval of the Plan by the Corporation's shareholders and after
receipt of all necessary regulatory approvals. In the discretion of the
Committee, such shares may be acquired either before or upon the exercise of
options under this Plan, and may be acquired immediately upon approval of this
Plan by the
2
<PAGE>
Corporation's shareholders and receipt of all necessary regulatory approvals.
In the event that cash is contributed to the Trust and it is necessary for the
Trustees to acquire shares of Common Stock in the open market, such shares shall
be acquired on such terms as the Trustees deem appropriate.
5. ELIGIBILITY. Options shall be granted only to individuals who meet all
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of the following eligibility requirements:
(a) Such individual must be an employee or a member of the Board of
Directors of the Corporation, the Bank or a Subsidiary. For this purpose,
an individual shall be considered to be an "employee" only if there exists
between the Corporation, the Bank or a Subsidiary and the individual the
legal and bona fide relationship of employer and employee. In determining
whether such relationship exists, the regulations of the United States
Treasury Department relating to the determination of such relationship for
the purpose of collection of income tax at the source on wages shall be
applied.
(b) Such individual must have such knowledge and experience in
financial and business matters that he or she is capable of evaluating the
merits and risks of the investment involved in the exercise of the options.
(c) Such individual, being otherwise eligible under this Section 5,
shall have been selected by the Committee as a person to whom an option
shall be granted under the Plan or shall have been designated in Section 6
hereof.
In determining the directors and employees to whom options shall be granted
and the number of shares to be covered by each option, the Committee shall take
into account the nature of the services rendered by respective directors and
employees, their present and potential contributions to the success of the
Corporation, the Bank and any Subsidiary and such other factors as the Committee
shall deem relevant. A director or employee who has been granted an option
under the Plan may be granted an additional option or options under the Plan if
the Committee shall so determine.
If, pursuant to the terms of the Plan, it is necessary that the percentage
of stock ownership of any individual be determined, stock ownership in the
Corporation or of a related corporation which is owned (directly or indirectly)
by or for such individual's brothers and sisters (whether by the whole or half
blood), spouse, ancestors, and lineal descendants or by or for any corporation,
partnership, estate or trust of which such employee is a shareholder, partner or
beneficiary shall be considered as owned by such director or employee.
Notwithstanding anything in this Plan to the contrary, (i) no individual
optionee shall be granted options to acquire more than twenty-five (25) percent
of the shares of Common Stock to be issued pursuant to this Plan, (ii) no
optionee who is a non-employee director of the Corporation, the Bank or a
Subsidiary shall be granted options to acquire more than five (5) percent of the
shares of Common Stock to be issued pursuant to this Plan and (iii) all
optionees who are non-employee directors of the Corporation, the Bank or a
Subsidiary shall be granted options to acquire no more than thirty (30) percent
of the shares of Common Stock to be issued pursuant to this Plan.
3
<PAGE>
6. INITIAL GRANTS. Subject to the provisions of this Plan, options shall
--------------
be awarded to the directors and employees as set forth on Exhibit A. Such
options shall be granted after the date the Plan is approved by a majority of
the Corporation's shareholders and by all necessary regulatory authorities, and
after execution by the optionee of a Stock Option Grant and Agreement (the
"Option Agreement") in the form attached hereto as Exhibit B as modified by the
Committee to the extent it deems such modification to be necessary or desirable.
Such options shall be granted with the intention that they will be nonqualified
or incentive stock options as denominated in the Option Agreement. Any option
granted with the intention that it will be an incentive stock option but which
fails to satisfy a requirement for incentive stock options shall continue to be
valid and shall be treated as a nonqualified stock option.
7. OPTION PRICE.
------------
(a) The option price of each option granted under the Plan shall be not
less than one hundred percent (100%) of the market value of the stock on
the date of grant of the option. In the case of incentive stock options
granted to a shareholder who owns stock possessing more than 10 percent
(10%) of the total combined voting power of all classes of stock of the
Corporation, the Bank or a Subsidiary (a "ten percent shareholder"), the
option price of each option granted under the Plan shall not be less than
one hundred and ten percent (110%) of the market value of the stock on the
date of grant of the option. If the Common Stock is listed on a national
securities exchange (including the NASDAQ National Market System) on the
date in question, then the market value per share shall be not less than
the average of the highest and lowest selling price on such exchange on
such date, or if there were no sales on such date, then the market price
per share shall be equal to the average between the bid and asked price on
such date. If the Common Stock is traded otherwise than on a national
securities exchange on the date in question, then the market price per
share shall be equal to the average between the bid and asked price on such
date, or, if there is no bid and asked price on such date, then on the next
prior business day on which there was a bid and asked price. If no such bid
and asked price is available, then the market value per share shall be its
fair market value as determined by the Committee, in its sole and absolute
discretion. The Committee shall maintain a written record of its method of
determining such value.
(b) The option price shall be payable to the Corporation either (i) in
cash or by check, bank draft or money order payable to the order of the
Corporation, or (ii) at the discretion of the Committee, through the
delivery of shares of the common stock of the Corporation owned by the
optionee with a market value (determined in a manner consistent with (i)
above) equal to the option price, or (iii) at the discretion of the
Committee by a combination of (i) and (ii) above. No shares shall be
delivered until full payment has been made. The Committee may not approve a
reduction of such purchase price in any such option, or the cancellation of
any such options and the regranting thereof to the same optionee at a lower
purchase price, at a time when the market value of the shares is lower than
it was when such option was granted.
8. EXPIRATION OF OPTIONS. The Committee shall determine the expiration
---------------------
date or dates of each option, but such expiration date shall be not later than
ten (10) years after the date such option is granted. In the event an incentive
stock option is granted to a ten percent shareholder, the expiration date or
dates of each option shall be not later than five (5) years after the date such
4
<PAGE>
option is granted. The Committee, in its discretion, may extend the expiration
date or dates of an option after such date was originally set; however, such
expiration date may not exceed the maximum expiration date described in this
Section 8.
9. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
(a) All options must be granted within ten (10) years of the Effective
Date of this Plan as defined in Section 21.
(b) The Committee may grant options which are intended to be incentive
stock options and nonqualified stock options, either separately or
jointly, to an eligible employee.
(c) The grant of options shall be evidenced by a written instrument
(an Option Agreement) containing terms and conditions established by the
Committee consistent with the provisions of this Plan.
(d) Not less than 100 shares may be purchased at any one time unless
the number purchased is the total number at that time purchasable under
the Plan.
(e) The recipient of an option shall have no rights as a shareholder
with respect to any shares covered by his option until payment in full by
him for the shares being purchased. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is
prior to the date such stock is fully paid for, except as provided in
Section 15.
(f) The aggregate fair market value of the stock (determined as of the
time the option is granted) with respect to which incentive stock options
are exercisable for the first time by any participant during any calendar
year (under all benefit plans of the Corporation, the Bank or any
Subsidiary, if applicable) shall not exceed $100,000; provided, however,
that such $100,000 limit of this subsection (f) shall not apply to the
grant of nonqualified stock options. The Committee may grant options which
are exercisable in excess of the foregoing limitations, in which case
options granted which are exercisable in excess of such limitation shall be
nonqualified stock options.
(g) All stock obtained pursuant to an option which qualifies as an
incentive stock option shall be held in escrow for a period which ends on
the later of (i) two (2) years from the date of the granting of the option
or (ii) one (1) year after the transfer of the stock pursuant to the
exercise of the option. The stock shall be held by the Corporation or its
designee. The employee who has exercised the option shall during such
holding period have all rights of a shareholder, including but not limited
to the rights to vote, receive dividends and sell the stock. The sole
purpose of the escrow is to inform the Corporation of a disqualifying
disposition of the stock within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, and it shall be administered solely for
that purpose.
5
<PAGE>
10. EXERCISE OF OPTIONS.
-------------------
(a) An optionee receiving options by virtue of his position as a
director must remain continuously a member of the Board of Directors of the
Corporation, the Board of Directors of the Bank or the Board of Directors
of one or more of the Subsidiaries from the date of the grant until the
exercise of the option except as provided in Sections 11, 12 and 13 of this
Plan. An optionee receiving options by virtue of his position as an
employee must at all times be employed by the Corporation, the Bank or a
Subsidiary from the date of grant until the exercise of the options granted
except as provided in Sections 11, 12 and 13. All options granted under the
Plan shall be exercisable in annual installments in accordance with the
following schedule:
twenty percent (20%) of the shares beginning 1 year after the date of
the grant of the options;
twenty percent (20%) of the shares beginning 2 years after the date of
the grant of the options;
twenty percent (20%) of the shares beginning 3 years after the date of
the grant of the options;
twenty percent (20%) of the shares beginning 4 years after the date of
the grant of the options; and
twenty percent (20%) of the shares beginning 5 years after the date of
the grant of the options.
Notwithstanding the foregoing, options shall become exercisable with respect to
all of the shares subject thereto upon the optionee's death or upon the
optionee's disability within the meaning of Section 22(c)(3) of the Internal
Revenue Code of 1986, as amended.
The right to exercise options in annual installments shall be cumulative and any
vested installments may be exercised, in whole or in part, at the election of
the optionee. The exercise of any option must be evidenced by written notice to
the Corporation that the optionee intends to exercise his option.
In no event shall an option be deemed granted by the Corporation or exercisable
by a recipient prior to the mutual execution by the Corporation and the
recipient of an Option Agreement which comports with the requirements of Section
6 and Section 9(c).
(b) The inability of the Corporation or Bank to obtain approval from
any regulatory body or authority deemed by counsel to be necessary to the
lawful issuance and sale of any shares of Common Stock hereunder shall
relieve the Corporation and the Bank of any liability in respect of the
non-issuance or sale of such shares. As a condition to the exercise of an
option, the Corporation may require the person exercising the Option to
make
6
<PAGE>
such representations and warranties as may be necessary to assure the
availability of an exemption from the registration requirements of federal or
state securities laws.
(c) The Committee shall have the discretionary authority to impose in
the Option Agreements such restrictions on shares of Common Stock as it may
deem appropriate or desirable, including but not limited to the authority
to impose a right of first refusal or to establish repurchase rights or
both of these restrictions.
11. TERMINATION OF DIRECTORSHIP OR EMPLOYMENT - EXCEPT BY DISABILITY OR
-------------------------------------------------------------------
DEATH. If any optionee receiving the grant of an option by virtue of his
- -----
position as a director ceases to be a director of at least one of the
Corporation, the Bank or any Subsidiary for any reason other than death or
disability (as defined in Section 12) or if any optionee receiving the grant of
an option by virtue of his position as an employee ceases to be an employee of
at least one of the Corporation, the Bank and any Subsidiary for any reason
other than death or disability (as defined in Section 12), he may, (i) at any
time within three (3) months after his date of termination, but not later than
the date of expiration of the option, exercise any option designated in the
Option Agreement as an incentive stock option and (ii) at any time prior to the
date of expiration of the option, exercise any option designated in the Option
Agreement as a nonqualified stock option. However, in either such event the
optionee may exercise any option only to the extent it was vested and he or she
was entitled to exercise the option on the date of termination. Any options or
portions of options of terminated directors or employees not so exercised shall
terminate and be forfeited.
12. TERMINATION OF DIRECTORSHIP OR EMPLOYMENT - DISABILITY. If any
------------------------------------------------------
optionee receiving the grant of an option by virtue of his position as a
director ceases to be a director of at least one of the Corporation, the Bank or
any Subsidiary due to his becoming disabled within the meaning of Section
22(e)(3) of the Internal Revenue Code of 1986, as amended, or if any employee
receiving the grant of an option by virtue of his position as an employee ceases
to be employed by at least one of the Corporation, the Bank and any Subsidiary
due to his becoming disabled within the meaning of Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended, he may, (i) at any time within 12
months after his date of termination, but not later than the date of expiration
of the option, exercise any option designated in the Option Agreement as an
incentive stock option with respect to all shares subject thereto and (ii) at
any time prior to the date of expiration of the option, exercise any option
designated in the Option Agreement as a nonqualified stock option with respect
to all shares subject thereto. Any portions of options of terminated directors
or employees not so exercised shall terminate.
13. TERMINATION OF DIRECTORSHIP OR EMPLOYMENT - DEATH. If an optionee
-------------------------------------------------
receiving the grant of an option by virtue of his position as a director dies
while a director of the Corporation, the Bank or any Subsidiary or if any
employee receiving the grant of an option by virtue of his position as an
employee dies while in the employment of the Corporation, the Bank or a
Subsidiary, the person or persons to whom the option is transferred by will or
by the laws of descent and distribution may exercise the option at any time
until the term of the option has expired, with respect to all shares subject
thereto, to the same extent and upon the same terms and conditions the optionee
would have been entitled to do so had he lived. Any options or portions of
options of deceased directors or employees not so exercised shall terminate.
7
<PAGE>
14. RESTRICTIONS ON TRANSFER. An option granted under this Plan may not
------------------------
be transferred except by will or the laws of descent and distribution and,
during the lifetime of the optionee to whom it was granted, may be exercised
only by such optionee.
15. CAPITAL ADJUSTMENTS AFFECTING COMMON STOCK.
------------------------------------------
(a) If the outstanding shares of Common Stock of the Corporation are
increased, decreased, changed into or exchanged for a different number or
kind of shares or other securities of the Corporation or another entity as
a result of a recapitalization, reclassification, stock dividend, stock
split, amendment to the Corporation's Certificate of Incorporation, reverse
stock split, merger or consolidation, an appropriate adjustment shall be
made in the number and/or kind of securities allocated to the options
previously and subsequently granted under the Plan, without change in the
aggregate purchase price applicable to the unexercised portion of the
outstanding options but with a corresponding adjustment in the price for
each share or other unit of any security covered by the options.
(b) To the extent that the foregoing adjustments relate to particular
stock or securities of the Corporation subject to option under this Plan,
such adjustments shall be made by the Committee, whose determination in
that respect shall be final and conclusive.
(c) The grant of an option pursuant to this Plan shall not affect in
any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell,
or transfer all or any part of its business or assets.
(d) No fractional shares of stock shall be issued under the Plan for
any such adjustment.
(e) Any adjustment made pursuant to this Section 15, shall be made
in such manner as not to constitute a modification of any outstanding
incentive stock options within the meaning of Section 424(h) of the
Internal Revenue Code of 1986, as amended.
16. INVESTMENT PURPOSE. At the discretion of the Committee, any Option
------------------
Agreement may provide that the optionee shall, by accepting the option,
represent and agree, for himself and his transferees by will or the laws of
descent and distribution, that all shares of stock purchased upon the exercise
of the option will be acquired for investment and not for resale or
distribution, and that upon each exercise of any portion of an option, the
person entitled to exercise the same shall furnish evidence of such facts which
is satisfactory to the Corporation. Certificates for shares of stock acquired
under the Plan may be issued bearing such restrictive legends as the Corporation
and its counsel may deem necessary to ensure that the optionee is not an
"underwriter" within the meaning of the regulations of the Securities Exchange
Commission.
17. DISTRIBUTION OF DIVIDENDS. Any cash dividends, returns of capital or
-------------------------
other distributions paid or made in respect of any shares of Common Stock held
in the Trust, plus the earnings on such amounts shall be paid by the Trustees to
the Corporation.
8
<PAGE>
18. TRUST. The Trustees shall receive, hold, administer, invest and make
-----
distributions and disbursements from the Trust in accordance with the provisions
of the Plan and Trust and the applicable directions, rules, regulations,
procedures and policies established by the Committee pursuant to the Plan.
It is the intent of this Plan and Trust that the Trustees shall have
complete authority and discretion with respect to the arrangement, control and
investment of the Trust, and that the Trustees shall invest all assets of the
Trust, except for amounts received pursuant to Section 17 above, in Common Stock
to the fullest extent practicable, except (i) to the extent that the Trustees
determine that the holding of monies in cash or cash equivalents is necessary to
meet the obligations of the Trust and (ii) contributions to the Trust may be
temporarily invested in such interest-bearing account or accounts as the
Trustees shall determine to be appropriate. Amounts received by the Trustees
pursuant to Section 17 shall be invested in such interest-bearing accounts or in
other investments as the Trustees determine to be appropriate. In performing
their duties, the Trustees shall have the power to do all things and execute
such instruments as may be deemed necessary or proper, including the following
powers:
(a) To invest up to 100% of all Trust assets in Common Stock without
regard to any law now or hereafter in force limiting investments for
trustees or other fiduciaries. The investment authorized herein may
constitute the only investment of the Trust, except for the investment of
amounts received by the Trustees pursuant to Section 17, and in making such
investment, the Trustees are authorized to purchase Common Stock from the
Corporation or from any other source, and such Common Stock so purchased
may be outstanding or newly issued.
(b) To invest any Trust assets not otherwise invested in accordance
with (a) above, in such deposit accounts (including, without limitation,
deposit accounts at the Bank), certificates of deposit, obligations of the
United States Government or its agencies or such other investments as shall
be considered the equivalent of cash.
(c) To sell, exchange or otherwise dispose of any property at any
time held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be registered in
the nameof a nominee, without the addition of words indicating that such
security is an asset of the Trust (but accurate records shall be maintained
showing that such security is an asset of the Trust).
(e) To hold cash without interest in such amounts as may in the
opinion of the Trustees be reasonable for the proper operation of the Plan
and Trust.
(f) To employ brokers, agents, custodians, consultants and
accountants.
(g) To hire counsel to render advice with respect to its rights,
duties and obligations hereunder, and such other legal services or
representation as the Trustees deem desirable.
9
<PAGE>
(h) To hold funds and securities representing the amounts to be
distributed to an optionee or his beneficiary as a consequence of a dispute
as to the disposition thereof, whether in a segregated account or held in
common with other assets of the Trust.
Notwithstanding anything herein contained to the contrary, the Trustees
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of a court for the exercise of any power
herein contained, or to give any bond.
The Trustees shall maintain accurate and detailed records and accounts of
all transactions of the Trust, which shall be available at all reasonable times
for inspection by any legally entitled person or entity to the extent required
by applicable law, or any other person determined by the Committee.
After a stock option has been granted under this Plan, the optionee shall
be entitled to direct the Trustees as to the voting of the shares of Common
Stock held by the Trustees to satisfy the options which have been granted to
such optionee, regardless of whether or not such options have become vested and
nonforfeitable, subject to any rules and procedures adopted by the Committee for
this purpose. If any optionee does not direct the Trustees as to the voting of
the shares held to satisfy options granted to such optionee, such shares shall
not be voted by the Trustees. In the event a tender offer is made for shares of
Common Stock held to satisfy options granted to an optionee, the Trustees shall
tender shares held by the Trustees to satisfy options granted to such optionee
in accordance with instructions from such optionee. Any shares of Common Stock
held by the Trustees to satisfy options not granted to an optionee shall be
voted or tendered by the Trustees in their sole discretion.
It is intended that the trust established hereby be treated as a Grantor
Trust of the Corporation under the provisions of Section 671 et seq. of the
Internal Revenue Code of 1986, as amended.
Notwithstanding anything to the contrary in this Plan or Trust, the assets
of the Plan and Trust are subject to the payment of the claims of creditors of
the Corporation in the event of its insolvency or bankruptcy. The Corporation
is insolvent or bankrupt if it is the subject of a proceeding under the
Bankruptcy Code, 11 U.S.C. Section 101 et seq. or is unable to pay its debts.
The Board of Directors or the chief executive officer of the Corporation must
give written notice to the Trustees of the Corporation's bankruptcy or
insolvency as soon as practicable following the occurrence of such event. Upon
receipt of such notice or other written allegations of the Corporation's
bankruptcy or insolvency, or in the case of the Trustees' actual knowledge of or
determination of the Corporation's bankruptcy or insolvency, the Trustees shall
discontinue delivery of Trust assets to the optionees or the Corporation and
shall hold the assets of the Trust for the benefit of the Corporation's general
creditors and, upon a determination that the Corporation is bankrupt or
insolvent, shall distribute such assets to or for the benefit of the general
creditors. The Trustees shall resume delivery of Trust assets to the optionees
or the Corporation only after it is determined that the Corporation is no longer
bankrupt or insolvent. Determination of the bankruptcy or insolvency shall be
determined by a court of competent jurisdiction or by an arbitrator selected by
and pursuant to rules of the American Arbitration Association upon petition by
an interested party.
19. APPLICATION OF FUNDS. The proceeds received by the Corporation from
--------------------
the sale of Common Stock pursuant to options will be used for general corporate
purposes.
10
<PAGE>
20. NO OBLIGATION TO EXERCISE OPTION. The granting of an option shall
--------------------------------
impose no obligation upon the optionee to exercise such option.
21. EFFECTIVE DATE OF PLAN. The Plan will become effective upon the
----------------------
approval of the Plan by a majority of the shareholders of the Corporation as
required by regulations of the FDIC and the receipt of all necessary regulatory
approvals.
22. TERM OF PLAN. Options may be granted pursuant to this Plan from time
------------
to time within ten (10) years from the effective date of the Plan.
23. TIME OF GRANTING OF OPTIONS. Nothing contained in the Plan or in any
---------------------------
resolution adopted or to be adopted by the Committee or the shareholders of the
Corporation and no action taken by the Committee shall constitute the granting
of any option hereunder. The granting of an option pursuant to the Plan shall
take place only when an Option Agreement shall have been duly executed and
delivered by and on behalf of the Corporation at the direction of the Committee.
24. WITHHOLDING TAXES. Whenever the Corporation proposes or is required
-----------------
to issue or transfer shares of stock or other assets under the Plan, the
Corporation shall have the right to require the optionee to remit to the
Corporation an amount sufficient to satisfy any Federal, state and/or local
withholding tax requirements prior to the issuance of any certificate or
certificates for such shares or delivery of other assets. Alternatively, the
Corporation may issue or transfer such shares of stock or make other
distributions of assets net of the number of shares or other amounts sufficient
to satisfy the withholding tax requirements. For withholding tax purposes, the
shares of stock and other assets to be distributed shall be valued on the date
the withholding obligation is incurred.
25. TERMINATION AND AMENDMENT. The Board may at any time alter, suspend,
-------------------------
terminate or discontinue the Plan, but may not, without the consent of the
holder of an option previously granted, make any alteration which would deprive
the optionee of his rights with respect thereto; provided, however, that
-------- -------
shareholder approval of certain amendments may be necessary if it is desirable
for the Plan to continue to satisfy the requirements of Rule 16b-3 of the
Securities Exchange Commission; and provided further, that in no event shall
-------- -------
this Plan be terminated at the time of or following any merger or consolidation
of the Corporation or the Bank, unless and until the surviving entity shall have
made provision for an equivalent benefit for all the then current option
holders. Notwithstanding anything herein to the contrary, the Board may not
amend Section 6 hereof or any other provisions of this Plan described in Rule
16b-3(c)(2)(ii)(A) of the regulations promulgated pursuant to the Exchange Act
more than once every six months, other than to comport with changes in the
Internal Revenue Code, the Employee Retirement Income Security Act, or the rules
thereunder.
26. CAPTIONS AND HEADINGS; GENDER AND NUMBER. Captions and paragraph
----------------------------------------
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein, are not a part, and shall not serve as a basis
for interpretation or construction of, this Plan. As used herein, the masculine
gender shall include the feminine and neuter, and the singular number shall
include the plural, and vice versa, whenever such meanings are appropriate.
11
<PAGE>
27. COST OF PLAN; EXCULPATION AND INDEMNIFICATION. All costs and expenses
---------------------------------------------
incurred in the operation and administration of the Plan and the Trust shall be
borne by the Corporation, the Bank and the Subsidiaries. In connection with
this Plan, no member of the Board, no member of the Board of Directors of the
Bank, and no member of the Board of Directors of any Subsidiary, no member of
the Committee and no Trustee shall be personally liable for any act or omission
to act, nor for any mistake in judgment made in good faith, unless arising out
of, or resulting from, such person's own bad faith, willful misconduct or
criminal acts. To the extent permitted by applicable law and regulation, the
Corporation shall indemnify, defend and hold harmless the members of the Board,
the members of the Board of Directors of the Bank and the members of the Board
of Directors of any Subsidiary, and members of the Committee, each Trustee, and
each other officer or employee of the Bank, the Corporation or of any Subsidiary
to whom any power or duty relating to the administration or interpretation of
this Plan may be assigned or delegated, from and against any and all liabilities
(including any amount paid in settlement of a claim with the approval of the
Board), and any costs or expenses (including counsel fees) incurred by such
persons arising out of or as a result of, any act or omission to act, in
connection with the performance of such person's duties, responsibilities and
obligations under this Plan, other than such liabilities, costs, and expenses as
may arise out of, or result from the bad faith, willful misconduct or criminal
acts of such persons.
28. GOVERNING LAW. Without regard to the principles of conflicts of laws,
-------------
the laws of the State of North Carolina shall govern and control the validity,
interpretation, performance, and enforcement of this Plan.
29. INSPECTION OF PLAN. A copy of this Plan, and any amendments thereto,
------------------
shall be maintained by the Secretary of the Corporation and shall be shown to
any proper person making inquiry about it.
30. OTHER PROVISIONS. The Option Agreements authorized under this Plan
----------------
shall contain such other provisions not inconsistent with the foregoing,
including, without limitation, increased restrictions upon the exercise of
options, as the Committee may deem advisable.
WITNESS the signatures of the undersigned this the _________________
day of _________________________, 1996.
CENTURY BANCORP, INC.
By: ____________________
________________________
Trustee
________________________
Trustee
________________________
Trustee
12
<PAGE>
EXHIBIT A
---------
Percentage of Total
Shares Subject to Option
Optionee Under Plan
- -------- -------------------------
<PAGE>
EXHIBIT B
---------
STOCK OPTION GRANT AND AGREEMENT
THIS STOCK OPTION GRANT AND AGREEMENT ("Agreement"), being made according
to and subject to the terms and conditions of the STOCK OPTION PLAN of Century
Bancorp, Inc. ("Plan"), a copy of which is attached hereto as Annex A and is
hereby incorporated by reference and made a part of this Agreement, is herein
executed and effective the _______ day of _______________, _____, between
Century Bancorp, Inc. (the "Corporation") and ____________________ ("Optionee"):
1. Grant. As of the above date, the Corporation hereby grants: (i) an
-----
incentive stock option (as that term is defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code")) to purchase ________ shares of
Common Stock of the Corporation to the Optionee at the price stated in this
Agreement; and/or (ii) a nonqualified stock option to purchase __________ shares
of Common Stock of the Corporation to the Optionee at the price stated in this
Agreement.
The option(s) granted under this section and as described in this Agreement
is (are) in all respects subject to and conditioned by the terms, definitions,
and provisions of this Agreement and of the Plan. Capitalized terms in this
Agreement which are not otherwise defined but which are defined in the Plan
shall have the same meaning given to those terms in the Plan.
2. Price. The option price is $______ for each share.
-----
3. Exercise of Option. The option(s) granted under this Agreement shall
------------------
be exercisable pursuant to the terms and conditions of the Plan and as set forth
below:
(a) Right to Exercise: There are no other terms and conditions
-----------------
imposed on the Optionee's right to exercise his options other than those
imposed in the Plan, except as stated below:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(b) Annual Installments: Subject to the terms and conditions of the
-------------------
Plan, the incentive stock options can be exercised in annual installments
as follows:
shares beginning on , 19
------------------ -------------- --
shares beginning on , 19
------------------ -------------- --
shares beginning on , 19
------------------ -------------- --
shares beginning on , 19
------------------ -------------- --
shares beginning on , 19
------------------ -------------- --
<PAGE>
The nonqualified options can be exercised in annual installments as
follows:
shares beginning on , 19
------------------ -------------- --
shares beginning on , 19
------------------ -------------- --
shares beginning on , 19
------------------ -------------- --
shares beginning on , 19
------------------ -------------- --
shares beginning on , 19
------------------ -------------- --
The right to exercise the option(s) in annual installments shall be
cumulative. In addition, the option(s) shall be exercisable upon disability
and death as set forth in the Plan.
(c) Method of Exercise: The options under this Agreement shall be
------------------
exercisable by a written notice to the Secretary of the Corporation which
shall include the following:
(1) State the election to exercise the option, the number of
shares in respect of which it is being exercised, the person in whose
name the stock certificate or certificates for such shares of Common
Stock is to be registered, his or her address, and social security
number;
(2) Contain any such representation and agreements as to
Optionee's investment intent with respect to such shares of Common
Stock as may be required by the Corporation;
(3) Be signed by the person entitled to exercise the option
and, if the option is being exercised by any person or persons other
than the Optionee, be accompanied by proof, satisfactory to the
Corporation, of the right of such person or persons to exercise the
option in accordance with the Plan; and
(4) Be accompanied by payment of the purchase price of any
shares with respect to which the option is being exercised which
payment shall be in form acceptable to the Committee pursuant to
Section 6(b) of the Plan.
(d) Representations and Warranties: In order to exercise an option,
------------------------------
the person exercising the option must make the representations and
warranties to the Corporation as may be required by any applicable law or
regulation, or as may otherwise be required pursuant to the Plan.
(e) Approvals. In order for an option to be exercised, all filings
---------
and approvals required by applicable law and regulations or pursuant to
the Plan must have been made and obtained.
4. Non-transferability of Option. This option may not be transferred in
-----------------------------
any manner otherwise than by will or the laws of descent and distribution and
may be exercised during the life of the Optionee only by him or her.
2
<PAGE>
5. Investment Purpose. This option may not be exercised if the issuance
------------------
of shares upon such exercise would constitute a violation of any applicable
federal or state securities law or other law or valid regulation.
6. Expiration of Option. This option shall expire on _____________,
--------------------
_________.
7. Escrow. All stock purchased pursuant to an incentive stock option
------
shall be held in escrow for a period which ends on the later of (i) two (2)
years from the date of the granting of the option or (ii) one (1) year after the
transfer of the stock pursuant to the exercise of the option. The stock shall
be held by the Corporation or its designee. The optionee who has exercised the
option shall have all rights of a stockholder, including, but not limited to,
the rights to vote, receive dividends and sell the stock. The sole purpose of
the escrow is to inform the Corporation of a disqualifying disposition of the
stock within the meaning of Section 422 of the Code, and it shall be
administered solely for this purpose.
8. Resolution of Disputes. Any dispute or disagreement which should arise
----------------------
under, or as a result of, or in any way relate to, the interpretation,
construction, or application of this Agreement will be determined by the
Committee designated in Section 2 of the Plan. Any determination made by such
Committee shall be final, binding, and conclusive for all purposes.
9. Construction Controlled by Plan. The options evidenced hereby shall
-------------------------------
be subject to all of the requirements, conditions and provisions of the Plan.
This Agreement shall be construed so as to be consistent with the Plan; and the
provisions of the Plan shall be deemed to be controlling in the event that any
provision should appear to be inconsistent therewith.
10. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be valid and enforceable under
applicable law, but if any provision of this Agreement is determined to be
unenforceable, invalid or illegal, the validity of any other provision or part
thereof shall not be affected thereby and this Agreement shall continue to be
binding on the parties hereto as if such unenforceable, invalid or illegal
provision or part thereof had not been included herein.
11. Modification of Agreement; Waiver. This Agreement may be modified,
---------------------------------
amended, suspended or terminated, and any terms, representations or conditions
may be waived, but only by a written instrument signed by each of the parties
hereto and only subject to the limitations set forth in the Plan. No waiver
hereunder shall constitute a waiver with respect to any subsequent occurrence or
other transaction hereunder or of any other provision.
12. Captions and Headings; Gender and Number. Captions and paragraph
----------------------------------------
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein, are not a part, and shall not serve as a basis
for interpretation or construction, of this Agreement. As used herein, the
masculine gender shall include the feminine and neuter, and the singular number
shall include the plural, and vice versa, whenever such meanings are
appropriate.
3
<PAGE>
13. Governing Law; Venue and Jurisdiction. Without regard to the
-------------------------------------
principles of conflicts of laws, the laws of the State of North Carolina shall
govern and control the validity, interpretation, performance, and enforcement of
this Agreement.
14. Binding Effect. This Agreement shall be binding upon and shall inure
--------------
to the benefit of the Corporation, and its successors and assigns, and shall be
binding upon and inure to the benefit of the Optionee, and his or her heirs,
legatees, personal representative, executor, administrator and permitted
assigns.
15. Entire Agreement. This Agreement and the Plan constitute and embody
----------------
the entire understanding and agreement of the parties hereto and, except as
otherwise provided hereunder, there are no other agreements or understandings,
written or oral, in effect between the parties hereto relating to the matters
addressed herein.
16. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when executed and delivered shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have set their hands and seals the day and
year first above written.
ATTEST: CENTURY BANCORP, INC.
By:
- ---------------------------- -------------------------------------
(Corporate Seal) President
----------------------
OPTIONEE:
(SEAL)
----------------------------------
4
<PAGE>
EXHIBIT 10.7
HOME SAVINGS, SSB
SEVERANCE PLAN
THIS IS THE SEVERANCE PLAN ("PLAN") OF HOME SAVINGS, SSB (THE "BANK"), A
NORTH CAROLINA-CHARTERED SAVINGS BANK, WITH ITS PRINCIPAL OFFICE IN THOMASVILLE,
NORTH CAROLINA, ADOPTED BY THE BOARD OF DIRECTORS OF THE BANK, TO BE EFFECTIVE
ON THE DATE SET FORTH ON THE LAST PAGE HEREOF.
1. Purpose. The purpose of this Plan is to aid the Bank in attracting
-------
and retaining capable employees by providing the employees with the severance
benefits set forth herein in the event that there is a change in control of the
Bank. For purposes of this Plan, the term "Employee" means and includes any
person employed by the Bank on a full time basis on the date of consummation or
occurrence of a "Change in Control" (as defined in Subparagraph 2(c) below),
excluding any person employed by the Bank on such date pursuant to a written
employment agreement between such employee and the Bank which has a remaining
term in excess of two years.
2. Severance Benefit.
-----------------
(a) In the event (i) the Bank or its successor terminates the employment
of any Employee in connection with, or within twenty-four (24) months
after, a "Change in Control" (as defined in Subparagraph (c) below),
other than for "cause" (as defined in Paragraph 3 below) or (ii) an
Employee terminates his employment following a Termination Event
pursuant to Paragraph 2(b) below, the Bank shall pay the Employee a
severance benefit equal to the greater of (A) an amount equal to two
weeks salary at the Employee's existing salary rate at the time of
termination multiplied times the Employee's number of complete years
of service as an employee of the Bank or (B) the amount of one months
salary at the Employee's existing salary rate at the time of
termination; provided, however, that the severance benefit shall not
exceed one-half of the annual salary payable to any Employee at his
salary rate existing on the date of such termination. Such sum shall
be payable as provided in Subparagraph (d) below.
(b) An Employee shall have the right to terminate his or her employment
upon the occurrence of any of the following events (the "Termination
Events") within twenty-four (24) months following a Change in
Control :
(i) The Employee's annual base salary rate is decreased from the level
existing at the effective time of the Change in Control; or
(ii) The Employee is transferred to a location more than forty (40)
miles distant from the Employee's primary work station at the time
of the Change in Control.
A Termination Event shall be deemed to have occurred on the date
such action or event is implemented or takes effect.
<PAGE>
(c) For the purposes of this Plan, the term "Change in Control" shall mean
any of the following events:
(i) a change in control of a nature that would be required to be reported
in response to Item 1 of the Current Report on Form 8-K by the Bank or
by any parent holding company of the Bank pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 as in effect on the date
hereof (the "Exchange Act"); or
(ii) such time as any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Bank or any parent holding company of the Bank
representing 25 percent or more of the combined voting power of the
outstanding capital stock of the Bank or any parent holding company of
the Bank; or
(iii) individuals who constitute the Board of Directors of the Bank or any
parent holding company of the Bank on the date hereof (each, an
"Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board
or whose nomination for election by the shareholders of the Bank or any
parent holding company of the Bank was approved by the Board of
Directors of the Bank or any parent holding company of the Bank or any
Nominating Committee of any such Board, as applicable, shall be
considered as though he or she were a member of the Incumbent Board; or
(iv) the Bank or any parent holding company of the Bank consolidates or
merges with or into another corporation, association or entity or is
otherwise reorganized, where the Bank or any parent holding company of
the Bank is not the surviving corporation in such transaction; or
(v) all or substantially all of the assets of the Bank or any parent
holding company of the Bank are sold or otherwise transferred to or are
acquired by any other entity or group.
Notwithstanding the other provisions of this Paragraph 2(c), neither (i) the
conversion of the Bank from a mutual savings bank to a stock savings bank
("Conversion") pursuant to the rules and regulations regarding mutual to stock
conversions, (ii) the acquisition of capital stock of the Bank by a parent
holding company formed by the Bank to acquire the capital stock of the Bank
issued in connection with a Conversion (iii) the sale by such parent holding
company of its capital stock to the members of the Bank and the general public
pursuant to the rules and regulations regarding Conversions, or (iv) any other
event or transaction which the Board of Directors of the Bank shall determine is
not a Change in Control for purposes of its Plan prior to the consummation or
occurrence thereof, shall constitute a Change in Control. In addition, a
transaction or event shall not be considered a Change in Control with respect to
any Employee benefitted hereby if,
2
<PAGE>
prior to the consummation or occurrence of such transaction or event,
such Employee and the Bank agree in writing that the same shall not be
treated as a Change in Control for purposes of this Plan.
(d) Amounts payable pursuant to this Paragraph 2 shall be paid, at the
option of the Bank or any successor in one lump sum or in equal monthly
payments over a period not to exceed a number of months equal to the
Employee's years of service with the Bank divided by two.
(e) Following a Termination Event which gives rise to an Employee's rights
hereunder, the Employee shall have six (6) months from the date of
occurrence of the Termination Event to terminate his or her employment
pursuant to this Paragraph 2. Any such termination shall be deemed to
have occurred only upon delivery to the Bank (or to any successor
corporation) of written notice of termination which describes the
Change in Control and Termination Event. If an Employee does not so
terminate his employment within such six-month period, he or she shall
thereafter have no further rights hereunder with respect to that
Termination Event, but shall retain rights, if any, hereunder with
respect to any other Termination Event as to which such six month
period has yet to expire.
3. Termination for "Cause." Termination for "cause" shall include
----------------------
termination because of the Employee's personal dishonesty, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, or willful violation of any law, rule, regulation (other
than traffic violations or similar offenses) or final cease-and-desist order.
4. Effect on Other Benefits. The benefits payable to or owed to any
------------------------
Employee under this Plan shall not be reduced or otherwise affected by the
Employee's receipt or entitlement to benefits under (i) any agreement between
the Employee and the Bank or any parent holding company of the Bank, or (ii)
any other fringe benefit, compensation, or other employee benefit plan of the
Bank or any parent holding company of the Bank, including, but not limited to,
any employment agreement, stock option plan, restricted stock agreements or
employee stock ownership plan. In addition, the benefits payable to or owed to
any Employee under any such fringe benefit, compensation or other employee
benefit plan of the Bank or any parent holding company of the Bank shall not be
reduced or otherwise affected by the Employee's receipt or entitlement to
benefits under this Plan.
5. Binding Effect. This Plan shall be binding upon any corporate or other
--------------
successor of the Bank which shall acquire, directly or indirectly, by merger,
consolidation, purchase, or otherwise, all or substantially all of the assets of
the Bank.
6. Modification, Waiver, Amendments. Prior to the consummation or
--------------------------------
occurrence of a Change in Control, as defined herein, this Plan may be
terminated, modified or amended in any manner whatsoever, by resolution adopted
by the Bank's Board of Directors. Prior to the time of the consummation or
occurrence of any Change in Control, no employee shall have any vested rights
pursuant to this Plan. After the consummation or occurrence of a Change in
Control, all Employees shall have vested rights pursuant to this Plan, and this
Plan may not be terminated or modified or amended in a manner to reduce the
benefits payable to any Employee, without the written consent of such Employee.
3
<PAGE>
7. Effect of Plan on Employees. This Plan shall not confer upon any
---------------------------
employee of the Bank the right to continued employment with the Bank or any
successor to the Bank, nor shall it limit the right of the Bank or any successor
of the Bank to terminate the employment of any employee at any time, subject to
the terms hereof.
8. Withholding. The Bank or any successor to the Bank shall have the
-----------
right to deduct or otherwise effect a withholding of any amount required by
federal or state laws to be withheld as a result of any payments required to be
made under this Plan.
9. Governing Law. Without regard to principles of conflicts of laws, the
-------------
laws of the State of North Carolina shall govern and control the validity,
interpretation, performance and enforcement of this Plan.
10. Inspection of Plan. A copy of this Plan, and any amendments thereto,
------------------
shall be maintained by the Secretary of the Bank and shall be shown to any
proper person making inquiry with respect thereto.
11. Waiver. Any Employee shall have the right to waive the receipt of any
------
benefits which would otherwise be payable to such Employee pursuant to this Plan
by executing a writing setting forth the terms of such waiver.
12. Excise Taxes. It is the intent of the parties hereto that all
------------
payments made pursuant to this Plan shall be deductible by the Bank for federal
income tax purposes and not result in the imposition of an excise tax on any
Employee. Notwithstanding anything contained in this Plan to the contrary, any
payments to be made to or for the benefit of any Employee which are deemed to be
"parachute payments," as such term is defined in Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), shall be modified or reduced to
the extent, but only to the extent, reasonably deemed to be necessary by the
Bank to avoid the imposition of excise taxes on the Employee under Section 4999
of the Code or the disallowance of a deduction to the Bank under Section 280G(a)
of the Code.
Dated _________________, 1996.
4
<PAGE>
EXHIBIT 10.8
STATE OF NORTH CAROLINA
COUNTY OF DAVIDSON CAPITAL MAINTENANCE AGREEMENT
This Capital Maintenance Agreement (the "Agreement"), dated as of
_________, 1996, by and between Century Bancorp, Inc., Thomasville, North
Carolina, a North Carolina-chartered bank holding company (the "Holding
Company") and Home Savings, Inc., SSB a North Carolina-chartered stock savings
bank (the "Savings Bank").
WHEREAS, the Savings Bank has applied to the Administrator, Savings
Institutions Division, North Carolina Department of Commerce ("Administrator")
for permission to convert from a North Carolina mutual savings bank to a North
Carolina stock owned savings bank (the "Conversion"); and
WHEREAS, as a part of the Conversion, the Holding Company has applied to
the Administrator for permission to acquire all of the capital stock issued by
the Savings Bank in the Conversion (the "Acquisition") and to sell shares of the
Holding Company's common stock to certain persons in a subscription and, if
necessary, a community offering and a syndicated community offering; and
WHEREAS, the Administrator, the Holding Company and the Savings Bank wish
to protect the interests of the depositors of the Savings Bank and the Savings
Association Insurance Fund; and
WHEREAS, by letters dated _______________, 1996, the Administrator has
approved the Conversion and the Acquisition conditional upon, among other
things, the Holding Company and the Savings Bank entering this Agreement (the
"Approval").
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties agree that, following the
Conversion and Acquisition, the Holding Company and the Savings Bank will
maintain the capital of the Savings Bank at all times in compliance with the
applicable capital requirements of all federal and state regulatory agencies
having supervisory authority over the Savings Bank, including the capital
requirements of the Administrator and the Federal Deposit Insurance Corporation.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by each director of
the Holding Company and the Savings Bank.
DIRECTORS OF CENTURY BANCORP, INC.:
___________________________________ ____________________________________
James G. Hudson, Jr. Henry H. Darr, Jr.
___________________________________ ____________________________________
John R. Hunnicutt F. Stuart Kennedy
___________________________________
Milton T. Riley Jr.
DIRECTORS OF HOME SAVINGS, INC., SSB:
___________________________________ ____________________________________
James G. Hudson, Jr. Henry H. Darr, Jr.
___________________________________ ____________________________________
John R. Hunnicutt F. Stuart Kennedy
___________________________________
Milton T. Riley Jr.
2
<PAGE>
EXHIBIT 24.1
LETTERHEAD OF
DIXON, ODOM & CO., L.L.P.
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors To the Board of Directors
Home Savings, SSB Century Bancorp, Inc.
Thomasville, North Carolina Thomasville, North Carolina
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ Dixon, Odom & Co., L.L.P.
High Point, North Carolina
July 18, 1996
<PAGE>
LETTERHEAD OF
JMP FINANCIAL, INC.
July 18, 1996
Board of Directors
Home Savings Bank, SSB
Box 989
22 Winston Street
Thomasville, NC 27361-0989
Dear Sirs:
We hereby consent to the use of our firm's name in (i) the applications for
conversion of Home Savings, SSB, Thomasville, North Carolina, and any amendments
thereto, filed with the Division of Savings Institutions, North Carolina
Department of Commerce (the "Division"), and the Federal Deposit Insurance
Corporation, (ii) the Registration Statement of Century Bancorp, Inc. on Form
S-1 and any amendments thereto with the Securities Exchange Commission, and
(iii) the Acquisition Application and the Holding Company Application of Century
Bancorp, Inc., as filed with the Division and the Federal Reserve Board,
respectively. We also hereby consent to the inclusion of, a summary of, and
references to our appraisal report, including updates, and our opinion
concerning subscription rights in such filings including the Prospectus of
Century Bancorp, Inc., and the Proxy Statement of Home Savings, SSB.
Sincerely,
/s/ JMP Financial, Inc.
JMP Financial, Inc.
<PAGE>
EXHIBIT 24.3
LETTERHEAD OF
BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD, L.L.P.
July 18, 1996
Board of Directors
Century Bancorp, Inc.
22 Winston Street
P.O. Box 989
Thomasville, North Carolina 27361-0989
Gentlemen:
We hereby consent to reference to our firm in the "Legal Opinions"
section of the Prospectus included in the Registration Statement of Century
Bancorp, Inc. on Form S-1 (the "Registration Statement") and to reference to the
opinions rendered by our firm which are described in such section of the
Registration Statement.
Very truly yours,
BROOK, PIERCE, MCLENDON,
HUMPHREY & LEONARD, L.L.P.
By: /s/ Randall A. Underwood
----------------------------
Randall A. Underwood
RAU/arb
<PAGE>
CONVERSION VALUATION APPRAISAL REPORT
Prepared For:
HOME SAVINGS, SSB
A STATE SAVINGS BANK
and
CENTURY BANCORP, INC.
Thomasville, North Carolina
PREPARED IN ACCORDANCE WITH
FEDERAL DEPOSIT INSURANCE CORPORATION REGULATIONS
JULY 8, 1996
By:
JMP Financial, Inc.
753 Grand Marais
Grosse Pointe Park, Michigan 48230
(313) 824-1711
<PAGE>
JMP FINANCIAL, INC.
- ---------------------
753 Grand Marais
Grosse Pointe Park, MI 48230
(313) 824-1711
July 8, 1996
Board of Directors
Home Savings Bank
22 Winston Street
Thomasville, North Carolina 27361
Gentlemen:
At your request, JMP Financial, Inc. ("JMP") hereby provides an
independent appraisal of the estimated pro forma market value of the Common
Stock ("the Stock") of Home Savings, SSB ("the Bank"). The Stock will be
distributed in connection with the conversion of the Bank from the mutual to
the stock form of organization. This appraisal is furnished pursuant to the
Plan of Conversion adopted by the Bank's Board of Directors and is prepared
pursuant to the requirements of Federal Deposit Insurance Corporation
regulations.
In preparing our appraisal, we conducted an analysis of the Bank which
included discussions with the Bank's management, their independent auditors,
and their conversion counsel. In addition, where appropriate, we considered
information based on other available published sources that we believe are
reliable. However, we can not guarantee the accuracy and completeness of
such information.
In making our evaluation, we have reviewed, among other things, the
economy in the Bank's primary market area and compared its financial
condition and operating performance with that of select publicly traded
thrift institutions. We reviewed conditions in the securities markets in
general and for thrift institution equities in particular. We have also
considered the expected market for the Bank's to-be-outstanding common stock
after the conversion.
Our appraisal is based on the Bank's representation that the financial
data and information contained in the Preliminary Subscription Offering
Prospectus and additional evidence furnished to us by the Bank are truthful,
accurate, and complete. We did not independently verify such financial data
and other information provided by the Bank nor did we independently value
the assets or liabilities of the Bank, nor did we obtain any appraisal of
the assets or liabilities of the Bank.
<PAGE>
Board of Directors
Home Savings, SSB
July 8, 1996
Page 2
It is our opinion that, as of July 8, 1996 the estimated pro forma market
value of the Bank's to-be-outstanding common stock is $13,500,000 which
yields an effective valuation range of $11,475,000 to $15,525,000 at the
maximum and $17,853,750 at the super maximum. The Bank will issue a minimum
of 229,500 shares and a maximum of 357,075 shares at a uniform price of
$50.00.
Our valuation is not intended, and must not be construed as, a
recommendation of any kind as to the advisability of purchasing shares of
common stock. Moreover, because such valuation is necessarily based upon
estimates and projections of a number of matters, all of which are subject
to change from time to time, no assurance can be given that persons who
purchase shares of common stock in the conversion will thereafter be able to
sell such shares at prices related to the foregoing valuation of the pro
forma market value thereof.
The valuation will be updated as required under the normal conversion
process. Any updates will consider, among other factors, any developments or
changes in the Bank's policies, and current conditions in the equities
markets for thrift institutions' common stock. Should any such new
developments or changes be material, in our opinion, to the valuation of the
Bank's common stock, appropriate adjustments to the estimated pro forma
market value will be made at these times.
JMP Financial, Inc. is an independent Investment Banking Company
incorporated in the State of Michigan specializing in financial advisory
services and capital placement for regional financial institutions.
Principals of JMP have extensive experience in the valuation and appraisal
of savings and loan conversions. More information on JMP is included in the
exhibits to the appraisal.
Respectfully,
JMP FINANCIAL, INC.
John Michael Palffy
President
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION 1
SECTION ONE - DESCRIPTION OF HOME SAVINGS, SSB 2
Overview 2
History 2
Market Area 2
Regulation 2
Asset Composition 3
Deposit Composition 3
Financial Performance and Growth 3
Balance Sheet 4
Financial Performance 6
Interest Rate Sensitivity 6
Lending Activities 8
General 8
Composition of Loan Portfolio 8
One-to-four Family Mortgage Real Estate Loans 8
Multi-family and Commercial Real Estate Loans 9
Construction Loans 9
Home Equity Loans 10
Consumer Loans 10
Underwriting 10
Origination, Purchases, and Sales 11
Delinquencies and Non-Performing Assets 11
Investment Activities 12
Sources of Funds 12
Deposits 12
Borrowed Funds 13
Subsidiaries 13
Property and Equipment 13
Management 13
Directors 13
Officers 14
Employees 14
SECTION TWO - MARKET AREA ANALYSIS 15
Primary Market Area 15
Market Area Economy 15
Income and Income Trends 16
Population Base and Growth 17
</TABLE>
<PAGE>
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
Area Demographics 18
Housing Stock and Ownership 19
Financial Competition 20
Interest Rate Trends 21
SECTION THREE - PUBLICLY-HELD THRIFT INSTITUTION COMPARISON 23
Selection Criteria 23
Average Pricing Ratios by Stock Exchange 23
Average Pricing Ratios by Geographic Region 25
Selection Procedure 26
Review of Comparative Group 27
Comparative Group Composite Performance 29
Performance of Recently Converted Thrifts 31
SECTION FOUR - MARKET VALUE ADJUSTMENTS 33
Introduction 33
Financial Condition 33
Asset Quality 33
Profitability Levels 34
Return on Average Equity 34
Growth and Predictability of Earnings 34
Deposit Composition 35
Management 35
Dividend Payments 36
Liquidity of the Issue 36
Marketing of the Issue 37
Market Area 39
Summary of Discounts 39
SECTION FIVE - VALUATION METHODS 40
Price\Earnings 40
Price to Book Value 41
Price to Assets 42
Valuation Conclusion 42
</TABLE>
<PAGE>
LIST OF EXHIBITS
Exhibit #
1. Market Area Map
2. Audited Financial Statements
3. Selected Consolidated Financial and Operations Data
4. Selected Consolidated Financial Ratios and Other Data
5. Interest Rate GAP Analysis
6. Market Value of Portfolio Equity
7. Yield and Cost Trends
8. Volume\Rate Analysis
9. Loan Portfolio Composition
10. Loan Portfolio Maturity Schedule
11. Loan Originations, Purchases, Sales, and Repayments
12. Non-performing Assets
13. Charge-offs and Recoveries
14. Distribution of Loss Allowances
15. Composition of Securities Portfolio
16. Maturity Schedule and Yield Analysis, Securities
17. Flow of Deposits
18. Composition of Deposits
19. Maturity Schedule, Certificates of Deposit
20. All Publicly Traded Thrifts - Market and Financial Information
21. Comparative Group - General Data
22. Comparative Group - Financial Performance
23. Comparative Group - Capital Ratios
24. Comparative Group - Loan Portfolio Composition
25. Comparative Group - Balance Sheet Ratios
26. Comparative Group - Growth Rates
27. Comparative Group - Asset and Risk Ratios
28. Comparative Group - Yield-Cost Spread Analysis
29. Comparative Group - Capital Market Issues
<PAGE>
LIST OF EXHIBITS (continued)
34. Comparative Group - Pricing Ratios
35. Recently Converted Thrifts
36. Pro Forma Analysis
37. Pro Forma Effect of Conversion Proceeds
38. Summary of Valuation Premium or Discount
APPENDIX
JMP Financial, Inc. -- Background and Qualifications
<PAGE>
Introduction
Set forth herein is the independent appraisal by JMP Financial, Inc.
("JMP") of the estimated proforma fair market value of the common stock of
Century Bancorp, Inc. to be sold pursuant to the Application for Conversion of
Home Savings, SSB, a State Savings Bank, filed with the Federal Deposit
Insurance Corporation ("FDIC") which has been reviewed by us with Bank's
management. This appraisal was prepared in accordance with FDIC application
requirements and the FDIC's guidelines for appraisal reports and represents a
full appraisal report.
Pro forma market value is defined as the estimated price at which the
Bank's common stock after conversion would change hands between a willing buyer
and a willing seller, neither being under any compulsion to buy or sell and both
having reasonable knowledge of the relevant facts.
In the course of preparing this appraisal, we reviewed and discussed
with the Bank's management the audited financial statements of the Bank's
operation for the fiscal years ended June 30, 1991 through 1995 and for the nine
months ended March 31, 1995 and 1996. We also reviewed and discussed with
management other financial matters of the Bank.
Where appropriate, we considered information based upon other
available public sources, which we believed to be reliable. However, we cannot
guarantee the accuracy or completeness of such information. We visited the
Bank's primary market area and examined the prevailing economic conditions and
compared them with national economic conditions. We also examined the
competitive environment within which the Bank operates and assessed the Bank's
relative strengths and weaknesses.
Our valuation is not intended and must not be construed as a
recommendation of any kind as to the advisability of purchasing shares of common
stock. Moreover, because such valuation is necessarily based upon estimates and
projection of a number of matters, all of which are subject to change from time
to time, no assurance can be given that persons who purchase shares of common
stock in the conversion will thereafter be able to sell such shares at prices
related to the foregoing valuation of the pro forma market value thereof.
1
<PAGE>
SECTION I
DESCRIPTION OF HOME SAVINGS, SSG, A STATESAVINGS BANK
OVERVIEW
HISTORY
Home Savings, SSB has served its customers and market area for over 90
years, having been founded in Thomasville on November 16, 1915 as Home Building
& Loan Association. The institution became a member of the Federal Home Loan
Bank System ("FHLB") and the Federal Savings & Loan Insurance Corporation in
1957 and changed its name to Home Savings & Loan Association in December 1969.
The Bank converted to a state chartered savings bank on January 1,
1993, at which time it changed its name to Home Savings, SSB.
