<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM SB-2
Registration Statement
Under the
Securities Act of 1933
Southern Community Bancshares, Inc.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
Delaware 6120 63-1176408
- --------------------------------------------------------------------------------
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Incorporation Industrial Classification Identification No.)
or Organization) Code Number)
325 Second Street, S.E., Cullman, Alabama 35055, (205) 734-4863
- --------------------------------------------------------------------------------
(Address and Telephone Number of Principal Executive Offices)
325 Second Street, S.E., Cullman, Alabama 35055
- --------------------------------------------------------------------------------
(Address of Principal Place of Business or Intended Principal Place of Business)
Andrew C. Lynch, Esq., Bayh, Connaughton & Malone, P.C.
1350 Eye Street, N.W., Suite 200, Washington, D.C. 20005, (202) 289-8660
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Agent for Service)
Approximate Date of Proposed Sale to the Public: As soon as practicable
after this registration statement becomes effective.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of earlier
effective registration statement for the same offering. [ ]
---------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------------------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================
Title of Each Proposed Proposed
Class of Dollar Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered Per Unit Price Fee
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 529,000 $20.00 $10,580,000 $3,649
par value per share
==============================================================================
</TABLE>
The registrant hereby amends this registration statement on such date or dates
as may be neccessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration shall
therefter 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 Securities and Exchange Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
SOUTHERN COMMUNITY BANCSHARES, INC.
(Proposed Holding Company for
First Federal Savings and Loan Association of Cullman)
Cullman, Alabama
Up to 460,000 Common Shares, $20.00 Purchase Price Per Share
Southern Community Bancshares, Inc., a Delaware corporation (the
"Holding Company"), is offering for sale up to 460,000 common shares, par value
$0.01 (the "Common Shares"), in connection with its acquisition of all of the
capital stock to be issued by First Federal Savings and Loan Association of
Cullman, a federal mutual savings and loan association located in Cullman,
Alabama (the "Association"), upon the conversion of the Association from a
federal mutual savings and loan association to a federal stock savings and loan
association (the "Conversion"). The sale of the Common Shares is subject to the
approval of the Association's Plan of Conversion, as amended (the "Plan"), which
was adopted by the Association's Board of Directors on June 10, 1996, by the
members of the Association at a Special Meeting to be held at ____ a.m., Central
Time, on __________, 1996, at 325 2nd Street, S.E., Cullman, Alabama (the
"Special Meeting").
Based on an independent appraisal of the pro forma market value of the
Association, as converted, as of July 30, 1996, the aggregate purchase price of
the Common Shares offered in connection with the Conversion ranges from a
minimum of $6,800,000 to a maximum of $9,200,000 (the "Valuation Range"),
resulting in a range of 340,000 to 460,000 Common Shares at $20.00 per share.
Applicable regulations permit the Holding Company to offer additional Common
Shares in an amount not to exceed 15% above the maximum of the Valuation Range,
which would permit the issuance of up to 529,000 Common Shares with an aggregate
purchase price of $10,580,000. The actual number of Common Shares to be sold in
connection with the Conversion may be adjusted based upon the final valuation of
the Association, as converted, as determined by the independent appraiser upon
the completion of this offering. See "THE CONVERSION - Pricing and Number of
Common Shares to be Sold."
AN INVESTMENT IN THE COMMON SHARES OFFERED HEREBY INVOLVES CERTAIN
RISKS. FOR A DISCUSSION OF SUCH RISKS AND OTHER FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS, SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF
THIS PROSPECTUS.
THE COMMON SHARES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), THE OFFICE OF THRIFT
SUPERVISION (THE "OTS"), THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE "FDIC"),
OR THE SECURITIES COMMISSION OF ANY STATE, NOR HAS THE SEC, THE OTS, THE FDIC,
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE>
THE COMMON SHARES BEING OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
SAVINGS DEPOSITS AND ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY.
FOR INFORMATION ON HOW TO SUBSCRIBE, PLEASE CALL THE CONVERSION
INFORMATION CENTER AT THE OFFICES OF THE ASSOCIATION AT (205) 737-8916.
<TABLE>
<CAPTION>
==================================================================================
Estimated Expenses
and Underwriting Estimated Net
Purchase Price Commissions (1) Proceeds (2)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share(3)................... $ 20.00 $ 1.27 $ 18.73
- -----------------------------------------------------------------------------------
Total Minimum.................. $ 6,800,000 $488,000 $ 6,312,000
- -----------------------------------------------------------------------------------
Total Mid-point................ $ 8,000,000 $510,000 $ 7,490,000
- -----------------------------------------------------------------------------------
Total Maximum.................. $ 9,200,000 $532,000 $ 8,668,000
- -----------------------------------------------------------------------------------
Total Maximum, as adjusted (4). $10,580,000 $557,000 $10,023,000
===================================================================================
</TABLE>
(1) Estimated costs to the Holding Company and the Association arising from
the Conversion, include $111,120, $133,200, $155,280 and $180,672 in fees
for marketing services and expense reimbursements (including legal fees)
to be paid to Trident Securities, Inc. (the "Agent") in connection with
the Offering (as defined below) if the minimum, midpoint, maximum and 15%
above the maximum number of shares are sold, respectively . Such sales
commissions may be deemed to be underwriting fees. See "THE CONVERSION -
Plan of Distribution." Actual expenses may vary from the estimates. The
Agent will solicit subscriptions for the Common Shares on a "best efforts"
basis and have no obligation to purchase any of the Common Shares.
(2) Includes the net proceeds from purchases intended to be made by the
Southern Community Bancshares, Inc. Employee Stock Ownership Plan (the
"ESOP") with funds borrowed by the ESOP from the Holding Company. See "PRO
FORMA DATA" and "MANAGEMENT - Stock Benefit Plans -- Employee Stock
Ownership Plan."
(3) Based on the midpoint of the Valuation Range. At the minimum, maximum and
15% above the maximum of the Valuation Range, estimated fees and expenses
per share would be $1.44, $1.16 and $1.05, respectively, resulting in
estimated net proceeds per share of $18.56, $18.84 and $18.95,
respectively.
(4) Gives effect to the increase in the number of Common Shares sold in
connection with the Conversion of up to 15% above the maximum of the
Valuation Range. Such shares may be offered without the resolicitation of
persons who subscribe for Common Shares in the Subscription Offering and
the Community Offering (both of which are defined hereinafter). See "THE
CONVERSION -- Pricing and Number of Common Shares to be Sold."
TRIDENT SECURITIES, INC.
The date of this Prospectus is __________, 1996.
ii
<PAGE>
In accordance with the Plan, nontransferable subscription rights to
purchase Common Shares at a price of $20.00 per share are being offered in a
subscription offering (the "Subscription Offering"), subject to the purchase
rights and priorities established by the Plan, to (a) eligible depositors of the
Association as of March 31, 1995, (b) the ESOP, (c) eligible depositors of the
Association as of September 30, 1996, and (d) members of the Association
eligible to vote at the Special Meeting. All subscription rights to purchase
Common Shares in the Subscription Offering are nontransferable and will expire
at 12:00 noon, Central Time, on __________, 1996, unless extended (the
"Subscription Expiration Date"). See "THE CONVERSION - Subscription Offering."
A community offering (the "Community Offering"), if one is held, is
expected to begin immediately after the Subscription Expiration Date, but may
begin at any time during the Subscription Offering. In the Community Offering,
if any, Common Shares will be offered to the general public with a preference
being given to natural persons residing in Cullman County, Alabama (the
"Community Offering"). See "THE CONVERSION - Community Offering." The Board of
Directors of the Holding Company may terminate the Community Offering, if any,
at any time and in no event will the Community Offering extend beyond
___________, 1996, unless further extended with the consent of the OTS. See
"THE CONVERSION - Subscription Offering; - Community Offering; and - Plan of
Distribution."
The Association has engaged the Agent to act as selling agent and to
consult with and advise the Holding Company and the Association with respect to
the Subscription and Community Offering. Selected dealers may be utilized to
assist in selling stock in the Community Offering in a Syndicated Community
Offering. The Agent has agreed to use its best efforts to assist the Holding
Company and the Association with the sale of Common Shares in the Subscription
Offering and the Community Offering, if any (including any Syndicated Community
Offering). Neither the Agent nor any other broker-dealer is obligated to
purchase Common Shares in the Subscription and Community Offering.
The Plan and the Board of Directors have established certain
limitations in respect of the minimum and the maximum number of Common Shares
which may be subscribed for or ordered by each purchaser in the Subscription
Offering and the Community Offering (when referred to together, the "Offering").
With the exception of the ESOP, which is expected to purchase 8% of the Common
Shares sold in the Conversion, no person may purchase shares with an aggregate
purchase price of more than $150,000 (or 7,500 shares at $20.00 per share). No
person or entity, together with Associates (as such term is defined below in
"THE CONVERSION -- Limitations on Purchases of Common Shares") of, or persons
acting in concert with, such person or entity, may purchase shares with an
aggregate purchase price of more than $300,000 (or 15,000 shares at $20.00 per
share). The purchase limitations may be increased or decreased in the
discretion of the Boards of Directors of the Holding Company and the
Association, subject to certain conditions. Each person subscribing for Common
Shares in the Subscription or Community Offering must subscribe for at least 25
shares. See "THE CONVERSION - Limitations on Purchases of Common Shares."
Common Shares may be subscribed for or ordered in the Subscription
Offering by returning the accompanying order form and certification form (the
"Order Form"), along with full payment of the purchase price per share for all
Common Shares for which a subscription is made or an order is submitted, so that
it is received by the Association no later than the Subscription Expiration Date
(12:00 noon, Central Time, ___________, 1996). Common Shares may be ordered in
the Community Offering, if one is held, by returning the Order Form, along with
full payment of the purchase price per share for all Common Shares for which an
order is submitted, so that it is received by the Association prior to the
expiration of the Community Offering, which shall be not later than 12:00 noon,
Central Time, ___________, 1996. See "THE CONVERSION - Procedure for Purchasing
Shares in Subscription and Community Offerings."
iii
<PAGE>
Payment may be made in cash, if delivered in person, or by check or money order
and will be held at the Association in a segregated account insured by the FDIC
up to the applicable limits and earning interest at the Association's then
current passbook savings account rate from the date of receipt until the
completion of the Conversion. Payment may also be made by authorized withdrawal
from an existing deposit account at the Association, the amount of which will
continue to earn interest until completion of the Conversion at the rate
normally in effect from time to time for such accounts. See "THE CONVERSION -
Procedure for Purchasing Shares in Subscription and Community Offerings."
An executed Order Form, once received by the Holding Company, may not
be modified, amended or rescinded without the consent of the Holding Company,
unless the Community Offering, if any, is not completed within 45 days after the
Subscription Expiration Date.
THE CONVERSION OF THE ASSOCIATION FROM A FEDERAL MUTUAL SAVINGS AND
LOAN ASSOCIATION TO A FEDERAL STOCK SAVINGS AND LOAN ASSOCIATION IS CONTINGENT
UPON THE APPROVAL OF THE PLAN AND CERTAIN OTHER FACTORS. SEE "THE CONVERSION."
iv
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CULLMAN
CULLMAN, ALABAMA
[MAP]
v
<PAGE>
PROSPECTUS SUMMARY
The following information is not complete and is qualified in its
entirety by the detailed information and the financial statements and
accompanying notes appearing elsewhere in this Prospectus.
Southern Community Bancshares, Inc.
The Holding Company is a Delaware corporation recently organized at
the direction of the Association for the purpose of purchasing all of the
capital stock of the Association to be issued in connection with the Conversion.
The Holding Company has not engaged in business operations to date, other than
business related to the Conversion. Upon the consummation of the Conversion,
the Holding Company will be a unitary savings and loan holding company, the
principal assets of which initially will consist of the capital stock of the
Association and the investments made with the net proceeds retained from the
sale of Common Shares in connection with the Conversion. See "USE OF PROCEEDS."
The office of the Holding Company is located at 325 2nd Street, S.E., Cullman,
Alabama and its telephone number is (205) 734-4863.
First Federal Savings and Loan Association of Cullman
The Association is a mutual savings and loan association which was
organized in 1905. As a federal savings and loan association, the Association
is subject to supervision and regulation by the OTS. The Association is a
member of the Federal Home Loan Bank (the "FHLB") of Atlanta, and the deposit
accounts of the Association are insured up to applicable limits by the FDIC in
the Savings Association Insurance Fund (the "SAIF"). See "REGULATION." The
Association conducts business from its offices in Cullman County, Alabama and
its executive office is located at 325 2nd Street, S.E., Cullman, Alabama.
The primary business of the Association is the origination of loans
secured by first mortgages on one- to four-family residential real estate
located in Cullman County, Alabama, the Association's primary market area. The
Association also originates loans secured by multifamily real estate (over four
units) and nonresidential real estate in its market area. In addition to real
estate lending, the Association originates commercial loans and secured and
unsecured consumer loans. See "THE BUSINESS OF THE ASSOCIATION - Lending
Activities." The Association invests in interest-bearing deposits in other
financial institutions, U.S. Government and agency obligations, mortgage-backed
securities and other investments permitted by applicable law. See "THE BUSINESS
OF THE ASSOCIATION - Investment Activities." Funds for lending and other
investment activities are obtained primarily from savings deposits, which are
insured up to applicable limits by the FDIC. See "THE BUSINESS OF THE
ASSOCIATION - Deposits and Borrowings."
The Conversion and the Offerings
The Plan provides for the Conversion of the Association from a federal
mutual savings and loan association to a federal stock savings and loan
association. The OTS has approved the Plan, subject to the approval of the Plan
by the Association's voting members at the Special Meeting, and to certain other
conditions.
1
<PAGE>
Pursuant to the Plan, subscription rights to purchase Common Shares at
a price of $20.00 per share are being offered to (a) account holders as of March
31, 1995 with aggregate deposits at the close of business on such date of at
least $50 ("Eligible Account Holders"), (b) the ESOP, (c) account holders as of
September 30, 1996 with aggregate deposits at the close of business on such date
of at least $50 ("Supplemental Eligible Account Holders"), and (d) members of
the Association eligible to vote at the Special Meeting ("Other Members"). See
"THE CONVERSION - Subscription Offering." Subscription rights received in any
of the foregoing categories will be subordinate to the subscription rights
received by those in a prior category, with the exception that Common Shares
sold in excess of the maximum of the Valuation Range may first be sold to the
ESOP.
After satisfaction of all subscriptions received in the Subscription
Offering and subject to the availability of shares, Common Shares may be offered
in the Community Offering (including any Syndicated Community Offering).
Preference in the Community Offering is being given to natural persons living in
Cullman County, Alabama. The Boards of Directors of the Holding Company and the
Association have the right to reject, in whole or in part, any order for Common
Shares submitted in the Community Offering. See "THE CONVERSION - Community
Offering."
The Subscription Offering will terminate at, and subscription rights
will expire if not exercised by, the Subscription Expiration Date (12:00 noon,
Central Time, on __________, 1996). The Community Offering, if any, may
terminate at any time but not later than 12:00 noon, Central Time, on
__________, 1996. If necessary, the Community Offering may be extended by the
Holding Company and the Association to __________, 1996. Any extension of the
Community Offering beyond __________, 1996, would require the consent of the
OTS, and persons who have subscribed for or ordered Common Shares in the
Offering would be given notice that they have the right to affirm, increase,
decrease or rescind their subscriptions or orders for Common Shares. Persons
who do not affirmatively elect to continue their subscriptions or orders or who
elect to rescind their subscriptions or orders during any such extension will
have all of their funds promptly refunded with interest. Persons who elect to
decrease their subscriptions or orders will have the appropriate portion of
their funds promptly refunded with interest. See "THE CONVERSION - Pricing and
Number of Common Shares to be Sold."
Restrictions of Transfer of Subscription Rights
OTS regulations prohibit any person from transferring or entering into
any agreement or understanding before the completion of the Conversion to
transfer the ownership of the subscription rights issued in the Conversion or
the shares to be issued upon the exercise of such subscription rights. Persons
attempting to violate such provision may lose their rights to purchase Common
Shares in the Conversion and may be subject to penalties imposed by the OTS.
Each person exercising subscription rights will be required to certify that his
or her purchase of Common Shares is solely for the subscriber's own account and
that there is no agreement or understanding regarding the sale or transfer of
such Common Shares. See "THE CONVERSION - Subscription Offering."
Purchase Limitations
The Plan limits the number of Common Shares which may be purchased.
No person may purchase shares with an aggregate purchase price of more than
$150,000 (or 7,500 shares at $20.00 per share). No person, together with his or
her Associates and other persons acting in concert with him or her, may purchase
Common Shares with an aggregate purchase price of more than $300,000 (or 15,000
shares at $20.00 per share). Such limitation does not apply to the ESOP, which
intends to purchase up to 8% of the Common Shares sold in the Offering. If the
ESOP is unable to purchase all or part of the Common
2
<PAGE>
Shares for which it subscribes, the ESOP may purchase Common Shares on the open
market or may purchase authorized but unissued Common Shares. If the ESOP
purchases authorized but unissued Common Shares, such purchases could have a
dilutive effect on the interests of the Holding Company's shareholders.
Subject to applicable regulations, the purchase limitation may be
increased or decreased after the commencement of the Offering in the sole
discretion of the Board of Directors. See "THE CONVERSION - Limitations on
Purchases of Common Shares" and "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY AND THE ASSOCIATION." The sale of Common Shares pursuant to
subscriptions or orders received in the Offering will be subject to the approval
of the Plan by the voting members of the Association at the Special Meeting, to
the sale of the requisite number of Common Shares and to certain other
conditions. See "THE CONVERSION - Subscription Offering; - Community Offering;
and - Pricing and Number of Common Shares to be Sold."
Benefits of the Conversion to Officers and Directors
Employee Stock Ownership Plan. In connection with the Conversion, the
Holding Company has established the ESOP, which intends to use a loan from the
Holding Company to purchase 8% of Common Shares issued in the Conversion. The
ESOP intends to repay the loan with discretionary contributions made by the
Association or the Holding Company to the ESOP. As the loan is repaid, the
Common Shares held by the ESOP will be allocated to the accounts of employees of
the Association and the Holding Company, including executive officers. See "PRO
FORMA DATA" for a discussion of the impact of the ESOP on pro forma earnings per
share. All full-time employees of the Holding Company and the Association who
meet certain age and years of service criteria will be eligible to participate
in the ESOP. See "MANAGEMENT - Stock Benefit Plans -- Employee Stock Ownership
Plan."
Stock Option Plan. The Holding Company intends to establish the
Southern Community Bancshares, Inc. Stock Option and Incentive Plan and Trust
(the "Stock Option Plan") after the completion of the Conversion. The Board of
Directors of the Holding Company anticipates that a number of shares equal to
10% of the Common Shares sold in the Offering will be acquired by the Stock
Option Plan from authorized but unissued common shares or open market purchases
and thereafter awarded to directors, officers and employees under the Stock
Option Plan. Under OTS regulations, no stock options may be awarded during the
first year after the completion of the Conversion, unless the Stock Option Plan
is approved by the shareholders of the Holding Company at the first meeting of
shareholders following the completion of the Conversion, held not sooner than
six months after the completion of the Conversion. If the Stock Option Plan is
approved by the Holding Company's shareholders at such meeting and implemented
during the first year after the completion of the Conversion, the following
restrictions will apply: (i) the number of shares which may be subject to
options awarded under the Stock Option Plan to directors who are not full-time
employees of the Holding Company may not exceed 5% per person and 30% in the
aggregate of the available awards, (ii) the number of shares which may be
subject to options awarded under the Stock Option Plan to any individual who is
a full-time employee of the Holding Company or its subsidiaries may not exceed
25% of the shares which may be subject to options awarded under the Stock Option
Plan, (iii) stock options must be awarded with an exercise price at least equal
to the fair market value of common shares of the Holding Company at the time of
the grant, and (iv) stock options will become exercisable at the rate of one-
fifth per year commencing no earlier than one year from the date the Stock
Option Plan is approved by the shareholders, subject to acceleration of vesting
only in the event of the death or disability of a participant. No decision has
been made as to anticipated awards to individuals under the Stock Option Plan.
See "MANAGEMENT - Stock Benefit Plans -- Stock Option Plan."
3
<PAGE>
Management Recognition Plan. The Association intends to establish the
First Federal Savings and Loan Association of Cullman Management Recognition
Plan and Trust (the "MRP") after the completion of the Conversion. The Board of
Directors of the Association anticipates that a number of shares equal to 4% of
the Common Shares will be purchased by, or issued to, the MRP. Shares held in
the MRP will be available for awards to directors, officers and employees of the
Association. Under OTS regulations, no award of MRP shares may be made during
the first year after the completion of the Conversion, until after the approval
of the MRP by the shareholders of the Holding Company at the first meeting of
shareholders following the completion of the Conversion, held not sooner than
six months after the completion of the Conversion. If the MRP is approved by
the Holding Company shareholders at such meeting and implemented during the
first year after the completion of the Conversion, MRP awards will be made in
accordance with OTS regulations. Such regulations provide that (i) no
individual may receive more than 25% of the shares awarded pursuant to the MRP,
(ii) directors who are not employees of the Holding Company or the Association
may not receive more than 5% of such shares individually or 30% in the
aggregate, and (iii) shares awarded pursuant to the MRP will vest at the rate of
one-fifth per year commencing on the date which is one year from the date of
grant of the award, subject to acceleration of vesting only in the event of the
death or disability of a participant. No decision has been made as to
anticipated awards to individuals under the MRP. See "MANAGEMENT - Stock
Benefit Plans -- Management Recognition Plan."
Participation of the Agent in the Offering
The Agent will assist in soliciting subscriptions in the Subscription
Offering and Community Offering, if any. Selected dealers may be utilized to
assist in selling stock in the Community Offering in a Syndicated Community
Offering. Such solicitations will be made on a "best efforts" basis and the
Agent is not obligated to purchase any of the Common Shares. See "THE
CONVERSION - Plan of Distribution."
Pricing of the Common Shares
OTS regulations require the aggregate purchase price of the Common
Shares to be issued in the Conversion to be consistent with an independent
appraisal of the estimated pro forma market value of the Common Shares following
the Conversion. Ferguson & Co., LLP ("Ferguson & Co."), has prepared an
independent valuation of the estimated pro forma market value of the Association
as converted. Ferguson & Co.'s valuation of the estimated pro forma market
value of the Association, as converted, is $8,000,000 as of July 30, 1996 (the
"Pro Forma Value"). Based on the Pro Forma Value of the Association, the
Valuation Range established in accordance with the Plan is $6,800,000 to
$9,200,000. The appraisal of the pro forma market value of the Association, as
converted, does not represent Ferguson & Co.'s opinion as to the price at which
the Common Shares may trade. There can be no assurance that the Common Shares
may later be resold at the price at which they are purchased in connection with
the Conversion. See "THE CONVERSION - Pricing and Number of Common Shares to be
Sold."
In the event that Ferguson & Co. determines at the close of the
Offering that the aggregate pro forma value of the Association is higher or
lower than the Pro Forma Value, but is nevertheless equal to or greater than
$6,800,000 or equal to or less than $10,580,000 (15% above the maximum of the
Valuation Range), the Holding Company will make an appropriate adjustment by
raising or lowering the total number of Common Shares to be sold in the
Conversion consistent with the final valuation. The total number of Common
Shares to be sold in the Conversion will be determined in the discretion of the
Board of Directors consistent with the final valuation. If, due to changing
market conditions, the final valuation is less than $6,800,000 or more than
$10,580,000 persons who subscribe to or order Common Shares will be given notice
of such final valuation and the right to affirm increase, decrease or rescind
their subscriptions or
4
<PAGE>
orders. Any person who does not affirmatively elect to continue his subscription
or order or elects to rescind his subscription or order before the date
specified in the notice will have all of his funds promptly refunded with
interest. Any person who elects to decrease his subscription or order will have
the appropriate portion of such person's funds promptly refunded with interest.
Ferguson & Co. was selected by the Board of Directors because Ferguson
& Co. has extensive experience in the valuation of thrift institutions,
particularly in the mutual-to-stock conversion context. The Association and
Ferguson & Co. have no relationship which would affect Ferguson & Co.'s
independence. See "THE CONVERSION - Pricing and Number of Common Shares to be
Sold."
Use of Proceeds
The Holding Company will retain 50% of the net proceeds from the sale of
the Common Shares, or approximately $3.75 million at the mid-point of the
Valuation Range. Such proceeds will be used by the Holding Company to lend
funds to the ESOP and for general corporate purposes, which may include payment
of dividends, purchases of Common Shares and acquisitions of other financial
institutions. The Holding Company presently has no plans to use the proceeds
for any of such purposes, except the loan to the ESOP. The remainder of the net
proceeds received from the sale of the Common Shares, approximately $3.75
million at the mid-point of the Valuation Range, will be invested by the Holding
Company in the capital stock to be issued by the Association to the Holding
Company as a result of the Conversion. Such investment will increase the
regulatory capital of the Association and will permit the Association to expand
its lending and investment activities and to enhance customer services. The
Association anticipates that the net proceeds will initially be invested in
United States Government and agency securities and mortgage-backed securities.
See "USE OF PROCEEDS."
Market for Common Shares
There is presently no market for the Common Shares. Following the
Offerings, the Holding Company will request that the Agent undertake to match
offers to buy and offers to sell for the Common Shares and the Agent intends to
list the Common Shares through the National Daily Quotation Service "pink
sheets" published by the National Quotation Bureau, Inc. In view of the
probable number of purchasers of the Common Shares, however, the development of
an active or liquid market for the Common Shares after the completion of the
Conversion is unlikely. See "RISK FACTORS - Absence of Market for Common
Shares" and "MARKET FOR COMMON SHARES."
5
<PAGE>
Dividend Policy
Following the Conversion, the Board of Directors of the Holding Company
currently intends to declare cash dividends on the Common Shares at an initial
annual rate of 3.0% of the $20.00 per share purchase price of the Common Shares
($0.60 per share). However, the declaration and payment of dividends will be
subject to the discretion of the Board of Directors of the Holding Company and
to the earnings and financial condition of the Holding Company. Further, at the
discretion of the Board of Directors of the Holding Company and based on the
earnings and financial condition of the Holding Company, the Holding Company
may, from time to time, declare a non-recurring special dividend. If the Board
of Directors of the Holding Company determines in the exercise of its discretion
that the net income, capital and financial condition of the Holding Company and
the general economy do not support the declaration and payment of dividends by
the Holding Company, dividends may not be paid on the Common Shares.
Accordingly, no assurance can be given that dividends will be paid or, if paid,
will be continued. See "DIVIDEND POLICY" and "REGULATION."
Investment Risks
An investment in the Common Shares involves certain risks. Special
attention should be given to the matters discussed under "RISK FACTORS -
Interest Rate Risk; - Return on Equity After Conversion; - Recapitalization of
SAIF and Related Legislative Proposals; - Possible Dilutive Effect of Stock
Option Plan and MRP on Net Income and Shareholders' Equity; - Absence of Market
for Common Shares; - Certain Anti-Takeover Provisions; - Competition; - Possible
Tax Liability Related to Subscription Rights; and - Risk of Delayed Offering."
6
<PAGE>
SELECTED FINANCIAL INFORMATION AND OTHER DATA
The following table sets forth certain information concerning the
financial condition, earnings and other data regarding the Association at the
dates and for the periods indicated. Such information should be read in
conjunction with the financial statements and notes thereto appearing elsewhere
herein. The information at June 30, 1996 and 1995 and for the nine months then
ended is derived from unaudited data but, in the opinion of management of the
Association, reflects all adjustments (which comprise only normal recurring
accruals) necessary for a fair presentation of the financial condition and
results of operations. The results of operations for the nine months ended June
30, 1996 are not necessarily indicative of the results of operations for the
full year.
<TABLE>
<CAPTION>
At June 30, At September 30,
-------------- ----------------------
Selected financial condition and other 1996 1995 1994
data: ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Total amount of:
Assets $64,381 $62,026 $63,528
Cash and interest-bearing time
deposits in other financial
institutions 4,838 6,108 2,984
Investment securities(1) 9,399 10,802 13,181
Mortgage-backed securities(2) 8,963 5,452 5,676
Loans receivable-net 39,869 38,570 39,954
Deposits 58,278 56,008 58,228
Equity 5,853 5,606 4,995
Number of full-service offices 1 1 1
Number of limited-service offices 2 2 3
</TABLE>
- -----------------------------
(1) At June 30, 1996 and September 30, 1995, investment securities included
$4,147 and $2,610 of investment securities available-for-sale,
respectively, which are carried at their fair value.
(2) At June 30, 1996 and September 30, 1995, mortgage-backed securities included
$6,213 and $2,243 of mortgage-backed securities available-for-sale,
respectively, which are carried at their fair value.
<TABLE>
<CAPTION>
Nine Months Ended
June 30, Year Ended September 30,
--------------------- --------------------------
Summary of earnings: 1996 1995 1995 1994
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest income $3,466 $3,245 $4,399 $3,987
Interest expense 1,936 1,669 2,300 1,983
---------- ---------- ---------- ----------
Net interest income 1,530 1,576 2,099 2,004
Provision for loan losses -- -- -- 35
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,530 1,576 2,099 1,969
Noninterest income 183 219 329 17
Noninterest expense 1,070 1,125 1,496 1,610
---------- ---------- ---------- ----------
Income before income taxes 643 670 932 376
Income tax expense 223 208 310 98
---------- ---------- ---------- ----------
Net income $419 $462 $622 $279
========== ========== ========== ==========
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
June 30, Year Ended September 30,
-------------------- ----------------------------
Selected financial ratios 1996 1995 1995 1994
---------- --------- -------------- -------------
<S> <C> <C> <C> <C>
Performance ratios:
Return on average assets(1) .88% .98% .99% .44%
Return on average equity(2) 9.65 11.88 11.75 5.80
Interest rate spread(3) 2.93 3.18 3.20 3.10
Net interest margin(4) 3.30 3.44 3.45 3.26
Ratio of non-interest
expenses to average
assets(5) 2.25 2.38 2.38 2.52
Average equity to
average assets 9.14 8.24 8.41 7.54
Average interest-earning
assets to average
interest-bearing
liabilities 108.94 107.00 106.86 105.21
Assets quality ratios:
Nonperforming assets to .35 .63 .34 .51
total assets(6)
Nonperforming loans to .49 .29 .34 .09
total loans(6)
Allowance for loan losses 1.54 1.64 1.62 1.58
to total loans
Allowance for loan losses 313.85 558.77 302.91 1,755.56
to non-performing loans(6)
</TABLE>
(1) Annualized net income divided by average total assets. Average total
assets is based on the month-end carrying value of the assets.
(2) Annualized net income divided by average total equity. Average equity is
based on the month-end total equity balance including the unrealized loss
on securities available-for-sale.
(3) Interest rate spread represents the difference between the weighted average
yield on interest-earning assets and the weighted average rate paid on
interest-bearing liabilities.
(4) Net interest margin represents annualized net interest income as a
percentage of average interest-earning assets.
(5) Annualized non-interest expense divided by total average assets.
(6) Non-performing loans consist of non-accrual loans and accruing loans 90
days or more delinquent and non-performing assets consist of non-performing
loans and real estate owned.
8
<PAGE>
RISK FACTORS
Investment in the Common Shares involves certain risks. Before
investing, prospective purchasers should carefully consider the following
matters.
Interest Rate Risk
The Association's operating results are dependent to a significant
degree on its net interest income, which is the difference between interest
income from loans, interest-bearing deposits in other financial institutions and
investment and mortgage-backed securities, and interest expense on deposits and
borrowings. Like most thrift institutions, the Association's interest income
and interest expense change as interest rates fluctuate and assets and
liabilities reprice. Interest rates fluctuate and assets and liabilities
reprice because of a variety of factors, including general economic conditions,
the policies of various regulatory authorities and other factors beyond the
Association's control. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Asset/Liability Management" and "THE
BUSINESS OF THE ASSOCIATION - Lending Activities; and - Deposits and
Borrowings."
When interest rates are rising, the interest income earned on assets
may not increase as rapidly as the interest expense paid on the Association's
liabilities. As a result, the earnings of the Association may be adversely
affected when the cost of the Association's liabilities increases more rapidly
than the income earned on the Association's assets. The degree to which such
earnings will be adversely affected depends upon the rapidity and extent of the
increase in interest rates. In addition, rising interest rates may negatively
affect the Association's earnings due to diminished loan demand and the
increased risk of delinquencies due to increased payment amounts as adjustable-
rate loans reprice in a rising interest rate environment.
Return on Equity After Conversion
Return on equity (net income for a given period divided by average
equity during that period) is a ratio used by many investors to compare the
performance of a particular financial institution to its peers. The Holding
Company's post-Conversion return on equity will initially be below the average
return on equity for publicly traded thrift institutions and their holding
companies. See "SELECTED FINANCIAL INFORMATION AND OTHER DATA" for information
regarding the Association's historical return on equity and "CAPITALIZATION" for
a discussion of the Holding Company's estimated pro forma consolidated
capitalization as a result of the Conversion. In addition, the expenses
associated with the ESOP and the MRP (see "PRO FORMA DATA"), along with other
post-Conversion expenses, are expected to contribute initially to reduced
earnings levels. The Association intends to deploy the net proceeds of the
Offering to increase earnings per share and book value per share, without
assuming undue risk, with the goal of achieving a return on equity comparable to
the average for publicly traded thrift institutions and their holding companies.
This goal will likely take a number of years to achieve, and no assurances can
be given that this goal can be attained. Consequently, investors should not
expect a return on equity which will meet or exceed the average return on equity
for publicly traded thrift institutions for the foreseeable future.
Recapitalization of SAIF and Related Legislative Proposals
The deposits of the Association are currently insured by the SAIF.
Both the SAIF and the Bank Insurance Fund ("BIF"), the federal deposit insurance
fund that covers the deposits of state and national
9
<PAGE>
banks and certain state savings banks, are required by law to attain and
thereafter maintain a reserve ratio of 1.25% of insured deposits. The BIF has
achieved the required reserve rate, and, as discussed below, the FDIC recently
substantially reduced the average deposit insurance premium paid by BIF-insured
banks to a level substantially below the average premium paid by savings
institutions.
On November 14, 1995, the FDIC approved a final rule regarding deposit
insurance premiums. The final rule will reduce deposit insurance premiums for
BIF member institutions to zero basis points (subject to a $2,000 minimum) for
institutions in the lowest risk category, while holding deposit insurance
premiums for SAIF members at their current levels (23 basis points for
institutions in the lowest risk category). The reduction was effective with
respect to the semiannual premium assessment beginning January 1, 1996.
Accordingly, in the absence of further legislative action, SAIF members such as
the Association will be competitively disadvantaged as compared to commercial
banks by the resulting premium differential.
The U.S. House of Representatives and Senate have actively considered
legislation which would eliminate the premium differential between SAIF-insured
institutions and BIF-insured institutions by recapitalizing the SAIF's reserves
to the required ratio. The proposed legislation would provide that all SAIF
member institutions pay a special one-time assessment to recapitalize the SAIF,
which in the aggregate would have been sufficient to bring the reserve ratio in
the SAIF to 1.25% of insured deposits. Based on the current level of reserves
maintained by the SAIF, it was anticipated that the amount of the special
assessment required to recapitalize the SAIF would have been approximately 80 to
85 basis points of the SAIF-assessable deposits. Recently, the FDIC revised its
estimates of the amount of the special assessment downward to 68 basis points.
It was anticipated that after the recapitalization of the SAIF, premiums paid by
SAIF-insured institutions would be reduced to eventually match those currently
being assessed BIF-insured commercial banks. The legislation also provided for
the merger of the BIF and the SAIF, with such merger being conditioned upon the
prior elimination of the thrift charter.
The legislation discussed above had been, for some time, included as
part of a fiscal 1996 federal budget bill, but was eliminated prior to the bill
being enacted on April 26, 1996. However, the legislation continues to be
considered by Congress. In light of the uncertainty of the legislative process
generally, management cannot predict whether legislation reducing SAIF premiums
and/or imposing a special one-time assessment will be adopted, or, if adopted,
the amount of the assessment, if any, that would be imposed on the Association.
If legislation were to be enacted in the future which would assess a
one-time special assessment of 68 or 85 basis points, the Association would
(based upon the Association's SAIF deposits as of June 30, 1996) pay
approximately $249,000 or $312,000, respectively, net of related tax benefits.
In addition, the enactment of such legislation would have the effect of
immediately reducing the Association's capital by such an amount. Nevertheless,
management does not believe, based upon the foregoing assumptions, that a one-
time assessment of this nature would have a material adverse effect on the
Association's overall financial condition. Management believes a one-time
special assessment would result in annual insurance premiums payable by the
Association being lower than current premiums for the foreseeable future.
No assurances can be given that the SAIF recapitalization plan will be
enacted into law or in what form it may be enacted. The Holding Company can
give no assurances that the disparity between BIF and SAIF assessments will be
eliminated and if the proposed legislation is not enacted, SAIF premiums may
increase and the disparity between BIF and SAIF premiums may become more
pronounced, which would negatively impact the Association.
10
<PAGE>
Possible Dilutive Effect of Stock Option Plan and MRP on Net Income and
Shareholders' Equity
Following the completion of the Conversion, the Holding Company
intends to adopt the Stock Option Plan and the MRP. Under the MRP, directors,
officers and employees of the Association could be awarded an aggregate amount
of common shares equal to 4% of the shares sold in the Offering. Under the
Stock Option Plan, directors, officers and employees of the Association may be
granted options to purchase common shares of the Holding Company. The aggregate
amount of common shares as to which such options might be granted may equal 10%
of the Common Shares at exercise prices equal to the market price of the Holding
Company common shares on the date of grant. The Holding Company intends to
submit the Stock Option Plan and the MRP to the Holding Company's shareholders
for their approval at the first annual meeting or a special meeting of
shareholders following the completion of the Conversion. Such meeting will not
be held sooner than six months after the completion of the Conversion.
The shares issued to participants under the MRP could be newly issued
shares or, subject to regulatory restrictions, shares purchased in the open
market. In the event the shares issued under the MRP consist of newly issued
common shares, the voting power and economic interests of then existing Holding
Company shareholders would be diluted. Shares issued upon the exercise of
options granted under the Stock Option Plan are anticipated to be issued from
the Holding Company's authorized but unissued shares (such shares could,
however, be from shares purchased in the open market) and will also dilute the
voting power and may dilute the economic interests of then existing Holding
Company shareholders, depending on the book value per share and fair market
value per share of the common shares on the date of option exercise. See "PRO
FORMA DATA" and "MANAGEMENT - Stock Benefit Plans."
Absence of Market for Common Shares
There is presently no market for the Common Shares. Following the
Offerings, the Holding Company will request that the Agent undertake to match
offers to buy and offers to sell for the Common Shares and the Agent intends to
list the Common Shares through the National Daily Quotation Service "pink
sheets" published by the National Quotation Bureau, Inc. A public trading
market for the stock of any issuer, including the Holding Company, depends upon
the presence of both willing buyers and sellers at any given time, over which
neither the Holding Company nor any market maker has any control. In view of
the probable number of purchasers of the Common Shares in this Offering,
however, the development of an active or liquid market for the Common Shares
after the completion of the Conversion is unlikely. Investors should consider,
therefore, the potentially illiquid and long-term nature of an investment in the
Common Shares.
The aggregate offering price for the Common Shares is based upon an
independent appraisal of the Association. The appraisal is not a recommendation
as to the advisability of purchasing the Common Shares. See "THE CONVERSION -
Pricing and Number of Common Shares to be Sold." No assurance can be given that
persons purchasing Common Shares will thereafter be able to sell such shares at
a price at or above the offering price.
Certain Anti-Takeover Provisions
Provisions of Governing Instruments and Governing Law. The
Certificate of Incorporation and Bylaws of the Holding Company contain certain
provisions that could deter or prohibit non-negotiated changes in the control of
the Holding Company and the Association. Such provisions include a restriction
on the acquisition, directly or indirectly, of more than 10% of the outstanding
shares of the Holding Company by any person or any persons acting in concert
during the five-year period following the effective
11
<PAGE>
date of the Conversion without prior approval of the Board of Directors, the
ability to issue additional common shares and a super majority voting
requirement for certain transactions. See "DESCRIPTION OF AUTHORIZED SHARES" and
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY AND THE ASSOCIATION."
The Certificate of Incorporation provides that for five years after
the effective date of the Conversion, no person or persons acting in concert,
except the ESOP, may acquire, directly or indirectly, the beneficial ownership
of more than 10% of any class of outstanding equity securities of the Holding
Company. If such a prohibited acquisition occurs, the securities owned by such
person in excess of the 10% limit may not be voted on any matter submitted to
the shareholders of the Holding Company. The ability of management or any other
person to solicit revocable proxies from shareholders and vote on behalf of such
shareholders will not be restricted by such 10% limit.
The Certificate of Incorporation also provides that if the Board of
Directors recommends that shareholders approve certain matters, including
mergers, acquisitions of a majority of the shares of the Holding Company or the
transfer of substantially all of the assets of the Holding Company, the
affirmative vote of the holders of only a majority of the voting shares of the
Holding Company is required to approve such matter. If, however, the Board of
Directors recommends against the approval of any such matter, the affirmative
vote of the holders of at least 80% of the voting shares of the Holding Company
is required to approve such matters. The existence of such 80% provision in the
Certificate of Incorporation may have the effect of precluding a corporate
transaction which certain shareholders may deem to be in their best interests.
The various provisions of the Certificate of Incorporation, may have
the effect of facilitating the perpetuation of current management and
discouraging proxy contests and takeover attempts. The Boards of Directors of
the Holding Company and the Association believe that such provisions will be in
the best interests of shareholders by encouraging prospective acquirers to
negotiate a proposed acquisition with the directors. Such provisions could,
however, adversely affect the market value of the Common Shares or deprive
shareholders of the opportunity to sell their shares for premium prices.
Regulations of the OTS also restrict the ability of any person, or
persons acting in concert, to acquire the beneficial ownership of more than 10%
of any class of voting equity security of the Association or the Holding Company
without the prior written approval of or lack of objection by the OTS. Such
restrictions could restrict the use of revocable proxies. Federal and Delaware
law also restrict the acquisition of control of the Holding Company and the
Association. Any or all of these provisions may facilitate the perpetuation of
current management and discourage proxy contests or takeover attempts not first
negotiated with the Board of Directors. See "RESTRICTIONS ON ACQUISITION OF THE
HOLDING COMPANY AND THE ASSOCIATION."
Voting Control of Officers and Directors. Officers and directors of
the Holding Company and their Associates are expected to purchase approximately
34% of the Common Shares sold in the Offering. In addition, the ESOP intends to
purchase approximately 8% of the shares sold in the Offering. The ESOP trustee
will vote shares allocated under the ESOP as directed by the participants to
whom the shares are allocated and will vote unallocated shares in the same
proportion with the vote of participants with respect to allocated shares.
Following approval of the MRP and the Stock Option Plan by the shareholders of
the Holding Company at the first annual meeting or a special meeting of the
shareholders, which will not be held sooner than six months following the
completion of the Conversion, the MRP is expected to acquire Common Shares in
the open market or acquire authorized but unissued common shares from the
Holding Company in an amount equal to up to 4% of the Common Shares sold in the
Offering and the Stock Option
12
<PAGE>
Plan is expected to acquire authorized but unissued common shares from the
Holding Company or acquire Common Shares in the open market in an amount equal
to up to 10% of the Common Shares sold in the Offering. The MRP and the Stock
Option Plan trustees, who are expected to be directors of the Association, will
vote shares awarded but not distributed under the MRP and the Stock Option Plan.
See "MANAGEMENT - Stock Benefit Plans --Employee Stock Ownership Plan; -- Stock
Option Plan; and -- Management Recognition Plan."
As a result of the proposed purchases of Common Shares by directors
and officers of the Holding Company and the Association and their Associates and
as a result of purchases under the ESOP, the MRP and the Stock Option Plan,
directors and executive officers of the Holding Company and the Association
could acquire the power to vote approximately 55% of total outstanding shares
(including shares owned by the ESOP, the MRP and the Stock Option Plan). Such
voting control would constitute a majority for purposes of any shareholder vote
and could render it difficult or impossible to approve a stockholder proposal
opposed by the Board of Directors of the Holding Company and management.
Competition
The Association experiences significant competition in its local
market area in originating loans and attracting deposits. The most direct
competition comes from commercial banks, thrift institutions and mortgage
banking companies. Commercial banks and thrift institutions are in an industry
which has experienced increasing consolidation. In the event of a downturn in
the economy or increased competitive pressures resulting from industry
consolidation, the Association may experience reduced demand for mortgage loans
and may have difficulty attracting deposits.
Possible Tax Liability Related to Subscription Rights
As part of the Conversion, subscription rights have been granted to
(i) Eligible Account Holders; (ii) the ESOP; (iii) Supplemental Eligible Account
Holders; and (iv) Other Members. The Association has received an opinion from
Ferguson & Co. to the effect that the subscription rights to be received by
Eligible Account Holders and other eligible subscribers do not have any value
because they are acquired by the recipients without cost, are non-transferable
and of short duration, and afford the recipients a right only to purchase Common
Shares at a price equal to their estimated fair market value, the same price as
the purchase price paid for Common Shares by the general public in the Community
Offering.
Notwithstanding the opinion from Ferguson & Co., if the subscription
rights are subsequently found to have a fair market value, income may be
recognized by the recipients of the subscription rights (in certain cases,
whether or not the rights are exercised) and the Holding Company and/or the
Association may be taxed on the distribution of such subscription rights. In
this regard, the subscription rights may be taxed partially or entirely at
ordinary income tax rates.
Risk of Delayed Offering
The Holding Company and the Association expect to complete the
Conversion by ________, 1996. It is possible, however, that adverse market,
economic or other factors could delay the completion of the Conversion. If the
Community Offering, if any, is extended beyond ________, 1996, each subscriber
will be given a notice of such delay and the right to affirm, increase, decrease
or rescind his subscription. In such event, any person who does not
affirmatively elect to continue his subscription or elects to rescind his
subscription will have all of his funds promptly refunded with interest. Any
person who elects to decrease his subscription will have the appropriate portion
of his funds promptly refunded with interest. If the
13
<PAGE>
Community Offering, if any, is extended, the cost of the Conversion could
increase and the valuation of the Association could change.
SOUTHERN COMMUNITY BANCSHARES, INC.
The Holding Company is a Delaware corporation recently organized at
the direction of the Association for the purpose of acquiring all of the capital
stock of the Association to be issued in connection with the Conversion. The
Holding Company has not engaged in business operations to date, other than
business related to the Conversion. The office of the Holding Company is
located at 325 2nd Street, S.E., Cullman, Alabama and its telephone number is
(205) 734-4863.
The Holding Company will have no material assets or liabilities prior
to the consummation of the Conversion. Upon the consummation of the Conversion,
the only material asset of the Holding Company will be the capital stock of the
Association and that portion of the net proceeds of the Conversion that the
Holding Company retains. See "USE OF PROCEEDS," for information as to how the
Holding Company plans to invest the net proceeds retained from the Conversion.
Following the Conversion, the Holding Company will be engaged in the business of
managing its investments and directing, planning and coordinating the business
activities of the Association. In the future, the Holding Company may acquire
or organize other operating subsidiaries, although there are no current plans or
agreements to do so.
The Holding Company's application to become a savings and loan holding
company under the Home Owners' Loan Act ("HOLA") has been approved by the OTS.
Upon completion of the Conversion, the Holding Company will be subject to
regulation by OTS. See "REGULATION - Office of Thrift Supervision -- Holding
Company Regulation."
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF CULLMAN
The Association is a mutual savings and loan association which was
organized in 1905. As a federal savings and loan association, the Association
is subject to supervision and regulation by the OTS. The Association is a
member of the FHLB of Atlanta, and the deposit accounts of the Association are
insured up to applicable limits by the FDIC in the SAIF. See "REGULATION." The
Association conducts business from its offices in Cullman County, Alabama and
its executive office is located at 325 2nd Street, S.E., Cullman, Alabama.
The primary business of the Association is the origination of loans
secured by first mortgages on one- to four-family residential real estate
located in Cullman County, Alabama, the Association's primary market area. The
Association also originates loans secured by multifamily real estate (over four
units) and nonresidential real estate in its market area. In addition to real
estate lending, the Association originates commercial loans and secured and
unsecured consumer loans. See "THE BUSINESS OF THE ASSOCIATION - Lending
Activities." The Association invests in interest-bearing deposits in other
financial institutions, U.S. Government and agency obligations, mortgage-backed
securities and other investments permitted by applicable law. See "THE BUSINESS
OF THE ASSOCIATION - Investment Activities." Funds for lending and other
investment activities are obtained primarily from savings deposits, which are
insured up to applicable limits by the FDIC, and principal repayments on loans.
See "THE BUSINESS OF THE ASSOCIATION - Deposits and Borrowings."
14
<PAGE>
USE OF PROCEEDS
The following table presents the estimated gross and net proceeds from
the sale of the Common Shares, based on the Valuation Range:
<TABLE>
<CAPTION>
Maximum, as
Minimum Mid-point Maximum adjusted
---------- ----------- ---------- ---------------
<S> <C> <C> <C> <C>
Gross proceeds $6,800,000 $8,000,000 $9,200,000 $10,580,000
Less estimated expenses 488,000 510,000 532,000 557,000
----------- ----------- ----------- ------------
Total net proceeds $6,312,000 $7,490,000 $8,668,000 $10,023,000
=========== =========== =========== ============
</TABLE>
The net proceeds may vary depending upon financial and market
conditions at the time of the completion of the Offering. See "THE CONVERSION -
Pricing and Number of Common Shares to be Sold." The expenses detailed above
are estimated. Estimated expenses include fixed expenses of approximately
$417,000 and estimated sales commissions payable to the Agent. Sales
commissions have been computed on the basis of the following assumptions: (i)
approximately 34% of the Common Shares sold in the Offering at the Mid-point of
the Valuation Range will be purchased by directors, officers, and employees of
the Association and their Associates; and (ii) 8% of the Common Shares sold in
the Offering will be purchased by the ESOP. Actual expenses may be more or less
than estimated. See "THE CONVERSION - Plan of Distribution."
The Holding Company will retain 50% of the net proceeds from the sale
of the Common Shares, approximately $3.75 million at the mid-point of the
Valuation Range. Such proceeds will be used by the Holding Company to lend up
to $640,000, at the mid-point of the Valuation Range, to the ESOP to acquire
Common Shares in the Offering and for general corporate purposes, which may
include payment of dividends, purchases of common shares and acquisitions of
other financial institutions. The Holding Company presently has no specific
plans to use the proceeds for any such purposes, except for the loan to the
ESOP. See "THE CONVERSION - Restrictions on Repurchase of Common Shares."
The remainder of the net proceeds received from the sale of the Common
Shares, approximately $3.75 million at the mid-point of the Valuation Range,
will be invested by the Holding Company in the capital stock to be issued by the
Association to the Holding Company as a result of the Conversion. Such
investment will increase the regulatory capital of the Association and will
permit the Association to expand its lending and investment activities and to
enhance customer services. A portion of the net proceeds in the amount of
$320,000 are intended to be used to purchase common shares for awards pursuant
to the MRP. For liquidity purposes, the remainder of the funds will be invested
initially in U.S. Treasury and government agency securities with maturities of
three years or less and short-term interest-bearing deposits. Eventually, such
funds will be used to originate mortgage loans and possibly nonmortgage loans in
the Association's market area.
MARKET FOR COMMON SHARES
There is presently no market for the Common Shares. Following the
Offerings, the Holding Company will request that the Agent undertake to match
offers to buy and offers to sell for the Common
15
<PAGE>
Shares and the Agent intends to list the Common Shares through the National
Daily Quotation Service "pink sheets" published by the National Quotation
Bureau, Inc. A public trading market for the stock of any issuer, including the
Holding Company, depends upon the presence of both willing buyers and sellers at
any given time, over which neither the Holding Company nor any market maker has
any control. In view of the probable number of purchasers of the Common Shares,
however, the development of an active or liquid market for the Common Shares
after the completion of the Conversion is unlikely. See "RISK FACTORS - Absence
of Market for the Common Shares."
The appraisal of the pro forma market value of the Association, as
converted, does not represent Ferguson & Co.'s opinion as to the price at which
the Common Shares may trade. There can be no assurance that the Common Shares
may later be resold at the price at which they are purchased in connection with
the Conversion.
DIVIDEND POLICY
Following the Conversion, the Board of Directors of the Holding
Company currently intends to declare cash dividends on the Common Shares at an
initial annual rate of 3.0% of the $20.00 per share purchase price of the Common
Shares ($0.60 per share). However, the declaration and payment of dividends
will be subject to the discretion of the Board of Directors of the Holding
Company and to the earnings and financial condition of the Holding Company.
Further, at the discretion of the Board of Directors of the Holding Company and
based on the earnings and financial condition of the Holding Company, the
Holding Company may, from time to time, declare a non-recurring special
dividend. If the Board of Directors of the Holding Company determines in the
exercise of its discretion that the net income, capital and financial condition
of the Holding Company and the general economy do not support the declaration
and payment of dividends by the Holding Company, dividends may not be paid on
the Common Shares. Accordingly, no assurance can be given that dividends will
be paid or, if paid, will be continued.
Other than earnings on the investment of the proceeds retained by the
Holding Company and interest earned on the loan to the ESOP, the only source of
income of the Holding Company will be dividends periodically declared and paid
by the Board of Directors of the Association on the common shares of the
Association held by the Holding Company. The declaration and payment of
dividends by the Association to the Holding Company will be subject to the
discretion of the Board of Directors of the Association, to the earnings and
financial condition of the Association, to general economic conditions and to
federal and state restrictions on the payment of dividends by thrift
institutions. Under regulations of the OTS applicable to converted
associations, the Association will not be permitted to pay a cash dividend on
its capital stock if its regulatory capital would, as a result of the payment of
such dividend, be reduced below the amount required for the liquidation account
or the applicable regulatory capital requirement prescribed by the OTS. See
"THE CONVERSION - Principal Effects of the Conversion -- Liquidation Account"
and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Capital Resources; and - Liquidity." The Association may not pay a
dividend unless such dividend also complies with a regulation of the OTS
limiting capital distributions by savings and loan associations generally.
Capital distributions, for purposes of such regulation, include, without
limitation, payments of cash dividends, repurchases and certain other
acquisitions by an association of its shares and payments to stockholders of
another association in an acquisition of such other association. See
"REGULATION - Office of Thrift Supervision -- Limitations on Capital
Distributions."
16
<PAGE>
REGULATORY CAPITAL COMPLIANCE
The following table sets forth the historical and pro forma regulatory
capital of the Association at June 30, 1996, based on the receipt of 50% of the
net proceeds for the number of Common Shares indicated. Estimated expenses used
in determining the net proceeds are $488,000, $510,000, $532,000 and $557,000 at
the minimum, mid-point, maximum and maximum, as adjusted, respectively, of the
Valuation Range:
<TABLE>
<CAPTION>
Pro forma capital at June 30, 1996, assuming the sale of:
---------------------------------------------------------------------------------
340,000 400,000 460,000 529,000
Historical at Common Shares Common Shares Common Shares Common Shares
June 30, 1996 (At $20 per share) (At $20 per share) (At $20 per share) (At $20 per share)
----------------- -------------------- ------------------- ------------------- -------------------
(Dollars in thousands)
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital under generally
accepted accounting
principles, before
adjustments(1) $5,853 9.09% $8,193 12.18% $8,638 12.74% $9,083 13.29% $ 9,596 $13.91%
======== ======= ======== ======== ======== ======== ======== ======== ========= ========
Tangible capital:
Capital level $6,070 9.40% $8,410 12.46% $8,855 13.02% $9,300 13.56% $ 9,813 14.18%
Requirement(2) 969 1.50 1,012 1.50 1,020 1.50 1,028 1.50 1,038 1.50
-------- ------- -------- -------- -------- -------- -------- -------- --------- --------
Excess $5,101 7.90% $7,398 10.96% $7,835 11.52% $8,272 12.06% $ 8,775 12.68%
======== ======= ======== ======== ======== ======== ======== ======== ========= ========
Core capital:
Capital level $6,070 9.40% $8,410 12.46% $8,855 13.02% $9,300 13.56% $ 9,813 14.18%
Requirement(2) 1,938 3.00 2,024 3.00 2,040 3.00 2,056 3.00 2,076 3.00
-------- ------- -------- -------- -------- -------- -------- -------- --------- --------
Excess $4,132 6.40% $6,386 9.46% $6,815 10.02% $7,244 10.56% $ 7,737 11.18%
======== ======= ======== ======== ======== ======== ======== ======== ========= =======
Risk-based capital:(3)
Capital level(4) $6,480 19.30% $8,830 25.85% $9,275 27.07% $9,720 28.28% $10,233 29.66%
Requirement(2) 2,686 8.00 2,732 8.00 2,741 8.00 2,750 8.00 2,760 8.00
-------- -------- -------- -------- -------- -------- -------- -------- --------- --------
Excess $3,794 11.30% $6,098 17.85% $6,534 19.07% $6,970 20.28% $ 7,473 21.66%
======== ======== ======== ======== ======== ======== ======== ======== ========= ========
</TABLE>
___________________
(1) Pro forma amounts reflect a reduction for unearned ESOP and MRP shares
equal to 8% and 4%, respectively, of the Offering.
(2) Tangible and core capital are shown as a percent of adjusted total assets
and risk-based capital levels are shown as a percent of risk-weighted
assets in accordance with OTS regulations. The calculations in the table
above do not take into account the interest rate risk component added by
the OTS to its risk-based capital requirements. See "REGULATION - Office of
Thrift Supervision -- Regulatory Capital Requirements."
(3) Assumes that the net proceeds received by the Association will be invested
in assets having a risk-weighting of 20%.
(4) Risk-weighted capital includes $410,000 of qualifying general loan loss
allowances.
17
<PAGE>
CAPITALIZATION
Set forth below is the historical capitalization of the Association at
June 30, 1996, and the pro forma consolidated capitalization of the Holding
Company as adjusted to give effect to the sale of Common Shares based on the
Valuation Range and estimated expenses. See "USE OF PROCEEDS" and "THE
CONVERSION - Pricing and Number of Common Shares to be Sold."
<TABLE>
<CAPTION>
Pro forma capitalization of the Holding Company at June 30, 1996, assuming the sale of
--------------------------------------------------------------------------------------
Historical 340,000 400,000 460,000 529,000
Capitalization at Common Shares Common Shares Common Shares Common Shares
June 30, 1996 (At $20 per share) (At $20 per share) (At $20 per share) (At $20 per share)
----------------- ----------------- ----------------- ----------------- ------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Deposits(1) $58,278 $58,278 $58,278 $58,278 $58,278
Borrowings -- -- -- -- --
----------------- ----------------- ----------------- ----------------- ------------------
Total deposits and borrowings 58,278 58,278 58,278 58,278 58,278
================= ================= ================= ================= ==================
Equity:
Preferred Shares, $0.01 par value
per share; authorized - 100,000
shares; none issued or outstanding -- -- -- -- --
Common Shares, $0.01 par value
per share; authorized - 3,000,000
shares; assumed outstanding -
as shown(2) -- 3 4 5 5
Paid-in capital -- 6,309 7,486 8,663 10,018
Less Common Shares acquired
by the ESOP(3) -- (544) (640) (736) (846)
Less Common Shares acquired
by the MRP(4) -- (272) (320) (368) (423)
Retained earnings, substantially
restricted(5) 6,070 6,070 6,070 6,070 6,070
Unrealized losses on available-for-
sale securities, net (217) (217) (217) (217) (217)
----------------- ----------------- ----------------- ----------------- ------------------
Total equity $ 5,853 $11,349 $12,383 $13,417 $14,607
================= ================= ================= ================= ==================
</TABLE>
- ---------------------------
(1) No effect has been given to withdrawals from deposit accounts for the
purpose of purchasing Common Shares in the Conversion. Any such withdrawals
will reduce pro forma deposits by the amounts of such withdrawals.
(2) The number of Common Shares to be issued will be determined on the basis of
the final valuation of the Association. See "THE CONVERSION - Pricing and
Number of Common Shares to be Sold." Common Shares assumed outstanding does
not reflect the issuance of any common shares which may be reserved for
issuance under the Stock Option Plan. See "MANAGEMENT - Stock Benefit
Plans -- Stock Option Plan." Reflects receipt of the proceeds from the sale
of the Common Shares, net of estimated expenses. Estimated expenses include
fixed expenses of approximately $417,000 and estimated sales commissions
payable to the Agent. Such sales commission have been computed based on the
following assumptions: (i) approximately 34% of the Common Shares sold in
the Offering at the Mid-point of the Valuation Range will be purchased by
directors, officers and employees of the Association and their Associates;
and (ii) 8% of the Common Shares sold in the Offering will be purchased by
the ESOP.
(3) Assumes that 8% of the Common Shares sold in connection with the Conversion
will be acquired by the ESOP with funds borrowed by the ESOP from the
Holding Company for a term of ten years at the prime rate of interest. The
ESOP loan will be secured solely by the Common Shares purchased by the ESOP.
The Association has agreed, however, to use its best efforts to fund the
ESOP based on future earnings, which funding will reduce the Association's
total capital and retained earnings, as reflected in the table. If the ESOP
is unable to purchase all or part of the Common Shares for which it
subscribes, the ESOP may purchase common shares on the open market or may
purchase authorized but unissued shares of the Holding Company. If the ESOP
purchases authorized but unissued shares from the Holding Company, such
purchases would have a dilutive effect of approximately 7.4% on the
ownership interests of the Holding Company's shareholders. See "MANAGEMENT -
Stock Benefit Plan -- Employee Stock Ownership Plan."
(4) Assumes that 4% of the Common Shares will be acquired in the open market by
the MRP after the Conversion at a price of $20 per share. There can be no
assurance that the MRP will be implemented, that a sufficient number of
shares will be available for purchase by the MRP, that shares could be
purchased at a price of $20 per share or that the shareholders will approve
the MRP if it is implemented during the first year after the Conversion. A
higher price per share, assuming the purchase of the entire 4% of the
shares, would reduce pro forma net earnings and pro forma shareholders'
equity. The MRP may purchase shares in the open market or may purchase
authorized but unissued shares from the Holding Company. If authorized but
unissued shares are purchased, the ownership interests of existing
shareholders would be diluted approximately 3.85%. See "MANAGEMENT - Stock
Benefit Plans -- Management Recognition Plan."
(5) See Note 10 of the Notes to Financial Statements for information regarding
restrictions on retained earnings. See "THE CONVERSION - Principal Effects
of the Conversion -- Liquidation Account" for information concerning the
Liquidation Account to be established in connection with the Conversion and
"TAXATION - Federal Taxation," for information concerning restricted
retained earnings for federal tax purpose.
18
<PAGE>
PRO FORMA DATA
Set forth below are the pro forma consolidated net income of the Holding
Company for the periods indicated, and the pro forma consolidated shareholders'
equity as of dates indicated, along with the related pro forma earnings per
share amounts, giving effect to the sale of the Common Shares. The computations
are based on the assumed issuance of 340,000 Common Shares (minimum of the
Valuation Range), 400,000 Common Shares (mid-point of the Valuation Range),
460,000 Common Shares (maximum of the Valuation Range) and 529,000 Common Shares
(15% above the maximum of the Valuation Range). See "THE CONVERSION - Pricing
and Number of Common Shares to be Sold." The pro forma data is based on the
following assumptions: (i) the sale of the Common Shares occurred at the
beginning of the period and yielded the net proceeds indicated; (ii) such net
proceeds were invested at the beginning of the period to yield annualized after-
tax net returns of 3.65% for the periods indicated; and (iii) no withdrawals
from existing deposit accounts were made to purchase the Common Shares. The
assumed returns are based on the one-year U.S. Treasury bill yield of 5.80% in
effect as of the dates indicated, reduced by combined federal and state income
tax estimated at 37%. This rate was used as an alternative to the arithmetic
average of the Association's interest-earning assets and interest-bearing
deposits. Management believes that the U.S. Treasury bill yield is more
indicative of the rate of return that can be achieved on the investment of the
Conversion proceeds. Actual yields may differ, however, from the assumed
returns. The pro forma consolidated net income amounts derived from the
assumptions set forth herein should not be considered indicative of the actual
results of operations of the Holding Company that would have been attained for
any period if the Conversion had been actually consummated at the beginning of
such period.
As the table demonstrates, pro forma consolidated earnings per share and
pro forma consolidated shareholders' equity per share decrease as the amount of
Common Shares sold moves from the minimum of the Valuation Range to the adjusted
maximum of the Valuation Range. Conversely, the offering price as a multiple of
pro forma earnings per share and as a percent of pro forma shareholders' equity
per share increases as the amount of Common Shares sold moves from the minimum
of the Valuation Range to the adjusted maximum of the Valuation Range.
THE PRO FORMA DATA AND ACCOMPANYING NOTES SHOULD BE READ IN CONJUNCTION
WITH THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE HEREIN. THE
PRO FORMA DATA IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT PURPORT
TO REPRESENT WHAT THE HOLDING COMPANY'S FINANCIAL POSITION OR RESULTS OF
OPERATIONS ACTUALLY WOULD HAVE BEEN HAD THE AFOREMENTIONED TRANSACTIONS BEEN
COMPLETED AS OF THE DATE OR AT THE BEGINNING OF THE PERIODS INDICATED, OR TO
PROJECT THE HOLDING COMPANY'S FINANCIAL POSITION OR RESULTS OF OPERATIONS AT ANY
FUTURE DATE OR FOR ANY FUTURE PERIOD. THE STOCKHOLDERS' EQUITY IS NOT INTENDED
TO REPRESENT, THE FAIR MARKET VALUE OF THE COMMON SHARES NOR DOES IT REPRESENT
AMOUNTS THAT WOULD BE AVAILABLE FOR DISTRIBUTION TO SHAREHOLDERS IN THE EVENT OF
LIQUIDATION.
19
<PAGE>
<TABLE>
<CAPTION>
529,000
340,000 400,000 460,000 Common Shares
Common Shares Common Shares Common Shares At $20 per share
At $20 per share At $20 per share At $20 per share (Maximum, as
(Minimum) (Midpoint) (Maximum) adjusted)(7)
--------------------- --------------------- --------------------- ----------------------
Nine Nine Nine Nine
Months Year Months Year Ended Months Year Months Year
Ended Ended Ended 9/30/95 Ended Ended Ended Ended
6/30/96 9/30/95 6/30/96 ---------- 6/30/96 9/30/95 6/30/96 9/30/95
--------- --------- --------- --------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross proceeds $ 6,800 $ 6,800 $ 8,000 $ 8,000 $ 9,200 $ 9,200 $ 10,580 $ 10,580
Less offering expenses and
commissions (488) (488) (510) (510) (532) (532) (557) (557)
--------- --------- --------- ---------- --------- --------- --------- ---------
Estimated net conversion
proceeds 6,312 6,312 7,490 7,490 8,668 8,668 10,023 10,023
Less common stock acquired
by the ESOP(1) (544) (544) (640) (640) (736) (736) (846) (846)
Less common stock acquired
by the MRP(2) (272) (272) (320) (320) (368) (368) (423) (423)
--------- --------- --------- ---------- --------- --------- --------- ---------
Estimated proceeds
available for investment $ 5,496 $ 5,496 $ 6,530 $ 6,530 $ 7,564 $ 7,564 $ 8,754 $ 8,754
========= ========= ========= ========== ========= ========= ========= =========
Net income:
Historical(3) $ 419 $ 622 $ 419 $ 622 $ 419 $ 622 $ 419 $ 622
Pro forma
adjustments:
Net income from
proceeds 151 201 179 239 207 276 240 320
ESOP (26) (34) (30) (40) (35) (46) (40) (53)
MRP (26) (34) (30) (40) (35) (46) (40) (53)
--------- --------- --------- ---------- --------- --------- --------- ---------
Pro forma net income $ 518 $ 755 $ 538 $ 781 $ 556 $ 806 $ 579 $ 836
========= ========= ========= ========== ========= ========= ========= =========
Per share(4)(8):
Historical(3)(6) $ 1.33 $ 1.97 $ 1.13 $ 1.68 $ 0.98 $ 1.46 $ 0.85 $ 1.27
Pro forma adjustments:
Net income from proceeds 0.48 0.64 0.48 0.64 0.49 0.65 0.49 0.65
ESOP (0.08) (0.11) (0.08) (0.11) (0.08) (0.11) (0.08) (0.11)
MRP (0.08) (0.11) (0.08) (0.11) (0.08) (0.11) (0.08) (0.11)
--------- --------- --------- ---------- --------- --------- --------- ---------
Pro forma $ 1.64 $ 2.39 $ 1.45 $ 2.10 $ 1.30 $ 1.89 $ 1.18 $ 1.70
========= ========= ========= ========== ========= ========= ========= =========
Stockholders' equity
(book value)(5):
Historical $ 5,853 $ 5,606 $ 5,853 $ 5,606 $ 5,853 $ 5,606 $ 5,853 $ 5,606
Estimated net conversion
proceeds 6,312 6,312 7,490 7,490 8,668 8,668 10,023 10,023
Less common stock acquired
by:
ESOP (544) (544) (640) (640) (736) (736) (846) (846)
MRP (272) (272) (320) (320) (368) (368) (423) (423)
--------- --------- --------- ---------- --------- --------- --------- ---------
Pro forma $11,349 $11,102 $12,383 $12,136 $ 13,417 $13,170 $ 14,607 $14,360
========= ========= ========= ========== ========= ========= ========= =========
Per share:
Historical(6)(8) $ 17.21 $ 16.49 $ 14.63 $ 14.02 $ 12.72 $ 12.19 $ 11.06 $ 10.60
Estimated net conversion
proceeds 18.56 18.56 18.73 18.73 18.84 18.84 18.95 18.95
Less common stock acquired
by:
ESOP (1.60) (1.60) (1.60) (1.60) (1.60) (1.60) (1.60) (1.60)
MRP (0.80) (0.80) (0.80) (0.80) (0.80) (0.80) (0.80) (0.80)
--------- --------- --------- ---------- --------- --------- --------- ---------
Pro forma $ 33.37 $ 32.65 $ 30.96 $ 30.35 $ 29.16 $ 28.63 $ 27.61 $ 27.14
========= ========= ========= ========== ========= ========= ========= =========
Pro forma price to book
value 59.92% 61.25% 64.60% 65.92% 68.57% 69.86% 72.43% 73.68%
========= ========= ========= ========== ========= ========= ========= =========
Pro forma price to earnings
(annualized) 9.13x 8.37x 10.36x 9.52x 11.50x 10.60x 12.72x 11.76x
========= ========= ========= ========== ========= ========= ========= =========
</TABLE>
NOTE: Totals may not add due to rounding.
(1) Assumes that 8.0% of the Common Shares sold in connection with the
Conversion will be purchased by the ESOP and that the funds used to acquire
such shares will be borrowed by the Association from the Holding Company
with repayment thereof secured solely by the Common Shares purchased by the
ESOP. The Association has agreed, however, to use its best efforts to fund
the ESOP based on future earnings, which will reduce the income on the
equity raised in connection with the Conversion, as reflected in the table.
Assumes level amortization of the ESOP loan over a ten-year period with
interest at the prime rate and assumed tax benefits of 37%. If the ESOP is
unable to purchase all
20
<PAGE>
or part of the Common Shares for which it subscribes, the ESOP may purchase
common shares on the open market or may purchase authorized but unissued
shares of the Holding Company. If the ESOP purchases authorized but unissued
shares from the Holding Company, such purchases would have a dilutive effect
of 7.4% on the ownership interests of the Holding Company's shareholders.
See "MANAGEMENT - Stock Benefit Plans --Employee Stock Ownership Plan."
(2) Assuming the receipt of shareholder approval at the Holding Company's first
meeting of shareholders, the Association intends to implement the MRP.
Assuming such implementation, the MRP will eventually purchase an amount of
shares equal to 4% of the Common Shares sold in the conversion for issuance
to directors, officers, and employees of the Holding Company and the
Association. Such shares may be purchased from authorized but unissued
shares or on the open market. The Holding Company currently intends that
the MRP will purchase the shares on the open market, and the estimated net
conversion proceeds have been reduced for the purchase of the shares in
determining estimated proceeds available for investment. Shares under the
MRP are assumed to vest at the rate of 20% per year. The Common Shares to
be purchased by the MRP represent unearned compensation and are shown as a
reduction to pro forma shareholders' equity. As Common Shares granted
pursuant to the MRP vest, a corresponding reduction in the charge against
capital will occur. In the event that authorized but unissued shares are
acquired, the interests of existing shareholders will be diluted. Assuming
that 400,000 Common Shares are issued in the Conversion and that all awards
under the MRP are from authorized but unissued shares, the Holding Company
estimates that the per share book value for the Common Shares would be
diluted by $.42 per share, or 1.36%, at June 30, 1996, and $.40 per share,
or 1.32%, at September 30, 1995. The Holding Company estimates that, at
the midpoint, earnings per share would be diluted by $.04 per share, or
2.76%, for the nine months ended June 30, 1996, and by $.06 per share, or
2.86% for the year ended September 30, 1995. See "MANAGEMENT - Stock
Benefit Plans -- Management Recognition Plan."
(3) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Shares in the Conversion.
(4) Assuming the receipt of shareholder approval at the Holding Company's first
meeting of shareholders, the Holding Company intends to implement the Stock
Option Plan. Assuming such implementation, common shares in an aggregate
amount equal to 10% of the shares issued in the Conversion will be reserved
for issuance by the Holding Company upon the exercise of the stock options
granted under the Stock Option Plan. No effect has been given to the common
shares reserved for issuance under the Stock Option Plan. Upon the
exercise of stock options granted under the Stock Option Plan, the interests
of existing shareholders will be diluted. Assuming the issuance of 400,000
shares in the conversion and the exercise of 40,000 options at an exercise
price of $20.00 per share, the Holding Company estimates that the per share
book value for the Common Shares would be diluted by $1.00 per share, or
3.23%, at June 30, 1996, and $.94 per share, or 3.10%, at September 30,
1995. The Holding Company estimates that earnings per share would be
diluted by $.09 per share, or 6.21%, for the nine months ended June 30,
1996, and by $.13 per share, or 6.19%, for the year ended September 30,
1995. See "MANAGEMENT - Stock Benefit Plans -- Stock Option Plan."
(5) The effect of the Liquidation Account is not included in these computations.
For additional information concerning the Liquidation Account, see "THE
CONVERSION - Principal Effects of the Conversion -- Liquidation Account."
The amounts shown do not reflect the federal income tax consequences of the
potential restoration of the bad debt reserves to income for tax purposes,
which would be required in the event of liquidation and is required under
recent amendments to the Code. See "TAXATION - Federal Taxation" and
"REGULATION."
(6) Historical per share amounts have been computed as if the Common Shares
expected to be issued in the Conversion had been outstanding during the
period or on the dates shown, but without any adjustment of historical net
income or historical net equity to reflect the investment of the estimated
net proceeds of the sale of Common Shares in the Conversion, the additional
ESOP expense, or the proposed MRP expense as described above.
(7) As adjusted to give effect to an increase in the number of Common Shares
occurring due to an increase in the Valuation Range of up to 15% to reflect
changes in market and financial conditions following the commencement of the
Offering.
(8) Uncommitted ESOP shares are not considered shares outstanding for earnings
per share calculations, in accordance with accounting standards set forth in
Statement of Position 93-6. Uncommitted ESOP shares are considered shares
outstanding for purposes of calculating equity per share. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Impact of New Accounting Standards -- Accounting for ESOP."
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The principal business of the Association consists of accepting
deposits from the general public and investing those funds in loans secured by
one- to four-family residential properties located in the Association's primary
market area. The Association's securities portfolio consists primarily of U.S.
Treasury notes and government agency securities and mutual funds backed by
mortgage-backed securities. See "THE BUSINESS OF THE ASSOCIATION -- Investment
Activities" for a description of these investments.
The Association's earnings are primarily dependent upon its net
interest income, the difference between interest income and interest expense.
Interest income is a function of the balances of loans and investments
outstanding during a given period and the yield earned on such loans and
investments. Interest expense is a function of the amount of deposits
outstanding during the same period and interest rates paid on such deposits.
The Association's earnings are also affected by provisions for loan losses,
service charges and other non-interest income, operating expenses and income
taxes.
The Association is significantly affected by prevailing economic
conditions, as well as government policies and regulations concerning, among
other things, monetary and fiscal affairs, housing and financial institutions.
See "REGULATION." Deposit flows are influenced by a number of factors,
including interest rates paid on competing investments, account maturities and
level of personal income and savings within the Association's market. In
addition, deposit growth is affected by how customers perceive the stability of
the financial services industry amid various current events such as regulatory
changes, failures of other financial institutions and financing of the deposit
insurance fund. Lending activities are influenced by the demand for and supply
of housing lenders, the availability and cost of funds and various other items.
Sources of funds for lending activities of the Association include deposits and
income provided from operations.
Asset/Liability Management
Net interest income, the primary component of the Association's net
income, is determined by the difference or "spread" between the yield earned on
the Association's interest-earning assets and the rates paid on its interest-
bearing liabilities and the relative amounts of such assets and liabilities.
Key components of a successful asset/liability strategy are the monitoring and
managing of interest rate sensitivity on both the interest-earning assets and
interest-bearing liabilities. The matching of the Association's assets and
liabilities may be analyzed by examining the extent to which its assets and
liabilities are interest rate sensitive and by monitoring the expected effects
of interest rate changes on an institution's net portfolio value.
An asset or liability is interest rate sensitive within a specific
time period if it will mature or reprice within that time period. If the
Association's assets mature or reprice more quickly or to a greater extent than
its liabilities, the Association's net portfolio value and net interest income
would tend to increase during periods of rising interest rates but decrease
during periods of falling interest rates. If the Association's assets mature or
reprice more slowly or to a lesser extent than its liabilities, the
Association's net portfolio value and net interest income would tend to decrease
during periods of rising interest rates but increase during periods of falling
interest rates.
22
<PAGE>
In recent years, the Association has utilized the following strategies
to manage interest rate risk: (i) emphasizing the origination of one- to four-
family adjustable rate and balloon mortgage loans; (ii) limiting the terms of
certain fixed rate loan originations to 15 years and selling certain longer term
fixed rate one- to four-family residential loans in the secondary market at
origination; (iii) diversifying into other types of lending consisting primarily
of short-term consumer loans (such as indirect auto lending and home equity
lending); (iv) maintaining its investments in short-term (five years or less) or
adjustable rate instruments and limiting the portfolios of certain fixed rate
loans to the amount of the Association's equity and transactions accounts to
achieve non-interest sensitive funding; (v) holding its investments as
available-for sale; (vi) reducing the interest rate sensitivity of its
liabilities by offering attractive rates on longer term certificates of deposit
and implementing programs to attract low cost demand deposits; and (vii)
maintaining a strong capital position, which provides for a favorable level of
interest-earning assets relative to interest-bearing liabilities.
The Association's interest rate sensitivity is monitored by
management, through the use of a model produced by the OTS, on a quarterly basis
based upon data submitted on the Association's quarterly Thrift Financial
Reports. The model generates estimates of the change in net portfolio value
("NPV") over a range of interest rate scenarios. NPV is the difference between
incoming and outgoing discounted cash flows from assets, liabilities and off-
balance sheet contracts. These computations estimate the effect on the
Association's NPV of sudden and sustained 1% to 4% increases and decreases in
market interest rates. The table below presents, as of June 30, 1996, an
analysis of the Association's interest rate risk as measured by changes in NPV
for instantaneous and sustained parallel shifts of 100 basis point increments in
market interest rates. The first column of the table consists of hypothetical
incremental changes in such interest rates. The second column contains the
policy limits set by the Board of Directors of the Association as the maximum
change in NPV that the Board of Directors deems advisable in the event of
various changes in interest rates. Such limits have been established with
consideration of the dollar impact of various rate changes and the Association's
strong capital position. The remaining columns set forth the effect that a
particular change in market interest rates would have on the Association's NPV.
<TABLE>
<CAPTION>
At June 30, 1996
-----------------------------------
Change in interest Board limit $ change % change
rate (basis points) % change in NPV in NPV
--------------------- ------------------ ---------------- ----------------
(Dollars in thousands)
<S> <C> <C> <C>
+400 -50% $(1,801) (24)%
+300 -40 (1,255) (16)
+200 -20 (744) (10)
+100 -10 (305) (4)
0 0
-100 10 144 2
-200 20 157 2
-300 40 286 4
-400 50 601 8
</TABLE>
These calculations indicate that the Association would not be deemed to
have more than a normal level of interest rate risk under applicable regulatory
capital requirements. See "REGULATION -- Office of Thrift Supervision --
Regulatory Capital Requirements." Changes in interest rates also may affect the
Association's net interest income, with increases in rates expected to decrease
income and decreases in rates expected to increase income, as the Association's
interest-bearing liabilities would be expected to mature or
23
<PAGE>
reprice more quickly than the Association's interest-earning assets.
"REGULATION -- Office of Thrift Supervision -- Regulatory Capital
Requirements."
While management cannot predict future interest rates or their effects
on the Association's NPV or net interest income, management does not expect
current interest rates to have a material adverse effect on the Association's
NPV or net interest income in the future. Computations of prospective effects of
hypothetical interest rate changes are based on numerous assumptions, including
relative levels of market interest rates, prepayments and deposit run-offs and
should not be relied upon as indicative of actual results. Certain shortcomings
are inherent in such computations. Although certain assets and liabilities may
have similar maturity or periods of repricing they may react at different times
and in different degrees to changes in the market interest rates. The interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while rates on other types of assets and
liabilities may lag behind changes in market interest rates. Certain assets,
such as adjustable rate mortgages, generally have features which restrict
changes in interest rates on a short-term basis and over the life of the asset.
In the event of a change in interest rates, prepayments and early withdrawal
levels could deviate significantly from those assumed in making calculations set
forth above. Additionally, an increased credit risk may result as the ability of
many borrowers to service their debt may decrease in the event of an interest
rate increase. Finally, virtually all of the adjustable rate loans in the
Association's portfolio contain conditions which restrict the periodic change in
interest rate.
The Association's Board of Directors is responsible for reviewing the
Association's asset and liability policies. On at least a quarterly basis, the
Board reviews interest rate risk and trends, as well as liquidity and capital
ratios and requirements. The Association's management is responsible for
administering the policies and determinations of the Board of Directors with
respect to the Association's asset and liability goals and strategies.
Management expects that the Association's asset and liability policies and
strategies will continue as described above so long as competitive and
regulatory conditions in the financial institution industry and market interest
rates continue as they have in recent years.
Average Balances, Interest and Average Yields and Rates
The following tables set forth certain information relating to the
Association's average interest-earning assets and interest-bearing liabilities
and reflects the average yield of interest-earning assets and the average cost
of interest-bearing liabilities for the periods and at the dates indicated.
Average balances are derived from month-end balances. Management does not
believe that the use of month-end balances instead of daily balances has caused
any material difference in the information presented. Securities include the
aggregate of securities available for sale, held to maturity and trading, as
applicable. The average balance and average yield on securities is based on the
amortized cost of the securities. The average balance of loans includes
delinquent loans, which are not considered significant.
The tables also present information for the periods indicated and at the
dates indicated, with respect to the difference between the weighted average
yield earned on interest-earning assets and the weighted average rate paid on
interest-bearing liabilities, or "interest rate spread," which savings
institutions have traditionally used as an indicator of profitability. Another
indicator of an institution's net interest income is its "net interest margin,"
which is its net interest income divided by the average balance of interest-
earning assets. Net interest income is affected by the interest rate spread and
by the relative amounts of interest- earning assets and interest-bearing
liabilities. Whenever interest-earning assets equal or exceed interest-bearing
liabilities, any positive interest rate spread will generate net interest
income.
24
<PAGE>
<TABLE>
<CAPTION>
At June 30, Nine Months Ended June 30,
--------------------- --------------------------------------------------------------------------------
1996 1996 1995
--------------------- ------------------------------------------- ---------------------------------
Average Average
outstanding Interest Average outstanding Interest
Balance Yield/rate balance earned/paid yield/rate balance earned/paid
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits
in other financial
institutions $ 4,464 5.20% $ 4,879 $ 174 4.76% $ 2,335 $ 63
Investment securities and
FHLB stock 9,399 5.65 10,446 440 5.62 13,578 571
Mortgage-backed securities 8,963 6.10 7,528 342 6.06 5,394 234
Loans receivable 39,869 8.60 38,946 2,510 8.59 39,760 2,376
---------- --------- ------------ ------------ ----------- ------------ -----------
Total interest-earning
assets 62,695 7.56 61,799 3,466 7.48 61,067 3,244
---------- --------- ------------ ------------ ----------- ------------ -----------
Non-interest-earning assets 1,686 1,547 1,979
---------- ------------ ------------
Total assets $64,381 $63,346 $63,046
========== ============ ============
Interest-bearing liabilities:
NOW accounts 11,670 2.40 11,107 200 2.40 12,331 208
Money market accounts 1,300 3.15 1,411 22 2.08 1,267 28
Passbook savings accounts 8,374 2.84 6,840 143 2.79 7,637 166
Certificates of deposit 36,934 5.60 37,372 1,571 5.60 35,836 1,267
---------- --------- ------------ ------------ ----------- ------------ -----------
Total deposits 58,278 4.51 56,730 1,936 4.55 57,071 1,669
FHLB advances -- -- -- -- -- -- --
---------- --------- ------------ ------------ ----------- ------------ -----------
Total interest-bearing
liabilities 58,278 4.51 56,730 1,936 4.55 57,071 1,669
Non-interest-bearing
liabilities 250 -- 828 -- -- 779
---------- ------------ ------------ ----------- ------------
Total liabilities 58,528 57,558 57,850
Equity 5,853 5,788 5,196
---------- ------------ ------------
Total liabilities and
retained earnings $64,381 $63,346 $63,046
========== ============ ============
Net interest income $ 1,530 $ 1,575
============ ===========
Interest rate spread 3.05% 2.93%
========= ===========
Net interest margin (net
interest income as a
percentage of average
interest-earning assets) 3.30%
===========
Average interest-earning
assets to average
interest-bearing liabilities 108.94%
===========
<CAPTION>
Nine Months Ended June 30,
--------------------------
1995
--------------------------
Average
yield/rate
<S> <C>
Interest-earning assets:
Interest-bearing deposits
in other financial
institutions 3.60%
Investment securities and
FHLB stock 5.61
Mortgage-backed securities 5.78
Loans receivable 7.97
------------
Total interest-earning
assets 7.08
------------
Non-interest-earning assets
Total assets
Interest-bearing liabilities:
NOW accounts 2.25
Money market accounts 2.95
Passbook savings accounts 2.90
Certificates of deposit 4.71
------------
Total deposits 3.90
FHLB advances --
------------
Total interest-bearing
liabilities 3.90
Non-interest-bearing
liabilities
------------
Total liabilities
Equity
Total liabilities and
retained earnings
Net interest income
Interest rate spread 3.18%
============
Net interest margin (net
interest income as a
percentage of average
interest-earning assets) 3.44%
============
Average interest-earning
assets to average
interest-bearing liabilities: 107.00%
============
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------------------------------------------------------------------
1995 1994
--------------------------------------------- ---------------------------------------------
Average Average
outstanding Interest Average outstanding Interest Average
balance earned/paid yield/rate balance earned/paid yield/rate
------- ----------- ---------- ------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing
deposits in other
financial institutions $ 3,140 $ 131 4.17% $ 3,646 $ 99 2.72%
Investment securities and FHLB stock 12,994 740 5.69 11,245 533 4.74
Mortgage-backed securities 5,329 305 5.72 5,612 311 5.54
Loans receivable 39,318 3,223 8.20 40,876 3,044 7.45
---------- ---------- ---------- ---------- ---------- ----------
Total interest-earning assets 60,781 4,399 7.24 61,379 3,987 6.50
---------- ---------- ---------- ---------- ---------- ----------
Non-interest-earning assets 2,175 2,409
---------- ----------
Total assets $62,956 $63,788
========== ==========
Interest-bearing liabilities:
NOW accounts 12,872 287 2.23 13,400 316 2.36
Money market accounts 1,324 38 2.87 1,535 37 2.41
Passbook savings accounts 7,979 229 2.87 8,413 229 2.72
Certificates of deposit 34,703 1,746 5.03 34,992 1,401 4.00
---------- ---------- ---------- ---------- ---------- ----------
Total deposits 56,878 2,300 4.04 58,340 1,983 3.40
FHLB advances -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total interest-bearing liabilities 56,878 2,300 4.04 58,340 1,983 3.40
Non-interest-bearing liabilities 786 641
---------- ----------
Total liabilities 57,664 58,981
Equity 5,292 4,807
---------- ----------
Total liabilities and
retained earnings $62,956 $63,788
========== ==========
Net interest income $2,099 $2,004
========== ==========
Interest rate spread 3.20% 3.10%
========== ==========
Net interest margin (net interest
income as a percentage of average
interest-earning assets) 3.45% 3.26%
========== ==========
Average interest-earning assets
to average interest-bearing
liabilities 106.86% 105.21%
========== ==========
</TABLE>
26
<PAGE>
Rate/Volume-Analysis
The table below sets forth certain information regarding changes in
interest income and interest expense of the Association for the periods
indicated. For each category of interest-earning asset and interest-bearing
liability, information is provided on changes attributable to: (i) changes in
volume (changes in volume multiplied by prior period rate) and (ii) changes in
rates (change in rate multiplied by prior period volume). Changes in rate-volume
(changes in rate multiplied by changes in volume) are allocated proportionately
between changes in volume and changes in rates.
<TABLE>
<CAPTION>
Nine Months Ended June 30, Year Ended September 30,
1996 v. 1995 1995 v. 1994
Increase (Decrease) due to Increase (Decrease) due to
-------------------------------- ---------------------------------
Total Total
Increase Increase
Volume Rate (Decrease) Volume Rate (Decrease)
--------- -------- ----------- ---------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Interest-bearing deposits in other financial institutions $ 77 $ 34 $ 111 $ (11) $ 43 $ 32
Investment securities (112) (19) (131) 90 117 207
Mortgage-backed securities 96 12 108 (18) 12 (6)
Loans receivable (47) 181 134 (106) 285 179
--------- --------- --------- --------- --------- ---------
Total interest income 14 208 222 (45) 457 412
--------- --------- --------- --------- --------- ---------
Interest expense attributable to:
NOW accounts (24) 16 (8) (12) (17) (29)
Money market accounts 3 (9) (6) (3) 4 1
Passbook savings accounts (17) (6) (23) 0 0 0
Certificates of deposit 57 247 304 (12) 357 345
--------- --------- --------- --------- --------- ---------
Total deposits 19 248 267 (27) 344 317
--------- --------- --------- --------- --------- ---------
FHLB advances -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total interest expense $ 19 $248 $ 267 $ (27) $344 $317
--------- --------- --------- --------- --------- ---------
Increase (decrease) in net interest
income $ (45) $ 95
========= =========
</TABLE>
Comparison of Financial Condition at June 30, 1996 and September 30, 1995
Total assets remained relatively stable from September 30, 1995 to June
30, 1996, increasing only $2.4 million, or 3.8%, from $62.0 million at September
30, 1995 to $64.4 million at June 30, 1996. This increase was funded primarily
by deposits which increased $2.3 million, or 4.1%, from $56.0 million at
September 30, 1995 to $58.3 million at June 30, 1996.
Loans receivable increased $1.3 million, or 3.4%, from $38.6 million at
September 30, 1995 to $39.9 million June 30, 1996. Such growth occurred
primarily in the Association's one to four family residential portfolio, which
increased $575,000 in response to moderating interest rates.
The remaining balance sheet growth for the nine month period ended June
30, 1996 occurred in the mortgage-backed securities portfolio of the Association
which increased $3.5 million, or 64.4%, over that period. This growth was, in
part, reflective of the reinvestment of $3.9 million in proceeds from maturing
investment securities during the period.
27
<PAGE>
Comparison of Financial Condition at September 30, 1995 and September 30, 1994
Total assets decreased approximately $1.5 million, or 2.4%, from $63.5
million at September 30, 1994 to $62.0 million at September 30, 1995. The
balance sheet contraction was primarily due to reduction of deposit levels in
response to lower loan demand which resulted from higher market interest rates.
This was reflected in decreased deposits of $2.2 million, or 3.8%, from $58.2
million at September 30, 1994 to $56 million at September 30, 1995.
The balance of loans receivable fell $1.4 million, or 3.5%, from $40
million at September 30, 1994 to $38.6 million September 30, 1995. The largest
decline was in the one to four family residential loan portfolio which decreased
$900,000 during fiscal year 1995.
During fiscal year 1995, the Association elected to remain liquid in
response to the changed rate environment by raising its interest bearing
deposits in banks from the $2.3 million level at September 30, 1994 to $5.6
million at September 30, 1995.
Also during fiscal year 1995, $6.5 million in maturities of investment
securities reduced the Association's portfolio holdings, offset by $3.5 million
in reinvestments, to $10.8 million. Also during the year the Association
segmented this portfolio in connection with the adoption of SFAS No. 115,
designating $2.6 million of this portfolio as available-for-sale. Likewise,
$2.2 million of the Association's mortgage-backed security portfolio was
designated as available-for-sale. However, the Association's total mortgage-
backed holdings remained relatively stable at September 30, 1995 at $5.4
million, down only 3.9% from the September 30, 1994 level.
Comparison of Results of Operation for the Nine Months Ended June 30, 1996 and
June 30, 1995
The Association reported net income for the nine months ended June 30,
1996 and 1995 of $419,000 and $463,000, respectively. The decline of $44,000
during such nine month periods was due primarily to a $46,000 decrease in net
interest income.
Interest Income. Total interest income increased $222,000 from
$3,244,000 for the nine months ended June 30, 1995 to $3,466,000 for the nine
months ended June 30, 1996. This increase was almost totally in response to
higher portfolio yields provided by the Association's loans receivable
portfolio. Higher volumes of mortgage-backed securities and interest-bearing
deposits in other financial institutions also contributed to the increase of
total interest income.
Interest Expense. Interest expense of the Association consisted totally
of interest paid on customers' deposits, as the Association had no borrowed
funds during the nine months ended June 30, 1996 and 1995 respectively. Interest
expense increased $267,000 from $1,669,000 for the nine months ended June 30,
1995 to $1,936,000 for the nine months ended June 31, 1996. This was due
primarily to higher market interest rates paid on the Association's time
deposits.
Net Interest Income. Net interest income was $1,530,000 and $1,575,000
for the nine months ended June 30, 1996 and 1995, respectively. The $45,000
decline resulted from deposit funding costs increasing in excess of the
Association's portfolio yields.
28
<PAGE>
Provision for Loan Losses. Provisions for loan losses are based on
management's analysis of the various factors which affect the loan portfolio and
management's desire to maintain the allowance for loan losses at a level
considered adequate to provide for losses. Management determined that no
provisions were necessary for the nine months ended June 30, 1996 and 1995 due
to the Association having experienced a low level of charge-offs during the
periods, the loan portfolio consisting substantially of one-to-four family
residential mortgages and loans secured by other real estate retaining the same
risk characteristics and remaining fairly stable in dollar amount and the
prevailing economic conditions in the Association's market area generally. At
June 30, 1996 the allowance for loan losses provided coverage of 314% of non-
accrual loans and accruing loans 90 days past due. The Association maintains its
allowance for loan losses based on management's quarterly review and
classification of the loan portfolio and analyses of borrower's ability to pay,
historical charge-off experience, risk characteristics of individual loans or
groups of similar loans and underlying collateral, current and prospective
economic conditions, status of non-performing loans and regulatory reviews. In
establishing the allowance for loan losses, management recognizes that a
substantial portion of the Association's loans, including non-accrual loans and
accruing loans 90 days past due, are secured by mortgages on residential real
estate and loans secured by other real estate.
The Association has been able to maintain high quality asset performance
because of its conservative underwriting standards. Non-performing assets as a
percentage of total assets was .35% at June 30, 1996. See "THE BUSINESS OF THE
ASSOCIATION -- Allowance for Loan Losses" for additional information regarding
the Association's allowance for loan losses and nonperforming assets. Ultimate
losses may vary from management's estimates; however, estimates are reviewed
periodically and, as adjustments become necessary, losses are reported in
earnings in the periods in which they become known. In addition, various
regulatory agencies periodically review the Association's allowance for loan
losses and may require the Association to recognize additions to the allowance
based on judgments about information available to them at the time of their
review.
Non-interest Income. Non-interest income for the nine months ended June
30, 1996 and 1995 was $183,000 and $220,000, respectively. The $37,000 decline
in the overall level of non-interest income was due primarily to an $84,000
decline in net income from real estate operations from the $85,000 level
experienced through the nine months ended June 30, 1995. The 1995 interim
results were due to the gain on sale of foreclosed real estate which had a
$215,000 valuation allowance. This decline was offset, however, by a $48,000
improvement in service charges on deposit accounts. This increase was a result
of the Association's increasing the pricing of its deposit products subsequent
to an analysis by the Association of local market conditions.
Non-interest Expense. Non-interest expense for the nine months ended
June 30, 1996 and 1995 totaled $1,070,000 and $1,125,000, respectively. The
$55,000 reduction in non-interest expense was primarily representative of salary
and other operating cost savings which resulted from the closure of the
Association's East branch in December, 1994.
The Association's operating efficiency ratio (non-interest expense
divided by the total of net interest income and non-interest income) for the
nine months ended June 30, 1996 and 1995 was 62.5% and 62.6%.
Income Taxes. The Association's effective tax rates for the nine months
ended June 30, 1996 and 1995 were 34.8% and 31.0%, respectively. See Note 9 to
the Association's Financial Statements for further analysis of income tax
levels.
29
<PAGE>
Comparison of Results of Operation for the Fiscal Years Ended September 30, 1995
and September 30, 1994
The Association reported net income of $622,000 for the year ended
September 30, 1995 compared to net income of $279,000 for the year ended
September 30, 1994. This $343,000 improvement was primarily attributable to
significantly increased levels of non-interest income, including a reduction in
the level of loss from real estate operations, as well as reduced non-interest
expense.
Interest Income. Interest income totaled $4,399,000 and $3,987,000 for
the years ended September 30, 1995 and 1994, respectively. The $412,000, or
10.3%, increase in interest income was due largely to the impact of increased
market rates which raised portfolio yields on loans and investment securities.
The increase in loan rates offset a volume decline as the average balance of
loans fell from $40.9 million to $39.3 million.
Interest Expense. For the two-year period ended September 30, 1995, the
Association's interest-bearing liabilities consisted totally of customers'
deposits, as the Association had no borrowed funds during that period. Interest
expense increased $317,000, or 16%, from $1,983,000 for the year ended September
30, 1994 to $2,300,000 for the year ended September 30, 1995. The increase was
due almost entirely to higher market rates paid on the Association's
certificates of deposits, which dramatically offset a slight decrease in volume.
Net Interest Income. Net interest income was $2,099,000 and $2,004,000
for the years ended September 30, 1995 and 1994. The $95,000 improvement in 1995
was representative of the Association's favorable loan portfolio yields which
exceeded higher costs of certificates of deposits.
Provision for Loan Losses. The Association's provision for loan losses
was zero in 1995 and $35,000 in 1994. The Association's provisions have been
minimal due to the Association's low level of charge-offs and high asset quality
for each of the two years. See "THE BUSINESS OF THE ASSOCIATION -- Allowance for
Loan Losses," for additional information regarding the Association's allowance
for loan losses and non-performing assets.
Non-interest Income. Non-interest income for the years ended September
30, 1995 and 1994 was $329,000 and $17,000, respectively. Non-interest income
consists primarily of customer service fees related to customers' deposit
accounts and loan accounts, income or loss from real estate operations and gains
on the sale of premises and equipment. The $312,000 increase in non-interest
income was in large part due to income from real estate operations for 1995 of
$51,000 as compared to 1994's loss from real estate operations of $122,000, a
$173,000 improvement which was the result of the gain on sale of foreclosed real
estate which had a $215,000 valuation allowance. Also contributing to the
increase in non-interest income was a $60,000, or 43.5%, improvement in service
charge income from deposit accounts. This resulted from a repricing of the
Association's deposits consistent with rates in the Association's market area,
and increased collection of service charges.
Non-interest expense. Non-interest expense for the years ended September
30, 1995 and 1994 was $1,496,000 and $1,610,000, respectively. Compensation and
benefits expense represents the largest component of the Association's non-
interest expense. The $114,000, or 7.1%, reduction in non-interest expense was
primarily representative of salary and other operating cost savings which
resulted from the closure of the Association's East Branch in December, 1994.
30
<PAGE>
The Association's operating efficiency improved with a ratio (non-
interest expense divided by the total of net interest income and non-interest
income) of 61.6% and 79.7% for the years ended September 30, 1995 and 1994,
respectively. The ratio of non-interest expense to average total assets ratio
was 2.38% and 2.56% for the years ended September 30, 1995 and 1994.
Income Taxes. The Association's effective tax rate remained relatively
stable for each of the two years ended September 30, 1995. A reconciliation of
the difference between provision for income taxes calculated by applying the 34%
statutory federal tax rate is provided in Note 9 of the Consolidated Financial
Statements presented elsewhere herein.
Capital Resources
The Association has historically maintained substantial levels of
capital. The assessment of capital adequacy is dependent on several factors
including asset quality, earnings trends, liquidity, and economic conditions.
Maintenance of adequate capital levels is integral to provide stability to the
Association. The Association seeks to maintain high levels of regulatory capital
to give it maximum flexibility in the changing regulatory environment and to
respond to changes in the market and economic conditions. These levels of
capital have been achieved through consistent earnings enhanced by low levels of
non-interest expense and have been maintained at those high levels as a result
of its policy of moderate growth generally confined to its market area. Average
equity to average total assets at June 30, 1996 and September 30, 1995 and 1994
was 9.14%, 8.41% and 7.54%, respectively. At June 30, 1996 and September 30,
1995, the Association exceeded all current regulatory capital requirements and
met the definition of a "well-capitalized" institution, the highest of five
regulatory categories. For additional information on the Association's
compliance with its regulatory capital requirements and a reconciliation between
the Association's capital under generally accepted accounting principles and
regulatory capital, see "REGULATORY CAPITAL COMPLIANCE."
The following table summarizes the Association's regulatory capital and
actual capital at September 30, 1995:
<TABLE>
<CAPTION>
Excess of actual
capital over current Applicable
Actual capital Current requirement requirement asset total
---------------------- ---------------------- ----------------------- -----------
Amount Percent Amount Percent Amount Percent
-------- --------- -------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Tangible capital $5,651 9.11% $ 931 1.50% $4,720 7.61% $62,026
Core capital 5,651 9.11 1,861 3.00 3,790 6.11 62,026
Risked-based capital 6,061 18.53 2,616 8.00 3,444 10.53 32,706
</TABLE>
The Association will, as a result of the Conversion, have substantially
increased capital. Although it is expected that the Association could therefore
pay substantial dividends permitted by the OTS regulations, there can be no
assurance the Holding Company's resources of funds will be sufficient to satisfy
the liquidity needs of the Holding Company in the future. See "SELECTED
FINANCIAL INFORMATION AND OTHER DATA," "CAPITALIZATION," "PRO FORMA DATA,"
"REGULATORY CAPITAL COMPLIANCE" and "REGULATION -- Office of Thrift
Supervision--Regulatory Capital Requirements."
31
<PAGE>
Liquidity
Following completion of the Conversion, the Holding Company initially will
have no business other than that of the Association. Management expects that the
net proceeds of the Conversion to be retained by the Holding Company, together
with dividends that may be paid from the Association to the Holding Company
following the Conversion, will provide sufficient funds for its initial
operations. The Holding Company's primary sources of liquidity in the future
will be dividends paid by the Association and repayment of the ESOP loan. The
Association will be subject to certain regulatory limitations with respect to
the payment of dividends to the Holding Company. See "DIVIDENDS" and "REGULATION
-- Office of Thrift Supervision -- Limitations on Capital Distributions."
The Association is required to maintain minimum levels of liquid assets as
defined by the OTS regulations. This requirement which may be varied at the
discretion of the OTS depending on economic conditions and deposit outflows, is
based upon a percentage of deposits and short-term borrowings. Current OTS
regulations require that a savings association maintain liquid assets of not
less than 5% of its average daily balance of net withdrawal deposit accounts and
borrowings payable in one year or less, of which short-term liquid assets must
consist of not less than 1%. At June 30, 1996, the Association's liquidity, as
measured for regulatory purposes, was 33.3% or $16 million in excess of the
minimum OTS liquidity requirement of 5% and 17.2% or $4 million in excess of the
OTS short term liquidity requirement of 1%. Management of the Association seeks
to maintain a relatively high level of liquidity in order to retain flexibility
in terms of investment opportunities and deposit pricing and in order to meet
funding needs of deposit outflows and loan commitments. Historically, the
Association has been able to meet its liquidity demands through internal sources
of funding.
The Association's most liquid assets are cash and cash equivalents, which
are short-term highly liquid investments with original maturities of less than
three months that are readily convertible to known amounts of cash, and
interest-bearing deposits in other banks. The levels of these assets are
dependent on the Association's operating, financing and investing activities
during any given period. At June 30, 1996 and September 30, 1995 and 1994, cash
and cash equivalents totaled $4.8 million, $6.1 million and $3.0 million,
respectively.
The Association's primary source of funds is deposits, proceeds from
principal and interest payments on loans and mortgage-backed securities,
interest payments and maturities of investment securities, and earnings. While
scheduled principal repayments on loans and mortgage-backed securities and
interest payments on investment securities are a relatively predictable source
of funds, deposit flows and loan and mortgage-backed prepayments are greatly
influenced by general interest rates, economic conditions, competition and other
factors. The Association does not solicit deposits outside of its market area
through brokers or other financial institutions.
The Association has also designated certain securities as available for
sale in order to meet liquidity demands. At June 30, 1996, the Association had
designated securities with a fair value of $10,361,000 as available for sale. In
addition to internal sources of funding, the Association as a member of the FHLB
has substantial borrowing authority with the FHLB. The Association's use of a
particular source of funds is based on need, comparative total costs and
availability.
Another source of liquidity is the anticipated net proceeds of the
Conversion. Following the completion of the Conversion, the Association will
receive at least half of the net proceeds of the Conversion. These funds are
expected to be used by the Association for its business activities, including
investment in interest-earning assets. See "USE OF PROCEEDS."
32
<PAGE>
For additional information about cash flows from the Association's
operating, investing and financing activities see the consolidated financial
statements presented elsewhere herein.
At June 30, 1996, the Association had no outstanding commitments to
originate loans. At the same date, the total amount of certificates of deposits
which are scheduled to mature in one year or less was $26.1 million. Management
anticipates that the Association will have adequate resources to meet its
current commitments through internal funding sources described above.
Historically, the Association has been able to retain a significant amount of
its deposits as they mature.
Management is not aware of any current recommendations by its regulatory
authorities, legislation, competition, trends in interest rate sensitivity, new
accounting guidance or other material events and uncertainties that would have a
material effect on the Association's ability to meet its liquidity demands.
Impact of Inflation and Changing Prices
The consolidated financial statements and accompanying notes thereto,
presented elsewhere 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 due
to inflation.
Virtually all of the Association's assets and liabilities are monetary in
nature. As a result, changes in interest rates have a greater impact on the
Association's 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. For additional information, see
"RISK FACTORS -- Interest Rate Risk."
Impact of New Accounting Standards
The following are recently issued accounting standards which the
Association has yet to adopt. For a discussion of recent accounting standards
which the Association has adopted, see the notes to the consolidated financial
statements, presented elsewhere herein, for the impact of the adoption on the
Association's financial position and results of operations.
Disclosures of Fair Value of Financial Instruments. In December 1991, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 107, "Disclosures About Fair Value of
Financial Instruments." SFAS No. 107 requires all entities to disclose the fair
value of financial instruments (both assets and liabilities recognized and not
recognized in the statements of financial condition) for which it is practicable
to estimate the fair value, except those financial instruments specifically
excluded by this statement. The disclosure shall be either in the body of the
financial statements or in the accompanying notes and shall include the methods
and assumptions used to estimate the fair value of a financial instrument or a
class of financial instruments as well as why it is not practicable to estimate
the fair value. SFAS No. 107 is effective for entities with assets of less than
$150 million for fiscal years ending after December 15, 1995.
In October 1994, the FASB issued SFAS No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments." SFAS No. 119
requires expanded disclosures regarding derivative financial instruments and is
effective for financial statements issued for fiscal years ending after December
15, 1995 for entities with less than $150 million in total assets.
33
<PAGE>
The Association currently intends to adopt the disclosure requirements of
SFAS No. 107 and 119 for the fiscal year ending September 30, 1996, which would
result in the disclosure of the fair value of financial instruments in a
footnote.
Accounting for Impairment of Long-Lived Assets. In March 1995, the FASB
issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of. The
statement requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If the review for
recoverability, based on undiscounted expected future cash flows, indicates that
impairment exists, the loss should be measured based on the fair value of the
asset. The fair value of an asset is the amount at which the asset could be
bought or sold in a current transaction between willing parties, that is, other
than in a forced liquidation sale. An entity that recognizes an impairment loss
shall disclose additional information in the financial statements related to the
impaired asset. All long-lived assets and certain identifiable intangibles to be
disposed of and for which management has committed to a plan to dispose of the
assets, whether by sale or abandonment, shall be reported at the lower of the
carrying amount or fair value less cost to sell. Subsequent revisions in
estimates of fair value less cost to sell shall be reported as adjustments to
the carrying amount of assets to be disposed of, provided that the carrying
amount of the asset does not exceed the carrying amount of the asset before an
adjustment was made to reflect the decision to dispose of the asset. This
statement requires additional disclosure in the footnotes regarding assets to be
disposed of.
The Association will adopt the provisions of the standard on October 1,
1996. Management does not believe that the adoption of SFAS No. 121 will have a
significant impact on the Association's financial position or on the results of
its operations as long-lived assets are not significant, and management has no
plans to dispose of any long-lived assets.
Accounting for Mortgage Service Rights. In May 1995, the FASB issued SFAS
No. 122 "Accounting for Mortgage Servicing Rights," an amendment to SFAS No. 65
"Accounting for Certain Mortgage Banking Activities." Prior to the issuance of
SFAS No. 122, SFAS No. 65 required separate capitalization of the cost of rights
to service mortgage loans for others when those rights were acquired through a
purchase transaction but prohibited separate capitalization when those rights
were acquired through loan origination activities. As a result, mortgage banking
enterprises often reported losses on the sale of mortgage loans with servicing
rights retained that were acquired through loan origination activities. However,
if the same mortgage loan had been acquired in a purchase transaction, the cost
of the mortgage servicing rights would have been capitalized separately as an
asset and would not have been deducted from the sales price of the mortgage
loans.
This statement amends certain provisions of SFAS No. 65 to eliminate the
accounting distinction between rights to service mortgage loans for others that
are acquired through loan-origination activities and those acquired through
purchase transactions. When a mortgage banking enterprise purchases or
originates mortgage loans, the cost of acquiring those loans includes the cost
of the related mortgage servicing rights. If the mortgage banking enterprise
sells or securitizes the loans and retains the mortgage service rights, the
enterprise should allocate the total cost of the mortgage loans to the mortgage
servicing rights and the loans without the mortgage servicing rights based on
their relative fair values if it is practicable to estimate those fair values.
If it is not practicable to estimate the fair values of the mortgage servicing
rights and the mortgage loans without the mortgage servicing right, the entire
cost of acquiring the loans should be allocated to the mortgage loans without
the mortgage servicing rights and no cost should be allocated to the
34
<PAGE>
mortgage servicing rights. Any cost allocated to mortgage servicing rights
should be recognized as a separate asset. Mortgage servicing rights should be
amortized in proportion to and over the period of estimated net servicing
income. Mortgage servicing rights capitalized should be assessed for impairment
based on the fair value of those rights. A mortgage banking enterprise should
stratify its mortgage servicing rights that are capitalized based on one or more
of the predominant risk characteristics of the underlying loans. Impairment
should be recognized through a valuation allowance for each impaired stratum.
This statement applies prospectively in fiscal years beginning after
December 15, 1995, to transactions in which mortgage banking enterprise sells or
securitizes mortgage loans with servicing rights retained and to impairment
evaluations of all amounts capitalized as mortgage servicing rights, including
those purchased before adoption of this statement.
The Association will adopt the provisions of the Standard on October 1,
1996. Based on the Association's current operating activities, management does
not believe that the adoption of this statement will have a material impact on
the Association's financial condition or results of operations. However, with
the Conversion the Association may increase its mortgage banking activities, and
the statement may have more of an impact on the Association's financial
condition or results of operations.
Accounting for ESOPs. The Accounting Standards Division of the American
Institute of Certified Public Accountants ("AICPA") approved Statement of
Position ("SOP") 93-6, "Employers' Accounting for Employee Stock Ownership
Plans," which is effective for fiscal years beginning after December 15, 1993,
and which applies to shares of capital stock of sponsoring employers acquired by
ESOPs after December 31, 1992, that have not been committed to be released as of
the beginning of the year in which the ESOP is adopted. This statement will,
among other things, change the measure of compensation recorded by employers
from the cost of ESOP shares.
In connection with the Conversion, the Association has adopted an ESOP.
Since the fair value of the shares following the Offering cannot be reasonably
predicted, the Association cannot reasonably estimate the impact of SOP 93-6 on
its consolidated financial statements.
Disclosure of Certain Risks. In December 1994, the Accounting Standards
Division of the AICPA approved SOP 94-6, "Disclosure of Certain Significant
Risks and Uncertainties." SOP 94-6 requires disclosures in the financial
statements beyond those now being required or generally made in the financial
statements about the risk and uncertainties existing as of the date of those
financial statements in the following areas: nature of operations, use of
estimates in the preparation of financial statements, certain significant
estimates, current vulnerability due to certain concentrations. This statement
is effective for financial statements issued for fiscal years ending after
December 15, 1995.
Accounting for Stock Based Compensation. In October 1995, the FASB issued
SFAS No. 123, "Accounting for Stock-Based Compensation," establishing financial
accounting and reporting standards for stock-based employee compensation plans.
This statement encourages all entities to adopt a new method of accounting to
measure compensation cost of all employee stock compensation plans based on the
estimated fair value of the award at the date it is granted. Companies are,
however, allowed to continue to measure compensation cost for those plans using
the intrinsic value based method of accounting, which generally does not result
in compensation expense recognition for most plans. Companies that elect to
remain with the existing accounting are required to disclose in a footnote to
the financial statements pro forma net income and, if presented, earnings per
share, as if this Statement had been adopted. The accounting requirements of
this Statement are effective for transactions entered into in fiscal years that
begin after
35
<PAGE>
December 15, 1995; however, companies are required to disclose information for
awards granted in their first fiscal year beginning after December 15, 1994.
THE BUSINESS OF THE HOLDING COMPANY
General
The Holding Company was organized at the direction of the Board of
Directors of the Association for the purpose of becoming a holding company to
own all of the outstanding capital stock of the Association. Upon consummation
of the Conversion, the Association will become a wholly-owned subsidiary of the
Holding Company.
Business
The Holding Company currently is not an operating company. Following the
Conversion, the Holding Company will be primarily engaged in the business of
managing its investments and directing, planning and coordinating the business
activities of the Association. In the future, the Holding Company may become an
operating company or acquire or organize other operating subsidiaries, including
other financial institutions. Presently, there are no agreements or
understandings for an expansion of the Holding Company's operations.
Initially, the Holding Company will not maintain offices separate from
those of the Association or employ any persons other than its officers who will
not be separately compensated for such service.
THE BUSINESS OF THE ASSOCIATION
General
The Association is a mutual savings and loan association which was
organized in 1905. Subject to supervision and regulation by the OTS and the
FDIC, the Association is a member of the FHLB of Atlanta and the deposits of the
Association are insured up to applicable limits by the FDIC in the SAIF. See
"REGULATION."
The Association is principally engaged in the business of originating
mortgage loans secured by first mortgages on one- to four-family residential
real estate located in Cullman County, Alabama, the Association's primary market
area. The Association also originates loans for the construction of residential
real estate and construction and permanent mortgage loans secured by multifamily
real estate (over four units) and nonresidential real estate in its primary
market area. In addition to real estate lending, the Association originates a
limited number of commercial loans and secured and unsecured consumer loans. See
"Lending Activities." For liquidity and interest rate risk management purposes,
the Association invests in interest-bearing deposits in other financial
institutions, U.S. Government and agency obligations, mortgage-backed securities
and other investments permitted by applicable law. See "Investment Activities."
Funds for lending and other investment activities are obtained primarily from
savings deposits, which are insured up to applicable limits by the FDIC, and
loan principal repayments. See "Deposits and Borrowings."
36
<PAGE>
Historically, the Association has operated as a traditional savings and
loan association, emphasizing the origination of loans secured by single-family
residences. The Association has recently focused on increasing consumer and
commercial lending and has added a loan officer experienced in the commercial
lending area. The Association has also taken steps to increase its non-interest
income by repricing certain of its deposit products and service charges. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
Interest on loans and investments is the Association's primary source of
income. The Association's principal expense is interest paid on deposit
accounts. Operating results are dependent to a significant degree on the net
interest income of the Association, which is the difference between interest
income earned on loans, mortgage-backed securities and other investments and
interest paid on deposits and borrowings. Like most thrift institutions, the
Association's interest income and interest expense are significantly affected by
general economic conditions and by the policies of various regulatory
authorities. See "RISK FACTORS" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Market Area
The Association conducts business from its office in Cullman, Alabama. The
Association's primary market area for lending and deposit activity is Cullman
County, Alabama.
Cullman County's economy is principally agricultural, light industry, and
manufacturing. Cullman County is among the largest poultry producing counties in
the United States. For the period 1994 to 1999, the population of Cullman County
is projected to grow by 5.20% and the City of Cullman's population is projected
to grow by 7.73%. The projected population growth of 5.20% for the County is
projected to be above that of Alabama at 3.47% and level with the United States
at 5.28%. The projected population growth for the City at 7.73% exceeds the
projections for the United States, Alabama, and Cullman County.
Cullman County has no single, dominant employer. The largest employer in
the county is the Wal-Mart Distribution Center with approximately 1,500
employees.
The Association is one of two thrift institutions based in Cullman County
and had a 46% share of the County's thrift deposits and a 8.2% share of all
deposits in the County, as of June 30, 1995.
Lending Activities
General. The Association's principal lending activity is the origination of
conventional real estate loans, including construction loans, secured by one- to
four-family homes located in the Association's primary market area. Loans
secured by multifamily properties containing five units or more and by
nonresidential real estate and loans for the construction of residences and
other properties are also offered by the Association. In addition to real estate
lending, the Association originates commercial loans and consumer loans,
including loans secured by deposit accounts, automobile loans and a limited
number of other secured and unsecured loans.
37
<PAGE>
Loan Portfolio Composition. The following table presents certain
information in respect of the composition of the Association's loan portfolio at
the dates indicated:
<TABLE>
<CAPTION>
At June 30, At September 30,
----------------------------- -----------------------------------------------------------
1996 1995 1994
----------------------------- --------------------------- -------------------------------
Percent of Percent of Percent of
Amount total loans Amount total loans Amount total loans
-------------- -------------- -------------- -------------- -------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One-to four family $23,804 59.71% $23,230 60.23% $24,124 60.37%
Multifamily 4,105 10.30 4,188 10.86 3,540 8.86
Nonresidential 8,671 21.75 8,180 21.21 9,464 23.69
Construction 755 1.89 624 1.62 400 1.00
-------------- -------------- -------------- -------------- -------------- --------------
Total real estate loans 37,335 93.64 36,222 93.91 37,528 93.92
-------------- -------------- -------------- -------------- -------------- --------------
Commercial loans 1,157 2.90 378 .98 71 .18
Consumer loans:
Automobile loans 1,230 3.09 1,051 2.72 1,252 3.13
Loans on deposits 596 1.49 534 1.38 347 .87
Other consumer loans 565 1.42 1,396 3.62 1,580 3.95
-------------- -------------- -------------- -------------- -------------- --------------
Total consumer loans 2,391 6.00 2,981 7.73 3,179 7.96
-------------- -------------- -------------- -------------- -------------- --------------
Total loans: 40,883 102.54 39,581 102.62 40,778 102.06
-------------- -------------- -------------- -------------- -------------- --------------
Less:
Undisbursed portion
of loans in progress 247 .62 266 .69 91 .23
Unearned and
deferred income 155 .39 121 .31 101 .25
Allowances for loan losses 612 1.54 624 1.62 632 1.58
-------------- -------------- -------------- -------------- -------------- --------------
Net Loans $39,869 100.00% $38,570 100.00% $39,954 100.00%
============== ============== ============== ============== ============== ==============
</TABLE>
Loan Maturity. The following table sets forth certain information as of
September 30, 1995, regarding the dollar amount of loans maturing in the
Association's portfolio based on their contractual terms to maturity. Demand
loans, home equity loans and other loans having no stated schedule of repayments
or no stated maturity are reported as due in one year or less.
<TABLE>
<CAPTION>
Due during the year Due Due Due Due more
ending September 30, 4-5 years 6-10 years 11-15 years than 15
---------------------- after after after years after
1996 1997 1998 9/30/95 9/30/95 9/30/95 9/30/95 Total
------ ------ ------ --------- ---------- ----------- ----------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family $ 369 $ 126 $449 $ 966 $6,561 $ 9,751 $5,008 $23,230
Multifamily and non-residential 561 370 13 154 2,876 6,525 1,869 12,368
Construction 624 -- -- -- -- -- -- 624
Commercial loans 0 378 -- -- -- -- -- 378
Consumer loans 1,184 424 531 665 177 -- -- 2,981
------ ------ ---- ------ ------ ------- ------ -------
Total $2,738 $1,298 $993 $1,785 $9,614 $16,276 $6,877 $39,381
====== ====== ==== ====== ====== ======= ====== =======
</TABLE>
38
<PAGE>
The table below sets forth the dollar amount of all loans due after one
year from September 30, 1995, which have predetermined interest rates and have
floating or adjustable interest rates:
<TABLE>
<CAPTION>
Due more than one year
after
September 30, 1995
----------------------------------
(Dollars in thousands)
<S> <C>
Fixed rates of interest $15,769
Adjustable rates of interest 21,074
</TABLE>
Loans Secured by One- to Four-Family Residences. The principal lending
activity of the Association is the origination of conventional loans secured by
first mortgages on one- to four-family residences, primarily single-family
residences located within the Association's primary market area. At June 30,
1996, the Association's one- to four-family residential loans totaled
approximately $23.8 million, or 59.7% of total loans. Of the total of one- to
four-family residential loans, approximately $22.4 million were secured by first
mortgages and approximately $1.4 were secured by second mortgages.
OTS regulations limit the amount which the Association may lend in
relationship to the appraised value at the time of loan origination of the real
estate and improvements which will secure the loan (the "LTV"). In accordance
with such regulations and laws, and as a matter of policy established by the
Board of Directors of the Association, the Association makes loans secured by
one- to four-family residences for not more than a 85% LTV.
ARMs are currently offered by the Association for terms of up to 20 years.
On ARMs currently offered by the Association, the interest rate adjustment
periods are one year and rates are adjusted in accordance with the weekly
average yield on United States Treasury securities adjusted to a constant
maturity of one year. The new interest rate at each change date is determined by
adding a margin of 2.75% to the prevailing index. On ARMs currently offered by
the Association, the maximum allowable adjustment at each adjustment date is
2.0% and the maximum allowable adjustment over the term of the loan is 6.0%.
Although ARMs decrease the Association's interest rate risk, such loans
involve other risks. As interest rates rise, for example, the payment by the
borrower increases to the extent permitted by the terms of the loan. Such
increase in the payment may increase the potential for default. Moreover, the
marketability of the underlying property may be adversely affected by a general
increase in interest rates. The Association believes that such risks have not
had a material adverse effect on the Association to date.
The Association currently offers fixed rate loans for terms of 15, 20 and
30 years. The fixed-rate loans are competitively priced based on market
conditions and the Association's cost of funds.
Loans Secured by Multifamily Residences. In addition to loans on one-to
four-family properties, the Association originates loans secured by multifamily
properties which contain more than four units. At June 30, 1996, loans secured
by multifamily residences totaled approximately $4.1 million, or 10.3% of total
loans. At June 30, 1996, the largest single loan secured by a multifamily
residence was $1,447,518 and was performing in accordance with its terms.
Multifamily loans are offered with adjustable or fixed rates for terms of up to
20 years and have LTVs up to 80%.
39
<PAGE>
Multifamily lending is generally considered to involve a higher degree of
risk than one- to four-family residential lending because the borrower typically
depends upon income generated by the project to cover operating expenses and
debt service. The profitability of a project can be affected by economic
conditions, government policies and other factors beyond the control of the
borrower. The Association attempts to reduce the risk associated with
multifamily lending by evaluating the creditworthiness of the borrower and the
projected income from the project and by obtaining personal guarantees on loans
made to corporations and partnerships.
Loans Secured by Nonresidential Real Estate. The Association also
originates loans for the purchase of nonresidential real estate. At June 30,
1996, approximately $8.7 million, or 21.8%, of the Association's total loans
were secured by mortgages on nonresidential real estate. At such date, the
largest single loan secured by nonresidential real estate was $1,615,000 and was
performing in accordance with its terms. The Association's nonresidential real
estate loans have adjustable rates or fixed rates, terms of up to 30 years and
LTVs of up to 80%. The Association also makes loans for the construction of
nonresidential real estate. See "- Construction Loans."
Although loans secured by nonresidential real estate have higher interest
rates than one- to four-family residential real estate loans, nonresidential
real estate lending is generally considered to involve a higher degree of risk
than residential lending due to the relatively larger loan amounts and the
effects of general economic conditions on the successful operation of income-
producing properties. The Association has endeavored to reduce such risk by
evaluating the credit history and past performance of the borrower, the location
of the real estate, the financial condition of the borrower, the quality and
characteristics of the income stream generated by the property and appraisals
supporting the property's valuation.
Construction Loans. The Association makes loans for the construction of
single-family houses, multifamily properties and nonresidential real estate
projects. Of the loans made by the Association for construction of single-family
residences, all are made to owner-occupants or to professional builders.
Construction loans are offered with adjustable or fixed rates for terms of
up to one year. At June 30, 1996, the Association's loan portfolio included
$750,000 million in construction loans, or 1.9% of total loans. The majority of
construction loans were for construction of residential properties.
Construction loans, particularly loans involving nonresidential real
estate, generally involve greater underwriting and default risks than do loans
secured by mortgages on existing properties. Loan funds are advanced upon the
security of the project under construction, which is more difficult to value
before the completion of construction. Moreover, because of the uncertainties
inherent in estimating construction costs, it is relatively difficult to
evaluate accurately the LTV and the total loan funds required to complete a
project. In the event a default on a construction loan occurs and foreclosure
follows, the Association would have to take control of the project and attempt
either to arrange for completion of construction or dispose of the unfinished
project.
All of the Association's construction loans are secured by property in the
Association's primary market area.
Commercial Loans. The Association makes commercial loans to businesses in
its primary market area. Such loans are typically secured by a security interest
in equipment, nonresidential real estate or other assets of the borrower. At
June 30, 1996, the Association's commercial loan portfolio totaled $1.2 million,
or 2.9% of total loans.
40
<PAGE>
Consumer Loans. The Association makes various types of consumer loans,
including loans made to depositors on the security of their deposit accounts,
automobile loans, home improvement loans and other secured loans and unsecured
personal loans. Consumer loans are made at variable or fixed rates of interest
and for varying terms based on the type of loan. At June 30, 1996, the
Association had approximately $2.4 million, or 6.0% of total loans, invested in
consumer loans.
Consumer loans, particularly consumer loans which are unsecured or are
secured by depreciating assets such as automobiles, may entail greater risk than
residential real estate loans. Repossessed collateral for a defaulted consumer
loan may not provide an adequate source of repayment of the outstanding loan
balance. The risk of default on consumer loans increases during periods of
recession, high unemployment and other adverse economic conditions.
Loan Solicitation and Processing. Loan originations are developed from a
number of sources, including continuing business with depositors, other
borrowers and real estate developers, solicitations by the Association's lending
staff and walk-in customers.
Loan applications for permanent real estate loans are taken by loan
personnel at the Association's office. The Association typically obtains a
credit report, verification of employment and other documentation concerning the
creditworthiness of the borrower. An appraisal of the fair market value of the
real estate which will be given as security for the loan is prepared by an
appraiser approved by the Board of Directors. Upon the completion of the
appraisal and the receipt of information on the credit history of the borrower,
the application for a loan is submitted for review in accordance with the
Association's underwriting guidelines. All real estate loans are approved by the
Loan Committee of the Association (which Loan Committee is comprised of two
members, Mr. Eston Jones and Mr. Daniel Keel). Loans not secured by real estate
may be approved by the President or the Vice President-Lending of the
Association for amounts less than $20,000. Loans not secured by real estate in
amounts in excess of $20,000 require approval of the Loan Committee. Any loan in
an amount in excess of $250,000 requires the approval of the full Board of
Directors of the Association.
If a mortgage loan application is approved, the Association typically
obtains an attorney's opinion of title. The Association obtains title insurance
on only approximately 5% of its loans secured by real estate. Borrowers are
required to carry satisfactory fire and casualty insurance and flood insurance,
if applicable, and to name the Association as an insured mortgagee.
The procedure for approval of construction loans is the same as for
permanent real estate loans, except that an appraiser evaluates the building
plans, construction specifications and estimates of construction costs. The
Association also evaluates the feasibility of the proposed construction project
and the experience and record of the builder. Once approved, the construction
loan is disbursed in portions based upon periodic inspections of construction
progress.
Consumer loans are underwritten on the basis of the borrower's credit
history and an analysis of the borrower's income and expenses, ability to repay
the loan and the value of the collateral, if any.
Loan Originations. The Association currently originates a variety of
mortgage loans, including adjustable and fixed rate loans. The Association is an
approved seller/servicer for the Federal Home Loan Mortgage Corporation and as
such, originates loans for the various programs of FHLMC. Further, the
Association originates certain first and second mortgage loans secured by single
family dwellings which are non-conforming.
41
<PAGE>
The following table presents the Association's loan origination activity
for the periods indicated:
<TABLE>
<CAPTION>
Nine Months ended
June 30, Year ended September 30,
------------------------- --------------------------
1996 1995 1995 1994
----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Loans originated:
One- to four-family residential $ 5,699 $ 4,304 $ 6,127 $ 6,986
Multifamily residential -- 693 693 115
Nonresidential 533 180 458 381
Construction 2,083 740 1,036 1,199
Commercial 575 577 823 245
Consumer 1,799 1,407 1,957 2,949
----------- ----------- ----------- -----------
Total loans originated 10,689 7,901 11,094 11,875
----------- ----------- ----------- -----------
Principal repayments (10,138) (8,967) (12,665) (13,889)
----------- ----------- ----------- -----------
Increase (decrease) in other items, net(1) 748 (43) 187 (180)
----------- ----------- ----------- -----------
Net increase (decrease) $ 1,299 $(1,109) $ (1,384) $ (2,194)
=========== =========== =========== ===========
</TABLE>
(1) Other items consist of deferred loan fees, allowance for loan losses and
the undisbursed portion of construction loans.
At June 30, 1996, the Association owns loan participation interests in
eleven loans with an aggregate outstanding balance of approximately $5.3
million. These loans consist of both adjustable and fixed rate loans. The
Association is the lead lender on one loan of the eleven, which loan has an
outstanding balance of $306,376 at June 30, 1996. The remaining ten loans are
serviced by other lending institutions. All participation loans are performing
and secured by first mortgages. The participation loans are secured by various
types of properties, including multifamily residences, shopping centers, office
buildings and a country club, some of which are outside of the Association's
primary market area. The Association does not currently intend to originate or
purchase additional loan participations.
OTS regulations generally limit the aggregate amount that a savings
association may lend to any one borrower to an amount equal to 15% of the
association's total capital for risk-based purposes plus any loan reserves not
already included in total capital (collectively, "Unimpaired Capital"). A
savings association may lend to one borrower an additional amount not to exceed
10% of the association's Unimpaired Capital if the additional amount is fully
secured by certain forms of "readily marketable collateral." Real estate is not
considered "readily marketable collateral." In addition, the regulations
require that loans to certain related or affiliated borrowers be aggregated for
purposes of such limits. The aggregate amount which the Association could lend
to one borrower as of June 30, 1996 was $972,000.
The largest amount the Association had outstanding to one borrower and
related persons or entities at June 30, 1996, was $1,615,000, consisting of one
loan. Such loan is secured by real estate and was performing in accordance with
its terms on June 30, 1996. Such loan was originated prior to the effective
date of current OTS regulations regarding loans to one borrower and therefore
does not violate such regulations.
42
<PAGE>
Loan Origination and Other Fees. The Association realizes loan origination
fees and other fee income from its lending activities and also realizes income
from late payment charges, application fees and fees for other miscellaneous
services.
Loan origination fees and other fees are a volatile source of income,
varying with the volume of lending, loan repayments and general economic
conditions. All nonrefundable loan origination fees and certain direct loan
origination costs are deferred and recognized in accordance with SFAS No. 91 as
an adjustment to yield over the life of the related loan.
Delinquent Loans, Nonperforming Assets and Classified Assets. Payments on
loans made by the Association are due on the first day of the month. When a
loan payment has not been received by the sixteenth of the month, a late notice
is sent. If payment is not received by the thirtieth day, a second notice is
sent. Telephone calls are made to the borrower in connection with both the 15-
and 30-day notices. Each of the loans bears a late payment penalty which is
assessed as soon as such loan is more than 15 days delinquent. The late penalty
is 5% of the payment due.
When a loan secured by real estate becomes more than 90 days delinquent, a
letter is sent to the borrower by the Association to inform the borrower that
foreclosure proceedings will begin if the loan is not brought current within 30
days. If the loan has not been brought current within such 30-day period, the
Board of Directors normally refers the loan to an attorney to commence
foreclosure proceedings.
