<PAGE>
As filed with the Securities and Exchange Commission
on November 18, 1996
Registration No. 333-
-------
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------------
NEWSOUTH BANCORP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 6035 [Applied for]
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation or organization) classification code number) identification number)
</TABLE>
1311 Carolina Avenue
Washington, North Carolina 27889
(919) 946-4178
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
THOMAS A. VANN
President
NewSouth Bancorp, Inc.
1311 Carolina Avenue
Washington, North Carolina 27889
(919) 946-4178
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Gary R. Bronstein, Esquire
Joel E. Rappoport, Esquire
Housley Kantarian & Bronstein, P.C.
1220 19th Street, N.W., Suite 700
Washington, D.C. 20036
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this registration statement becomes effective.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933,
check the following box: [x]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the 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.[_]
<TABLE>
<CAPTION>
=====================================================================================================
Title of Each Class Amount Proposed Maximum Proposed Maximum Amount of
of Securities to be Offering Price Aggregate Offering Registration
to be Registered Registered Per Security Offering Price (1) Fee
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value 2,777,250 $15.00 $41,658,750 $12,623.86
$.01 per share........
=====================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
Page 1 of pages Exhibit Index at page
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<PAGE>
NEWSOUTH BANCORP, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item and Caption Prospectus Heading
---------------- ------------------
<S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus......... Forepart of Registration Statement; Front Cover
Page
2. Inside Front and Outside Back Cover Pages
of Prospectus................................ Front Cover Page; Back Cover Page; Additional
Information
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges................. Prospectus Summary; Risk Factors
4. Use of Proceeds................................ Use of Proceeds
5. Determination of Offering Price................ Cover Page; The Conversion -- Stock Pricing and
Number of Shares to be Issued
6. Dilution....................................... Not applicable
7. Selling Security Holders....................... Not applicable
8. Plan of Distribution........................... Front Cover Page; The Conversion -- General;
-- Offering of Common Stock; -- Community
Offering; --Syndicated Community Offering;
-- Plan of Distribution and Marketing Agent
9. Description of Securities to be
Registered................................... Description of Capital Stock
10. Interests of Named Experts and Counsel........ Legal Opinions; Tax Opinions; Experts
11. Information with Respect to the Registrant
(a) Description of Business.................. NewSouth Bancorp, Inc.; Home Savings Bank, SSB,
NewSouth Bank; Business of the Company; Business of
the Bank
(b) Description of Property.................. Business of the Bank -- Offices and Other Material
Properties
(c) Legal Proceedings........................ Business of the Bank -- Legal Proceedings
(d) Market Price and Dividends............... Front Cover Page; Dividend Policy; Market for the
Common Stock
(e) Financial Statements..................... Index to Consolidated Financial Statements
(f) Selected Financial Data.................. Selected Consolidated Financial Information and
Other Data
(g) Supplementary Financial Information...... Not applicable
(h) Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... Management's Discussion and Analysis of Financial
Condition and Results of Operations
(i) Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure..................... Not applicable
(j) Directors and Executive Officers......... Management of the Company; Management of the Bank
(k) Executive Compensation................... Management of the Bank -- Executive
Compensation; -- Director Compensation; -- Certain
Benefit Plans and Agreements
(l) Security Ownership of Certain Beneficial
Owners and Management.................... Proposed Management Purchases
(m) Certain Relationships and Related
Transactions............................. Management of the Bank -- Transactions with
Management
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................. Not applicable
</TABLE>
<PAGE>
PROSPECTUS
NEWSOUTH BANCORP, INC.
(Holding Company For
Home Savings Bank, Inc., SSB,
To Become NewSouth Bank)
Up to 2,415,000 Shares of Common Stock
$15.00 Per Share
NewSouth Bancorp, Inc., a Delaware corporation (the "Company"), is
offering up to 2,415,000 shares, subject to adjustment, of its common stock, par
value $.01 per share (the "Common Stock"), in connection with the conversion of
Home Savings Bank, SSB, Washington, North Carolina (the "Bank"), from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered stock
savings bank to be known as Home Savings Bank, Inc., SSB (the "Converted Bank")
and the issuance of the Converted Bank's capital stock to the Company pursuant
to the Bank's Plan of Conversion (the "Plan"). The conversion of the Bank to the
Converted Bank, the acquisition of control of the Converted Bank by the Company
and the
(continued on following page)
For information on how to subscribe, call
the Stock Information Center at (919)___-____.
PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW AND CONSIDER
THE DISCUSSION UNDER "RISK FACTORS" BEGINNING ON PAGE ___.
THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS
ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR
ANY OTHER GOVERNMENTAL AGENCY, INVOLVE INVESTMENT RISK, INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL, AND ARE NOT GUARANTEED BY THE COMPANY OR THE BANK.
THESE SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE ADMINISTRATOR, SAVINGS INSTITUTIONS DIVISION, NORTH
CAROLINA DEPARTMENT OF COMMERCE (THE "ADMINISTRATOR"), THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH
COMMISSION, ADMINISTRATOR OR CORPORATION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
Estimated Fees
and Expenses,
Including
Underwriting
Purchase Discounts and Estimated Net
Price (1) Commissions (2) Proceeds (3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share (4) $15.00 $.50 $14.50
- --------------------------------------------------------------------------------
Total Minimum $26,775,000 $ 979,000 $25,796,000
- --------------------------------------------------------------------------------
Total Midpoint $31,500,000 $1,060,000 $30,440,000
- --------------------------------------------------------------------------------
Total Maximum $36,225,000 $1,140,000 $35,085,000
- --------------------------------------------------------------------------------
Total Maximum, as adjusted (5) $41,658,750 $1,233,000 $40,425,750
==============================================================================
</TABLE>
(1) The estimated aggregate value of the Common Stock is based on an
independent appraisal by Ferguson & Co., LLP ("Ferguson") as of October 18,
1996. Based on such appraisal, the Company has determined to offer
2,415,000 shares, subject to adjustment, at a purchase price of $15.00 per
share (the "Purchase Price"). The final aggregate value will be determined
at the time of closing of the Stock Conversion and is subject to change due
to changing market conditions and other factors.
(2) Includes estimated printing, postage, legal, accounting and miscellaneous
expenses which will be incurred in connection with the Conversion. Also
includes estimated fees, sales commissions and reimbursable expenses to be
paid to Trident Securities, Inc. ("Trident Securities") in connection with
the Subscription and Community Offerings, estimated to be $521,000 assuming
the sale of 2,100,000 shares at the midpoint of the Estimated Valuation
Range (defined herein). The actual fees and expenses may vary from the
estimates. See "Pro Forma Data" for the assumptions used to arrive at
these estimates. Trident Securities may be deemed to be an underwriter,
and certain amounts to be paid to Trident Securities may be deemed to be
underwriting compensation for purposes of the Securities Act of 1933, as
amended. The Company and the Bank have agreed to indemnify Trident
Securities against certain liabilities arising out of its services as
financial and sales advisor.
(3) Includes the ESOP's expected purchase of 8% of the shares sold in the Stock
Conversion with funds borrowed from the Company. Does not reflect a
possible purchase by a management recognition plan of a number of
additional newly issued shares equal to up to 4% of the shares to be issued
in the Stock Conversion with funds contributed by the Converted Bank. See
"Capitalization" and "Pro Forma Data."
(4) Based on the midpoint of the Estimated Valuation Range. At the minimum,
maximum and 15% above the maximum of the Estimated Valuation Range,
estimated fees and expenses, including underwriting discounts and
commissions, are expected to be $.55, $.47 and $.44, respectively, and the
estimated net proceeds per share are expected to be $14.45, $14.53 and
$14.56, respectively.
(5) Gives effect to an increase in the number of shares which could occur
without a resolicitation of subscribers or any right of cancellation due to
an increase in the Estimated Valuation Range of up to 15% above the maximum
of the Estimated Valuation Range to reflect changes in market and financial
conditions or to fill in whole or in part the order of the ESOP. See "The
Conversion -- Stock Pricing and Number of Shares to be Issued."
TRIDENT SECURITIES, INC.
The date of this Prospectus is ____________, 1997
<PAGE>
(continued from preceding page)
issuance and sale of up to 2,415,000 shares of Common Stock are collectively
referred to herein as the "Stock Conversion." Immediately following completion
of the Stock Conversion, the Bank intends to convert from a North Carolina-
chartered stock savings bank to a North Carolina commercial bank (the "Bank
Conversion") to be known as "NewSouth Bank" (the "Commercial Bank"). The Stock
Conversion and the Bank Conversion are referred to collectively herein as the
"Conversion."
The shares of the Common Stock are being offered pursuant to nontransferable
subscription rights ("Subscription Rights") in the following order of priority:
(i) depositors of the Bank as of June 30, 1992 with a $50.00 minimum deposit at
that date ("Eligible Account Holders"); (ii) the Company's Employee Stock
Ownership Plan (the "ESOP") (a tax-qualified employee stock benefit plan of the
Company, as defined in the Plan); (iii) depositors of the Bank with $50.00 or
more on deposit as of ____________ __, 1996 ("Supplemental Eligible Account
Holders"); and (iv) certain depositors and borrowers as of ____________, 1997
("Other Members") in a subscription offering (the "Subscription Offering").
Subscription Rights received in any of the foregoing categories will be
subordinated to the Subscription Rights received by those in a prior category,
with the exception that any shares of Common Stock sold in excess of the maximum
of the Estimated Valuation Range, as defined herein, may first be sold to the
ESOP. SUBSCRIPTION RIGHTS ARE NOT TRANSFERABLE, AND PERSONS WHO ATTEMPT TO
TRANSFER OR SELL THEIR SUBSCRIPTION RIGHTS MAY LOSE THE RIGHT TO SUBSCRIBE FOR
STOCK IN THE STOCK CONVERSION AND MAY BE SUBJECT TO OTHER SANCTIONS AND
PENALTIES. The Company may offer any shares of Common Stock not subscribed for
in the Subscription Offering in a community offering (the "Community Offering")
to certain members of the general public to whom the Company delivers a copy of
this Prospectus and a stock order form (the "Stock Order Form"), with preference
given to natural persons and trusts of natural persons who are permanent
"residents" of Beaufort, Craven, Lenoir, Nash, Pasquotank and Pitt Counties in
North Carolina (the "Local Community"). For information regarding the term
"resident," as used in relation to the preference afforded natural persons and
trusts of natural persons in the Local Community, see "The Conversion --
Offering of Common Stock." The Bank and the Company may, in their absolute
discretion, reject orders in the Community Offering in whole or in part. It is
anticipated that shares of the Common Stock not otherwise subscribed for in the
Subscription and Community Offerings may be offered at the discretion of the
Company to certain members of the general public as part of a community offering
on a best efforts basis by a selling group of selected broker-dealers to be
managed by Trident Securities (the "Syndicated Community Offering"). Neither
Trident Securities nor any selected broker-dealers will have any obligation to
purchase any shares of the Common Stock. See "The Conversion -- Offering of
Common Stock," " -- Subscription Rights," " -- Community Offering," and " --
Syndicated Community Offering."
The total number of shares to be issued in the Stock Conversion may be
significantly increased or decreased to reflect market and financial conditions
at the completion of the Stock Conversion. The aggregate purchase price of all
shares of the Common Stock will be based on the estimated pro forma market value
of the Bank, as converted, as determined by an independent appraisal. All
shares of the Common Stock will be sold for $15.00 per share (the "Purchase
Price"). Except for the ESOP, which intends to purchase 8% of the total number
of shares of Common Stock issued in the Stock Conversion, no Eligible Account
Holder, Supplemental Eligible Account Holder or Other Member, including
individuals on a joint account, may purchase in their capacity as such in the
Subscription Offering more than 20,000 shares, or $300,000, of Common Stock. No
person, including associates of and persons acting in concert with such person,
may purchase in the Community Offering more than 20,000 shares, or $300,000, of
Common Stock. No person or entity, together with associates or persons acting
in concert, may purchase more than 40,000 shares, or $600,000, of the Common
Stock in the Stock Conversion. No person may purchase fewer than 25 shares.
The maximum purchase limitation may be increased to up to 5% of the total number
of shares of Common Stock offered in the Stock Conversion.
(continued on following page)
2
<PAGE>
(continued from preceding page)
THE SUBSCRIPTION OFFERING WILL EXPIRE AT 12:00 NOON, EASTERN TIME, ON
_____________, 1997, UNLESS EXTENDED BY THE COMPANY FOR UP TO AN ADDITIONAL 45
DAYS. THE COMMUNITY OFFERING, IF ANY, MAY COMMENCE WITHOUT NOTICE AT ANY TIME
AFTER THE COMMENCEMENT OF THE SUBSCRIPTION OFFERING AND MAY TERMINATE AT ANY
TIME WITHOUT NOTICE, BUT MAY NOT TERMINATE LATER THAN __________, 1997.
Subscription Rights are exercisable by completing and returning to any office of
the Bank a Stock Order Form, together with full payment, or appropriate
instructions authorizing withdrawal of such an amount from existing accounts at
the Bank. An executed Stock Order Form, once received by the Bank, may not be
modified, amended or rescinded without the consent of the Bank. Subscriptions
paid by check, cash or money order will be held in a separate account at the
Bank established specifically for this purpose, and interest will be paid at the
Bank's passbook rate from the date payment is received until the Stock
Conversion is completed or terminated. In the case of payments to be made
through withdrawal from deposit accounts at the Bank, all sums authorized for
withdrawal will continue to earn interest at the contract rate until the date of
the completion of the Stock Conversion. If the Stock Conversion is not
completed within 45 days after the last day of the Subscription Offering (which
date will be no later than __________, 1997) and the Administrator consents to
an extension of time to complete the Stock Conversion, subscribers will be
required to affirmatively reconfirm their subscriptions prior to the expiration
of the resolicitation offering or their subscription funds will be promptly
refunded with interest, or subscribers will be permitted to modify or cancel
their subscriptions. If the Stock Conversion is not completed within such
period or extended period, all funds held will be promptly returned together
with accrued interest, and all withdrawal authorizations will be terminated.
Such extensions may not go beyond __________ __, 1999. See "The Conversion --
Purchases in Subscription and Community Offerings."
The Bank has retained Trident Securities, a broker-dealer registered with the
Securities and Exchange Commission ("SEC") and a member of the National
Association of Securities Dealers, Inc. ("NASD") to provide financial and sales
assistance in connection with the Subscription and Community Offerings. Trident
Securities has agreed to use its best efforts to assist the Company and the Bank
with the sale of the Common Stock in the Subscription Offering and the Community
Offering, if any.
3
<PAGE>
[MAP APPEARS HERE]
4
<PAGE>
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in its
entirety by the more detailed information and the Financial Statements and
accompanying Notes appearing elsewhere in this Prospectus.
NewSouth Bancorp, Inc. The Company was incorporated under the laws of the
State of Delaware in October 1996 at the direction of
the Board of Directors of the Bank for the purpose of
serving as a holding company of the Converted Bank upon
its conversion from mutual to stock form, and of the
Commercial Bank following the Bank Conversion. The
Company has received approval from the Administrator
and the Board of Governors of the Federal Reserve
System ("Federal Reserve Board") to acquire control of
the Converted Bank and the Commercial Bank subject to
satisfaction of certain conditions. Prior to the
Conversion, the Company has not engaged and will not
engage in any material operations. Upon consummation of
the Stock Conversion, the Company will have no
significant assets other than the outstanding capital
stock of the Converted Bank (or, following the Bank
Conversion, the Commercial Bank), a portion of the net
proceeds of the Stock Conversion and a note receivable
from the ESOP. Upon consummation of the Conversion, the
Company's principal business will be overseeing and
directing the business of the Commercial Bank and
investing the net Stock Conversion proceeds retained by
it.
Following the Conversion, the Board of Directors
intends to manage the Company to promote the long-term
best interests of the Company and its stockholders.
Initially following the Conversion, the Company will
have capital in excess of the level required to support
its current asset size and level of operations, and the
Bank's business plan is to pursue a strategy of
conservative, long-term growth through competing for
loans and deposits in its market area, establishing new
branch offices or making selective acquisitions of
other financial institutions or branches of other
institutions. The Boards of Directors of the Company
and the Bank currently have no specific plans regarding
new branch offices or acquisitions of other financial
institutions or branches. With respect to the
evaluation of any business combination or tender or
exchange offer that may be presented in the future, the
Company's Certificate of Incorporation directs the
Board of Directors to consider, in addition to the
adequacy of the amount to be paid in connection with
any such transaction, certain specified factors and any
other factors the Board deems relevant, including (i)
the social and economic effects of the transaction on
the Company and its subsidiaries, employees,
depositors, loan and other customers, creditors and
other elements of the communities in which the Company
and its subsidiaries operate or are located; (ii) the
business and financial condition and earnings prospects
of the acquiring person or entity; and (iii) the
competence, experience and integrity of the acquiring
person or entity and its or their management. See "Risk
Factors -- Uncertainty as to Existence of Growth
Opportunities" and "Certain Anti-Takeover Provisions in
the Certificate of Incorporation and Bylaws -- Board
Consideration of Certain Nonmonetary Factors in the
Event of an Offer by Another Party."
Home Savings Bank, SSB
The Bank is a North Carolina-chartered mutual savings
bank headquartered in Washington, North Carolina and
serving northeastern North Carolina. The Bank was
chartered by the State of North Carolina in 1902 under
the name The Home Building and Loan Association. The
Bank received federal insurance of its deposit accounts
in 1959. In 1992, the Bank converted to a North
Carolina-chartered savings bank, at which time it
adopted its present name of Home Savings Bank, SSB. At
September 30, 1996, the Bank had total assets of $194.1
million, total deposits of $171.2 million and retained
income, substantially restricted, of $18.3 million.
5
<PAGE>
Historically, the Bank operated as a traditional
savings and loan association, emphasizing the
origination of loans secured by one- to four-family
("single-family") residences. Beginning in the early
1980's, the Board of Directors determined that the
Bank's market area was not adequately served by the
existing financial institutions and there was local
demand for commercial real estate, commercial business
and consumer loans. As a result, the Board of Directors
determined to refocus the Bank's strategy. Pursuant to
this strategy, while continuing to pursue its existing
business of originating single-family residential
mortgage loans, the Bank took advantage of the business
opportunities identified by the Board of Directors by
gradually expanding into commercial real estate,
commercial business and consumer lending. In
furtherance of this strategy, the Bank recruited
experienced commercial real estate, commercial business
and consumer lending officers and developed commercial
real estate, commercial business and consumer loan
products. As a result of these efforts over the years,
at September 30, 1996, the Bank had commercial real
estate, commercial business and consumer loans totaling
$31.2 million, $10.3 million and $37.4 million,
respectively, which represented 17.9%, 6.0% and 21.5%,
respectively, of total loans. At September 30, 1996,
$94.8 million, or 54.6% of total loans, consisted of
residential real estate mortgage loans .
In addition, since the late 1980's, mortgage banking
activities have constituted an increasingly significant
business activity for the Bank. The Bank's mortgage
banking activities consist of originating single-family
residential mortgage loans and primarily selling those
loans for cash to the Federal Home Loan Mortgage
Corporation ("FHLMC"), with servicing retained. On
occasion, the Bank also will swap single-family
residential mortgage loans with the FHLMC, while
retaining servicing, in exchange for mortgage-backed
securities backed by those loans. At September 30,
1996, the Bank had $21.6 million of loans available for
sale and $253.7 million of loans serviced for others.
The Bank earned servicing income of $632,000 on its
portfolio of loans serviced for others for the year
ended September 30, 1996.
Following the Conversion, management intends to
continue to follow its current strategy of seeking
growth opportunities through increasing its portfolio
of commercial real estate, commercial business and
consumer loans while continuing to pursue single-family
residential mortgage loan origination and mortgage
banking activities.
The Bank is subject to examination and comprehensive
regulation by the Federal Deposit Insurance Corporation
("FDIC") and the Administrator, and the Bank's savings
deposits are insured up to applicable limits by the
Savings Association Insurance Fund ("SAIF"), which is
administered by the FDIC. The Bank is a member of and
owns capital stock in the Federal Home Loan Bank
("FHLB") of Atlanta, which is one of 12 regional banks
in the FHLB System. The Bank is further subject to
regulations of the Federal Reserve Board governing
reserves to be maintained and certain other matters.
Regulations significantly affect the operations of the
Bank. See "Regulation -- Depository Institution
Regulation."
NewSouth Bank
Upon consummation of the Bank Conversion, the
Commercial Bank will succeed to all of the assets and
liabilities of the Converted Bank (which, pursuant to
the Stock Conversion, will have succeeded to all of the
assets and liabilities of the Bank). Following the
Conversion, management intends to continue to follow
the Bank's current strategy of seeking growth
opportunities through increasing its portfolio of
commercial real estate, commercial business and
consumer loans while continuing to
6
<PAGE>
pursue single-family residential mortgage loan
origination and mortgage banking activities.
The deposits of the Commercial Bank will continue to be
insured by the SAIF of the FDIC, and, as such, the
Commercial Bank will continue to be subject to
regulation and supervision by the FDIC. The Commercial
Bank will not be subject to regulation and supervision
by the Administrator. Rather, the primary regulator of
the Commercial Bank will be the State Banking
Commission of North Carolina (the "Commission"; as used
herein, the Commission refers to the State Banking
Commission of North Carolina as well as the State
Banking Commissioner of North Carolina, whose powers
are exercised under the supervision of the Commission.)
In addition, the Commercial Bank will remain a member
of the FHLB of Atlanta. For information regarding
regulations applicable to the Converted Bank and the
Commercial Bank, see "Regulation."
The Conversion
The Board of Directors of the Bank adopted the Plan,
which provides for both the Stock Conversion and the
Bank Conversion. Pursuant to the Stock Conversion, the
Bank will convert from a North Carolina-chartered
mutual savings bank to a North Carolina-chartered stock
savings bank, and the Converted Bank will operate as a
wholly owned subsidiary of a newly organized holding
company formed by the Bank. Upon consummation of the
Stock Conversion, the Converted Bank will issue all of
its outstanding capital stock to the Company in
exchange for a portion of the net proceeds from the
sale of the Common Stock in the Stock Conversion.
Thereafter, pursuant to the Bank Conversion, the
Converted Bank will convert to a North Carolina
commercial bank.
The Administrator has approved the Plan, subject to
member approval and satisfaction of certain other
conditions. The Administrator has also approved the
Company's application to acquire all of the capital
stock of the Converted Bank, and thereby become a
savings and loan holding company, as part of the Stock
Conversion. The FDIC has issued a notification that it
does not intend to object to the Stock Conversion,
subject to the satisfaction of certain conditions. The
Commission has approved the conversion of the Converted
Bank to the Commercial Bank, and the Federal Reserve
Board has conditionally approved the Company's
application to own all of the capital stock of the
Commercial Bank and thereby become a bank holding
company following completion of the Bank Conversion.
The Conversion is subject to certain conditions,
including the prior approval of the Plan at a special
meeting of members to be held on _____________, 1997
(the "Special Meeting").
The portion of the net proceeds from the sale of Common
Stock in the Stock Conversion to be distributed to the
Converted Bank by the Company will substantially
increase the Converted Bank's (and the Commercial
Bank's) capital position, which will in turn increase
the amount of funds available for lending and
investment and provide greater resources to support the
Bank's operations. The holding company structure will
provide greater flexibility than the Bank alone would
have for diversification of business activities and
expansion. Management believes that this increased
capital will enable the Converted Bank (and the
Commercial Bank) to compete more effectively with other
types of financial services organizations. In addition,
the Conversion will enhance the future access of the
Company and the Converted Bank (and the Commercial
Bank) to the capital markets and will afford depositors
and others the opportunity to become stockholders of
the Company and
7
<PAGE>
thereby participate in any future growth of the
Converted Bank and the Commercial Bank.
Stock Pricing and Federal regulations require that the aggregate purchase
Number of Shares price of the Common Stock to be issued in the Stock
to be Issued Conversion be consistent with an independent appraisal
of the estimated pro forma market value of the Common
Stock following the Stock Conversion. Ferguson, a firm
experienced in valuing savings institutions, has made
an independent appraisal of the estimated aggregate pro
forma market value of the Common Stock to be issued in
the Stock Conversion. Ferguson has determined that as
of October 18, 1996 such estimated pro forma market
value was $31,500,000. The resulting valuation range in
Ferguson's appraisal, which under applicable
regulations extends 15% below and above the estimated
value, is from $26,775,000 to $36,225,000 (the
"Estimated Valuation Range"). The Company, in
consultation with its advisors, has determined to offer
the shares of Common Stock in the Stock Conversion at
the Purchase Price of $15.00 per share. SUCH APPRAISAL
IS NOT INTENDED AND MUST NOT BE CONSTRUED AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF
PURCHASING SUCH SHARES OR AS ANY FORM OF ASSURANCE
THAT, AFTER THE STOCK CONVERSION, SUCH SHARES MAY BE
RESOLD AT OR ABOVE THE PURCHASE PRICE. The appraisal
considered a number of factors and was based upon
estimates derived from those factors, all of which are
subject to change from time to time. In preparing the
valuation, Ferguson relied upon and assumed the
accuracy and completeness of financial and statistical
information provided by the Bank and the Company.
Ferguson did not verify the financial statements
provided or independently value the assets of the Bank.
The appraisal will be further updated immediately prior
to the completion of the Stock Conversion and could be
increased to up to $41,658,750 without a resolicitation
of subscribers based on market and financial conditions
at the completion of the Stock Conversion. Ferguson
received a fee of $35,000 for its appraisal and for
assisting in the preparation of the Company's business
plan.
The total number of shares to be issued in the Stock
Conversion may be increased or decreased without a
resolicitation of subscribers so long as the aggregate
purchase price is not less than the minimum or more
than 15% above the maximum of the Estimated Valuation
Range. Based on the Purchase Price of $15.00 per share,
the total number of shares which may be issued without
a resolicitation of subscribers is from 1,785,000 to
2,777,250. For further information, see "The
Conversion -- Stock Pricing and Number of Shares to
be Issued."
The Subscription, The shares of Common Stock to be issued in the Stock
Community and Conversion are being offered at the Purchase Price of
Syndicated Community $15.00 per share in the Subscription Offering pursuant
Offerings to nontransferable Subscription Rights in the following
order of priority: (i) Eligible Account Holders (i.e.,
depositors whose accounts in the Bank totaled $50.00 or
more on June 30, 1992); (ii) the ESOP (i.e., the
Company's tax-qualified stock benefit plan); (iii)
Supplemental Eligible Account Holders (i.e., depositors
whose accounts in the Bank totaled $50.00 or more on
__________, 1996, other than Eligible Account Holders);
and (iv) Other Members (i.e., certain depositors and
borrower members of the Bank as of ____________, 1997,
other than Eligible Account Holders and Supplemental
Eligible Account Holders). Subscription Rights received
in any of the foregoing categories will be subordinated
to the Subscription Rights received by those in a prior
category, with the exception that any shares of Common
Stock sold in excess of the maximum of the Estimated
Valuation Range may first be sold to the ESOP. The
Company may offer any shares of Common Stock not
subscribed for in
8
<PAGE>
the Subscription Offering at the same price in the
Community Offering to members of the general public to
whom the Company delivers a copy of this Prospectus and
the Stock Order Form. In the Community Offering,
preference will be given to natural persons and trusts
of natural persons who are permanent residents of the
Local Community. Subscription Rights will expire if not
exercised by 12:00 Noon, Eastern Time, on
_____________, 1997, unless extended (the "Expiration
Date"). THE COMPANY AND THE BANK RESERVE THE ABSOLUTE
RIGHT TO ACCEPT OR REJECT ANY ORDERS IN THE COMMUNITY
OFFERING, IN WHOLE OR IN PART, EITHER AT THE TIME OF
RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE FOLLOWING
THE EXPIRATION DATE.
It is anticipated that shares of Common Stock not
otherwise subscribed for in the Subscription Offering
and Community Offering, if any, may be offered at the
discretion of the Company to certain members of the
general public as part of a Syndicated Community
Offering on a best efforts basis by a selling group of
selected broker-dealers to be managed by Trident
Securities. See "The Conversion -- Syndicated Community
Offering." The Subscription and Community Offerings and
Syndicated Community Offering are referred to
collectively herein as the "Offerings."
The Bank and the Company have engaged Trident
Securities to consult with and advise the Company and
the Bank with respect to the Offerings, and Trident
Securities has agreed to solicit subscriptions for
shares of Common Stock in the Offerings. Trident
Securities will receive sales commissions with respect
to shares sold in the Subscription Offering and the
Community and Syndicated Community Offerings, if any.
The Company and the Bank have agreed to indemnify
Trident Securities against certain liabilities,
including certain liabilities under the Securities Act
of 1933, as amended (the "Securities Act"). See "The
Conversion -- Plan of Distribution and Marketing
Agent."
The Bank has established a Stock Information Center,
which will be managed by Trident Securities, to
coordinate the Offerings, including tabulation of
orders and answering questions about the Offerings by
telephone. All subscribers will be instructed to mail
payment to the Stock Information Center or deliver
payment directly to any full-service office of the
Bank. Payment for shares of Common Stock may be made by
cash (if delivered in person), check or money order or
by authorization of withdrawal from deposit accounts
maintained with the Bank (without penalty for early
withdrawal). Such funds will not be available for
withdrawal and will not be released until the Stock
Conversion is completed or terminated. See "The
Conversion -- Subscriptions for Stock in Subscription
and Community Offerings."
Non-transferability of Applicable federal regulations provide that prior to
Subscription Rights the completion of the Stock Conversion, no person shall
transfer or enter into any agreement or understanding
to transfer the legal or beneficial ownership of the
Subscription Rights issued under the Plan or the shares
of Common Stock to be issued upon their exercise.
PERSONS VIOLATING SUCH PROHIBITION MAY LOSE THEIR RIGHT
TO SUBSCRIBE FOR STOCK IN THE STOCK CONVERSION AND MAY
BE SUBJECT TO SANCTIONS BY THE ADMINISTRATOR OR THE
FDIC. EACH PERSON EXERCISING SUBSCRIPTION RIGHTS WILL
BE REQUIRED TO CERTIFY THAT HIS OR HER PURCHASE OF
COMMON STOCK IS SOLELY FOR THE PURCHASER'S OWN ACCOUNT
AND THAT THERE IS NO AGREEMENT OR UNDERSTANDING
REGARDING THE SALE OR TRANSFER OF SUCH SHARES.
Purchase Limitations No person may purchase fewer than 25 shares in the
Offerings. The ESOP may purchase up to an aggregate of
10% of the shares of the Common Stock to be issued in
the Stock Conversion and is expected to purchase 8% of
such shares. With the
9
<PAGE>
exception of the ESOP, no Eligible Account Holder,
Supplemental Eligible Account Holder or Other Member,
including individuals on a joint account, may purchase
in their capacity as such in the Subscription Offering
more than 20,000 shares, or $300,000, of Common Stock.
No person, including associates of and persons acting
in concert with such person, may purchase in the
Community Offering more than 20,000 shares, or
$300,000, of Common Stock. The maximum number of shares
that may be purchased in the Stock Conversion by any
person, together with associates or a group of persons
acting in concert, currently is 40,000 shares, or
$600,000, of the Common Stock offered in the Stock
Conversion. The Board of Directors may increase or
decrease the purchase limitation at any time, subject
to any required regulatory approval. In the event of an
oversubscription, shares will be allocated as provided
in the Plan. See "The Conversion -- Subscription
Rights," --Community Offering" and " -- Syndicated
Community Offering." In the event of an increase in the
total number of shares up to 15% above the maximum of
the Estimated Valuation Range, the additional shares
may be distributed and allocated without the
resolicitation of subscribers. See "The Conversion --
Limitations on Purchase of Shares."
Insider Participation General. The directors and executive officers of the
and Potential Benefits Bank have indicated their intention to purchase an
of Conversion to aggregate of approximately $3.0 million of Common Stock
Management (202,000 shares, or 11.3%, 9.6%, 8.4% and 7.3%,
respectively, of the shares to be issued in the Stock
Conversion at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range).
There is no agreement among the officers and directors
and their affiliates regarding their purchases of
Common Stock.
ESOP. The ESOP intends to purchase an aggregate of 8%
of the shares of Common Stock issued in the Stock
Conversion ($2.1 million and $2.9 million of Common
Stock based on the issuance of the minimum of 1,785,000
shares and the maximum of 2,415,000 shares,
respectively, or $3.3 million based on the issuance of
2,777,250 shares at 15% above the maximum of the
Estimated Valuation Range). For additional information,
see "Management of the Bank -- Certain Benefit Plans
and Agreements -- Employee Stock Ownership Plan."
Employment and Change-in-Control Protective Agreements.
Employment and change-in-control protective agreements
with certain management officials provide for benefits
and cash payments in the event of a change in control
of the Company or the Bank. These provisions may have
the effect of increasing the cost of acquiring the
Company, thereby discouraging future attempts to take
over the Company or the Bank. See "Management of the
Bank -- Certain Benefit Plans and Agreements --
Employment Agreements" and "-- Change-in-Control
Protective Agreements."
Option Plan. Following consummation of the Stock
Conversion, the Company intends to submit for
stockholder consideration a stock option and incentive
plan for the benefit of the directors, officers and key
employees of the Company and the Bank (the "Option
Plan"), pursuant to which the Company intends to
reserve a number of authorized but unissued shares of
Common Stock equal to an aggregate of 10% of the Common
Stock issued in the Stock Conversion (241,500 shares at
the maximum of the Estimated Valuation Range; 277,725
shares at 15% above the maximum of the Estimated
Valuation Range) for issuance pursuant to stock options
and stock appreciation rights. While no consideration
has been given to the amount of shares granted to any
employee under the Option Plan, consistent with
applicable regulations, if the Option Plan is to be
implemented within one year following
10
<PAGE>
completion of the Stock Conversion, no employee will
receive grants exceeding 25% of the shares available
under the Option Plan, and non-employee directors will
not receive grants individually exceeding 5% of the
shares available under the Option Plan or 30% in the
aggregate. The value of any options granted under the
Option Plan will be determined based on the increase,
if any, in the market value of the Common Stock
compared to the exercise price of the options. The
exercise price of any options granted under the Option
Plan will be not less than fair market value on the
date of grant. If the Option Plan is to be implemented
within one year following completion of the Stock
Conversion, all awards under the Option Plan will vest
over a period of time at a rate not greater than 20%
per year. If the Option Plan is implemented more than
one year after completion of the Stock Conversion,
awards under the Option Plan would vest over a period
of time at a rate not greater than 33.3% per year. The
Company currently intends to submit the Option Plan to
stockholders at a meeting to be held not earlier than
six months after the Stock Conversion. See "Management
of the Bank -- Certain Benefit Plans and Agreements --
Stock Option and Incentive Plan." At any time following
consummation of the Stock Conversion, the Bank or the
Company may contribute sufficient funds to a grantor
trust to purchase, and such trust may purchase, a
number of shares of Common Stock equal to 10% of the
shares issued in the Stock Conversion. Such shares
would be held by the trust for issuance to option
holders upon the exercise of options in the event the
Option Plan is implemented. Whether such shares are
purchased, and the timing of such purchases, will
depend on market and other conditions and the
alternative uses of capital available to the Company.
Management Recognition Plan. Following consummation of
the Stock Conversion, the Company intends to submit for
stockholder consideration a Management Recognition Plan
for the benefit of the directors and officers of the
Company and the Bank (the "MRP"). It is expected that
the MRP will be submitted to stockholders for approval
at the same time as the Option Plan.
At any time following consummation of the Stock
Conversion, the MRP is expected to purchase a number of
shares of Common Stock either from the Company or in
the open market equal to an aggregate of 4% of the
Common Stock issued in the Stock Conversion (96,600
shares at the maximum of the Estimated Valuation Range;
111,090 at 15% above the maximum of the Estimated
Valuation Range). Whether such shares purchased will be
purchased in the open market or newly issued by the
Company, and the timing of such purchases, will depend
on market and other conditions and the alternative uses
of capital available to the Company. While no
consideration has been given to the number of shares to
be awarded to any employee under the MRP, consistent
with applicable regulations, if the MRP is to be
implemented within one year following completion of the
Stock Conversion, no employee will receive grants
exceeding 25% of the shares available under the MRP,
and no non-employee director will receive grants
individually exceeding 5% of the shares available under
the MRP or 30% in the aggregate. The actual value of
any awards made under the MRP will depend upon, among
other factors, the market value of the Common Stock at
the time of award and upon payment. At the minimum,
midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range, the reduction to
stockholders' equity to fund the MRP would be $1.1
million, $1.3 million, $1.4 million and $1.7 million,
respectively, assuming purchases were made at the
$15.00 per share Purchase Price. If the MRP is to be
implemented within one year following completion of the
Stock Conversion, all awards under the MRP will be
payable over a period of time, at a rate not greater
than 20% per year. See
11
<PAGE>
"Management of the Bank --Certain Benefit Plans and
Agreements -- Management Recognition Plan."
Prospectus Delivery and To ensure that each subscriber receives a Prospectus at
Procedure for least 48 hours prior to the Expiration Date in
Purchasing Shares accordance with Rule 15c2-8 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), no
Prospectus will be mailed any later than five days
prior to the Expiration Date or hand delivered any
later than two days prior to such date. Execution of a
Stock Order Form will confirm receipt or delivery in
accordance with Rule 15c2-8. Stock Order Forms will be
distributed only with a Prospectus. The executed Stock
Order Form must be accompanied by payment by check,
money order, bank draft or withdrawal authorization to
an existing account at the Bank. No photocopies or
faxes of Stock Order Forms or payment by wire transfer
will be accepted.
To ensure that Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members are properly
identified as to their stock purchase priorities, as
well as for purposes of allocating shares based on
subscribers' deposit balances in the event of
oversubscription, such persons must list all of their
deposit accounts at the Bank on the Stock Order Form.
Failure to list all such deposit accounts may result in
the inability of the Company or the Bank to fill all or
part of a subscription order. Neither the Company, the
Bank nor any of their agents shall be responsible for
any order on which all deposit accounts of the
subscriber have not been fully and accurately
disclosed.
Use of Proceeds The amount of proceeds from the sale of the Common
Stock in the Stock Conversion will depend upon the
total number of shares actually sold, the numbers of
shares of Common Stock sold in the Subscription
Offering and the Community Offering and Syndicated
Community Offering, if any, and the actual expenses of
the Conversion. As a result, the actual net proceeds
from the sale of the Common Stock cannot be determined
until the Stock Conversion is completed. Based on the
sale of $31.5 million of Common Stock at the midpoint
of the Estimated Valuation Range, the net proceeds are
estimated to be approximately $30.4 million. It is
anticipated, however, that the net proceeds will be
between approximately $25.8 million and $35.1 million
if the aggregate purchase price is within the Estimated
Valuation Range and that the net proceeds will be
approximately $40.4 million if the aggregate purchase
price is increased to 15% above the maximum of the
Estimated Valuation Range. See "Pro Forma Data."
The Company has received Administrator approval to
purchase all of the capital stock of the Converted Bank
to be issued in the Stock Conversion in exchange for at
least 50% of the net proceeds after deducting the cost
of the ESOP loan. Assuming the sale of 2,100,000 shares
of the Common Stock at the midpoint of the Estimated
Valuation Range and the purchase of 8% of such shares
by the ESOP, the Bank would receive $14.0 million in
cash, and the Company would retain approximately $14.0
million in cash and $2.5 million in the form of a note
receivable from the ESOP. The ESOP note receivable will
be for a ten year term and carry an interest rate,
which adjusts annually, equal to the prime rate as
published in The Wall Street Journal.
--- ---- ------ -------
The proceeds retained by the Company after funding the
ESOP initially will be invested in short-term and
intermediate-term securities (less than ten years to
maturity), including cash and cash equivalents and U.S.
government and agency obligations. Also, such proceeds
will be available for a variety of corporate purposes,
12
<PAGE>
including funding the MRP, if the MRP is implemented,
future acquisitions and diversification of business,
additional capital contributions, dividends to
stockholders and future repurchases of the Common Stock
to the extent permitted by applicable regulations. The
Company currently has no specific plans, intentions,
arrangements or understandings regarding any
acquisitions or repurchases. In addition, such funds
will be available to be loaned to the Bank if necessary
in the event and to the extent loan growth exceeds
deposit growth or for other corporate purposes. Subject
to regulatory and other considerations, the Company
intends to establish a quarterly cash dividend
following the Conversion at an initial quarterly rate
of approximately $0.10 per share (or an annual rate of
$0.40 per share, or approximately 2.7% based on the
$15.00 per share Purchase Price), commencing during the
first full calendar quarter subsequent to the Stock
Conversion. See "--Dividends" and "Dividend Policy." A
portion of the net proceeds may be used to acquire
shares of Common Stock pursuant to the MRP or to
purchase shares to be held by a grantor trust for
issuance to option holders upon the exercise of options
in the event the Option Plan is implemented. See
"Management of the Bank -- Certain Benefit Plans and
Agreements -- 1996 Stock Option Plan" and "--Management
Recognition Plan."
The Company has filed a private letter ruling request
with the Internal Revenue Service ("IRS") regarding the
tax-free nature of a possible one-time cash
distribution to Company stockholders. The Company
currently has no plans as to the possible amount of
such a distribution or as to whether such a
distribution will be made, and filed the private letter
ruling request solely to obtain a determination by the
IRS as to whether under IRS regulations such a
distribution, if it were to be made, would be tax-free
to Company stockholders. The Company has agreed with
the FDIC not to make a tax-free cash distribution to
stockholders for a period of one year following
consummation of the Stock Conversion. Prospective
investors should not conclude from the fact that a
private letter ruling request has been filed that a
portion of the net proceeds from the Stock Conversion
ever would be used to effect a tax-free return of
capital. Further, whether a cash distribution would be
tax free to stockholders depends on numerous facts and
circumstances surrounding the distribution. As a
result, there can be no assurance that the IRS would
rule that a distribution would be tax free to
stockholders, even if the Company desired to make such
a distribution.
The proceeds contributed to the Converted Bank (and the
Commercial Bank) will substantially increase the
capital of the Converted Bank (and the Commercial
Bank). The Converted Bank (and the Commercial Bank)
ultimately intends to use such funds for general
corporate purposes, including the origination of loans
and other investments. It is expected that in the
interim all or part of the proceeds will be invested in
short-term and intermediate-term securities, including
cash and cash equivalents and U.S. government and
agency obligations.
Market for the The Company, as a newly organized company, has never
Common Stock issued capital stock, and consequently there is no
current established market for its Common Stock. The
Company has received approval to have the Common Stock
listed on the Nasdaq National Market under the symbol
"______," conditioned upon completion of the Stock
Conversion and satisfaction of Nasdaq National Market
entry requirements. Trident Securities has advised the
Company that it intends to act as a market maker for
the Common Stock, but is not obligated to do so. No
assurance can be given, however, that an active and
liquid market for the Common Stock will develop.
Further, no assurance can be given that an investor
will be able to sell the Common Stock at or above the
Purchase Price after the Stock Conversion. See "Market
for Common Stock."
13
<PAGE>
Dividends Subject to regulatory and other considerations, the
Company intends to establish a quarterly cash dividend
following the Conversion at an initial quarterly rate
of approximately $0.10 per share (or an annual rate of
$0.40 per share, or approximately 2.7% based on the
$15.00 per share Purchase Price), commencing during the
first full calendar quarter subsequent to the Stock
Conversion. However, declarations of dividends by the
Board of Directors will depend upon a number of
factors, including investment opportunities available
to the Company or the Bank, capital requirements,
regulatory limitations, including the liquidation
account, the Company's and the Bank's financial
condition and results of operations, tax considerations
and general economic conditions. No assurance can be
given that dividends will in fact be paid on the Common
Stock or that, if paid, such dividends will not be
reduced or eliminated in future periods. See "Dividend
Policy." In addition, from time to time in an effort to
manage capital to a reasonable level, the Board may
determine if it is prudent to pay periodic special cash
dividends. Periodic special cash dividends, if paid,
may be paid in addition to, or in lieu of, regular cash
dividends. Like all possible dividends, there can be no
assurance that periodic special cash dividends will be
paid or that, if paid, will continue to be paid.
Risk Factors See "Risk Factors" for a discussion of certain factors
that should be considered by prospective investors.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
Selected Financial Condition Data
The following summary of selected consolidated financial information
and other data does not purport to be complete and is qualified in its entirety
by reference to the detailed information and Consolidated Financial Statements
and accompanying Notes appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Total assets.................. $194,139 $177,704 $165,996 $146,012 $121,227
Loans receivable, net.........
Held for sale.............. 21,627 19,507 16,095 55,031 41,667
Held for investment........ 134,054 125,034 119,584 63,505 54,815
Cash.......................... 8,577 1,786 4,813 5,473 3,318
Investment securities:
Available for sale......... 8,107 -- -- -- --
Held to maturity........... -- 3,002 1,004 1,004 3,997
Mortgage-backed securities:
Available for sale......... 14,797 9,072 9,194 16,083 13,447
Held to maturity........... -- 13,213 9,341 -- --
Deposits...................... 171,213 153,457 131,592 103,645 92,444
Borrowed money (1)............ 1,040 4,000 16,500 26,500 15,500
Retained income, substantially
restricted (2).............. 18,347 17,688 15,620 13,383 10,791
</TABLE>
- --------------------
(1) Consists of retail repurchase agreements at September 30, 1996 and FHLB
advances at September 30, 1995, 1994, 1993 and 1992.
(2) Consists of retained earnings, substantially restricted, and, at
September 30, 1996 and 1995, net unrealized gains on securities available
for sale.
Selected Operations Data
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest income............... $15,349 $14,385 $11,811 $10,462 $10,245
Interest expense.............. 8,105 7,344 5,204 4,524 5,412
------- ------- ------- ------- -------
Net interest income before
provision for loan losses... 7,244 7,041 6,607 5,938 4,833
Provision for loan losses..... 511 20 210 548 914
------- ------- ------- ------- -------
Net interest income........... 6,733 7,021 6,397 5,390 3,919
Noninterest income............ 1,833 1,502 1,652 3,006 1,754
Noninterest expenses.......... 7,295(1) 5,660 4,801 3,738 2,837
------- ------- ------- ------- -------
Income before income taxes and
cumulative effect of change
in method of accounting for
income taxes................ 1,271 2,863 3,248 4,658 2,836
Income taxes.................. 451 998 1,261 2,065 1,347
------- ------- ------- ------- -------
Income before cumulative
effect of change in method
of accounting for income
taxes....................... 820 1,865 1,987 2,593 1,489
Cumulative effect of change
in method of accounting for
income taxes................ -- -- 250 -- --
------- ------- ------- ------- -------
Net income.................... $ 820 $ 1,865 $ 2,237 $ 2,593 $ 1,489
======= ======= ======= ======= =======
</TABLE>
- --------------------
(1) Includes a charge of $946,000 representing a special FDIC assessment of
65.7 basis points on the Bank's deposits held as of March 31, 1995 pursuant
to legislation enacted to recapitalize the SAIF.
15
<PAGE>
Selected Financial Ratios and Other Data
<TABLE>
<CAPTION>
At or for the
Year Ended September 30,
-------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets (net income divided
by average total assets)..................... .45%(1) 1.07% 1.28%(2) 1.93% 1.29%
Return on average retained income
(net income divided by average
retained income)............................. 4.45 (1) 11.17 13.38 (2) 19.17 13.86
Interest rate spread (combined weighted
average interest rate earned less
combined weighted average interest
rate cost)................................... 3.72 3.84 4.25 4.67 4.12
Net interest margin (net interest income
divided by average interest-earning assets).. 4.12 4.21 4.48 4.46 4.16
Ratio of average interest-earning assets
to average interest-bearing liabilities...... 108.52 108.40 106.58 107.44 107.26
Ratio of noninterest expense to average
total assets................................. 3.97 (1) 3.26 3.08 2.56 2.34
Asset Quality Ratios:
Nonperforming assets to total assets
at end of period............................. .62 .42 .31 .62 .69
Nonperforming loans to total loans
at end of period............................. .66 .47 .25 .77 .86
Allowance for loan losses to total
loans at end of period....................... 1.51 1.30 1.46 1.56 1.40
Allowance for loan losses to nonperforming
loans at end of period....................... 227.37 275.62 583.19 202.30 162.22
Provision for loan losses to total loans....... .32 .01 .15 .46 .95
Net charge-offs to average loans
outstanding.................................. .02 .09 .06 -- --
Capital Ratios:
Retained income to total assets at
end of period................................ 9.45 9.95 9.41 9.17 8.90
Average retained income to average total
assets....................................... 10.05 9.61 9.54 9.10 8.85
At September 30,
-------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(Dollars in thousands)
Number of:
Loans outstanding (3).......................... 6,093 4,911 4,473 4,235 4,157
Deposit accounts............................... 15,404 13,794 11,377 9,276 8,482
Offices open:
Full service.................................. 8 8 6 6 5
Loan production............................... 3 2 2 2 1
Loans serviced for others....................... $253,682 $229,635 $205,141 $161,674 $112,767
</TABLE>
- --------------------
(1) Includes a charge of $946,000 ($582,000 after taxes) representing a special
FDIC assessment of 65.7 basis points on the Bank's deposits held as of
March 31, 1995 pursuant to legislation enacted to recapitalize the SAIF.
Without such charge, for the year ended September 30, 1996, return on
average assets, return on average retained income and ratio of noninterest
expense to average total assets would have been .76%, 7.60% and 3.46%,
respectively.
(2) Before cumulative effect of change in method of accounting for income
taxes.
(3) Includes real estate mortgage loans, secured and unsecured consumer and
commercial loans and credit card loans.
16
<PAGE>
RISK FACTORS
Before investing in the shares of the Common Stock offered by this
Prospectus, prospective investors should carefully consider the matters
presented below.
Anticipated Low Return on Equity Following Conversion
For the year ended September 30, 1996, the Bank's ratio of average retained
income to average assets was 10.1%. On a pro forma basis, for the year ended
September 30, 1996, assuming the sale of the midpoint of 2,100,000 shares of
Common Stock in the Stock Conversion at the beginning of the year, the Bank's
ratio of average retained earnings to average assets would have been 21.5%.
With such a high capital position as a result of the Stock Conversion, it is
doubtful that the Company will be able to quickly deploy the capital raised in
the Stock Conversion by increasing its deposits and loans and thereby generate
earnings to support its high level of capital, and, as a result, it is expected
that the Company's return on equity initially will be lower than historical
levels and will be below industry norms. Consequently, investors expecting a
return on equity which will meet or exceed industry standards for the
foreseeable future should carefully evaluate and consider the risk of a subpar
return on equity.
Risks Related to Commercial Real Estate, Commercial Business and Consumer
Lending
Historically, the Bank operated as a traditional savings and loan
association, emphasizing the origination of loans secured by single-family
residences. Beginning in the early 1980's, the Board of Directors determined
that the Bank's market area was not adequately served by the existing financial
institutions and there was local demand for commercial real estate, commercial
business and consumer loans. As a result, the Board of Directors determined to
refocus the Bank's strategy. Pursuant to this strategy, while continuing to
pursue its existing business of originating single-family residential mortgage
loans, the Bank took advantage of the business opportunities identified by the
Board of Directors by gradually expanding into commercial real estate,
commercial business and consumer lending. In furtherance of this strategy, the
Bank recruited experienced commercial real estate, commercial business and
consumer lending officers and developed commercial real estate, commercial
business and consumer loan products. As a result of these efforts over the
years, at September 30, 1996, the Bank had commercial real estate, commercial
business and consumer loans totaling $31.2 million, $10.3 million and $37.4
million, respectively, which represented 17.9%, 6.0% and 21.5%, respectively, of
total loans. At September 30, 1996, $94.8 million, or 54.6% of total loans,
consisted of residential real estate mortgage loans.
While commercial real estate, commercial business and consumer loans are
generally more interest rate sensitive and carry higher yields than do
residential mortgage loans, they generally carry a higher degree of credit risk
than residential mortgage loans. Consequently, the diversification of the
Bank's and the Commercial Bank's loan portfolio may alter the Commercial Bank's
risk profile. See "Business of the Bank -- Lending Activities -- Commercial
Business Lending" and "-- Consumer and Other Lending." Management believes it
has the necessary experience for the expansion of commercial business and
consumer lending activities. See "Management of the Bank." Nevertheless, the
Bank's provisions for loan losses may increase in the future as it implements
the Board of Directors' strategy of seeking growth opportunities through
increasing its portfolio of commercial real estate, commercial business and
consumer loans while continuing to pursue residential mortgage loan origination
and mortgage banking activities.
Commercial real estate lending entails significant additional risks as
compared with single-family residential property lending. Commercial real
estate loans typically involve larger loan balances to single borrowers or
groups of related borrowers. The payment experience on such loans typically is
dependent on the successful operation of the real estate project, retail
establishment or business. These risks can be significantly affected by supply
and demand conditions in the market for office, retail and residential space,
and, as such, may be subject to a greater extent to adverse conditions in the
economy generally. To minimize these risks, the Bank generally limits itself to
its market area or to borrowers with which it has prior experience or who are
otherwise known to the Bank. It has been the Bank's policy to obtain annual
financial statements of the business of the borrower or the project for which
commercial real estate loans are made. In addition, in the case of commercial
mortgage loans made to a partnership
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<PAGE>
or a corporation, the Bank seeks, whenever possible, to obtain personal
guarantees and annual financial statements of the principals of the partnership
or corporation.
Commercial business loans are often larger and may involve greater risk
than other types of lending. Because payments on such loans are often dependent
on successful operation of the business involved, repayment of such loans may be
subject to a greater extent to adverse conditions in the economy. The Bank will
seek to minimize these risks through its underwriting guidelines, which may
require certain safeguards, such as that the loan be supported by adequate cash
flow of the borrower, profitability of the business, collateral and personal
guarantees of the individuals in the business. In addition, the Bank generally
limits this type of lending to its market area and to borrowers with whom it has
prior experience or who are otherwise well known to the Bank.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of loans which are unsecured or secured by rapidly
depreciable assets. Repossessed collateral for a defaulted consumer loan may
not provide an adequate source of repayment of the outstanding loan balance as a
result of the greater likelihood of damage, loss or depreciation. The remaining
deficiency often does not warrant further substantial collection efforts against
the borrower. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
adversely affected by events such as job loss, divorce, illness or personal
bankruptcy. See "Business of the Bank -- Lending Activities -- Consumer and
Other Lending."
Uncertainty as to Existence of Growth Opportunities
In order to fully deploy post-Stock Conversion capital, if sufficient
growth opportunities are not available in its market area, the Bank may seek to
expand into suitable market areas by either establishing one or more new
branches or by acquiring another financial institution or branches of another
financial institution. The Company's ability to expand internally by
establishing new branch offices is dependent on its ability to identify
advantageous branch office locations and generate new deposits and loans from
those locations that will create an acceptable level of net income for the
Company. At the same time, the Company's ability to grow through selective
acquisitions of other financial institutions or branches of such institutions is
dependent on successfully identifying, acquiring and integrating such
institutions or branches. There can be no assurance the Company will be able to
generate internal growth or to identify attractive acquisition candidates,
acquire such candidates on favorable terms or successfully integrate any
acquired institutions or branches into the Company.
Strong Competition Within the Bank's Market Area
Competition in the banking and financial services industry is intense. In
its market area, the Bank competes with commercial banks, savings and loan
associations, credit unions, finance companies, mutual funds, insurance
companies, and brokerage and investment banking firms operating locally and
elsewhere. Many of these competitors have substantially greater resources and
lending limits than the Bank and may offer certain services that the Bank does
not or cannot provide. The profitability of the Bank depends upon its continued
ability to successfully compete in its market area. See "Business of the Bank
- -- Competition."
Potentially Adverse Impact of Interest Rates and Economic Conditions
The results of operations of the Bank are materially affected by general
economic conditions, the monetary and fiscal policies of the federal government
and the regulatory policies of governmental authorities. The results of
operations of the Bank depend to a large extent on its level of "net interest
income," which is the difference between interest income on interest-earning
assets, such as loans, mortgage-backed securities and investment securities, and
interest expense on interest-bearing liabilities, such as savings deposits and
borrowings. The Bank has attempted to manage the sensitivity of its earnings to
interest rate fluctuations by, among other measures, selling newly originated
30-year fixed-rate residential mortgage loans in the secondary market,
emphasizing adjustable-rate or short-term fixed-rate loans and investment
securities and other loans such as commercial business loans and consumer loans
that adjust more rapidly to changes in interest rates. Nevertheless, a
sustained increase in market interest rates could adversely affect the Bank's
earnings.
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<PAGE>
General economic conditions also affect the credit quality of the Bank's
assets. During periods of adverse economic conditions and depending on the
extent to which the income and assets of the borrowers are affected by the
declining economic conditions, the ability of the Bank's borrowers to repay
loans may be affected. Prevailing economic conditions particularly affect
commercial real estate, commercial business and consumer loans. See "-- Risks
Related to Commercial Business and Consumer Lending", "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Asset/Liability
Management" and "-- Interest Rate Sensitivity Analysis" and "Business of the
Bank -- Lending Activities."
Certificate of Incorporation, Bylaw and Statutory Provisions That Could
Discourage Hostile Acquisitions of Control
The Company's Certificate of Incorporation and Bylaws contain certain
provisions that could discourage nonnegotiated takeover attempts that certain
stockholders might deem to be in their interests or through which stockholders
might otherwise receive a premium for their shares over the then current market
price and that may tend to perpetuate existing management. These provisions
include: the classification of the terms of the members of the Board of
Directors; supermajority provisions for the approval of certain business
combinations; elimination of cumulative voting by stockholders in the election
of directors; certain provisions relating to meetings of stockholders;
restrictions on the acquisition of the Company's equity securities; and
provisions allowing the Board of Directors to consider nonmonetary factors in
evaluating a business combination or a tender or exchange offer. The provisions
in the Company's Certificate of Incorporation requiring a supermajority vote for
the approval of certain business combinations and containing restrictions on
acquisitions of the Company's equity securities provide that the supermajority
voting requirements or acquisition restrictions do not apply to business
combinations or acquisitions meeting specified Board of Directors approval
requirements. The Certificate of Incorporation also authorizes the issuance of
1,000,000 shares of serial preferred stock as well as additional shares of
Common Stock up to a total of 8,000,000 outstanding shares. These shares could
be issued without stockholder approval on terms or in circumstances that could
deter a future takeover attempt.
In addition, Delaware law provides for certain restrictions on acquisition
of the Company, and federal and North Carolina laws contain various restrictions
on acquisitions of control of savings institutions, banks and their holding
companies, particularly during the period following a conversion to stock form.
The Certificate of Incorporation, Bylaw and statutory provisions, as well
as certain other provisions of state and federal law and certain provisions in
the Company's and the Bank's employee benefit plans and employment agreements
and change in control severance agreements, may have the effect of discouraging
or preventing a future takeover attempt in which stockholders of the Company
otherwise might receive a substantial premium for their shares over then current
market prices. For a detailed discussion of those provisions, see "Management
of the Bank -- Certain Benefit Plans and Agreements," "Description of Capital
Stock," "Certain Restrictions on Acquisition of the Company, the Converted Bank
and the Commercial Bank" and "Certain Anti-Takeover Provisions in the
Certificate of Incorporation and Bylaws."
Potential Impact on Voting Control of Purchases by Management
As a result of the level of Common Stock expected to be owned by management
subsequent to the Stock Conversion as a result of individual purchases, as well
as purchases by the MRP and the Option Plan and allocations under the ESOP,
management could benefit from certain statutory and regulatory provisions, as
well as certain provisions in the Company's Certificate of Incorporation and
Bylaws, that may tend to promote the continuity of existing management.
Specifically, it is currently expected that directors and executive officers
will subscribe for approximately 202,000 shares, or 9.6%, of the Common Stock
(assuming the sale of 2,100,000 shares at the midpoint of the Estimated
Valuation Range). The ESOP's purchase of 8% of the Common Stock and the MRP's
expected purchase of 84,000 shares, or 4%, of the Common Stock could increase
the estimated percentage of the Common Stock management will initially control
to 21.6% of all shares outstanding (assuming the sale of 2,100,000 shares at the
midpoint of the Estimated Valuation Range and assuming the shares purchased by
the MRP are purchased in the open market). If all of the options currently
expected to be available for grant under the Option Plan (options
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<PAGE>
for 210,000 shares at the midpoint of the Estimated Valuation Range) were
exercised (which is not anticipated), the percentage of shares controlled by
such persons would be 31.6% of the total number of shares of Common Stock
outstanding. Management will thus have a very substantial interest in the
Company and could, if each member of management were to act consistently with
each other, have significant influence over the outcome of any stockholder vote
requiring a majority vote and in the election of directors, and could have veto
power in matters requiring the approval of 80% of the Company's outstanding
Common Stock, such as certain business combinations. Management might thus have
the power to authorize actions that may be viewed as contrary to the best
interests of non-affiliated holders of the Common Stock and might have veto
power over actions that such holders may deem to be in their best interests. See
"Proposed Management Purchases," "Management of the Bank -- Certain Benefit
Plans and Agreements," "The Conversion -- Regulatory Restrictions on Acquisition
of the Common Stock," "Certain Restrictions on Acquisition of the Company, the
Converted Bank and the Commercial Bank" and "Certain Anti-Takeover Provisions in
the Certificate of Incorporation and Bylaws."
Effect of Regulatory Changes on Operations
The Bank is subject to extensive regulation, supervision and examination by
the Administrator and the FDIC. Such regulation and supervision establishes a
comprehensive framework of activities in which a savings institution may engage
and is intended primarily for the protection of depositors and the SAIF, which
is administered by the FDIC. Following the Conversion, the Commercial Bank will
be subject to the regulation and supervision of the Commission and the FDIC, and
the Company will be subject to regulation and supervision by the Federal Reserve
Board. The regulatory structure gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities. Any
change in such regulation, whether by the Commission, the FDIC, the Federal
Reserve Board or the U.S. Congress, could have a significant impact on the
Commercial Bank and its operations. See "Regulation."
Valuation Not Indicative of Future Price of Common Stock
The final aggregate purchase price of the Common Stock in the Stock
Conversion will be based upon an independent appraisal. Such valuation is not
intended, and must not be construed, as a recommendation of any kind as to the
advisability of purchasing such shares of Common Stock. 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 shares of Common Stock in the Stock Conversion will
thereafter be able to sell such shares at or above the Purchase Price. See "The
Conversion -- Stock Pricing and Number of Shares to be Issued."
Possible Negative Income Tax Consequences of Distribution of Subscription Rights
If the Subscription Rights granted to Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members are deemed to have an
ascertainable value, the receipt of such rights would be taxable to recipients
who exercise the Subscription Rights in an amount equal to such value, and the
Bank could recognize a gain on such distribution. Whether Subscription Rights
are considered to have ascertainable value is an inherently factual
determination. The Bank has received an opinion of Ferguson that such rights
have no value. The opinion of Ferguson is not binding on the IRS. See "The
Conversion -- Effect of Conversion to Stock Form on Depositors and Borrowers of
the Bank -- Tax Effects."
Possible Dilutive Effect of MRP and Stock Options
It is expected that following the consummation of the Stock Conversion the
Company will adopt the Option Plan and the MRP, both of which would be subject
to stockholder approval, and that such plans would be considered and voted upon
at a meeting of the Company's stockholders to be held not less than six months
after the Stock Conversion. Under the MRP, employees and directors could be
awarded an aggregate amount of Common Stock equal to 4% of the shares issued in
the Stock Conversion, and under the Option Plan, employees and directors could
be granted options to purchase an aggregate amount of Common Stock equal to 10%
of the shares issued in the Stock
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<PAGE>
Conversion at exercise prices equal to the market price of the Common Stock on
the date of grant. Under the MRP and Option Plan, the shares issued to directors
and employees could be newly issued shares or shares purchased in the open
market. In the event the shares issued under the MRP and the Option Plan consist
of newly issued shares of Common Stock, the interests of existing stockholders
would be diluted. If the shares to fund the MRP and Option Plan are assumed to
come from newly issued shares purchased directly from the Company, and further
assuming that all options granted under the Option Plan are exercised, existing
stockholders' ownership interests will be diluted by 12.3%. At the midpoint of
the Estimated Valuation Range, if all shares under the MRP and the Option Plan
were newly issued and the exercise price for the option shares were equal to the
Purchase Price per share in the Stock Conversion, the number of outstanding
shares of Common Stock would increase from 2,100,000 to 2,394,000, pro forma
stockholders' equity per share of the outstanding Common Stock at September 30,
1996 would have been $20.64, compared with $22.03 without such plans, and pro
forma net income per share of the outstanding Common Stock for the year ended
September 30, 1996 would have been $.97, compared with $1.06 without such plans.
See "Pro Forma Data" and "Management of the Bank -- Certain Benefit Plans and
Agreements -- Management Recognition Plan" and "-- Stock Option and Incentive
Plan."
Potential Cost of ESOP and MRP
It is anticipated that the ESOP will purchase 8% of the Common Stock sold
in the Conversion with funds borrowed from the Company. The cost of acquiring
the ESOP shares will be $2,142,000, $2,520,000, $2,898,000 and $3,332,700 at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range, respectively. In addition, it is possible that, following the Stock
Conversion, and subject to regulatory and stockholder approval, the Company will
implement the MRP, under which employees and directors could be awarded (at no
cost to them) an aggregate amount of Common Stock equal to 4% of the shares
issued in the Stock Conversion. Assuming the sale in the Stock Conversion of
the minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range, and assuming the shares of Common Stock to be awarded under the
MRP cost the Purchase Price of $15.00 per share, the reduction to stockholders'
equity of funding the MRP would be $1,071,000, $1,260,000, $1,449,000 and
$1,666,350, respectively.
ESOP Compensation Expense
Under American Institute of Certified Public Accountants ("AICPA")
Statement of Position ("SOP") 93-6, "Employers' Accounting for Employee Stock
Ownership Plans," an employer is required to record compensation expense in an
amount equal to the fair value of shares committed to be released to employees
from an employee stock ownership plan. If shares of Common Stock appreciate in
value over time, the adoption of SOP 93-6 may increase compensation expense
relating to the ESOP to be established in connection with the Stock Conversion
as compared with prior guidance which required the recognition of compensation
expense based on the cost of shares acquired by the ESOP. It is impossible to
determine at this time the extent of such impact on future net income. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Impact of New Accounting Standards -- Accounting for Employee
Stock Ownership Plans."
Absence of Market for Common Stock
The Company and the Bank have never issued capital stock. The Company has
received conditional approval to have its Common Stock listed on the Nasdaq
National Market under the symbol "_____" upon completion of the Stock
Conversion. The development of a public trading market depends upon the
existence of willing buyers and sellers, the presence of which is not within the
control of the Company or the Bank. Because there can be no assurance that
buyers and sellers of the Common Stock can be readily matched, investors may
wish to consider the potential illiquid and long-term nature of an investment in
the Common Stock. There can be no assurance that an active and liquid trading
market for the Common Stock will develop, or once developed, will continue, nor
any assurances that purchasers of the Common Stock will be able to sell their
shares at or above the Purchase Price. The absence of a liquid and active
trading market, or the discontinuance thereof, may have an adverse effect on
both the price and the liquidity of the Common Stock. See "Market for the
Common Stock."
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<PAGE>
No Opinion or Recommendation by Sales Agent; Best Efforts Offering
The Bank has engaged Trident Securities to consult with and advise the Bank
with respect to the Stock Conversion and to assist, on a best-efforts basis, in
connection with the solicitation of subscriptions and purchase orders for shares
of Common Stock in the Stock Conversion. Trident Securities has not prepared or
delivered any opinion or recommendation with respect to the suitability of the
Common Stock or the appropriateness of the amount of Common Stock to be issued
in the Stock Conversion. The engagement of Trident Securities by the Bank and
the work performed pursuant to such engagement, including any due diligence
investigation, should not be construed by purchasers of the Common Stock as
constituting an opinion or recommendation relating to investment in the Common
Stock offered hereby and should not be construed as a verification of the
accuracy or completeness of the information contained in this Prospectus.
Risk of Loss of Principal
The shares of Common Stock offered by this Prospectus are not savings
accounts or deposits and are not insured or guaranteed by the FDIC, the SAIF or
any other governmental agency, and involve investment risk, including the
possible loss of principal.
NEWSOUTH BANCORP, INC.
NewSouth Bancorp, Inc. was incorporated under the laws of the State of
Delaware in November 1996 at the direction of the Board of Directors of the Bank
for the purpose of serving as a bank holding company of the Commercial Bank
following the Bank Conversion. The Company has received approval from the
Federal Reserve Board for approval to retain control of the Commercial Bank
following the Bank Conversion. Prior to the Conversion, the Company has not
engaged and will not engage in any material operations. Upon consummation of
the Conversion, the Company will have no significant assets other than the
outstanding capital stock of the Converted Bank (and the Commercial Bank
following the Bank Conversion), up to 50% of the net proceeds of the Stock
Conversion (after deducting amounts infused into the Bank and used to fund the
ESOP) and a note receivable from the ESOP. Upon consummation of the Conversion,
the Company's principal business will be overseeing the business of the
Commercial Bank and investing the portion of the net Stock Conversion proceeds
retained by it.
As a holding company, the Company will have greater flexibility than the
Bank to diversify its business activities through existing or newly formed
subsidiaries or through acquisition of or merger with other financial
institutions, although the Company currently does not have any plans,
agreements, arrangements or understandings with respect to any such acquisitions
or mergers. After the Stock Conversion and the Bank Conversion, the Company
will be classified as a bank holding company and will be subject to regulation
by the Federal Reserve Board.
Following the Conversion, the Board of Directors intends to manage the
Company to promote the long-term best interests of the Company and its
stockholders. Initially following the Conversion, the Company will have capital
in excess of the level required to support its current asset size and level of
operations, and the Bank's business plan is to pursue a strategy of
conservative, long-term growth through competing for loans and deposits in its
market area, establishing new branch offices or making selective acquisitions of
other financial institutions or branches of other institutions. The Boards of
Directors of the Company and the Bank currently have no specific plans regarding
new branch offices or acquisitions of other financial institutions or branches.
With respect to the evaluation of any business combination or tender or exchange
offer that may be presented in the future, the Company's Certificate of
Incorporation directs the Board of Directors to consider, in addition to the
adequacy of the amount to be paid in connection with any such transaction,
certain specified factors and any other factors the Board deems relevant,
including (i) the social and economic effects of the transaction on the Company
and its subsidiaries, employees, depositors, loan and other customers, creditors
and other elements of the communities in which the Company and its subsidiaries
operate or are located; (ii) the business and financial condition and earnings
prospects of the acquiring person or entity; and (iii) the competence,
experience and integrity of the acquiring person or entity and its or their
management. See "Risk Factors -- Uncertainty as to Existence of Growth
Opportunities" and "Certain Anti-Takeover
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<PAGE>
Provisions in the Certificate of Incorporation and Bylaws -- Board Consideration
of Certain Nonmonetary Factors in the Event of an Offer by Another Party."
The Company's executive offices are located at 1311 Carolina Avenue,
Washington, North Carolina 27889-2047, and its main telephone number is (919)
946-4178.
HOME SAVINGS BANK, SSB
The Bank is a North Carolina-chartered mutual savings bank headquartered in
Washington, North Carolina and serving northeastern North Carolina. The Bank
was chartered by the State of North Carolina in 1902 under the name The Home
Building and Loan Association. The Bank received federal insurance of its
deposit accounts in 1959. In 1992, the Bank converted to a North Carolina-
chartered savings bank, at which time it adopted its present name of Home
Savings Bank, SSB. At September 30, 1996, the Bank had total assets of $194.1
million, total deposits of $171.2 million and retained income, substantially
restricted, of $18.3 million.
The Bank's principal business consists of attracting deposits from the
general public and investing these funds in loans secured by first mortgages on
owner-occupied, single-family residences in the Bank's market area, commercial
real estate loans, commercial business loans and consumer loans, and, to a
lesser extent, multi-family residential real estate loans. Historically, the
Bank operated as a traditional savings and loan association, emphasizing the
origination of loans secured by single-family residences. Beginning in the
early 1980's, the Board of Directors determined that the Bank's market area was
not adequately served by the existing financial institutions and there was local
demand for commercial real estate, commercial business and consumer loans. As a
result, the Board of Directors determined to refocus the Bank's strategy.
Pursuant to this strategy, while continuing to pursue its existing business of
originating single-family residential mortgage loans, the Bank took advantage of
the business opportunities identified by the Board of Directors by gradually
expanding into commercial real estate, commercial business and consumer lending.
In furtherance of this strategy, the Bank recruited experienced commercial real
estate, commercial business and consumer lending officers and developed
commercial real estate, commercial business and consumer loan products. As a
result of these efforts over the years, at September 30, 1996, the Bank had
commercial real estate, commercial business and consumer loans totaling $31.2
million, $10.3 million and $37.4 million, respectively, which represented 17.9%,
6.0% and 21.5%, respectively, of total loans. At September 30, 1996, $94.8
million, or 54.6% of total loans, consisted of residential real estate mortgage
loans.
In addition, since the late 1980's, mortgage banking activities have
constituted an increasingly significant business activity for the Bank. The
Bank's mortgage banking activities consist of originating single-family
residential mortgage loans and primarily selling those loans for cash to the
FHLMC, with servicing retained. On occasion, the Bank also will swap single-
family residential mortgage loans with the FHLMC, while retaining servicing, in
exchange for mortgage-backed securities backed by those loans. At September 30,
1996, the Bank had $21.6 million of loans available for sale and $253.7 million
of loans serviced for others. The Bank earned servicing income of $632,000 on
its portfolio of loans serviced for others for the year ended September 30,
1996.
Following the Conversion, management intends to continue to follow its
current strategy of seeking growth opportunities through increasing its
portfolio of commercial real estate, commercial business and consumer loans
while continuing to pursue single-family residential mortgage loan origination
and mortgage banking activities.
The Bank derives its income principally from interest earned on loans and
investments and, to a lesser extent, loan servicing and other fees and gains on
the sale of loans and investments. The Bank's principal expenses are interest
expense on deposits and borrowings and noninterest expense such as compensation
and employee benefits, office occupancy expenses and other miscellaneous
expenses. Funds for these activities are provided principally by deposits,
repayments of outstanding loans and investments and operating revenues.
The Bank's executive offices are located at 1311 Carolina Avenue,
Washington, North Carolina 27889-2047, and its main telephone number is (919)
946-4178.
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NEWSOUTH BANK
Upon consummation of the Bank Conversion, the Commercial Bank will succeed
to all of the assets and liabilities of the Converted Bank (which, pursuant to
the Stock Conversion will have succeeded to all of the assets and liabilities of
the Bank). Following the Conversion, management intends to continue to follow
the Bank's current strategy of seeking growth opportunities through increasing
its portfolio of commercial real estate, commercial business and consumer loans
while continuing to pursue single-family residential mortgage loan origination
and mortgage banking activities.
The deposits of the Commercial Bank will continue to be insured by the SAIF
of the FDIC, and, as such, the Commercial Bank will continue to be subject to
regulation and supervision by the FDIC. The Commercial Bank will not be subject
to regulation and supervision by the Administrator. Rather, the primary
regulator of the Commercial Bank will be the Commission. In addition, the
Commercial Bank will remain a member of the FHLB of Atlanta. For information
regarding regulations applicable to the Converted Bank and the Commercial Bank,
see "Regulation."
USE OF PROCEEDS
The amount of proceeds from the sale of the Common Stock in the Stock
Conversion will depend upon the total number of shares actually sold in the
Subscription Offering and the Community Offering and the Syndicated Community
Offering, if any, and the actual expenses of the Stock Conversion. As a result,
the actual net proceeds from the sale of the Common Stock cannot be determined
until the Stock Conversion is completed. Based on the sale of $31.5 million of
Common Stock at the midpoint of the Estimated Valuation Range, the net proceeds
from the sale of the Common Stock are estimated to be approximately $30.4
million. The Company has received regulatory approval from the Administrator to
purchase all of the capital stock of the Converted Bank to be issued in the
Stock Conversion in exchange for at least 50% of the net proceeds after
deducting the cost of the ESOP loan. Based on the foregoing assumption and the
purchase of 8% of the shares to be issued in the Stock Conversion by the ESOP,
the Bank would receive approximately $14.0 million in cash, and the Company
would retain approximately $14.0 million in cash and $2.5 million in the form of
a note receivable from the ESOP. The ESOP note receivable will be for a ten
year term and carry an interest rate, which adjusts annually, equal to the prime
rate as published in The Wall Street Journal.
--- ---- ------ -------
The proceeds retained by the Company, after funding the ESOP, initially
will be invested in short-term and intermediate-term securities including cash
and cash equivalents and U.S. government and agency obligations. Such proceeds
will be available for a variety of corporate purposes, including funding the
MRP, if implemented, future acquisitions and diversification of business,
additional capital contributions, dividends to stockholders and future
repurchases of the Common Stock to the extent permitted by applicable
regulations. The Company currently has no specific plans, intentions,
arrangements or understandings regarding acquisitions, capital contributions or
repurchases. In addition, such funds will be available to be loaned to the Bank
if necessary in the event and to the extent loan growth exceeds deposit growth
or for other corporate purposes. Subject to regulatory and other
considerations, the Company intends to establish a quarterly cash dividend
following the Conversion at an initial quarterly rate of approximately $0.10 per
share (or an annual rate of $0.40 per share, or approximately 2.7% based on the
$15.00 per share Purchase Price), commencing during the first full calendar
quarter subsequent to the Stock Conversion. "See Dividend Policy." Due to the
limited nature of the Company's business activities, the Company believes that
the net proceeds retained after the Stock Conversion, earnings on such proceeds
and payments on the ESOP note receivable will be adequate to meet the Company's
financial needs until dividends are paid by the Converted Bank (or Commercial
Bank); however, no assurance can be given that the Company will not have a need
for additional funds in the future. For additional information, see "Regulation
- -- Depository Institution Regulation -- Dividend Restrictions." A portion of
the net proceeds may be used to acquire shares of Common Stock pursuant to the
MRP or to purchase shares to be held by a grantor trust for issuance to option
holders upon the exercise of options in the event the Option Plan is
implemented. See "Management of the Bank -- Certain Benefit Plans and
Agreements -- 1996 Stock Option Plan" and "-- Management Recognition Plan."
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<PAGE>
The Company has filed a private letter ruling request with the Internal
Revenue Service ("IRS") regarding the tax-free nature of a possible one-time
cash distribution to Company stockholders. The Company currently has no plans
as to the possible amount of such a distribution or as to whether such a
distribution will be made, and filed the private letter ruling request solely to
obtain a determination by the IRS as to whether under IRS regulations such a
distribution, if it were to be made, would be tax-free to Company stockholders.
The Company has agreed with the FDIC not to make a tax-free cash distribution to
stockholders for a period of one year following consummation of the Stock
Conversion. Prospective investors should not conclude from the fact that a
private letter ruling request has been filed that a portion of the net proceeds
from the Stock Conversion ever would be used to effect a tax-free return of
capital. Further, whether a cash distribution to stockholders would be tax free
to stockholders depends on numerous facts and circumstances surrounding the
distribution. As a result, there can be no assurance that the IRS would rule
that a distribution would be tax free to stockholders, even if the Company
desired to make such a distribution.
The proceeds contributed to the Converted Bank will ultimately become part
of the Converted Bank's (or Commercial Bank's) general corporate funds to be
used for its business activities, including making loans and investments.
Initially, it is expected that the proceeds will be invested in short-term and
intermediate-term securities including cash and cash equivalents and U.S.
government and agency obligations. The Converted Bank (or Commercial Bank)
ultimately plans to use such proceeds primarily to originate loans in the
ordinary course of business.
DIVIDEND POLICY
The payment of cash dividends on the Common Stock will be subject to the
requirements of applicable law and the determination by the Board of Directors
of the Company that the net income, capital and financial condition of the
Company, industry trends and general economic conditions justify the payment of
dividends. Subject to regulatory and other considerations, the Company intends
to establish a quarterly cash dividend following the Conversion at an initial
quarterly rate of approximately $0.10 per share (or an annual rate of $0.40 per
share, or approximately 2.7% based on the $15.00 per share Purchase Price),
commencing during the first full calendar quarter subsequent to the Stock
Conversion. In addition, from time to time in an effort to manage capital to a
reasonable level, the Board may determine if it is prudent to pay periodic
special cash dividends. Periodic special cash dividends, if paid, may be paid
in addition to, or in lieu of, regular cash dividends. Like all possible
dividends, there can be no assurance that periodic special cash dividends will
be paid or that, if paid, will continue to be paid.
In addition, because the Company initially will have no significant source
of income other than dividends from the Converted Bank and the Commercial Bank
and earnings from investment of the net proceeds of the Stock Conversion
retained by the Company, the payment of dividends by the Company will depend in
part upon the amount of the net proceeds from the Conversion retained by the
Company and the Company's earnings thereon and the receipt of dividends from the
Converted Bank and the Commercial Bank, which is subject to various tax and
regulatory restrictions on the payment of dividends. Dividend payments by the
Company are subject to regulatory restriction under Federal Reserve Board policy
as well as to limitations under applicable provisions of Delaware corporate law.
The Federal Reserve Board has issued a policy statement on the payment of cash
dividends by bank holding companies, which expresses the Federal Reserve Board's
view that a bank holding company should pay cash dividends only to the extent
that the company's net income for the past year is sufficient to cover both the
cash dividends and a rate of earning retention that is consistent with the
company's capital needs, asset quality and overall financial condition. The
Federal Reserve Board also indicated that it would be inappropriate for a
company experiencing serious financial problems to borrow funds to pay
dividends. Furthermore, the Federal Reserve Board may prohibit a bank holding
company from paying any dividends if the holding company's bank subsidiary is
classified as "undercapitalized". See "Regulation -- Regulation of the Company
Following the Bank Conversion -- Dividends." Under Delaware law, dividends may
be paid out of surplus or, if there is no surplus, out of net profits for the
fiscal year in which the dividend is declared and for the preceding fiscal year.
The payment of dividends from the Converted Bank (or the Commercial Bank) is
subject to various tax and regulatory restrictions. See "Regulation --
Depository Institution Regulation -- Dividend Restrictions."
25
<PAGE>
As noted above, the Company will purchase all of the capital stock of the
Bank to be issued in the Stock Conversion in exchange for at least 50% of the
net proceeds from the sale of the Common Stock in the Stock Conversion after
deducting the cost of the ESOP loan. Subject to the provisions of Delaware
General Corporation Law noted above, the full amount retained by the Company
less amounts required to fund the ESOP in the Stock Conversion will be available
for the payment of dividends.
MARKET FOR THE COMMON STOCK
The Company has never issued capital stock to the public. Consequently,
there is no established market for the Common Stock. The Company has received
conditional approval to have its Common Stock listed on the Nasdaq National
Market under the symbol "____". For initial and continued inclusion for listing
on Nasdaq, the Company must have two active and registered active market makers.
Trident Securities has advised the Company that it will act as a market maker
for the Common Stock, but is not obligated to do so. In addition, Trident
Securities and the Company will seek to encourage and assist at least one other
market maker to make a market in the Common Stock. Making a market involves
maintaining bid and ask quotations and being able, as principal, to effect
transactions in reasonable quantities at those quoted prices, subject to various
securities laws and other regulatory requirements. It is impossible to
ascertain whether a second market maker will make a market in the Common Stock.
There can be no assurance that the Common Stock will in fact be listed on Nasdaq
or that it will trade on Nasdaq. The development of a liquid public market
depends on the existence of willing buyers and sellers, the presence of which is
not within the control of the Company or the Bank. Accordingly, the number of
active buyers and sellers of the Common Stock at any particular time may be
limited. Under such circumstances, investors in the Common Stock could have
difficulty disposing of their shares and should not view the Common Stock as a
short-term investment. Accordingly, there can be no assurance that an active
and liquid trading market for the Common Stock will develop or that, if
developed, it will continue, nor is there any assurance that persons purchasing
shares of Common Stock will be able to sell them at or above the Purchase Price.
While the Company has received conditional approval to have the Common Stock
listed on the Nasdaq National Market, no assurance can be given that it will in
fact be listed on the Nasdaq National Market or that it will trade on the Nasdaq
National Market.
26
<PAGE>
CAPITALIZATION
The following table sets forth information regarding the historical
capitalization, including deposits, of the Bank at September 30, 1996 and the
pro forma consolidated capitalization of the Company giving effect to the sale
of the Common Stock at the minimum, midpoint, maximum and 15% above the maximum
of the Estimated Valuation Range based upon the assumptions set forth under "Pro
Forma Data" and below. Depending on market and financial conditions, the total
number of shares to be issued in the Stock Conversion may be significantly
increased or decreased above or below the midpoint of the Estimated Valuation
Range. No resolicitation of subscribers and other purchasers will be made
unless the aggregate purchase price of the Common Stock sold in the Stock
Conversion is below the minimum of the Estimated Valuation Range or is more than
15% above the maximum of the Estimated Valuation Range. A CHANGE IN THE NUMBER
OF SHARES TO BE ISSUED IN THE STOCK CONVERSION MAY MATERIALLY AFFECT THE
COMPANY'S PRO FORMA CAPITALIZATION. SEE "PRO FORMA DATA" AND "THE CONVERSION --
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED."
<TABLE>
<CAPTION>
Pro Forma Consolidated Capitalization of
the Company at September 30, 1996 Based on the Sale of
Capitalization -------------------------------------------------------
of the 1,785,000 2,100,000 2,415,000 2,777,250
Bank at Shares Shares Shares Shares
September 30, at $15.00 at $15.00 at $15.00 at $15.00
1996 Per Share Per Share Per Share Per Share
--------------- ------------ ------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Deposits (1)......................................... $171,213 $171,213 $171,213 $171,213 $171,213
Other borrowings..................................... 1,040 1,040 1,040 1,040 1,040
-------- -------- -------- -------- --------
Total deposits and borrowed
funds............................................ $172,253 $172,253 $172,253 $172,253 $172,253
======== ======== ======== ======== ========
Capital stock:
Preferred stock, $.01 par value per share:
authorized - 1,000,000 shares;
assumed outstanding - none....................... $ -- $ -- $ -- $ -- $ --
Common Stock, $.01 par value
per share authorized - 8,000,000 shares;
shares to be outstanding -
as shown (2)(3).................................. -- 18 21 24 28
Paid-in capital (2)(3)............................. -- 25,778 30,419 35,061 40,398
Less: Common Stock acquired
by ESOP (4)...................................... -- (2,142) (2,520) (2,898) (3,333)
Common stock
acquired by MRP (3)....................... -- (1,071) (1,260) (1,449) (1,666)
Retained income -- substantially
restricted (5)................................... 18,306 18,306 18,306 18,306 18,306
Unrealized gains on
available-for-sale securities,
net of tax....................................... 41 41 41 41 41
-------- -------- -------- -------- --------
Total stockholders'
equity (6)................................. $ 18,347 $ 40,930 $ 45,007 $ 49,085 $ 53,774
======== ======== ======== ======== ========
</TABLE>
(footnotes on following page)
27
<PAGE>
- --------------------
(1) Does not reflect withdrawals from savings accounts for the purchase of
Common Stock in the Stock Conversion; any withdrawals will reduce pro forma
deposits by the amount of such withdrawals.
(2) Does not reflect additional shares of Common Stock that possibly could be
purchased by participants in the Option Plan, if implemented, under which
directors, executive officers and other employees could be granted options
to purchase an aggregate amount of Common Stock equal to 10% of the shares
issued in the Stock Conversion (210,000 shares at the midpoint of the
Estimated Valuation Range) at exercise prices equal to the market price of
the Common Stock on the date of grant. Implementation of the Option Plan
will require regulatory and stockholder approval. See "Management of the
Bank -- Certain Benefit Plans and Agreements -- Stock Option and Incentive
Plan" and "Risk Factors -- Dilutive Effect of MRP and Stock Options."
(3) Assumes a number of shares of Common Stock equal to 4% of the Common Stock
to be sold in the Stock Conversion will be purchased by the MRP through
open market purchases. The dollar amount of the Common Stock to be
purchased by the MRP is based on the $15.00 per share Purchase Price in the
Stock Conversion and represents unearned compensation and is reflected as a
reduction of capital. Such amount does not reflect possible increases or
decreases in the value of such stock relative to the Purchase Price in the
Stock Conversion. As the Bank accrues compensation expense to reflect the
vesting of such shares pursuant to the MRP, the charge against capital will
be reduced accordingly. Implementation of the MRP will require regulatory
and stockholder approval. If the shares to fund the MRP are assumed to come
from authorized but unissued shares purchased by the MRP from the Company
at the Purchase Price within the year following the Stock Conversion, at
the minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range, the number of outstanding shares would be 1,856,400,
2,184,000, 2,511,600 and 2,888,340, respectively, and total stockholders'
equity would be $42.0 million, $46.3 million, $50.5 million and $55.4
million, respectively. As a result of the MRP acquiring authorized but
unissued shares from the Company, stockholders' ownership in the Company
would be diluted by approximately 3.85%. See "Management of the Bank --
Certain Benefit Plans and Agreements -- Management Recognition Plan," "Pro
Forma Data" and "Risk Factors -- Dilutive Effect of MRP and Stock Options."
(4) Assumes 8% of the shares of Common Stock to be sold in the Stock Conversion
are purchased by the ESOP, and that the funds used to purchase such shares
are borrowed from the Company out of net proceeds. Although repayment of
such debt will be secured solely by the shares purchased by the ESOP, the
Bank expects to make discretionary contributions to the ESOP in an amount
at least equal to the principal and interest payments on the ESOP debt.
The approximate amount expected to be borrowed by the ESOP is not reflected
in this table as borrowed funds but is reflected as a reduction of capital.
As the Bank accrues compensation expense to reflect the allocation of such
shares pursuant to the ESOP, the charge against capital will be reduced
accordingly. See "Management of the Bank -- Certain Benefit Plans and
Agreements -- Employee Stock Ownership Plan."
(5) The retained income of the Bank is substantially restricted. All capital
distributions by the Bank are subject to regulatory restrictions tied to
its regulatory capital level. In addition, after the Stock Conversion, the
Bank will be prohibited from paying any dividend that would reduce its
regulatory capital below the amount in the liquidation account to be
provided for the benefit of the Bank's Eligible Account Holders and
Supplemental Eligible Account Holders at the time of the Stock Conversion
and adjusted downward thereafter. See "Regulation -- Depository
Institution Regulation -- Dividend Restrictions" and "The Conversion --
Effect of Conversion to Stock Form on Depositors and Borrowers of the Bank
-- Liquidation Account."
(6) Pro forma stockholders' equity information is not intended to represent the
fair market value of the Common Stock, the current value of the Bank's
assets or liabilities or the amounts, if any, that would be available for
distribution to stockholders in the event of liquidation. Such pro forma
data may be materially affected by a change in the number of shares to be
sold in the Stock Conversion and by other factors.
28
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
The Bank is subject to the North Carolina savings bank requirement that net
worth, computed in accordance with the requirements of the Administrator, equal
or exceed 5% of total assets. In addition, the Bank is subject to the capital
requirements of the FDIC. The FDIC requires that institutions which receive the
highest rating during their examination process and are not experiencing or
anticipating significant growth must maintain a leverage ratio of Tier 1 capital
to "total assets" (as defined in FDIC regulations) of at least 3%. All other
institutions are required to maintain a ratio of 1% or 2% above the 3% minimum
with an absolute minimum leverage ratio of not less than 4%. The FDIC also
imposes requirements that (i) the ratio of Tier 1 capital to risk-weighted
assets equal at least 4% and (ii) the ratio of total capital to risk-weighted
assets equal at least 8%.
After the Bank Conversion, the Commercial Bank will instead be required to
satisfy Federal Reserve Board capital requirements, which are similar but not
identical to the FDIC's capital requirements. The following table sets forth
the Bank's historical capital position relative to the various minimum
Administrator and FDIC capital regulatory requirements to which it is currently
subject. The next table sets forth the Bank's historical capital position and
thereafter presents pro forma data relative to such Federal Reserve Board
capital requirements to which the Commercial Bank will be subject. Pro forma
data assumes that the Common Stock has been sold as of September 30, 1996 at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range. For additional information regarding the financial condition of the Bank
and the assumptions underlying the pro forma capital calculations set forth
below, see "Use of Proceeds," "Capitalization" and "Pro Forma Data" and the
financial statements and related notes appearing elsewhere herein.
<TABLE>
<CAPTION>
Historical at
September 30, 1996
-----------------------
Percent of
Amount Assets(1)
------- -----------
(Dollars in thousands)
<S> <C> <C>
Tier 1/leverage capital........................ $18,306 9.60%
Tier 1/leverage capital requirement............ 7,625 4.00
------- -----
Excess....................................... $10,681 5.60%
======= =====
Tier 1 risk-based capital...................... $18,306 13.97%
Tier 1 risk-based capital requirement.......... 5,242 4.00
------- -----
Excess....................................... $13,064 9.97%
======= =====
Total risk-based capital....................... $19,954 15.23%
Total risk-based capital requirement........... 10,484 8.00
------- -----
Excess....................................... $ 9,470 7.23%
======= =====
North Carolina regulatory capital.............. $19,954 10.28%
North Carolina regulatory capital requirement.. 9,705 5.00
------- -----
Excess....................................... $10,249 5.28%
======= =====
</TABLE>
- --------------------
(1) The ratio of leverage capital is based on quarterly average assets for the
year ended September 30, 1996. Tier 1 risk-based capital and total risk-
based capital is based on risk-weighted assets at September 30, 1996. The
North Carolina regulatory capital requirement is based on total assets at
September 30, 1996.
29
<PAGE>
<TABLE>
<CAPTION>
Commercial Bank's
Historical
Capital at Pro Forma Capital of the Commercial Bank as of September 30, 1996 Based on the
September Sale of (1):
30, 1996 Assuming ---------------------------------------------------------------------------------
Federal Reserve 1,785,000 Shares 2,100,000 Shares 2,415,000 Shares 2,777,250 Shares
Board Capital at $15.00 at $15.00 at $15.00 at $15.00
Requirements Per Share Per Share Per Share Per Share
------------------- ------------------- -------------------- ------------------- -----------------
Percent Percent Percent Percent Percent
of of of of of
Assets Assets Assets Assets Assets
Amount (2) Amount (2) Amount (2) Amount (2) Amount (2)
-------- --------- -------- --------- --------- --------- -------- --------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital under general
accepted
accounting principles... $18,347 9.45% $26,961 13.16% $28,527 13.79% $30,094 14.41% $31,895 15.11%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Tier 1 (core) to total
assets.................... $18,306 9.43% $26,920 13.14% $28,486 13.77% $30,053 14.40% $31,854 15.10%
Tier 1 (core) capital
requirement (3)........... 7,764 4.00 8,194 4.00 8,272 4.00 8,350 4.00 8,439 4.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess.................. $10,542 5.43% $18,726 9.14% $20,214 9.77% $21,703 10.40% $23,415 11.10%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Tier 1 (core) capital to
risk-weighted
assets.................. $18,306 13.97% $26,920 20.54% $28,486 21.74% $30,053 22.93% $31,854 24.31%
Tier 1 (core) capital
requirement............... 5,242 4.00 5,242 4.00 5,242 4.00 5,242 4.00 5,242 4.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess.................. $13,064 9.97% $21,678 16.54% $23,244 17.74% $24,811 18.93% $26,612 20.31%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Total capital to
risk-weighted assets...... $19,954 15.23% $28,568 21.80% $30,134 22.99% $31,701 24.19% $33,502 25.56%
Total capital requirement.. 10,484 8.00 10,484 8.00 10,484 8.00 10,484 8.00 10,484 8.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess.................. $ 9,470 7.23% $18,084 13.80% $19,650 14.99% $21,217 16.19% $23,018 17.56%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
- --------------------
</TABLE>
(1) Assumes the Company will purchase all of the capital stock of the Converted
Bank to be issued in the Stock Conversion in exchange for 50% of the net
proceeds. Assumes net proceeds distributed to the Company or the Converted
Bank (and the Commercial Bank) initially are invested in short-term U.S.
government securities with a 0% risk-weighting. Assumes 8% of the Common
Stock to be sold in the Stock Conversion is acquired by the ESOP, and that
the funds used to acquire such shares are borrowed from the Company.
Although repayment of such debt will be secured solely by the Common Stock
purchased by the ESOP, the Converted Bank (and the Commercial Bank) expects
to make discretionary contributions to the ESOP in an amount at least equal
to the principal and interest payments on the ESOP debt. As a result, the
table assumes a reduction to the Commercial Bank's pro forma capital and
regulatory capital to reflect the cost of funding the ESOP. Assumes the cost
of funding the MRP will be paid by the Company.
(2) Based on the Bank's total assets determined under generally accepted
accounting principles for capital as determined under generally accepted
accounting principles and Tier 1 capital purposes, and risk-weighted assets
for the purpose of the risk-based capital requirements.
(3) Assumes a core capital requirement of 4% adjusted total assets, though such
level may be increased by the Federal Reserve Board to as high as 5%. See
"Regulation -- Depository Institution Regulation -- Capital Requirements."
30
<PAGE>
PRO FORMA DATA
The following table sets forth the actual and, after giving effect to the
Stock Conversion for the period and at the date indicated, pro forma
consolidated income, stockholders' equity and other data of the Bank prior to
the Stock Conversion and of the Company following the Stock Conversion.
Unaudited pro forma consolidated income and related data have been calculated
for the year ended September 30, 1996 as if the Common Stock had been sold at
the beginning of the year, and the estimated net proceeds had been invested at
5.70% at the beginning of the fiscal year. The foregoing yield approximates the
yield on the one-year U.S. Treasury bill at September 30, 1996. (While
applicable regulations provide for the use of a yield representing the
arithmetic average of the average yield on the Bank's interest-earning assets
and the average cost of deposits, the Bank believes that the one-year Treasury
bill rate represents a more realistic yield on its investments). The pro forma
after-tax yield for the Company and the Bank is assumed to be 3.51% for the year
ended September 30, 1996, based on the estimated combined state and federal tax
rate of 38.5% for that period. No effect has been given in the pro forma
stockholders' equity calculations for the assumed earnings on the net proceeds.
The pro forma income and related data set forth below do not reflect accruals to
be made by the Bank with regard to certain employee benefit plans to be adopted
in connection with, and subsequent to, the Stock Conversion. See "Management of
the Bank -- Certain Benefit Plans and Agreements."
Set forth below are the estimated net proceeds to the Company, assuming the
sale of the Common Stock at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range. The actual net proceeds from the sale
of the Common Stock cannot be determined until the Conversion is completed.
However, net proceeds set forth on the following table are estimated based upon
the following assumptions: (i) 100% of the shares of Common Stock will be sold
in the Subscription and Community Offerings and the Syndicated Community
Offering as follows: (a) 8% will be sold to the ESOP and 200,000 shares will be
sold to directors and officers of the Bank and their associates and to
employees, for which commissions will not be paid; and (b) the remaining shares
will be sold to others in the Subscription and Community Offerings; and (ii)
other Conversion expenses, not including sales commissions, will be
approximately $579,000. The foregoing assumptions regarding estimated purchases
in the Subscription and Community Offerings and Syndicated Community Offering
are based on reasonable market assumptions, market conditions, consultations
between the Bank and Trident Securities and planned purchases by the ESOP.
Actual expenses may vary from those estimated.
<TABLE>
<CAPTION>
Maximum as
adjusted,
Minimum of Midpoint of Maximum of of
1,785,000 2,100,000 2,415,000 2,777,250
Shares Shares Shares Shares
at $15.00 at $15.00 at $15.00 at $15.00
Per Share Per Share Per Share Per Share
----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Gross proceeds............. $26,775 $31,500 $36,225 $41,659
Less: Estimated expenses.. (979) (1,060) (1,140) (1,233)
------- ------- ------- -------
Estimated net proceeds..... 25,796 30,440 35,085 40,426
Less:
ESOP funded by the
Company................ (2,142) (2,520) (2,898) (3,333)
MRP..................... (1,071) (1,260) (1,449) (1,666)
------- ------- ------- -------
Estimated investable net
proceeds.................. $22,583 $26,660 $30,738 $35,427
======= ======= ======= =======
</TABLE>
31
<PAGE>
The stockholders' equity and related data presented herein are not
intended to represent the fair market value of the Common Stock, the current
value of assets or liabilities, or the amounts, if any, that would be available
for distribution to stockholders in the event of liquidation. For additional
information regarding the liquidation account, see "The Conversion -- Effect of
Conversion to Stock Form on Depositors and Borrowers of the Bank -- Liquidation
Account." The pro forma income and related data derived from the assumptions
set forth above should not be considered indicative of the actual results of
operations of the Converted Bank (or the Commercial Bank) and the Company for
any current or future period. Such pro forma data may be materially affected by
a change in the number of shares to be issued in the Stock Conversion and other
factors. See "The Conversion -- Stock Pricing and Number of Shares to be
Issued." The historical and pro forma income and income per share information
set forth below excludes an after-tax charge of $582,000 taken during the year
ended September 30, 1996 representing a special assessment of 65.7 basis points
on the Bank's deposits held as of March 31, 1995 pursuant to legislation enacted
to recapitalize the SAIF.
32
<PAGE>
<TABLE>
<CAPTION>
At or for the Year Ended September 30, 1996
-----------------------------------------------------
<S> <C> <C> <C> <C>
1,785,000 2,100,000 2,415,000 2,777,250
Shares Shares Shares
at $15.00 at $15.00 at $15.00 at $15.00
Per Share Per Share Per Share Per Share
----------- ----------- ---------- ----------
(Dollars in thousands, except per share amounts)
Gross offering proceeds.................................... $ 26,775 $ 31,500 $ 36,225 $ 41,659
Less estimated offering expenses........................... (979) (1,060) (1,140) (1,233)
---------- ---------- ---------- ----------
Estimated net offering proceeds......................... 25,796 30,440 35,085 40,426
Less: ESOP funded by the Company........................... (2,142) (2,520) (2,898) (3,333)
MRP................................................ (1,071) (1,260) (1,449) (1,666)
---------- ---------- ---------- ----------
Estimated investable net proceeds....................... $ 22,583 $ 26,660 $ 30,738 $ 35,427
========== ========== ========== ==========
Net income:
Historical net income (1)............................... $ 1,402 $ 1,402 $ 1,402 $ 1,402
Pro forma income on investable net proceeds............. 792 935 1,078 1,242
Pro forma ESOP adjustment (2)........................... (132) (155) (178) (205)
Pro forma MRP adjustment (3)............................ (132) (155) (178) (205)
---------- ---------- ---------- ----------
Total............................................... $ 1,930 $ 2,027 $ 2,124 $ 2,234
========== ========== ========== ==========
Net income per share: (4)
Historical net income (1)............................... $ 0.85 $ 0.72 $ 0.63 $ 0.54
Pro forma income on investable net proceeds............. 0.48 0.48 0.48 0.48
Pro forma ESOP adjustment (2)........................... (0.08) (0.08) (0.08) (0.08)
Pro forma MRP adjustment (3)............................ (0.08) (0.08) (0.08) (0.08)
---------- ---------- ---------- ----------
Total............................................... $ 1.17 $ 1.04 $ 0.95 $ 0.86
========== ========== ========== ==========
Weighted average number of shares outstanding
for earnings per share calculations (2)................. 1,656,480 1,948,800 2,241,120 2,577,288
Stockholders' equity: (5)
Historical............................................. $ 18,347 $ 18,347 $ 18,347 $ 18,347
Estimated net proceeds (3)............................. 25,796 30,440 35,085 40,426
Less: Common Stock acquired by ESOP (2)................ (2,142) (2,520) (2,898) (3,333)
Common Stock acquired by MRP (3)................. (1,071) (1,260) (1,449) (1,666)
---------- ---------- ---------- ----------
Total............................................... $ 40,930 $ 45,007 $ 49,085 $ 53,774
========== ========== ========== ==========
Stockholders' equity per share: (4)(5)
Historical.............................................. $ 10.28 $ 8.74 $ 7.60 $ 6.61
Estimated net proceeds (3).............................. 14.45 14.50 14.53 14.56
Less: Common Stock acquired by ESOP (2)................. (1.20) (1.20) (1.20) (1.20)
Common Stock acquired by MRP (3).................. (0.60) (0.60) (0.60) (0.60)
---------- ---------- ---------- ----------
Total............................................... $ 22.93 $ 21.44 $ 20.33 $ 19.37
========== ========== ========== ==========
Number of shares outstanding for
stockholders' equity per share calculations............. 1,785,000 2,100,000 2,415,000 2,777,250
Offering price as a percentage of pro
forma stockholders' equity per share...................... 65.42% 69.99% 73.80% 77.47%
========== ========== ========== ==========
Ratio of offering price to pro forma
net income per share.................................... 12.87x 14.42x 15.83x 17.31x
========== ========== ========== ==========
</TABLE>
(Footnotes on succeeding page)
33
<PAGE>
- --------------------
(1) Historical net income and historical net income per share exclude an after-
tax charge of $582,000 taken during the year ended September 30, 1996
representing a special assessment of 65.7 basis points on the Bank's
deposits held as of March 31, 1995 pursuant to legislation enacted to
recapitalize the SAIF.
(2) Assumes 8% of the shares to be sold in the Stock Conversion are purchased
by the ESOP under all circumstances, and that the funds used to purchase
such shares are borrowed from the Company. The approximate amount expected
to be borrowed by the ESOP is not reflected as a liability but is reflected
as a reduction of capital. Although repayment of such debt will be secured
solely by the shares purchased by the ESOP, the Converted Bank (and the
Commercial Bank) expects to make discretionary contributions to the ESOP in
an amount at least equal to the principal and interest payments on the ESOP
debt. Pro forma net income has been adjusted to give effect to such
contributions, based upon a fully amortizing debt with a ten-year term.
Because the Company will be providing the ESOP loan, only principal
payments on the ESOP loan are reflected as employee compensation and
benefits expense. For purposes of this table the Purchase Price of $15.00
was utilized to calculate the ESOP expense. The Bank intends to record
compensation expense related to the ESOP in accordance with AICPA SOP No.
93-6. As a result, to the extent the value of the Common Stock appreciates
over time, compensation expense related to the ESOP will increase. SOP 93-
6 also changes the earnings per share computations for leveraged ESOPs to
include as outstanding only shares that have been committed to be released
to participants. For purposes of the preceding table, it was assumed that
10% of the ESOP shares purchased in the Stock Conversion were committed to
be released. See "Management of the Bank -- Certain Benefit Plans and
Agreements -- Employee Stock Ownership Plan."
(3) Assumes a number of shares of Common Stock equal to 4% of the Common Stock
to be sold in the Stock Conversion will be purchased by the MRP in the open
market following the Stock Conversion. The dollar amount of the Common
Stock to be purchased by the MRP is based on the Purchase Price in the
Stock Conversion and represents unearned compensation and is reflected as a
reduction of capital. Such amount does not reflect possible increases or
decreases in the value of such stock relative to the Purchase Price in the
Stock Conversion. As the Converted Bank (and the Commercial Bank) accrues
compensation expense to reflect the vesting of such shares pursuant to the
MRP, the charge against capital will be reduced accordingly.
Implementation of the MRP would require stockholder approval at a meeting
of the Company's stockholders. If the shares to be purchased by the MRP
were newly issued shares purchased from the Company by the MRP at the
Purchase Price rather than shares purchased in the open market, at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range, pro forma stockholders' equity per share would have been
$22.62, $21.18, $20.12 and $19.19, respectively, and pro forma net income
per share would have been $1.14, $1.02, $.93 and $.85, respectively. As a
result of the MRP acquiring authorized but unissued shares from the
Company, stockholders' ownership interests in the Company would be diluted
by approximately 3.85%. See "Management of the Bank -- Certain Benefit
Plans and Agreements -- Management Recognition Plan" and "Risk Factors --
Dilutive Effect of MRP and Stock Options."
(4) It is expected that following the consummation of the Stock Conversion the
Company will adopt the Option Plan, which would be subject to stockholder
approval. Upon approval of the Option Plan, employees and directors could
be granted options to purchase an aggregate amount of Common Stock equal to
10% of the shares issued in the Stock Conversion at exercise prices equal
to the market price of the Common Stock on the date of grant. In the event
the shares issued under the Option Plan consist of newly issued shares of
Common Stock and all options available for award under the Option Plan were
awarded, the interests of existing stockholders would be diluted. At the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range, if all shares under the Option Plan were newly issued and
the exercise price for the option shares were equal to the Purchase Price
in the Conversion, the number of outstanding shares of Common Stock would
increase to 1,963,500, 2,310,000, 2,656,500 and 3,054,975, respectively,
net income per share would be $1.10, $.99, $.91 and $.83, respectively, and
stockholders' equity per share would have been $22.21, $20.85, $19.84 and
$18.97, respectively.
(5) Consolidated stockholders' equity represents the excess of the carrying
value of the assets of the Company over its liabilities. The amounts shown
do not reflect the federal income tax consequences of the potential
restoration to income of the bad debt reserves for income tax purposes,
which would be required in the event of liquidation. The amounts shown
also do not reflect the amounts required to be distributed in the event of
liquidation to eligible depositors from the liquidation account which will
be established upon the consummation of the Stock Conversion. Pro forma
stockholders' equity information is not intended to represent the fair
market value of the Common Stock, the current value of the Bank's assets or
liabilities or the amounts, if any, that would be available for
distribution to stockholders in the event of liquidation. Such pro forma
data may be materially affected by a change in the number of shares to be
sold in the Stock Conversion and by other factors.
34
<PAGE>
PROPOSED MANAGEMENT PURCHASES
The following table sets forth information regarding the approximate number
of shares of the Common Stock intended to be purchased by each of the directors
and executive officers of the Bank and by all directors and executive officers
as a group, including their associates. For purposes of the following table, it
has been assumed that 2,100,000 shares of the Common Stock will be sold at
$15.00 per share, the midpoint of the Estimated Valuation Range (see "The
Conversion -- Stock Pricing and Number of Shares to be Issued") and that
sufficient shares will be available to satisfy subscriptions in all categories.
<TABLE>
<CAPTION>
Percent Aggregate Purchase
Total of Price of
Name and Position Shares Total Proposed Purchases
------------------ ------- -------- -------------------
<S> <C> <C> <C>
Frederick H. Howdy, Director
and Chairman of the Board 40,000 2.0% 600,000
Linley H. Gibbs, Jr., Director
and Vice Chairman of the Board 16,667 .8 250,000
Thomas A. Vann, Director and President 40,000 2.0 600,000
Edmund T. Buckman, Jr., Director 40,000 2.0 600,000
Fred N. Holscher, Director 13,333 .6 200,000
Charles E. Parker, Jr., Director 13,333 .6 200,000
Marshall T. Singleton, Director 20,000 1.0 300,000
All directors and executive officers, as a
group (14 persons) and their associates 202,000 9.6 3,030,000
ESOP (1) 168,000 8.0 2,520,000
MRP (2) 84,000 4.0 1,260,000
------- ---- ----------
Total (3) 454,000 21.6% $6,810,000
======= ==== ==========
</TABLE>
- --------------------
(1) Consists of shares that could be allocated to participants in the ESOP,
under which executive officers and other employees would be allocated in
the aggregate 8% of the Common Stock issued in the Stock Conversion. See
"Management of the Bank -- Certain Benefit Plans and Agreements -- Employee
Stock Ownership Plan."
(2) Consists of shares that are expected to be awarded to participants in the
MRP, if implemented, under which directors, executive officers and other
employees would be awarded an aggregate number of shares equal to 4% of the
Common Stock sold in the Stock Conversion. The dollar amount of the Common
Stock to be purchased by the MRP is based on the Purchase Price in the
Conversion and does not reflect possible increases or decreases in the
value of such stock relative to the Purchase Price per share in the Stock
Conversion. Implementation of the MRP would require stockholder approval.
See "Management of the Bank -- Certain Benefit Plans and Agreements --
Management Recognition Plan." Such shares could be newly issued shares or
shares purchased in the open market following implementation of the MRP, in
the sole discretion of the Company's Board of Directors. The percentage
shown assumes the shares are purchased in the open market. If all shares
acquired by the MRP are newly issued shares, the percentage of the
outstanding Common Stock owned by the MRP would be 3.85%. Any sale of
newly issued shares to the MRP would be dilutive to existing stockholders.
See "Risk Factors -- Possible Dilutive Effect of MRP and Stock Options."
(3) Does not include shares that possibly would be purchased by participants in
an Option Plan, intended to be implemented, under which directors,
executive officers and other employees would be granted options to purchase
an aggregate amount of Common Stock equal to 10% of the shares issued in
the Stock Conversion at exercise prices equal to the market price of the
Common Stock on the date of grant. Shares issued pursuant to the exercise
of options could be from treasury stock or newly issued shares.
Implementation of the Option Plan would require regulatory and stockholder
approval. See "Management of the Bank -- Certain Benefit Plans and
Agreements -- Stock Option and Incentive Plan."
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company has only recently been formed and, accordingly, has no results
of operations at this time. As a result, this discussion relates to the
financial condition and results of operations of the Bank. The business of the
Bank consists principally of attracting deposits from the general public and
using such deposits to originate secured and unsecured commercial and consumer
loans, permanent mortgage and construction loans secured by single-family
residences, credit cards and other loans. The Bank's profitability depends
primarily on its net interest income which is the difference between the income
it receives on its loan and investment portfolios and its cost of funds, which
consists of interest paid on deposits and borrowed funds. Net interest income
is also affected by the relative amounts of interest-earning assets and
interest-bearing liabilities. When interest-earning assets approximate or
exceed interest bearing liabilities, any positive interest rate spread will
generate net interest income. To a lesser extent, the Bank's profitability also
is affected by the level of noninterest income and expenses. Noninterest income
consists of fees on loans, customer service charges, gain from sale of loans and
other miscellaneous income. Noninterest expenses consist of personnel,
occupancy related expenses, federal deposit insurance premiums, data processing,
advertising and other operating expenses.
The operations of the Bank are influenced significantly by local economic
conditions and by policies of financial institution regulatory authorities. The
Bank's cost of funds is influenced by interest rates on competing investments
and by rates offered on similar investments by competing financial institutions
in the Bank's market area, as well as general market interest rates. Lending
activities are affected by the demand for financing of real estate and other
types of loans, which in turn is affected by the interest rates at which such
financing may be offered.
The Bank's business emphasis has been to operate as a well-capitalized,
profitable and independent community-oriented financial institution dedicated to
providing quality customer service. The Bank is committed to meeting the
financial needs of the communities in which it operates. Management believes
that the Bank can be more effective in servicing its customers than many of its
nonlocal competitors because of the Bank's ability to quickly and effectively
provide senior management responses to customer needs and inquiries. The Bank's
ability to provide these services is enhanced by the stability of the Bank's
senior management team.
Liquidity and Capital Resources
Following the completion of the Stock Conversion, the Company initially
will have no business other than that of the Converted Bank (and the Commercial
Bank) and investing the net Stock Conversion proceeds retained by it.
Management believes that the net proceeds to be retained by the Company,
earnings on such proceeds and principal and interest payments on the ESOP loan,
together with dividends that may be paid from the Converted Bank (or the
Commercial Bank) to the Company following the Stock Conversion, will provide
sufficient funds for its initial operations and liquidity needs; however, no
assurance can be given that the Company will not have a need for additional
funds in the future. The Converted Bank (and the Commercial Bank) will be
subject to certain regulatory limitations with respect to the payment of
dividends to the Company. See "Dividend Policy" and "Regulation -- Depository
Institution Regulation -- Dividend Restrictions." The Company intends to lend a
portion of the net proceeds retained from the Stock Conversion to the ESOP to
permit its purchase of Common Stock in the Stock Conversion. See "Use of
Proceeds."
At September 30, 1996, the Bank had retained income of $18.3 million
compared to $17.7 million at September 30, 1995. The Bank reported net income
for the year ended September 30, 1996 of $820,000, as compared to $1.9 million
and $2.2 million for the years ended September 30, 1995 and 1994, respectively.
At September 30, 1996 and 1995, the Bank had a capital to total assets ratio of
9.5% and 10.0%, respectively. At September 30, 1996, the Bank had Tier 1
leverage capital, Tier 1 risk-based capital, and total risk-based capital of
$18.3 million, $18.3 million and $20.0 million, respectively.
36
<PAGE>
At September 30, 1996, the Bank exceeded all regulatory minimum capital
requirements. For a detailed discussion of the Administrator's and FDIC's
regulatory capital requirements, and for a tabular presentation of the Bank's
compliance with such requirements, see "Regulation -- Depository Institution
Regulation -- Capital Requirements."
For additional information regarding the Bank's actual, pro forma and
minimum required capital ratios at September 30, 1996, see "Historical and Pro
Forma Regulatory Capital Compliance." The Converted Bank (and the Commercial
Bank) will, as a result of the Stock Conversion, have substantially increased
capital. There can be no assurance, however, that the Company's sources of
funds will be sufficient to satisfy the liquidity needs of the Company in the
future.
The Bank's primary sources of funds are deposits, principal and interest
payments on loans, proceeds from the sale of loans, and to a lesser extent,
advances from the FHLB of Atlanta. While maturities and scheduled amortization
of loans are predictable sources of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions and local competition.
The primary investing activities of the Bank have been the origination of
loans and the purchase of investment securities. During the years ended
September 30, 1996, 1995 and 1994, the Bank had $130.2 million, $93.4 million
and $152.0 million, respectively, of loan originations. During the years ended
September 30, 1996 and 1995, the Bank purchased investment securities in the
amounts of $6.0 million and $3.0 million, respectively. No investment
securities were purchased during the year ended September 30, 1994. The primary
financing activities of the Bank are the attraction of savings deposits and
obtaining FHLB advances.
The Administrator's regulations require savings banks to maintain liquid
assets equal to at least 10% of total assets. The computation of liquidity
under the Administrator's Regulations allows the inclusion of investments with
readily marketable value, including investments with maturities in excess of
five years. The Bank's average liquidity ratios were 13.6%, 12.6%, and 12.8%
for the years ended September 30, 1996, 1995, and 1994, respectively. The
Bank's most liquid assets are cash and cash equivalents. The levels of these
assets are dependent on the Bank's operating, financing, lending and investing
activities during any given period. At September 30, 1996 and 1995, cash and
cash equivalents totaled $8.6 million and $1.8 million, respectively. The Bank
has other sources of liquidity if a need for additional funds arises. During
the years ended September 30, 1996 and 1995, the Bank sold loans totaling $53.0
million and $43.6 million, respectively. Additional sources of funds include
FHLB of Atlanta advances. At September 30, 1996, the Bank had no outstanding
FHLB advances, compared to $4.0 million of FHLB of Atlanta advances at September
30, 1995. At September 30, 1996, the Bank had $1.0 million of retail repurchase
agreements, while no retail repurchase agreements were outstanding at September
30, 1995. Other sources of liquidity include investment and mortgage-backed
securities designated as available for sale, which totaled $22.9 million at
September 30, 1996.
The Bank anticipates that it will have sufficient funds available to meet
its current commitments. At September 30, 1996, certificates of deposit which
are scheduled to mature within one year totaled $111.2 million. Management
believes that a significant portion of such deposits will remain with the Bank.
Asset/Liability Management
The Bank strives to achieve consistent net interest income and reduce its
exposure to adverse changes in interest rates by matching the terms to repricing
of its interest-sensitive assets and liabilities. Factors beyond the Bank's
control, such as market interest rates and competition, may also have an impact
on the Bank's interest income and interest expense.
In the absence of any other factors, the overall yield or return associated
with the Bank's earning assets generally will increase from existing levels when
interest rates rise over an extended period of time, and conversely interest
income will decrease when interest rates decrease. In general, interest expense
will increase when interest rates rise over an extended period of time, and
conversely interest expense will decrease when interest rates decrease.
37
<PAGE>
Therefore, by controlling the increases and decreases in its interest income and
interest expense which are brought about by changes in market interest rates,
the Bank can significantly influence its net interest income.
The President of the Bank reports to the Board of Directors on a regular
basis on interest rate risk and trends, as well as liquidity and capital ratios
and requirements. The Board of Directors reviews the maturities of the Bank's
assets and liabilities and establishes policies and strategies designed to
regulate the Bank's flow of funds and to coordinate the sources, uses and
pricing of such funds. The first priority in structuring and pricing the Bank's
assets and liabilities is to maintain an acceptable interest rate spread while
reducing the net effects of changes in interest rates. The Bank's management is
responsible for administering the policies and determinations of the Board of
Directors with respect to the Bank's asset and liability goals and strategies.
Management's principal strategy in managing the Bank's interest rate risk
has been to increase interest rate sensitive assets such as commercial business
loans and consumer loans. At September 30, 1996, the Bank had $10.3 million of
commercial business loans and $37.4 million of consumer loans, which amounted to
6.0% and 21.5%, respectively, of the Bank's gross loan portfolio. In addition,
in managing its portfolio of investment securities and mortgage-backed
securities, the Bank in recent periods has emphasized the purchase of short-term
securities so as to reduce the Bank's exposure to increases in interest rates.
In addition, at September 30, 1996, the Bank had $21.6 million of loans held for
sale, and, pursuant to SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities", the Bank has classified investment securities and
mortgage-backed securities with an aggregate amortized cost of $22.8 million and
an aggregate carrying value of $22.9 million as available for sale as of
September 30, 1996. The Bank is holding these loans, investment securities and
mortgage-backed securities as available for sale so that they may be sold if
needed for liquidity or asset and liability management purposes.
Management also has shortened the average repricing period of its assets by
emphasizing the origination of short-term, fixed-rate or adjustable-rate
residential mortgage loans. At September 30, 1996, the Bank held approximately
$45.6 million of adjustable-rate residential mortgage loans, which represented
approximately 26.3% of the Bank's gross loan portfolio. Depending on conditions
existing at a given time, as part of its interest rate risk management strategy,
the Bank may sell newly originated fixed-rate residential mortgage loans with
original maturities of 10 years or more in the secondary market.
Interest Rate Sensitivity Analysis
The Bank's asset/liability management may be analyzed by examining the
extent to which its assets and liabilities are interest rate sensitive.
Interest rate sensitivity is a measure of the difference between amounts of
interest-earning assets and interest-bearing liabilities which either reprice or
mature within a given period of time. The difference, or the interest rate
repricing "gap", provides an indication of the extent to which an institution's
interest rate spread will be affected by changes in interest rates. A gap is
considered positive when the amount of interest rate sensitive assets exceeds
the amount of interest rate sensitive liabilities, and is considered negative
when the amount of interest rate sensitive liabilities exceeds the amount of
interest rate sensitive assets. Generally, during a period of rising interest
rates, a negative gap within shorter maturities would adversely affect net
interest income, while a positive gap within shorter maturities would result in
an increase in net interest income, and during a period of falling interest
rates, a negative gap within shorter maturities would result in an increase in
net interest income while a positive gap within shorter maturities would result
in a decrease in net interest income. Also, changes in interest rates could
have a significant effect on the Bank's liquidity.
At September 30, 1996, the Bank's one year interest sensitivity gap as a
percentage of total interest-earning assets was a negative 12.2%. At September
30, 1996, the Bank's five year cumulative interest sensitivity gap as a
percentage of total interest-earning assets was 9.8%.
A static interest rate "gap" analysis may not be an accurate indicator of
how net interest income will react to changes in interest rates. Income
associated with interest-earning assets and costs associated with interest-
bearing liabilities may not react uniformly to changes in interest rates. In
addition, the magnitude and duration of changes in interest rates may have a
significant impact on net interest income. For example, although certain assets
and liabilities may have similar maturities or periods to repricing, they may
react in different degrees to changes in
38
<PAGE>
market interest rates. Interest rates on certain types of assets and liabilities
typically fluctuate in advance of changes in general market interest rates,
while interest rates on other types may lag behind changes in general market
rates. As an example, certain assets, such as adjustable-rate mortgage loans,
have features (generally referred to as "interest rate caps") which limit
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, prepayment and early withdrawal
levels could also deviate significantly from those assumed in calculating the
interest rate gap. The ability of many borrowers to repay their debt may also
decrease in the event of an interest rate increase.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at September 30, 1996, which are
projected to reprice or mature in each of the future time periods shown.
<TABLE>
<CAPTION>
Six Over One Over Three Over
Less than Months to Through Through Five
Six Months One Year Three Years Five Years Years Total
----------- ---------- ------------ ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
Interest-earning assets:
Real estate mortgage loans and
mortgage-backed securities (1)..... $13,061 $ 23,772 $ 30,303 $ 8,582 $20,603 $ 96,321
Commercial loans (1)(2)............. 27,218 -- -- -- 12,756 39,974
Consumer loans (1).................. 20,821 4,417 7,990 3,396 366 36,990
Investment securities............... 3,000 2,000 -- 3,107 -- 8,107
FHLB of Atlanta stock............... 1,288 -- -- -- -- 1,288
Other interest-earning assets....... 8,577 -- -- -- -- 8,577
------- -------- -------- ------- ------- --------
Total............................. 73,965 30,189 38,293 15,085 33,725 191,257
------- -------- -------- ------- ------- --------
Interest-bearing liabilities:
Deposits............................ 37,403 89,459 33,432 4,167 6,752 171,213
Other interest-bearing liabilities.. 1,040 -- -- -- -- 1,040
------- -------- -------- ------- ------- --------
Total............................. 38,443 89,459 33,432 4,167 6,752 172,253
------- -------- -------- ------- ------- --------
Interest sensitivity gap.............. $35,522 $(59,270) $ 4,861 $10,918 $26,973 $ 19,004
======= ======== ======== ======= ======= ========
Cumulative interest sensitivity gap... $35,522 $(23,748) $(18,887) $(7,969) $19,004 $ 19,004
======= ======== ======== ======= ======= ========
Ratio of interest-earning assets
to interest-bearing liabilities..... 192.4% 33.7% 114.5% 362.0% 499.5% 111.0%
======= ======== ======== ======= ======= ========
Ratio of cumulative gap to
total assets......................... 18.3% (12.2)% (9.7)% (4.1)% 9.8% 9.8%
======= ======== ======== ======= ======= ========
- -------------
</TABLE>
(1) Net of loans-in-process.
(2) Includes commercial real estate loans and commercial business loans.
The preceding table was prepared utilizing certain assumptions as of
September 30, 1996 regarding prepayment and decay rates provided by the FHLB of
Atlanta. While management believes that these assumptions are reasonable, the
actual interest rate sensitivity of the Bank's assets and liabilities could vary
significantly from the information set forth in the table due to market and
other factors. The following assumptions were used: (i) first mortgage loans on
multi-family and commercial properties, construction and land loans and
commercial business loans will not prepay; (ii) consumer loans other than home
equity loans will prepay at an annual rate of 18%; and (iii) home equity loans
and securities will prepay at an annual rate of 13.1%. The prepayment rates
assumed for single-family real estate loans and mortgage-backed securities
varied depending on the coupon rate of the loans or mortgage-backed securities
and, with respect to adjustable-rate loans or mortgage-backed securities,
whether the index used was a lagging index or a current index.
39
<PAGE>
The table further assumes the following annual decay rates or
withdrawal factors for deposit accounts other than certificates of deposit:
<TABLE>
<CAPTION>
Through 2 through After
1 Year 3 Years 3 Years
-------- ---------- --------
<S> <C> <C> <C>
NOW..................... 37% 32% 17%
Money market............ 79 31 31
Passbook and statement.. 17 17 16
</TABLE>
The interest rate-sensitivity of the Bank's assets and liabilities
illustrated in the table above could vary substantially if different assumptions
were used or actual experience differs from the assumptions used. If passbook
and NOW accounts and money market accounts were assumed to mature in one year or
less, the Bank's one-year gap would have been a negative 21.9%.
Net Portfolio Value
Management also measures the Bank's interest rate risk by computing
estimated changes in the net portfolio value ("NPV") of its cash flows from
assets, liabilities and off-balance sheet items in the event of a range of
assumed changes in market interest rates. These computations estimate the effect
on the Bank's NPV of sudden and sustained 1% to 4% increases and decreases in
market interest rates. The following table presents the Bank's projected change
in NPV for the various rate shock levels at September 30, 1996.
<TABLE>
<CAPTION>
Net Portfolio Value
Change -------------------------------------------
in Rates $ Amount $ Change % Change
- -------- -------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
+ 400 bp $12,757 $(11,217) (46.8)%
+ 300 bp 15,776 (8,198) (34.2)
+ 200 bp 18,784 (5,190) (21.6)
+ 100 bp 21,384 (2,590) (10.8)
0 bp 23,974 -- --
- - 100 bp 25,903 1,929 8.0
- - 200 bp 27,831 3,857 16.1
- - 300 bp 28,998 5,024 21.0
- - 400 bp 30,164 6,190 25.8
</TABLE>
Computations of prospective effects of hypothetical interest rate changes
are based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposit decay, and should not be relied upon as
indicative of actual results. Further, the computations do not contemplate any
actions the Bank may undertake in response to changes in interest rates.
Certain shortcomings are inherent in the method of analysis presented in
both the computation of NPV and in the analysis presented in the prior table
setting forth the maturing and repricing of interest-earning assets and
interest-bearing liabilities. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
in differing degrees to changes in market interest rates. The interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while interest rates on other types may lag behind
changes in market rates. Additionally, certain assets, such as adjustable-rate
loans, which represent the Bank's primary loan product, have features which
restrict changes in interest rates on a short-term basis and over the life of
the asset. In addition, the proportion of adjustable-rate loans in the Bank's
portfolio could decrease in future periods if market interest rates remain at or
decrease below current levels due to refinance activity. Further, in the event
of a change in interest rates, prepayment and early withdrawal levels would
likely deviate significantly from those assumed in the tables. Finally, the
ability of many borrowers to repay their adjustable-rate debt may decrease in
the event of an interest rate increase.
40
<PAGE>
Analysis of Net Interest Income
Net interest income represents the difference between income derived from
interest-earning assets and the interest expense on interest-bearing
liabilities. Net interest income is affected by both (i) the difference between
the rates of interest earned on interest-earning assets and the rates paid on
interest-bearing liabilities ("interest rate spread") and (ii) the relative
volume of interest-earning assets and interest-bearing liabilities.
41
<PAGE>
The following table sets forth certain information relating to the Bank's
statements of financial condition and the statements of income for the years
ended September 30, 1996, 1995, and 1994 and reflects the average yield on
assets and average cost of liabilities for the periods indicated. Such yields
and costs are derived by dividing income or expense by the average balance of
assets and liabilities, respectively, for the periods shown. Average balances
are derived from month end balances. Management does not believe that the use
of month end balances instead of average daily balances has caused any material
difference in the information presented. The average balances of loans
receivable include loans on which the Bank has discontinued accruing interest.
The yields and costs include fees which are considered adjustments to yields.
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------------
At September 30,
1996 1995 1994
----------------- ---------------------------- ---------------------------
Average Average
Yield/ Average Yield/ Average Yield/
Balance Cost Balance Interest Cost Balance Interest Cost
-------- ------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable......... $155,681 8.82% $148,538 $13,431 9.04% $141,088 $12,511 8.87%
Investment securities.... 8,107 6.28 5,236 311 5.94 2,090 143 6.84
Mortgage-backed
securities.............. 14,797 7.35 16,881 1,247 7.39 19,404 1,413 7.28
Other interest-earning
assets.................. 7,053 6.06 5,349 361 6.75 4,539 318 7.01
-------- ------ -------- ------- ---- -------- ------- ----
Total interest-earning
assets................ 185,638 8.49 176,004 15,350 8.72 167,121 14,385 8.61
------- -------
Non-interest-earning assets 8,501 7,579 6,587
-------- -------- --------
Total assets........... $194,139 $183,583 $173,708
======== ======== ========
Interest-bearing
liabilities:
Deposits................. $171,213 4.93 $159,304 7,939 4.98 $142,283 6,610 4.65
FHLB advances............ -- -- 2,250 145 6.44 11,833 730 6.17
Other interest-bearing
liabilities............. 1,040 4.51 629 21 3.34 48 4 8.33
-------- ------ -------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities........... 172,253 4.93 162,183 8,105 5.00 154,164 7,344 4.76
------- -------
Non-interest-bearing
liabilities............... 3,539 2,958 2,848
-------- -------- --------
Total liabilities...... 175,792 165,141 157,012
Retained income............ 18,347 18,442 16,696
-------- -------- --------
Total liabilities and
retained income....... $194,139 $183,583 $173,708
======== ======== ========
Net interest income........ $ 7,245 $ 7,041
======= =======
Interest rate spread (1)... 3.56% 3.72% 3.85%
====== ==== ====
Net yield on
interest-earning assets
(2)....................... 3.92% 4.12% 4.21%
====== ==== ====
Ratio of average
interest-earning assets
to average
interest-bearing
liabilities............. 107.77% 108.52% 108.40%
====== ======= =======
Year Ended September 30,
----------------------------
1994
----------------------------
Average
Average Yield/
Balance Interest Cost
-------- -------- -------
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable......... $122,593 $10,016 8.17%
Investment securities.... 1,004 81 8.07
Mortgage-backed
securities.............. 21,020 1,540 7.33
Other interest-earning
assets.................. 2,877 174 6.05
-------- ------- ------
Total interest-earning
assets................ 147,494 11,811 8.01
Non-interest-earning assets 8,169
--------
Total assets........... $155,663
========
Interest-bearing
liabilities:
Deposits................. $119,360 4,416 3.70
FHLB advances............ 19,000 786 4.14
Other interest-bearing
liabilities............. 25 2 8.00
-------- ------- ------
Total interest-bearing
liabilities........... 138,385 5,204 3.76
-------
Non-interest-bearing
liabilities............... 2,429
--------
Total liabilities...... 140,814
Retained income............ 14,849
--------
Total liabilities and
retained income....... $155,663
========
Net interest income........ $ 6,607
=======
Interest rate spread (1)... 4.25%
======
Net yield on
interest-earning assets
(2)....................... 4.48%
======
Ratio of average
interest-earning assets
to average
interest-bearing
liabilities............. 106.58%
======
- --------------------
</TABLE>
(1) Represents the difference between the average yield on interest-earning
assets and the average cost of interest-bearing liabilities.
(2) Represents net interest income divided by average interest-earning assets.
42
<PAGE>
Rate/Volume Analysis
Net interest income can also be analyzed in terms of the impact of changing
interest rates on interest-earning assets and interest-bearing liabilities and
the changing volume or amount of these assets and liabilities. The following
table represents the extent to which changes in interest rates and changes in
the volume of interest-earning assets and interest-bearing liabilities have
affected the Bank's interest income and interest expense during 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 old rate); (ii) changes in rate (change
in rate multiplied by old volume); (iii) changes in rate-volume (changes in rate
multiplied by the changes in volume); and (iv) net change (the sum of the
previous columns).
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
-------------------------------------- --------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
-------------------------------------- --------------------------------------
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
------- --------- --------- ------- ------- --------- --------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable................. $ 660 $ 246 $ 13 $ 919 $1,511 $ 855 $ 129 $2,495
Investment securities............ 215 (19) (28) 168 88 (12) (14) 62
Mortgage-backed securities....... (184) 21 (3) (166) (118) (10) 1 (127)
Other interest-earning assets.... 57 (12) (2) 43 101 28 15 144
----- ----- ---- ------ ------ ------ ----- ------
Total interest-earning assets.. 748 236 (20) 964 1,582 861 131 2,574
----- ----- ---- ------ ------ ------ ----- ------
Interest expense:
Deposits......................... 791 481 57 1,329 848 1,129 217 2,194
FHLB advances.................... (591) 32 (26) (585) (297) 386 (145) (56)
Other interest-bearing
liabilities.................... 48 (2) (29) 17 2 -- -- 2
----- ----- ---- ------ ------ ------ ----- ------
Total interest-bearing
liabilities................. 248 511 2 761 553 1,515 72 2,140
----- ----- ---- ------ ------ ------ ----- ------
Change in net interest income...... $ 500 $(275) $(22) $ 203 $1,029 $ (654) $ 59 $ 434
===== ===== ==== ====== ====== ====== ===== ======
</TABLE>
Results of Operations
Comparison of Financial Condition at September 30, 1996 and 1995
Total assets increased 9.2% to $194.1 million at September 30, 1996 from
$177.7 million at September 30, 1995. Assets invested in mortgage, consumer and
commercial loans (net of loans-in-process, deferred fees and loan loss reserves)
increased by 7.7%, to $155.7 million at September 30, 1996 from $144.5 million
at September 30, 1995. Investment securities and mortgage-backed securities
decreased by 9.5% between the periods, to $22.9 million at September 30, 1996
from $25.3 million at September 30, 1995.
In order to take advantage of generally higher loan yields as well as
shorter terms, the Bank has increased its emphasis on the origination of both
secured and unsecured commercial and consumer loans. Prior to 1994, a majority
of the loans originated by the Bank were mortgage loans secured by single-family
residences. From time to time, the Bank sells selected mortgage loans in the
secondary market in order to reduce interest rate and credit risk, while
retaining servicing to generate additional fee income.
Total residential real estate mortgage loans decreased 7.1% to $94.8
million at September 30, 1996 from $102.1 million at September 30, 1995.
Consumer loans increased 26.1% to $37.4 million at September 30, 1996 from $29.7
million at September 30, 1995. Commercial real estate loans increased 42.4% to
$31.2 million at September 30, 1996 from $21.9 million at September 30, 1995,
and commercial business loans increased 179.3% to $10.3 million at September 30,
1996 from $3.7 million at September 30, 1995. During fiscal 1996, the Bank
43
<PAGE>
originated $76.3 million of residential real estate mortgage loans, compared to
$59.2 million of such originations during fiscal 1995. The Bank sold $53.0
million of real estate loans during fiscal 1996, compared to $43.6 million
during fiscal 1995. Loans serviced for others increased to $253.7 million at
September 30, 1996 from $229.6 million at September 30, 1995. Commercial real
estate, commercial business and consumer loan originations increased 57.5% to
$53.8 million during fiscal 1996 from $34.2 million during fiscal 1995, as the
Bank continues to place an emphasis on structuring itself as a commercial
banking entity.
Deposits for the period increased by 11.6%, to $171.2 million at September
30, 1996 from $153.5 million at September 30, 1995. The number of deposit
accounts grew to 15,404 at September 30, 1996 from 13,794 at September 30, 1995.
Total capital for the period increased by 3.7%, to $18.3 million at September
30, 1996 from $17.7 million at September 30, 1995. At September 30, 1996, the
ratio of capital to total assets was 9.5%, compared to 10.0% at September 30,
1995.
Comparison of Operating Results for the Years Ended September 30, 1996 and 1995
Net Income. Net income decreased by $1.0 million to $820,000 for the year
ended September 30, 1996 from $1.9 million for the year ended September 30,
1995. The principal reasons for this decrease are the results of a special
assessment on deposit insurance premiums, increased provisions for possible loan
losses and accelerated depreciation on certain fixed assets, all of which are
discussed below.
Interest Income. Interest income increased $964,000, or 6.7%, to $15.3
million for fiscal 1996 from $14.4 million for fiscal 1995. This increase
resulted from an increase in interest income on loans and investments and higher
yields due to a rising interest rate environment. Interest on loans increased
by $920,000, or 7.2%, to $13.4 million in fiscal 1996 from $12.5 million in
fiscal 1995. This increase was due to a 17 basis point increase in the average
yield on loans to 9.04% for fiscal 1996 from 8.87% for fiscal 1995. In
addition, there was an increase of $7.5 million in the average balance of loans
outstanding between the two periods. The average yield on total average
interest-earning assets of $176.0 million was 8.7% for 1996 compared to an 8.6%
average yield on $167.1 million of total average interest earning assets for
1995.
Interest Expense. Interest expense for the year ended September 30, 1996
increased by $761,000, or 10.4%, to $8.1 million, from $7.3 million for fiscal
1995. The increase resulted from a rise in general market interest rates and
was also influenced by an increase in the volume of deposits. Average deposits
increased $17.0 million, or 11.9%, to $159.3 million for fiscal 1996 from $142.3
million for fiscal 1995. The average cost of interest-bearing liabilities
increased to 5.0% for 1996 from 4.8% for 1995, and average interest-bearing
liabilities increased to $162.2 million for fiscal 1996 from $154.2 million for
fiscal 1995.
Net Interest Income. Net interest income increased by $203,000, or 2.9%,
to $7.2 million for the year ended September 30, 1996, from $7.0 million for the
year ended September 30, 1995.
Provision for Loan Losses. The Bank maintains an allowance for losses on
loans based upon management's evaluation of risks in the loan portfolio, the
Bank's past loan loss experience, and current and expected future economic
conditions. The Bank provided $511,000 and $20,000 for loan losses during the
years ended September 30, 1996 and 1995, respectively. The allowance for loan
losses was $2.4 million at September 30, 1996 compared to $1.9 million at
September 30, 1995. The ratio of the allowance for loan losses to total loans,
net of loans in process and deferred loan fees, was 1.5% at September 30, 1996
compared to 1.3% at September 30, 1995. The increased provisions were necessary
to support the growth and risks associated with the emphasis placed upon
commercial and consumer lending.
The Bank uses a systematic approach in determining the adequacy of its loan
loss allowance and the necessary provision for loan losses, through a
classification of assets program, whereby the loan portfolio is reviewed
generally and delinquent loan accounts are analyzed individually, on a quarterly
basis. Consideration is given to the account status, payment history, ability
to repay and probability of repayment, and loan-to-value percentages. As a
result of this review and analysis, loans are classified in the appropriate
categories applicable to their circumstances. After reviewing current economic
conditions, changes in delinquency status, and actual loan losses incurred by
the Bank, management establishes an appropriate reserve percentage applicable to
each category of assets, and provision
44
<PAGE>
for loan losses is recorded when necessary to bring the allowance to a level
consistent with this analysis. Historically, the Bank's ratio of nonperforming
loans to total loans has been lower in comparison to its peers, while the ratio
of its allowance for loan losses to nonperforming loans has been higher in
comparison to its peers. The ratio of nonperforming loans to total loans was
0.7% at September 30, 1996 and 0.5% at September 30, 1995.
Noninterest Income. Noninterest income totaled $1.8 million for the year
ended September 30, 1996 and $1.5 million for the year ended September 30, 1995.
Noninterest income consists of fees and service charges earned on loans, service
charges on deposit accounts, gains for sale of loans, and other miscellaneous
income. Gains from sales of loans increased to $423,000 for fiscal 1996 from
$312,000 for fiscal 1995, as the volume of loans sold increased to $53.0 million
for 1996 from $43.6 million for 1995. Servicing fee income on loans serviced
for others increased to $632,000 for fiscal 1996 from $582,000 for fiscal 1995.
Noninterest Expense. Noninterest expenses increased 28.9% in fiscal 1996
to $7.3 million, from $5.7 million in fiscal 1995. The ratio of these expenses
to gross income was 42.4% in fiscal 1996 compared to 35.6% in fiscal 1995. The
largest single component of these expenses, compensation and fringe benefits,
increased 4.0% in fiscal 1996 to $3.6 million from $3.4 million for fiscal 1995.
These increases are a result of the growth in personnel and management required
to support the 16.9% growth in assets from September 30, 1994 to September 30,
1996.
Federal deposit insurance premiums increased by $995,000 to $1.3 million
for the year ended September 30, 1996 from $305,000 for the year ended September
30, 1995. During the year ended September 30, 1996, the Bank incurred a one-
time FDIC assessment of $946,000 to capitalize the SAIF insurance fund up to
required reserve ratios. The assessment was based upon 65.7 cents per $100 of
SAIF deposits as of March 31, 1995. During fiscal 1996, the Bank has also paid
continuing SAIF insurance premiums at a rate of 23 cents per $100 of SAIF
deposits. However, that rate will drop to 6.4 cents per $100 effective January
1, 1997 through December 31, 1999 and to 2.4 cents per $100 thereafter. This
revised deposit insurance rate structure will enable the Bank to recognize a
substantial reduction in deposit insurance premiums going forward.
Premises and equipment expense increased by $255,000 to $798,000 for the
year ended September 30, 1996 from $543,000 for September 30, 1995. During the
year ended September 30, 1996 the Bank recognized accelerated depreciation of
$225,000 on certain fixed assets with no future value due to obsolescence or
excessive use.
Income Taxes. The provision for income taxes decreased to $451,000 for
fiscal 1996 from $998,000 for fiscal 1995. The Bank's effective income tax rate
was 35.4% for the year ended September 30, 1996 and 34.9% for the year ended
September 30, 1995.
Comparison of Financial Condition at September 30, 1995 and 1994
Total assets increased 7.1% to $177.7 million at September 30, 1995 from
$166.0 million at September 30, 1994. Assets invested in mortgage, consumer and
commercial loans (net of loans-in-process, deferred fees and loan loss reserves)
increased by 6.5% to $144.5 million at September 30, 1995 from $135.7 million at
September 30, 1994. Investment securities and mortgage-backed securities
increased by 29.4% to $25.3 million at September 30, 1995 from $19.5 million at
September 30, 1994.
Total residential real estate mortgage loans decreased 5.8% to $102.1
million at September 30, 1995 from $108.4 million at September 30, 1994.
Consumer loans increased 34.1% to $29.7 million at September 30, 1995 from $22.1
million at September 30, 1994. Commercial real estate loans increased 28.0% to
$21.9 million at September 30, 1995 from $17.1 million at September 30, 1994,
and commercial business loans increased 108.1% to $3.7 million at September 30,
1995 from $1.8 million at September 30, 1994. During fiscal 1995, the Bank
originated $59.2 million of residential real estate mortgage loans compared to
$123.9 million during fiscal 1994. This decrease was attributable mainly to an
increase in market rates during 1995 and a dramatic reduction in the amount of
refinancing that occurred during fiscal 1994. The Bank sold $43.6 million of
real estate loans during fiscal 1995 compared to $88.5 million during fiscal
1994. Loans serviced for others increased to $229.6 million at September 30,
1995 from $205.1 million at September 30, 1994. Commercial real estate,
commercial business and
45
<PAGE>
consumer loan originations increased 21.7% to $34.2 million during fiscal 1995
from $28.1 million during fiscal 1994.
Deposits increased by 16.6% to $153.5 million at September 30, 1995 from
$131.6 million at September 30, 1994. The number of deposit accounts grew to
13,794 at September 30, 1995 from 11,377 at September 30, 1994. Total capital
increased by 13.2%, to $17.7 million at September 30, 1995 from $15.6 million at
September 30, 1994. At September 30, 1995, the ratio of capital to total assets
was 10.0%, compared to 9.4% at September 30, 1994.
Comparison of Operating Results for the Years Ended September 30, 1995 and 1994
Net Income. Net income decreased by $16.6% to $1.9 million for the year
ended September 30, 1995 from $2.2 million for the year ended September 30,
1994. The adoption of Financial Accounting Standards Board ("FASB") Statement
No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), resulted in the
recognition of an additional $250,000 in income for the year ended September 30,
1994 and represents the cumulative effect on prior years of adopting SFAS No.
Statement 109.
Interest Income. Interest income increased $2.6 million or 21.8% to $14.4
million for 1995 from $11.8 million for 1994. This increase resulted from an
increase in interest income on loans and investments and higher yields due to a
rising interest rate environment. Interest on loans increased by $2.5 million,
or 24.9%, to $12.5 million for fiscal 1995. This increase was due to a 70 basis
point increase in the average yield on loans to 8.87% for fiscal 1995 from 8.17%
for fiscal 1994. There was an increase of $18.5 million in the average balance
of loans outstanding between the two periods. The average yield on total
average interest earning assets of $167.1 million was 8.6% for fiscal 1995
compared to an 8.0% average yield on $147.5 million of total average interest
earning assets for fiscal 1994.
Interest Expense. Interest expense for the year ended September 30, 1995
increased $2.1 million, or 41.1%, to $7.3 million for fiscal 1995 from $5.2
million for fiscal 1994. The increase resulted from a rise in general market
interest rates and was also influenced by an increase in the volume of deposits.
Average deposits increased $22.9 million, or 19.2%, to $142.3 million for fiscal
1995 from $119.4 million for fiscal 1994. The average cost of interest-bearing
liabilities increased to 4.8% for fiscal 1995 from 3.8% for fiscal 1994, and
average interest-bearing liabilities increased to $154.2 million for fiscal 1995
from $138.4 million for fiscal 1994.
Net Interest Income. Net interest income for the year ended September 30,
1995 increased by $434,000, or 6.6%, to $7.0 million from $6.6 million for the
year ended September 30, 1994. The principal reason for the increase in net
interest income was an improvement in the Bank's ratio of average interest-
earning assets to average interest-bearing liabilities to 108.4% for fiscal 1995
from 106.6% for fiscal 1994.
Provision for Loan Losses. The Bank maintains an allowance for losses on
loans based upon management's evaluation of risks in the loan portfolio, the
Bank's past loan loss experience, and current and expected future economic
conditions. The Bank provided $20,000 and $210,000 for loan losses during the
years ended September 30, 1995 and 1994, respectively. The allowance for loan
losses was $1.9 million at September 30, 1995 compared to $2.0 million at
September 30, 1994. The ratio of nonperforming loans to total loans was 0.5% at
September 30, 1995 and 0.3% at September 30, 1994.
Noninterest Income. Noninterest income totaled $1.5 million for the year
ended September 30, 1995 and $1.7 million for the year ended September 30, 1994.
Noninterest income consists of fees and service charges earned on loans, service
charges on deposit accounts, gains from sale of loans, and other miscellaneous
income. Gains from sales of loans declined to $312,000 for fiscal 1995 from
$581,000 for fiscal 1994 as the volume of loans sold declined to $43.6 million
for fiscal 1995 from $88.5 million for fiscal 1994. Servicing fee income on
loans serviced for others increased to $582,000 for fiscal 1995 from $580,000
for fiscal 1994.
Noninterest Expense. Noninterest expenses increased 17.9% in fiscal 1995
to $5.7 million, from $4.8 million in fiscal 1994. The ratio of these expenses
to gross income was 35.6% in fiscal 1995 compared to 35.7% in fiscal 1994. The
principal reasons for these increases were costs associated with the expansion
of the Bank's retail
46
<PAGE>
branch network and its lending and deposit-taking activities, expenditures to
upgrade the systems required to support the Bank's greater volume of business,
the renovation and occupancy of a new operations center and continuing deposit
insurance premium assessments. The largest single component of these expenses,
compensation and fringe benefits, increased 24.2% in fiscal 1995 to $3.4 million
from $2.8 million for fiscal 1994. These increases are a result of the growth in
personnel and management required to support the 21.7% growth in assets from
September 30, 1993 to September 30, 1995.
Income Taxes. The provision for income taxes decreased to $998,000 for
fiscal 1995 from $1.3 million for fiscal 1994. The Bank's effective income tax
rate was 34.9% for the year ended September 30, 1995 and 36.0% for the year
ended September 30, 1994. Effective October 1, 1993, the Bank adopted SFAS No.
109. The implementation of SFAS No. 109 resulted in an increase in net income
of $250,000 for the year ended September 30, 1994.
Impact of Inflation and Changing Prices
The financial statements of the Bank and accompanying footnotes have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time and due to inflation. The impact of inflation is
reflected in the increased cost of the Bank's operations. Unlike most
industrial companies, nearly all the assets and liabilities of the Bank are
monetary. As a result, interest rates have a greater impact on the Bank'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.
Impact of Recent Accounting Standards
Effective October 1, 1993, the Bank adopted Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes."
This statement requires that all deferred tax asset and liability balances be
determined by application to temporary differences of the tax rate expected to
be in effect when taxes will become payable or receivable. Temporary
differences are differences between the tax basis of assets and liabilities and
their reported amounts in the financial statements that will result in taxable
or deductible amounts in future years. Net income for the year ended September
30, 1994 includes income of $250,000 which represents the net change in deferred
taxes as of October 1, 1993. Such amount has been reflected separately in the
consolidated statement of operations as a cumulative effect on prior years of a
change in accounting principle.
Statement of Financial Accounting Standards No. 114 ("SFAS No. 114"),
"Accounting by Creditors for Impairment of a Loan", requires measurement of
potential losses on impaired loans. SFAS No. 114 provides guidance on methods
of calculating losses associated with impaired loans. The FASB has issued
Statement of Financial Accounting Standard No. 118 which amends SFAS No. 114 to
allow a creditor to use existing methods of recognizing interest income on an
impaired loan. The Bank adopted these standards effective on October 1, 1995.
Because the Bank historically has not had significant amounts of impaired loans,
management does not believe SFAS No. 114 will have a significant effect on its
financial condition or results of operations in the future.
The FASB issued Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investment in Debt and Equity Securities" ("SFAS No.
115"). This Statement addresses the accounting and reporting for investments in
equity securities that have readily determinable fair values, and all
investments in debt securities. SFAS No. 115 requires classification of
investments into three categories. Debt securities that the Bank has the
positive intent and ability to hold to maturity are classified as held to
maturity and must be reported at amortized cost. Debt and equity securities
that are bought and held principally for the purpose of selling them in the near
term are classified as trading and must be reported at fair value, with
unrealized gains and losses included in earnings. All other debt and equity
securities must be considered available for sale and must be reported at fair
value, with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholder's equity (net of tax effects). All securities
presently owned by the Bank are categorized as available for sale, and
management does not expect SFAS No. 115 to have a material effect on the Bank's
financial position or results of operations.
47
<PAGE>
In March 1995, the FASB issued SFAS No. 121 "Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to Be Disposed Of." The statement is
effective for years beginning after December 15, 1995 and requires, among other
things, recognition of impairment of long-lived assets, if any, based upon the
difference between the undiscounted expected future cash flows and the carrying
value. Further, the statement requires that long-lived assets to be disposed of
be reported at the lower of carrying amount or fair value less costs to sell.
The Bank plans to adopt the provisions of SFAS No. 121 on October 1, 1996 and
management does not believe the adoption of this statement will have a material
effect on the Bank's financial position or results of operations.
The FASB has issued Statement of Financial Accounting Standards No. 122
("SFAS No. 122"), "Accounting for Mortgage Servicing Rights," which is effective
for fiscal years beginning after December 15, 1995. SFAS No. 122 amends certain
portions of SFAS No. 65 by eliminating the accounting distinction between rights
to service mortgage loans for others that are acquired through loan origination
activities and those acquired through purchase transactions. SFAS No. 122
requires the costs of acquiring loans, whether purchased or originated, to be
allocated to the mortgage servicing rights and the loans (without the mortgage
servicing rights) based on their relative fair values, if determinable. Any
costs allocated to mortgage servicing rights should be recognized as a separate
asset and amortized over the period of estimated net servicing income. All
capitalized mortgage servicing rights should be evaluated for impairment based
on their fair value. Management does not believe that the implementation of
SFAS No. 122 will materially affect the financial condition or results of
operations of the Bank.
In November 1995, the FASB issued Statement of Financial Accounting
Standards No. 123 "Accounting for Awards of Stock-Based Compensation to
Employees" ("SFAS No. 123"). SFAS No. 123 is effective for years beginning
after December 15, 1995. Earlier application is permitted. The Statement
defines a fair value based method of accounting for an employee stock option or
similar equity instrument and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it also
allows an entity to continue to measure compensation cost for those plans using
the intrinsic value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("Opinion 25"). Under the fair value
based method, compensation cost is measured at the grant date based on the value
of the award and is recognized over the service period, which is usually the
vesting period. Under the intrinsic value based method, compensation cost is
the excess, if any, of the quoted market price of the stock at the grant date or
other measurement date over the amount an employee must pay to acquire the
stock. Most fixed stock option plans -- the most common type of stock
compensation plan -- have no intrinsic value at grant date, and under Opinion 25
no compensation cost is recognized for them. Compensation cost is recognized
for other types of stock based compensation plans under Opinion 25, including
plans with variable, usually performance-based, features. This Statement
requires that an employer's financial statements include certain disclosures
about stock-based employee compensation arrangements regardless of the method
used to account for them. Management has not determined when it will adopt the
provisions of SFAS No. 123 and has not estimated the effect of adoption on the
Company's financial condition or results of operations.
The Accounting Standards Division of the AICPA approved SOP 93-6,
"Employers' Accounting for Employee Stock Ownership Plans," which is effective
for fiscal years beginning after December 15, 1993 and applies to shares of
capital stock of sponsoring employers acquired by employee stock ownership plans
after December 31, 1992 that had not been committed to be released as of January
1, 1992. SOP 93-6 will, among other things, change the measure of compensation
recorded by employers from the cost of ESOP shares to the fair value of employee
stock ownership plan shares. To the extent that the fair value of the ESOP
shares, committed to be released directly to compensate employees, differs from
the cost of such shares, compensation expenses and a related charge or credit to
additional paid-in capital will be reported in the Company's financial
statements.
BUSINESS OF THE COMPANY
The Company was organized at the direction of the Board of Directors of the
Bank in October 1996 for the purpose of becoming a holding company to own all of
the outstanding capital stock of the Bank. Upon completion of the Stock
Conversion, the Bank will become a wholly owned subsidiary of the Company. For
additional information, see "NewSouth Bancorp, Inc."
The Company currently is not an operating company. Following the
Conversion, the Company will be engaged primarily in the business of directing,
planning and coordinating the business activities of the Bank. In the
48
<PAGE>
future, the Company may become an operating company or acquire or organize other
operating subsidiaries, including other financial institutions, though there are
no current plans in this regard. Initially, the Company will not maintain
offices separate from those of the Bank or employ any persons other than its
officers who will not be separately compensated for such service.
BUSINESS OF THE BANK
General
The Bank's principal business consists of attracting deposits from the
general public and investing these funds in loans secured by first mortgages on
owner-occupied, single-family residences in the Bank's market area, commercial
real estate loans, commercial business loans and consumer loans, and, to a
lesser extent, multi-family residential real estate loans.
The Bank derives its income principally from interest earned on loans and
investments and, to a lesser extent, loan servicing and other fees and gains on
the sale of loans and investments. The Bank's principal expenses are interest
expense on deposits and borrowings and noninterest expense such as compensation
and employee benefits, office occupancy expenses and other miscellaneous
expenses. Funds for these activities are provided principally by deposits,
borrowings, repayments of outstanding loans and investments and operating
revenues.
Market Area
Although the Bank makes loans and obtains deposits throughout eastern and
northeastern North Carolina, the Bank's primary market area consists of
Beaufort, Craven, Lenoir, Nash, Pasquotank and Pitt Counties in North Carolina,
which are the counties in which the Bank's offices are located. At September
30, 1996, management estimates that more than 95% of deposits and 90% of loans
came from its primary market area.
The economy of the Bank's primary market area is diversified, with
employment distributed among manufacturing, agriculture and non-manufacturing
activities. Major employers in the area include Weyerhaeuser Company, Dupont,
East Carolina University and Pitt Memorial Hospital. The unemployment rate in
the Bank's market area is below the national average, though higher than the
unemployment rate for the State of North Carolina.
According to data provided by a private marketing firm, the Bank estimates
the population of its primary market area to be approximately 430,000. This
compares to a population of approximately 400,000 in 1990. The average
household income of the Bank's primary market area is approximately $26,746, as
compared to $30,562 for North Carolina as a whole.
Lending Activities
General. The Bank's gross loan portfolio totaled $173.7 million at
September 30, 1996, representing 89.5% of total assets at that date. It is the
Bank's policy to concentrate its lending within its market area. At September
30, 1996, $58.6 million, or 33.7% of the Bank's gross loan portfolio, consisted
of single-family, residential mortgage loans. The Bank's construction loans
totaled $35.2 million, or 20.3% of the Bank's gross loan portfolio, at September
30, 1996. The Bank also originates a significant amount of commercial real
estate loans. At September 30, 1996, commercial real estate loans amounted to
$31.2 million, or 17.9% of the Bank's gross loan portfolio. In recent years,
the Bank has sought to increase originations of commercial business loans and
consumer loans. At September 30, 1996, commercial business loans totaled $10.3
million, or 6.0% of the Bank's gross loan portfolio, and consumer loans totaled
$37.4 million, or 21.5% of the Bank's gross loan portfolio. To a lesser extent,
the Bank also originates multi-family residential real estate loans and
commercial real estate loans. At September 30, 1996, multi-family residential
real estate loans amounted to $1.0 million, or 0.6% of the Bank's gross loan
portfolio.
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Loan Portfolio Composition. The following table sets forth selected data
relating to the composition of the Bank's loan portfolio by type of loan at the
dates indicated. At September 30, 1996, the Bank had no concentrations of loans
exceeding 10% of gross loans other than as disclosed below.
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------
1996 1995 1994
----------------- ----------------- -----------------
Amount % Amount % Amount %
-------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential mortgage loans:
Single-family residential........... $ 58,576 33.7% $ 67,736 43.0% $ 74,364 49.8%
Multi-family residential............ 998 .6 2,315 1.5 2,412 1.6
Construction........................ 35,240 20.3 32,062 20.4 31,663 21.2
-------- ------ -------- ------ -------- ------
Total residential mortgage loans.. 94,814 54.6 102,113 64.9 108,439 72.6
-------- ------ -------- ------ -------- ------
Commercial loans:
Commercial real estate.............. 31,168 17.9 21,890 13.9 17,098 11.4
Commercial business................. 10,328 6.0 3,698 2.4 1,777 1.2
-------- ------ -------- ------ -------- ------
Total commercial loans............ 41,496 23.9 25,588 16.3 18,875 12.6
-------- ------ -------- ------ -------- ------
Consumer loans:
Automobile.......................... 4,185 2.4 2,532 1.6 1,986 1.3
Savings account loans............... 549 .3 661 .4 454 .3
Home equity loans................... 17,949 10.3 15,514 9.9 11,930 8.0
Other............................... 14,740 8.5 10,977 6.9 7,767 5.2
-------- ------ -------- ------ -------- ------
Total consumer loans.............. 37,423 21.5 29,684 18.8 22,137 14.8
-------- ------ -------- ------ -------- ------
Total........................... 173,733 100.00% 157,385 100.00% 149,451 100.00%
-------- ====== -------- ====== -------- ======
Less:
Loans in process.................... 15,245 10,626 11,506
Deferred fees and discounts......... 456 341 289
Allowance for loan losses........... 2,351 1,877 1,977
-------- -------- --------
Total............................. $155,681 $144,541 $135,679
======== ======== ========
</TABLE>
50
<PAGE>
Loan Maturities. The following table sets forth certain information
at September 30, 1996 regarding the dollar amount of loans maturing or repricing
in the Bank's portfolio. Demand loans, loans having no stated schedule of
repayments and no stated maturity, and overdrafts are reported as due in one
year or less. Adjustable- and floating-rate loans are included in the period in
which interest rates are next scheduled to adjust rather than the periods in
which they mature, and fixed-rate loans are included in the period in which the
final contractual repayment is due. The table does not include any estimate of
prepayments which significantly shorten the average life of all mortgage loans
and may cause the Bank's repayment experience to differ from that shown below.
Loan balances are net of loans in process. Construction loans are reported as
due during the year ended September 30, 1997.
<TABLE>
<CAPTION>
Due After
Due After Due After 10 Through
Due During the Year Ending 3 Through 5 Through 15 Years Due After 15
September 30, 5 Years After 10 Years After After Years After
----------------------------- September 30, September 30, September September
1997 1998 1999 1996 1996 30, 1996 30, 1996 Total
------- ------------- ------- -------------- -------------- ------------- ------------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential mortgage loans. $16,790 $ 2,056 $ 2,233 $ 4,982 $15,236 $13,791 $26,436 $ 81,524
Commercial (1)............. 4,993 5,462 5,976 13,694 9,849 -- -- 39,974
Consumer................... 3,756 4,070 4,462 7,023 4,058 6,402 7,219 36,990
------- ------- ------- ------- ------- ------- ------- --------
Total................. $25,539 $11,588 $12,671 $25,699 $29,143 $20,193 $33,655 $158,488
======= ======= ======= ======= ======= ======= ======= ========
</TABLE>
---------------
(1) Includes commercial real estate and commercial business loans.
The following table sets forth at September 30, 1996 the dollar amount of
all loans due one year or more after September 30, 1996 which have predetermined
interest rates and have floating or adjustable interest rates.
<TABLE>
<CAPTION>
Predetermined Floating or
Rate Adjustable Rates
------------- ----------------
(In thousands)
<S> <C> <C>
Residential mortgage loans.. $30,897 $33,837
Commercial (1).............. 10,843 24,138
Consumer.................... 11,389 21,845
------- -------
Total...................... $53,129 $79,820
======= =======
</TABLE>
--------------
(1) Includes commercial real estate and commercial business loans.
51
<PAGE>
Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of loans can be substantially less
than their contractual terms because of prepayments. In addition, due-on-sale
clauses on loans generally give the Bank the right to declare a loan immediately
due and payable in the event, among other things, that the borrower sells the
real property subject to the mortgage and the loan is not repaid. The average
life of mortgage loans tends to increase when current mortgage loan market rates
are substantially higher than rates on existing mortgage loans and, conversely,
decrease when current mortgage loan market rates are substantially lower than
rates on existing mortgage loans.
Originations, Purchases and Sales of Loans. The Bank generally has
authority to originate and purchase loans secured by real estate located
throughout the United States. Consistent with its emphasis on being a
community-oriented financial institution, the Bank concentrates its lending
activities in its market area.
The following table sets forth certain information with respect to the
Bank's loan origination, purchase and sale activity for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------
1996 1995 1994
-------- ------- --------
(In thousands)
<S> <C> <C> <C>
Loans originated:
Residential mortgage loans:
Single-family residential.. $ 39,333 $27,643 $ 77,005
Multi-family residential... 45 -- 657
Construction............... 36,964 31,556 46,236
Commercial loans (1)......... 31,144 15,780 17,693
Consumer loans............... 22,684 18,388 10,361
-------- ------- --------
Total loans originated.... $130,170 $93,367 $151,952
======== ======= ========
Loans purchased................ $ -- $ -- $ --
-------- ------- --------
Total loans purchased..... $ -- $ -- $ --
======== ======= ========
Loans sold:
Whole loans.................. $ 53,033 $43,609 $ 88,529
Participation loans.......... -- -- --
-------- ------- --------
Total loans sold.......... $ 53,033 $43,609 $ 88,529
======== ======= ========
</TABLE>
- ---------------
(1) Includes commercial real estate and commercial business loans.
The Bank's loan originations are derived from a number of sources,
including referrals from depositors and borrowers, repeat customers,
advertising, calling officers as well as walk-in customers. The Bank's
solicitation programs consist of advertisements in local media, in addition to
participation in various community organizations and events. Real estate loans
are originated by the Bank's loan personnel. All of the Bank's loan personnel
are salaried, and though the Bank does not compensate loan personnel on a
commission basis for loans originated, it does pay commissions on loan fees
generated. With the exception of applications for boat or recreational vehicle
loans, which may be originated on an indirect basis through an arrangement with
two dealers, loan applications are accepted at the Bank's offices. In addition,
the Bank has several salaried loan originators who travel to meet prospective
borrowers and take applications. In all cases, the Bank has final approval of
the application. Historically, the Bank generally has not purchased loans.
However, the Bank may in the future consider making limited loan purchases,
including purchases of commercial loans.
In recent years, the Bank has sold a significant amount of fixed-rate,
single-family mortgage loans that it originated. During the years ended
September 30, 1996, 1995 and 1994, the Bank sold $53.0 million, $43.6 million
52
<PAGE>
and $88.5 million, respectively, of such loans. Such loans are sold in the
secondary market to the FHLMC. The Bank generally retains servicing on loans
sold.
Loan Underwriting Policies. The Bank's lending activities are subject
to the Bank's written, non-discriminatory underwriting standards and to loan
origination procedures prescribed by the Bank's Board of Directors and its
management. Detailed loan applications are obtained to determine the borrower's
ability to repay, and the more significant items on these applications are
verified through the use of credit reports, financial statements and
confirmations. All mortgage loans are presented weekly to a loan committee of
the Board of Directors of the Bank made up of three outside directors who serve
on a rotating basis. Neither the President nor the Chairman of the Board serves
on the loan committee. Individual officers of the Bank have been granted
authority by the Board of Directors to approve consumer and commercial loans up
to varying specified dollar amounts, depending upon the type of loan. In
addition, committees of loan officers have loan authorities greater than
individual authorities. These authorities are based on aggregate borrowings of
an individual or entity. All loans to a single borrower aggregating in excess
of $500,000 must be approved by the full Board of Directors. On a monthly
basis, the full Board of Directors reviews the actions taken by the loan
committee.
Applications for single-family real estate loans are underwritten and
closed in accordance with the standards of FHLMC. Generally, upon receipt of a
loan application from a prospective borrower, a credit report and verifications
are ordered to verify specific information relating to the loan applicant's
employment, income and credit standing. If a proposed loan is to be secured by
a mortgage on real estate, an appraisal of the real estate is usually undertaken
either by an appraiser approved by the Bank and licensed by the State of North
Carolina or by qualified Bank personnel. In the case of single-family
residential mortgage loans, except when the Bank becomes aware of a particular
risk of environmental contamination, the Bank generally does not obtain a formal
environmental report on the real estate at the time a loan is made. A formal
environmental report may be required in connection with nonresidential real
estate loans.
It is the Bank's policy to record a lien on the real estate securing a
loan and to obtain title insurance which insures that the property is free of
prior encumbrances and other possible title defects. Borrowers must also obtain
hazard insurance policies prior to closing and, when the property is in a flood
plain as designated by the Department of Housing and Urban Development, pay
flood insurance policy premiums.
With respect to single-family residential mortgage loans, the Bank
makes a loan commitment of between 30 and 60 days for each loan approved. If
the borrower desires a longer commitment, the commitment may be extended for
good cause and upon written approval. Fees of between $150 and $400 are charged
in connection with the issuance of a commitment letter. The interest rate is
guaranteed for the commitment period.
The Bank is permitted to lend up to 95% of the lesser of the appraised
value or the purchase price of the real property securing a mortgage loan.
However, if the amount of a residential loan originated or refinanced exceeds
80% of the appraised value, the Bank's policy generally is to obtain private
mortgage insurance at the borrower's expense on that portion of the principal
amount of the loan that exceeds 80% of the appraised value of the property. The
Bank will make a single-family residential mortgage loan with up to a 95% loan-
to-value ratio if the required private mortgage insurance is obtained. The Bank
generally limits the loan-to-value ratio on commercial real estate mortgage
loans to 80%, although the loan-to-value ratio on commercial real estate loans
in limited circumstances has been as high as 85%. The Bank limits the loan-to-
value ratio on multi-family residential real estate loans to 80%.
Under applicable law, with certain limited exceptions, loans and
extensions of credit by a savings institution to a person outstanding at one
time and not fully secured by collateral having a market value at least equal to
the amount of the loan or extension of credit shall not exceed 15% of net worth.
Loans and extensions of credit fully secured by readily marketable collateral
may comprise an additional 10% of net worth. Applicable law additionally
authorizes savings institutions to make loans to one borrower, for any purpose:
(i) in an amount not to exceed
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<PAGE>
$500,000; (ii) in an amount not to exceed the lesser of $30,000,000 or 30% of
net worth to develop residential housing, provided (a) the purchase price of
each single-family dwelling in the development does not exceed $500,000 and (b)
the aggregate amount of loans made under this authority does not exceed 150% of
net worth; or (iii) loans to finance the sale of real property in satisfaction
of debts previously contracted in good faith, not to exceed 50% of net worth.
Under these limits, the Bank's loans to one borrower were limited to $2.8
million at September 30, 1996. At that date, the Bank had no lending
relationships in excess of the loans-to-one-borrower limit. Notwithstanding the
statutory loans-to-one-borrower limitations, the Bank has a self imposed loans-
to-one-borrower limit, which currently is $2.2 million. At September 30, 1996,
the Bank's largest lending relationship was a $1.9 million relationship
consisting of five commercial real estate loans. All loans within this
relationship were current and performing in accordance with their terms at
September 30, 1996.
Interest rates charged by the Bank on loans are affected principally
by competitive factors, the demand for such loans and the supply of funds
available for lending purposes. These factors are, in turn, affected by general
economic conditions, monetary policies of the federal government, including the
Federal Reserve Board, legislative tax policies and government budgetary
matters.
Single-Family Residential Real Estate Lending. The Bank historically
has been and continues to be an originator of single-family, residential real
estate loans in its market area. At September 30, 1996, single-family,
residential mortgage loans, excluding home improvement loans, totaled $58.6
million, or 33.7% of the Bank's gross loan portfolio.
The Bank originates fixed-rate mortgage loans at competitive interest
rates. At September 30, 1996, $49.2 million, or 51.9%, of the Bank's gross loan
portfolio was comprised of fixed-rate mortgage loans. Generally, the Bank
retains fixed-rate mortgages with maturities 15 years or less while fixed-rate
loans with longer maturities may be retained in portfolio or sold in the
secondary market.
The Bank also offers adjustable-rate residential mortgage loans. The
adjustable-rate loans currently offered by the Bank have interest rates which
adjust every one, three or five years from the closing date of the loan or on an
annual basis commencing after an initial fixed-rate period of one, three or five
years in accordance with a designated index (the primary index utilized by the
Bank is the weekly average yield on U.S. Treasury securities adjusted to a
constant comparable maturity equal to the loan adjustment period, as made
available by the Federal Reserve Board (the "Treasury Rate")), plus a stipulated
margin. The Bank offers adjustable-rate loans that meet FHLMC standards, as
well as loans that do not meet such standards. The Bank's adjustable-rate
single-family residential real estate loans that do not meet FHLMC standards
have a cap of generally 2% on any increase in the interest rate at any
adjustment date, and include a cap on the maximum interest rate over the life of
the loan, which cap generally is 3% to 4.5% above the initial rate. In return
for providing a relatively low cap on interest rate increases over the life of
the loan, the Bank's adjustable-rate loans provide for a floor on the minimum
interest rate over the life of the loan, which floor generally is .125% below
the initial rate. Further, the Bank generally does not offer "teaser" rates
i.e., initial rates below the fully indexed rate, on such loans. The adjustable-
rate mortgage loans offered by the Bank that do conform to FHLMC standards have
a cap of 6% above the initial rate over the life of a loan but do not include a
floor, may be offered with a teaser rate and have a 25 basis point lower margin
above the index on which the interest rate is based. All of the Bank's
adjustable-rate loans require that any payment adjustment resulting from a
change in the interest rate of an adjustable-rate loan be sufficient to result
in full amortization of the loan by the end of the loan term and, thus, do not
permit any of the increased payment to be added to the principal amount of the
loan, or so-called negative amortization. At September 30, 1996, $45.6 million,
or 48.1%, of the Bank's single-family residential mortgage loans were
adjustable-rate loans.
The retention of adjustable-rate loans in the Bank's portfolio helps
reduce the Bank's exposure to increases or decreases in prevailing market
interest rates. However, there are unquantifiable credit risks resulting from
potential increases in costs to borrowers in the event of upward repricing of
adjustable-rate loans. It is possible that during periods of rising interest
rates, the risk of default on adjustable-rate loans may increase due to
increases in
54
<PAGE>
interest costs to borrowers. Further, although adjustable-rate loans allow the
Bank to increase the sensitivity of its interest-earning assets to changes in
interest rates, the extent of this interest sensitivity is limited by the
initial fixed-rate period before the first adjustment and the lifetime interest
rate adjustment limitations. Accordingly, there can be no assurance that yields
on the Bank's adjustable-rate loans will fully adjust to compensate for
increases in the Bank's cost of funds.
Construction Lending. The Bank also offers residential and commercial
construction loans, with a substantial portion of such loans originated to date
being for the construction of owner-occupied, single-family dwellings in the
Bank's primary market area. Residential construction loans are offered
primarily to individuals building their primary or secondary residence, as well
as to selected local developers to build single-family dwellings. Generally,
loans to owner/occupants for the construction of owner-occupied, single-family
residential properties are originated in connection with the permanent loan on
the property and have a construction term of six to 18 months. Such loans are
offered on a fixed-rate or adjustable-rate basis. Interest rates on residential
construction loans made to the owner/occupant have interest rates during the
construction period of 1% above the rate offered by the Bank on the permanent
loan product selected by the borrower. Upon completion of construction, the
permanent loan rate will be set at the rate then offered by the Bank on that
permanent loan product, except that if the permanent loan rate would be above
the construction loan rate then the borrower can maintain the same rate as on
the construction loan. Interest rates on residential construction loans to
builders are set at the prime rate plus a margin of between .75% and 1% or at
the Treasury Rate plus a margin of between 3% and 4.5%, and adjust annually.
Interest rates on commercial construction loans are based on the prime rate plus
a negotiated margin of between 0% and 1% and adjust annually, with construction
terms generally not exceeding 18 months. Advances are made on a percentage of
completed basis. At September 30, 1996, $35.2 million, or 20.3%, of the Bank's
gross loan portfolio consisted of construction loans, virtually all of which was
secured by single-family residences.
Prior to making a commitment to fund a loan, the Bank requires both an
appraisal of the property by appraisers approved by the Board of Directors and a
study of the feasibility of the proposed project. The Bank also reviews and
inspects each project at the commencement of construction and either weekly or
biweekly during the term of the construction loan. The Bank generally charges a
1% construction fee and a $400 commitment fee on construction loans.
Construction financing generally is considered to involve a higher
degree of risk of loss than long-term financing on improved, occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development and the estimated cost (including interest) of
construction. During the construction phase, a number of factors could result
in delays and cost overruns. If the estimate of construction costs proves to be
inaccurate and the borrower is unable to meet the Bank's requirements of putting
up additional funds to cover extra costs or change orders, then the Bank will
demand that the loan be paid off and, if necessary, institute foreclosure
proceedings, or refinance the loan. If the estimate of value proves to be
inaccurate, the Bank may be confronted, at or prior to the maturity of the loan,
with collateral having a value which is insufficient to assure full repayment.
The Bank has sought to minimize this risk by limiting construction lending to
qualified borrowers (i.e., borrowers who satisfy all credit requirements and
whose loans satisfy all other underwriting standards which would apply to the
Bank's permanent mortgage loan financing for the subject property) in the Bank's
market area. On loans to builders, the Bank works only with selected builders
with whom it has experience and carefully monitors the creditworthiness of the
builders.
Multi-Family Residential and Commercial Real Estate Lending. The
Bank originates commercial real estate loans, as well as a limited amount of
multi-family residential real estate loans, generally limiting such originations
to loans secured by properties in its primary market area and to borrowers with
whom it has other loan relationships. The Bank's multi-family residential loan
portfolio consists primarily of loans secured by small apartment buildings, and
the commercial real estate loan portfolio includes loans to finance the
acquisition of small office buildings and commercial and industrial buildings.
Such loans generally range in size from $1.0 million to $3.4 million. At
September 30, 1996, the Bank's multi-family residential and commercial real
estate loans totaled $1.0 million and
55
<PAGE>
$31.2 million, respectively, which amounted to 0.6% and 17.9%, respectively, of
the Bank's gross loan portfolio. Multi-family and commercial real estate loans
are originated either for 15 year terms with interest rates that adjust every
one, three or five years based on either the prime rate as quoted in The Wall
--- ----
Street Journal plus a negotiated margin of between 0% and 1% for shorter term
- ------ -------
loans or, for longer term loans, or the Treasury Rate plus a negotiated margin
of between 3% and 4.5%, or on a fixed-rate basis with interest calculated on a
15 year amortization schedule with a balloon payment due after five years.
Multi-family residential and commercial real estate lending entails
significant additional risks as compared with single-family residential property
lending. Multi-family residential and commercial real estate loans typically
involve larger loan balances to single borrowers or groups of related borrowers.
The payment experience on such loans typically is dependent on the successful
operation of the real estate project, retail establishment or business. These
risks can be significantly affected by supply and demand conditions in the
market for office, retail and residential space, and, as such, may be subject to
a greater extent to adverse conditions in the economy generally. To minimize
these risks, the Bank generally limits itself to its market area or to borrowers
with which it has prior experience or who are otherwise known to the Bank. It
has been the Bank's policy to obtain annual financial statements of the business
of the borrower or the project for which commercial or multi-family residential
real estate loans are made. In addition, in the case of commercial mortgage
loans made to a partnership or a corporation, the Bank seeks, whenever possible,
to obtain personal guarantees and annual financial statements of the principals
of the partnership or corporation.
Commercial Lending. The Bank's commercial loans consist of loans
secured by commercial real estate and commercial business loans, which are not
secured by real estate. For a discussion of the Bank's commercial real estate
lending see "-- Multi-Family and Commercial Real Estate Lending."
In the last four years, the Bank has emphasized commercial business
lending. The Bank originates commercial business loans to small and medium
sized businesses in its market area. The Bank's commercial borrowers are
generally small businesses engaged in manufacturing, distribution or retailing,
or professionals in healthcare, accounting and law. Commercial business loans
are generally made to finance the purchase of inventory, new or used equipment
or commercial vehicles and for short-term working capital. Such loans generally
are secured by equipment and inventory, and, if possible, cross-collateralized
by a real estate mortgage, although commercial business loans are sometimes
granted on an unsecured basis. Such loans generally are made for terms of five
years or less, depending on the purpose of the loan and the collateral, with
loans to finance operating expenses made for one year or less, with interest
rates that adjust at least annually at a rate equal to the prime rate as stated
in The Wall Street Journal plus a margin of between 0% and 2%. Generally,
--- ---- ------ -------
commercial loans are made in amounts ranging between $5,000 and $250,000. At
September 30, 1996, commercial business loans totaled $10.3 million, or 6.0% of
the Bank's gross loan portfolio.
The Bank underwrites its commercial business loans on the basis of the
borrower's cash flow and ability to service the debt from earnings rather than
on the basis of underlying collateral value, and the Bank seeks to structure
such loans to have more than one source of repayment. The borrower is required
to provide the Bank with sufficient information to allow the Bank to make its
lending determination. In most instances, this information consists of at
least two years of financial statements, a statement of projected cash flows,
current financial information on any guarantor and any additional information on
the collateral. For loans with maturities exceeding one year, the Bank requires
that borrowers and guarantors provide updated financial information at least
annually throughout the term of the loan.
The Bank's commercial business loans may be structured as term loans
or as lines of credit. Commercial business term loans are generally made to
finance the purchase of assets and have maturities of five years or less.
Commercial business lines of credit are typically made for the purpose of
providing working capital and are usually approved with a term of 12 months and
are reviewed at that time to see if extension is warranted. The Bank also
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<PAGE>
offers both commercial and standby letters of credit for its commercial
borrowers. Commercial letters of credit are written for a maximum term of one
year. The terms of standby letters of credit generally do not exceed one year.
Commercial business loans are often larger and may involve greater
risk than other types of lending. Because payments on such loans are often
dependent on successful operation of the business involved, repayment of such
loans may be subject to a greater extent to adverse conditions in the economy.
The Bank seeks to minimize these risks through its underwriting guidelines,
which require that the loan be supported by adequate cash flow of the borrower,
profitability of the business, collateral and personal guarantees of the
individuals in the business. In addition, the Bank limits this type of lending
to its market area and to borrowers with which it has prior experience or who
are otherwise well known to the Bank.
Consumer Lending. In recent years, the Bank has been successful in
its strategy of increasing its portfolio of consumer loans. The consumer loans
originated by the Bank include automobile loans, savings account loans, home
equity loans and miscellaneous other consumer loans, including unsecured loans.
At September 30, 1996, the Bank's consumer loans totaled $37.4 million, or 21.5%
of the Bank's gross loan portfolio.
The Bank's automobile loans are generally underwritten in amounts up
to 90% of the lesser of the purchase price of the automobile or, with respect to
used automobiles, the loan value as published by the National Automobile Dealers
Association. The terms of most such loans do not exceed 60 months. The Bank
requires that the vehicles be insured and the Bank be listed as loss payee on
the insurance policy.