As of March 31, 1996 the Bank had assets of $80.386 million, deposits
of $68.907 million and retained earnings of $11.136 million. The Bank reported
net income of $478 thousand for the nine months ended March 31, 1996, $735
thousand for the nine months ended March 31, 1995, $921 thousand for the year
ended June 30, 1995 and $664 thousand for the year ended March 31, 1996.
MARKET AREA
The main office of the institution is located at 22 Winston Street,
Thomasville, North Carolina. The bank currently has no branch offices. The
Bank's primary deposit and lending area consists of a ten mile radius
surrounding Thomasville. Exhibit 1 portrays the Bank's market area in
perspective to the state of North Carolina.
REGULATION
The Bank is a member of the FHLB of Atlanta and its deposits are
insured up to the applicable limits by the Savings Association Insurance Fund
("SAIF") of the FDIC. The FDIC is the Bank's primary federal regulator. The
Bank is supervised at the state level by the Savings Institutions Division of
the North Carolina Department of Commerce.
Effective January 1, 1993 the FDIC replaced its uniform assessment
rate with a transitional risk-based assessment schedule which imposes
assessments ranging from 23 cents to 31 cents per $100 of domestic deposits. The
actual assessment to be paid by each member is based on the institution's
assessment risk classification as determined by the FDIC. The Bank is currently
rated "well capitalized" and thus pays the lowest assessment guided by the FDIC.
2
<PAGE>
Legislation supported by the thrift industry has been introduced in
the United States Congress providing for a one-time fee for SAIF members equal
to approximately 85 cents per $100 of domestic deposits. Based upon Home
Savings' deposits as of March 31, 1996 the proposed one-time fee would equal
approximately $543 thousand.
ASSET COMPOSITION
Home Savings is a community oriented institution principally engaged
in the business of attracting deposits from the general public and using such
deposits to originate one-to-four family residential real estate loans, multi-
family residential and commercial real estate loans, construction loans, home
equity line of credit loans and other loans and investments.
At March 31, 1996 approximately 78 percent of the Bank's net loan
portfolio was comprised of 1-4 family mortgages, approximately 12 percent was
multi-family residential mortgages, 5 percent was commercial real estate loans,
3 percent was residential construction mortgage loan, 2 percent was home equity
loans and just over 1 percent was consumer loans. The bank retains substantially
all its loans in portfolio.
The Bank's investment portfolio of approximately $23.7 million
consisted of U.S. Government and agency securities, mortgage-backed securities,
municipal bonds, interest-earning deposits in other financial institutions, and
stock of the Federal Home Loan Mortgage Corporation and Federal Home Loan Bank
of Atlanta.
DEPOSIT COMPOSITION
As of March 31, 1996 the Bank held approximately $68.9 million in
deposits. Of these deposits approximately 75 percent consisted of certificates
of deposits, 7 percent consisted of passbook and statement savings accounts, 17
percent consisted of interest-bearing transaction accounts and less than 1
percent consisted of non-interest bearing transaction accounts. Approximately 20
percent of the Bank's deposits consisted of jumbo deposits of $100,000 or more.
FINANCIAL PERFORMANCE AND GROWTH
Exhibit 2 presents the audited financial statements of the Bank for
the years ended June 30, 1991 to 1995 and for the nine months ended March 31,
1996. Exhibits 3 and 4 present Selected Financial Condition and Operations Data
and Ratios for the same period.
3
<PAGE>
BALANCE SHEET
Tables I.1 through I.5 present summary financial condition and
performance parameters and rates of change in those parameters for the Bank
since June 30, 1991.
Asset growth has averaged approximately 6.6 percent annually since
June 30, 1991 and 6.5 percent annually since June 30, 1995. The Bank's
investment portfolio has increased at an annual rate of approximately 16.9
percent since 1991. Loans have increased approximately 3.1 percent annually
since 1991, but have been relatively flat since mid-1993. Deposits have
increased approximately 6.0 percent annually since 1991, relatively consistent
with overall asset growth. The Bank's retained earnings have increased at an
annual rate of 12 percent since 1991.
Table I.1
Summary of Financial Condition
(dollars in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
At March 31, At June 30,
- -------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Assets 80,386 75,508 73,843 70,864 65,947 59,282
- -------------------------------------------------------------------------
Investments 23,702 18,852 18,012 15,833 13,729 11,275
- -------------------------------------------------------------------------
Loans Rcvble, net 53,741 54,020 53,802 53,566 50,120 46,529
- -------------------------------------------------------------------------
Deposits 68,907 64,448 63,937 62,169 58,205 52,315
- -------------------------------------------------------------------------
Borrowings 0 0 0 0 0 0
- -------------------------------------------------------------------------
Equity 11,136 10,640 9,610 8,439 7,370 6,506
- -------------------------------------------------------------------------
</TABLE>
Table I.2
Summary of Financial Performance
(dollars in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For Nine Months
Ended March 31, For the Year Ended June 30,
- --------------------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income 1722 1984 2583 2850 2666 1967 1650
- --------------------------------------------------------------------------------
Non-Interest Income 42 5 15 40 40 97 48
- --------------------------------------------------------------------------------
Non-Interest Expense 914 698 979 910 833 775 676
- --------------------------------------------------------------------------------
Income before Taxes 720 1216 1514 1866 1708 1202 983
- --------------------------------------------------------------------------------
Net Income Aft Taxes 478 735 921 1172 1069 781 651
- --------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
Table I.3
Percentage Change in Financial Condition from Previous Period
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Period Ended
March 31 Year Ended June 30
- --------------------------------------------------------------------
1996 1995 1994 1993 1992
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets 6.5 2.3 4.2 7.5 11.2
- --------------------------------------------------------------------
Investments 25.7 4.7 13.8 15.3 21.8
- --------------------------------------------------------------------
Loans Rcvble, net (0.5) 0.4 0.4 6.9 7.7
- --------------------------------------------------------------------
Deposits 6.5 0.8 2.8 6.8 11.3
- --------------------------------------------------------------------
Borrowings NA NA NA NA NA
- --------------------------------------------------------------------
Equity 4.7 10.7 13.9 14.5 13.3
- --------------------------------------------------------------------
</TABLE>
Table I.4
Percentage Change in Financial Performance from Previous Period
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For Nine Months
Ended March 31, For the Year Ended June 30,
- --------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Interest Income (13.2) (9.4) 6.9 35.5 19.2
- --------------------------------------------------------------------------------
Non-Interest Income 740.0 (62.5) 0 (58.8) 102.1
- --------------------------------------------------------------------------------
Non-Interest Expense 30.9 7.6 9.2 7.5 14.6
- --------------------------------------------------------------------------------
Income before Taxes (40.8) (18.9) 9.3 42.1 22.3
- --------------------------------------------------------------------------------
Net Income Aft Taxes (35.0) (21.4) 9.6 36.9 20.0
- --------------------------------------------------------------------------------
</TABLE>
Table I.5
Rate of Change in Financial Condition
Since June 30, 1991
<TABLE>
<CAPTION>
- -------------------------------------------
Annualized Cumulative
- -------------------------------------------
<S> <C> <C>
Total Assets 6.9 35.6
- -------------------------------------------
Investments 16.9 110.2
- -------------------------------------------
Loans Rcvble, net 3.1 15.5
- -------------------------------------------
Deposits 6.0 31.7
- -------------------------------------------
Borrowings 0 0
- -------------------------------------------
Equity 12.0 71.2
- -------------------------------------------
</TABLE>
The Bank's investment portfolio, consisting of U.S. Government and
agency securities, mortgage-backed securities, municipal bonds, interest-earning
deposits in other financial institutions, and stock of the Federal Home Loan
Mortgage Corporation and Federal Home Loan Bank of Atlanta, increased to $23.7
million at March 31, 1996 from $18.9 million at June 30, 1995 and from $11.3
million at June 30, 1991. The Bank's deposit base has increased steadily from
$52.3 million at June 30, 1991 to $64.5 million
5
<PAGE>
at June 30, 1995 to $68.9 million at March 31, 1996. The Bank has not borrowed
from the FHLB in recent years.
Financial Performance
Tables I.2 and I.4 illustrate the growth in key income and expense
areas of the Bank. Net interest income has decreased (on an annualized basis) 19
percent from $2.85 million for the year ended June 30, 1994 to $1.72 million for
the nine months ended March 31, 1996. Non-interest income, which was $97
thousand for the year ended June 30, 1992 declined to $15 thousand for the year
ended June 30, 1995, but has since rebounded to $42 thousand for the nine months
ended March 31, 1996. The previous period's non-interest income includes a
$37,000 loss which resulted from the sale of low yielding investments. Non-
interest expense increased 31 percent from $910 thousand for the year ended June
30, 1994 to $914 thousand for the nine months ended March 31, 1996 ($1.20
million for the twelve months ended March 31, 1996). Non-interest expense was up
31 percent for the nine months ended March 31, 1996 compared to the nine months
ended March 31, 1995, due to an $89,000 increase in compensation and an $80,000
loss on the sale of foreclosed real estate the previous period.
Net income after taxes has decreased 43 percent from $1.17 million for
the year ended June 30, 1994 to $664 thousand for the twelve months ended March
31, 1996. Net income after taxes declined 35 percent from $735 thousand for the
nine months ended March 31, 1995 to $478 thousand for the nine months ended
March 31, 1996.
Table I.6
Summary Financial Ratios
(percent)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
For Nine Months
Ended March 31, For the Year Ended June 30,
- --------------------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Return on Average Assets 0.81 1.35 1.25 1.59 1.55 1.24 1.17
- --------------------------------------------------------------------------------
Return on Average Equity 5.83 9.89 9.15 12.82 13.37 11.22 10.48
- --------------------------------------------------------------------------------
</TABLE>
The Bank's return on average assets has declined from 1.59 percent for
the year ended June 30, 1994 in to 0.81 percent for the nine months ended March
31, 1996 due to increasing interest rates. Return on average equity decreased
from 12.82 percent to 5.83 percent during the same period due to declining
income and increasing capital.
Interest Rate Sensitivity
In recent years the Bank has measured its interest rate sensitivity by
computing the "GAP" between the assets and liabilities which were expected to
mature or reprice within certain periods., based on assumptions regarding loan
prepayment and deposit decay. Recently the Bank has also placed emphasis on
reviewing the amounts by which
6
<PAGE>
the net present value of the institution's cash flow from assets, liabilities
and off balance sheet items (the institution's net portfolio value, or "NPV")
would change in the event of an instantaneous change in market interest rates.
The FHLB also requires the computation of estimated changes in net interest
income over a four quarter period. These computations estimate the effect of an
institution's NPV and net interest income from an instantaneous and permanent 1
to 4 percentage point increase or decrease in market interest rates.
Exhibit 5 illustrates that at March 31, 1996 the Bank's one-year
interest rate gap was negative 46 percent. Exhibit 6 provides the Bank's NPV as
of March 31, 1996 and the change in the Bank's NPV under rising and declining
interest rates. The projected change in the market value of portfolio equity
given a 100 basis point increase in interest rates is 16.1 percent according to
FHLB analysis of the Bank's balance sheet as of March 1996. The projected change
in net interest income for a 100 basis point increase in interest rates is 5.0
percent or 12 basis points.
Management intends to seek an acceptable balance between maximizing
yield potential and limiting exposure to changing interest rates. It
acknowledges the inherent risks of a portfolio with unmatched maturities, but
has determined that this risk is tolerable and profitable if credit risk is
managed and the Bank can keep operating expenses low and interest rate spreads
high. As a result of this strategy the Bank can expect higher than normal
returns in periods of stable or decreasing rates and lower than normal returns
in periods of increasing rates.
In order to minimize and manage interest rate risk, management has
adopted the following policies:
. investing excess liquidity in short or adjustable rate
instruments, with maturities or repricing periods of three years
or less.
. promoting mortgage loans with bi-weekly payment options, ten year
balloons, and/or 15 year amortization.
. promoting longer term CDs.
. keeping the level of operating expenses and non-earning assets
relatively low.
Exhibit 7 presents the Bank's weighted average yields and costs on interest
earning assets and interest bearing liabilities for the years ended June 30,
1994 and 1995 and for the nine months ended March 31, 1995 and 1996.
The Bank's yield on interest earning assets increased 18 basis points from
7.47 percent to 7.65 percent from the nine months ended March 31, 1995 to March
31, 1996. The Bank's cost of interest bearing liabilities increased 106 basis
points during the same period from 4.23 percent to 5.29 percent. As a result the
Bank's interest rate spread declined 88 basis points from 3.24 percent to 2.36
percent. During the same period the Bank's net interest rate margin declined
from 3.72 percent to 3.01 percent. The declines
7
<PAGE>
in the Bank's spread and margin reflect higher market interest rates which have
adversely affected its deposit base. Exhibit 8 reflects the changes in interest
income and expense due to rate and volume changes.
Lending Activities
General
The principal lending activity of the Bank is the origination of
conventional loans for the purpose of constructing, purchasing or refinancing
owner-occupied 1-4 family residential properties in its primary market area. The
Bank also originates multi-family residential and commercial real estate loans
and, to a lesser extent, home equity and various consumer loans. Only 1 percent
of Home Savings' loan portfolio, before net items, is not secured by real
estate. On March 31, 1996 the Bank's largest single outstanding loan balance was
approximately $532,000. The Bank is primarily a portfolio lender. Accordingly,
it generally does not purchase or sell loans.
Composition of Loan Portfolio
As of March 31, 1996 the Bank's loan portfolio totaled $53.8 million or 67
percent of total assets and nearly 80 percent of the Bank's loan portfolio was
comprised of 1-4 family residential mortgage loans, approximately 12 percent was
multi-family residential mortgages, 5 percent were commercial real estate loans,
3 percent were residential construction mortgage loan, 2 percent were home
equity loans and just over 1 percent were consumer loans. As of March 31, 1996
79 percent of the Bank's 1-4 family residential mortgage loans were adjustable
rate loans and 29 percent of the Bank's total net loans had adjustable interest
rates.
Exhibit 9 details loans held in portfolio by the Bank for the appropriate
dates. Exhibit 10 presents the Loan Portfolio Maturity Schedule of the Bank as
of March 31, 1996.
One-to-Four Family Residential Real Estate Loans
The primary emphasis of the Bank's lending activity is the origination of
loans secured by first mortgages on owner-occupied, 1-4 family residential
properties. At March 31, 1996 approximately 79 percent of the Bank's real estate
loan portfolio consisted of one-to-four family residential real estate loans,
primarily located in the Bank's market area. Of such loan amounts, 29 percent
had adjustable interest rates.
The Bank's lending policies generally limit the maximum loan-to-value ratio
on mortgage loans secured by owner-occupied properties to 97 percent of the
value of the property. When the Bank makes a loan in excess of 80 percent of the
value of the
8
<PAGE>
property, private mortgage insurance is required for at least the amount of
the loan in excess of 80 percent of the value.
The Bank offers adjustable rate loans, but its primary emphasis is on fixed
rate loans. The Bank offers a maximum term of 15 years on fixed rate loans, but
also offers a 10 year balloon fixed rate loan with a 30 year amortization and a
25 year term adjustable rate loans.
The interest rates on adjustable rate loans are generally adjustable every
year and are tied to the one-year United States Treasury bill rate with rate
caps limiting the amount of annual and cumulative changes in the loan rate. The
Bank also offers loans with a bi-weekly payment option, in which event the
payment is drafted from an existing Home Savings deposit account.
Multi-Family Residential and Commercial Real Estate Loans
The Bank has a substantial portfolio of loans to multi-family housing all
secured by property in its immediate market area. The bank originates loans
secured by commercial real estate in its immediate market area. Typical secured
properties include storage facilities offices, churches, and retail and other
commercial buildings. At March 31, 1996 the Bank had approximately $9.0 million
outstanding loans secured by multi-family residential and commercial properties
comprising approximately 17 percent of its net lending portfolio.
Multi-family loans are originated at a premium to 1-4 family mortgage loans
for up to 75 percent of the value of the property. The Bank offers both
adjustable and fixed rate terms with up to 20 and 15 years amortization
respectively on multi-family residential loans. Commercial real estate loans
have terms of up to 15 years on adjustable rate loans and up to ten years on
fixed rate loans.
Construction Loans
The Bank originates construction loans to build single and multi-family
residential properties in the Bank's immediate market area. Construction loans
for one-to-four family real estate to be occupied by the borrower generally have
a maximum loan-to-value ratio of 80 percent of the property. Other construction
loans are generally limited to 75 percent of the value of the property. The
loans are originated with six month terms, though extensions are typically
granted to facilitate orderly completion of projects. Construction loans are
originated so as to easily convert to permanent mortgage loans of the Bank.. At
March 31, 1996 approximately 6 percent of the Bank's net loans or $3.3 million
was invested in construction lending.
9
<PAGE>
Construction loans originated by the Bank are typically originated under
the same terms as permanent residential loans with the loan being interest-only
for the construction period.
Home Equity Loans
The Bank originates home equity loans secured by properties on which it
retains a Home Savings mortgage up to 80 percent of the market value of the
residence. The loans are 15 year maturities requiring monthly payments equal to
1 1/2 percent of the outstanding balance and are indexed monthly to prime rate
plus 150 basis points. The Bank originates loans to consumer secured by
deposits. Such loans are charged an interest rate 200 basis points above the
corresponding deposit maturity rate and are scheduled to mature commensurate
with the maturity of the underlying security. At March 31, 1996 the Bank had
approximately $1.1 million in home equity line of credit loans representing
approximately 2 percent of its net lending portfolio.
Consumer Loans
Home Savings offers various consumer loans, including home improvement,
automobile, and draft secured loans. The Bank has a small portfolio of unsecured
consumer loans. At March 31, 1996 approximately 1 percent, or $542 thousand, of
the Bank's net lending portfolio was invested in consumer loans. The Bank also
originates loans secured by new and used automobiles solely as a service to
existing customers. All such loans are originated in-house.
Underwriting
The Bank has ongoing reviews of the loan portfolio and in particular
conducts quarterly reviews to determine the adequacy of the specific and general
loan provision. This review takes into consideration trends in delinquency,
current economic conditions and competitive aspects of the industry.
The Bank's underwriting for real estate reflect: the capacity of the
borrower or income from the underlying property to adequately service the debt;
the value of the mortgaged property; the overall credit worthiness of the
borrower; the level of equity invested in the property; any secondary sources of
repayment; and, any additional collateral or credit enhancements (such as
guarantees, mortgage insurance or take-out commitments). Management has sought
to maintain good asset quality through limiting the loan authority of individual
originators and processing all loans as full documentation loans. Management
believes that substantially all of its residential mortgage loans conform to
FNMA/FHLMC standards.
All mortgage loans are approved by the Loan Committee. All consumer loans
in excess of $10,000 are approved by the President.
10
<PAGE>
Originations, Purchases, and Sales
As a portfolio lender the Bank generally retains all its originated loans
and therefore is not in the business of purchasing or selling loans. Total loan
originations have increased from $50.1 million for the fiscal year ended June
30, 1993 to $54.0 million for the nine months ended March 31, 1996. Exhibit 11
provides a schedule of loan originations, purchases, sales and repayments.
Delinquencies and Non-Performing Assets
Exhibit 12 presents the non-performing assets of the bank for the periods
ending March 31, 1996 and June 30, 1991 to 1995. Exhibit 13 illustrates the
Bank's historical charge-offs and recoveries and Exhibit 14 illustrates the
Bank's historical Distribution of Loan Loss Allowances.
Management reviews the Bank's loans on a regular basis. When a borrower
fails to make a required payment on a loan and does not cure the delinquency
promptly, the loan is classified as delinquent. In this event, the normal
procedure is to make contact with the borrower at prescribed intervals in an
effort to bring the loan to current status and late charges are assessed as
permitted by law. If a delinquency is not cured the Bank normally commences
foreclosure proceedings. If the loan is not reinstated within the time
permitted, or the property is not redeemed prior to sale, the property may be
sold at a foreclosure sale. Any property acquired as a result of foreclosure or
by deed in lieu of foreclosure is classified as real estate owned until such
time as it is sold or otherwise disposed of the by the Bank to recover its
investment.
At March 31, 1996 the Bank had $333 thousand in real estate owned. Real
estate owned is initially recorded at the lower of cost or fair value minus cost
or fair value at the date of foreclosure, establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and the real
estate is carried at lower of cost or fair valueless selling costs. Costs
related to the development and improvement of real estate owned are capitalized
and costs relating to holding the property are charged to expenses. Accrual on
interest of delinquent loans is suspended when, in management's judgment, doubt
exists as to the collectability of additional interest. Interest on loans
placed on nonaccrual status and generally charged off.
The Bank's non-performing assets decreased from $1.79 million at June 30,
1993 to $830 thousand or 1.03 percent of assets at March 31, 1996. A substantial
portion of the Bank's non-performing assets are related to one borrower.
At March 31, 1996 the Bank's allowance for loan losses was $501 thousand or
approximately 60 percent of non-performing assets. At June 30, 1993 the Bank's
11
<PAGE>
allowance for loan losses was only $295 thousand or approximately 16 percent of
non-performing assets. At March 31, 1996 the Bank listed $766 thousand of loans
as "substandard" and no loans as "doubtful" or "loss".
Investment Activities
Exhibit 15 presents the composition of the Bank's securities portfolio and
Exhibit 16 summarizes the maturity schedule and yield analysis of those
securities as of March 31, 1996. The Bank's investment portfolio of
approximately $23.7 million and consisted of U.S. Government and agency
securities, mortgage-backed securities, municipal bonds, interest-earning
deposits in other financial institutions, and stock of the Federal Home Loan
Mortgage Corporation and Federal Home Loan Bank of Atlanta. Substantially, all
of the investment portfolio matures in five years or less and consist of
approximately $7 million of interest bearing balances in other institutions and
$16 million of government and agency securities.
As a member of the FHLB of Atlanta, the Bank is required to maintain an
investment in stock of the FHLB equal to the greater of 1 percent of the Bank's
outstanding home loans or 5 percent of the outstanding advances. At March 31,
1996 the Bank held $614 thousand of stock in the FHLB of Atlanta.
Sources of Funds
Deposits
Exhibit 17 presents a summary flow of deposits at the Bank for the periods
ending March 31, 1996 and June 30, 1993 to 1995. Exhibit 18 presents the
composition of the Bank's deposits by type of account for the same periods and
Exhibit 19 shows rate and maturity information for the Bank's certificates of
deposit as of March 31, 1996.
The Bank attracts short term and intermediate term deposits from the Bank's
primary market area. The Bank offers a variety of deposit accounts including
passbook and savings accounts, money market accounts, and certificates of
deposits ranging in maturity from three months to five years. The Bank does not
solicit or accept brokered deposits.
At March 31, 1996 approximately 7 percent of the Bank's deposits consisted
of passbook and statement savings accounts, 17 percent consisted of interest-
bearing transaction accounts and less than 1 percent consists do non-interest-
bearing transaction accounts. Approximately 20 percent of the Bank's deposits
consisted of Jumbo ($100,000 or more) certificates of deposit.
The Bank's deposit base has increased steadily from $52.3 million at June
30, 1991 to $64.5 million at June 30, 1995 to $68.9 million at March 31, 1996.
12
<PAGE>
Borrowed Funds
The Bank is a member of the FHLB of Atlanta with borrowing privileges from
that institution. In recent years the Bank has not borrowed any funds from the
FHLB or any other institutional sources except in the regular course of deposit
gathering.
SUBSIDIARIES
The Bank is the owner of Home Financial Services, Inc, an inactive service
corporation.
PROPERTY AND EQUIPMENT
The Bank currently operates out of a single office, which is owned by the
Bank and located in downtown Thomasville.
Property and Equipment
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Net Book Year in
Value Market Value Square Feet Place
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
22 Winston $629,750 $644,500 6571 1958
- --------------------------------------------------------------------------------
Furniture, Fixture & $131,511 $150,000 NA NA
Equipment
- --------------------------------------------------------------------------------
Total $761,261 $794,500 NA NA
- --------------------------------------------------------------------------------
</TABLE>
MANAGEMENT
Directors
The Bank has a five member Board of Directors which includes one inside
director (CEO Hudson). The Board has extensive and valuable business experience
and relationships in the community. Individual members of the Board and their
vitaes are;
. James G. Hudson, Jr., 56; Mr. Hudson is President of Home Savings, having
served in this capacity since he joined the institution in October 1972.
He has been a Director of the Bank since 1972.
. Henry H. Darr, 55; Mr. Darr has been a director since 1980. He is
President of J.L. Darr and Son, commercial construction, with which he
has been associated since 1962.
13
<PAGE>
. John R. Hunnicuttt, 60; has been a director since 1995. He is a franchisee
of McDonald's Corporation in which capacity he has served since 1974.
. F. Stuart Kennedy, 70; has been a member of the board since 1971. He is
Chairman of Rex Oil Company with which he has been associated since 1945.
. Milton T. Riley, Jr. 59; Mr. Riley has been a director since 1992. He is
formerly affiliated with the firm of Dixon, Odom & Company, L.L.P, and
currently operates his own commercial and residential real estate firm,
Riley Properties.
Officers
James G. Hudson, John E. Todd and Drema A, Michael comprise the small but
highly experienced and tenured senior management of the Bank. Individuals
members of the management team and their vitaes are:
. Mr. Hudson is President of Home Savings.
. John E. Todd, 50; Vice President. Mr. Todd is the Bank's senior lending
officer and has been associated with the Bank since 1979.
. Drema A. Michael, 43, Secretary and Assistant Treasurer. Ms. Michael is
responsible for financial analysis and controls in the Bank and has
been associated with the Bank since 1974.
Employees
The Bank has eleven full time employees, including management with
extensive tenure and an annual payroll of approximately $370,000. Employee
morale and loyalty are believed to be high.
14
<PAGE>
Section II
MARKET AREA ANALYSIS
Primary Market Area
The Bank's primary market area is comprised of a ten mile radius emanating
from its office in Thomasville in the northeast corner of Davidson County in
north central North Carolina. Thomasville is located less than 5 miles southwest
of High Point, approximately 30 miles southwest of Greensboro and approximately
20 miles southeast of Winston-Salem, placing it within the greater Triad area.
Market Area Economy
While the Bank's principal market area is primarily rural it has a strong
manufacturing base due to its location in the heart of the North Carolina
furniture manufacturing and textile industry.
The market economy is dominated by furniture manufacturers, their suppliers
and public or quasi-public employers such as the government, schools, and
hospitals.
<TABLE>
<CAPTION>
Employment By Industry
Davidson County
1st Quarter 1995
<S> <C>
Manufacturing 47%
Retail Trade 16%
Services 12%
Government 12%
Construction and Mining 4%
Transportation/Communication/Utilities 4%
Wholesale Trade 3%
FIRE 2%
Agriculture Less-than 1%
</TABLE>
Source: Piedmont Regional Information Database, Piedmont Triad Council on
Government
15
<PAGE>
The largest employers in the county, the number of employers, their
industry and their location are referenced below:
Major Employers in Davidson County (1996)
<TABLE>
<CAPTION>
Employer Employees Industry Location
- --------------------------------- --------- --------------------- -----------
<S> <C> <C> <C>
Lexington Furniture Industries 4000 Furniture Lexington
Thomasville Furniture Industries 2825 Furniture Thomasville
PPG Industries 1800 Synthetic Fiber Thomasville
Davidson County Schools 1793 Education Various
Davidson County 749 Government Lexington
Burlington Knitted Fabrics 700 Fabrics Lexington
Parkdale Mills 548 Textiles Thomasville
AMP, Inc. 530 Electronics various
Council-Craftsmen, Co. 500 Furniture Denton
APC Building Products 500 Construction Products Lexington
Stanley Furniture Co 475 Furniture Lexington
Community General Hospital 460 Health Care Thomasville
Lexington Memorial Hospital 450 Health Care Lexington
</TABLE>
Source: Economic Development Office, Piedmont Triad on Council of Government
Employment in Thomasville and surrounding counties is strong. Davidson
County unemployment rates are historically below that of the national average
and, in recent years, have been better than North Carolina rates also.
<TABLE>
<CAPTION>
Unemployment
- -------------------------------------------------------------------------
1992 1993 1994 1995 4/1996
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. 7.5% 6.9% 6.1% 5.6% 5.4%
- -------------------------------------------------------------------------
North Carolina 5.9% 4.9% 4.4% 4.3% 4.2%
- -------------------------------------------------------------------------
Davidson County 6.3% 4.2% 3.4% 3.2% 3.4%
- -------------------------------------------------------------------------
Thomasville NA NA NA NA NA
- -------------------------------------------------------------------------
</TABLE>
Income and Income Trends
Thomasville can be characterized as a working middle class community. The
income and education levels, as well as the housing values of Davidson County,
and particularly of Thomasville, are below that of the state and national
averages.
The median household and per capita income of Thomasville are significantly
below national and state averages. Very few of Thomasville's households make
over
16
<PAGE>
$75,000 per year, but the percentage of families making under $25,000 is
not disproportionate.
Household Income Data
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Household Household
Median Income Income
Household Less-than Greater-than
Income (1989) $25,000 (prcnt) $75,000 (prcnt)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $30,056 41.8 9.5
- --------------------------------------------------------------------------------
North Carolina $26,647 46.8 6.0
- --------------------------------------------------------------------------------
Davidson County $27,913 44.3 4.5
- --------------------------------------------------------------------------------
Thomasville $21,754 49.8 3.5
- --------------------------------------------------------------------------------
</TABLE>
Income Data
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Per Capita
Per Capita Income (1992) Income (1989)
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. $20,105 $14,420
- --------------------------------------------------------------------------------
North Carolina $17,863 $12,885
- --------------------------------------------------------------------------------
Davidson County $16,861 $12,597
- --------------------------------------------------------------------------------
Thomasville $14,987 $11,102
- --------------------------------------------------------------------------------
</TABLE>
Effective Buying Income
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Median Projected
Household Growth
Effective Effective Effective
Buying Income Buying Income Buying Income
(1993) (1994) (1994-99)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. 4,169,724 $43,484 32.1
- --------------------------------------------------------------------------------
North Carolina 100,908 $37,692 35.9
- --------------------------------------------------------------------------------
Davidson County 1,864 $36,102 33.4
- --------------------------------------------------------------------------------
Thomasville NA NA NA
- --------------------------------------------------------------------------------
</TABLE>
Population Base and Growth
Davidson County had a population of 134.8 thousand in 1994 in 51,300
households and the city of Thomasville's population was 16,765 with an estimated
6862 households in 1994. County population growth outpaced both the national and
state averages from 1990 to 1994 increasing a total of 6.4 percent, but the
population of Thomasville increased only 5.3 percent, just below the state
increase of 5.5 percent. County population is expected to grow 5.8 percent
through the rest of the decade, above the national average but below the rest of
North Carolina.
17
<PAGE>
Population
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Population Growth
Population 1980 1990-94 Population Population 1994 Projected Population
(,000) (,000) l990 (,000) Growth (1994-99)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. 226,542.2 4.4% 248,709.9 259,574.2 5.0%
North Carolina 5,880.1 5.5% 6,628.7 6992.3 7.2%
Davidson County 113,.2 6.4% 126.7 134.8 5.8%
Thomasville 14.144 5.3% 15.915 16.765 NA
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Households and Projected Growth
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Projected
Growth in
Total Number of Total Number Number of
Households of Households Households
(1994) (,000) (1990) (,000) (1994-99)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. 95,891.9 91947 6.5%
North Carolina 2667.2 2517.0 10.0%
Davidson County, NC 51.3 48.9 8.4%
Thomasville NC 6.862* 6.529 NA
- ------------------------------------------------------------------------------
* 1994 Estimate
</TABLE>
Area Demographics
Thomasville has a sizable elderly population. Over 16.3 percent of its
residents are over 65, compared to county, state, and national averages ranging
from 12.0 to 12.6 percent. The median age of the community is 34.6 compared to a
national average of 33.8 and a statewide average of 34.1
As a middle class manufacturing community Thomasville's residents are
generally not as well educated as the rest of the state and the country. Only 57
percent of its residents have high school degrees, compared to 64 percent in the
rest of the county, 70 percent statewide and 75 percent nationally. Less than
10 percent of its residents have a college degree, about equal with the county
average, but well below the state and national averages of 17.4 and 20.3 percent
respectively.
The enclosed tables provide a summary of the Bank's market demographics.
18
<PAGE>
Demographic Data
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Population over 65 Median Age High School BA
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. 12.6% 33.8 75.2% 20.3%
- ----------------------------------------------------------------------
North Carolina 12.1% 34.1 70.0% 17.4%
- ----------------------------------------------------------------------
Davidson County 12.0% 35.5 64.2% 10.0%
- ----------------------------------------------------------------------
Thomasville 16.3% 34.6 57.4% 9.8%
- ----------------------------------------------------------------------
</TABLE>
Housing Stock and Ownership
The housing stock in Thomasville is characterized by older smaller homes.
While local vacancy rates are low the percentage of owner-occupied homes is also
low. The median home value in Thomasville in 1990 was only $48,200, well below
the county average of $60,800, the state average of $65,800 and the national
average of $79,090. Less than half the housing units in Thomasville were owner-
occupied, compared to nearly 75 percent in the rest of the county, 68 percent in
the state and 64.2 percent in the U.S. Likewise, less than half the homes in
Thomasville are mortgaged, compared to 56 percent in the county and 65 percent
in the U.S. Vacancy rates in Thomasville, at 5.8 percent is nearly half the
state and national averages and below the county wide average of 5.8 percent.
Home Ownership
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Prcnt
Homes Vacant
Median Owner Units (as
Home Value Occupied Homes w/ percent
(1990) (1990) Mortgages total units)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US $79,090 64.2% 65.2% 10.1%
- ------------------------------------------------------------------------------
North Carolina $65,800 68.0% 44.6% 10.7%
- ------------------------------------------------------------------------------
Davidson County $60,800 73.6% 56.5% 8.1%
- ------------------------------------------------------------------------------
Thomasville $48,200 49.6% 47.1% 5.8%
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Housing Stock
- --------------------------------------------------------------------------------
Total Detached Prcnt Units Prcnt Units
Housing Homes as a Constructed Constructed
Units Prcnt of total prior to 1939 1980-90
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States 91,947,410 59.0 18.4 20.7
- --------------------------------------------------------------------------------
North Carolina 2,517,026 64.9 9.9 28.6
- --------------------------------------------------------------------------------
Davidson County 48,944 70.6 9.7 26.5
- --------------------------------------------------------------------------------
Thomasville NA NA NA NA
- --------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
Despite a booming North Carolina economy residential --housing construction
in the Thomasville area has been flat throughout the 1990s. Residential housing
construction increased 57 percent in North Carolina between 1991 and 1995, but
was flat in the city of Thomasville and actually declined 8 percent in Davidson
County.
<TABLE>
<CAPTION>
Residential Housing Construction (# of units)
- -------------------------------------------------------------------------------
Growth
1991 1992 1993 1994 1995 (91-95)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States 948,794 1,094,933 1,199,063 1,371,637 1,332,995 40.5%
- -------------------------------------------------------------------------------
North Carolina 39,034 48,158 53,281 62,859 61,339 57.1%
- -------------------------------------------------------------------------------
Davidson County 884 959 814 854 815 -7.8%
- -------------------------------------------------------------------------------
Thomasville 177 206 181 150 177 0.0%
- -------------------------------------------------------------------------------
</TABLE>
Financial Competition
The Bank faces strong competition for deposits, especially transaction
accounts in Thomasville and surrounding county. There are eight depository
institutions with 13 branches located in the city of Thomasville alone, in which
Home Savings, SSB consistently has approximately 16 percent of the deposit
market. There are over $1.1 billion of deposits in Davidson County spread over
39 branch offices giving the Bank a 5.5 percent share of the county's deposit
market. In addition to competition from depository institutions the Bank faces
significant competition for funds from the State Employees Credit Union and the
brokerage firm of Edward D. Jones, also located in Thomasville. The Bank also
faces local and regional competition for mortgage originations from depository
institutions and mortgage brokers.
<TABLE>
<CAPTION>
County and State Deposit Share Analysis
- ----------------------------------------------------------------------------
Growth,
1992 1993 1994 1995 92-95
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Davidson County
- ----------------------------------------------------------------------------
Deposits $ 1,023 $ 1,108 $ 1,125 $ 1,171 14.5
(,000,000)
- ----------------------------------------------------------------------------
Branches 38 41 41 39 2.6%
- ----------------------------------------------------------------------------
Deposits/Branch $26,930 $27,012 $27,435 $30,036 11.5%
- ----------------------------------------------------------------------------
Home Share of 5.7% 5.6% 5.7% 5.5% (3.5%)
Market
- ----------------------------------------------------------------------------
</TABLE>
The aggregate deposit base in Thomasville is increasing approximately 4.5
percent annually, partially due to consumer's renewed comfort with depository
institutions and reduced yield competition from the bond and equity markets.
Most of the Bank's local competition for deposits comes from much larger
institutions whose primary presence is outside of Thomasville and Davidson
County. The
20
<PAGE>
average retail branch in Thomasville controls less than $32 million of deposits,
slightly more than the county average, but well short of the $65 million held at
Home Savings' one location.
<TABLE>
<CAPTION>
Depository Institutions, Branches and Deposits in Thomasville (,000)
- ------------------------------------------------------------------------------------------------
Growth
1992 1993 1994 1995 1992-95
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bank of North Carolina $ 8,993 $ 24,288 $ 32,556 $ 38,160 61.9%
- ------------------------------------------------------------------------------------------------
Branch Banking and Trust $ 27,973 $105,399 $102,862 $103,557 54.7%
- ------------------------------------------------------------------------------------------------
Home Savings Citizens Bank & Trust $ 13,121 $ 12,756 $ 12,539 $ 14,562 3.5%
- ------------------------------------------------------------------------------------------------
Home Savings $ 58,205 $ 62,129 $ 63,937 $ 64,548 3.5%
- ------------------------------------------------------------------------------------------------
Lexington State Bank $ 7,301 $ 9,511 $ 11,793 $ 13,109 21.5%
- ------------------------------------------------------------------------------------------------
Nations Bank $ 76,696 $ 91,940 $ 85,844 $ 86,005 3.9%
- ------------------------------------------------------------------------------------------------
Peoples Federal $ 81,099 NA
- ------------------------------------------------------------------------------------------------
Wachovia Bank of NC $ 87,255 $ 88,991 $ 88,511 $ 91,982 1.8%
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Total Branches 11 14 14 13 5.7%
- ------------------------------------------------------------------------------------------------
Total Deposits $360,643 $395,014 $398,042 $411,923 4,5%
- ------------------------------------------------------------------------------------------------
Deposits/Branch $ 32,786 $ 28,215 $ 28,432 $ 31,686 -1.1%
- ------------------------------------------------------------------------------------------------
Home Share of Market 16.1% 15.7% 16.1% 15.7% -1.0%
- ------------------------------------------------------------------------------------------------
</TABLE>
Interest Rate Trends
Interest rates fell through much of mid and late year 1995 before longer
term yields began to increase in the spring of 1996. It is believed that the
Federal Reserve is generally comfortable with the recent tightening of interest
rates and the stable growth of GDP and it is anticipated that the Fed will not
undertake to achieve a material change in interest rates in the near future.
21
<PAGE>
Recent Interest Rate Trends
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
3 Mo. T-bills 3 Yr. T-notes Prime Rate Discount Rate
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 4.29 6.27 7.15 3.60
- -------------------------------------------------------------------------
January 1995 5.81 7.66 8.50 4.75
- -------------------------------------------------------------------------
February 1995 5.80 7.25 9.00 5.25
- -------------------------------------------------------------------------
March 1995 5.73 6.89 9.00 5.25
- -------------------------------------------------------------------------
April 1995 5.67 6.68 9.00 5.25
- -------------------------------------------------------------------------
May 1995 5.70 6.27 9.00 5.25
- -------------------------------------------------------------------------
June 1995 5.50 5.80 9.00 5.25
- -------------------------------------------------------------------------
July 1995 5.47 5.89 8.75 5.25
- -------------------------------------------------------------------------
August 1995 5.41 6.10 8.75 5.25
- -------------------------------------------------------------------------
September 1995 5.26 5.89 8.75 5.25
- -------------------------------------------------------------------------
October 1995 5.30 5.77 8.75 5.25
- -------------------------------------------------------------------------
November 1995 5.35 5.57 8.75 5.25
- -------------------------------------------------------------------------
December 1995 5.16 5.39 8.50 5.25
- -------------------------------------------------------------------------
January 1996 5.02 5.20 8.50 5.00
- -------------------------------------------------------------------------
February 1996 4.87 5.14 8.25 5.00
- -------------------------------------------------------------------------
March 1996 4.96 5.79 8.25 5.00
- -------------------------------------------------------------------------
April 1996 4.99 6.11 8.25 5.00
- -------------------------------------------------------------------------
May 1996 5.00 6.24 8.25 5.00
- -------------------------------------------------------------------------
June 1996 5.14 6.35 8.25 5.00
- -------------------------------------------------------------------------
</TABLE>
22
<PAGE>
SECTION III
PUBLICLY-HELD THRIFT INSTITUTION COMPARISONS
In determining the fair market value of the Bank's common stock it is
necessary to compare the financial, operating, and other characteristics of the
Bank to comparable publicly traded thrift institutions. This section compares
Home Savings with three select groups; the universe of publicly traded thrifts
(excluding mutual holding companies), a smaller select group of publicly traded
thrifts (the "Comparative Group"), and recently converted thrifts. While the
prices of comparable institutions are useful in determining the pro forma market
value of the Bank, considerable adjustments may be required in the pricing of
Home Savings' to-be-issued common stock due to differences in such factors
including, but not limited to, size, market area, financial strength, operating
strategy, liquidity and stock market environment. The selection of the
Comparative Group is equal in importance to the subsequent adjustments that will
be made to the Bank's pro forma market value. The selection criteria used and
the companies selected are discussed below.
Selection Criteria
The most general relevant comparables for the Bank are thrift institutions
listed on the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX)
as well as those traded on the national over-the-counter (NASDAQ) markets.
Selection of the Comparative Group is limited to these thrifts because the
existence of an active and regular trading market is imperative if the common
stock is to be used as a basis for comparison. The reliability of share price
data of thinly traded stocks is sometimes difficult to assess due to infrequent
trades or widely varying transaction prices.
Average Pricing Ratios by Stock Exchange
Table III.1 presents a summary of the average and median pricing for all
thrifts listed in Exhibits 20-A and 20-B. The thrifts in Table III.1 are
categorized by trading exchange and trading prices for all thrifts listed in the
table or Exhibit 20 are as of July 5, 1996.
23
<PAGE>
Table III.1
Pricing Ratios by Trading Exchange
<TABLE>
<CAPTION>
(Prices as of July 5, 1996)
Price Divided by
------------------------------------------------
AMSE (22) TBV BV EPS Core EPS Assets
- ----------- -------- -------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Average 96.03 90.02 14.49 18.67 13.76
Median 91.84 88.17 17.45 17.98 13.50
NASDAQ (389)
- -----------
Average 112.01 108.44 16.07 17.21 12.58
Median 108.02 104.19 13.48 14.94 10.99
NYSE (16)
- -----------
Average 144.60 134.27 19.53 19.74 8.56
Median 144.03 132.52 12.38 13.86 7.62
ALL PUBLIC THRIFTS
- -----------
Average 112.64 108.60 16.20 17.37 12.47
Median 108.10 103.79 13.35 14.94 10.89
</TABLE>
As indicated in Table III.1 NYSE thrifts generally traded at book value
premiums to NASDAQ and AMSE thrifts. These premiums reflect the size and
liquidity of the NYSE thrifts relative to other publicly traded thrifts as much
as they reflect the benefits of a particular exchange. AMSE thrifts sell at the
lowest price to book value ratios of the three exchanges. NASDAQ thrifts make up
roughly 90 percent of all publicly traded thrifts and therefore, by definition,
trade at or near all the industry average pricing ratios. AMSE thrifts tend to
carry the highest price to earnings ratio while NYSE and NASDAQ price to
earnings ratios are similar to each other and the All Public Thrift medians.
The Bank will apply to have the common stock of Century Bancorp, Inc.
listed on the Nasdaq SmallCap Market if it is determined that the common stock
is eligible for such quotation. In the event the common stock does not qualify
for quotation on the Nasdaq SmallCap Market the Bank intends to list the common
stock over-the-counter through the National Daily Quotation System "Pink Sheets"
and request Trident Securities to match buy and sell orders for the common
stock. Because price quotations on the Pink Sheets may not be updated or
available on a timely basis and because it is anticipated that very few shares
of the common stock of the Company will be available for sale it is anticipated
that the liquidity of this issue will be very limited which such liquidity could
be reflected in the trading price of the Stock.
24
<PAGE>
Average Pricing Ratios By Geographic Region
Further consideration must be given to geographic location given that the
operating and competitive environment and equity market valuation for
institutions varies from state to state or region to region as a result of
different economic, legal and regulatory factors. Table III.2 summarizes the
average and median pricing ratios for publicly traded thrifts in the various
regions of the country as of July 5, 1996.
Table III.2
Pricing Ratios by Geographical Region
(Prices as of July 5, 1996)
<TABLE>
<CAPTION>
Price Divided by
-----------------------------------------
Core
Mid-Atlantic (94) TBV BV EPS EPS Assets
- ----------------- ------ -------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Average 114.22 107.62 13.74 14.43 11.43
Median 112.88 108.12 12.46 13.46 10.13
Mid West (59)
- -------------
Average 108.21 106.09 17.37 18.91 14.24
Median 98.25 98.25 15.00 16.33 13.04
New England (54)
- ----------------
Average 118.43 112.55 14.78 13.81 9.80
Median 118.56 108.06 11.82 13.79 9.57
Southeast (59)
- --------------
Average 118.92 114.30 16.35 18.97 13.51
Median 113.72 111.54 13.21 15.08 11.88
Southwest (16)
- --------------
Average 101.31 99.23 13.35 14.09 13.21
Median 92.94 92.94 13.28 13.72 15.21
West (48)
- ---------
Average 113.68 109.96 19.66 21.52 10.23
Median 107.63 105.46 13.71 16.94 8.30
</TABLE>
As illustrated in Table III.2, Southeast thrifts have exhibited price\book
value and price\tangible book value ratios slightly above industry averages and
medians. The price to earnings ratios of Southeastern thrifts is comparable to
that of the industry median as would be expected given the like comparability in
asset returns. The price to asset ratios of Southeast thrifts is generally
higher than the industry average even though the median Southeast thrift is only
marginally smaller in asset size than the industry median.
25
<PAGE>
SELECTION PROCEDURE
From the universe of publicly traded thrifts a more select group of
comparable companies was chosen based on further criterion. In screening to
develop the appropriate comparative group the first criterion tested were asset
size and market value. Only firms with assets under $350 million and a market
value below $75 million were considered. Asset and market size were determined
to be important because they reflect not only the earnings capacity of the
institution, but also its limited liquidity.
Also considered of principal importance in selecting a comparative group
were key financial condition and financial performance ratios; primarily the
capital to asset, return on average asset, and return on average equity ratios.
After consideration of conversion proceeds and pro forma earnings Home Savings
will have exceptionally strong capital ratios, above average return on average
assets, but a low return on equity. Only those institutions with capital/asset
ratios in excess of 12 percent, with return on assets in excess of 0.50 and
return on average equity ratios less than 10 percent were considered further.
Home Savings, SSB serves a southeastern rural market and its limited market
value and liquidity will make it most attractive to stockholders in the Bank's
general geographic region. Consequently, the Comparative Group was further
narrowed down by eliminating those institutions outside of Home Savings' broad
geographic region. As a result, only one thrift west of the Mississippi and no
northern thrifts were considered.
A final consideration for inclusion in the Comparative Group was the
composition of an institution's lending portfolio. Home Savings is a traditional
one-to-four family portfolio lender. The thrifts chosen for the Comparative
Group are also primarily traditional portfolio lenders with low concentrations
of non-mortgage lending.
As previously stated the Comparable Group was selected only from publicly
traded (NASDAQ, NYSE, AMEX) companies because these companies have established
trading markets which, for larger or more frequently traded thrifts, are
presumed to be accurate reflections of the Bank's market value.
Institutions whose market prices are believed to be affected by proposed
mergers or acquisition were not considered as part of the Comparative Group
because these institution's prices tend to be distorted by speculative
considerations and therefore, are unreliable indicators of the market's
valuation.
The selection criterion discussed above were employed in identifying
thrifts, which, by virtue of location, size and operating characteristics and
financial condition and performance are deemed to be most comparable in nature
to the Bank. These thrifts, their location, asset size, and other summary data
are presented in Exhibit 21 and detailed information on the Comparative Group is
presented in Exhibits 21 through 30.
26
<PAGE>
Few companies are directly comparable on all factors, but in the aggregate
the Comparative Group has financial figures very similar to Home Savings. The
average asset size of the Comparative Group was $99 million, the average market
capitalization was $22 million, the average ROAA and ROAE were 1.10 percent and
5.44 percent respectively.
REVIEW OF COMPARATIVE GROUP
Bedford Bancshares, Inc., Bedford, Virginia is the holding company for
Bedford Federal Savings Bank with three area offices. As of the most recently
available date, Bedford Bancshares had $118 million in assets and a market
capitalization of $19 million. Bedford Bancshares is well capitalized with a
capital/asset ratio of 16.10 percent and has strong core earnings yielding an
ROAA of 1.26 percent and a return on average equity of 7.56 percent. Bedford
Bancshares is generally a traditional thrift lender with title and credit life
insurance operations. It has exhibited moderate loan and asset growth.
Ccf Holding Company, Jonesboro, Georgia is the holding company for Clayton
County Federal Savings & Loan operating three local branches. As of the most
recently available date, CCF had $79 million in assets and a market
capitalization of $14 million. CCF is a highly capitalized thrift with a
capital/asset ratio of 21.23 percent, core earnings yielding an ROAA of 0.85
percent, and a return on average equity of 5.07 percent. CCF is a traditional
thrift lender with an extremely high concentration in real estate mortgage
lending. CCF is the most recent public company in the Comparative Group, having
converted to stock form on December 29, 1995. CCF has exhibited recent asset
growth of 14.8 percent, loan growth of 5.1 percent and deposit growth of only
0.13 percent annually.
Classic Bancshares, Inc., Ashland, Kentucky, is the holding company for
Ashland Federal Savings & Loan and operates from its one headquarters office in
Ashland. As of the most recently available date, Classic had $68 million in
assets and a market capitalization of $15 million. Classic is highly
capitalized with a capital/asset ratio of 28.8 percent, has strong core earnings
yielding an ROAA of 1.00 percent and a return on average equity of 4.84 percent.
Classic is a traditional thrift lender with a strong concentration in 1-4 family
mortgage lending. Classic has exhibited annual asset growth of 34 percent, loan
growth of 22 percent and deposit decay of 7.5 percent.
Citisave Financial Corp., Baton Rouge, Louisiana, is the holding company
for Citizens Savings and Loan with five offices. As of the most recently
available date, CitiSave had $80 million in assets and a market capitalization
of $14 million. It is well capitalized with a capital/asset ratio of 18.2
percent, earnings yielding an ROAA of 1.15 percent and a return on average
equity of 7.47 percent. CitSave is a traditional thrift lender that also
operates an insurance line of business. It has exhibited significant loan and
asset growth, but negligible deposit growth.
27
<PAGE>
Gateway Bancorp, Inc., Catlettsburg, Kentucky is the holding company for
Catlettsburgh Federal Savings & Loan which operates two local offices with nine
full-time employees. As of the most recently available date, Gateway had $73
million in assets and a market capitalization of $16 million. Gateway is very
well capitalized with a capital/asset ratio of 25.0 percent, has strong core
earnings yielding an ROAA of 1.05 percent and a return on average equity of 3.91
percent. Gateway is a traditional thrift lender concentrating nearly 100 percent
of its lending portfolio on mortgage lending. It has exhibited significant loan
growth, average deposit growth and negligible asset.
Harrodsburg First Financial Bancorp, Inc., Harrodsburg, Kentucky, is the
holding company for First Federal Savings Bank of Harrodsburg which operates 2
local offices with 15 full time employees. As of the most recently available
date, Harrodsburg had $109 million in assets and a market capitalization of
$32 million. Harrodsburg is well capitalized with a capital/asset ratio of 28.7
percent 1.15 percent ROAA yielded a 4.50 percent return on average equity.
Harrodsburg is traditional thrift lender with only 2 percent non-mortgage loan
balances. Harrodsburg has exhibited 6 percent asset growth, 11 percent loan
growth and 8 percent annual deposit growth.
Kentucky First Bancorp, Inc., Cynthiana, Kentucky is the holding company
for First Federal Savings Bank and operates two local offices with 22 employees.
As of the most recently available date Kentucky First had $84.0 million in
assets and a market capitalization of $19 million. Kentucky First has a strong
capital base equal to 23.6 percent of assets which generates a healthy 1.12
percent ROAA and a modest ROAE of 5.27 percent. Kentucky First is a traditional
thrift lender with a non-mortgage lending portfolio equal to less than 4 percent
of total assets. Largely due to its 1995 conversion Kentucky First has had
significant asset growth, but its has also experienced deposit decay and average
loan growth.
NS & L Bancorp, Inc., Neosho, Missouri, operates two local offices as the
holding company for Neosho Savings and Loan Association. As of the most
recently available date NS & L had $59.0 million in assets and a market
capitalization of $11 million. NS & L's has a high capital asset ratio of 23.5
percent and a core earnings base yielding 0.92 percent ROAA and a return on
average equity of 3.83 percent. NS & L is a very traditional thrift lender with
less than 3 percent of its assets invested in non-mortgage lending.
Piedmont Bancorp, Inc., Hillsborough, North Carolina, is the holding
company for Hillsborough Savings Bank and operates two offices with 29 full time
employees. It is one of only three North Carolina thrifts in the Comparative
Group. As of the most recently available date, Piedmont had $124 million in
assets and a market capitalization of $35 million. Piedmont is highly
capitalized with a capital/asset ratio of 29.8 percent, strong core earnings
yielding an ROAA of 1.35 percent and a return on average equity of 7.23 percent.
Piedmont is a traditional thrift lender with less than one percent of assets
invested in non-mortgage lending. Largely due to its December 1995 conversion,
28
<PAGE>
Piedmont has exhibited significant asset growth and average loan growth, but has
also exhibited deposit decay.
First Savings Bancorp, Inc., Southern Pines, North Carolina, is the holding
company for First Savings Bank of Moore County and operates five area offices.
It is one of only three North Carolina thrifts in the Comparative Group. As of
the most recently available date, First Savings had $256 million in assets and a
market capitalization of $68 million. First Savings is well capitalized with a
capital/asset ratio of 26.2 percent and has strong core earnings yielding an
ROAA of 1.48 percent and a return on average equity of 5.68 percent. First
Savings is a traditional thrift lender with nearly 100 percent of its lending
concentrated in mortgages. It has exhibited modest asset and deposit growth and
above average loan growth.
Southern Banc Company, Inc., Gadsden, Alabama, is the holding company for
First Federal Savings & Loan of Gadsden and operates four area offices. As of
the most recently available date, Southern had $110 million in assets and a
market capitalization of $19 million. Southern's is well capitalized with a
capital/asset ratio of 20.3 percent, but an ROAA of only 0.54 percent yielding
an ROAE of 3.96 percent. Southern's is a traditional thrift lender with only 2
percent of its assets invested in non-mortgage loans.