The following table reflects the amount of loans in a delinquent status as
of the dates indicated:
<TABLE>
<CAPTION>
At June 30, At September 30,
----------------------------- ----------------------------------------------------------------
1996 1995 1994
----------------------------- ----------------------------- -----------------------------
Percent Percent Percent
of total of total of total
Number Amount loans Number Amount loans Number Amount loans
------ ------ -------- ------ ------ -------- ------ ------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent for:
30-59 days 31 $581 1.46% 20 $403 1.04% 25 $547 1.37%
60-89 days 5 66 .17 15 143 .37 9 231 .58
90 days and over 8 195 .49 21 206 .53 4 36 .09
------ ------ ------ ------ ------ ------ ------ ------ ------
Total 44 $842 2.11% 56 $752 1.95% 38 $814 2.04%
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Nonperforming assets include nonaccruing loans, real estate acquired by
foreclosure or by deed-in-lieu thereof, in-substance foreclosures and
repossessed assets. The Association ceases to accrue interest on real estate
loans if the collateral value is not adequate, in the opinion of management, to
cover the outstanding principal and interest. The Association reviews loans
which are 90 days or more delinquent and makes a determination, based upon its
estimation of collectibility, whether to continue to accrue, or to cease
accruing, interest on such loan. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
43
<PAGE>
The following table sets forth information with respect to the accrual and
nonaccrual status of the Association's loans and other nonperforming assets at
the dates indicated:
<TABLE>
<CAPTION>
At June 30, At September 30,
------------ --------------------------
1996 1995 1994
------------ ------------ -----------
(Dollars in thousands)
<S> <C> <C> <C>
Accruing loans delinquent 90+ days $161 $157 $ 14
------------ ------------ -----------
Loans accounted for on a nonaccrual basis:
Real estate
One-to four-family 34 49 22
Multifamily -- -- --
Nonresidential -- -- --
Consumer -- -- --
------------ ------------ -----------
Total nonaccrual loans 34 49 22
Total nonperforming loans 195 206 36
------------ ------------ -----------
Real estate owned 28 5 286
------------ ------------ -----------
Total nonperforming assets $223 $211 $322
============ ============ ===========
Allowance for loan losses $612 $624 $632
============ ============ ===========
Nonperforming assets as a percent of total loans .56% .55% .81%
============ ============ ===========
Nonperforming loans as a percent of total loans .49 .53 .09
============ ============ ===========
Allowance for loan losses as a percent of
nonperforming loans 313.85% 302.91% 1,755.56%
============ ============ ===========
</TABLE>
Real estate acquired by the Association as a result of foreclosure
proceedings is classified as real estate owned ("REO") until it is sold. When
property is so acquired, such property is recorded by the Association at the
fair value of the real estate, less estimated selling expenses, at the date of
acquisition and any write-down resulting therefrom is charged to the allowance
for loan losses. All costs incurred in maintaining REO property are expenses
from the date the property is acquired. Costs relating to the development and
improvement of the property are capitalized to the extent of fair value. At June
30, 1996, the Association had two REO properties with an aggregate book value of
$27,601.
The Association classifies its own assets on a quarterly basis in
accordance with federal regulations and Association policy. Problem assets are
classified as "substandard," "doubtful" or "loss." "Substandard" assets have
one or more defined weaknesses and are characterized by the distinct possibility
that the Association will sustain some loss if the deficiencies are not
corrected. "Doubtful" assets have the same weaknesses as "substandard" assets,
with the additional characteristics that (i) the weaknesses make collection or
liquidation in full, on the basis of currently existing facts, conditions and
values, questionable and (ii) there is a high possibility of loss. An asset
classified "loss" is considered uncollectible and of such little value that its
continuance as an asset of the Association is not warranted.
44
<PAGE>
The aggregate amounts of the Association's classified loans at the dates
indicated were as follows:
<TABLE>
<CAPTION>
At June 30, At September 30,
--------------- --------------------------------
1996 1995 1994
--------------- --------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C>
Classified loans:
Substandard $ 472 $ 771 $ 583
Doubtful -- -- --
Loss 98 105 235
--------------- --------------- ---------------
Total classified loans $ 570 $ 876 $ 818
--------------- --------------- ---------------
</TABLE>
The Association establishes general allowances for loan losses for any loan
classified as substandard or doubtful. If an asset, or portion thereof, is
classified as loss, the Association establishes specific allowances for losses
in the amount of 100% of the portion of the asset classified loss. See
"Allowance for Loan Losses." Generally, the Association charges off the portion
of any real estate loan deemed to be uncollectible.
The Association analyzes each classified asset on a quarterly basis to
determine whether changes in the classifications are appropriate under the
circumstances. Such analysis focuses on a variety of factors, including the
amount of any delinquency and the reasons for the delinquency, if any, the use
of the real estate securing the loan, the status of the borrower and the
appraised value of the real estate. As such factors change, the classification
of the asset will change accordingly.
Allowance for Loan Losses. Senior management, with oversight by the Board
of Directors, reviews on a quarterly basis the allowance for loan losses as it
relates to a number of relevant factors, including, but not limited to, trends
in the level of delinquent and nonperforming assets and classified loans,
current and anticipated economic conditions in the primary lending area, past
loss experience and possible losses arising from specific problem assets. To a
lesser extent, management also considers loan concentrations to single borrowers
and changes in the composition of the loan portfolio. While management believes
that it uses the best information available to determine the allowance for loan
losses, unforeseen market conditions could result in adjustments and net income
could be significantly affected if circumstances differ substantially from the
assumptions used in making the final determination. The amounts in the
provisions for loan losses shown in the table below for 1994 through 1996 were
determined based upon past loan experience, a review of individual specific
problem loans, if any, the estimated value of the underlying collateral and the
prevailing economic conditions.
45
<PAGE>
The following table sets forth an analysis of the Association's allowance
for loan losses for the periods indicated:
<TABLE>
<CAPTION>
Nine Months ended
June 30 Year ended September 30,
------------------------ ------------------------
1996 1995 1995 1994
----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $624 $632 $632 $756
Charge-offs (20) (4) (17) (175)
Recoveries 8 8 9 16
----------- ----------- ----------- -----------
Net (charge-offs) recoveries (12) 4 (8) (159)
Provision for loan losses -- -- -- 35
----------- ----------- ----------- -----------
Balance at end of year $612 $636 $624 $632
----------- ----------- ----------- -----------
Ratio of net (charge-offs)
recoveries to average loans
outstanding during the period (.03)% .01% (.02)% (.38)%
----------- ----------- ----------- -----------
Ratio of allowance for loan
losses to total loans 1.54 1.64 1.62 1.58
----------- ----------- ----------- -----------
</TABLE>
The following table sets forth the allocation of the Association's
allowance for loan losses by type of loan at the dates indicated:
<TABLE>
<CAPTION>
At June 30, At September 30,
----------------------------- ------------------------------------------------------------
1996 1995 1994
----------------------------- ----------------------------- -----------------------------
Percent of Percent of Percent of
loans in each loans in each loans in each
category of category of category of
Amount total loans Amount total loans Amount total loans
------------ --------------- ------------ --------------- ------------ ---------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at year end
applicable to:
Real estate loans $495 95.80% $502 93.91% $511 93.92%
Commercial loans 54 2.62 54 .98 55 .18
Consumer loans 63 6.00 68 7.73 66 7.96
Unallocated -- -- -- -- -- --
------------ --------------- ------------ --------------- ------------ ---------------
Total $612 104.42% $624 102.62% $632 102.06%
------------ --------------- ------------ --------------- ------------ ---------------
</TABLE>
The allowance for loan losses is based on estimates and is, therefore,
monitored quarterly and adjusted as necessary to provide an adequate allowance.
Investment Activities
Federal regulations permit the Association to invest in various types of
investments, including interest-bearing deposits in other financial
institutions, U.S. Treasury and agency obligations, mortgage-
46
<PAGE>
backed securities and certain other specified investments. The Board of
Directors of the Association has adopted an investment policy which
authorizes management to make investments in U.S. Government and agency
securities, deposits in the FHLB, certificates of deposit in federally-
insured financial institutions, mortgage-backed securities and mutual funds
backed by mortgage-backed securities. William R. Faulk, the Association's
President, and Beth B. Knight, its Vice President-Finance and Chief Financial
Officer, have primary responsibility for implementation of the investment
policy. The Association's investment policy is designed primarily to provide
and maintain liquidity within regulatory guidelines, to maintain a balance of
high quality investments to minimize risk and to maximize return without
sacrificing liquidity and safety.
The following table sets forth the composition of the Association's
interest bearing deposits, investment securities and mortgage-backed
securities at the dates indicated:
<TABLE>
<CAPTION>
At June 30, At September 30,
-------------------------- ------------------------------------------------------
1996 1995 1994
-------------------------- -------------------------- --------------------------
Carrying Carrying Carrying
Value Fair Value Value Fair Value Value Fair Value
------------ ------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits:
Total interest-bearing deposits $ 4,464 $ 4,464 $ 5,637 $ 5,637 $ 2,279 $ 2,279
Investment securities:
U.S. Treasury securities and
obligations of state and
political subdivisions (1) 7,219 7,175 8,696 8,644 11,194 11,004
Mortgage-backed securities (2) 8,963 8,963 5,452 5,422 5,676 5,401
Other Investments 2,179 2,179 2,106 2,106 1,987 1,987
Total $22,825 $22,781 $21,891 $21,809 $21,136 $20,671
</TABLE>
(1) At June 30, 1996 and September 30, 1995, U.S. Treasury securities and
obligations of state and political subdivisions included $1,968 and $503 of
securities available-for-sale, respectively, which are carried at their
fair value.
(2) At June 30, 1996 and September 30, 1995, mortgage-backed securities
included $6,213 and $2,243 of mortgage-backed securities available-for-
sale, respectively, which are carried at their fair value.
47
<PAGE>
The maturities of the Association's interest-bearing deposits and
investment securities at September 30, 1995, are indicated in the following
table:
<TABLE>
<CAPTION>
At September 30, 1995
------------------------------------------------------------------------------
After one through After five through After ten
One year or less five years ten years years
------------------ ------------------ ------------------ ------------------
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest-bearing
deposits in
other financial
institutions
$5,637 5.65% $ -- --% $ -- --% $ -- --%
U.S. Treasury
securities and
obligations of
U.S. Govt.
agencies 2,748 6.10 5,948 5.71 -- -- -- --
Mortgage-
backed
securities 118 7.30 4,199 5.92 941 5.51 194 8.00
Other
Investments -- -- -- -- -- -- 2,106 6.37
-------- -------- -------- -------- -------- -------- -------- --------
Total $8,503 5.81% $10,147 5.80% $941 5.51% $2,300 6.51%
======== ======== ======== ======== ======== ======== ======== ========
<CAPTION>
-------------------------------
Total
-------------------------------
Weighted
Carrying Fair Average
Value Value Yield
--------- --------- ---------
<S> <C> <C> <C>
Interest-bearing
deposits in
other financial
institutions
$ 5,637 $ 5,637 5.65%
U.S. Treasury
securities and
obligations of
U.S. Govt.
agencies 8,696 8,644 5.83
Mortgage-
backed
securities 5,452 5,422 5.95
Other
Investments 2,106 2,106 6.37
--------- --------- ---------
Total $21,891 $21,809 5.87%
========= ========= =========
</TABLE>
Deposits and Borrowings
General. Deposits have traditionally been the primary source of the
Association's funds for use in lending and other investment activities. In
addition to deposits, the Association derives funds from interest payments and
principal repayments on loans and income on earning assets. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." Loan
payments are a relatively stable source of funds, while deposit inflows and
outflows fluctuate in response to general interest rates and money market
conditions. The Association has the ability to use FHLB advances as an
alternative source of funds but has not utilized such source in the recent past.
Deposits. Deposits are attracted principally from within the Association's
market area through the offering of a broad selection of deposit instruments,
including NOW accounts, demand deposit accounts, money market accounts, regular
passbook savings accounts, term certificate accounts and Individual Retirement
Accounts ("IRAs"). Interest rates paid, maturity terms, service fees and
withdrawal penalties for the various types of accounts are established
periodically by management of the Association based on the Association's
liquidity requirements, growth goals and interest rates paid by competitors.
The Association does not use brokers to attract deposits. The amount of
deposits from outside the Association's market area is not significant.
At June 30, 1996, the Association's transactions accounts (NOW accounts,
passbook savings accounts and money market accounts) totaled approximately $21.3
million, or 36.6%, of total deposits. At June 30, 1996, the Association's
certificates of deposit totaled approximately $36.9 million, or 63.4% of total
deposits. Of such amount, approximately $28.0 million in certificates of
deposit mature within one year. Based on past experience and the Association's
prevailing pricing strategies, management believes that a substantial percentage
of such certificates will be renewed with the Association at maturity. If there
48
<PAGE>
is a significant deviation from historical experience, the Association can
utilize borrowings from the FHLB of Atlanta as an alternative source of funds.
The following table sets forth the dollar amount of deposits in the various
types of accounts offered by the Association at the dates indicated:
<TABLE>
<CAPTION>
At June 30, At September 30,
------------------------------------------- -------------------------------------------
1996 1995 1995 1995
--------------------- --------------------- --------------------- ---------------------
Percent Percent Percent Percent
of total of total of total of total
Amount deposits Amount deposits Amount deposits Amount deposits
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transaction accounts:
NOW accounts(1) $11,670 20.0% $11,953 21.2% $11,722 20.9% $13,849 23.8%
Passbook savings accounts(2) 8,374 14.4 7,675 13.6 7,471 13.3 8,627 14.8
Money market accounts(3) 1,300 2.2 1,325 2.3 1,340 2.5 1,366 2.3
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total transaction accounts 21,344 36.6 20,953 37.1 20,533 36.7 23,842 40.9
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Certificates of deposit:
4.00% or less 9 -- 2,758 4.9 522 .9 18,950 32.6
4.01 - 6.00% 32,498 55.8 25,566 45.4 27,507 49.1 13,742 23.6
6.01 - 8.00% 4,277 7.3 6,530 11.6 7,030 12.6 1,051 1.8
8.01 - 10.00% 150 .3 588 1.0 416 .7 643 1.1
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total certificates of deposit(4) 36,934 63.4 35,442 62.9 35,475 63.3 34,386 59.1
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total deposits $58,278 100.0% $56,395 100.0% $56,008 100.0% $58,228 100.0%
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
(1) The weighted average rate on NOW accounts at June 30, 1996 was 2.40%
(2) The weighted average rate on passbook savings accounts at June 30, 1996
was 2.84%.
(3) The weighted average rate on money market accounts at June 30, 1996 was
2.84%.
(4) The weighted average rate on all certificates of deposit, including IRA
accounts, at June 30, 1996 was 5.6%.
The following table shows rate and maturity information for the
Association's certificates of deposit at June 30, 1996:
<TABLE>
<CAPTION>
Amount Due
------------------------------------------------------------------------------------
Over 1 year Over 2 years
Rate Up to one year to 2 years to 3 years Over 3 years Total
- ---- ---------------- ---------------- ---------------- ---------------- ----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
4.00% or less $ 9 $ -- $ -- $ -- $ 9
4.01% to 6.00% 25,614 4,521 1,644 719 32,498
6.01% to 8.00% 2,390 974 71 842 4,277
8.01% to 10.00% -- -- 150 -- 150
---------------- ---------------- ---------------- ---------------- ----------------
Total certificates of deposit $28,013 $5,495 $1,865 $1,561 $36,934
================ ================ ================ ================ ================
</TABLE>
49
<PAGE>
The following table presents the amount of the Association's certificates
of deposit of $100,000 or more by the time remaining until maturity at June 30,
1996:
<TABLE>
<CAPTION>
Maturity Amount
------------------------------- -------------------------------
(Dollars in thousands)
<S> <C>
Three months or less $1,178
Over 3 months to 6 months 681
Over 6 months to 12 months 3,064
Over 12 months 893
-------------------------------
Total $5,816
===============================
</TABLE>
The following table sets forth the Association's deposit account balance
activity for the periods indicated:
<TABLE>
<CAPTION>
Nine months ended June 30, Year ended September 30,
---------------------------- ----------------------------
1996 1995 1995 1994
------------- ------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Beginning balance $56,008 $58,228 $58,228 $58,087
Net increase (decrease) in deposits
before interest credited 1,424 (2,518) (3,173) (615)
Interest credited 846 685 953 756
Ending balance 58,278 56,395 56,008 58,228
------------- ------------- ------------- -------------
Net increase(decrease) $ 2,270 $(1,833) $(2,200) $ 141
============= ============= ============= =============
</TABLE>
Borrowings. The FHLB system functions as a central reserve bank providing
credit for its member institutions and certain other financial institutions.
See "REGULATION - Federal Home Loan Banks." As a member in good standing of the
FHLB of Atlanta, the Association is authorized to apply for advances from the
FHLB of Atlanta, provided certain standards of creditworthiness have been met.
Under current regulations, an association must meet certain qualifications to
be eligible for FHLB advances. The extent to which an association is eligible
for such advances will depend upon whether it meets the Qualified Thrift Lender
Test (the "QTL Test"). See "REGULATION - Office of Thrift Supervision --
Qualified Thrift Lender Test." If an association meets the QTL Test, the
Association will be eligible for 100% of the advances it would otherwise be
eligible to receive. If an association does not meet the QTL Test, the
Association will be eligible for such advances only to the extent it holds
specified QTL Test assets. At June 30, 1996, the Association was in compliance
with the QTL Test and had no advances from the FHLB.
Competition
The Association competes for deposits with other savings and loan
associations, savings banks, commercial banks and credit unions and with
issuers of commercial paper and other securities, including shares in money
market mutual funds. The primary factors in competition for deposits are
customer service and convenience of office location. In making loans, the
Association competes with other savings banks, savings and loan associations,
commercial banks, mortgage brokers, consumer finance companies, credit unions,
leasing companies and other lenders. The Association competes for loan
originations
50
<PAGE>
primarily through the interest rates and loan fees it charges and through the
efficiency and quality of services it provides to borrowers. Competition is
intense and is affected by, among other things, the general availability of
lendable funds, general and local economic conditions, current interest rate
levels and other factors which are not readily predictable. The Association
does not offer all of the products and services offered by some of its
competitors, particularly commercial banks. The Association monitors the
product offerings of its competitors and adds new products when it can do so
competitively and cost effectively.
Properties
The following table sets forth certain information at June 30, 1996,
regarding the office facilities of the Association:
<TABLE>
<CAPTION>
Owned or Date Net book
Location Leased acquired value
- ----------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
325 Second Street SE Owned 1968 $202,000
Cullman, AL
(Main Office)
1414 Second Ave., NW Owned 1988 $222,000
Cullman, AL
(Branch)
1602 Second Ave., SW Leased (2) 1979 $ 13,000
Cullman, AL
(Branch)
</TABLE>
(1) Cost less accumulated depreciation and amortization at June 30, 1996.
(2) Lease expires March 31, 2000.
Employees
As of June 30, 1996, the Association had 20 full-time employees. The
Association believes that relations with its employees are excellent. The
Association offers health and disability benefits and a defined contribution
pension plan. None of the employees of the Association are represented by a
collective bargaining unit.
Legal Proceedings
The Association is not presently involved in any material legal
proceedings. From time to time, the Association is a party to legal proceedings
incidental to its business to enforce its security interest in collateral
pledged to secure loans made by the Association.
51
<PAGE>
MANAGEMENT
Directors and Executive Officers
The Holding Company. The Board of Directors of the Holding Company
currently consists of nine directors, each of whom is also a director of the
Association. The directors of the Holding Company are divided into three
classes. Each director is elected for a three-year term and until his
successor is elected or until his or her earlier resignation, removal from
office or death. All of the directors of the Holding Company were initially
elected to the Board of Directors in 1996.
The executive officers of the Holding Company are identified below:
Name Position
---- --------
William R. Faulk President and Chief Executive Officer
Beth B. Knight Secretary and Treasurer
The Association. The Board of Directors of the Association currently
consists of nine directors, divided into three classes. One class of directors
is elected each year. Each director serves for a three-year term. The Board
of Directors met twelve times during 1995 for regular and special meetings. No
director attended fewer than 75% of the aggregate of such meetings and all
meetings of the committees of which such director was a member.
The following table presents certain information with respect to the
present directors of the Association and the executive officers of the
Association:
<TABLE>
<CAPTION>
Year of
Position(s) with Commencement Term
Name Age the Association of directorship expires
- --------------------- ------ ------------------ ----------------- -------
<S> <C> <C> <C> <C>
Finis E. St. John, IV 39 Director, Chairman 1985 1999
William R. Faulk 35 Director, President 1996 1997
Joseph S. Franey 56 Director 1985 1997
Phillip W. Freeman 45 Director 1992 1998
Maxie T. Hudson 63 Director 1980 1999
Eston E. Jones 77 Director 1976 1999
Daniel W. Keel 61 Director 1970 1999
Ronald P. Martin 52 Director 1988 1998
Wells R. Turner 53 Director 1986 1998
</TABLE>
Presented below is certain information concerning the directors of the
Association, including their principal occupations for the past five years:
Finis E. St. John, IV. Mr. St. John is a partner in St. John & St. John,
L.L.P., a law firm located in Cullman. Mr. St. John is also an executive
officer of Cullman Environmental, Inc., a waste service concern serving
Cullman, Alabama.
52
<PAGE>
Mr. William R. Faulk. Mr. Faulk has a BS in economics and an MBA in finance,
both from the University of Alabama at Birmingham. He is a graduate of the
Stonier School of Banking. He joined First Federal in 1986 and served in a
variety of positions before becoming President and Chief Executive Officer in
1994.
Joseph S. Franey. Mr. Franey is a retired trucking company executive.
Phillip W. Freeman. Dr. Phillip Freeman is a physician practicing with Cullman
Internal Medicine Incorporated. Dr. Freeman is a member of the Cullman Area
Chamber of Commerce.
Maxie T. Hudson. Mr. Hudson is the immediate past President of the
Association. Prior to joining the Association, Mr. Hudson was employed as an
accountant.
Eston E. Jones. Mr. Jones was the President of the Association prior to Mr.
Hudson. Mr. Jones currently serves on the Loan Committee of the Board of
Directors.
Daniel W. Keel. Mr. Keel is a retired insurance and real estate executive.
Mr. Keel currently serves on the Loan Committee of the Board of Directors.
Ronald P. Martin. Mr. Martin is a Certified Public Accountant in private
practice. Mr. Martin has worked in both public and private accounting during
his career. Prior to entering private practice, Mr. Martin was Chief Financial
Officer of a regional construction company.
Wells R. Turner. Mr. Turner is a pharmacist and real estate developer. Mr.
Turner currently operates two retail pharmacological sales businesses in
Cullman, Alabama. Mr. Turner is a member of the Board of Directors of Hospice
of Cullman County.
After the Conversion, each director and executive officer will continue to
serve the Holding Company and the Association.
Shares to be Purchased by Management Pursuant to Subscription Rights
The following table sets forth certain information regarding the
subscription rights intended to be exercised by the directors and executive
officers of the Association and their Associates and persons with whom they are
acting in concert:
53
<PAGE>
<TABLE>
<CAPTION>
Percent of Aggregate
total offering purchase
Name Total shares(2) (1) price(2)
- ------------------------ ------------------- ---------------- ---------------
<S> <C> <C> <C>
William R. Faulk 13,444 3.36% $268,880
Joseph S. Franey 13,444 3.36 268,880
Phillip W. Freeman 10,000 2.50 200,000
Maxie T. Hudson 5,000 1.25 100,000
Eston E. Jones 13,444 3.36 268,880
Daniel W. Keel 13,444 3.36 268,880
Ronald P. Martin 13,444 3.36 268,880
Finis E. St. John, IV 13,444 3.36 268,880
Wells R. Turner 13,444 3.36 268,880
Beth B. Knight 13,444 3.36 268,880
Raymond A. Williams 13,444 3.36 268,880
All directors and
executive officers
and their Associates
as a group 135,996 33.99% $2,719,920
</TABLE>
(1) Assumes that 400,000 Common Shares will be sold in connection with the
Conversion at $20.00 per share and that a sufficient number of Common
Shares will be available to satisfy the intended purchase by directors and
executive officers. See "- Pricing and Number of Shares to be Sold."
(2) Amounts under "Total Shares" and "Aggregate purchase price" may increase in
the event that more than 400,000 Common Shares are sold in connection with
the Conversion.
All purchases by executive officers and directors of the Association are
being made for investment purposes only and with no present intent to resell.
Committees of Directors
The Board of Directors of the Association has a Loan Committee and an Asset
Liability Management Committee. The full Board of Directors serves as a
nominating committee.
The members of the Loan Committee are Messrs. Jones and Keel. The Loan
Committee reviews and approves all real estate loans made by the Association.
The Loan Committee reviews and approves all loans not secured by real estate
made by the Association in an amount greater than $20,000. All loans made by
the Association in amounts in excess of $250,000 are reviewed and approved by
the full Board of Directors.
The Asset Liability Management Committee is comprised of Messrs. Martin and
Faulk and Ms. Knight. The function of the Asset Liability Management Committee
is to review the interest rate risk of the Association and to report and
recommend action to the full Board of Directors with regard thereto. The Asset
Liability Management Committee met four times during 1995.
54
<PAGE>
Compensation
Each director of the Association currently receives a fee of $750 per
meeting of the full Board of Directors attended. In addition, each member of
the Loan Committee receives $450 per month.
During the fiscal year ended September 30, 1995, no executive officer of
the Association received annual compensation in an amount equal to or greater
than $100,000. The following table presents certain information regarding the
annual compensation received by Mr. Faulk during such period:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Name and Principal Position Salary Bonus Other
--------------------------- ------ ----- -----
<S> <C> <C> <C>
William R. Faulk, $52,333 $3,000 $3,808
President
</TABLE>
Executive Officers of Association Who Are Not Directors
Presented below is certain information regarding the executive officers of
the Association who are not directors:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Beth B. Knight 34 Vice President-Finance and Chief
Officer Financial
Raymond A. Williams 43 Vice President-Lending and Chief
Officer Lending
</TABLE>
Beth B. Knight. Ms. Knight has a BS in accounting from the University of
Alabama and she is a Certified Public Accountant. She joined the Association
in 1992 and has served in her current capacity since joining the Association.
Raymond A. Williams. Mr. Williams worked for a major commercial bank for 15
years prior to joining the Association in 1995 as chief lending officer.
Stock Benefit Plans
Profit Sharing Plan. The Association currently maintains a defined
contribution profit sharing plan (the "Profit Sharing Plan") to provide
employees eligible to participate in the Profit Sharing Plan the opportunity to
establish tax-favored savings plans. The Profit Sharing Plan is a qualified
plan under Section 401(k) of the Code. William R. Faulk and Finis E. St. John
IV, as President and Chairman of the Association, respectively, are the co-
trustees under the Profit Sharing Plan.
All employees who are age 20 1/2 or older are eligible to participate in
the Profit Sharing Plan. An employee may elect to contribute a portion of his
or her compensation, up to a maximum of 15%, to his or
55
<PAGE>
her account under the Profit Sharing Plan. Any such contribution defers the
amount of compensation so contributed, and the participating employee is not
taxed on that compensation, if at all, until he or she withdraws such amount
from the Profit Sharing Plan. A participant may not make any other
contributions to the Profit Sharing Plan.
The Association may, in its sole discretion, elect to match contributions
made by employees. In addition, the Association may, in its sole discretion,
elect in any year to make a designated qualified nonelective contribution to
the Profit Sharing Plan for the benefit of "Nonhighly Compensated Employees"
(as defined in the Profit Sharing Plan). The Association may also, in its sole
discretion, make nonelective contributions to the Profit Sharing Plan for the
benefit of all participants. The allocation of any such nonelective
contributions is in proportion to each participant's compensation for the plan
year in which such contributions are made. A participant is eligible to
receive an allocation of a nonelective contribution by the Association if that
participant is employed by the Association at the end of the plan year in which
such contribution is made and if that participant had completed at least 501
hours of service with the Association during that plan year, except that these
requirements do not apply to any employee whose employment with the Association
terminates during such plan year by reason of death, disability or retirement
at the normal retirement age or later.
Employee Stock Ownership Plan. The Holding Company has established the
ESOP for the benefit of employees of the Holding Company and its subsidiaries,
including the Association, who are age 20 1/2 or older and who have completed
at least one year of service with the Holding Company and its subsidiaries.
ESOP participants must have completed 1,000 hours of service during a plan year
in order to receive an allocation of common shares for that plan year. The
Board of Directors of the Holding Company believes that the ESOP will be in the
best interests of the Holding Company and its shareholders.
The ESOP trust intends to borrow funds from the Holding Company with which
to acquire up to 8.0% of the Common Shares sold in the Conversion. Such loan
will be secured by the Common Shares purchased with the proceeds and will be
repaid by the ESOP over a period of up to ten years. The primary source of
repayment will be contributions made to the ESOP by the Association. Common
Shares purchased with such loan proceeds will be held in a suspense account for
allocation among ESOP participants as the loan is repaid. If the ESOP is
unable to purchase all or part of the Common Shares for which it subscribes,
the ESOP may purchase common shares on the open market or may purchase
authorized but unissued common shares. If the ESOP purchases authorized but
unissued common shares, such purchases could have a dilutive effect on the
interests of the Holding Company's shareholders.
The Holding Company, or a committee appointed by the Board of Directors of
the Holding Company will administer the ESOP. The common shares and other ESOP
funds will be held by a trustee selected and appointed by the Holding Company
(the "ESOP Trustee"). The ESOP Trustee will vote all common shares of the
Holding Company held in the ESOP that are allocated to the accounts of ESOP
participants in accordance with the instructions of such participants. Common
shares held by the ESOP that are not directed by participants or which are not
allocated to participants' accounts will be voted by the ESOP Trustee in the
same proportion with the vote of participants with respect to allocated shares.
Contributions will be made to the ESOP by the Association based upon the
understanding that the ESOP will be a tax-qualified plan under the Code.
Although no assurances can be given, the Holding Company expects a favorable
result when the ESOP is submitted to the Internal Revenue Service for a
determination in respect of such tax qualification.
56
<PAGE>
Stock Option Plan. After the completion of the Conversion, the Board of
Directors of the Holding Company intends to adopt the Stock Option Plan,
subject to approval by the shareholders of the Holding Company. The purposes
of the Stock Option Plan include retaining and providing incentives to the
directors, officers and employees of the Holding Company and its subsidiaries
by facilitating their purchase of a stock interest in the Holding Company.
Options granted under the Stock Option Plan may be "incentive stock
options" within the meaning of Section 422 of the Code (an "ISO") or may not be
ISOs ("Non-qualified Options"). The option exercise price will be determined
by the Stock Option Committee at the time of grant. However, the exercise
price for an ISO or for any option must not be less than 100% of the fair
market value of the shares on the date of the grant if the Stock Option Plan is
implemented by the Holding Company during the first year following the
completion of the Conversion. No stock option will be exercisable after the
expiration of ten years from the date that it is granted. However, in the case
of an ISO granted to an employee who owns more than 10% of the Holding
Company's outstanding common shares at the time an ISO is granted under the
Stock Option Plan, the exercise price of the ISO may not be less than 110% of
the fair market value of the shares on the date of the grant and the ISO may
not be exercisable after the expiration of five years from the date of grant.
A director who is not a director at the time the Stock Option Plan is
adopted but is later elected may also be granted options pursuant to the Stock
Option Plan on or after the date of his or her election. The Stock Option
Committee may grant options under the Stock Option Plan to the officers and
employees of the Holding Company and the Association at such times as they deem
most beneficial to the Holding Company on the basis of the individual
participant's responsibility, tenure and future potential.
An option recipient cannot transfer or assign an option other than by will,
in accordance with the laws of descent and distribution or pursuant to a
domestic relations order issued by a court of competent jurisdiction.
"Termination for cause," as defined in the Stock Option Plan, will result in
the annulment of any outstanding options.
The Holding Company will receive no monetary consideration for the granting
of options under the Stock Option Plan. Upon the exercise of options, the
Holding Company will receive payment of cash, common shares of the Holding
Company or a combination of cash and common shares from option recipients in
exchange for shares issued.
A number of shares equal to 10% of the Common Shares sold in the Offering
is expected to be acquired by the Stock Option Plan from authorized but
unissued common shares of the Holding Company (the Holding Company may,
however, determine to acquire Common Shares in open market purchases to fund
some or all of the shares subject to the Stock Option Plan), which shares
thereafter may be acquired upon the exercise of options to be granted to
certain directors, officers and employees of the Holding Company and its
subsidiaries from time to time under the Stock Option Plan. No determination
has been made regarding the recipients of awards under the Stock Option Plan or
the number of shares to be awarded to individual recipients. In accordance
with OTS regulations, the following restrictions will apply if the Stock Option
Plan is implemented by the Holding Company during the first year following the
completion of the Conversion: (i) the Stock Option Plan must be approved by the
shareholders of the Holding Company at the first annual or a special meeting of
shareholders, in either case to be held no sooner than six months after the
completion of the Conversion; (ii) awards to directors who are not full-time
employees of the Holding Company or the Association may not exceed
57
<PAGE>
25% per person and 30% in the aggregate of the total number of shares reserved
for issuance under the plan; (iii) awards to directors or other persons who are
full-time employees of the Holding Company or the Association may not exceed
25% per person; and (iv) options will become exercisable at the rate of one-
fifth per year commencing no earlier than one year from the date the Stock
Option Plan is approved by the shareholders, subject to acceleration of vesting
only in the event of the death or disability of a participant.
The Board of Directors of the Holding Company intends to create a "grantor
trust" to acquire the common shares to be awarded under the Stock Option Plan.
For corporate law purposes, such shares shall be deemed to be issued and
outstanding when acquired by the trust. Common shares held by the trust will
be voted by the trustees of the Stock Option Plan who are expected to be
directors of the Association. Dividends or distributions payable with respect
to shares held by the trust shall be allocated to the participants' accounts
under the Stock Option Plan. When a participant in the Stock Option Plan
acquires shares pursuant to the exercise of options, such shares and amounts
equal to accrued dividends and distributions thereon, shall be released from
the trust to the participant and the exercise price paid by the participant
with respect to the options shall be remitted to the Holding Company.
The Stock Option Plan will be administered by a committee comprised of
directors of the Holding Company (the "Stock Option Committee"). Persons
eligible for awards under the Stock Option Plan will consist of directors,
officers and key employees of the Holding Company or the Association who hold
positions with significant responsibilities or whose performance or potential
contribution in the judgment of the Stock Option Committee, will contribute to
the future success of the Holding Company or the Association. The Stock Option
Committee will consider the position, duties and responsibilities of the
officers and key employees of the Holding Company and the Association, the
value of their services to the Holding Company and the Association and any
other factors the Stock Option Committee may deem relevant.
Management Recognition Plan. After the completion of the Conversion, the
Association intends to adopt the MRP. The purpose of the MRP is to provide
directors, officers and certain key employees of the Association with an
ownership interest in the Association in a manner designed to compensate such
directors, officers and key employees for services to the Association. The
Association expects to contribute sufficient funds to enable the MRP to
purchase up to 4% of the Common Shares sold in the Offering. Such shares may
be purchased in the market following the Conversion or may be purchased from
the authorized but unissued shares of the Holding Company.
The Board of Directors of the Holding Company intends to create a "grantor
trust" to acquire the common shares to be awarded under the MRP. For corporate
law purposes, such shares shall be deemed to be issued and outstanding when
acquired by the trust. Common shares held by the trust will be voted by the
trustees of the MRP who are expected to be directors of the Association.
Dividends or distributions payable with respect to shares held by the trust
shall be allocated to the participants' accounts under the MRP. When a
participant in the MRP earns shares pursuant to his or her vesting schedule,
such shares and amounts equal to accrued dividends and distributions thereon,
shall be released from the trust to the participant.
The MRP will be administered by a committee comprised of directors of the
Association (the "MRP Committee"). In selecting the officers and employees and
directors to whom awards will be granted and the number of shares covered by
such awards, the MRP Committee will consider the position, duties and
responsibilities of such officers and employees or directors, the value of
their services to the Association and any other factors the MRP Committee may
deem relevant. Compensation expense in the amount of the fair market value of
the MRP shares will be recognized as the shares are earned. In addition, a
director who is not a director at the time the MRP is approved but is later
elected may also be granted common shares pursuant to such formula on or after
the date of his or her election.
58
<PAGE>
No determination has been made regarding recipients of MRP awards or the
number of shares to be awarded to individual recipients. In accordance with
OTS regulations, the following restrictions will apply if the MRP is
implemented during the first year following the completion of the Conversion:
(i) the MRP must be approved by the shareholders of the Holding Company at the
first annual or a special meeting of shareholders, in either case to be held no
sooner than six months after the completion of the Conversion; (ii) awards to
directors who are not full-time employees of the Holding Company or the
Association may not exceed 5% per person and 30% in the aggregate of the total
number of shares reserved for issuance under the plan; (iii) awards to
directors or other persons who are full-time employees of the Holding Company
or the Association may not exceed 25% per person; and (iv) MRP shares will be
earned and nonforfeitable at the rate of one-fifth per year on each of the
first five anniversaries of the award, subject to acceleration only in the
event of the death or disability of a participant.
Employment Agreements
The Association intends to enter into employment agreements with William R.
Faulk, President of the Association and Ms. Beth B. Knight, Vice-President-
Finance and Chief Financial Officer of the Association (the "Employment
Agreements"). The Association currently has no employment agreements with any
of its officers. The Employment Agreements will become effective upon the
completion of the Conversion and will each provide for a term of three years,
with salary in any year to be not less that the first year of the term and with
performance and salary review to be undertaken by the Board of Directors not
less often than annually. The Employment Agreements will also provide for the
inclusion of Mr. Faulk and Ms. Knight in any formally established employee
benefit, bonus, pension and profit-sharing plans for which senior management
personnel are eligible.
Each Employment Agreement will be terminable by the Association at any
time. In the event of termination by the Association for "just cause," as
defined in the Employment Agreement, Mr. Faulk and/or Ms. Knight will have no
right to receive any compensation or other benefits for any period after such
termination. In the event of termination by the Association other than for
just cause, Mr. Faulk and/or Ms. Knight will be entitled to a continuation of
salary payments for a period of time equal to the term of the Employment
Agreement and a continuation of benefits substantially equal to those being
provided at the date of termination of employment until the earliest to occur
of the end of the term of the Employment Agreement or the date on which Mr.
Faulk and/or Ms. Knight becomes employed full-time by another employer.
Each Employment Agreement also will contain provisions with respect to the
occurrence within one year of a "change of control" of (1) the termination of
employment of the employee for any reason other than just cause, retirement or
termination at the end of the term of the agreement, or (2) a constructive
termination resulting from change in the capacity or circumstances in which the
employee is employed or a material reduction in his responsibilities,
authority, compensation or other benefits provided under the Employment
Agreement without the employee's written consent. In the event of any such
occurrence, the employee will be entitled to payment of an amount equal to (a)
the amount of compensation to which he would be entitled for the remainder of
the term of the Employment Agreement, plus (b) the difference between (i) three
times the employee's average annual compensation for the three taxable years
immediately preceding the termination of employment less (ii) the amount paid
to the employee as compensation for the remainder of the employment term. In
addition, the employee will be entitled to continued coverage under all benefit
plans until the earliest of the end of the term of the Employment Agreement or
the date on which he is included in another employer's benefit plans as a full-
time employee. The maximum which the employee may receive, however, is limited
to an amount which will not result in the imposition of a penalty
59
<PAGE>
tax pursuant to Section 28OG(b)(3) of the Code. "Change of Control," as defined
in the Employment Agreement, generally refers to the acquisition by any person
or entity of the ownership or power to vote 10% or more of the voting stock of
the Association or the Holding Company, the control of the election of a
majority of the directors of the Association or the Holding Company or the
exercise of a controlling influence over the management or policies of the
Association or the Holding Company.
Certain Transactions with the Association
In accordance with the OTS regulations, the Association makes loans
to executive officers and directors of the Association in the ordinary course
of business and on the same terms and conditions, including interest rates and
collateral, as those of comparable loans to other persons. All outstanding
loans to executive officers and directors comply with such policy, do not
involve more than the normal risk of collectibility or present other
unfavorable features and are current in their payments. Loans to all directors
and executive officers of the Association and their related interests totaled
$689,788 at June 30, 1996. Any future transactions between the Holding Company
and the Association or any other affiliate of the Holding Company will be on
terms no less favorable than could be approved by a majority of the directors
of the Holding Company including the majority of disinterested directors.
Finis E. St. John, IV, Chairman of the Association and of the Holding
Company, serves as general counsel to the Association. The Association expects
to continue to engage Mr. St. John in such capacity in the future.
REGULATION
General
As a federally chartered savings and loan association, the Association is
subject to regulation, examination and oversight by the OTS. Because the
Association's deposits are insured by the FDIC, the Association also is subject
to general oversight by the FDIC. The Association must file periodic reports
with the OTS and the FDIC concerning its activities and financial condition.
Examinations are conducted periodically by federal regulators to determine
whether the Association is in compliance with various regulatory requirements
and is operating in a safe and sound manner. The Association is a member of
the FHLB of Atlanta.
The Holding Company will be a savings and loan holding company within the
meaning of the Home Owners Loan Act, as amended (the "HOLA"). Consequently,
the Holding Company will be subject to regulation, examination and oversight by
the OTS and will be required to submit periodic reports thereto. Because the
Holding Company is a corporation organized under Delaware law, the Holding
Company is also subject to the provisions of the Delaware General Corporation
Law applicable to Delaware corporations generally.
The United States Congress is considering legislation to recapitalize the
SAIF. See "- Federal Deposit Insurance Corporation -- Assessments." In
connection with such legislation, Congress may eliminate the OTS and may
require that the Association be regulated under federal law in the same fashion
as banks. As a result, the Association may become subject to additional
regulation, examination and oversight by the FDIC. In addition, the Holding
Company might become a bank holding company, subject to examination, regulation
and oversight by the Board of Governors of the Federal Reserve ("FRB"),
including greater activity and capital requirements than imposed on it by the
OTS.
60
<PAGE>
Office of Thrift Supervision
General. The OTS is an office in the Department of the Treasury and is
responsible for the regulation and supervision of all federally chartered
savings and loan associations and all other savings and loan associations the
deposits of which are insured by the FDIC. The OTS issues regulations
governing the operation of savings and loan associations, regularly examines
such associations and imposes assessments on savings associations based on
their asset size to cover the costs of this supervision and examination. The
OTS also may initiate enforcement actions against savings and loan associations
and certain persons affiliated with them for violations of laws or regulations
or for engaging in unsafe or unsound practices. If the grounds provided by law
exist, the OTS may appoint a conservator or receiver for a savings and loan
association.
Regulatory Capital Requirements. The Association is required by OTS
regulations to meet certain minimum capital requirements. For information
regarding the Association's regulatory capital at June 30, 1996, and pro forma
regulatory capital after giving effect to the Conversion, see "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Capital Resources; - Liquidity" and "REGULATORY CAPITAL COMPLIANCE."
Current capital requirements call for tangible capital of 1.5% of adjusted
total assets, core capital of 3.0% of adjusted total assets and risk-based
capital of 8.0% of risk-weighted assets (assets, including certain off-balance
sheet items, are weighted at percentage levels ranging from 0% to 100%
depending on the relative risk).
The OTS has proposed to amend the core capital requirement so that those
associations that do not have the highest examination rating and an acceptable
level of risk will be required to maintain core capital of from 4% to 5%,
depending on the association's examination rating and overall risk. The
Association does not anticipate that it will be adversely affected if the core
capital requirement regulation is amended as proposed.
The OTS has adopted an interest rate risk component to the risk-based
capital requirement, though the implementation of that component has been
delayed. Pursuant to that requirement, a savings association would have to
measure the effect of an immediate 200 basis point change in interest rates on
the value of its portfolio as determined under the methodology of the OTS. If
the measured interest rate risk is above the level deemed normal under the
regulation, the association will be required to deduct one-half of such excess
exposure from its total capital when determining its risk-based capital. In
general, an association with less than $300 million in assets and a risk-based
capital ratio in excess of 12% will not be subject to the interest rate risk
component, and the Association qualifies for such exemption. Pending
implementation of the interest rate risk component, the OTS has the authority
to impose a higher individualized capital requirement on any savings
association it deems to have excess interest rate risk. The OTS also may
adjust the risk-based capital requirement on an individualized basis to take
into account risks due to concentrations of credit and non-traditional
activities. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Asset/Liability Management."
The OTS has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled savings and
loan associations. At each successively lower defined capital category, an
association is subject to more restrictive and numerous mandatory or
discretionary regulatory actions or limits, and the OTS has less flexibility in
determining how to resolve the problems of
61
<PAGE>
the institution. The OTS has defined these capital levels as follows: (i) well-
capitalized associations must have total risk-based capital of at least 10%,
core risk-based capital (consisting only of items that qualify for inclusion in
core capital) of at least 6% and core capital of at least 5%; (ii) adequately
capitalized associations are those that meet the regulatory minimum of total
risk-based capital of 8% core risk-based capital (consisting only of items that
qualify for inclusion in core capital) of 4%, and core capital of 4% (except
for associations receiving the highest examination rating, in which case the
level is 3%) but are not well-capitalized; (iii) undercapitalized associations
are those that do not meet regulatory limits, but that are not significantly
undercapitalized; (iv) significantly undercapitalized associations have total
risk-based capital of less than 6%, core risk-based capital (consisting only of
items that qualify for inclusion in core capital) of less than 3% or core
capital of less than 3%; and (v) critically undercapitalized associations are
those with core capital of less than 2% of total assets. In addition, the OTS
generally can downgrade an association's capital category, notwithstanding its
capital level, if, after notice and opportunity for hearing, the association is
deemed to be engaging in an unsafe or unsound practice because it has not
corrected deficiencies that resulted in it receiving a less than satisfactory
examination rating on matters other than capital or it is deemed to be in an
unsafe or unsound condition. An undercapitalized association must submit a
capital restoration plan to the OTS within 45 days after it becomes
undercapitalized. Undercapitalized associations will be subject to increased
monitoring and asset growth restrictions and will be required to obtain prior
approval for acquisitions, branching and engaging in new lines of business.
Critically undercapitalized institutions must be placed in conservatorship or
receivership within 90 days of reaching that capitalization level, except under
limited circumstances. The Association's capital at June 30, 1996, meets the
standards for a well-capitalized institution.
Federal law prohibits a savings and loan association from making a capital
distribution to anyone or paying management fees to any person having control
of the association if, after such distribution or payment, the association
would be undercapitalized. In addition, each company controlling an
undercapitalized association must guarantee that the association will comply
with its capital plan until the association has been adequately capitalized on
an average during each of four preceding calendar quarters and must provide
adequate assurances of performance. The aggregate liability pursuant to such
guarantee is limited to the lesser of (i) an amount equal to 5% of the
association's total assets at the time the association became undercapitalized,
or (ii) the amount that is necessary to bring the association into compliance
with all capital standards applicable to such association at the time the
association fails to comply with its capital restoration plan.
Liquidity. OTS regulations require that savings associations maintain an
average daily balance of liquid assets (cash, certain time deposits, bankers'
acceptances and specified United States government, state or federal agency
obligations) equal to a monthly average of not less than 5% of its net
withdrawable savings deposits plus borrowings payable in one year or less.
Federal regulations also require each member institution to maintain an average
daily balance of short-term liquid assets of not less than 1% of the total of
its net withdrawable savings accounts and borrowings payable in one year or
less. Monetary penalties may be imposed upon member institutions failing to
meet liquidity requirements. The eligible liquidity of the Association at June
30, 1996, was approximately 33.3%, which exceeded the 5% liquidity requirement
by approximately $16 million. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Capital Resources; and -
Liquidity."
Qualified Thrift Lender Test. Savings and loan associations are required
to maintain a specified level of investments in assets that are designated as
qualifying thrift investments. Such investments are generally related to
domestic residential real estate and manufactured housing and include stock
issued by any FHLB, the Federal Home Loan Mortgage Corporation or the Federal
National Mortgage Association. The QTL test requires that 65% of an
institution's "portfolio assets" (total assets less goodwill and other
62
<PAGE>
intangibles, property used to conduct business and 20% of liquid assets)
consist of qualified thrift investments on a monthly average basis in 9 out of
every 12 months. The OTS may grant exceptions to the QTL test under certain
circumstances. If a savings and loan association fails to meet the QTL Test,
the association and its holding company will be subject to certain operating
restrictions. A savings and loan association that fails to meet the QTL Test
will not be eligible for new FHLB advances. See "- Federal Home Loan Banks."
At June 30, 1996, the Association had QTL investments in excess of 80% of its
total portfolio assets.
Lending Limit. OTS regulations generally limit the aggregate amount that a
savings association can lend to one borrower or group of related borrowers to
an amount equal to 15% of the association's unimpaired capital, which is
defined for this purpose as total capital for regulatory purposes. At June 30,
1996, the Association's lending limit was $972,000. A savings association may
loan to one borrower an additional amount not to exceed 10% of the
association's unimpaired capital if the additional amount is fully secured by
certain forms of "readily marketable collateral." Real estate is not considered
"readily marketable collateral." Notwithstanding the level of unimpaired
capital and surplus, a savings association may lend up to $500,000 to any one
borrower or group of related borrowers. See "THE BUSINESS OF THE ASSOCIATION -
Lending Activities -- Loan Originations."
Transactions with Insiders and Affiliates. Loans to insiders are also
subject to Section 22(g) and (h) of the Federal Reserve Act ("FRA"), which
place restrictions on loans to executive officers, directors and principal
shareholders and their related interests. Generally, such loans must conform
to the lending limit on loans to one borrower, and the total of such loans to
executive officers, directors, principal shareholders and their related
interests cannot exceed the association's unimpaired capital and surplus or
200% of unimpaired capital and surplus for eligible adequately capitalized
institutions with less than $100 million in assets. See "- Lending Limit."
Most loans to directors, executive officers and principal shareholders must be
approved in advance by a majority of the "disinterested" members of the board
of directors of the association with any "interested" director not
participating. All loans to directors, executive officers and principal
shareholders must be made on terms substantially the same as offered in
comparable transactions with the general public. Loans to executive officers
are subject to additional limits. The Association was in compliance with such
restrictions at June 30, 1996. See "MANAGEMENT - Certain Transactions with the
Association."
Savings associations must comply with Sections 23A and 23B of the FRA,
pertaining to transactions with affiliates. An affiliate of a savings
association is any company or entity that controls, is controlled by or is
under common control with the savings and loan association. The Holding
Company will be an affiliate of the Association. Generally, Sections 23A and
23B of the FRA (i) limit the extent to which a savings and loan association or
its subsidiaries may engage in "covered transactions" with any one affiliate to
an amount equal to 10% of such institution's capital stock and surplus, (ii)
limit the aggregate of 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 association, as those provided in transactions with a non-affiliate. The
term "covered transaction" includes the making of loans, purchase of assets,
issuance of a guarantee and other similar types of transactions. In addition
to the limits in Sections 23A and 23B, a savings association may not make any
loan or other extension of credit to an affiliate unless the affiliate is
engaged only in activities permissible for a bank holding company and may not
purchase or invest in securities of any affiliate except shares of a
subsidiary. The Association was in compliance with these requirements and
restrictions at June 30, 1996.
Limitations on Capital Distributions. The OTS imposes various restrictions
or requirements on the ability of associations to make capital distributions,
according to ratings of associations based on their
63
<PAGE>
capital level and supervisory condition. Capital distributions for purposes of
such regulation include, without limitation, payments of cash dividends,
repurchases and certain other acquisitions by an association of its shares and
payments to stockholders of another association in an acquisition of such other
association.
The first rating category is Tier 1, consisting of associations that,
before and after the proposed capital distribution, meet their fully phased-in
capital requirement. Associations in this category may make capital
distributions during any calendar year equal to the greater of 100% of their
net income, current year-to-date, plus 50% of the amount by which the lesser of
such association's tangible, core or risk-based capital exceeds its fully
phased-in capital requirement for such capital component, as measured at the
beginning of the calendar year, or the amount authorized for a Tier 2
association. The second category, Tier 2, consists of associations that,
before and after the proposed capital distribution, meet their current minimum,
but not fully phased-in capital requirement. Associations in this category may
make capital distributions up to 75% of their net income over the most recent
four quarters. Tier 3 associations do not meet their current minimum capital
requirement and must obtain OTS approval of any capital distribution. A Tier 1
association deemed to be in need of more than normal supervision by the OTS may
be downgraded to a Tier 2 or Tier 3 association.
The Association meets the requirements for a Tier 1 association and has not
been notified of any need for more than normal supervision. The Association
will also be prohibited from declaring or paying any dividends or from
repurchasing any of its stock if, as a result, the net worth of the Association
would be reduced below the amount required to be maintained for the liquidation
account established in connection with the Conversion. In addition, as a
subsidiary of the Holding Company, the Association will also be required to
give the OTS 30 day's notice prior to declaring any dividend on its stock. The
OTS may object to the dividend during that 30-day period based on safety and
soundness concerns. Moreover, the OTS may prohibit any capital distribution
otherwise permitted by regulation if the OTS determines that such distribution
would constitute an unsafe or unsound practice.
In December 1994, the OTS issued a proposal to amend the capital
distributions limits. Under that proposal, associations not owned by a holding
company with a CAMEL examination rating of 1 or 2 could make a capital
distribution without notice to the OTS, if they remain adequately capitalized,
as described above, after the distribution is made. Any other association
seeking to make a capital distribution that would not cause the association to
fall below the capital levels to qualify as adequately capitalized or better,
would have to provide notice to the OTS. Except under limited circumstances
and with OTS approval, no capital distributions would be permitted if it caused
the association to become undercapitalized or worse.
Holding Company Regulation. After the Conversion, the Holding Company will
be a savings and loan holding company within the meaning of the HOLA. As such,
the Holding Company will register with the OTS and will be subject to OTS
regulations, examination, supervision and reporting requirements. Congress is
considering legislation which may require that the Holding Company become a
bank holding company regulated by the FRB. Bank holding companies with more
than $150 million in assets are subject to capital requirements similar to
those imposed on the Association and have more extensive interstate acquisition
authority than savings and loan holding companies. They are also subject to
more restrictive activity and investment limits than savings and loan holding
companies. No assurances can be given that such legislation will be enacted,
and the Holding Company cannot be certain of the legislation's impact on its
future operations until it is enacted.
64
<PAGE>
The HOLA generally prohibits a savings and loan holding company from
controlling any other savings and loan association or savings and loan holding
company, without prior approval of the OTS, or from acquiring or retaining more
than 5% of the voting shares of a savings and loan association or holding
company thereof, which is not a subsidiary. Under certain circumstances, a
savings and loan holding company is permitted to acquire, with the approval of
the OTS, up to 15% of the previously unissued voting shares of an
undercapitalized savings and loan association for cash without such savings and
loan association being deemed to be controlled by such holding company. Except
with the prior approval of the OTS, no director or officer of a savings and
loan holding company or person owning or controlling by proxy or otherwise more
than 25% of such company's stock may also acquire control of any savings
institution, other than a subsidiary institution, or any other savings and loan
holding company.
The Holding Company will be a unitary savings and loan holding company.
Under current law, there are generally no restrictions on the activities of
unitary savings and loan holding companies and such companies are the only
financial institution holding companies which may engage in commercial,
securities and insurance activities without limitation. The broad latitude
under current law is restricted if the OTS determines that there is reasonable
cause to believe that the continuation by a savings and loan holding company of
an activity constitutes a serious risk to the financial safety, soundness or
stability of its subsidiary savings and loan association. The OTS may impose
such restrictions as deemed necessary to address such risk, including limiting
(i) payment of dividends by the savings and loan association; (ii) transactions
between the savings and loan association and its affiliates; and (iii) any
activities of the savings and loan association that might create a serious risk
that the liabilities of the holding company and its affiliates may be imposed
on the savings and loan association. Notwithstanding the foregoing rules as to
permissible business activities of a unitary savings and loan holding company,
if the savings and loan association subsidiary of a holding company fails to
meet the QTL Test, then such unitary holding company would become subject to
the activities restrictions applicable to multiple holding companies. At June
30, 1996, the Association met the QTL Test. See "- Qualified Thrift Lender
Test."
If the Holding Company were to acquire control of another savings
institution, other than through a merger or other business combination with the
Association, the Holding Company would become a multiple savings and loan
holding company. Unless the acquisition is an emergency thrift acquisition and
each subsidiary savings and loan association meets the QTL Test, the activities
of the Holding Company and any of its subsidiaries (other than the Association
or other subsidiary savings and loan associations) would thereafter be subject
to activity restrictions. The HOLA provides that, among other things, no
multiple savings and loan holding company or subsidiary thereof that is not a
savings institution shall commence or continue for a limited period of time
after becoming a multiple savings and loan holding company or subsidiary
thereof, any business activity other than (i) furnishing or performing
management services for a subsidiary savings institution; (ii) conducting an
insurance agency or escrow business; (iii) holding, managing or liquidating
assets owned by or acquired from a subsidiary savings institution; (iv) holding
or managing properties used or occupied by a subsidiary savings institution;
(v) acting as trustee under deeds of trust; (vi) those activities previously
directly authorized by federal regulation as of March 5, 1987 to be engaged in
by multiple holding companies; or (vii) those activities authorized by the FRB
as permissible for bank holding companies, unless the OTS by regulation
prohibits or limits such activities for savings and loan holding companies, and
which have been approved by the OTS prior to being engaged in by a multiple
holding company.
The OTS may approve an acquisition resulting in the formation of a multiple
savings and loan holding company that controls savings and loan associations in
more than one state, only if the multiple savings and loan holding company
involved controls a savings and loan association that operated a home or branch
office in the state of the association to be acquired as of March 5, 1987, or
if the laws of the state in
65
<PAGE>
which the institution to be acquired is located specifically permit
institutions to be acquired by state-chartered institutions or savings and loan
holding companies located in the state where the acquiring entity is located
(or by a holding company that controls such state-chartered savings
institutions). As under prior law, the OTS may approve an acquisition resulting
in a multiple savings and loan holding company controlling savings and loan
associations in more than one state in the case of certain emergency thrift
acquisitions.
No subsidiary savings and loan association of a savings and loan holding
company may declare or pay a dividend on its permanent or nonwithdrawable stock
unless it first, gives the OTS 30 days advance notice of such declaration and
payment. Any dividend declared during such period or without the giving of
such notice shall be invalid.
Federal Deposit Insurance Corporation
Deposit Insurance. The FDIC is an independent federal agency that insures
the deposits, up to prescribed statutory limits, of banks and thrifts and
safeguards the safety and soundness of the banking and thrift industries. The
FDIC administers two separate insurance funds, the BIF for commercial banks and
state savings banks and the SAIF for savings associations and banks that have
acquired deposits from savings associations. The FDIC is required to maintain
designated levels of reserves in each fund. The reserves of the SAIF are
currently below the level required by law, primarily because a significant
portion of the assessments paid into the SAIF have been used to pay the cost of
prior thrift failures while the reserves of the BIF met the level required by
law in May, 1995. Thrifts are generally prohibited from converting from one
insurance fund to the other until the SAIF meets its designated reserve level,
except with the prior approval of the FDIC in certain limited cases, and
provided certain fees are paid. The insurance fund conversion provisions do
not prohibit a SAIF member from converting to a bank charter or merging with a
bank during the moratorium as long as the resulting bank continues to pay the
applicable insurance assessments to the SAIF during such period and as long as
certain other conditions are met.
The Association is a member of the SAIF and its deposit accounts are
insured by the FDIC up to the prescribed limits. The FDIC has examination
authority over all insured depository institutions, including the Association,
and has authority to initiate enforcement actions against federally insured
savings associations if the FDIC does not believe the OTS has taken appropriate
action to safeguard safety and soundness and the deposit insurance fund.
Assessments. The FDIC is authorized to establish separate annual
assessment rates for deposit insurance for members of the BIF and members of
the SAIF. The FDIC may increase assessment rates for either fund if necessary
to restore the fund's ratio of reserves to insured deposits to the target level
within a reasonable time and may decrease such rates if such target level has
been met. The FDIC has established a risk-based assessment system for both
SAIF and BIF members. Under this system, assessments vary depending on the
risk the institution poses to its deposit insurance fund. Such risk level is
determined based on the institution's capital level and the FDIC's level of
supervisory concern about the institution.
Both the SAIF and the BIF are required by law to attain and thereafter
maintain a reserve ratio of 1.25% of insured deposits. The BIF has achieved
the required reserve rate, and, as discussed below, the FDIC recently
substantially reduced the average deposit insurance premium paid by BIF-insured
banks to a level substantially below the average premium paid by savings
institutions.
On November 14, 1995, the FDIC approved a final rule regarding deposit
insurance premiums. The final rule will reduce deposit insurance premiums for
BIF member institutions to zero basis points
66
<PAGE>
(subject to a $2,000 minimum) for institutions in the lowest risk category,
while holding deposit insurance premiums for SAIF members at their current
levels (23 basis points for institutions in the lowest risk category). The
reduction was effective with respect to the semiannual premium assessment
beginning January 1, 1996. Accordingly, in the absence of further legislative
action, SAIF members such as the Association will be competitively
disadvantaged as compared to commercial banks by the resulting premium
differential.
The U.S. House of Representatives and Senate have actively considered
legislation which would eliminate the premium differential between SAIF-insured
institutions and BIF-insured institutions by recapitalizing the SAIF's reserves
to the required ratio. The proposed legislation would provide that all SAIF
member institutions pay a special one-time assessment to recapitalize the SAIF,
which in the aggregate would have been sufficient to bring the reserve ratio in
the SAIF to 1.25% of insured deposits. Based on the current level of reserves
maintained by the SAIF, it was anticipated that the amount of the special
assessment required to recapitalize the SAIF would have been approximately 80
to 85 basis points of the SAIF-assessable deposits. Recently, the FDIC revised
its estimates of the amount of the special assessment downward to 68 basis
points. It was anticipated that after the recapitalization of the SAIF,
premiums paid by SAIF-insured institutions would be reduced to match those
currently being assessed BIF-insured commercial banks. The legislation also
provided for the merger of the BIF and the SAIF, with such merger being
conditioned upon the prior elimination of the thrift charter.
The legislation discussed above had been, for some time, included as part
of a fiscal 1996 federal budget bill, but was eliminated prior to the bill
being enacted on April 26, 1996. However, the legislation continues to be
considered by Congress. In light of the uncertainty of the legislative process
generally, management cannot predict whether legislation reducing SAIF premiums
and/or imposing a special one-time assessment will be adopted, or, if adopted,
the amount of the assessment, if any, that would be imposed on the Association.
If legislation were to be enacted in the future which would assess a one-
time special assessment of 68 or 85 basis points, the Association would (based
upon the Association's SAIF deposits as of June 30, 1996) pay approximately
$249,000 or $312,000, respectively, net of related tax benefits. In addition,
the enactment of such legislation might have the effect of immediately reducing
the Association's capital by such an amount. Nevertheless, management does not
believe, based upon the foregoing assumptions, that a one-time assessment of
this nature would have a material adverse effect on the Association's overall
financial condition.
No assurances can be given that the SAIF recapitalization plan will be
enacted into law or in what form it may be enacted. The Holding Company can
give no assurances that the disparity between BIF and SAIF assessments will be
eliminated and if the proposed legislation is not enacted, SAIF premiums may
increase and the disparity between BIF and SAIF premiums may become more
pronounced, which would negatively impact the Association.
FRB Reserve Requirements
FRB regulations currently require savings associations to maintain reserves
of 3% of net transaction accounts (primarily NOW accounts) up to $52.0 million
in such accounts (subject to an exemption of $4.3 million) and of 10% of net
transaction accounts over $52.0 million. At June 30, 1996, the Association was
in compliance with the FRB's reserve requirements.
67
<PAGE>
Federal Home Loan Banks
The FHLBs provide credit to their members in the form of advances. See
"THE BUSINESS OF THE ASSOCIATION - Deposits and Borrowings." The Association
is a member of the FHLB of Atlanta and must maintain an investment in the
capital stock of the FHLB of Atlanta in an amount equal to the greater of 1% of
the aggregate outstanding principal amount of the Association's residential
mortgage loans, home purchase contracts and similar obligations at the
beginning of each year, and 5% of its advances from the FHLB. The Association
is in compliance with this requirement with an investment in stock of the FHLB
of Atlanta of $429,800 at June 30, 1996.
FHLB advances to members such as the Association who meet the QTL Test are
generally limited to the lower of (i) 25% of the member's assets and (ii) 20
times the member's investment in FHLB stock. The granting of advances is
subject also to the FHLB's collateral and credit underwriting guidelines. Upon
the origination or renewal of a loan or advance, the FHLB of Atlanta is
required by law to obtain and maintain a security interest in collateral in one
or more of the following categories: fully disbursed, whole first mortgage
loans on improved residential property or securities representing a whole
interest in such loans; securities issued, insured or guaranteed by the U.S.
Government or an agency thereof; deposits in any FHLB; or other real estate
related collateral (up to 30% of the member association's capital) acceptable
to the applicable FHLB, if such collateral has a readily ascertainable value
and the FHLB can perfect its security interest in the collateral.
Each FHLB is required to establish standards of community investment or
service that its members must maintain for continued access to long-term
advances from the FHLBs. The standards take into account a member's
performance under the Community Reinvestment Act and its record of lending to
first-time home buyers. All long-term advances by each FHLB must be made only
to provide funds for residential housing finance. The FHLBs have established
an "Affordable Housing Program" to subsidize the interest rate of advances to
member associations engaged in lending for long-term, low- and moderate-income,
owner-occupied and affordable rental housing at subsidized rates. The FHLB of
Atlanta reviews and accepts proposals for subsidies under that program twice a
year. The Association has not participated in such program.
TAXATION
Federal Taxation
The Holding Company is subject to the federal tax laws that apply to
corporations generally. With certain exceptions, the Association is also
subject to the federal tax laws and regulations which apply to corporations
generally.
One such exception is related to special bad debt reserve deductions that
have in the past been available to thrift institutions such as the Association.
Under Section 593 of the Code, thrift institutions meeting certain definitional
tests primarily relating to their assets and the nature of their business, have
been permitted to establish a tax reserve for bad debts and to make annual
additions thereto, which additions could, within specified limitations, be
deducted in arriving at their taxable income. Under Section 593, for purposes
of the bad debt reserve deduction, loans were categorized as "qualifying real
property loans," which generally included loans secured by improved real
estate, and "nonqualifying loans," which included all other types of loans.
The amount of the bad debt reserve deduction for "nonqualifying loans" was
computed using an amount based on the Association's actual loss experience (the
"experience method"). A thrift institution could elect annually to compute its
allowable addition to its bad debt reserves
68
<PAGE>
for qualifying loans under either the experience method or based on a
percentage equal to 8.0% of the institution's taxable income (the "percentage
of taxable income method").
The Association used the percentage of taxable income method for its fiscal
year ending September 30, 1995 and was allowed a bad-debt reduction of $54,000.
The Association has accumulated $1.8 million in its tax bad debt reserves as of
September 30, 1995.
The prior availability of the percentage of taxable income method permitted
qualifying thrift institutions to be taxed at a lower effective federal income
tax rate than that applicable to corporations generally. The Small Business
Job Protection Act of 1995 eliminates the lower effective federal income tax
rate for thrift institutions such as the Association.
In August, 1996 Congress enacted, and the President signed into law, the
Small Business Job Protection Act. Under the Small Business Job Protection
Act, Section 593 of the Code and the percentage of taxable income method are
repealed and the Association will hereafter be permitted to use only the
experience method of computing additions to its bad debt reserve. In addition,
the Association will be required to recapture (i.e., take into income) over a
six-year period the excess of the balance of its bad debt reserves as of
December 31, 1995 over the balance of such reserves as of December 31, 1987.
However, under the legislation, such recapture requirements would be suspended
for each of two successive taxable years beginning January 1, 1996, in which
the Association originates a minimum amount of certain residential loans based
upon the average of the principal amounts of such loans made by the Association
during its six taxable years preceding 1996. The Association is expected to
recapture approximately $32,000 of its tax bad debt reserves. The recapture
will not have an effect on the Association's financial statements because the
related tax expense has previously been accrued.
In addition to the regular income tax, the Association is subject to a
minimum tax. An alternative minimum tax is imposed at a minimum tax rate of
20% on "alternative minimum taxable income" (which is the sum of a
corporation's regular taxable income, with certain adjustments and tax
preference items), less any available exemption. Such tax preference items
include (i) 100% of the excess of a thrift institution's bad debt deduction
over the amount that would have been allowable based on actual experience and
(ii) interest on certain tax-exempt bonds issued after August 7, 1986. In
addition, 75% of the amount by which a corporation's "adjusted current
earnings" exceeds its alternative minimum taxable income computed without
regard to this preference item and prior to reduction by net operating losses,
is included in alternative minimum taxable income. Net operating losses can
offset no more than 90% of alternative minimum taxable income. The alternative
minimum tax is imposed to the extent it exceeds the corporation's regular
income tax. Payments of alternative minimum tax may be used as credits against
regular tax liabilities in future years.
If the Association distributes cash or property to its stockholders, and
the distribution is treated as being from its accumulated bad debt reserves,
the distribution will cause the Association to have additional taxable income.
A distribution is deemed to have been made from accumulated bad debt reserves
to the extent that (a) the reserves exceed the amount that would have been
accumulated on the basis of actual loss experience, and (b) the distribution is
a "non-qualified distribution." A distribution with respect to stock is a non-
qualified distribution to the extent that, for federal income tax purposes,
(i) it is in redemption of shares, (ii) it is pursuant to a liquidation of the
institution, or (iii) in the case of a current distribution, together with all
other such distributions during the taxable year, it exceeds the institution's
current and post-1951 accumulated earnings and profits. The amount of
additional taxable income created by a non-qualified distribution is an amount
that when reduced by the tax attributable to it is equal to the amount of the
distribution.
69
<PAGE>
The tax returns of the Association have been closed by statute or audited
through 1992. In the opinion of management, any examination of open returns
would not result in a deficiency which could have a material adverse effect on
the financial condition of the Association.
State Taxation
The State of Alabama imposes a 6.0% excise tax on the earnings of financial
institutions such as the Association. The 6.0% excise tax also would apply to
the Holding Company. In addition to the excise taxes, the State of Alabama
imposes an annual state franchise tax for domestic and foreign corporations. A
domestic corporation, including a federally chartered stock savings bank
domiciled in Alabama, is assessed a domestic franchise tax of approximately
1.0% based on the par value of its common stock. Foreign corporations, such as
the Holding Company which is incorporated in Delaware, are assessed a foreign
franchise tax of 0.3% based on a total of capital (as determined by statute)
deemed to be employed in the state of Alabama. The foreign corporation's
investment in the capital of an Alabama corporation is excluded from the
taxable base. The Holding Company will also be subject to the Delaware
franchise tax.
THE CONVERSION
THE OTS HAS APPROVED THE PLAN, SUBJECT TO THE APPROVAL OF THE PLAN BY THE
MEMBERS OF THE ASSOCIATION ENTITLED TO VOTE ON THE PLAN AND SUBJECT TO THE
SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS. OTS APPROVAL DOES
NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN.
General
On June 10, 1996, the Board of Directors of the Association unanimously
adopted the Plan pursuant to which the Association will be converted from a
federal mutual savings and loan association to a federal stock savings and loan
association. The Plan was amended on September 16, 1996.
The Plan provides generally that the Holding Company and the Association
will offer Common Shares for sale in the Subscription Offering to Eligible
Account Holders, the ESOP, Supplemental Eligible Account Holders and Other
Members. The Holding Company may offer the Common Shares not subscribed for in
the Subscription Offering in a Community Offering to certain members of the
general public. See "- Community Offering." The Association and the Holding
Company have the right in their sole discretion to accept or reject, in whole
in or part, any orders to purchase shares of the Common Shares received in the
Community Offering.
The aggregate price of the shares of Common Shares to be issued in the
Conversion within the Valuation Range, currently estimated to be between
$6,800,000 and $9,200,000, will be determined based upon an independent
appraisal of the estimated pro forma market value of the Common Shares of the
Association. All shares of Common Shares to be issued and sold in the
Conversion will be sold at the same price. The independent appraisal will be
affirmed or, if necessary, updated at the completion of the Subscription and
Community Offerings, if all shares are subscribed for, or at the completion of
the Syndicated Community Offering. The appraisal has been performed by
Ferguson & Co., an independent consulting firm experienced in the valuation and
appraisal of savings institutions. See "- Pricing and
70
<PAGE>
Number of Common Shares to be Sold" for more information as to the
determination of the estimated pro forma market value of the Common Shares.
The following is a brief summary of pertinent aspects of the Conversion.
The summary is qualified in its entirety by reference to the provisions of the
Plan. A copy of the Plan is available for inspection at each branch of the
Association and at the offices of the OTS, 1700 G Street, N.W., Washington,
D.C. 20552 and 1475 Peachtree Street, N.E., Atlanta, Georgia 30348. See
"ADDITIONAL INFORMATION."
Reasons for the Conversion
As a mutual institution, the Association does not have shareholders and has
no authority to issue capital stock. The Board of Directors of the Association
believes that the ability to issue and sell stock will provide additional
capital for investment, increase the Association's operational flexibility and
enable the Association to operate in the form used by commercial banks, most
business corporations and an increasing number of thrift institutions. The
formation of the Holding Company will provide greater flexibility than the
Association would have alone for growth and diversification of business
activities. The Conversion also will enable the Association to utilize stock-
related incentive programs, which the Board of Directors believes will benefit
the Association and its shareholders by enabling it to attract and retain well-
qualified directors, management and staff.
In adopting the Plan, the Board of Directors of the Association determined
that the Association will derive substantial benefits from the Conversion and
that the Conversion is in the best interests of the Association and its
members. The net proceeds from the sale of shares of stock will increase the
Association's regulatory capital and thereby enable further growth, with the
result that additional funds will be available for lending and other investment
purposes.
The Conversion will also give members of the Association, at their option,
the opportunity to become shareholders of the Holding Company. No member of
the Association will be obligated to subscribe or not to subscribe for Common
Shares by voting on the Plan, nor will any member's savings account be
converted into Common Shares by such vote.
Principal Effects of the Conversion
Continuity. During and after completion of the Conversion, the Association
will continue to provide the services presently offered to depositors and
borrowers, will maintain its existing offices and will retain its existing
management and employees. The Association will continue to be subject to
regulation by the OTS and FDIC.
Voting Rights. Savings account holders who are members of the Association
in its mutual form will have no voting rights in the Association as converted
and will not participate, therefore, in the election of directors or otherwise
control the Association's affairs. Voting rights in the Holding Company will
be held exclusively by its shareholders, and voting rights in the Association
will be held exclusively by the Holding Company. Each holder of the Holding
Company's common shares will be entitled to one vote for each share owned on
any matter to be considered by the Holding Company's shareholders. See
"DESCRIPTION OF AUTHORIZED SHARES."
Effect on Savings Accounts and Loans. Savings accounts in the Association,
as converted, will be equivalent in amount, interest rate and other terms to
the present savings accounts in the Association,
71
<PAGE>
and the existing FDIC insurance on such deposits will not be affected by the
Conversion. The Conversion will not affect the terms of loan accounts or the
rights and obligations of borrowers under their individual contractual
arrangements with the Association.
Tax Consequences. The consummation of the Conversion is expressly
conditioned on receipt by the Association of a private letter ruling from the
Internal Revenue Service or an opinion of counsel to the effect that the
Conversion will constitute a tax-free reorganization as defined in Section
368(a) of the Code. The Association intends to proceed with the Conversion
based upon an opinion rendered by its special counsel, Bayh, Connaughton &
Malone, P.C., to the following effect: (1) The Conversion constitutes a
reorganization within the meaning of Section 368(a)(1)(F) of the Code, and no
gain or loss will be recognized by the Association in its mutual form or in its
stock form as a result of the Conversion; (2) No gain or loss will be
recognized by the Association upon the receipt of money from the Holding
Company in exchange for the capital stock of the Association, as converted;
(3) The basis of the assets of the Association will be the same immediately
after the Conversion as the basis in the Association's hands immediately prior
to the Conversion; (4) The holding period of the assets of the Association
after the Conversion will include the period during which the assets were held
by the Association before the Conversion; (5) No gain or loss will be
recognized by the deposit account holders of the Association upon the
constructive issuance to them, in exchange for their respective withdrawable
deposit accounts in the Association immediately prior to the Conversion, of
withdrawable deposit accounts of equal dollar amount in the Association
immediately after the Conversion, plus, in the case of Eligible Account Holders
and Supplemental Eligible Account Holders, the interests in the Liquidation
Account of the Association, as described below; (6) The basis of the deposit
accounts in the Association held by its deposit account holders immediately
after the Conversion will be the same as the basis of their deposit accounts in
the Association immediately prior to the Conversion; (7) The basis of the
interests in the Liquidation Account received by the Eligible Account Holders
and Supplemental Eligible Account Holders will be zero and the basis of the
nontransferable subscription rights received by Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members will be zero (assuming
that at distribution such rights have no ascertainable fair market value); (8)
No gain or loss will be recognized by Eligible Account Holders, Supplemental
Eligible Account Holders or Other Members upon the issuance to them of
nontransferable subscription rights to purchase Common Shares (assuming that at
issuance such rights have no ascertainable fair market value), and no taxable
income will be realized by such Eligible Account Holders, Supplemental Eligible
Account Holders or Other Members as a result of their exercise of such
nontransferable subscription rights; (9) The basis of the Common Shares to its
shareholders will be the actual purchase price ($20.00) thereof (assuming that
subscription rights of such shareholder, if any, have no ascertainable fair
market value) and the holding period of such shares will commence on the day
after the date of the purchase; (10) Immediately, after the Conversion, the
Association in its stock form will succeed to and take into account the tax
attributes of the Association in its mutual form immediately prior to the
Conversion, including the Association's earnings and profits or deficit in
earnings and profits; and (11) The Association in its stock form will succeed
to and take into account the dollar amounts of those accounts of the
Association in its mutual form which represent bad debt reserves in respect of
which the Association in its mutual form has taken a bad debt deduction for
taxable years ending on or before the Conversion.
The Association has also received the opinion of Miller, Hamilton, Snider &
Odom, L.L.C., that no gain or loss will be recognized by the Association as a
result of the Conversion for purposes of Alabama tax law. Miller, Hamilton,
Snider & Odom, L.L.C. is counsel for the Agent in the offering, however, as
Alabama counsel experienced in tax matters, the firm has been retained by the
Association, with the consent of the Agent, for the limited purpose of giving
the Alabama tax opinion.
72
<PAGE>
The Association has received an opinion from Ferguson & Co. to the effect
that the subscription rights have no ascertainable fair market value because
the rights are received by specified persons at no cost, may not be transferred
and are of short duration. The IRS could challenge the assumption that the
subscription rights have no ascertainable fair market value.
Liquidation Account. In the unlikely event of a complete liquidation of
the Association in its present mutual form, each depositor in the Association
would receive a pro rata share of any assets of the Association remaining after
payment of the claims of all creditors, including the claims of all depositors
to the withdrawable value of their savings accounts. A depositor's pro rata
share of such remaining assets would be the same proportion of such assets as
the value of such depositor's savings deposits bears to the total aggregate
value of all savings deposits in the Association at the time of liquidation.
In the event of a complete liquidation of the Association in its stock form
after the Conversion, each savings depositor would have a claim of the same
general priority as the claims of all other general creditors of the
Association. Except as described below, each depositor's claim would be solely
in the amount of the balance in such depositor's savings account plus accrued
interest. The depositor would have no interest in the assets of the
Association above that amount. Such assets would be distributed to the
shareholders of the Association.
For the purpose of granting a limited priority claim to the assets of the
Association in the event of a complete liquidation thereof to Eligible Account
Holders and Supplemental Eligible Account Holders who continue to maintain
savings accounts at the Association after the Conversion, the Association will,
at the time of Conversion, establish the Liquidation Account in an amount equal
to the regulatory capital of the Association as of June 30, 1996. The function
of the Liquidation Account is to establish a priority on liquidation, and the
existence of the Liquidation Account shall not operate to restrict the use or
application of any of the net worth accounts of the Association.
The Liquidation Account shall be maintained by the Association subsequent
to Conversion for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders who retain their savings accounts in the Association.
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 (referred to herein as the "subaccount
balance").
The initial subaccount balance for a savings account held by an Eligible
Account Holder and/or a Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the Liquidation Account by a
fraction of which the numerator is the amount of the Qualifying Deposit in the
related savings account and the denominator is the total amount of the
Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible
Account Holders in the Association. Such initial subaccount balance shall not
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 to which the subaccount relates at the
close of business on the last day of any fiscal year of the Association
subsequent to the Eligibility Record Date or Supplemental Eligibility Record
Date is less than the lesser of (i) the deposit balance in such savings account
at the close of business on the last day of the fiscal year of the Association
subsequent to the Eligibility Record Date or the Supplemental Eligibility
Record Date, or (ii) the amount of the Qualifying Deposit in such savings
account on the Eligibility Record Date or the Supplemental Eligibility Record
Date, 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
73
<PAGE>
be subsequently increased, notwithstanding any increase in the deposit balance
of the related savings account. If any such savings account is closed, the
related subaccount balance shall be reduced to zero. The subaccount of an
account holder will be maintained for so long as the account holder maintains
an account with the same Social Security or taxpayer identification number.
In the event of a complete liquidation of the Association (and only in such
event), each Eligible Account Holder and Supplemental Eligible Account Holder
shall be entitled to receive a liquidation distribution from the Liquidation
Account in the amount of the then-current adjusted subaccount balances for
savings accounts then held before any liquidation distribution may be made to
shareholders of the Association. A merger, consolidation, sale of bulk assets
or similar combination or transaction with another institution insured by the
Federal Deposit Insurance Corporation would not be considered to be a complete
liquidation for these purposes. In such transactions, the Liquidation Account
would be assumed by the surviving institution.
Common Shares. SHARES ISSUED UNDER THE PLAN CANNOT AND WILL NOT BE INSURED
BY THE FDIC. For a description of the characteristics of the Common Shares,
see "DESCRIPTION OF AUTHORIZED SHARES."
Subscription Offering
The Subscription Offering will expire on the Subscription Expiration Date
(12:00 noon, Central Time, on ________, 1996) unless extended. Subscription
rights not exercised before the Subscription Expiration Date will be void,
whether or not the Association has been able to locate each person entitled to
such subscription rights.
Nontransferable subscription rights to purchase Common Shares are being
issued at no cost to all eligible persons and entities in accordance with the
preference categories established by the Plan, as described below. Each
subscription right may be exercised only by the person to whom it is issued and
only for his or her own account. Each person subscribing for Common Shares
must represent to the Association that he or she is purchasing the Common
Shares for his or her own account and that he or she has no agreement or
understanding with any other person for the sale or transfer of the Common
Shares. The Association will not honor stock orders known by it to involve the
transfer of subscription rights or to contain false or misleading information.
Any person who attempts to transfer his or her subscription rights may be
subject to penalties and sanctions, including loss of the subscription rights.
The number of Common Shares which a person who has subscription rights may
purchase will be determined, in part, by the total number of Common Shares to
be issued and the availability of Common Shares for purchase under the
preference categories set forth in the Plan and certain other limitations. See
"- Limitations on Purchases of Common Shares." The sale of any Common Shares
pursuant to subscriptions received is contingent upon approval of the Plan by
the voting members of the Association at the Special Meeting.
The preference categories and purchase limitations which have been
established by the Plan, in accordance with applicable regulations, for the
allocation of Common Shares are as follows:
(a) Subscription Rights of Eligible Account Holders. Eligible Account
Holders shall have the following rights to subscribe for and purchase Common
Shares:
74
<PAGE>
(i) Each Eligible Account Holder shall receive, without payment,
nontransferable Subscription Rights to purchase Common Shares in an amount
equal to the greater of (a) $150,000 or (b) 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of Common
Shares to be issued by a fraction of which the numerator is the amount of the
Qualifying Deposit of the Eligible Account Holder and the denominator is the
total amount of Qualifying Deposits of all Eligible Account Holders, in each
case on the Eligibility Record Date.
(ii) In the event of an oversubscription for Common Shares by Eligible
Account Holders, Common Shares shall be allocated among subscribing Eligible
Account Holders so as to permit each such Eligible Account Holder, to the
extent possible, to purchase a number of Common Shares sufficient to make his
or her total allocation equal to 100 shares or the total amount of his or her
subscription, whichever is less. Any shares not so allocated shall be
allocated among the subscribing Eligible Account Holders on an equitable basis,
in proportion to the amounts of their respective aggregate Qualifying Deposits,
as compared to the total aggregate Qualifying Deposits of all subscribing
Eligible Account Holders, in each case on the Eligibility Record Date.
(iii) Subscription Rights to purchase Common Shares received by Officers
and directors of the Association and any Associate thereof, based on increased
deposits of such person in the Association in the one year period preceding the
Eligibility Record Date shall be subordinate to the Subscription Rights of all
other Eligible Account Holders.
(b) Subscription Rights of the ESOP. The ESOP shall receive, without
payment, nontransferable Subscription Rights to purchase up to 10% of the
Common Shares issued in the Conversion. Subscription rights of the ESOP shall
be subordinated to the Subscription Rights received by Eligible Account Holders
pursuant to paragraph (a) above, provided that Common Shares, if any, sold in
excess of the high end of the valuation range may be first sold to the ESOP.
Although the Plan and OTS regulations permit the ESOP to purchase up to 10% of
the Common Shares, the Holding Company anticipates that the ESOP will purchase
8% of the Common Shares. If the ESOP is unable to purchase all or part of the
Common Shares for which it subscribes, the ESOP may purchase Common Shares on
the open market or may purchase authorized but unissued Common Shares. If the
ESOP purchases authorized but unissued Common Shares, such purchases could have
a dilutive effect on the interests of the Holding Company's shareholders.
(c) Subscription Rights of Supplemental Eligible Account Holders.
Supplemental Eligible Account Holders shall have the following rights to
subscribe for and purchase Common Shares:
(i) Each Supplemental Eligible Account Holder shall receive, without
payment, nontransferable Subscription Rights to purchase Common Shares in an
amount equal to the greater of (a) $150,000 or (b) 15 times the product
(rounded down to the next whole number) obtained by multiplying the total
number of the Common Shares to be issued by a fraction of which the numerator
is the amount of the Qualifying Deposit of the Supplemental Eligible Account
Holder and the denominator is the total amount of the Qualifying Deposits of
all Supplemental Eligible Account Holders, in each case on the Supplemental
Eligibility Record Date.
(ii) Subscription Rights of Supplemental Eligible Account Holders shall
be subordinate to the Subscription Rights received by the Eligible Account
Holders and by the ESOP pursuant to paragraphs (a) and (b) above.
75
<PAGE>
(iii) Subscription Rights to purchase shares received by an Eligible
Account Holder in accordance with paragraph (a) above shall reduce to the
extent thereof, the Subscription Rights to be distributed to such Eligible
Account Holder pursuant to this paragraph (c).
(iv) In the event of an oversubscription for Common Shares from
Supplemental Eligible Account Holders, Common Shares shall be allocated among
the subscribing Supplemental Eligible Account Holders so as to permit each such
Supplemental Eligible Account Holder, to the extent possible, to purchase a
number of Common Shares sufficient to make his or her total allocation
(including the number of Common Shares, if any, allocated in accordance with
paragraph (a) above) equal to 100 Common Shares or the total amount of his or
her subscription, whichever is less. Any shares not so allocated shall be
allocated among the subscribing Supplemental Eligible Account Holders on an
equitable basis, in proportion to the amounts of their respective aggregate
Qualifying Deposits as compared to the total aggregate Qualifying Deposits of
all subscribing Supplemental Eligible Account Holders, in each case on the
Supplemental Eligibility Record Date.
(d) Subscription Rights of Other Members. Other Members shall have the
following rights to subscribe for and purchase Common Shares:
(i) Each Other Member shall receive, without payment, nontransferable
Subscription Rights to purchase Common Shares in an amount equal to $150,000.
(ii) Subscription Rights of Other Members shall be subordinate to the
Subscription Rights of Eligible Account Holders, Tax-Qualified Employee Stock
Benefit Plans and Supplemental Eligible Account Holders pursuant to Sections
5(a), 5(b) and 5(c) of the Plan.
(iii) In the event of an oversubscription for Common Shares of Other
Members, the Common Shares available shall be allocated among subscribing Other
Members so as to permit each subscribing Other Member, to the extent possible,
to purchase a number of shares sufficient to make his or her total allocation
of Common Shares equal to 100 shares or the number of shares subscribed for by
the Other Member, whichever is less. The shares remaining thereafter will be
allocated among subscribing Other Members whose subscriptions remain
unsatisfied on an equitable basis as determined by the Board of Directors.
Community Offering
Common Shares may be offered in the Community Offering to the extent such
shares remain available after the satisfaction of all subscriptions received in
the Subscription Offering. The Community Offering, if any, is expected to
begin immediately after the Subscription Expiration Date, but may commence at
any time after the beginning of the Subscription Offering.
The Community Offering, if one is held, may be terminated at any time, but
shall terminate not later than 12:00 noon, Central Time, __________, 1996,
unless extended with the consent of the OTS.
If subscriptions are received in the Subscription Offering for up to
340,000 Common Shares, Common Shares may not be available in the Community
Offering. In the event shares are available for the Community Offering, each
person may purchase up to 7,500 Common Shares, subject to the limitation that
no person, together with such person's Associates and other persons acting in
concert with such person, may purchase more than 15,000 of the Common Shares
sold in connection with the Conversion. If an
76
<PAGE>
insufficient number of Common Shares is available to fill all of the orders
received in the Community Offering, the available Common Shares will be
allocated in a manner to be determined by the Boards of Directors of the
Holding Company and the Association, subject to the following:
(i) Preference will be given to natural persons who are residents of
Cullman County, Alabama, the county in which the main office of the Association
is located;
(ii) Orders received in the Community Offering will first be filled up to
2% of the total number of Common Shares offered, with any remaining shares
allocated on an equal number of shares per order basis until all orders have
been filled; and
(iii) The right of any person to purchase Common Shares in the Community
Offering is subject to the right of the Holding Company and the Association to
accept or reject such purchases in whole or in part.
The term "resident," as used herein with respect to the Community Offering,
means any natural person who, on the date of submission of an Order Form,
maintains a bona fide residence within Cullman County, Alabama.
Persons in Nonqualified States or Foreign Countries
The Association and the Holding Company will make reasonable efforts to
comply with the securities laws of all jurisdictions in the United States in
which Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members reside. However, no person will be offered or sold any Common Shares
if such person resides in a foreign country or in a jurisdiction of the United
States with respect to which: (a) a small number of persons otherwise eligible
to subscribe for Common Shares reside in such foreign country or jurisdiction,
(b) the granting of Subscription Rights or the offer or sale of Common Shares
to such person would require the Holding Company or the Association or their
employees to register under the securities laws of such foreign country or
jurisdiction, as a broker, dealer, salesman or agent or to register or
otherwise qualify its securities for sale in such foreign country or
jurisdiction, or (c) the Association determines such registration or
qualification would be impracticable or burdensome for reasons of cost or
otherwise.
Plan of Distribution
The offering of the Common Shares is made only pursuant to this Prospectus,
copies of which are available at the office of the Association. Officers and
directors of the Association will be available to answer questions about the
Conversion and may also hold informational meetings for interested persons.
Such officers and directors will not be permitted to make statements about the
Holding Company or the Association unless such information is also set forth in
this Prospectus, nor will they render investment advice.
To assist the Holding Company and the Association in marketing the Common
Shares, the Association has retained the services of the Agent, a broker-dealer
registered with the SEC and a member of the National Association of Securities
Dealers ("NASD"). The Agent will assist the Association in (1) training and
educating the Association's employees regarding the mechanics and regulatory
requirements of the conversion process; (2) conducting information meetings for
subscribers and other potential purchasers; (3) keeping records of all stock
subscriptions; and (4) obtaining proxies from the Association's members with
respect to the Special Meeting. For providing these services, the Association
has agreed to pay the
77
<PAGE>
Agent a marketing fee of 2.0% of the aggregate dollar amount of Common Shares
sold in the Subscription Offering and the Community Offering, excluding shares
sold by Selected Brokers (as defined below), if any, and shares purchased by
the ESOP and directors, officers, and employees (and members of their immediate
families) of the Association. The Agent is not obligated to purchase any Common
Shares. It is anticipated that the Agent will act as a market maker in the
Common Shares following the Conversion.
The Association has also agreed to reimburse the Agent for its out-of-
pocket expenses and legal fees and disbursements in an amount not to exceed
$40,000 without the Association's consent. The Association and the Holding
Company have also agreed to indemnify the Agent, under certain circumstances,
against liabilities and expenses (including legal fees) arising out of or based
upon untrue statements or omissions contained in the materials used in the
Offering or in various documents submitted to regulatory authorities in respect
of the Conversion, including liabilities under the Securities Act of 1933 (the
"Act").
Selected Dealers
If Common Shares remain available after the Subscription Offering, the
Agent may enter into an agreement with certain dealers (the "Selected Dealers")
to assist in the sale of shares in the Community Offering. If Selected Dealers
are used, the Agent shall receive commissions of no more than 5.5% of the
aggregate purchase price of the Common Shares sold in the Community Offering
and will pay to the Selected Dealers a portion of the 5.5% commissions pursuant
to selected dealer agreements. During the Community Offering, Selected Dealers
may only solicit indications of interest from their customers to place orders
in the Association as of a certain date (the "Order Date") for the purchase of
Common Shares. When and if the Association believes that enough indications of
interest and orders have been received in the Community Offering to consummate
the Conversion, the Agent will request, as of the Order Date, Selected Dealers
to submit orders to purchase shares for which they have previously received
indications of interest from the 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
the date which will be three business days from the Order Date (the "Settlement
Date"). On the Settlement Date, funds received by Selected Dealers will be
remitted to the Association. It is anticipated that the Conversion will be
consummated on the Settlement Date. However, if consummation is delayed after
payment has been received by the Association from Selected Dealers, funds will
earn interest at the passbook rate.
Limitations on Purchases of Common Shares
The Plan provides for certain additional limitations to be placed upon the
purchase of Common Shares. No person may purchase fewer than 25 Common Shares
in the Conversion, to the extent such shares are available.
Officers and directors of the Association and the Holding Company, and
Associates thereof, may not purchase in the aggregate more than 34% of the
Common Shares issued in the Conversion. An "Associate" of any person means (a)
any corporation or organization (other than the Association, the Holding
Company or a majority-owned subsidiary of the Association or the Holding
Company) 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, (b) 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 that such term shall not include the
ESOP, and (c) 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 Association or the Holding Company, or any of their subsidiaries.
78
<PAGE>
No person may purchase Common Shares with an aggregate purchase price of
more than $150,000 (or 7,500 shares at $20.00 per share). Purchases of Common
Shares in the Conversion by any person, when aggregated with purchases by any
Associate of that person, or a group of persons Acting in Concert, shall not
exceed $300,000 of the Common Shares (or 15,000 shares at $20.00 per share),
except that the ESOP may purchase up to 10% of the total Common Shares to be
issued in the Conversion. Shares purchased by the ESOP and attributable to a
person shall not be aggregated with shares purchased directly by or otherwise
attributable to such person. Directors of the Holding Company and the
Association shall not be deemed to be Associates or a group Acting in Concert
with other directors solely as a result of membership on the Board of Directors
of the Holding Company or the Association or any of their subsidiaries. For
purposes of the Conversion, "Acting in Concert" means (a) knowing participation
in a joint activity or interdependent conscious parallel action towards a
common goal whether or not pursuant to an express agreement, or (b) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise.
Subject to any required regulatory approval and applicable laws and
regulations, the Holding Company and the Association may increase or decrease
any of the purchase limitation amounts at any time. If such amount is increased
after commencement of the Subscription Offering, any person who subscribed for
the maximum number of Common Shares shall be permitted to purchase an
additional number of shares up to the then maximum number of shares permitted
to be subscribed for by such person, subject to the rights and preferences of
any person who has priority Subscription Rights. In the event that the
purchase limitation amount is decreased after commencement of the Subscription
Offering, the orders of any person who subscribed for the maximum number of
Common Shares shall be decreased by the minimum amount necessary so that such
person shall be in compliance with the then maximum number of shares permitted
to be subscribed for by such person.
The Subscription Rights granted under the Plan are nontransferable. Each
Subscription Right may be exercised only by the person to whom issued and only
for such person's own account. The Association and the Holding Company shall
have the right to take such action as they may, in their sole discretion, deem
necessary, appropriate or advisable in order to monitor and enforce the terms,
conditions, limitations and restrictions set forth herein, in the Plan and the
Order Form, including, without limitation, the right to reject, limit or revoke
acceptance of any subscription or order and to delay, terminate or refuse to
consummate any sale of Common Shares believed to violate or circumvent the
Plan.
Purchases of Common Shares in the Offering are also subject to the change
in control regulations which restrict direct and indirect purchases of 10% or
more of the stock of any savings association by any person or group of persons
acting in concert, under certain circumstances. See "RESTRICTIONS ON
ACQUISITION OF THE HOLDING COMPANY AND THE ASSOCIATION - Federal Law and
Regulation."
After the Conversion, Common Shares, except for shares purchased by
affiliates of the Association, will be freely transferable, subject to OTS
regulations.
Procedure for Purchasing Shares in Subscription and Community Offerings
Subscriptions for Common Shares in the Subscription Offering and orders for
Common Shares in the Community Offering may be made only by completing and
submitting an Order Form. Any person who desires to subscribe for Common
Shares in the Subscription Offering must do so by delivering to the
79
<PAGE>
Association, by mail or in person, prior to the Subscription Expiration Date
(12:00 noon, Central Time, on ________, 1996), a properly executed and
completed Order Form, together with full payment of the subscription price of
$20.00 for each Common Share for which subscription is made. Any person who
desires to purchase Common Shares in the Community Offering, if one is held,
must do so by delivering to the Association, by mail or in person, prior to the
termination of the Community offering which shall be not later than 12:00 noon,
Central Time, on ________, 1996, a properly executed and completed Order Form,
together with full payment of the subscription price of $20.00 for each Common
Share for which order is made. Any Order Form which is not received by the
Association prior to the expiration of the Subscription Expiration Date or the
termination date of the Community Offering, as applicable, or for which full
payment has not been received by the Association prior to such time, will not
be accepted. Subscription rights not exercised before the Subscription
Expiration Date will be void, whether or not the Association has been able to
locate each person entitled to such subscription rights. The Holding Company
may, but will not be required to, waive any irregularity relating to any Order
Form or require the submission of a corrected Order Form.
An executed Order Form, once received by the Holding Company, may not be
modified, amended or rescinded without the consent of the Holding Company,
unless the Community Offering, if any, is not completed within 45 days after
the Subscription Expiration Date, in which case persons who have subscribed for
Common Shares in the Subscription Offering or ordered Common Shares in the
Community Offering will receive written notice that they have a right to
affirm, increase, decrease or rescind their subscriptions or orders at any time
prior to 20 days before the end of the extension period. Any person who does
not affirmatively elect to continue his subscription or order or elects to
rescind his subscription or order during any such extension will have all of
his funds promptly refunded with interest. Any person who elects to decrease
his subscription or order during any such extension will have the appropriate
portion of his funds promptly refunded with interest.
Payment for all Common Shares subscribed for in the Subscription Offering
and the Community Offering, if any, must be received in full by the Association
or the Holding Company, together with properly completed and executed Order
Forms, on or prior to the expiration date specified on the Order Form, unless
such date is extended by the Holding Company and the Association. Payment for
all Common Shares may be made (i) in cash (delivered in person), (ii) by check
or money order, or (iii) if the subscriber has a savings account in the
Association (including a certificate of deposit), the subscriber may authorize
the Association to charge the subscriber's savings account for the purchase
amount. The Association may also elect to receive payment by wire transfer.
The Association shall pay interest at the passbook rate on all amounts paid in
cash or by check or money order to purchase Common Shares from the date payment
is received until the Conversion is completed or terminated.
If a person authorizes the Association to charge his or her savings
account, the funds will remain in the person's savings account and will
continue to earn interest, but may not be used by such person until all Common
Shares have been sold or the Conversion is terminated, whichever is earlier.
The withdrawal will be given effect concurrently with Conversion and to the
extent necessary to satisfy the subscription at a price equal to the purchase
price of $20.00 per share. The Association will allow persons to purchase
Common Shares 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 and in such event, the remaining balance will earn
interest at the passbook rate. The waiver of the early withdrawal penalty is
applicable only to withdrawals made in connection with the purchase of Common
Shares under the Plan.
80
<PAGE>
The ESOP may subscribe for shares by submitting an Order Form, together
with evidence of a loan commitment from the Holding Company or an unrelated
financial institution for the purchase of the Common Shares, during the
Subscription Offering and by making payment for the Common Shares on the date
of the closing of the Conversion.
The Association shall not knowingly loan funds or otherwise extend credit
to any person for the purpose of purchasing Common Shares.
In order to utilize funds in an IRA maintained at the Association, the
funds must be transferred to a self-directed IRA that permits the funds to be
invested in stock. The beneficial owner of the IRA must direct the trustee of
the account to use funds from such account to purchase Common Shares in
connection with the Conversion. This cannot be done through the mail. Persons
who are interested in utilizing IRAs at the Association to subscribe for Common
Shares should contact the Conversion Information Center at the offices of the
Association at (205) 737-8916 for instructions and assistance.
Subscriptions and orders will not be filled by the Association until
subscriptions and orders have been received in the Offering for up to 340,000
Common Shares, the minimum point of the Valuation Range. If the Conversion is
terminated, all funds delivered to the Association for the purchase of Common
Shares will be returned with interest, and all charges to savings accounts will
be rescinded. If subscriptions and orders are received for at least 340,000
Common Shares, subscribers and other purchasers will be notified by mail,
promptly on completion of the sale of the Common Shares, of the number of
shares for which their subscriptions or orders have been accepted. The funds
on deposit with the Association for the purchase of Common Shares will be
withdrawn and paid to the Holding Company in exchange for the Common Shares.
Certificates representing Common Shares will be delivered promptly thereafter.
The Common Shares will not be insured by the FDIC.
Pricing and Number of Common Shares to be Sold
The aggregate offering price of the Common Shares will be based on the pro
forma market value of the shares as determined by an independent appraisal of
the Association. Ferguson & Co., a firm which evaluates and appraises
financial institutions, was retained by the Association to prepare an appraisal
of the estimated pro forma market value of the Association as converted.
Ferguson & Co. will receive a fee of $30,000 for its appraisal and any updates.
Such amount includes out-of-pocket expenses.
Ferguson & Co. was selected by the Board of Directors of the Association
because Ferguson & Co. has extensive experience in the valuation of thrift
institutions, particularly in the mutual-to-stock conversion context. The
Association and Ferguson & Co. have no relationships which would affect
Ferguson & Co.'s independence.
The appraisal was prepared by Ferguson & Co. in reliance upon the
information contained herein. Ferguson & Co. also considered the following
factors, among others: the present and projected operating results and
financial condition of the Association and the economic and demographic
conditions in the Association's existing market area; certain historical
financial and other information relating to the Association; a comparative
evaluation of the operating and financial statistics of the Association with
those of other thrift institutions; the aggregate size of the Offering; the
impact of the Conversion on the Association's regulatory capital and earnings
potential; the trading market for stock of comparable thrift institutions and
thrift holding companies; and general conditions in the markets for such
stocks.
81
<PAGE>
The Pro Forma Value of the Association, as converted, determined by
Ferguson & Co., is $8,000,000 as of June 30, 1996. The Valuation Range
established in accordance with the Plan is $6,800,000 to $9,200,000, which,
based upon a per share offering price of $20.00, will result in the sale of
between 340,000 and 460,000 Common Shares. The total number of Common Shares
sold in the Conversion will be determined in the discretion of the Board of
Directors, based on the Valuation Range. Pro forma shareholders' equity per
share and pro forma earnings per share decrease moving from the low end to the
high end of the Valuation Range. See "PRO FORMA DATA."
In the event that Ferguson & Co. determines at the close of the Conversion
that the aggregate pro forma value of the Association is higher or lower than
the Pro Forma Value, but is nevertheless within the Valuation Range, or is not
more than 15% above the maximum of the Valuation Range, the Holding Company
will make an appropriate adjustment by raising or lowering the total number of
Common Shares sold in the Conversion consistent with the final Valuation Range.
The total number of Common Shares sold in the Conversion will be determined in
the discretion of the Board of Directors consistent with the Valuation Range.
If, due to changing market conditions, the final valuation is not between the
minimum of the Valuation Range and 15% above the maximum of the Valuation
Range, subscribers will be given a notice of such final valuation and the right
to affirm, increase, decrease or rescind their subscriptions. Any person who
does not affirmatively elect to continue his subscription or elects to rescind
his subscription before the date specified in the notice will have all of his
funds promptly refunded with interest. Any person who elects to decrease his
subscription will have the appropriate portion of his funds promptly refunded
with interest.
The appraisal by Ferguson & Co. is not intended, and must not be construed,
as a recommendation of any kind as to the advisability of purchasing Common
Shares or voting to approve the Conversion. In preparing the valuation,
Ferguson & Co. has relied upon and assumed the accuracy and completeness of the
audited financial statements and statistical information provided by the
Association. Ferguson & Co. did not independently verify the financial
statements and other information provided by the Association, nor did Ferguson
& Co. value independently the assets or liabilities of the Association. The
valuation considers the Association only as a going concern and should not be
considered as an indication of the liquidation value of the Association.
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 Common Shares
will thereafter be able to sell such shares at the Conversion purchase price.
A copy of the complete appraisal is on file and open for inspection at the
offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552; at the
Southeast Regional Office of the OTS, 1475 Peachtree Street, N.E., Atlanta,
Georgia 30348; and at the offices of the Association.
Restrictions on Repurchase of Common Shares
OTS regulations generally prohibit the Holding Company from repurchasing
any of its capital stock for three years following the date of completion of
the Conversion, except as part of an open-market stock repurchase program
during the second and third years following the Conversion involving no more
than 5% of the outstanding capital stock during a twelve-month period. The OTS
has recently indicated, however, that it would permit repurchases beginning
after six months following the completion of the Conversion. In addition,
after such a repurchase, the Association's regulatory capital must equal or
exceed all regulatory capital requirements. Before the commencement of a
repurchase program, the Holding Company must provide notice to the OTS, and the
OTS may disapprove the program if the OTS determines that it would adversely
affect the financial condition of the Association or if it determines that
82
<PAGE>
there is no valid business purpose for such repurchase. Such repurchase
restrictions would not prohibit the ESOP or the MRP from purchasing Common
Shares during the first year following Conversion.
Restrictions on Transfer of Common Shares by Directors and Officers
Common Shares purchased by directors and executive officers of the Holding
Company will be subject to the restriction that such shares may not be sold for
a period of one year following completion of the Conversion, except in the
event of the death of the shareholder. Common Shares issued by the Holding
Company to directors and executive officers will bear a legend giving notice of
the restriction on transfer. In addition, the Holding Company will give
appropriate instructions to the transfer agent (if any) for the Holding
Company's common shares in respect of the applicable restriction on transfer of
any restricted shares. Any shares issued as a stock dividend, stock split or
otherwise in respect of restricted shares will be subject to the same
restrictions.
Subject to certain exceptions, for a period of three years following the
Conversion, no director or officer of the Holding Company or the Association,
or any of their Associates, may purchase any common shares of the Holding
Company without the prior written approval of the OTS, except through a broker-
dealer registered with the SEC. This restriction will not apply, however, to
negotiated transactions involving more than 1% of a class of outstanding common
shares of the Holding Company or shares acquired by any stock benefit plan of
the Holding Company or the Association.
Interpretation and Amendment of the Plan
To the extent permitted by law, all interpretations of the Plan by the
Boards of Directors of the Holding Company and the Association will be final.
The Plan may be amended by the Boards of Directors of the Holding Company and
the Association at any time with the concurrence of the OTS. If the
Association determines, upon advice of counsel and after consultation with the
OTS, that any such amendment is material, subscribers will be notified of the
amendment and will be provided the opportunity to affirm, increase, decrease or
cancel their subscriptions.
Conditions and Termination
The completion of the Conversion requires the approval of the Plan by the
voting members of the Association at the Special Meeting and the sale of the
requisite amount of Common Shares within 24 months following the date of such
approval. If these conditions are not satisfied, the Plan will automatically
terminate and the Association will continue its business in the mutual form of
organization. The Plan may be terminated by the Board of Directors in its sole
discretion at any time before the Special Meeting and at any time thereafter
with the approval of the OTS.
RESTRICTIONS ON ACQUISITION OF
THE HOLDING COMPANY AND THE ASSOCIATION
General
Federal law and regulations, Delaware law, the Certificate of Incorporation
and Bylaws of the Holding Company, and certain employee benefit plans to be
adopted by the Holding Company and the Association contain certain provisions
which may deter or prohibit a change of control of the Holding Company and the
Association. Such provisions are intended to encourage any acquirer to
negotiate the
83
<PAGE>
terms of an acquisition with the Board of Directors of the Holding Company,
thereby reducing the vulnerability of the Holding Company to takeover attempts
and certain other transactions which have not been negotiated with and approved
by the Board of Directors.
Anti-takeover devices and provisions may, however, have the effect of
discouraging sudden and other hostile takeover attempts which are not approved
by the Board of Directors, even under circumstances in which shareholders may
deem such takeovers to be in their best interests or in which certain
shareholders may receive a substantial premium for their shares over then-
current market prices. As a result, shareholders who might desire to
participate in such a transaction may not have an opportunity to participate by
virtue of such devices and provisions. Such provisions may also benefit
management by discouraging changes of control in which incumbent management
would be removed from office. The following is a summary of certain provisions
of such laws, regulations and documents.
Federal Law and Regulation
Federal Deposit Insurance Act. The FDIA provides that no person, acting
directly or indirectly or in concert with one or more persons, shall acquire
control of any insured savings and loan, association or holding company unless
60 days' prior written notice has been given to the OTS, and the OTS has not
issued a notice disapproving the proposed acquisition. Control, for purposes
of the FDIA, means the power, directly or indirectly, to direct the management
or policies of an insured institution or to vote 25% or more of any class of
securities of such institution. This provision of the FDIA is implemented by
the OTS in accordance with the Regulations for Acquisition of Control of an
Insured Institution, 12 C.F.R. Part 574 (the "Control Regulations"). Control,
for purposes of the Control Regulations, exists in situations in which the
acquiring party has direct or indirect voting control of at least 25% of the
institution's voting shares or controls in any manner the election of a
majority of the directors of such institution or the Director of the OTS
determines that such person exercises a controlling influence over the
management or policies of such institution. In addition, control is presumed
to exist, subject to rebuttal, if the acquiring party (which includes a group
"acting in concert") has voting control of at least 10% of the institution's
voting stock and any of eight control factors specified in the Control
Regulations exists. There are also rebuttable presumptions in the Control
Regulations concerning whether a group "acting in concert" exists, including
presumed action in concert among members of an "immediate family." The Control
Regulations apply to acquisitions of Common Shares in connection with the
Conversion and to acquisitions after the Conversion.
Change in Control of Converted Associations. A regulation of the OTS
provides that, for a period of three years after the date of the completion of
the Conversion, no person shall, directly or indirectly, offer to acquire or
acquire beneficial ownership of more than 10% of any class of equity security
of the Holding Company or the Association without the prior written approval of
the OTS. In addition to the actual ownership of more than 10% of a class of
equity securities, a person shall be deemed to have acquired beneficial
ownership of more than 10% of the equity securities of the Holding Company or
the Association if the person holds any combination of stock and revocable
and/or irrevocable proxies of the Holding Company under circumstances that give
rise to a conclusive control determination or rebuttable control determination
under the Control Regulations. Such circumstances include (i) holding any
combination of voting shares and revocable and/or irrevocable proxies
representing more than 25% of any class of voting stock of the Holding Company
enabling the acquirer (a) to elect one-third or more of the directors, (b) to
cause the Holding Company or the Association's shareholders to approve the
acquisition or corporate reorganization of the Holding Company, or (c) to exert
a controlling influence on a material aspect of the business operations of the
Holding Company or the Association, and (ii) acquiring any
84
<PAGE>
combination of voting shares and irrevocable proxies representing more than 25%
of any class of voting shares.
Such three-year restriction does not apply (i) to any offer with a view
toward public resale made exclusively to the Holding Company or the
Association, or any underwriter or selling group acting on behalf of the
Holding Company or the Association, (ii) unless made applicable by the OTS by
prior written advice, to any offer or announcement of an offer which, if
consummated, would result in the acquisition by any person, together with all
other acquisitions by any such person of the same class of securities during
the preceding 12-month period, of not more than 1% of the class of securities,
or (iii) to any offer to acquire or the acquisition of beneficial ownership of
more than 10% of any class of equity security of the Holding Company or the
Association by a corporation whose ownership is or will be substantially the
same as the ownership of the Holding Company or the Association if made more
than one year following the date of the Conversion. The foregoing restriction
does not apply to the acquisition of the capital stock of the Holding Company
or the Association by one or more tax-qualified employee stock benefit plans,
provided that the plan or plans do not have the beneficial ownership in the
aggregate of more than 25% of any class of equity security of the Holding
Company or the Association.
Holding Company Restrictions. Federal law generally prohibits a savings
and loan holding company, without prior approval of the Director of the OTS,
from (i) acquiring control of any other savings and loan association or savings
and loan holding company, (ii) acquiring substantially all of the assets of a
savings and loan association or holding company thereof, or (iii) acquiring or
retaining more than 5% of the voting shares of a savings and loan association
or holding company thereof which is not a subsidiary.
Under certain circumstances, a savings and loan holding company is
permitted to acquire, with the approval of the Director of the OTS, up to 15%
of the previously unissued voting shares of an undercapitalized savings and
loan association for cash without such savings and loan association being
deemed to be controlled by the Holding Company. Except with the prior approval
of the Director of the OTS, no director or officer of the savings and loan
holding company or person owning or controlling by proxy or otherwise more than
25% of such company's voting shares may acquire control of any savings
institution, other than a subsidiary institution or any other savings and loan
holding company.
85
<PAGE>
Delaware Law
The Delaware General Corporation Law contains a statute designed to provide
Delaware corporations with additional protection against hostile takeovers.
Section 203 of the Delaware General Corporation Law, among other things,
prohibits the Holding Company from engaging in certain business combinations
(including a merger) with a person who is the beneficial owner of 15% or more
of the Holding Company's outstanding voting-stock (an "interested stockholder")
during the three-year period following the date such person became an
interested stockholder. This restriction does not apply if: (1) before such
person became an interested stockholder, the Board of Directors approved the
transaction in which the interested stockholder became an interested
stockholder or approved the business combination; or (2) upon consummation of
the transaction which resulted in the stockholder's becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the Holding Company outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding certain
shares owned by insiders of the corporation; or (3) on or subsequent to the
date such person became an interested stockholder, the business combination is
approved by the Board of Directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock which is not owned by the interested stockholder.
Provisions of the Holding Company's Certificate of Incorporation and Bylaws
Directors. Certain provisions in the Certificate of Incorporation and
Bylaws will impede changes in majority control of the Board of Directors of the
Holding Company. The Certificate of Incorporation provides that the Board of
Directors of the Holding Company will be divided into three classes, with
directors in each class elected for three-year staggered terms. Therefore, it
would take two annual elections to replace a majority of the Holding Company's
Board.
The Certificate of Incorporation also provides that the size of the Board
of Directors shall range between five and ten directors, with the exact number
of directors to be fixed from time to time in accordance with the Bylaws of the
Holding Company.
The Certificate of Incorporation provides that any vacancy occurring in the
Board of Directors, including a vacancy created by an increase in the number of
directors, shall be filled for the remainder of the unexpired term only by a
two-thirds vote of the directors then in office. Finally, the Certificate of
Incorporation and the Bylaws impose certain notice and information requirements
in connection with the nomination by shareholders of candidates for election to
the Board of Directors or the proposal by shareholders of business to be acted
upon at an annual meeting of shareholders.
The Certificate of Incorporation provides that a director or the entire
Board of Directors may be removed only for cause and only by the affirmative
vote of at least 80% of the shares eligible to vote generally in the election
of directors.
Restrictions on Call of Special Meetings. The Certificate of Incorporation
provides that a special meeting of shareholders may be called only by the
Chairman of the Holding Company or pursuant to a resolution adopted by a
majority of the total number of directors of the Holding Company. Shareholders
are not authorized to call a special meeting.
No Cumulative Voting. The Certificate of Incorporation provides that there
shall be no cumulative voting rights in the election of directors.
86
<PAGE>
Authorization of Preferred Stock. The Certificate of Incorporation
authorizes 100,000 shares of preferred stock, $0.01 par value per share. The
Holding Company is authorized to issue preferred stock from time to time in one
or more series subject to applicable provisions of law, and the Board of
Directors is authorized to fix the designation, powers, preferences and
relative participating, optional and other special rights of such shares,
including voting rights (if any and which could be as a separate class) and
conversion rights. In the event of a proposed merger, tender offer or other
attempt to gain control of the Holding Company not approved by the Board of
Directors, it may be possible for the Board of Directors to authorize the
issuance of a series of a preferred stock with rights and preferences that
would impede the completion of such a transaction. An effect of the possible
issuance of preferred stock, therefore, may be to deter a future takeover
attempt. The Board of Directors has no present plans or understanding for the
issuance of any preferred stock and does not intend to issue any preferred
stock except on terms which the Board of Directors deems to be in the best
interests of the Holding Company and its shareholders.
Limitations on 10% Shareholders. The Certificate of Incorporation provides
that for a period of five years from the Conversion: (i) no person shall
directly or indirectly offer to acquire or acquire the beneficial ownership of
more than 10% of any class of equity security of the Holding Company without
the prior approval of the Board of Directors (provided that such limitation
shall not apply to the acquisition of equity securities by any one or more tax-
qualified employee stock benefit plans maintained by the Holding Company); and
that (ii) shares beneficially owned in violation of the stock ownership
restriction described above shall not be entitled to vote and shall not be
voted by any person or counted as voting stock in connection with any matter
submitted to a vote of shareholders.
Evaluation of Offers. The Certificate of Incorporation provides that the
Board of Directors of the Holding Company, when determining to take or refrain
from taking corporate action on any matter, including making or declining to
make any recommendation to the Holding Company's shareholders, may, in
connection with the exercise of its judgment in determining what is in the best
interest of the Holding Company, the Association and the shareholders of the
Holding Company, give due consideration to all relevant factors, including,
without limitation, the social and economic effects of acceptance of such offer
on the Holding Company's customers and the Association's present and future
account holders, borrowers, employees and suppliers; the effect on the
communities in which the Holding Company and the Association operate or are
located; and the effect on the ability of the Holding Company to fulfill the
objectives of a bank holding company and of the Association or future savings
association subsidiaries to fulfill the objectives of a stock savings bank
under applicable statutes and regulations. The Certificate of Incorporation
also authorizes the Board of Directors to take certain actions to encourage a
person to negotiate for a change of control of the Holding Company or to oppose
such a transaction deemed undesirable by the Board of Directors including the
adoption of so-called shareholder rights plans. By having these standards and
provisions in the Certificate of Incorporation, the Board of Directors may be
in a stronger position to oppose such a transaction if the Board concludes that
the transaction would not be in the best interest of the Holding Company, even
if the price offered is significantly greater than the then market price of any
equity security of the Holding Company.
Procedures for Certain Business Combinations. The Certificate of
Incorporation requires that certain business combinations between the Holding
Company and a 10% or greater shareholder, if not approved by the Board of
Directors of the Holding Company, must be either approved (i) by at least 80%
of the total number of outstanding voting shares of the Holding Company or (ii)
by a majority of the outstanding shares entitled to vote unaffiliated with such
10% or greater shareholder.
Amendments to Certificate of Incorporation and Bylaws. Amendments to the
Certificate of Incorporation must be approved by a two-thirds vote of the
Holding Company's Board of Directors and
87
<PAGE>
also by a majority of the shares of the Holding Company voting at a
shareholders meeting; provided, however, that approval by at least 80% of the
outstanding voting shares is required for certain provisions (i.e., provisions
relating to calling of special shareholder meetings; shareholder nominations
and proposals; the number, classification, and removal of directors;
acquisition of capital stock; approval for certain business combinations;
criteria for evaluating certain offers; directors' liability and
indemnification; amendment of the Bylaws; and amendments to provisions of the
Certificate of Incorporation relating to the foregoing).
The Bylaws may be amended only by a two-thirds vote of the Board of
Directors of the Holding Company or by the vote of at least 80% of the
outstanding voting shares of the Holding Company.
Purpose and Effects of the Anti-Takeover Provisions of the Holding
Company's Certificate of Incorporation and Bylaws. The Holding Company's Board
of Directors believes that the provisions described above are prudent and will
reduce the Holding Company's vulnerability to takeover attempts and certain
other transactions which have not been negotiated with and approved by its
Board of Directors. These provisions will also assist in the orderly
deployment of the Conversion proceeds into productive assets during the initial
period after the Conversion. The Board of Directors believes these provisions
are in the best interest of the Association and the Holding Company and its
shareholders. In the judgment of the Board of Directors, the Holding Company's
Board of Directors will be in the best position to determine the true value of
the Holding Company and to negotiate more effectively for what may be in the
best interests of the Holding Company and its shareholders. The Board of
Directors believes that these provisions will encourage potential acquirers to
negotiate directly with the Board of Directors of the Holding Company and
discourage hostile takeover attempts. It is also the view of the Board of
Directors that these provisions should not discourage persons from proposing a
merger or other transactions at prices reflecting the true value of the Holding
Company and which is in the best interests of all shareholders.
Attempts to take over financial institutions and their holding companies
have recently increased. Takeover attempts that have not been negotiated with
and approved by the Board of Directors present to shareholders the risk of a
takeover on terms that may be less favorable than might otherwise be available.
A transaction that is negotiated and approved by the Board of Directors, on the
other hand, can be carefully planned and undertaken at an opportune time to
obtain maximum value for the Holding Company and its shareholders, with due
consideration given to matters such as the management and business of the
acquiring corporation and maximum strategic development of the Holding
Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it to undertake defensive measures at a
great expense. Although a tender offer or other takeover attempt may be made
at a price substantially above then market prices, such offers are sometimes
made for less than all of the outstanding shares of a target company. As a
result, shareholders may be presented with the alternative of partially
liquidating their investment at a time that may be disadvantageous, or
retaining their investment in an enterprise which is under different management
and whose objective may not be similar to that of the remaining shareholders.
The concentration of control, which could result from a tender offer or other
takeover attempt, could also deprive the Holding Company's remaining
shareholders of the benefits of certain protective provisions of the 1934 Act,
if the number of beneficial owners becomes less than the 300 required for
continued registration under the 1934 Act.
Despite the belief of the Holding Company's Board of Directors in the
benefits to shareholders of the foregoing provisions, the provisions may also
have the effect of discouraging future takeover attempts which would not be
approved by the Board of Directors, but which certain shareholders might deem
to be in their best interest or pursuant to which shareholders might receive a
substantial premium for their shares
88
<PAGE>
over then current market prices. As a result, shareholders who might desire to
participate in such a transaction may not have an opportunity to do so. These
provisions will also render the removal of the incumbent Board of Directors and
of management more difficult. The Board of Directors has, however, concluded
that the potential benefits of these restrictive provisions outweigh the
possible disadvantages.
The Holding Company's Certificate of Incorporation also provides that there
will be no cumulative voting by stockholders for the election of the Holding
Company's directors. The absence of cumulative voting rights effectively means
that the holders of a majority of the shares voted at a meeting of stockholders
may, if they so chose, elect all directors of the Holding Company to be
selected at that meeting, thus precluding minority stockholder representation
on the Holding Company's Board of Directors.
Employee Benefit Plans
The Stock Option Plan, the ESOP and the MRP also may be deemed to have
certain anti-takeover effects. The ESOP may become the owner of a sufficient
percentage of the total outstanding common shares of the Holding Company that
the decision whether to tender the shares held by the ESOP to a potential
acquirer may prevent a takeover. In addition the acquisition by the directors
and executive officers of the Holding Company of common shares of the Holding
Company upon grants under the MRP or upon the exercise of options granted under
the Stock Option Plan will have the effect of giving the directors and
executive officers greater influence in votes on proposed takeover attempts and
proxy contests. See "DESCRIPTION OF AUTHORIZED SHARES" and "MANAGEMENT Stock
Benefit Plans -- Employee Stock Ownership Plan; -- Stock Option Plan; and --
Management Recognition Plan."
DESCRIPTION OF AUTHORIZED SHARES
General
The Certificate of Incorporation of the Holding Company authorizes the
issuance of 3,000,000 common shares, par value $0.01 per share, and 100,000
preferred shares, par value $0.01 per share. The Holding Company currently
expects to issue 400,000 Common Shares at the midpoint of the Valuation Range
and no shares of preferred stock in the Conversion. Upon receipt by the
Holding Company of the purchase price therefor and subsequent issuance thereof,
each Common Share issued in the Conversion will be fully paid and
nonassessable. The Common Shares will represent nonwithdrawable capital and
will not be insured by the FDIC. Each Common Share will have the same relative
rights and will be identical in all respects to every other Common Share.
The Common Shares 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 agency.
The following is a summary description of the rights of the common shares
of the Holding Company, including the material express terms of such shares as
set forth in the Holding Company's Certificate of Incorporation.
Liquidation Rights
In the event of the complete liquidation or dissolution of the Holding
Company, the holders of the Common Shares will be entitled to receive all
assets of the Holding Company available for distribution, in
89
<PAGE>
cash or in kind, after payment or provision for payment of (i) all debts and
liabilities of the Holding Company, (ii) any accrued dividend claims, and (iii)
any interests in the Liquidation Account payable as a result of a liquidation
of the Association. See "THE CONVERSION - Principal Effects of the
Conversion -- Liquidation Account."
Voting Rights
Except as may otherwise be required by law or by the Certificate of
Incorporation of the Holding Company, each holder of Common Shares will be
entitled to one vote for each share held of record on all matters submitted to
a vote of holders of common shares. See "RESTRICTIONS ON ACQUISITION OF THE
HOLDING COMPANY AND THE ASSOCIATION - Provisions of the Holding Company's
Certificate of Incorporation and Bylaws."
Dividends
The holders of the Common Shares will be entitled to the payment of
dividends when, as and if declared by the Board of Directors and paid out of
funds, if any, available under applicable laws and regulations for the payment
of dividends. The payment of dividends is subject to federal and state
statutory and regulatory restrictions and to the preferential dividend rights
of any outstanding preferred shares. See "DIVIDEND POLICY," "REGULATION -
Office of Thrift Supervision -- Limitations on Capital Distributions" and
"TAXATION - Federal Taxation" for a description of restrictions on the payment
of cash dividends.
Preemptive Rights
After the consummation of the Conversion, no shareholder of the Holding Company
will have, as a matter of right the preemptive right to purchase or subscribe
for shares of any class, now or hereafter authorized, or to purchase or
subscribe for securities or other obligations convertible into or exchangeable
for such shares or which by warrants or otherwise entitle the holders thereof
to subscribe for or purchase any such share.
Restrictions on Alienability
See "THE CONVERSION - Restrictions on Transfer of Common Shares by
Directors and Officers" for a description of certain restrictions on the
transferability of Common Shares purchased by officers and directors; and
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY AND THE ASSOCIATION" for
information regarding regulatory restrictions on acquiring Common Shares.
REGISTRATION REQUIREMENTS
The Holding Company will register its Common Shares pursuant to Section
12(g) of the Securities Exchange Act of 1934 (the "Exchange Act") upon the
completion of the Conversion. The proxy and tender offer rules, insider
trading restrictions, annual and periodic reporting and other requirements of
the Exchange Act will apply to the Holding Company. Under the Plan, the
Holding Company has undertaken that it will not terminate such registration for
a period of at least three years following the Conversion.
90
<PAGE>
LEGAL MATTERS
Certain legal matters pertaining to the Common Shares and the federal tax
consequences of the Conversion will be passed upon for the Holding Company and
the Association by Bayh, Connaughton & Malone, P.C., Washington, D.C. Certain
legal matters are being passed upon for the Agent by Miller, Hamilton, Snider &
Odom, L.L.C., Mobile, Alabama, and such firm is providing an opinion to the
Association regarding the tax consequences of the Conversion under Alabama law.
EXPERTS
Ferguson & Co. has consented to the publication herein of the summary of
its letter to the Association setting forth its opinion as to the estimated pro
forma market value of the Association as converted and to the use of its name
and statements with respect to it appearing herein.
The audited financial statements as of September 30, 1995 and 1994, and for
each of the years in the two-year period ended September 30, 1995 included in
this prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included upon the authority of said firm as experts in giving such reports.
ADDITIONAL INFORMATION
The Association has filed an Application for Conversion (the "Application")
with the OTS. This document omits certain information contained in the
Application. The Application may be inspected at the offices of the OTS, 1700
G Street, N.W., Washington, D.C. 20552 and at the Southeast Regional Office of
the OTS, 1475 Peachtree Street, N.E., Atlanta, Georgia 30348.
91
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To First Federal Savings and Loan Association
of Cullman:
We have audited the accompanying statements of financial condition of FIRST
FEDERAL SAVINGS AND LOAN ASSOCIATION OF CULLMAN (a federally chartered
association) as of September 30, 1995 and 1994, and the related statements of
income, equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Association'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 presentationWe
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 First Federal Savings and Loan
Association of Cullman as of September 30, 1995 and 1994, and the results of
their operations and cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, effective October 1, 1994,
the Association changed its method of accounting for investment and mortgage-
backed securities.
/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP
Birmingham, Alabama
July 18, 1996
F-1
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CULLMAN
STATEMENTS OF FINANCIAL CONDITION
ASSETS
<TABLE>
<CAPTION>
June 30, September 30, September 30,
1996 1995 1994
-------------------- ------------------ --------------------
(Unaudited)
<S> <C> <C> <C>
CASH AND DUE FROM BANKS $ 373,261 $ 471,425 $ 705,003
INTEREST BEARING DEPOSITS IN BANKS 4,464,332 5,636,672 2,279,000
INVESTMENT SECURITIES
AVAILABLE-FOR-SALE, AT FAIR VALUE 4,147,055 2,608,814 0
MORTGAGE-BACKED SECURITIES
AVAILABLE-FOR-SALE, AT FAIR VALUE 6,213,484 2,243,430 0
INVESTMENT SECURITIES HELD-TO-MATURITY,FAIR
VALUE OF $5,207,429, $8,141,165,
AND $12,990,989, RESPECTIVELY 5,251,476 8,193,122 13,180,710
MORTGAGE-BACKED SECURITIES HELD-TO-MATURITY,
FAIR VALUE OF $2,749,113, $3,178,942, AND
$5,400,596, RESPECTIVELY 2,749,049 3,208,648 5,676,248
LOANS RECEIVABLE, NET 39,869,009 38,570,233 39,954,414
ACCRUED INTEREST RECEIVABLE 431,256 383,981 345,468
PREMISES AND EQUIPMENT, NET 621,699 600,988 787,519
INCOME TAXES RECEIVABLE 179,910 0 165,197
FORECLOSED REAL ESTATE 27,601 5,444 286,815
OTHER ASSETS 53,142 103,427 148,063
----------------- ---------------- ----------------
Total assets $64,381,274 $62,026,184 $63,528,437
================= ================ ================
LIABILITIES AND EQUITY
DEPOSITS $58,277,887 $56,007,970 $58,227,772
INCOME TAXES PAYABLE 0 63,505 0
ACCRUED INTEREST PAYABLE 111,881 113,278 48,016
ACCRUED EXPENSES AND OTHER LIABILITIES 138,860 235,844 257,504
----------------- ----------------- -----------------
Total liabilities 58,528,628 56,420,597 58,533,292
----------------- ----------------- -----------------
RETAINED EARNINGS, SUBSTANTIALLY RESTRICTED 6,069,950 5,650,521 5,028,971
UNREALIZED DEPRECIATION ON CERTAIN MARKETABLE
EQUITY SECURITIES 0 0 (33,826)
UNREALIZED LOSS ON AVAILABLE-FOR-SALE
SECURITIES, net of deferred taxes (217,304) (44,934) 0
----------------- ----------------- -----------------
Total equity 5,852,646 5,605,587 4,995,145
----------------- ----------------- -----------------
Total liabilities and equity $64,381,274 $62,026,184 $63,528,437
================= ================= =================
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CULLMAN
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Nine Months For the Year
Ended June 30, Ended September 30,
------------------------- ---------------------------
1996 1995 1995 1994
------------ ------------ ----------- ---------------
(Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $2,509,826 $2,376,181 $3,222,506 $3,044,167
Interest and dividends on investment securities 439,941 570,759 740,396 533,116
Interest on mortgage-backed and related securities 341,911 233,950 305,470 310,920
Other interest income 174,308 63,731 130,907 98,954
------------ ------------ ----------- ---------------
Total interest income 3,465,986 3,244,621 4,399,279 3,987,157
------------ ------------ ----------- ---------------
INTEREST EXPENSE--DEPOSITS 1,936,152 1,668,472 2,300,245 1,982,803
------------ ------------ ------------- -------------
Net interest income before provision
for loan losses 1,529,834 1,576,149 2,099,034 2,004,354
PROVISION FOR LOAN LOSSES 0 0 0 35,000
------------- ------------ ------------- -------------
Net interest income after provision for
loan losses 1,529,834 1,576,149 2,099,034 1,969,354
------------- ------------ ------------- -------------
NONINTEREST INCOME:
Service charges on deposit accounts 179,499 131,786 198,193 138,149
Income (loss) from real estate 837 85,048 50,815 (122,443)
operations, net
Gain on sale of premises and equipment 1,500 0 73,702 772
Other 855 2,726 6,040 374
------------- ------------ ------------- -------------
Total noninterest income 182,691 219,560 328,750 16,852
------------- ------------ ------------- -------------
NONINTEREST EXPENSE:
Compensation and benefits 549,712 576,354 758,415 824,909
Occupancy and equipment 136,812 137,740 189,158 206,222
SAIF deposit insurance premium 96,513 99,584 131,666 133,744
Data processing 89,085 87,065 114,486 119,952
Professional fees 37,022 62,522 76,358 87,552
Other 160,503 162,010 225,895 237,366
------------- ------------ ------------- -------------
Total noninterest expense 1,069,647 1,125,275 1,495,978 1,609,745
------------- ------------ ------------- -------------
Income before income taxes 642,878 670,434 931,806 376,461
INCOME TAX EXPENSE 223,449 207,834 310,256 97,732
------------- ------------ ------------- -------------
Net income $ 419,429 $ 462,600 $ 621,550 $ 278,729
============= ============ ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CULLMAN
STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
DEPRECIATION LOSS ON
ON CERTAIN AVAILABLE FOR
RETAINED MARKETABLE SALE SECURITIES,
EARNINGS EQUITY SECURITIES NET TOTAL
---------- ------------------- ------------------ -----------
<S> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1993 $4,750,242 $ 0 $ 0 $4,750,242
Net income 278,729 0 0 278,729
Net unrealized depreciation on certain
marketable equity securities 0 (33,826) 0 (33,826)
---------- ------------------- ------------------ -----------
BALANCE, SEPTEMBER 30, 1994 5,028,971 (33,826) 0 4,995,145
Net income 621,550 0 0 621,550
Adoption of SFAS No. 115 0 33,826 (121,784) (87,958)
Change in net unrealized loss on
securities available-for-sale 0 0 76. ,850 76,850
---------- ------------------- ------------------ -----------
BALANCE, SEPTEMBER 30, 1995 5,650,521 0 (44,934) 5,605,587
Net income (unaudited) 419,429 0 0 419,429
Change in net unrealized loss on
securities available-for-sale
(unaudited) 0 0 (172,370) (172,370)
---------- ------------------- ------------------ -----------
BALANCE, JUNE 30, 1996 (UNAUDITED) $6,069,950 $ 0 $(217,304) $5,852,646
========== =================== ================== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CULLMAN
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months For the Year Ended
Ended June 30, September 30,
------------------------- -------------------------
1996 1995 1995 1994
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 419,429 $ 462,600 $ 621,550 $ 278,729
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 61,792 61,259 81,679 80,492
Amortization and accretion on securities (58,615) (54,901) (73,200) (9,921)
Amortization of net deferred loan
origination fees (25,871) (23,002) (30,669) (30,048)
Provision for loan loss 0 0 0 35,000
Provision (benefit) for deferred income
taxes 6,619 49,736 66,314 56,271
Provision for write-down of foreclosed
real estate 0 0 0 120,000
Gain on sale of foreclosed real estate,
net (1,405) (75,761) (43,040) (17,284)
Gain on sale of premises and equipment,
net (1,500) 0 (73,702) (772)
Gain on sale of securities, net 0 0 0 (854)
Change in assets and liabilities:
Increase (decrease) in income taxes
receivable/payable (148,310) 169,176 188,288 (7,289)
Increase in accrued interest receivable (47,275) (32,760) (38,513) (37,535)
Decrease (increase) in other assets 50,285 39,427 44,636 (25,642)
Increase (decrease) in accrued interest
payable (1,397) 29,608 65,262 (9,548)
Increase (decrease) in accrued expenses
and other liabilities (96,984) (41,658) (21,660) 33,013
----------- ----------- ----------- -----------
Total adjustments (262,661) 121,124 165,395 185,883
----------- ----------- ----------- -----------
Net cash provided by operating
activities 156,768 583,724 786,945 464,612
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities/calls of
investment securities available-for-sale 1,000,000 0 0 0
Proceeds from maturities/calls of
investment securities held-to-maturity 2,950,000 4,750,000 6,550,000 4,639,500
Purchases of investment securities
available-for-sale (2,576,581) (65,387) (597,769) 0
Purchases of investment securities
held-to-maturity 0 (3,236,991) (3,448,595) (8,344,197)
Net loan repayments (originations) (1,311,676) 1,009,059 1,409,406 1,828,694
Proceeds from sales of investment
securities 0 0 0 1,533,077
Proceeds from maturities of
mortgage-backed securities
available-for-sale 353,100 95,019 498,922
Proceeds from maturities of
mortgage-backed securities held to
maturity 443,072 303,414 126,578 1,464,279
Purchases of mortgage-backed securities
available-for-sale (4,492,120) 0 (490,000) (2,773,344)
Capital expenditures (82,503) 0 (23,512) (88,224)
Proceeds from sale of foreclosed real
estate 18,019 80,761 329,855 372,117
Proceeds from sale of fixed assets 1,500 120,792 202,066 17,750
----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities (3,697,189) 3,056,667 4,556,951 (1,350,348)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits 2,269,917 (1,832,427) (2,219,802) 140,852
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities 2,269,917 (1,832,427) (2,219,802) 140,852
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND (1,270,504) 1,807,964 3,124,094 (744,884)
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 6,108,097 2,984,003 2,984,003 3,728,887
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,837,593 $ 4,791,967 $ 6,108,097 $ 2,984,003
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest on deposits $ 1,937,549 $ 1,638,864 $ 2,234,983 $ 1,989,406
Income taxes 356,734 838 57,800 106,285
Transfers from loans to real estate 38,771 0 5,444 359,834
acquired through foreclosure
Change in unrealized net loss on
securities available for sale, net of
deferred taxes $ 172,370 $ 23,831 $ 44,934
Change in unrealized depreciation on
certain marketable equity securities 0 0 (33,826)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CULLMAN
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
AND FOR THE YEARS THEN ENDED
(INFORMATION AT JUNE 30, 1996 AND FOR THE NINE MONTHS
ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
First Federal Savings and Loan Association of Cullman (the "Association") is
a mutual savings and loan association which was organized in 1905. Its
principal business consists of accepting deposits and residential mortgage
loan originations in its primary market area of Cullman County, Alabama. The
Association is subject to the regulations of certain federal agencies and
undergoes periodic examinations by those regulatory authorities.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited statement of financial condition
as of June 30, 1996 and the unaudited statements of income and cash flows for
the nine-month periods ended June 30, 1996 and 1995 reflect all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the information set forth therein. The results of operations for the interim
periods are not necessarily indicative of the results for the full year.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accounting principles and reporting policies of the Association, and the
methods of applying these principles, conform with generally accepted
accounting principles ("GAAP") and with general practices within the thrift
industry. In preparing the financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant changes
in the near-term relate to the determination of the allowance for loan losses
and the valuation of real estate acquired in connection with foreclosures or
in satisfaction of loans. In connection with the determination of the
allowances for loan losses and real estate owned, management obtains
independent appraisals for significant properties, evaluates the overall
portfolio characteristics and delinquencies and monitors economic conditions.