The Bank makes savings account loans for up to 90% of the depositor's
savings account balance. The interest rate is normally 3% above the annual
percentage yield paid on the savings account, and the account must be pledged as
collateral to secure the loan. Interest generally is billed on a quarterly
basis. At September 30, 1996, loans on savings accounts totaled $549,000, or
0.3% of the Bank's total loan portfolio.
At September 30, 1996, the Bank had approximately $17.9 million in
home equity line of credit loans, representing approximately 10.3% of its gross
loan portfolio. The Bank's home equity lines of credit have adjustable interest
rates tied to the prime interest rate plus a margin. The home equity lines of
credit require monthly payments until the loan is paid in full. Home equity
lines of credit are generally secured by subordinate liens against residential
real property. The Bank requires that fire and extended coverage casualty
insurance (and, if appropriate, flood insurance) be maintained in an amount at
least sufficient to cover its loan. Home equity loans are generally limited so
that the amount of such loans, along with any senior indebtedness, does not
exceed 85% of the value of the real estate security.
The Bank recently began offering credit card loans through its
participation as a Visa and MasterCard issuer. Management believes that
providing credit card services to its customers helps the Bank remain
competitive by offering customers an additional service, and the Bank does not
actively solicit credit card business beyond its customer base and market area.
The rate currently charged by the Bank on its credit card loans ranges from
11.3% to 17.3%, and the Bank is permitted to change the interest rate on 30 days
notice. Processing of bills and payments is contracted to an outside servicer.
At September 30, 1996, the Bank had a commitment to fund an aggregate of $1.3
million of credit card loans, which represented the aggregate credit limit on
credit cards, and had $218,000 of credit card loans outstanding, representing
0.1% of its gross loan portfolio. The Bank intends to continue and expand
credit card lending, but estimates that at current levels of credit card loans,
it makes little or no monthly profit net of service expenses and write-offs.
Consumer lending affords the Bank the opportunity to earn yields
higher than those obtainable on single-family residential lending. However,
consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of loans which are unsecured (as is the case with
credit card loans) or secured by rapidly depreciable assets such as automobiles.
Repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of the greater
likelihood of damage, loss
57
<PAGE>
or depreciation. The remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In addition, consumer and
credit card loan collections are dependent on the borrower's continuing
financial stability, and thus are more likely to be adversely affected by events
such as job loss, divorce, illness or personal bankruptcy. Further, the
application of various state and federal laws, including federal and state
bankruptcy and insolvency law, may limit the amount which may be recovered. In
underwriting consumer loans, the Bank considers the borrower's credit history,
an analysis of the borrower's income and ability to repay the loan, and the
value of the collateral.
Loan Fees and Servicing. The Bank receives fees in connection with
late payments and for miscellaneous services related to its loans. The Bank
also charges fees in connection with loan originations. These fees can consist
of origination, discount, construction and/or commitment fees, depending on the
type of loan. The Bank generally does not service loans for others except as
set forth below and except for mortgage loans originated and sold by the Bank
with servicing retained.
In addition, the Bank has developed a program to originate loans for a
local credit union. The Bank receives a $600 origination fee for each loan as
well as an annual servicing fee of .375% of the loan amount. All of these loans
are funded and closed in the name of the credit union. The Bank has explored
the possibility of developing similar arrangements with other institutions,
although none are currently planned.
Nonperforming Loans and Other Problem Assets. It is management's
policy to continually monitor its loan portfolio to anticipate and address
potential and actual delinquencies. When a borrower fails to make a payment on
a loan, the Bank takes immediate steps to have the delinquency cured and the
loan restored to current status. Loans which are delinquent more than 15 days
incur a late fee of 4% of the monthly payment of principal and interest due. As
a matter of policy, the Bank will contact the borrower after the loan has been
delinquent 15 days. If payment is not promptly received, the borrower is
contacted again, and efforts are made to formulate an affirmative plan to cure
the delinquency. Generally, after any loan is delinquent 45 days or more, a
default letter is sent to the borrower. If the default is not cured after 30
days, formal legal proceedings are commenced to collect amounts owed.
Loans generally are placed on nonaccrual status, and accrued but
unpaid interest is reversed, when, in management's judgment, it is determined
that the collectibility of interest, but not necessarily principal, is doubtful.
Generally, this occurs when payment is delinquent in excess of 90 days.
Consumer loans are generally charged off, or any expected loss is reserved for,
after they become more than 120 days past due. All other loans are charged off
when management concludes that they are uncollectible. See Note 1 of Notes to
Financial Statements.
Real estate acquired by the Bank as a result of foreclosure is
classified as real estate acquired through foreclosure until such time as it is
sold and is recorded at the lower of the estimated fair value of the underlying
real estate or the carrying amount of the loan. Costs relating to holding or
improving such real estate are charged against income in the current period.
Any required write-down of the loan to its fair value less estimated selling
costs upon foreclosure is charged against the allowance for loan losses. See
Note 1 of Notes to Financial Statements.
58
<PAGE>
The following table sets forth information with respect to the Bank's
nonperforming assets at the dates indicated. At the dates shown, the Bank had
no restructured loans within the meaning of Statement of Financial Accounting
Standards No. 15.
<TABLE>
<CAPTION>
At September 30,
-------------------------
1996 1995 1994
--------- ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis:
Residential mortgage:
Single-family................................ $ 376 $ 413 $ 286
Multi-family................................. -- -- --
Construction................................. 647 248 --
Commercial real estate......................... -- -- --
Commercial business............................ 8 -- --
Consumer....................................... 3 20 53
------ ----- -----
Total........................................ $1,034 $ 681 $ 339
====== ===== =====
Accruing loans which are contractually past due
90 days or more:
Residential mortgage:
Single-family................................ $ -- $ -- $ --
Multi-family................................. -- -- --
Construction................................. -- -- --
Commercial real estate......................... -- -- --
Commercial business............................ -- -- --
Consumer....................................... -- -- --
------ ----- -----
Total........................................ $ -- $ -- $ --
====== ===== =====
Total nonperforming loans.................... $1,034 $ 681 $ 339
====== ===== =====
Percentage of total loans, net................... .66% .47% .25%
====== ===== =====
Real estate owned................................ $ 179 $ 69 $ 180
====== ===== =====
Loans modified in troubled debt restructuring.... $ -- $ -- $ --
====== ===== =====
</TABLE>
During the year ended September 30, 1996, gross interest income of
approximately $44,000 would have been recorded on loans accounted for on a
nonaccrual basis if the loans had been current throughout this period. Interest
on such loans included in income during the period amounted to approximately
$25,000.
At September 30, 1996, the Bank had no loans not classified as non-
accrual, 90 days past due or restructured where known information about possible
credit problems of borrowers caused management to have serious concerns as to
the ability of the borrowers to comply with present loan repayment terms and may
result in disclosure as non-accrual, 90 days past due or restructured.
At September 30, 1996, an analysis of the Bank's portfolio did not
reveal any impaired loans that needed to be classified under SFAS No. 114 or
118.
At September 30, 1996, the Bank had $1.0 million of nonaccrual loans,
which consisted of eight single-family residential real estate loans totaling
$376,000, five single-family residential construction loans totaling $647,000,
an $8,000 commercial business loan and two consumer loans totaling $3,000.
59
<PAGE>
At September 30, 1996, the Bank had $179,000 of real estate owned,
which consisted of two single-family residences.
Classified Assets. Federal regulations require that the Bank classify
its assets on a regular basis. In addition, in connection with examinations of
insured institutions, examiners have authority to identify problem assets and if
appropriate, classify them in their reports of examination. There are three
classifications for problem assets: "substandard," "doubtful" and "loss."
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full, on the basis of currently existing facts,
conditions and values, questionable, and there is a high possibility of loss.
An asset classified loss is considered uncollectible and of such little value
that continuance as an asset of the institution is not warranted. Assets
classified as substandard or doubtful require a savings institution to establish
general allowances for loan losses. If an asset or portion thereof is
classified loss, a savings institution must either establish a specific
allowance for loss in the amount of the portion of the asset classified loss, or
charge off such amount. The Bank regularly reviews its assets to determine
whether any assets require classification or re-classification. At September
30, 1996, the Bank had $1.7 million in classified assets, $484,000 in assets
classified as special mention, $1.2 million in assets classified as substandard,
$4,000 in assets classified as doubtful and $13,000 in assets classified as
loss.
Allowance for Loan Losses. The Bank's policy is to establish reserves
for estimated losses on delinquent loans when it determines that losses are
expected to be incurred on such loans. The allowance for losses on loans is
maintained at a level believed adequate by management to absorb potential losses
in the portfolio. Management's determination of the adequacy of the allowance
is based on an evaluation of the portfolio, past loss experience, current
economic conditions, volume, growth and composition of the portfolio, and other
relevant factors. The allowance is increased by provisions for loan losses
which are charged against income.
Although management believes it uses the best information available to
make determinations with respect to the allowances for losses and believes such
allowances are adequate, future adjustments may be necessary if economic
conditions differ substantially from the economic conditions in the assumptions
used in making the initial determinations. Management anticipates that the
Bank's provisions for loan losses will increase in the future as it implements
the Board of Directors' strategy of continuing existing lines of business while
gradually expanding commercial business and consumer lending, which loans
generally entail greater risks than single-family residential mortgage loans.
Banking regulatory agencies, including the FDIC, have adopted a policy
statement regarding maintenance of an adequate allowance for loan and lease
losses and an effective loan review system. This policy includes an arithmetic
formula for checking the reasonableness of an institution's allowance for loan
loss estimate compared to the average loss experience of the industry as a
whole. Examiners will review an institution's allowance for loan losses and
compare it against the sum of: (i) 50% of the portfolio that is classified
doubtful; (ii) 15% of the portfolio that is classified as substandard; and (iii)
for the portions of the portfolio that have not been classified (including those
loans designated as special mention), estimated credit losses over the upcoming
12 months given the facts and circumstances as of the evaluation date. This
amount is considered neither a "floor" nor a "safe harbor" of the level of
allowance for loan losses an institution should maintain, but examiners will
view a shortfall relative to the amount as an indication that they should review
management's policy on allocating these allowances to determine whether it is
reasonable based on all relevant factors.
60
<PAGE>
The following table sets forth an analysis of the Bank's allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------
1996 1995 1994
-------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of period......... $1,877 $1,977 $1,843
------ ------ ------
Loans charged-off:
Residential mortgage:
Single-family...................... $ 44 $ 20 $ 10
Multi-family....................... -- -- --
Construction....................... -- -- --
Commercial real estate............... -- 76 --
Commercial business.................. -- -- --
Consumer............................. 19 26 68
------ ------ ------
Total charge-offs...................... 63 122 78
------ ------ ------
Recoveries:
Residential real estate mortgage:
Single-family residential.......... 25 -- --
Multi-family residential........... -- -- --
Construction....................... -- -- --
Commercial real estate............... -- -- --
Commercial business.................. -- -- --
Consumer............................. 1 2 2
------ ------ ------
Total recoveries....................... 26 2 2
------ ------ ------
Net loans charged-off.................. 37 120 76
------ ------ ------
Provision for loan losses.............. 511 20 210
------ ------ ------
Balance at end of period............... $2,351 $1,877 $1,977
====== ====== ======
Ratio of net charge-offs to average
loans outstanding during the period.. .02% .09% .06%
====== ====== ======
</TABLE>
61
<PAGE>
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,
----------------------------------------------------------------
1996 1995 1994
-------------------- ------------ ------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ------------ ------ ------------ ------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential mortgage................. $1,037 54.6% $1,041 64.9% $1,137 72.6%
Commercial (1)....................... 879 23.9 517 16.3 497 12.6
Consumer............................. 435 21.5 319 18.8 343 14.8
------ ------ ------ ------ ------ ------
Total allowance for loan losses.. $2,351 100.00% $1,877 100.00% $1,977 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) Includes commercial real estate and commercial business loans.
Investment Activities
General. Interest income from mortgage-backed securities and investment
securities generally provides the second largest source of income to the Bank
after interest on loans. The Bank's Board of Directors has authorized
investment in U.S. Government and agency securities, state government
obligations, municipal securities, obligations of the FHLB, mortgage-backed
securities issued by FNMA and FHLMC and any other securities authorized by the
Administrator as permissible investments. The Bank's objective is to use such
investments to reduce interest rate risk, enhance yields on assets and provide
liquidity. At September 30, 1996, the Bank's mortgage-backed securities and
investment securities portfolio amounted to $14.8 million and $8.1 million,
respectively. At such date, the Bank had an unrealized gain of $41,000, net of
deferred taxes, with respect to its securities, all of which are classified as
available for sale.
Investment and aggregate investment limitations and credit quality
parameters of each class of investment are prescribed in the Bank's investment
policy. The Bank performs analyses on mortgage-backed securities and investment
securities prior to forming mortgage pools and on an ongoing basis to determine
the impact on earnings and market value under various interest rate and
prepayment conditions. Securities purchases are subject to the oversight of the
Bank's Investment Committee consisting of four directors and are reviewed by the
Board of Directors on a monthly basis. The Bank's President has authority to
make specific investment decisions within the parameters determined by the Board
of Directors.
Mortgage-Backed Securities. At September 30, 1996, the Bank's mortgage-
backed securities amounted to $14.8 million, or 7.6% of total assets. Mortgage-
backed securities represent a participation interest in a pool of single-family
or multi-family mortgages, the principal and interest payments on which are
passed from the mortgage originators through intermediaries that pool and
repackage the participation interest in the form of securities to investors such
as the Bank. Such intermediaries may include quasi-governmental agencies such
as FHLMC, FNMA and GNMA which guarantee the payment of principal and interest to
investors. Mortgage-backed securities generally increase the quality of the
Bank's assets by virtue of the guarantees that back them, are more liquid than
individual mortgage loans and may be used to collaterize borrowings or other
obligations of the Bank. At September 30, 1996, all of the Bank's mortgage-
backed securities were backed by loans originated by the Bank and swapped with
the FHLMC in exchange for such mortgage-backed securities.
62
<PAGE>
The FHLMC is a public corporation chartered by the U.S. Government and
owned by the 12 FHLBs and federally insured savings institutions. The FHLMC
issues participation certificates backed principally by conventional mortgage
loans. The FHLMC guarantees the timely payment of interest and the ultimate
return of principal on participation certificates. The FNMA is a private
corporation chartered by the U.S. Congress with a mandate to establish a
secondary market for mortgage loans. The FNMA guarantees the timely payment of
principal and interest on FNMA securities. FHLMC and FNMA securities are not
backed by the full faith and credit of the United States, but because the FHLMC
and the FNMA are U.S. Government-sponsored enterprises, these securities are
considered to be among the highest quality investments with minimal credit
risks. The GNMA is a government agency within the Department of Housing and
Urban Development which is intended to help finance government-assisted housing
programs. GNMA securities are backed by FHA-insured and VA-guaranteed loans,
and the timely payment of principal and interest on GNMA securities is
guaranteed by the GNMA and backed by the full faith and credit of the U.S.
Government. Because the FHLMC, the FNMA and the GNMA were established to
provide support for low- and middle-income housing, there are limits to the
maximum size of loans that qualify for these programs. The limit for FNMA and
FHLMC currently is $207,000.
Mortgage-backed securities typically are issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a range and having varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate or adjustable-
rate loans. As a result, the risk characteristics of the underlying pool of
mortgages, (i.e., fixed-rate or adjustable-rate) as well as prepayment risk, are
passed on to the certificate holder. The life of a mortgage-backed pass-through
security thus approximates the life of the underlying mortgages. The Bank's
mortgage-backed securities portfolio includes investments in mortgage-backed
securities backed by fixed-rate mortgage loans originated by the Bank and
swapped with the FHLMC for mortgage-backed securities.
Mortgage-backed securities generally yield less than the loans which
underlie such securities because of their payment guarantees or credit
enhancements which offer nominal credit risk. In addition, mortgage-backed
securities are more liquid than individual mortgage loans and may be used to
collateralize borrowings of the Bank in the event that the Bank determined to
utilize borrowings as a source of funds. Mortgage-backed securities issued or
guaranteed by the FNMA or the FHLMC (except interest-only securities or the
residual interests in CMOs) are weighted at no more than 20% for risk-based
capital purposes, compared to a weight of 50% to 100% for residential loans.
See "Regulation -- Regulation of the Bank -- Capital Requirements."
At September 30, 1996, mortgage-backed securities with an amortized cost of
$14.8 million and a carrying value of $14.8 million were held as available for
sale, and no mortgage-backed securities were classified as held to maturity.
Mortgage-backed securities which are held to maturity are carried at cost,
adjusted for the amortization of premiums and the accretion of discounts using a
method which approximates a level yield. Mortgage-backed securities classified
as available for sale are carried at fair value. Unrealized gains and losses on
available for sale mortgage-backed securities are recognized as direct increases
or decreases in equity, net of applicable income taxes. See Notes 1 and 4 of
the Notes to Consolidated Financial Statements. At September 30, 1996, the
Bank's mortgage-backed securities had a weighted average yield of 7.37%.
At September 30, 1996, the weighted average contractual maturity of the
Bank's fixed-rate mortgage-backed securities was approximately 16 years. The
actual maturity of a mortgage-backed security varies, depending on when the
mortgagors prepay or repay the underlying mortgages. Prepayments of the
underlying mortgages may shorten the life of the investment, thereby adversely
affecting its yield to maturity and the related market value of the mortgage-
backed security. The yield is based upon the interest income and the
amortization of the premium or accretion of the discount related to the
mortgage-backed security. Premiums and discounts on mortgage-backed securities
are amortized or accreted over the estimated term of the securities using a
level yield method. The prepayment assumptions used to determine the
amortization period for premiums and discounts can significantly affect the
yield of the mortgage-backed security, and these assumptions are reviewed
periodically to reflect the actual prepayment. The actual prepayments of the
underlying mortgages depend on many factors, including the type of
63
<PAGE>
mortgage, the coupon rate, the age of the mortgages, the geographical location
of the underlying real estate collateralizing the mortgages and general levels
of market interest rates. The difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates is an important
determinant in the rate of prepayments. During periods of falling mortgage
interest rates, prepayments generally increase, and, conversely, during periods
of rising mortgage interest rates, prepayments generally decrease. If the coupon
rate of the underlying mortgage significantly exceeds the prevailing market
interest rates offered for mortgage loans, refinancing generally increases and
accelerates the prepayment of the underlying mortgages. Prepayment experience is
more difficult to estimate for adjustable-rate mortgage-backed securities.
Investment Securities. The Bank's investment securities consist primarily
of securities issued by the U.S. Treasury and federal and state government
agency obligations. At September 30, 1996, the Bank's entire portfolio of
investment securities was classified available for sale and amounted to $8.1
million, including gross unrealized gains of $81,000. The Bank attempts to
maintain a high degree of liquidity in its investment securities portfolio by
choosing those that are readily marketable. As of September 30, 1996, the
estimated weighted average life of the Bank's investment securities portfolio
was approximately 2 years. In addition, at September 30, 1996, the Bank had
$1.3 million of FHLB stock.
The following table sets forth the carrying value of the Bank's investment
securities and mortgage-backed securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
-------------------------
1996 1995 1994
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Securities available for sale:
U.S. government and agency securities............ $ 5,107 $ -- $ --
State government obligations..................... 3,000 -- --
Mortgage-backed securities....................... 14,797 9,072 9,194
------- ------- -------
Total......................................... 22,904 9,072 9,194
Securities held to maturity:
U.S. government and agency securities and other.. -- 3,002 1,004
FHLB stock....................................... 1,288 1,288 1,249
Mortgage-backed securities....................... -- 13,213 9,341
------- ------- -------
Total......................................... 1,288 17,503 11,594
------- ------- -------
Total....................................... $24,192 $26,575 $20,788
======= ======= =======
</TABLE>
64
<PAGE>
The following table sets forth the scheduled maturities, carrying
values, amortized cost and average yields for the Bank's investment securities
and mortgage-backed securities portfolio at September 30, 1996.
<TABLE>
<CAPTION>
More than Ten
One Year or Less One to Five Years Five to Ten Years Years
------------------ ------------------ ------------------ ------------------
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
-------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. government and agency
securities........... $2,036 6.50% $3,071 7.125% $ -- -- % $ -- -- %
State government
obligations............ 3,000 5.30 -- -- -- -- -- --
Mortgage-backed
securities............. -- -- -- -- 3,813 7.01 10,984 7.49
Securities held to maturity:
FHLB stock (1).......... -- -- -- -- -- -- 1,288 7.30
-------- ------- -------- ------- -------- ------- -------- -------
Total................ $5,036 5.78% $3,071 7.125% $3,813 7.01% $12,272 7.47%
======== ======= ======== ======= ======== ======= ======== =======
<CAPTION>
Total Investment
Portfolio
-----------------------------
Carrying Amortized Average
Value Cost Yield
-------- --------- --------
<S> <C> <C> <C>
Securities available for sale:
U.S. government and agency
securities........... $ 5,107 $ 5,025 6.87%
State government
obligations............ 3,000 3,000 5.30
Mortgage-backed
securities............. 14,797 14,812 7.37
Securities held to maturity:
FHLB stock (1).......... 1,288 1,288 7.30
------- ------- ----
Total................ $24,192 $24,125 7.01%
======= ======= ====
</TABLE>
________________
(1) As a member of the FHLB of Atlanta, the Bank is required to maintain an
investment in FHLB stock, which has no stated maturity.
65
<PAGE>
Deposit Activity and Other Sources of Funds
General. Deposits are the primary source of the Bank's funds for
lending, investment activities and general operational purposes. In addition to
deposits, the Bank derives funds from loan principal and interest repayments,
maturities of investment securities and mortgage-backed securities and interest
payments thereon. Although loan repayments are a relatively stable source of
funds, deposit inflows and outflows are significantly influenced by general
interest rates and money market conditions. Borrowings may be used on a short-
term basis to compensate for reductions in the availability of funds, or on a
longer term basis for general operational purposes. The Bank has access to
borrow from the FHLB of Atlanta. The Converted Bank and the Commercial Bank
will continue to have access to FHLB of Atlanta advances.
Deposits. The Bank attracts deposits principally from within its
market area by offering a variety of deposit instruments, including checking
accounts, money market accounts, statement and passbook savings accounts,
Individual Retirement Accounts, and certificates of deposit which range in
maturity from seven days to five years. Deposit terms vary according to the
minimum balance required, the length of time the funds must remain on deposit
and the interest rate. Maturities, terms, service fees and withdrawal penalties
for its deposit accounts are established by the Bank on a periodic basis. The
Bank reviews its deposit pricing on a weekly basis. In determining the
characteristics of its deposit accounts, the Bank considers the rates offered by
competing institutions, lending and liquidity requirements, growth goals and
federal regulations. Management believes it prices its deposits comparably to
rates offered by its competitors. The Bank does not accept brokered deposits.
The Bank attempts to compete for deposits with other institutions in
its market area by offering competitively priced deposit instruments that are
tailored to the needs of its customers. Additionally, the Bank seeks to meet
customers' needs by providing convenient customer service to the community,
efficient staff and convenient hours of service. Substantially, all of the
Bank's depositors are North Carolina residents. To provide additional
convenience, the Bank participates in the HONOR Automatic Teller Machine network
at locations throughout the United States, through which customers can gain
access to their accounts at any time. To better serve its customers, the Bank
has installed automatic teller machines at four office locations.
66
<PAGE>
Savings deposits in the Bank at September 30, 1996 were represented by
the various types of savings programs described below.
<TABLE>
<CAPTION>
Weighted
Average
Interest Minimum Minimum Balances (in Percentage of
Rate Term Category Amount Thousands) Total Savings
- -------------- ---------------- ----------------------------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Demand deposits:
.61% None NOW accounts $ 100 $ 17,079 9.98%
4.20 None Money market 100 10,256 5.99
-------- ------
Total demand deposits 27,335 15.97
-------- ------
2.00 Savings accounts 100 7,020 4.10
Certificates of Deposit
-----------------------
4.01 3 months or less Fixed-term, fixed-rate 1,000 4,734 2.76
4.83 6 months Fixed-term, fixed-rate 1,000 8,821 5.15
4.89 7 months Fixed-term, fixed-rate 1,000 3,445 2.01
5.66 9 months Fixed-term, fixed-rate 1,000 35,962 21.00
5.24 12 months Fixed-term, fixed-rate 1,000 36,753 21.47
5.93 14 months Fixed-term, fixed-rate 1,000 2,772 1.62
6.02 15-72 months Fixed-term, fixed-rate 1,000 44,371 25.92
-------- ------
Total certificates of deposit 136,858 79.93
-------- ------
Total deposits $171,213 100.00%
======== ======
</TABLE>
67
<PAGE>
The following tables set forth the distribution of the Bank's deposit accounts
at the dates indicated, the weighted average interest rates and the change in
dollar amounts for each category of deposits presented. Management does not
believe that the use of year-end balances instead of average balances resulted
in any material difference in the information presented.
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------------------------
1996 1995
------------------------------------------ -----------------------------------------
Weighted Weighted
% of Average Increase % of Average Increase
Amount Deposits Rate (Decrease) Amount Deposits Rate (Decrease)
-------- --------- --------- ---------- -------- --------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Demand accounts:
NOW...................... $ 17,079 9.98% .61% $ 5,327 $ 11,752 7.66% .93% $ 1,929
Money market............. 10,256 5.99 4.20 6,055 4,201 2.74 2.87 (1,856)
Savings accounts........... 7,020 4.10 2.00 130 6,890 4.49 2.43 (147)
-------- ------ ---- -------- -------- ------ ---- -------
Total................. 34,355 20.07 1.96 11,512 22,843 14.89 1.74 (74)
Certificate accounts:
Less than 12 months (1).. 52,962 30.92 5.32 11,565 41,397 26.97 5.81 6,715
12 - 14 months (1)....... 39,525 23.09 5.29 (13,479) 53,004 34.54 6.05 1,494
14 - 72 months (1)....... 44,371 25.92 6.02 8,158 36,213 23.60 6.06 13,730
-------- ------ ---- -------- -------- ------ ---- -------
Total................. 136,858 79.93 5.54 6,244 130,614 85.11 5.98 21,939
-------- ------ ---- -------- -------- ------ ---- -------
Total deposits............. $171,213 100.00% 4.82% $ 17,756 $153,457 100.00% 5.35% $21,865
======== ====== ==== ======== ======== ====== ==== =======
<CAPTION>
At September 30,
------------------------------
1994
-----------------------------
Weighted
% of Average
Amount Deposits Rate
-------- --------- ---------
(Dollars in thousands)
<C> <C> <C>
Demand accounts:
NOW...................... $ 9,823 7.47% 1.04%
Money market............. 6,057 4.60 3.03
Savings accounts........... 7,037 5.35 2.41
-------- ------ ----
Total................. 22,917 17.42 1.99
Certificate accounts:
Less than 12 months (1).. 34,682 26.35 4.37
12 - 14 months (1)....... 51,510 39.14 4.30
14 - 72 months (1)....... 22,483 17.09 5.19
-------- ------ ----
Total................. 108,675 82.58 4.51
-------- ------ ----
$131,592 100.00% 4.07%
======== ====== ====
</TABLE>
- ----------------
(1) Original term.
68
<PAGE>
The following table sets forth the time deposits in the Bank
classified by rates at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
---------------------------
1996 1995 1994
-------- -------- -------
(In thousands)
<S> <C> <C> <C>
2 - 3.99%..... $ 1,737 $ 2,903 $ 28,240
4 - 5.99%..... 102,731 74,435 79,336
6 - 7.99%..... 32,390 53,276 626
8 - and over.. -- -- 473
-------- -------- --------
$136,858 $130,614 $108,675
========== ======== ========
</TABLE>
The following table sets forth the amount and maturities of time
deposits at September 30, 1996.
<TABLE>
<CAPTION>
Weighted Average
Maturity Period Amount Due Rate
--------------- ---------- -----------------
(In Thousands)
<S> <C> <C>
One year or less.. $111,256 5.44%
1-2 years......... 24,446 5.95
2-3 years......... 256 4.98
After 3 years..... 900 6.53
-------- ----
Total........... $136,858 5.54%
======== ====
</TABLE>
The following table indicates the amount of the Bank's certificates of
deposit of $100,000 or more (in thousands) by time remaining until maturity as
of September 30, 1996. At such date, such deposits represented 12.0% of total
deposits and had a weighted average rate of 5.68%.
<TABLE>
<CAPTION>
Maturity Period
---------------
<S> <C>
Three months or less........... $ 4,082
Over three through six months.. 5,213
Over six through 12 months..... 8,171
Over 12 months................. 3,100
-------
Total........................ $20,566
=======
</TABLE>
At September 30, 1996, mortgage-backed securities with a carrying
value of $2.1 million were pledged as collateral for deposits from public
entities.
69
<PAGE>
The following table sets forth the savings activities of the
Bank for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------
1996 1995 1994
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Net increase (decrease) before interest credited.. $11,826 $16,933 $24,833
Interest credited................................. 5,930 4,932 3,114
------- ------- -------
Net increase (decrease) in savings deposits... $17,756 $21,865 $27,947
======= ======= =======
</TABLE>
In the unlikely event the Bank is liquidated after the Stock
Conversion, depositors will be entitled to full payment of their deposit
accounts prior to any payment being made to the sole stockholder of the
Converted Bank or the Commercial Bank, which is the Company.
Borrowings. Savings deposits historically have been the primary
source of funds for the Bank's lending, investments and general operating
activities. The Bank is authorized, however, to use advances from the FHLB of
Atlanta to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. The FHLB of Atlanta functions as a central reserve
bank providing credit for savings institutions and certain other member
financial institutions. As a member of the FHLB System, the Bank is required to
own stock in the FHLB of Atlanta and is authorized to apply for advances.
Advances are pursuant to several different programs, each of which has its own
interest rate and range of maturities. The Bank has a Blanket Agreement for
advances with the FHLB under which the Bank may borrow up to 25% of assets
subject to normal collateral and underwriting requirements. Advances from the
FHLB of Atlanta are secured by the Bank's stock in the FHLB of Atlanta and other
eligible assets. During the years ended September 30, 1996, 1995 and 1994, the
Bank's borrowings consisted of FHLB advances and, during the year ended
September 30, 1996, retail repurchase agreements. The Bank will remain as a
member of the FHLB system following the Bank Conversion.
The Bank also utilized retail repurchase agreements to a limited
extent during fiscal 1996. Retail repurchase agreements represent agreements to
sell securities under terms which require the Bank to repurchase the same or
substantially similar securities by a specified date. The Bank did not have any
such agreements at September 30, 1995. The Bank did not utilize such agreements
during fiscal 1995 or 1994.
The following table sets forth certain information regarding short-
term borrowings by the Bank at the dates and for the periods indicated:
<TABLE>
<CAPTION>
At or for the
Year Ended September 30,
--------------------------
1996 1995
---------------- --------
(Dollars in thousands)
<S> <C> <C>
Amounts outstanding at end of period:
FHLB advances........................... -- $4,000
Federal funds purchased and securities
sold under repurchase agreements...... $1,040 --
Weighted average rate paid on:
FHLB advances........................... -- 7.27%
Federal funds purchased and securities
sold under agreements to repurchase... 4.31% --
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
For the Year
Ended September 30,
------------------------
1996 1995
----- ------
(In thousands)
<S> <C> <C>
Maximum amount of borrowings outstanding
at any month end:
FHLB advances.................................. $7,000 $21,000
Federal funds purchased and securities
sold under repurchased agreements............. 1,040 --
</TABLE>
<TABLE>
For the Year
Ended September 30,
------------------------
1996 1995
----- ------
(In thousands)
<S> <C> <C>
Approximate average short-term borrowings
outstanding with respect to:
FHLB advances.................................. $2,250 $11,521
Federal funds purchased and securities
sold under repurchase agreements.............. 582 --
Approximate weighted average rate paid on: (1)
FHLB advances.................................. 6.83% 6.54%
Federal funds purchased and securities
sold under agreements to repurchase........... 4.44 --
- --------------------
</TABLE>
(1) Based on month-end balances.
Subsidiary Activities
In prior years, the Bank had one subsidiary, Tidewater Financial
Services Corporation, a North Carolina corporation, which has been inactive
during the past three years. This subsidiary was dissolved effective September
30, 1996.
Competition
The Bank faces strong competition in originating real estate,
commercial business and consumer loans and in attracting deposits. The Bank
competes for real estate and other loans principally on the basis of interest
rates, the types of loans it originates, the deposit products it offers and the
quality of services it provides to borrowers. The Bank also competes by
offering products which are tailored to the local community. Its competition in
originating real estate loans comes primarily from other savings institutions,
commercial banks, mortgage bankers and mortgage brokers. Commercial banks,
credit unions and finance companies provide vigorous competition in consumer
lending. Competition may increase as a result of the continuing reduction of
restrictions on the interstate operations of financial institutions.
The Bank attracts its deposits through its branch offices primarily
from the local communities. Consequently, competition for deposits is
principally from other savings institutions, commercial banks, credit unions and
brokers in the Bank's primary market area. The Bank competes for deposits and
loans by offering what it believes to be a variety of deposit accounts at
competitive rates, convenient business hours, a commitment to outstanding
customer service and a well-trained staff. The Bank believes it has developed
strong relationships with local realtors and the community in general.
71
<PAGE>
Management considers its primary market area for gathering deposits
and originating loans to be Beaufort, Craven, Lenoir, Nash, Pasquotank and Pitt
Counties in northeastern North Carolina, which are the counties in which the
Bank's offices are located. The Bank originates loans throughout northeastern
North Carolina. Based on data provided by a private marketing firm, the Bank
estimates that at June 30, 1995, it had 3.85% of deposits held by all banks and
savings institutions in its market area.
Offices and Other Material Properties
The following table sets forth the location and certain additional
information regarding the Bank's office at September 30, 1996.
<TABLE>
<CAPTION>
Book Value at
Year Owned or September 30, Approximate
Opened Leased 1996 Square Footage
------ -------- ------------- --------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Main Office:
1311 Carolina Avenue
Washington, NC 27889 1986 Owned $ 651 10,200
Branch Offices:
300 North Market Street
Washington, NC 27889 1959 Owned 130 4,680
301 E. Arlington Blvd.
Greenville, NC 27835 1993 Owned 322 2,600
604 E. Ehringhaus Street
Elizabeth City, NC 27906 1980 Owned 186 2,500
827 Hardee Road
Kinston, NC 28501 1996 Leased -- 2,000
1725 Glenburnie Road
New Bern, NC 28561 1990 Owned 347 2,600
202 Craven Street
New Bern, NC 28560 1995 Leased 45 2,500
300 Sunset Avenue
Rocky Mount, NC 27804 1994 Owned 338 4,948
Loan Production Offices:
109 Market Street
Louisburg, NC 27549 1995 Leased -- 1,000
624 Village Road
Shallotte, NC 28470 1996 Leased -- 768
6800 Wrightsville Avenue
Suite 23 1995 Leased -- 692
Wilmington, NC 28406
Operations Center:
239 West Main Street
Washington, NC 27889 1994 Owned 342 7,600
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
Book Value at
Year Owned or September 30, Approximate
Opened Leased 1996 Square Footage
------ -------- ------------- --------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Future Branch Sites:
Cypress Landing
Chocowinity, NC Owned 126
Taberna
New Bern, NC Owned 176
</TABLE>
The book value of the Bank's investment in premises and equipment was $2.9
million at September 30, 1996. See Note 5 to Consolidated Financial Statements.
Employees
As of September 30, 1996, the Bank had 113 full-time and 7 part-time
employees, none of whom were represented by a collective bargaining agreement.
Management considers the Bank's relationships with its employees to be good.
Legal Proceedings
From time to time, the Bank is a party to various legal proceedings
incident to its business. At September 30, 1996, there were no legal
proceedings to which the Company or the Bank was a party, or to which any of
their property was subject, which were expected by management to result in a
material loss to the Company or the Bank. There are no pending regulatory
proceedings to which the Company, the Bank or its subsidiaries is a party or to
which any of their properties is subject which are currently expected to result
in a material loss.
REGULATION
Depository Institution Regulation
General. The Bank is a North Carolina-chartered savings bank and a member
of the FHLB of Atlanta and its deposits are insured by the FDIC through the
SAIF. As a North Carolina savings bank, the Bank is subject to regulation and
supervision by the Administrator and the FDIC and to North Carolina and FDIC
regulations governing such matters as capital standards, mergers, establishment
of branch offices, subsidiary investments and activities and general investment
authority. The Administrator and the FDIC periodically examine the Bank for
compliance with various regulatory requirements and for safe and sound
operations. The FDIC also has the authority to conduct special examinations of
the Bank because its deposits are insured by the SAIF. The Bank must file
reports with the Administrator describing its activities and financial condition
and must obtain the approval from the Administrator and the FDIC prior to
entering into certain transactions, such as mergers with, or acquisitions of,
other depository institutions.
Upon consummation of the Bank Conversion, the Commercial Bank will be a
North Carolina commercial bank and its deposit accounts will continue to be
insured by the SAIF. The Commercial Bank will be subject to supervision,
examination and regulation by the Commissioner (rather than the Administrator)
and the FDIC and to North Carolina and federal statutory and regulatory
provisions governing such matters as capital standards, mergers, subsidiary
investments and establishment of branch offices, and it will remain subject to
the FDIC's authority to conduct special examinations. The Commercial Bank will
be required to file reports with the Commissioner and the FDIC concerning its
activities and financial condition and will be required to obtain regulatory
approvals prior to entering into certain transactions, including mergers with,
or acquisitions of, other depository institutions.
73
<PAGE>
As a federally insured depository institution, the Bank is, and the
Converted Bank and the Commercial Bank will be, subject to various regulations
promulgated by the Federal Reserve Board, including Regulation B (Equal Credit
Opportunity), Regulation D (Reserve Requirements), Regulations E (Electronic
Fund Transfers), Regulation Z (Truth in Lending), Regulation CC (Availability of
Funds and Collection of Checks) and Regulation DD (Truth in Savings).
The system of regulation and supervision applicable to the Bank, the
Converted Bank and the Commercial Bank establishes a comprehensive framework for
the operations of the Bank, the Converted Bank and the Commercial Bank and is
intended primarily for the protection of the FDIC and the depositors of the
Bank, the Converted Bank and the Commercial Bank. Changes in the regulatory
framework could have a material effect on the Bank, the Converted Bank and the
Commercial Bank and their respective operations that in turn, could have a
material effect on the Company.
Capital Requirements. The Federal Reserve Board and the FDIC have
established guidelines with respect to the maintenance of appropriate levels of
capital by bank holding companies with consolidated assets of $150 million or
more and state non-member banks, respectively. The regulations impose two sets
of capital adequacy requirements: minimum leverage rules, which require bank
holding companies and state non-member banks to maintain a specified minimum
ratio of capital to total assets, and risk-based capital rules, which require
the maintenance of specified minimum ratios of capital to "risk-weighted"
assets. The regulations of the FDIC and the Federal Reserve Board require bank
holding companies and state non-member banks, respectively, to maintain a
minimum leverage ratio of "Tier 1 capital" to total assets of 3.0%. Tier 1
capital is the sum of common stockholders' equity, certain perpetual preferred
stock (which must be noncumulative with respect to banks), including any related
surplus, and minority interests in consolidated subsidiaries; minus all
intangible assets (other than certain purchased mortgage servicing rights and
purchased credit card receivables), identified losses and investments in certain
subsidiaries. As a SAIF-insured, state-chartered bank, the Bank must also
deduct from Tier 1 capital an amount equal to its investments in, and extensions
of credit to, subsidiaries engaged in activities that are not permissible for
national banks, other than debt and equity investments in subsidiaries engaged
in activities undertaken as agent for customers or in mortgage banking
activities or in subsidiary depository institutions or their holding companies.
Although setting a minimum 3.0% leverage ratio, the capital regulations state
that only the strongest bank holding companies and banks, with composite
examination ratings of 1 under the rating system used by the federal bank
regulators, would be permitted to operate at or near such minimum level of
capital. All other bank holding companies and banks are expected to maintain a
leverage ratio of at least 1% to 2% above the minimum ratio, depending on the
assessment of an individual organization's capital adequacy by its primary
regulator. Any bank or bank holding companies experiencing or anticipating
significant growth would be expected to maintain capital well above the minimum
levels. In addition, the Federal Reserve Board has indicated that whenever
appropriate, and in particular when a bank holding company is undertaking
expansion, seeking to engage in new activities or otherwise facing unusual or
abnormal risks, it will consider, on a case-by-case basis, the level of an
organization's ratio of tangible Tier 1 capital to total assets in making an
overall assessment of capital.
In addition to the leverage ratio, the regulations of the Federal Reserve
Board and the FDIC require bank holding companies and state-chartered nonmember
banks to maintain a minimum ratio of qualifying total capital to risk-weighted
assets of at least 8.0% of which at least four percentage points must be Tier 1
capital. Qualifying total capital consists of Tier 1 capital plus Tier 2 or
supplementary capital items which include allowances for loan losses in an
amount of up to 1.25% of risk-weighted assets, cumulative preferred stock and
preferred stock with a maturity of 20 years or more and certain other capital
instruments. The includible amount of Tier 2 capital cannot exceed the
institution's Tier 1 capital. Qualifying total capital is further reduced by
the amount of the bank's investments in banking and finance subsidiaries that
are not consolidated for regulatory capital purposes, reciprocal cross-holdings
of capital securities issued by other banks and certain other deductions. The
risk-based capital regulations assign balance sheet assets and the credit
equivalent amounts of certain off-balance sheet items to one of four broad risk
weight categories. The aggregate dollar amount of each category is multiplied by
the risk weight assigned to that category based principally on the degree of
credit risk associated with the obligor. The sum of these weighted values
equals the bank holding company or the bank's risk-weighted assets.
74
<PAGE>
The federal bank regulators, including the Federal Reserve Board and the
FDIC, have proposed to revise their risk-based capital requirements to ensure
that such requirements provide for explicit consideration of interest rate risk.
Under the proposed rule, a bank's interest rate risk exposure would be
quantified using either the measurement system set forth in the proposal or the
bank's internal model for measuring such exposure, if such model is determined
to be adequate by the bank's examiner. If the dollar amount of a bank's
interest rate risk exposure, as measured under either measurement system,
exceeds 1% of the bank's total assets, the bank would be required under the
proposed rule to hold additional capital equal to the dollar amount of the
excess. Management of the Bank has not determined what effect, if any, the
FDIC's proposed interest rate risk component would have on the Bank's capital if
adopted as proposed. The FDIC has adopted a regulation that provides that the
FDIC may take into account whether a bank has significant risks from
concentrations of credit or nontraditional activities in determining the
adequacy of its capital. The Bank has not been advised that it will be required
to maintain any additional capital under this regulation. The proposed interest
rate risk component would not apply to bank holding companies on a consolidated
basis.
In addition to FDIC regulatory capital requirements, the Administrator
requires that net worth equal at least 5% of total assets. Intangible assets
must be deducted from net worth and assets when computing compliance with this
requirement.
At September 30, 1996, the Bank complied with each of the capital
requirements of the FDIC and the Administrator. For a description of the Bank's
required and actual capital levels on September 30, 1996, see "Historical and
Pro Forma Regulatory Capital Compliance."
Following the Bank Conversion, the Commercial Bank will be subject to the
Commissioner's capital surplus regulation which requires commercial banks to
maintain a capital surplus of at least 50% of common capital. Common capital is
defined as the total of the par value of shares times the number of shares
outstanding.
Prompt Corrective Regulatory Action. Under the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), the federal banking regulators
are required to take prompt corrective action if an insured depository
institution fails to satisfy certain minimum capital requirements. All
institutions, regardless of their capital levels, are restricted from making any
capital distribution or paying any management fees if the institution would
thereafter fail to satisfy the minimum levels for any of its capital
requirements. An institution that fails to meet the minimum level for any
relevant capital measure (an "undercapitalized institution") may be: (i) subject
to increased monitoring by the appropriate federal banking regulator; (ii)
required to submit an acceptable capital restoration plan within 45 days; (iii)
subject to asset growth limits; and (iv) required to obtain prior regulatory
approval for acquisitions, branching and new lines of businesses. A
"significantly undercapitalized" institution may be subject to regulatory
demands for recapitalization, broader application of restrictions on
transactions with affiliates, limitations on interest rates paid on deposits,
asset growth and other activities, possible replacement of directors and
officers, and restrictions on capital distributions by any bank holding company
controlling the institution. Any company controlling the institution could also
be required to divest the institution or the institution could be required to
divest subsidiaries. The senior executive officers of a significantly
undercapitalized institution may not receive bonuses or increases in
compensation without prior regulatory approval and the institution is prohibited
from making payments of principal or interest on its subordinated debt. If an
institution's ratio of tangible capital to total assets falls below a "critical
capital level," the institution will be subject to conservatorship or
receivership within 90 days unless periodic determinations are made that
forbearance from such action would better protect the deposit insurance fund.
Federal banking regulators have adopted regulations implementing the prompt
corrective action provisions of FDICIA. Under these regulations, the federal
banking regulators will generally measure a depository institution's capital
adequacy on the basis of the institution's total risk-based capital ratio (the
ratio of its total capital to risk-weighted assets), Tier 1 risk-based capital
ratio (the ratio of its core capital to risk-weighted assets) and leverage ratio
(the ratio of its core capital to adjusted total assets). Under the
regulations, an institution that is not subject to an order or written directive
by its primary federal regulator to meet or maintain a specific capital level
will be deemed
75
<PAGE>
"well capitalized" if it also has: (i) a total risk-based capital ratio of 10%
or greater; (ii) a Tier 1 risk-based capital ratio of 6.0% or greater; and (iii)
a leverage ratio of 5.0% or greater. An "adequately capitalized" depository
institution is an institution that does not meet the definition of well
capitalized and has: (i) a total risk-based capital ratio of 8.0% or greater;
(ii) a Tier 1 risk-based capital ratio of 4.0% or greater; and (iii) a leverage
ratio of 4.0% or greater (or 3.0% or greater if the depository institution has a
composite 1 CAMEL rating). An "undercapitalized institution" is a depository
institution that has (i) a total risk-based capital ratio less than 8.0%; or
(ii) a Tier 1 risk-based capital ratio of less than 4.0%; or (iii) a leverage
ratio of less than 4.0% (or less than 3.0% if the institution has a composite 1
CAMEL rating). A "significantly undercapitalized" institution is defined as a
depository institution that has: (i) a total risk-based capital ratio of less
than 6.0%; or (ii) a Tier 1 risk-based capital ratio of less than 3.0%; or (iii)
a leverage ratio of less than 3.0%. A "critically undercapitalized" institution
is defined as a depository institution that has a ratio of "tangible equity" to
total assets of less than 2.0%. Tangible equity is defined as core capital plus
cumulative perpetual preferred stock (and related surplus) less all intangibles
other than qualifying supervisory goodwill and certain purchased mortgage
servicing rights. The appropriate federal banking agency may reclassify a well
capitalized depository institution as adequately capitalized and may require an
adequately capitalized or undercapitalized institution to comply with the
supervisory actions applicable to institutions in the next lower capital
category (but may not reclassify a significantly undercapitalized institution as
critically under-capitalized) if it determines, after notice and an opportunity
for a hearing, that the institution is in an unsafe or unsound condition or that
the institution has received and not corrected a less-than-satisfactory rating
for any CAMEL rating category. At September 30, 1996, the Bank was classified as
"well capitalized" under FDIC regulations, and management of the Bank believes
that the Commercial Bank will, immediately after the Conversion, also be
classified as "well-capitalized."
Safety and Soundness Guidelines. Under FDICIA, as amended by the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "CDRI Act"),
each federal banking agency was required to establish safety and soundness
standards for institutions under its authority. The interagency guidelines
require depository institutions to maintain internal controls and information
systems and internal audit systems that are appropriate for the size, nature and
scope of the institution's business. The guidelines also establish certain
basic standards for loan documentation, credit underwriting, interest rate risk
exposure, and asset growth. The guidelines further provide that depository
institutions should maintain safeguards to prevent the payment of compensation,
fees and benefits that are excessive or that could lead to material financial
loss, and should take into account factors such as comparable compensation
practices at comparable institutions. If the appropriate federal banking agency
determines that a depository institution is not in compliance with the safety
and soundness guidelines, it may require the institution to submit an acceptable
plan to achieve compliance with the guidelines. A depository institution must
submit an acceptable compliance plan to its primary federal regulator within 30
days of receipt of a request for such a plan. Failure to submit or implement a
compliance plan may subject the institution to regulatory sanctions. Management
believes that the Bank already substantially meets all the standards adopted in
the interagency guidelines, and therefore does not believe that implementation
of these regulatory standards will materially affect the operations of the Bank
or the Commercial Bank.
Community Reinvestment Act. The Bank, like other financial institutions,
is subject to the Community Reinvestment Act ("CRA"). The purpose of the CRA is
to encourage financial institutions to help meet the credit needs of their
entire communities, including the needs of low-and moderate-income
neighborhoods. During the Bank's last compliance examination, the Bank received
an "outstanding" rating with respect to CRA compliance. The Bank's rating with
respect to CRA compliance would be a factor to be considered by the Federal
Reserve Board and the FDIC in considering applications submitted by the Bank to
acquire branches or to acquire or combine with other financial institutions and
take other actions and, if such rating was less than "satisfactory," could
result in the denial of such applications.
The federal banking regulatory agencies have issued a revision of the CRA
regulations, which became effective on January 1, 1996, to implement a new
evaluation system that rates institutions based on their actual performance in
meeting community credit needs. Under the regulations, a bank will first be
evaluated and rated
76
<PAGE>
under three categories: a lending test, an investment test and a service test.
For each of these three tests, the savings bank will be given a rating of either
"outstanding," "high satisfactory," "low satisfactory," "needs to improve," or
"substantial non-compliance." A set of criteria for each rating has been
developed and is included in the regulation. If an institution disagrees with a
particular rating, the institution has the burden of rebutting the presumption
by clearly establishing that the quantitative measures do not accurately present
its actual performance, or that demographics, competitive conditions or economic
or legal limitations peculiar to its service area should be considered. The
ratings received under the three tests will be used to determine the overall
composite CRA rating. The composite ratings will be the same as those that are
currently given: "outstanding," "satisfactory," "needs to improve" or
"substantial non-compliance."
Federal Home Loan Bank System. The FHLB System consists of 12 district
FHLBs subject to supervision and regulation by the Federal Housing Finance Board
("FHFB"). The FHLBs provide a central credit facility primarily for member
institutions. As a member of the FHLB of Atlanta, the Bank is required to
acquire and hold shares of capital stock in the FHLB of Atlanta in an amount at
least equal to 1% of the aggregate unpaid principal of its home mortgage loans,
home purchase contracts, and similar obligations at the beginning of each year,
or 1/20 of its advances (borrowings) from the FHLB of Atlanta, whichever is
greater. The Bank was in compliance with this requirement with investment in
FHLB of Atlanta stock at September 30, 1996 of $1.3 million. The FHLB of
Atlanta serves as a reserve or central bank for its member institutions within
its assigned district. It is funded primarily from proceeds derived from the
sale of consolidated obligations of the FHLB System. It offers advances to
members in accordance with policies and procedures established by the FHFB and
the Board of Directors of the FHLB of Atlanta. Long-term advances may only be
made for the purpose of providing funds for residential housing finance. At
September 30, 1996, the Bank had no long-term advances or short-term advances
outstanding from the FHLB of Atlanta. Upon completion of the Bank Conversion,
the Commercial Bank will continue to be a member of the FHLB of Atlanta.
Reserves. Pursuant to regulations of the Federal Reserve Board, the Bank
must maintain average daily reserves against their transaction accounts. No
reserves are required to be maintained on the first $4.3 million of transaction
accounts, reserves equal to 3% must be maintained on the next $52.0 million of
transaction accounts, plus 10% on the remainder. This percentage is subject to
adjustment by the Federal Reserve Board. Because required reserves must be
maintained in the form of vault cash or in a noninterest bearing account at a
Federal Reserve Bank, the effect of the reserve requirement is to reduce the
amount of the institution's interest-earning assets. As of September 30, 1996,
the Bank met its reserve requirements.
Upon consummation of the Bank Conversion, the Commercial Bank will be
subject to the reserve requirements of North Carolina commercial banks. North
Carolina law requires state non-member banks to maintain, at all times, a
reserve fund in an amount set by regulation of the Commission.
Deposit Insurance. The Bank is required to pay assessments based on a
percentage of its insured deposits to the FDIC for insurance of its deposits by
the SAIF. Under the FDIC's risk-based deposit insurance assessment system, the
assessment rate for an insured depository institution depends on the assessment
risk classification assigned to the institution by the FDIC, which is determined
by the institution's capital level and supervisory evaluations. Based on the
data reported to regulators for the date closest to the last day of the seventh
month preceding the semi-annual assessment period, institutions are assigned to
one of three capital groups -- well capitalized, adequately capitalized or
undercapitalized -- using the same percentage criteria as in the prompt
corrective action regulations. See "-- Prompt Corrective Regulatory Action."
Within each capital group, institutions are assigned to one of three subgroups
on the basis of supervisory evaluations by the institution's primary supervisory
authority and such other information as the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance fund. Subgroup A consists of financially sound institutions with only
a few minor weaknesses. Subgroup B consists of institutions that demonstrate
weaknesses which, if not corrected, could result in significant deterioration of
the institution and increased risk of loss to the deposit insurance fund.
Subgroup C consists of institutions that pose a substantial probability of loss
to the deposit insurance fund unless effective corrective action
77
<PAGE>
is taken. The assessment rate for SAIF members had ranged from 0.23% of deposits
for well capitalized institutions in Subgroup A to 0.31% of deposits for
undercapitalized institutions in Subgroup C while assessments for over 90% of
the BIF members had been the statutory minimum of $2,000. Recently enacted
legislation provided for a one-time assessment of 65.7 basis points of insured
deposits as of March 31, 1995, that fully capitalized the SAIF and had the
effect of reducing future SAIF assessments. Accordingly, although the special
assessment resulted in a one-time charge to the Bank of approximately $946,000
pre-tax, the recapitalization of the SAIF had the effect of reducing the Bank's
and the Commercial Bank's future deposit insurance premiums to the SAIF. Under
the recently enacted legislation, both BIF and SAIF members will be assessed an
amount for the Financing Corporation Bond payments. BIF members will be assessed
approximately 1.3 basis points while the SAIF rate will be approximately 6.4
basis points until January 1, 2000. At that time, BIF and SAIF members will
begin pro rata sharing of the payment at an expected rate of 2.43 basis points.
Although the Commercial Bank, as a North Carolina commercial bank, would
qualify for insurance of deposits by the BIF of the FDIC, substantial entrance
and exit fees apply to conversions from SAIF to BIF insurance. Accordingly,
following the Bank Conversion, the Commercial Bank will remain a member of the
SAIF, which will insure the deposits of the Commercial Bank to a maximum of
$100,000 for each depositor. Because the Converted Bank (and the Commercial
Bank) will continue to be a SAIF member, its deposit insurance assessments will
be determined on the same basis as the deposit insurance assessments paid by the
Bank.
Liquidity Requirements. FDIC policy requires that banks maintain an
average daily balance of liquid assets (cash, certain time deposits, bankers'
acceptances and specified United States government, state, or federal agency
obligations) in an amount which it deems adequate to protect safety and
soundness of the bank. The FDIC currently has no specific level which it
requires. Under the FDIC's calculation method, management calculated the Bank's
liquidity ratio as 13.9% of total assets at September 30, 1996, which management
believes is adequate.
The Bank also is subject to the Administrator's requirement that the ratio
of liquid assets to total assets equal at least 10%. The computation of
liquidity under North Carolina regulations allows the inclusion of mortgage-
backed securities and investments which, in the judgment of the Administrator,
have a readily ascertainable market value, including investments with maturities
in excess of five years. At September 30, 1996, the Bank's liquidity ratio was
in excess of the North Carolina regulations.
Dividend Restrictions. Under FDIC regulations, the Bank is prohibited from
making any capital distributions if after making the distribution, the Bank
would have: (i) a total risk-based capital ratio of less than 8.0%; (ii) a Tier
1 risk-based capital ratio of less than 4.0%; or (iii) a leverage ratio of less
than 4.0%.
Earnings of the Bank appropriated to bad debt reserves and deducted for
Federal income tax purposes are not available for payment of cash dividends or
other distributions to stockholders without payment of taxes at the then current
tax rate by the Bank on the amount of earnings removed from the pre-1988
reserves for such distributions. The Bank intends to make full use of this
favorable tax treatment and does not contemplate use of any earnings in a manner
which would create federal tax liabilities.
The Bank may not pay dividends on its capital stock if its regulatory
capital would thereby be reduced below the amount then required for the
liquidation account established for the benefit of certain depositors of the
Bank at the time of the Stock Conversion.
The Company is subject to limitations on dividends imposed by the Federal
Reserve Board. See "-- Regulation of the Company Following the Conversion --
Dividends."
Limits on Loans to One Borrower. The Bank generally is subject to both
FDIC regulations and North Carolina law regarding loans to any one borrower,
including related entities. Under applicable law, with certain limited
exceptions, loans and extensions of credit by a savings institution to a person
outstanding at one time and
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not fully secured by collateral having a market value at least equal to the
amount of the loan or extension of credit shall not exceed 15% of net worth.
Loans and extensions of credit fully secured by readily marketable collateral
may comprise an additional 10% of net worth. Applicable law additionally
authorizes savings institutions to make loans to one borrower, for any purpose:
(i) in an amount not to exceed $500,000; (ii) in an amount not to exceed the
lesser of $30,000,000 or 30% of net worth to develop residential housing,
provided (a) the purchase price of each single-family dwelling in the
development does not exceed $500,000 and (b) the aggregate amount of loans made
under this authority does not exceed 150% of net worth; or (iii) loans to
finance the sale of real property in satisfaction of debts previously contracted
in good faith, not to exceed 50% of net worth. Under these limits, the Bank's
loans to one borrower were limited to $2.8 million at September 30, 1996. At
that date, the Bank had no lending relationships in excess of the loans-to-one-
borrower limit. Notwithstanding the statutory loans-to-one-borrower limitations,
the Bank has a self imposed loans-to-one-borrower limit, which currently is $2.2
million. At September 30, 1996, the Bank's largest lending relationship was a
$1.9 million relationship consisting of five commercial real estate loans. All
loans within this relationship were current and performing in accordance with
their terms at September 30, 1996.
Following the Bank Conversion, the Commercial Bank will be subject to North
Carolina statutory law with respect to limits on loans to one borrower which are
substantially the same as those for the Bank.
Transactions with Related Parties. Transactions between a state non-member
bank and any affiliate are governed by Sections 23A and 23B of the Federal
Reserve Act. An affiliate of a state non-member bank is any company or entity
which controls, is controlled by or is under common control with the state non-
member bank. In a holding company context, the parent holding company of a
state non-member bank (such as the Company) and any companies which are
controlled by such parent holding company are affiliates of the savings
institution or state non-member bank. Generally, Sections 23A and 23B (i)
limit the extent to which an institution 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, and contain an aggregate limit on all
such transactions with all affiliates to an amount equal to 20% of such capital
stock and surplus and (ii) require that all such transactions be on terms
substantially the same, or at least as favorable, to the institution or
subsidiary as those provided to a non-affiliate. The term "covered transaction"
includes the making of loans, purchase of assets, issuance of a guarantee and
similar other types of transactions. In addition to the restrictions imposed by
Sections 23A and 23B, no state non-member bank may (i) loan or otherwise extend
credit to an affiliate, except for any affiliate which engages only in
activities which are permissible for bank holding companies, or (ii) purchase or
invest in any stocks, bonds, debentures, notes or similar obligations of any
affiliate, except for affiliates which are subsidiaries of the state non-member
bank.
State non-member banks also are subject to the restrictions contained in
Section 22(h) of the Federal Reserve Act and the Federal Reserve's Regulation O
thereunder on loans to executive officers, directors and principal stockholders.
Under Section 22(h), loans to a director, executive officer and to a greater
than 10% stockholder of a state non-member bank and certain affiliated interests
of such persons, may not exceed, together with all other outstanding loans to
such person and affiliated interests, the institution's loans-to-one-borrower
limit and all loans to such persons may not exceed the institution's unimpaired
capital and unimpaired surplus. Section 22(h) also prohibits loans, above
amounts prescribed by the appropriate federal banking agency, to directors,
executive officers and greater than 10% stockholders of a savings institution,
and their respective affiliates, unless such loan is approved in advance by a
majority of the board of directors of the institution with any "interested"
director not participating in the voting. Regulation O prescribes the loan
amount (which includes all other outstanding loans to such person) as to which
such prior board of director approval is required as being the greater of
$25,000 or 5% of capital and surplus (up to $500,000). Further, Section 22(h)
requires that loans to directors, executive officers and principal stockholders
be made on terms substantially the same as offered in comparable transactions to
other persons. Section 22(h) also generally prohibits a depository institution
from paying the overdrafts of any of its executive officers or directors.
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State non-member banks also are subject to the requirements and
restrictions of Section 22(g) of the Federal Reserve Act on loans to executive
officers and the restrictions of 12 U.S.C. (S) 1972 on certain tying
arrangements and extensions of credit by correspondent banks. Section 22(g) of
the Federal Reserve Act requires loans to executive officers of depository
institutions not be made on terms more favorable than those afforded to other
borrowers, requires approval by the board of directors of a depository
institution for extension of credit to executive officers of the institution,
and imposes reporting requirements for and additional restrictions on the type,
amount and terms of credits to such officers. Section 1972 (i) prohibits a
depository institution from extending credit to or offering any other services,
or fixing or varying the consideration for such extension of credit or service,
on the condition that the customer obtain some additional service from the
institution or certain of its affiliates or not obtain services of a competitor
of the institution, subject to certain exceptions, and (ii) prohibits extensions
of credit to executive officers, directors, and greater than 10% stockholders of
a depository institution by any other institution which has a correspondent
banking relationship with the institution, unless such extension of credit is on
substantially the same terms as those prevailing at the time for comparable
transactions with other persons and does not involve more than the normal risk
of repayment or present other unfavorable features.
Restrictions on Certain Activities. Under FDICIA, state-chartered banks
with deposits insured by the FDIC are generally prohibited from acquiring or
retaining any equity investment of a type or in an amount that is not
permissible for a national bank. The foregoing limitation, however, does not
prohibit FDIC-insured state banks from acquiring or retaining an equity
investment in a subsidiary in which the bank is a majority owner. State-
chartered banks are also prohibited from engaging as principal in any type of
activity that is not permissible for a national bank and subsidiaries of state-
chartered, FDIC-insured state banks may not engage as principal in any type of
activity that is not permissible for a subsidiary of a national bank unless in
either case the FDIC determines that the activity would pose no significant risk
to the appropriate deposit insurance fund and the bank is, and continues to be,
in compliance with applicable capital standards.
The FDIC has adopted regulations to clarify the foregoing restrictions on
activities of FDIC-insured state-chartered banks and their subsidiaries. Under
the regulations, the term activity refers to the authorized conduct of business
by an insured state bank and includes acquiring or retaining any investment
other than an equity investment. An activity permissible for a national bank
includes any activity expressly authorized for national banks by statute or
recognized as permissible in regulations, official circulars or bulletins or in
any order or written interpretation issued by the Office of the Comptroller of
the Currency ("OCC"). In its regulations, the FDIC indicates that it will not
permit state banks to directly engage in commercial ventures or directly or
indirectly engage in any insurance underwriting activity other than to the
extent such activities are permissible for a national bank or a national bank
subsidiary or except for certain other limited forms of insurance underwriting
permitted under the regulations. Under the regulations, the FDIC permits state
banks that meet applicable minimum capital requirements to engage as principal
in certain activities that are not permissible to national banks including
guaranteeing obligations of others, activities which the Federal Reserve Board
has found by regulation or order to be closely related to banking and certain
securities activities conducted through subsidiaries.
Subject to limitation by the Administrator, North Carolina-chartered
savings banks may make any loan or investment or engage in any activity which is
permitted to federally chartered institutions. However, a North Carolina-
chartered savings bank cannot invest more than 15% of its total assets in
business, commercial, corporate and agricultural loans. In addition to such
lending authority, North Carolina-chartered savings banks are authorized to
invest funds, in excess of loan demand, in certain statutorily permitted
investments, including but not limited to (i) obligations of the United States,
or those guaranteed by it; (ii) obligations of the State of North Carolina;
(iii) bank demand or time deposits; (iv) stock or obligations of the federal
deposit insurance fund or a FHLB; (v) savings accounts of any savings
institution as approved by the board of directors; and (vi) stock or obligations
of any agency of the State of North Carolina or of the United States or of any
corporation doing business in North Carolina whose principal business is to make
education loans.
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Regulation of the Company Following the Bank Conversion
General. Upon consummation of the Bank Conversion, the Company, as the
sole shareholder of the Bank, will become a bank holding company and will
register as such with the Federal Reserve Board. Bank holding companies are
subject to comprehensive regulation by the Federal Reserve Board under the Bank
Holding Company Act of 1956, as amended (the "BHCA"), and the regulations of the
Federal Reserve Board. As a bank holding company, the Company will be required
to file with the Federal Reserve Board annual reports and such additional
information as the Federal Reserve Board may require, and will be subject to
regular examinations by the Federal Reserve Board. The Federal Reserve Board
also has extensive enforcement authority over bank holding companies, including,
among other things, the ability to assess civil money penalties, to issue cease
and desist or removal orders and to require that a holding company divest
subsidiaries (including its bank subsidiaries). In general, enforcement actions
may be initiated for violations of law and regulations and unsafe or unsound
practices.
Under the BHCA, a bank holding company must obtain Federal Reserve Board
approval before: (i) acquiring, directly or indirectly, ownership or control of
any voting shares of another bank or bank holding company if, after such
acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares); (ii) acquiring all or
substantially all of the assets of another bank or bank holding company; or
(iii) merging or consolidating with another bank holding company. Satisfactory
financial condition, particularly with respect to capital adequacy, and a
satisfactory CRA rating generally are prerequisites to obtaining federal
regulatory approval to make acquisitions.
The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company which is not a bank or bank holding company, or
from engaging directly or indirectly in activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries. The
principal exceptions to these prohibitions involve certain non-bank activities
which, by statute or by Federal Reserve Board regulation or order, have been
identified as activities closely related to the business of banking or managing
or controlling banks. The list of activities permitted by the Federal Reserve
Board includes, among other things, operating a savings institution, mortgage
company, finance company, credit card company or factoring company; performing
certain data processing operations; providing certain investment and financial
advice; underwriting and acting as an insurance agent for certain types of
credit-related insurance; leasing property on a full-payout, non-operating
basis; selling money orders, travelers' checks and United States Savings Bonds;
real estate and personal property appraising; providing tax planning and
preparation services; and, subject to certain limitations, providing securities
brokerage services for customers. The Company has no present plans to engage in
any of these activities.
Under the BHCA, any company must obtain approval of the Federal Reserve
Board prior to acquiring control of the Company or the Bank. For purposes of
the BHCA, "control" is defined as ownership of more than 25% of any class of
voting securities of the Company or the Bank, the ability to control the
election of a majority of the directors, or the exercise of a controlling
influence over management or policies of the Company or the Bank. In addition,
the Change in Bank Control Act and the related regulations of the Federal
Reserve Board require any person or persons acting in concert (except for
companies required to make application under the BHCA), to file a written notice
with the Federal Reserve Board before such person or persons may acquire control
of the Company or the Bank. The Change in Bank Control Act defines "control" as
the power, directly or indirectly, to vote 25% or more of any voting securities
or to direct the management or policies of a bank holding company or an insured
bank.
The Federal Reserve Board has adopted guidelines regarding the capital
adequacy of bank holding companies, which require bank holding companies to
maintain specified minimum ratios of capital to total assets and capital to
risk-weighted assets. See " -- Depository Institution Regulation -- Capital
Requirements."
Interstate Banking. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Act") was enacted to ease restrictions on
interstate banking. Effective September 29, 1995, the Act allows the Federal
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Reserve Board to approve an application of an adequately capitalized and
adequately managed bank holding company to acquire control of, or acquire all or
substantially all of the assets of, a bank located in a state other than such
holding company's home state, without regard to whether the transaction is
prohibited by the laws of any state. The Federal Reserve Board may not approve
the acquisition of bank that has not been in existence for the minimum time
period (not exceeding five years) specified by the statutory law of the host
state. The Act also prohibits the Federal Reserve Board from approving an
application if the applicant (and its depository institution affiliates)
controls or would control more than 10% of the insured deposits in the United
States or 30% or more of the deposits in the target bank's home state or in any
state in which the target bank maintains a branch. The Act does not affect the
authority of states to limit the percentage of total insured deposits in the
state which may be held or controlled by a bank or bank holding company to the
extent such limitation does not discriminate against out-of-state banks or bank
holding companies. Individual states may also waive the 30% state-wide
concentration limit contained in the Act.
Additionally, the Act authorizes the federal banking agencies, effective
June 1, 1997, to approve interstate merger transactions without regard to
whether such transaction is prohibited by the law of any state, unless the home
state of one of the banks opts out of the Act by adopting a law after the date
of enactment of the Act and prior to June 1, 1997 that applies equally to all
out-of-state banks and expressly prohibits merger transactions involving out-of-
state banks. North Carolina has enacted legislation permitting interstate
banking transactions. Interstate acquisitions of branches will be permitted only
if the law of the state in which the branch is located permits such
acquisitions. Interstate mergers and branch acquisitions will also be subject
to the nationwide and statewide insured deposit concentration amounts described
above.
The Act authorizes the FDIC to approve interstate branching de novo by
state banks only in states which specifically allow for such branching. The
Riegle-Neal Act also requires the appropriate federal banking agencies to
prescribe regulations by June 1, 1997 which prohibit any out-of-state bank from
using the interstate branching authority primarily for the purpose of deposit
production. These regulations must include guidelines to ensure that interstate
branches operated by an out-of-state bank in a host state are reasonably helping
to meet the credit needs of the communities which they serve.
Dividends. The Federal Reserve Board has issued a policy statement on the
payment of cash dividends by bank holding companies, which expresses the Federal
Reserve Board's view that a bank holding company should pay cash dividends only
to the extent that the company's net income for the past year is sufficient to
cover both the cash dividends and a rate of earning retention that is consistent
with the company's capital needs, asset quality and overall financial condition.
The Federal Reserve Board also indicated that it would be inappropriate for a
company experiencing serious financial problems to borrow funds to pay
dividends. Furthermore, under the prompt corrective action regulations adopted
by the Federal Reserve Board pursuant to FDICIA, the Federal Reserve Board may
prohibit a bank holding company from paying any dividends if the holding
company's bank subsidiary is classified as "undercapitalized". See "--
Depository Institution Regulation -- Prompt Corrective Regulatory Action."
Bank holding companies are required to give the Federal Reserve Board prior
written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of the their
consolidated retained earnings. The Federal Reserve Board may disapprove such a
purchase or redemption if it determines that the proposal would constitute an
unsafe or unsound practice or would violate any law, regulation, Federal Reserve
Board order, or any condition imposed by, or written agreement with, the Federal
Reserve Board.
Federal Securities Law
The Company has filed with the SEC a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), for the registration
of the Common Stock to be issued in the Stock Conversion. Upon completion of
the Stock Conversion, the Common Stock will be registered with the SEC under the
Securities
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Exchange Act of 1934, as amended (the "Exchange Act"). The Company will then be
subject to the information, proxy solicitation, insider trading restrictions and
other requirements of the Exchange Act.
The registration under the Securities Act of the Common Stock does not
cover the resale of such shares. Shares of the Common Stock purchased by
persons who are not affiliates of the Company may be resold without
registration. Shares purchased by an affiliate of the Company will be subject
to the resale restrictions of Rule 144 under the Securities Act. If the Company
meets the current public information requirements of Rule 144 under the
Securities Act, each affiliate of the Company who complies with the other
conditions of Rule 144 (including those that require the affiliate's sale to be
aggregated with those of certain other persons) would be able to sell in the
public market, without registration, a number of shares not to exceed, in any
three-month period, the greater of (i) 1% of the outstanding shares of the
Company or (ii) the average weekly volume of trading in such shares during the
preceding four calendar weeks. Provision may be made in the future by the
Company to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances. There are currently no demand
registration rights outstanding. However, in the event the Company at some
future time determines to issue additional shares from its authorized but
unissued shares, the Company might offer registration rights to certain of its
affiliates who want to sell their shares.
TAXATION
General
The Bank files a federal income tax return based on a fiscal year ending
September 30.
Federal Income Taxation
Savings institutions such as the Bank are subject to the provisions of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code") in the
same general manner as other corporations. Through tax years beginning before
December 31, 1995, institutions such as the Bank which met certain definitional
tests and other conditions prescribed by the Internal Revenue Code benefitted
from certain favorable provisions regarding their deductions from taxable income
for annual additions to their bad debt reserve. For purposes of the bad debt
reserve deduction, loans are separated into "qualifying real property loans,"
which generally are loans secured by interests in certain real property, and
"nonqualifying loans", which are all other loans. The bad debt reserve
deduction with respect to nonqualifying loans must be based on actual loss
experience. The amount of the bad debt reserve deduction with respect to
qualifying real property loans may be based upon actual loss experience (the
"experience method") or a percentage of taxable income determined without regard
to such deduction (the "percentage of taxable income method"). Under the
experience method, the bad debt deduction for an addition to the reserve for
qualifying real property loans was an amount determined under a formula based
generally on the bad debts actually sustained by a savings institution over a
period of years. Under the percentage of taxable income method, the bad debt
reserve deduction for qualifying real property loans was computed as 8% of a
savings institution's taxable income, with certain adjustments. The Bank
generally elected to use the method which has resulted in the greatest
deductions for federal income tax purposes in any given year.
Legislation that is effective for tax years beginning after December 31,
1995 requires institutions to recapture into taxable income over a six taxable
year period the portion of the tax loan reserve that exceeds the pre-1988 tax
loan loss reserve. The Bank will no longer be allowed to use the reserve method
for tax loan loss provisions, but would be allowed to use the experience method
of accounting for bad debts. There will be no future effect on net income from
the recapture because the taxes on these bad debts reserves has already been
accrued as a deferred tax liability.
The Bank's federal income tax returns have been audited through the year
ended September 30, 1992.
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For additional information, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Impact of New Accounting
Standards" and the financial statements and related notes appearing elsewhere
herein.
State Income Taxation
Under North Carolina law, the corporate income tax currently is 7.75% of
federal taxable income as computed under the Internal Revenue Code, subject to
certain prescribed adjustments. This rate will be reduced to 7.50% for 1997,
7.25% for 1998, 7.00% for 1999 and 6.9% for 2000 and thereafter. In addition,
for tax years beginning in 1991, 1992, 1993 and 1994, corporate taxpayers were
required to pay a surtax equal to 4%, 3%, 2% and 1%, respectively, of the state
income tax otherwise payable. An annual state franchise tax is imposed at a
rate of .15% applied to the greatest of the institutions (i) capital stock,
surplus and undivided profits, (ii) investment in tangible property in North
Carolina or (iii) appraised valuation of property in North Carolina.
For additional information regarding taxation, see Notes 1 and 9 of Notes
to Consolidated Financial Statements.
MANAGEMENT OF THE COMPANY
The Board of Directors of the Company consists of the same individuals who
serve as directors of the Bank. Their biographical information is set forth
under "Management of the Bank -- Directors." The Board of Directors of the
Company is divided into three classes. Directors of the Company will serve for
three year terms or until their successors are elected and qualified, with
approximately one-third of the directors being elected at each annual meeting of
stockholders, beginning with the first annual meeting of stockholders following
the Stock Conversion. Messrs. Vann and Gibbs have terms of office expiring at
the 1998 annual meeting, Messrs. Parker and Singleton have terms of office
expiring at the 1999 annual meeting, and Messrs. Howdy, Buckman and Holscher
have terms of office expiring at the 2000 annual meeting. Under the Company's
bylaws, no person over 80 years of age shall be eligible for election or
appointment to the Company's Board of Directors, and no director may serve after
the annual meeting of stockholders immediately following reaching 80 years of
age.
The following individuals hold the offices in the Company set forth below
opposite their names.
Name Title
---- -----
Thomas A. Vann President
William L. Wall Executive Vice President and Chief Operating Officer
Kristie W. Hawkins Treasurer and Controller
The executive officers of the Company are elected annually and hold office
until their respective successors have been elected and qualified or until
death, resignation or removal by the Board of Directors of the Company.
Since the formation of the Company, none of the executive officers,
directors or other personnel have received remuneration from the Company.
Information concerning the principal occupations and employment of the directors
and executive officers of the Company during the past five years is set forth
under "Management of the Bank -- Directors" and "-- Executive Officers Who Are
Not Directors." Executive officers and directors of the Company will be
compensated as described below under "Management of the Bank."
MANAGEMENT OF THE BANK
Directors
Because the Bank is a mutual savings bank, its members have elected its
Board of Directors. Upon completion of the Stock Conversion, the directors of
the Bank immediately prior to the Stock Conversion will
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continue to serve as directors of the Converted Bank and then the Commercial
Bank. Currently, the term of each director is one year, and all of the members
of the Board of Directors stand for election each year. This will continue to be
the case for the Commercial Bank following the Bank Conversion. Because the
Company will own all the issued and outstanding capital stock of the Commercial
Bank following the Conversion, the Board of Directors of the Company will elect
the directors of the Commercial Bank.
The following table sets forth certain information with respect to the
individuals who serve currently as members of the Bank's Board of Directors.
There are no arrangements or understandings between the Bank and any director
pursuant to which such person has been elected a director of the Bank, and no
director is related to any other director or executive officer by blood,
marriage or adoption.
<TABLE>
<CAPTION>
Age at
September 30,
Name 1996 Director Since Term to Expire
- ---- -------- -------------- --------------
<S> <C> <C> <C>
Edmund T. Buckman, Jr. 70 1975 1997
Linley H. Gibbs, Jr. 65 1985 1997
Fred N. Holscher 48 1985 1997
Frederick H. Howdy 64 1975 1997
Charles E. Parker, Jr. 60 1971 1997
Marshall T. Singleton 57 1990 1997
Thomas A. Vann 47 1979 1997
</TABLE>
Presented below is certain information concerning the directors of the
Bank. Unless otherwise stated, all directors have held the positions indicated
for at least the past five years.
Edmund T. Buckman, Jr. has been retired since 1994. Prior to his
retirement, Mr. Buckman was the owner of Buckman Auto Supply in Washington,
North Carolina.
Linley H. Gibbs, Jr. has been retired since 1992. Prior to his
retirement, Mr. Gibbs served as a general manager with Hamilton Beach, an
appliance manufacturing company in Washington, North Carolina.
Fred N. Holscher is a partner with the Washington, North Carolina law
firm of Rodman, Holscher, Francisco & Peck, P.A. and has been with the firm
since 1973.
Frederick H. Howdy is President of Drs. Freshwater and Howdy P.A., a
dental health care corporation of North Carolina. Prior to that, he was a
dentist in Washington, North Carolina for 36 years.
Charles E. Parker, Jr. is a Vice President of the Robinson Insurance
Agency in New Bern. He joined the agency in 1989.
Marshall T. Singleton has been a co-owner of B.E. Singleton & Sons, a
highway construction firm since 1960.
Thomas A. Vann joined the Bank in 1972 as Assistant Manager. Mr. Vann
was promoted to a number of positions prior to becoming President of the Bank in
1977.
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Executive Officers Who Are Not Directors
The following sets forth information with respect to executive
officers of the Bank who do not serve on the Board of Directors.
<TABLE>
<CAPTION>
Age at
September 30,
Name 1996 Title with the Bank
- ---- -------- -------------------
<S> <C> <C>
William L. Wall 50 Executive Vice President and Chief
Operating Officer
John B. Burgess, Sr. 60 Senior Vice President -- Commercial
Lending and Credit Administration
William R. Outland 59 Vice President -- Consumer Lending
Walter P. House 51 Vice President -- Mortgage
Operations
Sherry L. Correll 41 Vice President -- Savings and
Deposit Administration
Mary R. Boyd 46 Vice President -- Loan Servicing
Kristie W. Hawkins 31 Treasurer, Controller
</TABLE>
William L. Wall joined the Bank in 1993 as a Vice President and City
Executive in the Rocky Mount office. Mr. Wall was promoted in 1995 to Executive
Vice President and Chief Operating Officer. He also serves as the Bank's
Secretary. Prior to joining the Bank, Mr. Wall was Senior Vice President and
Chief Financial Officer of Pioneer Savings Bank in Rocky Mount, North Carolina.
John B. Burgess, Sr. joined the Bank in October, 1992 and currently
serves as Senior Vice President of Commercial Lending and Credit Administration.
Prior to joining the Bank, Mr. Burgess served as Executive Vice President of
Unity Bank in Rocky Mount, North Carolina.
William R. Outland has served as the Bank's Vice President of Consumer
Lending since he joined the Bank in 1983.
Walter P. House joined the Bank in 1990 and currently serves as Vice
President of Mortgage Operations.
Sherry L. Correll is currently the Vice President of Savings and
Deposit Administration. She joined the Bank in 1985.
Mary R. Boyd has been with the Bank since 1983 and currently serves as
a Vice President - Loan Servicing.
Kristie W. Hawkins joined the Bank in 1982. Prior to being promoted
to her current position of Controller and Treasurer, she served as the Bank's
Assistant Treasurer and Secretary as well as accounting department supervisor.
Committees of the Board of Directors
The Board of Directors of the Bank meets monthly and may have
additional special meetings. During the year ended September 30, 1996, the
Board met 14 times. No director attended fewer than 75% in the aggregate of the
total number of Board meetings held during the year ended September 30, 1996 and
the total number of meetings held by committees on which he served during such
fiscal year. The Bank's Board of Directors has standing Audit, Executive and
Nominating Committees.
The Board of Directors' Audit Committee consists of Directors Buckman,
Singleton and Parker, who serves as Chairperson. The Audit Committee did not
meet during the year ended September 30, 1996, but the full Board of Directors
met once as the Audit Committee during the year ended September 30, 1996. The
function of the Audit Committee is to examine and approve the audit report
prepared by the independent auditors of the Bank, to review
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and recommend the independent auditors to be engaged by the Bank, to review the
internal audit function and internal accounting controls, and to review and
approve audit policies.
The Board of Directors' Executive Committee consists of Directors
Vann, Holscher, Gibbs and Howdy who serves as Chairperson. The Executive
Committee, among other things, evaluates the compensation and benefits of the
directors, officers and employees, recommends changes, and monitors and
evaluates employee performance. The Executive Committee reports its evaluations
and findings to the full Board of Directors and all compensation decisions are
ratified by the full Board of Directors. Directors of the Bank who also are
officers of the Bank abstain from discussion and voting on matters affecting
their compensation. The Executive Committee is empowered to exercise all of the
authority of the Board when the Board is not in session. The Executive
Committee met seven times during the fiscal year ended September 30, 1996.
Board of Directors' Nominating Committee consists of Directors Howdy,
Holscher, Singleton and Vann who serves as Chairperson. The Committee met once
during the year ended September 30, 1996 for the purpose of considering
potential nominees to the Board of Directors. Following the Conversion, it is
expected that the Company's full Board of Directors will act as a nominating
committee for selecting the management nominees for election as directors of the
Company in accordance with the Company's Bylaws. In its deliberations, the
Board, functioning as a nominating committee, considers the candidate's
knowledge of the banking business and involvement in community, business and
civic affairs, and also considers whether the candidate would provide for
adequate representation of its market area.
In addition to the above listed committees, the Bank also has Funding,
CRA, Investment, Bonus, Expansion and Loan Committees.
Executive Compensation
The following table sets forth the cash and noncash compensation for
the last fiscal year awarded to or earned by the President. No other executive
officer of the Company earned salary and bonus in fiscal 1996 exceeding $100,000
for services rendered in all capacities to the Bank.
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------------
Name and Fiscal Other Annual All Other
Principal Position Year Salary Bonus Compensation (1) Compensation
- -------------------- ------ ------------ --------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Thomas A. Vann 1996 $135,000 $55,000 -- 12,675 (2)
President
</TABLE>
- --------------------
(1) Executive officers of the Bank receive indirect compensation in the form of
certain perquisites and other personal benefits. The amount of such
benefits received by the named executive officer in fiscal 1996 did not
exceed 10% of the executive officer's salary and bonus.
(2) Includes $4,469 in matching contributions under the Bank's 401(k) Plan and
$8,206 in Board of Directors and Committee fees.
Director Compensation
Each member of the Bank's Board of Directors receives a fee of $1,150 per
each regular and special Board meeting attended and $75 for each Board committee
meeting attended. Directors also will participate in certain benefit plans of
the Company and the Bank. See " -- Certain Benefit Plans and Agreements."
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Certain Benefit Plans and Agreements
In connection with the Stock Conversion, the Company's and the Bank's
Boards of Directors have approved certain stock incentive plans and employment
and severance and other agreements. In addition, the Bank has an existing
defined contribution plan and defined benefit plan which will remain in effect
after the Stock Conversion.
Basis for Awards of Benefits and Compensation. The Company's and the
Bank's Boards of Directors have evaluated and approved the terms of the
employment agreement, severance agreements, and other benefits described below.
In its review of the benefits and compensation of the executive officers and the
terms of the employment agreement and severance agreements, the Boards of
Directors considered a number of factors, including the experience, tenure and
ability of the executive officers, their performance for the Bank during their
tenure and the various legal and regulatory requirements regarding the levels of
compensation which may be paid to employees of savings associations.
Thrift Plan. The Bank maintains a defined contribution plan (the "Thrift
Plan"), which is designed to qualify under Sections 401(a) and 401(k) of the
Code. An employee is eligible to participate in the Thrift Plan on or after
having attained age 21 and having worked one year from the date of hire (or
during a calendar year). The Thrift Plan permits each participant to make
before-tax contributions, through regular salary reduction, in amounts ranging
between 1% and 15% of the participant's monthly salary. The Bank makes monthly
contributions, matching 50% of each participant's before-tax contributions (up
to 6%) of his or her compensation, subject to discrimination rules applicable to
highly compensated individuals. Participants are at all times 100% vested in
their contributions to the Thrift Plan. They become 25% vested in the employer
contributions upon completion of each of four years of service, provided that
they become 100% vested upon their termination of employment due to death,
disability or attainment of age 65. Benefits are paid at the time of a
participant's death, retirement, disability or termination of employment and,
under limited circumstances, may be withdrawn prior to the participant's
termination of service. Account balances are paid upon the participant's
election, either in a lump sum or in installments. Contributions are not
taxable to participating employees until such funds are distributed to them.
The earnings attributable to a participant's account accumulate tax free until
they are distributed to the participant or his or her beneficiary. The Thrift
Plan is being amended in connection with the Stock Conversion to allow
participants to direct that all or part of their account balances be invested in
Common Stock. Voting rights for such stock, to be held in trust for
participants, will be exercisable by the participants. The Thrift Plan is
intended to comply with all the rights and protection afforded employees
pursuant to the Employee Retirement Income Security Act of 1974, as amended.
Pension Plan. The Bank sponsors a defined benefit plan (the "Pension
Plan") in which employees who have one year of service and have reached age 21
are eligible to participate. Participating employees become 100% vested in
their right to benefits upon completing five years of service, except that
participants become 100% vested upon attaining age 65, regardless of years of
service. If vested, a participant in the Pension Plan will receive, after
completion of 30 or more years of service, an annual normal retirement benefit
at age 65 equal to the sum of (a) 37.5% of the participant's average salary over
his highest five years of compensation up to the "covered compensation level"
(as defined in the Pension Plan), plus (b) 52.5% of the participant's average
salary of his highest five years of compensation over the covered compensation
level. Upon termination of employment at or after age 65 before completion of
30 years of service, the retirement benefit will be multiplied by the ratio the
employee's actual years of service bear to 30 years. On an actuarially reduced
basis, the Pension Plan also provides for both early retirement benefits,
beginning at age 55, and death benefits. The Bank makes all contributions to
the Pension Plan. For the year ended September 30, 1996, the Pension Plan was
fully funded, and the Bank was not required to make any contribution. At
September 30, 1996, Mr. Vann had approximately 24 years of credited service
under the Pension Plan. As of September 30, 1996, the expected annual benefit
payable to Mr. Vann at normal retirement age (65) was $40,800.
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The following table illustrates annual pension benefits at age 65 under the
Pension Plan at various levels of compensation and years of service, assuming
100% vesting of benefits and retirement at September 30, 1996. All retirement
benefits illustrated in the table below are without regard to any Social
Security benefits to which a participant might be entitled. The Pension Plan is
not subject to offset for Social Security benefits.
<TABLE>
<CAPTION>
Years of Service
-----------------------------------------------
Average Final
Compensation 15 20 25 30 35
- ------------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
125,000 $30,700 $ 41,000 $ 51,200 $ 61,500 $ 61,500
150,000 37,300 49,700 62,200 74,600 74,600
175,000 43,900 58,500 73,100 87,700 87,700
200,000 50,400 67,200 84,100 100,900 100,900
225,000 57,000 76,000 95,000 114,000 114,000
250,000 63,600 84,700 105,900 127,100 127,100
300,000 76,700 102,200 127,800 153,400 153,400
</TABLE>
1996 Stock Option Plan. The Board of Directors of the Company intends
to submit the Option Plan for approval to stockholders at a meeting which is
expected to be held not earlier than six months following completion of the
Stock Conversion. No options shall be awarded under the Option Plan unless
stockholder approval is obtained.
The purpose of the Option Plan is to provide additional incentive to
directors and employees by facilitating their purchase of Common Stock. The
Option Plan will have a term of 10 years from the date of its approval by the
Company's stockholders, after which no awards may be made, unless the plan is
earlier terminated by the Board of Directors of the Company. Pursuant to the
Option Plan, a number of shares equal to 10% of the shares of Common Stock that
are issued in the Stock Conversion would be reserved for future issuance by the
Company, in the form of newly issued shares or treasury shares or shares held in
a grantor trust, upon exercise of stock options ("Options") or stock
appreciation rights ("SARs"). Options and SARs are collectively referred to
herein as "Awards." If Awards should expire, become unexercisable or be
forfeited for any reason without having been exercised or having become vested
in full, the shares of Common Stock subject to such Awards would be available
for the grant of additional Awards under the Option Plan, unless the Option Plan
shall have been terminated.
It is expected that the Option Plan will be administered by a committee
(the "Option Committee") of at least two directors of the Company who (i) are
designated by the Board of Directors and (ii) are Non-employee Directors within
the meaning of the federal securities laws. It is expected that the Option
Committee initially will consist of the full Board of Directors. The Option
Committee will select the employees to whom Awards are to be granted, the number
of shares to be subject to such Awards, and the terms and conditions of such
Awards (provided that any discretion exercised by the Option Committee must be
consistent with the terms of the Option Plan). Awards will be available for
grants to directors and key employees of the Company and any subsidiaries,
except that non-employee directors will not be eligible to receive discretionary
Awards. Although no specific award determinations have been made, consistent
with applicable regulations, if the Option Plan is implemented within one year
following completion of the Stock Conversion, no employee will receive Awards
covering more than 25% of the shares reserved for issuance under the Option
Plan, and non-employee directors will not receive awards individually exceeding
5% of the shares available under the MRP or 30% in the aggregate. The initial
grant of Options under the Option Plan is expected to occur on the date the
Option Plan receives stockholder approval.
It is intended that Options granted under the Option Plan will
constitute both incentive stock options (Options that afford favorable tax
treatment to recipients upon compliance with certain restrictions pursuant to
Section 422 of the Code and that do not result in tax deductions to the Company
unless participants fail to comply with Section 422 of the Code) ("ISOs"), and
Options that do not so qualify ("Non-ISOs"). The exercise price for Options may
not be less than 100% of the fair market value of the shares on the date of the
grant. The Option Plan permits the Option Committee to impose transfer
restrictions, such as a right of first refusal, on the Common Stock that
optionees may purchase. Awards may be transferred to family members or trusts
under specified circumstances,
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but may not otherwise be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will or by the laws of descent and
distribution.
No Option shall be exercisable after the expiration of ten years from
the date it is granted; provided, however, that in the case of any employee who
owns more than 10% of the outstanding Common Stock at the time an ISO is
granted, the option price for the ISO shall not be less than 110% of the fair
market value of the shares on the date of the grant, and the ISO shall not be
exercisable after the expiration of five years from the date it is granted. If
the Option Plan is implemented within one year after completion of the Stock
Conversion, Options are expected to become exercisable at the rate of 20% per
year, beginning one year from the date of grant. If an optionee dies or
terminates service due to disability while serving as an employee or non-
employee director, all unvested Options will become 100% vested and immediately
exercisable. If the Option Plan is implemented more than one year after the
completion of the Stock Conversion, (i) each Option is expected to become
exercisable at the rate of 33 1/3% per year, beginning one year from the grant
date, and (ii) the Options may also accelerate to 100% upon an optionee's
retirement or termination of service in connection with a change in control. An
otherwise unexpired Option shall, unless otherwise determined by the Option
Committee, cease to be exercisable upon (i) an employee's termination of
employment for "just cause" (as defined in the Option Plan), (ii) the date three
months after an employee terminates service for a reason other than just cause,
death, or disability, (iii) the date one year after an employee terminates
service due to disability, or (iv) the date two years after termination of such
service due to the employee's death. Options granted to non-employee directors
will automatically expire one year after termination of service on the Board of
Directors (two years in the event of death and disability).
An SAR may be granted in tandem with all or any part of any Option or
without any relationship to any Option. Whether or not an SAR is granted in
tandem with an Option, exercise of the SAR will entitle the optionee to receive,
as the Option Committee prescribes in the grant, all or a percentage of the
excess of the then fair market value of the shares of Common Stock subject to
the SAR at the time of its exercise over the aggregate exercise price of the
shares subject to the SAR was granted. Payment to the optionee may be made in
cash or shares of Common Stock, as determined by the Option Committee.
The Company will receive no monetary consideration for the granting of
Awards under the Option Plan, and will receive no monetary consideration other
than the Option exercise price for each share issued to optionees upon the
exercise of Options. The Option exercise price may be paid in cash or Common
Stock or a combination of cash and Common Stock. Upon an optionee's exercise of
any Option, the Company intends to pay the optionee a cash amount equal to any
dividends declared on the underlying shares between the date of grant and the
date of exercise of the Option. The exercise of Options and SARs will be
subject to such terms and conditions established by the Option Committee as are
set forth in a written agreement between the Option Committee and the optionee
(to be entered into at the time an Award is granted). In the event that the
fair market value per share of the Common Stock falls below the option price of
previously granted Options or SARs, the Option Committee will have the
authority, with the consent of the optionee, to cancel outstanding Options or
SARs and to reissue new Options or SARs at the then current fair market price
per share of the Common Stock.
At any time following consummation of the Stock Conversion, the Bank or
the Company may contribute sufficient funds to a grantor trust to purchase, and
such trust may purchase, a number of shares of Common Stock equal to 10% of the
shares issued in the Stock Conversion. Such shares would be held by the trust
for issuance to option holders upon the exercise of options in the event the
Option Plan is implemented. Whether such shares are purchased, and the timing
of such purchases, will depend on market and other conditions and the
alternative uses of capital available to the Company.
Employee Stock Ownership Plan. The Company's Board of Directors has
adopted an employee stock ownership plan ("ESOP"), effective as of October 1,
1996. Employees of the Company and its subsidiaries who have attained age 21
and completed one year of service will be eligible to participate in the ESOP,
provided that any employee who is employed full-time on the closing date of the
Stock Conversion will automatically become a participant on October 1, 1996.
The Company will submit an application to the IRS for a letter of determination
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as to the tax-qualified status of the ESOP. Although no assurances can be
given, the Company expects the ESOP to receive a favorable letter of
determination from the IRS.
The ESOP is to be funded by contributions made by the Company or the
Bank in cash or shares of Common Stock. The ESOP intends to borrow funds from
the Company in an amount sufficient to purchase 8% of the Common Stock issued in
the Stock Conversion. This loan will be secured by the shares of Common Stock
purchased and earnings thereon. Shares purchased with such loan proceeds will
be held in a suspense account for allocation among participants as the loan is
repaid. The Company expects to contribute sufficient funds to the ESOP to repay
such loan over a ten-year period, plus such other amounts as the Company's Board
of Directors may determine in its discretion.
Contributions to the ESOP and shares released from the suspense account
will be allocated among participants on the basis of their annual wages subject
to federal income tax withholding, plus any amounts withheld under a plan
qualified under Sections 125 or 401(k) of the Code and sponsored by the Company
or the Bank. Participants must be employed at least 500 hours in a plan year in
order to receive an allocation. Each participant's vested interest under the
ESOP is determined according to the following schedule: 0% for less than three
years of service with the Company or the Bank; 100% for three or more years of
service. For vesting purposes, a year of service means any plan year in which
an employee completes at least 1,000 hours of service (whether before or after
the ESOP's October 1, 1996 effective date). Vesting accelerates to 100% upon a
participant's attainment of age 65, death or disability or a change in control.
Forfeitures will be reallocated to participants on the same basis as other
contributions. Benefits are payable upon a participant's retirement, death,
disability or separation from service and will be paid in a lump sum in whole
shares of Common Stock (with cash paid in lieu of fractional shares). Benefits
paid to a participant in Common Stock that is not publicly traded on an
established securities market will be subject both to a right of first refusal
by the Company and to a put option by the participant. Dividends paid on
allocated shares are expected to be paid to participants, and dividends on
unallocated shares are expected to be used to repay the ESOP loan.
It is expected that the Company will administer the ESOP and that
Directors Gibbs, Holscher, and Howdy will be appointed as trustees of the ESOP
(the "ESOP Trustees"). The ESOP Trustees must vote all allocated shares held in
the ESOP in accordance with the instructions of the participants. Unallocated
shares and allocated shares for which no timely direction is received will be
voted by the ESOP Trustees in the same proportion as the participant-directed
voting of allocated shares.
Management Recognition Plan. The Company's Board of Directors intends
to submit the MRP for approval to stockholders at a meeting of the Company's
stockholders, which is expected to be held not earlier than six months following
completion of the Stock Conversion. The purpose of the MRP is to enable the
Company and the Bank to retain personnel of experience and ability in key
positions of responsibility. Those eligible to receive benefits under the MRP
will be such directors and key employees as are selected by a committee the
Company's Board of Directors (the "MRP Committee"). It is expected that the MRP
Committee will initially consist of the Company's full Board of Directors. The
Company's directors are expected to act by majority as trustees of the trust
associated with the MRP (the "MRP Trust"). The trustees of the MRP Trust (the
"MRP Trustees") will have the responsibility to hold and invest all funds
contributed to the MRP Trust. Shares held in the MRP Trust will be voted by
the MRP Trustees in the same proportion as the trustee of the Company's ESOP
trust votes Common Stock held therein, and will be distributed as the award
vests.
At any time following consummation of the Stock Conversion, the Bank or
the Company will contribute sufficient funds to the MRP Trust so that the MRP
Trust can purchase a number of shares of Common Stock equal to up to a 4% of the
number of shares of Common Stock issued in the Stock Conversion. Whether such
shares purchased will be purchased in the open market or newly issued by the
Company, and the timing of such purchases, will depend on market and other
conditions and the alternative uses of capital available to the Company. The
compensation expense for the Company for MRP awards will equal the fair market
value of the Common Stock on the date of the grant pro rated over the years
during which vesting occurs. The shares awarded pursuant to the MRP will be in
the form of awards which may be transferred to family members or trusts under
specified circumstances,
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but may not otherwise be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will or by the laws of descent and
distribution. If the MRP is implemented within one year following completion of
the Stock Conversion, the MRP awards will be payable over a period specified by
the Board of Directors, which shall not be faster than 20% per year, beginning
one year from the date of the award. Participants in the MRP may elect to defer
all or a percentage of their MRP awards that would have otherwise been
transferred to the participants upon the vesting of said awards. Dividends on
unvested shares will be held in the MRP trust for payment as vesting occurs. All
shares subject to an MRP award held by a participant whose service with the
Company or the Bank terminates due to death or disability, shall be deemed 100%
vested as of the participant's last day of service with the Bank or Company. If
the MRP is implemented more than one year after the closing of the Stock
Conversion, it is expected that the awards will also become 100% vested upon a
participant's retirement or termination of service with the Bank or the Company
in connection with a change in control of the Bank or the Company. If a
participant terminates employment for reasons other than death or disability (or
retirement or a change in control, if applicable), he or she forfeits all rights
to the allocated shares under restriction.
The Company's Board of Directors can terminate the MRP at any time,
and, if it does so, any shares not allocated will revert to the Company.
Although no specific award determinations have been made, if the MRP is
implemented within one year following consummation of the Stock Conversion, no
employee will receive MRP awards covering more than 25% of the shares reserved
for issuance under the MRP, and non-employee directors will not receive awards
individually exceeding 5% of the shares available under the MRP or 30% in the
aggregate. The initial grant of awards under the MRP is expected to occur on
the date the MRP receives stockholder approval. No awards shall be made prior
to stockholder approval of the MRP.
Director Retirement and Deferred Compensation Plans. The Bank has
entered into a Supplemental Income Agreement (as amended, the "SIA") with
Director Vann. Pursuant to the terms of the SIA, Mr. Vann may elect to defer a
portion of his cash compensation on a monthly basis. Upon the earlier of Mr.
Vann's (i) attainment of age 65 ("SIA Retirement Age") and (ii) the date of Mr.
Vann's retirement before the SIA Retirement Age but after attaining age 55 and
completing at least 29 years of service with the Bank ("SIA Early Retirement
Date"), the Bank shall pay Mr. Vann (in lieu of cash compensation otherwise
receivable) an amount equal to $19,250 ("SIA Retirement Amount") annually for a
period of 15 years. This amount shall be increased by 5% for every full year of
service after July 1, 1990, provided that there will be no increases in benefits
(i) after Mr. Vann reaches age 65 and (ii) for more than 10 years of additional
service.
In the event of Mr. Vann's death after becoming entitled to receive the
SIA Retirement Amount but before any payments have been made, his beneficiary
shall receive all remaining payments. In the event of Mr. Vann's death prior to
attaining age 65, the Bank will pay his beneficiary $19,250 annually for 15
years. In the event of Mr. Vann's termination of employment by reason other
than death, retirement upon attaining age 65, or upon the occurrence of the SIA
Early Retirement Date, Mr. Vann (or his beneficiary) shall be entitled to
receive, on the earlier of his attainment of age 65 and his death, a percentage
of the SIA Retirement Amount. This percentage will be based on Mr. Vann's full
years of service up to the date of his termination, beginning with 0% for less
than 20 years of service, and increased in 5% increments (from 50% to 100%) for
every year of service thereafter, starting with 50% at 20 years of service up to
100% for 29 years of service. In the event that Mr. Vann's employment
terminates for any reason other than his death, or retirement on the SIA Early
Retirement Date prior to the time he is first entitled to receive payments under
the SIA, Mr. Vann shall be entitled to receive such percentages of his SIA
Retirement Amount, as discussed above, when he reaches age 55 or on upon his
death, whichever is earlier. In the event that a termination of protected
employment occurs (i) on or before the SIA Retirement Date or SIA Early
Retirement Date and (ii) following a "change in control" (as defined below),
then Mr. Vann shall be deemed to have retired as of the SIA Early Retirement
Date, except that the SIA Early Retirement Date shall be deemed to be the date
of the change in control.
The Bank has entered into a Supplemental Income Plan Agreement (as
amended, the "SIPA") with Director Vann. Pursuant to the terms of SIPA, if Mr.
Vann retires from employment with the Bank either at or after the age of 65 (the
"Retirement Date") or at or after age 55 with at least 10 years of service with
the Bank after January 1, 1994 (the "Early Retirement Date"), the Bank shall
pay, in equal monthly installments, a minimum sum of $40,000
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("SIPA Retirement Amount") per annum for a period of 15 years. This amount shall
increase by 5% for each full year of service completed by Mr. Vann after January
1, 1994.
In the event of Mr. Vann's death after becoming entitled to receive
payments but before all payments have been made, the Bank will make the
remaining payments to his designated beneficiary. In the event of Mr. Vann's
death before the Retirement Date or Early Retirement Date, the Bank shall make
payments in the same manner as if he had retired. In the event that Mr. Vann
terminates his service for reasons other than (i) his retirement on the Early
Retirement Date, (ii) a change in control, (iii) "termination of protected
employment" (as defined below), or (iv) his death, and the termination occurs
before he is entitled to receive payments, Mr. Vann shall be entitled to receive
a percentage of his SIPA Retirement Amount upon his attainment of age 55 or
prior death. This percentage will be based on Mr. Vann's full years of service
after January 1, 1994, and increased in 10% increments (from 10% to 100%) for
every year of service after January 1994, starting with 10% at one year of
service up to 100% for 10 years of service. Payments shall be made in equal
monthly installments. In the event that, prior to the Retirement Date or Early
Retirement Date, a "termination of protected employment" occurs following a
change in control, Mr. Vann shall be deemed to have retired as of his Early
Retirement Date, and the Early Retirement Date shall be considered the date of
the change in control.
The Bank has entered into a Directors' Deferred Compensation Plan
Agreement (as amended, the "Agreement") with each of Directors Buckman, Howdy,
Gibbs, Parker, Singleton, Holscher and Vann (the "Directors"). Pursuant to the
terms of the Agreements, the Directors have agreed to defer the receipt of their
Directors' fees in the amount of $350 per month, beginning on January 1, 1994
and ending on December 31, 1998. In exchange for the agreement to defer fees,
the Directors shall receive certain retirement benefits (described below) upon
the later to occur of their 65th birthday and January 1, 1999 (the "Qualifying
Date"). Upon the Qualifying Date, the Bank shall pay a Director a certain
amount ("Deferred Amount") per month for 120 months. The Deferred Amount for
Directors Buckman, Howdy, Gibbs, Parker, Singleton, Holscher and Vann equals
$513, $942, $942, $1,533, $1,975, $4,088, and $4,818, respectively.
In the event of a Director's death after becoming entitled to receive
the Deferred Amount but before all of the payments have been made, the Bank
shall make the remaining payments to the Director's beneficiary. Similarly, in
the event of a Director's death while serving as a Director but before the
Qualifying Date, the Bank will pay the Deferred Amount per month for 120 months
to the Director's beneficiary. In the event that a Director voluntarily resigns
after January 1, 1996 but before the Qualifying Date, then the Director will
receive a percentage of the monthly Deferred Amount. This percentage varies
among the different Agreements, but is generally determined by a formula based
on the Director's full years of service after January 1, 1994. The Deferred
Amounts generally vest over a period of five to ten years under the different
Agreements. In the event that the Director's service is terminated on or before
the Qualifying Date for a reason other than death or voluntary resignation, then
he shall be paid the vested monthly Deferred Amount, and the Qualifying Date
shall be deemed to be the date of the Director's termination of service.
The Bank has entered into a Directors' Retirement Plan Agreement, as
amended ("Retirement Plan") with Directors Buckman, Howdy, Parker, Holscher,
Gibbs and Vann. Under the terms of the Retirement Plan, the Bank will pay a
director a monthly amount (the "Retirement Plan Amount") for a period of 120
months beginning upon the later to occur of the director's 70th birthday and
January 1, 1999 ("Retirement Plan Qualifying Date"). Under the Retirement Plan,
Directors Vann, Buckman, Howdy, Parker, Holscher and Gibbs each will receive
$2,000 per month.
In the event of a director's death prior to January 1, 1999, the Bank
will pay the Retirement Plan Amount on a monthly basis for a period of 120
months to the director's beneficiary. Similarly, in the event of a director's
death after becoming entitled to receive the payments under the Retirement Plan
but before all payments have been made, the Bank shall pay the remaining amounts
to the director's beneficiary. In the event that the director voluntarily
resigns prior to January 1, 1999, the director shall be entitled to receive a
percentage of the monthly Retirement Plan Amount. This percentage varies among
the different Retirement Plan agreements, but is generally determined by a
formula based on the director's full years of service after January 1, 1994.
The Retirement Plan Amounts generally vest over a period of five to ten years
under the different agreements. In the event that on or
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before the Retirement Plan Qualifying Date the director's service is terminated
for any reason within 24 months following a change in control, the Bank will pay
the director the monthly Retirement Plan Amount for a period of 120 months.
The Bank has entered into a deferred compensation agreement entitled
Director's Retirement Payment Agreement (as amended, the "Payment Agreement")
with Directors Buckman, Howdy, Gibbs, Parker, Holscher and Vann. Under the
terms of each Payment Agreement, a director deferred receipt of his director's
fees in an amount equivalent to $291.66 per month over a six-year period. In
addition, Mr. Vann has agreed to defer receipt of his director's fees in the
amount of $220.35 per month from September 1, 1995 until the end of his term as
a director. In exchange for the agreement to defer receipt of his director's
fees, a director will receive, upon the earlier of the director's 65th birthday
or termination of service as a director for any reason on or after attaining age
55, a certain amount ("Payment") per month for a period of 120 months.
Directors Buckman, Howdy, Gibbs, Parker, Holscher, and Vann will receive a
monthly Payment of $1,054, $1,726, $1,610, $2,748, $3,628, and $8,256,
respectively.
In the event of a director's death after becoming entitled to receive
monthly Payments but before all Payments have been made, the Bank will pay all
remaining amounts to the director's beneficiary. Similarly, in the event of the
director's death prior to the commencement of his monthly Payments, the Bank
will pay a monthly amount for 120 months to the director's beneficiary. In the
event that prior to the commencement of the monthly Payments a director's
service is terminated for any reason other than death, then the director will be
entitled to begin receiving his Payments (beginning on a date to be determined
by the Bank, but not later than the first day of the sixth month following the
month in which the director's 55th birthday, or if earlier, death, occurs).
With respect to all of the retirement and deferred compensation
arrangements discussed above, the timing of the first payments under the
agreements shall be determined by the Bank, provided that such payments shall
commence no later than the first day of the sixth month following the month in
which the event triggering the distribution occurred. In addition, each
arrangement provides that within ten business days after a change in control,
the Bank shall fund, or cause to be funded, a trust in an amount equal to the
present value of all benefits that may become payable under the respective
arrangements, unless the recipient of the benefits has provided a release of any
claims under the agreement. With respect to the above plans and agreements,
"change in control" generally refers to the acquisition, by any person or
entity, of the ownership or power to vote more than 25% of the Bank's or
Company's voting stock, the control of the election of a majority of the Bank's
or the Company's directors, or the exercise of a controlling influence over the
management or policies of the Bank or the Company. In addition, a change in
control occurs when, during any consecutive two-year period, directors of the
Company or the Bank at the beginning of such period ("Continuing Directors")
cease to constitute at least two-thirds of the Board of Directors of the Company
or the Bank, unless the election of replacement directors was approved by at
least two-thirds of the Continuing Directors then in office. "Termination of
protected employment" generally refers to an employee's termination of
employment without just cause, or the employee's voluntary termination of
employment for certain events which have not been consented to in advance by the
employee, including but not limited to a material reduction in base compensation
as in effect on the date of a change in control, the failure of the Bank to
maintain existing or substantially similar employee benefit plans, the
assignment of duties and responsibilities which are other than those normally
associated with the employee's position, a material reduction in the employee's
authority and responsibility, and the failure to elect or re-elect the employee
to the Board of Directors, if he has served on the Board during the term of the
applicable agreement or plan.
Employment Agreements. The Company and the Bank intend to enter into
employment agreements (the "Employment Agreements") under which Thomas A. Vann
(the "Employee") would serve as President of the Bank and President of the
Company. In such capacities, the Employee is responsible for overseeing all
operations of the Bank and the Company, and for implementing the policies
adopted by the Boards of Directors. Such Boards believe that the Employment
Agreements assure fair treatment of the Employee in his career with the Company
and the Bank by assuring him of some financial security. The proposed
Employment Agreements will require FDIC approval prior to becoming effective.
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The Employment Agreements will become effective on the date of
completion of the Stock Conversion and will provide for a term of three years,
with an annual base salary equal to the Employee's existing base salary rate in
effect on the date of Stock Conversion. On each anniversary date of the
commencement of the Employment Agreements, the term of the Employee's employment
will be extended for an additional one-year period beyond the then effective
expiration date, upon a determination by the Board of Directors that the
performance of the Employee has met the required performance standards and that
such Employment Agreements should be extended. The Employment Agreements
provide the Employee with a salary review by the Board of Directors not less
often than annually, as well as with inclusion in any discretionary bonus plans,
retirement and medical plans, customary fringe benefits, vacation and sick
leave. The Employment Agreements shall terminate upon the Employee's death, may
terminate upon the Employee's disability and is terminable by the Bank for "just
cause" (as defined in the Employment Agreements). In the event of termination
for just cause, no severance benefits are available. If the Company or the Bank
terminates the Employee without just cause, the Employee will be entitled to a
continuation of his salary and benefits from the date of termination through the
remaining term of the Employment Agreements plus an additional 12 month's salary
and, at the Employee's election, either continued participation in benefits
plans which the Employee would have been eligible to participate in through the
Employment Agreements' expiration date or the cash equivalent thereof. If the
Employment Agreements are terminated due to the Employee's "disability" (as
defined in the Employment Agreements), the Employee will be entitled to a
continuation of his salary and benefits through the date of such termination,
including any period prior to the establishment of the Employee's disability.
In the event of the Employee's death during the term of the Employment
Agreements, his estate will be entitled to receive his salary through the last
day of the calendar month in which the Employee's death occurred. The Employee
is able to voluntarily terminate his Employment Agreements by providing 90 days'
written notice to the Boards of Directors of the Bank and the Company, in which
case the Employee is entitled to receive only his compensation, vested rights,
and benefits up to the date of termination.
In the event of (i) the Employee's involuntary termination of
employment other than for "just cause" during the period beginning six months
before a change in control and ending on the later of the second anniversary of
the change in control or the expiration date of the Employment Agreements (the
"Protected Period"), (ii) the Employee's voluntary termination within 90 days of
the occurrence of certain specified events occurring during the Protected Period
which have not been consented to by the Employee, or (iii) the Employee's
voluntary termination of employment for any reason within the 30-day period
beginning on the date of the change in control, the Employee will be paid within
10 days of such termination (or the date of the change in control, whichever is
later) an amount equal to the difference between (i) 2.99 times his "base
amount," as defined in Section 280G(b)(3) of the Internal Revenue Code, and (ii)
the sum of any other parachute payments, as defined under Section 280G(b)(2) of
the Internal Revenue Code, that the Employee receives on account of the change
in control. "Change in control" generally refers to the acquisition, by any
person or entity, of the ownership or power to vote more than 25% of the Bank's
or Company's voting stock, the control of the election of a majority of the
Bank's or the Company's directors, or the exercise of a controlling influence
over the management or policies of the Bank or the Company. In addition, under
the Employment Agreements, a change in control occurs when, during any
consecutive two-year period, directors of the Company or the Bank at the
beginning of such period cease to constitute two-thirds of the Board of
Directors of the Company or the Bank, unless the election of replacement
directors was approved by a two-thirds vote of the initial directors then in
office. The Employment Agreement with the Bank provides that within 10 business
days of a change in control, the Bank shall fund, or cause to be funded, a trust
in the amount of 2.99 times the Employee's base amount, that will be used to pay
the Employee amounts owed to him. The aggregate payment that would be made to
Mr. Vann assuming his termination of employment under the foregoing
circumstances at September 30, 1996 would have been approximately $412,620.
These provisions may have an anti-takeover effect by making it more expensive
for a potential acquiror to obtain control of the Company. For more
information, see "Certain Anti-Takeover Provisions in the Certificate of
Incorporation and Bylaws -- Additional Anti-Takeover Provisions." In the event
that the Employee prevails over the Company and the Bank, or obtains a written
settlement, in a legal dispute as to the Employment Agreement, he will be
reimbursed for his legal and other expenses.
Change-in-Control Protective Agreements. The Bank intends to enter
into severance agreements (the "Severance Agreements") with Officers Boyd,
Correll, Hawkins, House, and Outland (collectively, the "Employees"). The
Severance Agreements will have a term beginning on the date of completion of the
Stock Conversion and ending
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on the earlier of (a) 12 months after the date of completion of the Stock
Conversion, and (b) the date on which one of the Employees terminates employment
with the Bank, provided that an Employee shall be entitled to collect severance
benefits under the Severance Agreement in the event of the Employee's (a)
voluntary termination of employment (i) within 30 days following a change in
control or (ii) within 90 days of certain specified events that both occur
during the Protected Period and constitute Good Reason, or (b) involuntary
termination of employment for any reason other than "just cause" during the
Protected Period. "Change in control," "Good Reason," and "Protected Period"
have the same meaning under the Severance Agreements and the Employment
Agreements (see above). On each annual anniversary date from the date of
commencement of the Severance Agreements, the term of the Severance Agreements
may be extended for additional one-year periods beyond the then effective
expiration date upon a determination by the Board of Directors that the
performance of these individuals has met the required performance standards and
that such Severance Agreements should be extended.
In the event an Employee becomes entitled to receive severance
benefits, the Employee will be paid within 10 days of the later of his or her
last day of employment and a change in control. Such amount shall be equal to
the difference between (i) a number (either 0.5 or 1.0) times his or her "base
amount" as defined in Section 280G(b)(3) of the Internal Revenue Code, and (ii)
the sum of any other parachute payments, as defined under Section 280G(b)(2)
of the Internal Revenue Code, that he or she receives on account of the change
in control.
The Severance Agreements with the Bank provide that within 10 business
days of a change in control, the Bank shall fund, or cause to be funded, a trust
in the amount necessary to pay amounts owed to the Employees as a result of the
change in control. The amount to be paid to an Employee from this trust upon
his or her termination is determined according to the procedures outlined in
the Severance Agreements, and any money not paid to the Employee is returned to
the Bank.
The aggregate payments that would be made to Officers Boyd, Correll,
Hawkins, House, and Outland, assuming termination of employment under the
foregoing circumstances at September 30, 1996 would have been approximately
$170,406. These provisions may have an anti-takeover effect by making it more
expensive for a potential acquiror to obtain control of the Company. For more
information, see "Certain Anti-Takeover Provisions in the Charter and Bylaws --
Additional Anti-Takeover Provisions." In the event that one of these Employees
prevails over the Bank in a legal dispute as to the Severance Agreement, he or
she will be reimbursed for legal and other expenses.
Transactions with Management
The Bank offers loans to its directors and officers. These loans
currently are made in the ordinary course of business with the same collateral,
interest rates and underwriting criteria as those of comparable transactions
prevailing at the time and do not involve more than the normal risk of
collectibility or present other unfavorable features. Under current law, the
Bank's loans to directors and executive officers are required to be made on
substantially the same terms, including interest rates, as those prevailing for
comparable transactions and must not involve more than the normal risk of
repayment or present other unfavorable features. Furthermore, all loans to such
persons must be approved in advance by a disinterested majority of the Board of
Directors. At September 30, 1996, the Bank's loans to directors and executive
officers totaled $877,000, or 4.8% of the Bank's retained income, at that date.
THE CONVERSION
The Board of Directors of the Bank and the Administrator have approved
the Plan, subject to the Plan's approval by the members of the Bank entitled to
vote on the matter and subject to the satisfaction of certain other conditions.
Such approval by the Administrator, however, does not constitute a
recommendation or endorsement of the Plan.
General
On September 19, 1996, the Board of Directors of the Bank unanimously
adopted, subject to approval by the Administrator and the members of the Bank,
and to the nonobjection by the FDIC, the Plan, pursuant to which
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the Bank would convert from a North Carolina-chartered mutual savings bank to
a North Carolina-chartered stock savings bank, and immediately thereafter
convert to a North Carolina commercial bank under the name "NewSouth Bank" as a
wholly owned subsidiary of the Company. The Administrator has approved the Plan
subject to, among other things, approval of the Plan by the members of the Bank.
In addition, the FDIC has issued its conditional non-objection to the Plan and
the Stock Conversion. A Special Meeting of the Bank's members has been called
for the purpose of approving the Plan, which meeting is to be held on
_____________, 1997.
The Stock Conversion will be accomplished through the amendment of the
Bank's existing North Carolina mutual Certificate of Incorporation and Bylaws to
read in the form of a North Carolina stock Certificate of Incorporation and
Bylaws to authorize the issuance of capital stock by the Converted Bank, the
issuance of all the Converted Bank's capital stock to be outstanding upon
consummation of the Stock Conversion to the Company and the offer and sale of
the Common Stock of the Company. Upon issuance of the Converted Bank's shares
of capital stock to the Company, the Converted Bank will be a wholly owned
subsidiary of the Company. Immediately following consummation of the Stock
Conversion, the Board of Directors of the Bank intends to effectuate the Bank
Conversion by converting the Converted Bank to the Commercial Bank. Upon
completion of the Bank Conversion, the Commercial Bank will be a wholly owned
subsidiary of the Company.
The Company has received approval from the Federal Reserve Board to
become the holding company of the Converted Bank subject to the satisfaction of
certain conditions and to acquire all of the common stock of the Converted Bank
to be issued in the Stock Conversion in exchange for at least 50% of the net
proceeds from the sale of Common Stock in the Stock Conversion. The Stock
Conversion will be effected only upon completion of the sale of all of the
shares of Common Stock to be issued by the Company pursuant to the Plan. The
Bank has received approval from the Administrator and the Commission, subject to
certain conditions, of the conversion of the Converted Bank to a North Carolina
commercial bank, and the Company has received Federal Reserve Board approval of
the Company's continued ownership of 100% of the stock of the Commercial Bank
following the Bank Conversion.
The aggregate purchase price of the Common Stock to be issued in the
Stock Conversion will be within the Estimated Valuation Range of between
$26,775,000 and $36,225,000, which may be increased to $41,658,750, based upon
an independent appraisal of the estimated pro forma market value of the Common
Stock prepared by Ferguson. All shares of the Common Stock to be issued and
sold in the Stock Conversion will be sold at the same price. The independent
appraisal will be updated, if necessary, and the final price of the shares of
the Common Stock will be determined at the completion of the Subscription and
Community Offerings. Ferguson is experienced in the valuation and appraisal of
financial institutions. For additional information, see " -- Stock Pricing and
Number of Shares to be Issued."
The following is a brief summary of material 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 any office of the Bank
and at the office of the Administrator. The Plan is also filed as an exhibit to
the Registration Statement of which this Prospectus is a part, copies of which
may be obtained from the SEC. See "Additional Information."
Offering of Common Stock
Under the Plan, the Company is offering shares of the Common Stock
first to the Bank's Eligible Account Holders, second to the ESOP, third to
Supplemental Eligible Account Holders and fourth to its Other Members who are
not Eligible Account Holders or Supplemental Eligible Account Holders in the
Subscription Offering. Subscription Rights received in any of the foregoing
categories will be subordinated to the Subscription Rights received by those in
a prior category, with the exception that any shares of Common Stock sold in
excess of the maximum of the Estimated Valuation Range may first be sold to the
ESOP. To the extent shares remain available for purchase after the Subscription
Offering, the Company may offer any such remaining shares to the general public
in the Community Offering. In the Community Offering, preference will be given
to natural persons and trusts of natural persons who are permanent residents of
the Local Community. The term "resident" as used in relation to
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the preference afforded natural persons in the Local Community means any natural
person who occupies a dwelling within the Local Community, has an intention to
remain within the Local Community for a period of time (manifested by
establishing a physical, ongoing, nontransitory presence within the Local
Community) and continues to reside in the Local Community at the time of the
Subscription and Community Offerings. The Bank may utilize deposit or loan
records or such other evidence provided to it to make the determination whether
a person is residing in the Local Community. To the extent the person is a
corporation or other business entity, the principal place of business or
headquarters shall be within the Local Community. To the extent the person is a
personal benefit plan, the circumstances of the beneficiary shall apply with
respect to this definition. In the case of all other benefit plans,
circumstances of the beneficiary shall be examined for purposes of this
definition. In all cases, however, such determination shall be in the sole
discretion of the Bank. The occurrence of the Community Offering is subject to
the availability of shares of the Common Stock for purchase after satisfaction
of all subscriptions in the Subscription Offering. Additionally, all purchases
in the Community Offering are subject to the maximum and minimum purchase
limitations set forth in the Plan and the right of the Company to reject any
such orders, in whole or in part.
As part of the Community Offering, the Plan provides that, if feasible,
all shares of Common Stock not purchased in the Subscription and Community
Offerings, if any, may be offered for sale to the general public in a Syndicated
Community Offering through selected dealers to be formed and managed by Trident
Securities.
If the Community Offering is determined not to be feasible, the Bank
will immediately consult with the regulatory authorities to determine the most
viable alternative available to effect the completion of the Stock Conversion.
Should no viable alternative exist, the Bank may terminate the Stock Conversion
with the concurrence of the FDIC and the Administrator. The Plan provides that
the Conversion must be completed within 12 months after approval of the Plan at
the Special Meeting, which time period may be extended up to an additional 12
months by amendment to the Plan. In the event that the Stock Conversion is not
effected, the Bank will remain a North Carolina-chartered mutual savings bank,
all subscription funds will be promptly returned to subscribers with interest
earned thereon and all withdrawal authorizations will be cancelled. The
completion of the Subscription and Community Offerings are subject to market
conditions and other factors beyond the Bank's control. No assurance can be
given as to the length of time after approval of the Plan at the Special Meeting
that will be required to complete the sale of the Common Stock to be offered in
the Stock Conversion. If delays are experienced, significant changes may occur
in the estimated pro forma market value of the Company and the Converted Bank
(and Commercial Bank) upon consummation of the Stock Conversion, together with
corresponding changes in the offering price and the net proceeds realized from
the sale of the Common Stock. The Bank would also incur substantial additional
printing, legal and accounting expenses in completing the Stock Conversion. In
the event the Stock Conversion is terminated, the Bank would be required to
charge all Stock Conversion expenses against current income.
Business Purposes
The Bank's Board of Directors has formed the Company to serve upon
consummation of the Conversion as a holding company with the Converted Bank
(and, following the Bank Conversion, the Commercial Bank) as its subsidiary.
The portion of the net proceeds from the sale of the Common Stock in the Stock
Conversion to be distributed to the Converted Bank (and the Commercial Bank) by
the Company will substantially increase the Converted Bank's (and the Commercial
Bank's) capital position which will in turn increase the amount of funds
available for lending and investment and provide greater resources to support
both current operations and future expansion by the Commercial Bank, although
there are no current agreements or understandings for such expansion. The
holding company structure will provide greater flexibility than the Bank alone
would have for diversification of business activities and geographic expansion.
Management believes that this increased capital and operating flexibility will
enable the Commercial Bank to compete more effectively with other types of
financial services organizations. In addition, the Conversion will also enhance
the future access of the Company and the Commercial Bank to the capital markets.
The Bank's Board of Directors has undertaken the Bank Conversion to
allow the Bank to continue to pursue its expanding lines of business. The Bank
intends to emphasize commercial real estate, commercial business and consumer
loans. See "Summary -- Home Savings Bank, SSB" and "Risk Factors -- Risks
Related to Commercial
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Business and Consumer Lending." This strategy can be more effectively developed
if the Bank operated under regulatory requirements applicable to a North
Carolina commercial bank rather than a North Carolina-chartered savings bank.
See "Regulation -- Depository Institution Regulation."
After completion of the Stock Conversion, the unissued Common Stock and
preferred stock authorized by the Company's Certificate of Incorporation will
permit the Company, subject to market conditions, to raise additional equity
capital through further sales of securities and to issue securities in
connection with possible acquisitions. At the present time, the Company has no
plans with respect to additional offerings of securities, other than the
issuance of additional shares under the MRP or Option Plan, if implemented.
Following completion of the Stock Conversion, the Company also will be able to
use stock-related incentive programs to attract and retain executive and other
personnel for itself and its subsidiaries. See "Management of the Bank --
Certain Benefit Plans and Agreements."
Effect of Conversion to Stock Form on Depositors and Borrowers of the Bank
General. Each depositor in a mutual savings institution such as the
Bank has both a deposit account and a pro rata ownership interest in the
retained earnings of that institution based upon the balance in his or her
deposit account. However, this ownership interest is tied to the depositor's
account and has no tangible market value separate from such deposit account.
Any other depositor who opens a deposit account obtains a pro rata interest in
the retained earnings of the institution without any additional payment beyond
the amount of the deposit. A depositor who reduces or closes his or her account
receives a portion or all of the balance in the account but nothing for his or
her ownership interest, which is lost to the extent that the balance in the
account is reduced.
Consequently, depositors normally do not have a way to realize the
value of their ownership, which has realizable value only in the unlikely event
that the mutual institution is liquidated. In such event, the depositors of
record at that time, as owners, would share pro rata in any residual retained
earnings after other claims are paid.
Upon consummation of the Stock Conversion, permanent nonwithdrawable
capital stock will be created to represent the ownership of the institution.
The stock is separate and apart from deposit accounts and is not and cannot be
insured by the FDIC. Transferable certificates will be issued to evidence
ownership of the stock, which will enable the stock to be sold or traded, if a
purchaser is available, with no effect on any account held in the Bank. Under
the Plan, all of the capital stock of the Converted Bank will be acquired by the
Company in exchange for a portion of the net proceeds from the sale of the
Common Stock in the Stock Conversion. The Common Stock will represent an
ownership interest in the Company and will be issued upon consummation of the
Stock Conversion to persons who elect to participate in the Stock Conversion by
purchasing the shares being offered.
Continuity. During the Conversion process, the normal business of the
Bank of accepting deposits and making loans will continue without interruption.
The Converted Bank will continue to be subject to regulation by the
Administrator and the FDIC, and the Commercial Bank will be subject to
regulation by the Commission and the FDIC, and FDIC insurance of accounts will
continue without interruption. After the Conversion, the Converted Bank and the
Commercial Bank will continue to provide services for depositors and borrowers
under current policies and by its present management and staff.
The Board of Directors serving the Bank at the time of the Conversion
will serve as the Board of Directors of the Converted Bank, and then the
Commercial Bank after the Bank Conversion. The Board of Directors of the
Company will consist of the individuals currently serving on the Board of
Directors of the Bank. All officers of the Bank at the time of the Conversion
will retain their positions with the Converted Bank, and then the Commercial
Bank, after the Conversion.
Voting Rights. Upon the completion of the Conversion, depositor and
borrower members as such will have no voting rights in the Converted Bank, the
Commercial Bank or the Company and, therefore, will not be able to elect
directors of the Converted Bank, the Commercial Bank or the Company or to
control their affairs. Currently these rights are accorded to depositors of the
Bank. Subsequent to the Stock Conversion, voting rights will be vested
exclusively in the stockholders of the Company which, in turn, will own all of
the stock of the Converted Bank and,
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following the Bank Conversion, the Commercial Bank. Each holder of Common Stock
shall be entitled to vote on any matter to be considered by the stockholders of
the Company, subject to the provisions of the Company's Certificate of
Incorporation.
After the Bank Conversion, holders of Savings Accounts in and obligors
on loans of the Converted Bank and the Commercial Bank will not have voting
rights in the Commercial Bank. Exclusive voting rights with respect to the
Company shall be vested in the holders of the Common Stock. Holders of Savings
Accounts in and obligors on loans of the Converted Bank and the Commercial Bank
will not have any voting rights in the Company except and to the extent that
such persons become stockholders of the Company, and the Company will have
exclusive voting rights with respect to the Converted Bank's and the Commercial
Bank's capital stock.
Deposit Accounts and Loans. The Bank's deposit accounts, the balances
of individual accounts and existing federal deposit insurance coverage will not
be affected by the Conversion. Furthermore, the Conversion will not affect the
loan accounts, the balances of these accounts and the obligations of the
borrowers under their individual contractual arrangements with the Bank.
Tax Effects. The Bank has received an opinion from its special
counsel, Housley Kantarian & Bronstein, P.C., Washington, D.C., as to the
material federal income tax consequences of the Conversion to the Bank and the
Commercial Bank, and as to the generally applicable material federal income tax
consequences of the Conversion to the Bank's account holders and to persons who
purchase Common Stock in the Stock Conversion. The opinion provides that the
Conversion will constitute one or more reorganizations for federal income tax
purposes under Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as
amended ("Internal Revenue Code"). Among other things, the opinion also
provides that: (i) no gain or loss will be recognized by the Bank in its mutual
or stock form by reason of the Stock Conversion; (ii) no gain or loss will be
recognized by its account holders upon the issuance to them of accounts in the
Converted Bank in stock form immediately after the Stock Conversion, in the same
dollar amounts and on the same terms and conditions as their accounts at the
Bank immediately prior to the Stock Conversion; (iii) the tax basis of each
account holder's interest in the liquidation account will be equal to the value,
if any, of that interest; (iv) the tax basis of the Common Stock purchased in
the Stock Conversion will be equal to the amount paid therefor increased, in the
case of Common Stock acquired pursuant to the exercise of Subscription Rights,
by the fair market value, if any, of the Subscription Rights exercised; (v) the
holding period for the Common Stock purchased in the Stock Conversion will
commence upon the exercise of such holder's Subscription Rights and otherwise on
the day following the date of such purchase; (vi) gain or loss will be
recognized to account holders upon the receipt of liquidation rights or the
receipt or exercise of Subscription Rights in the Stock Conversion, to the
extent such liquidation rights and Subscription Rights are deemed to have value,
as discussed below; and (vii) as a result of the recently enacted Public Law
104-188, the Bank and its successors (including the Converted Bank and the
Commercial Bank) will be required to recapture the applicable excess reserves
into gross income ratably over a six taxable year period. The applicable excess
reserves are the excess, if any, of (1) the balance of its reserves as of the
close of its last taxable year beginning before January 1, 1996, over (2) the
greater of the balance of (a) its pre-1988 reserves, or (b) what the Bank's
reserves would have been at the close of its last taxable year beginning before
January 1, 1996, had the Bank always used the experience method (the six-year
average method).
The opinion of Housley Kantarian & Bronstein, P.C. is based in part
upon, and subject to the continuing validity in all material respects through
the date of the Conversion of, various representations of the Bank and upon
certain assumptions and qualifications, including that the Conversion is
consummated in the manner and according to the terms provided in the Plan. Such
opinion is also based upon the Internal Revenue Code, regulations now in effect
or proposed thereunder, current administrative rulings and practice and judicial
authority, all of which are subject to change and such change may be made with
retroactive effect. Unlike private letter rulings received from the Internal
Revenue Service ("IRS"), an opinion is not binding upon the IRS and there can be
no assurance that the IRS will not take a position contrary to the positions
reflected in such opinion, or that such opinion will be upheld by the courts if
challenged by the IRS.
Housley Kantarian & Bronstein, P.C. has advised the Bank that an
interest in a liquidation account has been treated by the IRS, in a series of
private letter rulings which do not constitute formal precedent, as having
nominal,
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if any, fair market value and therefore it is likely that the interests in the
liquidation account established by the Bank as part of the Stock Conversion will
similarly be treated as having nominal, if any, fair market value. Accordingly,
it is likely that such depositors of the Bank who receive an interest in such
liquidation account established by the Bank pursuant to the Stock Conversion
will not recognize any gain or loss upon such receipt.
Housley Kantarian & Bronstein, P.C. has further advised the Bank that
the federal income tax treatment of the receipt of Subscription Rights pursuant
to the Stock Conversion is uncertain, and recent private letter rulings issued
by the IRS have been in conflict. For instance, the IRS adopted the position in
one private ruling that Subscription Rights will be deemed to have been received
to the extent of the minimum pro rata distribution of such rights, together with
the rights actually exercised in excess of such pro rata distribution, and with
gain recognized to the extent of the combined fair market value of the pro rata
distribution of Subscription Rights plus the Subscription Rights actually
exercised. Persons who do not exercise their Subscription Rights under this
analysis would recognize gain upon receipt of rights equal to the fair market
value of such rights, regardless of exercise, and would recognize a
corresponding loss upon the expiration of unexercised rights that may be
available to offset the previously recognized gain. Under another IRS private
ruling, Subscription Rights were deemed to have been received only to the extent
actually exercised. This private ruling required that gain be recognized only
if the holder of such rights exercised such rights, and that no loss be
recognized if such rights were allowed to expire unexercised. There is no
authority that clearly resolves this conflict among these private rulings, which
may not be relied upon for precedential effect. However, based upon express
provisions of the Internal Revenue Code and in the absence of contrary
authoritative guidance, Housley Kantarian & Bronstein, P.C. has provided in its
opinion that gain will be recognized upon the receipt rather than the exercise
of Subscription Rights. Further, also based upon a published IRS ruling and
consistent with recognition of gain upon receipt rather than exercise of the
Subscription Rights, Housley Kantarian & Bronstein, P.C. has provided in its
opinion that the subsequent exercise of the Subscription Rights will not give
rise to gain or loss. Regardless of the position eventually adopted by the IRS,
the tax consequences of the receipt of the Subscription Rights will depend, in
part, upon their valuation for federal income tax purposes.
If the Subscription Rights are deemed to have a fair market value, the
receipt of such rights will be taxable to Eligible Account Holders, Supplemental
Eligible Account Holders and other eligible members who exercise their
Subscription Rights, even though such persons would have received no cash from
which to pay taxes on such taxable income. The Bank could also recognize a gain
on the distribution of such Subscription Rights in an amount equal to their
aggregate value. In the opinion of Ferguson, whose opinion is not binding upon
the IRS, the Subscription Rights do not have any value, based on the fact that
such rights are acquired by the recipients without cost, are non-transferable
and of short duration and afford the recipients the right only to purchase
shares of the Common Stock at a price equal to its estimated fair market value,
which will be the same price as the price paid by purchasers in the Community
Offering for unsubscribed shares of Common Stock. Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members are encouraged to
consult with their own tax advisors as to the tax consequences in the event that
the Subscription Rights are deemed to have a fair market value. Because the
fair market value, if any, of the Subscription Rights issued in the Stock
Conversion depends primarily upon the existence of certain facts rather than the
resolution of legal issues, Housley Kantarian & Bronstein, P.C., has neither
adopted the opinion of Ferguson as its own nor incorporated such opinion of
Ferguson in its opinion issued in connection with Conversion.
The Bank has also obtained an opinion from Coopers & Lybrand L.L.P. to
the effect that the tax effects of the Conversion under North Carolina tax laws
will be substantially the same as described above with respect to federal income
tax laws.
THE FEDERAL AND STATE INCOME TAX DISCUSSION SET FORTH ABOVE DOES NOT
PURPORT TO CONSIDER ALL ASPECTS OF FEDERAL AND STATE INCOME TAXATION WHICH MAY
BE RELEVANT TO EACH ELIGIBLE ACCOUNT HOLDER, SUPPLEMENTAL ACCOUNT HOLDER AND
OTHER MEMBER ENTITLED TO SPECIAL TREATMENT UNDER THE INTERNAL REVENUE CODE, SUCH
AS TRUSTS, INDIVIDUAL RETIREMENT ACCOUNTS, OTHER EMPLOYEE BENEFIT PLANS,
INSURANCE COMPANIES AND ELIGIBLE ACCOUNT HOLDERS, SUPPLEMENTAL ELIGIBLE ACCOUNT
HOLDERS AND OTHER MEMBERS WHO ARE NOT CITIZENS OR RESIDENTS
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OF THE UNITED STATES. DUE TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH
ELIGIBLE ACCOUNT HOLDER, SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER AND OTHER MEMBER
IS URGED TO CONSULT HIS OR HER OWN TAX AND FINANCIAL ADVISOR AS TO THE EFFECT OF
SUCH FEDERAL AND STATE INCOME TAX CONSEQUENCES ON HIS OR HER OWN PARTICULAR
FACTS AND CIRCUMSTANCES, INCLUDING THE RECEIPT AND EXERCISE OF SUBSCRIPTION
RIGHTS, AND ALSO AS TO ANY OTHER TAX CONSEQUENCES ARISING OUT OF THE CONVERSION.
Liquidation Account. In the unlikely event of a complete liquidation
of the Bank in its present mutual form, each holder of a deposit account in the
Bank would receive his pro rata share of any assets of the Bank remaining after
payment of claims of all creditors (including the claims of all depositors to
the withdrawal value of their accounts). His pro rata share of such remaining
assets would be the same proportion of such assets as the value of his deposit
account was to the total of the value of all deposit accounts in the Bank at the
time of liquidation.
After the Stock Conversion, each deposit account holder on a complete
liquidation would have a claim of the same general priority as the claims of all
other general creditors of the Bank. Therefore, except as described below, his
claim would be solely in the amount of the balance in his deposit account plus
accrued interest. He would have no interest in the value of the Bank above that
amount.
The Plan provides for the establishment, upon the completion of the
Stock Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal to
the net worth of the Bank as of the date of its latest statement of financial
condition contained in the final Prospectus. Each Eligible Account Holder (a
person with a deposit account in the Bank on June 30, 1992) and each
Supplemental Eligible Account Holder (a person with a qualifying deposit in the
Bank on ______________, 1996) would be entitled, on a complete liquidation of
the Converted Bank (or the Commercial Bank) after completion of the Stock
Conversion, to an interest in the liquidation account. Each Eligible Account
Holder would have an initial interest in such liquidation account for each
deposit account held in the Bank on June 30, 1992 and each Supplemental Eligible
Account Holder would have an initial interest in such liquidation account for
each qualifying deposit held in the Bank on ______________, 1996. The interest
as to each qualifying deposit account would be in the same proportion of the
total liquidation account as the balance of such qualifying deposit account was
to the balance in all deposit accounts of Eligible Account Holders and
Supplemental Eligible Account Holders on such date. However, if the amount in
the qualifying deposit account on any annual closing date (September 30) of the
Bank subsequent to the relevant eligibility date is less than the amount in such
account on the relevant eligibility date, or any subsequent closing date, then
the Eligible Account Holder's or Supplemental Eligible Account Holder's interest
in the liquidation account would be reduced from time to time by an amount
proportionate to any such reductions, and such interest would cease to exist if
he ceases to maintain an account at the Converted Bank or Commercial Bank that
has the same Social Security number as appeared on his account(s) at the
relevant eligibility date. The interest in the liquidation account would never
be increased, notwithstanding any increase in the related deposit account after
the Stock Conversion.
Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders were satisfied would
be distributed to the entity or persons holding the Bank's capital stock at that
time.
The Bank Conversion shall not be deemed to be a complete liquidation of
the Converted Bank for purposes of the distribution of the liquidation account.
Upon consummation of the Bank Conversion, the liquidation account, and all
rights and obligations of the Converted Bank in connection therewith, shall be
assumed by the Commercial Bank.
A merger, consolidation, sale of bulk assets or similar combination or
transaction with an FDIC-insured institution in which the Bank is not the
surviving insured institution would not be considered to be a "liquidation"
under which distribution of the liquidation account could be made. In such a
transaction, the liquidation account would be assumed by the surviving
institution.
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The creation and maintenance of the liquidation account will not
restrict the use or application of any of the capital accounts of the Bank,
except that the Bank may not declare or pay a cash dividend on, or repurchase
any of, its capital stock if the effect of such dividend or repurchase would be
to cause its retained earnings to be reduced below the aggregate amount then
required for the liquidation account.
Subscription Rights
Nontransferable Subscription Rights to subscribe for shares of the
Common Stock have been issued to all persons entitled to subscribe for stock in
the Subscription Offering at no cost to such persons. The amount of the Common
Stock which these parties may subscribe for will be determined, in part, by the
total stock to be issued, and the availability of stock for purchase under the
categories set forth in the Plan.
Preference categories have been established for the allocation of the
Common Stock to the extent that shares are available. These categories are as
follows:
Subscription Category No. 1 is reserved for the Bank's Eligible Account
Holders, i.e., qualifying depositors of the Bank on June 30, 1992, who,
including individuals on a joint account, will each receive nontransferable
Subscription Rights to subscribe for Common Stock in the Subscription
Offering up to $300,000. See "-- Limitations on Purchases of Shares." If
the exercise of Subscription Rights in this category results in an
oversubscription, 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 shares sufficient to make his
total allocation equal 100 shares or the amount subscribed for, whichever
is less. Any shares not so allocated shall be allocated among the
subscribing Eligible Account Holders on an equitable basis related to the
amounts of their respective qualifying deposits, as compared to the total
qualifying deposits of all subscribing Eligible Account Holders. To ensure
a proper allocation of Common Stock, each Eligible Account Holder must list
on his Stock Order Form all accounts in which he has an ownership interest.
Failure to list all such deposit accounts may result in the inability of
the Company or the Bank to fill all or part of a subscription order.
Neither the Company, the Bank nor any of their agents shall be responsible
for orders on which all deposit accounts have not been fully and accurately
disclosed. A qualifying deposit is the amount (required to be at least
$50.00) contained in a deposit account in the Bank on June 30, 1992.
Subscription Rights received by directors and officers of the Bank and
their associates in this category based on their increased deposits in the
Bank in the one-year period preceding June 30, 1992 are subordinated to the
Subscription Rights of other Eligible Account Holders.
Subscription Category No. 2 is reserved for the Bank's tax-qualified
employee stock benefit plans, i.e., the ESOP, which shall receive
nontransferable Subscription Rights to purchase in the aggregate up to 10%
of the shares issued in the Stock Conversion and which is expected to
purchase 8% of the Common Stock offered in the Stock Conversion. Any
shares of Common Stock sold in excess of the maximum of the Estimated
Valuation Range may be first sold to the ESOP.
Subscription Category No. 3 is reserved for the Bank's Supplemental
Eligible Account Holders, i.e., qualifying depositors of the Bank on the
last day of the calendar quarter preceding the Administrator's approval of
the Plan (________________) who, including individuals on a joint account,
will each receive nontransferable Subscription Rights to subscribe for
Common Stock in the subscription offering up to $300,000. See " --
Limitations on Purchases of Shares." If the exercise of Subscription
Rights in this category results in an oversubscription, shares shall be
allocated among subscribing Supplemental Eligible Account Holders, so as to
permit each such Supplemental Eligible Account Holder, to the extent
possible, to purchase a number of shares sufficient to make his total
allocation equal 100 shares or the amount subscribed for, whichever is
less, and any shares not so allocated shall be allocated among the
subscribing Supplemental Eligible Account Holders on an equitable basis
related to the amounts of their respective qualifying deposits, as compared
to the total qualifying deposits of all subscribing Supplemental Eligible
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Account Holders. To ensure a proper allocation of Common Stock, each
Supplemental Eligible Account Holder must list on his Stock Order Form all
accounts in which he has an ownership interest. Failure to list all such
deposit accounts may result in the inability of the Company or the Bank to
fill all or part of a subscription order. Neither the Company, the Bank
nor any of their agents shall be responsible for orders on which all
deposit accounts have not been fully and accurately disclosed. A
qualifying deposit is the amount (required to be at least $50.00) contained
in a deposit account in the Bank on _______________, 1996. Subscription
Rights received by directors and officers of the Bank and their associates
in this category based on their increased deposits in the Bank in the one-
year period preceding ____________, 1996 are subordinated to the
Subscription Rights of other Supplemental Eligible Account Holders.
Subscriptions in this Category No. 3 will be filled only to the extent that
there are sufficient shares of Common Stock remaining after satisfaction of
subscriptions by Category Nos. 1 and 2.
Subscription Category No. 4 is reserved for Other Members, i.e.,
certain depositors and borrowers who are members of the Bank as of the
Voting Record Date entitled to vote at the Special Meeting but who are not
Eligible Account Holders or Supplemental Eligible Account Holders. To the
extent then available following subscriptions by Eligible Account Holders,
tax-qualified employee stock benefit plans and Supplemental Eligible
Account Holders, Other Members, including individuals on a joint account,
will receive, without payment therefor, nontransferable Subscription Rights
to subscribe for Common Stock in the Subscription Offering up to $300,000.
See "-- Limitations on Purchases of Shares." In the event that Other
Members subscribe for a number of shares which, when added to the shares
subscribed for by Eligible Account Holders, tax-qualified employee stock
benefit plans and Supplemental Eligible Account Holders, is in excess of
the total number of shares offered in the Stock Conversion, the
subscriptions of such Other Members will be allocated pro rata among
subscribing Other Members on an equitable basis as determined by the Board
of Directors.
The Company will make reasonable efforts to comply with the securities
laws of all states in the United States in which persons entitled to subscribe
for the Common Stock pursuant to the Plan reside. However, no person will be
offered or allowed to purchase any Common Stock under the Plan if he resides in
a foreign country or in a state of the United States with respect to which any
or all of the following apply: (i) a small number of persons otherwise eligible
to subscribe for shares under the Plan reside in such state or foreign country;
(ii) the granting of Subscription Rights or the offer or sale of shares of
Common Stock to such persons would require the Company or the Bank or their
employees to register, under the securities laws of such state, as a broker,
dealer, salesman or agent or to register or otherwise qualify its securities for
sale in such state or foreign country; and (iii) such registration or
qualification would be impracticable for reasons of cost or otherwise. No
payments will be made in lieu of the granting of Subscription Rights to any such
person.
Community Offering
To the extent shares remain available for purchase after the
Subscription Offering, the Company may offer any such remaining shares of the
Common Stock to members of the general public to whom the Company delivers a
copy of this Prospectus and a Stock Order Form in the Community Offering. The
occurrence of the Community Offering is subject to the availability of shares of
Common Stock for purchase after satisfaction of all orders received in the
Subscription Offering. The Community Offering, if any, may terminate at any
time without notice, but may not terminate later than ______________, 1997. The
right of any person to purchase shares in the Community Offering, if any, is
subject to the absolute right of the Company and the Bank to accept or reject
such purchases in whole or in part. The Company presently intends to terminate
the Community Offering, if any, as soon as it has received orders for all shares
available for purchase in the Stock Conversion.
If all of the Common Stock offered in the Subscription Offering is
subscribed for, there will be no Community Offering. In the event an
insufficient number of shares are available to fill orders in the Community
Offering, the available shares will be allocated by the Company in its
discretion so that a preference shall be given to natural persons and trusts of
natural persons who are permanent residents of the Local Community. Orders
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received in the Community Offering shall be allocated on an equal number of
shares per order until all orders have been filled, with a preference given to
permanent residents of the Local Community. If the Community Offering extends
beyond 45 days following the expiration of the Subscription Offering,
subscribers will have the right to increase, decrease or rescind subscriptions
for stock previously submitted. Purchasers in the Community Offering, together
with their associates and groups acting in concert, are each eligible to
purchase up to $300,000 of the Common Stock issued in the Stock Conversion.
Except as noted below, cash and checks received in the Community
Offering will be placed in segregated savings accounts (each insured by the FDIC
up to the applicable $100,000 limit) established specifically for this purpose.
Interest will be paid on orders made by check, in cash or by money order at the
Bank's passbook rate from the date the payment is received by the Company until
the consummation of the Stock Conversion. In the event that the Stock
Conversion is not consummated for any reason, all funds submitted pursuant to
the Community Offering will be promptly refunded with interest as described
above.
Syndicated Community Offering
As part of the Community Offering, all shares of Common Stock not
purchased in the Subscription and Community Offerings, if any, may be offered
for sale to the general public in a Syndicated Community Offering through
selected dealers to be formed and managed by Trident Securities. The Syndicated
Community Offering, if any, will be conducted to achieve the widest distribution
of Common Stock subject to the Company and the Bank having the right to reject
orders in whole or in part in their sole discretion in the Syndicated Community
Offering. Neither Trident Securities nor any registered broker-dealer shall
have any obligation to take or purchase any shares of the Common Stock in the
Syndicated Community Offering. Common Stock sold in the Syndicated Community
Offering will be sold at the same price as in the Subscription and Community
Offerings.
Individual purchasers in the Syndicated Community Offering may purchase
up to $300,000 of the Common Stock in the Stock Conversion with any associate or
group of persons acting in concert. The Bank shall be directly responsible for
the payment of selling commissions to other NASD firms and licensed brokers
participating in the Syndicated Community Offering. Other firms may participate
under selected dealers agreements, and Trident Securities and such selected
dealers may receive fees aggregating up to a maximum of 5.0% of the amount of
the stock sold by the selected dealers in the Syndicated Community Offering.
During the Syndicated Community Offering, selected dealers may only
solicit indications of interest from their customers to place orders with the
Company as of a certain date ("Order Date") for the purchase of shares of common
Stock. When and if Trident Securities and the Company believe that enough
indications and orders have been received in the Offerings to consummate the
Stock Conversion, Trident Securities will request, as of the Order Date,
selected dealers to submit orders to purchase shares for which they have
received indications of interest from their customers. Selected dealers will
send confirmations of the orders to such customers on the next business day
after the Order Date. Selected dealers may debit the accounts of their
customers on a date which will be three business days from the Order Date
("Settlement Date"). Customers who authorize selected dealers to debit their
brokerage accounts are required to have the funds for payment in their account
on but not before the Settlement Date. On the Settlement Date, selected dealers
will remit funds to the account that the Company established for each selected
dealer. After payment has been received by the Company from selected dealers,
funds will earn interest at the Bank's passbook savings rate until the
consummation of the Stock Conversion. In the event the Stock Conversion is not
consummated as described above, funds with interest will be returned promptly to
the selected dealers, who, in turn, will promptly credit its customers'
brokerage account.
The Syndicated Community Offering, if any, will terminate no more than
45 days following the completion of the Subscription Offering, unless extended
by the Company with the approval of the Administrator. In the event the
Community Offering is extended beyond 45 days following the expiration of this
Subscription Offering, subscribers will have the right to increase, decrease or
rescind subscriptions for stock previously submitted. The Syndicated Community
Offering may run concurrently with the Subscription and Community Offerings or
subsequent to such offerings.
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Subscriptions for Stock in Subscription and Community Offerings
Expiration Date. The Subscription Offering will expire at 12:00 Noon,
Eastern Time, on _____________, 1997 unless extended by the Board of Directors
of the Bank for up to an additional 45 days, to no later than __________, 1997.
Such date and time are referred to herein as the "Expiration Date."
Subscription rights not exercised prior to the Expiration Date will be void.
The Community Offering, if any, may terminate at any time without notice, but
may not terminate later than __________, 1997.
Orders will not be executed by the Company until at least the minimum
number of shares of Common Stock offered hereby have been subscribed for or
sold. If all shares of Common Stock have not been subscribed for or sold within
45 days of the end of the Subscription Offering (unless such period is extended
with consent of the Administrator), all funds delivered to the Company pursuant
to the Subscription Offering will be promptly returned to the subscribers with
interest and all charges to savings accounts will be rescinded.
Use of Stock Order Forms and Certification Forms. Rights to subscribe
may only be exercised by completion of Stock Order Forms and certification
forms. Any person receiving a Stock Order Form who desires to subscribe for
shares of stock must do so prior to the Expiration Date by delivering (by mail
or in person) to the office of the Bank a properly executed and completed Stock
Order Form and certification form, together with full payment for all shares for
which the subscription is made. All checks or money orders must be made payable
to "NewSouth Bancorp, Inc." No photocopies or faxes of Stock Order Forms or
payment by wire transfer will be accepted. The Stock Order Form and
certification form must be received by the Expiration Date. All subscription
rights under the Plan will expire on the Expiration Date, whether or not the
Company has been able to locate each person entitled to such subscription
rights. Once tendered, subscription orders cannot be revoked.
Each subscription right may be exercised only by the person to whom it
is issued and only for his or her own account. The subscription rights granted
under the Plan are nontransferable; persons who attempt to transfer their
subscription rights may lose the right to subscribe for stock in the Stock
Conversion and may be subject to other sanctions and penalties imposed by the
Administrator. Each person subscribing for shares is required to represent to
the Company that he or she is purchasing such 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 such shares.
In the event Stock Order Forms (i) are not delivered and are returned
to the Company by the United States Postal Service or the Company is unable to
locate the addressee, or (ii) are not returned or are received after the
Expiration Date, or (iii) are defectively completed or executed, or (iv) are not
accompanied by the full required payment for the shares subscribed for
(including instances where a savings account or certificate balance from which
withdrawal is authorized is insufficient to fund the amount of such required
payment), the Subscription Rights of the person to whom such rights have been
granted will lapse as though such person failed to return the completed Stock
Order Form within the time period specified. However, the Company or the Bank
may, but will not be required to, waive any irregularity on any Stock Order Form
or require the submission of corrected Stock Order Forms or the remittance of
full payment for subscribed shares by such date as the Company or the Bank may
specify. The interpretation by the Company and the Bank of the terms and
conditions of the Plan and of the Stock Order Form will be final.
Payment for Shares. Payment for all subscribed shares of Common Stock
will be required to accompany all completed Stock Order Forms for subscriptions
to be valid. Payment for subscribed shares may be made (i) in cash, if
delivered in person, (ii) by check or money order, or (iii) by authorization of
withdrawal from deposit accounts maintained with the Bank. Appropriate means by
which such withdrawals may be authorized are provided in the Stock Order Form.
Once such a withdrawal has been authorized, none of the designated withdrawal
amount may be used by a subscriber for any purpose other than to purchase stock
for which subscription has been made while the Plan remains in effect. In the
case of payments authorized to be made through withdrawal from deposit accounts,
all sums authorized for withdrawal will continue to earn interest at the
contract rate until the date of consummation of the sale. In the case of
payments made in cash or by check or money order such funds will be
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placed in a single segregated savings account established specifically for this
purpose (with the account as a whole insured by the FDIC up to the applicable
$100,000 limit) and interest will be paid at the Bank's passbook rate from the
date payment is received until the Stock Conversion is completed or terminated.
Interest penalties for early withdrawal applicable to certificate accounts will
not apply to withdrawals authorized for the purchase of shares; however, if a
partial withdrawal results in a certificate account with a balance less than the
applicable minimum balance requirement, the certificate evidencing the remaining
balance will earn interest at the Bank's passbook rate subsequent to the
withdrawal. An executed Stock Order Form, once received by the Company, may not
be modified, amended or rescinded without the consent of the Company, unless the
Stock Conversion is not completed within 45 days of the termination of the
Subscription Offering. If an extension of the period of time to complete the
Stock Conversion is approved by the Administrator, subscribers will be
resolicited and must affirmatively reconfirm their orders prior to the
expiration of the resolicitation offering, or their subscription funds will be
promptly refunded. Subscribers may also modify or cancel their subscriptions.
Interest will be paid on such funds at the Bank's passbook rate during the 45-
day period and any approved extension period.
Owners of self-directed IRAs may use the assets of such IRAs to
purchase shares of Common Stock in the Subscription and Community Offerings,
provided that such IRAs are not maintained at the Bank. Persons with IRAs
maintained at the Bank must have their accounts transferred to an unaffiliated
institution or broker to purchase shares of Common Stock in the Subscription and
Community Offerings. Depositors interested in using funds in an Bank IRA to
purchase Common Stock should contact the Bank's Stock Information Center at
(919) ___--____ as soon as possible so that the necessary forms may be forwarded
for execution and returned prior to the Expiration Date of the Subscription
Offering.
The ESOP will not be required to pay for the shares subscribed for at
the time it subscribes, but may pay for such shares upon consummation of the
Subscription and Community Offerings, if all shares are sold, or upon
consummation of any subsequent offering, if shares remain to be sold in such an
offering.
Shares Purchased. Certificates representing shares of the Common Stock
will be delivered to subscribers as soon as practicable after closing of the
Stock Conversion.
Plan of Distribution and Marketing Agent
Officers of the Bank are available at the Bank's office to provide
offering materials to prospective investors, to answer their questions (but only
to the extent such information is derived from this Prospectus) and to receive
completed Stock Order Forms and certification forms from prospective investors
interested in subscribing for shares of the Common Stock. None of the Bank's
directors, officers or employees will receive any commissions or other
compensation for their efforts in connection with sales of shares of the Common
Stock. Although information regarding the stock offering is available at the
Bank's office, an investment in the Common Stock is not a deposit, and the
Common Stock is not federally insured.
The directors, officers and employees of the Bank who will be involved
in selling stock are expected to be exempt from the requirement to register with
the SEC as broker-dealers within the meaning of Rule 3a4-1 under the Exchange
Act. Such persons will qualify under the safe harbor provisions of that rule on
the basis of paragraphs (a)(4)(ii) and/or (iii), i.e., management of the Bank
expects that such persons either (x) will perform substantial duties for the
Company in its business, will not otherwise be broker-dealers and are not
expected to participate in another offering in the next twelve months or (y)
will limit their activities to preparing written communications, responding to
customer inquiries and/or performing ministerial/clerical functions.
The Bank and the Company have engaged Trident Securities as financial
advisor to provide sales assistance in connection with the Subscription and
Community Offerings of the Common Stock. The services of Trident Securities
will include, but are not limited to, (i) training and educating the Bank's
employees who will be performing certain ministerial functions in the
Subscription and Community Offerings regarding the mechanics and
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regulatory requirements of the stock sales process and the solicitation of
proxies from members, (ii) providing employees to staff the Stock Information
Center, assisting Bank customers and interested stock purchasers and keeping
records of orders for shares of Common Stock, and (iii) supervising the Bank's
sales efforts, including preparation of marketing materials. For all its
services rendered in the Stock Conversion, Trident Securities will receive a
commission equal to 1.85% of the aggregate dollar amount of Common Stock sold in
the Subscription and Community Offerings, excluding any shares of stock sold to
the Bank's directors, executive officers, and the ESOP. Additionally,
commissions will be excluded on shares sold to "associates" (as defined in the
Plan) of the Bank's directors and executive officers. In the event Common Stock
is sold by other NASD member firms under selected dealer's agreements, the
aggregate commissions to be received by Trident Securities and selected dealers
would be up to a maximum of 5.0% of the amount of Common Stock sold by such
selected dealers. Trident Securities will also be reimbursed for its reasonable
out-of-pocket expenses in an amount not to exceed $7,500 and its legal fees in
an amount not to exceed $25,000. The Company and the Bank have agreed to
indemnify Trident Securities for reasonable costs and expenses in connection
with certain claims or liabilities, including certain liabilities under the
Securities Act.
Stock Pricing and Number of Shares to be Issued
Ferguson, which is experienced in the evaluation and appraisal of
savings institutions involved in the conversion process, has been retained by
the Bank to prepare an appraisal of the estimated pro forma market value of the
Common Stock to be sold pursuant to the Stock Conversion. Prior to the
Conversion, the Bank did not have any business relationship with Ferguson.
Ferguson will receive a fixed fee of $35,000 for its appraisal services and the
preparation of a business plan. The Bank has agreed to indemnify Ferguson under
certain circumstances against any losses, damages, expenses or liability arising
out of the Bank's engagement of Ferguson for the appraisal.
Ferguson has determined as of October 18, 1996 that the estimated pro
forma market value of the stock to be issued by the Company in the Stock
Conversion was $31,500,000. In determining the reasonableness and adequacy of
the appraisal submitted by Ferguson, the Boards of Directors of the Bank and the
Company reviewed with Ferguson the methodology and the appropriateness of
assumptions used by Ferguson in preparing the appraisal. The Company, in
consultation with Trident Securities, has determined to offer the shares in the
Stock Conversion at the Purchase Price of $15.00 per share. The price per share
was determined based on a number of factors, including the market price per
share of the stock of other financial institutions. With the consent of the
Administrator and the FDIC, however, the appraiser may establish a range of
value for the stock of approximately 15% on either side of the estimated value
to allow for fluctuations in the aggregate value of the stock due to changes in
the market and other factors from the time of commencement of the Subscription
Offering until completion of the Community Offering. Accordingly, Ferguson has
established a range of value of from $26,775,000 to $36,225,000 for the Stock
Conversion. Ferguson will either confirm the continuing validity of its
appraisal or provide an updated appraisal immediately prior to the completion of
the Stock Conversion.
The appraisal has been prepared by Ferguson in reliance upon the
information contained in this Prospectus, including the Financial Statements.
Ferguson also considered the following factors, among others: the present and
projected operating results and financial condition of the Bank and the economic
and demographic conditions in the Bank's and the Company's existing market area;
certain historical, financial and other information relating to the Bank and the
Company; a comparative evaluation of the operating and financial statistics of
the Bank and the Company with those of other similarly situated savings
institutions located in North Carolina and other regions of the United States;
the aggregate size of the offering of Common Stock; the impact of the Stock
Conversion on the Bank's and the Company's net worth and earnings potential; the
proposed dividend policy of the Company and the Bank; and the trading market for
securities of comparable institutions and general conditions in the market for
such securities.
Should it be determined at the close of the offering that the aggregate
pro forma market value of the Common Stock is higher or lower than $31.5
million, but is nonetheless within the Estimated Valuation Range or within 15%
of the maximum of such range, the Company will make an appropriate adjustment by
raising or lowering
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by no more than 15% the total number of shares being offered (within a range
from 1,785,000 shares to 2,415,000 shares). Unless permitted by the Company or
otherwise required by the FDIC or the Administrator, no resolicitation of
subscribers and other purchasers will be made because of any such change in the
number of shares to be issued unless the aggregate purchase price of the Common
Stock sold in the Stock Conversion is below the minimum of the Estimated
Valuation Range or is more than $41,658,750 (i.e., 15% above the maximum of the
Estimated Valuation Range). If the aggregate purchase price falls outside the
range of from $26,775,000 to $41,658,750, subscribers and other purchasers will
be resolicited and given the opportunity to continue their orders, in which case
they will need to affirmatively reconfirm their subscriptions prior to the
expiration of the resolicitation, or their subscription funds will be promptly
refunded with interest at the Bank's passbook rate. Subscribers will also be
given the opportunity to increase, decrease or rescind their orders. Any change
in the Estimated Valuation Range must be approved by the Administrator. The
establishment of any new price range may be effected without a resolicitation of
votes from the Bank's members to approve the Plan.
The appraisal is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing the Common
Stock. In preparing the valuation, Ferguson has relied upon and assumed the
accuracy and completeness of financial and statistical information provided by
the Bank and the Company. Ferguson did not independently verify the financial
statements and other information provided by the Bank and the Company, nor did
Ferguson value independently the assets and liabilities of the Bank and the
Company. The valuation considers the Bank and the Company only as a going
concern and should not be considered as an indication of the liquidation value
of the Bank and the Company. Moreover, because such valuation is necessarily
based upon estimates and projections of a number of matters, all of which are
subject to change from time to time, no assurance can be given that persons
purchasing the Common Stock will thereafter be able to sell such shares at
prices equal to or above the price or prices paid for it. Copies of the
appraisal report of Ferguson setting forth the method and assumptions for such
appraisal are on file and available for inspection at the offices set forth in
"Additional Information" and at the office of the Bank. Further, any subsequent
updated appraisal also will be filed with the SEC and will be available for
inspection.
Limitations on Purchase of Shares
The Plan provides for certain additional limitations to be placed upon
the purchase of shares by eligible subscribers and others in the Stock
Conversion. Each subscriber must subscribe for a minimum of 25 shares. The
ESOP may purchase up to an aggregate of 10% of the shares of the Common Stock to
be issued in the Stock Conversion and is expected to purchase 8% of such shares.
Except for the ESOP, which intends to purchase 8% of the total number of shares
of Common Stock issued in the Stock Conversion, no Eligible Account Holder,
Supplemental Eligible Account Holder or Other Member, including individuals on a
joint account, may purchase in their capacity as such in the Subscription
Offering more than 20,000 shares, or $300,000, of Common Stock. No person,
including associates of and persons acting in concert with such person, may
purchase in the Community Offering more than 20,000 shares, or $300,000, of
Common Stock. No person, including associates of and persons acting in concert
with such person (other than the ESOP), may purchase in the Stock Conversion
more than $600,000, or 40,000 shares of Common Stock. Shares purchased by the
ESOP and attributable to a participant thereunder shall not be aggregated with
shares purchased by such participant or any other purchaser of Common Stock in
the Stock Conversion. Officers and directors and their associates may not
purchase, in the aggregate, more than 32% of the shares to be issued in the
Stock Conversion. For purposes of the Plan, the directors of the Company and
the Bank are not deemed to be associates or a group acting in concert solely by
reason of their Board membership.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the Bank's
members, purchase limitations may be increased or decreased at the sole
discretion of the Company and the Bank at any time. If such amount is
increased, subscribers for the maximum amount will be given the opportunity to
increase their subscriptions up to the then applicable limit, subject to the
rights and preferences of any person who has priority Subscription Rights. In
the event that the purchase limitation is decreased after commencement of the
Subscription and Community Offerings, the orders of any person who
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subscribed for the maximum number of shares of Common Stock 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 term "associate" of a person is defined to mean: (i) any
corporation or organization (other than the Bank, the Company, or a majority-
owned subsidiary of the Bank or the Company) of which such person is an officer
or partner or is directly or indirectly the beneficial owner of 10% or more of
any equity securities; (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as a trustee
or in a similar fiduciary capacity, provided, however, such term shall not
include any employee stock benefit plan of the Bank in which such person has a
substantial beneficial interest or serves as a trustee or in a similar fiduciary
capacity; and (iii) any relative or spouse of such person, or any relative of
such spouse, who either has the same home as such person or who is a director of
the Bank or the Company or any of their subsidiaries. Directors are not treated
as associates solely because of their Board membership.
Each person purchasing Common Stock in the Stock Conversion shall be
deemed to confirm that such purchase does not conflict with the purchase
limitations under the Plan or otherwise imposed by law, rule or regulation. In
the event that such purchase limitations are violated by any person (including
any associate or group of persons affiliated or otherwise acting in concert with
such person), the Company shall have the right to purchase from such person at
the aggregate purchase price all shares acquired by such person in excess of
such purchase limitations or, if such excess shares have been sold by such
person, to receive the difference between the aggregate purchase price paid for
such excess shares and the price at which such excess shares were sold by such
person. This right of the Company to purchase such excess shares shall be
assignable by the Company. In addition, persons who violate the purchase
limitations may be subject to sanctions and penalties imposed by the
Administrator.
Stock purchased pursuant to the Stock Conversion will be freely
transferable, except for shares purchased by directors and officers of the Bank
and the Company. See "-- Limitations on Resales by Management."
In addition, under guidelines of the National Association of Securities
Dealers, Inc. ("NASD"), members of the NASD and their associates are subject to
certain restrictions on the transfer of securities purchased in accordance with
Subscription Rights and to certain reporting requirements upon purchase of such
securities.
Depending upon market conditions, the Boards of Directors of the
Company and the Bank, with the approval of the Administrator, may increase or
decrease any of the above purchase limitations. In the event of such an
increase or decrease, no further approval of members of the Bank would be
required. North Carolina regulations authorize a plan of conversion to provide
a maximum purchase limitation of a percentage not to exceed 5% except for tax-
qualified employee stock benefit plans which may purchase in the aggregate not
more than 10%.
Regulatory Restrictions on Acquisition of the Common Stock
Applicable regulations prohibit any person from making an offer,
announcing an intent to make an offer, entering into any other arrangement to
purchase Common Stock or acquiring Common Stock or Subscription Rights in the
Company from another person prior to completion of the Stock Conversion.
Further, no person may make an offer or announcement of an offer to purchase
shares or actually acquire shares in the Company for a period of three years
from the date of the completion of the Stock Conversion, if, upon the completion
of such offer or acquisition, that person would become the beneficial owner of
more than 10% of the Company's outstanding stock, without the prior written
approval of the Administrator. The Administrator has defined the word "person"
to include any individual, group acting in concert, corporation, partnership,
association, joint stock company, trust, unincorporated organization or similar
company, a syndicate or any group formed for the purpose of acquiring, holding
or disposing of securities of an insured institution. However, offers made
exclusively to the Company or underwriters or members of a selling group acting
on behalf of the Company for resale to the general public are excepted.
Moreover, when any person, directly or indirectly, acquires beneficial ownership
of more than 10% of the Company's capital stock following the Stock Conversion
within such three-year period without the prior approval
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of the Administrator, the Company's Common Stock 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 stockholders for a vote. The Certificate of
Incorporation of the Company include a similar 10% beneficial ownership
limitation. See "Certain Anti-Takeover Provisions in the Certificate of
Incorporation and Bylaws."
In addition to the foregoing restrictions, any person or group of
persons acting in concert who propose to acquire 10% or more of the Company's
outstanding shares will be presumed under Administrator or Federal Reserve Board
regulations, as the case may be, to be acquiring control of the Company and will
be required to submit prior notice to the Administrator or the Federal Reserve
Board under the Change in Bank Control Act and the Federal Reserve Board
regulations thereunder. Furthermore, following the Bank Conversion, the
acquisition of control of the Company by any company will be subject to the
prior approval of the Federal Reserve Board under the Bank Holding Company Act.
See "Certain Restrictions on Acquisition of the Company, the Converted Bank and
the Bank."
Restrictions on Repurchase of Stock
Pursuant to present regulations, the Company may not, within one year
following the date of completion of the Stock Conversion, repurchase Conversion
Stock from any person, with the exception that stock repurchases of no greater
than 5% of the outstanding capital stock may be repurchased during this one-year
period where compelling and valid business reasons are established to the
satisfaction of the FDIC. Any stock repurchases shall be subject to the
requirements of Section 18(i)(1) of the Federal Deposit Insurance Act.
Upon consummation of the Bank Conversion, the Company's ability to
repurchase its capital stock will be governed by the Federal Reserve Board's
regulations. Under the Federal Reserve Board's regulations, any bank holding
company that is not well-capitalized and not in generally satisfactory condition
must notify the Federal Reserve Board before purchasing or redeeming its equity
securities if the gross consideration for the purchase or redemption, when
aggregated with the net consideration paid by the company for all purchases and
redemptions during the preceding 12 months, is equal to 10% or more of the
company's consolidated retained earnings. The Federal Reserve Board may
disapprove a proposed purchase or redemption if it finds that the proposal would
constitute an unsafe or unsound practice or would violate any directive of,
condition imposed by or written agreement with, the Federal Reserve Board.
Under the Federal Reserve Board's regulations, no such prior notice of
repurchases is required to be given by a bank holding company that has received
one of the two highest examination ratings at its most recent supervisory
inspection, is not the subject of any unresolved supervisory issues and is, and
after giving effect to the proposed repurchase will continue to be, well-
capitalized.
Limitations on Resales by Management
Shares of the Common Stock purchased by directors or officers of the
Company and the Bank in the Stock Conversion will be subject to the restriction
that such shares may not be sold for a period of one year following completion
of the Stock Conversion, except in the event of the death of the original
purchaser or in any exchange of such shares in connection with a merger or
acquisition of the Company approved by the applicable regulatory authorities.
Accordingly, shares of the Common Stock issued by the Company to directors and
officers shall bear a legend giving appropriate notice of the restriction
imposed upon it and, in addition, the Company will give appropriate instructions
to the transfer agent for the Common Stock with respect to the applicable
restriction for transfer of any restricted stock. Any shares issued to
directors and officers as a stock dividend, stock split or otherwise with
respect to restricted stock shall be subject to the same restrictions. Shares
acquired otherwise than in the Stock Conversion, such as under the Company's
Option Plan, would not be subject to such restrictions. To the extent directors
and officers are deemed affiliates of the Company, all shares of the Common
Stock acquired by such directors and officers will be subject to certain resale
restrictions and may be resold pursuant to Rule 144 under the Securities Act.
See "Regulation -- Regulation of the Company -- Federal Securities Law."
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Interpretation and Amendment of the Plan
To the extent permitted by law, all interpretations of the Plan by the
Bank will be final. The Plan provides that the Bank's Board of Directors shall
have the sole discretion to interpret and apply the provisions of the Plan to
particular facts and circumstances and to make all determinations necessary or
desirable to implement such provisions, including but not limited to matters
with respect to giving preference in the Community Offering to natural persons
and trusts of natural persons who are permanent residents of the Local
Community, and any and all interpretations, applications and determinations made
by the Board of Directors in good faith and on the basis of such information and
assistance as was then reasonably available for such purpose shall be conclusive
and binding upon the Bank and its members and subscribers in the Subscription
and Community Offerings, subject to the authority of the FDIC and the
Administrator.
The Plan provides that, if deemed necessary or desirable by the Board
of Directors, the Plan may be substantively amended by a two-thirds vote of the
Board of Directors at any time prior to submission of the Plan and proxy
materials to the Bank's members. After submission of the Plan and proxy
materials to the members, the Plan may be amended by a two-thirds vote of the
Board of Directors at any time prior to the Special Meeting and at any time
following the Special Meeting with the concurrence of the FDIC and the
Administrator. In its discretion, the Board of Directors may modify or
terminate the Plan upon the order of the regulatory authorities without a
resolicitation of proxies or another Special Meeting. However, any modification
of the Plan resulting in a material change in the terms of the Conversion would
require a resolicitation of proxies and another meeting of stockholders.
The Plan further provides that in the event that mandatory new
regulations pertaining to conversions are adopted by the FDIC, the
Administrator, the Commission, the Federal Reserve Board or any successor agency
prior to completion of the Conversion, the Plan will be amended to conform to
such regulations without a resolicitation of proxies or another Special Meeting.
In the event that such new conversion regulations contain optional provisions,
the Plan may be amended to utilize such optional provisions at the discretion of
the Board of Directors without a resolicitation of proxies or another Special
Meeting. By adoption of the Plan, the Bank's members will be deemed to have
authorized amendment of the Plan under the circumstances described above.
Conditions and Termination
Completion of the Conversion requires the approval of the Plan by the
affirmative vote of not less than a majority of the total outstanding votes of
the members of the Bank and the sale of all shares of the Common Stock within 12
months following approval of the Plan by the members, which time period may be
extended an additional 12 months by an amendment to the Plan. If these
conditions are not satisfied, the Plan will be terminated, and the Bank will
continue its business in the mutual form of organization. The Plan may be
terminated by the Board of Directors at any time prior to the Special Meeting
and, with the approval of the FDIC and the Administrator, by the Board of
Directors at any time thereafter.
CERTAIN RESTRICTIONS ON ACQUISITION OF THE COMPANY,
THE CONVERTED BANK AND THE COMMERCIAL BANK
Conversion Regulations
Applicable North Carolina regulations provide that for a period of
three years following the Stock Conversion, the prior written approval of the
Administrator will be required before any person may, directly or indirectly,
acquire beneficial ownership of or make any offer to acquire any stock or other
equity security of the Company if, after the acquisition or consummation of such
offer, such person would be the beneficial owner of more than 10% of such class
of stock or other class of equity security of the Company. If any person were
to so acquire the beneficial ownership of more than 10% of any class of any
equity security without prior written approval, the securities beneficially
owned in excess of 10% would not be counted as shares entitled to vote and would
not be voted or counted as voting shares in connection with any matter submitted
to stockholders for a vote. Approval is
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not required for (i) any offer with a view toward public resale made exclusively
to the Company or its underwriters or the selling group acting on its behalf or
(ii) any offer to acquire or acquisition of beneficial ownership of more than
10% of the common stock of the Company by a corporation whose ownership is or
will be substantially the same as the ownership of the Company, provided that
the offer or acquisition is made more than one year following the consummation
of the Stock Conversion. The regulation provides that within one year following
the Stock Conversion, the Administrator would approve the acquisition of more
than 10% of beneficial ownership only to protect the safety and soundness of the
institution. During the second and third years after the Stock Conversion, the
Administrator may approve such an acquisition upon a finding that (i) the
acquisition is necessary to protect the safety and soundness of the Company and
the Bank or the Board of Directors of the Company and the Bank support the
acquisition and (ii) the acquiror is of good character and integrity and
possesses satisfactory managerial skills, the acquiror will be a source of
financial strength to the Company and the Bank and the public interests will not
be adversely affected.
Change in Bank Control Act and Bank Holding Company Act
The Change in Bank Control Act, together with North Carolina
regulations, require that the consent of the Administrator and Federal Reserve
Board be obtained prior to any person or company acquiring "control" of a North
Carolina-chartered savings bank or a North Carolina-chartered savings bank
holding company. The consent of the Commission and the Federal Reserve Board is
required to be obtained prior to any person or company acquiring "control" of a
North Carolina-chartered commercial bank. Upon acquiring control, such acquiror
will be deemed to be a bank holding company. Control is conclusively presumed
to exist if, among other things, an individual or company acquires the power,
directly or indirectly, to direct the management or policies of the Company or
the Bank or to vote 25% or more of any class of voting stock. Control is
rebuttably presumed to exist under the Change in Bank Control Act if, among
other things, a person acquires more than 10% of any class of voting stock, and
the issuer's securities are registered under Section 12 of the Exchange Act or
the person would be the single largest stockholder. Restrictions applicable to
the operations of bank holding companies and conditions imposed by the Federal
Reserve Board in connection with its approval of such acquisitions may deter
potential acquirors from seeking to obtain control of the Company. See
"Regulation -- Regulation of the Company Following the Stock Conversion" and "--
Regulation of the Company Following the Bank Conversion."
Delaware General Corporation Law
The Delaware General Corporation Law ("DGCL") contains a statute
designed to provide Delaware corporations with additional protection against
hostile takeovers. The takeover statute, which is codified in Section 203 of
the DGCL, among other things, prohibits the Company from engaging in certain
business combinations (including a merger) with a person who is the beneficial
owner of 15% or more of the 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 Company outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding, those shares owned by
(i) persons who are directors and also officers and (ii) employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer; or (iii) on or subsequent to such date, the business combination is
approved by the Board of Directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
at least two-thirds of the outstanding voting stock which is not owned by the
Interested Stockholder. The Company may exempt itself from the requirements of
the statute by adopting an amendment to its Certificate of Incorporation. At
the present time, the Board of Directors does not intend to propose any such
amendment.
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CERTAIN ANTI-TAKEOVER PROVISIONS
IN THE CERTIFICATE OF INCORPORATION AND BYLAWS
While the Boards of Directors of the Bank and the Company are not aware
of any effort that might be made to obtain control of the Company after the
Conversion, the Board of Directors, as discussed below, believes that it is
appropriate to include certain provisions as part of the Company's Certificate
of Incorporation to protect the interests of the Company and its stockholders
from hostile takeovers which the Board of Directors might conclude are not in
the best interests of the Converted Bank or the Commercial Bank, the Company or
the Company's stockholders. These provisions may have the effect of
discouraging a future takeover attempt which is not approved by the Board of
Directors but which individual stockholders may deem to be in their best
interests or in which stockholders may receive a substantial premium for their
shares over then current market prices. As a result, stockholders who might
desire to participate in such a transaction may not have an opportunity to do
so. Such provisions also will render the removal of the current Board of
Directors or management of the Company more difficult.
The following discussion is a general summary of certain provisions of
the Certificate of Incorporation and Bylaws of the Company which may be deemed
to have such an "anti-takeover" effect. The description of these provisions is
necessarily general and reference should be made in each case to the Certificate
of Incorporation and Bylaws of the Company. For information regarding how to
obtain a copy of these documents without charge, see "Additional Information."
Classified Board of Directors and Related Provisions
The Company's Certificate of Incorporation provide that the Board of
Directors is to be divided into three classes which shall be as nearly equal in
number as possible. The directors in each class will hold office following
their initial appointment to office for terms of one year, two years and three
years, respectively, and, upon reelection, will serve for terms of three years
thereafter. Each director will serve until his or her successor is elected and
qualified. The Certificate of Incorporation provide that a director may be
removed only for cause and only by the affirmative vote of the holders of at
least 80% of the outstanding shares entitled to vote.
A classified board of directors could make it more difficult for
stockholders, including those holding a majority of the outstanding shares, to
force an immediate change in the composition of a majority of the Board of
Directors. Since the terms of only one-third of the incumbent directors expire
each year, it requires at least two annual elections for the shareholders to
change a majority, whereas a majority of a non-classified board may be changed
in one year. In the absence of the provisions of the Certificate of
Incorporation classifying the Board, all of the directors would be elected each
year.