KS Bancorp, Inc., Kenly, North Carolina, operates three area offices as the
holding company for Kenly Savings Bank. It is one of only three North Carolina
thrifts in the Comparative Group. As of the latest available date KS had total
assets of $89.9 million and a market capitalization of $12 million. KS has a
high 15.2 percent capital to asset ratio yielding a 1.14 percent ROAA and an
ROAE of 6.95 percent. KS exhibited modest to average growth in loans, deposits
and assets. KS has a negative one year gap of approximately 35 percent and is a
traditional portfolio thrift lender. Consumer and other non-mortgage lending
makes up less than 3 percent of the Bank's assets. KS has an extremely high
ratio of insider ownership and average institutional ownership.
South Carolina Community Bancshares, Winnsboro, South Carolina is the
holding company for Community Federal Savings & Loan Association operating one
local office. As of the latest available date South Carolina Community had total
assets of $44 million and a market capitalization of $12 million. South Carolina
Community is highly capitalized with a capital to asset ratio of 28.5 percent
yielding a 1.35 percent ROAA and a 4.50 percent ROAE. It is a traditional
portfolio thrift lender with a negative one year gap of approximately 35 percent
and less than 1 percent of its assets invested in non-mortgage loans. South
Carolina Community has exhibited low asset growth, modest deposit growth and
loan decay.
COMPARATIVE GROUP COMPOSITE PERFORMANCE
All but one of the Comparative Group companies are located in the
southeast. Four are located in Kentucky, three in North Carolina, and one each
in Alabama, Georgia, Louisiana, Missouri, South Carolina and Virginia.
Generally, these thrifts
29
<PAGE>
operate in suburban to rural moderate growth areas. All of the thrifts converted
between 1993 and 1995.
Exhibits 22 and 23 present summary ratios detailing the financial
performance and capital condition, respectively, of the Comparative Group, North
Carolina thrifts, Southeastern thrifts and Home Savings.
All of the comparative group thrifts are highly capitalized institutions
with capital to asset ratios ranging from 15.2 percent for KS Bancorp to 29.8
percent for Piedmont Bancorp with an average ratio of 23.5 percent. Each of the
13 thrifts in the comparative group generate a healthy return on average assets,
ranging from a low of 0.54 percent for Southern Bancorp to a high of 1.48
percent for First Savings with an average of 1.07 percent. Because of the high
capital levels the average return on average equity for the Comparative Group is
only 5.44 percent, ranging from a low of 3.83 percent for NS & L to a high of
7.56 percent for Bedford. On a pro forma basis Home Savings has a capital to
asset ratio of 24.33 percent, return on average assets of 0.99 percent and
return on average equity of 4.05 percent.
The Comparative Group is generally small in asset size and market value.
Only one institution, North Carolina based First Savings has over $125 million
in assets. The smallest institution in the Group is South Carolina Community
with only $44 million in assets. The average total asset size for the
Comparative Group is $99.5 million. First Savings is the only institution in the
Comparative Group with over $40 million in market capitalization. The smallest
market capitalized thrift is NS & L with only $11.2 million. The average market
capitalization for the Comparative Group is $22.3 million. On a pro forma basis
Home Savings had approximately $91.5 total assets at March 31, 1996.
Exhibit 24 presents the loan portfolio composition of the Comparative
Group. The Comparative Group is composed of primarily thrift lenders
concentrating in real estate mortgage lending. On average 52 percent of the
Comparative Group's regulatory assets and 85 percent of their lending portfolio
are invested in 1-4 family mortgages compared to 52 and 80 percent respectively
for Home Savings. Only two of the Comparative Group companies have non-mortgage
loan portfolios exceeding 5 percent of assets and the average ratio of non-
mortgage loans to assets is 2.46 percent compared to less than one percent for
Home Savings.
Exhibit 25 presents additional balance sheet composition data for the
Comparative Group and Home Savings. The average loan to deposit ratio of the
Comparative Group is 83 percent, only slightly higher than Home Savings' 78
percent ratio and reflects Home Savings' emphasis on deposit funding rather than
borrowings. Home Savings' deposit to asset ratio is approximately 86 percent
compared to the Comparative Group average of 73 percent. On most other key
balance sheet ratios, such as cash and securities, mortgage-backed securities,
REO, capitalized servicing and intangibles the composite balance sheet of the
Comparative Group is similar to Home Savings'.
30
<PAGE>
Exhibit 26 illustrates the recent growth of assets, loans and deposits of
the Comparative Group and Home Savings. Home Savings has exhibited 10 percent
asset, 10 percent deposit and 0 percent loan growth. The average annualized
asset growth of the Comparative Group is 11.5 percent which partly reflects an
increase due to conversion assets, but loan growth has averaged 11.6 percent and
deposits have increased at an annual rate of 2.8 percent.
Exhibit 27 addresses some of the risk ratios of the Comparative Group and
Home Savings. The reserves to non-performing asset ratio of the Comparative
Group is 157 percent compared to only 60 percent for the Bank. The asset quality
of the Comparative Group is generally superior with an average NPA + 90
days/asset ratio of 0.48 percent. The median ration of reserves to NPA's plus 90
days delinquent is 51 percent. Home Savings non-performing asset to total asset
ratio is 1.03 percent. The Bank's one year cumulative interest rate GAP is
negative 46 percent compared to a negative 13 percent for the Comparative Group.
Exhibit 28 presents yield-cost spread analysis for the Comparative Group
and Home Savings. Home Savings has a higher yield on earning assets, 7.65
percent, than the Comparative Group average of 7.50 percent, but also a higher
deposit cost, 5.29 percent, versus only 4.82 percent for the Comparative Group.
Home Savings' ratio of interest earning assets to interest bearing liabilities
is 114 percent compared to 126 percent for the Comparative Group. As a result,
the Bank's yield spread is only 2.36 percent compared to the Comparative Group
spread of 2.68 percent. The Bank's net interest margin of 3.01 percent is
considerably less than the Comparative Group average of 3.66 percent.
Exhibit 29 presents some of the capital issues of the Comparative Group.
On average 0.81 percent of the Comparative Group's total common shares trade
each quarter representing a trading volume just over half the recent national
average of 1.49 percent. The Comparative Group has relatively substantial
institutional ownership of 9.8 percent, especially given their small size, and
average inside ownership of 11.0 percent. The average current dividend yield is
approximately 2.9 percent.
PERFORMANCE OF RECENTLY CONVERTED THIRFTS
An important factor bearing on the likely reception of Home Savings'
initial stock offering is the market reception of recently converted
institutions. Exhibit 31-A shows the original offering price and pro forma
pricing ratios of all thrifts which converted from mutual-to-stock form since
January 1, 1996. The average and median amount of gross proceeds were $40 and
$22 million respectively and the average institution had footings of
approximately $256 million. The average offering price to pro forma book value
was 69 percent, the average price to pro forma earnings ratio was 19.4, and the
price to assets ratio was 16.1 percent. These figures represent pro forma
pricing ratios upon conversion, which generally reflect offerings completed at
the "super max" or 32 percent above the
31
<PAGE>
midpoint. There are a number of thrifts currently in the marketing stage or
pending regulatory approval with price to book value and price to earnings
ratios below the averages referenced above.
Most of the converting thrifts exhibited significant price appreciation
since their conversion, though the average increase has decreased substantially
from historical levels. The one day "pop" ranged from minus 5 percent to 35
percent, averaging 11 percent. Appreciation since the first day of conversion
has essentially been negligible, and, in fact, the average conversion thrift
common stock has depreciated since its one day trading price. On average
conversion thrifts are up only 10 percent since their initial public offering
and the median price appreciation is only 7 percent.
32
<PAGE>
Section IV
MARKET VALUE ADJUSTMENTS
INTRODUCTION
In order to determine the estimated pro forma market value of the Bank,
certain adjustments are required to reflect the differences between the Bank and
the public thrift Comparative Group. The market value adjustments made are based
upon certain financial and other criterion, some of which were discussed in the
previous chapter and include, among other factors; financial condition and
performance, earnings quality and predictability, management, market area,
expected dividend payments, and the liquidity and marketability of the to-be-
issued common stock.
FINANCIAL CONDITION
The Bank and its Comparative Group are both characterized by similar levels
of excess capital. The Bank intends to leverage some of its additional capital
towards modest growth and exercise cash and special cash dividends and stock
buy-backs to reduce its capital to asset ratio to more manageable levels. It is
expected that the Bank will remain overcapitalized for some time to come. The
average capital to asset ratio of the Comparative Group is 23.5 percent compared
to a pro forma capital to asset ratio of approximately 24.3 percent for the
Bank. In light of the similar capital ratios to the Comparative Group, no
adjustment was made for this factor.
<TABLE>
<CAPTION>
- ---------------------------------------
Average Equity/Assets
- ---------------------------------------
<S> <C>
Comparative Group 23.5%
- ---------------------------------------
North Carolina Thrifts 21.9%
- ---------------------------------------
Industry 12.2%
- ---------------------------------------
Home Savings Pro Forma 24.3%
- ---------------------------------------
</TABLE>
ASSET QUALITY
In general the loan quality of all the Comparative Group is excellent
relative to the national thrift industry, reflecting the traditional nature of
the chosen thrifts. Home Savings has one significant loan problem that burdens
its asset quality. As a result, its non-performing asset to total asset ratio of
1.03 percent is nearly four times the Comparative Group average of 0.26 percent
and nearly 9 times the Comparative Group median of 0.12 percent. The Bank's
reserves to non performing and 90 day delinquent loan ratio is 60.4 percent,
less than half the Comparative Group average of 157 percent and insignificantly
higher than the Comparative Group median of 57.0 percent. In consideration of
these issues a marginal downward adjustment has been made to the Bank's pro
forma market value.
33
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------
Average NPA/Assets Reserves/NPA
- ---------------------------------------------------
<S> <C> <C>
Comparative Group 0.26% 157.4%
- ---------------------------------------------------
Industry 1.03% 113.6%
- ---------------------------------------------------
North Carolina Thrifts 0.64% 177.6%
- ---------------------------------------------------
Home Savings 1.03% 60.4%
- ---------------------------------------------------
</TABLE>
PROFITABILITY LEVELS
The Bank's interest yield spread of 2.36 percent is 32 basis points below
the Comparative Group average of 2.68 percent and 54 basis points below the
median of 2.90 percent, but its pro forma interest earning assets to interest
bearing liabilities ratio of approximately 130 percent is slightly better than
the Comparative Group average of 126 percent. The Bank's return is buoyed by one
of the industry's lowest ratios of non-interest expense to total assets of only
1.55 percent compared to the Comparative Group of 2.15 percent. As a result, the
Bank's pro forma return on average assets is approximately 0.99 percent, ten
percent below that of the Comparative Group average of 1.10 percent.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Average Spread IEA/IBL* IntExp/Assets ROAA*
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Comparative Group 2.68% 126% 2.15% 1.10%
- ----------------------------------------------------------------------
Industry 2.86% 113% 2.35% 0.86%
- ----------------------------------------------------------------------
North Carolina Thrifts 2.76% 119% 2.14% 1.02%
- ----------------------------------------------------------------------
Home Savings (*Pro Forma) 2.36% 130% 1.55% 0.99%
- ----------------------------------------------------------------------
</TABLE>
RETURN ON AVERAGE EQUITY
The Bank's pro forma return on average assets is marginally lower and its
capital to assets level is marginally higher than its Comparative Group. The
compounded result of these two ratios is a return on average equity below the
Comparative Group average of 5.44 percent and below the industry average of
8.36. Return on equity is a key determinant of shareholder value. As a result,
we have assigned a modest discount for this factor.
<TABLE>
<CAPTION>
- ------------------------------
Average ROAE
- ------------------------------
<S> <C>
Comparative Group 5.44%
- ------------------------------
Industry 8.36%
- ------------------------------
North Carolina Thrifts 6.81%
- ------------------------------
Home Savings Pro Forma 4.05%
- ------------------------------
</TABLE>
GROWTH AND PREDICTABILITY OF EARNINGS
The Bank has exhibited moderate asset and deposit growth, but negligible
loan growth, whereas the Comparative Group has maintained significant recent
loan growth. The Bank has an extremely high negative interest rate gap of
approximately 46 percent.
34
<PAGE>
[This page intentionally left blank]
<PAGE>
Of 315 public thrifts that report interest rate gap, only one thrift Washington
Federal reported a higher gap (negative 46.46 percent). No thrifts reported
positive gaps over 40 percent and the average gap was only negative 1.47
percent. The average gap for the Comparative Group was negative 13.0 percent.
Due to increasing rates and the Bank's interest rate sensitivity net interest
income has been declining over the past two years. The Bank has not established
a regular source of non-interest income to stabilize its net income. Average
non-interest income as a percent of assets is approximately 0.05 percent for the
Bank compared to an average of 0.33 percent for the Comparative Group.
The earnings of financial institutions are largely a function of changes in
non-interest income and expenses and the relative sensitivity of the
institution's assets and liabilities. As result of these factors sustained and
predictable growth in the Bank's earnings are not assured and, given the high
interest sensitivity of its lending portfolio, we have assigned a significant
downward adjustment due to these factors.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Average NonIntInc/ Loan Deposit
GAP Assets Growth Growth
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Comparative Group -13.0% 0.33% 11.6% 2.9%
- ----------------------------------------------------------------------------
Industry -1.47% 0.44% 12.6% 8.1%
- ----------------------------------------------------------------------------
North Carolina Thrifts -3.22% 0.33% 8.4% 3.6%
- ----------------------------------------------------------------------------
Home Savings -45.6% 0.05% 0.1% 10.0%
- ----------------------------------------------------------------------------
</TABLE>
DEPOSIT COMPOSITION
Approximately 20.0 percent of the Bank's deposit base (and over 25 percent
of its certificates of deposit) is comprised of jumbo ($100,000 or more)
certificates of deposit. The highest ratio of deposits to jumbo deposits in the
Comparative Group is 16.5 percent and the average ratio for the Comparative
Group is 9.6 percent. Jumbo deposits are generally considered to be more
interest sensitive than other deposits. As a result, it would generally be
expected that a significant amount of such jumbo deposits could be withdrawn
from Home Savings if higher rates were available elsewhere, or alternatively, if
interest rates increase these deposits would be most sensitive to market
changes. As a result, we have assigned a modest discount for this factor.
MANAGEMNET
The Bank is managed by James Hudson who has served as Chief Executive
Officer of the Bank since 1972. Mr. Hudson and his senior managers have
extensive tenure with the Bank. The entire staff of the Bank is well tenured and
experienced. However, a staff level of 11 only full-time employees places
significant limits on the growth that will be necessary to maintain market
oriented return average equity and limited personnel and management depth
increase the Bank's reliability on key individuals. Accordingly, we have not
adjusted market value for this factor.
35
<PAGE>
DIVIDEND PAYENMTS
The Bank has not declared its firm intention to pay a certain cash
dividend. The payment of a cash dividend in the future will be dependent upon
such factors as earnings performance, capital position, growth, and regulatory
limitations. Ten of the eleven Comparative Group institutions pay cash dividends
with an average yield of 2.87 percent. Seven of the institutions pay a yield in
excess of 3.00 percent. While the inability or unwillingness for a Bank to pay
dividends would constitute a significant negative to value, the Bank certainly
has the capacity to pay dividends and is likely to favorably consider a dividend
in the future. As a result, we believe no adjustment for this factor is
warranted.
LIQUIDITY OF THE ISSUE
The Comparative Group contains only companies that are listed by the AMSE
or NASDAQ and trade in the OTC market. The average market capitalization of
the Comparative Group is over $22 million, the median is approximately $16
million, and only three of the Comparative Group have a market capitalization in
excess of $35 million.
The trading volume of the Comparative Group is roughly half that of the
industry average. The average ratio of shares traded to shares outstanding over
a three month period was 0.81 percent for the Comparative Group and 1.49 percent
for the industry average. The actual number, and market value, of shares
traded is considerably below the industry average due to the smaller market
capitalization of the Comparative Group. As a result, the overall liquidity of
the Comparative Group, and prospectively of Home Savings, is quite low.
The Bank will apply to have the common stock of Century Bancorp, Inc.
listed on the Nasdaq SmallCap Market if it is determined that the common stock
is eligible for such quotation. In the event the common stock does not qualify
for quotation on the Nasdaq SmallCap Market the Bank intends to list the common
stock over-the-counter through the National Daily Quotation System "Pink Sheets"
and request Trident Securities to match buy and sell orders for the common
stock. Because price quotations on the Pink Sheets may not be updated or
available on a timely basis and because it is anticipated that very few shares
of the common stock of the Company will be available for sale it is anticipated
that the liquidity of this issue will be very limited which such liquidity could
be reflected in the trading price of the Stock. In addition, the offering price
of the stock of $50 reduces the number of shares outstanding and raises the
cost of standard lot sizes. As a result, of these factors it is anticipated that
the stock will lack consistent liquidity and a significant discount is assigned
for this factor.
36
<PAGE>
MARKETING OF THE ISSUE
The Bank's stock will be offered through a subscription and community
offering by Trident Securities, Inc. The overall interest in thrift
subscriptions has been varied over recent periods. In response to higher market
interest rates and higher thrift appraisals usually strong demand for thrift
conversion stock waned in the latter part of 1994 and several institutions, were
forced to pare back their proposed initial public offerings. The market revived
in 1995 and has remained moderately strong through 1996 despite an increase in
pricing ratios.
The board of Directors and executive officers of the Bank are purchasing
approximately 9 percent of the newly-issued stock. Average insider ownership for
the Comparative Group is in excess of 11 percent.
As seen in Table IV.1 below the equity bull market continued on a moderate
pace through the first half of 1996, with the DJIA increasing 9.21 percent and
the S & P 500 increasing 6.74 percent. Though thrift equities led the market
through much of 1995 they have not enjoyed similar success in 1996. The SNL All
Publicly Traded Thrift Index actually increased only 1.97 percent since the
beginning of 1996. Southeastern thrifts exhibited slightly higher appreciation
of 3.11 percent, but smaller thrifts appreciated only 1.50 percent. Southeastern
thrifts have actually depreciated over the last sixty days.
Table IV.1
SNL THRIFT INDICES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Percent Change Since
- --------------------------------------------------------------------------------------------------
5-July- 30-April- 30-Dec- 30-Dec- 30-April-96
1996 1996 1995 1994 Dec-1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
All Publicly Traded 383.9 380.3 376.5 244.7 1.97 0.95
- --------------------------------------------------------------------------------------------------
SAIF 355.6 356.1 356.8 228.0 -0.32 -0.13
- --------------------------------------------------------------------------------------------------
AMEX 133.9 134.1 137.7 105.1 -2.76 -0.15
- --------------------------------------------------------------------------------------------------
NYSE 215.8 249.9 257.6 158.5 -16.23 -13.65
- --------------------------------------------------------------------------------------------------
OTC 460.6 460.3 449.5 296.8 2.47 -0.06
- --------------------------------------------------------------------------------------------------
SE 378.6 381.8 367.2 230.1 3.11 -0.83
- --------------------------------------------------------------------------------------------------
Assets Less-than $250 m 546.5 545.1 538.4 394.9 1.50 0.25
- --------------------------------------------------------------------------------------------------
DJIA 5588 5569 5117 3834 9.21 0.34
- --------------------------------------------------------------------------------------------------
S & P 657.4 654.2 615.9 459.3 6.74 0.50
- --------------------------------------------------------------------------------------------------
</TABLE>
In order to assure successful reception of an initial public offering it is
necessary to offer the new purchaser a substantial new issue discount to offset
the many uncertainties faced by the investor as to the liquidity and future
performance of the "untested" company. Through 1996 thrift conversion prices
have "popped" an average of 11 percent on the first day of trading and generally
remained flat or declined marginally over the ensuing three months. This
appreciation is less then has historically been earned
37
<PAGE>
in thrift conversions and is probably near the minimum new issue discount
acceptable to investors.
There have been three recent conversions in North Carolina, all within
several days of each other in April. Fundamentally, all these institutions are
overcapitalized with equity to total asset ratios of 14 to 15 percent each. Home
Savings' pro forma capital to asset ratio is anticipated to be significantly
higher, approximately 24 percent, which such level would tend to depress return
on average equity and thus the price to book value ratio of the company. Each of
these institutions enjoyed a significant one day "pop". Green Street Financial
appreciated 28.8 percent the first day, Scotland Bancorp appreciated 22.5
percent, and Stone Street Bancorp appreciated 16.7 percent. Since the first day,
however, the price of Stone Street Bancorp has actually decreased such that it
is now only 13.3 percent above its offering price and the prices of Green Street
and Stone Street have increased only marginally. On average these three thrifts
"popped" an average of 21.8 percent on the first day of their offerings, but
increased less than one percent in the three months since those offerings.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
IPO Price One Day Price Current Price
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Green Street Financial $10.00 $12.875 $13.125
- ---------------------------------------------------------------------
Stone Street Bancorp $15.00 $17.50 $17.00
- ---------------------------------------------------------------------
Scotland Bancorp $10.00 $12.25 $12.375
- ---------------------------------------------------------------------
Average "Pop" Since IPO 21.8% 22.8%
- ---------------------------------------------------------------------
</TABLE>
The aftermarket performance of Home Savings is not anticipated to be as
liquid as that of these recent North Carolina thrifts. Home Savings will be a
$50 issue traded only on the pink sheets. These conversions were priced between
$10 and $15 and have traded OTC. In addition, Green Street, which exhibited the
largest one day "pop" is located in a high growth area and has been the subject
of merger speculation and has already been subject to a 13-D filing. Scotland
Bancorp had recently considered a merger conversion which the market may fairly
consider as a signal that Bank management would favorably consider a merger.
The Bank has undertaken anti-takeover provisions similar to most other
thrifts, but has taken the additional measure of declaring in its prospectus
that it "believes that it will be in the best interest of Home Savings....to
remain an independent financial institution."
As a result of these marketing considerations we have made a downward
adjustment in the valuation of Home Savings.
38
<PAGE>
Market Area
Home Savings' primary market consists primarily of the rural Davidson
County. The local economy is primarily dependent on the local furniture and
related industry. Thomasville in particular is dependent on the Thomasville
Furniture Company. Thomasville is predominately a working and middle class
community with income and median home values below the state and national
average. Local competition exists and has challenged the Bank's market share in
the county over the past several years. Accordingly a modest downward adjustment
was made for this factor.
Summary of Discounts
The table below summarizes the discounts applied to Home Savings vis-a-vis
the Comparative Group. We have made no adjustments to the Comparative Group
based on the similarity of Financial Condition, Profitability Levels, Management
Quality, and the prospect of similar Dividend Payments. However, it was
determined that the Asset Quality, Return on Average Equity, Deposit
Composition, and Market Area of Home Savings were each slightly unfavorable
relative to the Comparative Group, requiring modest discounts for each factor.
It was also determined that the equity markets, the initial public offering
markets, and the thrift conversion market were all slightly less favorable at
this time relative to the past two years when most of the Comparative Group
"went public". We have determined that the trend and risk of Home Savings'
income, as discussed in "Growth and Predictability of Earnings" above,
constituted a significant negative for the institution, requiring a discount
from the Comparative Group. Finally, we applied a discount to Home Savings based
on the considerable illiquidity of the proposed new common stock, due both to
its share price of $50.00 and its pink sheet trading, relative to the
Comparative Group.
Summary of Discounts
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Marginal
Premium No Adjustment Discount Discount
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Condition X
- -----------------------------------------------------------------------------
Asset Quality X
- -----------------------------------------------------------------------------
Profitability Levels X
- -----------------------------------------------------------------------------
Return on Equity X
- -----------------------------------------------------------------------------
Growth, Predictability X
- -----------------------------------------------------------------------------
Deposit Composition X
- -----------------------------------------------------------------------------
Management X
- -----------------------------------------------------------------------------
Dividend Payments X
- -----------------------------------------------------------------------------
Liquidity of Issue X
- -----------------------------------------------------------------------------
Marketing of Issue X
- -----------------------------------------------------------------------------
Market Area X
- -----------------------------------------------------------------------------
</TABLE>
39
<PAGE>
SECTION V
VALUATION METHODS
Valuation Method
Traditional guidelines identify three appropriate valuation methods to use
in determining the pro forma market valuation of a converting thrift;
price\earnings, price\assets and price\book value. The preferred method of
valuation is a price\earnings approach.
The true financial value of any financial asset is derived from the
earnings generated from that asset. As a result, the price\earnings method has
become accepted as the preferred and most reliable valuation method for on-going
concerns. However, given the historic volatility of interest income in financial
institutions the price\book value approach carries considerably more weight in
this industry then it does in most other industries. Finally, the franchise
value of many institutions is reflected in their deposit base and accordingly
the price\asset ratio also has added significance in considering pricing for
this industry.
Exhibit 30 presents the relevant pricing parameters for the Comparative
Group.
Price to Earnings Method
The price\earnings approach is the standard method of stock valuation and
assumes that the value of a company's stock is a function of the discounted
value of its future earnings stream.
The basis of the price\earnings approach is the subject's trailing twelve
month's earnings, often times adjusted for non-recurring or abnormal expenses or
gains. The standard measurement of adjusted earnings in the thrift industry is
"core" earnings which is based on reported earnings adjusted for losses or gains
on sale of assets, extra-ordinary income and other non-recurring events. The
trailing twelve months reported net income after taxes for Home Savings was $664
thousand as of March 31, 1996. The Bank's core earnings is essentially the same
amount so that this figure is used for our calculations.
The subject's earnings base is then multiplied by a price\earnings ratio to
determine the subject valuation. In determining the appropriate price\earnings
ratio we reviewed the ratios of all publicly traded thrift institutions and
those of Comparative Group in particular. The price\reported earnings ratios of
the Comparative Group ranged from a low of 9.6 for Bedford Bancshares to a high
of 25.8 for Harrodsburgh First Financial. The average ratio was 18.2 and the
median was 17.9. The average price\earnings ratio for all publicly traded
thrifts was 16.2 and the median was 13.4.
40
<PAGE>
For the most part, core earnings of the Comparative Group, as reported,
parallel their reported earnings. The lowest price\core earnings ratio was 13.4
for KS Bancorp, Inc. and the highest was 21.7 for Gateway Bancorp. The average
price\core earnings ratio was 17.4 and the median ratio was and the median
ratio was 18.8.
Based on the above analysis we have determined that the appropriate
price\earnings ratio for Home Savings is 15.0 which, when multiplied by the
Bank's pro forma earnings (adjusted to reflect earnings on net conversion
proceeds) of $901,598, yields a pro forma market valuation of $13,500,000 at
the midpoint. The price\earnings multiplies range from a low of 13.3 at the
minimum of the offering range to 16.5 at the maximum and 18.2 at the super
maximum of the offering range.
Price to Book Value Method
Historically, the financial markets have placed significant weight on
price\book value methods for valuing financial institutions. As thrifts
diversify it is becoming more apparent that the real earnings power of each
bank's book value (return on equity) can vary significantly depending on the
risk and return of these particular assets, thereby shifting emphasis away from
the price\book value method towards more traditional price\earnings methods. As
a consequence, our valuation has been heavily weighted towards the latter
valuation method. Nevertheless, this valuation approach retains significance for
this industry.
The basis of the price\book value approach is the subject's current GAAP or
tangible book value. At March 31, 1996 the Bank's GAAP book value was $11.136
million.
The subject's book value is then multiplied by a price\book value ratio in
order to arrive at the subject valuation. In determining the appropriate price\
book value ratio we reviewed the ratios of all publicly traded thrift
institutions and those of Comparative Group in particular. The price\GAAP book
value ratios of the Comparative Group ranged from a low of 71.5 percent for
Classic Bancshares to a high of 106.5 percent for Harrodsburgh First. The median
ratio was 91.0 percent and the average ratio was 90.6 percent. Given the low
level of intangibles in the Comparative Group the price to tangible book value
ratios were nearly identical to the GAAP to book value ratios. The average
price\book value ratio for all publicly traded thrifts was 108.6 percent and the
median ratio was 103.8 percent.
Based on the above analysis we have determined that the appropriate
price\book value ratio for Home Savings is 61 percent, which generally reflects
the Bank's high capitalization, lower return to capital and a "new issue"
discount. Based on adjustments to historical book value for proceeds, expenses,
and incentive plans, which would increase the Bank's pro forma book value to
$22,266,600 at the midpoint, we have
41
<PAGE>
determined that the pro forma market value of Home Savings based on the
price\earnings approach is $13,500,000.
The price\book value multiplies range from 56 percent at the minimum of the
offering range to 65 percent at the maximum and 69 percent at the super maximum
of the offering range.
Price to Assets Method
The price to assets ratio of the Comparative Group range from 13.5 percent
for KS Bancorp, Inc to 33.1 percent for Harrodsburgh First Financial. The
average price\asset ratio of the Comparative Group is 21.7 percent and the
median ratio is 20.1 percent. The average price\asset ratio for all publicly
traded thrifts is 12.5 and the median pricing ratio is 10.9. While thrift
pricing methodology gives significantly more weight to the price\asset ratio
than do other industries neither the market nor this valuation give it
significant weighting relative to their pricing methodologies.
We have used a price\asset ratio of 14.8 percent to develop the pro forma
market value of the Bank. At the minimum of the offering range the price to
asset ratio is 12.8 percent, at the maximum it is 16.7 percent and at the super
maximum it is 18.7 percent.
Valuation Conclusion
Exhibit 34 provides a summary of the valuation premium or discount for each
of the valuation ranges when compared to the Comparative Group on each of the
valuation approaches. Despite the negative trend to and considerable risk
inherent in the Bank's earnings stream the price to earnings multiple for Home
Savings at the midpoint value indicates a discount of only 17 percent to the
average and median of the Comparative Group. At the super maximum the pro forma
price to earnings ratio of Home Savings represents a premium of 0.2 to 1.3
percent to the Comparative Group.
At the midpoint value, the price to book value ratio of 60.6 percent for
Home Savings represents a discount of 33 percent relative to the average and
median ratios of the Comparative Group. The price to book value discount for
Home Savings relative to the Comparative Group decreases to 24 percent at the
super maximum. The price to earnings multiple for Home Savings at the midpoint
value indicates a smaller discount of 17 percent to the average and median of
the Comparative Group and premiums of 0.2 to 1.3 percent at the super maximum.
The price to assets ratio at the midpoint represents a discount of 32 percent to
the Comparative Group average and 28 percent to the Comparative Group median.
These discounts reduce to 14 and 9 percent respectively at the super maximum.
42
<PAGE>
It is therefore our opinion that as of July 8, 1996 the estimated pro forma
market value of Home Savings' to-be-issued common stock was $13,500,000. This
represents 270,000 shares of common stock at $50.00 per share. The resultant
valuation range is $11,475,000 to $15,525,000 and $17,853,750 at the super
maximum.
43
<PAGE>
EXHIBITS
45
<PAGE>
List of Exhibits
<TABLE>
<CAPTION>
Exhibit #
<S> <C>
1. Market Area Map
2. Audited Financial Statements
3. Selected Consolidated Financial and Operations Data
4. Selected Consolidated Financial Ratios and Other Data
5. Interest Rate GAP Analysis
6. Market Value of Portfolio Equity
7. Yield and Cost Trends
8. Volume\Rate Analysis
9. Loan Portfolio Composition
10. Loan Portfolio Maturity Schedule
11. Loan Originations, Purchases, Sales, and Repayments
12. Non-performing Assets
13. Charge-offs and Recoveries
14. Distribution of Loss Allowances
15. Composition of Securities Portfolio
16. Maturity Schedule and Yield Analysis, Securities
17. Flow of Deposits
18. Composition of Securities Portfolio
19. Maturity Schedule, Certificates of Deposit
20. All Publicly Traded Thrifts - Market and Financial Information
21. Comparative Group - General Data
22. Comparative Group - Financial Performance
23. Comparative Group - Capital Ratios
24. Comparative Group - Loan Portfolio Composition
25. Comparative Group - Balance Sheet Ratios
26. Comparative Group - Growth Rates
27. Comparative Group - Asset and Risk Ratios
28. Comparative Group - Yield-Cost Spread Analysis
29. Comparative Group - Capital Market Issues
</TABLE>
<PAGE>
List of Exhibits (continued)
<TABLE>
<S> <C>
30. Comparative Group - Pricing Ratios
31. Recently Converted Thrifts
32. Pro Forma Analysis
33. Pro Forma Effect of Conversion Proceeds
34. Summary of Valuation Premium or Discount
</TABLE>
Appendix
JMP Financial, Inc. -- Background and Qualifications
<PAGE>
Exhibit 1
Market Area Map
46
<PAGE>
Home Savings Bank, SSB
Thomasville, North Carolina
[MAP OF NORTH CAROLINA APPEARS HERE]
[MAP OF THOMASVILLE, DAVIDSON COUNTY APPEARS HERE]
<PAGE>
Exhibit 2
Audited Financial Statements
47
<PAGE>
=============================
Index to Financial Statements
of Home Savings, SSB
=============================
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Independent Auditors' Report F-1
Financial Statements
Statements of Financial Condition at
June 30, 1995 and 1994 F-2
Statements of Operations for the Years Ended
June 30, 1995, 1994 and 1993 F-3
Statements of Retained Earnings for the Years
Ended June 30, 1995, 1994 and 1993 F-4
Statements of Cash Flows for the Years Ended
June 30, 1995, 1994 and 1993 F-5
Notes to Financial Statements for the Years
Ended June 30, 1995, 1994 and 1993 F-7
Statements of Financial Condition at
March 31, 1996 and 1995 (Unaudited) F-21
Statements of Operations for the Nine Months
Ended March 31, 1996 and 1995 (Unaudited) F-22
Statements of Retained Earnings for the Nine Months
Ended March 31, 1996 and 1995 (Unaudited) F-23
Statements of Cash Flows for the Nine Months Ended
March 31, 1996 and 1995 (Unaudited) F-24
Notes to Financial Statements for the Nine Months
Ended March 31, 1996 and 1995 (Unaudited) F-26
</TABLE>
<PAGE>
[LETTERHEAD OF DIXON, ODOM & CO., L.L.P.
CERTIFIED PUBLIC ACCOUNTANTS APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Home Savings, SSB
Thomasville, North Carolina
We have audited the accompanying statements of financial condition of Home
Savings, SSB as of June 30, 1995 and 1994 and the related statements of
operations, retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Home Savings, SSB at June 30,
1995 and 1994, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
As discussed in Note A to the financial statements, on July 1, 1994, the Bank
changed its method of accounting for investment securities to adopt the
provisions of Statement of Financial Accounting Standards No. 115.
/s/ Dixon, Odom & Co., L.L.P.
High Point, North Carolina
July 21, 1995, except for Note L,
as to which the date is May 7, 1996
1829 Eastchester Drive
[LOGO OF MOORES --------- P.O. Box 2646
ROWLAND INTERNATIONAL Page F-1 High Point, NC 27261-2646
APPEARS HERE] 910-889-5156, Fax 910-889-6168
<PAGE>
- ---------------------------------
HOME SAVINGS, SSB
STATEMENTS OF FINANCIAL CONDITION
June 30, 1995 and 1994
- ---------------------------------
<TABLE>
<CAPTION>
ASSETS 1995 1994
----------- -----------
<S> <C> <C>
Cash on hand and in banks $ 1,172,327 $ 639,968
Interest-bearing balances in other banks 4,441,361 1,503,550
Investment securities available for sale, at fair
value (amortized cost of $8,485,774) (Note B) 8,664,147 -
Investment securities held to maturity, at amortized
cost (fair value of $5,165,480 and $15,739,201 at
June 30, 1995 and 1994, respectively) (Note B) 5,133,282 15,894,829
Loans receivable, net (Note C) 54,019,888 53,801,866
Accrued interest receivable 508,978 486,047
Premises and equipment, net (Note D) 758,851 771,500
Stock in the Federal Home Loan Bank of Atlanta,
at cost 613,700 613,700
Foreclosed real estate 71,002 110,500
Other assets 123,986 21,129
----------- -----------
$75,507,522 $73,843,089
=========== ===========
</TABLE>
LIABILITIES AND RETAINED EARNINGS
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
Deposit accounts (Note F) $64,448,183 $63,937,046
Accrued interest payable 103,543 72,243
Advance payment by borrowers for property taxes
and insurance 99,976 72,679
Deferred income taxes 23,132 -
Accrued expenses and other liabilities 192,768 150,849
----------- -----------
TOTAL LIABILITIES 64,867,602 64,232,817
Commitments and contingencies (Notes C and K)
Retained earnings - substantially restricted
(Notes I and J) 10,639,920 9,610,272
----------- -----------
$75,507,522 $73,843,089
=========== ===========
</TABLE>
See accompanying notes. Page F-2
- --------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------
HOME SAVINGS, SSB
STATEMENTS OF OPERATIONS
Years Ended June 30, 1995, 1994 and 1993
- ----------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Loans $4,409,784 $4,485,940 $4,695,057
Investments and deposits in other banks 961,373 851,388 706,712
---------- ---------- ----------
TOTAL INTEREST INCOME 5,371,157 5,337,328 5,401,769
INTEREST EXPENSE ON DEPOSIT
ACCOUNTS (Note F) 2,788,018 2,487,128 2,736,412
---------- ---------- ----------
NET INTEREST INCOME 2,583,139 2,850,200 2,665,357
PROVISION FOR LOAN LOSSES (Note C) 105,000 114,274 165,351
---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,478,139 2,735,926 2,500,006
---------- ---------- ----------
OTHER INCOME (EXPENSES)
Service charges and other fees 31,776 35,491 49,004
Loss on sale of investments (36,735) (5,194) -
Gain (loss) on sale of foreclosed real
estate 1,656 6,948 (10,940)
Other 18,357 3,238 1,800
---------- ---------- ----------
15,054 40,483 39,864
---------- ---------- ----------
TOTAL INCOME 2,493,193 2,776,409 2,539,870
---------- ---------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES
Compensation and benefits 503,094 449,614 394,045
Occupancy 84,694 85,358 69,693
Data processing expenses 87,400 87,540 87,739
Federal deposit insurance premiums 145,201 144,454 109,754
Other expenses 158,988 143,472 171,415
---------- ---------- ----------
TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES 979,377 910,438 832,646
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,513,816 1,865,971 1,707,224
INCOME TAXES (Note I) 592,600 694,300 638,700
---------- ---------- ----------
NET INCOME $ 921,216 $1,171,671 $1,068,524
========== ========== ==========
</TABLE>
See accompanying notes. Page F-3
- --------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------
HOME SAVINGS, SSB
STATEMENTS OF RETAINED EARNINGS
Years Ended June 30, 1995, 1994 and 1993
- ----------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE, BEGINNING $ 9,610,272 $8,438,601 $7,370,077
Initial effect of adoption of
accounting change, net of deferred
income tax assets of $104,511
(Note B) (202,874) - -
Unrealized gain on available for sale
securities, net of deferred income tax
liabilities of $174,452
(Note B) 311,306 - -
Net income 921,216 1,171,671 1,068,524
----------- ---------- ----------
BALANCE, ENDING $10,639,920 $9,610,272 $8,438,601
=========== ========== ==========
</TABLE>
See accompanying notes. Page F-4
- --------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------
HOME SAVINGS, SSB
STATEMENTS OF CASH FLOWS
Years Ended June 30, 1995, 1994 and 1993
- ----------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 921,216 $ 1,171,671 $ 1,068,524
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 35,661 44,668 45,876
Deferred income taxes (38,469) (73,738) 18,169
Deferred compensation 25,000 25,000 25,000
Amortization of discounts and
premiums on securities 49,382 (58,019) 9,175
Provision for loan losses 105,000 114,274 165,351
Loss on sale of investment securities 36,735 5,194 -
(Gain) loss on sale of real estate
acquired in foreclosure (1,656) (6,948) 10,940
Loss on disposal of fixed assets - 830 -
Stock dividends from Federal Home
Loan Bank - (23,900) (25,000)
Change in assets and liabilities
Increase in accrued interest
receivable (22,931) (15,761) (70,248)
(Increase) decrease in income tax
refunds receivable (71,641) 27,340 (27,340)
(Increase) decrease in prepaid
expenses and other assets (39,385) 4,180 (301)
Increase in accrued interest on
savings accounts 31,300 23,178 1,833
Increase (decrease) in other
liabilities 16,919 7,278 (139,454)
----------- ----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,047,131 1,245,247 1,082,525
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of held to maturity
investment securities (1,426,310) (9,498,855) (6,368,611)
Proceeds from sales and maturities of
held to maturity investment securities 3,653,295 4,587,334 1,880,481
Purchases of available for sale
investment securities (2,500,000) - -
Proceeds from sales and maturities of
available for sale
investment securities 2,462,500 - -
Net increase in long-term loans to
customers (348,024) (491,978) (3,635,479)
Proceeds from sale of real estate
acquired in foreclosure 66,156 154,374 24,060
Purchases of fixed assets (23,012) (14,462) (51,709)
----------- ----------- -----------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 1,884,605 (5,263,587) (8,151,258)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand
deposits (2,868,840) 175,479 3,139,130
Net increase in certificate accounts 3,379,977 1,632,126 785,084
Increase in advances from borrowers 27,297 9,627 19,451
----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 538,434 1,817,232 3,943,665
----------- ----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 3,470,170 (2,201,108) (3,125,068)
CASH AND CASH EQUIVALENTS,
BEGINNING 2,143,518 4,344,626 7,469,694
----------- ----------- -----------
CASH AND CASH
EQUIVALENTS, ENDING $ 5,613,688 $ 2,143,518 $ 4,344,626
=========== =========== ===========
</TABLE>
See accompanying notes. Page F-5
- --------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------
HOME SAVINGS, SSB
STATEMENTS OF CASH FLOWS
Years Ended June 30, 1995, 1994 and 1993
- ----------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $2,756,718 $2,463,950 $2,734,579
========== ========== ==========
Income taxes $ 718,925 $ 724,652 $ 800,533
========== ========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES
Loans receivable transferred to real
estate acquired in settlement
of loans $ 25,002 $ 163,611 $ 55,792
========== ========== ==========
Unrealized gain on investment
securities available for sale, net
of deferred income tax of $69,941 $ 108,432 $ - $ -
========== ========== ==========
</TABLE>
See accompanying notes. Page F-6
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Home Savings, SSB (the Bank) conform to
generally accepted accounting principles and to general practice within the
savings bank industry. The following is a description of the more significant
accounting and reporting policies that the Bank follows in preparing its
financial statements.
Organization and Operations
- ---------------------------
Home Savings, SSB was chartered by the State of North Carolina in 1915. The
Bank maintains offices and conducts its primary business in Thomasville,
Davidson County, North Carolina. The Bank primarily engages in attracting
savings deposits from the general public and uses the funds to originate loans
for the purchase, financing or improvement of residential real estate. The Bank
also makes loans secured by deposit accounts, commercial real estate and
consumer products.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include cash on hand and in banks and interest-bearing
balances in other banks with original maturities of three months or less.
Investments and Mortgage-Backed Securities
- ------------------------------------------
The Bank adopted the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS No. 115"), as of July 1, 1994. Under SFAS No. 115, management determines
the appropriate classification of investments and mortgage-backed securities at
the time of purchase and reevaluates such designation at each reporting date.
Securities are classified as held-to-maturity when the Bank has both the
positive intent and ability to hold the securities to maturity. Held-to-
maturity securities are stated at amortized cost. Securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-sale
securities are stated at fair value, with the unrealized gains and losses, net
of tax, reported in a separate component of retained earnings. The Bank has no
trading securities.
The amortized cost of securities classified as held-to-maturity or available-
for-sale is adjusted for amortization of premiums and accretion of discounts to
maturity, or in the case of mortgage-backed securities, over the estimated life
of the security. Such amortization is included in interest income from
investments. Interest and dividends are included in interest income from
investments. Realized gains and losses, and declines in value judged to be
other-than-temporary are included in net securities gains (losses). The cost of
securities sold is based on the specific identification method.
Prior to the adoption of SFAS No. 115, the Bank stated its debt securities at
amortized cost and its marketable equity securities (mutual funds) at the lower
of aggregate cost or market. Accumulated changes in net unrealized losses on
marketable equity securities were included in retained earnings.
Note B to the financial statements provides further information about the effect
of adopting SFAS No. 115.
Page F-7
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans Receivable
- ----------------
Loans receivable are carried at their principal amount outstanding, net of
deferred loan origination fees.
Interest on loans is recorded as borrowers' monthly payments become due.
Accrual of interest income on loans is suspended when, in management's judgment,
doubts exist as to the collectibility of principal and interest. Loans are
returned to accrual status when management determines, based on an evaluation of
the underlying collateral together with the borrower's payment record and
financial condition, that the borrower has the capability and intent to meet the
contractual obligations of the loan agreement.
Loan fees are accounted for in accordance with Statement of Financial Accounting
Standards No. 91. Loan origination fees and certain direct loan origination
costs are being deferred and the net amount amortized as an adjustment of the
related loans' yield over the contractual life of the related loans using a
level-yield method. Unamortized net loan fees or costs on loans sold are
recorded as gain or loss on sale in the year of disposition.
Allowance for Loan Losses
- -------------------------
The Bank provides for loan losses on the allowance method. Accordingly, all
loan losses are charged to the related allowance and all recoveries are credited
to it. Additions to the allowance for loan losses are provided by charges to
operations based on various factors which, in management's judgment, deserve
current recognition in estimating possible losses. Such factors considered by
management include the market value of the underlying collateral, growth and
composition of the loan portfolio, the relationship of the allowance for loan
losses to outstanding loans, delinquency trends, and economic conditions.
Management evaluates the carrying value of loans periodically and the allowance
is adjusted accordingly. While management uses the best information available
to make evaluations, future adjustments to the allowance may be necessary if
conditions differ substantially from the assumptions used in making the
evaluations.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses.
Such agencies may require the Bank to recognize additions to the allowance based
on their judgments of information available to them at the time of their
examination.
Premises and Equipment
- ----------------------
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation of premises and equipment is recorded on a straight-line basis over
the estimated useful lives of the related assets.
Page F-8
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Premises and Equipment (Continued)
- ---------------------------------
Expenditures for maintenance and repairs are charged to expense as incurred,
while those for improvements are capitalized. The costs and accumulated
depreciation relating to premises and equipment retired or otherwise disposed of
are eliminated from the accounts, and any resulting gains or losses are credited
or charged to earnings.
Investment in Federal Home Loan Bank Stock
- ------------------------------------------
As a requirement for membership, the Bank invests in stock of the Federal Home
Loan Bank of Atlanta (FHLB) in the amount of 1% of its outstanding residential
loans or 5% of its outstanding advances from the FHLB, whichever is greater. At
June 30, 1995, the Bank owned 6,137 shares of the FHLB's $100 par value capital
stock.
Real Estate Acquired In Settlement of Loans
- -------------------------------------------
Real estate acquired in settlement of loans represents real estate acquired
through foreclosure or deed in lieu thereof and is initially recorded at the
lower of cost (principal balance of the former mortgage loan) or estimated fair
value. Management evaluates the carrying value of real estate acquired in
settlement of loans periodically and carrying values are reduced when they
exceed net realizable value. Costs relating to the development and improvement
of property are capitalized, whereas those costs relating to holding the
property are charged to expense.
Income Taxes
- ------------
During the year ended June 30, 1994, the Bank adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No. 109").
Under SFAS No. 109, deferred income taxes or benefits are provided on temporary
differences between the financial statement carrying values and the tax bases of
assets and liabilities. The cumulative effect of this change in accounting
principle is not significant and is included in determining net income for the
year ended June 30, 1994. Financial statements for prior years have not been
restated. For prior years, the provision for income taxes was based on income
and expenses included in the statements of operations, with differences between
taxes so computed and taxes payable under applicable statutes and regulations
classified as deferred taxes arising from timing differences.
Retirement Plan
- ---------------
The Bank has a noncontributory defined contribution retirement plan covering
substantially all of its employees. The Bank's policy is to fund retirement
plan contributions as accrued.
Page F-9
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
New Accounting Pronouncements
- -----------------------------
The FASB has issued SFAS No. 107, "Disclosure about Fair Value of Financial
Instruments." SFAS No. 107 requires disclosures in financial statements of the
fair value of all financial instruments, including assets and liabilities both
on- and off-balance sheet, for which it is practicable to estimate such fair
value. Descriptive information pertinent to estimating the value of financial
instruments for which it is not practicable to estimate fair value would also be
required. Since the Bank's total assets were less than $150 million at June 30,
1993, adoption of SFAS No. 107 will not be required until the year ending June
30, 1996.
The FASB has issued SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," which requires that creditors value all loans for which it is probable
that the creditor will be unable to collect all amounts due according to the
terms of the loan agreement based on the discounted expected future cash flows.
This discounting would be at the loan's effective interest rate. The income
recognition provisions of SFAS No. 114 have subsequently been amended by SFAS
No. 118, which permits companies to continue using existing income recognition
policies with respect to impaired loans upon adopting SFAS No. 114. SFAS No.
114 and SFAS No. 118 apply prospectively for fiscal years beginning after
December 15, 1994. Management does not expect that adoption of SFAS No. 114 and
SFAS No. 118 will have a material impact on the Bank's financial statements.
The FASB has issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
evaluating recoverability, if estimated future cash flows, undiscounted and
without interest charges, are less than the carrying amount of the asset, an
impairment loss is recognized. SFAS No. 121 also requires that certain long-
lived assets and certain identifiable intangibles to be disposed of be reported
at the lower of carrying amount or fair value less cost to sell. SFAS No. 121
applies prospectively for fiscal years beginning after December 15, 1995.
Management does not expect that adoption of SFAS No. 121 will have a material
impact on the Bank financial statements.
Page F-10
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (Continued)
New Accounting Pronouncements (Continued)
- ----------------------------------------
The FASB has also issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights," an amendment of FASB Statement No. 65, which provides guidance for the
capitalization of originated as well as purchased mortgage servicing rights and
the measurement of impairment of those rights. SFAS No. 122 requires that an
entity recognize as separate assets the rights to service mortgage loans for
others, however those servicing rights are acquired. SFAS No. 122 also requires
that an entity assess its capitalized mortgage servicing rights for impairment
based on the fair value of those rights. It should stratify its mortgage
servicing rights based on one or more predominant risk characteristics of the
underlying loans, and recognize impairment through a valuation allowance for
each impaired stratum. SFAS No. 122 applies prospectively for fiscal years
beginning after December 15, 1995. Management has not assessed the impact that
adoption of SFAS No. 122 will have on the Bank's financial statements.
NOTE B - INVESTMENT SECURITIES
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 115 ("SFAS No. 115"), "Accounting for Certain
Investments in Debt and Equity Securities." This statement addresses the
accounting and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. These
investments are to be classified in three categories and accounted for as
follows: (1) debt securities that the entity has the positive intent and
ability to hold to maturity are classified as held-to-maturity and reported at
amortized cost; (2) debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are classified as
trading securities and reported at fair value, with net unrealized gains and
losses included in earnings; and (3) debt and equity securities not classified
as either held-to-maturity or trading securities are classified as securities
available-for-sale and reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of retained
earnings.
The Bank adopted SFAS No. 115 on July 1, 1994. The adoption affected only the
held-to-maturity and available-for-sale classifications, with the net unrealized
securities losses on the securities available-for-sale of $202,874, net of
deferred tax assets of $104,511, reported as a separate decrease in retained
earnings. The adoption had no effect on previously reported net income. The
Bank has no trading securities.
Page F-11
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE B - INVESTMENT SECURITIES (Continued)
The following is a summary of the securities portfolios by major classification:
<TABLE>
<CAPTION>
June 30, 1995
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Securities
available-for-sale:
U. S. government securities
and obligations of U. S.
government agencies $ 6,017,028 $ 4,357 $ - $ 6,021,385
Mortgage-backed securities 2,454,294 314 65,534 2,389,074
Equity securities 14,452 239,236 - 253,688
----------- -------- -------- -----------
$ 8,485,774 $243,907 $ 65,534 $ 8,664,147
=========== ======== ======== ===========
Securities held-to-maturity:
U. S. government securities
and obligations of U. S.
government agencies $ 4,756,312 $ 12,500 $ 15,234 $ 4,753,578
Municipal bonds 376,970 34,932 - 411,902
----------- -------- -------- -----------
$ 5,133,282 $ 47,432 $ 15,234 $ 5,165,480
=========== ======== ======== ===========
June 30, 1995
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -------------
Securities held-to-maturity:
U. S. government securities
and obligations of U. S.
government agencies $13,058,957 $ 4,517 $177,459 $12,886,015
Mortgage-backed securities 2,821,420 1,740 193,219 2,629,941
Equity securities 14,452 208,793 - 223,245
----------- -------- -------- -----------
$15,894,829 $215,050 $370,678 $15,739,201
=========== ======== ======== ===========
</TABLE>
The amortized cost and fair values of debt securities available for
sale and held to maturity at June 30, 1995 by contractual maturity are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
Securities Available for Securities Held to
Sale Maturity
------------------------- ------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due within one year $ 2,508,513 $ 2,499,200 $ 1,249,516 $ 1,238,447
Due after one year through
five years 3,508,515 3,522,185 3,506,796 3,515,131
Due after ten years - - 376,970 411,902
Mortgage-backed securities 2,454,294 2,389,074 - -
------------ ----------- ----------- -----------
$ 8,471,322 $ 8,410,459 $ 5,133,282 $ 5,165,480
============ =========== =========== ===========
</TABLE>
Page F-12
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE B - INVESTMENT SECURITIES (Continued)
The accounting change relating to investment securities which the Bank adopted
on July 1, 1994 is discussed in Note A. The change in unrealized gain/loss on
investment securities available for sale during the year ended June 30, 1995,
including the related effects on deferred income taxes and retained earnings,
follows:
<TABLE>
<CAPTION>
Deferred Increase
Unrealized Income (Decrease)
Holding Tax Asset in Retained
Gain (Loss) (Liability) Earnings
----------- ----------- ------------
<S> <C> <C> <C>
Initial effect of adoption of
accounting change $ (307,385) $ 104,511 $ (202,874)
Unrealized appreciation on
available-for-sale
securities during the year 485,758 (174,452) 311,306
---------- ---------- -----------
$ 178,373 $ (69,941) $ 108,432
========== ========== ===========
</TABLE>
Proceeds from sales and maturities of investment securities available for sale
during the year ended June 30, 1995 were $2,462,500. Gross losses of $36,735
were realized on those sales.
Proceeds from maturities of investments securities held to maturity during the
year ended June 30, 1995 were $3,300,000.
During the year ended June 30, 1994, the Bank sold securities for total proceeds
of $494,806, resulting in gross realized losses of $5,194.
Securities with a carrying value of $2,816,841 and $3,348,461 and a fair value
of $2,813,094 and $3,313,862 at June 30, 1995 and 1994, respectively, were
pledged to secure public monies on deposit as required by law.
Page F-13
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE C - LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Type of loan:
Real estate loans:
One-to-four family residential $41,006,594 $41,082,273
Multi-family residential and commercial 10,039,100 9,990,052
Construction 3,110,600 3,607,700
Home equity lines of credit 1,135,685 923,990
----------- -----------
Total real estate loans 55,291,979 55,604,015
----------- -----------
Other loans:
Consumer loans 335,052 557,102
Loans secured by deposits 252,013 358,051
----------- -----------
Total other loans 587,065 915,153
----------- -----------
Total loans 55,879,044 56,519,168
Less:
Construction loans in process 1,214,802 2,178,193
Net deferred loan fees 243,307 244,547
Allowance for loan losses 401,047 294,562
----------- -----------
$54,019,888 $53,801,866
=========== ===========
</TABLE>
The allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of
year $ 294,562 $ 198,362 $ 94,861
Provision for loan losses 105,000 114,274 165,351
Charge-offs - (104,176) (61,850)
Recoveries 1,485 86,102 -
---------- ----------- ----------
Balance at end of year $ 401,047 $ 294,562 $ 198,362
========== =========== ==========
</TABLE>
At June 30, 1995, the Bank had mortgage loan commitments outstanding of $782,000
and pre-approved but unused lines of credit totaling $464,500. In management's
opinion, these commitments, and undisbursed proceeds on construction loans in
process reflected above, represent no more than normal lending risk to the Bank
and will be funded from normal sources of liquidity.