F-6
<PAGE>
A substantial portion of the Association's loans are secured by real estate
in its primary market area. Accordingly, the ultimate collectibility of a
substantial portion of the Association's loan portfolio and the recovery of a
portion of the carrying amount of foreclosed real estate are susceptible to
changes in economic conditions in the Association's primary market areas.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows and presentation of the
statements of financial condition, the Association considers cash, due from
banks and interest bearing deposits in banks as cash and cash equivalents.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
Securities classified as held-to-maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts on the constant effective
yield method. The Association has the positive intent and ability to hold
these securities to maturity. Available-for-sale securities are carried at
fair value and include all debt and equity securities not classified as held-
to-maturity or trading. Trading securities are those held principally for the
purpose of selling in the near future and are carried at fair value. The
Association does not currently have any trading securities.
Unrealized holding gains and losses for trading securities are included in
earnings. Unrealized holding gains and losses for available-for-sale
securities are excluded from earnings and reported, net of any income tax
effect, as a separate component of equity. Realized gains and losses for
securities classified as either available-for-sale or held-to-maturity are
reported in earnings based on the adjusted cost of the specific security
sold.
Effective October 1, 1994, the Association adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting for
Certain Investments in Debt and Equity Securities. At the time of adoption,
the Association recognized a net reduction of equity of $87,958, representing
the unrealized loss on investment and mortgage-backed securities. Prior to
adoption of SFAS 115, all investment securities were stated at cost, adjusted
for amortization of premiums and accretion of discounts, similar to the held-
to-maturity category under the provisions of SFAS 115. Securities to be held
for indefinite periods of time would have been reported as held for sale and
carried at the lower of cost or fair value with adjustments reflected in the
statement of income prior to the implementation of SFAS 115. Additionally,
certain marketable equity securities were previously carried at the lower of
cost or market with unrealized losses shown as a reduction of equity.
LOANS RECEIVABLE
Loans receivable are stated at unpaid principal balances, less the allowance
for loan losses and net deferred loan origination fees and discounts.
The Association ceases accrual of interest on substantially all loans when
payment on a loan is in excess of 90 days past due. An allowance is
established by a charge to interest income equal to all interest previously
accrued. Interest income is subsequently recognized only to the extent that
cash payments are received until, in management's judgment, the borrower's
ability to make periodic interest and principal payments is in accordance
with the terms of the loan agreement; in which case the loan is returned to
accrual status.
F-7
<PAGE>
The allowance for loan losses is increased by charges to income and decreased
by loan charge-offs, net of recoveries. The allowance for loan losses is
maintained at a level which management considers adequate to absorb losses
inherent in the loan portfolio at each reporting date. Management's
estimation of this amount includes a review of all loans for which full
collectibility is not reasonably assured and considers, among other factors,
prior years' loss experience, economic conditions, distribution of portfolio
loans by risk class, and the estimated value of the underlying collateral.
Though management believes the allowance for loan losses to be adequate,
ultimate losses may vary from their estimates. However, estimates are
reviewed periodically, and as adjustments become necessary, they are reported
in earnings in periods in which they become known. In addition, various
regulatory agencies, as an integral part of their examination process
periodically review the Association's allowance for losses on loans and the
carrying value of foreclosed real estate. Such agencies may require the
Association to recognize additions to the allowances based on their judgments
about information available to them at the time of their examinations.
The Association adopted 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, as of October 1, 1995. SFAS No. 114
requires that certain impaired loans be measured based on the present value
of expected future cash flows discounted at each loan's original effective
interest rate. As a practical expedient, impairment may be measured based on
the loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. When the measure of the impaired loan is less
than the recorded investment in the loan, the impairment is recorded through
a valuation allowance. The Association had previously measured the allowance
for loan losses using methods similar to those prescribed in SFAS No. 114. As
a result of adopting these statements, no additional provision to the
allowance for loan losses was required as of October 1, 1995. Based on the
Association's loan portfolio composition, which primarily consists of one-to-
four family residential mortgages and consumer installment loans, which are
exempt from SFAS No. 114 when evaluated collectively for impairment as is
done by the Association, the Association had no loans designated as impaired
under the provisions of SFAS No. 114 at October 1, 1995.
LOAN ORIGINATION FEES AND RELATED COSTS
Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield of the related loan.
LOAN SERVICING INCOME
Loan servicing income represents fees earned in connection with the servicing
of real estate mortgage loans for investors. Such income is recognized
concurrent with the receipt of the related mortgage payments and is based
generally on the outstanding principal balances of the loans serviced.
GAINS ON SALES OF LOAN
Gains or losses on sales of mortgages are recognized based upon the
difference between the selling price and the carrying value of the related
mortgage loans sold. Such gains and losses are adjusted by the amount of
excess servicing fees recorded.
F-8
<PAGE>
FORECLOSED REAL ESTATE
Real estate acquired through, or in lieu of, loan foreclosure is initially
recorded at fair value at the date of foreclosure, establishing a new cost
basis. Costs to maintain or hold the property are expensed and amounts
incurred to improve the property, to the extent that fair value is not
exceeded, are capitalized. Valuations are periodically performed by
management, and an allowance for losses is established by a charge to income
if the carrying value of a property exceeds its fair value less the estimated
costs to sell.
PREMISES AND EQUIPMENT
Land is carried at cost. Buildings, leasehold improvements, and furniture,
fixtures and equipment are carried at cost, less accumulated depreciation and
amortization. Depreciation is provided using the straight-line and
accelerated methods over the estimated useful lives of the assets. The cost
of leasehold improvements is amortized using the straight-line method over
the life of the lease.
INCOME TAXES
The Association accounts for income taxes through the use of the asset and
liability method for accounting for deferred income taxes. Under the asset
and liability method, deferred taxes are recognized for the tax consequences
of temporary differences by applying enacted statutory rates applicable to
future years to differences between the financial statement carrying amounts
and the tax bases of existing assets and liabilities. The effect on deferred
taxes of a change in tax rates would be recognized in income in the period
that includes the enactment date.
PENDING ACCOUNTING STANDARDS
In December 1991, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 107, Disclosures About Fair Values of Financial Instruments. This
standard requires disclosure of the fair value of financial instruments, both
assets and liabilities recognized and not recognized in the statement of
financial condition. Adoption of this standard is required by the
Association for fiscal years ending after December 31, 1995. The Association
will adopt the provisions of this standard as of September 30, 1996.
In March 1995, the FASB issued SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles
to be disposed of. This Standard requires that long-lived assets and certain
identifiable intangibles to be held and used be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. If the review for recoverability, based
on undiscounted expected future cash flows, indicates that impairment exists,
the loss should be measured based on the fair value of the asset. The
Association will adopt the provisions of the Standard on October 1, 1996 and
anticipates that the impact will not be significant.
In May 1995, the FASB issued SFAS No. 122, Accounting for Mortgage Servicing
Rights, an amendment to SFAS No. 65. This Standard amends certain provisions
of SFAS No. 65 to eliminate
F-9
<PAGE>
the accounting distinction between rights to service mortgage loans for
others that are acquired through loan origination activities and those
acquired through purchase transactions. This Standard applies prospectively
for fiscal years beginning after December 15, 1995 to transactions in which a
mortgage banking enterprise sells or securitizes mortgage loans with
servicing rights retained and to impairment evaluations of all amounts
capitalized as mortgage servicing rights, including those purchased before
adoption of this Standard. Management will adopt the provisions of this
Standard on October 1, 1996. Based on the Association's current operating
activities, management does not believe that the adoption of this Standard
will have a material impact on the Association's financial condition or
results of operations.
2. INVESTMENT AND MORTGAGE-BACKED SECURITIES
Details of securities are as follows:
<TABLE>
<CAPTION>
June 30, 1996
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------- ------------ ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
Available-for-sale:
U.S.Treasury and federal agencies $ 2,022,591 $ 0 $ (54,861) $ 1,967,730
Mutual funds 1,764,127 0 (14,602) 1,749,525
Federal Home Loan Bank stock 429,800 0 0 429,800
------------- ------------ ------------- --------------
Investment securities 4,216,518 0 (69,463) 4,147,055
Mortgage-backed securities 6,488,950 0 (275,466) 6,213,484
------------- ------------ ------------- --------------
Total $10,705,468 $ 0 $ (344,929) $ 10,360,539
============= ============ ============= ==============
Held-to-maturity:
U.S. Treasury and federal agencies $ 5,091,576 $ 0 $ (53,606) $ 5,037,970
Obligations of state and political subdivisions 159,900 9,559 0 169,459
------------- ------------ ------------- --------------
Investment securities 5,251,476 9,559 (53,606) 5,207,429
Mortgage-backed securities 2,749,049 64 0 2,749,113
------------- ------------ ------------- --------------
Total $ 8,000,525 $9,623 $ (53,606) $ 7,956,542
============= ============ ============= ==============
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
September 30,1995
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------- ------------ ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
Available-for-sale:
U.S.Treasury and federal agencies $ 501,963 $ 617 $ 0 $ 502,580
Mutual funds 1,689,141 0 (12,707) 1,676,434
Federal Home Loan Bank stock 429,800 0 0 429,800
------------- ------------ ------------- -------------
Investment securities 2,620,904 617 (12,707) 2,608,814
Mortgage-backed securities 2,302,174 0 (58,744) 2,243,430
------------- ------------ ------------- -------------
Total $ 4,923,078 $ 617 $ (71,451) $ 4,852,244
============= ============ ============= =============
</TABLE>
<TABLE>
<CAPTION>
September 30,1995
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------- ------------ ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
U.S. Treasury and federal agencies $11,034,148 $ 1,168 $(200,060) $10,835,256
Obligations of state and political subdivisions 159,698 9,171 0 168,869
Mutual funds 1,590,890 0 0 1,590,890
Unrealized depreciation on certain marketing equity
securities (33,800) 0 0 (33,826)
Federal Home Loans Bank stock 429,800 0 0 429,800
------------- ------------ ------------- -------------
Investment Securities 13,180,710 10,339 (200,060) 12,990,989
Morgage-backed securities 5,676,248 8,144 (200,060) 5,400,596
------------- ------------ ------------- -------------
Total $18,856,958 $ 18,483 $(483,856) $18,391,585
============= ============ ============= =============
</TABLE>
F-11
<PAGE>
The amortized cost and estimated fair value of securities, by contractual
maturity, are shown below. Expected maturities will differ from contractual
maturity because borrowers may have the right to call or prepay obligations:
<TABLE>
<CAPTION>
June 30, 1996
-------------------------------------------------------
Available for Sale Held-to-Maturity
-------------------------- ---------------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
------------ ------------ ------------ -------------
(Unaudited)
<S> <C> <C> <C> <C>
Due in one year or less $ 0 $ 0 $ 3,754,486 $3,746,498
Due after one year through five years 1,260,690 1,232,030 1,496,990 1,460,931
Due after five years through ten years 761,901 735,700 0 0
Due after ten years 2,193,927 2,179,325 0 0
------------ ------------ ------------ -------------
4,216,518 4,147,055 5,251,476 5,207,429
Mortgage-backed securities 6,488,950 6,213,484 2,749,049 2,749,113
------------ ------------ ------------ -------------
Total $10,705,468 $10,360,539 $8,000,525 $7,956,542
============ ============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
-------------------------------------------------------
Available for Sale Held-to-Maturity
-------------------------- ---------------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Due in one year or less $ 0 $ 0 $ 2,747,450 $ 2,755,905
Due after one year through five years 501,963 502,580 5,445,672 5,385,260
Due after five years through ten years 0 0 0 0
Due after ten years 2,118,941 2,106,234 0 0
------------ ------------ ------------ -------------
2,620,904 2,608,234 8,193,122 8,141,165
Mortgage-backed securities 2,302,174 2,243,430 3,208,648 3,178,942
------------ ------------ ------------ -------------
Total $4,923,078 $4,852,244 $11,401,770 $11,320,107
============ ============ ============ =============
</TABLE>
There were no sales of securities during the years ended September 30, 1995 and
the interim period ended June, 1996. Proceeds from sales of securities during
fiscal 1994, prior to adoption of SFAS No. 115, were $1,533,077 with gross gains
of $854 on those sales.
F-12
<PAGE>
3. LOANS RECEIVABLE, NET
Loans receivable are summarized as
follows:
<TABLE>
<CAPTION>
June 30, September 30, September 30,
1996 1995 1994
------------- --------------- --------------
(Unaudited)
<S> <C> <C> <C>
Mortgage loans:
Principal balances:
Secured by 1-4 family residences $23,804,276 $23,230,366 $24,123,939
Secured by nonresidential properties 8,670,198 8,180,276 9,463,817
Secured by multifamily properties 4,105,323 4,187,709 3,540,035
Construction loans 755,035 624,000 400,110
------------- --------------- --------------
37,334,832 36,222,351 37,527,901
Less:
Undisbursed portion of mortgage loans (246,191) (265,804) (91,435)
Net deferred loan origination fees (154,950) (121,257) (100,624)
------------- --------------- --------------
Total mortgage loans 36,933,691 35,835,290 37,335,842
Commercial loans 1,157,402 378,126 70,877
Consumer loans:
Principal balances:
Loans secured by automobiles 1,230,415 1,050,545 1,252,061
Loans secured by savings accounts 595,526 534,017 346,526
Other 563,572 1,395,893 1,581,316
------------- --------------- --------------
Total consumer loans 2,389,513 2,980,455 3,179,903
------------- --------------- --------------
Total loans 40,480,606 39,193,871 40,586,622
Less allowance for loan losses 611,597 623,638 632,208
------------- --------------- --------------
Loans receivable, net $39,869,009 $38,570,233 $39,954,414
============== =============== ==============
</TABLE>
In the ordinary course of business, the Bank makes loans to officers,
directors, employees, and other related parties of the Bank. These loans are
made on substantially the same terms as those prevailing for comparable
transactions with others. Such loans do not involve more than normal risk of
collectibility nor do they present other unfavorable features. The amounts of
such related party loans and commitments at September 30, 1994, September 30,
1995 and June 30, 1996 were $680,000, $689,000, and $912,000, respectively.
During the year ended September 30, 1995, new loans totaled $69,000 and
repayments were $60,000. During the interim period ended June 30, 1996, new
loans totaled $376,000 and repayments were $153,000.
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
For the Nine Months For the Years Ended
Ended June 30, September 30,
---------------------- -----------------------
1996 1995 1995 1994
---------- ---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Balance at beginning of year $623,638 $632,208 $632,208 $ 756,628
Provision charged to income 0 0 0 35,000
Net loan recoveries (charge-offs) (12,041) 4,152 (8,570) (159,420)
----------- ---------- ---------- -----------
Balance at end of year $611,597 $636,360 $623,638 $ 632,208
=========== ========== ========== ===========
</TABLE>
F-13
<PAGE>
The Association had loans on nonaccrual status of approximately $49,000 and
$22,000 at September 30, 1995 and 1994, respectively. Interest income
foregone on these nonaccrual loans was not significant for fiscal years 1995
and 1994. The Association had loans on nonaccrual status of approximately
$34,000 at June 30, 1996 (unaudited). Interest income foregone on these
nonaccrual loans was not significant for the nine months ended June 30, 1996
(unaudited).
4. LOAN SERVICING
The Association originates and services mortgage loans for Federal Home Loan
Mortgage Corporation ("Freddie Mac"). Mortgage loans serviced for Freddie Mac
are not included in the accompanying statements of financial condition.
Unpaid principal balances of serviced loans totaled $750,391 at June 30, 1996
(unaudited), $900,246 at September 30, 1995, and $240,474 at September 30,
1994.
5. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at September 30, 1995 is summarized as follows:
<TABLE>
<CAPTION>
June 30, September 30, September 30,
1996 1995 1994
------------- -------------- -------------
(Unaudited)
<S> <C> <C> <C>
Investment securities $105,482 $ 97,352 $120,556
Mortgage-backed securities 48,542 28,965 29,563
Loans receivable 277,232 257,664 195,349
------------- -------------- -------------
Total $431,256 $383,981 $345,468
============= ============== =============
</TABLE>
6. FORECLOSED REAL ESTATE
Activity in the allowance for losses on foreclosed real estate is
summarized as follows:
<TABLE>
<CAPTION>
June 30, September 30, September 30,
1996 1995 1994
------------- -------------- -------------
(Unaudited)
<S> <C> <C> <C>
Balance at beginning of year $ 0 $ 214,609 $ 94,609
Provision charged to income 0 0 120,000
Charge-offs 0 (214,609) 0
------------- -------------- -------------
Balance at end of year $ 0 $ 0 $214,609
============= ============== =============
</TABLE>
F-14
<PAGE>
7. PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
<TABLE>
<CAPTION>
June 30, September 30, September 30,
1996 1995 1994
------------- ------------- --------------
(Unaudited)
<S> <C> <C> <C>
Land $ 163,082 $ 163,081 $ 201,082
Buildings and improvements 751,408 727,144 864,202
Leasehold improvements 30,166 30,166 21,854
Furniture, fixtures, and equipment 726,324 682,904 680,488
------------- ------------- --------------
1,670,980 1,603,295 1,767,626
Less accumulated depreciation and 1,049,281 1,002,307 980,107
amortization ------------- ------------- --------------
Net premises and equipment $ 621,699 $ 600,988 $ 787,519
============= ============= ==============
</TABLE>
8. DEPOSITS
<TABLE>
<CAPTION>
Deposits are summarized as follows:
June 30, 1996 September 30, 1995 September 30, 1994
-------------------------- ------------------------------- --------------------------
Weighted Weighted
Average Average
Rate Amount Percent Rate Amount Percent Amount Percent
------------ ------------- --------- -------- ------------- -------- ----------- ----------
(Unaudited
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Demand and NOW accounts, including
noninterest-
bearing deposits of $113,594
in 1996 and $90,205 in 1995 2.40% $11,670,291 20.0% 2.43% $11,721,404 20.9% $13,848,994 23.8%
Money market accounts 3.15 1,300,033 2.2 3.15 1,339,759 2.4 1,365,561 2.3
Passbook savings 2.84 8,373,587 14.4 3.10 7,471,270 13.3 8,626,621 14.8
------------ ------------- -------- ------- ------------- ------- ------------- --------
21,343,911 36.6 20,532,433 36.6 23,841,176 40.9
Certificates of deposit, rates from
3.15% to 6.41% in 1996 and 5.12% to
6.78% in 1995 5.60 36,933,976 63.4 5.62 35,475,537 63.4 34,386,596 59.1
------------ ------------- -------- ------- ------------- ------- ------------- --------
Total 4.51% $58,277,887 100.0% 4.56% $56,007,970 100.0% $58,227,772 100.0%
============ ============= ======== ======= ============= ======= ============= ========
</TABLE>
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $5,815,582 at June 30, 1996
(unaudited) and $4,910,558 at September 30, 1995.
F-15
<PAGE>
Scheduled maturities of certificates of deposit at September 30, 1995 are
as follows:
<TABLE>
<CAPTION>
YEARS ENDING WEIGHTED
SEPTEMBER 30 AVERAGE RATE AMOUNT
---------------- ----------------- ----------------
<S> <C> <C>
1996 5.47% $26,185,400
1997 5.91 6,112,602
1998 5.96 1,667,904
1999 6.91 1,456,683
2000 6.69 52,948
----------------
$35,475,537
----------------
</TABLE>
Interest expense on deposits are
summarized as follows:
<TABLE>
<CAPTION>
June 30, June 30, September 30, September 30,
1996 1995 1995 1994
-------------- ----------- -------------- ----------------
(Unaudited)
<S> <C> <C> <C> <C>
NOW accounts $ 199,621 $ 208,163 $ 286,845 $ 316,846
Money market accounts 22,237 27,648 37,731 37,444
Passbook savings 143,230 166,224 229,105 228,676
Certificates of deposit 1,572,635 1,269,300 1,754,606 1,401,551
Withdrawal penalties (1,571) (2,863) (8,042) (1,714)
-------------- ------------ -------------- ----------------
Total $1,936,152 $1,668,472 $ 2,300,245 $1,982,803
============== ============ ============== ================
</TABLE>
The Association has pledged U.S. government and government agency
obligations totaling $1,120,000 at June 30, 1996 (unaudited) and September
30, 1995 as collateral against certain large deposits.
F-16
<PAGE>
9. INCOME TAXES
The provisions for income taxes for the periods indicated are as follows:
<TABLE>
<CAPTION>
For the Nine For the Years
Months Ended Ended
June 30, September 30,
---------------------------- -------------------------
1996 1995 1995 1994
----------- ----------- ---------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Current:
Federal $189,305 $137,566 $212,262 $30,535
State 27,525 20,532 31,680 10,926
----------- ----------- ---------- ---------
216,830 158,098 243,942 41,461
Deferred:
Federal 5,732 48,631 64,841 53,934
State 887 1,105 1,473 2,337
----------- ----------- ---------- ---------
6,619 49,736 66,314 56,271
----------- ----------- ---------- ---------
Total $223,449 $207,834 $310,256 $97,732
=========== =========== ========== =========
</TABLE>
The differences between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate of 34% to income
before income taxes were as follows:
<TABLE>
<CAPTION>
For the Nine Months For the Years Ended
Ended June 30, September 30,
------------------------ -----------------------
1996 1995 1995 1994
------------- ----------- ----------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Expected income tax expense at
statutory federal tax rate $218,579 $227,948 $316,814 $127,997
Increase (decrease) resulting from:
State income tax, net of federal benefit
17,670 14,280 21,882 8,754
Tax-exempt interest income (12,000) (24,000) (28,000) (38,419)
Other, net (800) (10,394) (440) (600)
----------- ------------ ----------- -----------
$223,449 $207,834 $310,256 $ 97,732
=========== ============ =========== ===========
Effective rate 35% 31% 33% 26%
=========== ============ =========== ===========
</TABLE>
F-17
<PAGE>
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to significant portions
of the net deferred tax asset relate to the following:
<TABLE>
<CAPTION>
June 30, September 30, September 30,
1996 1995 1994
---------------------- ------------------ ------------------------
(Unaudited)
<S> <C> <C> <C>
Deferred loan fees, net $ 12,499 $ 16,665 $ 20,831
Allowance for
loan losses for financial report 226,291 230,746 233,917
Unrealized loss on securities available
for sale 127,624 25,900 0
Unrealized depreciation on certain
marketable equity securities 0 0 13,531
Other 22,316 25,205 12,004
---------------------- ------------------ ------------------------
Deferred tax asset 388,730 298,516 280,283
Allowance for loan losses for the tax
reserve in excess of base year (45,852) (32,130) (12,044)
Depreciation (53,443) (50,049) (44,251)
Other (40,788) (62,795) (16,501)
---------------------- ------------------ ------------------------
Deferred tax liability (140,083) (144,974) (72,796)
---------------------- ------------------ ------------------------
Net deferred tax asset $248,647 $153,542 $207,487
====================== ================== ========================
</TABLE>
Thrift institutions, in determining taxable income, have historically been
allowed special bad debt deductions based on specified experience formulae
or on a percentage of taxable income before such deductions. The bad debt
deduction based on the latter has been gradually reduced to 8%. On August
2, 1996, Congress passed the Small Business Job Protection Act that, will
among other things, repeal the tax bad debt reserve method for thrifts
effective for taxable years beginning after December 31, 1995. As a result,
thrifts must recapture into taxable income the amount of their post-1987
tax bad debt reserves over a six-year period beginning after 1995. This
recapture can be deferred for up to two years if the thrift satisfies a
residential loan portfolio test. The Bank is expected to recapture
approximately $32,000 of its tax bad debt reserves into taxable income over
six years as a result of this new law. The recapture will not have any
effect on the Association's net income because the related tax expense has
already been accrued.
Because of such repeal, thrifts such as the Association may only use the
same tax bad debt reserve that is allowed for banks. Accordingly, a thrift
with assets of $500 million or less may only add to its tax bad debt
reserves based upon its moving six-year average experience of actual loan
losses (i.e., the experience method). A thrift with assets greater than
$500 million can no longer use the experience method and may only deduct
loan losses as they actually arise (i.e., the specific charge-off method).
The Association expects to continue to use the experience method.
The portion of a thrift's tax bad debt reserve that is not recaptured under
this new law is only subject to recapture at a later date under certain
circumstances. These include stock repurchases by the thrift or if the
thrift converts to a type of institution (such as a credit union) that is
not considered a bank for tax purposes. However, no further recapture would
be allowed if the thrift converted to a commercial bank charter or was
acquired by a bank. The Association does not
F-18
<PAGE>
anticipate engaging in any transactions at this time that would require the
recapture of its remaining tax bad debt reserves.
10. EQUITY
Under regulations promulgated by the Association's primary regulator, the
Office of Thrift Supervision ("OTS"), the Association is required to
maintain capital sufficient to meet three requirements, as defined: (1) a
tangible capital requirement equal to 1.5% of adjusted total assets; (2) a
core capital (leverage) requirement of 3% of adjusted total assets, though
it is anticipated that most institutions will be required by regulators to
maintain capital of an additional 100 to 200 basis points; and (3) a risk-
based capital requirement equal to 8% of risk-weighted assets, which were
approximately $32,705,865 at September 30, 1995. Under the risk-based
capital regulations, assets and off-balance sheet commitments are assigned
a credit-risk weighting based upon their relative risk ranging from 0% for
assets backed by the full faith and credit of the United States government
or that pose no credit risk to the Association to 100% for such assets as
commercial loans and delinquent or repossessed assets.
The following is a reconciliation of the Association's equity under
generally accepted accounting principles ("GAAP") to the Association's
tangible, leverage, and risk-based capital available to meet its regulatory
requirements:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1995
---------------
<S> <C>
Total equity, per financial statements $5,605,587
Unrealized losses on available-for-sale securities
allowed to be added back 44,934
Intangible assets required to be deducted 0
---------------
Tangible capital 5,650,521
Required deductions 0
---------------
Core capital 5,650,521
General allowance for loan losses* 410,000
---------------
Risk-based capital $6,060,521
===============
*Limited to a maximum of 1.25% of gross risk weighted assets
</TABLE>
F-19
<PAGE>
At September 30, 1995, the Association was in compliance with all capital
requirements, as set forth in the following table:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
------------- ---------------
<S> <C> <C>
Tangible capital, as defined $5,650,521 9.11%
Required minimum 930,393 1.50
------------- ---------------
Excess $4,720,128 7.61%
============= ===============
Core capital, as defined $5,650,521 9.11%
Required minimum 1,860,786 3.00
------------- ---------------
Excess $3,789,735 6.11%
------------- ---------------
Risk-based capital $6,060,521 18.53%
Required minimum 2,616,469 8.00
------------- ----------------
Excess $3,444,052 10.53%
============= ================
</TABLE>
Core and risk-based capital elements continue to be under study by the OTS.
Management continues to monitor these and contemplated regulatory changes
and believes that the Association will continue to exceed its regulatory
minimums.
Effective December 1992, the capital standards under the Federal Deposit
Insurance Corporation Improvement Act became effective. These regulations
established capital standards in five categories ranging from "critically
undercapitalized" to "well capitalized" and defined "well capitalized" as
at least 5% for leverage capital and at least 10% for risk-based capital.
Institutions with a leverage capital less than 4% or risk-based capital
less than 8% are considered "undercapitalized" and are subject to
increasingly stringent prompt corrective action measures.
11. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENT
The Association leases property utilized as a branch office under a long-
term lease expiring March 31, 2000, at an annual rental of $15,409 plus
taxes and maintenance. The Association has three 5-year options to renew
with rentals adjusted to the consumer price index. Rent expense under this
lease totaled $15,661 for the year ended September 30, 1995.
At September 30, 1995, projected minimum lease payments for years ending
September 30 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $15,409
1997 15,409
1998 15,409
1999 15,409
2000 7,705
-----------
Total $69,341
-----------
</TABLE>
F-20
<PAGE>
Financial Instruments With Off-Balance-Sheet Risk
The Association does not engage in transactions involving options, standby
letters of credit, financial guarantees, interest-rate swaps, and forward
and future contracts. Further, the Association does not routinely issue
loan commitments and had none outstanding at September 30, 1995.
Significant Group Concentrations of Credit Risk
The majority of the Association's business activity is with customers
located in Cullman County and surrounding areas. While this area is heavily
involved in agribusiness activities, there is significant diversified
industry with no heavy concentration in any one industry.
FDIC Assessment
The Association's savings deposits are insured by the Savings Association
Insurance Fund ("SAIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC"). The assessment rate is currently 0.23% of
deposits for well capitalized institutions, though proposed legislation
would reduce such assessment from $.23 to $.04, a level consistent with
that charged to members of the Bank Insurance Fund. However, if enacted,
such legislation would likely require a one-time assessment which the
Association believes, under terms of legislative proposals most frequently
discussed, would approximate $475,000. Such an assessment will be
recognized by a charge to income if and when such legislation is enacted.
Litigation
The Company is a defendant in certain claims and legal actions arising in
the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters
is not expected to have a material adverse effect on the financial position
of the Company.
12. PROFIT SHARING PLAN
The Association maintains a defined contribution profit-sharing plan
covering all full-time employees who meet certain eligibility requirements.
Contributions to the Plan are at the discretion of the Board of Directors
and are determined on a calendar-year basis. For the plan year ended
December 31, 1995 management made a contribution of approximately $20,000,
of which $15,000 had been accrued at September 30, 1995. For the year ended
December 31, 1994 management made a contribution of $40,076 of which
$30,057 had been accrued at September 30, 1994.
13. STOCK CONVERSION
On June 10, 1996, the Board of Directors approved a plan (the "Stock
Conversion Plan") to convert the Association from the mutual form of
organization to the stock form of organization. A newly formed corporation
will become the holding company of the Association and would offer and
issue shares of stock to members of the Association, certain benefit plans
of the Association, and the public in a subscription and community
offering.
F-21
<PAGE>
The Stock Conversion Plan provides for the issuance of shares of capital
stock at a price which conforms to an independently apprised pro forma
market value of the Association. The estimated net proceeds to be received
from the offering will be based upon the appraisal to be performed.
The costs associated with the offering are expected to be deducted from the
proceeds of the sale of stock. In the event the conversion is not
consummated, all conversion costs incurred will be charged against current
earnings.
Consummation of the offering is contingent upon regulatory approval.
F-22
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such information shall not be relied upon as having been authorized by the
Holding Company, the Association or Trident Securities, Inc. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby to any person in any jurisdiction in which such
offer or solicitation is not authorized or in which the person making such offer
to solicitation is not qualified to do so, or to any person to whom it is
unlawful. Neither the delivery of this Prospectus nor any sale hereunder shall
under any has been no change in the affairs of the Holding Company or the
Association since any of the dates as of which information is furnished herein
or since the date hereof.
---------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary........................................................... 1
Selected Financial Information
and Other Data............................................................. 7
Risk Factors................................................................. 9
Southern Community Bancshares, Inc.......................................... 14
First Federal Savings and Loan Association of Cullman....................... 14
Use of Proceeds............................................................. 15
Market for the Common Shares................................................ 15
Dividend Policy............................................................. 16
Regulatory Capital Compliance............................................... 17
Capitalization.............................................................. 18
Pro Forma Data.............................................................. 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................... 22
The Business of the Holding Company......................................... 36
The Business of the Association............................................. 36
Management.................................................................. 52
Regulation.................................................................. 60
Taxation.................................................................... 68
The Conversion.............................................................. 70
Restrictions on Acquisition of the Holding Company
and the Association....................................................... 83
Description of Authorized Shares............................................ 89
Registration Requirements................................................... 90
Legal Matters............................................................... 91
Experts..................................................................... 91
Additional Information...................................................... 91
Index to Financial Statements............................................... 92
---------------------
Until __________________, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may be
required to deliver a prospectus. This is an addition to the obligation of
dealers to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
================================================================================
================================================================================
SOUTHERN COMMUNITY
BANCSHARES, INC.
(Holding Company for
FIRST FEDERAL SAVINGS AND
LOAN ASSOCIATION OF CULLMAN)
Up to 460,000 Shares
Common Stock
---------------------
PROSPECTUS
---------------------
TRIDENT SECURITIES, INC.
________________, 1996
================================================================================
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers of First Federal Savings and
Loan Association of Cullman
As a federal savings and loan association, First Federal Savings and Loan
Association of Cullman (the "Association") is subject to federal regulations
which provide that any person against whom any action, suit or other judicial or
administrative proceeding, or threatened proceeding, whether civil, criminal, or
otherwise, including any appeal or other proceeding for review (an "Action"), is
brought by reason of the fact that such person is or was a director, officer or
employee of the Association shall be indemnified by the Association for the
following:
(i) Reasonable costs and expenses, including reasonable attorney's fees
actually paid or incurred by such person in connection with proceedings
related to the defense or settlement of an Action:
(ii) Any amount for which such person becomes liable by reason of any
judgment in an Action; and
(iii) Reasonable costs and expenses, including reasonable attorney's
fees, actually paid or incurred in any Action to enforce his rights under
this section if the person attains a final judgment in favor of such person
in such Action.
Such indemnification shall be made to such officer, director or employee
only if the following requirements are met:
(i) The Association shall make the indemnification in connection with
any Action which results in a final judgment on the merits in favor of such
director, officer or employee; and
(ii) The Association shall make the indemnification in case of (A)
settlement of any Action, (B) final judgment against such director,
officer, or employee, or (C) final judgment in favor of such director,
officer or employee other than on the merits, only if a majority of the
directors of the Association that such director, officer or employee was
acting in good faith within what he or she reasonably believed under the
circumstances was the scope of his or her employment or authority and for a
purpose which he or she reasonably believed under the circumstances was in
the best interest of the Association.
The Association may authorize payment of reasonable costs and expenses,
including reasonable attorney's fees arising from the defense or settlement of
any Action, to any director, officer or employee if a majority of the directors
of the Association conclude that such person may become entitled to
indemnification. The directors of the Association may impose conditions on such
payment, and, before making an advance payment, the Association shall obtain an
agreement from such person that the Association will be repaid if the person on
whose behalf payment is made is later determined not to be entitled to such
indemnification.
The Association intends to obtain a directors' and officers' liability
policy providing for insurance of directors and officers for liability incurred
in connection with performance of their duties as directors and officers. Such
policy will not, however, provide insurance for losses resulting from willful or
criminal misconduct.
<PAGE>
Indemnification of Directors and Officers of First Federal Savings and Loan
Association of Cullman
Article XVI of the Southern Community Bancshares, Inc., Certificate of
Incorporation provides for the indemnification of officers and directors as
follows:
Article XVI. Indemnification: The Corporation shall, to the fullest extent
---------------
permitted by the provisions of Section 145 of the General Corporate Law of the
State of Delaware, as the same may be amended and supplemented, indemnify any
and all persons whom it shall have the power to indemnify under said section
from and against any and all of the expenses, liabilities or other matters
referred to in or covered by said section, and the indemnification provided for
herein shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
Item 25. Other Expenses of Issuance and Distribution
<TABLE>
<CAPTION>
Amount
<S> <C> <C>
* Legal Fees and Expenses..................... $100,000
* Printing, Postage and Mailing............... 60,000
* Appraisal and Business Plan Fees and Expense 30,000
* Accounting Fees and Expenses................ 95,000
* Blue Sky Filing Fees and Expenses
(including counsel fees).................... 10,000
Conversion Agent and Proxy Solicitation Fees 7,000
** Marketing Agent Fees and Expenses........... 103,200
* Marketing Agent Counsel Fees................ 30,000
* Filing Fees (NASD, OTS and SEC)............. 25,000
Stock transfer agent & certificates......... 7,500
* Other Expenses.............................. 42,300
--------
* Total....................................... $510,000
========
</TABLE>
- --------------------
* Estimated
** Southern Community Bancshares, Inc. has retained Trident Securities, Inc.
("Trident Securities") to assist in the sale of common stock on a best
efforts basis in the Offerings. Trident Securities will receive payments
for fees and expenses of approximately $103,200, including estimated
expenses of $10,000.
<PAGE>
Item 26. Recent Sales of Unregistered Securities
Not Applicable.
Item 27. Exhibits:
The exhibits filed as part of this registration statement are as follows:
1.1 Engagement Letter between the Association Savings and Loan Association of
Cullman and Trident Securities, Inc.
1.2 Form of Agency Agreement among Southern Community Bancshares, Inc., the
Association Savings and Loan Association of Cullman and Trident
Securities, Inc.*
2 Plan of Conversion
3.1 Certificate of Incorporation of Southern Community Bancshares, Inc.
3.2 Bylaws of Southern Community Bancshares, Inc.
3.3 Charter of First Federal Savings and Loan Association of Cullman
3.4 Bylaws of First Federal Savings and Loan Association of Cullman
4 Form of Common Stock Certificate of Southern Community Bancshares, Inc.
5 Opinion of Bayh, Connaughton & Malone, P.C., regarding legality of
securities being registered
8.1 Federal Tax Opinion of Bayh, Connaughton & Malone, P.C.
8.2 State Tax Opinion of Miller, Hamilton, Snider & Odom, L.L.C.
8.3 Proposed Opinion of Ferguson & Co., L.L.C., with respect to Subscription
Rights
10.1 Proposed Stock Option Plan and Incentive Plan
10.2 Proposed Management Recognition Plan and Trust Agreement
10.3 Proposed Employment Agreement for William R. Faulk and Beth B. Knight
10.4 Proposed Employee Stock Ownership Plan
23.1 Consent of Bayh, Connaughton & Malone, P.C.
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Ferguson & Co., L.L.P.
23.4 Consent of Miller, Hamilton, Snider & Odom, L.L.C.
24 Power of Attorney (set forth on signature page)
<PAGE>
27.1 EDGAR Financial Data Schedule
99.1 Appraisal Agreement between First Federal Savings and Loan Association of
Cullman and Ferguson & Co., L.L.P.
99.2 Appraisal Report of Ferguson & Co., L.L.P.
99.3 Proxy Statement
99.4 Marketing Materials
99.5 Order and Acknowledgment Form
- ------------------------
* To be filed supplementally or by amendment.
<PAGE>
Item 28. Undertakings
The undersigned Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) 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. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any duration from the low or high
and of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
The small business issuer will provide to the underwriter at the closing
specified in the Underwriting Agreement certificates in such documentation and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer 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 small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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 small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
questions 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.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Cullman,
State of Alabama, on September 20, 1996.
Southern Community Bancshares, Inc.
By: /s/ William R. Faulk
--------------------
William R. Faulk
President and Chief Executive Officer and Director
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned directors and officers of Southern Community
Bancshares, Inc. (the "Company"), hereby severally constitute and appoint Andrew
C. Lynch as our true and lawful attorney and agent, to do any and all things in
our names in the capacities indicated below which said Andrew C. Lynch may deem
necessary or advisable to enable the Company to comply with the Securities Act
of 1933, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with the registration statement on Form SB-2
relating to the offering of the Company's Common Stock, including specifically,
but not limited to, power and authority to sign for us in our names in the
capacities indicated below the registration statement and any and all amendments
(including post-effective amendments) thereto; and we hereby approve, ratify and
confirm all that said Andrew C. Lynch shall do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
/s/ Beth B. Knight Vice President-Chief Financial Officer September 20, 1996
- ---------------------------
/s/ Finis E. St. John Director September 20, 1996
- ---------------------------
/s/ Joseph S. Franey Director September 20, 1996
- ---------------------------
/s/ Phillip W. Freeman Director September 20, 1996
- ---------------------------
/s/ Maxie T. Hudson Director September 20, 1996
- ---------------------------
/s/ Eston E. Jones Director September 20, 1996
- ---------------------------
/s/ Daniel W. Keel Director September 20, 1996
- ---------------------------
/s/ Ronald P. Martin Director September 20, 1996
- ---------------------------
/s/ Wells R. Turner Director September 20, 1996
- ---------------------------
</TABLE>
<PAGE>
EXHIBIT INDEX
1.1 Engagement Letter between the Association Savings and Loan Association
of Cullman and Trident Securities, Inc.
1.2 Form of Agency Agreement among Southern Community Bancshares, Inc., the
Association Savings and Loan Association of Cullman and Trident
Securities, Inc.*
2 Plan of Conversion
3.1 Certificate of Incorporation of Southern Community Bancshares, Inc.
3.2 Bylaws of Southern Community Bancshares, Inc.
3.3 Charter of First Federal Savings and Loan Association of Cullman
3.4 Bylaws of First Federal Savings and Loan Association of Cullman
4 Form of Common Stock Certificate of Southern Community Bancshares, Inc.
5 Opinion of Bayh, Connaughton & Malone, P.C., regarding legality of
securities being registered
8.1 Federal Tax Opinion of Bayh, Connaughton & Malone, P.C.
8.2 State Tax Opinion of Miller, Hamilton, Snider & Odom, L.L.C.
8.3 Proposed Opinion of Ferguson & Co., L.L.C., with respect to
Subscription Rights
10.1 Proposed Stock Option Plan and Incentive Plan
10.2 Proposed Management Recognition Plan and Trust Agreement
10.3 Proposed Employment Agreement for William R. Faulk and Beth B. Knight
10.4 Proposed Employee Stock Ownership Plan
23.1 Consent of Bayh, Connaughton & Malone, P.C.
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Ferguson & Co., L.L.P.
23.4 Consent of Miller, Hamilton, Snider & Odom, L.L.C.
24 Power of Attorney (set forth on signature page)
27.1 EDGAR Financial Data Schedule
99.1 Appraisal Agreement between First Federal Savings and Loan Association
of Cullman and Ferguson & Co., L.L.P.
<PAGE>
99.2 Appraisal Report of Ferguson & Co., L.L.P.
99.3 Proxy Statement
99.4 Marketing Materials
99.5 Order and Acknowledgment Form
- ----------------------
* To be filed supplementally or by amendment.
<PAGE>
[LETTERHEAD OF TRIDENT SECUITIES, INC.]
May 14, 1996
Board of Directors
First Federal Savings and Loan Association
325 2nd Street, SE
Cullman, Alabama 35056
RE: Conversion Stock Marketing Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between Trident
Securities, Inc. ("Trident") and First Federal Savings and Loan Association,
Cullman, Alabama (the "Association") concerning our investment banking services
in connection with the conversion of the Association from a mutual to a capital
stock form of organization.
Trident is prepared to assist the Association 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 Association'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
Association 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 Association'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 Association.
In connection with the subscription offering and community offering, Trident
will act as financial advisor and exercise its best efforts to assist the
Association 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
Association will determine the selected dealers to assist the Association 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 Association as Trident deems necessary and appropriate. The Association 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 Association:
<PAGE>
Board of Directors
May 14, 1996
Page 2
1. A commission equal to two percent (2.0%) of the aggregate dollar
amount of capital stock sold in the subscription and community
offerings, excluding any shares of conversion stock sold to the
Association's directors, executive officers and the employee stock
ownership plan. Additionally, commissions will be excluded on those
shares sold to "associates" of the Association's directors and
executive officers. The term "associates" as used herein shall have
the same meaning as that found in the Association's Plan of
Conversion.
2. 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 Association to reflect market requirements
at the time of the stock allocation in a Syndicated Community
Offering.
3. The foregoing fees and commissions are to be payable to Trident at
closing as defined in the Agreement to be entered into between the
Association and Trident.
4. 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 Association 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 Association 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
Association warrants that: (a) the Association 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 Association and any NASD member or any
person related to or associated with any such member; (c) none of the officers
or directors of the Association has any affiliation with the NASD; (d) except as
contemplated by this engagement letter with Trident, the Association has no
financial or management consulting contracts outstanding with any other person;
(e) the Association has not granted Trident a right of first refusal with
respect to the underwriting of any future offering of the Association stock; and
(f) there has been no intermediary between Trident and the Association in
connection with the public offering of the Association's shares, and no person
is being compensated in any manner for providing such service.
The Association 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
<PAGE>
Board of Directors
May 14, 1996
Page 3
under the common law, that arise out of or are based upon the conversion or the
engagement hereunder of Trident unless it is determined by final judgment of a
court having jurisdiction over the matter that such Losses are primarily a
result of Trident's willful misconduct or gross negligence. If the foregoing
indemnification is unavailable for any reason, the Association 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 Association
and Trident.
This letter is merely a statement of intent and is not a binding legal agreement
except as to paragraph (4) 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 Association 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
Association shall be only as set forth in a duly executed Agreement. Such
Agreement shall be in form and content satisfactory to Trident and the
Association, 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 Association or no
market conditions which might render the sale of the shares by the Association
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/ William M. Moore, Jr.
---------------------------
William M. Moore, Jr.
Managing Director
Agreed and accepted to this 11th day
----
of June, 1996
----
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
By: /s/ Wiliam R. Faulk
-----------------------
William R. Faulk
President
3-6-2
<PAGE>
AMENDED AND RESTATED PLAN OF CONVERSION
OF
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CULLMAN
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CULLMAN
AMENED AND RESTATED PLAN OF CONVERSION
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C> <C>
1. Introduction........................................................1
2. Definitions.........................................................1
3. Procedures for Conversion...........................................4
4. Purchase Price of Common Shares and Numbers of Shares
to be Offered.......................................................5
5. Subscription Offering...............................................6
6. Community Offering..................................................8
7. Broker..............................................................9
8. Payment for Common Shares...........................................9
9. Limitations on Purchases...........................................10
10. Additional Procedures for Subscription and
Community Offering.................................................11
11. Compliance with Securities Laws....................................12
12. Voting Rights......................................................12
13. Establishment of Liquidation Account...............................12
14. Savings Accounts in the Association................................13
15. Restrictions on Purchases or Sales of Common
Shares by Officers and Directors...................................14
16. Restrictions on Acquisition of the Holding Company.................14
17. Repurchases and Dividends..........................................15
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
18. Charter and By-laws................................................16
19. Registration and Market Making.....................................16
20. Stock Benefit Plans................................................16
21. Tax Ruling or Opinion..............................................16
22. Expenses of Conversion.............................................16
23. Interpretation, Amendment or Termination of the Plan...............16
</TABLE>
ii
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CULLMAN
AMENDED AND RESTATED PLAN OF CONVERSION
1. INTRODUCTION. On June 10, 1996, the Board of Directors of First Federal
------------
Savings and Loan Association of Cullman (the "Association") adopted this Plan of
Conversion (as amended as described below, the "Plan"), which provides for the
conversion of the Association from a federal mutual savings and loan association
to a federal capital stock savings and loan association and the issuance of the
capital stock of the Association to a holding company to be formed at the
direction of the Association (the "Conversion"). The Conversion is being
undertaken to provide the Association with additional capital, to expand lending
and investment activities, to enhance customer services and to fund future
growth of the Association. The Conversion is intended to further enhance the
Association's capabilities to serve the borrowing and other financial needs of
the local community.
Subsequent to the Conversion, savings accounts in the Association will be
equivalent in amount, interest rate and other terms to the savings accounts in
the Association prior to the Conversion and will continue to be insured by the
Federal Deposit Insurance Corporation to the maximum amount permitted by law.
The Association, as converted, will succeed to all rights, interests, duties and
obligation of the present Association, including all rights and interests in its
assets and properties, both real and personal.
The Conversion is subject to prior approval of the Office of Thrift
Supervision of the United States Department of the Treasury and must be adopted
by the affirmative vote of a majority of the total outstanding votes entitled to
be cast by the members of the Association.
The Plan was amended on September 16, 1996 by the unanimous agreement of
the Board.
2. DEFINITIONS. Capitalized terms used in this Plan shall have the following
-----------
meanings:
Acting in Concert means (a) knowing participation in a joint activity or
-----------------
interdependent conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (b) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise.
Application means the Application for Conversion on Form AC to be submitted
-----------
to the OTS pursuant to 12 CFR Part 563b.
Associate, when used to indicate a relationship with any Person, means (a)
---------
any corporation or organization (other than the Association, the Holding Company
or a majority-owned subsidiary of the Association or the Holding Company) 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, (b) any trust
or other estate in which such Person has a substantial beneficial interest or as
to which such
<PAGE>
Person serves as trustee or in a similar fiduciary capacity, except that such
term shall not include a Tax-Qualified Employee Stock Benefit Plan, and (c) 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 Association or
the Holding Company, or any of their subsidiaries.
Association means First Federal Savings and Loan Association of Cullman
-----------
in its mutual form or its stock form, as appropriate to the contextual reference
made in this Plan.
Broker means any Person engaged in the business of effecting transactions
------
in securities for the account of others.
Common Shares means the shares of common stock of the Holding Company to be
-------------
offered and sold by the Holding Company pursuant to the Plan.
Community Offering means the offering of Common Shares to the general
------------------
public by the Holding Company concurrently with or after the completion of the
Subscription Offering, giving preference to natural persons and trusts of
natural persons who are permanent residents of the Association's Local
Community.
Conversion means (a) the amendment of the Association's federal mutual
----------
charter and bylaws to authorize issuance of shares of capital stock by the
Association and to conform to the requirements of a federal capital stock
savings and loan association under the laws of the United States and applicable
regulations, (b) the issuance and sale of Common Shares by the Holding Company
in the Subscription and Community Offerings, and (c) the purchase by the Holding
Company of all the capital stock of the Association to be issued by the
Association in connection with the conversion from mutual to stock form.
Eligibility Record Date means the close of business on March 31, 1995,
-----------------------
the record date set by the Association for determining Eligible Account Holders.
Eligible Account Holder means an Person holding a Qualifying Deposits in
-----------------------
the Association on the Eligibility Record Date.
Holding Company means a corporation to be incorporated under state law
---------------
for the purpose of becoming a holding company for the Association through the
acquisition of all of the capital stock of the Association to be issued in
connection with the Conversion.
Independent Appraiser means the firm retained by the Association to prepare
---------------------
an appraisal of the estimated pro forma market value of the Association, which
will be used as the basis for determining the Purchase Price of the Common
Stock.
Local Community means Cullman County, Alabama.
---------------
2
<PAGE>
Member means any Person who qualifies as a member of the Association
------
under its federal mutual charter and bylaws.
Officer means an executive officer of the Holding Company or the
-------
Association, including the Chairman of the Board, President, Vice Presidents,
Secretary, Treasurer, principal financial officer, comptroller or principal
accounting officer, and any other person performing similar functions.
Order Form means the form that will be sent to Persons having
----------
Subscription Rights to enable exercise of such Subscription Rights and that may
be sent to others in the Community Offering.
Other Member means any Person, other than an Eligible Account Holder or a
------------
Supplemental Eligible Account Holder, who is a Member as of the Voting Record
Date.
OTS means the Office of Thrift Supervision of the United States Department
---
of the Treasury or any successor agency.
Person means an individual, a corporation, a partnership, an association, a
------
joint-stock company, a trust, any unincoroporated organization, or a government
or political subdivision thereof.
Plan means this Plan of Conversion as adopted by the Board of Directors
----
of the Association as it may be amended in accordance with the terms hereof.
Prospectus means the document used in the offering of the Common Shares
----------
containing a detailed description of the terms and conditions of the offering of
the Common Shares and of the business and affairs of the Association.
Proxy means the form of authorization by which a Person is, or may be
-----
deemed to be, designated to act for a Member in the exercise of his or her
voting rights in the affairs of the Association.
Proxy Materials means the Notice of Special Meeting, the Proxy Statement
---------------
and the form of Proxy used in connection with soliciting Proxies from members
for use at the Special Meeting.
Purchase Price means the actual uniform price per share at which Common
--------------
Shares will be sold, which price shall be based upon the appraised estimated pro
forma market value of such Common Shares, determined in accordance with Section
4 of this Plan.
Qualifying Deposit means each savings balance in any Savings Account in the
------------------
Association as of the close of business on the Eligibility Record Date or the
Supplemental Eligibility Record Date, as applicable, which is equal to or
greater than $50.00.
Savings Account means a withdrawable deposit in the Association.
---------------
3
<PAGE>
SEC means the Securities and Exchange Commission or any successor agency.
---
Special Meeting means the special meeting of Members called for the purpose
---------------
of submitting the Plan to the Members for approval.
Subscription Offering means the offering of Common Shares to the holders
---------------------
of Subscription Rights.
Subscription Rights means nontransferable rights of Eligible Account
-------------------
Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible
Account Holders and Other Members to purchase Common Shares offered under the
Plan.
Supplemental Eligibility Record Date means the record date used for
------------------------------------
determining Supplemental Eligible Account Holders. Such date shall be the last
day of the calendar quarter preceding the approval of the Application by the
OTS.
Supplemental Eligible Account Holder means any Person holding a
------------------------------------
Qualifying Deposit in the Association (other than Officers and directors of the
Association and their Associates) on the Supplemental Eligibility Record Date.
Tax-Qualified Employee Stock Benefit Plan means any defined benefit plan
-----------------------------------------
or defined contribution plan of the Association or the Holding Company, such as
an employee stock ownership plan, stock bonus plan, profit sharing plan or other
plan, which, with its related trust, meets the requirements to be "qualified"
under section 401 of the Internal Revenue Code of 1986, as amended. "Non-Tax-
Qualified Employee Stock Benefit Plan" means any defined benefit plan or defined
contribution plan which is not so qualified.
Voting Record Date means the date fixed by the Board of Directors of the
------------------
Association to determine Members of the Association entitled to vote at the
Special Meeting.
3. PROCEDURES FOR CONVERSION. The following procedures shall be followed to
-------------------------
effect the Conversion:
(a) The Board of Directors shall adopt the Plan by not less than a two-
thirds vote.
(b) Promptly after adoption of the Plan by the Board of Directors, the
Association shall notify its Members of the adoption of the Plan by publishing a
statement in a newspaper having a general circulation in each community in which
the Association maintains an office and/or by mailing a letter to each of its
Members. Copies of the Plan shall be made available for inspection by Members at
the office of the Association.
(c) The Association shall submit the Application to the OTS. Upon receipt
of advice from the regulatory authorities that the Application has been received
and is in the prescribed form, the
4
<PAGE>
Association shall publish a notice to the effect that the Association has filed
the Application in a newspaper having a general circulation in each community in
which the Association maintains an office. The Association also shall
prominently display a copy of such notice in each of its offices.
(d) The Association shall cause the Holding Company to be incorporated
under state law, after which the Board of Directors of the Holding Company shall
concur in the Plan by at least a two-thirds vote. The Holding Company shall
submit such applications as may be required for approval of the Holding
Company's acquisition of the Association and shall submit a registration
statement to the SEC. The Holding Company shall publish notice of the filing of
the above application in accordance with applicable regulations.
(e) After OTS approves the Application, the Association will mail Proxy
Materials to each of the Members at their last known addresses appearing on the
records of the Association for the purpose of soliciting the Proxies of Members
for use at the Special meeting. The approval of this Plan will require the
affirmative vote, cast in person or by Proxy, of a majority to the total
outstanding votes entitled to be cast at the Special Meeting.
(f) Subject to the approval of this Plan by the Members at the Special
Meeting, Common Shares will be offered simultaneously to Eligible Account
Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible
Account Holders and Other Members in the priorities set forth in Section 5 of
this Plan. The Association and the Holding Company, in their sole discretion,
may commence the Subscription Offering concurrently with or at any time after
the mailing to the members of the Proxy Materials and may complete the
Subscription Offering before the Special Meeting if the completion of the offer
and sale of the Common Shares is conditioned upon the approval of this Plan by
the Members.
(g) Concurrently with, at any time after the commencement of, or after the
completion of the Subscription Offering, the Association may also offer Common
Shares in the Community Offering, subject to the prior satisfaction
subscriptions received from Persons having Subscription Rights.
(h) All other steps considered necessary or desirable by the Boards of
Directors of the Association and the Holding Company will be taken pursuant to
applicable laws and regulations to effect the Conversion.
5
<PAGE>
4. PURCHASE PRICE OF COMMON SHARES AND NUMBER OF SHARES TO BE OFFERED.
------------------------------------------------------------------
(a) The aggregate value of all Common Shares to be offered and sold in the
Conversion will be determined by the Boards of Directors of the Association and
Holding Company on the basis of the estimated pro forma market value of the
Association, as converted. The estimated pro forma market value of the
Association, as converted, will be determined for such purpose by an Independent
Appraiser, on the basis of such factors as the Independent Appraiser deems
appropriate and as are consistent with applicable regulations. The Purchase
Price for Common Shares shall be established by the Boards of Directors of the
Association and the Holding Company and shall be not less than $5 per share nor
more than $50 per share. The number of shares to be issued in the Conversion
will be determined by dividing the pro form market value of the Association by
the Purchase Price per share.
(b) Prior to the Subscription and Community Offerings, a valuation range
for the Common Shares to be offered and sold in the Conversion will be
established. The maximum of such valuation range shall be 15% above the
estimated pro forma market value of the Association as determined by the
Independent Appraiser. The minimum of such valuation range shall be 15% below
the pro forma market value of the Association as determined by the Independent
Appraiser. Subsequent to the commencement of the Subscription and Community
Offering, the Independent Appraiser will review its valuation, from time to time
as appropriate, or as required by law or regulation, to determine whether the
estimated pro forma market value of the Association, as converted, should be
revised. No resolicitation will be required so long as the pro forma market
value as determined by the Independent Appraiser as of the date of completion of
the Community Offering, is within the valuation range.
5. SUBSCRIPTION OFFERING. The manner, terms and basis of offering of Common
---------------------
Shares in the Subscription Offering shall be as follows:
(a) SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS. Eligible Account
Holders shall have the following rights to subscribe for and purchase Common
Shares:
(i) Each Eligible Account Holder shall receive, without payment,
nontransferable Subscription Rights to purchase Common Shares in an amount
equal to the greater of (a) $150,000, (b) one-tenth of one percent of the
total offering of Common Shares, or (c) 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of
Common Shares to be issued by a fraction of which the numerator is the
amount of the Qualifying Deposit of the Eligible Account Holder and the
denominator is the total amount of Qualifying Deposits of all Eligible
Account Holders, in each case on the Eligibility Record Date.
(ii) In the event of an oversubscription for Common Shares by
Eligible Account Holders, Common Shares shall be allocated among
subscribing Eligible Account Holders so as to permit each such Eligible
Account Holder, to the extent possible, to purchase a number
6
<PAGE>
of Common Shares sufficient to make his or her total allocation equal to 50
shares or the total amount of his or her subscription, whichever is less.
Any shares not so allocated shall be allocated among the subscribing
Eligible Account Holders on an equitable basis, in proportion to the
amounts of their respective aggregate Qualifying Deposits, as compared to
the total aggregate Qualifying Deposits of all subscribing Eligible Account
Holders, in each case on the Eligibility Record Date.
(iii) Subscription Rights to purchase Common Shares received by
Officers and directors of the Association and any Associate thereof, based
on increased deposits of such Person in the Association in the one year
period preceding the Eligibility Record Date shall be subordinate to the
Subscription Rights of all other Eligible Account Holders.
(b) SUBSCRIPTION RIGHTS OF TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS.
Tax-Qualified Employee Stock Benefit Plans of the Association shall receive,
without payment, nontransferable Subscription Rights to purchase up to 10% of
the Common Shares issued in the Conversion. Subscription rights of Tax-Qualified
Employee Stock Benefit Plans shall be subordinated to the Subscription Rights
received by Eligible Account Holders pursuant to Section 5(a) of this Plan,
provided that Common Shares, if any, sold in excess of the high end of the
valuation range may be first sold to Tax-Qualified Employee Stock Benefit Plans.
(c) SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS.
Supplemental Eligible Account Holders shall have the following rights to
subscribe for and purchase Common Shares:
(i) In the event that the Eligibility Record Date is more than 15
months prior to the date of the latest amendment of the Application filed
prior to OTS approval, each Supplemental Eligible Account Holder shall
receive, without payment, nontransferable Subscription Rights to purchase
Common Shares in an amount equal to the greater of (a) $150,000, (b) one-
tenth of one percent of the total offering of Common Shares, or (c) 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of the Common Shares to be issued by a
fraction of which the numerator is the amount of the Qualifying Deposit of
the Supplemental Eligible Account Holder and the denominator is the total
amount of the Qualifying Deposits of all Supplemental Eligible Account
Holders, in each case on the Supplemental Eligibility Record Date.
(ii) Subscription Rights of Supplemental Eligible Account Holders
shall be subordinate to the Subscription Rights received by the Eligible
Account Holders and by Tax-Qualified Employee Stock Benefit Plans pursuant
to Sections 5(a) and 5(b) of this Plan.
(iii) Subscription Rights to purchase shares received by an Eligible
Account Holder in accordance with Section 5(a) of this Plan shall reduce to
the extent thereof, the Subscription Rights to be distributed to such
Eligible Account Holder pursuant to this Section 5(c).
7
<PAGE>
(iv) In the event of an oversubscription for Common Shares from
Supplemental Eligible Account Holders, Common Shares shall be allocated
among the subscribing Supplemental Eligible Account Holders so as to permit
each such Supplemental Eligible Account Holder, to the extent possible, to
purchase a number of Common Shares sufficient to make his or her total
allocation (including the number of Common Shares, if any, allocated in
accordance with Section 5(a) of this Plan) equal to 50 Common Shares or the
total amount of his or her subscription, whichever is less. Any shares not
so allocated shall be allocated among the subscribing Supplemental Eligible
Account Holders on an equitable basis, in proportion to the amounts of
their respective aggregate Qualifying Deposits as compared to the total
aggregate Qualifying Deposits of all subscribing Supplemental Eligible
Account Holders, in each case on the Supplemental Eligibility Record Date.
(d) SUBSCRIPTION RIGHTS OF OTHER MEMBERS. Other Members shall have the
following rights to subscribe for and purchase Common Shares:
(i) Each Other Member shall receive, without payment,
nontransferable Subscription Rights to purchase Common Shares in an amount
equal to the greater of $150,000 or one-tenth of one percent of the total
offering of Common Shares.
(ii) Subscription Rights of Other Members shall be subordinate to
the Subscription Rights of Eligible Account Holders, Tax-Qualified Employee
Stock Benefit Plans and Supplemental Eligible Account Holders pursuant to
Sections 5(a), 5(b) and 5(c) of this Plan.
(iii) In the event of an oversubscription for Common Shares of Other
Members, the Common Shares available shall be allocated among subscribing
Other Members so as to permit each subscribing Other Member, to the extent
possible, to purchase a number of shares sufficient to make his or her
total allocation of Common Shares equal to 50 shares or the number of
shares subscribed for by the Other Member, whichever is less. The shares
remaining thereafter will be allocated among subscribing Other Members
whose subscriptions remain unsatisfied on an equitable basis as determined
by the Board of Directors.
6. COMMUNITY OFFERING. Concurrently with, at any time after the commencement
------------------
of, or after the completion of the Subscription Offering, the Association may
offer Common Shares in the Community Offering in accordance with the following
procedures and conditions:
(a) Any Common Shares not purchased through the exercise of Subscription
Rights in the Subscription Offering may be sold in a Community Offering. Common
Shares will be offered in the Community Offering to the general public, giving
preference to natural persons and the trusts of natural persons who are
permanent residents of the Local Community.
(b) Orders accepted in the Community Offering shall be filled up to a
maximum of 2% of the Common Shares, and thereafter remaining shares shall be
allocated on an equal number of shares basis per order until all orders have
been filled.
8
<PAGE>
(c) The Common Shares to be offered in the Community Offering will be
offered and sold in a manner that will achieve the widest distribution of the
Common Shares.
(d) Persons holding Subscription Rights may purchase Common Shares in the
Community Offering.
(e) The Holding Company reserves the right reject, in whole or in part,
any order to purchase Common Shares from any Person in the Community Offering.
7. BROKER. The Association may retain a Broker to assist in marketing the
------
Common Shares in the Subscription Offering and the Community Offering.
8. PAYMENT FOR COMMON SHARES.
-------------------------
(a) Payment for all Common Shares subscribed for in the Subscription and
Community Offerings must be received in full by the Association or the Holding
Company, together with properly completed and executed Order Forms, on or prior
to the expiration date specified on the Order Form, unless such date is extended
by the Holding Company and the Association.
(b) Payment for all Common Shares may be made (i) in cash (delivered in
person), (ii) by check or money order, or (iii) if the subscriber has a Savings
Account in the Association (including a certificate of deposit), the subscriber
may authorize the Association to charge the subscriber's Savings Account for the
purchase amount. The Association may also elect to receive payment by wire
transfer.
(c) The Association shall pay interest at the passbook rate or such higher
rate as may be determined by the Association on all amounts paid in cash or by
check or money order to purchase Common Shares from the date payment is received
until the Conversion is completed or terminated.
(d) The Association shall not knowingly loan funds or otherwise extend
credit to any Person for the purpose of purchasing Common Shares.
(e) If a Person authorizes the Association to charge his or her Savings
Account, the funds will remain in the Person's Savings Account and will continue
to earn interest, but may not be used by such Person until all Common Shares
have been sold or the Conversion is terminated, whichever is earlier. The
withdrawal will be given effect concurrently with Conversion and to the extent
necessary to satisfy the subscription at a price equal to the Purchase Price.
The Association will allow Persons to purchase Common Shares 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
and in such event, the remaining balance will earn interest at the passbook
rate. The waiver of the early withdrawal penalty is
9
<PAGE>
applicable only to withdrawals made in connection with the purchase of Common
Shares under the Plan.
(f) Tax-Qualified Employee Stock Benefit Plans may subscribe for shares by
submitting an Order From, and in the case of an employee stock ownership plan,
together with evidence of a loan commitment from the Holding Company or an
unrelated financial institution for the purchase of the Common Shares, during
the Subscription Offering and by making payment for the Common Shares on the
date of the closing of the Conversion.
9. LIMITATIONS ON PURCHASES. The following limitations shall apply to all
------------------------
subscriptions for and purchases of Common Shares:
(a) No Person may purchase fewer than 25 Common Shares in the Conversion,
to the extent such shares are available; provided, that if the Purchase Price is
greater than $20 per share, the minimum number of shares shall be adjusted to
that the aggregate Purchase Price required to be paid for such minimum shares
does not exceed $500.
(b) Officers and directors of the Association and the Holding Company, and
Associates thereof, may not purchase in the aggregate more than 34% of the
Common Shares issued in the Conversion.
(c) Purchases of Common Shares in the Conversion by any Person, when
aggregated with purchases by any Associate of that Person, or a group of Persons
Acting in Concert, shall not exceed $300,000 of the Common Shares, except that
Tax-Qualified Employee Stock Benefit Plans may purchase up to 10% of the total
Common Shares to be issued in the Conversion. Shares purchased by the Tax-
Qualified Employee Stock Benefit Plans and attributable to a Person shall not be
aggregated with shares purchased directly by or otherwise attributable to such
Person.
(d) Directors of the Holding Company and the Association shall not be
deemed to be Associates or a group Acting in Concert with other directors solely
as a result of membership on the Board of Directors of the Holding Company or
the Association or any of their subsidiaries.
(e) Subject to any required regulatory approval and applicable laws and
regulations, the Holding Company and the Association may increase or decrease
any of the purchase limitation amounts set forth herein at any time. If such
amount is increased after commencement of the Subscription and Community
Offerings, any Person who subscribed for the maximum number of Common Shares
shall be permitted to purchase an additional number of shares up to the then
maximum number of shares permitted to be subscribed for by such Person, subject
to the rights and preferences of any Person who has priority Subscription
Rights. In the event that the purchase limitation amount is decreased after
commencement of the Subscription and Community Offerings, the orders of any
Person who subscribed for the maximum number of Common Shares shall be decreased
by the minimum amount necessary so that such Person shall be in compliance with
the then maximum number of shares permitted to be subscribed for by such Person.
10
<PAGE>
(f) The Subscription Rights granted under this Plan are nontransferable.
Each Subscription Right may be exercised only by the Person to whom issued and
only for such Person's own account. The Association and the Holding Company
shall have the right to take such action as they may, in their sole discretion,
deem necessary, appropriate or advisable in order to monitor and enforce the
terms, conditions, limitations and restrictions contained in this Section, the
Plan and the Order Form, including, without limitation, the right to reject,
limit or revoke acceptance of any subscription or order and to delay, terminate
or refuse to consummate any sale of Common Shares believed to violate or
circumvent the Plan.
10. ADDITIONAL PROCEDURES FOR SUBSCRIPTION OFFERING AND COMMUNITY OFFERING.
----------------------------------------------------------------------
(a) Prior to commencement of the Subscription Offering, the Holding
Company shall file a registration statement with the SEC pursuant to the
Securities Act of 1933, as amended. The Holding Company shall not distribute the
Prospectus until the registration statement containing the same has been
declared effective by the SEC and regulatory approvals have be obtained from the
OTS.
(b) The Association and the Holding Company, in their sole discretion, may
commence the Subscription Offering concurrently with or at any time after the
mailing to the members of the Proxy Materials and may complete the Subscription
Offering before the Special Meeting if the completion of the offer and sale of
the Common Shares is conditioned upon the approval of this Plan by the Members.
(c) The recipient of an Order Form will be provided not less than 20 days
nor more than 45 days from the date of mailing to complete, execute and return
properly the Order Form to the Holding Company or the Association. The Holding
Company and the Association may extend such period for a reasonable period of
time. The failure of any Person to return a properly completed and executed
Order Form within the prescribed time limits shall waive any Subscription Rights
of such Person.
(d) In the event an Order Form (i) is not delivered and is returned to the
Holding Company or the Association by the United States Postal Service (or the
Holding Company or the Association is unable to locate the addressee), (ii) is
not received by the Holding Company or the Association, or is received by the
Holding Company or the Association after termination of the date specified
thereon, (iii) is defectively completed or executed, or (iv) is not accompanied
by the total required payment for the Common Shares subscribed for (including
cases in which the subscribers' Savings Accounts are insufficient to cover the
authorized withdrawal for the required payment), the Subscription Rights of the
Person will lapse as though such Person failed to return the completed Order
Form within the time period specified therein.
(e) The Holding Company or the Association 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
11
<PAGE>
remittance of full payment for subscribed Common Shares by such date as the
Holding Company or the Association may specify. Subscription orders, once
tendered, cannot be revoked.
(f) The sale of all Common Shares offered pursuant to the Plan must be
completed within 24 months after approval of the Plan at the Special Meeting.
(g) The sale of all Common Shares shall be completed within 45 days after
the last day of the Subscription Offering unless extended by the Holding Company
and the Association with the approval of the OTS.
11. COMPLIANCE WITH SECURITIES LAWS. The Association and the Holding Company
-------------------------------
will make reasonable efforts to comply with the securities laws of all
jurisdictions in the United States in which Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members reside. However, no
Person will be offered or sold any Common Shares under this Plan if such Person
resides in a foreign country or in a jurisdiction of the United States with
respect to which: (a) a small number of Persons otherwise eligible to subscribe
for Common Shares under this Plan reside in such foreign country or
jurisdiction, (b) the granting of Subscription Rights or the offer or sale of
Common Shares to such Person would require the Holding Company or the
Association or their employees to register under the securities laws of such
foreign country or jurisdiction, as a broker, dealer, salesman or agent or to
register or otherwise qualify its securities for sale in such foreign country or
jurisdiction, or (c) the Association determines such registration or
qualification would be impracticable or burdensome for reasons of cost or
otherwise.
12. VOTING RIGHTS. After the Conversion, exclusive voting rights with respect
-------------
to the Holding Company shall be vested in the holders of stock of the Holding
Company. The Holding Company will have exclusive voting rights with respect to
the capital stock of the Association. After the Conversion, neither holders of
Savings Accounts nor borrowers of the Association will have voting rights in the
Association on the basis of such Savings Account or borrowings.
13. ESTABLISHMENT OF LIQUIDATION ACCOUNT.
------------------------------------
(a) The Association shall, at the time of the Conversion, establish a
Liquidation Account in an amount equal to its regulatory capital as of the date
of the latest statement of financial condition contained in the Prospectus. The
function of the Liquidation Account is to establish a priority on liquidation,
and the existence of the Liquidation Account shall not operate to restrict the
use or application of any of the net worth accounts of the Association.
(b) The Liquidation Account shall be maintained by the Association
subsequent to Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders who retain their Savings Accounts in the
Association. 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 (referred to herein as the
"subaccount balance").
12
<PAGE>
(c) The initial subaccount balance for a Savings Account held by an
Eligible Account Holder and/or a Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the Liquidation Account by a
fraction of which the numerator is the amount of the Qualifying Deposit in the
related Savings Account and the denominator is the total amount of the
Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible
Account Holders in the Association. Such initial subaccount balance shall not be
increased but shall be subject to downward adjustment as provided below.
(d) If the deposit balance in any Savings Account of an Eligible Account
Holder or Supplemental Eligible Account Holder to which the subaccount relates
at the close of business on the last day of any fiscal year of the Association
subsequent to the Eligibility Record Date or Supplemental Eligibility Record
Date is less than the lesser of (i) the deposit balance in such Savings Account
at the close of business on the last day of the fiscal year of the Association
subsequent to the Eligibility Record Date or the Supplemental Eligibility Record
Date, or (ii) the amount of the Qualifying Deposit in such Savings Account on
the Eligibility Record Date or the Supplemental Eligibility Record Date, 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. If any such Savings Account is closed,
the related subaccount balance shall be reduced to zero. The subaccount of an
account holder will be maintained for so long as the account holder maintains an
account with the same Social Security or taxpayer identification number.
(e) In the event of a complete liquidation of the Association (and only in
such event), each Eligible Account Holder and Supplemental Eligible Account
Holder shall be entitled to receive a liquidation distribution from the
Liquidation Account in the amount of the then-current adjusted subaccount
balances for Savings Accounts then held before any liquidation distribution may
be made to shareholders. A merger, consolidation, sale of bulk assets or similar
combination or transaction with another institution insured by the Federal
Deposit Insurance Corporation shall not be considered to be a complete
liquidation for these purposes. In such transactions, the Liquidation Account
shall be assumed by the surviving institution.
14. SAVINGS ACCOUNTS IN THE ASSOCIATION. Each Savings Account in the
-----------------------------------
Association at the time of the Conversion shall become, without further action
by the account holder, a Savings Account in the Association as converted, equal
in dollar amount (subject to any withdrawal made for the purchase of Common
Shares), and on the same terms and conditions (except as to voting and
liquidation rights) as in effect prior to Conversion. After the Conversion,
neither holders of Savings Accounts nor borrowers of the Association will have
voting rights in the Association on the basis of such Savings Account or
borrowings.
15. RESTRICTIONS ON PURCHASE OR SALE OF COMMON SHARES BY OFFICERS AND
-----------------------------------------------------------------
DIRECTORS.
- ---------
13
<PAGE>
(a) Common Shares purchased by such directors or Officers may not be sold
for a period of one year from the date of Conversion, except in the event of the
death of such Person or pursuant to a merger or acquisition approved by the
applicable regulatory authorities.
(b) With respect to Common Shares subject to restrictions on transfer as
described in Subsection (a) above, the following shall apply:
(i) The Common Shares issued to such directors and Officers shall
bear the following legend giving notice of the restriction on transfer:
"The shares evidenced by this Certificate are restricted as to transfer for
a period of one year from the date of this Certificate pursuant to
applicable regulations of the Office of Thrift Supervision of the United
States Department of the Treasury. The shares represented by this
Certificate may not be sold prior thereto without a legal opinion of
counsel for the company that said sale is permissible under the provisions
of applicable laws and regulations."
(ii) The Holding Company shall give appropriate instructions to its
transfer agent with respect to the applicable restrictions relating to the
transfer of restricted shares; and
(iii) Any shares of stock of the Holding Company subsequently issued
as a stock dividend, stock split or otherwise, with respect to any such
restricted shares, shall be subject to the same holding period restrictions
for such directors and Officers as may be then applicable to such
restricted shares.
(c) For a period of three years following completion of the Conversion,
Officers and directors of the Association or the Holding Company, and their
Associates, are prohibited, without the prior approval of the OTS, from
purchasing outstanding shares of the Holding Company, except from a broker or
dealer registered with the SEC. This prohibition shall not apply to (i)
negotiated transactions involving more than 1% of the total outstanding shares
of the Holding Company and (ii) purchases of shares made by or held by a Tax-
Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee Stock
Benefit Plan which may be attributable to Officers or directors.
16. RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY.
--------------------------------------------------
(a) Present OTS regulations provide that for a period of three years
following completion of the Conversion, no Person shall directly, or indirectly,
offer to purchase or actually acquire the beneficial ownership of more than 10%
of any class of stock of the Holding Company, without the prior approval of the
OTS. However, approval is not required for purchases directly from the Holding
Company or underwriters or a selling group acting on its behalf with a view
towards public resale, or for purchases not exceeding 1% per annum of the shares
outstanding, or for the acquisition of securities by one or more Tax-Qualified
Employee Stock Benefit Plans of the Holding Company or the Association, provided
that the plan or plans do not have beneficial ownership in the aggregate of more
than 25% of any class of stock of the Holding Company. Civil penalties may be
imposed by
14
<PAGE>
the OTS for willful violation or assistance of any violation. Where any Person,
directly or indirectly, acquires beneficial ownership of more than 10% of any
class of stock of the Holding Company within such three-year period, without the
prior approval of the OTS, stock of the Holding Company beneficially owned by
such Person in excess of 10% shall not be counted as shares entitled to vote and
shall not be voted by any Person or counted as voting shares in connection with
any matter submitted to the shareholders for a vote.
(b) The Holding Company may provide in its Articles of Incorporation that,
for a period of five years following the completion of the Conversion, no Person
shall directly or indirectly offer to acquire or actually acquire the beneficial
ownership of more than 10% of any class of stock of the Holding Company except
with respect to purchases by one or more Tax-Qualified Employee Stock Benefit
Plans of the Holding Company or Association. The Holding Company may provide in
its Articles of Incorporation for such other provisions affecting the
acquisition of stock of the Holding Company as shall be determined by its Board
of Directors.
17. REPURCHASES AND DIVIDENDS.
-------------------------
(a) Present OTS regulations provide that the Holding Company may not, for
a period of three years from the date of Conversion, repurchase stock of the
Holding Company from any Person, with the exception of (i) repurchases on a pro
rata basis pursuant to offers approved by the OTS and made to all shareholders,
or (ii) repurchases of qualifying shares of directors.
(b) With respect to repurchases by the Holding Company other than as
described in clauses (i), (ii) or (iii) of Subsection (a) above, and except as
otherwise permitted by the OTS, (i) no repurchases may occur in the first year
following the Conversion, (ii) any repurchases in the second and third years
following the Conversion must be part of an open-market stock repurchase program
that allows no more than 5% of the outstanding stock of the Holding Company to
be purchased during any 12 month period, and (iii) any repurchases within the
first three years following the Conversion shall not cause the Association to
become undercapitalized. Any such repurchase shall be undertaken only upon 10
days' written notification to the OTS Regional Director for the Association and
such Regional Director shall not have disapproved such repurchase.
(c) Present regulations also provide that the Association may not declare
or pay a cash dividend on or repurchase any of its capital stock if the result
thereof would be to reduce the regulatory capital of the Association below the
amount required for the Liquidation Account. Further, any dividend declared or
paid on, or repurchase of, the capital stock shall be in compliance with the
Rules and Regulations of the OTS, or other applicable regulations.
18. CHARTER AND BYLAWS. As part of the Conversion, a federal stock charter and
------------------
bylaws will be adopted to authorize the Association to operate as a federal
capital stock savings and loan association. By approving the Plan, the Members
of the Association will thereby approve amending the Association's existing
federal mutual charter and bylaws to read in the form of a federal stock charter
and bylaws.
15
<PAGE>
19. REGISTRATION AND MARKET MAKING. In connection with the Conversion, the
------------------------------
Holding Company shall register its common stock with the SEC pursuant to the
Securities Exchange Act of 1934, as amended, and shall not to deregister such
stock for a period of three years thereafter. The Holding Company shall use its
best efforts to encourage and assist a market maker to establish and maintain a
market for its common stock and shall also use its best efforts to have such
stock quoted on the National Association of Securities Dealers, Inc. Automated
Quotation System or listed on a national or regional securities exchange.
20. STOCK BENEFIT PLANS. The Holding Company and the Association are
-------------------
authorized to adopt the Tax-Qualified Employee Stock Benefit Plan in connection
with the Conversion. The Holding Company and the Association may make scheduled
or discretionary contributions to the Tax-Qualified Employee Stock Benefit Plans
and the Non-Tax-Qualified Employee Stock Benefit Plans maintained by the Holding
Company or the Association, provided such contributions do not cause the
Association to fail to meet its regulatory capital requirements.
21. TAX RULING OR OPINION. The Association shall obtain an opinion of its tax
---------------------
advisors or a favorable ruling from the United States Internal Revenue Service
which shall state that the Conversion will not result in a taxable
reorganization for federal income tax purposes to the Association.
22. EXPENSES OF CONVERSION. The Holding Company and the Association will use
----------------------
their best efforts to assure that expenses incurred in connection with the
Conversion shall be reasonable.
23. INTERPRETATION, AMENDMENT OR TERMINATION OF THE PLAN.
----------------------------------------------------
(a) The Association's Board of Directors shall have the sole discretion to
interpret and apply the provisions of this Plan, subject to the authority of the
OTS.
(b) If deemed necessary or desirable by the Board of Directors of the
Association, the Plan may be amended, as a result of comments from regulatory
authorities or otherwise, at any time prior to the solicitation of proxies from
Members to vote on the Plan and at any time thereafter with the concurrence of
the OTS.
(c) The Conversion pursuant to this Plan may be terminated by the Board of
Directors of the Association in its sole discretion at any time prior to the
Special Meeting and at any time thereafter with the concurrence of the OTS.
16
<PAGE>
CERTIFICATE OF INCORPORATION
OF
SOUTHERN COMMUNITY BANCSHARES, INC.
ARTICLE I
NAME
The name of the corporation is Southern Community Bancshares, Inc. (herein
the "Corporation").
ARTICLE II
REGISTERED OFFICE
The address of the Corporation's registered Office in the State of Delaware
is 1013 Centre Road, Wilmington, Delaware 19805, City of Wilmington, County of
New Castle. The name of the Corporation's registered agent at such address is
Corporation Service Company.
ARTICLE III
POWERS
The purpose of the Corporation is to operate as a bank holding company and
to engage in any lawful act or activity for which corporations may be
incorporated pursuant to the laws of the State of Delaware.
ARTICLE IV
INCORPORATOR
The name and mailing address of the incorporator are Finis E. St. John, IV,
325 Second Street, S.E., Cullman, Alabama 35055.
ARTICLE V
INITIAL DIRECTORS
The number of directors constituting the initial board of directors of the
Corporation is nine (9), and the names and addresses of the persons who are to
serve as directors until their successors are elected and qualified are:
<PAGE>
Name Address
- ---- -------
Finis E. St. John, IV 325 Second Street, S.E
Cullman, Alabama 35055
William R. Faulk 325 Second Street, S.E.
Cullman, Alabama 35055
Joseph S. Franey 325 Second Street, S.E.
Cullman, Alabama 35055
Phillip W. Freeman 325 Second Street, S.E.
Cullman, Alabama 35055
Maxie T. Hudson 325 Second Street, S.E.
Cullman, Alabama 35055
Eston E. Jones 325 Second Street, S.E.
Cullman, Alabama 35055
Daniel W. Keel 325 Second Street, S.E.
Cullman, Alabama 35055
Ronald P. Martin 325 Second Street, S.E.
Cullman, Alabama 35055
Wells R. Turner 325 Second Street, S.E.
Cullman, Alabama 35055
ARTICLE VI
CAPITAL STOCK
The aggregate number of shares of all classes of capital stock which the
Corporation has authority to issue is 3,000,000 of common stock, $.01 par value
per share and 100,000 shares of preferred stock, $.01 par value per share. The
shares of authorized capital stock may be issued by the Corporation from time to
time pursuant to resolutions adopted by the board of directors of the
Corporation.
A. Common Stock. Except as provided in this Certificate, the holders of
------------
the common stock shall exclusively possess all voting power and shall be
entitled to one vote for each share held by such holder.
2
<PAGE>
In the event of any liquidation, dissolution or winding up of the
Corporation, after payment or provision for payment of all debts and liabilities
of the Corporation and after there shall have been paid, or declared and set
aside for payment, to the holders of the outstanding shares of any class having
preference over the common stock the full preferential amounts to which they are
entitled, the holders of the common stock shall be entitled to receive the
remaining assets of the Corporation available for distribution, in cash or in
kind.
Each share of common stock shall have the same relative powers, preferences
and rights as, and shall be identical in all respects with, all the other shares
of common stock of the Corporation, except as otherwise expressly set forth in
this Certificate.
B. Preferred Stock. The board of directors of the Corporation is
---------------
authorized, by resolution from time to time adopted, to provide for the issuance
of preferred stock in one or more series and to fix and state the powers,
designations, preferences and other rights of the shares of each such series.
The powers, designations, preferences and other rights of any series of
preferred stock may include any of the following: (i) the series designation and
the number of shares constituting such series; (ii) the dividend rights of such
shares; (iii) the voting powers, if any, of the shares; (iv) whether the shares
shall be redeemable and the terms and conditions upon which such shares may be
redeemed; (v) the amount or amounts payable upon the shares in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation and the rights and preferences of such shares; (vi) whether the
shares shall be entitled to the benefits of a sinking or retirement fund and the
terms and conditions thereof; (vii) whether the shares shall be convertible
into, or exchangeable for, shares of any other class of capital stock of the
Corporation and the conversion price or prices, or the rate or rates of
exchange, and the adjustments thereof, if any, at which such conversion or
exchange may be made, and any other terms and conditions of such conversion or
exchange; (viii) the price and form of consideration for which the shares shall
be issued; and (ix) such other rights as may be set forth in the authorizing
resolution and as may be permitted by law.
Each share of each series of preferred stock shall have the same relative
powers, preferences and rights as, and shall be identical in all respects with,
all the other shares of the Corporation of the same series, except as otherwise
expressly set forth in this Certificate.
ARTICLE VII
NO PREEMPTIVE RIGHTS
No holder of the capital stock of the Corporation shall be entitled to any
preemptive right to purchase or subscribe to additional shares of capital stock
issued by the Corporation or to any securities of the Corporation convertible
into capital stock.
3
<PAGE>
ARTICLE VIII
REPURCHASE OF SHARES
The Corporation may from time to time, pursuant to authorization by the
board of directors of the Corporation and without action by the stockholders,
purchase or otherwise acquire shares of capital stock of the Corporation and
other securities of the Corporation in the manner, on the terms, and in the
amounts as the board of directors shall determine.
ARTICLE IX
MEETINGS OF STOCKHOLDERS; CUMULATIVE VOTING
Meetings of stockholders may be held at the place provided in the bylaws.
Notwithstanding any other provision of this Certificate or the bylaws of
the Corporation, no action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be taken
without a meeting, and stockholders may not consent to any action in writing,
without a meeting. Special meetings of the stockholders of the Corporation for
any purpose or purposes may be called by the Chairman, by resolution of the
board of directors or as otherwise provided in the bylaws of the Corporation,
and may not be called by any other person or persons.
There shall be no cumulative voting by stockholders of any class or series
in the election of directors of the Corporation.
ARTICLE X
NOTICE FOR NOMINATIONS AND PROPOSALS
A. Nominations. Nominations for the election of directors and
-----------
proposals for any new business to be taken up at any annual or special meeting
of stockholders may be made by the board of directors of the Corporation or by
any stockholder of the Corporation entitled to vote generally in the election of
directors. In order for a stockholder of the Corporation to make a nomination or
proposal, he shall give notice thereof in writing, delivered or mailed by first
class United States mail, postage prepaid, to the Secretary of the Corporation
not less than thirty days nor more than sixty days prior to the date of any such
meeting; provided, however, that if less than forty days' notice of the meeting
is given to stockholders, such written notice shall be delivered or mailed, as
prescribed, to the Secretary of the Corporation not later than the close of
business on the tenth day following the day on which notice of the meeting was
mailed to stockholders. Each such notice given by a stockholder with respect to
nominations for the election of directors shall set forth: (i) the name, age,
business address and, if known, residence address of each nominee proposed in
such notice; (ii) the principal occupation or employment of each such nominee;
4
<PAGE>
and (iii) the number of shares of stock of the Corporation which are
beneficially owned by each such nominee. In addition, the stockholder making
such nomination shall promptly provide any other information reasonably
requested by the Corporation.
B. Proposals. Each such notice given by a stockholder to the
---------
Secretary with respect to business proposals to be brought before a meeting
shall set forth in writing as to each matter: (i) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting; (ii) the name and address, as they appear on the
Corporation's books, of the stockholder making such business proposal; (iii) the
class and number of shares of the Corporation which are beneficially owned by
the stockholder; and (iv) any material interest of the stockholder in such
business proposal. No new business shall be conducted at the meeting except in
accordance with the procedures set forth in this Article.
C. Defective Nominations or Proposals. The Chairman of the annual or
----------------------------------
special meeting of stockholders may, if the facts warrant, determine and declare
to such meeting that a nomination or proposal was not made in accordance with
the foregoing procedure, and, if he should so determine, he shall so declare to
the meeting and the defective nomination or proposal shall be disregarded and
laid over for action at the next succeeding special or annual meeting of the
stockholders taking place thirty days or more thereafter. This provision shall
not require the holding of any adjourned or special meeting of stockholders for
the purpose of considering such defective nomination or proposal.
ARTICLE XI
DIRECTORS
A. Number; Vacancies. The number of directors of the Corporation
-----------------
shall be such number, not less than five nor more than ten, as shall be set
forth from time to time in the bylaws. Vacancies in the board of directors of
the Corporation, however caused, and newly created directorships shall be filled
by a vote of two-thirds of the directors then in office, whether or not a
quorum, and any director so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of the class to which the
director has been chosen expires and when the director's successor is elected
and qualified.
B. Classified Board. The board of directors of the Corporation shall
----------------
be divided into three classes of directors, which shall be designated Class I,
Class II and Class III. The members of each class shall be elected for a term of
three years and until their successors are elected and qualified. Such classes
shall be as nearly equal in number as the then total number of directors
constituting the entire board of directors shall permit, with the terms of
office of all members of one class expiring each year. Subject to the provisions
of this Article XI, should the number of directors not be equally divisible by
three, the excess director or directors shall be assigned first to Class I and
then to Class II. At the first annual meeting of stockholders, directors of
Class I shall be elected to hold office for a term
5
<PAGE>
expiring at the third succeeding annual meeting thereafter. At the second annual
meeting of stockholders, directors of Class II shall be elected to hold office
for a term expiring at the third succeeding annual meeting thereafter. At the
third annual meeting of stockholders, directors of Class III shall be elected to
hold office for a term expiring at the third succeeding annual meeting
thereafter. Thereafter, at each succeeding annual meeting, directors of each
Class who are standing for election shall be elected for three year terms.
Notwithstanding the foregoing, any director whose term shall expire at any
annual meeting shall continue to serve until such time as his or her successor
shall have been duly elected and shall have qualified.
ARTICLE XII
REMOVAL OF DIRECTORS
Notwithstanding any other provision of this Certificate or the bylaws of
the Corporation, any director or the entire board of directors of the
Corporation may be removed at any time, but only for cause and only by the
affirmative vote of the holders of at least 80% of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a meeting of the
stockholders called for the purpose of removing directors.
ARTICLE XIII
ACQUISITION OF CAPITAL STOCK
A. Certain Prohibitions on Acquisition of Capital Stock. For a period
----------------------------------------------------
of five years from the date of issue of the initial capital stock of the
Corporation, no Person (or group of Persons Acting in Concert) shall directly or
indirectly offer to acquire or acquire the Beneficial Ownership of more than 10%
of the common stock of the Corporation, unless such offer or acquisition shall
have been approved in advance by a two-thirds vote of the Continuing Directors
(as defined in Article XIV). In the event any Person (or group of Persons Acting
in Concert) acquires ownership of common stock of the Corporation in violation
of the above prohibition, the common stock owned in excess of 10% shall not be
entitled to vote and shall not be voted by any Person (or group of Persons
Acting in Concert) and shall not be counted as outstanding for purposes of
determining a quorum or the affirmative vote necessary to approve any matter
submitted to the stockholders for a vote.
B. Certain Defined Terms. For purposes of this Article XIII and this
---------------------
Certificate, the following terms shall have the following meanings:
"Person" means an individual, a corporation, a partnership, an association,
a joint-stock company, a trust, any unincorporated organization, or a government
or political subdivision thereof.
6
<PAGE>
"Acting in Concert" includes (a) knowing participation in a joint activity
or conscious parallel action towards a common goal whether or not pursuant to an
express agreement, and (b) a combination or pooling of voting or other interest
in the Corporation's outstanding shares for a common purpose, pursuant to any
contract, understanding, relationship, agreement or other arrangement, whether
written or otherwise.
"Beneficial Owner" means any Person who in respect of common stock of the
Corporation, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares or has the right to
acquire: (i) voting power which includes the power to vote, or direct the voting
of, common stock of the Corporation or (ii) investment power which includes the
power to dispose, or to direct the disposition of, common stock of the
Corporation.
C. Exceptions to Prohibitions and Restrictions. The prohibitions and
-------------------------------------------
restrictions contained in this Article XIII shall not apply to any proxy granted
to one or more Continuing Directors by a stockholder of the Corporation pursuant
to a proxy solicitation of the Corporation or any employee benefit plan of the
Corporation. Directors and officers of the Corporation or its subsidiaries, and
plans or trusts owning shares on behalf of such directors or officers, shall not
be deemed to be acting in concert solely as a result of such status.
ARTICLE XIV
APPROVAL OF CERTAIN BUSINESS COMBINATIONS
The stockholder vote required to approve Business Combinations (as
hereinafter defined) shall be as set forth in this section.
A. Stockholder Vote. Except as otherwise expressly provided in this
----------------
Article XIV, the affirmative vote of the holders of (i) at least 80% of the
outstanding shares entitled to vote thereon (and, if any class or series of
shares is entitled to vote thereon separately, the affirmative vote of the
holders of at least 80% of the outstanding shares of each such class or series),
and (ii) at least a majority of the outstanding shares entitled to vote thereon,
not including shares deemed Beneficially Owned by a Related Person (as
hereinafter defined), shall be required in order to authorize any of the
following:
(a) any merger or consolidation of the Corporation with or into a
Related Person;
(b) any sale, lease, exchange, transfer or other disposition,
including without limitation, a mortgage, or any other capital device, of
all or any substantial part of the assets of the Corporation (including
without limitation any voting securities of a subsidiary) or of a
subsidiary, to a Related Person;
7
<PAGE>
(c) any merger or consolidation of a Related Person with or into the
Corporation or a subsidiary of the Corporation;
(d) any sale, lease, exchange, transfer or other disposition of all
or any substantial part of the assets of a Related Person to the
Corporation or a subsidiary of the Corporation;
(e) the issuance of any securities of the Corporation or a subsidiary
of the Corporation to a Related Person;
(f) the acquisition by the Corporation or a subsidiary of the
Corporation of any securities of a Related Person;
(g) any reclassification of the common stock of the Corporation, or
any recapitalization involving the common stock of the Corporation; and
(h) any agreement, contract or other arrangement providing for any of
the transactions described in this Article.
Any event or transaction described in subparagraph (a) through subparagraph (h)
is termed a "Business Combination." The affirmative vote specified under
paragraph A. above shall be required notwithstanding any other provision of this
Certificate, any provision of law, or any rule or regulation of, or agreement
with, any regulatory agency or national securities exchange which might
otherwise permit a lesser vote or no vote.
B. Approval by Continuing Directors. The provisions of paragraph A.
--------------------------------
shall not be applicable to any particular Business Combination, and such
Business Combination shall require only such affirmative vote as is required by
any other provision of this Certificate, if the Business Combination shall have
been approved by a two-thirds vote of the Continuing Directors.
C. Certain Defined Terms. For purposes of this Article XIV and this
---------------------
Certificate, the following terms shall have the following meanings:
"Related Person" means and includes any Person who, together with his
Affiliates, is the Beneficial Owner of 10% or more of the outstanding shares of
the common stock of the Corporation and any Affiliate of such Person.
"Affiliate" means with respect to any Person, a Person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control, with such Person.
"Continuing Director" means any member of the board of directors of the
Corporation who is unaffiliated with the Related Person and was a member of the
board
8
<PAGE>
prior to the time that the Related Person became a Related Person.
ARTICLE XV
EVALUATION OF BUSINESS COMBINATIONS
The board of directors of the Corporation, when determining to take or
refrain from taking corporate action on any matter, including making or
declining to make any recommendation to the Corporation's shareholders, may, in
connection with the exercise of its judgment in determining what is in the best
interest of the Corporation, its subsidiaries and the shareholders of the
Corporation, give due consideration to all relevant factors, including, without
limitation, the social and economic effects of acceptance of such offer on the
customers and the present and future account holders, borrowers, employees and
suppliers of the Corporation's subsidiaries; the effect on the communities in
which the Corporation and its subsidiaries operate or are located; and the
effect on the ability of the Corporation to fulfill the objectives of a bank
holding company and of its subsidiaries to fulfill the objectives of a savings
association or other financial institution under applicable statutes and
regulations.
ARTICLE XVI
INDEMNIFICATION
The Corporation shall, to the fullest extent permitted by the provisions of
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, indemnify any and all persons whom it shall
have power to indemnify under said section from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
ARTICLE XVII
LIMITATIONS ON DIRECTORS' LIABILITY
The personal liability of the directors of the corporation is hereby
eliminated to the fullest extent permitted by the provisions of paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
9
<PAGE>
ARTICLE XVIII
AMENDMENT OF BYLAWS
The board of directors of the Corporation is authorized to adopt, repeal,
alter, amend and rescind the bylaws of the Corporation by a vote of two-thirds
of the board of directors. Notwithstanding any other provision of this
Certificate or the bylaws of the Corporation, the bylaws may not be adopted,
repealed, altered, amended or rescinded by the stockholders of the Corporation
except by the vote of the holders of not less than 80% of the outstanding shares
of capital stock of the Corporation entitled to vote generally in the election
of directors (considered for this purpose as one class) cast at a meeting of the
stockholders called for that purpose, or as set forth above, by the board of
directors.
ARTICLE XIX
AMENDMENT OF CERTIFICATE OF INCORPORATION
From time to time the provisions of this Certificate may be amended,
altered or repealed in accordance with the laws of the State of Delaware and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate are granted subject to the provisions of this Article.
Notwithstanding the foregoing, the provisions set forth in Articles IX
through XIX may not be amended, altered or repealed without the approval by the
affirmative vote of the holders of not less than 80% of the outstanding shares
of capital stock of the Corporation entitled to vote generally in the election
of directors (considered for this purpose as a single class) cast at a meeting
of the stockholders called for the purpose of considering such amendment,
alteration or repeal; except that such amendment, alteration or repeal may be
approved by the affirmative vote of the holders of a majority of the outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as a single class) if the
same is first approved by a majority of the Continuing Directors.
______________________________________
Incorporator
10
<PAGE>
BYLAWS
OF
SOUTHERN COMMUNITY BANCSHARES, INC.
ARTICLE I
OFFICES
The principal business office of the Corporation shall be at 325 2nd
Street, S.E., Cullman, Alabama.
The Corporation may also have offices at such other places, both within and
without the State of Alabama, as may from time to time be designated by the
Board of Directors.
ARTICLE II
BOOKS
The books and records of the Corporation shall be kept at the principal
business office of the Corporation and at such place or places as may from time
to time be designated by the Board of Directors.
ARTICLE III
STOCKHOLDERS
Section 3.1. Annual Meetings. The annual meeting of the stockholders of
---------------
the Corporation for the election of Directors and the transaction of such other
business as may properly come before said meeting shall be held at the principal
business office of the Corporation or at such other place or places either
within or without the State of Alabama as may be designated by the Board of
Directors and stated in the notice of the meeting.
Section 3.2. Special Meetings. Special meetings of the stockholders of
----------------
the Corporation shall be called by resolution of the Board of Directors or by
the Chairman. Any such special meeting of stockholders may be held at the
principal business office of the Corporation or at such other place or places,
either within or without the State of Alabama, as may be stated in the notice of
the meeting.
Section 3.3. Notice of Meeting. Written notice of the day, hour and place
-----------------
designated for any meeting of the stockholders of the Corporation shall be
delivered personally or mailed to each stockholder entitled to vote thereat not
less than ten (10) and not more than sixty (60) days prior to said meeting. If
mailed, said notice shall be directed to each stockholder at his address as the
<PAGE>
same appears on the records of the Corporation unless he shall have filed with
the Secretary of the Corporation a written request that notices intended for him
be mailed to some other address, in which case it shall be mailed to the address
designated in such request.
Section 3.4. List of Stockholders. The officer of the Corporation who
--------------------
shall have charge of the stock ledger of the Corporation shall prepare and make,
at least ten (10) days before any meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 3.5. Quorum. At any meeting of the stockholders of the
------
Corporation, except as otherwise expressly provided by the laws of the State of
Delaware, the Certificate of Incorporation, or these Bylaws, there must be
present, either in person or by proxy, in order to constitute a quorum,
stockholders owning one-third or more of the issued and outstanding shares of
the capital stock of the Corporation entitled to vote at said meeting. At any
meeting of stockholders at which a quorum is not present, the holders of, or
proxies for, a majority of the stock which is represented at such meeting shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 3.6. Conduct of Meeting. The Chairman of the Board or President
------------------
shall call to order meetings of the stockholders and shall act as chairman of
such meetings. The Board of Directors may appoint any Director or officer of the
Corporation to act as chairman of any meeting in the absence of the Chairman of
the Board or the President.
The Secretary of the Corporation shall act as secretary of all meetings of the
stockholders, but in the absence of the Secretary the presiding officer may
appoint any other person to act as secretary of any meeting.
Section 3.7. Voting. Except as otherwise provided in the Certificate of
------
Incorporation or these Bylaws, each stockholder of record of the Corporation
shall, at every meeting of the stockholders of the Corporation, be entitled to
one (1) vote for each share of stock standing in his name on the books of the
Corporation on any matter on which he is entitled to vote, and such
2
<PAGE>
votes may be cast either in person or by proxy, appointed by an instrument in
writing, subscribed by such stockholder or by his duly authorized attorney, and
filed with the Secretary before being voted on, provided that no proxy shall be
voted after three (3) years from its date, unless said proxy provides for a
longer period.
The vote on all elections of Directors and on any other questions before
the meeting need not be by ballot, except upon demand of any stockholder.
When a quorum is present at any meeting of the stockholders of the
Corporation, the vote of the majority of the votes cast shall decide any
question brought before such meeting, unless the question is one upon which,
under any provision of the laws of the State of Delaware or of the Certificate
of Incorporation or these Bylaws, a different vote is required, in which case
such provision shall govern and control the decision of such question.
Section 3.8. Consent. Except as otherwise provided by the Certificate of
-------
Incorporation, whenever the vote of the stockholders at a meeting thereof is
required or permitted to be taken in connection with any corporate action by any
provision of the laws of the State of Delaware or of the Certificate of
Incorporation, such corporate action may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding capital stock of
the Corporation having not less than the minimum number of votes that would be
necessary by these Bylaws or by law if a greater number be required, to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented thereto in writing.
ARTICLE IV
DIRECTORS
Section 4.1. Number, Election and Term of Office. The business and affairs
-----------------------------------
of the Corporation shall be managed by the Board of Directors. The Board of
Directors shall initially consist of nine members and shall be divided into
three classes as nearly equal in number as possible. The members of each class
shall be elected for a term of three years and until their successors are
elected or qualified. The Board of Directors shall be classified in accordance
with the provisions of the Corporation's Certificate of Incorporation. Directors
need not be stockholders. Directors shall be elected at the annual meeting of
the stockholders of the Corporation, except as provided in Section 4.2, to serve
until their respective successors are duly elected and have qualified. Directors
shall be elected by a plurality of the votes cast in the election.
3
<PAGE>
In addition to the powers by these Bylaws expressly conferred upon them,
the Board may exercise all such powers of the Corporation as are not by the laws
of the State of Delaware, the Certificate of Incorporation, or these Bylaws
required to be exercised or done by the stockholders.
Section 4.2. Vacancies and Newly Created Directorships. Vacancies in the
-----------------------------------------
Board of Directors of the Corporation, however caused, and newly created
directorships shall be filled by a vote of two-thirds of the Directors then in
office, whether or not a quorum, and any Director so chosen shall hold office
for a term expiring at the annual meeting of stockholders at which the term of
the class to which the Director has been chosen expires and when the Director's
successor is elected and qualified.
Section 4.3. Removal. Any Director or the entire Board of Directors may be
--------
removed only in accordance with the provisions of the Corporation's Certificate
of Incorporation.
Section 4.4. Regular Meetings. Regular meetings of the Board of Directors
----------------
may be held without notice at such time and place as shall from time to time be
determined by resolution of the Board.
Section 4.5. Special Meetings. Special meetings of the Board of Directors
----------------
may be called by the Chairman, the President or one-third of the Directors on
notice given to each Director. Any such special meetings shall be held at the
principal business office of the Corporation or at such other place or places as
shall be specified in the notice thereof.
Section 4.6. Notice. Notice of any meeting of the Board of Directors
------
requiring notice shall be given to each Director by mailing the same at least
seven days, or by telegraphing the same at least forty-eight (48) hours, before
the time fixed for the meeting. Attendance of a Director at a meeting shall
constitute waiver of notice of such meeting, except when such Director attends
such meeting for the express purpose of objecting, at the beginning of such
meeting, to the transaction of any business because such meeting is not lawfully
called or convened.
Section 4.7. Quorum. At all meetings of the Board of Directors, the
------
presence of a majority or more of the Directors constituting the Board (but in
no event less than one Director) shall constitute a quorum for the transaction
of business. Except as may be otherwise specifically provided by the laws of the
State of Delaware, the Certificate of Incorporation or these Bylaws, the
affirmative vote of a majority of the Directors present at the time of such vote
shall be the act of the Board of Directors if a quorum is present. If a quorum
shall not be present at any meeting of the Board of Directors, the Directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
Section 4.8. Consent. Unless otherwise restrict Incorporation or these
-------
Bylaws, any action required or permitted to be taken at any meeting of the Board
of Directors may be taken without a meeting, if all members of the Board consent
thereto in writing, and the writings are filed with the minutes or proceedings
of the Board.
4
<PAGE>
Section 4.9. Telephonic Meetings. Unless otherwise restricted by the
-------------------
Certificate of Incorporation or these Bylaws, members of the Board of Directors
may participate in a meeting of the Board by means of conference telephone or
similar communications equipment by means of which all persons participating in
such meeting can hear each other, and participation in a meeting pursuant to
this Section 4.9 shall constitute presence in person at such meeting.
Section 4.10. Compensation of Directors. Directors may receive compensation
-------------------------
for service on the Board of Directors as fixed by the Board of Directors.
Members of either standing or special committees may be allowed such
compensation as the Board of Directors may determine.
Section 4.11. Resignations. Any Director of the Corporation may resign at
------------
any time by giving written notice to the Board of Directors or to the President
or the Secretary of the Corporation. Any such resignation shall take effect at
the time specified therein, or, if the time be not specified, upon receipt
thereof; and unless otherwise specified therein, acceptance of such resignation
shall not be necessary to make it effective.
Section 4.12. Committees of the Board of Directors. The Board of Directors
------------------------------------
may designate one or more committees, as the Board may determine to be necessary
or appropriate for the conduct of the business of the Corporation and may
prescribe the duties, constitution and procedures thereof. Each committee shall
consist of one or more Directors of the Corporation. The Board may designate one
or more Directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee.
The Board shall have power at any time to change the members of, to fill
vacancies in, and to discharge any committee of the Board. Any member of any
such committee may resign at any time by giving notice in accordance with
Section 4.11 above. Any member of any committee may be removed at any time,
eithe r with or without cause, by action of the Board of Directors.
Section 4.13. Qualifications. Each Director of the Corporation shall be
--------------
the owner of not less than 1000 shares of capital stock of the Corporation.
ARTICLE V
OFFICERS
Section 5.1. Positions and Duties. The officers of the Corporation shall
--------------------
be a President, a Treasurer, and a Secretary, and may at the discretion of the
Board of Directors include one or more Vice Presidents and one or more Assistant
Treasurers and Assistant Secretaries. The officers shall have such authority and
perform such duties as the Board of Directors may from time to time authorize or
determine. In the absence of action by the Board of Directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
5
<PAGE>
Section 5.2. Election and Term of Office. The officers of the Corporation
---------------------------
shall be elected annually by the Board of Directors at its first meeting held
after the annual meeting of the stockholders, and shall hold their respective
offices until their successors are duly elected and have qualified. Except as
provided by law, any number of offices may be held by the same person. The Board
of Directors may from time to time appoint such other officers and agents as the
interest of the Corporation may require and may fix their duties and terms of
office.
Section 5.3. Vacancies. If the Office of President, Vice President,
---------
Secretary, or Treasurer, or of any other officer or agent becomes vacant for any
reason, the Board of Directors may choose a successor to hold office for the
unexpired term.
Section 5.4. Removals. At any meeting of the Board of Directors called for
--------
the purpose, any officer of the Corporation may be removed from office by the
affirmative vote of a two-thirds majority of the entire Board of Directors.
Section 5.5. Compensation of Officers. The officers shall receive such
------------------------
salary or compensation as may be determined by the Board of Directors.
Section 5.6. Resignations. Any officer or agent of the corporation may
------------
resign at any time by giving written notice to the Board of Directors or to the
President or the Secretary of the Corporation. Any such resignation shall take
effect at the time specified therein or, if the time be not specified, upon
receipt thereof; and unless otherwise specified therein, acceptance of such
resignation shall not be necessary to make it effective.
ARTICLE VI
CONTRACTS, CHECKS AND NOTES
Section 6.1. Contracts. Unless the Board of Directors shall otherwise
---------
specifically direct, all contracts of the Corporation shall be executed in the
name of the Corporation by the President or the Treasurer.
Section 6.2. Checks and Notes. All checks, drafts, bills of exchange and
----------------
promissory notes and other negotiable instruments of the Corporation shall be
signed by such officers or agents of the Corporation as may be designated the
Board of Directors.
ARTICLE VII
STOCK
Section 7.1. Issuance of Stock. Shares of capital stock of any class now
-----------------
or hereafter authorized, securities convertible into or exchangeable for such
stock, or options or other rights
6
<PAGE>
to purchase such stock or securities may be issued or granted in accordance with
authority granted by resolution of the Board of Directors.
Section 7.2. Stock Certificates. Certificates for shares of the capital
------------------
stock of the Corporation shall be in the form adopted by the Board of Directors,
shall be signed by the Chairman of the Board and by the Secretary, and may be
sealed with the seal of the Corporation. The signature of any corporate officer
upon such certificate may be a facsimile, engraved or printed. All such
certificates shall be numbered consecutively, and the name of the person owning
the shares represented thereby, with the number of such shares and the date of
issue, shall be entered on the books of the Corporation.
Section 7.3. Transfer of Stock. Shares of capital stock of the Corporation
-----------------
shall be transferred only on the books of the Corporation, by the holder of
record in person or by the holder's duly authorized representative, upon
surrender to the Corporation of the certificate for such shares duly endorsed
for transfer, together with such other documents (if any) as may be required to
effect such transfer.
Section 7.4. Lost, Stolen, Destroyed, or Mutilated Certificates. New stock
--------------------------------------------------
certificates may be issued to replace certificates alleged to have been lost,
stolen, destroyed, or mutilated, upon such terms and conditions, including proof
of loss or destruction, and the giving of a satisfactory bond of indemnity, as
the Board of Directors from time to time may determine.
Section 7.5. Regulations. The Board of Directors shall have power and
-----------
authority to make all such rules and regulations not inconsistent with these
Bylaws as it may deem expedient concerning the issue, transfer, and registration
of shares of capital stock of the Corporation.
Section 7.6. Holders of Record. The Corporation shall be entitled to treat
-----------------
the holder of record of any share or shares of capital stock of the Corporation
as the holder and owner in fact thereof for all purposes and shall not be bound
to recognize any equitable or other claim to, or right, title, or interest in,
such share or shares on the part of any other person, whether or not the
Corporation shall have express or other notice thereof, except as otherwise
provided by the laws of the State of Delaware.
Section 7.7. Restriction on Transfer. A restriction on the hypothecation,
-----------------------
transfer or registration of transfer of shares of the Corporation may be imposed
either by these Bylaws or by an agreement among any number of stockholders or
such holders and the Corporation. No restriction so imposed shall be binding
with respect to those securities issued prior to the adoption of the restriction
unless the holders of such securities are parties to an agreement or voted in
favor of the restriction.
ARTICLE VIII
RECORD DATE
7
<PAGE>
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or to
receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion, or
exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
ARTICLE IX
DIVIDENDS
Dividends upon the stock of the Corporation, subject to the provisions of
the Certificate of Incorporation if any, may be declared by the Board of
Directors at any regular or special meeting, pursuant to law. Dividends may be
paid in cash, in property or in the Corporation's own stock.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given by statute or under the
provisions of the Certificate of Incorporation or these Bylaws, a waiver thereof
in writing signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be equivalent thereto.
ARTICLE XI
SEAL
The corporate seal of the Corporation shall have inscribed thereon the name
of the Corporation, the year of its organization, and the words "Corporation
Seal, Delaware."
ARTICLE XII
AMENDMENTS
These Bylaws may be adopted, repealed, altered, amended and rescinded by a
vote of two-thirds of the Board of Directors. Notwithstanding any other
provision of the Certificate of Incorporation or the Bylaws of the Corporation,
the Bylaws may not be adopted, repealed, altered,
8
<PAGE>
amended or rescinded by the stockholders of the Corporation except by
the vote of the holders of not less than 80% of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a meeting of the
stockholders called for that purpose, or as set forth above, by the Board of
Directors.
9
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CULLMAN
FEDERAL STOCK CHARTER
SECTION 1. CORPORATE TITLE. The full corporate title of the association is
First Federal Savings and Loan Association of Cullman.
SECTION 2. OFFICE. The home office shall be located in Cullman, Alabama.
SECTION 3. DURATION. The duration of the association is perpetual.
SECTION 4. PURPOSE AND POWERS. The purpose of the association is to pursue
any or all of the lawful objectives of a Federal savings association chartered
under Section 5 of the Home Owners' Loan Act 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 Constitution and laws of 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 the
Office of Thrift Supervision ("Office").
SECTION 5. CAPITAL VALUE STOCK. The total number of shares of all classes
of the capital stock which the association has authority to issue is 1,000,000
all of which shall be common stock of par of $0.01 per share. The shares may be
issued from time to time as authorized by the board of directors without the
approval of its shareholders except as otherwise provided in this Section 5 or
to the extent that such approval is required by governing law, rule, or
regulation. The consideration for the issuance of the shares shall be paid in
full before their issuance and shall not be less than the par value. Neither
promissory notes nor future services shall constitute payment or part payment
for the issuance of shares of the association. The consideration for the shares
shall be cash, tangible or intangible property (to the extent direct investment
in such property would be permitted), labor or services actually performed for
the association, or any combination of the foregoing. In the absence of actual
fraud in the transaction, the value of such property, labor, or services, as
determined by the board of directors of the association, shall be conclusive.
Upon payment of such consideration, such shares shall be deemed to be fully paid
and nonassessable. In the case of a stock dividend, that part of the surplus of
the association which is transferred to stated capital upon the issuance of
shares as a share dividend shall be deemed to be the consideration for their
issuance.
Except for shares issuable in connection with the conversion of the
association from the mutual to the stock form of capitalization, no shares of
capital stock (including shares issuable upon conversion, exchange or exercise
of other securities) shall be issued, directly or indirectly, to officers,
directors, or controlling persons of the association other than as part of a
general public offering or as qualifying shares to a director, unless the
issuance or the plan under which they would be issued has been approved by a
majority of the total votes eligible to be cast at a legal meeting.
The holders of common stock shall exclusively possess all voting power.
Each holder of shares of common stock shall be entitled to one vote for each
share held by such holder, except as to the cumulation of votes for the election
of directors. Subject to any provision for a liquidation account, in the event
of any liquidation, dissolution, or winding up of the association, the holders
of
<PAGE>
the common stock shall be entitled, after payment or provision for payment of
all debts and liabilities of the association, to receive the remaining assets of
the association available for distribution, in cash or in kind. Each share of
common stock shall have the same relative rights as and be identical in all
respects with all the other shares of common stock.
SECTION 6. PREEMPTIVE RIGHTS. Holders of the capital stock of the
association shall not be entitled to preemptive rights with respect to any
shares of the association which may be issued.
SECTION 7. LIQUIDATION ACCOUNT. Pursuant to the requirements of the
Office's regulations (12 C.F.R. Subchapter D), the association shall establish
and maintain a liquidation account for the benefit of its savings account
holders as of March 31, 1995 and September 30, 1996 (collectively "eligible
savers"). In the event of a complete liquidation of the association, it shall
comply with such regulations with respect to the amount and the priorities on
liquidation of each of the association's eligible saver's inchoate interest in
the liquidation account, to the extent it is still in existence; provided that
an eligible saver's inchoate interest in the liquidation account shall not
entitle such eligible saver to any voting rights at meetings of the
association's shareholders.
SECTION 8. DIRECTORS. The association shall be under the direction of a
board of directors. The authorized number of directors, as stated in the
association's bylaws, shall not be fewer than five or more than fifteen except
when a greater number is approved by the Director of the Office.
SECTION 9. AMENDMENT OF CHARTER. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this charter shall be
made, unless such is first proposed by the board of directors of the
association, then preliminarily approved by the Office, which preliminary
approval may be granted by the Office pursuant to regulations specifying
preapproved charter amendments, and thereafter approved by the shareholders by a
majority of the total votes eligible to be cast at a legal meeting. Any
amendment, addition, alteration, change, or repeal so acted upon shall be
effective upon filing with the Office in accordance with regulatory procedures
or on such other date as the Office may specify in its preliminary approval.
2
<PAGE>
Attest:_________________ ________________________________
Secretary President and Chief
Executive Officer
Attest:_________________ By: ___________________________
Its: ______________________
Declared effective as of______________
3
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CULLMAN
BYLAWS
ARTICLE I - HOME OFFICE
The home office of First Federal Savings and Loan Association of Cullman
shall be located at 325 2nd Street, Cullman, Alabama 35055.
ARTICLE II - SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
shareholders shall be held at the home office of the association or at such
other place in the State of Alabama as the board of directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the
association for the election of directors and for the transaction of any other
business of the association shall be held annually within 120 days after the end
of the association's fiscal year.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders for any
purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office"), may be called at any time by the
president, or a majority of the board of directors, and shall be called by the
president, a vice president, or the secretary upon the written request of the
holders of not less than one-tenth of all of the outstanding capital stock of
the association entitled to vote at the meeting. Such written request shall
state the purpose or purposes of the meeting and shall be delivered to the home
office of the association addressed to the president.
SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall be
conducted in accordance with rules and procedures adopted by the board of
directors. The board of directors shall designate, when present, either the
chairman of the board or president to preside at such meetings.
SECTION 5. NOTICE OF MEETINGS. Written notice stating the place, day, and
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 10 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, or the secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the association as of the record date prescribed in Section
6 of this Article II with postage prepaid. When any shareholders' meeting,
either annual or special, is adjourned for 30 days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting. It shall
not be necessary to give any notice of the time and place of any meeting
adjourned for less than 30 days or of the business to be transacted at the
meeting, other than an announcement at the meeting at which such adjournment is
taken.
<PAGE>
SECTION 6. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
60 days and, in case of a meeting of shareholders, not fewer than 10 days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment.
SECTION 7. VOTING LISTS. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the association shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the association and
shall be subject to inspection by any shareholder at any time during usual
business hours for a period of 20 days prior to such meeting. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to inspection by any shareholder during the entire time of the meeting.
The original stock transfer book shall constitute prima facie evidence of the
-----------
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
perform such acts as required by paragraphs (a) and (b) of Rule 14a-7 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as may
be duly requested in writing, with respect to any matter which may be properly
considered at a meeting of shareholders, by any shareholder who is entitled to
vote on such matter and who shall defray the reasonable expenses to be incurred
by the association in performance of the act or acts required.
SECTION 8. QUORUM. A majority of the outstanding shares of the association
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid more
than eleven months from the date of its execution except for a proxy coupled
with an interest.
2
<PAGE>
SECTION 10. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When
ownership stands in the name of two or more persons, in the absence of written
directions to the association to the contrary, at any meeting of the
shareholders of the association, any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes in person or by proxy, by the
several persons in whose names shares of stock stand, the vote or votes to which
those persons are entitled shall be cast as directed by a majority of those
holding such shares and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
SECTION 11. VOTING OF SHARES OF CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a receiver
may be voted by such receiver, and shares held by or under the control of a
receiver may be voted by such receiver without the transfer into his name if
authority to do so is contained in an appropriate order of the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the association nor shares
held by another corporation, if a majority of the shares entitled to vote for
the election of directors of such other corporation are held by the association,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
SECTION 12. CUMULATIVE VOTING. Unless otherwise provided in the
association's charter, every shareholder entitled to vote at an election for
directors shall have the right to vote, in person or by proxy, the number of
shares owned by the shareholder for as many persons as there are directors to be
elected and for whose election the shareholder has a right to vote, or to
cumulate the votes by giving one candidate as many votes as the number of such
directors to be elected multiplied by the number of shares shall equal or by
distributing such votes on the same principle among any number of candidates.
SECTION 13. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the
3
<PAGE>
meeting, the majority of the votes present shall determine whether one or three
inspectors are to be appointed. In case any person appointed as inspector fails
to appear or fails or refuses to act, the vacancy may be filled by appointment
by the board of directors in advance of the meeting or at the meeting by the
chairman of the board or the president.
Unless otherwise prescribed by applicable regulations, the duties of such
inspectors shall include: determining the number of shares and the voting power
of each share, the shares represented at the meeting, the existence of a quorum,
and the authenticity, validity and effect of proxies; receiving votes, ballots,
or consents; hearing and determining all challenges and questions in any way
arising in connection with the rights to vote; counting and tabulating all votes
or consents; determining the result; and such acts as may be proper to conduct
the election or vote with fairness to all shareholders.
SECTION 14. NOMINATING COMMITTEE. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. No nominations for directors except those made by the
nominating committee shall be voted upon at the annual meeting unless other
nominations by shareholders are made in writing and delivered to the secretary
of the association at least five days prior to the date of the annual meeting.
Ballots bearing the names of all persons nominated by the nominating committee
and by shareholders shall be provided for use at the annual meeting. However, if
the nominating committee shall fail or refuse to act at least 20 days prior to
the annual meeting, nominations for directors may be made at the annual meeting
by any shareholder entitled to vote and shall be voted upon.
SECTION 15. NEW BUSINESS. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the
association at least five days before the date of the annual meeting, and all
other business so stated, proposed, and filed shall be considered at the annual
meeting; but no other proposal shall be acted upon at the annual meeting. Any
shareholder may make any other proposal at the annual meeting and the same may
be discussed and considered, but unless stated in writing and filed with the
secretary at least five days before the meeting, such proposal shall be laid
over for action at an adjourned, special, or annual meeting of the shareholders
taking place 30 days or more thereafter. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors, and committees; but in connection with such reports, no new
business shall be acted upon at such annual meeting unless stated and filed as
herein provided.
SECTION 16. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
4
<PAGE>
ARTICLE III - Board of Directors
SECTION 1. GENERAL POWERS. The business and affairs of the association
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board from among its members and shall
designate, when present, the chairman of the board to preside at its meetings.
SECTION 2. NUMBER AND TERM. The board of directors shall consist of nine
members and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be elected
by ballot annually.
SECTION 3. REGULAR MEETINGS. A regular meeting of the board of directors
shall be held without other notice than this bylaw immediately after, and at the
same place as, the annual meeting of shareholders. The board of directors may
provide, by resolution, the time and place, within the association's normal
lending territory, for the holding of additional regular meetings without other
notice than such resolution.
SECTION 4. QUALIFICATION. Directors need not be the beneficial owners of
capital stock of the association.
SECTION 5. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place, within the association's normal
lending territory, as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person.
SECTION 6. NOTICE OF SPECIAL MEETINGS. Written notice of any special
meeting of the board of directors or of any committee designated thereby shall
be given to each director at least 24 hours prior thereto at the address at
which the director is most likely to be reached. Any director may waive notice
of any meeting by a writing filed with the secretary. The attendance of a
director at a meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting of the board of directors need be specified in the notice or waiver of
notice of such meeting.
SECTION 7. QUORUM. A majority of the number of directors fixed by Section
2 of this Article III shall constitute a quorum for the transaction of business
at any meeting of the board of directors; but if less than such majority is
present at a meeting, a majority of the directors present may adjourn
5
<PAGE>
the meeting from time to time. Notice of any adjourned meeting shall be given in
the same manner as prescribed by Section 6 of this Article III.
SECTION 8. MANNER OF ACTIING. 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, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
SECTION 9. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the board of directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors.
SECTION 10. RESIGNATION. Any director may resign at any time by sending a
written notice of such resignation to the home office of the association
addressed to the chairman of the board or the president. Unless otherwise
specified, such resignation shall take effect upon receipt by the chairman of
the board or the president.
SECTION 11. VACANCIES. Any vacancy occurring on the board of directors
may be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the board of directors for a
term of office continuing only until the next election of directors by the
shareholders.
SECTION 12. COMPENSATION. Directors, as such, may receive compensation for
service on the board of directors. Members of either standing or special
committees may be allowed such compensation as the board of directors may
determine.
SECTION 13. PRESUMPTION OF ASSENT. A director of the association who is
present at a meeting of the board of directors at which action on any
association matter is taken shall be presumed to have assented to the action
taken unless his dissent or abstention shall be entered in the minutes of the
meeting or unless he shall file a 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 association
within five days after the date a copy of the minutes of the meeting is
received. Such right to dissent shall not apply to a director who voted in favor
of such action.
SECTION 14. REMOVAL OF DIRECTORS. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of the
shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall
6
<PAGE>
apply, in respect to the removal of a director or directors so elected, to the
vote of the holders of the outstanding shares of that class and not to the vote
of the outstanding shares as a whole.
ARTICLE IV - Executive and Other Committees
SECTION 1. APPOINTMENT. The board of directors, by resolution adopted by a
majority of the full board, may designate from among its members an executive
committee. The designation of any committee pursuant to this Article IV and the
delegation of authority shall not operate to relieve the board of directors, or
any director, of any responsibility imposed by law or regulation.
SECTION 2. AUTHORITY. The executive committee, when the board of directors
is not in session, shall have and may exercise all of the authority of the board
of directors except to the extent, if any, that such authority shall be limited
by the resolution appointing the executive committee; and except also that the
executive committee shall not have the authority of the board of directors with
reference to: the declaration of dividends; the amendment of the charter or
bylaws of the association, or recommending to the shareholders a plan of merger,
consolidation, or conversion; the sale, lease, or other disposition of all or
substantially all of the property and assets of the association otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
association; a revocation of any of the foregoing; or the approval of a
transaction in which any member of the executive committee, directly or
indirectly, has any material beneficial interest.
SECTION 3. TENURE. Subject to the provisions of Section 8 of this Article
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
SECTION 4. MEETINGS. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
SECTION 5. QUORUM. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the executive committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the executive committee .
7
<PAGE>
SECTION 7. VACANCIES. Any vacancy in the executive committee may be filled
by a resolution adopted by a majority of the full board of directors.
SECTION 8. RESIGNATIONS AND RREMOVAL. Any member of the executive committee
may be removed at any time with or without cause by resolution adopted by a
majority of the full board of directors. Any member of the executive committee
may resign from the executive committee at any time by giving written notice to
the president or secretary of the association. Unless otherwise specified, such
resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 9. PROCEDURE. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
SECTION 10. OTHER COMMITTEES. The board of directors may by resolution
establish an audit, loan, or other committee composed of directors as it may
determine to be necessary or appropriate for the conduct of the business of the
association and may prescribe the duties, constitution, and procedures thereof.
ARTICLE V - Officers
SECTION 1. POSITIONS. The officers of the association shall be a
president, one or more vice presidents, a secretary, and a treasurer, each of
whom shall be elected by the board of directors. The board of directors may also
designate the chairman of the board as an officer. The president shall be the
chief executive officer, unless the board of directors designates the chairman
of the board as chief executive officer. The president shall be a director of
the association. The offices of the secretary and treasurer may be held by the
same person and a vice president may also be either the secretary, or the
treasurer. The board of directors may designate one or more vice presidents as
executive vice president or senior vice president. The board of directors may
also elect or authorize the appointment of such other officers as the business
of the association may require. The officers shall have such authority and
perform such duties as the board of directors may from time to time authorize or
determine. In the absence of action by the board of directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the association
shall be elected annually at the first meeting of the board of directors held
after each annual meeting of the shareholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly elected
and qualified or until the officer's death, resignation, or removal in the
manner hereinafter provided. Election or appointment of an officer, employee, or
agent shall not of itself create contractual rights. The board of directors may
authorize the association to enter into an employment contract with any
8
<PAGE>
officer in accordance with regulations of the Office; but no such contract shall
impair the right of the board of directors to remove any officer at any time in
accordance with Section 3 of this Article V.
SECTION 3. REMOVAL. Any officer may be removed by the board of directors
whenever in its judgement the best interests of the association will be served
thereby, but such removal. other than for cause, shall be without prejudice to
any contractual rights of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
SECTION 5. REMUNERATION. The remuneration of the officers shall be fixed
from time to time by the board of directors by employment contracts or
otherwise.
ARTICLE VI - Contracts, Loans, Checks, and Deposits
SECTION 1. CONTRACTS. To the extent permitted by applicable regulations,
and except as otherwise prescribed by these bylaws with respect to certificates
for shares, the board of directors may authorize any officer, employee, or agent
of the association to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the association. Such authority may
be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
association 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, DRAFTS, ETC. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the association shall be signed by one or more officers, employees, or
agents of the association in such manner as shall from time to time be
determined by the board of directors.
SECTION 4. DEPOSITS. All funds of the association not otherwise employed
shall be deposited from time to time to the credit of the association in any
duly authorized depositories as the board of directors may select.