Management of the Company believes that the staggered election of
directors tends to promote continuity of management because only one-third of
the Board of Directors is subject to election each year. Staggered terms
guarantee that in the ordinary course approximately two-thirds of the Directors,
or more, at any one time have had at least one year's experience as Directors of
the Corporation, and moderate the pace of changes in the Board of Directors by
extending the minimum time required to elect a majority of Directors from one to
two years.
Stockholder Vote Required to Approve Business Combinations with Principal
Stockholders
The Company's Certificate of Incorporation require the approval of the
holders of (i) at least 80% of the Company's outstanding shares of voting stock,
and (ii) at least a majority of the Company's outstanding shares of voting
stock, not including shares deemed beneficially owned by a "Related Person," to
approve certain "Business Combinations" as defined therein, and related
transactions. Under Delaware law, absent this provision, Business Combinations,
including mergers, consolidations and sales of substantially all of the assets
of the Company must, subject to certain exceptions, be approved by the vote of
the holders of at least a majority of the outstanding shares of the Common
Stock. For a discussion of an exception to the majority approval requirement
under Delaware law, see "Certain Restrictions on Acquisition of the Company, the
Converted Bank and the Commercial Bank -- Delaware
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General Corporation Law." The increased voting requirements in the Company's
Certificate of Incorporation apply in connection with business combinations
involving a "Related Person," except in cases where the proposed transaction has
been approved in advance by two-thirds of those members of the Company's Board
of Directors who are unaffiliated with the Related Person and who were directors
prior to the time when the Related Person became a Related Person (the
"Continuing Directors"). The term "Related Person" is defined to include any
individual, corporation, partnership or other entity or affiliate thereof which
owns beneficially or controls, directly or indirectly, 10% or more of the
outstanding shares of Common Stock of the Company. A "Business Combination" is
defined to include (i) any merger or consolidation of the Company with or into a
Related Person; (ii) any sale, lease exchange, transfer, or other disposition of
all or a substantial part of the assets of the Company or of a subsidiary to a
Related Person (the term "substantial part" is defined to include more than 25%
of the Company's total assets); (iii) any merger or consolidation of a Related
Person with or into the Company or a subsidiary of the Company; (iv) any sale,
lease, exchange, transfer or other disposition of all or any substantial part of
the assets of a Related Person to the Company or a subsidiary of the Company;
(v) the issuance of any securities of the Company or a subsidiary of the Company
to a Related Person; (vi) the acquisition by the Company or a subsidiary of the
Company of any securities of the Related Person; (vii) any reclassification of
the Common Stock, or any recapitalization involving the Common Stock; and (viii)
any agreement, contract or other arrangement providing for any of the above
transactions.
Limitations on Call of Meetings of Stockholders
The Company's Certificate of Incorporation provides that special
meetings of stockholders may only be called by the Company's Board of Directors
or an appropriate committee appointed by the Board of Directors. Stockholders
are not authorized to call a special meeting, and stockholder action may be
taken only at a special or annual meeting of stockholders and not by written
consent.
Absence of Cumulative Voting
The Company's Certificate of Incorporation provides that there shall
not be cumulative voting by stockholders for the election of the 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 choose, elect all directors of the Company to be elected at that
meeting, thus precluding minority stockholder representation on the Company's
Board of Directors.
Restrictions on Acquisitions of Securities
The Certificate of Incorporation provides that for a period of five
years from the effective date of the Stock Conversion, no person may directly or
indirectly offer to acquire or acquire the beneficial ownership of more than 10%
of any class of the equity security of the Company, unless such offer or
acquisition shall have been approved in advance by a two-thirds vote of the
Company's Continuing Directors. This provision does not apply to any employee
stock benefit plan of the Company or to an underwriter or member of an
underwriting or selling group involving the public sale or resale of securities
of the Company or a subsidiary thereof; provided, that upon completion of the
sale or resale, no such underwriter or member of the selling group is a
beneficial owner of more than 10% of any class of equity securities of the
Company. In addition, during such five-year period, no shares beneficially owned
in violation of the foregoing percentage limitation, as determined by the
Company's Board of Directors, shall be entitled to vote in connection with any
matter submitted to stockholders for a vote. Additionally, the Certificate of
Incorporation provides for further restrictions on voting rights of shares owned
in excess of 10% of any class of equity security of the Company beyond five
years after the Stock Conversion. Specifically, the Certificate of Incorporation
provides that if, at any time after five years from the Bank's conversion to
stock form, any person acquires the beneficial ownership of more than 10% of any
class of equity security of the Company, then, with respect to each vote in
excess of 10%, the record holders of voting stock of the Company beneficially
owned by such person shall be entitled to cast only one-hundredth of one vote
with respect to each vote in excess of 10% of the voting power of the
outstanding shares of voting stock of the Company which such record holders
would
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otherwise be entitled to cast without giving effect to the provision, and
the aggregate voting power of such record holders shall be allocated
proportionately among such record holders. An exception from the restriction is
provided if the acquisition of more than 10% of the securities received the
prior approval by a two-thirds vote of the Company's Continuing Directors.
Under the Company's Certificate of Incorporation, the restriction on voting
shares beneficially owned in violation of the foregoing limitations is imposed
automatically. In order to prevent the imposition of such restrictions, the
Board of Directors must take affirmative action approving in advance a
particular offer to acquire or acquisition. Unless the Board took such
affirmative action, the provision would operate to restrict the voting by
beneficial owners of more than 10% of the Company's Common Stock in a proxy
contest.
Board Consideration of Certain Nonmonetary Factors in the Event of an Offer by
Another Party
The Certificate of Incorporation of the Company directs the Board of
Directors, in evaluating a Business Combination or a tender or exchange offer,
to consider, in addition to the adequacy of the amount to be paid in connection
with any such transaction, certain specified factors and any other factors the
Board deems relevant, including (i) the social and economic effects of the
transaction on the Company and its subsidiaries, employees, depositors, loan and
other customers, creditors and other elements of the communities in which the
Company and its subsidiaries operate or are located; (ii) the business and
financial condition and earnings prospects of the acquiring person or entity;
and (iii) the competence, experience and integrity of the acquiring person or
entity and its or their management. By having the standards in the Certificate
of Incorporation of the Company, the Board of Directors may be in a stronger
position to oppose any proposed Business Combination or tender or exchange offer
if the Board concludes that the transaction would not be in the best interest of
the Company, even if the price offered is significantly greater than the then
market price of any equity security of the Company.
The Board of Directors feels a responsibility for maintaining the
financial and business integrity of the Company. Savings institutions and banks
and their holding companies occupy positions of special trust in the communities
they serve. They also provide opportunities for abuse by those who are not of
sufficient experience or competence or financial means to act professionally and
responsibly with respect to management of a financial institution. It is of
concern to the Company that it be managed in the interest of the communities
that it serves and that it and its subsidiary bank maintain its integrity as an
institution.
One effect of this provision might be to encourage consultation by an
offeror with the Board of Directors prior to or after commencing a tender offer
in an attempt to prevent a contest from developing. This provision thus may
strengthen the Board of Directors' position in dealing with any potential
offeror which might attempt to effect a takeover of the Company. The provision
will not make a Business Combination regarded by the Board of Directors as being
in the interests of the Company more difficult to accomplish, but it will permit
the Board of Directors to determine whether a Business Combination or tender or
exchange offer is not in the interests of the Company (and thus to oppose it) on
the basis of various factors deemed relevant.
Authorization of Preferred Stock
The Company's Certificate of Incorporation authorizes the issuance of
up to 1,000,000 shares of preferred stock, which conceivably could represent an
additional class of stock required to approve any proposed acquisition. The
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 powers, designations, preferences and relative,
participating, optional and other special rights of such shares, including
voting rights and conversion rights. Issuance of the preferred stock could
adversely affect the relative voting rights of holders of the Common Stock. In
the event of a proposed merger, tender offer or other attempt to gain control of
the Company that the Board of Directors did not approve, it might be possible
for the Board of Directors to authorized the issuance of a series of 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 understandings 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 Company and its
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<PAGE>
stockholders. This preferred stock, none of which has been issued by the
Company, together with authorized but unissued shares of Common Stock (the
Certificate of Incorporation authorizes the issuance of up to 8,000,000 shares
of Common Stock), also could represent additional capital required to be
purchased by the acquiror.
Procedures for Stockholder Nominations
The Company's Certificate of Incorporation provides that any
stockholder desiring to make a nomination for the election of directors or a
proposal for new business at a meeting of stockholders must submit written
notice to the Secretary of the Company not less than 30 or more than 60 days in
advance of the meeting. The Certificate of Incorporation further provides that
if a stockholder seeking to make a nomination or a proposal for new business
fails to follow the prescribed procedures, the chairman of the meeting may
disregard the defective nomination or proposal. Management believes that it is
in the best interests of the Company and its stockholders to provide sufficient
time to enable management to disclose to stockholders information about a
dissident slate of nominations for directors. This advance notice requirement
may also give management time to solicit its own proxies in an attempt to defeat
any dissident slate of nominations should management determine that doing so is
in the best interest of stockholders generally. Similarly, adequate advance
notice of stockholder proposals will give management time to study such
proposals and to determine whether to recommend to the stockholders that such
proposals be adopted.
Amendment of Bylaws
The Company's Certificate of Incorporation provides that the Company's
Bylaws may be amended either by a two-thirds vote of the Company's Board of
Directors or by the affirmative vote of the holders of not less than 80% of the
outstanding shares of the Company's stock entitled to vote generally in the
election of directors, after giving effect to any limits on voting rights.
Absent this provision, Delaware law provides that a corporation's bylaws may be
amended by the holders of a majority of the votes cast at a meeting where a
quorum is present. The Company's Bylaws contain numerous provisions concerning
the Company's governance, such as fixing the number of directors and determining
the number of directors constituting a quorum. By reducing the ability of a
potential corporate raider to make changes in the Company's Bylaws and to reduce
the authority of the Board of Directors or impede its ability to manage the
Company, this provision could have the effect of discouraging a tender offer or
other takeover attempt where the ability to make fundamental changes through
bylaw amendments is an important element of the takeover strategy of the
acquiror.
Amendment of Certificate of Incorporation
The Company's Certificate of Incorporation provides that specified
provisions contained in the Certificate of Incorporation may not be repealed or
amended except upon the affirmative vote of not less than 80% of the outstanding
shares of the Company's stock entitled to vote generally in the election of
directors, after giving effect to any limits on voting rights. This requirement
exceeds the majority vote of the outstanding stock that would otherwise be
required by Delaware law for the repeal or amendment of a provision of the
Certificate of Incorporation. The specific provisions are those (i) governing
the calling of special meetings, the absence of cumulative voting rights and the
requirement that stockholder action be taken only at annual or special meetings,
(ii) requiring written notice to the Company of nominations for the election of
directors and new business proposals, (iii) governing the number of the
Company's Directors, the filling of vacancies on the Board of Directors and
classification of the Board of Directors, (iv) providing the mechanism for
removing directors, (v) limiting the acquisition of 10% or more of the capital
stock of the Company (except, with the prior approval of the Continuing
Directors of the Company), (vi) governing the requirement for the approval of
certain Business Combinations involving a "Related Person," (vii) regarding the
consideration of certain nonmonetary factors in the event of an offer by another
party, (viii) providing for the indemnification of directors, officers,
employees and agents of the Company, (ix) pertaining to the elimination of the
liability of the directors to the Company and its stockholders for monetary
damages, with certain exceptions, for breach of fiduciary duty, and (x)
governing the required stockholder vote for amending the Certificate of
Incorporation or Bylaws of the Company. This provision is intended to prevent
the holders of less than 80% of the outstanding stock of the Company from
circumventing any of the foregoing
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<PAGE>
provisions by amending the Certificate of Incorporation to delete or modify one
of such provisions. This provision would enable the holders of more than 20% of
the Company's voting stock to prevent amendments to the Company's Certificate of
Incorporation or Bylaws, even if such amendments were favored by the holders of
a majority of the voting stock.
Benefit Plans
In addition to the provisions of the Company's Certificate of
Incorporation and Bylaws described above, certain benefit plans of the Company
and the Converted Bank (or the Commercial Bank) adopted in connection with the
Conversion contain provisions which also may discourage hostile takeover
attempts which the Boards of Directors of the Converted Bank (or the Commercial
Bank) might conclude are not in the best interests of the Company, the Converted
Bank (or the Commercial Bank) or the Company's stockholders. For a description
of the benefit plans and the provisions of such plans relating to changes in
control of the Company or the Converted Bank (or the Commercial Bank), see
"Management of the Bank -- Certain Benefit Plans and Agreements."
The Purpose of and Anti-Takeover Effect of the Company's Certificate of
Incorporation and Bylaws
The Boards of Directors of the Company and the Bank believe that the
provisions described above reduce the 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 the
Company and the Converted Bank (or the Commercial Bank) in the orderly
deployment of the net proceeds of the Stock Conversion into productive assets
during the initial period after the Stock Conversion. The Boards of Directors
of the Company and the Bank believe these provisions are in the best interests
of the Converted Bank (and the Commercial Bank) and of the Company and its
stockholders. In the judgment of the Boards of Directors of the Company and the
Bank, the Company's Board of Directors is in the best position to consider all
relevant factors and to negotiate for what is in the best interests of the
stockholders and the Company's other constituents. Accordingly, the Boards of
Directors of the Company and the Bank believe that it is in the best interests
of the Company and its stockholders to encourage potential acquirors to
negotiate directly with the Company's Board of Directors, and that these
provisions will encourage such negotiations and discourage nonnegotiated
takeover attempts. It is also the view of the Board of Directors of the Company
that these provisions should not discourage persons from proposing a merger or
other transaction at prices reflective of the true value of the Company and
which is in the best interests of all stockholders.
Attempts to acquire control of financial institutions and their holding
companies have become increasingly common. Takeover attempts which have not
been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms which may be less favorable than
might otherwise be available. A transaction which is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value for the Company
and stockholders, with due consideration given to matters such as the management
and business of the acquiring corporation and maximum strategic development of
the Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause great expense. Although a tender offer or
other takeover attempt may be made at a price substantially above then current
market prices, such offers are sometimes made for less than all the outstanding
shares of a target company. As a result, stockholders 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 objectives may not be similar to those of the
remaining stockholders. The concentration of control that could result from a
tender offer or other takeover attempt could also deprive the Company's
remaining stockholders of certain protective provisions of the Exchange Act.
Despite the belief of the Company and the Bank as to the benefits to
stockholders of these provisions of the Company's Certificate of Incorporation
and Bylaws, these provisions may also have the effect of discouraging a future
takeover attempt which would not be approved by the Company's Board of Directors
but pursuant to which
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<PAGE>
the stockholders may receive a substantial premium for their shares over then
current market prices. As a result, stockholders who might desire to participate
in such a transaction may not have any opportunity to do so. Such provisions
will also render the removal of the Company's Board of Directors and management
more difficult and may tend to stabilize the Company's stock price, thus
limiting gains which might otherwise be reflected in price increases due to a
potential merger or acquisition. The Board of Directors, however, has concluded
that the potential benefits of these provisions outweigh the possible
disadvantages. Pursuant to applicable regulations, at any annual or special
meeting of its stockholders after the Stock Conversion, the Company may adopt
additional Certificate of Incorporation provisions regarding the acquisition of
its equity securities that would be permitted to a Delaware corporation. The
Company and the Bank do not presently intend to propose the adoption of further
restrictions on the acquisition of the Company's equity securities.
DESCRIPTION OF CAPITAL STOCK
General
The Company is authorized to issue 8,000,000 shares of Common Stock and
1,000,000 shares of serial preferred stock, $0.01 par value per share. The
Company currently expects to issue between 1,785,000 and 2,415,000 shares,
subject to adjustment, of the Common Stock and no shares of serial preferred
stock in the Stock Conversion. If the Option Plan is adopted and implemented,
the Company will reserve for future issuance under the Option Plan an amount of
authorized but unissued shares of Common Stock equal to 10% of the shares to be
issued in the Stock Conversion. THE CAPITAL STOCK OF THE COMPANY WILL REPRESENT
NONWITHDRAWABLE CAPITAL, WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL
NOT BE INSURED BY THE FDIC OR ANY OTHER FEDERAL OR STATE GOVERNMENTAL AGENCY.
Common Stock
Voting Rights. Each share of the Common Stock will have the same
relative rights and will be identical in all respects with every other share of
the Common Stock. The holders of the Common Stock will possess exclusive voting
rights in the Company, except to the extent that shares of serial preferred
stock issued in the future may have voting rights, if any. Each holder of
shares of the Common Stock will be entitled to one vote for each share held of
record on all matters submitted to a vote of holders of shares of the Common
Stock. For information regarding a possible reduction in voting rights, see
"Certain Anti-Takeover Provisions in the Certificate of Incorporation and Bylaws
- -- Restrictions on Acquisitions of Securities."
Dividends. The Company may, from time to time, declare dividends to
the holders of the Common Stock, who will be entitled to share equally in any
such dividends. For information as to cash dividends, see "Dividend Policy",
"Regulation -- Depository Institution Regulation -- Dividend Restrictions" and
"Taxation."
Liquidation. In the event of any liquidation, dissolution or winding
up of the Converted Bank (or the Commercial Bank), the Company, as holder of all
of the Converted Bank's (or Commercial Bank's) capital stock, would be entitled
to receive all assets of the Converted Bank (or the Commercial Bank) after
payment of all debts and liabilities of the Converted Bank (or the Commercial
Bank) and after distribution of the balance in the liquidation account to
Eligible Account Holders and Supplemental Eligible Account Holders. In the
event of a liquidation, dissolution or winding up of the Company, each holder of
shares of the Common Stock would be entitled to receive, after payment of all
debts and liabilities of the Company, a pro rata portion of all assets of the
Company available for distribution to holders of the Common Stock. If any
serial preferred stock is issued, the holders thereof may have a priority in
liquidation or dissolution over the holders of the Common Stock. The Bank
Conversion shall not be considered a "liquidation" of the Converted Bank, and
the Commercial Bank will continue to maintain the liquidation account
established by the Converted Bank in the Stock Conversion according to the same
terms.
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<PAGE>
Restrictions on Acquisition of the Common Stock. For information
regarding limitations on acquisition of shares of the Common Stock, see "Certain
Restrictions on Acquisition of the Company, the Converted Bank and the
Commercial Bank," "Certain Anti-Takeover Provisions in the Certificate of
Incorporation and Bylaws" and "The Conversion -- Regulatory Restrictions on
Acquisition of the Common Stock."
Other Characteristics. Holders of the Common Stock will not have
preemptive rights with respect to any additional shares of the Common Stock
which may be issued. The Common Stock is not subject to call for redemption,
and the outstanding shares of the Common Stock, when issued and upon receipt by
the Company of the full purchase price therefor, will be fully paid and
nonassessable.
Transfer Agent and Registrar. The transfer agent and registrar for the
Common Stock will be ___________________________________________________.
Serial Preferred Stock
None of the 1,000,000 authorized shares of serial preferred stock of
the Company will be issued in the Stock Conversion. After the Stock Conversion
is completed, the Board of Directors of the Company will be authorized to issue
serial preferred stock and to fix and state voting powers, designations,
preferences or other special rights of such shares and the qualifications,
limitations and restrictions thereof. The serial preferred stock may rank prior
to the Common Stock as to dividend rights or liquidation preferences, or both,
and may have full or limited voting rights. The Board of Directors has no
present intention to issue any of the serial preferred stock. Should the Board
of Directors of the Company subsequently issue serial preferred stock, no holder
of any such stock shall have any preemptive right to subscribe for or purchase
any stock or any other securities of the Company other than such, if any, as the
Board of Directors, in its sole discretion, may determine and at such price or
prices and upon such other terms as the Board of Directors, in its sole
discretion, may fix.
REGISTRATION REQUIREMENTS
The Company will register its Common Stock with the SEC pursuant to the
Exchange Act upon the completion of the Stock Conversion and will not deregister
said shares for a period of at least three years following the completion of the
Stock Conversion. Upon such registration, the proxy and tender offer rules,
insider trading reporting and restrictions, annual and periodic reporting and
other requirements of the Exchange Act will be applicable. The Company intends
to have a fiscal year end of September 30.
LEGAL OPINIONS
The legality of the Common Stock will be passed upon for the Company by
Housley Kantarian & Bronstein, P.C., Washington, D.C. Housley Kantarian &
Bronstein, P.C. has consented to the references herein to its opinion. Certain
legal matters will be passed upon for Trident Securities by Brooks, Pierce,
McLendon, Humphrey & Leonard, L.L.P., Greensboro, North Carolina.
TAX OPINIONS
The federal income tax consequences of the Stock Conversion will be
passed upon by Housley Kantarian & Bronstein, P.C., Washington, D.C. Housley
Kantarian & Bronstein, P.C. has consented to the references herein to its
opinion. The North Carolina income tax consequences of the Stock Conversion
will be passed upon by Coopers & Lybrand L.L.P., which has consented to the
references herein to its opinion.
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<PAGE>
EXPERTS
The financial statements of Home Savings Bank, SSB at September 30,
1996 and 1995 and for the three years then ended have been included herein in
reliance upon the report of Coopers & Lybrand L.L.P., independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
Ferguson has consented to the publication herein of the summary of its
letter to the Bank setting forth its opinion as to the estimated pro forma
aggregate market value of the Common Stock to be issued in the Stock Conversion
and the value of Subscription Rights to purchase the Common Stock and to the use
of its name and statements with respect to it appearing herein.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement on Form S-1
(File No. 333-_________) under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. Such information may be
inspected at the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549. Copies may be obtained at
prescribed rates from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC at
75 Park Place, Fourteenth Floor, New York, New York 10007 and Room 3190,
John C. Kluczynski Building, 230 South Dearborn Street, Chicago, Illinois 60604.
Copies of such material can be obtained by mail from the SEC at prescribed rates
from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the SEC maintains a World Wide Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC, including the
Company. The address for the SEC's Website is "http://www.sec.gov". The
statements contained in this Prospectus as to the contents of any contract or
other document filed as an exhibit to the registration statement are, of
necessity, brief descriptions thereof and are not necessarily complete; each
such statement is qualified by reference to such contract or document.
The Bank has filed an Application to Convert a Mutual Savings Bank to a
Stock Owned Savings Bank with the Administrator. Pursuant to the North Carolina
conversion regulations, this Prospectus omits certain information contained in
such Application. The Application, which contains a copy of Ferguson's
appraisal, may be inspected at the office of the Administrator, Savings
Institutions Division, North Carolina Department of Commerce, Tower Building,
Suite 301, 1110 Navaho Drive, Raleigh, North Carolina 27609. Copies of the
Plan of Conversion, which includes a copy of the Converted Bank's proposed
Amended and Restated Certificate of Incorporation and Bylaws, are available for
inspection at each office of the Bank and may be obtained by writing to the Bank
at 1311 Carolina Avenue, Washington, North Carolina 27889; Attention Thomas A.
Vann, President or by telephoning the Bank at (919) 946-4178. A copy of
Ferguson's independent appraisal is also available for inspection at the Stock
Information Center.
121
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-1
Consolidated Statements of Financial Condition as of F-2
September 30, 1996 and 1995
Consolidated Statements of Operations for the Years Ended F-3
September 30, 1996, 1995 and 1994
Consolidated Statements of Retained Income for the Years Ended F-4
September 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended F-5
September 30, 1996, 1995 and 1994
Notes to Financial Statements F-7
</TABLE>
Schedules - All schedules are omitted because the required information is not
applicable or is presented in the financial statements or accompanying notes.
All financial statements of NewSouth Bancorp, Inc. have been omitted because
NewSouth Bancorp, Inc. has not yet issued any stock, has no assets and no
liabilities and has not conducted any business other than of an organizational
nature.
122
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Home Savings Bank, SSB
Washington, North Carolina
We have audited the accompanying consolidated statements of financial condition
of Home Savings Bank, SSB and subsidiary as of September 30, 1996 and 1995, and
the related consolidated statements of operations, retained income, and cash
flows for each of the years in the three year period then ended. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Home Savings Bank, SSB
and subsidiary at September 30, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the years in the three year
period then ended in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Bank
changed its methods of accounting for securities and income taxes in 1995 and
1994, respectively. Additionally, the 1995 financial statements have been
revised for certain amounts related to other liabilities, as discussed in Note
7.
/s/ Coopers & Lybrand, LLP
Raleigh, North Carolina
October 18, 1996
<PAGE>
HOME SAVINGS BANK, SSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
Cash and due from banks $ 2,811,326 $ 1,714,010
Interest-bearing deposits in financial institutions 5,765,251 71,676
Investment securities:
Available-for-sale 8,106,581 -
Held-to-maturity (estimated market value of $3,130,000 in 1995) - 3,001,640
Mortgage-backed securities:
Available-for-sale 14,797,424 9,071,836
Held-to-maturity (estimated market value of $13,114,000 in 1995) - 13,213,376
Loans receivable, net:
Held for sale 21,627,590 19,506,762
Held for investment 134,053,705 125,033,882
Premises and equipment, net 2,900,421 3,013,472
Income taxes refundable 385,373 -
Deferred income taxes 223,983 -
Real estate owned 178,509 68,555
Federal Home Loan Bank stock, at cost 1,287,500 1,287,500
Accrued interest receivable 1,382,569 1,243,022
Prepaid expenses and other assets 618,921 478,314
----------- -----------
Total assets $ 194,139,153 $ 177,704,045
=========== ===========
LIABILITIES AND RETAINED INCOME
Deposits:
Demand $ 27,334,469 $ 15,952,633
Savings 7,019,797 6,890,429
Time 136,859,020 130,613,966
----------- -----------
Total deposits 171,213,286 153,457,028
Borrowed money 1,039,608 4,000,000
Accrued interest payable 67,939 62,615
Income taxes payable - 75,720
Deferred income taxes - 321,162
Advance payments by borrowers for property taxes and
insurance 383,517 309,870
Other liabilities 3,088,232 1,789,581
----------- -----------
Total liabilities 175,792,582 160,015,976
Commitments and contingencies (Notes 4, 7, 8, 11, 13 and 14)
Retained income, substantially restricted 18,346,571 17,688,069
----------- -----------
Total liabilities and retained income $ 194,139,153 $ 177,704,045
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
HOME SAVINGS BANK, SSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 13,430,797 $ 12,511,035 $ 10,016,284
Interest and dividends on investments and deposits 1,918,876 1,874,173 1,794,392
----------- ----------- -----------
Total interest income 15,349,673 14,385,208 11,810,676
----------- ----------- -----------
Interest expense:
Interest on deposits 7,939,014 6,610,023 4,415,762
Interest on borrowings 166,438 733,993 788,231
----------- ----------- -----------
Total interest expense 8,105,452 7,344,016 5,203,993
----------- ----------- -----------
Net interest income before provision for possible loan
losses 7,244,221 7,041,192 6,606,683
Provision for possible loan losses 511,000 20,000 210,000
Net interest income 6,733,221 7,021,192 6,396,683
Other income:
Loan fees and service charges 552,169 402,054 377,059
Loan servicing fees 631,866 581,844 580,273
Gain on sale of real estate, net 33,628 64,513 1,300
Gain on sale of mortgage loans and mortgage-
backed securities 423,113 312,325 580,663
Other income 191,768 141,613 113,118
----------- ----------- -----------
Total other income 1,832,544 1,502,349 1,652,413
----------- ------------ -----------
General and administrative expenses:
Compensation and fringe benefits 3,569,144 3,431,537 2,762,002
Federal insurance premiums 353,585 304,802 251,204
Insurance fund special assessment 946,020 - -
Premises and equipment 798,119 542,840 470,756
Advertising 102,762 93,634 80,602
Payroll and other taxes 286,949 259,786 247,863
Other 1,238,180 1,027,622 988,777
----------- ----------- -----------
Total general and administrative expenses 7,294,759 5,660,221 4,801,204
----------- ----------- -----------
Income before income taxes and cumulative effect of
change in method of accounting for income taxes 1,271,006 2,863,320 3,247,892
Income taxes 450,517 998,080 1,260,900
----------- ----------- -----------
Income before cumulative effect of change in method of
accounting for income taxes 820,489 1,865,240 1,986,992
Cumulative effect, at October 1, 1993, of change in
method of accounting for income taxes - - 250,000
----------- ----------- -----------
Net income $ 820,489 $ 1,865,240 $ 2,236,992
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
HOME SAVINGS BANK, SSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF RETAINED INCOME
for the years ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION> UNREALIZED GAINS
(LOSSES) ON
RETAINED INCOME, SECURITIES
SUBSTANTIALLY AVAILABLE-FOR-SALE,
RESTRICTED NET OF TAXES TOTAL
--------------- ------------------ ---------------
<S> <C> <C> <C>
Balance at October 1, 1993 $ 13,383,315 $ - $ 13,383,315
Net income 2,236,992 - 2,236,992
--------------- ------------------ ---------------
Balance at September 30,
1994 15,620,307 - 15,620,307
Adjustment to October 1,
1994 balance for change in
method of accounting
for securities, net
of taxes - 46,431 46,431
Change in net unrealized
gain on securities
available-for-sale,
net of taxes - 156,091 156,091
Net income, as restated
(Note 7) 1,865,240 - 1,865,240
--------------- ------------------ --------------
Balance at September 30,
1995 17,485,547 202,522 17,688,069
Change in net unrealized
gains (losses) on
securities available-for-sale,
net of taxes - (161,987) (161,987)
Net income 820,489 - 820,489
--------------- ----------------- ---------------
Balance at September $ 18,306,036 $ 40,535 $ 18,346,571
30, 1996 =============== ================= ===============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
HOME SAVINGS BANK, SSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended September 30, 1996 ,1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Operating activities:
Net income $ 820,489 $ 1,865,240 $ 2,236,992
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Provision for loan losses 511,000 20,000 210,000
Provision for loss on mortgage-backed securities
held for sale - - 8,415
Depreciation 449,104 228,684 183,771
Amortization (accretion) of discounts on securities 19,918 123 (375)
Provision for deferred income taxes (440,704) (241,196) 200,995
Gain on disposal of premises and equipment
and real estate acquired in settlement of loans (36,293) (64,432) (3,568)
Gain on sale of mortgage loans and mortgage-
backed securities (423,113) (312,325) (580,663)
Loan originations, net of principal repayments, of
loans held for sale (55,047,196) (47,101,448) (49,765,496)
Proceeds from principal repayments and sales of
mortgage-backed securities available-for-sale 8,832,521 2,877,591 12,685,406
Proceeds from sale of loans held for sale 51,656,899 37,707,880 74,135,564
Changes in assets and liabilities:
Accrued interest receivable (139,547) (224,259) (128,021)
Income taxes refundable (385,373) 259,334 (259,334)
Prepaid expenses and other assets (140,607) 139,817 51,786
Accrued interest payable 5,324 (40,069) (43,240)
Income taxes payable (75,720) 75,720 (308,541)
Other liabilities and advance payments 1,372,298 350,304 (98,897)
------------- ------------- -------------
Net cash provided by (used in) operating
activities 6,979,000 (4,459,036) 38,524,794
------------- ------------- -------------
Investing activities:
Proceeds from maturities of securities held-to-maturity 1,000,000 1,000,000 -
Proceeds from disposal of premises and equipment and
real estate acquired in settlement of loans 238,564 282,474 208,049
Purchases of investment securities (6,043,438) (3,001,857) -
Redemptions (purchases) of Federal Home Loan Bank
stock - (38,400) 125,900
Purchases of premises and equipment (351,588) (594,301) (917,643)
Loan originations, net of principal repayments of loans
held for investment (9,827,513) (5,580,606) (56,548,580)
------------- ------------- -------------
Net cash used in investing activities (14,983,975) (7,932,690) (57,132,274)
------------- ------------- -------------
</TABLE>
(Continued)
5
<PAGE>
HOME SAVINGS BANK, SSB AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
for the years ended September 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Financing activities:
Net increase in deposit accounts $ 17,756,258 $ 21,864,747 $ 27,947,329
Proceeds from borrowings 25,039,608 42,000,000 71,500,000
Repayments of borrowings (28,000,000) (54,500,000) (81,500,000)
------------- ------------- -------------
Net cash provided by financing activities 14,795,866 9,364,747 17,947,329
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents 6,790,891 (3,026,979) (660,151)
Cash and cash equivalents, beginning of year 1,785,686 4,812,665 5,472,816
------------- ------------- -------------
Cash and cash equivalents, end of year $ 8,576,577 $ 1,785,686 $ 4,812,665
============= ============= =============
Supplemental disclosures:
Real estate acquired in settlement of loans $ 296,690 $ 110,636 $ 259,948
Exchange of loans for mortgage-backed securities $ 1,545,859 $ 6,288,164 $ 15,017,369
Proceeds from note payable for balance owed on
purchase of property $ - $ - $ 49,329
Unrealized securities gains (losses), net $ (161,987) $ 202,522 $ -
Transfers to securities available-for-sale $ 16,215,016 $ 3,233,839 $ -
Cash paid for interest $ 8,100,128 $ 7,384,085 $ 5,256,901
Cash paid for income taxes $ 1,327,315 $ 904,222 $ 1,273,949
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
HOME SAVINGS BANK, SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Home Savings Bank, SSB is a North Carolina chartered savings bank regulated
by the Federal Deposit Insurance Corporation and the North Carolina Savings
Institutions Administrator.
Effective September 30, 1996, Home Savings Bank, SSB dissolved its wholly-
owned subsidiary, Tidewater Financial Services Corporation. The results of
operations of the subsidiary are included through the date of dissolution
in these financial statements. Significant intercompany balances and
transactions were eliminated in consolidation.
The significant policies are summarized below:
a. Investments and Mortgage-Backed Securities - On October 1, 1994, the
------------------------------------------
Bank adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS
No. 115). Investments in certain securities are classified into three
categories and accounted for as follows: (1) debt securities that the
entity has the positive intent and the ability to hold to maturity are
classified as held-to-maturity and reported at amortized cost; (2) debt
and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses
included in earnings; (3) debt and equity securities not classified as
either held-to-maturity securities or trading securities are classified
as available-for-sale securities and reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a
separate component of equity. As of September 30, 1996, the Bank has
classified all investments as available-for-sale. During 1996 the Bank
transferred investments classified as held-to-maturity to available-for-
sale in accordance with a one-time amnesty on transfers provided by the
Financial Accounting Standards Board.
Premium and discounts on debt securities are recognized in interest
income on the level interest yield method over the period to maturity.
Mortgage-backed securities represent participating interests in pools of
long-term first mortgage loans originated and serviced by the issuers of
the securities. Premiums and discounts are amortized using the interest
method over the remaining period to contractual maturity, adjusted for
anticipated prepayments.
Gains and losses on the sale of securities are determined using the
specific identification method.
7
<PAGE>
HOME SAVINGS BANK, SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)
b. Loans Receivable Held for Investment - Loans receivable held for
------------------------------------
investment are stated at the amount of unpaid principal, reduced by an
allowance for loan losses and net deferred origination fees. Interest on
loans is accrued based on the principal amount outstanding and is
recognized on a level yield method. The accrual of interest is
discontinued, and accrued but unpaid interest is reversed when, in
management's judgment, it is determined that the collectibility of
interest, but not necessarily principal, is doubtful. Generally, this
occurs when payment is delinquent in excess of ninety days.
Loan origination fees are deferred, as well as certain direct loan
origination costs. Such costs and fees are recognized as an adjustment
to yield over the contractual lives of the related loans utilizing the
interest method.
Commitment fees to originate or purchase loans are deferred, and if the
commitment is exercised, recognized over the life of the loan as an
adjustment of yield. If the commitment expires unexercised, commitment
fees are recognized in income upon expiration of the commitment. Fees
for originating loans for other financial institutions are recognized as
loan fee income.
Effective October 1, 1995, the Bank adopted Statement of Financial
Accounting Standards No. 114 (SFAS No. 114), "Accounting by Creditors
for Impairment of a Loan," and Statement of Financial Accounting
Standards No. 118 (SFAS No. 118), "Accounting by Creditors for
Impairment of a Loan -Income Recognition and Disclosure." A loan is
considered impaired, based on current information and events, if it is
probable that the Bank will be unable to collect the scheduled payments
of principal or interest when due according to the contractual terms of
the loan agreement. Uncollaterlized loans are measured for impairment
based on the present value of expected future cash flows discounted at
the historical effective interest rate, while all collateral-dependent
loans are measured for impairment based on the fair value of the
collateral. The adoption of SFAS 114 and 118 resulted in no additional
provision for credit losses, at October 1, 1995. At September 30, 1996
there were no loans for which impairment was required to be recorded in
accordance with SFAS 114 and SFAS 118.
The Bank uses several factors in determining if a loan is impaired under
SFAS No. 114. The internal asset classification procedures include a
thorough review of significant loans and lending relationships and
include the accumulation of related data. This data includes loan
payment status, borrowers' financial data and borrowers' operating
factors such as cash flows, operating income or loss, etc.
8
<PAGE>
HOME SAVINGS BANK, SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)
c. Loans Held for Sale - Loans originated and intended for sale are carried
-------------------
at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized in a valuation allowance by charges to
income. Gains and losses on sales of whole or participating interests in
real estate loans are recognized at the time of sale and are determined
by the difference between net sales proceeds and the Bank's basis of the
loans sold, adjusted for the present value of any yield differential
after allowing for a normal servicing fee in subsequent periods.
d. Allowance for Loan Losses - The allowance for loan losses is increased
-------------------------
by charges to income and decreased by charge-offs (net of recoveries).
Management's periodic evaluation of the adequacy of the allowance is
based on the Bank's past loan loss experience, known and inherent risks
in the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral, and
current economic conditions. While management believes that it has
established the allowance in accordance with generally accepted
accounting principles and has taken into account the views of its
regulators and the current economic environment, there can be no
assurance that in the future the Bank's regulators or its economic
environment will not require further increases in the allowance.
e. Income Recognition on Impaired and Nonaccrual Loans - Loans, including
---------------------------------------------------
impaired loans, are generally classified as nonaccrual if they are past
due as to maturity or payment of principal or interest for a period of
more than 90 days, unless such loans are well-secured and in the process
of collection. If a loan or a portion of a loan is classified as
doubtful or is partially charged off, the loan is generally classified
as nonaccrual. Loans that are on a current payment status or past due
less than 90 days may also be classified as nonaccrual if repayment in
full of principal and/or interest is in doubt.
Loans may be returned to accrual status when all principal and interest
amounts contractually due (including arrearages) are reasonably assured
of repayment within an acceptable period of time, and there is a
sustained period of repayment performance (generally a minimum of six
months) by the borrower, in accordance with the contractual terms of
interest and principal.
While a loan is classified as nonaccrual and the future collectibility
of the recorded loan balance is doubtful, collections of interest and
principal are generally applied as a reduction to principal outstanding,
except in the case of loans with scheduled amortization where the
payment is generally applied to the oldest payment due. When the future
collectibility of the recorded loan balance is expected, interest income
may be recognized on a cash basis limited to that which would have been
recognized on the recorded loan balance at the contractual interest
rate. Receipts in excess of that amount are recorded as recoveries to
the allowance for loan losses until prior charge-offs have been fully
recovered.
9
<PAGE>
HOME SAVINGS BANK, SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)
f. Office Properties and Equipment - Provisions for depreciation of office
-------------------------------
properties and equipment, which are stated at cost, are computed by use
of straight-line and accelerated methods.
g. Real Estate Owned - Assets acquired through loan foreclosure or deed in
-----------------
lieu of foreclosure in settlement of mortgage loan indebtedness are
recorded as real estate owned at the lower of the estimated fair value
of the underlying real estate or the carrying amount of the loan. Costs
to maintain the assets and subsequent gains and losses attributable to
their disposal are included in other income and general and
administrative expenses. Property acquired by deed in lieu of
foreclosure results when a borrower voluntarily transfers title to the
Bank in full settlement of the related debt in an attempt to avoid
foreclosure.
h. Investment in Federal Home Loan Bank Stock - The Bank is required to
------------------------------------------
invest in stock of the Federal Home Loan Bank of Atlanta (FHLB) in the
amount of 1% of its outstanding home loans or 5% of its outstanding
advances from the FHLB, whichever is greater. At both September 30, 1996
and 1995, the Bank owned 12,875 shares of the FHLB's $100 par value
capital stock.
i. Insurance of Accounts - Eligible savings accounts are insured up to
---------------------
$100,000 by the Savings Association Insurance Fund ("SAIF") which is
administered by the Federal Deposit Insurance Corporation ("FDIC").
j. Income Taxes - Effective October 1, 1993, the Bank adopted Statement of
------------
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for
Income Taxes." This statement requires that all deferred tax asset and
liability balances be determined by application to temporary differences
of the tax rate expected to be in effect when taxes will become payable
or receivable. Temporary differences are differences between tax basis
of assets and liabilities and their reported amounts in the financial
statements that will result in taxable or deductible amounts in future
years. Net income for the year ended September 30, 1994 includes income
of $250,000 which represents the net change in deferred taxes as of
October 1, 1993. Such amount has been reflected separately in the
consolidated statement of operations as a cumulative effect on prior
years of a change in accounting principle.
k. Cash and cash equivalents - Cash and cash equivalents include demand and
-------------------------
time deposits (with remaining maturities of ninety days or less at time
of purchase) at other financial institutions and federal funds sold.
Generally, federal funds are purchased and sold for one-day periods.
l. Reclassifications - Certain items included in the 1995 and 1994
-----------------
financial statements have been reclassified to conform to the 1996
presentation. These reclassifications have no effect on the net income
or retained income previously reported.
10
<PAGE>
HOME SAVINGS BANK, SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. INVESTMENT SECURITIES
At September 30, 1996 and 1995, the Bank has classified investment
securities in the consolidated financial statements according to
management's intent. Investment securities at September 30, 1996 and 1995
are summarized as follows:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED GROSS UNREALIZED MARKET
-----------------------
COST GAINS LOSSES VALUE
----------- --------- ---------- -----------
<S> <C> <C> <C> <C>
1996:
Available for sale:
U. S. government agency
obligations $ 5,025,160 $ 81,421 $ - $ 5,106,581
State and political
subdivisions 3,000,000 - - 3,000,000
---------- -------- -------- ----------
$ 8,025,160 $ 81,421 $ - $ 8,106,581
========== ======== ======== ==========
1995:
Held to maturity:
U.S. government agency
obligations $ 3,001,640 $ 121,760 $ - $ 3,123,760
========== ======== ======== ==========
</TABLE>
Investment securities at September 30, 1996 will mature on the following
schedule:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
------------- -------------
<S> <C> <C>
Due in one year or less $ 5,023,891 $ 5,035,908
Due after one year through five years 3,001,269 3,070,673
----------- -----------
$ 8,025,160 $ 8,106,581
=========== ===========
</TABLE>
11
<PAGE>
HOME SAVINGS BANK, SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENT SECURITIES (CONTINUED)
The weighted average interest yield for investment securities was
approximately 6.51% and 6.50% at September 30, 1996 and 1995, respectively.
3. MORTGAGE-BACKED SECURITIES
Mortgage-backed securities at September 30, 1996 and 1995 are classified in
the consolidated financial statements according to management's intent and
summarized as follows:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED GROSS UNREALIZED MARKET
-----------------------
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1996:
Available-for-sale:
FHLMC participation
certificates, maturing from
years 2004 to 2025 $14,812,070 $ 143,156 $ 157,802 $14,797,424
========== ========= ========= ==========
1995:
Available-for-sale:
FHLMC participation
certificates, maturing from
years 2006 to 2022 $ 8,738,632 $ 333,204 $ - $ 9,071,836
========== ========= ========= ==========
Held-to-maturity:
FHLMC participation
certificates, maturing from
years 2003 to 2008 $13,213,376 $ 48,246 $ 147,622 $13,114,000
========== ========= ========= ==========
</TABLE>
Mortgage-backed securities at September 30, 1996 will mature on the
following schedule:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
------------- -------------
<S> <C> <C>
Due after five years through ten years $ 3,806,887 $ 3,813,028
Due after ten years 11,005,183 10,984,396
------------ ------------
$ 14,812,070 $ 14,797,424
============ ============
</TABLE>
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
12
<PAGE>
HOME SAVINGS BANK, SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. MORTGAGE-BACKED SECURITIES (CONTINUED)
Mortgage-backed securities with a carrying value of $5,566,420, $776,757
and $6,200,514 were sold during the years ended September 30, 1996, 1995,
and 1994, respectively. Gross gains realized on the sales of mortgage-
backed securities were $146,723, $6,112 and $128,495 during 1996, 1995 and
1994, respectively.
Mortgage-backed securities with a carrying value of approximately
$2,089,000 and $2,708,000 were pledged as collateral for deposits from
public entities at September 30, 1996 and 1995, respectively.
The weighted average interest yield for mortgage-backed securities was
approximately 7.37% at September 30,1996 and 7.98% at September 30, 1995.
4. LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Mortgage loans $ 94,813,285 $ 102,113,233
Consumer loans 37,422,945 29,683,851
Commercial loans 41,496,450 25,587,596
------------ ------------
Total 173,732,680 157,384,680
Less:
Loans in process (15,244,463) (10,625,755)
Allowance for loan losses (2,351,309) (1,876,954)
Deferred loan fees (455,613) (341,327)
------------ ------------
Loans receivable, net $ 155,681,295 $ 144,540,644
============ ============
Weighted average contractual yield 8.82% 8.64%
============ ============
</TABLE>
At September 30, 1996, the Bank had entered into a security agreement with
a blanket floating lien pledging all of its real estate loans to secure
actual or potential borrowings from the Federal Home Loan Bank of Atlanta
(See Note 8).
During 1996, 1995 and 1994, the Bank exchanged loans with outstanding
principal balances of $1,545,859, $6,288,164 and $15,017,369, respectively,
with the Federal Home Loan Mortgage Corporation ("FHLMC") for mortgage-
backed securities of equal value.
The Bank originates mortgage loans for portfolio investment or sale in the
secondary market. During the period of origination, mortgage loans are
designated as either held for sale or investment purposes. Transfers of
loans held for sale to the investment portfolio are recorded at the lower
of cost or market value on the transfer date. Loans receivable held for
sale at September 30, 1996 and 1995, are fixed rate mortgage loans with an
estimated market value of approximately $21,600,000, and $19,900,000,
respectively.
13
<PAGE>
HOME SAVINGS BANK, SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LOANS RECEIVABLE (CONTINUED)
Net gains on sales of loans receivable held for sale amounted to $276,390,
$306,213 and $452,168 during the years ended September 30, 1996, 1995 and
1994, respectively.
The changes in the allowance for loan losses for the years ended September
30, 1996, 1995, and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $ 1,876,954 $ 1,977,327 $ 1,843,446
Provisions for loan losses 511,000 20,000 210,000
Loans charged off (62,559) (122,000) (78,481)
Recoveries 25,914 1,627 2,362
---------- --------- ---------
Balance at end of year $ 2,351,309 $ 1,876,954 $ 1,977,327
========== ========== ==========
</TABLE>
The following is a summary of the principal balances of loans on nonaccrual
status and loans past due ninety days or more:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Loans contractually past due 90 days or more and/or on
nonaccrual status:
Residential $ 1,022,521 $ 660,432
Consumer and commercial 11,358 20,147
--------- ---------
Balance at end of year $ 1,033,879 $ 680,579
========= =========
</TABLE>
During the years ended September 30, 1996, 1995 and 1994, interest income
of approximately $44,000 $23,000 and $17,000, respectively, was not
recorded related to loans accounted for on a nonaccrual basis.
5. PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land $ 935,560 $ 634,079
Office buildings 2,488,976 2,488,976
Furniture, fixtures and equipment 1,073,120 1,166,989
Vehicles 174,343 190,540
---------- ----------
4,671,999 4,480,584
Less accumulated depreciation 1,771,578 1,467,112
---------- ----------
Total $ 2,900,421 $ 3,013,472
========== ==========
</TABLE>
14
<PAGE>
HOME SAVINGS BANK, SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------ -----------------------------
WEIGHTED WEIGHTED
AVERAGE BALANCE AVERAGE BALANCE
RATE (IN 000'S) RATE (IN 000'S)
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Demand deposits:
NOW accounts .61% $ 17,079 .93% $ 11,752
Money market deposits 4.20 10,256 2.87 4,201
------------- -------------
Total demand deposits 27,335 15,953
------------- -------------
Savings deposits - passbook 2.0 7,020 2.43 6,890
------------- -------------
Certificates of deposit:
3 months or less 4.01 4,734 3.90 4,774
6 months 4.83 8,821 5.58 9,075
7 months 4.89 3,445 5.81 9,675
9 months 5.66 35,962 6.44 17,873
12 months 5.24 36,753 6.04 51,838
14 months 5.93 2,772 6.52 1,166
15-72 months 6.02 44,371 6.06 36,213
------------- -------------
Total certificates of
deposit 5.54 136,858 5.98 130,614
------------- -------------
Total deposits 4.82% $ 171,213 5.35% $ 153,457
============= =============
</TABLE>
Certificate accounts at September 30, 1996 are summarized by maturity as
follows (in 000's):
Within one year $ 111,256
One year through three years 24,702
After three years 900
-----------
$ 136,858
===========
Interest expense on deposits for the years ended September 30, 1996,
1995, and 1994 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Demand deposits $ 305,475 $ 167,903 $ 263,166
Savings deposits 144,713 170,954 179,855
Certificates of deposit 7,488,826 6,271,166 3,972,741
------------ ------------- ------------
$ 7,939,014 $ 6,610,023 $ 4,415,762
============ ============= ============
</TABLE>
7. EMPLOYEE BENEFIT PLANS
15
<PAGE>
HOME SAVINGS BANK, SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective October 1, 1994, the Bank participates in a multiemployer defined
benefit pension plan which covers substantially all employees. Expenses of
the plan for the years ended September 30, 1996 and 1995 were $137,000 and
$123,154, respectively.
Before October 1, 1994, the Bank maintained a noncontributory defined
benefit pension plan ("the Plan") for substantially all employees. The
Bank's funding policy was to contribute amounts determined in accordance
with the minimum contributions requirements of the Internal Revenue Service
regulations. Expenses of the plan for the year ended September 30, 1994
were $82,908.
Effective July 1, 1995, the Bank participates in a multiemployer defined
contribution plan which covers substantially all employees. Under the plan,
employees may contribute from 1% to 15% of compensation, subject to an
annual maximum as determined by the Internal Revenue Code. The Bank makes
matching contributions of 50% of employees' contributions up to 6% of the
employees' salaries. The plan provides that employees' contributions are
100% vested at all times and the Bank's contributions vest 25% for each
year of service. Until July 1, 1995, the Bank maintained a profit sharing
401(k) plan. The expenses related to the Bank's contributions to these
plans for the years ended September 30, 1996, 1995 and 1994 were $46,171,
$37,074 and $28,722, respectively.
Directors and certain officers participate in deferred compensation plans.
These plans generally provide for fixed payments beginning at retirement.
These payments are earned over service periods of up to ten years, and can
include provisions for deferral of current payments. The expense related to
these plans during the years ended September 30, 1996, 1995 and 1994
aggregated $463,250, $582,022 and $235,180, respectively. The plans
generally include provisions for forfeitures of unvested portions of
payments, and vesting in the event of death or disability. During 1996 it
was discovered that the accrual for these plans was understated as of
September 30, 1995. The effect of this understatement was that other
liabilities were understated by $270,000, deferred tax assets were
understated by $100,000, income taxes payable were overstated by $30,000
and income was overstated by $140,000 as of September 30, 1995. The
previously reported financial results for the year ended September 30, 1995
have been restated for the effect of this error.
8. BORROWED MONEY
Borrowed money represents advances from the Federal Home Loan Bank of
Atlanta and repurchase agreements. Advances from the Federal Home Loan Bank
totaled $0 and $4,000,000 at September 30, 1996 and 1995, respectively.
During 1996 the Bank entered into repurchase agreements. At September 30,
1996 repurchase agreements outstanding had a rate of 4.31% and totaled
$1,039,608.
Repurchase agreements are collateralized by U.S. government agency
obligations with a principal balance of $2,000,000.
16
<PAGE>
HOME SAVINGS BANK, SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. BORROWED MONEY (CONTINUED)
The Bank has pledged all of its stock in the Federal Home Loan Bank of
Atlanta and entered into a security agreement with a blanket floating lien
pledging qualifying real estate loans, to secure actual or potential
borrowings, at least equal to 133-1/3% of the advances outstanding from the
FHLB. At September 30, 1996, the Bank had an additional $8 million of
credit available with the Federal Home Loan Bank of Atlanta.
9. INCOME TAXES
The components of income taxes for the years ended September 30, 1996, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current:
Federal $ 766,558 $ 1,034,106 $ 652,390
State 124,663 205,170 157,515
----------- ----------- -----------
Total current 891,221 1,239,276 809,905
----------- ----------- -----------
Deferred:
Federal (360,903) (211,224) 368,495
State (79,801) (29,972) 82,500
----------- ----------- -----------
Total deferred (440,704) (241,196) 450,995
----------- ----------- -----------
Total $ 450,517 $ 998,080 $ 1,260,900
=========== =========== ===========
</TABLE>
Reconciliations of expected income tax at the statutory Federal rate of 34%
with income tax expense for the years ended September 30, 1996, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Expected income tax expense $ 432,142 $ 973,529 $ 1,104,283
State income taxes net of federal income tax
benefit 26,671 115,631 162,690
Rehabilitation credit - (28,666) -
Other (8,296) (62,414) (6,073)
----------- ----------- -------------
$ 450,517 $ 998,080 $ 1,260,900
=========== =========== =============
</TABLE>
17
<PAGE>
HOME SAVINGS BANK, SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES (CONTINUED)
The components of the net deferred income tax liability and asset are as
follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred income tax assets:
Deferred directors' fees $ 443,911 $ 358,657
Bad debt reserve 331,007 193,221
Deferred employee benefits 136,284 81,215
----------- -----------
911,202 633,093
----------- -----------
Deferred income tax liabilities:
Loans mark-to-market adjustment (405,771) (464,264)
Depreciation and amortization (85,354) (167,324)
Unrealized gains on securities available-for-sale (26,240) (130,682)
Deferred loan origination fees and costs (47,519) (91,316)
FHLB stock (99,434) (99,434)
Other (22,901) (1,235)
----------- -----------
(687,219) (954,255)
----------- -----------
Net deferred income tax asset (liability) $ 223,983 $ (321,162)
=========== ===========
</TABLE>
Retained income at September 30, 1996, includes approximately $1,850,000
for which no deferred income tax liability has been recognized. This amount
represents an allocation of income to bad debt deductions for income tax
purposes only. Reductions of the amount so allocated for purposes other
than tax bad debt losses or adjustments arising from carryback of net
operating losses would create income for tax purposes only, which would be
subject to the then current corporate income tax rate.
During 1996, Congress enacted certain tax legislation that exempted thrift
institutions from being taxed on these pre-1987 bad debt reserves. Further,
the use of the reserve method is now required for all thrifts. The Bank
will be recapturing a portion of its bad debt reserve created in prior
years by using the percentage of taxable income method. The Bank has
previously recorded deferred tax liabilities related to these excess
reserves.
10. RETAINED INCOME
The Federal Deposit Insurance Corporation and the North Carolina Savings
Institutions Administrator promulgate capital regulations which require the
Bank to meet three separate capital standards: capital of at least 5% of
total assets, leverage capital of at least 4% of total assets, and a risk-
based capital requirement currently set at 8% of risk-weighted assets. At
September 30, 1996, the Bank met or exceeded all of the current capital
requirements. The Bank currently expects to continue to exceed these
minimums without altering current operations or strategy.
18
<PAGE>
HOME SAVINGS BANK, SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. MORTGAGE BANKING ACTIVITIES
At September 30, 1996 and 1995, the Bank was servicing loans for others
amounting to $253,681,978 and $229,635,319, respectively. Servicing loans
for others generally consists of collecting mortgage payments, maintaining
escrow accounts, disbursing payments to investors and foreclosure
processing. Loan servicing income is recorded on the accrual basis and
includes servicing fees from investors and certain charges collected from
borrowers, such as late payment fees.
Effective October 1, 1996 the Bank will adopt Statement of Financial
Accounting Standards No. 122 (SFAS No. 122), "Accounting for Mortgage
Servicing Rights", an amendment to Statement of Financial Accounting
Standards No. 65. The impact of adopting this statement is not expected to
be material to the Bank's consolidated financial statements.
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND SIGNIFICANT GROUP
CONCENTRATION OF CREDIT RISK
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit and involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Bank uses
the same credit policies in making commitments and conditional obligations
as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the borrower.
A summary of the contractual amounts of the Bank's exposure to off-balance
sheet risk as of September 30, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Commitments to extend credit:
Commitments to originate loans $ 9,179,693 $ 8,522,230
Undrawn balances on lines of credit and undrawn
balances on credit reserves (overdraft protection) 16,899,367 12,862,753
------------- -------------
$ 26,079,060 $ 21,384,983
============= =============
</TABLE>
19
<PAGE>
HOME SAVINGS BANK, SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND
SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK (CONTINUED)
The Bank's lending is concentrated primarily in Beaufort, Craven, Nash,
Lenoir, Pasquotank, Pitt and surrounding counties in North Carolina. Credit
has been extended to certain of the Bank's customers through multiple
lending transactions.
13. LEASES
The Bank leases equipment and several of its facilities under various
operating leases. Several of these leases have renewal options.
As of September 30, 1996, future minimum rental payments under these leases
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
-------------------------
<S> <C>
1997 $ 48,648
1998 39,833
1999 31,790
2000 19,031
----------
$ 139,302
==========
</TABLE>
Rent expense related to such leases amounted to approximately $58,000,
$38,000 and $33,000 in 1996, 1995 and 1994, respectively.
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (SFAS No. 107), requires the
disclosure of estimated fair values for financial instruments. Quoted
market prices, if available, are utilized as an estimate of the fair value
of financial instruments. Because no quoted market prices exist for a
significant part of the Bank's financial instruments, the fair value of
such instruments has been derived based on management's assumptions with
respect to future economic conditions, the amount and timing of future cash
flows and estimated discount rates. Different assumptions could
significantly affect these estimates. Accordingly, the net realizable value
could be materially different from the estimates presented below. In
addition, the estimates are only indicative of individual financial
instruments' values and should not be considered an indication of the fair
value of the Bank taken as a whole.
Fair values have been estimated using data which management considered the
best available, and estimation methodologies deemed suitable for the
pertinent category of financial instrument. The estimation methodologies,
resulting fair values, and recorded carrying amounts at September 30, 1996
and 1995, were as follows:
20
<PAGE>
HOME SAVING BANK, SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Cash and cash equivalents are by definition short-term and do not
present any unanticipated credit issues. Therefore, the carrying amount
is a reasonable estimate of fair value. The estimated fair values of
investment securities and mortgage backed securities are provided in
Notes 2 and 3 to the financial statements. These are based on quoted
market prices, when available. If a quoted market price is not
available, fair value is estimated using quoted market prices for
similar securities.
The fair value of the net loan portfolio has been estimated using
present value cash flow discounted at an interest rate adjusted for
servicing costs and giving consideration to estimated prepayment risk
and credit loss factors, as follows.
<TABLE>
<CAPTION> 1996 1995
------------------------- --------------------------
ESTIMATED CARRYING ESTIMATED CARRYING
FAIR VALUE AMOUNT FAIR VALUE AMOUNT
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
1 - 4 family mortgages $ 80,982,405 $ 80,190,043 $ 88,225,994 $ 95,278,240
Consumer 36,263,680 36,595,184 28,445,093 28,529,491
Non-residential 38,896,068 38,896,068 20,732,913 20,732,913
------------ ------------ ------------ -------------
$156,142,153 $155,681,295 $137,404,000 $144,540,644
============ ============ ============ =============
</TABLE>
Fair value of deposit liabilities with no stated maturities has been
estimated to equal the carrying amount (the amount payable on demand),
totaling $34,354,266 and $22,843,062 in 1996 and 1995, respectively.
Under Statement 107, the fair value of deposits with no stated maturity
is equal to the amount payable on demand. Therefore, the fair value
estimates for these products do not reflect the benefits that the Bank
receives from the low-cost, long-term funding they provide. These
benefits are significant.
The fair value of certificates of deposits and advances from the Federal
Home Loan Bank is estimated by discounting the future cash flows using
the current rates offered for similar deposits and advances with the
same remaining maturities. The carrying value and estimated fair values
of certificates of deposit and Federal Home Loan Bank advances at
September 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------------- ---------------
<S> <C> <C>
Certificates of deposits:
Carrying amount $136,859,020 $130,613,966
Estimated fair value 137,735,084 131,033,804
Advances from Federal Home Loan Bank:
Carrying amount - 4,000,000
Estimated fair value - 4,006,000
</TABLE>
21
<PAGE>
HOME SAVING BANK, SSB AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amount of repurchase agreements approximates the fair value.
The interest rate on these agreements is a floating rate based on the
Federal funds daily rate.
There is no material difference between the carrying amount and estimated
fair value of off-balance sheet items totaling $26,079,060 in 1996 and
$21,384,983 in 1995, which are primarily comprised of unfunded loan
commitments which are generally priced at market at the time of funding.
The Company's remaining assets and liabilities are not considered financial
instruments.
15. RECENT DEVELOPMENTS
In September 1996, the Bank's Board of Directors approved to convert the
Bank from a North Carolina - chartered mutual savings bank to a North
Carolina -chartered stock savings bank in connection with a proposed
initial public offering of common stock. Immediately following completion
of the stock conversion, the Bank intends to convert from a North
Carolina - chartered stock savings bank to a North Carolina commercial bank
to be known as "NewSouth Bank".
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
Company, the Bank 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 or
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
circumstances create any implication that there has been no change in the
affairs of the Company or the Bank since any of the dates as of which
information is furnished herein or since the date hereof.
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.......................................................
Selected Financial Information and Other Data............................
Risk Factors.............................................................
NewSouth Bancorp, Inc....................................................
Home Savings Bank, SSB...................................................
NewSouth Bank............................................................
Use of Proceeds..........................................................
Dividend Policy..........................................................
Market for the Common Stock..............................................
Capitalization...........................................................
Historical and Pro Forma Regulatory Capital Compliance...................
Pro Forma Data...........................................................
Proposed Management Purchases............................................
Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................
Business of the Company..................................................
Business of the Bank.....................................................
Regulation...............................................................
Taxation.................................................................
Management of the Company................................................
Management of the Bank...................................................
The Conversion...........................................................
Certain Restrictions on Acquisition of the Company, the Converted Bank...
and the Commercial Bank.................................................
Certain Anti-takeover Provisions in the Certificate of Incorporation.....
and Bylaws..............................................................
Description of Capital Stock.............................................
Registration Requirements................................................
Legal Opinions...........................................................
Tax Opinion..............................................................
Experts..................................................................
Additional Information...................................................
Index to Consolidated Financial Statements...............................
</TABLE>
Until ______________, 1997 (90 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
NEWSOUTH BANCORP, INC.
(Holding Company for
HOME SAVINGS BANK, INC., SSB
to become
NEWSOUTH BANK)
Up to 2,415,000 Shares
COMMON STOCK
---------------------
PROSPECTUS
---------------------
TRIDENT SECURITIES, INC.
____________, 1997
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
<TABLE>
<S> <C>
* Legal Fees and Expenses........................ $140,000
* Printing, Postage and Mailing.................. 100,000
* Appraisal and Business Plan Fees and Expenses.. 43,000
* Conversion Agent Fees and Expenses............. 12,000
* Transfer Agent Fees and Stock Certificates..... 15,000
* Accounting Fees and Expenses................... 75,000
* Blue Sky Filing Fees and Expenses
(including counsel fees)...................... 15,000
* Filing Fees (Administrator, Commissioner,
SEC, and NASD)................................ 25,000
* Underwriter's Expenses......................... 40,000
* Other Expenses................................. 114,370
--------
Total............................................ $579,370**
========
</TABLE>
- -------------
* Estimated.
** Does not include $480,630 in estimated underwriting fees. Calculation of
the underwriting fees assumes that the midpoint of the Estimated Valuation
Range is sold in the Stock Conversion, 8% of the stock is sold to the ESOP,
202,000 shares will be sold to directors and officers of the Bank, and all
the shares are sold in the Subscription Offering.
Item 14. Indemnification of Directors and Officers
Indemnification of Directors and Officers of the Company
Directors, officers and employees of the Company may be entitled to benefit
from the indemnification provisions contained in the Delaware General
Corporation Law (the "DGCL") and the Company's Certificate of Incorporation. The
general effect of these provisions is summarized below:
Delaware General Corporation Law
Section 145 of the DGCL permits a Delaware corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
proceeding of any type, (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, may not, of itself, create a presumption that these standards
have not been met.
A Delaware corporation may also indemnify any person who was or is a party
or is threatened to be made a party to any proceeding by or in the right of the
corporation by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
II-1
<PAGE>
best interests of the corporation. However, no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought
determines upon application that such person is fairly and reasonably entitled
to be indemnified.
To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any proceeding
described above indemnification against expenses (including attorneys' fees)
actually and reasonably incurred by him is mandatory.
Any determination that indemnification of the director, officer, employee
or agent is proper in the circumstances because he has met the applicable
standard of conduct set forth in subsections (a) and (b) must be made by a
majority of the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or if such a
quorum is not obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or by
the stockholders.
Expenses (including attorneys' fees) incurred by an officer or director in
defending any civil, criminal, administrative or investigative action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
or proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation.
The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section is not exclusive.
In addition, a corporation shall have power to purchase and maintain
insurance against any liability of individuals whom the corporation is required
to indemnify.
Article XVII of the Company's Certificate of Incorporation sets forth
circumstances under which directors, officers, employees and agents may be
insured or indemnified against liability which they may incur in their
capacities as such.
ARTICLE XVII
Indemnification
A. Persons. The Corporation shall indemnify, to the extent provided in
-------
paragraphs B, D or F:
(1) any person who is or was a director, officer, employee, or agent of
the Corporation; and
(2) any person who serves or served at the Corporation's request as a
director, officer, employee, agent, partner or trustee of another
corporation, partnership, joint venture, trust or other enterprise.
B. Extent -- Derivative Suits. In case of a threatened, pending or
--------------------------
completed action or suit by or in the right of the Corporation against a person
named in paragraph A by reason of his holding a position named in paragraph A,
the Corporation shall indemnify him if he satisfies the standard in paragraph C,
for expenses (including attorneys' fees but excluding amounts paid in
settlement) actually and reasonably incurred by him in connection with the
defense or settlement of the action or suit.
C. Standard -- Derivative Suits. In case of a threatened, pending or
----------------------------
completed action or suit by or in the right of the Corporation, a person named
in paragraph A shall be indemnified only if:
(1) he is successful on the merits or otherwise; or
II-2
<PAGE>
(2) he acted in good faith in the transaction which is the subject of
the suit or action, and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, including, but not
limited to, the taking of any and all actions in connection with the
Corporation's response to any tender offer or any offer or proposal of
another party to engage in a Business Combination (as defined in
Article XV) not approved by the board of directors. However, he shall not
be indemnified in respect of any claim, issue or matter as to which he has
been adjudged liable to the Corporation unless and only to the extent that
the court in which the suit was brought shall determine, upon application,
that despite the adjudication but in view of all the circumstances, he is
fairly and reasonably entitled to indemnity for such expenses as the court
shall deem proper.
D. Extent -- Nonderivative Suits. In case of a threatened, pending or
-----------------------------
completed suit, action or proceeding (whether civil, criminal, administrative or
investigative), other than a suit by or in the right of the Corporation,
together hereafter referred to as a nonderivative suit, against a person named
in paragraph A by reason of his holding a position named in paragraph A, the
Corporation shall indemnify him if he satisfies the standard in paragraph E, for
amounts actually and reasonably incurred by him in connection with the defense
or settlement of the nonderivative suit, including, but not limited to (i)
expenses (including attorneys' fees), (ii) amounts paid in settlement, (iii)
judgments, and (iv) fines.
E. Standard -- Nonderivative Suits. In case of a nonderivative suit, a
-------------------------------
person named in paragraph A shall be indemnified only if:
(1) he is successful on the merits or otherwise; or
(2) he acted in good faith in the transaction which is the subject of
the nonderivative suit and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the Corporation, including, but not
limited to, the taking of any and all actions in connection with the
Corporation's response to any tender offer or any offer or proposal of
another party to engage in a Business Combination (as defined in
Article XV) not approved by the board of directors and, with respect to any
criminal action or proceeding, he had no reasonable cause to believe his
conduct was unlawful. The termination of a nonderivative suit by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
---- ----------
equivalent shall not, in itself, create a presumption that the person
failed to satisfy the standard of this subparagraph E(2).
F. Determination That Standard Has Been Met. A determination that the
----------------------------------------
standard of paragraph C or E has been satisfied may be made by a court, or,
except as stated in subparagraph C(2) (second sentence), the determination may
be made by:
(1) the board of directors by a majority vote of a quorum consisting of
directors of the Corporation who were not parties to the action, suit or
proceeding; or
(2) independent legal counsel (appointed by a majority of the
disinterested directors of the Corporation, whether or not a quorum) in a
written opinion; or
(3) the stockholders of the Corporation.
G. Proration. Anyone making a determination under paragraph F may
---------
determine that a person has met the standard as to some matters but not as to
others, and may reasonably prorate amounts to be indemnified.
H. Advance Payment. The Corporation shall pay in advance any expenses
---------------
(including attorneys' fees) which may become subject to indemnification under
paragraphs A through G if:
(1) the board of directors authorizes the specific payment; and
II-3
<PAGE>
(2) the person receiving the payment undertakes in writing to repay the
same if it is ultimately determined that he is not entitled to
indemnification by the Corporation under paragraphs A through G.
I. Nonexclusive. The indemnification and advance payment of expenses
------------
provided by paragraphs A through H shall not be exclusive of any other rights to
which a person may be entitled by law, bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
J. Continuation. The indemnification provided by this Article XVII shall
------------
be deemed to be a contract between the Corporation and the persons entitled to
indemnification thereunder, and any repeal or modification of this Article XVII
shall not affect any rights or obligations then existing with respect to any
state of facts then or theretofore existing or any action, suit or proceeding
theretofore or thereafter brought based in whole or in part upon any such state
of facts. The indemnification and advance payment provided by paragraphs A
through H shall continue as to a person who has ceased to hold a position named
in paragraph A and shall inure to his heirs, executors and administrators.
K. Insurance. The Corporation may purchase and maintain insurance on
---------
behalf of any person who holds or who has held any position named in paragraph
A, against any liability incurred by him in any such position, or arising out of
his status as such, whether or not the Corporation would have power to indemnify
him against such liability under paragraphs A through H.
L. Intention and Savings Clause. It is the intention of this Article XVII
----------------------------
to provide for indemnification to the fullest extent permitted by the General
Corporation Law of the State of Delaware, and this Article XVII shall be
interpreted accordingly. If this Article XVII or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, officer, employee, and
agent of the Corporation as to costs, charges, and expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement with respect
to any action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, including an action by or in the right of the Corporation to the
full extent permitted by any applicable portion of this Article XVII that shall
not have been invalidated and to the full extent permitted by applicable law. If
the General Corporation Law of the State of Delaware is amended, or other
Delaware law is enacted, to permit further or additional indemnification of the
persons defined in this Article XVII A, then the indemnification of such persons
shall be to the fullest extent permitted by the General Corporation Law of the
State of Delaware, as so amended, or such other Delaware law.
Indemnification of Directors and Officers of Home Savings Bank, Inc., SSB and
NewSouth Bank
The Amended and Restated Certificate of Incorporation of the Converted Bank
provide that, to the fullest extent permitted by the North Carolina Business
Corporation Act (the "NCBCA"), no person who serves as a director shall be
personally liable to the Converted Bank or any of its stockholders or otherwise
for monetary damages for breach of any duty as director. The Amended and
Restated Certificate of Incorporation of the Commercial Bank contains similar
provisions.
In addition, Article IX of the Amended and Restated Bylaws of the Converted
Bank state that any person who at any time serves or has served as a director or
officer of the Converted Bank, or who, while serving as a director or officer of
the Converted Bank, serves or has served at the request of the Converted Bank as
a director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or as a trustee or
administrator under an employee benefit plan, shall have a right to be
indemnified by the Converted Bank to the fullest extent permitted by law against
(a) reasonable expenses, including attorneys' fees, incurred by him in
connection with any threatened, pending or completed civil, criminal,
administrative, investigative, or arbitrative action, suit, or proceeding (and
any appeal therein), whether or not brought by or on behalf of the Converted
Bank, seeking to hold him liable by reason of the fact that he is or was acting
in such capacity, and (b) reasonable payments made by him in satisfaction of any
judgment, money decree, fine (including an excise tax assessed with respect to
an employee benefit plan) or penalty for which he may have become liable in any
such action, suit or proceeding, or in connection with a settlement approved by
the Board of Directors of any such
II-4
<PAGE>
action, suit or proceeding, or in connection with a settlement approved by the
Board of Directors of any such action, suit or proceeding. Article IX of the
Amended and Restated Bylaws of the Commercial Bank contains similar provisions.
Sections 55-8-50 through 55-8-58 of the NCBCA contain provisions
prescribing the extent to which directors and officers shall or may be
indemnified. Section 55-8-51 of the NCBCA permits a corporation, with certain
exceptions, to indemnify a present or former director against liability if
(i) the director conducted himself in good faith, (ii) the director reasonably
believed (x) that the director's conduct in the director's official capacity
with the corporation was in its best interests and (y) in all other cases the
director's conduct was at least not opposed to the corporation's best interests,
and (iii) in the case of any criminal proceeding, the director had no reasonable
cause to believe the director's conduct was unlawful. A corporation may not
indemnify a director in connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the corporation or in
connection with a proceeding charging improper personal benefit to the director.
The above standard of conduct is determined by the board of directors, or a
committee or special legal counsel or the shareholders as prescribed in
Section 55-8-55.
Sections 55-8-52 and 55-8-56 of the NCBCA require a corporation to
indemnify a director or officer in the defense of any proceeding to which the
director or officer was a party against reasonable expenses when the director or
officer is wholly successful in the director's or officer's defense, unless the
articles of incorporation provide otherwise. Upon application, the court may
order indemnification of the director or officer if the director or officer is
adjudged fairly and reasonably so entitled under Section 55-8-54.
In addition, Section 55-8-57 permits a corporation to provide for
indemnification of directors, officers, employees or agents, in its articles of
incorporation or bylaws or by contract or resolution, against liability in
various proceedings and to purchase and maintain insurance policies on behalf of
these individuals.
The foregoing is only a general summary of certain aspects of Delaware and
North Carolina law dealing with indemnification of directors and officers and
does not purport to be complete. It is qualified in its entirety by reference
to the relevant statutes, which contain detailed specific provisions regarding
the circumstances under which and the person for whose benefit indemnifications
shall or may be made.
The Bank has a directors and officers liability insurance policy providing
for insurance against certain liabilities incurred by directors and officers of
the Bank while serving in their capacities as such.
Item 15. Recent Sales of Unregistered Securities.
Not applicable.
Item 16. Exhibits and Financial Statement Schedules:
The exhibits and financial statement schedules filed as a part of this
registration statement are as follows:
(a) List of Exhibits
1.1 Engagement Letter with Trident Securities, Inc.
* 1.2 Sales Agency Agreement with Trident Securities, Inc.
2 Plan of Conversion (Exhibit I to Proxy Statement filed as
Exhibit 99.2)
3.1 Certificate of Incorporation of NewSouth Bancorp, Inc.
II-5
<PAGE>
3.2 Bylaws of NewSouth Bancorp, Inc.
4 Form of Common Stock Certificate of NewSouth Bancorp, Inc.
5 Opinion of Housley Kantarian & Bronstein, P.C. regarding legality
of securities being registered
8.1 Form of Federal Tax Opinion
8.2 Form of State Tax Opinion
8.3 Opinion of Ferguson & Co., LLP as to the value of subscription
rights for tax purposes
10.1 Proposed NewSouth Bancorp, Inc. 1996 Stock Option Plan
10.2 Proposed NewSouth Bancorp, Inc. Management Recognition Plan and
Trust Agreement
10.3(a) Proposed Employment Agreement by and between NewSouth Bancorp,
Inc. and Thomas A. Vann
10.3(b) Proposed Employment Agreement by and between Home Savings Bank,
SSB and Thomas A. Vann
10.4 Proposed Form of Change in Control Protective Agreement between
Home Savings Bank, SSB and Mary R. Boyd, Sherry L. Correll,
Kristie W. Hawkins, Walter P. House and William R. Outland
10.5 Supplemental Income Agreements as Amended and Restated December
14, 1995 between Home Savings Bank, SSB and Sherry L. Correll,
William R. Outland and Thomas A. Vann and the 1996 Amendment
Thereto
10.6 Supplemental Income Plan Agreements as Amended and Restated
December 14, 1995 between Home Savings Bank, SSB and James F.
Buckman, Walter P. House, Thomas A. Vann and William L. Wall and
the 1996 Amendment Thereto
10.7 Home Savings Bank, SSB Director's Deferred Compensation Plan
Agreements as Amended and Restated December 14, 1995 with Edmund
T. Buckman, Jr., Linley H. Gibbs, Jr., Frederick N. Holscher,
Frederick H. Howdy, Charles E. Parker, Jr., Marshall T. Singleton
and Thomas A. Vann and the 1996 Amendment Thereto
10.8 Home Savings Bank, SSB Director's Retirement Plan Agreements as
Amended and Restated December 14, 1995 with Edmund T. Buckman,
Jr., Linley H. Gibbs, Jr., Frederick N. Holscher, Frederick H.
Howdy, Charles E. Parker, Jr. and Thomas A. Vann and the 1996
Amendment Thereto
10.9 Home Savings Bank, SSB Director's Retirement Payment Agreements as
Amended and Restated December 14, 1995 with Edmund T. Buckman, Jr.,
II-6
<PAGE>
Linley H. Gibbs, Jr., Frederick N. Holscher, Frederick H.
Howdy, Charles E. Parker, Jr., and Thomas A. Vann and the 1996
Amendment Thereto
23.1 Consents of Housley Kantarian & Bronstein, P.C.
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Ferguson & Co., LLP
24 Power of Attorney (reference is made to the signature page)
27 Financial Data Schedule
99.1 Proposed Stock Order Form and Form of Certification
99.2 Proxy Statement for Special Meeting of Members of Home Savings
Bank, SSB; Form of Proxy
99.3 Miscellaneous Solicitation and Marketing Materials
99.4 Appraisal Report
99.5 Engagement Letter with Ferguson & Co., LLP
- -------------------
* To be filed by amendment.
(b) Financial Statement Schedules.
No financial statement schedules are filed because the required information
is not applicable or is included in the consolidated financial statements or
related notes.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. 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
deviation 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;
II-7
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations 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
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of 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.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Washington,
State of North Carolina, on November 14, 1996.
NEWSOUTH BANCORP, INC.
By: /s/ Thomas A. Vann
------------------------------
Thomas A. Vann
President
POWER OF ATTORNEY
We, the undersigned Directors of NewSouth Bancorp, Inc., hereby severally
constitute and appoint Thomas A. Vann, with full power of substitution, our true
and lawful attorney and agent, to do any and all things in our names in the
capacities indicated below which said Thomas A. Vann may deem necessary or
advisable to enable NewSouth Bancorp, Inc. to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with the registration of NewSouth
Bancorp, Inc. 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 ratify and confirm all that said Thomas A.
Vann shall do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Thomas A. Vann President and Director November 14, 1996
- --------------------------- (Principal Executive Officer)
Thomas A. Vann
/s/ William L. Wall Executive Vice President and November 14, 1996
- --------------------------- Chief Operating Officer
William L. Wall (Principal Financial and
Accounting Officer)
/s/ Edmund T. Buckman, Jr. Director November 14, 1996
- ---------------------------
Edmund T. Buckman, Jr.
/s/ Linley H. Gibbs, Jr. Director November 14, 1996
- ---------------------------
Linley H. Gibbs, Jr.
/s/ Frederick N. Holscher Director November 14, 1996
- ---------------------------
Frederick N. Holscher
/s/ Frederick H. Howdy Director November 14, 1996
- ---------------------------
Frederick H. Howdy
/s/ Charles E. Parker, Jr. Director November 14, 1996
- ---------------------------
Charles E. Parker, Jr.
/s/ Marshall T. Singleton Director November 14, 1996
- ---------------------------
Marshall T. Singleton
</TABLE>
II-9
<PAGE>
NEWSOUTH BANCORP, INC.
EXHIBITS TO REGISTRATION STATEMENT ON FORM S-1
----------------------------------------------
PAGE NO. IN
SEQUENTIALLY
PAGINATED
REGISTRATION
EXHIBIT NO. DESCRIPTION STATEMENT
- ----------- ----------- ---------
1.1 Engagement Letter with Trident Securities, Inc.
* 1.2 Sales Agency Agreement with Trident Securities, Inc.
2 Plan of Conversion (Exhibit I to Proxy Statement filed as Exhibit 99.2)
3.1 Certificate of Incorporation of NewSouth Bancorp, Inc.
3.2 Bylaws of NewSouth Bancorp, Inc.
4 Form of Common Stock Certificate of NewSouth Bancorp, Inc.
5 Opinion of Housley Kantarian & Bronstein, P.C. regarding
legality of securities being registered
8.1 Form of Federal Tax Opinion
8.2 Form of State Tax Opinion
8.3 Opinion of Ferguson & Co., LLP as to the value of
subscription rights for tax purposes
10.1 Proposed NewSouth Bancorp, Inc. 1996 Stock Option
Plan
10.2 Proposed NewSouth Bancorp, Inc. Management Recognition Plan and Trust
Agreement
10.3(a)Proposed Employment Agreement by and between NewSouth Bancorp, Inc. and
Thomas A. Vann
10.3(b)Proposed Employment Agreement by and between Home Savings Bank, SSB and
Thomas A. Vann
10.4 Proposed Form of Change in Control Protective Agreement between Home
Savings Bank, SSB and Mary R. Boyd, Sherry L. Correll, Kristie W.
Hawkins, Walter P. House and William R. Outland
10.5 Supplemental Income Agreements as Amended and Restated December 14,
1995 between Home Savings Bank, SSB and Sherry L. Correll, William R.
Outland and Thomas A. Vann and the 1996 Amendment Thereto
10.6 Supplemental Income Plan Agreements as Amended and Restated December
14, 1995 between Home Savings Bank, SSB and Jim F. Buckman, Walter P.
House, Thomas A. Vann and William L. Wall and the 1996 Amendment
Thereto
<PAGE>
PAGE NO. IN
SEQUENTIALLY
PAGINATED
REGISTRATION
EXHIBIT NO. DESCRIPTION STATEMENT
- ----------- ----------- ---------
10.7 Home Savings Bank, SSB Director's Deferred Compensation
Plan Agreements as Amended and Restated December 14, 1995
with Edmund T. Buckman, Jr., Linley H. Gibbs, Jr., Frederick
N. Holscher, Frederick H. Howdy, Charles E. Parker, Jr.,
Marshall T. Singleton and Thomas A. Vann and the 1996
Amendment Thereto
10.8 Home Savings Bank, SSB Director's Retirement Plan Agreements as
Amended and Restated December 14, 1995 with Edmund T. Buckman, Jr.,
Linley H. Gibbs, Jr., Frederick N. Holscher, Frederick H. Howdy,
Charles E. Parker, Jr. and Thomas A. Vann and the 1996 Amendment
Thereto
10.9 Home Savings Bank, SSB Director's Retirement Payment Agreements as
Amended and Restated December 14, 1995 with Edmund T. Buckman, Jr.,
Linley H. Gibbs, Jr., Frederick N. Holscher, Frederick H. Howdy,
Charles E. Parker, Jr., and Thomas A. Vann and the 1996 Amendment
Thereto
23.1 Consents of Housley Kantarian & Bronstein, P.C.
23.2 Consent of Coopers & Lybrand, LLP
23.3 Consent of Ferguson & Co., LLP
24 Power of Attorney (reference is made to the signature page)
27 Financial Data Schedule
99.1 Proposed Stock Order Form and Form of Certification
99.2 Proxy Statement for Special Meeting of Members of Home Savings
Bank, SSB; Form of Proxy
99.3 Miscellaneous Solicitation and Marketing Materials
99.4 Appraisal Report
99.5 Engagement Letter with Ferguson & Co., LLP
_____________________
* To be filed by amendment.
<PAGE>
Exhibit 1.1
November 15, 1996
Board of Directors
Home Savings Bank, SSB
1311 Carolina Avenue
Washington, North Carolina 27889
RE: Conversion Stock Marketing Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between Trident
Securities, Inc. ("Trident") and Home Savings Bank, SSB, Washington, North
Carolina (the "Bank") concerning our investment banking services in connection
with the possible conversion of the Bank from a mutual to a capital stock form
of organization.
Trident is prepared to assist the Bank in connection with the offering of its
shares of common stock during the subscription offering and community offering
as such terms are defined in the Bank's Plan of Conversion. The specific terms
of the services contemplated hereunder shall be set forth in a definitive sales
agency agreement (the "Agreement") between Trident and the Bank to be executed
on the date the offering circular/prospectus is declared effective by the
appropriate regulatory authorities. The price of the shares during the
subscription offering and community offering will be the price established by
the Bank's Board of Directors, based upon an independent appraisal as approved
by the appropriate regulatory authorities, provided such price is mutually
acceptable to Trident and the Bank.
In connection with the subscription offering and community offering, Trident
will act as financial advisor and exercise its best efforts to assist the Bank
in the sale of its common stock during the subscription offering and community
offering. Additionally, Trident may enter into agreements with other National
Association of Securities Dealers, Inc., ("NASD") member firms to act as
selected dealers, assisting in the sale of the common stock. Trident and the
Bank will determine the selected dealers to assist the Bank during the community
offering. At the appropriate time, Trident in conjunction with its counsel,
will conduct an examination of the relevant documents and records of the Bank as
Trident deems necessary and appropriate. The Bank will make all documents,
records and other information deemed necessary by Trident or its counsel
available to them upon request.
For its services hereunder, Trident will receive the following compensation and
reimbursement from the Bank:
<PAGE>
Board of Directors
November 15, 1996
Page 2
1. A commission equal to one and eighty-five one hundredths (1.85%) of
the aggregate dollar amount of capital stock sold in the subscription
offering, excluding any shares of conversion stock sold to the Bank's
directors, executive officers and the employee stock ownership plan.
Additionally, commissions will be excluded on those shares sold to
"associates" of the Bank's directors and executive officers. The term
"associates" as used herein shall have the same meaning as that found
in the Bank's Plan of Conversion.
2. A commission equal to one and eighty-five one hundredths (1.85%) of
the aggregate dollar amount of capital stock sold by Trident in the
community offering excluding shares sold by other NASD member firms
under selected dealer's agreements.
3. For stock sold by other NASD member firms under selected dealer's
agreements, the commission shall not exceed a fee to be agreed upon
jointly by Trident and the Bank to reflect market requirements at the
time of the stock allocation in a Syndicated Community Offering.
4. The foregoing fees and commissions are to be payable to Trident at
closing as defined in the Agreement to be entered into between the
Bank and Trident.
5. 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 $7,500 and its legal
fees and expenses will not exceed $25,000. The Bank will forward to
Trident a check in the amount of $10,000 as an advance payment to
defray the allocable expenses of Trident.
It further is understood that the Bank will pay all other expenses of the
conversion including but not limited to its attorneys' fees, NASD filing fees,
and filing and registration fees and fees of either Trident's attorneys or the
attorneys relating to any required state securities law filings, telephone
charges, air freight, rental equipment, supplies, transfer agent charges, fees
relating to auditing and accounting and costs of printing all documents
necessary in connection with the foregoing.
Trident understands that the Bank's board of directors has not adopted a plan of
conversion as of the date hereof. Accordingly, the board of directors has not
decided at this point whether a conversion will occur and information about the
possibility of a conversion is strictly confidential. The Bank may terminate
this engagement at any time upon written notice to Trident. In such event,
Trident shall be entitled to receive the reasonable value of its services
rendered to the date of such termination.
<PAGE>
Board of Directors
November 15, 1996
Page 4
For purposes of Trident's obligation to file certain documents and to make
certain representations to the NASD in connection with the conversion, the Bank
warrants that: (a) the Bank has not privately placed any securities within the
last 18 months; (b) there have been no material dealings within the last 12
months between the Bank and any NASD member or any person related to or
associated with any such member; (c) none of the officers or directors of the
Bank has any affiliation with the NASD; (d) except as contemplated by this
engagement letter with Trident, the Bank has no financial or management
consulting contracts outstanding with any other person; (e) the Bank has not
granted Trident a right of first refusal with respect to the underwriting of any
future offering of the Bank stock; and (f) there has been no intermediary
between Trident and the Bank in connection with the public offering of the
Bank's shares, and no person is being compensated in any manner for providing
such service.
The Bank agrees to indemnify and hold harmless Trident and each person, if any,
who controls the firm against all losses, claims, damages or liabilities, joint
or several and all legal or other expenses reasonably incurred by them in
connection with the investigation or defense thereof (collectively, "Losses"),
to which they may become subject under the securities laws or under the common
law, that arise out of or are based upon the conversion or the engagement
hereunder of Trident 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 gross negligence. If the foregoing indemnification is unavailable for
any reason, the Bank agrees to contribute to such Losses in the proportion that
its financial interest in the conversion bears to that of the indemnified
parties. If the Agreement is entered into with respect to the common stock to
be issued in the conversion, the Agreement will provide for indemnification,
which will be in addition to any rights that Trident or any other indemnified
party may have at common law or otherwise. The indemnification provision of
this paragraph will be superseded by the indemnification provisions of the
Agreement entered into by the Bank and Trident.
This letter is merely a statement of intent and is not a binding legal agreement
except as to paragraph (5) above with regard to the obligation to reimburse
Trident for allocable expenses to be incurred prior to the execution of the
Agreement and the indemnity described in the preceding paragraph. While Trident
and the Bank agree in principle to the contents hereof and propose to proceed
promptly, and in good faith, to work out the arrangements with respect to the
proposed offering, any legal obligations between Trident and the Bank shall be
only as set forth in a duly executed Agreement. Such Agreement shall be in form
and content satisfactory to Trident and the Bank, as well as their counsel, and
Trident's obligations thereunder shall be subject to, among other things, there
being in Trident's opinion no material adverse change in the condition or
obligations of the Bank or no market conditions which might render the sale of
the shares by the Bank hereby contemplated inadvisable.
<PAGE>
Board of Directors
November 15, 1996
Page 4
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/ Timothy E. Lavelle
-----------------------------
Timothy E. Lavelle
Managing Director
Agreed and accepted to this 5th day
of August, 1996
HOME SAVINGS BANK, SSB
By: /s/ Thomas A. Vann
-----------------------------
Thomas A. Vann
President
TEL/cs
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
NEWSOUTH BANCORP, INC.
ARTICLE I
NAME
The name of the corporation is NewSouth Bancorp, Inc. (herein the
"Corporation").
ARTICLE II
REGISTERED OFFICE
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Corporation Trust Center, in the City of Wilmington,
County of New Castle. The name of the Corporation's registered agent at such
address is The Corporation Trust Company.
ARTICLE III
POWERS
The purpose for which the Corporation is organized is to act as a bank
holding company and to transact all other lawful business for which corporations
may be incorporated pursuant to the laws of the State of Delaware. The
Corporation shall have all the powers of a corporation organized under the
General Corporation Law of the State of Delaware.
ARTICLE IV
TERM
The Corporation is to have perpetual existence.
ARTICLE V
INCORPORATOR
The name and mailing address of the incorporator are as follows:
Name Mailing Address
---- ---------------
Thomas A. Vann 1311 Carolina Avenue
Washington, North Carolina 27889
<PAGE>
ARTICLE VI
INITIAL DIRECTORS
The number of directors constituting the initial board of directors of the
Corporation is seven, and the names of the persons who are to serve as directors
until their successors are elected and qualified, together with the classes of
directorships to which such persons have been assigned, are:
Name Mailing Address Class
---- --------------- -----
Edmund T. Buckman, Jr. 1026 Summit Avenue I
Washington, NC 27889
Frederick N. Holscher 46 Harbor Road I
Washington, NC 27889
Frederick H. Howdy 67 Katherine Drive I
Washington, NC 27889
Linley H. Gibbs, Jr. 222 Magnolia Drive II
Washington, NC 27889
Thomas A. Vann 113 Palmer Place II
Washington, NC 27889
Charles E. Parker, Jr. 1061 Lucerne Way III
New Bern, NC 28560
Marshall T. Singleton 776 Mimosa Shores Road III
Washington, NC 27889
ARTICLE VII
CAPITAL STOCK
The aggregate number of shares of all classes of capital stock which the
Corporation has authority to issue is 9,000,000 of which 8,000,000 are to be
shares of common stock, $0.01 par value per share, and of which 1,000,000 are to
be shares of serial preferred stock, $0.01 par value per share. The shares may
be issued by the Corporation from time to time as approved by the board of
directors of the Corporation without the approval of the stockholders except as
otherwise provided in this Article VII or the rules of a national securities
exchange if applicable. The consideration for the issuance of the shares shall
be paid to or received by the Corporation in full before their issuance and
shall not be less than the par value per share. The consideration for the
issuance of the shares shall be cash, services rendered, personal property
(tangible or intangible), real property, leases of real property or any
combination of the foregoing. In the absence of actual fraud in the
transaction, the judgment of the board of directors as to the value of such
consideration 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, the part of the surplus of the Corporation which is transferred
to stated capital upon the issuance of shares as a stock dividend shall be
deemed to be the consideration for their issuance.
2
<PAGE>
A description of the different classes and series (if any) of the
Corporation's capital stock, and a statement of the relative powers,
designations, preferences and rights of the shares of each class and series (if
any) of capital stock, and the qualifications, limitations or restrictions
thereof, are as follows:
A. Common Stock. Except as provided in this Certificate, the holders of
------------
the 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 otherwise expressly set forth in this Certificate.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
dividends and sinking fund or retirement fund or other retirement payments, if
any, to which such holders are respectively entitled in preference to the common
stock, then dividends may be paid on the common stock, and on any class or
series of stock entitled to participate therewith as to dividends, out of any
assets legally available for the payment of dividends, but only when and as
declared by the board of directors of the Corporation.
In the event of any liquidation, dissolution or winding up of the
Corporation, 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 in any such event, the full preferential amounts to which
they are respectively entitled, the holders of the common stock and of any class
or series of stock entitled to participate therewith, in whole or in part, as to
distribution of assets shall be entitled, after payment or provision for payment
of all debts and liabilities of the Corporation, 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. Serial Preferred Stock. Except as provided in this Certificate, 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 powers, designations,
preferences and relative, participating, optional or other special rights of the
shares of each such series, and the qualifications, limitations or restrictions
thereof, including, but not limited to determination of any of the following:
(1) the distinctive serial designation and the number of shares
constituting such series;
(2) the dividend rates or the amount of dividends to be paid on the shares
of such series, whether dividends shall be cumulative and, if so, from
which date or dates, the payment date or dates for dividends, and the
participating or other special rights, if any, with respect to
dividends;
(3) the voting powers, full or limited, if any, of the shares of such
series;
(4) whether the shares of such series shall be redeemable and, if so, the
price or prices at which, and the terms and conditions upon which such
shares may be redeemed;
(5) the amount or amounts payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution or winding
up of the Corporation;
(6) whether the shares of such series shall be entitled to the benefits of
a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and, if so entitled, the amount of such
fund and the manner of its application, including the price or prices
at which such shares may be redeemed or purchased through the
application of such funds;
3
<PAGE>
(7) whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the
Corporation and, if so convertible or exchangeable, 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;
(8) the subscription or purchase price and form of consideration for which
the shares of such series shall be issued; and
(9) whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares of
the same or any other series of serial preferred stock.
Each share of each series of serial 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 VIII
PREEMPTIVE RIGHTS
No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the Corporation shall have any preemptive right
to purchase or subscribe for any unissued stock of any class or series, or any
unissued bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for stock of any class or series or carrying
any right to purchase stock of any class or series; but any such unissued stock,
bonds, certificates or indebtedness, debentures or other securities convertible
into or exchangeable for stock or carrying any right to purchase stock may be
issued pursuant to resolution of the board of directors of the Corporation to
such persons, firms, corporations or associations, whether or not holders
thereof, and upon such terms as may be deemed advisable by the board of
directors in the exercise of its sole discretion.
ARTICLE IX
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 any class, bonds, debentures, notes,
scrip, warrants, obligations, evidences of indebtedness, or other securities of
the Corporation in such manner, upon such terms, and in such amounts as the
board of directors shall determine; subject, however, to such limitations or
restrictions, if any, as are contained in the express terms of any class of
shares of the Corporation outstanding at the time of the purchase or acquisition
in question or as are imposed by law.
4
<PAGE>
ARTICLE X
MEETINGS OF STOCKHOLDERS; CUMULATIVE VOTING
A. 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 the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.
B. Special meetings of the stockholders of the Corporation for any purpose
or purposes may be called at any time by the board of directors of the
Corporation, or by a committee of the board of directors which has been duly
designated by the board of directors and whose powers and authorities, as
provided in a resolution of the board of directors or in the Bylaws of the
Corporation, include the power and authority to call such meetings, but such
special meetings may not be called by any other person or persons.
C. There shall be no cumulative voting by stockholders of any class or
series in the election of directors of the Corporation.
D. Meetings of stockholders may be held at such place as the Bylaws may
provide.
ARTICLE XI
NOTICE FOR NOMINATIONS AND PROPOSALS
A. 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 any such nominations and/or
proposals, he or she 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, 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. 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 proposing such business; (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.
Notwithstanding anything in this Certificate to the contrary, no new business
shall be conducted at the meeting except in accordance with the procedures set
forth in this Article.
C. 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
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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 XII DIRECTORS
A. Number; Vacancies. The number of directors of the Corporation shall be
-----------------
such number, not less than five nor more than fifteen (exclusive of directors,
if any, to be elected by holders of preferred stock of the Corporation, voting
separately as a class), as shall be set forth from time to time in the Bylaws,
provided that no action shall be taken to decrease or increase the number of
directors unless at least two-thirds of the directors then in office shall
concur in said action. 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 XII, should the number of directors not be equally
divisible by three, the excess director or directors shall be assigned to
Classes III or II as follows: (i) if there shall be an excess of one
directorship over a number equally divisible by three, such extra directorship
shall be classified in Class III; and (ii) if there be an excess of two
directorships over a number equally divisible by three, one shall be classified
in Class III and the other in Class II. At the first annual meeting of
stockholders, directors of Class I shall be elected to hold office for a term
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 shall be elected for three year terms. Notwithstanding the
foregoing, the director whose term shall expire at any annual meeting shall
continue to serve until such time as his successor shall have been duly elected
and shall have qualified unless his position on the board of directors shall
have been abolished by action taken to reduce the size of the board of directors
prior to said meeting.
Should the number of directors of the Corporation be reduced, the
directorship(s) eliminated shall be allocated among classes as appropriate so
that the number of directors in each class is as specified in the immediately
preceding paragraph. The board of directors shall designate, by the name of the
incumbent(s), the position(s) to be abolished. Notwithstanding the foregoing,
no decrease in the number of directors shall have the effect of shortening the
term of any incumbent director. Should the number of directors of the
Corporation be increased, the additional directorships shall be allocated among
classes as appropriate so that the number of directors in each class is as
specified in the immediately preceding paragraph.
Whenever the holders of any one or more series of preferred stock of the
Corporation shall have the right, voting separately as a class, to elect one or
more directors of the Corporation, the board of directors shall consist of said
directors so elected in addition to the number of directors fixed as provided in
this Article XII. Notwithstanding the foregoing, and except as otherwise may be
required by law or by the terms and provisions of the preferred stock of the
Corporation, whenever the holders of any one or more series of preferred stock
of the Corporation shall have the right, voting separately as a class, to elect
one or more directors of the Corporation, the
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terms of the director or directors elected by such holders shall expire at the
next succeeding annual meeting of stockholders.
ARTICLE XIII
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 that purpose. Notwithstanding the foregoing, whenever
the holders of any one or more series of preferred stock of the Corporation
shall have the right, voting separately as a class, to elect one or more
directors of the Corporation, the preceding provisions of this Article XIII
shall not apply with respect to the director or directors elected by such
holders of preferred stock.
ARTICLE XIV
ACQUISITION OF CAPITAL STOCK
A. Three-Year Prohibition. For a period of three years from the effective
----------------------
date of the completion of the conversion of Home Savings Bank, SSB, Washington,
North Carolina, from mutual to stock form (which entity or its successor shall
become a wholly owned subsidiary of the Corporation upon such conversion), 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 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 XV. In addition,
for a period of three years from the completion of the conversion of Home
Savings Bank, SSB from mutual to stock form (which entity or its successor shall
become a wholly owned subsidiary of the Corporation upon such conversion), and
notwithstanding any provision to the contrary in this Certificate or in the
Bylaws of the Corporation, where any person directly or indirectly acquires
beneficial ownership of more than 10% of any class of equity security of the
Corporation in violation of this Article XIV, the securities beneficially owned
in excess of 10% shall not be counted as shares entitled to vote, shall not be
voted by any person or counted as voting shares in connection with any matter
submitted to the stockholders for a vote, 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. Prohibition After Three Years. If at any time after three years from
-----------------------------
the effective date of the completion of the conversion of Home Savings Bank, SSB
from mutual to stock form (which entity or its successor shall become a wholly
owned subsidiary of the Corporation upon such conversion), any person shall
acquire the beneficial ownership of more than 10% of any class of equity
security of the Corporation without the prior approval by a two-thirds vote of
the Continuing Directors, as defined in Article XV hereof, then the record
holders of voting stock of the Corporation beneficially owned by such acquiring
person shall have only the voting rights set forth in this paragraph B on any
matter requiring their vote or consent. With respect to each vote in excess of
10% of the voting power of the outstanding shares of voting stock of the
Corporation which such record holders would otherwise be entitled to cast
without giving effect to this paragraph B, such record holders in the aggregate
shall be entitled to cast only one-hundredth (1/100) of a vote, and the
aggregate voting power of such record holders, so limited for all shares of
voting stock of the Corporation beneficially owned by such acquiring person,
shall be allocated proportionately among such record holders. For each such
record holder, this allocation shall be accomplished by multiplying the
aggregate voting power, prior to imposing the limitations of this paragraph B,
of the outstanding shares of voting stock of the Corporation beneficially owned
by such record holder by a fraction whose numerator is the number of votes equal
to 10% of the shares of voting stock of the Corporation and whose denominator is
the total number of votes represented by the shares of voting stock of the
Corporation that are beneficially owned by
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such acquiring person; any share held by such record holder in excess of the
allocated amount as determined in accordance with the previous clause shall be
entitled to cast one-hundredth of a vote. A person who is a record owner of
shares of voting stock of the Corporation that are beneficially owned
simultaneously by more than one person shall have, with respect to such shares,
the right to cast the least number of votes that such person would be entitled
to cast under this paragraph B by virtue of such shares being so beneficially
owned by any of such acquiring persons.
C. Definitions. The term "person" means an individual, a group acting in
-----------
concert, a corporation, a partnership, an association, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate or any
other group acting in concert formed for the purpose of acquiring, holding,
voting or disposing of securities of the Corporation. The term "acquire"
includes every type of acquisition, whether effected by purchase, exchange,
operation of law or otherwise. The term group "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. The term "beneficial ownership" shall have the meaning defined in
Rule 13d-3 of the General Rules and Regulations under the Securities and
Exchange Act of 1934, as in effect on the date of filing of this Certificate.
D. Exclusion for Employee Benefit Plans, Directors, Officers, Employees
--------------------------------------------------------------------
and Certain Proxies. The restrictions contained in this Article XIV shall not
- -------------------
apply to (i) any underwriter or member of an underwriting or selling group
involving a public sale or resale of securities of the Corporation or a
subsidiary thereof; provided, however, that upon completion of the sale or
resale of such securities, no such underwriter or member of such selling group
is a beneficial owner of more than 10% of any class of equity security of the
Corporation, (ii) any proxy granted to one or more Continuing Directors, as
defined in Article XV, by a stockholder of the Corporation or (iii) any employee
benefit plans of the Corporation. In addition, the Continuing Directors, as
defined in Article XV, the officers and employees of the Corporation and its
subsidiaries, the directors of subsidiaries of the Corporation, the employee
benefit plans of the Corporation and its subsidiaries, entities organized or
established by the Corporation or any subsidiary thereof pursuant to the terms
of such plans and trustees and fiduciaries with respect to such plans acting in
such capacity shall not be deemed to be a group with respect to their beneficial
ownership of voting stock of the Corporation solely by virtue of their being
directors, officers or employees of the Corporation or a subsidiary thereof or
by virtue of the Continuing Directors, as defined in Article XV, the officers
and employees of the Corporation and its subsidiaries and the directors of
subsidiaries of the Corporation being fiduciaries or beneficiaries of an
employee benefit plan of the Corporation or a subsidiary of the Corporation.
Notwithstanding the foregoing, no director, officer or employee of the
Corporation or any of its subsidiaries or group of any of them acting in concert
shall be exempt from the provisions of this Article XIV should any such person
or group become a beneficial owner of more than 10% of any class of equity
security of the Corporation.
E. Determinations. A majority of the Continuing Directors, as defined in
--------------
Article XV, shall have the power to construe and apply the provisions of this
Article XIV and to make all determinations necessary or desirable to implement
such provisions, including but not limited to matters with respect to (a) the
number of shares beneficially owned by any person, (b) whether a person has an
agreement, arrangement or understanding with another as to the matters referred
to in the definition of beneficial ownership, (c) the application of any other
definition or operative provision of this Article XIV to the given facts or (d)
any other matter relating to the applicability or effect of this Article XIV.
Any constructions, applications, or determinations made by the Continuing
Directors pursuant to this Article XIV in good faith and on the basis of such
information and assistance as was then reasonably available for such purpose
shall be conclusive and binding upon the Corporation and its stockholders.
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ARTICLE XV
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. (1) Except as otherwise expressly provided in this Article XV, 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 (as hereinafter defined);
(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 (as hereinafter defined) of the assets
of the Corporation (including without limitation any voting securities
of a subsidiary) or of a subsidiary, to a Related Person;
(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.
(2) Such affirmative vote shall be required notwithstanding any other
provision of this Certificate, any provision of law, or any agreement with
any regulatory agency or national securities exchange which might otherwise
permit a lesser vote or no vote.
(3) The term "Business Combination" as used in this Article XV shall
mean any transaction which is referred to in any one or more of
subparagraphs A(1)(a) through (h) above.
B. 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, any provision of law, or any agreement with any regulatory agency
or national securities exchange, if the Business Combination shall have been
approved by a two-thirds vote of the Continuing Directors (as hereinafter
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defined); provided, however, that such approval shall only be effective if
obtained at a meeting at which a Continuing Director Quorum (as hereinafter
defined) is present.
C. For the purposes of this Article XV the following definitions apply:
(1) The term "Related Person" shall mean and include (a) any
individual, corporation, partnership or other person or entity which
together with its "affiliates" (as that term is defined in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange Act of
1934), "beneficially owns" (as that term is defined in Rule 13d-3 of the
General Rules and Regulations under the Securities Exchange Act of 1934) in
the aggregate 10% or more of the outstanding shares of the common stock of
the Corporation; and (b) any "affiliate" (as that term is defined in Rule
12b-2 under the Securities Exchange Act of 1934) of any such individual,
corporation, partnership or other person or entity. Without limitation, any
shares of the common stock of the Corporation which any Related Person has
the right to acquire pursuant to any agreement, or upon exercise or
conversion rights, warrants or options, or otherwise, shall be deemed
"beneficially owned" by such Related Person.
(2) The term "Substantial Part" shall mean more than 25 percent of
the total assets of the Corporation, as of the end of its most recent
fiscal year ending prior to the time the determination is made.
(3) The term "Continuing Director" shall mean any member of the board
of directors of the Corporation who is unaffiliated with the Related Person
and was a member of the board prior to the time that the Related Person
became a Related Person, and any successor of a Continuing Director who is
unaffiliated with the Related Person and is recommended to succeed a
Continuing Director by a majority of Continuing Directors then on the
board.
(4) The term "Continuing Director Quorum" shall mean two-thirds of
the Continuing Directors capable of exercising the powers conferred on
them.
ARTICLE XVI
EVALUATION OF BUSINESS COMBINATIONS
In connection with the exercise of its judgment in determining what is in
the best interests of the Corporation and of the shareholders, when evaluating a
Business Combination (as defined in Article XV) or a tender or exchange offer,
the board of directors of the Corporation may, in addition to considering the
adequacy of the amount to be paid in connection with any such transaction,
consider all of the following factors and any other factors which it deems
relevant: (i) the social and economic effects of the transaction on the
Corporation and its subsidiaries, employees, depositors, loan and other
customers, creditors and other elements of the communities in which the
Corporation and its subsidiaries operate or are located; (ii) the business and
financial condition and earnings prospects of the acquiring person or entity,
including, but not limited to, debt service and other existing financial
obligations, financial obligations to be incurred in connection with the
acquisition and other likely financial obligations of the acquiring person or
entity and the possible effect of such conditions upon the Corporation and its
subsidiaries and the other elements of the communities in which the Corporation
and its subsidiaries operate or are located; and (iii) the competence,
experience, and integrity of the acquiring person or entity and its or their
management.
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ARTICLE XVII
INDEMNIFICATION
A. Persons. The Corporation shall indemnify, to the extent provided in
-------
paragraphs B, D or F:
(1) any person who is or was a director, officer, employee, or agent
of the Corporation; and
(2) any person who serves or served at the Corporation's request as a
director, officer, employee, agent, partner or trustee of another
corporation, partnership, joint venture, trust or other enterprise.
B. Extent -- Derivative Suits. In case of a threatened, pending or
--------------------------
completed action or suit by or in the right of the Corporation against a person
named in paragraph A by reason of his holding a position named in paragraph A,
the Corporation shall indemnify him if he satisfies the standard in paragraph C,
for expenses (including attorneys' fees but excluding amounts paid in
settlement) actually and reasonably incurred by him in connection with the
defense or settlement of the action or suit.
C. Standard -- Derivative Suits. In case of a threatened, pending or
----------------------------
completed action or suit by or in the right of the Corporation, a person named
in paragraph A shall be indemnified only if:
(1) he is successful on the merits or otherwise; or
(2) he acted in good faith in the transaction which is the subject
of the suit or action, and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the Corporation, including, but not
limited to, the taking of any and all actions in connection with the
Corporation's response to any tender offer or any offer or proposal of
another party to engage in a Business Combination (as defined in Article
XV) not approved by the board of directors. However, he shall not be
indemnified in respect of any claim, issue or matter as to which he has
been adjudged liable to the Corporation unless and only to the extent that
the court in which the suit was brought shall determine, upon application,
that despite the adjudication but in view of all the circumstances, he is
fairly and reasonably entitled to indemnity for such expenses as the court
shall deem proper.
D. Extent -- Nonderivative Suits. In case of a threatened, pending or
-----------------------------
completed suit, action or proceeding (whether civil, criminal, administrative or
investigative), other than a suit by or in the right of the Corporation,
together hereafter referred to as a nonderivative suit, against a person named
in paragraph A by reason of his holding a position named in paragraph A, the
Corporation shall indemnify him if he satisfies the standard in paragraph E, for
amounts actually and reasonably incurred by him in connection with the defense
or settlement of the nonderivative suit, including, but not limited to (i)
expenses (including attorneys' fees), (ii) amounts paid in settlement, (iii)
judgments, and (iv) fines.
E. Standard -- Nonderivative Suits. In case of a nonderivative suit, a
-------------------------------
person named in paragraph A shall be indemnified only if:
(1) he is successful on the merits or otherwise; or
(2) he acted in good faith in the transaction which is the subject of
the nonderivative suit and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the Corporation, including, but not
limited to, the taking of any and all actions in connection with the
Corporation's response to any tender offer or any offer or proposal of
another party to engage in a Business Combination (as defined in Article
XV) not approved by the board of directors and, with respect to any
criminal action or proceeding, he had no reasonable cause to believe his
conduct was unlawful. The termination of a nonderivative suit
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by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent shall not, in itself, create a presumption
that the person failed to satisfy the standard of this subparagraph E(2).
F. Determination That Standard Has Been Met. A determination that the
----------------------------------------
standard of paragraph C or E has been satisfied may be made by a court, or,
except as stated in subparagraph C(2) (second sentence), the determination may
be made by:
(1) the board of directors by a majority vote of a quorum consisting
of directors of the Corporation who were not parties to the action, suit or
proceeding; or
(2) independent legal counsel (appointed by a majority of the
disinterested directors of the Corporation, whether or not a quorum) in a
written opinion; or
(3) the stockholders of the Corporation.
G. Proration. Anyone making a determination under paragraph F may
---------
determine that a person has met the standard as to some matters but not as to
others, and may reasonably prorate amounts to be indemnified.
H. Advance Payment. The Corporation shall pay in advance any expenses
---------------
(including attorneys' fees) which may become subject to indemnification under
paragraphs A through G if:
(1) the board of directors authorizes the specific payment; and
(2) the person receiving the payment undertakes in writing to repay
the same if it is ultimately determined that he is not entitled to
indemnification by the Corporation under paragraphs A through G.
I. Nonexclusive. The indemnification and advance payment of expenses
------------
provided by paragraphs A through H shall not be exclusive of any other rights to
which a person may be entitled by law, bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
J. Continuation. The indemnification provided by this Article XVII shall
------------
be deemed to be a contract between the Corporation and the persons entitled to
indemnification thereunder, and any repeal or modification of this Article XVII
shall not affect any rights or obligations then existing with respect to any
state of facts then or theretofore existing or any action, suit or proceeding
theretofore or thereafter brought based in whole or in part upon any such state
of facts. The indemnification and advance payment provided by paragraphs A
through H shall continue as to a person who has ceased to hold a position named
in paragraph A and shall inure to his heirs, executors and administrators.
K. Insurance. The Corporation may purchase and maintain insurance on
---------
behalf of any person who holds or who has held any position named in paragraph
A, against any liability incurred by him in any such position, or arising out of
his status as such, whether or not the Corporation would have power to indemnify
him against such liability under paragraphs A through H.
L. Intention and Savings Clause. It is the intention of this Article XVII
----------------------------
to provide for indemnification to the fullest extent permitted by the General
Corporation Law of the State of Delaware, and this Article XVII shall be
interpreted accordingly. If this Article XVII or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, officer, employee, and
agent of the Corporation as to costs, charges, and expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement with respect
to any action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, including an action by or in the right of the Corporation to the
full extent permitted by any applicable portion of this Article XVII that shall
not have been invalidated and to the full extent permitted by applicable law.
If the General Corporation Law of the State of Delaware is amended, or other
Delaware law is
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enacted, to permit further or additional indemnification of the persons defined
in this Article XVII A, then the indemnification of such persons shall be to the
fullest extent permitted by the General Corporation Law of the State of
Delaware, as so amended, or such other Delaware law.
ARTICLE XVIII
LIMITATIONS ON DIRECTORS' LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except: (i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or omissions that are not
in good faith or that involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the director derived any
improper personal benefit. If the General Corporation Law of the State of
Delaware or other Delaware law is amended or enacted after the date of filing of
this Certificate to further eliminate or limit the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the General Corporation
Law of the State of Delaware, as so amended, or such other Delaware law. Any
repeal or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification.
ARTICLE XIX
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by statute,
the board of directors of the Corporation is expressly 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 (and notwithstanding the fact that
some lesser percentage may be specified by law), the Bylaws shall 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 (provided
that notice of such proposed adoption, repeal, alteration, amendment or
rescission is included in the notice of such meeting), or, as set forth above,
by the board of directors.
ARTICLE XX
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right to repeal, alter, amend or rescind any
provision contained in this Certificate in the manner now or hereafter
prescribed by law, and all rights conferred on stockholders herein are granted
subject to this reservation. Notwithstanding the foregoing, the provisions set
forth in Articles X, XI, XII, XIII, XIV, XV, XVI, XVII, XVIII, XIX and this
Article XX may not be repealed, altered, amended or rescinded in any respect
unless the same is approved 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 that purpose
(provided that notice of such proposed repeal, alteration, amendment or
rescission is included in the notice of such meeting); except that such repeal,
alteration, amendment or rescission may be made 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, as defined in Article XV of this Certificate.
13
<PAGE>
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this Certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this ____ day of November, 1996.
/s/ Thomas A. Vann
-----------------------------------
Thomas A. Vann
Incorporator
Attest: /s/ William L. Wall
--------------------------
William L. Wall
14
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
NEWSOUTH BANCORP, INC.
ARTICLE I
PRINCIPAL EXECUTIVE OFFICE
The principal executive office of NewSouth Bancorp, Inc. (the
"Corporation") shall be at 1311 Carolina Avenue, Washington, North Carolina
27889. The Corporation may also have offices at such other places within or
without the State of North Carolina as the board of directors shall from time to
time determine.
ARTICLE II
STOCKHOLDERS
SECTION 1. Place of Meetings. All annual and special meetings of
-----------------
stockholders shall be held at the principal executive office of the Corporation
or at such other place within or without the State of Delaware as the board of
directors may determine and as designated in the notice of such meeting.
SECTION 2. Annual Meeting. A meeting of the stockholders of the
--------------
Corporation for the election of directors and for the transaction of any other
business of the Corporation shall be held annually at such date and time as the
board of directors may determine.
SECTION 3. Special Meetings. Special meetings of the stockholders for any
----------------
purpose or purposes may be called at any time by the board of directors or by a
committee of the board of directors in accordance with the provisions of the
Corporation's Certificate of Incorporation.
SECTION 4. Conduct of Meetings. Annual and special meetings shall be
-------------------
conducted in accordance with these Bylaws or as otherwise prescribed by the
board of directors. The chairman or the chief executive officer of the
Corporation shall preside at such meetings.
SECTION 5. Notice of Meeting. Written notice stating the place, day and
-----------------
hour of the meeting and the purpose or purposes for which the meeting is called
shall be mailed by the secretary or the officer performing his duties, not less
than ten days nor more than sixty days before the meeting to each stockholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail, addressed to the
stockholder at his address as it appears on the stock transfer books or records
of the Corporation as of the record date prescribed in Section 6, with postage
thereon prepaid. If a stockholder is present at a meeting, or in writing waives
notice thereof before or after the meeting, notice of the meeting to such
stockholder shall be unnecessary. When any stockholders' meeting, either annual
or special, is adjourned for thirty 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 thirty days or of the business to be transacted at such adjourned
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
---------------------
stockholders entitled to notice of or to vote at any meeting of stockholders, or
any adjournment thereof, or stock holders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the board of directors shall fix in advance a date as the record
date for any such determination of stockholders. Such date in any case shall be
not more than sixty days, and in case of a meeting of stockholders not less than
ten days, prior to the date on which the particular action requiring such
determination of stockholders, is to be taken. When a determination of
stockholders entitled to vote at any meeting of stockholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
SECTION 7. Voting Lists. The officer or agent having charge of the stock
------------
transfer books for shares of the Corporation shall make, at least ten days
before each meeting of stockholders, a complete record of the stockholders
entitled to vote at such meeting or any adjournment thereof, with the address of
and the number of shares held by each. The record, for a period of ten days
before such meeting, shall be kept on file at the principal office of the
Corporation, whether within or outside the State of North Carolina, and shall be
subject to inspection by any stockholder for any purpose germane to the meeting
at any time during usual business hours. Such record shall also be produced and
kept open at the time and place of the meeting and shall be subject to the
inspection of any stockholder for any purpose germane to the meeting during the
whole time of the meeting. The original stock transfer books shall be prima
facie evidence as to who are the stockholders entitled to examine such record or
transfer books or to vote at any meeting of stockholders.
SECTION 8. Quorum. One-third of the outstanding shares of the Corporation
------
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If less than one-third of the outstanding shares
are 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 stockholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
SECTION 9. Proxies. At all meetings of stockholders, a stockholder may
-------
vote by proxy executed in writing by the stock holder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the stockholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
after eleven months from the date of its execution unless otherwise provided in
the proxy.
SECTION 10. Voting. Except as is otherwise specified in the Certificate
------
of Incorporation, at each election for directors every stockholder entitled to
vote at such election shall be entitled to one vote for each share of stock
held. Unless otherwise provided by the Certificate of Incorporation, by
statute, or by these Bylaws, a majority of those votes cast by stockholders at a
lawful meeting shall be sufficient to pass on a transaction or matter, except in
the election of directors, which election shall be determined by a plurality of
the votes of the shares present in person or by proxy at the meeting and
entitled to vote on the election of directors.
SECTION 11. Voting of Shares in the Name of Two or More Persons. When
---------------------------------------------------
ownership of stock stands in the name of two or more persons, in the absence of
written directions to the Corporation to the contrary, at any meeting of the
stockholders of the Corporation any one or more of such stockholders 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 name shares of stock stand, the vote or votes to
which these persons are entitled shall be cast as directed by a majority of
those holding such stock 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 12. Voting of Shares by 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
2
<PAGE>
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 thereof 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 stockholder 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 Corporation, 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
Corporation, 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 13. Inspectors of Election. In advance of any meeting of
----------------------
stockholders, the chairman of the board or 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 thereof. The number of inspectors shall be
either one or three. If the board of directors so appoints either one or three
inspectors, that appointment shall not be altered at the meeting. If inspectors
of election are not so appointed, the chairman of the board may make such
appointment at the meeting. In case any person appointed as inspector fails to
appear or fails or refuses to act, the vacancy may be filled by appointment in
advance of the meeting or at the meeting by the chairman of the board or the
president.
Unless otherwise prescribed by applicable law, the duties of such
inspectors shall include: determining the number of shares of stock and the
voting power of each share, the shares of stock represented at the meeting, the
existence of a quorum, 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 right 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 stockholders.
SECTION 14. Nominating Committee. The board of directors or a committee
--------------------
appointed by the board of directors shall act as a nominating committee for
selecting the 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 twenty days prior to the date of the annual meeting.
Provided such committee makes such nominations, no nominations for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by stockholders are made in writing and
delivered to the secretary of the Corporation in accordance with the provisions
of the Corporation's Certificate of Incorporation.
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
Corporation in accordance with the provisions of the Corporation's Certificate
of Incorporation. 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 provided in the
Corporation's Certificate of Incorporation.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the
--------------
Corporation shall be under the direction of its board of directors. The
chairman shall preside at all meetings of the board of directors.
SECTION 2. Number, Term and Election. The board of directors shall
-------------------------
consist of seven 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.
3
<PAGE>
SECTION 3. Regular Meetings. A regular meeting of the board of
----------------
directors shall be held at such time and place as shall be determined by
resolution of the board of directors without other notice than such resolution.
SECTION 4. Special Meetings. Special meetings of the board of
----------------
directors may be called by or at the request of the chairman, the chief
executive officer or one-third of the directors. The person calling the special
meetings of the board of directors may fix any place 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 5. Notice. Written notice of any special meeting shall be
------
given to each director at least two days previous thereto delivered personally
or by telegram or at least seven days previous thereto delivered by mail at the
address at which the director is most likely to be reached. Such notice shall
be deemed to be delivered when deposited in the United States mail so addressed,
with postage thereon prepaid if mailed or when delivered to the telegraph
company if sent by telegram. 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 6. Quorum. A majority of the number of directors fixed by
------
Section 2 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 the meeting from time
to time. Notice of any adjourned meeting shall be given in the same manner as
prescribed by Section 5 of this Article III.
SECTION 7. Manner of Acting. 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 these Bylaws,
the Certificate of Incorporation, or the General Corporation Law of the State of
Delaware.
SECTION 8. 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 9. Resignation. Any director may resign at any time by
-----------
sending a written notice of such resignation to the home office of the
Corporation addressed to the chairman. Unless otherwise specified therein such
resignation shall take effect upon receipt thereof by the chairman.
SECTION 10. Vacancies. Any vacancy occurring in the board of
---------
directors shall be filled in accordance with the provisions of the Corporation's
Certificate of Incorporation. Any directorship to be filled by reason of an
increase in the number of directors may be filled by the affirmative vote of
two-thirds of the directors then in office or by election at an annual meeting
or at a special meeting of the stockholders held for that purpose. The term of
such director shall be in accordance with the provisions of the Corporation's
Certificate of Incorporation.
SECTION 11. Removal of Directors. 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 12. Compensation. Directors, as such, and advisory or
------------
emeritus directors 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. Advisory and Emeritus Directors. The board of directors
-------------------------------
may by resolution appoint
4
<PAGE>
as advisory directors individuals whom the board believes possess knowledge,
experience and other qualifications which may prove valuable to the Corporation,
and may appoint as emeritus directors individuals who have retired from the
board after extended and faithful service. Advisory and emeritus directors may
sit with the board of directors at regular and special meetings and discuss any
question under consideration; provided, however, that advisory and emeritus
directors shall cast no vote. The board of directors shall have the power to
remove any advisory or emeritus director with or without cause at any time.
SECTION 14. Age Limitation. No person shall be eligible for
--------------
election, reelection, appointment, or reappointment to the board of directors if
such person is then more than 80 years of age. No director shall serve beyond
the annual meeting of the Corporation immediately following his attainment of 80
years of age. Persons may serve as advisory directors or emeritus directors
without regard to age.
ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, as they 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 appointed by a
majority of the whole board. 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 to the Corporation;
provided, however, that notice to the board, the chairman of the board, the
chief executive officer, the chairman of such committee, or the secretary shall
be deemed to constitute notice to the Corporation. Such resignation shall take
effect upon receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective. Any member of any such committee may be removed
at any time, either with or without cause, by the affirmative vote of a majority
of the authorized number of directors at any meeting of the board called for
that purpose.
ARTICLE V
OFFICERS
SECTION 1. Positions. The officers of the Corporation shall be a
---------
chairman, a vice chairman, 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 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
Corporation 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
---------------------------
Corporation shall be elected annually by the board of directors at the first
meeting of the board of directors held after each annual meeting of the
stockholders. 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 his successor shall have been duly elected and qualified or until
his death or until he shall resign or shall have been removed in the manner
hereinafter provided. Election or appointment of an officer, employee or agent
shall not of itself create contract rights. The board of directors may
authorize the Corporation to enter into an employment contract with any officer
in accordance with state law; 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.
5
<PAGE>
SECTION 3. Removal. Any officer may be removed by vote of two-thirds
-------
of the board of directors whenever, in its judgment, the best interests of the
Corporation will be served thereby, but such removal, other than for cause,
shall be without prejudice to the contract rights, if any, 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, and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the Corporation.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. Contracts. To the extent permitted by applicable law,
---------
and except as otherwise prescribed by the Corporation's Certificate of
Incorporation or these Bylaws with respect to Certificates for shares, the board
of directors or the executive committee may authorize any officer, employee, or
agent of the Corporation to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation. Such authority may
be general or confined to specific instances.
SECTION 2. Loans. No loans shall be contracted on behalf of the
-----
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
SECTION 3. Checks, 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 Corporation shall be signed by one or more officers, employees or
agents of the Corporation in such manner, including in facsimile form, as shall
from time to time be determined by resolution of the board of directors.
SECTION 4. Deposits. All funds of the Corporation not otherwise
--------
employed shall be deposited from time to time to the credit of the Corporation
in any of its duly authorized depositories as the board of directors may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. The shares of the Corporation
-----------------------
shall be represented by Certificates signed by the chairman of the board of
directors or the president or a vice president and by the treasurer or an
assistant treasurer or the secretary or an assistant secretary of the
Corporation, and may be sealed with the seal of the Corporation or a facsimile
thereof. Any or all of the signatures upon a Certificate may be facsimiles if
the Certificate is countersigned by a transfer agent, or registered by a
registrar, other than the Corporation itself or an employee of the Corporation.
If any officer who has signed or whose facsimile signature has been placed upon
such Certificate shall have ceased to be such officer before the Certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer at the date of its issue.
SECTION 2. Form of Share Certificates. All Certificates representing
--------------------------
shares issued by the Corporation shall set forth upon the face or back that the
Corporation will furnish to any stockholder upon request and without charge a
full statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof, and the qualifications, limitations or restrictions of such preferences
and/or rights, so far as the same have been fixed and determined, and the
authority of the board of directors to fix and determine the relative rights and
preferences of subsequent series.
Each Certificate representing shares shall state upon the face
thereof: that the Corporation is organized
6
<PAGE>
under the laws of the State of Delaware; the name of the person to whom issued;
the number and class of shares, the designation of the series, if any, which
such Certificate represents; and the par value of each share represented by such
Certificate, or a statement that the shares are without par value. Other matters
in regard to the form of the Certificates shall be determined by the board of
directors.
SECTION 3. Payment for Shares. No Certificate shall be issued for
------------------
any share until such share is fully paid.
SECTION 4. Form of Payment for Shares. The consideration for the
--------------------------
issuance of shares shall be paid in accordance with the provisions of the
Corporation's Certificate of Incorporation.
SECTION 5. Transfer of Shares. Transfer of shares of capital stock
------------------
of the Corporation shall be made only on its stock transfer books. Authority
for such transfer shall be given only the holder of record thereof or by his
legal representative, who shall furnish proper evidence of such authority, or by
his attorney thereunto authorized by power of attorney duly executed and filed
with the Corporation. 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 Corporation shall be deemed by
the Corporation to be the owner thereof for all purposes.
SECTION 6. Lost Certificates. The board of directors may direct a
-----------------
new Certificate to be issued in place of any Certificate theretofore issued by
the Corporation alleged to have been lost, stolen, or destroyed, upon the making
of an affidavit of that fact by the person claiming the Certificate of stock to
be lost, stolen, or destroyed. When authorizing such issue of a new
Certificate, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed Certificate, or his legal representative, to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the Certificate alleged to have
been lost, stolen, or destroyed.
ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Corporation shall end on the last day of
September of each year. The Corporation 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.
7
<PAGE>
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
CORPORATION SEAL
The corporate seal of the Corporation shall be in such form as the
board of directors shall prescribe.
ARTICLE XI
AMENDMENTS
In accordance with the Corporation's Certificate of Incorporation,
these Bylaws may be repealed, altered, amended or rescinded by the stockholders
of the Corporation only by vote 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 (provided that notice of such proposed
repeal, alteration, amendment or rescission is included in the notice of such
meeting). In addition, the board of directors may repeal, alter, amend or
rescind these Bylaws by vote of two-thirds of the board of directors at a legal
meeting held in accordance with the provisions of these Bylaws.
8
<PAGE>
COMMON STOCK
NUMBER ___ ___ SHARES
NEWSOUTH BANCORP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This certifies that
is the owner of CUSIP ___________
fully paid and nonassessable shares of common stock,
par value $0.01 per share, of
NewSouth Bancorp, Inc. (the "Corporation"), a Delaware corporation. The shares
represented by this certificate are transferable only on the stock transfer
books of the Corporation by the holder of record hereof, or by his duly
authorized attorney or legal representative, upon the 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 a
facsimile of its corporate seal to be hereunto affixed.
Dated:
_________________________________ _______________________
William L. Wall Thomas A. Vann
Secretary President
Countersigned and Registered:
By:_____________________________________
Transfer Agent and Registrar
_____________________________________
Authorized Signature
[CORPORATE SEAL]
- --------------------------------------------------------------------------------
RESTRICTIONS ON TRANSFER
The Certificate of Incorporation includes a provision which prohibits any person
from directly or indirectly acquiring or offering to acquire the beneficial
ownership of more than 10% of any class of equity security of the Corporation.
Such provision eliminates the voting rights of securities acquired in violation
of the provision. Such provision will expire three years from the effective
date of completion of the conversion of Home Savings Bank, SSB, Washington,
North Carolina (the "Bank") from mutual to stock form. The Certificate of
Incorporation also imposes certain restrictions on the voting rights of
beneficial owners of more than 10% of any class of equity security of the
Corporation after three years from the effective date of completion of the
conversion of the Bank from mutual to stock form. The Corporation will furnish
without charge to each stockholder who so requests additional information with
respect to such restrictions. Such request may be made in writing to the
Secretary of the Corporation.
- --------------------------------------------------------------------------------
<PAGE>
The shares represented by this certificate are issued subject to all the
provisions of the Certificate of Incorporation and Bylaws of the Corporation as
from time to time amended (copies of which are on file at the principal
executive office of the Corporation), to all of which the holder by acceptance
hereof assents.
The Corporation will furnish without charge to each stockholder who so
requests a full statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Such requests shall be made in writing to the Secretary of the
Corporation.
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:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF TRANSFER MIN ACT - ..........Custodian.......... under Uniform Transfers to
(Cust) (Minor)
Minors Act.......................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, __________________________________ HEREBY SELL(S),
ASSIGN(S) AND TRANSFER(S) UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------------
/ /
- ------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________SHARES
of the common stock evidenced by this certificate, and do hereby irrevocably
constitute and appoint __________________________________, Attorney, to transfer
the said shares on the books of the Corporation, with full power of
substitution.
Dated _____________________
_________________________________
Signature
_________________________________
Signature
In presence of: _______________________________________________
SEE REVERSE SIDE FOR RESTRICTIONS ON TRANSFER
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>
[LETTERHEAD OF HOUSLEY, KANTARIAN & BRONSTEIN, P.C. APPEARS HERE]
EXHIBIT 5
November 15, 1996
Board of Directors
NewSouth Bancorp, Inc.
1311 Carolina Avenue
Washington, North Carolina 27889
RE: Registration Statement on Form S-1
Gentlemen:
You have requested our opinion as special counsel to NewSouth Bancorp, Inc.
(the "Corporation") in connection with the Registration Statement on Form S-1 to
be filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Registration Statement"). The Registration Statement
relates to shares of common stock of the Corporation (the "Common Stock") to be
issued in connection with the simultaneous conversion of Home Savings Bank, SSB
from mutual to stock form and reorganization into the holding company form of
ownership as a wholly owned subsidiary of the Corporation and subsequent
conversion from a North Carolina stock savings bank to a North Carolina
commercial bank (the "Conversion").
In rendering this opinion, we understand that the Common Stock will be
offered and sold in the manner described in the Prospectus which is a part of
the Registration Statement. We have examined such records and documents and
made such examination as we have deemed relevant in connection with this
opinion.
Based upon the foregoing, it is our opinion that the shares of Common Stock
will, when issued and sold as contemplated by the Registration Statement, be
legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Prospectus under the
heading "Legal Opinions."
Very truly yours,
HOUSLEY KANTARIAN & BRONSTEIN, P.C.
By: /s/ Gary R. Bronstein
---------------------------------
Gary R. Bronstein
<PAGE>
EXHIBIT 8.1
November __, 1996
Board of Directors
Home Savings Bank, SSB
1311 Carolina Avenue
Washington, North Carolina 27889
Re: Certain Federal Income Tax Consequences Relating to Proposed Holding
Company Conversion and Subsequent Conversion to Commercial Bank
--------------------------------------------------------------------
Ladies and Gentlemen:
In accordance with your request, set forth hereinbelow is the opinion of
this firm relating to certain federal income tax consequences of (i) the
proposed conversion of Home Savings Bank, SSB (the "Bank") from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered stock
savings bank (the "Converted Bank") and the concurrent acquisition of 100% of
the outstanding capital stock of the Converted Bank by NewSouth Bancorp, Inc.
(the "Company"), a Delaware corporation formed at the direction of the Board of
Directors of the Bank to become the parent holding company of the Converted Bank
and, thereafter, the Commercial Bank (as hereinafter defined) (the "Stock
Conversion"); and, then immediately thereafter, (ii) the conversion of the
Converted Bank to a North Carolina-chartered commercial bank (the "Bank
Conversion") to be known as "NewSouth Bank" (the "Commercial Bank"). The Stock
Conversion and the Bank Conversion are referred to herein collectively as the
"Conversion."
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 Board of Directors of the Bank on
September 19, 1996 and amended on October __, 1996 (the "Plan"); the North
Carolina mutual certificate of incorporation and bylaws of the Bank; the Amended
and Restated Certificate of Incorporation and Bylaws of the Converted Bank; the
Amended and Restated Certificate of Incorporation and Bylaws of the Commercial
Bank; the Certificate of Incorporation and Bylaws of the Company; the Affidavit
of representations dated _______________, 1996 provided to us by the Bank (the
"Affidavit"), and the Prospectus (the "Prospectus") included in the Registration
Statement on
<PAGE>
Board of Directors
Home Savings Bank, SSB
November __, 1996
Page 2
Form S-1 filed with the Securities and Exchange Commission ("SEC") on November
18, 1996 (the "Registration Statement"). 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. Terms used but not defined herein, whether capitalized
or not, shall have the same meaning as defined in the Plan.
BACKGROUND
----------
Based solely upon our review of such documents, and upon such information
as the Bank has provided to us (which we have not attempted to verify in any
respect), and in reliance upon such documents and information, we set forth
hereinbelow a general summary of the relevant facts and proposed transactions,
qualified in its entirety by reference to the documents cited above.
The Bank is a North Carolina-chartered mutual savings bank which is in the
process of converting to a North Carolina-chartered stock savings bank and
thereafter to a North Carolina-chartered commercial bank. The Bank was
chartered by the State of North Carolina in 1902 under the name The Home
Building and Loan Association. The Bank received federal insurance of its
deposit accounts in 1959. In 1992, the Bank converted to a North Carolina-
chartered savings bank, at which time it adopted its present name of Home
Savings Bank, SSB. The Bank is currently a member of the Federal Home Loan Bank
("FHLB") System and its deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") up to the applicable limits. The Bank is subject to
comprehensive regulation and supervision by the FDIC and the Administrator,
Savings Institutions Division, North Carolina Department of Commerce (the
"Administrator"), and to examination by the Administrator. The Bank is
headquartered in Washington, North Carolina, where its main office and
operations center are located, and serves northeastern North Carolina through
seven additional full-service branch offices and three loan production offices.
The Bank's principal business consists of attracting deposits from the
general public and investing these funds in loans secured by first mortgages on
owner-occupied, single-family residences in the Bank's market area, commercial
real estate loans, commercial business loans and consumer loans, and, to a
lesser extent, multi-family residential real estate loans. At September 30,
1996, the Bank had total assets of $194.1 million, total deposits of $171.2
million and retained income, substantially restricted, of $18.3 million.
As a North Carolina-chartered mutual savings bank, the Bank has no
authorized capital stock. Instead, the Bank, in mutual form, has a unique equity
structure. A savings depositor of the Bank is entitled to payment of interest on
his account balance as declared and paid by the Bank, but has no right to a
distribution of any earnings of the Bank except for interest paid on his
deposit. Rather, such earnings become retained income of the Bank.
<PAGE>
Board of Directors
Home Savings Bank, SSB
November __, 1996
Page 3
However, a savings depositor does have a right to share pro rata, with
--- ----
respect to the withdrawal value of his respective savings account, in any
liquidation proceeds distributed if the Bank is ever liquidated. Further,
savings depositors and certain borrowers are members of the Bank and thereby
have voting rights in the Bank. Under the Bank's North Carolina mutual charter
and bylaws, savings depositors are entitled to cast one vote for each $100 or
fraction thereof held in a withdrawable deposit account of the Bank and each
borrower member (hereinafter "borrower") is entitled to one vote in addition to
the votes (if any) to which such person is entitled in such borrower's capacity
as a savings depositor of the Bank. Also under such mutual charter, no member is
entitled to cast more than 1,000 votes. All of the interests held by a savings
depositor in the Bank cease when such depositor closes his accounts with the
Bank.
The Company was incorporated in November 1996 under the laws of the State
of Delaware to act as the holding company of the Converted Bank upon
consummation of the Stock Conversion, and then as the holding company of the
Commercial Bank upon consummation of the Bank Conversion. Prior to consummation
of the Stock Conversion, the Company has not engaged and is not expected to
engage in any material operations. After the Conversion, the Company's principal
business will be overseeing the business of the Commercial Bank and investing
the portion of the net Stock Conversion proceeds retained by it, and, assuming
the requisite federal regulatory approvals are obtained, the Company will
register with the Board of Governors of the Federal Reserve Board (the "FRB") as
a bank holding company. The Company has an authorized capital structure of
8,000,000 shares of common stock (the "Common Stock") and 1,000,000 shares of
serial preferred stock.
PROPOSED TRANSACTION
--------------------
The Board of Directors of the Bank has decided that in order to attract new
capital to the Bank to increase its net worth, to support future savings
growth, to increase the amount of funds available for lending and investment, to
provide greater resources for the expansion of customer services, and to
facilitate future expansion, and because applicable laws and regulations do not
provide for the organization of mutual North Carolina commercial banks, it would
be advantageous for the Bank to convert from a North Carolina-chartered mutual
savings bank to a North Carolina-chartered stock savings bank, and thereafter to
convert to a North Carolina-chartered commercial bank. In addition, the Board
of Directors intends to implement stock option plans and other stock benefit
plans following the Stock Conversion in order to better attract and retain
qualified directors and officers. The purpose of the Bank Conversion is to
provide the Bank with additional operating flexibility and enhance its ability
to provide a full range of banking products and services to its community. It
is the further desire of the Board of Directors to reorganize the Converted Bank
(and the Commercial Bank upon the Bank Conversion) as the wholly owned
subsidiary of the Company to enhance flexibility of operations,
<PAGE>
Board of Directors
Home Savings Bank, SSB
November __, 1996
Page 4
diversification of business opportunities and financial capability for business
and regulatory purposes and to enable the Commercial Bank to compete more
effectively with other financial service organizations.
The Stock Conversion. Accordingly, pursuant to the Plan, the Bank will
---------------------
undergo the Stock Conversion whereby it will be converted from a North Carolina-
chartered mutual savings bank to a North Carolina-chartered stock savings bank.
As part of the Stock Conversion, the Bank will amend and restate its existing
North Carolina mutual Certificate of Incorporation and Bylaws to read in the
form of a North Carolina stock savings bank Certificate of Incorporation and
Bylaws. The Converted Bank will then issue to the Company 100,000 shares of the
Converted Bank's common stock, representing all of the shares of capital stock
to be issued by the Converted Bank in the Stock Conversion, in exchange for
payment by the Company to the Converted Bank of at least 50% of the aggregate
net proceeds realized by the Company from the sale of the Common Stock under the
Plan, after deducting the amount necessary to fund a loan to an Employee Stock
Option Plan being established in connection with the Stock Conversion, or such
other portion of the aggregate net proceeds as may be authorized or required by
the FDIC or the Administrator.
Also pursuant to the Plan, the Company will offer its shares of Common
Stock for sale in a Subscription Offering. Shares of Common Stock remaining, if
any, may then be offered to the general public in a Community Offering. Shares
of the Common Stock not otherwise subscribed for in the Subscription Offering
and Community Offering may be offered at the discretion of the Company to
certain members of the general public as part of a community offering on a best
efforts basis by a selling group of selected broker-dealers.
The purchase price per share and total number of shares of Common Stock to
be offered and sold pursuant to the Plan will be determined by the Boards of
Directors of the Bank and the Company, or their respective designees,
immediately prior to the simultaneous completion of all such sales of Common
Stock contemplated by the Plan, on the basis of the estimated pro forma market
--- -----
value of the Converted Bank, as a subsidiary of the Company, which will in turn
be determined by an independent appraiser. The aggregate purchase price for all
shares of the Common Stock will be equal to an amount that is within a valuation
range (the "Estimated Valuation Range") which will vary from 15% above to 15%
below the estimated midpoint of the Estimated Valuation Range and which may also
be in the range that is 15% above the high end of the Estimated Valuation Range.
Pursuant to the Plan, all such shares of Common Stock will be issued and sold at
a uniform price per share. The Stock Conversion, including the sale of newly
issued shares of the stock of the Converted Bank to the Company, will be deemed
effective concurrently with the closing of the sale of the Common Stock.
<PAGE>
Board of Directors
Home Savings Bank, SSB
November __, 1996
Page 5
Under the Plan and in accordance with regulations of the Administrator and
the FDIC, the shares of Common Stock will first be offered through the
Subscription Offering pursuant to non-transferable subscription rights on the
basis of preference categories in the following order of priority:
(1) Eligible Account Holders;
(2) Tax-Qualified Employee Stock Benefit Plans;
(3) Supplemental Eligible Account Holders; and
(4) Other Members.
However, any shares of Common Stock sold in excess of the maximum of the
Estimated Valuation Range may be first sold to Tax-Qualified Employee Stock
Benefit Plans set forth in category (2) above. In the event of an
oversubscription within any of the remaining subscription priority categories,
preference may be given within such category to natural persons and trusts of
natural persons who are permanent Residents of the Local Community, if permitted
by applicable law and approved by the Bank's Board of Directors in its sole
discretion.
Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered in the Community Offering in the following order of priority:
(a) Natural persons and trusts of natural persons who are permanent
Residents of the Local Community; and
(b) The general public.
Shares not sold in the Subscription Offering and the Community Offering, if any,
may thereafter be offered for sale to certain members of the general public as
part of a community offering on a best efforts basis by a selling group of
selected broker-dealers. The sale of shares in the Subscription Offering,
Community Offering, and as sold through the selected broker-dealers would be
consummated at the same time.
The Plan also provides for the establishment of a Liquidation Account by
the Converted Bank for the benefit of all Eligible Account Holders and
Supplemental Eligible Account Holders in an amount equal to the net worth of the
Bank as of the date of the latest statement of financial condition contained in
the final prospectus issued in connection with the Stock Conversion. The
establishment of the Liquidation Account will not operate to restrict the use or
application of any of the net worth accounts of the Converted Bank, except that
the Converted Bank may not
<PAGE>
Board of Directors
Home Savings Bank, SSB
November __, 1996
Page 6
declare or pay cash dividends on or repurchase any of its stock if the result
thereof would be to reduce its net worth below the amount required to maintain
the Liquidation Account. All such account holders will have an inchoate
interest in a proportionate amount of the Liquidation Account with respect to
each savings account held and will be paid by the Converted Bank in event of
liquidation prior to any liquidating distribution being made with respect to
capital stock. Under the Plan, the Bank Conversion shall not be deemed to be a
liquidation of the Converted Bank for purposes of distribution of the
Liquidation Account. Instead, upon consummation of the Bank Conversion, the
Liquidation Account, together with the related rights and obligations of the
Converted Bank, shall be assumed by the Commercial Bank.
The Stock Conversion will not interrupt the business of the Bank. The
Converted Bank will, after the Stock Conversion, engage in the same business as
that of the Bank immediately prior to the Stock Conversion, and will continue to
be subject to regulation and supervision by the Administrator and the FDIC.
Further, the deposits of the Converted Bank will continue to be insured by the
FDIC. Each depositor will retain a withdrawable savings account or accounts
equal in dollar amount to, and on the same terms and conditions as, the
withdrawable account or accounts at the time of Stock Conversion except to the
extent funds on deposit are used to pay for Common Stock purchased in connection
with the Stock Conversion. All loans of the Bank will remain unchanged and
retain their same characteristics in the Converted Bank immediately following
the Stock Conversion.
Following the Stock Conversion, voting rights in the Converted Bank will
rest exclusively with the sole holder of stock in the Converted Bank, which will
be the Company. Following the Bank Conversion, voting rights in the Commercial
Bank will similarly be vested in the Company. Voting rights in the Company, both
after the Stock Conversion and after the Bank Conversion, will be vested in the
holders of the Common Stock.
The Bank Conversion. Immediately following completion of the Stock
--------------------
Conversion, the Company, as the sole stockholder of the Converted Bank, shall
approve the Bank Conversion, whereby the Converted Bank intends to convert from
a North Carolina stock savings bank to the Commercial Bank. Under the Plan, the
Board of Directors of the Bank has the ability to elect, at any time, not to
proceed with or to delay the Bank Conversion.
The purpose of the Bank Conversion is to provide the Bank with additional
operating flexibility and to enhance its ability to provide a full range of
banking products and services to its community. Historically, the Bank operated
as a traditional savings and loan association, emphasizing the origination of
loans secured by single-family residences. Beginning in the early 1980's, the
Board of Directors determined that the Bank's market area was not adequately
served by the existing financial institutions and there was local demand for
commercial real estate, commercial business and consumer loans. As a result,
the Board of Directors determined to
<PAGE>
Board of Directors
Home Savings Bank, SSB
November __, 1996
Page 7
refocus the Bank's strategy. Pursuant to this strategy, while continuing to
pursue its existing business of originating single-family residential mortgage
loans, the Bank took advantage of the business opportunities identified by the
Board of Directors by gradually expanding into commercial real estate,
commercial business and consumer lending. In furtherance of this strategy, the
Bank recruited experienced commercial real estate, commercial business and
consumer lending officers and developed commercial real estate, commercial
business and consumer loan products. As a result of these efforts over the
years, at September 30, 1996, the Bank had commercial real estate, commercial
business and consumer loans totaling $31.2 million, $10.3 million and $37.4
million, respectively, which represented 17.9%, 6.0% and 21.5%, respectively, of
total loans. Effectuation of the Bank Conversion will help the Commercial Bank
to follow the Bank's current strategy of seeking growth opportunities through
increasing its portfolio of commercial real estate, commercial business and
consumer loans while continuing to pursue single-family residential mortgage
loan origination and mortgage banking activities.
As with the Stock Conversion, the Bank Conversion will not interrupt the
business of the Converted Bank. The Commercial Bank will continue to conduct
business in substantially the same manner as that of the Converted Bank prior to
the Bank Conversion. Further, the Bank Conversion is expected to allow the
Commercial Bank to enhance its ability to structure its banking services to
respond to prevailing market conditions. The Commercial Bank will also continue
to have its savings accounts insured by the FDIC, although it will be subject to
regulation, supervision and examination by the North Carolina Commissioner of
Banks (the "Commissioner") rather than the Administrator. Each depositor will
retain a withdrawable savings account or accounts equal in dollar amount to, and
on the same terms and conditions as, the withdrawable account or accounts at the
time of the Bank Conversion. All loans of the Converted Bank will remain
unchanged and retain their same characteristics in the Commercial Bank
immediately following the Bank Conversion.
Other. The Plan must be approved by the Administrator and by an
-----
affirmative vote of at least a majority of the total votes eligible to be cast
at a meeting of the Bank's members called to vote on the Plan. The Bank
Conversion is also subject to approval of the Board of Governors of the Federal
Reserve System and the Commissioner.
Immediately prior to the Conversion, the Bank will have a positive net
worth determined in accordance with generally accepted accounting principles.
<PAGE>
Board of Directors
Home Savings Bank, SSB
November __, 1996
Page 8
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 transaction.
1. The Stock Conversion will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended (the "Code"), and no gain or loss will be recognized to
either the Bank or the Converted Bank as a result of the Stock
Conversion (see Rev. Rul. 80-105, 1980-1 C.B. 78).
---
2. The assets of the Bank will have the same basis in the hands of the
Converted Bank as in the hands of the Bank immediately prior to the
Stock Conversion (Section 362(b) of the Code).
3. The holding period of the assets of the Bank to be received by the
Converted Bank will include the period during which the assets were
held by the Bank prior to the Stock Conversion (Section 1223(2) of the
Code).
4. No gain or loss will be recognized by the Converted Bank upon its
receipt of money from the Company in exchange for shares of common
stock of the Converted Bank (Section 1032(a) of the Code). The Company
will be transferring solely cash to the Converted Bank in exchange for
all the outstanding capital stock of the Converted Bank and therefore
will not recognize any gain or loss upon such transfer. (Section
351(a) of the Code; see Rev. Rul. 69-357, 1969-1 C.B. 101).
---
5. No gain or loss will be recognized by the Company upon its receipt of
money in exchange for shares of the Common Stock (Section 1032(a) of
the Code).
6. No gain or loss will be recognized by the Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members of the Bank
upon the issuance to them of deposit accounts in the Converted Bank in
the same dollar amount and on the same terms and conditions in
exchange for their deposit accounts in the Bank held immediately prior
to the Stock Conversion. (Section 1001(a) of the Code; Treas. Reg.
(S)1.1001-1(a)).
7. The tax basis of the savings accounts of the Eligible Account Holders,
Supplemental Eligible Account Holders, and Other Members in the
Converted
<PAGE>
Board of Directors
Home Savings Bank, SSB
November __, 1996
Page 9
Bank received as part of the Stock Conversion will equal the tax basis
of such account holders' corresponding deposit accounts in the Bank
surrendered in exchange therefor (Section 1012 of the Code).
8. Each depositor of the Bank will recognize gain upon the receipt of his
or her respective interest in the Liquidation Account established by
the Converted Bank pursuant to the Plan and the receipt of his or her
subscription rights deemed to have been received for federal income
tax purposes, but only to the extent of the excess of the combined
fair market value of a depositor's interest in such Liquidation
Account and subscription rights over the depositor's basis in the
former interests in the Bank other than deposit accounts. Persons who
subscribe in the Stock Conversion but who are not depositors of the
Bank will recognize gain upon the receipt of subscription rights
deemed to have been received for federal income tax purposes, but only
to the extent of the excess of the fair market value of such
subscription rights over such person's former interests in the Bank,
if any. Any such gain realized in the Stock Conversion would be
subject to immediate recognition.
9. The basis of each account holder's interest in the Liquidation Account
received in the Stock Conversion and to be established by the
Converted Bank pursuant to the Stock Conversion will be equal to the
value, if any, of that interest.
10. No gain or loss will be recognized upon the exercise of a subscription
right in the Stock Conversion. (Rev. Rul. 56-572, 1956-2 C.B.182).
11. The basis of the shares of Common Stock acquired in the Stock
Conversion will be equal to the purchase price of such shares,
increased, in the case of such shares acquired pursuant to the
exercise of subscription rights, by the fair market value, if any, of
the subscription rights exercised (Section 1012 of the Code).
12. The holding period of the Common Stock acquired in the Stock
Conversion pursuant to the exercise of subscription rights will
commence on the date on which the subscription rights are exercised
(Section 1223(6) of the Code). The holding period of the Common Stock
acquired in the Community Offering will commence on the date following
the date on which such stock is purchased (Rev. Rul. 70-598, 1970-2
C.B. 168; Rev. Rul. 66-97, 1966-1 C.B. 190).
13. The Bank Conversion will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Code.
<PAGE>
Board of Directors
Home Savings Bank, SSB
November __, 1996
Page 10
14. The assets of the Converted Bank will have the same basis in the hands
of the Commercial Bank as in the hands of the Converted Bank
immediately prior to the Bank Conversion (Section 362(b) of the Code).
15. The holding period of the assets of the Converted Bank to be received
by the Commercial Bank will include the period during which the assets
were held by the Converted Bank prior to the Bank Conversion (Section
1223(2) of the Code).
16. In accordance with recently enacted legislation, Public Law 104-188,
the Bank and its successors (including the Converted Bank and the
Commercial Bank) will no longer be required to account for its tax bad
debt reserves as under prior law. The prior law was applied in the
following manner:
Following the Bank Conversion, the Bank will not qualify as a
domestic building and loan association under the Code (see
---
Rev.Rul. 90-54, 1990-1 C.B. 344). Accordingly, the Commercial
Bank will be required to restate the balance of its tax bad debt
reserves as of the first day of its ineligibility year (the year
in which the Bank Conversion occurs). (Prop. Treas. Reg. (S)
1.593-12(a)). The excess of the Commercial Bank's actual tax bad
debt reserve as of the close of the taxable year immediately
preceding its ineligibility year over the restated balance of its
tax bad debt reserves must be included in the gross income of the
Commercial Bank over six taxable years, beginning with the
ineligibility year. (Prop. Treas. Reg. (S) 1.593-13(d)).
Public Law 104-188 does require the Bank and its successors (including
the Converted Bank and the Commercial Bank) to recapture the
applicable excess reserves into gross income ratably over a six
taxable year period. The applicable excess reserves are the excess, if
any, of (1) the balance of its reserves as of the close of its last
taxable year beginning before January 1, 1996, over (2) the greater of
the balance of (a) its pre-1988 reserves, or (b) what the Commercial
Bank's reserves would have been at the close of its last taxable year
beginning before January 1, 1996, had the Bank always used the
experience method (the six-year average method). Code Section 593(g).
If the Commercial Bank meets the residential loan requirement for a
taxable year beginning in 1996 or 1997, the recapture of applicable
excess reserves required to be taken into account will be suspended
for the taxable year. The test is made separately to each taxable year
and is limited to the first two taxable years beginning after December
31, 1995. Commercial Bank meets the residential loan
<PAGE>
Board of Directors
Home Savings Bank, SSB
November __, 1996
Page 11
requirement if loans made during the year are not less than its base
amount. Base amount generally is the average of the principal amounts
of residential loans made by the Bank during the six most recent tax
years beginning before January 1, 1996. Code Section 593(g)(4).
SCOPE OF OPINION
----------------
Our opinion is limited to the federal income tax matters described above
and does not address any other federal income tax considerations or any state,
local, foreign or other federal tax considerations. If any of the information
upon 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 subsequent to
consummation of the Stock Conversion. Prior to that time, we undertake to update
or supplement our opinion in the event of a material change in the federal
income tax consequences set forth above and to file such revised opinion as an
exhibit to the Registration Statement and the Bank's Application to Convert a
Mutual Savings Bank into a Stock Owned Savings Bank filed with the Administrator
(the "Stock Conversion Application"). 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.
CONSENTS
--------
We hereby consent to the filing of this opinion with the Administrator as
an exhibit to the Stock Conversion Application filed by the Bank with the
Administrator in connection with the Stock Conversion.
We also hereby consent to the filing of this opinion with the SEC as an
exhibit to the Registration Statement and the reference to our firm in the
Prospectus, which is a part of the Registration Statement, under the headings
"The Conversion -- Effect of Conversion to Stock Form on Depositors and
Borrowers of the Bank -- Tax Effects" and "Tax Opinions."
Very truly yours,
HOUSLEY KANTARIAN & BRONSTEIN, P.C.
By:____________________________
Gary R. Bronstein
<PAGE>
Exhibit 8.2
November __, 1996
Board of Directors
Home Savings Bank, SSB
1311 Carolina Avenue
Washington, NC 27889
Ladies and Gentlemen:
You have requested our opinion as to the North Carolina state income tax
consequences to be accorded proposed transactions whereby Home Savings Bank, SSB
(the "Bank"), a North Carolina-chartered mutual savings bank, will convert to a
North Carolina-chartered stock savings bank (the "Converted Bank"), and
concurrently be acquired by New South Bancorp, Inc., (the "Company") which will
acquire 100% of the outstanding stock of the Converted Bank. This acquisition
will immediately be followed by the conversion of the Converted Bank to a North
Carolina chartered commercial bank (the "Bank Conversion") to be known as "New
South Bank".
You have previously received a favorable opinion of legal counsel dated
November__, 1996, stating that the proposed transactions would result in no
adverse federal income tax consequences to the Bank, the Converted Bank, the
Company, New South Bank or eligible account holders and other preference
categories of the Bank or the shareholders of the Company under the Internal
Revenue Code of 1986, as amended ("Code").
The opinion of legal counsel provides that based upon the facts of the proposed
transactions, the conversion of the Bank from a North-Carolina chartered mutual
savings bank to a North Carolina-chartered stock savings bank will constitute a
reorganization as that term is defined in Section 368(a)(1)(F) of the Code.
Furthermore, the opinion states that the Converted Bank, the Company, and the
shareholders of the Company will recognize no gain or loss as a result of the
acquisition of 100% of the Converted Bank's stock by the Company. The
subsequent conversion of Converted Bank to a North Carolina-chartered commercial
bank will also constitute a reorganization under Section 368(a)(1)(F) of the
Code.
The statement of facts and representations and declarations of the management of
the Bank included in the opinion of legal counsel are incorporated herein by
reference. No party to the proposed transactions has any net operating loss or
credit carryovers.
<PAGE>
Board of Directors
Home Savings Bank, SSB
November __, 1996
Page 2
The State of North Carolina will, for income tax purposes, accord the
transaction the identical treatment which it receives for federal income tax
purposes. Based on the facts attendant to the proposed transactions, it is our
opinion that under the laws and administrative provisions of the State of North
Carolina, including North Carolina General Statute Sections 105-130.2(1),
105-130.2(5d), 105-130.5 and 105-228.90(b)(1a) no adverse North Carolina income
tax consequences will be incurred by the Company, the Converted Bank, the Bank,
the eligible account holders or the shareholders of the Company as a result of
the consummation of the proposed transactions.
No opinion is expressed with respect to any matter other than the North Carolina
income tax consequences, including but not limited to any franchise or capital
stock taxes which might result from the consummation of the proposed
transaction.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-1 filed on behalf of the Company with the
Securities and Exchange Commission under the headings "The Conversion--Effect of
Conversions to Stock Form of Depositors and Borrowers of the Bank--Tax Effects"
in the Prospectus constituting a part of such Registration Statement.
Very truly yours,
/dk
<PAGE>
EXHIBIT 8.3
NOVEMBER 1, 1996
BOARD OF DIRECTORS
HOME SAVINGS BANK, SSB
1311 CAROLINA AVENUE
WASHINGTON, NORTH CAROLINA 27889
PLAN OF CONVERSION, SUBSCRIPTION RIGHTS
---------------------------------------
DIRECTORS:
Terms used in this letter not otherwise defined herein have the same
meanings for such terms in the Plan of Holding Company Conversion (the "Plan of
Conversion") adopted by the Board of Directors of Home Savings Bank, SSB,
Washington, North Carolina ("Home Savings" or "Bank"), under which the Bank will
convert from a mutual savings bank to a stock savings bank and issue all of the
Bank's stock to NewSouth Bancorp, Inc. (the "Holding Company"). Simultaneously,
the Holding Company will issue shares of common stock (the "Common Stock").
We understand that in accordance with the Plan of Conversion, subscription
rights to purchase shares of Common Stock in the Holding Company are to be
issued to (1) Eligible Account Holders, (2) the Bank's tax qualified employee
stock ownership plan, (3) Supplemental Eligible Account Holders, (4) Other
Members, and (5) employees, officers and directors of Home Savings. Based
solely upon our observation that the subscription rights will be available to
such parties without cost, will be legally non-transferable and of short
duration, and will afford such parties the right only to purchase shares of
Common Stock at the same price to be paid by members of the general public in
the Community Offering, but without undertaking any independent investigation of
state or federal laws or the position of the Internal Revenue Service with
respect to such issue, we are of the belief that:
(1) the subscription rights 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,
Robin L. Fussell
Principal
<PAGE>
EXHIBIT 10.1
NEWSOUTH BANCORP, INC.
1996 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
The purpose of this Plan is to advance the interests of the Company
through providing select key Employees and Directors of the Bank, the Company,
and their Affiliates with the opportunity to acquire Shares. By encouraging
such stock ownership, the Company seeks to attract, retain and motivate the best
available personnel for positions of substantial responsibility and to provide
additional incentives to Directors and key Employees of the Company or any
Affiliate to promote the success of the business.
2. DEFINITIONS.
As used herein, the following definitions shall apply.
(a) "Affiliate" shall mean any "parent corporation" or "subsidiary
corporation" of the Company, as such terms are defined in Section 424(e) and
(f), respectively, of the Code.
(b) "Agreement" shall mean a written agreement entered into in accordance
with Paragraph 5(c).
(c) "Awards" shall mean, collectively, Options and SARs, unless the
context clearly indicates a different meaning.
(d) "Bank" shall mean Home Savings Bank, SSB.
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(g) "Committee" shall mean the Stock Option Committee appointed by the
Board in accordance with Paragraph 5(a) hereof.
(h) "Common Stock" shall mean the common stock of the Company.
(i) "Company" shall mean NewSouth Bancorp, Inc.
(j) "Continuous Service" shall mean the absence of any interruption or
termination of service as an Employee or Director of the Company or an
Affiliate. Continuous Service shall not be considered interrupted in the case of
sick leave, military leave or any other leave of absence approved by the
Company, in the case of transfers between payroll locations of the Company or
between the Company, an Affiliate or a successor, or in the case of a Director's
performance of services in an emeritus or advisory capacity.
(k) "Director" shall mean any member of the Board, and any member of the
board of directors of any Affiliate that the Board has by resolution designated
as being eligible for participation in this Plan.
(l) "Disability" shall mean a physical or mental condition, which in the
sole and absolute discretion of the Committee, is reasonably expected to be of
indefinite duration and to substantially prevent a Participant from fulfilling
his or her duties or responsibilities to the Company or an Affiliate.
(m) "Effective Date" shall mean the date specified in Paragraph 14 hereof.
(n) "Employee" shall mean any person employed by the Company, the Bank, or
an Affiliate.
<PAGE>
(o) "Exercise Price" shall mean the price per Optioned Share at which an
Option or SAR may be exercised.
(p) "ISO" means an option to purchase Common Stock which meets the
requirements set forth in the Plan, and which is intended to be and is
identified as an "incentive stock option" within the meaning of Section 422 of
the Code.
(q) "Market Value" shall mean the fair market value of the Common Stock,
as determined under Paragraph 7(b) hereof.
(r) "Non-Employee Director" shall have the meaning provided in Rule 16b-3.
(s) "Non-ISO" means an option to purchase Common Stock which meets the
requirements set forth in the Plan but which is not intended to be and is not
identified as an ISO.
(t) "Option" means an ISO and/or a Non-ISO.
(u) "Optioned Shares" shall mean Shares subject to an Award granted
pursuant to this Plan.
(v) "Participant" shall mean any person who receives an Award pursuant to
the Plan.
(w) "Plan" shall mean this NewSouth Bancorp, Inc. 1996 Stock Option and
Incentive Plan.
(x) "Rule 16b-3" shall mean Rule 16b-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
(y) "Share" shall mean one share of Common Stock.
(z) "SAR" (or "Stock Appreciation Right") means a right to receive the
appreciation in value, or a portion of the appreciation in value, of a specified
number of shares of Common Stock.
(aa) "Year of Service" shall mean a full twelve-month period, measured
from the date of an Award and each annual anniversary of that date, during which
a Participant has not terminated Continuous Service for any reason.
3. TERM OF THE PLAN AND AWARDS.
(a) Term of the Plan. The Plan shall continue in effect for a term of
ten years from the Effective Date, unless sooner terminated pursuant to
Paragraph 16 hereof. No Award shall be granted under the Plan after ten years
from the Effective Date.
(b) Term of Awards. The term of each Award granted under the Plan
shall be established by the Committee, but shall not exceed 10 years; provided,
however, that in the case of an Employee who owns Shares representing more than
10% of the outstanding Common Stock at the time an ISO is granted, the term of
such ISO shall not exceed five years.
4. SHARES SUBJECT TO THE PLAN.
(a) General Rule. Except as otherwise required under Section 11,
the aggregate number of Shares deliverable pursuant to Awards shall not exceed
________ Shares, which equals 10% of the Shares issued by the Company in
connection with the Bank's conversion from mutual to stock form. Such Shares
may either be
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authorized but unissued Shares, Shares held in treasury, or Shares held in a
grantor trust created by the Company. If any Awards should expire, become
unexercisable, or be forfeited for any reason without having been exercised, the
Optioned Shares shall, unless the Plan shall have been terminated, be available
for the grant of additional Awards under the Plan.
(b) Special Rule for SARs. The number of Shares with respect to which an
SAR is granted, but not the number of Shares which the Company delivers or could
deliver to an Employee or individual upon exercise of an SAR, shall be charged
against the aggregate number of Shares remaining available under the Plan;
provided, however, that in the case of an SAR granted in conjunction with an
Option, under circumstances in which the exercise of the SAR results in
termination of the Option and vice versa, only the number of Shares subject to
the Option shall be charged against the aggregate number of Shares remaining
available under the Plan. The Shares involved in an Option as to which option
rights have terminated by reason of the exercise of a related SAR, as provided
in Paragraph 10 hereof, shall not be available for the grant of further Options
under the Plan.
5. ADMINISTRATION OF THE PLAN.
(a) Composition of the Committee. The Plan shall be administered by
the Committee, which shall consist of at least two Non-Employee Directors
appointed by the Board. Members of the Committee shall serve at the pleasure of
the Board. In the absence at any time of a duly appointed Committee, the Plan
shall be administered by those members of the Board who are Non-Employee
Directors.
(b) Powers of the Committee. Except as limited by the express provisions
of the Plan or by resolutions adopted by the Board, the Committee shall have
sole and complete authority and discretion (i) to select Participants and grant
Awards, (ii) to determine the form and content of Awards to be issued in the
form of Agreements under the Plan, (iii) to interpret the Plan, (iv) to
prescribe, amend and rescind rules and regulations relating to the Plan, and (v)
to make other determinations necessary or advisable for the administration of
the Plan. The Committee shall have and may exercise such other power and
authority as may be delegated to it by the Board from time to time. A majority
of the entire Committee shall constitute a quorum and the action of a majority
of the members present at any meeting at which a quorum is present, or acts
approved in writing by a majority of the Committee without a meeting, shall be
deemed the action of the Committee.
(c) Agreement. Each Award shall be evidenced by a written agreement
containing such provisions as may be approved by the Committee. Each such
Agreement shall constitute a binding contract between the Company and the
Participant, and every Participant, upon acceptance of such Agreement, shall be
bound by the terms and restrictions of the Plan and of such Agreement. The
terms of each such Agreement shall be in accordance with the Plan, but each
Agreement may include such additional provisions and restrictions determined by
the Committee, in its discretion, provided that such additional provisions and
restrictions are not inconsistent with the terms of the Plan. In particular,
the Committee shall set forth in each Agreement (i) the Exercise Price of an
Option or SAR, (ii) the number of Shares subject to, and the expiration date of,
the Award, (iii) the manner, time and rate (cumulative or otherwise) of exercise
or vesting of such Award, and (iv) the restrictions, if any, to be placed upon
such Award, or upon Shares which may be issued upon exercise of such Award.
The Chairman of the Committee and such other Directors and officers as
shall be designated by the Committee are hereby authorized to execute Agreements
on behalf of the Company and to cause them to be delivered to the recipients of
Awards.
(d) Effect of the Committee's Decisions. All decisions,
determinations and interpretations of the Committee shall be final and
conclusive on all persons affected thereby.
(e) Indemnification. In addition to such other rights of
indemnification as they may have, the members of the Committee shall be
indemnified by the Company in connection with any claim, action, suit or
proceeding
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<PAGE>
relating to any action taken or failure to act under or in connection with the
Plan or any Award, granted hereunder to the full extent provided for under the
Company's governing instruments with respect to the indemnification of
Directors.
6. GRANT OF OPTIONS.
(a) General Rule. Only Employees shall be eligible to receive Awards. In
selecting those 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 Employees, the value of their services to
the Company and its Affiliates, and any other factors the Committee may deem
relevant. Notwithstanding the foregoing, the Committee shall automatically make
the Awards specified in Sections 6(b) and 9 hereof, and no Employee shall
receive Options to purchase more than 25% of the Shares reserved under Paragraph
4(a), and no non-Employee Director shall receive Options on the Effective Date
to purchase more than 5% of the Shares reserved under Paragraph 4(a), with all
non-Employee Directors as a group receiving Options on the Effective Date to
purchase no more than 30% of the Shares reserved under Paragraph 4(a). [THESE
RESTRICTIONS WILL BE INAPPLICABLE IF THE PLAN IS ADOPTED MORE THAN ONE YEAR
AFTER THE CONVERSION.]
(b) Automatic Grants to Employees. On the Effective Date, each of the
following Employees shall receive an Option (in the form of an ISO, to the
extent permissible under the Code) to purchase the number of Shares listed
below, at an Exercise Price per Share equal to the Market Value of a Share on
the Effective Date; provided that such grant shall not be made to an Employee
whose Continuous Service terminates on or before the Effective Date:
Percentage of Shares
Participant Reserved under Paragraph 4(a)
----------- -----------------------------
_____________ ____%
With respect to each of the above-named Participants, the Option granted to
the Participant hereunder (i) shall vest in accordance with the general rule set
forth in Paragraph 8(a) of the Plan, (ii) shall have a term of ten years from
the Effective Date, and (iii) shall be subject to the general rule set forth in
Paragraph 8(c) with respect to the effect of a Participant's termination of
Continuous Service on the Participant's right to exercise his Options.
(c) Special Rules for ISOs. The aggregate Market Value, as of the date the
Option is granted, of the Shares with respect to which ISOs are exercisable for
the first time by an Employee during any calendar year (under all incentive
stock option plans, as defined in Section 422 of the Code, of the Company or any
present or future Affiliate of the Company) shall not exceed $100,000.
Notwithstanding the foregoing, the Committee may grant Options in excess of the
foregoing limitations, in which case such Options granted in excess of such
limitation shall be Options which are Non-ISOs.
7. EXERCISE PRICE FOR OPTIONS.
(a) Limits on Committee Discretion. The Exercise Price as to any
particular Option shall not be less than 100% of the Market Value of the
Optioned Shares on the date of grant. In the case of an Employee who owns Shares
representing more than 10% of the Company's outstanding Shares of Common Stock
at the time an ISO is granted, the Exercise Price shall not be less than 110% of
the Market Value of the Optioned Shares at the time the ISO is granted.
(b) Standards for Determining Exercise Price. If the Common Stock is
listed on a national securities exchange (including the NASDAQ National Market
System) on the date in question, then the Market Value per Share shall be the
average of the highest and lowest selling price on such exchange on such date,
or if there were no sales on such date, then the Exercise Price shall be the
mean between the bid and asked price on such date. If
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<PAGE>
the Common Stock is traded otherwise than on a national securities exchange on
the date in question, then the Market Value per Share shall be the mean between
the bid and asked price on such date, or, if there is no bid and asked price on
such date, then on the next prior business day on which there was a bid and
asked price. If no such bid and asked price is available, then the Market Value
per Share shall be its fair market value as determined by the Committee, in its
sole and absolute discretion.
8. EXERCISE OF OPTIONS.
(a) Generally. Each Option shall become exercisable with respect to
twenty percent (20%) of the Optioned Shares upon the Participant's completion of
each of five Years of Service, provided that an Option shall become fully (100%)
exercisable immediately upon termination of the Participant's Continuous Service
due to the Participant's Disability or death. An Option may not be exercised
for a fractional Share. [IF THE PLAN IS ADOPTED MORE THAN ONE YEAR AFTER THE
BANK'S CONVERSION, EACH OPTION WOULD BECOME EXERCISABLE ACCORDING TO THE
FOLLOWING SCHEDULE, WITH VESTING ACCELERATED TO 100% UPON AN OPTIONEE'S
RETIREMENT OR TERMINATION OF SERVICE IN CONNECTION WITH A CHANGE IN CONTROL:
EVENT VESTED %
----- --------
DATE OF GRANT 33-1/3%
SERVICE ONE YEAR LATER 66-2/3%
SERVICE TWO YEARS LATER 100%
(b) Procedure for Exercise. A Participant may exercise Options,
subject to provisions relative to its termination and limitations on its
exercise, only by (1) written notice of intent to exercise the Option with
respect to a specified number of Shares, and (2) payment to the Company
(contemporaneously with delivery of such notice) in cash, in Common Stock, or a
combination of cash and Common Stock, of the amount of the Exercise Price for
the number of Shares with respect to which the Option is then being exercised.
Each such notice (and payment where required) shall be delivered, or mailed by
prepaid registered or certified mail, addressed to the Treasurer of the Company
at its executive offices. Common Stock utilized in full or partial payment of
the Exercise Price for Options shall be valued at its Market Value at the date
of exercise, and may consist of Shares subject to the Option being exercised.
Upon a Participant's exercise of an Option, the Company shall pay to the
Participant a cash amount up to but not exceeding the amount of dividends, if
any, declared on the underlying Shares between the date of grant and the date of
exercise of the Option.
(c) Period of Exercisability. Except to the extent otherwise
provided in the terms of an Agreement, an Option may be exercised by a
Participant only while he is an Employee and has maintained Continuous Service
from the date of the grant of the Option, or within three months after
termination of such Continuous Service (but not later than the date on which the
Option would otherwise expire), except if the Employee's Continuous Service
terminates by reason of -
(1) "Just Cause" which for purposes hereof shall have the meaning set
forth in any unexpired employment or severance agreement between the
Participant and the Bank and/or the Company (and, in the absence of any
such agreement, shall mean termination because of the Employee's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order), then the
Participant's rights to exercise such Option shall expire on the date of
such termination;
(2) death, then to the extent that the Participant would have been
entitled to exercise the Option immediately prior to his death, such Option
of the deceased Participant may be exercised within two years from the date
of his death (but not later than the date on which the Option would
otherwise expire) by the
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<PAGE>
personal representatives of his estate or person or persons to whom his
rights under such Option shall have passed by will or by laws of descent
and distribution;
(3) Disability, then to the extent that the Participant would have
been entitled to exercise the Option immediately prior to his or her
Disability, such ISO may be exercised within one year from the date of
termination of service due to Disability (and such non-ISO may be exercised
within two years from the date of termination of service due to
Disability), but not later than the date on which the Option would
otherwise expire.
(d) Effect of the Committee's Decisions. The Committee's determination
whether a Participant's Continuous Service has ceased, and the effective date
thereof, shall be final and conclusive on all persons affected thereby.
(e) Mandatory Six-Month Holding Period. Notwithstanding any other
provision of this Plan to the contrary, Common Stock that is purchased upon
exercise of an Option or SAR may not be sold within the six-month period
following the grant date of that Option or SAR, except in the event of the
Participant's death or disability, or such other event as the Board may
specifically deem appropriate.
9. GRANTS OF OPTIONS TO NON-EMPLOYEE DIRECTORS
(a) Automatic Grants. Notwithstanding any other provisions of this Plan,
each Director who is not an Employee but is a Director on the Effective Date
shall receive, on said date, Non-ISOs to purchase a number of Shares equal to
the lesser of five percent (5%) of the number of Shares reserved under Paragraph
4(a) hereof, and the quotient obtained by dividing -
(i) 30 percent (30%) of the number of Shares reserved under Paragraph 4(a)
hereof, by
(ii) the number of Directors entitled to receive an Option on the Effective
Date, pursuant to this Paragraph 9(a).
Such Non-ISOs shall have an Exercise Price per Share equal to the Market
Value of a Share on the date of grant. Each Director who joins the Board after
the Effective Date and who is not then an Employee shall receive, on the date of
joining the Board, Non-ISOs to purchase 2% of the Shares reserved under
Paragraph 4(a) of the Plan, at an Exercise Price per Share equal to its Market
Value on the date of grant.
(b) Terms of Exercise. Options received under the provisions of this
Paragraph (i) shall become exercisable in accordance with Paragraph 8(a) of the
Plan, and (ii) may be exercised from time to time by written notice of intent to
exercise the Option with respect to all or a specified number of the Optioned
Shares, and payment to the Company (contemporaneously with the delivery of such
notice), in cash, in Common Stock, or a combination of cash and Common Stock, of
the amount of the Exercise Price for the number of the Optioned Shares with
respect to which the Option is then being exercised. Each such notice and
payment shall be delivered, or mailed by prepaid registered or certified mail,
addressed to the Treasurer of the Company at the Company's executive offices.
Upon a Director's exercise of an Option, the Company may, in the discretion of
the Committee, pay to the Director a cash amount up to but not exceeding the
amount of dividends, if any, declared on the underlying Shares between the date
of grant and the date of exercise of the Option. A Director who exercises
Options pursuant to this Paragraph may satisfy all applicable federal, state and
local income and employment tax withholding obligations, in whole or in part, by
irrevocably electing to have the Company withhold shares of Common Stock, or to
deliver to the Company shares of Common Stock that he already owns, having a
value equal to the amount required to be withheld; provided that to the extent
not inconsistent herewith, such election otherwise complies with those
requirements of Paragraphs 8 and 19 hereof.
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<PAGE>
Options granted under this Paragraph shall have a term of ten years;
provided that Options granted under this Paragraph shall expire one year after
the date on which a Director terminates Continuous Service on the Board for a
reason other than death, but in no event later than the date on which such
Options would otherwise expire. In the event of such Director's death during
the term of his directorship, Options granted under this Paragraph shall become
immediately exercisable, and may be exercised within two years from the date of
his death by the personal representatives of his estate or person or persons to
whom his rights under such Option shall have passed by will or by laws of
descent and distribution, but in no event later than the date on which such
Options would otherwise expire. In the event of such Director's Disability
during his or her directorship, the Director's Option shall become immediately
exercisable, and such Option may be exercised within two years of the
termination of directorship due to Disability, but not later than the date that
the Option would otherwise expire. Unless otherwise inapplicable or
inconsistent with the provisions of this Paragraph, the Options to be granted to
Directors hereunder shall be subject to all other provisions of this Plan.
(c) Effect of the Committee's Decisions. The Committee's determination
whether a Participant's Continuous Service has ceased, and the effective date
thereof, shall be final and conclusive on all persons affected thereby.
10. SARS (STOCK APPRECIATION RIGHTS)
(a) Granting of SARs. In its sole discretion, the Committee may from time
to time grant SARs to Employees either in conjunction with, or independently of,
any Options granted under the Plan. An SAR granted in conjunction with an
Option may be an alternative right wherein the exercise of the Option terminates
the SAR to the extent of the number of shares purchased upon exercise of the
Option and, correspondingly, the exercise of the SAR terminates the Option to
the extent of the number of Shares with respect to which the SAR is exercised.
Alternatively, an SAR granted in conjunction with an Option may be an additional
right wherein both the SAR and the Option may be exercised. An SAR may not be
granted in conjunction with an ISO under circumstances in which the exercise of
the SAR affects the right to exercise the ISO or vice versa, unless the SAR, by
its terms, meets all of the following requirements:
(1) The SAR will expire no later than the ISO;
(2) The SAR may be for no more than the difference between the Exercise
Price of the ISO and the Market Value of the Shares subject to the ISO at
the time the SAR is exercised;
(3) The SAR is transferable only when the ISO is transferable, and under
the same conditions;
(4) The SAR may be exercised only when the ISO may be exercised; and
(5) The SAR may be exercised only when the Market Value of the Shares
subject to the ISO exceeds the Exercise Price of the ISO.
(b) Exercise Price. The Exercise Price as to any particular SAR shall not
be less than the Market Value of the Optioned Shares on the date of grant.
(c) Timing of Exercise. Any election by a Participant to exercise SARs
shall be made during the period beginning on the 3rd business day following the
release for publication of quarterly or annual financial information and ending
on the 12th business day following such date. This condition shall be deemed to
be satisfied when the specified financial data is first made publicly available.
The provisions of Paragraph 8(c) regarding the period of exercisability of
Options are incorporated by reference herein, and shall determine the period of
exercisability of SARs.
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<PAGE>
(d) Exercise of SARs. An SAR granted hereunder shall be exercisable at
such times and under such con ditions as shall be permissible under the terms of
the Plan and of the Agreement granted to a Participant, provided that an SAR may
not be exercised for a fractional Share. Upon exercise of an SAR, the
Participant shall be entitled to receive, without payment to the Company except
for applicable withholding taxes, an amount equal to the excess of (or, in the
discretion of the Committee if provided in the Agreement, a portion of) the
excess of the then aggregate Market Value of the number of Optioned Shares with
respect to which the Participant exercises the SAR, over the aggregate Exercise
Price of such number of Optioned Shares. This amount shall be payable by the
Company, in the discretion of the Committee, in cash or in Shares valued at the
then Market Value thereof, or any combination thereof.
(e) Procedure for Exercising SARs. To the extent not inconsistent
herewith, the provisions of Paragraph 8(b) as to the procedure for exercising
Options are incorporated by reference, and shall determine the procedure for
exercising SARs.
11. EFFECT OF CHANGES IN COMMON STOCK SUBJECT TO THE PLAN.
(a) Recapitalizations; Stock Splits, Etc. The number and kind of shares
reserved for issuance under the Plan, and the number and kind of shares subject
to outstanding Awards, and the Exercise Price thereof, shall be proportionately
adjusted for any increase, decrease, change or exchange of Shares for a
different number or kind of shares or other securities of the Company which
results from a merger, consolidation, recapitalization, reorganization,
reclassification, stock dividend, split-up, combination of shares, or similar
event in which the number or kind of shares is changed without the receipt or
payment of consideration by the Company.