Page F-14
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE D - PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Land $ 61,703 $ 61,703
Building and improvements 735,416 735,416
Office furniture, fixtures and equipment 212,122 211,143
Automotive equipment 24,475 24,475
----------- -----------
1,033,716 1,032,737
Accumulated depreciation (274,865) (261,237)
----------- -----------
$ 758,851 $ 771,500
=========== ===========
</TABLE>
NOTE E - FEDERAL INSURANCE OF DEPOSITS
Eligible deposit accounts are insured up to $100,000 by the Federal Deposit
Insurance Corporation.
NOTE F - DEPOSIT ACCOUNTS
A comparative summary of deposit accounts at June 30, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
------------------------ -------------------------
Weighted Weighted
Balance Avg. Rate Balance Avg. Rate
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Demand deposits:
Negotiable orders of withdrawal $ 1,885,180 2.75% $ 1,973,113 2.75%
Passbook and statement accounts 5,248,439 3.00 5,659,674 3.15
Money market checking 10,497,681 3.68 13,059,701 3.33
Non-interest-bearing checking 298,963 - 106,615 -
----------- -----------
17,930,263 3.32 20,799,103 3.21
Certificates of deposit 46,517,920 5.69 43,137,943 4.23
----------- -----------
Total deposit accounts $64,448,183 5.03% $63,937,046 3.90%
=========== ===========
</TABLE>
A summary of certificate accounts by maturity as of June 30, 1995 follows:
<TABLE>
<CAPTION>
Less than $100,000
$100,000 or More Total
----------- ----------- -----------
<S> <C> <C> <C>
July 1, 1995 - June 30, 1996 $29,104,884 $11,263,900 $40,368,784
July 1, 1996 - June 30, 1997 5,346,846 201,104 5,547,950
July 1, 1997 - June 30, 1998 601,186 - 601,186
----------- ----------- -----------
Total certificate accounts $35,052,916 $11,465,004 $46,517,920
=========== =========== ===========
</TABLE>
Page F-15
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE F - DEPOSIT ACCOUNTS (Continued)
Interest expense on deposits for the years ended June 30 is summarized as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Passbook accounts $ 160,155 $ 175,542 $ 191,499
NOW accounts 46,579 44,102 39,794
Money market accounts 429,681 462,896 507,058
Certificates of deposit 2,157,269 1,810,072 2,002,426
---------- ---------- ----------
2,793,684 2,492,612 2,740,777
Penalties for early withdrawal 5,666 5,484 4,365
---------- ---------- ----------
$2,788,018 $2,487,128 $2,736,412
========== ========== ==========
</TABLE>
NOTE G - PENSION PLAN
The Bank established a pension plan for the benefit of its employees on
March 1, 1973. The pension plan covers all full-time employees who have
completed five months continuous service with the Bank. The plan is funded by
the purchase of level premium insurance policies and an annual contribution to
an auxiliary fund. The pension cost for the years ended June 30, 1995, 1994
and 1993 was $43,721, $39,069 and $13,023, respectively.
A comparison of accumulated plan benefits and plan net assets as of the most
recent plan valuation dates (March 1, 1995 and 1994) is presented below:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Actuarial present value of accumulated plan benefits
Vested $289,384 $307,402
Nonvested 2,729 6,159
-------- --------
$292,113 $313,561
======== ========
Net assets available for plan benefits $252,597 $180,567
======== ========
</TABLE>
The weighted average assumed rate of return used in determining the actuarial
present value of accumulated plan benefits was 7% in 1995 and 4% in 1994.
Page F-18
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE H - DEFERRED COMPENSATION
The Bank has a deferred compensation plan for its executive officer. The plan
provides benefits upon disability, death or attainment of a certain age. The
Bank has made current provision for future payments under this plan, and the
related liability and deferred income tax benefits are included in the
accompanying consolidated financial statements. Expenses associated with this
plan were $25,000 for each of the years ended June 30, 1995, 1994 and 1993.
NOTE I - INCOME TAXES
During the year ended June 30, 1994, the Bank adopted SFAS No. 109, "Accounting
for Income Taxes." The cumulative effect of the change in accounting principle
is included in determining net income for the year ended June 30, 1994 and is
not significant. Financial statements for prior years have not been restated.
Prior to the year ended June 30, 1994, the provision for income taxes was based
on income and expenses included in the statements of operations, with
differences between taxes so computed and taxes payable under applicable
statutes and regulations classified as deferred taxes arising from timing
differences (the deferred method as required by the American Institute of
Certified Public Accountants Accounting Principles Board Opinion No. 11). SFAS
No. 109 requires the use of the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of temporary differences, by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax bases of existing assets
and liabilities. Temporary differences giving rise to deferred taxes relate to
property and equipment, deferred loan fees and costs, FHLB of Atlanta stock
dividends, deferred compensation, bad debt reserves, and unrealized gains
(losses) on investment securities available for sale.
The components of income tax expense are as follows for the years ended
June 30, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Current tax expense $ 631,069 $ 768,038 $ 620,531
---------- ---------- ----------
Deferred tax expense (benefit)
Tax on temporary differences 31,472 (73,738) 18,169
Less tax on unrealized gain on
investment
securities available for sale
allocated
directly to retained earnings (69,941) - -
---------- ---------- ----------
Net deferred tax benefit
included in operations (38,469) (73,738) 18,169
---------- ---------- ----------
$ 592,600 $ 694,300 $ 638,700
========== ========== ==========
</TABLE>
Page F-17
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE I - INCOME TAXES (Continued)
The differences between the provision for income taxes and the amount computed
by applying the statutory federal income tax rate to income before income taxes
were as follows for the years ended June 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Income tax at federal statutory rate $ 515,000 $ 634,000 $ 580,000
State income tax, net of federal tax
benefit 46,000 60,300 50,000
Other 31,600 - 8,700
---------- ---------- ----------
$ 592,600 $ 694,300 $ 638,700
========== ========== ==========
</TABLE>
Deferred tax assets and liabilities arising from temporary differences at June
30, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets relating to:
Loan fees and costs $ 74,013 $ 95,373
Deferred compensation 58,000 48,000
Bad debt reserves 38,659 -
---------- ----------
Gross deferred tax assets 170,672 143,373
Valuation allowance - -
---------- ----------
Net deferred tax assets 170,672 143,373
---------- ----------
Deferred tax liabilities relating to:
Bad debt reserves - (22,681)
Property and equipment (19,031) (7,691)
FHLB stock dividends (104,832) (104,832)
Net unrealized gain on securities available for sale (69,941) -
---------- ----------
Total deferred tax liabilities (193,804) (135,204)
---------- ----------
Net deferred tax asset (liability) $ (23,132) $ 8,169
========== ==========
</TABLE>
Page F-18
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE J - RETAINED EARNINGS AND CAPITAL REQUIREMENTS
The Bank is subject to a North Carolina savings bank capital requirement of at
least 5% of total assets. The Bank's capital to total assets ratio is 14.1% at
June 30, 1995. In addition, the Bank is subject to the capital requirements
of the FDIC. The FDIC requires the Bank to maintain (i) a Tier 1
capital to risk-weighted assets ratio of 4% and (ii) a risk-based capital
requirement of 8%. The FDIC also imposes a minimum leverage ratio requirement
which varies from 3% to 5%, depending on the institution. At June 30, 1995, the
Bank exceeded the maximum requirement.
NOTE K - CONCENTRATION OF CREDIT RISK AND OFF-BALANCE SHEET RISK
The Bank generally originates single-family residential loans within its primary
lending area of Davidson County. The Bank's underwriting policies require such
loans to be made at no greater than 80% loan-to-value based upon appraised
values unless private mortgage insurance is obtained. These loans are secured
by the underlying properties.
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit on mortgage loans,
standby letters of credit and equity lines of credit. Those instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the statements of financial condition. The contract
or notional amounts of those instruments reflect the extent of involvement the
Bank has in particular classes of financial instruments.
A summary of the contract amount of the Bank's exposure to off-balance sheet
risk as of June 30, 1995 is as follows:
<TABLE>
<S> <C>
Financial instruments whose contract amounts represent
credit risk:
Commitments to extend credit, mortgage loans $ 782,000
Undisbursed construction loans 1,215,000
Undisbursed lines of credit 464,500
</TABLE>
NOTE L - PLAN OF CONVERSION
On May 7, 1996, the Board of Directors of the Bank unanimously adopted a Plan of
Holding Company Conversion whereby the Bank will convert from a North Carolina-
chartered mutual savings bank to a North Carolina-chartered stock savings bank
and will become a wholly-owned subsidiary of a holding company formed in
connection with the conversion. The holding company will issue common stock to
be sold in the conversion and will use that portion of the net proceeds thereof
which it does not retain to purchase the capital stock of the Bank. The Plan is
subject to approval by regulatory authorities and the members of the Bank at a
special meeting.
Page F-19
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
June 30, 1995, 1994 and 1993
- -----------------------------
NOTE L - PLAN OF CONVERSION (Continued)
The stockholders of the holding company will be asked to approve a proposed
stock option plan and a proposed management recognition plan at a meeting of the
stockholders after the conversion. Shares issued to directors and employees
under these plans may be from authorized but unissued shares of common stock or
they may be purchased in the open market. In the event that options or shares
are issued under these plans, such issuances will be included in the earnings
per share calculation, thus, the interests of existing stockholders would be
diluted.
At the time of conversion, the Bank will establish a liquidation account in an
amount equal to its net worth as reflected in its latest statement of financial
condition used in its final conversion prospectus. The liquidation account will
be maintained for the benefit of eligible deposit account holders who continue
to maintain their deposit accounts in the Bank after conversion. Only in the
event of a complete liquidation will each eligible deposit account holder be
entitled to receive a subaccount balance for deposit accounts then held before
any liquidation distribution may be made with respect to common stock.
Dividends paid by the Bank subsequent to the conversion cannot be paid from this
liquidation account.
The Bank may not declare or pay a cash dividend on or repurchase any of its
common stock if its net worth would thereby be reduced below either the
aggregate amount then required for the liquidation account or the minimum
regulatory capital requirements imposed by federal and state regulations.
If the conversion is ultimately successful, conversion costs will be accounted
for as a reduction of the stock proceeds. If the conversion is unsuccessful,
conversion costs will be charged to the Bank's operations.
Page F-20
- --------------------------------------------------------------------------------
<PAGE>
- ---------------------------------------------
HOME SAVINGS, SSB
STATEMENTS OF FINANCIAL CONDITION (Unaudited)
March 31, 1996 and 1995
- ---------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1996 1995
----------- -----------
<S> <C> <C>
Cash on hand and in banks $ 1,214,120 $ 1,176,347
Interest-bearing balances in other banks 6,658,676 804,175
Investment securities available for sale, at fair
value (amortized cost of $10,334,150 and $8,564,707
at March 31, 1996 and 1995, respectively) 10,542,565 8,526,203
Investment securities held to maturity, at amortized
cost (fair value of $5,931,207 and $6,885,937 at
March 31, 1996 and 1995, respectively) 5,886,324 6,932,242
Loans receivable, net 53,740,509 53,700,770
Accrued interest receivable 496,002 527,591
Premises and equipment, net 761,261 760,255
Stock in the Federal Home Loan Bank of Atlanta, at
cost 613,700 613,700
Foreclosed real estate 332,874 71,002
Other assets 139,695 172,218
----------- -----------
$80,385,726 $73,284,503
=========== ===========
</TABLE>
LIABILITIES AND RETAINED EARNINGS
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
Deposit accounts $68,906,936 $62,663,710
Accrued interest payable 93,964 84,913
Advance payment by borrowers for property taxes
and insurance 80,825 71,037
Accrued expenses and other liabilities 168,262 145,181
----------- -----------
TOTAL LIABILITIES 69,249,987 62,964,841
Retained earnings - substantially restricted 11,135,739 10,319,662
----------- -----------
$80,385,726 $73,284,503
=========== ===========
</TABLE>
See accompanying notes. Page F-21
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------------------
HOME SAVINGS, SSB
STATEMENTS OF OPERATIONS (Unaudited)
Nine Months Ended March 31, 1996 and 1995
- -----------------------------------------
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
INTEREST INCOME
Loans $3,448,250 $3,281,504
Investments and deposits in other banks 934,876 703,807
---------- ----------
TOTAL INTEREST INCOME 4,383,126 3,985,311
INTEREST EXPENSE ON DEPOSIT ACCOUNTS 2,660,786 2,000,988
---------- ----------
NET INTEREST INCOME 1,722,340 1,984,323
PROVISION FOR LOAN LOSSES 130,000 75,000
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,592,340 1,909,323
---------- ----------
OTHER INCOME (EXPENSES)
Service charges and other fees 20,136 21,904
Loss on sale of investments - (36,735)
Gain (loss) on sale of foreclosed real estate (2,067) 1,692
Other 23,915 17,397
---------- ----------
41,984 4,258
---------- ----------
TOTAL INCOME 1,634,324 1,913,581
---------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES
Compensation and benefits 425,480 336,344
Occupancy 59,060 58,351
Data processing expenses 67,886 66,895
Federal deposit insurance premiums 110,878 109,350
Provision for loss on foreclosed real estate 80,000 -
Other expenses 171,194 127,037
---------- ----------
TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES 914,498 697,977
---------- ----------
INCOME BEFORE INCOME TAXES 719,826 1,215,604
INCOME TAXES 242,300 480,800
---------- ----------
NET INCOME $ 477,526 $ 734,804
========== ==========
</TABLE>
See accompanying notes. Page F-22
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------
HOME SAVINGS, SSB
STATEMENTS OF RETAINED EARNINGS (Unaudited)
Nine Months Ended March 31, 1996 and 1995
- -------------------------------------------
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
BALANCE, BEGINNING $10,639,920 $ 9,610,272
Initial effect of adoption of accounting change,
net of deferred income tax assets of $104,511 - (202,874)
Unrealized gain on investment securities available
for sale, net of deferred income tax liabilities
of $11,749 and $91,421, respectively 18,293 177,460
Net income 477,526 734,804
----------- -----------
BALANCE, ENDING $11,135,739 $10,319,662
=========== ===========
</TABLE>
See accompanying notes. Page F-23
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------------------
HOME SAVINGS, SSB
STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended March 31, 1996 and 1995
- -----------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 477,526 $ 734,804
Adjustments to reconcile net income to net cash
provided by
operating activities:
Depreciation 31,333 25,476
Deferred income taxes (37,000) (8,000)
Deferred compensation 17,000 18,000
Amortization of discounts and premiums on
securities 14,238 43,621
Provision for loan losses 130,000 75,000
Provision for loss on foreclosed real estate 80,000 -
Loss on sale of investment securities - 36,735
(Gain) loss on sale of real estate acquired in
foreclosure 2,067 (1,656)
Gain on disposal of fixed assets (5,000) -
Change in assets and liabilities
(Increase) decrease in accrued interest receivable 12,976 (41,544)
Increase in other assets (13,590) (129,999)
Increase (decrease) in accrued interest payable (9,579) 12,670
Decrease in accrued expenses and other liabilities (41,506) (23,668)
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 658,465 741,439
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of held to maturity investment securities (2,582,410) (1,445,216)
Proceeds from maturities of held to maturity
investment securities 1,834,697 1,500,000
Purchases of available for sale investment
securities (4,105,678) (2,481,094)
Proceeds from sales and maturities of available for
sale
investment securities 2,237,735 2,743,834
Net (increase) decrease in long-term loans to
customers (253,857) 1,094
Proceeds from sale of real estate acquired in
foreclosure 59,297 66,156
Purchases of fixed assets (33,743) (14,231)
Proceeds from sale of fixed assets 5,000 -
----------- -----------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (2,838,959) 370,543
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits 445,647 (3,203,263)
Net increase in certificate accounts 4,013,106 1,929,927
Decrease in advances from borrowers (19,151) (1,642)
----------- -----------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES 4,439,602 (1,274,978)
----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 2,259,108 (162,996)
CASH AND CASH EQUIVALENTS,
BEGINNING 5,613,688 2,143,518
----------- -----------
CASH AND CASH
EQUIVALENTS, ENDING $ 7,872,796 $ 1,980,522
=========== ===========
</TABLE>
See accompanying notes. Page F-24
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------------------
HOME SAVINGS, SSB
STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended March 31, 1996 and 1995
- -----------------------------------------
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $2,670,365 $1,988,318
========== ==========
Income taxes, net of refunds $ 180,415 $ 575,925
========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
Loans receivable transferred to real estate acquired
in settlement of loans $ 403,236 $ 25,002
========== ==========
Unrealized loss on available for sale investment
securities, net of deferred income tax
asset of $13,090 $ - $ 25,414
========== ==========
Unrealized gain on investment securities available
for sale, net of deferred income tax
liability of $11,749 $ 18,293 $ -
========== ==========
</TABLE>
See accompanying notes. Page F-25
- --------------------------------------------------------------------------------
<PAGE>
- -----------------------------------
HOME SAVINGS, SSB
NOTES TO FINANCIAL STATEMENTS
March 31, 1996 and 1995 (Unaudited)
- -----------------------------------
NOTE A - BASIS OF PRESENTATION
All adjustments considered necessary for a fair presentation of the results for
the interim periods presented have been included (such adjustments are normal
and recurring in nature). Operating results for the nine months ended March 31,
1996 are not necessarily indicative of the results that may be expected for the
year ending June 30, 1996.
NOTE B - ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
Effective July 1, 1995, as required, the Bank adopted the provisions of SFAS No.
114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan: Income Recognition and
Disclosures." The adoption of SFAS Nos. 114 and 118 did not have a material
impact on the Bank's financial condition or results of operations.
NOTE C - PLAN OF CONVERSION
On May 7, 1996, the Board of Directors of the Bank approved a proposed plan to
convert the Bank from a North Carolina-chartered mutual savings bank to a North
Carolina-chartered stock savings bank. The proposed Plan of Conversion
contemplates the organization of a holding company which will acquire and own
all the shares of the Bank issued in the conversion. The Plan of Conversion is
subject to the approval of various regulatory agencies.
At the time of the conversion, the Bank will establish a liquidation account in
an amount equal to its net worth as reflected in its latest statement of
financial condition used in its final conversion offering circular. The
liquidation account will be maintained for the benefit of eligible deposit
account holders who continue to maintain their deposit accounts in the Bank
after conversion. Only in the event of a complete liquidation will each
eligible deposit account holder be entitled to receive a liquidation account in
the amount of the then current adjusted subaccount balance for the deposit
accounts then held before any liquidation distribution may be made with respect
to common stock. Dividends paid by the Bank subsequent to the conversion cannot
be paid from this liquidation account.
The Bank may not declare or pay a cash dividend on or repurchase any of its
common stock if its net worth would thereby be reduced below either the
aggregate amount then required for the liquidation account or the minimum
regulatory capital requirements imposed by federal and state regulations.
If the conversion is ultimately successful, conversion costs will be accounted
for as a reduction of the stock sale proceeds. If the conversion is
unsuccessful, conversion costs will be charged to the Bank's operations.
Page F-26
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 3
SELECTED CONSOLIDATED FINANCIAL
AND OPERATIONS DATA
<TABLE>
<CAPTION>
At or for the
Nine Months
Ended March 31, At or for the Year Ended June 30,
------------------------- ------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- ---------- ------- -------- --------- ------- -------
(Unaudited) (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Financial condition data:
Total assets $80,386 $73,285 $75,508 $73,843 $70,864 $65,947 $59,282
Investments (1) 23,702 13,876 18,852 18,012 15,833 13,729 11,275
Loans receivable 53,741 53,701 54,020 53,802 53,566 50,120 46,529
Deposits 68,907 62,664 64,448 63,937 62,129 58,205 52,315
Retained earnings 11,136 10,320 10,640 9,610 8,439 7,370 6,506
Operating data:
Interest income $ 4,383 $ 3,985 $ 5,371 $ 5,337 $ 5,402 $ 5,439 $ 5,429
Interest expense 2,661 2,001 2,788 2,487 2,736 3,472 3,779
------- ------- ------- ------- ------- ------- -------
Net interest income 1,722 1,984 2,583 2,850 2,666 1,967 1,650
Provision for loan losses 130 75 105 114 165 87 39
------- ------- ------- ------- ------- ------- -------
Net interest income after provision
for loan losses 1,592 1,909 2,478 2,736 2,501 1,880 1,611
Non-interest income 42 5 15 40 40 97 48
Non-interest expense 914 698 979 910 833 775 676
------- ------- ------- ------- ------- ------- -------
Income before income taxes 720 1,216 1,514 1,866 1,708 1,202 983
Income tax expense 242 481 593 694 639 421 332
------- ------- ------- ------- ------- ------- -------
Net income $ 478 $ 735 $ 921 $ 1,172 $ 1,069 $ 781 $ 651
======= ======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 4
SELECTED CONSOLIDATED FINANCIAL
RATIOS AND OTHER
<TABLE>
<CAPTION>
At or for the
Nine Months
Ended March 31, At or for the Year Ended June 30,
------------------------- ------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- ---------- ------- -------- ----------------------- ------- -------
(Unaudited) (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Other Selected Data:
Outstanding loans 1,476 1,560 1,317 1,783 1,992 1,987 1,580
Deposit accounts 5,306 5,143 4,715 5,241 5,250 4,989 4,239
Full-service offices open 1 1 1 1 1 1 1
Return on average assets (2) 0.81% 1.35% 1.25% 1.59% 1.55% 1.24% 1.17%
Return on average equity (2) 5.83% 9.89% 9.15% 12.82% 13.37% 11.22% 10.48%
Average equity to average assets 13.94% 13.53% 13.68% 12.43% 11.56% 11.06% 11.17%
Interest rate spread (2) 2.36% 3.24% 3.10% 3.55% 3.53% 2.64% 2.26%
Net yield on average interest-earning
assets (2) 3.01% 3.72% 3.61% 3.97% 3.97% 3.22% 3.03%
Average interest-earning assets to average
interest-bearing liabilities 113.86% 112.85% 113.08% 112.12% 110.59% 110.09% 111.11%
Ratio of non-interest expense to average
total
assets (2) 1.55% 1.27% 1.33% 1.24% 1.20% 1.23% 1.22%
Nonperforming assets to total assets 1.03% 1.32% 1.21% 2.32% 2.53% 1.09% 0.78%
Nonperforming loans to total loans 0.92% 1.80% 1.56% 2.98% 2.99% 1.11% 0.96%
Allowance for loan losses to total loans 0.93% 0.69% 0.74% 0.55% 0.37% 0.19% 0.10%
Allowance for loan losses to
non-performing loans 100.80% 38.29% 47.68% 18.38% 12.37% 17.06% 10.02%
Provision for loan losses to total loans,
rcvble net 0.24% 0.14% 0.19% 0.21% 0.31% 0.17% 0.09%
Net charge-offs to average loans
outstanding 0.06% 0.00% 0.00% 0.03% 0.12% 0.08% 0.03%
Retained earnings to total assets 13.85% 14.08% 14.09% 13.01% 11.91% 11.18% 10.97%
Average equity to average assets 13.94% 3.53% 13.68% 12.43% 11.56% 11.06% 11.17%
</TABLE>
(1) Includes interest-bearing deposits, federal funds sold, FHLB stock and
investment securities.
(2) Annualized
<PAGE>
EXHIBIT 5
INTEREST SENSITIVITY OF PORTFOLIO MARKET VALUE
AND NET INTEREST INCOME
Sensitivity of Market Value of Portfolio Equity
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Percentage
of
Market Percentage Percentage Portfolio
Value Change From of Total Equity Book
Interest Rate Scenario ($,000) Base Assets Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Up 400 3820 -66.04 4.75 34.09
- --------------------------------------------------------------------------------
300 5726 -49.10 7.12 51.11
- --------------------------------------------------------------------------------
200 7632 -32.15 9.49 68.12
- --------------------------------------------------------------------------------
100 9441 -16.08 11.74 84.26
- --------------------------------------------------------------------------------
Base 11,249 0 13.99 100.40
- --------------------------------------------------------------------------------
Down 100 13,110 16.55 16.30 117.01
- --------------------------------------------------------------------------------
200 14,972 33.09 18.62 133.63
- --------------------------------------------------------------------------------
300 16,501 46.69 20.52 147.28
- --------------------------------------------------------------------------------
400 19,031 60.29 22.42 160.93
- --------------------------------------------------------------------------------
</TABLE>
Sensitivity of Net Interest Income
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Adjusted
Net NIM
Interest Percentage Change
Income Change from Net Interest from
Interest Rate Scenario ($,000) Base Margin,prcnt Base
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Up 400 1503 -25.29 1.87 -0.63
- --------------------------------------------------------------------------------
300 1657 -17.62 2.06 -0.44
- --------------------------------------------------------------------------------
200 1811 -9.95 2.25 -0.25
- --------------------------------------------------------------------------------
100 1911 -4.97 2.38 -0.12
- --------------------------------------------------------------------------------
Base 2011 0.00 2.50 0.00
- --------------------------------------------------------------------------------
Down 100 2115 5.19 2.63 0.13
- --------------------------------------------------------------------------------
200 2220 10.38 2.76 0.26
- --------------------------------------------------------------------------------
300 2262 12.48 2.81 0.31
- --------------------------------------------------------------------------------
400 2304 14.58 2.87 0.37
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 6
INTEREST RATE SENSITIVITY GAP
<TABLE>
<CAPTION>
Terms to Repricing at March 31, 1996
-----------------------------------------------
More Than More Than
1 Year 1 Year to 3 Years to More Than
INTEREST-EARNING ASSETS or Less 3 Years 5 Years 5 Years Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Loans Receivable
Adjustable rate resdntl 1-4 family $9,567 $16 $9,583
Fixed rate resdntl 1-4 family $559 $523 $1,148 $31,255 $33,485
Other secured-real estate-fixed $40 $57 $3,653 $3,750
Other secured-real estate-adjustable $6,882 $6,882
Other loans $33 $273 $236 $542
Interest bearing deposits $6,659 $6,659
Investments $4,300 $3,723 $2,968 $5,438 $16,429
FHLB Common Stock $614 $614
------- ------- ------- ---- ----
Total interest-earning assets $28,000 $4,575 $4,409 $40,960 $77,944
========= ========= ========= ========= =========
INTEREST BEARING LIABILITIES
Deposits
Passbook and statement accounts $5,143 $5,143
NOW and money market checking $12,048 $12,048
Non-interest bearing accounts $294 $294
Certificates of deposit $46,012 $5,410 $51,422
------- ------ ------ ------ -------
Total interest-bearing deposits $63,497 $5,410 $0 $0 $68,907
========= ========= ======== ======== =========
INTEREST SENSITIVITY GAP PER PERIOD ($35,497) ($835) $4,409 $40,960 $9,037
CUMULATIVE INTEREST SENSITIVITY GAP ($35,497) ($36,332) ($31,923) $9,037 $9,037
CUMULATIVE GAP AS A PERCENTAGE -45.54% -46.61% -40.96% 11.59% 11.59%
OF TOTAL INTEREST-EARNING ASSETS
CUMULATIVE INTEREST-EARNING ASSETS 40.63% 47.27% 53.67% 113.11% 113.11%
AS A PERCENTAGE OF INTEREST-BEARING
LIABILITIES
</TABLE>
<PAGE>
EXHIBIT 7
YIELD AND COST SPREAD ANALYSIS
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
March 31, 1996 March 31, 1995
---------------------------- ----------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Interest-bearing balances $6,913 $260 5.02% $1,245 41 4.43%
Investments $15,354 $675 5.86% $16,314 662 5.41%
Loans $54,066 $3,448 8.50% $53,625 3282 8.16%
------- ------ ----- ------- ---- -----
Total Interest-earning assets $76,333 $4,383 7.66% $71,184 $3,985 7.47%
Other assets $2,084 $2,057
Total assets $78,417 $73,241
======= =======
Interest-bearing deposits
Deposits $67,042 $2,661 5.29% $63,080 $2,001 4.23%
Other Liabilities $440 ------ $251 ------
Retained Earnings $10,935 $9,910
Total liabilities and retained earnings $78,417 $73,241
======= =======
Net interest income and interest rate spread $1,772 2.36% $1,964 3.24%
====== ======
Net yield on average interest-earning assets 3.01% 3.72%
Interest-earning assets to interest-bearing liabilities 113.86% 112.85%
<CAPTION>
For the Year Ended For the Year Ended
June 30, 1995 June 30, 1994
---------------------------- ----------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Interest-bearing balances $1,789 $82 4.58% $5,178 154 2.97%
Investments $15,974 $879 5.50% $13,362 697 5.22%
Loans $53,718 $4,410 8.21% $53,301 4486 8.42%
------- ------ ----- ------- ---- -----
Total Interest-earning assets $71,481 $5,371 7.51% $71,841 $5,337 7.43%
Other assets $2,084 $1,747
Total assets $73,565 $73,588
======= =======
Interest-bearing deposits
Deposits $63,210 $2,788 4.41% $64,074 $2,487 3.88%
Other Liabilities $286 ------ $370 ------
Retained Earnings $10,068 $9,144
Total liabilities and retained earnings $73,564 $73,588
======= =======
Net interest income and interest rate spread $2,583 3.10% $2,850 3.55%
====== ======
Net yield on average interest-earning assets 3.61% 3.97%
Interest-earning assets to interest-bearing liabilities 113.08% 112.12%
</TABLE>
<PAGE>
EXHIBIT 8
RATE VOLUME ANALYSIS
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
March 31, 1996 v 1995 June 30, 1995 v 1994
---------------------------- -----------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
-------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
Interest-bearing balances $201 $18 $219 ($129) 56 ($73)
Investments ($41) $53 $12 $140 43 $183
Loans $28 $139 $167 $35 -111 ($76)
--- ---- ---- --- ---- ---
Total interest income $188 $210 $398 $46 ($12) $34
Interest expense
Deposits $142 $518 $660 ($36) 337 $301
---- ---- ---- --- --- ----
Net interest income $36 ($308) ($262) $82 ($349) ($267)
====== ====== ====== ====== ====== ======
</TABLE>
<PAGE>
EXHIBIT 9
LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
At June 30,
---------------------------------------------------------
At March 31, 1996 1995 1994 1993
----------------------- ---------------- --------------------- ------------------
% of % of % of % of
Amount Total Amount Total Amount Total Amount Total
------- -------------- ------- ------- ------- ------------ ------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Type of loan:
Real estate loans:
One-to-four family residential $42,179 78.49% $41,006 75.91% $41,082 76.36% $40,261 75.16%
Multi-family residential and
commercial 8,965 16.68% 10,039 18.58% 9,990 18.57% 9,491 17.72%
Construction 3,323 6.18% 3,111 5.76% 3,608 6.70% 4,601 8.59%
Home equity lines of credit 1,136 2.11% 1,136 2.10% 924 1.72% 839 1.57%
------- ------ ------- ------ ------- ------ ------- ------
Total real estate loans 55,603 103.46% 55,292 102.35% 55,604 103.35% 55,192 103.04%
------- ------ ------- ------ ------- ------ ------- ------
Other loans:
Consumer loans 342 0.64% 335 0.62% 557 1.03% 440 0.82%
Loans secured by deposits 200 0.37% 252 0.47% 358 0.67% 226 0.42%
------- ------ ------- ------ ------- ------ ------- ------
Total other loans 542 1.01% 587 1.09% 915 1.70% 666 1.24%
------- ------ ------- ------ ------- ------ ------- ------
Total loans 56,145 104.47% 55,879 103.44% 56,519 105.05% 55,858 104.28
Less:
Construction loans in process 1,657 3.08% 1,215 2.25% 2,178 4.05% 1,894 3.54%
Deferred loan origination fees 246 0.46% 243 0.45% 244 0.45% 199 0.37%
Allowance for loan losses 501 0.93% 401 0.74% 295 0.55% 199 0.37%
------- ------ ------- ------ ------- ------ ------- ------
$53,741 100.00% $54,020 100.00% $53,802 100.00% $53,566 100.00%
======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
<PAGE>
EXHIBIT 10
LOAN PORTFOLIO MATURITY SCHEDULE
<TABLE>
<CAPTION>
At March 31, 1996
--------------------------------------------------
More Than More Than
1 Year 1 Year to 3 years to More Than
or Less 3 Years 5 Years 5 Years Total
---------- --------- --------- --------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Mortgage loans:
Adjustable rate
residential 1-4 family $ 9,567 $ 16 $ - $ - $ 9,583
Fixed rate residential
1-4 family 559 523 1,148 31,255 33,485
Other loans - adjustable 6,882 - - - 6,882
Other loans - fixed - 40 57 3,653 3,750
Other loans 33 273 236 - 542
Less:
Allowance for loan losses (501) - - - (501)
--------- ------ -------- --------- --------
$ 16,540 $ 852 $ 1,441 $ 34,908 $ 53,741
========= ====== ======== ========= ========
</TABLE>
The following table sets forth the dollar amount at March 31, 1996 of all loans
maturing or repricing on or after March 31, 1997 which have fixed or adjustable
interest rates.
<TABLE>
<CAPTION>
Fixed Adjustable
Rates Rates
------- ----------
<S> <C> <C>
Mortgage loans $ 32,926 $ 16
Other loans 4,259 -
------- ----------
$ 37,185 $ 16
======= ==========
</TABLE>
<PAGE>
EXHIBIT 11
LOAN ORIGINATIONS, PURCHASES, SALES, AND REPAYMENTS
<TABLE>
<CAPTION>
Nine Months
Ended
-----
March 31, Year Ended June 30
-------- ------------------
1996 1995 1994 1993
-------- ------- --------- ---------
<S> <C> <C> <C> <C>
Loans recvble, net beg of $54,020 $53,802 $53,566 $50,120
period
Loan Originations
1-4 Family $7251 $5370 $10,530 $11,679
Rsdntl
Multi-family rsdntl $1323 $1415 $1116 $2701
Construction $912 $1497 $1284 $1283
Home Equity $137 $295 $395 $268
Consumer $159 $272 $279 $442
Secured by $111 $224 $383 $303
deposits
Total Loan Originations $9892 $9073 $13987 $16676
Loans Purchased $0 $0 $0 $0
Loan Sales $0 $0 $0 $0
Principal repayments -$10,068 -$8750 -$13,622 -$13,121
Other changes, net (1) -$103 -$105 -$120 -$109
Loans recvble, met end of $53,741 $54,020 $53,802 $53,566
period
</TABLE>
(1) Includes changes in deferred loan fees and the allowance for loan losses
<PAGE>
EXHIBIT 12
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
At
March 31, At June 30,
--------- ----------------------------------------
1996 1995 1994 1993 1992 1991
--------- ------- ------- ------- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans not accruing interest $ 497 $ 841 $1,605 $1,601 $ 557 $ 449
Accruing loans 90 days or
more past due - - - - - -
----- ----- ------ ------ ----- -----
Total non-performing loans 497 841 1,605 1,601 557 449
Foreclosed real estate 333 71 111 193 161 12
----- ----- ------ ------ ----- -----
Total non-performing assets $ 830 $ 912 $1,716 $1,794 $ 718 $ 461
===== ===== ====== ====== ===== =====
Non-performing assets to
total assets 1.03% 1.21% 2.32% 2.53% 1.09% 0.78%
===== ===== ====== ====== ===== =====
</TABLE>
<PAGE>
EXHIBIT 13
CHARGE-OFFS AND RECOVERIES
<TABLE>
<CAPTION>
Nine Months
Ended
March 31, Year Ended June 30,
-------------- ----------------------
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period $ 401 $ 295 $ 295 $ 198 $ 95
------ ----- ------ ------ ------
Loans charged off:
Real estate 31 1 1 90 49
Other - - - 14 13
------ ------ ------ ------ ------
Total loans charged
off 31 1 1 104 62
Recoveries:
Real estate - 2 1 84 -
Other 1 - 1 3 -
------ ------ ------ ------ ------
Net loans charged off
(recovered) 30 (1) (1) 17 62
------ ------ ------ ------ ------
Provision for loan losses 130 75 105 114 165
------ ------ ------ ------ ------
Balance at end of period $ 501 $ 371 $ 401 $ 295 $ 198
====== ====== ====== ====== ======
Ratio of net charge-offs
(recoveries) to
average loans outstanding
during the period 0.06% -% -% 0.03% 0.12%
====== ====== ====== ====== ======
</TABLE>
<PAGE>
EXHIBIT 14
DISTRIBUTION OF LOAN LOSSES
(dollars in thousands)
<TABLE>
<CAPTION>
At March 31, At June 30,
----------------------------- -----------------------------
1996 1995
----------------------------- -----------------------------
Percent of Amount of Percent of Amount of
Amount of allowance in Loans to Amount of allowance in Loans to
Allowance total allowance Gross Loans Allowance total allowance Gross Loans
--------- --------------- ----------- --------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One-to-four family residential $211 42.12% 75.13% $164 40.90% 73.38%
Multi-family residential and commercial $90 17.96% 15.97% $100 24.94% 17.97%
Construction $17 3.39% 5.91% $19 4.74% 5.57%
Home equity lines of credit $11 2.20% 2.02% $11 2.74% 2.03%
Total real estate loans $329 65.67% 99.03% $294 73.32% 98.95%
Other loans:
Consumer loans $12 2.40% 0.61% $12 2.99% 0.60%
Loans secured by deposits 0.00% 0.36% 0.00% 0.45%
Total other loans $12 2.40% 0.97% $12 2.99% 1.05%
Unallocated $160 31.94% $95 23.69%
Total allowance for loan losses $501 100.00% 100.00% $401 100.00% 100.00%
<CAPTION>
At March 31, At June 30,
----------------------------- -----------------------------
1994 1993
----------------------------- -----------------------------
Percent of Amount of Percent of Amount of
Amount of allowance in Loans to Amount of allowance in Loans to
Allowance total allowance Gross Loans Allowance total allowance Gross Loans
--------- --------------- ----------- --------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One-to-four family residential $123 41.69% 72.69% $90 45.45% 72.08%
Multi-family residential and commercial $75 25.42% 17.68% $42 21.21% 16.99%
Construction $14 4.75% 6.38% $27 13.64% 8.24%
Home equity lines of credit $9 3.05% 1.63% $9 4.55% 1.50%
Total real estate loans $221 74.92% 98.38% $167 84.34% 98.01%
Other loans:
Consumer loans $13 4.41% 0.99% $16 8.08% 0.79%
Loans secured by deposits 0.00% 0.63% 0.00% 0.40%
Total other loans $13 4.41% 1.62% $16 8.08% 1.19%
Unallocated $61 20.68% $15 7.58%
Total allowance for loan losses $295 100.00% 100.00% $198 100.00% 100.00%
</TABLE>
<PAGE>
EXHIBIT 15
COMPOSITION OF SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
At March 31, At June 30,
------------ ------------------------------
1996 1995 1994 1993
------------ ----------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. government and agency
securities $ 5,485 $ 6,021 $ - $ -
Mortgage-backed securities 4,127 2,389 - -
Municipal bonds 616 - - -
FHLMC stock 314 254 - -
------------ ----------- -------- -------
Total securities available for
sale 10,542 8,664 - -