ARTICLE VII - Certificates for Shares and Their Transfer
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
capital stock of the association shall be in such form as shall be determined by
the board of directors and approved as required under applicable regulations.
Such certificates shall be signed by the chief executive officer or by any other
officer of the association authorized by the board of directors, attested by the
9
<PAGE>
secretary or an assistant secretary, and sealed with the corporate seal or a
facsimile thereof. The signatures of such officers upon a certificate may be
facsimiles if the certificate is manually signed on behalf of a transfer agent
or a registrar other than the association itself or one of its employees. Each
certificate for shares of capital stock shall bc consecutively numbered or
otherwise identified. The name and address of the person to whom the sh\ares are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the association. All certificates surrendered to the
association for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares has been
surrendered and canceled, except that in the case of a lost or destroyed
certificate, a new certificate may be issued upon such terms and indemnity to
the association as the board of directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of the
association shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of attorney and filed with the
association. Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the association shall be deemed by the association
to be the owner for all purposes.
ARTICLE VIII - Fiscal Year; Annual Audit
The fiscal year of the association shall end on the 30th day of September
of each year. The association shall be subject to an annual audit as of the end
of its fiscal year by independent public accountants appointed by and
responsible to the board of directors. The appointment of such accountants shall
be subject to annual ratification by the shareholders.
10
<PAGE>
ARTICLE IX - Dividends
Subject to the terms of the association's charter and the regulations and
orders of the Office, the board of directors may, from time to time, declare,
and the association may pay, dividends on its outstanding classes of capital
stock.
ARTICLE X - Corporate Seal
The board of directors shall provide a association seal which shall be two
concentric circles between which shall be the name of the association. The year
of incorporation or an emblem may appear in the center.
ARTICLE XI - Amendments
These bylaws may be amended in a manner consistent with applicable
regulations at any time by a majority vote of the full board of directors or by
a majority vote of the votes eligible to be cast by the shareholders of the
association at any legal meeting.
11
<PAGE>
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SOUTHERN COMMUNITY BANCSHARES, INC.
CULLMAN, ALABAMA
$.01 par value common stock -- fully paid and nonassessable
This certifies that __________________________________ is the owner of
______________ shares of the common stock of Southern Community Bancshares, Inc.
(the "Corporation"), a Delaware corporation.
The shares evidenced by this Certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, in person or
by his duly authorized attorney or legal representative, upon surrender of this
certificate properly endorsed. This Certificate is not valid until
countersigned and registered by the Corporation's transfer agent and registrar.
THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be executed
by the facsimile signatures of its duly authorized officers and has caused its
seal to be affixed hereto.
DATED:______________
____________________________ (SEAL) __________________________
Secretary President
<PAGE>
The shares evidenced by this Certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect that in no event for
the five-year period stated in the Certificate of Incorporation, shall any
record owner of any outstanding Common Stock which is beneficially owned,
directly or indirectly, by a person who beneficially owns in excess of 10% of
the outstanding shares of Common Stock (the "Limit") be entitled or permitted to
any vote in respect of shares held in excess of the Limit.
The Board of Directors of the Corporation is authorized by resolution or
resolutions, from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the voting powers, designations,
preferences, limitations and restrictions thereof. The Corporation will furnish
to any shareholder upon request and without charge a full description of each
class of stock and any series thereof.
The shares represented by this Certificate may not be cumulatively voted on
any matter. The Certificate of Incorporation requires the affirmative vote of
the holders of at least 80% of the voting stock of the Corporation, voting
together as a single class, to approve certain business combinations and other
transactions and to amend certain provisions of the Certificate of
Incorporation.
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ____________ Custodian ____________
(Cust) (Minor)
TEN ENT - as tenants by the entireties
Under Uniform Gifts to Minors Act
JT TEN - as joint tenants with right
of survivorship and not as _____________________________________
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the
above list.
For value received, ______ hereby sell, assign and transfer unto
_______________________________________________________________________
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER
_______________________________________________________________________
________________________________________________________________________________
(please print or typewrite name and address including postal zip code of
assignee)
________________________________________________________________________________
_________________________________________________________________ Shares of the
Common Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint ____________________ Attorney, to transfer the said
shares on the books of the within named corporation with full power of
substitution in the premises.
Dated,___________________
In presence of Signature:
________________________________ ________________________________________
NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE
STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
September 18, 1996
First Federal Savings and Loan
Association of Cullman
325 2nd Street, S.E.
P.O. Box 249
Cullman, Alabama 35056-0249
Re: Southern Community Bancshares, Inc. Common Stock Offering
Gentleman:
You have requested the opinion of this firm as to certain matters in
connection with the offer and sale (the "Offering") of the Southern Community
Bancshares, Inc. (the "Company") Common Stock, $.01 par value (the "Common
Shares"). We have reviewed the Company's Certificate of Incorporation,
Registration Statement on Form SB-2 ("Form SB-2"), as well as applicable
statutes and regulations governing the Company and the offer and sale of the
Common Shares.
We are of the opinion that upon the effectiveness of the Form SB-2, the
Common Shares, when sold, will be legally issued, fully paid and non-assessable.
This opinion has been prepared solely for the use of the Company in
connection with the Form SB-2, and should not be used for any other purpose nor
relief upon by any other person (except for the Securities and Exchange
Commission in connection with its processing of the Form SB-2 and investors in
the Offering), without the prior written consent of this firm.
Very truly yours,
/s/ Bayh, Connaughton & Malone, P.C.
------------------------------------
BAYH, CONNAUGHTON & MALONE, P.C.
<PAGE>
September 18, 1996
Board of Directors
First Federal Savings and Loan
Association of Cullman
325 2nd Street, S.E.
P.O. Box 249
Cullman, Alabama 35056-0249
RE: Federal Income Tax Consequences Relating to Conversion of First Federal
Savings and Loan Association of Cullman from a Federal Mutual Savings
Institution to a Federal Stock Savings Institution and the Acquisition
of the Stock Institution's Stock by a Stock Holding Company
Gentlemen:
In accordance with your request, set forth herein is the opinion of this
firm relating to the federal income tax consequences of the proposed conversion
("Conversion") of First Federal Savings and Loan Association of Cullman (the
"Association") from a federal mutual savings institution (the Association in its
mutual form is sometimes referred to as the "Mutual Association") to a federal
stock savings and loan association (the Association in its stock form is
sometimes referred to as the "Stock Association"), and the formation of a
holding company parent, Southern Community Bancshares, Inc. (the "Holding
Company"), which will acquire all of the outstanding stock of the Stock
Association.
For purposes of this opinion, we have examined such documents and questions
of law as we have considered necessary or appropriate, including but not limited
to the Plan of Conversion as adopted by the Association on June 10, 1996, as
amended (the "Plan"); the Charter and Bylaws of the Mutual Association; the
Charter and Bylaws of the Stock Association and the Certificate of Incorporation
and Bylaws of the Holding Company. In such examination, we have assumed, and
have not independently verified, the genuineness of all signatures on original
documents where due execution and delivery are requirements to the effectiveness
thereof. Captalized terms used herein and not defined herein, shall have the
same meaning assigned in the Plan.
In issuing our opinion, we have assumed that the Plan has been duly and
validly authorized and has been approved and adopted by the board of directors
of the Association at a meeting duly called and held; that the Association will
comply with the terms and conditions of the Plan, and that the various
representations and warranties which are provided to us are accurate, complete,
true and correct. We express no opinion concerning tax matters under Alabama
state law and local tax laws.
<PAGE>
Board of Directors
First Federal Savings and Loan
Associaton of Cullman
Page 2
In issuing the opinion set forth below, we have relied solely on existing
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
existing and proposed Treasury Regulations (the "Regulations") thereunder,
current administrative rulings, notices and procedures, and court decisions.
Such laws, regulations, administrative rulings, notices and procedures and court
decisions are subject to change at any time. Any such change could affect the
continuing validity of the opinions set forth below. This opinion is as of the
date hereof, and we shall have no obligation to advise you of any change in any
matter considered herein after the date hereof.
In rendering our opinion, we have assumed that the persons and entities
identified in the Plan will comply with all requirements of Code Section
368(a)(1)(F) and all other applicable state and Federal laws.
For purposes of this opinion, we are relying on the representations
provided to us by the Association, as set forth below.
REPRESENTATIONS
---------------
1. The Conversion has been and shall be implemented in accordance with the
terms of the Plan and all conditions precedent contained in the Plan shall be
performed or waived prior to the consummation of the Conversion.
2. The fair market value of the withdrawable deposit accounts plus
interests in the liquidation account ("Liquidation Account") of Stock
Association to be received under the Plan, in each instance, shall be equal to
the fair market value of the membership interests (i.e., withdrawable deposit
accounts, voting and liquidation rights) in the Association surrendered in
exchange therefor.
3. Holding Company and Stock Association each have no current plan or
intention to redeem or otherwise reacquire any of the stock issued in the
proposed transaction.
4. To the best of the knowledge of the management of the Association,
there is no plan or intention by any member of the Association who holds more
than 1% of the qualifying deposits in the Association, and there is no plan or
intention on the part of the remaining members, to dispose of their withdrawable
deposit accounts in Stock Association that would reduce their aggregate interest
in the Liquidation Account as of the Effective Date of the Conversion, to less
than 50% of the value of their interests in the Association as of the same date.
5. Immediately following the consummation of the proposed transaction,
Stock Association will possess the same assets and liabilities as the Mutual
Association held immediately prior to the proposed transaction, plus proceeds
from the sale of stock of Stock Association to Holding Company.
<PAGE>
Board of Directors
First Federal Savings and Loan
Association of Cullman
Page 3
6. Assets used to pay expenses of the Conversion (without reference to the
expenses of the Community Offering) and all distributions (except for regular
normal interest payments and other payments in the normal course of business
made by the Mutul Association immediately preceding the transaction) will in the
aggregate constitute less than one percent (1%) of the net assets of the
Association.
7. Following the proposed transaction, Stock Association will continue the
historic business of the Mutual Association or use a significant portion of the
Mutual Association's business assets.
8. Stock Association has no plan or intention to sell or otherwise dispose
of any of the assets of the Mutual Association acquired in the proposed
transaction, except for dispositions in the ordinary course of business.
9. There is no plan or intention for Stock Association to be liquidated or
merged with another corporation following the Conversion.
10. Neither the Stock Association nor the Holding Company has any plan or
intention, either currently or at the time of the Conversion, to issue
additional shares of stock following the proposed transaction, other than shares
that may be issued to employees and/or directors pursuant to certain stock
option and stock incentive plans or that may be issued to employee benefit
plans.
11. Stock Association has no current plan or intention to reacquire any of
its stock issued in the proposed transaction.
12. The Association is not under the jurisdiction of a court in any Title
11 or similar case within the meaning of Section 368(a)(3)(A). The proposed
transaction does not involve a receivership, foreclosure, or similar proceeding
before a federal or state agency involving a financial institution to which
Section 585 or 593 of the Code applies.
13. Compensation to be paid to depositor-employees of the Association or
Holding Company will be commensurate with amounts paid to third parties
bargaining at arm's length for similar services.
14. No shares of Holding Company Conversion Stock will be issued to or
purchased by depositor-employees of the Association or Holding Company at a
discount or as compensation in the proposed transaction.
15. No cash or other property will be given to Eligible Account Holders or
others in lieu of (a) non-transferable subscription rights or (b) an interest in
the Liquidation Account of Stock
<PAGE>
Board of Directors
First Federal Savings and Loan
Association of Cullman
Page 4
Association.
16. Association has utilized a reserve for bad debts in accordance with
Section 593 of the Code.
17. At the time of the proposed transaction, the fair market value of the
assets of the Association on a going concern basis will equal or exceed the
amount of its liabilities to be assumed plus the amount of liabilities to which
the transferred assets are subject. Association will have a positive regulatory
net worth at the time of the Conversion.
18. Mutual Association, Stock Association and Holding Company are
corporations within the meaning of Section 7701(a)(3) of the Code. Mutual
Association and Stock Association are domestic building and loan associations
within the meaning of Section 7701(a)(19)(C) of the Code.
19. Neither Mutual Association nor Stock Association is an investment
company as defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
20. The exercise price of the subscription rights received by the
Association's Eligible Account Holders and Supplemental Eligible Account Holders
to purchase Holding Company Stock will be equal to the fair market value of the
Holding Company Conversion Stock at the time of the completion of the proposed
transaction as determined by an independent appraisal.
21. The Association has received or will receive an opinion from an
independent appraiser to the effect that the subscription rights to be received
by Eligible Account Holders and Supplemental Eligible Account Holders and other
eligible subscribers do not have any ascertainable fair market value.
22. The Association's savings depositors will pay expenses of the
conversion solely attributable to them, if any. Holding Company and the
Association will pay their own expenses for the transaction and will not pay any
expenses solely attributable to the savings depositors or to the Holding Company
stockholders. The stockholders of Holding Company will pay the expenses
incurred by themselves in connection with the proposed transaction.
23. The Eligible Account Holders', Supplemental Eligible Account Holders',
and Other Members' proprietary interests in the Association arise solely by
virtue of the fact that they are account holders in the Association.
24. No creditors of the Association or the depositors in their role as
creditors, have taken any steps to enforce their claims against the Association
by instituting bankruptcy or other legal proceedings, in either a court or
appropriate regulatory agency, that would eliminate the proprietary
<PAGE>
Board of Directors
First Federal Savings and Loan
Association of Cullman
Page 5
interests of the members prior to the Conversion of the Association including
depositors as equity holders of the Association.
25. The liabilities of the Mutual Association assumed by Stock Association
plus the liabilities, if any, to which the transferred assets are subject were
incurred by the Mutual Association in the ordinary course of its business and
are associated with the assets transferred.
26. Holding Company has no plan or intention to sell or otherwise dispose
of the stock of Stock Association received by it in the proposed transaction.
27. No amount of deposit accounts or deposits as of the Eligibility Record
Date will be excluded from participation in the Liquidation Account.
OPINION
-------
Based on the foregoing, and in reliance thereon, and subject to the
conditions stated herein, it is our opinion that the following federal income
tax consequences will result from the proposed Conversion:
1. The Conversion constitutes a reorganization within the meaning of
Section 368(a)(1)(F) of the Code, and no gain or loss will be
recognized by the Association in its mutual form or in its stock form
as a result of the Conversion.
2. No gain or loss will be recognized by the Association upon the receipt
of money from the Holding Company in exchange for the capital stock of
the Association, as converted.
3. The basis of the assets of the Association will be the same immediately
after the Conversion as the basis in the Association's hands
immediately prior to the Conversion.
4. The holding period of the assets of the Association after the
Conversion will include the period during which the assets were held by
the Association before the Conversion.
5. No gain or loss will be recognized by the deposit account holders of
the Association upon the constructive issuance to them, in exchange for
their respective withdrawable deposit accounts in the Association
immediately prior to the Conversion, of withdrawable deposit accounts
of equal dollar amount in the Association immediately after the
Conversion, plus, in the case of Eligible Account Holders and
<PAGE>
Board of Directors
First Federal Savings and Loan
Association of Cullman
Page 6
Supplemental Eligible Account Holders, the interests in the Liquidation
Account of the Association, as described below.
6. The basis of the deposit accounts in the Association held by its
deposit account holders immediately after the Conversion will be the
same as the basis of their deposit accounts in the Association
immediately prior to the Conversion.
7. The basis of the interests in the Liquidation Account received by the
Eligible Account Holders and Supplemental Eligible Account Holders will
be zero and the basis of the nontransferable subscription rights
received by Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members will be zero (assuming that at distribution
such rights have no ascertainable fair market value).
8. No gain or loss will be recognized by Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members upon the
issuance to them of nontransferable subscription rights to purchase
Common Shares (assuming that at issuance such rights have no
ascertainable fair market value), and no taxable income will be
realized by such Eligible Account Holders, Supplemental Eligible
Account Holders or Other Members as a result of their exercise of such
nontransferable subscription rights.
9. The basis of the Common Shares to its shareholders will be the actual
purchase price ($20.00) thereof (assuming that subscription rights of
such shareholder, if any, have no ascertainable fair market value) and
the holding period of such shares will commence on the day after the
date of the purchase.
10. Immediately, after the Conversion, the Association in its stock form
will succeed to and take into account the tax attributes of the
Association in its mutual form immediately prior to the Conversion,
including the Association's earnings and profits or deficit in
earnings and profits.
11. The Association in its stock form will succeed to and take into
account the dollar amounts of those accounts of the Association in its
mutual form which represent bad debt reserves in respect of which the
Association in its mutual form has taken a bad debt deduction for
taxable years ending on or before the Conversion.
SCOPE OF OPINION
----------------
Our opinion is limited to the federal income tax matters described above
and does not address
<PAGE>
Board of Directors
First Federal Savings and Loan
Association of Cullman
Page 7
any other federal income tax considerations or any federal, state, local,
foreign or other tax considerations. If any of the information on which we have
relied is incorrect, or if changes in the relevant facts occur after the date
hereof, our opinion could be affected thereby. Moreover, our opinion is based
on the case law, Code, Treasury Regulations thereunder and Internal Revenue
Service rulings as they now exist. These authorities are all subject to change,
and such change may be made with retroactive effect. We can give no assurance
that, after such change, our opinion would not be different. We undertake no
responsibility to update or supplement our opinion. This opinion is not binding
on the Internal Revenue Service and there can be no assurance, and none is
hereby given, that the Internal Revenue Service will not take a position
contrary to one or more of the positions reflected in the foregoing opinion, or
that our opinion will be upheld by the courts if challenged by the Internal
Revenue Service.
CONSENT
-------
We hereby consent to the filing of this opinion as an exhibit to the
registration statement on form SB-2 ("Registration Statement") of the Holding
Company filed with the Securities and Exchange Commission with respect to the
Conversion and as an exhibit to the application for Conversion on Form AC ("Form
AC") of the Association filed with the OTS with respect to the Conversion. We
also hereby consent to the references to this firm in the prospectus which is a
part of both the Registration Statement and the Form AC.
USE OF OPINION
--------------
This opinion is rendered solely for the benefit of the Holding Company, the
Association and prospective investors in connection with the proposed
transactions described herein and is not to be relied upon or used for any other
purpose without our prior written consent.
Very truly yours,
/s/ Bayh, Connaughton & Malone, P.C.
------------------------------------
BAYH, CONNAUGHTON & MALONE, P.C
<PAGE>
[LETTERHEAD OF MILLER, HAMILTON, SNIDER & ODOM, L.L.C.]
__________________, 1996
Mobile Office
Board of Directors
First Federal Savings and Loan Association
of Cullman
325 Second Street, S.E.
Post Office Box 249
Cullman, Alabama 35056-0249
Re: Alabama Income Tax Consequences Relating to Conversion of First
Federal Savings and Loan Association of Cullman from a Federal Mutual
Savings Institution to a Federal Stock Savings Institution and the
Acquisition of the Stock Institution's Stock by a Stock Holding
Company
Gentlemen:
We have been requested to provide the opinion of this firm relating to the
Alabama income tax consequences of the proposed conversion ("Conversion") of
First Federal Savings and Loan Association of Cullman (the "Association") from a
federal mutual savings institution (the Association in its mutual form is
sometimes referred to as the "Mutual Association") to a federal stock savings
and loan association (the Association in its stock form is sometimes referred to
as the "Stock Association"), and the formation of a holding company parent,
Southern Community Bancshares, Inc. (the "Holding Company"), which will acquire
all of the outstanding stock of the Stock Association. For purposes of this
opinion, we have examined such documents and questions of law we have considered
necessary or appropriate, including, but not limited to, the Plan of Conversion
as adopted by the Association on June 10, 1996, as amended (the "Plan"), of the
prospectus of Southern Community Bancshares, Inc. regarding the proposed
transactions, and the opinion of Bayh, Connaughton & Malone,
<PAGE>
Board of Directors
____________, 1996
Page 2
P.C., counsel to the Association, regarding the federal income tax consequences
of the same transactions. We have assumed, and have not independently verified,
the genuineness of all signatures on original documents where due execution and
delivery are requirements to the effectiveness thereof. Capitalized terms used
herein and not defined herein, shall have the same meaning assigned in the Plan.
In issuing our opinion, we have made the same assumptions and relied on the same
representation as reflected in the legal opinion of Bayh, Connaughton & Malone,
P.C., to the Board of Directors regarding the federal income tax consequences of
the above-described transactions and will not be restated herein.
OPINION
-------
Based on the assumptions and representations and based on the legal opinion
of Bayh, Connaughton & Malone, P.C., regarding the federal income tax
consequences of the above-described transactions it is our opinion that the
following Alabama income tax consequences will result from the proposed
Conversion:
If the Conversion constitutes a reorganization within the meaning of
Section 368(a)(1)(F) of the Internal Revenue Code of 1986, it will likewise
qualify as a reorganization within the meaning of Section 40-18-8(g) and (h) of
the Alabama Code of 1975, as amended, and the consequences to the Association,
the Eligible Account Holders, Supplemental Eligible Account Holders, and Other
Members will be the same for Alabama income tax purposes as for federal income
tax purposes.
SCOPE OF OPINION
----------------
Our opinion is limited to the Alabama income tax matters described herein
and does not address any other Alabama income tax considerations or any foreign
or other tax considerations. If any of the information on which we have relied
is incorrect, or if changes in the relevant facts occur after the date hereof,
our opinion could be affected thereby. Moreover, our opinion is based on
Alabama law, which in turn is based on the Internal Revenue Code of 1986, as
amended, Treasury regulations thereunder, and Internal Revenue Service rulings
as they now exist. Those authorities are all subject to change, and such change
could be made with retroactive effect. We can give no assurance that, after
such change, our opinion would not be different. We undertake no responsibility
to update or supplement our opinion. This opinion is not binding on the Alabama
Department of Revenue and there can be no assurance, and none is hereby given,
that the
<PAGE>
Board of Directors
____________, 1996
Page 3
Alabama Department of Revenue will not take a position contrary to one or more
of the positions reflected in the foregoing opinion, or that our opinion will be
upheld by the courts if challenged by the Alabama Department of Revenue.
CONSENT
-------
We hereby consent to the filing of this opinion as an exhibit to the
registration statement on form SB-2 ("Registration Statement") of the Holding
Company filed with the Securities & Exchange Commission with respect to the
Conversion and as an exhibit to the application for Conversion on Form AC ("Form
AC") of the Association filed with the OTS with respect to the Conversion. We
also hereby consent to the references to this firm in the prospectus which is a
part of both the Registration Statement and the Form AC.
USE OF OPINION
--------------
This opinion is rendered solely for the benefit of the Holding Company, the
Association, and prospective investors in connection with the proposed
transactions described herein and is not to be relied upon or used for any other
purpose without our prior written consent.
Very truly yours,
MILLER, HAMILTON, SNIDER
& ODOM, L.L.C.
<PAGE>
[LETTERHEAD OF FERGUSON & CO., L.L.P.]
AUGUST 1, 1996
Board OF DIRECTORS
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CULLMAN
325 SECOND STREET SE
CULLMAN, ALABAMA 35055
PLAN OF CONVERSION, SUBSCRIPTION RIGHTS
---------------------------------------
DEAR DIRECTORS:
Terms used in this letter not otherwise defined herein have the same
meanings for such terms in the Plan of Conversion adopted by the Board of
Directors of First Federal Savings and Loan Association of Cullman, Cullman,
Alabama ("First Federal" or the "Association"), under which the Association
will convert from a mutual savings and loan association to a stock savings
and loan association and issue all of the Association's stock to Southern
Community Bancshares, Inc. (the "Holding Company"). Simultaneously, the
Holding Company will issue shares of 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 Association's tax qualified
employee plans, (3) Supplemental Eligible Account Holders, and (4) Members.
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 will 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 in the Conversion will thereafter be able to sell such
shares at the same price paid in the Subscription Offering.
Sincerely,
/s/ Robin L. Fussell
--------------------
Robin L. Fussell
Principal
<PAGE>
SOUTHERN COMMUNITY BANCSHARES, INC.
STOCK OPTION AND INCENTIVE PLAN
1. Purpose. The purpose of the Southern Community Bancshares, Inc. Stock
-------
Option and Incentive Plan (this "Plan") is to promote and advance the interests
of Southern Community Bancshares, Inc. (the "Holding Company"), and its
shareholders by enabling the Holding Company to attract, retain and reward
directors, managerial and other key employees of the Holding Company and any
Subsidiary (hereinafter defined), and to strengthen the mutuality of interests
between such directors and employees and the Holding Company's shareholders by
providing such persons with a proprietary interest in pursuing the long-term
growth, profitability and financial success of the Holding Company.
2. Definitions. For purposes of this Plan, the following terms shall have
-----------
the meanings set forth below:
(a) "Board" means the Board of Directors of the Holding Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended, or any
successor thereto, together with rules, regulations and interpretations
promulgated thereunder.
(c) "Committee" means the Committee of the Board constituted as
provided in Section 3 of this Plan.
(d) "Common Shares" means the common shares, without par value, of the
Holding Company or any security of the Holding Company issued in
substitution, in exchange or in lieu thereof.
(e) "Employment" means regular employment with the Holding Company or a
Subsidiary and does not include service as a director only.
(f) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute.
(g) "Fair Market Value" shall be determined as follows:
(i) If the Common Shares are traded on a national securities
exchange at the time of grant of the Stock Option, then the Fair Market
Value shall be the average of the highest and the lowest selling price
on such exchange on the date such Stock Option is granted or, if there
were no sales on such date, then on the next prior business day on
which there was a sale.
(ii) If the Common Shares are quoted on The Nasdaq Stock Market at
the time of the grant of the Stock Option, then the Fair Market Value
shall be
<PAGE>
the mean between the closing high bid and low asked quotation with
respect to a Common Share on such date on The Nasdaq Stock Market.
(iii) If the Common Shares are listed on the National Daily
Quotation Service "pink sheets" published by the National Quotation
Bureau, Inc., then the Fair Market Value shall be the mean between the
closing high bid and low asked quotation with respect to a Common Share
on such date on the National Daily Quotation Service "pink sheets."
(iv) If the Common Shares are not traded on a national securities
exchange or quoted on The Nasdaq Stock Market or listed on the National
Daily Quotation Service "pink sheets," then the Fair Market Value shall
be as determined by the Committee.
(h) "Holding Company" means Southern Community Bancshares, Inc., a
Delaware corporation, or any successor corporation.
(i) "Incentive Stock Option" means any Stock Option granted pursuant to
the provisions of Section 6 of this Plan that is intended to be and is
specifically designated as an "incentive stock option" within the meaning
of Section 422 of the Code.
(j) "Non-Qualified Stock Option" means any Stock Option granted
pursuant to the provisions of Section 6 of this Plan that is not an
Incentive Stock Option.
(k) "OTS" means the Office of Thrift Supervision, Department of the
Treasury.
(l) "Participant" means an employee or director of the Holding Company
or a Subsidiary who is granted an Award under this Plan. Notwithstanding
the foregoing, for the purposes of the granting of any Incentive Stock
Option under this Plan, the term "Participant" shall include only employees
of the Holding Company or a Subsidiary.
(m) "Plan" means the Southern Community Bancshares, Inc. Stock Option
and Incentive Plan, as set forth herein and as it may be hereafter amended
from time to time.
(n) "Stock Option" means an award to purchase Common Shares granted
pursuant to the provisions of Section 6 of this Plan.
(o) "Subsidiary" means any corporation or entity in which the Holding
Company directly or indirectly controls 50% or more of the total voting
power of all classes of its stock having voting power and includes, without
limitation, First Federal Savings and Loan Association of Cullman.
2
<PAGE>
(p) "Terminated for Cause" means any removal of a director or discharge
of an employee for the personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of a material provision
of any law, rule or regulation (other than traffic violations or similar
offenses), a material violation of a final cease-and-desist order or any
other action of a director or employee which results in a substantial
financial loss to the Holding Company or a Subsidiary.
3. Administration.
--------------
(a) This plan shall be administered by the Committee to be comprised of
not less than three of the members of the Board who are not employees of
the Holding Company. The members of the Committee shall be appointed from
time to time by the Board. Members of the Committee shall serve at the
pleasure of the Board, and the Board may from time to time remove members
from, or add members to, the Committee. A majority of the members of the
Committee shall constitute a quorum for the transaction of business. An
action approved in writing by a majority of the members of the Committee
then serving shall be fully as effective as if the action had been taken by
unanimous vote at a meeting duly called and held.
(b) The Committee is authorized to construe and interpret this Plan and
to make all other determinations necessary or advisable for the
administration of this Plan. The Committee may designate persons other
than members of the Committee to carry out its responsibilities under such
conditions and limitations as it may prescribe. Any determination,
decision or action of the Committee in connection with the construction,
interpretation, administration, or application of this Plan shall be final,
conclusive and binding upon all persons participating in this Plan and any
person validly claiming under or through persons participating in this
Plan. The Holding Company shall effect the granting of Stock Options under
this Plan in accordance with the determinations made by the Committee, by
execution of instruments in writing in such form as approved by the
Committee.
4. Duration of, and Common Shares Subject to, this Plan.
----------------------------------------------------
(a) Term. This Plan shall terminate on the date which is ten (10)
----
years from the date on which this Plan is adopted by the Board, except with
respect to Stock Options then outstanding. Notwithstanding the foregoing,
no Incentive Stock Option may be granted under this Plan after the date
which is ten (10) years from the date on which this Plan is adopted by the
Board or the date on which this Plan is approved by the shareholders of the
Holding Company, whichever is earlier.
(b) Common Shares Subject to Plan. The maximum number of Common Shares
-----------------------------
in respect of which Stock Options may be granted under this Plan, subject
to adjustment as provided in Section 9 of this Plan, shall be ten percent
of the total
3
<PAGE>
Common Shares sold in connection with the conversion of First Federal
Savings and Loan Association of Cullman from mutual to stock form.
For the purpose of computing the total number of Common Shares available
for Stock Options under this Plan, there shall be counted against the foregoing
limitations the number of Common Shares subject to issuance upon exercise or
settlement of Stock Options as of the dates on which such Stock Options are
granted. If any Stock Options are forfeited, terminated or exchanged for other
Stock Options, or expire unexercised, the Common Shares which were theretofore
subject to such Stock Options shall again be available for Stock Options under
this Plan to the extent of such forfeiture, termination or expiration of such
Stock Options.
Common Shares which may be issued under this Plan may be either authorized
and unissued shares or issued shares which have been reacquired by the Holding
Company. No fractional shares shall be issued under this Plan.
5. Eligibility and Grants. Persons eligible for Stock Options under this
----------------------
Plan shall consist of directors and managerial and other key employees of the
Holding Company or a Subsidiary who hold positions with significant
responsibilities or whose performance or potential contribution, in the judgment
of the Committee, will benefit the future success of the Holding Company or a
Subsidiary. In selecting the directors and employees to whom Stock Options will
be awarded and the number of shares subject to such Stock Options, the Committee
shall consider the position, duties and responsibilities of the eligible
directors and employees, the value of their services to the Holding Company and
the Subsidiaries and any other factors the Committee may deem relevant.
6. Stock Options. Stock Options granted under this Plan may be in the
-------------
form of Incentive Stock Options or Non-Qualified Stock Options, and such Stock
Options shall be subject to the following terms and conditions as the Committee
shall deem desirable:
(a) Grant. Stock Options may be granted under this Plan on term and
-----
conditions not inconsistent with the provisions of this Plan and in such
form as the Committee may from time to time approve and shall contain such
additional terms and conditions, not inconsistent with the express
provisions of this Plan; provided, however, that no more than 25% of the
shares subject to Stock Options may be awarded to any individual who is an
employee of the Holding Company or a Subsidiary, no more than 5% of such
shares may be awarded to any director who is not an employee of the Holding
Company or a Subsidiary and no more than 30% of such shares may be awarded
to non-employee directors in the aggregate.
(b) Stock Option Price. The option exercise price per Common Share
------------------
purchasable under a Stock Option shall be determined by the Committee at
the time of grant; provided, however, that in no event shall the exercise
price of a Stock Option be less than 100% of the Fair Market Value of the
Common Shares on the
4
<PAGE>
date of the grant of such Stock Option. Notwithstanding the foregoing, in
the case of a Participant who owns Common Shares representing more than 10%
of the outstanding Common Shares at the time the Incentive Stock Option is
granted, the option exercise price shall in no event be less than 110% of
the Fair Market Value of the Common Shares at the time the Incentive Stock
Option is granted.
(c) Stock Option Terms. Subject to the right of the Holding Company to
------------------
provide for earlier termination in the event of any merger, acquisition or
consolidation involving the Holding Company, the term of each Stock Option
shall be fixed by the Committee; except that the term of Incentive Stock
Options will not exceed ten years after the date the Incentive Stock Option
is granted; provided, however, that in the case of a Participant who owns a
number of Common Shares representing more than 10% of the Common Shares
outstanding at the time the Incentive Stock Option is granted, the term of
the Incentive Stock Option shall not exceed five years.
(d) Exercisability. Except as set forth in Section 6(f) and Section 7
--------------
of this Plan, Stock Options awarded under this Plan shall become
exercisable at the rate of one-fifth per year commencing on the date that
is one year after the date of the grant of the Stock Option and shall be
subject to such other terms and conditions as shall be determined by the
Committee at the date of grant.
(e) Method of Exercise. A Stock Option may be exercised, in whole or
------------------
in part, by giving written notice of exercise to the Holding Company
specifying the number of Common Shares to be purchased. Such notice shall
be accompanied by payment in full of the purchase price in cash or, if
acceptable to the Committee in its sole discretion, in Common Shares
already owned by the Participant, or by surrendering outstanding Stock
Options. Common Shares delivered pursuant to the exercise of Stock Options
may be from the Holding Company or a grantor trust created by the Holding
Company to hold shares to be delivered to Participants pursuant to the
Plan. The Committee may also permit Participants, either on a selective or
aggregate basis, to simultaneously exercise Options and sell Common Shares
thereby acquired, pursuant to a brokerage or similar arrangement, approved
in advance by the Committee, and use the proceeds from such sale as payment
of the purchase price of such shares.
(f) Special Rule for Incentive Stock Options. With respect to
----------------------------------------
Incentive Stock Options granted under this Plan, to the extent the
aggregate Fair Market Value (determined as of the date the Incentive Stock
Option is granted) of the number of shares with respect to which Incentive
Stock Options are exercisable under all plans of the Holding Company or a
Subsidiary for the first time by a Participant during any calendar year
exceeds $100,000, or such other limit as may be required by the Code, such
Stock Options shall be Non-Qualified Stock Options to the extent of such
excess.
5
<PAGE>
7. Termination of Employment or Directorship.
-----------------------------------------
(a) Except in the event of the death or disability of a Participant,
upon the resignation, removal or retirement from the board of directors of
any Participant who is a director of the Holding Company or a Subsidiary or
upon the termination of Employment of a Participant who is not a director
of the Holding Company or a Subsidiary, any Stock Option which has not yet
become exercisable shall there upon terminate and be of no further force or
effect, and, subject to extension by the Committee, any Stock Option which
has become exercisable shall terminate if it is not exercised within 12
months of such resignation, removal or retirement.
(b) Unless the Committee shall specifically state otherwise at the time
an Option is granted, all Options granted under this Plan shall become
exercisable in full on the date of termination of a Participant's
employment or directorship with the Holding Company or a Subsidiary because
of his death or disability, and, subject to extension by the Committee, all
Options shall terminate if not exercised within 12 months of the
Participant's death or disability.
(c) In the event the Employment or the directorship of a Participant is
Terminated for Cause (hereinafter defined), any Option which has not been
exercised shall terminate as of the date of such termination for cause.
8. Non-transferability of Stock Options. No Stock Option under this Plan,
------------------------------------
and no right or interests therein, shall be assignable or transferable by a
Participant except by will or the laws of descent and distribution. During the
lifetime of a Participant, Stock Options are exercisable only by, and payments
in settlement of Stock Options will be payable only to, the Participant or his
or her legal representative.
9. Adjustments Upon Changes in Capitalization.
------------------------------------------
(a) The existence of this Plan and the Stock Options granted hereunder
shall not affect or restrict in any way the right or power of the Board or
the shareholders of the Holding Company to make or authorize the following:
any adjustment, recapitalization reorganization or other change in the
Holding Company's capital structure or its business; any merger,
acquisition or consolidation of the Holding Company; any issuance of bonds,
debentures, preferred or prior preference stocks ahead of or affecting the
Holding Company's capital stock or the rights thereof; the dissolution or
liquidation of the Holding Company or any sale or transfer of all or any
part of its assets or business; or any other corporate act or proceeding,
including any merger or acquisition which would result in the exchange of
cash, stock of another company or options to purchase the stock of another
company for any Stock Option outstanding at the time of such corporate
transaction or which would involve the termination of all Stock Options
outstanding at the time of such corporate transaction.
6
<PAGE>
(b) In the event of any change in capitalization affecting the Common
Shares of the Holding Company, such as a stock dividend, stock split,
recapitalization, merger, consolidation, split-up, combination or exchange
of shares or other form of reorganization, or any other change affecting
the Common Shares, such proportionate adjustments, if any, as the Board in
its discretion may deem appropriate to reflect such change shall be made
with respect to the aggregate number of Common Shares for which Stock
Options in respect thereof may be granted under this Plan, the maximum
number of Common Shares which may be sold or awarded to any Participant,
the number of Common Shares covered by each outstanding Stock Option, and
the exercise price per share in respect of outstanding Stock Options.
(c) The Committee may also make such adjustments in the number of
shares covered by, and the exercise price or other value of, any
outstanding Stock Options in the event of a spin-off or other distribution
of Holding Company assets to shareholders. In the event of a distribution
of cash by the Holding Company to its shareholders that is deemed a tax-
free distribution of capital, the exercise price of each Stock Option
awarded prior to the declaration of such distribution shall be reduced by
the per share amount of such distribution. In the event that another
corporation or business entity is being acquired by the Holding Company,
and the Holding Company agrees to assume outstanding employee stock options
and/or the obligation to make future grants of options or rights to
employees of the acquired entity, the aggregate number of Common Shares
available for Stock Options under Section 4 of this Plan may be increased
accordingly.
10. Amendment and Termination of this Plan. Without further approval of
--------------------------------------
the shareholders, the Board may at any time terminate this Plan, or may amend it
from time to time in such respects as the Board may deem advisable, except that
the Board may not, without approval of the shareholders, make any amendment
which would (a) increase the aggregate number of Common Shares which may be
issued under this Plan (except for adjustments pursuant to Section 9 of this
Plan), (b) materially modify the requirements as to eligibility for
participation in this Plan, or (c) materially increase the benefits accruing to
Participants under this Plan. The above notwithstanding, the Board may amend
this Plan to take into account changes in applicable securities, federal income
tax and other applicable laws.
11. Modification of Options. The Board may authorize the Committee to
-----------------------
direct the execution of an instrument providing for the modification of any
outstanding Stock Option which the Board believes to be in the best interests of
the Holding Company; provided, however, that no such modification, extension or
renewal shall reduce the exercise price or confer on the holder of such Stock
Option any right or benefit which could not be conferred on him by the grant of
a new Stock Option at such time and shall not materially decrease the
Participant's benefits under the Stock Option without the consent of the holder
of the Stock Option, except as otherwise permitted under this Plan.
7
<PAGE>
12. Miscellaneous.
-------------
(a) Tax Withholding. The Holding Company shall have the right to
---------------
deduct from any settlement, including the delivery or vesting of Common
Shares, made under this Plan any federal, state or local taxes of any kind
required by law to be withheld with respect to such payments or to take
such other action as may be necessary in the opinion of the Holding Company
to satisfy all obligation for the payment of such taxes. If Common Shares
are used to satisfy tax withholding, such shares shall be valued based on
the Fair Market Value when the tax withholding is required to be made.
(b) No Right to Employment. Neither the adoption of this Plan nor the
----------------------
granting of any Stock Option shall confer upon any employee of the Holding
Company or a Subsidiary any right to continued Employment with the Holding
Company or a Subsidiary as the case may be, nor shall it interfere in any
way with the right of the Holding Company or a Subsidiary to terminate the
Employment of any of its employees at any time, with or without cause.
(c) Annulment of Stock Options. The grant of any Stock Option under
--------------------------
this Plan payable in cash is provisional until cash is paid in settlement
thereof. The grant of any Stock Option payable in Common Shares is
provisional until the Participant becomes entitled to the certificate in
settlement thereof. In the event the Employment or the directorship of a
Participant is Terminated for Cause, any Stock Option which is provisional
shall be annulled as of the date of such termination.
(d) Other Holding Company Benefit and Compensation Programs. Payments
-------------------------------------------------------
and other benefits received by a Participant under a Stock Option made
pursuant to this Plan shall not be deemed a part of a Participant's
regular, recurring compensation for purposes of the termination indemnity
or severance pay law of any country and shall not be included in, nor have
any effect on, the determination of benefits under any other employee
benefit plan or similar arrangement provided by the Holding Company or a
Subsidiary unless expressly so provided by such other plan or arrangement,
or except where the Committee expressly determines that a Stock Option or
portion of a Stock Option should be included to accurately reflect
competitive compensation practices or to recognize that a Stock Option has
been made in lieu of a portion of competitive annual cash compensation,
Stock Options under this Plan may be made in combination with or in tandem
with, or as alternatives to, grants, stock options or payments under any
other plans of the Holding Company or a Subsidiary. This Plan
notwithstanding, the Holding Company or any Subsidiary may adopt such other
compensation programs and additional compensation arrangements as it deems
necessary to attract, retain and reward directors and employees for their
service with the Holding Company and its Subsidiaries.
8
<PAGE>
(e) Securities Law Restrictions. No Common Shares shall be issued
---------------------------
under this Plan unless counsel for the Holding Company shall be satisfied
that such issuance will be in compliance with applicable federal and state
securities laws. Certificates for Common Shares delivered under this Plan
may be subject to such stock-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Committee, any stock exchange
upon which the Common Shares are then listed, and any applicable federal or
state securities law. The Committee may cause a legend or legends to be put
on any such certificates to make appropriate reference to such
restrictions.
(f) Stock Option Agreement. Each Participant receiving a Stock Option
----------------------
under this Plan shall enter into an agreement with the Holding Company in a
form specified by the Committee agreeing to the terms and conditions of the
Stock Option and such related matters as the Committee shall, in its sole
discretion, determine.
(g) Cost of Plan. The costs and expenses of administering this Plan
------------
shall be borne by the Holding Company.
(h) Governing Law. This Plan and all actions taken hereunder shall be
-------------
governed by and construed in accordance with the laws of the State of
Delaware, except to the extent that federal law shall be deemed applicable.
(i) Effective Date. This Plan shall be effective upon the later of
--------------
adoption by the Board and approval by the Holding Company's shareholders.
This Plan shall be submitted to the shareholders of the Holding Company for
approval at an annual or special meeting of shareholders to be held no
sooner than six months after the effective date of the Conversion.
9
<PAGE>
SOUTHERN COMMUNITY BANCSHARES, INC.
MANAGEMENT RECOGNITION PLAN
AND TRUST AGREEMENT
ARTICLE I
DEFINITIONS
The following words and phrases when used in this Agreement with an initial
capital letter shall have the meanings set forth below, unless the context
clearly indicates otherwise. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural:
1.01 "Agreement" means the Southern Community Bancshares, Inc. Management
Recognition Plan and Trust Agreement.
1.02 "Association" means First Federal Savings & Loan Association of
Cullman, a federally chartered savings and loan association.
1.03 "Award" means a right granted to a Director or an Employee under
this Plan to receive Plan Shares.
1.04 "Beneficiary" means the person or persons designated by a Recipient
to receive any benefits payable under this Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's estate.
1.05 "Board" means the Board of Directors of the Holding Company.
1.06 "Committee" means the Management Recognition Plan Committee
appointed by the Board pursuant to Article IV hereof.
1.07 "Common Shares" means common shares of the Holding Company.
1.08 "Conversion" means the conversion of the Association from mutual to
stock form.
1.09 "Director" means any person who is a member of the Board of
Directors of the Holding Company, the Association or a Subsidiary.
1.10 "Employee" means any person who is employed by the Holding Company,
the Association or a Subsidy.
<PAGE>
1.11 "Holding Company" means Southern Community Bancshares, Inc., a
Delaware corporation incorporated for the purpose of holding all of the common
shares of the Association issued in connection with the Conversion.
1.12 "Person" means an individual, corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein.
1.13 "Plan" means the Management Recognition Plan established by this
Agreement.
1.14 "Plan Shares" means the Common Shares held pursuant to the Trust and
which are awarded or issuable to a Recipient pursuant to the Plan.
1.15 "Plan Share Reserve" means the Common Shares held by the Trustee
pursuant to Sections 5.02 and 5.03 of this Agreement.
1.16 "Recipient" means any Director or Employee who receives an Award
under the Plan.
1.17 "Subsidiaries" means subsidiaries of the Holding Company or the
Association which, with the consent of the Board, agree to participate in the
Plan.
1.18 "Trust" means the trust established by this Agreement.
1.19 "Trustee(s)" means the person(s) or entity approved by the Board
pursuant to Sections 4.01 and 4.02 to hold legal title to the Plan assets for
the purposes set forth herein.
ARTICLE II
ESTABLISHMENT OF THE PLAN AND TRUST
2.01 The Holding Company hereby establishes a Management Recognition Plan
and Trust upon the terms and subject to the conditions set forth in this
Agreement. The Trustee hereby accepts the Trust and agrees to hold the Trust
assets existing on the date of this Agreement and all additions and accretions
thereto upon the terms and conditions of this Agreement.
ARTICLE III
PURPOSE OF THE PLAN
3.01 The purpose of the Plan is to reward and retain the Directors and
Employees of the Holding Company, the Association and the Subsidiaries who are
in key positions of
2
<PAGE>
responsibility by providing such Directors and Employees with an equity interest
in the Holding Company as reasonable compensation for their contributions to the
Holding Company, the Association and the Subsidiaries.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Role of the Committee. The Plan shall be administered and
---------------------
interpreted by the Committee, which shall consist of not less than three members
of the Board who are not employees of the Holding Company or the Association.
The Committee shall have all of the powers set forth in this Plan. The
interpretation and construction by the Committee of any provisions of this
Agreement or of any Award granted hereunder shall be final, conclusive and
binding. The Committee shall act by the vote, or the written consent, of a
majority of its members. The Committee shall report actions and decisions with
respect to the Plan to the Board upon request by the Board.
4.02 Role of the Board. The members of the Committee and the Trustee(s)
-----------------
shall be appointed or approved by and will serve at the pleasure of the Board.
The Board may in its discretion from time to time remove members from or add
members to the Committee and may remove, replace or add Trustee(s). The Board,
in its absolute discretion, may take any action under or with respect to the
Plan which the Committee is authorized to take and may reverse or override any
action taken or decision made by the Committee under or with respect to the Plan
or take any other action reserved to the Board under this Agreement; provided,
however, that the Board may not revoke any Award already granted under this
Agreement. All decisions, determinations and interpretations of the Board shall
be final, conclusive and binding upon all parties having an interest in the
Plan.
4.03 Limitation on Liability. No member of the Board or the Committee,
-----------------------
nor any Trustee, shall be liable for any determination made in good faith with
respect to the Plan or any Plan Shares or Awards granted under the Plan. If a
member of the Board or of the Committee or any Trustee is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of anything done or not done by such member in such capacity under or
with respect to this Plan, the Holding Company shall indemnify such member
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such member in connection with
such action, suit or proceeding if such member acted in good faith and in a
manner such member reasonably believed to be in or not opposed to the best
interests of the Holding Company, the Association and the Subsidiaries and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such member's conduct was unlawful.
3
<PAGE>
ARTICLE V
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 Amount and Timing of Contributions. The Board shall determine the
----------------------------------
amounts (or the method of computing the amounts) to be contributed by the
Holding Company to the Trust. Such amounts shall be paid to the Trustee at the
time of contribution. No contributions to the Trust by Directors or Employees
shall be permitted.
5.02 Investment of Trust Assets. Except as otherwise permitted by Section
--------------------------
8.02 of this Agreement, the Trustee shall invest all of the Trust's assets,
after providing for any required withholding as needed for tax purposes,
exclusively in Common Shares; provided, however, that the Trust shall not
purchase a number of Common Shares equal to more than 3% of the number of Common
Shares issued in connection with the Conversion, except that if the
Association's tangible capital exceeds 10%, the Trust may purchase a number of
Common Shares equal to up to 4% of the Common Shares issued in connection with
the Conversion. After such investment, the Common Shares shall be held by the
Trustee in the Plan Share Reserve until such Common Shares are subject to one or
more Awards. Any funds held by the Trust before purchasing Common Shares shall
be invested by the Trustee in such interest-bearing account or accounts at the
Association as the Trustee shall determine to be appropriate.
5.03 Effect of Allocations, Returns and Forfeitures Upon Plan Share
--------------------------------------------------------------
Reserves. Upon the allocation of Awards under Section 6.02 of this Agreement,
- --------
or the decision of the Committee to return Plan Shares to the Holding Company,
the Plan Share Reserve shall be reduced by the number of Plan Shares so
allocated or returned. Any Plan Shares subject to an Award which is subject to
forfeiture by the Recipient pursuant to Section 7.01 of this Agreement shall be
retained in the Plan Share Reserve.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 Eligibility. Directors and Employees are eligible to receive Awards
-----------
within the sole discretion of the Committee, subject to review and approval or
rejection by the Board.
6.02 Allocations. The Committee will determine which of the Directors and
-----------
Employees will be granted Awards and the number of Plan Shares covered by each
Award; provided, however, that: (a) the aggregate number of Plan Shares covered
by Awards to any Employee shall not exceed 25% of the total number of Plan
Shares, (b) no more than 5% of the Shares shall be awarded to any Director who
is not an Employee, and (c) no more than 30% of the Plan Shares shall be awarded
in the aggregate to Directors who are not Employees. In the event Plan Shares
are forfeited for any reason or additional Plan Shares are purchased by the
Trustee, the Committee may, from time to time, determine which of
4
<PAGE>
the Employees will be granted additional Awards to be awarded from forfeited or
additional Plan Shares.
In selecting the Directors and Employees to whom Awards will be granted and
the number of shares covered by such awards, the Committee shall consider the
position, duties and responsibilities of the eligible Directors and Employees,
the value of their services to the Holding Company, the Association and the
Subsidiaries and any other factors the Committee may deem relevant. All
allocations by the Committee shall be subject to review and approval or
rejection by the Board.
6.03 Form of Allocation. As promptly as practicable after a determination
------------------
is made pursuant to Section 6.02 of this Agreement that an Award is to be made,
the Committee shall notify the recipient in writing of the grant of the Award,
the number of Plan Shares covered by the Award and the terms upon which the Plan
Shares subject to the Award may be earned. The date on which the Committee
determines that an Award is to be made or a later date designated by the
Committee shall be considered the date of grant of the Awards. The Committee
shall maintain records as to all grants of Awards under the Plan.
6.04 Allocations Not Required. None of the Directors or Employees, either
------------------------
individually or as a group, shall have any right or entitlement to receive an
Award under the Plan. The Committee may, with the approval of the Board, and
shall, if so directed by the Board, return all Common Shares and other assets in
the Plan Share Reserve to the Holding Company at any time and thereafter cease
issuing Awards.
6.05 Shareholder Approval. This Agreement shall be submitted to the
--------------------
shareholders of the Holding Company at an annual or special meeting to be held
no sooner than six months after the effective date of the Conversion.
Notwithstanding anything to the contrary in this Agreement, no Awards shall be
granted hereunder until the shareholders of the Holding Company approve this
Agreement.
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earning Plan Shares; Forfeitures.
--------------------------------
(a) General Rules. Unless the Committee shall specifically state a
-------------
longer period of time over which Awards shall be earned and non-forfeitable at
the time an Award is granted, Plan Shares shall be earned and non-forfeitable by
a Recipient over a period of five years at the rate of one-fifth per year
commencing on the date which is one year after the date of the grant of such
Award. As Plan Shares become earned and non-forfeitable, any cash dividend,
returned capital and earnings thereon shall also be earned and non-forfeitable.
5
<PAGE>
(b) Revocation. Unless otherwise permitted by applicable law and
----------
regulations, any Plan Shares and any cash dividends, returned capital and
earnings thereon that have not been earned and are not non-forfeitable in
accordance with Section 7.01(a) of this Agreement shall be forfeited in the
event that (i) a Recipient who is a Director ceases to serve on the Board of
Directors of both the Holding Company and the Association or (ii) a Recipient
who is not a Director of the Holding Company or the Association ceases to be an
Employee of the Holding Company or the Association, except as otherwise provided
in subsection (c) of this Section 7.01.
(c) Exception for Terminations Due to Death or Disability. All Plan
-----------------------------------------------------
Shares and cash dividends, returned capital and earnings thereon subject to an
Award held by a Recipient whose service as a Director or Employee of the Holding
Company, the Association or a Subsidiary terminates due to (i) death or (ii)
disability (as determined by the Committee) shall be deemed fully earned and
non-forfeitable as of the later of the Recipients last day of service as a
Director or as an Employee and shall be distributed as soon as practicable
thereafter.
7.02 Distribution of Plan Shares.
---------------------------
(a) Timing of Distributions; General Rule. Except as otherwise provided
-------------------------------------
in this Agreement, Plan Shares shall be distributed to the Recipient or his
Beneficiary, as the case may be, as soon as practicable after they have been
earned, together with any cash dividends, returned capital and earnings thereon
with respect to Plan Shares that have been earned.
(b) Form of Distribution. All distributions of Plan Shares, together
--------------------
with any shares representing stock dividends, shall be distributed in the form
of Common Shares. No fractional shares shall be distributed. Payments
representing cash dividends, returned capital and earnings thereon shall be made
in cash.
(c) Withholding. The Trustee may withhold from any cash payment made
-----------
under this Plan sufficient amounts to cover any applicable withholding and
employment taxes and, if the amount of such cash payment is not sufficient, the
Trustee may require the Recipient or Beneficiary to pay to the Trustee the
amount required to be withheld as a condition of delivering the Plan Shares. The
Trustee shall pay over to the Holding Company, the Association or the Subsidiary
which employs or employed such Recipient or which the Recipient serves or served
as a Director, any such amount withheld from or paid by the Recipient or
Beneficiary.
(d) Regulatory Exceptions. Notwithstanding anything to the contrary in
---------------------
this Agreement, no Plan Shares, upon becoming fully earned and non-forfeitable,
shall be distributed unless and until all of the requirements of all applicable
laws and regulations shall have been met.
6
<PAGE>
7.03 Voting of Plan Shares. All Common Shares held by the Trustee in the
---------------------
Plan Share Reserve which have not yet been earned by a Recipient pursuant to
Section 7.01 of this Agreement shall be voted by the Trustee. A Recipient
shall be entitled to direct the voting of Plan Shares which have been earned
pursuant to Section 7.01 of this Agreement but have not yet been distributed
to him.
ARTICLE VII
TRUST
8.01 Trust. The Trustee shall receive, hold, administer, invest and make
-----
distributions and disbursements from the Trust in accordance with the provisions
of the Plan and the Trust and the applicable directions, rules, regulations,
procedures and policies established by the Committee pursuant to this Agreement.
8.02 Management of Trust. The Trustee shall have complete authority and
-------------------
discretion with respect to the management, control and investment of the Trust,
and the Trustee shall invest all assets of the Trust, except those attributable
to cash dividends paid with respect to Plan Shares not held in the Plan Share
Reserve, in Common Shares to the fullest extent practicable, and except to the
extent that the Trustee determines that the holding of monies in cash or cash
equivalents is necessary to meet the obligations of the Trust. The Trustee 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 Shares 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, and, in making such investment, the Trustee is
authorized to purchase Common Shares from the Holding Company or from any other
source. Such Common Shares so purchased may be outstanding, newly issued or
treasury shares;
(b) To invest any Trust assets not otherwise invested in accordance with
Section 8.02(a) of this Agreement in such deposit accounts and certificates of
deposit (including those issued by the Association), 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
name of a nominee, without the addition of words indicating that such security
is an asset of the Trust
7
<PAGE>
(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 be reasonable,
in the opinion of the Trustee, for the proper operation of the Plan and the
Trust;
(f) To employ brokers, agents, custodians, consultants and accountants;
(g) To hire counsel to render advice with respect to the Trustee's
rights, duties and obligations hereunder, and such other legal services or
representation as the Trustee may deem desirable; and
(h) To hold funds and securities representing the amounts to be
distributed to a Recipient 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 Trustee shall not
be required to make any inventory, appraisal or settlement or report to any
court, or to secure any order of court for the exercise of any power herein
contained, or to give bond.
8.03 Records and Accounts. The Trustee 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.
8.04 Earnings. All earnings, gains and losses with respect to Trust
--------
assets shall be allocated, in accordance with a reasonable procedure adopted by
the Committee, to bookkeeping accounts for Recipients or to the general account
of the Trust, depending on the nature and allocation of the assets generating
such earnings, gains and losses. Without limiting the generality of the
foregoing, any earnings on cash dividends or returned capital received with
respect to Common Shares shall be allocated (a) to accounts for Recipients, if
such shares are the subject of outstanding Awards, and shall become deemed
earned and be distributed as specified in Article VII of this Agreement, or (b)
or otherwise to the Plan Share Reserve if such Plan Shares are not the subject
of outstanding awards.
8.05 Expenses. All costs and expenses incurred in the operation and
--------
administration of the Plan shall be paid by the Holding Company.
ARTICLE IX
MISCELLANEOUS
9.01 Adjustments for Capital Changes. The aggregate number of Plan Shares
-------------------------------
available for issuance pursuant to the Awards and the number of Plan Shares to
which any
8
<PAGE>
Award relates shall be proportionately adjusted for any increase or decrease in
the total number of outstanding Common Shares issued subsequent to the effective
date of the Plan if such increase or decrease resulted from any split,
subdivision or consolidation of shares or other capital adjustment, or other
increase or decrease in such shares effected without receipt or payment or
consideration by the Holding Company.
9.02 Amendment and Termination of Plan. The Board may, by resolution, at
---------------------------------
any time amend or terminate the Plan. The power to amend or terminate the Plan
shall include the power to direct the Trustee to return to the Holding Company
or the Association all or any part of the assets of the Trust, including Common
Shares held in the Plan Share Reserve, as well as Common Shares and other assets
subject to Awards which are not yet earned by the Directors or Employees to whom
they are allocated provided, however, that the termination of the Trust shall
not affect a Recipient's right to earn Awards and to the distribution of Shares
relating thereto, including earnings thereon, in accordance with the terms of
this Agreement and the grant by the Committee or the Board.
9.03 Nontransferable. Awards shall not be transferable by a Recipient.
---------------
During the lifetime of the Recipient, an Award may only be earned by and paid to
the Recipient who was notified in writing of the Award by the Committee pursuant
to Section 6.03 of this Agreement. No Recipient or Beneficiary shall have any
right in or claim to any assets of the Plan or the Trust, nor shall the Holding
Company, the Association or any Subsidiary be subject to any claim for benefits
hereunder.
9.04 Directorship Rights. Neither this Agreement nor any grant of an
-------------------
Award hereunder nor any action taken by the Trustee, the Committee or the Board
in connection with the Plan shall create any right, either express or implied,
on the part of any Director to continue to serve as a Director of the
Association or a Subsidiary.
9.05 Employment Rights. Neither this Agreement nor any grant of an Award
-----------------
hereunder nor any action taken by the Trustee, the Committee or the Board in
connection with the Plan shall create any right, either express or implied, on
the part of any Employee to continue in the employ of the Holding Company, the
Association or a Subsidiary.
9.06 Voting and Dividend Rights. No Recipient shall have any voting or
--------------------------
dividend rights or other rights of a shareholder in respect of any Plan Shares
covered by an Award, except as expressly provided in Sections 7.01, 7.02 and
7.03 of this Agreement, prior to the time such Plan Shares are actually
distributed to such Recipient.
9.07 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of Delaware, except to the extent that federal laws
shall be deemed applicable.
9.08 Effective Date. Subject to Section 6.05 of this Agreement, this
--------------
Agreement shall be effective as of the ___ day of ________, 199__.
9
<PAGE>
9.09 Term of Plan. The Plan shall remain in effect until the earlier of
------------
(a) the termination of the Plan by the Board or (b) the distribution of all
assets from the Trust. The termination of the Plan shall not affect any Awards
previously granted and such Awards shall remain valid and in effect until they
have been earned and paid or by their terms expire or are forfeited.
9.10 Tax Status of Trust. It is intended that the trust established
-------------------
hereby be treated as a grantor trust of the Association under the provisions of
Section 671, et seq., of the Internal Revenue Code of 1986, as amended (26
-- ---
U.S.C. (S) 671 et seq.)
-- ---
IN WITNESS WHEREOF, the following Trustees execute this Agreement,
accepting and binding themselves to undertake and perform the obligations and
duties of the Trustee hereunder and consenting to the foregoing Agreement
effective the ___ day of ________, 19__.
By:______________________________(Trustee)
By:______________________________(Trustee)
10
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made and entered into this
_________ day of ______________, 1996, by First Federal Savings and Loan
Association of Cullman, a savings and loan association chartered under the laws
of the United States (hereinafter referred to as the "Employer"), and William R.
Faulk, an individual (hereinafter referred to as the "Employee");
W I T N E S S E T H:
WHEREAS, the Board of Directors of Employer desires to retain the services
of Employee as the President and Chief Executive Officer of Employer;
WHEREAS, Employee and Employer desire to enter into this Agreement to set
forth the terms and conditions of the employment relationship between Employer
and Employee;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties agree as follows:
1. EMPLOYMENT AND DUTIES. As President and Chief Executive Officer of
Employer, Employee shall use his best efforts to perform the duties and
responsibilities customary for such offices and in accordance with the policies
established by the Board of Directors of Employer and all applicable laws and
regulations. In addition, Employee shall perform such other duties assigned to
him from time to time by Employer and shall devote such time to Employer's
business as Employer deems reasonable; provided, however, that Employer shall
employ Employee during the term hereof in a senior executive capacity without
material diminishment of the importance or prestige of his position.
Furthermore, Employee shall devote his entire productive time, ability and
attention during normal business hours throughout the term hereof to the
faithful performance of his duties under this Agreement.
2. TERM. The term of employment shall commence on the date of this Agreement
and shall continue for a period of three years and shall terminate on
____________, 1999. In January of each year, the Board of Directors of Employer
shall review Employee's performance and record the results of such review in the
minutes of the Board of Directors.
3. COMPENSATION, REIMBURSEMENTS AND BENEFITS.
a. Salary & Expenses. Employee shall receive during the first year
-----------------
hereof, ending on December 31, 1997, an annual salary payable in equal
installments not less often than monthly. The amounts of such annual salary
shall be $______ during such year and until changed by the Board of
Directors of Employer in accordance with Section 3(b) of this Agreement. In
addition to Employee's annual salary, Employer shall pay or reimburse
Employee for all reasonable travel, entertainment and miscellaneous
expenses incurred in connection with the performance of his
<PAGE>
duties under this Agreement. Such reimbursement shall be made in accordance
with the existing policies and procedures of Employer pertaining to
reimbursement of expenses to senior management officials.
b. Annual Salary Review. In January of each year throughout the Term,
--------------------
the annual salary of Employee shall be reviewed by the Board of Directors
of Employer and shall be set, effective January 1, at an amount not less
than $_______ (Employee's salary during the first year of this Agreement),
based upon Employee's individual performance and the overall profitability
and financial condition of Employer (hereinafter referred to as the "Annual
Review"). The results of the Annual Review shall be reflected in the
minutes of the Board of Directors of Employer.
c. Employee Benefits Program. During the term hereof, Employee shall be
-------------------------
entitled to participate in all formally established Employee benefit,
bonus, pension and profit-sharing plans and similar programs that are
maintained by Employer from time to time, including programs in respect of
group health, disability or life insurance, and all Employee benefit plans
or programs hereafter adopted in writing by the Board of Directors of
Employer, for which senior management personnel are eligible, including any
Employee stock ownership plan, stock option plan or other stock benefit
plan (hereinafter collectively referred to as the "Benefit Plans").
Notwithstanding the foregoing sentence, Employer may discontinue or
terminate at any time any such Benefit Plans, now existing or hereafter
adopted, to the extent permitted by the terms of such plans and shall not
be required to compensate Employee for such discontinuance or termination.
d. Benefits Upon Termination. After the expiration of the term hereof or
-------------------------
the termination of the Employment of Employee for any reason other than
Just Cause (as defined hereinafter), Employer shall provide a group health
insurance program in which Employee and his family will be eligible to
participate and which shall provide substantially the same benefits as are
available to retired Employees of Employer on the date of this Agreement;
provided, however, that all premiums for such program shall be paid by
Employee after Employee's retirement; provided further, however, that
Employee may only participate in such program for as long as Employer makes
available an Employee group health insurance program which permits Employer
to make coverage available for retirees.
e. Vacation and Sick Leave. Employee shall be entitled to an annual
-----------------------
vacation in accordance with the policies periodically established by the
Board of Directors of Employer for senior management officials of Employer.
4. TERMINATION OF EMPLOYMENT
a. General. In addition to the termination of the employment of Employee
-------
-2-
<PAGE>
upon the expiration of the term hereof, the employment of Employee shall
terminate at any other time during the term hereof upon the delivery by
Employer of written notice or employment Termination to Employee. Without
limiting the generality of the foregoing sentence, the following paragraphs
(i), (ii) and (iii) of this Section 4(a) shall govern the obligations of
Employer to Employee upon the occurrence of the events described in such
subpargraphs:
i. Termination for Just Cause. In the event that Employer
terminates the employment of Employee during the term hereof because
of Employee's personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional
failure or refusal to perform the duties and responsibilities assigned
in this Agreement, willful violation of any law, rule, regulation or
final cease-and-desist order (other than traffic violations or similar
offenses), conviction of a felony or for fraud or embezzlement, or
material breach of any provision of this Agreement (hereinafter
collectively referred to as "Just Cause"), Employee shall not receive
and shall have no right to receive, any compensation or other benefits
for any period after such termination.
ii. Termination after Change of Control. In the event that, before
the expiration of the term hereof and in connection with or within one
year after a Change of Control (as defined hereinafter) of Employer,
(A) the employment of Employee is terminated for any reason other than
Just Cause before the expiration of the term of this Agreement, (B)
the present capacity or circumstances in which Employee is employed
are materially changed before the expiration of the term of this
Agreement, or (C) Employee's responsibilities, authority, compensation
or other benefits provided under this Agreement are materially
reduced, then the following shall occur:
(a) Employer shall promptly pay to Employee or to his
beneficiaries, dependents or estate an amount equal to the sum of
(1) the amount of compensation to which Employee would be
entitled for the remainder of the term of this Agreement, plus
(2) the difference between (x) the product of three, multiplied
by the greater of the annual salary set forth in Section 3(a) of
this Agreement or the annual salary payable to Employee as a
result of any Annual Review, less (xx) the amount paid to
Employee pursuant to clause (1) of this subparagraph (a);
(b) Employee, his dependents, beneficiaries and estate shall
continue to be covered under all Benefit Plans of Employer at
Employer's expense as if Employee were still employed under this
Agreement until the earliest of the expiration of the term of
this Agreement or the date on which Employee is included in
another
-3-
<PAGE>
Employer's benefit plan as a full-time Employee; and
(c) Employee shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other
employment or otherwise, nor shall any amounts received from
other employment or otherwise by Employee offset in any manner
the obligations of Employer hereunder, except as specifically
stated in subparagraph (ii).
In the event that payments pursuant to this subparagraph (ii)
would result in the imposition of a penalty tax pursuant to
Section 280G(b) (3) of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder (hereinafter
collectively referred to as "Section 280G"), such payments shall
be reduced to the maximum amount which may be paid under Section
280G without exceeding such limits. Payments pursuant to this
subsection also may not exceed the limit set forth in Regulatory
Bulletin 27a of the Office of Thrift Supervision.
iii. Termination Without Change of Control. In the event that the
employment of Employee is terminated before the expiration of the term
other than (A) for Just Cause or (B) in connection with or within one
year after a Change of Control, Employer shall be obligated to
continue (1) to pay on a monthly basis to Employee, his designated
beneficiaries or his estate, his then current annual salary provided
pursuant to Section 3(a) or (b) of this Agreement until the expiration
of the term hereof and (2) to provide to Employee, at Employer's
expense, health, life, disability, and other benefits substantially
equal to those being provided to Employee at the date of Termination
of his employment until the earliest to occur of the expiration of the
term hereof or the date Employee becomes employed full-time by another
Employer. In the event that payments pursuant to this subparagraph
(iii) would result in the imposition of a penalty tax pursuant to
Section 280G, such payments shall be reduced to the maximum amount
which may be paid under Section 280G without exceeding those limits.
Payments pursuant to this subsection also may not exceed the limit set
forth in Regulatory Bulletin 27a of the Office of Thrift Supervision.
b. Death of Employee. The term hereof automatically shall terminate upon
-----------------
the death of Employee. In the event of such death, Employee's estate shall
be entitled to receive the compensation due Employee through the last day
of the term in which the death occurred, except as otherwise specified
herein.
c. "Golden Parachute" Provision. Any payments made to Employee pursuant
----------------------------
to this Agreement or otherwise are subject to and conditioned upon their
compliance with 12 U.S.C. (S) 1828(k) and any regulations promulgated
thereunder.
-4-
<PAGE>
d. Definition of "Change of Control". A "Change of Control" shall be
---------------------------------
deemed to have occurred in the event that, at any time during the Term,
either any person or entity obtains "conclusive control" of Employer within
the meaning of 12 C.F.R. (S) 574.4(a), or any person or entity obtains
"rebuttable control" within the meaning of 12 C.F.R. (S) 574.4(b) and has
not rebuttable control in accordance with 12 C.F.R. (S) 574.4(c).
5. SPECIAL REGULATORY EVENTS. Notwithstanding Section 4 of this Agreement,
the obligations of Employer to Employee shall be as follows in the event of the
following circumstances.
a. If Employee is suspended and/or temporarily prohibited from
participating in the conduct of Employer's affairs by a notice served under
sections 8(e) (3) or (g) (1) of the Federal Deposit Insurance Act
(hereinafter referred to as the "FDIA"), Employer's obligations under this
Agreement shall be suspended as of the date of service of such notice,
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, Employer may, in its discretion, pay Employee all or part of the
compensation withheld while the obligations in this Agreement were
suspended and reinstate, in whole or in part, any of the obligations that
were suspended.
b. If Employee is removed and/or permanently prohibited from
participating in the conduct of Employer's affairs by an order issued under
Sections 8(e) (4) or (g) (1) of the FDIA, all obligations of Employer under
this Agreement shall terminate as of the effective date of such order;
provided, however, that vested rights of Employee shall not be affected by
such Termination.
c. If Employer is in default as defined in section 3(x) (1) of the FDIA,
all obligations under this Agreement shall terminate as of the date of
default; provided, however, that vested rights of Employee shall not be
affected.
d. All obligations under this Agreement shall be terminated, except to
the extent of a determination that the continuation of this Agreement is
necessary for the continued operation of Employer, (i) by the Director of
the Office of Thrift Supervision (hereinafter referred to as the "OTS"), or
his or her designee at the time that the Federal Deposit Insurance
Corporation enters into an Agreement to provide assistance to or on behalf
of First Federal Savings and Loan Association of Cullman under the
authority contained in Section 13(c) of the FDIA or (ii) by the Director of
the OTS, or his or her designee, at any time the Director of the OTS, or
his or her designee, approves a supervisory merger to resolve problems
related to the operation of Employer, which is determined by the Director
of the OTS to be in an unsafe or unsound condition. No vested rights of
Employee shall be affected by any such action.
-5-
<PAGE>
6. CONSOLIDATION, MERGER OR SALE ASSETS. Nothing in this Agreement shall
preclude Employer from consolidating with, merging into, or transferring all, or
substantially all, of its assets to another corporation that assumes all of
Employer's obligations and undertakings hereunder. Upon such a consolidation,
merger or transfer of assets, the term "Employer," as used herein, shall mean
such other corporation or entity, and this Agreement shall continue in full
force and effect.
7. CONFIDENTIAL INFORMATION AND DOCUMENTS. During the term of this Agreement,
Employee may have access to, and become familiar with, confidential information
regarding Employer and its customers. Employee acknowledges that such
confidential information and trade secrets are owned and shall continue to be
owned solely by Employer. During the term of his employment and after such
employment terminates for any reason, regardless of whether termination is
initiated by Employer or Employee, Employee agrees not to use, communicate,
reveal or otherwise make available such information for any purpose whatsoever,
other than for business purposes of Employer or to persons designated by
Employer, unless such Employee is compelled to disclose by judicial process or
Employer consents to such disclosure or use of such information becomes common
knowledge in the industry or is otherwise legally in the public domain.
8. WAIVER OF RIGHTS. If, in one or more instances, either party fails to
insist that the other party perform any of the terms of this Agreement, such
failure shall not be construed as a waiver by such party of any past, present,
or future right granted under this Agreement, and the obligations of both
parties under this Agreement shall continue in full force and effect.
9. SURVIVAL. If, for any reason, any provision of this Agreement is held
invalid, such invalidity shall not affect the other provisions of this Agreement
not held so invalid, and each such other provision shall, to the full extent
consistent with applicable law, continue in full force and effect. If this
Agreement is held invalid or cannot be enforced, then any prior Agreement
between Employer and Employee shall be deemed reinstated to the full extent
permitted by law, as if this Agreement had not been executed.
10. ASSIGNMENT. Neither party shall have the right to assign any rights or
obligations under this Agreement without the prior written approval of the other
party.
11. COMPLETE UNDERSTANDING. This Agreement constitutes the complete
understanding between the parties, all prior representations or agreements have
been merged into this Agreement. No alteration of or modification to any of the
provisions of this Agreement shall be valid unless made in writing and signed by
both parties.
12. ARBITRATION AND GOVERNING LAW. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof shall be settled by arbitration
to be held in Cullman, Alabama in accordance with the procedural rules of the
American Arbitration Association. Judgment upon the award rendered by the
arbitrators may be entered in any
-6-
<PAGE>
court having jurisdiction thereof. This Agreement shall be exclusively subject
to the laws of the State of Alabama.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above provided.
Attest: FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF CULLMAN
_________________________ By _____________________________________
Attest:
_________________________ ________________________________________
William R. Faulk
-7-
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made and entered into this
_________ day of ______________, 1996, by First Federal Savings and Loan
Association of Cullman, a savings and loan association chartered under the laws
of the United States (hereinafter referred to as the "Employer"), and Beth B.
Knight, an individual (hereinafter referred to as the "Employee");
W I T N E S S E T H:
WHEREAS, the Board of Directors of Employer desires to retain the services
of Employee as the Vice President-Finance and Chief Financial Officer of
Employer;
WHEREAS, Employee and Employer desire to enter into this Agreement to set
forth the terms and conditions of the employment relationship between Employer
and Employee;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties agree as follows:
1. EMPLOYMENT AND DUTIES. As Vice President-Finance and Chief Financial
Officer of Employer, Employee shall use her best efforts to perform the duties
and responsibilities customary for such offices and in accordance with the
policies established by the Board of Directors of Employer and all applicable
laws and regulations. In addition, Employee shall perform such other duties
assigned to him from time to time by Employer and shall devote such time to
Employer's business as Employer deems reasonable; provided, however, that
Employer shall employ Employee during the term hereof in a senior executive
capacity without material diminishment of the importance or prestige of her
position. Furthermore, Employee shall devote her entire productive time, ability
and attention during normal business hours throughout the term hereof to the
faithful performance of her duties under this Agreement.
2. TERM. The term of employment shall commence on the date of this Agreement
and shall continue for a period of three years and shall terminate on
____________, 1999. In January of each year, the Board of Directors of Employer
shall review Employee's performance and record the results of such review in the
minutes of the Board of Directors.
3. COMPENSATION, REIMBURSEMENTS AND BENEFITS.
a. Salary & Expenses. Employee shall receive during the first year
-----------------
hereof, ending on December 31, 1997, an annual salary payable in equal
installments not less often than monthly. The amounts of such annual salary
shall be $______ during such year and until changed by the Board of
Directors of Employer in accordance with Section 3(b) of this Agreement. In
addition to Employee's annual salary, Employer shall pay or reimburse
Employee for all reasonable travel, entertainment
<PAGE>
and miscellaneous expenses incurred in connection with the performance of
her duties under this Agreement. Such reimbursement shall be made in
accordance with the existing policies and procedures of Employer pertaining
to reimbursement of expenses to senior management officials.
b. Annual Salary Review. In January of each year throughout the Term,
--------------------
the annual salary of Employee shall be reviewed by the Board of Directors of
Employer and shall be set, effective January 1, at an amount not less than
$_____ (Employee's salary during the first year of this Agreement), based
upon Employee's individual performance and the overall profitability and
financial condition of Employer (hereinafter referred to as the "Annual
Review"). The results of the Annual Review shall be reflected in the minutes
of the Board of Directors of Employer.
c. Employee Benefits Program. During the term hereof, Employee shall be
-------------------------
entitled to participate in all formally established Employee benefit,
bonus, pension and profit-sharing plans and similar programs that are
maintained by Employer from time to time, including programs in respect of
group health, disability or life insurance, and all Employee benefit plans
or programs hereafter adopted in writing by the Board of Directors of
Employer, for which senior management personnel are eligible, including any
Employee stock ownership plan, stock option plan or other stock benefit
plan (hereinafter collectively referred to as the "Benefit Plans").
Notwithstanding the foregoing sentence, Employer may discontinue or
terminate at any time any such Benefit Plans, now existing or hereafter
adopted, to the extent permitted by the terms of such plans and shall not
be required to compensate Employee for such discontinuance or termination.
d. Benefits Upon Termination. After the expiration of the term hereof or
-------------------------
the termination of the Employment of Employee for any reason other than
Just Cause (as defined hereinafter), Employer shall provide a group health
insurance program in which Employee and her family will be eligible to
participate and which shall provide substantially the same benefits as are
available to retired Employees of Employer on the date of this Agreement;
provided, however, that all premiums for such program shall be paid by
Employee after Employee's retirement; provided further, however, that
Employee may only participate in such program for as long as Employer makes
available an Employee group health insurance program which permits Employer
to make coverage available for retirees.
e. Vacation and Sick Leave. Employee shall be entitled to an annual
-----------------------
vacation in accordance with the policies periodically established by the
Board of Directors of Employer for senior management officials of Employer.
4. TERMINATION OF EMPLOYMENT
-2-
<PAGE>
a. General. In addition to the termination of the employment of Employee
-------
upon the expiration of the term hereof, the employment of Employee shall
terminate at any other time during the term hereof upon the delivery by
Employer of written notice or employment Termination to Employee. Without
limiting the generality of the foregoing sentence, the following paragraphs
(i), (ii) and (iii) of this Section 4(a) shall govern the obligations of
Employer to Employee upon the occurrence of the events described in such
subpargraphs:
i. Termination for Just Cause. In the event that Employer
terminates the employment of Employee during the term hereof because
of Employee's personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional
failure or refusal to perform the duties and responsibilities assigned
in this Agreement, willful violation of any law, rule, regulation or
final cease-and-desist order (other than traffic violations or similar
offenses), conviction of a felony or for fraud or embezzlement, or
material breach of any provision of this Agreement (hereinafter
collectively referred to as "Just Cause"), Employee shall not receive
and shall have no right to receive, any compensation or other benefits
for any period after such termination.
ii. Termination after Change of Control. In the event that, before
the expiration of the term hereof and in connection with or within one
year after a Change of Control (as defined hereinafter) of Employer,
(A) the employment of Employee is terminated for any reason other than
Just Cause before the expiration of the term of this Agreement, (B)
the present capacity or circumstances in which Employee is employed
are materially changed before the expiration of the term of this
Agreement, or (C) Employee's responsibilities, authority, compensation
or other benefits provided under this Agreement are materially
reduced, then the following shall occur:
(a) Employer shall promptly pay to Employee or to her
beneficiaries, dependents or estate an amount equal to the sum of
(1) the amount of compensation to which Employee would be
entitled for the remainder of the term of this Agreement, plus
(2) the difference between (x) the product of three, multiplied
by the greater of the annual salary set forth in Section 3(a) of
this Agreement or the annual salary payable to Employee as a
result of any Annual Review, less (xx) the amount paid to
Employee pursuant to clause (1) of this subparagraph (a);
(b) Employee, her dependents, beneficiaries and estate shall
continue to be covered under all Benefit Plans of Employer at
Employer's expense as if Employee were still employed under this
Agreement until the earliest of the expiration of the term of
this
-3-
<PAGE>
Agreement or the date on which Employee is included in another
Employer's benefit plan as a full-time Employee; and
(c) Employee shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other
employment or otherwise, nor shall any amounts received from
other employment or otherwise by Employee offset in any manner
the obligations of Employer hereunder, except as specifically
stated in subparagraph (ii).
In the event that payments pursuant to this subparagraph (ii)
would result in the imposition of a penalty tax pursuant to
Section 280G(b) (3) of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder (hereinafter
collectively referred to as "Section 280G"), such payments shall
be reduced to the maximum amount which may be paid under Section
280G without exceeding such limits. Payments pursuant to this
subsection also may not exceed the limit set forth in Regulatory
Bulletin 27a of the Office of Thrift Supervision.
iii. Termination Without Change of Control. In the event that the
employment of Employee is terminated before the expiration of the term
other than (A) for Just Cause or (B) in connection with or within one
year after a Change of Control, Employer shall be obligated to
continue (1) to pay on a monthly basis to Employee, her designated
beneficiaries or her estate, her then current annual salary provided
pursuant to Section 3(a) or (b) of this Agreement until the expiration
of the term hereof and (2) to provide to Employee, at Employer's
expense, health, life, disability, and other benefits substantially
equal to those being provided to Employee at the date of Termination
of her employment until the earliest to occur of the expiration of the
term hereof or the date Employee becomes employed full-time by another
Employer. In the event that payments pursuant to this subparagraph
(iii) would result in the imposition of a penalty tax pursuant to
Section 280G, such payments shall be reduced to the maximum amount
which may be paid under Section 280G without exceeding those limits.
Payments pursuant to this subsection also may not exceed the limit set
forth in Regulatory Bulletin 27a of the Office of Thrift Supervision.
b. Death of Employee. The term hereof automatically shall terminate upon
-----------------
the death of Employee. In the event of such death, Employee's estate shall
be entitled to receive the compensation due Employee through the last day
of the term in which the death occurred, except as otherwise specified
herein.
c. "Golden Parachute" Provision. Any payments made to Employee pursuant
---------------------------
to this Agreement or otherwise are subject to and conditioned upon their
compliance
-4-
<PAGE>
with 12 U.S.C. (S) 1828(k) and any regulations promulgated thereunder.
d. Definition of "Change of Control". A "Change of Control" shall be
---------------------------------
deemed to have occurred in the event that, at any time during the Term,
either any person or entity obtains "conclusive control" of Employer within
the meaning of 12 C.F.R. (S) 574.4(a), or any person or entity obtains
"rebuttable control" within the meaning of 12 C.F.R. (S) 574.4(b) and has
not rebuttable control in accordance with 12 C.F.R. (S) 574.4(c).
5. SPECIAL REGULATORY EVENTS. Notwithstanding Section 4 of this Agreement,
the obligations of Employer to Employee shall be as follows in the event of the
following circumstances.
a. If Employee is suspended and/or temporarily prohibited from
participating in the conduct of Employer's affairs by a notice served under
sections 8(e) (3) or (g) (1) of the Federal Deposit Insurance Act
(hereinafter referred to as the "FDIA"), Employer's obligations under this
Agreement shall be suspended as of the date of service of such notice,
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, Employer may, in its discretion, pay Employee all or part of the
compensation withheld while the obligations in this Agreement were
suspended and reinstate, in whole or in part, any of the obligations that
were suspended.
b. If Employee is removed and/or permanently prohibited from
participating in the conduct of Employer's affairs by an order issued under
Sections 8(e) (4) or (g) (1) of the FDIA, all obligations of Employer under
this Agreement shall terminate as of the effective date of such order;
provided, however, that vested rights of Employee shall not be affected by
such Termination.
c. If Employer is in default as defined in section 3(x) (1) of the FDIA,
all obligations under this Agreement shall terminate as of the date of
default; provided, however, that vested rights of Employee shall not be
affected.
d. All obligations under this Agreement shall be terminated, except to
the extent of a determination that the continuation of this Agreement is
necessary for the continued operation of Employer, (i) by the Director of
the Office of Thrift Supervision (hereinafter referred to as the "OTS"), or
his or her designee at the time that the Federal Deposit Insurance
Corporation enters into an Agreement to provide assistance to or on behalf
of First Federal Savings and Loan Association of Cullman under the
authority contained in Section 13(c) of the FDIA or (ii) by the Director of
the OTS, or his or her designee, at any time the Director of the OTS, or
his or her designee, approves a supervisory merger to resolve problems
related to the operation of Employer, which is determined by the Director
of the OTS to be in an unsafe or unsound condition. No vested rights of
Employee shall be affected by any
-5-
<PAGE>
such action.
6. CONSOLIDATION, MERGER OR SALE ASSETS. Nothing in this Agreement shall
preclude Employer from consolidating with, merging into, or transferring all, or
substantially all, of its assets to another corporation that assumes all of
Employer's obligations and undertakings hereunder. Upon such a consolidation,
merger or transfer of assets, the term "Employer," as used herein, shall mean
such other corporation or entity, and this Agreement shall continue in full
force and effect.
7. CONFIDENTIAL INFORMATION AND DOCUMENTS. During the term of this Agreement,
Employee may have access to, and become familiar with, confidential information
regarding Employer and its customers. Employee acknowledges that such
confidential information and trade secrets are owned and shall continue to be
owned solely by Employer. During the term of her employment and after such
employment terminates for any reason, regardless of whether termination is
initiated by Employer or Employee, Employee agrees not to use, communicate,
reveal or otherwise make available such information for any purpose whatsoever,
other than for business purposes of Employer or to persons designated by
Employer, unless such Employee is compelled to disclose by judicial process or
Employer consents to such disclosure or use of such information becomes common
knowledge in the industry or is otherwise legally in the public domain.
8. WAIVER OF RIGHTS. If, in one or more instances, either party fails to
insist that the other party perform any of the terms of this Agreement, such
failure shall not be construed as a waiver by such party of any past, present,
or future right granted under this Agreement, and the obligations of both
parties under this Agreement shall continue in full force and effect.
9. SURVIVAL. If, for any reason, any provision of this Agreement is held
invalid, such invalidity shall not affect the other provisions of this Agreement
not held so invalid, and each such other provision shall, to the full extent
consistent with applicable law, continue in full force and effect. If this
Agreement is held invalid or cannot be enforced, then any prior Agreement
between Employer and Employee shall be deemed reinstated to the full extent
permitted by law, as if this Agreement had not been executed.
10. ASSIGNMENT. Neither party shall have the right to assign any rights or
obligations under this Agreement without the prior written approval of the other
party.
11. COMPLETE UNDERSTANDING. This Agreement constitutes the complete
understanding between the parties, all prior representations or agreements have
been merged into this Agreement. No alteration of or modification to any of the
provisions of this Agreement shall be valid unless made in writing and signed by
both parties.
12. ARBITRATION AND GOVERNING LAW. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof shall be settled by arbitration
to be held in
-6-
<PAGE>
Cullman, Alabama in accordance with the procedural rules of the American
Arbitration Association. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof. This Agreement shall
be exclusively subject to the laws of the State of Alabama.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above provided.
Attest: FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF CULLMAN
___________________ By_____________________________
Attest:
___________________ _______________________________
Beth B. Knight
-7-
<PAGE>
SOUTHERN COMMUNITY BANCSHARES, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
EFFECTIVE
JANUARY 1, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - PURPOSES.................................................... 1
ARTICLE II - DEFINITIONS, PARTICIPATION BY OTHER EMPLOYERS.............. 2
2.1 Defined Terms................................................ 2
2.2 Leave of Absence............................................. 8
2.3 Date of Employment; Date of Reemployment..................... 9
2.4 Year of Service.............................................. 9
2.5 Computation Periods.......................................... 9
2.6 Hour of Service.............................................. 10
2.7 Break-In-Service............................................. 12
2.8 Participation of Other Employers............................. 12
ARTICLE III - PARTICIPATION............................................. 13
3.1 Participation in the Plan.................................... 13
3.2 Ineligibility to Become a Participant........................ 14
3.3 Continuance as a Participant................................. 14
3.4 Former Participants.......................................... 15
ARTICLE IV - CONTRIBUTIONS.............................................. 15
4.1 Employer Contributions....................................... 15
4.2 Participants' Contributions.................................. 15
4.3 Funding Policy; Other Matters................................ 16
ARTICLE V - ACCOUNTS AND ALLOCATIONS.................................... 16
5.1 Trust Accounts............................................... 16
5.2 Allocations to Accounts...................................... 16
5.3 Treatment of Company Stock Purchased Under Installment Payment
Contracts or With Borrowed Funds............................. 19
5.4 Limitations Required by Section 415 of the Code.............. 20
5.5 Valuation of Trust Fund...................................... 25
5.6 Investment of Trust Fund..................................... 25
5.7 Voting of Shares; Exercise of Other Rights................... 26
5.8 Borrowings to Purchase Company Stock; Certain Conditions
Applicable to Such Company Stock............................. 26
5.9 Diversification of Participant's Account..................... 30
5.10 Emergency Valuation.......................................... 30
ARTICLE VI - ACCOUNTING................................................. 31
6.1 Records Reflecting the Interest of Each Participant.......... 31
6.2 Statement to Participants.................................... 31
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII - VESTING AND DISTRIBUTION.................................. 31
7.1 Vesting of Total Account on Death, Disability or Normal
Retirement Age............................................... 31
7.2 Vesting of Total Account on Severance Date................... 31
7.3 In-Service Withdrawals or Distributions...................... 32
7.4 Method and Time of Distribution.............................. 32
7.5 Forfeitures.................................................. 35
7.6 Rehiring After a Severance Date.............................. 36
7.7 Limitations on Benefits...................................... 36
7.8 Direct Rollover Distributions................................ 36
ARTICLE VIII - ADMINISTRATION........................................... 38
8.1 Appointment of the Committee and the Plan Administrator...... 38
8.2 Compensation and Expenses.................................... 38
8.3 Secretary and Administrative Personnel of the Committee...... 39
8.4 Action by the Committee...................................... 39
8.5 Duties and Authority of the Committee........................ 39
8.6 Claims Procedure and Other Rules and Regulations of the
Committee.................................................... 40
8.7 Plan Administrator's Duties.................................. 40
8.8 Duties and Authority of Administrative Personnel............. 40
8.9 Named Fiduciaries and Allocation of Responsibility........... 41
8.10 Action by Fiduciaries....................................... 41
8.11 Employment of Advisors...................................... 42
8.12 Bond........................................................ 42
8.13 Indemnity................................................... 42
8.14 Applicable Law.............................................. 43
8.15 Qualified Domestic Relations Orders......................... 43
8.16 Authorization of Loan Transactions.......................... 43
ARTICLE IX - MISCELLANEOUS PROVISIONS................................... 43
9.1 Participants to Furnish Required Information................. 43
9.2 Beneficiaries................................................ 44
9.3 Contingent Beneficiaries..................................... 45
9.4 Participants' Rights in Trust Fund........................... 46
9.5 Restrictions on Assignment................................... 46
9.6 Benefits Payable to Incompetents............................. 46
9.7 Conditions of Employment Not Affected by Plan................ 47
9.8 Address for Mailing of Benefits.............................. 47
9.9 Unclaimed Account Procedure.................................. 47
9.10 Applicable Law.............................................. 48
ARTICLE X - TRUST FUND AND THE TRUSTEE.................................. 48
10.1 The Trust Fund and Its Purpose............................... 48
10.2 Trustee's Duties Governed by Trust Instrument................ 48
10.3 Benefits Supported Only by the Trust......................... 48
10.4 Trust Fund Applicable Only to Payment of Benefits............ 48
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.5 Withholding for and Payment of Taxes......................... 48
ARTICLE XI - MISCELLANEOUS.............................................. 49
11.1 Employer's Contribution Irrevocable.......................... 49
11.2 Absence of Responsibility.................................... 50
11.3 Amendment of the Plan........................................ 50
11.4 Expenses of Administration................................... 51
11.5 Notice to Employees.......................................... 51
11.6 Agreement of Participants.................................... 51
11.7 Action by Employers.......................................... 52
11.8 Adoption of the Plan by a Controlled Group Member............ 52
11.9 Disassociation of an Employer from Plan...................... 52
11.10 Merger of Plans.............................................. 53
ARTICLE XII - TERMINATION OF PLAN....................................... 53
12.1 Termination of Plan.......................................... 53
12.2 Distribution on Termination.................................. 53
12.3 Continuance of Plan by Successor............................. 53
12.4 Discontinuance of Contributions.............................. 54
12.5 Partial Termination.......................................... 54
12.6 Sale of Division or Subsidiary............................... 54
ARTICLE XIII - TOP-HEAVY PROVISIONS..................................... 55
13.1 Definitions.................................................. 55
13.2 Application of Top-Heavy Rules............................... 57
13.3 Minimum Allocation Requirement............................... 57
13.4 Effect on Allocation Limitations............................. 57
13.5 Effect on Vesting............................................ 58
</TABLE>
iii
<PAGE>
SOUTHERN COMMUNITY BANCSHARES, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
EFFECTIVE JANUARY 1, 1996
WHEREAS, effective January 1, 1996, Southern Community Bancshares, Inc.,
a Delaware corporation (the "Company"), wants to establish the Southern
Community Bancshares, Inc. Employee Stock Ownership Plan (the "Plan"); and
WHEREAS, the Company intends for the Plan to be an employee stock ownership
plan that complies with the applicable requirements of sections 401(a) and
4975(e)(7) of the Code and section 407(d)(6) of ERISA; and
WHEREAS, the Plan is designed to qualify as a stock bonus plan within the
meaning of Treasury Regulations section 1.401-1(b)(1)(iii), and is intended to
invest primarily in Company Stock as required by sections 407(d)(3)(B) and
407(d)(6) of ERISA, section 4975(e)(7) of the Code and Labor Regulations section
2550.407d-6(b), and to hold Company Stock, as required by section 407(d)(3)(B)
of ERISA; and
WHEREAS, the officers of the Company have been authorized, empowered and
directed to adopt the Plan so that it qualifies and is exempt from taxation
under the provisions of sections 401(a), 501(a) and 4975(e)(7) of the Code and
section 407(d)(6) of ERISA; and
WHEREAS, the Company, as part of the aforesaid Plan, has adopted a Trust
Agreement creating a trust fund (hereinafter at times referred to as the "Trust
Fund"), to which contributions shall be made and from which benefits shall be
paid in accordance with the terms and conditions thereof; and
NOW, THEREFORE, in consideration of the mutual promises contained in this
Plan, the parties to the Plan agree to adopt the Plan in its entirety, effective
as provided in the Plan, as follows:
ARTICLE I
PURPOSES
The purposes of the Southern Community Bancshares, Inc. Employee Stock
Ownership Plan, as amended from time to time ("Plan"), are to reward Employees
of the Employers for their loyal and faithful service and to provide Employees
with an opportunity to share in the ownership of the Company. The benefits
provided by this Plan will be paid from the Trust Fund established by the
Employer and will be in addition to the benefits Employees are entitled to
receive under any other plan maintained by their Employer.
<PAGE>
ARTICLE II
DEFINITIONS, PARTICIPATION BY OTHER EMPLOYERS
2.1 Defined Terms. As used herein, unless the context clearly manifests
-------------
a different intent, the expressions listed below shall have the meanings
respectively indicated:
(a) "Account" means any one or all of the accounts maintained by
the trustee to record a Participant's interest (or the undistributed
interest of a former Participant, Beneficiary or Alternate Payee) in the
Trust Fund. See also Section 5.1 of the Plan.
(b) "Alternate Payee" means a spouse, former spouse, child, or
other dependant of a Participant or former Participant to whom benefits are
payable under the Plan pursuant to the terms of a Qualified Domestic
Relations Order.
(c) "Beneficiary" means the person or fiduciary to whom a deceased
Participant's Capital Accumulation is payable, as provided in Section 9.2
of the Plan.
(d) "Board" or "Board of Directors" means the Board of Directors
of the Company, as from time to time constituted, or its Executive
Committee.
(e) "Capital Accumulation" means a Participant's vested interest,
if any, pursuant to Section 7.1 or 7.2 of the Plan.
(f) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and where appropriate shall include the related
regulations thereunder.
(g) "Company" means Southern Community Bancshares, Inc., a
Delaware corporation, with its office and principal place of business in
Cullman, Alabama, or its successor.
(h) "Company Stock" means the common stock of the Company, which
is a qualifying employer security within the meaning of Code sections 409
and 4975.
(i) "Compensation" means a Participant's total wages paid by the
Employer during a Plan Year for services performed by that Participant
within the meaning of section 3401(a) of the Code, but determined without
regard to any rules that limit the remuneration included in wages based on
the nature or location of employment or the services performed (such as the
exception for agricultural labor in section 3401(a)(2) of the Code) and all
other payments to an Employee made by the Employer during the Plan Year (in
the course and scope of the Employer's trade or business) for which the
Employer is required to furnish the Employee a written statement under
sections 6041(d), 6051(a)(3) and 6052 of the Code; provided, however, that
Compensation shall not include any Compensation paid for any
2
<PAGE>
period prior to 1996, but shall include Compensation paid at any time
during 1996 prior to participation in the Plan and the amount of a
Participant's elective salary reductions or salary deferrals under an
Employer's cafeteria plan established pursuant to Code section 125 or an
Employer's plan established pursuant to Code section 401(k).
Notwithstanding the foregoing, "Compensation" taken into account under the
Plan shall be limited to the first one hundred fifty thousand dollars
($150,000) of Compensation received by a Participant during the Plan Year,
or such greater amount as results from adjustment by the Secretary pursuant
to Code section 401(a)(17). In determining the Compensation of a
Participant for purposes of this limitation, the rules of section 414(q)(6)
of the Code, to the extent not repealed, shall apply, except in applying
such rules, the term "family" shall include only the spouse of the
Participant and any lineal descendants of the Participant who have not
attained age 19 before the close of the year. If, as a result of the
application of such rules, the adjusted $150,000 limitation is exceeded,
then the limitation shall be prorated among the affected individuals in
proportion to each such individual's Compensation as determined under this
Section prior to the application of this limitation.
(j) "Contributions" means amounts contributed to the Fund, in cash
or in kind, pursuant to Section 4.1 of the Plan.
(k) "Controlled Group Member" means a corporation or other entity
which is a member of a controlled group of corporations, a group of trades
or businesses under common control, or an affiliated service group (as
defined, respectively, in sections 414(b), (c) and (m) of the Code), which
includes an Employer and any other entity required to be aggregated with
the Employer pursuant to Code section 414(o). For purposes of Section 5.4
of the Plan, the 50% control test of Code section 415(h) shall apply in
defining a Controlled Group Member.
(l) "Current Obligations" means obligations of the Trust arising
from an extension of credit to the Trust and payable in cash within one
year from the date a Contribution is due.
(m) "Disability" means total and permanent disability so as to
render such Participant permanently incapable of performing such
Participant's usual duties as an Employee of an Employer with or without
reasonable accommodation or any other duties as an Employee that an
Employer may have or make available. A Participant will be considered
permanently disabled if, in the opinion of the Committee, such Participant
is likely to remain so disabled continuously and permanently. The
Committee, before determining that a Participant is disabled, may require
proof in such form as the Committee shall decide including, in all cases
where practicable, the certificate of a duly licensed physician that the
Participant has become disabled as provided herein.
(n) "Effective Date" means January 1, 1996.
3
<PAGE>
(o) "Employee" means any person employed by an Employer.
(p) "Employer" means the Company, First Federal Savings & Loan
Association of Cullman, and any other corporation or business enterprise
participating in the Plan at any given time, or the successor of any of
them.
(q) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
(r) "Forfeitures" means former Participants' Accounts that are
forfeited pursuant to Section 7.5 of the Plan.
(s) "General Obligations" means obligations of the Trust not
arising from extensions of credit to the Trust, but which are commitments
generated from authorized activities of the Trust.
(t) "Highly Compensated Employee" means any Eligible Participant
who is a highly compensated employee as defined in Code section 414(q) and
the regulations thereunder. Generally, any Eligible Participant is
considered a Highly Compensated Employee if such Eligible Participant:
(1) was at any time during the current Plan Year a "five
percent owner" as defined in section 416(i)(1) of the Code, with
respect to an Employer;
(2) received Compensation from the Employer in excess of
Seventy-Five Thousand Dollars ($75,000.00) as adjusted by the
Secretary of Treasury pursuant to section 414(q)(1) of the Code
during the current Plan Year;
(3) received Compensation from the Employer in excess of
Fifty Thousand Dollars ($50,000.00) as adjusted by the Secretary of
Treasury pursuant to section 414(q)(1) of the Code, and was in the
top-paid group of Employees during the current Plan Year. An
Employee is in the top-paid group of Employees for any Plan Year if
such Employee is in the group consisting of the top twenty percent
(20%) of the Employees when ranked on the basis of Compensation paid
during the Plan Year. For purposes of determining the number of
Employees in the top-paid group, Employees who have not completed
six (6) months of Service, normally work less than seventeen and
one-half (17 1/2) hours per week, normally work during six (6) or
less months per year, have not attained the age of twenty-one (21),
are nonresident aliens with no earned income from sources within the
United States (within the meaning of section 861(a)(3) of the Code),
or are included in a unit of employees covered by a collective
bargaining agreement (except to the extent provided in regulations),
shall not be included; or
4
<PAGE>
(4) is an officer of an Employer who received Compensation
for a Plan Year in excess of fifty percent (50%) of the amount in
effect under Code section 415(b)(1)(A) for such Plan Year (if no
employee of an Employer has Compensation in excess of such amount,
the officer having the highest Compensation for such Plan Year shall
be treated as an officer). For purposes of this Subsection, not more
than fifty (50) Employees (or, if less, the greater of three (3)
Employees or ten percent (10%) of Employees) shall be treated as
officers.
For purposes of this Subsection: (i) "Compensation" shall include amounts
deferred pursuant to Code sections 125, 401(k), and 403(b), (ii)
"Compensation" shall include compensation paid by any employer required to
be aggregated with an Employer under section 414(b), (c), (m), or (o) of
the Code, and (iii) a Former Employee shall be treated as a Highly
Compensated Employee to the extent required by the Treasury Regulations
promulgated under section 414(q) of the Code, if such Former Employee was a
Highly Compensated Employee when he separated from Service with the
Employer or was a Highly Compensated Employee at any time after attaining
age fifty-five (55). "Former Employee" shall mean a person who has been an
Employee, but who ceased to be an Employee for any reason.
(u) "Income of the Trust Fund" means the net gain or loss of the
Other Investments Accounts of the Trust Fund, as reflected by interest
payments, dividends, realized and unrealized gains and losses on securities
other than Company Stock, and other investment transactions and expenses
paid from the Trust Fund. The expenses of the Trust Fund do not include
interest paid on any installment contracts for the purchase of Company
Stock by the Trust or on any loan of the Trust incurred to purchase Company
Stock.
(v) "Non-current Obligations" means obligations of the Trust
arising from an extension of credit to the Trust and payable in cash more
than one (1) year from the date a Contribution is due.
(w) "Normal Retirement Age" means the Participant's attainment of
age sixty-five (65).
(x) "Participant" means an Employee who meets the prerequisites of
Section 3.1 of the Plan, and as a result, becomes a Participant in the
Plan.
(y) "Participant Company Stock Account" means the account of a
Participant which is increased with whole shares of Company Stock purchased
and paid for by the Trust or contributed to the Trust or shares otherwise
allocable to the Participant's participation in the Trust.
(z) "Participant Other Investments Account" means the account of a
Participant which is increased with his share of (i) net income (or loss)
of the Trust Fund, (ii) Employer Contributions and Forfeitures in other
than Company Stock (iii) and cash, cash dividends and
5
<PAGE>
other rights or warrants with respect to the fractional shares of Employer
Contributions and Forfeitures in Company Stock that are not allocated to
the Participant Company Stock Account, and which is decreased for payments
made to pay for Company Stock.
(aa) "Plan Year" means a period of twelve (12) consecutive calendar
months commencing on January 1 and ending on December 31; provided,
however, that the first Plan Year shall be a short Plan Year if the
Effective Date is other than January 1, 1996. In that case, the first Plan
Year shall begin on the Effective Date and end on December 31, 1996. See
also Subsection 5.4(c)(3) of the Plan.
(bb) "Qualified Domestic Relations Order" means an order which (1)
relates to the provision of child support, alimony payments, or marital
property rights to a spouse, child, or other dependent of a Participant,
(2) is made pursuant to a state domestic relations law (including a
community property law), and (3) creates or recognizes the existence of an
Alternate Payee's right, or assigns to an Alternate Payee the right, to
receive all or a portion of the benefits payable with respect to a
Participant under the Plan, and (4) is determined to meet all applicable
requirements pursuant to the procedure established by the Committee for
determining whether an order is a qualified domestic relations order within
the meaning of Code section 414(p). A Qualified Domestic Relations Order
also includes a domestic relations order treated as a qualified domestic
relations order pursuant to the Retirement Equity Act of 1984.
(cc) "Required Beginning Date" means April 1 of the Plan Year
following the Plan Year in which the Participant attains seventy and one-
half (70 1/2) years of age.
(dd) "Retirement" means a Participant's Separation from an Employer
at or after attainment of Normal Retirement Age.
(ee) "Separation," "Separated" and similar references shall mean
the date on which an Employee quits, is discharged, retires, or dies, or
the anniversary of the first day of his continuous absence for any other
reason, including, but not limited to, Disability, except that: (i) if the
Employee is on a Leave of Absence, Separation will not occur if he resumes
employment immediately following the expiration of the Leave of Absence;
and (ii) if the Employee transfers to a Controlled Group Member which is
not an Employer, Separation will not occur until he has a Separation (as
determined above) with respect to all Controlled Group Members (but he will
not be entitled to any allocations under Article V unless employed by an
Employer). In addition, Separation will not occur for purposes of a right
to distribution under Article VII unless the Separation constitutes a
"separation from service" under Code section 409.
(ff) "Severance Date" means a Participant's separation from service
prior to Normal Retirement Age for reasons other than Retirement,
Disability, or death.
6
<PAGE>
(gg) "Trust" means the Trust or Trusts established and created
under the Trust Agreement.
(hh) "Trust Agreement" or "Trust Instrument" means an agreement
provided for by Section 10.1 of the Plan, provided that if such agreement
be amended or supplemented, such term, as at a particular date, shall mean
such agreement, as amended and supplemented and in force on such date.
(ii) "Trust Fund" or "Fund" means, as of a particular date, all
assets of whatsoever kind or nature from time to time held by the Trustee
under the provisions of the Trust Instrument.
(jj) "Trustee" means the trustee or trustees, acting at the time in
question under a Trust Agreement, and its or their successors as such.
(kk) "Unallocated Company Stock Account" means the suspense account
maintained by the Trustee to which will be credited all shares of Company
Stock prior to the allocation of such shares to the Company Stock Accounts
of the Participants.
(ll) "Unallocated Other Investments Accounts" means the suspense
account maintained by the Trustee which reflects all of the transactions of
the Trust Fund involving cash and certain assets other than Company Stock,
prior to the allocation of such cash and other assets to the Other
Investments Accounts of Participants.
(mm) "Valuation Date" means each date on which the Fund is valued
pursuant to Section 5.5 of the Plan. See also Section 5.10 and Subsection
13.1(i) of the Plan.
(nn) Whenever a noun, or pronoun in lieu thereof, is used in this
Plan in plural form and there be only one person within the scope of the
word so used, or in singular form and there be more than one person within
the scope of the word so used, such word, or pronoun used in lieu thereof,
shall have a singular or plural meaning, as the case may be. Likewise,
pronouns of one gender shall include the other gender. The words "herein,"
"hereof" and "hereunder" shall refer to this Plan.
(oo) The terms listed below have the meanings stated in the
Sections and Subsections respectively specified:
<TABLE>
<CAPTION>
<S> <C>
"Annual Addition" Subsection 5.4(c)(1)
"Annual Benefit" Subsection 5.4(c)(2)
"Break-In-Service" Section 2.7
"Committee" Section 8.1
"Date of Employment" Section 2.3
"Date of Reemployment" Section 2.3
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
"Determination Date" Subsection 13.1(a)
"Direct Rollover" Subsection 7.8(b)(4)
"Distributee" Subsection 7.8(b)(3)
"Eligible Assets" Section 5.9
"Eligible Age 55 Participant" Section 5.9
"Eligible Participants" Subsection 5.2(d)(3)
"Eligible Retirement Plan" Subsection 7.8(b)(2)
"Eligible Rollover Distribution" Subsection 7.8(b)(1)
"Eligibility Computation Period" Subsection 2.5(b)
"Hour of Service" Section 2.6
"Key Employee" Subsection 13.1(b)
"Leave of Absence" Section 2.2
"Maximum Permissible Defined Benefit Amount" Subsection 5.4(c)(4)
"Maximum Permissible Defined Contribution Amount" Subsection 5.4(c)(5)
"Named Fiduciaries" Section 8.9
"Non-Key Employee" Subsection 13.1(c)
"Notice" Subsection 5.8(h)
"Pass-Through Matter" Section 5.7
"Permissive Aggregation Group" Subsection 13.1(g)
"Plan" Article I
"Plan Administrator" Section 8.7
"Projected Annual Benefit" Subsection 5.4(c)(6)
"Prohibited Group" Subsection 5.2(d)(3)
"Purchaser" Section 12.6
"Remuneration" Subsection 5.4(c)(7)
"Required Aggregation Group" Subsection 13.1(f)
"Shareholder" Subsection 5.8(h)
"Social Security Retirement Age" Subsection 5.4(c)(8)
"specified income" Subsection 5.3(c)
"Super Top-Heavy Plan" Subsection 13.1(e)
"TEFRA" Subsection 5.4(c)(4)(E)
"Top-Heavy Group" Subsection 13.1(h)
"Top-Heavy Plan" Subsection 13.1(d)
"Transfer" Subsection 5.8(h)
"Vesting Computation Period" Subsection 2.5(a)
"Year of Service" Section 2.4
</TABLE>
2.2 Leave of Absence. For purposes of this Plan, "Leave of Absence"
----------------
shall mean a specific and predetermined period of time without pay granted to an
Employee by the Employer due to illness, injury, temporary reduction in work
force, educational leave or other appropriate cause or any period of time
granted during which the Employee's reemployment rights are protected by law;
provided, however, that (i) the Employee returns to the service of the Employer
on or prior to the expiration of such leave or within the time his reemployment
rights are protected by law, and (ii)
8
<PAGE>
all Leaves of Absence are granted or denied by the Employer in a uniform and
nondiscriminatory manner, treating Employees in a similar circumstance in a like
manner. A Leave of Absence granted under this Section shall be credited as
service under Article II for all purposes of this Plan.
2.3 Date of Employment; Date of Reemployment. For purposes of this
----------------------------------------
Plan, "Date of Employment" means the day of the year on which an Employee first
commences employment with an Employer which then is a Controlled Group Member,
by performing, or being credited with, such Employee's first Hour of Service, as
defined in Section 2.6 of the Plan. Upon an Employee's reemployment by an
Employer which then is a Controlled Group Member following a Separation, an
Employee's "Date of Reemployment" is the day of the year on which such Employee
performs or is, pursuant to such reemployment, credited with such Employee's
first Hour of Service.
2.4 Year of Service. For purposes of this Plan, "Year of Service" shall
---------------
mean the Vesting Computation Period or Eligibility Computation Period, as
appropriate, during which an Employee was credited with at least one thousand
(1,000) Hours of Service. If a Participant's employment is transferred to a
Controlled Group Member, such Participant's Years of Service for such Employer,
after the Effective Date and after it becomes a Controlled Group Member, shall
be recognized as Years of Service.
In addition to the foregoing, Years of Service prior to the Effective Date
shall be recognized as Years of Service.
Notwithstanding the above, if a Participant incurs five (5) consecutive
Breaks-In-Service, his Years of Service completed after such Break-In-Service
shall be disregarded for purposes of determining his nonforfeitable right in the
balance of his Account as of the date he incurs the five (5) consecutive Breaks-
In-Service. If an Employee who is not entitled to any Capital Accumulation under
Article VII of the Plan, has a number of Breaks-In-Service that equals or
exceeds the greater of five (5) years or his number of whole years of Years of
Service, he shall lose credit for the Years of Service of Service prior to the
Break-In-Service.
2.5 Computation Periods.
-------------------
(a) For purposes of this Plan, "Vesting Computation Period" shall
mean the Plan Year.
(b) For purposes of this Plan, "Eligibility Computation Period"
shall mean for each Employee, the twelve (12) consecutive month period
beginning on the date such Employee first completes an Hour of Service;
provided, however, if an Employee does not get sufficient credit in his
initial Eligibility Computation Period to be eligible to participate in the
Plan under Article III, Eligibility Computation Period shall mean the Plan
Year which includes the first anniversary of the Employee's Date of
Employment, and if additional Eligibility Computation Periods are
necessary, succeeding Plan Years.
9
<PAGE>
2.6 Hour of Service. For purposes of this Plan, "Hour of Service" means
---------------
each hour for which such Employee is, according to the records of the Employer
or Controlled Group Member, required by the provisions of Subsections 2.6(a) and
2.6(b) below to receive credit.
(a) With respect to all Employees, except as provided in
Subsection 2.6(b) below, and according to records of the Employers, credit
shall be given in accordance with the following rules:
(1) each hour for which the individual is paid, or entitled
to payment, by the Employers or Controlled Group Members for the
performance of duties during such period, including hours which were
not originally credited, but for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to by the
Employer or Controlled Group Member, and
(2) each hour for which the individual is directly or
indirectly paid, or entitled to payment by the Employers or
controlled Group Members for reasons other than for the performance
of duties, including but not limited to any Employer-approved Leave
of Absence with pay, vacation, holiday, illness, incapacity
(including temporary disability), layoff, and jury duty and also
including hours which were not originally credited, but for which
back pay, irrespective of mitigation of damages, is either awarded
or agreed to by the Employer or Controlled Group Member, but
excluding payments under plans maintained solely to comply with
applicable worker's compensation, unemployment compensation, or
disability insurance laws or payments for reimbursement of medical
or medically related expenses; hours shall be credited under this
subsection only to the extent an Employee is paid or otherwise
entitled to payment by law or pursuant to a policy of the Controlled
Group Member, and nothing herein shall entitle an Employee to any
such payment.
(3) No more than five hundred one (501) hours need be
credited under clause (2) above for any single continuous period of
time during which the Employee performs no duties, whether or not
such period occurs in a single computation period, and the number of
hours to be credited shall be computed in accordance with clauses
(5) and (6) below, as modified by applicable Labor Department
regulations.
(4) Hours credited for back pay shall not be credited under
both clauses (1) and (2).
(5) The number of hours to be credited under clause (2) shall
be determined with reference to whether or not a payment is
calculated on the basis of units of time. Except as otherwise
provided below, with respect to a payment (described in clause (2))
made or due which is calculated on the basis of units of time, such
as hours, days, weeks, or months, the number of hours to be credited
shall
10
<PAGE>
be the number of regularly scheduled hours included in the units of
time on the basis of which payment is calculated. With respect to a
payment made or due which is not calculated on the basis of units of
time, the number of hours to be credited shall be equal to the
amount of the payment divided by the Employee's most recent hourly
rate of compensation before the period during which no duties are
performed. For purposes of the preceding sentence, (A) if an
Employee's compensation is determined on the basis of an hourly
rate, such hourly rate shall be the Employee's most recent hourly
rate of compensation, (B) if an Employee's compensation is
determined on the basis of a fixed rate for specified periods of
time (other than hours) such as days, weeks, or months, the
Employee's hourly rate of compensation shall be the Employee's most
recent rate of compensation for a specific period of time (other
than hours) divided by the number of hours regularly scheduled for
the performance of duties during such period of time, and (C) if an
Employee's compensation is not determined on the basis of a fixed
rate for specific periods of time, then the Employee's hourly rate
of compensation shall be the lowest hourly rate of compensation paid
to Employees in the same job classification as that of the Employee
or, if no Employees in the same job classification have the same
hourly rate, the minimum wage as established from time to time under
section 6(a)(1) of the Fair Labor Standards Act of 1938, as amended.
Notwithstanding the above, an Employee shall not be credited on
account of a period during which no duties are performed with a
number of hours which is greater than the number of hours regularly
scheduled for the performance of duties during such period. For
purposes of this clause (5), with respect to an Employee without a
regular work schedule, such Employee shall be deemed to regularly
work a forty (40) hour week.
(6) Except as otherwise provided below, hours shall be
credited to the above-described computation period(s) in which
duties are performed. With respect to hours for which an Employee is
either directly or indirectly paid or entitled to payment by an
Employer or Controlled Group Member on account of a period of time
during which no duties are performed, (A) hours credited to the
Employee on account of a payment which is calculated on the basis of
units of time such as hours, days, weeks, or months shall be
credited to the computation period or periods in which the period
during which no duties are performed occurs, beginning with the
first unit of time to which the payment relates, and (B) hours
credited to an Employee by reason of a payment which is not
calculated on the basis of units of time shall be credited to the
computation period in which the period during which no duties are
performed occurs, or if the period during which no duties are
performed extends beyond one computation period, such hours shall be
allocated between not more than the first two computation periods on
any reasonable basis which is consistently applied with respect to
all Employees within the same reasonably defined job
classifications. Hours for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to by an Employer
or Controlled Group Member shall be credited to the computation
period or periods to which the award or agreement for
11
<PAGE>
back pay pertains, rather than to the computation period in which
the award, agreement, or payment is made. For purposes of this
clause (6), if Hours of Service are to be credited to an Employee in
connection with a period of no more than thirty-one (31) days which
extends beyond one computation period, all such hours may be
credited to the first or second computation period, provided all
Employees within the same reasonably defined job classifications are
consistently treated similarly.
(b) With respect to salaried employees whose hours are not
required to be counted and recorded by the Fair Labor Standards Act of
1938, the Committee shall determine the Hours of Service to be credited to
such Employees based on a semi-monthly payroll period equivalency which
shall credit forty-five (45) Hours of Service for each weekly payroll
period in which each Employee is credited with at least one Hour of
Service.
For purposes of determining a Year of Service or Break-In-Service, each
Employee shall be credited with Hours of Service as herein provided and shall be
so credited with Hours of Service for which the Employee is paid or entitled to
payment as herein provided by a corporation after it became a Controlled Group
Member or after it adopted this Plan, if earlier.
2.7 Break-In-Service. For purposes of this Plan, "Break-In-Service"
----------------
means the Computation Period in which the Employee is credited with less than
501 Hours of Service. Notwithstanding any other provision of this Section to the
contrary, solely for purposes of determining whether an Employee has a Break in
Service, Hours of Service shall include hours during which an Employee is absent
from work for any period: (i) by reason of (a) the Employee's pregnancy, (b) the
birth of the Employee's child, (c) the placement of a child with the Employee in
connection with the adoption of such child by the Employee, or (ii) for the
purpose of caring for such child for a period beginning immediately following
such birth or placement. Hours of Service shall be credited for purposes of this
Section to the Computation Period in which the absence from work begins,
provided crediting of such Hours of Service in such Computation Period would
prevent the Participant from incurring a Break in Service in such Computation
Period solely because of the crediting of such Hours in such Computation Period.
In any other case, Hours of Service shall be credited for purposes of this
Section to the immediately following Computation Period. The Hours of Service
credited for purposes of this Section shall be those hours which otherwise
normally would have been credited but for such absence or, in any case in which
the Committee is unable to determine the hours normally credited, Hours of
Service shall be calculated on the basis of the schedule of equivalent hours set
forth in Subsection 2.6(b). The total number of Hours of Service required to be
credited for any absence described in this Section shall not exceed five hundred
one (501). Notwithstanding the provisions of this Section, no Hours of Service
credit shall be given pursuant to this Section unless the Employee furnishes the
Committee with such information as the Committee shall require to establish: (i)
that the absence from work was for the reasons referred to herein, and (ii) the
number of days for which there was such an absence.
12
<PAGE>
2.8 Participation of Other Employers. Any other Controlled Group Member
--------------------------------
may adopt this Plan, effective as of the date indicated in its instrument of
adoption as provided in Section 11.8. Throughout this instrument, a distinction
is purposely drawn between rights and obligations of the Company and rights and
obligations of an Employer. The rights and obligations specified as belonging to
the Company shall belong only to it, including but not limited to appointment of
the Committee, amendment of the Plan, and amendment of the Trust. An Employer's
instrument of adoption may provide for the making of an initial contribution to
the Trust, make such other changes with respect to the Plan as are approved by
the Committee, and may designate the name of the Plan with respect to its
Employees. Each Employer shall have the obligation, as hereinafter provided and
as may be provided in its instrument of adoption, to make contributions for its
own Participants, and no Employer shall have the obligation to make
contributions for the Participants of any other Employer. Any failure by an
Employer to fulfill its own obligations under this Plan shall, except as
provided in the next preceding sentence, have no effect upon any other Employer.
ARTICLE III
PARTICIPATION
3.1 Participation in the Plan.
-------------------------
(a) Subject to Section 3.2 below, on the Effective Date of the
Plan, each individual who is then an Employee who has attained age twenty-
one (21) and has completed one (1) Year of Service shall become a
Participant.
(b) Subject to Section 3.2 below, after the Effective Date of the
Plan, each other Employee shall become a Participant hereunder as of the
January 1 or July 1 coincident with or next following the completion of one
(1) Year of Service and the attainment of at least age twenty-one (21),
provided that he is still an Employee as of such date.
(c) For purposes of this Section 3.1, should an Employee incur a
Break-In-Service, then Years of Service prior to the Break-In-Service shall
be excluded for purposes of determining if the Employee is eligible to
become a Participant hereunder only if:
(1) as of the first day of the Break-In-Service, the Employee
is not entitled to any Capital Accumulation under this Plan, and
(2) the duration of the consecutive Breaks-In-Service
measured in years equals or exceeds the greater of (A) five (5) or
(B) the Employee's Years of Service prior to the Break-In-Service.
(d) After becoming a Participant, an Employee shall continue to be
a Participant in accordance with the provisions of Section 3.3 below.
Should, however, a person cease to
13
<PAGE>
be a Participant pursuant to Section 3.3 of the Plan, such person shall be
reinstated as a Participant, subject to Section 3.2 of the Plan, on the
first to occur of the following:
(1) as of the applicable time specified in Subsection 3.1(b)
above upon completion of a Year of Service after reemployment with
an Employer, if such person's Years of Service prior to such
person's Break-In-Service are not required to be taken into account
in accordance with the provisions of Subsection 3.1(c) above, or
(2) as of such person's Date of Reemployment if such person
has at least one Year of Service prior to such person's Break-In-
Service that is required to be taken into account in accordance with
the provisions of Subsection 3.1(c) above, or
(3) as of the date such person ceases to be ineligible
pursuant to Section 3.2 of the Plan, in the case of an individual
who ceases to be a Participant pursuant to Subsection 3.3(d) of the
Plan and does not incur a Break-In-Service.
3.2 Ineligibility to Become a Participant. Notwithstanding the
-------------------------------------
provisions of Section 3.1 above, any Employee who would otherwise become a
Participant shall not become a Participant, and any Employee who is a
Participant shall cease to be a Participant,
(a) if such Employee is or becomes a member of a collective
bargaining unit if retirement benefits covering such unit were the subject
of good faith bargaining and coverage under this Plan was not agreed to
under such bargaining; or
(b) if such Employee during a particular Plan Year has no
Compensation from the Employer and becomes or remains a self-employed
individual (as described in section 401(c)(1)(B) of the Code); or
(c) if such individual is not treated as an employee on the
payroll of an Employer; provided, however, that a "leased employee" under
Code sections 414(n) or 414(o) shall be treated as an Employee for all
purposes under the Plan.
3.3 Continuance as a Participant. A Participant shall continue as a
----------------------------
Participant until whichever of the following dates first occurs:
(a) The date of such Participant's death; or
(b) The date on which occurs such Participant's Retirement,
Disability, death or Severance; or
(c) The date the Participant ceases to be an Employee; or
14
<PAGE>
(d) The date the Participant becomes ineligible to participate in
the Plan, pursuant to Section 3.2 of the Plan.
3.4 Former Participants. A Participant who ceases to be a Participant
-------------------
but who has not received distribution of all amounts, if any, due to him under
the Plan, shall not thereafter be entitled to participate in allocations of
Contributions or Forfeitures, but shall be considered a Participant for purposes
of Plan provisions governing accounting, allocation of earnings, Beneficiaries,
administration of the Plan, and similar matters. The Account of such a former
Participant shall be maintained in accordance with the Plan until its complete
distribution or Forfeiture.
ARTICLE IV
CONTRIBUTIONS
4.1 Employer Contributions.
----------------------
(a) Each Employer shall make a Contribution to the Trust Fund for
each taxable year of the Employer on or before the date prescribed by the
Code for filing of the Employer's federal income tax return for each
taxable year (including extensions of time). The Employer Contributions, if
any, for each Plan Year shall be such amount as the board of directors of
an Employer, in its sole discretion, may direct by adopting an appropriate
resolution; provided, however, that the Employer Contributions shall not be
less than the amount required to pay fully the excess of the Current
Obligations of the Trust over the income of the Unallocated Other
Investments Account and the Unallocated Company Stock Account and the
Participant Company Stock Accounts; and provided, further, that the total
Contribution shall not exceed the maximum amount deductible from the
Employer's income for such taxable year under sections 404(a)(3)(A) and
404(a)(9) of the Code, plus any carried over credits which may have accrued
under section 404 of the Code. Employer Contributions shall be made in the
form of cash up to the amount required to fund the Current Obligations of
the Trust as described in the preceding sentence. Additional Employer
Contributions may be made in the form of Company Stock or cash.
(b) The Contributions of Employers for each taxable year may be
paid to the Trustee either in a single payment or in installments and
either in cash or in Company Stock valued at the fair market value thereof
at the time of the Contribution; provided, however, should shares of
Company Stock be purchased from the Employer at less than fair market
value, the excess of the fair market value over the cost shall be
considered to be a contribution of Company Stock for the year in which the
purchase occurs.
All Contributions shall be deemed made to enable the Plan to meet its
obligations under loan arrangements described in Section 5.8 of the Plan.
15
<PAGE>
4.2 Participants' Contributions.
---------------------------
Participants are neither required nor permitted to make any contributions under
this Plan.
4.3 Funding Policy; Other Matters. The provisions of this Article IV
-----------------------------
shall be deemed the procedure for establishing and carrying out the funding
policy and method of the Plan. Such funding policy and method shall be
administered by the Employer and other Named Fiduciaries consistent with the
objectives of the Plan and with the requirements of Title I of ERISA. This Plan
is designed to invest primarily in Company Stock, which is a qualifying employer
security of the Company within the meaning of sections 409(l) and 4975(e)(8) of
the Code; provided, that all or a substantial portion of the Fund may be
invested in assets other than Company Stock on a temporary basis, and that
continuing investments in assets other than Company Stock shall be permitted to
the extent reasonably necessary to provide for expenses and distributions of
cash in lieu of fractional shares or to the extent Company Stock is not
available for investment.
ARTICLE V
ACCOUNTS AND ALLOCATIONS
5.1 Trust Accounts. The Committee shall create and maintain adequate
--------------
records to reflect all transactions of the Trust Fund and to disclose the
interest in the Trust Fund of each Participant, former Participant, Beneficiary,
or Alternate Payee who has an undistributed interest in the Fund.
(a) Individual Accounts. The Committee shall establish and
-------------------
maintain for each such individual a Participant Company Stock Account and a
Participant Other Investments Account, which Accounts are collectively
referred to herein as an Account.
(b) General Accounts. The Committee shall also establish and
----------------
maintain for the Trust suspense accounts to be known as an Unallocated
Company Stock Account and an Unallocated Other Investments Account.
(c) Accounts for Transferred Participants. In the event a
-------------------------------------
Participant transferred from one Employer to another Employer during a Plan
Year, the Committee shall continue to maintain on its books such
Participant's Account without differentiation between Employers.
(d) Rights in Trust Fund. The maintenance of individual
--------------------
Accounts is only for accounting purposes, and a segregation of the assets
of the Trust Fund to each Account shall not be required. Distributions and
withdrawals made from an Account shall be charged to the Account as of the
date paid.
16
<PAGE>
5.2 Allocations to Accounts.
-----------------------
(a) Participant Company Stock Accounts. The Participant Company
----------------------------------
Stock Account of each Participant shall be increased by his allocable share
(determined under Subsection 5.2(d) below) of (1) shares of Company Stock
purchased and paid for by the Trust or contributed in kind by the Employer, (2)
Forfeitures of Company Stock, (3) stock (in kind) dividends on Company Stock
held in his Participant Company Stock Account, and (4) Company Stock released
from the Unallocated Company Stock Account. Such increase shall be recorded in
whole and fractional shares of Company Stock in order that such Account shall
share in any appreciation in the market value of the shares of Company Stock in
the Participant Company Stock Account, or in any decreases in such market value.
(b) Participant Other Investments Accounts. The Participant Other
--------------------------------------
Investments Account of each Participant will be increased (or decreased) by the
dollar value of his allocable share (determined under Subsection 5.2(d) below)
of (1) the net income (or loss) of the Trust attributable to such Account, (2)
cash dividends and other rights or warrants allocable to Company Stock in his
Participant Company Stock Account, (3) Employer Contributions and Forfeitures in
other than Company Stock, (4) appreciation (or depreciation) in the fair market
value of the assets of the Trust (other than Company Stock) attributable to such
Account, (5) proceeds from the disposition of Company Stock previously held in
such Account, and (6) his allocable share of cash and other rights or warrants
with respect to fractional shares of Employer Contributions and Forfeitures in
Company Stock that cannot be allocated to the Participant Company Stock Account.
It will be decreased for (1) any payments on purchases of Company Stock or
repayment of debt (including principal and interest) incurred for the purchase
of Company Stock which are attributable to such Account, (2) any distributions
or withdrawals, and (3) any expenses or Trustee's compensation paid or
reimbursed out of the Trust Fund pursuant to Section 11.4 of the Plan or
pursuant to the Trust Agreement.
(c) Unallocated Company Stock Accounts and Unallocated Other
--------------------------------------------------------
Investments Accounts.
- --------------------
(1) Unallocated Company Stock Account. The Unallocated
---------------------------------
Company Stock Account shall be increased as of each Valuation Date
with the number of shares of Company Stock purchased with the
proceeds of a loan obligation or installment purchase. The
Unallocated Company Stock Account shall also be increased as of each
Valuation Date with the stock (in kind) dividends received with
respect to Company Stock held in such Account. The Unallocated
Company Stock Account shall be decreased by the number of shares of
Company Stock that are to be released from such Account in
accordance with the provisions of Subsection 5.3(b) of the Plan.
17
<PAGE>
(2) Unallocated Other Investments Accounts. The Unallocated
--------------------------------------
Other Investments Account will be increased (or decreased) by (A)
the dollar value of such Account's allocable share of the net income
(or loss) of the Trust attributable to such Account, (B) cash
dividends and other rights or warrants received with respect to
Company Stock in the Unallocated Company Stock Account, and (C)
amounts attributable to such Account that are used to pay
installment purchase contracts or loan obligations of the Trust in
accordance with Subsection 5.3(c) of the Plan.
(d) Allocation Procedures. Subject to Section 5.4 below, Account
---------------------
adjusted in accordance with the following:
(1) Income and Appreciation in Value of Other Investments
-----------------------------------------------------
Accounts in the Trust Fund. The income of both the Participant
--------------------------
Other Investments Accounts and the Unallocated Other Investments
Account in the Trust Fund (including the appreciation or
depreciation in value of the assets in Other Investments Accounts in
the Trust Fund) shall be allocated to such Accounts in proportion to
the balances in such Accounts as of the next preceding Valuation
Date, but after first reducing each such Account balance by any
distributions or charges from such Account since the next preceding
Valuation Date.
Any dividends allocated to the Unallocated Other Investments
Accounts, to the extent not used to pay principal and interest on
installment purchase contracts and loan obligations of the Trust,
shall then be reallocated to the Participant Other Investments
Accounts as of the Valuation Date at the end of the Plan Year,
according to the ratio that each Participant's Compensation for the
Plan Year while participating in the Plan bears to the total
Compensation for all such Participants for the Plan Year while
participating in the Plan.
(2) Income and Appreciation in Value of Company Stock
-------------------------------------------------
Accounts in the Trust Fund. The income (except stock (in kind)
--------------------------
dividends with respect to Company Stock and except the unrealized
appreciation or depreciation in value of the assets in the Company
Stock Accounts in the Trust Fund) of both the Participant Company
Stock Accounts and the Unallocated Company Stock Account of the
Trust Fund shall be allocated to the Participant Other Investments
Accounts and Unallocated Other Investments Accounts, as is
appropriate, in proportion to the balances, as of the last Valuation
Date, in the respective Participant or Unallocated Company Stock
Accounts to which the income is attributable but after first
reducing each such Account balance by any distributions or charges
from such Accounts since the last Valuation Date. Cash or stock (in
kind) dividends with respect to Company Stock shall be allocated to
the Account which held the Company Stock that generated the cash or
stock (in kind) dividend; provided, however, that cash or stock (in
kind) dividends with respect to Company Stock then allocated to the
Unallocated Company Stock Account or the Unallocated Other
Investments Accounts may first be used to
18
<PAGE>
pay principal and interest on installment purchase contracts and
loan obligations of the Trust.
(3) Employer Contributions. As of the Valuation Date at
----------------------
the end of each Plan Year, the Contributions for the Plan Year shall
be allocated to either (i) the Participant Other Investments
Accounts, or (ii) to the Participant Company Stock Accounts if made
in Company Stock that can be properly allocated pursuant to
Subsection 5.2(a) above, of all individuals who during the Plan Year
both completed 1,000 Hours of Service and remained employed by the
Employer on the last day of such Plan Year ("Eligible
Participants"); provided, however, that an Eligible Participant for
a particular Plan Year shall include a Participant who during that
Plan Year dies or separates due to Disability or Retirement. For
each Plan Year, such allocations shall be made according to the
ratio that each such Eligible Participant's Compensation for the
Plan Year bears to the total Compensation for all such Eligible
Participants for the Plan Year. Provided, however, that if in any
Plan Year the foregoing allocation would result in more than one-
third (1/3) of total Contributions for such Plan Year being
allocated to the Prohibited Group, no Contributions in excess of
one-third (1/3) of total Contributions shall be allocated to members
of such group, but such excess shall be reallocated to all other
Eligible Participants according to the ratio that each such other
Eligible Participant's Compensation bears to the total Compensation
of all such other Eligible Participants. For purposes of this
Subsection, the "Prohibited Group" means a group of Participants
consisting of highly compensated employees, as described in section
414(q) of the Code.
