<PAGE>
As filed with the Securities and Exchange Commission on December 23, 1996
Registration No. 333-________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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CUMBERLAND MOUNTAIN BANCSHARES, INC.
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(Name of Small Business Issuer in Its Charter)
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Tennessee 6035 Requested
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<S> <C> <C>
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification number)
</TABLE>
1431 Cumberland Avenue, Middlesboro, Kentucky 40961
(606) 248-4584
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(Address and telephone number of principal executive offices and principal
place of business)
Mr. James J. Shoffner
President
Cumberland Mountain Bancshares, Inc.
1431 Cumberland Avenue
Middlesboro, Kentucky 40965
(606) 248-4584
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(Name, address, and telephone number of agent for service)
Please send copies of all communications to:
Gary R. Bronstein, Esquire
James C. Stewart, Esquire
Joan S. Guilfoyle, 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.
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. [_]
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Dollar Maximum Maximum
Title of Each Class Amount Offering Aggregate Amount of
of Securities to be Price Per Offering Registration
to be Registered Registered Unit Price (1) Fee
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<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share.......... $7,035,780(2) $10.00 $7,035,780 $2,132.05
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes 23,994 shares which have been reserved for issuance pursuant
to the exercise of stock options issued pursuant to the Middlesboro Federal
Bank, FSB 1993 Stock Option Plan.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
CUMBERLAND MOUNTAIN BANCSHARES, INC.
(Proposed Holding Company for Middlesboro Federal Bank, Federal Savings Bank)
Up to 590,943 Shares of Common Stock
$10.00 Per Share
Cumberland Mountain Bancshares, Inc. (the "Company"), a Tennessee
corporation, is offering up to 590,943 shares (which may be increased to 679,584
shares under certain circumstances described below) of its common stock, par
value $0.01 per share (the "Common Stock"), in connection with (i) the Exchange
described herein to be effected in connection with the reorganization of
Middlesboro Federal Bank, Federal Savings Bank ("Middlesboro Federal" or the
"Bank") as a subsidiary of the Company and (ii) the Offerings described herein.
The Exchange. Pursuant to a Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan") adopted by the Company, the Bank and Cumberland
Mountain Bancshares, M.H.C. (the "Mutual Holding Company"), the Bank will become
a subsidiary of the Company, upon consummation of the transactions described
herein (collectively, the "Conversion and Reorganization"). As a result of the
Conversion and Reorganization, each share of common stock, par value $1.00 per
share, of the Bank (the "Bank Common Stock") held by the Bank's public
stockholders (the "Public Bank Shares") will be converted into shares of Common
Stock (the "Exchange Shares").
For a discussion of certain factors that should be considered by each
prospective investor, see "Risk Factors" on page 1.
(continued on following page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, OR ANY OTHER FEDERAL
AGENCY OR STATE SECURITIES COMMISSION, NOR HAS SUCH COMMISSION, OFFICE OR OTHER
AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
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<CAPTION>
===================================================================================================================================
Estimated Fees,
Commissions
and Conversion and Estimated
Subscription Reorganization Net
Price (1) Expenses (2) Proceeds (3)
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<S> <C> <C> C>
Minimum Per Share..................................... $10.00 $1.24 $8.76
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Midpoint Per Share.................................... $10.00 $1.05 $8.95
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Maximum Per Share..................................... $10.00 $0.92 $9.08
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Maximum Per Share, as adjusted........................ $10.00 $0.80 $9.20
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Total Minimum (1)..................................... $2,826,250 $350,000 $2,476,250
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Total Midpoint (1).................................... $3,325,000 $350,000 $2,975,000
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Total Maximum (1)..................................... $3,823,750 $350,000 $3,473,750
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Total Maximum, as adjusted (1)........................ $4,397,310 $350,000 $4,047,310
===================================================================================================================================
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by RP
Financial, LC. ("RP Financial"), dated December 13, 1996 (the "Appraisal")
which states that the estimated pro forma market value of the Bank and the
Mutual Holding Company, on a combined basis, was $5.1 million. The
Appraisal was multiplied by the Mutual Holding Company's percentage
interest in the Bank (i.e., 64.71%) to determine a midpoint ($3,325,000)
and the minimum and maximum range were at 15% below and above the
midpoint, respectively, resulting is a range of $2,826,250 to $3,823,750
(the "Valuation Price Range"). See "The Conversion and Reorganization --
Stock Pricing, Exchange Ratio and the Number of Shares to be Issued."
Based upon the minimum, midpoint, maximum and 15% above the maximum of the
Valuation Price Range, respectively.