------------ ----------- -------- -------
Securities held to maturity:
U.S. government and agency
securities 5,507 4,756 13,059 9,224
Mortgage-backed securities - - 2,822 1,692
Municipal bonds 380 377 - -
FHLMC stock - - 14 14
------------ ----------- -------- -------
Total securities held to
maturity 5,887 5,133 15,895 10,930
------------ ----------- -------- -------
Total investment securities 16,429 13,797 15,895 10,930
Interest-earning balances in
other banks 6,659 4,441 1,503 4,312
Federal Home Loan Bank stock 614 614 614 590
------------ ----------- -------- -------
Total investments $ 23,702 $ 18,852 $ 18,012 $15,832
============ =========== ======== =======
</TABLE>
<PAGE>
EXHIBIT 16
MATURITY SCHEDULE AND YIELD ANALYSIS, SECURITIES
<TABLE>
<CAPTION>
After One Year After Five Years
One Year or Less Through Five Years Through Ten Years After Ten Years Total
--------------------- ------------------ ----------------- ------------------ ------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
----------- -------- --------- -------- -------- -------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for
sale:
U. S. government
and agency securities $ 1,500 5.36% $3,985 5.70% $ - -% $ - -% $ 5,485 5.61%
Mortgage-backed securities - -% - -% 1,677 6.30% 2,450 6.67% 4,127 6.52%
Municipal bonds - -% 616 4.35% - -% - -% 616 4.35%
FHLMC stock - -% - -% - -% 314 1.41% 314 1.41%
Securities held to
maturity:
U.S. government and agency
securities 2,801 5.50% 2,706 6.04% - -% - - 5,507 5.77%
Municipal bonds - -% - -% - -% 380 6.20% 380 6.20%
Other:
Interest-earning balances
in other banks 6,659 5.35% - -% - -% - - 6,659 5.35%
Federal Home Loan Bank
stock - -% - -% - -% 614 7.25% 614 7.25%
----------- ------- --------- ------- -------- ------- -------- ------- ------- ----
$10,960 5.39% $7,307 5.71% $1,677 6.30% $3,758 6.28% $23,702 5.69%
=========== ======= ========= ======= ======== ======= ======== ======= ======= ====
</TABLE>
<PAGE>
EXHIBIT 17
FLOW OF DEPOSITS
<TABLE>
<CAPTION>
At or for the Nine Months At or for the year
Ended March 31, Ended June 30,
--------------- --------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Deposits Beginning of Period $64,448 $63,937 $63,937 $62,129 $58,205
Increase/Decrease Before Interest Credited $3,091 ($2,373) ($990) $405 $2,349
Interest Credited $1,368 $1,100 $1,501 $1,403 $1,575
------ ------ ------ ------ ------
Total Deposits End of Period $68,907 $62,664 $64,448 $63,937 $62,129
======= ======= ======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 18
COMPOSITION OF DEPOSITS
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
---------------------------------- ---------------------------------
Weighted Weighted
Average % of Average % of
Amount Rate Total Amount Rate Total
-------- --------------- ------- -------- -------------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand accounts:
Passbook and statement accounts $ 5,143 3.00% 7.46% $ 5,248 3.00% 8.14%
NOW accounts 2,268 2.75% 3.29% 1,885 2.75% 2.92%
Money market demand accounts 9,780 3.90% 14.19% 10,498 3.68% 16.29%
Non-interest-bearing accounts 294 -% 0.43% 299 -% 0.46%
------- ---- ------ ------- ---- ------
Total demand deposits 17,485 3.42% 25.37% 17,930 3.32% 27.82%
------- ---- ------ ------- ---- ------
Certificate accounts with original maturities of:
6 months 9,541 5.28% 13.85% 10,026 5.93% 15.56%
12 months 15,748 5.83% 22.85% 13,944 5.54% 21.64%
18 months 958 5.95% 1.39% 969 5.23% 1.50%
24 months 1,985 5.81% 2.88% 1,781 5.45% 2.76%
30 months 903 5.57% 1.31% 984 5.03% 1.53%
36 months 4,539 5.59% 6.59% 3,725 5.38% 5.78%
IRA certificates 4,232 6.00% 6.14% 3,624 5.35% 5.62%
Other (Jumbo 6 and 12 months) 13,516 6.03% 19.61% 11,465 6.01% 17.79%
------- ---- ------ ------- ---- ------
Total certificates 51,422 5.77% 74.63% 46,518 5.69% 72.18%
------- ---- ------ ------- ---- ------
Total deposits $68,907 5.17% 100.00% $64,448 5.03% 100.00%
======= ==== ====== ======= ==== ======
</TABLE>
<PAGE>
EXHIBIT 19
MATURITY SCHEDULE, CERTIFICATES OF DEPOSITS
<TABLE>
<CAPTION>
Amount Due During the Year Ending March 31,
---------------------------------------------------------------------------------
1997 1998 1999 Total
-------------------- ------------------ ------------------ -------------------
Weighted Weighted Weighted Weighted
Amount Rate Amount Rate Amount Rate Amount Rate
--------- --------- ------- --------- ------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts with
original maturities of:
6 months $ 9,541 5.28% $ - -% $ - -% $ 9,541 5.28%
12 months 15,748 5.83% - -% - -% 15,748 5.83%
18 months 560 6.20% 398 5.60% - -% 958 5.95%
24 months 1,302 5.67% 683 6.07% - -% 1,985 5.81%
30 months 358 4.67% 244 6.46% 301 5.92% 903 5.57%
36 months 2,570 5.26% 623 5.51% 1,346 6.26% 4,539 5.59%
IRA certificates 3,000 6.05% 1,232 5.89% - -% 4,232 6.00%
Jumbo ($100,000 or more) 12,933 6.00% 283 6.14% 300 7.00% 13,516 6.03%
--------- --------- ------- --------- ------- --------- --------- ------
$46,012 5.74% $3,463 5.88% $1,947 6.32% $51,422 5.77%
========= ========= ====== ========= ====== ======== ======== ======
</TABLE>
<TABLE>
<CAPTION>
Amount Due During the Year Ending June 30,
---------------------------------------------------------------------------------
1997 1998 1999 Total
-------------------- ------------------ ------------------ -------------------
Weighted Weighted Weighted Weighted
Amount Rate Amount Rate Amount Rate Amount Rate
--------- --------- ------- --------- ------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts with
original maturities of:
6 months $10,026 5.93% $ - -% $ - -% $10,026 5.93%
12 months 13,944 5.54% - -% - -% 13,944 5.54%
18 months 636 4.68% 333 6.28% - -% 969 5.23%
24 months 669 4.83% 1,112 5.82% - -% 1,781 5.45%
30 months 811 4.79% 49 5.26% 124 6.52% 984 5.03%
36 months 747 5.30% 2,501 5.25% 477 6.19% 3,725 5.38%
IRA certificates 2,272 4.83% 1,352 6.23% - -% 3,624 5.35%
Jumbo ($100,000 or more) 11,264 6.01% 201 5.88% - -% 11,465 6.01%
------- ------ ------ ------ ------ -------- ------- ----
$40,369 5.68% $5,548 5.69% $ 601 6.26% $46,518 5.69%
======= ====== ====== ====== ====== ======== ======= ====
</TABLE>
<PAGE>
EXHIBIT 20-A
ALL PUBLICLY TRADED THRIFTS
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Total Total Total Equity/
Assets Deposits Equity Assets
Ticker Institution State IPO Date ($000) ($000) ($000) (%)
- ------ ----------- ----- -------- ------ -------- ------ ------
<C> <S> <C> <C> <C> <C> <C> <C>
AADV Advantage Bancorp, Inc. WI 03/23/92 979,891 683,641 95,793 9.78
ABBK Abington Savings Bank MA 06/10/86 478,457 287,544 31,122 6.50
ABCW Anchor BanCorp Wisconsin WI 07/16/92 1,754,556 1,240,958 118,402 6.75
AFCB Affiliated Community Bancorp MA 10/19/95 938,331 598,743 96,194 10.25
AFFFZ America First Financial Fund CA NA 2,333,113 1,753,330 174,821 7.49
AHCI Ambanc Holding Co., Inc. NY 12/27/95 392,338 309,330 75,228 9.17
AHM Ahmanson & Company (H.F.) CA 10/01/72 49,781,986 33,947,928 2,952,702 5.93
ALBC Albion Banc Corp. NY 07/26/93 56,692 46,476 6,072 0.71
ALBK ALBANK Financial Corporation NY 04/01/92 3,333,105 2,888,006 320,820 9.63
AMFB American Federal Bank SC 01/19/89 1,339,147 995,655 109,941 8.21
AMFC AMB Financial Corp. IN 04/01/96 80,533 60,341 16,147 0.05
ANBK American National Bancorp MD 10/31/95 449,019 316,502 49,011 10.92
ANDB Andover Bancorp, Inc. MA 05/08/86 1,141,810 763,366 86,712 7.59
ASBI Ameriana Bancorp IN 03/02/87 383,072 303,679 44,583 11.64
ASBP ASB Financial Corp. OH 05/11/95 111,718 82,723 25,784 23.08
ASFC Astoria Financial Corporation NY 11/18/93 6,708,166 4,307,289 573,262 8.55
ATSB AmTrust Capital Corp. IN 03/28/95 73,072 50,807 7,553 10.34
AVND Avondale Financial Corp. IL 04/07/95 579,731 329,152 61,628 10.63
BANC BankAtlantic Bancorp, Inc. FL 11/29/83 1,642,825 1,323,229 136,819 8.33
BDJI First Federal Bancorporation MN 04/04/95 100,533 82,055 14,458 14.38
BFD BostonFed Bancorp, Inc. MA 10/24/95 677,762 430,716 91,574 13.51
BFSB Bedford Bancshares, Inc. VA 08/22/94 117,596 92,929 18,938 16.10
BFSI BFS Bankorp, Inc. NY 05/12/88 566,452 388,992 46,102 8.14
BKC American Bank of Connecticut CT 12/01/81 516,883 370,119 44,281 8.57
BKCO Bankers Corp. NJ 03/16/90 1,915,528 1,633,665 187,899 9.81
BKCT Bancorp Connecticut, Inc. CT 07/03/86 402,863 297,639 43,542 10.81
BKUNA BankUnited Financial Corp. FL 12/11/85 738,491 423,568 69,468 9.41
BPLS Bank Plus Corp. CA NA 3,279,564 2,579,062 227,539 6.94
BRFC Bridgeville Savings Bank PA 10/07/94 55,712 33,379 15,883 28.51
BSBC Branford Savings Bank CT 11/04/86 174,403 154,663 15,179 8.70
BSBC Branford Savings Bank CT 11/04/86 174,403 154,663 15,179 8.70
BVFS Bay View Capital Corp. CA 05/09/86 2,910,295 1,809,030 203,268 6.98
BWFC Bank West Financial Corp. MI 03/30/95 139,217 88,677 27,540 19.78
BYFC Broadway Financial Corp. CA 01/09/96 115,222 99,473 14,062 12.20
CAFI Camco Financial Corporation OH NA 343,711 290,301 28,625 8.33
CAL Cal Fed Bancorp, Inc. CA 03/01/83 14,280,100 9,497,700 889,100 6.23
CAPS Capital Savings Bancorp, Inc. MO 12/29/93 202,554 150,636 21,136 10.43
CARV Carver Federal Savings Bank NY 10/25/94 363,225 254,595 34,986 9.63
CASB Cascade Financial Corp. WA 09/16/92 326,266 207,626 20,269 6.21
CASH First Midwest Financial, Inc. IA 09/20/93 309,706 200,600 38,874 12.55
CATB Catskill Financial Corp. NY 04/18/96 231,164 198,068 29,466 12.75
CBCI Calumet Bancorp, Inc. IL 02/20/92 502,419 366,464 85,350 16.99
CBCO CB Bancorp, Inc. IN 12/28/92 204,825 137,047 18,762 9.16
CBIN Community Bank Shares IN 04/10/95 224,311 177,711 25,482 11.36
CBK Citizens First Financial Corp. IL 05/01/96 232,196 213,081 15,765 6.79
CBNH Community Bankshares, Inc. NH 05/08/86 516,837 390,367 37,358 7.23
CBSA Coastal Bancorp, Inc. TX NA 2,806,740 1,270,497 93,006 3.31
CBSB Charter Financial, Inc. IL 12/29/95 300,812 200,335 64,393 11.41
CCFH CCF Holding Company GA 07/12/95 78,772 61,215 16,725 11.23
CEBK Central Co-Operative Bank MA 10/24/86 318,191 265,504 31,667 9.95
CENF CENFED Financial Corp. CA 10/25/91 2,113,582 1,580,815 105,775 5.00
CFB Commercial Federal Corporation NE 12/31/84 6,617,488 4,334,125 400,399 6.05
<CAPTION>
Tangible Risk-Based NPAs + Loans One Year
Equity/ Capital/ 90+ Pst Due/ Return on Return on Cum Gap/
Tang Assets Risk-Weighted Assets Avg Assets Avg Equity Assets
Ticker Institution (%) Assets (%) (%) (%) (%) (%)
- ------ ----------- ----------- ------------- ----------- ---------- ---------- --------
<C> <S> <C> <C> <C> <C> <C> <C>
AADV Advantage Bancorp, Inc. 8.58 16.28 0.56 0.90 9.43 NA
ABBK Abington Savings Bank 5.73 NA 0.37 0.36 5.25 (32.92)
ABCW Anchor BanCorp Wisconsin 6.58 11.70 0.61 0.88 12.13 4.60
AFCB Affiliated Community Bancorp 10.18 NA 1.34 0.72 6.26 NA
AFFFZ America First Financial Fund 7.34 14.41 0.65 0.81 12.57 0.42
AHCI Ambanc Holding Co., Inc. 19.17 22.62 4.22 (0.03) (0.26) NA
AHM Ahmanson & Company (H.F.) 5.66 12.42 2.30 0.88 15.41 9.75
ALBC Albion Banc Corp. 10.71 17.20 0.72 0.30 2.87 NA
ALBK ALBANK Financial Corporation 8.59 16.75 1.03 0.98 9.31 6.12
AMFB American Federal Bank 7.62 14.35 0.50 1.29 15.99 (5.58)
AMFC AMB Financial Corp. 20.05 17.55 0.71 0.50 4.75 NA
ANBK American National Bancorp 10.92 19.13 1.40 0.34 3.88 NA
ANDB Andover Bancorp, Inc. 7.59 NA 1.60 0.88 11.55 (4.62)
ASBI Ameriana Bancorp 11.62 22.22 0.56 0.93 7.20 NA
ASBP ASB Financial Corp. 23.08 40.76 1.48 1.02 4.52 NA
ASFC Astoria Financial Corporation 7.07 18.72 0.85 0.75 8.44 19.19
ATSB AmTrust Capital Corp. 10.24 16.92 1.31 0.31 2.75 NA
AVND Avondale Financial Corp. 10.63 23.18 0.85 0.64 5.84 6.20
BANC BankAtlantic Bancorp, Inc. 7.70 11.67 1.25 1.08 16.11 1.80
BDJI First Federal Bancorporation 14.38 24.55 0.23 0.71 5.03 (12.58)
BFD BostonFed Bancorp, Inc. 13.51 19.30 1.67 0.22 2.49 12.45
BFSB Bedford Bancshares, Inc. 16.10 23.57 1.24 1.26 7.56 15.94
BFSI BFS Bankorp, Inc. 8.14 13.29 1.48 1.84 24.94 NA
BKC American Bank of Connecticut 8.16 NA 2.95 0.97 10.66 (8.08)
BKCO Bankers Corp. 9.62 NA 1.59 1.13 11.42 (3.65)
BKCT Bancorp Connecticut, Inc. 10.81 NA 1.69 1.19 10.74 (3.38)
BKUNA BankUnited Financial Corp. 9.10 12.94 0.90 1.12 14.68 (1.55)
BPLS Bank Plus Corp. 6.93 NA 3.58 (1.97) (37.90) 4.69
BRFC Bridgeville Savings Bank 28.51 83.13 0.25 1.24 4.17 10.26
BSBC Branford Savings Bank 8.70 NA 2.31 0.77 9.18 6.63
BSBC Branford Savings Bank 8.70 NA 2.31 0.77 9.18 6.63
BVFS Bay View Capital Corp. 6.82 10.51 1.23 (0.10) (1.43) NA
BWFC Bank West Financial Corp. 19.78 31.13 0.08 0.69 3.41 NA
BYFC Broadway Financial Corp. 12.20 17.45 2.42 0.41 6.78 NA
CAFI Camco Financial Corporation 8.33 NA 0.56 1.22 15.56 NA
CAL Cal Fed Bancorp, Inc. 6.23 12.40 1.61 0.76 12.61 3.73
CAPS Capital Savings Bancorp, Inc. 10.43 19.39 0.20 0.95 8.96 NA
CARV Carver Federal Savings Bank 9.20 31.78 1.13 0.20 2.06 27.07
CASB Cascade Financial Corp. 6.21 13.19 2.40 0.56 8.90 (12.78)
CASH First Midwest Financial, Inc. 11.80 17.90 0.39 1.24 9.27 NA
CATB Catskill Financial Corp. 12.75 NA NA NA NA NA
CBCI Calumet Bancorp, Inc. 16.99 19.64 1.23 1.21 7.24 (3.50)
CBCO CB Bancorp, Inc. 9.16 15.51 0.84 1.37 13.98 NA
CBIN Community Bank Shares 11.36 21.84 0.12 0.91 7.91 NA
CBK Citizens First Financial Corp. 6.79 NA NA 0.43 6.49 NA
CBNH Community Bankshares, Inc. 7.23 NA 0.46 0.78 10.74 0.27
CBSA Coastal Bancorp, Inc. 2.71 NA 0.67 0.37 10.66 NA
CBSB Charter Financial, Inc. 20.97 NA 0.49 1.11 7.88 NA
CCFH CCF Holding Company 21.23 38.76 0.63 0.85 5.07 NA
CEBK Central Co-Operative Bank 8.80 NA 2.31 0.60 6.40 NA
CENF CENFED Financial Corp. 4.99 10.91 1.22 0.48 9.92 20.45
CFB Commercial Federal Corporation 5.47 13.70 1.02 0.84 15.33 NA
</TABLE>
<PAGE>
EXHIBIT 20-A
ALL PUBLICLY TRADED THRIFTS
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Total Total Total Equity/
Assets Deposits Equity Assets
Ticker Institution State IPO Date ($000) ($000) ($000) (%)
- ------ ----------- ----- -------- ------ -------- ------ -------
<C> <S> <C> <C> <C> <C> <C> <C>
CFCP Coastal Financial Corp. SC 09/26/90 441,216 283,913 26,847 6.08
CFCX Center Financial Corp. CT 08/13/86 3,669,518 2,525,237 223,930 6.10
CFFC Community Financial Corp. VA 03/30/88 159,793 109,501 21,900 13.71
CFHC California Financial Holding CA 04/01/83 1,277,568 962,928 86,268 6.75
CFSB CFSB Bancorp, Inc. MI 06/22/90 771,672 533,612 64,012 8.30
CFTP Community Federal Bancorp MS 03/26/96 200,529 130,674 66,394 33.11
CFX CFX Corporation NH 02/12/87 958,289 724,978 90,633 9.46
CIBI Community Investors Bancorp OH 02/07/95 85,785 71,548 11,869 13.84
CJFC Central Jersey Financial NJ 09/01/84 466,208 383,977 54,909 11.78
CKFB CKF Bancorp, Inc. KY 01/04/95 58,763 41,614 16,036 27.29
CLAS Classic Bancshares, Inc. KY 12/29/95 67,786 47,923 19,517 28.79
CMRN Cameron Financial Corp MO 04/03/95 172,484 121,323 45,775 26.54
CMSB Commonwealth Bancorp, Inc. PA NA 1,657,690 1,195,320 137,683 8.31
CMSV Community Savings, MHC FL 10/24/94 632,507 502,279 74,750 11.82
CNIT CENIT Bancorp, Inc. VA 08/06/92 667,465 441,257 46,572 6.98
CNSB CNS Bancorp, Inc. MO 06/12/96 85,390 75,931 9,180 10.75
CNSK Covenant Bank for Savings NJ NA 338,761 222,869 24,620 7.27
COFD Collective Bancorp, Inc. NJ 02/07/84 5,058,597 3,143,356 356,448 7.05
COFI Charter One Financial OH 01/22/88 13,173,986 7,010,797 909,433 6.90
COOP Cooperative Bankshares, Inc. NC 08/21/91 313,803 270,940 29,301 9.34
CRCL Circle Financial Corp. OH 08/06/91 229,406 201,303 24,436 10.65
CRZY Crazy Woman Creek Bancorp WY 03/29/96 47,463 27,775 15,525 32.71
CSA Coast Savings Financial CA 12/23/85 8,239,880 6,250,070 425,360 5.16
CSBF CSB Financial Group, Inc. IL 10/09/95 41,211 28,281 12,730 30.89
CTBK Center Banks Incorporated NY 06/02/86 214,975 181,522 15,210 7.08
CTZN CitFed Bancorp, Inc. OH 01/23/92 2,597,886 1,649,265 174,109 6.70
CVAL Chester Valley Bancorp Inc. PA 03/27/87 274,575 229,404 25,123 9.15
CZF CitiSave Financial Corp LA 07/14/95 79,717 63,465 14,497 18.19
DFIN Damen Financial Corp. IL 10/02/95 235,320 125,438 56,903 24.18
DIBK Dime Financial Corp. CT 07/09/86 671,426 550,624 53,399 7.95
DIME Dime Community Bancorp, Inc. NY 06/26/96 662,739 554,841 77,067 11.63
DME Dime Bancorp, Inc. NY 08/19/86 19,413,115 12,664,315 986,141 5.08
DNFC D & N Financial Corp. MI 02/13/85 1,231,927 901,296 69,364 5.63
DSBC DS Bancor, Inc. CT 12/11/85 1,247,739 1,070,183 81,739 6.55
DSL Downey Financial Corp. CA 01/01/71 4,652,584 3,890,658 387,470 8.33
EBCP Eastern Bancorp NH 11/17/83 824,899 626,874 63,505 7.70
EBSI Eagle Bancshares GA 04/01/86 558,315 332,288 37,131 6.65
EFBI Enterprise Federal Bancorp OH 10/17/94 203,431 139,708 31,470 15.47
EGFC Eagle Financial Corp. CT 02/03/87 1,428,558 1,058,007 101,928 7.14
EGLB Eagle BancGroup, Inc. IL 07/01/96 150,974 138,396 11,515 7.63
EQSB Equitable Federal Savings Bank MD 09/10/93 260,134 203,733 13,648 5.25
ESBK Elmira Savings Bank (The) NY 03/01/85 223,029 206,657 14,043 6.30
ESX Essex Bancorp, Inc. VA NA 315,568 255,916 23,114 7.32
ETFS East Texas Financial Services TX 01/10/95 114,961 91,666 22,570 19.63
FBBC First Bell Bancorp, Inc. PA 06/29/95 542,600 409,991 114,272 21.06
FBCI Fidelity Bancorp, Inc. IL 12/15/93 433,027 301,515 52,162 12.05
FBCV 1ST Bancorp IN 04/07/87 273,122 139,237 21,535 7.88
FBER 1st Bergen Bancorp NJ 04/01/96 258,566 210,360 42,712 16.52
FBHC Fort Bend Holding Corp. TX 06/30/93 244,169 203,914 17,572 7.20
FBSI First Bancshares, Inc. MO 12/22/93 140,471 102,687 23,771 16.92
FCB Falmouth Co-Operative Bank MA 03/28/96 87,932 64,825 21,589 24.55
FCBF FCB Financial Corp. WI 09/24/93 255,660 151,115 47,192 18.46
<CAPTION>
Tangible Risk-Based NPAs + Loans One Year
Equity/ Capital/ 90+ Pst Due/ Return on Return on Cum Gap/
Tang Assets Risk-Weighted Assets Avg Assets Avg Equity Assets
Ticker Institution (%) Assets (%) (%) (%) (%) (%)
- ------ ----------- ----------- ------------- ----------- ---------- ---------- --------
<C> <S> <C> <C> <C> <C> <C> <C>
CFCP Coastal Financial Corp. 6.08 10.54 0.42 1.00 16.47 NA
CFCX Center Financial Corp. 5.72 NA 2.61 0.69 11.34 (14.37)
CFFC Community Financial Corp. 13.71 19.03 0.45 1.30 9.71 NA
CFHC California Financial Holding 6.75 12.12 1.39 0.29 4.26 NA
CFSB CFSB Bancorp, Inc. 8.30 14.32 0.09 0.94 11.56 (8.59)
CFTP Community Federal Bancorp 33.11 29.59 0.34 1.15 7.06 NA
CFX CFX Corporation 8.53 NA 1.09 0.97 9.66 2.15
CIBI Community Investors Bancorp 13.84 25.01 0.73 1.01 6.98 NA
CJFC Central Jersey Financial 11.04 21.08 1.91 1.11 10.78 NA
CKFB CKF Bancorp, Inc. 27.29 33.92 1.70 1.24 4.39 NA
CLAS Classic Bancshares, Inc. 28.79 48.57 0.51 NA NA NA
CMRN Cameron Financial Corp 26.54 33.78 0.79 1.60 5.72 0.85
CMSB Commonwealth Bancorp, Inc. 7.37 18.96 0.44 0.78 8.41 (1.03)
CMSV Community Savings, MHC 11.82 24.89 1.24 0.84 6.62 6.43
CNIT CENIT Bancorp, Inc. 6.73 NA 0.51 0.44 6.13 NA
CNSB CNS Bancorp, Inc. 10.75 NA 0.70 0.22 2.14 NA
CNSK Covenant Bank for Savings 7.27 NA 2.04 0.74 9.77 (25.59)
COFD Collective Bancorp, Inc. 6.58 17.36 0.57 1.05 15.87 (25.86)
COFI Charter One Financial 6.80 14.29 0.42 0.28 4.31 NA
COOP Cooperative Bankshares, Inc. 8.31 NA 0.22 0.28 3.10 (8.19)
CRCL Circle Financial Corp. 9.37 21.43 0.10 0.49 4.32 (27.59)
CRZY Crazy Woman Creek Bancorp 32.71 34.67 0.70 NA NA NA
CSA Coast Savings Financial 5.08 10.88 1.62 0.46 9.62 4.94
CSBF CSB Financial Group, Inc. 30.89 NA 0.78 0.84 4.03 NA
CTBK Center Banks Incorporated 7.08 NA 1.07 0.56 8.07 9.39
CTZN CitFed Bancorp, Inc. 5.86 15.11 0.85 0.68 9.62 (8.50)
CVAL Chester Valley Bancorp Inc. 9.15 16.33 1.03 0.91 10.03 9.16
CZF CitiSave Financial Corp 18.17 29.87 0.30 1.15 7.47 NA
DFIN Damen Financial Corp. 24.18 48.02 0.14 NA NA NA
DIBK Dime Financial Corp. 7.58 NA 0.99 1.51 19.92 (1.97)
DIME Dime Community Bancorp, Inc. 11.63 NA 2.59 1.33 11.50 NA
DME Dime Bancorp, Inc. 5.03 12.01 NA 0.33 6.92 (13.71)
DNFC D & N Financial Corp. 5.55 9.78 0.59 1.06 19.79 (4.98)
DSBC DS Bancor, Inc. 6.34 NA 1.82 0.66 10.25 (6.22)
DSL Downey Financial Corp. 8.20 14.25 2.03 0.61 7.58 4.20
EBCP Eastern Bancorp 7.28 12.67 1.81 0.61 8.21 NA
EBSI Eagle Bancshares 6.65 10.58 0.49 0.97 13.77 NA
EFBI Enterprise Federal Bancorp 15.44 29.23 0.01 1.03 5.52 NA
EGFC Eagle Financial Corp. 5.27 15.66 1.23 1.29 17.83 NA
EGLB Eagle BancGroup, Inc. 7.63 NA 0.80 (0.05) (0.05) NA
EQSB Equitable Federal Savings Bank 5.25 11.20 0.98 0.84 16.13 NA
ESBK Elmira Savings Bank (The) 6.03 10.59 0.80 0.14 2.25 25.65
ESX Essex Bancorp, Inc. 4.80 8.88 3.32 0.32 6.11 NA
ETFS East Texas Financial Services 19.63 44.20 0.45 0.89 4.58 NA
FBBC First Bell Bancorp, Inc. 21.06 34.43 0.11 1.54 7.44 (24.56)
FBCI Fidelity Bancorp, Inc. 12.01 20.73 0.53 0.77 5.56 NA
FBCV 1ST Bancorp 7.88 17.47 0.38 2.25 35.92 NA
FBER 1st Bergen Bancorp 16.52 15.70 2.49 NA NA NA
FBHC Fort Bend Holding Corp. 7.20 19.29 NA 0.71 9.84 NA
FBSI First Bancshares, Inc. 16.92 20.73 0.43 0.79 4.42 NA
FCB Falmouth Co-Operative Bank 24.55 NA 0.00 NA NA NA
FCBF FCB Financial Corp. 18.46 25.73 NA 1.03 5.37 NA
</TABLE>
<PAGE>
EXHIBIT 20-A
ALL PUBLICLY TRADED THRIFTS
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Total Total Total Equity/
Assets Deposits Equity Assets
Ticker Institution State IPO Date ($000) ($000) ($000) (%)
- ------ ----------- ----- -------- ------ -------- ------ -------
<C> <S> <C> <C> <C> <C> <C> <C>
FCIT First Citizens Financial Corp. MD 12/17/86 624,118 500,237 39,192 6.28
FDEF First Defiance Financial OH 10/02/95 528,222 383,710 134,187 25.40
FED FirstFed Financial Corp. CA 12/16/83 4,165,825 2,256,643 195,311 4.69
FESX First Essex Bancorp, Inc. MA 08/04/87 801,455 500,970 61,430 7.66
FFBA First Colorado Bancorp, Inc. CO 01/02/96 1,492,600 1,094,339 241,623 16.19
FFBH First Federal Bancshares of AR AR 05/03/96 466,101 427,384 36,255 7.78
FFBI First Financial Bancorp, Inc. IL 10/04/93 88,615 69,764 7,865 8.88
FFBS FFBS BanCorp, Inc. MS 07/01/93 123,553 98,538 24,170 19.56
FFBZ First Federal Bancorp, Inc. OH 07/13/92 173,191 132,370 13,527 7.81
FFCH First Financial Holdings Inc. SC 11/10/83 1,449,162 1,064,047 95,758 6.61
FFDF FFD Financial Corp. OH 04/03/96 76,159 67,104 8,302 10.90
FFDP FirstFed Bancshares IL 07/01/92 623,996 456,076 56,285 9.02
FFEC First Fed Bncshrs Eau Claire WI 10/12/94 672,300 374,961 96,278 14.32
FFED Fidelity Federal Bancorp IN 08/31/87 280,138 191,516 14,221 5.08
FFES First Federal of East Hartford CT 06/23/87 933,433 517,080 57,831 6.20
FFFC FFVA Financial Corp. VA 10/12/94 517,754 383,179 84,487 16.32
FFFD North Central Bancshares, IA 03/21/96 190,613 128,329 55,029 28.87
FFFG F.F.O. Financial Group, Inc. FL 10/13/88 305,683 268,722 18,408 6.02
FFFL Fidelity FSB of Florida, MHC FL 01/07/94 791,897 611,327 81,076 10.24
FFHC First Financial Corp. WI 12/24/80 5,419,203 4,495,035 397,571 7.34
FFHH FSF Financial Corp. MN 10/07/94 326,689 188,822 52,167 15.97
FFHS First Franklin Corporation OH 01/26/88 216,124 187,217 20,542 9.50
FFIC Flushing Financial Corp NY 11/21/95 739,382 566,883 138,416 18.72
FFKY First Federal Financial Corp. KY 07/15/87 351,010 264,465 49,291 14.04
FFLC FFLC Bancorp, Inc. FL 01/04/94 330,514 271,028 56,096 16.97
FFML First Family Financial Corp. FL 10/22/92 159,049 147,240 8,929 5.61
FFOH Fidelity Financial of Ohio OH 03/04/96 249,366 182,217 50,780 20.36
FFPB First Palm Beach Bancorp, Inc. FL 09/29/93 1,465,395 1,086,266 111,898 7.64
FFPC Florida First Bancorp, Inc. FL 11/06/86 304,040 249,295 21,069 6.93
FFRV Fidelity Financial Bankshares VA 05/01/86 321,558 241,935 27,360 8.51
FFSL First Independence Corp. KS 10/08/93 101,628 72,907 12,845 12.64
FFSW FirstFederal Financial Svcs OH 03/31/87 993,459 619,021 76,772 7.73
FFSX First Fed SB of Siouxland, MHC IA 07/13/92 436,519 344,744 36,727 8.41
FFWC FFW Corp. IN 04/05/93 148,892 92,131 16,083 10.80
FFWD Wood Bancorp, Inc. OH 08/31/93 139,718 114,959 20,395 14.60
FFWM First Financial-W. Maryland MD 02/11/92 326,489 281,217 40,919 12.53
FFYF FFY Financial Corp. OH 06/28/93 573,162 459,143 105,162 18.35
FGHC First Georgia Holding, Inc. GA 02/11/87 142,133 114,143 11,605 8.16
FIBC Financial Bancorp, Inc. NY 08/17/94 251,873 193,988 26,835 10.65
FISB First Indiana Corporation IN 08/02/83 1,476,879 1,119,824 132,245 8.95
FKFS First Keystone Financial PA 01/26/95 278,204 226,706 23,043 8.28
FKKY Frankfort First Bancorp, Inc. KY 07/10/95 138,616 85,359 47,836 34.51
FLAG FLAG Financial Corp. GA 12/11/86 225,960 176,807 21,599 9.56
FLFC First Liberty Financial Corp. GA 12/06/83 981,694 724,676 74,634 7.60
FLFC First Liberty Financial Corp. GA 12/06/83 981,694 724,676 74,634 7.60
FLKY First Lancaster Bancshares KY 07/01/96 33,812 24,187 4,643 13.73
FMBD First Mutual Bancorp, Inc. IL 07/05/95 285,296 195,829 72,050 25.25
FMCO FMS Financial Corporation NJ 12/14/88 505,700 421,747 33,288 6.58
FMCT Farmers & Mechanics Bank CT 12/10/93 536,955 504,789 29,812 5.55
FMLY Family Bancorp MA 11/07/86 887,387 736,646 68,843 7.76
FMSB First Mutual Savings Bank WA 12/17/85 370,986 287,983 24,647 6.64
FNGB First Northern Capital Corp. WI 12/29/83 572,193 456,841 72,840 12.73
<CAPTION>
Tangible Risk-Based NPAs + Loans One Year
Equity/ Capital/ 90+ Pst Due/ Return on Return on Cum Gap/
Tang Assets Risk-Weighted Assets Avg Assets Avg Equity Assets
Ticker Institution (%) Assets (%) (%) (%) (%) (%)
- ------ ----------- ----------- ------------- ----------- ---------- ---------- --------
<C> <S> <C> <C> <C> <C> <C> <C>
FCIT First Citizens Financial Corp. 6.28 10.93 3.43 0.71 11.36 (11.86)
FDEF First Defiance Financial 25.40 33.94 NA 1.15 5.61 (3.17)
FED FirstFed Financial Corp. 4.61 10.98 2.56 0.18 3.94 7.39
FESX First Essex Bancorp, Inc. 7.66 13.13 0.77 0.94 13.03 4.00
FFBA First Colorado Bancorp, Inc. 16.02 24.14 0.25 0.98 8.64 NA
FFBH First Federal Bancshares of AR 7.78 NA 0.09 NA NA NA
FFBI First Financial Bancorp, Inc. 8.88 19.02 0.40 0.70 6.53 (6.04)
FFBS FFBS BanCorp, Inc. 19.56 29.58 0.70 1.32 6.50 NA
FFBZ First Federal Bancorp, Inc. 7.80 11.80 0.62 1.10 14.88 NA
FFCH First Financial Holdings Inc. 6.61 11.87 1.36 0.75 11.29 (4.74)
FFDF FFD Financial Corp. 10.90 24.78 NA 0.85 6.89 NA
FFDP FirstFed Bancshares 8.65 19.70 0.14 0.64 6.65 (4.82)
FFEC First Fed Bncshrs Eau Claire 13.82 21.61 0.13 0.97 5.85 (14.11)
FFED Fidelity Federal Bancorp 5.08 12.12 0.07 1.29 25.83 7.72
FFES First Federal of East Hartford 6.18 23.01 0.83 0.60 8.81 (10.36)
FFFC FFVA Financial Corp. 16.04 26.76 0.48 1.25 7.22 1.67
FFFD North Central Bancshares, 28.87 31.63 0.13 1.48 8.70 NA
FFFG F.F.O. Financial Group, Inc. 6.02 12.75 3.77 0.45 6.83 NA
FFFL Fidelity FSB of Florida, MHC 10.13 21.44 0.38 0.65 6.23 (5.75)
FFHC First Financial Corp. 6.99 15.82 0.52 1.28 18.92 (3.18)
FFHH FSF Financial Corp. 15.97 29.20 0.09 0.63 3.37 12.28
FFHS First Franklin Corporation 9.50 15.13 0.73 0.63 6.61 1.33
FFIC Flushing Financial Corp 18.72 30.48 0.90 0.92 7.57 NA
FFKY First Federal Financial Corp. 13.22 20.92 0.45 1.65 11.50 NA
FFLC FFLC Bancorp, Inc. 16.97 30.93 0.08 0.94 5.43 NA
FFML First Family Financial Corp. 5.61 11.58 0.42 0.90 17.04 NA
FFOH Fidelity Financial of Ohio 20.36 24.85 0.40 0.83 6.02 NA
FFPB First Palm Beach Bancorp, Inc. 7.45 13.38 0.81 0.69 8.21 (6.77)
FFPC Florida First Bancorp, Inc. 6.93 14.64 0.82 0.86 12.90 (3.61)
FFRV Fidelity Financial Bankshares 8.50 12.43 1.16 0.99 12.15 7.00
FFSL First Independence Corp. 12.64 24.43 0.96 1.13 8.56 (11.25)
FFSW FirstFederal Financial Svcs 7.28 14.52 0.15 1.06 12.90 (7.50)
FFSX First Fed SB of Siouxland, MHC 8.38 18.21 0.17 0.64 7.78 (9.59)
FFWC FFW Corp. 10.80 15.43 0.06 0.90 8.07 11.64
FFWD Wood Bancorp, Inc. 14.60 23.12 0.18 1.17 8.14 NA
FFWM First Financial-W. Maryland 12.53 19.51 2.02 0.43 3.56 25.72
FFYF FFY Financial Corp. 18.35 18.95 0.88 1.21 6.50 (10.18)
FGHC First Georgia Holding, Inc. 7.29 11.38 1.51 0.87 10.61 17.70
FIBC Financial Bancorp, Inc. 10.60 19.76 2.80 0.66 5.49 NA
FISB First Indiana Corporation 8.84 11.53 1.70 1.18 13.88 5.22
FKFS First Keystone Financial 8.28 17.93 2.86 0.48 5.49 NA
FKKY Frankfort First Bancorp, Inc. 34.51 57.31 0.10 1.05 3.80 NA
FLAG FLAG Financial Corp. 9.56 14.19 1.69 0.92 9.91 NA
FLFC First Liberty Financial Corp. 6.58 11.58 0.88 1.03 13.14 NA
FLFC First Liberty Financial Corp. 6.58 11.58 0.88 1.03 13.14 NA
FLKY First Lancaster Bancshares 13.73 NA 1.23 1.50 11.24 NA
FMBD First Mutual Bancorp, Inc. 25.25 NA 0.16 0.99 4.14 (14.02)
FMCO FMS Financial Corporation 6.41 16.14 1.11 0.84 13.04 NA
FMCT Farmers & Mechanics Bank 5.55 NA 2.52 0.07 1.12 (6.10)
FMLY Family Bancorp 7.14 11.48 1.19 0.96 12.56 1.35
FMSB First Mutual Savings Bank 6.64 NA 0.19 1.03 15.31 NA
FNGB First Northern Capital Corp. 12.73 21.90 0.13 0.84 6.53 (2.30)
</TABLE>
<PAGE>
EXHIBIT 20-A
ALL PUBLICLY TRADED THRIFTS
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Total Total Total Equity/
Assets Deposits Equity Assets
Ticker Institution State IPO Date ($000) ($000) ($000) (%)
- ------ ----------- ----- -------- ------ -------- ------ -------
<C> <S> <C> <C> <C> <C> <C> <C>
FNSC Financial Security Corp. IL 12/29/92 274,090 188,777 39,372 14.36
FOBC Fed One Bancorp WV 01/19/95 339,562 247,999 41,140 12.12
FPRY First Financial Bancorp FL 03/29/88 240,379 210,004 15,263 6.35
FRC First Republic Bancorp CA NA 1,972,611 1,195,006 111,462 5.65
FSBC First Savings Bank, FSB NM 08/08/86 115,492 109,420 5,471 4.74
FSBI Fidelity Bancorp, Inc. PA 06/24/88 301,442 243,404 21,951 7.28
FSBS First Ashland Financial Corp KY 04/07/95 86,860 60,646 23,631 27.21
FSFC First Southeast Financial Corp SC 10/08/93 359,481 284,461 70,513 19.62
FSFI First State Financial Services NJ 12/18/87 628,684 557,629 43,014 6.84
FSLA First Savings Bank, MHC NJ 07/10/92 959,356 819,153 91,060 9.49
FSNJ First Savings Bk of NJ, MHC NJ 01/09/95 657,075 447,783 53,411 8.13
FSPG First Home Bancorp, Inc. NJ 04/20/87 466,363 276,668 30,396 6.52
FSSB First FS&LA of San Bernardino CA 02/02/93 103,288 96,747 5,827 5.64
FTF Texarkana First Financial Corp AR 07/07/95 163,391 127,408 33,683 20.61
FTFC First Federal Capital Corp. WI 11/02/89 1,382,069 995,274 94,672 6.85
FTSB Fort Thomas Financial Corp. KY 06/28/95 87,960 62,385 21,368 24.29
FWWB First SB of Washington Bancorp WA 11/01/95 594,917 368,100 153,453 25.79
GAF GA Financial, Inc. PA 03/26/96 568,725 425,682 127,659 22.45
GBCI Glacier Bancorp, Inc. MT 03/30/84 398,220 200,781 38,335 9.63
GDVS Greater Delaware Valley SB,MHC PA 03/03/95 235,877 189,611 28,982 12.29
GDW Golden West Financial CA 05/29/59 35,013,718 20,990,781 2,332,592 6.66
GFCO Glenway Financial Corp. OH 11/30/90 273,890 221,647 26,485 9.67
GFED Guaranty Federal SB, MHC MO 04/10/95 185,546 156,806 27,165 14.64
GFSB GFS Bancorp, Inc. IA 01/06/94 80,913 51,050 9,738 12.04
GLBK Glendale Co-Operative Bank MA 01/10/94 35,903 29,847 5,857 16.31
GLN Glendale Federal Bank, FSB CA 10/01/83 14,367,978 6,886,267 941,398 6.55
GPT GreenPoint Financial Corp. NY 01/28/94 14,469,046 12,697,967 1,530,488 10.58
GROV Grove Bank MA 08/07/86 586,433 482,986 36,582 6.24
GRTR Greater New York Savings Bank NY 06/17/87 2,575,726 1,729,580 198,089 7.69
GSBC Great Southern Bancorp, Inc. MO 12/14/89 658,997 390,812 66,706 10.12
GSFC Green Street Financial Corp. NC 04/04/96 213,285 187,952 23,158 10.86
GSLC Guaranty Financial Corp. VA NA 102,967 70,145 6,373 6.19
GTFN Great Financial Corporation KY 03/31/94 2,477,204 1,546,594 281,206 11.35
GTPS Great American Bancorp IL 06/30/95 120,540 86,154 33,212 27.55
GUPB GFSB Bancorp, Inc. NM 06/30/95 70,422 43,256 16,216 23.03
GWBC Gateway Bancorp, Inc. KY 01/18/95 73,005 54,456 18,247 24.99
GWF Great Western Financial CA NA 43,762,730 29,341,730 2,822,132 6.45
HALL Hallmark Capital Corp. WI 01/03/94 339,283 219,541 26,524 7.82
HARB Harbor Federal Savings Bk, MHC FL 01/06/94 932,858 761,160 82,640 8.86
HARL Harleysville Savings Bank PA 08/04/87 273,997 237,648 19,325 7.05
HARS Harris Savings Bank, MHC PA 01/25/94 1,249,497 1,062,227 150,835 12.07
HAVN Haven Bancorp, Inc. NY 09/23/93 1,485,076 1,096,400 93,537 6.30
HBBI Home Building Bancorp IN 02/08/95 42,407 32,019 5,992 14.13
HBFW Home Bancorp IN 03/30/95 312,758 258,004 51,355 16.42
HBNK Highland Federal Bank FSB CA NA 441,911 369,767 34,626 7.84
HBS Haywood Bancshares, Inc. NC 12/18/87 134,274 109,567 19,176 14.28
HEMT HF Bancorp, Inc. CA 06/30/95 754,365 486,764 86,273 11.44
HFFB Harrodsburg First Fin Bancorp KY 10/04/95 108,710 76,635 31,161 28.66
HFFC HF Financial Corp. SD 04/08/92 574,027 414,556 51,514 8.97
HFGI Harrington Financial Group IN NA 321,756 127,017 11,616 3.61
HFMD Home Federal Corp. MD 02/10/84 216,684 167,989 18,673 8.62
HFNC HFNC Financial Corp. NC 12/29/95 716,277 462,856 244,362 34.12
<CAPTION>
Tangible Risk-Based NPAs + Loans One Year
Equity/ Capital/ 90+ Pst Due/ Return on Return on Cum Gap/
Tang Assets Risk-Weighted Assets Avg Assets Avg Equity Assets
Ticker Institution (%) Assets (%) (%) (%) (%) (%)
- ------ ----------- ----------- ------------- ----------- ---------- ---------- --------
<C> <S> <C> <C> <C> <C> <C> <C>
FNSC Financial Security Corp. 14.36 20.94 2.77 0.78 5.71 NA
FOBC Fed One Bancorp 11.55 27.57 0.28 1.00 7.74 7.69
FPRY First Financial Bancorp 6.35 11.28 NA 0.57 8.95 NA
FRC First Republic Bancorp 5.64 NA 2.64 0.14 2.36 10.12
FSBC First Savings Bank, FSB 4.74 16.65 1.44 0.31 6.81 NA
FSBI Fidelity Bancorp, Inc. 7.23 NA 0.81 0.60 7.73 NA
FSBS First Ashland Financial Corp 27.21 41.15 NA 0.96 3.61 NA
FSFC First Southeast Financial Corp 19.62 33.83 0.14 0.90 4.59 NA
FSFI First State Financial Services 6.51 11.29 4.97 0.63 9.27 NA
FSLA First Savings Bank, MHC 8.34 21.64 0.96 0.87 9.48 (7.24)
FSNJ First Savings Bk of NJ, MHC 8.13 27.27 0.98 0.04 0.47 (32.32)
FSPG First Home Bancorp, Inc. 6.35 15.68 0.97 1.01 15.60 (3.23)
FSSB First FS&LA of San Bernardino 5.40 11.74 4.86 (0.17) (2.90) NA
FTF Texarkana First Financial Corp 20.61 29.58 0.36 1.77 10.80 7.40
FTFC First Federal Capital Corp. 6.48 10.09 NA 0.92 13.46 (27.97)
FTSB Fort Thomas Financial Corp. 24.29 31.30 1.78 1.29 5.55 NA
FWWB First SB of Washington Bancorp 25.79 NA 0.23 NA NA NA
GAF GA Financial, Inc. 22.45 18.63 0.19 0.60 6.38 NA
GBCI Glacier Bancorp, Inc. 9.61 NA 0.23 1.59 16.25 (7.94)
GDVS Greater Delaware Valley SB,MHC 12.29 NA 3.05 0.48 3.98 6.29
GDW Golden West Financial 6.29 14.89 1.37 0.75 11.76 8.43
GFCO Glenway Financial Corp. 9.46 NA NA 0.56 5.82 NA
GFED Guaranty Federal SB, MHC 14.64 26.8 0.07 1.02 7.11 NA
GFSB GFS Bancorp, Inc. 12.04 18.45 0.97 1.08 8.47 NA
GLBK Glendale Co-Operative Bank 16.31 NA 0.00 0.78 4.98 NA
GLN Glendale Federal Bank, FSB 6.16 11.94 2.08 0.23 3.80 19.36
GPT GreenPoint Financial Corp. 6.31 NA 2.94 0.96 6.85 1.89
GROV Grove Bank 6.23 NA 0.80 0.81 13.29 (11.63)
GRTR Greater New York Savings Bank 7.69 NA 9.21 0.75 10.09 (3.95)
GSBC Great Southern Bancorp, Inc. 9.97 12.72 2.03 1.74 17.18 13.78
GSFC Green Street Financial Corp. 10.86 30.74 0.16 NA NA (6.16)
GSLC Guaranty Financial Corp. 6.19 13.86 3.14 0.68 10.91 NA
GTFN Great Financial Corporation 11.19 20.34 4.16 1.00 8.18 NA
GTPS Great American Bancorp 27.55 36.23 0.45 0.68 2.46 NA
GUPB GFSB Bancorp, Inc. 23.03 48.36 NA 1.25 4.87 NA
GWBC Gateway Bancorp, Inc. 24.99 80.78 0.19 1.05 3.91 NA
GWF Great Western Financial 5.77 11.84 1.81 0.65 10.77 4.45
HALL Hallmark Capital Corp. 7.82 NA 0.09 0.57 6.40 NA
HARB Harbor Federal Savings Bk, MHC 8.86 18.31 0.54 1.19 13.70 NA
HARL Harleysville Savings Bank 7.05 NA 0.05 0.82 11.94 (12.20)
HARS Harris Savings Bank, MHC 11.39 NA 0.75 0.70 5.58 (10.73)
HAVN Haven Bancorp, Inc. 6.26 14.62 1.17 0.68 10.26 NA
HBBI Home Building Bancorp 14.13 21.34 0.23 0.46 3.16 NA
HBFW Home Bancorp 16.42 30.07 0.00 0.86 4.97 NA
HBNK Highland Federal Bank FSB 7.84 13.75 1.98 0.22 3.92 NA
HBS Haywood Bancshares, Inc. 13.76 NA 2.45 1.01 6.66 NA
HEMT HF Bancorp, Inc. 11.43 30.00 0.59 0.19 1.50 NA
HFFB Harrodsburg First Fin Bancorp 28.66 40.30 0.60 NA NA NA
HFFC HF Financial Corp. 8.95 13.04 0.69 0.78 8.68 (5.34)
HFGI Harrington Financial Group 3.61 NA 0.43 0.42 11.98 NA
HFMD Home Federal Corp. 8.51 14.88 4.75 1.19 14.29 NA
HFNC HFNC Financial Corp. 34.12 60.94 1.62 NA NA NA
</TABLE>
<PAGE>
EXHIBIT 20-A
ALL PUBLICLY TRADED THRIFTS
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Total Total Total Equity/
Assets Deposits Equity Assets
Ticker Institution State IPO Date ($000) ($000) ($000) (%)
- ------ ----------- ----- -------- ------ -------- ------ -------
<C> <S> <C> <C> <C> <C> <C> <C>
HFSA Hardin Bancorp, Inc. MO 09/29/95 83,386 66,605 16,035 19.23
HIFS Hingham Instit. for Savings MA 12/20/88 179,389 140,736 18,006 10.04
HMCI HomeCorp, Inc. IL 06/22/90 341,742 316,935 20,731 6.07
HMNF HMN Financial, Inc. MN 06/30/94 542,012 368,393 90,879 16.77
HNFC Hinsdale Financial Corp. IL 07/07/92 682,029 471,927 54,341 7.97
HOFL Home Financial Corp. FL 10/25/94 1,227,371 884,558 313,193 25.52
HOMF Home Federal Bancorp IN 01/23/88 606,266 477,233 50,232 8.29
HPBC Home Port Bancorp, Inc. MA 08/25/88 166,866 113,639 18,794 11.26
HRBF Harbor Federal Bancorp, Inc. MD 08/12/94 196,762 161,643 27,889 14.17
HRZB Horizon Financial Corp. WA 08/01/86 488,968 402,676 79,147 16.19
HSBK Hibernia Savings Bank, (The) MA 09/08/86 355,071 289,683 23,108 6.51
HTHR Hawthorne Financial Corp. CA NA 773,090 714,865 40,852 5.28
HVFD Haverfield Corporation OH 03/19/85 339,630 303,968 28,194 8.30
HWEN Home Financial Bancorp IN 07/02/96 33,462 24,895 3,295 9.85
HZFS Horizon Financial Svcs Corp. IA 06/30/94 72,225 54,092 8,358 11.57
IBSF IBS Financial Corp NJ 10/13/94 756,928 577,077 154,419 20.40
IFSB Independence Federal Savings DC 06/06/85 263,735 235,353 16,891 6.40
IFSL Indiana Federal Corporation IN 02/04/87 717,720 546,880 70,504 9.82
INBI Industrial Bancorp OH 08/01/95 327,028 241,819 62,538 19.12
INCB Indiana Community Bank, SB IN 12/15/94 94,476 79,503 14,156 14.98
IPSW Ipswich Savings Bank MA 05/26/93 134,065 114,200 8,473 6.32
IROQ Iroquois Bancorp NY 01/22/86 451,060 372,605 32,439 7.19
IROQ Iroquois Bancorp NY 01/22/86 451,060 372,605 32,439 7.19
ISBF ISB Financial Corporation LA 04/07/95 623,720 449,421 120,802 19.37
ITLA Imperial Thrift and Loan CA 10/24/95 655,435 536,724 58,937 8.99
IWBK InterWest Bancorp, Inc. WA NA 1,368,548 892,722 94,118 6.88
JEBC Jefferson Bancorp, Inc. LA 08/18/94 265,039 227,542 35,429 13.37
JOAC Joachim Bancorp, Inc. MO 12/28/95 36,779 25,644 10,751 29.23
JSBA Jefferson Savings Bancorp MO 04/08/93 1,114,294 879,159 81,088 7.28
JSBF JSB Financial, Inc. NY 06/27/90 1,548,328 1,168,188 337,940 21.83
JXSB Jacksonville Savings Bank, MHC IL 04/21/95 142,200 123,357 16,761 11.79
JXVL Jacksonville Bancorp, Inc. TX 04/01/96 213,062 174,961 35,582 16.70
KFBI Klamath First Bancorp OR 10/05/95 604,663 390,195 167,694 27.73
KNK Kankakee Bancorp, Inc. IL 01/06/93 363,182 294,080 35,581 9.80
KSAV KS Bancorp, Inc. NC 12/30/93 89,871 72,489 13,628 15.16
KSBK KSB Bancorp, Inc. ME 06/24/93 127,372 104,508 8,727 6.85
KYF Kentucky First Bancorp, Inc. KY 08/29/95 83,981 51,109 19,841 23.63
LARK Landmark Bancshares, Inc. KS 03/28/94 193,403 142,346 33,272 17.20
LARL Laurel Capital Group, Inc. PA 02/20/87 193,008 162,532 20,609 10.68
LBCI Liberty Bancorp, Inc. IL 12/24/91 669,949 502,880 63,818 9.53
LBFI L & B Financial, Inc. TX 10/11/94 143,223 103,938 24,553 17.14
LFBI Little Falls Bancorp, Inc. NJ 01/05/96 285,563 240,554 43,462 15.22
LFCT Leader Financial Corp. TN 09/30/93 3,177,812 1,582,691 255,171 8.03
LFED Leeds Federal Savings Bk, MHC MD 05/02/94 266,658 217,222 43,610 16.35
LIFB Life Bancorp, Inc. VA 10/11/94 1,204,577 677,956 153,350 12.73
LISB Long Island Bancorp, Inc. NY 04/18/94 4,834,405 3,619,961 516,870 10.69
LOAN Horizon Bancorp TX NA 126,884 114,745 10,966 8.64
LOGN Logansport Financial Corp. IN 06/14/95 76,493 54,272 20,473 26.76
LONF London Financial Corporation OH 04/01/96 37,552 29,228 7,834 20.86
LSBI LSB Financial Corp. IN 02/03/95 162,520 112,286 17,328 10.66
LSBX Lawrence Savings Bank MA 05/02/86 323,523 245,275 24,443 7.56
LVSB Lakeview Financial NJ 12/22/93 455,155 353,893 45,287 9.95
<CAPTION>
Tangible Risk-Based NPAs + Loans OneYear
Equity/ Capital/ 90+ Pst Due/ Return on Return on Cum Gap/
Tang Assets Risk-Weighted Assets Avg Assets Avg Equity Assets
Ticker Institution (%) Assets (%) (%) (%) (%) (%)
- ------ ----------- ----------- ------------- ----------- ---------- ---------- --------
<C> <S> <C> <C> <C> <C> <C> <C>
HFSA Hardin Bancorp, Inc. 19.23 35.60 0.11 0.64 4.56 4.58
HIFS Hingham Instit. for Savings 10.04 NA 0.34 1.12 10.71 (2.84)
HMCI HomeCorp, Inc. 6.07 9.42 3.24 0.37 6.28 (2.88)
HMNF HMN Financial, Inc. 16.77 35.31 0.14 1.10 6.27 (3.47)
HNFC Hinsdale Financial Corp. 7.74 13.24 0.13 0.62 8.24 (12.64)
HOFL Home Financial Corp. 25.52 60.42 0.06 1.70 6.58 NA
HOMF Home Federal Bancorp 7.99 12.86 0.47 1.20 15.05 NA
HPBC Home Port Bancorp, Inc. 11.26 NA 0.65 1.75 15.10 NA