(4) Forfeitures. As of the Valuation Date at the end of
-----------
each Plan Year, any Forfeitures occurring during such Plan Year (net
of any amount of Forfeitures otherwise allocated pursuant to and in
accordance with Section 7.5 of the Plan) shall be allocated to the
Accounts of each Eligible Participant. Forfeitures shall be
allocated according to the ratio that the Compensation for the Plan
Year of each Eligible Participant bears to the total Compensation of
all such Eligible Participants for the Plan Year.
5.3 Treatment of Company Stock Purchased Under Installment Payment
--------------------------------------------------------------
Contracts or With Borrowed Funds.
- --------------------------------
(a) Debt Purchase of Company Stock. Any Company Stock purchased
------------------------------
by the Trust under an installment payment contract or with borrowed funds
shall be allocated initially to the Unallocated Company Stock Account.
Company Stock purchased from the Company at less than fair market value
shall be treated as a Contribution to the extent required by Section 4.1 of
the Plan.
(b) Reallocation from Unallocated Company Stock Account. At the
---------------------------------------------------
end of each Plan Year, and on any special Valuation Date if directed by the
Committee, there shall be
19
<PAGE>
transferred from the Unallocated Company Stock Account to the Company Stock
Accounts of Participants, a portion of the Company Stock purchased under an
installment purchase contract or with funds borrowed by the Trust equal to
the number of shares determined by taking the shares so purchased which
have not theretofore been released from the Unallocated Company Stock
Account multiplied by the ratio of (1) the amount of principal paid under
the purchase contract or the loan agreement subsequent to the last
Valuation Date, to (2) the total of all principal and interest to be paid
for the current and all future years. Each Participant's share of the
Company Stock to be allocated pursuant to the preceding sentence shall be
determined by multiplying the number of shares of Company Stock to be
allocated by a fraction, the numerator of which is the aggregate of funds
from the Participant's Other Investments Accounts used to repay principal
and interest, and the denominator of which is the total funds in all
Participant Other Investments Accounts used to repay principal and
interest.
(c) Payments on Installment Purchase Contracts and Loan
---------------------------------------------------
Obligations of the Trust. As of each Valuation Date, installment payments
------------------------
including principal and interest, made by the Trust out of Employer
Contributions since the last preceding Valuation Date under installment
purchase contracts for the purchase of Company Stock, or under loan
agreements covering funds borrowed by the Trust to finance the purchase of
Company Stock, will decrease the Participant Other Investments Accounts in
the same proportion that Employer Contributions are allocated under the
provisions of Subsection 5.2(d) of the Plan. Dividends from the Unallocated
Other Investments Accounts that are used to pay principal and interest of
any installment payments shall also decrease the Unallocated Other
Investments Account. For purposes of determining payments on installment
purchase contracts and loan obligations of the Trust, to the extent
Employer Contributions are not sufficient to satisfy all amounts currently
due under such contracts or obligations, each such installment purchase
contract and/or loan obligation shall provide for payment of principal and
interest substantially in accordance with the following: all income
("specified income") and dividends allocable to the Unallocated Company
Stock Account and Unallocated Other Assets Account that is attributable to
collateral for the obligation shall be used, before any Employer
Contributions are so used, to pay principal amounts due under such
installment purchase contracts or loan obligations; Employer Contributions
shall be first applied to repay interest under installment purchase
contracts or loan obligations with any excess used to fund current
principal requirements not otherwise funded by the specified income; if the
specified income of the Unallocated Company Stock Account and Unallocated
Asset Account is not sufficient to pay principal due under the installment
purchase contract or loan obligation, then Employer Contributions shall be
used to fund the difference; if the specified income exceeds the amount
necessary to pay principal due on installment purchase contracts and loan
obligations for the Plan Year, then such excess amount shall be first used
to pay interest currently due, if any, with respect to the installment
purchase contracts or loan obligations and any remaining amount of income
may, at the direction and in the discretion of the Committee, be used to
prepay principal due on installment purchase contracts and loan
20
<PAGE>
obligations in succeeding Plan Years. Any remaining amount of income not so
used shall be allocated to Participants in accordance with Sections
5.2(d)(1) of the Plan.
5.4 Limitations Required by Section 415 of the Code. For the purposes
-----------------------------------------------
of this Section, the rules of interpretation listed in Subsection 5.4(c) below
shall apply and the expressions set out therein shall have the meanings
respectively indicated. The provisions of Code section 415 are incorporated by
reference, to the extent not expressly stated below.
(a) Limit on Annual Additions. The Account of a Participant
-------------------------
shall not be credited with an Annual Addition as of any allocation date if
to do so would cause the amount of Annual Additions to such Participant's
Account for the Plan Year to exceed the Maximum Permissible Defined
Contribution Amount. If necessary to comply with the foregoing limitations,
Annual Additions to this Plan shall be reduced subsequent to any reduction
in Annual Additions required under any other defined contribution plan
maintained by a Controlled Group Member.
If as a result of a reasonable error in estimating a Participant's
Remuneration, or under facts and circumstances which the Commissioner of
Internal Revenue finds justify the availability of the rules set forth in
this Subsection 5.4(a), the allocation of Annual Additions under the terms
of the Plan for a particular Participant would cause the limitations of
section 415 of the Code applicable to that Participant for the Plan Year to
be exceeded, the excess amounts shall not be deemed to be Annual Additions
in that Plan Year if they are treated as follows:
(1) The excess amounts allocable to the Participant's Account
shall be used to reduce Contributions for the next Plan Year (and
succeeding Plan Years, as necessary) allocable to that Participant
if that Participant is covered by the Plan as of the end of the Plan
Year. If that Participant is not covered by the Plan as of the end
of the Plan Year, the excess amounts must be held unallocated in a
suspense account for the Plan Year; such amounts shall be used to
reduce Contributions for the next Plan Year (and succeeding Plan
Years, as necessary) for all of the remaining Participants in the
Plan and shall be allocated and reallocated in the next Plan Year
(and succeeding Plan Years, as necessary) to all of the remaining
Participants in the Plan (subject to the limitations of section 415
of the Code). For purposes of this clause, excess amounts may not be
distributed to Participants or former Participants.
(2) In the event of termination of the Plan, the suspense
account described in (1) above shall revert to the appropriate
Employer to the extent it may not then be allocated to any
Participant's Account.
(b) Combined Plan Limit. For any Participant in this Plan who is
-------------------
participating in, or at any time participated in, a defined benefit plan of
a Controlled Group Member, Annual Additions hereunder shall be further
reduced to the extent necessary to prevent the
21
<PAGE>
sum of the following fractions, computed as of the close of the Plan Year,
from exceeding 1.0:
(1) Defined Benefit Plan Fraction. A fraction, the
-----------------------------
numerator of which is the projected Annual Benefit of the
Participant under all defined benefit plans of a Controlled Group
Member, and the denominator of which is the lesser of (A) the
product of 1.25 multiplied by the amount specified in Subsection
5.4(c)(4)(A) as adjusted by Subsection 5.4(c)(4)(C), (D), and (E) of
the Plan in effect for such Plan Year, or (B) the product of 1.4
multiplied by the amount specified in Subsection 5.4(c)(4)(B) of the
Plan for such Plan Year.
(2) Defined Contribution Plan Fraction. A fraction, the
----------------------------------
numerator of which is the sum of all Annual Additions under all
defined contribution plans of a Controlled Group Member for such
Plan Year and all prior Plan Years, and the denominator of which is
the lesser of the following amounts determined for such Plan Year
and for each prior Year of Service with the Controlled Group Member:
(A) the product of 1.25 multiplied by the amount specified in
Subsection 5.4(c)(5)(A) of the Plan in effect for such Plan Year, or
(B) the product of 1.4 multiplied by the amount specified in
Subsection 5.4(c)(5)(B) of the Plan for such Plan Year.
If the Participant was a participant as of the end of the
first day of the first limitation year beginning after December 31,
1986, in one or more defined contribution plans maintained by the
Employer which were in existence on May 6, 1986, the numerator of
this fraction will be adjusted if the sum of this fraction and the
defined benefit fraction would otherwise exceed 1.0 under the terms
of this Plan. Under the adjustment, an amount equal to the product
of (A) the excess of the sum of the fractions over 1.0 times (B) the
denominator of this fraction, will be permanently subtracted from
the numerator of this fraction. The adjustment is calculated using
the fractions as they would be computed as of the end of the last
limitation year beginning before January 1, 1987, and disregarding
any changes in the terms and conditions of the plan made after May
5, 1986, but using the section 415 limitation applicable to the
first limitation year beginning on or after January 1, 1987. The
annual addition for any limitation year beginning before January 1,
1987, shall not be recomputed to treat all employee contributions as
annual additions.
(c) Rules of Interpretation and Section 5.4 Definitions.
---------------------------------------------------
(1) "Annual Addition" shall include, for any Plan Year, the
sum of the Participant's:
(A) Allocable share of Employer Contributions; provided,
however that any Employer Contributions applied to the payment
of the
22
<PAGE>
interest portion of any Current Obligations of the Trust Fund
shall not be counted as an Annual Addition;
(B) Employer Contributions under any other defined
contribution plan maintained by a Controlled Group Member;
(C) The amount of a Participant's after-tax
contributions for the Plan Year under any qualified plan
maintained by a Controlled Group Member;
(D) Contributions, if any, to such Participant's
individual medical account, as defined in section 415(l)(2) of
the Code, which is part of a defined benefit plan;
(E) Contributions, if any, to a separate account
established to provide medical or life insurance benefits with
respect to such Participant after Retirement, if such
Participant, at any time during the Plan Year or any preceding
Plan Year, is or was a Key Employee; and
(F) Forfeitures, if any, allocable to the Participant
for the Plan Year; provided, however, that Forfeitures under
this Plan consisting of Company Stock acquired with the
proceeds of a loan authorized by Section 5.8 of the Plan shall
not be counted as an Annual Addition.
Notwithstanding the foregoing, the twenty-five percent
(25%) limitation set forth in Subsection 5.4(c)(5)(B) below
shall not apply to amounts described in Subsections (D) or (E)
above. Annual Additions shall not include any "rollover
contributions" or amounts transferred to the trustee of a plan
of a Controlled Group Member from another qualified plan, and
shall not include any amount repaid or any non-vested,
forfeited amount restored to a Participant's Account pursuant
to Section 7.5 of the Plan or similar provisions of any other
defined contribution plan of a Controlled Group Member, and
shall not include any amounts described in Code section
408(k)(6).
(2) "Annual Benefit" shall mean:
(A) A benefit which is payable annually in the form of a
straight life annuity under a defined benefit plan. Such
benefit does not include any benefits attributable to either
employee contributions or rollover contributions.
(3) "Plan Year" shall also be the limitation year for purposes of
section 415(j) of the Code.
23
<PAGE>
(4) "Maximum Permissible Defined Benefit Amount" shall mean
with respect to any Participant for a Plan Year, the lesser of the
amounts determined under (A) and (B) below, subject to the rules of
(C), (D), and (E) below, where:
(A) is Ninety Thousand Dollars ($90,000), and
(B) is one hundred percent (100%) of the Participant's
average Remuneration for such Participant's high three (3)
consecutive Years of Service.
(C) As of the first day of January of each calendar year
commencing with the calendar year 1988, the dollar limitation
set forth in (A) above shall be adjusted automatically to
equal the dollar limitation as determined by the Commissioner
of Internal Revenue for that calendar year under section
415(d)(1)(A) of the Code. This adjusted dollar limitation
applies for the Plan Year ending within that calendar year. It
is applicable to employees who are participants of the defined
benefit plan and to employees who have retired or otherwise
terminated their service under a defined benefit plan with a
nonforfeitable right to accrued benefits, regardless of
whether they have actually begun to receive such benefits. The
annual benefit payable to a terminated Participant which is
otherwise limited by the dollar limitation shall be increased
to take into account the adjustment of the dollar limitation.
(D) With regard to Participants who have separated from
service with a nonforfeitable right to accrued benefits, the
Remuneration limitation described in (B) above applicable to
Plan Years commencing on or after January 1, 1976, shall be
adjusted annually to take into account increases in the cost-
of-living. For any Plan Year beginning after the separation
occurs, the adjustment of the Remuneration limitation is made
as specified in regulations and rules prescribed by the
Commissioner of Internal Revenue. In the case of a Participant
who separated from service prior to January 1, 1976, the cost-
of-living adjustment of the Remuneration limitation under this
Subsection for all Plan Years prior to January 1, 1976, is to
be determined as provided by the Commissioner of Internal
Revenue.
(E) Anything herein to the contrary notwithstanding, the
Maximum Permissible Defined Benefit Amount for any employee
who was a participant of a defined benefit plan before January
1, 1983, shall in no case be less than the "current accrued
benefit" of such employee as of the close of the last Plan
Year beginning before January 1, 1983, as such term is defined
in section 235(g)(4) of the Tax Equity and Fiscal
Responsibility Act of 1982 ("TEFRA").
(5) "Maximum Permissible Defined Contribution Amount" shall
mean, for any Plan Year, the lesser of:
24
<PAGE>
(A) Thirty Thousand Dollars ($30,000) (or, if greater,
one-quarter (1/4) of the dollar limitation in effect under
Code section 415(b)(1)(A), as adjusted for cost-of-living
increases pursuant to Code sections 415(d)(1) and 415(d)(3)),
or
(B) Twenty-five percent (25%) of the Participant's
Remuneration for such Plan Year, or
(6) "Projected Annual Benefit" shall mean the annual benefit
to which a Participant would be entitled under a defined benefit
plan on the assumptions that such Participant continues employment
until the normal retirement age (or current age, if that is later)
thereunder, that such Participant's Remuneration continues at the
same rate as in effect for the Plan Year under consideration until
such age, and that all other relevant factors used to determine
benefits under the defined benefit plan remain constant as of the
current Plan Year for all future Plan Years.
(7) "Remuneration" with respect to the Plan Year in question
shall mean all Compensation of the Participant from all Controlled
Group Members.
(8) "Social Security Retirement Age" has the meaning given in
Code section 415(b)(8).
(9) For purposes of applying the limitations of Code sections
415(b), (c) and (e) applicable to a Participant for a particular
Plan Year, all qualified defined benefit plans ever maintained by a
Controlled Group Member will be treated as one defined benefit plan
and all qualified defined contribution plans ever maintained by a
Controlled Group Member will be treated as part of this Plan.
5.5 Valuation of Trust Fund. A valuation of the Trust shall be
-----------------------
made as of the last day of each Plan Year and as of such other dates as may
be specified by the Committee in accordance with Section 5.10 of the Plan.
For the purposes of each such valuation, the assets of the Trust Fund shall
be valued at their respective current fair market values, and the amount of
any obligations for which the Trust Fund may be liable, as shown on the
books of the Trustee, shall be deducted from the total value of the assets.
All valuations of Company Stock with respect to activities carried on by
the Plan shall be made by reference to the Company Stock's value on an
established securities market (if such stock is readily tradable on such
securities market); provided, however, if Company Stock is not then readily
tradable on an established securities market, such valuation shall be made
by an independent appraiser meeting requirements similar to requirements of
Treasury Regulations under Code section 170(a)(1).
5.6 Investment of Trust Fund. Any cash received by the Trustee as
------------------------
Contributions or as Income of the Trust Fund attributable to Unallocated
Company Stock Accounts or Unallocated Other Investments Accounts which is
not applied to fund the Current Obligations of the Trust, if any, shall be
either held in the Unallocated Other Investments Accounts or invested at
the direction of the
25
<PAGE>
Trustee either to the extent practicable in Company Stock and thereafter
held in the Unallocated Company Stock Account or shall be applied to the
payment of Non-current Obligations or General Obligations of the Trust. All
income attributable to Participant Company Stock Accounts and Participant
Other Investments Accounts shall be invested as soon as practicable after
receipt by the Trustee in Company Stock of the Company. In making payments
in respect of Current Obligations, Non-current Obligations, or General
Obligations of the Trust, the Trustee shall utilize income, dividends and
Employer Contributions as is specified in Subsection 5.3(c) of the Plan;
namely, that income and dividends shall be first used to fund principal
payments and Employer Contributions shall be first used to fund interest
payments. All purchases of Company Stock shall be for no more than, and all
sales of Company Stock shall be for no less than, "adequate consideration,"
as defined in section 3(18) of ERISA. Pending such investment or
application of cash, the Trustee may retain cash uninvested without
liability for interest if it is prudent to do so, or may invest all or any
part thereof in investments described in the Trust Agreement.
5.7 Voting of Shares; Exercise of Other Rights. Voting rights
------------------------------------------
with respect to shares of Company Stock which are held by the Trustee and
which have been allocated to Accounts of Participants shall be exercised
with respect to Pass-Through Matters by the Trustee in such manner as may
be directed by the respective Participants. Shares of Company Stock
allocated to Participants' Accounts with respect to which Participants have
not given voting directions shall be voted by the Trustee in the same
proportions as the Trutee votes shares of Company Stock for which the
Trustee has received proper Participant direction. "Pass-Through Matters"
means any corporate matter involving the voting of Company Stock with
respect to the approval or disapproval of any corporate merger,
consolidation, recapitalization, reclassification, liquidation,
dissolution, sale of substantially all assets of a trade or business, or
similar transactions prescribed in Treasury Regulations. Notwithstanding
the foregoing, if an Employer has a class of securities required to be
registered under Section 12 of the Securities Exchange Act of 1934 (or
exempt from registration only under Subsection 12(g)(2)(H) of such Act),
"Pass-Through Matter" shall mean any matter with respect to which Company
Stock may be voted. With respect to shares of Company Stock held in the
Unallocated Company Stock Account, voting rights shall be exercised by the
Trustee in the same proportions as the Trustee votes shares of Company
Stock for which the Trustee has received proper Participant direction.
With respect to matters other than Pass-Through Matters, in the case
of allocated Company Stock, voting rights shall be exercised by the Trustee
in such manner as may be directed by the respective Participants, except
(A) unless the Trustee in its discretion determines that it has a fiduciary
duty under ERISA to vote such shares of Company Stock in a manner
inconsistent with Participant directions, or (B) unless the voting
authority is delegated to another Named Fiduciary pursuant to Section 8.9
of the Plan or to an investment manager pursuant to the provisions of the
Trust Instrument. In the abence of any Participant direction, voting rights
with respect to the underrated Company Stock can be exercised by the
Trustee in its discretion if consistent with its fiduciary obligations
under ERISA. Solicitation of exercise of Participants' voting rights by
management of the Company and others under a proxy or consent provision
applicable to all holders of Company Stock shall be permitted. The Trustee
shall notify Participants of each occasion for the
26
<PAGE>
exercise of voting rights with respect to Pass-Through Matters within a
reasonable time before such rights are to be exercised. Such notification
shall include all information distributed to shareholders by the Company
regarding the exercise of such rights.
5.8 Borrowings to Purchase Company Stock; Certain Conditions
--------------------------------------------------------
Applicable to Such Company Stock. It is the express purpose of this Plan and
- --------------------------------
its related Trust Agreement to invest substantial sums in Company Stock for the
benefit of Participants in the Plan. Pursuant to this purpose, it is
contemplated that the Trustee will from time to time, in its discretion, borrow
funds either through installment purchase contract, loan agreement or other
instrument of indebtedness in order to purchase Company Stock with such
indebtedness either guaranteed by the Employer or one or more Controlled Group
Members or made directly from the Employer or one or more Controlled Group
Members to the Trust provided that the Trustee determines that the borrowing is
an "exempt loan" within the ambit of section 54.4975-7(b)(1)(iii) of the
Treasury Regulations. In addition to other provisions of the Plan as may be
applicable from time to time, the provisions of this Section 5.8 shall be
especially applicable to indebtedness incurred to purchase Company Stock and
Company Stock purchased with loan proceeds.
(a) Use of Proceeds. All proceeds of such an exempt loan
---------------
shall be used within a reasonable time after receipt by the Trustee
only for any or all of the following purposes: to purchase Company
Stock, to repay obligations incurred under the loan agreement, or to
repay a prior exempt loan.
(b) Non-Recourse Loans Only. Any loan must be without
-----------------------
recourse as against the Plan and the Trust.
(c) Collateral. The only assets of the Plan and Trust that
----------
may be given as collateral for a loan are shares of Company Stock
acquired with the proceeds of the loan and those shares of Company
Stock that were used as collateral on a prior exempt loan repaid
with the proceeds of the current exempt loan.
(d) Creditor's Rights to Assets. No person entitled to
---------------------------
payment under the loan agreement shall have any right to assets of
the Plan or Trust other than collateral given for the loan,
contributions (other than contributions of Company Stock) that are
made under the Plan to meet the Plan's obligations under the loan,
and earnings attributable to such collateral and the investment of
such contributions.
(e) Transfers Upon Default. In the event of default upon
----------------------
an exempt loan, the value of Plan assets transferred in satisfaction
of the loan must not exceed the amount of default. If the lender is
a "disqualified person," the loan must provide for a transfer of
Plan assets upon default only upon and to the extent of failure of
the Plan to meet the payment schedule of the loan.
27
<PAGE>
(f) Interest. The interest rate of any loan described
--------
herein must not be in excess of a reasonable rate of interest. In
determining what is a reasonable rate of interest, all relevant
factors will be considered, including the amount and duration of the
loan, the security and guarantee (if any) involved, the credit
standing of the Plan and Trust and the guarantor (if any), and the
interest rate prevailing for comparable loans. A variable interest
rate is permissible if determined to be reasonable.
(g) Release from Collateral or Suspense. The instrument
-----------------------------------
evidencing indebtedness shall provide for release from collateral or
suspense in accordance with the provisions of Subsection 5.3(b) of
the Plan.
(h) Limitation on Restrictions on Company Stock; Right of
-----------------------------------------------------
First Refusal. Except as provided herein or in Subsection 5.8(j)
-------------
below, no Company Stock acquired with the proceeds of a loan
described herein may be subject to a put, call, or other option, or
buy-sell or similar arrangement while held by and when distributed
from the Plan or its related Trust, whether or not the Plan is then
an "ESOP" within the ambit of section 54.4975-7(b)(1)(i) of the
Treasury Regulations, unless specifically required or permitted by
such regulations. A holder ("Shareholder") of shares of Company
Stock which have been distributed by the Trustee, may not, for
valuable consideration, sell, assign, pledge, convey in trust, or
otherwise transfer or encumber in any manner or by any means
whatever ("Transfer") any interest in all or any part of Company
Stock held by him except in accordance with the terms and conditions
of this Subsection 5.8(h), if at the time of such Transfer the
Company Stock is not publicly traded. Provided, however, "Transfer"
shall not include any transfer of such shares by reason of a
Participant's death, any transfer to an Alternate Payee, or the
transfer by a Participant or his surviving spouse of the shares to
an individual retirement account, described in Code section 408(a),
in a transaction described in Code section 402(c). Upon the receipt
of the Notice described below, the Company shall have the first
option to purchase the shares to be Transferred by the Shareholder,
and, if that option is not exercised in full by the Company, then
Trustee shall have the option to purchase shares not purchased by
the Company. Prior to any proposed Transfer, the Shareholder must
first give written notice ("Notice") to the Committee that he
intends to Transfer his shares of Company Stock or any interest
therein, which Notice shall state the number of shares to be
Transferred, the name of the proposed transferee, the consideration
for the proposed Transfer, and the terms and conditions of the
Transfer. The Shareholder shall also submit with the Notice copies
of all papers and other documents to be used in connection with the
proposed Transfer. Any deviation in the terms of such Transfer,
however slight, shall require a new Notice thereby effecting a new
option under this Subsection 5.8(h).
The Company must exercise its option to purchase, as to all
or a portion of the shares offered, within fourteen (14) days of
receipt of the Notice. If the Company fails to exercise its option
as to any or all of the shares, then the Trustee (as directed by the
Committee) shall be entitled to act upon its option to purchase
within that same fourteen (14) day period.
28
<PAGE>
Options shall be exercised in the form of written notice of exercise
to the Shareholder or his legal representative within the designated
period.
If the option is not exercised in full by the Company, the
Trustee, or both, within fourteen (14) days after Notice, the
unexercised part of the option shall lapse, and then the proposed
Transfer (if to a transferee other than the Company or Trustee) must
be completed within ninety (90) days following the end of the period
for exercise, but only upon the same terms and at a price which is
no less than that set forth in the Notice. Any such permitted
Transfer, however, shall be conditioned upon the proposed transferee
executing such documents as counsel for the Company may reasonably
request which evidences the transferee's agreement to abide by the
terms and provisions of this Subsection 5.8(h) concerning the
shares, or any interest therein proposed to be acquired, and to
agree to any legending of certificates and to any restrictions on
transferability as the Company may reasonably require to ensure
compliance with federal or state securities laws.
In exercising an option to purchase, the Company, Trustee, or
both, as the case may be, must purchase pursuant to the terms of the
Notice and at the greater of the fair market value such shares of
Company Stock or the price specified in the Notice. The terms of the
payment of the purchase price shall in no event be less favorable
than the terms of an independent third-party offer.
(i) Limitations on Payments. The payments made during any
-----------------------
Plan Year with respect to a loan described herein may not exceed an
amount equal to the sum of (1) the Employer Contributions, plus (2)
earnings received during or previous to the current Plan year less
payments previously made with respect to such loan, plus (3) any
dividends received by the Trust on Company Stock purchased with the
proceeds of a loan. The Employer Contributions and earnings
described herein must be accounted for separately on the books of
account of the Plan and Trust until any "exempt loan" is repaid, as
is provided in the other provisions of Article V of this Plan.
(j) Put Option with Respect to Company Stock Purchased with
-------------------------------------------------------
Proceeds of Exempt Loan. Any Company Stock acquired with the
-----------------------
proceeds of an exempt loan, if it is not publicly traded when
distributed or is subject to a trading limitation when distributed,
must be subject to a put option. The put option is to be exercisable
only by the Participant, the Participant's donees, an Alternate
Payee, or by a person (including an estate or its distributee) to
whom the Company Stock passes by reason of a Participant's death.
The put option must permit the Participant to put the Company Stock
to the Employer. The put option must be exercisable during the sixty
(60) consecutive days beginning on the date that the Company Stock
subject to the put option is distributed by the Plan, and for
another sixty (60) consecutive days during the Plan Year next
following the Plan Year in which the shares were distributed. The
put option may be exercised by the holder notifying the Employer in
writing that the put option is being exercised. The period during
which a put option is exercisable does not include any period when a
distributee is unable to exercise it because
29
<PAGE>
the party bound by the put option is prohibited from honoring it by
applicable federal or state law. The price at which the put option
is exercisable is the fair market value of the Company Stock on the
date of the transaction determined in good faith based on all
relevant factors.
Payment pursuant to the put option shall be made: (1) in the case of
distribution of the Participant's entire Account within one taxable
year of the recipient, no less rapidly than in substantially equal
installments at least annually over a period beginning no later than
thirty (30) days after the exercise of the put option and not
exceeding five (5) years in all; adequate security shall be provided
and reasonable interest shall be paid on any installments
outstanding after thirty (30) days after exercise of the put option;
and (2) in the case of any other form of distribution not described
in the directly preceding clause in the directly preceding clause
(1) of this paragraph in this Subsection 5.8(j), within thirty (30)
days of the exercise of the put option. Payment pursuant to the put
option shall be made no less rapidly than in substantially equal
installments at least annually over a period beginning no later than
thirty (30) days after the put option and not exceeding five (5)
years in all, except that the repayment period may be extended to a
date no later than ten (10) years after the earlier of the date the
put option is exercised or the date of final repayment of any debt
incurred in connection with the acquisition of the Company Stock.
The provisions described in this Subsection 5.8(j) are nonterminable
even if the exempt loan is repaid or the Plan ceases to be an
employee stock ownership plan, or the custodian or trustee of an
individual retirement account described in Code section 408(a)
established by the Participant or his surviving spouse.
(k) Term of Exempt Loans. Any exempt loan made by the Plan
--------------------
or Trust for the purpose of purchasing Company Stock must be for a
specific term and may not be payable on the demand of any person,
except in the case of default.
5.9 Diversification of Participant's Account. This Section 5.9 shall
----------------------------------------
apply to the extent a Participant's Account is credited with Company Stock
("Eligible Assets"). A Participant who has attained age fifty-five (55) and who
has completed ten (10) or more years of participation in the Plan ("Eligible Age
55 Participant") may elect to direct the investment of twenty-five percent (25%)
of the Eligible Assets then in his Account after taking into account all assets
as to which a prior election is made at the fair market value of such assets at
the time a prior election is made; such an election shall be permitted each year
during the period of ninety (90) days after the close of each Plan Year in a
period of six (6) consecutive Plan Years beginning with the Plan Year during
which the Participant first becomes an Eligible Age 55 Participant.
During the last such election period, an Eligible Age 55 Participant may
elect to receive a distribution of fifty percent (50%) of the Eligible Assets in
his Account, taking into account all assets as to which he has previously made
an election at the fair market value of such assets at the time a prior election
is made. To the extent a Participant makes an election under this Section 5.9,
the portion of the Eligible Assets in the Participant's Account that is subject
to the election shall, subject
30
<PAGE>
to Subsection 5.8(j) of the Plan, be distributed to the Participant no later
than ninety (90) days after the end of the election period.
5.10 Emergency Valuation. It is contemplated that the Trust Fund will be
-------------------
valued by the Trustee and allocations made only at the end of each Plan Year.
However, should the Committee in good faith determine that, because of an
extraordinary change in general economic conditions or the occurrence of an
event radically affecting the value of all or a substantial part of the Trust
Fund, an abnormal fluctuation in the value of the Trust Fund has occurred since
the end of the preceding Plan Year, and that it has become necessary to make a
distribution to one (1) or more Participants, Beneficiaries, or Alternate Payees
under the provisions of this Section, the Committee may, in its sole discretion,
to prevent any such person from receiving a substantially greater or lesser
amount than what he would be entitled to, based on the current value of the
Trust Fund (as defined in ERISA section 3(26)), cause a revaluation of the Trust
Fund to be made and a reallocation of the interests therein as of the date such
person's right of distribution becomes fixed. The Committee's determination to
make such emergency valuation and the valuation of the Trust Fund as determined
by the Trustee shall be conclusive and binding on all persons ever interested
hereunder.
ARTICLE VI
ACCOUNTING
6.1 Records Reflecting the Interest of Each Participant. The Committee
---------------------------------------------------
shall establish and maintain records reflecting the interest, if any, of each
Participant, former Participant, Beneficiary, or Alternate Payee under the Plan.
The interest of each such individual shall, at each Valuation Date, be adjusted
to give effect to decreases, increases, increments, losses, and other
adjustments as herein provided, so as to reflect each such individual's current
interest in each of the Investment Funds in which such person has an interest.
6.2 Statement to Participants. As promptly as practicable after the close
-------------------------
of the Plan Year, and at such other times as the Committee decides, the
Committee shall furnish to each Participant, former Participant, Beneficiary or
Alternate Payee who has an Account hereunder, a statement showing, as at the
most recent Valuation Date: (a) the number of shares of Company Stock or other
stock represented by such Participant's interest, the fair market value of such
shares, and the cost basis thereof, and (b) the value of the Participant's
aggregate interest in other assets of the Fund.
ARTICLE VII
VESTING AND DISTRIBUTION
7.1 Vesting of Total Account on Death, Disability or Normal Retirement
------------------------------------------------------------------
Age. A Participant who dies or suffers Disability while an Employee, or who
- ---
Separates from service due to
31
<PAGE>
Retirement, shall be entitled (or such Participant's Beneficiary shall be
entitled) to the full amount of such Participant's Account as of the Valuation
Date coinciding with or next preceding the Participant's death, Disability, or
Retirement, plus his allocable share of amounts allocated pursuant to Section
5.2 and 5.3 of the Plan after such date, and all such amounts shall become fully
vested and nonforfeitable. Such Participant's Capital Accumulation shall be
distributed in accordance with Section 7.4 of the Plan.
7.2 Vesting of Total Account on Severance Date. Subject to the provisions
------------------------------------------
of Sections 7.5 and 8.15 of the Plan, in the event a Participant has a Severance
Date, such a Participant shall be entitled to receive distribution of the
following percentage of his Account, plus his allocable share of amounts
allocated pursuant to Section 5.2 of the Plan after such date:
<TABLE>
<CAPTION>
Nonforfeitable
Percentage of
Years of Service Account
---------------- --------------
<S> <C>
Less than 2 years 0%
2 years, but less than 3 years 20%
3 years, but less than 4 years 40%
4 years, but less than 5 years 60%
5 years, but less than 6 years 80%
6 years or more 100%
</TABLE>
The non-forfeitable portion of a Participant's Account shall be distributed in
accordance with and pursuant to Section 7.4 of the Plan.
7.3 In-Service Withdrawals or Distributions. Except to the extent that
---------------------------------------
distribution of a Participant's Account is required prior to his Separation
under Subsection 7.4(b) of the Plan (in the case of a Participant whose Required
Beginning Date occurs prior to his termination of employment), and under Section
5.9 of the Plan (relating to diversification of Accounts), and under Section
12.2 of the Plan (relating to termination of the Plan), no distribution or
withdrawal of any benefits under the Plan shall be permitted prior to the
Participant's Separation.
7.4 Method and Time of Distribution.
-------------------------------
(a) Subject to the provisions of Subsections 12.2 and 7.4(b), (c)
and (d) below, on or after a Participant's Severance Date or other
Separation, after all adjustments to such Participant's Account shall have
been made, such Participant's Capital Accumulation shall
32
<PAGE>
be paid to, or for the benefit of, the Participant, or in the case of such
Participant's death, to or for the benefit of such Participant's
Beneficiary or Beneficiaries (subject to Sections 10.5 and 12.2 of the
Plan) in the applicable form and at the time set forth below.
(1) Installment Option. Subject to Internal Revenue Service
------------------
approval of this provision (including the Company's discretion) and
effective as of the date of such approval, the Participant's Account
shall be distributed at the election of the Participant and or his
Beneficiary, but only if the Company (in its sole discretion
approves such form of distribution), in substantially equal
installments (not less frequently than annually) over a period of
five (5) years, plus one (1) year for each One Hundred Thousand
Dollars ($100,000) or fraction thereof by which the value of the
Participant's Account exceeds Five Hundred Thousand Dollars
($500,000), with distributions commencing no later than one (1) year
after (A) the end of the Plan Year in which occurs the Participant's
Retirement, death, or Disability or (B) the end of the fifth (5th)
Plan Year following the Plan Year in which occurs the Participant's
Severance Date (assuming the Participant has not been reemployed).
The dollar amounts in the preceding sentence shall be subject to
cost-of-living adjustments under section 415(d) of the Code.
However, if the value of the Participant's Account does not exceed
$3,500, the Account shall be distributed in a single lump sum in
accordance with Subsection 7.4(a)(2), regardless of whether such
Participant consents to such distribution.
Notwithstanding the foregoing, the portion of a Participant's
Account consisting of Company Stock acquired with the proceeds of a
loan described in Section 5.8 of the Plan shall not be distributed
under this paragraph (1) until the close of the Plan Year in which
such loan has been fully repaid.
(2) Immediate Lump Sum. The Participant's Account shall be
------------------
distributed in a single lump sum payment no later than one (1) year
after (A) the end of the Plan Year in which occurs the Participant's
Retirement, death, or Disability or (B) the end of the fifth (5th)
Plan Year following the Plan Year in which occurs the Participant's
Severance Date (assuming the Participant has not been reemployed).
Notwithstanding the foregoing, the portion of a Participant's
Account consisting of Company Stock acquired with the proceeds of a
loan described in Section 5.8 of the Plan shall not be distributed
under this paragraph (2) until the close of the Plan Year in which
such loan has been fully repaid.
(3) Deferred Lump Sum. The Participant's Account shall be
-----------------
distributed in a single lump sum payment not later than the sixtieth
(60th) day after the close of the Plan Year in which occurs the
latest of:
33
<PAGE>
(A) the date on which the Participant attains sixty-five (65)
years of age,
(B) the tenth (10th) anniversary of the year in which the
Participant commenced participation in the Plan, or
(C) the Participant's Separation from the Company;
provided, however, that distribution may be delayed if the amounts
allocable to a Participant's Capital Accumulation or the balance thereof
cannot be reasonably ascertained or the Participant (or the Participant's
Beneficiary) is unavailable to receive a distribution, in which case
distribution, retroactive to such date, will be made within sixty (60) days
after such time as the amount of the Participant's Capital Accumulation can
be reasonably ascertained or the Participant (or the Participant's
Beneficiary) becomes available.
Notwithstanding anything to the contrary contained herein, in the
case of the portion of a Participant's Account consisting of Company Stock
acquired by the Plan with the proceeds of a loan described in Section 5.8
of the Plan, the time and method of distribution set forth in this
paragraph (3) shall be the normal form to which the Participant is entitled
until the close of the Plan Year in which such loan has been fully repaid.
Subject to the provisions of Subsections 7.4(a) and 7.4(b), the
deferred lump sum payment shall occur at the time specified by the
Committee, but not earlier than the former Participant's attainment of
Normal Retirement Age nor later than the latest time specified above in
this Subsection.
(b) Notwithstanding anything to the contrary contained in this Article
VII, distributions must occur at least as rapidly as provided in this paragraph.
A Participant's entire interest in the Plan will commence to be distributed not
later than the Required Beginning Date, and shall be distributed not less
rapidly than in substantially equal annual installments over the life expectancy
of the Participant or the joint life and last survivor expectancy of the
Participant and his Beneficiary. If the Participant dies before his entire
interest in the Account has been distributed to him, and if distribution has
been commenced in accordance with Subsection 7.4(a)(1) of the Plan, the
remaining part of his Account must be distributed at least as rapidly as under
the method of distribution being used at the date of the Participant's death. If
the Participant dies before distribution of his Account has commenced pursuant
to Subsection 7.4(a)(1) of the Plan, the entire Account must be distributed
within five (5) years of the Participant's death. Provided, however, if (1) all
or a portion of the Account is payable to or for the benefit of a Beneficiary
designated by the Participant, (2) such portion will be distributed in
accordance with the Code and any regulations thereunder over a period not longer
than such Beneficiary's life expectancy, and
34
<PAGE>
(3) such distribution commences within one year after the Participant's
death (or by such later date as may be prescribed by regulations under the
Code), such portion of the Account shall be deemed to satisfy the
requirement of the immediately preceding sentence. For purposes of clause
(3) hereinabove, if the Beneficiary referred to in clauses (1) and (2)
hereinabove is the Participant's surviving spouse, distributions are not
required to commence earlier than the date on which the Participant would
have attained age seventy and one-half (70 1/2). If such surviving spouse
dies before distributions to him or her commence, this paragraph shall
apply as if such surviving spouse were the Participant. For purposes of
this paragraph, life expectancies shall be determined under Treasury
Regulation section 1.72-9 and shall be fixed as of the commencement of
distribution, except that the life expectancies of the Participant and his
spouse may be redetermined, but not more frequently than annually.
(c) All distributions shall be in the form of cash based on the
value of shares as of the last Valuation Date prior to distribution.
Provided, however, subject to Code section 409(h)(2), a Participant or
Beneficiary may demand distribution of the Company Stock in his Account in
lieu of cash, except that cash shall be distributed in lieu of any
fractional share.
(d) Payments pursuant to this Section 7.4 shall be made in
accordance with the provisions of Proposed Treasury Regulation section
1.401(a)(9)-l and 2 (or any successor thereto).
(e) Whenever discretion is exercisable in this Section 7.4, such
discretion shall be exercised in a manner that does not result in any
discrimination prohibited by section 401(a)(4) of the Code.
7.5 Forfeitures. If a Participant incurs a Severance Date at a time
-----------
when he has no Capital Accumulation in his Account under Section 7.2 of the
Plan, the amount in his Account shall be treated as a Forfeiture as of the date
on which such Participant first incurs such Severance Date. If a Participant
partially vested under Section 7.2 of the Plan incurs a Severance Date and has
received a complete distribution of the vested nonforfeitable portion of his
Account, the non-vested amounts in his Account shall be treated as a Forfeiture
as of the date on which such Participant receives such cash-out distribution. If
a Participant partially vested under Section 7.2 of the Plan incurs a Severance
Date and has not received a distribution of the vested portion of his Account,
the non-vested amounts in his Account shall be treated as a Forfeiture as of the
last day of the Plan Year in which such Participant has incurred five (5)
consecutive Breaks in Service.
Notwithstanding anything in the previous paragraph of this Section 7.5 to
the contrary, such prior Forfeitures (without adjustment for any gains or losses
in the Trust Fund subsequent to the date of such Forfeitures) plus any amount
repaid by the Participant (as provided hereinafter), shall be restored to such
Participant's Account if such Participant is reemployed before incurring five
(5) consecutive Breaks-In-Service. Restoration of such prior Forfeiture shall be
effective as of the Participant's Date of Reemployment; provided, however, that
--------
if such Participant received a
35
<PAGE>
distribution, such restoration shall not occur (notwithstanding anything else in
the Plan to the contrary) unless and until: (i) such Participant repays to the
Plan the full amount of his distribution, and (ii) such Participant's repayment
is made before the earlier of the following two days: (1) the date on which such
Participant incurs five (5) consecutive Breaks-In-Service, or (2) the end of the
five (5) year period beginning with the Participant's Date of Reemployment. Upon
the restoration of the Account (whether attributable to amounts restored or
additional amounts added to such accounts after such reemployment), the vested
amount in such Account shall thereafter be determined in accordance with the
provisions of this Article VII without regard to such Participant's original
Severance Date.
Restoration of such prior Forfeiture shall be funded through an allocation
of Forfeitures occurring in the Plan Year in which the Participant's Date of
Reemployment occurs or, to the extent inadequate, the Employers shall contribute
sufficient funds to fund such restoration, as shall be prescribed by the
Committee. Forfeitures remaining after all restorations for that Plan Year shall
first be used to reduce Contributions to the Plan for such Plan Year, then
reasonable administrative expenses properly incurred and payable by the Plan for
such Plan Year, and then, if any Forfeitures remain for such Plan Year, such
amounts shall be allocated to Participants in accordance with Section 5.2 of the
Plan.
7.6 Rehiring After a Severance Date.
-------------------------------
(a) If an Employee is rehired after such Employee has a Severance
Date and prior to incurring five (5) consecutive Breaks-In-Service, Years
of Service prior to such Severance Date shall be counted with respect to
vesting of both (1) any amount restored under Section 7.5 of the Plan, and
(2) amounts credited to such Employee following his reemployment.
(b) An Employee who is rehired after such Employee has both a
Severance Date and five (5) consecutive Breaks-In-Service shall have no
right to restoration of his prior Forfeiture, and such Employees
nonforfeitable rights in contributions allocated to his Account subsequent
to his reemployment shall be determined on the basis of such Employee's
Years of Service which is not disregarded under Section 2.5 of the Plan.
(c) If not fully distributed before the time of an Employee's
rehiring, the prior Capital Accumulation of a rehired Participant shall
continue to be retained in the Trust and shall be treated as fully vested
and nonforfeitable until the Participant again has a Severance Date, at
which time it shall be distributed in accordance with the provisions of
this Plan.
7.7 Limitations on Benefits. All of the provisions of this Article VII
-----------------------
are subject to Section 10.5 of the Plan, relating to the Trustee's authority to
withhold for payment of taxes, and are subject to the rights of any Alternate
Payee.
7.8 Direct Rollover Distributions.
-----------------------------
36
<PAGE>
(a) Right to Direct Rollover. Notwithstanding any provision of the
------------------------
Plan to the contrary that would otherwise limit a Distributee's election under
this Section 7.8, a Distributee may elect, at the time and in the manner
prescribed by the Committee, to have any portion of an Eligible Rollover
Distribution paid in a Direct Rollover directly to an Eligible Retirement Plan
specified by the Distributee. The Committee may limit Direct Rollovers to
Eligible Rollover Distributions of at least $200 (or those reasonably expected
to total at least $200 when aggregated with other distributions during the Plan
Year from this Plan). The procedures prescribed by the Committee may include a
deadline for making such an election and may require the Distributee to furnish
adequate information regarding the transferee plan. Such procedures may also
require the Direct Rollover of at least $500 as a condition of permitting Direct
Rollover of less than the total distribution and may limit Participants to a
single Direct Rollover.
(b) Definitions.
-----------
(1) "Eligible Rollover Distribution" shall mean any distribution
of all or any portion of the balance to the credit of the Distributee;
provided, however, that an Eligible Rollover Distribution does not include
(i) any distribution that is one of a series of substantially equal
periodic payments (occurring not less frequently than annually) made for
(I) the life expectancy of the Distributee, (II) the joint life
expectancies of the Distributee and the Distributee's designated
Beneficiary or (III) a specified period of ten years or more, (ii) any
distribution to the extent such distribution is required under section
401(a)(9) of the Code and (iii) the portion of any distribution that is not
includible in gross income (determined without regard to the exclusion for
net unrealized appreciation with respect to Employer securities).
(2) "Eligible Retirement Plan" shall mean
(i) an individual retirement account described in section
408(A) of the Code,
(ii) an individual retirement annuity described in section
408(b) of the Code,
(iii) an annuity plan described in section 403(a) of the
Code, or
(iv) a qualified trust described in section 401(a) of the
Code that accepts the Distributee's Eligible Rollover
Distribution; provided, however, that notwithstanding
the foregoing in the case of an Eligible Rollover
Distribution to a surviving Spouse, Eligible Retirement
Plan shall mean only an individual retirement account
or individual retirement annuity.
37
<PAGE>
(3) "Distributee" shall mean (i) the Employee, (ii) a former
Employee, (iii) an Employee's or former Employee's surviving Spouse
and (iv) an Employee's or former Employee's former Spouse who is the
alternate payee under a qualified domestic relations order, as
defined in section 414(p) of the Code; provided, however, that a
Spouse or former Spouse is a Distributee only with regard to the
interest of the Spouse or former Spouse, as appropriate.
(4) "Direct Rollover" shall mean a payment by the Plan to the
Eligible Retirement Plan specified by the Distributee."
(c) Notice. No less than 30 days and no more than 90 days prior to
------
commencement of distribution, the Participant must be furnished with a
general description of the material features, and an explanation of the
relative values of any optional forms of distribution available to him
under this Article VII, and, if applicable, of his right to defer
distribution.
A distribution may commence less than to days after the notice
required under section 1.411(a)-11(c) of the Treasury Regulations is given,
provided that:
(a) the Committee clearly informs the Participant that the
Participant has a right of a period of at least 30 days after
receiving the notice to consider the decision of whether or not to
elect a distribution (and, if applicable, a particular distribution
option), and
(b) the Participant, after receiving the notice, affirmatively
elects a distribution.
ARTICLE VIII
ADMINISTRATION
8.1 Appointment of the Committee and the Plan Administrator. The
-------------------------------------------------------
administration of the Plan will be in charge of the Personnel Committee
designated by the Board (the "Committee"), which Committee, if any, shall serve
as the agent of the Plan Administrator. The Committee shall consist of at least
three (3) members and not more than ten (10) members, each of whom shall be a
director or Employee and each of whom shall be appointed by the Board. Each
member of the Committee shall serve until such member's successor shall be
appointed unless terminated sooner by death, resignation, or removal.
Notwithstanding the above, Committee membership will automatically terminate for
any director or employee at the time that a member loses status as a director or
employee of the Company. The Board shall appoint one (1) of the members as
Chairman, may remove a member of the Committee with or without cause, and may
fill vacancies in the Committee, however caused. A member of the Committee may
resign by delivery of such member's written resignation to the Board and other
members of the Committee. The Committee shall have
38
<PAGE>
the power, duty, and responsibility for directing the administration of the Plan
in accordance with its provisions.
8.2 Compensation and Expenses. The members of the Committee shall serve
-------------------------
without compensation for their services, but the reasonable and necessary
expenses of the Committee shall be paid by the Trustee. When, in its discretion,
the Committee or any Employer deems it advisable, it shall be authorized to have
the records of the Committee and the Trustee audited by an independent auditor,
and reasonable and necessary expenses thereby incurred shall be paid as provided
in Section 11.4 of the Plan.
8.3 Secretary and Administrative Personnel of the Committee. The
-------------------------------------------------------
Committee may appoint a secretary who may, but need not, be a member of the
Committee, and may employ such agents and such professional, clerical, and other
administrative personnel as may reasonably be required for the purpose of
administering the Plan. Such administrative personnel shall carry out the duties
and responsibilities assigned to them by the Committee. Expenses necessarily
incurred for such purpose shall be paid as provided in Section 11.4 of the Plan.
8.4 Action by the Committee.
-----------------------
(a) A majority of the members of the Committee shall constitute a
quorum for the transaction of business, and shall have full power to act
hereunder. Action by the Committee shall be official if approved by a vote
of a majority of the members present at any official meeting. The Committee
may, without a meeting, authorize or approve any action by written
instrument signed by a majority of all the members. Any written memorandum
signed by the Chairman, or any other member of the Committee, or by the
Secretary, or by any other person duly authorized by the Committee to act,
in respect of the subject matter of the memorandum, shall have the same
force and effect as a formal resolution adopted in open meeting. The
Committee shall give to the Trustee any order, direction, consent,
certificate, or advice required or permitted under the terms of the Trust
Instrument, and the Trustee shall be entitled to rely on, as evidencing the
action of the Committee, any instrument delivered to the Trustee when (1)
if a resolution, it is certified by the Chairman and Secretary, or (2) if a
memorandum, it is signed by a majority of all the members of the Committee,
or by a person who shall have been authorized to act for the Committee in
respect of the subject matter thereof.
(b) A member of the Committee may not vote or decide upon any
matter relating solely to such member or vote in any case in which such
member's individual right or claim to any benefit under the Plan is
particularly involved. If, in any case in which a Committee member is so
disqualified to act, the remaining members then present cannot, by majority
vote, act or decide, the Board of Directors of the Company will appoint a
temporary substitute member to exercise all the powers of the disqualified
member concerning the matter in which such member is disqualified.
39
<PAGE>
(c) The Committee shall maintain minutes of its meetings and
written records of its actions. As long as such minutes and written records
are maintained, members may participate and hold a meeting of each
committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can
hear each other. Participation in such a meeting constitutes presence in
person at such meeting.
8.5 Duties and Authority of the Committee. The Committee is authorized
-------------------------------------
to take such actions as may be necessary to carry out the provisions and
purposes of the Plan and shall have the authority to control and manage the
operation and administration of the Plan. In order to effectuate the purposes of
the Plan, the Committee shall have the power to construe and interpret the Plan,
to supply any omissions therein, to reconcile and correct any errors or
inconsistencies, to decide any questions in the administration and application
of the Plan, and to make equitable adjustments for any mistakes or errors made
in the administration of the Plan; and all such actions or determinations made
by the Committee, and the application of rules and regulations to a particular
case or issue by the Committee, in good faith, shall not be subject to review by
anyone, but shall be final, binding, and conclusive on all persons ever
interested hereunder. In construing the Plan and in exercising its power under
provisions requiring Committee approval, the Committee shall attempt to
ascertain the purpose of the provisions in question and when such purpose is
known or reasonably ascertainable, such purpose shall be given effect to the
extent feasible. Likewise, the Committee is authorized to determine all
questions with respect to the individual rights of all Participants, former
Participants, and their Beneficiaries under this Plan, including, but not
limited to, all issues with respect to eligibility, Compensation, service,
valuation of Accounts, allocation of Employer Contributions and Trust earnings,
and Retirement or other Separation, and shall direct the Trustee concerning the
allocation, payment, and distribution of all funds held in trust for purposes of
the Plan. The Committee, in the exercise of any discretionary powers hereunder,
shall not exercise that discretion so as to discriminate in favor of Employees
who are "highly compensated Employees" within the meaning of Code section
414(q).
8.6 Claims Procedure and Other Rules and Regulations of the Committee.
-----------------------------------------------------------------
The Committee shall have authority to make, and from time to time revise, rules
and regulations for the administration of the Plan, including the authority to
establish, maintain, and communicate to the Employees, a reasonable claims
procedure, in accordance with law. Such claims procedure shall provide the
manner in which written claims for benefits shall be made, written notice of
disposition of a claim shall be made, and written application for appeal of the
denial of a claim shall be made. Failure of a Participant to file a claim will
not result in a forfeiture of any interest in the Participant's Account.
8.7 Plan Administrator's Duties. "Plan Administrator" shall mean the
---------------------------
Company, unless the Board of Directors designates some other person(s) to hold
the position of Plan Administrator. The Plan Administrator shall exercise such
authority and responsibility as the Plan Administrator deems appropriate to
comply with the provisions of federal law and governmental regulations issued
thereunder including, but not limited to, keeping records of Participants'
service, accrued benefits
40
<PAGE>
and the percentage of such benefits which are nonforfeitable under the Plan,
notification to Participants, annual registration with the Internal Revenue
Service, and annual reports to the Department of Labor. The Plan Administrator
shall be the designated agent for service of legal process.
8.8 Duties and Authority of Administrative Personnel. Administrative
------------------------------------------------
personnel appointed, pursuant to Section 8.3 of the Plan, shall be responsible
for such matters as the Committee shall delegate to them by written instrument,
including, but not limited to, communication to Employees at the direction of
the Committee, reports to the Committee involving questions of eligibility and
the amount of Compensation of Participants and former Participants, assisting
Participants and Beneficiaries in the completion of forms prescribed by the
Committee, and maintenance of records concerning former Participants and
Beneficiaries. No administrative personnel may make any decision as to Plan
policy, interpretations, practices, or procedures unless the authority to make
such decision has been delegated to them in writing by the Committee and they
accept their fiduciary responsibilities in accordance with the provisions of
Section 8.9 of the Plan. All administrative personnel shall, except as provided
in the next preceding sentence, perform their allocated function within the
policies, interpretations, rules, practices, and procedures established by the
Committee. Administrative personnel shall coordinate matters related to the Plan
with the appropriate departments of each Employer as the Committee directs.
8.9 Named Fiduciaries and Allocation of Responsibility. ERISA requires
--------------------------------------------------
that certain persons, who are deemed to be "fiduciaries," as defined in section
3(21)(A) of ERISA, be designated as "Named Fiduciaries" in the Plan. The Board,
the Plan Administrator, and the Trustee are hereby designated Named Fiduciaries.
Each Named Fiduciary shall have only the powers, duties, and responsibilities
specifically allocated to such fiduciary pursuant to the terms of this Plan. The
Board shall not have any power or fiduciary responsibility hereunder other than
(a) the power to name the persons who shall comprise the Committee and
continuing the allocation of fiduciary responsibilities to those persons, (b)
the power to appoint the Trustee, and (c) the power to amend or terminate the
Plan. Each Named Fiduciary may, by written instrument, allocate some or all of
such Named Fiduciary's responsibilities to another fiduciary or designate
another person to carry out some or all of such Named Fiduciary's fiduciary
responsibilities. Each fiduciary to whom responsibilities are allocated by a
Named Fiduciary will be furnished a copy of the Plan and their acceptance of
such responsibility will be made by agreeing in writing to act in the capacity
designated. No Named Fiduciary shall be liable for an act or omission of any
person (who is allocated a fiduciary responsibility or who is designated to
carry out such responsibility) in carrying out a fiduciary responsibility except
to the extent that the Named Fiduciary did not act in accordance with the
standard contained in Subsection 8.10(b) of the Plan with respect to the
allocation or designation, continuation thereof, or implementation or
establishment of the allocation or designation procedures. Any person or group
of persons may serve in more than one fiduciary capacity with respect to the
Plan.
41
<PAGE>
8.10 Action by Fiduciaries.
---------------------
(a) Any action herein permitted or required to be taken by an
Employer shall be by resolution of its board of directors or by written
instrument signed by a person or group of persons who has been authorized
by resolution of such board of directors as having authority to take such
action. Any action herein permitted or required to be taken by the
Committee shall be in such manner specified in Section 8.4 of the Plan.
(b) Each fiduciary with respect to the Plan shall perform all of
such fiduciary's duties and responsibilities and exercise such fiduciary's
powers hereunder with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in like capacity
and familiar with such matters would use in the conduct of an enterprise of
like character and with like aims, and no fiduciary shall be liable for any
act or failure to act on such fiduciary's part which conforms to that
standard, unless such fiduciary knowingly participates in or knowingly
undertakes to conceal an act or omission of another fiduciary of the Plan,
with the knowledge that such act or omission is a breach of fiduciary
responsibility, or knowing of a breach of fiduciary responsibility, such
fiduciary fails to make reasonable efforts under the circumstances to
remedy the breach, or by failing to carry out such fiduciary's specific
responsibilities, in accordance with such standard, such fiduciary has
enabled another fiduciary of the Plan to commit a breach.
(c) Each fiduciary shall furnish or cause to be furnished to each
other fiduciary all information needed for the proper performance of such
fiduciary's duties. Each fiduciary warrants that any directions given,
information furnished, or action taken by such fiduciary shall be in
accordance with the provisions of the Plan or the Trust Instrument, as the
case may be, authorizing or providing for such direction, information, or
action.
8.11 Employment of Advisors. A Named Fiduciary may appoint such
----------------------
accountants, counsel, actuaries, and other advisors as such Named Fiduciary
deems necessary or desirable in connection with the administration of the Plan.
A Named Fiduciary shall be entitled to rely, in accordance with the standard
contained in Subsection 8.10(b) of the Plan, upon, and shall not be liable for
any act or failure to act on such Named Fiduciary's part in such reliance or in
reliance, in accordance with such standard, on any opinion or reports, which
shall be furnished to such Named Fiduciary by any such accountant with respect
to accounting matters, counsel with respect to legal matters, or actuary with
respect to actuarial matters.
8.12 Bond. The Plan Administrator shall see that the appropriate
----
fiduciaries are bonded as required by federal law or regulation. Except as
required by the Board or by state or federal statute, irrespective of this
provision, no bond or other security shall be required of any fiduciary.
8.13 Indemnity. The Company shall indemnify and hold harmless each
---------
member of the Board, each Trustee who is an individual and the Committee and
each individual who is allocated fiduciary responsibility hereunder against any
and all claims, loss, damages, causes of action, suits,
42
<PAGE>
and liability of every kind, including expenses, court costs, and counsel fees
to the extent approved by the Board (which approval shall not be unreasonably
withheld) or otherwise provided by law, and liability, including any amounts
paid in settlement, with the approval of such Board, arising from any action or
failure to act. Such indemnity shall apply regardless of whether such claims,
demands, suits, proceedings, losses, damages, interest, penalties, expenses, and
liability arise in whole or in part from (a) the negligence or other fault of
the indemnified person, except when the same is judicially determined to be due
to gross negligence, fraud, recklessness, willful or intentional misconduct of
such indemnified person or (b) from the imposition on such indemnified person of
any penalties imposed by the Secretary of Labor, pursuant to section 502(l) of
ERISA, relating to any breaches of fiduciary responsibility under Part 4 of
Title I of ERISA.
8.14 Applicable Law. The execution, construction, administration, and
--------------
enforcement of the Plan, the Trust Instrument, and the Trust Fund shall be
governed by the laws of the State of Texas, to the extent not preempted by
federal law.
8.15 Qualified Domestic Relations Orders. The Committee shall establish
-----------------------------------
a written procedure for determining whether a domestic relations order is a
Qualified Domestic Relations Order and shall see that Qualified Domestic
Relations Orders pertaining to this Plan are complied with. To the extent so
provided in the Order, distribution may be made prior to the date the
Participant terminates employment; provided, however, that all the other rules
of Article VII of the Plan shall continue to apply.
In the event an Alternate Payee dies prior to distribution of all amounts
payable to the Alternate Payee pursuant to the Qualified Domestic Relations
Order, the remaining amount payable shall be distributed as provided in the
Qualified Domestic Relations Order. If the Qualified Domestic Relations Order
does not specify how such amounts are to be distributed in the event of the
Alternate Payee's death, the Committee shall cause such amounts to be
distributed in accordance with applicable law. The Committee may ascertain the
requirements of applicable law by filing an interpleader or declaratory judgment
action in a court of competent jurisdiction.
8.16 Authorization of Loan Transactions. Upon directions from the Board,
----------------------------------
the Committee shall have the authority to direct the Trustee to borrow funds to
purchase Company Stock. Upon directions from the Board, the Committee shall
consult with the Trustee concerning the source of the borrowed funds, the terms
of the loan agreement, and the provision of collateral. The Board may empower
the Committee to authorize the guarantee or making by the Company of any such
loan. Any loan made by or guaranteed by the Company or which involves a
disqualified person (as defined in section 4975(e)(2) of the Code) shall comply
with all applicable requirements of section 4975(d)(3) of the Code and
regulations issued thereunder in order that the extension of credit shall be
exempt from excise taxes imposed with respect to prohibited transactions under
section 4975 of the Code and any liability imposed by section 406 of ERISA.
From time to time at the Board's direction, the Committee may direct the Trustee
to enter into loan arrangements and purchase additional Company Stock and may
direct the Trustee to refinance previous loans.
43
<PAGE>
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 Participants to Furnish Required Information.
--------------------------------------------
(a) Each Participant shall furnish to the Committee such
information as the Committee considers necessary or desirable for purposes
of administering the Plan, and the provisions of the Plan respecting any
payments hereunder are conditional upon the Participant's furnishing
promptly such true, full, and complete information as the Committee may
reasonably request.
(b) Each Participant shall submit proof of such Participant's age
to the Committee at such time as required by the Committee. The Committee
shall, if such proof of age is not submitted as required, use as conclusive
evidence thereof, such information as is deemed by it to be reliable,
regardless of the source of such information. Any adjustment required by
reason of lack of proof or the misstatement of the age of persons entitled
to benefits hereunder, by the Participant or otherwise, shall be in such
manner as the Committee deems equitable.
(c) Any notice or information which, according to the terms of the
Plan or the rules of the Committee, must be filed with the Committee, shall
be deemed so filed if addressed and either delivered in person or mailed,
postage fully prepaid, to the Committee. If mailed, any such notice or
information shall be addressed as follows:
ESOP Committee
c/o Southern Community Bancshares, Inc.
325 Second Street, S.E.
Cullman, Alabama 35055
Whenever a provision herein requires that a Participant (or the
Participant's Beneficiary) give notice to the Committee within a specified
number of days or by a certain date, and the last day of such period, or
such date, falls on a Saturday, Sunday, or Company holiday, the Participant
(or the Participant's Beneficiary) will be deemed in compliance with such
provision if notice is delivered in person to the Committee or is mailed,
properly addressed, postage prepaid, and postmarked on or before the
business day next following, such Saturday, Sunday, or Company holiday. The
Committee may, in its sole discretion, modify or waive any specified
requirement of notice; provided, however, that such modification or waiver
must be administratively feasible, must be in the best interest of the
Participant, and must be made on the basis of rules of the Committee which
are applied uniformly to all Participants.
44
<PAGE>
9.2 Beneficiaries.
-------------
(a) Subject to the provisions of Subsection 9.2(b) of the Plan,
each Participant may, on a form provided for that purpose, signed and filed
with the Committee at any time prior to complete distribution of such
Participant's Capital Accumulation, designate a Beneficiary or
Beneficiaries, including such Participant's estate, to receive the benefit,
if any, which may be payable, in event of such Participant's death,
pursuant to any of the provisions of the Plan, and each such designation
may be revoked by such Participant by signing and filing with the Plan
Administrator a new designation of beneficiary form prior to such complete
distribution. Subject to Subsection 9.2(b) of the Plan, if a deceased
Participant failed to name a Beneficiary in the manner above prescribed,
or, subject to Section 9.3, if the Beneficiary or Beneficiaries named by a
deceased Participant predeceases the Participant, the amount payable with
respect to such Participant pursuant to Section 7.1, if any, may, subject
to the adjustment otherwise provided hereunder, be paid, in the discretion
of the Committee, either to (1) a person otherwise designated by such
Participant as the Beneficiary, (2) all or any one or more of the persons
comprising the group consisting of the Participant's descendants, the
Participant's parents, or the Participant's heirs at law, and the Committee
may pay the entire amount to any member of such group or apportion such
amount among any two or more of them in such shares as the Committee, in
its sole discretion, shall determine, or (3) the estate of such deceased
Participant. Any payment made to any person pursuant to the power and
discretion conferred upon the Committee by the preceding sentence shall
operate as a complete discharge of all obligations under the Plan in
respect of such deceased Participant and shall not be subject to review by
anyone, but shall be final, binding, and conclusive on all persons ever
interested hereunder.
(b) The provisions of this Subsection 9.2(b) shall apply to all
married Participants. The amount payable with respect to a Participant
pursuant to Section 7.1, if any, on account of the Participant's death
shall be paid to the Participant's surviving spouse, unless the surviving
spouse has irrevocably consented to the designation of a Beneficiary other
than the spouse (and to any change in the designation of Beneficiary
involving a Beneficiary other than the spouse, unless the spouse's consent
expressly permits the Participant to change the designation of Beneficiary
without further consent of the spouse) in a writing which acknowledges the
effect of the consent and which is witnessed by a Plan representative or a
notary public. Such a consent binds only the spouse who signed it. A
Participant may, after obtaining his spouse's consent, change his
Beneficiary designation as permitted by Subsection 9.2(a) above, but any
such change is subject to the requirements of this Subsection and will
require another such consent should the spouse, if surviving, not be the
sole Beneficiary of all amounts in the Account, unless such a consent
previously executed by such spouse expressly authorizes changes in the
Beneficiary without further consent of the spouse, and acknowledges that
the spouse has the right to limit consent to a specific Beneficiary, and
that the spouse voluntarily elects to relinquish such right. If such
spousal consent is obtained or if such spousal consent may not be obtained
because the
45
<PAGE>
spouse cannot be located, or if such spouse does not survive the
participant, then the provisions of Subsection 9.2(a) and Section 9.3 of
the Plan shall apply.
9.3 Contingent Beneficiaries. In the event of the death, prior to the
------------------------
complete payment of the amount payable with respect to a Participant pursuant to
Section 7.1, of a Beneficiary who survives the Participant, the balance of such
amount shall be payable to a person designated by the Participant to receive
such balance, or if no person was so named, then to a person designated by the
Beneficiary of the deceased Participant to receive such balance; provided,
however, that if no person so designated be living upon the occurrence of such
contingency, then such balance shall be payable, in the discretion of the
Committee, to either (1) all or any one or more of the persons comprising the
group consisting of the Participant's spouse, the Beneficiary's spouse, the
Participant's descendants, the Beneficiary's descendants, the Participant's
parents, the Beneficiary's parents, the Participant's heirs at law, or the
Beneficiary's heirs at law, or (2) the estate of such deceased Beneficiary. Any
payment made to any person pursuant to the power and discretion conferred upon
the Committee by the preceding sentence shall operate as a complete discharge of
all obligations under the Plan in respect to such deceased Beneficiary and shall
not be subject to review by anyone, but shall be final, binding, and conclusive
on all persons ever interested hereunder.
9.4 Participants' Rights in Trust Fund. No Participant or other person
----------------------------------
shall have any right, title, or interest in, to, or under the Trust Fund, or any
part of the assets thereof, except and to the extent expressly provided in the
Plan.
9.5 Restrictions on Assignment. The benefits provided hereunder are
--------------------------
intended for thepersonal security of persons entitled to payment under the Plan,
and are not subject in any manner to the debts or other obligations of the
persons to whom they are payable. The interest of a Participant, such
Participant's Beneficiary or Beneficiaries, or an Alternate Payee may not be
sold, transferred, assigned, or encumbered in any manner, either voluntarily or
involuntarily, and any attempt so to anticipate, alienate, sell, transfer,
assign, pledge, encumber, or charge the same shall be null and void; neither
shall the Trust Fund nor any benefits thereunder or hereunder be liable for or
subject to the debts, contracts, liabilities, engagements, or torts of any
person to whom such benefits or funds are payable, nor shall they be subject to
garnishment, attachment, or other legal or equitable process nor shall they be
an asset in bankruptcy. All of the provisions of this Section 9.5, however, are
subject to Sections 9.6 and 10.5 of the Plan. This Section 9.5 shall not apply
to the extent benefits are transferrable or assignable pursuant to a Qualified
Domestic Relations Order, or to other assignments permitted under Code section
401(a)(13).
9.6 Benefits Payable to Incompetents. Whenever and so often as any
--------------------------------
person entitled to payments hereunder shall be under a legal disability, or in
the sole judgment of the Committee shall otherwise be unable to apply such
payments in furtherance of such person's own interests and advantage, the
Committee, in the exercise of its discretion, may direct all or any portion of
such payments to be made in any one or more of the following ways: (1) directly
to such person; (2) to the guardian of his or her person or of such person's
estate, even though appointed by a court other than an Alabama court; (3) to
such person's spouse or to any other person, to be expended for such
46
<PAGE>
person's benefit; (4) to a custodian under any applicable Uniform Gifts to
Minors Act; or (5) by the Committee itself, receiving and expending, or
directing the expenditure of the same for the benefit of such incompetent
person. If the Committee wishes to direct payments to a custodian under any
applicable Uniform Gifts to Minors Act, it may, as a precondition to the
commencement of such payments require an opinion of counsel for the ward or
other person seeking the custodial distribution that such distribution is
authorized under said Uniform Gifts to Minors Act. The decision of the
Committee will, in each case, be final, binding, and conclusive upon all persons
ever interested hereunder, and except in the case of clause (5) above, the
Committee shall not be obliged to see to the proper application or expenditure
of any payments so made. Any payment made pursuant to the power herein
conferred upon the Committee shall operate as a complete discharge of the
obligations of the Trustee and of the Committee, to the extent of amounts so
paid.
9.7 Conditions of Employment Not Affected by Plan. Neither the Plan,
---------------------------------------------
the Trust, nor the Trust Instrument shall ever confer on any Employee, including
any Participant, any right to be retained in the service of an Employer, and
nothing herein or in the Trust Instrument contained shall ever be construed as
in any way limiting or restricting the right of an Employer to discharge any
Employee, regardless of whether such Employee be a Participant, or from time to
time to change such Employee's position or the basis or amount of such
Employee's compensation.
9.8 Address for Mailing of Benefits.
-------------------------------
(a) Each Participant and other person entitled to benefits
hereunder shall file with the Committee from time to time in writing such
Participant's post office address and each change of address. Any check
representing payment hereunder and any communication addressed to a
Participant, an Employee, a former Employee, or Beneficiary, at such
person's last address filed with the Committee, or if no such address has
been filed, then at such person's last address as indicated on the records
of the Employer, shall be deemed to have been delivered to such person on
the date on which such check or communication is deposited, postage
prepaid, in the United States mail.
(b) If the Committee, for any reason, is in doubt as to whether
payments are being received by the person entitled thereto, it shall, by
registered mail addressed to the person concerned, at his address last
known to the Committee, notify such person that all unmailed and future
payments shall be henceforth withheld until he provides the Committee with
evidence of his continued life and his proper mailing address.
9.9 Unclaimed Account Procedure. Neither the Trustee nor the Committee
---------------------------
shall be obliged to search for, or ascertain the whereabouts of any Participant
or Beneficiary. The Committee, by certified or registered mail addressed to
such Participant's or Beneficiary's last known address, shall notify the
Participant or Beneficiary that such Participant or Beneficiary is entitled to a
distribution under this Plan, and the notice shall quote the provisions of this
Section. Any distribution or payment which is not claimed by the person
entitled thereto within a period of three (3) full years after such person is
entitled thereto, or such shorter period as may be necessary to
47
<PAGE>
prevent escheat under the state escheat laws, shall be forfeited. Such forfeited
amounts shall be added to Forfeitures and reallocated as herein provided. Should
such person make a claim for such forfeited benefit which is approved by the
Committee, such benefit shall be reinstated in such manner as the Committee
determines to be equitable and in accordance with law, specifically including
the following manner:
The Employer for whom such Participant was employed shall immediately
contribute to the Plan an amount equal to the amount previously forfeited (but
without interest on such amount for the period from the date of such Forfeiture
to the date of such contribution), and such special contribution shall be
specially allocated for the benefit of such Participant or Beneficiary.
Immediately upon receipt of such contribution and allocation to such Participant
or Beneficiary, the Committee shall instruct the Trustee to distribute in a lump
sum, directly to such Participant or Beneficiary, the amount of such
contribution specially allocated to such Participant or Beneficiary.
9.10 Applicable Law. The execution, construction, administration, and
--------------
enforcement of the Plan, the Trust Instrument, and the Trust Fund shall be
governed by the laws of the State of Alabama, to the extent not preempted by
federal law.
ARTICLE X
TRUST FUND AND THE TRUSTEE
10.1 The Trust Fund and Its Purpose. A Trust Fund known as the Southern
------------------------------
Community Bancshares, Inc. Employee Stock Ownership Trust has been created and
will be maintained for the purposes of the Plan and the moneys thereof will be
invested in accordance with the terms of the Trust Instrument which forms a part
of the Plan. All Contributions will be paid into the Trust Fund, and all
benefits under the Plan will be paid from the Trust Fund.
10.2 Trustee's Duties Governed by Trust Instrument. The Trustee's
---------------------------------------------
obligations, duties and responsibilities are governed solely by the terms of the
Trust Instrument, reference to which is hereby made for all purposes.
10.3 Benefits Supported Only by the Trust. Any person having any claim
------------------------------------
under the Plan will look solely to the assets of the Trust Fund for
satisfaction. In no event will any Employer or any of its officers, Employees,
agents, members of its board of directors, the Trustee, any successor Trustee,
or any member of the Committee, be liable in their individual capacities to any
person whomsoever, under the provisions of the Plan or Trust or of the Trust
Instrument, absent a breach of fiduciary responsibility as set out in Section
8.10 of the Plan.
10.4 Trust Fund Applicable Only to Payment of Benefits. Except as
-------------------------------------------------
provided in Sections 5.4(a)(2), 11.1, and 11.4 of the Plan, 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
48
<PAGE>
Trust Fund will be used for, or diverted to, purposes other than for the
exclusive benefit of Participants and other persons thereunder entitled to
benefits.
10.5 Withholding for and Payment of Taxes. If any assets of the Trust
------------------------------------
Fund, or any benefits payable under the Plan by the Trustee, shall become liable
for the payment of any estate, inheritance, income, or other tax, charge or
assessment, which in the Trustee's or Employer's opinion, the Trustee shall or
may be required to pay, the Trustee shall have full power and authority to pay
or withhold such tax, charge, or assessment out of any moneys or other property
in Trustee's hands for the account of the person whose interests hereunder are
liable for such tax, but, except as provided below with respect to withholding
required under section 3405 of the Code, with respect to such payments, at least
ten (10) days prior to making any such payment, the Trustee shall mail a notice
to the Committee of Trustee's intention to make such payment and, with respect
to such withholding, the Trustee shall notify the Committee of the amount
withheld within ten (10) days of payment of benefits under the Plan. The
Trustee also, prior to making any payment to any Beneficiary hereunder, may
require such releases or other documents from any lawful taxing authority and
may require such indemnity from such Beneficiary as Trustee shall deem necessary
for Trustee's protection. The Trust shall provide any notices required by Code
section 3405 with respect to federal income tax withholding from distributions
hereunder, and shall withhold and pay any federal income tax required under Code
section 3405, upon receipt of proper instructions from the Committee.
ARTICLE XI
MISCELLANEOUS
11.1 Employer's Contribution Irrevocable. The Employer shall have no
-----------------------------------
right, title, or interest in the Trust Fund or in any part thereof, and no
Contribution made thereto shall ever revert to the Employer except as provided
in Section 10.4 of the Plan and as provided herein. The initial contributions
and the adoption of the Plan by the Employers and the continuance of the Plan
are contingent upon and subject to obtaining the determination by the Internal
Revenue Service that the Plan qualifies under the provisions of sections 401(a)
and 4975(e)(7) of the Code, and that this Trust entered into, and made a part
thereof, is exempt from tax under the provisions of section 501(a) of the Code,
so as to establish the deductibility for income tax purposes under section
404(a) of the Code, of the initial contributions made by the Company and the
Employers under this Trust. The Company will promptly make every reasonable
effort to cause the Plan to receive such determination; but should it fail to
secure such determination, it is agreed and understood that the Company and the
Employers may recover contributions, or any investment into which they have been
converted, plus any gain and minus any loss thereon, if the Committee directs
the Trustee to return such amounts. Such contributions shall be returned, if at
all, within the one year period after such adverse determination, provided that
the application for determination is made not later than the Company's tax
return due date for the taxable year in which the Plan was adopted (or such
later time as the Secretary of the Treasury may prescribe). If the Committee
in good faith determines that
49
<PAGE>
(a) a contribution was made by reason of a mistake of fact, or (b) a
contribution is deductible under section 404 of the Code, but the Internal
Revenue Service disallows such deduction, the amount of the excess contribution
less losses attributable thereto may, upon direction of the Committee, be
returned to the Company and the Employers. All payments of returned
contributions under this Section shall be made within one (1) year from the date
of the denial of qualification of the Plan, the payment of such mistaken
contribution, or the disallowance by the Internal Revenue Service of the
deduction, whichever is applicable. The amount of the excess contribution shall
be the excess of (a) the amount contributed over (b) the amount that would have
been contributed had there not occurred a mistake of fact or had the deduction
not been disallowed. Furthermore, if the withdrawal of the amount attributable
to the mistaken Contribution would cause the balance of the Account of a
Participant to be reduced to an amount which is less than the balance which
would have been in said Account had the mistaken amount not been contributed,
then the amount to be returned to the Company and the Employers under this
Section will be reduced so as to avoid any such reduction. Earnings attributable
to such excess contribution shall not be returned, and, as aforesaid, losses
shall reduce the amount otherwise returnable hereunder to the Employers.
11.2 Absence of Responsibility. Neither the Company nor any Employer nor
-------------------------
any of the officers, Employees, members of the Board nor agents of the Company
or any Employer, nor the Trustee, nor members or officers of the Committee,
guarantee in any manner the payment of benefits hereunder.
11.3 Amendment of the Plan. When authorized by resolution of its Board,
---------------------
the Plan may be amended by the Company at any time and from time to time in any
respect whatever, by instrument supplemental hereto, specifying such amendment,
amendments, or by restatement of the Plan, subject only to the following
limitations:
(a) Under no condition shall such amendment, amendments, or
restatements result in or permit the return or repayment to any Employer of
any property held or acquired by the Trustee or the proceeds thereof, or
result in, or permit the distribution of, any such property for the benefit
of anyone other than the Participants and their Beneficiaries, or estate
except to the extent provided by Subsection 5.4(a), Section 8.2, Section
11.1, Section 11.4 and this Section 11.3 of the Plan.
(b) Under no condition shall such amendment, amendments, or
restatements increase the duties or responsibilities, or decrease the
compensation, privileges, and immunities of the Trustee without the
Trustee's written consent.
(c) Under no condition shall such amendment change the vesting
schedule to one which would result in a Participant's Capital Accumulation
(determined as of the later of the date of the adoption of the amendment or
the effective date of the amendment) of any Participant being less than
such nonforfeitable percentage computed under the Plan without regard to
such amendment; no amendment shall adversely change the vesting schedule
unless each Participant with three (3) or more Years of Service is
permitted to elect, within the
50
<PAGE>
election period described below, to have his nonforfeitable percentage
computed under the Plan without regard to the amendment. The election
period described herein shall begin no later than the date upon which the
amendment is adopted and shall end no later than the latest of the
following dates: (1) the date which is sixty (60) days after the day the
amendment is adopted; (2) the date which is sixty (60) days after the day
the amendment becomes effective; or (3) the date which is sixty (60) days
after the day the Participant is issued a written notice of the amendment
by the Company. In the event of an amendment, each other Employer will be
deemed to have consented to and adopted the amendment unless an Employer
notifies the Company and the Committee to the contrary in writing within
thirty (30) days after receipt of a copy of the amendment, in which case
the rejection if not acquiesced in by the Company will constitute a
withdrawal from this Plan and its related Trust by that Employer.
Subject to the foregoing limitations and subject to the requirement that no
amendment shall reduce any Participant's accrued benefit or eliminate, except
with respect to any future contributions or future accrual of benefits, and
except as otherwise permitted by Code section 411(d)(6), any nondiscretionary
optional form of payment, the Company shall have the power to amend the Plan and
Trust Agreement, retroactively or otherwise, in any manner in which it deems
desirable, including, but not by way of limitation, the power to change any
provisions relating to the administration of the Plan and to change any
provisions relating to the benefits or payment of any of the assets of the Fund.
Each such amendment shall become effective when executed by the Company unless a
different effective date is specified in the amendment. The Committee shall
give written notice to the Trustee of all amendments which are made to this
Plan; provided, however, that such notice shall not be a condition of the
effectiveness of any such amendment.
Notwithstanding anything herein to the contrary, this Plan may be amended
at any time by the Company if necessary or desirable in order to have it conform
to the provisions and requirements of the Code or any federal statute with
respect to qualified employees' plans and trusts, and no such amendment shall be
considered prejudicial to the rights of any Participant hereunder or of any
Beneficiary or Employee. Further, it is understood that any provisions of this
Plan as herein contained which are contrary to the requirements of the Code for
a qualified tax exempt employee stock ownership plan and trust shall be deemed
void and of no effect, without affecting the validity of other provisions
hereof.
11.4 Expenses of Administration. Except to the extent paid by an
--------------------------
Employer, the Committee shall cause the Trustee to pay all expenses incurred in
the administration of the Plan, including expenses of the Committee, expenses
and compensation of the Trustee, and the expenses of counsel. The Trustee, as
directed by the Committee, shall reimburse the Employers for expenses properly
and actually paid or incurred on behalf of the Plan, including those for
services rendered to the Plan by such Employers' Employees, other than those
Employees who are fiduciaries with respect to the Plan. The Committee may
contract or make reasonable arrangements with an Employer for office space, or
legal, accounting, or other services necessary for operation of the Plan, if no
more than reasonable compensation is paid therefor, provided that such
arrangement is exempted from any applicable prohibited transaction provisions of
the Code and ERISA.
51
<PAGE>
Notwithstanding the preceding provisions of this Section 11.4, brokerage fees,
commissions, stock transfer taxes, and other charges and expenses incurred in
connection with the purchase, sale, or distribution of securities or property,
and direct expenses incurred in the production and collection of income, shall
be paid from the Trust Fund by the Trustee, and where appropriate and involving
a transaction for the benefit of a particular Participant, may be charged to the
interest of such Participant.
11.5 Notice to Employees. Notice of the Plan and of any amendments
-------------------
thereto, of eligibility of each Employee, and notice of such other matters as
may be required by law or this instrument, shall be given by the Employer to the
Employees in such form as the Committee may deem appropriate and reasonable, and
in conformity to lawful requirements.
11.6 Agreement of Participants. Each Participant, by becoming such, for
-------------------------
himself or herself, and such Participant's heirs, executors, administrators,
legal representatives, and Beneficiaries, ipso facto, approves and agrees to be
bound by the provisions of this Plan and the Trust Instrument.
11.7 Action by Employers. Any written action herein permitted or
-------------------
required to be taken by an Employer shall be by resolution of its board of
directors or by written instrument executed by a person or group of persons who
has been authorized by resolution of its board of directors as having authority
to take such action.
11.8 Adoption of the Plan by a Controlled Group Member. Any corporation
-------------------------------------------------
which on or after the Effective Date is or becomes a Controlled Group Member
shall be authorized to adopt the Plan for the benefit of its eligible Employees
if approval of the Board is obtained.
(a) Method of Adopting the Plan by an Affiliate. In order to
-------------------------------------------
adopt the Plan, the board of directors of the Controlled Group Member must
approve a resolution expressly adopting the Plan for the benefit of its
Employees. Such resolution shall also authorize the appropriate officer of
such Controlled Group Member to contribute from time to time, for purposes
of the Plan, such sum as may, pursuant to Section 4.1 of the Plan, be
determined by the Board, to be such Controlled Group Member's Employer
Contribution for the benefit of Participants who are employed by such
Controlled Group Member. By adopting the Plan, the Controlled Group Member
shall be deemed to have delegated to the Company and its Board, authority
to administer the Plan through the appointment of the members of the
Committee and to amend or terminate the Plan at any time, and to take any
other steps necessary or advisable in connection with the administration
and implementation of the Plan. If requested to do so, such Controlled
Group Member shall also execute a joinder agreement adopting the Plan,
which agreement may make such modifications in the terms of the Plan as it
applies to such Controlled Group Member as may be approved by the Board.
(b) Transmittal of Resolution. A certified copy of the Controlled
-------------------------
Group Member's resolution shall be transmitted to the Board and approval of
the Board shall be
52
<PAGE>
deemed to constitute the adoption of the Plan by the Controlled Group
Member as of the date specified in such Controlled Group Member's
resolution.
11.9 Disassociation of an Employer from Plan. Any Employer may withdraw
---------------------------------------
from the provisions of this Plan at any time upon the expiration of thirty (30)
days after delivery of written notice in the form described in Section 11.7 of
the Plan, of its intent to so do to the Committee, the Trustee, and the Board,
and shall thereupon cease to be a party to this Plan and to the Trust
Instrument. In such event, liability for further Contributions for such
Employer shall cease, and, subject to the approval of the Board, the money
attributable to its then Participants and former Participants shall either be
distributed to the Participants or former Participants, if it elects to
terminate the Plan and Trust as to it, in the same manner as is provided in the
case of the termination of the whole Plan and Trust, or shall be transferred to
an independent successor plan and trust that it may establish for the benefit of
its own employees, which shall be deemed a continuation of this Plan and Trust.
Withdrawal from the Plan by an Employer shall not affect the continued operation
of the Plan with respect to the Company and other Employers.
11.10 Merger of Plans. In the case of any merger or consolidation of this
---------------
Plan or the Trust Fund with, or transfer of the assets or liabilities of the
Plan or Trust Fund to any other plan, the terms of such merger, consolidation,
or transfer shall be such that each Participant would receive (in the event of
termination of this Plan or its successor immediately thereafter) a benefit
which is no less than such Participant would have received in the event of
termination of this Plan immediately before such merger, consolidation, or
transfer. The Plan shall not accept any transfer of assets or liabilities from a
plan that is subject to the survivor annuity requirements of Code section
401(a)(11).
ARTICLE XII
TERMINATION OF PLAN
12.1 Termination of Plan. The Plan may be terminated in its entirety, or
-------------------
as to any Employer at any time by the Company by resolution of its Board, duly
certified by an officer of the Company authorized by its Board to certify such
resolution, specifying such termination. Such resolution shall be delivered to
the Committee, the Trustee, and to all Employers. Such termination may be so
made without consent being obtained from the Trustee, the Committee, the
Participants, or their Beneficiaries, Employees, or any other interested person.
The Plan shall automatically terminate upon dissolution of the Company, unless
provision is specifically made by its successors, if any, for the continuation
of the Plan, or by the other Employers, if any, for its continuation with
respect to them and their Employees.
12.2 Distribution on Termination. Upon termination of the Plan as
---------------------------
provided in Section 12.1 of the Plan, the Committee shall, as soon as
practicable, notify each Participant of such termination and of the fact that
all assets then in the hands of the Trustee will be distributed to each
Participant in the allotted proportions with full vesting in the Participants of
the Contributions paid
53
<PAGE>
to the Trust Fund. The Committee, shall, as soon as feasible, advise the
Trustee of the termination of the Plan, and the Trustee shall proceed, as
rapidly as feasible, to make the appropriate distribution to each Participant,
less any amounts necessary or proper to pay the expenses of such distribution
and liquidation and subject to Sections 7.7, 9.6 and 10.5 of the Plan. Upon
completion of liquidation and distribution of the assets of the Trust to the
Participants, the Trustee shall thereby complete the Trustee's duties, and the
Trust shall terminate.
12.3 Continuance of Plan by Successor. In the event of the consolidation
--------------------------------
or merger of an Employer, or the sale by the Employer of its assets, the
resulting successor person or persons, firm or corporation may continue this
Plan, subject to the approval of the Board, by delivery of written notice
adopting the Plan, in the form described in Section 11.8 of the Plan, to the
Committee, Board, and the Trustee, and by executing a proper supplemental Trust
Agreement with the Trustee. If, within one hundred eighty (180) days from the
effective date of such consolidation, merger, or sale of assets, such successor
does not adopt this Plan, as provided herein, it shall automatically be
terminated and the Trust Fund shall be distributed exclusively to the
Participants or their Beneficiaries in the manner provided for in this Plan for
terminations in general.
12.4 Discontinuance of Contributions. In the event that the board of
-------------------------------
directors of any Employer decides that it is impossible or inadvisable to
continue to make its Contributions as herein provided, said board shall have the
power to direct a discontinuance of the Employer's Contribution to the Trust
Fund by appropriate resolution. After the date specified in a resolution of
discontinuance of Contributions, such Employer shall not be required to make
further Contributions under the Plan. Nevertheless, upon any such
discontinuance, the Plan and Trust shall remain in existence, and all
provisions, other than the provisions relating to Contributions, shall remain in
effect as to such Employer. Upon the complete discontinuance of Contributions
under the Plan by the Employer, to be distinguished from a suspension of
Contributions under the Plan which is merely a temporary cessation of Employer
Contributions, all amounts credited to the Participants' Accounts shall, upon
such discontinuance, become vested and nonforfeitable. Any previously
unallocated funds at such time shall be allocated upon such discontinuance in
the manner prescribed in Article V, as appropriate. In all other respects,
however, the Participants shall be treated as though the Plan were in full force
and effect.
12.5 Partial Termination. Upon a final determination and finding by the
-------------------
Committee within the guidelines set forth in this Section 12.5 that there has
been a partial termination of the Plan, the Committee shall notify each affected
Participant. Should the Committee believe that the Plan may have suffered a
partial termination in a given year, in making its final determination and
finding as to whether a partial termination of the Plan has occurred, the
Committee may rely on, but is not required to seek, a determination letter from
the Internal Revenue Service or an opinion of counsel. The rights of each
Participant and Beneficiary affected by such partial termination to the amounts
credited to his Account shall be fully vested and nonforfeitable as of the date
of such partial termination. Any amount which become fully vested and
nonforfeitable as a result of the provisions of this Section shall be held and
distributed in the same manner that they would be so held and
54
<PAGE>
distributed had there been a discontinuance of Contributions, under Section 12.4
of the Plan, as of the date of such partial termination.
12.6 Sale of Division or Subsidiary. Notwithstanding anything to the
------------------------------
contrary in the Plan, regardless of whether a partial termination occurs upon a
sale or other disposition of one or more divisions or subsidiaries of the
Company (or upon the sale of the bulk of the assets of a trade or business
carried on by the Company or one or more of its divisions or subsidiaries), in
the case of Participants who are employed in the same or similar positions with
the acquiring party ("Purchaser"), no right to a distribution of Plan benefits
will accrue solely on account of such sale or disposition. For purposes of the
provisions of the Plan governing distributions, termination of employment with
Purchaser (or Purchaser's successor in interest) shall be treated under the Plan
as a termination of service with the Company or an affiliate thereof.
ARTICLE XIII
TOP-HEAVY PROVISIONS
13.1 Definitions. For purposes of this Article, the following
-----------
expressions shall have the meanings respectively indicated:
(a) "Determination Date" shall mean, for purposes of determining
whether a plan is top-heavy for a particular Plan Year, the last day of the
preceding Plan Year.
(b) "Key Employee" shall mean any Employee or former Employee of
an Employer (including a Beneficiary of any deceased Key Employee) who is a
key employee of an Employer as defined by sections 416(i)(1) and (5) of the
Code.
(c) "Non-Key Employee" shall mean any Employee of an Employer
(including a Beneficiary of any deceased Non-Key Employee) who is not a Key
Employee.
(d) "Top-Heavy Plan" shall mean for any Plan Year, a plan under
which, as of the Determination Date, the aggregate of the accounts of Key
Employees under the plan exceeds sixty percent (60%) of the aggregate of
the accounts of all employees under such plan or, in the case of a defined
benefit plan, the present value of the cumulative accrued benefits under
the plan for Key Employees exceeds sixty percent (60%) of the present value
of the cumulative accrued benefits under the plan for all employees, all as
determined in accordance with the provisions of Code section 416(g). The
accrued benefit of a Non-Key Employee shall be determined under (1) the
method, if any, that uniformly applies for accrual purposes under all
defined benefit plans maintained by the Employer, or (2) if there is no
such method, as if such benefit accrued not more rapidly than the slowest
accrual rate permitted under the fractional rule of section 411(b)(1)(C) of
the Code. The determination of whether a plan is top heavy shall be made
after aggregating all other plans of the
55
<PAGE>
Employers and Controlled Group Members in the Required Aggregation Group
and after aggregating any other such plan of an Employer or an affiliate in
the Permissive Aggregation Group if such permissive aggregation thereby
eliminates the top-heavy status of any plan within such Permissive
Aggregation Group. Except as set forth below, in determining the present
value of the cumulative accrued benefit of any employee or the amount of
any account of any employee, the present value or amount of account shall
include any plan distributions made during the five (5) year period ending
on the Determination Date, including distributions upon plan termination if
the plan would have been in the Required Aggregation Group if it had not
been terminated. Notwithstanding the preceding sentence, the accrued
benefit or account balance of any former Participant who has not performed
any services for the Employer during the five (5) year period preceding the
Determination Date shall not be included in the determination set forth in
the preceding sentence. In determining whether a plan is top-heavy, if any
individual is a Non-Key Employee with respect to any plan for any plan
year, but such employee was a Key Employee with respect to such plan for
any prior plan year, any accrued benefit for such individual (and the
account of such individual) shall not be taken into account. In determining
whether a plan is top-heavy, the present value of accrued benefits shall be
determined on the basis of an interest rate of five percent (5%) and using
a unisex mortality assumption that is ninety percent (90%) male and ten
percent (10%) female, based on the 1971 Group Annuity Mortality Table, and
the same actuarial assumptions shall be used for all defined benefit plans
that are included in an aggregation group. The accrued benefit of each Non-
Key Employee shall be determined by using the method used for benefit
accrual under all plans of the Employer, or if there is no such method, no
more rapidly than under the slowest method of benefit accrual permitted
under Code section 411(b)(1)(C). Only those plans of the Employer in which
the Determination Dates fall within the same calendar year shall be
aggregated in order to determine whether such plans are Top-Heavy Plans .
(e) "Super Top-Heavy Plan" means for any plan year, a plan that,
as of the Determination Date, would meet the test specified above for being
a Top-Heavy Plan if ninety percent (90%) were substituted for sixty percent
(60%) in each place it appears in Subsection 13.1(d).
(f) "Required Aggregation Group" means each plan of the Employer
in which a Key Employee is a participant, and each other plan of the
Employer which enables any plan in which a Key Employee participates to
meet the requirements of Code section 401(a)(4) or 410. In the case of a
Required Aggregation Group, each plan in the group will be considered a
Top-Heavy Plan if the Required Aggregation Group is a Top-Heavy Group. No
plan in the Required Aggregation Group will be considered a Top-Heavy Plan
if the Required Aggregation Group is not a Top-Heavy Group.
(g) "Permissive Aggregation Group" includes the Required
Aggregation Group and any other plan not required to be included in the
Required Aggregation Group, if the resulting group, taken as a whole, would
continue to satisfy the provisions of Code sections
56
<PAGE>
401(a)(4) or 410. In the case of a Permissive Aggregation Group, only a
plan that is part of the Required Aggregation Group will be considered a
Top-Heavy Plan if the Permissive Aggregation Group is a Top-Heavy Group. No
plan in the Permissive Aggregation Group will be considered a Top-Heavy
Plan if the Permissive Aggregation Group is not a Top-Heavy Group.
(h) "Top-Heavy Group" means a Required or Permissive Aggregation
Group, if applicable, in which, as of the Determination Date, the sum of
the present value of the accumulated accrued benefits of Key Employees
under all defined benefit plans included in the group, and the aggregate of
the accounts of Key Employees under all defined contribution plans included
in the group, exceeds sixty percent (60%) of a similar sum determined for
all Participants.
(i) "Valuation Date" shall mean for purposes of determining the
value of plan accounts under this Section 13.1 the same date as the
Determination Date.
13.2 Application of Top-Heavy Rules. Notwithstanding anything contained
------------------------------
herein to the contrary, in the event that this Plan is a Top-Heavy Plan, as
determined pursuant to Code section 416 and this Article XIII, for any Plan
Year, the provisions of this Article XIII shall become operative with respect to
such Plan Year.
13.3 Minimum Allocation Requirement. Notwithstanding the provisions of
------------------------------
Subsection 5.2(d) of the Plan, relating to allocations of Employer
Contributions, for any Plan Year in which this Plan is a Top-Heavy Plan, the
Committee shall cause a minimum allocation of Contributions to be made for such
Plan Year to the Account of each Non-Key Employee (who is a Plan Participant who
has not separated from service at the end of such Plan Year and who would not
otherwise be entitled to an allocation of Contributions equal to or in excess of
the amount determined under this Section 13.3) before allocating the balance of
Contributions in accordance with such Subsection. The amount of such minimum
allocation shall be equal to the lesser of (a) and (b) where:
(a) is an amount equal to three percent (3%) of such Non-Key
Employee's Remuneration, and
(b) is an amount equal to the largest percentage of Remuneration
of all allocations of Contributions to be made hereunder for such Plan Year
with respect to any Key Employee.
Notwithstanding anything herein to the contrary, in any Plan Year in which
a Non-Key Employee is a Participant in both this Plan and a defined benefit
pension plan of an Employer, and both such plans are Top-Heavy Plans, the
Employer shall not be required to provide a Non-Key Employee with both the full
separate minimum defined benefit plan benefit and the full separate defined
contribution plan allocations. Therefore, for Non-Key Employees who are
participating in a defined benefit plan maintained by the Employer and the
minimum benefits under Internal
57
<PAGE>
Revenue Code section 416(c)(2) are accruing to a Non-Key Employee under such
plan, the minimum allocations provided for above shall not be applicable, and no
minimum allocation shall be made under the Plan on behalf of the Non-Key
Employee. Further, notwithstanding anything herein to the contrary, in any plan
year in which a Non-Key Employee is a Participant in both this Plan and another
Company maintained defined contribution plan and is not a participant in a
defined benefit plan maintained by the Employer, and the minimum benefits under
Code section 416(c)(2) are accruing to such non-key employee under the Savings
Plan, the minimum allocation provided for above shall not be applicable, and no
minimum allocation shall be made under the Plan on behalf of such Non-Key
Employee.
13.4 Effect on Allocation Limitations. In the event Section 13.2 above is
--------------------------------
applicable, then the multiplier of 1.25 in Subsections 5.4(b)(1) and 5.4(b)(2)
of the Plan shall be reduced to 1.0 unless
(a) All plans required to be aggregated and any other plans which
may be permissively aggregated pursuant to Code section 416(g) are not Super
Top-Heavy, and
(b) The Account of each Non-Key Employee who is a Participant
receives an extra contribution allocation (in addition to the minimum
contribution allocation set forth above) equal to not less than one percent (1%)
of each Non-Key Employee's Compensation.
13.5 Effect on Vesting. Notwithstanding the provisions of Section 7.2 of
-----------------
the Plan, for any Plan Year in which this Plan is a Top-Heavy Plan, a
Participant's Capital Accumulation shall be a percentage of his Account
determined on the basis of the Participant's number of Years of Service, as
defined in Section 2.4 of the Plan, according to the following schedule:
Years of Service Nonforfeitable Percentage
---------------- -------------------------
Less than 2 years 0%
2 years but less than 3 years 20%
3 years but less than 4 years 40%
4 years but less than 5 years 60%
5 years but less than 6 years 80%
6 years or more 100%
Notwithstanding the foregoing, if the Plan shall cease to be a Top-Heavy Plan in
any subsequent Plan Year, the Board of Directors of the Company shall direct the
Committee either to (a) continue to apply the above vesting schedule or (b)
revert to the vesting schedule previously applicable under Section 7.2 of the
Plan. Reversion to said vesting schedule shall be treated as a Plan amendment
and shall be subject to the provisions of Subsection 11.3(c) of the Plan.
IN WITNESS WHEREOF, each Employer has caused this instrument to be executed
this ___ of ______________, 1996.
58
<PAGE>
SOUTHERN COMMUNITY BANCSHARES, INC.
By:____________________________________
Title:_________________________________
59
<PAGE>
THE STATE OF ____________ (S)
(S)
COUNTY OF ____________ (S)
BEFORE ME, the undersigned authority, on this day personally appeared _____
_________, __________ of SOUTHERN COMMUNITY BANCSHARES, INC., known to me to be
the person whose name is subscribed to the foregoing instrument, and
acknowledged to me that he executed the same for the purposes and consideration
therein expressed, in the capacity therein stated, and as the act and deed of
said SOUTHERN COMMUNITY BANCSHARES, INC.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ____ day of _________, 1996.
__________________________________________
Notary Public in and for the State of_____
My Commission Expires:
_________________________
60
<PAGE>
[LETTERHEAD OF BAYH, CONNAUGHTON & MALONE, P.C.]
Board of Directors
First Federal Savings and Loan Association
of Cullman
325 Second Street, S.E.
Cullman, Alabama 35055
Gentlemen:
We hereby consent to the use of our firm's name in the Application for
Conversion on Form AC filed by First Federal Savings and Loan Association of
Cullman, and the Registration Statement of Southern Community Bancshares, Inc.,
Form SB-2; and to the reference to our firm name under the caption "Legal
Matters" in the Prospectus which is included in Form AC and Form SB-2. We also
consent to the inclusion of, summary of and references to our legal opinions
concerning legal and tax matters in such filings including the Prospectus of
Southern Community Bancshares, Inc.
Very truly yours,
/s/ Bayh, Connaughton & Malone, P.C.
-------------------------------------
Bayh, Connaughton & Malone, P.C.
Washington, D.C.
September 16, 1996
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this Offering
Circular.
/s/ ARTHUR ANDERSEN LLP
Birmingham, Alabama
September 17, 1996
<PAGE>
[ FERGUSON & CO., LLP LETTERHEAD ]
Board of Directors
First Federal Savings and Loan Association
of Cullman
325 Second Street, S.E.
Cullman, Alabama 35055
Gentlemen:
We hereby consent to the use of our firm's name in the Form AC Application
for Conversion of First Federal Savings and Loan Association of Cullman,
Cullman, Alabama, and any amendments thereto, and in the Form SB-2 Registration
Statement of Southern Community Bancshares, Inc., and any amendments thereto.
We also hereby consent to the inclusion of, summary of and references to our
Appraisal Report and our opinion concerning subscription rights in such filings
including the Prospectus of Southern Community Bancshares, Inc.
Very truly yours,
/s/ Robin L. Fussell
--------------------
Principal
Ferguson & Co., LLP
Irving, Texas
September 19, 1996
<PAGE>
[ LETTERHEAD OF MILLER, HAMILTON, SNIDER & ODOM, L.L.C. ]
Board of Directors
First Federal Savings and Loan Association
of Cullman
325 Second Street, S.E.
Cullman, Alabama 35055
Gentlemen:
We hereby consent to the use of our firm's name in the Application for
Conversion on Form AC filed by First Federal Savings and Loan Association of
Cullman, and the Registration Statement of Southern Community Bancshares, Inc.,
Form SB-2; and to the reference to our firm name under the caption "Legal
Matters" in the Prospectus which is included in Form AC and Form SB-2. We also
consent to the inclusion of, summary of and references to our legal opinion
concerning Alabama State legal matters in such filings including the Prospectus
of Southern Community Bancshares, Inc.
Very truly yours,
/s/ Miller, Hamilton, Snider & Odom, L.L.C.
-------------------------------------------
Miller, Hamilton, Snider & Odom, L.L.C.
Montgomery, Alabama
September 16, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<PERIOD-START> JUL-01-1996
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> $373,261
<INT-BEARING-DEPOSITS> 4,464,332
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,360,539
<INVESTMENTS-CARRYING> 8,000,525
<INVESTMENTS-MARKET> 7,956,542
<LOANS> 40,480,606
<ALLOWANCE> 611,597
<TOTAL-ASSETS> 64,381,274
<DEPOSITS> 58,277,887
<SHORT-TERM> 0
<LIABILITIES-OTHER> 250,741
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 5,852,646
<TOTAL-LIABILITIES-AND-EQUITY> 64,381,274
<INTEREST-LOAN> 2,509,826
<INTEREST-INVEST> 781,852
<INTEREST-OTHER> 174,308
<INTEREST-TOTAL> 3,465,986
<INTEREST-DEPOSIT> 1,936,152
<INTEREST-EXPENSE> 1,936,152
<INTEREST-INCOME-NET> 1,529,834
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,069,647
<INCOME-PRETAX> 642,878
<INCOME-PRE-EXTRAORDINARY> 642,878
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 419,429
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 34,000
<LOANS-PAST> 157,953
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 623,638
<CHARGE-OFFS> 19,986
<RECOVERIES> 7,945
<ALLOWANCE-CLOSE> 611,597
<ALLOWANCE-DOMESTIC> 611,597
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
[LETTERHEAD OF FERGUSON & CO., LLP]
May 30, 1996
Board of Directors
First Federal Savings and Loan Association
325 2nd Street, SE
Cullman, Alabama 35055
Dear Directors:
This letter sets forth the agreement between First Federal Savings and Loan
Association ("First Federal"), Cullman, Alabama, and Ferguson & Co., LLP,
("F&C"), Irving, Texas, under the terms of which First Federal has engaged F&C,
in connection with its conversion from mutual to stock form, to (1) determine
the pro forma market value of the shares of common stock to be issued and sold
by First Federal or its holding company; and (2) assist First Federal in
preparing a business plan to be filed with the application for approval to
convert to stock.
F&C agrees to deliver the written valuation and business plan to First
Federal at the above address on or before a mutually agreed upon date. Further,
F&C agrees to perform such other services as are necessary or required in
connection with comments from the applicable regulatory authorities relating to
the business plan and appraisal and the preparation of appraisal updates as
requested by First Federal or its counsel. It is understood that the services of
F&C under this agreement shall be limited as herein described.
F&C's fee for the business plan and initial appraisal valuation report and
any required updates shall be $25,000. In addition, First Federal shall
reimburse F&C for all out-of-pocket expenses (not to exceed $5,000). Payment
under this agreement shall be made as follows:
1. Seven thousand, five hundred dollars ($7,500) upon execution of this
engagement letter.
2. Seven thousand, five hundred dollars ($7,500) upon delivery of the
business plan.
3. Ten thousand dollars ($10,000) upon delivery of the completed appraisal
report.
4. Out-of-pocket expenses are to be paid monthly.
<PAGE>
Board of Directors
May 30, 1996
Page 2
If, during the course of First Federal's conversion, unforeseen events
occur so as to change materially the nature or the work content of the services
described in this contract, the terms of the contract shall be subject to
renegotiation. Such unforeseen events shall include, but not be limited to,
major changes in the conversion regulations, appraisal guidelines or processing
procedures as they relate to conversion appraisals, major changes in First
Federal's management or operating policies, execution of a merger agreement with
another institution prior to completion of conversion, and excessive delays or
suspension of processing of conversions by the regulatory authorities such that
completion of First Federal's conversion requires the preparation by F&C of a
new appraisal report or business plan, excluding appraisal updates during the
course of the engagement.
To induce F&C to provide the services described above, First Federal
hereby agrees as follows:
1. First Federal shall supply to F&C such information with respect
to its business and financial condition as F&C reasonably may
request in order to make the aforesaid valuation. Such information
made available to F&C shall include, but not be limited to, annual
financial statements, periodic regulatory filings, material
agreements, debt instruments and corporate books and records.
2. First Federal hereby represents and warrants, to the best of its
knowledge that any information provided to F&C does not and will
not, at any time relevant hereto, contain any misstatement or
untrue statement of a material fact or omit any and all material
facts required to be stated therein or necessary to make the
statements therein not false or misleading in light of the
circumstances under which they were made.
3. (a) First Federal shall indemnify and hold harmless F&C and any
employees of F&C who act for or on behalf of F&C in connection with
the services called for under this agreement, from and against any
and all loss, cost, damage, claim, liability on expense of any
kind, including reasonable attorneys fees and other expenses
incurred in investigating, preparing to defend and defending any
claim or claims (specifically including, but not limited to, claims
under federal and state securities laws) arising out of any
misstatement or untrue statement of a material fact contained in
the information supplied by First Federal to F&C or by an omission
to state a material fact in the information so provided which is
required to be stated therein in order to make the statement
therein not false or misleading.
<PAGE>
Board of Directors
May 30, 1996
Page 3
(b) F&C shall not be entitled to indemnification pursuant to
Paragraph 3(a) above with regard to any claim arising where, with
regard to the basis for such claim, F&C had knowledge that a
statement of a fact material to the evaluation and contained in
the information supplied by First Federal was untrue or had
knowledge that a material fact was omitted from the information
so provided and that such material fact was necessary in order to
make the statement made to F&C not false or misleading.
(c) F&C additionally shall not be entitled to indemnification
pursuant to Paragraph 3(a) above notwithstanding its lack of
actual knowledge of an intentional misstatement or omission of a
material fact in the information provided if F&C is determined to
have been negligent or to have failed to exercise due diligence
in the preparation of its valuation.
First Federal and F&C are not affiliated, and neither First Federal nor
F&C has an economic interest in, or held in common with, the other and has not
derived a significant portion of its gross revenue, receipts or net income for
any period from transactions with the other.
In order for F&C to consider this proposal binding, please acknowledge
your consent to the foregoing by executing the enclosed copies of this letter
and returning one copy to us, together with a check payable to Ferguson & Co. in
the amount of $7,500. The extra copy of this letter is for your conversion
counsel.
Your very truly,
/s/ Robin L. Fussell
Robin L. Fussell
Principal
Agreed to ($7,500 check enclosed):
First Federal Savings and Loan Association
Cullman, Alabama
By: /s/ Signature
--------------------------------
President & CEO
June 10, 1996
<PAGE>
Conversion Valuation Report
--=======================--
Valued as of July 30, 1996
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF CULLMAN
Cullman, Alabama
Prepared By:
Ferguson & Co., LLP
Suite 550
122 W. John Carpenter Freeway
Irving, TX 75039
214/869-1177
<PAGE>
[LETTERHEAD OF FERGUSON & CO., LLP APPEARS HERE]
STATEMENT OF APPRAISER'S INDEPENDENCE
First Federal Savings and Loan Association of Cullman
-----------------------------------------------------
Cullman, Alabama
----------------
We are the appraiser for First Federal Savings and Loan Association of
Cullman in connection with its mutual to stock conversion. We are submitting
our independent estimate of the pro forma market value of the Association's
stock to be issued in the conversion. In connection with our appraisal of the
Association's to-be-issued stock, we have received a fee which was not related
to the estimated final value. The estimated pro forma market value is solely
the opinion of our company and it was not unduly influenced by the Association,
its conversion counsel, its selling agent, or any other party connected with the
conversion. We also received a fixed fee for assisting the Association in
connection with the preparation of its business plan to be submitted with the
conversion application.
First Federal has agreed to indemnify Ferguson & Co., LLP under certain
circumstances against liabilities arising out of our services. Specifically, we
are indemnified against liabilities arising from our appraisal except to the
extent such liabilities are determined to have arisen because of our negligence
or willful conduct.
Ferguson & Co., LLP
/s/ Robin L. Fussell
Robin L. Fussell
Principal
August 1, 1996
<PAGE>
[LETTERHEAD OF FERGUSON & CO. LLP APPEARS HERE]
August 1, 1996
Board of Directors
First Federal Savings and Loan Association
325 Second Street SE
Cullman, Alabama 35055
Dear Directors:
We have completed and hereby provide, as of July 30, 1996, an independent
appraisal of the estimated pro forma market value of First Federal Savings and
Loan Association of Cullman ("First Federal" or the "Association"), Cullman,
Alabama, in connection with the conversion of First Federal from the mutual to
stock form of organization ("Conversion"). This appraisal report is furnished
pursuant to the regulatory filing of the Association's Application for
Conversion ("Form AC") with the Office of Thrift Supervision ("OTS").
Ferguson & Co., LLP ("F&C") is a consulting firm that specializes in
providing financial, economic, and regulatory services to financial
institutions. The background and experience of F&C is presented in Exhibit I. We
believe that, except for the fees we will receive for preparing the appraisal
and assisting with First Federal's business plan, we are independent. F&C
personnel are prohibited from owning stock in conversion clients for a period of
at least one year after conversion.
In preparing our appraisal, we have reviewed First Federal's Application
for Approval of Conversion, including the Proxy Statement as filed with the OTS.
We conducted an analysis of First Federal that included discussions with Arthur
Andersen LLP, CPAs, the Association's independent auditors, and with Bayh,
Connaughton, and Malone, the Association's conversion counsel. In addition,
where appropriate, we considered information based on other available published
sources that we believe is reliable; however, we cannot guarantee the accuracy
or completeness of such information.
We also reviewed the economy in First Federal's primary market area and
compared the Association's financial condition and operating results with that
of selected publicly traded thrift institutions. We reviewed conditions in the
securities markets in general and in the market for thrifts stocks in
particular.
Our appraisal is based on First Federal's representation that the
information contained in the Form AC and additional evidence furnished to us by
the Association and its independent auditors are truthful, accurate, and
complete. We did not independently verify the financial statements and other
information provided by First Federal and its auditors, nor did we independently
value the Association's assets or liabilities. The valuation considers First
Federal only as a going concern and should not be considered an indication of
its liquidation value.
<PAGE>
Board of Directors
August 1, 1996
Page 2
It is our opinion that, as of July 30, 1996, the estimated pro forma market
value of First Federal was $8,000,000, or 400,000 shares at $20.00 per share.
The resultant valuation range was $6,800,000 at the minimum (340,000 shares at
$20.00 per share) to $9,200,000 at the maximum (460,000 shares at $20.00 per
share), based on a range of 15 percent below and above the midpoint valuation.
The supermaximum was $10,580,000 (529,000 shares at $20.00 per share).
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 in the conversion. 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 estimate of the Association's pro
forma market value. F&C is not a seller of securities within the meaning of any
federal or state securities laws and any report prepared by F&C shall not be
used as an offer or solicitation with respect to the purchase or sale of any
securities.
Our opinion is based on circumstances as of the date hereof, including
current conditions in the United States securities markets. Events occurring
after the date hereof, including, but not limited to, changes affecting the
United States securities markets and subsequent results of operations of First
Federal, could materially affect the assumptions used in preparing this
appraisal.
The valuation reported herein will be updated as provided in the OTS
conversion regulations and guidelines. All updates will consider, among other
things, any developments or changes in First Federal's financial performance and
condition, management policies, and current conditions in the equity markets for
thrift shares. Should any such new developments or changes be material, in our
opinion, to the valuation of the shares, appropriate adjustments will be made to
the estimated pro forma market value. The reasons for any such adjustments will
be explained in detail at the time.
Respectfully,
FERGUSON & CO., LLP
/s/ Robin L. Fussell
Robin L. Fussell
Principal
<PAGE>
FERGUSON & CO., LLP
- -------------------
TABLE OF CONTENTS
First Federal Savings and Loan Association
Cullman, Alabama
PAGE
----
INTRODUCTION 1
SECTION I. - FINANCIAL CHARACTERISTICS 2
PAST & PROJECTED ECONOMIC CONDITIONS 2
FINANCIAL CONDITION OF INSTITUTION 2
Balance Sheet Trends 2
Asset/Liability Management 2
Income and Expense Trends 8
Regulatory Capital Requirements 9
Lending 9
Nonperforming Assets 14
Classified Assets 14
Loan Loss Allowance 14
Mortgage-Backed Securities and Investments 16
Savings Deposits 18
Borrowings 19
Subsidiaries 19
Legal Proceedings 19
EARNINGS CAPACITY OF THE INSTITUTION 19
Asset-Size-Efficiency of Asset Utilization 19
Intangible Values 19
Effect of Government Regulations 19
Office Facilities 20
SECTION II - MARKET AREA 1
DEMOGRAPHICS 1
i
<PAGE>
FERGUSON & CO., LLP
- -------------------
TABLE OF CONTENTS - CONTINUED
First Federal Savings and Loan Association
Cullman, Alabama
PAGE
----
SECTION III - COMPARISON WITH PUBLICLY TRADED THRIFTS 1
COMPARATIVE DISCUSSION 1
Selection Criteria 1
Profitability 3
Balance Sheet Characteristics 3
Risk Factors 3
Summary of Financial Comparison 3
FUTURE PLANS 4
SECTION IV - CORRELATION OF MARKET VALUE 1
MARKETABILITY & LIQUIDITY OF STOCK TO BE ISSUED 1
Financial Aspects 1
Market Area 2
Management 2
Dividends 2
Liquidity 2
Thrift Equity Market Conditions 3
ALABAMA ACQUISITIONS 3
EFFECT OF INTEREST RATES ON THRIFT STOCK 3
Adjustments Conclusion 5
Valuation Approach 5
Valuation Conclusion 6
ii
<PAGE>
FERGUSON & CO., LLP
- -------------------
TABLE OF CONTENTS - CONTINUED
First Federal Savings and Loan Association
Cullman, Alabama
TABLE
NUMBER TABLE TITLE PAGE
- ------ ----------- ----
SECTION I - FINANCIAL CHARACTERISTICS
1 Selected Financial Condition Data 3
2 Summary of Operations 4
3 Selected Operating Ratios 5
4 Loan Maturity Schedule 6
5 GAP Analysis 7
6 Net Portfolio Value 8
7 Regulatory Capital Compliance 9
8 Analysis of Loan Portfolio 10
9 Loan Activity 11
10 Average Balance Sheets 12
11 Rate/Volume Analysis 13
12 Non-Performing Assets 14
13 Analysis of Allowance for Loan Losses 15
14 Allocation of the Allowance for Loan Losses 16
15 MBS, Interest Bearing Deposits, and Investment Maturities and Yields 17
16 MBS, Interest Bearing Deposits, and Investments 18
17 Savings Portfolio 20
18 Time Deposit Maturities 21
19 Jumbo CD's 21
20 Savings Deposit Activity 22
21 Office Facilities 22
SECTION II - MARKET AREA
1 Demographic Trends 3
2 Percent Employment by Industry 4
3 Market Area Deposits 5
4 Summary of Building Permits 6
SECTION III - COMPARISON WITH PUBLICLY
TRADED THRIFTS
1 Comparatives 4
2 Key Financial Indicators 5
3 Pro Forma Comparisons 6
iii
<PAGE>
FERGUSON & CO., LLP
- -------------------
TABLE OF CONTENTS - CONTINUED
First Federal Savings and Loan Association
Cullman, Alabama
TABLE
NUMBER TABLE TITLE PAGE
- ------ ----------- ----
SECTION IV - CORRELATION OF MARKET VALUE
1 Appraisal Earnings Adjustments 1
2 Alabama Acquisitions 7
3 Recent Conversions 9
4 Comparison of Pricing Ratios 12
FIGURE
NUMBER LIST OF FIGURES
- ------ ---------------
PAGE
----
SECTION IV - CORRELATION OF MARKET VALUE
1 SNL Index 13
2 Interest Rates 14
EXHIBIT TITLE
-------------
Exhibit I - Ferguson & Co., LLP Qualifications
Exhibit II - Selected Region, State, and Comparatives Information
Exhibit III - First Federal Savings and Loan Association TAFS Report
Exhibit IV - Comparative Group TAFS and BankSource Reports
Exhibit V - Selected Publicly Traded Thrifts
Exhibit VI - Comparative Group Selection
Exhibit VII - Pro Forma Calculations
Pro Forma Assumptions
Pro Forma Effect of Conversion Proceeds At the Minimum of the Range
Pro Forma Effect of Conversion Proceeds At the Midpoint of the Range
Pro Forma Effect of Conversion Proceeds At the Maximum of the Range
Pro Forma Effect of Conversion Proceeds At the SuperMax of the Range
Pro Forma Analysis Sheet
iv
<PAGE>
SECTION I
FINANCIAL CHARACTERISTICS
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
INTRODUCTION
First Federal Savings and Loan Association of Cullman ("First Federal"
or "Association") is a federally chartered, federally insured mutual savings and
loan association located in Cullman (Cullman County), Alabama. It was chartered
in 1905 as Improved Building and Loan Association. Its name was changed to
Improved Savings and Loan Association, it joined the FHLB system, and obtained
federal insurance of accounts in 1941. It switched to a federal savings and loan
association charter and adopted its present name in 1974. In June 1996, it
adopted a plan to convert to a stock savings and loan association, via a
standard mutual to stock conversion.
At June 30, 1996, First Federal had total assets of $64.4 million, loans
of $39.9 million, mortgage-backed securities of $9.0 million, investment
securities of $9.4 million, deposits of $58.3 million, and net worth of $5.9
million, or 9.1% of assets.
The Association has three offices, all of which are located in Cullman.
Alabama is in the south eastern portion of the United States. Cullman is located
in the north central portion of Alabama. It is approximately 45 miles north of
Birmingham and 45 miles south of Huntsville.
First Federal is a traditional thrift with a heavy orientation to
passive investments. It invests primarily in (1) 1-4 family loans and, to a
lesser extent, in multifamily, commercial, and construction real estate loans,
commercial non-real estate loans, and consumer loans, (2) mortgage backed
securities, (3) United States government and agency securities, and (4)
temporary cash investments. It is funded principally by savings deposits and
existing net worth. It has not utilized borrowings recently.
The Association offers a variety of loan products to accommodate its
customer base and single family loans dominate the Association's loan portfolio.
In recent years, First Federal has concentrated its lending in one year ARMs and
15 year fixed rate single family loans. At June 30, 1996, loans on 1-4 family
dwellings made up 37.0% of total assets and 57.1% of the loan portfolio.
Mortgage backed securities made up 13.7% of total assets. Cash and investment
securities made up 22.1% of First Federal's assets at June 30, 1996.
First Federal had $223 thousand in non-performing assets at June 30,
1996 (.35% of total assets), as compared to $211 thousand at September 30, 1995
(.34% of total assets), and $322 thousand at September 30, 1994 (.51% of total
assets).
Savings deposits decreased slightly during the period from September 30,
1991, to June 30, 1996 ($2.0 million), a compound annual rate of decline of
0.71%. Savings increased $141 thousand (0.24%) in 1994, decreased $2.2 million
(3.81%) in 1995, and increased $2.3 million (4.05%) for the nine months ended
June 30, 1996. First Federal has not relied extensively on borrowings during
recent years. It had no borrowings during the period from September 30, 1991, to
June 30, 1996.
The Association's capital to assets ratio has shown steady growth.
Equity capital, as a percentage of assets, has increased from 6.0% at September
30, 1991, to 9.1% at June 30, 1996. This capital growth was a result of
consistent earnings combined with no growth in assets. First Federal's assets
declined $80 thousand during the four years and nine months ended June 30, 1996.
First Federal's profitability, as measured by return on average assets
("ROAA"), was below but is currently above its peer group average of thrifts
filing TFR's with the OTS, consisting of OTS supervised thrifts with assets from
$50 million to $100 million. For the years ending December 31, 1993, 1994, and
1995, and the quarter ended March 31, 1996, First Federal ranked in the 25th,
41st, 85th, and 79th percentile, respectively, in ROAA, based on information
derived from the TAFS thrift database published by Sheshunoff Information
Services Inc. (See Exhibit III, page 3). In return on equity for the same
periods, First Federal ranked in the 34th, 89th, 94th, and 86th percentile,
respectively. Recent high income periods have included substantial amounts of
non-recurring income from real estate operations and sales of fixed assets.
1
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
I. FINANCIAL CHARACTERISTICS
PAST & PROJECTED ECONOMIC CONDITIONS
Fluctuations in thrift earnings in recent years have occurred within the
time frames as a result of changing temporary trends in interest rates and other
economic factors. However, the year-to-year results have been upward while the
general trends in the thrift industry have been improving as interest rates
declined. Interest rates began a general upward movement during late 1993,
followed by a decline in interest margins and profitability. Rates began a
general decline in mid 1995 and then leveled off on the short end and increased
on the long end.
The thrift industry generally is better equipped to cope with changing
interest rates than it was in the past, and investors have recognized the
demonstrated ability of the thrift industry to maintain interest margins in
spite of rising interest rates. However, rate increases and the shortening of
the time elapsed between increases during 1994 placed pressure on portfolio
managers to shorten maturities, which negatively impacts the future earnings of
financial institutions.
FINANCIAL CONDITION OF INSTITUTION
Balance Sheet Trends
As Table I.1 shows, First Federal experienced a modest increase in
assets during the period of one year and nine months ending June 30, 1996.
Assets increased $853 thousand, or 1.34% during the period. Loans decreased $85
thousand, or 0.21%; cash and cash equivalents increased $1.85 million, or
62.13%; investment securities decreased $1.80 million, or 16.04%; and mortgage-
backed securities increased $3.29 million, or 57.91%. Savings deposits increased
by $50 thousand, or 0.09%. Equity increased $858 thousand, or 17.18%.
Asset/Liability Management
Managing interest rate risk is a major component of the strategy used in
operating a thrift. Most of a thrifts interest earning assets are long-term,
while most of the interest bearing liabilities have short to intermediate terms
to contractual maturity. To compensate, asset/liability management techniques
include (1) making long term loans with interest rates that adjust to market
periodically, (2) investing in assets with shorter terms to maturity, (3)
lengthening the terms to maturities of savings deposits, and (4) seeking to
employ any combination of the aforementioned techniques artificially through the
use of synthetic hedge instruments. Table I.4 contains information on
contractual loan maturities at September 30, 1995. Table I.5 shows the gap
analysis of First Federal's interest earning assets and interest bearing
liabilities at March 31, 1996. It shows that, within one year of March 31, 1996,
First Federal has a negative gap to interest bearing liabilities of 0.79% and a
negative gap to total assets of 0.42%. First Federal has a minor negative
cumulative gap at the end of three years and a minor positive gap at the end of
five years. Table I.6 provides rate shock information at varying levels of
interest rate change. The Association has manageable interest rate risk, and
should be able to maintain, within practical limits, its net interest margin and
the market value of its portfolio equity.
First Federal's basic approach to interest rate risk management has been
to emphasize adjustable mortgage loans and intermediate term mortgage-backed
securities, shorten fixed rate mortgage terms, increase consumer and commercial
non-real estate loans, and increase investments in short and intermediate term
investment securities. First Federal currently is not utilizing synthetic hedge
instruments and has not used borrowings in recent years. First Federal's
business plan calls for a reduction in mortgage-backed securities and increase
in liquid investments and loans, with the most significant loan growth being in
short to intermediate term non-real estate loans.
2
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
Table I.1 - Selected Financial Condition Data
The following table sets forth certain historical information concerning the
financial position of the Association for the periods and at the dates
indicated.
<TABLE>
<CAPTION>
At At September 30, Compound
June 30, ------------------------------------------------------------------- Growth
1996 1995 1994 1993 1992 1991 Rate
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Amounts in 000's)
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $64,381 $62,026 $63,528 $63,018 $63,615 $64,461 NM
Cash and cash equivalents 4,838 6,108 2,984 3,729 7,302 6,384 -6.00%
Loans receivable, net 39,869 38,570 39,954 42,270 43,055 49,147 -4.50%
Mortgage-backed securities 8,963 5,452 5,676 4,407 2,202 1,444 46.47%
Investment securities 9,399 10,802 11,194 10,983 8,762 5,082 13.78%
Deposits 58,278 56,008 58,228 58,087 59,217 60,281 -0.71%
Retained earnings (1) 5,853 5,606 4,995 4,750 4,171 3,881 9.02%
</TABLE>
NM--Not meaningful
(1) Net of unrealized gains and losses on available-for-sale securities.
Source: Offering circular, unaudited and audited financial statements
3
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
Table I.2 - Summary of Operations
The following table summarizes the Association's results of operations for each
of the periods indicated.
<TABLE>
<CAPTION>
Nine Months
Ended June 30, Years Ended September 30,
--------------------- ------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
SELECTED OPERATING DATA: (Amounts in 000's)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $3,466 $ 3,245 $ 4,399 $ 3,987 $ 4,289 $ 5,052 $5,974
Interest expense 1,936 1,668 2,300 1,983 2,183 3,004 4,165
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income 1,530 1,576 2,099 2,004 2,107 2,048 1,808
Provision for loan losses - - - 35 43 463 322
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 1,530 1,576 2,099 1,969 2,063 1,586 1,487
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total non-interest income 183 220 329 17 102 206 30
---------- ---------- ---------- ---------- ---------- ---------- ----------
Non-interest expense 1,070 1,125 1,496 1,610 1,606 1,504 1,467
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes 643 670 932 376 560 287 50
Income tax expense (credit) 223 208 310 98 102 -2 -177
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income 419 463 622 279 458 290 226
========== ========== ========== ========== ========== ========== ==========
</TABLE>
Source: Offering circular, audited and unaudited financial statements
4
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
Table I.3 - Selected Operating Ratios
<TABLE>
<CAPTION>
At or for the At or for the
Nine Months Ended Year Ended
June 30, September 30,
------------------ ----------------
1996 1995 1995 1994
-------- --------- ------- --------
<S> <C> <C> <C> <C>
Performance Ratios:
- -------------------
Return on assets 0.9 1.0 1.0 0.4
Return on average retained earnings 9.8 11.9 11.8 5.8
Interest rate spread 2.8 3.1 3.1 3.0
Net interest margin (net interest
income as a percentage of average
interest earning assets) 3.3 3.4 3.4 3.2
Ratio of average interest-earning
assets to average interest-bearing
liabilities 110.0 108.0 108.0 107.0
Ratio of noninterest expense to
average total assets 2.3 2.4 2.4 2.6
Asset Quality Ratios:
- ---------------------
Nonperforming assets to total assets
at end of period 0.3 0.2 0.3 0.5
Nonperforming loans to total loans
at end of period 0.5 0.6 0.5 0.1
Allowance for loan losses to total
loans at end of period 1.5 1.6 1.6 1.6
Allowance for loan losses to
nonperforming loans at end of period 313.8 521.3 302.9 1755.6
Net charge-offs to average loans - - - 0.4
Capital Ratios:
- ---------------
Retained earnings to total assets at
end of period 9.1 8.8 9.0 7.9
Average retained earnings to average
assets 9.1 8.2 8.4 7.6
</TABLE>
Source: Offering circular, TFR's
5
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
Table I.4 - Loan Maturity Schedule
September 30, 1995
<TABLE>
<CAPTION>
One Three Five Ten Fifteen
Within Through Through Through Through Years
One Year Three Years Five Years Ten Years Fifteen Years Or More Total
---------- ------------- ------------ ----------- --------------- --------- -------
(Amounts in 000's)
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate loans -
One to four family residential 369 575 966 6,561 9,751 5,008 23,230
Other properties 561 383 154 2,876 6,525 1,869 12,368
Construction 624 - - - - - 624
Commercial loans - 378 - - - - 378
Consumer loans 1,184 955 665 177 - - 2,981
---------- ------------- ------------ ----------- --------------- --------- -------
Total loans 2,738 2,291 1,785 9,614 16,276 6,877 39,581
========== ============= ============ =========== =============== ========= =======
</TABLE>
Source: Offering circular
6
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
Table I.5 - GAP Analysis
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at March 31, 1996, which are expected
to mature or reprice in each of the time periods shown.
<TABLE>
<CAPTION>
One Three
One Through Through Over
Year Three Five Five
or Less Years Years Years Total
--------- --------- --------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Fixed rate mortgages 4,083 6,335 4,552 5,243 20,214
ARMs 9,630 614 1,039 - 11,283
Other adjustable 8,485 - - - 8,485
Other fixed 225 509 600 1,935 3,268
Construction and land 337 - 710 - 1,047
Second mortgages 845 267 183 206 1,491
Consumer loans 1,634 1,302 - - 2,936
Investments 8,808 160 3,097 - 12,065
--------- --------- --------- ------- -------
Total 34,037 9,187 10,181 7,384 60,789
--------- --------- --------- ------- -------
Interest-bearing liabilities:
Deposits 34,308 13,287 4,182 5,572 57,349
--------- --------- --------- ------- -------
Interest sensitivity gap -271 -4,100 5,999 1,812 3,440
========= ========= ========= ======= =======
Cumulative interest
sensitivity gap -271 -4,371 1,628 3,440 3,440
========= ========= ========= ======= =======
Ratio of interest-earning
assets to interest-bearing
liabilities 99.2% 69.1% 243.4% 132.5% 106.0%
========= ========= ========= ======= =======
Cumulative ratio of
interest-earning assets to
interest-bearing liabilities 99.2% 90.8% 103.1% 106.0% 106.0%
========= ========= ========= ======= =======
Ratio of cumulative gap to
assets -0.4% -6.8% 2.5% 5.3% 5.3%
========= ========= ========= ======= =======
</TABLE>
Source: Federal Home Loan Bank of Atlanta
7
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
Table I.6 - Net Portfolio Value
<TABLE>
<CAPTION>
Change in
Interest Rates March 31, 1996
-------------------------------------
in Basis Points Net Portfolio Value
-------------------------------------
(Rate Shock) Amount $000 % Change
Change
------------------ --------------- ---------------
<S> <C> <C> <C>
400 5,446 -1,330 -20%
300 5,895 -881 -13%
200 6,344 -432 -6%
100 6,560 -216 -3%
Static 6,776 - -
(100) 6,880 104 2%
(200) 6,983 207 3%
(300) 7,218 442 7%
(400) 7,452 676 10%
</TABLE>
Source: Federal Home Loan Bank of Atlanta
Income and Expense Trends
First Federal was profitable for the two fiscal years and nine months
ending June 30, 1996. Fluctuations in income over the period have resulted
principally from (1) changes in non-interest income and non-interest expense;
and (2) reductions in loan loss provisions as the general economy in the area
has improved.
Noninterest income levels have improved as losses from real estate
operations have declined and service charges on deposit accounts have increased,
in addition to a gain on the sale of a branch office. The principal decreases in
non-interest expenses have been in compensation and related benefits and
occupancy costs, resulting from retirements and efficiencies gained through
closing a branch.
8
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
Regulatory Capital Requirements
As Table I.7 demonstrates, First Federal meets all regulatory capital
requirements, and meets the regulatory definition of a "Well Capitalized"
institution. Moreover, the additional capital raised in the stock conversion
will add to the existing capital cushion.
Table I.7 - Regulatory Capital Compliance
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Amount ($000's) Percent
<S> <C> <C>
GAAP Capital $5,853 9.1%
Tangible Capital:
Capital level 6,070 9.4%
Requirement 969 1.5%
--- -----
Excess 5,101 7.9%
Core Capital:
Capital level 6,070 9.4%
Requirement 1,938 3.0%
----- -----
Excess 4,132 6.4%
Risk Based Capital:
Capital level 6,480 19.3%
Requirement 2,686 8.0%
----- -----
Excess 3,794 11.3%
------------------------------------------------------------------------
Source: First Federal TFR, F&C calculations.