(b) Transactions in which the Company is Not the Surviving Entity. In the
event of (i) the liquidation or dissolution of the Company, (ii) a merger or
consolidation in which the Company is not the surviving entity, or (iii) the
sale or disposition of all or substantially all of the Company's assets (any of
the foregoing to be referred to herein as a "Transaction"), all outstanding
Awards, together with the Exercise Prices thereof, shall be equitably adjusted
for any change or exchange of Shares for a different number or kind of shares or
other securities which results from the Transaction.
(c) Special Rule for ISOs. Any adjustment made pursuant to subparagraphs
(a) or (b)(1) hereof shall be made in such a manner as not to constitute a
modification, within the meaning of Section 424(h) of the Code, of outstanding
ISOs.
(d) Conditions and Restrictions on New, Additional, or Different Shares or
Securities. If, by reason of any adjustment made pursuant to this Paragraph, a
Participant becomes entitled to new, additional, or different shares of stock or
securities, such new, additional, or different shares of stock or securities
shall thereupon be subject to all of the conditions and restrictions which were
applicable to the Shares pursuant to the Award before the adjustment was made.
(e) Other Issuances. Except as expressly provided in this Paragraph, the
issuance by the Company or an Affiliate of shares of stock of any class, or of
securities convertible into Shares or stock of another class, for cash or
property or for labor or services either upon direct sale or upon the exercise
of rights or warrants to subscribe therefor, shall not affect, and no adjustment
shall be made with respect to, the number, class, or Exercise Price of Shares
then subject to Awards or reserved for issuance under the Plan.
(f) Certain Special Dividends. The Exercise Price of shares subject to
outstanding Awards shall be proportionately adjusted upon the payment of a
special large and nonrecurring dividend that has the effect of a return of
capital to the stockholders, except that this subparagraph (f) shall not apply
to any dividend which is paid to the Participant pursuant to Paragraph 8(b) or
9(b) hereof.
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12. NON-TRANSFERABILITY OF AWARDS.
Awards may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will or by the laws of descent and
distribution. Notwithstanding the foregoing, or any other provision of this
Plan, a Participant who holds Awards may transfer such Awards (but not ISO's) to
his or her spouse, lineal ascendants, lineal descendants, or to a duly
established trust for the benefit of one or more of these individuals. Awards
so transferred may thereafter be transferred only to the Participant who
originally received the grant or to an individual or trust to whom the
Participant could have initially transferred the Awards pursuant to this
Paragraph 12. Awards which are transferred pursuant to this Paragraph 12 shall
be exercisable by the transferee according to the same terms and conditions as
applied to the Participant.
13. TIME OF GRANTING AWARDS.
The date of grant of an Award shall, for all purposes, be the later of the
date on which the Committee makes the determination of granting such Award, and
the Effective Date. Notice of the determination shall be given to each
Participant to whom an Award is so granted within a reasonable time after the
date of such grant.
14. EFFECTIVE DATE.
The Plan shall become effective immediately upon its approval by a
favorable vote of stockholders owning at least a majority of the total votes
eligible to be cast at a duly called meeting of the Company's stockholders held
in accordance with applicable laws, provided that the Plan shall not be
submitted for such approval within the six-month period after the Bank
completes its mutual-to-stock conversion. No Awards may be made prior to
approval of the Plan by the stockholders of the Company.
15. MODIFICATION OF AWARDS.
At any time, and from time to time, the Board may authorize the Committee
to direct execution of an instrument providing for the modification of any
outstanding Award, provided no such modification shall confer on the holder of
said Award any right or benefit which could not be conferred on him by the grant
of a new Award at such time, or impair the Award without the consent of the
holder of the Award.
16. AMENDMENT AND TERMINATION OF THE PLAN.
The Board may from time to time amend the terms of the Plan and, with
respect to any Shares at the time not subject to Awards, suspend or terminate
the Plan. No amendment, suspension or termination of the Plan shall, without
the consent of any affected holders of an Award, alter or impair any rights or
obligations under any Award theretofore granted.
17. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Compliance with Securities Laws. Shares of Common Stock shall not be
issued with respect to any Award unless the issuance and delivery of such Shares
shall comply with all relevant provisions of law, including, without limitation,
the Securities Act of 1933, as amended, the rules and regulations promulgated
thereunder, any applicable state securities law, and the requirements of any
stock exchange upon which the Shares may then be listed.
(b) Special Circumstances. The inability of the Company to obtain approval
from any regulatory body or authority deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder shall relieve
the Company of any liability in respect of the non-issuance or sale of such
Shares. As a condition to the exercise of an Option or SAR, the Company may
require the person exercising the Option or SAR
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to make such representations and warranties as may be necessary to assure the
availability of an exemption from the registration requirements of federal or
state securities law.
(c) Committee Discretion. The Committee shall have the discretionary
authority to impose in Agreements such restrictions on Shares as it may deem
appropriate or desirable, including but not limited to the authority to impose a
right of first refusal or to establish repurchase rights or both of these
restrictions.
18. RESERVATION OF SHARES.
The Company, during the term of the Plan, will reserve and keep available a
number of Shares sufficient to satisfy the requirements of the Plan.
19. WITHHOLDING TAX.
The Company's obligation to deliver Shares upon exercise of Options and/or
SARs shall be subject to the Participant's satisfaction of all applicable
federal, state and local income and employment tax withholding obligations. The
Committee, in its discretion, may permit the Participant to satisfy the
obligation, in whole or in part, by irrevocably electing to have the Company
withhold Shares, or to deliver to the Company Shares that he already owns,
having a value equal to the amount required to be withheld. The value of the
Shares to be withheld, or delivered to the Company, shall be based on the Market
Value of the Shares on the date the amount of tax to be withheld is to be
determined. As an alternative, the Company may retain, or sell without notice,
a number of such Shares sufficient to cover the amount required to be withheld.
20. NO EMPLOYMENT OR OTHER RIGHTS.
In no event shall an Employee's or Director's eligibility to participate or
participation in the Plan create or be deemed to create any legal or equitable
right of the Employee, Director, or any other party to continue service with the
Company, the Bank, or any Affiliate of such corporations. Except to the extent
provided in Paragraphs 6(b) and 9(a), no Employee or Director shall have a right
to be granted an Award or, having received an Award, the right to again be
granted an Award. However, an Employee or Director who has been granted an
Award may, if otherwise eligible, be granted an additional Award or Awards.
21. GOVERNING LAW.
The Plan shall be governed by and construed in accordance with the laws of
the State of North Carolina, except to the extent that federal law shall be
deemed to apply.
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EXHIBIT 10.2
NEWSOUTH BANCORP, INC.
MANAGEMENT RECOGNITION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
1.01 The Company hereby establishes this Plan upon the terms and
conditions hereinafter stated.
1.02 Through acceptance of their appointment to the Committee, each member
of the Committee hereby accepts his or her appointment hereunder upon the terms
and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to reward and retain personnel of
experience and ability in key positions of responsibility by providing Employees
and Directors of the Company, the Bank, and their Affiliates with a proprietary
interest in the Company, and as compensation for their past contributions to the
Bank, and as an incentive to make such contributions in the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Plan 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.
3.01 "Affiliate" shall mean any "parent corporation" or "subsidiary
corporation" of the Company, as such terms are defined in Section 424(e) and
(f), respectively, of the Internal Revenue Code of 1986, as amended.
3.02 "Bank" means Home Savings Bank, SSB.
3.03 "Beneficiary" means the person or persons designated by a Participant
to receive any benefits payable under the Plan in the event of such
Participant'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 Participant's surviving spouse, if any
or if none, his estate.
3.04 "Board" means the Board of Directors of the Company.
3.05 "Committee" means the Management Recognition Plan Committee appointed
by the Board pursuant to Article IV hereof.
3.06 "Common Stock" means shares of the common stock of the Company.
3.07 "Company" means NewSouth Bancorp, Inc.
3.08 "Continuous Service" shall mean the absence of any interruption or
termination of service as an Employee or Director of the Company or an
Affiliate. Continuous Service shall not be considered interrupted in the case
of sick leave, military leave or any other leave of absence approved by the
Company in the case of transfers between payroll locations of the Company or
between the Company, an Affiliate or a successor, or in the case of a Director's
performance of services in an emeritus or advisory capacity.
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3.09 "Date of Conversion" means the date of the conversion of the Bank
from mutual to stock form.
3.10 "Director" means a member of the Board.
3.11 "Disability" shall mean a physical or mental condition, which in the
sole and absolute discretion of the Committee, is reasonably expected to be of
indefinite duration and to substantially prevent a Participant from fulfilling
his or her duties or responsibilities to the Company or an Affiliate.
3.12 "Effective Date" means the date on which the Plan first becomes
effective, as determined under Section 8.07 hereof.
3.13 "Employee" means any person who is employed by the Company or an
Affiliate.
3.14 "Non-Employee Director" shall have the meaning provided in Rule 16b-3
of the General Rules and Regulations under the Securities Exchange Act of 1934,
as amended.
3.15 "Participant" means an Employee or Director who holds a Plan Share
Award.
3.16 "Plan" means this NewSouth Bancorp, Inc. Management Recognition
Plan.
3.17 "Plan Shares" means shares of Common Stock held in the Trust which
are awarded or issuable to a Participant pursuant to the Plan.
3.18 "Plan Share Award" means a right granted under this Plan to receive
Plan Shares.
3.19 "Plan Share Reserve" means the shares of Common Stock held by the
Trustee pursuant to Sections 5.02 and 5.03.
3.20 "Trust" and "Trust Agreement" mean that agreement entered into
pursuant to the terms hereof between the Company and the Trustee, and "Trust"
means the trust created thereunder.
3.21 "Trustee" means the Company's Directors acting by majority.
3.22 "Year of Service" shall mean a full twelve-month period, measured
from the date of a Plan Share Award and each annual anniversary of that date,
during which a Participant's Continuous Service has not terminated for any
reason.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 ROLE AND POWERS OF THE COMMITTEE. The Plan shall be administered
and interpreted by the Committee, which shall consist of the full Board.
The Committee shall have all of the powers allocated to it in this and
other Sections of the Plan. Except as limited by the express provisions of the
Plan or by resolutions adopted by the Board, the Committee shall have sole and
complete authority and discretion (i) to make Plan Share Awards to such
Employees as the Committee may select, (ii) to determine the form and content of
Plan Share Awards to be issued under the Plan, (iii) to interpret the Plan, (iv)
to prescribe, amend and rescind rules and regulations relating to the Plan, and
(v) to make other deter minations necessary or advisable for the administration
of the Plan. The Committee shall have and may exercise such other power and
authority as may be delegated to it by the Board from time to time. Subject to
Section 4.02, the interpretation and construction by the Committee of any
provisions of the Plan or of any Plan Share Award
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granted hereunder shall be final and binding. The Committee shall act by vote
or written consent of a majority of its members, and shall report its actions
and decisions with respect to the Plan to the Board at appropriate times, but in
no event less than one time per calendar year. The Committee may recommend to
the Board one or more persons or entity to act as Trustee(s) in accordance with
the provisions of this Plan and the Trust.
4.02 ROLE OF THE BOARD. The members of the Committee 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. The Board shall have all of the powers allocated to it in this and
other Sections of the Plan, 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, provided, however, that the Board may not revoke any Plan Share Award
already made or impair a participant's vested rights under a Plan Share Award.
Members of the Board who are eligible for or who have been granted Plan Share
Awards (other than pursuant to Section 6.04) may not vote on any matters
affecting the administration of the Plan or the grant of Plan Shares or Plan
Share Awards (although such members may be counted in determining the existence
of a quorum at any meeting of the Board during which actions with regard thereto
are taken). Further, with respect to all actions taken by the Board in regard
to the Plan, such action shall be taken by a majority of the Board where such a
majority of the directors acting in the matter are Non-Employee Directors.
4.03 LIMITATION ON LIABILITY. No member of the Board or the Committee or
the Trustee(s) shall be liable for any determination made in good faith with
respect to the Plan or any Plan Shares or Plan Share Awards granted under it.
If a member of the Board or 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 him in such capacity under or with
respect to the Plan, the Company shall indemnify such member against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in the best interests of the Company and its
Affiliates and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
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
Company to the Trust, provided that the Bank may also make contributions to the
Trust. Such amounts shall be paid to the Trustee at the time of contribution.
No contributions to the Trust by Employees shall be permitted.
5.02 INVESTMENT OF TRUST ASSETS; MAXIMUM PLAN SHARE AWARDS. The Trustee
shall invest Trust assets only in accordance with the Trust Agreement; provided
that the Trust shall not purchase, and Plan Share Awards shall not be made with
respect to, more than four percent (4%) of the number of Shares issued on the
Date of Conversion. Such Shares may be newly issued Shares, Shares held in
Treasury, or Shares held in a grantor trust.
5.03 EFFECT OF ALLOCATIONS, RETURNS AND FORFEITURES UPON PLAN SHARE
RESERVES. Upon the allocation of Plan Share Awards under Section 6.02, the Plan
Share Reserve shall be reduced by the number of Shares subject to the awards so
allocated. Any Shares subject or attributable to an Award which may not be
earned because of a forfeiture by the Participant pursuant to Section 7.01 shall
be added to the Plan Share Reserve.
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ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 ELIGIBILITY. Except as otherwise provided in Section 6.04 hereof,
the Committee shall make Plan Share Awards only to Employees. In selecting those
Employees to whom Plan Share 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 Employees, the value of their services to the
Company and its Affiliates, and any other factors the Committee may deem
relevant. Notwithstanding the foregoing, (i) the Committee shall automatically
make the Plan Share Awards specified in Sections 6.04 and 6.05 hereof; and (ii)
no Employee shall receive Plan Share Awards relating to more than 25% of the
Plan Shares reserved under Section 5.02, and no non-employee Director shall
receive Plan Share Awards relating to more than 5% of the Plan Shares reserved
under Section 5.02, with all non-employee Directors as a group receiving Plan
Share Awards on the Effective Date relating to no more than 30% of the Plan
Shares reserved under Section 5.02. [THESE RESTRICTIONS WILL BE INAPPLICABLE IF
THE PLAN RECEIVES STOCKHOLDER APPROVAL MORE THAN ONE YEAR AFTER THE DATE OF
CONVERSION.]
6.02 ALLOCATIONS. The Committee will determine which Employees will be
granted discretionary Plan Share Awards, and the number of Shares covered by
each Plan Share Award, provided that in no event shall any awards be made which
will violate the governing instruments of the Bank or its Affiliates or any
applicable federal or state law or regulation. In the event Plan Shares are
forfeited for any reason or additional shares of Common Stock are purchased by
the Trustee, the Committee may, from time to time, determine which of the
Employees referenced in Section 6.01 above will be granted additional Plan Share
Awards to be awarded from the forfeited or acquired Plan Shares.
6.03 FORM OF ALLOCATION. As promptly as practicable after a determination
is made pursuant to Section 6.02 that a Plan Share Award is to be made, the
Committee shall notify the Participant 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 so
notifies the Participant shall be considered the date of grant of the Plan Share
Awards. The Committee shall maintain records as to all grants of Plan Share
Awards under the Plan.
6.04 AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS. Notwithstanding any
other provisions of this Plan, each Director who is not an Employee but is a
Director on the Effective Date shall receive, on said date, a Plan Share Award
for a number of Shares equal to the quotient obtained by dividing --
(i) 30 percent (4%) of the number of Plan Shares which the Trust is
authorized to purchase pursuant to Section 5.02 of the Plan, by
(ii) the number of Directors entitled to receive Plan Share Awards on the
Effective Date, pursuant to this Section 6.04.
Plan Share Awards received under the provisions of this Section shall become
vested and nonforfeitable according to the general rules set forth in
subsections (a) and (b) of Section 7.01, and the Committee shall have no
discretion to alter or accelerate said vesting requirements. Unless otherwise
inapplicable or inconsistent with the provisions of this Section, the Plan Share
Awards to be granted hereunder shall be subject to all other provisions of this
Plan.
6.05 AUTOMATIC GRANTS TO EMPLOYEES. On the Effective Date, each of the
following individuals shall receive a Plan Share Award as to the number of Plan
Shares listed below, provided that such award shall not be made to an individual
who is not an Employee on the Effective Date:
Employee Shares Subject to Plan Share Award
-------- ----------------------------------
______________ ____%
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Plan Share Awards received under the provisions of this Section shall
become vested and nonforfeitable according to the general rules set forth in
subsections (a) and (b) of Section 7.01, and the Committee shall have no
discretion to alter said vesting requirements. Unless otherwise inapplicable or
inconsistent with the provisions of this Section, the Plan Share Awards to be
granted hereunder shall be subject to all other provisions of this Plan.
6.06 ALLOCATIONS NOT REQUIRED. Notwithstanding anything to the contrary
in Sections 6.01 and 6.02, but subject to Sections 6.04 and 6.05, no Employee or
Director shall have any right or entitlement to receive a Plan Share Award
hereunder, such awards being at the total discretion of the Committee, nor shall
any Employees or Directors as a group have such a right. The Committee may,
with the approval of the Board (or, if so directed by the Board) return all
Common Stock in the Plan Share Reserve to the Company at any time, and cease
issuing Plan Share Awards.
ARTICLE VII
EARNINGS AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 EARNING PLAN SHARES; FORFEITURES.
(a) GENERAL RULES. Twenty percent (20%) of the Plan Shares subject to a
Plan Share Award shall be earned and become non-forfeitable by a Participant
upon his or her completion of each of five Years of Service. [MAY BE DIFFERENT
IF PLAN RECEIVES STOCKHOLDER APPROVAL MORE THAN ONE YEAR AFTER THE DATE OF
CONVERSION.]
(b) EXCEPTION FOR TERMINATIONS DUE TO DEATH OR DISABILITY.
Notwithstanding the general rule contained in Section 7.01(a) above, all Plan
Shares subject to a Plan Share Award held by a Participant whose service with
the Company or an Affiliate terminates due to the Participant's death or
Disability, shall be deemed earned as of the Participant's last day of service
with the Company or an Affiliate and shall be distributed as soon as practicable
thereafter. [IF THE PLAN RECEIVES STOCKHOLDER APPROVAL MORE THAN ONE YEAR AFTER
THE DATE OF CONVERSION, VESTING WOULD ACCELERATE TO 100% UPON A PARTICIPANT'S
RETIREMENT OR TERMINATION OF SERVICE IN CONNECTION WITH A CHANGE IN CONTROL.]
7.02 ACCRUAL OF DIVIDENDS. Whenever Plan Shares are paid to a Participant
or Beneficiary under Section 7.03, such Participant or Beneficiary shall also be
entitled to receive, with respect to each Plan Share paid, an amount equal to
any cash dividends (including special large and nonrecurring dividends,
including one that has the effect of a return of capital to the Company's
stockholders) and a number of shares of Common Stock equal to any stock
dividends, declared and paid with respect to a share of Common Stock between the
date the relevant Plan Share Award was initially granted to such Participant and
the date the Plan Shares are being distributed. There shall also be distributed
an appropriate amount of net earnings, if any, of the Trust with respect to any
cash dividends so paid out.
7.03 DISTRIBUTION OF PLAN SHARES.
(a) TIMING OF DISTRIBUTIONS: GENERAL RULE. Except as provided in
Subsections (c), and (d) below, the Trustee shall distribute Plan Shares and
accumulated cash from dividends and interest to the Participant or his
Beneficiary, as the case may be, as soon as practicable after they have been
earned. No fractional shares shall be distributed.
(b) FORM OF DISTRIBUTION. The Trustee shall distribute all Plan Shares,
together with any shares representing stock dividends, in the form of Common
Stock. One share of Common Stock shall be given for each Plan Share earned.
Payments representing cash dividends (and earnings thereon) shall be made in
cash.
(c) WITHHOLDING. The Trustee shall 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 shall require the Participant or Beneficiary to pay to the Trustee the
amount required to be
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withheld as a condition of delivering the Plan Shares. The Trustee shall pay
over to the Company or Affiliate which employs or employed such Participant any
such amount withheld from or paid by the Participant or Beneficiary.
(d) TIMING: EXCEPTION FOR 10% SHAREHOLDERS. Notwithstanding Subsections
(a) and (b) above, no Plan Shares may be distributed prior to the date which is
five (5) years from the Date of Conversion to the extent the Participant or
Beneficiary, as the case may be, would after receipt of such Shares own in
excess of ten percent (10%) of the issued and outstanding shares of Common Stock
unless such action is approved in advance by a majority vote of disinterested
directors of the Board. To the extent this limitation would delay the date on
which a Participant receives Plan Shares, the Participant may elect to receive
from the Trust, in lieu of such Plan Shares, the cash equivalent thereof. Any
Plan Shares remaining undistributed solely by reason of the operation of this
Subsection (d) shall be distributed to the Participant or his Beneficiary on the
date which is five years from the Date of Conversion.
(e) REGULATORY EXCEPTIONS. No Plan Shares shall be distributed unless and
until all of the requirements of all applicable law and regulation shall have
been fully complied with, including the receipt of approval of the Plan by the
stockholders of the Company by such vote, if any, as may be required by
applicable law and regulations.
7.04 VOTING OF PLAN SHARES. All shares of Common Stock held by the Trust
(whether or not subject to a Plan Share Award) shall be voted by the Trustee in
the same proportion as the trustee of the Company's Employee Stock Ownership
Plan votes Common Stock held in the trust associated therewith, and in the
absence of any such voting, shall be voted in the manner directed by the Board.
7.05. DEFERRAL ELECTIONS BY PARTICIPANTS. At any time that is at least
six months prior to the date on which a Participant becomes vested in the first
20% of his or her Plan Share Award, the Participant may irrevocably elect, on
the form attached hereto as Exhibit "A" (the "Election Form"), to defer the
receipt of all or a percentage of the Plan Shares that would otherwise be
transferred to the Participant upon the vesting of such award (the "Deferred
Shares"). The MRP Committee shall establish and maintain an individual account
in the name of each Participant who files an Election Form for the purpose of
tracking deferred earnings attributable to cash dividends paid on Deferred
Shares (the "Cash Account"). On the last day of each fiscal year of the
Company, the Committee shall credit to the Participant's Cash Account earnings
on the balance of the Cash Account at a rate equal to the yield on Common Stock,
as determined from time to time by the MRP Committee in its sole discretion.
The Deferred Shares, together with any cash or stock dividends attributable
thereto (the "Deferred Earnings"), will be distributed to the Participant in
accordance with the deferral schedule (the "Deferral Schedule") selected by the
Participant in his or her Election Form. The Trustees shall hold each
Participant's Deferred Shares and Deferred Earnings in the Trust until
distribution is required pursuant to the election set forth in the
Participant's Election Form.
The Trustee shall distribute a Participant's Deferred Shares and Deferred
Earnings in accordance with the Participant's Election Form, unless the
Participant terminates Continuous Service for a reason other than the
Participant's (i) death, (ii) Disability, (iii) early retirement after age 55
and completion of 10 or more years of Continuous Service, or (iv) normal
retirement after age 65. Within 90 days after receiving notice of a
Participant's death, the Trustee shall distribute any balance of the
Participant's Deferred Shares and Deferred Earnings to the Participant's
designated beneficiary, if living, or if such designated beneficiary is deceased
or the Participant failed to designate a beneficiary, to the Participant's
estate. Notwithstanding the preceding, at any time prior to his or her death, a
Participant may elect to have the balance of his or her Deferred Shares and
Deferred Earnings distributed to his or her beneficiary or estate over a period
of time designated by the Participant. If, on the other hand, a Participant's
Continuous Service terminates for a reason other than the Participant's death,
Disability, early retirement, or normal retirement, the Participant's Deferred
Shares and Deferred Earnings shall be distributed to the Participant in a lump
sum occurring as soon as reasonably practicable.
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Notwithstanding any other provision of the Plan or a Participant's Election
Form, in the event the Participant suffers an unforeseeable emergency hardship
within the contemplation of this paragraph, the Participant may apply to the
Committee for a distribution of all or a portion of his Deferred Shares and
Deferred Earnings prior to the basis for any such distribution. The hardship
must result from a sudden and unexpected illness or accident of the Participant
or a dependent of the Participant, casualty loss of property, or other similar
conditions beyond the control of the Participant. Examples of purposes which
are not considered hardships include post-secondary school expenses or the
desire to purchase a residence. In no event will a distribution be made to the
extent the hardship could be relieved through reimbursement or compensation by
insurance or otherwise, or by liquidation of the Participant's nonessential
assets to the extent such liquidation would not itself cause a severe financial
hardship. The amount of any distribution hereunder shall be limited to the
amount necessary to relieve the Participant's financial hardship. The
determination of whether a Participant has a qualifying hardship and the amount
which qualifies for distribution, if any, shall be made by the Committee in its
sole discretion. The Committee may require evidence of the purpose and amount
of the need, and may establish such application or other procedures as it deems
appropriate.
No Participant may assign his or her claim to Deferred Shares and Deferred
Earnings during his or her lifetime, and any deferral election made hereunder
shall be irrevocable. A Participant's right to Deferred Shares and Deferred
Earnings shall at all times constitute an unsecured promise of the Company to
pay benefits as they come due. The right of the Participant or his or her
beneficiary to receive benefits hereunder shall be solely an unsecured claim
against the general assets of the Company. Neither the Participant nor his or
her beneficiary shall have any claim against or rights in any specific assets or
other fund of the Company, and any assets in the Trust shall be deemed general
assets of the Company.
All distributions made by the Company and/or the Trustees pursuant to
elections made hereunder shall be subject to applicable federal, state, and
local tax withholding and to such other deductions as shall at the time of such
payment be required under any income tax or other law, whether of the United
States or any other jurisdiction, and, in the case of payments to a beneficiary,
the delivery to the Committee and/or Trustees of all necessary waivers,
qualifications and other documentation.
ARTICLE VIII
MISCELLANEOUS
8.01 ADJUSTMENTS FOR CAPITAL CHANGES.
(a) RECAPITALIZATIONS; STOCK SPLITS, ETC. The number and kind of shares
which may be purchased under the Plan, and the number and kind of shares subject
to outstanding Plan Share Awards, shall be proportionately adjusted for any
increase, decrease, change or exchange of shares of Common Stock for a different
number or kind of shares or other securities of the Company which results from a
merger, consolidation, recapita lization, reorganization, reclassification,
stock dividend, split-up, combination of shares, or similar event in which the
number or kind of shares is changed without the receipt or payment of
consideration by the Company.
(b) TRANSACTIONS IN WHICH THE COMPANY IS NOT THE SURVIVING ENTITY. In the
event of (i) the liquidation or dissolution of the Company, (ii) a merger or
consolidation in which the Company is not the surviving entity, or (iii) the
sale or disposition of all or substantially all of the Company's assets (any of
the foregoing to be referred to herein as a "Transaction"), all outstanding Plan
Share Awards shall be adjusted for any change or exchange of shares of Common
Stock for a different number or kind of shares or other securities which results
from the Transaction.
(c) CONDITIONS AND RESTRICTIONS ON NEW, ADDITIONAL, OR DIFFERENT SHARES OR
SECURITIES. If, by reason of any adjustment made pursuant to this Section, a
Participant becomes entitled to new, additional, or different shares of stock or
securities, such new, additional, or different shares of stock or securities
shall thereupon be subject to all of the conditions and restrictions which were
applicable to the shares pursuant to the Plan Share Award before the adjustment
was made. In addition, the Committee shall have the discretionary authority to
impose
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on the Shares subject to Plan Share Awards to Employees such restrictions as the
Committee may deem appropriate or desirable, including but not limited to a
right of first refusal, or repurchase option, or both of these restrictions.
(d) OTHER ISSUANCES. Except as expressly provided in this Section, the
issuance by the Company or an Affiliate of shares of stock of any class, or of
securities convertible into shares of Common Stock or stock of another class,
for cash or property or for labor or services either upon direct sale or upon
the exercise of rights or warrants to subscribe therefor, shall not affect, and
no adjustment shall be made with respect to, the number or class of shares of
Common Stock then subject to Plan Share Awards or reserved for issuance under
the Plan.
8.02 AMENDMENT AND TERMINATION OF PLAN. The Board may, by resolution, at
any time amend or terminate the Plan; provided that no amendment or termination
of the Plan shall, without the written consent of a Participant, impair any
rights or obligations under a Plan Share Award theretofore granted to the
Participant.
The power to amend or terminate the Plan in accordance with this Section
8.02 shall include the power to direct the Trustee to return to the Company all
or any part of the assets of the Trust, including shares of Common Stock held in
the Plan Share Reserve. However, the termination of the Trust shall not affect
a Participant's right to earn Plan Share Awards and to receive a distribution of
Common Stock relating thereto, including earnings thereon, in accordance with
the terms of this Plan and the grant by the Committee or the Board.
8.03 NONTRANSFERABILITY. Plan Share Awards may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent and distribution. Notwithstanding the foregoing,
or any other provision of this Plan, a Participant who holds Plan Share Awards
may transfer such awards to his or her spouse, lineal ascendants, lineal
descendants, or to a duly established trust for the benefit of one or more of
these individuals. Plan Share Awards so transferred may thereafter be
transferred only to the Participant who originally received the grant or to an
individual or trust to whom the Participant could have initially transferred the
awards pursuant to this Section 8.03. Plan Share Awards which are transferred
pursuant to this Section 8.03 shall be exercisable by the transferee according
to the same terms and conditions as applied to the Participant.
8.04 NO EMPLOYMENT OR OTHER RIGHTS. Neither the Plan nor any grant of a
Plan Share Award or Plan Shares 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 or Director to continue
in the service of the Company, the Bank, or an Affiliate thereof.
8.05 VOTING AND DIVIDEND RIGHTS. No Participant shall have any voting or
dividend rights or other rights of a stockholder in respect of any Plan Shares
covered by a Plan Share Award prior to the time said Plan Shares are actually
distributed to him.
8.06 GOVERNING LAW. The Plan and Trust shall be governed and construed
under the laws of the State of North Carolina to the extent not preempted by
Federal law.
8.07 EFFECTIVE DATE. The Plan shall become effective immediately upon its
approval by a favorable vote of stockholders of the Company who own at least a
majority of the total votes eligible to be cast at a duly called meeting of the
Company's stockholders held in accordance with applicable laws, provided that
the Plan shall not be submitted for such approval within the six-month period
after the Date of Conversion. In no event shall Plan Share Awards be made prior
to the Effective Date.
8.08 TERM OF PLAN. This Plan shall remain in effect until the earlier of
(i) termination by the Board, or (ii) the distribution of all assets of the
Trust. Termination of the Plan shall not affect any Plan Share 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.
8
<PAGE>
8.09 TAX STATUS OF TRUST. It is intended that (i) the Trust associated
with the Plan be treated as a grantor trust of the Company under the provisions
of Section 671 et seq. of the Code, as the same may be amended from time to
-- ---
time, and (ii) that in accordance with Revenue Procedure 92-65 (as the same may
be amended from time to time), Participants have the status of general unsecured
creditors of the Company, the Plan constitutes a mere unfunded promise to make
benefit payments in the future, the Plan is unfunded for tax purposes and for
purposes of Title I of the Employee Retirement Income Security Act of 1974, as
amended, and the Trust has been and will continue to be maintained in conformity
with Revenue Procedure 92-64 (as the same may be amended from time to time).
9
<PAGE>
NEWSOUTH BANCORP, INC.
MANAGEMENT RECOGNITION PLAN
_______________
Trust Agreement
_______________
This Agreement made this _____ day of _________, 1996 by and between
NewSouth Bancorp, Inc. (the "Company") and Thomas A. Vann, Linley H. Gibbs, Jr.,
Frederick H. Howdy, Edmund T. Buckman, Jr., Harold A. Lane, Charles E. Parker,
Jr., Marshal T. Singleton, and Frederick N. Holscher (acting by majority, the
"Trustee").
WHEREAS, the Company maintains the NewSouth Bancorp, Inc. Management
Recognition Plan (the "Plan"), and has incurred or expects to incur liability
under the terms of the Plan with respect to the individuals participating in the
Plan ("Participants"); and
WHEREAS, the Company wishes to establish a trust (the "Trust") and to
contribute to the Trust assets that shall be held therein, subject to the claims
of the Company's general creditors in the event of Insolvency, as defined in
Section 3(a) hereof, until paid to Participants and their beneficiaries in such
manner and at such times as specified in the Plan;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974;
WHEREAS, it is the intention of the Company to make contributions to the
Trust to provide itself with a source of funds to assist it in the meeting of
its liabilities under the Plan;
NOW, THEREFORE, the parties do hereby establish this Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust
----------------------------------
(a) The Company hereby deposits, or will shortly hereafter deposit, with
the Trustee in trust (i) a number of shares of the Company's common stock
("Common Stock") equal to four percent (4%) of the number of shares of Common
Stock issued by the Company in connection with the conversion of Home Savings
Bank, SSB (the "Bank") from mutual-to-stock form, or (ii) an amount expected to
be sufficient to permit the Trust to purchase said shares. Said shares or
amount shall become the initial principal of the Trust to be held, administered
and disposed of by the Trustee as provided in this Trust Agreement.
(b) The Trust shall become irrevocable upon the effective date of the
Plan.
(c) The Trust is intended to be a grantor trust, of which the Company is
the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended (the "Code"), and
shall be construed accordingly.
<PAGE>
(d) The principal of the Trust, and any earnings thereon, shall be held
separate and apart from other funds of the Company and shall be used exclusively
for the uses and purposes of Participants and general creditors as herein set
forth. Participants and their beneficiaries shall have no preferred claim on,
or any beneficial ownership interest in, any assets of the Trust. Any rights
created under the Plan and this Trust Agreement shall be mere unsecured
contractual rights of Participants and their beneficiaries against the Company.
Any assets held by the Trust will be subject to the claims of the Company's
general creditors under federal and state law in the event of Insolvency, as
defined in Section 3(a) herein.
(e) The Company, in its sole discretion, may at any time, or from time to
time, make additional deposits of cash or other property in trust with the
Trustee to augment the principal to be held, administered and disposed of by
Trustee as provided in this Trust Agreement. Neither the Trustee nor any
Participant or beneficiary shall have any right to compel such additional
deposits.
Section 2. Payments to Plan Participants and Their Beneficiaries.
-----------------------------------------------------------------
(a) The Company shall deliver to the Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable in respect of each Participant
(and his or her beneficiaries), that provides a formula or other instructions
acceptable to the Trustee for determining the amounts so payable, the form in
which such amount is to be paid (as provided for or available under the Plan),
and the time of commencement for payment of such amounts. Except as otherwise
provided herein, the Trustee shall make payments to Participants and their
beneficiaries in accordance with such Payment Schedule. The Trustee shall make
provision for the reporting and withholding of any federal, state or local taxes
that may be required to be withheld with respect to the payment of benefits
pursuant to the terms of the Plan and shall pay amounts withheld to the
appropriate taxing authorities or determine that such amounts have been
reported, withheld and paid by the Company.
(b) The entitlement of a Participant or his or her beneficiaries to
benefits under the Plan shall be determined by the Company or such party as it
shall designate under the Plan, and any claim for such benefits shall be
considered and reviewed under the procedures set out in the Plan.
(c) The Company may make payment of benefits directly to Participants or
their beneficiaries as they become due under the terms of the Plan. The Company
shall notify the Trustee of its decision to make payment of benefits directly
prior to the time amounts are payable to Participants or their beneficiaries.
In addition, if the principal of the Trust, and any earnings thereon, are not
sufficient to make payments of benefits in accordance with the terms of the
Plan, the Company shall make the balance of each such payment as it falls due.
The Trustee shall notify the Company where principal and earnings are not
sufficient.
Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary
--------------------------------------------------------------------------
When Company Is Insolvent.
- -------------------------
(a) The Trustee shall cease payment of benefits to Participants and their
beneficiaries if the Company is Insolvent. The Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) the Company is unable to
pay its debts as they become due, or (ii) the Company becomes subject to a
pending proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Company under federal and state law as set
forth below.
(c) The Board of Directors and the Chief Executive Officer of the Company
shall have the duty to inform the Trustee in writing of the Company's
Insolvency. If a person claiming to be a creditor of the Company alleges in
writing to the Trustee that the Company has become Insolvent, the Trustee shall
determine whether the Company is Insolvent and, pending such determination, the
Trustee shall discontinue payment of benefits to Participants or their
beneficiaries.
2
<PAGE>
(1) Unless the Trustee has actual knowledge of the Company's
Insolvency, or has received notice from the Company or a person claiming to be a
creditor alleging that the Company is Insolvent, the Trustee shall have no duty
to inquire whether the Company is Insolvent. The Trustee may in all events rely
on such evidence concerning the Company's solvency as may be furnished to the
Trustee and that provides the Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
(2) If at any time the Trustee has determined that the Company is
Insolvent, the Trustee shall discontinue payments to Plan participants or their
beneficiaries, shall liquidate the Trust's investment in Common Stock, and shall
hold the assets of the Trust for the benefit of the Company's general creditors.
Nothing in this Trust Agreement shall in any way diminish any rights of
Participants or their beneficiaries as general creditors of the Company with
respect to benefits due under the Plan or otherwise.
(3) The Trustee shall resume the payment of benefits to Participants
or their beneficiaries in accordance with Section 2 of this Trust Agreement only
after the Trustee has determined that the Company is not Insolvent (or is no
longer Insolvent).
(d) Provided that there are sufficient assets, if the Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to
Participants or their beneficiaries under the terms of the Plan for the period
of such discontinuance, less the aggregate amount of any payments made to
Participants or their beneficiaries by the Company in lieu of the payments
provided for hereunder during any such period of discontinuance.
Section 4. Payments to the Company.
-----------------------------------
Except as provided in Section 3 hereof, after the Trust has become
irrevocable, the Company shall have no right or power to direct the Trustee to
return to the Company or to divert to others any of the Trust assets before all
payment of benefits have been made to Plan Participants and their beneficiaries
pursuant to the terms of the Plan.
Section 5. Investment Authority.
--------------------------------
(a) The Trustee shall have sole discretion as to the investment of Trust
assets, except that to the extent reasonably practicable, the Trustee shall
invest all assets of the Trust in Common Stock provided that the Trust shall not
purchase from time to time a number of shares of Common Stock exceeding 4% of
the shares of Common Stock issued in the Bank's mutual-to-stock conversion.
(b) All rights associated with assets of the Trust shall be exercised by
the Trustee or the person designated by the Trustee, and shall in no event be
exercisable by or rest with Participants, except that voting rights with respect
to Common Stock will be exercised in accordance with the terms of the Plan.
(c) Subject to applicable federal and state securities laws, if for any
reason the Trustee will be selling shares of Common Stock, the Trustee shall
sell such shares by (i) giving each Beneficiary 20 business days within which to
purchase, at fair market value, all or part of the shares of Common Stock that
the Trustee holds for the benefit of the Beneficiary, and (ii) to the extent
purchases by Beneficiaries are insufficient to eliminate the Trusts' excess
holdings of Common Stock, to offer to sell, and to sell, all or any part of the
excess shares held by the Trust to the following purchasers, listed here by
order of priority: first, the Company; second, any benefit plan maintained by
the Company or the Bank; third, directors of the Bank; fourth, officers of the
Bank; and fifth, members of the general public.
3
<PAGE>
Section 6. - Disposition of Income.
----------------------------------
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
Section 7. Accounting by Trustee.
---------------------------------
The Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between the
Company and the Trustee. Within 60 days following the close of each calendar
year and within 20 days after the removal or resignation of the Trustee, the
Trustee shall deliver to the Company a written account of its administration of
the Trust during such year or during the period from the close of the last
preceding year to the date of such removal or resignation, setting forth all
investments, receipts, disbursements and other transactions effected by it,
including a description of all securities and investments purchased and sold
with the cost or net proceeds of such purchased and sold with the cost or net
proceeds of such purchases or sales (accrued interest paid or receivable being
shown separately), and showing all cash, securities and other property held in
the Trust at the end of such year or as of the date of such removal or
resignation, as the case may be.
Section 8. Responsibility of Trustee.
-------------------------------------
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Company which is contemplated by,
and in conformity, the terms of the Plan or this Trust and is given in writing
by the Company. In the event of a dispute between the Company and a party, the
Trustee may apply to a court of competent jurisdiction to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify the Trustee against
Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments, except in those cases where the Trustee shall have been found by
a court of competent jurisdiction to have acted with gross negligence or willful
misconduct. If the Company does not pay such costs, expenses and liabilities in
a reasonably timely manner, the Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel with respect to any of its
duties or obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
the Trustee shall have no power to name a beneficiary of the policy other than
the Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor the Trustee, or to loan to any person
the proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or to applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Code.
4
<PAGE>
Section 9. Compensation and Expenses of Trustee.
------------------------------------------------
The Company shall pay all administrative expenses and the Trustee's fees
and expenses relating to the Plan and this Trust. If not so paid, the fees and
expenses shall be paid from the Trust.
Section 10. Resignation and Removal of Trustee.
-----------------------------------------------
The Trustee (or any individual serving as one of the trustees who act by
majority as the Trustee) may resign at any time by written notice to the
Company, which resignation shall be effective 30 days after the Company receives
such notice (unless the Company and the Trustee agree otherwise). The Trustee
(or any individual serving as one of the trustees who act by majority as the
Trustee) may be removed by the Company on 30 days notice or upon shorter notice
accepted by the Trustee.
If the Trustee (or any individual serving as one of the trustees who act by
majority as the Trustee) resigns or is removed, a successor shall be appointed,
in accordance with Section 11 hereof, by the effective date or resignation or
removal under this section. If no such appointment has been made, the Trustee
may apply to a court of competent jurisdiction for appointment of a successor or
for instructions. All expenses of the Trustee in connection with the proceeding
shall be allowed as administrative expenses of the Trust. Upon resignation or
removal of the Trustee and appointment of a successor trustee, all assets shall
subsequently be transferred to the successor trustee. The transfer shall be
completed within 60 days after receipt of notice of resignation, removal or
transfer, unless the Company extends the time limit.
Section 11. Appointment of Successor.
-------------------------------------
If the Trustee resigns or is removed in accordance with Section 10 hereof,
the Company may appoint any other party as a successor to replace the Trustee
upon resignation or removal. The appointment shall be effective when accepted
in writing by the new trustee, who shall have all of the rights and powers of
the former trustee, including ownership rights in the Trust assets. The former
trustee shall execute any instrument necessary or reasonably requested by the
Company or the successor trustee to evidence the transfer.
A successor trustee need not examine the records and acts of any prior
trustee and may retain or dispose of existing Trust assets, subject to Sections
7 and 8 hereof. The successor trustee shall not be responsible for, and the
Company shall indemnify and defend the successor trustee from, any claim or
liability resulting from any action or inaction of any prior trustee or from any
other past event, or any condition existing at the time it becomes successor
trustee.
Section 12. Amendment or Termination.
-------------------------------------
(a) This Trust Agreement may be amended by a written instrument executed
by the Trustee and the Company, provided that no such amendment shall make the
Trust revocable.
(b) The Trust shall not terminate until the date on which Participants and
their beneficiaries are no longer entitled to benefits pursuant to the terms
hereof. Upon termination of the Trust, the Trustee shall return any assets
remaining in the Trust to the Company.
(c) Upon written approval of all Participants (or their beneficiaries if
they are then entitled to payment of benefits), the Company may terminate this
Trust prior to the time all benefit payments under the Plan have been made. All
assets in the Trust at termination shall be returned to the Company.
5
<PAGE>
Section 13. Miscellaneous.
--------------------------
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Participants and their beneficiaries under this
Trust Agreement may not be anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process, except pursuant to the terms of
the Plan.
(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of the State of North Carolina, to the extent not preempted by
federal law.
(d) The Trustee agrees to be bound by the terms of the Plan, as in effect
from time to time.
(e) The Trustee shall act by vote or written consent of a majority of its
duly-appointed members.
6
<PAGE>
IN WITNESS WHEREOF, the Company, by its duly authorized officer, has caused
this Agreement to be executed, and its corporate seal affixed, and the Trustees
have executed this Agreement, this ___ day of October, 1996.
ATTEST: NEWSOUTH BANCORP, INC.
__________________________ By:
--------------------------
Its President
ATTEST:
__________________________ __________________________
Thomas A. Vann, Trustee
__________________________ __________________________
Linley H. Gibbs, Jr., Trustee
__________________________ __________________________
Frederick H. Howdy, Trustee
__________________________ __________________________
Edmund T. Buckman, Jr., Trustee
__________________________ __________________________
Harold A. Lane, Trustee
__________________________ __________________________
Charles E. Parker, Jr., Trustee
__________________________ __________________________
Marshal T. Singleton, Trustee
__________________________ __________________________
Frederick N. Holscher, Trustee
7
<PAGE>
EXHIBIT 10.3(A)
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is entered into this ______ day of __________, 1996, by and
between NewSouth Bancorp, Inc. (the "Company") and Thomas A. Vann (the
"Employee"), effective on the closing date (the "Effective Date") of the
conversion of Home Savings Bank, SSB (the "Bank") from mutual to stock form.
WHEREAS, the Employee has heretofore been employed by the Bank as its
President and Chief Executive Officer, is experienced in all phases of the
business of the Bank, and has become the President and Chief Executive Officer
of the Company; and
WHEREAS, the Board of Directors (the "Board") of the Company believes it is
in the best interests of the Company to enter into this Agreement with the
Employee in order to assure continuity of management of the Bank and the
Company, and to reinforce and encourage the continued attention and dedication
of the Employee to his assigned duties; and
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship between the Company and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Defined Terms
-------------
When used anywhere in this Agreement, the following terms shall have the
meaning set forth herein.
(a) "Change in Control" shall mean any one of the following events:
(i) the acquisition of ownership, holding or power to vote more than 25% of the
voting stock of the Bank or NewSouth Bancorp, Inc. (the "Company"), (ii) the
acquisition of the ability to control the election of a majority of the Bank's
or the Company's directors, (iii) the acquisition of a controlling influence
over the management or policies of the Bank or of the Company by any person or
by persons acting as a "group" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934), or (iv) during any period of two consecutive
years, individuals (the "Continuing Directors") who at the beginning of such
period constitute the Board of Directors of the Bank or of the Company (the
"Existing Board") cease for any reason to constitute at least two-thirds
thereof, provided that any individual whose election or nomination for election
as a member of the Existing Board was approved by a vote of at least two-thirds
of the Continuing Directors then in office shall be considered a Continuing
Director. Notwithstanding the foregoing, the Company's ownership of the Bank
shall not of itself constitute a Change in Control for purposes of the
Agreement. For purposes of this paragraph only, the term "person" refers to an
individual or a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization or any other
form of entity not specifically listed herein.
<PAGE>
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and as interpreted through applicable rulings and regulations
in effect from time to time.
(c) "Code (S)280G Maximum" shall mean product of 2.99 and the
Employee's "base amount" as defined in Code (S)280G(b)(3).
(d) "Good Reason" shall mean any of the following events, which has
not been consented to in advance by the Employee in writing: (i) the requirement
that the Employee move his personal residence, or perform his principal
executive functions, more than 30 miles from his primary office as of the later
of the Effective Date and the most recent voluntary relocation by the Employee;
(ii) a material reduction in the Employee's base compensation as in effect under
this Agreement as the same may be increased from time to time; (iii) the failure
by the Bank or the Company to continue to provide the Employee with compensation
and benefits provided under this Agreement as the same may be increased from
time to time, or with benefits substantially similar to those provided to him
under any of the employee benefit plans in which the Employee now or hereafter
becomes a participant, or the taking of any action by the Bank or the Company
which would directly or indirectly reduce any of such benefits or deprive the
Employee of any material fringe benefit enjoyed by him under this Agreement;
(iv) the assignment to the Employee of duties and responsibilities materially
different from those normally associated with his position; (v) a failure to
reelect the Employee to the Board of Directors of the Bank or the Company, if
the Employee has served on such Board at any time during the term of the
Agreement; (vi) a material diminution or reduction in the Employee's
responsibilities or authority (including reporting responsibilities) in
connection with his employment with the Bank or the Company; or (vii) a material
reduction in the secretarial or other administrative support of the Employee.
(e) "Just Cause" shall mean, in the good faith determination of the
Bank's Board of Directors, the Employee's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law, rule
or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
The Employee shall have no right to receive compensation or other benefits for
any period after termination for Just Cause. No act, or failure to act, on the
Employee's part shall be considered "willful" unless he has acted, or failed to
act, with an absence of good faith and without a reasonable belief that his
action or failure to act was in the best interest of the Bank and the Company.
(f) "Protected Period" shall mean the period that begins on the date
six months before a Change in Control and ends on the later of the second annual
anniversary of the Change in Control or the expiration date of this Agreement.
(g) "Trust" shall mean a grantor trust that is designed in accordance
with Revenue Procedure 92-64 and has a trustee independent of the Bank and the
Company.
-2-
<PAGE>
2. Employment. The Employee is employed as the President and Chief
----------
Executive Officer of the Company. The Employee shall render such administrative
and management services for the Company as are currently rendered and as are
customarily performed by persons situated in a similar executive capacity. The
Employee shall also promote, by entertainment or otherwise, as and to the extent
permitted by law, the business of the Company. The Employee's other duties
shall be such as the Board may from time to time reasonably direct, including
normal duties as an officer of the Company.
3. Consideration from Company: Joint and Several Liability. In lieu of
-------------------------------------------------------
paying the Employee a base salary during the term of this Agreement, the Company
hereby agrees that to the extent permitted by law, it shall be jointly and
severally liable with the Bank for the payment of all amounts due under the
employment agreement of even date herewith between the Bank and the Employee.
Nevertheless, the Board may in its discretion at any time during the term of
this Agreement agree to pay the Employee a base salary for the remaining term of
this Agreement. If the Board agrees to pay such salary, the Board shall
thereafter review, not less often than annually, the rate of the Employee's
salary, and in its sole discretion may decide to increase his salary.
4. Discretionary Bonuses. The Employee shall participate in an
---------------------
equitable manner with all other senior management employees of the Company in
discretionary bonuses that the Board may award from time to time to the
Company's senior management employees. No other compensation provided for in
this Agreement shall be deemed a substitute for the Employee's right to
participate in such discretionary bonuses.
5. Participation in Retirement, Medical and Other Plans
----------------------------------------------------
(a) During the term of this Agreement, the Employee shall be eligible
to participate in the following benefit plans: group hospitalization,
disability, health, dental, sick leave, life insurance, travel and/or accident
insurance, auto allowance/auto lease, retirement, pension, and/or other present
or future qualified plans provided by the Company, generally which benefits,
taken as a whole, must be at least as favorable as those in effect on the
Effective Date.
(b) The Employee shall be eligible to participate in any fringe
benefits which are or may become available to the Company's senior management
employees, including for example: any stock option or incentive compensation
plans, club memberships, and any other benefits which are commensurate with the
responsibilities and functions to be performed by the Employee under this
Agreement. The Employee shall be reimbursed for all reasonable out-of-pocket
business expenses which he shall incur in connection with his services under
this Agreement upon substantiation of such expenses in accordance with the
policies of the Company.
6. Term. The Company hereby employs the Employee, and the Employee
----
hereby accepts such employment under this Agreement, for the period commencing
on the Effective Date and ending 36 months thereafter (or such earlier date as
is determined in accordance with Section 10). Additionally, on each annual
anniversary date from the Effective Date, the Employee's term
-3-
<PAGE>
of employment shall be extended for an additional one-year period beyond the
then effective expiration date, provided the Board determines in a duly adopted
resolution that the performance of the Employee has met the Board's requirements
and standards, and that this Agreement shall be extended. Only those members of
the Board of Directors who have no personal interest in this Employment
Agreement shall discuss and vote on the approval and subsequent review of this
Agreement.
7. Loyalty; Noncompetition.
-----------------------
(a) During the period of his employment hereunder and except for
illnesses, reasonable vacation periods, and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill, and efforts
to the faithful performance of his duties hereunder; provided, however, from
time to time, the Employee may serve on the boards of directors of, and hold any
other offices or positions in, companies or organizations, which will not
present any conflict of interest with the Company or any of its subsidiaries or
affiliates, or unfavorably affect the performance of the Employee's duties
pursuant to this Agreement, or will not violate any applicable statute or
regulation. "Full business time" is hereby defined as that amount of time
usually devoted to like companies by similarly situated executive officers.
During the term of his employment under this Agreement, the Employee shall not
engage in any business or activity contrary to the business affairs or interests
of the Company, or be gainfully employed in any other position or job other than
as provided above.
(b) Nothing contained in this Paragraph 6 shall be deemed to prevent
or limit the Employee's right to invest in the capital stock or other securities
of any business dissimilar from that of the Company, or, solely as a passive or
minority investor, in any business.
8. Standards. The Employee shall perform his duties under this
---------
Agreement in accordance with such reasonable standards as the Board may
establish from time to time. The Company will provide Employee with the working
facilities and staff customary for similar executives and necessary for him to
perform his duties.
9. Vacation and Sick Leave. At such reasonable times as the Board shall
-----------------------
in its discretion permit, the Employee shall be entitled, without loss of pay,
to absent himself volun tarily from the performance of his employment under this
Agreement, all such voluntary absences to count as vacation time, provided that:
(a) The Employee shall be entitled to an annual vacation in accordance
with the policies that the Board periodically establishes for senior management
employees of the Company.
(b) The Employee shall not receive any additional compensation from
the Company on account of his failure to take a vacation or sick leave, and the
Employee shall not accumulate unused vacation from one fiscal year to the next,
except in either case to the extent authorized by the Board.
-4-
<PAGE>
(c) In addition to the aforesaid paid vacations, the Employee shall be
entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment with the Company for such additional periods of
time and for such valid and legitimate reasons as the Board may in its
discretion determine. Further, the Board may grant to the Employee a leave or
leaves of absence, with or without pay, at such time or times and upon such
terms and conditions as such Board in its discretion may determine.
(d) In addition, the Employee shall be entitled to an annual sick
leave benefit as established by the Board.
10. Termination and Termination Pay. Subject to Section 12 hereof, the
-------------------------------
Employee's employment hereunder may be terminated under the following
circumstances:
(a) Death. The Employee's employment under this Agreement shall
terminate upon his death during the term of this Agreement, in which event the
Employee's estate shall be entitled to receive the compensation due the Employee
through the last day of the calendar month in which his death occurred.
(b) Disability. (1) The Company may terminate the Employee's
employment after having established the Employee's Disability. For purposes of
this Agreement, "Disability" means a physical or mental infirmity which impairs
the Employee's ability to substantially perform his duties under this Agreement
and which results in the Employee becoming eligible for long-term disability
benefits under the Company's long-term disability plan (or, if the Company has
no such plan in effect, which impairs the Employee's ability to substantially
perform his duties under this Agreement for a period of 180 consecutive days).
The Employee shall be entitled to the compensation and benefits provided for
under this Agreement for (i) any period during the term of this Agreement and
prior to the establishment of the Employee's Disability during which the
Employee is unable to work due to the physical or mental infirmity, or (ii) any
period of Disability which is prior to the Employee's termination of employment
pursuant to this Section 10(b); provided that any benefits paid pursuant to the
Company's long-term disability plan will continue as provided in such plan.
(2) During any period that the Employee shall receive disability
benefits and to the extent that the Employee shall be physically and mentally
able to do so, he shall furnish such information, assistance and documents so as
to assist in the continued ongoing business of the Company and, if able, shall
make himself available to the Company to undertake reasonable assignments
consistent with his prior position and his physical and mental health. The
Company shall pay all reasonable expenses incident to the performance of any
assignment given to the Employee during the disability period.
(c) Just Cause. The Board may, by written notice to the Employee,
immediately terminate his employment at any time, for Just Cause. The Employee
shall have no right to receive compensation or other benefits for any period
after termination for Just Cause.
-5-
<PAGE>
(d) Without Just Cause; Constructive Discharge. The Board may, by
written notice to the Employee, immediately terminate his employment at any time
for a reason other than Just Cause, in which event the Employee shall be
entitled to receive the following compensation and benefits (unless such
termination occurs during the Protected Period, in which event the benefits and
compensation provided for in Section 12 shall apply): (i) the salary provided
pursuant to Section 3 hereof, up to the expiration date of this Agreement
including any renewal term (the "Expiration Date"), plus said salary for an
additional 12-month period, and (ii) at the Employee's election either (A) cash
in an amount equal to the cost to the Employee of obtaining all health, life,
disability and other benefits which the Employee would have been eligible to par
ticipate in through the Expiration Date, based upon the benefit levels
substantially equal to those that the Company provided for the Employee at the
date of termination of employment or (B) continued participation under such
Company benefit plans through the Expiration Date, but only to the extent the
Employee continues to qualify for participation therein. All amounts payable to
the Employee shall be paid, at the option of the Employee, either (I) in
periodic payments through the Expiration Date, or (II) in one lump sum within
ten days of such termination.
(e) Good Reason. The Employee shall be entitled to receive the
compensation and benefits payable under subsection 10(d) hereof in the event
that the Employee voluntarily terminates employment within 90 days of an event
that constitutes Good Reason, (unless such voluntary termination occurs during
the Protected Period, in which event the benefits and compensation provided for
in Section 12 shall apply).
(f) Termination or Suspension Under Federal Law. Any payments made to
the Employee pursuant to this Agreement, or otherwise, are subject to and
conditioned upon their compliance with 12 U.S.C. Section 1828(k) and any
regulations promulgated thereunder.
(g) Voluntary Termination by Employee. Subject to Section 11 hereof,
the Employee may voluntarily terminate employment with the Company during the
term of this Agreement, upon at least 90 days prior written notice to the Board
of Directors, in which case the Employee shall receive only his compensation,
vested rights, and employee benefits up to the date of his termination (unless
such termination occurs pursuant to Section 10(d) hereof or within the Protected
Period, in Section 12(a) hereof, in which event the benefits and compensation
provided for in Sections 10(d) or 12, as applicable, shall apply).
11. No Mitigation. The Employee shall not be required to mitigate the
-------------
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Employee in any subsequent employment.
12. Change in Control.
-----------------
(a) Trigger Events. The Employee shall be entitled to collect the
severance benefits set forth in Subsection (b) hereof in the event that either
(i) the Employee voluntarily terminates employment for any reason within the 30-
day period beginning on the date of a
-6-
<PAGE>
Change in Control, (ii) the Employee voluntarily terminates employment within 90
days of an event that both occurs during the Protected Period and constitutes
Good Reason, or (iii) the Bank or the Company or their successor(s) in interest
terminate the Employee's employment without his written consent and for any
reason other than Just Cause during the Protected Period.
(b) Amount of Severance Benefit. If the Employee becomes entitled to
collect severance benefits pursuant to Section 12(a) hereof, the Bank shall:
(i) pay the Employee a severance benefit equal to the difference
between the Code (S)280G Maximum and the sum of any other "parachute
payments" as defined under Code (S)280G(b)(2) that the Employee
receives on account of the Change in Control.
(ii) provide such long-term disability insurance and medical
insurance benefits as are available to the Employee under the
provisions of COBRA, for 18 months (or such longer period, as may be
required thereunder).
Said sum shall be paid in one lump sum within ten days of the later of the
date of the Change in Control and the Employee's last day of employment with the
Bank or the Company. In the event that the Employee, the Bank, and the Company
jointly agree that the Employee has collected an amount exceeding the Code
(S)280G Maximum, the parties may agree in writing that such excess shall be
treated as a loan ab initio which the Employee shall repay to the Bank, on terms
---------
and conditions mutually agreeable to the parties, together with interest at the
applicable federal rate provided for in Section 7872(f)(2)(B) of the Code.
13. Indemnification. The Company agrees that its Bylaws shall continue
---------------
to provide for indemnification of directors, officers, employees and agents of
the Company, including the Employee, during the full term of this Agreement,
and to at all times provide adequate insurance for such purposes.
14. Reimbursement of Employee for Enforcement Proceedings. In the event
-----------------------------------------------------
that any dispute arises between the Employee and the Company as to the terms or
interpretation of this Agreement, whether instituted by formal legal proceedings
or otherwise, including any action that the Employee takes to defend against any
action taken by the Company, the Employee shall be reimbursed for all costs and
expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, provided that the Employee obtains either a written
settlement or a final judgement by a court of competent jurisdiction
substantially in his favor. Such reimbursement shall be paid within ten days of
Employee's furnishing to the Company written evidence, which may be in the form,
among other things, of a cancelled check or receipt, of any costs or expenses
incurred by the Employee.
15. Federal Income Tax Withholding. The Company may withhold all federal
------------------------------
and state income or other taxes from any benefit payable under this Agreement as
shall be required pursuant to any law or government regulation or ruling.
-7-
<PAGE>
16. Successors and Assigns.
----------------------
(a) Company. This Agreement shall inure to the benefit of and be
binding upon any corporate or other successor of the Company which shall
acquire, directly or indirectly, by merger, consolidation, purchase or
otherwise, all or substantially all of the assets or stock of the Company.
(b) Employee. Since the Company is contracting for the unique and
personal skills of the Employee, the Employee shall be precluded from assigning
or delegating his rights or duties hereunder without first obtaining the written
consent of the Company; provided, however, that nothing in this paragraph shall
preclude (i) the Employee from designating a beneficiary to receive any benefit
payable hereunder upon his death, or (ii) the executors, administrators, or
other legal representatives of the Employee or his estate from assigning any
rights hereunder to the person or persons entitled thereunto.
(c) Attachment. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or
to exclusion, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect.
17. Amendments. No amendments or additions to this Agreement shall be
----------
binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.
18. Applicable Law. Except to the extent preempted by federal law, the
--------------
laws of the State of North Carolina shall govern this Agreement in all respects,
whether as to its validity, construction, capacity, performance or otherwise.
19. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
20. Entire Agreement. This Agreement, together with any understanding or
----------------
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
ATTEST: NEWSOUTH BANCORP, INC.
_______________________________ By: ___________________________________
Secretary Its Chairman of the Board
WITNESS:
_______________________________ __________________________________
Thomas A. Vann
-9-
<PAGE>
Exhibit 10.3(b)
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT entered into this ________ day of _________________, 19__,
by and between Home Savings Bank, SSB (the "Bank") and Thomas A. Vann (the
"Employee"), effective on the date (the "Effective Date") of the Bank's
conversion from mutual to stock form.
WHEREAS, the Employee has heretofore been employed by the Bank as its
President and is experienced in all phases of the business of the Bank; and
WHEREAS, the Board of Directors (the "Board") of the Bank believes it is in
the best interests of the Bank to enter into this Agreement with the Employee in
order to assure continuity of management of the Bank and to reinforce and
encourage the continued attention and dedication of the Employee to his assigned
duties; and
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Defined Terms
-------------
When used anywhere in this Agreement, the following terms shall have the
meaning set forth herein.
(a) "Change in Control" shall mean any one of the following events:
(i) the acquisition of ownership, holding or power to vote more than 25% of the
voting stock of the Bank or NewSouth Bancorp, Inc. (the "Company"), (ii) the
acquisition of the ability to control the election of a majority of the Bank's
or the Company's directors, (iii) the acquisition of a controlling influence
over the management or policies of the Bank or of the Company by any person or
by persons acting as a "group" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934), or (iv) during any period of two consecutive
years, individuals (the "Continuing Directors") who at the beginning of such
period constitute the Board of Directors of the Bank or of the Company (the
"Existing Board") cease for any reason to constitute at least two-thirds
thereof, provided that any individual whose election or nomination for election
as a member of the Existing Board was approved by a vote of at least two-thirds
of the Continuing Directors then in office shall be considered a Continuing
Director. Notwithstanding the foregoing, the Company's ownership of the Bank
shall not of itself constitute a Change in Control for purposes of the
Agreement. For purposes of this paragraph only, the term "person" refers to an
individual or a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization or any other
form of entity not specifically listed herein.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and as interpreted through applicable rulings and regulations
in effect from time to time.
<PAGE>
(c) "Code (S)280G Maximum" shall mean the product of 2.99 and the
Employee's "base amount" as defined in Code (S)280G(b)(3).
(d) "Good Reason" shall mean any of the following events, which has
not been consented to in advance by the Employee in writing: (i) the requirement
that the Employee move his personal residence, or perform his principal
executive functions, more than 30 miles from his primary office as of the later
of the Effective Date and the most recent voluntary relocation by the Employee;
(ii) a material reduction in the Employee's base compensation under this
Agreement as the same may be increased from time to time; (iii) the failure by
the Bank or the Company to continue to provide the Employee with compensation
and benefits provided under this Agreement as the same may be increased from
time to time, or with benefits substantially similar to those provided to him
under any of the employee benefit plans in which the Employee now or hereafter
becomes a participant, or the taking of any action by the Bank or the Company
which would directly or indirectly reduce any of such benefits or deprive the
Employee of any material fringe benefit enjoyed by him under this Agreement;
(iv) the assignment to the Employee of duties and responsibilities materially
different from those normally associated with his position; (v) a failure to
reelect the Employee to the Board of Directors of the Bank or the Company, if
the Employee has served on such Board at any time during the term of the
Agreement; (vi) a material diminution or reduction in the Employee's
responsibilities or authority (including reporting responsibilities) in
connection with his employment with the Bank or the Company; or (vii) a material
reduction in the secretarial or other administrative support of the Employee.
(e) "Just Cause" shall mean, in the good faith determination of the
Bank's Board of Directors, the Employee's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law, rule
or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
The Employee shall have no right to receive compensation or other benefits for
any period after termination for Just Cause. No act, or failure to act, on the
Employee's part shall be considered "willful" unless he has acted, or failed to
act, with an absence of good faith and without a reasonable belief that his
action or failure to act was in the best interest of the Bank and the Company.
(f) "Protected Period" shall mean the period that begins on the date
six months before a Change in Control and ends on the later of the second annual
anniversary of the Change in Control or the expiration date of this Agreement.
(g) "Trust" shall mean a grantor trust that is designed in accordance
with Revenue Procedure 92-64 and has a trustee independent of the Bank and the
Company.
2. Employment. The Employee is employed as the President of the Bank.
----------
The Employee shall render such administrative and management services for the
Bank as are currently rendered and as are customarily performed by persons
situated in a similar executive capacity. The Employee shall also promote, by
entertainment or otherwise, as and to the extent permitted
-2-
<PAGE>
by law, the business of the Bank. The Employee's other duties shall be such as
the Board may from time to time reasonably direct, including normal duties as an
officer of the Bank.
3. Base Compensation. The Bank agrees to pay the Employee during the
-----------------
term of this Agreement a salary at the rate of $______________ per annum,
payable in cash not less frequently than monthly. The Board shall review, not
less often than annually, the rate of the Employee's salary, and in its sole
discretion may decide to increase his salary.
4. Discretionary Bonuses. The Employee shall participate in an
---------------------
equitable manner with all other senior management employees of the Bank in
discretionary bonuses that the Board may award from time to time to the Bank's
senior management employees. No other compensation provided for in this
Agreement shall be deemed a substitute for the Employee's right to participate
in such discretionary bonuses.
5. Participation in Retirement, Medical and Other Plans.
----------------------------------------------------
(a) During the term of this Agreement, the Employee shall be eligible
to participate in the following benefit plans: group hospitalization,
disability, health, dental, sick leave, life insurance, travel and/or accident
insurance, auto allowance/auto lease, retirement, pension, and/or other present
or future qualified plans provided by the Bank, generally which benefits, taken
as a whole, must be at least as favorable as those in effect on the Effective
Date.
(b) The Employee shall be eligible to participate in any fringe
benefits which are or may become available to the Bank's senior management
employees, including for example: any stock option or incentive compensation
plans, and any other benefits which are commensurate with the responsibilities
and functions to be performed by the Employee under this Agreement. The
Employee shall be reimbursed for all reasonable out-of-pocket business expenses
which he shall incur in connection with his services under this Agreement upon
substantiation of such expenses in accordance with the policies of the Bank.
6. Term. The Bank hereby employs the Employee, and the Employee hereby
----
accepts such employment under this Agreement, for the period commencing on the
Effective Date and ending 36 months thereafter (or such earlier date as is
determined in accordance with Section 10). Additionally, on each annual
anniversary date from the Effective Date, the Employee's term of employment
shall be extended for an additional one-year period beyond the then effective
expiration date, provided the Board determines in a duly adopted resolution that
the performance of the Employee has met the Board's requirements and standards,
and that this Agreement shall be extended. Only those members of the Board of
Directors who have no personal interest in this Employment Agreement shall
discuss and vote on the approval and subsequent review of this Agreement.
-3-
<PAGE>
7. Loyalty; Noncompetition.
-----------------------
(a) During the period of his employment hereunder and except for
illnesses, reasonable vacation periods, and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill, and efforts
to the faithful performance of his duties hereunder; provided, however, from
time to time, Employee may serve on the boards of directors of, and hold any
other offices or positions in, companies or organizations, which will not
present any conflict of interest with the Bank or any of its subsidiaries or
affiliates, or unfavorably affect the performance of Employee's duties pursuant
to this Agreement, or will not violate any applicable statute or regulation.
"Full business time" is hereby defined as that amount of time usually devoted to
like companies by similarly situated executive officers. During the term of his
employment under this Agreement, the Employee shall not engage in any business
or activity contrary to the business affairs or interests of the Bank.
(b) Nothing contained in this Section shall be deemed to prevent or
limit the Employee's right to invest in the capital stock or other securities of
any business dissimilar from that of the Bank, or, solely as a passive or
minority investor, in any business.
8. Standards. The Employee shall perform his duties under this
---------
Agreement in accordance with such reasonable standards as the Board may
establish from time to time. The Bank will provide Employee with the working
facilities and staff customary for similar executives and necessary for him to
perform his duties.
9. Vacation and Sick Leave. At such reasonable times as the Board shall
-----------------------
in its discretion permit, the Employee shall be entitled, without loss of pay,
to absent himself volun tarily from the performance of his employment under this
Agreement, all such voluntary absences to count as vacation time, provided that:
(a) The Employee shall be entitled to an annual vacation in accordance
with the policies that the Board periodically establishes for senior management
employees of the Bank.
(b) The Employee shall not receive any additional compensation from
the Bank on account of his failure to take a vacation or sick leave, and the
Employee shall not accumulate unused vacation or sick leave from one fiscal year
to the next, except in either case to the extent authorized by the Board.
(c) In addition to the aforesaid paid vacations, the Employee shall be
entitled without loss of pay, to absent himself voluntarily from the performance
of his employment with the Bank for such additional periods of time and for such
valid and legitimate reasons as the Board may in its discretion determine.
Further, the Board may grant to the Employee a leave or leaves of absence, with
or without pay, at such time or times and upon such terms and conditions as such
Board in its discretion may determine.
(d) In addition, the Employee shall be entitled to an annual sick
leave benefit as established by the Board.
-4-
<PAGE>
10. Termination and Termination Pay. Subject to Section 12 hereof, the
-------------------------------
Employee's employment hereunder may be terminated under the following
circumstances:
(a) Death. The Employee's employment under this Agreement shall
terminate upon his death during the term of this Agreement, in which event the
Employee's estate shall be entitled to receive the compensation due the Employee
through the last day of the calendar month in which his death occurred.
(b) Disability. (1) The Bank may terminate the Employee's employment
after having established the Employee's Disability. For purposes of this
Agreement, "Disability" means a physical or mental infirmity which impairs the
Employee's ability to substantially perform his duties under this Agreement and
which results in the Employee becoming eligible for long-term disability
benefits under the Bank's long-term disability plan (or, if the Bank has no such
plan in effect, which impairs the Employee's ability to substantially perform
his duties under this Agreement for a period of 180 consecutive days). The
Employee shall be entitled to the compensation and benefits provided for under
this Agreement for (i) any period during the term of this Agreement and prior to
the establishment of the Employee's Disability during which the Employee is
unable to work due to the physical or mental infirmity, or (ii) any period of
Disability which is prior to the Employee's termination of employment pursuant
to this Section 10(b); provided that any benefits paid pursuant to the Bank's
long term disability plan will continue as provided in such plan.
(2) During any period that the Employee shall receive disability benefits
and to the extent that the Employee shall be physically and mentally able to do
so, he shall furnish such information, assistance and documents so as to assist
in the continued ongoing business of the Bank and, if able, shall make himself
available to the Bank to undertake reasonable assignments consistent with his
prior position and his physical and mental health. The Bank shall pay all
reasonable expenses incident to the performance of any assignment given to the
Employee during the disability period.
(c) Just Cause. The Board may, by written notice to the Employee,
immediately terminate his employment at any time, for Just Cause. The Employee
shall have no right to receive compensation or other benefits for any period
after termination for Just Cause.
(d) Without Just Cause; Constructive Discharge. The Board may, by
written notice to the Employee, immediately terminate his employment at any time
for a reason other than Just Cause, in which event the Employee shall be
entitled to receive the following compensa tion and benefits (unless such
termination occurs during the Protected Period, in which event the benefits and
compensation provided for in Section 12 shall apply): (i) the salary provided
pursuant to Section 3 hereof, up to the expiration date of this Agreement,
including any renewal term (the "Expiration Date"), plus said salary for an
additional 12-month period, and (ii) at the Employee's election either (A) cash
in an amount equal to the cost to the Employee of obtaining all health, life,
disability and other benefits which the Employee would have been eligible to par
ticipate in through the Expiration Date based upon the benefit levels
substantially equal to those that the Bank provided for the Employee at the date
of termination of employment or (B)
-5-
<PAGE>
continued participation under such Bank benefit plans through the Expiration
Date, but only to the extent the Employee continues to qualify for participation
therein. All amounts payable to the Employee shall be paid, at the option of
the Employee, either (I) in periodic payments through the Expiration Date, or
(II) in one lump sum within ten days of such termination.
(e) Good Reason. The Employee shall be entitled to receive the
compensation and benefits payable under subsection 10(d) hereof in the event
that the Employee voluntarily terminates employment within 90 days of an event
that constitutes Good Reason, (unless such voluntary termination occurs during
the Protected Period, in which event the benefits and compensation provided for
in Section 12 shall apply).
(f) Termination or Suspension Under Federal Law. (1) If the Employee
is removed and/or permanently prohibited from participating in the conduct of
the Bank's affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the
Federal Deposit Insurance Act ("FDIA") (12 U.S.C. 1818(e)(4) and (g)(1)), all
obligations of the Bank under this Agreement shall terminate, as of the
effective date of the order, but vested rights of the parties shall not be
affected.
(2) If the Bank is in default (as defined in Section 3(x)(1) of FDIA),
all obligations under this Agreement shall terminate as of the date of default;
however, this Paragraph shall not affect the vested rights of the parties.
(3) If a notice served under Section 8(e)(3) or (g)(1) of the FDIA
(12 U.S.C. 1818(e)(3) or (g)(1)) suspends and/or temporarily prohibits the
Employee from participating in the conduct of the Bank's affairs, the Bank's
obligations under this Agreement shall be suspended as of the date of such
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank may in its discretion (i) pay the Employee all or part
of the compensation withheld while its contract obligations were suspended, and
(ii) reinstate (in whole or in part) any of its obligations which were
suspended.
(4) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
(g) Voluntary Termination by Employee. Subject to Section 12 hereof,
the Employee may voluntarily terminate employment with the Bank during the term
of this Agreement, upon at least 90 days' prior written notice to the Board of
Directors, in which case the Employee shall receive only his compensation,
vested rights and employee benefits up to the date of his termination (unless
such termination occurs pursuant to Section 10(d) hereof or within the Protected
Period, in Section 12(a) hereof, in which event the benefits and compensation
provided for in Sections 10(d) or 12, as applicable, shall apply).
(h) Post-termination Health Insurance. If the Employee's employment
terminates with the Bank or the Company for any reason other than Just Cause,
the Employee shall be entitled to purchase from the Bank, at his own expense
which shall not exceed applicable
-6-
<PAGE>
COBRA rates, family medical insurance under any group health plan that the Bank
maintains for its employees. This right shall be (i) in addition to, and not
in lieu of, any other rights that the Employee has under this Agreement, and
(ii) shall continue until the Employee first becomes eligible for participation
in Medicare.
11. No Mitigation. The Employee shall not be required to mitigate the
-------------
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Employee in any subsequent employment.
12. Change in Control.
-----------------
(a) Trigger Events. The Employee shall be entitled to collect the
severance benefits set forth in Subsection (b) hereof in the event that either
(i) the Employee voluntarily terminates employment for any reason within the 30-
day period beginning on the date of a Change in Control, (ii) the Employee
voluntarily terminates employment within 90 days of an event that both occurs
during the Protected Period and constitutes Good Reason, or (iii) the Bank or
the Company or their successor(s) in interest terminate the Employee's
employment without his written consent and for any reason other than Just Cause
during the Protected Period.
(b) Amount of Severance Benefit. If the Employee becomes entitled to
collect severance benefits pursuant to Section 12(a) hereof, the Bank shall:
(i) pay the Employee a severance benefit equal to the
difference between the Code (S)280G Maximum and the sum of any other
"parachute payments" as defined under Code (S)280G(b)(2) that the
Employee receives on account of the Change in Control, and
(ii) provide such long-term disability insurance and medical
insurance benefits as are available to the Employee under the
provisions of COBRA for 18 months (or such longer period, as may be
required thereunder).
Said sum shall be paid in one lump sum within ten days of the later of
the date of the Change in Control and the Employee's last day of employment with
the Bank or the Company. In the event that the Employee, the Bank, and the
Company jointly agree that the Employee has collected an amount exceeding the
Code (S)280G Maximum, the parties may agree in writing that such excess shall be
treated as a loan ab initio, which the Employee shall repay to the Bank, on
---------
terms and conditions mutually agreeable to the parties, together with interest
at the applicable federal rate provided for in Section 7872(f)(2)(B) of the
Code.
(c) Funding of Grantor Trust upon Change in Control. Notwithstanding
any other provision of this Agreement that may be contrary or inconsistent
herewith, not later than ten business days after a Change in Control, the Bank
shall (i) deposit in a Trust an amount equal to the Code (S)280G Maximum, unless
the Employee has previously provided a written release of any claims under this
Agreement, and (ii) provide the trustee of the Trust with a written direction
-7-
<PAGE>
to hold said amount and any investment return thereon in a segregated account
for the benefit of the Employee, and to follow the procedures set forth in the
next paragraph as to the payment of such amounts from the Trust.
At any time or from time to time during the 27-consecutive month period
after a Change in Control, the Employee may provide the trustee of the Trust
with a written notice directing that the trustee pay to the Employee an amount
designated in the notice as being payable pursuant to this Agreement. Within
three business days after receiving said notice, the trustee of the Trust shall
send a copy of the notice to the Bank via overnight and registered mail return
receipt requested. On the fifth business day after mailing said notice to the
Bank, the trustee of the Trust shall pay the Employee the amount designated
therein in immediately available funds, unless prior thereto the Bank provides
the trustee with a written notice directing the trustee to withhold such
payment. In the latter event, the trustee shall submit the dispute to non-
appealable binding arbitration for a determination of the amount payable to the
Employee pursuant to this Agreement, and the costs of such arbitration
(including any attorneys' fees incurred by the Employee) shall be paid by the
Bank. The trustee shall choose the arbitrator to settle the dispute, and such
arbitrator shall be bound by the rules of the American Arbitration Association
in making his determination. The parties and the trustee shall be bound by the
results of the arbitration and, within three days of the determination by the
arbitrator, the trustee shall pay from the Trust the amounts required to be paid
to the Employee and/or the Bank, and in no event shall the trustee be liable to
either party for making the payments as determined by the arbitrator.
Upon the earlier of (i) any payment from the Trust to the Employee, or (ii)
the date 27 months after the date on which the Bank makes the deposit referred
to in the first paragraph of this subsection 12(c), the trustee of the Trust
shall pay to the Bank the entire balance remaining in the segregated account
maintained for the benefit of the Employee. The Employee shall thereafter have
no further interest in the Trust pursuant to this Agreement.
13. Indemnification. The Bank and the Company agree that their
---------------
respective Bylaws shall continue to provide for indemnification of directors,
officers, employees and agents of the Bank and the Company, including the
Employee during the full term of this Agreement, and to at all times provide
adequate insurance for such purposes.
14. Reimbursement of Employee for Enforcement Proceedings. In the event
-----------------------------------------------------
that any dispute arises between the Employee and the Bank as to the terms or
interpretation of this Agreement, whether instituted by formal legal proceedings
or otherwise, including any action that the Employee takes to defend against any
action taken by the Bank or the Company, the Employee shall be reimbursed for
all costs and expenses, including reasonable attorneys' fees, arising from such
dispute, proceedings or actions, provided that the Employee obtains either a
written settlement or a final judgement by a court of competent jurisdiction
substantially in his favor. Such reimbursement shall be paid within ten days of
Employee's furnishing to the Bank written evidence, which may be in the form,
among other things, of a cancelled check or receipt, of any costs or expenses
incurred by the Employee.
-8-
<PAGE>
15. Federal Income Tax Withholding. The Bank may withhold all federal
------------------------------
and state income or other taxes from any benefit payable under this Agreement as
shall be required pursuant to any law or government regulation or ruling.
16. Successors and Assigns.
----------------------
(a) Bank. This Agreement shall not be assignable by the Bank,
provided that this Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank.
(b) Employee. Since the Bank is contracting for the unique and
personal skills of the Employee, the Employee shall be precluded from assigning
or delegating his rights or duties hereunder without first obtaining the written
consent of the Bank; provided, however, that nothing in this paragraph shall
preclude (i) the Employee from designating a beneficiary to receive any benefit
payable hereunder upon his death, or (ii) the executors, administrators, or
other legal representatives of the Employee or his estate from assigning any
rights hereunder to the person or persons entitled thereunto.
(c) Attachment. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or
to exclusion, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect.
17. Amendments. No amendments or additions to this Agreement shall be
----------
binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.
18. Applicable Law. Except to the extent preempted by federal law, the
--------------
laws of the State of North Carolina shall govern this Agreement in all respects,
whether as to its validity, construction, capacity, performance or otherwise.
19. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
20. Entire Agreement. This Agreement, together with any understanding or
----------------
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto and shall supersede any prior
agreement between the parties.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
ATTEST: HOME SAVINGS BANK, SSB
_______________________ By: ____________________________
Secretary Its Chairman of the Board
WITNESS:
_______________________ ____________________________
Thomas A. Vann
-10-
<PAGE>
EXHIBIT 10.4
CHANGE-IN-CONTROL PROTECTIVE AGREEMENT
--------------------------------------
THIS AGREEMENT entered into this ___ day of __________, 199_, by and
between Home Savings Bank, SSB (the "Bank") and ___________ (the "Employee"),
effective on the closing date of the Bank's conversion from mutual to stock form
(the "Effective Date").
WHEREAS, the Employee has heretofore been employed by the Bank as an
executive officer, and the Bank deems it to be in its best interest to enter
into this Agreement as additional incentive to the Employee to continue as an
executive employee of the Bank; and
WHEREAS, the parties desire by this writing to set forth their
understanding as to their respective rights and obligations in the event a
change of control occurs with respect to the Bank or NewSouth Bancorp, Inc. (the
"Company").
NOW, THEREFORE, the undersigned parties AGREE as follows:
1. Defined Terms
-------------
When used anywhere in the Agreement, the following terms shall have
the meaning set forth herein.
(a) "Change in Control" shall mean any one of the following events:
(i) the acquisition of ownership, holding or power to vote more than 25% of the
voting stock of the Bank or the Company, (ii) the acquisition of the ability to
control the election of a majority of the Bank's or the Company's directors,
(iii) the acquisition of a controlling influence over the management or policies
of the Bank or of the Company by any person or by persons acting as a "group"
(within the meaning of Section 13(d) of the Securities Exchange Act of 1934), or
(iv) during any period of two consecutive years, individuals (the "Continuing
Directors") who at the beginning of such period constitute the Board of
Directors of the Bank or of the Company (the "Existing Board") cease for any
reason to constitute at least two-thirds thereof, provided that any individual
whose election or nomination for election as a member of the Existing Board was
approved by a vote of at least two-thirds of the Continuing Directors then in
office shall be considered a Continuing Director. Notwithstanding the
foregoing, the Company's ownership of the Bank shall not of itself constitute a
Change in Control for purposes of the Agreement. For purposes of this paragraph
only, the term "person" refers to an individual or a corporation, partnership,
trust, association, joint venture, pool, syndicate, sole proprietorship,
unincorporated organization or any other form of entity not specifically listed
herein.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and as interpreted through applicable rulings and regulations
in effect from time to time.
(c) "Code" (S)280G Maximum" shall mean product of 2.99 and the
Employee's "base amount" as defined in Code (S)280G(b)(3).
<PAGE>
(c) "Good Reason" shall mean any of the following events, which has
not been consented to in advance by the Employee in writing: (i) the requirement
that the Employee move his personal residence, or perform his principal
executive functions, more than thirty (30) miles from his primary office as of
the date of the Change in Control; (ii) a material reduction in the Employee's
base compensation as in effect on the date of the Change in Control or as the
same may be increased from time to time; (iii) the failure by the Bank or the
Company to continue to provide the Employee with compensation and benefits
provided for on the date of the Change in Control, as the same may be increased
from time to time, or with benefits substantially similar to those provided to
him under any of the employee benefit plans in which the Employee now or
hereafter becomes a participant, or the taking of any action by the Bank or the
Company which would directly or indirectly reduce any of such benefits or
deprive the Employee of any material fringe benefit enjoyed by him at the time
of the Change in Control; (iv) the assignment to the Employee of duties and
responsibilities materially different from those normally associated with his
position; (v) a failure to elect or reelect the Employee to the Board of
Directors of the Bank or the Company, if the Employee is serving on such Board
on the date of the Change in Control; (vi) a material diminution or reduction in
the Employee's responsibilities or authority (including reporting
responsibilities) in connection with his employment with the Bank or the
Company; or (vii) a material reduction in the secretarial or other
administrative support of the Employee.
(d) "Just Cause" shall mean, in the good faith determination of the
Bank's Board of Directors, the Employee's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law, rule
or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
The Employee shall have no right to receive compensation or other benefits for
any period after termination for Just Cause. No act, or failure to act, on the
Employee's part shall be considered "willful" unless he has acted, or failed to
act, with an absence of good faith and without a reasonable belief that his
action or failure to act was in the best interest of the Bank and the Company.
(e) "Protected Period" shall mean the period that begins on the date
six months before a Change in Control and ends on the later of the second annual
anniversary of the Change in Control or the expiration date of this Agreement.
(f) "Trust" shall mean a grantor trust designed in accordance with
Revenue Procedure 92-64 and having a trustee independent of the Bank and the
Company.
2. Trigger Events
--------------
The Employee shall be entitled to collect the severance benefits set forth
in Section 3 of this Agreement in the event that (i) the Employee voluntarily
terminates employment either for any reason within the 30-day period beginning
on the date of a Change in Control, (ii) the Employee voluntarily terminates
employment within 90 days of an event that both occurs during
-2-
<PAGE>
the Protected Period and constitutes Good Reason, or (iii) the Bank, the
Company, or their successor(s) in interest terminate the Employee's employment
for any reason other than Just Cause during the Protected Period.
3. Amount of Severance Benefit
---------------------------
If the Employee becomes entitled to collect severance benefits pursuant to
Section 2 hereof, the Bank shall pay the Employee a severance benefit equal to
______ times the Employee's base annual salary in effect when the Protected
Period begins. In no event, however, will this amount exceed the difference
between the Code (S)280G Maximum and the sum of any other "parachute payments"
as defined under Code (S)280G(b)(2) that the Employee receives on account of the
Change in Control. Said sum shall be paid in one lump sum within ten (10) days
of the later of the date of the Change in Control and the Employee's last day of
employment with the Bank or the Company.
In the event that the Employee and the Bank agree that the Employee has
collected an amount exceeding the Code (S)280G Maximum, the parties may jointly
agree in writing that such excess shall be treated as a loan ab initio which the
-- ------
Employee shall repay to the Bank, on terms and conditions mutually agreeable to
the parties, together with interest at the applicable federal rate provided for
in Section 7872(f)(2)(B) of the Code.
4. Funding of Grantor Trust upon Change in Control
-----------------------------------------------
Not later than ten business days after a Change in Control, the Bank shall
(i) deposit in a Trust an amount equal to the Code (S)280G Maximum, unless the
Employee has previously provided a written release of any claims under this
Agreement, and (ii) provide the trustee of the Trust with a written direction to
hold said amount and any investment return thereon in a segregated account for
the benefit of the Employee, and to follow the procedures set forth in the next
paragraph as to the payment of such amounts from the Trust. Upon the earlier of
the Trust's final payment of all amounts due under the following paragraph or
the date 27 months after the Change in Control, the trustee of the Trust shall
pay to the Bank the entire balance remaining in the segregated account
maintained for the benefit of the Employee. The Employee shall thereafter have
no further interest in the Trust.
During the 27-consecutive month period after a Change in Control, the
Employee may provide the trustee of the Trust with a written notice requesting
that the trustee pay to the Employee an amount designated in the notice as being
payable pursuant to this Agreement. Within three business days after receiving
said notice, the trustee of the Trust shall send a copy of the notice to the
Bank via overnight and registered mail return receipt requested. On the tenth
(10th) business day after mailing said notice to the Bank, the trustee of the
Trust shall pay the Employee the amount designated therein in immediately
available funds, unless prior thereto the Bank provides the trustee with a
written notice directing the trustee to withhold such payment. In the latter
event, the trustee shall submit the dispute to non-appealable binding
arbitration for a determination of the amount payable to the Employee pursuant
to this Agreement, and the costs
-3-
<PAGE>
of such arbitration shall be paid by the Bank. The trustee shall choose the
arbitrator to settle the dispute, and such arbitrator shall be bound by the
rules of the American Arbitration Association in making his determination. The
parties and the trustee shall be bound by the results of the arbitration and,
within 3 days of the determination by the arbitrator, the trustee shall pay from
the Trust the amounts required to be paid to the Employee and/or the Bank, and
in no event shall the trustee be liable to either party for making the payments
as determined by the arbitrator.
5. Term of the Agreement. This Agreement shall remain in effect for the
---------------------
period commencing on the Effective Date and ending on the earlier of (i) the
date 12 months after the Effective Date, and (ii) the date on which the Employee
terminates employment with the Bank; provided that the Employee's rights
hereunder shall continue following the termination of this employment with the
Bank under any of the circumstances described in Section 2 hereof.
Additionally, on each annual anniversary date from the Effective Date, the term
of this Agreement shall be extended for an additional one-year period beyond the
then effective expiration date provided the Board of Directors of the Bank
determines in a duly adopted resolutions that the performance of the Employee
has met the requirements and standards of the respective Boards, and that this
Agreement shall be extended.
6. Termination or Suspension Under Federal Law.
-------------------------------------------
(a) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
(b) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(4) or (g)(1)), all obligations of the Bank under this Agreement
shall terminate, as of the effective date of the order, but the vested rights of
the parties shall not be affected.
(c) If the Bank is in default (as defined in Section 3(x)(1) of
FDIA), all obligations under this Agreement shall terminate as of the date of
default; however, this Paragraph shall not affect the vested rights of the
parties.
(d) If a notice served under Section 8(e)(3) or (g)(1) of the FDIA
(12 U.S.C. 1818(e)(3) and (g)(1)) suspends and/or temporarily prohibits the
Employee from participating in the conduct of the Bank's affairs, the Bank's
obligations under this Agreement shall be suspended as of the date of such
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank shall (i) pay the Employee all or part of the
compensation withheld while its contract obligations were suspended, and (ii)
reinstate (in whole or in part) any of its obligations which were suspended.
-4-
<PAGE>
7. Expense Reimbursement.
---------------------
In the event that any dispute arises between the Employee and the Bank
as to the terms or interpretation of this Agreement, whether instituted by
formal legal proceedings or otherwise, including any action that the Employee
takes to enforce the terms of this Agreement or to defend against any action
taken by the Bank or the Company, the Employee shall be reimbursed for all costs
and expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, provided that the Employee shall obtain a final
judgement in favor of the Employee in a court of competent jurisdiction or in
binding arbitration under the rules of the American Arbitration Association.
Such reimbursement shall be paid within ten (10) days of Employee's furnishing
to the Bank and the Company written evidence, which may be in the form, among
other things, of a cancelled check or receipt, of any costs or expenses incurred
by the Employee.
8. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank or Company which shall acquire,
directly or indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank or Company.
(b) Since the Bank is contracting for the unique and personal skills
of the Employee, the Employee shall be precluded from assigning or delegating
his rights or duties hereunder without first obtaining the written consent of
the Bank.
9. Amendments. No amendments or additions to this Agreement shall be
----------
binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.
10. Applicable Law. Except to the extent preempted by federal law, the
--------------
laws of the State of North Carolina shall govern this Agreement in all respects,
whether as to its validity, construction, capacity, performance or otherwise.
11. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
12. Entire Agreement. This Agreement, together with any understanding or
----------------
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
ATTEST: HOME SAVINGS BANK, SSB
___________________ By:___________________
Secretary Its: President
WITNESS:
____________________ ______________________
-6-
<PAGE>
EXHIBIT 10.5
AMENDED AND RESTATED
SUPPLEMENTAL INCOME AGREEMENT
THIS AMENDED AND RESTATED SUPPLEMENTAL INCOME AGREEMENT, made and entered
into as of the 1st of July, 1989 and amended and restated this 14th day of
December, 1995 by and between Home Savings Bank, SSB, a mutual state savings
bank chartered under the laws of the State of North Carolina (the "Bank"), and
Sherry L. Correll (the "Employee").
W I T N E S S E T H:
WHEREAS, after July 1, 1989, the Bank converted its charter to a state
savings bank charter and changed its name from "Home Savings and Loan
Association of Washington," to "Home Savings Bank, SSB;"
WHEREAS, the Employee has been an employee of the Bank since June 17, 1985;
WHEREAS, the value of the Employee is such that assurance of her continued
service is essential to the future growth and profits of the Bank; and
WHEREAS, the Bank desires to retain the services of the Employee, and
realizes that if the Employee were to terminate her employment, the Bank would
suffer a substantial financial loss.
NOW, THEREFORE, in consideration of the premises contained herein, the
parties hereto mutually agree as follows:
Section 1. Deferral Election. During the period of the Employee's
--------- -----------------
employment by the Bank, the Employee shall defer monthly a portion of her cash
compensation otherwise receivable by the Employee from the Bank.
Section 2. Retirement Benefits. Except as otherwise specifically provided
--------- -------------------
herein, upon the earlier of (a) the occurrence of the Employee's 65th birthday
(the "Retirement Age") and (b) the date of the Employee's retirement after her
60th birthday but before the Retirement Age ("Early Retirement Date"), the Bank
will pay the Employee $6,375 annually for a continuous period of fifteen (15)
years. The first annual payment will be made on a date to be determined by the
Bank, but in no event later than the first day of the sixth calendar month
following the calendar month in which the Retirement Age or Early Retirement
Date shall occur. Such annual payment shall be increased five percent (5%) for
each full year of service of the Employee occurring after July 1, 1990, except
that there will be no increases in benefits after the Employee reaches
Retirement Age and also no increases in benefits for more than ten (10) years of
additional service.
In the event that the Employee should die after becoming entitled to
receive annual installment payments under this Agreement but before all of such
payments have been paid, the Bank will pay all remaining payments to such
beneficiary or beneficiaries as the Employee has designated the Bank in writing
(the "Beneficiaries"). In the event of the death of the last living
<PAGE>
Beneficiary before all remaining unpaid payments have been made, the balance of
any payments at the time of such Beneficiary's death shall be commuted on the
basis of eight percent (8%) per annum compounded interest and shall be paid in a
single sum to the estate of the last Beneficiary to die. In the absence of such
beneficiary designation, any amount remaining unpaid at the Employee's death
shall be commuted on the basis of eight percent (8%) per annum compounded
interest and shall be paid in a single sum to the Employee's estate.
Section 3. Pre-Retirement Death Benefits. Should the Employee die prior
--------- -----------------------------
to Retirement Age, the Bank will pay $6,375 annually for a continuous period of
fifteen (15) years to her Beneficiary or Beneficiaries. Such annual payment
shall be increased five percent (5%) for each full year of service of the
Employee occurring after July 1, 1990, except that there will be no increases in
benefits after the Employee reaches Retirement Age and also no increases in
benefits for more than ten (10) years of additional service. The first annual
payment will be made on a date to be determined by the Bank, but in no event
later than the first day of the sixth calendar month following the calendar
month in which the Employee's death occurred. In the event of the death of the
last living Beneficiary before all annual installment payments have been made,
the balance of any payments which remain unpaid at the time of such
Beneficiary's death shall be commuted on the basis of eight percent (8%) per
annum compound interest and shall be paid in a single sum to the estate of the
last Beneficiary to die. In the absence of any such beneficiary designation,
any amount remaining unpaid at the Employee's death shall be commuted on the
basis of eight percent (8%) per annum compound interest and shall be paid in a
single sum to the Employee's estate.
Section 4. Termination of Employment.
--------- -------------------------
Should the Employee's employment by the Bank terminate other than by reason
of death, retirement upon the occurrence of the Retirement Age or retirement
upon the occurrence of the Early Retirement Date, the Employee or her
Beneficiary (or Beneficiaries), as applicable, shall be entitled upon the
occurrence of the earlier of the Retirement Age and the Employee's death to
receive the percentage of the annual installment payment stated in Section 2 of
this Agreement determined under the following table:
<TABLE>
<CAPTION>
PERCENTAGE OF THE ANNUAL
FULL NUMBER OF YEARS SERVED INSTALLMENT PAYMENT
AS EMPLOYEE FROM DATE OF STATED IN SECTION 2 OF THIS
EMPLOYMENT UNTIL TERMINATION AGREEMENT TO WHICH THE
OF EMPLOYMENT EMPLOYEE IS ENTITLED
---------------------------- -------------------------------
<S> <C>
Under 15 0%
15 50%
16 55%
17 60%
18 65%
19 75%
20 80%
21 85%
22 90%
23 95%
24 100%
</TABLE>
2
<PAGE>
Such annual payments shall commence on a date to be determined by the Bank,
but in no event later than the first day of the sixth calendar month following
the calendar month in which the Retirement Age or the Employee's death, as
applicable, occurs.
Notwithstanding the foregoing, should the Employee's employment be
terminated for any reason coincident with or within twenty-four (24) months
following a merger of the Bank with or into another business entity or a sale by
the Bank of a majority or more of its assets, then the Employee shall be deemed
to have retired as of her Early Retirement Date and the provisions of Section 2
shall be deemed applicable, except that the Early Retirement Date shall be
deemed the date that such merger or asset sale shall be consummated.
Section 5. General Provisions.
--------- ------------------
A. Except as otherwise provided by this Agreement, it is agreed that
neither the Employee, any Beneficiary nor any other person claiming
any right or interest under this Agreement through the Employee or any
Beneficiary shall have any right to commute, sell, assign, transfer or
otherwise convey the right to receive any payments hereunder.
B. The benefits and rights provided under this Agreement are independent
of, and in addition to, those benefits and rights provided under any
other agreements between the parties hereto. This Agreement shall not
be deemed to constitute an agreement of employment between the parties
hereto or as restricting the right of the Bank to discharge the
Employee or the right of the Employee to terminate her employment.
C. The rights of the Employee under this Agreement and of any Beneficiary
shall be solely those of an unsecured creditor of the Bank. Any asset
acquired by the Bank in connection with its plans to fund its
liabilities hereunder shall not be deemed to be held under any trust
for the benefit of the Employee or her Beneficiaries or to be
considered security for the performance of the obligations of the Bank
but shall be, and remain, a general, unpledged, unrestricted asset of
the Bank.
D. This Agreement and the Bank obligations hereunder shall be binding
upon its successors and permitted assigns. The Bank may not assign its
rights or obligations hereunder without the Employee's prior written
consent. In addition, the Bank agrees it shall not enter into any
agreement providing for the merger of the Bank with and into another
business entity or the sale of more than a majority of the Bank's
assets to another business entity, person or group of persons that
does not specifically provide that such successor by merger or
purchaser(s) of assets shall assume and satisfy each and every
obligation of the Bank to the Employee under this Agreement. In the
case of an asset sale, such assumption shall not relieve the Bank of
its liability to fulfill such obligations.
3
<PAGE>
E. This Agreement may be revoked or amended in whole or in part by a
writing signed by both of the parties hereto.
F. This Agreement shall be subject to and construed under the laws of the
State of North Carolina.
Section 6. Claims and Review Procedures.
--------- ----------------------------
A. General. For the purposes of implementing a claims procedure under
-------
this Agreement as required by the Employee Retirement Income Security
Act of 1974 ("ERISA") (but not for any other purpose), the Bank is
hereby designated as the named fiduciary and Plan Administrator of
this unfunded, nonqualified deferred compensation plan. If any person
believes he is being denied any rights or benefits under the
Agreement, such person may file a claim in writing with the Plan
Administrator for resolution in accordance with the provisions of
Paragraph B of this Section 6.
B. Claims Procedure. If any claim filed hereunder is wholly or partially
----------------
denied, the Plan Administrator will notify the claimant of its
decision in writing. Such notification will be written in a manner
calculated to be understood by the claimant and will contain:
(I) specific reasons for the denial,
(ii) specific reference to pertinent provisions of the Agreement on
which the Plan Administrator based its denial,
(iii) a description of any additional material or information
necessary for the claimant to perfect such claim and an
explanation of why such material or information is necessary,
and
(iv) information as to the steps to be taken if the claimant wishes
to submit a request for review.
Such notification will be given within ninety (90) days after the
claim is received by the Plan Administrator (or within 180 days, if
special circumstances require an extension of time for processing the
claim, and if written notice of such extension and circumstances is
given to the claimant within the initial ninety (90) day period). If
such notification is not given within such period, the claim will be
considered denied as of the last day of such period and the claimant
may request a review of his claim in accordance with Section 6.C.
hereof.
C. Review Procedure. Within sixty (60) days after the date on which a
----------------
claimant receives a written notice of a denied claim (or, if
applicable, within sixty (60) days
4
<PAGE>
after the date on which such denial is considered to have occurred)
the claimant (or his duly authorized representative) may:
(I) file a written request with the Plan Administrator for a review
of his denied claim and of pertinent documents; and
(ii) submit written issues and comments to the Plan Administrator.
The Plan Administrator will notify the claimant of its decision in
writing. Such notification will be written in a manner calculated to
be understood by the claimant and will contain specific reasons for
the decision as well as specific references to perti nent provisions
of the Agreement. The decision on review will be made within sixty
(60) days after the request for review is received by the Plan
Administrator (or within one hundred twenty (120) days, if special
circumstances require an extension of time for processing the request
(such as an election by the Plan Administrator to hold a hearing), and
if written notice of such extension and circumstances is given to the
claimant within the initial sixty (60) day period.
IN WITNESS WHEREOF, the Bank has caused this Amended and Restated
Supplemental Income Agreement to be signed in its corporate name by its duly
authorized officer, and impressed with its corporate seal, attested by its
Secretary, and the Employee has hereunto set her hand and seal, all on the day
and year first above written.
HOME SAVINGS BANK, SSB
Attest:
/s/ Ruby Adams By: /s/ Thomas A. Vann
- ------------------------ -----------------------------
Ruby Adams Thomas A. Vann
Secretary
Title: President
[Corporate Seal] EMPLOYEE:
/s/ Sherry L. Correll
---------------------------- (Seal)
Sherry L. Correll
5
<PAGE>
AMENDED AND RESTATED
SUPPLEMENTAL INCOME AGREEMENT
THIS AMENDED AND RESTATED SUPPLEMENTAL INCOME AGREEMENT, made and entered
into as of the 1st of July, 1989 and amended and restated this 14th day of
December, 1995 by and between Home Savings Bank, SSB, a mutual state savings
bank chartered under the laws of the State of North Carolina (the "Bank"), and
William R. Outland (the "Employee").
W I T N E S S E T H:
WHEREAS, after July 1, 1989, the Bank converted its charter to a state
savings bank charter and changed its name from "Home Savings and Loan
Association of Washington" to "Home Savings Bank, SSB;"
WHEREAS, the Employee has been an employee of the Bank since January 17,
1983;
WHEREAS, the value of the Employee is such that assurance of his continued
service is essential to the future growth and profits of the Bank; and
WHEREAS, the Bank desires to retain the services of the Employee, and
realizes that if the Employee were to terminate his employment, the Bank would
suffer a substantial financial loss.
NOW, THEREFORE, in consideration of the premises contained herein, the
parties hereto mutually agree as follows:
Section 1. Deferral Election. During the period of the Employee's
--------- -----------------
employment by the Bank, the Employee shall defer monthly a portion of his cash
compensation otherwise receivable by the Employee from the Bank.
Section 2. Retirement Benefits. Except as otherwise specifically provided
--------- -------------------
herein, upon the earlier of (a) the occurrence of the Employee's 65th birthday
(the "Retirement Age") and (b) the date of the Employee's retirement after his
60th birthday but before the Retirement Age ("Early Retirement Date"), the Bank
will pay the Employee $9,250 annually for a continuous period of fifteen (15)
years. The first annual payment will be made on a date to be determined by the
Bank, but in no event later than the first day of the sixth calendar month
following the calendar month in which the Retirement Age or Early Retirement
Date shall occur. Such annual payment shall be increased five percent (5%) for
each full year of service of the Employee occurring after July 1, 1990, except
that there will be no increases in benefits after the Employee reaches
Retirement Age and also no increases in benefits for more than ten (10) years of
additional service.
In the event that the Employee should die after becoming entitled to
receive annual installment payments under this Agreement but before all of such
payments have been paid, the Bank will pay all remaining payments to such
beneficiary or beneficiaries as the Employee has designated the Bank in writing
(the "Beneficiaries"). In the event of the death of the last living
<PAGE>
Beneficiary before all remaining unpaid payments have been made, the balance of
any payments at the time of such Beneficiary's death shall be commuted on the
basis of eight percent (8%) per annum compounded interest and shall be paid in a
single sum to the estate of the last Beneficiary to die. In the absence of such
beneficiary designation, any amount remaining unpaid at the Employee's death
shall be commuted on the basis of eight percent (8%) per annum compounded
interest and shall be paid in a single sum to the Employee's estate.
Section 3. Pre-Retirement Death Benefits. Should the Employee die prior
--------- -----------------------------
to Retirement Age, the Bank will pay $9,250 annually for a continuous period of
fifteen (15) years to his Beneficiary or Beneficiaries. Such annual payment
shall be increased five percent (5%) for each full year of service of the
Employee occurring after July 1, 1990, except that there will be no increases in
benefits after the Employee reaches Retirement Age and also no increases in
benefits for more than ten (10) years of additional service. The first annual
payment will be made on a date to be determined by the Bank, but in no event
later than the first day of the sixth calendar month following the calendar
month in which the Employee's death occurred. In the event of the death of the
last living Beneficiary before all annual installment payments have been made,
the balance of any payments which remain unpaid at the time of such
Beneficiary's death shall be commuted on the basis of eight percent (8%) per
annum compound interest and shall be paid in a single sum to the estate of the
last Beneficiary to die. In the absence of any such beneficiary designation,
any amount remaining unpaid at the Employee's death shall be commuted on the
basis of eight percent (8%) per annum compound interest and shall be paid in a
single sum to the Employee's estate.
Section 4. Termination of Employment.
--------- -------------------------
Should the Employee's employment by the Bank terminate other than by reason
of death, retirement upon the occurrence of the Retirement Age or retirement
upon the occurrence of the Early Retirement Date, the Employee or his
Beneficiary (or Beneficiaries), as applicable, shall be entitled upon the
occurrence of the earlier of the Retirement Age and the Employee's death to
receive the percentage of the annual installment payment stated in Section 2 of
this Agreement determined under the following table:
<TABLE>
<CAPTION>
FULL NUMBER OF YEARS SERVED INSTALLMENT PAYMENT
AS EMPLOYEE FROM DATE OF STATED IN SECTION 2 OF THIS
EMPLOYMENT UNTIL TERMINATION AGREEMENT TO WHICH THE
OF EMPLOYMENT EMPLOYEE IS ENTITLED
--------------------------- ------------------------------
<S> <C>
Under 20 0%
20 50%
21 55%
22 60%
23 65%
24 75%
25 80%
26 85%
27 90%
28 95%
29 100%
</TABLE>
2
<PAGE>
Such annual payments shall commence on a date to be determined by the Bank,
but in no event later than the first day of the sixth calendar month following
the calendar month in which the Retirement Age or the Employee's death, as
applicable, occurs.
Notwithstanding the foregoing, should the Employee's employment be
terminated for any reason coincident with or within twenty-four (24) months
following a merger of the Bank with or into another business entity or a sale by
the Bank of a majority or more of its assets, then the Employee shall be deemed
to have retired as of his Early Retirement Date and the provisions of Section 2
shall be deemed applicable, except that the Early Retirement Date shall be
deemed the date that such merger or asset sale shall be consummated.
Section 5. General Provisions.
--------- ------------------
A. Except as otherwise provided by this Agreement, it is agreed that
neither the Employee, any Beneficiary nor any other person claiming
any right or interest under this Agreement through the Employee or any
Beneficiary shall have any right to commute, sell, assign, transfer or
otherwise convey the right to receive any payments hereunder.
B. The benefits and rights provided under this Agreement are independent
of, and in addition to, those benefits and rights provided under any
other agreements between the parties hereto. This Agreement shall not
be deemed to constitute an agreement of employment between the parties
hereto or as restricting the right of the Bank to discharge the
Employee or the right of the Employee to terminate his employment.
C. The rights of the Employee under this Agreement and of any Beneficiary
shall be solely those of an unsecured creditor of the Bank. Any asset
acquired by the Bank in connection with its plans to fund its
liabilities hereunder shall not be deemed to be held under any trust
for the benefit of the Employee or his Beneficiaries or to be
considered security for the performance of the obligations of the Bank
but shall be, and remain, a general, unpledged, unrestricted asset of
the Bank.
D. This Agreement and the Bank obligations hereunder shall be binding
upon its successors and permitted assigns. The Bank may not assign its
rights or obligations hereunder without the Employee's prior written
consent. In addition, the Bank agrees it shall not enter into any
agreement providing for the merger of the Bank with and into another
business entity or the sale of more than a majority of the Bank's
assets to another business entity, person or group of persons that
does not specifically provide that such successor by merger or
purchaser(s) of assets shall assume and satisfy each and every
obligation of the Bank to the Employee under this Agreement. In the
case of an asset sale, such assumption shall not relieve the Bank of
its liability to fulfill such obligations.
3
<PAGE>
E. This Agreement may be revoked or amended in whole or in part by a
writing signed by both of the parties hereto.
F. This Agreement shall be subject to and construed under the laws of the
State of North Carolina.
Section 6. Claims and Review Procedures.
--------- ----------------------------
A. General. For the purposes of implementing a claims procedure under
-------
this Agreement as required by the Employee Retirement Income Security
Act of 1974 ("ERISA") (but not for any other purpose), the Bank is
hereby designated as the named fiduciary and Plan Administrator of
this unfunded, nonqualified deferred compensation plan. If any person
believes he is being denied any rights or benefits under the
Agreement, such person may file a claim in writing with the Plan
Administrator for resolution in accordance with the provisions of
Paragraph B of this Section 6.
B. Claims Procedure. If any claim filed hereunder is wholly or partially
----------------
denied, the Plan Administrator will notify the claimant of its
decision in writing. Such notification will be written in a manner
calculated to be understood by the claimant and will contain:
(i) specific reasons for the denial,
(ii) specific reference to pertinent provisions of the Agreement on
which the Plan Administrator based its denial,
(iii) a description of any additional material or information
necessary for the claimant to perfect such claim and an
explanation of why such material or information is necessary,
and
(iv) information as to the steps to be taken if the claimant wishes
to submit a request for review.
Such notification will be given within ninety (90) days after the
claim is received by the Plan Administrator (or within 180 days, if
special circumstances require an extension of time for processing the
claim, and if written notice of such extension and circumstances is
given to the claimant within the initial ninety (90) day period). If
such notification is not given within such period, the claim will be
considered denied as of the last day of such period and the claimant
may request a review of his claim in accordance with Section 6.C.
hereof.
C. Review Procedure. Within sixty (60) days after the date on which a
claimant receives a written notice of a denied claim (or, if
applicable, within sixty (60) days
4
<PAGE>
after the date on which such denial is considered to have occurred)
the claimant (or his duly authorized representative) may:
(i) file a written request with the Plan Administrator for a review
of his denied claim and of pertinent documents; and
(ii) submit written issues and comments to the Plan Administrator.
The Plan Administrator will notify the claimant of its decision in
writing. Such notification will be written in a manner calculated to
be understood by the claimant and will contain specific reasons for
the decision as well as specific references to perti nent provisions
of the Agreement. The decision on review will be made within sixty
(60) days after the request for review is received by the Plan
Administrator (or within one hundred twenty (120) days, if special
circumstances require an extension of time for processing the request
(such as an election by the Plan Administrator to hold a hearing), and
if written notice of such extension and circumstances is given to the
claimant within the initial sixty (60) day period.
IN WITNESS WHEREOF, the Bank has caused this Amended and Restated
Supplemental Income Agreement to be signed in its corporate name by its duly
authorized officer, and impressed with its corporate seal, attested by its
Secretary, and the Employee has hereunto set his hand and seal, all on the day
and year first above written.
HOME SAVINGS BANK, SSB
Attest: By: /s/ Thomas A. Vann
------------------------------
Thomas A. Vann
/s/ Ruby Adams Title: President
- ------------------------
Ruby Adams
Secretary
[Corporate Seal] EMPLOYEE:
/s/ William R. Outland
-----------------------------------
William R. Outland
5
<PAGE>
AMENDED AND RESTATED
SUPPLEMENTAL INCOME AGREEMENT
THIS AMENDED AND RESTATED SUPPLEMENTAL INCOME AGREEMENT, made and entered
into as of the 1st of July, 1989 and amended and restated this 14th day of
December, 1995 by and between Home Savings Bank, SSB, a mutual state savings
bank chartered under the laws of the State of North Carolina (the "Bank"), and
Thomas A. Vann (the "Employee").
W I T N E S S E T H:
WHEREAS, after July 1, 1989, the Bank converted its charter to a state
savings bank charter and changed its name from "Home Savings and Loan
Association of Washington," to "Home Savings Bank, SSB;"
WHEREAS, the Employee has been an employee of the Bank since September 1,
1972;
WHEREAS, the value of the Employee is such that assurance of his continued
service is essential to the future growth and profits of the Bank; and
WHEREAS, the Bank desires to retain the services of the Employee, and
realizes that if the Employee were to terminate his employment, the Bank would
suffer a substantial financial loss.
NOW, THEREFORE, in consideration of the premises contained herein, the
parties hereto mutually agree as follows:
Section 1. Deferral Election. During the period of the Employee's
--------- -----------------
employment by the Bank, the Employee shall defer monthly a portion of his cash
compensation otherwise receivable by the Employee from the Bank.
Section 2. Retirement Benefits. Except as otherwise specifically provided
--------- -------------------
herein, upon the earlier of (a) the occurrence of the Employee's 65th birthday
(the "Retirement Age") and (b) the date of the Employee's retirement after his
60th birthday but before the Retirement Age ("Early Retirement Date"), the Bank
will pay the Employee $19,250 annually for a continuous period of fifteen (15)
years. The first annual payment will be made on a date to be determined by the
Bank, but in no event later than the first day of the sixth calendar month
following the calendar month in which the Retirement Age or Early Retirement
Date shall occur. Such annual payment shall be increased five percent (5%) for
each full year of service of the Employee occurring after July 1, 1990, except
that there will be no increases in benefits after the Employee reaches
Retirement Age and also no increases in benefits for more than ten (10) years of
additional service.
In the event that the Employee should die after becoming entitled to
receive annual installment payments under this Agreement but before all of such
payments have been paid, the Bank will pay all remaining payments to such
beneficiary or beneficiaries as the Employee has designated the Bank in writing
(the "Beneficiaries"). In the event of the death of the last living
<PAGE>
Beneficiary before all remaining unpaid payments have been made, the balance of
any payments at the time of such Beneficiary's death shall be commuted on the
basis of eight percent (8%) per annum compounded interest and shall be paid in a
single sum to the estate of the last Beneficiary to die. In the absence of such
beneficiary designation, any amount remaining unpaid at the Employee's death
shall be commuted on the basis of eight percent (8%) per annum compounded
interest and shall be paid in a single sum to the Employee's estate.
Section 3. Pre-Retirement Death Benefits. Should the Employee die prior
--------- -----------------------------
to Retirement Age, the Bank will pay $19,250 annually for a continuous period of
fifteen (15) years to his Beneficiary or Beneficiaries. Such annual payment
shall be increased five percent (5%) for each full year of service of the
Employee occurring after July 1, 1990, except that there will be no increases in
benefits after the Employee reaches Retirement Age and also no increases in
benefits for more than ten (10) years of additional service. The first annual
payment will be made on a date to be determined by the Bank, but in no event
later than the first day of the sixth calendar month following the calendar
month in which the Employee's death occurred. In the event of the death of the
last living Beneficiary before all annual installment payments have been made,
the balance of any payments which remain unpaid at the time of such
Beneficiary's death shall be commuted on the basis of eight percent (8%) per
annum compound interest and shall be paid in a single sum to the estate of the
last Beneficiary to die. In the absence of any such beneficiary designation,
any amount remaining unpaid at the Employee's death shall be commuted on the
basis of eight percent (8%) per annum compound interest and shall be paid in a
single sum to the Employee's estate.
Section 4. Termination of Employment.
--------- -------------------------
Should the Employee's employment by the Bank terminate other than by reason
of death, retirement upon the occurrence of the Retirement Age or retirement
upon the occurrence of the Early Retirement Date, the Employee or his
Beneficiary (or Beneficiaries), as applicable, shall be entitled upon the
occurrence of the earlier of the Retirement Age and the Employee's death to
receive the percentage of the annual installment payment stated in Section 2 of
this Agreement determined under the following table:
<TABLE>
<CAPTION>
PERCENTAGE OF THE ANNUAL
FULL NUMBER OF YEARS SERVED INSTALLMENT PAYMENT
AS EMPLOYEE FROM DATE OF STATED IN SECTION 2 OF THIS
EMPLOYMENT UNTIL TERMINATION AGREEMENT TO WHICH THE
OF EMPLOYMENT EMPLOYEE IS ENTITLED
---------------------------- -----------------------------------------------
<S> <C>
Under 20 0%
20 50%
21 55%
22 60%
23 65%
24 75%
25 80%
26 85%
27 90%
28 95%
29 100%
</TABLE>
2
<PAGE>
Such annual payments shall commence on a date to be determined by the Bank,
but in no event later than the first day of the sixth calendar month following
the calendar month in which the Retirement Age or the Employee's death, as
applicable, occurs.
Notwithstanding the foregoing, should the Employee's employment be
terminated for any reason coincident with or within twenty-four (24) months
following a merger of the Bank with or into another business entity or a sale by
the Bank of a majority or more of its assets, then the Employee shall be deemed
to have retired as of his Early Retirement Date and the provisions of Section 2
shall be deemed applicable, except that the Early Retirement Date shall be
deemed the date that such merger or asset sale shall be consummated.
Section 5. General Provisions.
--------- ------------------
A. Except as otherwise provided by this Agreement, it is agreed that
neither the Employee, any Beneficiary nor any other person claiming
any right or interest under this Agreement through the Employee or any
Beneficiary shall have any right to commute, sell, assign, transfer or
otherwise convey the right to receive any payments hereunder.
B. The benefits and rights provided under this Agreement are independent
of, and in addition to, those benefits and rights provided under any
other agreements between the parties hereto. This Agreement shall not
be deemed to constitute an agreement of employment between the parties
hereto or as restricting the right of the Bank to discharge the
Employee or the right of the Employee to terminate his employment.
C. The rights of the Employee under this Agreement and of any Beneficiary
shall be solely those of an unsecured creditor of the Bank. Any asset
acquired by the Bank in connection with its plans to fund its
liabilities hereunder shall not be deemed to be held under any trust
for the benefit of the Employee or his Beneficiaries or to be
considered security for the performance of the obligations of the Bank
but shall be, and remain, a general, unpledged, unrestricted asset of
the Bank.
D. This Agreement and the Bank obligations hereunder shall be binding
upon its successors and permitted assigns. The Bank may not assign its
rights or obligations hereunder without the Employee's prior written
consent. In addition, the Bank agrees it shall not enter into any
agreement providing for the merger of the Bank with and into another
business entity or the sale of more than a majority of the Bank's
assets to another business entity, person or group of persons that
does not specifically provide that such successor by merger or
purchaser(s) of assets shall assume and satisfy each and every
obligation of the Bank to the Employee under this Agreement. In the
case of an asset sale, such assumption shall not relieve the Bank of
its liability to fulfill such obligations.
3
<PAGE>
E. This Agreement may be revoked or amended in whole or in part by a
writing signed by both of the parties hereto.
F. This Agreement shall be subject to and construed under the laws of
the State of North Carolina.
Section 6. Claims and Review Procedures.
--------- ----------------------------
A. General. For the purposes of implementing a claims procedure under
-------
this Agreement as required by the Employee Retirement Income Security
Act of 1974 ("ERISA") (but not for any other purpose), the Bank is
hereby designated as the named fiduciary and Plan Administrator of
this unfunded, nonqualified deferred compensation plan. If any person
believes he is being denied any rights or benefits under the
Agreement, such person may file a claim in writing with the Plan
Administrator for resolution in accordance with the provisions of
Paragraph B of this Section 6.
B. Claims Procedure. If any claim filed hereunder is wholly or partially
----------------
denied, the Plan Administrator will notify the claimant of its
decision in writing. Such notification will be written in a manner
calculated to be understood by the claimant and will contain:
(i) specific reasons for the denial,
(ii) specific reference to pertinent provisions of the Agreement on
which the Plan Administrator based its denial,
(iii) a description of any additional material or information
necessary for the claimant to perfect such claim and an
explanation of why such material or information is necessary,
and
(iv) information as to the steps to be taken if the claimant wishes
to submit a request for review.
Such notification will be given within ninety (90) days after the
claim is received by the Plan Administrator (or within 180 days, if
special circumstances require an extension of time for processing the
claim, and if written notice of such extension and circumstances is
given to the claimant within the initial ninety (90) day period). If
such notification is not given within such period, the claim will be
considered denied as of the last day of such period and the claimant
may request a review of his claim in accordance with Section 6.C.
hereof.
C. Review Procedure. Within sixty (60) days after the date on which a
----------------
claimant receives a written notice of a denied claim (or, if
applicable, within sixty (60) days
4
<PAGE>
after the date on which such denial is considered to have occurred)
the claimant (or his duly authorized representative) may:
(i) file a written request with the Plan Administrator for a review
of his denied claim and of pertinent documents; and
(ii) submit written issues and comments to the Plan Administrator.
The Plan Administrator will notify the claimant of its decision in
writing. Such notification will be written in a manner calculated to
be understood by the claimant and will contain specific reasons for
the decision as well as specific references to perti nent provisions
of the Agreement. The decision on review will be made within sixty
(60) days after the request for review is received by the Plan
Administrator (or within one hundred twenty (120) days, if special
circumstances require an extension of time for processing the request
(such as an election by the Plan Administrator to hold a hearing), and
if written notice of such extension and circumstances is given to the
claimant within the initial sixty (60) day period.
IN WITNESS WHEREOF, the Bank has caused this Amended and Restated
Supplemental Income Agreement to be signed in its corporate name by its duly
authorized officer, and impressed with its corporate seal, attested by its
Secretary, and the Employee has hereunto set his hand and seal, all on the day
and year first above written.
HOME SAVINGS BANK, SSB
Attest: By: /s/ William L. Wall
---------------------------------------
William L. Wall
/s/ Ruby Adams Title: Executive Vice President
- -----------------------------
Ruby Adams
Secretary
[Corporate Seal] EMPLOYEE:
/s/ Thomas A. Vann
--------------------------------------------
Thomas A. Vann
5
<PAGE>
HOME SAVINGS BANK, SSB
SUPPLEMENTAL INCOME AGREEMENT
AS AMENDED AND RESTATED DECEMBER 14, 1995
____________________
1996 Amendment
____________________
WHEREAS, Home Savings Bank, SSB (the "Bank") has entered into a
Supplemental Income Agreement (the "Agreement"), originally effective July 1,
1989, as amended and restated effective December 14, 1995, with the following
officers: Thomas A. Vann, William R. Outland, and Sherry L. Correll (the
"Officers"); and
WHEREAS, the Bank has authorized an amendment to the Agreement with
each Officer in order to address issues arising from the Bank's upcoming
conversion from mutual to stock form;
NOW, THEREFORE, pursuant to Section 5.E. of each Agreement, the
Agreement with each Officer is hereby amended as follows, effective immediately
on execution hereof:
1. Section 2 of each Agreement shall be amended by revising clause
(b) of its first sentence in its entirety to provide as follows:
(b) the date of the Employee's retirement before the Retirement
Age but after both attaining age 55 and completing at least 10
years of service with the Bank ("Early Retirement Date")
2. The next-to-the-last paragraph of Section 4 of each Agreement
shall be amended in its entirety to provide as follows:
Except as otherwise provided in Section 2 with respect to the
Employee's retirement at the Early Retirement Date: in the event
that the employment of the Employee terminates, for any reason
other than his death, prior to the time he is first entitled to
receive payments under this Agreement, the Employee or his
Beneficiaries, as applicable, shall be entitled, upon the
occurrence of the Employee's 55th birthday or prior death, to
receive such annual payments.
3. The last paragraph of Section 4 of the Agreement shall be amended
in its entirety to provide as follows:
Except as otherwise provided in Sections 2 or 3 as applicable,
in the event that, on or before the occurrence of an Employee's
Retirement Date or Early Retirement Date, a "Termination of
Protected Employment" occurs following a "Change in Control" (as
these terms are defined in the next two paragraphs), then the
Employee shall be deemed to have retired as of his Early
Retirement Date and
<PAGE>
1996 Amendment
Supplemental Income Agreement
Page 2
the provisions of Section 2 shall be deemed applicable, except
that the Early Retirement Date shall be deemed to be the date that
such Change in Control shall occur.
4. Section 4 of the Agreement shall be amended further by adding the
following two paragraphs immediately at the end thereof:
For purposes of this Agreement, "Change in Control" shall mean
any one of the following events: (i) the acquisition of ownership,
holding, or power to vote more than 25% of the voting stock of the
Bank or NewSouth Bancorp, Inc. (the "Company"), (ii) the
acquisition of the ability to control the election of a majority
of the Bank's or the Company's directors, (iii) the acquisition of
a controlling influence over the management or policies of the
Bank or of the Company by any person or by persons acting as a
"group" (within the meaning of Section 13(d) of the Securities
Exchange Act of 1934), or (iv) during any period of two
consecutive years, individuals (the "Continuing Directors") who at
the beginning of such period constitute the Board of Directors of
the Bank or of the Company (the "Existing Board") cease for any
reason to constitute at least two-thirds thereof, provided that
any individual whose election or nomination for election as a
member of the Existing Board was approved by a vote of at least
two-thirds of the Continuing Directors then in office shall be
considered a Continuing Director. Notwithstanding the foregoing,
the Company's ownership of the Bank shall not of itself constitute
a Change in Control for purposes of the Agreement. For purposes of
this paragraph only, the term "person" refers to an individual or
a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization
or any other form of entity not specifically listed herein.
For purposes of this Agreement, a "Termination of Protected
Employment" shall occur if: (I) The Employee is terminated without
Just Cause, with "Just Cause" meaning, in the good faith
determination of the Bank's Board of Directors, the Employee's
personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, or rule or
regulation (other than traffic violations or similar offenses) or
final cease-and-desist order; provided that no act, or failure to
act, on the Employee's part shall be considered "willful" unless
he has acted, or failed to act, with an absence of good faith and
without a reasonable belief that his action or failure to act was
in the best interests of the Bank or of the Company; or (II) the
Employee voluntarily terminates employment for an event that
constitutes "Good Reason", which shall mean any of the following
events, that has not been consented to in advance by the Employee
in writing: (i) the requirement that the Employee move his
personal residence, or perform his principal executive functions,
more than 30 miles from his primary office as of
<PAGE>
1996 Amendment
Supplemental Income Agreement
Page 3
the later of the Effective Date and the most recent voluntary
relocation by the Employee; (ii) a material reduction in the
Employee's base compensation in effect on the date of the Change
in Control; (iii) the failure by the Bank to continue to provide
the Employee with compensation and benefits in effect on the date
of the Change in Control, or with benefits substantially similar
to those provided to him under any of the employee benefit plans
in which the Employee now or hereafter becomes a participant, or
the taking of any action by the Bank which would directly or
indirectly reduce any of such benefits or deprive the Employee of
any material fringe benefit enjoyed by him; (iv) the assignment to
the Employee of duties and responsibilities materially different
from those normally associated with his position; (v) a failure to
reelect the Employee to the Board of Directors of the Bank, if the
Employee has served on such Board at any time during the term of
the Agreement; (vi) a material diminution or reduction in the
Employee's responsibilities or authority (including reporting
responsibilities) in connection with his employment with the Bank;
or (vii) a material reduction in the secretarial or other
administrative support of the Employee.
5. Section 5 of the Agreement shall be amended by adding the
following paragraphs immediately at the end thereof:
Notwithstanding any other provision of this Agreement that may
be contrary or inconsistent herewith, not later than ten business
days after a Change in Control, the Bank shall (i) deposit in a
grantor trust (the "Trust") that is designed in accordance with
Revenue Procedure 92-64 and has a trustee independent of the Bank,
the Company and any successor to their interest, an amount equal
to the present value of all benefits that may become payable under
this Agreement, unless the Employee has previously provided a
written release of any claims under this Agreement, and (ii)
provide the trustee of the Trust with a written direction to hold
said amount and any investment return thereon in a segregated
account for the benefit of the Employee, and to follow the
procedures set forth in the next paragraph as to the payment of
such amounts from the Trust.
At any time or from time to time after a Change in Control,
the Employee may provide the trustee of the Trust with a written
schedule directing that the trustee pay to the Employee an amount
designated in the schedule as being payable pursuant to this
Agreement. Within three business days after receiving said notice,
the trustee of the Trust shall send a copy of the schedule to the
Bank via overnight and registered mail (return receipt requested).
On the fifth business day after mailing said notice to the Bank,
the trustee of the Trust shall pay the Employee the amount
designated therein in immediately available funds, unless prior
thereto the Bank provides the trustee with a written notice
directing the trustee to withhold such payment. In the latter
event, the trustee shall submit the
<PAGE>
1996 Amendment
Supplemental Income Agreement
Page 4
dispute to non-appealable binding arbitration for a determination
of the amount payable to the Employee pursuant to this Agreement,
and the costs of such arbitration (including any attorneys' fees
incurred by the Employee) shall be paid by the Bank. The trustee
shall choose the arbitrator to settle the dispute, and such
arbitrator shall be bound by the rules of the American Arbitration
Association in making his determination. The parties and the
trustee shall be bound by the results of the arbitration and,
within three days of the determination by the arbitrator, the
trustee shall pay from the Trust the amounts required to be paid
to the Employee and/or the Bank, and in no event shall the trustee
be liable to either party for making the payments as determined by
the arbitrator.
Upon the receipt of the Employee's written release of all
claims under this Agreement, the trustee of the Trust shall pay to
the Bank the entire balance remaining in the segregated account
maintained for the benefit of the Employee. The Employee shall
thereafter have no further interest in the Trust pursuant to this
Agreement.
6. Nothing contained herein shall be held to alter, vary or affect
any of the terms, provisions, or conditions of the Agreement entered into
thereunder, other than as stated above.
<PAGE>
1996 Amendment
Supllemental Income Agreement
Page 5
WHEREFORE, on this 23rd day of October, 1996, the Bank hereby executes
this 1996 Amendment to the Plan.
HOME SAVINGS BANK, SSB
By /s/ Frederick H. Howdy
----------------------------------
Its Chairman of the Board
October 23, 1996
- ------------------
Date Attest: William L. Wall (Seal)
-----------------------------
Witness:
Brenda S. Ipoch /s/ Thomas A. Vann
- ------------------ ------------------------------------
Thomas A. Vann
Witness:
Brenda S. Ipoch /s/ William R. Outland
- ------------------ ------------------------------------
William R. Outland
Witness:
Brenda S. Ipoch /s/ Sherry L. Correll
- ------------------ ------------------------------------
Sherry L. Correll
<PAGE>
EXHIBIT 10.6
AMENDED AND RESTATED
SUPPLEMENTAL INCOME PLAN AGREEMENT
THIS AMENDED AND RESTATED SUPPLEMENTAL INCOME PLAN AGREEMENT, made and
entered into the 1st day of January, 1994 and amended and restated this 14th day
of December, 1995, by and between Home Savings Bank, SSB, a mutual state savings
bank organized and existing under the laws of the State of North Carolina (the
"Bank"), and Thomas A. Vann, (the "Employee").
W I T N E S S E T H:
WHEREAS, the Employee is employed by the Bank;
WHEREAS, the Bank recognizes the valuable services heretofore performed for
it by the Employee and wishes to encourage his continued employment;
WHEREAS, the Employee wishes to be assured that he will be entitled to a
certain amount of additional compensation for some definite period of time from
and after the termination of his employment with the Bank and that his
beneficiary will be entitled to a death benefit from and after the Employee's
death;
WHEREAS, the parties hereto wish to provide the terms and conditions upon
which the Bank shall pay such additional compensation to the Employee after the
termination of his employment with the Bank or such death benefit to his
beneficiary after the Employee's death; and
WHEREAS, the parties desire to amend the Agreement and to restate the
Agreement as amended.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the parties hereto agree as follows:
Section 1. Retirement Benefits. Except as otherwise specifically provided
--------- -------------------
herein, if the Employee shall remain in the employment of the Bank until he
attains the age of 65 (the "Retirement Date") or such earlier date as the
parties hereto agree (the "Early Retirement Date"), the Bank shall pay the
Employee a minimum sum of $40,000.00 per annum for a period of fifteen (15)
years, payable in equal monthly installments, commencing on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Retirement Date or
Early Retirement Date, as applicable, occurs.
The Bank agrees to increase the minimum annual sum to be paid to the
Employee by five percent (5%) for each full year of employment completed by the
Employee after January 1, 1994 (e.g., January 2, 1994 through January 1, 1995
shall equal one full year of employment). Exhibit A attached hereto and
incorporated herein by reference sets forth in more detail the exact operation
and effect of this provision.
<PAGE>
Section 2. Post-Retirement Death Benefits. In the event that the Employee
--------- ------------------------------
should die after becoming entitled to receive payments under Section 1 but
before all such payments have been made, the Bank will make all remaining
payments to such beneficiary or beneficiaries as the Employee has designated to
the Bank in writing (the "Beneficiaries"). In the event of the death of the
last living Beneficiary before all unpaid payments have been made, the balance
of any payments which remain unpaid at the time of the death of such Beneficiary
shall be commuted on the basis of six percent (6%) per annum compounded interest
and shall be paid in a single sum to the estate of the last Beneficiary to die.
In the absence of such beneficiary designation, any amount remaining unpaid at
the Employee's death shall be commuted on the basis of six percent (6%) per
annum compounded interest and shall be paid in a single sum to the Employee's
estate.
Section 3. Pre-Retirement Death Benefits. In the event of the death of
--------- -----------------------------
the Employee while employed by the Bank and before the Retirement Date or Early
Retirement Date, the Bank shall make the payments described in Section 1 above
to the Beneficiaries. The first monthly payment shall be made on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the month in which the Employee died. In the event of
the death of the last living Beneficiary before all the payments have been made,
the balance of any payments which remain unpaid at the time of such
Beneficiary's death shall be commuted on the basis of six percent (6%) per annum
compounded interest and shall be paid in a single sum to the estate of the last
Beneficiary to die. In the absence of any such beneficiary designation, any
amount remaining unpaid at the Employee's death shall be commuted on the basis
of six percent (6%) per annum compounded interest and shall be paid in a single
sum to the Employee's estate. Notwithstanding the foregoing, if the Employee
dies as a result of suicide on or before January 1, 1996, no benefits of
whatever nature shall be payable to the Beneficiaries under this Agreement.
Section 4. Termination Benefits. Except as otherwise provided in Section
--------- --------------------
1 with respect to retirement at the Early Retirement Date and in Section 6 with
respect to termination of employment by the Bank in certain circumstances, in
the event that the employment of the Employee terminates prior to the time he is
first entitled to receive payments under this Agreement for any reason other
than his death, the Employee or his Beneficiaries, as applicable, shall be
entitled, upon the occurrence of the Employee's 55th birthday or prior death, to
receive the percentage of the applicable annual payment described in Section 1
above determined by Exhibit B attached hereto and incorporated herein by
reference. Such payments shall be made in equal monthly installments, with the
first monthly installment commencing on a date to be determined by the Bank, but
in no event later than the first day of the sixth calendar month following the
calendar month of the Employee's 55th birthday or death, as applicable, occurs.
Section 5. Benefits Not Transferable. Neither the Employee, any
--------- -------------------------
Beneficiary nor any other person claiming any right or interest under this
Agreement through the Employee or any Beneficiary shall have any right to
commute, assign, transfer or otherwise convey the right to receive any benefits
hereunder.
2
<PAGE>
Section 6. Binding Upon Successors. This Agreement and the Bank's
--------- -----------------------
obligations hereunder shall be binding upon the Bank's successors and permitted
assigns. The Bank may not assign its rights or obligations under this Agreement
without the Employee's prior written consent. In addition, the Bank shall not
enter into any agreement providing for the merger of the Bank with and into
another business entity or the sale of more than a majority of the Bank's assets
to another business entity, person or group of persons that does not
specifically provide that such successor by merger or purchaser(s) of assets
shall assume and satisfy each and every obligation of the Bank to the Employee
under this Agreement. In the case of an asset sale, such assumption shall not
relieve the Bank of its liability to fulfill such obligations.
Except as otherwise provided in Sections 1, 2 or 3, as applicable, in the
event that, on or before the occurrence of the Retirement Date, the Employee's
employment with the Bank is terminated for any reason coincident with or within
twenty-four (24) months following a merger of the Bank with or into another
business entity or of an asset sale as described above, then the Employee shall
be deemed to have retired as of his Early Retirement Date and the provisions of
Section 1 shall be deemed applicable, except that the Early Retirement Date
shall be deemed to be the date that such merger or asset sale shall be
consummated.
Section 7. Benefits Payable Only From General Corporate Assets; Unsecured
--------- --------------------------------------------------------------
General Creditor Status of Employee.
- -----------------------------------
The payments to the Employee or his Beneficiaries hereunder shall be made
from assets which shall continue, for all purposes, to be a part of the general,
unrestricted assets of the Bank; no person shall have nor acquire any interest
in any such assets by virtue of the provisions of this Agreement. The Bank's
obligations hereunder shall be an unfunded and unsecured promise to pay money in
the future. To the extent that the Employee or any person acquires a right to
receive payments from the Bank under the provisions hereof, such right shall be
no greater than the right of any unsecured general creditor of the Bank; no such
person shall have nor require any legal or equitable right, interest or claim in
or to any property or assets of the Bank.
In the event that, in its discretion, the Bank purchases an insurance
policy or policies insuring the life of the Employee (or any other property) in
order to allow the Bank to recover the cost of providing the benefits, in whole,
or in part, hereunder, neither the Employee nor any Beneficiary shall have the
rights whatsoever therein or in the proceeds therefrom. The Bank shall be the
sole owner and beneficiary of any such policy or policies and, as such, shall
possess and, may exercise all incidents of ownership therein.
Section 8. Additional Benefits. The benefits and rights provided under
--------- -------------------
this Agreement are in addition to, and independent of, those rights and benefits
of the Employee provided under other agreements with the Bank, and shall not
affect, reduce or diminish the right of Employee to participate in any current
or future retirement plan or in any supplemental compensation arrangement.
3
<PAGE>
Section 9. No Contract of Employment. Nothing contained herein shall be
--------- -------------------------
construed to be a contract of employment or as conferring upon the Employee the
right to continue to be employed by the Bank. It is expressly understood by the
parties hereto that this Agreement relates exclusively to additional
compensation for the Employee's services, payable after termination of his
employment with the Bank, and is not intended to be an employment agreement.
Secton 10. Claims and Review Procedures.
--------- ----------------------------
A. General. For the purposes of implementing a claims procedure under
-------
this Agreement as required by the Employee Retirement Income Security Act of
1974 ("ERISA") (but not for any other purpose), the Bank is hereby designated as
the named fiduciary and Plan Administrator of this unfunded, nonqualified
deferred compensation plan. If any person believes he is being denied any rights
or benefits under the Agreement, such person may file a claim in writing with
the Plan Administrator for resolution in accordance with the provisions of
Paragraph B of this Section 10.
B. Claims Procedure. If any claim filed hereunder is wholly or
----------------
partially denied, the Plan Administrator will notify the claimant of its
decision in writing. Such notification will be written in a manner calculated to
be understood by the claimant and will contain:
(i) specific reasons for the denial,
(ii) specific reference to pertinent provisions of the Agreement on
which the Plan Administrator based its denial,
(iii) a description of any additional material or information
necessary for the claimant to perfect such claim and an
explanation of why such material or information is necessary,
and
(iv) information as to the steps to be taken if the claimant wishes
to submit a request for review.
Such notification will be given within ninety (90) days after the
claim is received by the Plan Administrator (or within 180 days, if
special circumstances require an extension of time for processing the
claim, and if written notice of such extension and circumstances is
given to the claimant within the initial ninety (90) day period). If
such notification is not given within such period, the claim will be
considered denied as of the last day of such period and the claimant
may request a review of his claim in accordance with Section 10.C.
hereof.
C. Review Procedure. Within sixty (60) days after the date on which a
----------------
claimant receives a written notice of a denied claim (or, if
applicable, within sixty (60) days
4
<PAGE>
after the date on which such denial is considered to have occurred)
the claimant (or his duly authorized representative) may:
(i) file a written request with the Plan Administrator for a review
of his denied claim and of pertinent documents; and
(ii) submit written issues and comments to the Plan Administrator.
The Plan Administrator will notify the claimant of its decision in
writing. Such notification will be written in a manner calculated to
be understood by the claimant and will contain specific reasons for
the decision as well as specific references to perti nent provisions
of the Agreement. The decision on review will be made within sixty
(60) days after the request for review is received by the Plan
Administrator (or within one hundred twenty (120) days, if special
circumstances require an extension of time for processing the request
(such as an election by the Plan Administrator to hold a hearing), and
if written notice of such extension and circumstances is given to the
claimant within the initial sixty (60) day period.
Section 11. Amendment. This Agreement may not be amended, altered or
---------- ---------
modified, except by a written instrument signed by the parties hereto or their
respective successors, and may not be otherwise terminated except as provided
herein.
Section 12. Governing Law. This Agreement, and the rights of the parties
---------- -------------
hereunder, shall be governed by and construed in accordance with the laws of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Supplemental Income Plan Agreement as of the day and year first written above.
HOME SAVINGS BANK, SSB
Attest: By: /s/ William L. Wall
-------------------------------------
William L. Wall
/s/ Ruby Adams Title: Executive Vice President
- --------------------------
Ruby Adams
Secretary
[Corporate Seal] EMPLOYEE:
/s/ Thomas A. Vann
---------------------------------------------
Thomas A. Vann
5
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
FULL YEARS OF EMPLOYMENT
AFTER JANUARY 1, 1994 ADJUSTED ANNUAL PAYMENT
--------------------- -----------------------
<S> <C>
1 $ 40,000
2 42,000
3 44,100
4 46,305
5 48,620
6 51,051
7 53,603
8 56,284
9 59,098
10 62,053
11 65,155
12 68,413
13 71,834
14 75,425
15 79,197
16 83,157
17 87,315
18 91,680
19 96,265
20 101,078
21 106,132
</TABLE>
<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
PERCENTAGE OF THE ANNUAL
INSTALLMENT PAYMENT STATED
IN SECTION 1 OF THIS AGREEMENT
FULL YEARS OF EMPLOYMENT TO WHICH THE EMPLOYEE
AFTER JANUARY 1, 1994 IS ENTITLED
------------------------ ------------------------------
<S> <C>
1 10%
2 20
3 30
4 40
5 50
6 60
7 70
8 80
9 90
10 100
</TABLE>
<PAGE>
AMENDED AND RESTATED
SUPPLEMENTAL INCOME PLAN AGREEMENT
THIS AMENDED AND RESTATED SUPPLEMENTAL INCOME PLAN AGREEMENT, made and
entered into the 4th day of November, 1994 and amended and restated this 14th
day of December, 1995, by and between Home Savings Bank, SSB, a mutual state
savings bank organized and existing under the laws of the State of North
Carolina (the "Bank"), and William L. Wall, (the "Employee").
W I T N E S S E T H:
WHEREAS, the Employee is employed by the Bank;
WHEREAS, the Bank recognizes the valuable services heretofore performed for
it by the Employee and wishes to encourage his continued employment;
WHEREAS, the Employee wishes to be assured that he will be entitled to a
certain amount of additional compensation for some definite period of time from
and after the termination of his employment with the Bank and that his
beneficiary will be entitled to a death benefit from and after the Employee's
death;
WHEREAS, the parties hereto wish to provide the terms and conditions upon
which the Bank shall pay such additional compensation to the Employee after the
termination of his employment with the Bank or such death benefit to his
beneficiary after the Employee's death; and
WHEREAS, the parties desire to amend the Agreement and to restate the
Agreement as amended.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the parties hereto agree as follows:
Section 1. Retirement Benefits. Except as otherwise specifically provided
--------- -------------------
herein, if the Employee shall remain in the employment of the Bank until he
attains the age of 65 (the "Retirement Date") or such earlier date as the
parties hereto agree (the "Early Retirement Date"), the Bank shall pay the
Employee the sum of $20,000.00 per annum for a period of fifteen (15) years,
payable in equal monthly installments, commencing on a date to be determined by
the Bank, but in no event later than the first day of the sixth calendar month
following the calendar month in which the Retirement Date or Early Retirement
Date, as applicable, occurs.
Section 2. Post-Retirement Death Benefits. In the event that the Employee
--------- ------------------------------
should die after becoming entitled to receive payments under Section 1 but
before all such payments have been made, the Bank will make all remaining
payments to such beneficiary or beneficiaries as the Employee has designated to
the Bank in writing (the "Beneficiaries"). In the event of the death of the
last living Beneficiary before all unpaid payments have been made, the balance
of any payments
<PAGE>
which remain unpaid at the time of the death of such Beneficiary shall be
commuted on the basis of six percent (6%) per annum compounded interest and
shall be paid in a single sum to the estate of the last Beneficiary to die. In
the absence of such beneficiary designation, any amount remaining unpaid at the
Employee's death shall be commuted on the basis of six percent (6%) per annum
compounded interest and shall be paid in a single sum to the Employee's estate.
Section 3. Pre-Retirement Death Benefits. In the event of the death of
--------- -----------------------------
the Employee while employed by the Bank and before the Retirement Date or Early
Retirement Date, the Bank shall make the payments described in Section 1 above
to the Beneficiaries. The first monthly payment shall be made on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the month in which the Employee died. In the event of
the death of the last living Beneficiary before all the payments have been made,
the balance of any payments which remain unpaid at the time of such
Beneficiary's death shall be commuted on the basis of six percent (6%) per annum
compounded interest and shall be paid in a single sum to the estate of the last
Beneficiary to die. In the absence of any such beneficiary designation, any
amount remaining unpaid at the Employee's death shall be commuted on the basis
of six percent (6%) per annum compounded interest and shall be paid in a single
sum to the Employee's estate. Notwithstanding the foregoing, if the Employee
dies as a result of suicide on or before November 4, 1996, no benefits of
whatever nature shall be payable to the Beneficiaries under this Agreement.
Section 4. Termination Benefits. Except as otherwise provided in Section
--------- --------------------
1 with respect to retirement at the Early Retirement Date and in Section 6 with
respect to termination of employment by the Bank in certain circumstances, in
the event that the employment of the Employee terminates prior to the time he is
first entitled to receive payments under this Agreement for any reason other
than his death, the Employee or his Beneficiaries, as applicable, shall be
entitled, upon the occurrence of the Employee's 58th birthday or prior death, to
receive the percentage of the applicable annual payment described in Section 1
above determined by Exhibit A attached hereto and incorporated herein by
reference. Such payments shall be made in equal monthly installments, with the
first monthly installment commencing on a date to be determined by the Bank, but
in no event later than the first day of the sixth calendar month following the
calendar month of the Employee's 58th birthday or death, as applicable, occurs.
Section 5. Benefits Not Transferable. Neither the Employee, any
--------- -------------------------
Beneficiary nor any other person claiming any right or interest under this
Agreement through the Employee or any Beneficiary shall have any right to
commute, assign, transfer or otherwise convey the right to receive any benefits
hereunder.
Section 6. Binding Upon Successors. This Agreement and the Bank's
--------- -----------------------
obligations hereunder shall be binding upon the Bank's successors and permitted
assigns. The Bank may not assign its rights or obligations under this Agreement
without the Employee's prior written consent. In addition, the Bank shall not
enter into any agreement providing for the merger of the Bank with and into
another business entity or the sale of more than a majority of the Bank's assets
to another business entity, person or group of persons that does not
specifically provide that such successor by
2
<PAGE>
merger or purchaser(s) of assets shall assume and satisfy each and every
obligation of the Bank to the Employee under this Agreement. In the case of an
asset sale, such assumption shall not relieve the Bank of its liability to
fulfill such obligations.
Except as otherwise provided in Sections 1, 2 or 3, as applicable, in the
event that, on or before the occurrence of the Retirement Date, the Employee's
employment with the Bank is terminated for any reason coincident with or within
twenty-four (24) months following a merger of the Bank with or into another
business entity or of an asset sale as described above, then the Employee shall
be deemed to have retired as of his Early Retirement Date and the provisions of
Section 1 shall be deemed applicable, except that the Early Retirement Date
shall be deemed to be the date that such merger or asset sale shall be
consummated.
Section 7. Benefits Payable Only From General Corporate Assets; Unsecured
--------- --------------------------------------------------------------
General Creditor Status of Employee.
- -----------------------------------
The payments to the Employee or his Beneficiaries hereunder shall be made
from assets which shall continue, for all purposes, to be a part of the general,
unrestricted assets of the Bank; no person shall have nor acquire any interest
in any such assets by virtue of the provisions of this Agreement. The Bank's
obligations hereunder shall be an unfunded and unsecured promise to pay money in
the future. To the extent that the Employee or any person acquires a right to
receive payments from the Bank under the provisions hereof, such right shall be
no greater than the right of any unsecured general creditor of the Bank; no such
person shall have nor require any legal or equitable right, interest or claim in
or to any property or assets of the Bank.
In the event that, in its discretion, the Bank purchases an insurance
policy or policies insuring the life of the Employee (or any other property) in
order to allow the Bank to recover the cost of providing the benefits, in whole,
or in part, hereunder, neither the Employee nor any Beneficiary shall have the
rights whatsoever therein or in the proceeds therefrom. The Bank shall be the
sole owner and beneficiary of any such policy or policies and, as such, shall
possess and, may exercise all incidents of ownership therein.
Section 8. Additional Benefits. The benefits and rights provided under
--------- -------------------
this Agreement are in addition to, and independent of, those rights and benefits
of the Employee provided under other agreements with the Bank, and shall not
affect, reduce or diminish the right of Employee to participate in any current
or future retirement plan or in any supplemental compensation arrangement.
Section 9. No Contract of Employment. Nothing contained herein shall be
--------- -------------------------
construed to be a contract of employment or as conferring upon the Employee the
right to continue to be employed by the Bank. It is expressly understood by the
parties hereto that this Agreement relates exclusively to additional
compensation for the Employee's services, payable after termination of his
employment with the Bank, and is not intended to be an employment agreement.
3
<PAGE>
Section 10. Claims and Review Procedures.
---------- ----------------------------
A. General. For the purposes of implementing a claims procedure under
-------
this Agreement as required by the Employee Retirement Income Security
Act of 1974 ("ERISA") (but not for any other purpose), the Bank is
hereby designated as the named fiduciary and Plan Administrator of
this unfunded, nonqualified deferred compensation plan. If any person
believes he is being denied any rights or benefits under the
Agreement, such person may file a claim in writing with the Plan
Administrator for resolution in accordance with the provisions of
Paragraph B of this Section 10.
B. Claims Procedure. If any claim filed hereunder is wholly or partially
----------------
denied, the Plan Administrator will notify the claimant of its
decision in writing. Such notification will be written in a manner
calculated to be understood by the claimant and will contain:
(i) specific reasons for the denial,
(ii) specific reference to pertinent provisions of the Agreement on
which the Plan Administrator based its denial,
(iii) a description of any additional material or information
necessary for the claimant to perfect such claim and an
explanation of why such material or information is necessary,
and
(iv) information as to the steps to be taken if the claimant wishes
to submit a request for review.
Such notification will be given within ninety (90) days after the
claim is received by the Plan Administrator (or within 180 days, if
special circumstances require an extension of time for processing the
claim, and if written notice of such extension and circumstances is
given to the claimant within the initial ninety (90) day period). If
such notification is not given within such period, the claim will be
considered denied as of the last day of such period and the claimant
may request a review of his claim in accordance with Section 10.C.
hereof.
C. Review Procedure. Within sixty (60) days after the date on which a
----------------
claimant receives a written notice of a denied claim (or, if
applicable, within sixty (60) days after the date on which such denial
is considered to have occurred) the claimant (or his duly authorized
representative) may:
(i) file a written request with the Plan Administrator for a
review of his denied claim and of pertinent documents; and
4
<PAGE>
(ii) submit written issues and comments to the Plan Administrator.
The Plan Administrator will notify the claimant of its decision in
writing. Such notification will be written in a manner calculated to
be understood by the claimant and will contain specific reasons for
the decision as well as specific references to perti nent provisions
of the Agreement. The decision on review will be made within sixty
(60) days after the request for review is received by the Plan
Administrator (or within one hundred twenty (120) days, if special
circumstances require an extension of time for processing the request
(such as an election by the Plan Administrator to hold a hearing), and
if written notice of such extension and circumstances is given to the
claimant within the initial sixty (60) day period.
Section 11. Amendment. This Agreement may not be amended, altered or
---------- ---------
modified, except by a written instrument signed by the parties hereto or their
respective successors, and may not be otherwise terminated except as provided
herein.
Section 12. Governing Law. This Agreement, and the rights of the parties
---------- -------------
hereunder, shall be governed by and construed in accordance with the laws of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Supplemental Income Plan Agreement as of the day and year first written above.
HOME SAVINGS BANK, SSB
Attest: By: /s/ Thomas A. Vann
-----------------------------------
Thomas A. Vann
/s/ Ruby Adams Title: President
- --------------------------------
Ruby Adams
Secretary
[Corporate Seal] EMPLOYEE:
/s/ William L. Wall
----------------------------------------
William L. Wall
5
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
PERCENTAGE OF THE ANNUAL
INSTALLMENT PAYMENT STATED
IN SECTION 1 OF THIS AGREEMENT
FULL YEARS OF EMPLOYMENT TO WHICH THE EMPLOYEE
AFTER NOVEMBER 4, 1994 IS ENTITLED
---------------------- ------------------------------
<S> <C>
1 10%
2 20
3 30
4 40
5 50
6 60
7 70
8 80
9 90
10 100
</TABLE>
<PAGE>
SUPPLEMENTAL INCOME PLAN AGREEMENT
THIS AGREEMENT, made and entered into the 1st day of March, 1996, by and
between Home Savings Bank, SSB, a mutual state savings bank organized and
existing under the laws of the State of North Carolina (the "Bank"), and Walter
P. house, (the "Employee").
W I T N E S S E T H:
WHEREAS, the Employee is employed by the Bank;
WHEREAS, the Bank recognizes the valuable services heretofore performed for
it by the Employee and wishes to encourage his continued employment;
WHEREAS, the Employee wishes to be assured that he will be entitled to a
certain amount of additional compensation for some definite period of time from
and after the termination of his employment with the Bank and that his
beneficiary will be entitled to a death benefit from and after the Employee's
death;
WHEREAS, the parties hereto wish to provide the terms and conditions upon
which the Bank shall pay such additional compensation to the Employee after the
termination of his employment with the Bank or such death benefit to his
beneficiary after the Employee's death.
WHEREAS, the parties desire to amend the Agreement and to restate the
Agreement as amended.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the parties hereto agree as follows:
Section 1. Retirement Benefits. Except as otherwise specifically provided
--------- -------------------
herein, if the Employee shall remain in the employment of the Bank until he
attains the age of 65 (the "Retirement Date") or such earlier date as the
parties hereto agree (the "Early Retirement Date"), the Bank shall pay the
Employee a minimum sum of $10,000.00 per annum for a period of fifteen (15)
years, payable in equal monthly installments, commencing on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Retirement Date or
Early Retirement Date, as applicable, occurs.
<PAGE>
Section 2. Post-Retirement Death Benefits. In the event that the Employee
--------- ------------------------------
should die after becoming entitled to receive payments under Section 1 but
before all such payments have been made, the Bank will make all remaining
payments to such beneficiary or beneficiaries as the Employee has designated to
the Bank in writing (the "Beneficiaries"). In the event of the death of the
last living Beneficiary before all unpaid payments have been made, the balance
of any payments which remain unpaid at the time of the death of such Beneficiary
shall be commuted on the basis of six percent (6%) per annum compounded interest
and shall be paid in a single sum to the estate of the last Beneficiary to die.
In the absence of such beneficiary designation, any amount remaining unpaid at
the Employee's death shall be commuted on the basis of six percent (6%) per
annum compounded interest and shall be paid in a single sum to the Employee's
estate.
Section 3. Pre-Retirement Death Benefits. In the event of the death of
--------- -----------------------------
the Employee while employed by the Bank and before the Retirement Date or Early
Retirement Date, the Bank shall make the payments described in Section 1 above
to the Beneficiaries. The first monthly payment shall be made on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the month in which the Employee died. In the event of
death of the last living Beneficiary before all the payments have been made, the
balance of any payments which remain unpaid at the time of such Beneficiary's
death shall be commuted on the basis of six percent (6%) per annum compounded
interest and shall be paid in a single sum to the estate of the last Beneficiary
to die. In the absence of any such beneficiary designation, any amount remaining
unpaid at the Employee's death shall be commuted on the basis of six percent
(6%) per annum compounded interest and shall be paid in a single sum to the
Employee's estate. Notwithstanding the foregoing, if the Employee dies as a
result of suicide on or before February 28, 1998, no benefits of whatever nature
shall be payable to the Beneficiaries under this Agreement.
Section 4. Termination Benefits. Except as otherwise provided in Section
--------- --------------------
1 with respect to retirement at the Early Retirement Date and in Section 6 with
respect to termination of employment by the Bank in certain circumstances, in
the event that the employment of the Employee terminates prior to the time he is
first entitled to receive payments under this Agreement for any reason other
than his death, the Employee or his Beneficiaries, as applicable, shall be
entitled, upon the occurrence of the Employee's 60th birthday or prior death, to
receive the percentage of the applicable annual payment described in Section 1
above determined by Exhibit A attached hereto and incorporated herein by
reference. Such payments shall be made in equal monthly installments, with the
first monthly installment commencing on a date to be determined by the Bank, but
in no event later than the first day of the sixth calendar month following the
calendar month of the Employee's 60th birthday or death, as applicable, occurs.
Section 5. Benefits Not Transferable. Neither the Employee, any
--------- -------------------------
Beneficiary nor any other person claiming any right or interest under this
Agreement through the Employee or any Beneficiary shall have any right to
commute, assign, transfer or otherwise convey the right to receive any benefits
hereunder.
2
<PAGE>
Section 6. Binding Upon Successors. This Agreement and the Bank's
--------- -----------------------
obligations hereunder shall be binding upon the Bank's successors and permitted
assigns. The Bank may not assign its rights or obligations under this Agreement
without the Employee's prior written consent. In addition, the Bank shall not
enter into any agreement providing for the merger of the Bank with and into
another business entity or the sale of more than a majority of the Bank's assets
to another business entity, person or group of persons that does not
specifically provide that such successor by merger or purchaser(s) of assets
shall assume and satisfy each and every obligation of the Bank to the Employee
under this Agreement. In the case of an asset sale, such assumption shall not
relieve the Bank of its liability to fulfill such obligations.
Except as otherwise provided in Sections 1, 2 or 3, as applicable, in the
event that, on or before the occurrence of the Retirement Date, the Employee's
employment with the Bank is terminated for any reason coincident with or within
twenty-four (24) months following a merger of the Bank with or into another
business entity or of an asset sale as described above, then the Employee shall
be deemed to have retired as of his Early Retirement Date and the provisions of
Section 1 shall be deemed applicable, except that the Early Retirement Date
shall be deemed to be the date that such merger or asset sale shall be
consummated.
Section 7. Benefits Payable Only From General Corporate Assets; Unsecured
--------- --------------------------------------------------------------
General Creditor Status of Employee.
- ------------------------------------
The payments to the Employee or his Beneficiaries hereunder shall be made
from assets which shall continue, for all purposes, to be a part of the general,
unrestricted assets of the Bank; no person shall have nor acquire any interest
in any such assets by virtue of the provisions of this Agreement. The Bank's
obligations hereunder shall be an unfunded and unsecured promise to pay money in
the future. To the extent that the Employee or any person acquires a right to
receive payments from the Bank under the provisions hereof, such right shall be
no greater than the right of any unsecured general creditor of the Bank; no such
person shall have nor require any legal or equitable right, interest or claim in
or to any property or assets of the Bank.
In the event that, in its discretion, the Bank purchases an insurance
policy or policies insuring the life of the Employee (or any other property) in
order to allow the Bank to recover the cost of providing the benefits, in whole,
or in part, hereunder, neither the Employee nor any beneficiary shall have the
rights whatsoever therein or in the proceeds therefrom. The Bank shall be the
sole owner and beneficiary of any such policy or policies and, as such, shall
possess and, may exercise all incidents of ownership therein.
Section 8. Additional Benefits. The benefits and rights provided under
--------- -------------------
this Agreement are in addition to, and independent of, those rights and benefits
of the Employee provided under other agreements with the Bank, and shall not
affect, reduce or diminish the right of Employee to participate in any current
or future retirement plan or in any supplemental compensation arrangement.
3
<PAGE>
Section 9. No Contract of Employment. Nothing contained herein shall be
--------- -------------------------
construed to be a contract of employment or as conferring upon the Employee the
right to continue to be employed by the Bank. It is expressly understood by the
parties hereto that this Agreement relates exclusively to additional
compensation for the Employee's services, payable after termination of his
employment with the Bank, and is not intended to be an employment agreement.
Secton 10. Claims and Review Procedures.
--------- -----------------------------
A. General. For the purposes of implementing a claims procedure under
-------
this Agreement as required by the Employee Retirement Income Security
Act of 1974 ("ERISA") (but not for any other purpose), the Bank is
hereby designated as the named fiduciary and Plan Administrator of
this unfunded, nonqualified deferred compensation plan. If any person
believes he is being denied any rights or benefits under the
Agreement, such person may file a claim in writing with the Plan
Administrator for resolution in accordance with the provisions of
Paragraph B of this Section 10.
B. Claims Procedure. If any claim filed hereunder is wholly or partially
----------------
denied, the Plan Administrator will notify the claimant of its
decision in writing. Such notification will be written in a manner
calculated to be understood by the claimant and will contain:
(i) specific reasons for the denial,
(ii) specific reference to pertinent provisions of the Agreement on
which the Plan Administrator based its denial,
(iii) a description of any additional material or information
necessary for the claimant to perfect such claim and an
explanation of why such material or information is necessary,
and
(iv) information as to the steps to be taken if the claimant wishes
to submit a request for review.
Such notification will be given within ninety (90) days after the
claim is received by the Plan Administrator (or within 180 days, if
special circumstances require an extension of time for processing the
claim, and if written notice of such extension and circumstances is
given to the claimant within the initial ninety (90) day period). If
such notification is not given within such period, the claim will be
considered denied as of the last day of such period and the claimant
may request a review of his claim in accordance with Section 10.C.
hereof.
4
<PAGE>
C. Review Procedure. Within sixty (60) days after the date on which a
----------------
claimant receives a written notice of a denied claim (or, if
applicable, within sixty (60) days after the date on which such denial
is considered to have occurred) the claimant (or his duly authorized
representative) may:
(i) file a written request with the Plan Administrator for a review
of his denied claim and of pertinent documents; and
(ii) submit written issues and comments to the Plan Administrator.
The Plan Administrator will notify the claimant of its decision in
writing. Such notification will be written in a manner calculated to
be understood by the claimant and will contain specific reasons for
the decision as well as specific references to pertinent provisions of
the Agreement. The decision on review will be made within sixty (60)
days after the request for review is received by the Plan
Administrator (or within one hundred twenty (120) days, if special
circumstances require an extension of time for processing the request
(such as an election by the Plan Administrator to hold a hearing), and
if written notice of such extension and circumstances is given to the
claimant within the initial sixty (60) day period.
Section 11. Amendment. This Agreement may not be amended, altered or
---------- ---------
modified, except by a written instrument signed by the parties hereto or their
respective successors, and may not be otherwise terminated except as provided
herein.
Section 12. Governing Law. This Agreement, and the rights of the parties
---------- -------------
hereunder, shall be governed by and construed in accordance with the laws of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Supplemental Income Plan
Agreement as of the day and year first written above.
HOME SAVINGS BANK, SSB
Attest: By: /s/ Thomas A. Vann
----------------------------------
Thomas A. Vann
/s/ William L. Wall Title: President
- ----------------------------
William L. Wall
Secretary
[Corporate Seal] EMPLOYEE:
/s/ Walter P. House
----------------------------------------
Walter P. House
5
<PAGE>
EXHIBIT A
PERCENTAGE OF THE ANNUAL
INSTALLMENT PAYMENT STATED
IN SECTION 1 OF THIS AGREEMENT
FULL YEARS OF EMPLOYMENT TO WHICH THE EMPLOYEE
AFTER MARCH 31, 1996 IS ENTITLED
-------------------- ------------------------------
1 10%
2 20
3 30
4 40
5 50
6 60
7 70
8 80
9 90
10 100
<PAGE>
SUPPLEMENTAL INCOME PLAN AGREEMENT
THIS AGREEMENT, made and entered into the 1st day of March, 1996, by and
between Home Savings Bank, SSB, a mutual state savings bank organized and
existing under the laws of the State of North Carolina (the "Bank"), and James
F. Buckman, IV., (the "Employee")
W I T N E S S E T H:
WHEREAS, the Employee is employed by the Bank;
WHEREAS, the Bank recognizes the valuable services heretofore performed for
it by the Employee and wishes to encourage his continued employment;
WHEREAS, the Employee wishes to be assured that he will be entitled to a
certain amount of additional compensation for some definite period of time from
and after the termination of his employment with the Bank and that his
beneficiary will be entitled to a death benefit from and after the Employee's
death;
WHEREAS, the parties hereto wish to provide the terms and conditions upon
which the Bank shall pay such additional compensation to the Employee after the
termination of his employment with the Bank or such death benefit to his
beneficiary after the Employee's death.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the parties hereto agree as follows:
Section 1. Retirement Benefits. Except as otherwise specifically provided
--------- -------------------
herein, if the Employee shall remain in the employment of the Bank until he
attains the age of 65 (the "Retirement Date") or such earlier date as the
parties hereto agree (the "Early Retirement Date"), the Bank shall pay the
Employee a minimum sum of $10,000.00 per annum for a period of fifteen (15)
years, payable in equal monthly installments, commencing on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Retirement Date or
Early Retirement Date, as applicable, occurs.
<PAGE>
Section 2. Post-Retirement Death Benefits. In the event that the Employee
--------- ------------------------------
should die after becoming entitled to receive payments under Section 1 but
before all such payments have been made, the Bank will make all remaining
payments to such beneficiary or beneficiaries as the Employee has designated to
the Bank in writing (the "Beneficiaries"). In the event of death of the last
living Beneficiary before all unpaid payments have been made, the balance of any
payments which remain unpaid at the time of the death of such Beneficiary shall
be commuted on the basis of six percent (6%) per annum compounded interest and
shall be paid in a single sum to the estate of the last Beneficiary to die. In
the absence of such beneficiary designation, any amount remaining unpaid at the
Employee's death shall be commuted on the basis of six percent (6%) per annum
compounded interest and shall be paid in a single sum to the Employee's estate.
Section 3. Pre-Retirement Death Benefits. In the event of the death of
--------- -----------------------------
the Employee while employed by the Bank and before the Retirement Date or Early
Retirement Date, the Bank shall make the payments described in Section 1 above
to the Beneficiaries. The first monthly payment shall be made on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the month in which the Employee died. In the event of
death of the last living Beneficiary before all the payments have been made,
the balance of any payments which remain unpaid at the time of such
Beneficiary's death shall be commuted on the basis of six percent (6%) per annum
compounded interest and shall be paid in a single sum to the estate of the last
Beneficiary to die. In the absence of any such beneficiary designation, any
amount remaining unpaid at the Employee's death shall be commuted on the basis
of six percent (6%) per annum compounded interest and shall be paid in a single
sum to the Employee's estate. Notwithstanding the foregoing, if the Employee
dies as a result of suicide on or before February 28, 1996, no benefits of
whatever nature shall be payable to the Beneficiaries under this Agreement.
Section 4. Termination Benefits. Except as otherwise provided in Section
--------- --------------------
1 with respect to retirement at the Early Retirement Date and in Section 6 with
respect to termination of employment by the Bank in certain circumstances, in
the event that the employment of the Employee terminates prior to the time he is
first entitled to receive payments under this Agreement for any reason other
than his death, the Employee or his Beneficiaries, as applicable, shall be
entitled, upon the occurrence of the Employee's 60th birthday or prior death, to
receive the percentage of the applicable annual payment described in Section 1
above determined by Exhibit A attached hereto and incorporated herein by
reference. Such payments shall be made in equal monthly installments, with the
first monthly installment commencing on a date to be determined by the Bank, but
in no event later than the first day of the sixth calendar month following the
calendar month of the Employee's 60th birthday or death, as applicable, occurs.
Section 5. Benefits Not Transferable. Neither the Employee, any
--------- -------------------------
Beneficiary nor any other person claiming any right or interest under this
Agreement through the Employee or any other Beneficiary shall have any right
to commute, assign, transfer or otherwise convey the right to receive any
benefits hereunder.
2
<PAGE>
Section 6. Binding Upon Successors. This Agreement and the Bank's
--------- -----------------------
obligations hereunder shall be binding upon the Bank's successors and permitted
assigns. The Bank may not assign its rights or obligations under this Agreement
without the Employee's prior written consent. In addition, the Bank shall not
enter into any agreement providing for the merger of the Bank with and into
another business entity or the sale of more than a majority of the Bank's assets
to another business entity, person or group of persons that does not
specifically provide that such successor by merger or purchaser(s) of assets
shall assume and satisfy each and every obligation of the Bank to the Employee
under this Agreement. In the case of an asset sale, such assumption shall not
relieve the Bank of its liability to fulfill such obligations.
Except as otherwise provided in Sections 1, 2 or 3, as applicable, in the
event that, on or before the occurrence of the Retirement Date, the Employee's
employment with the Bank is terminated for any reason coincident with or within
twenty-four (24) months following a merger of the Bank with or into another
business entity or of an asset sale as described above, then the Employee shall
be deemed to have retired as of his Early Retirement Date and the provisions of
Section 1 shall be deemed applicable, except that the Early Retirement Date
shall be deemed to be the date that such merger or asset sale shall be
consummated.
Section 7. Benefits Payable Only from General Corporate Assets; Unsecured
--------- --------------------------------------------------------------
General Creditor Status of Employee.
- -----------------------------------
The payments to the Employee or his Beneficiaries hereunder shall be made
from assets which shall continue, for all purposes, to be a part of the general,
unrestricted assets of the Bank; no person shall have nor acquire any interest
in any such assets by virtue of the provisions of this Agreement. The Bank's
obligations hereunder shall be an unfunded and unsecured promise to pay money in
the future. To the extent that the Employee or any person acquires a right to
receive payments from the Bank under the provisions hereof, such right shall be
no greater than the right of any unsecured general creditor of the Bank; no such
person shall have nor require any legal or equitable right, interest or claim in
or to any property or assets of the Bank.
In the event that, in its discretion, the Bank purchases an insurance
policy or policies insuring the life of the Employee (or any other property) in
order to allow the Bank to recover the cost of providing the benefits, in whole,
or in part, hereunder, neither the Employee nor any beneficiary shall have the
rights whatsoever therein or in the proceeds therefrom. The Bank shall be the
sole owner and beneficiary of any such policy or policies and, as such, shall
possess and, may exercise all incidents of ownership therein.
Section 8. Additional Benefits. The benefits and rights provided under
--------- -------------------
this Agreement are in addition to, and independent of, those rights and benefits
of the Employee provided under other agreements with the Bank, and shall not
affect, reduce or diminish the right of Employee to participate in any current
or future retirement plan or in any supplemental compensation arrangement.
3
<PAGE>
Section 9. No Contract of Employment. Nothing contained herein shall be
--------- -------------------------
construed to be a contract of employment or as conferring upon the Employee the
right to continue to be employed by the Bank. It is expressly understood by the
parties hereto that this Agreement relates exclusively to additional
compensation for the Employee's services, payable after termination of his
employment with the Bank, and is not intended to be an employment agreement.
Secton 10. Claims and Review Procedures.
--------- ----------------------------
A. General. For the purposes of implementing a claims procedure under
-------
this Agreement as required by the Employee Retirement Income Security
Act of 1974 ("ERISA") (but not for any other purpose), the Bank is
hereby designated as the named fiduciary and Plan Administrator of
this unfunded, nonqualified deferred compensation plan. If any person
believes he is being denied any rights or benefits under the
Agreement, such person may file a claim in writing with the Plan
Administrator for resolution in accordance with the provisions of
Paragraph B of this Section 10.
B. Claims Procedure. If any claim filed hereunder is wholly or partially
----------------
denied, the Plan Administrator will notify the claimant of its
decision in writing. Such notification will be written in a manner
calculated to be understood by the claimant and will contain:
(i) specific reasons for the denial,
(ii) specific reference to pertinent provisions of the Agreement on
which the Plan Administrator based its denial,
(iii) a description of any additional material or information
necessary for the claimant to perfect such claim and an
explanation of why such material or information is necessary,
and
(iv) information as to the steps to be taken if the claimant wishes
to submit a request for review.
Such notification will be given within ninety (90) days after the
claim is received by the Plan Administrator (or within 180 days, if
special circumstances require an extension of time for processing the
claim, and if written notice of such extension and circumstances is
given to the claimant within the initial ninety (90) day period). If
such notification is not given within such period, the claim will be
considered denied as of the last day of such period and the claimant
may request a review of his claim in accordance with Section 10.C.
hereof.
4
<PAGE>
C. Review Procedure. Within sixty (60) days after the date on which a
----------------
claimant receives a written notice of a denied claim (or, if
applicable, within sixty (60) days after the date on which such denial
is considered to have occurred) the claimant (or his duly authorized
representative) may:
(i) file a written request with the Plan Administrator for a review
of his denied claim and of pertinent documents; and
(ii) submit written issues and comments to the Plan Administrator.
The Plan Administrator will notify the claimant of its decision in
writing. Such notification will be written in a manner calculated to
be understood by the claimant and will contain specific reasons for
the decision as well as specific references to pertinent provisions of
the Agreement. The decision on review will be made within sixty (60)
days after the request for review is received by the Plan
Administrator (or within one hundred twenty (120) days, if special
circumstances require an extension of time for processing the request
(such as an election by the Plan Administrator to hold a hearing), and
if written notice of such extension and circumstances is given to the
claimant within the initial sixty (60) day period.
Section 11. Amendment. This Agreement may not be amended, altered or
---------- ---------
modified, except by a written instrument signed by the parties hereto or their
respective successors, and may not be otherwise terminated except as provided
herein.
Section 12. Governing Law. This Agreement, and the rights of the parties
---------- -------------
hereunder, shall be governed by and construed in accordance with the laws of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Supplemental Income Plan
Agreement as of the day and year first written above.
HOME SAVINGS BANK, SSB
By: /s/ Thomas A. Vann
Attest: -------------------------------
Thomas A. Vann
Title: President
/s/ William L. Wall
- -------------------------------
William L. Wall
Secretary
[Corporate Seal] EMPLOYEE:
/s/ James F. Buckman, IV
---------------------------------
James F. Buckman, IV
5
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
PERCENTAGE OF THE ANNUAL
INSTALLMENT PAYMENTS STATED
IN SECTION 1 OF THIS AGREEMENT
FULL YEARS OF EMPLOYMENT TO WHICH THE EMPLOYEE
AFTER MARCH 31, 1996 IS ENTITLED
- ------------------------ ------------------------------
<S> <C>
1 10%
2 20
3 30
4 40
5 50
6 60
7 70
8 80
9 90
10 100
</TABLE>
<PAGE>
HOME SAVINGS BANK, SSB
SUPPLEMENTAL INCOME PLAN AGREEMENT
AS AMENDED AND RESTATED DECEMBER 14, 1995
____________________
1996 Amendment
____________________
WHEREAS, Home Savings Bank, SSB (the "Bank") has entered into a
Supplemental Income Plan Agreement (the "Agreement"), as amended and restated
effective December 14, 1995, with Thomas A. Vann (original Agreement effective
date January 1, 1994) and William L. Wall (original Agreement effective date
November 4, 1994); and
WHEREAS, the Bank has entered into original Agreements effective
March 1, 1996 with Jim F. Buckman and Walter P. House; and
WHEREAS, the Bank has authorized an amendment to its Agreement with
Messrs. Vann, Wall, Buckman, and House, in order to address issues arising from
the Bank's upcoming conversion from mutual to stock form;
NOW, THEREFORE, pursuant to Section 11 of the Bank's Agreements with
Messrs. Vann, Wall, Buckman, and House, each Agreement is hereby amended as
follows, effective immediately on execution hereof:
1. The introductory clause of the first sentence of Section 1 of each
Agreement shall be amended in its entirety to provide as follows (with italics
herein identifying material new text):
Except as otherwise specifically provided herein, if the Employee
shall retire from employment with the Bank EITHER AT OR AFTER THE
age of 65 (the "Retirement Date") OR AT OR AFTER THE AGE OF 55
WITH AT LEAST 10 YEARS OF EMPLOYMENT WITH THE BANK (the "Early
Retirement Date"),
2. The first sentence of Section 4 of each Agreement shall be
amended in its entirety to provide as follows (with italics herein identifying
material new text):
Except as otherwise provided in Section 1 with respect to THE
EMPLOYEE'S retirement at the Early Retirement Date: in the event
that the employment of the Employee terminates prior to the time
he is first entitled to receive payments under this Agreement for
any reason other than his death, the Employee or his
Beneficiaries, as applicable, shall be entitled, upon the
occurrence of the Employee's 55th birthday or prior death, to
receive the percentage of the applicable annual payment described
in Section 1 above determined by Exhibit B attached hereto and
incorporated herein by reference.
<PAGE>
1996 Amendment
Supplememtal Income Plan Agreement
Page 2
3. The second paragraph of Section 6 of the Agreement shall be
amended in its entirety to provide as follows:
Except as otherwise provided in Sections 1, 2, or 3 as
applicable, in the event that, on or before the occurrence of an
Employee's Retirement Date or Early Retirement Date, a
"Termination of Protected Employment" occurs following a "Change
in Control" (as these terms are defined in the next two
paragraphs), then the Employee shall be deemed to have retired as
of his Early Retirement Date and the provisions of Section 1 shall
be deemed applicable, except that the Early Retirement Date shall
be deemed to be the date that such Change in Control shall occur.
4. Section 6 of the Agreement shall be amended further by adding the
following two paragraphs immediately at the end thereof:
For purposes of this Agreement, "Change in Control" shall
mean any one of the following events: (i) the acquisition of
ownership, holding, or power to vote more than 25% of the voting
stock of the Bank or NewSouth Bancorp, Inc. (the "Company"), (ii)
the acquisition of the ability to control the election of a
majority of the Bank's or the Company's directors, (iii) the
acquisition of a controlling influence over the management or
policies of the Bank or of the Company by any person or by persons
acting as a "group" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934), or (iv) during any period of two
consecutive years, individuals (the "Continuing Directors") who at
the beginning of such period constitute the Board of Directors of
the Bank or of the Company (the "Existing Board") cease for any
reason to constitute at least two-thirds thereof, provided that
any individual whose election or nomination for election as a
member of the Existing Board was approved by a vote of at least
two-thirds of the Continuing Directors then in office shall be
considered a Continuing Director. Notwithstanding the foregoing,
the Company's ownership of the Bank shall not of itself constitute
a Change in Control for purposes of the Agreement. For purposes of
this paragraph only, the term "person" refers to an individual or
a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization
or any other form of entity not specifically listed herein.
For purposes of this Agreement, a "Termination of Protected
Employment" shall occur if: (I) The Employee is terminated without
Just Cause, with "Just Cause" meaning, in the good faith
determination of the Bank's Board of Directors, the Employee's
personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, or rule or
regulation (other than traffic
<PAGE>
1996 Amendment
Supplememtal Income Plan Agreement
Page 3
violations or similar offenses) or final cease-and-desist order;
provided that no act, or failure to act, on the Employee's part shall
be considered "willful" unless he has acted, or failed to act, with an
absence of good faith and without a reasonable belief that his action
or failure to act was in the best interests of the Bank or of the
Company; or (II) the Employee voluntarily terminates employment for an
event that constitutes "Good Reason", which shall mean any of the
following events, that has not been consented to in advance by the
Employee in writing: (i) the requirement that the Employee move his
personal residence, or perform his principal executive functions, more
than 30 miles from his primary office as of the later of the Effective
Date and the most recent voluntary relocation by the Employee; (ii) a
material reduction in the Employee's base compensation in effect on
the date of the Change in Control; (iii) the failure by the Bank to
continue to provide the Employee with compensation and benefits in
effect on the date of the Change in Control, or with benefits
substantially similar to those provided to him under any of the
employee benefit plans in which the Employee now or hereafter becomes
a participant, or the taking of any action by the Bank which would
directly or indirectly reduce any of such benefits or deprive the
Employee of any material fringe benefit enjoyed by him; (iv) the
assignment to the Employee of duties and responsibilities materially
different from those normally associated with his position; (v) a
failure to reelect the Employee to the Board of Directors of the Bank,
if the Employee has served on such Board at any time during the term
of the Agreement; (vi) a material diminution or reduction in the
Employee's responsibilities or authority (including reporting
responsibilities) in connection with his employment with the Bank; or
(vii) a material reduction in the secretarial or other administrative
support of the Employee.
5. Section 7 of the Agreement shall be amended by adding the following
paragraphs immediately at the end thereof:
Notwithstanding any other provision of this Agreement that may be
contrary or inconsistent herewith, not later than ten business days
after a Change in Control, the Bank shall (i) deposit in a grantor
trust (the "Trust") that is designed in accordance with Revenue
Procedure 92-64 and has a trustee independent of the Bank, the Company
and any successor to their interest, an amount equal to the present
value of all benefits that may become payable under this Agreement,
unless the Employee has previously provided a written release of any
claims under this Agreement, and (ii) provide the trustee of the Trust
with a written direction to hold said amount and any investment return
thereon in a segregated account for the benefit of the Employee, and
to follow the procedures set forth in the next paragraph as to the
payment of such amounts from the Trust.