HRBF Harbor Federal Bancorp, Inc. 14.17 34.84 0.23 0.62 3.17 (0.97)
HRZB Horizon Financial Corp. 16.19 NA 0.00 1.53 9.51 (34.03)
HSBK Hibernia Savings Bank, (The) 6.51 NA 0.42 0.68 9.94 (6.57)
HTHR Hawthorne Financial Corp. 5.26 10.27 11.39 (0.21) (4.82) NA
HVFD Haverfield Corporation 8.28 11.39 0.78 0.65 7.98 4.84
HWEN Home Financial Bancorp 9.85 NA 0.39 0.97 9.55 18.10
HZFS Horizon Financial Svcs Corp. 11.57 17.00 1.57 0.46 3.71 4.79
IBSF IBS Financial Corp 20.40 77.31 0.07 1.11 5.16 0.40
IFSB Independence Federal Savings 5.56 14.83 2.68 0.49 7.71 4.45
IFSL Indiana Federal Corporation 9.19 13.73 1.41 1.02 10.75 (14.69)
INBI Industrial Bancorp 19.12 33.72 0.40 1.48 7.38 NA
INCB Indiana Community Bank, SB 14.98 NA NA 0.67 4.39 NA
IPSW Ipswich Savings Bank 6.32 NA 2.23 1.38 22.40 15.48
IROQ Iroquois Bancorp 7.19 NA 1.60 0.98 13.91 0.03
IROQ Iroquois Bancorp 7.19 NA 1.60 0.98 13.91 0.03
ISBF ISB Financial Corporation 19.36 NA NA 1.24 6.22 NA
ITLA Imperial Thrift and Loan 8.99 NA 2.77 NA NA NA
IWBK InterWest Bancorp, Inc. 6.69 NA 0.59 1.08 14.78 NA
JEBC Jefferson Bancorp, Inc. 13.37 41.23 0.46 1.00 7.77 (15.13)
JOAC Joachim Bancorp, Inc. 29.23 45.28 0.01 0.63 2.82 NA
JSBA Jefferson Savings Bancorp 6.08 11.33 0.97 0.62 8.90 NA
JSBF JSB Financial, Inc. 21.83 21.30 NA 1.47 6.76 NA
JXSB Jacksonville Savings Bank, MHC 11.79 NA 0.52 0.43 3.96 (16.03)
JXVL Jacksonville Bancorp, Inc. 16.70 22.14 0.86 0.79 7.47 NA
KFBI Klamath First Bancorp 27.73 45.12 0.11 1.34 6.64 (20.91)
KNK Kankakee Bancorp, Inc. 9.15 16.88 0.59 0.50 4.53 12.97
KSAV KS Bancorp, Inc. 15.15 NA 0.73 1.14 6.85 NA
KSBK KSB Bancorp, Inc. 6.34 NA 1.73 0.79 12.20 0.86
KYF Kentucky First Bancorp, Inc. 23.63 44.61 0.15 1.12 5.27 NA
LARK Landmark Bancshares, Inc. 17.20 35.91 0.37 0.91 5.30 11.88
LARL Laurel Capital Group, Inc. 10.68 NA 0.70 1.35 13.23 (3.26)
LBCI Liberty Bancorp, Inc. 9.50 15.47 0.12 0.56 5.49 8.60
LBFI L & B Financial, Inc. 17.14 NA 0.50 1.06 5.76 NA
LFBI Little Falls Bancorp, Inc. 14.17 14.45 1.56 NA NA NA
LFCT Leader Financial Corp. 8.03 14.51 16.94 1.40 17.36 (5.38)
LFED Leeds Federal Savings Bk, MHC 16.35 39.51 0.01 1.03 6.32 NA
LIFB Life Bancorp, Inc. 12.32 27.82 0.73 0.85 5.91 NA
LISB Long Island Bancorp, Inc. 10.69 17.64 NA 0.95 8.72 6.11
LOAN Horizon Bancorp 8.37 NA 0.42 1.53 17.40 15.02
LOGN Logansport Financial Corp. 26.76 43.51 0.37 1.40 5.41 NA
LONF London Financial Corporation 20.86 19.15 0.21 NA NA 44.41
LSBI LSB Financial Corp. 10.66 15.03 0.19 0.83 6.94 NA
LSBX Lawrence Savings Bank 7.56 NA 1.98 1.15 14.78 NA
LVSB Lakeview Financial 7.82 NA 1.89 1.15 10.25 NA
</TABLE>
<PAGE>
EXHIBIT 20-A
ALL PUBLICLY TRADED THRIFTS
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Total Total Total Equity/
Assets Deposits Equity Assets
Ticker Institution State IPO Date ($000) ($000) ($000) (%)
- ------ ----------- ----- -------- ------ -------- ------ -------
<C> <S> <C> <C> <C> <C> <C> <C>
LXMO Lexington B&L Financial Corp. MO 06/06/96 49,981 42,401 7,195 14.40
MAFB MAF Bancorp, Inc. IL 01/12/90 1,980,184 1,372,783 109,654 5.54
MARN Marion Capital Holdings IN 03/18/93 179,329 125,129 43,031 24.00
MASB MASSBANK Corp. MA 05/28/86 858,922 765,384 87,253 10.16
MBBC Monterey Bay Bancorp, Inc. CA 02/15/95 318,879 222,697 47,771 14.98
MBLF MBLA Financial Corp. MO 06/24/93 195,074 87,293 28,365 14.54
MCBN Mid-Coast Bancorp, Inc. ME 11/02/89 54,362 41,817 4,926 9.06
MCBS Mid Continent Bancshares Inc. KS 06/27/94 290,903 206,908 36,434 12.52
MDBK Medford Savings Bank MA 03/18/86 980,973 793,018 87,169 8.89
MECH Mechanics Savings Bank CT 06/26/96 662,482 620,802 23,726 3.58
MERI Meritrust Federal SB LA NA 227,121 207,611 16,896 7.44
MFBC MFB Corp. IN 03/25/94 200,895 149,981 38,799 19.31
MFCX Marshalltown Financial Corp. IA 03/31/94 126,226 105,642 19,349 15.33
MFFC Milton Federal Financial Corp. OH 10/07/94 171,708 125,347 34,308 19.98
MFLR Mayflower Co-operative Bank MA 12/23/87 113,182 96,466 10,843 9.58
MFSB Mutual Bancompany MO 02/02/95 53,311 45,818 6,236 11.70
MFSL Maryland Federal Bancorp MD 06/02/87 1,143,338 788,931 93,982 8.22
MGNL Magna Bancorp, Inc. MS 03/13/91 1,290,780 952,347 126,078 9.77
MIDC MidConn Bank CT 09/11/86 365,250 314,739 34,512 9.45
MIFC Mid-Iowa Financial Corp. IA 10/14/92 119,395 88,324 10,770 9.02
MIVI Mississippi View Holding Co. MN 03/24/95 69,983 56,059 13,197 18.86
MLFB MLF Bancorp, Inc. PA 08/11/94 1,765,812 830,997 140,337 7.95
MORG Morgan Financial Corp. CO 01/11/93 71,654 42,645 10,501 14.66
MSBB MSB Bancorp, Inc. NY 09/03/92 863,256 778,742 70,123 8.12
MSBF MSB Financial, Inc. MI 02/06/95 56,317 40,873 12,747 22.63
MSBK Mutual Savings Bank, FSB MI 07/17/92 719,490 426,220 39,244 5.45
MSEA Metropolitan Bancorp WA 01/09/90 778,165 398,153 50,882 6.54
MWBI Midwest Bancshares, Inc. IA 11/12/92 136,809 102,475 9,490 6.94
MWBX MetroWest Bank MA 10/10/86 477,665 406,943 35,736 7.48
MWFD Midwest Federal Financial WI 07/08/92 178,249 146,492 16,664 9.35
NASB North American Savings Bank MO 09/27/85 664,250 524,206 48,808 7.35
NBSI North Bancshares, Inc. IL 12/21/93 114,337 74,955 19,827 17.34
NEBC Northeast Bancorp ME 08/19/87 218,187 146,618 18,509 8.48
NEIB Northeast Indiana Bancorp IN 06/28/95 141,098 73,343 28,697 20.34
NFSL Newnan Savings Bank, FSB GA 03/01/86 160,656 127,566 18,605 11.58
NHSL NHS Financial, Inc. CA NA 292,618 229,269 24,671 8.43
NHTB New Hampshire Thrift Bncshrs NH 05/22/86 252,481 198,457 19,417 7.69
NMSB NewMil Bancorp, Inc. CT 02/01/86 291,578 257,241 32,459 11.13
NSBK North Side Savings Bank NY 04/15/86 1,580,435 1,226,902 122,297 7.74
NSLB NS&L Bancorp, Inc. MO 06/08/95 59,052 44,311 13,868 23.48
NSSB Norwich Financial Corp. CT 11/14/86 711,628 610,754 75,253 10.57
NSSY Norwalk Savings Society CT 06/16/94 541,702 398,763 43,245 7.98
NTMG Nutmeg Federal S&LA CT NA 85,194 75,191 5,548 6.51
NWEQ Northwest Equity Corp. WI 10/11/94 86,355 57,256 11,864 13.74
NWSB Northwest Savings Bank, MHC PA 11/07/94 1,767,455 1,388,348 188,638 10.67
NYB New York Bancorp Inc. NY 01/28/88 2,754,437 1,748,145 159,177 5.78
OCFC Ocean Financial Corp. NJ 07/03/96 1,036,445 926,558 92,351 8.91
OFCP Ottawa Financial Corp. MI 08/19/94 745,464 583,140 81,374 10.92
OHSL OHSL Financial Corp. OH 02/10/93 205,462 162,867 25,521 12.42
OSBF OSB Financial Corp. WI 07/01/92 253,714 158,937 31,952 12.59
PALM Palfed, Inc. SC 12/15/85 623,553 505,429 52,706 8.45
PBCI Pamrapo Bancorp, Inc. NJ 11/14/89 368,394 302,075 57,084 15.50
<CAPTION>
Tangible Risk-Based NPAs + Loans One Year
Equity/ Capital/ 90+ Pst Due/ Return on Return on Cum Gap/
Tang Assets Risk-Weighted Assets Avg Assets Avg Equity Assets
Ticker Institution (%) Assets (%) (%) (%) (%) (%)
- ------ ----------- ----------- ------------- ----------- ---------- ---------- --------
<C> <S> <C> <C> <C> <C> <C> <C>
LXMO Lexington B&L Financial Corp. 14.40 NA 1.15 1.17 8.36 NA
MAFB MAF Bancorp, Inc. 5.54 11.65 0.46 0.88 15.13 (8.72)
MARN Marion Capital Holdings 24.00 37.71 0.93 1.41 5.79 NA
MASB MASSBANK Corp. 10.16 NA 0.33 1.05 10.32 NA
MBBC Monterey Bay Bancorp, Inc. 14.83 24.33 0.60 0.19 1.28 (6.00)
MBLF MBLA Financial Corp. 14.54 39.15 0.33 0.70 4.83 16.10
MCBN Mid-Coast Bancorp, Inc. 9.06 16.35 1.10 0.56 6.27 NA
MCBS Mid Continent Bancshares Inc. 12.51 29.24 0.21 1.40 10.14 NA
MDBK Medford Savings Bank 8.13 NA 0.55 1.03 11.58 (9.54)
MECH Mechanics Savings Bank 3.58 NA 5.43 (2.14) (39.13) 5.87
MERI Meritrust Federal SB 7.44 18.50 0.23 1.01 14.06 (6.44)
MFBC MFB Corp. 19.31 39.60 0.05 0.69 3.40 NA
MFCX Marshalltown Financial Corp. 15.33 35.11 0.00 0.32 2.10 (9.45)
MFFC Milton Federal Financial Corp. 19.98 34.50 0.40 1.13 4.88 NA
MFLR Mayflower Co-operative Bank 9.39 NA 1.23 0.89 8.54 NA
MFSB Mutual Bancompany 11.70 23.66 NA 0.20 1.84 NA
MFSL Maryland Federal Bancorp 8.09 14.70 0.48 0.84 10.02 (29.28)
MGNL Magna Bancorp, Inc. 9.23 15.86 4.18 1.79 18.11 7.79
MIDC MidConn Bank 8.00 NA 2.04 0.33 3.55 (7.62)
MIFC Mid-Iowa Financial Corp. 9.01 21.82 0.15 0.84 8.90 1.69
MIVI Mississippi View Holding Co. 18.86 33.33 0.14 1.32 6.73 NA
MLFB MLF Bancorp, Inc. 7.76 17.02 0.59 0.71 7.88 (15.02)
MORG Morgan Financial Corp. 14.66 30.80 0.28 0.97 6.38 (39.70)
MSBB MSB Bancorp, Inc. 4.19 17.98 NA 0.46 5.09 NA
MSBF MSB Financial, Inc. 22.63 27.09 0.60 1.92 7.79 NA
MSBK Mutual Savings Bank, FSB 5.45 18.12 0.11 0.01 0.20 (20.16)
MSEA Metropolitan Bancorp 5.95 19.93 NA 0.70 11.08 NA
MWBI Midwest Bancshares, Inc. 6.94 18.57 0.27 0.99 14.16 (0.88)
MWBX MetroWest Bank 7.48 NA 2.43 1.26 17.00 (2.41)
MWFD Midwest Federal Financial 8.96 12.23 0.26 1.20 12.27 4.57
NASB North American Savings Bank 7.07 12.22 3.36 1.33 18.15 NA
NBSI North Bancshares, Inc. 17.34 47.95 0.00 0.57 2.98 1.91
NEBC Northeast Bancorp 7.36 13.19 NA 0.68 7.97 NA
NEIB Northeast Indiana Bancorp 20.34 25.06 0.25 1.09 5.62 NA
NFSL Newnan Savings Bank, FSB 11.51 17.59 0.67 1.89 17.69 NA
NHSL NHS Financial, Inc. 8.41 14.17 2.05 0.16 1.93 NA
NHTB New Hampshire Thrift Bncshrs 7.69 11.88 1.39 0.58 7.41 NA
NMSB NewMil Bancorp, Inc. 11.13 NA 2.88 2.07 19.16 (6.00)
NSBK North Side Savings Bank 7.67 NA 0.51 1.15 15.75 NA
NSLB NS&L Bancorp, Inc. 23.48 51.57 0.18 0.92 3.83 NA
NSSB Norwich Financial Corp. 9.64 NA 1.92 0.83 7.38 (6.63)
NSSY Norwalk Savings Society 7.98 NA 3.01 0.76 8.88 (11.06)
NTMG Nutmeg Federal S&LA 6.51 10.25 NA 0.66 10.75 NA
NWEQ Northwest Equity Corp. 13.74 NA 0.92 1.06 6.95 (4.26)
NWSB Northwest Savings Bank, MHC 10.56 NA 0.98 1.06 9.34 (7.13)
NYB New York Bancorp Inc. 5.78 11.89 1.63 1.19 19.84 9.49
OCFC Ocean Financial Corp. 8.91 NA 0.97 0.80 9.44 1.14
OFCP Ottawa Financial Corp. 8.94 15.00 0.38 0.99 4.97 NA
OHSL OHSL Financial Corp. 12.42 20.13 0.26 0.95 7.51 NA
OSBF OSB Financial Corp. 12.59 19.79 0.14 0.17 1.34 NA
PALM Palfed, Inc. 8.07 11.44 4.14 0.66 8.53 NA
PBCI Pamrapo Bancorp, Inc. 15.38 28.50 3.05 1.42 9.05 NA
</TABLE>
<PAGE>
EXHIBIT 20-A
ALL PUBLICLY TRADED THRIFTS
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Total Total Total Equity/
Assets Deposits Equity Assets
Ticker Institution State IPO Date ($000) ($000) ($000) (%)
- ------ ----------- ----- -------- ------ -------- ------ -------
<C> <S> <C> <C> <C> <C> <C> <C>
PBCT People's Bank, MHC CT 07/06/88 6,916,300 4,910,700 565,100 8.17
PBIX Patriot Bank Corp. PA 12/04/95 312,990 209,787 54,126 17.29
PBKB People's Bancshares, Inc. MA 10/23/86 533,134 322,261 26,290 4.93
PBNB People's Savings Financial Cp. CT 08/20/86 406,276 342,181 43,925 10.81
PCBC Perry County Financial Corp. MO 02/13/95 78,480 62,197 15,733 20.05
PCCI Pacific Crest Capital CA NA 286,926 261,677 22,688 7.91
PDB Piedmont Bancorp, Inc. NC 12/08/95 124,847 73,292 37,164 29.77
PEEK Peekskill Financial Corp. NY 12/29/95 193,675 129,060 59,409 30.67
PERM Permanent Bancorp, Inc. IN 04/04/94 395,903 280,008 41,494 10.48
PETE Primary Bank NH 10/14/93 393,159 297,803 24,916 6.34
PFDC Peoples Bancorp IN 07/07/87 280,778 235,732 42,857 15.26
PFFB PFF Bancorp, Inc. CA 03/29/96 2,008,139 1,682,073 289,071 14.39
PFNC Progress Financial Corporation PA 07/18/83 347,991 298,100 19,224 5.52
PFSB PennFed Financial Services, Inc NJ 07/15/94 1,022,777 793,640 91,782 8.97
PFSL Pocahontas FS&LA, MHC AR 04/05/94 369,379 113,896 21,964 5.95
PHBK Peoples Heritage Finl Group ME 12/04/86 3,301,647 2,529,031 276,453 8.37
PHFC Pittsburgh Home Financial Corp PA 04/01/96 195,154 120,943 11,229 5.75
PKPS Poughkeepsie Savings Bank, FSB NY 11/19/85 839,174 536,260 71,266 8.49
PLE Pinnacle Bank AL 12/17/86 185,793 164,201 15,223 8.19
PMFI Perpetual Midwest Financial IA 03/31/94 374,039 249,161 36,053 9.64
POBS Portsmouth Bank Shares NH 02/09/88 267,428 196,298 66,992 25.05
PRBC Prestige Bancorp, Inc. PA 06/27/96 91,841 80,731 7,178 7.82
PROV Provident Financial Holdings CA 06/28/96 567,186 486,585 37,323 6.58
PSAB Prime Bancorp, Inc. PA 11/21/88 608,967 484,408 57,484 9.44
PSBK Progressive Bank, Inc. NY 08/01/84 785,554 662,591 69,599 8.86
PSSB Palm Springs Savings Bank CA NA 192,093 174,828 11,693 6.09
PTRS Potters Financial Corp. OH 12/31/93 113,862 100,237 11,081 9.73
PULB Pulaski Bank, Savings Bk, MHC MO 05/11/94 179,406 151,425 22,651 12.63
PULS Pulse Bancorp NJ 09/18/86 452,455 396,244 53,777 11.89
PVFC PVF Capital Corp. OH 12/30/92 318,100 270,638 21,325 6.70
PVSA Parkvale Financial Corporation PA 07/16/87 914,016 805,825 67,862 7.42
PWBC PennFirst Bancorp, Inc. PA 06/13/90 680,434 337,507 53,430 7.85
QCBC Quaker City Bancorp, Inc. CA 12/30/93 692,974 506,033 68,461 9.88
QCFB QCF Bancorp, Inc. MN 04/03/95 145,608 105,083 31,760 21.81
QCSB Queens County Bancorp, Inc. NY 11/23/93 1,259,485 946,183 213,828 16.98
RARB Raritan Bancorp Inc. NJ 03/01/87 346,841 318,565 25,116 7.24
RCSB RCSB Financial Inc. NY 04/29/86 4,048,684 2,337,884 349,590 8.63
REDF RedFed Bancorp Inc. CA 04/08/94 857,959 769,679 48,329 5.63
RELI Reliance Bancshares, Inc. WI 04/19/96 32,260 22,312 9,616 29.81
RELY Reliance Bancorp, Inc. NY 03/31/94 1,744,365 1,345,182 154,566 8.86
RFED Roosevelt Financial Group MO 01/23/87 9,134,660 4,921,047 509,105 5.57
ROSE TR Financial Corp. NY 06/29/93 3,001,958 2,090,780 187,119 6.23
RVSB Riverview Savings Bank, MHC WA 10/26/93 209,506 158,159 23,086 11.02
SBCN Suburban Bancorporation, Inc. OH 09/30/93 197,137 126,210 25,639 13.01
SBFL SB of the Finger Lakes, MHC NY 11/11/94 176,570 145,096 20,351 11.53
SCCB S. Carolina Community Bancshrs SC 07/07/94 44,088 31,192 12,553 28.47
SCSL Suncoast Savings and Loan FL 07/30/85 466,504 297,788 25,338 5.43
SECP Security Capital Corporation WI 01/03/94 3,344,642 2,195,863 564,530 16.88
SFB Standard Federal Bancorp MI 01/21/87 13,505,42 9,449,204 939,243 6.95
SFBM Security Bancorp MT 11/20/86 360,021 294,285 32,128 8.92
SFED SFS Bancorp, Inc. NY 06/30/95 165,569 139,776 23,274 14.06
SFFC StateFed Financial Corporation IA 01/05/94 74,182 45,665 14,925 20.12
<CAPTION>
Tangible Risk-Based NPAs + Loans One Year
Equity/ Capital/ 90+ Pst Due/ Return on Return on Cum Gap/
Tang Assets Risk-Weighted Assets Avg Assets Avg Equity Assets
Ticker Institution (%) Assets (%) (%) (%) (%) (%)
- ------ ----------- ----------- ------------- ----------- ---------- ---------- --------
<C> <S> <C> <C> <C> <C> <C> <C>
PBCT People's Bank, MHC 8.17 NA 1.66 1.15 14.41 NA
PBIX Patriot Bank Corp. 17.29 23.53 0.23 NA NA (9.45)
PBKB People's Bancshares, Inc. 4.68 NA 1.27 0.80 12.24 NA
PBNB People's Savings Financial Cp. 10.09 NA 0.44 0.85 7.81 (3.97)
PCBC Perry County Financial Corp. 20.05 89.38 0.04 1.00 NA NA
PCCI Pacific Crest Capital 7.91 NA 6.49 1.36 16.11 (6.09)
PDB Piedmont Bancorp, Inc. 29.77 NA 0.72 1.35 7.23 1.58
PEEK Peekskill Financial Corp. 30.67 92.20 0.83 NA NA NA
PERM Permanent Bancorp, Inc. 10.36 22.36 1.75 0.34 2.94 (6.26)
PETE Primary Bank 6.32 NA 1.81 (0.04) (0.61) (8.34)
PFDC Peoples Bancorp 15.26 26.96 0.33 1.45 9.58 NA
PFFB PFF Bancorp, Inc. 14.25 10.47 2.29 0.11 1.86 25.71
PFNC Progress Financial Corporation 5.48 8.68 1.33 0.86 19.35 NA
PFSB PennFed Financial Services, Inc 7.24 14.31 0.96 0.74 7.04 (14.27)
PFSL Pocahontas FS&LA, MHC 5.95 18.23 0.26 0.56 9.45 NA
PHBK Peoples Heritage Finl Group 7.29 NA 1.24 1.22 14.14 NA
PHFC Pittsburgh Home Financial Corp 5.75 NA 1.53 NA NA NA
PKPS Poughkeepsie Savings Bank, FSB 8.49 11.83 2.68 1.94 25.03 (0.60)
PLE Pinnacle Bank 7.93 14.03 0.22 0.79 10.34 NA
PMFI Perpetual Midwest Financial 9.64 15.49 0.53 0.41 4.09 24.59
POBS Portsmouth Bank Shares 25.05 NA 0.21 2.31 9.35 18.11
PRBC Prestige Bancorp, Inc. 7.82 NA 0.38 0.18 2.26 NA
PROV Provident Financial Holdings 6.58 NA 2.22 (0.72) (9.81) NA
PSAB Prime Bancorp, Inc. 8.88 14.08 0.60 1.02 10.89 NA
PSBK Progressive Bank, Inc. 8.86 NA 1.09 0.99 10.53 (0.41)
PSSB Palm Springs Savings Bank 6.09 10.93 4.09 0.62 10.80 NA
PTRS Potters Financial Corp. 9.73 24.96 2.49 0.54 5.67 NA
PULB Pulaski Bank, Savings Bk, MHC 12.63 27.82 0.67 0.84 6.94 NA
PULS Pulse Bancorp 11.89 NA 1.45 1.17 10.04 NA
PVFC PVF Capital Corp. 6.70 11.44 NA 1.13 17.86 NA
PVSA Parkvale Financial Corporation 7.39 NA 0.18 1.04 15.22 0.62
PWBC PennFirst Bancorp, Inc. 7.20 19.38 0.64 0.61 7.46 (9.51)
QCBC Quaker City Bancorp, Inc. 9.83 13.13 2.31 0.50 4.90 NA
QCFB QCF Bancorp, Inc. 21.81 31.63 NA 1.51 7.61 NA
QCSB Queens County Bancorp, Inc. 16.98 NA 0.75 1.74 9.88 22.31
RARB Raritan Bancorp Inc. 7.07 NA 0.48 0.82 10.69 (5.12)
RCSB RCSB Financial Inc. 8.42 NA 0.78 1.01 10.78 (6.24)
REDF RedFed Bancorp Inc. 5.63 8.17 4.50 (0.56) (9.99) NA
RELI Reliance Bancshares, Inc. NA NA NA 1.23 4.32 NA
RELY Reliance Bancorp, Inc. 6.16 29.31 0.85 0.88 6.80 (5.88)
RFED Roosevelt Financial Group 5.32 14.60 0.40 0.66 13.04 NA
ROSE TR Financial Corp. 6.23 NA 0.92 0.86 12.68 (9.44)
RVSB Riverview Savings Bank, MHC 9.88 20.75 0.26 1.31 12.02 NA
SBCN Suburban Bancorporation, Inc. 13.01 21.03 0.20 0.39 2.95 NA
SBFL SB of the Finger Lakes, MHC 11.53 25.21 1.68 NA NA NA
SCCB S. Carolina Community Bancshrs 28.47 53.53 NA 1.35 4.50 NA
SCSL Suncoast Savings and Loan 5.42 12.68 0.31 0.51 8.77 12.19
SECP Security Capital Corporation 16.88 NA 0.12 0.89 5.09 (5.18)
SFB Standard Federal Bancorp 6.00 12.53 0.45 0.93 13.88 2.65
SFBM Security Bancorp 7.78 16.87 0.14 0.69 8.01 NA
SFED SFS Bancorp, Inc. 14.06 21.49 0.71 0.63 5.06 NA
SFFC StateFed Financial Corporation 20.12 25.05 NA 1.18 5.80 NA
</TABLE>
<PAGE>
EXHIBIT 20-A
ALL PUBLICLY TRADED THRIFTS
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Total Total Total Equity/
Assets Deposits Equity Assets
Ticker Institution State IPO Date ($000) ($000) ($000) (%)
- ------ ----------- ----- -------- ------ -------- ------ -------
<C> <S> <C> <C> <C> <C> <C> <C>
SFIN Statewide Financial Corp. NJ 10/02/95 634,464 444,819 70,421 11.10
SFSB SuburbFed Financial Corp. IL 03/04/92 362,272 298,243 25,879 7.14
SFSL Security First Corp. OH 01/22/88 469,656 350,915 40,901 8.71
SGVB SGV Bancorp, Inc. CA 06/29/95 333,064 223,148 32,581 9.78
SHEN First Shenango Bancorp, Inc. PA 04/06/93 355,710 257,820 47,090 13.24
SHFC Seven Hills Financial Corp. OH 12/31/93 45,511 35,461 9,651 21.21
SISB SIS Bancorp, Inc. MA 02/08/95 1,135,170 911,124 84,237 7.42
SJSB SJS Bancorp MI 02/16/95 150,752 109,330 17,587 11.67
SMBC Southern Missouri Bancorp, Inc MO 04/13/94 161,992 121,883 26,572 16.40
SMFC Sho-Me Financial Corp. MO 07/01/94 263,890 160,038 31,605 11.98
SOBI Sobieski Bancorp, Inc. IN 03/31/95 76,362 61,349 14,120 18.49
SOPN First Savings Bancorp, Inc. NC 01/06/94 256,294 186,492 67,178 26.21
SOSA Somerset Savings Bank MA 07/09/86 509,502 442,242 27,796 5.46
SPBC St. Paul Bancorp, Inc. IL 05/18/87 4,142,858 3,305,288 382,851 9.24
SRN Southern Banc Company, Inc AL 10/05/95 109,768 86,778 22,293 20.31
SSB Scotland Bancorp, Inc NC 04/01/96 70,412 43,076 26,464 37.58
SSBK Strongsville Savings Bank OH NA 504,631 443,725 41,761 8.28
SSM Stone Street Bancorp, Inc. NC 04/01/96 116,101 69,797 39,117 33.69
STFR St. Francis Capital Corp. WI 06/21/93 1,295,580 806,398 135,162 10.43
STND Standard Financial, Inc. IL 08/01/94 2,186,603 1,605,519 269,004 12.30
STSA Sterling Financial Corp. WA NA 1,497,617 889,559 87,314 5.83
SVRN Sovereign Bancorp, Inc. PA 08/12/86 8,411,108 4,964,515 438,461 5.21
SVRN Sovereign Bancorp, Inc. PA 08/12/86 8,411,108 4,964,515 438,461 5.21
SWBI Southwest Bancshares IL 06/24/92 349,543 253,180 41,951 12.00
SWCB Sandwich Co-operative Bank MA 07/25/86 423,871 374,972 36,448 8.60
SZB SouthFirst Bancshares, Inc. AL 02/14/95 88,899 64,158 13,235 14.89
TBK Tolland Bank CT 12/19/86 217,233 195,524 13,580 6.25
TCB TCF Financial Corp. MN 06/17/86 7,039,282 5,150,023 541,019 7.69
THBC Troy Hill Bancorp, Inc. PA 06/27/94 80,484 52,775 17,865 22.20
THIR Third Financial Corp. OH 03/25/93 155,687 114,506 28,257 18.15
THR Three Rivers Financial Corp. MI 08/24/95 85,138 62,957 13,044 15.32
THRD TF Financial Corporation PA 07/13/94 519,196 337,992 74,298 14.31
TPNZ Tappan Zee Financial, Inc. NY 10/05/95 114,790 89,908 22,360 19.48
TRIC Tri-County Bancorp, Inc. WY 09/30/93 73,436 45,862 13,094 17.83
TSBS Trenton SB, MHC NJ 08/03/95 518,674 413,331 98,755 19.04
TSH Teche Holding Co. LA 04/19/95 346,115 241,420 59,404 17.16
TWIN Twin City Bancorp TN 01/04/95 102,423 83,394 14,095 13.76
UBMT United Financial Corp. MT 09/23/86 104,574 78,854 24,609 23.53
UFRM United Federal Savings Bank NC 07/01/80 252,170 222,795 20,859 8.27
VABF Virginia Beach Fed. Financial VA 11/01/80 624,964 469,660 41,100 6.58
VAFD Valley Federal Savings Bank AL 10/15/87 118,625 104,416 9,595 8.09
VFFC Virginia First Financial VA 01/01/78 713,931 575,942 55,114 7.72
WAMU Washington Mutual Inc. WA 03/11/83 22,344,769 11,275,508 1,649,879 7.38
WAYN Wayne Savings & Loan Co. MHC OH 06/25/93 248,503 210,158 22,852 9.20
WBCI WFS Bancorp, Inc. KS 06/03/94 275,758 197,071 33,854 12.28
WBST Webster Financial Corporation CT 12/12/86 3,813,173 3,128,824 213,846 5.61
WCBI Westco Bancorp IL 06/26/92 309,265 252,484 48,383 15.64
WCFB Webster City Federal SB, MHC IA 08/15/94 97,258 74,085 21,675 22.29
WCHI Workingmens Capital Holdings IN 06/07/90 213,673 154,451 26,164 12.24
WEFC Wells Financial Corp. MN 04/11/95 196,184 148,669 29,327 14.95
WES Westcorp CA 05/01/86 3,076,518 1,737,228 304,287 9.89
WFCO Winton Financial Corp. OH 08/04/88 262,329 208,621 20,698 7.89
<CAPTION>
Tangible Risk-Based NPAs + Loans One Year
Equity/ Capital/ 90+ Pst Due/ Return on Return on Cum Gap/
Tang Assets Risk-Weighted Assets Avg Assets Avg Equity Assets
Ticker Institution (%) Assets (%) (%) (%) (%) (%)
- ------ ----------- ----------- ------------- ----------- ---------- ---------- ---------
<C> <S> <C> <C> <C> <C> <C> <C>
SFIN Statewide Financial Corp. 11.07 32.88 1.26 NA NA NA
SFSB SuburbFed Financial Corp. 7.10 14.99 0.27 0.51 6.97 NA
SFSL Security First Corp. 8.49 12.80 0.44 1.18 13.51 NA
SGVB SGV Bancorp, Inc. 9.78 17.68 1.84 0.12 1.10 NA
SHEN First Shenango Bancorp, Inc. 13.24 20.22 0.49 1.01 7.19 NA
SHFC Seven Hills Financial Corp. 21.21 38.77 0.22 0.36 1.69 NA
SISB SIS Bancorp, Inc. 7.42 NA 1.11 1.28 17.92 8.67
SJSB SJS Bancorp 11.67 19.79 0.29 0.63 5.00 NA
SMBC Southern Missouri Bancorp, Inc 16.40 26.15 0.97 0.87 4.98 NA
SMFC Sho-Me Financial Corp. 11.98 18.43 0.00 0.83 6.26 NA
SOBI Sobieski Bancorp, Inc. 18.49 35.86 0.00 0.42 2.24 NA
SOPN First Savings Bancorp, Inc. 26.21 NA 0.03 1.48 5.68 NA
SOSA Somerset Savings Bank 5.46 NA 9.74 0.33 6.38 (5.85)
SPBC St. Paul Bancorp, Inc. 9.21 17.47 0.74 0.89 9.59 6.38
SRN Southern Banc Company, Inc NA 73.97 NA 0.54 3.96 NA
SSB Scotland Bancorp, Inc 37.58 NA NA NA NA NA
SSBK Strongsville Savings Bank 8.11 13.51 0.49 1.00 11.88 NA
SSM Stone Street Bancorp, Inc. 33.69 NA 0.31 NA NA NA
STFR St. Francis Capital Corp. 10.01 NA 0.04 1.31 11.70 (10.29)
STND Standard Financial, Inc. 12.30 25.22 0.14 0.88 6.23 (2.66)
STSA Sterling Financial Corp. 5.04 11.08 0.63 0.45 7.70 NA
SVRN Sovereign Bancorp, Inc. 3.83 12.64 0.55 0.80 14.71 4.69
SVRN Sovereign Bancorp, Inc. 3.83 12.64 0.55 0.80 14.71 4.69
SWBI Southwest Bancshares 12.00 18.79 0.25 1.19 8.83 (17.15)
SWCB Sandwich Co-operative Bank 8.08 NA 1.34 0.85 10.48 6.78
SZB SouthFirst Bancshares, Inc. 14.89 25.27 0.56 0.55 3.24 NA
TBK Tolland Bank 5.98 NA 4.14 (0.46) (7.50) 7.37
TCB TCF Financial Corp. 7.37 13.17 0.92 1.37 19.87 (1.88)
THBC Troy Hill Bancorp, Inc. 22.20 26.63 2.95 1.38 6.09 NA
THIR Third Financial Corp. 18.15 18.57 0.23 1.40 7.85 NA
THR Three Rivers Financial Corp. 15.26 25.51 0.73 NA NA NA
THRD TF Financial Corporation 14.31 27.07 0.35 0.92 5.60 6.14
TPNZ Tappan Zee Financial, Inc. 19.48 36.26 1.77 0.81 6.04 NA
TRIC Tri-County Bancorp, Inc. 17.83 44.71 0.18 0.94 4.69 NA
TSBS Trenton SB, MHC 18.69 36.17 0.48 1.81 11.14 NA
TSH Teche Holding Co. 17.16 24.32 0.24 1.17 6.66 NA
TWIN Twin City Bancorp 13.76 22.01 0.46 1.08 7.84 NA
UBMT United Financial Corp. 23.53 72.66 0.00 1.50 6.64 NA
UFRM United Federal Savings Bank 8.27 16.81 0.66 0.87 11.31 (0.10)
VABF Virginia Beach Fed. Financial 6.58 11.10 1.76 0.23 3.99 NA
VAFD Valley Federal Savings Bank 8.09 14.47 0.79 0.08 0.96 NA
VFFC Virginia First Financial 7.46 11.22 2.89 1.21 16.02 13.50
WAMU Washington Mutual Inc. 6.74 NA 0.51 1.00 13.72 (13.89)
WAYN Wayne Savings & Loan Co. MHC 9.20 17.86 1.35 0.58 6.32 NA
WBCI WFS Bancorp, Inc. 12.27 22.17 NA 0.45 3.99 NA
WBST Webster Financial Corporation 4.43 13.30 1.44 0.56 10.14 4.71
WCBI Westco Bancorp 15.64 33.14 0.58 1.32 8.46 NA
WCFB Webster City Federal SB, MHC 22.29 51.91 1.08 1.11 5.04 NA
WCHI Workingmens Capital Holdings 12.24 20.80 0.23 0.91 7.55 (2.88)
WEFC Wells Financial Corp. 14.95 19.06 0.39 0.81 5.96 NA
WES Westcorp 9.86 11.84 1.24 1.21 13.63 (4.19)
WFCO Winton Financial Corp. 7.70 12.13 0.53 0.94 12.54 NA
</TABLE>
<PAGE>
EXHIBIT 20-A
ALL PUBLICLY TRADED THRIFTS
FINANCIAL CONDITION
<TABLE>
<CAPTION>
Total Total Total Equity/
Assets Deposits Equity Assets
Ticker Institution State IPO Date ($000) ($000) ($000) (%)
- ------ ----------- ----- -------- ------ -------- ------ -------
<C> <S> <C> <C> <C> <C> <C> <C>
WFSB 1st Washington Bancorp Inc. VA 05/14/87 795,319 440,682 47,355 5.95
WFSL Washington Federal, Inc. WA 11/17/82 4,928,989 2,429,971 598,099 12.13
WHGB WHG Bancshares Corp. MD 04/01/96 111,704 73,351 23,008 20.60
WLDN Walden Bancorp, Inc. MA 12/04/85 1,019,288 770,257 95,494 9.37
WOFC Western Ohio Financial Corp. OH 07/29/94 319,558 182,038 58,161 18.20
WRNB Warren Bancorp, Inc. MA 07/09/86 354,882 316,620 31,768 8.95
WSB Washington Savings Bank, FBS MD NA 254,968 232,278 20,959 8.22
WSFS WSFS Financial Corporation DE 11/26/86 1,259,332 749,557 73,824 5.86
WSTR WesterFed Financial Corp. MT 01/10/94 588,255 356,332 78,102 13.28
WVFC WVS Financial Corporation PA 11/29/93 240,282 170,973 36,331 15.12
WWFC Westwood Financial Corportion NJ 06/07/96 84,779 78,667 5,978 7.05
WYNE Wayne Bancorp, Inc. NJ 06/27/96 207,997 173,822 17,299 8.32
YFCB Yonkers Financial Corporation NY 04/18/96 212,248 194,624 16,598 7.82
YFED York Financial Corp. PA 02/01/84 1,048,673 914,708 92,078 8.78
Average 1,371,299 933,199 110,268 12.20
<CAPTION>
Tangible Risk-Based NPAs + Loans OneYear
Equity/ Capital/ 90+ Pst Due/ Return on Return on Cum Gap/
Tang Assets Risk-Weighted Assets Avg Assets Avg Equity Assets
Ticker Institution (%) Assets (%) (%) (%) (%) (%)
- ------ ----------- ----------- ------------- ----------- ---------- ---------- --------
<C> <S> <C> <C> <C> <C> <C> <C>
WFSB 1st Washington Bancorp Inc. 5.95 14.00 0.87 0.63 11.04 15.76
WFSL Washington Federal, Inc. 11.61 21.22 0.60 1.75 13.78 (49.44)
WHGB WHG Bancshares Corp. 20.60 19.77 0.35 NA NA NA
WLDN Walden Bancorp, Inc. 8.13 NA 0.75 0.99 10.82 (3.15)
WOFC Western Ohio Financial Corp. 17.32 46.01 0.34 1.12 4.19 NA
WRNB Warren Bancorp, Inc. 8.95 NA 2.05 1.65 19.83 (10.86)
WSB Washington Savings Bank, FBS 8.22 20.88 NA 0.94 12.56 NA
WSFS WSFS Financial Corporation 5.80 12.30 3.27 2.21 41.09 9.66
WSTR WesterFed Financial Corp. 13.28 21.34 0.07 0.76 5.68 NA
WVFC WVS Financial Corporation 15.12 NA 0.45 1.23 8.09 (16.94)
WWFC Westwood Financial Corpor 5.65 NA 0.02 0.67 9.40 NA
WYNE Wayne Bancorp, Inc. 8.32 NA 1.46 0.46 5.12 NA
YFCB Yonkers Financial Corporation 7.82 NA 1.63 NA NA NA
YFED York Financial Corp. 8.78 12.11 2.24 0.97 11.42 6.42
Average 11.94 22.83 1.16 0.86 8.36 (1.47)
</TABLE>
<PAGE>
EXHIBIT 20-b
ALL PUBLICLY TRADED THRIFTS
MARKET DATA
<TABLE>
<CAPTION>
Current Current Current Current Current
Market Stock Price/ Price/ Price/ Tang
Value Price LTM EPS Book Value Book Value
Ticker Institution Exchange ($M) ($) (x) (%) (%)
- ------ ----------- -------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
AADV Advantage Bancorp, Inc. NASDAQ 118.22 34.250 14.64 131.53 151.82
ABBK Abington Savings Bank NASDAQ 29.67 15.750 19.94 95.34 109.00
ABCW Anchor BanCorp Wisconsin NASDAQ 171.47 34.750 12.87 144.79 148.69
AFCB Affiliated Community Bancorp NASDAQ 88.12 17.375 NA 90.45 91.16
AFFFZ America First Financial Fund NASDAQ 160.78 26.750 9.26 104.82 107.34
AHCI Ambanc Holding Co., Inc. NASDAQ 51.51 9.500 NA 68.49 68.49
AHM Ahmanson & Company (H.F.) NYSE 2,816.29 26.125 7.89 128.06 136.64
ALBC Albion Banc Corp. NASDAQ 4.43 17.000 25.37 72.99 72.99
ALBK ALBANK Financial Corporation NASDAQ 358.84 26.375 13.06 111.85 126.74
AMFB American Federal Bank NASDAQ 176.24 16.125 10.90 163.21 177.00
AMFC AMB Financial Corp. NASDAQ 12.08 10.750 NA NA NA
ANBK American National Bancorp NASDAQ 40.18 10.625 NA 82.56 82.56
ANDB Andover Bancorp, Inc. NASDAQ 108.26 25.500 11.28 124.76 124.76
ASBI Ameriana Bancorp NASDAQ 44.89 13.500 14.06 100.67 100.82
ASBP ASB Financial Corp. NASDAQ 25.71 15.000 NA 99.73 99.73
ASFC Astoria Financial Corporation NASDAQ 588.48 26.875 12.05 102.73 126.29
ATSB AmTrust Capital Corp. NASDAQ 4.82 8.500 23.61 63.81 64.49
AVND Avondale Financial Corp. NASDAQ 52.19 13.000 NA 80.20 80.20
BANC BankAtlantic Bancorp, Inc. NASDAQ 159.11 13.500 6.88 115.88 126.17
BDJI First Federal Bancorporation NASDAQ 10.70 13.060 NA 74.04 74.04
BFD BostonFed Bancorp, Inc. AMSE 79.08 12.000 NA 80.43 80.43
BFSB Bedford Bancshares, Inc. NASDAQ 19.47 16.500 13.20 97.86 97.86
BFSI BFS Bankorp, Inc. NASDAQ 62.97 38.500 6.62 136.57 136.57
BKC American Bank of Connecticut AMSE 56.58 24.750 12.69 127.77 134.73
BKCO Bankers Corp. NASDAQ 220.70 17.250 10.99 117.43 119.96
BKCT Bancorp Connecticut, Inc. NASDAQ 62.69 23.250 14.62 144.41 144.41
BKUNA BankUnited Financial Corp. NASDAQ 40.81 7.500 6.20 94.58 100.13
BPLS Bank Plus Corp. NASDAQ 163.09 8.940 NM 93.22 93.42
BRFC Bridgeville Savings Bank NASDAQ 17.00 15.125 25.21 107.04 107.04
BSBC Branford Savings Bank NASDAQ 17.48 3.375 16.07 146.10 146.10
BSBC Branford Savings Bank NASDAQ 17.48 3.375 16.07 146.10 146.10
BVFS Bay View Capital Corp. NASDAQ 229.44 33.250 NM 112.86 115.77
BWFC Bank West Financial Corp. NASDAQ 25.26 11.000 24.44 91.74 91.74
BYFC Broadway Financial Corp. NASDAQ 8.93 10.000 NA 67.89 67.89
CAFI Camco Financial Corporation NASDAQ 38.69 19.625 9.26 135.16 135.16
CAL Cal Fed Bancorp, Inc. NYSE 888.05 18.000 10.91 142.41 142.41
CAPS Capital Savings Bancorp, Inc. NASDAQ 17.77 18.000 9.94 88.50 88.50
CARV Carver Federal Savings Bank NASDAQ 17.94 7.750 22.79 51.26 53.89
CASB Cascade Financial Corp. NASDAQ 33.67 16.500 21.43 166.00 166.00
CASH First Midwest Financial, Inc. NASDAQ 40.26 22.500 11.42 103.59 111.11
CATB Catskill Financial Corp. NASDAQ 57.58 10.125 NA NA NA
CBCI Calumet Bancorp, Inc. NASDAQ 70.99 28.060 13.30 87.71 87.71
CBCO CB Bancorp, Inc. NASDAQ 20.79 17.500 9.02 110.83 110.83
CBIN Community Bank Shares NASDAQ 25.04 12.625 NA 98.25 98.25
CBK Citizens First Financial Corp. AMSE 28.53 10.125 NA NA NA
CBNH Community Bankshares, Inc. NASDAQ 44.70 18.500 10.76 119.59 119.59
CBSA Coastal Bancorp, Inc. NASDAQ 91.72 18.500 9.69 100.00 123.25
CBSB Charter Financial, Inc. NASDAQ 56.58 11.375 NA 87.84 90.13
CCFH CCF Holding Company NASDAQ 13.57 12.000 NA 81.14 81.14
</TABLE>
<TABLE>
<CAPTION>
Current 1 Month Avg
Dividend Weekly Vol/ Price/ Price/
Yield Shares Out LTM Core EPS Assets Shares
Ticker Institution Exchange (%) (%) (x) (%) Outstanding
- ------ ----------- -------- --- --- --- --- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
AADV Advantage Bancorp, Inc. NASDAQ 0.934 0.81 16.23 12.06 3,451,543
ABBK Abington Savings Bank NASDAQ 2.540 1.05 30.29 6.20 1,884,000
ABCW Anchor BanCorp Wisconsin NASDAQ 1.151 0.54 13.37 9.77 4,934,350
AFCB Affiliated Community Bancorp NASDAQ 2.763 1.76 NA 9.39 5,071,666
AFFFZ America First Financial Fund NASDAQ 5.981 1.89 9.32 6.89 6,010,589
AHCI Ambanc Holding Co., Inc. NASDAQ 0.000 2.75 NA 13.13 5,422,250
AHM Ahmanson & Company (H.F.) NYSE 3.368 2.18 38.99 5.90 7,000,000
ALBC Albion Banc Corp. NASDAQ 1.805 1.09 29.82 7.82 260,714
ALBK ALBANK Financial Corporation NASDAQ 1.820 1.33 13.06 10.77 13,605,308
AMFB American Federal Bank NASDAQ 2.481 0.69 10.08 13.15 10,929,685
AMFC AMB Financial Corp. NASDAQ 0.000 1.45 NA NA 1,124,125
ANBK American National Bancorp NASDAQ 0.000 1.62 NA 9.42 3,781,475
ANDB Andover Bancorp, Inc. NASDAQ 2.353 8.57 10.85 9.48 4,245,671
ASBI Ameriana Bancorp NASDAQ 4.148 0.62 14.67 11.72 3,325,277
ASBP ASB Financial Corp. NASDAQ 2.667 0.38 NA 23.01 1,713,960
ASFC Astoria Financial Corporation NASDAQ 1.637 4.36 13.11 8.78 21,896,940
ATSB AmTrust Capital Corp. NASDAQ 0.000 1.32 94.44 6.60 566,964
AVND Avondale Financial Corp. NASDAQ 0.000 0.41 NA 9.00 4,014,568
BANC BankAtlantic Bancorp, Inc. NASDAQ 1.304 2.58 11.34 9.65 10,592,999
BDJI First Federal Bancorporation NASDAQ 0.000 0.40 NA 10.64 819,375
BFD BostonFed Bancorp, Inc. AMSE 1.667 2.48 NA 11.67 6,589,617
BFSB Bedford Bancshares, Inc. NASDAQ 2.424 1.24 13.20 16.76 1,180,169
BFSI BFS Bankorp, Inc. NASDAQ 0.000 0.23 6.86 11.12 1,635,488
BKC American Bank of Connecticut AMSE 5.495 0.25 24.03 10.95 2,286,125
BKCO Bankers Corp. NASDAQ 3.710 0.93 10.52 11.52 12,794,218
BKCT Bancorp Connecticut, Inc. NASDAQ 3.083 1.42 15.00 15.61 2,696,416
BKUNA BankUnited Financial Corp. NASDAQ 0.000 3.84 NM 5.78 363,636
BPLS Bank Plus Corp. NASDAQ 0.000 2.19 NM 4.97 18,242,465
BRFC Bridgeville Savings Bank NASDAQ 2.116 0.90 25.21 30.52 1,124,125
BSBC Branford Savings Bank NASDAQ 0.000 0.97 16.07 12.69 5,179,863
BSBC Branford Savings Bank NASDAQ 0.000 0.97 16.07 12.69 1,379,533
BVFS Bay View Capital Corp. NASDAQ 1.805 1.05 30.79 7.88 6,900,306
BWFC Bank West Financial Corp. NASDAQ 2.545 3.02 42.31 18.14 2,296,040
BYFC Broadway Financial Corp. NASDAQ 2.000 0.67 NA 7.75 892,688
CAFI Camco Financial Corporation NASDAQ 2.344 0.12 12.04 11.26 1,971,477
CAL Cal Fed Bancorp, Inc. NYSE 0.000 2.60 11.69 6.22 49,336,280
CAPS Capital Savings Bancorp, Inc. NASDAQ 2.000 0.57 9.94 9.23 987,179
CARV Carver Federal Savings Bank NASDAQ 0.000 0.99 18.02 4.94 2,314,375
CASB Cascade Financial Corp. NASDAQ 0.000 0.15 44.59 10.32 2,040,485
CASH First Midwest Financial, Inc. NASDAQ 1.956 0.58 14.33 13.00 1,789,535
CATB Catskill Financial Corp. NASDAQ 0.000 2.79 NA NA 5,686,750
CBCI Calumet Bancorp, Inc. NASDAQ 0.000 2.08 13.36 14.90 2,529,878
CBCO CB Bancorp, Inc. NASDAQ 0.000 0.97 9.02 10.15 1,188,226
CBIN Community Bank Shares NASDAQ 2.693 0.21 NA 11.16 1,983,720
CBK Citizens First Financial Corp. AMSE 0.000 1.26 NA NA 2,817,500
CBNH Community Bankshares, Inc. NASDAQ 3.243 0.83 12.94 8.65 2,416,157
CBSA Coastal Bancorp, Inc. NASDAQ 2.162 0.67 9.74 3.27 4,957,870
CBSB Charter Financial, Inc. NASDAQ 2.110 2.24 NA 18.81 4,974,380
CCFH CCF Holding Company NASDAQ 3.333 1.91 NA 17.23 1,130,738
</TABLE>
<PAGE>
EXHIBIT 20-b
ALL PUBLICLY TRADED THRIFTS
MARKET DATA
<TABLE>
<CAPTION>
Current Current Current Current Current
Market Stock Price/ Price/ Price/Tang
Value Price LTM EPS Book Value Book Value
Ticker Institution Exchange ($M) ($) (X) (%) (%)
- ------ ----------- -------- ---- --- --- --- ---
<C> <S> <C> <C> <C> <C> <C> <C>
CEBK Central Co-Operative Bank NASDAQ 32.87 17.000 17.17 103.79 118.96
CENF CENFED Financial Corp. NASDAQ 109.44 21.750 11.27 103.47 103.72
CFB Commercial Federal Corporation NYSE 570.67 37.875 10.10 142.55 158.67
CFCP Coastal Financial Corp. NASDAQ 60.32 22.000 15.07 224.72 224.72
CFCX Center Financial Corp. NASDAQ 351.32 24.250 14.26 156.86 167.94
CFFC Community Financial Corp. NASDAQ 26.35 20.750 12.97 120.29 120.29
CFHC California Financial Holding NASDAQ 103.85 22.250 29.28 120.66 121.72
CFSB CFSB Bancorp, Inc. NASDAQ 92.88 20.750 13.56 145.10 145.10
CFTP Community Federal Bancorp NASDAQ 62.49 13.500 NA 94.14 94.14
CFX CFX Corporation AMSE 102.08 13.500 11.74 112.59 126.17
CIBI Community Investors Bancorp NASDAQ 10.52 15.000 11.90 88.60 88.60
CJFC Central Jersey Financial NASDAQ 81.38 30.500 15.72 148.20 159.44
CKFB CKF Bancorp, Inc. NASDAQ 18.17 19.500 25.66 113.31 113.31
CLAS Classic Bancshares, Inc. NASDAQ 13.97 10.560 NA 71.54 71.54
CMRN Cameron Financial Corp NASDAQ 38.48 13.500 NA 78.08 78.08
CMSB Commonwealth Bancorp, Inc. NASDAQ 188.23 10.500 NA NA NA
CMSV Community Savings, MHC NASDAQ 79.12 16.250 16.25 105.86 105.86
CNIT CENIT Bancorp, Inc. NASDAQ 54.62 34.000 20.48 117.28 121.82
CNSB CNS Bancorp, Inc. NASDAQ 19.01 11.500 NA NA NA
CNSK Covenant Bank for Savings NASDAQ 23.51 12.000 15.58 141.68 141.68
COFD Collective Bancorp, Inc. NASDAQ 489.78 24.000 9.20 137.38 147.87
COFI Charter One Financial NASDAQ 1,579.01 35.000 33.98 173.61 176.41
COOP Cooperative Bankshares, Inc. NASDAQ 25.36 17.000 30.91 86.56 98.44
CRCL Circle Financial Corp. NASDAQ 24.78 35.000 24.31 101.42 116.94
CRZY Crazy Woman Creek Bancorp NASDAQ 10.84 10.250 NA 69.87 69.87
CSA Coast Savings Financial NYSE 601.63 32.375 15.87 141.44 143.82
CSBF CSB Financial Group, Inc. NASDAQ 9.57 9.250 NA 75.20 75.20
CTBK Center Banks Incorporated NASDAQ 12.58 13.500 10.80 82.72 82.72
CTZN CitFed Bancorp, Inc. NASDAQ 216.05 38.000 13.87 124.10 143.18
CVAL Chester Valley Bancorp Inc. NASDAQ 28.83 18.250 11.85 114.71 114.71
CZF CitiSave Financial Corp AMSE 13.51 14.000 NA 86.10 86.15
DFIN Damen Financial Corp. NASDAQ 46.12 11.625 NA 81.07 81.07
DIBK Dime Financial Corp. NASDAQ 75.99 15.125 7.84 142.29 149.75
DIME Dime Community Bancorp, Inc. NASDAQ 174.57 12.000 NA NA NA
DME Dime Bancorp, Inc. NYSE 1,297.37 13.125 21.17 142.82 144.23
DNFC D & N Financial Corp. NASDAQ 95.61 14.000 8.28 137.80 140.00
DSBC DS Bancor, Inc. NASDAQ 105.35 34.750 13.47 128.75 133.29
DSL Downey Financial Corp. NYSE 369.16 21.750 12.87 95.27 96.97
EBCP Eastern Bancorp NASDAQ 59.35 16.500 12.41 93.48 99.28
EBSI Eagle Bancshares NASDAQ 48.32 15.500 10.13 130.14 130.14
EFBI Enterprise Federal Bancorp NASDAQ 28.97 14.000 14.00 92.78 92.96
EGFC Eagle Financial Corp. NASDAQ 110.04 24.500 6.98 107.98 149.21
EGLB Eagle BancGroup, Inc. NASDAQ 15.31 11.750 NA NA NA
EQSB Equitable Federal Savings Bank NASDAQ 14.70 24.500 7.52 107.69 107.69
ESBK Elmira Savings Bank (The) NASDAQ 12.10 17.125 37.23 86.14 90.18
ESX Essex Bancorp, Inc. AMSE 2.89 2.750 NM 35.62 NM
ETFS East Texas Financial Services NASDAQ 16.58 14.625 15.90 77.34 77.34
FBBC First Bell Bancorp, Inc. NASDAQ 110.25 13.500 NA 96.50 96.50
FBCI Fidelity Bancorp, Inc. NASDAQ 49.36 16.000 16.84 94.62 94.96
<CAPTION>
Current 1 Month Avg
Dividend Weekly Vol/ Price/ Price/
Yield Shares Out LTM Core EPS Assets Shares
Ticker Institution Exchange (%) (%) (X) (%) Outstanding
- ------ ----------- -------- --- --- --- --- -----------
<C> <S> <C> <C> <C> <C> <C> <C>
CEBK Central Co-Operative Bank NASDAQ 0.000 3.07 18.48 10.33 1,933,334
CENF CENFED Financial Corp. NASDAQ 1.655 1.71 16.11 5.18 5,031,500
CFB Commercial Federal Corporation NYSE 1.056 0.98 10.15 8.62 15,067,179
CFCP Coastal Financial Corp. NASDAQ 2.000 0.15 16.54 13.67 2,741,712
CFCX Center Financial Corp. NASDAQ 1.155 17.53 21.65 9.57 14,487,375
CFFC Community Financial Corp. NASDAQ 2.506 0.87 12.97 16.49 1,269,698
CFHC California Financial Holding NASDAQ 1.978 0.89 33.71 8.13 4,667,615
CFSB CFSB Bancorp, Inc. NASDAQ 2.313 0.46 14.41 12.04 4,476,139
CFTP Community Federal Bancorp NASDAQ 2.222 1.35 NA 31.16 4,628,750
CFX CFX Corporation AMSE 5.333 0.46 14.84 10.65 7,561,176
CIBI Community Investors Bancorp NASDAQ 1.067 1.45 12.61 12.26 701,246
CJFC Central Jersey Financial NASDAQ 3.672 1.86 16.58 17.46 2,668,269
CKFB CKF Bancorp, Inc. NASDAQ 2.051 0.85 25.66 30.92 931,911
CLAS Classic Bancshares, Inc. NASDAQ 0.000 1.97 NA 20.60 1,322,500
CMRN Cameron Financial Corp NASDAQ 2.074 2.45 NA 22.31 2,850,180
CMSB Commonwealth Bancorp, Inc. NASDAQ 2.373 13.13 NA NA 17,926,277
CMSV Community Savings, MHC NASDAQ 4.923 0.87 18.90 12.51 4,868,732
CNIT CENIT Bancorp, Inc. NASDAQ 2.353 0.53 17.80 8.18 1,606,350
CNSB CNS Bancorp, Inc. NASDAQ 0.000 NA NA NA 1,653,125
CNSK Covenant Bank for Savings NASDAQ 0.000 0.19 15.58 6.94 1,959,490
COFD Collective Bancorp, Inc. NASDAQ 4.167 0.80 9.41 9.68 20,407,332
COFI Charter One Financial NASDAQ 2.629 1.56 11.74 11.99 45,114,703
COOP Cooperative Bankshares, Inc. NASDAQ 0.000 0.24 36.17 8.08 1,491,698
CRCL Circle Financial Corp. NASDAQ 1.943 0.15 28.46 10.80 708,096
CRZY Crazy Woman Creek Bancorp NASDAQ 1.951 3.29 NA 22.85 1,058,000
CSA Coast Savings Financial NYSE 0.000 3.20 18.29 7.30 18,583,317
CSBF CSB Financial Group, Inc. NASDAQ 0.000 0.41 NA 23.23 1,035,000
CTBK Center Banks Incorporated NASDAQ 1.778 0.43 10.55 5.85 931,809
CTZN CitFed Bancorp, Inc. NASDAQ 0.737 1.05 16.89 8.32 5,685,567
CVAL Chester Valley Bancorp Inc. NASDAQ 2.192 0.02 12.25 10.50 1,579,803
CZF CitiSave Financial Corp AMSE 2.143 1.12 NA 16.94 964,707
DFIN Damen Financial Corp. NASDAQ 2.065 2.87 NA 19.60 3,967,500
DIBK Dime Financial Corp. NASDAQ 1.851 1.67 7.00 11.32 5,023,985
DIME Dime Community Bancorp, Inc. NASDAQ 0.000 NA NA NA 14,547,500
DME Dime Bancorp, Inc. NYSE 0.000 2.42 15.81 6.68 98,847,000
DNFC D & N Financial Corp. NASDAQ 0.000 3.10 9.33 7.76 6,829,402
DSBC DS Bancor, Inc. NASDAQ 0.691 3.35 15.31 8.44 3,031,527