------------------------------------------------------------------------
</TABLE>
Lending
Table I.8 provides an analysis of the Association's loan portfolio by
type of loan and security. This analysis shows that, from September 30, 1994,
through June 30, 1996, First Federal's loan composition has been dominated by
1-4 family dwelling loans, but the loan mix is currently emphasizing other
loans.
Table I.9 provides information with respect to loan originations and
repayments. It indicates the year ended September 30, 1996, will be a good
growth year overall and in most individual categories.
Table I.10 provides rates, yields, and average balances for the two
years ended September 30, 1995, and the nine month periods ended June 30, 1995,
and 1996. Interest rates earned on interest-earning assets increased from 6.41%
in 1994 to 7.14% in 1995. Interest rates earned on interest-bearing assets for
the June 30 nine month periods increased from 7.00% in 1995 to 7.39% in 1996.
Interest rates paid on interest-bearing liabilities increased from 3.40% in 1994
to 4.04% in 1995. For the nine month periods ended June 30, interest rates paid
on interest bearing liabilities increased from 3.90% in 1995 to 4.55% in 1996.
First Federal's spread increased from 3.01% in 1994 to 3.10% in 1995. For the
nine month periods ended June 30, it decreased from 3.10% in 1995 to 2.84% in
1996.
Table I.11 provides a rate volume analysis, measuring differences in
interest earning assets and interest costing liabilities and the interest rates
thereon during the years ended September 30, 1994 and 1995, and the nine month
periods ended June 30, 1995, and 1996.
9
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
Table I.8 - Analysis of Loan Portfolio
<TABLE>
<CAPTION>
At June 30, At September 30,
---------------------------------
1996 1995 1994
---------------- ---------------- ---------------
Amount % Amount % Amount %
-------- ------- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Type of Loan:
- ----------------------------
Real estate loans:
1-4-family $23,804 57.1 $23,230 58.7 $24,246 59.4
Multifamily 4,105 9.9 4,188 10.6 3,540 8.7
Nonresidential 8,324 20.0 8,180 20.7 9,464 23.2
Construction 1,960 4.7 624 1.6 400 .9
-------- ------- -------- ------- -------- ------
Total Real Estate Loans 38,193 91.7 36,222 91.6 37,650 92.2
-------- ------- -------- ------- -------- ------
Commercial Loans 1,045 2.5 378 1.0 71 -
-------- ------- -------- ------- -------- ------
Consumer:
Automobiles 1,230 3.0 1,051 2.7 1,252 3.1
Share loans 596 1.4 534 1.3 347 .1
Other 564 1.4 1,396 3.5 1,581 3.9
-------- ------- -------- ------- -------- ------
Total Consumer Loans 2,390 5.8 2,981 7.4 3,180 7.8
-------- -------- -------- ------
Total Loans 41,629 100.0 39,581 100.0 40,901 100.0
======== ======= ======== ======= ======== ======
Less:
Loans in process 992 266 91
Unearned income 155 121 101
Allowance for loan losses 612 624 632
-------- -------- --------
Total $39,870 $38,570 $40,077
======== ======== ========
</TABLE>
Source: Offering circular
10
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
Table I.9 - Loan Activity
The following table sets forth certain information with respect to the
Association's loan activity for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
June 30, September 30,
------------------------ ------------------
1996 1995 1995 1994
---------- ----------- ----------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Loans originated:
Real estate loans:
1-4 family residential $ 5,700 $4,304 $6,004 $6,987
Multifamily residential - 693 693 115
Construction 2,083 740 1,036 1,199
Nonresidential 533 180 458 381
Commercial 575 577 823 245
Consumer 1,799 1,407 1,957 2,949
------- -------- --------- ---------
Total loans originated 10,690 7,901 10,971 11,876
------- -------- --------- ---------
Repayments -10,138 -8,967 -12,665 -13,889
Net other increase (decrease) 748 -43 187 -180
------- -------- --------- ---------
Net Increase (Decrease) $ 1,300 -$1,109 -$1,507 -$2,193
------- -------- --------- ---------
</TABLE>
Source: Offering circular
11
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
<TABLE>
<CAPTION>
Table I.10 - Average Balance Sheets
Nine Months Ended June 30,
-----------------------------------------------------------------
1996 1995
------------------------------ --------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------- ---------- --------- ---------- ---------- ---------
(Amounts in 000's)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest bearing deposits $ 4,467 $ 174 5.20% $ 2,304 $ 63 3.69%
Investments and FHLB stock 10,946 439 5.36% 13,726 571 5.54%
Mortgage-backed securities 7,528 342 6.06% 5,394 234 5.78%
Loans receivable 39,561 2,510 8.46% 40,391 2,376 7.84%
------- ------- ------ -------- ------- ------
Total interest-earning assets 62,502 3,466 7.39% 61,815 3,244 7.00%
Non-interest earning assets 899 1,115
----------- ----------
Total assets $63,401 $62,930
=========== ==========
Interest-bearing
liabilities: $11,107 200 2.40% $12,331 208 2.11%
NOW accounts 1,411 22 2.10% 1,267 28 2.21%
Money market accounts 6,840 143 2.79% 7,637 166 4.10%
Passbook accounts 37,372 1,571 5.61% 35,814 1,267 5.66%
Certificate accounts ----------- ------ ------- ------- ------- -------
Total deposits 56,730 1,936 4.55% 57,049 1,669 3.56%
Non-interest bearing liabilities 883 685
----------- ----------
Total liabilities 57,613 57,734
Retained earnings 5,788 5,196
Total liabilities and equity $63,401 $62,930
=========== ==========
Net interest income $1,530 $1,575
========= =========
Net interest rate spread 2.84% 3.10%
======= ======
Net interest margin 3.26% 3.40%
======= ======
Ratio of average interest-earning assets to
average interest-bearing liabilities 110.18% 108.35%
=========== =========
</TABLE>
Source: Offering circular
<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------------------------------------------
1995 1994
------------------------------ -------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
--------- ---------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest bearing deposits $ 3,137 $ 131 4.17% $ 3,646 $ 99 2.71%
Investments and FHLB stock 12,980 740 5.70% 11,230 533 4.75%
Mortgage-backed securities 5,329 305 5.73% 5,612 311 5.54%
Loans receivable 40,169 3,223 8.02% 41,730 3,044 7.29%
--------- --------- -------- -------- --------- -------
Total interest-earning assets 61,615 4,399 7.14% 62,218 3,987 6.41%
--------- --------- -------- -------- --------- -------
Non-interest earning assets 1,019 1,509
--------- --------
Total assets $62,634 $63,737
========= ========
Interest-bearing liabilities:
NOW accounts $12,872 287 2.23% $13,400 $ 316 2.36%
Money market accounts 1,324 38 2.87% 1,535 37 2.41%
Passbook accounts 7,979 229 2.87% 8,413 229 2.72%
Certificate accounts 34,702 1,746 5.03% 34,992 1,401 4.00%
--------- --------- -------- -------- --------- -------
Total deposits 56,878 2,300 4.04% 58,340 1,983 3.40%
Non-interest bearing liabilities 464 590
--------- --------
Total liabilities 57,372 58,930
Retained earnings 5,292 4,807
Total liabilities and equity $62,634 $63,737
========= ========
Net interest income $2,099 $2,004
========= =========
Net interest rate spread 3.10% 3.01%
======== =======
Net interest margin 3.41% 3.22%
======== =======
Ratio of average interest-earning assets to
average interest-bearing liabilities 108.33% 106.65%
======== =========
Source: Offering circular
</TABLE>
12
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
Table I.11 - Rate/Volume Analysis
<TABLE>
<CAPTION>
Nine Months Ended June 30, Years Ended September 30,
---------------------------------------------- -------------------------------------------
1996 vs. 1995 1995 vs. 1994
---------------------------------------------- -------------------------------------------
Increase/(Decrease) Due to Total Increase/(Decrease) Due to Total
---------------------------- ----------------------------
Increase Increase
Volume Rate (Decrease) Volume Rate (Decrease)
--------- --------- -------------------------------- ---------- -------------
(Amounts in 000's)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest earning deposits 77 34 111 -11 43 32
Investment securities -112 -19 -131 90 117 207
Mortgage-backed securities 96 11 108 -17 12 -5
Loans receivable -47 181 134 -107 285 178
--------- --------- -------------- ----------- ---------- ----------
Total interest-earning assets 14 208 221 -43 457 412
--------- --------- -------------- ----------- ---------- ----------
INTEREST EXPENSE
Now accounts -24 16 -9 -12 -17 -29
Money market accounts 4 -9 -5 -3 4 1
Passbook accounts -17 -6 -23 - - -
Certificate accounts 57 247 304 -12 357 345
--------- --------- -------------- ----------- ---------- ----------
Total interest-bearing liabilities 19 248 268 -26 344 317
--------- --------- -------------- ----------- ---------- ----------
Change in net interest
income -46 95
============== ==========
</TABLE>
Source: Offering circular
13
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ---------
Non-performing Assets
As shown in Table I.12, First Federal's total nonperforming loans as of
June 30, 1996, were only $195 thousand and represented .5% of the portfolio.
Most of the nonperforming loans as of that date were secured by 1-4 family
residences. The Association also had $28 thousand in repossessed assets.
Classified Assets
First Federal had $570 thousand in classified assets at June 30, 1996. The
classified assets consisted of $472 thousand in substandard, and $98 thousand in
loss. The Association had a loan loss allowance of $612 thousand, or 107.4% of
classified assets at June 30, 1996.
Loan Loss Allowance
Table I.13 provides an analysis of the allocation of First Federal's loan
loss allowance.
Table I.14 shows the allocation of the loan loss allowance among the
various loan categories as of September 30, 1994 and 1995, and June 30, 1996.
Table I.12 - Non-Performing Assets
<TABLE>
<CAPTION>
At
June 30, At September 30,
------------------
1996 1995 1994
-------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis:
Real estate:
Residential 34 49 22
------ ------ -------
Total 34 49 22
------ ------ -------
Accruing loans which are contractually
past due 90 days or more 161 157 14
------ ------ -------
Total nonperforming loans 195 206 36
------ ------ -------
Foreclosed real estate 28 5 286
------ ------ -------
Total nonperforming assets 223 211 322
====== ====== =======
Allowance for loan losses 612 624 632
====== ====== =======
Nonperforming assets to total assets .3% .3% .5%
====== ====== =======
Nonperforming loans to total loans .5% .5% .1%
====== ====== =======
Allowance for loan losses to total loans 1.5% 1.6% 1.6%
====== ====== =======
Allowance for loan losses to nonperforming loans 313.8% 302.9% 1755.6%
====== ====== =======
</TABLE>
Source: Offering circular
14
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ---------
Table I.13 - Analysis of Allowance for Loan Losses
The following table sets forth an analysis of the Association's allowance for
possible loan losses for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
June 30, September 30,
----------------- -------------------
1996 1995 1995 1994
------- ------- -------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 624 $ 632 $ 632 $ 756
Loans charged off -20 -4 -17 -175
Recoveries: 8 8 9 16
------- -------- ------ -----
Net loans charged off -12 4 -8 -159
------- -------- ------ -----
Provision for loan losses - - - 35
------- -------- ------ -----
Balance at end of period 612 636 624 632
======= ======== ====== =====
Allowance for loan losses as a percent
of net loans at the end of the period 1.5% 1.6% 1.6% 1.6%
======= ======== ====== =====
Ratio of net charge-offs (recoveries) .02% (.01)% .02% .30%
======= ======== ====== =====
to average loans outstanding
</TABLE>
Source: Offering Circular
15
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ---------
Table I.14 - Allocation of the Allowance for Loan Losses
The following table allocates the allowance for loan losses by loan category at
the dates indicated. The allocation of the allowance to each category is not
necessarily indicative of future losses and does not restrict the use of the
allowance to absorb losses in any category.
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------
At June 30, 1996 1995 1994
--------------------- --------------------- ----------------------
Percent of Percent of Percent of
Loans in Each Loans in Each Loans in Each
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ------------- ------ ------------- ------ -------------
($000's)
<S> <C> <C> <C> <C> <C> <C>
Real estate 495 91.7 502 91.6 511 92.2
Commercial 54 2.5 54 1.0 55 -
Consumer 63 5.8 68 7.4 66 7.8
Unallocated - - - - - -
----- ------------- ------ ------------ ------ --------------
Total allowance
for loan losses 612 100.0 624 100.0 $328 100.0
===== ============= ====== ============ ====== ==============
Source: Offering circular
</TABLE>
Mortgage-Backed Securities and Investments
Table I.15 provides a breakdown of mortgage-backed securities, interest
bearing deposits, and investment securities with maturity and yield information
as of September 30, 1995. Table I.16 provides breakdowns for mortgage-backed
securities, interest bearing deposits, and investment securities at September
30, 1994 and 1995, and June 30, 1996.
16
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ---------
Table I.15 -Mortgage-Backed Securities, Interest Bearing Deposits, and
Investment Securities Maturities and Yields
The following table sets forth the scheduled maturities, carrying values and
average yields for the Association's investment securities at September 30,
1995.
<TABLE>
<CAPTION>
At September 30, 1995
------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years
---------------------- ---------------------- ------------------------
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
----------- --------- ----------- --------- ----------- -----------
(Amounts in 000's)
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits $5,636 5.65% $ - - $ - -
in other financial institutions
U.S. government and agency 2,747 6.10% 5,948 5.71% - -
obligations
Mortgage-backed securities 118 7.30% 4,258 5.92% 941 5.51%
Other investments - - - - - -
----------- --------- ------------ --------- ----------- ----------
Total $8,501 5.81% $10,206 5.80% $941 5.51%
=========== ========= ============ ========= =========== ==========
</TABLE>
<TABLE>
<CAPTION>
At September 30, 1995
-----------------------------------------------------------
More than 10 Years Total Investment Portfolio
---------------------- -----------------------------------
Carrying Average Carrying Market Average
Value Yield Value Value Yield
----------- --------- ----------- --------- -----------
(Amounts in 000's)
<S> <C> <C> <C> <C> <C>
Interest bearing deposits $ - - $ 5,636 $ 5,636 5.65%
in other financial institutions
U.S. government and agency - - 8,695 8,644 5.83%
obligations
Mortgage-backed securities 194 8.00% 5,511 5,422 5.95%
Other investments 2,119 6.37% 2,119 2,106 6.37
-------- --------- ----------- -------- ---------
Total $2,313 6.51% $21,961 $21,818 5.87%
======== ========= =========== ======== =========
</TABLE>
Source: Offering circular
17
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ---------
Table I.16 - Mortgage-Backed Securities, Interest Bearing Deposits, and
Investment Securities
The following table sets forth the carrying value of the Association's
investment security portfolio at the dates indicated:
<TABLE>
<CAPTION>
At
June 30, At September 30,
------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
(Dollars in Thousands)
Interest bearing deposits 4,461 5,636 2,275
U.S. government and agency securities 7,274 8,695 11,194
Mortgage-backed securities 9,238 5,511 5,676
Other investments 2,194 2,119 1,972
-------- -------- --------
Total $23,205 $21,961 $21,117
======== ======== ========
</TABLE>
Source: Offering circular
Savings Deposits
At June 30, 1996, First Federal's deposit portfolio was composed as
follows: Passbook accounts--$8.374 million or 14.4%; Transaction accounts--
$12.970 million or 22.2%; and certificate accounts--$36.934 million or 63.4%
(see Table I.17). Table I.18 shows the totals of time deposits and the
maturities by year with rate ranges at June 30, 1996. At June, 1996, 75.85% of
First Federal's certificates matured within one year and 90.72% matured within
two years.
First Federal is not overly dependent on jumbo certificates of deposit. At
June 30, 1996, the Association had $5.816 million in certificates that were
issued for $100 thousand or more, or 9.98% of its total deposits (see Table
I.19).
Table I.20 presents information on deposit flows for the years ending
September 30, 1994 and 1995, and for the nine month periods ended June 30, 1996
and 1995.
18
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ---------
Borrowings
First Federal's has had no borrowings in recent years.
Subsidiaries
First Federal has no subsidiaries.
Legal Proceedings
From time to time, First Federal becomes involved in legal proceedings
principally related to the enforcement of its security interest in real estate
loans. In the opinion of Management of the Association, no legal proceedings
are in process or pending that would have a material effect on First Federal's
financial position, results of operations, or liquidity.
EARNINGS CAPACITY OF THE INSTITUTION
As in any interest sensitive industry, the future earnings capacity of First
Federal will be affected by the interest rate environment. Historically, the
thrift industry has performed at less profitable levels in periods of rising
interest rates. This performance is due principally to the general composition
of the assets and the limited repricing opportunities afforded even the
adjustable rate loans. The converse earnings situation (falling rates) does not
afford the same degree of profitability potential for thrifts due to the
tendency of borrowers to refinance both high rate fixed rate loans and
adjustable loans as rates decline.
First Federal is no exception to the aforementioned phenomenon. With its
current asset and liability structure, however, the effect of rising interest
rates will generally be temporary.
The addition of capital through the conversion will allow First Federal to
grow. As growth is attained, the leverage of that new capital should, from a
ratio of expenses to total assets standpoint, reduce the operating expense
ratio. However, growth and additional leverage will likely be moderate and well
controlled to maintain the current low risk levels inherent in the Association's
asset base.
Asset-Size-Efficiency of Asset Utilization
At its current size and in its current asset configuration, First Federal is
a moderately efficient operation. With total assets of approximately $64.4
million, First Federal has 20 full time equivalent employees.
Intangible values
First Federal's greatest intangible value lies in its loyal deposit base.
First Federal has a 91 year history of sound operations, controlled growth, and
consistent earnings. The Association currently has 8.2% of the deposit market in
its area, and it has the ability to increase market share.
First Federal has no significant intangible values that could be attributed
to unrecognized asset gains on investments and real estate.
Effect of Government Regulations
Although still considered a traditional thrift, First Federal has emphasized
more passive investments during the recent years. With its efforts to increase
loans as a percentage of deposits, the Association's loan mix is expected to
continue to change. Government regulations will have the greatest impact in the
area of cost of compliance and reporting. The conversion will create an
additional layer of regulations and reporting and thereby increase the cost to
the Association. Moreover, no future plans currently exist to make acquisitions
or purchase branches or complicate operations with matters that would add to
reporting and regulatory compliance.
19
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ---------
Office Facilities
First Federal's main office is a well maintained facility that was built by
the Association in 1968. Table I.21 provides information on all of First
Federal's offices. The Association's facilities are adequate for the convenience
and needs of the Association's customer base.
Table I.17 - Savings Portfolio
Savings deposits in the Association at June 30, 1996, were represented by
the various types of savings programs described below.
<TABLE>
<CAPTION>
Interest Balances Percentage
Rate Category ($000's) Total
Savings
- -------- ------------------ --------------------------------
<S> <C> <C> <C>
2.84% Passbook accounts 8,374 14.4%
2.84% Money market 1,300 2.2%
2.40% NOW accounts 11,670 20.0%
------------ ---------
21,344 36.6%
============ =========
<CAPTION>
Certificates (1)
----------------
<S> <C> <C>
4.00% or less 9 -%
4.01 - 6.00% 32,498 55.8%
6.01 - 8.00% 4,277 7.3%
8.01 - 10.00% 150 .3%
------------ ---------
36,934 63.4
------------ ---------
Total $58,278 100.0
============ =========
</TABLE>
(1) The average rate on all certificates combined was 5.6% at June 30, 1996.
Source: Offering circular
20
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
Table I.18 - Time Deposit Maturities
The following table sets forth the amount and maturities of time deposits at
June 30, 1996.
<TABLE>
<CAPTION>
Amount Due
-------------------------------------------------
Less Over Over
Than 1-2 2-3
Rate One Year Years Years 3 Years Total
- ---------------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
(In thousands)
4.00% or less 9 - - - 9
4.01 - 6.00% 25,614 4,521 1,644 719 32,498
6.01 - 8.00% 2,390 974 71 842 4,277
8.01 - 10.00% - - 150 - 150
--------- -------- -------- -------- ---------
28,013 5,495 1,865 1,561 36,934
========= ======== ======== ======== =========
Percentage 75.85% 14.88% 5.05% 4.22% 100.00%
========= ======== ======== ======== =========
</TABLE>
Source: Offering circular
Table I.19 - Jumbo CDs
The following table indicates the amount of the Association's certificates of
deposit of $100,000 or more by time remaining until maturity as of June 30,
1996.
<TABLE>
<CAPTION>
Certificates
Maturity Period of Deposits
- --------------- ----------------
(In thousands)
<S> <C>
Three months or less 1,178
Over three through six months 681
Over six through 12 months 3,064
Over 12 months 893
-------------
Total 5,816
=============
</TABLE>
Source: Offering circular
21
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
Table I.20 - Savings Deposit Activity
The following table sets forth the savings activities of the Association for
the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
June 30, September 30,
---------------------- -----------------------
1996 1995 1995 1994
-------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
(In Thousands)
Deposits less withdrawals 1,434 -2,518 -3,153 -615
Interest credited 846 685 953 756
-------- ----------- ----------- ---------
Net increase (decrease) 2,280 -1,833 -2,200 141
======== =========== =========== =========
</TABLE>
Source: Offering circular
Table I.21 - Office Facilities
<TABLE>
<CAPTION>
Net
Book Insurance Year Owned or Square
Physical address Value Coverage Opened Leased Footage
- ----------------------------- ------ --------- ------ ---------- -------
<S> <C> <C> <C> <C> <C>
($000's)
(1)
325 2nd Street SE $202 $800 1968 Owned 5,000
Cullman, Alabama
1414 2nd Avenue NW 222 $175 1988 Owned 1,000
Cullman, Alabama
1602 2nd Avenue SW 13 - 1979 Leased (2) 1,250
Cullman, Alabama
(1) At September 30, 1995. (2) Lease expires March 31, 2000.
</TABLE>
Source: First Federal Savings and Loan Association
22
<PAGE>
SECTION II
MARKET AREA
<PAGE>
FERGUSON & CO., LLP Section II.
- ------------------- -----------
II. MARKET AREA
DEMOGRAPHICS
First Federal conducts its operations through three offices located in
Cullman, Cullman County, Alabama. Alabama is in the southeastern region of the
United States. Cullman is in the north central section of Alabama. Cullman is
approximately 45 miles north of Birmingham and 45 miles south of Huntsville.
First Federal has determined that its principal trade area is Cullman
County. Table II.1 presents historical and projected trends for the United
States, Alabama, Cullman County, and the City of Cullman. The information
addresses population, income, employment, and housing trends.
As indicated in Table II.1, population growth rates for Cullman County and
Cullman are above both the United States rate and the rate for the State of
Alabama, which is slightly below that of the United States. Per capita income
growth for Cullman County and Cullman was below that of the United States and
the State of Alabama for the period 1990 to 1994. For the period 1994 to 1999,
the growth in per capita income for Cullman County is projected to be level with
that of the United States and above that of the State of Alabama, and the growth
in per capita income for the City of Cullman is projected to exceed Cullman
County, the State of Alabama, and the United States.
In the period from 1990 until 1994, the population of the State of Alabama
grew 4.74%. During the same period, the Cullman County population increased
6.36% and the United States population increased 4.81%. Projections of
population growth from 1994 through 1999 indicate that the State of Alabama will
increase 3.47%, while Cullman County is projected to increase by 5.20% and the
United States population is projected to increase by 5.28%. The city of Cullman
has recently and is projected to experience population growth well above that of
the County.
Per Capita Income growth experienced between 1990 and 1994 in Cullman
County was below that experienced for the United States and below the State of
Alabama. The Per Capita Income growth for that period was 15.16% for the State
of Alabama, 11.42% for Cullman County, and 14.73% for the United States.
Projections for Per Capita Income Growth between 1994 and 1999 are as follows:
the State is projected to increase 0.02%; Cullman County is projected to
decrease 0.40%; and the United states is projected to increase by 1.76%.
Currently, the household income levels of Cullman County are well below the
State of Alabama, which is below the United States. The 1999 estimate shows
that, for Cullman County, households with incomes less than $14,999 are expected
to be 30%; those with incomes between $15,000 and $34,999 are estimated at 38%;
those with incomes between $35,000 and $74,999 are estimated at 27%; and
households with incomes in excess of $75,000 are projected to be only 5%. The
1999 estimates for Alabama are 29%, 34%, 30%, and 8%, respectively.
The projected number of households in Cullman County is projected to grow
by 5.43% from 1994 to 1999, exceeding the projected growth rate for the State of
Alabama at 3.60% and on level with that of the United States at 5.33%.
With projections of a growing population and number of households, combined
with projections of a flat to declining per capita income, the market for
housing units should also grow. Cullman County has approximately 28,400 housing
units, of which 70.19% are owner occupied,
1
<PAGE>
FERGUSON & CO., LLP Section II.
- ------------------- -----------
and a vacancy rate of 9.74%. The City of Cullman has approximately 5.900 housing
units, of which 55.81% are owner occupied, and a vacancy rate of 5.28%.
The principal sources of employment in Cullman County are trade--28.2%;
manufacturing--24.3%; and services--16.5%. The major employers in First
Federal's market area are engaged in services, distribution, and manufacturing.
Analysis of the data presented above presents a picture of ample economic
opportunity, suggesting that First Federal has sufficient growth opportunities
within its current market area. While First Federal considers Cullman County to
be its primary market area, it also makes loans in the contiguous counties.
Based on information publicly available on deposits as of June 30, 1995
(see Table II.3), Cullman County had $688.1 million in deposits and First
Federal had 8.2% of the deposit market. First Federal's competition consists of
one thrift, seven commercial banks, and one credit union.
Growth opportunities for First Federal can be assessed by reviewing
economic factors in its market area. The salient factors include growth trends,
economic trends, and competition from other financial institutions. We have
reviewed these factors to assess the potential for the market area. In assessing
the growth potential of First Federal, we must also assess the willingness and
flexibility of management to respond to the competitive factors that exist in
the market area. Our analysis of the economic potential and the potential of
management affects the valuation of the Association. Management has demonstrated
its interest in being a full service bank through its diversification of loan
and deposit products. The Association offers consumer loans and non-real estate
commercial loans, in addition to real estate loans, as well as a full range of
deposit products, including electronic banking. The next challenge is a
practical expansion of its lending market.
2
<PAGE>
FERGUSON & CO., LLP Section II.
- ------------------- -----------
Table II.1 - Demographic Trends
United States, Alabama, Cullman County, and Cullman
<TABLE>
<CAPTION>
=============================================================================================
United Cullman
Key Economic Indicator States Alabama County Cullman
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Population, 1999 Est. 272,611,57 4,379,004 75,648 15,985
1994 - 99 Percent Change, Est. 5.28 3.47 5.20 7.73
Total Population, 1994 Est. 258,935,57 4,232,248 71,912 14,838
1990 - 94 Percent Change, Est. 4.81 4.74 6.36 11.00
Total Population, 1990 247,051,60 4,040,587 67,613 13,367
- ---------------------------------------------------------------------------------------------
Per Capita Income, 1999 Est. 16,820 13,230 11,594 13,777
1994 - 99 Percent Change, Est. 1.76 0.02 (0.40) (0.47)
Per Capita Income, 1994 Est. 16,529 13,227 11,640 13,842
1990 - 94 Percent Change, Est. 14.73 15.16 11.42 10.22
Per Capita Income, 1990 14,407 11,486 10,447 12,559
- ---------------------------------------------------------------------------------------------
Household Income Distribution-1999 Est. (%)
$14,999 and less 20 29 30 34
$15,000 - $34,999 31 34 38 32
$35,000 - $74,999 36 30 27 27
$75,000 and over 13 8 5 7
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Unemployment rate, 1990 6.24 6.78 5.75 4.42
- ---------------------------------------------------------------------------------------------
Median Age of Population, 1999 Est 35.1 35.5 37.9 40.5
Median Age of Population, 1994 33.8 34.0 36.1 39.5
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Average Housing Value, 1990 79,098 64,794 55,610 69,072
- ---------------------------------------------------------------------------------------------
Total Households, 1999 Est. 100,885,151 1,637,222 28,810 6,768
1994 - 99 Percent Change, Est. 5.33 3.60 5.43 8.06
Total Households, 1994 95,780,718 1,580,298 27,327 6,263
1990 - 94 Percent Change, Est. 4.79 4.88 6.73 11.44
Total Households, 1990 91,402,228 1,506,790 25,605 5,620
- ---------------------------------------------------------------------------------------------
Total Housing Units 101,641,260 1,670,379 28,369 5,933
% Vacant 10.07 9.79 9.74 5.28
% Occupied 89.93 90.21 90.26 94.72
% By Owner 57.78 63.57 70.19 55.81
% By Renter 32.15 26.63 20.06 38.92
=============================================================================================
</TABLE>
Source: Scan USA., Inc. 3
<PAGE>
FERGUSON & CO., LLP Section II.
- ------------------- -----------
Table II.2 - Percent Employment by Industry
United States, Alabama, and Cullman County
<TABLE>
<CAPTION>
United Cullman
Industry States Alabama County
=================================== ======== ========= ============
<S> <C> <C> <C>
Construction/Agriculture/Mining 9.5 7.7 11.2
Manufacturing 17.7 19.9 24.3
Transportation/Utilities 7.1 6.6 4.3
Trade 21.2 22.1 28.2
Finance/Insurance 6.9 4.1 2.6
Services 32.7 21.4 16.5
Public Administration 4.8 18.3 12.9
</TABLE>
Source: State of Alabama
4
<PAGE>
FERGUSON CO., LLP Section II.
- ----------------- -----------
Table II.3 - Market Area Deposits
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Cullman County, Alabama
1995 1994 1993
-------------------------------
(in Thousands)
<S> <C> <C> <C>
First Federal Branches
- ----------------------
All First Federal offices(4 in 1993
and 1994: 3 in 1995)
Total for First Federal $ 56,395 $ 57,999 $ 57,954
-------------------------------
Total Thrift Deposits $ 121,939 $ 122,932 $ 125,806
-------------------------------
Number 2 2 2
Number of Branches 5 6 6
Banks
-------------------------------
Total Bank Deposits $ 563,443 $ 523,773 $ 496,991
-------------------------------
Number 7 7 7
Number of Branches 22 22 22
Credit Unions:
-------------------------------
Total Credit Union Deposits $ 2,735 $ 2,673 $ 2,580
-------------------------------
Number 1 1 1
Number of Branches 1 1 1
Total Cullman County Deposits $ 688,117 $ 649,378 $ 625,377
===============================
First Federal - Market Share
To Total Thrifts 46.25% 47.18% 46.07%
To Total Market Area Deposits 8.20% 8.93% 9.27%
- --------------------------------------------------------------------------------
</TABLE>
Source: BranchSource, a product of Sheshunoff Information Services, Inc.
5
<PAGE>
FERGUSON CO., LLP Section II.
- ----------------- -----------
Table II.4 - Summary of Building Permits
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Cullman County
- --------------
1995 1994 1993
Value Value Value
Number ($000) Number ($000) Number ($000)
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Residential &
Commercial
Combined 2,001 $ 40,680 1,541 $ 42,709 1,23 $ 44,747
================= ================= =================
Source: City of Cullman Building Permits Office
- --------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
SECTION III
COMPARISON WITH PUBLICLY
TRADED THRIFTS
<PAGE>
FERGUSON & CO., LLP Section III.
- ------------------- ------------
III. COMPARISON WITH PUBLICLY TRADED THRIFTS
COMPARATIVE DISCUSSION
This section presents an analysis of First Federal Savings and Loan
Association relative to a group of eleven publicly traded thrift institutions
("Comparative Group"). Such analysis is necessary to determine the adjustments
that must be made to the pro forma market value of First Federal's stock. Table
III.1 presents a listing of the comparative group with general information about
the group. Table III.2 presents key financial indicators relative to
profitability, balance sheet composition and strength, and risk factors. Table
III.3 presents a pro forma comparison of First Federal to the comparative group.
Exhibits III and IV contain selected financial information on First Federal and
the comparative group. This information is derived from quarterly TFR's filed
with the OTS and call reports filed with the FDIC. The selection criteria and
comparison with the Comparative Group are discussed below.
Selection Criteria
Ideally, the comparative group would consist of thrifts in the same
geographic region with identical local economies, asset size, capital level,
earnings performance, asset quality, etc. However, there are few comparably
sized institutions with stock that is liquid enough to provide timely,
meaningful market values. Therefore, we have selected a group of comparatives
that are either listed on the New York Stock Exchange ("NYSE"), the American
Stock Exchange ("AMEX"), or Nasdaq. We excluded companies that are apparent
takeover targets and companies with unusual characteristics that tend to distort
both mean and median calculations. For example, we have excluded all companies
with losses during the trailing twelve months. We have also excluded mutual
holding companies (see Exhibit VI).
Because of the limited number of similar size thrifts with sufficient
trading volume, we looked for members of the comparative group among thrifts
with assets up to $150 million. The Southeast Region, which includes Alabama,
had 12 thrifts that met the aforementioned requirements. We found 24 thrifts
that met the requirements in the Southeast, Southwest, and Mid-Atlantic Regions
of the United States (we consider 10 to be the minimum number), and we retained
11 and eliminated 13 for the following reasons: (a) Three did not have
meaningful financial data because they had not been stock companies at least one
quarter; (b) Three had unusually high price to earnings ratios; (c) Two had no
meaningful earnings data; (d) One had excessive non-performing assets; (e) Four
had less than 40% of their assets in loans; and (f) One had loans serviced in
excess of 40% of assets.
The principal source of data was SNL Securities, Charlottesville, Virginia.
There are approximately 430 publicly traded thrifts listed on NYSE, AMEX, or
Nasdaq. In developing statistics for the entire country, we eliminated certain
institutions that skewed the results, in order to make the data more meaningful:
. We eliminated companies with losses,
. We eliminated indicated acquisition targets,
. We eliminated companies with price/earnings ratios in excess of 25, and
. We eliminated companies that had not reported as a stock institution for
one complete year.
The resulting group of 271 publicly traded thrifts is included in Exhibit V.
1
<PAGE>
FERGUSON & CO., LLP Section III.
- ------------------- ------------
The selected group of comparatives has sufficient trading volume to provide
meaningful price data. Five of the comparative group members are located in the
Southeast, and the others are located in the Southwest (3), and Mid-Atlantic (3)
Regions. With total assets of approximately $64.4 million, First Federal is well
below the group selected, which has average assets of $93.4 million and median
assets of $80.5 million.
Profitability
Using the comparison of profitability components as a percentage of average
assets, First Federal was below the comparative group in return on assets, .91%
to 1.06%; net interest income, 3.24% to 3.69%; and core income, .87% to 1.06%.
First Federal was above the comparative group in other operating income, .40% to
.38%; and operating expense, 2.28% to 2.45%. First Federal's operating expense
minus other income was 1.88% versus 2.07% for the comparative group. After
conversion, deployment of the proceeds will provide additional income, and First
Federal will compare more favorably with the comparative group in terms of
return on average assets, with a return of 1.02% at the midpoint of the
appraisal range. Pro forma return on average equity is 5.82% at the midpoint,
versus a mean of 6.01% and median of 6.18% for the comparative group.
Balance Sheet Characteristics
The general asset composition of First Federal is similar to that of the
comparative group. First Federal has a higher level of passive investments with
36.03% of its assets invested in cash, investments, and mortgage-backed
securities, versus 28.11% for the comparative group. First Federal has a lower
percentage of its assets in loans, at 61.93% versus 69.56% for the comparative
group. First Federal's percentage of earning assets to interest costing
liabilities is much lower than that of the group. First Federal has 110.18% and
the comparative group averages 123.02%. After conversion, First Federal's ratio
will be in line with that of the group of comparatives.
The liability side differs mainly in that First Federal has a lower
percentage of borrowings and equity and a higher percentage of deposits. First
Federal's capital level is 9.09% versus 18.06% for the comparative group. First
Federal's capital level will be in line with the comparative group after
conversion.
Risk Factors
Both First Federal and the comparative group have low levels of
nonperforming assets, with First Federal's being much lower than the comparative
group. First Federal's loan loss allowance is 1.53% of net loans, which compares
favorably with the comparative group. First Federal's one year gap to assets is
negative 0.43% versus negative 0.41% for the comparative group. However, the
group average is based on information available for only four members of the
comparative group. On balance, we believe that First Federal's interest rate
risk management is level with the comparative group.
Summary of Financial Comparison
Based on the above discussion of operational, balance sheet, and risk
characteristics of First Federal compared with the group, we believe that First
Federal's performance is level with that of the comparative group. While First
Federal's profitability and capital levels are below the comparative group, the
conversion proceeds will increase its income and capital levels to comparable
levels.
2
<PAGE>
FERGUSON & CO., LLP Section III.
- ------------------- ------------
FUTURE PLANS
First Federal's future plans are to remain a well capitalized, profitable
institution with good asset quality and a commitment to serving the needs of its
trade area, emphasizing lending and reducing its reliance on passive
investments, such as mortgage-backed securities. The business pan emphasizes
growth in consumer lending and commercial non-real estate lending. Management
recognizes that it will take time to invest the proceeds of its capital infusion
in a manner consistent with its historic performance and current policy. During
that period of time, management is willing to accept a lower return on assets as
well as a lower return on equity capital.
First Federal has always adhered to a controlled growth policy, and in
recent years, it has remained flat as it controlled its rates paid and overall
spreads. The additional capital raised by the sale of Common Stock will
initially be used to purchase short term investment securities. Adjustable rate
and short term loans will be emphasized. The Association will continue to
minimize long term, fixed rate loans. The Association's business plan projects
that it will experience growth in loans, savings deposits, and liquidity.
First Federal has no current plans to open or acquire branches. However,
the additional capital and the formation of a holding company would make
acquisition of branches a viable option. Management intends to expand lending
and believes that projected lending goals can be met without additional offices.
Increasing market penetration by increasing the number of services and
products available, coupled with expanded marketing efforts, are the most likely
methods to be employed to achieve growth.
3
<PAGE>
FERGUSON & CO.,LLP Table III.1 - Comparatives Section III.
- ------------------ ------------
<TABLE>
<CAPTION>
Total Current Current
Assets Stock Market
Type of # of ($000) Price Value
Ticker Short Name City State Institution Offices Mst RctQ ($) ($M)
(1)
<C> <S> <C> <C> <C> <C> <C> <C> <C>
ALBC Albion Banc Corp. Albion NY Traditional 2 56,692 16.500 4.30
BFSB Bedford Bancshares, Inc. Bedford VA Traditional 3 117,596 16.750 19.45
CCFH CCF Holding Company Jonesboro GA Traditional 3 78,772 11.810 13.35
CZF CitiSave Financial Corp Baton Rouge LA Traditional 5 79,717 13.750 13.26
FGHC First Georgia Holding, Inc. Brunswick GA Traditional 7 142,133 6.000 12.14
GUPB GFSB Bancorp, Inc. Gallup NM Traditional 1 70,422 13.250 12.57
KSAV KS Bancorp, Inc. Kenly NC Traditional 3 89,871 20.000 13.27
MORG Morgan Financial Corp. Fort Morgan CO Traditional 1 71,654 12.250 10.20
PDB Piedmont Bancorp, Inc. Hillsborough NC Traditional 2 124,847 12.875 34.05
THBC Troy Hill Bancorp, Inc. Pittsburgh PA Traditional 2 80,484 13.750 14.68
TPNZ Tappan Zee Financial, Inc. Tarrytown NY Traditional 1 114,790 13.250 21.47
Maximum 7 142,133 20.000 34.05
Minimum 1 56,692 6.000 4.30
Average 3 93,362 13.653 15.34
Median 2 80,484 13.250 13.27
</TABLE>
(1) Determination as to type thrift was made by reviewing TAFS and BankSource
reports, published by Sheshunoff. Information therein is taken from quarterly
reports filed with the OTS and FDIC.
Source: SNL & F&C caculations 4
<PAGE>
FERGUSON CO., LLP Section III.
- ----------------- ------------
Table III.2 - Key Financial Indicators
<TABLE>
<CAPTION>
First
Federal Savings
and Loan Comparative
Association Group
--------------- -----------
<S> <C> <C>
Profitability
(% of average assets)
Net income 0.91 1.06
Net interest income 3.24 3.69
Loss (recovery) provisions - 0.06
Other operating income 0.40 0.38
Operating expense 2.28 2.45
Core income (excluding gains and losses
on asset sales and real estate operations) 0.87 1.06
Balance Sheet Factors
(% of assets)
Cash, investments, and MBS 36.03 28.11
Loans 61.93 69.56
Savings deposits 90.52 72.98
Borrowings - 7.63
Equity 9.09 18.06
Tangible equity 9.09 17.98
Risk Factors
(%)
Earning assets/costing liabilities (1) 110.18 123.02
Non-performing assets/assets 0.35 0.99
Loss allowance/non performing assets 274.44 77.20
Loss allowance/loans 1.53 0.69
One year gap/assets (2) (0.43) (0.41)
</TABLE>
(1) For First Federal, the percentage given is the average for the nine months
ended June 30, 1996. It is more realistic than the percentage at June 30, 1996
(107.58%).
(2) Used March 31, 1996, information for First Federal.
Source: SNL Securities, F&C calculations,
and Offering Circular
5
<PAGE>
FERGUSON & CO., LLP Table III.3-Pro Forma Comparisons Section III.
- ------------------- Converting Institution to Comparative Group ------------
First Federal Savings and Loan Association
As of July 30, 1996
<TABLE>
<CAPTION>
Ticker Name Price Mk Value PE P/Book P/TBook P/Assets Div Yld Assets
($) ($Mil) (X) (%) (%) (%) (%) ($000)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Federal
-------------
Before Conversion N/A N/A N/A N/A N/A N/A N/A 64,381
Pro Forma Supermax 20.000 10.58 13.8 72.4 72.4 14.5 3.00 73,134
Pro Forma Maximum 20.000 9.20 12.5 68.6 68.6 12.8 3.00 71,945
Pro Forma Midpoint 20.000 8.00 11.3 64.6 64.6 11.3 3.00 70,911
Pro Forma Minimum 20.000 6.80 9.9 59.9 59.9 9.7 3.00 69,877
Comparative Group
-----------------
Averages 13.653 15.34 16.5 89.0 90.2 16.2 2.36 93,362
Medians 13.250 13.27 14.6 91.6 91.6 17.0 2.39 80,484
Alabama Public Thrifts
----------------------
Averages 13.833 14.47 21.5 86.2 91.1 12.1 3.72 128,153
Medians 12.500 14.90 21.5 80.8 91.1 12.0 4.00 109,768
Southeast Region Thrifts
------------------------
Averages 16.410 62.32 13.9 117.1 120.3 12.9 2.70 542,852
Medians 16.125 44.42 13.2 109.3 115.6 10.9 2.51 351,255
All Public Thrifts
------------------
Averages 18.496 149.53 13.9 110.9 115.5 11.0 2.29 1,563,912
Medians 17.000 45.63 13.4 105.9 110.1 10.1 2.27 441,911
Comparative Group
-----------------
ALBC AlbionBancCorp-NY 16.500 4.30 19.6 70.9 70.9 7.6 1.86 56,692
BFSB BedfordBnchrs-VA 16.750 19.45 12.0 99.4 99.4 17.0 2.39 117,596
CCFH CCFHoldingCo-GA 11.810 13.35 21.1 79.9 79.9 17.0 3.39 78,772
CZF CitiSaveFinCorp-LA 13.750 13.26 14.3 84.6 84.6 16.6 2.18 79,717
FGHC FrstGeorgiaHldg-GA 6.000 12.14 11.5 102.4 115.8 8.5 - 142,133
GUPB GFSBBancorp-NM 13.250 12.57 18.4 77.5 77.5 17.9 3.02 70,422
KSAV KSBancorp,Inc-NC 20.000 13.27 13.9 97.3 97.4 14.8 3.00 89,871
MORG MorganFinCorp-CO 12.250 10.20 14.6 97.2 97.2 14.2 1.96 71,654
PDB PiedmontBancorp-NC 12.875 34.05 16.1 91.6 91.6 27.3 3.73 124,847
THBC TroyHillBancp-PA 13.750 14.68 12.7 82.2 82.2 18.2 2.91 80,484
TPNZ TappanZeeFin-NY 13.250 21.47 27.6 96.0 96.0 18.7 1.51 114,790
</TABLE>
6
<PAGE>
FERGUSON & CO., LLP Table III.3 - Pro Forma Comparisons Section III.
- ------------------- Converting Institution to Comparative Group ------------
As of July 30, 1996
<TABLE>
<CAPTION>
Ticker Name Eq/A TEq/A EPS ROAA ROAE
(%) (%) ($) (%) (%)
<S> <C> <C> <C> <C> <C>
First Federal
-------------
Before Conversion 9.1 9.1 N/A 0.87 9.73
Pro Forma Supermax 20.0 20.0 1.45 1.06 5.30
Pro Forma Maximum 18.7 18.7 1.60 1.04 5.56
Pro Forma Midpoint 17.5 17.5 1.77 1.02 5.82
Pro Forma Minimum 16.2 16.2 2.01 0.99 6.12
Comparative Group
-----------------
Averages 18.1 18.0 0.88 1.06 6.01
Medians 18.2 18.2 0.84 0.95 6.18
Alabama Public Thrifts
----------------------
Averages 14.5 11.4 0.96 0.63 6.79
Medians 14.9 11.4 0.96 0.55 6.79
Southeast Region Thrifts
------------------------
Averages 11.5 11.3 1.23 1.02 9.93
Medians 9.5 9.2 1.18 1.00 9.19
All Public Thrifts
------------------
Averages 10.4 10.2 1.44 0.95 9.99
Medians 9.0 8.5 1.24 0.93 8.96
Comparative Group
-----------------
ALBC AlbionBancCorp-NY 10.7 10.7 0.84 0.38 3.55
BFSB BedfordBnchrs-VA 16.1 16.1 1.40 1.37 8.45
CCFH CCFHoldingCo-GA 21.2 21.2 0.56 0.95 4.46
CZF CitiSaveFinCorp-LA 18.2 18.2 0.96 1.20 6.18
FGHC FrstGeorgiaHldg-GA 8.2 7.3 0.52 0.83 9.99
GUPB GFSBBancorp-NM 23.0 23.0 0.72 0.93 3.95
KSAV KSBancorp,Inc-NC 15.2 15.2 1.44 1.12 7.02
MORG MorganFinCorp-CO 14.7 14.7 0.84 0.95 6.42
PDB PiedmontBancorp-NC 29.8 29.8 0.80 1.63 5.39
THBC TroyHillBancp-PA 22.2 22.2 1.08 1.42 6.27
TPNZ TappanZeeFin-NY 19.5 19.5 0.48 0.87 4.39
</TABLE>
Note: Stock prices are closing prices or last
trade. Pro forma calculations for First Federal
are based on sales at $20 per share with a
midpoint of $8,000,000, minimum of $6,800,000,
and maximum of $9,200,000.
Sources: First Federal's audited and unaudited
financial statements, SNL Securities, and F&C
calculations.
7
<PAGE>
SECTION IV
CORRELATION OF MARKET
VALUE
<PAGE>
FERGUSON & CO., LLP Section IV
- ------------------- ----------
IV. CORRELATION OF MARKET VALUE
MARKETABILITY & LIQUIDITY OF STOCK TO BE ISSUED
Certain factors must be considered to determine whether adjustments are
required in correlating First Federal's market value to the comparative group.
Those factors include financial aspects, market area, management, dividends,
liquidity, thrift equity market conditions, and subscription interest.
This section addresses the aforementioned factors and the estimated pro
forma market value of the to-be-issued common shares and compares the resulting
market value of the Association to the members of its comparative group and the
selected group of publicly held thrifts.
Financial Aspects
Section III includes a discussion regarding a comparison of First
Federal's earnings, balance sheet characteristics, and risk factors with its
comparative group. Table III.2 presents a comparison of certain key indicators,
and Table III.3 presents certain key indicators on a pro forma basis after
conversion.
As shown in Table III.2, from an earnings viewpoint, First Federal is
below its comparative group in return on assets and core income as a percentage
of average assets, principally as a result of its net interest income level,
which is lower because of the Association's lower capital ratio. First Federal's
net interest income as a percent of assets is 3.24% versus 3.69% for the
comparatives. After First Federal completes its stock conversion, its return on
average assets and core income as a percentage of average assets will increase.
Table III.3 projects that First Federal will approach the group in return on
assets with 1.02% at the midpoint, versus a mean of 1.06% and median of 0.95%
for the comparative group.
First Federal's pro forma equity to assets ratio at the midpoint is
17.50%, versus a mean of 18.10% and median of 18.20% for the comparative group.
First Federal's pro forma return on equity is slightly below the comparative
group--5.82% at the midpoint versus a mean of 6.01% and median of 6.18% for the
comparative group.
First Federal's recorded earnings have been adjusted for appraisal
purposes. The Association recorded gains from the sale of a branch office
building and incurred losses from real estate owned operations.
Table IV.1 - Appraisal Earnings Adjustments
<TABLE>
<S> <C>
Net income, year ended June 30, 1996 $578,000
Less gains on sales of fixed assets -75,000
Plus net loss from real estate operations 33,000
Plus applicable taxes on above adjustments at 37% 16,000
----------
Appraisal earnings, year ended June 30, 1996 $552,000
==========
</TABLE>
1
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
First Federal's asset composition is similar to that of its comparative
group--passive, with a high percentage of total assets in investments and
mortgage-backed securities. From the risk factor viewpoint, First Federal is
similar to the comparative group. First Federal has a lower level of non
performing assets. First Federal's loan loss allowance is 1.53% of net loans,
comparing favorably with the comparative group, which is 0.69%. Its ratio of
interest earning assets to interest bearing liabilities (110.18%) is well below
the comparative group (123.02). First Federal's ratio will be in line with the
comparative group after conversion. From an interest rate risk factor, First
Federal is positioned to withstand reasonable interest rate changes, probably as
well as the comparative group.
We believe that no adjustment is necessary relative to financial aspects
-------------
of First Federal.
Market Area
Section II describes First Federal's market area.
We believe that no adjustment is required for First Federal's market
-------------
area.
Management
The CEO has been with First Federal 10 years, serving as CEO since 1994.
The CFO has been with the Association for 4 years, serving in that capacity for
the entire period. The CLO joined First Federal in 1995 after working for a
major bank in Cullman for 15 years. First Federal's results compare well with
the comparative group. Therefore, First Federal's management has done the same
quality job as its selected comparatives. The Association has no management
succession plan in effect; however, that is not unusual for this size
institution.
We believe that no adjustment is required for First Federal's
-------------
management.
Dividends
Table III.3 provides dividend information relative to the comparative
group and the thrift industry as a whole. The comparative group is paying a mean
yield on price of 2.36% and a median of 2.39%, while all public thrifts are
paying a mean of 2.29% and median of 2.27%. First Federal intends to pay a
dividend at an initial annual rate of 3.0%.
We believe that no adjustment is required relative to First Federal's
-------------
intention to pay dividends.
Liquidity
The Holding Company has never issued capital stock to the public, and as
a result, no existing market for the Common Stock exists. Although the Holding
Company has applied to list its Common Stock on Nasdaq as a Pink Sheet, there
can be no assurance that a liquid trading market will develop.
A public market having the desirable characteristics of depth,
liquidity, and orderliness depends upon the presence, in the market place, of
both willing buyers and sellers of the Common Stock. These characteristics are
not within the control of the Association or the market.
The peer group includes companies with sufficient trading volume to
develop meaningful pricing characteristics for the stock. The market value of
the comparative group ranges from $4.30 million to $34.05 million, with a mean
value of $15.34 million. The midpoint of First Federal's valuation range is $8.0
million at $20 a share, or 400,000 shares.
2
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- ----------
We believe a downward adjustment is required relative to the liquidity of First
-------------------
Federal's stock.
Thrift Equity Market Conditions
The SNL Thrift Index is summarized in Figure IV.1. As the table
demonstrates, the Thrift Index has performed well since the end of 1990. The
Index has grown as follows: Year ended December 31, 1991--increased 49.0% from
96.6 to 143.9; Year ended December 31, 1992--increased 39.7% to 201.1; Year
ended December 31, 1993--increased 25.6% to 252.5; Year ended December 31, 1994
- -- decreased 3.1% to 244.7; Year ended December 31, 1995--increased 54.1% to
376.5; and Period ended July 30, 1996--increased 3.2% to 388.4. It is market
value weighted with a base value of 100 as of March 31, 1984.
As shown in Figure IV.1, which is a graph of the SNL Thrift Index
covering from December 31, 1990 through July 30, 1996, the market, as depicted
by the index, has experienced fluctuations recently. It dipped in the latter
part of 1994, but recovered during the first quarter of 1995. During 1995, the
Index continued a more robust increase and moved from 244.7 at year end 1994 to
362.3 by September 30, 1995, an increase of 48.1%. However, the Index has
recently remained flat with some minor up and down movement. It increased 3.9%
from September 30, 1995, to December 31, 1995; it increased 1.5% from December
31, 1995, to March 31, 1996; it decreased 1.3% from March 31, 1996, to June 30,
1996; and then it increased 3.0% during July 1996.
The increase in the SNL Index, in general, has been parallel with the
increases in other equity markets with some interim fluctuations caused by
changes or anticipated changes in interest rates. Another factor, however, is
also notable. In other markets, increased prices are responding to improved
profits, with price to earnings ratios increasing as earnings potentials are
anticipated. However, the thrift IPO market has been affected by speculation
that the majority of the institutions will become viable consolidation
candidates and sell at some expanded multiple of book value.
ALABAMA ACQUISITIONS
Table IV.2 provides information relative to acquisitions of financial
institutions in Alabama between January 1, 1994 and May 30, 1996. There were 4
thrift acquisitions and 10 bank acquisitions announced during that time frame.
Currently, there are 4 publicly held thrifts in the State of Alabama. There are
58 publicly held thrifts in the southeast region of the country. Bank
acquisitions in Alabama since January 1, 1994, have averaged 157.7% of tangible
book value and 12.6 times earnings. The median price has been 159.0% of tangible
book value and 13.1 times earnings. Thrifts generally sell at lower price/book
multiples than do banks. Thrifts in Alabama during that period have averaged
126.5% of tangible book value and 18.6 times earnings.
EFFECT OF INTEREST RATES ON THRIFT STOCK
The current interest rate environment and the anticipated rate
environment will affect the pricing of thrift stocks, and all other interest
sensitive stocks. As the economy continues to lose momentum, the fear of
inflation can and has to a degree been replaced by economic uncertainty. The
Federal Reserve, in its resolve to curb inflation, has increased rates in the
past, but has more recently relented to vagaries of the economy and decreased
rates in an attempt to stimulate what is currently perceived as a fragile and
irresolute economy. Recent gains in thrift stocks could
3
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- ----------
reverse if there were an abatement of the merger and consolidation activity, or
if rates rose sharply.
What is likely to happen in the short to intermediate term is that rates
will float around current levels and trend upward. The yield curve will continue
to normalize. A slowly increasing yield curve will do little for the financial
services industry in general and thrifts specifically. The spreads will narrow
if the cost of funds continues to rise.
As clearly illustrated, the SNL Thrift Index has performed well over the
last five years. It moved in tandem with all interest sensitive stocks and
reflected the weakness in the market as investors began to consider the
importance of increases in rates and their impact on the net interest margins of
thrifts. The clear implication is that rising interest rates will have a
negative impact on earnings.
Figure IV.2 graphically displays the rate environment since January
1996. In late January 1996, the yield curve was flat, with only a 56 basis point
("BP") difference between the federal funds rate and the 30 year treasury at
January 26, 1996. Since that time, the yield curve has developed more slope with
a 180 BP spread between the federal funds rate and the 30 year treasury rate at
July 26, 1996. Mortgage rates follow closely the long term government
obligations, giving asset managers more opportunity to maintain their spreads.
At January 26, 1996, the spread between the 1 year T-Bill and the 5 year
T-Note was 32 bp, and the spread between the 5 year T-Note and the 30 year bond
was 65 bp. On July 26, 1996, the spreads were 76 and 22 bp, respectively.
Clearly, the implications are that the yield curve is developing more slope at
the short to intermediate terms.
From January 1996 to July 1996,, the Fed Funds rate decreased 19 basis
points and the Prime Rate decreased 25 bp.
Increased cost of funds will serve to narrow the net interest margins of
thrifts. A thrift's ability to maintain net interest margins through business
cycles is important to investors, unless thrifts can offset the decline in net
interest income by other sources of revenue or reductions in noninterest
expense. The former is difficult and the latter is unlikely.
First Federal, with its interest rate risk management combined with its
equity position (especially on a pro forma basis), is less vulnerable to rising
rates than most.
During 1993, conversion stocks often experienced first day 30% or more
increases in value. However, as Table IV.3 shows, recent price appreciation has
not been as robust. Table IV.3 provides information on 33 conversions completed
since January 31, 1996. The average change in price since conversion is a gain
of 8.3% and the median change is a gain of 5.0%. Within that group, 24 have
increased in value with a range of a low of 1.3% to a high of 37.5%. One of the
recently converted thrifts experienced no change in value and 8 decreased in
value--with decrease percentages ranging from 1.3% to 10.0%. The average
increase in value at one day, one week, and one month after conversion has been
10.4%, 10.2%, and 10.1%, respectively. The median increase in value at one day,
one week, and one month after conversion has been 9.7%, 8.1%, and 6.9%,
respectively.
Because of the lack of complete earnings information on recent
conversions, a meaningful comparison of the price earnings ratios is difficult
to make. However, there is sufficient information to review the price to book
ratio. The average price-to-book ratio, as of July 30, 1996, is
4
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- ----------
76.1% and the median is 73.8%. That compares to the offering price to pro forma
book, where the average was 69.3% and the median was 69.9%.
We believe a downward adjustment is required for the new issue discount.
-------------------
Adjustments Conclusion
<TABLE>
<CAPTION>
Adjustments Summary
- --------------------------------------------------------------------------
No Change Upward Down
<S> <C> <C> <C>
Financial Aspects X
Market Area X
Management X
Dividends X
Liquidity X
Thrift Equity Market Conditions X
- --------------------------------------------------------------------------
</TABLE>
Valuation Approach
Typically, investors rely on the price/earnings ratio as the most
appropriate indicator of value. We consider price/earnings to be one of the
important pricing methods in valuing a thrift stock. Price/book is a well
recognized yardstick for measuring the value of financial institution stocks in
general. Another method of viewing thrift values is price/assets, which is more
meaningful in situations where the subject is thinly capitalized. Given the
healthy condition of the thrift industry today, more emphasis is placed on
price/earnings and price/book. Generally, price/earnings and price/book should
be considered in tandem.
Table III.3 presents First Federal's pro forma ratios and compares them
to the ratios of its comparative group and the publicly held thrift industry as
a whole. First Federal's earnings for the twelve months ended June 30, 1996,
were approximately $578,000, with adjustments of $26,000 required to determine
appraisal earnings of $552,000. Management has indicated an intention, through
its diversification of deposit and loan products, to exhibit the flexibility in
operations needed to serve both the public and the institution. The Association
is well positioned to manage interest rate variations. The Association projects
moderate growth.
The comparative group traded at an average of 16.5 times earnings at
July 30, 1996, and at 89.0% of book value. The comparative group traded at a
median of 14.6 times earnings and a median of 91.6% of book value. At the
midpoint of the valuation range, First Federal is priced at 11.3 times earnings
and 64.6% of book value. At the maximum end of the range, First Federal is
priced at 12.5 times earnings and 68.6% of book value. At the supermaximum,
First Federal is priced at 13.8 times earnings and 72.4% of book value.
The midpoint valuation of $8,000,000 represents a discount of 27.4% from
the average and a discount of 29.5% from the median of the comparative group on
a price/book basis. The price/earnings ratio for First Federal at the midpoint
represents a discount of 31.8% from the comparative group's mean and 22.7% from
the median price/earnings ratio.
5
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
The maximum valuation of $9,200,000 represents a discount of 22.9% from
the average and 25.2% from the median of the comparative group on a price/book
basis. The price/earnings ratio for First Federal at the maximum represents a
discount of 24.3% from the average and 14.2% from the median of the comparative
group.
As shown in Table III.3, conversions closing since January 31, 1996,
have closed at an average price to book ratio of 69.3% and median of 69.9%.
First Federal's pro forma price to book ratio is 64.6% at the midpoint, 68.6% at
the maximum, and 72.4% at the supermaximum of the range. At the midpoint,
Federal is 6.8% below the average and 7.6% below the median. At the maximum of
the range, First Federal is 1.0% below the average and 1.9% below the median. At
the supermaximum of the range, First Federal's pro forma price to book ratio is
4.5% above the average and 3.6% above the median.
Valuation Conclusion
We believe that as of July 30, 1996, the estimated pro forma market
value of First Federal was $8,000,000. The resulting valuation range was
$6,800,000 at the minimum to $9,200,000 at the maximum, based on a range of 15%
below and 15% above the midpoint valuation. The supermaximum is $10,580,000,
based on 1.15 times the maximum. Pro forma comparisons with the comparative
group are presented in Table III.3 based on calculations shown in Exhibit VII.
6
<PAGE>
FERGUSON & CO., LLP Table IV.2 - Alabama Acquisitions Section IV.
- ------------------- -----------
(Announced Between January 1, 1994 and May 30, 1996)
<TABLE>
<CAPTION>
Total
Bank/ Bank/ Assets
Buyer ST Thrift Seller ST Thrift ($000)
<S> <C> <C> <C> <C> <C> <C>
South Alabama Bancrp AL Bank First Monco Bancshrs AL Bank 94,927
ABC Bancorp, Inc GA Bank Southland Bancorp AL Bank 102,336
FirstFed Bancorp AL Thrift First State Corp AL Bank 29,355
Nat'l Commerce Corp AL Bank Alabama National AL Bank 277,099
Colonial BancGroup AL Bank Farmers & Mrcht Bank AL Bank 50,309
Peoples Indep. Bshrs AL Bank Randolph Bancshares AL Bank 31,475
Regions Financial AL Bank Union B&T Company AL Bank 453,881
Synovus Financial GA Bank State Bancshares AL Bank 62,006
Colonial BancGroup AL Bank Brundidge Banking Co AL Bank 53,220
Regions Financial AL Bank First Fayette Bnshrs AL Bank 73,639
Colonial BancGroup AL Bank Dothan FSB AL Thrift 44,930
Union Planters Corp TN Bank Valley Federal SB AL Thrift 122,083
Nat'l Commerce Corp AL Bank Talladega Fed'l S&L AL Thrift 34,379
Union Planters Corp TN Bank BNF Bancorp AL Thrift 267,110
Average 121,196
Median 67,823
Average--Banks 122,825
Median--Banks 67,823
Average--Thrifts 117,126
Median--Thrifts 83,507
</TABLE>
Source: SNL & F&C calculations 7
<PAGE>
FERGUSON & CO., LLP Table IV.2 - Alabama Acquisitions Section IV.
- ------------------- -----------
(Announced Between January 1, 1994 and may 30, 1996)
<TABLE>
<CAPTION>
Deal Deal Deal
Deal Price/ Price/ Price/
Announce Value Book Tg Bk 4-Qtr
Seller Date Status ($M) (%) (%) EPS (x)
<S> <C> <C> <C> <C> <C> <C>
First Monco Bancshrs 04/29/96 NonBinding 16.7 150.5 150.5 13.8
Southland Bancorp 12/19/95 Pending 11.2 180.0 180.0 13.2
First State Corp 09/15/95 Completed 4.2 177.4 177.4 14.6
Alabama National 06/02/95 Completed 40.2 145.1 169.7 10.3
Farmers & Mrcht Bank 04/04/95 Pending 10.0 137.2 137.2 14.2
Randolph Bancshares 02/17/95 Completed 3.9 144.8 144.8 13.1
Union B&T Company 07/08/94 Completed 65.0 147.2 148.4 11.1
State Bancshares 05/23/94 Completed 10.0 182.1 182.1 8.0
Brundidge Banking Co 04/21/94 Completed 6.2 167.6 167.6 16.1
First Fayette Bnshrs 02/03/94 Completed 16.3 119.3 119.3 12.2
Dothan FSB 11/21/95 NonBinding 5.2 133.4 134.6 23.9
Valley Federal SB 11/01/95 Pending 12.6 120.3 120.3 26.9
Talladega Fed'l S&L 03/15/95 Completed 1.7 87.8 88.0 11.3
BNF Bancorp 01/28/94 Completed 48.8 163.3 163.3 12.3
Average 18.0 146.8 148.8 14.3
Median 10.6 146.1 149.4 13.1
Average--Banks 18.4 155.1 157.7 12.6
Median--Banks 10.6 148.8 159.0 13.1
Average--Thrifts 17.1 126.2 126.5 18.6
Median--Thrifts 8.9 126.8 127.4 18.1
</TABLE>
Source: SNL & F&C calculations 8
<PAGE>
FERGUSON & CO., LLP Table IV.3 - Recent Conversions Section IV.
- ------------------- (Since January 31, 1996) -----------
<TABLE>
<CAPTION>
Conversion Gross Offering
Assets Proceeds Price
Ticker Short Name State IPO Date ($000) ($000) ($)
<S> <C> <C> <C> <C> <C> <C>
ANA Acadiana Bancshares, Inc. LA 07/16/96 225,248 32,775 12.000
PWBK Pennwood Savings Bank PA 07/15/96 41,592 6,101 10.000
MBSP Mitchell Bancorp, Inc. NC 07/12/96 28,222 9,799 10.000
OCFC Ocean Financial Corp. NJ 07/03/96 1,036,445 167,762 20.000
HWEN Home Financial Bancorp IN 07/02/96 33,462 5,059 10.000
EGLB Eagle BancGroup, Inc. IL 07/01/96 150,974 13,027 10.000
FLKY First Lancaster Bancshares KY 07/01/96 35,361 9,588 10.000
PROV Provident Financial Holdings CA 06/28/96 570,691 51,252 10.000
PRBC Prestige Bancorp, Inc. PA 06/27/96 91,841 9,630 10.000
WYNE Wayne Bancorp, Inc. NJ 06/27/96 207,997 22,314 10.000
DIME Dime Community Bancorp, Inc. NY 06/26/96 665,187 145,475 10.000
MECH Mechanics Savings Bank CT 06/26/96 662,482 52,900 10.000
CNSB CNS Bancorp, Inc. MO 06/12/96 85,390 16,531 10.000
LXMO Lexington B&L Financial Corp. MO 06/06/96 49,981 12,650 10.000
FFBH First Federal Bancshares of AR AR 05/03/96 454,479 51,538 10.000
CBK Citizens First Financial Corp. IL 05/01/96 227,872 28,175 10.000
RELI Reliance Bancshares, Inc. WI 04/19/96 32,260 20,499 8.000
CATB Catskill Financial Corp. NY 04/18/96 230,102 56,868 10.000
YFCB Yonkers Financial Corporation NY 04/18/96 208,283 35,708 10.000
GSFC Green Street Financial Corp. NC 04/04/96 151,028 42,981 10.000
FFDF FFD Financial Corp. OH 04/03/96 58,955 14,548 10.000
AMFC AMB Financial Corp. IN 04/01/96 68,851 11,241 10.000
FBER 1st Bergen Bancorp NJ 04/01/96 223,167 31,740 10.000
LONF London Financial Corporation OH 04/01/96 34,152 5,290 10.000
PHFC Pittsburgh Home Financial Corp PA 04/01/96 157,570 21,821 10.000
SSB Scotland Bancorp, Inc NC 04/01/96 57,718 18,400 10.000
SSM Stone Street Bancorp, Inc. NC 04/01/96 84,996 27,376 15.000
WHGB WHG Bancshares Corp. MD 04/01/96 85,027 16,201 10.000
CRZY Crazy Woman Creek Bancorp WY 03/29/96 37,510 10,580 10.000
PFFB PFF Bancorp, Inc. CA 03/29/96 1,899,412 198,375 10.000
FCB Falmouth Co-Operative Bank MA 03/28/96 73,735 14,548 10.000
CFTP Community Federal Bancorp MS 03/26/96 162,042 46,288 10.000
GAF GA Financial, Inc. PA 03/26/96 476,259 89,000 10.000
Maximum 1,899,412 198,375 20.000
Minimum 28,222 5,059 8.000
Average 260,857 39,274 10.455
Median 150,974 21,821 10.000
</TABLE>
Source: SNL & F&C calculations 9
<PAGE>
FERGUSON & CO., LLP Table IV.3 - Recent Conversions Section IV.
- ------------------- -----------
(Since January 31, 1996)
<TABLE>
<CAPTION>
Conversion Pricing Ratios
--------------------------------
Price/ Price/ Price/ Current Current Current Price One Price One
Pro-Forma Pro-Forma Adjusted Stock Price/ Price/ Tang Day After Week After
Book Value Earnings Assets Price Book Value Book Value Conversion Conversion
Ticker (%) (x) (%) ($) (%) (%) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANA 69.9 NA 12.7 11.750 NA NA 12.000 11.750
PWBK 65.8 13.3 12.8 9.000 NA NA 9.500 9.125
MBSP 68.1 94.5 25.8 10.250 NA NA NA 10.625
OCFC 69.2 13.8 13.9 20.250 NA NA 21.250 20.125
HWEN 66.2 12.4 13.1 10.625 NA NA 10.250 9.875
EGLB 57.1 58.1 7.9 11.125 NA NA 11.250 11.250
FLKY 72.5 19.0 21.3 13.750 NA NA 13.500 13.375
PROV 60.9 18.2 8.2 10.500 NA NA 10.970 10.810
PRBC 61.9 24.6 9.5 9.875 NA NA 10.375 10.250
WYNE 60.9 16.7 9.7 11.625 NA NA 11.125 11.375
DIME 69.1 15.7 17.9 12.000 NA NA 11.687 12.000
MECH 72.0 NA 7.4 11.625 NA NA 11.500 11.500
CNSB 69.3 26.1 16.2 11.310 NA NA 11.000 11.625
LXMO 69.1 14.4 20.2 9.875 NA NA 9.500 9.750
FFBH 63.4 9.8 10.2 13.500 NA NA 13.000 13.250
CBK 73.1 15.3 11.0 9.750 NA NA 10.500 10.000
RELI 72.5 22.5 38.9 7.875 NA NA 8.375 8.250
CATB 71.9 19.0 19.8 10.500 NA NA 10.375 10.625
YFCB 74.9 16.1 14.6 10.000 NA NA 9.750 10.125
GSFC 71.0 14.8 22.2 12.750 87.3 87.3 12.875 12.250
FFDF 69.9 17.4 19.8 10.190 NA NA 10.500 10.500
AMFC 70.8 18.2 14.0 10.250 NA NA 10.500 10.500
FBER 74.8 21.7 12.5 9.375 68.6 68.6 10.000 9.500
LONF 68.5 22.4 13.4 10.250 NA NA 10.812 10.625
PHFC 72.8 17.5 12.2 9.750 70.0 70.0 11.000 11.000
SSB 74.8 16.2 24.2 11.875 NA NA 12.250 12.500
SSM 74.9 19.7 24.4 16.625 NA NA 17.500 18.000
WHGB 71.1 15.5 16.0 11.125 NA NA 11.125 11.060
CRZY 69.7 16.4 22.0 10.125 69.3 69.3 NA 10.750
PFFB 69.0 26.6 9.5 11.000 75.1 NA 11.375 11.625
FCB 68.7 19.9 16.5 10.750 72.4 72.4 10.750 11.250
CFTP 71.4 14.0 22.2 12.875 89.8 89.8 12.625 12.875
GAF 70.5 13.8 15.7 10.875 75.8 75.8 11.375 11.500
Maximum 74.9 94.5 38.9 20.250 89.8 89.8 21.250 20.125
Minimum 57.1 9.8 7.4 7.875 68.6 68.6 8.375 8.250
Average 69.3 21.4 16.2 11.303 76.1 76.2 11.568 11.504
Median 69.9 17.4 14.6 10.750 73.8 72.4 11.000 11.060
</TABLE>
Source: SNL & F&C calculations 10
<PAGE>
FERGUSON & CO., LLP Table IV.3 - Recent Conversions Section IV.
- ------------------- (Since January 31, 1996) -----------
<TABLE>
<CAPTION>
Post Conversion Percent Increase (Decrease)
Price One ---------------------------------------------
Month After One One One To
Conversion Day Week Month Date
Ticker ($) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C>
ANA NA - (2.08) NA (2.08)
PWBK NA (5.00) (8.75) NA (10.00)
MBSP NA NA 6.25 NA 2.50
OCFC 20.250 6.25 0.63 1.25 1.25
HWEN 10.625 2.50 (1.25) 6.25 6.25
EGLB 11.125 12.50 12.50 11.25 11.25
FLKY 13.750 35.00 33.75 37.50 37.50
PROV 10.125 9.70 8.10 1.25 5.00
PRBC 9.750 3.75 2.50 (2.50) (1.25)
WYNE 11.250 11.25 13.75 12.50 16.25
DIME 11.875 16.87 20.00 18.75 20.00
MECH 11.250 15.00 15.00 12.50 16.25
CNSB 11.500 10.00 16.25 15.00 13.10
LXMO 10.125 (5.00) (2.50) 1.25 (1.25)
FFBH 13.690 30.00 32.50 36.90 35.00
CBK 10.125 5.00 - 1.25 (2.50)
RELI 7.940 4.69 3.13 (0.75) (1.56)
CATB 10.375 3.75 6.25 3.75 5.00
YFCB 9.940 (2.50) 1.25 (0.60) -
GSFC 12.310 28.75 22.50 23.10 27.50
FFDF 10.310 5.00 5.00 3.10 1.90
AMFC 10.500 5.00 5.00 5.00 2.50
FBER 9.625 - (5.00) (3.75) (6.25)
LONF 10.125 8.12 6.25 1.25 2.50
PHFC 10.625 10.00 10.00 6.25 (2.50)
SSB 11.750 22.50 25.00 17.50 18.75
SSM 17.750 16.67 20.00 18.33 10.83
WHGB 11.250 11.25 10.60 12.50 11.25
CRZY 10.500 NA 7.50 5.00 1.25
PFFB 11.625 13.75 16.25 16.25 10.00
FCB 10.750 7.50 12.50 7.50 7.50
CFTP 12.625 26.25 28.75 26.25 28.75
GAF 11.000 13.75 15.00 10.00 8.75
Maximum 20.250 35.00 33.75 37.50 37.50
Minimum 7.940 (5.00) (8.75) (3.75) (10.00)
Average 11.481 10.40 10.20 10.13 8.29
Median 10.875 9.70 8.10 6.88 5.00
</TABLE>
Source: SNL & F&C calculations
11
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
Table IV.4
Comparison of Pricing Ratios
<TABLE>
<CAPTION>
Group Percent Premium
Compared to (Discount) Versus
First --------------- ------------------
Federal Average Median Average Median
------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Comparison of PE ratio at
midpoint to:
- -----------------------------
Comparative group 11.3 16.5 14.6 (31.8) (22.7)
Alabama thrifts 11.3 21.5 21.5 (47.7) (47.7)
Southeast Region thrifts 11.3 13.9 13.2 (18.9) (14.4)
All public thrifts 11.3 13.9 13.4 (18.7) (15.6)
Comparison of PE ratio at
maximum to:
- -----------------------------
Comparative group 12.5 16.5 14.6 (24.3) (14.2)
Alabama thrifts 12.5 21.5 21.5 (41.9) (41.9)
Southeast Region thrifts 12.5 13.9 13.2 (10.0) (5.0)
All public thrifts 12.5 13.9 13.4 (9.8) (6.4)
Comparison of PE ratio at
supermaximum to:
- -----------------------------
Comparative group 13.8 16.5 14.6 (16.3) (5.1)
Alabama thrifts 13.8 21.5 21.5 (35.8) (35.8)
Southeast Region thrifts 13.8 13.9 13.2 (0.5) 5.1
All public thrifts 13.8 13.9 13.4 (0.3) 3.5
Comparison of PB ratio at
midpoint to:
- -----------------------------
Comparative group 64.6 89.0 91.6 (27.4) (29.5)
Alabama thrifts 64.6 86.2 80.8 (25.1) (20.0)
Southeast Region thrifts 64.6 117.1 109.3 (44.8) (40.9)
All public thrifts 64.6 110.9 105.9 (41.7) (39.0)
Comparison of PB ratio at
maximum to:
- -----------------------------
Comparative group 68.6 89.0 91.6 (22.9) (25.2)
Alabama thrifts 68.6 86.2 80.8 (20.5) (15.1)
Southeast Region thrifts 68.6 117.1 109.3 (41.4) (37.3)
All public thrifts 68.6 110.9 105.9 (38.2) (35.2)
Comparison of PB ratio at
supermaximum to:
- -----------------------------
Comparative group 72.4 89.0 91.6 (18.6) (21.0)
Alabama thrifts 72.4 86.2 80.8 (16.0) (10.3)
Southeast Region thrifts 72.4 117.1 109.3 (38.2) (33.8)
All public thrifts 72.4 110.9 105.9 (34.7) (31.6)
</TABLE>
Source: SNL & F&C calculations 12
<PAGE>
FERGUSON & CO., LLP Figure IV.1-SNL Index Section IV.
- ------------------- -----------
<TABLE>
<CAPTION>
PERCENT CHANGE SINCE
------------------------------
SNL PREVIOUS
DATE INDEX DATE 12/31/94 12/31/95
---- ----- ---- -------- --------
<S> <C> <C> <C> <C>
12/31/90 96.6
12/31/91 143.9 49.0%
12/31/92 201.1 39.7%
12/31/93 252.5 25.6%
12/31/94 244.7 -3.1%
3/31/95 278.4 13.8% 13.8%
6/30/95 313.5 12.6% 28.1%
9/30/95 362.3 15.6% 48.1%
12/31/95 376.5 3.9% 53.9%
3/31/96 382.1 1.5% 1.5%
6/30/96 377.2 -1.3% 0.2%
7/30/96 388.4 3.0% 3.2%
</TABLE>
[SNL INDEX LINE GRAPH APPEARS HERE]
Source: SNL & F&C calculations 13
<PAGE>
FERGUSON & CO., LLP Figure IV.2 - Interest Rates Section IV.
- ------------------- -----------
<TABLE>
<CAPTION>
----------------------------------------------------------
1 Year 5 Year 10 Year 30 Year
Fed Fds (*) T-bill Treas. Treas. Treas.
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1/26/96 5.44 5.03 5.35 5.64 6.00
2/23/96 5.17 5.05 5.52 5.97 6.35
3/22/96 5.36 5.43 6.08 6.36 6.72
4/26/96 5.24 5.50 6.31 6.53 6.88
5/31/96 5.19 5.70 6.55 6.77 7.02
6/28/96 5.21 5.79 6.63 6.86 7.08
7/26/96 5.25 5.86 6.62 6.84 7.05
(*) Seven-day average for week ending two days earlier
than date shown.
----------------------------------------------------------
</TABLE>
[LINE GRAPH APPEARS HERE]
Source: The Federal Reserve Bank of St. Louis,
U.S. Financial Data 14
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT I
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit I - Firm Qualifications
Ferguson & Co., LLP (F&C), is a financial, economic, and regulatory
consulting firm providing services to financial institutions. It is located in
Irving, Texas. Its services to financial institutions include:
. Mergers and acquisitions services
. Business plans
. Fairness opinions and conversion appraisals
. Litigation support
. Operational and efficiency consulting
. Human resources evaluation and management
F&C developed several financial institution databases of information
derived from periodic financial reports filed with regulatory authorities by
financial institutions. For example, F&C developed TAFS and BankSource. TAFS
includes thrifts filing TFR's with the OTS and BankSource includes banks and
savings banks filing call reports with the FDIC. Both databases of information
include information from the periodic reports plus numerous calculations derived
from F&C's analysis. In addition, both databases are interactive, permitting
the user to conduct merger analysis, do peer group comparisons, and a number of
other items. F&C recently sold its electronic publishing segment to Sheshunoff
Information Services Inc., Austin, Texas.
Brief biographical information is presented below on F&C's principals:
WILLIAM C. FERGUSON, MANAGING PARTNER
- -------------------------------------
Mr. Ferguson has approximately 30 years experience providing various services to
financial institutions. He was a partner in a CPA firm prior to founding F&C in
1984. Mr. Ferguson is a frequent speaker for financial institution seminars and
he has testified before Congressional Committees several times on his analysis
of the state of the thrift industry. Mr. Ferguson has a B.A. degree from Austin
Peay University and an M.S. degree from the University of Tennessee. He is a
CPA.
1
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit I - Firm Qualifications
CHARLES M. HEBERT, PRINCIPAL
- ----------------------------
Mr. Hebert has over 30 years of experience providing services to and managing
financial institutions. He spent 7 years as a national bank examiner, 14 years
in bank management, 5 years in thrift management, and has spent the last 7 years
on the F&C consulting staff. Mr. Hebert holds a B.S. degree from Louisiana
State University.
ROBIN L. FUSSELL, PRINCIPAL
- ---------------------------
Mr. Fussell has over 25 years of experience providing professional services to
and managing financial institutions. He worked on the audit staff of a "Big
Six" accounting firm for 12 years, served as CEO of a thrift for 3 years, and
has worked in financial institution consulting for the last 12 years. He is a
co-founder of F&C. He holds a B.S. degree from East Carolina University. He is
a CPA.
2
<PAGE>
EXHIBIT II
<PAGE>
FERGUSON & CO., LLP Exhibit II.1 - Selected Publicly Traded Southeast Thrifts
- -------------------
<TABLE>
<CAPTION>
Deposit
Insurance
Agency
Ticker Short Name City State Region (BIF/SAIF) Exchange
<S> <C> <C> <C> <C> <C> <C>
FFBS FFBS BanCorp, Inc. Columbus MS SE SAIF NASDAQ
SCCB S. Carolina Community Bancshrs Winnsboro SC SE SAIF NASDAQ
CFCP Coastal Financial Corp. Myrtle Beach SC SE SAIF NASDAQ
FFFL Fidelity FSB of Florida, MHC West Palm Beach FL SE SAIF NASDAQ
CMSV Community Savings, MHC North Palm Beach FL SE SAIF NASDAQ
PALM Palfed, Inc. Aiken SC SE SAIF NASDAQ
SOPN First Savings Bancorp, Inc. Southern Pines NC SE SAIF NASDAQ
HBS Haywood Bancshares, Inc. Waynesville NC SE BIF AMSE
CNIT CENIT Bancorp, Inc. Norfolk VA SE SAIF NASDAQ
FFFG F.F.O. Financial Group, Inc. St. Cloud FL SE SAIF NASDAQ
GSLC Guaranty Financial Corp. Charlottesville VA SE SAIF NASDAQ
FFLC FFLC Bancorp, Inc. Leesburg FL SE SAIF NASDAQ
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ
FFFC FFVA Financial Corp. Lynchburg VA SE SAIF NASDAQ
KSAV KS Bancorp, Inc. Kenly NC SE SAIF NASDAQ
LIFB Life Bancorp, Inc. Norfolk VA SE SAIF NASDAQ
BFSB Bedford Bancshares, Inc. Bedford VA SE SAIF NASDAQ
FLAG FLAG Financial Corp. LaGrange GA SE SAIF NASDAQ
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ
UFRM United Federal Savings Bank Rocky Mount NC SE SAIF NASDAQ
MGNL Magna Bancorp, Inc. Hattiesburg MS SE SAIF NASDAQ
FLFC First Liberty Financial Corp. Macon GA SE SAIF NASDAQ
FSFC First Southeast Financial Corp Anderson SC SE SAIF NASDAQ
PFSL Pocahontas FS&LA, MHC Pocahontas AR SE SAIF NASDAQ
FGHC First Georgia Holding, Inc. Brunswick GA SE SAIF NASDAQ
FFPB First Palm Beach Bancorp, Inc. West Palm Beach FL SE SAIF NASDAQ
HARB Harbor Federal Savings Bk, MHC Fort Pierce FL SE SAIF NASDAQ
NFSL Newnan Savings Bank, FSB Newnan GA SE SAIF NASDAQ
FFCH First Financial Holdings Inc. Charleston SC SE SAIF NASDAQ
PLE Pinnacle Bank Jasper AL SE SAIF AMSE
BANC BankAtlantic Bancorp, Inc. Fort Lauderdale FL SE SAIF NASDAQ
FOBC Fed One Bancorp Wheeling WV SE SAIF NASDAQ
VFFC Virginia First Financial Petersburg VA SE SAIF NASDAQ
AMFB American Federal Bank Greenville SC SE SAIF NASDAQ
EBSI Eagle Bancshares Tucker GA SE SAIF NASDAQ
FFRV Fidelity Financial Bankshares Richmond VA SE SAIF NASDAQ
</TABLE>
Maximum
Minimum
Average
Median
Source: SNL & F&C calculations 1
<PAGE>
FERGUSON & CO., LLP Exhibit II.1 - Selected Publicly Traded Southeast Thrifts
- -------------------
<TABLE>
<CAPTION>
Current Current Price/ Current Current Current Total Equity/ Tangible
Stock Market LTM Price/ Price/ Price/ Div. Assets Assets Equity/
Price Value Core EPS B Value TB Value Assets Yield ($000) (%) T Assets
Ticker IPO Date ($) ($M) (x) (%) (%) (%) (%) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FFBS 07/01/93 22.000 34.60 20.56 133.90 133.90 28.01 2.273 123,553 19.56 19.56
SCCB 07/07/94 16.000 11.96 19.75 95.24 95.24 27.11 3.750 44,088 28.47 28.47
CFCP 09/26/90 20.250 69.40 19.10 258.62 258.62 15.73 1.738 441,216 6.08 6.08
FFFL 01/07/94 12.750 85.68 18.75 104.68 105.99 10.82 4.706 791,897 10.24 10.13
CMSV 10/24/94 16.000 77.90 18.60 104.23 104.23 12.32 5.000 632,507 11.82 11.82
PALM 12/15/85 12.375 64.62 17.68 122.65 129.04 10.36 0.646 623,553 8.45 8.07
SOPN 01/06/94 17.125 64.12 17.65 95.46 95.46 25.02 3.504 256,294 26.21 26.21
HBS 12/18/87 18.500 23.85 17.45 124.33 129.92 17.76 2.811 134,274 14.28 13.76
CNIT 08/06/92 32.940 53.13 17.25 113.63 118.02 7.93 2.429 667,465 6.98 6.73
FFFG 10/13/88 2.625 22.13 16.41 120.41 120.41 7.24 0.000 305,683 6.02 6.02
GSLC NA 8.000 7.35 15.69 115.44 115.44 7.14 1.250 102,967 6.19 6.19
FFLC 01/04/94 18.000 47.14 15.38 83.57 83.57 14.19 2.222 332,087 16.98 16.98
TWIN 01/04/95 16.250 14.60 14.77 103.57 103.57 14.25 3.938 102,423 13.76 13.76
FFFC 10/12/94 16.250 88.17 14.38 96.78 98.78 17.03 2.462 517,754 16.32 16.04
KSAV 12/30/93 20.000 13.27 14.29 97.32 97.42 14.76 3.000 89,871 15.16 15.15
LIFB 10/11/94 14.310 144.49 14.03 97.15 100.92 11.65 3.075 1,240,520 11.99 11.60
BFSB 08/22/94 16.750 19.45 13.40 99.35 99.35 17.02 2.388 117,596 16.10 16.10
FLAG 12/11/86 11.625 23.35 13.36 108.14 108.14 10.33 2.925 225,960 9.56 9.56
CFFC 03/30/88 20.750 26.35 12.97 120.29 120.29 16.49 2.506 159,793 13.71 13.71
UFRM 07/01/80 8.250 25.29 12.69 121.15 121.15 10.03 2.424 252,170 8.27 8.27
MGNL 03/13/91 37.375 256.07 12.54 203.57 215.17 19.57 3.211 1,308,657 9.61 9.14
FLFC 12/06/83 20.500 82.04 12.20 121.73 144.98 8.31 2.537 981,694 7.60 6.58
FSFC 10/08/93 9.500 41.69 11.88 55.23 55.23 10.84 1.684 359,481 19.62 19.62
PFSL 04/05/94 14.500 23.35 11.69 106.30 106.30 6.32 5.517 369,379 5.95 5.95
FGHC 02/11/87 6.000 12.14 11.54 102.39 115.83 8.54 0.000 142,133 8.16 7.29
FFPB 09/29/93 20.500 106.21 11.39 93.48 95.88 7.39 1.951 1,438,024 7.90 7.72
HARB 01/06/94 24.500 120.85 11.14 142.11 147.59 11.92 4.898 1,014,013 8.39 8.10
NFSL 03/01/86 20.500 29.90 11.14 159.41 160.41 18.46 2.146 160,656 11.58 11.51
FFCH 11/10/83 18.500 117.77 11.08 123.01 123.01 8.13 3.459 1,449,162 6.61 6.61
PLE 12/17/86 16.750 14.90 11.02 97.90 101.52 8.02 4.299 185,793 8.19 7.93
BANC 11/29/83 12.875 152.05 10.82 110.52 120.33 9.20 1.367 1,642,825 8.33 7.70
FOBC 01/19/95 13.250 33.90 10.69 79.20 83.49 9.88 4.075 343,028 12.01 11.46
VFFC 01/01/78 11.750 65.98 9.96 119.78 124.21 9.24 0.851 713,931 7.72 7.46
AMFB 01/19/89 15.875 173.51 9.92 160.68 174.26 12.95 2.520 1,339,147 8.21 7.62
EBSI 04/01/86 14.750 67.14 9.77 117.44 117.44 10.98 4.068 611,512 9.35 9.35
FFRV 05/01/86 12.875 29.34 9.61 107.20 107.29 9.13 1.553 321,558 8.51 8.50
Maximum 37.375 256.07 20.56 258.62 258.62 28.01 5.517 1,642,825 28.47 28.47
Minimum 2.625 7.35 9.61 55.23 55.23 6.32 - 44,088 5.95 5.95
Average 16.410 62.32 13.90 117.11 120.34 12.89 2.700 542,852 11.50 11.30
Median 16.125 44.42 13.17 109.33 115.64 10.91 2.513 351,255 9.46 9.25
</TABLE>
Source: SNL & F&C calculations 2
<PAGE>
FERGUSON & CO., LLP Exhibit II.1 - Selected Publicly Traded Southeast Thrifts
- -------------------
<TABLE>
<CAPTION>
ROAA ROACE ROAA ROACE
Core Before Before NPAs/ Price/ Core Before Before
EPS Extra Extra Merger Current Assets Core EPS Extra Extra
($) (%) (%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM LTM LTM (Y/N) Date MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FFBS 1.07 1.32 6.50 N 07/30/96 0.43 19.64 0.28 1.43 7.13
SCCB 0.81 1.35 4.50 N 07/30/96 NA 19.05 0.21 1.38 4.75
CFCP 1.06 1.00 16.47 N 07/30/96 0.18 18.75 0.27 1.07 17.64
FFFL 0.68 0.65 6.23 N 07/30/96 0.38 18.75 0.17 0.76 7.34
CMSV 0.86 0.84 6.62 N 07/30/96 1.24 16.67 0.24 0.83 6.77
PALM 0.70 0.66 8.53 N 07/30/96 4.14 20.63 0.15 0.69 8.38
SOPN 0.97 1.48 5.68 N 07/30/96 0.03 17.13 0.25 1.52 5.83
HBS 1.06 1.01 6.66 N 07/30/96 2.45 15.95 0.29 1.11 7.79
CNIT 1.91 0.44 6.14 N 07/30/96 0.44 12.67 0.65 0.74 10.31
FFFG 0.16 0.45 6.83 N 07/30/96 3.77 16.41 0.04 0.07 1.21
GSLC 0.51 0.68 10.91 N 07/30/96 3.14 18.18 0.11 0.79 12.35
FFLC 1.17 0.94 5.51 N 07/30/96 0.13 14.52 0.31 0.96 5.65
TWIN 1.10 1.08 7.84 N 07/30/96 0.42 13.10 0.31 1.18 8.38
FFFC 1.13 1.25 7.22 N 07/30/96 0.48 14.01 0.29 1.07 7.49
KSAV 1.40 1.14 6.85 N 07/30/96 0.73 13.89 0.36 1.12 7.02
LIFB 1.02 0.87 6.27 N 07/30/96 NA 12.78 0.28 0.88 7.13
BFSB 1.25 1.26 7.56 N 07/30/96 0.00 11.96 0.35 1.37 8.45
FLAG 0.87 0.92 9.91 N 07/30/96 1.69 12.64 0.23 1.04 11.10
CFFC 1.60 1.30 9.71 N 07/30/96 0.45 14.82 0.35 1.12 8.15
UFRM 0.65 0.87 11.31 N 07/30/96 0.19 17.19 0.12 0.72 8.70
MGNL 2.98 1.71 17.51 N 07/30/96 NA 11.83 0.79 1.68 17.30
FLFC 1.68 1.03 14.27 N 07/30/96 0.88 11.39 0.45 1.05 14.19
FSFC 0.80 0.90 4.59 N 07/30/96 0.14 11.31 0.21 0.92 4.65
PFSL 1.24 0.56 9.45 N 07/30/96 0.20 11.69 0.31 0.56 9.43
FGHC 0.52 0.87 10.61 N 07/30/96 1.42 11.54 0.13 0.83 9.99
FFPB 1.80 0.73 8.92 N 07/30/96 NA 10.68 0.48 0.74 9.54
HARB 2.20 1.18 13.57 N 07/30/96 0.57 10.56 0.58 1.16 13.43
NFSL 1.84 1.89 17.69 N 07/30/96 0.67 12.20 0.42 1.87 16.31
FFCH 1.67 0.75 11.29 N 07/30/96 1.33 10.05 0.46 0.81 12.26
PLE 1.52 0.79 10.34 N 07/30/96 0.22 12.32 0.34 0.75 9.69
BANC 1.19 1.08 15.12 N 07/30/96 1.17 11.50 0.28 1.10 16.10
FOBC 1.24 1.00 7.92 N 07/30/96 NA 10.35 0.32 0.96 7.95
VFFC 1.18 1.21 16.02 N 07/30/96 2.89 11.30 0.26 1.25 15.98
AMFB 1.60 1.42 17.61 N 07/30/96 0.50 10.44 0.38 1.30 15.72
EBSI 1.51 0.98 13.09 N 07/30/96 1.13 11.17 0.33 0.86 10.69
FFRV 1.34 0.99 12.15 N 07/30/96 1.16 10.06 0.32 0.99 11.49
Maximum 2.98 1.89 17.69 4.14 20.63 0.79 1.87 17.64
Minimum 0.16 0.44 4.50 - 10.05 0.04 0.07 1.21
Average 1.23 1.02 9.93 1.05 13.81 0.31 1.02 9.90
Median 1.18 1.00 9.19 0.57 12.66 0.30 1.02 9.07
</TABLE>
Source: SNL & F&C calculations 3
<PAGE>
FERGUSON & CO., LLP Exhibit II.2 - Selected Publicly Traded Alabama Thrifts
- -------------------
<TABLE>
<CAPTION>
Deposit
Insurance
Agency
Ticker Short Name City State Region (BIF/SAIF) Exchange
<S> <C> <C> <C> <C> <C> <C>
PLE Pinnacle Bank Jasper AL SE SAIF AMSE
SRN Southern Banc Company, Inc Gadsden AL SE SAIF AMSE
SZB SouthFirst Bancshares, Inc. Sylacauga AL SE SAIF AMSE
</TABLE>
Maximum
Minimum
Average
Median
Source: SNL & F&C calculations
4
<PAGE>
FERGUSON & CO., LLP Exhibit II.2 Selected Publicly Traded Alabama Thrifts
- -------------------
<TABLE>
<CAPTION>
Tangible
Current Current Price/ Current Current Current Total Equity/ Equity/
Stock Market LTM Price/ Price/ Price/ Div. Assets Assets T Assets
Price Value Core EPS B Value TB Value Assets Yield ($000) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ticker IPO Date ($) ($M) (x) (%) (%) (%) (%) MRQ MRQ MRQ
PLE 12/17/86 16.750 14.90 11.02 97.90 101.52 8.02 4.299 185,793 8.19 7.93
SRN 10/05/95 12.250 17.82 NA 79.96 NA 16.24 2.857 109,768 20.31 NA
SZB 02/14/95 12.500 10.69 32.05 80.75 80.75 12.02 4.000 88,899 14.89 14.89
Maximum 16.750 17.82 32.05 97.90 101.52 16.24 4.299 185,793 20.31 14.89
Minimum 12.250 10.69 11.02 79.96 80.75 8.02 2.857 88,899 8.19 7.93
Average 13.833 14.47 21.54 86.20 91.14 12.09 3.719 128,153 14.46 11.41
Median 12.500 14.90 21.54 80.75 91.14 12.02 4.000 109,768 14.89 11.41
</TABLE>
Source: SNL & F&C calculations 5
<PAGE>
FERGUSON & CO., LLP Exhibit II.2 - Selected Publicly Traded Alabama Thrifts
- -------------------
<TABLE>
<CAPTION>
ROAA ROACE ROAA ROACE
Core Before Before NPAs/ Price/ Core Before Before
EPS Extra Extra Merger Current Assets Core EPS Extra Extra
($) (%) (%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM LTM LTM (Y/N) Date MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PLE 1.52 0.79 10.34 N 07/30/96 0.22 12.32 0.34 0.75 9.69
SRN NA 0.54 NA N 07/30/96 NA 20.42 0.15 0.74 3.66
SZB 0.39 0.55 3.24 N 07/30/96 0.14 NM 0.01 0.12 0.75
Maximum 1.52 0.79 10.34 0.22 20.42 0.34 0.75 9.69
Minimum 0.39 0.54 3.24 0.14 12.32 0.01 0.12 0.75
Average 0.96 0.63 6.79 0.18 16.37 0.17 0.54 4.70
Median 0.96 0.55 6.79 0.18 16.37 0.15 0.74 3.66
</TABLE>
Source: SNL & F&C calculations 6
<PAGE>
FERGUSON & CO., LLP Exhibit II.3 - Comparatives General
- -------------------
<TABLE>
<CAPTION>
Total Current Current
Number Assets Stock Market
of ($000) Price Value
Ticker Short Name City State Offices Mst RctQ IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ALBC Albion Banc Corp. Albion NY 2 56,692 07/26/93 16.500 4.30
BFSB Bedford Bancshares, Inc. Bedford VA 3 117,596 08/22/94 16.750 19.45
CCFH CCF Holding Company Jonesboro GA 3 78,772 07/12/95 11.810 13.35
CZF CitiSave Financial Corp Baton Rouge LA 5 79,717 07/14/95 13.750 13.26
FGHC First Georgia Holding, Inc. Brunswick GA 7 142,133 02/11/87 6.000 12.14
GUPB GFSB Bancorp, Inc. Gallup NM 1 70,422 06/30/95 13.250 12.57
KSAV KS Bancorp, Inc. Kenly NC 3 89,871 12/30/93 20.000 13.27
MORG Morgan Financial Corp. Fort Morgan CO 1 71,654 01/11/93 12.250 10.20
PDB Piedmont Bancorp, Inc. Hillsborough NC 2 124,847 12/08/95 12.875 34.05
THBC Troy Hill Bancorp, Inc. Pittsburgh PA 2 80,484 06/27/94 13.750 14.68
TPNZ Tappan Zee Financial, Inc. Tarrytown NY 1 114,790 10/05/95 13.250 21.47
Maximum 7 142,133 20.000 34.05
Minimum 1 56,692 6.000 4.30
Average 3 93,362 13.653 15.34
Median 2 80,484 13.250 13.27
</TABLE>
Source: SNL & F&C calculations 7
<PAGE>
<TABLE>
<CAPTION>
FERGUSON & CO., LLP Exhibit II.4-Comparatives Operations
- -------------------
Net Income Loan Total Total Net Loan
Average Before Loss Noninterest Noninterest Chargeoffs/
Assets Net Income Extra Items ROAA ROAE Provision Income Expense Avg Loans
($000) ($000) ($000) (%) (%) ($000) ($000) ($000) (%)
Short Name LTM LTM LTM LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Albion Banc Corp. 58,182 173 173 0.30 2.87 36 180 1,825 0.04
Bedford Bancshares, Inc. 114,053 1,434 1,434 1.26 7.56 13 548 2,787 0.00
CCF Holding Company 78,709 671 671 0.85 5.07 24 358 2,154 NA
CitiSave Financial Corp 76,908 888 888 1.15 7.47 3 1,079 2,682 0.18
First Georgia Holding, Inc. 137,406 1,189 1,189 0.87 10.61 184 1,064 4,241 0.09
GFSB Bancorp, Inc. 58,177 725 725 1.25 4.87 38 16 1,170 NA
KS Bancorp, Inc. 87,964 1,004 1,004 1.14 6.85 48 130 1,790 0.00
Morgan Financial Corp. 68,354 665 665 0.97 6.38 0 21 1,043 0.00
Piedmont Bancorp, Inc. 113,251 1,525 1,525 1.35 7.23 105 365 2,438 0.01
Troy Hill Bancorp, Inc. 78,474 1,085 1,085 1.38 6.09 90 77 1,615 0.09
Tappan Zee Financial, Inc. 103,876 837 837 0.81 6.04 90 123 2,297 0.17
Maximum 137,406 1,525 1,525 1.38 10.61 184 1,079 4,241 0.18
Minimum 58,177 173 173 0.30 2.87 0 16 1,043 -
Average 88,669 927 927 1.03 6.46 57 360 2,186 0.06
Median 78,709 888 888 1.14 6.38 38 180 2,154 0.04
</TABLE>
Source: SNL & F&C calculations 8
<PAGE>
FERGUSON & CO., LLP Exhibit II.4 - Comparatives Operations
- -------------------
<TABLE>
<CAPTION>
Common Dividend Interest Interest Net Interest Gain on Real Noninterest
LTM EPS Dividends Payout Income/ Expense/ Income/ Sale/ Estate Income/
After Extra Per Share Ratio Avg Assets Avg Assets Avg Assets Avg Assets Expense Avg Assets
($) ($) (%) (%) (%) (%) (%) ($000) (%)
Short Name LTM LTM LTM LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Albion Banc Corp. 0.67 0.307 45.81 7.59 4.35 3.25 0.07 (27) 0.31
Bedford Bancshares, Inc. 1.25 0.330 26.40 7.72 3.73 4.00 0.01 (30) 0.48
CCF Holding Company NA NA NA 6.85 3.35 3.51 0.07 (32) 0.45
CitiSave Financial Corp NA NA NA 7.08 3.37 3.71 0.12 (8) 1.40
First Georgia Holding, Inc. 0.56 0.067 11.91 8.60 4.89 3.71 0.00 13 0.77
GFSB Bancorp, Inc. NA NA NA 7.81 3.75 4.06 0.00 (5) 0.03
KS Bancorp, Inc. 1.38 1.050 76.09 7.98 4.22 3.76 (0.02) 0 0.15
Morgan Financial Corp. 0.80 0.765 95.63 7.36 4.50 2.87 0.06 (50) 0.03
Piedmont Bancorp, Inc. NA NA NA 7.94 3.88 4.06 (0.06) 0 0.32
Troy Hill Bancorp, Inc. 1.07 0.320 29.91 7.92 3.77 4.15 0.18 0 0.10
Tappan Zee Financial, Inc. NA NA NA 7.34 3.85 3.49 0.08 22 0.12
Maximum 1.38 1.050 95.63 8.60 4.89 4.15 0.18 22 1.40
Minimum 0.56 0.067 11.91 6.85 3.35 2.87 (0.06) (50) 0.03
Average 0.96 0.473 47.63 7.65 3.97 3.69 0.05 (11) 0.38
Median 0.94 0.325 37.86 7.72 3.85 3.71 0.06 (5) 0.31
</TABLE>
Source: SNL & F&C calculations 9
<PAGE>
FERGUSON & CO., LLP Exhibit II.4 - Comparatives Operations
- -------------------
<TABLE>
<CAPTION>
G&A Noninterest Net Oper Total Amortization Extra and
Expense/ Expense/ Expenses/ Nonrecurring of Tax After Tax Efficiency
Avg Assets Avg Assets Avg Assets Expense Intangibles Provision Items Ratio
(%) (%) (%) ($000) ($000) ($000) ($000) (%)
Short Name LTM LTM LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Albion Banc Corp. 3.18 3.14 2.87 0 0 74 0 89.51
Bedford Bancshares, Inc. 2.47 2.44 1.99 0 0 880 0 55.16
CCF Holding Company 2.78 2.74 2.32 0 0 324 0 70.13
CitiSave Financial Corp 3.48 3.49 2.07 0 16 446 0 68.04
First Georgia Holding, Inc. 2.98 3.09 2.20 0 140 669 0 66.35
GFSB Bancorp, Inc. 2.02 2.01 1.99 0 0 444 0 49.43
KS Bancorp, Inc. 2.03 2.03 1.88 0 8 578 0 51.80
Morgan Financial Corp. 1.60 1.53 1.57 0 0 313 0 55.20
Piedmont Bancorp, Inc. 2.15 2.15 1.83 0 0 831 0 49.10
Troy Hill Bancorp, Inc. 2.06 2.06 1.96 0 0 685 0 48.45
Tappan Zee Financial, Inc. 2.19 2.21 2.07 0 0 609 0 60.75
Maximum 3.48 3.49 2.87 0 140 880 0 89.51
Minimum 1.60 1.53 1.57 0 0 74 0 48.45
Average 2.45 2.44 2.07 0 15 532 0 60.36
Median 2.19 2.21 1.99 0 0 578 0 55.20
</TABLE>
Source: SNL & F&C calculations 10
<PAGE>
FERGUSON & CO., LLP Exhibit II.4 - Comparatives Operations
- -------------------
<TABLE>
<CAPTION>
Core Yield on Cost of Interest Loss
Income/ Preferred Int Earn Int Bearing Effective Yield Provisions/
Avg Assets Dividends Assets Liabilities Tax Rate Spread AVG Assets
(%) ($000) (%) (%) (%) (%) (%)
Short Name LTM LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C>
Albion Banc Corp. 0.25 0 7.94 4.98 29.96 2.96 0.06
Bedford Bancshares, Inc. 1.25 0 8.04 4.75 38.03 3.29 0.01
CCF Holding Company 0.81 NA 7.00 4.10 32.56 2.90 0.03
CitiSave Financial Corp 1.08 NA 7.41 4.25 33.43 3.16 0.00
First Georgia Holding, I 0.81 0 9.00 5.29 36.01 3.71 0.13
GFSB Bancorp, Inc. 1.25 0 7.93 5.12 37.98 2.81 0.07
KS Bancorp, Inc. 1.16 0 8.51 5.48 36.54 3.03 0.05
Morgan Financial Corp. 0.93 0 7.51 5.41 32.00 2.10 -
Piedmont Bancorp, Inc. 1.38 NA 8.16 4.93 35.27 3.23 0.09
Troy Hill Bancorp, Inc. 1.26 0 8.09 4.93 38.70 3.16 0.11
Tappan Zee Financial, In 0.75 0 7.55 4.64 42.12 2.91 0.09
Maximum 1.38 0 9.00 5.48 42.12 3.71 0.13
Minimum 0.25 0 7.00 4.10 29.96 2.10 -
Average 0.99 0 7.92 4.90 35.69 3.02 0.06
Median 1.08 0 7.94 4.93 36.01 3.30 0.06
</TABLE>
Source: SNL & F&C calculations 11
<PAGE>
FERGUSON & CO., LLP Exhibit II.5 - Comparatives Pricing
- -------------------
<TABLE>
<CAPTION>
Current Current Current
Stock Market Price/ Price/
Abbreviated Price Value LTM Core EPS Book Value
Ticker Name City State ($) ($M) (x) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
ALBC AlbionBancCorp-NY Albion NY 16.500 4.30 28.95 70.85
BFSB BedfordBnchrs-VA Bedford VA 16.750 19.45 13.40 99.35
CCFH CCFHoldingCo-GA Jonesboro GA 11.810 13.35 NA 79.85
CZF CitiSaveFinCorp-LA Baton Rouge LA 13.750 13.26 NA 84.56
FGHC FrstGeorgiaHldg-GA Brunswick GA 6.000 12.14 11.54 102.39
GUPB GFSBBancorp-NM Gallup NM 13.250 12.57 NA 77.53
KSAV KSBancorp,Inc-NC Kenly NC 20.000 13.27 14.29 97.32
MORG MorganFinCorp-CO Fort Morgan CO 12.250 10.20 15.91 97.15
PDB PiedmontBancorp-NC Hillsborough NC 12.875 34.05 NA 91.64
THBC TroyHillBancp-PA Pittsburgh PA 13.750 14.68 14.03 82.19
TPNZ TappanZeeFin-NY Tarrytown NY 13.250 21.47 NA 96.01
Maximum 20.000 34.05 28.95 102.39
Minimum 6.000 4.30 11.54 70.85
Average 13.653 15.34 16.35 88.99
Median 13.250 13.27 14.16 91.64
</TABLE>
Source: SNL & F&C calculations 12
<PAGE>
FERGUSON & CO., LLP Exhibit II.5 - Comparatives Pricing
- -------------------
<TABLE>
<CAPTION>
Tangible Return on
Current Current Total Equity/ Equity/ Core Avg Assets
Price/ Tang Price/ Dividend Assets Assets Tang Assets EPS Before Extra
Book Value Assets Yield ($000) (%) (%) ($) (%)
Ticker (%) (%) (%) MRQ MRQ MRQ LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ALBC 70.85 7.59 1.860 56,692 10.71 10.71 0.57 0.30
BFSB 99.35 17.02 2.388 117,596 16.10 16.10 1.25 1.26
CCFH 79.85 16.95 3.387 78,772 21.23 21.23 NA 0.85
CZF 84.62 16.64 2.182 79,717 18.19 18.17 NA 1.15
FGHC 115.83 8.54 0.000 142,133 8.16 7.29 0.52 0.87
GUPB 77.53 17.85 3.019 70,422 23.03 23.03 NA 1.25
KSAV 97.42 14.76 3.000 89,871 15.16 15.15 1.40 1.14
MORG 97.15 14.24 1.959 71,654 14.66 14.66 0.77 0.97
PDB 91.64 27.28 3.728 124,847 29.77 29.77 NA 1.35
THBC 82.19 18.24 2.909 80,484 22.20 22.20 0.98 1.38
TPNZ 96.01 18.70 1.509 114,790 19.48 19.48 NA 0.81
Maximum 115.83 27.28 3.73 142,133 29.77 29.77 1.40 1.38
Minimum 70.85 7.59 - 56,692 8.16 7.29 0.52 0.30
Average 90.22 16.16 2.36 93,362 18.06 17.98 0.92 1.03
Median 91.64 16.95 2.39 80,484 18.19 18.17 0.88 1.14
</TABLE>
Source: SNL & F&C calculations 13
<PAGE>
FERGUSON & CO., LLP Exhibit II.5 - Comparatives Pricing
- -------------------
<TABLE>
<CAPTION>
ROACE Return on ROACE
Before NPAs/ Price/ Core Avg Assets Before
Extra Merger Current Assets Core EPS Before Extra Extra
(%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM (Y/N) Date Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ALBC 2.87 N 07/30/96 0.72 19.64 0.21 0.38 3.55
BFSB 7.56 N 07/30/96 0.00 11.96 0.35 1.37 8.45
CCFH NA N 07/30/96 0.63 21.09 0.14 0.95 4.46
CZF NA N 07/30/96 0.30 14.32 0.24 1.20 6.18
FGHC 10.61 N 07/30/96 1.42 11.54 0.13 0.83 9.99
GUPB 4.87 N 07/30/96 NA 18.40 0.18 0.93 3.95
KSAV 6.85 N 07/30/96 0.73 13.89 0.36 1.12 7.02
MORG 6.38 N 07/30/96 0.07 14.58 0.21 0.95 6.42
PDB NA N 07/30/96 0.44 16.09 0.20 1.63 5.39
THBC 6.09 N 07/30/96 0.51 12.73 0.27 1.42 6.27
TPNZ 6.04 N 07/30/96 1.21 27.60 0.12 0.87 4.39
Maximum 10.61 1.42 27.60 0.36 1.63 9.99
Minimum 2.87 - 11.54 0.12 0.38 3.55
Average 6.41 0.60 16.53 0.22 1.06 6.01
Median 6.24 0.57 14.58 0.21 0.95 6.18
</TABLE>
Source: SNL & F&C calculations 14
<PAGE>
FERGUSON & CO., LLP Exhibit II.6 - Comparative Balance Sheets
- -------------------
<TABLE>
<CAPTION>
Total Mortgage- Investment & Loan
Total Cash and Backed Net Foreclosed Servicing Total
Assets Investments Securities Loans Real Estate Rights Intangibles
($000) ($000) ($000) ($000) ($000) ($000) ($000)
Short Name MRQ MRQ MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C>
Albion Banc Corp. 56,692 8,675 3,818 45,300 0 0 0
Bedford Bancshares, Inc. 117,596 15,630 529 99,542 0 0 0
CCF Holding Company 78,772 29,518 9,787 46,792 0 0 0
CitiSave Financial Corp 79,717 34,058 2,446 43,017 0 0 13
First Georgia Holding, Inc. 142,133 15,810 3,207 120,027 0 0 1,342
GFSB Bancorp, Inc. 70,422 34,231 24,148 35,170 0 NA 0
KS Bancorp, Inc. 89,871 14,294 1,598 73,436 215 0 16
Morgan Financial Corp. 71,654 20,335 2,277 49,994 49 0 0
Piedmont Bancorp, Inc. 124,847 33,050 4,877 84,924 0 0 0
Troy Hill Bancorp, Inc. 80,484 14,587 6,032 63,668 25 0 0
Tappan Zee Financial, Inc. 114,790 59,499 12,751 51,174 402 0 0
Maximum 142,133 59,499 24,148 120,027 402 0 1,342
Minimum 56,692 8,675 529 35,170 0 0 0
Average 93,362 25,426 6,497 64,822 63 0 125
Median 80,484 20,335 3,818 51,174 0 0 0
</TABLE>
Source: SNL & F&C calculations 15
<PAGE>
FERGUSON & CO., LLP Exhibit II.6 - Comparative Balance Sheets
- -------------------
<TABLE>
Other Total Total Subordinated Other Total Preferred Common
Assets Deposits Borrowings Debt Liabilities Liabilities Equity Equity
($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000)