<PAGE>
1996 Amendment
Supplememtal Income Plan Agreement
Page 4
At any time or from time to time following a Change in Control,
the Employee may provide the trustee of the Trust with a written
schedule directing that the trustee pay to the Employee the amounts
designated in the schedule as being payable pursuant to this
Agreement. Within three business days after receiving said notice,
the trustee of the Trust shall send a copy of the notice to the Bank
via overnight and registered mail (return receipt requested). On the
fifth business day after mailing said notice to the Bank, the trustee
of the Trust shall pay the Employee the amount designated therein in
immediately available funds, unless prior thereto the Bank provides
the trustee with a written notice directing the trustee to withhold
such payment. In the latter event, the trustee shall submit the
dispute to non-appealable binding arbitration for a determination of
the amount payable to the Employee pursuant to this Agreement, and the
costs of such arbitration (including any attorneys' fees incurred by
the Employee) shall be paid by the Bank. The trustee shall choose the
arbitrator to settle the dispute, and such arbitrator shall be bound
by the rules of the American Arbitration Association in making his
determination. The parties and the trustee shall be bound by the
results of the arbitration and, within three days of the determination
by the arbitrator, the trustee shall pay from the Trust the amounts
required to be paid to the Employee and/or the Bank, and in no event
shall the trustee be liable to either party for making the payments as
determined by the arbitrator.
Upon the receipt of the Employee's written release of all claims
under this Agreement, the trustee of the Trust shall pay to the Bank
the entire balance remaining in the segregated account maintained for
the benefit of the Employee. The Employee shall thereafter have no
further interest in the Trust pursuant to this Agreement.
6. Nothing contained herein shall be held to alter, vary or affect any of
the terms, provisions, or conditions of the Agreement entered into thereunder,
other than as stated above.
<PAGE>
1996 Amendment
Supplememtal Income Plan Agreement
Page 5
WHEREFORE, on this 23rd day of October, 1996, the Bank hereby executes this
1996 Amendment to the Plan.
HOME SAVINGS BANK, SSB
By /s/ Frederick H. Howdy
----------------------------------
Its Chairman of the Board
October 23, 1996
- -------------------------------
Date Attest: William L. Wall (Seal)
---------------------
Witness:
Brenda S. Ipoch /s/ Thomas A. Vann
- ------------------------------- ------------------------------------
Thomas A. Vann
Witness:
Brenda S. Ipoch /s/ William L. Wall
- ------------------------------- ------------------------------------
William L. Wall
Witness:
Brenda S. Ipoch /s/ Walter P. House
- ------------------------------- ------------------------------------
Walter P. House
Witness:
Brenda S. Ipoch /s/ James F. Buckman, IV
- ------------------------------- ------------------------------------
Jim F. Buckman, IV
<PAGE>
EXHIBIT 10.7
AMENDED AND RESTATED
DIRECTOR'S DEFERRED COMPENSATION PLAN
AGREEMENT
THIS AMENDED AND RESTATED DIRECTOR'S DEFERRED COMPENSATION PLAN AGREEMENT,
made and entered into on the 1st day of January, 1994 and amended and restated
this the 14th day of December, 1995 (the "Agreement"), between Home Savings
Bank, SSB, a mutual state savings bank organized and existing under the laws of
the State of North Carolina (the "Bank"), and Edmund T. Buckman, Jr. (the
"Director").
W I T N E S S E T H:
WHEREAS, the Bank recognizes the valuable services heretofore performed for
it by the Director and wishes to encourage his further service and to assist him
in providing for the contingencies of retirement and death;
WHEREAS, the Director heretofore has determined to defer receipt of
director's fees in the amount of $350.00 per month for five (5) years from
January 1, 1994;
WHEREAS, the parties hereto intend that this Agreement be considered an
unfunded arrangement to provide deferred compensation benefits for the Director;
and
WHEREAS, the parties hereto desire to amend the Agreement and to restate
the Agreement as amended.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the parties hereto agree as follows:
Section 1. Deferral Election. The Director hereby elects and agrees to
--------- -----------------
defer each month the receipt by him of $350.00 in director's fees for the sixty
(60) months beginning January 1, 1994 and ending December 31, 1998. In exchange
for such agreement to defer and subject to the condition that, except as
otherwise specifically provided below, the Director remain a director of the
Bank until the Qualifying Date (as defined below), the Director shall receive
from the Bank the benefits hereinafter described.
Section 2. Retirement Benefits. The Bank agrees that, except as otherwise
--------- -------------------
specifically provided herein, upon the later to occur of the Director's 65th
birthday and January 1, 1999 (the "Qualifying Date"), the Bank will pay the
Director $513 per month for a continuous period of 120 months. Such continuous
monthly installment payments shall commence on a date to be determined by the
Bank, but in no event later than the first day of the sixth calendar month
following the calendar month in which the Qualifying Date shall occur.
Section 3. Post-Retirement Death Benefits. In the event that the Director
--------- ------------------------------
should die after becoming entitled to receive monthly installment payments under
Section 2, but before all of said
<PAGE>
installment payments shall have been made, the Bank will pay all remaining
installment payments to such beneficiary or beneficiaries as the Director has
designated in writing to the Bank ("Beneficiaries"). In the event of the death
of the last living Beneficiary before all remaining installment payments shall
have been made, the balance of any payments which remain unpaid at the time of
such Beneficiary's death shall be commuted on the basis of six percent (6%) per
annum compounded interest and shall be paid in a single sum to the estate of the
last Beneficiary to die. In the absence of such beneficiary designation, any
payments remaining unpaid at the Director's death shall be commuted on the basis
of six percent (6%) per annum compounded interest and shall be paid in a single
sum to the Director's estate.
Section 4. Pre-Retirement Death Benefits. Should the Director die while
--------- -----------------------------
serving as a director of the Bank and prior to the Qualifying Date, the Bank
will pay $513 per month for a continuous period of 120 months to the Beneficiary
or Beneficiaries. The first such monthly installment payment shall be made on a
date to be determined by the Bank, but in no event later than the first day of
the sixth calendar month following the calendar month in which the Director
died. In the event of the death of the last living Beneficiary before all
installment payments shall have been made, the balance of any payments which
remain unpaid at the time of such Beneficiary's death shall be commuted on the
basis of six percent (6%) per annum compounded interest and shall be paid in a
single sum to the estate of the last Beneficiary to die. In the absence of any
such beneficiary designation, any payments remaining unpaid at the Director's
death shall be commuted on the basis of six percent (6%) per annum compounded
interest and shall be paid in a single sum to the Director's estate.
Notwithstanding the foregoing, in the event that the Director commits suicide on
or before January 1, 1996, then no benefits shall be paid to the Beneficiary or
Beneficiaries; provided, however, that the Beneficiary or Beneficiaries shall be
entitled to receive promptly in a lump sum all director's fees deferred by the
Director under this Agreement prior to his death, plus interest thereon at a
compounded annual rate of six percent (6%).
Section 5. Termination of Benefits.
--------- -----------------------
A. If the Director voluntarily resigns as a director of the Bank on or
before January 1, 1996, the Director's benefits under this Agreement
shall be limited to the return to him of his deferred director's fees,
plus interest thereon at a compounded annual rate of six percent (6%)
per annum, which amount shall be paid in a single sum on a date to be
determined by the Bank, but in no event later than the first day of
the sixth calendar month following the calendar month in which his
service was terminated.
B. If the Director voluntarily resigns after January 1, 1996, but before
the Qualifying Date, then the Director or his Beneficiary (or
Beneficiaries) shall be entitled to a percentage of the amount of the
monthly installment payments described in Section 2 of this Agreement
determined under the following table:
2
<PAGE>
PERCENTAGE OF MONTHLY
INSTALLMENT PAYMENT DESCRIBED
FULL NUMBER OF YEARS SERVED AS IN SECTION 2 OF THIS AGREEMENT TO
DIRECTOR AFTER JANUARY 1, 1994 WHICH DIRECTOR IS ENTITLED
------------------------------ ------------------------------------
1 -0-% (Deferred Fees
Plus Interest)
2 40%
3 60%
4 80%
5 100%
Section 6. Benefits Not Transferable. Neither the Director, his
--------- -------------------------
Beneficiary or Beneficiaries nor any other person claiming any right or
interest under this Agreement through the Director or any Beneficiary shall have
any right to commute, assign, transfer or otherwise convey any right to receive
any benefits hereunder.
Section 7. Binding Upon Successors. This Agreement and the Bank's
--------- -----------------------
obligations hereunder shall be binding upon the Bank's successors and permitted
assigns. The Bank may not assign its rights or obligations under this Agreement
without the Director's prior written consent. In addition, the Bank shall not
enter into any agreement providing for the merger of the Bank with and into
another business entity or the sale of more than a majority of the Bank's assets
to another business entity, person or group persons that does not specifically
provide that such successor by merger or purchaser(s) of assets shall assume and
satisfy each and every obligation of the Bank to the Director under this
Agreement. In the case of an asset sale, such assumption shall not relieve the
Bank of its liability to fulfill such obligations.
Except as otherwise provided in Section 2, 3, 4 or 5, as applicable, in the
event that, on or before the occurrence of the Qualifying Date, the Director's
service as a director of the Bank is terminated for any reason coincident with
or within twenty-four (24) months following a merger of the Bank with or into
another business entity or of an asset sale as described above, then the
provisions of Section 2 shall be deemed applicable except that the Qualifying
Date shall be deemed to be the date that such merger or asset sale shall be
consummated.
Section 8. Benefits Payable Only From General Corporate Assets; Unsecured
--------- --------------------------------------------------------------
General Creditors Status of Director. The payments to the Director or his
- ------------------------------------
Beneficiary or Beneficiaries hereunder shall be made from assets which for all
purposes shall continue to be a part of the general, unrestricted assets of the
Bank; no person shall have any interest in any such assets by virtue of the
provisions of this Agreement. The Bank's obligations hereunder shall be an
unfunded and unsecured promise to pay in the future. To the extent that any
person acquires a right to receive payments from the Bank under the provisions
hereof, such right shall be no greater than the right of any unsecured general
creditor of the Bank; no such person shall have nor require any legal or
equitable right, interest or claim in or to any property or assets of the Bank.
In the event that, in its discretion, the Bank purchases an insurance
policy or policies insuring the life of the Director (or any other property) in
order to allow the Bank to recover the cost of providing benefits, in whole or
in part, hereunder, neither the Director nor any Beneficiary shall have any
rights whatsoever therein or in the proceeds therefrom. The Bank shall be the
sole owner and
3
<PAGE>
beneficiary of such insurance policy or policies and shall possess and may
exercise all incidents of ownership therein.
Section 9. Additional Benefits. The benefits and rights provided under
--------- -------------------
this Agreement are in addition to, and are independent of, those benefits and
rights provided under any other agreements between the parties hereto, and shall
not affect, reduce or diminish the right of the Director to participate in any
current or future benefit plan or other supplemental compensation arrangement.
Section 10. No Contract of Employment. Nothing contained herein shall be
---------- -------------------------
construed to be a contract of employment or as conferring upon the Director the
right to continue as a director of the Bank. It is expressly understood by the
parties hereto that this Agreement relates to a deferred compensation
arrangement between the Bank and the Director and is not intended to be an
employment or services agreement.
Section 11. Amendment. This Agreement may not be amended, altered or
---------- ---------
modified, except by written instrument signed by the parties hereto or their
respective successors, and may not be otherwise terminated except as provided
herein.
Section 12. Governing Law. This Agreement, and the rights of the parties
---------- -------------
hereunder, shall be governed and construed on accordance with the laws of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Director's Deferred Compensation Plan Agreement as of the day and year first
above written.
HOME SAVINGS BANK, SSB
Attest:
/s/ Ruby Adams By: /s/ Thomas A. Vann
- --------------------------- ---------------------------------
Ruby Adams Thomas A. Vann
Secretary
[Corporate Seal] Title: President
DIRECTOR:
/s/ Edmund T. Buckman, Jr. (Seal)
--------------------------------
Edmund T. Buckman, Jr.
4
<PAGE>
AMENDED AND RESTATED
DIRECTOR'S DEFERRED COMPENSATION PLAN
AGREEMENT
THIS AMENDED AND RESTATED DIRECTOR'S DEFERRED COMPENSATION PLAN AGREEMENT,
made and entered into on the 1st day of January, 1994 and amended and restated
this the 14th day of December, 1995 (the "Agreement"), between Home Savings
Bank, SSB, a mutual state savings bank organized and existing under the laws of
the State of North Carolina (the "Bank"), and Linley H. Gibbs, Jr. (the
"Director").
W I T N E S S E T H:
WHEREAS, the Bank recognizes the valuable services heretofore performed for
it by the Director and wishes to encourage his further service and to assist him
in providing for the contingencies of retirement and death;
WHEREAS, the Director heretofore has determined to defer receipt of
director's fees in the amount of $350.00 per month for five (5) years from
January 1, 1994;
WHEREAS, the parties hereto intend that this Agreement be considered an
unfunded arrangement to provide deferred compensation benefits for the Director;
and
WHEREAS, the parties hereto desire to amend the Agreement and to restate
the Agreement as amended.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the parties hereto agree as follows:
Section 1. Deferral Election. The Director hereby elects and agrees to
--------- -----------------
defer each month the receipt by him of $350.00 in director's fees for the sixty
(60) months beginning January 1, 1994 and ending December 31, 1998. In exchange
for such agreement to defer and subject to the condition that, except as
otherwise specifically provided below, the Director remain a director of the
Bank until the Qualifying Date (as defined below), the Director shall receive
from the Bank the benefits hereinafter described.
Section 2. Retirement Benefits. The Bank agrees that, except as otherwise
--------- -------------------
specifically provided herein, upon the later to occur of the Director's 65th
birthday and January 1, 1999 (the "Qualifying Date"), the Bank will pay the
Director $942 per month for a continuous period of 120 months. Such continuous
monthly installment payments shall commence on a date to be determined by the
Bank, but in no event later than the first day of the sixth calendar month
following the calendar month in which the Qualifying Date shall occur.
Section 3. Post-Retirement Death Benefits. In the event that the Director
--------- ------------------------------
should die after becoming entitled to receive monthly installment payments under
Section 2, but before all of said
<PAGE>
installment payments shall have been made, the Bank will pay all remaining
installment payments to such beneficiary or beneficiaries as the Director has
designated in writing to the Bank ("Beneficiaries"). In the event of the death
of the last living Beneficiary before all remaining installment payments shall
have been made, the balance of any payments which remain unpaid at the time of
such Beneficiary's death shall be commuted on the basis of six percent (6%) per
annum compounded interest and shall be paid in a single sum to the estate of the
last Beneficiary to die. In the absence of such beneficiary designation, any
payments remaining unpaid at the Director's death shall be commuted on the basis
of six percent (6%) per annum compounded interest and shall be paid in a single
sum to the Director's estate.
Section 4. Pre-Retirement Death Benefits. Should the Director die while
--------- -----------------------------
serving as a director of the Bank and prior to the Qualifying Date, the Bank
will pay $942 per month for a continuous period of 120 months to the Beneficiary
or Beneficiaries. The first such monthly installment payment shall be made on a
date to be determined by the Bank, but in no event later than the first day of
the sixth calendar month following the calendar month in which the Director
died. In the event of the death of the last living Beneficiary before all
installment payments shall have been made, the balance of any payments which
remain unpaid at the time of such Beneficiary's death shall be commuted on the
basis of six percent (6%) per annum compounded interest and shall be paid in a
single sum to the estate of the last Beneficiary to die. In the absence of any
such beneficiary designation, any payments remaining unpaid at the Director's
death shall be commuted on the basis of six percent (6%) per annum compounded
interest and shall be paid in a single sum to the Director's estate.
Notwithstanding the foregoing, in the event that the Director commits suicide on
or before January 1, 1996, then no benefits shall be paid to the Beneficiary or
Beneficiaries; provided, however, that the Beneficiary or Beneficiaries shall be
entitled to receive promptly in a lump sum all director's fees deferred by the
Director under this Agreement prior to his death, plus interest thereon at a
compounded annual rate of six percent (6%).
Section 5. Termination of Benefits.
--------- -----------------------
A. If the Director voluntarily resigns as a director of the Bank on or
before January 1, 1996, the Director's benefits under this Agreement
shall be limited to the return to him of his deferred director's fees,
plus interest thereon at a compounded annual rate of six percent (6%)
per annum, which amount shall be paid in a single sum on a date to be
determined by the Bank, but in no event later than the first day of
the sixth calendar month following the calendar month in which his
service was terminated.
B. If the Director voluntarily resigns after January 1, 1996 but, but
before the Qualifying Date, then the Director or his Beneficiary (or
Beneficiaries) shall be entitled to a percentage of the amount of the
monthly installment payments described in Section 2 of this Agreement
determined under the following table:
2
<PAGE>
PERCENTAGE OF MONTHLY
INSTALLMENT PAYMENT DESCRIBED
FULL NUMBER OF YEARS SERVED AS IN SECTION 2 OF THIS AGREEMENT TO
DIRECTOR AFTER JANUARY 1, 1994 WHICH DIRECTOR IS ENTITLED
------------------------------ ---------------------------------
1 -0-% (Deferred Fees
Plus Interest)
2 40%
3 60%
4 80%
5 100%
Section 6. Benefits Not Transferable. Neither the Director, his
--------- -------------------------
Beneficiary or Beneficiaries nor any other person claiming any right or
interest under this Agreement through the Director or any Beneficiary shall have
any right to commute, assign, transfer or otherwise convey any right to receive
any benefits hereunder.
Section 7. Binding Upon Successors. This Agreement and the Bank's
--------- -----------------------
obligations hereunder shall be binding upon the Bank's successors and permitted
assigns. The Bank may not assign its rights or obligations under this Agreement
without the Director's prior written consent. In addition, the Bank shall not
enter into any agreement providing for the merger of the Bank with and into
another business entity or the sale of more than a majority of the Bank's assets
to another business entity, person or group persons that does not specifically
provide that such successor by merger or purchaser(s) of assets shall assume and
satisfy each and every obligation of the Bank to the Director under this
Agreement. In the case of an asset sale, such assumption shall not relieve the
Bank of its liability to fulfill such obligations.
Except as otherwise provided in Section 2, 3, 4 or 5, as applicable, in the
event that, on or before the occurrence of the Qualifying Date, the Director's
service as a director of the Bank is terminated for any reason coincident with
or within twenty-four (24) months following a merger of the Bank with or into
another business entity or of an asset sale as described above, then the
provisions of Section 2 shall be deemed applicable except that the Qualifying
Date shall be deemed to be the date that such merger or asset sale shall be
consummated.
Section 8. Benefits Payable Only From General Corporate Assets; Unsecured
--------- --------------------------------------------------------------
General Creditors Status of Director. The payments to the Director or his
- ------------------------------------
Beneficiary or Beneficiaries hereunder shall be made from assets which for all
purposes shall continue to be a part of the general, unrestricted assets of the
Bank; no person shall have any interest in any such assets by virtue of the
provisions of this Agreement. The Bank's obligations hereunder shall be an
unfunded and unsecured promise to pay in the future. To the extent that any
person acquires a right to receive payments from the Bank under the provisions
hereof, such right shall be no greater than the right of any unsecured general
creditor of the Bank; no such person shall have nor require any legal or
equitable right, interest or claim in or to any property or assets of the Bank.
In the event that, in its discretion, the Bank purchases an insurance
policy or policies insuring the life of the Director (or any other property) in
order to allow the Bank to recover the cost of providing benefits, in whole or
in part, hereunder, neither the Director nor any Beneficiary shall have any
rights whatsoever therein or in the proceeds therefrom. The Bank shall be the
sole owner and
3
<PAGE>
beneficiary of such insurance policy or policies and shall possess and may
exercise all incidents of ownership therein.
Section 9. Additional Benefits. The benefits and rights provided under
--------- -------------------
this Agreement are in addition to, and are independent of, those benefits and
rights provided under any other agreements between the parties hereto, and shall
not affect, reduce or diminish the right of the Director to participate in any
current or future benefit plan or other supplemental compensation arrangement.
Section 10. No Contract of Employment. Nothing contained herein shall be
---------- -------------------------
construed to be a contract of employment or as conferring upon the Director the
right to continue as a director of the Bank. It is expressly understood by the
parties hereto that this Agreement relates to a deferred compensation
arrangement between the Bank and the Director and is not intended to be an
employment or services agreement.
Section 11. Amendment. This Agreement may not be amended, altered or
---------- ---------
modified, except by written instrument signed by the parties hereto or their
respective successors, and may not be otherwise terminated except as provided
herein.
Section 12. Governing Law. This Agreement, and the rights of the parties
---------- -------------
hereunder, shall be governed and construed on accordance with the laws of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Director's Deferred Compensation Plan Agreement as of the day and year first
above written.
HOME SAVINGS BANK, SSB
Attest:
/s/ Ruby Adams By: /s/ Thomas A. Vann
- ------------------------ -------------------------------------
Ruby Adams Thomas A. Vann
Secretary
[Corporate Seal] Title: President
DIRECTOR:
/s/ Linley H. Gibbs, Jr.
--------------------------------------(Seal)
Linley H. Gibbs, Jr.
4
<PAGE>
AMENDED AND RESTATED
DIRECTOR'S DEFERRED COMPENSATION PLAN
AGREEMENT
THIS AMENDED AND RESTATED DIRECTOR'S DEFERRED COMPENSATION PLAN AGREEMENT,
made and entered into on the 1st day of January, 1994 and amended and restated
this the 14th day of December, 1995 (the "Agreement"), between Home Savings
Bank, SSB, a mutual state savings bank organized and existing under the laws of
the State of North Carolina (the "Bank"), and Frederick N. Holscher (the
"Director").
W I T N E S S E T H:
WHEREAS, the Bank recognizes the valuable services heretofore performed for
it by the Director and wishes to encourage his further service and to assist him
in providing for the contingencies of retirement and death;
WHEREAS, the Director heretofore has determined to defer receipt of
director's fees in the amount of $350.00 per month for five (5) years from
January 1, 1994;
WHEREAS, the parties hereto intend that this Agreement be considered an
unfunded arrangement to provide deferred compensation benefits for the Director;
and
WHEREAS, the parties hereto desire to amend the Agreement and to restate
the Agreement as amended.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the parties hereto agree as follows:
Section 1. Deferral Election. The Director hereby elects and agrees to
--------- -----------------
defer each month the receipt by him of $350.00 in director's fees for the sixty
(60) months beginning January 1, 1994 and ending December 31, 1998. In exchange
for such agreement to defer and subject to the condition that, except as
otherwise specifically provided below, the Director remain a director of the
Bank until the Qualifying Date (as defined below), the Director shall receive
from the Bank the benefits hereinafter described.
Section 2. Retirement Benefits. The Bank agrees that, except as otherwise
--------- -------------------
specifically provided herein, upon the later to occur of the Director's 65th
birthday and January 1, 1999 (the "Qualifying Date"), the Bank will pay the
Director $4,088 per month for a continuous period of 120 months. Such
continuous monthly installment payments shall commence on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Qualifying Date shall
occur.
Section 3. Post-Retirement Death Benefits. In the event that the Director
--------- ------------------------------
should die after becoming entitled to receive monthly installment payments under
Section 2, but before all of said
<PAGE>
installment payments shall have been made, the Bank will pay all remaining
installment payments to such beneficiary or beneficiaries as the Director has
designated in writing to the Bank ("Beneficiaries"). In the event of the death
of the last living Beneficiary before all remaining installment payments shall
have been made, the balance of any payments which remain unpaid at the time of
such Beneficiary's death shall be commuted on the basis of six percent (6%) per
annum compounded interest and shall be paid in a single sum to the estate of the
last Beneficiary to die. In the absence of such beneficiary designation, any
payments remaining unpaid at the Director's death shall be commuted on the basis
of six percent (6%) per annum compounded interest and shall be paid in a single
sum to the Director's estate.
Section 4. Pre-Retirement Death Benefits. Should the Director die while
--------- -----------------------------
serving as a director of the Bank and prior to the Qualifying Date, the Bank
will pay $4,088 per month for a continuous period of 120 months to the
Beneficiary or Beneficiaries. The first such monthly installment payment shall
be made on a date to be determined by the Bank, but in no event later than the
first day of the sixth calendar month following the calendar month in which the
Director died. In the event of the death of the last living Beneficiary before
all installment payments shall have been made, the balance of any payments which
remain unpaid at the time of such Beneficiary's death shall be commuted on the
basis of six percent (6%) per annum compounded interest and shall be paid in a
single sum to the estate of the last Beneficiary to die. In the absence of any
such beneficiary designation, any payments remaining unpaid at the Director's
death shall be commuted on the basis of six percent (6%) per annum compounded
interest and shall be paid in a single sum to the Director's estate.
Notwithstanding the foregoing, in the event that the Director commits suicide on
or before January 1, 1996, then no benefits shall be paid to the Beneficiary or
Beneficiaries; provided, however, that the Beneficiary or Beneficiaries shall be
entitled to receive promptly in a lump sum all director's fees deferred by the
Director under this Agreement prior to his death, plus interest thereon at a
compounded annual rate of six percent (6%).
Section 5. Termination of Benefits.
--------- -----------------------
A. If the Director voluntarily resigns as a director of the Bank on or
before January 1, 1996, the Director's benefits under this Agreement
shall be limited to the return to him of his deferred director's fees,
plus interest thereon at a compounded annual rate of six percent (6%)
per annum, which amount shall be paid in a single sum on a date to be
determined by the Bank, but in no event later than the first day of
the sixth calendar month following the calendar month in which his
service was terminated.
B. If the Director voluntarily resigns after January 1, 1996, but before
the Qualifying Date, then the Director or his Beneficiary (or
Beneficiaries) shall be entitled to a percentage of the amount of the
monthly installment payments described in Section 2 of this Agreement
determined under the following table:
2
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF MONTHLY
INSTALLMENT PAYMENT DESCRIBED
FULL NUMBER OF YEARS SERVED AS IN SECTION 2 OF THIS AGREEMENT TO
DIRECTOR AFTER JANUARY 1, 1994 WHICH DIRECTOR IS ENTITLED
------------------------------ ---------------------------------------------
<S> <C>
1 -0-% (Deferred Fees Plus Interest)
2 20%
3 30%
4 40%
5 50%
6 60%
7 70%
8 80%
9 90%
10 100%
</TABLE>
Section 6. Benefits Not Transferable. Neither the Director, his
--------- -------------------------
Beneficiary or Beneficiaries nor any other person claiming any right or
interest under this Agreement through the Director or any Beneficiary shall have
any right to commute, assign, transfer or otherwise convey any right to receive
any benefits hereunder.
Section 7. Binding Upon Successors. This Agreement and the Bank's
--------- -----------------------
obligations hereunder shall be binding upon the Bank's successors and permitted
assigns. The Bank may not assign its rights or obligations under this Agreement
without the Director's prior written consent. In addition, the Bank shall not
enter into any agreement providing for the merger of the Bank with and into
another business entity or the sale of more than a majority of the Bank's assets
to another business entity, person or group persons that does not specifically
provide that such successor by merger or purchaser(s) of assets shall assume and
satisfy each and every obligation of the Bank to the Director under this
Agreement. In the case of an asset sale, such assumption shall not relieve the
Bank of its liability to fulfill such obligations.
Except as otherwise provided in Section 2, 3, 4 or 5, as applicable, in the
event that, on or before the occurrence of the Qualifying Date, the Director's
service as a director of the Bank is terminated for any reason coincident with
or within twenty-four (24) months following a merger of the Bank with or into
another business entity or of an asset sale as described above, then the
provisions of Section 2 shall be deemed applicable except that the Qualifying
Date shall be deemed to be the date that such merger or asset sale shall be
consummated.
Section 8. Benefits Payable Only From General Corporate Assets; Unsecured
--------- --------------------------------------------------------------
General Creditors Status of Director. The payments to the Director or his
- ------------------------------------
Beneficiary or Beneficiaries hereunder shall be made from assets which for all
purposes shall continue to be a part of the general, unrestricted assets of the
Bank; no person shall have any interest in any such assets by virtue of the
provisions of this Agreement. The Bank's obligations hereunder shall be an
unfunded and unsecured promise to pay in the future. To the extent that any
person acquires a right to receive payments from the Bank under the provisions
hereof, such right shall be no greater than the right of any unsecured general
creditor of the Bank; no such person shall have nor require any legal or
equitable right, interest or claim in or to any property or assets of the Bank.
3
<PAGE>
In the event that, in its discretion, the Bank purchases an insurance
policy or policies insuring the life of the Director (or any other property) in
order to allow the Bank to recover the cost of providing benefits, in whole or
in part, hereunder, neither the Director nor any Beneficiary shall have any
rights whatsoever therein or in the proceeds therefrom. The Bank shall be the
sole owner and beneficiary of such insurance policy or policies and shall
possess and may exercise all incidents of ownership therein.
Section 9. Additional Benefits. The benefits and rights provided under
--------- -------------------
this Agreement are in addition to, and are independent of, those benefits and
rights provided under any other agreements between the parties hereto, and shall
not affect, reduce or diminish the right of the Director to participate in any
current or future benefit plan or other supplemental compensation arrangement.
Section 10. No Contract of Employment. Nothing contained herein shall be
---------- -------------------------
construed to be a contract of employment or as conferring upon the Director the
right to continue as a director of the Bank. It is expressly understood by the
parties hereto that this Agreement relates to a deferred compensation
arrangement between the Bank and the Director and is not intended to be an
employment or services agreement.
Section 11. Amendment. This Agreement may not be amended, altered or
---------- ---------
modified, except by written instrument signed by the parties hereto or their
respective successors, and may not be otherwise terminated except as provided
herein.
Section 12. Governing Law. This Agreement, and the rights of the parties
---------- -------------
hereunder, shall be governed and construed on accordance with the laws of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Director's Deferred Compensation Plan Agreement as of the day and year first
above written.
HOME SAVINGS BANK, SSB
Attest:
/s/ Ruby Adams By: /s/ Thomas A. Vann
- -------------------------- ------------------------------
Ruby Adams Thomas A. Vann
Secretary
[Corporate Seal] Title: President
DIRECTOR:
/s/ Frederick N. Holscher
--------------------------------- (Seal)
Frederick N. Holscher
4
<PAGE>
AMENDED AND RESTATED
DIRECTOR'S DEFERRED COMPENSATION PLAN
AGREEMENT
THIS AMENDED AND RESTATED DIRECTOR'S DEFERRED COMPENSATION PLAN AGREEMENT,
made and entered into on the 1st day of January, 1994 and amended and restated
this the 14th day of December, 1995 (the "Agreement"), between Home Savings
Bank, SSB, a mutual state savings bank organized and existing under the laws of
the State of North Carolina (the "Bank"), and Frederick H. Howdy (the
"Director").
W I T N E S S E T H:
WHEREAS, the Bank recognizes the valuable services heretofore performed for
it by the Director and wishes to encourage his further service and to assist him
in providing for the contingencies of retirement and death;
WHEREAS, the Director heretofore has determined to defer receipt of
director's fees in the amount of $350.00 per month for five (5) years from
January 1, 1994;
WHEREAS, the parties hereto intend that this Agreement be considered an
unfunded arrangement to provide deferred compensation benefits for the Director;
and
WHEREAS, the parties hereto desire to amend the Agreement and to restate
the Agreement as amended.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the parties hereto agree as follows:
Section 1. Deferral Election. The Director hereby elects and agrees to
--------- -----------------
defer each month the receipt by him of $350.00 in director's fees for the sixty
(60) months beginning January 1, 1994 and ending December 31, 1998. In exchange
for such agreement to defer and subject to the condition that, except as
otherwise specifically provided below, the Director remain a director of the
Bank until the Qualifying Date (as defined below), the Director shall receive
from the Bank the benefits hereinafter described.
Section 2. Retirement Benefits. The Bank agrees that, except as otherwise
--------- -------------------
specifically provided herein, upon the later to occur of the Director's 65th
birthday and January 1, 1999 (the "Qualifying Date"), the Bank will pay the
Director $942 per month for a continuous period of 120 months. Such continuous
monthly installment payments shall commence on a date to be determined by the
Bank, but in no event later than the first day of the sixth calendar month
following the calendar month in which the Qualifying Date shall occur.
Section 3. Post-Retirement Death Benefits. In the event that the Director
--------- ------------------------------
should die after becoming entitled to receive monthly installment payments under
Section 2, but before all of said
<PAGE>
installment payments shall have been made, the Bank will pay all remaining
installment payments to such beneficiary or beneficiaries as the Director has
designated in writing to the Bank ("Beneficiaries"). In the event of the death
of the last living Beneficiary before all remaining installment payments shall
have been made, the balance of any payments which remain unpaid at the time of
such Beneficiary's death shall be commuted on the basis of six percent (6%) per
annum compounded interest and shall be paid in a single sum to the estate of the
last Beneficiary to die. In the absence of such beneficiary designation, any
payments remaining unpaid at the Director's death shall be commuted on the basis
of six percent (6%) per annum compounded interest and shall be paid in a single
sum to the Director's estate.
Section 4. Pre-Retirement Death Benefits. Should the Director die while
--------- -----------------------------
serving as a director of the Bank and prior to the Qualifying Date, the Bank
will pay $942 per month for a continuous period of 120 months to the Beneficiary
or Beneficiaries. The first such monthly installment payment shall be made on a
date to be determined by the Bank, but in no event later than the first day of
the sixth calendar month following the calendar month in which the Director
died. In the event of the death of the last living Beneficiary before all
installment payments shall have been made, the balance of any payments which
remain unpaid at the time of such Beneficiary's death shall be commuted on the
basis of six percent (6%) per annum compounded interest and shall be paid in a
single sum to the estate of the last Beneficiary to die. In the absence of any
such beneficiary designation, any payments remaining unpaid at the Director's
death shall be commuted on the basis of six percent (6%) per annum compounded
interest and shall be paid in a single sum to the Director's estate.
Notwithstanding the foregoing, in the event that the Director commits suicide on
or before January 1, 1996, then no benefits shall be paid to the Beneficiary or
Beneficiaries; provided, however, that the Beneficiary or Beneficiaries shall be
entitled to receive promptly in a lump sum all director's fees deferred by the
Director under this Agreement prior to his death, plus interest thereon at a
compounded annual rate of six percent (6%).
Section 5. Termination of Benefits.
--------- -----------------------
A. If the Director voluntarily resigns as a director of the Bank on or
before January 1, 1996, the Director's benefits under this Agreement
shall be limited to the return to him of his deferred director's fees,
plus interest thereon at a compounded annual rate of six percent (6%)
per annum, which amount shall be paid in a single sum on a date to be
determined by the Bank, but in no event later than the first day of
the sixth calendar month following the calendar month in which his
service was terminated.
B. If the Director voluntarily resigns after January 1, 1996, but before
the Qualifying Date, then the Director or his Beneficiary (or
Beneficiaries) shall be entitled to a percentage of the amount of the
monthly installment payments described in Section 2 of this Agreement
determined under the following table:
2
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF MONTHLY
INSTALLMENT PAYMENT DESCRIBED
FULL NUMBER OF YEARS SERVED AS IN SECTION 2 OF THIS AGREEMENT TO
DIRECTOR AFTER JANUARY 1, 1994 WHICH DIRECTOR IS ENTITLED
--------------------------------- --------------------------------------
<S> <C>
1 -0-% (Deferred Fees Plus Interest)
2 40%
3 60%
4 80%
5 100%
</TABLE>
Section 6. Benefits Not Transferable. Neither the Director, his
--------- -------------------------
Beneficiary or Beneficiaries nor any other person claiming any right or interest
under this Agreement through the Director or any Beneficiary shall have any
right to commute, assign, transfer or otherwise convey any right to receive any
benefits hereunder.
Section 7. Binding Upon Successors. This Agreement and the Bank's
--------- -----------------------
obligations hereunder shall be binding upon the Bank's successors and permitted
assigns. The Bank may not assign its rights or obligations under this Agreement
without the Director's prior written consent. In addition, the Bank shall not
enter into any agreement providing for the merger of the Bank with and into
another business entity or the sale of more than a majority of the Bank's assets
to another business entity, person or group persons that does not specifically
provide that such successor by merger or purchaser(s) of assets shall assume and
satisfy each and every obligation of the Bank to the Director under this
Agreement. In the case of an asset sale, such assumption shall not relieve the
Bank of its liability to fulfill such obligations.
Except as otherwise provided in Section 2, 3, 4 or 5, as applicable, in the
event that, on or before the occurrence of the Qualifying Date, the Director's
service as a director of the Bank is terminated for any reason coincident with
or within twenty-four (24) months following a merger of the Bank with or into
another business entity or of an asset sale as described above, then the
provisions of Section 2 shall be deemed applicable except that the Qualifying
Date shall be deemed to be the date that such merger or asset sale shall be
consummated.
Section 8. Benefits Payable Only From General Corporate Assets; Unsecured
--------- --------------------------------------------------------------
General Creditors Status of Director. The payments to the Director or his
- ------------------------------------
Beneficiary or Beneficiaries hereunder shall be made from assets which for all
purposes shall continue to be a part of the general, unrestricted assets of the
Bank; no person shall have any interest in any such assets by virtue of the
provisions of this Agreement. The Bank's obligations hereunder shall be an
unfunded and unsecured promise to pay in the future. To the extent that any
person acquires a right to receive payments from the Bank under the provisions
hereof, such right shall be no greater than the right of any unsecured general
creditor of the Bank; no such person shall have nor require any legal or
equitable right, interest or claim in or to any property or assets of the Bank.
In the event that, in its discretion, the Bank purchases an insurance
policy or policies insuring the life of the Director (or any other property) in
order to allow the Bank to recover the cost of providing benefits, in whole or
in part, hereunder, neither the Director nor any Beneficiary shall have any
rights whatsoever therein or in the proceeds therefrom. The Bank shall be the
sole owner and
3
<PAGE>
beneficiary of such insurance policy or policies and shall possess and may
exercise all incidents of ownership therein.
Section 9. Additional Benefits. The benefits and rights provided under
--------- -------------------
this Agreement are in addition to, and are independent of, those benefits and
rights provided under any other agreements between the parties hereto, and shall
not affect, reduce or diminish the right of the Director to participate in any
current or future benefit plan or other supplemental compensation arrangement.
Section 10. No Contract of Employment. Nothing contained herein shall be
---------- -------------------------
construed to be a contract of employment or as conferring upon the Director the
right to continue as a director of the Bank. It is expressly understood by the
parties hereto that this Agreement relates to a deferred compensation
arrangement between the Bank and the Director and is not intended to be an
employment or services agreement.
Section 11. Amendment. This Agreement may not be amended, altered or
---------- ---------
modified, except by written instrument signed by the parties hereto or their
respective successors, and may not be otherwise terminated except as provided
herein.
Section 12. Governing Law. This Agreement, and the rights of the parties
---------- -------------
hereunder, shall be governed and construed on accordance with the laws of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Director's Deferred Compensation Plan Agreement as of the day and year first
above written.
HOME SAVINGS BANK, SSB
Attest:
/s/ Ruby Adams By: /s/ Thomas A. Vann
- ----------------------------- ------------------------------------
Ruby Adams Thomas A. Vann
Secretary
[Corporate Seal] Title: President
DIRECTOR:
/s/ Frederick H. Howdy
---------------------------------- (Seal)
Frederick H. Howdy
4
<PAGE>
AMENDED AND RESTATED
DIRECTOR'S DEFERRED COMPENSATION PLAN
AGREEMENT
THIS AMENDED AND RESTATED DIRECTOR'S DEFERRED COMPENSATION PLAN AGREEMENT,
made and entered into on the 1st day of January, 1994 and amended and restated
this the 14th day of December, 1995 (the "Agreement"), between Home Savings
Bank, SSB, a mutual state savings bank organized and existing under the laws of
the State of North Carolina (the "Bank"), and Charles E. Parker (the
"Director").
W I T N E S S E T H:
WHEREAS, the Bank recognizes the valuable services heretofore performed for
it by the Director and wishes to encourage his further service and to assist him
in providing for the contingencies of retirement and death;
WHEREAS, the Director heretofore has determined to defer receipt of
director's fees in the amount of $350.00 per month for five (5) years from
January 1, 1994;
WHEREAS, the parties hereto intend that this Agreement be considered an
unfunded arrangement to provide deferred compensation benefits for the Director;
and
WHEREAS, the parties hereto desire to amend the Agreement and to restate
the Agreement as amended.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the parties hereto agree as follows:
Section 1. Deferral Election. The Director hereby elects and agrees to
--------- -----------------
defer each month the receipt by him of $350.00 in director's fees for the sixty
(60) months beginning January 1, 1994 and ending December 31, 1998. In exchange
for such agreement to defer and subject to the condition that, except as
otherwise specifically provided below, the Director remain a director of the
Bank until the Qualifying Date (as defined below), the Director shall receive
from the Bank the benefits hereinafter described.
Section 2. Retirement Benefits. The Bank agrees that, except as otherwise
--------- -------------------
specifically provided herein, upon the later to occur of the Director's 65th
birthday and January 1, 1999 (the "Qualifying Date"), the Bank will pay the
Director $1,533 per month for a continuous period of 120 months. Such
continuous monthly installment payments shall commence on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Qualifying Date shall
occur.
Section 3. Post-Retirement Death Benefits. In the event that the Director
--------- ------------------------------
should die after becoming entitled to receive monthly installment payments under
Section 2, but before all of said
<PAGE>
installment payments shall have been made, the Bank will pay all remaining
installment payments to such beneficiary or beneficiaries as the Director has
designated in writing to the Bank ("Beneficiaries"). In the event of the death
of the last living Beneficiary before all remaining installment payments shall
have been made, the balance of any payments which remain unpaid at the time of
such Beneficiary's death shall be commuted on the basis of six percent (6%) per
annum compounded interest and shall be paid in a single sum to the estate of the
last Beneficiary to die. In the absence of such beneficiary designation, any
payments remaining unpaid at the Director's death shall be commuted on the basis
of six percent (6%) per annum compounded interest and shall be paid in a single
sum to the Director's estate.
Section 4. Pre-Retirement Death Benefits. Should the Director die while
--------- -----------------------------
serving as a director of the Bank and prior to the Qualifying Date, the Bank
will pay $1,533 per month for a continuous period of 120 months to the
Beneficiary or Beneficiaries. The first such monthly installment payment shall
be made on a date to be determined by the Bank, but in no event later than the
first day of the sixth calendar month following the calendar month in which the
Director died. In the event of the death of the last living Beneficiary before
all installment payments shall have been made, the balance of any payments which
remain unpaid at the time of such Beneficiary's death shall be commuted on the
basis of six percent (6%) per annum compounded interest and shall be paid in a
single sum to the estate of the last Beneficiary to die. In the absence of any
such beneficiary designation, any payments remaining unpaid at the Director's
death shall be commuted on the basis of six percent (6%) per annum compounded
interest and shall be paid in a single sum to the Director's estate.
Notwithstanding the foregoing, in the event that the Director commits suicide on
or before January 1, 1996, then no benefits shall be paid to the Beneficiary or
Beneficiaries; provided, however, that the Beneficiary or Beneficiaries shall be
entitled to receive promptly in a lump sum all director's fees deferred by the
Director under this Agreement prior to his death, plus interest thereon at a
compounded annual rate of six percent (6%).
Section 5. Termination of Benefits.
--------- -----------------------
A. If the Director voluntarily resigns as a director of the Bank on or
before January 1, 1996, the Director's benefits under this Agreement
shall be limited to the return to him of his deferred director's fees,
plus interest thereon at a compounded annual rate of six percent (6%)
per annum, which amount shall be paid in a single sum on a date to be
determined by the Bank, but in no event later than the first day of
the sixth calendar month following the calendar month in which his
service was terminated.
B. If the Director voluntarily resigns after January 1, 1996, but before
the Qualifying Date, then the Director or his Beneficiary (or
Beneficiaries) shall be entitled to a percentage of the amount of the
monthly installment payments described in Section 2 of this Agreement
determined under the following table:
2
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF MONTHLY
INSTALLMENT PAYMENT DESCRIBED
FULL NUMBER OF YEARS SERVED AS IN SECTION 2 OF THIS AGREEMENT TO
DIRECTOR AFTER JANUARY 1, 1994 WHICH DIRECTOR IS ENTITLED
------------------------------ ----------------------------------------------
<S> <C>
1 00.0% (Deferred Fees Plus Interest)
2 25.0%
3 37.5%
4 50.0%
5 62.5%
6 75.0%
7 87.5%
8 100.0%
</TABLE>
Section 6. Benefits Not Transferable. Neither the Director, his
--------- -------------------------
Beneficiary or Beneficiaries nor any other person claiming any right or
interest under this Agreement through the Director or any Beneficiary shall have
any right to commute, assign, transfer or otherwise convey any right to receive
any benefits hereunder.
Section 7. Binding Upon Successors. This Agreement and the Bank's
--------- -----------------------
obligations hereunder shall be binding upon the Bank's successors and permitted
assigns. The Bank may not assign its rights or obligations under this Agreement
without the Director's prior written consent. In addition, the Bank shall not
enter into any agreement providing for the merger of the Bank with and into
another business entity or the sale of more than a majority of the Bank's assets
to another business entity, person or group persons that does not specifically
provide that such successor by merger or purchaser(s) of assets shall assume and
satisfy each and every obligation of the Bank to the Director under this
Agreement. In the case of an asset sale, such assumption shall not relieve the
Bank of its liability to fulfill such obligations.
Except as otherwise provided in Section 2, 3, 4 or 5, as applicable, in the
event that, on or before the occurrence of the Qualifying Date, the Director's
service as a director of the Bank is terminated for any reason coincident with
or within twenty-four (24) months following a merger of the Bank with or into
another business entity or of an asset sale as described above, then the
provisions of Section 2 shall be deemed applicable except that the Qualifying
Date shall be deemed to be the date that such merger or asset sale shall be
consummated.
Section 8. Benefits Payable Only From General Corporate Assets; Unsecured
--------- --------------------------------------------------------------
General Creditors Status of Director. The payments to the Director or his
- ------------------------------------
Beneficiary or Beneficiaries hereunder shall be made from assets which for all
purposes shall continue to be a part of the general, unrestricted assets of the
Bank; no person shall have any interest in any such assets by virtue of the
provisions of this Agreement. The Bank's obligations hereunder shall be an
unfunded and unsecured promise to pay in the future. To the extent that any
person acquires a right to receive payments from the Bank under the provisions
hereof, such right shall be no greater than the right of any unsecured general
creditor of the Bank; no such person shall have nor require any legal or
equitable right, interest or claim in or to any property or assets of the Bank.
In the event that, in its discretion, the Bank purchases an insurance
policy or policies insuring the life of the Director (or any other property) in
order to allow the Bank to recover the cost of
3
<PAGE>
providing benefits, in whole or in part, hereunder, neither the Director nor any
Beneficiary shall have any rights whatsoever therein or in the proceeds
therefrom. The Bank shall be the sole owner and beneficiary of such insurance
policy or policies and shall possess and may exercise all incidents of ownership
therein.
Section 9. Additional Benefits. The benefits and rights provided under
--------- -------------------
this Agreement are in addition to, and are independent of, those benefits and
rights provided under any other agreements between the parties hereto, and shall
not affect, reduce or diminish the right of the Director to participate in any
current or future benefit plan or other supplemental compensation arrangement.
Section 10. No Contract of Employment. Nothing contained herein shall be
---------- -------------------------
construed to be a contract of employment or as conferring upon the Director the
right to continue as a director of the Bank. It is expressly understood by the
parties hereto that this Agreement relates to a deferred compensation
arrangement between the Bank and the Director and is not intended to be an
employment or services agreement.
Section 11. Amendment. This Agreement may not be amended, altered or
---------- ---------
modified, except by written instrument signed by the parties hereto or their
respective successors, and may not be otherwise terminated except as provided
herein.
Section 12. Governing Law. This Agreement, and the rights of the parties
---------- -------------
hereunder, shall be governed and construed on accordance with the laws of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Director's Deferred Compensation Plan Agreement as of the day and year first
above written.
HOME SAVINGS BANK, SSB
Attest:
/s/ Ruby Adams By: /s/ Thomas A. Vann
- ------------------------ ---------------------------------
Ruby Adams Thomas A. Vann
Secretary
[Corporate Seal] Title: President
DIRECTOR:
/s/ Charles E. Parker, Jr.
------------------------------ (Seal)
Charles E. Parker, Jr.
4
<PAGE>
AMENDED AND RESTATED
DIRECTOR'S DEFERRED COMPENSATION PLAN
AGREEMENT
THIS AMENDED AND RESTATED DIRECTOR'S DEFERRED COMPENSATION PLAN AGREEMENT,
made and entered into on the 1st day of January, 1994 and amended and restated
this the 14th day of December, 1995 (the "Agreement"), between Home Savings
Bank, SSB, a mutual state savings bank organized and existing under the laws of
the State of North Carolina (the "Bank"), and Marshall T. Singleton (the
"Director").
W I T N E S S E T H:
WHEREAS, the Bank recognizes the valuable services heretofore performed for
it by the Director and wishes to encourage his further service and to assist him
in providing for the contingencies of retirement and death;
WHEREAS, the Director heretofore has determined to defer receipt of
director's fees in the amount of $350.00 per month for five (5) years from
January 1, 1994;
WHEREAS, the parties hereto intend that this Agreement be considered an
unfunded arrangement to provide deferred compensation benefits for the Director;
and
WHEREAS, the parties hereto desire to amend the Agreement and to restate
the Agreement as amended.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the parties hereto agree as follows:
Section 1. Deferral Election. The Director hereby elects and agrees to
--------- -----------------
defer each month the receipt by him of $350.00 in director's fees for the sixty
(60) months beginning January 1, 1994 and ending December 31, 1998. In exchange
for such agreement to defer and subject to the condition that, except as
otherwise specifically provided below, the Director remain a director of the
Bank until the Qualifying Date (as defined below), the Director shall receive
from the Bank the benefits hereinafter described.
Section 2. Retirement Benefits. The Bank agrees that, except as otherwise
--------- -------------------
specifically provided herein, upon the later to occur of the Director's 65th
birthday and January 1, 1999 (the "Qualifying Date"), the Bank will pay the
Director $1,975 per month for a continuous period of 120 months. Such
continuous monthly installment payments shall commence on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Qualifying Date shall
occur.
Section 3. Post-Retirement Death Benefits. In the event that the Director
--------- ------------------------------
should die after becoming entitled to receive monthly installment payments under
Section 2, but before all of said
<PAGE>
installment payments shall have been made, the Bank will pay all remaining
installment payments to such beneficiary or beneficiaries as the Director has
designated in writing to the Bank ("Beneficiaries"). In the event of the death
of the last living Beneficiary before all remaining installment payments shall
have been made, the balance of any payments which remain unpaid at the time of
such Beneficiary's death shall be commuted on the basis of six percent (6%) per
annum compounded interest and shall be paid in a single sum to the estate of the
last Beneficiary to die. In the absence of such beneficiary designation, any
payments remaining unpaid at the Director's death shall be commuted on the basis
of six percent (6%) per annum compounded interest and shall be paid in a single
sum to the Director's estate.
Section 4. Pre-Retirement Death Benefits. Should the Director die while
--------- -----------------------------
serving as a director of the Bank and prior to the Qualifying Date, the Bank
will pay $1,975 per month for a continuous period of 120 months to the
Beneficiary or Beneficiaries. The first such monthly installment payment shall
be made on a date to be determined by the Bank, but in no event later than the
first day of the sixth calendar month following the calendar month in which the
Director died. In the event of the death of the last living Beneficiary before
all installment payments shall have been made, the balance of any payments which
remain unpaid at the time of such Beneficiary's death shall be commuted on the
basis of six percent (6%) per annum compounded interest and shall be paid in a
single sum to the estate of the last Beneficiary to die. In the absence of any
such beneficiary designation, any payments remaining unpaid at the Director's
death shall be commuted on the basis of six percent (6%) per annum compounded
interest and shall be paid in a single sum to the Director's estate.
Notwithstanding the foregoing, in the event that the Director commits suicide on
or before January 1, 1996, then no benefits shall be paid to the Beneficiary or
Beneficiaries; provided, however, that the Beneficiary or Beneficiaries shall be
entitled to receive promptly in a lump sum all director's fees deferred by the
Director under this Agreement prior to his death, plus interest thereon at a
compounded annual rate of six percent (6%).
Section 5. Termination of Benefits.
--------- -----------------------
A. If the Director voluntarily resigns as a director of the Bank on or
before January 1, 1996, the Director's benefits under this Agreement
shall be limited to the return to him of his deferred director's fees,
plus interest thereon at a compounded annual rate of six percent (6%)
per annum, which amount shall be paid in a single sum on a date to be
determined by the Bank, but in no event later than the first day of
the sixth calendar month following the calendar month in which his
service was terminated.
B. If the Director voluntarily resigns after January 1, 1996, but before
the Qualifying Date, then the Director or his Beneficiary (or
Beneficiaries) shall be entitled to a percentage of the amount of the
monthly installment payments described in Section 2 of this Agreement
determined under the following table:
2
<PAGE>
PERCENTAGE OF MONTHLY
INSTALLMENT PAYMENT DESCRIBED
FULL NUMBER OF YEARS SERVED AS IN SECTION 2 OF THIS AGREEMENT TO
DIRECTOR AFTER JANUARY 1, 1994 WHICH DIRECTOR IS ENTITLED
--------------------------------- ---------------------------------
1 -0-% (Deferred Fees
Plus Interest)
2 20%
3 30%
4 40%
5 50%
6 60%
7 70%
8 80%
9 90%
10 100%
Section 6. Benefits Not Transferable. Neither the Director, his
--------- -------------------------
Beneficiary or Beneficiaries nor any other person claiming any right or
interest under this Agreement through the Director or any Beneficiary shall have
any right to commute, assign, transfer or otherwise convey any right to receive
any benefits hereunder.
Section 7. Binding Upon Successors. This Agreement and the Bank's
--------- -----------------------
obligations hereunder shall be binding upon the Bank's successors and permitted
assigns. The Bank may not assign its rights or obligations under this Agreement
without the Director's prior written consent. In addition, the Bank shall not
enter into any agreement providing for the merger of the Bank with and into
another business entity or the sale of more than a majority of the Bank's assets
to another business entity, person or group persons that does not specifically
provide that such successor by merger or purchaser(s) of assets shall assume and
satisfy each and every obligation of the Bank to the Director under this
Agreement. In the case of an asset sale, such assumption shall not relieve the
Bank of its liability to fulfill such obligations.
Except as otherwise provided in Section 2, 3, 4 or 5, as applicable, in the
event that, on or before the occurrence of the Qualifying Date, the Director's
service as a director of the Bank is terminated for any reason coincident with
or within twenty-four (24) months following a merger of the Bank with or into
another business entity or of an asset sale as described above, then the
provisions of Section 2 shall be deemed applicable except that the Qualifying
Date shall be deemed to be the date that such merger or asset sale shall be
consummated.
Section 8. Benefits Payable Only From General Corporate Assets; Unsecured
--------- --------------------------------------------------------------
General Creditors Status of Director. The payments to the Director or his
- ------------------------------------
Beneficiary or Beneficiaries hereunder shall be made from assets which for all
purposes shall continue to be a part of the general, unrestricted assets of the
Bank; no person shall have any interest in any such assets by virtue of the
provisions of this Agreement. The Bank's obligations hereunder shall be an
unfunded and unsecured promise to pay in the future. To the extent that any
person acquires a right to receive payments from the Bank under the provisions
hereof, such right shall be no greater than the right of any unsecured general
creditor of the Bank; no such person shall have nor require any legal or
equitable right, interest or claim in or to any property or assets of the Bank.
3
<PAGE>
In the event that, in its discretion, the Bank purchases an insurance
policy or policies insuring the life of the Director (or any other property) in
order to allow the Bank to recover the cost of providing benefits, in whole or
in part, hereunder, neither the Director nor any Beneficiary shall have any
rights whatsoever therein or in the proceeds therefrom. The Bank shall be the
sole owner and beneficiary of such insurance policy or policies and shall
possess and may exercise all incidents of ownership therein.
Section 9. Additional Benefits. The benefits and rights provided under
--------- -------------------
this Agreement are in addition to, and are independent of, those benefits and
rights provided under any other agreements between the parties hereto, and shall
not affect, reduce or diminish the right of the Director to participate in any
current or future benefit plan or other supplemental compensation arrangement.
Section 10. No Contract of Employment. Nothing contained herein shall be
---------- -------------------------
construed to be a contract of employment or as conferring upon the Director the
right to continue as a director of the Bank. It is expressly understood by the
parties hereto that this Agreement relates to a deferred compensation
arrangement between the Bank and the Director and is not intended to be an
employment or services agreement.
Section 11. Amendment. This Agreement may not be amended, altered or
---------- ---------
modified, except by written instrument signed by the parties hereto or their
respective successors, and may not be otherwise terminated except as provided
herein.
Section 12. Governing Law. This Agreement, and the rights of the parties
---------- -------------
hereunder, shall be governed and construed on accordance with the laws of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Director's Deferred Compensation Plan Agreement as of the day and year first
above written.
HOME SAVINGS BANK, SSB
Attest:
/s/ Ruby Adams By: /s/ Thomas A. Vann
- ------------------------- -------------------------------------
Ruby Adams Thomas A. Vann
Secretary
[Corporate Seal] Title: President
DIRECTOR:
/s/ Marshall T. Singleton
------------------------------------- (Seal)
Marshall T. Singleton
4
<PAGE>
AMENDED AND RESTATED
DIRECTOR'S DEFERRED COMPENSATION PLAN
AGREEMENT
THIS AMENDED AND RESTATED DIRECTOR'S DEFERRED COMPENSATION PLAN AGREEMENT,
made and entered into on the 1st day of January, 1994 and amended and restated
this the 14th day of December, 1995 (the "Agreement"), between Home Savings
Bank, SSB, a mutual state savings bank organized and existing under the laws of
the State of North Carolina (the "Bank"), and Thomas A. Vann (the "Director").
W I T N E S S E T H:
WHEREAS, the Bank recognizes the valuable services heretofore performed for
it by the Director and wishes to encourage his further service and to assist him
in providing for the contingencies of retirement and death;
WHEREAS, the Director heretofore has determined to defer receipt of
director's fees in the amount of $350.00 per month for five (5) years from
January 1, 1994;
WHEREAS, the parties hereto intend that this Agreement be considered an
unfunded arrangement to provide deferred compensation benefits for the Director;
and
WHEREAS, the parties hereto desire to amend the Agreement and to restate
the Agreement as amended.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the parties hereto agree as follows:
Section 1. Deferral Election. The Director hereby elects and agrees to
--------- -----------------
defer each month the receipt by him of $350.00 in director's fees for the sixty
(60) months beginning January 1, 1994 and ending December 31, 1998. In exchange
for such agreement to defer and subject to the condition that, except as
otherwise specifically provided below, the Director remain a director of the
Bank until the Qualifying Date (as defined below), the Director shall receive
from the Bank the benefits hereinafter described.
Section 2. Retirement Benefits. The Bank agrees that, except as otherwise
--------- -------------------
specifically provided herein, upon the later to occur of the Director's 65th
birthday and January 1, 1999 (the "Qualifying Date"), the Bank will pay the
Director $4,818 per month for a continuous period of 120 months. Such
continuous monthly installment payments shall commence on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Qualifying Date shall
occur.
Section 3. Post-Retirement Death Benefits. In the event that the Director
--------- ------------------------------
should die after becoming entitled to receive monthly installment payments under
Section 2, but before all of said
<PAGE>
installment payments shall have been made, the Bank will pay all remaining
installment payments to such beneficiary or beneficiaries as the Director has
designated in writing to the Bank ("Beneficiaries"). In the event of the death
of the last living Beneficiary before all remaining installment payments shall
have been made, the balance of any payments which remain unpaid at the time of
such Beneficiary's death shall be commuted on the basis of six percent (6%) per
annum compounded interest and shall be paid in a single sum to the estate of the
last Beneficiary to die. In the absence of such beneficiary designation, any
payments remaining unpaid at the Director's death shall be commuted on the basis
of six percent (6%) per annum compounded interest and shall be paid in a single
sum to the Director's estate.
Section 4. Pre-Retirement Death Benefits. Should the Director die while
--------- -----------------------------
serving as a director of the Bank and prior to the Qualifying Date, the Bank
will pay $4,818 per month for a continuous period of 120 months to the
Beneficiary or Beneficiaries. The first such monthly installment payment shall
be made on a date to be determined by the Bank, but in no event later than the
first day of the sixth calendar month following the calendar month in which the
Director died. In the event of the death of the last living Beneficiary before
all installment payments shall have been made, the balance of any payments which
remain unpaid at the time of such Beneficiary's death shall be commuted on the
basis of six percent (6%) per annum compounded interest and shall be paid in a
single sum to the estate of the last Beneficiary to die. In the absence of any
such beneficiary designation, any payments remaining unpaid at the Director's
death shall be commuted on the basis of six percent (6%) per annum compounded
interest and shall be paid in a single sum to the Director's estate.
Notwithstanding the foregoing, in the event that the Director commits suicide on
or before January 1, 1996, then no benefits shall be paid to the Beneficiary or
Beneficiaries; provided, however, that the Beneficiary or Beneficiaries shall be
entitled to receive promptly in a lump sum all director's fees deferred by the
Director under this Agreement prior to his death, plus interest thereon at a
compounded annual rate of six percent (6%).
Section 5. Termination of Benefits.
--------- -----------------------
A. If the Director voluntarily resigns as a director of the Bank on or
before January 1, 1996, the Director's benefits under this Agreement
shall be limited to the return to him of his deferred director's fees,
plus interest thereon at a compounded annual rate of six percent (6%)
per annum, which amount shall be paid in a single sum on a date to be
determined by the Bank, but in no event later than the first day of
the sixth calendar month following the calendar month in which his
service was terminated.
B. If the Director voluntarily resigns after January 1, 1996, but before
the Qualifying Date, then the Director or his Beneficiary (or
Beneficiaries) shall be entitled to a percentage of the amount of the
monthly installment payments described in Section 2 of this Agreement
determined under the following table:
2
<PAGE>
PERCENTAGE OF MONTHLY
INSTALLMENT PAYMENT DESCRIBED
FULL NUMBER OF YEARS SERVED AS IN SECTION 2 OF THIS AGREEMENT TO
DIRECTOR AFTER JANUARY 1, 1994 WHICH DIRECTOR IS ENTITLED
------------------------------ ---------------------------------
1 -0-% (Deferred Fees
Plus Interest)
2 20%
3 30%
4 40%
5 50%
6 60%
7 70%
8 80%
9 90%
10 100%
Section 6. Benefits Not Transferable. Neither the Director, his
--------- -------------------------
Beneficiary or Beneficiaries nor any other person claiming any right or
interest under this Agreement through the Director or any Beneficiary shall have
any right to commute, assign, transfer or otherwise convey any right to receive
any benefits hereunder.
Section 7. Binding Upon Successors. This Agreement and the Bank's
--------- -----------------------
obligations hereunder shall be binding upon the Bank's successors and permitted
assigns. The Bank may not assign its rights or obligations under this Agreement
without the Director's prior written consent. In addition, the Bank shall not
enter into any agreement providing for the merger of the Bank with and into
another business entity or the sale of more than a majority of the Bank's assets
to another business entity, person or group persons that does not specifically
provide that such successor by merger or purchaser(s) of assets shall assume and
satisfy each and every obligation of the Bank to the Director under this
Agreement. In the case of an asset sale, such assumption shall not relieve the
Bank of its liability to fulfill such obligations.
Except as otherwise provided in Section 2, 3, 4 or 5, as applicable, in the
event that, on or before the occurrence of the Qualifying Date, the Director's
service as a director of the Bank is terminated for any reason coincident with
or within twenty-four (24) months following a merger of the Bank with or into
another business entity or of an asset sale as described above, then the
provisions of Section 2 shall be deemed applicable except that the Qualifying
Date shall be deemed to be the date that such merger or asset sale shall be
consummated.
Section 8. Benefits Payable Only From General Corporate Assets; Unsecured
--------- --------------------------------------------------------------
General Creditors Status of Director. The payments to the Director or his
- ------------------------------------
Beneficiary or Beneficiaries hereunder shall be made from assets which for all
purposes shall continue to be a part of the general, unrestricted assets of the
Bank; no person shall have any interest in any such assets by virtue of the
provisions of this Agreement. The Bank's obligations hereunder shall be an
unfunded and unsecured promise to pay in the future. To the extent that any
person acquires a right to receive payments from the Bank under the provisions
hereof, such right shall be no greater than the right of any unsecured general
creditor of the Bank; no such person shall have nor require any legal or
equitable right, interest or claim in or to any property or assets of the Bank.
3
<PAGE>
In the event that, in its discretion, the Bank purchases an insurance
policy or policies insuring the life of the Director (or any other property) in
order to allow the Bank to recover the cost of providing benefits, in whole or
in part, hereunder, neither the Director nor any Beneficiary shall have any
rights whatsoever therein or in the proceeds therefrom. The Bank shall be the
sole owner and beneficiary of such insurance policy or policies and shall
possess and may exercise all incidents of ownership therein.
Section 9. Additional Benefits. The benefits and rights provided under
--------- -------------------
this Agreement are in addition to, and are independent of, those benefits and
rights provided under any other agreements between the parties hereto, and shall
not affect, reduce or diminish the right of the Director to participate in any
current or future benefit plan or other supplemental compensation arrangement.
Section 10. No Contract of Employment. Nothing contained herein shall be
---------- -------------------------
construed to be a contract of employment or as conferring upon the Director the
right to continue as a director of the Bank. It is expressly understood by the
parties hereto that this Agreement relates to a deferred compensation
arrangement between the Bank and the Director and is not intended to be an
employment or services agreement.
Section 11. Amendment. This Agreement may not be amended, altered or
---------- ---------
modified, except by written instrument signed by the parties hereto or their
respective successors, and may not be otherwise terminated except as provided
herein.
Section 12. Governing Law. This Agreement, and the rights of the parties
---------- -------------
hereunder, shall be governed and construed on accordance with the laws of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Director's Deferred Compensation Plan Agreement as of the day and year first
above written.
HOME SAVINGS BANK, SSB
Attest:
/s/ Ruby Adams By: /s/ William L. Wall
- ------------------------ ------------------------------------
Ruby Adams William L. Wall
Secretary
[Corporate Seal] Title: Executive Vice President
DIRECTOR:
/s/ Thomas A. Vann
------------------------------------ (Seal)
Thomas A. Vann
4
<PAGE>
In the event that, in its discretion, the Bank purchases an insurance
policy or policies insuring the life of the Director (or any other property) in
order to allow the Bank to recover the cost of providing benefits, in whole or
in part, hereunder, neither the Director nor any Beneficiary shall have any
rights whatsoever therein or in the proceeds therefrom. The Bank shall be the
sole owner and beneficiary of such insurance policy or policies and shall
possess and may exercise all incidents of ownership therein.
Section 9. Additional Benefits. The benefits and rights provided under
--------- -------------------
this Agreement are in addition to, and are independent of, those benefits and
rights provided under any other agreements between the parties hereto, and shall
not affect, reduce or diminish the right of the Director to participate in any
current or future benefit plan or other supplemental compensation arrangement.
Section 10. No Contract of Employment. Nothing contained herein shall be
---------- -------------------------
construed to be a contract of employment or as conferring upon the Director the
right to continue as a director of the Bank. It is expressly understood by the
parties hereto that this Agreement relates to a deferred compensation
arrangement between the Bank and the Director and is not intended to be an
employment or services agreement.
Section 11. Amendment. This Agreement may not be amended, altered or
---------- ---------
modified, except by written instrument signed by the parties hereto or their
respective successors, and may not be otherwise terminated except as provided
herein.
Section 12. Governing Law. This Agreement, and the rights of the parties
---------- -------------
hereunder, shall be governed and construed on accordance with the laws of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Director's Deferred Compensation Plan Agreement as of the day and year first
above written.
HOME SAVINGS BANK, SSB
Attest:
/s/ Ruby Adams By: /s/ William L. Wall
- ------------------------ ------------------------------------
Ruby Adams William L. Wall
Secretary
[Corporate Seal] Title: Executive Vice President
DIRECTOR:
/s/ Thomas A. Vann
------------------------------------ (Seal)
Thomas A. Vann
4
<PAGE>
HOME SAVINGS BANK, SSB
DIRECTOR'S DEFERRED COMPENSATION PLAN AGREEMENT
AS AMENDED AND RESTATED DECEMBER 14, 1995
____________________
1996 Amendment
____________________
WHEREAS, Home Savings Bank, SSB (the "Bank") has entered into a
Director's Deferred Compensation Plan Agreement (the "Agreement"), originally
effective January 1, 1994 and as amended and restated effective December 14,
1995, with Directors E. Buckman, Jr., F. Howdy, C. Parker, Jr., F. Holscher, L.
Gibbs, Jr., M. Singleton, and T. Vann (the "Directors"); and
WHEREAS, the Bank has authorized an amendment to the Agreement with
each Director in order to address issues arising from the Bank's upcoming
conversion from mutual to stock form;
NOW, THEREFORE, pursuant to Section 11 of each Agreement, the
Agreement with each Director is hereby amended as follows, effective immediately
on execution hereof:
1. Section 5.B. of the Agreement is amended by adding the following
sentence at the end thereof:
Notwithstanding the foregoing or any other provision of this
Agreement to the contrary, the benefits provided pursuant to this
Section 5. B. shall commence on a date determined by the Bank but
not later than the first day of the sixth month following the
Director's voluntary resignation or the Director's attainment of
age 55, whichever shall later occur.
2. The last paragraph of Section 7 of each Agreement shall be
amended in its entirety to provide as follows (with italics herein identifying
new text):
Except as otherwise provided in Section 2, 3, 4, or 5, as
applicable, in the event that, on or before the occurrence of the
Qualifying Date, the Director's service as a director of the Bank
is terminated for any reason other than the Director's voluntary
resignation or death, then the provisions of Section 2 shall be
deemed applicable except that the Qualifying Date shall be deemed
to be the date of such termination of service as a Bank director.
3. Section 8 of the Agreement shall be amended by adding the
following paragraphs immediately at the end thereof:
Notwithstanding any other provision of this Agreement that
may be contrary or inconsistent herewith, not later than ten
business days after a Change in Control (as defined in the last
paragraph of this Section 8), the Bank shall (i)
<PAGE>
1996 Amendment
Director's Deferred Compensation
Plan Agreement
Page 2
deposit in a grantor trust (the "Trust") that is designed in
accordance with Revenue Procedure 92-64 and has a trustee
independent of the Bank, the Company and any successor to their
interest, an amount equal to the present value of all benefits
that may become payable under this Agreement, unless the Director
has previously provided a written release of any claims under
this Agreement, and (ii) provide the trustee of the Trust with a
written direction to hold said amount and any investment return
thereon in a segregated account for the benefit of the Director,
and to follow the procedures set forth in the next paragraph as
to the payment of such amounts from the Trust.
At any time or from time to time following the Change in
Control, the Director may provide the trustee of the Trust with a
written schedule directing that the trustee pay to the Director
amounts designated in the schedule as being payable pursuant to
this Agreement. Within three business days after receiving said
notice, the trustee of the Trust shall send a copy of the notice
to the Bank via overnight and registered mail (return receipt
requested). On the fifth business day after mailing said notice
to the Bank, the trustee of the Trust shall pay the Director the
amount designated therein in immediately available funds, unless
prior thereto the Bank provides the trustee with a written notice
directing the trustee to withhold such payment. In the latter
event, the trustee shall submit the dispute to non-appealable
binding arbitration for a determination of the amount payable to
the Director pursuant to this Agreement, and the costs of such
arbitration (including any attorneys' fees incurred by the
Director) shall be paid by the Bank. The trustee shall choose the
arbitrator to settle the dispute, and such arbitrator shall be
bound by the rules of the American Arbitration Association in
making his determination. The parties and the trustee shall be
bound by the results of the arbitration and, within three days of
the determination by the arbitrator, the trustee shall pay from
the Trust the amounts required to be paid to the Director and/or
the Bank, and in no event shall the trustee be liable to either
party for making the payments as determined by the arbitrator.
Upon receiving the Director's release of all claims under
this Agreement, the trustee of the Trust shall pay to the Bank or
its successor in interest the entire balance remaining in the
segregated account maintained for the benefit of the Director.
The Director shall thereafter have no further interest in the
Trust pursuant to this Agreement.
For purposes of this Agreement, "Change in Control" shall
mean any one of the following events: (i) the acquisition of
ownership, holding, or power to vote more than 25% of the voting
stock of the Bank or NewSouth Bancorp, Inc. (the "Company"), (ii)
the acquisition of the ability to control the election of a
majority of the Bank's or the Company's directors, (iii) the
acquisition of a controlling influence over the management or
policies of the Bank or of the Company by any person or by
persons acting as a "group" (within the meaning
<PAGE>
1996 Amendment
Director's Deferred Compensation
Plan Agreement
Page 3
of Section 13(d) of the Securities Exchange Act of 1934), or (iv)
during any period of two consecutive years, individuals (the
"Continuing Directors") who at the beginning of such period
constitute the Board of Directors of the Bank or of the Company
(the "Existing Board") cease for any reason to constitute at
least two-thirds thereof, provided that any individual whose
election or nomination for election as a member of the Existing
Board was approved by a vote of at least two-thirds of the
Continuing Directors then in office shall be considered a
Continuing Director. Notwithstanding the foregoing, the Company's
ownership of the Bank shall not of itself constitute a Change in
Control for purposes of the Agreement. For purposes of this
paragraph only, the term "person" refers to an individual or a
corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization
or any other form of entity not specifically listed herein.
4. Nothing contained herein shall be held to alter, vary or affect
any of the terms, provisions, or conditions of the Agreement entered into
thereunder, other than as stated above.
<PAGE>
1996 Amendment
Director's Deferred Compensation
Plan Agreement
Page 4
WHEREFORE, on this 23rd day of October, 1996, the Bank and each
Director who is party to an Agreement hereby execute this 1996 Amendment to the
Plan.
HOME SAVINGS BANK, SSB
By /s/ Frederick H. Howdy
--------------------------
Its Chairman of the Board
October 23, 1996
- -------------------------------
Date Attest: William L. Wall (Seal)
------------------------
DIRECTORS
Brenda S. Ipoch /s/ Edmund T. Buckman, Jr.
- ------------------------------- ----------------------------
Witness: E. Buckman, Jr.
Brenda S. Ipoch /s/ Frederick H. Howdy
- ------------------------------- ----------------------------
Witness: F. Howdy
Brenda S. Ipoch /s/ Charles E. Parker, Jr.
- ------------------------------- ----------------------------
Witness: C. Parker, Jr.
Brenda S. Ipoch /s/ Frederick N. Holscher
- ------------------------------- ----------------------------
Witness: F. Holscher
Brenda S. Ipoch /s/ Linley H. Gibbs, Jr.
- ------------------------------- ----------------------------
Witness: L. Gibbs, Jr.
Brenda S. Ipoch /s/ Marshall T. Singleton
- ------------------------------- ----------------------------
Witness: Marshall T. Singleton
Brenda S. Ipoch /s/ Thomas A. Vann
- ------------------------------- ---------------------------
Witness: T. Vann
<PAGE>
EXHIBIT 10.8
AMENDED AND RESTATED
DIRECTOR'S RETIREMENT PLAN AGREEMENT
THIS AMENDED AND RESTATED DIRECTOR'S RETIREMENT PLAN AGREEMENT (this
"Agreement"), made and entered into this 1st day of January, 1994 and amended
and restated this the 14th day of December, 1995, by and between Home Savings
Bank, SSB, a mutual state savings bank organized and existing under the laws of
the State of North Carolina (the "Bank"), and Edmund T. Buckman, Jr. (the
"Director").
W I T N E S S E T H:
WHEREAS, the Bank recognizes the valuable services heretofore performed for
it by the Director and wishes to encourage his further services and assist him
in providing for the contingencies of retirement and death;
WHEREAS, the parties hereto wish to provide the terms and conditions upon
which the Bank shall make certain payments to the Director or his designated
beneficiaries;
WHEREAS, the parties hereto intend that this Agreement be considered an
unfunded arrangement maintained to provide deferred compensation benefits for
the Director; and
WHEREAS, the parties hereto desire to amend the Agreement and to restate
the Agreement as amended.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the parties hereto agree as follows:
Section 1. Retirement Benefits. The Bank agrees that, except as otherwise
--------- -------------------
specifically provided herein, upon the later to occur of the Director's 70th
birthday and January 1, 1999 (the "Qualifying Date"), the Bank will pay the
Director $2,000.00 per month for a continuous period of 120 months. Such
continuous monthly installment payments shall commence on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Qualifying Date shall
occur.
Section 2. Pre-Retirement Death Benefits. Should the Director die while
--------- -----------------------------
serving as a director of the Bank and prior to the Qualifying Date, the Bank
will pay $2,000.00 per month for a continuous period of 120 months to such
beneficiary or beneficiaries as are designated by the Director to the Bank in
writing (the "Beneficiaries"). The first such monthly installment payment shall
be made on a date to be determined by the Bank, but in no event later than the
first day of the sixth calendar month following the calendar month in which the
Director died. Notwithstanding the foregoing, if the Director dies as a result
of suicide on or before January 1, 1996, no benefits of whatever nature shall be
payable to the Beneficiaries under this Agreement. In the event of the death of
the last living Beneficiary before all the unpaid payments shall have been made,
the balance of any payments which remain unpaid at the time of such
Beneficiary's death shall be commuted on
<PAGE>
the basis of six percent (6%) per annum compounded interest and shall be paid in
a single sum to the estate of the last Beneficiary to die. In the absence of any
such beneficiary designation, any amount remaining unpaid at the Director's
death shall be commuted on the basis of six percent (6%) per annum compounded
interest and shall be paid in a single sum to the Director's estate.
Section 3. Post-Retirement Death Benefits. In the event that the Director
--------- ------------------------------
should die after becoming entitled to receive monthly installment payments under
this Agreement but before all remaining installment payments have been made, the
Bank will pay all remaining installment payments to the Beneficiary or
Beneficiaries. In the event of the death of the last living Beneficiary before
all installment payments have been made, the balance of any payments which
remain unpaid at the time of such Beneficiary's death shall be commuted on the
basis of six percent (6%) per annum compounded interest and shall be paid in a
single sum to the estate of the last Beneficiary to die. In the absence of such
beneficiary designation, any payments remaining unpaid at the Director's death
shall be commuted on the basis of six percent (6%) per annum compounded interest
and shall be paid in a single sum to the Director's estate.
Section 4. Termination Benefits. Should the Director voluntarily resign
--------- --------------------
as a director prior to the Qualifying Date, he or his Beneficiaries, as
applicable, shall be entitled to receive, commencing on a date to be determined
by the Bank, but in no event later than the first day of the sixth calendar
month following the month in which the earlier of the Director's death or 70th
birthday shall occur, the percentage of the amount of the monthly installment
payment stated in Section 1 of this Agreement determined under the following
table:
<TABLE>
<CAPTION>
PERCENTAGE OF MONTHLY INSTALLMENT
PAYMENT STATED IN SECTION 1 OF THIS
FULL NUMBER OF YEARS SERVED AS AGREEMENT TO WHICH DIRECTOR IS
DIRECTOR AFTER JANUARY 1, 1994 ENTITLED
------------------------------ -----------------------------------
<S> <C>
1 20%
2 40%
3 60%
4 80%
5 100%
</TABLE>
Section 5. Benefits Not Transferable. Neither the Director, his
--------- -------------------------
Beneficiaries nor any other person claiming any right or interest under this
Agreement through the Director or any Beneficiary shall have any right to
commute, assign, transfer or otherwise convey the right to receive any benefits
hereunder.
Section 6. Binding Upon Successors. This Agreement and the Bank's
--------- -----------------------
obligations hereunder shall be binding upon the Bank's successors and permitted
assigns. The Bank may not assign its rights or obligations under this Agreement
without the Director's prior written consent. In addition, the Bank shall not
enter into any agreement providing for the merger of the Bank with and into
another business entity or the sale of more than a majority of the Bank's assets
to another business
2
<PAGE>
entity, person or group persons that does not specifically provide that such
successor by merger or purchaser(s) of assets shall assume and satisfy each and
every obligation of the Bank to the Director under this Agreement. In the case
of an asset sale, such assumption shall not relieve the Bank of its liability to
fulfill such obligations.
Except as otherwise provided in Sections 1, 2, 3 or 4, as applicable, in
the event that, on or before the occurrence of the Qualifying Date, the
Director's service as a director of the Bank is terminated for any reason
coincident with or within twenty-four (24) months following a merger of the Bank
with or into another business entity or of an asset sale as described above,
then the provisions of Section 1 shall be deemed applicable except that the
Qualifying Date shall be deemed to be the date that such merger or asset sale
shall be consummated.
Section 7. Benefits Payable Only From General Corporate Assets;
--------- ----------------------------------------------------
Unsecured General Creditors Status of Director.
- ----------------------------------------------
The payments to the Director or his Beneficiary or Beneficiaries hereunder
shall be made from assets which for all purposes shall continue to be a part of
the general, unrestricted assets of the Bank; no person shall have any interest
in any such assets by virtue of the provisions of this Agreement. The Bank's
obligations hereunder shall be an unfunded and unsecured promise to pay money in
the future. To the extent that any person acquires a right to receive payments
from the Bank under the provisions hereof, such right shall be no greater than
the right of any unsecured general creditor of the Bank; no such person shall
have nor require any legal or equitable right, interest or claim in or to any
property or assets of the Bank.
In the event that, in its discretion, the Bank purchases an insurance
policy or policies insuring the life of the Director (or any other property), in
order to allow the Bank to recover the cost of providing benefits, in whole or
in part, hereunder, neither the Director, nor any Beneficiary, shall have any
rights whatsoever therein or in the proceeds therefrom. The Bank shall be the
sole owner and beneficiary of such insurance policy and shall possess and may
exercise all incidents of ownership therein.
Section 8. Additional Benefits. The benefits and rights provided under
--------- -------------------
this Agreement are independent of those benefits and rights provided under other
agreements between the parties hereto, and shall not affect, reduce or diminish
the right of Director to participate in any current or future benefit plan or
other supplemental compensation arrangement.
Section 9. No Contract of Employment. Nothing contained herein shall be
--------- -------------------------
construed to be a contract of employment or as conferring upon the Director the
right to continue as a director of the Bank. It is expressly understood by the
parties hereto that this Agreement relates exclusively to supplemental
retirement payments for the Director, and is not intended to be an employment or
services agreement.
3
<PAGE>
Section 10. Amendment. This Agreement may not be amended, altered or
---------- ---------
modified, except by a written instrument signed by the parties hereto or their
respective successors, and may not be otherwise terminated except as provided
herein.
Section 11. Governing Law. This Agreement, and the rights of the parties
---------- -------------
hereunder, shall be governed by and construed on accordance with the laws of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Director's Retirement Plan Agreement as of the day and year first above written.
HOME SAVINGS BANK, SSB
Attest:
/s/ Ruby Adams By: /s/ Thomas A. Vann
- ---------------------- -------------------------------
Ruby Adams Thomas A. Vann
Secretary
[Corporate Seal] Title: President
DIRECTOR:
/s/ Edmund T. Buckman, Jr. (Seal)
--------------------------------
Edmund T. Buckman, Jr.
4
<PAGE>
AMENDED AND RESTATED
DIRECTOR'S RETIREMENT PLAN AGREEMENT
THIS AMENDED AND RESTATED DIRECTOR'S RETIREMENT PLAN AGREEMENT (this
"Agreement"), made and entered into this 1st day of January, 1994 and amended
and restated this the 14th day of December, 1995, by and between Home Savings
Bank, SSB, a mutual state savings bank organized and existing under the laws of
the State of North Carolina (the "Bank"), and Linley H. Gibbs, Jr. (the
"Director").
W I T N E S S E T H:
WHEREAS, the Bank recognizes the valuable services heretofore performed for
it by the Director and wishes to encourage his further services and assist him
in providing for the contingencies of retirement and death;
WHEREAS, the parties hereto wish to provide the terms and conditions upon
which the Bank shall make certain payments to the Director or his designated
beneficiaries;
WHEREAS, the parties hereto intend that this Agreement be considered an
unfunded arrangement maintained to provide deferred compensation benefits for
the Director; and
WHEREAS, the parties hereto desire to amend the Agreement and to restate
the Agreement as amended.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the parties hereto agree as follows:
Section 1. Retirement Benefits. The Bank agrees that, except as otherwise
--------- -------------------
specifically provided herein, upon the later to occur of the Director's 70th
birthday and January 1, 1999 (the "Qualifying Date"), the Bank will pay the
Director $2,000.00 per month for a continuous period of 120 months. Such
continuous monthly installment payments shall commence on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Qualifying Date shall
occur.
Section 2. Pre-Retirement Death Benefits. Should the Director die while
--------- -----------------------------
serving as a director of the Bank and prior to the Qualifying Date, the Bank
will pay $2,000.00 per month for a continuous period of 120 months to such
beneficiary or beneficiaries as are designated by the Director to the Bank in
writing (the "Beneficiaries"). The first such monthly installment payment shall
be made on a date to be determined by the Bank, but in no event later than the
first day of the sixth calendar month following the calendar month in which the
Director died. Notwithstanding the foregoing, if the Director dies as a result
of suicide on or before January 1, 1996, no benefits of whatever nature shall be
payable to the Beneficiaries under this Agreement. In the event of the death of
the last living Beneficiary before all the unpaid payments shall have been made,
the balance of any payments which remain unpaid at the time of such
Beneficiary's death shall be commuted on
<PAGE>
the basis of six percent (6%) per annum compounded interest and shall be paid in
a single sum to the estate of the last Beneficiary to die. In the absence of any
such beneficiary designation, any amount remaining unpaid at the Director's
death shall be commuted on the basis of six percent (6%) per annum compounded
interest and shall be paid in a single sum to the Director's estate.
Section 3. Post-Retirement Death Benefits. In the event that the Director
--------- ------------------------------
should die after becoming entitled to receive monthly installment payments under
this Agreement but before all remaining installment payments have been made, the
Bank will pay all remaining installment payments to the Beneficiary or
Beneficiaries. In the event of the death of the last living Beneficiary before
all installment payments have been made, the balance of any payments which
remain unpaid at the time of such Beneficiary's death shall be commuted on the
basis of six percent (6%) per annum compounded interest and shall be paid in a
single sum to the estate of the last Beneficiary to die. In the absence of such
beneficiary designation, any payments remaining unpaid at the Director's death
shall be commuted on the basis of six percent (6%) per annum compounded interest
and shall be paid in a single sum to the Director's estate.
Section 4. Termination Benefits. Should the Director voluntarily resign
--------- --------------------
as a director prior to the Qualifying Date, he or his Beneficiaries, as
applicable, shall be entitled to receive, commencing on a date to be determined
by the Bank, but in no event later than the first day of the sixth calendar
month following the month in which the earlier of the Director's death or 70th
birthday shall occur, the percentage of the amount of the monthly installment
payment stated in Section 1 of this Agreement determined under the following
table:
<TABLE>
<CAPTION>
PERCENTAGE OF MONTHLY INSTALLMENT
PAYMENT STATED IN SECTION 1 OF THIS
FULL NUMBER OF YEARS SERVED AS AGREEMENT TO WHICH DIRECTOR IS
DIRECTOR AFTER JANUARY 1, 1994 ENTITLED
------------------------------ -----------------------------------
<S> <C>
1 12.5%
2 25.0%
3 37.5%
4 50.0%
5 62.5%
6 75.0%
7 87.5%
8 100.0%
</TABLE>
Section 5. Benefits Not Transferable. Neither the Director, his
--------- -------------------------
Beneficiaries nor any other person claiming any right or interest under this
Agreement through the Director or any Beneficiary shall have any right to
commute, assign, transfer or otherwise convey the right to receive any benefits
hereunder.
Section 6. Binding Upon Successors. This Agreement and the Bank's
--------- -----------------------
obligations hereunder shall be binding upon the Bank's successors and permitted
assigns. The Bank may not assign its rights or obligations under this Agreement
without the Director's prior written consent. In addition,
2
<PAGE>
the Bank shall not enter into any agreement providing for the merger of the Bank
with and into another business entity or the sale of more than a majority of the
Bank's assets to another business entity, person or group persons that does not
specifically provide that such successor by merger or purchaser(s) of assets
shall assume and satisfy each and every obligation of the Bank to the Director
under this Agreement. In the case of an asset sale, such assumption shall not
relieve the Bank of its liability to fulfill such obligations.
Except as otherwise provided in Sections 1, 2, 3 or 4, as applicable, in
the event that, on or before the occurrence of the Qualifying Date, the
Director's service as a director of the Bank is terminated for any reason
coincident with or within twenty-four (24) months following a merger of the Bank
with or into another business entity or of an asset sale as described above,
then the provisions of Section 1 shall be deemed applicable except that the
Qualifying Date shall be deemed to be the date that such merger or asset sale
shall be consummated.
Section 7. Benefits Payable Only From General Corporate Assets;
--------- ----------------------------------------------------
Unsecured General Creditors Status of Director.
- ----------------------------------------------
The payments to the Director or his Beneficiary or Beneficiaries hereunder
shall be made from assets which for all purposes shall continue to be a part of
the general, unrestricted assets of the Bank; no person shall have any interest
in any such assets by virtue of the provisions of this Agreement. The Bank's
obligations hereunder shall be an unfunded and unsecured promise to pay money in
the future. To the extent that any person acquires a right to receive payments
from the Bank under the provisions hereof, such right shall be no greater than
the right of any unsecured general creditor of the Bank; no such person shall
have nor require any legal or equitable right, interest or claim in or to any
property or assets of the Bank.
In the event that, in its discretion, the Bank purchases an insurance
policy or policies insuring the life of the Director (or any other property), in
order to allow the Bank to recover the cost of providing benefits, in whole or
in part, hereunder, neither the Director, nor any Beneficiary, shall have any
rights whatsoever therein or in the proceeds therefrom. The Bank shall be the
sole owner and beneficiary of such insurance policy and shall possess and may
exercise all incidents of ownership therein.
Section 8. Additional Benefits. The benefits and rights provided under
--------- -------------------
this Agreement are independent of those benefits and rights provided under other
agreements between the parties hereto, and shall not affect, reduce or diminish
the right of Director to participate in any current or future benefit plan or
other supplemental compensation arrangement.
Section 9. No Contract of Employment. Nothing contained herein shall be
--------- -------------------------
construed to be a contract of employment or as conferring upon the Director the
right to continue as a director of the Bank. It is expressly understood by the
parties hereto that this Agreement relates exclusively to supplemental
retirement payments for the Director, and is not intended to be an employment or
services agreement.
3
<PAGE>
Section 10. Amendment. This Agreement may not be amended, altered or
---------- ---------
modified, except by a written instrument signed by the parties hereto or their
respective successors, and may not be otherwise terminated except as provided
herein.
Section 11. Governing Law. This Agreement, and the rights of the parties
---------- -------------
hereunder, shall be governed by and construed on accordance with the laws of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Director's Retirement Plan Agreement as of the day and year first above written.
HOME SAVINGS BANK, SSB
Attest:
/s/ Ruby Adams By: /s/ Thomas A. Vann
- --------------------- -----------------------------------
Ruby Adams Thomas A. Vann
Secretary
[Corporate Seal] Title: President
DIRECTOR:
/s/ Linley H. Gibbs, Jr.
----------------------------------- (Seal)
Linley H. Gibbs, Jr.
4
<PAGE>
AMENDED AND RESTATED
DIRECTOR'S RETIREMENT PLAN AGREEMENT
THIS AMENDED AND RESTATED DIRECTOR'S RETIREMENT PLAN AGREEMENT (this
"Agreement"), made and entered into this 1st day of January, 1994 and amended
and restated this the 14th day of December, 1995, by and between Home Savings
Bank, SSB, a mutual state savings bank organized and existing under the laws of
the State of North Carolina (the "Bank"), and Frederick N. Holscher (the
"Director").
W I T N E S S E T H:
WHEREAS, the Bank recognizes the valuable services heretofore performed for
it by the Director and wishes to encourage his further services and assist him
in providing for the contingencies of retirement and death;
WHEREAS, the parties hereto wish to provide the terms and conditions upon
which the Bank shall make certain payments to the Director or his designated
beneficiaries;
WHEREAS, the parties hereto intend that this Agreement be considered an
unfunded arrangement maintained to provide deferred compensation benefits for
the Director; and
WHEREAS, the parties hereto desire to amend the Agreement and to restate
the Agreement as amended.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the parties hereto agree as follows:
Section 1. Retirement Benefits. The Bank agrees that, except as otherwise
--------- -------------------
specifically provided herein, upon the later to occur of the Director's 70th
birthday and January 1, 1999 (the "Qualifying Date"), the Bank will pay the
Director $2,000.00 per month for a continuous period of 120 months. Such
continuous monthly installment payments shall commence on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Qualifying Date shall
occur.
Section 2. Pre-Retirement Death Benefits. Should the Director die while
--------- -----------------------------
serving as a director of the Bank and prior to the Qualifying Date, the Bank
will pay $2,000.00 per month for a continuous period of 120 months to such
beneficiary or beneficiaries as are designated by the Director to the Bank in
writing (the "Beneficiaries"). The first such monthly installment payment shall
be made on a date to be determined by the Bank, but in no event later than the
first day of the sixth calendar month following the calendar month in which the
Director died. Notwithstanding the foregoing, if the Director dies as a result
of suicide on or before January 1, 1996, no benefits of whatever nature shall be
payable to the Beneficiaries under this Agreement. In the event of the death of
the last living Beneficiary before all the unpaid payments shall have been made,
the balance of any payments which remain unpaid at the time of such
Beneficiary's death shall be commuted on
<PAGE>
the basis of six percent (6%) per annum compounded interest and shall be paid in
a single sum to the estate of the last Beneficiary to die. In the absence of any
such beneficiary designation, any amount remaining unpaid at the Director's
death shall be commuted on the basis of six percent (6%) per annum compounded
interest and shall be paid in a single sum to the Director's estate.
Section 3. Post-Retirement Death Benefits. In the event that the Director
--------- ------------------------------
should die after becoming entitled to receive monthly installment payments under
this Agreement but before all remaining installment payments have been made, the
Bank will pay all remaining installment payments to the Beneficiary or
Beneficiaries. In the event of the death of the last living Beneficiary before
all installment payments have been made, the balance of any payments which
remain unpaid at the time of such Beneficiary's death shall be commuted on the
basis of six percent (6%) per annum compounded interest and shall be paid in a
single sum to the estate of the last Beneficiary to die. In the absence of such
beneficiary designation, any payments remaining unpaid at the Director's death
shall be commuted on the basis of six percent (6%) per annum compounded interest
and shall be paid in a single sum to the Director's estate.
Section 4. Termination Benefits. Should the Director voluntarily resign
--------- --------------------
as a director prior to the Qualifying Date, he or his Beneficiaries, as
applicable, shall be entitled to receive, commencing on a date to be determined
by the Bank, but in no event later than the first day of the sixth calendar
month following the month in which the earlier of the Director's death or 70th
birthday shall occur, the percentage of the amount of the monthly installment
payment stated in Section 1 of this Agreement determined under the following
table:
<TABLE>
<CAPTION>
PERCENTAGE OF MONTHLY INSTALLMENT
PAYMENT STATED IN SECTION 1 OF THIS
FULL NUMBER OF YEARS SERVED AS AGREEMENT TO WHICH DIRECTOR IS
DIRECTOR AFTER JANUARY 1, 1994 ENTITLED
------------------------------ -----------------------------------
<S> <C>
1 10%
2 20%
3 30%
4 40%
5 50%
6 60%
7 70%
8 80%
9 90%
10 100%
</TABLE>
Section 5. Benefits Not Transferable. Neither the Director, his
--------- -------------------------
Beneficiaries nor any other person claiming any right or interest under this
Agreement through the Director or any Beneficiary shall have any right to
commute, assign, transfer or otherwise convey the right to receive any benefits
hereunder.
2
<PAGE>
Section 6. Binding Upon Successors. This Agreement and the Bank's
--------- -----------------------
obligations hereunder shall be binding upon the Bank's successors and permitted
assigns. The Bank may not assign its rights or obligations under this Agreement
without the Director's prior written consent. In addition, the Bank shall not
enter into any agreement providing for the merger of the Bank with and into
another business entity or the sale of more than a majority of the Bank's assets
to another business entity, person or group persons that does not specifically
provide that such successor by merger or purchaser(s) of assets shall assume and
satisfy each and every obligation of the Bank to the Director under this
Agreement. In the case of an asset sale, such assumption shall not relieve the
Bank of its liability to fulfill such obligations.
Except as otherwise provided in Sections 1, 2, 3 or 4, as applicable, in
the event that, on or before the occurrence of the Qualifying Date, the
Director's service as a director of the Bank is terminated for any reason
coincident with or within twenty-four (24) months following a merger of the Bank
with or into another business entity or of an asset sale as described above,
then the provisions of Section 1 shall be deemed applicable except that the
Qualifying Date shall be deemed to be the date that such merger or asset sale
shall be consummated.
Section 7. Benefits Payable Only From General Corporate Assets;
--------- ----------------------------------------------------
Unsecured General Creditors Status of Director.
- ----------------------------------------------
The payments to the Director or his Beneficiary or Beneficiaries hereunder
shall be made from assets which for all purposes shall continue to be a part of
the general, unrestricted assets of the Bank; no person shall have any interest
in any such assets by virtue of the provisions of this Agreement. The Bank's
obligations hereunder shall be an unfunded and unsecured promise to pay money in
the future. To the extent that any person acquires a right to receive payments
from the Bank under the provisions hereof, such right shall be no greater than
the right of any unsecured general creditor of the Bank; no such person shall
have nor require any legal or equitable right, interest or claim in or to any
property or assets of the Bank.
In the event that, in its discretion, the Bank purchases an insurance
policy or policies insuring the life of the Director (or any other property), in
order to allow the Bank to recover the cost of providing benefits, in whole or
in part, hereunder, neither the Director, nor any Beneficiary, shall have any
rights whatsoever therein or in the proceeds therefrom. The Bank shall be the
sole owner and beneficiary of such insurance policy and shall possess and may
exercise all incidents of ownership therein.
Section 8. Additional Benefits. The benefits and rights provided under
--------- -------------------
this Agreement are independent of those benefits and rights provided under other
agreements between the parties hereto, and shall not affect, reduce or diminish
the right of Director to participate in any current or future benefit plan or
other supplemental compensation arrangement.
Section 9. No Contract of Employment. Nothing contained herein shall be
--------- -------------------------
construed to be a contract of employment or as conferring upon the Director the
right to continue as a director of the
3
<PAGE>
Bank. It is expressly understood by the parties hereto that this Agreement
relates exclusively to supplemental retirement payments for the Director, and is
not intended to be an employment or services agreement.
Section 10. Amendment. This Agreement may not be amended, altered or
---------- ---------
modified, except by a written instrument signed by the parties hereto or their
respective successors, and may not be otherwise terminated except as provided
herein.
Section 11. Governing Law. This Agreement, and the rights of the parties
---------- -------------
hereunder, shall be governed by and construed on accordance with the laws of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Director's Retirement Plan Agreement as of the day and year first above written.
HOME SAVINGS BANK, SSB
Attest:
/s/ Ruby Adams By: /s/ Thomas A. Vann
- -------------------------- ------------------------------------
Ruby Adams Thomas A. Vann
Secretary
[Corporate Seal] Title: President
DIRECTOR:
/s/ Frederick N. Holscher
----------------------------------- (Seal)
Frederick N. Holscher
4
<PAGE>
AMENDED AND RESTATED
DIRECTOR'S RETIREMENT PLAN AGREEMENT
THIS AMENDED AND RESTATED DIRECTOR'S RETIREMENT PLAN AGREEMENT (this
"Agreement"), made and entered into this 1st day of January, 1994 and amended
and restated this the 14th day of December, 1995, by and between Home Savings
Bank, SSB, a mutual state savings bank organized and existing under the laws of
the State of North Carolina (the "Bank"), and Frederick H. Howdy (the
"Director").
W I T N E S S E T H:
WHEREAS, the Bank recognizes the valuable services heretofore performed for
it by the Director and wishes to encourage his further services and assist him
in providing for the contingencies of retirement and death;
WHEREAS, the parties hereto wish to provide the terms and conditions upon
which the Bank shall make certain payments to the Director or his designated
beneficiaries;
WHEREAS, the parties hereto intend that this Agreement be considered an
unfunded arrangement maintained to provide deferred compensation benefits for
the Director; and
WHEREAS, the parties hereto desire to amend the Agreement and to restate
the Agreement as amended.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the parties hereto agree as follows:
Section 1. Retirement Benefits. The Bank agrees that, except as otherwise
--------- -------------------
specifically provided herein, upon the later to occur of the Director's 70th
birthday and January 1, 1999 (the "Qualifying Date"), the Bank will pay the
Director $2,000.00 per month for a continuous period of 120 months. Such
continuous monthly installment payments shall commence on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Qualifying Date shall
occur.
Section 2. Pre-Retirement Death Benefits. Should the Director die while
--------- -----------------------------
serving as a director of the Bank and prior to the Qualifying Date, the Bank
will pay $2,000.00 per month for a continuous period of 120 months to such
beneficiary or beneficiaries as are designated by the Director to the Bank in
writing (the "Beneficiaries"). The first such monthly installment payment shall
be made on a date to be determined by the Bank, but in no event later than the
first day of the sixth calendar month following the calendar month in which the
Director died. Notwithstanding the foregoing, if the Director dies as a result
of suicide on or before January 1, 1996, no benefits of whatever nature shall be
payable to the Beneficiaries under this Agreement. In the event of the death of
the last living Beneficiary before all the unpaid payments shall have been made,
the balance of any payments which remain unpaid at the time of such
Beneficiary's death shall be commuted on
<PAGE>
the basis of six percent (6%) per annum compounded interest and shall be paid in
a single sum to the estate of the last Beneficiary to die. In the absence of any
such beneficiary designation, any amount remaining unpaid at the Director's
death shall be commuted on the basis of six percent (6%) per annum compounded
interest and shall be paid in a single sum to the Director's estate.
Section 3. Post-Retirement Death Benefits. In the event that the Director
--------- ------------------------------
should die after becoming entitled to receive monthly installment payments under
this Agreement but before all remaining installment payments have been made, the
Bank will pay all remaining installment payments to the Beneficiary or
Beneficiaries. In the event of the death of the last living Beneficiary before
all installment payments have been made, the balance of any payments which
remain unpaid at the time of such Beneficiary's death shall be commuted on the
basis of six percent (6%) per annum compounded interest and shall be paid in a
single sum to the estate of the last Beneficiary to die. In the absence of such
beneficiary designation, any payments remaining unpaid at the Director's death
shall be commuted on the basis of six percent (6%) per annum compounded interest
and shall be paid in a single sum to the Director's estate.
Section 4. Termination Benefits. Should the Director voluntarily resign
--------- --------------------
as a director prior to the Qualifying Date, he or his Beneficiaries, as
applicable, shall be entitled to receive, commencing on a date to be determined
by the Bank, but in no event later than the first day of the sixth calendar
month following the month in which the earlier of the Director's death or 70th
birthday shall occur, the percentage of the amount of the monthly installment
payment stated in Section 1 of this Agreement determined under the following
table:
<TABLE>
<CAPTION>
PERCENTAGE OF MONTHLY INSTALLMENT
PAYMENT STATED IN SECTION 1 OF THIS
FULL NUMBER OF YEARS SERVED AS AGREEMENT TO WHICH DIRECTOR IS
DIRECTOR AFTER JANUARY 1, 1994 ENTITLED
------------------------------ -----------------------------------
<S> <C>
1 12.5%
2 25.0%
3 37.5%
4 50.0%
5 62.5%
6 75.0%
7 87.5%
8 100.0%
</TABLE>
Section 5. Benefits Not Transferable. Neither the Director, his
--------- -------------------------
Beneficiaries nor any other person claiming any right or interest under this
Agreement through the Director or any Beneficiary shall have any right to
commute, assign, transfer or otherwise convey the right to receive any benefits
hereunder.
Section 6. Binding Upon Successors. This Agreement and the Bank's
--------- -----------------------
obligations hereunder shall be binding upon the Bank's successors and permitted
assigns. The Bank may not assign its rights or obligations under this Agreement
without the Director's prior written consent. In addition,
2
<PAGE>
the Bank shall not enter into any agreement providing for the merger of the Bank
with and into another business entity or the sale of more than a majority of the
Bank's assets to another business entity, person or group persons that does not
specifically provide that such successor by merger or purchaser(s) of assets
shall assume and satisfy each and every obligation of the Bank to the Director
under this Agreement. In the case of an asset sale, such assumption shall not
relieve the Bank of its liability to fulfill such obligations.
Except as otherwise provided in Sections 1, 2, 3 or 4, as applicable, in
the event that, on or before the occurrence of the Qualifying Date, the
Director's service as a director of the Bank is terminated for any reason
coincident with or within twenty-four (24) months following a merger of the Bank
with or into another business entity or of an asset sale as described above,
then the provisions of Section 1 shall be deemed applicable except that the
Qualifying Date shall be deemed to be the date that such merger or asset sale
shall be consummated.
Section 7. Benefits Payable Only From General Corporate Assets;
--------- ----------------------------------------------------
Unsecured General Creditors Status of Director.
- ----------------------------------------------
The payments to the Director or his Beneficiary or Beneficiaries hereunder
shall be made from assets which for all purposes shall continue to be a part of
the general, unrestricted assets of the Bank; no person shall have any interest
in any such assets by virtue of the provisions of this Agreement. The Bank's
obligations hereunder shall be an unfunded and unsecured promise to pay money in
the future. To the extent that any person acquires a right to receive payments
from the Bank under the provisions hereof, such right shall be no greater than
the right of any unsecured general creditor of the Bank; no such person shall
have nor require any legal or equitable right, interest or claim in or to any
property or assets of the Bank.
In the event that, in its discretion, the Bank purchases an insurance
policy or policies insuring the life of the Director (or any other property), in
order to allow the Bank to recover the cost of providing benefits, in whole or
in part, hereunder, neither the Director, nor any Beneficiary, shall have any
rights whatsoever therein or in the proceeds therefrom. The Bank shall be the
sole owner and beneficiary of such insurance policy and shall possess and may
exercise all incidents of ownership therein.
Section 8. Additional Benefits. The benefits and rights provided under
--------- -------------------
this Agreement are independent of those benefits and rights provided under other
agreements between the parties hereto, and shall not affect, reduce or diminish
the right of Director to participate in any current or future benefit plan or
other supplemental compensation arrangement.
Section 9. No Contract of Employment. Nothing contained herein shall be
--------- -------------------------
construed to be a contract of employment or as conferring upon the Director the
right to continue as a director of the Bank. It is expressly understood by the
parties hereto that this Agreement relates exclusively to supplemental
retirement payments for the Director, and is not intended to be an employment or
services agreement.
3
<PAGE>
Section 10. Amendment. This Agreement may not be amended, altered or
---------- ---------
modified, except by a written instrument signed by the parties hereto or their
respective successors, and may not be otherwise terminated except as provided
herein.
Section 11. Governing Law. This Agreement, and the rights of the parties
---------- -------------
hereunder, shall be governed by and construed on accordance with the laws of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Director's Retirement Plan Agreement as of the day and year first above written.
HOME SAVINGS BANK, SSB
Attest:
/s/ Ruby Adams By: /s/ Thomas A. Vann
- --------------------- --------------------------------
Ruby Adams Thomas A. Vann
Secretary
[Corporate Seal] Title: President
DIRECTOR:
/s/ Frederick H. Howdy
----------------------------- (Seal)
Frederick H. Howdy
4
<PAGE>
AMENDED AND RESTATED
DIRECTOR'S RETIREMENT PLAN AGREEMENT
THIS AMENDED AND RESTATED DIRECTOR'S RETIREMENT PLAN AGREEMENT (this
"Agreement"), made and entered into this 1st day of January, 1994 and amended
and restated this the 14th day of December, 1995, by and between Home Savings
Bank, SSB, a mutual state savings bank organized and existing under the laws of
the State of North Carolina (the "Bank"), and Charles E. Parker (the
"Director").
W I T N E S S E T H:
WHEREAS, the Bank recognizes the valuable services heretofore performed for
it by the Director and wishes to encourage his further services and assist him
in providing for the contingencies of retirement and death;
WHEREAS, the parties hereto wish to provide the terms and conditions upon
which the Bank shall make certain payments to the Director or his designated
beneficiaries;
WHEREAS, the parties hereto intend that this Agreement be considered an
unfunded arrangement maintained to provide deferred compensation benefits for
the Director; and
WHEREAS, the parties hereto desire to amend the Agreement and to restate
the Agreement as amended.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the parties hereto agree as follows:
Section 1. Retirement Benefits. The Bank agrees that, except as otherwise
--------- -------------------
specifically provided herein, upon the later to occur of the Director's 70th
birthday and January 1, 1999 (the "Qualifying Date"), the Bank will pay the
Director $2,000.00 per month for a continuous period of 120 months. Such
continuous monthly installment payments shall commence on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Qualifying Date shall
occur.
Section 2. Pre-Retirement Death Benefits. Should the Director die while
--------- -----------------------------
serving as a director of the Bank and prior to the Qualifying Date, the Bank
will pay $2,000.00 per month for a continuous period of 120 months to such
beneficiary or beneficiaries as are designated by the Director to the Bank in
writing (the "Beneficiaries"). The first such monthly installment payment shall
be made on a date to be determined by the Bank, but in no event later than the
first day of the sixth calendar month following the calendar month in which the
Director died. Notwithstanding the foregoing, if the Director dies as a result
of suicide on or before January 1, 1996, no benefits of whatever nature shall be
payable to the Beneficiaries under this Agreement. In the event of the death of
the last living Beneficiary before all the unpaid payments shall have been made,
the balance of any payments which remain unpaid at the time of such
Beneficiary's death shall be commuted on
<PAGE>
the basis of six percent (6%) per annum compounded interest and shall be paid in
a single sum to the estate of the last Beneficiary to die. In the absence of any
such beneficiary designation, any amount remaining unpaid at the Director's
death shall be commuted on the basis of six percent (6%) per annum compounded
interest and shall be paid in a single sum to the Director's estate.
Section 3. Post-Retirement Death Benefits. In the event that the Director
--------- ------------------------------
should die after becoming entitled to receive monthly installment payments under
this Agreement but before all remaining installment payments have been made, the
Bank will pay all remaining installment payments to the Beneficiary or
Beneficiaries. In the event of the death of the last living Beneficiary before
all installment payments have been made, the balance of any payments which
remain unpaid at the time of such Beneficiary's death shall be commuted on the
basis of six percent (6%) per annum compounded interest and shall be paid in a
single sum to the estate of the last Beneficiary to die. In the absence of such
beneficiary designation, any payments remaining unpaid at the Director's death
shall be commuted on the basis of six percent (6%) per annum compounded interest
and shall be paid in a single sum to the Director's estate.
Section 4. Termination Benefits. Should the Director voluntarily resign
--------- --------------------
as a director prior to the Qualifying Date, he or his Beneficiaries, as
applicable, shall be entitled to receive, commencing on a date to be determined
by the Bank, but in no event later than the first day of the sixth calendar
month following the month in which the earlier of the Director's death or 70th
birthday shall occur, the percentage of the amount of the monthly installment
payment stated in Section 1 of this Agreement determined under the following
table:
<TABLE>
<CAPTION>
PERCENTAGE OF MONTHLY INSTALLMENT
PAYMENT STATED IN SECTION 1 OF THIS
FULL NUMBER OF YEARS SERVED AS AGREEMENT TO WHICH DIRECTOR IS
DIRECTOR AFTER JANUARY 1, 1994 ENTITLED
--------------------------------- -----------------------------------
<S> <C>
1 10%
2 20%
3 30%
4 40%
5 50%
6 60%
7 70%
8 80%
9 90%
10 100%
</TABLE>
Section 5. Benefits Not Transferable. Neither the Director, his
--------- -------------------------
Beneficiaries nor any other person claiming any right or interest under this
Agreement through the Director or any Beneficiary shall have any right to
commute, assign, transfer or otherwise convey the right to receive any benefits
hereunder.
2
<PAGE>
Section 6. Binding Upon Successors. This Agreement and the Bank's
--------- -----------------------
obligations hereunder shall be binding upon the Bank's successors and permitted
assigns. The Bank may not assign its rights or obligations under this Agreement
without the Director's prior written consent. In addition, the Bank shall not
enter into any agreement providing for the merger of the Bank with and into
another business entity or the sale of more than a majority of the Bank's assets
to another business entity, person or group persons that does not specifically
provide that such successor by merger or purchaser(s) of assets shall assume and
satisfy each and every obligation of the Bank to the Director under this
Agreement. In the case of an asset sale, such assumption shall not relieve the
Bank of its liability to fulfill such obligations.
Except as otherwise provided in Sections 1, 2, 3 or 4, as applicable, in
the event that, on or before the occurrence of the Qualifying Date, the
Director's service as a director of the Bank is terminated for any reason
coincident with or within twenty-four (24) months following a merger of the Bank
with or into another business entity or of an asset sale as described above,
then the provisions of Section 1 shall be deemed applicable except that the
Qualifying Date shall be deemed to be the date that such merger or asset sale
shall be consummated.
Section 7. Benefits Payable Only From General Corporate Assets;
--------- ----------------------------------------------------
Unsecured General Creditors Status of Director.
- ----------------------------------------------
The payments to the Director or his Beneficiary or Beneficiaries hereunder
shall be made from assets which for all purposes shall continue to be a part of
the general, unrestricted assets of the Bank; no person shall have any interest
in any such assets by virtue of the provisions of this Agreement. The Bank's
obligations hereunder shall be an unfunded and unsecured promise to pay money in
the future. To the extent that any person acquires a right to receive payments
from the Bank under the provisions hereof, such right shall be no greater than
the right of any unsecured general creditor of the Bank; no such person shall
have nor require any legal or equitable right, interest or claim in or to any
property or assets of the Bank.
In the event that, in its discretion, the Bank purchases an insurance
policy or policies insuring the life of the Director (or any other property), in
order to allow the Bank to recover the cost of providing benefits, in whole or
in part, hereunder, neither the Director, nor any Beneficiary, shall have any
rights whatsoever therein or in the proceeds therefrom. The Bank shall be the
sole owner and beneficiary of such insurance policy and shall possess and may
exercise all incidents of ownership therein.
Section 8. Additional Benefits. The benefits and rights provided under
--------- -------------------
this Agreement are independent of those benefits and rights provided under other
agreements between the parties hereto, and shall not affect, reduce or diminish
the right of Director to participate in any current or future benefit plan or
other supplemental compensation arrangement.
Section 9. No Contract of Employment. Nothing contained herein shall be
--------- -------------------------
construed to be a contract of employment or as conferring upon the Director the
right to continue as a director of the
3
<PAGE>
Bank. It is expressly understood by the parties hereto that this Agreement
relates exclusively to supplemental retirement payments for the Director, and is
not intended to be an employment or services agreement.
Section 10. Amendment. This Agreement may not be amended, altered or
---------- ---------
modified, except by a written instrument signed by the parties hereto or their
respective successors, and may not be otherwise terminated except as provided
herein.
Section 11. Governing Law. This Agreement, and the rights of the parties
---------- -------------
hereunder, shall be governed by and construed on accordance with the laws of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Director's Retirement Plan Agreement as of the day and year first above written.
HOME SAVINGS BANK, SSB
Attest:
/s/ Ruby Adams By: /s/ Thomas A. Vann
- ------------------------- ---------------------------
Ruby Adams Thomas A. Vann
Secretary
[Corporate Seal] Title: President
DIRECTOR:
/s/ Charles E. Parker, Jr. (Seal)
------------------------------
Charles E. Parker, Jr.
4
<PAGE>
AMENDED AND RESTATED
DIRECTOR'S RETIREMENT PLAN AGREEMENT
THIS AMENDED AND RESTATED DIRECTOR'S RETIREMENT PLAN AGREEMENT (this
"Agreement"), made and entered into this 1st day of January, 1994 and amended
and restated this the 14th day of December, 1995, by and between Home Savings
Bank, SSB, a mutual state savings bank organized and existing under the laws of
the State of North Carolina (the "Bank"), and Thomas A. Vann (the "Director").
W I T N E S S E T H:
WHEREAS, the Bank recognizes the valuable services heretofore performed for
it by the Director and wishes to encourage his further services and assist him
in providing for the contingencies of retirement and death;
WHEREAS, the parties hereto wish to provide the terms and conditions upon
which the Bank shall make certain payments to the Director or his designated
beneficiaries;
WHEREAS, the parties hereto intend that this Agreement be considered an
unfunded arrangement maintained to provide deferred compensation benefits for
the Director; and
WHEREAS, the parties hereto desire to amend the Agreement and to restate
the Agreement as amended.
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the parties hereto agree as follows:
Section 1. Retirement Benefits. The Bank agrees that, except as otherwise
--------- -------------------
specifically provided herein, upon the later to occur of the Director's 70th
birthday and January 1, 1999 (the "Qualifying Date"), the Bank will pay the
Director $2,000.00 per month for a continuous period of 120 months. Such
continuous monthly installment payments shall commence on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Qualifying Date shall
occur.
Section 2. Pre-Retirement Death Benefits. Should the Director die while
--------- -----------------------------
serving as a director of the Bank and prior to the Qualifying Date, the Bank
will pay $2,000.00 per month for a continuous period of 120 months to such
beneficiary or beneficiaries as are designated by the Director to the Bank in
writing (the "Beneficiaries"). The first such monthly installment payment shall
be made on a date to be determined by the Bank, but in no event later than the
first day of the sixth calendar month following the calendar month in which the
Director died. Notwithstanding the foregoing, if the Director dies as a result
of suicide on or before January 1, 1996, no benefits of whatever nature shall be
payable to the Beneficiaries under this Agreement. In the event of the death of
the last living Beneficiary before all the unpaid payments shall have been made,
the balance of any payments which remain unpaid at the time of such
Beneficiary's death shall be commuted on
<PAGE>
the basis of six percent (6%) per annum compounded interest and shall be paid in
a single sum to the estate of the last Beneficiary to die. In the absence of any
such beneficiary designation, any amount remaining unpaid at the Director's
death shall be commuted on the basis of six percent (6%) per annum compounded
interest and shall be paid in a single sum to the Director's estate.
Section 3. Post-Retirement Death Benefits. In the event that the Director
--------- ------------------------------
should die after becoming entitled to receive monthly installment payments under
this Agreement but before all remaining installment payments have been made, the
Bank will pay all remaining installment payments to the Beneficiary or
Beneficiaries. In the event of the death of the last living Beneficiary before
all installment payments have been made, the balance of any payments which
remain unpaid at the time of such Beneficiary's death shall be commuted on the
basis of six percent (6%) per annum compounded interest and shall be paid in a
single sum to the estate of the last Beneficiary to die. In the absence of such
beneficiary designation, any payments remaining unpaid at the Director's death
shall be commuted on the basis of six percent (6%) per annum compounded interest
and shall be paid in a single sum to the Director's estate.
Section 4. Termination Benefits. Should the Director voluntarily resign
--------- --------------------
as a director prior to the Qualifying Date, he or his Beneficiaries, as
applicable, shall be entitled to receive, commencing on a date to be determined
by the Bank, but in no event later than the first day of the sixth calendar
month following the month in which the earlier of the Director's death or 70th
birthday shall occur, the percentage of the amount of the monthly installment
payment stated in Section 1 of this Agreement determined under the following
table:
PERCENTAGE OF MONTHLY INSTALLMENT
PAYMENT STATED IN SECTION 1 OF THIS
FULL NUMBER OF YEARS SERVED AS AGREEMENT TO WHICH DIRECTOR IS
DIRECTOR AFTER JANUARY 1, 1994 ENTITLED
----------------------------------- --------------------------------------
1 10%
2 20%
3 30%
4 40%
5 50%
6 60%
7 70%
8 80%
9 90%
10 100%
Section 5. Benefits Not Transferable. Neither the Director, his
--------- -------------------------
Beneficiaries nor any other person claiming any right or interest under this
Agreement through the Director or any Beneficiary shall have any right to
commute, assign, transfer or otherwise convey the right to receive any benefits
hereunder.
2
<PAGE>
Section 6. Binding Upon Successors. This Agreement and the Bank's
--------- -----------------------
obligations hereunder shall be binding upon the Bank's successors and permitted
assigns. The Bank may not assign its rights or obligations under this Agreement
without the Director's prior written consent. In addition, the Bank shall not
enter into any agreement providing for the merger of the Bank with and into
another business entity or the sale of more than a majority of the Bank's assets
to another business entity, person or group persons that does not specifically
provide that such successor by merger or purchaser(s) of assets shall assume and
satisfy each and every obligation of the Bank to the Director under this
Agreement. In the case of an asset sale, such assumption shall not relieve the
Bank of its liability to fulfill such obligations.
Except as otherwise provided in Sections 1, 2, 3 or 4, as applicable, in
the event that, on or before the occurrence of the Qualifying Date, the
Director's service as a director of the Bank is terminated for any reason
coincident with or within twenty-four (24) months following a merger of the Bank
with or into another business entity or of an asset sale as described above,
then the provisions of Section 1 shall be deemed applicable except that the
Qualifying Date shall be deemed to be the date that such merger or asset sale
shall be consummated.
Section 7. Benefits Payable Only From General Corporate Assets;
--------- ----------------------------------------------------
Unsecured General Creditors Status of Director.
- ----------------------------------------------
The payments to the Director or his Beneficiary or Beneficiaries hereunder
shall be made from assets which for all purposes shall continue to be a part of
the general, unrestricted assets of the Bank; no person shall have any interest
in any such assets by virtue of the provisions of this Agreement. The Bank's
obligations hereunder shall be an unfunded and unsecured promise to pay money in
the future. To the extent that any person acquires a right to receive payments
from the Bank under the provisions hereof, such right shall be no greater than
the right of any unsecured general creditor of the Bank; no such person shall
have nor require any legal or equitable right, interest or claim in or to any
property or assets of the Bank.
In the event that, in its discretion, the Bank purchases an insurance
policy or policies insuring the life of the Director (or any other property), in
order to allow the Bank to recover the cost of providing benefits, in whole or
in part, hereunder, neither the Director, nor any Beneficiary, shall have any
rights whatsoever therein or in the proceeds therefrom. The Bank shall be the
sole owner and beneficiary of such insurance policy and shall possess and may
exercise all incidents of ownership therein.
Section 8. Additional Benefits. The benefits and rights provided under
--------- -------------------
this Agreement are independent of those benefits and rights provided under other
agreements between the parties hereto, and shall not affect, reduce or diminish
the right of Director to participate in any current or future benefit plan or
other supplemental compensation arrangement.
Section 9. No Contract of Employment. Nothing contained herein shall be
--------- -------------------------
construed to be a contract of employment or as conferring upon the Director the
right to continue as a director of the
3
<PAGE>
Bank. It is expressly understood by the parties hereto that this Agreement
relates exclusively to supplemental retirement payments for the Director, and is
not intended to be an employment or services agreement.
Section 10. Amendment. This Agreement may not be amended, altered or
---------- ---------
modified, except by a written instrument signed by the parties hereto or their
respective successors, and may not be otherwise terminated except as provided
herein.
Section 11. Governing Law. This Agreement, and the rights of the parties
---------- -------------
hereunder, shall be governed by and construed on accordance with the laws of the
State of North Carolina.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Director's Retirement Plan Agreement as of the day and year first above written.
HOME SAVINGS BANK, SSB
Attest:
/s/ Ruby Adams By: /s/ William L. Wall
- ------------------------------ --------------------------------
Ruby Adams William L. Wall
Secretary
[Corporate Seal] Title: Executive Vice President
DIRECTOR:
/s/ Thomas A. Vann
--------------------------------- (Seal)
Thomas A. Vann
4
<PAGE>
HOME SAVINGS BANK, SSB
DIRECTOR'S RETIREMENT PLAN AGREEMENT
AS AMENDED AND RESTATED DECEMBER 14, 1995
--------------------
1996 Amendment
--------------------
WHEREAS, Home Savings Bank, SSB (the "Bank") has entered into a
Director's Retirement Plan Agreement (the "Agreement"), originally effective
January 1, 1994 and as amended and restated effective December 14, 1995, with
Directors E. Buckman, Jr., F. Howdy, C. Parker, Jr., F. Holscher, L. Gibbs, Jr.,
H. Lane, and T. Vann (the "Directors"); and
WHEREAS, the Bank has authorized an amendment to the Agreement with
each Director in order to address issues arising from the Bank's upcoming
conversion from mutual to stock form;
NOW, THEREFORE, pursuant to Section 10 of each Agreement, the
Agreement with each Director is hereby amended as follows, effective immediately
on execution hereof:
1. The second paragraph of Section 6 is amended by replacing the
words "merger of the Bank with or into another business entity or of an asset
sale as described above" with the words "Change in Control as defined in Section
7 hereof."
2. Section 7 of the Agreement shall be amended by adding the
following paragraphs immediately at the end thereof:
Notwithstanding any other provision of this Agreement that may be
contrary or inconsistent herewith, not later than ten business days
after a Change in Control (as defined in the last paragraph of this
Section 8), the Bank shall (i) deposit in a grantor trust (the
"Trust") that is designed in accordance with Revenue Procedure 92-64
and has a trustee independent of the Bank, the Company and any
successor to their interest, an amount equal to the present value of
all benefits that may become payable under this Agreement, unless the
Director has previously provided a written release of any claims under
this Agreement, and (ii) provide the trustee of the Trust with a
written direction to hold said amount and any investment return
thereon in a segregated account for the benefit of the Director, and
to follow the procedures set forth in the next paragraph as to the
payment of such amounts from the Trust.
<PAGE>
At any time or from time to time following the Change in Control,
the Director may provide the trustee of the Trust with a written
schedule directing that the trustee pay to the Director amounts
designated in the schedule as being payable pursuant to this
Agreement. Within three business days after receiving said notice,
the trustee of the Trust shall send a copy of the notice to the Bank
via overnight and registered mail (return receipt requested). On the
fifth business day after mailing said notice to the Bank, the trustee
of the Trust shall pay the Director the amount designated therein in
immediately available funds, unless prior thereto the Bank provides
the trustee with a written notice directing the trustee to withhold
such payment. In the latter event, the trustee shall submit the
dispute to non-appealable binding arbitration for a determination of
the amount payable to the Director pursuant to this Agreement, and the
costs of such arbitration (including any attorneys' fees incurred by
the Director) shall be paid by the Bank. The trustee shall choose the
arbitrator to settle the dispute, and such arbitrator shall be bound
by the rules of the American Arbitration Association in making his
determination. The parties and the trustee shall be bound by the
results of the arbitration and, within three days of the determination
by the arbitrator, the trustee shall pay from the Trust the amounts
required to be paid to the Director and/or the Bank, and in no event
shall the trustee be liable to either party for making the payments as
determined by the arbitrator.
Upon receiving the Director's release of all claims under this
Agreement, the trustee of the Trust shall pay to the Bank or its
successor in interest the entire balance remaining in the segregated
account maintained for the benefit of the Director. The Director
shall thereafter have no further interest in the Trust pursuant to
this Agreement.
For purposes of this Agreement, "Change in Control" shall mean
any one of the following events: (i) the acquisition of ownership,
holding, or power to vote more than 25% of the voting stock of the
Bank or NewSouth Bancorp, Inc. (the "Company"), (ii) the acquisition
of the ability to control the election of a majority of the Bank's or
the Company's directors, (iii) the acquisition of a controlling
influence over the management or policies of the Bank or of the
Company by any person or by persons acting as a "group" (within the
meaning of Section 13(d) of the Securities Exchange Act of 1934), or
(iv) during any period of two consecutive years, individuals (the
"Continuing Directors") who at the beginning of such period constitute
the Board of Directors of the Bank or of the Company (the "Existing
Board") cease for any reason to constitute at least two-thirds
thereof, provided that any individual whose election or nomination for
election as a member of the Existing Board was approved by a vote of
at least two-thirds of the Continuing Directors then in office shall
be considered a Continuing Director. Notwithstanding the foregoing,
the Company's ownership
<PAGE>
of the Bank shall not of itself constitute a Change in Control for
purposes of the Agreement. For purposes of this paragraph only, the
term "person" refers to an individual or a corporation, partnership,
trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of
entity not specifically listed herein.
3. Nothing contained herein shall be held to alter, vary or affect any of
the terms, provisions, or conditions of the Agreement entered into thereunder,
other than as stated above.
<PAGE>
WHEREFORE, on this 23rd day of October, 1996, the Bank and each Director
who is party to an Agreement hereby execute this 1996 Amendment to the Plan.
<TABLE>
<S> <C>
HOME SAVINGS BANK, SSB
By /s/ Frederick H. Howdy
--------------------------
Its Chairman of the Board
October 23, 1996
- ------------------------------- Attest: William L. Wall
Date ------------------------------------ (Seal)
DIRECTORS
Brenda S. Ipoch /s/ Edmund T. Buckman, Jr.
- ----------------------------------- -------------------------------------------
Witness: E. Buckman, Jr.
Brenda S. Ipoch /s/ Frederick H. Howdy
- ----------------------------------- -------------------------------------------
Witness: F. Howdy
Brenda S. Ipoch /s/ Charles E. Parker, Jr.
- ----------------------------------- ---------------------------------------------
Witness: C. Parker, Jr.
Brenda S. Ipoch /s/ Frederick N. Holscher
- ----------------------------------- -------------------------------------------
Witness: F. Holscher
Brenda S. Ipoch /s/ Linley H. Gibbs, Jr.
- ----------------------------------- --------------------------------------------
Witness: L. Gibbs, Jr.
Brenda S. Ipoch /s/ Harold A. Lane
- ----------------------------------- --------------------------------------------
Witness: H. Lane
Brenda S. Ipoch /s/ Thomas A. Vann
- ------------------------------------ -------------------------------------------
Witness: T. Vann
</TABLE>
<PAGE>
EXHIBIT 10.9
AMENDED AND RESTATED
DIRECTOR'S RETIREMENT
PAYMENT AGREEMENT
THIS AMENDED AND RESTATED DIRECTOR'S RETIREMENT PAYMENT AGREEMENT, entered
into as of the 1st day of May, 1984 and amended and restated this the 14th day
of December, 1995 (this "Agreement"), by and between Home Savings Bank, SSB, a
mutual savings bank organized and existing under the laws of the State of North
Carolina (the "Bank"), and Edmund T. Buckman, Jr. (the "Director").
W I T N E S S E T H:
WHEREAS, after May 1, 1984, the Bank converted its charter to a state
savings bank charter and changed its name from "Home Savings and Loan
Association" to "Home Savings Bank, SSB;"
WHEREAS, the Director is rendering valuable service to the Bank and it is
the desire of the Bank to have the benefit of his continued loyalty and service
and also to assist him in providing for the contingencies of retirement and
death;
WHEREAS, the Director heretofore deferred receipt of director's fees in the
amount of $250.00 per month from May 1, 1984 through April 30, 1989; and
WHEREAS, the parties desire to amend the Agreement and to restate the
Agreement as amended.
NOW, THEREFORE, in consideration of the premises contained herein, the
parties hereto mutually agree as follows:
Section 1. Deferral Election. The Director heretofore has deferred the
--------- -----------------
receipt by him of director's fees as described above. In exchange for such
deferral, the Director shall receive from the Bank the benefits hereinafter
described. Except as otherwise specifically provided herein, in order to
receive benefits under this Agreement, the Director must be a director of the
Bank as of his 65th birthday.
Section 2. Retirement Benefits. Upon the occurrence of the Director's
--------- -------------------
65th birthday (except as otherwise specifically provided herein), the Bank will
pay to him $1,054 per month for a continuous period of 120 months. Such
continuous monthly installment payments shall commence on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Director's 65th
birthday shall occur. In the event that the Director should die after becoming
entitled to receive such installment payments but before
<PAGE>
all such payments have been made, the Bank will pay all remaining installment
payments to such beneficiary or beneficiaries as the Director has designated in
writing to the Bank (the "Beneficiaries"). In the event of the death of the
last living Beneficiary before all remaining installment payments have been
made, the balance of any payments which remain unpaid at such Beneficiary's
death shall be commuted on the basis of six percent (6%) per annum compounded
interest and shall be paid in a single sum to the estate of the last Beneficiary
to die. In the absence of any such beneficiary designation, any payments
remaining unpaid at the Director's death shall be commuted on the basis of six
percent (6%) per annum compounded interest and shall be paid in a single sum to
the Director's estate.
Section 3. Pre-Retirement Death Benefits. Should the Director die prior
--------- -----------------------------
to the occurrence of his 65th birthday, the Bank will pay $1,054 per month for a
continuous period of 120 months to the Beneficiary or Beneficiaries of the
Director. The first such monthly installment payment shall be made on a date to
be determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Director died. In the
event of the death of the last living Beneficiary before all installment
payments shall have been made, the balance of any payments which remain unpaid
at the time of such Beneficiary's death shall be commuted on the basis of six
percent (6%) per annum compounded interest and shall be paid in a single sum to
the estate of the last Beneficiary to die. In the absence of any such
beneficiary designation, any payments remaining unpaid at the Director's death
shall be commuted on the basis of six percent (6%) per annum compounded interest
and shall be paid in a single sum to the Director's estate.
Section 4. Termination Benefits. Except as provided in Section 5 hereof,
--------- --------------------
if the Director terminates his service as a director of the Bank, for any reason
other than death or the attainment of his 65th birthday, he (or his Beneficiary)
shall be entitled to the benefits set forth in Section 2 of this Agreement,
commencing on a date to be determined by the Bank, but in no event later than
the first day of the sixth calendar month following the calendar month in which
the Director's 65th birthday or, if earlier, death occurs.
Section 5. Extraordinary Transactions. In the event that the Director's
--------- --------------------------
service as a director of the Bank is terminated for any reason coincident with
or within twenty-four (24) months following a merger of the Bank with or into
another business entity or the sale by the Bank of more than a majority of its
assets, then the Director shall be entitled to the benefits set forth in Section
2 and the Bank shall commence to make monthly installment payments to the
Director as described therein on a date to be determined by the Bank, but in no
event later than the first day of the sixth calendar month following the
calendar month in which such merger or asset sale is consummated.
Section 6. General Provisions.
--------- ------------------
A. Except as otherwise provided by this Agreement, it is agreed that
neither the Director, any Beneficiary nor any other person claiming
any right or interest under this Agreement through the Director or any
Beneficiary shall have any right to
2
<PAGE>
commute, sell, assign, transfer or otherwise convey any right to
receive any benefits hereunder.
B. The benefits and rights provided under this Agreement are in addition
to, and are independent of, those benefits and rights provided under
any other agreements between the parties hereto. This Agreement shall
not be deemed to constitute an agreement of employment or for services
between the parties hereto or as conferring upon the Director the
right to continue as a director of the Bank.
C. The rights of the Director under this Agreement and of any Beneficiary
shall be solely those of an unsecured creditor of the Bank. Any asset
acquired by the Bank in connection with its plans to fund the Bank's
liabilities hereunder shall not be deemed to be held under any trust
for the benefit of the Director or his Beneficiaries or to be
considered security for the performance of the obligations of the
Bank, but shall be, and remain, a general, unpledged, unrestricted
asset of the Bank.
D. This Agreement and the Bank's obligations hereunder shall be binding
upon its successors and permitted assigns. The Bank may not assign its
rights or obligations hereunder without the Director's prior written
consent. In addition, the Bank agrees it shall not enter into any
agreement providing for the merger of the Bank with and into another
business entity or the sale of more than a majority of the Bank's
assets to another business entity, person or group of persons that
does not specifically provide that such successor by merger or
purchaser(s) of assets shall assume and satisfy each and every
obligation of the Bank to the Director under this Agreement. In the
case of an asset sale, such assumption shall not relieve the Bank of
its liability to fulfill such obligations.
E. This Agreement may be revoked or amended in whole or in part by a
writing signed by both of the parties hereto.
F. This Agreement shall be subject to and construed under the laws of the
State of North Carolina.
3
<PAGE>
IN WITNESS THEREOF, the Bank has caused this Amended and Restated
Director's Retirement Plan Agreement to be signed in its corporate name by its
duly authorized officer, and impressed with its corporate seal, attested by its
Secretary, and the Director has hereunto set his hand and seal, all on the day
and year first above written.
HOME SAVINGS BANK, SSB
Attest:
/s/ Ruby Adams By: /s/ Thomas A. Vann
- --------------------------- ------------------------------
Ruby Adams Thomas A. Vann
Secretary
Title: President
[Corporate Seal]
DIRECTOR:
/s/ Edmund T. Buckman, Jr.
------------------------------- (Seal)
Edmund T. Buckman, Jr.
4
<PAGE>
AMENDED AND RESTATED
DIRECTOR'S RETIREMENT
PAYMENT AGREEMENT
THIS AMENDED AND RESTATED DIRECTOR'S RETIREMENT PAYMENT AGREEMENT, entered
into as of the 1st day of January, 1987 and amended and restated this the 14th
day of December, 1995 (this "Agreement"), by and between Home Savings Bank, SSB,
a mutual savings bank organized and existing under the laws of the State of
North Carolina (the "Bank"), and Linley H. Gibbs, Jr. (the "Director").
W I T N E S S E T H:
WHEREAS, after January 1, 1987, the Bank converted its charter to a state
savings bank charter and changed its name from "Home Savings and Loan
Association of Washington" to "Home Savings Bank, SSB";
WHEREAS, the Director is rendering valuable service to the Bank and it is
the desire of the Bank to have the benefit of his continued loyalty and service
and also to assist him in providing for the contingencies of retirement and
death;
WHEREAS, the Director heretofore deferred receipt of director's fees in the
amount of $350.00 per month from January 1, 1987 through December 31, 1994; and
WHEREAS, the parties desire to amend the Agreement and to restate the
Agreement as amended.
NOW, THEREFORE, in consideration of the premises contained herein, the
parties hereto mutually agree as follows:
Section 1. Deferral Election. The Director heretofore has deferred the
--------- -----------------
receipt by him of director's fees as described above. In exchange for such
deferral, the Director shall receive from the Bank the benefits hereinafter
described. Except as otherwise specifically provided herein, in order to receive
benefits under this Agreement, the Director must be a director of the Bank as of
his 65th birthday.
Section 2. Retirement Benefits. Upon the occurrence of the Director's
--------- -------------------
65th birthday (except as otherwise specifically provided herein), the Bank will
pay to him $1,610 per month for a continuous period of 120 months. Such
continuous monthly installment payments shall commence on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Director's 65th
birthday shall occur. In the event that the Director should die after becoming
entitled to receive such installment payments but before
<PAGE>
all such payments have been made, the Bank will pay all remaining installment
payments to such beneficiary or beneficiaries as the Director has designated in
writing to the Bank (the "Beneficiaries"). In the event of the death of the last
living Beneficiary before all remaining installment payments have been made, the
balance of any payments which remain unpaid at such Beneficiary's death shall be
commuted on the basis of six percent (6%) per annum compounded interest and
shall be paid in a single sum to the estate of the last Beneficiary to die. In
the absence of any such beneficiary designation, any payments remaining unpaid
at the Director's death shall be commuted on the basis of six percent (6%) per
annum compounded interest and shall be paid in a single sum to the Director's
estate.
Section 3. Pre-Retirement Death Benefits. Should the Director die prior
--------- -----------------------------
to the occurrence of his 65th birthday, the Bank will pay $1,610 per month for a
continuous period of 120 months to the Beneficiary or Beneficiaries of the
Director. The first such monthly installment payment shall be made on a date to
be determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Director died. In the
event of the death of the last living Beneficiary before all installment
payments shall have been made, the balance of any payments which remain unpaid
at the time of such Beneficiary's death shall be commuted on the basis of six
percent (6%) per annum compounded interest and shall be paid in a single sum to
the estate of the last Beneficiary to die. In the absence of any such
beneficiary designation, any payments remaining unpaid at the Director's death
shall be commuted on the basis of six percent (6%) per annum compounded interest
and shall be paid in a single sum to the Director's estate.
Section 4. Termination Benefits. Except as provided in Section 5 hereof,
--------- --------------------
if the Director terminates his service as a director of the Bank, for any reason
other than death or the attainment of his 65th birthday, he (or his Beneficiary)
shall be entitled to the benefits set forth in Section 2 of this Agreement,
commencing on a date to be determined by the Bank, but in no event later than
the first day of the sixth calendar month following the calendar month in which
the Director's 65th birthday or, if earlier, death occurs.
Section 5. Extraordinary Transactions. In the event that the Director's
--------- --------------------------
service as a director of the Bank is terminated for any reason coincident with
or within twenty-four (24) months following a merger of the Bank with or into
another business entity or the sale by the Bank of more than a majority of its
assets, then the Director shall be entitled to the benefits set forth in Section
2 and the Bank shall commence to make monthly installment payments to the
Director as described therein on a date to be determined by the Bank, but in no
event later than the first day of the sixth calendar month following the
calendar month in which such merger or asset sale is consummated.
Section 6. General Provisions.
--------- ------------------
A. Except as otherwise provided by this Agreement, it is agreed that
neither the Director, any Beneficiary nor any other person claiming
any right or interest under this Agreement through the Director or any
Beneficiary shall have any right to
2
<PAGE>
commute, sell, assign, transfer or otherwise convey any right to
receive any benefits hereunder.
B. The benefits and rights provided under this Agreement are in addition
to, and are independent of, those benefits and rights provided under
any other agreements between the parties hereto. This Agreement shall
not be deemed to constitute an agreement of employment or for services
between the parties hereto or as conferring upon the Director the
right to continue as a director of the Bank.
C. The rights of the Director under this Agreement and of any Beneficiary
shall be solely those of an unsecured creditor of the Bank. Any asset
acquired by the Bank in connection with its plans to fund the Bank's
liabilities hereunder shall not be deemed to be held under any trust
for the benefit of the Director or his Beneficiaries or to be
considered security for the performance of the obligations of the
Bank, but shall be, and remain, a general, unpledged, unrestricted
asset of the Bank.
D. This Agreement and the Bank's obligations hereunder shall be binding
upon its successors and permitted assigns. The Bank may not assign its
rights or obligations hereunder without the Director's prior written
consent. In addition, the Bank agrees it shall not enter into any
agreement providing for the merger of the Bank with and into another
business entity or the sale of more than a majority of the Bank's
assets to another business entity, person or group of persons that
does not specifically provide that such successor by merger or
purchaser(s) of assets shall assume and satisfy each and every
obligation of the Bank to the Director under this Agreement. In the
case of an asset sale, such assumption shall not relieve the Bank of
its liability to fulfill such obligations.
E. This Agreement may be revoked or amended in whole or in part by a
writing signed by both of the parties hereto.
F. This Agreement shall be subject to and construed under the laws of the
State of North Carolina.
3
<PAGE>
IN WITNESS THEREOF, the Bank has caused this Amended and Restated
Director's Retirement Plan Agreement to be signed in its corporate name by its
duly authorized officer, and impressed with its corporate seal, attested by its
Secretary, and the Director has hereunto set his hand and seal, all on the day
and year first above written.
HOME SAVINGS BANK, SSB
Attest:
By: /s/ Thomas A. Vann
---------------------------------------
Thomas A. Vann
/s/ Ruby Adams Title: President
- ------------------------
Ruby Adams
Secretary
[Corporate Seal] DIRECTOR:
/s/ Linley H. Gibbs, Jr.
--------------------------------------(Seal)
Linley H. Gibbs, Jr.
4
<PAGE>
AMENDED AND RESTATED
DIRECTOR'S RETIREMENT
PAYMENT AGREEMENT
THIS AMENDED AND RESTATED DIRECTOR'S RETIREMENT PAYMENT AGREEMENT, entered
into as of the 1st day of January, 1987 and amended and restated this the 14th
day of December, 1995 (this "Agreement"), by and between Home Savings Bank, SSB,
a mutual savings bank organized and existing under the laws of the State of
North Carolina (the "Bank"), and Frederick N. Holscher (the "Director").
W I T N E S S E T H:
WHEREAS, after January 1, 1987, the Bank converted its charter to a state
savings bank charter and changed its name from "Home Savings and Loan
Association of Washington" to "Home Savings Bank, SSB";
WHEREAS, the Director is rendering valuable service to the Bank and it is
the desire of the Bank to have the benefit of his continued loyalty and service
and also to assist him in providing for the contingencies of retirement and
death;
WHEREAS, the Director heretofore deferred receipt of director's fees in the
amount of $350.00 per month from January 1, 1987 through December 31, 1994; and
WHEREAS, the parties desire to amend the Agreement and to restate the
Agreement as amended.
NOW, THEREFORE, in consideration of the premises contained herein, the
parties hereto mutually agree as follows:
Section 1. Deferral Election. The Director heretofore has deferred the
--------- -----------------
receipt by him of director's fees as described above. In exchange for such
deferral, the Director shall receive from the Bank the benefits hereinafter
described. Except as otherwise specifically provided herein, in order to
receive benefits under this Agreement, the Director must be a director of the
Bank as of his 65th birthday.
Section 2. Retirement Benefits. Upon the occurrence of the Director's
--------- -------------------
65th birthday (except as otherwise specifically provided herein), the Bank will
pay to him $3,628 per month for a continuous period of 120 months. Such
continuous monthly installment payments shall commence on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Director's 65th
birthday shall occur. In the event that the Director should die after becoming
entitled to receive such installment payments but before
<PAGE>
all such payments have been made, the Bank will pay all remaining installment
payments to such beneficiary or beneficiaries as the Director has designated in
writing to the Bank (the "Beneficiaries"). In the event of the death of the
last living Beneficiary before all remaining installment payments have been
made, the balance of any payments which remain unpaid at such Beneficiary's
death shall be commuted on the basis of six percent (6%) per annum compounded
interest and shall be paid in a single sum to the estate of the last Beneficiary
to die. In the absence of any such beneficiary designation, any payments
remaining unpaid at the Director's death shall be commuted on the basis of six
percent (6%) per annum compounded interest and shall be paid in a single sum to
the Director's estate.
Section 3. Pre-Retirement Death Benefits. Should the Director die prior
--------- -----------------------------
to the occurrence of his 65th birthday, the Bank will pay $3,628 per month for a
continuous period of 120 months to the Beneficiary or Beneficiaries of the
Director. The first such monthly installment payment shall be made on a date to
be determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Director died. In the
event of the death of the last living Beneficiary before all installment
payments shall have been made, the balance of any payments which remain unpaid
at the time of such Beneficiary's death shall be commuted on the basis of six
percent (6%) per annum compounded interest and shall be paid in a single sum to
the estate of the last Beneficiary to die. In the absence of any such
beneficiary designation, any payments remaining unpaid at the Director's death
shall be commuted on the basis of six percent (6%) per annum compounded interest
and shall be paid in a single sum to the Director's estate.
Section 4. Termination Benefits. Except as provided in Section 5 hereof,
--------- --------------------
if the Director terminates his service as a director of the Bank, for any reason
other than death or the attainment of his 65th birthday, he (or his Beneficiary)
shall be entitled to the benefits set forth in Section 2 of this Agreement,
commencing on a date to be determined by the Bank, but in no event later than
the first day of the sixth calendar month following the calendar month in which
the Director's 65th birthday or, if earlier, death occurs.
Section 5. Extraordinary Transactions. In the event that the Director's
--------- --------------------------
service as a director of the Bank is terminated for any reason coincident with
or within twenty-four (24) months following a merger of the Bank with or into
another business entity or the sale by the Bank of more than a majority of its
assets, then the Director shall be entitled to the benefits set forth in Section
2 and the Bank shall commence to make monthly installment payments to the
Director as described therein on a date to be determined by the Bank, but in no
event later than the first day of the sixth calendar month following the
calendar month in which such merger or asset sale is consummated.
Section 6. General Provisions.
--------- ------------------
A. Except as otherwise provided by this Agreement, it is agreed that
neither the Director, any Beneficiary nor any other person claiming
any right or interest under this Agreement through the Director or any
Beneficiary shall have any right to
2
<PAGE>
commute, sell, assign, transfer or otherwise convey any right to
receive any benefits hereunder.
B. The benefits and rights provided under this Agreement are in addition
to, and are independent of, those benefits and rights provided under
any other agreements between the parties hereto. This Agreement shall
not be deemed to constitute an agreement of employment or for services
between the parties hereto or as conferring upon the Director the
right to continue as a director of the Bank.
C. The rights of the Director under this Agreement and of any Beneficiary
shall be solely those of an unsecured creditor of the Bank. Any asset
acquired by the Bank in connection with its plans to fund the Bank's
liabilities hereunder shall not be deemed to be held under any trust
for the benefit of the Director or his Beneficiaries or to be
considered security for the performance of the obligations of the
Bank, but shall be, and remain, a general, unpledged, unrestricted
asset of the Bank.
D. This Agreement and the Bank's obligations hereunder shall be binding
upon its successors and permitted assigns. The Bank may not assign its
rights or obligations hereunder without the Director's prior written
consent. In addition, the Bank agrees it shall not enter into any
agreement providing for the merger of the Bank with and into another
business entity or the sale of more than a majority of the Bank's
assets to another business entity, person or group of persons that
does not specifically provide that such successor by merger or
purchaser(s) of assets shall assume and satisfy each and every
obligation of the Bank to the Director under this Agreement. In the
case of an asset sale, such assumption shall not relieve the Bank of
its liability to fulfill such obligations.
E. This Agreement may be revoked or amended in whole or in part by a
writing signed by both of the parties hereto.
F. This Agreement shall be subject to and construed under the laws of the
State of North Carolina.
3
<PAGE>
IN WITNESS THEREOF, the Bank has caused this Amended and Restated
Director's Retirement Plan Agreement to be signed in its corporate name by its
duly authorized officer, and impressed with its corporate seal, attested by its
Secretary, and the Director has hereunto set his hand and seal, all on the day
and year first above written.
HOME SAVINGS BANK, SSB
Attest:
/s/ Ruby Adams By: /s/ Thomas A. Vann
- ---------------------------- ---------------------------
Ruby Adams Thomas A. Vann
Secretary
Title: President
[Corporate Seal] DIRECTOR:
/s/ Frederick N. Holscher
---------------------------- (Seal)
Frederick N. Holscher
4
<PAGE>
AMENDED AND RESTATED
DIRECTOR'S RETIREMENT
PAYMENT AGREEMENT
THIS AMENDED AND RESTATED DIRECTOR'S RETIREMENT PAYMENT AGREEMENT, entered
into as of the 1st day of May, 1984 and amended and restated this the ___ day of
December, 1995 (this "Agreement"), by and between Home Savings Bank, SSB, a
mutual savings bank organized and existing under the laws of the State of North
Carolina (the "Bank"), and Frederick H. Howdy (the "Director").
W I T N E S S E T H:
WHEREAS, after May 1, 1984, the Bank converted its charter to a state
savings bank charter and changed its name from "Home Savings and Loan
Association" to "Home Savings Bank, SSB;"
WHEREAS, the Director is rendering valuable service to the Bank and it is
the desire of the Bank to have the benefit of his continued loyalty and service
and also to assist him in providing for the contingencies of retirement and
death;
WHEREAS, the Director heretofore deferred receipt of director's fees in the
amount of $250.00 per month from May 1, 1984 through April 30, 1989; and
WHEREAS, the parties desire to amend the Agreement and to restate the
Agreement as amended.
NOW, THEREFORE, in consideration of the premises contained herein, the
parties hereto mutually agree as follows:
Section 1. Deferral Election. The Director heretofore has deferred the
--------- -----------------
receipt by him of director's fees as described above. In exchange for such
deferral, the Director shall receive from the Bank the benefits hereinafter
described. Except as otherwise specifically provided herein, in order to
receive benefits under this Agreement, the Director must be a director of the
Bank as of his 65th birthday.
Section 2. Retirement Benefits. Upon the occurrence of the Director's
--------- -------------------
65th birthday (except as otherwise specifically provided herein), the Bank will
pay to him $1,726 per month for a continuous period of 120 months. Such
continuous monthly installment payments shall commence on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Director's 65th
birthday shall occur. In the event that the Director should die after becoming
entitled to receive such installment payments but before
<PAGE>
all such payments have been made, the Bank will pay all remaining installment
payments to such beneficiary or beneficiaries as the Director has designated in
writing to the Bank (the "Beneficiaries"). In the event of the death of the
last living Beneficiary before all remaining installment payments have been
made, the balance of any payments which remain unpaid at such Beneficiary's
death shall be commuted on the basis of six percent (6%) per annum compounded
interest and shall be paid in a single sum to the estate of the last Beneficiary
to die. In the absence of any such beneficiary designation, any payments
remaining unpaid at the Director's death shall be commuted on the basis of six
percent (6%) per annum compounded interest and shall be paid in a single sum to
the Director's estate.
Section 3. Pre-Retirement Death Benefits. Should the Director die prior
--------- -----------------------------
to the occurrence of his 65th birthday, the Bank will pay $1,726 per month for a
continuous period of 120 months to the Beneficiary or Beneficiaries of the
Director. The first such monthly installment payment shall be made on a date to
be determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Director died. In the
event of the death of the last living Beneficiary before all installment
payments shall have been made, the balance of any payments which remain unpaid
at the time of such Beneficiary's death shall be commuted on the basis of six
percent (6%) per annum compounded interest and shall be paid in a single sum to
the estate of the last Beneficiary to die. In the absence of any such
beneficiary designation, any payments remaining unpaid at the Director's death
shall be commuted on the basis of six percent (6%) per annum compounded interest
and shall be paid in a single sum to the Director's estate.
Section 4. Termination Benefits. Except as provided in Section 5 hereof,
--------- --------------------
if the Director terminates his service as a director of the Bank, for any reason
other than death or the attainment of his 65th birthday, he (or his Beneficiary)
shall be entitled to the benefits set forth in Section 2 of this Agreement,
commencing on a date to be determined by the Bank, but in no event later than
the first day of the sixth calendar month following the calendar month in which
the Director's 65th birthday or, if earlier, death occurs.
Section 5. Extraordinary Transactions. In the event that the Director's
--------- --------------------------
service as a director of the Bank is terminated for any reason coincident with
or within twenty-four (24) months following a merger of the Bank with or into
another business entity or the sale by the Bank of more than a majority of its
assets, then the Director shall be entitled to the benefits set forth in Section
2 and the Bank shall commence to make monthly installment payments to the
Director as described therein on a date to be determined by the Bank, but in no
event later than the first day of the sixth calendar month following the
calendar month in which such merger or asset sale is consummated.
Section 6. General Provisions.
--------- ------------------
A. Except as otherwise provided by this Agreement, it is agreed that
neither the Director, any Beneficiary nor any other person claiming
any right or interest under this Agreement through the Director or any
Beneficiary shall have any right to
2
<PAGE>
commute, sell, assign, transfer or otherwise convey any right to
receive any benefits hereunder.
B. The benefits and rights provided under this Agreement are in addition
to, and are independent of, those benefits and rights provided under
any other agreements between the parties hereto. This Agreement shall
not be deemed to constitute an agreement of employment or for services
between the parties hereto or as conferring upon the Director the
right to continue as a director of the Bank.
C. The rights of the Director under this Agreement and of any Beneficiary
shall be solely those of an unsecured creditor of the Bank. Any asset
acquired by the Bank in connection with its plans to fund the Bank's
liabilities hereunder shall not be deemed to be held under any trust
for the benefit of the Director or his Beneficiaries or to be
considered security for the performance of the obligations of the
Bank, but shall be, and remain, a general, unpledged, unrestricted
asset of the Bank.
D. This Agreement and the Bank's obligations hereunder shall be binding
upon its successors and permitted assigns. The Bank may not assign its
rights or obligations hereunder without the Director's prior written
consent. In addition, the Bank agrees it shall not enter into any
agreement providing for the merger of the Bank with and into another
business entity or the sale of more than a majority of the Bank's
assets to another business entity, person or group of persons that
does not specifically provide that such successor by merger or
purchaser(s) of assets shall assume and satisfy each and every
obligation of the Bank to the Director under this Agreement. In the
case of an asset sale, such assumption shall not relieve the Bank of
its liability to fulfill such obligations.
E. This Agreement may be revoked or amended in whole or in part by a
writing signed by both of the parties hereto.
F. This Agreement shall be subject to and construed under the laws of the
State of North Carolina.
3
<PAGE>
IN WITNESS THEREOF, the Bank has caused this Amended and Restated
Director's Retirement Plan Agreement to be signed in its corporate name by its
duly authorized officer, and impressed with its corporate seal, attested by its
Secretary, and the Director has hereunto set his hand and seal, all on the day
and year first above written.
HOME SAVINGS BANK, SSB
Attest:
/s/ Ruby Adams By: /s/ Thomas A. Vann
- ----------------------------- -------------------------------
Ruby Adams Thomas A. Vann
Secretary
Title: President
[Corporate Seal] DIRECTOR:
/s/ Frederick H. Howdy
------------------------------------ (Seal)
Frederick H. Howdy
4
<PAGE>
AMENDED AND RESTATED
DIRECTOR'S RETIREMENT
PAYMENT AGREEMENT
THIS AMENDED AND RESTATED DIRECTOR'S RETIREMENT PAYMENT AGREEMENT, entered
into as of the 1st day of May, 1984 and amended and restated this the 14th day
of December, 1995 (this "Agreement"), by and between Home Savings Bank, SSB, a
mutual savings bank organized and existing under the laws of the State of North
Carolina (the "Bank"), and Charles E. Parker, Jr. (the "Director").
W I T N E S S E T H:
WHEREAS, after May 1, 1984, the Bank converted its charter to a state
savings bank charter and changed its name from "Home Savings and Loan
Association" to "Home Savings Bank, SSB;"
WHEREAS, the Director is rendering valuable service to the Bank and it is
the desire of the Bank to have the benefit of his continued loyalty and service
and also to assist him in providing for the contingencies of retirement and
death;
WHEREAS, the Director heretofore deferred receipt of director's fees in the
amount of $250.00 per month from May 1, 1984 through April 30, 1989; and
WHEREAS, the parties desire to amend the Agreement and to restate the
Agreement as amended.
NOW, THEREFORE, in consideration of the premises contained herein, the
parties hereto mutually agree as follows:
Section 1. Deferral Election. The Director heretofore has deferred the
--------- -----------------
receipt by him of director's fees as described above. In exchange for such
deferral, the Director shall receive from the Bank the benefits hereinafter
described. Except as otherwise specifically provided herein, in order to
receive benefits under this Agreement, the Director must be a director of the
Bank as of his 65th birthday.
Section 2. Retirement Benefits. Upon the occurrence of the Director's
--------- -------------------
65th birthday (except as otherwise specifically provided herein), the Bank will
pay to him $2,748 per month for a continuous period of 120 months. Such
continuous monthly installment payments shall commence on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Director's 65th
birthday shall occur. In the event that the Director should die after becoming
entitled to receive such installment payments but before
<PAGE>
all such payments have been made, the Bank will pay all remaining installment
payments to such beneficiary or beneficiaries as the Director has designated in
writing to the Bank (the "Beneficiaries"). In the event of the death of the
last living Beneficiary before all remaining installment payments have been
made, the balance of any payments which remain unpaid at such Beneficiary's
death shall be commuted on the basis of six percent (6%) per annum compounded
interest and shall be paid in a single sum to the estate of the last Beneficiary
to die. In the absence of any such beneficiary designation, any payments
remaining unpaid at the Director's death shall be commuted on the basis of six
percent (6%) per annum compounded interest and shall be paid in a single sum to
the Director's estate.
Section 3. Pre-Retirement Death Benefits. Should the Director die prior
--------- -----------------------------
to the occurrence of his 65th birthday, the Bank will pay $2,748 per month for a
continuous period of 120 months to the Beneficiary or Beneficiaries of the
Director. The first such monthly installment payment shall be made on a date to
be determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Director died. In the
event of the death of the last living Beneficiary before all installment
payments shall have been made, the balance of any payments which remain unpaid
at the time of such Beneficiary's death shall be commuted on the basis of six
percent (6%) per annum compounded interest and shall be paid in a single sum to
the estate of the last Beneficiary to die. In the absence of any such
beneficiary designation, any payments remaining unpaid at the Director's death
shall be commuted on the basis of six percent (6%) per annum compounded interest
and shall be paid in a single sum to the Director's estate.
Section 4. Termination Benefits. Except as provided in Section 5 hereof,
--------- --------------------
if the Director terminates his service as a director of the Bank, for any reason
other than death or the attainment of his 65th birthday, he (or his Beneficiary)
shall be entitled to the benefits set forth in Section 2 of this Agreement,
commencing on a date to be determined by the Bank, but in no event later than
the first day of the sixth calendar month following the calendar month in which
the Director's 65th birthday or, if earlier, death occurs.
Section 5. Extraordinary Transactions. In the event that the Director's
--------- --------------------------
service as a director of the Bank is terminated for any reason coincident with
or within twenty-four (24) months following a merger of the Bank with or into
another business entity or the sale by the Bank of more than a majority of its
assets, then the Director shall be entitled to the benefits set forth in Section
2 and the Bank shall commence to make monthly installment payments to the
Director as described therein on a date to be determined by the Bank, but in no
event later than the first day of the sixth calendar month following the
calendar month in which such merger or asset sale is consummated.
Section 6. General Provisions.
--------- ------------------
A. Except as otherwise provided by this Agreement, it is agreed that
neither the Director, any Beneficiary nor any other person claiming
any right or interest under this Agreement through the Director or any
Beneficiary shall have any right to
2
<PAGE>
commute, sell, assign, transfer or otherwise convey any right to
receive any benefits hereunder.
B. The benefits and rights provided under this Agreement are in addition
to, and are independent of, those benefits and rights provided under
any other agreements between the parties hereto. This Agreement shall
not be deemed to constitute an agreement of employment or for services
between the parties hereto or as conferring upon the Director the
right to continue as a director of the Bank.
C. The rights of the Director under this Agreement and of any Beneficiary
shall be solely those of an unsecured creditor of the Bank. Any asset
acquired by the Bank in connection with its plans to fund the Bank's
liabilities hereunder shall not be deemed to be held under any trust
for the benefit of the Director or his Beneficiaries or to be
considered security for the performance of the obligations of the
Bank, but shall be, and remain, a general, unpledged, unrestricted
asset of the Bank.
D. This Agreement and the Bank's obligations hereunder shall be binding
upon its successors and permitted assigns. The Bank may not assign its
rights or obligations hereunder without the Director's prior written
consent. In addition, the Bank agrees it shall not enter into any
agreement providing for the merger of the Bank with and into another
business entity or the sale of more than a majority of the Bank's
assets to another business entity, person or group of persons that
does not specifically provide that such successor by merger or
purchaser(s) of assets shall assume and satisfy each and every
obligation of the Bank to the Director under this Agreement. In the
case of an asset sale, such assumption shall not relieve the Bank of
its liability to fulfill such obligations.
E. This Agreement may be revoked or amended in whole or in part by a
writing signed by both of the parties hereto.
F. This Agreement shall be subject to and construed under the laws of the
State of North Carolina.
3
<PAGE>
IN WITNESS THEREOF, the Bank has caused this Amended and Restated
Director's Retirement Plan Agreement to be signed in its corporate name by its
duly authorized officer, and impressed with its corporate seal, attested by its
Secretary, and the Director has hereunto set his hand and seal, all on the day
and year first above written.
HOME SAVINGS BANK, SSB
Attest:
/s/ Ruby Adams By: /s/ Thomas A. Vann
- ----------------------------- ----------------------------------
Ruby Adams Thomas A. Vann
Secretary
Title: President
[Corporate Seal] DIRECTOR:
/s/ Charles E. Parker, Jr.
----------------------------------- (Seal)
Charles E. Parker, Jr.
4
<PAGE>
AMENDED AND RESTATED
DIRECTOR'S RETIREMENT
PAYMENT AGREEMENT
THIS AMENDED AND RESTATED DIRECTOR'S RETIREMENT PAYMENT AGREEMENT, entered
into as of the 1st day of May, 1984 and amended and restated this the 14th day
of December, 1995 (this "Agreement"), by and between Home Savings Bank, SSB, a
mutual savings bank organized and existing under the laws of the State of North
Carolina (the "Bank"), and Thomas A. Vann (the "Director").
W I T N E S S E T H:
WHEREAS, after May 1, 1984, the Bank converted its charter to a state
savings bank charter and changed its name from "Home Savings and Loan
Association" to "Home Savings Bank, SSB;"
WHEREAS, the Director is rendering valuable service to the Bank and it is
the desire of the Bank to have the benefit of his continued loyalty and service
and also to assist him in providing for the contingencies of retirement and
death;
WHEREAS, the Director heretofore deferred receipt of director's fees in the
amount of $250.00 per month from May 1, 1984 through December 31, 1984, in the
amount of $350.00 per month from January 1, 1985 through April 30, 1989, and in
the amount of $100.00 per month from May 1, 1989 through December 31, 1989;
WHEREAS, the Director has agreed to defer receipt of director's fees in the
amount of $220.35 per month from September 1, 1995 until the end of his term as
a director; and
WHEREAS, the parties desire to amend the Agreement and to restate the
Agreement as amended.
NOW, THEREFORE, in consideration of the premises contained herein, the
parties hereto mutually agree as follows:
Section 1. Deferral Election. The Director heretofore has deferred the
--------- -----------------
receipt by him of director's fees and has agreed to defer additional director's
fees, all as described above. In exchange for such agreement to defer and
deferral, the Director shall receive from the Bank the benefits hereinafter
described. Except as otherwise specifically provided herein, in order to
receive benefits under this Agreement, the Director must be a director of the
Bank as of his 65th birthday.
Section 2. Retirement Benefits. Upon the occurrence of the Director's
--------- -------------------
65th birthday (except as otherwise specifically provided herein), the Bank will
pay to him $8,256 per month for a continuous period of 120 months. Such
continuous monthly installment payments shall commence on a date to be
determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Director's 65th
birthday shall occur. In the event that the Director should die after becoming
entitled to receive such installment payments but before all such payments have
been made, the Bank will pay all remaining installment payments to such
beneficiary or beneficiaries as the Director has designated in writing to the
Bank (the
<PAGE>
"Beneficiaries"). In the event of the death of the last living Beneficiary
before all remaining installment payments have been made, the balance of any
payments which remain unpaid at such Beneficiary's death shall be commuted on
the basis of six percent (6%) per annum compounded interest and shall be paid in
a single sum to the estate of the last Beneficiary to die. In the absence of
any such beneficiary designation, any payments remaining unpaid at the
Director's death shall be commuted on the basis of six percent (6%) per annum
compounded interest and shall be paid in a single sum to the Director's estate.
Section 3. Pre-Retirement Death Benefits. Should the Director die prior
--------- -----------------------------
to the occurrence of his 65th birthday, the Bank will pay $8,256 per month for a
continuous period of 120 months to the Beneficiary or Beneficiaries of the
Director. The first such monthly installment payment shall be made on a date to
be determined by the Bank, but in no event later than the first day of the sixth
calendar month following the calendar month in which the Director died. In the
event of the death of the last living Beneficiary before all installment
payments shall have been made, the balance of any payments which remain unpaid
at the time of such Beneficiary's death shall be commuted on the basis of six
percent (6%) per annum compounded interest and shall be paid in a single sum to
the estate of the last Beneficiary to die. In the absence of any such
beneficiary designation, any payments remaining unpaid at the Director's death
shall be commuted on the basis of six percent (6%) per annum compounded interest
and shall be paid in a single sum to the Director's estate.
Section 4. Termination Benefits. Except as provided in Section 5 hereof,
--------- --------------------
if the Director terminates his service as a director of the Bank, for any reason
other than death or the attainment of his 65th birthday, he (or his Beneficiary)
shall be entitled to the benefits set forth in Section 2 of this Agreement,
commencing on a date to be determined by the Bank, but in no event later than
the first day of the sixth calendar month following the calendar month in which
the Director's 65th birthday or, if earlier, death occurs.
Section 5. Extraordinary Transactions. In the event that the Director's
--------- --------------------------
service as a director of the Bank is terminated for any reason coincident with
or within twenty-four (24) months following a merger of the Bank with or into
another business entity or the sale by the Bank of more than a majority of its
assets, then the Director shall be entitled to the benefits set forth in Section
2 and the Bank shall commence to make monthly installment payments to the
Director as described therein on a date to be determined by the Bank, but in no
event later than the first day of the sixth calendar month following the
calendar month in which such merger or asset sale is consummated.
Section 6. General Provisions.
--------- ------------------
A. Except as otherwise provided by this Agreement, it is agreed that
neither the Director, any Beneficiary nor any other person claiming
any right or interest under this Agreement through the Director or any
Beneficiary shall have any right to commute, sell, assign, transfer or
otherwise convey any right to receive any benefits hereunder.
B. The benefits and rights provided under this Agreement are in addition
to, and are independent of, those benefits and rights provided under
any other agreements
2
<PAGE>
between the parties hereto. This Agreement shall not be deemed to
constitute an agreement of employment or for services between the
parties hereto or as conferring upon the Director the right to
continue as a director of the Bank.
C. The rights of the Director under this Agreement and of any Beneficiary
shall be solely those of an unsecured creditor of the Bank. Any asset
acquired by the Bank in connection with its plans to fund the Bank's
liabilities hereunder shall not be deemed to be held under any trust
for the benefit of the Director or his Beneficiaries or to be
considered security for the performance of the obligations of the
Bank, but shall be, and remain, a general, unpledged, unrestricted
asset of the Bank.
D. This Agreement and the Bank's obligations hereunder shall be binding
upon its successors and permitted assigns. The Bank may not assign its
rights or obligations hereunder without the Director's prior written
consent. In addition, the Bank agrees it shall not enter into any
agreement providing for the merger of the Bank with and into another
business entity or the sale of more than a majority of the Bank's
assets to another business entity, person or group of persons that
does not specifically provide that such successor by merger or
purchaser(s) of assets shall assume and satisfy each and every
obligation of the Bank to the Director under this Agreement. In the
case of an asset sale, such assumption shall not relieve the Bank of
its liability to fulfill such obligations.
E. This Agreement may be revoked or amended in whole or in part by a
writing signed by both of the parties hereto.
F. This Agreement shall be subject to and construed under the laws of the
State of North Carolina.
IN WITNESS THEREOF, the Bank has caused this Amended and Restated
Director's Retirement Plan Agreement to be signed in its corporate name by its
duly authorized officer, and impressed with its corporate seal, attested by its
Secretary, and the Director has hereunto set his hand and seal, all on the day
and year first above written.
HOME SAVINGS BANK, SSB
Attest:
/s/ Ruby Adams By: /s/ William L. Wall
- ------------------------- -----------------------------
Ruby Adams William L. Wall
Secretary
Title: Executive Vice President
[Corporate Seal] DIRECTOR:
/s/ Thomas A. Vann
---------------------------------- (Seal)
Thomas A. Vann
3
<PAGE>
HOME SAVINGS BANK, SSB
DIRECTOR'S RETIREMENT PAYMENT AGREEMENT
AS AMENDED AND RESTATED DECEMBER 14, 1995
--------------------
1996 Amendment
--------------------
WHEREAS, Home Savings Bank, SSB (the "Bank") has entered into a
Director's Retirement Payment Agreement (the "Agreement"), originally effective
May 1, 1984 and as amended and restated effective December 14, 1995, with
Directors E. Buckman, Jr., F. Howdy, C. Parker, Jr., and T. Vann (the
"Directors"); and
WHEREAS, the Bank has entered into Agreements, originally effective
January 1, 1987, as amended and restated effective December 14, 1995, with
Directors L. Gibbs, Jr., and F. Holscher; and
WHEREAS, the Bank has authorized an amendment to the Agreement with
each Director in order to address issues arising from the Bank's upcoming
conversion from mutual to stock form;
NOW, THEREFORE, pursuant to Section 6.E. of each Agreement, the
Agreement with each Director is hereby amended as follows, effective immediately
on execution hereof:
1. The Agreement is renamed as the Home Savings Bank, SSB 1984
Director's Deferred Payment Agreement, as amended and restated effective
December 14, 1995, and such name is replaced accordingly wherever its appears in
the Agreement.
2. The last sentence of Section 1 of the Agreement is deleted in its
entirety.
3. The first sentence of Section 2 of the Agreement is amended in its
entirety to provide as follows: (with italics herein identifying new text):
Upon the occurrence of the earlier of the Director's 65th
birthday or his termination of employment for any reason on or
after attaining age 55 (except as otherwise specifically provided
herein), the Bank will pay to him $_______ [no change to existing
agreement] per month for a continuous period of 120 months. Such
continuous monthly installment payments shall commence on a date
to be determined by the Bank, but in no event later than the first
day of the sixth calendar month following the calendar month in
which the earlier of the Director's 65th birthday or his
termination of employment for any reason on or after attaining age
55 shall occur.
<PAGE>
1996 Amendment
Amended and Restated Director's
Retirement Payment Agreement
Page 2
4. The first sentence of Section 3 of the Agreement is amended by
replacing the words "the occurrence of his 65th birthday" with the words "the
commencement of payments pursuant to Section 2 hereof".
5. Section 4 of each Agreement shall be amended in its entirety to
provide as follows (with italics herein identifying new text):
In the event that, prior to the commencement of payments
pursuant to Section 2 hereof, a Director's service as a director
of the Bank is terminated for any reason other than death, then
the Director (or his Beneficiary) shall be entitled to the
benefits set forth in Section 2 of this Agreement, commencing on
the date determined by the Bank, but in no event later than the
first day of the sixth calendar month following the calendar month
in which the Director's 55th birthday, or if earlier, death
occurs.
6. Section 5 of the Agreement shall be deleted in its entirety, and
Section 6 shall be renumbered as Section 5.
7. Former Section 6 of the Agreement, renumbered herein as Section 5,
shall be amended through addition of the following paragraphs immediately at the
end thereof:
G. Notwithstanding any other provision of this Agreement that may
be contrary or inconsistent herewith, not later than ten business
days after a Change in Control (as defined in the last paragraph
of this Section 6.G.), the Bank shall (i) deposit in a grantor
trust (the "Trust") that is designed in accordance with Revenue
Procedure 92-64 and has a trustee independent of the Bank, the
Company and any successor to their interest, an amount equal to
the present value of all benefits that may become payable under
this Agreement, unless the Director has previously provided a
written release of any claims under this Agreement, and (ii)
provide the trustee of the Trust with a written direction to hold
said amount and any investment return thereon in a segregated
account for the benefit of the Director, and to follow the
procedures set forth in the next paragraph as to the payment of
such amounts from the Trust.
At any time or from time to time following a Change in
Control, the Director may provide the trustee of the Trust with a
written schedule directing that the trustee pay to the Director
amounts designated in the schedule as being payable pursuant to
this Agreement. Within three business days after receiving said
notice, the trustee of the Trust shall send a copy of the notice
to the Bank via overnight and registered mail (return receipt
requested). On the fifth business day after mailing said notice to
the Bank, the trustee of the Trust shall pay the Director the
amount designated therein in immediately available funds, unless
prior thereto
<PAGE>
1996 Amendment
Amended and Restated Director's
Retirement Payment Agreement
Page 3
the Bank provides the trustee with a written notice directing the
trustee to withhold such payment. In the latter event, the trustee
shall submit the dispute to non-appealable binding arbitration for
a determination of the amount payable to the Director pursuant to
this Agreement, and the costs of such arbitration (including any
attorneys' fees incurred by the Director) shall be paid by the
Bank. The trustee shall choose the arbitrator to settle the
dispute, and such arbitrator shall be bound by the rules of the
American Arbitration Association in making his determination. The
parties and the trustee shall be bound by the results of the
arbitration and, within three days of the determination by the
arbitrator, the trustee shall pay from the Trust the amounts
required to be paid to the Director and/or the Bank, and in no
event shall the trustee be liable to either party for making the
payments as determined by the arbitrator.
Upon receiving the Director's release of all claims under this
Agreement, the trustee of the Trust shall pay to the Bank or its
successor in interest the entire balance remaining in the
segregated account maintained for the benefit of the Director. The
Director shall thereafter have no further interest in the Trust
pursuant to this Agreement.
For purposes of this Agreement, "Change in Control" shall mean
any one of the following events: (i) the acquisition of ownership,
holding, or power to vote more than 25% of the voting stock of the
Bank or NewSouth Bancorp, Inc. (the "Company"), (ii) the
acquisition of the ability to control the election of a majority
of the Bank's or the Company's directors, (iii) the acquisition of
a controlling influence over the management or policies of the
Bank or of the Company by any person or by persons acting as a
"group" (within the meaning of Section 13(d) of the Securities
Exchange Act of 1934), or (iv) during any period of two
consecutive years, individuals (the "Continuing Directors") who at
the beginning of such period constitute the Board of Directors of
the Bank or of the Company (the "Existing Board") cease for any
reason to constitute at least two-thirds thereof, provided that
any individual whose election or nomination for election as a
member of the Existing Board was approved by a vote of at least
two-thirds of the Continuing Directors then in office shall be
considered a Continuing Director. Notwithstanding the foregoing,
the Company's ownership of the Bank shall not of itself constitute
a Change in Control for purposes of the Agreement. For purposes of
this paragraph only, the term "person" refers to an individual or
a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization
or any other form of entity not specifically listed herein.
8. Nothing contained herein shall be held to alter, vary or affect
any of the terms, provisions, or conditions of the Agreement entered into
thereunder, other than as stated above.
<PAGE>
1996 Amendment
Amended and Restated Director's
Retirement Payment Agreement
Page 4
WHEREFORE, on this 23rd day of October, 1996, the Bank and each
Director who is party to an Agreement hereby execute this 1996 Amendment to the
Plan.
HOME SAVINGS BANK, SSB
By /s/ Frederick H. Howdy
--------------------------
Its Chairman of the Board
October 23, 1996
- ---------------------
Date Attest: William L. Wall (Seal)
------------------------
DIRECTORS
Brenda S. Ipoch /s/ Edmund T. Buckman, Jr.
- --------------------- -------------------------------
Witness: E. Buckman, Jr.
Brenda S. Ipoch /s/ Frederick H. Howdy
- --------------------- -------------------------------
Witness: F. Howdy
Brenda S. Ipoch /s/ Charles E. Parker, Jr.
- --------------------- -------------------------------
Witness: C. Parker, Jr.
Brenda S. Ipoch /s/ Frederick N. Holscher
- --------------------- -------------------------------
Witness: F. Holscher
Brenda S. Ipoch /s/ Linley H. Gibbs, Jr.
- --------------------- -------------------------------
Witness: L. Gibbs, Jr.
Brenda S. Ipoch /s/ Thomas A. Vann
- --------------------- ------------------------------
Witness: T. Vann
<PAGE>
[LETTERHEAD OF HOUSLEY KANTARIAN & BRONSTEIN, P.C. APPEARS HERE]
November 15, 1996
Board of Directors
Home Savings Bank, SSB
1311 Carolina Avenue
Washington, North Carolina 27889
Ladies and Gentlemen:
We hereby consent to the references to our firm in the Prospectus, which is
a part of the Registration Statement on Form S-1 and Application to Convert a
Mutual Savings Bank into a Stock Owned Savings Bank, under the headings "The
Conversion -- Effect of Conversion to Stock Form on Depositors and Borrowers of
the Bank -- Tax Effects," "Legal Opinions" and "Tax Opinions."
Very truly yours,
HOUSLEY KANTARIAN & BRONSTEIN, P.C.
By: /s/ Gary R. Bronstein
--------------------------
Gary R. Bronstein
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of NewSouth Bancorp,
Inc. on Form S-1 of our report dated October 18, 1996 on our audits of the
consolidated financial statements of Home Savings Bank, SSB and Subsidiary. We
also consent to the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Raleigh, North Carolina
November 14, 1996
<PAGE>
EXHIBIT 23.3
NOVEMBER 15, 1996
BOARD OF DIRECTORS
HOME SAVINGS BANK, SSB
1311 CAROLINA AVENUE
WASHINGTON, NORTH CAROLINA 27889
DIRECTORS:
We hereby consent to the use of our firm's name in the applications for
conversion of Home Savings Bank, SSB, Washington, North Carolina, and any
amendments thereto, filed with the Division of Savings Institutions, North
Carolina Department of Commerce (the "Division"), and the FDIC, in the Form S-1
Registration Statement and any amendments thereto, and in the Acquisition
Application and the Holding Company Application for NewSouth Bancorp, Inc. as
filed with the Division and the Federal Reserve Board, respectively. We also
hereby consent to the inclusion of, a summary of, and references to our
Appraisal Report and our opinion concerning subscription rights in such filings
including the Prospectus of NewSouth Bancorp, Inc. and the Proxy Statement of
Home Savings Bank, SSB.
Sincerely,
/s/ Robin L. Fussell
------------------------
Robin L. Fussell
Principal
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HOME SAVINGS
BANK, SSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1995
<PERIOD-START> OCT-01-1995 OCT-01-1994
<PERIOD-END> SEP-30-1996 SEP-30-1995
<CASH> 2,812 1,714
<INT-BEARING-DEPOSITS> 5,765 72
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 22,904 9,072
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 173,733 157,385
<ALLOWANCE> 2,351 1,877
<TOTAL-ASSETS> 194,139 177,704
<DEPOSITS> 171,213 153,457
<SHORT-TERM> 1,040 4,000
<LIABILITIES-OTHER> 3,539 2,559
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 18,347 17,688
<TOTAL-LIABILITIES-AND-EQUITY> 194,139 177,704
<INTEREST-LOAN> 13,430 12,511
<INTEREST-INVEST> 1,919 1,874
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 15,349 14,385
<INTEREST-DEPOSIT> 7,939 6,610
<INTEREST-EXPENSE> 8,105 7,344
<INTEREST-INCOME-NET> 7,244 7,041
<LOAN-LOSSES> 511 70
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 7,295<F1> 5,660
<INCOME-PRETAX> 1,271 2,863
<INCOME-PRE-EXTRAORDINARY> 1,271 2,863
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 820 1,865
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 4.12 4.21
<LOANS-NON> 1,034 681
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 17<F2> 6<F2>
<ALLOWANCE-OPEN> 1,877 1,977
<CHARGE-OFFS> 63 122
<RECOVERIES> 26 2
<ALLOWANCE-CLOSE> 2,351 1,877
<ALLOWANCE-DOMESTIC> 511 20
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
<FN>
<F1>INCLUDES $946,000 SPECIAL FDIC ASSESSMENT.
<F2>CLASSIFIED AS DOUBTFUL OR LOSS
</FN>
</TABLE>
<PAGE>
EXHIBIT 99.1
FORM OF CERTIFICATION
I/WE ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS
NOT FEDERALLY INSURED, AND IS NOT GUARANTEED BY HOME SAVINGS BANK, SSB (THE
"BANK") OR BY THE FEDERAL GOVERNMENT.
If anyone asserts that this security is federally insured or
guaranteed, or is as safe as an insured deposit, I should call the
Administrator, Savings Institutions Division, North Carolina Department of
Commerce at (919) 850-2888 or the Federal Deposit Insurance Corporation, Atlanta
Regional Office, at (404) 817-2500.
I/We further certify that, before purchasing the common stock, par
value $.01 per share, of NewSouth Bancorp, Inc., the proposed holding company
for Home Savings Bank, SSB, I/we received a Prospectus dated ____________, 1997
(the "Prospectus").