DSL Downey Financial Corp. NYSE 2.207 0.42 14.50 7.93 16,972,905
EBCP Eastern Bancorp NASDAQ 2.909 1.00 15.28 7.19 3,596,682
EBSI Eagle Bancshares NASDAQ 3.871 0.81 10.47 8.65 3,117,200
EFBI Enterprise Federal Bancorp NASDAQ 0.000 0.28 21.21 14.35 2,069,328
EGFC Eagle Financial Corp. NASDAQ 3.755 2.32 14.00 7.70 4,491,493
EGLB Eagle BancGroup, Inc. NASDAQ 0.000 NA NA NA 1,302,705
EQSB Equitable Federal Savings Bank NASDAQ 0.000 1.93 7.54 5.65 600,000
ESBK Elmira Savings Bank (The) NASDAQ 3.737 0.35 37.23 5.42 706,361
ESX Essex Bancorp, Inc. AMSE 0.000 1.31 NM 0.92 1,050,547
ETFS East Texas Financial Services NASDAQ 1.368 0.08 17.21 15.18 1,133,890
FBBC First Bell Bancorp, Inc. NASDAQ 1.481 1.92 NA 20.32 8,166,450
FBCI Fidelity Bancorp, Inc. NASDAQ 1.500 0.26 18.18 11.40 3,084,850
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 20-b
ALL PUBLICLY TRADED THRIFTS
MARKET DATA
Current Current Current Current Current Current
Market Stock Price/ Price/ Price/Tang Dividend
Value Price LTM EPS Book Value Book Value Yield
Ticker Institution Exchange ($m) ($) (x) (%) (%) (%)
- ------ ----------- -------- ---- --- --- --- --- ---
<C> <S> <C> <C> <C> <C> <C> <C> <C>
FBCV 1ST Bancorp NASDAQ 17.57 26.375 2.69 81.58 81.58 1.517
FBER 1st Bergen Bancorp NASDAQ 29.17 9.190 NA NA NA 0.000
FBHC Fort Bend Holding Corp. NASDAQ 14.10 17.250 9.53 80.23 80.23 1.623
FBSI First Bancshares, Inc. NASDAQ 19.85 15.250 16.94 83.52 83.70 1.311
FCB Falmouth Co-Operative Bank AMSE 15.09 10.375 NA 69.91 69.91 0.000
FCBF FCB Financial Corp. NASDAQ 43.97 17.500 17.33 93.18 93.18 4.114
FCIT First Citizens Financial Corp. NASDAQ 51.75 17.750 13.35 131.97 131.97 0.000
FDEF First Defiance Financial NASDAQ 113.89 10.375 NA 84.90 84.90 2.699
FED FirstFed Financial Corp. NYSE 183.27 17.250 23.96 93.85 95.51 0.000
FESX First Essex Bancorp, Inc. NASDAQ 66.38 11.000 8.73 108.06 108.06 4.364
FFBA First Colorado Bancorp, Inc. NASDAQ 262.71 12.940 NA 107.65 109.01 2.473
FFBH First Federal Bancshares of AR NASDAQ 72.15 14.000 NA NA NA 0.000
FFBI First Financial Bancorp, Inc. NASDAQ 7.31 15.500 13.72 92.98 92.98 0.000
FFBS FFBS BanCorp, Inc. NASDAQ 36.18 23.000 21.50 139.99 139.99 2.174
FFBZ First Federal Bancorp, Inc. NASDAQ 19.22 24.500 10.99 152.74 152.93 1.796
FFCH First Financial Holdings Inc. NASDAQ 111.40 17.500 10.67 116.36 116.36 3.657
FFDF FFD Financial Corp. NASDAQ 15.46 10.625 NA NA NA 0.000
FFDP FirstFed Bancshares NASDAQ 58.43 17.250 17.97 103.85 108.70 2.319
FFEC First Fed Bncshrs Eau Claire NASDAQ 106.26 15.500 17.82 110.40 115.07 1.806
FFED Fidelity Federal Bancorp NASDAQ 29.30 11.750 9.33 206.14 206.14 6.809
FFES First Federal of East Hartford NASDAQ 45.39 17.500 8.97 78.48 78.76 3.429
FFFC FFVA Financial Corp. NASDAQ 93.59 17.250 14.87 102.74 104.86 2.319
FFFD North Central Bancshares, Inc. NASDAQ 43.62 10.875 NA 79.32 79.32 2.299
FFFG F.F.O. Financial Group, Inc. NASDAQ 23.18 2.750 18.33 126.15 126.15 0.000
FFFL Fidelity FSB of Florida, MHC NASDAQ 94.08 14.000 19.18 114.94 116.38 4.286
FFHC First Financial Corp. NASDAQ 685.56 22.940 9.93 172.48 181.77 2.616
FFHH FSF Financial Corp. NASDAQ 40.86 11.750 23.50 77.10 77.10 4.255
FFHS First Franklin Corporation NASDAQ 17.80 15.000 14.15 86.66 86.66 2.133
FFIC Flushing Financial Corp NASDAQ 138.27 17.375 NA 108.26 108.26 0.000
FFKY First Federal Financial Corp. NASDAQ 88.52 21.000 15.91 179.49 192.48 2.286
FFLC FFLC Bancorp, Inc. NASDAQ 48.81 18.500 16.23 87.02 87.02 2.162
FFML First Family Financial Corp. NASDAQ 11.45 21.000 8.17 128.21 128.21 0.762
FFOH Fidelity Financial of Ohio NASDAQ 40.74 10.000 NA 80.19 80.19 2.000
FFPB First Palm Beach Bancorp, Inc. NASDAQ 108.15 20.875 12.21 96.64 99.22 1.916
FFPC Florida First Bancorp, Inc. NASDAQ 37.32 11.060 14.55 177.24 177.24 2.170
FFRV Fidelity Financial Bankshares NASDAQ 30.77 13.500 9.85 112.41 112.50 1.481
FFSL First Independence Corp. NASDAQ 10.36 17.750 9.70 80.61 80.61 2.254
FFSW FirstFederal Financial Svcs NASDAQ 94.99 29.000 16.02 197.14 216.74 1.655
FFSX First Fed SB of Siouxland, MHC NASDAQ 41.81 24.500 15.03 113.85 114.43 2.939
FFWC FFW Corp. NASDAQ 14.78 20.000 11.76 91.91 91.91 3.000
FFWD Wood Bancorp, Inc. NASDAQ 20.05 19.500 12.50 98.93 98.93 1.846
FFWM First Financial-W. Maryland NASDAQ 44.30 20.250 31.15 108.29 108.29 2.370
FFYF FFY Financial Corp. NASDAQ 118.70 23.500 17.41 116.05 116.05 2.553
FGHC First Georgia Holding, Inc. NASDAQ 12.40 6.125 10.94 104.52 118.24 0.000
FIBC Financial Bancorp, Inc. NASDAQ 23.42 12.500 15.82 87.29 87.78 2.400
FISB First Indiana Corporation NASDAQ 195.57 23.625 11.58 147.93 150.10 2.370
FKFS First Keystone Financial NASDAQ 21.97 17.000 16.04 95.34 95.34 0.000
FKKY Frankfort First Bancorp, Inc. NASDAQ 41.83 12.125 NA 87.42 87.42 2.969
FLAG FLAG Financial Corp. NASDAQ 24.60 12.250 12.50 113.95 113.95 2.776
<CAPTION>
1 Month Avg
Weekly Vol/ Price/ Price/
Shares Out LTM Core Eps Assets Shares
Ticker Institution Exchange (%) (x) (%) Outstanding
- ------ ----------- -------- --- --- --- -----------
<C> <S> <C> <C> <C> <C> <C>
FBCV 1ST Bancorp NASDAQ 0.30 NM 6.43 666,042
FBER 1st Bergen Bancorp NASDAQ 3.96 NA NA 3,174,000
FBHC Fort Bend Holding Corp. NASDAQ 0.31 10.85 5.77 817,398
FBSI First Bancshares, Inc. NASDAQ 0.16 17.13 14.13 1,301,576
FCB Falmouth Co-Operative Bank AMSE 2.02 NA 17.17 1,454,750
FCBF FCB Financial Corp. NASDAQ 0.26 17.68 17.20 2,512,614
FCIT First Citizens Financial Corp. NASDAQ 0.69 16.75 8.29 2,915,606
FDEF First Defiance Financial NASDAQ 1.75 NA 21.56 10,977,694
FED FirstFed Financial Corp. NYSE 1.42 26.14 4.40 10,624,296
FESX First Essex Bancorp, Inc. NASDAQ 2.37 10.38 8.28 6,034,867
FFBA First Colorado Bancorp, Inc. NASDAQ 1.51 NA 17.60 20,302,000
FFBH First Federal Bancshares of AR NASDAQ 2.84 NA NA 5,153,751
FFBI First Financial Bancorp, Inc. NASDAQ 0.95 16.67 8.25 471,896
FFBS FFBS BanCorp, Inc. NASDAQ 0.14 21.50 29.28 1,572,883
FFBZ First Federal Bancorp, Inc. NASDAQ 0.24 11.24 11.10 784,558
FFCH First Financial Holdings Inc. NASDAQ 1.61 10.48 7.69 6,365,941
FFDF FFD Financial Corp. NASDAQ 3.13 NA NA 1,454,750
FFDP FirstFed Bancshares NASDAQ 0.79 30.26 9.36 3,387,353
FFEC First Fed Bncshrs Eau Claire NASDAQ 3.12 18.45 15.81 6,855,379
FFED Fidelity Federal Bancorp NASDAQ 0.31 9.96 10.46 2,493,229
FFES First Federal of East Hartford NASDAQ 0.70 9.11 4.86 2,593,628
FFFC FFVA Financial Corp. NASDAQ 3.33 15.27 18.08 5,425,664
FFFD North Central Bancshares, Inc. NASDAQ 4.17 NA 22.89 4,011,057
FFFG F.F.O. Financial Group, Inc. NASDAQ 0.27 17.19 7.58 8,430,000
FFFL Fidelity FSB of Florida, MHC NASDAQ 0.08 20.59 11.88 6,720,252
FFHC First Financial Corp. NASDAQ 1.32 10.24 12.65 29,885,122
FFHH FSF Financial Corp. NASDAQ 0.52 23.50 13.89 3,477,694
FFHS First Franklin Corporation NASDAQ 0.59 14.42 8.23 1,186,518
FFIC Flushing Financial Corp NASDAQ 3.56 NA 18.70 7,957,767
FFKY First Federal Financial Corp. NASDAQ 0.14 18.42 25.22 4,215,360
FFLC FFLC Bancorp, Inc. NASDAQ 0.65 16.09 14.77 2,638,356
FFML First Family Financial Corp. NASDAQ 0.03 15.22 7.20 545,000
FFOH Fidelity Financial of Ohio NASDAQ 0.85 NA 16.33 4,073,589
FFPB First Palm Beach Bancorp, Inc. NASDAQ 2.13 12.35 7.38 5,180,687
FFPC Florida First Bancorp, Inc. NASDAQ 1.04 16.03 12.27 3,374,245
FFRV Fidelity Financial Bankshares NASDAQ 1.43 10.07 9.57 2,279,047
FFSL First Independence Corp. NASDAQ 0.19 11.31 10.19 583,421
FFSW FirstFederal Financial Svcs NASDAQ 0.52 19.73 9.56 496,500
FFSX First Fed SB of Siouxland, MHC NASDAQ 0.18 16.33 9.58 1,706,345
FFWC FFW Corp. NASDAQ 0.92 10.58 9.93 739,176
FFWD Wood Bancorp, Inc. NASDAQ 0.67 12.91 14.43 1,028,170
FFWM First Financial-W. Maryland NASDAQ 0.65 33.75 13.57 2,187,584
FFYF FFY Financial Corp. NASDAQ 2.66 16.79 21.29 5,051,272
FGHC First Georgia Holding, Inc. NASDAQ 0.12 11.78 8.72 2,023,711
FIBC Financial Bancorp, Inc. NASDAQ 4.50 16.03 9.30 1,873,365
FISB First Indiana Corporation NASDAQ 0.28 13.66 13.24 8,278,225
FKFS First Keystone Financial NASDAQ 1.52 14.78 7.90 1,292,500
FKKY Frankfort First Bancorp, Inc. NASDAQ 1.52 NA 30.18 3,450,000
FLAG FLAG Financial Corp. NASDAQ 0.29 14.08 10.89 2,008,457
</TABLE>
<PAGE>
EXHIBIT 20-b
ALL PUBLICLY TRADED THRIFTS
MARKET DATA
<TABLE>
<CAPTION>
Current Current Current Current Current
Market Stock Price/ Price/ Price/Tang
Value Price LTM EPS Book Value Book Value
Ticker Institution Exchange ($M) ($) (X) (%) (%)
- ------ ----------- -------- ---- --- --- --- ---
<C> <S> <C> <C> <C> <C> <C> <C>
FLFC First Liberty Financial Corp. NASDAQ 86.60 21.750 10.26 129.16 153.82
FLFC First Liberty Financial Corp. NASDAQ 86.60 21.750 10.26 129.16 153.82
FLKY First Lancaster Bancshares NASDAQ 12.82 13.375 NA NA NA
FMBD First Mutual Bancorp, Inc. NASDAQ 49.41 12.000 NA 72.46 72.46
FMCO FMS Financial Corporation NASDAQ 40.39 16.375 10.05 121.30 124.71
FMCT Farmers & Mechanics Bank NASDAQ 50.34 30.310 151.55 168.86 168.86
FMLY Family Bancorp NASDAQ 100.64 24.625 12.63 146.23 159.80
FMSB First Mutual Savings Bank NASDAQ 31.81 13.000 9.15 129.10 129.10
FNGB First Northern Capital Corp. NASDAQ 69.50 15.250 15.10 95.43 95.43
FNSC Financial Security Corp. NASDAQ 39.05 25.625 18.70 99.13 99.13
FOBC Fed One Bancorp NASDAQ 36.10 14.500 11.98 87.72 92.65
FPRY First Financial Bancorp NASDAQ 19.22 21.500 14.83 125.95 125.95
FRC First Republic Bancorp NYSE 110.23 15.000 55.56 98.88 99.01
FSBC First Savings Bank, FSB NASDAQ 3.83 5.500 NA 69.97 69.97
FSBI Fidelity Bancorp, Inc. NASDAQ 21.86 16.000 13.22 99.63 100.44
FSBS First Ashland Financial Corp NASDAQ 26.70 18.250 NA 113.00 113.00
FSFC First Southeast Financial Corp NASDAQ 39.98 9.750 12.19 56.69 56.69
FSFI First State Financial Services NASDAQ 52.32 13.000 13.54 121.61 128.33
FSLA First Savings Bank, MHC NASDAQ 102.56 15.750 13.02 112.66 129.84
FSNJ First Savings Bk of NJ, MHC NASDAQ 43.26 14.125 NA 79.80 79.80
FSPG First Home Bancorp, Inc. NASDAQ 36.03 17.750 8.18 118.57 121.91
FSSB First FS&LA of San Bernardino NASDAQ 3.28 10.000 NM 56.34 59.00
FTF Texarkana First Financial Corp AMSE 31.74 16.000 NA 94.23 94.23
FTFC First Federal Capital Corp. NASDAQ 125.95 20.000 10.81 133.07 141.34
FTSB Fort Thomas Financial Corp. NASDAQ 27.15 17.250 NA 127.03 127.03
FWWB First SB of Washington Bancorp NASDAQ 153.49 15.250 NA 100.00 100.00
GAF GA Financial, Inc. AMSE 96.79 10.875 NA 75.84 75.84
GBCI Glacier Bancorp, Inc. NASDAQ 72.65 21.625 12.29 189.53 189.86
GDVS Greater Delaware Valley SB,MHC NASDAQ 32.73 10.000 28.57 112.87 112.87
GDW Golden West Financial NYSE 3,194.95 54.500 12.36 136.97 145.61
GFCO Glenway Financial Corp. NASDAQ 22.64 20.750 14.72 85.46 87.55
GFED Guaranty Federal SB, MHC NASDAQ 35.94 11.500 NA 132.34 132.34
GFSB GFS Bancorp, Inc. NASDAQ 10.42 20.250 12.98 107.03 107.03
GLBK Glendale Co-Operative Bank NASDAQ 4.08 16.500 14.60 69.65 69.65
GLN Glendale Federal Bank, FSB NYSE 793.53 18.000 72.00 121.62 131.96
GPT GreenPoint Financial Corp. NYSE 1,481.91 28.250 12.39 84.71 148.68
GROV Grove Bank NASDAQ 46.92 30.500 10.48 128.21 128.48
GRTR Greater New York Savings Bank NASDAQ 143.66 10.810 13.35 100.93 100.93
GSBC Great Southern Bancorp, Inc. NASDAQ 119.46 26.940 11.32 179.12 182.15
GSFC Green Street Financial Corp. NASDAQ 56.41 13.125 NA NA NA
GSLC Guaranty Financial Corp. NASDAQ 6.89 7.500 9.15 108.23 108.23
GTFN Great Financial Corporation NASDAQ 367.00 25.875 16.69 134.84 137.05
GTPS Great American Bancorp NASDAQ 26.36 14.250 NA 79.34 79.34
GUPB GFSB Bancorp, Inc. NASDAQ 12.81 13.500 NA 78.99 78.99
GWBC Gateway Bancorp, Inc. NASDAQ 16.11 14.125 21.73 91.01 91.01
GWF Great Western Financial NYSE 3,155.71 23.000 12.11 124.86 142.59
HALL Hallmark Capital Corp. NASDAQ 22.00 15.250 12.92 82.97 82.97
HARB Harbor Federal Savings Bk, MHC NASDAQ 123.25 25.000 11.57 148.99 148.99
HARL Harleysville Savings Bank NASDAQ 22.53 17.500 10.42 116.59 116.59
<CAPTION>
Current 1 Month Avg
Dividend Weekly Vol/ Price/ Price/
Yield Shares Out LTM Core EPS Assets Shares
Ticker Institution Exchange (%) (%) (X) (%) Outstanding
- ------ ----------- -------- --- --- --- --- -----------
<C> <S> <C> <C> <C> <C> <C> <C>
FLFC First Liberty Financial Corp. NASDAQ 2.391 0.39 12.95 8.82 3,981,578
FLFC First Liberty Financial Corp. NASDAQ 2.391 0.39 12.95 8.82 302,580
FLKY First Lancaster Bancshares NASDAQ 0.000 NA NA NA 958,815
FMBD First Mutual Bancorp, Inc. NASDAQ 2.333 1.39 NA 18.31 4,117,200
FMCO FMS Financial Corporation NASDAQ 1.221 0.18 10.05 7.99 2,466,573
FMCT Farmers & Mechanics Bank NASDAQ 0.000 10.69 NM 9.38 1,661,000
FMLY Family Bancorp NASDAQ 1.949 3.57 14.15 11.34 4,087,048
FMSB First Mutual Savings Bank NASDAQ 1.538 0.15 9.35 8.57 2,446,734
FNGB First Northern Capital Corp. NASDAQ 3.934 0.23 17.73 12.15 4,557,125
FNSC Financial Security Corp. NASDAQ 0.000 0.81 16.22 14.25 1,523,808
FOBC Fed One Bancorp NASDAQ 3.724 0.39 11.98 10.63 2,489,462
FPRY First Financial Bancorp NASDAQ 3.721 0.24 19.72 8.00 893,902
FRC First Republic Bancorp NYSE 0.000 0.42 62.50 5.59 NA
FSBC First Savings Bank, FSB NASDAQ 0.000 1.07 NA 3.31 695,698
FSBI Fidelity Bancorp, Inc. NASDAQ 1.818 0.13 13.22 7.25 1,366,526
FSBS First Ashland Financial Corp NASDAQ 0.000 1.69 NA 30.74 1,463,039
FSFC First Southeast Financial Corp NASDAQ 4.923 10.62 12.19 11.12 4,100,615
FSFI First State Financial Services NASDAQ 1.692 3.11 17.57 8.32 4,024,658
FSLA First Savings Bank, MHC NASDAQ 2.540 0.06 13.82 10.69 6,511,756
FSNJ First Savings Bk of NJ, MHC NASDAQ 3.540 0.06 NA 6.49 3,062,321
FSPG First Home Bancorp, Inc. NASDAQ 2.704 0.21 8.57 7.73 2,030,009
FSSB First FS&LA of San Bernardino NASDAQ 0.000 0.00 NM 3.18 328,296
FTF Texarkana First Financial Corp AMSE 2.813 0.45 NA 19.43 1,983,750
FTFC First Federal Capital Corp. NASDAQ 3.200 0.34 14.71 9.11 6,297,735
FTSB Fort Thomas Financial Corp. NASDAQ 1.449 0.37 NA 30.86 1,573,775
FWWB First SB of Washington Bancorp NASDAQ 1.311 1.31 NA 25.80 10,064,918
GAF GA Financial, Inc. AMSE 0.000 2.88 NA 17.02 8,900,000
GBCI Glacier Bancorp, Inc. NASDAQ 2.960 0.23 12.29 18.24 3,359,767
GDVS Greater Delaware Valley SB,MHC NASDAQ 3.600 0.13 28.57 13.87 3,272,500
GDW Golden West Financial NYSE 0.697 0.70 12.50 9.12 58,622,859
GFCO Glenway Financial Corp. NASDAQ 3.277 0.18 14.93 8.26 1,090,887
GFED Guaranty Federal SB, MHC NASDAQ 5.565 0.53 NA 19.37 3,125,000
GFSB GFS Bancorp, Inc. NASDAQ 1.975 0.85 13.24 12.88 514,600
GLBK Glendale Co-Operative Bank NASDAQ 0.000 0.10 17.37 11.36 247,250
GLN Glendale Federal Bank, FSB NYSE 0.000 6.83 20.00 5.52 44,085,008
GPT GreenPoint Financial Corp. NYSE 2.832 0.93 12.28 10.24 52,456,950
GROV Grove Bank NASDAQ 2.361 4.47 11.09 8.00 1,538,330
GRTR Greater New York Savings Bank NASDAQ 0.000 2.83 15.90 5.58 13,289,356
GSBC Great Southern Bancorp, Inc. NASDAQ 2.598 0.13 12.03 18.13 4,434,331
GSFC Green Street Financial Corp. NASDAQ 3.048 2.75 NA NA 4,298,125
GSLC Guaranty Financial Corp. NASDAQ 1.333 0.20 14.71 6.70 919,168
GTFN Great Financial Corporation NASDAQ 1.855 0.93 20.37 15.31 14,183,732
GTPS Great American Bancorp NASDAQ 2.807 0.69 NA 21.87 1,849,562
GUPB GFSB Bancorp, Inc. NASDAQ 2.963 0.11 NA 18.19 948,750
GWBC Gateway Bancorp, Inc. NASDAQ 2.832 0.03 21.73 22.75 1,140,570
GWF Great Western Financial NYSE 4.348 1.29 13.22 7.21 6,600,000
HALL Hallmark Capital Corp. NASDAQ 0.000 0.96 14.52 6.49 1,442,950
HARB Harbor Federal Savings Bk, MHC NASDAQ 4.800 0.26 11.63 13.20 4,930,121
HARL Harleysville Savings Bank NASDAQ 2.286 0.05 10.23 8.22 1,287,442
</TABLE>
<PAGE>
EXHIBIT 20-b
ALL PUBLICLY TRADED THRIFTS
MARKET DATA
<TABLE>
<CAPTION>
Current Current Current Current Current
Market Stock Price/ Price/ Price/Tang
Value Price LTM EPS Book Value Book Value
Ticker Institution Exchange ($M) ($) (X) (%) (%)
- ------ ----------- -------- ---- --- --- --- ---
<C> <S> <C> <C> <C> <C> <C> <C>
HARS Harris Savings Bank, MHC NASDAQ 184.99 16.500 22.30 122.68 131.06
HAVN Haven Bancorp, Inc. NASDAQ 118.98 27.750 13.09 127.18 127.94
HBBI Home Building Bancorp NASDAQ 6.84 21.250 32.69 106.04 106.04
HBFW Home Bancorp NASDAQ 44.65 15.190 18.08 91.51 91.51
HBNK Highland Federal Bank FSB NASDAQ 36.74 16.000 25.00 106.10 106.10
HBS Haywood Bancshares, Inc. AMSE 23.85 18.500 17.45 124.33 129.92
HEMT HF Bancorp, Inc. NASDAQ 61.74 9.625 NA 71.56 71.61
HFFB Harrodsburg First Fin Bancorp NASDAQ 36.01 16.500 NA 106.52 106.52
HFFC HF Financial Corp. NASDAQ 46.21 15.000 10.95 88.97 89.23
HFGI Harrington Financial Group NASDAQ 34.20 10.500 17.21 177.36 177.36
HFMD Home Federal Corp. NASDAQ 25.82 10.250 10.15 138.33 140.22
HFNC HFNC Financial Corp. NASDAQ 277.23 16.125 NA 113.48 113.48
HFSA Hardin Bancorp, Inc. NASDAQ 11.19 11.625 NA 76.73 76.73
HIFS Hingham Instit. for Savings NASDAQ 18.17 14.000 9.66 100.86 100.86
HMCI HomeCorp, Inc. NASDAQ 19.15 17.000 16.04 92.39 92.39
HMNF HMN Financial, Inc. NASDAQ 72.68 16.125 13.67 91.93 91.93
HNFC Hinsdale Financial Corp. NASDAQ 64.56 24.000 15.69 118.81 122.57
HOFL Home Financial Corp. NASDAQ 322.04 13.000 14.61 97.60 97.60
HOMF Home Federal Bancorp NASDAQ 58.37 26.250 8.47 116.20 120.86
HPBC Home Port Bancorp, Inc. NASDAQ 24.87 13.500 8.54 132.35 132.35
HRBF Harbor Federal Bancorp, Inc. NASDAQ 21.93 12.500 23.15 78.62 78.62
HRZB Horizon Financial Corp. NASDAQ 87.18 13.250 12.05 110.14 110.14
HSBK Hibernia Savings Bank, (The) NASDAQ 23.60 14.250 10.04 95.96 95.96
HTHR Hawthorne Financial Corp. NASDAQ 22.09 8.500 NM 75.49 75.89
HVFD Haverfield Corporation NASDAQ 34.27 18.000 15.00 121.54 121.87
HWEN Home Financial Bancorp NASDAQ 5.06 10.000 NA NA NA
HZFS Horizon Financial Svcs Corp. NASDAQ 6.72 15.000 21.43 80.39 80.39
IBSF IBS Financial Corp NASDAQ 146.90 12.875 17.17 95.16 95.16
IFSB Independence Federal Savings NASDAQ 10.23 8.000 8.00 60.56 70.36
IFSL Indiana Federal Corporation NASDAQ 93.56 19.750 12.82 132.73 142.91
INBI Industrial Bancorp NASDAQ 61.79 11.125 NA 98.80 98.80
INCB Indiana Community Bank, SB NASDAQ 12.85 13.940 19.91 90.81 90.81
IPSW Ipswich Savings Bank NASDAQ 13.50 11.500 8.33 159.28 159.28
IROQ Iroquois Bancorp NASDAQ 35.82 15.250 9.36 129.02 129.02
IROQ Iroquois Bancorp NASDAQ 35.82 15.250 9.36 129.02 129.02
ISBF ISB Financial Corporation NASDAQ 107.02 14.500 NA 88.58 88.63
ITLA Imperial Thrift and Loan NASDAQ 109.49 14.000 NA 142.13 142.13
IWBK InterWest Bancorp, Inc. NASDAQ 154.41 24.000 11.71 164.05 168.90
JEBC Jefferson Bancorp, Inc. NASDAQ 48.58 22.125 17.42 137.08 137.08
JOAC Joachim Bancorp, Inc. NASDAQ 9.70 12.750 NA 90.17 90.17
JSBA Jefferson Savings Bancorp NASDAQ 104.54 25.000 14.12 115.79 140.45
JSBF JSB Financial, Inc. NASDAQ 342.29 33.125 16.16 101.30 101.30
JXSB Jacksonville Savings Bank, MHC NASDAQ 16.25 13.000 NA 96.94 96.94
JXVL Jacksonville Bancorp, Inc. NASDAQ 27.56 10.375 NA NA NA
KFBI Klamath First Bancorp NASDAQ 151.93 14.125 NA 94.80 94.80
KNK Kankakee Bancorp, Inc. AMSE 27.17 18.875 17.64 76.36 82.28
KSAV KS Bancorp, Inc. NASDAQ 12.10 18.250 13.22 88.81 88.89
KSBK KSB Bancorp, Inc. NASDAQ 8.22 22.000 7.67 94.22 102.37
KYF Kentucky First Bancorp, Inc. AMSE 19.61 14.125 NA 98.85 98.85
<CAPTION>
Current 1 Month Avg
Dividend Weekly Vol/ Price/ Price/
Yield Shares Out LTM Core EPS Assets Shares
Ticker Institution Exchange (%) (%) (X) (%) Outstanding
- ------ ----------- -------- --- --- --- --- -----------
<C> <S> <C> <C> <C> <C> <C> <C>
HARS Harris Savings Bank, MHC NASDAQ 3.515 0.21 22.60 14.80 11,211,400
HAVN Haven Bancorp, Inc. NASDAQ 2.162 8.76 13.28 8.01 4,287,464
HBBI Home Building Bancorp NASDAQ 1.412 2.05 33.20 16.14 322,000
HBFW Home Bancorp NASDAQ 1.317 1.62 18.08 15.03 2,939,315
HBNK Highland Federal Bank FSB NASDAQ 0.000 0.69 25.00 8.31 2,295,983
HBS Haywood Bancshares, Inc. AMSE 0.000 0.04 17.45 17.76 1,289,072
HEMT HF Bancorp, Inc. NASDAQ 0.000 1.21 NA 8.44 6,414,125
HFFB Harrodsburg First Fin Bancorp NASDAQ 2.424 0.39 NA 33.12 2,182,185
HFFC HF Financial Corp. NASDAQ 2.200 1.04 14.02 7.98 3,080,724
HFGI Harrington Financial Group NASDAQ 0.000 1.52 19.81 6.40 3,256,738
HFMD Home Federal Corp. NASDAQ 0.000 0.17 10.35 11.92 2,519,010
HFNC HFNC Financial Corp. NASDAQ 0.000 1.49 NA 38.71 17,192,500
HFSA Hardin Bancorp, Inc. NASDAQ 3.441 0.69 NA 14.75 962,780
HIFS Hingham Instit. for Savings NASDAQ 2.571 0.24 9.72 10.13 1,297,500
HMCI HomeCorp, Inc. NASDAQ 0.000 0.58 22.97 5.60 1,126,371
HMNF HMN Financial, Inc. NASDAQ 0.000 4.68 15.36 15.41 4,507,210
HNFC Hinsdale Financial Corp. NASDAQ 0.000 5.47 17.65 9.47 2,690,155
HOFL Home Financial Corp. NASDAQ 6.154 5.03 15.29 26.24 24,772,310
HOMF Home Federal Bancorp NASDAQ 1.905 0.48 9.72 9.63 2,223,532
HPBC Home Port Bancorp, Inc. NASDAQ 4.444 1.20 8.49 14.90 1,841,890
HRBF Harbor Federal Bancorp, Inc. NASDAQ 3.200 0.66 23.15 11.15 1,754,420
HRZB Horizon Financial Corp. NASDAQ 3.019 0.55 12.16 17.83 6,579,954
HSBK Hibernia Savings Bank, (The) NASDAQ 1.965 1.84 12.61 6.24 1,655,868
HTHR Hawthorne Financial Corp. NASDAQ 0.000 3.23 NM 2.86 270
HVFD Haverfield Corporation NASDAQ 3.000 0.67 15.93 10.09 1,904,102
HWEN Home Financial Bancorp NASDAQ 0.000 NA NA NA 505,926
HZFS Horizon Financial Svcs Corp. NASDAQ 2.133 0.49 25.00 9.30 447,937
IBSF IBS Financial Corp NASDAQ 1.864 2.85 16.72 19.41 11,409,899
IFSB Independence Federal Savings NASDAQ 2.750 0.28 16.67 3.88 1,278,935
IFSL Indiana Federal Corporation NASDAQ 3.646 0.51 13.72 13.04 4,737,329
INBI Industrial Bancorp NASDAQ 2.697 1.28 NA 18.89 5,554,500
INCB Indiana Community Bank, SB NASDAQ 2.511 0.74 19.91 13.61 922,039
IPSW Ipswich Savings Bank NASDAQ 1.739 2.48 9.58 10.07 1,173,805
IROQ Iroquois Bancorp NASDAQ 2.098 0.58 9.47 7.94 2,348,711
IROQ Iroquois Bancorp NASDAQ 2.098 0.58 9.47 7.94 31,142
ISBF ISB Financial Corporation NASDAQ 2.207 2.63 NA 17.16 7,380,671
ITLA Imperial Thrift and Loan NASDAQ 0.000 2.60 NA 12.77 7,820,500
IWBK InterWest Bancorp, Inc. NASDAQ 2.167 0.46 12.70 11.28 6,433,934
JEBC Jefferson Bancorp, Inc. NASDAQ 1.356 1.11 17.42 18.33 2,195,634
JOAC Joachim Bancorp, Inc. NASDAQ 3.922 1.17 NA 26.36 760,437
JSBA Jefferson Savings Bancorp NASDAQ 1.280 0.39 15.43 9.38 4,181,563
JSBF JSB Financial, Inc. NASDAQ 3.623 1.20 15.34 22.11 10,333,270
JXSB Jacksonville Savings Bank, MHC NASDAQ 3.077 0.09 NA 11.43 1,250,000
JXVL Jacksonville Bancorp, Inc. NASDAQ 4.819 6.03 NA NA 2,656,630
KFBI Klamath First Bancorp NASDAQ 1.841 1.77 NA 26.29 10,756,150
KNK Kankakee Bancorp, Inc. AMSE 2.119 0.40 17.98 7.48 1,439,318
KSAV KS Bancorp, Inc. NASDAQ 3.288 0.01 13.04 13.47 663,263
KSBK KSB Bancorp, Inc. NASDAQ 0.909 0.11 8.00 6.46 373,750
KYF Kentucky First Bancorp, Inc. AMSE 3.540 0.41 NA 23.35 1,388,625
</TABLE>
<PAGE>
EXHIBIT 20-b
ALL PUBLIY TRADED THRIFTS
MARKET DATA
<TABLE>
<CAPTION>
Current Current Current Current Current
Market Stock Price/ Price/ Price/ Tang
Value Price LTM EPS Book Value Book Value
Ticker Institution Exchange ($M) ($) (X) (%) (%)
- ----- ----------- -------- ---- --- --- --- ---
<C> <S> <C> <C> <C> <C> <C> <C>
LARK Landmark Bancshares, Inc. NASDAQ 29.75 15.250 16.76 89.39 89.39
LARL Laurel Capital Group, Inc NASDAQ 22.25 14.750 8.89 107.98 107.98
LBCI Liberty Bancorp, Inc. NASDAQ 61.55 24.750 19.19 96.45 96.72
LBFI L & B Financial, Inc. NASDAQ 26.93 17.000 19.32 109.68 109.68
LFBI Little Falls Bancorp, Inc. NASDAQ 31.56 10.375 NA 72.76 79.08
LFCT Leader Financial Corp. NASDAQ 439.13 44.250 11.26 172.11 172.11
LFED Leeds Federal Savings Bk, MHC NASDAQ 46.55 13.500 16.88 106.72 106.72
LIFB Life Bancorp, Inc. NASDAQ 147.08 14.190 15.77 96.27 100.00
LISB Long Island Bancorp, Inc. NASDAQ 742.65 29.875 16.15 143.70 143.70
LOAN Horizon Bancorp NASDAQ 13.00 9.375 8.37 124.50 128.95
LOGN Logansport Financial Corp. NASDAQ 17.19 13.000 NA 83.98 83.98
LONF London Financial Corporation NASDAQ 5.49 10.375 NA NA NA
LSBI LSB Financial Corp. NASDAQ 14.95 15.500 11.92 79.90 79.90
LSBX Lawrence Savings Bank NASDAQ 22.82 5.375 6.80 93.32 93.32
LVSB Lakeview Financial NASDAQ 45.88 20.250 9.64 101.30 131.92
LXMO Lexington B&L Financial Corp. NASDAQ 12.81 10.125 NA NA NA
MAFB MAF Bancorp, Inc. NASDAQ 123.24 23.500 8.36 112.39 112.39
MARN Marion Capital Holdings NASDAQ 38.73 20.250 17.31 94.27 94.27
MASB MASSBANK Corp. NASDAQ 91.57 33.500 10.50 104.95 104.95
MBBC Monterey Bay Bancorp, Inc. NASDAQ 40.54 11.875 59.38 78.59 79.54
MBLF MBLA Financial Corp. NASDAQ 31.89 23.250 24.22 112.43 112.43
MCBN Mid-Coast Bancorp, Inc. NASDAQ 4.38 19.125 14.38 88.91 88.91
MCBS Mid Continent Bancshares Inc. NASDAQ 37.88 18.375 9.99 98.74 98.90
MDBK Medford Savings Bank NASDAQ 103.06 22.750 10.99 118.24 130.37
MECH Mechanics Savings Bank NASDAQ 59.83 11.310 NA NA NA
MERI Meritrust Federal SB NASDAQ 24.19 31.250 11.24 143.22 143.22
MFBC MFB Corp. NASDAQ 29.09 14.000 21.54 74.99 74.99
MFCX Marshalltown Financial Corp. NASDAQ 21.88 15.500 57.41 113.06 113.06
MFFC Milton Federal Financial Corp. NASDAQ 28.77 12.500 16.67 83.84 83.84
MFLR Mayflower Co-operative Bank NASDAQ 11.57 13.250 12.74 106.68 109.05
MFSB Mutual Bancompany NASDAQ 7.00 21.000 61.76 112.30 112.30
MFSL Maryland Federal Bancorp NASDAQ 91.74 29.125 10.55 97.60 99.27
MGNL Magna Bancorp, Inc. NASDAQ 259.23 37.250 12.29 205.57 218.86
MIDC MidConn Bank NASDAQ 36.17 19.000 30.16 104.80 125.74
MIFC Mid-Iowa Financial Corp. NASDAQ 11.03 6.375 12.03 102.33 102.49
MIVI Mississippi View Holding Co. NASDAQ 10.29 10.750 10.75 78.01 78.01
MLFB MLF Bancorp, Inc. NASDAQ 151.49 24.250 13.32 99.10 101.63
MORG Morgan Financial Corp. NASDAQ 10.20 12.250 15.31 97.15 97.15
MSBB MSB Bancorp, Inc. NASDAQ 48.87 17.250 14.74 85.48 224.90
MSBF MSB Financial, Inc. NASDAQ 11.66 17.250 11.13 91.46 91.46
MSBK Mutual Savings Bank, FSB NASDAQ 24.56 5.750 NA 62.57 62.57
MSEA Metropolitan Bancorp NASDAQ 50.55 13.625 9.80 99.38 109.88
MWBI Midwest Bancshares, Inc. NASDAQ 9.19 25.750 7.60 96.88 96.88
MWBX MetroWest Bank NASDAQ 53.79 3.875 9.23 150.78 150.78
MWFD Midwest Federal Financial NASDAQ 25.72 15.750 13.70 154.26 161.70
NASB North American Savings Bank NASDAQ 67.43 29.625 8.01 138.18 143.95
NBSI North Bancshares, Inc. NASDAQ 16.98 15.250 29.33 90.18 90.18
NEBC Northeast Bancorp NASDAQ 16.36 13.500 14.06 98.47 117.29
NEIB Northeast Indiana Bancorp NASDAQ 24.35 11.810 NA 84.84 84.84
<CAPTION>
Current 1 Month Avg
Dividend WeeklyVol/ Price/ Price/
Yield Shares Out LTM Core EPS Assets Shares
Ticker Institution Exchange (%) (%) (X) (%) Outstanding
- ----- ----------- -------- --- --- --- --- -----------
<C> <S> <C> <C> <C> <C> <C> <C>
LARK Landmark Bancshares, Inc. NASDAQ 2.623 0.63 19.30 15.38 1,950,522
LARL Laurel Capital Group, Inc NASDAQ 2.169 0.05 9.22 11.53 1,508,464
LBCI Liberty Bancorp, Inc. NASDAQ 2.424 2.27 19.04 9.19 2,487,022
LBFI L & B Financial, Inc. NASDAQ 2.353 2.73 19.54 18.80 1,584,125
LFBI Little Falls Bancorp, Inc. NASDAQ 0.964 1.82 NA 11.05 3,041,750
LFCT Leader Financial Corp. NASDAQ 1.627 1.34 11.49 13.82 9,923,812
LFED Leeds Federal Savings Bk, MHC NASDAQ 4.741 0.02 16.67 17.46 3,448,000
LIFB Life Bancorp, Inc. NASDAQ 3.101 2.23 14.94 12.25 10,365,094
LISB Long Island Bancorp, Inc. NASDAQ 1.339 11.59 17.37 15.36 24,858,699
LOAN Horizon Bancorp NASDAQ 1.707 0.60 10.53 10.25 1,386,757
LOGN Logansport Financial Corp. NASDAQ 3.077 1.49 NA 22.48 1,322,500
LONF London Financial Corporation NASDAQ 0.000 2.87 NA NA 529,000
LSBI LSB Financial Corp. NASDAQ 2.065 1.98 12.81 9.20 964,709
LSBX Lawrence Savings Bank NASDAQ 0.000 1.46 6.80 7.05 4,245,250
LVSB Lakeview Financial NASDAQ 1.235 4.43 15.82 10.08 2,265,704
LXMO Lexington B&L Financial Corp. NASDAQ 0.000 NA NA NA 1,265,000
MAFB MAF Bancorp, Inc. NASDAQ 1.362 4.28 8.19 6.22 5,244,463
MARN Marion Capital Holdings NASDAQ 3.951 1.14 17.31 22.62 1,912,512
MASB MASSBANK Corp. NASDAQ 2.627 0.29 10.88 10.66 2,733,562
MBBC Monterey Bay Bancorp, Inc. NASDAQ 0.000 1.04 49.48 12.71 3,414,063
MBLF MBLA Financial Corp. NASDAQ 1.720 0.28 24.22 16.35 1,371,738
MCBN Mid-Coast Bancorp, Inc. NASDAQ 2.614 0.00 15.68 8.06 229,031
MCBS Mid Continent Bancshares Inc. NASDAQ 2.177 1.15 10.27 13.02 2,061,250
MDBK Medford Savings Bank NASDAQ 2.989 1.48 11.32 10.51 4,529,948
MECH Mechanics Savings Bank NASDAQ 0.000 NA NA NA 5,290,000
MERI Meritrust Federal SB NASDAQ 1.920 0.00 11.53 10.65 774,176
MFBC MFB Corp. NASDAQ 0.000 1.27 21.88 14.48 2,077,873
MFCX Marshalltown Financial Corp. NASDAQ 0.000 0.22 57.41 17.33 1,411,475
MFFC Milton Federal Financial Corp. NASDAQ 3.840 0.41 17.86 16.75 2,301,409
MFLR Mayflower Co-operative Bank NASDAQ 3.019 2.42 14.10 10.22 873,100
MFSB Mutual Bancompany NASDAQ 0.000 1.60 53.85 13.14 333,500
MFSL Maryland Federal Bancorp NASDAQ 2.197 2.37 14.78 8.02 3,149,705
MGNL Magna Bancorp, Inc. NASDAQ 1.611 0.17 13.30 20.08 6,959,091
MIDC MidConn Bank NASDAQ 3.158 1.92 31.67 9.90 1,903,850
MIFC Mid-Iowa Financial Corp. NASDAQ 1.255 1.28 12.03 9.24 1,729,880
MIVI Mississippi View Holding Co. NASDAQ 1.488 0.34 12.08 14.71 957,593
MLFB MLF Bancorp, Inc. NASDAQ 3.134 1.78 14.97 8.58 6,246,900
MORG Morgan Financial Corp. NASDAQ 1.959 0.03 15.91 14.24 832,700
MSBB MSB Bancorp, Inc. NASDAQ 3.478 3.42 13.80 5.66 600,000
MSBF MSB Financial, Inc. NASDAQ 2.899 0.31 12.23 20.70 675,804
MSBK Mutual Savings Bank, FSB NASDAQ 0.000 1.05 NM 3.41 4,271,394
MSEA Metropolitan Bancorp NASDAQ 0.000 1.74 9.08 6.50 3,710,205
MWBI Midwest Bancshares, Inc. NASDAQ 2.019 0.03 10.91 6.72 356,979
MWBX MetroWest Bank NASDAQ 2.581 0.44 9.23 11.26 13,882,235
MWFD Midwest Federal Financial NASDAQ 1.905 0.97 16.94 14.43 1,632,880
NASB North American Savings Bank NASDAQ 2.110 0.03 8.74 10.15 2,276,148
NBSI North Bancshares, Inc. NASDAQ 2.623 0.19 31.77 15.63 1,113,631
NEBC Northeast Bancorp NASDAQ 2.370 0.58 18.24 7.45 71,428
NEIB Northeast Indiana Bancorp NASDAQ 2.540 0.65 NA 17.26 2,061,670
</TABLE>
<PAGE>
EXHIBIT 20-b
ALL PUBLICLY TRADED THRIFTS
MARKET DATA
<TABLE>
<CAPTION>
Current Current Current Current Current Current
Market Stock Price/ Price/ Price/Tang Dividend
Value Price LTM EPS Book Value Book Value Yield
Ticker Institution Exchange ($M) ($) (x) (%) (%) (%)
- ------ ----------- -------- ------- ------- ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NFSL Newnan Savings Bank, FSB NASDAQ 27.31 18.875 8.99 146.77 147.69 2.331
NHSL NHS Financial, Inc. NASDAQ 27.75 11.000 55.00 112.47 112.70 1.455
NHTB New Hampshire Thrift Bncshrs NASDAQ 16.68 9.875 11.90 85.94 85.94 5.063
NMSB NewMil Bancorp, Inc. NASDAQ 28.73 6.875 5.09 88.48 88.48 2.909
NSBK North Side Savings Bank NASDAQ 169.72 35.250 9.68 138.78 140.10 2.837
NSLB NS&L Bancorp, Inc. NASDAQ 11.21 12.625 NA 80.83 80.83 3.960
NSSB Norwich Financial Corp. NASDAQ 86.53 15.440 15.92 114.97 127.39 2.591
NSSY Norwalk Savings Society NASDAQ 52.66 21.625 13.52 118.56 118.56 0.000
NTMG Nutmeg Federal S&LA NASDAQ 5.13 7.250 12.29 92.47 92.47 0.000
NWEQ Northwest Equity Corp. NASDAQ 10.05 10.250 11.39 80.46 80.46 3.512
NWSB Northwest Savings Bank, MHC NASDAQ 280.51 12.000 16.00 146.52 148.33 2.500
NYB New York Bancorp Inc. NYSE 297.35 25.875 10.19 190.54 190.54 3.092
OCFC Ocean Financial Corp. NASDAQ 175.10 20.875 NA NA NA 0.000
OFCP Ottawa Financial Corp. NASDAQ 88.97 16.310 21.75 109.32 136.37 1.962
OHSL OHSL Financial Corp. NASDAQ 23.88 19.500 13.09 93.57 93.57 3.897
OSBF OSB Financial Corp. NASDAQ 26.45 23.625 60.58 84.34 84.34 2.709
PALM Palfed, Inc. NASDAQ 63.32 12.125 14.61 120.17 126.43 0.660
PBCI Pamrapo Bancorp, Inc. NASDAQ 63.16 19.250 12.50 111.85 112.90 4.675
PBCT People's Bank, MHC NASDAQ 853.17 21.625 11.56 153.15 153.15 3.699
PBIX Patriot Bank Corp. NASDAQ 44.60 12.750 NA 82.42 82.42 1.882
PBKB People's Bancshares, Inc. NASDAQ 31.73 9.500 9.79 115.85 122.42 2.947
PBNB People's Savings Financial Cp. NASDAQ 42.13 22.000 12.64 95.90 103.63 4.182
PCBC Perry County Financial Corp. NASDAQ 15.20 17.750 18.68 96.62 96.62 1.690
PCCI Pacific Crest Capital NASDAQ 24.42 8.250 6.65 107.56 107.56 0.000
PDB Piedmont Bancorp, Inc. AMSE 35.05 13.250 NA 94.31 94.31 3.623
PEEK Peekskill Financial Corp. NASDAQ 48.68 11.875 NA 75.49 75.49 3.032
PERM Permanent Bancorp, Inc. NASDAQ 34.15 16.000 29.09 82.30 83.42 1.250
PETE Primary Bank NASDAQ 24.17 12.375 NM 96.98 97.36 0.000
PFDC Peoples Bancorp NASDAQ 47.12 20.000 11.83 109.95 109.95 2.800
PFFB PFF Bancorp, Inc. NASDAQ 214.44 10.810 NA 74.19 75.07 0.000
PFNC Progress Financial Corporation NASDAQ 23.31 6.250 7.27 121.36 122.31 0.000
PFSB PennFed Financial Services, Inc NASDAQ 73.56 15.250 11.82 77.45 97.76 0.000
PFSL Pocahontas FS&LA, MHC NASDAQ 23.75 14.750 12.19 108.14 108.14 5.424
PHBK Peoples Heritage Finl Group NASDAQ 344.82 20.250 9.38 124.69 144.85 3.358
PHFC Pittsburgh Home Financial Corp NASDAQ 22.64 10.375 NA NA NA 0.000
PKPS Poughkeepsie Savings Bank, FSE NASDAQ 64.24 5.125 4.27 90.07 90.07 1.951
PLE Pinnacle Bank AMSE 14.79 16.625 9.78 97.17 100.76 4.331
PMFI Perpetual Midwest Financial NASDAQ 34.29 17.000 22.97 95.18 95.18 1.765
POBS Portsmouth Bank Shares NASDAQ 78.17 13.625 13.49 116.65 116.65 4.404
PRBC Prestige Bancorp, Inc. NASDAQ 9.87 10.250 NA NA NA 0.000
PROV Provident Financial Holdings NASDAQ 55.40 10.810 NA NA NA 0.000
PSAB Prime Bancorp, Inc. NASDAQ 67.49 18.125 11.4 117.39 125.52 3.752
PSBK Progressive Bank, Inc. NASDAQ 76.45 29.060 10.84 109.87 109.87 2.753
PSSB Palm Springs Savings Bank NASDAQ 15.69 13.875 13.21 134.19 134.19 0.865
PTRS Potters Financial Corp. NASDAQ 8.16 16.125 14.02 77.52 77.52 1.488
PULB Pulaski Bank, Savings Bk, MHC NASDAQ 29.32 14.000 19.18 129.39 129.39 5.714
PULS Pulse Bancorp NASDAQ 69.96 18.000 13.53 130.06 130.06 3.889
PVFC PVF Capital Corp. NASDAQ 28.66 18.500 8.64 134.35 134.35 0.000
PVSA Parkvale Financial Corporation NASDAQ 81.62 25.250 9.08 120.30 120.87 2.059
</TABLE>
<TABLE>
<CAPTION>
1 Month Avg
Weekly Vol/ Price/ Price/
SharesOut LTM Core EPS Assets Shares
(%) (x) (%) Outstanding
----------- ------------ ------- -----------
<S> <C> <C> <C> <C>
NFSL 0.08 10.26 17.00 1,446,856
NHSL 0.36 55.00 9.48 2,522,827
NHTB 0.10 11.48 6.61 1,689,503
NMSB 0.54 5.13 9.86 4,179,498
NSBK 2.54 11.41 10.74 4,814,751
NSLB 0.31 NA 18.98 887,814
NSSB 1.26 16.08 12.16 5,604,152
NSSY 4.03 21.63 9.47 2,435,234
NTMG 0.01 20.71 6.02 707,814
NWEQ 0.09 11.92 11.64 980,892
NWSB 0.20 15.58 15.87 23,376,000
NYB 0.32 10.78 11.01 11,491,858
OCFC NA NA NA 8,388,078
OFCP 1.29 22.04 11.93 5,454,838
OHSL 0.22 13.54 11.62 1,224,468
OSBF 0.43 36.35 10.62 1,119,484
PALM 4.40 17.32 10.15 5,221,962
PBCI 1.84 12.50 17.33 3,280,964
PBCT 0.94 14.13 12.25 39,452,958
PBIX 1.68 NA 14.25 3,497,748
PBKB 1.12 13.57 5.95 3,340,493
PBNB 1.43 12.22 10.37 1,915,113
PCBC 0.20 19.09 19.37 856,452
PCCI 2.19 8.87 8.51 2,959,698
PDB 0.50 NA 28.07 2,645,000
PEEK 0.58 NA 25.14 4,099,750
PERM 0.39 29.09 8.63 2,134,515
PETE 0.54 NM 6.15 1,953,135
PFDC 0.29 11.83 16.78 2,355,883
PFFB 6.36 NA 10.68 19,837,500
PFNC 0.27 9.06 6.70 3,730,000
PFSB 8.67 10.97 7.57 4,823,665
PFSL 0.07 11.9 6.43 1,610,000
PHBK 4.97 9.55 10.44 17,028,129
PHFC 4.59 NA NA 2,182,125
PKPS 2.47 3.24 7.65 12,534,825
PLE 0.62 10.94 7.96 889,824
PMFI 1.01 22.97 9.17 2,017,082
POBS 0.46 15.66 29.23 5,736,913
PRBC NA NA NA 963,023
PROV NA NA NA 5,125,215
PSAB 1.11 12.76 11.08 3,723,353
PSBK 0.39 10.57 9.73 2,630,601
PSSB 0.72 24.78 8.17 1,130,946
PTRS 2.35 14.27 7.55 506,169
PULB 0.05 22.58 16.34 2,094,000
PULS 0.64 13.43 15.46 3,886,458
PVFC 0.13 9.74 9.01 1,548,957
PVSA 0.35 9.75 8.93 3,232,643
</TABLE>
<PAGE>
EXHIBIT 20b
ALL PUBLICLY TRADED THRIFTS
MARKET DATA
<TABLE>
<CAPTION>
Current Current Current Current Current Current 1 Month Avg
Market Stock Price/ Price/ Price/Tang Dividend Weekly Vol/
Value Price LTM EPS Book Value Book Value Yield Shares Out
Ticker Institution Exchange ($M) ($) (X) (%) (%) (%) (%)
- ------ ----------- -------- ---- --- --- --- --- --- ---
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
PWBC PennFirst Bancorp, Inc. NASDAQ 54.95 13.750 14.03 102.84 112.89 2.618 0.02
QCBC Quaker City Bancorp, Inc. NASDAQ 53.51 13.625 16.22 78.17 78.62 0.000 1.29
QCFB QCF Bancorp, Inc. NASDAQ 24.47 15.250 NA 85.58 85.58 0.000 1.14
QCSB Queens County Bancorp, Inc. NASDAQ 295.57 48.375 13.55 138.21 138.21 2.067 1.45
RARB Raritan Bancorp Inc. NASDAQ 28.89 20.250 11.98 115.06 118.01 2.963 0.76
RCSB RCSB Financial Inc. NASDAQ 319.53 25.750 11.98 125.79 130.25 1.864 6.48
REDF RedFed Bancorp Inc. NASDAQ 34.75 8.560 NM 71.93 71.93 0.000 1.16
RELI Reliance Bancshares, Inc. NASDAQ 20.82 8.125 NA NA NA 0.000 2.36
RELY Reliance Bancorp, Inc. NASDAQ 148.77 16.125 13.78 96.27 142.70 2.853 3.46
RFED Roosevelt Financial Group NASDAQ 745.06 17.690 13.61 163.34 172.92 3.505 3.48
ROSE TR Financial Corp. NASDAQ 246.07 27.500 10.58 120.93 120.93 2.327 3.93
RVSB Riverview Savings Bank, MHC NASDAQ 30.98 14.375 11.78 134.22 151.64 1.530 0.18
SBCN Suburban Bancorporation, Inc. NASDAQ 22.95 15.500 29.25 88.67 88.67 3.871 0.62
SBFL SB of the Finger Lakes, MHC NASDAQ 29.45 16.500 NA 144.74 144.74 2.424 0.05
SCCB S. Carolina Community Bancshrs NASDAQ 12.05 16.125 19.91 95.98 95.98 3.721 0.46
SCSL Suncoast Savings and Loan NASDAQ 12.19 6.125 NA 92.94 93.37 0.000 1.28
SECP Security Capital Corporation NASDAQ 562.60 59.000 19.93 105.47 105.47 1.017 0.69
SFB Standard Federal Bancorp NYSE 1,196.82 38.250 10.07 127.42 149.30 1.987 1.63
SFBM Security Bancorp NASDAQ 29.79 20.375 12.58 92.74 107.69 3.141 0.68
SFED SFS Bancorp, Inc. NASDAQ 17.01 12.500 NA 74.94 74.94 0.000 3.08
SFFC StateFed Financial Corporation NASDAQ 13.28 16.125 15.50 88.99 88.99 2.481 0.71
SFIN Statewide Financial Corp. NASDAQ 64.55 12.250 NA 91.69 91.97 0.000 4.39
SFSB SuburbFed Financial Corp. NASDAQ 21.75 17.250 12.97 84.02 84.56 1.855 0.41
SFSL Security First Corp. NASDAQ 47.68 13.500 10.38 116.58 119.89 3.259 0.89
SGVB SGV Bancorp, Inc. NASDAQ 23.19 8.500 NA 71.19 71.19 0.000 0.83
SHEN First Shenango Bancorp, Inc. NASDAQ 47.31 20.500 14.14 100.49 100.49 2.341 0.40
SHFC Seven Hills Financial Corp. NASDAQ 9.72 18.125 60.42 100.75 100.75 1.986 0.19
SISB SIS Bancorp, Inc. NASDAQ 101.50 17.750 7.19 112.41 112.41 0.000 1.87
SJSB SJS Bancorp NASDAQ 19.90 20.250 22.01 113.13 113.13 1.975 0.61
SMBC Southern Missouri Bancorp, Inc NASDAQ 25.43 14.750 18.67 95.72 95.72 3.390 0.59
SMFC Sho-Me Financial Corp. NASDAQ 28.16 16.250 14.64 84.72 84.72 0.000 0.59
SOBI Sobieski Bancorp, Inc. NASDAQ 10.46 12.500 33.78 74.10 74.10 0.000 1.97
SOPN First Savings Bancorp, Inc. NASDAQ 68.33 18.250 19.21 101.73 101.73 3.288 0.19
SOSA Somerset Savings Bank NASDAQ 24.98 1.500 15.00 89.82 89.82 0.000 0.76
SPBC St. Paul Bancorp, Inc. NASDAQ 422.00 22.750 12.36 110.22 110.60 1.758 1.30
SRN Southern Banc Company, Inc AMSE 18.37 12.625 NA 82.41 NA 2.772 1.98
SSB Scotland Bancorp, Inc AMSE 22.77 12.375 NA NA NA 2.424 0.59
SSBK Strongsville Savings Bank NASDAQ 51.88 20.500 10.85 124.24 126.93 2.341 0.28
SSM Stone Street Bancorp, Inc AMSE 31.03 17.000 NA NA NA 2.588 1.38
STFR St. Francis Capital Corp. NASDAQ 141.47 25.000 9.47 107.07 112.11 1.600 2.13
STND Standard Financial, Inc. NASDAQ 267.66 16.375 15.75 102.02 102.09 1.954 2.10
STSA Sterling Financial Corp. NASDAQ 80.03 14.750 16.39 130.53 162.80 0.000 4.89
SVRN Sovereign Bancorp, Inc. NASDAQ 472.40 9.875 9.50 130.28 201.12 0.851 1.75
SVRN Sovereign Bancorp, Inc. NASDAQ 472.40 9.875 9.50 130.28 201.12 0.851 1.75
SWBI Southwest Bancshares NASDAQ 50.76 27.125 14.13 120.99 120.99 3.982 0.30
SWCB Sandwich Co-operative Bank NASDAQ 37.93 20.250 10.66 103.63 110.96 4.938 2.01
SZB SouthFirst Bancshares, Inc. AMSE 10.79 12.625 22.15 81.56 81.56 3.960 1.19
TBK Tolland Bank AMSE 11.58 10.000 NM 85.25 89.45 0.000 0.44
TCB TCF Financial Corp. NYSE 1,218.38 34.000 12.32 225.17 235.46 2.206 1.17
<CAPTION>
Price/ Price/
LTM Core EPS Assets Shares
Ticker Institution Exchange (X) (%) Outstanding
- ------ ----------- -------- --- --- -----------
<C> <S> <C> <C> <C> <C>
PWBC PennFirst Bancorp, Inc. NASDAQ 14.18 8.08 3,996,494
QCBC Quaker City Bancorp, Inc. NASDAQ 17.03 7.72 3,927,600
QCFB QCF Bancorp, Inc. NASDAQ NA 18.67 1,604,475
QCSB Queens County Bancorp, Inc. NASDAQ 13.70 23.47 6,109,885
RARB Raritan Bancorp Inc. NASDAQ 12.20 8.33 1,426,689
RCSB RCSB Financial Inc. NASDAQ 12.26 7.89 2,988,740
REDF RedFed Bancorp Inc. NASDAQ NM 4.05 4,059,917
RELI Reliance Bancshares, Inc. NASDAQ NA NA 2,562,344
RELY Reliance Bancorp, Inc. NASDAQ 14.40 8.53 9,225,739
RFED Roosevelt Financial Group NASDAQ 9.99 8.16 42,117,674
ROSE TR Financial Corp. NASDAQ 13.48 8.20 8,948,097
RVSB Riverview Savings Bank, MHC NASDAQ 13.07 14.79 2,155,206
SBCN Suburban Bancorporation, Inc. NASDAQ 20.13 11.64 1,480,732
SBFL SB of the Finger Lakes, MHC NASDAQ NA 16.68 1,785,000
SCCB S. Carolina Community Bancshrs NASDAQ 19.91 27.33 747,188
SCSL Suncoast Savings and Loan NASDAQ NA 2.61 1,989,930
SECP Security Capital Corporation NASDAQ 18.97 16.82 9,535,665
SFB Standard Federal Bancorp NYSE 11.12 8.86 31,289,495
SFBM Security Bancorp NASDAQ 16.84 8.28 1,462,182