Short Name MRQ MRQ MRQ MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Albion Banc Corp. 2,717 46,476 3,293 0 851 50,620 0 6,072
Bedford Bancshares, Inc. 2,424 92,929 5,000 0 729 98,658 0 18,938
CCF Holding Company 2,462 61,215 0 0 832 62,047 0 16,725
CitiSave Financial Corp 2,087 63,465 0 0 1,755 65,220 0 14,497
First Georgia Holding, I 4,954 114,143 14,592 0 1,793 130,528 0 11,605
GFSB Bancorp, Inc. 1,021 43,256 10,000 0 950 54,206 0 16,216
KS Bancorp, Inc. 1,910 72,489 3,000 0 754 76,243 0 13,628
Morgan Financial Corp. 1,216 42,645 17,500 0 1,008 61,153 0 10,501
Piedmont Bancorp, Inc. 3,199 73,292 13,750 0 641 87,683 0 37,164
Troy Hill Bancorp, Inc. 1,550 52,775 8,583 0 1,261 62,619 0 17,865
Tappan Zee Financial, In 3,715 89,908 0 0 2,522 92,430 0 22,360
Maximum 4,954 114,143 17,500 0 2,522 130,528 0 37,164
Minimum 1,021 42,645 0 0 641 50,620 0 6,072
Average 2,478 68,418 6,883 0 1,191 76,492 0 16,870
Median 2,424 63,465 5,000 0 950 65,220 0 16,216
</TABLE>
Source: SNL & F&C calculations
16
<PAGE>
FERGUSON & CO., LLP Exhibit II.6 - Comparative Balance Sheets
- -------------------
<TABLE>
<CAPTION>
Regulatory Regulatory Regulatory
Total Tangible Core Total Tangible Core Risk-Based
Equity Capital Capital Capital Capital/ Capital/ Capital/
($000) ($000) ($000) ($000) Tangible Adj Tangible Risk-Weightd
Short Name MRQ MRQ MRQ MRQ Assets (%) Assets (%) Assets (%)
<S> <C> <C> <C> <C> <C> <C> <C>
Albion Banc Corp. 6,072 4,986 4,986 5,238 8.93 8.93 17.22
Bedford Bancshares, Inc. 18,938 15,346 15,346 15,916 13.00 13.00 25.48
CCF Holding Company 16,725 12,363 12,363 12,363 15.86 15.86 39.55
CitiSave Financial Corp 14,497 10,034 10,034 10,107 12.93 12.93 29.45
First Georgia Holding, Inc. 11,605 10,336 11,678 12,692 7.34 8.21 10.03
GFSB Bancorp, Inc. 16,216 NA NA NA 16.52 16.52 40.75
KS Bancorp, Inc. 13,628 NA NA 13,885 NA NA NA
Morgan Financial Corp. 10,501 9,411 9,411 9,531 13.16 13.16 29.94
Piedmont Bancorp, Inc. 37,164 NA 23,416 24,006 NA NA NA
Troy Hill Bancorp, Inc. 17,865 12,868 12,868 13,487 16.81 16.81 25.95
Tappan Zee Financial, Inc. 22,360 NA NA NA 14.86 14.86 38.04
Maximum 37,164 15,346 23,416 24,006 16.81 16.81 40.75
Minimum 6,072 4,986 4,986 5,238 7.34 8.21 10.03
Average 16,870 10,763 12,513 13,025 13.27 13.36 28.49
Median 16,216 10,336 12,021 12,692 13.16 13.16 29.45
</TABLE>
17
<PAGE>
FERGUSON & CO., LLP Exhibit II.6-Comparatives Balance Sheets
- -------------------
<TABLE>
Loan Loss Publicly Tangible Earn Assets/ Full-Time Loans
NPAs/ Reserves/ Reserves/ Reported Publicly Rep Int Bearing Equivalent Serviced
Assets Assets NPLs Book Value Book Value Liabilities Employees For Others
(%) (%) (%) ($) ($) (%) (Actual) ($000)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short Name MRQ MRQ MRQ MRQ MRQ MRQ MRQ MRQ
Albion Banc Corp. 0.72 0.44 61.31 23.29 23.29 109.71 26 11,631
Bedford Bancshares, Inc. 0.00 0.54 NM 16.86 16.86 121.47 36 2,844
CCF Holding Company 0.63 0.54 84.80 14.79 14.79 126.16 32 8,883
CitiSave Financial Corp 0.30 0.12 38.75 16.26 16.25 125.28 32 1,395
First Georgia Holding, Inc. 1.42 0.71 50.40 5.86 5.18 105.34 75 0
GFSB Bancorp, Inc. NA 0.44 NA 17.09 17.09 131.30 NA NA
KS Bancorp, Inc. 0.73 0.30 41.55 20.55 20.53 120.62 23 0
Morgan Financial Corp. 0.07 0.17 NM 12.61 12.61 117.14 11 4,624
Piedmont Bancorp, Inc. 0.44 0.47 108.24 14.05 14.05 145.43 29 13,519
Troy Hill Bancorp, Inc. 0.51 0.88 183.03 16.73 16.73 126.95 16 0
Tappan Zee Financial, Inc. 1.21 0.57 66.60 13.80 13.80 123.77 14 0
Maximum 1.42 0.88 183.03 23.29 23.29 145.43 75 13,519
Minimum - 0.12 38.75 5.86 5.18 105.34 11 0
Average 0.60 0.47 79.34 15.63 15.56 123.02 29 4,290
Median 0.57 0.47 63.96 16.26 16.25 123.77 28 2,120
</TABLE>
18
<PAGE>
FERGUSON & CO., LLP Exhibit II.7 - Comparatives Risk Characteristic
- -------------------
<TABLE>
<CAPTION>
NPAs + Loans Net Loan
NPAs/ 90+ Pst Due/ NPAs/ Reserves/ Reserves/ Chargeoffs/ Loans/
Assets Assets Equity Loans NPAs Avg Loans Assets
(%) (%) (%) (%) (%) (%) (%)
Short Name MRQ MRQ MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C>
Albion Banc Corp. 0.72 0.72 6.77 0.55 61.31 0.01 80.35
Bedford Bancshares, Inc. 0.00 1.24 0.00 0.64 NM 0.00 85.19
CCF Holding Company 0.63 0.63 2.99 0.90 84.80 0.01 59.94
CitiSave Financial Corp 0.30 0.30 1.66 0.21 38.75 0.15 54.76
First Georgia Holding, Inc. 1.42 1.51 17.34 0.84 50.40 0.02 85.16
GFSB Bancorp, Inc. NA NA NA 0.87 NA NA 50.38
KS Bancorp, Inc. 0.73 0.73 4.82 0.37 41.55 0.00 82.02
Morgan Financial Corp. 0.07 0.28 0.47 0.24 244.90 0.00 70.02
Piedmont Bancorp, Inc. 0.44 0.72 1.47 0.66 108.24 0.00 71.44
Troy Hill Bancorp, Inc. 0.51 2.95 2.32 1.09 171.98 0.00 80.80
Tappan Zee Financial, Inc. 1.21 1.77 6.19 1.26 47.25 0.37 45.15
Maximum 1.42 2.95 17.34 1.26 244.90 0.37 85.19
Minimum 0.00 0.00 0.00 0.21 0.00 0.00 45.15
Average 0.55 0.99 4.00 0.69 77.20 0.05 69.56
Median 0.51 0.72 2.32 0.66 50.40 0.00 71.44
</TABLE>
Source: SNL & F&C calculations 19
<PAGE>
FERGUSON & CO., LLP Exhibit II.7-Comparatives Risk Characteristics
- -------------------
<TABLE>
One Year Intangible Earn Assets/
Cum Gap/ Assets/ Net Int Bearing
Assets Equity Loans Liabilities
(%) (%) ($000) (%)
<S> <C> <C> <C> <C>
Short Name MRQ MRQ MRQ MRQ
Albion Banc Corp. NA 0.00 45,300 109.71
Bedford Bancshares, Inc. 15.94 0.00 99,542 121.47
CCF Holding Company NA 0.00 46,792 126.16
CitiSave Financial Corp NA 0.09 43,017 125.28
First Georgia Holding, Inc. 17.70 11.56 120,027 105.34
GFSB Bancorp, Inc. NA 0.00 35,170 131.30
KS Bancorp, Inc. NA 0.12 73,436 120.62
Morgan Financial Corp. (39.70) 0.00 49,994 117.14
Piedmont Bancorp, Inc. 1.58 0.00 84,924 145.43
Troy Hill Bancorp, Inc. NA 0.00 63,668 126.95
Tappan Zee Financial, Inc. NA 0.00 51,174 123.77
Maximum 17.70 11.56 120,027 145.43
Minimum (39.70) 0.00 35,170 105.34
Average (0.41) 1.07 64,822 123.02
Median 0.00 0.00 51,174 123.77
</TABLE>
Source: SNL & F&C calculations 20
<PAGE>
EXHIBIT III
<PAGE>
FERGUSON & CO., LLP Exhibit III
- -------------------
FIRST FEDERAL S&LA OF CULLMAN
CULLMAN, AL
<TABLE>
<CAPTION>
1993 1994 1995 YTD 3/96
<S> <C> <C> <C> <C>
Num of Quarters Open for Period 4 4 4 1
FINANCIAL HIGHLIGHTS
($'s in Thousands)
BALANCE SHEET:
Total Assets 63,399 63,421 62,964 63,473
% Change in Assets (1.09) 0.03 (0.72) 0.81
Total Loans 40,740 39,409 37,921 38,995
Mortgage Loans Serv for Others - - - -
Mortgage Loans Serv by Others 6,159 6,074 5,061 5,044
Total Savings Deposits 58,533 58,314 56,878 57,349
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 4,733 4,942 5,788 5,843
GAAP Capital 4,733 4,942 5,788 5,843
Tangible Capital 4,733 4,942 5,788 5,843
Core Capital 4,733 4,942 5,788 5,843
Risk-Based Capital 5,113 4,942 5,788 5,843
Equity Capital/Total Assets 7.47 7.79 9.19 9.21
Core Cap/Risk Based Assets 14.01 14.74 17.97 17.69
Core Cap/Adj Tangible Assets 7.47 7.79 9.19 9.21
Tangible Cap/Tangible Assets 7.47 7.79 9.19 9.21
Risk-Based Cap/Risk-Wt Assets 15.14 14.74 17.97 17.69
PROFITABILITY:
Net Income(Loss) 449 478 762 170
Ret on Avg Assets Bef Ext Item 0.70 0.75 1.22 1.08
Return on Avg GAAP Capital 10.18 9.88 13.96 11.69
Net Interest Income/Avg Assets 3.17 3.11 3.22 3.08
Noninterest Income/Avg Assets 0.35 0.44 0.64 0.76
Noninterest Expense/Avg Assets 2.51 2.68 2.54 2.51
Yield/Cost Spread 3.11 3.02 3.00 2.79
LIQUIDITY:
Int Earn Assets/Int Bear Liab 105.15 105.66 108.60 108.34
Brokered Deposits/Tot Deposits - - - -
Amt Eligible as Reg Liquidity 15,093 18,215 20,566 18,869
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 6.58 5.94 5.34 5.16
Nonaccrual Loans/Gross Loans 0.06 0.16 0.11 0.10
Nonaccrual Loans/Loan Loss Res 3.96 9.92 6.75 6.27
Reposs Assets/Total Assets 0.65 0.44 0.01 -
Net Chrg-Offs/Avg Adj Lns 1.01 0.19 0.03 -
Non 1-4 Con/Conv Lns/Tot Assts 20.73 20.77 20.63 20.89
</TABLE>
Source: TAFS, published by Sheshunoff 1
<PAGE>
FERGUSON & CO., LLP Exhibit III
- -------------------
FIRST FEDERAL S&LA OF CULLMAN
CULLMAN, AL
<TABLE>
<CAPTION>
6/30/95 9/30/95 12/31/95 3/31/96
Num of Quarters Open for Period 1 1 1 1
FINANCIAL HIGHLIGHTS
($'s in Thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 62,222 62,088 62,964 63,473
% Change in Assets 0.79 (0.22) 1.41 0.81
Total Loans 39,266 38,875 37,921 38,995
Mortgage Loans Serv for Others - - - -
Mortgage Loans Serv by Others 5,680 5,267 5,061 5,044
Total Savings Deposits 56,395 55,998 56,878 57,349
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 5,499 5,692 5,788 5,843
GAAP Capital 5,499 5,692 5,788 5,843
Tangible Capital 5,499 5,692 5,788 5,843
Core Capital 5,499 5,692 5,788 5,843
Risk-Based Capital 5,499 6,100 5,788 5,843
Equity Capital/Total Assets 8.84 9.17 9.19 9.21
Core Cap/Risk Based Assets 16.66 17.40 17.97 17.69
Core Cap/Adj Tangible Assets 8.84 9.17 9.19 9.21
Tangible Cap/Tangible Assets 8.84 9.17 9.19 9.21
Risk-Based Cap/Risk-Wt Assets 16.66 18.65 17.97 17.69
PROFITABILITY:
Net Income(Loss) 144 206 164 170
Ret on Avg Assets Bef Ext Item 0.93 1.33 1.05 1.08
Return on Avg GAAP Capital 10.69 14.72 11.43 11.69
Net Interest Income/Avg Assets 3.25 3.22 3.12 3.08
Noninterest Income/Avg Assets 0.65 0.73 0.68 0.76
Noninterest Expense/Avg Assets 2.68 2.62 2.37 2.51
Yield/Cost Spread 3.05 2.97 2.83 2.79
LIQUIDITY:
Int Earn Assets/Int Bear Liab 107.66 108.45 108.60 108.34
Brokered Deposits/Tot Deposits - - - -
Amt Eligible as Reg Liquidity 17,652 19,529 20,566 18,869
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 5.63 5.21 5.34 5.16
Nonaccrual Loans/Gross Loans 0.13 0.12 0.11 0.10
Nonaccrual Loans/Loan Loss Res 7.86 7.85 6.75 6.27
Reposs Assets/Total Assets 0.45 0.01 0.01 -
Net Chrg-Offs/Avg Adj Lns (0.01) 0.12 0.01 -
Non 1-4 Con/Conv Lns/Tot Assts 21.11 20.97 20.63 20.89
</TABLE>
Source: TAFS, published by Sheshunoff 2
<PAGE>
FERGUSON & CO., LLP Exhibit III
- -------------------
FIRST FEDERAL S&LA OF CULLMAN
CULLMAN, AL
<TABLE>
<CAPTION>
1993 1994 1995 YTD 3/96
SELECTED PEER GROUP RATIOS & RANKINGS
<S> <C> <C> <C> <C>
Peer Group Category 3 3 3 3
CAPITAL:
Equity Capital/Total Assets 7.47 7.79 9.19 9.21
Peer Group Percentile 39 39 47 45
GAAP Capital/GAAP Assets 7.47 7.79 9.19 9.21
Peer Group Percentile 39 39 47 45
Core Cap/Adj Tangible Assets 7.47 7.79 9.19 9.21
Peer Group Percentile 40 40 50 48
Tangible Cap/Tangible Assets 7.47 7.79 9.19 9.21
Peer Group Percentile 40 41 50 48
Risk-Based Cap/Risk-Wt Assets 15.14 14.74 17.97 17.69
Peer Group Percentile 37 31 46 42
ASSET QUALITY:
Risk Assets/Total Assets 21.37 21.21 20.64 20.89
Peer Group Percentile 11 8 8 8
Risk Weighted Assts/Tot Assts 53.27 52.85 51.15 52.05
Peer Group Percentile 36 40 50 48
Nonaccrual Loans/Gross Loans 0.06 0.16 0.11 0.10
Peer Group Percentile 67 59 59 67
Repos Assets/Tot Assets 0.65 0.44 0.01 -
Peer Group Percentile 18 18 53 100
90+ Day Del Loans/Gross Loans 0.40 0.40 0.46 0.47
Peer Group Percentile 33 27 27 28
90Day P Due+NonAccr-(1-4)/LLR - 0.16 4.34 15.27
Peer Group Percentile 100 75 63 49
LIQUIDITY:
Avg Reg Liquidity Ratio 26.34 30.98 36.98 33.78
Peer Group Percentile 83 92 94 92
PROFITABILITY:
Ret on Avg Assets Bef Ext Item 0.7043 0.7538 1.2229 1.0756
Peer Group Percentile 25 41 85 79
Return on Equity Capital 9.4866 9.6722 13.1652 11.6379
Peer Group Percentile 34 59 89 86
Return on Average GAAP Capital 10.1837 9.8801 13.956 11.6919
Peer Group Percentile 34 57 89 86
Int Earn Assets/Int Bear Liab 105.1509 105.6624 108.5975 108.3393
Peer Group Percentile 32 34 46 42
Yield on Earning Assts 6.6584 6.4443 7.2784 7.3127
Peer Group Percentile 12 12 22 23
Cost of Funds 3.5517 3.4281 4.2762 4.5242
Peer Group Percentile 84 81 82 73
Yield/Cost Spread 3.1066 3.0162 3.0022 2.7885
Peer Group Percentile 31 33 52 44
</TABLE>
3
<PAGE>
FERGUSON & CO., LLP Exhibit III
- -------------------
FIRST FEDERAL S&LA OF CULLMAN
CULLMAN, AL
<TABLE>
<CAPTION>
6/30/95 9/30/95 12/31/95 3/31/96
<S> <C> <C> <C> <C>
SELECTED PEER GROUP RATIOS & RANKINGS
Peer Group Category 3 3 3 3
CAPITAL:
Equity Capital/Total Assets 8.84 9.17 9.19 9.21
Peer Group Percentile 46 47 47 45
GAAP Capital/GAAP Assets 8.84 9.17 9.19 9.21
Peer Group Percentile 46 47 47 45
Core Cap/Adj Tangible Assets 8.84 9.17 9.19 9.21
Peer Group Percentile 49 50 50 48
Tangible Cap/Tangible Assets 8.84 9.17 9.19 9.21
Peer Group Percentile 49 50 50 48
Risk-Based Cap/Risk-Wt Assets 16.66 18.65 17.97 17.69
Peer Group Percentile 39 48 46 42
ASSET QUALITY:
Risk Assets/Total Assets 21.57 20.98 20.64 20.89
Peer Group Percentile 7 8 8 8
Risk Weighted Assts/Tot Assts 53.03 52.68 51.15 52.05
Peer Group Percentile 40 42 50 48
Nonaccrual Loans/Gross Loans 0.13 0.12 0.11 0.10
Peer Group Percentile 59 61 59 67
Repos Assets/Tot Assets 0.45 0.01 0.01 -
Peer Group Percentile 15 52 53 100
90+ Day Del Loans/Gross Loans 0.18 0.40 0.46 0.47
Peer Group Percentile 38 25 27 28
90Day P Due+NonAccr-(1-4)/LLR 1.26 2.56 4.34 15.27
Peer Group Percentile 73 67 63 49
LIQUIDITY:
Avg Reg Liquidity Ratio 31.97 34.93 36.98 33.78
Peer Group Percentile 91 93 94 92
PROFITABILITY:
Ret on Avg Assets Bef Ext Item 0.93 1.33 1.05 1.08
Peer Group Percentile 62 87 77 79
Return on Equity Capital 10.47 14.48 11.33 11.64
Peer Group Percentile 75 88 79 86
Return on Average GAAP Capital 10.69 14.72 11.43 11.69
Peer Group Percentile 76 87 79 86
Int Earn Assets/Int Bear Liab 107.66 108.45 108.60 108.34
Peer Group Percentile 41 44 46 42
Yield on Earning Assts 7.25 7.47 7.39 7.31
Peer Group Percentile 22 28 24 23
Cost of Funds 4.20 4.50 4.56 4.52
Peer Group Percentile 84 79 78 73
Yield/Cost Spread 3.05 2.97 2.83 2.79
Peer Group Percentile 53 54 46 44
</TABLE>
Source: TAFS, published by Sheshunoff 4
<PAGE>
EXHIBIT IV
<PAGE>
FERGUSON & CO., LLP Exhibit IV
- -------------------
ALBION FSB
ALBION, NY
<TABLE>
1993 1994 1995 YTD 3/96
Num of Quarters Open for Period 4 4 4 1
FINANCIAL HIGHLIGHTS
($'s in Thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 50,282 55,371 56,264 55,895
% Change in Assets 21.69 10.12 1.61 (0.66)
Total Loans 39,666 47,042 44,124 45,364
Mortgage Loans Serv for Others 8,748 10,940 12,048 11,631
Mortgage Loans Serv by Others 1,624 - - -
Total Savings Deposits 36,310 38,494 46,432 46,442
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 4,390 4,787 4,992 5,025
GAAP Capital 4,390 4,787 4,992 5,025
Tangible Capital 4,390 4,787 4,916 4,986
Core Capital 4,390 4,787 4,916 4,986
Risk-Based Capital 4,494 5,011 5,160 5,268
Equity Capital/Total Assets 8.73 8.65 8.87 8.99
Core Cap/Risk Based Assets 16.97 15.63 16.39 16.39
Core Cap/Adj Tangible Assets 8.73 8.65 8.75 8.93
Tangible Cap/Tangible Assets 8.73 8.65 8.75 8.93
Risk-Based Cap/Risk-Wt Assets 17.37 16.36 17.20 17.22
PROFITABILITY:
Net Income(Loss) 392 357 169 50
Ret on Avg Assets Bef Ext Item 0.86 0.68 0.29 0.36
Return on Avg GAAP Capital 10.45 7.78 3.47 3.99
Net Interest Income/Avg Assets 3.51 3.83 3.27 3.32
Noninterest Income/Avg Assets 0.49 0.32 0.37 0.43
Noninterest Expense/Avg Assets 2.69 2.90 3.12 3.41
Yield/Cost Spread 3.40 3.79 3.28 3.44
LIQUIDITY:
Int Earn Assets/Int Bear Liab 109.29 108.07 107.69 107.13
Brokered Deposits/Tot Deposits - - - -
Amt Eligible as Reg Liquidity 5,249 3,282 4,858 3,651
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 1.04 0.64 0.82 0.96
Nonaccrual Loans/Gross Loans 0.86 0.46 0.73 0.90
Nonaccrual Loans/Loan Loss Res 281.30 99.11 131.97 163.10
Reposs Assets/Total Assets 0.07 0.06 0.04 -
Net Chrg-Offs/Avg Adj Lns (0.02) 0.07 0.02 0.01
Non 1-4 Con/Conv Lns/Tot Assts 4.40 4.70 4.51 5.06
</TABLE>
Source: TAFS, published by Sheshunoff 1
<PAGE>
FERGUSON & CO., LLP Exhibit IV
- -------------------
BEDFORD FSB
BEDFORD, VA
<TABLE>
<CAPTION>
1993 1994 1995 YTD 3/96
<S> <C> <C> <C> <C>
Num of Quarters Open for Period 4 4 4 1
FINANCIAL HIGHLIGHTS
($'s in Thousands)
BALANCE SHEET:
Total Assets 96,795 105,837 116,051 118,271
% Change in Assets 3.60 9.34 9.65 1.91
Total Loans 83,058 90,309 98,763 100,012
Mortgage Loans Serv for Others 2,128 - 2,787 2,844
Mortgage Loans Serv by Others - - - -
Total Savings Deposits 88,693 85,123 92,532 93,536
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 6,277 13,779 15,047 15,367
GAAP Capital 6,277 13,779 15,047 15,367
Tangible Capital 6,277 13,779 15,025 15,346
Core Capital 6,277 13,779 15,025 15,346
Risk-Based Capital 6,904 14,409 14,798 15,916
Equity Capital/Total Assets 6.48 13.02 12.97 12.99
Core Cap/Risk Based Assets 12.28 24.32 23.93 24.56
Core Cap/Adj Tangible Assets 6.49 13.04 12.97 13.00
Tangible Cap/Tangible Assets 6.49 13.04 12.97 13.00
Risk-Based Cap/Risk-Wt Assets 13.51 25.43 23.57 25.48
PROFITABILITY:
Net Income(Loss) 855 1,590 1,180 363
Ret on Avg Assets Bef Ext Item 0.90 1.25 1.05 1.24
Return on Avg GAAP Capital 14.65 12.63 8.18 9.55
Net Interest Income/Avg Assets 3.72 3.85 3.79 3.93
Noninterest Income/Avg Assets 0.30 0.30 0.34 0.48
Noninterest Expense/Avg Assets 2.23 2.29 2.42 2.42
Yield/Cost Spread 3.82 3.79 3.57 3.73
LIQUIDITY:
Int Earn Assets/Int Bear Liab 107.61 115.27 116.10 115.69
Brokered Deposits/Tot Deposits - - - -
Amt Eligible as Reg Liquidity 7,212 8,930 9,265 9,336
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.51 1.29 1.25 0.55
Nonaccrual Loans/Gross Loans - - - -
Nonaccrual Loans/Loan Loss Res - - - -
Reposs Assets/Total Assets 0.03 - 0.10 -
Net Chrg-Offs/Avg Adj Lns - 0.01 0.01 -
Non 1-4 Con/Conv Lns/Tot Assts 8.14 7.63 7.93 9.49
</TABLE>
Source: TAFS, published by Sheshunoff 2
<PAGE>
FERGUSON & CO., LLP EXHIBIT IV
- -------------------
CLAYTON COUNTY FS&LA
JONESBORO, GA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1993 1994 1995 YTD 3/96
Num of Quarters Open for Period 4 4 4 1
FINANCIAL HIGHLIGHTS
($'s in Thousands)
BALANCE SHEET:
Total Assets 71,111 67,917 78,822 77,945
% Change in Assets (1.39) (4.49) 16.06 (1.11)
Total Loans 46,938 44,468 47,263 47,038
Mortgage Loans Serv for Others - - - -
Mortgage Loans Serv by Others - - - -
Total Savings Deposits 64,429 60,766 61,182 61,215
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 5,863 6,325 12,224 12,362
GAAP Capital 5,863 6,325 12,224 12,362
Tangible Capital 5,863 6,325 12,212 12,363
Core Capital 5,863 6,325 12,212 12,363
Risk-Based Capital 6,222 6,678 12,619 12,767
Equity Capital/Total Assets 8.24 9.31 15.51 15.86
Core Cap/Risk Based Assets 19.85 22.44 37.51 38.30
Core Cap/Adj Tangible Assets 8.24 9.31 15.50 15.86
Tangible Cap/Tangible Assets 8.24 9.31 15.50 15.86
Risk-Based Cap/Risk-Wt Assets 21.06 23.69 38.76 39.55
PROFITABILITY:
Net Income(Loss) 708 632 562 151
Ret on Avg Assets Bef Ext Item 0.99 0.91 0.74 0.77
Return on Avg GAAP Capital 12.62 10.37 6.49 4.91
Net Interest Income/Avg Assets 3.57 3.64 3.22 3.40
Noninterest Income/Avg Assets 0.53 0.57 0.68 0.58
Noninterest Expense/Avg Assets 2.58 2.87 2.79 3.04
Yield/Cost Spread 3.61 3.71 3.11 3.06
LIQUIDITY:
Int Earn Assets/Int Bear Liab 105.87 107.70 114.00 117.73
Brokered Deposits/Tot Deposits - - - -
Amt Eligible as Reg Liquidity 16,791 16,896 20,277 20,372
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 1.07 0.45 0.76 1.05
Nonaccrual Loans/Gross Loans 1.04 0.44 0.72 0.98
Nonaccrual Loans/Loan Loss Res 131.51 46.77 86.36 117.65
Reposs Assets/Total Assets - - - -
Net Chrg-Offs/Avg Adj Lns - - 0.05 (0.01)
Non 1-4 Con/Conv Lns/Tot Assts 2.34 2.53 2.60 2.34
</TABLE>
Source: TAFS, published by Sheshunoff 3
<PAGE>
FERGUSON & CO., LLP Exhibit IV
- -------------------
CITIZENS SAVINGS ASSOCIATION
BATON ROUGE, LA
<TABLE>
<CAPTION>
1993 1994 1995 YTD 3/96
<S> <C> <C> <C> <C>
Num of Quarters Open for Period 4 4 4 1
FINANCIAL HIGHLIGHTS
($'s in Thousands)
BALANCE SHEET:
Total Assets 72,591 69,889 76,693 78,114
% Change in Assets (0.99) (3.72) 9.74 1.85
Total Loans 36,188 34,564 41,878 43,745
Mortgage Loans Serv for Others 2,532 2,201 1,743 1,395
Mortgage Loans Serv by Others 188 129 120 117
Total Savings Deposits 66,714 63,366 65,119 66,196
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 5,471 6,091 9,805 10,047
GAAP Capital 5,471 6,091 9,805 10,047
Tangible Capital 4,504 5,155 9,788 10,034
Core Capital 4,504 5,155 9,788 10,034
Risk-Based Capital 4,600 5,231 9,842 10,107
Equity Capital/Total Assets 7.54 8.72 12.78 12.86
Core Cap/Risk Based Assets 16.84 19.46 29.70 29.24
Core Cap/Adj Tangible Assets 6.26 7.46 12.85 12.93
Tangible Cap/Tangible Assets 6.26 7.46 12.85 12.93
Risk-Based Cap/Risk-Wt Assets 17.20 19.75 29.87 29.45
PROFITABILITY:
Net Income(Loss) 979 620 775 213
Ret on Avg Assets Bef Ext Item 1.34 0.87 1.03 1.10
Return on Avg GAAP Capital 19.65 10.72 10.92 8.58
Net Interest Income/Avg Assets 3.56 3.32 3.47 3.61
Noninterest Income/Avg Assets 0.51 0.51 0.69 0.72
Noninterest Expense/Avg Assets 2.63 2.76 2.78 2.87
Yield/Cost Spread 3.63 3.39 3.39 3.49
LIQUIDITY:
Int Earn Assets/Int Bear Liab 108.28 107.96 118.12 117.17
Brokered Deposits/Tot Deposits - - - -
Amt Eligible as Reg Liquidity 30,166 29,645 29,559 29,034
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.44 0.62 0.51 0.55
Nonaccrual Loans/Gross Loans - - - -
Nonaccrual Loans/Loan Loss Res - - - -
Reposs Assets/Total Assets 0.11 - 0.05 -
Net Chrg-Offs/Avg Adj Lns 0.03 (0.00) 0.06 (0.03)
Non 1-4 Con/Conv Lns/Tot Assts 6.85 6.13 6.03 5.91
</TABLE>
Source: TAFS, published by Sheshunoff 4
<PAGE>
FERGUSON & CO., LLP EXHIBIT IV
- -------------------
FIRST GEORGIA BANK
BRUNSWICK, GA
<TABLE>
<CAPTION>
1993 1994 1995 YTD 3/96
Num of Quarters Open for Period 4 4 4 1
FINANCIAL HIGHLIGHTS
($'s in Thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 134,691 135,835 135,582 142,200
% Change in Assets (5.31) 0.85 (0.19) 4.88
Total Loans 109,685 115,837 113,894 119,331
Mortgage Loans Serv for Others - - - -
Mortgage Loans Serv by Others 7,171 3,165 3,012 3,437
Total Savings Deposits 108,222 107,127 108,948 114,647
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 9,361 10,397 11,384 11,678
GAAP Capital 9,361 10,397 11,384 11,678
Tangible Capital 7,573 8,752 10,009 10,336
Core Capital 9,361 10,397 11,384 11,678
Risk-Based Capital 10,363 11,300 12,392 12,692
Equity Capital/Total Assets 6.95 7.65 8.40 8.21
Core Cap/Risk Based Assets 8.78 9.13 10.46 9.23
Core Cap/Adj Tangible Assets 6.95 7.65 8.40 8.21
Tangible Cap/Tangible Assets 5.70 6.52 7.46 7.34
Risk-Based Cap/Risk-Wt Assets 9.72 9.92 11.38 10.03
PROFITABILITY:
Net Income(Loss) 920 1,204 1,250 294
Ret on Avg Assets Bef Ext Item 0.51 0.89 0.91 0.85
Return on Avg GAAP Capital 7.87 12.19 11.39 10.20
Net Interest Income/Avg Assets 3.71 3.48 3.64 3.60
Noninterest Income/Avg Assets 0.50 0.89 0.90 0.78
Noninterest Expense/Avg Assets 3.03 3.03 3.01 3.10
Yield/Cost Spread 4.10 3.86 3.92 3.84
LIQUIDITY:
Int Earn Assets/Int Bear Liab 102.25 104.20 107.10 106.20
Brokered Deposits/Tot Deposits - - - -
Amt Eligible as Reg Liquidity 12,556 7,543 7,837 7,514
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 2.46 3.47 1.98 1.78
Nonaccrual Loans/Gross Loans 1.80 2.89 1.44 1.68
Nonaccrual Loans/Loan Loss Res 200.70 376.41 167.76 198.42
Reposs Assets/Total Assets 0.40 0.23 0.18 -
Net Chrg-Offs/Avg Adj Lns 0.19 0.09 0.11 0.02
Non 1-4 Con/Conv Lns/Tot Assts 22.33 27.57 28.63 29.05
</TABLE>
Source: TAFS, published by Sheshunoff 5
<PAGE>
FERGUSON & CO., LLP Exhibit IV
- -------------------
GALLUP FSB
GALLUP, NM
<TABLE>
<CAPTION>
1993 1994 1995 YTD 3/96
<S> <C> <C> <C> <C>
Num of Quarters Open for Period 4 4 4 1
FINANCIAL HIGHLIGHTS
($'s in Thousands)
BALANCE SHEET:
Total Assets 41,055 44,032 66,826 70,422
% Change in Assets (1.62) 7.25 51.77 5.38
Total Loans 27,302 30,224 34,101 35,377
Mortgage Loans Serv for Others - - - -
Mortgage Loans Serv by Others - - - -
Total Savings Deposits 34,641 36,950 39,772 43,303
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 6,195 6,676 12,290 11,828
GAAP Capital 6,195 6,676 12,290 11,828
Tangible Capital 6,195 6,676 12,078 11,594
Core Capital 6,195 6,676 12,078 11,594
Risk-Based Capital 6,399 6,894 11,926 11,362
Equity Capital/Total Assets 15.09 15.16 18.39 16.80
Core Cap/Risk Based Assets 33.93 31.08 48.98 41.58
Core Cap/Adj Tangible Assets 15.09 15.16 18.19 16.52
Tangible Cap/Tangible Assets 15.09 15.16 18.19 16.52
Risk-Based Cap/Risk-Wt Assets 35.05 32.10 48.36 40.75
PROFITABILITY:
Net Income(Loss) 575 588 721 181
Ret on Avg Assets Bef Ext Item 1.39 1.38 1.38 1.06
Return on Avg GAAP Capital 9.73 9.14 7.17 6.00
Net Interest Income/Avg Assets 3.79 4.19 3.98 3.29
Noninterest Income/Avg Assets 0.12 0.13 0.13 0.10
Noninterest Expense/Avg Assets 1.60 2.17 1.89 1.71
Yield/Cost Spread 3.28 3.76 3.19 2.60
LIQUIDITY:
Int Earn Assets/Int Bear Liab 115.19 115.33 121.07 124.29
Brokered Deposits/Tot Deposits - - - -
Amt Eligible as Reg Liquidity 1,690 4,520 5,901 6,937
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.87 0.30 0.09 0.35
Nonaccrual Loans/Gross Loans 0.16 - - 0.34
Nonaccrual Loans/Loan Loss Res 21.08 - - 39.74
Reposs Assets/Total Assets 0.24 0.09 - -
Net Chrg-Offs/Avg Adj Lns 0.01 - 0.10 -
Non 1-4 Con/Conv Lns/Tot Assts 5.25 10.14 7.91 9.39
</TABLE>
Source: TAFS, published by Sheshunoff 6
<PAGE>
FERGUSON & CO., LLP EXHIBIT 1V
- -------------------
KENLY SAVINGS BANK SSB
KENLY, NC
1993 1994 1995 YTD 3/96
Number of Open Quarters 4 4 4 1
FINANCIAL HIGHLIGHTS
($'s in Thousands)
BALANCE SHEET:
Total Assets 82,838 79,607 87,228 88,831
% Change in Assets 12.95 (3.90) 9.57 1.84
Securities-Book Value 9,041 11,481 11,022 10,206
Securities-Fair Value 9,095 11,323 11,022 10,202
Total Loans & Leases 60,566 63,965 70,312 73,708
Total Deposits 68,130 66,457 71,301 72,585
Loan/Deposit Ratio 88.90 96.25 98.61 101.55
Provision for Loan Losses 71 12 10 40
CAPITAL:
Equity Capital 10,504 11,758 12,291 12,517
Total Qualifying Capital(Est) 10,683 11,859 12,147 12,439
Equity Capital/Average Assets 13.45 14.48 14.21 13.69
Tot Qual Cap/Rk Bsd Asts(Est) 26.17 27.70 26.00 29.97
Tier 1 Cap/Rsk Bsed Asts(Est) 25.65 27.18 25.50 29.31
T1 Cap/Avg Assets(Lev Est) 14.15 14.30 13.22 13.31
Dividends Declared/Net Income - - 75.53 -
PROFITABILITY:
Net Income(Loss) 550 1,151 993 240
Return on Average Assets 0.70 1.42 1.15 1.05
Return on Average Equity Cap 6.53 10.34 8.03 7.74
Net Interest Margin 3.96 4.01 4.04 3.72
Net Int Income/Avg Assets 3.98 4.07 3.80 3.62
Noninterest Income/Avg Assets 0.07 0.08 0.10 0.12
Noninterest Exp/Avg Assets 2.86 1.88 2.04 1.96
ASSET QUALITY:
NPL+Frcl RE/Lns+Frcl RE 0.55 0.22 0.35 0.89
NPA's/Equity + LLR 3.13 1.17 1.96 5.14
LLR/Nonperf & Restrcd Lns 75.63 159.29 95.10 41.55
Foreclosed RE/Total Assets 0.07 - - -
90+ Day Del Loans/Total Loans - - - -
Loan Loss Reserves/Total Lns 0.35 0.35 0.33 0.37
Net Charge-Offs/Average Loans - - - -
Dom Risk R/E Lns/Tot Dom Lns 1.61 5.50 4.36 6.95
LIQUIDITY:
Brokered Dep/Total Dom Deps - - - -
$100M+ Time Dep/Total Dom Dep 13.68 12.71 15.25 17.41
Int Earn Assets/Int Bear Liab 122.66 118.42 118.71 118.83
Pledged Sec/Total Sec 1.11 2.61 2.72 2.94
Fair Value Sec/Amort Cost Sec 100.60 99.99 105.54 105.55
Source: BankSource, published by
Sheshunoff 7
<PAGE>
FERGUSON & CO., LLP Exhibit IV
<TABLE>
<CAPTION>
MORGAN COUNTY FS&LA
FORT MORGAN, CO
<S> <C> <C> <C> <C>
1993 1994 1995 YTD 3/96
Num of Quarters Open for Period 4 4 4 1
FINANCIAL HIGHLIGHTS
($'s in Thousands)
BALANCE SHEET:
Total Assets 56,277 58,080 70,692 71,620
% Change in Assets 6.01 3.20 21.71 1.31
Total Loans 40,713 46,048 48,784 50,443
Mortgage Loans Serv for Others - 2,247 2,353 3,042
Mortgage Loans Serv by Others 1,962 1,527 711 679
Total Savings Deposits 40,910 40,473 42,408 42,646
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 8,888 8,671 9,566 9,493
GAAP Capital 8,888 8,671 9,566 9,493
Tangible Capital 8,888 8,671 9,347 9,411
Core Capital 8,888 8,671 9,347 9,411
Risk-Based Capital 8,993 8,766 9,467 9,531
Equity Capital/Total Assets 15.70 14.93 13.53 13.25
Core Cap/Risk Based Assets 33.63 31.60 30.41 29.57
Core Cap/Adj Tangible Assets 15.79 14.93 13.29 13.16
Tangible Cap/Tangible Assets 15.79 14.93 13.29 13.16
Risk-Based Cap/Risk-Wt Assets 34.02 31.95 30.80 29.94
PROFITABILITY:
Net Income(Loss) 854 757 626 168
Ret on Avg Assets Bef Ext Item 1.56 1.32 0.94 0.94
Return on Avg GAAP Capital 11.16 8.62 6.83 7.05
Net Interest Income/Avg Assets 3.41 3.29 2.68 2.87
Noninterest Income/Avg Assets 0.14 0.14 0.19 0.12
Noninterest Expense/Avg Assets 1.35 1.70 1.54 1.55
Yield/Cost Spread 2.99 2.76 2.10 2.35
LIQUIDITY:
Int Earn Assets/Int Bear Liab 117.75 118.35 114.12 113.47
Brokered Deposits/Tot Deposits - - - -
Amt Eligible as Reg Liquidity 4,175 2,949 3,497 3,462
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 2.05 1.62 1.56 1.91
Nonaccrual Loans/Gross Loans - - 0.04 0.29
Nonaccrual Loans/Loan Loss Res - - 16.67 124.17
Reposs Assets/Total Assets 0.13 - 0.06 0.07
Net Chrg-Offs/Avg Adj Lns 0.02 - - -
Non 1-4 Con/Conv Lns/Tot Assts 5.29 5.38 5.53 5.34
</TABLE>
Source: TAFS, published by Sheshunoff 8
<PAGE>
FERGUSON & CO., LLP Exhibit IV
- -------------------
HILLSBOROUGH SAVINGS BANK
HILLSBOROUGH, NC
<TABLE>
<CAPTION>
1993 1994 1995 YTD 3/96
<S> <C> <C> <C> <C>
Number of Open Quarters 4 4 4 1
FINANCIAL HIGHLIGHTS
($'s in Thousands)
BALANCE SHEET:
Total Assets 98,055 100,389 121,109 121,508
% Change in Assets 4.70 2.38 20.64 0.33
Securities-Book Value 10,446 12,501 24,671 26,505
Securities-Fair Value 10,575 12,448 24,676 26,492
Total Loans & Leases 82,915 82,717 87,780 89,196
Total Deposits 74,352 76,413 82,899 80,880
Loan/Deposit Ratio 111.52 108.25 105.89 110.28
Provision for Loan Losses 78 108 114 21
CAPITAL:
Equity Capital 11,877 12,659 23,094 23,285
Total Qualifying Capital(Est) 12,232 13,451 23,535 24,006
Equity Capital/Average Assets 12.39 12.76 21.41 19.39
Tot Qual Cap/Rk Bsd Asts(Est) 21.28 23.04 36.20 37.17
Tier 1 Cap/Rsk Bsed Asts(Est) 20.66 22.25 35.32 36.25
T1 Cap/Avg Assets(Lev Est) 12.02 13.07 18.84 19.49
Dividends Declared/Net Income - - - -
PROFITABILITY:
Net Income(Loss) 956 1,112 1,313 365
Return on Average Assets 1.00 1.12 1.22 1.22
Return on Average Equity Cap 8.39 9.06 8.95 6.30
Net Interest Margin 3.73 4.01 4.08 3.92
Net Int Income/Avg Assets 3.64 3.92 3.98 3.78
Noninterest Income/Avg Assets 0.37 0.36 0.34 0.24
Noninterest Exp/Avg Assets 2.10 2.12 2.19 2.11
ASSET QUALITY:
NPL+Frcl RE/Lns+Frcl RE 0.40 0.27 0.51 1.01
NPA's/Equity + LLR 2.71 1.71 1.91 3.79
LLR/Nonperf & Restrcd Lns 160.63 206.25 126.39 65.30
Foreclosed RE/Total Assets 0.11 - - -
90+ Day Del Loans/Total Loans 0.12 0.17 0.41 0.40
Loan Loss Reserves/Total Lns 0.43 0.56 0.65 0.66
Net Charge-Offs/Average Loans - 0.00 0.01 -
Dom Risk R/E Lns/Tot Dom Lns 8.74 9.09 9.49 9.10
LIQUIDITY:
Brokered Dep/Total Dom Deps 0.93 0.65 0.12 -
$100M+ Time Dep/Total Dom Dep 9.19 8.92 6.55 7.23
Int Earn Assets/Int Bear Liab 113.58 114.08 124.74 125.22
Pledged Sec/Total Sec 11.38 15.63 8.38 7.38
Fair Value Sec/Amort Cost Sec 101.23 95.30 100.91 99.14
</TABLE>
Source: BankSource, published by
Sheshunoff 9
<PAGE>
FERGUSON & CO., LLP Exhibit IV
- -------------------
TROY HILL FSB
PITTSBURGH, PA
<TABLE>
<CAPTION>
1993 1994 1995 YTD 3/96
<S> <C> <C> <C> <C>
Num of Quarters Open for Period 4 4 4 1
FINANCIAL HIGHLIGHTS
($'s in Thousands)
BALANCE SHEET:
Total Assets 57,325 64,963 76,028 76,374
% Change in Assets (2.46) 13.32 17.03 0.46
Total Loans 39,201 46,155 62,223 64,720
Mortgage Loans Serv for Others - - - -
Mortgage Loans Serv by Others - - - -
Total Savings Deposits 45,976 42,821 54,378 52,775
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 7,461 12,507 12,538 12,851
GAAP Capital 7,461 12,507 12,538 12,851
Tangible Capital 7,461 12,507 12,492 12,834
Core Capital 7,461 12,507 12,492 12,834
Risk-Based Capital 7,461 12,665 12,492 12,834
Equity Capital/Total Assets 13.02 19.25 16.49 16.83
Core Cap/Risk Based Assets 26.32 30.87 26.63 25.95
Core Cap/Adj Tangible Assets 13.02 19.25 16.44 16.81
Tangible Cap/Tangible Assets 13.02 19.25 16.44 16.81
Risk-Based Cap/Risk-Wt Assets 26.32 31.26 26.63 25.95
PROFITABILITY:
Net Income(Loss) 1,293 813 866 246
Ret on Avg Assets Bef Ext Item 1.88 1.21 1.18 1.29
Return on Avg GAAP Capital 16.04 7.39 6.69 7.75
Net Interest Income/Avg Assets 5.26 3.95 3.77 3.98
Noninterest Income/Avg Assets 0.66 0.63 0.33 0.56
Noninterest Expense/Avg Assets 2.22 2.37 2.00 2.12
Yield/Cost Spread 4.96 3.48 3.08 3.27
LIQUIDITY:
Int Earn Assets/Int Bear Liab 114.47 123.51 120.75 120.13
Brokered Deposits/Tot Deposits - - - -
Amt Eligible as Reg Liquidity 7,521 2,939 4,491 3,672
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 2.15 2.84 2.86 3.68
Nonaccrual Loans/Gross Loans 0.76 0.55 0.40 0.55
Nonaccrual Loans/Loan Loss Res 49.51 43.96 39.88 54.63
Reposs Assets/Total Assets 0.03 0.09 0.04 0.03
Net Chrg-Offs/Avg Adj Lns 0.02 0.05 0.04 -
Non 1-4 Con/Conv Lns/Tot Assts 5.22 5.00 9.84 11.24
</TABLE>
Source: TAFS, published by Sheshunoff 10
<PAGE>
FERGUSON & CO., LLP EXHIBIT IV
- -------------------
<TABLE>
<CAPTION>
TARRYTOWNS BANK, FSB
TARRYTOWN, NY
1993 1994 1995 YTD 3/96
Num of Quarters Open for Period 4 4 4 1
FINANCIAL HIGHLIGHTS
($'s in Thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 85,566 88,922 105,172 109,028
% Change in Assets 2.85 3.92 18.27 3.67
Total Loans 46,244 47,144 51,327 51,546
Mortgage Loans Serv for Others 349 - 318 -
Mortgage Loans Serv by Others 289 275 26 25
Total Savings Deposits 77,581 80,489 86,671 90,383
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 6,861 7,317 16,267 16,083
GAAP Capital 6,861 7,317 16,267 16,083
Tangible Capital 6,861 7,317 16,055 16,220
Core Capital 6,861 7,317 16,055 16,220
Risk-Based Capital 6,861 7,317 16,055 16,772
Equity Capital/Total Assets 8.02 8.23 15.47 14.75
Core Cap/Risk Based Assets 18.02 20.24 36.26 36.79
Core Cap/Adj Tangible Assets 8.02 8.23 15.30 14.86
Tangible Cap/Tangible Assets 8.02 8.23 15.30 14.86
Risk-Based Cap/Risk-Wt Assets 18.02 20.24 36.26 38.04
PROFITABILITY:
Net Income(Loss) 890 921 823 255
Ret on Avg Assets Bef Ext Item 1.05 1.06 0.83 0.95
Return on Avg GAAP Capital 13.93 12.99 9.09 6.31
Net Interest Income/Avg Assets 4.14 4.15 3.46 3.60
Noninterest Income/Avg Assets 0.16 0.16 0.15 0.13
Noninterest Expense/Avg Assets 2.26 2.06 2.22 2.31
Yield/Cost Spread 4.08 4.10 3.29 3.13
LIQUIDITY:
Int Earn Assets/Int Bear Liab 106.93 106.59 119.20 119.32
Brokered Deposits/Tot Deposits - - - -
Amt Eligible as Reg Liquidity 16,158 13,554 24,626 22,571
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 4.28 4.62 5.43 4.12
Nonaccrual Loans/Gross Loans 2.14 0.90 1.45 1.85
Nonaccrual Loans/Loan Loss Res 179.64 79.67 110.39 151.08
Reposs Assets/Total Assets 0.21 0.30 0.48 0.37
Net Chrg-Offs/Avg Adj Lns 0.24 0.27 0.07 0.38
Non 1-4 Con/Conv Lns/Tot Assts 7.25 8.35 6.59 6.28
</TABLE>
Source: TAFS, published by Sheshunoff 11
<PAGE>
EXHIBIT V
<PAGE>
FERGUSON & CO., LLP Exhibit V - Selected Publicly Traded Thrifts
- -------------------
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<C> <S> <C> <C> <C> <C> <C> <C> <C>
CARV Carver Federal Savings Bank New York NY MA SAIF NASDAQ 10/25/94 8.250
HBNK Highland Federal Bank FSB Burbank CA WE SAIF NASDAQ NA 15.375
PMFI Perpetual Midwest Financial Cedar Rapids IA MW SAIF NASDAQ 03/31/94 17.625
HMCI HomeCorp, Inc. Rockford IL MW SAIF NASDAQ 06/22/90 17.375
HZFS Horizon Financial Svcs Corp. Oskaloosa IA MW SAIF NASDAQ 06/30/94 14.000
HRBF Harbor Federal Bancorp, Inc. Baltimore MD MA SAIF NASDAQ 08/12/94 12.375
BVFS Bay View Capital Corp. San Mateo CA WE SAIF NASDAQ 05/09/86 35.000
MBLF MBLA Financial Corp. Macon MO MW SAIF NASDAQ 06/24/93 21.500
SJSB SJS Bancorp St. Joseph MI MW SAIF NASDAQ 02/16/95 20.000
WAYN Wayne Savings & Loan Co. MHC Wooster OH MW SAIF NASDAQ 06/25/93 19.750
NSSY Norwalk Savings Society Norwalk CT NE BIF NASDAQ 06/16/94 21.875
OFCP Ottawa Financial Corp. Holland MI MW SAIF NASDAQ 08/19/94 16.125
MFBC MFB Corp. Mishawaka IN MW SAIF NASDAQ 03/25/94 14.750
FFSW FirstFederal Financial Svcs Wooster OH MW SAIF NASDAQ 03/31/87 31.000
NTMG Nutmeg Federal S&LA Danbury CT NE SAIF NASDAQ NA 7.250
FFBS FFBS BanCorp, Inc. Columbus MS SE SAIF NASDAQ 07/01/93 22.000
HARS Harris Savings Bank, MHC Harrisburg PA MA SAIF NASDAQ 01/25/94 15.000
PULB Pulaski Bank, Savings Bk, MHC St. Louis MO MW SAIF NASDAQ 05/11/94 12.625
GTFN Great Financial Corporation Louisville KY MW SAIF NASDAQ 03/31/94 25.750
FSNJ First Savings Bk of NJ, MHC Bayonne NJ MA SAIF NASDAQ 01/09/95 14.000
FFHH FSF Financial Corp. Hutchinson MN MW SAIF NASDAQ 10/07/94 11.375
AVND Avondale Financial Corp. Chicago IL MW SAIF NASDAQ 04/07/95 13.250
SCCB S. Carolina Community Bancshrs Winnsboro SC SE SAIF NASDAQ 07/07/94 16.000
FED FirstFed Financial Corp. Santa Monica CA WE SAIF NYSE 12/16/83 17.375
GWBC Gateway Bancorp, Inc. Catlettsburg KY MW SAIF NASDAQ 01/18/95 13.000
LARK Landmark Bancshares, Inc. Dodge City KS MW SAIF NASDAQ 03/28/94 15.375
SMBC Southern Missouri Bancorp, Inc Poplar Bluff MO MW SAIF NASDAQ 04/13/94 14.125
HFGI Harrington Financial Group Richmond IN MW SAIF NASDAQ NA 10.250
EFBI Enterprise Federal Bancorp Lockland OH MW SAIF NASDAQ 10/17/94 12.750
SBCN Suburban Bancorporation, Inc. Cincinnati OH MW SAIF NASDAQ 09/30/93 14.750
CFCP Coastal Financial Corp. Myrtle Beach SC SE SAIF NASDAQ 09/26/90 20.250
TRIC Tri-County Bancorp, Inc. Torrington WY WE SAIF NASDAQ 09/30/93 18.000
INCB Indiana Community Bank, SB Lebanon IN MW SAIF NASDAQ 12/15/94 13.250
FFFL Fidelity FSB of Florida, MHC West Palm Beach FL SE SAIF NASDAQ 01/07/94 12.750
HHFC Harvest Home Financial Corp. Cheviot OH MW SAIF NASDAQ 10/10/94 12.000
CMSV Community Savings, MHC North Palm Beach FL SE SAIF NASDAQ 10/24/94 16.000
HBFW Home Bancorp Fort Wayne IN MW SAIF NASDAQ 03/30/95 15.500
CEBK Central Co-Operative Bank Somerville MA NE BIF NASDAQ 10/24/86 16.750
IBSF IBS Financial Corp. Cherry Hill NJ MA SAIF NASDAQ 10/13/94 13.625
KNK Kankakee Bancorp, Inc. Kankakee IL MW SAIF AMSE 01/06/93 19.000
FBSI First Bancshares, Inc. Mountain Grove MO MW SAIF NASDAQ 12/22/93 16.000
FCBF FCB Financial Corp. Neenah WI MW SAIF NASDAQ 09/24/93 17.750
MFFC Milton Federal Financial Corp. West Milton OH MW SAIF NASDAQ 10/07/94 12.000
FFEC First Fed Bncshrs Eau Claire Eau Claire WI MW SAIF NASDAQ 10/12/94 15.000
PALM Palfed, Inc. Aiken SC SE SAIF NASDAQ 12/15/85 12.375
SOPN First Savings Bancorp, Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 17.125
LBCI Liberty Bancorp, Inc. Chicago IL MW SAIF NASDAQ 12/24/91 23.375
FIBC Financial Bancorp, Inc. Long Island City NY MA SAIF NASDAQ 08/17/94 14.750
FFKY First Federal Financial Corp. Elizabethtown KY MW SAIF NASDAQ 07/15/87 20.000
PCBC Perry County Financial Corp. Perryville MO MW SAIF NASDAQ 02/13/95 16.250
HBS Haywood Bancshares, Inc. Waynesville NC SE BIF AMSE 12/18/87 18.500
GLBK Glendale Co-Operative Bank Everett MA NE BIF NASDAQ 01/10/94 16.500
ETFS East Texas Financial Services Tyler TX SW SAIF NASDAQ 01/10/95 14.750
CNIT CENIT Bancorp, Inc. Norfolk VA SE SAIF NASDAQ 08/06/92 32.940
STND Standard Financial, Inc. Chicago IL MW SAIF NASDAQ 08/01/94 16.000
CTZN CitFed Bancorp, Inc. Dayton OH MW SAIF NASDAQ 01/23/92 38.500
</TABLE>
Source: SNL & F&C calculations
1
<PAGE>
FERGUSON & CO., LLP Exhibit V - Selected Publicly Traded Thrifts
- -------------------
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<C> <S> <C> <C> <C> <C> <C> <C> <C>
FFYF FFY Financial Corp. Youngstown OH MW SAIF NASDAQ 06/28/93 23.875
NEBC Northeast Bancorp Portland ME NE BIF NASDAQ 08/19/87 12.500
MWFD Midwest Federal Financial Baraboo WI MW SAIF NASDAQ 07/08/92 15.690
FNGB First Northern Capital Corp. Green Bay WI MW SAIF NASDAQ 12/29/83 15.250
SFBM Security Bancorp Billings MT WE SAIF NASDAQ 11/20/86 20.250
HNFC Hinsdale Financial Corp. Hinsdale IL MW SAIF NASDAQ 07/07/92 23.250
SECP Security Capital Corporation Milwaukee WI MW SAIF NASDAQ 01/03/94 59.500
FFBI First Financial Bancorp, Inc. Belvidere IL MW SAIF NASDAQ 10/04/93 15.500
MCBN Mid-Coast Bancorp, Inc. Waldoboro ME NE SAIF NASDAQ 11/02/89 20.250
QCBC Quaker City Bancorp, Inc. Whittier CA WE SAIF NASDAQ 12/30/93 13.250
LISB Long Island Bancorp, Inc. Melville NY MA SAIF NASDAQ 04/18/94 28.060
FFFG F.F.O. Financial Group, Inc. St. Cloud FL SE SAIF NASDAQ 10/13/88 2.625
MARN Marion Capital Holdings Marion IN MW SAIF NASDAQ 03/18/93 20.000
FCIT First Citizens Financial Corp Gaithersburg MD MA SAIF NASDAQ 12/17/86 17.250
CFHC California Financial Holding Stockton CA WE SAIF NASDAQ 04/01/83 22.250
CSA Coast Savings Financial Los Angeles CA WE SAIF NYSE 12/23/85 31.875
AADV Advantage Bancorp, Inc. Kenosha WI MW SAIF NASDAQ 03/23/92 34.000
LFED Leeds Federal Savings Bk, MHC Baltimore MD MA SAIF NASDAQ 05/02/94 13.000
LVSB Lakeview Financial West Paterson NJ MA SAIF NASDAQ 12/22/93 20.500
EBCP Eastern Bancorp Dover NH NE SAIF NASDAQ 11/17/83 17.250
HVFD Haverfield Corporation Cleveland OH MW SAIF NASDAQ 03/19/85 18.000
MORG Morgan Financial Corp. Fort Morgan CO SW SAIF NASDAQ 01/11/93 12.250
FFSX First Fed SB of Siouxland, MHC Sioux City IA MW SAIF NASDAQ 07/13/92 23.750
FBCI Fidelity Bancorp, Inc. Chicago IL MW SAIF NASDAQ 12/15/93 15.500
GSLC Guaranty Financial Corp. Charlottesville VA SE SAIF NASDAQ NA 8.000
IFSB Independence Federal Savings Washington DC MA SAIF NASDAQ 06/06/85 7.500
CNSK Covenant Bank for Savings Haddonfield NJ MA BIF NASDAQ NA 12.000
FFLC FFLC Bancorp, Inc. Leesburg FL SE SAIF NASDAQ 01/04/94 18.000
STSA Sterling Financial Corp. Spokane WA WE SAIF NASDAQ NA 13.500
NEIB Northeast Indiana Bancorp Huntington IN MW SAIF NASDAQ 06/28/95 12.250
SFSB SuburbFed Financial Corp. Flossmoor IL MW SAIF NASDAQ 03/04/92 17.250
THRD TF Financial Corporation Newtown PA MA SAIF NASDAQ 07/13/94 13.875
JSBF JSB Financial, Inc. Lynbrook NY MA BIF NASDAQ 06/27/90 32.875
WCBI Westco Bancorp Westchester IL MW SAIF NASDAQ 06/26/92 21.250
SFFC StateFed Financial Corporatio Des Moines IA MW SAIF NASDAQ 01/05/94 15.750
DSBC DS Bancor, Inc. Derby CT NE BIF NASDAQ 12/11/85 34.250
FTFC First Federal Capital Corp. La Crosse WI MW SAIF NASDAQ 11/02/89 20.500
NSSB Norwich Financial Corp. Norwich CT NE BIF NASDAQ 11/14/86 14.375
PWBC PennFirst Bancorp, Inc. Ellwood City PA MA SAIF NASDAQ 06/13/90 13.750
MFSL Maryland Federal Bancorp Hyattsville MD MA SAIF NASDAQ 06/02/87 29.000
WSTR WesterFed Financial Corp. Missoula MT WE SAIF NASDAQ 01/10/94 14.500
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/95 16.250
ASBI Ameriana Bancorp New Castle IN MW SAIF NASDAQ 03/02/87 13.500
FKFS First Keystone Financial Media PA MA SAIF NASDAQ 01/26/95 16.875
MLFB MLF Bancorp, Inc. Villanova PA MA SAIF NASDAQ 08/11/94 23.750
POBS Portsmouth Bank Shares Portsmouth NH NE BIF NASDAQ 02/09/88 12.750
GFCO Glenway Financial Corp. Cincinnati OH MW SAIF NASDAQ 11/30/90 20.250
HMNF HMN Financial, Inc. Spring Valley MN MW SAIF NASDAQ 06/30/94 15.250
SFED SFS Bancorp, Inc. Schenectady NY MA SAIF NASDAQ 06/30/95 12.250
FFFC FFVA Financial Corp. Lynchburg VA SE SAIF NASDAQ 10/12/94 16.250
JSBA Jefferson Savings Bancorp Ballwin MO MW SAIF NASDAQ 04/08/93 23.250
MSBB MSB Bancorp, Inc. Goshen NY MA BIF NASDAQ 09/03/92 16.500
HALL Hallmark Capital Corp. West Allis WI MW SAIF NASDAQ 01/03/94 15.000
KSAV KS Bancorp, Inc. Kenly NC SE SAIF NASDAQ 12/30/93 20.000
NMSB NewMil Bancorp, Inc. New Milford CT NE BIF NASDAQ 02/01/86 7.000
FSLA First Savings Bank, MHC Edison NJ MA SAIF NASDAQ 07/10/92 16.250
</TABLE>
Source: SNL & F&C calculations
2
<PAGE>
FERGUSON & CO., LLP Exhibit V - Selected Publicly Traded Thrifts
- -------------------
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HFFC HF Financial Corp. Sioux Falls SD MW SAIF NASDAQ 04/08/92 15.250
NWSB Northwest Savings Bank, MHC Warren PA MA SAIF NASDAQ 11/07/94 11.375
PTRS Potters Financial Corp. East Liverpool OH MW SAIF NASDAQ 12/31/93 16.000
STFR St. Francis Capital Corp. Milwaukee WI MW SAIF NASDAQ 06/21/93 25.750
FSBI Fidelity Bancorp, Inc. Pittsburgh PA MA SAIF NASDAQ 06/24/88 17.000
LIFB Life Bancorp, Inc. Norfolk VA SE SAIF NASDAQ 10/11/94 14.310
THBC Troy Hill Bancorp, Inc. Pittsburgh PA MA SAIF NASDAQ 06/27/94 13.750
EGFC Eagle Financial Corp. Bristol CT NE SAIF NASDAQ 02/03/87 24.500
MFLR Mayflower Co-operative Bank Middleboro MA NE BIF NASDAQ 12/23/87 13.125
CENF CENFED Financial Corp. Pasadena CA WE SAIF NASDAQ 10/25/91 22.750
CASH First Midwest Financial, Inc. Storm Lake IA MW SAIF NASDAQ 09/20/93 21.750
FFHS First Franklin Corporation Cincinnati OH MW SAIF NASDAQ 01/26/88 14.500
SHEN First Shenango Bancorp, Inc. New Castle PA MA SAIF NASDAQ 04/06/93 20.000
PBCT People's Bank, MHC Bridgeport CT NE BIF NASDAQ 07/06/88 21.125
SWBI Southwest Bancshares Hometown IL MW SAIF NASDAQ 06/24/92 26.750
GRTR Greater New York Savings Bank New York NY MA BIF NASDAQ 06/17/87 10.500
RVSB Riverview Savings Bank, MHC Camas WA WE SAIF NASDAQ 10/26/93 15.000
UBMT United Financial Corp. Great Falls MT WE SAIF NASDAQ 09/23/86 18.000
FISB First Indiana Corporation Indianapolis IN MW SAIF NASDAQ 08/02/83 23.125
BSBC Branford Savings Bank Branford CT NE BIF NASDAQ 11/04/86 3.125
OHSL OHSL Financial Corp. Cincinnati OH MW SAIF NASDAQ 02/10/93 19.500
CFX CFX Corporation Keene NH NE BIF AMSE 02/12/87 13.500
BFSB Bedford Bancshares, Inc. Bedford VA SE SAIF NASDAQ 08/22/94 16.750
FLAG FLAG Financial Corp. LaGrange GA SE SAIF NASDAQ 12/11/86 11.625
GPT GreenPoint Financial Corp. Flushing NY MA BIF NYSE 01/28/94 31.250
SMFC Sho-Me Financial Corp. Mt. Vernon MO MW SAIF NASDAQ 07/01/94 16.250
QCSB Queens County Bancorp, Inc. Flushing NY MA BIF NASDAQ 11/23/93 47.000
BKCT Bancorp Connecticut, Inc. Southington CT NE BIF NASDAQ 07/03/86 20.750
IFSL Indiana Federal Corporation Valparaiso IN MW SAIF NASDAQ 02/04/87 19.000
ABCW Anchor BanCorp Wisconsin Madison WI MW SAIF NASDAQ 07/16/92 34.500
PBKB People's Bancshares, Inc. South Easton MA NE BIF NASDAQ 10/23/86 9.250
DSL Downey Financial Corp. Newport Beach CA WE SAIF NYSE 01/01/71 22.375
RELY Reliance Bancorp, Inc. Garden City NY MA SAIF NASDAQ 03/31/94 16.190
DME Dime Bancorp, Inc. New York NY MA BIF NYSE 08/19/86 12.250
FRC First Republic Bancorp San Francisco CA WE BIF NYSE NA 12.750
PBCI Pamrapo Bancorp, Inc. Bayonne NJ MA SAIF NASDAQ 11/14/89 19.000
WAMU Washington Mutual Inc. Seattle WA WE BIF NASDAQ 03/11/83 36.810
CFSB CFSB Bancorp, Inc. Lansing MI MW SAIF NASDAQ 06/22/90 19.500
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88 20.750
SSBK Strongsville Savings Bank Strongsville OH MW SAIF NASDAQ NA 22.000
TCB TCF Financial Corp. Minneapolis MN MW SAIF NYSE 06/17/86 34.750
WFCO Winton Financial Corp. Cincinnati OH MW SAIF NASDAQ 08/04/88 13.250
RARB Raritan Bancorp Inc. Raritan NJ MA BIF NASDAQ 03/01/87 21.125
UFRM United Federal Savings Bank Rocky Mount NC SE SAIF NASDAQ 07/01/80 8.250
SPBC St. Paul Bancorp, Inc. Chicago IL MW SAIF NASDAQ 05/18/87 23.750
FFWD Wood Bancorp, Inc. Bowling Green OH MW SAIF NASDAQ 08/31/93 12.875
CIBI Community Investors Bancorp Bucyrus OH MW SAIF NASDAQ 02/07/95 15.000
CBNH Community Bankshares, Inc. Concord NH NE BIF NASDAQ 05/08/86 18.000
PULS Pulse Bancorp South River NJ MA SAIF NASDAQ 09/18/86 17.375
MGNL Magna Bancorp, Inc. Hattiesburg MS SE SAIF NASDAQ 03/13/91 37.375
HSBK Hibernia Savings Bank, (The) Quincy MA NE BIF NASDAQ 09/08/86 14.125
WSB Washington Savings Bank, FSB Waldorf MD MA SAIF AMSE NA 5.250
LSBI LSB Financial Corp. Lafayette IN MW BIF NASDAQ 02/03/95 15.000
HAVN Haven Bancorp, Inc. Woodhaven NY MA SAIF NASDAQ 09/23/93 28.750
MIVI Mississippi View Holding Co. Little Falls MN MW SAIF NASDAQ 03/24/95 11.000
GSBC Great Southern Bancorp, Inc. Springfield MO MW SAIF NASDAQ 12/14/89 27.625
</TABLE>
Source: SNL & P&C calculations 3
<PAGE>
FERGUSON & CO., LLP Exhibit V - Selected Publicaly Traded Thrifts
- -------------------
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FBBC First Bell Bancorp, Inc. Pittsburgh PA MA SAIF NASDAQ 06/29/95 13.375
CVAL Chester Valley Bancorp Inc. Downingtown PA MA SAIF NASDAQ 03/27/87 18.250
ASFC Astoria Financial Corporation Lake Success NY MA SAIF NASDAQ 11/18/93 25.375
FLFC First Liberty Financial Corp. Macon GA SE SAIF NASDAQ 12/06/83 20.500
GWF Great Western Financial Chatsworth CA WE SAIF NYSE NA 23.875
PBNB People's Savings Financial Cp. New Britain CT NE BIF NASDAQ 08/20/86 21.875
GFSB GFS Bancorp, Inc. Grinnell IA MW SAIF NASDAQ 01/06/94 20.250
ALBK ALBANK Financial Corporation Albany NY MA SAIF NASDAQ 04/01/92 25.190
GBCI Glacier Bancorp, Inc. Kalispell MT WE SAIF NASDAQ 03/30/84 21.250
MSBF MSB Financial, Inc. Marshall MI MW SAIF NASDAQ 02/06/95 17.000
YFED York Financial Corp. York PA MA SAIF NASDAQ 02/01/84 16.250
NWEQ Northwest Equity Corp. Amery WI MW SAIF NASDAQ 10/11/94 10.250
PSAB Prime Bancorp, Inc. Philadelphia PA MA SAIF NASDAQ 11/21/88 18.000
FSFC First Southeast Financial Corp Anderson SC SE SAIF NASDAQ 10/08/93 9.500
FFSL First Independence Corp. Independence KS MW SAIF NASDAQ 10/08/93 18.750
CBCI Calumet Bancorp, Inc. Dolton IL MW SAIF NASDAQ 02/20/92 27.750
ROSE TR Financial Corp. Garden City NY MA BIF NASDAQ 06/29/93 27.310
PFSL Pocahontas FS&LA, MHC Pocahontas AR SE SAIF NASDAQ 04/05/94 14.500
IWBK InterWest Bancorp, Inc. Oak Harbor WA WE SAIF NASDAQ NA 24.625
RCSB RCSB Financial Inc. Rochester NY MA BIF NASDAQ 04/29/86 24.500
WVFC WVS Financial Corporation Pittsburgh PA MA SAIF NASDAQ 11/29/93 21.000
MERI Meritrust Federal SB Thibodaux LA SW SAIF NASDAQ NA 31.500
CAFI Camco Financial Corporation Cambridge OH MW SAIF NASDAQ NA 18.000
HRZB Horizon Financial Corp. Bellingham WA WE BIF NASDAQ 08/01/86 13.000
PFSB PennFed Financial Services,Inc West Orange NJ MA SAIF NASDAQ 07/15/94 16.125
GDW Golden West Financial Oakland CA WE SAIF NYSE 05/29/59 54.625
FGHC First Georgia Holding, Inc. Brunswick GA SE SAIF NASDAQ 02/11/87 6.000
SOSA Somerset Savings Bank Somerville MA NE BIF NASDAQ 07/09/86 1.500
NHTB New Hampshire Thrift Bncshrs New London NH NE SAIF NASDAQ 05/22/86 9.875
COFI Charter One Financial Cleveland OH MW SAIF NASDAQ 01/22/88 35.875
FFPB First Palm Beach Bancorp, Inc. West Palm Beach FL SE SAIF NASDAQ 09/29/93 20.500
PFDC Peoples Bancorp Auburn IN MW SAIF NASDAQ 07/07/87 19.250
WBST Webster Financial Corporation Waterbury CT NE SAIF NASDAQ 12/12/86 29.000
FFBZ First Federal Bancorp, Inc. Zanesville OH MW SAIF NASDAQ 07/13/92 24.500
SFB Standard Federal Bancorp Troy MI MW SAIF NYSE 01/21/87 38.875
SWCB Sandwich Co-operative Bank Sandwich MA NE BIF NASDAQ 07/25/86 20.060
HARB Harbor Federal Savings Bk, MHC Fort Pierce FL SE SAIF NASDAQ 01/06/94 24.500
NFSL Newnan Savings Bank, FSB Newnan GA SE SAIF NASDAQ 03/01/86 20.500
FFCH First Financial Holdings Inc. Charleston SC SE SAIF NASDAQ 11/10/83 18.500
PLE Pinnacle Bank Jasper AL SE SAIF AMSE 12/17/86 16.750
PVFC PVF Capital Corp. Bedford Heights OH MW SAIF NASDAQ 12/30/92 20.750
WFSL Washington Federal, Inc. Seattle WA WE SAIF NASDAQ 11/17/82 20.750
BKCO Bankers Corp. Perth Amboy NJ MA BIF NASDAQ 03/16/90 17.875
BANC BankAtlantic Bancorp, Inc. Fort Lauderdale FL SE SAIF NASDAQ 11/29/83 12.875
MIFC Mid-Iowa Financial Corp. Newton IA MW SAIF NASDAQ 10/14/92 6.375
MASB MASSBANK Corp. Reading MA NE BIF NASDAQ 05/28/86 33.250
FBHC Fort Bend Holding Corp. Rosenberg TX SW SAIF NASDAQ 06/30/93 17.000
FOBC Fed One Bancorp Wheeling WV SE SAIF NASDAQ 01/19/95 13.250
SFSL Security First Corp. Mayfield Heights OH MW SAIF NASDAQ 01/22/88 14.250
CAPS Capital Savings Bancorp, Inc. Jefferson City MO MW SAIF NASDAQ 12/29/93 18.690
FFWC FFW Corp. Wabash IN MW SAIF NASDAQ 04/05/93 19.500
MDBK Medford Savings Bank Medford MA NE BIF NASDAQ 03/18/86 21.250
CTBK Center Banks Incorporated Skaneateles NY MA BIF NASDAQ 06/02/86 13.125
GROV Grove Bank Chestnut Hill MA NE BIF NASDAQ 08/07/86 30.000
MWBI Midwest Bancshares, Inc. Burlington IA MW SAIF NASDAQ 11/12/92 25.375
NYB New York Bancorp Inc. Douglaston NY MA SAIF NYSE 01/28/88 27.125
</TABLE>
Source: SNL & F&C calculations 4
<PAGE>
FERGUSON & CO., LLP Exhibit V - Selected Publicly Traded Thrifts
- -------------------
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HIFS Hingham Instit. for Savings Hingham MA NE BIF NASDAQ 12/20/88 14.625
VFFC Virginia First Financial Petersburg VA SE SAIF NASDAQ 01/01/78 11.750
AMFB American Federal Bank Greenville SC SE SAIF NASDAQ 01/19/89 15.875
MCBS Mid Continent Bancshares Inc. El Dorado KS MW SAIF NASDAQ 06/27/94 17.750
CFB Commercial Federal Corporation Omaha NE MW SAIF NYSE 12/31/84 36.750
HARL Harleysville Savings Bank Harleysville PA MA SAIF NASDAQ 08/04/87 17.500
EBSI Eagle Bancshares Tucker GA SE SAIF NASDAQ 04/01/86 14.750
HOMF Home Federal Bancorp Seymour IN MW SAIF NASDAQ 01/23/88 26.375
FMCO FMS Financial Corporation Burlington NJ MA SAIF NASDAQ 12/14/88 15.875
FFHC First Financial Corp. Stevens Point WI MW SAIF NASDAQ 12/24/80 22.000
FESX First Essex Bancorp, Inc. Andover MA NE BIF NASDAQ 08/04/87 10.625
FFRV Fidelity Financial Bankshares Richmond VA SE SAIF NASDAQ 05/01/86 12.875
LOAN Horizon Bancorp Austin TX SW SAIF NASDAQ NA 8.250
AFFFZ America First Financial Fund San Francisco CA WE SAIF NASDAQ NA 27.500
PVSA Parkvale Financial Corporation Monroeville PA MA SAIF NASDAQ 07/16/87 25.375
ANDB Andover Bancorp, Inc. Andover MA NE BIF NASDAQ 05/08/86 23.000
WLDN Walden Bancorp, Inc. Acton MA NE BIF NASDAQ 12/04/85 18.625
SVRN Sovereign Bancorp, Inc. Wyomissing PA MA SAIF NASDAQ 08/12/86 9.625
PHBK Peoples Heritage Finl Group Portland ME NE BIF NASDAQ 12/04/86 19.875
IROQ Iroquois Bancorp Auburn NY MA BIF NASDAQ 01/22/86 15.000
RFED Roosevelt Financial Group Chesterfield MO MW SAIF NASDAQ 01/23/87 15.875
FFED Fidelity Federal Bancorp Evansville IN MW SAIF NASDAQ 08/31/87 10.750
PCCI Pacific Crest Capital Agoura Hills CA WE BIF NASDAQ NA 8.375
MWBX MetroWest Bank Framingham MA NE BIF NASDAQ 10/10/86 3.810
LARL Laurel Capital Group, Inc. Allison Park PA MA SAIF NASDAQ 02/20/87 14.500
COFD Collective Bancorp, Inc. Egg Harbor City NJ MA SAIF NASDAQ 02/07/84 23.500
FFES First Federal of East Hartford East Hartford CT NE SAIF NASDAQ 06/23/87 17.000
FSPG First Home Bancorp, Inc. Pennsville NJ MA SAIF NASDAQ 04/20/87 18.250
FMSB First Mutual Savings Bank Bellevue WA WE BIF NASDAQ 12/17/85 12.250
NASB North American Savings Bank Grandview MO MW SAIF NASDAQ 09/27/85 29.875
MAFB MAF Bancorp, Inc. Clarendon Hills IL MW SAIF NASDAQ 01/12/90 23.750
PSBK Progressive Bank, Inc. Fishkill NY MA BIF NASDAQ 08/01/84 29.000
HPBC Home Port Bancorp, Inc. Nantucket MA NE BIF NASDAQ 08/25/88 14.000
CBSA Coastal Bancorp, Inc. Houston TX SW SAIF NASDAQ NA 17.250
IPSW Ipswich Savings Bank Ipswich MA NE BIF NASDAQ 05/26/93 10.000
PFNC Progress Financial Corporation Plymouth Meeting PA MA SAIF NASDAQ 07/18/83 6.000
CBCO CB Bancorp, Inc. Michigan City IN MW SAIF NASDAQ 12/28/92 17.250
WRNB Warren Bancorp, Inc. Peabody MA NE BIF NASDAQ 07/09/86 12.000
DNFC D & N Financial Corp. Hancock MI MW SAIF NASDAQ 02/13/85 12.375
EQSB Equitable Federal Savings Bank Wheaton MD MA SAIF NASDAQ 09/10/93 24.250
KSBK KSB Bancorp, Inc. Kingfield ME NE BIF NASDAQ 06/24/93 20.455
LSBX Lawrence Savings Bank North Andover MA NE BIF NASDAQ 05/02/86 5.500
BFSI BFS Bankorp, Inc. New York NY MA SAIF NASDAQ 05/12/88 38.250
DIBK Dime Financial Corp. Wallingford CT NE BIF NASDAQ 07/09/86 14.625
SISB SIS Bancorp, Inc. Springfield MA NE BIF NASDAQ 02/08/95 17.560
WSFS WSFS Financial Corporation Wilmington DE MA BIF NASDAQ 11/26/86 7.000
PKPS Poughkeepsie Savings Bank, FSB Poughkeepsie NY MA SAIF NASDAQ 11/19/85 4.750
Maximum 59,500
Minimum 1,500
Average 18,496
Median 17,000
</TABLE>
Source: SNL & F&C calculations 5
<PAGE>
FERGUSON & CO., LLP Exhibit V - Selected Publicly Traded Thrifts
- -------------------
<TABLE>
<CAPTION>
Tangible ROAA ROACE
Current Price/ Current Current Current Total Equity/ Equity/ Core Before Before
Market LTM Price/ Price/ Price/ Div. Assets Assets T Assets EPS Extra Extra Merger
Value Core EPS B Value TB Value Assets Yield ($000) (%) (%) ($) (%) (%) Target?
Ticker ($M) (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CARV 19.09 24.26 54.89 57.57 5.27 0.000 362,369 9.60 9.20 0.34 0.21 2.15 N
HBNK 35.30 24.02 101.96 101.96 7.99 0.000 441,911 7.84 7.84 0.64 0.22 3.92 N
PMFI 35.42 23.82 98.68 98.68 9.50 1.702 374,039 9.64 9.64 0.74 0.41 4.09 N
HMCI 19.61 23.48 92.82 92.82 5.78 0.000 338,985 6.23 6.23 0.74 0.40 6.66 N
HZFS 6.27 23.33 75.03 75.03 8.68 2.286 72,225 11.57 11.57 0.60 0.46 3.71 N
HRBF 21.71 22.92 77.83 77.83 11.03 3.232 196,762 14.17 14.17 0.54 0.62 3.17 N
BVFS 240.98 22.58 116.90 132.48 7.11 1.714 3,388,847 6.08 5.41 1.55 0.14 2.04 N
MBLF 29.49 22.40 103.97 103.97 15.12 1.860 195,074 14.54 14.54 0.96 0.70 4.83 N
SJSB 19.65 22.22 111.73 111.73 13.04 2.000 150,752 11.67 11.67 0.90 0.63 5.00 N
WAYN 29.54 21.94 129.00 129.00 11.86 4.456 248,503 9.20 9.20 0.90 0.58 6.32 N
NSSY 53.27 21.88 119.93 119.93 9.58 0.914 541,702 7.98 7.98 1.00 0.76 8.88 N
OFCP 87.31 21.79 108.08 134.82 11.80 1.984 745,464 10.92 8.94 0.74 0.99 4.97 N
MFBC 29.12 21.38 77.27 77.27 13.83 1.627 210,559 17.90 17.90 0.69 0.73 3.69 N
FFSW 100.97 21.09 210.74 231.69 10.22 1.548 993,459 7.73 7.28 1.47 1.06 15.63 N
NTMG 5.13 20.71 92.47 92.47 6.02 0.000 85,194 6.51 6.51 0.35 0.66 11.05 N
FFBS 34.60 20.56 133.90 133.90 28.01 2.273 123,553 19.56 19.56 1.07 1.32 6.50 N
HARS 168.17 20.55 111.52 119.14 13.46 3.867 1,249,497 12.07 11.39 0.73 0.70 5.58 N
PULB 26.44 20.36 116.68 116.68 14.74 6.337 179,406 12.63 12.63 0.62 0.84 6.94 N
GTFN 365.23 20.28 134.18 136.39 15.23 1.864 2,477,204 11.35 11.19 1.27 1.00 8.18 N
FSNJ 42.87 20.00 86.58 86.58 6.58 3.571 651,945 7.60 7.60 0.70 0.11 1.20 N
FFHH 39.56 19.96 73.01 73.01 11.94 4.396 331,395 14.37 14.37 0.57 0.64 3.79 N
AVND 47.70 19.78 81.14 81.14 8.05 0.000 592,727 9.92 9.92 0.67 0.62 5.81 N
SCCB 11.96 19.75 95.24 95.24 27.11 3.750 44,088 28.47 28.47 0.81 1.35 4.50 N
FED 182.59 19.74 96.74 98.39 4.45 0.000 4,104,854 4.60 4.53 0.88 0.23 4.98 N
GWBC 14.72 19.70 83.12 83.12 20.66 3.077 71,260 24.86 24.86 0.66 1.05 4.05 N
LARK 29.99 19.46 90.12 90.12 15.51 2.602 193,403 17.20 17.20 0.79 0.92 5.34 N
SMBC 24.35 19.35 91.66 91.66 15.03 3.540 161,992 16.40 16.40 0.73 0.87 4.98 N
HFGI 33.38 19.34 173.14 173.14 6.25 0.000 321,756 3.61 3.61 0.53 0.42 11.98 N
EFBI 26.38 19.32 84.49 84.66 13.07 0.000 203,431 15.47 15.44 0.66 1.03 5.52 N
SBCN 21.84 19.16 84.38 84.38 11.08 4.068 197,137 13.01 13.01 0.77 0.39 2.95 N
CFCP 69.40 19.10 258.62 258.62 15.73 1.738 441,216 6.08 6.08 1.06 1.00 16.47 N
TRIC 10.96 18.95 86.71 86.71 15.46 2.778 73,436 17.83 17.83 0.95 0.94 4.69 N
INCB 12.22 18.93 86.32 86.32 12.93 2.642 94,476 14.98 14.98 0.70 0.67 4.39 N
FFFL 85.68 18.75 104.68 105.99 10.82 4.706 791,897 10.24 10.13 0.68 0.65 6.23 N
HHFC 10.74 18.75 83.10 83.10 14.71 3.333 73,005 17.71 17.71 0.64 0.80 4.31 N
CMSV 77.90 18.60 104.23 104.23 12.32 5.000 632,507 11.82 11.82 0.86 0.84 6.62 N
HBFW 43.28 18.45 93.37 93.37 15.34 1.290 312,758 16.42 16.42 0.84 0.86 4.97 N
CEBK 32.38 18.21 102.26 117.21 10.18 0.000 318,191 9.95 8.80 0.92 0.60 6.40 N
IBSF 149.91 18.17 100.55 100.55 20.02 1.761 748,745 19.91 19.91 0.75 1.05 4.99 N
KNK 27.24 18.10 76.86 82.82 7.53 2.105 363,182 9.80 9.15 1.05 0.50 4.53 N
FBSI 20.83 17.98 87.62 87.82 14.83 1.250 140,471 16.92 16.90 0.89 0.79 4.42 N
FCBF 44.60 17.93 94.52 94.52 17.44 4.056 255,660 18.46 18.46 0.99 1.03 5.37 N
MFFC 27.11 17.91 80.48 80.48 15.24 4.333 178,289 18.93 18.93 0.67 1.04 4.80 N
FFEC 102.83 17.86 106.84 111.36 15.30 1.867 672,300 14.32 13.82 0.84 0.97 5.85 N
PALM 64.62 17.68 122.65 129.04 10.36 0.646 623,553 8.45 8.07 0.70 0.66 8.53 N
SOPN 64.12 17.65 95.46 95.46 25.02 3.504 256,294 26.21 26.21 0.97 1.48 5.68 N
LBCI 57.90 17.58 90.46 90.71 8.89 2.567 651,198 9.83 9.81 1.33 0.55 5.61 N
FIBC 26.49 17.56 101.03 NA 10.09 2.034 262,497 9.99 NA 0.84 0.66 5.76 N
FFKY 84.31 17.54 170.94 183.32 24.02 2.400 351,010 14.04 13.22 1.14 1.65 11.50 N
PCBC 13.92 17.47 88.46 88.46 17.73 1.846 78,480 20.05 20.05 0.93 1.00 4.86 N
HBS 23.85 17.45 124.33 129.92 17.76 2.811 134,274 14.28 13.76 1.06 1.01 6.66 N
GLBK 4.08 17.37 69.65 69.65 11.36 0.000 35,903 16.31 16.31 0.95 0.78 4.98 N
ETFS 16.72 17.35 78.00 78.00 15.31 1.356 114,961 19.63 19.63 0.85 0.89 4.58 N
CNIT 53.13 17.25 113.63 118.02 7.93 2.429 667,465 6.98 6.73 1.91 0.44 6.14 N
STND 261.53 17.20 98.22 98.40 11.50 2.000 2,274,536 11.71 11.69 0.93 0.80 6.06 N
CTZN 218.89 17.11 125.73 145.06 8.43 0.831 2,597,886 6.70 5.86 2.25 0.68 9.62 N
</TABLE>
Source: SNL & F&C calculations
6
<PAGE>
FERGUSON & CO., LLP Exhibit V - Selected Publicly Traded Thrifts
- -------------------
<TABLE>
<CAPTION>
Tangible ROAA ROACE
Current Price/ Current Current Current Total Equity/ Equity/ Core Before Before
Market LTM Price/ Price/ Price/ Div. Assets Assets T Assets EPS Extra Extra Merger
Value Core EPS B Value TB Value Assets Yield ($000) (%) (%) ($) (%) (%) Target?
Ticker ($M) (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FFYF 120.60 17.05 117.90 117.90 21.63 2.513 573,162 18.35 18.35 1.40 1.21 6.50 N
NEBC 15.15 16.89 91.17 108.60 6.89 2.560 218,187 8.48 7.36 0.74 0.68 8.10 N
MWFD 25.62 16.87 153.67 161.09 14.37 1.912 178,249 9.35 8.96 0.93 1.20 12.27 N
FNGB 67.02 16.76 94.72 94.72 11.55 3.934 580,128 12.20 12.20 0.91 0.78 6.12 N
SFBM 29.61 16.74 92.17 107.03 8.22 3.160 360,021 8.92 7.78 1.21 0.69 8.01 N
HNFC 62.55 16.73 112.75 116.19 9.44 0.000 662,482 8.37 8.15 1.39 0.63 8.17 N
SECP 554.20 16.71 105.07 105.07 16.12 1.008 3,437,317 16.26 16.26 3.56 0.99 5.85 N
FFBI 7.31 16.67 92.98 92.98 8.25 0.000 88,615 8.88 8.88 0.93 0.70 6.53 N
MCBN 4.64 16.60 94.14 94.14 8.53 2.469 54,362 9.06 9.06 1.22 0.56 6.27 N
QCBC 50.53 16.56 76.02 76.46 7.51 0.000 692,974 9.88 9.83 0.80 0.50 4.90 N
LISB 696.04 16.51 133.43 133.43 13.33 1.426 5,221,019 9.99 9.99 1.70 0.93 8.78 N
FFFG 22.13 16.41 120.41 120.41 7.24 0.000 305,683 6.02 6.02 0.16 0.45 6.83 N
MARN 38.67 16.39 93.15 93.15 21.75 4.000 177,767 23.35 23.35 1.22 1.41 5.86 N
FCIT 50.29 16.27 128.25 128.25 8.05 0.000 624,118 6.28 6.28 1.06 0.71 11.36 N
CFHC 104.32 16.24 120.01 120.73 7.86 1.978 1,327,178 6.55 6.51 1.37 0.57 8.53 N
CSA 592.35 16.18 137.81 139.99 7.09 0.000 8,350,710 5.15 5.07 1.97 0.49 9.90 N
AADV 115.35 16.11 130.57 150.71 11.97 0.941 979,891 9.78 8.58 2.11 0.90 9.43 N
LFED 44.82 16.05 102.77 102.77 16.81 4.923 266,658 16.35 16.35 0.81 1.03 6.32 N
LVSB 46.45 16.02 102.55 133.55 10.20 1.220 455,155 9.95 7.82 1.28 1.15 10.25 N
EBCP 62.99 15.97 97.68 103.73 7.52 3.246 824,899 7.70 7.28 1.08 0.61 8.21 N
HVFD 34.27 15.93 121.54 121.87 10.09 3.000 339,630 8.30 8.28 1.13 0.65 7.98 N
MORG 10.20 15.91 97.15 97.15 14.24 1.959 71,654 14.66 14.66 0.77 0.97 6.38 N
FFSX 40.53 15.83 110.36 110.93 9.28 3.032 436,519 8.41 8.38 1.50 0.64 7.78 N
FBCI 45.42 15.82 91.23 91.55 9.94 1.548 456,896 10.90 10.87 0.98 0.74 5.68 N
GSLC 7.35 15.69 115.44 115.44 7.14 1.250 102,967 6.19 6.19 0.51 0.68 10.91 N
IFSB 9.59 15.63 56.78 65.96 3.64 2.933 263,735 6.40 5.56 0.48 0.49 7.71 N
CNSK 23.51 15.58 141.68 141.68 6.94 0.000 338,761 7.27 7.27 0.77 0.74 11.66 N
FFLC 47.14 15.38 83.57 83.57 14.19 2.222 332,087 16.98 16.98 1.17 0.94 5.51 N
STSA 73.25 15.34 119.47 149.01 4.89 0.000 1,497,617 5.83 5.04 0.88 0.45 7.72 N
NEIB 25.26 15.31 86.69 86.69 16.39 2.449 154,128 18.90 18.90 0.80 1.19 5.46 N
SFSB 21.68 15.27 84.02 84.56 6.00 1.855 362,272 7.14 7.10 1.13 0.51 6.97 N
THRD 59.63 15.25 77.95 77.95 12.09 2.306 519,196 14.31 14.31 0.91 0.92 5.60 N
JSBF 339.71 15.22 100.54 100.54 21.94 3.650 1,548,328 21.83 21.83 2.16 1.47 6.76 N
WCBI 55.71 15.18 115.49 115.49 17.85 2.259 312,158 15.45 15.45 1.40 1.30 8.37 N
SFFC 12.97 15.14 86.92 86.92 17.48 2.540 74,181 20.12 20.12 1.04 1.18 5.80 N
DSBC 103.83 15.09 126.90 131.38 8.31 0.701 1,247,739 6.55 6.34 2.27 0.66 10.25 N
FTFC 127.74 15.07 136.39 144.88 9.34 3.122 1,382,069 6.85 6.48 1.36 0.92 13.46 N
NSSB 77.51 14.97 107.04 118.61 11.32 3.339 711,628 10.57 9.64 0.96 0.83 7.38 N
PWBC 54.95 14.95 102.84 112.89 8.08 2.618 680,434 7.85 7.20 0.92 0.61 7.46 N
MFSL 89.32 14.80 96.83 98.34 8.12 2.207 1,128,449 8.39 8.27 1.96 0.79 9.61 N
WSTR 63.73 14.80 81.10 81.10 11.30 2.483 563,931 13.94 13.94 0.98 0.81 5.93 N
TWIN 14.60 14.77 103.57 103.57 14.25 3.938 102,423 13.76 13.76 1.10 1.08 7.84 N
ASBI 44.89 14.67 100.67 100.82 11.72 4.148 383,072 11.64 11.62 0.92 0.93 7.20 N
FKFS 21.81 14.67 94.64 94.64 7.84 0.000 278,204 8.28 8.28 1.15 0.48 5.49 N
MLFB 140.95 14.66 97.06 99.54 8.40 3.200 1,765,812 7.95 7.76 1.62 0.71 7.88 N
POBS 73.15 14.66 109.16 109.16 27.35 4.706 267,428 25.05 25.05 0.87 2.31 9.35 N
GFCO 22.09 14.57 83.40 85.44 8.07 3.358 273,890 9.67 9.46 1.39 0.56 5.82 N
HMNF 68.73 14.52 86.94 86.94 14.58 0.000 542,012 16.77 16.77 1.05 1.10 6.27 N
SFED 15.83 14.41 71.06 71.06 9.63 1.959 164,366 13.56 13.56 0.85 0.69 4.88 N
FFFC 88.17 14.38 96.78 98.78 17.03 2.462 517,754 16.32 16.04 1.13 1.25 7.22 N
JSBA 97.22 14.35 107.69 130.62 8.72 1.376 1,114,294 7.28 6.08 1.62 0.62 8.90 N
MSBB 46.76 14.35 82.67 213.73 5.56 3.636 840,552 8.21 4.26 1.15 0.47 NA N
HALL 21.64 14.29 81.61 81.61 6.38 0.000 339,283 7.82 7.82 1.05 0.57 6.40 N
KSAV 13.27 14.29 97.32 97.42 14.76 3.000 89,871 15.16 15.15 1.40 1.14 6.85 N
NMSB 28.49 14.29 89.29 89.29 9.21 2.857 309,363 10.31 10.31 0.49 0.75 6.71 N
FSLA 105.82 14.25 116.24 133.97 11.03 2.462 959,356 9.49 8.34 1.14 0.87 9.48 N
</TABLE>
Source: SNL & F&C calculations
7
<PAGE>
FERGUSON & CO., LLP Exhibit V - Selected Publicly Traded Thrifts
- -------------------
<TABLE>
<CAPTION>
Tangible ROAA ROACE
Current Price/ Current Current Current Total Equity/ Equity/ Core Before Before
Market LTM Price/ Price/ Price/ Div. Assets Assets T Assets EPS Extra Extra Merger
Value Core EPS B Value TB Value Assets Yield ($000) (%) (%) ($) (%) (%) Target?
Ticker ($M) (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HFFC 46.98 14.25 90.45 90.72 8.12 2.361 574,027 8.97 8.95 1.07 0.78 8.68 N
NWSB 265.90 14.22 137.38 144.72 14.16 2.813 1,877,529 10.15 9.69 0.80 1.01 9.47 N
PTRS 8.10 14.16 76.92 76.92 7.49 1.500 113,862 9.73 9.73 1.13 0.54 5.67 N
STFR 143.86 14.15 110.28 115.47 11.64 1.553 1,295,580 10.43 10.01 1.82 1.31 11.70 N
FSBI 23.23 14.05 105.85 106.72 7.71 1.882 301,442 7.28 7.23 1.21 0.60 7.73 N
LIFB 144.49 14.03 97.15 100.92 11.65 3.075 1,240,520 11.99 11.60 1.02 0.87 6.27 N
THBC 14.68 14.03 82.19 82.19 18.24 2.909 80,484 22.20 22.20 0.98 1.38 6.09 N
EGFC 110.66 14.00 107.98 149.21 7.70 3.755 1,428,558 7.14 5.27 1.75 1.29 17.83 N
MFLR 11.46 13.96 105.68 108.02 10.12 3.048 113,182 9.58 9.39 0.94 0.89 8.54 N
CENF 114.67 13.87 106.96 107.21 5.34 1.582 2,148,344 4.99 4.98 1.64 0.57 11.66 N
CASH 38.68 13.85 100.14 107.41 12.57 2.023 309,706 12.55 11.80 1.57 1.24 9.27 N
FFHS 16.90 13.81 83.29 84.16 7.80 2.207 216,508 9.37 9.28 1.05 0.62 6.56 N
SHEN 45.63 13.79 97.42 97.42 12.35 2.400 369,279 12.68 12.68 1.45 1.03 7.45 N
PBCT 841.05 13.72 146.50 NA 11.30 3.787 7,441,500 7.80 NA 1.54 1.13 14.32 N
SWBI 48.00 13.72 119.96 119.96 13.46 4.037 356,692 11.22 11.22 1.95 1.15 8.95 N
GRTR 140.57 13.64 96.51 96.51 5.53 0.000 2,540,811 7.90 7.90 0.77 0.73 7.88 N
RVSB 32.33 13.64 140.06 158.23 15.43 1.467 209,506 11.02 9.88 1.10 1.31 12.02 N
UBMT 22.02 13.64 89.46 89.46 21.06 4.889 104,574 23.53 23.53 1.32 1.50 6.64 N
FISB 191.81 13.60 141.01 142.92 13.02 2.422 1,473,094 9.24 9.12 1.70 1.19 13.57 N
BSBC 16.19 13.59 131.30 131.30 11.51 0.000 178,121 8.75 8.75 0.23 0.86 10.00 N
OHSL 23.74 13.54 93.57 93.57 11.62 3.897 205,462 12.42 12.42 1.44 0.95 7.51 N
CFX 102.14 13.50 110.02 122.62 9.96 0.000 1,025,771 9.05 8.19 1.00 1.00 10.23 N
BFSB 19.45 13.40 99.35 99.35 17.02 2.388 117,596 16.10 16.10 1.25 1.26 7.56 N
FLAG 23.35 13.36 108.14 108.14 10.33 2.925 225,960 9.56 9.56 0.87 0.92 9.91 N
GPT 1,560.13 13.35 92.87 166.22 11.03 2.560 14,150,594 10.36 6.07 2.34 0.88 7.40 N
SMFC 28.16 13.32 82.95 82.95 10.05 0.000 280,027 10.99 10.99 1.22 0.85 6.89 N
QCSB 283.64 13.31 134.29 134.29 22.80 2.837 1,259,485 16.98 16.98 3.53 1.74 9.88 N
BKCT 55.13 13.30 128.72 128.72 13.59 3.454 405,761 10.56 10.56 1.56 1.18 10.70 N
IFSL 90.01 13.29 127.69 137.48 12.54 3.789 717,720 9.82 9.19 1.43 1.02 10.75 N
ABCW 166.96 13.27 143.75 147.63 9.70 1.449 1,754,556 6.75 6.58 2.60 0.88 12.13 N
PBKB 30.90 13.21 112.80 119.20 5.80 3.027 533,134 4.93 4.68 0.70 0.80 12.24 N
DSL 379.77 13.08 96.90 98.57 8.06 2.145 4,712,294 8.32 8.19 1.71 0.69 8.44 N
RELY 147.79 13.06 96.20 141.89 8.29 2.841 1,782,550 8.62 6.01 1.24 0.86 7.63 N
DME 1,302.28 13.03 131.30 NA 6.66 0.000 19,544,289 5.08 NA 0.94 0.38 7.94 N
FRC 93.75 13.01 81.84 NA 4.54 0.000 2,064,209 5.55 NA 0.98 0.46 7.95 N
PBCI 62.34 13.01 110.27 111.24 17.05 4.737 365,553 15.47 15.36 1.46 1.34 8.52 N
WAMU 2,653.51 13.01 186.57 208.67 11.89 2.499 22,323,472 7.38 6.76 2.83 1.04 15.64 N
CFSB 87.10 13.00 133.84 133.84 11.00 2.462 791,610 8.22 8.22 1.50 0.96 11.70 N
CFFC 26.35 12.97 120.29 120.29 16.49 2.506 159,793 13.71 13.71 1.60 1.30 9.71 N
SSBK 55.68 12.87 130.87 133.58 10.52 2.182 529,187 8.04 7.89 1.71 0.99 11.84 N
TCB 1,248.37 12.78 231.98 242.50 17.83 2.158 7,000,871 7.48 7.18 2.72 1.43 20.12 N
WFCO 26.32 12.74 124.88 128.14 9.30 3.170 282,833 7.45 7.28 1.04 0.94 12.39 N
RARB 30.05 12.73 120.03 123.11 8.69 2.840 346,841 7.24 7.07 1.66 0.82 10.69 N
UFRM 25.29 12.69 121.15 121.15 10.03 2.424 252,170 8.27 8.27 0.65 0.87 11.31 N
SPBC 427.22 12.63 113.75 114.13 9.85 2.021 4,337,546 8.66 8.63 1.88 0.91 9.81 N
FFWD 19.86 12.62 97.98 97.98 14.29 1.864 139,718 14.60 14.60 1.02 1.17 8.14 N
CIBI 10.52 12.61 88.60 88.60 12.26 2.667 85,785 13.84 13.84 1.19 1.01 6.98 N
CBNH 43.61 12.59 115.46 NA 7.98 3.333 546,725 6.94 NA 1.43 0.81 11.13 N
PULS 52.98 12.59 134.69 134.69 10.49 4.029 505,034 7.79 7.79 1.38 1.19 10.28 N
MGNL 256.07 12.54 203.57 215.17 19.57 3.211 1,308,657 9.61 9.14 2.98 1.71 17.51 N
HSBK 23.48 12.50 95.12 95.12 6.19 1.982 355,071 6.51 6.51 1.13 0.68 9.94 N
WSB 22.16 12.50 105.63 105.63 8.69 1.905 254,968 8.22 8.22 0.42 0.94 12.56 N
LSBI 13.77 12.40 77.32 77.32 8.90 2.133 162,520 10.66 10.66 1.21 0.83 6.94 N
HAVN 124.20 12.39 132.06 132.86 8.01 2.087 1,550,275 6.07 6.03 2.32 0.74 11.42 N
MIVI 10.53 12.36 79.83 79.83 15.05 1.455 69,983 18.86 18.86 0.89 1.32 6.73 N
GSBC 122.50 12.33 183.68 186.78 18.59 2.534 658,997 10.12 9.97 2.24 1.74 17.18 N
</TABLE>
Source: SNL & F&C calculations
8
<PAGE>
FERGUSON & CO., LLP Exhibit V - Selected Publicly Traded Thrifts
- -------------------
<TABLE>
<CAPTION>
Tangible ROAA ROACE
Current Price/ Current Current Current Total Equity/ Equity/ Core Before Before
Market LTM Price/ Price/ Price/ Div. Assets Assets T Assets EPS Extra Extra Merger
Value Core EPS B Value TB Value Assets Yield ($000) (%) (%) ($) (%) (%) Target?
Ticker ($M) (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FBBC 109.23 12.27 93.93 93.93 19.14 1.495 570,649 20.37 20.37 1.09 1.62 7.34 N
CVAL 28.83 12.25 114.71 114.71 10.50 2.192 274,575 9.15 9.15 1.49 0.91 10.03 N
ASFC 545.80 12.20 97.18 119.47 7.71 1.734 7,078,383 7.93 6.55 2.08 0.74 8.55 N
FLFC 82.04 12.20 121.73 144.98 8.31 2.537 981,694 7.60 6.58 1.68 1.03 14.27 N
GWF 3,280.25 12.18 129.12 146.74 7.50 4.188 43,719,958 6.48 5.83 1.96 0.72 11.97 N
PBNB 41.58 12.15 95.36 103.04 10.31 4.206 406,276 10.81 10.09 1.80 0.85 7.81 N
GFSB 10.32 12.13 103.74 103.74 12.39 1.975 83,305 11.94 11.94 1.67 1.16 9.19 N
ALBK 334.72 12.11 105.71 119.67 10.07 1.906 3,325,592 9.52 8.51 2.08 0.97 9.50 N
GBCI 71.40 12.07 186.24 186.57 17.93 3.012 398,220 9.63 9.61 1.76 1.59 16.25 N
MSBF 11.49 12.06 90.14 90.14 20.40 2.941 56,317 22.6 22.63 1.41 1.92 7.79 N
YFED 98.31 11.95 106.77 106.77 9.38 3.692 1,048,673 8.7 8.78 1.36 0.97 11.42 N
NWEQ 10.05 11.92 80.46 80.46 11.64 3.902 86,355 13.7 13.74 0.86 1.06 6.95 N
PSAB 67.05 11.92 115.53 123.20 10.40 3.778 644,560 9.0 8.49 1.51 1.02 10.90 N
FSFC 41.69 11.88 55.23 55.23 10.84 1.684 359,481 19.6 19.62 0.80 0.90 4.59 N
FFSL 10.94 11.87 83.82 83.82 10.34 2.133 105,771 12.3 12.34 1.58 1.10 8.51 N
CBCI 67.23 11.86 83.51 83.51 13.42 0.000 500,814 16.0 16.08 2.34 1.31 7.85 N
ROSE 243.47 11.77 117.66 117.66 7.92 2.636 3,073,458 6.2 6.21 2.32 0.92 13.94 N
PFSL 23.35 11.69 106.30 106.30 6.32 5.517 369,379 5.9 5.95 1.24 0.56 9.45 N
IWBK 158.84 11.67 164.83 169.48 11.23 2.112 1,413,926 6.8 6.64 2.11 1.11 15.69 N
RCSB 304.02 11.67 119.69 123.93 7.51 1.959 4,048,684 8.6 8.42 2.10 1.01 11.62 N
WVFC 36.46 11.67 100.38 100.38 15.18 1.905 240,282 15.1 15.12 1.80 1.23 8.09 N
MERI 24.39 11.62 140.63 140.63 10.68 1.905 228,419 7.5 7.59 2.71 1.01 13.70 N
CAFI 37.26 11.61 130.15 130.15 10.84 2.433 343,711 8.3 8.33 1.55 1.22 15.56 N
HRZB 85.73 11.61 107.26 107.26 17.37 3.077 493,499 16.2 16.20 1.12 1.54 9.56 N
PFSB 77.78 11.60 81.89 103.37 8.00 0.000 1,022,777 8.9 7.24 1.39 0.74 7.04 N
GDW 3,164.08 11.55 133.95 142.25 8.84 0.696 35,775,375 6.6 6.24 4.73 0.81 12.46 N
FGHC 12.14 11.54 102.39 115.83 8.54 0.000 142,133 8.1 7.29 0.52 0.87 10.61 N
SOSA 24.98 11.54 87.72 87.72 4.88 0.000 511,390 5.5 5.56 0.13 0.42 7.83 N
NHTB 16.71 11.48 85.94 85.94 6.61 5.063 252,481 7.6 7.69 0.86 0.58 7.41 N
COFI 1,614.73 11.46 172.81 NA 11.57 2.564 13,951,846 6.7 NA 3.13 0.42 6.39 N
FFPB 106.21 11.39 93.48 95.88 7.39 1.951 1,438,024 7.9 7.72 1.80 0.73 8.92 N
PFDC 45.15 11.39 105.83 105.83 16.15 2.909 280,778 15.2 15.26 1.69 1.45 9.58 N
WBST 234.94 11.28 118.76 155.66 6.12 2.483 3,837,220 5.5 4.43 2.57 0.60 11.00 N
FFBZ 19.22 11.24 152.74 152.93 11.10 1.796 173,191 7.8 7.80 2.18 1.10 14.88 N
SFB 1,217.73 11.24 126.46 161.51 7.99 2.058 15,239,983 6.3 5.02 3.46 0.95 14.09 N
SWCB 37.73 11.21 101.88 108.49 8.39 4.985 449,889 8.2 7.77 1.79 0.86 10.69 N
HARB 120.85 11.14 142.11 147.59 11.92 4.898 1,014,013 8.3 8.10 2.20 1.18 13.57 N
NFSL 29.90 11.14 159.41 160.41 18.46 2.146 160,656 11.5 11.51 1.84 1.89 17.69 N
FFCH 117.77 11.08 123.01 123.01 8.13 3.459 1,449,162 6.6 6.61 1.67 0.75 11.29 N
PLE 14.90 11.02 97.90 101.52 8.02 4.299 185,793 8.1 7.93 1.52 0.79 10.34 N
PVFC 32.14 10.92 150.69 150.69 10.10 0.000 318,100 6.7 6.70 1.90 1.13 17.86 N
WFSL 876.61 10.92 146.75 154.05 17.39 4.434 5,040,588 11.8 11.36 1.90 1.78 14.47 N
BKCO 228.70 10.90 121.68 124.30 11.94 3.580 1,915,528 9.8 9.62 1.64 1.13 11.42 N
BANC 152.05 10.82 110.52 120.33 9.20 1.367 1,642,825 8.3 7.70 1.19 1.08 15.12 N
MIFC 10.73 10.81 99.30 99.45 9.31 1.255 115,260 9.3 9.36 0.59 0.93 10.00 N
MASB 90.44 10.80 104.17 104.17 10.38 2.887 858,922 10.1 10.16 3.08 1.05 10.32 N
FBHC 13.90 10.69 79.07 79.07 5.69 1.647 244,169 7.2 7.20 1.59 0.71 9.84 N
FOBC 33.90 10.69 79.20 83.49 9.88 4.075 343,028 12.0 11.46 1.24 1.00 7.92 N
SFSL 50.32 10.40 123.06 126.55 10.72 3.088 469,656 8.7 8.49 1.37 1.18 13.51 N
CAPS 18.45 10.33 91.89 91.89 9.59 1.926 202,554 10.4 10.43 1.81 0.95 8.96 N
FFWC 14.41 10.32 89.61 89.61 9.68 3.077 148,892 10.8 10.80 1.89 0.90 8.07 N
MDBK 96.29 10.32 108.97 119.52 9.69 3.200 993,467 8.8 8.17 2.06 1.04 11.68 N
CTBK 12.23 10.25 80.42 80.42 5.69 1.829 214,975 7.0 7.08 1.28 0.56 8.07 N
GROV 46.27 10.20 123.15 123.30 7.84 2.400 590,405 6.3 6.36 2.94 0.87 13.91 N
MWBI 8.87 10.19 95.90 95.90 6.40 2.049 138,628 6.6 6.67 2.49 1.01 14.64 N
NYB 311.72 10.16 196.84 196.84 10.68 2.949 2,918,120 5.4 5.43 2.67 1.27 21.80 N
</TABLE>
Source: SNL & F&C calculations 9
<PAGE>
FERGUSON & CO., LLP Exhibit V - Selected Publicly Traded Thrifts
- -------------------
<TABLE>
<CAPTION>
Tangible ROAA ROACE
Current Price/ Current Current Current Total Equity/ Equity/ Core Before Before
Market LTM Price/ Price/ Price/ Div. Assets Assets T Assets EPS Extra Extra Merger
Value Core EPS B Value TB Value Assets Yield ($000) (%) (%) ($) (%) (%) Target?
Ticker ($M) (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HIFS 18.98 10.02 104.09 104.09 10.16 2.462 186,724 9.76 9.76 1.46 1.10 10.64 N
VFFC 65.98 9.96 119.78 124.21 9.24 0.851 713,931 7.72 7.46 1.18 1.21 16.02 N
AMFB 173.51 9.92 160.68 174.26 12.95 2.520 1,339,147 8.21 7.62 1.60 1.42 17.61 N
MCBS 36.59 9.92 95.38 95.53 12.58 2.254 290,903 12.52 12.51 1.79 1.40 10.14 N
CFB 553.72 9.85 138.31 153.96 8.37 1.088 6,617,488 6.05 5.47 3.73 0.84 15.33 N
HARL 22.57 9.78 113.78 113.78 7.57 2.286 298,172 6.65 6.65 1.79 0.81 11.83 N
EBSI 67.14 9.77 117.44 117.44 10.98 4.068 611,512 9.35 9.35 1.51 0.98 13.09 N
HOMF 58.72 9.77 116.76 121.43 9.67 1.896 606,266 8.29 7.99 2.70 1.20 15.05 N
FMCO 39.17 9.74 114.13 116.99 7.56 1.260 517,943 6.63 6.48 1.63 0.83 12.68 N
FFHC 657.92 9.69 161.29 169.10 11.79 2.727 5,579,294 7.31 7.00 2.27 1.32 18.73 N
FESX 64.24 9.66 103.06 103.06 7.62 4.518 842,903 7.40 7.40 1.10 0.99 13.37 N
FFRV 29.34 9.61 107.20 107.29 9.13 1.553 321,558 8.51 8.50 1.34 0.99 12.15 N
LOAN 11.44 9.59 107.28 110.89 8.74 1.939 130,930 8.55 8.29 0.86 1.47 16.04 N
AFFFZ 165.29 9.58 107.76 110.35 7.08 5.818 2,333,113 6.80 6.65 2.87 0.81 12.57 N
PVSA 82.10 9.50 117.69 118.19 8.93 2.049 919,242 7.59 7.56 2.67 1.06 15.13 N
ANDB 97.75 9.43 110.21 110.21 8.33 2.609 1,173,956 7.56 7.56 2.44 0.97 12.75 N
WLDN 99.08 9.36 101.89 118.33 9.42 3.436 1,051,743 9.25 8.07 1.99 1.03 11.09 N
SVRN 477.14 9.34 124.19 182.98 5.20 0.873 9,183,447 5.02 3.79 1.03 0.79 17.03 N
PHBK 500.35 9.24 136.60 152.77 11.45 3.421 4,371,709 8.38 7.56 2.15 1.14 13.37 N
IROQ 35.35 9.20 123.56 137.99 7.51 2.133 470,710 7.07 6.48 1.63 0.96 14.40 N
RFED 669.06 9.18 144.58 NA 7.17 3.906 9,327,772 5.54 NA 1.73 0.64 13.33 N
FFED 26.82 9.11 188.60 188.60 9.57 7.442 280,138 5.08 5.08 1.18 1.29 25.83 N
PCCI 24.79 9.10 105.88 105.88 8.53 0.000 290,443 8.06 8.06 0.92 1.31 19.77 N
MWBX 52.89 9.07 148.25 148.25 11.07 2.625 477,665 7.48 7.48 0.42 1.26 17.00 N
LARL 21.87 9.06 106.15 106.15 11.33 3.034 193,008 10.68 10.68 1.60 1.35 13.23 N
COFD 478.79 8.90 131.43 140.80 9.31 4.255 5,145,471 7.08 6.64 2.64 1.07 15.71 N
FFES 44.15 8.85 76.23 76.51 4.72 3.529 933,433 6.20 6.18 1.92 0.60 8.81 N
FSPG 37.05 8.82 121.91 125.34 7.94 2.630 466,363 6.52 6.35 2.07 1.01 15.60 N
FMSB 29.97 8.81 121.65 121.65 8.08 1.633 370,986 6.64 6.64 1.39 1.03 15.31 N
NASB 68.00 8.81 139.34 145.17 10.24 2.093 664,250 7.35 7.07 3.39 1.33 18.15 N
MAFB 245.59 8.80 101.41 114.07 7.88 1.347 3,117,149 7.77 6.97 2.70 0.72 10.17 N
PSBK 76.76 8.79 106.85 122.99 8.51 2.759 901,690 7.97 7.00 3.30 1.10 12.30 N
HPBC 25.79 8.48 134.23 134.23 14.29 5.714 180,451 10.65 10.65 1.65 1.79 15.71 N
CBSA 85.60 8.37 91.32 110.36 3.06 2.319 2,796,568 3.40 2.83 2.06 0.40 11.69 N
IPSW 11.78 8.33 135.50 135.50 7.81 2.000 150,962 5.76 5.76 1.20 1.30 21.16 N
PFNC 22.38 8.33 114.72 115.61 6.43 1.333 347,858 5.61 5.57 0.72 0.91 18.78 N
CBCO 20.27 8.21 104.93 104.93 10.36 0.000 195,658 9.87 9.87 2.10 1.38 14.64 N
WRNB 44.20 8.11 140.19 140.19 12.65 3.667 349,421 9.03 9.03 1.48 1.70 19.56 N
DNFC 93.61 7.73 120.15 121.80 6.86 0.000 1,364,024 5.79 5.71 1.60 1.08 19.53 N
EQSB 14.55 7.46 106.59 106.59 5.59 0.000 260,134 5.25 5.25 3.25 0.84 16.13 N
KSBK 8.41 6.98 92.98 100.42 6.35 0.978 132,533 6.82 6.35 2.93 0.89 13.42 N
LSBX 23.35 6.96 95.49 95.49 7.22 0.000 323,523 7.56 7.56 0.79 1.15 14.78 N
BFSI 62.56 6.64 128.66 128.66 10.07 0.000 621,324 7.83 7.83 5.76 1.84 24.09 N
DIBK 74.61 6.36 131.99 138.36 10.83 2.188 688,993 8.20 7.86 2.30 1.64 21.02 N
SISB 100.49 6.25 109.96 109.96 8.31 0.000 1,209,843 7.19 7.19 2.81 1.38 19.41 N
WSFS 96.83 5.65 130.60 132.08 7.38 0.000 1,312,864 5.65 5.59 1.24 2.20 38.10 N
PKPS 59.61 3.28 84.07 84.07 7.09 2.105 840,491 8.44 8.44 1.45 1.70 21.07 N
Maximum 3,280.25 24.26 258.62 258.62 28.01 7.442 43,719,958 28.47 28.47 5.76 2.31 38.10
Minimum 4.08 3.28 54.89 55.23 3.06 - 35,903 3.40 2.83 0.13 0.11 1.20
Average 149.53 13.86 110.90 115.51 11.03 2.289 1,563,912 10.40 10.23 1.44 0.95 9.99
Median 45.63 13.36 105.88 110.09 10.10 2.273 441,911 8.97 8.55 1.24 0.93 8.96
</TABLE>
Source: SNL & F&C calculations 10
<PAGE>
FERGUSON & CO., LLP Exhibit V - Selected Publicly Traded Thrifts
- -------------------
<TABLE>
<CAPTION>
ROAA ROACE
NPAs/ Price/ Core Before Before
Current Assets Core EPS Extra Extra
Pricing (%) EPS ($) (%) (%)
Ticker Date MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C>
CARV 07/30/96 NA 18.75 0.11 0.29 3.02
HBNK 07/30/96 1.98 14.78 0.26 0.54 7.00
PMFI 07/30/96 0.65 20.98 0.21 0.46 4.75
HMCI 07/30/96 NA 18.89 0.23 0.48 7.85
HZFS 07/30/96 1.42 NM (0.16) (0.35) (2.93)
HRBF 07/30/96 0.23 34.38 0.09 0.35 2.15
BVFS 07/30/96 0.93 12.68 0.69 0.54 8.23
MBLF 07/30/96 0.33 20.67 0.26 0.73 5.11
SJSB 07/30/96 0.29 27.78 0.18 0.46 3.84
WAYN 07/30/96 0.93 18.29 0.27 0.66 7.05
NSSY 07/30/96 2.90 15.19 0.36 0.71 8.32
OFCP 07/30/96 0.29 17.53 0.23 0.92 6.42
MFBC 07/30/96 NA 17.56 0.21 0.82 4.43
FFSW 07/30/96 0.15 20.39 0.38 1.07 16.08
NTMG 07/30/96 1.47 15.10 0.12 0.74 11.94
FFBS 07/30/96 0.43 19.64 0.28 1.43 7.13
HARS 07/30/96 0.75 26.79 0.14 0.55 4.51
PULB 07/30/96 0.45 17.53 0.18 0.95 7.52
GTFN 07/30/96 0.44 18.93 0.34 1.06 9.02
FSNJ 07/30/96 0.81 16.67 0.21 0.50 6.42
FFHH 07/30/96 0.07 13.54 0.21 0.82 5.49
AVND 07/30/96 NA 19.49 0.17 0.64 6.22
SCCB 07/30/96 NA 19.05 0.21 1.38 4.75
FED 07/30/96 2.52 13.57 0.32 0.33 7.08
GWBC 07/30/96 0.08 21.67 0.15 0.94 3.76
LARK 07/30/96 0.15 21.35 0.18 0.90 5.11
SMBC 07/30/96 0.97 14.13 0.25 1.13 6.84
HFGI 07/30/96 0.43 23.30 0.11 0.77 21.46
EFBI 07/30/96 0.01 18.75 0.17 0.91 5.88
SBCN 07/30/96 0.20 30.73 0.12 (0.41) (3.08)
CFCP 07/30/96 0.18 18.75 0.27 1.07 17.64
TRIC 07/30/96 0.18 18.00 0.25 0.89 4.73
INCB 07/30/96 NA 23.66 0.14 0.54 3.53
FFFL 07/30/96 0.38 18.75 0.17 0.76 7.34
HHFC 07/30/96 0.20 21.43 0.14 0.63 3.47
CMSV 07/30/96 1.24 16.67 0.24 0.83 6.77
HBFW 07/30/96 0.00 16.85 0.23 0.85 5.01
CEBK 07/30/96 2.31 14.44 0.29 0.75 7.68
IBSF 07/30/96 0.07 18.92 0.18 0.98 4.89
KNK 07/30/96 0.20 18.27 0.26 0.44 4.39
FBSI 07/30/96 0.09 17.39 0.23 0.82 4.79
FCBF 07/30/96 NA 15.85 0.28 1.06 5.58
MFFC 07/30/96 0.19 18.75 0.16 0.88 4.54
FFEC 07/30/96 0.13 17.86 0.21 0.69 4.68
PALM 07/30/96 4.14 20.63 0.15 0.69 8.38
SOPN 07/30/96 0.03 17.13 0.25 1.52 5.83
LBCI 07/30/96 0.06 18.85 0.31 0.50 5.18
FIBC 07/30/96 NA 13.17 0.28 0.79 7.61
FFKY 07/30/96 0.07 16.67 0.30 1.61 11.33
PCBC 07/30/96 0.04 18.47 0.22 0.91 4.44
HBS 07/30/96 2.45 15.95 0.29 1.11 7.79
GLBK 07/30/96 0.00 29.46 0.14 0.87 5.47
ETFS 07/30/96 0.45 21.69 0.17 0.74 3.81
CNIT 07/30/96 0.44 12.67 0.65 0.74 10.31
STND 07/30/96 NA 16.67 0.24 0.68 5.71
CTZN 07/30/96 0.85 13.37 0.72 0.74 10.61
</TABLE>
Source: SNL & F&C calculations 11
<PAGE>
FERGUSON & CO.,LLP Exhibit V - Selected Publicly Traded Thrifts
- ------------------
<TABLE>
<CAPTION>
ROAA ROACE
NPAs/ Price/ Core Before Before
Current Assets Core EPS Extra Extra
Pricing (%) EPS ($) (%) (%)
Ticker Date MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C>
FFYF 07/30/96 0.88 16.13 0.37 1.10 6.03
NEBC 07/30/96 NA 19.53 0.16 0.56 6.42
MWFD 07/30/96 0.26 15.09 0.26 1.28 13.38
FNGB 07/30/96 0.17 15.25 0.25 0.82 6.62
SFBM 07/30/96 0.11 18.08 0.28 0.71 7.92
HNFC 07/30/96 0.13 14.53 0.40 0.68 8.25
SECP 07/30/96 0.11 13.90 1.07 1.20 7.22
FFBI 07/30/96 0.32 193.75 0.02 0.06 0.61
MCBN 07/30/96 1.10 21.09 0.24 0.50 5.46
QCBC 07/30/96 2.31 14.40 0.23 0.54 5.46
LISB 07/30/96 NA 17.11 0.41 0.90 8.71
FFFG 07/30/96 3.77 16.41 0.04 0.07 1.21
MARN 07/30/96 1.07 15.15 0.33 1.41 5.95
FCIT 07/30/96 3.43 23.96 0.18 0.70 11.04
CFHC 07/30/96 1.26 10.30 0.54 0.89 13.41
CSA 07/30/96 1.59 15.94 0.50 0.37 7.30
AADV 07/30/96 0.56 15.74 0.54 0.92 9.19
LFED 07/30/96 0.01 14.13 0.23 1.17 7.07
LVSB 07/30/96 1.89 11.14 0.46 1.35 12.79
EBCP 07/30/96 1.81 15.97 0.27 0.73 9.56
HVFD 07/30/96 0.77 13.24 0.34 0.74 8.83
MORG 07/30/96 0.07 14.58 0.21 0.95 6.42
FFSX 07/30/96 0.14 14.14 0.42 0.71 8.26
FBCI 07/30/96 0.61 13.84 0.28 0.76 6.42
GSLC 07/30/96 3.14 18.18 0.11 0.79 12.35
IFSB 07/30/96 NA 62.50 0.03 0.33 5.09
CNSK 07/30/96 1.42 15.00 0.20 0.77 11.01
FFLC 07/30/96 0.13 14.52 0.31 0.96 5.65
STSA 07/30/96 0.63 13.50 0.25 0.50 8.61
NEIB 07/30/96 NA 12.76 0.24 1.25 6.41
SFSB 07/30/96 0.25 15.97 0.27 0.46 6.36
THRD 07/30/96 0.35 12.85 0.27 1.08 7.53
JSBF 07/30/96 NA 14.68 0.56 1.58 7.21
WCBI 07/30/96 0.30 13.98 0.38 1.37 8.76
SFFC 07/30/96 NA 14.58 0.27 1.18 5.91
DSBC 07/30/96 1.77 13.38 0.64 0.70 10.36
FTFC 07/30/96 NA 16.53 0.31 0.89 12.58
NSSB 07/30/96 1.92 14.38 0.25 0.81 7.45
PWBC 07/30/96 0.64 17.19 0.20 0.61 7.37
MFSL 07/30/96 0.20 13.43 0.54 0.67 8.05
WSTR 07/30/96 NA 12.95 0.28 0.85 6.27
TWIN 07/30/96 0.42 13.10 0.31 1.18 8.38
ASBI 07/30/96 0.47 13.50 0.25 0.97 7.85
FKFS 07/30/96 2.86 11.10 0.38 0.71 8.22
MLFB 07/30/96 0.59 17.46 0.34 0.64 7.64
POBS 07/30/96 0.19 15.94 0.20 2.23 9.10
GFCO 07/30/96 0.51 13.68 0.37 0.53 5.53
HMNF 07/30/96 0.14 14.66 0.26 1.18 6.88
SFED 07/30/96 0.67 12.76 0.24 0.71 5.15
FFFC 07/30/96 0.48 14.01 0.29 1.07 7.49
JSBA 07/30/96 0.97 14.90 0.39 0.71 9.87
MSBB 07/30/96 NA 18.75 0.22 0.43 NA
HALL 07/30/96 0.06 11.03 0.34 0.61 7.54
KSAV 07/30/96 0.73 13.89 0.36 1.12 7.02
NMSB 07/30/96 2.04 12.50 0.14 0.81 7.44
FSLA 07/30/96 0.93 12.70 0.32 0.92 9.66
</TABLE>
Source: SNL & F&C calculations 12
<PAGE>
FERGUSON & CO., LLP Exhibit V - Selected Publicly Traded Thrifts
- -------------------
<TABLE>
<CAPTION>
ROAA ROACE
NPAs/ Price/ Core Before Before
Current Assets Core EPS Extra Extra
Pricing (%) EPS ($) (%) (%)
Ticker Date MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C>
HFFC 07/30/96 0.69 11.55 0.33 1.02 11.15
NWSB 07/30/96 NA 13.54 0.21 0.99 9.50
PTRS 07/30/96 2.49 200.00 0.02 0.03 0.36
STFR 07/30/96 0.03 12.88 0.50 1.36 12.42
FSBI 07/30/96 0.81 11.81 0.36 0.71 9.36
LIFB 07/30/96 NA 12.78 0.28 0.88 7.13
THBC 07/30/96 0.51 12.73 0.27 1.42 6.27
EGFC 07/30/96 1.23 47.12 0.13 2.32 34.19
MFLR 07/30/96 1.23 13.13 0.25 0.84 8.60
CENF 07/30/96 1.39 10.34 0.55 0.57 11.44
CASH 07/30/96 0.39 13.59 0.40 0.93 7.49
FFHS 07/30/96 0.43 13.43 0.27 0.61 6.46
SHEN 07/30/96 0.46 12.50 0.40 1.00 7.63
PBCT 07/30/96 1.37 14.27 0.37 1.02 12.99
SWBI 07/30/96 0.13 13.11 0.51 1.12 9.40
GRTR 07/30/96 NA 15.44 0.17 0.66 6.64
RVSB 07/30/96 0.26 12.93 0.29 1.57 14.33
UBMT 07/30/96 NA 17.31 0.26 1.16 5.09
FISB 07/30/96 1.59 14.45 0.40 1.33 14.47
BSBC 07/30/96 2.05 13.02 0.06 0.96 10.97
OHSL 07/30/96 0.03 13.54 0.36 0.89 7.05
CFX 07/30/96 NA 10.89 0.31 1.04 11.31
BFSB 07/30/96 0.00 11.96 0.35 1.37 8.45
FLAG 07/30/96 1.69 12.64 0.23 1.04 11.10
GPT 07/30/96 2.86 11.84 0.66 1.04 9.92
SMFC 07/30/96 0.06 10.98 0.37 0.88 7.66
QCSB 07/30/96 0.48 12.91 0.91 1.70 9.88
BKCT 07/30/96 1.59 12.97 0.40 1.20 11.13
IFSL 07/30/96 1.27 13.57 0.35 0.91 9.27
ABCW 07/30/96 0.61 12.50 0.69 0.88 12.65
PBKB 07/30/96 1.21 17.79 0.13 0.75 12.20
DSL 07/30/96 1.33 12.16 0.46 0.67 8.07
RELY 07/30/96 NA 10.65 0.38 0.82 9.35
DME 07/30/96 NA 10.94 0.28 0.59 11.72
FRC 07/30/96 NA 9.96 0.32 0.59 10.62
PBCI 07/30/96 NA 14.84 0.32 1.14 7.34
WAMU 07/30/96 0.55 11.95 0.77 1.10 16.58
CFSB 07/30/96 0.08 12.19 0.40 0.95 11.45
CFFC 07/30/96 0.45 14.82 0.35 1.12 8.15
SSBK 07/30/96 NA 11.46 0.48 0.96 11.80
TCB 07/30/96 0.82 11.90 0.73 1.54 20.22
WFCO 07/30/96 0.40 11.04 0.30 0.87 11.34
RARB 07/30/96 0.48 11.48 0.46 0.86 11.44
UFRM 07/30/96 0.19 17.19 0.12 0.72 8.70
SPBC 07/30/96 0.40 11.00 0.54 0.96 10.76
FFWD 07/30/96 0.04 12.88 0.25 1.15 7.95
CIBI 07/30/96 0.73 12.93 0.29 0.93 6.50
CBNH 07/30/96 NA 10.98 0.41 0.94 13.28
PULS 07/30/96 1.12 12.07 0.36 1.16 10.56
MGNL 07/30/96 NA 11.83 0.79 1.68 17.30
HSBK 07/30/96 0.27 70.63 0.05 0.14 2.11
WSB 07/30/96 NA 11.93 0.11 0.80 9.78
LSBI 07/30/96 0.19 11.03 0.34 0.86 7.81
HAVN 07/30/96 1.02 11.23 0.64 0.80 12.80
MIVI 07/30/96 0.08 14.47 0.19 1.01 5.17
GSBC 07/30/96 2.03 10.16 0.68 1.98 19.63
</TABLE>
Source SNL & F&C calculations 13
<PAGE>
FERGUSON & CO., LLP Exhibit V - Selected Publicly Traded Thrifts
- -------------------
<TABLE>
<CAPTION>
ROAA ROACE
NPAs/ Price/ Core Before Before
Current Assets Core EPS Extra Extra
Pricing (%) EPS ($) (%) (%)
Ticker Date MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C>
FBBC 07/30/96 0.08 10.79 0.31 1.64 7.93
CVAL 07/30/96 1.03 11.70 0.39 0.94 10.25
ASFC 07/30/96 NA 11.97 0.53 0.68 8.25
FLFC 07/30/96 0.88 11.39 0.45 1.05 14.19
GWF 07/30/96 1.76 11.48 0.52 0.73 11.61
PBNB 07/30/96 0.44 11.39 0.48 0.88 7.92
GFSB 07/30/96 NA 9.74 0.52 1.33 11.14
ALBK 07/30/96 NA 11.66 0.54 0.94 9.78
GBCI 07/30/96 0.03 11.81 0.45 1.52 15.66
MSBF 07/30/96 0.11 11.49 0.37 1.85 7.77
YFED 07/30/96 1.13 12.70 0.32 0.89 10.29
NWEQ 07/30/96 0.78 11.65 0.22 1.01 7.00
PSAB 07/30/96 1.07 10.71 0.42 1.05 11.39
FSFC 07/30/96 0.14 11.31 0.21 0.92 4.65
FFSL 07/30/96 0.29 11.16 0.42 0.93 7.50
CBCI 07/30/96 1.44 9.77 0.71 1.53 9.23
ROSE 07/30/96 NA 10.19 0.67 0.95 15.27
PFSL 07/30/96 0.20 11.69 0.31 0.56 9.43
IWBK 07/30/96 0.59 10.26 0.60 1.14 16.51
RCSB 07/30/96 0.68 12.25 0.50 0.94 11.57
WVFC 07/30/96 0.45 11.41 0.46 1.37 8.74
MERI 07/30/96 0.19 11.41 0.69 0.98 12.97
CAFI 07/30/96 0.39 10.47 0.43 1.34 16.46
HRZB 07/30/96 0.00 11.21 0.29 1.53 9.46
PFSB 07/30/96 0.96 10.34 0.39 0.83 8.63
GDW 07/30/96 1.40 10.67 1.28 0.87 13.03
FGHC 07/30/96 1.42 11.54 0.13 0.83 9.99
SOSA 07/30/96 9.10 9.38 0.04 0.50 8.97
NHTB 07/30/96 1.39 11.76 0.21 0.56 7.31
COFI 07/30/96 0.33 9.64 0.93 1.22 17.80
FFPB 07/30/96 NA 10.68 0.48 0.74 9.54
PFDC 07/30/96 0.28 10.69 0.45 1.53 10.03
WBST 07/30/96 1.45 9.67 0.75 0.78 14.39
FFBZ 07/30/96 0.56 11.14 0.55 1.10 14.19
SFB 07/30/96 0.32 10.34 0.94 0.97 14.36
SWCB 07/30/96 NA 10.90 0.46 0.86 10.20
HARB 07/30/96 0.57 10.56 0.58 1.16 13.43
NFSL 07/30/96 0.67 12.20 0.42 1.87 16.31
FFCH 07/30/96 1.33 10.05 0.46 0.81 12.26
PLE 07/30/96 0.22 12.32 0.34 0.75 9.69
PVFC 07/30/96 NA 9.98 0.52 1.18 17.84
WFSL 07/30/96 0.64 9.61 0.54 1.87 15.70
BKCO 07/30/96 1.48 9.51 0.47 1.31 13.30
BANC 07/30/96 1.17 11.50 0.28 1.10 16.10
MIFC 07/30/96 NA 7.97 0.20 1.28 13.87
MASB 07/30/96 0.33 11.08 0.75 1.04 9.74
FBHC 07/30/96 1.29 13.28 0.32 0.60 8.35
FOBC 07/30/96 NA 10.35 0.32 0.96 7.95
SFSL 07/30/96 0.44 11.49 0.31 0.83 9.29
CAPS 07/30/96 0.18 10.16 0.46 0.92 8.68
FFWC 07/30/96 0.06 9.56 0.51 1.07 9.65
MDBK 07/30/96 0.51 9.84 0.54 1.03 11.59
CTBK 07/30/96 1.01 9.11 0.36 0.76 10.52
GROV 07/30/96 0.67 9.62 0.78 0.92 14.51
MWBI 07/30/96 0.28 8.93 0.71 0.87 12.92
NYB 07/30/96 NA 8.81 0.77 1.36 24.26
</TABLE>
Source: SNL & F&C calculations 14
<PAGE>
FERGUSON & CO., LLP Exhibit V - Selected Publicly Traded Thrifts
- -------------------
<TABLE>
<CAPTION>
ROAA ROACE
NPAs/ Price/ Core Before Before
Current Assets Core EPS Extra Extra
Pricing (%) EPS ($) (%) (%)
Ticker Date MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C>
HIFS 07/30/96 0.51 9.62 0.38 1.07 10.68
VFFC 07/30/96 2.89 11.30 0.26 1.25 15.98
AMFB 07/30/96 0.50 10.44 0.38 1.30 15.72
MCBS 07/30/96 0.21 10.57 0.42 1.19 9.04
CFB 07/30/96 1.02 8.43 1.09 1.00 16.84
HARL 07/30/96 0.00 8.58 0.51 0.91 13.35
EBSI 07/30/96 1.13 11.17 0.33 0.86 10.69
HOMF 07/30/96 0.46 9.29 0.71 1.26 15.15
FMCO 07/30/96 NA 9.02 0.44 0.87 13.16
FFHC 07/30/96 0.43 9.82 0.56 1.29 17.41
FESX 07/30/96 0.61 8.85 0.30 1.04 13.77
FFRV 07/30/96 1.16 10.06 0.32 0.99 11.49
LOAN 07/30/96 0.01 9.82 0.21 1.32 13.96
AFFFZ 07/30/96 0.65 8.49 0.81 0.92 14.00
PVSA 07/30/96 0.14 9.19 0.69 1.01 13.80
ANDB 07/30/96 1.43 8.98 0.64 1.01 13.32
WLDN 07/30/96 0.91 8.47 0.55 1.15 12.34
SVRN 07/30/96 NA 8.91 0.27 0.78 17.40
PHBK 07/30/96 1.07 9.56 0.52 0.92 11.11
IROQ 07/30/96 1.13 8.33 0.45 0.99 15.16
RFED 07/30/96 NA 9.68 0.41 0.84 16.88
FFED 07/30/96 0.07 13.44 0.20 0.83 15.62
PCCI 07/30/96 2.76 12.32 0.17 1.03 12.94
MWBX 07/30/96 1.92 8.66 0.11 1.24 16.42
LARL 07/30/96 0.70 8.43 0.43 1.38 13.09
COFD 07/30/96 0.52 8.16 0.72 1.14 16.22
FFES 07/30/96 0.72 9.66 0.44 0.52 7.77
FSPG 07/30/96 0.95 8.00 0.57 1.02 15.26
FMSB 07/30/96 0.08 9.01 0.34 1.02 15.45
NASB 07/30/96 3.36 7.78 0.96 1.43 19.05
MAFB 07/30/96 NA 8.61 0.69 0.82 11.81
PSBK 07/30/96 1.03 6.25 1.16 1.32 16.60
HPBC 07/30/96 0.04 8.54 0.41 1.74 15.93
CBSA 07/30/96 0.58 8.14 0.53 0.43 12.81
IPSW 07/30/96 2.00 10.00 0.25 1.02 16.92
PFNC 07/30/96 1.48 13.64 0.11 0.53 9.44
CBCO 07/30/96 NA 7.70 0.56 1.41 14.85
WRNB 07/30/96 1.72 8.82 0.34 1.64 18.32
DNFC 07/30/96 0.54 8.14 0.38 1.01 17.23
EQSB 07/29/96 0.79 8.66 0.70 0.69 13.17
KSBK 07/30/96 NA 6.09 0.84 0.91 13.28
LSBX 07/30/96 1.98 5.73 0.24 1.29 16.27
BFSI 07/30/96 1.21 6.64 1.44 1.69 21.29
DIBK 07/30/96 0.92 5.46 0.67 1.79 22.47
SISB 07/30/96 NA 8.13 0.54 1.05 14.72
WSFS 07/30/96 2.72 7.29 0.24 1.03 17.96
PKPS 07/30/96 1.89 NM 0.00 0.01 0.09
Maximum 9.10 200.00 1.44 2.32 34.19
Minimum - 5.46 (0.16) (0.41) (3.08)
Average 0.87 15.25 0.38 0.94 10.01
Median 0.58 12.70 0.32 0.92 9.36
</TABLE>
Source: SNL & F&C calculations 15
<PAGE>
EXHIBIT VI
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit VI - Comparative Group Selection
To search for a comparative group for First Federal Savings and Loan
Association, we selected all thrifts from $50 million to $150 million in assets
in the Southeast, Southwest, and Mid-Atlantic Regions that have sufficient
trading volume to produce meaningful market information. All of these stocks are
listed on either AMEX, NYSE, or Nasdaq.
We found 24 thrifts in the asset size described above. We eliminated 13 and
retained a group of 11. Normally, we consider 10 to be the desired sample size.
We selected one extra in case we have to drop some of the group before First
Federal's conversion is completed.
We eliminated (1) three that did not have price to earnings information (usually
because they have not been stock thrifts long enough to begin reporting as
stocks), (2) three that had unusually high price to earnings ratios (25.0x or
higher), (3) two with no earnings, (4) one with non-performing assets in excess
of 1.5% of total assets, (5) four with loans to assets ratios under 40%, and
(6) one with loans serviced equal to more than 40% of assets.
The group of 24 from which the comparative group was selected is listed on
Exhibit VI.1 and the selected comparative group is listed on Exhibit VI.2. On
Exhibit VI.1, we have underlined the cells that indicate which ones were not
selected and why. Set forth below is a legend for the column summarizing reasons
individual thrifts were not selected.
A Lack of price to earnings information
B Unusually high price to earnings multiples (25.0x or higher)
C No earnings
D Non-performing assets in excess of 1.5% of assets
E Loans are less than 40% of assets
F Loans serviced are more than 40% of assets
1
<PAGE>
FERGUSON & CO., LLP Exhibit VI.1 - Comparatives Selection
- -------------------
(Financial data as of May 31, 1996)
<TABLE>
<CAPTION>
Deposit
Insurance
Agency
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date
<S> <C> <C> <C> <C> <C> <C> <C>
ALBC Albion Banc Corp. Albion NY MA SAIF NASDAQ 07/26/93
BFSB Bedford Bancshares, Inc. Bedford VA SE SAIF NASDAQ 08/22/94
BRFC Bridgeville Savings Bank Bridgeville PA MA SAIF NASDAQ 10/07/94
- ---------
CCFH CCF Holding Company Jonesboro GA SE SAIF NASDAQ 07/12/95
CZF CitiSave Financial Corp Baton Rouge LA SW SAIF AMSE 07/14/95
ETFS East Texas Financial Services Tyler TX SW SAIF NASDAQ 01/10/95
- ---------
FFBS FFBS BanCorp, Inc. Columbus MS SE SAIF NASDAQ 07/01/93
- ---------
FGHC First Georgia Holding, Inc. Brunswick GA SE SAIF NASDAQ 02/11/87
FSBC First Savings Bank, FSB Clovis NM SW SAIF NASDAQ 08/08/86
- ---------
GSLC Guaranty Financial Corp. Charlottesville VA SE SAIF NASDAQ NA
- ---------
GUPB GFSB Bancorp, Inc. Gallup NM SW SAIF NASDAQ 06/30/95
KSAV KS Bancorp, Inc. Kenly NC SE SAIF NASDAQ 12/30/93
LBFI L & B Financial, Inc. Sulphur Springs TX SW BIF NASDAQ 10/11/94
- ---------
LOAN Horizon Bancorp Austin TX SW SAIF NASDAQ NA
- ---------
MORG Morgan Financial Corp. Fort Morgan CO SW SAIF NASDAQ 01/11/93
PDB Piedmont Bancorp, Inc. Hillsborough NC SE SAIF AMSE 12/08/95
SRN Southern Banc Company, Inc Gadsden AL SE SAIF AMSE 10/05/95
- ---------
SSB Scotland Bancorp, Inc Laurinburg NC SE SAIF AMSE 04/01/96
- --------- -----------
SSM Stone Street Bancorp, Inc. Mocksville NC SE SAIF AMSE 04/01/96
- --------- -----------
SZB SouthFirst Bancshares, Inc. Sylacauga AL SE SAIF AMSE 02/14/95
- ---------
THBC Troy Hill Bancorp, Inc. Pittsburgh PA MA SAIF NASDAQ 06/27/94
TPNZ Tappan Zee Financial, Inc. Tarrytown NY MA SAIF NASDAQ 10/05/95
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/95
- ---------
WHGB WHG Bancshares Corp. Lutherville MD MA SAIF NASDAQ 04/01/96
- --------- -----------
Maximum
Minimum
Average
Median
</TABLE>
Source: SNL & F&C calculations 2
<PAGE>
FERGUSON & CO., LLP Exhibit VI.1 - Comparatives Selection
- ------------------- (Financial data as of May 31, 1996)
<TABLE>
<CAPTION>
Current Current Price/ Price/ Current Current Current Total
Stock Market LTM Core Price/ Price/ Tan Price/ Dividend Assets
Price Value Core EPS EPS Book V Book V Assets Yield ($000)
Ticker ($) ($M) (x) (x) (%) (%) (%) (%) MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALBC 16.625 4.33 29.17 19.79 71.38 71.38 7.65 1.846 56,692
BFSB 16.375 19.26 13.10 11.70 97.12 97.12 16.64 2.198 117,596
BRFC 14.750 16.58 24.58 23.05 104.39 104.39 29.76 2.169 55,712
- ---------
CCFH 11.500 13.00 NA 20.54 77.76 77.76 16.51 3.478 78,772
CZF 15.875 15.31 NA 16.54 97.63 97.69 19.21 1.890 79,717
ETFS 14.750 16.72 17.35 21.69 78.00 78.00 15.31 1.356 114,961
- ---------
FFBS 23.500 36.96 21.96 20.98 143.03 143.03 29.92 1.702 123,553
- --------- ------------------------------------------
FGHC 7.000 14.17 13.46 13.46 119.45 135.14 9.97 0.000 142,133
FSBC 6.000 4.17 NA NM 76.34 76.34 3.61 0.000 115,492
- --------- --------------------
GSLC 7.500 6.89 14.71 17.05 108.23 108.23 6.70 1.333 102,967
- ---------
GUPB 14.000 13.28 NA 19.44 81.92 81.92 18.86 2.857 70,422
KSAV 18.000 11.94 12.86 12.50 87.59 87.68 13.28 3.333 89,871
LBFI 16.250 25.74 18.68 21.38 104.84 104.84 17.97 2.462 143,223
- --------- ------------------------------------------
LOAN 10.500 14.56 11.80 16.41 139.44 144.43 11.48 1.524 126,884
- --------- ----------------------
MORG 12.250 10.20 15.91 14.58 97.15 97.15 14.24 1.959 71,654
PDB 13.250 35.05 NA 16.56 94.31 94.31 28.07 3.019 124,847
SRN 13.125 19.09 NA 21.88 85.67 NA 17.40 2.667 109,768
- ---------
SSB 12.125 22.31 NA NA NA NA NA 0.000 70,412
- --------- --------------------
SSM 16.875 30.80 NA NA NA NA NA 0.000 116,101
- --------- --------------------
SZB 12.125 10.37 31.09 NM 78.33 78.33 11.66 4.124 88,899
- --------- --------------------
THBC 12.875 13.75 13.14 11.92 76.96 76.96 17.08 3.107 80,484
TPNZ 12.000 19.44 NA 25.00 86.96 86.96 16.93 1.667 114,790
TWIN 16.750 15.05 15.23 13.51 106.76 106.76 14.69 3.821 102,423
- ---------
WHGB 11.060 17.92 NA NA NA NA NA 0.000 111,704
- --------- --------------------
Maximum 23.500 36.96 31.09 25.00 143.03 144.43 29.92 4.124 143,223
Minimum 6.000 4.17 11.80 11.70 71.38 71.38 3.61 0.000 55,712
Average 13.544 16.95 18.07 17.79 95.87 97.42 16.04 1.938 100,378
Median 13.188 15.18 15.57 17.05 94.31 95.72 16.51 1.925 106,368
</TABLE>
Source: SNL & F&C calculations 3
<PAGE>
FERGUSON & CO., LLP Exhibit VI.1 - Comparatives Selection
- ------------------- (Financial data as of May 31, 1996)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible ROAA ROAA ROACE ROACE
Equity/ Equity/ Core Core Before Before Before Before
Assets T Assets EPS EPS Extra Extra Extra Extra Merger
(%) (%) ($) ($) (%) (%) (%) (%) Target?
Ticker MRQ MRQ LTM MRQ LTM MRQ LTM MRQ (Y/N)
ALBC 10.71 10.71 0.57 0.21 0.30 0.38 2.87 3.55 N
BFSB 16.10 16.10 1.25 0.35 1.26 1.37 7.56 8.45 N
BRFC 28.51 28.51 0.60 0.16 1.24 1.21 4.17 4.24 N
- ---------
CCFH 21.23 21.23 NA 0.14 0.85 0.95 NA 4.46 N
CZF 18.19 18.17 NA 0.24 1.15 1.20 NA 6.18 N
ETFS 19.63 19.63 0.85 0.17 0.89 0.74 4.58 3.81 N
- ---------
FFBS 19.56 19.56 1.07 0.28 1.32 1.43 6.50 7.13 N
- ---------
FGHC 8.16 7.29 0.52 0.13 0.87 0.83 10.61 9.99 N
FSBC 4.74 4.74 NA 0.00 0.31 0.08 6.81 1.66 N
- ---------
GSLC 6.19 6.19 0.51 0.11 0.68 0.79 10.91 12.35 N
- ---------
GUPB 23.03 23.03 NA 0.18 1.25 0.93 4.87 3.95 N
KSAV 15.16 15.15 1.40 0.36 1.14 1.12 6.85 7.02 N
LBFI 17.14 17.14 0.87 0.19 1.06 0.90 5.76 5.15 N
- ---------
LOAN 8.64 8.37 0.89 0.16 1.53 1.12 17.40 12.44 N
- ---------
MORG 14.66 14.66 0.77 0.21 0.97 0.95 6.38 6.42 N
PDB 29.77 29.77 NA 0.20 1.35 1.63 NA 5.39 N
SRN 20.31 NA NA 0.15 0.54 0.74 NA 3.66 N
- ---------
SSB 37.58 37.58 NA NA NA 1.07 NA 3.87 N
- ---------
SSM 33.69 33.69 NA NA NA 0.88 NA 6.44 N
- ---------
SZB 14.89 14.89 0.39 0.01 0.55 0.12 3.24 0.75 N
- ---------
THBC 22.20 22.20 0.98 0.27 1.38 1.42 6.09 6.27 N
TPNZ 19.48 19.48 NA 0.12 0.81 0.87 5.55 4.39 N
TWIN 13.76 13.76 1.10 0.31 1.08 1.18 7.84 8.38 N
- ---------
WHGB 20.60 20.60 NA NA NA 0.52 NA 2.52 N
- ---------
Maximum 37.58 37.58 1.40 0.36 1.53 1.63 17.40 12.44
Minimum 4.74 4.74 0.39 0.00 0.30 0.08 2.87 0.75
Average 18.50 18.37 0.84 0.19 0.98 0.93 6.94 5.77
Median 18.84 18.17 0.86 0.18 1.06 0.94 6.38 5.27
</TABLE>
Source: SNL & F&C calculations
4
<PAGE>
FERGUSON & CO., LLP Exhibit VI.1-Comparatives Selection
- ------------------- (Financial data as of May 31, 1996)
<TABLE>
<CAPTION>
Loans Loans
NPAs/ Loans/ Loans/ Deposits/ Borrowings/ Serviced Serviced/
Assets Deposits Assets Assets Assets For Others Assets Reasons
(%) (%) (%) (%) (%) ($000) (%) for
Ticker MRQ MRQ MRQ MRQ MRQ MRQ MRQ Excluding
---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ALBC 0.72 98.01 80.35 81.98 5.81 11,631 20.52
BFSB 0.00 107.80 85.19 79.02 4.25 2,844 2.42
BRFC 0.25 61.60 36.91 59.91 9.54 - - E
- --------- -------
CCFH 0.63 77.13 59.94 77.71 0.00 8,883 11.28
CZF 0.30 68.78 54.76 79.61 0.00 1,395 1.75
ETFS 0.45 48.19 38.43 79.74 0.00 38,835 33.78 E
- --------- -------
FFBS 0.43 85.47 68.17 79.75 0.00 17 0.01 B
- ---------
FGHC 1.42 106.04 85.16 80.31 10.27 - -
FSBC 1.44 33.92 32.14 94.74 0.00 - - C, E
- --------- -------
GSLC 3.14 114.95 78.31 68.12 25.21 - - D
- ---------------------
GUPB NA 82.02 50.38 61.42 14.20 - -
KSAV 0.73 101.68 82.02 80.66 3.34 - -
LBFI 0.50 61.05 44.30 72.57 9.43 21,600 15.08 B
- ---------
LOAN 0.15 76.38 69.07 90.43 0.00 10,802 8.51 B
- ---------
MORG 0.28 117.66 70.02 59.52 24.42 4,624 6.45
PDB 0.44 121.69 71.44 58.71 11.01 13,519 10.83
SRN NA 36.46 28.82 79.06 0.00 - - E
- --------- -------
SSB NA 98.50 60.26 61.18 0.00 - - A
- ---------
SSM 0.00 110.11 66.19 60.12 0.00 - - A
- ---------
SZB 0.14 91.43 65.99 72.17 11.32 - - C
- ---------
THBC 0.51 123.23 80.80 65.57 10.66 - -
TPNZ NA 57.65 45.15 78.32 0.00 - -
TWIN 0.42 87.49 71.23 81.42 3.42 53,387 52.12 F
- --------- ------
WHGB 0.35 96.62 63.44 65.67 0.00 11,630 10.41 A
- ---------
Maximum 3.14 123.23 85.19 94.74 25.21 53,387 52.12
Minimum 0.00 33.92 28.82 58.71 0.00 - 0.00
Average 0.62 85.99 62.02 73.65 5.95 7,465 7.22
Median 0.44 89.46 66.09 78.02 3.38 9 0.01
</TABLE>
Source: SNL & F&C calculations 5
<PAGE>
FERGUSON & CO., LLP Exhibit VI.2-Comparatives Selected
- ------------------- (Financial data as of May 31, 1996)
<TABLE>
<CAPTION>
Deposit
Insurance
Agency
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date
<S> <C> <C> <C> <C> <C> <C> <C>
ALBC Albion Banc Corp. Albion NY MA SAIF NASDAQ 07/26/93
BFSB Bedford Bancshares, Inc. Bedford VA SE SAIF NASDAQ 08/22/94
CCFH CCF Holding Company Jonesboro GA SE SAIF NASDAQ 07/12/95
CZF CitiSave Financial Corp Baton Rouge LA SW SAIF AMSE 07/14/95
FGHC First Georgia Holding, Inc. Brunswick GA SE SAIF NASDAQ 02/11/87
GUPB GFSB Bancorp, Inc. Gallup NM SW SAIF NASDAQ 06/30/95
KSAV KS Bancorp, Inc. Kenly NC SE SAIF NASDAQ 12/30/93
MORG Morgan Financial Corp. Fort Morgan CO SW SAIF NASDAQ 01/11/93
PDB Piedmont Bancorp, Inc. Hillsborough NC SE SAIF AMSE 12/08/95
THBC Troy Hill Bancorp, Inc. Pittsburgh PA MA SAIF NASDAQ 06/27/94
TPNZ Tappan Zee Financial, Inc. Tarrytown NY MA SAIF NASDAQ 10/05/95
</TABLE>
Maximum
Minimum
Average
Median
Source: SNL & F&C calculations 6
<PAGE>
FERGUSON & CO., LLP Exhibit VI.2 - Comparatives Selected
- -------------------
(Financial data as of May 31, 1996)
<TABLE>
<CAPTION>
Current Current Price/ Price/ Current Current Current Total
Stock Market LTM Core Price/ Price/ Tan Price/ Dividend Assets
Price Value Core EPS EPS Book V Book V Assets Yield ($000)
Ticker ($) ($M) (x) (x) (%) (%) (%) (%) MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALBC 16.625 4.33 29.17 19.79 71.38 71.38 7.65 1.846 56,692
BFSB 16.375 19.26 13.10 11.70 97.12 97.12 16.64 2.198 117,596
CCFH 11.500 13.00 NA 20.54 77.76 77.76 16.51 3.478 78,772
CZF 15.875 15.31 NA 16.54 97.63 97.69 19.21 1.890 79,717
FGHC 7.000 14.17 13.46 13.46 119.45 135.14 9.97 0.000 142,133
GUPB 14.000 13.28 NA 19.44 81.92 81.92 18.86 2.857 70,422
KSAV 18.000 11.94 12.86 12.50 87.59 87.68 13.28 3.333 89,871
MORG 12.250 10.20 15.91 14.58 97.15 97.15 14.24 1.959 71,654
PDB 13.250 35.05 NA 16.56 94.31 94.31 28.07 3.019 124,847
THBC 12.875 13.75 13.14 11.92 76.96 76.96 17.08 3.107 80,484
TPNZ 12.000 19.44 NA 25.00 86.96 86.96 16.93 1.667 114,790
Maximum 18.000 35.05 29.17 25.00 119.45 135.14 28.07 3.478 142,133
Minimum 7.000 4.33 12.86 11.70 71.38 71.38 7.65 0.000 56,692
Average 13.614 15.43 16.27 16.55 89.84 91.28 16.22 2.305 93,362
Median 13.250 13.75 13.30 16.54 87.59 87.68 16.64 2.198 80,484
</TABLE>
Source: SNL & F&C calculations 7
<PAGE>
FERGUSON & CO., LLP Exhibit VI.2 - Comparatives Selected
- ------------------- (Financial Data as of May 31, 1996)
<TABLE>
<CAPTION>
Tangible ROAA ROAA ROACE ROACE
Equity/ Equity/ Core Core Before Before Before Before
Assets T Assets EPS EPS Extra Extra Extra Extra Merger
(%) (%) ($) ($) (%) (%) (%) (%) Target?