The Prospectus that I/we received contains disclosure concerning the
nature of the security being offered and describes the risks involved in the
investment, including but not limited to:
1. Anticipated Low Return on Equity Following Conversion (page 17)
2. Risks Related to Commercial Real Estate, Commercial
Business and Consumer Lending (page 17)
3. Uncertainty as to Existence of Growth Opportunities (page 18)
4. Strong Competition Within the Bank's Market Area (page 18)
5. Potentially Adverse Impact of Interest Rates and Economic
Conditions (page 18)
6. Certificate of Incorporation, Bylaw and Statutory
Provisions That Could Discourage Hostile Acquisitions
of Control (page 19)
7. Potential Impact on Voting Control of Purchases by Management (page 19)
8. Effect of Regulatory Changes on Operations (page 20)
9. Valuation Not Indicative of Future Price of Common Stock (page 20)
10. Possible Negative Income Tax Consequences of Distribution
of Subscription Rights (page 20)
11. Possible Dilutive Effect of MRP and Stock Options (page 20)
12. Potential Cost of ESOP and MRP (page 21)
13. ESOP Compensation Expense (page 21)
14. Absence for Market of Common Stock (page 21)
15. No Opinion or Recommendation by Sales Agent; Best Efforts
Offering (page 22)
16. Risk of Loss of Principal (page 22)
PRINT NAME:
-----------------------------------------
SIGNATURE:
------------------------------------------
DATE:
-----------------------------------------------
PRINT NAME:
-----------------------------------------
SIGNATURE:
------------------------------------------
DATE:
-----------------------------------------------
<PAGE>
+++ +++ NEWSOUTH BANCORP, INC.
+ + (HOLDING COMPANY FOR HOME SAVINGS
BANK, SSB)
STOCK ORDER 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 12:00 p.m. (noon), Eastern Time, on
, 1997, unless extended.
- --------------------------------------------------------------------------------
(1) Number of Shares Purchase Price (2) Total Payment Due
- -------------------------- --------------------------
X $15.00 =
- -------------------------- --------------------------
The minimum number of shares that may be subscribed for is 25 shares. The
maximum number is 20,000 shares for any individual or individuals through a
single account.
- --------------------------------------------------------------------------------
METHOD OF PAYMENT IMPORTANT PURCHASER INFORMATION
(3)[ ] Enclosed is a check, (5)a [ ] Eligible Account Holder -- Check here
bank draft or money if you were a depositor of at least
order made payable to $50.00 at Home Savings on June 30,
Home Savings Bank, SSB. 1992. Enter information below for all
deposit accounts that you had at Home
Savings on June 30, 1992.
----------- Cash can be
$ used only (5)b [ ] Other Member -- Check here if you
if presented held a deposit or loan at Home
----------- in person at Savings as of , 1997 but are not
any Home Savings an Eligible Account Holder or
office. Supplemental Eligible Account Holder.
(4)[ ] The undersigned (5)c [ ] Local Community Resident -- Check
authorizes withdrawal here if you are a permanent resident
from this (these) of Beaufort, Craven, Lenoir, Nash,
account(s) at Home Savings. Pasquotank or Pitt County, North
Carolina.
Account Title Deposit Loan Account
(Names on Accounts) Account Account Number
- --------------------------------------------------------------------------------
[ ] [ ]
- --------------------------------------------------------------------------------
[ ] [ ]
- --------------------------------------------------------------------------------
[ ] [ ]
- --------------------------------------------------------------------------------
[ ] [ ]
- --------------------------------------------------------------------------------
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 common
[ ]Uniform Transfer to Minors Act
[ ]Fiduciary (i.e., trust, estate, etc.) [ ]Corporation or Partnership
[ ]Other ______________________
- --------------------------------------------------------------------------------
(7)Name(s) in which your stock is to be registered (Please Print Clearly)
- --------------------------------------------------------------------------------
Social Security No. or Tax ID No.
- --------------------------------------------------------------------------------
Name(s) continued
- --------------------------------------------------------------------------------
Street Address City County State Zip Code
- --------------------------------------------------------------------------------
------------------------ -------------------------
(8)Telephone Information Daytime Phone Evening Phone
( ) ( )
------------------------ -------------------------
NASD AFFILIATION
(9) [ ] Check here if you are a member of the National Association of
Securities Dealers, Inc. ("NASD"), a person associated with an 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 an
NASD member or person associated with an 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) not to sell, transfer
or hypothecate the stock for a period of 90 days following issuance, and (ii) to
report this subscription in writing to the applicable NASD member within one day
of payment therefor.
ACKNOWLEDGMENTS
(10) To be effective, this fully completed Stock Order Form must be actually
received by Home Savings, no later than 12:00 p.m. (noon), Eastern Time, on ,
1997, 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 the office of
Home Savings 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 of Home
Savings described in the accompanying Prospectus. If the Plan of Conversion is
not approved by the voting members of Home Savings at a Special Meeting to be
held on , 1997, 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 Home Savings, this Stock Order
Form may not be modified, withdrawn or cancelled (unless the conversion is not
completed within 45 days after the completion of the Subscription Offering)
without the Bank's consent, and if authorization to withdraw from deposit
accounts at Home Savings has been given as payment for shares, the amount
authorized for withdrawal shall not otherwise be available for withdrawal by
the undersigned.
Under penalty of perjury, I certify that the Social Security or Tax ID Number
and the other information provided under number 7 of this Stock Order Form are
true, correct and complete 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.
APPLICABLE 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. HOME SAVINGS AND NEWSOUTH BANCORP, INC. MAY PURSUE ANY
AND ALL LEGAL AND EQUITABLE REMEDIES IN THE EVENT THEY BECOME AWARE OF THE
TRANSFER OF 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 FEDERALLY INSURED OR GUARANTEED.
I ALSO ACKNOWLEDGE RECEIPT OF A PROSPECTUS DATED , 1997
- --------------------------------------------------------------------------------
(11)Signature Date Signature Date
- --------------------------------------------------------------------------------
UNDER PENALTY OF PERJURY, I CERTIFY THAT I AM NOT SUBJECT TO BACK-UP
WITHHOLDING.
--------------------------------------
SIGNATURE
FOR OFFICE USE ONLY STOCK INFORMATION CENTER
HOME SAVINGS BANK, SSB 1311 CAROLINA
Date Rec'd ____/___/_____ AVENUE WASHINGTON, NC 27889
Order # _________________ (919) -
Category_________________
Batch # _________________
Deposit _________________
Date Input____/____/_____
<PAGE>
NEWSOUTH BANCORP, INC.
- -------------------------------------------------------------------------------
SUBSCRIPTION AND
COMMUNITY 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
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 TRANSFERS TO MINORS ACT ("UTMA")
Stock may be held in the name of a custodian for a minor under the Uniform
Transfers to Minors Act 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 abbreviation should be used to
describe the appropriate state. For example, stock held by John Doe as
custodian for Susan Doe under the North Carolina Uniform Transfer to Minors
Act will be abbreviated John Doe, CUST Susan Doe Unif Tran Min Act, NC (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 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 directly to Home Savings.
Your Stock Order Form, properly completed, accompanied by a signed
Certification and payment in full (or withdrawal authorization), at the
Purchase Price must be received by Home Savings no later than 12:00 (noon),
Eastern Time, on , 1997 or it will become void. Stock Order Forms shall
be deemed received only upon actual receipt at Home Savings. If you need
further assistance, please call the Stock Information Center at (919) -
. 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 Purchase Price of $15.00 per share. The minimum purchase is
25 shares and the maximum purchase in the Subscription Offering is 20,000
shares. The maximum purchase in the Community Offering by any person, together
with associates or groups acting in concert is 40,000 shares. NewSouth
Bancorp, Inc. and the Association reserve the right to reject the subscription
of any order received in the Community Offering, in whole or in part.
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 Home Savings Bank, SSB.
Your funds will earn interest at the passbook rate, currently at % per annum,
until the conversion is completed. 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 Home Savings 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. Please contact the
Stock Information Center for information regarding purchases from an
Individual Retirement Account.
ITEM 5--
Please check the appropriate box if you were;
(a) A depositor at Home Savings on June 30, 1992 (the "Eligibility Record
Date") with at least $50.00 on deposit.
(b) A depositor at Home Savings on , 1996 (the "Supplement Eligibility
Record Date") with at least $50.00 on deposit.
(c) A depositor or borrower at Home Savings on , 1997 (the "Voting Record
Date").
(d) A permanent resident of Beaufort, Craven, Lenoir, Nash, Pasquotank or Pitt
County, North Carolina.
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 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 at
(919) - . The Stock Information Center will be open between the hours of
9:00 a.m. and 4:00 p.m., Eastern Time, Monday through Thursday, and 9:00 a.m.
and 5:00 p.m. Friday.
<PAGE>
EXHIBIT 99.2
HOME SAVINGS BANK, SSB
1311 CAROLINA AVENUE
WASHINGTON, NORTH CAROLINA 27889
(919) 946-4178
NOTICE OF SPECIAL MEETING OF MEMBERS
Notice is hereby given that a Special Meeting of Members (the "Special
Meeting") of Home Savings Bank, SSB (the "Bank") will be held at the office of
the Bank located at 1311 Carolina Avenue, Washington, North Carolina, on
_____________, 1997 at __:__ _.m. Business to be taken up at the Special
Meeting shall be:
(1) To consider and vote upon a Plan of Conversion providing for the
conversion of the Bank from a North Carolina-chartered mutual
savings bank to a North Carolina-chartered stock savings bank (the
"Converted Bank") as a wholly owned subsidiary of NewSouth Bancorp,
Inc., a newly organized Delaware corporation formed by the Bank for
the purpose of becoming the holding company for the Converted Bank,
the subsequent conversion of the Converted Bank to a North Carolina
commercial bank under the name "NewSouth Bank" and the related
transactions provided for in such plan, including the adoption of an
Amended and Restated Certificate of Incorporation and Bylaws for the
Converted Bank and the adoption of an Amended and Restated
Certificate of Incorporation and Bylaws for NewSouth Bank, pursuant
to the laws of the State of North Carolina and the Rules and
Regulations administered by the Federal Deposit Insurance
Corporation and the State of North Carolina.
(2) To consider and vote upon any other matters that may lawfully come
before the Special Meeting.
Note: As of the date of mailing of this Notice of Special Meeting of
Members, the Board of Directors is not aware of any other matters
that may come before the Special Meeting.
The members entitled to vote at the Special Meeting shall be those members
of the Bank at the close of business on ____________, 1997, who continue as
members until the Special Meeting and, should the Special Meeting be, from time
to time, adjourned to a later time, until the final adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
William L. Wall
Secretary
____________, 1997
Washington, North Carolina
___________________
YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THIS PROXY MATERIAL
AND, WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE SPECIAL MEETING, TO
FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) AS SOON AS POSSIBLE TO
ASSURE THAT YOUR VOTES WILL BE COUNTED. THIS WILL NOT PREVENT YOU FROM VOTING
IN PERSON IF YOU ATTEND THE SPECIAL MEETING.
<PAGE>
HOME SAVINGS BANK, SSB
1311 CAROLINA AVENUE
WASHINGTON, NORTH CAROLINA 27889
(919) 946-4178
PROXY STATEMENT
YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF DIRECTORS OF
HOME SAVINGS BANK, SSB FOR USE AT A SPECIAL MEETING OF ITS MEMBERS TO BE HELD ON
_____________, 1997 AND ANY ADJOURNMENT OF THAT MEETING, FOR THE PURPOSES SET
FORTH IN THE FOREGOING NOTICE OF SPECIAL MEETING. YOUR BOARD OF DIRECTORS URGES
YOU TO VOTE FOR THE PLAN OF CONVERSION.
PURPOSE OF MEETING -- SUMMARY
A Special Meeting of Members (the "Special Meeting") of Home Savings Bank,
SSB (the "Bank") will be held at the office of the Bank located at 1311 Carolina
Avenue, Washington, North Carolina on _________, _____________, 1997, at __:__
_.m., Eastern Time, for the purpose of considering and voting upon a Plan of
Conversion (the "Plan"), which was unanimously adopted by the Bank's Board of
Directors and which, if approved by a majority of the total votes eligible to be
cast by the members, will permit the Bank to convert from a North Carolina-
chartered mutual savings bank to a North Carolina-chartered stock savings bank
(the "Converted Bank") as a wholly owned subsidiary of NewSouth Bancorp, Inc.
(the "Company"), a Delaware corporation formed by the Bank for the purpose of
becoming the holding company for the Bank. Immediately thereafter, the Converted
Bank will convert from a North Carolina-chartered stock savings bank to a North
Carolina-chartered commercial bank under the name "NewSouth Bank" (the
"Commercial Bank"). The conversion of the Bank to the Converted Bank and the
acquisition of control of the Converted Bank by the Company are collectively
referred to herein as the "Stock Conversion;" the conversion of the Converted
Bank to the Commercial Bank is referred to herein as the "Bank Conversion;" the
Stock Conversion and the Bank Conversion are referred to collectively herein as
the "Conversion." The Conversion is contingent upon the members' approval of the
Plan at the Special Meeting or any adjournment thereof.
The Plan provides in part that after receiving final authorization from the
Administrator, Savings Institutions Division, North Carolina Department of
Commerce (the "Administrator"), the Company will offer for sale shares of its
common stock, par value $.01 per share (the "Common Stock"), through the
issuance of nontransferable subscription rights, first to depositors as of June
30, 1992 with $50.00 or more on deposit in the Bank on that date ("Eligible
Account Holders"), second to the Company's Employee Stock Ownership Plan (the
"ESOP") (a tax-qualified employee stock benefit plan of the Company, as defined
in the Plan), third to depositors with $50.00 or more on deposit in the Bank on
___________, 1996, the last day of the calendar quarter preceding approval of
the Plan by the Administrator ("Supplemental Eligible Account Holders"), and
fourth to other members entitled to vote at the Special Meeting ("Other
Members") (the "Subscription Offering"). Subscription rights received in any of
the foregoing categories will be subordinated to the subscription rights of
those in a prior category, with the exception that any shares of Common Stock
sold in excess of the high end of the estimated value range as established in an
independent appraisal, as discussed below, may be first sold to the ESOP. The
Company may offer any shares remaining after the Subscription Offering to
certain members of the general public in a community offering (the "Community
Offering"). In the Community Offering, preference will be given to natural
persons and trusts of natural persons who are permanent residents of Beaufort,
Craven, Lenoir, Nash, Pasquotank and Pitt Counties in North Carolina (the "Local
Community"). Any shares of Common Stock not purchased in the Subscription and
Community Offerings may be sold as part of a community offering on a best
efforts basis by a selling group of selected broker-dealers to be managed by
Trident Securities, Inc. (the "Syndicated Community Offering"). The aggregate
price of the Common Stock to be issued by the Company under the Plan is
currently estimated to be between $26,775,000 and $36,225,000, subject to
adjustment, as determined by an independent appraisal of the
<PAGE>
Bank's estimated pro forma market value as converted and as a wholly owned
subsidiary of the Company. See "The Conversion -- Stock Pricing and Number of
Shares to be Issued" in the accompanying Prospectus.
Adoption of the proposed Amended and Restated Certificate of Incorporation
and Bylaws of the Converted Bank and the proposed Amended and Restated
Certificate of Incorporation and Bylaws of the Commercial Bank is an integral
part of the Plan. Copies of the Plan and the proposed Amended and Restated
Certificate of Incorporation and Bylaws for the Converted Bank and the proposed
Amended and Restated Certificate of Incorporation and Bylaws of the Commercial
Bank are attached to this Proxy Statement as exhibits. These documents provide,
among other things, for the termination of voting rights of members and their
rights to receive any surplus remaining in the event of liquidation of the Bank.
These rights, except for the rights of Eligible Account Holders and Supplemental
Eligible Account Holders in the liquidation account established for their
benefit upon completion of the Stock Conversion, will vest exclusively in the
Company as the sole holder of the Converted Bank's or Commercial Bank's
outstanding capital stock. For further information, see "The Conversion --
Effect of Conversion to Stock Form on Depositors and Borrowers of the Bank" in
the accompanying Prospectus.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" APPROVAL OF THE PLAN OF CONVERSION. VOTING IN FAVOR OF THE PLAN OF
CONVERSION WILL NOT OBLIGATE ANY PERSON TO PURCHASE STOCK.
The Conversion will be accomplished through adoption of an Amended and
Restated Certificate of Incorporation and Bylaws to authorize the issuance of
capital stock by the Bank to the Company. Immediately following consummation of
the Stock Conversion, the Company, as the sole stockholder of the Converted
Bank, shall approve the Bank Conversion, and the Converted Bank shall take such
actions as may be necessary to consummate the Bank Conversion. Under the Plan,
2,415,000 shares of the Common Stock, subject to adjustment, are being offered
for sale by the Company. Upon completion of the Stock Conversion, the Converted
Bank will issue all of its newly issued shares of capital stock to the Company
in exchange for at least 50% of the net proceeds of the Stock Conversion, after
deducting the cost of the ESOP loan. None of the Bank's assets will be
distributed in order to effect the Conversion other than to pay expenses
incident thereto.
The net proceeds from the sale of Common Stock in the Stock Conversion will
substantially increase the Bank's capital, which will increase the amount of
funds available for lending and investment, and support current operations and
the continued growth of the Bank's business. The holding company structure will
provide greater flexibility than the Bank alone would have for diversification
of business activities and expansion. Management believes that this increased
capital and operating flexibility will enable the Bank to compete more
effectively with other types of financial service organizations. Management also
believes that the Conversion will enhance the future access of the Company and
the Converted Bank and the Commercial Bank to the capital markets and will
afford depositors and others the opportunity to become stockholders of the
Company and thereby participate in any future growth of the Converted Bank and
the Commercial Bank.
The Bank Conversion shall be deemed to occur and shall be effective upon
completion of all actions necessary or appropriate under applicable North
Carolina statutes and regulations and the policies and regulations of the State
Banking Commission of North Carolina to complete the conversion of the Converted
Bank to a North Carolina commercial bank, including without limitation the
approval of the Bank Conversion by the Company, as the sole stockholder of the
Converted Bank. Upon completion of all such actions, the Converted Bank will be
and become the Commercial Bank. The Bank Conversion shall be consummated
immediately following the consummation of the Stock Conversion.
2
<PAGE>
NEWSOUTH BANCORP, INC.
NewSouth Bancorp, Inc. was incorporated under the laws of the State of
Delaware in November 1996 at the direction of the Board of Directors of the Bank
for the purpose of serving as a bank holding company of the Commercial Bank
following the Bank Conversion. The Company has received approval from the
Federal Reserve Board for approval to retain control of the Commercial Bank
following the Bank Conversion. Prior to the Conversion, the Company has not
engaged and will not engage in any material operations. Upon consummation of the
Conversion, the Company will have no significant assets other than the
outstanding capital stock of the Converted Bank (and the Commercial Bank
following the Bank Conversion), up to 50% of the net proceeds of the Stock
Conversion (after deducting amounts infused into the Bank and used to fund the
ESOP) and a note receivable from the ESOP. Upon consummation of the Conversion,
the Company's principal business will be overseeing the business of the
Commercial Bank and investing the portion of the net Stock Conversion proceeds
retained by it.
As a holding company, the Company will have greater flexibility than the
Bank to diversify its business activities through existing or newly formed
subsidiaries or through acquisition of or merger with other financial
institutions, although the Company currently does not have any plans,
agreements, arrangements or understandings with respect to any such acquisitions
or mergers. After the Stock Conversion and the Bank Conversion, the Company will
be classified as a bank holding company and will be subject to regulation by the
Federal Reserve Board.
Following the Conversion, the Board of Directors intends to manage the
Company to promote the long-term best interests of the Company and its
stockholders. Initially following the Conversion, the Company will have capital
in excess of the level required to support its current asset size and level of
operations, and the Bank's business plan is to pursue a strategy of
conservative, long-term growth through competing for loans and deposits in its
market area, establishing new branch offices or making selective acquisitions of
other financial institutions or branches of other institutions. The Boards of
Directors of the Company and the Bank currently have no specific plans regarding
new branch offices or acquisitions of other financial institutions or branches.
With respect to the evaluation of any business combination or tender or exchange
offer that may be presented in the future, the Company's Certificate of
Incorporation directs the Board of Directors to consider, in addition to the
adequacy of the amount to be paid in connection with any such transaction,
certain specified factors and any other factors the Board deems relevant,
including (i) the social and economic effects of the transaction on the Company
and its subsidiaries, employees, depositors, loan and other customers, creditors
and other elements of the communities in which the Company and its subsidiaries
operate or are located; (ii) the business and financial condition and earnings
prospects of the acquiring person or entity; and (iii) the competence,
experience and integrity of the acquiring person or entity and its or their
management.
The Company's executive offices are located at 1311 Carolina Avenue,
Washington, North Carolina 27889-2047, and its main telephone number is (919)
946-4178.
HOME SAVINGS BANK, SSB
The Bank is a North Carolina-chartered mutual savings bank headquartered in
Washington, North Carolina and serving northeastern North Carolina. The Bank was
chartered by the State of North Carolina in 1902 under the name The Home
Building and Loan Association. The Bank received federal insurance of its
deposit accounts in 1959. In 1992, the Bank converted to a North Carolina-
chartered savings bank, at which time it adopted its present name of Home
Savings Bank, SSB. At September 30, 1996, the Bank had total assets of $194.1
million, total deposits of $171.2 million and retained income, substantially
restricted, of $18.3 million.
The Bank's principal business consists of attracting deposits from the
general public and investing these funds in loans secured by first mortgages on
owner-occupied, single-family residences in the Bank's market area, commercial
real estate loans, commercial business loans and consumer loans, and, to a
lesser extent, multi-family residential real estate loans. Historically, the
Bank operated as a traditional savings and loan association, emphasizing the
origination of loans secured by single-family residences. Beginning in the early
1980's, the Board of Directors
3
<PAGE>
determined that the Bank's market area was not adequately served by the existing
financial institutions and there was local demand for commercial real estate,
commercial business and consumer loans. As a result, the Board of Directors
determined to refocus the Bank's strategy. Pursuant to this strategy, while
continuing to pursue its existing business of originating single-family
residential mortgage loans, the Bank took advantage of the business
opportunities identified by the Board of Directors by gradually expanding into
commercial real estate, commercial business and consumer lending. In furtherance
of this strategy, the Bank recruited experienced commercial real estate,
commercial business and consumer lending officers and developed commercial real
estate, commercial business and consumer loan products. As a result of these
efforts over the years, at September 30, 1996, the Bank had commercial real
estate, commercial business and consumer loans totaling $31.2 million, $10.3
million and $37.4 million, respectively, which represented 17.9%, 6.0% and
21.5%, respectively, of total loans. At September 30, 1996, $94.8 million, or
54.6% of total loans, consisted of residential real estate mortgage loans.
In addition, since the late 1980's, mortgage banking activities have
constituted an increasingly significant business activity for the Bank. The
Bank's mortgage banking activities consist of originating single-family
residential mortgage loans and primarily selling those loans for cash to the
FHLMC, with servicing retained. On occasion, the Bank also will swap single-
family residential mortgage loans with the FHLMC, while retaining servicing, in
exchange for mortgage-backed securities backed by those loans. At September 30,
1996, the Bank had $21.6 million of loans available for sale and $253.7 million
of loans serviced for others. The Bank earned servicing income of $632,000 on
its portfolio of loans serviced for others for the year ended September 30,
1996.
Following the Conversion, management intends to continue to follow its
current strategy of seeking growth opportunities through increasing its
portfolio of commercial real estate, commercial business and consumer loans
while continuing to pursue single-family residential mortgage loan origination
and mortgage banking activities.
The Bank derives its income principally from interest earned on loans and
investments and, to a lesser extent, loan servicing and other fees and gains on
the sale of loans and investments. The Bank's principal expenses are interest
expense on deposits and borrowings and noninterest expense such as compensation
and employee benefits, office occupancy expenses and other miscellaneous
expenses. Funds for these activities are provided principally by deposits,
repayments of outstanding loans and investments and operating revenues.
The Bank's executive offices are located at 1311 Carolina Avenue,
Washington, North Carolina 27889-2047, and its main telephone number is (919)
946-4178.
NEWSOUTH BANK
Upon consummation of the Bank Conversion, the Commercial Bank will succeed
to all of the assets and liabilities of the Converted Bank (which, pursuant to
the Stock Conversion will have succeeded to all of the assets and liabilities of
the Bank). Following the Conversion, management intends to continue to follow
the Bank's current strategy of seeking growth opportunities through increasing
its portfolio of commercial real estate, commercial business and consumer loans
while continuing to pursue single-family residential mortgage loan origination
and mortgage banking activities.
The deposits of the Commercial Bank will continue to be insured by the SAIF
of the FDIC, and, as such, the Commercial Bank will continue to be subject to
regulation and supervision by the FDIC. The Commercial Bank will not be subject
to regulation and supervision by the Administrator. Rather, the primary
regulator of the Commercial Bank will be the Commission. In addition, the
Commercial Bank will remain a member of the FHLB of Atlanta.
INFORMATION RELATING TO VOTING AT THE SPECIAL MEETING
The Board of Directors of the Bank has fixed the close of business on
____________, 1997 as the record date (the "Voting Record Date") for the
determination of members entitled to notice of and to vote at the Special
4
<PAGE>
Meeting. All holders of the Bank's deposit or other authorized accounts and
borrowers are members of the Bank under its current mutual certificate of
incorporation. All members of record as of the close of business on the Voting
Record Date who continue as such until the date of the Special Meeting will be
entitled to vote at the Special Meeting or any adjournment thereof.
Each depositor member will be entitled at the Special Meeting to cast one
vote for each $100, or fraction thereof, of the aggregate withdrawal value of
all of his savings accounts in the Bank as of the Voting Record Date. Borrower
members will be entitled to one vote at the Special Meeting in addition to any
votes such borrower member may have as a result of being a depositor in the
Bank. No member may cast more than 1,000 votes.
Approval of the Plan to be presented at the Special Meeting will require
the affirmative vote of at least a majority of the total outstanding votes of
the Bank's members eligible to be cast at the Special Meeting. As of the Voting
Record Date for the Special Meeting, there were approximately _______ votes
eligible to be cast, of which _______ votes constitute a majority.
Members may vote at the Special Meeting or any adjournment thereof in
person or by proxy. All properly executed proxies received by the Bank will be
voted in accordance with the instructions indicated thereon by the members
giving such proxies. If no contrary instructions are given, such proxies will be
voted in favor of the Plan of Conversion described herein. If any other matters
are properly presented before the Special Meeting and may properly be voted
upon, the proxies solicited hereby will be voted on such matters by the proxy
holders named therein as directed by the Board of Directors of the Bank. Valid,
previously executed general proxies, which typically are obtained from members
when they open their accounts at the Bank, will not be used to vote for approval
of the Plan of Conversion, even if the respective members do not execute another
proxy or attend the Special Meeting and vote in person. Any member giving a
proxy will have the right to revoke his or her proxy at any time before it is
voted by delivering written notice or a duly executed proxy bearing a later date
to the Secretary of the Bank, provided that such written notice is received by
the Secretary prior to the Special Meeting or any adjournment thereof, or by
attending the Special Meeting and voting in person.
FAILURE TO RETURN AN EXECUTED PROXY FOR THE SPECIAL MEETING OR TO ATTEND
THE SPECIAL MEETING AND VOTE IN PERSON WOULD HAVE THE SAME EFFECT AS VOTING
AGAINST THE CONVERSION.
Proxies may be solicited by officers, directors or other employees of the
Bank, in person, by telephone or through other forms of communication. Such
persons will be reimbursed by the Bank only for their expenses incurred in
connection with such solicitation.
The proxies solicited hereby will be used only at the Special Meeting and
at any adjournment thereof; they will not be used at any other meeting.
5
<PAGE>
DESCRIPTION OF PLAN OF CONVERSION
THE BOARD OF DIRECTORS OF THE BANK AND THE ADMINISTRATOR HAVE APPROVED THE
PLAN, SUBJECT TO THE PLAN'S APPROVAL BY THE MEMBERS OF THE BANK ENTITLED TO VOTE
ON THE MATTER AND SUBJECT TO THE SATISFACTION OF CERTAIN OTHER CONDITIONS. SUCH
APPROVAL BY THE ADMINISTRATOR, HOWEVER, DOES NOT CONSTITUTE A RECOMMENDATION OR
ENDORSEMENT OF THE PLAN.
EFFECT OF CONVERSION TO STOCK FORM ON DEPOSITORS AND BORROWERS OF THE BANK
General. Each depositor in a mutual savings institution such as the Bank
has both a deposit account and a pro rata ownership interest in the retained
earnings of that institution based upon the balance in his or her deposit
account. However, this ownership interest is tied to the depositor's account and
has no tangible market value separate from such deposit account. Any other
depositor who opens a deposit account obtains a pro rata interest in the
retained earnings of the institution without any additional payment beyond the
amount of the deposit. A depositor who reduces or closes his or her account
receives a portion or all of the balance in the account but nothing for his or
her ownership interest, which is lost to the extent that the balance in the
account is reduced.
Consequently, depositors normally do not have a way to realize the value of
their ownership, which has realizable value only in the unlikely event that the
mutual institution is liquidated. In such event, the depositors of record at
that time, as owners, would share pro rata in any residual retained earnings
after other claims are paid.
Upon consummation of the Stock Conversion, permanent nonwithdrawable
capital stock will be created to represent the ownership of the institution. The
stock is separate and apart from deposit accounts and is not and cannot be
insured by the FDIC. Transferable certificates will be issued to evidence
ownership of the stock, which will enable the stock to be sold or traded, if a
purchaser is available, with no effect on any account held in the Bank. Under
the Plan, all of the capital stock of the Converted Bank will be acquired by the
Company in exchange for a portion of the net proceeds from the sale of the
Common Stock in the Stock Conversion. The Common Stock will represent an
ownership interest in the Company and will be issued upon consummation of the
Stock Conversion to persons who elect to participate in the Stock Conversion by
purchasing the shares being offered.
Continuity. During the Conversion process, the normal business of the Bank
of accepting deposits and making loans will continue without interruption. The
Converted Bank will continue to be subject to regulation by the Administrator
and the FDIC, and the Commercial Bank will be subject to regulation by the
Commission and the FDIC, and FDIC insurance of accounts will continue without
interruption. After the Conversion, the Converted Bank and the Commercial Bank
will continue to provide services for depositors and borrowers under current
policies and by its present management and staff.
The Board of Directors serving the Bank at the time of the Conversion will
serve as the Board of Directors of the Converted Bank, and then the Commercial
Bank after the Bank Conversion. The Board of Directors of the Company will
consist of the individuals currently serving on the Board of Directors of the
Bank. All officers of the Bank at the time of the Conversion will retain their
positions with the Converted Bank, and then the Commercial Bank, after the
Conversion.
Voting Rights. Upon the completion of the Conversion, depositor and
borrower members as such will have no voting rights in the Converted Bank, the
Commercial Bank or the Company and, therefore, will not be able to elect
directors of the Converted Bank, the Commercial Bank or the Company or to
control their affairs. Currently these rights are accorded to depositors of the
Bank. Subsequent to the Stock Conversion, voting rights will be vested
exclusively in the stockholders of the Company which, in turn, will own all of
the stock of the Converted Bank and, following the Bank Conversion, the
Commercial Bank. Each holder of Common Stock shall be entitled to vote on any
matter to be considered by the stockholders of the Company, subject to the
provisions of the Company's Certificate of Incorporation.
6
<PAGE>
After the Bank Conversion, holders of Savings Accounts in and obligors on
loans of the Converted Bank and the Commercial Bank will not have voting rights
in the Commercial Bank. Exclusive voting rights with respect to the Company
shall be vested in the holders of the Common Stock. Holders of Savings Accounts
in and obligors on loans of the Converted Bank and the Commercial Bank will not
have any voting rights in the Company except and to the extent that such persons
become stockholders of the Company, and the Company will have exclusive voting
rights with respect to the Converted Bank's and the Commercial Bank's capital
stock.
Deposit Accounts and Loans. THE BANK'S DEPOSIT ACCOUNTS, THE BALANCES OF
INDIVIDUAL ACCOUNTS AND EXISTING FEDERAL DEPOSIT INSURANCE COVERAGE WILL NOT BE
AFFECTED BY THE CONVERSION. Furthermore, the Conversion will not affect the loan
accounts, the balances of these accounts and the obligations of the borrowers
under their individual contractual arrangements with the Bank.
Tax Effects. The Bank has received an opinion from its special counsel,
Housley Kantarian & Bronstein, P.C., Washington, D.C., as to the material
federal income tax consequences of the Conversion to the Bank and the Commercial
Bank, and as to the generally applicable material federal income tax
consequences of the Conversion to the Bank's account holders and to persons who
purchase Common Stock in the Stock Conversion. The opinion provides that the
Conversion will constitute one or more reorganizations for federal income tax
purposes under Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as
amended ("Internal Revenue Code"). Among other things, the opinion also provides
that: (i) no gain or loss will be recognized by the Bank in its mutual or stock
form by reason of the Stock Conversion; (ii) no gain or loss will be recognized
by its account holders upon the issuance to them of accounts in the Converted
Bank in stock form immediately after the Stock Conversion, in the same dollar
amounts and on the same terms and conditions as their accounts at the Bank
immediately prior to the Stock Conversion; (iii) the tax basis of each account
holder's interest in the liquidation account will be equal to the value, if any,
of that interest; (iv) the tax basis of the Common Stock purchased in the Stock
Conversion will be equal to the amount paid therefor increased, in the case of
Common Stock acquired pursuant to the exercise of Subscription Rights, by the
fair market value, if any, of the Subscription Rights exercised; (v) the holding
period for the Common Stock purchased in the Stock Conversion will commence upon
the exercise of such holder's Subscription Rights and otherwise on the day
following the date of such purchase; (vi) gain or loss will be recognized to
account holders upon the receipt of liquidation rights or the receipt or
exercise of Subscription Rights in the Stock Conversion, to the extent such
liquidation rights and Subscription Rights are deemed to have value, as
discussed below; and (vii) as a result of the Bank Conversion, the Commercial
Bank will be required to recapture the applicable excess reserves into gross
income ratably over a six taxable year period. The applicable excess reserves
are the excess, if any, of (1) the balance of its reserves as of the close of
its last taxable year beginning before January 1, 1996, over (2) the greater of
the balance of (a) its pre-1988 reserves, or (b) what the Commercial Bank's
reserves would have been at the close of its last taxable year beginning before
January 1, 1996, had the Commercial Bank always used the experience method (the
six-year average method).
The opinion of Housley Kantarian & Bronstein, P.C. is based in part upon,
and subject to the continuing validity in all material respects through the date
of the Conversion of, various representations of the Bank and upon certain
assumptions and qualifications, including that the Conversion is consummated in
the manner and according to the terms provided in the Plan. Such opinion is also
based upon the Internal Revenue Code, regulations now in effect or proposed
thereunder, current administrative rulings and practice and judicial authority,
all of which are subject to change and such change may be made with retroactive
effect. Unlike private letter rulings received from the Internal Revenue Service
("IRS"), an opinion is not binding upon the IRS and there can be no assurance
that the IRS will not take a position contrary to the positions reflected in
such opinion, or that such opinion will be upheld by the courts if challenged by
the IRS.
Housley Kantarian & Bronstein, P.C. has advised the Bank that an interest
in a liquidation account has been treated by the IRS, in a series of private
letter rulings which do not constitute formal precedent, as having nominal, if
any, fair market value and therefore it is likely that the interests in the
liquidation account established by the Bank as part of the Stock Conversion will
similarly be treated as having nominal, if any, fair market value. Accordingly,
7
<PAGE>
it is likely that such depositors of the Bank who receive an interest in such
liquidation account established by the Bank pursuant to the Stock Conversion
will not recognize any gain or loss upon such receipt.
Housley Kantarian & Bronstein, P.C. has further advised the Bank that the
federal income tax treatment of the receipt of Subscription Rights pursuant to
the Stock Conversion is uncertain, and recent private letter rulings issued by
the IRS have been in conflict. For instance, the IRS adopted the position in one
private ruling that Subscription Rights will be deemed to have been received to
the extent of the minimum pro rata distribution of such rights, together with
the rights actually exercised in excess of such pro rata distribution, and with
gain recognized to the extent of the combined fair market value of the pro rata
distribution of Subscription Rights plus the Subscription Rights actually
exercised. Persons who do not exercise their Subscription Rights under this
analysis would recognize gain upon receipt of rights equal to the fair market
value of such rights, regardless of exercise, and would recognize a
corresponding loss upon the expiration of unexercised rights that may be
available to offset the previously recognized gain. Under another IRS private
ruling, Subscription Rights were deemed to have been received only to the extent
actually exercised. This private ruling required that gain be recognized only if
the holder of such rights exercised such rights, and that no loss be recognized
if such rights were allowed to expire unexercised. There is no authority that
clearly resolves this conflict among these private rulings, which may not be
relied upon for precedential effect. However, based upon express provisions of
the Internal Revenue Code and in the absence of contrary authoritative guidance,
Housley Kantarian & Bronstein, P.C. has provided in its opinion that gain will
be recognized upon the receipt rather than the exercise of Subscription Rights.
Further, also based upon a published IRS ruling and consistent with recognition
of gain upon receipt rather than exercise of the Subscription Rights, Housley
Kantarian & Bronstein, P.C. has provided in its opinion that the subsequent
exercise of the Subscription Rights will not give rise to gain or loss.
Regardless of the position eventually adopted by the IRS, the tax consequences
of the receipt of the Subscription Rights will depend, in part, upon their
valuation for federal income tax purposes.
If the Subscription Rights are deemed to have a fair market value, the
receipt of such rights will be taxable to Eligible Account Holders, Supplemental
Eligible Account Holders and other eligible members who exercise their
Subscription Rights, even though such persons would have received no cash from
which to pay taxes on such taxable income. The Bank could also recognize a gain
on the distribution of such Subscription Rights in an amount equal to their
aggregate value. In the opinion of Ferguson, whose opinion is not binding upon
the IRS, the Subscription Rights do not have any value, based on the fact that
such rights are acquired by the recipients without cost, are non-transferable
and of short duration and afford the recipients the right only to purchase
shares of the Common Stock at a price equal to its estimated fair market value,
which will be the same price as the price paid by purchasers in the Community
Offering for unsubscribed shares of Common Stock. Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members are encouraged to
consult with their own tax advisors as to the tax consequences in the event that
the Subscription Rights are deemed to have a fair market value. Because the fair
market value, if any, of the Subscription Rights issued in the Stock Conversion
depends primarily upon the existence of certain facts rather than the resolution
of legal issues, Housley Kantarian & Bronstein, P.C., has neither adopted the
opinion of Ferguson as its own nor incorporated such opinion of Ferguson in its
opinion issued in connection with Conversion.
The Bank has also obtained an opinion from Coopers & Lybrand, L.L.P. to the
effect that the tax effects of the Conversion under North Carolina tax laws will
be substantially the same as described above with respect to federal income tax
laws.
THE FEDERAL AND STATE INCOME TAX DISCUSSION SET FORTH ABOVE DOES NOT
PURPORT TO CONSIDER ALL ASPECTS OF FEDERAL AND STATE INCOME TAXATION WHICH MAY
BE RELEVANT TO EACH ELIGIBLE ACCOUNT HOLDER, SUPPLEMENTAL ACCOUNT HOLDER AND
OTHER MEMBER ENTITLED TO SPECIAL TREATMENT UNDER THE INTERNAL REVENUE CODE, SUCH
AS TRUSTS, INDIVIDUAL RETIREMENT ACCOUNTS, OTHER EMPLOYEE BENEFIT PLANS,
INSURANCE COMPANIES AND ELIGIBLE ACCOUNT HOLDERS, SUPPLEMENTAL ELIGIBLE ACCOUNT
HOLDERS AND OTHER MEMBERS WHO ARE NOT CITIZENS OR RESIDENTS
8
<PAGE>
OF THE UNITED STATES. DUE TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH
ELIGIBLE ACCOUNT HOLDER, SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER AND OTHER MEMBER
IS URGED TO CONSULT HIS OR HER OWN TAX AND FINANCIAL ADVISOR AS TO THE EFFECT OF
SUCH FEDERAL AND STATE INCOME TAX CONSEQUENCES ON HIS OR HER OWN PARTICULAR
FACTS AND CIRCUMSTANCES, INCLUDING THE RECEIPT AND EXERCISE OF SUBSCRIPTION
RIGHTS, AND ALSO AS TO ANY OTHER TAX CONSEQUENCES ARISING OUT OF THE CONVERSION.
Liquidation Account. In the unlikely event of a complete liquidation of
the Bank in its present mutual form, each holder of a deposit account in the
Bank would receive his pro rata share of any assets of the Bank remaining after
payment of claims of all creditors (including the claims of all depositors to
the withdrawal value of their accounts). His pro rata share of such remaining
assets would be the same proportion of such assets as the value of his deposit
account was to the total of the value of all deposit accounts in the Bank at the
time of liquidation.
After the Stock Conversion, each deposit account holder on a complete
liquidation would have a claim of the same general priority as the claims of all
other general creditors of the Bank. Therefore, except as described below, his
claim would be solely in the amount of the balance in his deposit account plus
accrued interest. He would have no interest in the value of the Bank above that
amount.
The Plan provides for the establishment, upon the completion of the Stock
Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal to
the net worth of the Bank as of the date of its latest statement of financial
condition contained in the final Prospectus. Each Eligible Account Holder (a
person with a deposit account in the Bank on June 30, 1992) and each
Supplemental Eligible Account Holder (a person with a qualifying deposit in the
Bank on ______________, 1996) would be entitled, on a complete liquidation of
the Converted Bank (or the Commercial Bank) after completion of the Stock
Conversion, to an interest in the liquidation account. Each Eligible Account
Holder would have an initial interest in such liquidation account for each
deposit account held in the Bank on June 30, 1992 and each Supplemental Eligible
Account Holder would have an initial interest in such liquidation account for
each qualifying deposit held in the Bank on ______________, 1996. The interest
as to each qualifying deposit account would be in the same proportion of the
total liquidation account as the balance of such qualifying deposit account was
to the balance in all deposit accounts of Eligible Account Holders and
Supplemental Eligible Account Holders on such date. However, if the amount in
the qualifying deposit account on any annual closing date (September 30) of the
Bank subsequent to the relevant eligibility date is less than the amount in such
account on the relevant eligibility date, or any subsequent closing date, then
the Eligible Account Holder's or Supplemental Eligible Account Holder's interest
in the liquidation account would be reduced from time to time by an amount
proportionate to any such reductions, and such interest would cease to exist if
he ceases to maintain an account at the Converted Bank or Commercial Bank that
has the same Social Security number as appeared on his account(s) at the
relevant eligibility date. The interest in the liquidation account would never
be increased, notwithstanding any increase in the related deposit account after
the Stock Conversion.
Any assets remaining after the above liquidation rights of Eligible Account
Holders and Supplemental Eligible Account Holders were satisfied would be
distributed to the entity or persons holding the Bank's capital stock at that
time.
The Bank Conversion shall not be deemed to be a complete liquidation of the
Converted Bank for purposes of the distribution of the liquidation account. Upon
consummation of the Bank Conversion, the liquidation account, and all rights and
obligations of the Converted Bank in connection therewith, shall be assumed by
the Commercial Bank.
A merger, consolidation, sale of bulk assets or similar combination or
transaction with an FDIC-insured institution in which the Bank is not the
surviving insured institution would not be considered to be a "liquidation"
9
<PAGE>
under which distribution of the liquidation account could be made. In such a
transaction, the liquidation account would be assumed by the surviving
institution.
The creation and maintenance of the liquidation account will not restrict
the use or application of any of the capital accounts of the Bank, except that
the Bank may not declare or pay a cash dividend on, or repurchase any of, its
capital stock if the effect of such dividend or repurchase would be to cause its
retained earnings to be reduced below the aggregate amount then required for the
liquidation account.
INTERPRETATION AND AMENDMENT OF THE PLAN
To the extent permitted by law, all interpretations of the Plan by the Bank
will be final. The Plan provides that the Bank's Board of Directors shall have
the sole discretion to interpret and apply the provisions of the Plan to
particular facts and circumstances and to make all determinations necessary or
desirable to implement such provisions, including but not limited to matters
with respect to giving preference in the Community Offering to natural persons
and trusts of natural persons who are permanent residents of the Local
Community, and any and all interpretations, applications and determinations made
by the Board of Directors in good faith and on the basis of such information and
assistance as was then reasonably available for such purpose shall be conclusive
and binding upon the Bank and its members and subscribers in the Subscription
and Community Offerings, subject to the authority of the FDIC and the
Administrator.
The Plan provides that, if deemed necessary or desirable by the Board of
Directors, the Plan may be substantively amended by a two-thirds vote of the
Board of Directors at any time prior to submission of the Plan and proxy
materials to the Bank's members. After submission of the Plan and proxy
materials to the members, the Plan may be amended by a two-thirds vote of the
Board of Directors at any time prior to the Special Meeting and at any time
following the Special Meeting with the concurrence of the FDIC and the
Administrator. In its discretion, the Board of Directors may modify or terminate
the Plan upon the order of the regulatory authorities without a resolicitation
of proxies or another Special Meeting. However, any modification of the Plan
resulting in a material change in the terms of the Conversion would require a
resolicitation of proxies and another meeting of stockholders.
The Plan further provides that in the event that mandatory new regulations
pertaining to conversions are adopted by the FDIC, the Administrator, the
Commission, the Federal Reserve Board or any successor agency prior to
completion of the Conversion, the Plan will be amended to conform to such
regulations without a resolicitation of proxies or another Special Meeting. In
the event that such new conversion regulations contain optional provisions, the
Plan may be amended to utilize such optional provisions at the discretion of the
Board of Directors without a resolicitation of proxies or another Special
Meeting. By adoption of the Plan, the Bank's members will be deemed to have
authorized amendment of the Plan under the circumstances described above.
CONDITIONS AND TERMINATION
Completion of the Conversion requires the approval of the Plan by the
affirmative vote of not less than a majority of the total outstanding votes of
the members of the Bank and the sale of all shares of the Common Stock within 12
months following approval of the Plan by the members, which time period may be
extended an additional 12 months by an amendment to the Plan. If these
conditions are not satisfied, the Plan will be terminated, and the Bank will
continue its business in the mutual form of organization. The Plan may be
terminated by the Board of Directors at any time prior to the Special Meeting
and, with the approval of the FDIC and the Administrator, by the Board of
Directors at any time thereafter.
OTHER
All statements made in this Proxy Statement are hereby qualified by the
contents of the Plan which is attached hereto as Exhibit I and should be
consulted for further information. In addition, attention is directed to the
section entitled "The Conversion" in the accompanying Prospectus for a more
detailed discussion of various aspects
10
<PAGE>
of the Plan. Adoption of the Plan by the Bank's members shall be deemed approval
of the authority of the Board of Directors to amend or terminate the Plan in
accordance with its terms.
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS
The following is a summary of certain provisions of the Amended and
Restated Certificate of Incorporation and Bylaws which will become effective
upon the conversion of the Bank into a North Carolina-chartered stock savings
bank and the Amended and Restated Certificate of Incorporation and Bylaws which
will become effective upon the conversion of the Converted Bank into a North
Carolina commercial bank. Complete copies of the Amended and Restated
Certificate of Incorporation and Bylaws of the Converted Bank and the Amended
and Restated Certificate of Incorporation and Bylaws of the Commercial Bank are
attached as Exhibits A, B, C and D, respectively, to the Plan, which is attached
as Exhibit I to this Proxy Statement.
The Converted Bank will be authorized to issue 13,000,000 shares of common
stock and 1,000,000 shares of preferred stock with a par value of $1.00 per
share and the Commercial Bank will be authorized to issue 5,000,000 shares of
common stock with a par value of $10.00 per share. Neither the Converted Bank's
common stock or preferred stock nor the Commercial Bank's common stock will be
insured by the FDIC. All of the Converted Bank's and, following the Bank
Conversion, the Commercial Bank's outstanding common stock will be owned by the
Company. Accordingly, exclusive voting rights with respect to the affairs of the
Bank after the Conversion will be vested in the Board of Directors of the
Company.
The Converted Bank's Amended and Restated Certificate of Incorporation will
provide that the number of Directors shall be not fewer than five or more than
15, with the exact number to be fixed in the Converted Bank's Bylaws. The
proposed Bylaws provide that the number of the Converted Bank's directors shall
be eight. Directors generally will serve for terms of three years, and the terms
of Directors will be staggered so that approximately one-third of the Board is
elected each year.
The Amended and Restated Certificate of Incorporation of the Commercial
Bank will provide that the number of Directors shall be seven, which number may
be increased or decreased pursuant to the By-laws of the Commercial Bank but
that the number of directors shall never be less than the minimum required under
North Carolina law. The Commercial Bank's proposed Bylaws provide that a
majority of the entire board of directors may alter the number of directors
within the permissible range. Directors of the Commercial Bank will serve for
terms of one year.
In addition to the common stock, the Converted Bank will be authorized to
issue 1,000,000 shares of serial preferred stock, par value $1.00 per share. The
Board of Directors will be permitted, without further stockholder approval, to
authorize the issuance of preferred stock in series and to fix the voting
powers, designations, preferences and relative, participating, optional,
conversion and other special rights of the shares of each series of the
preferred stock and the qualifications, limitations and restrictions thereof.
Preferred stock may rank prior to common stock in dividend rights, liquidation
preferences, or both, and may have voting rights.
The Amended and Restated Certificate of the Incorporation of the Commercial
Bank does not provide authorization for the issuance of preferred stock. In
order for the Commercial Bank to issue preferred stock, an amendment to the
Amended and Restated Certificate of Incorporation that sets forth the terms,
rights and preferences of a class of preferred stock must be proposed by the
Board of Directors and approved by the North Carolina Commissioner of Banks and
by the Company as the sole stockholder of the Commercial Bank.
The Converted Bank's and the Commercial Bank's Bylaws will provide for
indemnification of any individual who is or was a director, officer, employee or
agent of the Converted Bank or Commercial Bank in any proceeding in which the
individual is made a party as a result of his service in such capacity, to the
fullest extent permitted under North Carolina law. Generally, under the North
Carolina General Corporation Law, which will be applicable to the Converted Bank
and the Commercial Bank, directors, officers, agents and employees of the
Converted Bank and the Commercial Bank may be indemnified in the defense of a
proceeding if they are successful,
11
<PAGE>
on the merits or otherwise, and in other circumstances if: (i) the individual
conducted himself in good faith; (ii) the individual reasonably believed (a) in
the case of conduct in his official capacity with the corporation, that his
conduct was in its best interests; and (b) in all other cases, that his conduct
was at least not opposed to its best interests; and (iii) in the case of any
criminal proceeding, he had no reasonable cause to believe his conduct was
unlawful. Additionally, an individual may not be indemnified with respect to:
(i) any proceeding by or in the right of the Converted Bank or the Commercial
Bank in which the individual shall have been adjudged to be liable to the
Converted Bank or the Commercial Bank, or (ii) in connection with any other
proceeding charging improper personal benefit, whether or not involving action
in an official capacity, in which the individual was adjudged liable on the
basis that improper personal benefit was received.
HOW TO ORDER STOCK
The accompanying Prospectus contains information about the business and
financial condition of the Bank and additional information about the Conversion
and the Subscription Offering and the Community Offering. You are not obligated
to subscribe for stock, and voting to approve the Conversion will not obligate
you to subscribe for stock.
All Subscription Rights are nontransferable and will expire if not
exercised by returning the accompanying Stock Order Form with full payment (or
appropriate instructions authorizing withdrawal from a savings or certificate
account at the Bank) for all shares for which subscription is made to the
Company by 12:00 Noon, Eastern Time, on _____________, 1997, unless extended by
the Bank. A postage-paid reply envelope is provided for this purpose. Provided
that not all of the shares are subscribed for in the Subscription Offering by
members of the Bank, the remaining shares may be offered to certain members of
the general public in the Community Offering with preference given to natural
persons and trusts of natural persons who reside in the Local Community. Any
shares of Common Stock not purchased in the Subscription and Community Offerings
may be offered, at the discretion of the Company, to certain members of the
general public as part of a community offering on a best efforts basis by a
selling group of broker-dealers to be managed by Trident Securities, Inc.
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS LIMITED IN ITS SCOPE
TO USE IN THE SOLICITATION OF PROXIES FOR THE SPECIAL MEETING TO VOTE ON THE
PLAN. IT IS NOT INTENDED FOR USE IN THE OFFERING OF THE COMMON STOCK. SUCH
OFFERING IS MADE ONLY BY THE PROSPECTUS.
ADDITIONAL INFORMATION
The information contained in the accompanying Prospectus, including a more
detailed description of the Plan, is intended to help you evaluate the
Conversion and is incorporated herein by reference.
All persons eligible to vote at the Special Meeting should review both this
Proxy Statement and the accompanying Prospectus.
12
<PAGE>
YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THIS PROXY MATERIAL
AND, WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE SPECIAL MEETING, TO
FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) AS SOON AS POSSIBLE TO
ASSURE THAT YOUR VOTES WILL BE COUNTED. THIS WILL NOT PREVENT YOU FROM VOTING IN
PERSON IF YOU ATTEND THE SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY BY WRITTEN
INSTRUMENT DELIVERED TO THE SECRETARY OF THE BANK AT ANY TIME PRIOR TO OR AT THE
SPECIAL MEETING OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY THE COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
BY ORDER OF THE BOARD OF DIRECTORS
William L. Wall
Secretary
____________, 1997
Washington, North Carolina
13
<PAGE>
PLAN OF CONVERSION
DATED AS OF
SEPTEMBER 19, 1996
________________________________
HOME SAVINGS BANK, SSB
WASHINGTON, NORTH CAROLINA
<PAGE>
HOME SAVINGS BANK, SSB
WASHINGTON, NORTH CAROLINA
PLAN OF CONVERSION
FROM MUTUAL TO STOCK ORGANIZATION
AND
FROM A SAVINGS BANK TO A COMMERCIAL BANK
I. GENERAL.
On September 19, 1996, the Board of Directors of Home Savings Bank,
SSB, Washington, North Carolina (the "Bank"), after careful study and
consideration, adopted by unanimous vote this Plan of Conversion (the "Plan"),
which provides for (i) the conversion of the Bank from a North Carolina-
chartered mutual savings bank to a North Carolina-chartered stock savings bank
(the "Converted Bank"), (ii) the concurrent formation of a holding company for
the Converted Bank (the "Holding Company"), and (iii) the subsequent conversion
of the Converted Bank from a North Carolina-chartered stock savings bank to a
North Carolina commercial bank (the "Commercial Bank"). The conversion of the
Bank to the Converted Bank and the acquisition of control of the Converted Bank
by the Holding Company are collectively referred to herein as the "Stock
Conversion," the conversion of the Converted Bank to the Commercial Bank is
referred to herein as the "Bank Conversion" and the Stock Conversion and the
Bank Conversion are referred to herein collectively as the "Conversion."
Pursuant to the Plan, shares of Conversion Stock in the Holding
Company will be offered as part of the Stock Conversion in a Subscription
Offering pursuant to non-transferable Subscription Rights at a predetermined and
uniform price first to Eligible Account Holders of record as of June 30, 1992,
second to Tax-Qualified Employee Stock Benefit Plans, third to Supplemental
Eligible Account Holders of record as of the last day of the calendar quarter
preceding Federal Deposit Insurance Corporation ("FDIC") written notice of non-
objection of the Bank's application to convert to stock form, and fourth to
Other Members of the Bank. Concurrently with or following the Subscription
Offering, shares not subscribed for in the Subscription Offering may be offered
as part of the Stock Conversion to the general public in a Community Offering.
Shares remaining will then be offered to the general public in an underwritten
public offering or otherwise. The aggregate Purchase Price of the Conversion
Stock will be based upon an independent appraisal of the Bank and will reflect
the estimated pro forma market value of the Converted Bank, as a subsidiary of
the Holding Company.
Either prior to or immediately following consummation of the Stock
Conversion, the Holding Company, as the sole stockholder of the Converted Bank,
shall approve the Bank Conversion, and the Converted Bank shall take such
actions as may be necessary to consummate the Bank Conversion.
The Stock Conversion is subject to the regulations of the FDIC
pursuant to the Federal Deposit Insurance Act ("FDIA") and Sections 303.15 and
333.4 of the FDIC Rules and Regulations and to the regulations of the
Administrator, Savings Institutions Division, North Carolina Department of
Commerce (the "Administrator"), pursuant to Subchapter 16G of Chapter 16 of
Title 4 of the North Carolina Administrative Code and Section 54C-33 of the
General Statutes of North Carolina. The Bank Conversion is subject to the
requirements of Section 53-17.2 of the General Statutes of North Carolina and
the regulations of the North Carolina Commissioner of Banks promulgated
thereunder.
Consummation of the Conversion is subject to the prior written notice
of non-objection of the FDIC and to the approval of this Plan and the Conversion
by the Administrator and by Members of the Bank at a special meeting of the
Members to be called to consider the Conversion by the affirmative vote of
Members of the Bank holding not less than a majority of the total votes eligible
to be cast. Consummation of the Bank Conversion requires approval of the North
Carolina Commissioner of Banks and the Board of Governors of the Federal Reserve
System.
<PAGE>
It is the desire of the Board of Directors to attract new capital to
the Bank to increase its net worth, to support future savings growth, to
increase the amount of funds available for other lending and investment, to
provide greater resources for the expansion of customer services, to facilitate
future expansion and, because applicable laws and regulations do not provide for
the organization of mutual North Carolina commercial banks, to enable the Bank
to complete the Bank Conversion. The purpose of the Bank Conversion is to
provide the Bank with additional operating flexibility and enhance its ability
to provide a full range of banking products and services to its community. It
is the further desire of the Board of Directors to reorganize the Converted Bank
(or the Commercial Bank upon the Bank Conversion) as the wholly owned subsidiary
of the Holding Company to enhance flexibility of operations, diversification of
business opportunities and financial capability for business and regulatory
purposes and to enable the Commercial Bank to compete more effectively with
other financial service organizations.
No change will be made in the Board of Directors or management of the
Bank as a result of the Conversion.
II. DEFINITIONS.
Acting in Concert: The term "Acting in Concert" means: (i) knowing
-----------------
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; or (ii) 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. Any
person (as defined by 12 C.F.R. (S)563b.2(a)(26)) Acting in Concert with another
person ("other party") shall also be deemed to be Acting in Concert with any
person who is also Acting in Concert with that other party, except that any Tax-
Qualified Employee Stock Benefit Plan will not be deemed to be Acting in Concert
with its trustee or a person who serves in a similar capacity solely for the
purpose of determining whether stock held by the trustee and stock held by the
Tax-Qualified Employee Benefit Plan will be aggregated.
Acquisition Application: The term "Acquisition Application" means the
-----------------------
application to the Administrator for approval of the Holding Company's
acquisition of all of the Capital Stock of the Converted Bank.
Administrator: The term "Administrator" means the Administrator,
-------------
Savings Institutions Division, North Carolina Department of Commerce.
Application: The term "Application" means the Application to Convert
-----------
a Mutual Savings Bank Into a Stock Owned Savings Bank submitted to the
Administrator for approval of the Stock Conversion.
Associate: The term "Associate," when used to indicate a relationship
---------
with any person, means: (i) any corporation or organization (other than the
Bank, the Holding Company, or a majority-owned subsidiary of the Bank or 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; (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity, except that such term shall not include a Tax-
Qualified Employee Stock Benefit Plan in which a person has a substantial
beneficial interest or serves as a trustee in a similar fiduciary capacity, and
(iii) any relative or spouse of such person, or any relative of such spouse, who
has the same home as such person or who is a director of the Bank or the Holding
Company, or any of their subsidiaries.
Bank: The term "Bank" means Home Savings Bank, SSB, in its form as a
----
North Carolina mutual savings bank.
Bank Conversion: The term "Bank Conversion" means the conversion of
---------------
the Converted Bank from a North Carolina-chartered stock savings bank to a North
Carolina commercial bank.
Capital Stock: The term "Capital Stock" means any and all authorized
-------------
shares of stock of the Converted Bank after the Stock Conversion, and of the
Commercial Bank after the Bank Conversion.
2
<PAGE>
Commercial Bank: The term "Commercial Bank" means the North Carolina
---------------
bank resulting from the Bank Conversion.
Commissioner: The term "Commissioner" means the North Carolina
------------
Commissioner of Banks, or any successor office or agency having jurisdiction
over the Bank Conversion.
Community Offering: The term "Community Offering" means the offering
------------------
of shares of Conversion Stock to the general public by the Holding Company
concurrently with or following the Subscription Offering, giving preference to
natural persons and trusts of natural persons (including individual retirement
and Keogh retirement accounts and personal trusts in which such natural persons
have substantial interests) who are permanent Residents in the Bank's Local
Community.
Conversion: Except as provided in Paragraph III.I. herein, the term
----------
"Conversion" means the Stock Conversion and the Bank Conversion.
Conversion Stock: The term "Conversion Stock" means the shares of
----------------
common stock to be issued and sold by the Holding Company pursuant to the Plan
in connection with the Stock Conversion.
Converted Bank: The term "Converted Bank" means Home Savings Bank,
--------------
SSB in its form as a North Carolina capital stock savings bank resulting from
the conversion of the Bank to the stock form of organization in connection with
the Stock Conversion in accordance with the terms of the Plan.
Eligibility Record Date: The term "Eligibility Record Date" means the
-----------------------
close of business on June 30, 1992.
Eligible Account Holder: The term "Eligible Account Holder" means the
-----------------------
holder of a Qualifying Deposit in the Bank on the Eligibility Record Date.
FDIC: The term "FDIC" means the Federal Deposit Insurance Corporation
----
or any successor federal agency having jurisdiction over the Stock Conversion.
Federal Reserve Board: The term "Federal Reserve Board" means the
---------------------
Board of Governors of the Federal Reserve System.
Holding Company: The term "Holding Company" means a corporation to be
---------------
incorporated by the Bank under state law for the purpose of becoming a savings
and loan holding company for the Converted Bank and, following the Bank
Conversion, the bank holding company for the Commercial Bank through the
issuance and sale of Conversion Stock under the Plan and the concurrent
acquisition of 100% of the Capital Stock to be issued and sold pursuant to the
Plan in connection with the Stock Conversion.
Holding Company Stock: The term "Holding Company Stock" means any and
---------------------
all authorized shares of stock of the Holding Company.
Independent Appraiser: The term "Independent Appraiser" means a
---------------------
person independent of the Bank, experienced and expert in the area of corporate
appraisal, and acceptable to the FDIC and the Administrator, retained by the
Bank to prepare an appraisal of the pro forma market value of the Converted
Bank, as a subsidiary of the Holding Company.
Local Community: The term "Local Community" means the Counties in
---------------
which the Bank has a full-service office.
3
<PAGE>
Market Maker: The term "Market Maker" means a dealer (i.e., any
------------
person who engages, either for all or part of such person's time, directly or
indirectly as agent, broker or principal in the business of offering, buying,
selling or otherwise dealing or trading in securities issued by another person)
who, with respect to a particular secur ity: (i)(a) regularly publishes bona
fide, competitive bid and offer quotations in a recognized interdealer quotation
system or (b) furnishes bona fide competitive bid and offer quotations on
request; and (ii) is ready, willing and able to effect transactions in
reasonable quantities at its quoted prices with other brokers or dealers.
Member: The term "Member" means any person or entity who qualifies as
------
a member of the Bank under its articles of incorporation and bylaws prior to
Conversion.
Notice: The term "Notice" means the Notice of Intent to Convert to
------
Stock Form submitted to the FDIC to obtain written notice of non-objection to
the Stock Conversion.
Officer: The term "Officer" means an executive officer of the Holding
-------
Company or the Bank (as applicable), including the Chairman of the Board,
President, Executive Vice Presidents, Senior Vice Presidents in charge of
principal business functions, Secretary and Treasurer.
Order Form: The term "Order Form" means the order form or forms to be
----------
used by Eligible Account Holders, Supplemental Eligible Account Holders and
other persons eligible to purchase Conversion Stock pursuant to the Plan.
Other Member: The term "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.
Plan: The term "Plan" means this Plan of Conversion which provides
----
for the conversion of the Bank from a North Carolina-chartered mutual savings
bank to a North Carolina-chartered stock savings bank (i.e., the Converted
Bank), the concurrent formation of a holding company for the Converted Bank, the
subsequent conversion of the Converted Bank from a North Carolina-chartered
stock savings bank to a North Carolina commercial bank (i.e., the Commercial
Bank).
Qualifying Deposit: The term "Qualifying Deposit" means a savings
------------------
balance in any Savings Account in the Bank 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.
Registration Statement: The term "Registration Statement" means the
----------------------
Registration Statement on Form S-1 and any amendments thereto filed by the
Holding Company with the SEC pursuant to the Securities Act of 1933, as amended,
to register shares of Conversion Stock.
Resident: The term "Resident," as used in this Plan in relation to
--------
the preference afforded natural persons and trusts of natural persons in the
Local Community, means any natural person who occupies a dwelling within the
Local Community, has an intention to remain within the Local Community for a
period of time (manifested by establishing a physical, ongoing, non-transitory
presence within the Local Community) and continues to reside therein at the time
of the Subscription and Community Offerings. The Bank may utilize deposit or
loan records or such other evidence provided to it to make the determination as
to whether a person is residing in the Local Community. To the extent the
"person" is a corporation or other business entity, the principal place of
business or headquarters shall be within the Local Community. To the extent the
"person" is a personal benefit plan, the circumstances of the beneficiary shall
apply with respect to this definition. In the case of all other benefit plans,
circumstances of the trustee shall be examined for purposes of this definition.
In all cases, such determination shall be in the sole discretion of the Bank.
4
<PAGE>
Sale: The terms "sale" and "sell" mean every contract to sell or
----
otherwise dispose of a security or an interest in a security for value, but such
terms do not include an exchange of securities in connection with a merger or
acquisition approved by the FDIC or the Administrator or any other state or
federal agency having jurisdiction.
Savings Account: The term "Savings Account" means a withdrawable
---------------
deposit in the Bank, a withdrawable deposit in the Converted Bank after the
Stock Conversion, and a withdrawable deposit in the Commercial Bank after the
Bank Conversion.
SEC: The term "SEC" means the Securities and Exchange Commission or
---
any successor agency.
Special Meeting: The term "Special Meeting" means the Special Meeting
---------------
of Members to be called for the purpose of submitting the Plan to the Members
for their approval.
State Conversion Applications: The term "State Conversion
-----------------------------
Applications" means the following applications submitted to the Commissioner for
approval of the Bank Conversion: the Application to Convert to a State Bank
Charter, and the application for acquisition of a North Carolina bank by a bank
holding company, if required by the regulations of the Commissioner.
Stock Conversion: The term "Stock Conversion" means: (i) the
----------------
amendment of the Bank's articles of incorporation and bylaws to authorize
issuance of shares of Capital Stock by the Converted Bank and to conform to the
requirements of a North Carolina capital stock savings bank under the laws of
the State of North Carolina and applicable regulations; (ii) the issuance and
sale of Conversion Stock by the Holding Company in the Subscription and
Community Offerings and/or in an underwritten public offering or otherwise; and
(iii) the purchase by the Holding Company of all the Capital Stock of the
Converted Bank to be issued in the Stock Conversion immediately following or
concurrently with the close of the sale of the Conversion Stock.
Subscription Offering: The term "Subscription Offering" means the
---------------------
offering of shares of Conversion Stock to the Eligible Account Holders, Tax-
Qualified Employee Stock Benefit Plans, Supplemental Eligible Account Holders
and Other Members under the Plan, giving preference to natural persons and
trusts of natural persons (including individual retirement and Keogh retirement
accounts and personal trusts in which such natural persons have substantial
interests) who are permanent Residents of the Bank's Local Community if
permitted by applicable law and approved by the Bank's Board of Directors in its
sole discretion.
Subscription and Community Prospectus: The term "Subscription and
-------------------------------------
Community Prospectus" means the final prospectus to be used in connection with
the Subscription and Community Offerings.
Subscription Rights: The term "Subscription Rights" means non-
-------------------
transferable, non-negotiable, personal rights of Eligible Account Holders, Tax-
Qualified Employee Stock Benefit Plans, Supplemental Eligible Account Holders
and Other Members to purchase Conversion Stock offered under the Plan in
connection with the Stock Conversion.
Supplemental Eligibility Record Date: The term "Supplemental
------------------------------------
Eligibility Record Date" means the last day of the calendar quarter preceding
the approval of the Plan by the Administrator.
Supplemental Eligible Account Holder: The term "Supplemental Eligible
------------------------------------
Account Holder" means the holder of a Qualifying Deposit in the Bank (other than
Officers and directors and their Associates) on the Supplemental Eligibility
Record Date.
Tax-Qualified Employee Stock Benefit Plan: The term "Tax-Qualified
-----------------------------------------
Employee Stock Benefit Plan" means any defined benefit plan or defined
contribution plan of the Bank 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
5
<PAGE>
requirements to be "qualified" under section 401 of the Internal Revenue Code of
1986, as amended. A "non tax-qualified employee stock benefit plan" means any
defined benefit plan or defined contribution plan which is not so qualified.
Voting Record Date: The term "Voting Record Date" means the date
------------------
fixed by the Board of Directors of the Bank to determine Members of the Bank
entitled to vote at the Special Meeting.
Y-3 Application: The term "Y-3 Application" means the application
---------------
submitted to the Federal Reserve Board on Federal Reserve Board Form FR Y-3 for
approval for the Holding Company to maintain control of the Commercial Bank.
III. STEPS PRIOR TO SUBMISSION OF THE PLAN TO THE MEMBERS FOR APPROVAL.
Prior to submission of the Plan to its Members for approval, the Bank
must receive notice from the FDIC of its intent to issue a notice of non-
objection to the Stock Conversion and approval of the Application from the
Administrator and approvals from the appropriate regulatory authorities for
consummation of the Conversion in accordance with applicable laws and
regulations. The following steps must be taken prior to receipt of such
regulatory approvals:
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
Bank 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 Bank maintains an office and/or by mailing a letter to each of
its Members.
C. A press release relating to the proposed Conversion may be
submitted to the local media.
D. Copies of the Plan adopted by the Board of Directors shall be made
available for inspection at each office of the Bank.
E. The Bank shall cause the Holding Company to be incorporated under
state law, and the Board of Directors of the Holding Company shall concur
in the Plan by at least a two-thirds vote.
F. Also promptly following the adoption of this Plan, the Bank shall
file the State Conversion Applications, and the Holding Company shall file
a draft Y-3 Application.
G. As soon as practicable following the adoption of this Plan, the
Bank shall file the Application with the Administrator and the Notice with
the FDIC, and the Holding Company shall file the Registration Statement,
the Acquisition Application and the final Y-3 Application. Upon receipt of
notification from the Administrator and the FDIC that the Application and
the Notice, respectively, are properly executed and not materially
incomplete, the Bank shall publish notice of the filing of the Application
in a newspaper having a general circulation in each community in which the
Bank maintains an office and shall publish such other notices of the
Conversion as may be required in connection with the Acquisition
Application, the Y-3 Application and the State Conversion Applications by
the regulations and policies of the Administrator, the FDIC, the Federal
Reserve Board and the Commissioner, as applicable. The Bank also shall
prominently display a copy of such notice in each of its offices.
H. The Board of Directors of the Bank may, at any time, elect not to
proceed with the Bank Conversion, in which event the State Conversion
Applications and the Y-3 Application shall be withdrawn. In the event the
Bank Conversion is not pursued, any references to the Bank Conversion in
this Plan shall be deemed to constitute references to the Stock Conversion
and references to the Commercial Bank shall be deemed to constitute
references to the Converted Bank.
6
<PAGE>
I. The Bank shall obtain an opinion of its tax advisors or a
favorable ruling from the United States Internal Revenue Service which
shall state that the Stock Conversion will not result in any gain or loss
for federal income tax purposes to the Bank. Receipt of a favorable opinion
or ruling is a condition precedent to completion of the Conversion.
IV. MEETING OF MEMBERS.
Following receipt of written notice of intent to issue notice of non-
objection to the Plan by the FDIC and approval of the Administrator, the Special
Meeting to vote on the Plan shall be scheduled in accordance with the Bank's
articles of incorporation and bylaws and applicable regulations. Notice of the
Special Meeting will be given by means of a proxy statement authorized for use
by the FDIC and the Administrator. Following receipt of approval of the
Application and at least 20 days but not more than 45 days prior to the Special
Meeting, the Bank will distribute proxy solicitation materials to all voting
Members as of the Voting Record Date established for voting at the Special
Meeting. Proxy materials will also be sent to each beneficial holder of an
Individual Retirement Account or beneficiary of any other trust account where
the name of the beneficial holder is disclosed on the Bank's records. The proxy
solicitation materials will include a copy of the Proxy Statement and other
documents authorized for use by the regulatory authorities and may also include
a Subscription and Community Prospectus as provided in Paragraph VI below. The
Bank will also advise each Eligible Account Holder and Supplemental Eligible
Account Holder not entitled to vote at the Special Meeting of the proposed
Conversion and the scheduled Special Meeting and provide a postage paid card on
which to indicate whether he or she wishes to receive the Subscription and
Community Prospectus, if the Subscription Offering is not held concurrently with
the proxy solicitation of Members for the Special Meeting.
Pursuant to applicable regulations, an affirmative vote of at least a
majority of the total outstanding votes of the Members will be required for
approval of the Plan. Voting may be in person or by proxy.
By voting in favor of the adoption of the Plan and the Conversion, the
Members will be voting in favor of (i) the Stock Conversion and the adoption by
the Bank of the stock articles of incorporation and Bylaws in the forms attached
as Exhibits A and B to this Plan and (ii) the subsequent Bank Conversion and the
adoption by the Converted Bank of the North Carolina commercial bank certificate
of incorporation and bylaws in the forms attached as Exhibits C and D to this
Plan.
The Administrator shall be notified of the actions of the Members at the
Special Meeting promptly following the Special Meeting.
V. SUMMARY PROXY STATEMENT.
The Proxy Statement furnished to Members may be in summary form, provided
that a statement is made in bold-faced type that a more detailed description of
the proposed transaction may be obtained by returning an enclosed postage paid
card or other written communication requesting a supplemental information
statement. Without prior approval from the FDIC and the Administrator, the
Special Meeting shall not be held fewer than 20 days after the last day on which
the supplemental information statement is mailed to Members requesting the same.
The supplemental information statement may be combined with the Subscription and
Community Prospectus if the Subscription Offering is commenced concurrently with
the proxy solicitation of Members for the Special Meeting.
VI. OFFERING DOCUMENTS.
The Holding Company may commence the Subscription Offering and, provided
that the Subscription Offering has commenced, may commence the Community
Offering concurrently with or during the proxy solicitation of Members and may
close the Subscription and Community Offerings before the Special Meeting,
provided that the offer and sale of the Conversion Stock shall be conditioned
upon approval of the Plan by the Members at the Special Meeting.
7
<PAGE>
The Bank may require Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members to return to the Bank by a reasonable date
certain a postage-paid written communication requesting receipt of a
Subscription and Community Prospectus in order to be entitled to receive a
Subscription and Community Prospectus, provided that the Subscription Offering
shall not be closed until the expiration of 30 days after mailing proxy
solicitation materials to voting Members and a postage-paid written
communication to non-voting Eligible Account Holders and Supplemental Eligible
Account Holders. If the Subscription Offering is commenced within 45 days after
the Special Meeting, the Bank shall transmit, no more than 30 days prior to the
commencement of the Subscription Offering, to each voting Member who had been
furnished with proxy solicitation materials and to each non-voting Eligible
Account Holder and Supplemental Eligible Account Holder written notice of the
commencement of the Subscription Offering which shall state that the Bank is not
required to furnish a Subscription and Community Prospectus to them unless they
return by a reasonable date certain a postage-paid written communication
requesting the receipt of the Subscription and Community Prospectus.
Prior to commencement of the Subscription and Community Offerings, the
Holding Company shall file the Registration Statement with the SEC pursuant to
the Securities Act of 1933, as amended. The Holding Company shall not
distribute the Subscription and Community Prospectus until the Registration
Statement containing the same has been declared effective by the SEC and the
aforementioned documents have been approved or authorized for use by the FDIC
and the Administrator. The Subscription and Community Prospectus may be
combined with the Proxy Statement for the Special Meeting.
VII. CONSUMMATION OF CONVERSION.
A. Consummation of the Stock Conversion.
------------------------------------
The date of consummation of the Stock Conversion will be the effective
date of the amendment of the Bank's North Carolina mutual articles of
incorporation to read in the form of North Carolina stock articles of
incorporation, which shall be the date of the issuance and sale of the
Conversion Stock. After receipt of all orders for Conversion Stock, and
concurrently with the execution thereof, the amendment of the Bank's North
Carolina mutual articles of incorporation and bylaws to authorize the
issuance of shares of Capital Stock and to conform to the requirements of a
North Carolina capital stock savings bank will be declared effective by the
Administrator, the amended bylaws approved by the Members will become
effective, and the Bank will thereby be and become the Converted Bank. At
such time, the Conversion Stock will be issued and sold by the Holding
Company, the Capital Stock to be issued in the Conversion will be issued
and sold to the Holding Company, and the Converted Bank will become a
wholly owned subsidiary of the Holding Company. The Converted Bank will
issue to the Holding Company 100,000 shares of its common stock,
representing all of the shares of Capital Stock to be issued by the
Converted Bank in the Stock Conversion, and the Holding Company will make
payment to the Converted Bank of at least 50 percent of the aggregate net
proceeds realized by the Holding Company from the sale of the Conversion
Stock under the Plan, or such other portion of the aggregate net proceeds
as may be authorized or required by the FDIC or the Administrator.
B. Consummation of the Bank Conversion.
-----------------------------------
The Bank Conversion shall be deemed to occur and shall be effective
upon completion of all actions necessary or appropriate under applicable
North Carolina statutes and regulations and the policies of the
Commissioner, the Federal Reserve Board and the Administrator to complete
the conversion of the Converted Bank to a North Carolina commercial bank,
including without limitation the approval of the Bank Conversion by the
Holding Company, as the sole stockholder of the Converted Bank, and the
Converted Bank will thereby be and become the Commercial Bank. The Bank
Conversion shall be consummated as soon as practicable following the
consummation of the Stock Conversion as described in Paragraph VII.A.
herein.
8
<PAGE>
VIII. STOCK OFFERING.
A. General.
-------
The aggregate purchase price of all shares of Conversion Stock which
will be offered and sold will be equal to the estimated pro forma market
value of the Converted Bank, as a subsidiary of the Holding Company, as
determined by an independent appraisal. The exact number of shares of
Conversion Stock to be offered will be determined by the Board of Directors
of the Bank and the Board of Directors of the Holding Company, or their
respective designees, in conjunction with the determination of the Purchase
Price (as that term is defined in Paragraph VIII.B. below). The number of
shares to be offered may be subsequently adjusted prior to completion of
the Stock Conversion as provided below.
B. Independent Evaluation and Purchase Price of Shares.
---------------------------------------------------
All shares of Conversion Stock sold in the Stock Conversion will be
sold at a uniform price per share referred to in this Plan as the "Purchase
Price." The Purchase Price and the total number of shares of Conversion
Stock to be offered in the Stock Conversion will be determined by the Board
of Directors of the Bank and the Board of Directors of the Holding Company,
or their respective designees, immediately prior to the simultaneous
completion of all such sales contemplated by this Plan on the basis of the
estimated pro forma market value of the Converted Bank, as a subsidiary of
the Holding Company, at such time. The estimated pro forma market value of
the Converted Bank, as a subsidiary of the Holding Company, will be
determined for such purpose by an Independent Appraiser on the basis of
such appropriate factors as are not inconsistent with applicable
regulations. Immediately prior to the Subscription and Community
Offerings, a subscription price range of shares for the offerings will be
established (the "Valuation Range"), which will vary from 15% above to 15%
below the midpoint of such range. The number of shares of Conversion Stock
ultimately issued and sold will be determined at the close of the
Subscription and Community Offerings and any other offering. The
subscription price range and the number of shares to be offered may be
changed subsequent to the Subscription and Community Offerings as the
result of any appraisal updates prior to the completion of the Stock
Conversion, without notifying eligible purchasers in the Subscription and
Community Offerings and without a resolicitation of subscriptions, provided
the aggregate Purchase Price is not below the low end or more than 15
percent above the high end of the Valuation Range previously approved by
the FDIC and the Administrator or if, in the opinion of the Boards of
Directors of the Bank and the Holding Company, the new Valuation Range
established by the appraisal update does not result in a materially
different capital position of the Converted Bank.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the Bank and Holding Company and to the FDIC and the
Administrator that, to the best knowledge of the Independent Appraiser,
nothing of a material nature has occurred which, taking into account all
relevant factors, would cause the Independent Appraiser to conclude that
the aggregate value of the Conversion Stock at the Purchase Price is
incompatible with its estimate of the aggregate consolidated pro forma
market value the Converted Bank, as a subsidiary of the Holding Company.
If such confirmation is not received, the Bank may cancel the Subscription
and Community Offerings and/or any other offering, extend the Stock
Conversion, establish a new Valuation Range, extend, reopen or hold new
Subscription and Community Offerings and/or other offerings or take such
other action as the FDIC and the Administrator may permit.
C. Subscription Offering.
---------------------
Non-transferable Subscription Rights to purchase shares of Conversion
Stock will be issued at no cost to Eligible Account Holders, Tax-Qualified
Employee Stock Benefit Plans, Supplemental Eligible Account Holders and
Other Members of the Bank pursuant to priorities established by applicable
regulations.
9
<PAGE>
All shares must be sold, and, to the extent that Conversion Stock is
available, no subscriber will be allowed to purchase fewer than 25 shares
of Conversion Stock, provided that this number shall be decreased if the
aggregate purchase price exceeds $500. The priorities established by
applicable regulations for the purchase of shares are as follows:
1. Category No. 1: Eligible Account Holders.
a. Each Eligible Account Holder, including individuals on a
joint account, shall receive, without payment, non-transferable
Subscription Rights to purchase Conversion Stock in an amount equal to
the greater of the maximum purchase limitation in the Community
Offering, one-tenth of one percent of the total offering of shares of
Conversion Stock or 15 times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of
Conversion Stock 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 the Bank in each case on the Eligibility
Record Date.
b. Non-transferable Subscription Rights to purchase Conversion
Stock received by Officers and directors of the Bank and their
Associates based on their increased deposits in the Bank in the one
year period preceding the Eligibility Record Date shall be
subordinated to all other subscriptions involving the exercise of non-
transferable Subscription Rights to purchase shares pursuant to this
Category.
c. In the event of an oversubscription for shares of Conversion
Stock pursuant to this Category, shares of Conversion Stock shall be
allocated among subscribing Eligible Account Holders giving preference
to natural persons and trusts of natural persons who are permanent
Residents of the Local Community, if permitted by applicable law and
approved by the Bank's Board of Directors in its sole discretion, as
follows:
(I) Shares of Conversion Stock shall be allocated among
subscribing Eligible Account Holders so as to permit each such
Eligible Account Holder, to the extent possible, to purchase a
number of shares of Conversion Stock sufficient to make its total
allocation equal to 100 shares or the total amount of its
subscription, whichever is less.
(II) Any shares not so allocated shall be allocated among
the subscribing Eligible Account Holders on an equitable basis,
related to the amounts of their respective Qualifying Deposits,
as compared to the total Qualifying Deposits of all subscribing
Eligible Account Holders.
2. Category No. 2: Tax-Qualified Employee Stock Benefit Plans.
a. Tax-Qualified Employee Stock Benefit Plans of the Converted
Bank shall receive, without payment, non-transferable Subscription
Rights to purchase up to 10% of the shares of Conversion Stock issued
in the Stock Conversion.
b. Subscription rights received in this Category shall be
subordinated to the Subscription Rights received by Eligible Account
Holders pursuant to Category No. 1, provided that any shares of
Conversion Stock sold in excess of the high end of the Valuation Range
may be first sold to Tax-Qualified Employee Stock Benefit Plans.
10
<PAGE>
3. Category No. 3: Supplemental Eligible Account Holders.
a. 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 Administrator and FDIC approval, then each Supplemental
Eligible Account Holder, including individuals on a joint account,
shall receive, without payment, non-transferable Subscription Rights
to purchase Conversion Stock in an amount equal to the greater of the
maximum purchase limitation in the Community Offering, one-tenth of
one percent of the total offering of shares of Conversion Stock or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of the shares of Conversion Stock 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 on the Supplemental Eligibility
Record Date.
b. Subscription Rights received pursuant to this Category shall
be subordinated to the Subscription Rights received by the Eligible
Account Holders and by Tax-Qualified Employee Stock Benefit Plans
pursuant to Category Nos. 1 and 2.
c. Any non-transferable Subscription Rights to purchase shares
received by an Eligible Account Holder in accordance with Category No.
1 shall reduce to the extent thereof the Subscription Rights to be
distributed to such Eligible Account Holder pursuant to this Category.
d. In the event of an oversubscription for shares of Conversion
Stock pursuant to this Category, shares of Conversion Stock shall be
allocated among the subscribing Supplemental Eligible Account Holders
giving preference to natural persons and trusts of natural persons who
are permanent Residents of the Local Community, if permitted by
applicable law and approved by the Bank's Board of Directors in its
sole discretion, as follows:
(I) Shares of Conversion Stock shall be allocated among
subscribing Supplemental Eligible Account Holders so as to permit
each such Supplemental Eligible Account Holder, to the extent
possible, to purchase a number of shares of Conversion Stock
sufficient to make its total allocation (including the number of
shares of Conversion Stock, if any, allocated in accordance with
Category No. 1) equal to 100 shares of Conversion Stock or the
total amount of its subscription, whichever is less.
(II) Any shares of Conversion Stock not allocated in
accordance with subparagraph (I) above shall be allocated among
the subscribing Supplemental Eligible Account Holders on an
equitable basis, related to the amounts of their respective
Qualifying Deposits on the Supplemental Eligibility Record Date
as compared to the total Qualifying Deposits of all subscribing
Supplemental Eligible Account Holders in each case on the
Supplemental Eligibility Record Date.
4. Category No. 4: Other Members.
a. Each Other Member, including individuals on a joint account,
other than those Members who are Eligible Account Holders or
Supplemental Eligible Account Holders, shall receive, without payment,
non-transferable Subscription Rights to purchase Conversion Stock in
an amount equal to the greater of the maximum purchase limitation in
the Community Offering or one-tenth of one percent of the total
offering of shares of Conversion Stock.
11
<PAGE>
b. Subscription Rights received pursuant to this Category shall
be subordinated to the Subscription Rights received by Eligible
Account Holders, Tax-Qualified Employee Stock Benefit Plans and
Supplemental Eligible Account Holders pursuant to Category Nos. 1, 2
and 3.
c. In the event of an oversubscription for shares of Conversion
Stock pursuant to this Category, the shares of Conversion Stock
available shall be allocated among subscribing Other Members 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 Conversion Stock equal to the lesser of 100 shares or
the number of shares subscribed for by the Other Member. 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, giving preference to natural
persons and trusts of natural persons who are permanent Residents of
the Local Community if permitted by applicable law and approved by the
Bank's Board of Directors in its sole discretion.
Order Forms may provide that the maximum purchase limitation shall be based
on the midpoint of the Valuation Range. In the event the aggregate Purchase
Price of the Conversion Stock issued and sold is below the midpoint of the
Valuation Range, that portion of subscriptions in excess of the maximum purchase
limitation will be refunded. In the event the aggregate Purchase Price of
Conversion Stock issued and sold is above the midpoint of the Valuation Range,
persons who have subscribed for the maximum purchase limitation may be given the
opportunity to increase their subscriptions so as to purchase the maximum number
of shares subject to the availability of shares. The Bank will not otherwise
notify subscribers of any change in the number of shares of Conversion Stock
offered.
D. Community Offering.
------------------
1. Any shares of Conversion Stock not purchased through the
exercise of Subscription Rights in the Subscription Offering may be
sold in a Community Offering, which may commence concurrently with the
Subscription Offering. Shares of Conversion Stock will be offered in
the Community Offering to the general public, giving preference to
natural persons and the trusts of natural persons (including
individual retirement and Keogh retirement accounts and personal
trusts in which such natural persons have substantial interests) who
are permanent Residents of the Local Community. The Community
Offering may commence concurrently with or as soon as practicable
after the completion of the Subscription Offering and must be
completed within 45 days after the last day of the Subscription
Offering, unless extended by the Holding Company with the approval of
the FDIC and the Administrator. The offering price of the Conversion
Stock to the general public in the Community Offering will be the same
price paid for such stock by Eligible Account Holders and other
persons in the Subscription Offering. If sufficient shares are not
available to satisfy all orders in the Community Offering, the shares
available will be allocated by the Holding Company in its discretion.
The Holding Company shall have the right to accept or reject orders in
the Community Offering in whole or in part.
2. Orders accepted in the Community Offering shall be filled up
to a maximum of 2% of the Conversion Stock, and thereafter remaining
shares shall be allocated on an equal number of shares basis per order
until all orders have been filled.
3. The Conversion Stock to be offered in the Community Offering
will be offered and sold in a manner that will achieve the widest
distribution of the Conversion Stock.
E. Other Offering.
--------------
In the event a Community Offering does not appear feasible, the
Bank will immediately consult with the FDIC and the Administrator to
determine the most viable alternative available to
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effect the completion of the Stock Conversion. Should no viable
alternative exist, the Bank may terminate the Stock Conversion with
the concurrence of the FDIC and the Administrator.
F. Limitations Upon Purchases of Shares of Conversion Stock.
--------------------------------------------------------
The following additional limitations and exceptions shall apply to all
purchases of Conversion Stock:
1. No Person may purchase fewer than 25 shares of Conversion
Stock in the Stock Conversion, to the extent such shares are
available, subject to the provisions of Paragraph VIII.C herein.
2. Purchases of Conversion Stock in the Community Offering by
any person, when aggregated with purchases by an Associate of that
person, or a group of persons Acting in Concert, shall not exceed
$300,000 of the Conversion Stock, except that Tax-Qualified Employee
Stock Benefit Plans may purchase up to 10% of the total shares of
Conversion Stock to be issued in the Stock Conversion, and shares to
be held by the Tax-Qualified Employee Stock Benefit Plans and
attributable to a participant thereunder shall not be aggregated with
shares of Conversion Stock purchased by such participant or any other
purchaser of Conversion Stock in the Stock Conversion.
3. Officers and directors of the Bank and the Holding Company,
and Associates thereof, may not purchase in the aggregate more than
32% of the shares of Conversion Stock issued in the Conversion.
4. Directors of the Holding Company and the Bank 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 Bank or any of their subsidiaries.
5. Purchases of shares of Conversion Stock in the Stock
Conversion by any person, when aggregated with purchases by an
Associate of that person, or a group of persons Acting in Concert,
shall not exceed $600,000 of the Conversion Stock, except that Tax-
Qualified Employee Stock Benefit Plans may purchase up to 10% of the
total shares of Conversion Stock to be issued in the Stock Conversion,
and shares purchased by the Tax-Qualified Employee Stock Benefit Plans
and attributable to a participant thereunder shall not be aggregated
with shares purchased by such participant or any other purchaser of
Conversion Stock in the Stock Conversion.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, the Holding Company and the Bank may
increase or decrease any of the purchase limitations set forth herein at
any time. In the event that the individual purchase limitation is
increased after commencement of the Subscription and Community Offerings,
the Holding Company and the Bank shall permit any person who subscribed for
the maximum number of shares of Conversion Stock to purchase an additional
number of shares, such that such person shall be permitted to subscribe for
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 either the individual
purchase limitation or the number of shares of Conversion Stock to be sold
in the Stock Conversion is decreased after commencement of the Subscription
and Community Offerings, the orders of any person who subscribed for the
maximum number of shares of Conversion Stock 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.
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Each person purchasing Conversion Stock in the Stock Conversion shall
be deemed to confirm that such purchase does not conflict with the purchase
limitations under the Plan or otherwise imposed by law, rule or regulation.
In the event that such purchase limitations are violated by any person
(including any Associate or group of persons affiliated or otherwise Acting
in Concert with such person), the Holding Company shall have the right to
purchase from such person at the actual Purchase Price per share all shares
acquired by such person in excess of such purchase limitations or, if such
excess shares have been sold by such person, to receive the difference
between the actual Purchase Price per share paid for such excess shares and
the price at which such excess shares were sold by such person. This right
of the Holding Company to purchase such excess shares shall be assignable
by the Holding Company.
G. Restrictions on and Other Characteristics of Stock Being Sold.
-------------------------------------------------------------
1. Transferability.
---------------
Except as provided in Paragraph XIV below, Conversion Stock
purchased by persons other than directors and Officers of the Bank and
directors and Officers of the Holding Company will be transferable
without restriction. Conversion Stock purchased by such directors or
Officers shall not be sold or transferred for a period of one year
from the effective date of the Stock Conversion except for any sale or
transfer of such shares (i) following the death of the original
purchaser, (ii) resulting from an exchange of securities in a merger
or acquisition approved by the applicable regulatory authorities,
(iii) approved by the Administrator upon a determination that the
restriction imposes a substantial personal financial hardship on the
individuals due to changed unforeseeable circumstances outside the
control of the individual, or (iv) following consummation of the Bank
Conversion unless the Administrator's approval of or the FDIC's notice
of intent not to object to the Stock Conversion otherwise requires.
The Conversion Stock issued by the Holding Company to such
directors and Officers shall bear the following legend giving
appropriate notice of the one-year holding period restriction:
"The shares of stock 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
Administrator, Savings Institutions Division, North Carolina
Department of Commerce and the Federal Deposit Insurance
Corporation. Except in the event of the death of the registered
holder, the shares represented by this Certificate may not be
sold prior thereto without a legal opinion of counsel for the
Holding Company that said sale is permissible under the
provisions of applicable laws and regulations."
In addition, the Holding Company shall give appropriate
instructions to the transfer agent for the Holding Company Stock with
respect to the applicable restrictions relating to the transfer of
restricted stock. Any shares of Holding Company Stock subsequently
issued as a stock dividend, stock split or otherwise, with respect to
any such restricted stock, shall be subject to the same holding period
restrictions for such directors and Officers as may be then applicable
to such restricted stock.
2. Repurchase and Dividend Rights.
------------------------------
Pursuant to present regulations, the Holding Company may not,
within one year following the date of completion of the Stock
Conversion, repurchase Holding Company Stock from any person, with the
exception that stock repurchases of no greater than 5% of the
outstanding capital stock may be repurchased during this one-year
period where compelling and valid business reasons are established to
the satisfaction of the FDIC. Any stock repurchases shall be subject
to the requirements of Section 18(i)(1) of the Federal Deposit
Insurance Act. These restrictions and
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<PAGE>
limitations upon repurchases shall not apply following consummation of
the Bank Conversion as set forth in Paragraph VII.B. herein unless the
Commissioner and the FDIC approval of the Bank Conversion otherwise
requires.
Present regulations also provide that the Converted Bank 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 Converted Bank 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 FDIC and the Administrator, or other applicable
regulations.
The above limitations shall not preclude payment of dividends on,
or repurchases of, Holding Company Stock in the event applicable
regulatory limitations are liberalized subsequent to the Stock
Conversion. Further, such restrictions and limitations upon
repurchases of Capital Stock and upon the declaration and payment of
cash dividends thereon shall not apply following consummation of the
Bank Conversion as set forth in Paragraph VII.B. herein unless the
Administrator's approval of or the FDIC's notice of intent not to
object to the Bank Conversion otherwise requires.
3. Voting Rights.
-------------
After the Stock Conversion, holders of Savings Accounts in and
obligors on loans of the Bank will not have voting rights in the
Converted Bank. After the Bank Conversion, holding of Savings
Accounts in and obligors on loans of the Converted Bank will not have
voting rights in the Commercial Bank. Exclusive voting rights with
respect to the Holding Company shall be vested in the holders of
Holding Company Stock, holders of Savings Accounts in and obligors on
loans of the Converted Bank and the Commercial Bank will not have any
voting rights in the Holding Company except and to the extent that
such persons become stockholders of the Holding Company, and the
Holding Company will have exclusive voting rights with respect to the
Converted Bank's, and the Commercial Bank's Capital Stock. Each
stockholder of the Holding Company will be entitled to vote on any
matters coming before the stockholders of the Holding Company for
consideration and will be entitled to one vote for each share of
Holding Company Stock owned by said stockholder.
4. Purchases by Officers, Directors and Associates Following Stock
---------------------------------------------------------------
Conversion.
----------
Without the prior written approval of the FDIC and the
Administrator, Officers and directors of the Converted Bank and
Officers and directors of the Holding Company, and their Associates,
shall be prohibited for a period of three years following completion
of the Stock Conversion from purchasing outstanding shares of Holding
Company Stock, except from a broker or dealer registered with the
Secretary of State of North Carolina and/or the SEC. Notwithstanding
the preceding sentence, this restriction shall not apply to (i)
negotiated transactions involving more than 1% of the total
outstanding shares of Holding Company Stock, (ii) purchases made and
shares held by a Tax-Qualified Employee Stock Benefit Plan or non-tax-
qualified employee stock benefit plans which may be attributable to
Officers or directors may be made without FDIC or Administrator
permission or the use of a broker or dealer, and (iii) any transaction
occurring after the consummation of the Bank Conversion as set forth
in Paragraph VII.B. herein unless the Administrator's approval of or
the FDIC's notice of intent not to object to the Bank Conversion
otherwise requires.
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<PAGE>
H. Mailing of Offering Materials and Collation of Subscriptions.
------------------------------------------------------------
The sale of all shares of Conversion Stock offered pursuant to the
Plan must be completed within 12 months after approval of the Plan at the
Special Meeting, which time period may be extended up to an additional 12
months by amendment to this Plan. After approval of the Plan by the
appropriate regulatory authorities and the declaration of the effectiveness
of the Subscription and Community Prospectus by the SEC, the Holding
Company shall distribute such Subscription and Community Prospectus and
Order Forms for the purchase of shares in accordance with the terms of the
Plan.
The recipient of an Order Form will be provided neither fewer than 20
days nor more than 45 days from the date of mailing, unless extended, to
complete, execute and return properly the Order Form to the Holding Company
or the Bank. Self-addressed, postage paid return envelopes will accompany
these forms when mailed. The Bank or Holding Company will collate the
returned executed Order Forms upon completion of the Subscription Offering.
Failure of any eligible subscriber to return a properly completed and
executed Order Form within the prescribed time limits shall be deemed a
waiver and a release by such person of any rights to purchase shares of
Conversion Stock hereunder.
The sale of all shares of Conversion Stock shall be completed within
45 days after the last day of the Subscription Offering unless extended by
the Holding Company and the Bank with the approval of the FDIC and the
Administrator.
I. Method of Payment.
-----------------
Payment for all shares of Conversion Stock subscribed for in the
Subscription and Community Offerings must be received in full by the Bank
or the Holding Company, together with properly completed and executed Order
Forms, indicating thereon the number of shares being subscribed for and
such other information as may be required thereon, and, in the case of
orders submitted at an office of the Bank, executed Forms of Certification
as required by regulations, on or prior to the expiration date specified on
the Order Form, unless such date is extended by the Holding Company and the
Bank; provided, however, that payment by Tax-Qualified Employee Stock
Benefit Plans for Conversion Stock may be made to the Bank concurrently
with the completion of the Stock Conversion.
Payment for all shares of Conversion Stock may be made in cash (if
delivered in person) or by check or money order, or, if the subscriber has
a Savings Account in the Bank (including a certificate of deposit), the
subscriber may authorize the Bank to charge the subscriber's Savings
Account for the purchase amount. The Bank shall pay interest at not less
than the passbook rate on all amounts paid in cash or by check or money
order to purchase shares of Conversion Stock in the Subscription and
Community Offerings from the date payment is received until the Stock
Conversion is completed or terminated. The Bank shall not knowingly loan
funds or otherwise extend credit to any person for the purpose of
purchasing Conversion Stock.
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<PAGE>
If a subscriber authorizes the Bank to charge its Savings Account, the
funds may remain in the subscriber's Savings Account and continue to earn
interest, but may not be used by the subscriber until all Conversion Stock
has been sold or the Stock Conversion is terminated, whichever is earlier.
The withdrawal will be given effect only concurrently with the sale of all
shares of Conversion Stock in the Stock Conversion and only to the extent
necessary to satisfy the subscription at a price equal to the Purchase
Price. The Bank will allow subscribers to purchase shares of Conversion
Stock by withdrawing funds from certificate accounts without the assessment
of early withdrawal penalties. In the case of early withdrawal of only a
portion of such account, the certificate evidencing such account shall be
cancelled if the remaining balance of the account is less than the
applicable minimum balance requirement. In that event, the remaining
balance will earn interest at the passbook rate. This waiver of the early
withdrawal penalty is applicable only to withdrawals made in connection
with the purchase of Conversion Stock under the Plan.
Tax-Qualified Employee Stock Benefit Plans may subscribe for shares by
submitting an Order Form, 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 shares of the
Conversion Stock, during the Subscription Offering and by making payment
for the shares of Conversion Stock on the date of the closing of the Stock
Conversion. Following the Stock Conversion, the Converted Bank and the
Commercial Bank may make scheduled discretionary payments to such Tax-
Qualified Employee Stock Benefit Plans provided such contributions do not
cause the Converted Bank or the Commercial Bank to fail to meet net worth
or other regulatory capital requirements.
J. Undelivered, Defective or Late Order Forms; Insufficient Payment.
----------------------------------------------------------------
In the event an Order Form: (i) is not delivered and is returned to
the Holding Company or the Bank by the United States Postal Service (or the
Holding Company or the Bank is unable to locate the addressee); (ii) is not
received by the Holding Company or the Bank, or is received by the Holding
Company or the Bank 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 shares of Conversion Stock 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 to whom such rights have been granted
will not be honored and will be treated as though such person failed to
return the completed Order Form within the time period specified therein.
Alternatively, the Holding Company or the Bank may, but will not be
required to, waive any irregularity relating to any Order Form or require
the submission of a corrected Order Form or the remittance of full payment
for subscribed shares of Conversion Stock by such date as the Holding
Company or the Bank may specify. Subscription orders, once tendered,
cannot be revoked. The Holding Company's and Bank's interpretation of the
terms and conditions of this Plan and acceptability of the Order Forms will
be final and conclusive.
K. Members in Non-Qualified States or in Foreign Countries.
-------------------------------------------------------
The Holding Company will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons
entitled to subscribe for Conversion Stock pursuant to the Plan reside.
However, no such person will be offered or receive any Conversion Stock
under this Plan who resides in a foreign country or who resides in a state
of the United States with respect to which any or all of the following
apply: (i) a small number of persons otherwise eligible to subscribe for
shares of Conversion Stock under this Plan reside in such state or foreign
country; (ii) the granting of Subscription Rights or the offer or sale of
shares of Conversion Stock to such person would require the Holding Company
or the Bank or their employees to register, under the securities laws of
such state, as a broker, dealer, salesman or agent or to register or
otherwise qualify its securities for sale in such state or foreign country;
and (iii) such registration or qualification would be impracticable for
reasons of cost or otherwise. No payments will be made in lieu of the
granting of Subscription Rights to any such person.
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<PAGE>
L. Sales Commissions.
-----------------
Sales commissions may be paid as determined by the Boards of Directors
of the Bank and the Holding Company or their designees to securities
dealers assisting subscribers in making purchases of Conversion Stock in
the Subscription Offering or in the Community Offering, if the securities
dealer is named by the subscriber on the Order Form. In addition, a sales
commission may be paid to a securities dealer for advising and consulting
with respect to, or for managing the sale of Conversion Stock in, the
Subscription Offering, the Community Offering or any other offering.
IX. ARTICLES OF INCORPORATION, CERTIFICATE OF INCORPORATION AND BYLAWS.
As part of the Stock Conversion, North Carolina stock articles of
incorporation and bylaws will be adopted to authorize the Converted Bank to
operate as a North Carolina capital stock savings bank. By approving the Plan,
the Members of the Bank will thereby approve amending the Bank's existing North
Carolina mutual articles of incorporation and bylaws to read in the form of
North Carolina stock articles of incorporation and bylaws. Prior to completion
of the Stock Conversion, the proposed North Carolina stock articles of
incorporation and bylaws may be amended in accordance with the provisions and
limitations for amending the Plan under Paragraph XV below. The effective date
of the amendment of the Bank's existing North Carolina mutual articles of
incorporation and bylaws to read in the form of North Carolina stock articles of
incorporation and bylaws shall be the date of the issuance of the Conversion
Stock, which shall be the date of consummation of the Stock Conversion.
As part of the Bank Conversion, a North Carolina commercial bank
certificate of incorporation and bylaws will be adopted in connection with the
conversion of the Converted Bank to a North Carolina commercial bank. By
approving the Plan, the Members of the Bank will thereby approve such North
Carolina commercial bank certificate of incorporation and bylaws. Prior to
completion of the Bank Conversion, the North Carolina commercial bank
certificate of incorporation and bylaws may be amended in accordance with the
provisions and limitations for amending the Plan under Paragraph XV below. The
effective date of the certificate of incorporation and bylaws of the Commercial
Bank shall be the date of the consummation of the Bank Conversion.
X. REGISTRATION AND MARKET MAKING.
In connection and concurrently with the Stock Conversion, the Holding
Company shall register the Holding Company Stock with the SEC pursuant to the
Securities Exchange Act of 1934, as amended, and shall undertake not to
deregister the Holding Company Stock for a period of three years thereafter.
The Holding Company shall use its best efforts to encourage and assist
various Market Makers to establish and maintain a market for the Holding Company
Stock. The Holding Company shall also use its best efforts to have the Holding
Company Stock quoted on the Nasdaq or listed on a national or regional
securities exchange.
XI. STATUS OF SAVINGS ACCOUNTS AND LOANS SUBSEQUENT TO CONVERSION.
All Savings Accounts in the Bank will retain the same status after
Conversion as these accounts had prior to the Conversion. Subject to Paragraph
VIII.I. hereof, each holder of a Savings Account in the Bank shall retain,
without payment, a withdrawable Savings Account or Savings Accounts in the
Converted Bank, equal in dollar amount and on the same terms and conditions
(except with respect to voting and liquidation rights) as in effect prior to
consummation of the Stock Conversion. Each Person holding a Savings Account at
the Converted Bank as of immediately prior to consummation of the Bank
Conversion as set forth in Paragraph VII.B. herein shall receive, without
payment, a withdrawable Savings Account or Savings Accounts in the Commercial
Bank equal in dollar amount and on the same terms and conditions as in effect as
of immediately prior to the consummation of the Bank Conversion. All Savings
Accounts will continue to be insured by the Savings Association Insurance Fund
of the FDIC up to the applicable limits of insurance coverage. All loans shall
retain the same status after the Conversion as these loans had prior to
Conversion.
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<PAGE>
After the Stock Conversion, holders of Savings Accounts in and obligors on
loans of the Bank will not have voting rights in the Converted Bank. After the
Bank Conversion, holders of Savings Accounts in and obligors on loans of the
Converted Bank will not have voting rights in the Commercial Bank. Exclusive
voting rights with respect to the Holding Company shall be vested in the holders
of the Conversion Stock. Holders of Savings Accounts in and obligors on loans
of the Converted Bank and the Commercial Bank will not have any voting rights in
the Holding Company except and to the extent that such persons become
stockholders of the Holding Company, and the Holding Company will have exclusive
voting rights with respect to the Converted Bank's and the Commercial Bank's
Capital Stock.
XII. EFFECT OF CONVERSION.
Upon consummation of the Stock Conversion, the corporate existence of the
Bank shall not cease, but the Converted Bank shall be deemed to be a
continuation of the Bank, and shall succeed to all the rights, interests, duties
and obligations of the Bank as in existence as of immediately prior to the
consummation of the Stock Conversion as described in Paragraph VII.A. herein,
including but not limited to all rights and interests of the Bank in and to its
assets and properties, whether real, personal or mixed.
Upon completion of the Bank Conversion, the corporate existence of the
Converted Bank shall not cease, but the Commercial Bank shall be deemed to be a
continuation of the Converted Bank, and shall succeed to all the rights,
interests, duties and obligations of the Converted Bank as in existence as of
immediately prior to the consummation of the Bank Conversion as described in
Paragraph VII.B. herein, including but not limited to all rights and interests
of the Converted Bank in and to its assets and properties, whether real,
personal or mixed.
XIII. LIQUIDATION ACCOUNT.
After the Conversion, holders of Savings Accounts will not be entitled to
share in the residual assets after liquidation of the Converted Bank or the
Commercial Bank. However, pursuant to applicable regulations, the Bank shall,
at the time of the Stock Conversion, establish a Liquidation Account in an
amount equal to its net worth as of the date of the latest statement of
financial condition contained in the final prospectus to be used in connection
with the Stock Conversion. The function of the Liquidation Account is to
establish a priority on liquidation, and, except as provided in Paragraph
VIII.G.2. above, the existence of the Liquidation Account shall not operate to
restrict the use or application of any of the net worth accounts of the
Converted Bank.
The Liquidation Account shall be maintained by the Converted Bank
subsequent to the Stock Conversion for the benefit of Eligible Account Holders
and Supplemental Eligible Account Holders who retain their Savings Accounts in
the Converted Bank. Each Eligible Account Holder and Supplemental Eligible
Account Holder shall, with respect to each Savings Account held, have a related
inchoate interest in a portion of the Liquidation Account ("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 Bank. 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 any annual closing date 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 any
annual closing date 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
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<PAGE>
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.
In the event of a complete liquidation of the Converted Bank (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 stockholders. No merger, consolidation, sale of bulk assets or
similar combination or transaction with another institution insured by the FDIC
shall be considered to be a complete liquidation for these purposes. In such
transactions, the Liquidation Account shall be assumed by the surviving
institution.
The Bank Conversion shall not be deemed to be a complete liquidation of the
Converted Bank for purposes of the distribution of the Liquidation Account.
Upon consummation of the Bank Conversion, the Liquidation Account, and all
rights and obligations of the Converted Bank in connection therewith, shall be
assumed by the Commercial Bank.
The Liquidation Account shall be maintained by the Commercial Bank, under
the same rules and conditions applicable to the Converted Bank, subsequent to
the Bank Conversion for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders who retain their Savings Accounts in the Commercial
Bank.
XIV. RESTRICTIONS ON ACQUISITION OF HOLDING COMPANY.
A. Present regulations provide that for a period of three years
following completion of the Stock Conversion, no person (i.e., an
individual, a group Acting in Concert, a corporation, a partnership, an
association, a joint stock company, a trust or any unincorporated
organization or similar company, a syndicate or any other group formed for
the purpose of acquiring, holding or disposing of securities of an insured
institution or its holding company) shall directly, or indirectly, offer to
purchase or actually acquire the beneficial ownership of more than 10% of
any class of Holding Company Stock without the prior approval of the FDIC
and the Administrator. However, approval is not required for purchases
directly from the Holding Company or underwriters or a selling group acting
on their behalf with a view towards public resale, 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 Converted Bank, provided that the plan or plans do
not have beneficial ownership in the aggregate of more than 25% of any
class of Holding Company Stock. Civil penalties may be imposed by the FDIC
and the Administrator 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 Holding Company Stock within such three-year
period, without the prior approval of the FDIC and the Administrator,
Holding Company Stock 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 stockholders for a vote.
Upon consummation of the Bank Conversion, no person (i.e., an
individual, a group Acting in Concert, a corporation, a partnership, an
association, a joint stock company, a trust or any unincorporated
organization or similar company, a syndicate or any other group formed for
the purpose of acquiring, holding or disposing of securities of an insured
institution or its holding company) shall directly, or indirectly, offer to
purchase or actually acquire the beneficial ownership of more than 10% of
any class of Holding Company Stock without the prior approval of the
Federal Reserve Board.
20
<PAGE>
B. The Holding Company may provide in its certificate of
incorporation a provision that, for a specified period of up to five years
following the date of the completion of the Stock Conversion, no person
shall directly or indirectly offer to acquire or actually acquire the
beneficial ownership of more than 10% of any class of Holding Company Stock
except with respect to purchases by one or more Tax-Qualified Employee
Stock Benefit Plans of the Holding Company or Converted Bank. The Holding
Company may provide in its certificate of incorporation for such other
provisions affecting the acquisition of Holding Company Stock as shall be
determined by its Board of Directors.
XV. INTERPRETATION AND AMENDMENT OR TERMINATION OF THE PLAN.
The Bank's Board of Directors shall have the sole discretion to interpret
and apply the provisions of the Plan to particular facts and circumstances and
to make all determinations necessary or desirable to implement such provisions,
including but not limited to matters with respect to giving preference to
natural persons and trusts of natural persons who are permanent Residents of the
Bank's Local Community, and any and all interpretations, applications and
determinations made by the Board of Directors in good faith and on the basis of
such information and assistance as was then reasonably available for such
purpose shall be conclusive and binding upon the Bank and its Members and
subscribers in the Subscription and Community Offerings, subject to the
authority of the FDIC and the Administrator.
If deemed necessary or desirable, the Plan may be substantively amended at
any time prior to submission of the Plan and proxy materials to the Members by a
two-thirds vote of the Bank's Board of Directors. After submission of the Plan
and proxy materials to the Members, the Plan may be amended by a two-thirds vote
of the Bank's Board of Directors at any time prior to the Special Meeting and at
any time following such Special Meeting with the concurrence of the FDIC and the
Administrator. In its discretion, the Board of Directors may modify or
terminate the Plan upon the order of the regulatory authorities without a
resolicitation of proxies or another Special Meeting.
In the event that mandatory new regulations pertaining to the Conversion
are adopted by the FDIC, the Administrator, the Federal Reserve Board, or the
Commissioner, or any successor agency, prior to the completion of the
Conversion, the Plan will be amended to conform to the new mandatory regulations
without a resolicitation of proxies or another Special Meeting. In the event
that new conversion regulations adopted by the FDIC, the Administrator, the
Federal Reserve Board, or the Commissioner, or any successor agency, prior to
completion of the Conversion contain optional provisions, the Plan may be
amended to utilize such optional provisions at the discretion of the Board of
Directors without a resolicitation of proxies or another Special Meeting.
By adoption of the Plan, the Bank's Members authorize the Board of
Directors to amend and/or terminate the Plan under the circumstances set forth
above.
XVI. EXPENSES OF THE CONVERSION.
The Holding Company and the Bank will use their best efforts to assure that
expenses incurred in connection with the Conversion shall be reasonable.
XVII. CONTRIBUTIONS TO TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS.
The Holding Company, the Converted Bank and the Commercial Bank may make
scheduled discretionary contributions to their Tax-Qualified Employee Stock
Benefit Plans, provided such contributions do not cause the Converted Bank or
the Commercial Bank to fail to meet then-applicable regulatory capital
requirements.
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<PAGE>
EXHIBIT A
HOME SAVINGS BANK, INC., SSB
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
SECTION 1. CORPORATE TITLE. The full corporate title of the savings bank
is "Home Savings Bank, Inc., SSB".
SECTION 2. REGISTERED OFFICE AND REGISTERED AGENT. The principal and
registered office of the savings bank shall be located at 1311 Carolina Avenue,
Washington, North Carolina. The registered agent of the savings bank shall be
Thomas A. Vann, whose address is the same as the principal and registered office
of the savings bank in Beaufort County.
SECTION 3. POWERS. The purposes for which the savings bank is organized
are to pursue any and all of the lawful objectives of a stock savings bank
chartered under the provisions of the General Statutes of North Carolina and to
exercise all of the express, implied and incidental powers conferred thereby and
by all acts amendatory thereof and supplemental thereto, subject to the
constitutions and laws of the State of North Carolina and the United States as
they are now in effect, or as they may hereafter be amended, and subject to all
lawful and applicable rules, regulations and orders of appropriate regulatory
authorities.
SECTION 4. DURATION. The duration of the savings bank is perpetual.
SECTION 5. CAPITAL STOCK. The total number of shares of capital stock
which the savings bank has authority to issue is 14,000,000, of which 13,000,000
are to be shares of common stock, $1.00 par value per share, and of which
1,000,000 shall be serial preferred stock, $1.00 par value per share. The shares
may be issued by the savings bank from time to time as approved by the board of
directors. 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 of $1.00 per
share. The consideration for the shares shall be any tangible or intangible
property or benefit to the savings bank, including cash, promissory notes, labor
or services actually performed for the savings bank, contracts for services to
be performed, or other securities of the savings bank, or any combination of the
foregoing. In the absence of actual fraud in the transaction, the value of such
property, labor, services or securities, as determined by the board of directors
of the savings bank, shall be conclusive. Upon receipt of such consideration by
the savings bank, such shares shall be fully paid and nonassessable. In the case
of a stock dividend, that part of the surplus of the savings bank which is
transferred to stated capital upon the issuance of shares as a stock dividend
shall be deemed to be the consideration for their issuance.
A description of the different classes and series (if any) of the savings
bank's capital stock and a statement of the designations, and the relative
rights, preferences and limitations of the shares of each class of and series
(if any) of capital stock are as follows:
A. COMMON STOCK. Except as provided in this Section 5 (or in any
Articles of Amendment to this Amended and Restated Certificate of
Incorporation), the holders of the 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.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock
having preference over the common stock as to the payment of dividends, the
full amount of dividends and of sinking fund, retirement fund or other
retirement payments, if any, to which such holders are respectively
entitled in preference to the common stock, then dividends may be paid on
the common stock and on any class of stock entitled to participate
therewith as to dividends out of any assets legally available for the
payment of dividends.
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In the event of any liquidation, dissolution, or winding up of the
savings bank, the holders of the common stock (and the holders of any class
or series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in kind,
the assets of the savings bank available for distribution remaining after:
(i) payment or provision for payment of the savings bank's debts and
liabilities; (ii) distributions or provision for distributions in
settlement of its liquidation account in accordance with Section 8 of this
Amended and Restated Certificate of Incorporation; and (iii) distributions
or provision for distributions to holders of any class or series of stock
having preference over the common stock in the liquidation, dissolution, or
winding up of the savings bank.
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.
B. PREFERRED STOCK. The board of directors may, pursuant to
Articles of Amendment to this Amended and Restated Certificate of
Incorporation, which Articles of Amendment shall be effective without
stockholder action, provide for one or more classes of preferred stock,
which shall be separately identified. The shares of any class may be
divided into and issued in series, with each series separately designated
so as to distinguish the shares thereof from the shares of all other series
and classes. The terms of each series shall be set forth in a Preferred
Stock Designation. All shares of the same class shall be identical except
as to the following relative rights and preferences, as to which there may
be variations between different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so,
from which date(s), the payment date(s) for dividends, and the
participating or other special rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which, such shares
may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution or winding up of the
savings bank;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and
the manner of its application, including the price(s) at which such shares
may be redeemed or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of the
savings bank or any other institution or corporation and, if so, the
conversion price(s), or the rate(s) 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;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial preferred
stock and whether such shares may be reissued as shares of the same or any
other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other
shares of the same series.
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The board of directors shall have authority to divide, pursuant to Articles
of Amendment to this Amended and Restated Certificate of Incorporation,
which Articles of Amendment shall be effective without stockholder action,
any authorized class of preferred stock into series, and, within the
limitations set forth in this Section 5 and this Amended and Restated
Certificate of Incorporation, fix and determine the relative rights and
preferences of the shares of any series so established.
The savings bank shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof, for all purposes,
and shall not be bound to recognize any equitable or other claim to, or
interest in, such share on the part of any other person, whether or not the
savings bank shall have notice thereof, except as provided by applicable
law.
SECTION 6. MINIMUM CONSIDERATION. The minimum amount of consideration to
be received for its shares of stock before the savings bank will commence
business as a stock savings bank is $100.
SECTION 7. PREEMPTIVE RIGHTS. Holders of the capital stock of the savings
bank shall not be entitled to preemptive rights with respect to any shares of
the savings bank which may be issued.
SECTION 8. LIQUIDATION ACCOUNT. Pursuant to the rules and regulations of
the Administrator of the Savings Institutions Division of the North Carolina
Department of Commerce, the savings bank shall establish and maintain a
liquidation account for the benefit of its savings account holders as of June
30, 1992 and as of the last day of the calendar quarter preceding the
Administrator's approval of the savings bank's Plan of Conversion dated as of
September 19, 1996 (collectively, "eligible savers"). In the event of a complete
liquidation of the savings bank, it shall comply with such rules and regulations
with respect to the amount and the priorities on liquidation of each of the
savings bank's eligible savings' 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 savings bank's stockholders.
SECTION 9. DIRECTORS. The savings bank shall be under the direction of
the board of directors. The number of directors, as stated in the savings bank's
bylaws, shall not be less than five nor more than fifteen.
The board of directors of the savings bank 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. Each class is to be as nearly equal
in number as possible, with the term of office of directors of Class I to expire
at the 1997 annual meeting of shareholders, that of Class II to expire at the
1998 annual meeting of shareholders, and that of Class III to expire at the 1999
annual meeting of shareholders.
The names and addresses of the persons who are to serve as directors until
their successors and elected and qualified, together with the class of
directorships to which such persons have been assigned, are:
<TABLE>
<CAPTION>
Name Address Class
- ---- ------- -----
<S> <C> <C>
Edmund T. Buckman, Jr. 1026 Summit Avenue III
Washington, NC 27889
Linley H. Gibbs, Jr. 222 Magnolia Drive I
Washington, NC 27889
Frederick N. Holscher 46 Harbor Road III
Washington, NC 27889
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name Address Class
- ---- ------- -----
<S> <C> <C>
Dr. Frederick H. Howdy Riverside III
Washington, NC 27889
Charles E. Parker, Jr. 1601 Lucerne Way II
New Bern, NC 28560
Marshall T. Singleton 776 Mimosa Shores Road II
Washington, NC 27889
Thomas A. Vann 113 Palmer Place I
Washington, NC 27889
</TABLE>
SECTION 10. LIMITATION OF PERSONAL LIABILITY FOR BOARD OF DIRECTORS. A
director of the savings bank shall not be personally liable to the savings bank
or its shareholders for monetary damages for breach of any fiduciary duty as a
director; provided, however, that this limitation of liability shall not be
effective with respect to (i) acts or omissions that the director at the time of
such breach knew or believed were clearly in conflict with the best interests of
the savings bank, (ii) any liability under Section 55-8-33 of the North Carolina
Business Corporation Act or any successor to such Section, (iii) any transaction
from which the director derived an improper personal benefit, or (iv) acts or
omissions occurring prior to the date this provision becomes effective. As used
herein, the term "improper personal benefit" does not include a director's
reasonable compensation or other reasonable incidental benefit for or on account
of his service as a director, officer, employee, independent contractor,
attorney or consultant of the savings bank. If North Carolina law is amended to
further eliminate or limit the personal liability of officers and directors,
then the liability of officers and directors of the savings bank shall be
eliminated or limited to the fullest extent permitted by North Carolina law, as
so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the savings bank shall not adversely affect any right or
protection of a director of the savings bank existing at the time of such repeal
or modification.
SECTION 11. AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.
Any addition, alteration or amendment to this Amended and Restated Certificate
of Incorporation shall be made in accordance with the provisions of Chapter 54C
of the General Statutes of North Carolina and any amendments thereto.
HOME SAVINGS BANK, INC., SSB
By: ___________________________________
Thomas A. Vann, President
ATTEST:
By: _________________________________
William L. Wall, Secretary
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<PAGE>
STATE OF NORTH CAROLINA )
) SS:
COUNTY OF BEAUFORT )
This is to certify that on this ______ day of ______________, 1997, before
me, a Notary Public, personally appeared Thomas A. Vann and William L. Wall,
each of whom, being by me first duly sworn, declared that he signed the
foregoing instrument in the capacity indicated, that he was authorized so to
sign, and that the statements contained therein are true.
Witness my hand and official seal, this _________ day of ____________, 1997
_____________________________________
Notary Public
(OFFICIAL SEAL)
My Commission Expires: ______________
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<PAGE>
EXHIBIT B
HOME SAVINGS BANK, INC., SSB
AMENDED AND RESTATED BYLAWS
ARTICLE I
OFFICES
SECTION 1. HOME OFFICE. The principal office of the savings bank shall be
at 1311 Carolina Avenue, Washington, North Carolina.
SECTION 2. REGISTERED OFFICE. The registered office of the savings bank
required by law to be maintained in North Carolina may be, but need not be,
identical with the principal office.
ARTICLE II
STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
stockholders shall be held at the principal office of the savings bank or at
such other place in the State in which the principal office is located as the
board of directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the stockholders of the savings
bank for the election of directors and for the transaction of any other business
of the savings bank shall be held annually, on the third Thursday in January if
not a legal holiday, and if a legal holiday, then on the next succeeding
business day which is not a legal holiday, or at such other date as the board of
directors may determine.
SECTION 3. SUBSTITUTE ANNUAL MEETING. If the annual meeting shall not be
held on the date designated by these bylaws, a substitute annual meeting may be
called in accordance with the provisions of Section 4 of this Article II. A
meeting so called shall be designated and treated for all purposes as the annual
meeting.
SECTION 4. SPECIAL MEETINGS. Special meetings of the stockholders for any
purpose or purposes, unless otherwise proscribed by North Carolina statutes or
the regulations of the Savings Institutions Division of the North Carolina
Department of Commerce, may be called at any time by the chairman of the board,
the president, or a majority of the board of directors, and shall be called by
the chairman of the board, the president, or the secretary upon the written
request of the holders of not less than ten percent (10%) of all the votes
entitled to be cast on any issue proposed to be considered at the meeting. Such
written request shall be signed and dated, shall state the purpose or purposes
of the meeting and shall be delivered to the secretary of the savings bank.
SECTION 5. 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 6. NOTICE OF MEETINGS. Written notice signed by the savings
bank's secretary stating the place, day, and hour of the meeting and the purpose
or purposes for which the meeting is called shall be delivered not less than ten
nor more than fifty 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 stockholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the U.S. mail, addressed to the stockholder at his
address as it appears on the stock transfer books or records of the savings bank
as of the record date prescribed in Section 8 of this Article II with postage
prepaid.
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In the case of an annual or substitute annual meeting, the notice of
meeting need not specifically state the business to be transacted thereat unless
such a statement expressly is required by the provisions of the North Carolina
Business Corporation Act. In the case of a special meeting, the notice of
meeting specifically shall state the purpose or purposes for which the meeting
is called.
If any meeting of stockholders is adjourned to a different date, time or
place, notice need not be given of the new date, time or place if the new date,
time or place is announced at the meeting before adjournment and if a new record
date is not fixed for the adjourned meeting. If a new record date for the
adjourned meeting is or must be fixed pursuant to North Carolina law, notice of
the adjourned meeting is or must be fixed pursuant to North Carolina law, notice
of the adjourned meeting must be given as provided in this Section 6 to persons
who are stockholders as of the new record date.
SECTION 7. WAIVER OF NOTICE. Any stockholder may waive notice of any
meeting before or after the meeting. The waiver must be in writing, signed by
the stockholder, and delivered to the savings bank for inclusion in the minutes
or filing with the corporate records. A stockholder's attendance, in person or
by proxy, at a meeting (a) waives objection to lack of notice or defective
notice of the meeting, unless the stockholder or the stockholder's proxy at the
beginning of the meeting objects to holding the meeting or transacting business
thereat, and (b) waives objection to consideration of a particular matter at the
meeting that is not within the purpose or purposes described in the meeting
notice, unless the stockholder or his proxy objects to considering the matter
before it is voted upon.
SECTION 8. FIXING OF RECORD DATE. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment, or stockholders entitled to receive payment of any dividend, or
in order to make a determination of stockholders for any other purpose, the
board of directors shall fix in advance a date as the record date for any such
determination of stockholders. Such date in any case shall be not more than
sixty days and, in case of a meeting of stockholders, not less than ten days
prior to the date on which the particular action requiring such determination of
stockholders, is to be taken. When a determination of stockholders entitled to
vote at any meeting of stockholders has been made as provided in this Section 8,
such determination shall apply to any adjournment thereof, unless the meeting is
adjourned to a date more than 120 days after the date fixed for the original
meeting.
SECTION 9. VOTING LISTS. Except as otherwise required by law, after
fixing a record date for a meeting, the officer or agent having charge of the
stock transfer books for shares of stock of the savings bank shall prepare an
alphabetical list of the stockholders entitled to notice of such meeting, or any
adjournment thereof, arranged by voting group, with the address of and the
number of shares held by each, which list shall be kept on file at the principal
office of the savings bank and shall be subject to inspection of any stockholder
during usual business hours beginning two business days after notice is given
and continuing through the meeting. Such list shall also be produced and kept
open at the time and place of the meeting and shall be subject to the inspection
by any stockholder during the whole time of the meeting. The original stock
transfer book shall be prima facie evidence as to who are the stockholders
entitled to examine such list or transfer books or to vote at any meeting of
stockholders.
SECTION 10. QUORUM. Shares entitled to vote generally as a single voting
group or as a separate voting group may take action on a matter at the meeting
of stockholders only if a quorum of that voting group is present at the meeting
with respect to that matter, except that, in the absence of a quorum at the
opening of any meeting of stockholders, such meeting may be adjourned from time
to time by a vote of a majority of the votes cast on the motion to adjourn; and
at any adjourned meeting any business may be transacted which might have been
transacted at the original meeting if a quorum exists with respect to the matter
proposed. A majority of the votes entitled to be cast on the matter by the
voting group shall constitute a quorum of that voting group for action on that
matter.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
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<PAGE>
SECTION 11. PROXIES. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the stockholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy may designate as a
holder any corporation or partnership, or any person acting on behalf of a
corporation or partnership, or any person other than a natural living person,
except for the holder of a specified office or a committee composed of natural
persons. No proxy shall be valid after eleven months from the date of its
execution except for a proxy coupled with an interest.
SECTION 12. 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 savings bank to the contrary, at any meeting of the
stockholders of the savings bank, any one or more of such stockholders 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 stock and present in person or by proxy at such meeting, and
then each person in whose names shares of stock stand shall be entitled to vote
the shares in question proportionally.
SECTION 13. VOTING OF SHARES BY 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 upon
satisfactory proof to the savings bank of his appointment. 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 thereof 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 stockholder 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 savings bank, 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 savings
bank, 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 14. VOTING. Each stockholder shall be entitled to cast one vote
for each share of stock held as of the record date. A majority of the shares
voted at a meeting of stockholders shall be sufficient to take or authorize
action upon any matter which may properly come before the meeting, unless
otherwise provided by applicable law or regulation, the savings bank's amended
and restated certificate of incorporation or these bylaws, except that directors
shall be elected by a plurality of the votes cast by the shares entitled to vote
in the election at a meeting at which a quorum is present.
SECTION 15. INFORMAL ACTION BY STOCKHOLDERS. Any action required to be
taken at a meeting of the stockholders, or any other action which may be taken
at a meeting of the stockholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
stockholders entitled to vote with respect to the subject matter thereof and
filed with the secretary of the savings bank as part of the savings bank's
records.
SECTION 16. INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, 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
thereof. The number of inspectors shall be either one or three. If the board
of directors so appoints either one or three such inspectors that 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, and on the request of
any stockholder or proxy
3
<PAGE>
holder shall, make such appointment at the meeting. In case any persons
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 of stock and the
voting power of each share, the shares of stock 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 right 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 stockholders.
SECTION 17. NOMINATING COMMITTEE. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Provided that such committee makes such nominations, no nominations
for directors except those made by the nominating committee shall be voted upon
at the annual meet ing unless other nominations by stockholders are made in
writing and delivered to the secretary of the savings bank at least five days
prior to the date of the annual meeting.
SECTION 18. NEW BUSINESS. Any new business proposed to be taken up at the
annual meeting by any stockholder shall be stated in writing and filed with the
secretary of the savings bank at least twenty days before the date of the annual
meeting, and all 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 stockholder 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 twenty days before the meeting, such proposal shall
be laid over for action at an adjourned, special, or annual meeting of the
stockholders taking place thirty 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.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the savings bank
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, either the chairman of the board or the president to
preside at its meetings.
SECTION 2. NUMBER AND TERM. The board of directors shall consist of seven
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. The number of directors may be increased or
decreased from time to time by the board of directors, except that no decrease
shall result in any director being forced to resign or otherwise be removed, and
if the stockholders are denied the right to cumulate their votes in the election
of directors, the board of directors may not increase or decrease the number of
directors by more than thirty percent (30%) during any twelve-month period.
SECTION 3. QUALIFICATION AND ELECTION OF DIRECTORS. No person shall be
eligible for election, reelection, appointment, or reappointment to the board of
directors if such person is more than 80 years of age. No director shall serve
beyond the annual meeting of the savings bank immediately following his
attainment of 80 years of age. Persons may serve as Advisor Directors without
regard to age.
Directors shall have stock ownership in the savings bank or its holding
company of five thousand dollars ($5,000) in market value at the time of
purchase.
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<PAGE>
SECTION 4. REGULAR MEETINGS. A regular meeting of the board of directors
shall be held immediately after, and at the same place as, the annual meeting of
stockholders. The board of directors may provide, by resolution, the time and
place for the holding of additional regular meetings without other notice than
such resolution.
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 at least two of the directors. The persons authorized to call special
meetings of the board of directors may fix any place, within the savings bank's
regular lending area, 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 meetings by means of
conference telephone or similar communications equipment by which all persons
participating in the meeting can simultaneously hear each other.
SECTION 6. NOTICE OF MEETINGS. Regular meetings of the board of directors
may be held without notice. The person or persons calling a special meeting of
the board of directors shall, at least five days before the meeting, give notice
thereof by any usual means of communication. Such notice need not specify the
purpose for which the meeting is called.
SECTION 7. WAIVER OF NOTICE. Any director may waive notice of any
meeting. The waiver must be in writing, signed by the director entitled to the
notice and filed with the minutes or corporate records of the savings bank.
Attendance by a director at a meeting shall constitute a waiver of notice of
such meeting, unless the director at the beginning of the meeting (or promptly
upon his arrival) objects to holding the meeting or transacting business at the
meeting and does not thereafter vote for or assent to action taken at the
meeting.
SECTION 8. 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 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 9. MANNER OF ACTING. 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 applicable regulation or
by these bylaws.
SECTION 10. 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 11. RESIGNATION. Any director may resign at any time by sending a
written communication of such resignation to the principal office of the savings
bank addressed to the board of directors, its chairman or the savings bank. A
resignation is effective when it is communicated unless it specifies in writing
a later effective date or subsequent event upon which it will become effective.
SECTION 12. 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 for the unexpired term of his predecessor in
office. 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 stockholders.
SECTION 13. PRESUMPTION OF ASSENT. A director of the savings bank who is
present at a meeting of the board of directors at which action on any savings
bank 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 his written dissent to such action with the person
acting as the secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the secretary of the savings bank
within five days after the date he receives a copy of the minutes of the
meeting. Such right to dissent shall not apply to a director who voted in favor
of such action.
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SECTION 14. REMOVAL OF DIRECTORS. At a meeting of stockholders called
expressly for that purpose, any director may be removed only for cause by a vote
of the holders of a majority of the shares then entitled to vote at an election
of directors. For the purposes of this Section 14, "cause" shall mean (a) an
adjudication by a court of competent jurisdiction that the director to be
removed is liable for negligence or misconduct in the performance of his duty to
the savings bank, (b) a felony conviction by a court of competent jurisdiction,
or (c) the director's actions or failure to act are deemed to be in derogation
of the director's duties. Notwithstanding the foregoing, whenever the holders
of any one or more series of preferred stock of the savings bank shall have the
right, voting separately as a class, to elect one or more directors of the
savings bank, the preceding provisions of this section shall not apply with
respect to the director or directors elected by such holders of preferred stock.
SECTION 15. COMPENSATION. The savings bank may compensate directors for
their services as such and may provide for the payment of any or all expenses
incurred by directors in attending regular and special meetings of the board.
SECTION 16. COMMITTEES OF THE BOARD. The board of directors, by
resolution adopted by a majority of the number of directors fixed by these
bylaws, may designate three or more directors to constitute an executive
committee and other committees, each of which, to the extent authorized by law
and provided in such resolution, shall have and may exercise all of the
authority of the board of directors in the management of the savings bank. The
designation of any committee and the delegation thereto of authority shall not
operate to relieve the board of directors, or any member thereof, or any
responsibility or liability imposed upon it or him by law.
SECTION 17. POWER TO BORROW. The board of directors is authorized to
borrow money for the savings bank, and the board of directors may, by resolution
adopted by a vote of at least two-thirds of the entire board duly recorded in
the minutes, authorize the officers of the savings bank to borrow money for the
savings bank on such terms and conditions as it may deem proper.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS OF THE SAVINGS BANK. The officers of the savings bank
shall consist of a president, secretary, treasurer, and such vice-presidents,
assistant secretaries, assistant treasurers, and other officers as the board of
directors may deem necessary. Any two or more offices may be held by the same
person, but in no event may any officer act in more than one capacity where
action of two or more officers is required.
The board of directors shall assign an officer of the savings bank the
duties of managing officer who shall carry out the policies set by the board of
directors. The board of directors shall prescribe the duties of the managing
officer. 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. SELECTION AND TERM. The officers of the savings bank shall be
selected by the board of directors. Each officer shall hold office until his
death, resignation, retirement, removal, disqualification or his successor is
selected and qualified.
SECTION 3. COMPENSATION OF OFFICERS. The compensation of all officers of
the savings bank shall be fixed by the board of directors and no officer shall
serve the savings bank in any other capacity and receive compensation therefor,
unless such additional compensation is authorized by the board of directors.
SECTION 4. REMOVAL. Any officer or agent of the savings bank may be
removed by the board whenever in its judgment the best interests of the savings
bank will be served thereby; but such removal shall be without prejudice to the
contract rights, if any, of the person so removed.
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SECTION 5. BONDS. Subject to applicable law and regulations, the board of
directors shall require each officer, agent, or employee of the savings bank to
give bond to the savings bank, with sufficient sureties, conditioned on the
faithful performance of the duties of his respective office or position, and to
comply with such other conditions as may be required by the board of directors.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The board of directors may authorize any officer or
officers, agent or agents, to enter into any contracts or execute and deliver
any instrument on behalf of the savings bank, and such authority may be general
or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the savings
bank and no evidences of indebtedness shall be issued in its name unless
authorized by Article VII of these bylaws or by a resolution of the board of
directors. Such authority may be general or confined to specific instances.
SECTION 3. CHECKS AND DRAFTS. All checks, drafts or other orders for
payment of money issued in the name of the savings bank shall be signed by such
officer or officers, agent or agents of the savings bank and in such manner as
shall be determined by resolution of the board of directors.
SECTION 4. DEPOSITS. All funds of the savings bank not otherwise employed
shall be deposited to the credit of the savings bank in such depositories as the
board of directors shall direct.
ARTICLE VI
WITHDRAWABLE ACCOUNTS
SECTION 1. CLASSES OF WITHDRAWABLE ACCOUNTS. The savings bank may issue
as many classes of withdrawable accounts as the board of directors shall
establish, subject to such regulations and limitations as the Administrator of
the Savings Institutions Division of the North Carolina Department of Commerce
and the Federal Deposit Insurance Corporation may prescribe. Such classes of
withdrawable accounts may include, without limitation, passbook accounts,
certificate accounts, NOW accounts, trust accounts, IRA accounts, demand
accounts and Keogh accounts. The minutes of the meeting of the board of
directors of the savings bank shall clearly define each class of withdrawable
account being offered to the public and shall show all changes made in the class
or classes of withdrawable accounts available to the customers of the savings
bank.
SECTION 2. WITHDRAWALS. The savings bank shall have the right to pay the
withdrawal value of its withdrawable accounts at any time upon proper
application therefor and to pay the holders thereof the withdrawal value
thereof. Upon receipt of a written application from any holder of a
withdrawable account of the savings bank for the withdrawal from such account of
all or any part of the withdrawal value thereof, the savings bank shall within
thirty days pay the amount requested. If the savings bank is unable to pay all
withdrawals requested at the end of thirty days from the date of such requests,
it shall then pay all withdrawals requested in accordance with the applicable
provisions of the General Statutes of North Carolina, as amended, and the
regulations of the Federal Deposit Insurance Corporation. Holders of
withdrawable accounts for which application for withdrawal has been made shall
remain holders of withdrawable accounts until paid and shall not become
creditors.
When a certificate or agreement between the savings bank and the account
holder specifies a particular period of time for notice of withdrawals,
withdrawals shall be made in accordance with such certificate or agreement.
SECTION 3. FORCED RETIREMENT. If so provided in the withdrawable account
contract, the savings bank may redeem all or any part of its withdrawable
accounts which have not been pledged as security for loans. The savings
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bank shall give at least thirty days notice of such redemption by certified mail
addressed to the holder of each withdrawable account at his last address as
recorded on the books of the savings bank. The savings bank may not redeem any
of its withdrawable accounts when it has any request for withdrawal which has
been on file and unpaid for more than thirty days. Also, the savings bank may
not redeem any fixed-term withdrawable accounts which have not matured. The
redemption price of each withdrawable account redeemed shall be the full value
thereof, as determined by the board of directors, but in no event shall the
redemption price be less than the withdrawal amount of such withdrawable
accounts. If notice of redemption is duly given and sufficient funds are
available for such redemption, interest shall cease to accrue on the
withdrawable account as of the redemption date. After the redemption date all
rights with respect to the withdrawable account shall terminate, except for the
right of the withdrawable account holder to receive the redemption price thereof
without interest.
SECTION 4. NEW ACCOUNT BOOKS. The savings bank may issue a new account
book or certificate, or other evidence of ownership of a withdrawable account in
the name of the holder of record at any time when requested by such holder or
his or her legal representative upon proof satisfactory to the savings bank that
the original account book or certificate has been lost or destroyed. Such proof
of loss shall ordinarily include a written verification by the holder or his or
her legal representative that the account book or certificate has been lost or
destroyed and the account has not been pledged or assigned. Such new account
book or certificate shall expressly state that it is issued in lieu of the one
lost or destroyed and that the savings bank shall in no way be liable thereafter
on account of the original book or certificate. When issuing such a new account
book or certificate, the savings bank may, at its option, require the holder of
record to give the savings bank a bond in such sum as it may direct, or such
other indemnification as it may dictate, in order to indemnify the savings bank
against any loss that might result from the issuance of the new account book or
certificate.
ARTICLE VII
LOANS AND INVESTMENTS
SECTION 1. GENERAL LENDING AUTHORITY. Funds of the savings bank shall be
loaned in compliance with the General Statutes of North Carolina and the
regulations promulgated by the Administrator of the Savings Institutions
Division of the North Carolina Department of Commerce, and applicable federal
statutes and regulations, and in such sum and at such time as the board of
directors may determine.
SECTION 2. MANNER OF MAKING LOANS. The board of directors shall establish
and maintain procedures by which loans are to be considered, approved, and made
by the savings bank. Such loan procedures may be amended by resolution of the
board of directors.
The board of directors shall establish a Loan Committee to implement the
board's loan procedures and to consider and approve loans.
The board of directors may designate one or more of the savings bank's
officers to serve as Loan Officers. Such Loan Officers shall have authority to
approve loans as determined by the board and the Loan Committee.
All actions taken on loan applications to the savings bank shall be
reported to the board of directors at its meeting next following such actions.
SECTION 3. APPRAISALS. The board of directors shall cause all real estate
upon which loans are applied for to be appraised and approved as provided by
law.
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ARTICLE VIII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
capital stock of the savings bank shall be in such form as shall be determined
by the board of directors and in accordance with the laws of North Carolina.
Such certificates shall be signed by the chief executive officer or by any other
officer of the savings bank authorized by the board of directors, attested by
the 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 savings bank itself or one of its employees. Each
certificate for shares of capital stock shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the certificate
is issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the savings bank. All certificates surrendered to the
savings bank for transfer shall be cancelled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and cancelled, except that in the case of a lost or destroyed
certificate, a new certificate may be issued therefor upon such terms and
indemnity to the savings bank as the board of directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of the
savings bank shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record thereof or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney thereunto authorized by power of attorney duly executed and filed with
the savings bank. 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 savings bank shall be deemed by the savings bank
to be the owner thereof for all purposes.
ARTICLE IX
INDEMNIFICATION
In addition to and apart from the indemnification required or permitted by
law, and except as otherwise provided in these bylaws, the savings bank shall
provide indemnification as follows:
SECTION 1. INDEMNITY. Any person who at any time serves or has served as
a director, officer, employee or agent of the savings bank and any such person
who serves or has served at the request of the savings bank as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, or as a trustee or administrator under an employee
benefit plan, shall have a right to be indemnified by the savings bank to the
full extent allowed by applicable law against liability and litigation expense
arising out of such status or activities in such capacity. "Liability and
litigation expense" shall include costs and expenses of litigation (including
reasonable attorneys' fees), judgments, fines and amounts paid in settlement
which are actually and reasonably incurred in connection with or as a
consequence of any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, including appeals. In
no circumstances, however, shall the savings bank indemnify any such person
against any liability or litigation expense incurred on account of activities
which were at the time taken known or believed by such person to be clearly in
conflict with the best interests of the savings bank.
SECTION 2. DETERMINATION OF RIGHT TO INDEMNITY. Promptly after the final
disposition or termination of any matter which involves liability or litigation
expense as described in Section 1 of this Article or at such earlier time as it
sees fit, the savings bank shall determine whether any person described in
Section 1 of this Article is entitled to indemnification thereunder. Such
determination shall be limited to the following issues: (i) whether the persons
to be indemnified are persons described in Section 1 of this Article, (ii)
whether the liability or litigation expense incurred arose out of the status or
activities of such persons as described in Section 1 of this Article, (iii)
whether the liability was actually incurred and/or litigation expense was
actually and reasonably incurred, and (iv) whether the indemnification requested
is permitted by applicable law. Such determination shall be made by a
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majority vote of directors who were not parties to the action, suit or
proceeding (or, in connection with "threatened" actions, suits or proceedings,
who were not "threatened parties"). If at least two such disinterested
directors are not obtainable, or, even if obtainable, if at least half of the
number of disinterested directors so direct, such determination shall be made by
independent legal counsel in written opinion.
SECTION 3. ADVANCE EXPENSES. (a) Litigation expense incurred by a
person described in Section 1 of this Article in connection with a matter
described in Section 1 of this Article may be paid by the savings bank in
advance of the final disposition or termination of such matter, if the savings
bank receives an undertaking, dated in writing and signed by the person to be
indemnified, to repay all such sums unless such person is ultimately determined
as provided in Section 2 of this Article to be entitled to be indemnified by the
savings bank. Requests for payments in advance of final disposition or
termination shall be submitted in writing to the savings bank unless this
requirement is waived by the savings bank. Before the first such payment is
made, the savings bank shall have received the written undertaking referred to
herein and notice of the request for advance payment shall have been given to
the members of the board of directors.
(b) Notwithstanding the foregoing subsection (a), no advance payment shall
be made as to any payment or portion of a payment for which the determination is
made that the person requesting payment will not be entitled to indemnification.
Such determination may be made only by a majority vote of disinterested
directors or by independent legal counsel as next provided. If there are not at
least two disinterested directors, then notice of all requests for advance
payment shall be delivered for review to independent legal counsel for the
savings bank. Such counsel shall have the authority to disapprove any advance
payment or portion of a payment for which it plainly and unavoidably appears
that the person requesting payment will not be entitled to indemnification.
SECTION 4. SETTLEMENTS. The savings bank shall not be obligated to
indemnify persons described in Section 1 of this Article for any amounts paid in
settlement unless the savings bank consents in writing to the settlement. The
savings bank shall not unreasonably withhold its consent to proposed
settlements. The savings bank's consent to a proposed settlement shall not
constitute an agreement by the savings bank that any person is entitled to
indemnification hereunder; the savings bank shall waive the requirement of this
Section 4 for its written consent as fairness and equity may require.
SECTION 5. APPLICATION FOR INDEMNITY OR ADVANCES. (a) A person
described in Section 1 of this Article may apply to the savings bank in writing
for indemnification or advance expenses. Such application shall be addressed to
the secretary, or, in the absence of the secretary, to any officer of the
savings bank. The savings bank shall respond in writing to such applications as
follows: to a request for indemnity under Section 2 of this Article, within
ninety days after receipt of the application; to a request for advance expenses
under Section 3 of this Article, within fifteen days after receipt of the
application.
If any action is necessary or appropriate to authorize the savings bank to
pay the indemnification required by these bylaws, the board of directors
shall take such action, including (i) making a good faith evaluation of the
indemnification request, (ii) giving notice to, and obtaining approval by the
stockholders of the savings bank, and (iii) taking any other action.
(b) The right to indemnification or advance expenses provided herein
shall be enforceable in any court of competent jurisdiction. A legal action may
be commenced if a claim for indemnity or advance expenses is denied in whole or
in part, or upon the expiration of the time periods provided in the preceding
subsection (a). In any such action, the claimant shall be entitled to prevail
upon establishing that he or she is entitled to indemnification or advance
expenses but the savings bank shall have the burden of establishing, as a
defense, that the liability or expense was incurred on account of activities
which were at the time taken known or believed by the claimant to be clearly in
conflict with the best interests of the savings bank. In any such action, if
the claimant establishes the right to indemnification, he or she shall also have
the right to be indemnified against the litigation expense (including, without
limitation, reasonable attorneys' fee) of such action.
SECTION 6. INSURANCE. As provided by N.C. Gen. Stat. (S)55-8-57, the
savings bank shall have the power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of
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the savings bank, or who, while a director, officer, employee or agent of the
savings bank, is or was serving at the request of the savings bank as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or as a trustee or administrator under an
employee benefit plan, against any liability asserted against him and incurred
by him in any such capacity or arising out of his status as such, whether or not
the savings bank has the power to indemnify him against such liability.
SECTION 7. INCIDENTS OF RIGHT OF INDEMNIFICATION. The right to
indemnification provided herein shall not be deemed exclusive of any other
rights to which any persons seeking indemnity may be entitled apart from the
provisions of this bylaw, except there shall be no right to indemnification as
to any liability or litigation expense for which such person is entitled to
receive payment under any insurance policy other than a directors' and officers'
liability insurance policy maintained by the savings bank. Such right shall
inures to the benefit of the heirs and legal representatives of any persons
entitled to such right. Any person who at any time after the adoption of this
bylaw serves or has served in any status or capacity described in Section 1 of
this Article, shall be deemed to be doing or to have done so in reliance upon,
and as consideration for, the right of indemnification provided herein. Any
repeal or modification hereof shall not affect any rights or obligations then
existing. The right provided herein shall not apply as to persons serving
institutions which are hereafter merged into or combined with the savings bank,
except after the effective date of such merger or combination and only as to
status and activities after such date.
SECTION 8. SAVINGS CLAUSE. If this Article IX or any portion hereof
shall be invalidated on any ground by any court or agency of competent
jurisdiction, then the savings bank shall nevertheless indemnify each person
described in Section 1 of this Article to the full extent permitted by the
portion of this Article IX that is not invalidated and also to the full extent
(not exceeding the benefits described herein) permitted or required by other
applicable law.
ARTICLE X
FISCAL YEAR; ANNUAL AUDIT
This fiscal year of the savings bank shall be fixed by the board of
directors.
ARTICLE XI
DIVIDENDS
Subject to the terms of the savings bank's amended and restated certificate
of incorporation and applicable law and regulations, the board of directors may,
from time to time, declare, and the savings bank may pay, dividends on its
outstanding shares of capital stock.
ARTICLE XII
CORPORATE SEAL
The corporate seal of the savings bank shall be in such form as the board
of directors shall prescribe by resolution.
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ARTICLE XIII
AMENDMENTS
These bylaws may be amended at any time by a majority vote of the full
board of directors, or by a majority vote of the votes cast by the stockholders
of the savings bank at any legal meeting, unless otherwise provided by law or
regulation. Each amendment shall be filed with the Administrator of the Savings
Institutions Division of the North Carolina Department of Commerce.
Adopted this ___ day of _____________, 1997.
_____________________________________
William L. Wall
Secretary
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EXHIBIT C
NEWSOUTH BANK
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
NewSouth Bank, a North Carolina savings bank (hereinafter called the
"Bank"), hereby certifies that for the purpose of effecting the Bank's
conversion from a North Carolina savings bank to a North Carolina commercial
bank, the Bank desires to amend and restate its Amended and Restated Certificate
of Incorporation as currently in effect as hereinafter provided. The provisions
set forth in this Amended and Restated Certificate of Incorporation are all of
the provisions of the Amended and Restated Certificate of Incorporation of the
Bank as they will be in effect upon conversion of the Bank to a North Carolina
commercial bank. The Amended and Restated Certificate of Incorporation of the
Bank is hereby amended by striking in its entirety the current Amended and
Restated Certificate of Incorporation and inserting in lieu thereof the
following:
ARTICLE I
The name of the Bank (hereinafter called the "Bank") is:
NewSouth Bank
ARTICLE II
The principal office of the Bank is to be located at 1311 Carolina Avenue,
Washington, Beaufort County, State of North Carolina.
ARTICLE III
The names and addresses of the incorporators of the Bank are as follows:
Name Address
---- -------
Edmund T. Buckman, Jr. 1026 Summit Avenue
Washington, NC 27889
Linley H. Gibbs, Jr. 222 Magnolia Drive
Washington, NC 27889
Frederick N. Holscher 46 Harbor Road
Washington, NC 27889
Dr. Frederick H. Howdy Riverside
Washington, NC 27889
Charles E. Parker, Jr. 1601 Lucerne Way
New Bern, NC 28560
Marshall T. Singleton 776 Mimosa Shores Road
Washington, NC 27889
Thomas A. Vann 113 Palmer Place
Washington, NC 27889
<PAGE>
ARTICLE IV
The above-named incorporators have associated together for the purpose
of forming a North Carolina commercial bank to conduct a general banking and
trust business which shall have all of the powers authorized for banks under
Chapter 53 of the General Statutes of North Carolina and the North Carolina
Business Corporation Act.
ARTICLE V
The total number of shares of capital stock that the Bank has
authority to issue is 5,000,000 shares of the par value of $10.00 per share, all
of which shares are of one class and are designated shares of common stock. The
aggregate par value of all shares that the Bank has authority to issue is
$50,000,000. Upon full payment, such shares shall be fully paid and
nonassessable in the hands of the holders thereof.
Each holder of capital stock of the Bank shall have one vote for each share
of capital stock that the stockholder owns of record.
ARTICLE VI
The board of directors of the Bank shall consist of seven (7) members,
which number may be increased or decreased pursuant to the By-laws of the Bank,
but shall never be less than the minimum number required by North Carolina law,
as now or hereinafter in effect. The names and residence addresses of those who
will serve as directors of the Bank until their successors are elected and
qualify are as follows:
Name Address
---- -------
Edmund T. Buckman, Jr. 1026 Summit Avenue
Washington, NC 27889
Linley H. Gibbs, Jr. 222 Magnolia Drive
Washington, NC 27889
Frederick N. Holscher 46 Harbor Road
Washington, NC 27889
Dr. Frederick H. Howdy Riverside
Washington, NC 27889
Charles E. Parker, Jr. 1601 Lucerne Way
New Bern, NC 28560
Marshall T. Singleton 776 Mimosa Shores Road
Washington, NC 27889
Thomas A. Vann 113 Palmer Place
Washington, NC 27889
ARTICLE VII
The board of directors of the Bank may authorize the issuance from
time to time of shares of the Bank's capital stock for such consideration as the
board of directors may deem advisable, subject to any requirements of law.
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ARTICLE VIII
A director of the Bank shall not be personally liable to the Bank or
its stockholders for money damages for breach of any fiduciary duty as a
director; provided, however, that this limitation of liability shall not be
effective with respect to: (i) acts or omissions that the director at the time
of such breach knew or believed were clearly in conflict with the best interests
of the Bank; (ii) any liability under Section 55-8-33 of the of North Carolina
Business Corporation Act; (iii) any transaction from which the director derived
an improper personal benefit; (iv) such acts or omissions under which the
elimination of personal liability of directors for monetary damages would be in
violation of the provisions of Chapter 53 of the General Statutes of North
Carolina (or any amendment thereto); (v) acts or omissions occurring prior to
the date these Articles are filed with the North Carolina Secretary of State, or
(vi) the extent otherwise required by North Carolina law. As used herein, the
term "improper personal benefit" does not include a director's reasonable
compensation or other reasonable incidental benefit for or on account of his
service as a director, officer, employee, independent contractor, attorney or
consultant of the Bank. If North Carolina law is amended to further eliminate
or limit the personal liability of officers and directors, then the liability of
officers and directors of the Bank shall be eliminated or limited to the fullest
extent permitted by North Carolina law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Bank shall not adversely affect any right or protection of a
director of the Bank existing at the time of such repeal or modification.
ARTICLE IX
The Bank shall indemnify, to the fullest extent permissible under
North Carolina Law, as from time to time amended, any individual who is or was a
director, officer, employee or agent of the Bank, and any individual who serves
or served at the Bank's request as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan, in any proceeding in which the
individual is made a party as a result of his service in such capacity.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Bank shall not adversely affect any right or protection of a
director of the Bank existing at the time of such repeal or modification.
ARTICLE X
The duration of the Bank shall be perpetual.
ARTICLE XI
The resident agent of the Bank is Thomas A. Vann. The address of the
resident agent in the State of North Carolina is 1311 Carolina Avenue,
Washington, North Carolina 27889.
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IN WITNESS WHEREOF, __________________ has caused this instrument to be
executed in its name and on its behalf by its president and attested to by its
secretary, all by order of its Board of Directors duly given this __ day of
___________, 1997.
ATTEST: NEWSOUTH BANK
__________________________ By:_________________________________
William L. Wall Thomas A. Vann
Secretary President
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EXHIBIT D
NEWSOUTH BANK
AMENDED AND RESTATED BYLAWS
ARTICLE I
OFFICES
SECTION 1. HOME OFFICE. The principal office of the Bank shall be at 1311
Carolina Avenue, Washington, North Carolina.
SECTION 2. REGISTERED OFFICE. The registered office of the Bank required
by law to be maintained in North Carolina may be, but need not be, identical
with the principal office.
ARTICLE II
STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
stockholders shall be held at the principal office of the Bank or at such other
place in the State in which the principal office is located as the board of
directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the stockholders of the Bank for
the election of directors and for the transaction of any other business of the
Bank shall be held annually, on the third Thursday in January if not a legal
holiday, and if a legal holiday, then on the next succeeding business day which
is not a legal holiday, or at such other date as the board of directors may
determine.
SECTION 3. SUBSTITUTE ANNUAL MEETING. If the annual meeting shall not be
held on the date designated by these bylaws, a substitute annual meeting may be
called in accordance with the provisions of Section 4 of this Article II. A
meeting so called shall be designated and treated for all purposes as the annual
meeting.
SECTION 4. SPECIAL MEETINGS. Special meetings of the stockholders for any
purpose or purposes, unless otherwise proscribed by North Carolina statutes or
the regulations of the North Carolina Commissioner of Banks, may be called at
any time by the chairman of the board, the president, or a majority of the board
of directors, and shall be called by the chairman of the board, the president,
or the secretary upon the written request of the holders of not less than ten
percent (10%) of all the votes entitled to be cast on any issue proposed to be
considered at the meeting. Such written request shall be signed and dated,
shall state the purpose or purposes of the meeting and shall be delivered to the
secretary of the Bank.
SECTION 5. 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 6. NOTICE OF MEETINGS. Written notice signed by the Bank's
secretary stating the place, day, and hour of the meeting and the purpose or
purposes for which the meeting is called shall be delivered not less than ten
nor more than fifty 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 stockholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the U.S. mail, addressed to the stockholder at his
address as it appears on the stock transfer books or records of the Bank as of
the record date prescribed in Section 8 of this Article II with postage prepaid.
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In the case of an annual or substitute annual meeting, the notice of
meeting need not specifically state the business to be transacted thereat unless
such a statement expressly is required by the provisions of the North Carolina
Business Corporation Act. In the case of a special meeting, the notice of
meeting specifically shall state the purpose or purposes for which the meeting
is called.
If any meeting of stockholders is adjourned to a different date, time or
place, notice need not be given of the new date, time or place if the new date,
time or place is announced at the meeting before adjournment and if a new record
date is not fixed for the adjourned meeting. If a new record date for the
adjourned meeting is or must be fixed pursuant to North Carolina law, notice of
the adjourned meeting is or must be fixed pursuant to North Carolina law, notice
of the adjourned meeting must be given as provided in this Section 6 to persons
who are stockholders as of the new record date.
SECTION 7. WAIVER OF NOTICE. Any stockholder may waive notice of any
meeting before or after the meeting. The waiver must be in writing, signed by
the stockholder, and delivered to the Bank for inclusion in the minutes or
filing with the corporate records. A stockholder's attendance, in person or by
proxy, at a meeting (a) waives objection to lack of notice or defective notice
of the meeting, unless the stockholder or the stockholder's proxy at the
beginning of the meeting objects to holding the meeting or transacting business
thereat, and (b) waives objection to consideration of a particular matter at the
meeting that is not within the purpose or purposes described in the meeting
notice, unless the stockholder or his proxy objects to considering the matter
before it is voted upon.
SECTION 8. FIXING OF RECORD DATE. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment, or stockholders entitled to receive payment of any dividend, or
in order to make a determination of stockholders for any other purpose, the
board of directors shall fix in advance a date as the record date for any such
determination of stockholders. Such date in any case shall be not more than
sixty days and, in case of a meeting of stockholders, not less than ten days
prior to the date on which the particular action requiring such determination of
stockholders, is to be taken. When a determination of stockholders entitled to
vote at any meeting of stockholders has been made as provided in this Section 8,
such determination shall apply to any adjournment thereof, unless the meeting is
adjourned to a date more than 120 days after the date fixed for the original
meeting.
SECTION 9. QUORUM. Shares entitled to vote generally as a single voting
group or as a separate voting group may take action on a matter at the meeting
of stockholders only if a quorum of that voting group is present at the meeting
with respect to that matter, except that, in the absence of a quorum at the
opening of any meeting of stockholders, such meeting may be adjourned from time
to time by a vote of a majority of the votes cast on the motion to adjourn; and
at any adjourned meeting any business may be transacted which might have been
transacted at the original meeting if a quorum exists with respect to the matter
proposed. A majority of the votes entitled to be cast on the matter by the
voting group shall constitute a quorum of that voting group for action on that
matter.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
SECTION 10. PROXIES. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the stockholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy may designate as a
holder any corporation or partnership, or any person acting on behalf of a
corporation or partnership, or any person other than a natural living person,
except for the holder of a specified office or a committee composed of natural
persons. No proxy shall be valid after eleven months from the date of its
execution except for a proxy coupled with an interest.
SECTION 11. 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 Bank to the contrary, at any meeting of the
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stockholders of the Bank, any one or more of such stockholders 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 stock and present in person or by proxy at such meeting, and then
each person in whose names shares of stock stand shall be entitled to vote the
shares in question proportionally.
SECTION 12. VOTING OF SHARES BY 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 upon
satisfactory proof to the Bank of his appointment. 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 thereof 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 stockholder 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 Bank, 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 Bank, 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 13. VOTING. Each stockholder shall be entitled to cast one vote
for each share of stock held as of the record date. A majority of the shares
voted at a meeting of stockholders shall be sufficient to take or authorize
action upon any matter which may properly come before the meeting, unless
otherwise provided by applicable law or regulation, the Bank's amended and
restated certificate of incorporation or these bylaws, except that directors
shall be elected by a plurality of the votes cast by the shares entitled to vote
in the election at a meeting at which a quorum is present.
SECTION 14. INFORMAL ACTION BY STOCKHOLDERS. Any action required to be
taken at a meeting of the stockholders, or any other action which may be taken
at a meeting of the stockholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
stockholders entitled to vote with respect to the subject matter thereof and
filed with the secretary of the Bank as part of the Bank's records.
SECTION 15. INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, 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
thereof. The number of inspectors shall be either one or three. If the board
of directors so appoints either one or three such inspectors that 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, and on the request of
any stockholder or proxy holder shall, make such appointment at the meeting. In
case any persons 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 of stock and the
voting power of each share, the shares of stock 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 right 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 stockholders.
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SECTION 16. NOMINATING COMMITTEE. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Provided that such committee makes such nominations, no nominations
for directors except those made by the nominating committee shall be voted upon
at the annual meet ing unless other nominations by stockholders are made in
writing and delivered to the secretary of the Bank at least five days prior to
the date of the annual meeting.
SECTION 17. NEW BUSINESS. Any new business proposed to be taken up at the
annual meeting by any stockholder shall be stated in writing and filed with the
secretary of the Bank at least five days before the date of the annual meeting,
and all 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 stockholder 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 stockholders
taking place thirty 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.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Bank 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, either the chairman of the board or the president to
preside at its meetings.
SECTION 2. NUMBER AND TERM. The board of directors shall consist of seven
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. The number of directors may be increased or
decreased from time to time by the board of directors, except that no decrease
shall result in any director being forced to resign or otherwise be removed, and
if the stockholders are denied the right to cumulate their votes in the election
of directors, the board of directors may not increase or decrease the number of
directors by more than thirty percent (30%) during any twelve-month period.
SECTION 3. QUALIFICATION AND ELECTION OF DIRECTORS. No person shall be
eligible for election, reelection, appointment, or reappointment to the board of
directors if such person is more than 80 years of age. No director shall serve
beyond the annual meeting of the Bank immediately following his attainment of 80
years of age. Persons may serve as Advisor Directors without regard to age.
Each person elected or appointed a director of the Bank shall take the oath
of such office prescribed by the laws of the State of North Carolina and shall
own in good faith and in his or her name the amount of stock of the Bank or its
holding company as prescribed by the laws of the State of North Carolina. No
person elected or appointed a director of the Bank shall exercise the functions
of such office until such person has taken the prescribed oath and owns the
prescribed shares of stock.
Three-fourths of the directors of the Bank shall be residents of the State
of North Carolina.
SECTION 4. REGULAR MEETINGS. A regular meeting of the board of directors
shall be held immediately after, and at the same place as, the annual meeting of
stockholders. The board of directors may provide, by resolution, the time and
place for the holding of additional regular meetings without other notice than
such resolution.
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 at least two of the directors. The persons authorized to call special
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meetings of the board of directors may fix any place, within the Bank's regular
lending area, 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 meetings by means of
conference telephone or similar communications equipment by which all persons
participating in the meeting can simultaneously hear each other.
SECTION 6. NOTICE OF MEETINGS. Regular meetings of the board of directors
may be held without notice. The person or persons calling a special meeting of
the board of directors shall, at least five days before the meeting, give notice
thereof by any usual means of communication. Such notice need not specify the
purpose for which the meeting is called.
SECTION 7. WAIVER OF NOTICE. Any director may waive notice of any
meeting. The waiver must be in writing, signed by the director entitled to the
notice and filed with the minutes or corporate records of the Bank. Attendance
by a director at a meeting shall constitute a waiver of notice of such meeting,
unless the director at the beginning of the meeting (or promptly upon his
arrival) objects to holding the meeting or transacting business at the meeting
and does not thereafter vote for or assent to action taken at the meeting.
SECTION 8. 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 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 9. MANNER OF ACTING. 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 applicable regulation or
by these bylaws.
SECTION 10. 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 11. RESIGNATION. Any director may resign at any time by sending a
written communication of such resignation to the principal office of the Bank
addressed to the board of directors, its chairman or the Bank. A resignation is
effective when it is communicated unless it specifies in writing a later
effective date or subsequent event upon which it will become effective.
SECTION 12. 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 for the unexpired term of his predecessor in
office. 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 stockholders.
SECTION 13. PRESUMPTION OF ASSENT. A director of the Bank who is present
at a meeting of the board of directors at which action on any Bank 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 his written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the secretary of the Bank within five days after the date he
receives a copy of the minutes of the meeting. 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 stockholders called
expressly for that purpose, any director may be removed only for cause by a vote
of the holders of a majority of the shares then entitled to vote at an election
of directors. For the purposes of this Section 14, "cause" shall mean (a) an
adjudication by a court of competent jurisdiction that the director to be
removed is liable for negligence or misconduct in the performance of his duty to
the Bank, (b) a felony conviction by a court of competent jurisdiction, or (c)
the director's actions or failure to act are deemed to be in derogation of the
director's duties. Notwithstanding the foregoing, whenever the
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holders of any one or more series of preferred stock of the Bank shall have the
right, voting separately as a class, to elect one or more directors of the Bank,
the preceding provisions of this section shall not apply with respect to the
director or directors elected by such holders of preferred stock.
SECTION 15. COMPENSATION. The Bank may compensate directors for their
services as such and may provide for the payment of any or all expenses incurred
by directors in attending regular and special meetings of the board.
SECTION 16. COMMITTEES OF THE BOARD. The board of directors, by
resolution adopted by a majority of the number of directors fixed by these
bylaws, may designate three or more directors to constitute an executive
committee and other committees, each of which, to the extent authorized by law
and provided in such resolution, shall have and may exercise all of the
authority of the board of directors in the management of the Bank. The
designation of any committee and the delegation thereto of authority shall not
operate to relieve the board of directors, or any member thereof, or any
responsibility or liability imposed upon it or him by law.
SECTION 17. POWER TO BORROW. The board of directors is authorized to
borrow money for the Bank, and the board of directors may, by resolution adopted
by a vote of at least two-thirds of the entire board duly recorded in the
minutes, authorize the officers of the Bank to borrow money for the Bank on such
terms and conditions as it may deem proper.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS OF THE BANK. The officers of the Bank shall consist
of a president, secretary, treasurer, and such vice-presidents, assistant
secretaries, assistant treasurers, and other officers as the board of directors
may deem necessary. Any two or more offices may be held by the same person, but
in no event may any officer act in more than one capacity where action of two or
more officers is required.
The board of directors shall assign an officer of the Bank the duties of
managing officer who shall carry out the policies set by the board of directors.
The board of directors shall prescribe the duties of the managing officer. 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. SELECTION AND TERM. The officers of the Bank shall be selected
by the board of directors. Each officer shall hold office until his death,
resignation, retirement, removal, disqualification or his successor is selected
and qualified.
SECTION 3. COMPENSATION OF OFFICERS. The compensation of all officers of
the Bank shall be fixed by the board of directors and no officer shall serve the
Bank in any other capacity and receive compensation therefor, unless such
additional compensation is authorized by the board of directors.
SECTION 4. REMOVAL. Any officer or agent of the Bank may be removed by
the board whenever in its judgment the best interests of the Bank will be served
thereby; but such removal shall be without prejudice to the contract rights, if
any, of the person so removed.
SECTION 5. BOND. Subject to applicable law and regulations, the board of
directors shall require each officer, agent, or employee of the Bank to give
bond to the Bank, with sufficient sureties, conditioned on the faithful
performance of the duties of his respective office or position, and to comply
with such other conditions as may be required by the board of directors.
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ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The board of directors may authorize any officer or
officers, agent or agents, to enter into any contracts or execute and deliver
any instrument on behalf of the Bank, and such authority may be general or
confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the Bank
and no evidences of indebtedness shall be issued in its name unless authorized
by a resolution of the board of directors. Such authority may be general or
confined to specific instances.
SECTION 3. CHECKS AND DRAFTS. All checks, drafts or other orders for
payment of money issued in the name of the Bank shall be signed by such officer
or officers, agent or agents of the Bank and in such manner as shall be
determined by resolution of the board of directors.
SECTION 4. DEPOSITS. All funds of the Bank not otherwise employed
shall be deposited to the credit of the Bank in such depositories as the board
of directors shall direct.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares
of capital stock of the Bank shall be in such form as shall be determined by the
board of directors and in accordance with the laws of North Carolina. Such
certificates shall be signed by the chief executive officer or by any other
officer of the Bank authorized by the board of directors, attested by the
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 Bank itself or one of its employees. Each
certificate for shares of capital stock shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the
certificate is issued, with the number of shares and date of issue, shall be
entered on the stock transfer books of the Bank. All certificates surrendered
to the Bank for transfer shall be cancelled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and cancelled, except that in the case of a lost or destroyed
certificate, a new certificate may be issued therefor upon such terms and
indemnity to the Bank as the board of directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock
of the Bank shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record thereof or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney thereunto authorized by power of attorney duly executed and filed with
the Bank. 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 Bank shall be deemed by the Bank to be the owner
thereof for all purposes.
ARTICLE VII
INDEMNIFICATION
In addition to and apart from the indemnification required or permitted by
law, and except as otherwise provided in these bylaws, the Bank shall provide
indemnification as follows:
SECTION 1. INDEMNITY. Any person who at any time serves or has served as
a director, officer, employee or agent of the Bank and any such person who
serves or has served at the request of the Bank as a director, officer,
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employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or as a trustee or administrator under an employee benefit
plan, shall have a right to be indemnified by the Bank to the full extent
allowed by applicable law against liability and litigation expense arising out
of such status or activities in such capacity. "Liability and litigation
expense" shall include costs and expenses of litigation (including reasonable
attorneys' fees), judgments, fines and amounts paid in settlement which are
actually and reasonably incurred in connection with or as a consequence of any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, including appeals. In no
circumstances, however, shall the Bank indemnify any such person against any
liability or litigation expense incurred on account of activities which were at
the time taken known or believed by such person to be clearly in conflict with
the best interests of the Bank.
SECTION 2. DETERMINATION OF RIGHT TO INDEMNITY. Promptly after the final
disposition or termination of any matter which involves liability or litigation
expense as described in Section 1 of this Article or at such earlier time as it
sees fit, the Bank shall determine whether any person described in Section 1 of
this Article is entitled to indemnification thereunder. Such determination shall
be limited to the following issues: (i) whether the persons to be indemnified
are persons described in Section 1 of this Article, (ii) whether the liability
or litigation expense incurred arose out of the status or activities of such
persons as described in Section 1 of this Article, (iii) whether the liability
was actually incurred and/or litigation expense was actually and reasonably
incurred, and (iv) whether the indemnification requested is permitted by
applicable law. Such determination shall be made by a majority vote of directors
who were not parties to the action, suit or proceeding (or, in connection with
"threatened" actions, suits or proceedings, who were not "threatened parties").
If at least two such disinterested directors are not obtainable, or, even if
obtainable, if at least half of the number of disinterested directors so direct,
such determination shall be made by independent legal counsel in written
opinion.
SECTION 3. ADVANCE EXPENSES. (a) Litigation expense incurred by a
person described in Section 1 of this Article in connection with a matter
described in Section 1 of this Article may be paid by the Bank in advance of the
final disposition or termination of such matter, if the Bank receives an
undertaking, dated in writing and signed by the person to be indemnified, to
repay all such sums unless such person is ultimately determined as provided in
Section 2 of this Article to be entitled to be indemnified by the Bank.
Requests for payments in advance of final disposition or termination shall be
submitted in writing to the Bank unless this requirement is waived by the Bank.
Before the first such payment is made, the Bank shall have received the written
undertaking referred to herein and notice of the request for advance payment
shall have been given to the members of the board of directors.
(b) Notwithstanding the foregoing subsection (a), no advance payment shall
be made as to any payment or portion of a payment for which the determination is
made that the person requesting payment will not be entitled to indemnification.
Such determination may be made only by a majority vote of disinterested
directors or by independent legal counsel as next provided. If there are not at
least two disinterested directors, then notice of all requests for advance
payment shall be delivered for review to independent legal counsel for the Bank.
Such counsel shall have the authority to disapprove any advance payment or
portion of a payment for which it plainly and unavoidably appears that the
person requesting payment will not be entitled to indemnification.
SECTION 4. SETTLEMENTS. The Bank shall not be obligated to indemnify
persons described in Section 1 of this Article for any amounts paid in
settlement unless the Bank consents in writing to the settlement. The Bank
shall not unreasonably withhold its consent to proposed settlements. The Bank's
consent to a proposed settlement shall not constitute an agreement by the Bank
that any person is entitled to indemnification hereunder; the Bank shall waive
the requirement of this Section 4 for its written consent as fairness and equity
may require.
SECTION 5. APPLICATION FOR INDEMNITY OR ADVANCES. (a) A person
described in Section 1 of this Article may apply to the Bank in writing for
indemnification or advance expenses. Such application shall be addressed to the
secretary, or, in the absence of the secretary, to any officer of the Bank. The
Bank shall respond in writing to such applications as follows: to a request for
indemnity under Section 2 of this Article, within ninety days after receipt of
the application; to a request for advance expenses under Section 3 of this
Article, within fifteen days after receipt of the application.
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If any action is necessary or appropriate to authorize the Bank to pay the
indemnification required by these bylaws, the board of directors shall take such
action, including (i) making a good faith evaluation of the indemnification
request, (ii) giving notice to, and obtaining approval by the stockholders of
the Bank, and (iii) taking any other action.
(b) The right to indemnification or advance expenses provided herein
shall be enforceable in any court of competent jurisdiction. A legal action may
be commenced if a claim for indemnity or advance expenses is denied in whole or
in part, or upon the expiration of the time periods provided in the preceding
subsection (a). In any such action, the claimant shall be entitled to prevail
upon establishing that he or she is entitled to indemnification or advance
expenses but the Bank shall have the burden of establishing, as a defense, that
the liability or expense was incurred on account of activities which were at the
time taken known or believed by the claimant to be clearly in conflict with the
best interests of the Bank. In any such action, if the claimant establishes the
right to indemnification, he or she shall also have the right to be indemnified
against the litigation expense (including, without limitation, reasonable
attorneys' fee) of such action.
SECTION 6. INSURANCE. As provided by N.C. Gen. Stat. (S)55-8-57, the
Bank shall have the power to purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Bank, or who,
while a director, officer, employee or agent of the Bank, is or was serving at
the request of the Bank as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or as a
trustee or administrator under an employee benefit plan, against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the Bank has the power to indemnify him
against such liability.
SECTION 7. INCIDENTS OF RIGHT OF INDEMNIFICATION. The right to
indemnification provided herein shall not be deemed exclusive of any other
rights to which any persons seeking indemnity may be entitled apart from the
provisions of this bylaw, except there shall be no right to indemnification as
to any liability or litigation expense for which such person is entitled to
receive payment under any insurance policy other than a directors' and officers'
liability insurance policy maintained by the Bank. Such right shall inures to
the benefit of the heirs and legal representatives of any persons entitled to
such right. Any person who at any time after the adoption of this bylaw serves
or has served in any status or capacity described in Section 1 of this Article,
shall be deemed to be doing or to have done so in reliance upon, and as
consideration for, the right of indemnification provided herein. Any repeal or
modification hereof shall not affect any rights or obligations then existing.
The right provided herein shall not apply as to persons serving institutions
which are hereafter merged into or combined with the Bank, except after the
effective date of such merger or combination and only as to status and
activities after such date.
SECTION 8. SAVINGS CLAUSE. If this Article VII or any portion hereof
shall be invalidated on any ground by any court or agency of competent
jurisdiction, then the Bank shall nevertheless indemnify each person described
in Section 1 of this Article to the full extent permitted by the portion of this
Article VII that is not invalidated and also to the full extent (not exceeding
the benefits described herein) permitted or required by other applicable law.
ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
This fiscal year of the Bank shall be fixed by the board of directors.
9
<PAGE>
ARTICLE IX
DIVIDENDS
Subject to the terms of the Bank's amended and restated certificate of
incorporation and applicable law and regulations, the board of directors may,
from time to time, declare, and the Bank may pay, dividends on its outstanding
shares of capital stock.
ARTICLE X
CORPORATE SEAL
The corporate seal of the Bank shall be in such form as the board of
directors shall prescribe by resolution.
ARTICLE XI
AMENDMENTS
These bylaws may be amended at any time by a majority vote of the full
board of directors, or by a majority vote of the votes cast by the stockholders
of the Bank at any legal meeting, unless otherwise provided by law or
regulation.
Adopted this ___ day of _____________, 1997.
_______________________________________
William L. Wall
Secretary
10
<PAGE>
REVOCABLE PROXY
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
HOME SAVINGS BANK, SSB
FOR A SPECIAL MEETING OF MEMBERS
TO BE HELD ON ________, 1997)
The undersigned member of Home Savings Bank, SSB (the "Bank") hereby
appoints _______________, ________________ and _____________, or any one of
them, with full powers of substitution, as attorneys-in-fact and agents for and
in the name of the undersigned, to vote such votes as the undersigned may be
entitled to cast at the Special Meeting of Members (the "Meeting") of Home
Savings Bank, SSB to be held at the office of the Bank located at 1311 Carolina
Avenue, Washington, North Carolina, on __________, __________, 1997, at
_____.m., Eastern Time, and at any adjournments thereof. They are authorized
to cast all votes to which the undersigned is entitled, as follows;
FOR AGAINST
--- -------
Adoption of the Plan of Conversion, dated
September 19, 1996, providing for the conversion
of the Bank from a North Carolina-chartered
mutual savings bank to a North Carolina-chartered
stock savings bank (the "Converted Bank") as a
wholly owned subsidiary of NewSouth Bankcorp,
Inc., the subsequent conversion of the Converted
Bank to a North Carolina commercial bank under
the name "NewSouth Bank", and the related
transactions provided for in such plan, including
the adoption of an Amended and Restated Certificate
of Incorporation and Bylaws for the Converted Bank
and the adoption of an Amended and Restated
Certificate of Incorporation and Bylaws for
NewSouth Bank.
[_] [_]
In their discretion, on any other matters that may
lawfully come before the meeting.
NOTE: The Board of Directors is not aware of any other matter that may come
before the Meeting.
<PAGE>
THIS PROXY WILL BE VOTED FOR THE PLAN IF
NO CHOICE IS MADE HEREON
Should the undersigned be present and elect to vote at said Meeting or
at any adjournment thereof and, after notification to the Secretary of Home
Savings Bank, SSB at said Meeting of the member's decision to terminate this
Proxy, then the power of said attorneys-in-fact or agents shall be deemed
terminated and of no further force and effect. The undersigned hereby revokes
any and all proxies heretofore given.
The undersigned acknowledges receipt of a Notice of Special Meeting of
the Members of Home Savings Bank, SSB to be held on ____________, 1997 and a
Proxy Statement dated _____________, 1997 and a Prospectus dated ______________,
1997 prior to the execution of this Proxy.
---------------------------
Date
---------------------------
Signature
Note: Only one signature is required in the
case of a joint account.
<PAGE>
NewSouth Bancorp, Inc.
(Proposed Holding Company for
Home Savings Bank, Inc. , SSB,
to become NewSouth Bank)
Washington, North Carolina
Proposed Marketing Materials
<PAGE>
Marketing Materials for
Home Savings Bank, Inc. , SSB
Table of Contents
-----------------
I. Press Release
A. Explanation
B. Schedule
C. Distribution List
D. Examples
II. Question and Answer Brochure
A. Explanation
B. Method of Distribution
C. Example
III. Officer and Director Brochure
A. Explanation
B. Method of Distribution
C. Example
IV. Counter Cards, Lobby Posters and a Tombstone Announcement
A. Explanation
B. Quantity
C. Examples
V. Community Meeting Invitation
A. Explanation
VI. Proxygram
A. Explanation
B. Example
<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 Securities, Inc. advises Home Savings Bank to forward press
releases to national and regional publications, newspapers, radio stations,
etc., at various points during the conversion process.
Only press releases approved by Conversion Counsel will be forwarded for
publication in any manner.