SFED SFS Bancorp, Inc. NASDAQ NA 10.53 1,360,450
SFFC StateFed Financial Corporation NASDAQ 15.50 17.90 823,485
SFIN Statewide Financial Corp. NASDAQ NA 10.17 5,269,752
SFSB SuburbFed Financial Corp. NASDAQ 15.27 6.00 1,260,769
SFSL Security First Corp. NASDAQ 9.85 10.15 NA
SGVB SGV Bancorp, Inc. NASDAQ NA 6.96 2,727,656
SHEN First Shenango Bancorp, Inc. NASDAQ 14.96 13.30 2,307,808
SHFC Seven Hills Financial Corp. NASDAQ 62.50 21.37 536,472
SISB SIS Bancorp, Inc. NASDAQ 7.04 8.94 5,718,200
SJSB SJS Bancorp NASDAQ 22.50 13.20 982,622
SMBC Southern Missouri Bancorp, Inc NASDAQ 20.21 15.70 1,724,013
SMFC Sho-Me Financial Corp. NASDAQ 15.63 11.21 1,732,674
SOBI Sobieski Bancorp, Inc. NASDAQ 33.78 13.70 836,860
SOPN First Savings Bancorp, Inc. NASDAQ 18.81 26.66 3,744,000
SOSA Somerset Savings Bank NASDAQ 15.00 4.90 16,651,602
SPBC St. Paul Bancorp, Inc. NASDAQ 12.64 10.19 18,549,634
SRN Southern Banc Company, Inc AMSE NA 16.73 1,454,750
SSB Scotland Bancorp, Inc AMSE NA NA 1,840,000
SSBK Strongsville Savings Bank NASDAQ 12.73 10.28 2,530,800
SSM Stone Street Bancorp, Inc AMSE NA NA 1,825,000
STFR St. Francis Capital Corp. NASDAQ 13.74 11.30 5,658,899
STND Standard Financial, Inc. NASDAQ 17.61 12.55 16,345,875
STSA Sterling Financial Corp. NASDAQ 16.76 5.34 1,040,000
SVRN Sovereign Bancorp, Inc. NASDAQ 10.29 5.62 47,837,843
SVRN Sovereign Bancorp, Inc. NASDAQ 10.29 5.62 2,000,000
SWBI Southwest Bancshares NASDAQ 14.20 14.52 1,871,294
SWCB Sandwich Co-operative Bank NASDAQ 11.44 8.95 1,873,069
SZB SouthFirst Bancshares, Inc. AMSE 32.37 12.14 854,855
TBK Tolland Bank AMSE NM 5.33 1,157,500
TCB TCF Financial Corp. NYSE 13.03 17.31 35,834,837
</TABLE>
<PAGE>
EXHIBIT 20-b
ALL PUBLICLY TRADED THRIFTS
MARKET DATA
<TABLE>
<CAPTION>
Current Current Current Current Current
Market Stock Price/ Price/ Price/ Tang
Value Price LTM EPS Book Value Book Value
Ticker Institution Exchange ($M) ($) (X) (%) (%)
- ------ ----------- -------- ---- --- --- --- ---
<C> <S> <C> <C> <C> <C> <C> <C>
THBC Troy Hill Bancorp, Inc. NASDAQ 14.15 13.250 12.38 79.20 79.20
THIR Third Financial Corp. NASDAQ 35.92 31.625 17.57 127.11 127.11
THR Three Rivers Financial Corp. AMSE 11.50 13.375 NA 88.17 88.58
THRD TF Financial Corporation NASDAQ 65.02 14.375 14.97 80.76 80.76
TPNZ Tappan Zee Financial, Inc. NASDAQ 18.83 11.625 NA 84.24 84.24
TRIC Tri-County Bancorp, Inc. NASDAQ 10.96 18.000 18.56 86.71 86.71
TSBS Trenton SB, MHC NASDAQ 113.63 12.750 NA 115.07 117.73
TSH Teche Holding Co. AMSE 51.76 12.875 NA 88.73 88.73
TWIN Twin City Bancorp NASDAQ 15.72 17.500 13.78 111.54 111.54
UBMT United Financial Corp. NASDAQ 22.94 18.750 14.20 93.19 93.19
UFRM United Federal Savings Bank NASDAQ 25.29 8.250 11.30 121.15 121.15
VABF Virginia Beach Fed. Financial NASDAQ 34.73 7.000 21.21 84.54 84.54
VAFD Valley Federal Savings Bank NASDAQ 11.74 32.000 123.08 122.32 122.32
VFFC Virginia First Financial NASDAQ 67.39 12.000 8.28 122.32 126.85
WAMU Washington Mutual Inc. NASDAQ 2,196.22 30.500 11.30 154.20 173.39
WAYN Wayne Savings & Loan Co. MHC NASDAQ 29.84 20.000 20.83 130.63 130.63
WBCI WFS Bancorp, Inc. NASDAQ 36.00 23.060 27.45 106.32 106.37
WBST Webster Financial Corporation NASDAQ 232.98 28.750 12.29 118.46 155.83
WCBI Westco Bancorp NASDAQ 56.24 21.000 15.22 116.21 116.21
WCFB Webster City Federal SB, MHC NASDAQ 26.65 12.690 24.40 122.97 122.97
WCHI Workingmens Capital Holdings NASDAQ 37.08 20.625 18.92 141.75 141.75
WEFC Wells Financial Corp. NASDAQ 25.43 11.625 NA 86.69 86.69
WES Westcorp NYSE 461.82 17.875 12.77 151.74 152.26
WFCO Winton Financial Corp. NASDAQ 26.81 13.500 11.07 129.56 133.14
WFSB 1st Washington Bancorp Inc. NASDAQ 79.06 8.000 15.38 167.01 167.01
WFSL Washington Federal, Inc. NASDAQ 857.17 20.125 10.82 143.34 150.75
WHGB WHG Bancshares Corp. NASDAQ 17.92 11.060 NA NA NA
WLDN Walden Bancorp, Inc. NASDAQ 107.57 20.250 11.07 112.63 131.58
WOFC Western Ohio Financial Corp. NASDAQ 54.45 23.000 22.12 91.31 96.96
WRNB Warren Bancorp, Inc. NASDAQ 46.47 12.500 8.33 146.37 146.37
WSB Washington Savings Bank, FSB AMSE 23.21 5.500 10.00 110.66 110.66
WSFS WSFS Financial Corporation NASDAQ 103.25 7.375 3.99 141.55 143.20
WSTR WesterFed Financial Corp. NASDAQ 64.29 14.625 15.23 82.30 82.30
WVFC WVS Financial Corporation NASDAQ 35.60 20.500 12.42 97.99 97.99
WWFC Westwood Financial Corporation NASDAQ 6.87 10.625 NA NA NA
WYNE Wayne Bancorp, Inc. NASDAQ 25.10 11.250 NA NA NA
YFCB Yonkers Financial Corporation NASDAQ 36.15 10.125 NA NA NA
YFED York Financial Corp. NASDAQ 101.34 16.750 10.47 110.05 110.05
Average 123.41 17.171 16.20 108.60 112.64
<CAPTION>
Current 1 Month Avg
Dividend Weekly Vol/ Price/ Price/
Yield Shares Out LTM Core EPS Assets Shares
Ticker Institution Exchange ($M) (%) (X) (%) Outstanding
- ------ ----------- -------- ---- --- --- --- -----------
<C> <S> <C> <C> <C> <C> <C> <C>
THBC Troy Hill Bancorp, Inc. NASDAQ 3.019 0.72 13.52 17.58 1,067,917
THIR Third Financial Corp. NASDAQ 2.150 0.29 19.52 23.08 1,135,954
THR Three Rivers Financial Corp. AMSE 2.243 1.40 NA 13.50 859,625
THRD TF Financial Corporation NASDAQ 2.226 4.11 15.80 12.52 4,523,374
TPNZ Tappan Zee Financial, Inc. NASDAQ 1.720 0.68 NA 16.41 1,620,062
TRIC Tri-County Bancorp, Inc. NASDAQ 2.778 0.07 18.95 15.46 608,749
TSBS Trenton SB, MHC NASDAQ 2.745 0.58 NA 21.91 8,912,500
TSH Teche Holding Co. AMSE 3.883 1.73 NA 15.23 4,020,500
TWIN Twin City Bancorp NASDAQ 3.657 0.39 15.91 15.35 898,404
UBMT United Financial Corp. NASDAQ 4.693 0.57 14.20 21.93 1,223,312
UFRM United Federal Savings Bank NASDAQ 2.424 0.32 12.69 10.03 3,065,064
VABF Virginia Beach Fed. Financial NASDAQ 2.286 0.44 NM 5.56 4,961,840
VAFD Valley Federal Savings Bank NASDAQ 1.875 0.00 160.00 9.90 366,860
VFFC Virginia First Financial NASDAQ 0.833 0.38 10.17 9.44 5,615,450
WAMU Washington Mutual Inc. NASDAQ 2.885 3.14 11.34 9.83 72,007,309
WAYN Wayne Savings & Loan Co. MHC NASDAQ 4.400 0.03 22.22 12.01 1,492,149
WBCI WFS Bancorp, Inc. NASDAQ 1.735 0.85 19.38 13.05 1,561,009
WBST Webster Financial Corporation NASDAQ 2.226 2.86 11.69 6.11 8,103,746
WCBI Westco Bancorp NASDAQ 2.286 0.44 15.22 18.18 2,678,093
WCFB Webster City Federal SB, MHC NASDAQ 6.304 0.16 24.88 27.40 2,100,000
WCHI Workingmens Capital Holdings NASDAQ 1.745 3.01 19.10 17.36 1,797,920
WEFC Wells Financial Corp. NASDAQ 0.000 3.89 NA 12.96 2,187,500
WES Westcorp NYSE 2.130 0.13 24.83 15.01 25,836,258
WFCO Winton Financial Corp. NASDAQ 3.111 0.34 13.64 10.22 1,986,152
WFSB 1st Washington Bancorp Inc. NASDAQ 1.500 0.53 36.36 9.94 9,882,877
WFSL Washington Federal, Inc. NASDAQ 4.571 1.36 11.31 17.39 42,592,347
WHGB WHG Bancshares Corp. NASDAQ 0.000 1.72 NA NA 1,620,062
WLDN Walden Bancorp, Inc. NASDAQ 3.160 2.61 10.89 10.55 5,312,017
WOFC Western Ohio Financial Corp. NASDAQ 4.348 0.97 37.70 16.62 2,367,310
WRNB Warren Bancorp, Inc. NASDAQ 3.520 0.76 8.80 13.10 3,717,807
WSB Washington Savings Bank, FSB AMSE 1.818 0.16 13.10 9.10 4,220,206
WSFS WSFS Financial Corporation NASDAQ 0.000 0.58 6.64 8.30 14,000,098
WSTR WesterFed Financial Corp. NASDAQ 2.325 1.45 16.43 10.93 4,395,804
WVFC WVS Financial Corporation NASDAQ 1.951 0.07 11.39 14.81 1,736,400
WWFC Westwood Financial Corporation NASDAQ 0.000 NA NA NA 646,743
WYNE Wayne Bancorp, Inc. NASDAQ 0.000 NA NA NA 2,231,383
YFCB Yonkers Financial Corporation NASDAQ 0.000 5.34 NA NA 3,570,750
YFED York Financial Corp. NASDAQ 3.582 1.28 12.32 9.68 6,049,983
Average 1.97 1.46 17.37 12.47 5,556,906
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 21
COMPARATIVE GROUP
GENERAL DATA
Number Equity/
of FTE Assets Deposits Assets Holding
Ticker Institution City State Offices Employees ($000) ($000) (%) Company
- ------ ----------- ---- ----- ------- --------- ------ ------ --- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SRN Southern Banc Company, Inc Gadsden AL 4 109,768 86,778 20.31 Y
CCFH CCF Holding Company Jonesboro GA 3 32 78,772 61,215 21.23 Y
CLAS Classic Bancshares, Inc. Ashland KY 1 67,786 47,923 28.79 Y
GWBC Gateway Bancorp, Inc. Catlettsburg KY 2 9 73,005 54,456 24.99 Y
HFFB Harrodsburg First Fin Bancorp Harrodsburg KY 2 15 108,710 76,635 28.66 Y
KYF Kentucky First Bancorp, Inc. Cynthia KY 2 22 83,981 51,109 23.63 Y
CZF CitiSave Financial Corp Baton Rouge LA 5 32 79,717 63,465 18.19 Y
NSLB NS&L Bancorp, Inc. Neosho MO 2 59,052 44,311 23.48 Y
KSAV KS Bancorp, Inc. Kenly NC 3 23 89,871 72,489 15.16 Y
PDB Piedmont Bancorp, Inc. Hillsborough NC 2 29 124,847 73,292 29.77 Y
SOPN First Savings Bancorp, Inc. Southern Pines NC 5 39 256,294 186,492 26.21 Y
SCCB S. Carolina Community Bancshrs Winnsboro SC 1 44,088 31,192 28.47 Y
BFSB Bedford Bancshares, Inc. Bedford VA 3 36 117,596 92,929 16.10 Y
Comp Group Average 3 26 99,499 72,484 23.46
Comp Group Median 2 29 83,981 63,465 23.63
North Carolina Median 4 173,780 148,030 20.69
North Carolina Average 6 228,733 169,926 21.93
Southeast Region Average 12 511,985 362,375 13.24
All Publicly Traded Thrifts Average 18 1,371,299 933,199 12.20
Home Savings 1 11 80,386 68,907 13.94
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 22
COMPARATIVE GROUP
FINANCIAL PERFORMANCE
Net Interest
Core Earnings Income/ Noninterest Noninterest
Return on Return on Return on Return on Avg Assets Income/ Expense/
Avg Assets Avg Equity Avg Assets Avg Equity (%) Avg Assets Avg Assets
Ticker Institution (%) (%) (%) (%) LTM (%) (%)
- ------ ----------- --- --- --- --- --- --- ---
<C> <S> <C> <C> <C> <C> <C> <C> <C>
SRN Southern Banc Company, Inc 0.54 3.96 2.70 0.07 1.89
CCFH CCF Holding Company 0.85 5.07 3.51 0.45 2.74
CLAS Classic Bancshares, Inc. 1.00 4.84
GWBC Gateway Bancorp, Inc. 1.05 3.91 1.05 3.91 2.87 0.02 1.26
HFFB Harrodsburg First Fin Bancorp 1.15 4.50
KYF Kentucky First Bancorp, Inc. 1.12 5.27 3.45 0.19 2.00
CZF CitiSave Financial Corp 1.15 7.47 3.71 1.40 3.49
NSLB NS&L Bancorp, Inc. 0.92 3.83 3.08 0.27 2.17
KSAV KS Bancorp, Inc. 1.14 6.85 1.16 6.95 3.76 0.15 2.03
PDB Piedmont Bancorp, Inc. 1.35 7.23 4.06 0.32 2.15
SOPN First Savings Bancorp, Inc. 1.48 5.68 1.48 5.68 3.61 0.13 1.44
SCCB S. Carolina Community Bancshrs 1.35 4.50 1.35 4.50 4.10 0.10 2.07
BFSB Bedford Bancshares, Inc. 1.26 7.56 1.29 7.72 4.00 0.48 2.44
Comp Group Average 1.10 5.44 1.26 5.75 3.53 0.33 2.15
Comp Group Median 1.14 4.84 1.29 5.68 3.61 0.19 2.07
North Carolina Median 1.08 6.76 0.92 6.32 3.59 0.19 2.14
North Carolina Average 1.02 6.81 0.95 6.35 3.40 0.33 2.14
Southeast Region Average 0.95 9.34 0.89 8.78 3.27 0.56 2.44
All Publicly Traded Thrifts Average 0.86 8.36 0.81 7.84 3.23 0.44 2.35
Home Savings 0.81 5.83 0.81 5.83 2.92 0.05 1.55
Home Savings Pro Forma 0.99 4.05 0.99 4.05
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 23
COMPARATIVE GROUP
CAPITAL RATIOS
Tangible Regulatory Core Cap/
Equity/ Equity/ Core Cap/ Risk-Adj
Assets Tang Assets Assets Assets
Ticker Institution (%) (%) (%) (%)
- ------ ----------- --- --- --- ---
<C> <S> <C> <C> <C> <C>
SRN Southern Banc Company, Inc 20.31
CCFH CCF Holding Company 21.23 21.23 15.86 38.30
CLAS Classic Bancshares, Inc. 28.79 28.79 20.80 47.03
GWBC Gateway Bancorp, Inc. 24.99 24.99 23.00 74.44
HFFB Harrodsburg First Fin Bancorp 28.66 28.66 19.50 41.19
KYF Kentucky First Bancorp, Inc. 23.63 23.63 20.59 41.88
CZF CitiSave Financial Corp 18.19 18.17 12.93 29.24
NSLB NS&L Bancorp, Inc. 23.48 23.48 17.50 49.73
KSAV KS Bancorp, Inc. 15.16 15.15 12.77
PDB Piedmont Bancorp, Inc. 29.77 29.77 19.49 36.25
SOPN First Savings Bancorp, Inc. 26.21 26.21 26.09 64.34
SCCB S. Carolina Community Bancshrs 28.47 28.47
BFSB Bedford Bancshares, Inc. 16.10 16.10 13.01 24.56
Comp Group Average 23.46 23.72 18.88 41.79
Comp Group Median 23.63 24.31 19.50 41.19
North Carolina Median 20.69 20.68 13.67 26.44
North Carolina Average 21.93 21.77 15.82 31.92
Southeast Region Average 13.24 12.93 10.45 20.76
All Publicly Traded Thrifts Average 12.20 11.94 10.24 20.97
Home Savings 13.85 13.85 14.48 29.36
Home Savings Pro Forma 24.33 24.33 24.88 50.45
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 24
COMPARATIVE GROUP
LOAN PORTFOLIO COMPOSITION
1-4 Family 5+ Family Total Total
First Perm Permanent Nonresidentl Construction Mortgage Commercial
Mort Loans/ Mort Loans/ Mort Loans/ Mort Loans/ Loans/ Nonmort Lns/
Ticker Institution Assets (%) Assets (%) Assets (%) Assets (%) Assets (%) Assets (%)
- ------ ----------- ---------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SRN Southern Banc Company, Inc 26.29 0.00 0.18 8.55 26.46 0.03
CCFH CCF Holing Company 54.72 0.00 2.61 5.36 62.68 0.00
CLAS Classic Bancshares, Inc. 62.35 0.35 1.77 10.19 67.46 0.94
GWBC Gateway Bancorp, Inc. 22.60 0.13 0.48 3.39 23.20 0.00
HFFB Harrodsburg First Fin Bancorp 57.29 1.56 5.39 0.00 65.75 0.24
KYF Kentucky First Bancorp, Inc. 31.74 5.23 12.50 0.00 50.06 1.95
CZF CitiSave Financial Corp 44.09 0.49 5.54 0.58 53.51 1.00
NSLB NS&L Bancorp, Inc. 48.48 0.00 0.33 0.00 51.02 0.00
KSAV KS Bancorp, Inc. 69.33 0.34 0.32 1.50 80.38 0.00
PDB Piedmont Bancorp, Inc. 54.14 0.27 6.12 0.70 71.01 0.53
SOPN First Savings Bancorp, Inc. 60.41 1.28 4.31 2.21 68.56 0.00
SCCB S. Carolina Community Bancshrs 75.04 0.05 5.41 0.00 81.19 0.00
BFSB Bedford Bancshares, Inc. 65.35 0.19 6.58 0.00 80.67 1.58
Comp Group Average 51.68 0.76 3.96 2.50 60.15 0.48
Comp Group Median 54.72 0.27 2.77 0.70 65.75 0.03
North Carolina Median 62.68 1.25 4.46 5.37 71.59 0.13
North Carolina Average 58.25 1.24 4.45 6.31 70.80 0.41
Southeast Region Average 47.16 1.92 5.13 5.42 63.71 1.68
All Publicly Traded Thrifts Average 44.85 4.07 4.38 2.89 60.33 1.51
Home Savings 52.50 7.80 3.30 3 69.20 0.00
<CAPTION>
Total
Total Total High-Risk Loan Loan Loan
Consumer Nonmortgage Real Estate Originations Purchases Sales
Nonmort Lns/ Loans/ Loans/ ($000) ($000) ($000)
Ticker Institution Assets (%) Assets (%) Assets (%) LTM Mst RctY Mst RctY
- ------ ----------- ---------- ---------- ---------- --- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SRN Southern Banc Company, Inc 2.42 2.44 0.18
CCFH CCF Holding Company 0.96 0.96 7.96 0 0
CLAS Classic Bancshares, Inc. 1.11 2.05 5.11 0 0
GWBC Gateway Bancorp, Inc. 1.16 1.16 0.60 0
HFFB Harrodsburg First Fin Bancorp 2.19 2.43 8.45 0 0
KYF Kentucky First Bancorp, Inc. 3.09 5.04 18.32 6,086 1,810 0
CZF CitiSave Financial Corp 3.14 4.14 9.42 25,243
NSLB NS&L Bancorp, Inc. 3.60 3.60 2.54 7,078 0 0
KSAV KS Bancorp, Inc. 0.23 0.23 3.51 19,642 0 0
PDB Piedmont Bancorp, Inc. 0.95 1.49 6.88 0 0
SOPN First Savings Bancorp, Inc. 0.41 0.41 6.17 47,113 29 0
SCCB S. Carolina Community Bancshrs 0.63 0.63 6.15 0 0
BFSB Bedford Bancshares, Inc. 5.86 7.45 15.32 23,887 0 188
Comp Group Average 1.98 2.46 6.97 21,508 184 17
Comp Group Median 1.16 2.05 6.17 21,765 0 0
North Carolina Median 0.64 1.07 6.88 33,689 0 0
North Carolina Average 1.26 1.68 9.36 33,533 483 3,747
Southeast Region Average 4.49 6.17 15.39 174,648 36,624 49,667
All Publicly Traded Thrifts Averag 4.51 6.05 13.99 339,874 48,447 73,564
Home Savings 0.70 0.70 69,748 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 25
COMPARATIVE GROUP
BALANCE SHEET RATIOS
Cash, Goodwill &
Loans/ Loans/ Deposits/ Borrowings/ Deposits & Other
Deposits Assets Assets Assets Invest Secs/ MBS REO & REI Intangibles/
Ticker Institution (%) (%) (%) (%) Assets (%) Assets (%) Assets (%) Assets (%)
- ------ ----------- --- --- --- --- ---------- ---------- ---------- ----------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
SRN Southern Banc Company, Inc 36.46 28.82 79.06 0.00 26.53 0.02 0.10 0.00
CCFH CCF Holding Company 77.13 59.94 77.71 0.00 25.39 12.15 0.00 0.00
CLAS Classic Bancshares, Inc. 89.33 63.16 70.70 0.00 27.69 47.04 0.10 0.22
GWBC Gateway Bancorp, Inc. 32.01 23.88 74.59 0.00 34.22 3.37 0.05 0.00
HFFB Harrodsburg First Fin Bancorp 96.43 67.98 70.49 0.00 30.72 39.87 0.00 0.00
KYF Kentucky First Bancorp, Inc. 82.43 50.17 60.86 14.80 30.51 2.15 0.00 0.02
CZF CitiSave Financial Corp 68.78 54.76 79.61 0.00 38.65 16.32 0.00 0.00
NSLB NS&L Bancorp, Inc. 64.08 48.08 75.04 0.00 33.92 5.24 0.00 0.00
KSAV KS Bancorp, Inc. 101.68 82.02 80.66 3.34 15.16 0.11 0.00 0.00
PDB Piedmont Bancorp, Inc. 121.69 71.44 58.71 11.01 22.39 0.17 0.10 0.00
SOPN First Savings Bancorp, Inc. 92.50 67.30 72.76 0.17 28.24 10.90 0.00 0.00
SCCB S. Carolina Community Bancshrs 105.85 74.89 70.75 0.00 17.02 1.57 0.03 0.00
BFSB Bedford Bancshares, Inc. 107.80 85.19 79.02 4.25 11.84 0.00 0.00
Comp Group Average 82.78 59.82 73.07 2.58 26.33 43.06 0.00 0.22
Comp Group Median 89.33 63.16 74.59 0.00 27.69 5.42 0.00 0.00
North Carolina Median 98.10 66.75 76.71 0.09 22.39 1.57 0.00 1.57
North Carolina Average 94.39 68.52 74.25 2.03 23.29 4.12 0.06 3.37
Southeast Region Average 91.71 67.06 74.29 10.81 18.20 17.29 0.21 10.67
All Publicly Traded Thrifts Average 88.16 64.52 74.49 11.82 18.97 17.35 0.25 12.72
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 26
COMPARATIVE GROUP
ANNUALIZED GROWTH RATES
Asset Loan Deposit
Growth Growth Growth
Rate Rate Rate
Ticker Institution (%) (%) (%)
- ------ ----------- --- --- ---
<C> <S> <C> <C> <C>
SRN Southern Banc Company, Inc
CCFH CCF Holding Company 14.82 5.10 0.13
CLAS Classic Bancshares, Inc.
GWBC Gateway Bancorp, Inc. 0.31 39.84 5.65
HFFB Harrodsburg First Fin Bancorp
KYF Kentucky First Bancorp, Inc. 33.27 5.04 (4.72)
CZF CitiSave Fianncial Corp 14.22 20.98 0.66
NSLB NS&L Bancorp, Inc.
KSAV KS Bancorp, Inc. 6.13 11.14 7.92
PDB Piedmont Bancorp, Inc. 22.20 6.71 (4.31)
SOPN First Savings Bancorp, Inc. 2.63 10.31 4.74
SCCB S. Carolina Community Bancshrs 2.11 (1.16) 5.67
BFSB Bedford Bancshares, Inc. 7.96 6.83 9.90
Comp Group Average 11.52 11.64 2.85
Comp Group Median 7.96 6.83 4.74
North Carolina Median 1.84 8.51 2.10
North Carolina Average 4.45 8.36 3.57
Southeast Region Average 8.04 14.02 6.46
All Publicly Traded Thrifts Average 10.68 12.51 8.14
Home Savings 9.70 0.10 10.00
</TABLE>
<PAGE>
EXHIBIT 27
COMPARATIVE GROUP
ASSET AND RISK RATIOS
<TABLE>
<CAPTION>
NPAs + Loans Net Loan One Year
NPAs/ 90+ Pst Due/ Reserves/ Chargeoffs/ Cum Gap/
Assets Assets NPAs + 90 Avg Loans Assets
Ticker Institution (%) (%) (%) (%) (%)
- ------ ----------- --- --- --- --- ---
<C> <S> <C> <C> <C> <C> <C>
SRN Southern Banc Company, Inc 0.00
CCFH CCF Holding Company 0.63 0.63 84.80 0.06
CLAS Classic Bancshares, Inc. 0.51 0.51 77.33 0.40
GWBC Gateway Bancorp, Inc. 0.05 0.19 57.04 0.00
HFFB Harrodsburg First Fin Bancorp 0.00 0.60 45.62 0.06
KYF Kentucky First Bancorp, Inc. 0.00 0.15 299.19 0.00
CZF CitiSave Financial Corp 0.30 0.30 38.75 0.15
NSLB NS&L Bancorp, Inc. 0.12 0.18 40.95 0.00
KSAV KS Bancorp, Inc. 0.73 0.73 41.55 0.00 (34.35)
PDB Piedmont Bancorp, Inc. 0.44 0.72 65.30 0.01 18.35
SOPN First Savings Bancorp, Inc. 0.03 0.03 936.92 0.00 (32.84)
SCCB S. Carolina Community Bancshrs 0.00 (35.04)
BFSB Bedford Bancshares, Inc. 0.00 1.24 43.93 0.02 19.09
Comp Group Average 0.26 0.48 157.40 0.05 (12.96)
Comp Group Median 0.12 0.51 57.04 0.00 (32.84)
North Carolina Median 0.19 0.66 67.98 0.01 (3.13)
North Carolina Average 0.64 0.77 177.58 0.02 (3.22)
Southeast Region Average 0.88 1.30 122.95 0.15 2.98
All Publicly Traded Thrifts Average 1.03 1.16 113.91 0.21 (1.47)
Home Savings 1.03 1.03 60.36 0.06 (45.54)
</TABLE>
<PAGE>
EXHIBIT 28
COMPARATIVE GROUP
YIELD-COST SPREAD ANALYSIS
<TABLE>
<CAPTION>
Interest Net Interest Earn Assets/
Interest Expense/ Income/ Int Bearing
Income/ Avg Assets Avg Assets Liabilities
Avg Assets (%) (%) (%)
Ticker Institution (%) LTM LTM LTM
- ------ ----------- --- --- --- ---
<C> <S> <C> <C> <C> <C>
SRN Southern Banc Company, Inc 7.10 4.39 2.70 114.55
CCFH CCF Holding Company 6.85 3.35 3.51 119.75
CLAS Classic Bancshares, Inc.
GWBC Gateway Bancorp, Inc. 6.61 3.74 2.87 136.72
HFFB Harrodsburg First Fin Bancorp
KYF Kentucky First Bancorp, Inc. 7.07 3.62 3.45 117.62
CZF CitiSave Financial Corp 7.08 3.37 3.71 120.52
NSLB NS&L Bancorp, Inc. 6.25 3.16 3.08 130.49
KSAV KS Bancorp, Inc. 7.98 4.22 3.76 121.94
PDB Piedmont Bancorp, Inc. 7.94 3.88 4.06 123.56
SOPN First Savings Bancorp, Inc. 7.24 3.62 3.61 134.89
SCCB S. Carolina Community Bancshrs 7.80 3.69 4.10 141.69
BFSB Bedford Bancshares, Inc. 7.72 3.73 4.00 122.44
Comp Group Average 7.24 3.71 3.53 125.83
Comp Group Median 7.10 3.69 3.61 121.94
North Carolina Median 7.66 4.11 3.59 118.59
North Carolina Average 7.56 4.16 3.40 118.84
Southeast Region Average 7.56 4.30 3.27 112.16
All Publicly Traded Thrifts Average 7.41 4.18 3.23 112.34
Home Savings 7.43 4.51 2.92 113.86
<CAPTION>
Yield on Cost of Interest Net
Int Earning Int Bearing Yield Interest
Assets Liabilities Spread Margin
(%) (%) (%) (%)
Ticker Institution LTM LTM LTM LTM
- ------ ----------- --- --- --- ---
<C> <S> <C> <C> <C> <C>
SRN Southern Banc Company, Inc 7.22 5.12 2.10 2.75
CCFH CCF Holding Company 7.00 4.10 2.90 3.58
CLAS Classic Bancshares, Inc.
GWBC Gateway Bancorp, Inc. 6.69 5.18 1.51 2.90
HFFB Harrodsburg First Fin Bancorp
KYF Kentucky First Bancorp, Inc. 7.69 4.63 3.06 3.75
CZF CitiSave Financial Corp 7.41 4.25 3.16 3.88
NSLB NS&L Bancorp, Inc. 6.42 4.24 2.18 3.17
KSAV KS Bancorp, Inc. 8.51 5.48 3.03 4.01
PDB Piedmont Bancorp, Inc. 8.16 4.93 3.23 4.17
SOPN First Savings Bancorp, Inc. 7.37 4.98 2.39 3.68
SCCB S. Carolina Community Bancshrs 7.98 5.35 2.63 4.20
BFSB Bedford Bancshares, Inc. 8.04 4.75 3.29 4.16
Comp Group Average 7.50 4.82 2.68 3.66
Comp Group Median 7.41 4.75 2.90 3.75
North Carolina Median 7.96 4.96 2.79 3.70
North Carolina Average 7.86 5.10 2.76 3.54
Southeast Region Average 7.92 5.01 2.91 3.42
All Publicly Traded Thrifts Average 7.72 4.86 2.86 3.37
Home Savings 7.65 5.29 2.36 3.01
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 29
COMPARATIVE GROUP
CAPITAL MARKET ISSUES
Current Latest Three Month Current Dividend
Market Stock Average Dividend Payout
Value Price Daily Volume Shares Yield Ratio
Ticker Institution IPO Date Exchange ($M) ($) (Actual) Outstanding (%) (%)
- ------ ----------- -------- -------- ---- --- -------- ----------- --- ---
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
SRN Southern Banc Company, Inc 10/05/95 AMSE 18.37 12.625 1.24 1,454,750 2.77
CCFH CCF Holding Company 07/12/95 NASDAQ 13.57 12.000 1.91 1,130,738 3.33
CLAS Classic Bancshares, Inc. 12/29/95 NASDAQ 13.97 10.560 1.98 1,322,500 0.00
GWBC Gateway Bancorp, Inc. 01/18/95 NASDAQ 16.11 14.125 1.12 1,175,670 2.83 230.77
HFFB Harrodsburg First Fin Bancorp 10/04/95 NASDAQ 36.01 16.500 0.03 2,182,185 2.42
KYF Kentucky First Bancorp, Inc. 08/29/95 AMSE 19.61 14.125 0.01 1,388,625 3.54
CZF CitiSave Financial Corp 07/14/95 AMSE 13.51 14.000 0.41 964,707 2.14
NSLB NS&L Bancorp, Inc. 06/08/95 NASDAQ 11.21 12.625 0.50 887,814 3.96
KSAV KS Bancorp, Inc. 12/30/93 NASDAQ 12.10 18.250 0.39 663,263 3.29 76.09
PDB Piedmont Bancorp, Inc. 12/08/95 AMSE 35.05 13.250 0.46 2,645,000 3.62
SOPN First Savings Bancorp, Inc. 01/06/94 NASDAQ 68.33 18.250 0.31 1,194,875 3.29 71.58
SCCB S. Carolina Community Bancshrs 07/07/94 NASDAQ 12.05 16.125 0.19 747,188 3.72 67.90
BFSB Bedford Bancshares, Inc. 08/22/94 NASDAQ 19.47 16.500 1.98 3,744,000 2.42 26.40
Comp Group Average 22.26 14.533 0.81 1,500,101 2.87 94.55
Comp Group Median 16.11 14.125 0.46 1,194,875 3.29 71.58
North Carolina Median 28.20 1.10 2,242,500 2.51 47.17
North Carolina Average 57.74 1.61 3805372 2.07 43.63
Southeast Region Average 66.56 1.28 3805372 2.40 45.57
All Publicly Traded Thrifts Average 123.41 1.49 3,616,320 1.97 32.79
Home Savings 5,656,906
Home Savings Pro Forma 13.50
<CAPTION>
Insider Institut'l
Ownership Ownership
Ticker Institution (%) (%)
- ------ ----------- --- ---
<C> <S> <C> <C>
SRN Southern Banc Company, Inc 7.13 13.18
CCFH CCF Holding Company 4.18 27.74
CLAS Classic Bancshares, Inc. 7.98 7.41
GWBC Gateway Bancorp, Inc. 7.00 11.86
HFFB Harrodsburg First Fin Bancorp 8.27 0.00
KYF Kentucky First Bancorp, Inc. 8.63 6.43
CZF CitiSave Financial Corp 11.20 17.35
NSLB NS&L Bancorp, Inc. 7.30 19.76
KSAV KS Bancorp, Inc. 31.77 10.75
PDB Piedmont Bancorp, Inc. 5.04 6.88
SOPN First Savings Bancorp, Inc. 20.96 3.24
SCCB S. Carolina Community Bancshrs 9.90 0.00
BFSB Bedford Bancshares, Inc. 14.12 2.65
Comp Group Average 11.04 9.79
Comp Group Median 8.27 7.41
North Carolina Median 14.12 6.88
North Carolina Average 11.11 6.94
Southeast Region Average 19.80 12.72
All Publicly Traded Thrifts Average 14.42 18.05
Home Savings
Home Savings Pro Forma
</TABLE>
<PAGE>
EXHIBIT 30
COMPARATIVE GROUP
CAPITAL MARKET ISSUES
<TABLE>
<CAPTION>
Price/ Price/ Price/ Tang Price/ Price/Core
Earnings Book Value Book Value Assets Earnings
Ticker Institution (x) (%) (%) (%) (x)
- ------ ----------- --- --- --- --- ---
<C> <S> <C> <C> <C> <C> <C>
SRN Southern Banc Company, Inc 21.04 82.41 16.73
CCFH CCF Holding Company 17.65 81.14 81.14 17.23
CLAS Classic Bancshares, Inc. 71.54 71.54 20.60
GWBC Gateway Bancorp, Inc. 23.54 91.01 91.01 22.75 21.73
HFFB Harrodsburg First Fin Bancorp 25.78 106.52 106.52 33.12
KYF Kentucky First Bancorp, Inc. 15.35 98.85 98.85 23.35
CZF CitiSave Financial Corp 13.46 86.10 86.15 16.94
NSLB NS&L Bancorp, Inc. 22.54 80.83 80.83 18.98
KSAV KS Bancorp, Inc. 12.67 88.81 88.89 13.47 13.04
PDB Piedmont Bancorp, Inc. 16.56 94.31 94.31 28.07
SOPN First Savings Bancorp, Inc. 18.25 101.73 101.73 26.66 18.81
SCCB S. Carolina Community Bancshrs 19.20 95.98 95.98 27.33 19.91
BFSB Bedford Bancshares, Inc. 11.79 97.86 97.86 16.76 13.20
Comp Group Average 18.15 90.55 91.23 21.69 17.34
Comp Group Median 17.95 91.01 92.66 20.60 18.81
North Carolina Median 17.45 101.73 101.73 17.76 17.45
North Carolina Average 19.63 104.34 106.85 20.40 19.63
Southeast Region Average 18.97 114.30 118.92 13.51 18.97
All Publicly Traded Thrifts Average 17.37 108.60 112.64 12.47 17.37
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 31 - A
RECENT CONVERSIONS
PRICING INFORMATION
Pro Forma Pricing Ratios
---------------------------------------------
Price/ Price/ Price/ Price/
Gross Pro-Forma Pro-Forma Pro-Forma Adjusted
Proceeds Book Value Tang. Book Earnings Assets
Ticker Institution IPO Date ($000) (%) (%) (x) (%)
- ------ ----------- -------- ------ --- --- --- ---
<C> <S> <C> <C> <C> <C> <C> <C>
OCFC Ocean Financial Corp. 07/03/96 167,762 69.2 69.210 13.8 13.9
HWEN Home Financial Bancorp 07/02/96 5,059 66.2 66.227 12.4 13.1
FLKY First Lancaster Bancshares 07/01/96 9,588 72.5 72.505 19.0 21.3
EGLB Eagle BancGroup, Inc. 07/01/96 13,027 57.1 57.114 58.1 7.9
PROV Provident Financial Holdings 06/28/96 51,252 60.9 60.870 18.2 8.2
WYNE Wayne Bancorp, Inc. 06/27/96 22,314 60.9 60.935 16.7 9.7
PRBC Prestige Bancorp, Inc. 06/27/96 9,630 61.9 61.902 24.6 9.5
DIME Dime Community Bancorp, Inc. 06/26/96 145,475 69.1 69.157 15.7 17.9
CNSB CNS Bancorp, Inc. 06/12/96 16,531 69.3 69.350 26.1 16.2
LXMO Lexington B&L Financial Corp. 06/06/96 12,650 69.1 69.095 14.4 20.2
FFBH First Federal Bancshares of AR 05/03/96 51,538 63.4 63.391 9.8 10.2
CBK Citizens First Financial Corp. 05/01/96 28,175 73.1 73.104 15.3 11.0
RELI Reliance Bancshares, Inc. 04/19/96 20,499 72.5 72.473 22.5 38.9
CATB Catskill Financial Corp. 04/18/96 58,868 71.9 71.876 19.0 19.8
YFCB Yonkers Financial Corporation 04/18/96 35,708 74.9 74.930 16.1 14.6
GSFC Green Street Financial Corp. 04/04/96 42,981 71.0 71.029 14.8 22.2
FFDF FFD Financial Corp. 04/03/96 14,548 69.9 69.871 17.4 19.8
AMFC AMB Financial Corp. 04/01/96 11,241 70.8 70.828 18.2 14.0
FBER 1st Bergen Bancorp 04/01/96 31,740 74.8 74.813 21.7 12.5
SSM Stone Street Bancorp, Inc. 04/01/96 27,376 74.9 74.920 19.7 24.4
SSB Scotland Bancorp, Inc 04/01/96 18,400 74.8 74.830 16.2 24.2
PHFC Pittsburgh Home Financial Corp 04/01/96 21,821 72.8 72.827 17.5 12.2
LONF London Financial Corporation 04/01/96 5,290 68.5 68.461 22.4 13.4
WHGB WHG Bancshares Corp. 04/01/96 16,201 71.1 71.081 15.5 16.0
CRZY Crazy Woman Creek Bancorp 03/29/96 10,580 69.7 69.720 16.4 22.0
PFFB PFF Bancorp, Inc. 03/29/96 198,375 69.0 68.991 26.6 9.5
FCB Falmouth Co-Operative Bank 03/28/96 14,548 68.7 68.722 19.9 16.5
CFTP Community Federal Bancorp 03/26/96 46,288 71.4 71.353 14.0 22.2
GAF GA Financial, Inc. 03/26/96 89,000 70.5 70.521 13.8 15.7
BYFC Broadway Financial Corp. 01/09/96 8,927 68.5 68.479 13.3 8.0
LFBI Little Falls Bancorp, Inc. 01/05/96 30,418 71.4 71.425 31.9 13.4
- ------ ----------------------------- -------- ------ ---- ------ ---- ----
Average 39,800 69.35 69.36 19.4 16.1
Median 21,821 69.90 69.87 17.4 14.6
<CAPTION>
Change In Price from IPO to:
-----------------------------------------------------
Offering One One One Three Current
Price Day After Week After Month After Months After Stock
Ticker Institution IPO Date ($) Conversion Conversion Conversion Conversion Price
- ------ ----------- -------- --- ---------- ---------- ---------- ---------- -----
<C> <S> <C> <C> <C> <C> <C> <C> <C>
OCFC Ocean Financial Corp. 07/03/96 $20.00 6.25% 4.38% 4.38%
HWEN Home Financial Bancorp 07/02/96 $10.00 2.50% 0.00% 0.00%
FLKY First Lancaster Bancshares 07/01/96 $10.00 35.00% 33.75% 33.75%
EGLB Eagle BancGroup, Inc. 07/01/96 $10.00 12.50% 17.50% 17.50%
PROV Provident Financial Holdings 06/28/96 $10.00 9.70% 8.10% 8.10%
WYNE Wayne Bancorp, Inc. 06/27/96 $10.00 11.25% 13.75% 12.50%
PRBC Prestige Bancorp, Inc. 06/27/96 $10.00 3.75% 2.50% 2.50%
DIME Dime Community Bancorp, Inc. 06/26/96 $10.00 16.87% 20.00% 20.00%
CNSB CNS Bancorp, Inc. 06/12/96 $10.00 10.00% 16.25% 15.00%
LXMO Lexington B&L Financial Corp. 06/06/96 $10.00 -5.00% -2.50% 1.25% 1.25%
FFBH First Federal Bancshares of AR 05/03/96 $10.00 30.00% 32.50% 36.90% 40.00%
CBK Citizens First Financial Corp. 05/01/96 $10.00 5.00% 0.00% 1.25% 1.25%
RELI Reliance Bancshares, Inc. 04/19/96 $8.00 4.69% 3.13% -0.75% 1.56%
CATB Catskill Financial Corp. 04/18/96 $10.00 3.75% 6.25% 3.75% 1.25%
YFCB Yonkers Financial Corporation 04/18/96 $10.00 -2.50% 1.25% -0.60% 1.25%
GSFC Green Street Financial Corp. 04/04/96 $10.00 28.75% 22.50% 23.10% 30.60% 31.25%
FFDF FFD Financial Corp. 04/03/96 $10.00 5.00% 5.00% 3.10% 1.25% 6.25%
AMFC AMB Financial Corp. 04/01/96 $10.00 5.00% 5.00% 5.00% 5.00% 7.50%
FBER 1st Bergen Bancorp 04/01/96 $10.00 0.00% -5.00% -3.75% -7.50% -8.10%
SSM Stone Street Bancorp, Inc. 04/01/96 $15.00 16.67% 20.00% 18.33% 12.50% 13.33%
SSB Scotland Bancorp, Inc 04/01/96 $10.00 22.50% 25.00% 17.50% 23.75% 23.75%
PHFC Pittsburgh Home Financial Corp 04/01/96 $10.00 10.00% 10.00% 6.25% 1.90% 3.75%
LONF London Financial Corporation 04/01/96 $10.00 8.12% 6.25% 1.25% 3.10% 3.75%
WHGB WHG Bancshares Corp. 04/01/96 $10.00 11.25% 10.60% 12.50% 10.00% 10.60%
CRZY Crazy Woman Creek Bancorp 03/29/96 $10.00 7.50% 5.00% 1.25% 2.50%
PFFB PFF Bancorp, Inc. 03/29/96 $10.00 13.75% 16.25% 16.25% 11.25% 8.10%
FCB Falmouth Co-Operative Bank 03/28/96 $10.00 7.50% 12.50% 7.50% 3.75% 3.75%
CFTP Community Federal Bancorp 03/26/96 $10.00 26.25% 28.75% 26.25% 33.75% 35.00%
GAF GA Financial, Inc. 03/26/96 $10.00 13.75% 15.00% 10.00% 10.00% 8.75%
BYFC Broadway Financial Corp. 01/09/96 $10.00 3.75% 2.50% 2.50% 3.75% 0.00%
LFBI Little Falls Bancorp, Inc. 01/05/96 $10.00 13.13% 13.75% 10.00% 8.10% 3.75%
- ------ ----------------------------- -------- ------ ------ ------ ------ ----- -----
Average $10.42 10.97% 11.37% 9.21% 9.53% 10.14%
Median $10.00 9.85% 10.30% 6.25% 6.88% 6.88%
</TABLE>
<PAGE>
EXHIBIT 31 - B
RECENT CONVERSIONS
FINANCIAL CONDITION AND PERFORMANCE
<TABLE>
<CAPTION>
Conversion Conversion % of IPO
Total Conversion NPAs/ Tang Equity Conversion Sold to
Shares Assets Assets Tang Assets ROAA Insiders
Ticker Institution IPO Date Issued ($000) (%) (%) (%) (%)
- ------ ----------- -------- ------ ------ --- --- --- ---
<C> <S> <C> <C> <C> <C> <C> <C> <C>
OCFC Ocean Financial Corp. 07/03/96 8,388,078 1,036,445 0.97 8.91 0.80 1.2
HWEN Home Financial Bancorp 07/02/96 505,926 33,462 0.35 9.85 0.92 7.1
FLKY First Lancaster Bancshares 07/01/96 958,812 35,361 1.87 13.69 0.80 18.5
EGLB Eagle BancGroup, Inc. 07/01/96 1,302,705 150,974 0.80 7.63 (0.05) 6.3
PROV Provident Financial Holdings 06/28/96 5,125,215 570,691 1.95 6.69 0.30 2.8
WYNE Wayne Bancorp, Inc. 06/27/96 2,231,383 207,997 1.46 8.32 0.46 4.4
PRBC Prestige Bancorp, Inc. 06/27/96 963,023 91,841 0.38 7.82 0.18 6.9
DIME Dime Community Bancorp, Inc. 06/26/96 14,547,500 665,187 2.19 12.04 0.92 2.7
CNSB CNS Bancorp, Inc. 06/12/96 1,653,125 85,390 0.29 10.75 0.22 9.2
LXMO Lexington B&L Financial Corp. 06/06/96 1,265,000 49,981 1.15 14.40 1.17 4.3
FFBH First Federal Bancshares of AR 05/03/96 5,153,751 454,479 0.13 7.77 0.91 13.2
CBK Citizens First Financial Corp. 05/01/96 2,817,500 227,872 0.25 5.99 0.53 6.9
RELI Reliance Bancshares, Inc. 04/19/96 2,562,344 32,260 NA 29.81 1.23 6.3
CATB Catskill Financial Corp. 04/18/96 5,686,750 230,102 0.66 12.46 0.79 2.6
YFCB Yonkers Financial Corporation 04/18/96 3,570,750 208,283 1.80 7.57 0.72 3.7
GSFC Green Street Financial Corp. 04/04/96 4,298,125 151,028 0.21 14.72 1.21 3.4
FFDF FFD Financial Corp. 04/03/96 1,454,750 58,955 0.22 13.41 0.86 5.4
AMFC AMB Financial Corp. 04/01/96 1,124,125 68,851 1.51 8.93 0.56 5.8
FBER 1st Bergen Bancorp 04/01/96 3,174,000 223,167 3.78 6.35 0.32 2.4
SSM Stone Street Bancorp, Inc. 04/01/96 1,825,050 84,996 NA 14.53 0.87 7.3
SSB Scotland Bancorp, Inc 04/01/96 1,840,000 57,718 NA 14.87 1.25 6.9
PHFC Pittsburgh Home Financial Corp 04/01/96 2,182,125 157,570 1.47 6.73 0.51 7.5
LONF London Financial Corporation 04/01/96 529,000 34,152 0.13 9.44 0.44 26.5
WHGB WHG Bancshares Corp. 04/01/96 1,620,062 85,027 0.40 9.94 0.77 9.3
CRZY Crazy Woman Creek Bancorp 03/29/96 1,058,000 37,510 0.33 15.61 0.96 5.5
PFFB PFF Bancorp, Inc. 03/29/96 19,837,500 1,899,412 2.10 5.76 0.13 0.9
FCB Falmouth Co-Operative Bank 03/28/96 1,454,750 73,735 NA 11.44 0.61 8.4
CFTP Community Federal Bancorp 03/26/96 4,628,750 162,042 0.60 14.46 1.28 NA
GAF GA Financial, Inc. 03/26/96 8,900,000 476,259 0.30 9.75 0.86 1.7
BYFC Broadway Financial Corp. 01/09/96 892,688 102,512 1.60 5.20 0.47 5.6
LFBI Little Falls Bancorp, Inc 01/05/96 3,041,750 196,394 2.74 8.24 0.14 3.7
- ---- ------------------------- -------- --------- ------- ---- ---- ---- ---
Average 3,472,501 256,440 1.10 10.74 0.68 6.5
Median 1,840,000 150,974 0.80 9.75 0.77 5.7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit 32
----------
Pro Forma Analysis Sheet
------------------------
Name of Institution: Home Savings SSB/Century Bancorp, Inc.
Date of Letter to Association: July 8, 1996
Date of Market Prices: July 5, 1996
Comparable All Publicly
Companies Traded Thrifts
----------------- ---------------------------
Symbols Subject Mean Median Mean Median
------- ------- ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Price\Earnings Mutliples P\E 15.0 18.2 18.0 16.2 13.4
Price\Book Value Ratio P\BV 61% 91% 91% 109% 103.8%
Price\Assets Ratio P\A 14.8% 21.7% 20.6% 12.5% 10.9%
<CAPTION>
Valuation Parameters
- --------------------------------------------------
<S> <C> <C>
Pre-Conversion Earnings Y $664,000
Pre-Conversion Book Value B $11,136,000
Pre-Conversion Assets A $80,386,000
Reinvestment Rate R 3.32%
Estimated Conversion Expenses X $748,900
Proceeds Not Reinvested Z
Estimated ESOP Borrowings E 8.00%
Cost of ESOP Borrowings S 0.00%
Amortization of ESOP Borrowings T 10
MRP M 4.00%
MRP Vesting N 5
Tax Rate t 39.00%
<CAPTION>
Calculation of Pro Forma Value After Conversion
- ----------------------------------------------------------------
<S> <C>
P\E (Y- RX)
V = ------------------------------------------ = $13,500,000
1 - P/E (R - (PE/T*(1-t)) - M/N*(1-t))
P\B (B - X)
V = ------------------------------------------ = $13,500,000
1 - (P/B (1- M - E)
P\A (A - E)
V = ------------------------------------------ = $13,500,000
1 - (P/A)
Total Price
Conclusion Shares Per Share Value
- ------------------------------ ---------- X -------- = ----------
Appraised Value 270,000 $50.00 $13,500,000
Range
- ------------------------------
Minium 229,500 $50.00 $11,475,000
Maximum 310,500 $50.00 $15,525,000
Supermax 357,075 $50.00 $17,853,750
</TABLE>
<PAGE>
EXHIBIT 33
PRO FORMA EFFECT ON CONVERSION PROCEEDS
CENTURY BANCORP, INC.
---------------------------------------
<TABLE>
<CAPTION>
Minimum Midpoint Maximum Super Max
------- -------- ------- ---------
<S> <C> <C> <C> <C>
Conversion Proceeds
Pro Forma Market Value $11,475,000 $13,500,000 $15,525,000 $17,853,750
Less: ESOP $918,000 $1,080,000 $1,242,000 $1,428,300
MRP $459,000 $540,000 $621,000 $714,150
Estimated Expenses $691,890 $749,400 $806,910 $873,047
----------- ----------- ----------- -----------
Net Proceeds $9,406,110 $11,130,600 $12,855,090 $14,838,254
Pro Forma Adjusted Earnings
(Twelve Months Ended 03/31/96)
Reported Earnings $664,000 $664,000 $664,000 $664,000
Earnings on Proceeds $312,132 $369,358 $426,583 $492,393
Pro Forma MRP Adjustments $55,998 $65,880 $75,762 $87,126
Pro Forma ESOP Adjustments $55,998 $65,880 $75,762 $87,126
----------- ----------- ----------- -----------
Pro Forma Earnings $864,136 $901,598 $939,059 $982,140
Pro Forma Net Worth
Net Worth $11,136,000 $11,136,000 $11,136,000 $11,136,000
Conversion Proceeds $9,406,110 $11,130,600 $12,855,090 $14,838,254
----------- ----------- ----------- -----------
Pro Forma Net Worth $20,542,110 $22,266,600 $23,991,090 $25,974,254
Pro Forma Total Assets
Total Assets $80,386,000 $80,386,000 $80,386,000 $80,386,000
Conversion Proceeds $9,406,110 $11,130,600 $12,855,090 $14,838,254
----------- ----------- ----------- -----------
Pro Forma Assets $89,792,110 $91,516,600 $93,241,090 $95,224,254
</TABLE>
<PAGE>
EXHIBIT 34
----------
SUMMARY OF VALUATION PREMIUM OR DISCOUNT
----------------------------------------
<TABLE>
<CAPTION>
Discount or (premium)
from Comparative Group
------------------------
Minimum Home Savings Average Median
- ------- ------------ ------- ------
<S> <C> <C> <C>
Price/earnings 13.3 26.8% 26.0%
Price/core earnings 13.3 26.8% 26.0%
Price/Book Value 55.9% 38.3% 38.6%
Price Tangible Book Value 55.9% 38.3% 38.6%
Price/assets 12.8% 41.1% 38.0%
Midpoint Home Savings Average Median
- -------- ------------ ------- ------
Price/earnings 15.0 17.5% 16.6%
Price/core earnings 15.0 17.5% 16.6%
Price/Book Value 60.6% 33.0% 33.4%
Price Tangible Book Value 60.6% 33.0% 33.4%
Price/assets 15.0% 30.7% 27.0%
Maximum Home Savings Average Median
- ------- ------------ ------- ------
Price/earnings 16.5 8.9% 7.9%
Price/core earnings 16.5 8.9% 7.9%
Price/Book Value 64.7% 28.5% 28.9%
Price Tangible Book Value 64.7% 28.5% 28.9%
Price/assets 16.7% 23.2% 19.2%
Super Maximum Home Savings Average Median
- ------------- ------------ ------- ------
Price/earnings 18.2 -0.2% -1.3%
Price/core earnings 18.2 -0.2% -1.3%
Price/Book Value 68.7% 24.1% 24.5%
Price Tangible Book Value 68.7% 24.1% 24.5%
Price/assets 18.7% 13.6% 9.0%
<CAPTION>
Comparative Group Ratios
------------------------
<S> <C> <C>
Price/earnings 18.15 17.95
Price/core earnings 18.15 17.95
Price/Book Value 90.6% 91.0%
Price Tangible Book Value 90.6% 91.0%
Price/assets 21.7% 20.6%
</TABLE>
<PAGE>
JMP FINANCIAL, INC.
------------------
JMP Financial, Inc., is an investment banking firm founded in 1991 primarily
to serve small and mid sized financial institutions in the Great Lakes area.
Prior to founding and becoming President of JMP Financial, Inc. John Palffy
was Vice President, Corporate Finance at First of Michigan Corporation (Detroit,
1989-1991) and Vice President, Corporate Finance at Johnston, Lemon & Co.,
Incorporated (Wash D.C. 1986-1989).
JMP Financial specializes in advisory services, merger and acquisition
services, and securities placement for financial institutions. JMP Financial
has diverse experience advising savings and loans, commercial banks, mortgage
banking companies, and other business interests. JMP Financial, Inc., or its
principals, have performed appraisals for and\or served as underwriter or
placement agent for a number of thrifts in the Midwest and Mid-Atlantic,
including First Savings Bank, Macomb Savings Bank, Interfirst Bancorp, Ludington
Federal Savings Bank, Heritage Bancorp, Valley Federal Savings, Citizens Federal
Savings Bank, Lenawee Federal Savings, HomeCorp, Inc., and Prince George's
Savings & Loan Association.
Mr. Palffy's work has been almost exclusively in financial institutions since
1986. Prior to 1986 Mr. Palffy served as a senior political appointee in the
Reagan Agriculture Department, as Chief Economist to U.S. Senator Dan Quayle,
and as Walker Fellow in Economic Policy for The Heritage Foundation.
Mr. Palffy is also an Adjunct Professor of Money and Banking at Walsh College
(Troy) and a licensed securities representative.
Mr. Palffy has completed most coursework towards a Ph.D. in Economics from
George Mason University (Fairfax, Va.), has a MBA from the University of
Michigan with a concentration in Finance, and a AB with Honors from Kenyon
College (Gambier, Ohio).