Ticker MRQ MRQ LTM MRQ LTM MRQ LTM MRQ (Y/N)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALBC 10.71 10.71 0.57 0.21 0.30 0.38 2.87 3.55 N
BFSB 16.10 16.10 1.25 0.35 1.26 1.37 7.56 8.45 N
CCFH 21.23 21.23 NA 0.14 0.85 0.95 NA 4.46 N
CZF 18.19 18.17 NA 0.24 1.15 1.20 NA 6.18 N
FGHC 8.16 7.29 0.52 0.13 0.87 0.83 10.61 9.99 N
GUPB 23.03 23.03 NA 0.18 1.25 0.93 4.87 3.95 N
KSAV 15.16 15.15 1.40 0.36 1.14 1.12 6.85 7.02 N
MORG 14.66 14.66 0.77 0.21 0.97 0.95 6.38 6.42 N
PDB 29.77 29.77 NA 0.20 1.35 1.63 NA 5.39 N
THBC 22.20 22.20 0.98 0.27 1.38 1.42 6.09 6.27 N
TPNZ 19.48 19.48 NA 0.12 0.81 0.87 5.55 4.39 N
Maximum 29.77 29.77 1.40 0.36 1.38 1.63 10.61 9.99
Minimum 8.16 7.29 0.52 0.12 0.30 0.38 2.87 3.55
Average 18.06 17.98 0.92 0.22 1.03 1.06 6.35 6.01
Median 18.19 18.17 0.88 0.21 1.14 0.95 6.24 6.18
</TABLE>
Source: SNL & F&C calculations
8
<PAGE>
FERGUSON & CO., LLP Exhibit VI.2 - Comparatives Selected
- ------------------- (FINANCIAL DATA AS OF MAY 31, 1996)
<TABLE>
<CAPTION>
Loans Loans
NPAs/ Loans/ Loans/ Deposits/ Borrowings/ Loans
Assets Deposits Assets Assets Assets For Others Assets
(%) (%) (%) (%) (%) ($000) (%)
Ticker MRQ MRQ MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C>
ALBC 0.72 98.01 80.35 81.98 5.81 11,631 20.52
BFSB 0.00 107.80 85.19 79.02 4.25 2,844 2.42
CCFH 0.63 77.13 59.94 77.71 0.00 8,883 11.28
CZF 0.30 68.78 54.76 79.61 0.00 1,395 1.75
FGHC 1.42 106.04 85.16 80.31 10.27 - -
GUPB NA 82.02 50.38 61.42 14.20 - -
KSAV 0.73 101.68 82.02 80.66 3.34 - -
MORG 0.28 117.66 70.02 59.52 24.42 4,624 6.45
PDB 0.44 121.69 71.44 58.71 11.01 13,519 10.83
THBC 0.51 123.23 80.80 65.57 10.66 - -
TPNZ NA 57.65 45.15 78.32 0.00 - -
Maximum 1.42 123.23 85.19 81.98 24.42 13,519 20.52
Minimum 0.00 57.65 45.15 58.71 0.00 - 0.00
Average 0.56 96.52 69.56 72.98 7.63 3,900 4.84
Median 0.51 101.68 71.44 78.32 5.81 1,395 1.75
</TABLE>
Source: SNL & F&C calculations 9
<PAGE>
EXHIBIT VII
<PAGE>
FERGUSON & CO., LLP Exhibit VII
- -------------------
Pro Forma Assumptions
1. Net proceeds from the conversion were invested at the beginning of the period
at 5.80%, which was the approximate rate on the one-year treasury bill on June
30, 1996. This rate was selected because it is considered more representative of
the rate the Association is likely to earn.
2. First Federal's ESOP will acquire 8% of the conversion stock with loan
proceeds obtained from the Holding Company; therefore, there will be no interest
expense. We assumed that the ESOP expense is 10% annually of the initial ESOP
purchase.
3. First Federal's RP will acquire 4% of the stock through open market purchases
at $20 per share and the expense is recognized ratably over five years as the
shares vest.
4. All pro forma income and expense items are adjusted for income taxes at a
combined state and federal rate of 37%.
5. In calculating the pro forma adjustments to net worth, the ESOP and RP are
deducted in accordance with generally accepted accounting principles.
6. Earnings per share calculations have ignored AICPA SOP 93-6. Calculating
earnings per share under SOP 93-6 and assuming 10% of the ESOP shares are
committed to be released and allocated to the individual accounts at the
beginning of the period would yield earnings per share of $2.17, $1.91, $1.72,
and $1.56, and price to earnings ratios of 9.22, 10.46, 11.61, and 12.83, at the
minimum, midpoint, maximum, and supermaximum of the range, respectively.
1
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit VII
Pro Forma Effect of Conversion Proceeds
At the Minimum of the Conversion Valuation Range
Valuation Date as of July 30, 1996
<TABLE>
<CAPTION>
First Federal Savings and Loan Association, Cullman, Alabama
- ------------------------------------------------------------
<S> <C>
1. Conversion Proceeds
Pro Forma Market Value $ 6,800,000
Less: Estimated Expenses (488,000)
-------------------
Net Conversion Proceeds $ 6,312,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 6,312,000
Less: ESOP Contributions (544,000)
RP Contributions (272,000)
-------------------
Net Conversion Proceeds after ESOP & RP $ 5,496,000
Estimated Incremental Rate of Return(1) 3.65%
-------------------
Estimated Additional Income $ 200,824
Less: ESOP Expense (34,272)
RP Expense (34,272)
-------------------
$ 132,280
===================
3. Pro Forma Calculations
<CAPTION>
Before Conversion After
Period Conversion Results Conversion
-----------------------------------------------
<S> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
June 30, 1996 $ 552,000 $ 132,280 $ 684,280
b. Pro Forma Net Worth
June 30, 1996 $ 5,853,000 $ 5,496,000 $ 11,349,000
c. Pro Forma Net Assets
June 30, 1996 $ 64,381,000 $ 5,496,000 $ 69,877,000
</TABLE>
(1) Assumes Proceeds can be reinvested at 5.80 percent and earnings taxed at a
rate of 37.0 percent.
2
<PAGE>
[LOGO OF FERGUSON & CO., LLP APPEARS HERE]
Exhibit VII
Pro Forma Effect of Conversion Proceeds
At the Midpoint of the Conversion Valuation Range
Valuation Date as of July 30, 1996
<TABLE>
<CAPTION>
First Federal Savings and Loan Association, Cullman, Alabama
- ------------------------------------------------------------
<S> <C> <C>
1. Conversion Proceeds
Pro Forma Market Valuation $ 8,000,000
Less: Estimated Expenses (510,000)
------------------
Net Conversion Proceeds $ 7,490,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 7,490,000
Less: ESOP Contributions (640,000)
RP Contributions (320,000)
------------------
Net Conversion Proceeds after ESOP & RP $ 6,530,000
Estimated Incremental Rate of Return(1) 3.65%
------------------
Estimated Additional Income $ 238,606
Less: ESOP Expense (40,320)
RP Expense (40,320)
------------------
$ 157,966
==================
</TABLE>
3. Pro Forma Calculations
Before Conversion After
Period Conversion Results Conversion
a. Pro Forma Earnings ---------------------------------------------------
Twelve Months Ended
June 30, 1996 $ 552,000 $ 157,966 $ 709,966
b. Pro Forma Net Worth
June 30, 1996 $ 5,853,000 $ 6,530,000 $ 12,383,000
c. Pro Forma Net Assets
June 30, 1996 $ 64,381,000 $ 6,530,000 $ 70,911,000
(1) Assumes Proceeds can be reinvested at 5.80 percent and earnings taxed at
a rate of 37.0 percent.
3
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit VII
Pro Forma Effect of Conversion Proceeds
At the Maximum of the Conversion Valuation Range
Valuation Date as of July 30, 1996
<TABLE>
<CAPTION>
First Federal Savings and Loan Association, Cullman, Alabama
- ------------------------------------------------------------
<S> <C>
1. Conversion Proceeds
Pro Forma Market Valuation $ 9,200,000
Less: Estimated Expenses (532,000)
-------------------
Net Conversion Proceeds $ 8,668,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 8,668,000
Less: ESOP Contributions (736,000)
RP Contributions (368,000)
-------------------
Net Conversion Proceeds after ESOP & RP $ 7,564,000
Estimated Incremental Rate of Return(1) 3.65%
-------------------
Estimated Additional Income $ 276,389
Less: ESOP Expense (46,368)
RP Expense (46,368)
-------------------
$ 183,653
===================
3. Pro Forma Calculations
<CAPTION>
Before Conversion After
Period Conversion Results Conversion
---------------------------------------------
<S> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
June 30, 1996 $ 552,000 $ 183,653 $ 735,653
b. Pro Forma Net Worth
June 30, 1996 $ 5,853,000 $ 7,564,000 $ 13,417,000
c. Pro Forma Net Assets
June 30, 1996 $ 64,381,000 $ 7,564,000 $ 71,945,000
</TABLE>
(1) Assumes Proceeds can be reinvested at 5.80 percent and earnings taxed at a
rate of 37.0 percent.
4
<PAGE>
FERGUSON & CO., LLP
Exhibit VII
Pro Forma Effect of Conversion Proceeds
At the SuperMax of the Conversion Valuation Range
Valuation Date as of July 30, 1996
<TABLE>
<CAPTION>
First Federal Savings and Loan Association, Cullman, Alabama
- -----------------------------------------------------------------
<S> <C>
1. Conversion Proceeds
Pro Forma Market Valuation $ 10,580,000
Less: Estimated Expenses $ (557,000)
-----------------
Net Conversion Proceeds $ 10,023,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 10,023,000
Less: ESOP Contributions $ (846,400)
RP Contributions $ (423,200)
------------------
Net Conversion Proceeds after ESOP & RP $ 8,753,400
Estimated Incremental Rate of Return(1) 3.65%
-----------------
Estimated Additional Income $ 319,849
Less: ESOP Expense $ (53,323)
RP Expense $ (53,323)
-----------------
$ 213,203
=================
3. Pro Forma Calculations
Before Conversion After
Period Conversion Results Conversion
--------------------------------------------------
<S> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
June 30, 1996 $ 552,000 $ 213,203 $ 765,203
b. Pro Forma Net Worth
June 30, 1996 $ 5,853,000 $ 8,753,400 $ 14,606,400
c. Pro Forma Net Assets
June 30, 1996 $ 64,381,000 $ 8,753,400 $ 73,134,400
(1) Assumes Proceeds can be reinvested at 5.80 percent and earnings taxed at a rate of 37.0 percent.
</TABLE>
5
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit VII
Pro Forma Analysis Sheet
<TABLE>
<CAPTION>
Name of Association: First Federal Savings and Loan Association, Cullman, Alabama
Date of Market Prices: July 30, 1996 Alabama Publicly All Publicly
Comparatives Held Thrifts Held Thrifts
------------ ------------ ------------
Symbols Value Mean Median Mean Median Mean Median
--------------------- ---- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price-Earnings Ratio P/E
- --------------------
Last Twelve Months N/A
At Minimum of Range 9.94
At Midpoint of Range 11.27 16.50 14.60 21.50 21.50 13.90 13.40
At Maximum of Range 12.51
At Supermax of Range 13.83
Price-Book Ratio P/B
- ----------------
At Minimum of Range 59.92%
At Midpoint of Range 64.60% 89.00 91.60 86.20 80.80 110.90 105.90
At Maximum of Range 68.57%
At Supermax of Range 72.43%
Price-Asset Ratio P/A
- -----------------
At Minimum of Range 9.73%
At Midpoint of Range 11.28% 16.20 17.00 12.10 12.00 11.00 10.10
At Maximum of Range 12.79%
At Supermax of Range 14.47%
Twelve Mo. Earnings Base Y $ 552,000
Period Ended June 30, 1996
Book Value B $ 5,853,000
As of June 30, 1996
Total Assets A $ 64,381,000
As of June 30, 1996
Return on Money (1) R 3.65%
Conversion Expense X $ 510,000
Underwriting Commission C 0.00%
Percentage Underwritten S 0.00%
Estimated Dividend
Dollar Amount DA $ 240,000
Yield DY 0.00%
ESOP Contributions P $ 640,000
RP Contributions I $ 320,000
ESOP Annual Expense E $ 40,320
RP Annual Contributions M $ 40,320
Cost of ESOP Borrowings F 0.00%
</TABLE>
(1) Assumes Proceeds can be reinvested at 5.80 percent and earnings taxed at a
rate of 37.0 percent.
6
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit VII
Pro Forma Analysis Sheet
Calculation of Estimated Value (V) at Midpoint Value
1. V= P/A(A-X-P-I) $ 8,000,000
---------------------
1-P/A(1-(CxS))
2. V= P/B(B-X-P-I) $ 8,000,000
---------------------
1-P/B(1-(CxX))
3. V= P/E(Y-R(X+P+I)-(E+M)) $ 8,000,000
---------------------------
1-P/E(R(1-(CxX))
Value
Estimated Value Per Share Total Shares Date
------------------- ----------- -------------- -----------------
$8,000,000 $20.00 400,000 July 30, 1996
Range of Value
$8.0 million x 1.15 = $9.2 million or 460,000 shares at $20.00 per share
$8.0 million x .085 = $6.8 million or 340,000 shares at $20.00 per share
7
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF
325 2nd Street, S.E.
Cullman, Alabama 35505
(202) 734-4863
NOTICE OF SPECIAL MEETING OF MEMBERS
Notice is hereby given that a Special Meeting of Members of First Federal
Savings and Loan Association of Cullman (the "Association") will be held at
__________________________, on _________, 1996, at __:00 __.M., Central Time
(the "Special Meeting"), for the following purposes, all of which are more
completely set forth in the accompanying Proxy Statement:
1. To consider and act upon a resolution to approve the Plan of
Conversion (the "Plan"), a copy of which is attached hereto as Exhibit A,
pursuant to which the Association would convert from a mutual savings and
loan association chartered under the laws of the United States to a
permanent capital stock savings and loan association chartered under the
laws of the United States (the "Conversion") and become a wholly-owned
subsidiary of Southern Community Bancshares, Inc., a Delaware corporation
organized for the purpose of purchasing all of the capital stock to be
issued by the Association in the Conversion;
2. To consider and act upon a resolution to adopt the Federal Stock
Charter of the Association, a copy of which is attached hereto as Exhibit
B;
3. To consider and act upon a resolution to adopt the Federal Stock
Bylaws of the Association, a copy of which is attached hereto as Exhibit C;
and
4. To transact such other business as may properly come before the
Special Meeting and any adjournments thereof.
Only those members of the Association who have a deposit account with the
Association at the close of business on ____________, 1996 (the "Voting Record
Date"), and borrowers of record on the Voting Record Date whose loans were
outstanding on ____________, 1996, are members of the Association entitled to
notice of and to vote at the Special Meeting and any adjournments thereof.
Whether or not you expect to attend the Special Meeting, we urge you to consider
the accompanying Proxy Statement carefully, to complete the enclosed proxy
card(s) and to return the completed proxy card(s) to in the enclosed postage-
paid return envelope as soon as possible to assure that your vote(s) will be
counted.
Cullman, Alabama By Order of the Board of Directors
____________, 1996
_____________________, Chairman
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF
325 2nd Street, S.E.
Cullman, Alabama 35505
(202) 734-4863
PROXY STATEMENT
INTRODUCTION
The enclosed proxy (the "Proxy") is being solicited by the Board of
Directors for use at the special meeting of members of First Federal Savings and
Loan Association of Cullman (the "Association") to be held at __________________
______________, on _________________, 1996, at __:00 __.M., Central Time,
and at any adjournments thereof (the "Special Meeting"). The Special Meeting is
being held for the following purposes:
1. To consider and act upon a resolution to approve the Plan of
Conversion (the "Plan"), a copy of which is attached hereto as Exhibit A,
pursuant to which the Association would convert from a mutual savings and
loan association chartered under the laws of the United States to a
permanent capital stock savings and loan association chartered under the
laws of the United States (the "Conversion") and become a wholly-owned
subsidiary of Southern Community Bancshares, Inc., a Delaware corporation
(the "Holding Company") organized for the purpose of purchasing all of the
capital stock to be issued by the Association in the Conversion;
2. To consider and act upon a resolution to adopt the Federal Stock
Charter of the Association;
3. To consider and act upon a resolution to adopt the Federal Stock
Bylaws of the Association; and
4. To transact such other business as may properly come before the
Special Meeting.
The Board of Directors of the Association has unanimously adopted the Plan.
The Plan has also been approved by the United States Department of the Treasury,
Office of Thrift Supervision (the "OTS"), subject to the approval of the Plan by
the members of the Association at the Special Meeting and the satisfaction of
certain other conditions.
Pursuant to the Plan, the Association will become a wholly-owned subsidiary
of the Holding Company which was incorporated under Delaware law for the purpose
of acquiring all of the capital stock to be issued by the Association in
connection with the Conversion. See "THE BUSINESS OF THE HOLDING COMPANY." The
Holding Company will conduct a subscription offering (the "Subscription
Offering") in which up to 460,000 common shares, $.01 par value, of the Holding
Company (the "Common Shares") will be offered to subscribers in the following
priority categories.
(i) account holders as of March 31, 1995 with aggregate deposits at
the close of business on such date of at least $50 ("Eligible Account
Holders"),
1
<PAGE>
(ii) The Southern Community Bancshares, Inc. Employee Ownership
Plan (the "ESOP"),
(iii) account holders as of September 30, 1996 with aggregate
deposits at the close of business on such date of at least $50
("Supplemental Eligible Account Holders"), and
(iv) members of the Association eligible to vote at the Special
Meeting ("Other Members").
See "THE CONVERSION - Subscription Offering." Common shares not subscribed for
the Subscription Offering may be offered to the general public in a direct
community offering (the "Community Offering") in the manner established pursuant
to the Plan and described in this Proxy Statement. See "THE CONVERSION -
Community Offering." The offering of the Common Shares is made only through the
Prospectus of the Holding Company dated _____________, 1996, a copy of which is
included with this Proxy Statement (the "Prospectus"). See "ADDITIONAL
INFORMATION."
The aggregate purchase price of the Common Shares offered in connection
with the Conversion ranges from a minimum of $6,800,000 to a maximum of
$9,200,000 (the "Valuation Range"), resulting in a range of 340,000 to 460,000
Common Shares at $20.00 per share. Applicable regulations permit the Holding
Company to offer additional Common Shares in an amount not to exceed 15% above
the maximum of the Valuation Range, which would permit the issuance of up to
529,000 Common Shares with an aggregate purchase price of $10,580,000. The
actual number of Common Shares to be sold in connection with the Conversion may
be adjusted based upon the final valuation of the Association, as converted, as
determined by the independent appraiser upon the completion of this offering.
See "THE CONVERSION - Pricing and Number of Common Shares to be Sold."
The Association has engaged Trident Securities, Inc. ("the Agent") to act
as selling agent and to consult with and advise the Holding Company and the
Association with respect to the Subscription and Community Offering. The Agent
has agreed to use its best efforts to assist the Holding Company and the
Association with the sale of Common Shares in the Subscription Offering and the
Community Offering, if any. Neither the Agent nor any other broker-dealer is
obligated to purchase Common Shares in the Subscription and Community Offering.
Upon the consummation of the Conversion, the Federal Stock Charter of the
Association will be the Charter of the Association as a stock savings and loan
association.
The approval of the Plan will have the effect of (i) terminating the voting
rights of the present members of the Association and (ii) modifying, and
eventually eliminating, their right to receive any surplus in the event of a
complete liquidation of the Association. Except for certain rights in the
special liquidation account established by the Plan (the "Liquidation Account"),
such voting and liquidation rights after the Conversion will vest exclusively in
the holders of the common shares of the Holding Company. See "THE CONVERSION -
Principal Effects of the Conversion."
During and upon the completion of the Conversion, the Association will
continue to provide services to depositors and borrowers pursuant to its current
policies at its existing office. In addition, the Association will continue to
be a member of the Federal Home Loan Bank (the "FHLB") system, and savings
accounts at the Association will continue to be insured up to applicable limits
by the Savings Association Insurance Fund (the "SAIF") administered by the
Federal Deposit Insurance Corporation (the "FDIC').
2
<PAGE>
This Proxy Statement is dated ___________, 1996, and is first being
mailed to members of the Association on or about ___________, 1996.
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
All depositors having a deposit account of record with the Association
on ______________, 1996 (the "Voting Record Date"), and all borrowers having a
loan of record with the Association on the Voting Record Date whose loans were
outstanding on ______________, 1996, are members of the Association eligible to
vote at the Special Meeting ("Voting Members"). Voting Members will be enti-
tled to cast one vote for each $100, or fraction thereof, of the withdrawable
value of their deposit accounts on the Voting Record Date; provided, however,
that no member shall cast more than 1,000 votes. Voting members who are
borrowers will be entitled to cast one vote and to cast the number of votes to
which he or she may be entitled as a holder of a deposit account.
A deposit account in which one or more persons has an interest shall
be deemed to be held by only one Voting Member for the purpose of voting at the
Special Meeting. Any questions as to the eligibility of a member to vote, the
number of votes allocated to each Voting Member or any other matter relating to
voting will be resolved at the time of the Special Meeting by reference to the
records of the Association.
The Association's records disclose that, as of the Voting Record Date,
there were ______ votes entitled to be cast at the Special Meeting, a majority
of which are required to approve the Plan. A majority of the votes cast at the
Special Meeting are also necessary to adopt the Federal Stock Charter of the
Association.
The Association, as the trustee of the Individual Retirement Accounts
("IRAs") maintained at the Association, is empowered to vote at the Special
Meeting all votes eligible to be cast with respect to each IRA. The Board of
Directors has indicated that it intends to cast all of the votes under IRAs in
favor of the approval of the Plan, unless contrary instructions are received
from IRA holders. IRA holders who wish to give such instructions may do so by
returning the enclosed Proxy.
PROXIES
Voting Members may vote in person or by proxy at the Special Meeting.
For Voting Members wishing to vote in person, ballots will be distributed at the
Special Meeting. For Voting Members wishing to vote at the Special Meeting, the
enclosed Proxy may be completed and given in accordance with this Proxy
Statement. Any other proxy held by the Association will not be used by the
Association for the Special Meeting.
A Proxy will be voted in the manner indicated thereon or, in the
absence of specific instructions, will be voted FOR the approval of the Plan,
---
FOR the adoption of the Federal Stock Charter and FOR the adoption of the
- --- ---
Federal Stock Bylaws. Without affecting any vote previously taken, a Voting
Member may revoke a Proxy at any time before such proxy is exercised by
executing a later dated proxy or by giving the Association notice of revocation
in writing or in open meeting at the Special Meeting. Attendance at the Special
Meeting will not, of itself, revoke a Proxy.
3
<PAGE>
MANAGEMENT'S RECOMMENDATIONS AND REASONS FOR CONVERSION
The Board of Directors recommends that members vote FOR the approval
---
of the Plan and FOR the adoption of the Federal Stock Charter and FOR the
--- ---
adoption of the Federal Stock Bylaws.
In unanimously adopting the Plan, the Board of Directors determined
that the Association will derive substantial benefits from the Conversion and
that the Conversion is in the best interests of the Association, its members and
the public. The net proceeds from the sale of stock will be available for
general corporate purposes, including restructuring the maturities of the
Association's investment portfolio to assist the Association in managing its
interest rate risk exposure.
As a mutual institution, the Association has no stockholders and no
authority to issue capital stock. The ability to issue and sell stock will
enable the Association to operate in the form used by commercial banks, most
business corporations and an increasing number of thrift institutions. The
Conversion also will enable the Association to utilize stock benefit plans,
which will enhance the ability of the Association to attract and retain well-
qualified directors, management and staff. The Association presently has no
plans to implement any stock benefit plans other than the ESOP. Executive
officers and other full-time employees of the Association who meet the
eligibility criteria will participate in the ESOP and may receive allocations of
shares of the Association in the future, pursuant to the terms of the ESOP and
applicable laws and regulations.
The Conversion will also give members of the Association, at their
option, the opportunity to become shareholders of the Holding Company. No
member of the Association will be obligated to subscribe or not to subscribe to
Common Shares by voting on the Plan, nor will any member's deposit account be
converted into Common Shares by such vote.
After completion of the Conversion, the Association will continue to
provide the services presently offered to depositors and borrowers, will
maintain in existing offices and will retain its existing management and
employees.
THE BUSINESS OF THE HOLDING COMPANY
The Holding Company was organized at the direction of the Board of
Directors of the Association for the purpose of becoming a holding company to
own all of the outstanding capital stock of the Association. Upon consummation
of the Conversion, the Association will become a wholly-owned subsidiary of the
Holding Company.
The Holding Company currently is not an operating company. Following
the Conversion, the Holding Company will be primarily engaged in the business of
managing its investments and directing, planning and coordinating the business
activities of the Association. In the future, the Holding Company may become an
operating company or acquire or organize other operating subsidiaries, including
other financial institutions. Presently, there are no agreements or
understandings for an expansion of the Holding Company's operations.
Initially, the Holding Company will not maintain offices separate from
those of the Association or employ any persons other than its officers who will
not be separately compensated for such service.
4
<PAGE>
THE BUSINESS OF THE ASSOCIATION
General
The Association is a mutual savings and loan association which was
organized in 1905. Subject to supervision and regulation by the OTS and the
FDIC, the Association is a member of the FHLB of Atlanta and the deposits of the
Association are insured up to applicable limits by the FDIC in the SAIF.
The Association is principally engaged in the business of originating
mortgage loans secured by first mortgages on one- to four-family residential
real estate located in Cullman County, Alabama, the Association's primary market
area. The Association also originates loans for the construction of residential
real estate and construction and permanent mortgage loans secured by multifamily
real estate (over four units) and nonresidential real estate in its primary
market area. In addition to real estate lending, the Association originates a
limited number of commercial loans and secured and unsecured consumer loans.
For liquidity and interest rate risk management purposes, the Association
invests in interest-bearing deposits in other financial institutions, U.S.
Government and agency obligations, mortgage-backed securities and other
investments permitted by applicable law. Funds for lending and other investment
activities are obtained primarily from savings deposits, which are insured up to
applicable limits by the FDIC, and loan principal repayments.
Interest on loans and investments is the Association's primary source
of income. The Association's principal expense is interest paid on deposit
accounts. Operating results are dependent to a significant degree on the net
interest income of the Association, which is the difference between interest
income earned on loans, mortgage-backed securities and other investments and
interest paid on deposits and borrowings. Like most thrift institutions, the
Association's interest income and interest expense are significantly affected by
general economic conditions and by the policies of various regulatory
authorities. For a more detailed discussion of the Association's business and
its operating strategy, see "RISK FACTORS" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in the Prospectus.
THE CONVERSION
THE OTS HAS APPROVED THE PLAN, SUBJECT TO THE APPROVAL OF THE PLAN BY
THE MEMBERS OF THE ASSOCIATION ENTITLED TO VOTE ON THE PLAN AND SUBJECT TO THE
SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS. OTS APPROVAL DOES
NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN.
General
On June 10, 1996, the Board of Directors of the Association
unanimously adopted the Plan pursuant to which the Association will be converted
from a federal mutual savings and loan association to a federal stock savings
and loan association. The Plan was amended on September 16, 1996.
The Plan provides generally that the Holding Company and the
Association will offer Common Shares for sale in the Subscription Offering to
Eligible Account Holders, the ESOP, Supplemental Eligible Account Holders and
Other Members. The Holding Company may offer the Common Shares not subscribed
for in the Subscription Offering in a Community Offering to certain members of
the general public. See "- Community Offering." The Association and the
Holding Company have the right in their
5
<PAGE>
sole discretion to accept or reject, in whole in or part, any orders to purchase
shares of the Common Shares received in the Community Offering.
The aggregate price of the shares of Common Shares to be issued in the
Conversion within the Valuation Range, currently estimated to be between
$6,800,000 and $9,200,000, will be determined based upon an independent
appraisal of the estimated pro forma market value of the Common Shares of the
Association. All shares of Common Shares to be issued and sold in the
Conversion will be sold at the same price. The independent appraisal will be
affirmed or, if necessary, updated at the completion of the Subscription and
Community Offerings, if all shares are subscribed for, or at the completion of
the Syndicated Community Offering. The appraisal has been performed by Ferguson
& Co., LLP ("Ferguson & Co.") independent consulting firm experienced in the
valuation and appraisal of savings institutions. See "- Pricing and Number of
Common Shares to be Sold" for more information as to the determination of the
estimated pro forma market value of the Common Shares.
The following is a brief summary of pertinent aspects of the
Conversion. The summary is qualified in its entirety by reference to the
provisions of the Plan. A copy of the Plan is available for inspection at each
branch of the Association and at the offices of the OTS, 1700 G Street, N.W.,
Washington, D.C. 20552 and 1475 Peachtree Street, N.E., Atlanta, Georgia 30348.
Reasons for the Conversion
As a mutual institution, the Association does not have shareholders
and has no authority to issue capital stock. The Board of Directors of the
Association believes that the ability to issue and sell stock will provide
additional capital for investment, increase the Association's operational
flexibility and enable the Association to operate in the form used by commercial
banks, most business corporations and an increasing number of thrift
institutions. The formation of the Holding Company will provide greater
flexibility than the Association would have alone for growth and diversification
of business activities. The Conversion also will enable the Association to
utilize stock-related incentive programs, which the Board of Directors believes
will benefit the Association and its shareholders by enabling it to attract and
retain well-qualified directors, management and staff.
In adopting the Plan, the Board of Directors of the Association
determined that the Association will derive substantial benefits from the
Conversion and that the Conversion is in the best interests of the Association
and its members. The net proceeds from the sale of shares of stock will
increase the Association's regulatory capital and thereby enable further growth,
with the result that additional funds will be available for lending and other
investment purposes.
The Conversion will also give members of the Association, at their
option, the opportunity to become shareholders of the Holding Company. No
member of the Association will be obligated to subscribe or not to subscribe for
Common Shares by voting on the Plan, nor will any member's savings account be
converted into Common Shares by such vote.
Principal Effects of the Conversion
Continuity. During and after completion of the Conversion, the
Association will continue to provide the services presently offered to
depositors and borrowers, will maintain its existing offices and will retain its
existing management and employees. The Association will continue to be subject
to regulation by the OTS and FDIC.
6
<PAGE>
Voting Rights. Savings account holders who are members of the
Association in its mutual form will have no voting rights in the Association as
converted and will not participate, therefore, in the election of directors or
otherwise control the Association's affairs. Voting rights in the Holding
Company will be held exclusively by its shareholders, and voting rights in the
Association will be held exclusively by the Holding Company. Each holder of the
Holding Company's common shares will be entitled to one vote for each share
owned on any matter to be considered by the Holding Company's shareholders.
Effect on Savings Accounts and Loans. Savings accounts in the
Association, as converted, will be equivalent in amount, interest rate and other
terms to the present savings accounts in the Association, and the existing FDIC
insurance on such deposits will not be affected by the Conversion. The
Conversion will not affect the terms of loan accounts or the rights and
obligations of borrowers under their individual contractual arrangements with
the Association.
Tax Consequences. The consummation of the Conversion is expressly
conditioned on receipt by the Association of a private letter ruling from the
Internal Revenue Service or an opinion of counsel to the effect that the
Conversion will constitute a tax-free reorganization as defined in Section
368(a) of the Code. The Association intends to proceed with the Conversion
based upon an opinion rendered by its special counsel, Bayh, Connaughton &
Malone, P.C., to the following effect: (1) The Conversion constitutes a
reorganization within the meaning of Section 368(a)(1)(F) of the Code, and no
gain or loss will be recognized by the Association in its mutual form or in its
stock form as a result of the Conversion; (2) No gain or loss will be recognized
by the Association upon the receipt of money from the Holding Company in
exchange for the capital stock of the Association, as converted; (3) The basis
of the assets of the Association will be the same immediately after the
Conversion as the basis in the Association's hands immediately prior to the
Conversion; (4) The holding period of the assets of the Association after the
Conversion will include the period during which the assets were held by the
Association before the Conversion; (5) No gain or loss will be recognized by
the deposit account holders of the Association upon the constructive issuance to
them, in exchange for their respective withdrawable deposit accounts in the
Association immediately prior to the Conversion, of withdrawable deposit
accounts of equal dollar amount in the Association immediately after the
Conversion, plus, in the case of Eligible Account Holders and Supplemental
Eligible Account Holders, the interests in the Liquidation Account of the
Association, as described below; (6) The basis of the deposit accounts in the
Association held by its deposit account holders immediately after the Conversion
will be the same as the basis of their deposit accounts in the Association
immediately prior to the Conversion; (7) The basis of the interests in the
Liquidation Account received by the Eligible Account Holders and Supplemental
Eligible Account Holders will be zero and the basis of the nontransferable
subscription rights received by Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members will be zero (assuming that at distribution
such rights have no ascertainable fair market value); (8) No gain or loss will
be recognized by Eligible Account Holders, Supplemental Eligible Account Holders
or Other Members upon the issuance to them of nontransferable subscription
rights to purchase Common Shares (assuming that at issuance such rights have no
ascertainable fair market value), and no taxable income will be realized by such
Eligible Account Holders, Supplemental Eligible Account Holders or Other Members
as a result of their exercise of such nontransferable subscription rights; (9)
The basis of the Common Shares to its shareholders will be the actual purchase
price ($20.00) thereof (assuming that subscription rights of such shareholder,
if any, have no ascertainable fair market value) and the holding period of such
shares will commence on the day after the date of the purchase; (10)
Immediately, after the Conversion, the Association in its stock form will
succeed to and take into account the tax attributes of the Association in its
mutual form immediately prior to the Conversion, including the Association's
earnings and profits or deficit in earnings and profits; and (11) The
Association in its stock form will succeed to and take into account the dollar
amounts of those accounts of the Association in its mutual form which represent
bad debt reserves in respect of which the
7
<PAGE>
Association in its mutual form has taken a bad debt deduction for taxable years
ending on or before the Conversion.
The Association has also received the opinion of Miller, Hamilton,
Snider & Odom, L.L.C., that no gain or loss will be recognized by the
Association as a result of the Conversion for purposes of Alabama tax law.
Miller, Hamilton, Snider & Odom, L.L.C. is counsel for the Agent in the
offering, however, as Alabama counsel experienced in tax matters, the firm has
been retained by the Association, with the consent of the Agent, for the limited
purpose of giving the Alabama tax opinion.
The Association has received an opinion from Ferguson & Co. to the
effect that the subscription rights have no ascertainable fair market value
because the rights are received by specified persons at no cost may not be
transferred and are of short duration. The IRS could challenge the assumption
that the subscription rights have no ascertainable fair market value.
Liquidation Account. In the unlikely event of a complete liquidation
of the Association in its present mutual form, each depositor in the Association
would receive a pro rata share of any assets of the Association remaining after
payment of the claims of all creditors, including the claims of all depositors
to the withdrawable value of their savings accounts. A depositor's pro rata
share of such remaining assets would be the same proportion of such assets as
the value of such depositor's savings deposits bears to the total aggregate
value of all savings deposits in the Association at the time of liquidation.
In the event of a complete liquidation of the Association in its stock
form after the Conversion, each savings depositor would have a claim of the same
general priority as the claims of all other general creditors of the
Association. Except as described below, each depositor's claim would be solely
in the amount of the balance in such depositor's savings account plus accrued
interest. The depositor would have no interest in the assets of the Association
above that amount. Such assets would be distributed to the shareholders of the
Association.
For the purpose of granting a limited priority claim to the assets of
the Association in the event of a complete liquidation thereof to Eligible
Account Holders and Supplemental Eligible Account Holders who continue to
maintain savings accounts at the Association after the Conversion, the
Association will, at the time of Conversion, establish the Liquidation Account
in an amount equal to the regulatory capital of the Association as of June 30,
1996. The function of the Liquidation Account is to establish a priority on
liquidation, and the existence of the Liquidation Account shall not operate to
restrict the use or application of any of the net worth accounts of the
Association.
The Liquidation Account shall be maintained by the Association
subsequent to Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders who retain their savings accounts in the
Association. 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 (referred to herein as the
"subaccount balance").
The initial subaccount balance for a savings account held by an
Eligible Account Holder and/or a Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the Liquidation Account by a
fraction of which the numerator is the amount of the Qualifying Deposit in the
related savings account and the denominator is the total amount of the
Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible
Account Holders in the Association. Such initial subaccount balance shall not
be increased but shall be subject to downward adjustment as provided below.
8
<PAGE>
If the deposit balance in any savings account of an Eligible Account
Holder or Supplemental Eligible Account Holder to which the subaccount relates
at the close of business on the last day of any fiscal year of the Association
subsequent to the Eligibility Record Date or Supplemental Eligibility Record
Date is less than the lesser of (i) the deposit balance in such savings account
at the close of business on the last day of the fiscal year of the Association
subsequent to the Eligibility Record Date or the Supplemental Eligibility Record
Date, or (ii) the amount of the Qualifying Deposit in such savings account on
the Eligibility Record Date or the Supplemental Eligibility Record Date, 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. If any such savings account is closed,
the related subaccount balance shall be reduced to zero. The subaccount of an
account holder will be maintained for so long as the account holder maintains an
account with the same Social Security or taxpayer identification number.
In the event of a complete liquidation of the Association (and only in
such event), each Eligible Account Holder and Supplemental Eligible Account
Holder shall be entitled to receive a liquidation distribution from the
Liquidation Account in the amount of the then-current adjusted subaccount
balances for savings accounts then held before any liquidation distribution may
be made to shareholders of the Association. A merger, consolidation, sale of
bulk assets or similar combination or transaction with another institution
insured by the Federal Deposit Insurance Corporation would not be considered to
be a complete liquidation for these purposes. In such transactions, the
Liquidation Account would be assumed by the surviving institution.
Common Shares. SHARES ISSUED UNDER THE PLAN CANNOT AND WILL NOT BE
INSURED BY THE FDIC. For a description of the characteristics of the Common
Shares, see "DESCRIPTION OF AUTHORIZED SHARES."
Subscription Offering
The Subscription Offering will expire on the Subscription Expiration
Date (12:00 noon, Central Time, on ________, 1996) unless extended.
Subscription rights not exercised before the Subscription Expiration Date will
be void, whether or not the Association has been able to locate each person
entitled to such subscription rights.
Nontransferable subscription rights to purchase Common Shares are
being issued at no cost to all eligible persons and entities in accordance with
the preference categories established by the Plan, as described below. Each
subscription right may be exercised only by the person to whom it is issued and
only for his or her own account. Each person subscribing for Common Shares must
represent to the Association that he or she is purchasing the Common Shares for
his or her own account and that he or she has no agreement or understanding with
any other person for the sale or transfer of the Common Shares. The Association
will not honor stock orders known by it to involve the transfer of subscription
rights or to contain false or misleading information. Any person who attempts
to transfer his or her subscription rights may be subject to penalties and
sanctions, including loss of the subscription rights.
The number of Common Shares which a person who has subscription rights
may purchase will be determined, in part, by the total number of Common Shares
to be issued and the availability of Common Shares for purchase under the
preference categories set forth in the Plan and certain other limitations. See
"- Limitations on Purchases of Common Shares." The sale of any Common Shares
pursuant to
9
<PAGE>
subscriptions received is contingent upon approval of the Plan by the voting
members of the Association at the Special Meeting.
The preference categories and purchase limitations which have been
established by the Plan, in accordance with applicable regulations, for the
allocation of Common Shares are as follows:
(a) Subscription Rights of Eligible Account Holders. Eligible Account
Holders shall have the following rights to subscribe for and purchase Common
Shares:
(i) Each Eligible Account Holder shall receive, without payment,
nontransferable Subscription Rights to purchase Common Shares in an amount equal
to the greater of (a) $150,000 or (b) 15 times the product (rounded down to the
next whole number) obtained by multiplying the total number of Common Shares to
be issued by a fraction of which the numerator is the amount of the Qualifying
Deposit of the Eligible Account Holder and the denominator is the total amount
of Qualifying Deposits of all Eligible Account Holders, in each case on the
Eligibility Record Date.
(ii) In the event of an oversubscription for Common Shares by Eligible
Account Holders, Common Shares shall be allocated among subscribing Eligible
Account Holders so as to permit each such Eligible Account Holder, to the extent
possible, to purchase a number of Common Shares sufficient to make his or her
total allocation equal to 100 shares or the total amount of his or her
subscription, whichever is less. Any shares not so allocated shall be allocated
among the subscribing Eligible Account Holders on an equitable basis, in
proportion to the amounts of their respective aggregate Qualifying Deposits, as
compared to the total aggregate Qualifying Deposits of all subscribing Eligible
Account Holders, in each case on the Eligibility Record Date.
(iii) Subscription Rights to purchase Common Shares received by
Officers and directors of the Association and any Associate thereof, based on
increased deposits of such person in the Association in the one year period
preceding the Eligibility Record Date shall be subordinate to the Subscription
Rights of all other Eligible Account Holders.
(b) Subscription Rights of the ESOP. The ESOP shall receive, without
payment, nontransferable Subscription Rights to purchase up to 10% of the Common
Shares issued in the Conversion. Subscription rights of the ESOP shall be
subordinated to the Subscription Rights received by Eligible Account Holders
pursuant to paragraph (a) above, provided that Common Shares, if any, sold in
excess of the high end of the valuation range may be first sold to the ESOP.
Although the Plan and OTS regulations permit the ESOP to purchase up to 10% of
the Common Shares, the Holding Company anticipates that the ESOP will purchase
8% of the Common Shares. If the ESOP is unable to purchase all or part of the
Common Shares for which it subscribes, the ESOP may purchase Common Shares on
the open market or may purchase authorized but unissued Common Shares. If the
ESOP purchases authorized but unissued Common Shares, such purchases could have
a dilutive effect on the interests of the Holding Company's shareholders.
(c) Subscription Rights of Supplemental Eligible Account Holders.
Supplemental Eligible Account Holders shall have the following rights to
subscribe for and purchase Common Shares:
(i) Each Supplemental Eligible Account Holder shall receive, without
payment, nontransferable Subscription Rights to purchase Common Shares in an
amount equal to the greater of (a) $150,000 or (b) 15 times the product (rounded
down to the next whole number) obtained by multiplying the total number of the
Common Shares to be issued by a fraction of which the numerator is the amount of
10
<PAGE>
the Qualifying Deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of the Qualifying Deposits of all Supplemental
Eligible Account Holders, in each case on the Supplemental Eligibility Record
Date.
(ii) Subscription Rights of Supplemental Eligible Account Holders
shall be subordinate to the Subscription Rights received by the Eligible Account
Holders and by the ESOP pursuant to paragraphs (a) and (b) above.
(iii) Subscription Rights to purchase shares received by an Eligible
Account Holder in accordance with paragraph (a) above shall reduce to the extent
thereof, the Subscription Rights to be distributed to such Eligible Account
Holder pursuant to this paragraph (c).
(iv) In the event of an oversubscription for Common Shares from
Supplemental Eligible Account Holders, Common Shares shall be allocated among
the subscribing Supplemental Eligible Account Holders so as to permit each such
Supplemental Eligible Account Holder, to the extent possible, to purchase a
number of Common Shares sufficient to make his or her total allocation
(including the number of Common Shares, if any, allocated in accordance with
paragraph (a) above) equal to 100 Common Shares or the total amount of his or
her subscription, whichever is less. Any shares not so allocated shall be
allocated among the subscribing Supplemental Eligible Account Holders on an
equitable basis, in proportion to the amounts of their respective aggregate
Qualifying Deposits as compared to the total aggregate Qualifying Deposits of
all subscribing Supplemental Eligible Account Holders, in each case on the
Supplemental Eligibility Record Date.
(d) Subscription Rights of Other Members. Other Members shall have
the following rights to subscribe for and purchase Common Shares:
(i) Each Other Member shall receive, without payment, nontransferable
Subscription Rights to purchase Common Shares in an amount equal to $150,000.
(ii) Subscription Rights of Other Members shall be subordinate to the
Subscription Rights of Eligible Account Holders, Tax-Qualified Employee Stock
Benefit Plans and Supplemental Eligible Account Holders pursuant to Sections
5(a), 5(b) and 5(c) of the Plan.
(iii) In the event of an oversubscription for Common Shares of Other
Members, the Common Shares available shall be allocated among subscribing Other
Members so as to permit each subscribing Other Member, to the extent possible,
to purchase a number of shares sufficient to make his or her total allocation of
Common Shares equal to 100 shares or the number of shares subscribed for by the
Other Member, whichever is less. The shares remaining thereafter will be
allocated among subscribing Other Members whose subscriptions remain unsatisfied
on an equitable basis as determined by the Board of Directors.
Community Offering
Common Shares may be offered in the Community Offering to the extent
such shares remain available after the satisfaction of all subscriptions
received in the Subscription Offering. The Community Offering, if any, is
expected to begin immediately after the Subscription Expiration Date, but may
commence at any time after the beginning of the Subscription Offering.
11
<PAGE>
The Community Offering, if one is held, may be terminated at any time,
but shall terminate not later than 12:00 noon, Central Time, __________, 1996,
unless extended with the consent of the OTS.
If subscriptions are received in the Subscription Offering for up to
340,000 Common Shares, Common Shares may not be available in the Community
Offering. In the event shares are available for the Community Offering, each
person may purchase up to 7,500 Common Shares, subject to the limitation that no
person, together with such person's Associates and other persons acting in
concert with such person, may purchase more than 15,000 of the Common Shares
sold in connection with the Conversion. If an insufficient number of Common
Shares is available to fill all of the orders received in the Community
Offering, the available Common Shares will be allocated in a manner to be
determined by the Boards of Directors of the Holding Company and the
Association, subject to the following:
(i) Preference will be given to natural persons who are residents of
Cullman County, Alabama, the county in which the main office of the Association
is located;
(ii) Orders received in the Community Offering will first be filled up
to 2% of the total number of Common Shares offered, with any remaining shares
allocated on an equal number of shares per order basis until all orders have
been filled; and
(iii) The right of any person to purchase Common Shares in the
Community Offering is subject to the right of the Holding Company and the
Association to accept or reject such purchases in whole or in part.
The term "resident," as used herein with respect to the Community
Offering, means any natural person who, on the date of submission of an Order
Form, maintains a bona fide residence within Cullman County, Alabama.
Persons in Nonqualified States or Foreign Countries
The Association and the Holding Company will make reasonable efforts
to comply with the securities laws of all jurisdictions in the United States in
which Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members reside. However, no person will be offered or sold any Common Shares if
such person resides in a foreign country or in a jurisdiction of the United
States with respect to which: (a) a small number of persons otherwise eligible
to subscribe for Common Shares reside in such foreign country or jurisdiction,
(b) the granting of Subscription Rights or the offer or sale of Common Shares to
such person would require the Holding Company or the Association or their
employees to register under the securities laws of such foreign country or
jurisdiction, as a broker, dealer, salesman or agent or to register or otherwise
qualify its securities for sale in such foreign country or jurisdiction, or (c)
the Association determines such registration or qualification would be
impracticable or burdensome for reasons of cost or otherwise.
Plan of Distribution
The offering of the Common Shares is made only pursuant to this
Prospectus, copies of which are available at the office of the Association.
Officers and directors of the Association will be available to answer questions
about the Conversion and may also hold informational meetings for interested
persons. Such officers and directors will not be permitted to make statements
about the Holding Company or the
12
<PAGE>
Association unless such information is also set forth in this Prospectus, nor
will they render investment advice.
To assist the Holding Company and the Association in marketing the
Common Shares, the Association has retained the services of the Agent, a broker-
dealer registered with the SEC and a member of the National Association of
Securities Dealers ("NASD"). The Agent will assist the Association in (1)
training and educating the Association's employees regarding the mechanics and
regulatory requirements of the conversion process; (2) conducting informational
meetings for subscribers and other potential purchasers; (3) keeping records of
all stock subscriptions; and (4) obtaining proxies from the Association's
members with respect to the Special Meeting. For providing these services, the
Association has agreed to pay the Agent a marketing fee of 2.0% of the aggregate
dollar amount of Common Shares sold in the Subscription Offering and the
Community Offering, excluding shares sold by Selected Brokers (as defined
below), if any, and shares purchased by the ESOP and directors, officers, and
employees (and members of their immediate families) of the Association. The
Agent is not obligated to purchase any Common Shares. It is anticipated that
the Agent will act as a market maker in the Common Shares following the
Conversion.
The Association has also agreed to reimburse the Agent for its out-of-
pocket expenses and legal fees and disbursements in an amount not to exceed
$40,000 without the Association's consent. The Association and the Holding
Company have also agreed to indemnify the Agent, under certain circumstances,
against liabilities and expenses (including legal fees) arising out of or based
upon untrue statements or omissions contained in the materials used in the
Offering or in various documents submitted to regulatory authorities in respect
of the Conversion, including liabilities under the Securities Act of 1933 (the
"Act").
Selected Dealers
If Common Shares remain available after the Subscription Offering, the
Agent may enter into an agreement with certain dealers (the "Selected Dealers")
to assist in the sale of shares in the Community Offering. If Selected Dealers
are used, the Agent shall receive commissions of no more than 5.5% of the
aggregate purchase price of the Common Shares sold in the Community Offering and
will pay to the Selected Dealers a portion of the 5.5% commissions pursuant to
selected dealer agreements. During the Community Offering, Selected Dealers may
only solicit indications of interest from their customers to place orders in the
Association as of a certain date (the "Order Date") for the purchase of Common
Shares. When and if the Association believes that enough indications of interest
and orders have been received in the Community Offering to consummate the
Conversion, the Agent will request, as of the Order Date, Selected Dealers to
submit orders to purchase shares for which they have previously received
indications of interest from the 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 the
date which will be three business days from the Order Date (the "Settlement
Date"). On the Settlement Date, funds received by Selected Dealers will be
remitted to the Association. It is anticipated that the Conversion will be
consummated on the Settlement Date. However, if consummation is delayed after
payment has been received by the Association from Selected Dealers, funds will
earn interest at the passbook rate.
13
<PAGE>
Limitations on Purchases of Common Shares
The Plan provides for certain additional limitations to be placed upon
the purchase of Common Shares. No person may purchase fewer than 25 Common
Shares in the Conversion, to the extent such shares are available.
Officers and directors of the Association and the Holding Company, and
Associates thereof, may not purchase in the aggregate more than 34% of the
Common Shares issued in the Conversion. An "Associate" of any person means (a)
any corporation or organization (other than the Association, the Holding Company
or a majority-owned subsidiary of the Association or the Holding Company) 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, (b) 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 that such term shall not include the ESOP, and (c) 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 Association or the Holding
Company, or any of their subsidiaries.
No person may purchase Common Shares with an aggregate purchase price
of more than $150,000 (or 7,500 shares at $20.00 per share). Purchases of
Common Shares in the Conversion by any person, when aggregated with purchases by
any Associate of that person, or a group of persons Acting in Concert, shall not
exceed $300,000 of the Common Shares (or 15,000 shares at $20.00 per share),
except that the ESOP may purchase up to 10% of the total Common Shares to be
issued in the Conversion. Shares purchased by the ESOP and attributable to a
person shall not be aggregated with shares purchased directly by or otherwise
attributable to such person. Directors of the Holding Company and the
Association shall not be deemed to be Associates or a group Acting in Concert
with other directors solely as a result of membership on the Board of Directors
of the Holding Company or the Association or any of their subsidiaries. For
purposes of the Conversion, "Acting in Concert" means (a) knowing participation
in a joint activity or interdependent conscious parallel action towards a common
goal whether or not pursuant to an express agreement, or (b) a combination or
pooling of voting or other interests in the securities of an issuer for a common
purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise.
Subject to any required regulatory approval and applicable laws and
regulations, the Holding Company and the Association may increase or decrease
any of the purchase limitation amounts at any time. If such amount is increased
after commencement of the Subscription Offering, any person who subscribed for
the maximum number of Common Shares shall be permitted to purchase an additional
number of shares up to the then maximum number of shares permitted to be
subscribed for by such person, subject to the rights and preferences of any
person who has priority Subscription Rights. In the event that the purchase
limitation amount is decreased after commencement of the Subscription Offering,
the orders of any person who subscribed for the maximum number of Common Shares
shall be decreased by the minimum amount necessary so that such person shall be
in compliance with the then maximum number of shares permitted to be subscribed
for by such person.
The Subscription Rights granted under the Plan are nontransferable.
Each Subscription Right may be exercised only by the person to whom issued and
only for such person's own account. The Association and the Holding Company
shall have the right to take such action as they may, in their sole discretion,
deem necessary, appropriate or advisable in order to monitor and enforce the
terms, conditions, limitations and restrictions set forth herein, in the Plan
and the Order Form, including, without
14
<PAGE>
limitation, the right to reject, limit or revoke acceptance of any subscription
or order and to delay, terminate or refuse to consummate any sale of Common
Shares believed to violate or circumvent the Plan.
Purchases of Common Shares in the Offering are also subject to the
change in control regulations which restrict direct and indirect purchases of
10% or more of the stock of any savings association by any person or group of
persons acting in concert, under certain circumstances.
After the Conversion, Common Shares, except for shares purchased by
affiliates of the Association, will be freely transferable, subject to OTS
regulations.
Procedure for Purchasing Shares in Subscription and Community Offerings
Subscriptions for Common Shares in the Subscription Offering and
orders for Common Shares in the Community Offering may be made only by
completing and submitting an Order Form. Any person who desires to subscribe
for Common Shares in the Subscription Offering must do so by delivering to the
Association, by mail or in person, prior to the Subscription Expiration Date
(12:00 noon, Central Time, on ________, 1996), a properly executed and completed
Order Form, together with full payment of the subscription price of $20.00 for
each Common Share for which subscription is made. Any person who desires to
purchase Common Shares in the Community Offering, if one is held, must do so by
delivering to the Association, by mail or in person, prior to the expiration of
the Community Offering which shall be not later than 12:00 noon, Central Time,
on ________, 1996, a properly executed and completed Order Form, together with
full payment of the subscription price of $20.00 for each Common Share for
which order is made. Any Order Form which is not received by the Association
prior to the expiration of the Subscription Expiration Date or the termination
of the Community Offering, as applicable, or for which full payment has not been
received by the Association prior to such time, will not be accepted.
Subscription rights not exercised before the Subscription Expiration Date will
be void, whether or not the Association has been able to locate each person
entitled to such subscription rights. The Holding Company may, but will not be
required to, waive any irregularity relating to any Order Form or require the
submission of a corrected Order Form.
An executed Order Form, once received by the Holding Company, may not
be modified, amended or rescinded without the consent of the Holding Company,
unless the Community Offering, if any, is not completed within 45 days after the
Subscription Expiration Date, in which case persons who have subscribed for
Common Shares in the Subscription Offering or ordered Common Shares in the
Community Offering will receive written notice that they have a right to affirm,
increase, decrease or rescind their subscriptions or orders at any time prior to
20 days before the end of the extension period. Any person who does not
affirmatively elect to continue his subscription or order or elects to rescind
his subscription or order during any such extension will have all of his funds
promptly refunded with interest. Any person who elects to decrease his
subscription or order during any such extension will have the appropriate
portion of his funds promptly refunded with interest.
Payment for all Common Shares subscribed for in the Subscription
Offering and the Community Offering, if any, must be received in full by the
Association or the Holding Company, together with properly completed and
executed Order Forms, on or prior to the expiration date specified on the Order
Form, unless such date is extended by the Holding Company and the Association.
Payment for all Common Shares may be made (i) in cash (delivered in person),
(ii) by check or money order, or (iii) if the subscriber has a savings account
in the Association (including a certificate of deposit), the subscriber may
authorize the Association to charge the subscriber's savings account for the
purchase amount. The
15
<PAGE>
Association may also elect to receive payment by wire transfer. The Association
shall pay interest at the passbook rate on all amounts paid in cash or by check
or money order to purchase Common Shares from the date payment is received until
the Conversion is completed or terminated.
If a person authorizes the Association to charge his or her savings
account, the funds will remain in the person's savings account and will continue
to earn interest, but may not be used by such person until all Common Shares
have been sold or the Conversion is terminated, whichever is earlier. The
withdrawal will be given effect concurrently with the Conversion and to the
extent necessary to satisfy the subscription at a price equal to the purchase
price of $20.00 per share. The Association will allow persons to purchase
Common Shares 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 and in such event, the remaining balance will earn
interest at the passbook rate. The waiver of the early withdrawal penalty is
applicable only to withdrawals made in connection with the purchase of Common
Shares under the Plan.
The ESOP may subscribe for shares by submitting an Order Form,
together with evidence of a loan commitment from the Holding Company or an
unrelated financial institution for the purchase of the Common Shares, during
the Subscription Offering and by making payment for the Common Shares on the
date of the closing of the Conversion.
The Association shall not knowingly loan funds or otherwise extend
credit to any person for the purpose of purchasing Common Shares.
In order to utilize funds in an IRA maintained at the Association, the
funds must be transferred to a self-directed IRA that permits the funds to be
invested in stock. The beneficial owner of the IRA must direct the trustee of
the account to use funds from such account to purchase Common Shares in
connection with the Conversion. This cannot be done through the mail. Persons
who are interested in utilizing IRAs at the Association to subscribe for Common
Shares should contact the Conversion Information Center at the offices of the
Association at (205) 737-8916 for instructions and assistance.
Subscriptions and orders will not be filled by the Association until
subscriptions and orders have been received in the Offering for up to 340,000
Common Shares, the minimum point of the Valuation Range. If the Conversion is
terminated, all funds delivered to the Association for the purchase of Common
Shares will be returned with interest, and all charges to savings accounts will
be rescinded. If subscriptions and orders are received for at least 340,000
Common Shares, subscribers and other purchasers will be notified by mail,
promptly on completion of the sale of the Common Shares, of the number of shares
for which their subscriptions or orders have been accepted. The funds on
deposit with the Association for the purchase of Common Shares will be withdrawn
and paid to the Holding Company in exchange for the Common Shares. Certificates
representing Common Shares will be delivered promptly thereafter. The Common
Shares will not be insured by the FDIC.
16
<PAGE>
Pricing and Number of Common Shares to be Sold
The aggregate offering price of the Common Shares will be based on the
pro forma market value of the shares as determined by an independent appraisal
of the Association. Ferguson & Co., a firm which evaluates and appraises
financial institutions, was retained by the Association to prepare an appraisal
of the estimated pro forma market value of the Association as converted.
Ferguson & Co. will receive a fee of $30,000 for its appraisal and any updates.
Such amount includes out-of-pocket expenses.
Ferguson & Co. was selected by the Board of Directors of the
Association because Ferguson & Co. has extensive experience in the valuation of
thrift institutions, particularly in the mutual-to-stock conversion context.
The Association and Ferguson & Co. have no relationships which would affect
Ferguson & Co.'s independence.
The appraisal was prepared by Ferguson & Co. in reliance upon the
information contained herein. Ferguson & Co. also considered the following
factors, among others: the present and projected operating results and financial
condition of the Association and the economic and demographic conditions in the
Association's existing market area; certain historical financial and other
information relating to the Association; a comparative evaluation of the
operating and financial statistics of the Association with those of other thrift
institutions; the aggregate size of the Offering; the impact of the Conversion
on the Association's regulatory capital and earnings potential; the trading
market for stock of comparable thrift institutions and thrift holding companies;
and general conditions in the markets for such stocks.
The Pro Forma Value of the Association, as converted, determined by
Ferguson & Co., is $8,000,000 as of June 30, 1996. The Valuation Range
established in accordance with the Plan is $6,800,000 to $9,200,000, which,
based upon a per share offering price of $20.00, will result in the sale of
between 340,000 and 460,000 Common Shares. The total number of Common Shares
sold in the Conversion will be determined in the discretion of the Board of
Directors, based on the Valuation Range. Pro forma shareholders' equity per
share and pro forma earnings per share decrease moving from the low end to the
high end of the Valuation Range.
In the event that Ferguson & Co. determines at the close of the
Conversion that the aggregate pro forma value of the Association is higher or
lower than the Pro Forma Value, but is nevertheless within the Valuation Range,
or is not more than 15% above the maximum of the Valuation Range, the Holding
Company will make an appropriated adjustment by raising or lowering the total
number of Common Shares sold in the Conversion consistent with the final
Valuation Range. The total number of Common Shares sold in the Conversion will
be determined in the discretion of the Board of Directors consistent with the
Valuation Range. If, due to changing market conditions, the final valuation is
not between the minimum of the Valuation Range and 15% above the maximum of the
Valuation Range, subscribers will be given a notice of such final valuation and
the right to affirm, increase, decrease or rescind their subscriptions. Any
person who does not affirmatively elect to continue his subscription or elects
to rescind his subscription before the date specified in the notice will have
all of his funds promptly refunded with interest. Any person who elects to
decrease his subscription will have the appropriate portion of his funds
promptly refunded with interest.
The appraisal by Ferguson & Co. is not intended, and must not be
construed, as a recommendation of any kind as to the advisability of purchasing
Common Shares or voting to approve the Conversion. In preparing the valuation,
Ferguson & Co. has relied upon and assumed the accuracy and completeness of the
audited financial statements and statistical information provided by the
Association. Ferguson & Co. did not independently verify the financial
statements
17
<PAGE>
and other information provided by the Association, nor did Ferguson & Co. value
independently the assets or liabilities of the Association. The valuation
considers the Association only as a going concern and should not be considered
as an indication of the liquidation value of the Association. 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 Common Shares will thereafter be able to
sell such shares at the Conversion purchase price.
A copy of the complete appraisal is on file and open for inspection at
the offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552; at the
Southeast Regional Office of the OTS, 1475 Peachtree Street, N.E., Atlanta,
Georgia 30348; and at the offices of the Association.
Restrictions on Repurchase of Common Shares
OTS regulations generally prohibit the Holding Company from
repurchasing any of its capital stock for three years following the date of
completion of the Conversion, except as part of an open-market stock repurchase
program during the second and third years following the Conversion involving no
more than 5% of the outstanding capital stock during a twelve-month period. The
OTS has recently indicated, however, that it would permit repurchases beginning
after six months following the completion of the Conversion. In addition, after
such a repurchase, the Association's regulatory capital must equal or exceed all
regulatory capital requirements. Before the commencement of a repurchase
program, the Holding Company must provide notice to the OTS, and the OTS may
disapprove the program if the OTS determines that it would adversely affect the
financial condition of the Association or if it determines that there is no
valid business purpose for such repurchase.
Restrictions on Transfer of Common Shares by Directors and Officers
Common Shares purchased by directors and executive officers of the
Holding Company will be subject to the restriction that such shares may not be
sold for a period of one year following completion of the Conversion, except in
the event of the death of the shareholder. Common Shares issued by the Holding
Company to directors and executive officers will bear a legend giving notice of
the restriction on transfer. In addition, the Holding Company will give
appropriate instructions to the transfer agent (if any) for the Holding
Company's common shares in respect of the applicable restriction on transfer of
any restricted shares. Any shares issued as a stock dividend, stock split or
otherwise in respect of restricted shares will be subject to the same
restrictions.
Subject to certain exceptions, for a period of three years following
the Conversion, no director or officer of the Holding Company or the
Association, or any of their Associates, may purchase any common shares of the
Holding Company without the prior written approval of the OTS, except through a
broker-dealer registered with the SEC. This restriction will not apply,
however, to negotiated transactions involving more than 1% of a class of
outstanding common shares of the Holding Company or shares acquired by any stock
benefit plan of the Holding Company or the Association.
Interpretation and Amendment of the Plan
To the extent permitted by law, all interpretations of the Plan by the
Boards of Directors of the Holding Company and the Association will be final.
The Plan may be amended by the Boards of Directors of the Holding Company and
the Association at any time with the concurrence of the OTS. If the Association
determines, upon advice of counsel and after consultation with the OTS, that any
such
18
<PAGE>
amendment is material, subscribers will be notified of the amendment and will be
provided the opportunity to affirm, increase, decrease or cancel their
subscriptions.
Conditions and Termination
The completion of the Conversion requires the approval of the Plan by
the voting members of the Association at the Special Meeting and the sale of the
requisite amount of Common Shares within 24 months following the date of such
approval. If these conditions are not satisfied, the Plan will automatically
terminate and the Association will continue its business in the mutual form of
organization. The Plan may be terminated by the Board of Directors in its sole
discretion at any time before the Special Meeting and at any time thereafter
with the approval of the OTS.
ADDITIONAL INFORMATION
The information contained in the accompanying Prospectus, including a
more detailed description of the Plan of Conversion, consolidated financial
statements of the Association and a description of the capitalization and
business of the Association and the Holding Company, including the Association's
directors and executive officers and their compensation, the anticipated use of
the net proceeds from the sale of the Common Stock and a description of the
Common Stock, is intended to help you evaluate the Conversion and is
incorporated by this reference.
YOUR VOTE IS VERY IMPORTANT TO US. PLEASE TAKE A MOMENT NOW TO
COMPLETE AND RETURN YOUR PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED. YOU
MAY STILL ATTEND THE SPECIAL MEETING AND VOTE IN PERSON EVEN THOUGH YOU HAVE
VOTED YOUR PROXY. FAILURE TO SUBMIT A PROXY WILL HAVE THE SAME EFFECT AS VOTING
AGAINST THE CONVERSION.
If you have any questions, please call our stock Sales Center at (205)
737-8916.
IMPORTANT: YOU MAY BE ENTITLED TO VOTE IN MORE THAN ONE CAPACITY.
PLEASE SIGN, DATE AND PROMPTLY RETURN EACH PROXY CARD YOU RECEIVE.
--------------------------
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS. THIS
SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED.
19
<PAGE>
REVOCABLE PROXY
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CULLMAN
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CULLMAN
The undersigned member of First Federal Savings and Loan Association of
Cullman, a savings and loan association chartered under the laws of the United
States ("First Federal"), hereby nominates, constitutes and appoints
_______________________ and ___________________________, or either one of
them, as proxy or proxies for the undersigned member, each with full power of
substitution and resubstitution, to vote all of the votes which the undersigned
member is entitled to cast at the Special Meeting of the members of First
Federal to be held at ______ __.M., Central Time, on ________ , 1996, at 325
Second Street, S.E., Cullman, Alabama 35055, and at any adjournments thereof
(the "Special Meeting"), on the following matters and in the manner specified
below:
1. The approval of the Plan of Conversion, a copy of which is attached as
Exhibit A to the Proxy Statement mailed to the undersigned member in
connection with the Special Meeting, pursuant to which First Federal
would convert from a mutual savings and loan association chartered
under the laws of the United States to a permanent capital stock
savings and loan association chartered under the laws of the United
States and become a wholly-owned subsidiary of Southern Community
Bancshares, Inc., a Delaware corporation organized for the purpose of
purchasing all of the capital stock to be issued by First Federal in
connection with the Conversion.
FOR [_] AGAINST [_]
2. The adoption of the Federal Stock Charter of First Federal, a copy of
which is attached to the Proxy Statement as Exhibit B.
FOR [_] AGAINST [_]
3. The adoption of the Federal Stock Bylaws of First Federal, a copy of
which is attached to the Proxy Statement as Exhibit C.
FOR [_] AGAINST [_]
4. In their discretion, upon such other matters as may properly come
before the Special Meeting.
This Revocable Proxy will be voted as directed by the undersigned member.
If no direction is given, this Revocable Proxy will be voted FOR the approval
of the Plan of Conversion and FOR the adoption of the Federal Stock Charter
and Federal Stock Bylaws of First Federal.
Without affecting any vote previously taken, this Revocable Proxy may be
revoked by the undersigned at any time before it is exercised by (i) executing
and delivering to First Federal a later dated proxy, (ii) attending the Special
Meeting and voting in person, or (iii) giving written notice of revocation to
the Secretary of First Federal.
IMPORTANT: PLEASE SIGN AND DATE THIS REVOCABLE PROXY ON THE REVERSE SIDE
<PAGE>
PROXY
The receipt of the Proxy Statement of First Federal Savings and Loan
Association of Cullman and the Prospectus of Southern Community Bancshares,
Inc., dated _____________, 1996, is hereby acknowledged by the undersigned.
NOTE: Please sign your name exactly as it appears on this Proxy. Joint
accounts require only one signature. If you are signing this Proxy as an
attorney, administrator, agent, corporation, officer, executor, trustee or
guardian, etc., please add your full title to your signature.
Signature
Dated: _________________________, 1996
IMPORTANT: IF YOU RECEIVE MORE THAN ONE CARD, PLEASE SIGN AND RETURN ALL CARDS
IN THE ACCOMPANYING ENVELOPE.
<PAGE>
SOUTHERN COMMUNITY BANCSHARES, INC.
HOLDING COMPANY FOR
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CULLMAN
CULLMAN, ALABAMA
PROPOSED MARKETING MATERIALS
<PAGE>
Marketing Materials for
Southern Community Bancshares, Inc.
Cullman, Alabama
Table of Contents
-----------------
<TABLE>
<CAPTION>
<S> <C>
I. Press Release
A. Explanation
B. Schedule
C. Distribution List
D. Press Release Examples
II. Advertisements
A. Explanation
B. Schedule
C. Advertisement Examples
III. Question and Answer Brochure
A. Explanation
B. Method of Distribution
C. Example
IV. Officer and Director Brochure
A. Explanation
B. Method of Distribution
C. Example
V. Counter Cards and Lobby Posters
A. Explanation
B. Quantity
VI. Invitations
A. Explanation
B. Quantity - Method of Distribution
C. Examples
VII. Letters
A. Explanation
B. Method of Distribution
C. Examples
VIII. Proxygram
A. Explanation
B. Example
IX. IRA Letter
</TABLE>
<PAGE>
I. Press Releases
A. Explanation
In an effort to assure that all customers, community members and other
interested investors receive prompt accurate information in a simultaneous
manner, Trident advises the Association to forward press releases to area
newspapers, radio stations, etc. at various points during the conversion
process.
Only press releases approved by Conversion Counsel and the OTS will be
forwarded for publication in any manner.
B. Schedule
1. OTS Approval of Conversion
2. Close of Stock Offering
<PAGE>
National and Local Distribution List
------------------------------------
The Association should provide a supplemental distribution list which includes
all local newspapers that it considers to be within their market area.
American Banker SNL Securities
- --------------- --------------
One State Street Plaza Post Office Box 2124
New York, New York 10004 Charlottesville, Virginia 22902
Barrons Investors Business Daily
- ------- ------------------------
Dow Jones & Company 12655 Beatrice Street
Barrons Statistical Information Post Office Box 661750
200 Burnett Road Los Angeles, California 90066
Chicopee, Massachusetts 01020
Business Wire The New York Times
- ------------- ------------------
128 S. Tryon St. 229 West 43rd Street
Suite 1565 New York, New York 10036
Charlotte, North Carolina 28202
(704) 377-0151
Wall Street Journal
- -------------------
World Financial Center
200 Liberty
New York, NY 10004
<PAGE>
Local Media List
----------------
(Forthcoming)
<PAGE>
Press Release FOR IMMEDIATE RELEASE
---------------------
For More Information Contact:
William R. Faulk
(205) 734-4863
First Federal Savings and Loan Association of Cullman
-----------------------------------------------------
STOCK SALE APPROVED
-------------------
William R. Faulk, President of First Federal Savings and Loan Association
of Cullman, Cullman, Alabama, announced today that First Federal has received
approval from the Office of Thrift Supervision in Washington, D.C. to convert
from a federally chartered mutual savings and loan association to a federally
chartered stock savings and loan association. In connection with the conversion,
First Federal has formed a holding company, Southern Community Bancshares, Inc.,
to serve as the holding company for First Federal.
Under the plan of conversion, Southern Community Bancshares, Inc. is
offering up to 460,000 shares of common stock, subject to adjustment, at a price
of $20.00 per share. Certain account holders and borrowers of the Association
will have a preferred opportunity to purchase stock through a subscription
offering that closes on ________, 1996. Non-concurrent with the Subscription
Offering, stock may be offered to the general public in a Community Offering
with preference given to natural persons who are permanent residents of the
Bank's Local Community. The Subscription and Community Offering will be managed
by Trident Securities, Inc. Prospectuses and Proxy Statements describing the
plan of conversion will be mailed to customers on or about ______, 1996.
As a result of the Conversion, First Federal will be structured in the
stock form as are all commercial banks and an increasing number of savings
institutions and will be a subsidiary of Southern Community Bancshares, Inc.
According to Mr. Faulk, "Our day to day operations will
<PAGE>
not change as a result of conversion and deposits will continue to be insured by
the FDIC up to the applicable legal limits."
Customers with questions concerning the stock offering should call First
Federal's Stock Information Center at (205) 737-8916, or visit the Stock
Information Center located at First Federal's main office in Cullman.
This is neither an offer to sell nor a solicitation of an offer to buy the stock
of Southern Community Bancshares, Inc. The offer is made only by the
Prospectus. The common stock is not a deposit or account and is not federally
insured or guaranteed.
<PAGE>
Press Release FOR IMMEDIATE RELEASE
---------------------
Contact: William R. Faulk
Telephone: (205) 737-8916
FIRST FEDERAL COMPLETES INITIAL STOCK OFFERING
----------------------------------------------
Cullman, Alabama - (___________) William R. Faulk, President of First
Federal Savings and Loan Association, announced today that Southern Community
Bancshares, Inc., the holding company for First Federal, has completed its
initial stock offering in connection with First Federal's conversion from mutual
to stock form. ________ shares of Common Stock were sold at $20.00 per share.
The net proceeds will be used for general corporate purposes permitted by
applicable law and regulations. Initially, the proceeds will be used to purchase
short-term investment securities. Mr. Faulk indicated that the officers and
Boards of Directors of Southern Community Bancshares, Inc. and First Federal
wanted to express their thanks for the response to the stock offering and that
First Federal looks forward to
serving the needs of its customers and new stockholders as a community based
financial institution. The stock is scheduled to commence trading on
___________ on the National Daily Quotation Service "Pink Sheets" published by
the National Quotation Bureau, Inc..
<PAGE>
II. Advertisements
A. Explanation
The intended use of the attached advertisement "A" is to serve as a
notice to First Federal's customers and members of the local community
that the conversion offering is underway.
The intended use of advertisement "B" is to remind First Federal's
customers of the closing date of the subscription offering.
B. Media Schedule
1. Advertisement A - May run immediately following OTS approval and
may run weekly for the first three weeks.
2. Advertisement B - May run during the last week of the
subscription offering.
Trident may feel it is necessary to run more ads in order to remind
customers and community members of the close of the
Subscription/Community Offering.
Alternatively, Trident may, depending upon the response from the
customer base, choose to run fewer ads or no ads at all.
<PAGE>
________________________________________________________________________________
This announcement is neither an offer to sell nor a solicitation of an offer to
buy these securities. The offer is made only by the Prospectus. These shares
have not been approved or disapproved by the Securities and Exchange Commission,
the Office of Thrift Supervision or the Savings Association Insurance Fund of
the Federal Deposit Insurance Corporation, nor has such commission, office or
corporation passed upon the accuracy or adequacy of the prospectus. Any
representation to the contrary is unlawful.
NEW ISSUE
- --------- __________
UP TO 460,000 SHARES
These shares are being offered pursuant
to a Plan of Conversion whereby
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF CULLMAN
Cullman, Alabama will convert
from a federal mutual savings and loan
association to a federal stock
savings and loan to be known as
First Federal Savings and Loan Association of Cullman
and become a wholly owned subsidiary of
SOUTHERN COMMUNITY BANCSHARES, INC.
COMMON STOCK
_______________
PRICE $20.00 PER SHARE
_______________
Copies of the Prospectus may be obtained in any State in which this
announcement is circulated from the undersigned or such other brokers and
dealers as may legally offer these securities in such state.
TRIDENT SECURITIES, INC.
For a copy of the Prospectus call (205) 737-8916.
This security is not a deposit or an account and is
not federally insured or guaranteed.
________________________________________________________________________________
<PAGE>
Advertisement (B)
________________________________________________________________________________
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF CULLMAN'S CUSTOMERS
_____________, IS THE DEADLINE TO
ORDER STOCK FROM SOUTHERN COMMUNITY BANCSHARES, INC.
Customers of First Federal Savings and Loan Association of Cullman
have the opportunity to invest in First Federal by subscribing
for common stock in its holding company
SOUTHERN COMMUNITY BANCSHARES, INC.
A Prospectus relating to these securities is
available at our office or by calling our
Stock Information Center at (205) 737-8916.
This announcement is not an offer to sell or a
solicitation of an offer to buy the stock of
Southern Community Bancshares, Inc. The offer is made only by the
Prospectus. The common stock is not a deposit or
account and is not federally insured or guaranteed.
________________________________________________________________________________
<PAGE>
III. Question and Answer Brochure
A. Explanation
The Question and Answer brochure is an essential marketing piece in
any conversion. It serves to answer some of the most commonly asked
questions in "plain, everyday language". Although most of the answers
are taken verbatim from the Prospectus and the Proxy Statement, it
saves the individual from searching for the answer to a simple
question.
B. Method of Distribution
There are four primary methods of distribution of the Question and
Answer brochure. However, regardless of the method the brochures are
always accompanied by a Prospectus.
1. A Question and Answer brochure is sent out in the initial mailing
to all members of the Association.
2. Question and Answer brochures are available in all branch
offices.
3. Question and Answer brochures are distributed in information
packets at community meetings.
4. Question and Answer brochures are sent out in a standard
information packet to all interested investors who phone the
Stock Information Center requesting information.
<PAGE>
QUESTIONS AND ANSWERS
REGARDING
THE PLAN OF CONVERSION
On June 10, 1996, the Board of Directors of First Federal Savings and Loan
Association of Cullman ("First Federal" or the "Bank") unanimously approved the
Plan of Conversion pursuant to which First Federal will convert from a federally
chartered mutual savings and loan association to a federally chartered stock
savings and loan. In addition, all of First Federal's outstanding stock will be
issued to the holding company, Southern Community Bancshares, Inc., which was
organized by First Federal to own First Federal as a subsidiary (the "Holding
Company").
This brochure is provided to answer basic questions you might have
regarding the Conversion. Following the Conversion, First Federal will continue
to provide financial services to its depositors, borrowers and other customers
and will operate with its existing management and employees. The Conversion will
not affect the terms, balances, interest rates or existing federal insurance
coverage on First Federal's deposits or the terms or conditions of any loans to
existing borrowers under their individual contract arrangements with First
Federal.
For complete information regarding the conversion, see the Prospectus and
the Proxy Statement dated _________, 1996. Copies of the Prospectus and the
Proxy Statement may be obtained by calling the Stock Information Center at (205)
737-8916.
THIS INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL,OR A SOLICITATION OF
AN OFFER TO BUY, SOUTHERN COMMUNITY BANCSHARES, INC. COMMON STOCK. OFFERS TO BUY
OR TO SELL MAY BE MADE ONLY BY MEANS OF THE PROSPECTUS. PLEASE READ THE
PROSPECTUS PRIOR TO MAKING AN INVESTMENT DECISION. COPIES OF THE PROSPECTUS MAY
BE OBTAINED BY CALLING THE STOCK INFORMATION CENTER AT (205) 737-8916.
THE SHARES OF SOUTHERN COMMUNITY BANCSHARES, INC. COMMON STOCK BEING
OFFERED IN THE SUBSCRIPTION OFFERING, COMMUNITY OFFERING, SYNDICATED COMMUNITY
OFFERING OR PUBLIC OFFERING ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND ARE NOT
INSURED OR GUARANTEED BY THE SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
<PAGE>
SOUTHERN COMMUNITY BANCSHARES, INC.
THE HOLDING COMPANY FOR
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CULLMAN
Questions and Answers Regarding the Subscription and Community Offering
MUTUAL TO STOCK CONVERSION
--------------------------
1. Q. WHAT IS A "CONVERSION"?
A. Conversion is a change in the legal form of organization from a mutual
to a stock savings institution. First Federal currently operates as a
federally chartered mutual savings and loan association with no
stockholders. Through the Conversion, First Federal will become a
federally chartered stock savings and loan association.
2. Q. WHY IS FIRST FEDERAL CONVERTING?
A. First Federal, as a mutual savings and loan association, does not have
stockholders and has no authority to issue capital stock. By
converting to the stock form of organization, the Association will be
structured in the form used by commercial banks, most business
entities and a growing number of savings institutions. The Conversion
will be important to the future growth and performance of the
Association by providing a larger capital base on which the
Association may operate, enhanced future access to capital markets and
ability to attract and retain qualified management through stock
options, enhanced ability to diversify into other financial services
related activities, and enhanced ability to render services to the
public.
The Board of Directors and Management of First Federal believe that
the stock form of organization is a preferred form (as opposed to the
mutual form) of organization for a financial institution. The Board
and Management recognize the decline in the number of mutual thrifts
from over 12,500 mutual institutions in 1929 to just under 1,000
mutual thrifts today. Furthermore, at March 31, 1996, there were only
two mutual thrifts (including First Federal) of the 18 total thrifts
headquartered in the state of Alabama.
First Federal believes that converting to the stock form of
organization will allow First Federal to more effectively compete with
local community banks and thrifts all of which are stock owned and
statewide and regional banks that are stock owned. First Federal
believes that by combining quality service and products with a local
ownership base, its customers and community members who become
stockholders will be more inclined to do business with First Federal.
Furthermore, because First Federal competes with local and regional
banks not only for customers, but also for employees, First Federal
believes that the stock form of organization will better afford First
Federal the opportunity to attract and
<PAGE>
retain employees, management and directors through various stock
benefit plans like the ESOP, and through stock awards and stock
options which are generally not available to mutual financial
institutions.
3. Q. IS FIRST FEDERAL'S MUTUAL TO STOCK CONVERSION BENEFICIAL TO THE
COMMUNITIES THAT THE ASSOCIATION SERVES?
A. Management believes that the mutual to stock conversion through the
Subscription and Community Offering process is in the best interest of
the various communities that First Federal serves because following
the Conversion it is anticipated that a significant portion of the
Common Stock will be owned by local residents desiring to share in the
ownership of a local community financial institution. Because the
Association will have a high level of capital after the Conversion, it
is also believed that local stockholders, along with all stockholders,
may share in the Association's future profitability through possible
regular cash dividends or, if deemed prudent by management, the board
of directors of the Holding Company and the OTS, the possibility of
payment of periodic special dividends. Furthermore, should the price
of the Common Stock increase following the Conversion, recognizing
that the possibility exists that the price could decline or remain the
same, stockholders will share in the success of the local institution
through capital appreciation.
Remaining a good corporate citizen is an essential responsibility of a
community financial institution. The Association is pursuing new and
unique avenues to help in its varying communities. However, playing
such a role can also be a costly proposition for a financial
institution. The Association's board and management feel that in times
of rising interest rates when financial institution profits come under
pressure, that First Federal will be better able to continue to build
and develop its community support efforts due to the capital cushion
provided through funds received in the Conversion.
Management anticipates that a significant portion of the shares of
common stock sold in the Offerings will be sold to permanent residents
or trusts of permanent residents of Cullman County (the "Local
Community"). As a result, management hopes that the stockholders of
the Holding Company will take an active role in suggesting new and
novel ideas for furthering community support programs. It is expected
that such stockholder feedback would come in the form of letters from
stockholders, personal meetings with management, and suggestions at
the annual stockholder's meetings.
4. Q. WHAT EFFECT WILL THE CONVERSION HAVE ON DEPOSIT ACCOUNTS AND
LOANS?
A. Terms and balances of accounts in First Federal and interest rates
paid on such accounts will not be affected by the Conversion. Such
accounts will continue to be insured by the Federal Deposit Insurance
Corporation (FDIC) up to the maximum amounts permitted by law. The
Conversion also will not affect the
<PAGE>
terms or conditions of any loans to existing borrowers or the rights
and obligations of these borrowers under their individual contractual
arrangements with First Federal.
5. Q. WILL THE CONVERSION CAUSE ANY CHANGES IN FIRST FEDERAL'S PERSONNEL?
A. Both before and after the Conversion, First Federal's business of
accepting deposits, making loans and providing financial services will
continue without interruption with the same board of directors,
management and staff.
6. Q. WHAT APPROVALS MUST BE RECEIVED BEFORE THE CONVERSION BECOMES
EFFECTIVE?
A. First, the Board of Directors of First Federal must approve the Plan
of Conversion; this approval was obtained on June 10, 1996. Second,
the Office of Thrift Supervision must approve the applications
required to effect the Conversion. These approvals have been obtained.
Third, the Plan of Conversion must be approved by a majority of all
votes eligible to be cast by First Federal's voting members. A
Special Meeting of voting members will be held on _____, 1996, to
consider and vote upon the Plan of Conversion.
THE HOLDING COMPANY
-------------------
7. Q. WHAT IS A HOLDING COMPANY?
A. A holding company is a corporation which owns other companies.
Concurrent with the Conversion, First Federal will become a subsidiary
of Southern Community Bancshares, Inc., a company organized by First
Federal to acquire all of the common stock of First Federal to be
outstanding after the Conversion.
8. Q. IF I DECIDE TO BUY STOCK IN THIS OFFERING, WILL I BE BUYING STOCK
IN THE HOLDING COMPANY OR FIRST FEDERAL?
A. You will own stock in the Holding Company (the "Common Stock").
However, the Holding Company, as a savings and loan holding company,
will own 100% of the capital stock of First Federal Savings and Loan
Association of Cullman.
9. Q. WHY DID THE BOARD OF DIRECTORS FORM THE HOLDING COMPANY?
A. The Board of Directors believes that the conversion of First Federal
and the formation of the Holding Company will result in a stronger
financial institution with the ability to provide additional
flexibility to diversify the Association's business activities through
existing or newly formed subsidiaries, or through acquisition or
merger, although there are no current arrangements or understandings
with respect to such acquisitions or mergers. The holding company will
also be able to use stock-related incentive programs to attract and
retain executive and other personnel for itself and its subsidiaries.
ABOUT BECOMING A STOCKHOLDER
----------------------------
10. Q. WHAT ARE THE SUBSCRIPTION OFFERING AND THE COMMUNITY OFFERING?
<PAGE>
A. Under the Plan of Conversion adopted by First Federal, the Holding
Company will offer shares of stock in the Subscription Offering to the
Association's certain members and Employee Stock Ownership Plan
("ESOP"). A community offering, if any, may begin at any time during
or after the Subscription Offering, and may terminate at any time but
in no event will the Community Offering extend beyond _________, 1996.
In the Community Offering, if any, common shares will be offered to
the general public with a preference being given to natural persons
residing in Cullman County, Alabama. These offerings are consistent
with the board's objective of the Holding company being a locally
owned financial institution. The Subscription and Community Offerings
will be managed by Trident Securities, Inc. It is anticipated that
shares not subscribed for in either the Subscription or the Community
Offering may be offered for sale in a Syndicated Community Offering to
be managed by Trident Securities, Inc.
11. Q. MUST I PAY A COMMISSION TO BUY STOCK IN CONJUNCTION WITH THE
SUBSCRIPTION OFFERING AND THE COMMUNITY OFFERING?
A. No. You will not pay a commission to buy the stock if the stock is
purchased in the Subscription Offering, Community Offering, or
Syndicated Community Offering.
12. Q. HOW MANY SHARES OF THE HOLDING COMPANY STOCK WILL BE ISSUED THROUGH
FIRST FEDERAL'S CONVERSION?
A. Southern Community Bancshares, Inc. is offering up to 460,000 shares
of its Common Stock (the "Estimated Share Range"), subject to
adjustment as shown on the cover of the Prospectus and Proxy
Statement. It is currently expected that the shares will be issued at
$20.00 per share.
13. Q. HOW WAS THE OFFERING SIZE DETERMINED?
A. The $20.00 purchase price per share of Common Stock offered hereby has
been determined by the Boards of Directors of the Association and the
Holding Company on the basis of the estimated pro forma market value
of the Common Stock of $9,200,000 ("Estimated Valuation Range") based
upon an independent appraisal and is not the result of negotiation
between the Association and the Holding Company and any independent
party. The Estimated Share Range of between 340,000 - 460,000 shares
of Common Stock has been determined by dividing the minimum and
maximum of the Estimated Valuation Range by the Purchase Price. The
total number of shares of Common Stock to be offered in the Offerings
and the Public Offering, if any, may be increased up to 529,000 shares
(15.0% above the maximum of the Estimated Valuation Range) to reflect
changes in market and financial conditions following commencement of
the Offerings or in the event of a Public Offering. In evaluating the
independent appraisal, the Board of Directors of the Association
considered, among other things, the proposed stated methodology of the
independent appraiser as well as the assumptions used in preparation
of the independent appraisal. The appraisal should not be considered a
recommendation as to the advisability of purchasing the shares of
Common Stock
<PAGE>
offered, and there can be no assurance that persons who purchase
shares in the Offering will thereafter be able to sell the shares at
or above the Purchase Price.
14. Q. WHO IS ENTITLED TO BUY STOCK IN THE CONVERSION?
A. The shares of the holding company to be issued in the Conversion are
being offered in the Subscription and Community Offerings in the
following order of priority: (i) depositors with $50.00 or more on
deposit with the Association as of March 31, 1995; (ii) the Company's
tax-qualified employee stock ownership plan (the "ESOP"); (iii)
depositors with $50.00 or more on deposit with the Association as of
September 30, 1996 and (iv) members of the association who are
eligible to vote at the special meeting who are not Eligible Account
Holders or Supplemental Account Holders. The Company may offer the
shares of Common Stock not subscribed for in the Subscription
Offering, if any, for sale in a Community Offering to the general
public with preference given to natural persons or trust of natural
persons who are permanent residents of Cullman County, Alabama.
15. Q. ARE THE SUBSCRIPTION RIGHTS TRANSFERABLE?
A. No. Subscription rights granted to First Federal's members in the
Conversion are not transferable. It is the responsibility of each
subscriber to completely list all account numbers for qualifying
savings accounts or loans as of the appropriate Qualifying Date on the
Stock Order Form.
16. Q. WHAT IS THE MINIMUM AND MAXIMUM NUMBER OF SHARES THAT I CAN PURCHASE
IN THE CONVERSION?
A. The minimum number of shares is 25. The maximum number of shares for
an individual is 7,500. The maximum number of shares for any person
together with associates, or group of persons acting in concert, is
15,000.
17 Q. ARE THE MANAGEMENT AND THE BOARD OF DIRECTORS OF FIRST FEDERAL BUYING
SIGNIFICANT AMOUNT OF THE STOCK OF THE HOLDING COMPANY?
A. Directors, executive officer and the ESOP currently intend to purchase
approximately $____ of stock. The purchase price paid by directors and
executive officers will be the same $20.00 per share price as that
paid by all other persons who order stock in the Subscription
Offering, Community Offering or Syndicated Community Offering.
18. Q. HOW DO I SUBSCRIBE FOR SHARES OF STOCK?
A. To subscribe for shares of stock through the Subscription Offering,
you should mail in the postage paid envelope provided or hand deliver
a subscription stock order form and acknowledgement together with full
payment (or appropriate instructions for withdrawal from permitted
deposit accounts as described below) to First Federal, so that the
stock order form and acknowledgement and payment or instructions are
received prior to the close of the Subscription Offering, which is
____ p.m., Central Time on _______, 1996. Payment for shares may be
made
<PAGE>
in cash (if made in person), by check or money order. Subscribers who
have deposit accounts with First Federal may include instructions on
the stock order form requesting withdrawal from such deposit account
(except retirement accounts, which are discussed in question 20) to
purchase shares of the holding company. Withdrawals from certificates
of deposit may be made without incurring an early withdrawal penalty.
19. Q. MAY I USE FUNDS CURRENTLY HELD IN A RETIREMENT ACCOUNT TO PURCHASE
STOCK?
A. Your retirement account at First Federal has an opportunity to
subscribe for Common Stock in the Subscription Offering. If you are
interested in using funds held in your retirement account, the Stock
Information Center can assist you in transferring those funds to a
self-directed IRA, if necessary, and directing the trustee to
subscribe for the common stock. This process may be done without an
early withdrawal penalty and generally without a negative tax
consequence to your retirement account. Because of the additional
paperwork involved, IRA transfers must be completed by _________. For
additional information, call the Stock Information Center collect at
(205) 737-8916.
20. Q. WILL I RECEIVE INTEREST ON FUNDS I SUBMIT FOR A STOCK PURCHASE?
A. Yes. First Federal will pay interest at its passbook rate from the
date the funds are received until completion of the stock offering.
Authorized withdrawal for a stock purchase continues to earn the
contractual rate until the completion of the offering.
21. Q. MAY I OBTAIN A LOAN FROM FIRST FEDERAL TO PAY FOR SHARES PURCHASED IN
THE CONVERSION?
A. No. Federal regulations do not allow First Federal to make loans for
this purpose. However, federal regulations do not prohibit you from
obtaining a loan from another source for the purpose of purchasing
stock in the Conversion.
22. Q. IF I BUY STOCK IN THE CONVERSION, HOW WOULD I GO ABOUT BUYING
ADDITIONAL SHARES OR SELLING SHARES IN THE AFTERMARKET?
A. Southern Community Bancshares, Inc., as a newly organized company, has
never issued capital stock and consequently there is no established
market for its common stock at this time. Although the Company
received conditional approval to list the Common Stock over-the-
counter market following the Offering through the National Daily
Quotation Service "Pink Sheets" published by the National Quotation
Bureau, Inc., no assurance can be given that such listing will be
obtained or that an active and liquid trading market for the Common
Stock will develop.
23. Q. WHAT IS THE HOLDING COMPANY'S DIVIDEND POLICY?
A. Following the Conversion, the Board of Directors of the Holding
Company currently intends to declare cash dividends on the common
shares at an initial annual rate of 3.0% of $20.00 per share purchase
price of the common shares ($0.60 per share). However, the declaration
and payment of dividends will be subject to the discretion of the
Board of Directors of the Holding Company and to
<PAGE>
the earnings and financial condition of the Holding Company.
Accordingly, no assurance can be given that dividends will be paid or,
if paid, will be continued.
24. Q. WILL THE FDIC INSURE THE SHARES OF THE HOLDING COMPANY?
A. No. The shares of the holding company are not savings accounts or
savings deposits and are not insured by the FDIC or any other
government agency.
25. Q. IF I SUBSCRIBE FOR SHARES AND LATER CHANGE MY MIND, WILL I BE ABLE TO
GET A REFUND?
A. No. Your order cannot be canceled or withdrawn once it has been
received by First Federal.
ABOUT VOTING "FOR" THE PLAN OF CONVERSION
-----------------------------------------
26. Q. AM I ELIGIBLE TO VOTE AT THE SPECIAL MEETING OF MEMBERS TO BE HELD TO
CONSIDER THE PLAN OF CONVERSION?
A. At the Special Meeting of Members to be held on ____________, 1996,
the members who shall be entitled to vote at the Special Meeting shall
be (a) all holders of the Association's deposit accounts with First
Federal in the amount of $50 or more at the close of business on
________, 1996 the Voting Record Date, and (b) those borrowers from
First Federal at _____________, who remain borrowers on the Voting
Record Date.
27. Q. HOW MANY VOTES DO I HAVE AS A VOTING MEMBER?
A. Each account holder is entitled to one vote for each $100, or fraction
thereof, on deposit in such account. Each borrower who holds eligible
borrowings is entitled to cast one vote in addition to the number of
votes, if any, he or she is entitled to vote as an account holder. No
account may cast more than 1,000 votes per proxy card.
28. Q. IF I VOTE "AGAINST" THE PLAN OF CONVERSION AND IT IS APPROVED, WILL I
BE PROHIBITED FROM BUYING STOCK DURING THE SUBSCRIPTION OFFERING?
A. No. Voting against the Plan of Conversion in no way restricts you
from purchasing the holding company stock in the Subscription
Offering.
29. Q. DID THE BOARD OF DIRECTORS OF FIRST FEDERAL UNANIMOUSLY APPROVE THE
CONVERSION?
A. Yes. First Federal's Board of Directors unanimously approved the Plan
of Conversion and urges that all Voting Members vote "For" approval of
the Plan.
30. Q. WHAT HAPPENS IF FIRST FEDERAL DOES NOT GET ENOUGH VOTES TO APPROVE THE
PLAN OF CONVERSION?
A. First Federal's Conversion would not take place, and First Federal
would remain a mutual savings institution.
<PAGE>
31. Q. AS A QUALIFYING DEPOSITOR OR BORROWER OF FIRST FEDERAL, AM I REQUIRED
TO VOTE?
A. No. However, failure to return your proxy card will have the same
effect as a vote "Against" the Plan of Conversion.
32. Q. WHAT IS A PROXY CARD?
A. A proxy card gives you the ability to vote without attending the
Special Meeting in person. You may attend the meeting and vote, even
if you have returned your proxy card, if you choose to do so. However,
if you are unable to attend, you still are represented by proxy. Any
proxy card which has previously been obtained by First Federal prior
to the receipt of the Proxy Statement and unrelated to the Plan of
Conversion, will not be utilized in the voting for this Plan of
Conversion. Only the proxy cards received in the mailing packet or
requested from the Stock Information Center, will be utilized at the
Special Meeting.
33. Q. HOW DOES THE CONVERSION AFFECT ME?
A. The Conversion is intended, among other things, to help First Federal
maintain and expand its many services to you and the community. You
will also have the opportunity to invest in First Federal through
purchasing stock in Southern Community Bancshares, Inc. However, there
is no obligation to do so. The purchase of stock is strictly optional.
34. Q. HOW CAN I GET FURTHER INFORMATION CONCERNING THE STOCK OFFERING?
A. You may call the Stock Information Center, collect at (205) 737-8916
for further information or a copy of the Prospectus, a stock order
form and acknowledgement, and a proxy card.
THIS INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL,OR A SOLICITATION OF
AN OFFER TO BUY THE HOLDING COMPANY COMMON STOCK. OFFERS TO BUY OR TO SELL MAY
BE MADE ONLY BY MEANS OF THE PROSPECTUS. COPIES OF THE PROSPECTUS MAY BE
OBTAINED BY CALLING THE STOCK INFORMATION CENTER AT (205) 737-8916.
THE SHARES OF THE HOLDING COMPANY COMMON STOCK BEING OFFERED IN THE
SUBSCRIPTION OFFERING AND THE COMMUNITY OFFERING ARE NOT SAVINGS OR DEPOSIT
ACCOUNTS AND ARE NOT INSURED OR GUARANTEED BY THE SAVINGS ASSOCIATION INSURANCE
FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
FOR FURTHER INFORMATION
PLEASE CALL THE STOCK INFORMATION CENTER
AT
(205) 737-8916
(CALL COLLECT IF OUT OF TOWN)
<PAGE>
IV. Officer and Director Support Brochure
A. Explanation
An Officer and Director Brochure merely highlights in brochure form the
purchase commitments shown in the Prospectus.
B. Quantity
An Officer and Director brochure is proposed to be sent out in the initial
mailing to all customers of the Association along with the Prospectus.
<PAGE>
OFFICER AND DIRECTOR PURCHASE COMMITMENTS
Total Total Purchase
Shares of Price of
Name and Position Stock Intended Purchases
- ----------------- --------- -------------------
Finis E. St. John, IV
William R. Faulk (TO BE COMPLETED)
Joseph S. Franey
Phillip W. Freeman
Maxie T. Hudson
Eston E. Jones
Daniel W. Keel
Ronald P. Martin
Wells R. Turner
All Directors and Officers
as a Group (9 persons) $
=========== ==========
<PAGE>
V. Counter Cards and Lobby Posters
A. Explanation
Counter cards and lobby posters serve two purposes: (1) As a notice to
First Federal's customers and members of the local community that the stock
sale is underway and (2) to remind the customers of the end of the
Subscription Offering. Trident has learned in the past that many people
forget the deadline for subscribing and therefore we suggest the use of
these simple reminders.
B. Quantity
Approximately 2 - 3 Counter cards will be used at teller windows and on
customer service representatives' desk.
Approximately 1 - 2 Lobby posters will be used at each office of First
Federal
C. Example
<PAGE>
C. POSTER
OR
COUNTER CARD
SOUTHERN COMMUNITY BANCSHARES, INC.
Holding Company for
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF CULLMAN
"STOCK OFFERING MATERIALS
AVAILABLE HERE"
Subscription Offering Ends
_______, 1996
<PAGE>
VI. Invitations
A. Explanation
In order to educate the public about the stock offering, Trident suggests
holding several Community meetings in various locations. In an effort to
target a group of interested investors Trident requests that each Director
of the Association submit a list of friends that he would like to invite to
a Community meeting.
Prospectuses are given to each prospect at the Community meeting.
B. Quantity and Method of Distribution
Each Director submits a list of their prospects. An invitation is mailed
to each director's prospect.
<PAGE>
The Officers, Directors & Employees
of
First Federal Savings and Loan Association of Cullman
cordially invite you
to attend a brief presentation
regarding the stock offering
of Southern Community Bancshares, Inc.
Please join us at
Place
Address
on
Date
at Time
for hors d'oeuvres
R.S.V.P.
(205) 737-8916 (collect)
Finis E. St. John, IV
William R. Faulk
Joseph S. Franey
Phillip W. Freeman
Maxie T. Hudson
Eston E. Jones
Daniel W. Keel
Ronald P. Martin
Wells R. Turner
<PAGE>
VII. Letters
A. Explanation
Once the application for conversion has been approved by the OTS and the
registration statement has been declared effective by the SEC, Trident will
send out a series of three letters to the Officer's and Director's targeted
prospects. These letters are used to help facilitate the marketing effort
to this group. All prospects will receive a Prospectus as soon as they are
available. Further, several cover letters accompany the offering
information sent to customers and potential investors.
B. Method of Distribution
Cover letters included with offering materials mailed.
Each Director submits his list of prospects. Each prospect is sent the
series of three letters all during the Subscription Offering.
C. Examples
1. Introductory letter
2. A. Thank you letter
or
B. Sorry you were unable to attend letter
3. Final reminder letter
4. Cover letters
<PAGE>
(Introductory Letter)
(First Federal Letterhead)
_______, 1996
Name
Address
City, State, Zip
Dear ______________:
You have probably read recently in the newspaper that First Federal Savings
and Loan Association of Cullman will soon be converting from mutual to stock
form. This conversion is the biggest step in the history of First Federal in
that it allows customers, community members, employees and directors the
opportunity to subscribe for stock in our new holding company-Southern Community
Bancshares, Inc.
I have enclosed a prospectus, a stock order form, and acknowledgement form
which will allow you to subscribe for shares and possibly become a charter
stockholder of Southern Community Bancshares, Inc. should you so desire. In
addition, we will be holding several presentations for friends of First Federal
in order to review the Conversion and the merits of becoming a charter
stockholder of Southern Community Bancshares, Inc. You will receive an
invitation shortly.
I hope that if you have any questions you will feel free to call me or the
First Federal Stock Information Center in Cullman at (205) 737-8916. I look
forward to seeing you at our presentation in a couple of weeks.
Sincerely,
Director
The shares of common stock offered in the conversion are not savings
accounts or deposits and are not insured or guaranteed by the Federal Deposit
Insurance Corporation, the Association Insurance Fund, the Savings Association
Insurance Fund or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy stock.
The offer is made only by the Prospectus.
<PAGE>
(Thank You Letter)
(First Federal Letterhead)
___________, 1996
_____________________
_____________________
_____________________
Dear ___________:
On behalf of the Board of Directors and management of First Federal Savings
and Loan Association of Cullman, I would like to thank you for attending our
recent presentation regarding the stock offering of First Federal's holding
company, Southern Community Bancshares, Inc. We are enthusiastic about the stock
offering and look forward to completing the Subscription Offering on _______,
1996.
As discussed at our meeting, the Board of Directors and management are
committed to the goal of a profitable future as a local community financial
institution.
I hope that you will join me in being a charter stockholder, and once again
thank you for your interest.
Sincerely,
William R. Faulk
President
The shares of common stock offered in the conversion are not savings
accounts or deposits and are not insured or guaranteed by the Federal Deposit
Insurance Corporation, the Association Insurance Fund, the Savings Association
Insurance Fund or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy stock.
The offer is made only by the Prospectus.
<PAGE>
(Sorry You Were Unable to Attend)
(First Federal Letterhead)
Date
__________________
__________________
__________________
Dear ____________:
I am sorry you were unable to attend our recent presentation regarding
First Federal's mutual to stock conversion. The Board of Directors and
management are committed to building long term shareholder value, and as a group
we are personally investing approximately $___________ of our own funds in First
Federal's holding company, Southern Community Bancshares, Inc. We are
enthusiastic about the stock offering and look forward to completing the
Subscription and Community Offerings on _______, 1996.
We have established a Stock Information Center at our office in Cullman to
answer any questions regarding the stock offering. Should you require any
assistance between now and _______, I encourage you either to stop by or to call
our Stock Information Center at (205) 737-8916.
I hope you will join me in being a charter stockholder of Southern
Community Bancshares, Inc.
Sincerely,
William R. Faulk
President
The shares of common stock offered in the conversion are not savings
accounts or deposits and are not insured or guaranteed by the Federal Deposit
Insurance Corporation, the Association Insurance Fund, the Savings Association
Insurance Fund or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy stock.
The offer is made only by the Prospectus.
<PAGE>
(Final Reminder Letter)
(First Federal Letterhead)
________, 1996
____________________
____________________
____________________
Dear _________:
Just a quick note to remind you that the deadline is quickly approaching
for purchasing stock in Southern Community Bancshares, Inc., the new holding
company for First Federal Savings and Loan Association of Cullman. I hope you
will join me in becoming a charter stockholder in Alabama's newest publicly
owned financial institution holding company.
The deadline for subscribing for shares to become a charter stockholder is
_______, 1996. If you have any questions, I hope you will call our Stock
Information Center in Cullman collect at (205) 737-8916.
Once again, I look forward to having you join me as a stockholder of
Southern Community Bancshares, Inc .
Sincerely,
William R. Faulk
President
The shares of common stock offered in the conversion are not savings
accounts or deposits and are not insured or guaranteed by the Federal Deposit
Insurance Corporation, the Association Insurance Fund, the Savings Association
Insurance Fund or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy stock.
The offer is made only by the Prospectus.
<PAGE>
First Federal Letterhead
________, 1996
Dear Individual Retirement Account Participant:
As you know, First Federal Savings and Loan Association is in the process
of converting from a federally chartered mutual savings and loan association to
a federally chartered stock savings and loan association and has formed Southern
Community Bancshares, Inc. to hold all of the stock of First Federal (the
"Conversion"). Through the Conversion, certain current and former depositors and
borrowers of First Federal have the opportunity to purchase shares of common
stock of Southern Community Bancshares, Inc. in a Subscription Offering.
Southern Community Bancshares, Inc. currently is offering up to 460,000 shares,
subject to adjustment, of Southern Community Bancshares, Inc. at a price of
$20.00 per share.
As the holder of an individual retirement account ("IRA") at First Federal,
you have an opportunity to become a shareholder in Southern Community
Bancshares, Inc. using funds being held in your IRA. If you desire to purchase
shares of common stock of Southern Community Bancshares, Inc. through your IRA,
First Federal can assist you in self-directing those funds. This process can be
done without an early withdrawal penalty and generally without a negative tax
consequence to your retirement account.
If you are interested in receiving more information on self-directing your
IRA, please contact our Stock Information Center at (205) __________. Because it
may take several days to process the necessary IRA forms, you must contact First
Federal by _______, 1996 to accommodate your interest.
Sincerely,
William R. Faulk
President
This letter is neither an offer to sell nor a solicitation of an offer to buy
Southern Community Bancshares, Inc. common stock. The offer is made only by the
Prospectus, which was recently mailed to you. THE SHARES OF SOUTHERN COMMUNITY
BANCSHARES, INC. COMMON STOCK ARE NOT DEPOSITS AND WILL NOT BE INSURED BY THE
---
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
(Trident Letterhead)
_______________,1996
To Members and Friends of First Federal Savings and Loan Association:
Trident Securities, Inc., a member of the National Association of
Securities Dealers, Inc., is assisting First Federal Savings and Loan
Association in its conversion to a capital stock savings association and the
concurrent offering of shares of the common stock by Southern Community
Bancshares, Inc.. (the "Company"), a Delaware corporation recently formed for
the purpose of acquiring all of the stock of First Federal Savings and Loan
Association of Cullman.
At the request of First Federal Savings and Loan Association, we are
enclosing materials explaining the conversion process and your right to
subscribe for common shares of the Company. Please read the enclosed offering
materials carefully.
If you have any questions, please call our Stock Information Center at
(919 ) ___-____.
Sincerely,
TRIDENT SECURITIES, INC.
THE SHARES OF COMMON STOCK OF SOUTHERN COMMUNITY BANCSHARES, INC.. OFFERED IN
CONNECTION WITH THE CONVERSION ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS
ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY. THIS IS NOT AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY COMMON STOCK OF SOUTHERN COMMUNITY
BANCSHARES, INC.. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
<PAGE>
(First Federal Letterhead)
___________, 1996
Dear Valued Customer:
First Federal Savings and Loan Association is pleased to announce that we
have received regulatory approval to proceed with our plan to convert to a
federally chartered stock savings and loan association, conditioned upon receipt
of approval by First Federal's members, among other things. This stock
Conversion is the most significant event in the history of First Federal in that
it allows customers, community members, directors and employees an opportunity
to own stock in Southern Community Bancshares, Inc., the proposed holding
company for First Federal.
Since 1905, First Federal has successfully operated as a mutual company. We
want to assure you that the Conversion will not affect the terms, balances,
interest rates or existing FDIC insurance coverage on deposits at First Federal,
or the terms or conditions of any loans to existing borrowers under their
individual contract arrangements with First Federal. Let us also assure you that
the stock Conversion will not result in any changes in the management, personnel
or the Board of Directors of First Federal.
A special meeting of the members of First Federal will be held on _______,
1996 at _______, Eastern Time at _____________ to consider and vote upon First
Federal's Plan of Conversion. Enclosed is a proxy card. Your Board of Directors
solicits your vote "FOR" First Federal's Plan of Conversion. A vote in favor of
the Plan of Conversion does not obligate you to purchase stock. If you do not
plan to attend the special meeting, please sign and return your proxy card
promptly; your vote is important to us.
As one of our valued members, you have the opportunity to invest in First
Federal's future by purchasing stock in Southern Community Bancshares, Inc.
during the Subscription Offering, without paying a sales commission.
If you decide to exercise your subscription rights to purchase shares, you
must return a properly completed stock order form together with full payment for
the subscribed shares so that it is received by First Federal not later than
12:00 Noon, Central Time on __________, 1996.
We also have enclosed a Prospectus and Proxy Statement which fully describe
First Federal, its management, board and financial condition. Please review
these materials carefully before you vote or invest. For your convenience we
have established a Stock Information Center. If you have any questions, please
call the Stock Information Center at (205) 737-8916.
We look forward to continuing to provide quality financial services to you
in the future.
Sincerely,
William R. Faulk
Enclosures President
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of Southern Community Bancshares, Inc. common stock offered in the
Conversion, nor does it constitute the solicitation of a proxy in connection
with the Conversion. Such offers and solicitations of proxies are made only by
means of the Prospectus and Proxy Statement. There shall be no sale of stock in
any state in which any offer, solicitation of an offer or sale of stock would be
unlawful.
THE STOCK IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
<PAGE>
(First Federal Letterhead)
____________, 1996
Dear Interested Investor:
First Federal Savings and Loan Association is pleased to announce that we
have received regulatory approval to proceed with our plan to convert to a
federally chartered stock savings and loan association, conditioned upon receipt
of approval by First Federal's members, among other things. This stock
Conversion is the most significant event in the history of First Federal in that
it allows customers, community members, directors and employees an opportunity
to own stock in Southern Community Bancshares, Inc., the proposed holding
company for First Federal.
Since 1905, First Federal has successfully operated as a mutual company. We
want to assure you that the stock Conversion will not result in any changes in
the management, personnel or the Board of Directors of First Federal.
Enclosed is a Prospectus which fully describes First Federal, its
management, board and financial condition. Please review it carefully before you
make an investment decision. If you decide to invest, please return to First
Federal a properly completed stock order form together with full payment for
shares at your earliest convenience. For your convenience we have established a
Stock Information Center. If you have any questions, please call the Stock
Information Center at (205) 737-8916.
Sincerely,
William R. Faulk
President
Enclosures
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of Southern Community Bancshares, Inc. common stock offered in the
Conversion. Such offers are made only by means of the Prospectus. There shall
be no sale of stock in any state in which any offer, solicitation of an offer or
sale of stock would be unlawful.
THE STOCK IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
<PAGE>
[First Federal Letterhead]
_______________, 1996
Dear Friend:
First Federal Savings and Loan Association is pleased to announce that we
have received regulatory approval to proceed with our plan to convert to a
federally chartered stock savings and loan association, conditioned upon receipt
of approval by First Federal's members, among other things. This stock
Conversion is the most significant event in the history of First Federal in that
it allows customers, community members, directors and employees an opportunity
to own stock in Southern Community Bancshares, Inc., the proposed holding
company for First Federal.
Since 1905, First Federal has successfully operated as a mutual company. We
want to assure you that the Conversion will not affect the terms, balances,
interest rates or existing FDIC insurance coverage on deposits at First Federal,
or the terms or conditions of any loans to existing borrowers under their
individual contract arrangements with First Federal. Let us also assure you that
the stock Conversion will not result in any changes in the management, personnel
or the Board of Directors of First Federal.
Our records indicate that you were a depositor of First Federal on March
31, 1995. Therefore, under applicable law, you are entitled to subscribe for
Common Stock in First Federal's Subscription Offering. Orders submitted by you
and others in the Subscription Offering are contingent upon the current members'
approval of the Plan of Conversion at a special meeting of members to be held on
_________, 1996 and upon receipt of all required regulatory approvals.
If you decide to exercise your subscription rights to purchase shares, you
must return a properly completed stock order form together with full payment for
the subscribed shares so that it is received at First Federal not later than
12:00 Noon, Central Time on _________, 1996.
Enclosed is a Prospectus which fully describes First Federal, its
management, board and financial condition. Please review it carefully before you
invest. For your convenience, we have established a Stock Information Center. If
you have any questions, please call the Stock Information Center at (205) 737-
8916.
Sincerely,
William R. Faulk
President
Enclosures
This does not constitute an offer to sell, or the solicitation of an offer to
buy, shares of Southern Community Bancshares, Inc. common stock offered in the
Conversion, nor does it constitute the solicitation of a proxy in connection
with the Conversion. Such offers and solicitations of proxies are made only by
means of the Prospectus and Proxy Statement. There shall be no sale of stock in
any state in which any offer, solicitation of an offer or sale of stock would be
unlawful.
THE STOCK IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
VIII. Proxygram
A. Explanation
<PAGE>
A proxygram is used when the majority of votes needed to adopt the Plan of
Conversion is still outstanding. The proxygram is mailed to those "target
vote" depositors who have not previously returned their signed proxy.
The target vote depositors are determined by the conversion agent.
B. Example
<PAGE>
B. Example
_________________________________________________________
P R O X Y G R A M
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF CULLMAN
YOUR VOTE ON OUR STOCK CONVERSION PLAN HAS NOT BEEN RECEIVED.
- --------- ---------------------
YOUR VOTE IS VERY IMPORTANT, PARTICULARLY SINCE FAILURE TO VOTE IS EQUIVALENT TO
- ---------------------------
VOTING AGAINST THE PLAN.
VOTING FOR CONVERSION WILL NOT AFFECT THE INSURANCE OF YOUR ACCOUNT. IT WILL
-------
CONTINUE TO BE INSURED UP TO $100,000 BY THE FEDERAL DEPOSIT INSURANCE
- ----------------------------------------------------------------------
CORPORATION.
- -----------
YOU MAY PURCHASE STOCK IF YOU WISH, BUT VOTING DOES NOT OBLIGATE YOU TO BUY
STOCK.
PLEASE ACT PROMPTLY! SIGN THE ENCLOSED PROXY CARD AND MAIL, OR DELIVER, THE
----------------------------
PROXY CARD TO FIRST FEDERAL TODAY. PLEASE VOTE ALL PROXY CARDS RECEIVED.
---
WE RECOMMEND THAT YOU VOTE TO APPROVE THE PLAN OF CONVERSION. THANK YOU.
THE BOARD OF DIRECTORS AND MANAGEMENT OF
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF CULLMAN
_________________________________________________________________
IF YOU RECENTLY MAILED THE PROXY
PLEASE ACCEPT OUR THANKS AND DISREGARD THIS REQUEST.
FOR FURTHER INFORMATION CALL COLLECT (205) 737-8916.
<PAGE>
SOUTHERN COMMUNITY
BANCSHARES, INC.
----------------------------------------
HOLDING COMPANY FOR FIRST FEDERAL
SAVINGS AND LOAN ASSOCIATION OF CULLMAN
STOCK ORDER FORM
(MUST BE ACCOMPANIED BY A CERTIFICATION
FORM)
NOTE: Please read the Stock Order Form
Instructions and Guide on the
back as you complete this form.
DEADLINE: The Subscription Offering will expire at Noon, Central Time, on
, 1996, unless extended.
- ------------------------------------------------------------------------------
- ----------------------- -------------------------
(1) Number of Shares Subscription Price (2) Total Payment Due
X $20.00 =
- ----------------------- -------------------------
The minimum number of shares that may be subscribed for is 25 shares and the
maximum individual purchase limit in the Subscription and Community Offering,
if any, is 7,500 shares, except for purchases by the Employee Stock Ownership
Plan of First Federal Savings and Loan Association of Cullman. ("First
Federal"). The maximum purchase limit is subject to possible change. See the
Stock Order Form Instructions and Guide on the back of this form and the
Prospectus.
- ------------------------------------------------------------------------------
METHOD OF PAYMENT IMPORTANT PURCHASER INFORMATION
(3)[_] Enclosed is a check, (5)a[_] Check here if you were a depositor
bank draft or money of First Federal on March 31, 1995
order made payable to (the Eligibility Record Date).
Southern Community Enter information below for all
Bancshares, Inc. in deposit accounts that you had at
the amount of: First Federal on March 31, 1995.
$____ Cash can be used (5)b[_] Check here if you were a borrower
only if presented of First Federal as of both ,
in person at any First 1996 (the Voting Record Date) or a
Federal office. depositor of First Federal as of
(4)[_] The undersigned September 30, 1996 who did not have
authorizes withdrawal a deposit on March 31, 1995. Enter
from this (these) information below for all loan and
account(s) at First deposit accounts that you had at
Federal. Please contact First Federal on such dates.
------ ------- (5)c[_] State in which you reside:_______
the Stock Information
--- ----- ----------- Account Title Deposit Loan Account
Center immediately (Names on Accounts) Account Account Number
------------------
if you wish to use
------------------ --------------------------------------------
your First Federal IRA
---------------------- --------------------------------------------
for stock purchase.
------------------- --------------------------------------------
Account Number Amount --------------------------------------------
- ----------------------------
$ --------------------------------------------
- ----------------------------
$
- ----------------------------
$
- ----------------------------
Total
Withdrawal
Amount $-----------
There is no penalty for early withdrawals used for stock payment.
STOCK REGISTRATION (SEE BACK UNDER STOCK OWNERSHIP GUIDE)
(6) Form of Stock Ownership:
[_]Individual [_]Joint tenants [_]Tenants in [_] Uniform Transfer
with right common to Minors
of survivorship
[_] Fiduciary (i.e., [_]Corporation or [_]Other ___________________
trust, estate, Partnership
etc.)
- -------------------------------------------------------------------------------
(7) Name(s) in which your stock is to be registered Social Security No. or
(Please Print Clearly) Tax ID No.
- -------------------------------------------------------------------------------
Name(s) continued
- -------------------------------------------------------------------------------
Street Address City County State Zip Code
- -------------------------------------------------------------------------------
------------------------ ---------------------
Daytime Phone Evening Phone
(8) Telephone Information ( ) ( )
------------------------ ---------------------
NASD AFFILIATION
(9) [_]Check here if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with a NASD member, a member of
the immediate family of any such person to whose support such person
contributes, directly or indirectly, or the holder of an account in which a
NASD member or person associated with a NASD member has a beneficial interest.
To comply with conditions under which an exemption from the NASD's
Interpretation With Respect to Free-Riding and Withholding is available, you
agree, if you have checked the NASD Affiliation box: (i) that you are an
eligible purchaser in First Federal's mutual to stock conversion, (ii) not to
sell, transfer or hypothecate the stock for a period of three months following
issuance, and (iii) to report this subscription in writing to the applicable
NASD member within one day of payment therefor.
ACKNOWLEDGMENT
(10) To be effective in the Subscription Offering, this fully completed Stock
Order Form must be actually received by First Federal no later than Noon,
Central Time on_________, 1996, unless extended; otherwise this Stock Order Form
and all subscription rights will be void. Completed Stock Order Forms,
together with the required payment or withdrawal authorization, may be
delivered to First Federal's main office or may be mailed to the Post Office
Box indicated on the enclosed business reply envelope. All rights exercisable
hereunder are not transferable and shares purchased upon exercise of such
rights must be purchased for the account of the person exercising such rights.
It is understood that this Stock Order Form will be accepted in accordance
with, and subject to, the terms and conditions of the Plan of Conversion
("Plan of Conversion") of First Federal described in the accompanying
Prospectus. If the Plan of Conversion is not approved by the voting members of
First Federal at a Special Meeting to be held on , 1996, or any
adjournment thereof, all orders will be cancelled and funds received as
payment, with accrued interest, will be returned promptly. The undersigned
agrees that after receipt by First Federal, this Stock Order Form may not be
modified, withdrawn or cancelled (unless the Conversion is not completed
within 45 days of the completion of the Subscription Offering) without First
Federal's consent and if authorization to withdraw from deposit accounts at
First Federal has been given as payment for shares, the amount authorized for
withdrawal shall not otherwise be available for withdrawal by the undersigned.
APPLICABLE FEDERAL REGULATIONS PROHIBIT ANY PERSON FROM TRANSFERRING OR
ENTERING INTO ANY AGREEMENT DIRECTLY OR INDIRECTLY TO TRANSFER THE LEGAL OR
BENEFICIAL OWNERSHIP OF CONVERSION SUBSCRIPTION RIGHTS, OR THE UNDERLYING
SECURITIES TO THE ACCOUNT OF ANOTHER. FIRST FEDERAL AND SOUTHERN COMMUNITY
BANCSHARES, INC. WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE
EVENT THEY BECOME AWARE OF THE TRANSFER OF CONVERSION SUBSCRIPTION RIGHTS AND
WILL NOT HONOR ORDERS KNOWN BY THEM TO INVOLVE SUCH TRANSFER.
I ACKNOWLEDGE THAT THE COMMON STOCK OFFERED IS NOT A SAVINGS OR DEPOSIT
ACCOUNT AND IS NOT INSURED BY THE SAVINGS ASSOCIATION INSURANCE FUND, THE BANK
INSURANCE FUND, THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY OTHER
GOVERNMENT AGENCY, MAY LOSE VALUE AND IS NOT GUARANTEED BY SOUTHERN COMMUNITY
BANCSHARES, INC. OR FIRST FEDERAL.
I ALSO ACKNOWLEDGE RECEIPT OF A PROSPECTUS DATED , 1996.
A VALID STOCK ORDER FORM MUST BE SIGNED AND DATED BELOW
Under penalty of perjury, I certify that the Social Security or Tax ID Number
and the information provided in this Stock Order Form are true, correct and
complete, that I am not subject to back-up withholding and that I am
purchasing for my own account and that there is no agreement or understanding
regarding the transfer of my subscription rights or the sale or transfer of
these shares and that I have received a copy of the Prospectus and am aware of
the risks associated with an investment in Southern Community Bancshares, Inc.
SIGNATURE(S)
- -------------------------------------------------------------------------
(11) Signature Date Signature Date
- -------------------------------------------------------------------------
FOR OFFICE USE ONLY
- -------------------------------------- STOCK INFORMATION CENTER
Date FIRST FEDERAL SAVINGS AND LOAN
Received _ /_ /_ Category # ______ ASSOCIATION OF CULLMAN
Batch # _________ Deposit _________ 325 SECOND STREET, S.E.
Order # _________ Date Input /_ / CULLMAN, ALABAMA, 35055
- -------------------------------------- 205-737-8916
<PAGE>
SOUTHERN COMMUNITY BANCSHARES, INC.
- -------------------------------------------------------------------------------
SUBSCRIPTION OFFERING
STOCK ORDER FORM
INSTRUCTIONS AND GUIDE
- -------------------------------------------------------------------------------
- ---------------------
STOCK OWNERSHIP GUIDE
- ---------------------
INDIVIDUAL
Include the first name, middle initial and last name of the shareholder. Avoid
the use of two initials. Please omit words that do not affect ownership
rights, such as "Mrs.", "Mr.", "Dr.", "special account", "single person", etc.
JOINT TENANTS WITH RIGHT OF SURVIVORSHIP
Joint tenants with right of survivorship may be specified to identify two or
more owners. When stock is held by joint tenants with right of survivorship,
ownership is intended to pass automatically to the surviving joint tenant(s)
upon the death of any joint tenant. All parties must agree to the transfer or
sale of shares held by joint tenants.
TENANTS IN COMMON
Tenants in common may also be specified to identify two or more owners. When
stock is held by tenants in common, upon the death of one co-tenant, ownership
of the stock will be held by the surviving co-tenant(s) and by the heirs of
the deceased co-tenant. All parties must agree to the transfer or sale of
shares held by tenants in common.
UNIFORM TRANSFER TO MINORS
Stock may be held in the name of a custodian for a minor under the Uniform
Transfer to Minors Acts of each state. There may be only one custodian and one
minor designated on a stock certificate. The standard abbreviation for
Custodian is "CUST", while the Uniform Transfer to Minors Act is "Unif Tran
Min Act". Standard U.S. Postal Service state abbreviations should be used to
describe the appropriate state. For example, stock held by John Doe as
custodian for Susan Doe under the Louisiana Uniform Transfer to Minors Act
will be abbreviated John Doe, CUST Susan Doe Unif Tran Min Act, LA (use
minor's social security number).
FIDUCIARIES
Information provided with respect to stock to be held in a fiduciary capacity
must contain the following:
* The name(s) of the fiduciary. If an individual, list the first name, middle
initial and last name. If a corporation, list the full corporate title
(name). If an individual and a corporation, list the corporation's title
before the individual.
* The fiduciary capacity, such as administrator, executor, personal
representative, conservator, trustee, committee, etc.
* A copy and description of the document governing the fiduciary
relationship, such as living trust agreement or court order. Without
documentation establishing a fiduciary relationship, your stock may not be
registered in a fiduciary capacity.
* The date of the document governing the relationship except that the date of
a trust created by a will need not be included in the description.
* The name of the maker, donor or testator and the name of the beneficiary.
An example of fiduciary ownership of stock in the case of a trust is: John
Doe, Trustee Under Agreement Dated 10-1-87 for Susan Doe.
You may mail your completed Stock Order Form in the envelope that has been
provided, or you may deliver your Stock Order Form to the main office of First
Federal. In order to purchase stock in the Subscription Offering, your Stock
Order Form, properly completed, and payment in full (or withdrawal
authorization) at the Subscription Price of $20 per share must be received by
First Federal no later than Noon, Central Time, on , 1996, unless such
date is extended, or your Stock Order Form will become void. Stock Order Forms
shall be deemed received only upon actual receipt at any banking office of
First Federal.
If you need further assistance, please call the Stock Information Center at
(205) 737-8916. We will be pleased to help you with the completion of your
Stock Order Form or answer any questions you may have.
ITEM INSTRUCTIONS
- ---------------
ITEMS 1 AND 2--
Fill in the number of shares that you wish to purchase and the total payment
due. The amount due is determined by multiplying the number of shares
purchased by the Subscription Price of $20.00 per share. The minimum purchase
is 25 shares. The maximum purchase in the Subscription Offering, the Community
Offering or Syndicated Community Offering by any person (or persons exercising
Subscription Rights through a single account) or entity (other than First
Federal's Employee Stock Ownership Plan), is 7,500 shares. In addition, no
individual person or entity, together with associates of and persons acting in
concert with such person, may purchase in the Community Offering and the
Syndicated Community Offering more than 7,500 shares. Finally, no person,
together with associates, or group of persons acting in concert, shall
purchase more than 15,000 shares sold in the Conversion. The Board of
Directors of First Federal has the right to (i) reduce the maximum purchase
limitation to an amount not less than one percent of the shares of common
stock issued in the Conversion or (ii) increase the maximum purchase
limitation to an amount up to 9.99 percent of the shares of common stock
issued in the Conversion. Any change in the maximum purchase limitation may
occur at any time prior to consummation of the Conversion, either before or
after , 1996. If the maximum purchase limitation is increased, any
subscriber who has subscribed for 7,500 shares will be given the opportunity
to increase their subscriptions up to the higher maximum purchase limitation.
Southern Community Bancshares, Inc. and First Federal reserve the right to
reject any order received in the Community Offering, in whole or in part.
Southern Community Bancshares, Inc. and First Federal also have the right to
reject the order of any subscriber who (i) submits false or misleading
information on a Stock Order Form or otherwise, (ii) attempts to purchase
shares in violation of the Plan of Conversion or applicable law or (iii) fails
to cooperate with attempts to verify information with respect to purchase
rights.
ITEM 3--
Payment for shares may be made in cash (only if delivered by you in person) or
by check, bank draft or money order made payable to Southern Community
Bancshares, Inc. Your funds will earn interest at the First Federal current
statement savings rate until the Conversion is completed or terminated. DO NOT
MAIL CASH TO PURCHASE STOCK! Please check this box if your method of payment
is by cash, check, bank draft or money order.
ITEM 4--
If you pay for your stock by a withdrawal from a First Federal deposit
account, insert the account number(s) and the amount of your withdrawal
authorization for each account. The total amount withdrawn should equal the
amount of your stock purchase. There will be no penalty assessed for early
withdrawals from certificate accounts used for stock purchases. This form of
payment may not be used if your account is an Individual Retirement Account.
If you wish to use your IRA currently at First Federal, you must complete all
paperwork required no later than , 1996.
ITEM 5--
a. Please check this box if you were a depositor of First Federal on March 31,
1995 (the Eligibility Record Date). You must list the full title and account
numbers of all accounts you had on this date in order to insure proper
identification of your purchase rights and preferences.
b. Please check this box if you were a borrower from First Federal as of
, 1996 or a depositor as of September 30, 1996 who did not have a deposit
account on March 31, 1995. If you were a borrower from First Federal on ,
1996 (the Voting Record Date), you must list the name of all borrowers on your
loan accounts and the loan account number for all loan accounts that you had
at such date in order to insure proper identification of your purchase rights
and preferences.
c. You must list the state in which you reside.
ITEMS 6, 7 AND 8--
The stock transfer industry has developed a uniform system of shareholder
registrations that we will use in the issuance of your common stock. Please
complete items 6, 7 and 8 as fully and accurately as possible, and be certain
to supply your social security number or tax identification number and your
daytime and evening telephone number(s). We will need to call you if we cannot
execute your order as given. If you have any questions or concerns regarding
the registration of your stock, please consult your legal advisor. Stock
ownership must be registered in one of the ways described under "Stock
Ownership Guide."
ITEM 9--
Please check this box if you are a member of the NASD or if this item
otherwise applies to you.
ITEMS 10 AND 11--
Please sign and date the Stock Order Form where indicated. Review the Stock
Order Form carefully before you sign, including the acknowledgement. Normally,
one signature is required. An additional signature is required only when
payment is to be made by withdrawal from a deposit account that requires
multiple signatures to withdraw funds. If you have any remaining questions, or
if you would like assistance in completing your Stock Order Form, you may call
the Stock Information Center. The Stock Information Center phone number is
(205) 737-8916.