B. Press Releases
1. Approval of Conversion by the Office of Thrift Supervision and the
Securities and Exchange Commission
2. Close of Stock Offering
C. Distribution Lists (see attached)
D. Examples (see attached)
<PAGE>
C. National Media Distribution List
------------------------------------
American Banker
- ---------------
One State Street Plaza
New York, New York 10004
Michael Weinstein
Business Wire
- -------------
212 South Tryon
Suite 1460
Charlotte, North Carolina 28281
Wall Street Journal
- -------------------
World Financial Center
200 Liberty
New York, New York 10004
SNL Securities
- --------------
Post Office Box 2124
Charlottesville, Virginia 22902
Barrons
- -------
Dow Jones & Company
Barron's Statistical Information
200 Burnett Road
Chicopee, Massachusetts 01020
Investors Business Daily
- --------------------------
12655 Beatrice Street
Post Office Box 661750
Los Angeles, California 90066
<PAGE>
Press Release
FOR IMMEDIATE RELEASE
---------------------
For More Information Contact:
Thomas A. Vann, President
Telephone: (919) 946-4178
HOME SAVINGS BANK, INC. , SSB
-----------------------------
STOCK SALE APPROVED
-------------------
Washington, North Carolina - Mr. Thomas A. Vann, President of Home
Savings Bank, Inc. , SSB ("Home Savings Bank"), Washington, North Carolina,
announced today that Home Savings Bank has received approval from the FDIC and
the North Carolina State Administrator to convert from a North Carolina mutual
savings bank to a North Carolina stock savings bank and to become a wholly-owned
subsidiary of a newly-formed holding company, NewSouth Bancorp, Inc. (the
"Company"). Following completion of the stock conversion, Home Savings Bank
intends to convert from a North Carolina stock savings bank to a North Carolina
commercial bank to be known as "NewSouth Bank."
A Prospectus and Proxy Statement describing the Plan of Conversion will
be mailed to certain members of Home Savings Bank on or about ___________, 1997.
Under the Plan of Conversion, the company is offering an estimated 2,415,000
shares of common stock at $15.00 per share. Certain of Home Savings Bank's past
and present depositors and borrowers will have the opportunity to purchase stock
through a subscription offering that closes on ________, 1997. Shares that are
not subscribed for during the subscription offering, if any, will be offered to
the general public, with preference given to natural persons and trusts of
natural persons who are permanent residents of Beaufort, Craven Lenoir, Nash,
Pasquotank and Pitt Counties, North Carolina, in a community offering. The
offerings are being managed by Trident Securities, Inc., of Raleigh, North
Carolina.
<PAGE>
Thomas A. Vann stated "Home Savings Bank remains committed to its local
market as a hometown community financial institution with even stronger
financial resources."
Home Savings Bank, Inc. , SSB is based in Washington, North Carolina.
The Bank was founded in 1902. At September 30, 1996, Home Savings Bank had total
assets of $194.1 million and retained income of $18.3 million. Customers or
interested members of the community with questions concerning the stock offering
should call the institution at (919) _________ or visit Home Savings Bank.
<PAGE>
Press Release FOR IMMEDIATE RELEASE
---------------------
Contact: Thomas A. Vann, President
Telephone: (919) 946-4178
NEWSOUTH BANCORP, INC., HOLDING COMPANY FOR
-------------------------------------------
HOME SAVINGS BANK, INC. , SSB,
------------------------------
COMPLETES INITIAL STOCK OFFERING
--------------------------------
Washington, North Carolina - Mr. Thomas A. Vann, President of Home
Savings Bank, Inc. , SSB ("Home Savings Bank"), based in Washington, North
Carolina, announced today that NewSouth Bancorp, Inc., the holding company for
Home Savings Bank, Inc. , SSB, has completed its initial common stock offering.
It is anticipated that the common stock of NewSouth Bancorp, Inc. will begin
trading on the NASDAQ National Market System on or about ___________, 1997.
Trident Securities will be market maker. In addition, following the stock
conversion, the institution will convert to a North Carolina commercial bank to
be known as "NewSouth Bank (the "Bank")." NewSouth Bancorp, Inc., will issue
__________ shares of its common stock.
The net proceeds contributed to Home Savings Bank upon conversion will
substantially increase its capital. Home Savings Bank ultimately intends to use
such funds for general corporate purposes, among them the origination of loans
and other investments. It is expected that in the interim all or part of the
proceeds will be invested in short-term and intermediate-term securities.
On __________, 1997, Home Savings Bank's Plan of Conversion was approved
by Home Savings Bank's depositor and borrower members at a Special Meeting that
was held at the main office of the institution.
Mr. Vann indicated that the Officers and Board of Directors of Home
Savings Bank want to express their thanks for the response by customers and the
community to the stock offering and that the Bank looks forward to serving the
needs of its customers as a stock institution.
Trident Securities, Inc. of Raleigh, North Carolina managed the
subscription and community offerings for NewSouth Bancorp, Inc.
<PAGE>
II. 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 Proxy Statement, it assists the individual
in finding answers to simple questions.
Conversion Counsel approves the language for each Question and Answer.
Trident Securities, Inc. and Home Savings Bank will be responsible for any
introductory or concluding remarks, design, layout, color, and paper stock.
This will be coordinated through Trident Securities, Inc. in conjunction
with the financial printer.
B. Method of Distribution
There are three primary methods of distribution of the Question and Answer
brochure. However, regardless of the method, the brochure is always
accompanied by a Prospectus.
1. A Question and Answer brochure is sent out in the initial mailing to
all members of Home Savings Bank.
2. Question and Answer brochures are available in Home Savings Bank's
office.
3. Question and Answer brochures are sent out in a standard information
packet to all interested investors who phone the Stock Information
Center requesting information.
C. Example
<PAGE>
Home Savings Bank, Inc. , SSB ("Home Savings Bank")
Washington, North Carolina
Questions and Answers Regarding the Subscription and Community Offering
MUTUAL TO STOCK CONVERSION
--------------------------
Home Savings Bank's Board of Directors has unanimously voted to convert the
savings bank from its present mutual form to a stock institution, subject to
approval of the conversion by Home Savings Bank's members and regulatory
authorities, and, thereafter, to convert to a North Carolina savings bank and
then to a North Carolina commercial bank. Complete details on the conversion,
including reasons for conversion, are contained in the Prospectus and Proxy
Statement. We urge you to read them carefully.
This brochure is provided to answer basic questions you might have about the
conversion. Remember, the conversion will not affect the rate on any of your
savings accounts, deposit certificates, or loans.
1. Q. What is a "Conversion"?
A. Conversion is a change in the legal form of organization. Following
completion of the conversion from a North Carolina mutual savings bank
to a North Carolina stock savings bank, Home Savings Bank intends to
convert to a North Carolina commercial bank to be known as "NewSouth
Bank" (the "Bank"). Home Savings Bank currently operates as a North
Carolina mutual savings bank with no shareholders. Through the
conversion, Home Savings Bank will form a holding company, NewSouth
Bancorp, Inc., which will ultimately own all of the outstanding stock
of the Bank. NewSouth Bancorp, Inc. will issue stock in the
conversion, as described below, and will be a publicly-owned company.
2. Q. Why is Home Savings Bank converting?
A. The stock form of ownership is used by most business corporations and
financial institutions. Home Savings Bank has reached an important
point in its development with its decision to convert to the stock
form of ownership. Home Savings Bank's management believes the
continued diversification of the institution's asset and deposit base
and the establishment of new banking services should enhance long-term
operating potential. The capital raised by issuing stock will:
* Enhance the Bank's capital position.
* Facilitate future access to the capital markets.
* Provide additional funds for increased lending and investment
opportunities.
<PAGE>
* Enable the Bank's commercial banking services.
3. Q. Will the conversion have any effect on savings accounts,
certificates of deposit or loans with Home Savings Bank?
A. No. The conversion will not change the amount, interest rate or
withdrawal rights of savings and checking accounts or certificates of
deposit. The rights and obligations of borrowers under their loan
agreements will not be affected. However, upon consummation of the
conversion, Home Savings Bank's deposit account holders and borrowers
will no longer have voting rights unless they purchase common stock in
NewSouth Bancorp, Inc.
4. Q. Will the conversion cause any changes in personnel or management?
A. No. The conversion will not cause any changes in personnel or
management. The normal day-to-day operations will continue as before.
5. Q. Did the Board of Directors of Home Savings Bank approve the
conversion?
A. Yes. The Board of Directors unanimously adopted the Plan of Conversion
in October, 1996.
THE SUBSCRIPTION AND COMMUNITY OFFERING
---------------------------------------
6. Q. Who is entitled to buy NewSouth Bancorp, Inc. common stock?
A. Subscription rights to buy common stock will be given in order of
priority to (i) depositors of the Bank as of June 30, 1992 with a
$50.00 minimum deposit at that date (the "Eligible Account Holders");
(ii) the Company's employee stock ownership plan (the "ESOP"), a tax
qualified employee stock benefit plan; (iii) depositors of the Bank
with $50.00 or more on deposit as of ___________, 1996 (the
"Supplemental Eligible Account Holders"); and (iv) certain depositors
and borrowers as of ________, 1997 ("Other Members"), subject to the
purchase limitations set forth in the Plan of Conversion.
Shares that are not subscribed for during the subscription offering,
if any, may be offered to the general public through a community
offering with preference given to natural persons and trusts of
natural persons who are permanent residents of Beaufort, Craven
Lenoir, Nash, Pasquotank and Pitt Counties, North Carolina (the "Local
Community"). It is anticipated that any shares not subscribed for in
the Subscription and Community Offerings will be offered to certain
members of the general public through a syndicate of registered broker
dealers pursuant to selected dealers agreements in a Syndicated
Community Offering.
<PAGE>
7. Q. How do I subscribe for shares of stock?
A. Eligible customers wishing to exercise their subscription rights must
return the enclosed Stock Order Form to Home Savings Bank. The Stock
Order Form must be completed and returned along with full payment or
appropriate instructions authorizing a withdrawal from a deposit
account at Home Savings Bank on or prior to the close of the
Subscription Offering which is 12:00 noon, Eastern time, on _________,
1997, unless extended.
8. Q. How can I pay for my subscription?
A. First, you may pay for your stock in cash (if delivered in person to
Home Savings Bank) or by check or money order. These funds will earn
interest at Home Savings Bank's passbook rate from the day we receive
them until the completion or termination of the conversion. The
passbook rate was __% as of _________, 1997.
Second, you may authorize us to withdraw funds from your Home Savings
Bank savings account or certificate of deposit without early
withdrawal penalty. These funds will continue to earn interest at the
rate in effect for your account until completion of the offering at
which time your funds will be withdrawn for your purchase. Funds
remaining in this account (if any) will continue at the contractual
rate unless the withdrawal reduces the account balance below the
applicable minimum in which case you will receive interest at the
passbook rate. A hold will be placed on your account for the amount
you specify for stock payment. You will not have access to these funds
from the day we receive your order until the completion or termination
of the conversion.
If you want to use Individual Retirement Account deposits held at Home
Savings Bank to purchase stock, call our Stock Information Center at
(919) _________ for assistance. There will be no early withdrawal or
IRS penalties incurred by these transactions, but additional paperwork
is necessary.
9. Q. When must I place my order for shares of stock?
A. To exercise subscription rights in the subscription offering, a Stock
Order Form must be received by Home Savings Bank with full payment for
all shares subscribed for not later than 12:00 noon, Eastern time, on
_________, 1997.
Non-customers desiring to order shares through the community offering
must order shares before the close of the community offering, which
will be no sooner than 12:00 noon, Eastern time on _________, 1997,
unless extended.
10. Q. How many shares of stock are being offered?
A. NewSouth Bancorp, Inc. is offering 2,415,000 shares of common stock at
a price of
<PAGE>
$15.00 per share. The number of shares may be decreased to
1,785,000 or increased to 2,777,250 in response to the independent
appraiser's final determination of the consolidated pro forma market
---------
value of the common stock issued in the conversion.
11. Q. What is the minimum and maximum number of shares that I can
purchase during the offering period?
A. The minimum number of shares that may be purchased is 25 shares. No
Stock Order Form will be accepted for less than $375.00. The maximum
number of shares may not exceed 20,000 shares for any individual or
individuals through a single account. Associates or groups acting in
concert as defined in Home Savings Bank's Plan of Conversion may not
exceed 40,000 shares.
12. Q. How was it determined that between 1,785,000 shares and 2,777,250
shares of stock would be issued at $15.00 per share?
A. The share range was determined through an appraisal of Home Savings
Bank by Ferguson & Co., LLP, an independent appraisal firm
specializing in the thrift industry.
13. Q. Must I pay a commission on the stock for which I subscribe?
A. No. You will not pay a commission on stock purchased in the
Subscription Offering or the Community Offering or Syndicated
Community Offering, if any. Conversion expenses, including
commissions, will be deducted from the proceeds of the offering upon
completion of the conversion.
14. Q. Will I receive interest on funds I submit for stock purchases?
A. Yes. Home Savings Bank will pay its current passbook rate from the
date funds are received (with a completed Stock Order Form) during the
subscription and community offerings until completion of the
conversion. That rate, as of ________, 1997 was __%.
15. Q. If I have misplaced my Stock Order Form, what should I do?
A. Home Savings Bank will mail you another order form or you may obtain
one from the Home Savings Bank main office. If you need assistance in
obtaining or completing a Stock Order Form, a Home Savings Bank
employee or Trident Securities, Inc. Representative will be happy to
help you.
16. Q. Will there be any dividends paid on the stock?
A. Subject to regulatory and other considerations, the Company intends to
establish a quarterly cash dividend following the Conversion of $0.10
per share (or $0.40 per
<PAGE>
share annually) commencing during the first full calendar quarter
following the Stock Conversion. No assurance can be given that
dividends will be paid on the Common Stock or that, if paid, such
dividends will not be reduced or eliminated in future periods.
17. Q. How much stock do the directors and officers of Home Savings Bank
intend to purchase through the Subscription Offering?
A. Directors and executive officers and the honorary director intend to
purchase approximately $_________ (___% at the midpoint of the
offering) of the stock to be offered in the conversion. The purchase
price paid by directors and officers will be the same as that paid by
customers and the general public.
18. Q. Are the subscription rights transferable to another party?
A. No. Pursuant to federal regulations, subscription rights granted to
Eligible Account Holders, Supplemental Eligible Account Holders and
Other Members may be exercised only by the person(s) to whom they are
granted. Any person found to be transferring or selling subscription
rights will be subject to forfeiture of such rights.
19. Q. I closed my account several months ago. Someone told me that I am
still eligible to buy stock. Is that true?
A. If you were an account holder on the Eligibility Record Date, June 30,
1992, or the Supplemental Eligibility Record Date, ___________, you
are entitled to purchase stock without regard to whether you continued
to hold your Home Savings Bank account.
20. Q. May I obtain a loan from Home Savings Bank using stock as collateral
to pay for my shares?
A. No. Federal regulations do not allow Home Savings Bank to make loans
for this purpose, but other financial institutions could make a loan
for this purpose.
21. Q. Will the FDIC (Federal Deposit Insurance Corporation) insure the
shares of stock?
A. No. The shares are not and may not be insured by the FDIC. However,
the Savings Association Insurance Fund of the FDIC will continue to
insure savings accounts and certificates of deposit up to the
applicable limits allowed by law.
22. Q. Will there be a market for the stock following the conversion?
A. Neither the Company nor the Bank has ever issued stock before, and
consequently there is no established market for its Common Stock. The
Company has received approval to have the common stock listed on the
NASDAQ National Market System under the symbol "____". Trident
Securities intends to make a market in the
<PAGE>
Common Stock of the Company. However, purchasers of Common Stock
should have a long-term investment intent and recognize that no
assurance can be given than an active and liquid trading market will
develop.
23. Q. Can I purchase stock using funds in a Home Savings Bank IRA account?
A. Yes. Contact the Stock Information Center for the additional
information. It takes several days to process the necessary IRA forms
and, therefore, it is necessary that you make arrangements by
________, 1997, to accommodate your order.
ABOUT VOTING "FOR" THE PLAN OF CONVERSION
24. 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 _______, 1997, you are
eligible to vote if you are one of the "Voting Members," who are
holders of Home Savings Bank's deposits or other authorized accounts
or loans as of _______, 1997 (the "Voting Record Date") for the
Special Meeting. However, Bank members of record as of the close of
business on the Voting Record Date who cease to be depositors or
borrowers prior to the date of the Special Meeting are no longer
members and will not be entitled to vote at the Special Meeting. If
you are a Voting Member, you should have received a proxy statement
and proxy card with which to vote.
25. 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
member may cast more than 1,000 votes.
26. 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 stock in either the subscription offering or the
community offering.
27. Q. What happens if Home Savings Bank does not get enough votes to approve
the Plan of Conversion?
A. Home Savings Bank's Conversion would not take place and Home Savings
Bank would remain a mutual savings bank.
28. Q. As a qualifying depositor or borrower of Home Savings Bank, am I
required to vote?
<PAGE>
A. No. However, failure to return your proxy card will have the same
effect as a vote "Against" the Plan of Conversion.
29. 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 in
person, 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.
30. Q. How does the conversion affect me?
A. The conversion is intended, among other things, to assist Home Savings
Bank in maintaining and expanding its many services to Home Savings
Bank's customers and community. By purchasing stock, you will also
have the opportunity to invest in NewSouth Bancorp, Inc., the holding
company that will own the North Carolina-chartered commercial bank
into which Home Savings Bank will convert. However, there is no
obligation to purchase stock; the purchase of stock is strictly
optional.
31. Q. How can I get further information concerning the stock offering?
A. You may call the Stock Information Center, collect at (919) _________
for further information or a copy of the Prospectus, Stock Order Form,
Proxy Statement and Proxy Card.
This information is neither an offer to sell nor a solicitation of an offer to
buy securities. The offer is made only by the Prospectus. A Prospectus can be
obtained at the Home Savings Bank office or by calling the Home Savings Bank
Stock Information Center. 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.
FOR YOUR CONVENIENCE
In order to assist you during the stock offering period, we have
established a Stock Information Center to answer your questions. Please call
collect:
(919) _________
<PAGE>
III. Officer and Director Brochure
A. Explanation
An Officer and Director Brochure merely highlights the intended stock
purchases shown in the Prospectus.
B. Method of Distribution
There are three primary methods of distribution of Officer and Director
Brochures. However, regardless of the method, they are always accompanied
by a Prospectus.
1. An Officer and Director Brochure is sent out in the initial mailing to
all members of the Bank.
2. Officer and Director Brochures will be available in any of the Bank's
offices.
3. Officer and Director Brochures are sent out in a standard information
packet to all interested investors who telephone the Stock Information
Center requesting information.
<PAGE>
OFFICER AND DIRECTOR STOCK PURCHASE COMMITMENTS
Name Amount Shares Percent at Midpoint
- ---- ------ ------ -------------------
(to be completed)
This information is neither an offer to sell nor a solicitation of an offer to
buy securities. The offer is made only by the Prospectus.
The stock is not a deposit or account and is not federally insured or
guaranteed.
<PAGE>
V. Counter Cards, Lobby Posters and the Tombstone Announcement
A. Explanation
Counter cards, lobby posters and the tombstone announcement serve three
-----
purposes: (1) As a notice to Home Savings Bank's customers and members of
the local community that the stock sale is underway; (2) to remind the
customers of the end of the Subscription Offering; and (3) to invite
members of the community to an informational meeting, if applicable.
Trident has learned in the past that many people need reminding of the
deadline for subscribing and therefore we suggest the use of these simple
reminders.
B. Quantity
Approximately 3 - 4 counter cards will be used at the Bank's office, at
teller windows and on customer service representatives' desks. These
counter cards will be exact duplicates of the lobby poster and will be no
larger than 8-1/2" x 11".
Approximately 1 - 2 lobby posters will be used at the office of the Bank.
These posters will be approximately 2' x 3'.
Tombstone announcements may be used for placement in local newspapers. The
advertisements will run no more than twice each in the local newspaper.
The ads will be no larger than 8-1/2" x 11".
C. Examples enclosed
<PAGE>
POSTER
Home Savings Bank, Inc. , SSB
STOCK OFFERING MATERIALS
AVAILABLE HERE
Customer and Community Priority Rights for the Stock Offering
by NewSouth Bancorp, Inc.
Expire on _______, 1997
<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 and Proxy
Statement. These shares have not been approved or disapproved by the Securities
and Exchange Commission Office of Thrift Supervision, or Federal Deposit
Insurance Corporation, nor has such Commission, Office or Corporation passed
upon the accuracy or adequacy of the Prospectus and Proxy Statement. Any
representative to the contrary is unlawful.
New Issue , 1997
- --------- ---------
Up to 2,777,250 Shares
These shares are being offered pursuant
to a Plan of Conversion whereby
Home Savings Bank, Inc., SSB
of Washington, North Carolina will convert
from a North Carolina mutual savings bank
to a North Carolina stock savings bank and,
following completion of the offering, convert to a North Carolina
commercial bank, to be known as "NewSouth Bank,"
and become the wholly-owned subsidiary of
NewSouth Bancorp, Inc.
Common Stock
------------
Price $15.00 per share
------------
Copies of the Prospectus may be obtained in any State in which the announcement
is circulated from such of the undersigned or other brokers and dealers
and may legally offer these securities in such state.
Trident Securities, Inc.
For a copy of the Prospectus call (919)__________.
<PAGE>
VI. Community Meeting Materials
A. Explanation
In order to educate the public about the stock offering, Trident suggests
holding Community meetings in various locations. In an effort to target a
group of interested investors, Trident requests that each Director of the
Bank submit a list of acquaintances that he or she would like to invite to
a Community meeting.
B. Method of Distribution of Invitations and Prospect Letters
Each Director submits his list of prospects.
Invitations are sent to each Director's prospects through the mail. All
invitations are preceded by a Prospectus and all attendees are given a
Prospectus at the meeting.
C. Examples enclosed
<PAGE>
The Directors and Officers
of
Home Savings Bank, Inc. , SSB
cordially invite you to attend a brief
presentation regarding the stock offering of
NewSouth Bancorp, Inc., our proposed holding company
Please join us at the
Place
Address
Date
at 7:00 p.m.
for hors d'oeuvres
R.S.V.P.
(___) (Collect)
<PAGE>
VII. Proxygram
A. Explanation
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 enclosed
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
P R O X Y G R A M
[LOGO APPEARS HERE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOUR VOTE ON OUR 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 THE CONVERSION PLAN WILL NOT AFFECT THE INSURANCE OF
YOUR ACCOUNT. IT WILL CONTINUE TO BE INSURED UP TO THE LEGAL LIMIT ($100,000
----------------------
PER ACCOUNT AS DEFINED BY LAW) BY THE SAVINGS ASSOCIATION INSURANCE FUND OF THE
FEDERAL DEPOSIT INSURANCE CORPORATION, AN AGENCY OF THE U.S. GOVERNMENT.
REMEMBER, VOTING FOR CONVERSION DOES NOT OBLIGATE YOU TO BUY
--------
ANY STOCK.
PLEASE ACT PROMPTLY! SIGN THE ENCLOSED PROXY CARD AND MAIL OR
----------
DELIVER IT TO HOME SAVINGS BANK, INC. , SSB.
WE RECOMMEND THAT YOU VOTE "FOR" THE PLAN OF CONVERSION.
-----
THANK YOU!
THE BOARD OF DIRECTORS AND
MANAGEMENT OF HOME SAVINGS BANK
SAVINGS BANK
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[Home Savings Bank, SSB Letterhead]
Dear Member:
The Administrator, Savings Institutions Division, North Carolina Department
of Commerce has approved the Plan of Conversion whereby Home Savings Bank, SSB
("Home Savings") will convert from a North Carolina-chartered mutual savings
bank to a North Carolina-chartered stock savings bank and concurrently become a
wholly owned subsidiary of NewSouth Bancorp, Inc. (the "Company") (collectively,
the "Stock Conversion"). Following the completion of the Stock Conversion, the
Bank intends to convert from a North Carolina stock savings bank to a North
Carolina commercial bank to be known as "NewSouth Bank" (the "Bank Conversion").
The Stock Conversion and Bank Conversion are collectively referred to as the
"Conversion." As part of the Stock Conversion, the Company is offering shares
of its common stock in Subscription and Community Offerings.
Enclosed are a Prospectus and Proxy Statement describing the Conversion and
proxy card(s). As a current member of Home Savings, we ask you to participate
in the Conversion by reviewing the information provided and voting on the
Conversion by completing and mailing the enclosed proxies in the enclosed
postage-paid envelope as soon as possible. The Board of Directors recommends
that you vote in favor of the Plan of Conversion.
Although we encourage you to vote on the Plan of Conversion, unfortunately,
the Company is unable to either offer or sell its common stock to you in the
Conversion because the small number of eligible subscribers in your jurisdiction
makes registration or qualification of the Company's common stock under the
securities laws of your jurisdiction impractical for reasons of cost or
otherwise. Accordingly, this letter and the materials enclosed herewith should
not be considered either an offer to sell or a solicitation of an offer to buy
the common stock of the Company.
If you have any questions about your voting rights or the Conversion in
general, please call the Stock Information Center at (919) ___-____.
Sincerely,
Thomas A. Vann
President
<PAGE>
[Home Savings Bank, SSB Letterhead]
Dear Member:
A Special Meeting of Members of Home Savings Bank, SSB ("Home Savings") is
scheduled in order to vote on the conversion of Home Savings from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered stock
savings bank (the "Stock Conversion"), at which time Home Savings will
concurrently become a wholly owned subsidiary of NewSouth Bancorp, Inc. (the
"Company"). Following the completion of the Stock Conversion, the Bank intends
to convert from a North Carolina stock savings bank to a North Carolina
commercial bank to be known as "NewSouth Bank" (the "Bank Conversion"). The
Stock Conversion and Bank Conversion are collectively referred to as the
"Conversion." The Special Meeting will be held on ________________, 1997 at
___:___ _.m., Eastern Time, at the main office of Home Savings, 1311 Carolina
Avenue, Washington, North Carolina.
The Administrator, Savings Institutions Division, North Carolina Department
of Commerce has approved the Plan of Conversion subject to, among other things,
a favorable vote of our current members. The officers and the entire Board of
Directors URGE YOU TO VOTE IN FAVOR of the Plan of Conversion.
As part of the Conversion, the Company is offering up to 2,415,000 shares
of its common stock (the "Common Stock"), subject to possible adjustment, at a
price of $15.00 per share.
The Board of Directors of Home Savings believes that the Conversion and
affiliation with the Company will result in a financial institution with greater
financial resources and flexibility. The net proceeds from the Stock Conversion
and the holding company structure will permit Home Savings to expand the
financial services currently offered. The Bank's Board of Directors has
undertaken the Bank Conversion to allow the Bank to continue to pursue its
expanding lines of business. The Bank intends to emphasize commercial real
estate, commercial business and consumer loans. In connection with the
Conversion, let us assure you that:
. THERE WILL BE NO CHANGE IN THE BALANCE, INTEREST RATE, OR MATURITY OF
EXISTING SAVINGS DEPOSITS OR LOANS BECAUSE OF THE CONVERSION. DEPOSITORS
AND BORROWERS WILL ENJOY THE SAME SERVICES AT THE SAME LOCATION WITH THE
SAME STAFF.
. MEMBERS HAVE A RIGHT, BUT NO OBLIGATION, TO BUY STOCK BEFORE STOCK IS
OFFERED TO THE PUBLIC.
. YOUR VOTE FOR APPROVAL IN NO WAY OBLIGATES YOU TO BUY STOCK.
. YOUR SAVINGS DEPOSITS AT HOME SAVINGS WILL CONTINUE TO BE INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION.
Enclosed are a Prospectus, Proxy Statement, Stock Order Form, Proxy Card,
and reply envelopes. Members of Home Savings (i.e., depositors and certain
borrowers) as of the voting record date, __________, 1997, may complete the
proxy form and return it to us in the enclosed envelope in order to exercise
their voting rights.
If you wish to purchase Common Stock, we must receive your Stock Order
Form, properly completed, and payment by __:__ _.m., Eastern Time on ________,
1997. The purchase of stock is entirely voluntary and no person is obligated to
purchase stock. Home Savings will pay interest at the passbook savings rate on
all amounts paid for the Common Stock in cash (if delivered in person) or by
check or money order, from the date payment is received until the date the Stock
Conversion is completed. The subscription funds of a subscriber will be
aggregated with other funds of the subscriber in determining federal deposit
insurance coverage.
<PAGE>
Please feel free to call the Stock Information Center at (919) ___-____
with any questions.
We are extremely pleased to offer you this opportunity to participate in
our future as a stockholder.
Sincerely,
Thomas A. Vann
President
THE COMMON STOCK OFFERED IN THE STOCK CONVERSION IS NOT A DEPOSIT OR ACCOUNT AND
IS NOT FEDERALLY INSURED OR GUARANTEED.
THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY COMMON STOCK.
THE OFFER IS MADE ONLY BY THE PROSPECTUS.
<PAGE>
[Home Savings Bank, SSB Letterhead]
Dear Friend:
The Administrator, Savings Institutions Division, North Carolina Department
of Commerce has approved the Plan of Conversion whereby Home Savings Bank, SSB
("Home Savings") will convert from a North Carolina-chartered mutual savings
bank to a North Carolina-chartered stock savings bank. Home Savings will,
concurrently, become a wholly owned subsidiary of NewSouth Bancorp, Inc. (the
"Company") (the "Stock Conversion"). Following the completion of the Stock
Conversion, the Bank intends to convert from a North Carolina-stock savings bank
to a North Carolina commercial bank to be known as "NewSouth Bank"
(collectively, the "Bank Conversion"). The Stock Conversion and Bank Conversion
are collectively referred to as the "Conversion."
As part of the Stock Conversion, the Company is offering up to 2,415,000
shares, subject to possible adjustment, of its common stock (the "Common
Stock"), at a price of $15.00 per share. As a former depositor, subscription
rights to purchase shares of Common Stock are being offered to you as well as to
certain members as of ___________, 1997, concurrently with the proxy
solicitation of current members of Home Savings for their vote on the Plan of
Conversion. Orders submitted by you and others in the Subscription Offering are
contingent upon approval of the Plan of Conversion at a Special Meeting of
Members to be held on ________, 1997.
Enclosed are a Prospectus and Stock Order Form should you decide to
purchase Common Stock. You may, but are not obligated to, purchase stock in the
Company. Please complete the Stock Order Form if you wish to purchase any
shares. Additionally, please designate on the Stock Order Form, in the
appropriate place, the method of payment for the shares. We must receive your
Stock Order Form, properly completed, and payment by __:__ _.m. Eastern Time on
________, 1997. Home Savings will pay interest at its passbook savings rate on
all amounts paid for the Common Stock in cash (which must be delivered in
person) or by check or money order, from the date payment is received until the
date the Stock Conversion is completed.
We are extremely pleased to offer you this opportunity to participate in
our future as a customer of Home Savings and as a charter stockholder of the
Company.
If you have any questions, please call the Stock Information Center at
(919) ___-____.
Sincerely,
Thomas A. Vann
President
THE COMMON STOCK OFFERED IN THE STOCK CONVERSION IS NOT A DEPOSIT OR
ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED.
THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY COMMON
STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
<PAGE>
[TRIDENT SECURITIES LETTERHEAD]
To Members and Friends of Home Savings Bank, SSB:
Trident Securities, Inc., a member of the National Association of
Securities Dealers ("NASD"), is assisting Home Savings Bank, SSB ("Home
Savings") in its conversion from a North Carolina-chartered mutual savings bank
to a North Carolina-chartered stock savings bank, the simultaneous offering of
shares of common stock by its holding company, NewSouth Bancorp, Inc. ("the
Company"), and the subsequent conversion of Home Savings to a North Carolina
commercial bank to be known as "NewSouth Bank" (collectively, the "Conversion").
At the request of the Company, we are enclosing materials explaining this
Conversion, including an opportunity to invest in shares of the Company's common
stock being offered to customers and the community until __________, 1997
(unless extended). Please read the enclosed offering materials carefully. The
Company has asked us to forward these documents to you in view of certain
requirements of the securities laws in your state.
If you have any questions, feel free to call the Stock Information Center
at (919) ___-____.
Very truly yours,
TRIDENT SECURITIES, INC.
THE COMMON STOCK OFFERED IN THE STOCK CONVERSION IS NOT A DEPOSIT OR
ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED.
THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY COMMON
STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
<PAGE>
SPECIAL NOTICE
The transfer, purchase, or sale of subscription rights is illegal. Anyone
found to be participating in these actions will lose their subscription rights
and be reported to the appropriate regulatory authorities.
You may be approached by persons who offer to provide you with money to be
used to buy stock or who offer to share in possible profits if you will
exercise your subscription rights with the intent to transfer the stock or
proceeds to those persons. Participation in any such scheme is a violation
of the Savings Bank's Plan of Conversion and will subject those
participating to civil or criminal fines or penalties.
Please report any violations or attempts at these actions to the conversion
center at ______________________.
<PAGE>
Exhibit 99.4
CONVERSION VALUATION REPORT
_____________________________________________
Valued as of October 18, 1996
HOME SAVINGS BANK, SSB
Washington, North Carolina
Prepared By:
Ferguson & Co., LLP
Suite 550
122 W. John Carpenter Freeway
Irving, TX 75039
972/869-1177
<PAGE>
STATEMENT OF APPRAISER'S INDEPENDENCE
Home Savings Bank, SSB
----------------------
Washington, North Carolina
--------------------------
We are the appraiser for Home Savings Bank, SSB ("Home Savings" or "Bank")
in connection with its mutual to stock conversion. We are submitting our
independent estimate of the pro forma market value of the Bank's stock to be
issued in the conversion. In connection with our appraisal of the Bank'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 Bank, its conversion counsel,
its selling agent, or any other party connected with the conversion. We also
received a fixed fee for assisting the Bank in connection with the preparation
of its business plan to be submitted with the conversion application.
Home Savings 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, if the Bank
misrepresented or omitted material facts, except to the extent such liabilities
are determined to have arisen because of our negligence, failure to exercise due
diligence, or willful conduct.
Ferguson & Co., LLP
Robin L. Fussell
Principal
November 1, 1996
<PAGE>
NOVEMBER 1, 1996
BOARD OF DIRECTORS
HOME SAVINGS BANK, SSB
1311 CAROLINA AVENUE
WASHINGTON, NORTH CAROLINA 27889
DEAR DIRECTORS:
We have completed and hereby provide, as of October 18, 1996, an
independent appraisal of the estimated pro forma market value of Home Savings
Bank, SSB, Washington, North Carolina ("Home Savings" or "Bank"), in connection
with the conversion of Home Savings from the mutual to stock form of
organization ("Conversion"). This appraisal report is furnished pursuant to the
regulatory filing of the Bank's applications for conversion with the Federal
Deposit Insurance Corporation ("FDIC") and the Savings Institutions Division of
the North Carolina Department of Commerce ("Division").
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 Home Savings' 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 Home Savings' Notice of Intent
to Convert to Stock Form and Application to Convert a Mutual Savings Bank to a
Stock Owned Savings Bank, including the Proxy Statement, as filed with the FDIC
and the Division, respectively. We conducted an analysis of Home Savings that
included discussions with Coopers & Lybrand L.L.P., the Bank's independent
auditors, and with Housley Kantarian & Bronstein, P.C., the Bank'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 Home Savings' primary market area and
compared the Bank'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 Home Savings' representation that the information
contained in the applications for conversion and additional evidence furnished
to us by the Bank and its independent auditors are truthful, accurate, and
complete. We did not independently verify the financial statements and other
information provided by Home Savings and its auditors, nor did
<PAGE>
BOARD OF DIRECTORS
NOVEMBER 1, 1996
PAGE 2
we independently value the assets or liabilities of the Bank. The valuation
considers Home Savings only as a going concern and should not be considered an
indication of its liquidation value.
It is our opinion that, as of October 18, 1996, the estimated pro forma
market value of Home Savings was $31,500,000, or 2,100,000 shares at $15.00 per
share. The resultant valuation range was $26,775,000 at the minimum (1,785,000
shares at $15.00 per share) to $36,225,000 at the maximum (2,415,000 shares at
$15.00 per share), based on a range of 15 percent below and above the midpoint
valuation. The supermaximum was $41,658,750 (2,777,250 shares at $15.00 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 Bank'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 Home
Savings, could materially affect the assumptions used in preparing this
appraisal.
The valuation reported herein will be updated as provided in the conversion
regulations and guidelines. Any updates will consider, among other things, any
developments or changes in Home Savings' 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
Robin L. Fussell
Principal
<PAGE>
FERGUSON & CO., LLP
- -------------------
TABLE OF CONTENTS
HOME SAVINGS BANK, SSB
WASHINGTON, NORTH CAROLINA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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 9
REGULATORY CAPITAL REQUIREMENTS 10
LENDING 10
NONPERFORMING ASSETS 15
CLASSIFIED ASSETS 15
LOAN LOSS ALLOWANCE 15
MORTGAGE-BACKED SECURITIES AND INVESTMENTS 17
SAVINGS DEPOSITS 19
BORROWINGS 20
SUBSIDIARIES 20
LEGAL PROCEEDINGS 20
EARNINGS CAPACITY OF THE INSTITUTION 20
ASSET-SIZE-EFFICIENCY OF ASSET UTILIZATION 20
INTANGIBLE VALUES 20
EFFECT OF GOVERNMENT REGULATIONS 21
OFFICE FACILITIES 21
SECTION II - MARKET AREA 1
DEMOGRAPHICS 1
</TABLE>
i
<PAGE>
FERGUSON & CO., LLP
- -------------------
TABLE OF CONTENTS - CONTINUED
HOME SAVINGS BANK, SSB
WASHINGTON, NORTH CAROLINA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION III - COMPARISON WITH PUBLICLY TRADED THRIFTS 1
COMPARATIVE DISCUSSION 1
SELECTION CRITERIA 1
PROFITABILITY 2
BALANCE SHEET CHARACTERISTICS 2
RISK FACTORS 2
SUMMARY OF FINANCIAL COMPARISON 2
FUTURE PLANS 3
SECTION IV - CORRELATION OF MARKET VALUE 1
MARKETABILITY & LIQUIDITY OF STOCK TO BE ISSUED 1
FINANCIAL ASPECTS 1
MARKET AREA 2
MANAGEMENT 2
DIVIDENDS 3
LIQUIDITY 3
THRIFT EQUITY MARKET CONDITIONS 3
NORTH CAROLINA ACQUISITIONS 4
EFFECT OF INTEREST RATES ON THRIFT STOCK 4
ADJUSTMENTS CONCLUSION 5
VALUATION APPROACH 5
VALUATION CONCLUSION 6
</TABLE>
ii
<PAGE>
FERGUSON & CO., LLP
- -------------------
TABLE OF CONTENTS - CONTINUED
HOME SAVINGS BANK, SSB
WASHINGTON, NORTH CAROLINA
<TABLE>
<CAPTION>
TABLE
NUMBER TABLE TITLE PAGE
- ------ ----------- ----
<S> <C> <C>
SECTION I - FINANCIAL CHARACTERISTICS
1 Selected Financial Condition Data 4
2 Summary of Operations 5
3 Key Operating Ratios 6
4 Loan Maturity Schedule 7
5 GAP Analysis 8
6 Net Portfolio Value 9
7 Regulatory Capital Compliance 10
8 Analysis of Loan Portfolio 11
9 Loan Activity 12
10 Average Balance Sheets 13
11 Rate/Volume Analysis 14
12 Non-Performing Assets 15
13 Analysis of Allowance for Loan Losses 16
14 Allocation of the Allowance for Loan Losses 17
15 Investment Maturities and Yields 18
16 Investments 19
17 Savings Portfolio 21
18 Time Deposit Maturities 22
19 Jumbo CD's 22
20 Savings Deposit Activity 23
21 Short-Term Borrowings 23
22 Banking Offices 24
SECTION II - MARKET AREA
1 Demographic Trends 3
2 Employment by Industry 4
3 Market Area Deposits 5
4 Summary of Building Permits 6
SECTION III - COMPARISON WITH PUBLICLY
TRADED THRIFTS
1 Comparatives General Characteristics 4
2 Key Financial Indicators 5
3 Pro Forma Comparisons 6
</TABLE>
iii
<PAGE>
FERGUSON & CO., LLP
- -------------------
TABLE OF CONTENTS - CONTINUED
HOME SAVINGS BANK, SSB
WASHINGTON, NORTH CAROLINA
<TABLE>
<CAPTION>
TABLE
NUMBER TABLE TITLE PAGE
------ ----------- ----
<S> <C> <C>
SECTION IV - CORRELATION OF MARKET VALUE
1 Appraisal Earnings Adjustments 2
2 North Carolina 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 - Home Savings Bank, SSB BankSource 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
</TABLE>
iv
<PAGE>
SECTION I
FINANCIAL CHARACTERISTICS
<PAGE>
FERGUSON & CO., LLP SECTION I.
- ------------------- ----------
INTRODUCTION
Home Savings Bank, SSB ("Home Savings" or "Bank") is a state
chartered, federally insured mutual savings bank located in Washington, North
Carolina. It was chartered in 1902 as Home Building and Loan Association. It
joined the FHLB system and obtained federal insurance of accounts in 1959. Its
name was changed to Home Savings and Loan Association in 1960. It switched to a
state savings bank and adopted its present name in 1992. In September 1996, it
adopted a plan to convert to stock form via a standard mutual to stock
conversion. It will form a holding company and the savings bank will convert to
a North Carolina state chartered commercial bank.
At September 30, 1996, Home Savings had total assets of $194.1
million, loans held for investment of $134.1 million, loans held for sale of
$21.6 million, mortgage-backed securities of $14.8 million, investment
securities of $8.1 million, deposits of $171.2 million, borrowings of $1.0
million, and equity of $18.3 million, or 9.45% of assets.
The Bank has eight banking offices, which are located in central
eastern and upper eastern North Carolina. It also has three loan production
offices, two of which are in the southeastern part of North Carolina and one of
which is located in the upper central part of the state. North Carolina is in
the mid-Atlantic portion of the United States. Home Savings' main office is
located in Washington, which is approximately 110 miles east of Raleigh, 75
miles west of the Atlantic Ocean, and 100 miles south of the Virginia border.
Home Savings is a thrift in transition to a commercial bank, as
by its asset and deposit composition. Unlike today's typical thrift,
Home Savings has a high loan to deposit ratio, a low ratio of passive
investments, and a higher than normal percentage of its deposits in transaction
accounts. In addition, it has experienced healthy growth in recent years,
including de novo branching. It has developed a significant loan servicing
portfolio in recent years, with approximately $253.7 million in servicing at
September 30, 1996. This has enabled the Bank to service the public through the
origination of home loans, avoid the attendant interest rate risk associated
with such loans, and build a stream of noninterest income.
Home Savings invests primarily in (1) 1-4 family, 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 utilized
borrowings recently, albeit not extensively.
The Bank offers a variety of loan products to accommodate its customer
base and single family loans dominate the Bank's loan portfolio. In recent
years, however, the importance of commercial non-real estate and consumer
lending has grown. At September 30, 1996, loans on 1-4 family dwellings made up
33.7% of the gross loan portfolio, commercial non-real estate loans made up 6.0%
of the gross loan portfolio, and consumer loans made up 21.5% of the gross loan
portfolio. Net loans made up 80.2% of total assets. Mortgage backed securities
made up 7.6% of total assets. Cash and investment securities made up 8.6% of
Home Savings' assets at September 30, 1996.
Home Savings had $1,213 thousand in non-performing assets at September
30, 1996 (0.62% of total assets), as compared to $750 thousand at September 30,
1995 (0.42% of total assets), and $519 thousand at September 30, 1994 (0.31% of
total assets).
Savings deposits increased $78.8 million during the period from
September 30, 1992, to September 30, 1996, a compound annual growth rate of
16.7%. Savings increased $27.9 million (27.0%) in 1994, increased $21.9 million
(16.6%) in 1995, and increased $17.8 million (11.6%) for the year ended
September 30, 1996. Home Savings' reliance on borrowings has declined
extensively during recent years from a high of $26.5 million at September 30,
1993, to a low of $1.0 million at September 30, 1996.
1
<PAGE>
FERGUSON & CO., LLP SECTION I.
- ------------------- ----------
The Bank's capital to assets ratio has shown only minor change, as the
growth in asset size has kept pace with the growth in capital. Equity capital,
as a percentage of assets, has gone from 8.9% at September 30, 1992, to 9.5% at
September 30, 1996. Home Savings' assets increased $72.9 million during the
four years ended September 30, 1996, an annual compound growth rate of 12.5%.
Home Savings' profitability, as measured by return on average assets
("ROAA"), was above but is currently below its peer group average of banks and
savings banks filing call reports with the FDIC, consisting of commercial banks
and savings banks with assets from $100 million to $300 million. For the years
ending December 31, 1993, 1994, and 1995, and the six months ended June 30,
1996, Home Savings ranked in the 96th, 35th, 44th, and 10th percentile,
respectively, in ROAA, based on information derived from the BankSource database
published by Sheshunoff Information Services Inc. (See Exhibit III, page 2). In
return on equity for the same periods, Home Savings ranked in the 92nd, 32nd,
40th, and 9th percentile, respectively. The 1993 high income period included
substantial amounts of gains from mortgage banking operations.
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, Home Savings experienced a healthy increase in
assets during the period of four years ending September 30, 1996. Assets
increased $72.9 million, or 12.5% compounded annually, during the period. Loans
held for investment increased $79.2 million (25.1% annual compound growth rate);
cash and cash equivalents increased $5.3 million; investment securities
increased $4.1 million; and mortgage-backed securities increased $1.4 million.
Savings deposits increased by $78.8 million, or 16.7% compound annual growth.
Equity increased $7.6 million, or 14.2% annual compound growth.
ASSET/LIABILITY MANAGEMENT
Managing interest rate risk is a major component of the strategy used
in operating a thrift. Most of a thrift's 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, 1996. Table I.5 shows the gap
analysis of Home Savings' interest earning assets and interest bearing
liabilities at September 30, 1996. It shows that, within one year of September
30, 1996, Home Savings has a negative gap to interest bearing liabilities of
18.6% and a negative gap to total assets of 12.2%. Home Savings has a negative
cumulative gap of 9.7% of assets at the end of three years and a negative
2
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FERGUSON & CO., LLP SECTION I.
- ------------------- ----------
cumulative gap of 4.1% of assets at the end of five years. Table I.6 provides
rate shock information at varying levels of interest rate change. The Bank 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.
Home Savings' basic approach to interest rate risk management has been
to emphasize adjustable mortgage loans, shorten fixed rate mortgage terms,
increase consumer and commercial non-real estate loans, and increase
noninterest-bearing deposits. Home Savings currently is not utilizing synthetic
hedge instruments and has not used borrowings in recent years. Home Savings'
business plan calls for emphasizing short to intermediate term non-real estate
loans and noninterest-bearing deposits.
3
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FERGUSON & CO., LLP SECTION I.
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TABLE I.1 - SELECTED FINANCIAL CONDITION DATA
The following table sets forth certain historical information concerning the
financial position of the Bank for the periods and at the dates indicated.
<TABLE>
<CAPTION>
Compound
At September 30, Growth
---------------------------------------------------
1996 1995 1994 1993 1992 Rate
---------- ---------- ---------- ---------- ---------- ----------
(Amounts in 000's)
<S> <C> <C> <C> <C> <C> <C>
Total assets $194,139 $177,704 $165,996 $146,012 $121,227 12.5%
Loans receivable, net:
Held for sale 21,627 19,507 16,095 55,031 41,667 -17.8%
Held for investment 134,054 125,034 119,584 63,505 54,815 25.1%
Cash 8,576 1,786 4,813 5,473 3,318 26.8%
Investment securities:
Available for sale 8,107 -0- -0- -0- -0- NM
Held to maturity -0- 3,002 1,004 1,004 3,997 NM
Mortgage-backed securities:
Available for sale 14,797 9,072 9,194 16,083 13,447 2.4%
Held to maturity -0- 13,213 9,341 -0- -0- NA
Deposits 171,213 153,457 131,592 103,645 92,444 16.7%
FHLB advances 1,040 4,000 16,500 26,500 15,500 NM
Equity 18,347 17,688 15,620 13,383 10,791 14.2%
</TABLE>
NM--Not meaningful
SOURCE: OFFERING CIRCULAR, UNAUDITED AND AUDITED FINANCIAL STATEMENTS
4
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FERGUSON & CO., LLP SECTION I.
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TABLE I.2 - SUMMARY OF OPERATIONS
The following table summarizes the Bank's results of operations for each of the
periods indicated.
<TABLE>
<CAPTION>
Years Ended September 30,
1996 1995 1994 1993 1992
------------ ---------- ---------- ---------- -----------
($000'S)
<S> <C> <C> <C> <C> <C>
Interest income $ 15,349 $ 14,385 $ 11,811 $ 10,462 $10,245
Interest expense 8,105 7,344 5,204 4,524 5,412
------------ ---------- ---------- ---------- ---------
Net interest income 7,244 7,041 6,607 5,938 4,833
Provision for loan losses 511 20 210 548 914
------------ ---------- ---------- ---------- ---------
Net interest income after provision 6,733 7,021 6,397 5,390 3,919
for loan losses
------------ ---------- ---------- ---------- ---------
Total non-interest income 1,833 1,502 1,652 3,006 1,754
------------ ---------- ---------- ---------- ---------
Non-interest expense 7,295 5,660 4,801 3,738 2,837
------------ ---------- ---------- ---------- ---------
Income before income taxes and
cumulative effect adjustment 1,271 2,863 3,248 4,658 2,886
Income tax expense 451 998 1,261 2,065 1,347
------------ ---------- ---------- ---------- ---------
Income before cumulative effect adjustment 820 1,865 1,987 2,593 1,489
Cumulative effect of change in method
of accounting for income taxes -0- -0- 250 -0- -0-
------------ ---------- ---------- ---------- ---------
Net income $ 820 $ 1,865 $ 2,237 $ 2,593 $ 1,489
============ ========== ========== ========== =========
</TABLE>
SOURCE: OFFERING CIRCULAR, AUDITED AND UNAUDITED FINANCIAL STATEMENTS
5
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FERGUSON & CO., LLP SECTION I.
- ------------------- ----------
TABLE I.3 - KEY OPERATING RATIOS
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED SEPTEMBER 30,
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS:
-------------------
Return on assets (1) 0.45 1.07 1.28 1.93 1.29
Return on average equity (1) 4.45 11.17 13.38 19.17 13.86
Interest rate spread 3.72 3.84 4.25 4.67 4.12
Net interest margin 4.12 4.21 4.48 4.46 4.16
Ratio of average interest-earning
assets to average interest-bearing 108.52 108.40 106.58 107.44 107.26
liabilities
Ratio of noninterest expense to
average total assets 3.97 3.26 3.08 2.56 2.34
ASSET QUALITY RATIOS:
---------------------
Nonperforming assets to total assets
at end of period 0.62 0.42 0.31 0.62 0.69
Nonperforming loans to total loans
at end of period 0.66 0.47 0.25 0.77 0.86
Allowance for loan losses to total
loans at end of period 1.51 1.30 1.46 1.56 1.40
Allowance for loan losses to
nonperforming loans at end of period 227.37 275.62 583.19 202.30 162.22
Provision for loan losses to total 0.32 0.01 0.15 0.46 0.95
loans
Net charge-offs to average loans 0.02 0.09 0.06 0.00 0.00
CAPITAL RATIOS:
---------------
Equity to total assets at end of 9.45 9.95 9.41 9.17 8.90
period
Average equity to average assets 10.05 9.61 9.54 9.10 8.85
</TABLE>
(1) Before cumulative effect adjustment in 1994.
SOURCE: OFFERING CIRCULAR, HOME SAVINGS, CALL REPORTS
6
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FERGUSON & CO., LLP SECTION I.
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TABLE I.4 - LOAN MATURITY SCHEDULE
September 30, 1996
<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>
Residential and Construction 16,790 4,289 4,982 15,236 13,791 26,436 81,524
Commercial loans 4,993 11,438 13,694 9,849 -0- -0- 39,974
Consumer loans 3,756 8,532 7,023 4,058 6,402 7,219 36,990
---------- ------------- ----------- ---------- --------------- --------- ---------
Total loans 25,539 24,259 25,699 29,143 20,193 33,655 158,488
========== ============= =========== ========== =============== ========= =========
</TABLE>
SOURCE: OFFERING CIRCULAR
7
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FERGUSON & CO., LLP SECTION I.
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TABLE I.5 - GAP ANALYSIS
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at September 30, 1996, which are
expected to mature or reprice in each of the time periods shown.
<TABLE>
<CAPTION>
One Three
One Year Through Through Over
Three Five Five
or Less Years Years Years Total
---------- -------- -------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Residential mortgage, construction, and 36,833 30,303 8,582 20,603 96,321
MBS
Commercial loans 27,218 -0- -0- 12,756 39,974
Consumer loans 25,238 7,990 3,396 366 36,990
Investments 14,865 -0- 3,107 -0- 17,972
---------- -------- -------- ------- -------
Total 104,154 38,293 15,085 33,725 191,257
---------- -------- -------- ------- -------
Interest-bearing liabilities:
Deposits 126,862 33,432 4,167 6,752 171,213
Borrowings 1,040 -0- -0- -0- 1,040
---------- -------- -------- ------- -------
Total 127,902 33,432 4,167 6,752 172,253
---------- -------- -------- ------- -------
Interest sensitivity gap -23,748 4,861 10,918 26,973 19,004
========== ======== ======== ======= =======
Cumulative interest sensitivity gap -23,748 -18,887 -7,969 19,004 19,004
========== ======== ======== ======= =======
Ratio of interest-earning assets
to interest-bearing liabilities 81.4% 114.5% 362.0% 499.5% 111.0%
========== ======== ======== ======= =======
Cumulative ratio of interest-earning
assets to interest-bearing liabilities 81.4% 88.3% 95.2% 111.0% 111.0%
========== ======== ======== ======= =======
Ratio of cumulative gap to assets -12.2% -9.7% -4.1% 9.8% 9.8%
========== ======== ======== ======= =======
</TABLE>
SOURCE: FEDERAL HOME LOAN BANK OF ATLANTA
8
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FERGUSON & CO., LLP SECTION I.
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TABLE I.6 - NET PORTFOLIO VALUE
<TABLE>
<CAPTION>
Change in
Interest Rates September 30, 1996
---------------------------------
in Basis Points Net Portfolio Value
---------------------------------
(Rate Shock) Amount $000 % Change
Change
------------------- --------- ------------
<S> <C> <C> <C>
400 12,757 -11,217 -47%
300 15,776 -8,198 -34%
200 18,784 -5,190 -22%
100 21,384 -2,590 -11%
Static 23,974 --- ---
(100) 25,903 1,929 8%
(200) 27,831 3,857 16%
(300) 28,998 5,024 21%
(400) 30,164 6,190 26%
</TABLE>
SOURCE: FEDERAL HOME LOAN BANK OF ATLANTA
INCOME AND EXPENSE TRENDS
Home Savings was profitable for the five fiscal years ending September
30, 1996. Fluctuations in income over the period have resulted principally from
(1) changes in non-interest income and non-interest expense; and (2)
fluctuations in loan loss provisions.
Noninterest income levels have fluctuated principally as gains from
mortgage banking operations have varied with volume. Noninterest expense in
1996 included $946,000 related to the SAIF resolution. Approximately $225,000
of obsolete equipment was written off. Loan loss provisions were increased in
1996 to recognize the changing risk characteristics of the loan portfolio.
9
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FERGUSON & CO., LLP SECTION I.
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REGULATORY CAPITAL REQUIREMENTS
As Table I.7 demonstrates, Home Savings 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>
<CAPTION>
TABLE I.7 - REGULATORY CAPITAL COMPLIANCE
------------------------------------------------------------------------
Amount ($000's) Percent
<S> <C> <C>
GAAP Capital 18,347 9.45
------ -----
Tier 1 Leverage Capital:
Capital level 18,306 9.43
Requirement 7,764 4.00
------ -----
Excess 10,542 5.43
Tier 1 Risk Adjusted Capital
Capital level 18,306 13.97
Requirement 5,242 4.00
------ -----
Excess 13,064 9.97
Risk Based Capital:
Capital level 19,954 15.23
Requirement 10,484 8.00
------ -----
Excess 9,470 7.23
------------------------------------------------------------------------
SOURCE: HOME SAVINGS, F&C CALCULATIONS.
------------------------------------------------------------------------
</TABLE>
LENDING
Table I.8 provides an analysis of the Bank's loan portfolio by type of
loan and security. This analysis shows that, from September 30, 1994, through
September 30, 1996, Home Savings' 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, was a good growth
year overall and in most individual categories.
Table I.10 provides rates, yields, and average balances for the three
years ended September 30, 1996. Interest rates earned on interest-earning
assets increased from 8.01% in 1994 to 8.61% in 1995. Interest rates earned on
interest-bearing assets for 1996 increased from 8.61% in 1995 to 8.72% in 1996.
Interest rates paid on interest-bearing liabilities increased from 3.76% in 1994
to 4.76% in 1995 and to 5.00% in 1996. Home Savings' spread decreased from 4.25%
in 1994 to 3.84% in 1995 and to 3.72% in 1996. The spread was 3.56% at
September 30, 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, 1995, and 1996. It
demonstrates that increases in volume were more significant (than increases in
rates) to the change in net interest income during 1995 and 1996.
10
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FERGUSON & CO., LLP SECTION I.
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TABLE I.8 - ANALYSIS OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
At September 30,
1996 1995 1994
------------------- ------------------- ------------------
Amount % Amount % Amount %
--------- ------- --------- ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Type of Loan:
- ---------------------------
Residential mortgage loans:
1-4-family (1) $ 58,576 33.7 $ 67,736 43.0 $ 74,364 49.7
Multifamily 998 0.6 2,315 1.5 2,412 1.6
Construction 35,240 20.3 32,062 20.4 31,663 21.2
--------- ------- --------- ------- -------- --------
TOTAL RESIDENTIAL 94,814 54.6 102,113 64.9 108,439 72.5
--------- ------- --------- ------- -------- --------
Commercial loans:
Real estate 31,168 17.9 21,890 13.9 17,098 11.4
Non real estate 10,328 6.0 3,698 2.4 1,777 1.2
--------- ------- --------- ------- -------- --------
COMMERCIAL LOANS 41,496 23.9 25,588 16.3 18,875 12.6
--------- ------- --------- ------- -------- --------
Consumer:
Automobiles 4,185 2.4 2,532 1.6 1,986 1.3
Share loans 549 0.3 661 0.4 454 0.3
Home equity loans 17,949 10.3 15,514 9.9 11,930 8.0
Other 14,740 8.5 10,977 6.9 7,767 5.2
--------- ------- --------- ------- -------- --------
TOTAL CONSUMER LOANS 37,423 21.5 29,684 18.8 22,137 14.8
--------- ------- --------- ------- -------- --------
TOTAL LOANS 173,733 100.0 157,385 100.0 149,451 100.0
========= ======= ========= ======= ======== ========
Less:
Loans in process 15,244 10,626 11,506
Unearned income 455 341 289
Allowance for loan losses 2,351 1,877 1,977
--------- --------- --------
TOTAL $155,681 $144,541 $135,679
========= ========= ========
</TABLE>
(1) Includes loans held for sale of $21,628,000, $19,507,000, and $16,095,000,
respectively, at 1996, 1995, and 1994.
SOURCE: OFFERING CIRCULAR
11
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FERGUSON & CO., LLP SECTION I.
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TABLE I.9 - LOAN ACTIVITY
The following table sets forth certain information with respect to the Bank's
loan activity for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------
1996 1995 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
Loans originated:
Real estate loans:
1-4 family residential $ 39,333 $ 27,643 $ 77,005
Multifamily residential 45 -0- 657
Construction 36,964 31,556 46,236
Commercial 31,144 15,780 17,693
Consumer 22,684 18,388 10,361
----------------- ----------------- -----------------
Total loans originated $ 130,170 $ 93,367 $ 151,952
================= ================= =================
Loans sold:
Whole loans $ 53,033 $ 43,609 $ 88,529
Participation loans -0- -0- -0-
----------------- ----------------- -----------------
Total loans sold $ 53,033 $ 43,609 $ 88,529
================= ================= =================
</TABLE>
SOURCE: OFFERING CIRCULAR
12
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FERGUSON & CO., LLP SECTION I.
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TABLE I.10 - AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
---------------------- ----------------------------------------------------------
AT SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------
1996 1996
---------------------- --------------------------------------
AVERAGE
YIELD/ AVERAGE YIELD/
BALANCE COST BALANCE INTEREST COST
--------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Interest earning assets: ($000'S)
Loans receivable 155,681 8.82% 148,538 13,431 9.04%
Investment securities 8,107 6.28% 5,236 311 5.94%
Mortgage-backed securities 14,797 7.35% 16,881 1,247 7.39%
Other interest earning assets 7,059 6.06% 5,349 361 6.75%
--------- -------- --------- ---------- ----------
Total interest-earning assets 185,644 8.49% 176,004 15,350 8.72%
Non-interest earning assets 8,285 -------- 7,579 ---------- ----------
--------- ---------
Total assets 193,929 183,583
========= =========
Interest-bearing liabilities:
Deposits 171,213 4.93% 159,304 7,939 4.98%
FHLB borrowings -0- 0.00% 2,250 145 6.44%
Other borrowings 1,040 4.51% 629 21 3.34%
--------- -------- --------- ---------- ----------
Total interest bearing liabilities 172,253 4.93% 162,183 8,105 5.00%
-------- ---------- ----------
Non-interest bearing liabilities 3,084 2,958
--------- ---------
Total liabilities 175,382 165,141
Equity 18,547 18,442
--------- ---------
Total liabilities and equity 193,929 183,583
========= =========
Net interest income 7,245
==========
Net interest rate spread 3.56% 3.72%
======== ==========
Net interest margin 3.92% 4.12%
======== ==========
Ratio of average interest-earning
assets to average interest-bearing
liabilities 107.75% 108.52%
========== ==========
<CAPTION>
--------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
1995 1994
------------- -------------------------------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD / AVERAGE YIELD /
BALANCE INTEREST COST BALANCE INTEREST COST
------------- ------------------------------------------------------------
($000'S)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans receivable 141,088 12,511 8.87% 122,593 10,016 8.17%
Investment securities 2,090 143 6.84% 1,004 81 8.07%
Mortgage-backed securities 19,404 1,413 7.28% 21,020 1,540 7.33%
Other interest earning assets 4,539 318 7.01% 2,877 174 6.05%
--------- ---------- ------ -------- -------- -------
Total interest-earning assets 167,121 14,385 8.61% 147,494 11,811 8.01%
Non-interest earning assets 6,587 ---------- ------ 8,169 -------- -------
--------- -------
Total assets 173,708 155,663
========= =======
Interest-bearing liabilities:
Deposits 142,283 6,610 4.65% 119,360 4,416 3.70%
FHLB borrowings 11,833 730 6.17% 19,000 786 4.14%
Other borrowings 48 4 8.33% 25 2 8.00%
--------- ---------- ------- -------- -------- -------
Total interest bearing liabilities 154,164 7,344 4.76% 138,385 5,204 3.76%
---------- ------- -------- -------
Non-interest bearing liabilities 2,848 2,429
--------- -------
Total liabilities 157,012 140,814
Equity 16,696 14,849
--------- -------
Total liabilities and equity 173,708 155,663
========= =======
Net interest income 7,041 6,607
========== ========
Net interest rate spread 3.84% 4.25%
======= =======
Net interest margin 4.21% 4.48%
======= =======
Ratio of average interest-earning
assets to average interest-bearing 106.58%
liabilities 108.40% =======
==========
</TABLE>
SOURCE: OFFERING CIRCULAR
13
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FERGUSON & CO., LLP SECTION I.
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TABLE I.11 - RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, YEARS ENDED SEPTEMBER 30,
----------------------------------------------- --------------------------------------------
1996 VS. 1995 1995 VS. 1994
----------------------------------------------- --------------------------------------------
INCREASE/(DECREASE) DUE TO TOTAL INCREASE/(DECREASE) DUE TO TOTAL
------------------------------ --------------------------------
RATE INCREASE RATE INCREASE
VOLUME RATE VOLUME (DECREASE) VOLUME RATE VOLUME (DECREASE)
------- ------ -------- -------- ------- ---------
(Amounts in 000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable 661 246 13 920 1,511 855 129 2,495
Investment securities 215 -19 -28 168 88 -12 -14 62
Mortgage-backed securities -184 21 -3 -166 -118 -10 1 -127
Other interest-earning assets 57 -12 -2 43 101 28 15 144
------ ------ ----- ----- ------ ------ ----- ------
Total interest-earning assets 749 236 -20 965 1,582 861 131 2,574
------ ------ ----- ----- ------ ------ ----- ------
INTEREST EXPENSE
Deposits 791 481 57 1,329 848 1,129 217 2,194
FHLB advances -591 32 -26 -585 -297 386 -145 -56
Other interest-bearing
liabilities 48 -2 -29 17 2 -0- -0- 2
------ ------ ----- ------ ------ ------ ----- ------
Total interest-bearing
liabilities 248 511 2 761 553 1,515 72 2,140
------ ------ ----- ------ ------ ------ ----- ------
Change in net interest income 501 -275 -22 204 1,029 -654 59 434
====== ====== ===== ====== ====== ====== ===== ======
</TABLE>
SOURCE: OFFERING CIRCULAR
14
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FERGUSON & CO., LLP SECTION I.
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NON-PERFORMING ASSETS
As shown in Table I.12, Home Savings' total nonperforming loans as of
September 30, 1996, were $1.034 million, or .66% of the portfolio. Most of the
nonperforming loans as of that date were secured by 1-4 family residences
(including construction loans). The Bank also had $179 thousand in repossessed
assets.
CLASSIFIED ASSETS
Home Savings had $1.7 million in classified assets at September 30,
1996. The classified assets consisted of $484 thousand classified as special
mention, $1.2 million in substandard, $4 thousand in doubtful, and $13 thousand
in loss. The Bank had a loan loss allowance of $2.351 million, or 138% of
classified assets at September 30, 1996.
LOAN LOSS ALLOWANCE
Table I.13 provides an analysis of Home Savings' loan loss allowance.
Table I.14 shows the allocation of the loan loss allowance among the loan
categories as of September 30, 1994, 1995, and 1996.
TABLE I.12 - NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
At September 30,
-----------------------------------
1996 1995 1994
---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Loans accounted for on a nonaccrual
basis:
Real estate:
1-4 Family Residential 376 413 286
Multi- Family Residential -0- -0- -0-
Construction 647 248 -0-
Commercial 8 -0- -0-
Consumer 3 20 53
---------- ---------- -----------
Total 1,034 681 339
---------- ---------- -----------
Accruing loans which are contractually
past due 90 days or more -0- -0- -0-
---------- ---------- -----------
Total nonperforming loans 1,034 681 339
---------- ---------- -----------
Foreclosed real estate 179 69 180
---------- ---------- -----------
Total nonperforming assets 1,213 750 519
========== ========== ===========
Allowance for loan losses 2,351 1,877 1,977
========== ========== ===========
Nonperforming assets to total assets 0.62% 0.42% 0.31%
========== ========== ==========
Nonperforming loans to total loans 0.66% 0.47% 0.25%
========== ========== ===========
Allowance for loan losses to total loans 1.51% 1.30% 1.46%
========== ========== ===========
Allowance for loan losses to 227.37% 275.62% 583.19%
nonperforming loans
========== ========== ===========
</TABLE>
SOURCE: OFFERING CIRCULAR
15
<PAGE>
FERGUSON & CO., LLP SECTION I.
- ------------------- ----------
TABLE I.13 - ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
The following table sets forth an analysis of the Bank's allowance for possible
loan losses for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Balance at beginning of period 1,877 1,977 1,843
Loans charged off 63 122 78
Recoveries 26 2 2
-------- -------- -------
Net loans charged off 37 120 76
-------- -------- -------
Provision for loan losses 511 20 210
-------- -------- -------
Balance at end of period 2,351 1,877 1,977
======== ======== =======
Allowance for loan losses as a percent
of net loans at the end of the period 1.51% 1.30% 1.46%
======== ======== =======
Ratio of net charge-offs (recoveries)
to average loans outstanding 0.02% 0.09% 0.06%
======== ======== =======
</TABLE>
SOURCE: OFFERING CIRCULAR
16
<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,
-----------------------------------------------------------------------
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
-------- -------------- -------- --------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
($000's)
Residential mort. 1,037 54.6% 1,041 64.9% 1,137 72.6%
Commercial 879 23.9% 517 16.3% 497 12.6%
Consumer 435 21.5% 319 18.8% 343 14.8%
Unallocated -0- 0.0% -0- -0-% -0- -0-%
-------- -------------- -------- --------------- ------- --------------
Total allowance
for loan losses 2,351 100.0% 1,877 100.0% 1,977 100.0%
======== ============== ======== =============== ======= ==============
</TABLE>
SOURCE: OFFERING CIRCULAR
MORTGAGE-BACKED SECURITIES AND INVESTMENTS
Table I.15 provides a breakdown of mortgage-backed securities and
investment securities with maturity and yield information as of September 30,
1996. Table I.16 provides breakdowns for mortgage-backed securities and
investment securities at September 30, 1994, 1995, 1996.
17
<PAGE>
FERGUSON & CO., LLP SECTION I.
- ------------------- ----------
TABLE I.15 -INVESTMENT MATURITIES AND YIELDS
The following table sets forth the scheduled maturities, carrying value,
amortized cost and average yields for the Bank's investment securities at
September 30, 1996.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
-------------------------------------------------------------------------------------------------
ONE YEAR OR LESS ONE TO FIVE YEARS FIVE TO TEN YEARS MORE THAN TEN YEARS
------------------- ---------------------- ---------------------- ----------------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
---------- -------- --------- ---------- --------- --------- --------- ---------
(Amounts in 000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE:
- -------------------
U.S. government and agency 2,036 6.50% 3,071 7.13% -0- 0.00% -0- 0.00%
Municipals 3,000 5.30% -0- 0.00% -0- 0.00% -0- 0.00%
Mortgage-backed securities -0- 0.00% -0- 0.00% 3,813 7.01% 10,984 7.49%
HELD TO MATURITY:
- -----------------
FHLB stock -0- 0.00% -0- 0.00% -0- 0.00% 1,288 7.30%
---------- --------- --------- ---------- --------- ---------- --------- ----------
Total 5,036 5.78% 3,071 7.13% 3,813 7.01% 12,293 7.47%
========== ========= ========= ========== ========= ========== ========= ==========
<CAPTION>
---------------------------------
TOTAL INVESTMENT PORTFOLIO
---------------------------------
CARRYING MARKET AVERAGE
VALUE VALUE YIELD
--------- -------- ---------
<S> <C> <C> <C>
AVAILABLE FOR SALE:
- -------------------
U.S. government and agency 5,107 5,025 6.87%
Municipals 3,000 3,000 5.30%
Mortgage-backed securities 14,797 14,812 7.37%
HELD TO MATURITY:
- -----------------
FHLB stock 1,288 1,288 7.30%
--------- -------- --------
Total 24,192 24,125 7.01%
========= ======== ========
</TABLE>
SOURCE: OFFERING CIRCULAR
18
<PAGE>
FERGUSON & CO., LLP SECTION I.
- ------------------- ----------
TABLE I.16 - INVESTMENTS
The following table sets forth the carrying value of the Bank's investment
security portfolio at the dates indicated:
<TABLE>
<CAPTION>
At September 30,
--------------------------------
1996 1995 1994
---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
- ------------------------------
U.S. government and agency securities 5,107 -0- -0-
State government obligations 3,000 -0- -0-
Mortgage-backed securities 14,797 9,072 9,194
---------- ---------- ----------
Total 22,904 9,072 9,194
SECURITIES HELD TO MATURITY:
- ----------------------------
U.S. government and agency securities -0- 3,008 1,004
FHLB stock 1,288 1,288 1,249
Mortgage-backed securities -0- 13,213 9,341
---------- ---------- ----------
Total 1,288 17,509 11,594
---------- ---------- ----------
TOTAL 24,192 26,581 20,788
========== ========== ==========
</TABLE>
SOURCE: OFFERING CIRCULAR
SAVINGS DEPOSITS
At September 30, 1996, Home Savings' deposit portfolio was composed as
follows: Passbook accounts--$7.02 million or 2.0%; Transaction accounts--$27.34
million or 16.0%; and certificate accounts--$136.86 million or 79.9% (see Table
I.17). Table I.18 shows the totals of time deposits and the maturities by year
at September 30, 1996. At September 30, 1996, 81.29% of Home Savings'
certificates matured within one year and 99.15% matured within two years.
Home Savings is not overly dependent on jumbo certificates of deposit. At
September 30, 1996, the Bank had $20.57 million in certificates that were issued
for $100 thousand or more, or 12.01% of its total deposits (see Table I.19).
Table I.20 presents information on deposit flows for the years ending
September 30, 1994, 1995, and 1996.
19
<PAGE>
FERGUSON & CO., LLP SECTION I.
- ------------------- ----------
BORROWINGS
SEE TABLE I.21. Home Savings' has had significant borrowings in recent
years, but not extensively in 1996.
SUBSIDIARIES
Home Savings liquidated its inactive subsidiary at September 30, 1996.
LEGAL PROCEEDINGS
From time to time, Home Savings 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 Bank, no legal proceedings are in
process or pending that would have a material effect on Home Savings' financial
position, results of operations, or liquidity.
EARNINGS CAPACITY OF THE INSTITUTION
As in any interest sensitive industry, the future earnings capacity of
Home Savings 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.
Home Savings 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. As Home Savings progresses in its
conversion from thrift to commercial bank, the effect on income of changing
interest rates will continue to decrease.
The addition of capital through the conversion will allow Home Savings
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. Though the Bank's projected growth rate is healthy, Management expects to
control the risk levels inherent in the Bank's asset base.
ASSET-SIZE-EFFICIENCY OF ASSET UTILIZATION
At its current size and in its current asset configuration, Home
Savings is a moderately efficient operation. With total assets of approximately
$194.1 million, Home Savings has 117 full time equivalent employees. Recognizing
that the Bank is servicing approximately $253.7 million in loans for others, and
it essentially has in place the infrastructure of a commercial bank, its
employees to assets ratio is not like the typical thrift.
INTANGIBLE VALUES
Home Savings' greatest intangible value lies in its loyal deposit
base. Home Savings has a 94 year history of sound operations, controlled growth,
and consistent earnings. The Bank currently has 3.85% of the deposit market in
its area, and it has the ability to increase market share.
Home Savings has no significant intangible values that could be
attributed to unrecognized asset gains on investments and real estate. It does
have, however, loan servicing of $253.7 million, which could have a value of
$1.5 million to $3.0 million.
20
<PAGE>
FERGUSON & CO., LLP SECTION I.
- ------------------- ----------
EFFECT OF GOVERNMENT REGULATIONS
Although still considered a thrift, Home Savings has emphasized
commercial bank operations during recent years. With its continued transition to
commercial bank, the Bank's loan mix and deposit mix are both 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 Bank. No specific future plans currently exist to make acquisitions or
purchase branches or complicate operations with matters that would add to
reporting and regulatory compliance. However, the Bank is interested in growth
and will pursue de novo branching, branch purchases, or whole bank acquisitions
if appropriate opportunities arise.
OFFICE FACILITIES
Home Savings' offices are well maintained and are considered adequate
for the convenience and needs of the Bank's customer base. Table I.22 provides
information on all of Home Savings' banking offices. The Bank also has three
loan production offices and one loan processing office.
TABLE I.17 - SAVINGS PORTFOLIO
Savings deposits in the Bank at September 30, 1996, were represented
by the various types of savings programs described below.
<TABLE>
<CAPTION>
Interest Category Balances Percentage
Rate ($000's) of Total
Savings
-------------------------------------------------------------------------
<S> <C> <C> <C>
0.61% NOW accounts 17,079 9.98%
4.20% Money market deposit 10,256 5.99%
-------- ---------
accounts
Total demand accounts 27,335 15.97%
2.00% Passbook 7,020 4.10%
-------- ---------
Total transaction accounts 34,355 20.07%
-------- ---------
5.54% Certificates of deposit 136,858 79.93%
------ -------- ---------
4.82% Totals 171,213 100.00%
====== ======== =========
</TABLE>
SOURCE: OFFERING CIRCULAR
21
<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
September 30, 1996.
<TABLE>
<CAPTION>
Amount Due
------------------------------------------------------------
Less Than Over
Rate One Year 1-2 Years 2-3 Years 3 Years Total
- --------------- ------------ --------- --------- ------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Amount due 111,256 24,446 256 900 136,858
============= ========= ========= ======= =====
Percentage 81.29% 17.86% 0.19% 0.66% 100.00%
============= ========= ========= ======= =====
Weighted rate 5.44% 5.95% 4.98% 6.53% 5.54%
============= ========= ========= ======= =====
</TABLE>
SOURCE: OFFERING CIRCULAR
TABLE I.19 - JUMBO CD'S
The following table indicates the amount of the Bank's certificates of deposit
of $100,000 or more by time remaining until maturity as of September 30, 1996.
<TABLE>
<CAPTION>
Certificates
of Deposit
----------------
Maturity Period (In thousands)
---------------
<S> <C>
Three months or less 4,082
Over three through six months 5,213
Over six through 12 months 8,171
Over 12 months 3,100
----------------
Total 20,566
================
</TABLE>
SOURCE: OFFERING CIRCULAR
22
<PAGE>
FERGUSON & CO., LLP SECTION I.
- ------------------- ----------
TABLE I.20 - SAVINGS DEPOSIT ACTIVITY
The following table sets forth the savings activities of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Deposits less withdrawals 11,826 16,933 24,833
Interest credited 5,930 4,932 3,114
------------ ------------- -------------
Net increase (decrease) 17,756 21,865 27,947
============ ============= =============
SOURCE: OFFERING CIRCULAR
</TABLE>
TABLE I.21 - SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED
SEPTEMBER 30,
--------------------------
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
FHLB advances at end of period -0- 4,000
Average rate 0.00% 7.27%
Maximum FHLB advances outstanding
at any month end 7,000 21,000
Average FHLB advances outstanding 2,250 11,521
Average rate paid 6.83% 6.54%
</TABLE>
SOURCE: OFFERING CIRCULAR
<PAGE>
FERGUSON & CO., LLP SECTION I.
- ------------------- ----------
TABLE I.22 - BANKING OFFICES
<TABLE>
<CAPTION>
NET BOOK YEAR OWNED OR SQUARE
PHYSICAL ADDRESS VALUE (1) OPENED LEASED FOOTAGE
- ---------------- ------------ -------- ------------- ---------
($000'S)
-----------
<S> <C> <C> <C> <C>
1311 Carolina Avenue $651 1986 Owned 10,200
Washington-Main Office
300 N Market Street 130 1959 Owned 4,700
Washington-Branch
604 E Ehringhaus Street 186 1980 Owned 2,500
Elizabeth City-Branch
1725 S Glenburnie Road 347 1990 Owned 2,600
New Bern-Branch
202 Craven Street 45 1995 Leased(2) 2,500
New Bern-Branch
301 E Arlington Blvd. 322 1993 Owned 2,600
Greenville-Branch
827 Hardee Road -0- 1996 Leased(3) 2,000
Kinston-Branch
300 Sunset Avenue 338 1994 Owned 4,900
Rocky Mount-Branch
</TABLE>
(1) Cost less accumulated depreciation and amortization of land and buildings
at September 30, 1996.
(2) Lease expires July 14, 2000.
(3) Lease expires February 28, 1999.
SOURCE: HOME SAVINGS BANK
24
<PAGE>
SECTION II
MARKET AREA
<PAGE>
FERGUSON & CO., LLP SECTION II.
- ------------------- -----------
II. MARKET AREA
DEMOGRAPHICS
Home Savings conducts its operations through eight banking offices
located in the central and upper sections of eastern North Carolina. It also
has a loan production office in the upper section of central North Carolina
(Louisburg) and two loan production offices in the southern section of eastern
North Carolina (Wilmington and Shallotte). North Carolina is in the middle
Atlantic region of the United States. Washington, where Home Savings' main
office is located, is in the upper section of eastern North Carolina. It is
approximately 110 miles east of Raleigh, 75 miles west of the Atlantic Ocean,
and 100 miles south of the Virginia border.
Home Savings has determined that its principal trade area is the six
counties in which it has banking offices plus the contiguous counties. Home
Savings has banking offices in Beaufort, Craven, Lenoir, Nash, Pasquotank, and
Pitt Counties. Table II.1 presents historical and projected trends for the
United States, North Carolina, and the six counties named above. The
information addresses population, income, employment, and housing trends.
As indicated in Table II.1, population growth rates for Nash,
Pasquotank, and Pitt Counties exceeded that of the United States for the period
1990 to 1996 and are projected to exceed the United States growth rate for the
period 1996 to 2001. Population growth rates for Nash and Pitt Counties
exceeded that of North Carolina for the period 1990 to 1996 and the growth rate
for Nash County is projected to exceed the North Carolina growth rate for the
period 1996 to 2001. The population growth rate for Pasquotank County was just
below that of North Carolina for the 1990 to 1996 period and is projected to
fall just below it for the period 1996 to 2001, as is Pitt County. North
Carolina's growth rate exceeded that of the United States for the period 1990 to
1996 and is projected to exceed it for the period 1996 to 2001. Population
growth rates for Beaufort, Craven, and Lenoir Counties were below that of both
the United States and the State of North Carolina for the period 1990 to 1996
and are also projected to be below that of the United States and North Carolina
for the period 1996 to 2001. The composite of the six counties in which Home
Savings has banking offices contained approximately 6.0% of the population of
North Carolina and the composite grew by 8.75% from 1990 to 1996 and is
projected to grow by 6.33% from 1996 to 2001. Growth in the number of
households follows the trends in projected population growth.
Per capita income from the 1990 census was below both the United
States and North Carolina in all of the six counties in which Home Savings has
banking offices. North Carolina's 1990 per capita income was below that of the
United States. Household income for 1996 for North Carolina was below the
United States. With the exception of Craven County, all of the counties in
which Home Savings has banking offices had household income under the State of
North Carolina in 1996. This same trend is projected to continue in 2001.
Income distribution levels for all of Home Savings' six counties are
below that of North Carolina, which is also below that of the United States.
With projections of a growing population and number of households,
combined with projections of a flat to declining household income, the market
for housing units should also grow. The United States had 10.07% vacant housing
units in 1990, versus 10.69% for the State of North Carolina. With the
exception of Beaufort County, which had a vacancy rate of 17.56% in 1990, all of
the counties in the area in which Home Savings has banking offices had lower
vacancy rates than both the United States and the State of North Carolina.
1
<PAGE>
FERGUSON & CO., LLP SECTION II.
- ------------------- -----------
The principal sources of employment in the six county trade area are
trade and manufacturing (Table II.2). Public administration and services are
also important. The major employers in Home Savings' market area are engaged in
health care, education, and manufacturing. Agriculture is also important, as
the market area includes the flue cured tobacco capital of the world.
Based on information publicly available on deposits as of June 30,
1995 (see Table II.3), the six county market area had $4.069 billion in deposits
and Home Savings had 3.85% of the deposit market, up from 2.67% at June 30,
1993. Home Savings' competition consists of 3 savings bank offices, 8 savings
association offices, 138 commercial bank offices, and 13 credit union offices.
Table II.4 provides building permit information for recent years for
the six counties in which Home Savings has banking offices. The general trend
for residential activity has been upward, with significant fluctuations in
commercial activity.
Analysis of the data presented above presents a picture of ample
economic opportunity, suggesting that Home Savings has sufficient growth
opportunities within its current market area. The capital raised in conversion,
however, will create pressure to grow and leverage the capital to achieve a
reasonable return on equity. The Bank will consider acquisitions as a growth
tool. However, whole bank acquisition opportunities are virtually non-existent
in Home Savings' market area.
Growth opportunities for Home Savings 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 Home Savings, 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 Bank. Management has
demonstrated its interest in being a full service bank through its transition to
commercial banking activities and its plans to convert to a commercial bank
charter. The Bank has demonstrated successful de novo branching efforts in
recent years. Future growth efforts will likely include additional de novo
branches, in addition to efforts to purchase branches of other financial
institutions in Home Savings' current market area and whole bank or whole thrift
acquisitions on the periphery of its current market area.
2
<PAGE>
FERGUSON & CO., LLP SECTION II.
- ------------------- -----------
TABLE II.1 - DEMOGRAPHIC TRENDS
United States, North Carolina, Beaufort County, Craven County,
Lenoir County, Nash County, Pasquotank County and Pitt County
<TABLE>
<CAPTION>
=====================================================================================================================
UNITED NORTH BEAUFORT CRAVEN LENOIR NASH PASQUOTANK PITT
KEY ECONOMIC INDICATOR STATES CAROLINA COUNTY COUNTY COUNTY COUNTY COUNTY COUNTY
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Population, 2001 Est. 278,802,003 7,865,805 46,215 90,558 61,712 95,671 36,707 128,287
1996 - 2001 Percent Change, Est. 5.09 7.52 3.93 4.59 3.30 9.68 7.01 7.37
Total Population, 1996 Est. 265,294,885 7,315,856 44,467 86,582 59,741 87,229 34,303 119,485
1990 - 96 Percent Change, Est. 6.67 10.37 5.17 6.09 4.31 13.76 9.60 10.71
Total Population, 1990 248,709,873 6,628,637 42,283 81,613 57,274 76,677 31,298 107,924
- ---------------------------------------------------------------------------------------------------------------------
Household Income, 2001 Est. 33,189 28,922 22,953 29,224 22,393 26,399 23,316 25,416
1996 - 2001 Percent Change, Est (3.88) (5.37) (4.61) (4.73 (11.94) (5.18) (7.58) (6.70)
Household Income, 1996 Est. 34,530 30,562 24,062 30,674 25,430 27,840 25,229 27,242
- ---------------------------------------------------------------------------------------------------------------------
Per Capita Income, 1990 16,738 15,147 12,204 14,254 12,615 13,900 12,128 13,924
- ---------------------------------------------------------------------------------------------------------------------
Household Income Distribution-2001 Est. (%)
$15,000 and less 20 22 32 21 31 25 30 28
$15,000 - $25,000 16 18 20 18 18 19 20 18
$25,000 - $50,000 34 36 32 38 34 35 34 32
$50,000 - $100,000 24 21 14 20 15 18 13 19
$100,000 and over 6 4 3 3 3 3 3 4
- ---------------------------------------------------------------------------------------------------------------------
Unemployment rate, 1990 6.24 4.63 6.05 5.25 5.67 4.38 6.10 5.41
- ---------------------------------------------------------------------------------------------------------------------
Median Age of Population, 1996 Est 34.3 34.8 37.5 31.7 36.5 35.5 33.3 30.6
Median Age of Population, 1990 32.9 33.1 35.7 30.2 34.7 33.8 32.2 29.5
- ---------------------------------------------------------------------------------------------------------------------
Average Housing Value, 1990 79,098 79,714 64,848 80,152 60,114 72,842 69,541 76,684
- ---------------------------------------------------------------------------------------------------------------------
Total Households, 2001 Est. 103,293,062 3,005,720 17,701 33,196 23,760 36,217 13,320 49,013
1996 - 2001 Percent Change, Est. 5.14 7.79 4.05 4.76 3.45 9.85 7.17 7.88
Total Households, 1996 98,239,161 2,788,382 17,012 31,688 22,968 32,971 12,429 45,431
1990 - 96 Percent Change, Est. 6.84 10.78 5.29 7.26 4.70 13.53 9.18 12.20
Total Households, 1990 91,947,410 2,517,026 16,157 29,542 21,938 29,041 11,384 40,491
- ---------------------------------------------------------------------------------------------------------------------
Total Housing Units, 1990 101,641,260 2,818,193 19,598 32,293 23,739 31,024 12,298 43,070
% Vacant 10.07 10.69 17.56 8.52 7.59 6.39 7.43 5.99
% Occupied 89.93 89.31 82.44 91.48 92.41 93.61 92.57 94.01
% By Owner 57.78 60.74 61.09 57.92 58.28 60.27 60.38 54.60
% By Renter 32.15 28.57 21.35 33.56 34.14 33.34 32.18 39.41
=====================================================================================================================
</TABLE>
Source: Scan/US, Inc.
3
<PAGE>
FERGUSON & C0., LLP SECTION II.
- ------------------- -----------
Table II.2 - Employment by Industry
United States, North Carolina, and Counties in Home Savings' Market
<TABLE>
<CAPTION>
Pasquo-
United North Beaufort Craven Lenoir Nash tank Pitt
Industry States Carolina County County County County County County
=================================== ====== ======== ======== ====== ====== ====== ======= ======
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Construction/Agriculture/Mining 9.5 7.3 8.0 5.4 10.0 6.5 5.6 13.9
Manufacturing 17.7 23.4 45.0 12.3 28.0 33.8 9.6 2.7
Transportation/Utilities 7.1 4.6 2.0 3.4 2.0 2.3 3.7 3.6
Trade 21.2 22.5 17.0 22.6 20.0 25.9 29.8 34.3
Finance/Insurance 6.9 4.2 5.0 2.5 2.0 4.1 3.4 7.9
Services 32.7 21.8 15.0 18.1 16.0 14.9 13.8 33.1
Public Administration 4.9 16.2 8.0 35.7 22.0 12.5 34.1 4.5
</TABLE>
4
<PAGE>
FERGUSION & CO., LLP SECTION II.
- -------------------- -----------
Table II.3 - Market Area Deposits
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1995 1994 1993
-----------------------------------------
(in Thousands)
<S> <C> <C> <C>
Home Savings Bank $ 156,768 $ 124,257 $ 100,703
-----------------------------------------
Number of Branches 7 6 6
Other Savings Banks $ 34,926 $ 36,889 $ 39,350
-----------------------------------------
Number of Branches 3 3 3
Total Savings Bank Deposits $ 191,694 $ 161,146 $ 140,053
-----------------------------------------
Number of Branches 10 9 9
Total Savings Association Deposits $ 229,853 $ 233,589 $ 269,010
-----------------------------------------
Number of Branches 8 9 10
Total Bank Deposits $ 3,531,692 $ 3,317,692 $ 3,243,730
-----------------------------------------
Number of Branches 138 147 147
Total Credit Union Deposits $ 115,434 $ 119,320 $ 112,752
-----------------------------------------
Number of Branches 13 13 13
Total Market Area Deposits $ 4,068,673 $ 3,831,747 $ 3,765,545
========================================
Home Savings - Market Share
To Total Market Area Deposits 3.85% 3.24% 2.67%
- -------------------------------------------------------------------------------
</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>
----------------------------------------------------------------------------------------------------------------------
Beaufort County
---------------
Six Months
Ended June 30, Year Ended December 31,
-------------------- ---------------------------------------------------------
1996 1995 1994 1993
-------------------- ---------------- ----------------- -------------------
Value Value Value Value
No. ($000) No. ($000) No. ($000) No. ($000)
-------------------- ---------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential 141 $ 10,429 715 $ 28,048 890 $25,722 880 $ 20,029
Commercial 23 4,127 170 8,801 137 17,662 116 11,440
------------------- ---------------- ----------------- -------------------
Total 164 $ 14,556 885 $ 36,84 1,027 $43,384 996 $ 31,469
================== ================ ================= ===================
----------------------------------------------------------------------------------------------------------------------
</TABLE>
SOURCE: BEAUFORT COUNTY INSPECTIONS DEPARTMENT
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Craven County
-------------
Six Months
Ended June 30, Year Ended December 31,
-------------------- ---------------------------------------------------------
1996 1995 1994 1993
-------------------- ---------------- ----------------- -------------------
Value Value Value Value
No. ($000) No. ($000) No. ($000) No. ($000)
-------------------- ---------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential 340 $ 23,146 675 $ 42,390 719 $140,081 602 $ 41,870
and
Commercial
------------------- ---------------- ----------------- -------------------
Total 340 $ 23,146 675 $ 42,390 719 $140,081 602 $ 41,870
================== ================ ================= ===================
----------------------------------------------------------------------------------------------------------------------
</TABLE>
SOURCE: CRAVEN COUNTY BUILDING INSPECTIONS OFFICE
6
<PAGE>
FERGUSON & CO., LLP SECTION II.
- ------------------- -----------
TABLE II.4 - SUMMARY OF BUILDING PERMITS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Lenoir County
-------------
Six Months
Ended June 30, Year Ended December 31,
-------------------- ---------------------------------------------------------
1996 1995 1994 1993
-------------------- ---------------- ----------------- -------------------
Value Value Value Value
No. ($000) No. ($000) No. ($000) No. ($000)
-------------------- ---------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential 76 $ 4,214 147 $ 9,990 132 $ 8,354 142 $ 8,989
Commercial 17 11,247 27 2,091 14 1,703 21 32,928
------------------- ---------------- ----------------- -------------------
Total 93 $ 15,461 174 $ 12,081 146 $10,057 163 $ 41,917
================== ================ ================= ===================
----------------------------------------------------------------------------------------------------------------------
</TABLE>
SOURCE: LENOIR COUNTY BUILDING INSPECTIONS DEPARTMENT
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Nash County
-----------
Six Months
Ended June 30, Year Ended December 31,
-------------------- ---------------------------------------------------------
1996 1995 1994 1993
-------------------- ---------------- ----------------- -------------------
Value Value Value Value
No. ($000) No. ($000) No. ($000) No. ($000)
-------------------- ---------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential 222 $ 15,277 276 $ 15,163 306 $ 20,494 303 $ 17,849
Commercial 9 1,210 40 10,830 24 3,824 25 4,780
------------------- ---------------- ----------------- -------------------
Total 231 $ 16,487 316 $ 25,993 330 $ 24,318 328 $ 22,629
================== ================ ================= ===================
----------------------------------------------------------------------------------------------------------------------
</TABLE>
SOURCE: PLANNING DEPARTMENT AND BUDGET OFFICE OF NASH COUNTY
7
<PAGE>
FERGUSON & CO., LLP SECTION II.
- ------------------- -----------
TABLE II.4 - SUMMARY OF BUILDING PERMITS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Pasquotank County
-----------------
Six Months
Ended June 30, Year Ended December 31,
-------------------- ---------------------------------------------------------
1996 1995 1994 1993
-------------------- ---------------- ----------------- -------------------
Value Value Value Value
No. ($000) No. ($000) No. ($000) No. ($000)
-------------------- ---------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential 203 $ 3,922 351 $ 8,936 345 $11,268 341 $ 9,087
Commercial 55 1,162 86 1,930 53 439 74 534
------------------- ---------------- ----------------- -------------------
Total 258 $ 5,084 437 $ 10,866 398 $11,707 415 $ 9,621
================== ================ ================= ===================
----------------------------------------------------------------------------------------------------------------------
</TABLE>
SOURCE: COUNTY INSPECTORS OFFICE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Pitt County
-----------
Six Months
Ended June 30, Year Ended December 31,
-------------------- ---------------------------------------------------------
1996 1995 1994 1993
-------------------- ---------------- ----------------- -------------------
Value Value Value Value
No. ($000) No. ($000) No. ($000) No. ($000)
-------------------- ---------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential 237 $ 16,225 477 $ 33,975 579 $ 45,515 527 $ 42,016
Commercial 123 4,364 245 171,790 218 155,777 198 5,831
------------------- ---------------- ----------------- -------------------
Total 360 $ 20,589 722 $205,765 797 $201,292 725 $ 47,847
================== ================ ================= ===================
----------------------------------------------------------------------------------------------------------------------
</TABLE>
SOURCE: PITT COUNTY BUILDING INSPECTOR
8
<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 Home Savings relative to a group of
twelve 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 Home Savings' 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
Home Savings to the comparative group. Exhibits III and IV contain selected
financial information on Home Savings 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 between $150 million and $300 million. The Southeast Region, which
includes North Carolina, had 9 thrifts that met the aforementioned requirements.
We found 80 thrifts that met the asset size requirements in the entire country
(we consider 10 to be the minimum number), and we retained 12 and eliminated 68
for the following reasons: (a) Seven were mutual holding companies; (b) Twelve
were BIF insured; (c) Sixteen had less than one full year reporting as a stock;
(d) Two had no meaningful earnings data; (e) Nine had non-performing assets in
excess of 1.5% of total assets; and (f) Twenty had less than 60% of their assets
in loans. After eliminating the thrifts described above, there were 34 left. We
selected the 12 with the highest loans serviced to total assets ratios and
eliminated the remaining 22.
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.
1
<PAGE>
FERGUSON & CO., LLP SECTION III
- ------------------- -----------
The resulting group of 270 publicly traded thrifts is included in Exhibit V.
The selected group of comparatives has sufficient trading volume to provide
meaningful price data. Three of the comparative group members are located in
the Southeast and the others are located in the Midwest (8), and Mid-Atlantic
(1) Regions. With total assets of approximately $194.1 million, Home Savings is
slightly below the group selected, which has average assets of $222.3 million
and median assets of $218.0 million. However, Home savings' assets after
conversion should be in line with the comparative group. Pro forma assets at
the midpoint are $220.8 million.
PROFITABILITY
Using the comparison of profitability components as a percentage of average
assets, Home Savings was below the comparative group in return on assets, .45%
to .93%; loss provisions, .28% to .07%; and operating expense, 3.46% to 2.39%.
Home Savings was above the comparative group in net interest income, 3.95% to
3.01%; other operating income, 1.00% to .64%; and core income, .92% to .86%.
Home Savings' operating expense minus other income was 2.46% versus 1.75% for
the comparative group. After conversion, deployment of the proceeds will
provide additional income, and Home Savings will compare more favorably with the
comparative group in terms of return on average assets, with a return of 1.10%
at the midpoint of the appraisal range. Pro forma return on average equity is
5.22% at the midpoint, versus a mean of 10.64% and median of 9.26% for the
comparative group.
BALANCE SHEET CHARACTERISTICS
The general asset composition of Home Savings is similar to that of the
comparative group. Home Savings has a lower level of passive investments with
16.21% of its assets invested in cash, investments, and mortgage-backed
securities, versus 24.22% for the comparative group. Home Savings has a higher
percentage of its assets in loans, at 80.19% versus 73.01% for the comparative
group. Home Savings' percentage of earning assets to interest costing
liabilities is slightly lower than that of the group. Home Savings has 107.77%
and the comparative group averages 109.70%. After conversion, Home Savings'
ratio will be well above that of the group of comparatives.
The liability side differs mainly in that Home Savings has a lower
percentage of borrowings and a higher percentage of deposits. Home Savings' has
borrowings equal to .54% of assets versus 12.41% for the comparative group and
Home Savings has deposits equal to 88.19% of assets versus 76.19% for the
comparative group.
RISK FACTORS
Both Home Savings and the comparative group have low levels of
nonperforming assets, with Home Savings' being slightly higher than the
comparative group. Home Savings' loan loss allowance is 1.51% of net loans,
which compares favorably with the comparative group. Home Savings' one year gap
to assets is negative 12.20% versus positive 3.67% for the comparative group.
SUMMARY OF FINANCIAL COMPARISON
Based on the above discussion of operational, balance sheet, and risk
characteristics of Home Savings compared with the group, we believe that Home
Savings' performance is level with that of the comparative group. While Home
Savings' capital level is below the comparative group, the conversion proceeds
will increase its capital well above the comparatives.
2
<PAGE>
FERGUSON & CO., LLP SECTION III
- ------------------- -----------
FUTURE PLANS
Home Savings' 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 the continuing transition from thrift to
commercial bank. The business plan 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 equity.
Home Savings has always adhered to a controlled growth policy, and in
recent years, it has continued to experience healthy growth. 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. And Management intends to continue
to build the Bank's mortgage banking operation.
Home Savings 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 or another financial institution a viable option. Management
intends to expand and will open additional full service branches and loan
production offices if necessary to meet the Bank's growth plans.
Increasing market penetration by increasing the number of services and
products available, coupled with opening additional offices, are the most likely
methods to be employed to achieve growth on a long-term basis.
3
<PAGE>
FERGUSON & CO., LLP TABLE III.1-COMPARATIVES GENERAL CHARACTERISTICS
- -------------------
SECTION III.
- -----------
<TABLE>
<CAPTION>
Total Current Current
Number Assets Stock Market
of ($000) Price Value
Ticker Short Name City Sta Type (1) Offices Mst RctQ PO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CAPS Capital Savings Bancorp, Jefferson City MO Trad & MB 6 217,954 12/29/93 22.500 21.74
EQSB Equitable Federal Saving Wheaton MD Trad & MB 4 267,776 09/10/93 26.250 15.75
FCBF FCB Financial Corp. Neenah WI Trad & MB 6 265,172 09/24/93 18.250 44.89
FFED Fidelity Federal Bancorp Evansville IN Trad & MB 4 262,216 08/31/87 11.000 27.45
FFHS First Franklin Corporation Cincinnati OH Trad & MB 7 216,508 01/26/88 14.250 16.61
GFCO Glenway Financial Corp. Cincinnati OH Trad & MB 6 278,809 11/30/90 18.250 20.64
MWFD Midwest Federal Financial Baraboo WI Trad & MB 9 187,601 07/08/92 23.250 37.81
NFSL Newnan Holdings, Inc. Newnan GA Trad & MB 9 162,199 03/01/86 24.500 35.76
OSBF OSB Financial Corp. Oshkosh WI Trad & MB 7 250,003 07/01/92 23.750 26.39
PLE Pinnacle Bank Jasper AL Trad & MB 5 186,475 12/17/86 17.375 15.46
SJSB SJS Bancorp St. Joseph MI Trad & MB 4 150,752 02/16/95 23.000 22.60
UFRM United Federal Savings Bank Rocky Mount NC Trad & MB 9 255,485 07/01/80 7.688 23.56
Maximum 9 278,809 26.250 44.89
Minimum 4 150,752 7.88 15.46
Average 6 225,079 19.172 25.72
Median 6 233,979 20.375 23.08
</TABLE>
(1) All of these thrifts are traditional with some emphasis on mortgage banking.
SOURCE: SNL & F&C CALCULATIONS
4
<PAGE>
FERGUSON CO., LLP SECTION III.
- ----------------- ------------
TABLE III.2 - KEY FINANCIAL INDICATORS
<TABLE>
<CAPTION>
Home Savings Comparative
Bank Group
------------- ------------
<S> <C> <C>
PROFITABILITY
(% of average assets)
Net income 0.45 0.93
Net interest income 3.95 3.01
Loss (recovery) provisions 0.28 0.07
Other operating income 1.00 0.64
Operating expense (1) 3.46 2.39
Core income ( excluding gains and losses
on asset sales and real estate o 0.92 0.86
BALANCE SHEET FACTORS
(% of assets)
Cash and investments 8.59 16.31
Mortgage-backed securities 7.62 7.91
Loans 80.19 73.01
Savings deposits 88.19 76.19
Borrowings 0.54 12.41
Equity 9.45 9.91
Tangible equity 9.45 9.83
RISK FACTORS
(%)
Earning assets/costing liabilities 107.77 109.70
Non-performing assets/assets 0.62 0.50
Loss allowance/non performing asset 228.28 186.70
Loss allowance/loans 1.51 0.73
One year gap/assets (12.20) 3.67
(1) For 1996, SAIF assessment of $946,000 was
excluded from operating expense and SAIF
assessment of $582,000 (after deducting
related taxes of $364,000) was excluded from
core income.
</TABLE>
SOURCE: SNL SECURITIES, F&C CALCULATIONS,
AND OFFERING CIRCULAR
5
<PAGE>
FERGUSON & CO, LLP TABLE III.3 - PRO FORMA COMPARISONS SECTION III.
- ------------------ CONVERTING INSTITUTION TO COMPARATIVE GROUP ------------
HOME SAVINGS BANK, SSB
As of October 18, 1996
<TABLE>
<CAPTION>
Ticker Name Price Mk Value PE P/Book P/TBook P/Assets Div Yld Assets
($) ($Mil) (X) (%) (%) (%) (%) ($000)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HOME SAVINGS
------------
Before Conversion N/A N/A N/A N/A N/A N/A N/A 194,139
Pro Forma Supermax 15.000 41.66 16.4 77.5 77.5 18.2 2.67 229,566
Pro Forma Maximum 15.000 36.23 14.9 73.8 73.8 16.1 2.67 224,877
Pro Forma Midpoint 15.000 31.50 13.5 70.0 70.0 14.3 2.67 220,799
Pro Forma Minimum 15.000 26.78 12.0 65.4 65.4 12.4 2.67 216,722
COMPARATIVE GROUP
-----------------
Averages 20.216 25.92 15.8 125.3 126.9 12.2 2.77 222,315
Medians 22.500 22.60 12.9 108.4 108.4 10.5 2.25 217,954
NC PUBLIC THRIFTS
-----------------
Averages 15.922 31.35 15.7 104.6 105.8 16.5 5.36 184,474
Medians 18.188 22.97 15.4 105.1 106.9 15.5 3.31 193,687
SOUTHEAST REGION THRIFTS
------------------------
Averages 17.200 71.14 15.0 128.3 132.0 13.8 2.90 564,507
Medians 17.750 47.98 14.3 119.3 121.5 13.0 2.53 341,528
ALL PUBLIC THRIFTS
------------------
Averages 19.876 168.18 14.6 121.3 126.3 12.1 2.28 1,547,023
Medians 18.000 48.39 14.1 115.3 118.7 10.9 2.22 427,615
COMPARATIVE GROUP
-----------------
CAPS CapitalSavBancp-MO 22.500 21.74 12.0 108.4 108.4 10.2 1.60 217,954
EQSB EquitableFSB-MD 26.250 15.75 8.4 111.0 111.0 5.9 - 267,776
FCBF FCBFinancialCrp-WI 18.250 44.89 16.7 96.2 96.2 16.9 3.95 265,172
FFED FidelityFed-IN 11.000 27.45 11.0 192.0 192.0 10.5 7.27 262,216
FFHS FirstFranklin-OH 14.250 16.61 13.6 81.9 82.7 7.7 2.25 216,508
GFCO GlenwayFinCp-OH 18.250 20.64 12.9 77.1 78.8 7.4 3.55 278,809
MWFD MidwestFedFin-WI 23.250 37.81 22.4 224.9 235.1 20.3 1.29 187,601
NFSL NewnanSvgsBk-GA 24.500 35.76 11.5 172.3 173.1 22.0 1.80 162,199
OSBF OSBFinancial-WI 23.750 26.39 29.3 84.0 84.0 10.6 2.70 250,008
PLE PinnacleBank-AL 17.375 15.46 10.6 102.0 105.7 8.3 4.14 186,475
SJSB SJSBancorp-MI 23.000 22.60 25.6 128.5 128.5 15.0 1.91 150,752
</TABLE>
6
<PAGE>
FERGUSON & CO., LLP TABLE III.3 - PRO FORMA COMPARISONS SECTION III.
- ------------------- ------------
CONVERTING INSTITUTION TO COMPARATIVE GROUP
As of October 18, 1996
<TABLE>
<CAPTION>
Ticker Name Eq/A TEq/A EPS ROAA ROAE
(%) (%) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C>
HOME SAVINGS
------------
Before Conversion 9.5 9.5 N/A 0.92 9.47
Pro Forma Supermax 23.4 23.4 0.91 1.15 4.75
Pro Forma Maximum 21.8 21.8 1.01 1.12 4.98
Pro Forma Midpoint 20.4 20.4 1.11 1.10 5.22
Pro Forma Minimum 18.9 18.9 1.25 1.07 5.51
COMPARATIVE GROUP
------------------
Averages 10.1 10.0 1.46 0.94 10.64
Medians 9.4 9.4 1.09 0.85 9.26
NC PUBLIC THRIFTS
-----------------
Averages 16.1 15.9 1.01 1.11 7.38
Medians 15.1 14.8 1.04 1.07 6.81
SOUTHEAST REGION THRIFTS
------------------------
Averages 11.2 11.1 1.18 1.01 9.94
Medians 9.6 9.2 1.10 0.93 8.92
ALL PUBLIC THRIFTS
------------------
Averages 10.5 10.3 1.47 0.95 9.77
Medians 9.0 8.5 1.28 0.91 8.92
COMPARATIVE GROUP
-----------------
CAPS CapitalSavBancp-MO 9.4 9.4 1.88 0.92 9.26
EQSB EquitableFSB-MD 5.3 5.3 3.13 0.78 14.98
FCBF FCBFinancialCrp-WI 17.6 17.6 1.09 1.09 5.71
FFED FidelityFed-IN 5.5 5.5 1.00 1.18 23.76
FFHS FisrtFranklin-OH 9.4 9.3 1.05 0.62 6.56
GFCO GlenwayFinCp-OH 9.6 9.4 1.41 0.56 5.91
MWF MidwestFedFin-WI 9.0 8.7 1.04 1.28 13.41
NFSL NewnanSvgsBk-GA 12.8 12.7 2.14 2.25 19.85
OSBF OSBFinancial-WI 12.6 12.6 0.81 0.21 1.63
PLE PinnacleBank-AL 8.1 7.9 1.64 0.85 10.96
SJSB SJSBancorp-MI 11.7 11.7 0.90 0.63 5.00
</TABLE>
Note: Stock prices are closing prices or last trade.
Pro forma calculations for Home Savings are based on
sales at $15 per share with a midpoint of $31,500,000,
minimum of $26,775,000, and maximum of $36,225,000.
SOURCES: HOME SAVINGS' 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 Home Savings' 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 Bank 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 Home
Savings' 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, Home Savings is
below its comparative group in return on assets but above its comparative group
in core income as a percentage of average assets. Home Savings, unlike any
members of the comparative group, has the SAIF resolution assessment included in
its operations, along with higher than normal loan loss provisions and write-
offs of equipment. After adjusting for the items referred to in the preceding
sentence, Home Savings' core income as a percentage of average assets is above
the comparative group. Home Savings' net interest income as a percent of assets
is 3.95% versus 3.01% for the comparatives. The difference is attributable to
the loan mix (i.e., Home Savings has more in consumer and commercial loans,
which have higher yields), Home Savings' higher ratio of loans to assets and
lower ratio of investments to assets versus the comparative group, and Home
Savings' deposit mix, which includes more transaction accounts.
Home Savings loan loss provisions are well above its comparative
group, with loss provisions of .28% of assets versus .07% of assets for the
comparative group. This results from Home Savings having higher levels of
consumer and commercial loans, which generally entail more risk. Home Savings'
other operating income is 1.00% of average assets, versus .64% for the
comparative group. Home Savings' higher ratio results from its higher level of
off-balance sheet assets (i.e., loan servicing) and from its loan and deposit
mix, which are more commercial bank oriented, and give rise to more fee income.
Home Savings' operating expense ratio, at 3.46% of average assets, is
well above that of the comparative group, which is 2.39%. Home Savings' higher
ratio results from its generally higher level of loan servicing and from its
generally higher levels of commercial bank type loans and deposits.
After Home Savings completes its stock conversion, its core income as
a percentage of average assets will increase. Table III.3 projects that Home
Savings return on assets will be 1.10% at the midpoint, versus a mean of 0.94%
and median of 0.85% for the comparative group.
Home Savings' pro forma equity to assets ratio at the midpoint is
20.4%, versus a mean of 10.1% and median of 9.4% for the comparative group,
making it difficult for Home Savings to achieve a reasonable return on equity.
Home Savings' pro forma return on equity is well below
1
<PAGE>
FERGUSON & CO., LLP SECTION IV.
- ------------------- ----------
the comparative group--5.22% at the midpoint versus a mean of 10.64% and median
of 9.26% for the comparative group.
Home Savings' recorded earnings have been adjusted for appraisal
purposes. The Bank recorded higher than normal loan loss provisions and
depreciation, and the SAIF resolution assessment.
TABLE IV.1 - APPRAISAL EARNINGS ADJUSTMENTS
<TABLE>
<S> <C>
Net income, year ended September 30, 1996 $ 820,000
Plus SAIF assessment 946,000
Plus abnormal depreciation 225,000
Plus loan loss provisions in excess of
normal amount--511,000 - 240,000 271,000
Less applicable taxes on above adjustments at 38.5% -555,000
-----------
Appraisal earnings, year ended September 30, 1996 $1,707,000
===========
</TABLE>
Home Savings' asset composition is similar but less passive, than the
comparative group. Home Savings has a higher ratio of loans to assets, lower
ratio of investments and mortgage-backed securities to assets, higher ratio of
deposits to assets, and lower ratio of borrowings to assets. From the risk
factor viewpoint, Home Savings is similar to the comparative group. Home
Savings has a slightly higher level of non performing assets. Home Savings'
loan loss allowance is 1.51% of net loans, comparing favorably with the
comparative group, which is 0.73%. Home Savings has a higher level of consumer
and commercial loans, which entail a higher level of risk. Its ratio of
interest earning assets to interest bearing liabilities (107.77%) is slightly
below the comparative group (109.70%). Home Savings' ratio will be well above
the comparative group after conversion. From an interest rate risk factor, Home
Savings has more interest rate risk than the comparative group.
We believe that NO ADJUSTMENT is necessary relative to financial
-------------
aspects of Home Savings.
MARKET AREA
Section II describes Home Savings' market area.
We believe that NO ADJUSTMENT is required for Home Savings' market
-------------
area.
MANAGEMENT
The President, who functions as CEO, has been with Home Savings 24
years, serving as CEO since 1975. The COO has been with the Bank for 3 years,
after serving for 16 years with another thrift for which he served as CFO. The
rest of the officers have either served Home Savings for many years or other
financial institutions performing the duties they perform for Home Savings. To
facilitate the Bank's conversion from thrift to commercial bank, the Bank's
management staff includes a wealth of commercial bank experience with quality,
major banks. Home Savings' results compare well with the comparative group.
Home Savings' management has done a better job of planning and preparing for the
Bank's future. Home Savings has a management succession plan.
2
<PAGE>
FERGUSON & CO., LLP SECTION IV.
- ------------------- -----------
We believe that an UPWARD ADJUSTMENT is required Home Savings'
-----------------
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 2.77% and a median of 2.25%, while all public thrifts are
paying a mean of 2.28% and median of 2.22%. Home Savings intends to pay a
dividend at an initial annual rate of 2.67%.
We believe that NO ADJUSTMENT is required relative to Home Savings'
-------------
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, 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 Bank 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 $15.46 million to $44.89 million, with a mean
value of $25.92 million. The midpoint of Home Savings' valuation range is $31.5
million at $15 a share, or 2,100,000 shares.
We believe a slight UPWARD ADJUSTMENT is required relative to the
-----------------
liquidity of Home Savings' 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 53.9% to
376.5; and Period ended October 18, 1996--increased 18.7% to 446.9. 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 October 18, 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 376.5 by December 31, 1995, an increase of 53.9%. However, the
Index was flat for the first six months of 1996, but it has picked up since June
30, and at October 18, 1996, it was up 18.7% for the year.
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
3
<PAGE>
FERGUSON & CO., LLP SECTION IV.
- ------------------- -----------
the institutions will become viable consolidation candidates and sell at some
expanded multiple of book value.
NORTH CAROLINA ACQUISITIONS
Table IV.2 provides information relative to acquisitions of financial
institutions in North Carolina between January 1, 1994 and August 31, 1996.
There were 8 thrift acquisitions and 18 bank acquisitions announced during that
time frame. Activity, however, has slowed significantly during 1996.
Currently, there are 12 publicly held thrifts in the State of North Carolina.
There are 58 publicly held thrifts in the southeast region of the country. Bank
acquisitions in North Carolina since January 1, 1994, have averaged 215.5% of
tangible book value and 22.7 times earnings. The median price has been 224.9%
of tangible book value and 20.4 times earnings. Thrifts generally sell at lower
price/book multiples than do banks. Thrifts in North Carolina during that
period have averaged 167.0% of tangible book value and 20.3 times earnings.
Home Savings, unlike many other thrifts in North Carolina, has never seriously
considered an offer to be acquired.
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 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 March
1996. In March 1996, the yield curve was relatively flat, with only a 145 basis
point ("BP") difference between the federal funds rate and the 30 year treasury
at March 15, 1996. Since that time, the yield curve has changed very little
with a 161 BP spread between the federal funds rate and the 30 year treasury
rate at October 17, 1996.
At March 15, 1996, the spread between the 1 year T-Bill and the 5 year
T-Note was 63 bp, and the spread between the 5 year T-Note and the 30 year bond
was 67 bp. On October 17, 1996, the spreads were 72 and 58 bp, respectively.
From March 1996 to October 1996, the Fed Funds rate increased 1 basis
point and the Prime Rate did not change.
4
<PAGE>
FERGUSON & CO., LLP SECTION IV.
- ------------------- -----------
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.
Home Savings, 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 36 conversions completed
since March 31, 1996. The average change in price since conversion is a gain of
27.2% and the median change is a gain of 25.6%. Within that group, all have
increased in value with a range of a low of 4.4% to a high of 56.3%. The
average increase in value at one day, one week, and one month after conversion
has been 10.4%, 11.3%, and 8.8%, respectively. The median increase in value at
one day, one week, and one month after conversion has been 8.4%, 9.1%, and 5.0%,
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 October 18, 1996, is 88.3% and
the median is 87.8%. That compares to the offering price to pro forma book,
where the average was 68.9% and the median was 69.9%.
We believe a DOWNWARD ADJUSTMENT is required for the new issue
-------------------
discount.
ADJUSTMENTS CONCLUSION
ADJUSTMENTS SUMMARY
- -----------------------------------------------------------------------
NO CHANGE UPWARD DOWN
Financial Aspects X
Market Area X
Management X
Dividends X
Liquidity X
Thrift Equity Market Conditions X
- -----------------------------------------------------------------------
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.
5
<PAGE>
FERGUSON & CO., LLP SECTION IV.
- ------------------- -----------
Table III.3 presents Home Savings' pro forma ratios and compares them
to the ratios of its comparative group and the publicly held thrift industry as
a whole. Home Savings' earnings for the twelve months ended September 30, 1996,
were approximately $820,000, with adjustments of $887,000 required to determine
appraisal earnings of $1,707,000. 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 Bank is positioned to manage reasonable interest rate variations. The Bank
projects healthy growth.
The comparative group traded at an average of 15.8 times earnings at
October 18, 1996, and at 125.3% of book value. The comparative group traded at
a median of 12.9 times earnings and a median of 108.4% of book value. At the
midpoint of the valuation range, Home Savings is priced at 13.5 times earnings
and 70.0% of book value. At the maximum end of the range, Home Savings is
priced at 14.9 times earnings and 73.8% of book value. At the supermaximum,
Home Savings is priced at 16.4 times earnings and 77.5% of book value.
The midpoint valuation of $31,500,000 represents a discount of 44.1%
from the average and a discount of 35.4% from the median of the comparative
group on a price/book basis. The price/earnings ratio for Home Savings at the
midpoint represents a discount of 14.6% from the comparative group's mean and a
premium of 4.7% over the median price/earnings ratio.
The maximum valuation of $36,225,000 represents a discount of 41.1%
from the average and 31.9% from the median of the comparative group on a
price/book basis. The price/earnings ratio for Home Savings at the maximum
represents a discount of 5.7% from the average and a premium of 15.5% over the
median of the comparative group.
As shown in Table III.3, conversions closing since March 31, 1996,
have closed at an average price to book ratio of 68.9% and median of 69.9%.
Home Savings' pro forma price to book ratio is 70.0% at the midpoint, 73.8% at
the maximum, and 77.5% at the supermaximum of the range. At the midpoint, Home
Savings is 1.6% above the average and .1% above the median. At the maximum of
the range, Home Savings is 7.1% above the average and 5.6% above the median. At
the supermaximum of the range, Home Savings' pro forma price to book ratio is
12.5% above the average and 10.9% above the median.
VALUATION CONCLUSION
We believe that as of October 18, 1996, the estimated pro forma market
value of Home Savings was $31,500,000. The resulting valuation range was
$26,775,000 at the minimum to $36,225,000 at the maximum, based on a range of
15% below and 15% above the midpoint valuation. The supermaximum is
$41,658,750, 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-NORTH CAROLINA ACQUISITIONS SECTION IV.
- ------------------- -----------
(ANNOUNCED BETWEEN JANUARY 1, 1994 AND AUGUST 31, 1996)
<TABLE>
<CAPTION>
Total
Bank/ Bank/ Assets
Buyer ST Thrift Seller ST Thrift ($000)
<S> <C> <C> <C> <C> <C> <C>
Bank of Granite Corp NC Bank Carolina State Bank NC Bank 121,568
Triangle Bancorp NC Bank Granville United Bank NC Bank 59,342
CCB Financial Corp NC Bank Salem Trust Bank NC Bank 154,098
Fidelity BancShares NC Bank Perpetual State Bank NC Bank 45,939
Centura Banks NC Bank FirstSouth Bank NC Bank 181,306
Centura Banks NC Bank First Community Bank NC Bank 112,355
Centura Banks NC Bank First Comm'l Holding NC Bank 174,562
United Carolina Bncs NC Bank Triad Bank NC Bank 199,237
First Charter Corp NC Bank Bank of Union NC Bank 126,343
Triangle Bancorp NC Bank Village Bank NC Bank 64,308
CCB Financial Corp NC Bank Security Capital NC Bank 914,115
Triangle Bancorp NC Bank Columbus Nat'l Bank NC Bank 54,780
Triangle Bancorp NC Bank Atlantic Community NC Bank 163,622
Triangle Bancorp NC Bank Standard Bank NC Bank 77,536
First Citizens BcShs NC Bank State Bk-Fayetteville NC Bank 54,405
BB&T Financial Corp NC Bank Southern Nat'l Corp NC Bank 8,236,362
Mutual Community SB NC Thrift Greensboro NB NC Bank 20,834
United Carolina Bncs NC Bank Bank of Iredell NC Bank 79,300
First Citizens BcShs NC Bank Allied Bank Capital NC Thrift 268,654
United Carolina Bncs NC Bank Seaboard Svgs Bk SSB NC Thrift 47,100
First Union Corp NC Bank RS Financial corp NC Thrift 809,772
Centura Banks NC Bank First Southern Bncp NC Thrift 318,751
Centura Banks NC Bank Cleveland Federal NC Thrift 87,575
First Citizens BcShs NC Bank First Investors SB NC Thrift 54,648
First Citizens BcShs NC Bank First Republic SB NC Thrift 59,187
First Citizens BcShs NC Bank Edgecombe Homestead NC Thrift 38,914
Average 481,716
Median 99,965
Average--Banks 602,223
Median--Banks 116,962
Average--Thrifts 210,575
Median--Thrifts 73,381
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 7
<PAGE>
FERGUSON & CO., LLP TABLE IV.2-NORTH CAROLINA ACQUISITIONS SECTION IV.
- ------------------- -----------
(ANNOUNCED BETWEEN JANUARY 1, 1994 AND AUGUST 31, 1996)
<TABLE>
<CAPTION>
Deal Deal Deal
Deal Price/ Price/ Price/
Announce Value Book Tg Bk 4-Qtr
Date Status ($M) (%) (%) EPS (x)
<S> <C> <C> <C> <C> <C> <C>
Carolina State Bank 07/25/96 Terminated 29.0 254.7 273.7 21.1
Granville United Bank 06/10/96 Pending 10.5 166.8 181.6 22.7
Salem Trust Bank 05/14/96 Pending 41.2 246.5 246.5 29.8
Perpetual State Bank 04/22/96 Completed 11.3 117.4 117.4 47.0
FirstSouth Bank 04/18/96 Pending 36.9 221.8 235.0 20.2
First Community Bank 03/20/96 Completed 26.8 229.8 229.8 19.9
First Comm'l Holding 11/28/95 Completed 54.2 287.1 288.3 18.6
Triad Bank 10/19/95 Completed 37.5 250.8 250.8 20.4
Bank of Union 09/13/95 Completed 32.6 303.9 308.2 22.9
Village Bank 05/04/95 Completed 9.8 219.9 219.9 32.5
Security Capital 11/07/94 Completed 229.7 183.4 183.4 16.4
Columbus Nat'l Bank 09/26/94 Completed 13.5 211.6 211.6 17.4
Atlantic Community 09/09/94 Completed 19.9 135.2 197.3 NA
Standard Bank 09/02/94 Completed 14.6 191.5 241.5 33.9
State Bk-Fayetteville 08/29/94 Completed 11.9 186.1 186.4 24.7
Southern Nat'l Corp 08/01/94 Completed 932.8 176.3 179.9 10.0
Greensboro NB 02/28/94 Completed 1.1 88.2 88.2 8.5
Bank of Iredell 01/14/94 Completed 16.0 240.2 240.2 20.1
Allied Bank Capital 08/07/95 Completed 66.3 186.0 186.0 19.6
Seaboard Svgs Bk SSB 07/24/95 Completed 8.7 146.7 146.7 35.2
RS Financial corp 05/30/95 Completed 111.6 161.7 169.2 19.9
First Southern Bncp 12/12/94 Completed 51.4 122.0 131.1 14.5
Cleveland Federal 10/28/94 Completed 15.5 146.6 146.6 14.7
First Investors SB 08/10/94 Completed 6.9 215.9 215.9 26.6
First Republic SB 07/08/94 Completed 10.9 186.2 186.2 10.9
Edgecombe Homestead 01/24/94 Completed 10.9 154.4 154.4 20.7
Average 69.7 193.5 200.6 21.9
Median 18.0 186.2 191.9 20.2
Average--Banks 85.0 206.2 215.5 22.7
Median--Banks 23.4 215.7 224.9 20.4
Average--Thrifts 35.3 164.9 167.0 20.3
Median--Thrifts 13.2 158.1 161.8 19.8
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 8
<PAGE>
FEGUSON & CO., LLP TABLE IV.3 - RECENT CONVERSIONS SECTION IV.
- ------------------ -----------
(CLOSED SINCE MARCH 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>
CNBA Chester Bancorp, Inc. IL 10/08/96 134,781 21,821 10.000
SSFC South Street Financial Corp. NC 10/03/96 166,978 44,965 10.000
AFED AFSALA Bancorp, Inc. NY 10/01/96 133,046 14,548 10.000
WEHO Westwood Homestead Fin. Corp. OH 09/30/96 96,638 28,434 10.000
CBES CBES Bancorp, Inc. MO 09/30/96 86,168 10,250 10.000
HBEI Home Bancorp of Elgin, Inc. IL 09/27/96 304,520 70,093 10.000
PFFC Peoples Financial Corp. OH 09/13/96 78,078 14,910 10.000
PFED Park Bancorp, Inc. IL 08/12/96 158,939 27,014 10.000
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
FLKY First Lancaster Bancshares KY 07/01/96 35,361 9,588 10.000
EGLB Eagle BancGroup, Inc. IL 07/01/96 150,974 13,027 10.000
PROV Provident Financial Holdings CA 06/28/96 570,691 51,252 10.000
WYNE Wayne Bancorp, Inc. NJ 06/27/96 207,997 22,314 10.000
PRBC Prestige Bancorp, Inc. PA 06/27/96 91,841 9,630 10.000
MECH Mechanics Savings Bank CT 06/26/96 662,482 52,900 10.000
DIME Dime Community Bancorp, Inc. NY 06/26/96 665,187 145,475 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
YFCB Yonkers Financial Corporation NY 04/18/96 208,283 35,708 10.000
CATB Catskill Financial Corp. NY 04/18/96 230,102 56,868 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
WHGB WHG Bancshares Corp. MD 04/01/96 85,027 16,201 10.000
SSM Stone Street Bancorp, Inc. NC 04/01/96 84,996 27,376 15.000
SSB Scotland Bancorp, Inc NC 04/01/96 57,718 18,400 10.000
PHFC Pittsburgh Home Financial Corp PA 04/01/96 157,570 21,821 10.000
LONF London Financial Corporation OH 04/01/96 34,152 5,290 10.000
FBER 1st Bergen Bancorp NJ 04/01/96 223,167 31,740 10.000
AMFC AMB Financial Corp. IN 04/01/96 68,851 11,241 10.000
Minimum 1,036,445 167,762 20.000
Maximum 28,222 5,059 8.000
Average 197,736 32,480 10.417
Median 133,914 21,821 10.000
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 9
<PAGE>
FERGUSON & CO., LLP TABLE IV.3 - RECENT CONVERSIONS SECTION 1V.
- ------------------- -----------
(CLOSED SINCE MARCH 31, 1996)
<TABLE>
<CAPTION>
Conversion Pricing Ratios
-------------------------------------
Price/ Price/ Price/ Current Current Current Price One
Pro-Forma Pro-Forma Adj Stock Price/ Price/ T Day After
B Value Earnings Assets Price B Value B Value Conv
Ticker (%) (x) (%) ($) (%) (%) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
CNBA 70.1 14.1 13.9 12.750 NA NA 12.938
SSFC 74.1 27.0 21.2 12.625 NA NA NA
AFED 69.7 14.1 9.9 11.750 NA NA 11.375
WEHO 71.7 92.8 22.7 10.438 NA NA 10.750
CBES 61.1 13.2 10.6 13.500 NA NA 12.625
HBEI 70.6 17.4 18.7 12.500 NA NA 11.813
PFFC 62.7 26.7 16.0 12.250 NA NA 10.875
PFED 64.9 17.8 14.5 11.875 NA NA 10.250
ANA 69.9 NA 12.7 13.875 NA NA 12.000
PWBK 65.8 13.3 12.8 11.500 NA NA 9.500
MBSP 68.1 94.5 25.8 12.750 NA NA NA
OCFC 69.2 13.8 13.9 24.063 NA NA 21.250
HWEN 66.2 12.4 13.1 12.125 NA NA 10.250
FLKY 72.5 19.0 21.3 14.750 NA NA 13.500
EGLB 57.1 58.1 7.9 13.375 NA NA 11.250
PROV 60.9 18.2 8.2 12.750 76.0 76.0 10.970
WYNE 60.9 16.7 9.7 14.625 89.0 89.0 11.125
PRBC 61.9 24.6 9.5 12.500 78.8 78.8 10.375
MECH 72.0 NA 7.4 15.625 121.1 121.1 11.500
DIME 69.1 15.7 17.9 13.750 93.9 108.2 11.687
CNSB 69.3 26.1 16.2 13.250 90.5 90.5 11.000
LXMO 69.1 14.4 20.2 12.000 81.0 81.0 9.500
FFBH 63.4 9.8 10.2 15.625 96.6 96.6 13.000
CBK 73.1 15.3 11.0 12.000 83.2 83.2 10.500
RELI 72.5 22.5 38.9 9.125 79.7 NA 8.375
YFCB 74.9 16.1 14.6 12.625 92.0 92.0 9.750
CATB 71.9 19.0 19.8 12.875 83.5 83.5 10.375
GSFC 71.0 14.8 22.2 15.125 103.6 103.6 12.875
FFDF 69.9 17.4 19.8 11.500 78.1 78.1 10.500
WHGB 71.1 15.5 16.0 13.750 NA NA 11.125
SSM 74.9 19.7 24.4 18.250 86.9 86.9 17.500
SSB 74.8 16.2 24.2 12.875 95.9 95.9 12.250
PHFC 72.8 17.5 12.2 11.625 83.5 83.5 11.000
LONF 68.5 22.4 13.4 11.250 74.9 74.9 10.812
FBER 74.8 21.7 12.5 12.000 88.6 88.6 10.000
AMFC 70.8 18.2 14.0 12.875 89.3 89.3 10.500
Minimum 74.9 94.5 38.9 24.063 121.1 121.1 21.250
Maximum 57.1 9.8 7.4 9.125 74.9 74.9 8.375
Average 68.9 23.4 16.0 13.226 88.3 89.5 11.562
Median 69.9 17.5 14.3 12.750 87.8 88.6 11.000
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 10
<PAGE>
FERGUSON & CO., LLP TABLE IV.3 - RECENT CONVERSIONS SECTION IV.
- ------------------- -----------
(CLOSED SINCE MARCH 31, 1996)
<TABLE>
<CAPTION>
Price One Price One Increase (Decrease) After Conversion
------------------------------------
Week After Month After One One One To
Conv Conv Day Week Month Date
Ticker ($) ($) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C>
CNBA 12.625 NA 29.4 26.3 NA 27.5
SSFC 12.500 NA NA 25.0 NA 26.3
AFED 11.313 NA 13.8 13.1 NA 17.5
WEHO 10.625 NA 7.5 6.3 NA 4.4
CBES 13.438 NA 26.3 34.4 NA 35.0
HBEI 12.500 NA 18.1 25.0 NA 25.0
PFFC 11.500 12.750 8.8 15.0 NA 22.5
PFED 10.438 10.500 2.5 4.4 5.0 18.8
ANA 11.750 12.375 - (2.1) 3.1 15.6
PWBK 9.125 9.625 (5.0) (8.8) (3.8) 15.0
MBSP 10.625 11.000 NA 6.3 10.0 27.5
OCFC 20.125 21.000 6.3 0.6 5.0 20.3
HWEN 9.875 10.500 2.5 (1.3) 5.0 21.3
FLKY 13.375 13.750 35.0 33.8 37.5 47.5
EGLB 11.250 11.125 12.5 12.5 11.3 33.8
PROV 10.810 10.125 9.7 8.1 NA 27.5
WYNE 11.375 11.250 11.3 13.8 12.5 46.3
PRBC 10.250 9.750 3.8 2.5 (2.5) 25.0
MECH 11.500 11.250 15.0 15.0 12.5 56.3
DIME 12.000 11.875 NA 20.0 18.8 37.5
CNSB 11.625 11.500 10.0 16.3 15.0 32.5
LXMO 9.750 10.125 (5.0) (2.5) 1.3 20.0
FFBH 13.250 13.690 30.0 32.5 36.9 56.3
CBK 10.000 10.125 5.0 - 1.3 20.0
RELI 8.250 7.940 4.7 3.1 (0.7) 14.1
YFCB 10.125 9.940 (2.5) 1.3 (0.6) 26.3
CATB 10.625 10.375 3.8 6.3 3.8 28.8
GSFC 12.250 12.310 28.8 22.5 23.1 51.3
FFDF 10.500 10.310 5.0 5.0 3.1 15.0
WHGB 11.060 11.250 11.3 10.6 12.5 37.5
SSM 18.000 17.750 NA 20.0 NA 21.7
SSB 12.500 11.750 22.5 25.0 17.5 28.8
PHFC 11.000 10.625 10.0 10.0 NA 16.3
LONF 10.625 10.125 8.1 6.3 1.3 12.5
FBER 9.500 9.625 - (5.0) (3.8) 20.0
AMFC 10.500 10.500 5.0 5.0 5.0 28.8
Minimum 20.125 21.000 35.0 34.4 37.5 56.3
Maximum 8.250 7.940 (5.0) (8.8) (3.8) 4.4
Average 11.571 11.494 10.4 11.3 8.8 27.2
Median 11.155 10.813 8.4 9.1 5.0 25.6
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 11
<PAGE>
FERGUSON & CO.,LLP TABLE IV.4 SECTION IV.
- ------------------ COMPARISON OF PRICING RATIOS ----------
<TABLE>
<CAPTION>
Group Percent Premium
Compared to (Discount) Versus
Home ---------------- -------------------
Savings Average Median Average Median
-------- ------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
COMPARISON OF PE RATIO AT
MIDPOINT TO:
-------------------------
Comparative group 13.5 15.8 12.9 (14.6) 4.7
North Carolina thrifts 13.5 15.7 15.4 (14.0) (12.3)
Southeast Region thrifts 13.5 15.0 14.3 (10.0) (5.6)
All public thrifts 13.5 14.6 14.1 (7.5) (4.3)
Recent conversions 13.5 23.4 17.5 (42.3) (22.9)
COMPARISON OF PE RATIO AT
MAXIMUM TO:
-------------------------
Comparative group 14.9 15.8 12.9 (5.7) 15.5
North Carolina thrifts 14.9 15.7 15.4 (5.1) (3.2)
Southeast Region thrifts 14.9 15.0 14.3 (0.7) 4.2
All public thrifts 14.9 14.6 14.1 2.1 5.7
Recent conversions 14.9 23.4 17.5 (36.3) (14.9)
COMPARISON OF PE RATIO AT
SUPERMAXIMUM TO:
-------------------------
Comparative group 16.4 15.8 12.9 3.8 27.1
North Carolina thrifts 16.4 15.7 15.4 4.5 6.5
Southeast Region thrifts 16.4 15.0 14.3 9.3 14.7
All public thrifts 16.4 14.6 14.1 12.3 16.3
Recent conversions 16.4 23.4 17.5 (29.9) (6.3)
COMPARISON OF PB RATIO AT
MIDPOINT TO:
-------------------------
Comparative group 70.0 125.3 108.4 (44.1) (35.4)
North Carolina thrifts 70.0 104.6 105.1 (33.1) (33.4)
Southeast Region thrifts 70.0 128.3 119.3 (45.4) (41.3)
All public thrifts 70.0 121.3 115.3 (42.3) (39.3)
Recent conversions 70.0 68.9 69.9 1.6 0.1
COMPARISON OF PB RATIO AT
MAXIMUM TO:
-------------------------
Comparative group 73.8 125.3 108.4 (41.1) (31.9)
North Carolina thrifts 73.8 104.6 105.1 (29.4) (29.8)
Southeast Region thrifts 73.8 128.3 119.3 (42.5) (38.1)
All public thrifts 73.8 121.3 115.3 (39.2) (36.0)
Recent conversions 73.8 68.9 69.9 7.1 5.6
COMPARISON OF PB RATIO AT
SUPERMAXIMUM TO:
------------------------- 77.5 125.3 108.4 (38.1) (28.5)
North Carolina thrifts 77.5 104.6 105.1 (25.9) (26.3)
Southeast Region thrifts 77.5 128.3 119.3 (39.6) (35.0)
All public thrifts 77.5 121.3 115.3 (36.1) (32.8)
Recent conversions 77.5 68.9 69.9 12.5 10.9
</TABLE>
SOURCE: SNL&F&C CALCULATIONS 12
<PAGE>
FERGUSON & CO., LLP FIGURE IV.1 - SNL INDEX SECTION IV.
- -------------------- -----------
% CHANGE SINCE
----------------
SNL PREVIOUS
DATE INDEX DATE 12/31/95
---- ----- ---- --------
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%
12/31/95 376.5 53.9%
3/31/96 382.1 1.5% 1.5%
6/30/96 377.2 -1.3% 0.2%
9/30/96 429.3 13.8% 14.0%
10/18/96 446.9 4.1% 18.7%
[SNL INDEX CHART 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>
3/15/96 5.24 5.39 6.02 6.35 6.69
3/29/96 5.22 5.41 6.08 6.32 6.70
4/5/96 5.30 5.41 6.06 6.26 6.68
4/12/96 5.08 5.61 6.42 6.60 6.96
4/19/96 5.24 5.50 6.32 6.52 6.88
4/26/96 5.24 5.50 6.31 6.53 6.88
5/3/96 5.30 5.60 6.37 6.64 6.96
5/17/96 5.26 5.57 6.42 6.68 6.93
5/31/96 5.19 5.70 6.55 6.77 7.02
6/14/96 5.24 5.84 6.77 6.99 7.23
6/28/96 5.21 5.79 6.63 6.86 7.08
7/15/96 5.26 5.93 6.77 7.00 7.20
7/26/96 5.25 5.53 6.62 6.85 7.05
8/16/96 5.10 5.59 6.30 6.55 6.79
8/23/96 5.18 5.63 6.50 6.63 6.87
8/30/96 5.21 5.80 6.60 6.84 7.07
9/6/96 5.39 5.94 6.73 6.95 7.17
9/13/96 5.16 5.90 6.69 6.93 7.16
9/27/96 5.34 5.75 6.53 6.77 6.96
10/17/96 5.25 5.56 6.28 6.55 6.86
(*) 7-day avg for week ending 2 days earlier than date shown.
-----------------------------------------------------------------
</TABLE>
INTEREST RATES FROM MARCH 15, 1996 TO OCTOBER 17, 1996
------------------------------------------------------
[GRAPH APPEARS HERE]
SOURCE: FEDERAL RESERVE BANK OF ST. LOUIS, MISSOURI 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 acquisition 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 of 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 CFO 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 Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF Exchange IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMFB American Federal Bank, FSB Greenville SC SE SAIF NASDAQ 01/19/89 18.000 196.99
BANC BankAtlantic Bancorp, Inc. Fort Lauderdale FL SE SAIF NASDAQ 11/29/83 13.625 202.29
BFSB Bedford Bancshares, Inc. Bedford VA SE SAIF NASDAQ 08/22/94 18.000 20.90
CFCP Coastal Financial Corp. Myrtle Beach SC SE SAIF NASDAQ 09/26/90 20.250 69.59
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88 21.500 27.35
CMSV Community Savings, MHC North Palm Beach FL SE SAIF NASDAQ 10/24/94 17.125 83.59
CNIT CENIT Bancorp, Inc. Norfolk VA SE SAIF NASDAQ 08/06/92 39.500 63.73
EBSI Eagle Bancshares Tucker GA SE SAIF NASDAQ 04/01/86 15.000 68.28
FFBS FFBS BanCorp, Inc. Columbus MS SE SAIF NASDAQ 07/01/93 21.500 33.80
FFCH First Financial Holdings Inc. Charleston SC SE SAIF NASDAQ 11/10/83 19.500 124.39
FFFC FFVA Financial Corp. Lynchburg VA SE SAIF NASDAQ 10/12/94 17.750 90.72
FFFG F.F.O. Financial Group, Inc. St. Cloud FL SE SAIF NASDAQ 10/13/88 2.750 23.18
FFFL Fidelity FSB of Florida, MHC West Palm Beach FL SE SAIF NASDAQ 01/07/94 15.750 105.84
FFLC FFLC Bancorp, Inc. Leesburg FL SE SAIF NASDAQ 01/04/94 19.000 47.98
FFPB First Palm Beach Bancorp, Inc. West Palm Beach FL SE SAIF NASDAQ 09/29/93 23.063 117.46
FGHC First Georgia Holding, Inc. Brunswick GA SE SAIF NASDAQ 02/11/87 6.750 13.66
FLAG FLAG Financial Corp. LaGrange GA SE SAIF NASDAQ 12/11/86 10.750 21.88
FLFC First Liberty Financial Corp. Macon GA SE SAIF NASDAQ 12/06/83 18.000 108.13
FOBC Fed One Bancorp Wheeling WV SE SAIF NASDAQ 01/19/95 15.375 38.33
FSFC First Southeast Financial Anderson SC SE SAIF NASDAQ 10/08/93 9.500 41.69
GSLC Guaranty Financial Corp. Charlottesville VA SE SAIF NASDAQ NA 9.500 8.73
HARB Harbor Federal Savings Bk, MHC Fort Pierce FL SE SAIF NASDAQ 01/06/94 31.375 154.82
HBS Haywood Bancshares, Inc. Waynesville NC SE BIF AMSE 12/18/87 18.625 22.37
KSAV KS Bancorp, Inc. Kenly NC SE SAIF NASDAQ 12/30/93 19.625 13.02
LIFB Life Bancorp, Inc. Norfolk VA SE SAIF NASDAQ 10/11/94 17.250 169.86
MGNL Magna Bancorp, Inc. Hattiesburg MS SE SAIF NASDAQ 03/13/91 20.500 280.91
NFSL Newnan Holdings, Inc. Newnan GA SE SAIF NASDAQ 03/01/86 24.500 35.76
PALM Palfed, Inc. Aiken SC SE SAIF NASDAQ 12/15/85 13.375 69.89
PFSL Pocahontas FS&LA, MHC Pocahontas AR SE SAIF NASDAQ 04/05/94 15.250 24.77
PLE Pinnacle Bank Jasper AL SE SAIF AMSE 12/17/86 17.375 15.46
SCCB S. Carolina Community Bancshrs Winnsboro SC SE SAIF NASDAQ 07/07/94 15.000 11.03
SOPN First Savings Bancorp, Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 17.750 66.46
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/95 18.000 16.14
UFRM United Federal Savings Bank Rocky Mount NC SE SAIF NASDAQ 07/01/80 7.688 23.56
VFFC Virginia First Financial Corp. Petersburg VA SE SAIF NASDAQ 01/01/78 13.500 77.50
Maximum 39.500 280.91
Minimum 2.750 8.73
Average 17.200 71.14
Median 17.750 47.98
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 1
<PAGE>
FERGUSON & CO., LLP EXHIBIT II.1 - SELECTED PUBLICLY TRADED SOUTHEAST
- -------------------
THRIFTS
<TABLE>
<CAPTION>
Tangible ROAA ROACE
Price/ Current Current Current Total Equity/ Equity/ Core Before Before
LTM Price/ Price/ Price/ Dividend Assets Assets T Asset EPS Extra Extra Merger Current
Core EP B Value B Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricing
Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N) Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMFB 10.98 183.30 198.90 14.24 2.22 1,382,171 7.76 7.20 1.64 1.42 17.60 N 10/18/96
BANC 14.34 143.57 154.65 10.30 1.07 1,975,287 7.17 6.69 0.95 1.12 14.72 N 10/18/96
BFSB 13.64 106.13 106.13 17.16 2.44 121,783 15.22 15.22 1.32 1.29 7.96 N 10/18/96
CFCP 18.58 251.87 251.87 15.37 2.17 452,809 6.10 6.10 1.09 1.04 17.09 N 10/18/96
CFFC 13.27 122.65 122.65 17.22 2.42 158,835 14.04 14.04 1.62 1.31 9.68 N 10/18/96
CMSV 15.57 111.35 111.35 13.35 4.67 626,045 11.99 11.99 1.10 0.88 7.10 N 10/18/96
CNIT 19.08 133.54 138.50 9.72 2.53 655,771 7.28 7.03 2.07 0.48 6.76 N 10/18/96
EBSI 10.34 119.33 119.33 10.99 4.00 621,474 9.21 9.21 1.45 0.93 11.91 N 10/18/96
FFBS 19.72 129.52 129.52 26.99 2.33 125,228 19.68 19.68 1.09 1.37 6.88 N 10/18/96
FFCH 10.96 127.79 127.79 8.16 3.28 1,523,224 6.39 6.39 1.78 0.78 11.81 N 10/18/96
FFFC 14.92 105.15 107.38 17.59 2.25 522,811 15.58 15.31 1.19 1.24 7.51 N 10/18/96
FFFG 13.10 121.15 121.15 7.55 - 307,055 6.22 6.22 0.21 0.50 7.76 N 10/18/96
FFFL 21.28 130.17 131.69 12.96 5.08 816,869 9.86 9.76 0.74 0.67 6.57 N 10/18/96
FFLC 17.92 88.04 88.04 14.28 2.11 335,993 16.22 16.22 1.06 0.63 3.72 N 10/18/96
FFPB 12.81 105.17 107.87 8.31 1.73 1,438,024 7.90 7.72 1.80 0.74 8.92 N 10/18/96
FGHC 12.50 114.02 128.08 9.48 - 144,022 8.30 7.46 0.54 0.89 10.65 N 10/18/96
FLAG 13.61 100.28 100.28 9.57 3.16 228,710 9.55 9.55 0.79 0.87 9.35 N 10/18/96
FLFC 14.75 158.03 186.72 10.90 1.93 991,226 7.66 6.67 1.22 1.03 14.22 N 10/18/96
FOBC 11.65 92.51 97.50 11.22 3.77 341,528 11.68 11.14 1.32 0.70 5.73 N 10/18/96
FSFC 14.62 123.86 123.86 12.77 2.11 326,573 10.31 10.31 0.65 0.26 1.37 N 10/18/96
GSLC 18.63 137.09 137.09 8.48 1.05 102,967 6.19 6.19 0.51 0.68 10.91 N 10/18/96
HARB 14.26 181.99 189.01 15.26 3.83 1,014,013 8.39 8.10 2.20 1.18 13.57 N 10/18/96
HBS 16.93 110.60 115.18 17.04 2.79 131,888 15.41 14.89 1.10 1.02 6.73 N 10/18/96
KSAV 13.92 94.08 94.17 13.92 12.23 93,536 14.79 14.78 1.41 1.11 6.88 N 10/18/96
LIFB 16.91 117.11 121.48 14.04 2.55 1,240,520 14.99 11.61 1.02 0.87 6.25 N 10/18/96
MUNL 13.76 223.31 235.90 21.47 2.93 1,308,658 9.61 9.14 1.47 1.71 17.51 N 10/18/96
NFSC 11.45 172.29 173.14 22.04 1.80 162,199 12.79 12.74 2.14 2.25 19.85 N 10/18/96
PALM 18.58 130.23 136.62 10.96 0.60 638,002 8.41 8.05 0.72 0.69 8.53 N 10/18/96
PFSL 12.30 110.67 110.67 6.57 5.51 377,236 5.93 5.93 1.24 0.56 9.42 N 10/18/96
PLE 10.59 101.97 105.69 8.29 4.14 186,475 8.13 7.87 1.64 0.85 10.96 N 10/18/96
SCCB 22.39 89.66 89.66 24.98 4.00 44,161 27.87 27.87 0.67 1.11 3.80 N 10/18/96
SOPN 18.11 99.50 99.50 25.86 3.83 256,986 26.00 26.00 0.98 1.53 5.86 N 10/18/96
TWIN 15.65 114.36 114.36 15.62 3.56 103,300 13.66 13.66 1.15 1.09 7.94 N 10/18/96
UFRM 13.73 114.23 114.23 9.22 2.60 255,485 8.08 8.08 0.56 0.79 10.03 N 10/18/96
VFFC 13.50 127.00 131.07 10.38 0.74 746,867 8.17 7.93 1.00 1.74 22.49 N 10/18/96
Maximum 22.39 251.87 251.87 26.99 12.23 1,975,287 27.87 27.87 2.20 2.25 22.49
Minimum 10.34 88.04 88.04 6.57 - 44,161 5.93 5.93 0.21 0.26 1.37
Average 14.98 128.33 132.03 13.78 2.90 564,507 11.24 11.05 1.18 1.01 9.94
Median 14.26 119.33 121.48 12.96 2.53 341,528 9.55 9.21 1.10 0.93 8.92
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 2
<PAGE>
FERGUSON & CO., LLP EXHIBIT II.1 - SELECTED PUBLICLY TRADED SOUTHEAST THRIFTS
- -------------------
<TABLE>
<CAPTION>
ROAA ROACE
NPAs/ Price/ Core Before Before
Assets Core EPS Extra Extra
(%) EPS ($) (%) (%)
Ticker MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C>
AMFB 0.54 11.54 0.39 1.30 16.51
BANC 0.82 11.75 0.29 1.28 15.89
BFSB 0.00 11.84 0.38 1.42 9.12
CFCP 0.07 16.88 0.30 1.10 18.12
CFFC 0.08 12.50 0.43 1.38 9.96
CMSV 0.53 10.44 0.41 1.14 9.55
CNIT 0.45 15.19 0.65 0.75 10.39
EBSI 1.45 12.93 0.29 0.85 9.02
FFBS 1.09 21.50 0.25 1.25 6.38
FFCH 1.24 10.37 0.47 0.81 12.53
FFFC 0.51 13.87 0.32 1.32 8.13
FFFG 2.83 8.59 0.08 0.71 11.31
FFFL 0.34 18.75 0.21 0.68 6.81
FFLC 0.23 26.39 0.18 (0.27) (1.60)
FFPB 0.53 12.01 0.48 0.75 9.51
FGHC 1.34 10.55 0.16 0.94 11.17
FLAG 3.56 16.80 0.16 0.75 8.15
FLFC 1.22 14.06 0.32 1.05 14.39
FOBC NA 10.39 0.37 (0.16) (1.37)
FSFC 0.19 21.59 0.11 (1.54) (8.45)
GSLC 3.14 21.59 0.11 0.79 12.35
HARB 0.55 13.52 0.58 1.16 13.43
HBS 2.44 16.06 0.29 1.01 6.81
KSAV 0.52 11.68 0.42 1.27 8.51
LIFB 0.41 15.40 0.28 0.88 7.05
MGNL 2.52 12.81 0.40 1.68 17.35
NFSL 1.26 19.14 0.32 1.48 12.40
PALM 3.77 15.92 0.21 0.72 8.51
PFSL 0.26 12.30 0.31 0.57 9.53
PLE 0.18 9.87 0.44 0.93 11.52
SCCB NA 26.79 0.14 0.88 3.12
TWIN 0.36 13.64 0.33 1.15 8.45
UFRM 0.88 19.22 0.10 0.64 7.87
VFFC 2.18 21.09 0.16 3.32 41.55
Maximum 3.77 26.79 0.65 3.32 41.55
Minimum 0.00 8.59 0.08 (1.54) (8.45)
Average 1.08 15.26 0.30 0.96 10.00
Median 0.54 13.87 0.30 0.94 9.51
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 3
<PAGE>
FERGUSON & CO., LLP Exhibit II.2 - Selected Publicity Traded North
- -------------------
Carolina Thrifts
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HBS Haywood Bancshares, Inc. Waynesville NC SE BIF AMSE 12/18/87 18.625 22.37
KSAV KS Bancorp, Inc. Kenly NC SE SAIF NASDAQ 12/30/93 19.625 13.02
SOPN First Savings Bancorp, Inc Southern Pines NC SE SAIF NASDAQ 01/06/94 17.750 66.46
UFRM United Federal Savings Ban Rocky Mount NC SE SAIF NASDAQ 07/01/80 7.688 23.56
Maximum 19.625 66.46
Minimum 7.688 13.02
Average 15.922 31.35
Median 18.188 22.97
</TABLE>
4
<PAGE>
FERGUSON & CO., LLP EXHIBIT II.2 - SELECTED PUBLICITY TRADED NORTH CAROLINA
- -------------------
THRIFTS
<TABLE>
<CAPTION>
Tangible ROAA ROACE
Price/ Current Current Current Total Equity/ Equity/ Core Before Before
LTM Price/ Price/T Price/ Dividend Assets Assets T Assets EPS Extra Extra Merger Current
Cope EPS B Value B Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricing
Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N) Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HBS 16.93 110.60 115.18 17.04 2.79 131,888 15.41 14.89 1.10 1.02 6.73 N 10/18/96
KSAV 13.92 94.08 94.17 13.92 12.23 93,536 14.79 14.78 1.41 1.11 6.88 N 10/18/96
SOPN 18.11 99.50 99.50 25.86 3.83 256,986 26.00 26.00 0.98 1.53 5.86 N 10/18/96
UFRM 13.73 114.23 114.23 9.22 2.60 255,485 8.08 8.08 0.56 0.79 10.03 N 10/18/96
Maximum 18.11 114.23 115.18 25.86 12.23 256,986 26.00 26.00 1.41 1.53 10.03
Minimum 13.73 94.08 94.17 9.22 2.60 93,536 8.08 8.08 0.56 0.79 5.86
Average 15.67 104.60 105.77 16.51 5.36 184,474 16.07 15.94 1.01 1.11 7.38
Median 15.43 105.05 106.87 15.48 3.31 193,687 15.10 14.84 1.04 1.07 6.81
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 5
<PAGE>
FERGUSON & CO, LLP Exhibit II.2 - Selected Publicity Traded North Carolina
- ------------------
Thrifts
<TABLE>
<CAPTION>
ROAA ROACE
NPAs/ Price/ Core Before Before
Assets Core EPS Extra Extra
(%) EPS ($) (%) (%)
Ticker MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C>
HBS 2.44 16.06 0.29 1.01 6.81
KSAV 0.52 11.68 0.42 1.27 8.51
SOPN 0.05 17.07 0.26 1.59 6.08
UFRM 0.88 19.22 0.10 0.64 7.87
Maximum 2.44 19.22 0.42 1.59 8.51
Minimum 0.05 11.68 0.10 0.64 6.08
Average 0.97 16.01 0.27 1.13 7.32
Median 0.70 16.57 0.28 1.14 7.34
</TABLE>
Source: SNL & F&C calculations
6
<PAGE>
FERGUSON & CO., LLP EXHIBIT II.3 - COMPARATIVE 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>
CAPS Capital Savings Bancorp, Inc. Jefferson City MO 6 217,954 12/29/93 22.500 21.74
EQSB Equitable Federal Savings Bank Wheaton MD 4 267,776 09/10/93 26.250 15.75
FCBF FCB Financial Corp. Neenah WI 6 265,172 09/24/93 18.250 44.89
FFED Fidelity Federal Bancorp Evansville IN 4 262,216 08/31/87 11.000 27.45
FFHS First Franklin Corporation Cincinnati OH 7 216,508 01/26/88 14.250 16.61
GFCO Glenway Financial Corp. Cincinnati OH 6 278,809 11/30/90 18.250 20.64
MWFD Midwest Federal Financial Baraboo WI 9 187,601 07/08/92 23.250 37.81
NFSL Newnan Holdings, Inc. Newnan GA 9 162,199 03/01/86 24.500 35.76
OSBF OSB Financial Corp. Oshkosh WI 7 250,003 07/01/92 23.750 26.39
PLE Pinnacle Bank Jasper AL 5 186,475 12/17/86 17.375 15.46
SJSB SJS Bancorp St. Joseph MI 4 150,752 02/16/95 23.000 22.60
UFRM United Federal Savings Bank Rocky Mount NC 9 255,485 07/01/80 7.688 23.56
Maximum 9 278,809 26.250 44.89
Minimum 4 150,752 7.688 15.46
Average 6 225,079 19.172 25.72
Median 6 233,979 20.375 23.08
</TABLE>
Source: SNL & F&C calculations 7
<PAGE>
FERGUSON & CO., LLP EXHIBIT 11.4 - COMPARATIVES OPERATIONS
- -------------------
<TABLE>
<CAPTION>
Net Income Loan Total Total
Average Before Loss Noninterest Noninterest
Assets Net Income Extra Items ROAA ROAE Provision Income Expense
($000) ($000) ($000) (%) (%) ($000) ($000) ($000)
Short Name LTM LTM LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Savings Bancorp, Inc. 202,316 1,860 1,860 0.92 9.26 120 800 4,194
Equitable Federal Savings Bank 252,797 1,980 1,980 0.78 14.98 (185) 896 4,461
FCB Financial Corp. 252,799 2,745 2,745 1.09 5.71 200 683 4,607
Fidelity Federal Bancorp 274,837 3,235 3,235 1.18 23.76 455 6,718 7,888
First Franklin Corporation 211,479 1,316 1,316 0.62 6.56 56 388 4,042
Glenway Financial Corp. 273,711 1,545 1,545 0.56 5.91 60 626 6,133
Midwest Federal Financial 173,132 2,216 2,216 1.28 13.41 216 1,622 5,219
Newnan Holdings, Inc. 165,973 3,738 3,738 2.25 19.85 10 1,435 2,162
OSB Financial Corp. 254,855 531 531 0.21 1.63 290 642 5,477
Pinnacle Bank 191,604 1,637 1,637 0.85 10.96 240 860 4,314
SJS Bancorp 137,705 861 861 0.63 5.00 161 509 3,194
United Federal Savings Bank 255,387 2,028 2,028 0.79 10.03 153 2,496 7,402
Maximum 274,837 3,738 3,738 2.25 23.76 455 6,718 7,888
Minimum 137,705 531 531 0.21 1.63 (185) 388 2,162
Average 220,550 1,974 1,974 0.93 10.59 148 1,473 4,924
Median 232,138 1,920 1,920 0.82 9.65 157 830 4,534
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 8
<PAGE>
FERGUSON & CO., LLP EXHIBIT II.4 - COMPARATIVES OPERATIONS
- -------------------
<TABLE>
<CAPTION>
Net Loan Common Dividend Interest Interest Net Interest Gain on Real
Chargeoffs/ LTM EPS Dividends Payout Income/ Expense/ Income/ Sale/ Estate
Avg Loans After Extra Per Share Ratio Avg Assets Avg Assets Avg Assets Avg Assets Expense
(%) ($) ($) (%) (%) (%) (%) (%) ($000)
Short Name LTM LTM LTM LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Savings Bancorp, Inc. 0.00 1.88 0.34 18.09 7.41 4.17 3.24 0.00 (29)
Equitable Federal Savings Bank NA 3.14 - 0.00 7.32 4.86 2.46 0.01 (815)
FCB Financial Corp. 0.00 1.10 0.63 57.27 7.44 4.04 3.39 0.03 0
Fidelity Federal Bancorp 0.05 1.17 0.79 67.52 7.83 5.65 2.18 0.27 (719)
First Franklin Corporation 0.07 1.07 0.29 27.10 7.21 4.54 2.67 0.01 3
Glenway Financial Corp. 0.03 NA 0.65 46.59 7.30 4.36 2.94 0.04 13
Midwest Federal Financial 0.04 1.28 0.18 13.87 7.99 4.15 3.84 0.38 0
Newnan Holdings, Inc. NA 2.45 0.38 15.51 7.47 3.86 3.61 0.44 (2,521)
OSB Financial Corp. 0.03 0.49 0.58 118.37 7.12 4.35 2.77 0.08 (47)
Pinnacle Bank NA 1.84 0.72 39.13 7.65 4.49 3.16 0.14 (142)
SJS Bancorp 0.11 0.92 0.30 32.61 7.27 4.44 2.83 0.02 0
United Federal Savings Bank 0.10 0.66 0.18 27.27 7.80 4.78 3.01 0.19 0
Maximum 0.11 3.14 0.79 118.37 7.79 5.65 3.84 0.44 13
Minimum - 0.49 - - 7.12 3.86 2.18 - (2,521)
Average 0.05 1.45 0.42 38.61 7.48 4.47 3.01 0.13 (355)
Median 0.04 1.17 0.36 29.94 7.43 4.40 2.98 0.06 (15)
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 9
<PAGE>
FURGUSON & CO., LLP
- ------------------- EXHIBIT II.4 - COMPARATIVES OPERATIONS
<TABLE>
<CAPTION>
Noninterest G&A Noninterest Net Oper Total Amortization Extra and
Income/ Expense/ Expense/ Expenses/ onrecurring of Tax After Tax
Avg Assets Avg Assets Avg Assets Avg Assets Expense Intangible Provision Items
(%) (%) (%) (%) (000) ($000) ($000) ($000)
Short Name LTM LTM LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Savings Bancorp, Inc. 0.40 2.09 2.07 1.69 0 0 1,177 0
Equitable Federal Savings Bank 0.35 2.09 1.76 1.73 0 0 871 0
FCB Financial Corp. 0.27 1.82 1.82 1.55 0 0 1,777 0
Fidelity Federal Bancorp. 2.44 3.13 2.87 0.69 0 0 1,887 0
First Franklin Corporation 0.18 1.91 1.91 1.72 0 5 645 0
Glenway Financial Corp. 0.23 2.16 2.24 1.93 154 220 906 0
Midwest Federal Financial 0.94 2.96 3.01 2.03 0 88 1,271 0
Newnan Holdings, Inc. 0.86 2.80 1.30 1.94 0 28 2,248 0
OSB Financial Corp. 0.25 2.17 2.15 1.92 815 0 788 0
Pinnacle Bank 0.45 2.30 2.25 1.86 0 41 993 0
SJS Bancorp 0.37 2.32 2.32 1.95 0 0 218 0
United Federal Savings Bank 0.98 2.90 2.90 1.92 0 0 1,106 0
Maximum 2.44 3.13 3.01 2.03 815 220 2,248 0
Minimum 0.18 1.82 1.30 0.69 0 0 218 0
Average 0.64 2.39 2.22 1.74 81 32 1,157 0
Median 0.39 2.24 2.20 1.89 0 0 1,050 0
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 10
<PAGE>
FURGUSON & CO., LLP
- ------------------- EXHIBIT 11.4 - COMPARATIVES OPERATIONS
<TABLE>
<CAPTION>
Core Yield on Cost of Interest Loan Loss
Efficiency Income/ Preferred Int Earning Int Bearing Effective Yield Provision
Ratio Avg Assets Dividends Assets Liabilities Tax Rate Spread Avg Assets
(%) (%) ($000) (%) (%) (%) (%) (%)
Short Name LTM LTM LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Savings Bancorp, Inc. 57.45 0.92 0 7.78 4.93 38.76 2.85 0.06
Equitable Federal Savings Bank. 74.24 0.78 0 7.64 5.18 30.55 2.46 (0.07)
FCB Financial Corp. 49.74 1.07 0 7.63 5.16 39.30 2.47 0.08
Fidelity Federal Bancorp 67.65 1.00 0 8.22 6.11 36.84 2.11 0.17
First Franklin Corporation 66.92 0.61 0 7.41 5.06 32.89 2.35 0.03
Glenway Financial Corp. 68.00 0.57 0 7.56 4.94 36.96 2.62 0.02
Midwest Federal Financial 62.04 1.04 0 8.63 5.02 36.45 3.61 0.12
Newnan Holdings, Inc. 62.63 1.97 0 7.92 4.55 37.55 3.37 0.01
OSB Financial Corp. 71.82 0.36 0 7.35 5.07 59.74 2.28 0.11
Pinnacle Bank 63.88 0.76 0 8.02 5.01 37.76 3.01 0.13
SJS Bancorp 72.54 0.61 0 7.43 5.16 20.20 2.27 0.12
United Federal Savings Bank 72.60 0.67 0 8.08 5.40 35.29 2.68 0.06
Maximum 74.24 1.97 0 8.63 6.11 59.74 3.61 0.17
Minimum 49.74 0.36 0 7.35 4.55 20.20 2.11 (0.07)
Average 65.79 0.86 0 7.81 5.13 36.86 2.67 0.07
Median 67.29 0.77 0 7.71 5.07 36.90 2.55 0.07
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 11
<PAGE>
FERGUSON & CO., LLP EXHIBIT II.5-COMPARATIVES PRICING
- -------------------
<TABLE>
<CAPTION>
Current Current Price/ Current
Stock Market LTM Price/
Abbreviated Price Value Core EPS B Value
Ticker Name City State ($) ($M) (x) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
CAPS CapitalSavBancp-MO Jefferson City MO 22.500 21.74 11.97 108.43
EQSB EquitableFSB-MD Wheaton MD 26.250 15.75 8.39 111.04
FCBF FCBFinancialCrp-WI Neenah WI 18.250 44.89 16.74 96.20
FFED FidelityFed-IN Evansville IN 11.000 27.45 11.00 191.97
FFHS FirstFranklin-OH Cincinnati OH 14.250 16.61 13.57 81.85
GFCO GlenwayFinCp-OH Cincinnati OH 18.250 20.64 12.94 77.07
MWFD MidwestFedFin-WI Baraboo WI 23.250 37.81 22.36 224.85
NFSL NewnanHoldings-GA Newnan GA 24.500 35.76 11.45 172.29
OSBF OSBFinancial-WI Oshkosh WI 23.750 26.39 29.32 84.04
PLE PinnacleBank-AL Jasper AL 17.375 15.46 10.59 101.97
SJSB SJSBancorp-MI St. Joseph MI 23.000 22.60 25.56 128.49
UFRM UnitedFdSB-NC Rocky Mount NC 7.688 23.56 13.73 114.23
Maximum 26.250 44.89 29.32 224.85
Minimum 7.688 15.46 8.39 77.07
Average 19.172 25.72 15.64 124.37
Median 20.375 23.08 13.26 109.74
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 12
<PAGE>
FERGUSON & CO., LLP EXHIBIT II.5 - COMPARATIVES PRICING
- -------------------
<TABLE>
<CAPTION>
Tangible ROAA ROACE
Current Current Total Equity/ Equity/ Core Before Before
Price/T Price/ Dividend Assets Assets T Assets EPS Extra Extra Merger
B Value Assets Yield ($000) (%) (%) ($) (%) (%) Target?
Ticker (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CAPS 108.43 10.19 1.60 217,954 9.40 9.40 1.88 0.92 9.26 N
EQSB 111.04 5.88 - 267,776 5.30 5.30 3.13 0.78 14.98 N
FCBF 96.20 16.93 3.95 265,172 17.59 17.59 1.09 1.09 5.71 N
FFED 191.97 10.47 7.27 262,216 5.45 5.45 1.00 1.18 23.76 N
FFHS 82.70 7.67 2.25 216,508 9.37 9.28 1.05 0.62 6.56 N
GFCO 78.77 7.40 3.55 278,809 9.61 9.42 1.41 0.56 5.91 N
MWFD 235.09 20.26 1.29 187,601 12.76 12.74 1.04 1.28 13.41 N
NFSL 173.14 22.04 1.80 162,199 12.56 12.56 0.81 2.25 19.85 N
OSBF 84.04 10.55 2.70 250,003 12.56 12.56 2.14 0.21 1.63 N
PLE 105.69 8.29 4.14 186,475 8.13 7.87 1.64 0.85 10.96 N
SJSB 128.49 14.99 1.91 150,752 11.67 11.67 0.90 0.63 5.00
UFRM 114.23 9.22 2.60 255,485 8.08 8.08 0.56 0.79 10.03 N
Maximum 235.09 22.04 7.27 278,809 17.56 17.56 3.13 2.25 23.76
Minimum 78.77 5.88 - 150.752 5.30 5.30 0.56 0.21 1.63
Average 125.82 11.99 2.75 225,079 9.91 9.83 1.39 0.93 10.59
Median 109.74 10.33 2.42 233,979 9.39 9.34 1.07 0.82 9.65
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 13
<PAGE>
FERGUSON & CO., LLP EXHIBIT II.5 - COMPARATIVES PRICING
- -------------------
<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>
CAPS 10/18/96 0.13 11.03 0.51 0.93 9.40
EQSB 10/18/96 0.77 7.72 0.85 0.81 15.35
FCBF 10/18/96 0.12 14.72 0.31 1.16 6.45
FFED 10/18/96 0.15 22.92 0.12 0.89 17.01
FFHS 10/18/96 0.43 13.19 0.27 0.61 6.46
GFCO 10/18/96 0.40 10.61 0.43 0.63 6.56
MWFD 10/18/96 0.19 20.04 0.29 1.28 13.81
NFSL 10/18/96 1.26 19.14 0.32 1.48 12.40
OSBF 10/18/96 0.22 14.84 0.40 0.73 5.77
PLE 10/18/96 0.18 9.87 0.44 0.93 11.52
SJSB 10/18/96 0.29 31.94 0.18 0.46 3.84
UFRM 10/18/96 0.88 19.22 0.10 0.64 7.87
Maximum 1.26 31.94 0.85 1.48 17.01
Minimum 0.12 7.72 0.10 0.46 3.84
Average 0.42 16.27 0.35 0.88 9.70
Median 0.26 14.78 0.32 0.85 8.64
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 14
<PAGE>
FERGUSON & CO., LLP EXHIBIT II.6 - COMPARATIVES BALANCE SHEETS
- -------------------
<TABLE>
<CAPTION>
Total Invest & Loan
Total Cash and Net Foreclosed Servicing Total Other Total
Assets Invest MBS Loans Real Estate Rights Intangibles Assets Deposits
($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000)
Short Name MRQ MRQ MRQ MRQ MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Savings Bancorp, Inc. 217,954 47,359 28,339 166,623 32 - - 3,940 152,345
Equitable Federal Savings Bank 267,776 70,867 58,917 186,835 2,019 - - 7,969 209,145
FCB Financial Corp. 265,172 38,619 - 214,101 191 NA - 6,263 153,431
Fidelity Federal Bancorp 262,216 31,597 12,590 216,162 59 571 - 13,827 181,702
First Franklin Corporation 216,508 66,304 - 145,703 188 7 207 4,099 188,336
Glenway Financial Corp. 278,809 47,468 28,471 220,007 242 - 576 9,422 222,768
Midwest Federal Financial 187,601 44,727 15,277 134,735 - - 741 6,923 151,228
Newnan Holdings, Inc. 162,199 25,030 1,249 126,760 3,753 - 108 3,592 131,717
OSB Financial Corp. 250,003 75,381 152 168,043 411 123 - 4,997 161,415
Pinnacle Bank 186,475 58,769 27,039 120,644 - 74 531 6,131 165,234
SJS Bancorp 150,752 54,547 14,660 92,491 83 - - 3,049 109,330
United Federal Savings Bank 255,485 79,260 29,824 164,902 200 2,679 - 6,447 216,480
Maximum 278,809 79,260 58,917 220,007 3,753 2,679 741 13,827 222,768
Minimum 150,752 25,030 - 92,491 - - - 3,049 109,330
Average 225,079 53,327 18,043 163,084 598 315 180 6,388 170,261
Median 233,979 51,008 14,969 165,763 190 - - 6,197 163,325
</TABLE>
SOURCE: SNL & F&C calculations 15
<PAGE>
<TABLE>
<CAPTION>
Reg Reg Reg
Total Subord Other Total Preferred Common Total Tangible Core Total
Borrowing Debt Liabilities Liabilities Equity Equity Equity Capital Capital Capital
($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000)
Short Name MRQ MRQ MRQ MRQ MRQ MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Savings Bancorp, Inc. 42,000 - 3,128 197,473 - 20,481 20,481 18,916 18,916 19,562
Equitable Federal Savings Bank 42,340 - 2,109 253,594 - 14,182 14,182 14,182 14,182 14,742
FCB Financial Corp. 57,255 - 7,831 218,517 - 46,655 46,655 37,734 37,734 38,852
Fidelity Federal Bancorp 62,985 9,985 3,234 247,921 - 14,295 14,295 18,091 18,091 24,025
First Franklin Corporation 7,235 - 650 196,221 - 20,287 20,287 13,675 13,675 14,293
Glenway Financial Corp. 25,847 - 3,413 252,028 - 26,781 26,781 NA NA NA
Midwest Federal Financial 17,250 - 2,222 170,700 - 16,901 16,901 13,707 13,707 15,114
Newnan Holdings, Inc. 8,157 - 1,573 141,447 - 20,732 20,732 NA NA NA
OSB Financial Corp. 52,215 - 4,973 218,603 - 31,400 31,400 27,274 27,274 28,229
Pinnacle Bank 3,750 - 2,326 171,310 - 15,165 15,165 NA NA NA
SIS Bancorp 22,050 - 1,785 133,165 - 17,587 17,587 13,912 13,912 14,406
United Federal Savings Bank 10,000 - 8,371 234,851 - 20,634 20,634 20,248 20,248 21,629
Maximum 62,985 9,985 8,371 253,594 - 46,655 46,655 37,734 37,734 38,852
Minimum 3,750 - 650 133,165 - 14,182 14,182 13,675 13,675 14,293
Average 29,257 832 3,468 202,986 - 22,093 22,093 19,749 19,749 21,206
Median 23,949 - 2,727 207,995 - 20,384 20,384 18,091 18,091 19,562
</TABLE>
SOURCE: SNL & F&C CALCULATIONS
16
<PAGE>
FERGUSON & CO., LLP EXHIBIT II.6 - COMPARATIVES BALANCES SHEETS
- -------------------
<TABLE>
<CAPTION>
Loan Loss Publicly Publicly IE Asset/
Tangible Core Risk-Base NPAs/ Reserves/ Reserves/ Report Reported Int B
Capital/ Capital/ Capital/ Asset Assets NPLs B Value TB Value Liabilities
Tangible Adj Tan Risk-W (%) (%) (%) ($) ($) (%)
Short Name Assets (%) Assets (%) Assets (%) MRQ MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Savings Bancorp, Inc. 9.12 9.12 19.27 0.13 0.29 251.59 20.75 20.75 110.72
Equitable Federal Savings Bank 5.25 5.25 11.39 0.77 0.22 NM 23.64 23.64 102.31
FCB Financial Corp. 14.70 14.70 25.40 0.12 0.42 357.19 18.97 18.97 122.77
Fidelity Federal Bancorp 6.44 6.44 12.63 0.15 0.40 309.65 5.73 5.73 101.30
First Franklin Corporation 6.48 6.48 14.87 0.43 0.43 124.03 17.41 17.23 108.90
Glenway Financial Corp. NA NA NA 0.40 0.22 69.99 23.68 23.17 108.71
Midwest Federal Financial 7.98 7.98 14.14 0.19 0.75 386.54 10.34 9.89 110.87
Newnan Holdings, Inc. 11.16 11.16 20.25 1.26 0.84 72.98 14.22 14.15 109.61
OSB Financial Corp. 10.49 10.49 23.38 0.22 0.40 180.71 28.26 28.26 110.53
Pinnacle Bank 7.87 7.87 14.13 0.18 0.69 377.94 17.04 16.44 107.04
SJS Bancorp 9.24 9.24 19.55 0.29 0.42 180.75 17.90 17.90 112.70
United Federal Savings Bank 8.08 8.08 15.93 0.88 1.16 139.29 6.73 6.73 108.83
Maximum 14.70 14.70 25.40 1.26 1.16 386.54 28.26 28.26 122.77
Minimum 5.25 5.25 11.39 0.12 0.22 69.99 5.73 5.73 101.30
Average 8.80 8.80 17.36 0.42 0.52 222.79 17.06 16.91 109.52
Median 8.08 8.08 15.93 0.26 0.42 180.75 17.66 17.57 109.26
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 17
<PAGE>
FERGUSON & CO., LLP EXHIBIT II.6 - COMPARATIVE BALANCE SHEETS
- -------------------
<TABLE>
<CAPTION>
Full-Time Loans Cash and
Equivalent Serviced MBS/ Inv. (ex MBS)
Employees For Others Assets Assets
(Actual) ($000) (%) (%)
Short Name MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C>
Capital Savings Bancorp, Inc. 71 47,147 13.00 8.73
Equitable Federal Savings Bank NA NA 22.00 4.46
FCB Financial Corp. NA NA - 14.56
Fidelity Federal Bancorp 133 58,854 4.80 7.25
First Franklin Corporation 49 56,988 - 30.62
Glenway Financial Corp. NA 68,800 10.21 6.81
Midwest Federal Financial 90 58,631 8.14 15.70
Newnan Holdings, Inc. NA NA 0.77 14.66
OSB Financial Corp. 85 102,296 0.06 30.09
Pinnacle Bank 85 98,754 14.50 17.02
SJS Bancorp 38 48,928 9.72 26.46
United Federal Savings Bank 124 461,893 11.67 19.35
Maximum 133 461,893 22.00 30.62
Minimum 38 47,147 - 4.46
Average 84 111,366 7.91 16.31
Median 85 58,854 8.93 15.18
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 18
<PAGE>
FERGUSON & CO., LLP EXHIBIT II.7 - COMPARATIVES RISK CHARACTERISTICS
- -------------------
<TABLE>
<CAPTION>
NPAs + Loans Net Loan
NPAs/ 90+ Pst Due/ NPAs/ Reserves/ Reserves/ Chargeoffs/
Assets Assets Equity Loans NPAs Avg Loans
(%) (%) (%) (%) (%) (%)
Short Name MRQ MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C>
Capital Savings Bancorp, Inc. 0.13 0.23 1.39 0.38 223.24 0.00
Equitable Federal Savings Bank 0.77 1.00 14.49 0.31 28.03 NA
FCB Financial Corp. 0.12 0.12 0.68 0.51 351.57 0.01
Fidelity Federal Bancorp 0.15 0.17 2.81 0.49 264.09 0.01
First Franklin Corporation 0.43 0.50 4.60 0.63 99.04 0.04
Glenway Financial Corp. 0.40 NA 4.20 0.28 54.93 0.03
Midwest Federal Financial 0.19 0.19 2.15 1.03 386.54 (0.01)
Newnan Holdings, Inc. 1.26 1.26 9.86 1.04 66.63 NA
OSB Financial Corp. 0.22 0.22 1.78 0.59 180.71 0.03
Pinnacle Bank 0.18 0.18 2.24 1.05 377.94 NA
SJS Bancorp 0.29 0.29 2.48 0.67 144.27 0.38
United Federal Savings Bank 0.88 1.17 10.92 1.74 131.32 0.12
Maximum 1.26 1.26 14.49 1.74 386.54 0.38
Minimum 0.12 0.12 0.68 0.28 28.03 (0.01)
Average 0.42 0.48 4.80 0.73 192.36 0.07
Median 0.26 0.23 2.65 0.61 162.49 0.03
</TABLE>
SOURCE:SNL & F&C CALCULATIONS 19
<PAGE>
FERGUSON & CO., LLP Exhibit II.7 - Comparatives Risk Characteristics
- -------------------
<TABLE>
<CAPTION>
Intangible One Year IE Assets
Loans/ Assets/ Cum Gap/ Net Int Bear
Assets Equity Assets Loans Liabilities
(%) (%) (%) ($000) (%)
Short Name MRQ MRQ MRY MRQ MRQ
<S> <C> <C> <C> <C> <C>
Capital Savings Bancorp, Inc. 76.74 0.00 NA 166,623 110.72
Equitable Federal Savings Bank 70.02 0.00 1.41 186,835 102.31
FCB Financial Corp. 83.42 0.00 (0.66) 214,101 122.77
Fidelity Federal Bancorp 82.84 0.00 13.34 216,162 101.30
First Franklin Corporation 67.72 1.02 8.45 145,703 108.90
Glenway Financial Corp. 79.52 2.15 NA 220,007 108.71
Midwest Federal Financial 72.82 4.38 3.55 134,735 110.87
Newnan Holdings, Inc. 80.81 0.52 9.60 126,760 109.61
OSB Financial Corp. 68.04 0.00 (10.84) 168,043 110.53
Pinnacle Bank 65.56 3.50 NA 120,644 107.04
SJS Bancorp 62.16 0.00 NA 92,491 112.70
United Federal Savings Bank 66.48 0.00 (5.33) 164,902 108.83
Maximum 83.42 4.38 13.34 220,007 122.77
Minimum 62.16 0.00 (10.84) 92,491 101.30
Average 73.01 0.96 2.44 163,084 109.52
Median 71.42 0.00 2.48 165,763 109.26
</TABLE>
Source SNL & F&C calculations 20
<PAGE>
EXHIBIT III
<PAGE>
FERGUSON & CO., LLP EXHIBIT III
- -------------------
<TABLE>
<CAPTION>
HOME SVG BK SSB
WASHINGTON, NC
FINANCIAL HIGHLIGHTS
1993 1994 1995 YTD 6/96
($'S IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 157,736 171,251 179,621 189,572
% Change in Assets 25.93 8.57 4.89 5.54
Securities-Book Value 28,084 18,523 23,992 21,812
Securities-Fair Value 28,788 17,592 23,992 21,812
Total Loans & Leases 120,415 142,599 147,710 153,360
Total Deposits 114,065 134,487 156,742 167,518
Loan/Deposit Ratio 105.57 106.03 94.24 91.55
Provision for Loan Losses 531 160 233 180
CAPITAL:
Equity Capital 14,359 15,958 18,332 18,615
Total Qualifying Capital(Est) 15,512 17,321 19,486 20,194
Equity Capital/Average Assets 10.15 9.70 10.41 10.30
Tot Qual Cap/Rk Bsd Asts(Est) 16.95 16.58 16.78 15.98
Tier 1 Cap/Rsk Bsed Asts(Est) 15.69 15.32 15.53 14.72
T1 Cap/Avg Assets(Lev Est) 9.54 9.80 10.14 10.26
Dividends Declared/Net Income - - - -
PROFITABILITY:
Net Income(Loss) 2,937 1,648 2,020 579
Return on Average Assets 2.08 1.00 1.15 0.64
Return on Average Equity Cap 22.78 10.87 11.76 6.27
Net Interest Margin 4.56 4.33 4.11 4.16
Net Int Income/Avg Assets 4.39 4.17 4.02 4.10
Noninterest Income/Avg Assets 2.00 0.62 0.89 0.83
Noninterest Exp/Avg Assets 2.73 3.05 3.11 3.50
ASSET QUALITY:
NPL+Frcl RE/Lns+Frcl RE 0.60 0.67 1.06 0.96
NPA's/Equity + LLR 4.42 5.33 7.64 7.09
LLR/Nonperf & Restrcd Lns 287.84 229.99 133.97 166.91
Foreclosed RE/Total Assets 0.04 0.06 - 0.07
90+ Day Del Loans/Total Loans - - - -
Loan Loss Reserves/Total Lns 1.57 1.38 1.41 1.48
Net Charge-Offs/Average Loans 0.05 0.06 0.08 0.01
Dom Risk R/E Lns/Tot Dom Lns 9.96 14.52 18.60 20.60
LIQUIDITY:
Brokered Dep/Total Dom Deps - - - -
$100M+ Time Dep/Total Dom Dep 15.91 10.72 10.63 11.80
Int Earn Assets/Int Bear Liab 108.58 112.15 114.73 113.91
Pledged Sec/Total Sec 18.16 21.54 11.01 15.26
Fair Value Sec/Amort Cost Sec 102.51 94.72 102.14 100.07
</TABLE>
SOURCE: BANKSOURCE 1
<PAGE>
FERGUSON & CO., LLP EXHIBIT III
- -------------------
SELECTED PEER GROUP RATIOS & RANKINGS
Peer Group Category 4 4 4 4
CAPITAL:
Equity Capital/Average Assets 10.15 9.70 10.41 10.30
Peer Group Percentile 72 65 63 67
Primary Capital/Adj Avg Assets 11.33 10.77 11.47 11.41
Peer Group Percentile 78 71 67 73
Tangible Capital/Tangible Asset 9.10 9.32 10.21 9.82
Peer Group Percentile 64 66 71 68
Tot Qual Cap/Risk Based Assets 16.95 16.58 16.78 15.98
Peer Group Percentile - - - -
LIQUIDITY:
Liquid Assets/Short-term Liab 68.88 67.77 155.52 143.22
Peer Group Percentile 22 30 77 75
PROFITABILITY:
Return on Average Assets 2.08 1.00 1.15 0.64
Peer Group Percentile 96 35 44 10
Return on Average Equity Cap 22.78 10.87 11.76 6.27
Peer Group Percentile 92 32 40 9
Net Interest Margin 4.56 4.33 4.11 4.16
Peer Group Percentile 54 41 29 34
Noninterest Income/Avg Assets 2.00 0.62 0.89 0.83
Peer Group Percentile 94 42 68 64
Noninterest Expense/Avg Assets 2.73 3.05 3.11 3.50
Peer Group Percentile 70 55 49 27
Int Earn Assets/Int Bear Liab 108.58 112.15 114.73 113.91
Peer Group Percentile 5 13 19 17
ASSET QUALITY:
Nonaccrual Loans/Total Loans 0.55 0.60 1.06 0.88
Peer Group Percentile 51 41 21 28
Foreclosed RE/Total Assets 0.04 0.06 - 0.07
Peer Group Percentile 68 53 100 43
Forcl RE/Loans+Forcl RE 0.05 0.07 - 0.08
Peer Group Percentile 70 57 100 48
NPL+Frcl RE/Lns+Frcl RE 0.60 0.67 1.06 0.96
Peer Group Percentile 78 66 46 50
Nonaccrual Loans/Loan Loss Res 34.74 43.48 74.64 59.91
Peer Group Percentile 54 40 23 31
LLR/Nonperf & Restrcd Lns 287.84 229.99 133.97 166.91
Peer Group Percentile 73 60 40 51
Loan Loss Reserves/Total Loans 1.57 1.38 1.41 1.48
Peer Group Percentile 57 48 55 62
Net Charge-Offs/Average Loans 0.05 0.06 0.08 0.01
Peer Group Percentile 75 64 61 73
Earnings Coverage/Net Charge-Offs 95.74 34.49 27.77 257.00
Peer Group Percentile 77 55 51 69
SOURCE: BANKSOURCE 2
<PAGE>
FERGUSON & CO., LLP EXHIBIT III
- -------------------
HOME SVG BK SSB
WASHINGTON, NC
FINANCIAL HIGHLIGHTS
9/30/95 12/31/95 3/31/96 6/30/96
($'S IN THOUSANDS)
BALANCE SHEET:
Total Assets 180,783 179,621 182,380 189,572
% Change in Assets (1.85) (0.64) 1.54 3.94
Securities-Book Value 26,574 23,992 24,021 21,812
Securities-Fair Value 26,596 23,992 24,021 21,812
Total Loans & Leases 146,845 147,710 148,237 153,360
Total Deposits 156,791 156,742 156,048 167,518
Loan/Deposit Ratio 93.66 94.24 94.99 91.55
Provision for Loan Losses - 213 180 -
CAPITAL:
Equity Capital 17,706 18,332 18,462 18,615
Total Qualifying Capital(Est) 18,942 19,486 19,780 20,194
Equity Capital/Average Assets 10.04 10.31 10.25 10.27
Tot Qual Cap/Rk Bsd Asts(Est) 16.76 16.78 16.36 15.98
Tier 1 Cap/Rsk Bsed Asts(Est) 15.50 15.53 15.10 14.72
T1 Cap/Avg Assets(Lev Est) 9.93 10.14 10.13 10.26
Dividends Declared/Net Income - - - -
PROFITABILITY:
Net Income(Loss) 516 504 232 347
Return on Average Assets 1.17 1.13 0.52 0.77
Return on Average Equity Cap 11.83 11.19 5.04 7.49
Net Interest Margin 4.10 4.09 4.01 4.31
Net Int Income/Avg Assets 4.02 4.00 4.01 4.18
Noninterest Income/Avg Assets 0.77 1.02 0.88 0.78
Noninterest Exp/Avg Assets 2.92 3.36 3.18 3.83
ASSET QUALITY:
NPL+Frcl RE/Lns+Frcl RE 0.51 1.06 1.01 0.96
NPA's/Equity + LLR 3.83 7.64 7.20 7.09
LLR/Nonperf & Restrcd Lns 275.62 133.97 158.91 166.91
Foreclosed RE/Total Assets 0.04 - 0.04 0.07
90+ Day Del Loans/Total Loans - - - -
Loan Loss Reserves/Total Lns 1.28 1.41 1.53 1.48
Net Charge-Offs/Average Loans 0.01 - 0.01 0.00
Dom Risk R/E Lns/Tot Dom Lns 16.89 18.60 21.22 20.60
LIQUIDITY:
Brokered Dep/Total Dom Deps - - - -
$100M+ Time Dep/Total Dom Dep 10.58 10.63 11.66 11.80
Int Earn Assets/Int Bear Liab 114.74 114.73 113.90 113.91
Pledged Sec/Total Sec 10.19 11.01 14.65 15.26
Fair Value Sec/Amort Cost Sec 101.35 102.14 101.41 100.07
SOURCE: BANKSOURCE 3
<PAGE>
FERGUSON & CO., LLP EXHIBIT III
- -------------------
SELECTED PEER GROUP RATIOS & RANKINGS
Peer Group Category 4 4 4 4
CAPITAL:
Equity Capital/Average Assets 10.04 10.31 10.25 10.27
Peer Group Percentile 64 67 68 68
Primary Capital/Adj Avg Assets 10.98 11.36 11.36 11.38
Peer Group Percentile 68 72 72 73
Tangible Capital/Tangible Asset 9.79 10.21 10.12 9.82
Peer Group Percentile 66 71 70 68
LIQUIDITY:
Liquid Assets/Short-term Liab 156.52 155.52 127.69 143.22
Peer Group Percentile 77 77 63 75
PROFITABILITY:
Return on Average Assets 1.17 1.13 0.52 0.77
Peer Group Percentile 38 43 7 16
Return on Average Equity Cap 11.83 11.19 5.04 7.49
Peer Group Percentile 34 39 6 13
Net Interest Margin 4.10 4.09 4.01 4.31
Peer Group Percentile 30 29 29 40
Noninterest Income/Avg Assets 0.77 1.02 0.88 0.78
Peer Group Percentile 58 75 69 59
Noninterest Expense/Avg Assets 2.92 3.36 3.18 3.83
Peer Group Percentile 51 38 38 19
Int Earn Assets/Int Bear Liab 114.74 114.73 113.90 113.91
Peer Group Percentile 20 19 17 17
ASSET QUALITY:
Nonaccrual Loans/Total Loans 0.46 1.06 0.96 0.88
Peer Group Percentile 47 21 25 28
Foreclosed RE/Total Assets 0.04 - 0.04 0.07
Peer Group Percentile 54 100 52 43
Forcl RE/Loans+Forcl RE 0.05 - 0.05 0.08
Peer Group Percentile 57 100 54 48
NPL+Frcl RE/Lns+Frcl RE 0.51 1.06 1.01 0.96
Peer Group Percentile 72 46 50 50
Nonaccrual Loans/Loan Loss Res 36.28 74.64 62.93 59.91
Peer Group Percentile 45 23 29 31
LLR/Nonperf & Restrcd Lns 275.62 133.97 158.91 166.91
Peer Group Percentile 67 40 49 51
Loan Loss Reserves/Total Loans 1.28 1.41 1.53 1.48
Peer Group Percentile 43 55 64 62
Net Charge-Offs/Average Loans 0.01 - 0.01 0.00
Peer Group Percentile 71 85 65 80
Earnings Coverage/Net Charge-Offs 164.60 - 193.00 513.00
Peer Group Percentile 65 85 60 70
SOURCE: BANKSOURCE 4
<PAGE>
EXHIBIT IV
<PAGE>
FERGUSON & CO.,LLP EXHIBIT IV
- ------------------
CAPITAL SAVINGS BANK, FSB
JEFFERSON CITY, MO
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CAPS 1993 1994 1995 YTD 6/96
- ----
(ALL $ AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 163,736 179,466 193,111 217,684
% Change in Assets 0.63 9.61 7.60 12.72
Total Loans 132,140 144,906 156,872 167,582
Deposits 146,907 144,596 150,821 152,989
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 13,832 15,658 18,016 18,838
Tangible Capital 13,832 15,748 17,853 18,916
Core Capital 13,832 15,748 17,853 18,916
Risk-Based Capital 14,259 16,164 18,401 19,562
Equity Capital/Total Assets 8.45 8.72 9.33 8.65
Core Capital/Risk Based Assets 17.92 18.75 18.81 17.88
Core Capital/Adj Tang Assets 8.48 8.78 9.29 8.69
Tangible Cap/Tangible Assets 8.48 8.78 9.29 8.69
Risk-Based Cap/Risk-Wt Assets 18.47 19.24 19.39 18.49
PROFITABILITY:
Net Income(Loss) 2,294 1,724 1,902 945
Ret on Avg Assets Bef Ext Item 1.41 1.00 1.02 0.93
Net Interest Income/Avg Assets 3.37 3.27 3.19 3.10
Noninterest Income/Avg Assets 0.87 0.41 0.45 0.49
Noninterest Expense/Avg Assets 2.19 2.15 1.97 2.04
Yield/Cost Spread 3.41 3.21 3.07 2.93
LIQUIDITY:
Int Earn Assets/Int Bear Liab 106.22 106.34 107.50 107.02
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.36 0.06 0.15 0.27
Nonaccrual Loans/Gross Loans - - 0.06 0.15
Nonaccrual Lns/Ln Loss Reserve - - 17.07 40.06
Repos Assets/Tot Assets 0.07 0.05 0.04 0.01
Net Chrg-Off/Av Adj Lns - - - -
Nonmtg 1-4 Constr&Conv Lns/TA 1.68 2.46 3.31 7.71
</TABLE>
SOURCE: TAFS 1
<PAGE>
FERGUSON & CO.,LLP EXHIBIT IV
- ------------------
EQUITABLE FSB
WHEATON, MD
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
EQSB 1993 1994 1995 YTD 6/96
- ----
(ALL $ AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 190,637 218,869 255,200 267,776
% Change in Assets (5.37) 14.81 16.60 4.93
Total Loans 153,777 161,074 173,404 188,226
Deposits 169,706 181,089 200,560 209,145
Broker Originated Deposits
CAPITAL:
Equity Capital 9,120 10,551 13,205 14,182
Tangible Capital 9,120 10,551 13,205 14,182
Core Capital 9,120 10,551 13,205 14,182
Risk-Based Capital 9,670 11,211 13,765 14,472
Equity Capital/Total Assets 4.78 4.82 5.17 5.30
Core Capital/Risk Based Assets 8.08 9.32 10.75 11.08
Core Capital/Adj Tang Assets 4.79 4.82 5.18 5.30
Tangible Cap/Tangible Assets 4.79 4.82 5.18 5.30
Risk-Based Cap/Risk-Wt Assets 8.57 9.90 11.20 11.51
PROFITABILITY:
Net Income(Loss) 1 1,432 2,655 977
Ret on Avg Assets Bef Ext Item 0.00 0.70 1.13 0.75
Net Interest Income/Avg Assets 1.96 2.53 2.60 2.41
Noninterest Income/Avg Assets 0.72 0.81 0.60 0.52
Noninterest Expense/Avg Assets 2.74 2.46 1.79 1.81
Yield/Cost Spread 2.42 2.79 2.77 2.50
LIQUIDITY:
Int Earn Assets/Int Bear Liab 98.05 99.57 100.23 101.57
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 3.77 2.58 1.90 1.40
Nonaccrual Loans/Gross Loans 0.43 0.26 0.12 0.02
Nonaccrual Lns/Ln Loss Reserve 56.51 61.58 36.35 6.08
Repos Assets/Tot Assets 2.41 1.51 0.78 0.75
Net Chrg-Off/Av Adj Lns 0.09 0.39 (0.39) (0.00)
Nonmtg 1-4 Constr&Conv Lns/TA 7.31 4.80 4.51 8.50
</TABLE>
SOURCE: TAFS 2
<PAGE>
FERGUSON & CO., LLP EXHIBIT IV
- -------------------
FOX CITIES BANK, FSB
NEENAH, WI
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FCBF 1993 1994 1995 YTD 6/96
- ----
(ALL $ AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 195,712 231,872 248,827 264,306
% Change in Assets 9.60 18.48 7.31 6.22
Total Loans 163,850 184,875 207,069 221,332
Deposits 143,462 145,511 154,588 156,507
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 36,687 37,628 37,414 38,099
Tangible Capital 36,410 37,301 37,010 37,734
Core Capital 36,410 37,301 37,010 37,734
Risk-Based Capital 37,235 38,164 38,035 38,852
Equity Capital/Total Assets 18.75 16.23 15.04 14.41
Core Capital/Risk Based Assets 34.56 29.50 25.04 24.15
Core Capital/Adj Tang Assets 18.63 16.12 14.91 14.30
Tangible Cap/Tangible Assets 18.63 16.12 14.91 14.30
Risk-Based Cap/Risk-Wt Assets 35.34 30.18 25.73 24.87
PROFITABILITY:
Net Income(Loss) 2,234 2,008 2,195 1,307
Ret on Avg Assets Bef Ext Item 1.12 0.94 0.91 1.02
Net Interest Income/Avg Assets 3.32 3.36 2.95 3.06
Noninterest Income/Avg Assets 0.64 0.08 0.40 0.38
Noninterest Expense/Avg Assets 1.91 1.89 1.76 1.72
Yield/Cost Spread 2.88 2.93 2.44 2.85
LIQUIDITY:
Int Earn Assets/Int Bear Liab 122.19 117.39 115.98 116.11
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.47 0.11 0.13 0.16
Nonaccrual Loans/Gross Loans 0.46 0.10 0.12 0.13
Nonaccrual Lns/Ln Loss Reserve 91.79 21.45 25.95 23.16
Repos Assets/Tot Assets - - - -
Net Chrg-Off/Av Adj Lns 0.00 0.32 0.01 -
Nonmtg 1-4 Constr&Conv Lns/TA 14.12 16.33 19.46 39.45
</TABLE>
SOURCE: TAFS 3
<PAGE>
FERGUSON & CO., LLP EXHIBIT IV
- -------------------
UNITED FIDELITY BANK, FSB
EVANSVILLE, IN
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FFED 1993 1994 1995 YTD 6/96
- ----
(ALL $ AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 119,710 198,854 273,859 255,908
% Change in Assets 17.28 66.11 37.72 (6.55)
Total Loans 94,919 171,856 232,676 209,101
Deposits 77,696 129,074 188,909 188,036
Broker Originated Deposits - 37,710 92,612 73,081
CAPITAL:
Equity Capital 8,839 12,077 17,448 17,951
Tangible Capital 8,839 12,077 17,438 18,090
Core Capital 8,839 12,077 17,438 18,090
Risk-Based Capital 9,131 12,541 23,142 23,874
Equity Capital/Total Assets 7.38 6.07 6.37 7.01
Core Capital/Risk Based Assets 15.36 9.87 9.13 10.03
Core Capital/Adj Tang Assets 7.38 6.07 6.24 7.07
Tangible Cap/Tangible Assets 7.38 6.07 6.24 7.07
Risk-Based Cap/Risk-Wt Assets 15.87 10.25 12.12 13.24
PROFITABILITY:
Net Income(Loss) 931 2,576 3,747 1,428
Ret on Avg Assets Bef Ext Item 0.84 1.62 1.50 1.06
Net Interest Income/Avg Assets 2.47 2.48 2.15 2.46
Noninterest Income/Avg Assets 0.97 1.72 1.94 1.07
Noninterest Expense/Avg Assets 2.28 2.16 2.04 2.03
Yield/Cost Spread 2.59 2.62 2.27 2.71
LIQUIDITY:
Int Earn Assets/Int Bear Liab 102.14 100.15 98.23 100.03
Brokered Deposits/Tot Deposits - 29.22 49.02 38.87
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.40 0.57 0.60 0.49
Nonaccrual Loans/Gross Loans 0.23 0.09 0.13 0.16
Nonaccrual Lns/Ln Loss Reserve 83.62 37.72 38.60 34.69
Repos Assets/Tot Assets 0.06 0.01 0.01 0.03
Net Chrg-Off/Av Adj Lns 0.02 0.04 0.03 0.05
Nonmtg 1-4 Constr&Conv Lns/TA 12.14 9.42 13.55 42.42
</TABLE>
SOURCE: TAFS 4
<PAGE>
FERGUSON & CO., LLP EXHIBIT IV
- -------------------
FRANKLIN S&LC
CINCINNATI, OH
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FFHS 1993 1994 1995 YTD 6/96
- ----
(ALL $ AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 197,821 189,228 210,323 212,192
% Change in Assets (5.23) (4.34) 11.15 0.89
Total Loans 132,115 134,518 139,873 146,604
Deposits 178,840 172,957 186,887 188,576
Broker Originated Deposits
CAPITAL:
Equity Capital 13,778 12,763 14,060 13,849
Tangible Capital 13,778 13,879 13,881 13,675
Core Capital 13,778 13,879 13,881 13,675
Risk-Based Capital 14,476 14,558 14,486 14,293
Equity Capital/Total Assets 6.96 6.74 6.69 6.53
Core Capital/Risk Based Assets 15.38 15.81 14.50 14.52
Core Capital/Adj Tang Assets 6.97 7.30 6.61 6.45
Tangible Cap/Tangible Assets 6.97 7.30 6.61 6.45
Risk-Based Cap/Risk-Wt Assets 16.15 16.58 15.13 15.17
PROFITABILITY:
Net Income(Loss) 2,162 1,249 1,139 586
Ret on Avg Assets Bef Ext Item 0.70 0.65 0.58 0.55
Net Interest Income/Avg Assets 2.52 2.83 2.62 2.51
Noninterest Income/Avg Assets 0.62 0.27 0.23 0.25
Noninterest Expense/Avg Assets 1.93 2.11 1.98 1.90
Yield/Cost Spread
LIQUIDITY:
Int Earn Assets/Int Bear Liab 106.02 104.95 105.16 104.53
Brokered Deposits/Tot Deposits 0.17 0.17 - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 2.16 1.17 0.96 0.74
Nonaccrual Loans/Gross Loans 1.27 0.65 0.40 0.27
Nonaccrual Lns/Ln Loss Reserve 138.54 71.42 60.74 44.10
Repos Assets/Tot Assets 0.23 - - 0.09
Net Chrg-Off/Av Adj Lns 0.28 (0.00) 0.19 0.02
Nonmtg 1-4 Constr&Conv Lns/TA 12.04 11.72 11.05 22.40
</TABLE>
SOURCE: TAFS 5
<PAGE>
FERGUSON & CO.,LLP Exhibit IV
- ------------------
CENTENNIAL SVG BK
CINCINNATI, OH
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GFCO 1993 1994 1995 YTD 6/96
- ----
($'s in Thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets - 258,276 275,362 275,413
% Change in Assets - - 6.62 0.02
Securities-Book Value - 48,190 44,692 42,326
Securities-Fair Value - 45,934 44,504 41,921
Total Loans & Leases - 197,463 214,428 221,710
Total Deposits - 203,834 218,166 223,682
Loan/Deposit Ratio - 96.87 98.29 99.12
Provision for Loan Losses - 96 66 30
CAPITAL:
Equity Capital - 23,498 23,460 23,886
Total Qualifying Capital(Est) - 23,542 23,263 23,928
Equity Capital/Average Assets - 9.10 8.98 8.92
Tot Qual Cap/Rk Bsd Asts(Est) - 17.29 14.82 13.87
Tier 1 Cap/Rsk Bsed Asts(Est) - 16.77 14.43 13.51
T1 Cap/Avg Assets(Lev Est) - 9.12 8.58 8.70
Dividends Declared/Net Income - 135.59 42.76 61.62
PROFITABILITY:
Net Income(Loss) - 1,776 2,105 1,071
Return on Average Assets - 0.69 0.81 0.80
Return on Average Equity Cap - 7.56 9.22 9.04
Net Interest Margin - 2.79 3.10 3.25
Net Int Income/Avg Assets - 2.73 2.99 3.14
Noninterest Income/Avg Assets - 0.34 0.24 0.24
Noninterest Exp/Avg Assets - 2.00 2.06 2.20
ASSET QUALITY:
NPL+Frcl RE/Lns+Frcl RE - 1.24 0.63 0.51
NPA's/Equity + LLR - 10.16 5.62 4.59
LLR/Nonperf & Restrcd Lns - 32.49 67.10 69.99
Foreclosed RE/Total Assets - 0.11 0.16 0.09
90+ Day Del Loans/Total Loans - 0.38 0.06 0.19
Loan Loss Reserves/Total Lns - 0.36 0.29 0.28
Net Charge-Offs/Average Loans - 0.03 0.08 0.03
Dom Risk R/E Lns/Tot Dom Lns - 18.82 16.77 17.15
LIQUIDITY:
Brokered Dep/Total Dom Deps - - - -
$100M+ Time Dep/Total Dom Dep - 5.58 7.33 7.93
Int Earn Assets/Int Bear Liab - 106.55 104.67 106.03
Pledged Sec/Total Sec - - - -
Fair Value Sec/Amort Cost Sec - 94.84 100.02 99.02
</TABLE>
SOURCE: BANKSOURCE 6
<PAGE>
FERGUSON & CO., LLP Exhibit IV
- -------------------
BARABOO FEDERAL BANK, FSB
BARABOO, WI
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MWFD 1993 1994 1995 YTD 6/96
- ----
(ALL $ AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 122,385 149,390 175,658 185,819
% Change in Assets 7.98 22.07 17.58 5.78
Total Loans 86,930 114,568 124,474 136,116
Deposits 99,855 125,840 142,806 151,457
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 13,652 12,887 14,579 14,035
Tangible Capital 13,652 12,015 13,528 13,707
Core Capital 13,652 12,015 13,528 13,707
Risk-Based Capital 14,488 13,201 14,848 15,114
Equity Capital/Total Assets 11.16 8.63 8.30 7.55
Core Capital/Risk Based Assets 20.42 12.95 11.15 11.91
Core Capital/Adj Tang Assets 11.16 8.09 7.75 7.39
Tangible Cap/Tangible Assets 11.16 8.09 7.75 7.39
Risk-Based Cap/Risk-Wt Assets 21.67 14,22 12.23 13.14
PROFITABILITY:
Net Income(Loss) 1,431 1,205 1,656 1,034
Ret on Avg Assets Bef Ext Item 1.03 0.89 1.04 1.16
Net Interest Income/Avg Assets 3.68 3.31 3.58 3.65
Noninterest Income/Avg Assets 0.84 0.88 1.16 1.37
Noninterest Expense/Avg Assets 2.84 2.71 3.00 3.06
Yield/Cost Spread 3.67 3.38 3.73 3.84
LIQUIDITY:
Int Earn Assets/Int Bear Liab 106.52 102.97 102.32 102.59
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.12 0.14 0.23 0.32
Nonaccrual Loans/Gross Loans 0.08 0.07 0.18 0.26
Nonaccrual Lns/Ln Loss Reserve 7.69 6.50 17.35 25.87
Repos Assets/Tot Assets 0.03 0.03 0.04 0.04
Net Chrg-Off/Av Adj Lns 0.03 0.02 0.02 0.03
Nonmtg 1-4 Constr&Conv Lns/TA 15.98 16.36 14.98 39.06
</TABLE>
SOURCE: TAFS 7
<PAGE>
FERCUSON & CO., LLP Exhibit IV
- -------------------
NEWNAN SAVINGS BANK, FSB
NEWNAN, GA
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
NFSL 1993 1994 1995 YTD 6/96
- ----
(ALL $ AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 139,094 158,795 161,240 162,269
% Change in Assets 8.92 14.16 1.54 0.64
Total Loans 103,323 131,962 131,169 130,589
Deposits 111,604 112,234 127,950 130,491
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 14,938 15,913 18,606 20,752
Tangible Capital 13,418 14,398 18,385 20,560
Core Capital 13,418 14,398 18,385 20,560
Risk-Based Capital 14,252 15,602 19,546 21,731
Equity Capital/Total Assets 10.74 10.02 11.54 12.79
Core Capital/Risk Based Assets 14.82 12.98 16.54 19.82
Core Capital/Adj Tang Assets 9.76 9.18 11.50 12.68
Tangible Cap/Tangible Assets 9.76 9.18 11.50 12.68
Risk-Based Cap/Risk-Wt Assets 15.74 14.06 17.59 20.95
PROFITABILITY:
Net Income(Loss) 1,110 1,072 3,039 2,368
Ret on Avg Assets Bef Ext Item 0.64 0.72 1.83 2.75
Net Interest Income/Avg Assets 3.43 3.38 3.55 3.52
Noninterest Income/Avg Assets 1.04 1.21 1.72 2.69
Noninterest Expense/Avg Assets 3.26 3.40 2.65 2.60
Yield/Cost Spread 3.50 3.43 3.52 3.72
LIQUIDITY:
Int Earn Assets/Int Bear Liab 105.75 105.52 105.31 107.18
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 4.22 2.04 1.40 2.15
Nonaccrual Loans/Gross Loans 1.60 1.14 0.58 1.03
Nonaccrual Lns/Ln Loss Reserve 133.85 109.98 60.22 111.58
Repos Assets/Tot Assets 0.70 0.12 0.08 0.11
Net Chrg-Off/Av Adj Lns 0.24 0.03 0.05 0.02
Nonmtg 1-4 Constr&Conv Lns/TA 15.30 12.70 12.73 30.88
</TABLE>
SOURCE: TAFS 8
<PAGE>
FERGUSON & CO., LLP EXHIBIT IV
- -------------------
CITIZENS B&TC FAYETTE CTY
FAYETTEVILLE, GA
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
NFSL 1993 1994 1995 YTD 6/96
- ----
($'S IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 62,775 70,581 82,096 87,530
% Change in Assets 49 12.43 16.31 6.62
Securities-Book Value 11,119 18,164 22,626 19,055
Securities-Fair Value 11,095 18,149 22,627 19,055
Total Loans & Leases 40,057 44,767 51,104 59,389
Total Deposits 54,632 61,202 70,807 76,342
Loan/Deposit Ratio 73 73.15 72.17 77.79
Provision for Loan Losses 167 227 260 311
CAPITAL:
Equity Capital 7,788 7,910 9,519 9,901
Total Qualifying Capital(Est) 8,201 8,919 10,166 10,797
Equity Capital/Average Assets 15 11.86 12.55 11.60
Tot Qual Cap/Rk Bsd Asts(Est) 18 17.28 17.67 17.45
Tier 1 Cap/Rsk Bsed Asts(Est) 17 16.12 16.42 16.20
T1 Cap/Avg Assets(Lev Est) 13 11.52 11.53 11.52
Dividends Declared/Net Income - 6.92 9.32 -
PROFITABILITY:
Net Income(Loss) 503 578 1,234 577
Return on Average Assets 1 0.87 1.63 1.35
Return on Average Equity Cap 7 7.36 14.21 11.87
Net Interest Margin 5 5.18 5.87 5.61
Net Int Income/Avg Assets 4 4.83 5.50 5.21
Noninterest Income/Avg Assets 1 0.90 1.43 0.90
Noninterest Exp/Avg Assets 4 4.11 4.04 3.38
ASSET QUALITY:
NPL+Frcl RE/Lns+Frcl RE 1 1.42 1.88 1.34
NPA's/Equity + LLR 5 7.49 9.30 7.24
LLR/Nonperf & Restrcd Lns 106 107.54 87.23 170.30
Foreclosed RE/Total Assets - 0.11 - 0.15
90+ Day Del Loans/Total Loans - 0.34 - 0.02
Loan Loss Reserves/Total Lns 1 1.34 1.64 1.92
Net Charge-Offs/Average Loans 0 0.14 0.04 0.03
Dom Risk R/E Lns/Tot Dom Lns 51 48.32 50.99 52.00
LIQUIDITY:
Brokered Dep/Total Dom Deps - - - -
$100M+ Time Dep/Total Dom Dep 16 15.54 13.80 14.39
Int Earn Assets/Int Bear Liab 126 126.26 134.01 135.98
Pledged Sec/Total Sec 16 6.96 5.75 7.53
Fair Value Sec/Amort Cost Sec 100 96.36 100.53 98.97
</TABLE>
SOURCE: BANKSOURCE 9
<PAGE>
FERGUSON & CO., LLP EXHIBIT IV
- -------------------
OSHKOSH SAVINGS BANK, FSB
OSHKOSH, WI
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
OSBF 1993 1994 1995 YTD 6/96
- ----
(ALL $ AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 187,950 235,726 258,447 253,325
% Change in Assets (0.54) 25.42 9.64 (1.98)
Total Loans 126,811 145,439 169,065 169,460
Deposits 143,281 164,375 166,224 167,312
Broker Originated Deposits - - 1,188 1,188
CAPITAL:
Equity Capital 30,400 26,583 24,332 26,944
Tangible Capital 30,400 26,583 24,369 27,274
Core Capital 30,400 26,583 24,369 27,274
Risk-Based Capital 31,021 27,194 24,829 28,229
Equity Capital/Total Assets 16.17 11.28 9.41 10.64
Core Capital/Risk Based Assets 34.81 25.45 19.42 23.31
Core Capital/Adj Tang Assets 16.17 11.28 9.43 10.75
Tangible Cap/Tangible Assets 16.17 11.28 9.43 10.75
Risk-Based Cap/Risk-Wt Assets 35.52 26.04 19.79 24.13
PROFITABILITY:
Net Income(Loss) 2,632 1,608 330 918
Ret on Avg Assets Bef Ext Item 1.40 0.76 0.13 0.72
Net Interest Income/Avg Assets 3.58 2.98 2.43 2.73
Noninterest Income/Avg Assets 1.18 0.64 0.41 0.59
Noninterest Expense/Avg Assets 2.46 2.40 2.38 2.03
Yield/Cost Spread 3.24 2.74 2.24 2.56
LIQUIDITY:
Int Earn Assets/Int Bear Liab 116.69 108.27 106.36 109.13
Brokered Deposits/Tot Deposits - - 0.71 0.71
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.65 0.79 0.18 0.38
Nonaccrual Loans/Gross Loans 0.26 0.41 0.11 0.31
Nonaccrual Lns/Ln Loss Reserve 54.25 99.84 24.26 55.12
Repos Assets/Tot Assets 0.08 0.08 0.01 0.03
Net Chrg-Off/Av Adj Lns 0.01 0.03 0.01 0.02
Nonmtg 1-4 Constr&Conv Lns/TA 7.11 6.91 7.25 16.52
</TABLE>
SOURCE: TAFS 10
<PAGE>
FERGUSON & CO., LLP EXHIBIT IV
- -------------------
PINNACLE BANK
JASPER, AL
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PLE 1993 1994 1995 YTD 6/96
- ---
(ALL $ AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 176,095 186,324 194,529 186,679
% Change in Assets 1.04 5.81 4.40 (4.04)
Total Loans 102,196 113,702 121,364 122,197
Deposits 146,484 149,856 162,931 164,560
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 13,822 13,449 15,127 15,165
Tangible Capital 13,155 12,769 14,373 14,225
Core Capital 13,788 13,362 14,373 14,225
Risk-Based Capital 14,698 14,479 15,574 15,475
Equity Capital/Total Assets 7.85 7.22 7.78 8.12
Core Capital/Risk Based Assets 15.40 14.24 12.95 12.49
Core Capital/Adj Tang Assets 7.86 7.20 7.42 7.66
Tangible Cap/Tangible Assets 7.50 6.88 7.42 7.66
Risk-Based Cap/Risk-Wt Assets 16.42 15.43 14.03 13.58
PROFITABILITY:
Net Income(Loss) 44 971 1,486 797
Ret on Avg Assets Bef Ext Item 0.03 0.54 0.77 0.85
Net Interest Income/Avg Assets 3.10 2.98 3.02 3.26
Noninterest Income/Avg Assets 0.97 0.65 0.57 0.72
Noninterest Expense/Avg Assets 3.78 2.63 2.22 2.48
Yield/Cost Spread 3.15 3.02 3.00 3.21
LIQUIDITY:
Int Earn Assets/Int Bear Liab 104.06 102.96 104.38 105.02
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.28 0.29 0.42 0.28
Nonaccrual Loans/Gross Loans 0.20 0.28 0.32 0.26
Nonaccrual Lns/Ln Loss Reserve 23.42 29.92 34.49 26.46
Repos Assets/Tot Assets 0.04 - 0.05 -
Net Chrg-Off/Av Adj Lns 0.06 0.04 0.13 0.08
Nonmtg 1-4 Constr&Conv Lns/TA 9.86 9.49 10.32 21.01
</TABLE>
SOURCE: TAFS 11
<PAGE>
FERGUSON & CO., LLP EXHIBIT IV
- -------------------
SJS FSB
ST. JOSEPH, MI
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SJSB 1993 1994 1995 YTD 6/96
- ----
(ALL $ AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 124,118 123,109 143,248 151,020
% Change in Assets (3.68) (0.81) 16.36 5.43
Total Loans 51,972 64,911 88,448 99,586
Deposits 108,198 109,190 112,079 110,235
Broker Originated Deposits 190 190 190 190
CAPITAL:
Equity Capital 8,864 7,708 13,395 13,697
Tangible Capital 8,864 8,720 13,705 14,255
Core Capital 8,864 8,720 13,705 14,255
Risk-Based Capital 9,412 9,191 14,181 14,685
Equity Capital/Total Assets 7.14 6.26 9.35 9.07
Core Capital/Risk Based Assets 18.41 15.39 19.12 18.93
Core Capital/Adj Tang Assets 7.15 7.03 9.55 9.40
Tangible Cap/Tangible Assets 7.15 7.03 9.55 9.40
Risk-Based Cap/Risk-Wt Assets 19.55 16.22 19.79 19.50
PROFITABILITY:
Net Income(Loss) 754 2 901 493
Ret on Avg Assets Bef Ext Item 0.60 0.00 0.68 0.66
Net Interest Income/Avg Assets 1.91 1.99 2.78 2.60
Noninterest Income/Avg Assets 1.11 0.39 0.44 0.41
Noninterest Expense/Avg Assets 2.14 2.37 2.22 1.92
Yield/Cost Spread 1.82 1.95 2.59 2.43
LIQUIDITY:
Int Earn Assets/Int Bear Liab 104.96 102.34 106.34 106.81
Brokered Deposits/Tot Deposits 0.18 0.17 0.17 0.17
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.40 0.71 0.74 0.66
Nonaccrual Loans/Gross Loans 0.21 0.19 0.17 0.30
Nonaccrual Lns/Ln Loss Reserve 19.23 22.24 22.48 48.44
Repos Assets/Tot Assets 0.00 0.06 0.12 0.07
Net Chrg-Off/Av Adj Lns (0.07) 0.03 (0.00) 0.18
Nonmtg 1-4 Constr&Conv Lns/TA 0.95 0.57 1.24 2.58
</TABLE>
SOURCE: TAFS 12
<PAGE>
FERGUSON & CO., LLP EXHIBIT IV
- -------------------
UNITED FSB
ROCKY MOUNT, NC
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
UFRM 1993 1994 1995 YTD 6/96
- ----
(ALL $ AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 246,820 243,181 248,972 255,977
% Change in Assets (7.18) (1.47) 2.38 2.81
Total Loans 109,848 114,374 138,455 167,218
Deposits 202,162 196,590 220,170 216,218
Broker Originated Deposits
CAPITAL:
Equity Capital 17,593 17,390 19,938 20,635
Tangible Capital 17,593 17,935 19,965 20,480
Core Capital 17,593 17,935 19,965 20,480
Risk-Based Capital 18,361 18,526 20,619 21,629
Equity Capital/Total Assets 7.13 7.15 8.01 8.06
Core Capital/Risk Based Assets 17.43 17.21 16.28 13.89
Core Capital/Adj Tang Assets 7.22 7.44 8.07 8.01
Tangible Cap/Tangible Assets 7.22 7.44 8.07 8.01
Risk-Based Cap/Risk-Wt Assets 18.19 17.77 16.81 14.67
PROFITABILITY:
Net Income(Loss) 2,568 1,162 2,355 860
Ret on Avg Assets Bef Ext Item 1.00 0.47 0.91 0.68
Net Interest Income/Avg Assets 2.02 2.24 2.69 2.99
Noninterest Income/Avg Assets 2.29 1.05 1.49 1.27
Noninterest Expense/Avg Assets 2.85 3.05 2.70 3.12
Yield/Cost Spread 2.27 2.38 2.80 3.12
LIQUIDITY:
Int Earn Assets/Int Bear Liab 111.73 103.92 104.18 106.41
Brokered Deposits/Tot Deposits
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 1.91 1.86 1.47 1.76
Nonaccrual Loans/Gross Loans - - - 1.00
Nonaccrual Lns/Ln Loss Reserve - - - 65.10
Repos Assets/Tot Assets 0.08 0.08 0.05 0.05
Net Chrg-Off/Av Adj Lns (0.61) 0.14 0.03 0.07
Nonmtg 1-4 Constr&Conv Lns/TA 6.19 6.80 9.53 26.03
</TABLE>
SOURCE: TAFS 13
<PAGE>
EXHIBIT V
<PAGE>
FERGUSON & CO., LLP EXHIBIT V - SELECTED PUBLICLY TRADED THRIFTS
- -------------------
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AADV Advantage Bancorp, Inc. Kenosha WI MW SAIF NASDAQ 03/23/92 31.250 105.27
ABCW Anchor BanCorp Wisconsin Madison WI MW SAIF NASDAQ 07/16/92 34.750 162.09
AFFFZ America First Financial Fund San Francisco CA WE SAIF NASDAQ NA 29.000 174.31
ALBK ALBANK Financial Corporation Albany NY MA SAIF NASDAQ 04/01/92 27.500 360.25
AMFB American Federal Bank, FSB Greenville SC SE SAIF NASDAQ 01/19/89 18.000 196.99
ANDB Andover Bancorp, Inc. Andover MA NE BIF NASDAQ 05/08/86 25.875 110.35
ASBI Ameriana Bancorp New Castle IN MW SAIF NASDAQ 03/02/87 14.750 48.72
ASBP ASB Financial Corp. Portsmouth OH MW SAIF NASDAQ 05/11/95 14.500 24.85
ASFC Astoria Financial Corporation Lake Success NY MA SAIF NASDAQ 11/18/93 32.750 704.50
AVND Avondale Financial Corp. Chicago IL MW SAIF NASDAQ 04/07/95 14.969 53.93
BANC BankAtlantic Bancorp, Inc. Fort Lauderdale FL SE SAIF NASDAQ 11/29/83 13.625 202.29
BDJI First Federal Bancorporation Bemidji MN MW SAIF NASDAQ 04/04/95 16.000 12.45
BFSB Bedford Bancshares, Inc. Bedford VA SE SAIF NASDAQ 08/22/94 18.000 20.90
BFSI BFS Bankorp, Inc. New York NY MA SAIF NASDAQ 05/12/88 51.000 83.41
BKC American Bank of Connecticut Waterbury CT NE BIF AMSE 12/01/81 27.125 62.03
BKCO Bankers Corp. Perth Amboy NJ MA BIF NASDAQ 03/16/90 19.375 239.83
BKCT Bancorp Connecticut, Inc. Southington CT NE BIF NASDAQ 07/03/86 23.750 63.24
BSBC Branford Savings Bank Branford CT NE BIF NASDAQ 11/04/86 3.375 17.48
BVFS Bay View Capital Corp. San Mateo CA WE SAIF NASDAQ 05/09/86 35.375 234.90
CAFI Camco Financial Corporation Cambridge OH MW SAIF NASDAQ NA 17.500 36.32
CAPS Capital Savings Bancorp, Inc. Jefferson City MO MW SAIF NASDAQ 12/29/93 22.500 21.74
CASH First Midwest Financial, Inc. Storm Lake IA MW SAIF NASDAQ 09/20/93 23.250 45.24
CBCI Calumet Bancorp, Inc. Dolton IL MW SAIF NASDAQ 02/20/92 27.875 66.24
CBCO CB Bancorp, Inc. Michigan City IN MW SAIF NASDAQ 12/28/92 22.750 26.74
CBIN Community Bank Shares New Albany IN MW SAIF NASDAQ 04/10/95 12.250 24.30
CBNH Community Bankshares, Inc. Concord NH NE BIF NASDAQ 05/08/86 19.000 46.16
CBSA Coastal Bancorp, Inc. Houston TX SW SAIF NASDAQ NA 22.625 112.31
CEBK Central Co-Operative Bank Somerville MA NE BIF NASDAQ 10/24/86 14.875 29.23
CENF CENFED Financial Corp. Pasadena CA WE SAIF NASDAQ 10/25/91 27.125 136.72
CFB Commercial Federal Corpora Omaha NE MW SAIF NYSE 12/31/84 43.375 620.18
CFCP Coastal Financial Corp. Myrtle Beach SC SE SAIF NASDAQ 09/26/90 20.250 69.59
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88 21.500 27.35
CFHC California Financial Holding Stockton CA WE SAIF NASDAQ 04/01/83 23.375 110.35
CFSB CFSB Bancorp, Inc. Lansing MI MW SAIF NASDAQ 06/22/90 18.000 86.86
CFX CFX Corporation Keene NH NE BIF AMSE 02/12/87 14.625 179.26
CIBI Community Investors Bancorp Bucyrus OH MW SAIF NASDAQ 02/07/95 17.000 11.33
CMRN Cameron Financial Corp Cameron MO MW SAIF NASDAQ 04/03/95 15.000 42.75
CMSV Community Savings, MHC North Palm Beach FL SE SAIF NASDAQ 10/24/94 17.125 83.59
CNIT CENIT Bancorp, Inc. Norfolk VA SE SAIF NASDAQ 08/06/92 39.500 63.73
CNSK Covenant Bank for Savings Haddonfield NJ MA BIF NASDAQ NA 13.500 25.85
COFD Collective Bancorp, Inc. Egg Harbor City NJ MA SAIF NASDAQ 02/07/84 29.875 608.61
COFI Charter One Financial Cleveland OH MW SAIF NASDAQ 01/22/88 41.500 1 ,940.74
CSA Coast Savings Financial Los Angeles CA WE SAIF NYSE 12/23/85 31.625 587.71
CTBK Center Banks Incorporated Skaneateles NY MA BIF NASDAQ 06/02/86 14.188 13.42
CTZN CitFed Bancorp, Inc. Dayton OH MW SAIF NASDAQ 01/23/92 43.250 246.15
CVAL Chester Valley Bancorp Inc. Downingtown PA MA SAIF NASDAQ 03/27/87 20.000 32.96
DIBK Dime Financial Corp. Wallingford CT NE BIF NASDAQ 07/09/86 17.500 89.28
DME Dime Bancorp, Inc. New York NY MA BIF NYSE 08/19/86 14.875 1 ,581.34
DNFC D & N Financial Corp. Hancock MI MW SAIF NASDAQ 02/13/85 14.000 106.22
DSL Downey Financial Corp. Newport Beach CA WE SAIF NYSE 01/01/71 25.750 437.05
EBCP Eastern Bancorp Dover NH NE SAIF NASDAQ 11/17/83 20.500 75.35
EBSI Eagle Bancshares Tucker GA SE SAIF NASDAQ 04/01/86 15.000 68.28
EFBI Enterprise Federal Bancorp West Chester OH MW SAIF NASDAQ 10/17/94 14.750 30.52
EGFC Eagle Financial Corp. Bristol CT NE SAIF NASDAQ 02/03/87 27.000 122.42
EIRE Emerald Isle Bancorp, Inc. Quincy MA NE BIF NASDAQ 09/08/86 15.750 27.81
EQSB Equitable Federal Savings Bank Wheaton MD MA SAIF NASDAQ 09/10/93 26.250 15.75
</TABLE>
SOURCE: SNL F&C CALCULATIONS 1
<PAGE>
FERGUSON & CO., LLP EXHIBIT V - SELECTED PUBLICLY TRADED THRIFTS
- -------------------
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ETFS East Texas Financial Service Tyler TX SW SAIF NASDAQ 01/10/95 14.750 15.89
FBBC First Bell Bancorp, Inc. Pittsburgh PA MA SAIF NASDAQ 06/29/95 15.250 118.31
FBCI Fidelity Bancorp, Inc. Chicago IL MW SAIF NASDAQ 12/15/93 16.500 48.36
FBHC Fort Bend Holding Corp. Rosenberg TX SW SAIF NASDAQ 06/30/93 18.750 15.36
FBSI First Bancshares, Inc. Mountain Grove MO MW SAIF NASDAQ 12/22/93 15.500 19.66
FCBF FCB Financial Corp. Neenah WI MW SAIF NASDAQ 09/24/93 18.250 44.89
FCIT First Citizens Financial Corp. Gaithersburg MD MA SAIF NASDAQ 12/17/86 19.000 55.62
FESX First Essex Bancorp, Inc. Andover MA NE BIF NASDAQ 08/04/87 11.875 71.80
FFBI First Financial Bancorp, Inc. Belvidere IL MW SAIF NASDAQ 10/04/93 15.500 7.14
FFBS FFBS BanCorp, Inc. Columbus MS SE SAIF NASDAQ 07/01/93 21.500 33.80
FFBZ First Federal Bancorp, Inc Zanesville OH MW SAIF NASDAQ 07/13/92 27.500 21.58
FFCH First Financial Holdings Inc. Charleston SC SE SAIF NASDAQ 11/10/83 19.500 124.39
FFED Fidelity Federal Bancorp Evansville IN MW SAIF NASDAQ 08/31/87 11.000 27.45
FFES First Federal of East Hartford East Hartford CT NE SAIF NASDAQ 06/23/87 19.563 51.15
FFFC FFVA Financial Corp. Lynchburg VA SE SAIF NASDAQ 10/12/94 17.750 90.72
FFFG F.F.O. Financial Group, In St. Cloud FL SE SAIF NASDAQ 10/13/88 2.750 23.18
FFFL Fidelity FSB of Florida, MHC West Palm Beach FL SE SAIF NASDAQ 01/07/94 15.750 105.84
FFHC First Financial Corp. Stevens Point WI MW SAIF NASDAQ 12/24/80 26.750 800.23
FFHH FSF Financial Corp. Hutchinson MN MW SAIF NASDAQ 10/07/94 13.875 45.84
FFHS First Franklin Corporation Cincinnati OH MW SAIF NASDAQ 01/26/88 14.250 16.61
FFKY First Federal Financial Corp. Elizabethtown KY MW SAIF NASDAQ 07/15/87 20.750 87.33
FFLC FFLC Bancorp, Inc. Leesburg FL SE SAIF NASDAQ 01/04/94 19.000 47.98
FFPB First Palm Beach Bancorp, Inc. West Palm Beach FL SE SAIF NASDAQ 09/29/93 23.063 117.46
FFSL First Independence Corp. Independence KS MW SAIF NASDAQ 10/08/93 20.000 11.67
FFSW FirstFederal Financial Svcs Wooster OH MW SAIF NASDAQ 03/31/87 31.750 114.84
FFSX First Fed SB of Siouxland, MHC Sioux City IA MW SAIF NASDAQ 07/13/92 25.375 43.32
FFWC FFW Corp. Wabash IN MW SAIF NASDAQ 04/05/93 20.250 14.40
FFWD Wood Bancorp, Inc. Bowling Green OH MW SAIF NASDAQ 08/31/93 16.250 24.34
FFWM First Financial-W. Maryland Cumberland MD MA SAIF NASDAQ 02/11/92 28.000 60.95
FFYF FFY Financial Corp. Youngstown OH MW SAIF NASDAQ 06/28/93 24.500 124.49
FGHC First Georgia Holding, Inc. Brunswick GA SE SAIF NASDAQ 02/11/87 6.750 13.66
FIBC Financial Bancorp, Inc. Long Island City NY MA SAIF NASDAQ 08/17/94 14.750 26.41
FISB First Indiana Corporation Indianapolis IN MW SAIF NASDAQ 08/02/83 24.375 202.18
FKFS First Keystone Financial Media PA MA SAIF NASDAQ 01/26/95 19.250 24.88
FLAG FLAG Financial Corp. LaGrange GA SE SAIF NASDAQ 12/11/86 10.750 21.88
FLFC First Liberty Financial Corp Macon GA SE SAIF NASDAQ 12/06/83 18.000 108.13
FMCO FMS Financial Corporation Burlington NJ MA SAIF NASDAQ 12/14/88 16.000 39.48
FMSB First Mutual Savings Bank Bellevue WA WE BIF NASDAQ 12/17/85 14.625 29.00
FNGB First Northern Capital Corp. Green Bay WI MW SAIF NASDAQ 12/29/83 17.750 77.78
FOBC Fed One Bancorp Wheeling WV SE SAIF NASDAQ 01/19/95 15.375 38.33
FRC First Republic Bancorp San Francisco CA WE BIF NYSE NA 16.625 122.38
FSBC First Savings Bank, FSB Clovis NM SW SAIF NASDAQ 08/08/86 5.750 4.21
FSBI Fidelity Bancorp, Inc. Pittsburgh PA MA SAIF NASDAQ 06/24/88 20.500 28.07
FSFC First Southeast Financial Corp. Anderson SC SE SAIF NASDAQ 10/08/93 9.500 41.69
FSLA First Savings Bank, MHC Edison NJ MA SAIF NASDAQ 07/10/92 17.000 110.70
FSNJ First Savings Bk of NJ, MHC Bayonne NJ MA SAIF NASDAQ 01/09/95 16.750 51.29
FSPG First Home Bancorp, Inc. Pennsville NJ MA SAIF NASDAQ 04/20/87 18.000 36.54
FTFC First Federal Capital Corp. La Crosse WI MW SAIF NASDAQ 11/02/89 23.500 145.50
FTSB Fort Thomas Financial Corp. Fort Thomas KY MW SAIF NASDAQ 06/28/95 13.750 21.64
GBCI Glacier Bancorp, Inc. Kalispell MT WE SAIF NASDAQ 03/30/84 25.250 84.87
GDW Golden West Financial Oakland CA WE SAIF NYSE 05/29/59 61.125 3,507.10
GFCO Glenway Financial Corp. Cincinnati OH MW SAIF NASDAQ 11/30/90 18.250 20.64
GFSB GFS Bancorp, Inc. Grinnell IA MW SAIF NASDAQ 01/06/94 20.250 10.32
GLBK Glendale Co-Operative Bank Everett MA NE BIF NASDAQ 01/10/94 17.250 4.27
GPT GreenPoint Financial Corp. Flushing NY MA BIF NYSE 01/28/94 43.875 2,090.91
GROV Grove Bank Chestnut Hill MA NE BIF NASDAQ 08/07/86 34.500 53.21
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 2
<PAGE>
FERGUSON & CO., LLP EXHIBIT V - SELECTED PUBLICLY TRADED THRIFTS
- -------------------
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GRTR Greater New York Savings Bank New York NY MA BIF NASDAQ 06/17/87 12.563 168.19
GSBC Great Southern Bancorp, Inc. Springfield MO MW SAIF NASDAQ 12/14/89 31.000 136.59
GSLC Guaranty Financial Corp. Charlottesville VA SE SAIF NASDAQ NA 9.500 8.73
GTFN Great Financial Corporation Louisville KY MW SAIF NASDAQ 03/31/94 29.375 416.65
GUPB GFSB Bancorp, Inc. Gallup NM SW SAIF NASDAQ 06/30/95 13.750 12.39
GWBC Gateway Bancorp, Inc. Catlettsburg KY MW SAIF NASDAQ 01/18/95 14.000 15.85
GWF Great Western Financial Chatsworth CA WE SAIF NYSE NA 27.625 3,796.55
HALL Hallmark Capital Corp. West Allis WI MW SAIF NASDAQ 01/03/94 17.750 25.09
HARB Harbor Federal Savings Bk, MHC Fort Pierce FL SE SAIF NASDAQ 01/06/94 31.375 154.82
HARL Harleysville Savings Bank Harleysville PA MA SAIF NASDAQ 08/04/87 18.250 23.55
HARS Harris Savings Bank, MHC Harrisburg PA MA SAIF NASDAQ 01/25/94 15.500 173.85
HAVN Haven Bancorp, Inc. Woodhaven NY MA SAIF NASDAQ 09/23/93 27.500 118.80
HBFW Home Bancorp Fort Wayne IN MW SAIF NASDAQ 03/30/95 17.250 48.17
HBNK Highland Federal Bank FSB Burbank CA WE SAIF NASDAQ NA 15.125 34.73
HBS Haywood Bancshares, Inc. Waynesville NC SE BIF AMSE 12/18/87 18.625 22.37
HFFC HF Financial Corp. Sioux Falls SD MW SAIF NASDAQ 04/08/92 15.000 45.78
HFGI Harrington Financial Group Richmond IN MW SAIF NASDAQ NA 10.125 32.97
HHFC Harvest Home Financial Corp. Cheviot OH MW SAIF NASDAQ 10/10/94 9.250 8.65
HIFS Hingham Instit. for Savings Hingham MA NE BIF NASDAQ 12/20/88 16.250 21.08
HMNF HMN Financial, Inc. Spring Valley MN MW SAIF NASDAQ 06/30/94 17.250 80.62
HOMF Home Federal Bancorp Seymour IN MW SAIF NASDAQ 01/23/88 30.500 67.90
HPBC Home Port Bancorp, Inc. Nantucket MA NE BIF NASDAQ 08/25/88 16.125 29.70
HRZB Horizon Financial Corp. Bellingham WA WE BIF NASDAQ 08/01/86 13.375 86.84
HVFD Haverfield Corporation Cleveland OH MW SAIF NASDAQ 03/19/85 18.500 35.27
HZFS Horizon Financial Svcs Corp. Oskaloosa IA MW SAIF NASDAQ 06/30/94 14.750 6.28
IBSF IBS Financial Corp. Cherry Hill NJ MA SAIF NASDAQ 10/13/94 15.750 173.29
IFSB Independence Federal Savings Washington DC MA SAIF NASDAQ 06/06/85 7.500 9.59
IFSL Indiana Federal Corporation Valparaiso IN MW SAIF NASDAQ 02/04/87 20.250 95.91
INBI Industrial Bancorp Bellevue OH MW SAIF NASDAQ 08/01/95 12.625 70.13
IPSW Ipswich Savings Bank Ipswich MA NE BIF NASDAQ 05/26/93 11.250 13.31
IROQ Iroquois Bancorp, Inc. Auburn NY MA BIF NASDAQ 01/22/86 16.250 37.89
ISBF ISB Financial Corporation New Iberia LA SW SAIF NASDAQ 04/07/95 16.375 115.46
IWBK InterWest Bancorp, Inc. Oak Harbor WA WE SAIF NASDAQ NA 30.000 236.46
JSBA Jefferson Savings Bancorp Ballwin MO MW SAIF NASDAQ 04/08/93 22.750 95.14
JSBF JSB Financial, Inc. Lynbrook NY MA BIF NASDAQ 06/27/90 36.750 358.84
KNK Kankakee Bancorp, Inc. Kankakee IL MW SAIF AMSE 01/06/93 22.000 31.41
KSAV KS Bancorp, Inc. Kenly NC SE SAIF NASDAQ 12/30/93 19.625 13.02
KSBK KSB Bancorp, Inc. Kingfield ME NE BIF NASDAQ 06/24/93 21.250 8.74
LARK Landmark Bancshares, Inc. Dodge City KS MW SAIF NASDAQ 03/28/94 16.500 31.42
LARL Laurel Capital Group, Inc. Allison Park PA MA SAIF NASDAQ 02/20/87 16.000 24.20
LFED Leeds Federal Savings Bk, MHC Baltimore MD MA SAIF NASDAQ 05/02/94 14.250 49.13
LIFB Life Bancorp, Inc. Norfolk VA SE SAIF NASDAQ 10/11/94 17.250 169.86
LISB Long Island Bancorp, Inc. Melville NY MA SAIF NASDAQ 04/18/94 29.375 728.66
LOGN Logansport Financial Corp. Logansport IN MW SAIF NASDAQ 06/14/95 14.250 18.85
LSBI LSB Financial Corp. Lafayette IN MW BIF NASDAQ 02/03/95 17.875 16.40
LSBX Lawrence Savings Bank North Andover MA NE BIF NASDAQ 05/02/86 7.000 29.72
LVSB Lakeview Financial West Paterson NJ MA SAIF NASDAQ 12/22/93 26.750 60.61
MAFB MAF Bancorp, Inc. Clarendon Hills IL MW SAIF NASDAQ 01/12/90 28.125 290.83
MARN Marion Capital Holdings Marion IN MW SAIF NASDAQ 03/18/93 21.000 38.70
MASB MASSBANK Corp. Reading MA NE BIF NASDAQ 05/28/86 33.500 90.35
MBB MSB Bancorp, Inc. Goshen NY MA BIF AMSE 09/03/92 15.500 43.93
MBB MSB Bancorp, Inc. Goshen NY MA BIF AMSE NA 15.500 43.93
MBLF MBLA Financial Corp. Macon MO MW SAIF NASDAQ 06/24/93 21.500 29.35
MCBN Mid-Coast Bancorp, Inc. Waldoboro ME NE SAIF NASDAQ 11/02/89 19.000 4.36
MCBS Mid Continent Bancshares Inc. El Dorado KS MW SAIF NASDAQ 06/27/94 19.000 38.60
MDBK Medford Savings Bank Medford MA NE BIF NASDAQ 03/18/86 24.250 109.95
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 3
<PAGE>
FERGUSON & CO., LLP EXHIBIT V - SELECTED PUBLICLY TRADED THRIFTS
- -------------------
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MERI Meritrust Federal SB Thibodaux LA SW SAIF NASDAQ NA 31.000 24.00
MFFC Milton Federal Financial Corp. West Milton OH MW SAIF NASDAQ 10/07/94 14.250 32.26
MFLR Mayflower Co-operative Bank Middleboro MA NE BIF NASDAQ 12/23/87 15.250 13.56
MFSL Maryland Federal Bancorp Hyattsville MD MA SAIF NASDAQ 06/02/87 33.500 100.09
MGNL Magna Bancorp, Inc. Hattiesburg MS SE SAIF NASDAQ 03/13/91 20.500 280.91
MIFC Mid-Iowa Financial Corp. Newton IA MW SAIF NASDAQ 10/14/92 6.000 10.10
MIVI Mississippi View Holding Co. Little Falls MN MW SAIF NASDAQ 03/24/95 12.750 11.60
MLBC ML Bancorp, Inc. Villanova PA MA SAIF NASDAQ 08/11/94 14.000 166.17
MORG Morgan Financial Corp. Fort Morgan CO SW SAIF NASDAQ 01/11/93 11.500 9.59
MSBF MSB Financial, Inc. Marshall MI MW SAIF NASDAQ 02/06/95 19.250 12.62
MWBI Midwest Bancshares, Inc. Burlington IA MW SAIF NASDAQ 11/12/92 26.500 9.26
MWBX MetroWest Bank Framingham MA NE BIF NASDAQ 10/10/86 4.250 59.00
MWFD Midwest Federal Financial Baraboo WI MW SAIF NASDAQ 07/08/92 23.250 37.81
NASB North American Savings Bank Grandview MO MW SAIF NASDAQ 09/27/85 31.250 70.87
NEBC Northeast Bancorp Portland ME NE BIF NASDAQ 08/19/87 13.000 15.99
NEIB Northeast Indiana Bancorp Huntington IN MW SAIF NASDAQ 06/28/95 13.000 25.45
NFSL Newnan Holdings, Inc. Newnan GA SE SAIF NASDAQ 03/01/86 24.500 35.76
NHTB New Hampshire Thrift Bncshrs New London NH NE SAIF NASDAQ 05/22/86 12.000 20.38
NMSB NewMil Bancorp, Inc. New Milford CT NE BIF NASDAQ 02/01/86 7.750 31.54
NSLB NS&L Bancorp, Inc. Neosho MO MW SAIF NASDAQ 06/08/95 13.000 9.87
NSSB Norwich Financial Corp. Norwich CT NE BIF NASDAQ 11/14/86 18.625 100.43
NSSY Norwalk Savings Society Norwalk CT NE BIF NASDAQ 06/16/94 23.000 54.85
NTMG Nutmeg Federal S&LA Danbury CT NE SAIF NASDAQ NA 7.375 5.24
NWEQ Northwest Equity Corp. Amery WI MW SAIF NASDAQ 10/11/94 12.000 11.34
NWSB Northwest Savings Bank, MHC Warren PA MA SAIF NASDAQ 11/07/94 13.000 303.89
NYB New York Bancorp Inc. Douglaston NY MA SAIF NYSE 01/28/88 33.375 383.54
OFCP Ottawa Financial Corp. Holland MI MW SAIF NASDAQ 08/19/94 16.375 84.81
OHSL OHSL Financial Corp. Cincinnati OH MW SAIF NASDAQ 02/10/93 19.500 23.74
PALM Palfed, Inc. Aiken SC SE SAIF NASDAQ 12/15/85 13.375 69.89
PBCI Pamrapo Bancorp, Inc. Bayonne NJ MA SAIF NASDAQ 11/14/89 19.000 62.34
PBCT People's Bank, MHC Bridgeport CT NE BIF NASDAQ 07/06/88 24.875 1,007.82
PBKB People's Bancshares, Inc. South Easton MA NE BIF NASDAQ 10/23/86 11.250 37.88
PBNB People's Savings Financial Cp. New Britain CT NE BIF NASDAQ 08/20/86 27.750 52.74
PCBC Perry County Financial Corp. Perryville MO MW SAIF NASDAQ 02/13/95 17.250 14.77
PCCI Pacific Crest Capital Agoura Hills CA WE BIF NASDAQ NA 9.500 28.12
PFDC Peoples Bancorp Auburn IN MW SAIF NASDAQ 07/07/87 19.500 45.74
PFNC Progress Financial Corporation Blue Bell PA MA SAIF NASDAQ 07/18/83 7.625 28.44
PFSB PennFed Financial Services,Inc West Orange NJ MA SAIF NASDAQ 07/15/94 18.875 91.05
PFSL Pocahontas FS&LA, MHC Pocahontas AR SE SAIF NASDAQ 04/05/94 15.250 24.77
PKPS Poughkeepsie Savings Bank,FSB Poughkeepsie NY MA SAIF NASDAQ 11/19/85 5.000 62.75
PLE Pinnacle Bank Jasper AL SE SAIF AMSE 12/17/86 17.375 15.46
POBS Portsmouth Bank Shares Portsmouth NH NE BIF NASDAQ 02/09/88 12.875 73.86
PSAB Prime Bancorp, Inc. Philadelphia PA MA SAIF NASDAQ 11/21/88 18.750 69.84
PSBK Progressive Bank, Inc. Fishkill NY MA BIF NASDAQ 08/01/84 32.000 84.70
PTRS Potters Financial Corp. East Liverpool OH MW SAIF NASDAQ 12/31/93 18.500 9.36
PULB Pulaski Bank, Savings Bk, MHC St. Louis MO MW SAIF NASDAQ 05/11/94 14.375 30.10
PULS Pulse Bancorp South River NJ MA SAIF NASDAQ 09/18/86 16.875 51.46
PVFC PVF Capital Corp. Bedford Heights OH MW SAIF NASDAQ 12/30/92 14.500 33.69
PVSA Parkvale Financial Corporation Monroeville PA MA SAIF NASDAQ 07/16/87 24.250 98.01
PWBC PennFirst Bancorp, Inc. Ellwood City PA MA SAIF NASDAQ 06/13/90 14.000 55.07
QCBC Quaker City Bancorp, Inc. Whittier CA WE SAIF NASDAQ 12/30/93 16.875 64.35
QCSB Queens County Bancorp, Inc. Flushing NY MA BIF NASDAQ 11/23/93 43.125 330.77
RARB Raritan Bancorp Inc. Raritan NJ MA BIF NASDAQ 03/01/87 21.500 32.92
RCSB RCSB Financial, Inc. Rochester NY MA BIF NASDAQ 04/29/86 27.875 428.88
RELY Reliance Bancorp, Inc. Garden City NY MA SAIF NASDAQ 03/31/94 18.250 162.64
RFED Roosevelt Financial Group Chesterfield MO MW SAIF NASDAQ 01/23/87 17.500 737.76
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 4
<PAGE>
FERGUSON & CO., LLP EXHIBIT V - SELECTED PUBLICLY TRADED THRIFTS
- -------------------
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ROSE TR Financial Corp. Garden City NY MA BIF NASDAQ 06/29/93 30.875 276.55
RVSB Riverview Savings Bank, MHC Camas WA WE SAIF NASDAQ 10/26/93 16.250 35.68
SBCN Suburban Bancorporation, Inc. Cincinnati OH MW SAIF NASDAQ 09/30/93 15.750 23.23
SCCB S. Carolina Community Bancshre Winnsboro SC SE SAIF NASDAQ 07/07/94 15.000 11.03
SECP Security Capital Corporation Milwaukee WI MW SAIF NASDAQ 01/03/94 66.250 617.08
SFB Standard Federal Bancorp Troy MI MW SAIF NYSE 01/21/87 48.875 1,524.53
SFED SFS Bancorp, Inc. Schenectady NY MA SAIF NASDAQ 06/30/95 16.000 21.43
SFFC StateFed Financial Corporation Des Moines IA MW SAIF NASDAQ 01/05/94 16.500 13.42
SFSB SuburbFed Financial Corp. Flossmoor IL MW SAIF NASDAQ 03/04/92 18.750 23.48
SFSL Security First Corp. Mayfield Heights OH MW SAIF NASDAQ 01/22/88 16.500 81.34
SHEN First Shenango Bancorp, Inc New Castle PA MA SAIF NASDAQ 04/06/93 20.875 47.41
SISB SIS Bancorp, Inc. Springfield MA NE BIF NASDAQ 02/08/95 22.500 128.76
SMBC Southern Missouri Bancorp, Poplar Bluff MO MW SAIF NASDAQ 04/13/94 14.125 24.03
SMFC Sho-Me Financial Corp. Mt. Vernon MO MW SAIF NASDAQ 07/01/94 20.250 33.33
SOPN First Savings Bancorp, Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 17.750 66.46
SOSA Somerset Savings Bank Somerville MA NE BIF NASDAQ 07/09/86 2.000 33.30
SPBC St. Paul Bancorp, Inc. Chicago IL MW SAIF NASDAQ 05/18/87 25.813 466.75
SSBK Strongsville Savings Bank Strongsville OH MW SAIF NASDAQ NA 22.250 56.31
STFR St. Francis Capital Corp. Milwaukee WI MW SAIF NASDAQ 06/21/93 25.500 142.46
STND Standard Financial, Inc. Chicago IL MW SAIF NASDAQ 08/01/94 17.875 289.52
STSA Sterling Financial Corp. Spokane WA WE SAIF NASDAQ NA 13.750 74.61
SVRN Sovereign Bancorp, Inc. Wyomissing PA MA SAIF NASDAQ 08/12/86 12.000 594.88
SWBI Southwest Bancshares Hometown IL MW SAIF NASDAQ 06/24/92 27.000 47.79
SWCB Sandwich Co-operative Bank Sandwich MA NE BIF NASDAQ 07/25/86 22.250 41.85
TBK Tolland Bank Tolland CT NE BIF AMSE 12/19/86 11.500 13.31
TCB TCF Financial Corp. Minneapolis MN MW SAIF NYSE 06/17/86 38.500 1,342.50
THRD TF Financial Corporation Newtown PA MA SAIF NASDAQ 07/13/94 15.125 65.00
TRIC Tri-County Bancorp, Inc. Torrington WY WE SAIF NASDAQ 09/30/93 19.000 11.57
TSH Teche Holding Co. Franklin LA SW SAIF AMSE 04/19/95 13.125 50.12
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/95 18.000 16.14
UBMT United Financial Corp. Great Falls MT WE SAIF NASDAQ 09/23/86 18.875 23.09
UFRM United Federal Savings Bank Rocky Mount NC SE SAIF NASDAQ 07/01/80 7.688 23.56
VFFC Virginia First Financial Corp. Petersburg VA SE SAIF NASDAQ 01/01/78 13.500 77.50
WAMU Washington Mutual Inc. Seattle WA WE BIF NASDAQ 03/11/83 39.125 2,823.05
WAYN Wayne Savings & Loan Co. MHC Wooster OH MW SAIF NASDAQ 06/25/93 19.250 28.79
WBST Webster Financial Corporation Waterbury CT NE SAIF NASDAQ 12/12/86 35.500 287.85
WCBI Westco Bancorp Westchester IL MW SAIF NASDAQ 06/26/92 21.500 55.92
WEFC Wells Financial Corp. Wells MN MW SAIF NASDAQ 04/11/95 13.000 27.02
WFCO Winton Financial Corp. Cincinnati OH MW SAIF NASDAQ 08/04/88 11.250 22.34
WFSL Washington Federal, Inc. Seattle WA WE SAIF NASDAQ 11/17/82 24.500 1,016.95
WRNB Warren Bancorp, Inc. Peabody MA NE BIF NASDAQ 07/09/86 13.250 48.41
WSB Washington Savings Bank, FSB Waldorf MD MA SAIF AMSE NA 5.000 21.10
WSFS WSFS Financial Corporation Wilmington DE MA BIF NASDAQ 11/26/86 8.875 122.76
WSTR WesterFed Financial Corp. Missoula MT WE SAIF NASDAQ 01/10/94 17.250 75.82
WVFC WVS Financial Corporation Pittsburgh PA MA SAIF NASDAQ 11/29/93 22.500 39.08
YFED York Financial Corp. York PA MA SAIF NASDAQ 02/01/84 18.750 114.14
Maximum 66.250 3,796.55
Minimum 2.000 4.21
Average 19.876 168.18
Median 18.000 48.39
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 8
<PAGE>
FERGUSON & CO., LLP EXHIBIT V - SELECTED PUBLICLY TRADED THRIFTS
- -------------------
<TABLE>
<CAPTION>
Tangible ROAA ROACE
Price/ Current Current Current Total Equity/ Equity/ Core Before Before
LTM Price/ Price/T Price/ Dividend Assets Assets T Assets EPS Extra Extra Merger Current
Core EPS B Value B Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricing
Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N) Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AADV 14.60 120.33 138.27 10.64 1.02 996,245 9.45 8.32 2.14 0.90 9.41 N 10/18/96
ABCW 12.37 142.65 146.44 9.23 1.44 1,822,248 6.47 6.31 2.81 0.90 12.75 N 10/18/96
AFFF 9.29 112.14 114.58 7.67 5.52 2,274,053 7.09 6.95 3.12 0.89 13.53 N 10/18/96
ALBK 12.56 114.73 129.66 10.26 1.75 3,509,729 8.95 8.00 2.19 0.76 7.71 N 10/18/96
AMFB 10.98 183.30 198.90 14.24 2.22 1,382,171 7.76 7.20 1.64 1.42 17.60 N 10/18/96
ANDB 9.08 119.13 119.13 9.20 2.32 1,198,787 7.73 7.73 2.85 1.06 13.78 N 10/18/96
ASBI 15.36 109.18 109.34 12.12 3.80 402,051 11.10 11.08 0.96 0.92 7.38 N 10/18/96
ASBP 21.01 91.02 91.02 22.00 2.76 112,988 22.70 22.70 0.69 1.01 4.30 N 10/18/96
ASFC 13.82 124.43 151.90 9.70 1.34 7,266,185 7.79 6.47 2.37 0.51 6.03 N 10/18/96
AVND 22.34 91.67 91.67 9.10 - 592,771 9.93 9.93 0.67 0.62 5.82 N 10/18/96
BANC 14.34 143.57 154.65 10.30 1.07 1,975,287 7.17 6.69 0.95 1.12 14.72 N 10/18/96
BDJI 18.18 89.49 89.49 11.87 - 104,969 13.26 13.26 0.88 0.70 4.74 N 10/18/96
BFSB 13.64 106.13 106.13 17.16 2.44 121,783 15.22 15.22 1.32 1.29 7.96 N 10/18/96
BFSI 8.85 171.54 171.54 13.42 - 621,324 7.83 7.83 5.76 1.84 24.09 N 10/18/96
BKC 17.28 137.69 144.90 11.67 5.01 531,638 8.48 8.09 1.57 1.24 13.70 N 10/18/96
BKCO 11.20 130.03 132.71 10.88 3.30 2,208,543 8.37 8.21 1.73 1.13 11.82 N 10/18/96
BKCT 15.22 147.33 147.33 15.55 3.20 405,761 10.56 10.56 1.56 1.18 10.70 N 10/18/96
BSBC 14.67 141.81 141.81 12.43 2.37 178,121 8.75 8.75 0.23 0.86 10.00 N 10/18/96
BVFS 17.43 121.27 128.50 6.85 1.70 3,428,175 5.65 5.35 2.03 0.00 (0.01) N 10/18/96
CAFI 11.01 123.85 123.85 10.30 2.63 352,576 8.32 8.32 1.59 1.22 15.13 N 10/18/96
CAPS 11.97 108.43 108.43 10.19 1.60 217,954 9.40 9.40 1.88 0.92 9.26 N 10/18/96
CASH 13.44 105.97 113.47 12.09 1.89 342,095 11.41 10.74 1.73 1.06 8.14 N 10/18/96
CBCI 11.91 83.89 83.89 13.48 - 500,814 16.08 16.08 2.34 1.31 7.85 N 10/18/96
CBCO 10.94 138.38 138.38 13.66 5.71 195,658 9.87 9.87 2.08 1.38 14.66 N 10/18/96
CBIN 13.17 94.23 94.23 10.41 2.78 233,347 11.05 11.05 0.93 0.88 7.36 N 10/18/96
CBNH 13.29 121.87 121.87 8.42 3.16 546,725 6.94 6.94 1.43 0.81 11.11 N 10/18/96
CBSA 10.24 125.42 152.25 3.93 1.77 2,859,448 3.17 2.63 2.21 0.24 7.11 N 10/18/96
CEBK 18.59 93.32 106.55 9.16 - 319,162 9.82 8.70 0.80 0.46 4.69 N 10/18/96
CENF 16.64 127.53 127.83 6.36 1.33 2,148,344 4.99 4.98 1.63 0.57 11.69 N 10/18/96
CFB 11.75 158.36 175.68 9.91 0.92 6,607,670 6.25 5.67 3.69 0.84 14.74 N 10/18/96
CFCP 18.58 251.87 251.87 15.37 2.17 452,809 6.10 6.10 1.09 1.04 17.09 N 10/18/96
CFFC 13.27 122.65 122.65 17.22 2.42 158,835 14.04 14.04 1.62 1.31 9.68 N 10/18/96
CFHC 13.91 127.59 127.94 8.24 1.88 1,339,378 6.46 6.44 1.68 0.37 5.47 N 10/18/96
CFSB 13.24 135.85 135.85 11.17 2.67 791,610 8.22 8.22 1.36 0.96 11.70 N 10/18/96
CFX 12.94 138.63 149.54 11.79 5.47 1,520,677 8.51 7.94 1.13 0.70 7.44 N 10/18/96
CIBI 13.49 98.61 98.61 12.34 2.35 91,787 12.51 12.51 1.26 1.05 7.44 N 10/18/96
CMRN 15.31 92.25 92.25 24.32 1.87 175,841 26.35 26.35 0.98 1.60 5.77 N 10/18/96
CMSV 15.57 111.35 111.35 13.35 4.67 626,045 11.99 11.99 1.10 0.88 7.10 N 10/18/96
CNIT 19.08 133.54 138.50 9.72 2.53 655,771 7.28 7.03 2.07 0.48 6.76 N 10/18/96
CNSK 16.88 156.07 156.07 7.46 - 354,822 6.93 6.93 0.80 0.76 11.83 N 10/18/96
COFD 10.90 167.18 178.57 11.59 3.35 5,252,483 6.93 6.52 2.74 0.89 12.81 N 10/18/96
COFI 12.69 213.04 NA 14.04 2.22 3,826,085 6.59 NA 3.27 0.19 2.92 N 10/18/96
CSA 16.05 136.73 138.89 7.04 - 8,350,710 5.15 5.07 1.97 0.49 9.90 N 10/18/96
CTBK 10.83 86.46 86.46 6.08 2.82 220,373 7.03 7.03 1.31 0.57 8.12 N 10/18/96
CTZN 15.78 140.42 161.08 9.25 1.11 2,661,006 6.59 5.79 2.74 0.71 10.20 N 10/18/96
CVAL 14.29 128.95 128.95 12.08 2.10 272,932 9.37 9.37 1.40 0.91 9.88 N 10/18/96
DIBK 7.61 157.94 165.56 12.96 1.83 688,993 8.20 7.86 2.30 1.64 21.02 N 10/18/96
DME 15.82 159.43 160.98 8.09 - 9,544,289 5.08 5.03 0.94 0.38 7.94 N 10/18/96
DNFC 9.21 137.80 139.72 7.54 - 1,408,131 5.55 5.48 1.52 0.71 12.54 N 10/18/96
DSL 13.34 113.94 115.89 8.82 1.86 4,954,337 7.74 7.62 1.93 0.43 5.28 N 10/18/96
EBCP 17.98 115.36 122.17 8.91 2.73 840,534 7.72 7.32 1.14 0.74 9.85 N 10/18/96
EBSI 10.34 119.33 119.33 10.99 4.00 621,474 9.21 9.21 1.45 0.93 11.91 N 10/18/96
EFBI 22.69 96.85 97.04 14.31 - 213,876 14.77 14.75 0.65 0.92 5.39 N 10/18/96
EGFC 15.08 119.15 163.14 8.70 3.41 1,402,417 7.30 5.44 1.79 1.27 17.56 N 10/18/96
EIRE 11.93 105.63 105.63 7.02 1.78 372,978 6.64 6.64 1.32 0.61 9.15 N 10/18/96
EQSB 8.39 111.04 111.04 5.88 - 267,776 5.30 5.30 3.13 0.78 14.98 N 10/18/96
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 6
<PAGE>
FERGUSON & CO., LLP EXHIBIT V - SELECTED PUBLICLY TRADED THRIFTS
- -------------------
<TABLE>
<CAPTION>
Tangible ROAA ROACE
Price/ Current Current Current Total Equity/ Equity/ Core Before Before
LTM Price/ Price/T Price/ Dividend Assets Assets T Assets EPS Extra Extra Merger Current
Core EPS B Value B Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricing
Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N) Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ETFS 19.41 76.66 76.66 14.50 1.36 115,339 18.91 18.91 0.76 0.81 4.17 N 10/18/96
FBBC 13.99 107.09 107.09 21.82 2.62 570,649 20.37 20.37 1.09 1.62 7.34 N 10/18/96
FBCI 16.84 97.12 97.46 10.58 1.46 456,896 10.90 10.87 0.98 0.74 5.68 N 10/18/96
FBHC 11.94 85.30 85.30 6.03 1.49 254,739 7.07 7.07 1.57 0.70 9.62 N 10/18/96
FBSI 16.49 82.89 83.02 13.69 1.29 143,671 16.52 16.49 0.94 0.85 4.90 N 10/18/96
FCBF 16.74 96.20 96.20 16.93 3.95 265,172 17.59 17.59 1.09 1.09 5.71 N 10/18/96
FCIT 17.12 139.40 139.40 8.58 - 645,824 6.15 6.15 1.11 0.71 11.59 N 10/18/96
FESX 10.80 115.18 115.18 8.52 4.04 842,903 7.40 7.40 1.10 0.99 13.34 N 10/18/96
FFBI 14.90 91.72 91.72 7.64 - 94,486 8.33 8.33 1.04 0.68 6.79 N 10/18/96
FFBS 19.72 129.52 129.52 26.99 2.33 125,228 19.68 19.68 1.09 1.37 6.88 N 10/18/96
FFBZ 12.06 163.30 163.50 12.14 1.60 177,778 7.89 7.88 2.28 1.14 15.12 N 10/18/96
FFCH 10.96 127.79 127.79 8.16 3.28 1,523,224 6.39 6.39 1.78 0.78 11.81 N 10/18/96
FFED 11.00 191.97 191.97 10.47 7.27 262,216 5.45 5.45 1.00 1.18 23.76 N 10/18/96
FFES 10.41 89.13 89.37 5.36 3.07 947,807 6.01 6.00 1.88 0.57 8.65 N 10/18/96
FFFC 14.92 105.15 107.38 17.59 2.25 522,811 15.58 15.31 1.19 1.24 7.51 N 10/18/96
FFFG 13.10 121.15 121.15 7.55 - 307,055 6.22 6.22 0.21 0.50 7.76 N 10/18/96
FFFL 21.28 130.17 131.69 12.96 5.08 816,869 9.86 9.76 0.74 0.67 6.57 N 10/18/96
FFHC 11.10 199.48 206.56 14.30 2.24 5,595,612 7.17 6.94 2.41 1.00 13.78 N 10/18/96
FFHH 24.34 88.89 88.89 14.56 3.60 331,395 14.37 14.37 0.57 0.64 3.79 N 10/18/96
FFHS 13.57 81.85 82.70 7.67 2.25 216,508 9.37 9.28 1.05 0.62 6.56 N 10/18/96
FFKY 17.58 174.81 187.11 24.76 2.31 352,671 14.16 13.36 1.18 1.60 11.28 N 10/18/96
FFLC 17.92 88.04 88.04 14.28 2.11 335,993 16.22 16.22 1.06 0.63 3.72 N 10/18/96
FFPB 12.81 105.17 107.87 8.31 1.73 1,438,024 7.90 7.72 1.80 0.74 8.92 N 10/18/96
FFSL 12.66 89.41 89.41 11.03 2.00 105,771 12.34 12.34 1.58 1.10 8.51 N 10/18/96
FFSW 19.60 210.40 259.40 10.89 1.51 1,044,608 7.93 6.93 1.62 1.12 16.88 N 10/18/96
FFSX 15.19 117.53 118.69 9.76 2.84 443,632 8.31 8.23 1.67 0.70 8.44 N 10/18/96
FFWC 9.88 93.15 93.15 9.57 2.96 150,467 10.27 10.27 2.05 1.09 9.89 N 10/18/96
FFWD 15.78 120.91 120.91 16.64 2.22 146,249 13.76 13.76 1.03 1.19 8.40 N 10/18/96
FFWM 17.50 146.14 146.14 18.93 1.71 321,994 12.95 12.95 1.60 1.11 8.98 N 10/18/96
FFYF 17.38 122.13 122.13 21.63 2.86 575,602 17.71 17.71 1.41 1.20 6.58 N 10/18/96
FGHC 12.50 114.02 128.08 9.48 - 144,022 8.30 7.46 0.54 0.89 10.65 N 10/18/96
FIBC 17.56 101.03 101.58 10.09 2.03 262,497 9.99 9.94 0.84 0.66 5.75 N 10/18/96
FISB 14.34 148.63 150.65 13.72 2.30 1,473,094 9.24 9.12 1.70 1.19 13.57 N 10/18/96
FKFS 14.15 108.57 108.57 8.56 - 290,549 7.89 7.89 1.36 0.56 6.48 N 10/18/96
FLAG 13.61 100.28 100.28 9.57 3.16 228,710 9.55 9.55 0.79 0.87 9.35 N 10/18/96
FLFC 14.75 158.03 186.72 10.90 1.93 991,226 7.66 6.67 1.22 1.03 14.22 N 10/18/96
FMCO 9.82 115.03 117.91 7.62 1.25 517,943 6.63 6.48 1.63 0.83 12.68 N 10/18/96
FMSB 10.52 140.36 140.36 9.29 1.37 386,366 6.62 6.62 1.39 1.03 15.44 N 10/18/96
FNGB 19.51 110.25 110.25 13.45 3.38 580,128 12.20 12.20 0.91 0.78 6.12 N 10/18/96
FOBC 11.65 92.51 97.50 11.22 3.77 341,528 11.68 11.14 1.32 0.70 5.73 N 10/18/96
FRC 14.71 103.65 103.71 5.77 - 2,122,168 5.56 5.56 1.13 0.54 9.52 N 10/18/96
FSBC 13.37 72.06 72.06 3.56 - 112,436 4.94 4.94 0.43 0.34 7.13 N 10/18/96
FSBI 15.19 130.32 130.99 8.85 1.56 317,315 6.79 6.76 1.35 0.65 8.66 N 10/18/96
FSFC 14.62 123.86 123.86 12.77 2.11 326,573 10.31 10.31 0.65 0.26 1.37 N 10/18/96
FSLA 13.82 120.82 138.66 11.50 2.35 962,343 9.52 8.40 1.23 0.85 9.06 N 10/18/96
FSNJ 19.48 104.62 104.62 7.88 2.99 650,650 7.53 7.53 0.86 0.19 2.24 N 10/18/96
FSPG 8.57 118.50 121.46 7.62 2.67 479,314 6.43 6.28 2.10 0.97 14.89 N 10/18/96
FTFC 16.21 153.70 162.97 10.54 2.72 1,389,163 6.86 6.49 1.45 0.97 13.98 N 10/18/96
FTSB 16.77 100.00 100.00 24.35 1.82 88,874 24.35 24.35 0.82 1.33 5.39 N 10/18/96
GBCI 13.87 220.52 220.72 20.78 2.54 408,467 9.42 9.41 1.82 1.59 16.40 N 10/18/96
GDW 8.27 154.47 154.47 9.48 0.62 37,011,423 6.13 6.13 7.39 1.00 15.40 N 10/18/96
GFCO 12.94 77.07 78.77 7.40 3.55 278,809 9.61 9.42 1.41 0.56 5.91 N 10/18/96
GFSB 12.13 103.74 103.74 12.39 1.98 83,305 11.94 11.94 1.67 1.16 9.19 N 10/18/96
GLBK 17.60 72.85 72.85 11.55 - 36,940 15.85 15.85 0.98 0.79 4.97 N 10/18/96
GPT 17.62 129.46 234.50 15.59 1.82 13,410,291 10.58 6.13 2.49 0.82 7.82 N 10/18/96
GROV 11.17 136.90 136.96 8.89 2.09 598,507 6.49 6.49 3.0 0.90 14.20 N 10/18/96
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 7
<PAGE>
FERGUSON & CO., LLP EXHIBIT V - SELECTED PUBLICLY TRADED THRIFTS
- -------------------
<TABLE>
<CAPTION>
Tangible R0AA ROACE
Price/ Current Current Current Total Equity/ Equity/ Core Before Before
LTM Price/ Price/T Price/ Dividend Assets Assets T Asset EPS Extra Extra Merger Current
Core EPS B Value B Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricng
Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N) Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GRTR 16.32 115.47 115.47 6.62 - 2,540,811 7.90 7.90 0.77 0.73 7.89 N 10/18/96
GSBC 13.60 201.43 204.76 20.44 2.58 668,105 10.15 10.00 2.28 1.75 17.28 N 10/18/96
GSLC 18.63 137.09 137.09 8.48 1.05 102,967 6.19 6.19 0.51 0.68 10.91 N 10/18/96
GTFN 22.60 152.44 NA 14.72 1.63 2,830,684 9.66 NA 1.30 0.71 6.48 N 10/18/96
GUPB 15.80 84.93 84.93 17.81 2.91 73,251 20.97 20.97 0.87 1.23 4.88 N 10/18/96
GWBC 21.21 89.29 89.29 22.22 2.86 71,349 24.89 24.89 0.66 1.05 4.05 N 10/18/96
GWF 23.61 154.85 176.07 8.72 3.62 43,548,593 6.01 5.37 1.17 0.48 NA N 10/18/96
HALL 14.09 94.82 94.82 6.65 - 377,157 7.16 7.16 1.26 0.60 7.17 N 10/18/96
HARB 14.26 181.99 189.01 15.26 3.83 1,014,013 8.39 8.10 2.20 1.18 13.57 N 10/18/96
HARL 10.20 118.66 118.66 7.89 2.19 298,172 6.65 6.65 1.79 0.81 11.83 N 10/18/96
HARS 20.39 116.37 138.52 11.28 3.74 1,541,717 9.69 8.27 0.76 0.46 3.94 N 10/18/96
HAVN 11.85 126.32 127.08 7.66 2.18 1,550,275 6.07 6.03 2.32 0.74 11.42 N 10/18/96
HBFW 19.60 101.71 101.71 15.76 1.16 315,901 15.50 15.50 0.88 0.84 4.99 N 10/18/96
HBNK 21.01 99.51 99.51 7.87 - 441,245 7.91 7.91 0.72 0.30 4.69 N 10/18/96
HBS 16.93 110.60 115.18 17.04 2.79 131,888 15.41 14.89 1.10 1.02 6.73 N 10/18/96
HFFC 12.30 88.39 88.65 8.24 1.20 555,189 9.33 9.30 1.22 0.85 9.35 N 10/18/96
HFGI 16.60 142.61 142.61 7.88 - 418,196 5.53 5.53 0.61 0.37 9.49 N 10/18/96
HHFC 14.68 67.72 67.72 11.32 4.32 76,399 16.71 16.71 0.63 0.75 4.14 N 10/18/96
HIFS 10.98 112.53 NA 10.91 2.22 193,193 9.70 NA 1.48 1.07 10.64 N 10/18/96
HMNF 15.97 97.29 97.29 15.30 - 554,979 15.72 15.72 1.08 1.11 6.48 N 10/18/96
HOMF 11.17 131.81 136.83 10.78 1.64 630,015 8.18 7.90 2.73 1.23 15.14 N 10/18/96
HPBC 9.77 154.60 154.60 16.46 4.96 180,451 10.65 10.65 1.65 1.79 15.72 N 10/18/96
HRZB 11.94 110.35 110.35 17.87 2.99 493,499 16.20 16.20 1.12 1.54 9.56 N 10/18/96
HVFD 14.23 124.16 124.41 10.55 2.92 334,226 8.50 8.48 1.30 0.71 8.57 N 10/18/96
HZFS 21.69 78.75 78.75 8.99 2.17 73,464 11.42 11.42 0.68 0.53 4.38 N 10/18/96
IBSF 21.00 116.24 116.24 23.14 1.52 748,745 19.91 19.91 0.75 1.05 4.99 N 10/18/96
IFSB 19.23 55.80 64.38 3.79 2.93 252,970 6.80 5.95 0.39 0.43 6.58 N 10/18/96
IFSL 14.06 136.46 146.53 12.90 3.56 742,269 9.47 8.87 1.44 0.91 9.37 N 10/18/96
INBI 15.03 115.61 115.61 21.89 3.17 320,372 18.93 18.93 0.84 0.73 3.31 N 10/18/96
IPSW 9.96 142.59 142.59 8.42 1.78 158,116 5.91 5.91 1.13 1.33 21.98 N 10/18/96
IROQ 9.97 133.86 149.49 8.14 1.97 470,710 7.07 6.48 1.63 0.96 14.40 N 10/18/96
ISBF 15.60 99.24 102.22 16.99 2.08 686,549 17.12 16.71 1.05 1.17 6.04 N 10/18/96
IWBK 14.35 200.80 206.47 13.69 1.73 1,413,926 6.81 6.64 2.09 1.11 15.69 N 10/18/96
JSBA 13.62 104.26 126.81 8.45 1.41 1,125,393 7.31 6.09 1.67 0.63 9.07 N 10/18/96
JSBF 16.12 111.03 111.03 24.21 3.27 1,526,060 21.80 21.80 2.28 1.63 7.45 N 10/18/96
KNK 17.32 88.85 95.61 8.78 1.82 359,171 9.88 9.25 1.27 0.56 5.37 N 10/18/96
KSAV 13.92 94.08 94.17 13.92 12.23 93,536 14.79 14.78 1.41 1.11 6.88 N 10/18/96
KSBK 7.25 96.59 104.32 6.59 0.94 132,533 6.82 6.35 2.93 0.89 13.42 N 10/18/96
LARK 19.64 95.54 95.54 15.75 2.42 200,469 16.49 16.49 0.84 0.93 5.45 N 10/18/96
LARL 9.52 114.78 114.78 12.29 2.75 196,947 10.71 10.71 1.68 1.39 13.29 N 10/18/96
LFED 17.38 111.24 111.24 17.98 4.77 273,278 16.17 16.17 0.82 1.06 6.49 N 10/18/96
LIFB 16.91 117.11 121.48 14.04 2.55 1,240,520 11.99 11.61 1.02 0.87 6.25 N 10/18/96
LISB 17.28 139.68 139.68 13.96 1.36 5,221,019 9.99 9.99 1.70 0.93 8.78 N 10/18/96
LOGN 17.81 95.06 95.06 24.41 2.81 77,195 25.68 25.68 0.80 1.50 5.55 N 10/18/96
LSBI 23.83 92.91 92.91 9.68 1.79 172,006 9.64 9.64 0.75 0.52 4.62 N 10/18/96
LSBX 7.95 117.65 117.65 8.93 - 332,956 7.59 7.59 0.88 1.24 15.92 N 10/18/96
LVSB 20.90 132.43 170.27 13.24 0.94 457,860 9.99 7.95 1.28 1.43 13.18 N 10/18/96
MAFB 10.12 120.09 140.77 9.33 1.28 3,117,149 7.77 6.70 2.78 0.88 14.60 N 10/18/96
MARN 17.21 97.81 97.81 22.84 3.81 177,767 23.35 23.35 1.22 1.41 5.86 N 10/18/96
MASB 10.70 105.71 105.71 10.35 2.87 880,534 9.79 9.79 3.13 1.06 10.40 N 10/18/96
MBB 13.48 77.66 200.78 5.23 3.87 840,552 8.21 4.26 NA 0.44 NA N 10/18/96
MBB 13.48 77.66 200.78 5.23 3.87 840,552 8.21 4.26 NA 0.44 NA N 10/18/96
MBLF 22.16 104.57 104.57 14.60 1.86 201,039 13.96 13.96 0.97 0.70 4.85 N 10/18/96
MCBN 14.84 87.68 87.68 7.92 2.74 55,048 9.04 9.04 1.28 0.60 6.65 N 10/18/96
MCBS 10.80 100.32 100.42 12.30 2.11 313,759 11.70 11.69 1.76 1.27 9.59 N 10/18/96
MDBK 11.55 121.43 132.37 10.91 2.80 1,008,200 8.98 8.30 2.10 1.04 11.57 N 10/18/96
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 8
<PAGE>
FERGUSON & CO., LLP EXHIBIT V - SELECTED PUBLICLY TRADED THRIFTS
- -------------------
<TABLE>
<CAPTION>
Tangible ROAA ROACE
Price/ Current Current Current Total Equity/ Equity/ Core Before Before
LTM Price/ Price/T Price/ Dividend Assets Assets T Assets EPS Extra Extra Merger Current
Core EP B Value B Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricing
Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N) Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MERI 12.40 143.05 143.05 10.39 1.94 231,058 7.26 7.26 2.50 0.55 7.33 N 10/18/96
MFFC 21.27 95.57 95.57 18.09 3.65 178,290 18.93 18.93 0.67 1.04 4.80 N 10/18/96
MFLR 14.66 121.81 124.59 11.80 3.15 114,873 9.69 9.49 1.04 0.91 9.01 N 10/18/96
MFSL 15.95 109.94 111.70 8.85 1.97 1,130,517 8.05 7.94 2.10 0.74 8.96 N 10/18/96
MGNL 13.76 223.31 235.90 21.47 2.93 1,308,658 9.61 9.14 1.49 1.71 17.51 N 10/18/96
MIFC 10.17 93.46 93.60 8.76 1.33 115,260 9.38 9.36 0.59 0.93 10.00 N 10/18/96
MIVI 14.01 90.94 90.94 16.73 1.26 69,322 18.40 18.40 0.91 1.31 6.73 N 10/18/96
MLBC 18.92 115.23 119.97 9.32 2.71 1,876,018 7.53 7.25 0.74 0.72 8.30 N 10/18/96
MORG 13.86 92.59 92.59 12.94 2.09 74,130 13.97 13.97 0.83 1.02 6.82 N 10/18/96
MSBF 12.83 100.21 100.21 20.99 2.60 60,130 20.94 20.94 1.50 1.83 7.66 N 10/18/96
MWBI 10.64 100.15 100.15 6.68 1.96 138,628 6.67 6.67 2.49 1.01 14.64 N 10/18/96
MWBX 9.44 159.18 159.18 12.04 2.35 490,130 7.55 7.55 0.45 1.30 17.23 N 10/18/96
MWFD 22.36 224.85 235.09 20.26 1.29 187,601 9.01 8.65 1.04 1.28 13.41 N 10/18/96
NASB 9.06 140.70 146.23 9.57 2.00 740,298 6.81 6.57 3.45 1.26 17.33 N 10/18/96
NEBC 24.53 99.01 117.65 7.19 2.46 222,290 8.17 7.10 0.53 0.56 6.45 N 10/18/96
NEIB 16.25 92.00 92.00 17.39 2.46 154,128 18.90 18.90 0.80 1.19 5.46 N 10/18/96
NFSL 11.45 172.29 173.14 22.04 1.80 162,199 12.79 12.74 2.14 2.25 19.85 N 10/18/96
NHTB 13.33 104.26 104.26 7.85 4.17 258,526 7.53 7.53 0.90 0.65 8.48 N 10/18/96
NMSB 15.82 98.85 98.85 10.20 2.58 309,363 10.31 10.31 0.49 0.75 6.71 N 10/18/96
NSLB 22.03 77.80 77.80 18.13 3.85 57,288 23.31 23.31 0.59 0.97 4.08 N 10/18/96
NSSB 19.01 137.05 152.04 13.74 2.58 731,193 10.02 9.13 0.98 0.83 7.62 N 10/18/96
NSSY 22.12 123.66 123.66 9.00 0.87 609,522 7.28 7.28 1.04 0.81 9.66 N 10/18/96
NTMG 22.35 100.34 100.34 5.75 2.03 91,158 6.22 6.22 0.33 0.67 10.92 N 10/18/96
NWEQ 13.79 89.22 89.22 12.36 3.33 91,804 12.77 12.77 0.87 1.00 6.91 N 10/18/96
NWSB 16.25 157.00 165.39 16.19 2.46 1,877,529 10.15 9.69 0.80 1.05 9.48 N 10/18/96
NYB 12.50 242.20 242.20 13.14 2.40 2,918,120 5.43 5.43 2.67 1.27 21.77 N 10/18/96
OFCP 19.26 110.34 137.61 11.34 2.20 782,145 10.27 8.41 0.85 0.91 5.72 N 10/18/96
OHSL 13.09 93.12 93.12 11.36 3.90 209,037 12.20 12.20 1.49 0.95 7.55 N 10/18/96
PALM 18.58 130.23 136.62 10.96 0.60 638,002 8.41 8.05 0.72 0.69 8.53 N 10/18/96
PBCI 13.01 110.27 111.24 17.05 4.74 365,553 15.47 15.36 1.46 1.34 8.52 N 10/18/96
PBCT 15.95 168.53 NA 13.93 3.54 7,236,600 8.26 NA 1.56 1.13 14.01 N 10/18/96
PBKB 15.85 136.36 143.68 7.22 2.49 524,443 5.30 5.04 0.71 0.79 13.08 N 10/18/96
PBNB 14.16 119.25 128.47 12.07 3.32 437,034 10.12 9.46 1.96 0.97 8.89 N 10/18/96
PCBC 18.35 97.90 97.90 18.38 1.74 80,394 18.77 18.77 0.94 0.88 4.36 N 10/18/96
PCCI 10.22 117.28 117.28 10.61 - 265,125 9.04 9.04 0.93 1.17 16.10 N 10/18/96
PFDC 11.40 105.63 105.63 16.45 3.08 277,958 15.58 15.58 1.71 1.45 9.51 N 10/18/96
PFNC 10.59 145.79 146.92 8.18 1.05 347,858 5.61 5.57 0.72 0.91 18.78 N 10/18/96
PFSB 12.26 92.07 115.58 8.38 - 1,086,524 8.34 6.75 1.54 0.82 8.36 N 10/18/96
PFSL 12.30 110.67 110.67 6.57 5.51 377,236 5.93 5.93 1.24 0.56 9.42 N 10/18/96
PKPS 3.45 88.50 88.50 7.47 2.00 840,491 8.44 8.44 1.45 1.70 21.07 N 10/18/96
PLE 10.59 101.97 105.69 8.29 4.14 186,475 8.13 7.87 1.64 0.85 10.96 N 10/18/96
POBS 14.97 110.61 110.61 27.68 4.66 266,877 25.02 25.02 0.86 2.30 9.38 N 10/18/96
PSAB 12.42 120.35 128.34 10.84 3.63 644,560 9.01 8.49 1.51 1.02 10.90 N 10/18/96
PSBK 9.64 117.91 135.71 9.39 2.50 901,690 7.97 7.00 3.32 1.10 12.30 N 10/18/96
PTRS 17.13 88.39 88.39 8.16 1.30 114,714 9.24 9.24 1.08 0.51 5.27 N 10/18/96
PULB 22.82 131.52 131.52 16.77 6.96 179,457 12.75 12.75 0.63 0.88 7.15 N 10/18/96
PULS 12.23 130.81 130.81 10.19 4.15 505,034 7.79 7.79 1.38 1.19 10.28 N 10/18/96
PVFC 10.28 149.95 149.95 10.16 - 331,634 6.78 6.78 1.41 1.19 18.43 N 10/18/96
PVSA 10.92 142.98 143.49 10.60 2.14 924,365 7.42 7.39 2.22 0.73 10.17 N 10/18/96
PWBC 14.58 113.82 125.90 7.92 2.57 696,467 6.96 6.33 0.96 0.62 7.68 N 10/18/96
QCBC 18.96 94.75 95.18 8.88 - 725,085 9.37 9.33 0.89 0.53 5.25 N 10/18/96
QCSB 14.57 160.02 NA 24.95 2.32 1,325,872 15.59 NA 2.96 1.80 10.58 N 10/18/96
RARB 11.75 120.45 123.42 8.87 2.79 344,710 7.37 7.20 1.83 0.87 11.45 N 10/18/96
RCSB 12.33 135.12 139.03 10.70 2.15 4,006,755 7.92 7.72 2.26 1.03 12.43 N 10/18/96
RELY 12.50 108.76 161.08 8.89 3.07 1,829,440 8.17 5.67 1.46 0.50 5.18 N 10/18/96
RFED 10.29 162.64 NA 8.15 3.54 9,047,562 5.59 NA 1.70 0.44 8.52 N 10/18/96
</TABLE>
SOURCE: SNL & F&C CALCUALTIONS 9
<PAGE>
FERGUSON & CO., LLP Exhibit V - Selected Publicly Traded Thrifts
- -------------------
<TABLE>
Tangible ROAA ROACE
Price/ Current Current Current Total Equity/ Equity/ Core Before Before
LTM Price/ Price/ Price/ Dividend Assets Assets T Asset EPS Extra Extra Merger Current
Core EPS B Value B Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricing
Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM (Y/N) Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ROSE 11.88 128.49 128.49 8.81 2.59 3,140,494 6.35 6.35 2.60 0.97 15.08 N 10/18/96
RVSB 14.13 151.44 169.98 16.68 1.35 213,868 11.02 9.94 1.15 1.32 12.07 N 10/18/96
SBCN 18.75 89.69 89.69 11.50 3.81 202,057 12.73 12.73 0.84 0.48 3.62 N 10/18/96
SCCB 22.39 89.66 89.66 24.98 4.00 44,161 27.87 27.87 0.67 1.11 3.80 N 10/18/96
SECP 18.61 116.99 116.99 17.95 0.91 3,437,317 16.26 16.26 3.56 0.99 5.85 N 10/18/96
SFB 12.93 170.18 209.14 9.93 1.64 15,353,682 5.83 4.80 3.78 0.65 9.89 N 10/18/96
SFED 18.82 92.81 92.81 12.58 1.50 164,366 13.56 13.56 0.85 0.69 4.88 N 10/18/96
SFFC 14.86 89.92 89.92 17.50 2.42 76,705 19.46 19.46 1.11 1.19 5.99 N 10/18/96
SFSB 16.03 90.49 91.02 6.23 1.71 378,388 6.88 6.85 1.17 0.50 6.91 N 10/18/96
SFSL 11.96 145.89 148.78 13.82 2.67 588,592 9.47 9.30 1.38 1.21 13.36 N 10/18/96
SHEN 14.40 101.68 101.68 12.90 2.30 369,279 12.68 12.68 1.45 1.03 7.45 N 10/18/96
SISB 8.01 140.89 140.89 10.64 - 1,209,843 7.19 7.19 2.81 1.38 19.41 N 10/18/96
SMBC 16.62 91.60 91.60 15.03 3.54 159,848 16.41 16.41 0.85 0.93 5.48 N 10/18/96
SMFC 16.60 103.37 103.37 12.53 - 280,027 10.99 10.99 1.22 0.85 6.89 N 10/18/96
SOPN 18.11 99.50 99.50 25.86 3.83 256,986 26.00 26.00 0.98 1.53 5.86 N 10/18/96
SOSA 13.33 114.94 114.94 6.52 - 510,715 5.69 5.69 0.15 0.48 8.65 N 10/18/96
SPBC 12.97 125.61 126.04 10.92 1.86 4,276,208 8.69 8.66 1.99 0.59 6.44 N 10/18/96
SSBK 13.01 132.36 135.09 10.64 2.16 529,187 8.04 7.89 1.71 0.99 11.83 N 10/18/96
STFR 13.93 109.02 114.20 10.71 1.57 1,329,903 9.82 9.42 1.83 1.18 10.78 N 10/18/96
STND 17.19 109.93 110.14 12.37 1.79 2,339,731 11.25 11.24 1.04 0.55 4.39 N 10/18/96
STSA 16.18 124.89 154.15 5.05 - 1,477,699 5.80 5.06 0.85 0.45 7.76 N 10/18/96
SVRN 11.65 154.84 228.14 6.48 0.70 9,183,447 5.02 3.79 1.03 0.79 17.03 N 10/18/96
SWBI 13.17 122.34 122.34 12.70 4.00 376,277 10.38 10.38 2.05 0.82 6.79 N 10/18/96
SWCB 12.43 113.00 120.34 9.30 4.49 449,889 8.23 7.77 1.79 0.87 10.76 N 10/18/96
TBK 10.36 97.54 102.04 5.94 - 223,978 6.09 5.84 1.11 0.61 9.94 N 10/18/96
TCB 14.00 257.01 268.29 18.87 1.95 7,114,466 7.34 7.06 2.75 1.19 16.00 N 10/18/96
THRD 15.43 84.17 84.17 12.91 2.12 528,910 14.20 14.20 0.98 0.91 5.94 N 10/18/96
TRIC 18.81 93.23 93.23 15.08 2.63 76,718 16.17 16.17 1.01 0.95 5.13 N 10/18/96
TSH 14.11 89.16 89.16 13.70 3.81 370,722 15.37 15.37 0.93 1.10 6.08 N 10/18/96
TWIN 15.65 114.36 114.36 15.62 3.56 103,300 13.66 13.66 1.15 1.09 7.94 N 10/18/96
UBMT 14.86 94.23 94.23 22.16 4.66 104,195 23.52 23.52 1.27 1.52 6.66 N 10/18/96
UFRM 13.73 114.23 114.23 9.22 2.60 255,485 8.08 8.08 0.56 0.79 10.03 N 10/18/96
VFFC 13.50 127.00 131.07 10.38 0.74 746,867 8.17 7.93 1.00 1.74 22.49 N 10/18/96
WAMU 13.26 194.94 216.40 12.60 2.35 22,413,697 7.47 6.89 2.95 0.98 14.34 N 10/18/96
WAYN 19.44 124.19 124.19 11.50 4.78 250,266 9.26 9.26 0.99 0.62 6.73 N 10/18/96
WBST 12.86 142.80 184.51 7.22 2.03 3,984,454 5.44 4.34 2.76 0.55 9.96 N 10/18/96
WCBI 14.73 117.23 117.23 18.17 2.23 307,772 15.50 15.50 1.46 0.99 6.33 N 10/18/96
WEFC 15.85 97.31 97.31 14.09 - 191,787 14.47 14.47 0.82 0.84 5.71 N 10/18/96
WFCO 10.82 106.03 108.80 7.90 3.73 282,833 7.45 7.28 1.04 0.94 12.39 N 10/18/96
WFSL 12.89 173.27 181.89 20.53 3.76 5,040,588 11.85 11.36 1.90 1.78 14.47 N 10/18/96
WRNB 8.66 149.21 149.21 13.68 3.32 353,935 9.17 9.17 1.53 1.74 19.52 N 10/18/96
WSB 11.90 100.60 100.60 8.28 2.00 254,968 8.22 8.22 0.42 0.94 12.56 N 10/18/96
WSFS 7.16 165.58 167.45 9.35 - 1,312,864 5.65 5.59 1.24 2.20 37.91 N 10/18/96
WSTR 17.08 96.48 96.48 13.44 2.09 563,931 13.94 13.94 1.01 0.79 5.90 N 10/18/96
WVFC 11.84 114.80 114.80 15.05 1.78 259,622 13.11 13.11 1.90 1.51 10.19 N 10/18/96
YFED 12.93 121.99 121.99 10.29 3.52 1,109,804 8.43 8.43 1.45 0.99 11.57 N 10/18/96
Maximum 24.53 257.01 268.29 27.68 12.23 43,548,593 27.87 27.87 7.39 2.30 37.91
Minimum 3.45 55.80 64.38 3.56 - 36,940 3.17 2.63 0.15 0.00 (0.01)
Average 14.58 121.33 126.32 12.14 2.28 1,547,023 10.53 10.30 1.47 0.95 9.77
Median 14.08 115.30 118.68 10.91 2.22 427,615 9.04 8.46 1.28 0.91 8.92
</TABLE>
Source SNL & F&C calculations 10
<PAGE>
FURGUSON & CO., LLP EXHIBIT V - SELECTED PUBLICLY TRADED THRIFTS
- -------------------
<TABLE>
<CAPTION>
ROAA ROACE
NPAs/ Price/ Core Before Before
Assets Core EPS Extra Extra
(%) EPS ($) (%) (%)
Ticker MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C>
AADV 0.55 13.95 0.56 0.89 9.18
ABCW 0.67 9.99 0.87 1.02 15.09
AFFFZ 0.77 9.29 0.78 0.92 13.32
ALBK NA 11.27 0.61 0.20 2.08
AMFB 0.54 11.54 0.39 1.30 16.51
ANDB NA 6.34 1.02 1.29 16.86
ASBI 0.29 14.18 0.26 0.86 7.55
ASBP 1.61 19.08 0.19 1.09 4.76
ASFC 0.57 10.11 0.81 (0.18) (2.29)
AVND 0.75 22.01 0.17 0.64 6.29
BANC 0.82 11.75 0.29 1.28 15.89
BDJI 0.21 14.81 0.27 0.79 5.80
BFSB 0.00 11.84 0.38 1.42 9.12
BFSI 1.21 8.85 1.44 1.69 21.29
BKC 2.66 10.12 0.67 1.27 14.60
BKCO 1.22 10.09 0.48 1.18 13.23
BKCT 1.59 14.84 0.40 1.20 11.13
BSBC 2.05 14.06 0.06 0.96 10.97
BVFS 0.69 11.19 0.79 (0.25) (4.14)
CAFI 0.39 11.22 0.39 1.07 12.81
CAPS 0.13 11.03 0.51 0.93 9.40
CASH 0.20 11.63 0.50 1.09 9.16
CBCI 1.44 9.82 0.71 1.53 9.23
CBCO 1.50 10.53 0.54 1.42 14.93
CBIN 0.05 12.25 0.25 0.89 7.68
CBNH 0.41 11.59 0.41 0.95 13.21
CBSA 0.57 10.10 0.56 (0.29) (8.94)
CEBK 1.79 12.00 0.31 0.76 7.70
CENF 1.39 12.56 0.54 0.58 11.54
CFB 1.01 10.53 1.03 0.96 15.52
CFCP 0.07 16.88 0.30 1.10 18.12
CFFC 0.08 12.50 0.43 1.38 9.96
CFHC 1.21 8.99 0.65 (0.31) (4.74)
CFSB 0.09 12.50 0.36 0.95 11.45
CFX NA 10.75 0.34 0.12 1.36
CIBI 0.78 10.12 0.42 1.20 9.15
CMRN 0.37 15.00 0.25 1.56 5.88
CMSV 0.53 10.44 0.41 1.14 9.55
CNIT 0.45 15.19 0.65 0.75 10.39
CNSK 1.39 15.34 0.22 0.75 12.74
COFD 0.43 10.23 0.73 0.34 4.73
COFI 0.31 11.40 0.91 0.15 2.16
CSA 1.59 15.81 0.50 0.37 7.30
CTBK 1.01 13.14 0.27 0.48 6.75
CTZN 0.93 12.72 0.85 0.78 11.58
CVAL 0.86 14.29 0.35 0.88 9.49
DIBK 0.92 6.53 0.67 1.79 22.47
DME 2.59 13.28 0.28 0.59 11.72
DNFC 0.66 12.50 0.28 (0.31) (5.44)
DSL 1.36 11.50 0.56 (0.52) (6.67)
EBCP 1.51 18.98 0.27 0.71 9.13
EBSI 1.45 12.93 0.29 0.85 9.02
EFBI 0.04 19.41 0.19 0.77 5.09
EGFC 1.17 11.64 0.58 0.83 11.37
EIRE 0.22 9.16 0.43 0.77 11.71
EQSB 0.77 7.72 0.85 0.81 15.35
</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
Assets Core EPS Extra Extra
(%) EPS ($) (%) (%)
Ticker MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C>
ETFS 0.23 19.41 0.19 0.74 3.82
FBBC 0.08 12.30 0.31 1.64 7.93
FBCI 0.61 14.73 0.28 0.76 6.42
FBHC 1.21 12.67 0.37 0.65 9.12
FBSI 0.09 12.50 0.31 1.02 6.21
FCBF 0.12 14.72 0.31 1.16 6.45
FCIT 2.96 14.39 0.33 0.67 11.68
FESX 0.61 9.90 0.30 1.03 13.63
FFBI 0.29 13.36 0.29 0.60 7.00
FFBS 1.09 21.50 0.25 1.25 6.38
FFBZ 0.50 10.26 0.67 1.32 16.84
FFCH 1.24 10.37 0.47 0.81 12.53
FFED 0.15 22.92 0.12 0.89 17.01
FFES 0.60 9.06 0.54 0.63 10.37
FFFC 0.51 13.87 0.32 1.32 8.13
FFFG 2.83 8.59 0.08 0.71 11.31
FFFL 0.34 18.75 0.21 0.68 6.81
FFHC 0.29 9.83 0.68 0.04 0.53
FFHH 0.07 16.52 0.21 0.82 5.49
FFHS 0.43 13.19 0.27 0.61 6.46
FFKY 0.09 17.29 0.30 1.46 10.32
FFLC 0.23 26.39 0.18 (0.27) (1.60)
FFPB 0.53 12.01 0.48 0.75 9.51
FFSL 0.29 11.90 0.42 0.93 7.50
FFSW 0.12 14.70 0.54 1.33 20.80
FFSX 0.15 14.10 0.45 0.76 8.99
FFWC 0.06 8.73 0.58 1.13 10.80
FFWD 0.04 15.63 0.26 1.23 8.67
FFWM 1.37 15.22 0.46 1.23 9.67
FFYF 0.81 15.71 0.39 1.32 7.47
FGHC 1.34 10.55 0.16 0.94 11.17
FIBC 2.59 13.17 0.28 0.81 7.57
FISB 1.59 15.23 0.40 1.33 14.47
FKFS 2.53 10.94 0.44 0.78 9.53
FLAG 3.56 16.80 0.16 0.75 8.15
FLFC 1.22 14.06 0.32 1.05 14.39
FMCO 1.03 9.09 0.44 0.88 13.17
FMSB 0.02 11.08 0.33 1.01 15.22
FNGB 0.17 17.75 0.25 0.82 6.62
FOBC NA 10.39 0.37 (0.16) (1.37)
FRC NA 13.41 0.31 0.63 11.26
FSBC 1.49 143.75 0.01 0.08 1.74
FSBI 0.43 11.92 0.43 0.79 11.35
FSFC 0.19 21.59 0.11 (1.54) (8.45)
FSLA 0.91 13.28 0.32 0.70 7.41
FSNJ 0.75 13.96 0.30 0.56 7.46
FSPG 0.91 8.33 0.54 0.93 14.40
FTFC 0.11 15.46 0.38 0.95 13.83
FTSB 1.27 17.19 0.20 1.28 5.28
GBCI 0.04 13.43 0.47 1.57 16.50
GDW NA 4.09 3.74 1.49 23.45
GFCO 0.40 10.61 0.43 0.63 6.56
GFSB 1.15 9.74 0.52 1.33 11.14
GLBK 0.30 14.87 0.29 0.77 4.87
GPT 2.91 14.06 0.78 0.99 9.44
GROV NA 10.39 0.83 0.92 14.35
</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
Assets Core EPS Extra Extra
(%) EPS ($) (%) (%)
Ticker MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C>
GRTR 8.73 18.48 0.17 0.66 6.66
GSBC 2.36 13.84 0.56 1.65 16.21
GSLC 3.14 21.59 0.11 0.79 12.35
GTFN 0.42 22.95 0.32 (0.05) (0.56)
GUPB 0.20 14.32 0.24 1.26 5.73
GWBC 0.08 23.33 0.15 0.94 3.76
GWF 1.79 NM (0.31) (0.37) NA
HALL 0.02 11.68 0.38 0.62 8.31
HARB 0.55 13.52 0.58 1.16 13.43
HARL 0.00 8.95 0.51 0.91 13.35
HARS 0.76 14.90 0.26 0.05 0.49
HAVN 1.02 10.74 0.64 0.80 12.80
HBFW 0.00 16.59 0.26 0.90 5.64
HBNK 3.41 19.90 0.19 0.45 5.62
HBS 2.44 16.06 0.29 1.01 6.81
HFFC 0.41 12.50 0.30 0.77 8.44
HFGI 0.32 14.89 0.17 0.08 1.72
HHFC 0.19 14.45 0.16 0.74 4.33
HIFS NA 10.16 0.40 1.11 11.43
HMNF 0.09 14.38 0.30 1.12 6.88
HOMF 0.46 12.10 0.63 1.16 13.97
HPBC 0.04 9.83 0.41 1.75 15.97
HRZB 0.00 11.53 0.29 1.53 9.46
HVFD NA 11.56 0.40 0.77 8.86
HZFS NA 16.76 0.22 0.76 6.64
IBSF 0.07 21.88 0.18 0.98 4.89
IFSB NA 14.42 0.13 0.29 4.34
IFSL 1.26 15.34 0.33 0.75 7.78
INBI 0.18 31.56 0.10 (1.85) (9.57)
IPSW 1.81 10.04 0.28 1.24 21.34
IROQ 1.13 9.03 0.45 0.99 15.16
ISBF NA 15.16 0.27 1.11 6.05
IWBK 0.59 12.50 0.60 1.14 16.51
JSBA 0.93 14.97 0.38 0.58 7.92
JSBF 1.21 14.58 0.63 1.75 8.08
KNK 0.16 13.10 0.42 0.67 6.83
KSAV 0.52 11.68 0.42 1.27 8.51
KSBK 1.26 6.32 0.84 0.91 13.28
LARK 0.03 16.50 0.25 0.96 5.70
LARL 0.62 9.09 0.44 1.39 13.02
LFED 0.04 16.96 0.21 1.05 6.44
LIFB 0.41 15.40 0.28 0.88 7.05
LISB 1.16 17.91 0.41 0.89 8.71
LOGN 0.39 17.81 0.20 1.47 5.62
LSBI 1.60 NM (0.18) (0.37) (3.67)
LSBX 1.04 7.29 0.24 1.25 16.51
LVSB NA 17.15 0.39 1.97 19.73
MAFB 0.37 10.19 0.69 0.87 13.26
MARN 1.07 15.91 0.33 1.41 5.95
MASB 0.29 10.34 0.81 1.10 11.02
MBB 0.63 17.61 NA 0.43 NA
MBB 0.63 17.61 NA 0.43 NA
MBLF 0.34 20.67 0.26 0.78 5.44
MCBN 0.64 10.80 0.44 0.79 8.63
MCBS 0.10 10.33 0.46 1.21 9.77
MDBK 0.53 11.66 0.52 1.01 11.37
</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
Assets Core EPS Extra Extra
(%) EPS ($) (%) (%)
Ticker MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C>
MERI NA 15.82 0.49 (0.78) (10.48)
MFFC 0.19 22.27 0.16 0.88 4.54
MFLR 1.05 11.91 0.32 0.97 10.08
MFSL NA 14.44 0.58 0.68 8.27
MGNL 2.52 12.81 0.40 1.68 17.35
MIFC 0.05 7.50 0.20 1.28 13.87
MIVI 0.46 13.28 0.24 1.13 6.04
MLBC 0.50 25.00 0.14 0.71 9.01
MORG 0.35 11.50 0.25 1.20 8.34
MSBF 0.24 13.01 0.37 1.56 7.21
MWBI 0.28 9.33 0.71 0.87 12.92
MWBX 1.72 8.85 0.12 1.34 17.32
MWFD 0.19 20.04 0.29 1.28 13.81
NASB 3.12 8.59 0.91 1.33 18.85
NEBC 1.40 NM (0.12) 0.05 (0.20)
NEIB 0.25 13.54 0.24 1.25 6.41
NFSL 1.26 19.14 0.32 1.48 12.40
NHTB 1.41 16.67 0.18 0.76 9.94
NMSB 2.04 13.84 0.14 0.81 7.44
NSLB 0.00 19.12 0.17 0.97 4.14
NSSB 1.71 18.63 0.25 0.85 8.24
NSSY 2.12 13.69 0.42 0.99 12.69
NTMG NA 18.44 0.10 0.66 10.39
NWEQ 0.91 12.50 0.24 0.99 7.56
NWSB 0.81 15.48 0.21 1.00 9.52
NYB 1.22 10.84 0.77 1.37 24.15
OFCP 0.13 14.62 0.28 0.77 7.13
OHSL 0.03 12.83 0.38 0.93 7.54
PALM 3.77 15.92 0.21 0.72 8.51
PBCI 2.29 14.84 0.32 1.14 7.34
PBCT 1.42 15.17 0.41 1.15 13.99
PBKB 1.12 20.09 0.14 0.73 13.59
PBNB 0.47 12.85 0.54 1.17 10.99
PCBC NA 17.25 0.25 0.55 2.83
PCCI 2.24 14.84 0.16 1.10 12.87
PFDC 0.31 11.08 0.44 1.46 9.53
PFNC 1.48 17.33 0.11 0.53 9.44
PFSB 0.88 10.04 0.47 0.86 9.75
PFSL 0.26 12.30 0.31 0.57 9.53
PKPS 1.89 NM 0.00 0.01 0.09
PLE 0.18 9.87 0.44 0.93 11.52
POBS 0.18 14.63 0.22 2.17 9.07
PSAB 1.07 11.16 0.42 1.05 11.39
PSBK 1.03 6.90 1.16 1.32 16.60
PTRS 2.33 23.13 0.20 0.36 3.77
PULB NA 25.67 0.14 0.76 5.99
PULS 1.12 11.72 0.36 1.16 10.56
PVFC 0.71 11.69 0.31 1.46 21.61
PVSA NA 10.10 0.60 (0.34) (4.56)
PWBC 0.58 12.96 0.27 0.63 8.44
QCBC 2.06 16.23 0.26 0.58 5.99
QCSB NA 14.00 0.77 1.71 10.60
RARB 0.81 10.34 0.52 0.94 12.75
RCSB 0.63 10.25 0.68 1.09 14.76
RELY NA 9.51 0.48 (0.31) (3.70)
RFED NA 11.22 0.39 0.08 0.80
</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
Assets Core EPS Extra Extra
(%) EPS ($) (%) (%)
Ticker MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C>
ROSE NA 9.53 0.81 1.07 17.04
RVSB 0.22 14.01 0.29 1.20 10.75
SBCN 0.13 12.30 0.32 0.97 7.51
SCCB NA 26.79 0.14 0.88 3.12
SECP 0.11 15.48 1.07 1.20 7.22
SFB 0.33 11.64 1.05 (0.22) (3.64)
SFED 0.67 16.67 0.24 0.71 5.15
SFFC NA 13.75 0.30 1.28 6.46
SFSB 0.25 14.65 0.32 0.47 6.79
SFSL 0.31 11.79 0.35 1.38 14.08
SHEN 0.46 13.05 0.40 1.00 7.63
SISB 0.84 10.42 0.54 1.05 14.72
SMBC 0.38 14.13 0.25 1.01 6.18
SMFC 0.06 13.68 0.37 0.88 7.66
SOPN 0.05 17.07 0.26 1.59 6.08
SOSA 8.41 12.50 0.04 0.48 8.45
SPBC NA 11.32 0.57 (0.33) (3.67)
SSBK 0.06 11.59 0.48 0.96 11.77
STFR 0.27 14.83 0.43 0.78 7.79
STND NA 13.96 0.32 (0.17) (1.52)
STSA 0.57 14.95 0.23 0.46 8.03
SVRN 0.49 11.11 0.27 0.78 17.40
SWBI 0.22 12.74 0.53 (0.16) (1.43)
SWCB 1.07 12.09 0.46 0.87 10.47
TBK 5.06 9.58 0.30 0.62 9.85
TCB 0.76 14.15 0.68 0.31 4.03
THRD 0.37 14.54 0.26 0.84 5.89
TRIC 0.22 16.38 0.29 1.00 6.82
TSH 0.15 12.15 0.27 1.11 6.81
TWIN 0.36 13.64 0.33 1.15 8.45
UBMT 0.65 18.15 0.26 1.52 6.53
UFRM 0.88 19.22 0.10 0.64 7.87
VFFC 2.18 21.09 0.16 3.32 41.55
WAMU 0.56 12.38 0.79 0.72 10.16
WAYN 0.41 16.59 0.29 0.70 7.44
WBST 0.85 10.82 0.82 0.50 9.06
WCBI 0.53 12.80 0.42 0.14 0.89
WEFC 0.37 14.77 0.22 0.75 5.09
WFCO 0.40 9.38 0.30 0.87 11.34
WFSL 0.64 11.34 0.54 1.87 15.70
WRNB NA 8.49 0.39 1.80 19.74
WSB NA 11.36 0.11 0.80 9.78
WSFS 2.72 9.24 0.24 1.03 17.61
WSTR 0.07 14.38 0.30 0.86 6.25
WVFC 0.38 13.08 0.43 1.24 8.93
YFED 1.02 14.20 0.33 0.91 10.62
Maximum 8.73 143.75 3.74 3.32 41.55
Minimum 0.00 4.09 (0.31) (1.85) (10.48)
Average 0.91 14.15 0.40 0.86 8.92
Median 0.58 13.12 0.33 0.89 8.93
</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 Home Savings, we selected all thrifts from
the entire U.S. with assets in the $150 million to $300 million range that have
sufficient trading volume to produce mean-ingful market information. All of
these thrifts are listed on either AMEX, NYSE, or Nasdaq.
We found 80 thrifts in the asset size described above. We eliminated 68 and
retained a group of 12. Normally, we consider 10 to be the desired sample size.
We selected two extras in case we have to drop some of the group before Home
Savings' conversion is completed.
We eliminated thrifts for the following reasons: 1) Mutual holding companies; 2)
BIF insured; 3) Less than one full year reporting as a stock; 4) Earnings that
are not meaningful; 5) Non-performing assets in excess of 1.5% of total assets;
and 6) Loans under 60% of total assets. After eliminating those described above,
there were 34 remaining. Of those 34, we selected the 12 with the highest loans
serviced to total assets ratio and eliminated the remaining 22.
The group of 80 from which the comparative group was selected is listed on
Exhibit VI.1 and the selected comparative group is listed on Exhibit VI.2. On
Exhibit VI.1, we have underlined the cells that indicate which ones were not
selected and why. Set forth below is a legend for the column summarizing reasons
individual thrifts were not selected.
A Mutual holding company
B BIF insured
C IPO date too recent to have one full year as a reporting stock
D Earnings not meaningful
E Non-performing assets in excess of 1.5% of assets
F Loans are less than 60% of assets
G Not ranked in top 12 of remaining thrifts in terms of ratio of loans serviced
to total assets
1
<PAGE>
FERGUSON & CO, LLP EXHIBIT VI.I - COMPARATIVES SELECTION
- ------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Deposit Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M)
IFSB Independence Federal Savings Washington DC MA SAIF NASDAQ 06/06/85 7.250 9.27
- -----------
HRBF Harbor Federal Bancorp, Inc. Baltimore MD MA SAIF NASDAQ 08/12/94 12.875 22.59
- -----------
WSB Washington Savings Bank, FSB Waldorf MD MA SAIF AMSE NA 5.000 21.10
- -----------
LFED Leeds Federal Savings Bk, MHC Baltimore MD MA SAIF NASDAQ 05/02/94 13.625 46.98
- ---------------------------------------------
EQSB Equitable Federal Savings Bank Wheaton MD MA SAIF NASDAQ 09/10/93 24.500 14.70
WYNE Wayne Bancorp, Inc. Wayne NJ MA SAIF NASDAQ 06/27/96 12.500 27.89
- ----------- -----------
FBER 1st Bergen Bancorp Wood-Ridge NJ MA SAIF NASDAQ 04/01/96 9.875 31.34
- ----------- -----------
LFBI Little Falls Bancorp, Inc. Little Falls NJ MA SAIF NASDAQ 01/05/96 10.375 29.98
- ----------- -----------
SFED SFS Bancorp, Inc. Schenectady NY MA SAIF NASDAQ 06/30/95 13.250 17.12
- -----------
PEEK Peekskill Financial Corp. Peekskill NY MA SAIF NASDAQ 12/29/95 12.750 49.66
- ----------- -----------
SBFL SB of the Finger Lakes, MHC Geneva NY MA SAIF NASDAQ 11/11/94 16.250 29.01
- ---------------------------------------------
CTBK Center Banks Incorporated Skaneateles NY MA BIF NASDAQ 06/02/86 13.500 12.75
- ----------- ----------
ESBK Elmira Savings Bank (The) Elmira NY MA BIF NASDAQ 03/01/85 16.938 11.96
- ----------- ----------
CATB Catskill Financial Corp. Catskill NY MA BIF NASDAQ 04/18/96 10.750 56.24
- ----------- ---------- -----------
YFCB Yonkers Financial Corporation Yonkers NY MA SAIF NASDAQ 04/18/96 10.313 36.83
- ----------- -----------
FIBC Financial Bancorp, Inc. Long Island City NY MA SAIF NASDAQ 08/17/94 16.250 29.19
- -----------
PHFC Pittsburgh Home Financial Corp Pittsburgh PA MA SAIF NASDAQ 04/01/96 10.500 22.91
- ----------- -----------
LARL Laurel Capital Group, Inc. Allison Park PA MA SAIF NASDAQ 02/20/87 15.500 23.45
- -----------
GDVS Greater Delaware Valley SB,MHC Broomall PA MA SAIF NASDAQ 03/03/95 9.500 31.09
- ---------------------------------------------
WVFC WVS Financial Corporation Pittsburgh PA MA SAIF NASDAQ 11/29/93 20.375 35.39
- -----------
CVAL Chester Valley Bancorp Inc. Downingtown PA MA SAIF NASDAQ 03/27/87 18.500 29.04
- -----------
FKFS First Keystone Financial Media PA MA SAIF NASDAQ 01/26/95 16.750 21.65
- -----------
HARL Harleysville Savings Bank Harleysville PA MA SAIF NASDAQ 08/04/87 17.500 22.57
- -----------
FFFD North Central Bancshares, Inc. Fort Dodge IA MW SAIF NASDAQ 03/21/96 11.625 46.63
- ----------- -----------
DFIN Damen Financial Corp. Schaumburg IL MW SAIF NASDAQ 10/02/95 11.250 42.19
- ----------- -----------
CBK Citizens First Financial Corp. Normal IL MW SAIF AMSE 05/01/96 10.750 30.29
- ----------- -----------
NEIB Northeast Indiana Bancorp Huntington IN MW SAIF NASDAQ 06/28/95 12.500 25.77
- -----------
LSBI LSB Financial Corp. Lafayette IN MW BIF NASDAQ 02/03/95 15.750 14.45
- ----------- ------------
MARN Marion Capital Holdings Marion IN MW SAIF NASDAQ 03/18/93 20.500 39.64
- -----------
CBCO CB Bancorp, Inc. Michigan City IN MW SAIF NASDAQ 12/28/92 17.500 20.57
- -----------
MFBC MFB Corp. Mishawaka IN MW SAIF NASDAQ 03/25/94 16.000 31.58
- -----------
CBIN Community Bank Shares New Albany IN MW SAIF NASDAQ 04/10/95 13.250 26.28
- -----------
FFED Fidelity Federal Bancorp Evansville IN MW SAIF NASDAQ 08/31/87 10.250 25.57
FBCV 1ST Bancorp Vincennes IN MW SAIF NASDAQ 04/07/87 29.000 19.33
- -----------
PFDC Peoples Bancorp Auburn IN MW SAIF NASDAQ 07/07/87 19.250 45.15
- -----------
LARK Landmark Bancshares, Inc. Dodge City KS MW SAIF NASDAQ 03/28/94 16.000 30.62
- -----------
SJSB SJS Bancorp St. Joseph MI MW SAIF NASDAQ 02/16/95 20.000 19.65
WEFC Wells Financial Corp. Wells MN MW SAIF NASDAQ 04/11/95 12.250 26.80
- ----------- -----------
SMBC Southern Missouri Bancorp, Inc Poplar Bluff MO MW SAIF NASDAQ 04/13/94 13.750 23.71
- -----------
CMRN Cameron Financial Corp Cameron MO MW SAIF NASDAQ 04/03/95 14.000 39.90
- -----------
PULB Pulaski Bank, Savings Bk, MHC St. Louis MO MW SAIF NASDAQ 05/11/94 12.375 25.91
- ---------------------------------------------
GFED Guaranty Federal SB, MHC Springfield MO MW SAIF NASDAQ 04/10/95 10.250 32.03
- ---------------------------------------------
MBLF MBLA Financial Corp. Macon MO MW SAIF NASDAQ 06/24/93 21.250 29.15
- -----------
CAPS Capital Savings Bancorp, Inc. Jefferson City MO MW SAIF NASDAQ 12/29/93 19.500 19.25
SMFC Sho-Me Financial Corp. Mt. Vernon MO MW SAIF NASDAQ 07/01/94 17.000 29.46
- -----------
FFBZ First Federal Bancorp, Inc. Zanesville OH MW SAIF NASDAQ 07/13/92 23.500 18.44
- -----------
MFFC Milton Federal Financial Corp. West Milton OH MW SAIF NASDAQ 10/07/94 13.375 30.21
- -----------
SBCN Suburban Bancorporation, Inc. Cincinnati OH MW SAIF NASDAQ 09/30/93 16.750 24.80
- -----------
EFBI Enterprise Federal Bancorp Lockland OH MW SAIF NASDAQ 10/17/94 12.750 26.38
- -----------
OHSL OHSL Financial Corp. Cincinnati OH MW SAIF NASDAQ 02/10/93 20.000 24.35
- -----------
FFHS First Franklin Corporation Cincinnati OH MW SAIF NASDAQ 01/26/88 14.250 16.61
WAYN Wayne Savings & Loan Co. MHC Wooster OH MW SAIF NASDAQ 06/25/93 19.750 29.54
- ---------------------------------------------
FFOH Fidelity Financial of Ohio Cincinnati OH MW SAIF NASDAQ 03/04/96 9.875 40.23
- ----------- -----------
GFCO Glenway Financial Corp. Cincinnati OH MW SAIF NASDAQ 11/30/90 19.750 22.62
WFCO Winton Financial Corp. Cincinnati OH MW SAIF NASDAQ 08/04/88 11.250 22.34
- -----------
MWFD Midwest Federal Financial Baraboo WI MW SAIF NASDAQ 07/08/92 15.500 25.21
OSBF OSB Financial Corp. Oshkosh WI MW SAIF NASDAQ 07/01/92 22.875 25.41
FCBF FCB Financial Corp. Neenah WI MW SAIF NASDAQ 09/24/93 17.000 41.81
BSBC Branford Savings Bank Branford CT NE BIF NASDAQ 11/04/86 3.500 18.13
- ----------- ---------
TBK Tolland Bank Tolland CT NE BIF AMSE 12/19/86 10.375 12.01
- ----------- ---------
IPSW Ipswich Savings Bank Ipswich MA NE BIF NASDAQ 05/26/93 10.000 11.81
- ----------- ---------
</TABLE>
<PAGE>
FERGUSON & CO., LLP EXHIBIT VI.1 - COMPARATIVES SELECTION
- -------------------
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIP/SAIF) Exchange IPO Date ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HPBC Home Port Bancorp, Inc. Nantucket MA NE BIF NASDAQ 08/25/88 14,250 26.25
- ---------- ---------------
HIFS Hingham Instit. for Savings Hingham MA NE BIF NASDAQ 12/20/88 14,625 18.98
- ---------- ---------------
NEBC Northeast Bancorp Portland ME NE BIF NASDAQ 08/19/87 12,750 15.45
- ---------- ---------------
NHTB New Hampshire Thrift Bncshrs New London NH NE SAIF NASDAQ 05/22/86 9,938 16.81
- ----------
POBS Portsmouth Bank Shares Portsmouth NH NE BIF NASDAQ 02/09/88 12,875 73.86
- ---------- ---------------
PLE Pinnacle Bank Jasper AL SE SAIF AMSE 12/17/86 17,250 15.35
FTF Texarkana First Financial Corp Texarkana AR SE SAIF AMSE 07/07/95 15,625 31.00
- ---------- -----------
NFSL Newman Savings Bank, FSB Newman GA SE SAIF NASDAQ 03/01/86 22,000 32.08
FLAG FLAG Financial Corp. LaGrange GA SE SAIF NASDAQ 12/11/86 11,250 22.90
- ----------
CFTP Community Federal Bancorp Tupelo MS SE SAIF NASDAQ 03/26/96 13,125 60.75
- ---------- -----------
GSPC Green Street Financial Corp. Fayetteville NC SE SAIF NASDAQ 04/04/96 13,375 57.49
- ---------- -----------
UFRM United Federal Savings Bank Rocky Mount NC SE SAIF NASDAQ 07/01/80 7,750 23.75
SOPN First Savings Bancorp, Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 17,000 63.65
- ----------
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88 20,500 26.08
- ----------
MERI Meritrust Federal SB Thibodaux LA SW SAIF NASDAQ NA 31,500 24,39
- ----------
JXVL Jacksonville Bancorp, Inc. Jacksonville TX SW SAIF NASDAQ 04/01/96 11,000 29.09
- ---------- ----------
FBHC Fort Bend Holding Corp. Rosenberg TX SW SAIF NASDAQ 06/30/93 17,000 13.93
- ----------
PCCI Pacific Crest Capital Agoura Hills CA WE BIF NASDAQ NA 8,250 24.42
- ---------- ---------------
RVSB Riverview Savings Bank, MHC Camas WA WE SAIF NASDAQ 10/26/93 15,000 32.94
- -----------------------------------------
Maximum 31,500 73.86
Minimum 3,500 9.27
Average 14,802 28.45
Median 13,875 26.00
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 3
<PAGE>
FERGUSON & CO., LLP EXHIBIT VI.1 - COMPARATIVES SELECTION
- -------------------
<TABLE>
<CAPTION>
Tangible ROAA ROAA
Price/ Price/ Current Current Current Total Equity/ Equity/ Core Core Before Before
LTM Core Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS EPS Extra Extra
Core EPS EPS Bk Value Bk Value Assets Yield ($000) (%) (%) ($) ($) (%) (%)
Ticker (x) (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM MRQ LTM MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
IFSB 18.59 13.94 53.94 62.23 3.67 3.03 252,970 6.80 5.95 0.39 0.13 0.43 0.29
- --------
HRBF 23.41 16.09 81.28 81.28 11.24 3.11 201,030 13.82 13.82 0.55 0.20 0.56 0.64
- --------
WSB 11.90 11.36 100.60 100.60 8.28 2.00 254,968 8.22 8.22 0.42 0.11 0.94 0.80
- --------
LFED 16.82 14.81 107.71 107.71 17.62 4.70 266,658 16.35 16.35 0.81 0.23 1.03 1.17
- --------
EQSB 7.83 7.21 103.64 103.64 5.49 - 267,776 5.30 5.30 3.13 0.85 0.78 0.81
WYNE NA NA 76.03 76.03 13.17 - 211,717 17.32 17.32 NA NA NA 0.60
- ----------------------------
FBER NA NA 72.24 72.24 12.43 - 252,173 17.21 17.21 NA NA NA 0.77
- ----------------------------
LFBI NA 17.29 72.05 78.13 11.18 0.96 282,232 15.52 14.49 NA 0.15 NA 0.60
- -------------------
SFED 15.59 13.80 76.86 76.86 10.42 1.81 164,366 13.56 13.56 0.85 0.24 0.69 0.71
- --------
PEEK NA 17.71 87.45 87.45 27.32 2.82 191,323 31.24 31.24 NA 0.18 1.27 1.46
- -------------------
SBFL NA NM 143.68 143.68 14.69 2.46 197,438 10.23 10.23 NA (0.03 NA 0.21
- ----------------------------
CTBK 10.31 12.50 82.27 82.27 5.78 1.78 220,373 7.03 7.03 1.31 0.27 0.57 0.48
- --------
ESBK 41.31 42.34 86.07 90.10 5.36 3.78 223,165 6.23 5.97 0.41 0.10 0.15 0.14
- --------
CATB NA NA NA NA NA - 231,164 12.75 12.75 NA NA NA 0.93
- ----------------------------
YFCB NA NA 75.11 75.11 15.17 1.94 242,826 20.19 20.19 NA NA NA 1.04
- ----------------------------
FIBC 19.35 14.51 111.30 NA 11.12 1.85 262,497 9.99 NA 0.84 0.28 0.66 0.79
- --------
PHFC NA NA 75.38 75.38 12.45 1.91 184,002 16.52 16.52 NA NA NA 0.78
- ----------------------------
LARL 9.23 8.81 111.19 111.19 11.90 2.84 196,947 10.71 10.71 1.68 0.44 1.39 1.39
- --------
GDVS 38.00 NM 110.21 110.21 13.40 3.79 231,971 12.16 12.16 0.25 (0.02) 0.31 (0.31)
- --------
WVFC 10.72 11.85 103.95 103.95 13.63 1.96 259,622 13.11 13.11 1.90 0.43 1.51 1.24
- --------
CVAL 12.59 12.50 113.57 113.57 10.64 2.38 272,932 9.37 9.37 1.47 0.37 0.91 0.88
- --------
FKFS 12.32 9.52 94.47 94.47 7.45 - 290,549 7.89 7.89 1.36 0.44 0.56 0.78
- --------
HARL 9.78 8.58 113.78 113.78 7.57 2.29 298,172 6.65 6.65 1.79 0.51 0.81 0.91
- --------
FFFD NA 11.18 83.63 83.63 24.00 2.15 194,283 28.69 28.69 NA 0.26 1.64 2.09
- -------------------
DFIN NA 17.58 81.23 81.23 18.81 2.13 237,296 23.16 23.16 NA 0.16 0.89 1.06
- -------------------
CBK NA NA 74.50 74.50 12.22 - 247,882 16.41 16.41 NA NA 0.53 0.59
- ----------------------------
NEIB 15.63 13.02 88.46 88.46 16.72 2.40 154,128 18.90 18.90 0.80 0.24 1.19 1.25
- --------
LSBI 21.00 NM 81.86 81.86 8.53 2.03 172,006 9.64 9.64 0.75 (0.18) 0.52 (0.37)
- --------
MARN 16.80 15.53 95.48 95.48 22.30 3.90 177,767 23.35 23.35 1.22 0.33 1.41 1.41
- --------
CBCO 8.33 7.81 106.45 106.45 10.51 - 195,658 9.87 9.87 2.10 0.56 1.38 1.42
- --------
MFBC 23.19 19.05 83.81 83.81 15.00 1.50 210,559 17.90 17.90 0.69 0.21 0.73 0.82
- --------
CBIN 14.25 13.25 101.92 101.92 11.26 2.57 233,347 11.05 11.05 0.93 0.25 0.88 0.89
- --------
FFED 10.25 21.35 178.88 178.88 9.75 7.81 262,216 5.45 5.45 1.00 0.12 1.18 0.89
FBCV NM NM 88.96 88.96 7.34 1.38 263,483 8.25 8.25 (0.55) (0.05) 2.05 0.52
- ----------------------------
PFDC 11.26 10.94 104.28 104.28 16.24 3.12 277,958 15.58 15.58 1.71 0.44 1.45 1.46
- --------
LARK 19.05 16.00 92.65 92.65 15.28 2.50 200,469 16.49 16.49 0.84 0.25 0.93 0.96
- --------
SJSB 22.22 27.78 111.73 111.73 13.04 2.20 150,752 11.67 11.67 0.90 0.18 0.63 0.46
WEFC NA 13.92 91.35 91.35 13.66 - 196,184 14.95 14.95 NA 0.22 0.81 1.02
- -------------------
SMBC 18.84 13.75 89.23 89.23 14.63 3.64 161,992 16.40 16.40 0.73 0.25 0.87 1.13
- --------
CMRN 14.29 14.00 86.10 86.10 22.69 2.00 175,841 26.35 26.35 0.98 0.25 1.60 1.56
- --------
PULB 19.96 17.19 114.37 114.37 14.44 6.17 179,406 12.63 12.63 0.62 0.18 0.84 0.95
- --------
GFED NA 64.06 117.95 117.95 17.26 - 185,546 14.64 14.64 NA 0.04 1.02 2.02
- -------------------
MBLF 22.14 20.43 102.76 102.76 14.94 1.88 195,074 14.54 14.54 0.96 0.26 0.70 0.73
- --------
CAPS 10.77 10.60 95.87 95.87 10.00 1.85 202,554 10.43 10.43 1.81 0.46 0.95 0.92
SMFC 13.93 11.49 86.78 86.78 10.52 - 280,027 10.99 10.99 1.22 0.37 0.85 0.88
- --------
FFBZ 10.31 8.77 139.55 139.71 10.37 1.87 177,778 7.89 7.88 2.28 0.67 1.14 1.32
- --------
MFFC 19.96 20.90 89.70 89.70 16.98 3.89 178,289 18.93 18.93 0.67 0.16 1.04 0.88
- --------
SBCN 21.75 34.90 95.82 95.82 12.58 3.58 197,137 13.01 13.01 0.77 0.12 0.39 (0.41)
- --------
EFBI 19.32 18.75 84.49 84.66 13.07 - 203,431 15.47 15.44 0.66 0.17 1.03 0.91
- --------
OHSL 13.42 13.16 95.51 95.51 11.65 3.80 209,037 12.20 12.20 1.49 0.38 0.95 0.93
- --------
FFHS 13.57 13.19 81.85 82.70 7.67 2.25 216,508 9.37 9.28 1.05 0.27 0.62 0.61
- --------
WAYN 19.95 17.03 127.42 127.42 11.80 4.46 250,266 9.26 9.26 0.99 0.29 0.62 0.70
- --------
FFOH NA 15.43 78.75 78.75 16.02 2.03 251,188 20.34 20.34 NA 0.16 0.87 1.01
- -------------------
GFCO 14.85 13.34 85.42 87.51 8.26 3.28 273,890 9.67 9.46 1.33 0.37 0.56 0.53
WFCO 10.82 9.38 106.03 108.80 7.90 3.73 282,833 7.45 7.28 1.04 0.30 0.94 0.87
- --------
MWFD 14.90 13.36 149.90 156.72 13.51 1.94 187,601 9.01 8.65 1.04 0.29 1.28 1.28
OSBF 28.24 14.30 80.94 80.94 10.17 2.80 250,003 12.56 12.56 0.81 0.40 0.21 0.73
FCBF 15.60 13.71 89.62 89.62 15.77 4.24 265,172 17.59 17.59 1.09 0.31 1.09 1.16
BSBC 15.22 14.58 147.06 147.06 12.89 - 178,121 8.75 8.75 0.23 0.06 0.86 0.96
- --------
TBK 9.35 8.65 88.00 92.06 5.36 - 223,978 6.09 5.84 1.11 0.30 0.61 0.62
- --------
IPSW 9.26 10.00 135.50 135.50 7.81 2.00 150,962 5.76 5.76 1.08 0.25 1.30 1.01
- --------
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 4
<PAGE>
FERGUSON & CO., LLP EXHIBIT VI.1-COMPARATIVES SELECTION
- -------------------
<TABLE>
<CAPTION>
Tangible ROAA ROAA
Price/ Price/ Current Current Current Total Equity/ Equity/ Core Core Before Before
LTM Core Price/ Price/T Price/ Dividend Assets Assets T Assets EPS EPS Extra Extra
Core EPS EPS Bk Value Bk Value Assets Yield ($000) (%) (%) ($) ($) (%) (%)
Ticker (x) (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM MRQ LTM MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HPBC 8.64 8.69 136.63 136.63 14.55 5.61 180,451 10.65 10.65 1.65 0.41 1.79 1.75
- ------
HIFS 10.02 9.62 104.09 104.09 10.16 2.46 186,724 9.76 9.76 1.46 0.38 1.10 1.07
- ------
NEBC 17.23 19.92 93.00 110.77 7.03 2.51 218,187 8.48 7.36 0.74 0.16 0.68 0.56
- ------
NHTB 11.04 13.80 86.34 86.34 6.50 5.03 258,526 7.53 7.53 0.90 0.18 0.65 0.76
- ------
POBS 14.97 14.63 110.61 110.61 27.68 4.66 266,877 25.02 25.02 0.86 0.22 2.30 2.17
- ------
PLE 11.35 12.68 100.82 104.55 8.26 4.17 185,793 8.19 7.93 1.52 0.34 0.79 0.75
FTF NA 10.28 92.02 92.02 18.97 2.88 163,391 20.61 20.61 NA 0.38 1.77 1.73
- -------------
NFSL 11.96 13.10 171.07 172.14 19.81 2.00 160,656 11.58 11.51 1.84 0.42 1.89 1.87
FLAG 14.24 17.58 104.94 104.94 10.01 3.02 228,710 9.55 9.55 0.79 0.16 0.87 0.75
- ------
CFTP NA 16.41 91.34 91.34 30.13 2.29 201,650 32.99 32.99 NA 0.20 1.29 1.68
- -------------
GSFC NA NA 91.61 91.61 32.12 2.99 178,965 35.07 35.07 NA NA NA 1.78
- ---------------------
UFRM 13.84 19.38 115.16 115.16 9.30 2.58 255,485 8.08 8.08 0.56 0.10 0.79 0.64
SOPN 17.53 17.00 94.76 94.76 24.84 3.53 256,294 26.21 26.21 0.97 0.25 1.48 1.52
- ------
CFFC 12.65 11.92 116.94 116.94 16.42 2.54 158,835 14.04 14.04 1.62 0.43 1.31 1.38
- ------
MERI 11.62 11.41 140.63 140.63 10.68 1.91 228,419 7.59 7.59 2.71 0.69 1.01 0.98
- ------
JXVL NA NA 82.27 82.27 13.46 4.55 217,730 16.36 16.36 NA NA 0.93 1.22
- ---------------------
FBHC 10.83 11.49 77.34 77.34 5.47 1.65 254,739 7.07 7.07 1.57 0.37 0.70 0.65
- ------
PCCI 8.97 12.13 104.30 104.30 8.41 - 290,443 8.06 8.06 0.92 0.17 1.31 1.04
RVSB 13.04 12.93 139.79 156.90 15.40 1.47 213,868 11.02 9.94 1.15 0.29 1.32 1.20
- ------
Maximum 41.31 64.06 178.88 178.88 32.12 7.81 298,172 35.07 35.07 3.13 0.85 2.30 2.17
Minimum 7.83 7.21 53.94 62.23 3.67 - 150,752 5.30 5.30 (0.55) (0.18) 0.15 (0.41)
Average 15.48 15.36 100.51 101.33 13.17 2.38 220,165 13.58 13.56 1.11 0.27 0.99 0.95
Meridan 14.24 13.73 94.76 95.12 12.43 2.27 217,119 11.92 12.16 0.99 0.25 0.92 0.91
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 5
<PAGE>
FERGUSON & CO., LLP EXHIBIT VI.1 - COMPARATIVES SELECTION
- -------------------
<TABLE>
<CAPTION>
ROACE ROACE Borrow- Loans
Before Before NPAs/ Loans/ Loans/ Deposits/ ings/ Loans Serviced/
Extra Extra Merger Current Assets Deposits Assets Assets Assets Serviced Assets Reasons
(%) (%) Target? Pricing (%) (%) (%) (%) (%) ($000) (%) Not
Ticker LTM MRQ (Y/N) Date MRQ MRQ MRQ MRQ MRQ MRQ MRQ Selected
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
IFSB 6.58 4.34 N 08/20/96 NA 64.83 57.29 88.37 3.95 NA NA F
- -------- -------
HRBF 3.19 4.58 N 08/20/96 0.42 77.47 62.14 80.22 4.23 428 0.21 G
- --------
WSB 12.56 9.78 N 08/20/96 NA 51.31 46.74 91.10 0.00 NA NA F
- -------- -------
LFED 6.32 7.07 N 08/20/96 0.01 65.08 53.02 81.46 0.29 - - A, F
- -------- -------
EQSB 14.98 15.35 N 08/20/96 0.77 89.65 70.02 78.10 15.81 111,512 41.64 SELECTED
--------
WYNE NA 3.49 N 08/20/96 NA NA NA 80.97 0.94 NA NA C
- --------
FBER NA 4.59 N 08/20/96 NA NA NA 82.08 0.00 NA NA C
- --------
LFBI NA 3.88 N 08/20/96 1.57 46.04 38.75 84.16 0.00 NA NA C, E, F
- -------- ------ -------
SFED 4.88 5.15 N 08/20/96 0.67 79.88 67.74 84.80 0.00 4,499 2.74 G
- --------
PEEK 5.09 4.70 N 08/20/96 0.00 31.24 20.95 67.06 0.26 - - C, F
- -------- -------
SBFL NA 1.93 N 08/20/96 1.42 57.99 43.39 74.81 13.88 2,420 1.23 A, D, F
- -------- -------
CTBK 8.15 6.83 N 08/20/96 1.01 100.01 82.94 82.93 7.47 20,964 9.51 B
- --------
ESBK 2.40 2.21 N 08/20/96 0.74 78.70 72.79 92.49 0.29 30,059 13.47 B
- --------
CATB NA NA N 08/20/96 NA 61.33 52.55 85.68 0.00 - - B, C, F
- -------- -------
YFCB NA 5.13 N 08/20/96 1.27 44.95 35.54 79.07 0.41 14,110 5.81 C, F
- -------- -------
FIBC 5.76 7.61 N 08/20/96 NA NA NA 76.44 12.57 11,877 4.52 G
- --------
PHFC NA NA N 08/20/96 1.30 109.74 68.52 62.43 18.48 - - C
- --------
LARL 13.29 13.02 N 08/20/96 0.62 89.30 74.67 83.62 3.21 1,107 0.56 G
- --------
GDVS 2.50 (2.53) N 08/20/96 3.31 69.90 57.86 82.77 4.67 1,257 0.54 A, E, F
- -------- ------ -------
WVFC 10.19 8.93 N 08/20/96 0.38 88.37 58.15 65.80 18.74 724 0.28 G
- --------
CVAL 9.88 9.49 N 08/20/96 0.86 99.31 83.04 83.61 5.31 22,210 8.14 G
- --------
FKFS 6.48 9.53 N 08/20/96 2.53 76.07 58.03 76.29 13.64 129,023 44.41 E, F
- -------- ------ -------
HARL 11.83 13.35 N 08/20/96 0.00 93.76 75.15 80.15 11.53 14,924 5.01 G
- --------
FFFD NA 7.27 N 08/20/96 NA 122.24 81.18 66.41 4.05 NA NA C
- --------
DFIN NA 4.47 N 08/20/96 0.20 72.59 38.40 52.90 22.76 89 0.04 C, F
- -------- -------
CBK NA 5.06 N 08/20/96 0.22 99.19 81.84 82.50 0.00 80,317 32.40 C
- --------
NEIB 5.46 6.41 N 08/20/96 0.25 181.76 87.55 48.17 32.44 2,096 1.36 G
- --------
LSBI 4.62 (3.67) N 08/20/96 1.60 133.04 88.46 66.49 23.68 29,774 17.31 B, E
- -------- ------
MARN 5.86 5.95 N 08/20/96 1.07 114.98 81.67 71.03 3.51 33,556 18.88 G
- --------
CBCO 14.66 14.93 N 08/20/96 NA 71.75 46.98 65.49 22.53 2,103 1.07 F
- -------- -------
MFBC 3.69 4.43 N 08/20/96 NA 90.34 66.06 73.12 8.31 - - G
- --------
CBIN 7.36 7.68 N 08/20/96 0.05 67.24 54.51 81.08 7.23 50,939 21.83 F
- -------- -------
FFED 23.76 17.01 N 08/20/96 0.15 119.55 82.84 69.29 24.02 58,854 22.44 SELECTED
--------
FBCV 29.45 6.42 N 08/20/96 0.35 124.13 64.61 52.05 38.29 81,353 30.88 D
- --------
PFDC 9.51 9.53 N 08/20/96 0.31 95.12 79.88 83.98 0.00 - - G
- --------
LARK 5.45 5.71 N 08/20/96 NA 80.06 58.85 73.50 8.68 NA NA F
- -------- -------
SJSB 5.00 3.84 N 08/20/96 0.29 85.71 62.16 72.52 14.63 48,928 32.46 SELECTED
--------
WEFC 5.96 6.88 N 08/20/96 0.39 112.44 85.21 75.78 8.16 NA NA C
- --------
SMBC 4.98 6.84 N 08/20/96 0.97 75.57 56.86 75.24 7.13 - - F
- -------- -------
CMRN 5.77 5.88 N 08/20/96 0.37 120.70 84.60 70.09 1.85 - - G
- --------
PULB 6.94 7.52 N 08/20/96 0.45 96.13 81.14 84.40 1.67 15,419 8.59 A
- --------
GFED 7.11 14.02 N 08/20/96 0.07 84.49 71.40 84.51 0.00 10,292 5.55 A
- --------
MBLF 4.83 5.11 N 08/20/96 0.33 120.17 53.77 44.75 40.06 - - F
- -------- -------
CAPS 8.96 8.68 N 08/20/96 0.18 104.64 77.82 74.37 13.82 48,637 24.01 SELECTED
--------
SMFC 6.89 7.66 N 08/20/96 0.06 144.78 87.30 60.30 27.79 11,650 4.16 G
- --------
FFBZ 15.12 16.84 N 08/20/96 0.50 120.60 88.56 73.43 17.74 9,000 5.40 G
- --------
MFFC 4.80 4.54 N 08/20/96 0.19 88.56 63.31 71.49 9.00 - - G
- --------
SBCN 2.95 (3.08) N 08/20/96 0.20 120.37 77.06 64.02 21.65 19,487 9.89 G
- --------
EFBI 5.52 5.88 N 08/20/96 0.01 93.54 64.24 68.68 14.75 - - G
- --------
OHSL 7.55 7.54 N 08/20/96 0.03 90.81 71.69 78.95 8.12 22,530 10.78 G
- --------
FFHS 6.56 6.46 N 08/20/96 0.43 77.85 67.72 86.99 3.34 56,988 26.32 SELECTED
--------
WAYN 6.73 7.44 N 08/20/96 0.41 98.52 83.53 84.78 5.64 40,263 16.09 A
- --------
FFOH NA 4.94 N 08/20/96 0.55 104.31 76.61 73.44 5.60 1,637 0.65 C
- --------
GFCO 5.82 5.53 N 08/20/96 0.51 97.14 78.61 80.93 7.14 71,299 26.03 SELECTED
--------
WFCO 12.39 11.34 N 08/20/96 0.40 111.61 84.94 76.11 15.69 - - G
- --------
MWFD 13.41 13.81 N 08/20/96 0.19 90.34 72.82 80.61 9.20 51,612 27.51 SELECTED
--------
OSBF 1.63 5.77 N 08/20/96 0.22 105.38 68.04 64.57 20.89 102,296 40.92 SELECTED
--------
FCBF 5.71 6.45 N 08/20/96 0.12 144.18 83.42 57.86 21.59 121,510 45.82 SELECTED
--------
BSBC 10.00 10.97 N 08/20/96 2.05 80.64 71.11 88.19 1.68 - - B, E
- -------- ------
TBK 9.94 9.85 N 08/20/96 5.06 76.35 67.68 88.64 5.07 3,375 1.51 B, E
- -------- ------
LPSW 21.10 16.74 N 08/20/96 2.00 91.05 73.33 80.54 11.92 57,450 38.06 B, E
- -------- ------
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 6
<PAGE>
FERGUSON & CO., LLP EXHIBIT VI.I - COMPARATIVES SELECTION
- -------------------
<TABLE>
<CAPTION>
ROACE ROACE Borrow- Loans
Before Before NPAs/ Loans/ Loans/ Deposits/ ings Loans Serviced/
Extra Extra Merger Current Assets Deposits Assets Assets Assets Serviced Assets Reasons
(%) (%) Target Pricing (%) (%) (%) (%) (%) ($000) (%) Not
Ticker LTM MRQ (Y/N) Date MRQ MRQ MRQ MRQ MRQ MRQ MRQ Selected
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HPBC 15.72 15.97 N 08/20/96 0.04 123.84 81.13 65.51 22.98 70,563 39.10 B
- ------
HIFS 10.64 10.68 N 08/20/96 0.51 96.01 74.03 77.11 12.05 7,737 4.14 B
- ------
NEBC 8.10 6.42 N 08/20/96 NA 114.79 77.14 67.20 22.23 NA NA B
- ------
NHTB 8.48 9.94 N 08/20/96 1.41 106.81 82.76 77.48 14.16 49,377 19.10 G
- ------
POBS 9.38 9.07 N 08/20/96 0.18 43.49 32.18 73.99 0.00 - - B,F
- ------ -------
PLE 10.34 9.69 N 08/20/96 0.22 73.16 64.66 88.38 2.02 99,754 53.69 SELECTED
--------
FTF NA 8.41 N 08/20/96 0.24 101.29 78.98 77.98 0.00 24,376 14.92 C
- ------
NFSL 17.69 16.31 N 08/20/96 0.67 101.67 80.73 79.40 8.12 128,873 80.22 SELECTED
--------
FLAG 9.27 7.88 N 08/20/96 3.56 89.84 69.21 77.04 11.11 NA NA E
- ------ ------
CFTP NA 5.08 N 08/20/96 0.46 87.42 56.57 64.72 0.00 - - C,F
- ------ -------
GSFC NA 7.37 N 08/20/96 0.20 106.74 68.06 63.77 0.00 - - C
- ------
UFRM 10.03 7.87 N 08/20/96 NA 78.46 66.48 84.73 3.91 480,008 187.88 SELECTED
--------
SOPN 5.68 5.83 N 08/20/96 0.03 92.50 67.30 72.76 0.17 782 0.31 G
- ------
CFFC 9.68 9.96 N 08/20/96 0.49 129.56 89.73 69.26 15.74 11,166 7.03 G
- ------
MERI 13.70 12.97 N 08/20/96 0.19 54.12 49.28 91.06 0.00 16,244 7.11 F
- ------ -------
JXVL NA 7.34 N 08/20/96 0.82 89.41 71.60 80.09 1.84 42,823 19.67 C
- ------
FBHC 9.62 9.12 N 08/20/96 1.21 50.22 40.39 80.43 8.80 241,959 94.98 F
- ------ ------
PCCI 19.82 13.03 N 08/20/96 2.76 68.49 62.44 91.16 0.00 - - B,E
- ------ --------
RVSB 12.07 10.75 N 08/20/96 0.22 85.77 63.85 74.44 13.57 101,645 47.53 A
- ------
Maximum 29.45 17.01 5.06 181.76 89.73 92.49 40.06 480,008 187.88
Minimum 1.63 (3.67) - 31.2A 20.95 44.73 - - -
Average 9.07 7.83 0.74 91.90 67.81 75.60 9.53 38,178 16.91
Median 7.55 7.36 0.41 90.34 69.21 77.08 7.35 12,994 5.68
</TABLE>
SOURCE: SNL & F&C CALCULATIONS 7
<PAGE>
FERGUSON & CO., LLP EXHIBIT V1.2-COMPARATIVES SELECTED
- -------------------
<TABLE>
<CAPTION>
Deposit
Insurance
Agency
Ticker Short Name City State Region (BIF/SAIF) Exchange
<S> <C> <C> <C> <C> <C> <C>
CAPS Capital Savings Bancorp, Inc Jefferson City MO MW SAIF NASDAQ
EQSB Equitable Federal Savings Bank Wheaton MD MA SAIF NASDAQ
FCBF FCB Financial Corp. Neenah WI MW SAIF NASDAQ
FFED Fidelity Federal Bancorp Evansville IN MW SAIF NASDAQ
FFHS First Franklin Corporation Cincinnati OH MW SAIF NASDAQ
GFCO Glenway Financial Corp. Cincinnati OH MW SAIF NASDAQ
MWFD Midwest Federal Financial Baraboo WI MW SAIF NASDAQ
NFSL Newnan Savings Bank, FSB Newnan GA SE SAIF NASDAQ
OSBF OSB Financial Corp. Oshkosh WI MW SAIF NASDAQ
PLE Pinnacle Bank Jasper AL SE SAIF NASDAQ
SJSB SJS Bancorp St. Joseph MI MW SAIF NASDAQ
UFRM United Federal Savings Bank Rocky Mount NC SE SAIF NASDAQ
Maximum
Minimum
Average
Median
</TABLE>
SOURCE: SNL & F & C CALCULATIONS
8
<PAGE>
FERGUSON & CO., LLP EXHIBIT V1.2-COMPARATIVER SELECTED
- -------------------
<TABLE>
<CAPTION>
Current Current Price/ Price/ Current Current Current Total
Stock Market LTM Core Price/ Price/T Price/ Dividend Assets
Price Value ) Core EPS EPS Bk Value Bk Value Assets Yield ($000)
Ticker IPO Date ($) ($M) (x) (x) (%) (%) (%) (%) MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CAPS 12/29/93 19.500 19.25 10.77 10.60 95.87 95.87 10.00 1.85 202,554
EQSB 09/10/93 24.500 14.70 7.83 7.21 103.64 103.64 5.49 - 267,776
FCBF 09/24/93 17.000 41.81 15.60 13.71 89.62 89.62 15.77 4.24 265,172
FFED 08/31/87 10.250 25.57 10.25 21.35 178.88 178.88 9.75 7.81 262,216
FFHS 01/26/88 14.250 16.61 13.57 13.19 81.85 82.70 7.67 2.25 216,508
GFCO 11/30/90 19.750 22.62 14.85 13.34 85.42 87.51 8.26 3.28 273,890
MWFD 07/08/92 15.500 25.21 14.90 13.36 149.90 156.72 13.51 1.94 187,601
NFSL 03/01/86 22.000 32.08 11.96 13.10 171.07 172.14 19.81 2.00 160,656
OSBF 07/01/92 22.875 25.41 28.24 14.30 80.94 80.94 10.17 2.80 250,003
PLE 12/17/86 17.250 15.35 11.35 12.68 100.82 104.55 8.26 4.17 185,793
SJSB 02/16/95 20.000 19.65 22.22 27.78 111.73 111.73 13.04 2.20 150,752
UFRM 07/01/80 7.750 23.75 13.84 19.38 115.16 115.16 9.30 2.58 255,485
Maximum 24.500 41.81 28.24 27.78 178.88 178.88 19.81 7.81 273,890
Minimum 7.750 14.70 7.83 7.21 80.94 80.94 5.49 - 150,752
Average 17.552 23.50 14.62 15.00 113.74 114.96 10.92 2.92 223,201
Median 18.375 23.19 13.71 13.35 102.23 104.10 9.88 2.41 233,256
</TABLE>
SOURCE: SNL & F & C CALCULATIONS
9
<PAGE>
FERGUSON & CO., LLP EXHIBIT V1.2-COMPARATIVES SELECTED
- -------------------
<TABLE>
<CAPTION>
Tangible ROAA ROAA ROACE ROACE
Equity/ Equity/ Core Core Before Before Before Before
Assets T Assets EPS EPS Extra Extra Extra Extra Merger Current
(%) (%) ($) ($) (%) (%) (%) (%) Target? Pricing
Ticker MRQ MRQ LTM MRQ LTM MRQ LTM MRQ (Y/N) Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CAPS 10.43 10.43 1.81 0.46 0.95 0.92 8.96 8.68 N 08/20/96
EQSB 5.30 5.30 3.13 0.85 0.78 0.81 14.98 15.35 N 08/20/96
FCBF 17.59 17.59 1.09 0.31 1.09 1.16 5.71 6.45 N 08/20/96
FFED 5.45 5.45 1.00 0.12 1.18 0.89 23.76 17.01 N 08/20/96
FFHS 9.37 9.28 1.05 0.27 0.62 0.61 6.56 6.46 N 08/20/96
GFCO 9.67 9.46 1.33 0.37 0.56 0.53 5.82 5.53 N 08/20/96
MWFD 9.01 8.65 1.04 0.29 1.28 1.28 13.41 13.81 N 08/20/96
NFSL 11.58 11.51 1.84 0.42 1.89 1.87 17.69 16.31 N 08/20/96
OSBF 12.56 12.56 0.81 0.40 0.21 0.73 1.63 5.77 N 08/20/96
PLE 8.19 7.93 1.52 0.34 0.79 0.75 10.34 9.69 N 08/20/96
SJSB 11.67 11.67 0.90 0.18 0.63 0.46 5.00 3.84 N 08/20/96
UFRM 8.08 8.08 0.56 0.10 0.79 0.64 10.03 7.87 N 08/20/96
Maximum 17.59 17.591 3.13 0.85 1.89 1.87 23.76 17.01
Minimum 5.30 5.30 0.56 0.10 0.21 0.46 1.63 3.84
Average 9.91 9.83 1.34 0.34 0.90 0.89 10.32 9.73
Median 9.52 9.37 1.07 0.33 0.79 0.78 9.50 8.28
</TABLE>
SOURCE: SNL & F & C CALCULATIONS
10
<PAGE>
FERGUSON & CO.,LLP EXHIBIT V1.2-COMPARATIVES SELECTED
- ------------------
<TABLE>
<CAPTION>
Loans Loans Loans
NPAs/ Loans/ Loans/ Deposit Borrowings/ Serviced Serviced/ Serviced/
Assets Deposits Assets Assets Assets For Others Assets Assets
(%) (%) (%) (%) (%) ($000) (%) Rank
Ticker MRQ MRQ MRQ MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CAPS 0.18 104.64 77.82 74.37 13.82 48,637 24.01 11
EQSB 0.77 89.65 70.02 78.10 15.81 111,512 41.64 5
FCBF 0.12 144.18 83.42 57.86 21.59 121,510 45.82 4
FFED 0.15 119.55 82.84 69.29 24.02 58,854 22.44 12
FFHS 0.43 77.85 67.72 86.99 3.34 56,988 26.32 9
GFCO 0.51 97.14 78.61 80.93 7.14 71,299 26.03 10
MWFD 0.19 90.34 72.82 80.61 9.20 51,612 27.51 8
NFSL 0.67 101.67 80.73 79.40 8.12 128,873 80.22 2
OSBF 0.22 105.38 68.04 64.57 20.89 102,296 40.92 6
PLE 0.22 73.16 64.66 88.38 2.02 99,754 53.69 3
SJSB 0.29 85.71 62.16 72.52 14.63 48,928 32.46 7
UFRM NA 78.46 66.48 84.73 3.91 480,000 187.88 1
Maximum 0.77 144.18 83.42 88.38 24.02 480,008 187.88
Minimum 0.12 73.16 62.16 57.86 2.02 48,637 22.44
Average 0.34 97.31 72.94 76.48 12.04 115,023 50.75
Median 0.22 93.74 71.42 78.75 11.51 85,527 36.69
</TABLE>
SOURCE: SNL & F & C CALCULATIONS
11
<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 5.70%, which was the approximate rate on the one-year treasury
bill on September 30, 1996. This rate was selected because it is considered
more representative of the rate the Bank is likely to earn.
2. Home Savings' 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. Home Savings' RP will acquire 4% of the stock through open market
purchases at $15 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 38.5%.
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 $1.35, $1.20,
$1.08, and $.99, and price to earnings ratios of 11.12, 12.54, 13.85, and
15.23, at the minimum, midpoint, maximum, and supermaxi-mum 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 OCTOBER 18, 1996
<TABLE>
<CAPTION>
HOME SAVINGS BANK, SSB, WASHINGTON, NC
- ---------------------------------------------------
<S> <C> <C>
1. Conversion Proceeds
Pro Forma Market Value $ 26,775,000
Less: Estimated Expenses (979,000)
--------------
Net Conversion Proceeds $ 25,796,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 25,796,000
Less: ESOP Contributions (2,142,000)
RP Contributions (1,071,000)
--------------
Net Conversion Proceeds after ESOP & RP $ 22,583,000
Estimated Incremental Rate of Return(1) 3.51%
--------------
Estimated Additional Income $ 791,647
Less: ESOP Expense (131,733)
RP Expense (131,733)
--------------
$ 528,181
==============
</TABLE>
3. Pro Forma Calculations
<TABLE>
<CAPTION>
Before Conversion After
Period Conversion Results Conversion
------------------------------------------
<S> <C> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
September 30, 1996 $ 1,707,000 $ 528,181 $ 2,235,181
b. Pro Forma Net Worth
September 30, 1996 $ 18,347,000 $ 22,583,000 $ 40,930,000
c. Pro Forma Net Assets
September 30, 1996 $ 194,139,000 $ 22,583,000 $ 216,722,000
</TABLE>
(1) Assumes Proceeds can be reinvested at 5.70 percent and earnings taxed at a
rate of 38.5 percent.
2
<PAGE>
FERGUSON & CO., LLP
- -------------------
EXHIBIT VII
PRO FORMA EFFECT OF CONVERSION PROCEEDS
AT THE MIDPOINT OF THE CONVERSION VALUATION RANGE
VALUATION DATE AS OF OCTOBER 18, 1996
<TABLE>
<CAPTION>
Home Savings Bank, SSB, Washington, NC
- ---------------------------------------------------
<S> <C> <C>
1. Conversion Proceeds
Pro Forma Market Valuation $ 31,500,000
Less: Estimated Expenses (1,060,000)
--------------
Net Conversion Proceeds $ 30,440,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 30,440,000
Less: ESOP Contributions (2,520,000)
RP Contributions (1,260,000)
--------------
Net Conversion Proceeds after ESOP & RP $ 26,660,000
Estimated Incremental Rate of Return(1) 3.51%
--------------
Estimated Additional Income $ 934,566
Less: ESOP Expense (154,980)
RP Expense (154,980)
--------------
$ 624,606
==============
</TABLE>
3. Pro Forma Calculations
<TABLE>
<CAPTION>
Before Conversion After
Period Conversion Results Conversion
----------------------------------------------
<S> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
September 30, 1996 $ 1,707,000 $ 624,606 $ 2,331,606
b. Pro Forma Net Worth
September 30, 1996 $ 18,347,000 $ 26,660,000 $ 45,007,000
c. Pro Forma Net Assets
September 30, 1996 $ 194,139,000 $ 26,660,000 $ 220,799,000
</TABLE>
(1) Assumes Proceeds can be reinvested at 5.70 percent and earnings taxed at a
rate of 38.5 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 OCTOBER 18, 1996
<TABLE>
<CAPTION>
HOME SAVINGS BANK, SSB, WASHINGTON, NC
- ---------------------------------------------------
<S> <C> <C>
1. Conversion Proceeds
Pro Forma Market Valuation $ 36,225,000
Less: Estimated Expenses (1,140,000)
--------------
Net Conversion Proceeds $ 35,085,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 35,085,000
Less: ESOP Contributions (2,898,000)
RP Contributions (1,449,000)
--------------
Net Conversion Proceeds after ESOP & RP $ 30,738,000
Estimated Incremental Rate of Return(1) 3.51%
--------------
Estimated Additional Income $ 1,077,521
Less: ESOP Expense (178,227)
RP Expense (178,227)
--------------
$ 721,067
==============
</TABLE>
3. Pro Forma Calculations
<TABLE>
<CAPTION>
Before Conversion After
Period Conversion Results Conversion
------------------------------------------------
<S> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
September 30, 1996 $ 1,700,000 $ 721,067 $ 2,428,067
b. Pro Forma Net Worth
September 30, 1996 $ 18,347,000 $ 30,738,000 $ 49,085,000
c. Pro Forma Net Assets
September 30, 1996 $ 194,139,000 $ 30,738,000 $ 224,877,000
</TABLE>
(1) Assumes Proceeds can be reinvested at 5.70 percent and earnings taxed at a
rate of 38.5 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 OCTOBER 18, 1996
<TABLE>
<CAPTION>
HOME SAVINGS BANK, SSB, WASHINGTON, NC
- ---------------------------------------------------
<S> <C> <C>
1. Conversion Proceeds
Pro Forma Market Valuation $ 41,658,750
Less: Estimated Expenses $ (1,233,000)
--------------
Net Conversion Proceeds $ 40,425,750
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 40,425,750
Less: ESOP Contributions $ (3,332,700)
RP Contributions $ (1,666,350)
--------------
Net Conversion Proceeds after ESOP & RP $ 35,426,700
Estimated Incremental Rate of Return(1) 3.51%
--------------
Estimated Additional Income $ 1,241,883
Less: ESOP Expense $ (204,961)
RP Expense $ (204,961)
--------------
$ 831,961
==============
</TABLE>
3. Pro Forma Calculations
<TABLE>
<CAPTION>
Before Conversion After
Period Conversion Results Conversion
------------------------------------------------
<S> <C> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
September 30, 1996 $ 1,707,000 $ 831,961 $ 2,538,961
b. Pro Forma Net Worth
September 30, 1996 $ 18,347,000 $ 35,426,700 $ 53,773,700
c. Pro Forma Net Assets
September 30, 1996 $ 194,139,000 $ 35,426,700 $ 229,565,700
</TABLE>
(1) Assumes Proceeds can be reinvested at 5.70 percent and earnings taxed at a
rate of 38.5 percent.
5
<PAGE>
FERGUSON & CO., LLP
<TABLE>
<CAPTION>
Exhibit VII
PRO FORMA ANALYSIS SHEET
Name of Association: Home Savings Bank, SSB, Washington, NC
Date of Market Prices: October 18, 1996 NC 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
At Minimum of Range 11.98
At Midpoint of Range 13.51 15.80 12.90 15.70 15.40 14.60 14.10
At Maximum of Range 14.92
At Supermax of Range 16.41
Price-Book Ratio P/B
- ----------------
At Minimum of Range 65.42%
At Midpoint of Range 69.99% 125.30 108.40 104.60 105.10 121.30 115.30
At Maximum of Range 73.80%
At Supermax of Range 77.47%
Price-Asset Ratio P/A
- -----------------
At Minimum of Range 12.35%
At Midpoint of Range 14.27% 12.20 10.50 16.50 15.50 12.10 10.90
At Maximum of Range 16.11%
At Supermax of Range 18.15%
Twelve Mo. Earnings Rate Y $ 1,707,000
Period Ended September 30, 1996
Book Value B $ 18,347,000
As of September 30, 1996
Total Assets A $ 194,139,000
As of September 30, 1996
Return on Money (1) R 3.51%
Conversion Expense X $ 1,060,000
Underwriting Commission C 0.00%
Percentage Underwritten S 0.00%
Estimated Dividend
Dollar Amount DA $ 840,000
Yield DY 2.67%
ESOP Contribution P $ 2,520,000
RP Contributions I $ 1,260,000
ESOP Annual Expense E $ 154,980
RP Annual Contributions M $ 154,980
Cost of ESOP Borrowings F 0.00%
</TABLE>
(1) Assumes Proceeds can be reinvested at 5.70 percent and earnings taxed at a
rate of 38.5 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) $ 31,500,000
----------------
1-P/A(1-(CxS))
2. V= P/B(B-X-P-I) $ 31,500,000
----------------
1-P/B(1-(CxX))
3. V= P/E(Y-R(X+P+I)-(E+M) $ 31,500,000
------------------------
1-P/E(R(1-(CxX))
Value
Estimated Value Per Share Total Shares Date
- ------------------ ----------- -------------- --------------------
$31,500,000 $15.00 2,100,000 October 18, 1996
Range of Value
$31.5 million x 0.85 = $26.775 million or 1,785,000 shares at $15.00 per share
$31.5 million x 1.15 = $36.225 million or 2,4155,000 shares at $15.00 per share
7
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EXHIBIT 99.5
JULY 17, 1996
BOARD OF DIRECTORS
HOME SAVINGS BANK, SSB
1311 CAROLINA AVENUE
WASHINGTON, NORTH CAROLINA 27889
DEAR DIRECTORS:
This letter sets forth the agreement between Home Savings Bank, SSB ("Home
Savings"), Washington, North Carolina, and Ferguson & Co., LLP ("F&C"), Irving,
Texas, under the terms of which Home Savings 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 Home Savings or its
holding company; and (2) assist Home Savings 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 Home
Savings at the above address on or before a mutually agreed upon date and to
meet and consult with the Board of Directors of Home Savings with regard to both
the written valuation and the business plan. 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 Home Savings 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 $35,000. In addition, Home Savings shall
reimburse F&C for all out-of-pocket expenses. Payment under this agreement
shall be made as follows:
1. Execution of this engagement letter--$7,500
2. Delivery of the business plan--$10,000
3. Delivery of the appraisal report--$12,500
4. Approval of the appraisal--$2,500
5. Approval of the final value--$2,500
6. Out-of-pocket expenses are to be paid monthly
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BOARD OF DIRECTORS
JULY 17, 1996
PAGE 2
If, during the course of Home Savings' 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 Home
Savings' 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 Home Savings' 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, Home Savings hereby
agrees as follows:
1. Home Savings 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. Home Savings 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. Home Savings 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 or 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
Home Savings 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.
4. F&C shall not be entitled to indemnification pursuant to Paragraph 3
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 Home
Savings 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.
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BOARD OF DIRECTORS
JULY 17, 1996
PAGE 3
5 F&C additionally shall not be entitled to indemnification pursuant to
Paragraph 3 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.
Home Savings and F&C are not affiliated, and neither Home Savings 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.
To bind this proposal, please acknowledge your consent 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 is for
your conversion counsel
Yours very truly,
/s/ Robin L. Fussell
--------------------------------
Robin L. Fussell
Principal
Agreed to ($7,500 check enclosed):
Home Savings Bank
Washington, North Carolina
By: /s/ Thomas A. Vann
-------------------------