(2) Consists of the estimated costs to the Primary Parties to be incurred in
connection with the Conversion and Reorganization, and marketing fees to
be paid to Trident Securities in connection with the Offerings, which fees
are estimated to be $75,000. See "The Conversion and Reorganization --
Marketing Arrangements." The actual fees and expenses may vary from the
estimates. Such fees paid to Trident Securities may be deemed to be
underwriting fees. See "Pro Forma Data."
(3) Actual net proceeds may vary substantially from estimated amounts
depending on the number of shares sold in the Offerings and other factors.
Does not give effect to purchases of shares of Conversion Stock by the
ESOP, which initially be deducted from the Company's stockholders' equity.
For the effect of such purchases, see "Capitalization" and "Pro Forma
Data."
TRIDENT SECURITIES, INC.
The date of this Prospectus is ____________, 1997.
<PAGE>
The Offerings. In addition to the Exchange, nontransferable
subscription rights to subscribe for up to 382,375 shares (which may be
increased to 439,731 shares under certain circumstances described below) of
Common Stock (the "Conversion Stock") have been granted to certain depositors of
the Bank as of specified record dates, the Employee Stock Ownership Plan
("ESOP"), directors, officers and employees of the Bank, and the holders of
Public Bank shares, subject to the limitations, described herein (the
"Subscription Offering"). 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"). Natural persons ordering Conversion Stock in the Community
Offering will be given a preference if they are residents of the counties of
Bell and Harlan in the Commonwealth of Kentucky (the "Local Community"). The
Company, the Mutual Holding Company and the Bank (the "Primary Parties") may, in
their absolute discretion, reject orders in the Community Offering in whole or
in part.
It is anticipated that shares of Conversion Stock not subscribed for in
the Subscription Offering and Community Offering, if any, will be offered by the
Company to members of the general public to whom a copy of this Prospectus is
delivered by or on behalf of the Company in a syndicated community offering (the
"Syndicated Community Offering") (the Subscription Offering, any Community
Offering and any Syndicated Community Offering are referred to collectively as
the "Offerings"). The Primary Parties have engaged Trident Securities, Inc.
("Trident Securities") to consult with and advise them in the Conversion and
Reorganization, and Trident Securities has agreed to use its best efforts to
solicit subscription and purchase orders for shares of Conversion Stock in the
Offerings. Trident Securities is not obligated to take or purchase any shares of
Conversion Stock in the Offerings. See "The Conversion and Reorganization --
Marketing Arrangements."
The Subscription Offering will terminate at 12:00 p.m., Eastern Time,
on _____________, 1997 (the "Expiration Date"), unless extended for up to 45
days or such additional periods by the Primary Parties, with approval of the
Office of Thrift Supervision ("OTS"), if necessary. Such extensions may not be
extended beyond ______________, 1999. 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. The Community Offering and/or any
Syndicated Community Offering must be completed within 45 days after the close
of the Subscription Offering, or _____________, 1997, unless extended by the
Primary Parties with the approval of the OTS, if necessary. Orders submitted are
irrevocable until the completion of the Conversion and Reorganization; provided,
however, that if the Conversion and Reorganization is not completed within the
45-day period referred to above, unless such period has been extended with the
consent of the OTS, if necessary, all subscribers will have their funds returned
promptly with interest, and all withdrawal authorization will be cancelled. The
Offerings may not be extended beyond __________, 1999. See "The Conversion and
Reorganization -- The Offerings -- Subscription Offering."
Purchase Limitation. The Plan sets forth various purchase limitations
which are applicable in the Offerings. Generally, no person, together with
associates or persons acting in concert with such person, may purchase more than
a number of shares of Conversion Stock equal to 5.0% of the shares to be sold in
the Offerings. The Primary Parties reserve the right to increase the purchase
limitations to allow a limited number of purchasers to purchase in excess of
5.0% of the shares of Common Stock to be sold in the Offerings, provided that,
the number of shares allocated to purchasers in excess of 5.0% of the shares may
not, in the aggregate exceed 10.0% of the shares sold in the Offerings. The
minimum purchase is 25 shares. See "The Conversion and Reorganization -- The
Offerings -- Subscription Offering," " -- Community Offering" and " --
Limitation on Conversion Stock Purchases."
For additional information and how to subscribe for Common Stock,
please call the stock information center at (606) ___-____.
<PAGE>
[MAP OF BANK'S MARKET AREA HERE]
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
<PAGE>
SUMMARY
This summary is qualified in its entirety by the more detailed
information regarding the Company, the Bank and the Mutual Holding Company and
the Financial Statements of the Bank appearing elsewhere in this Prospectus.
Cumberland Mountain Bancshares, Inc.
Cumberland Mountain Bancshares, Inc. is a Tennessee corporation
organized in December, 1996 by the Bank for the purpose of holding all of the
capital stock of the Bank and in order to facilitate the Conversion and
Reorganization. Upon completion of the Conversion and Reorganization, the only
significant assets of the Company will be all of the outstanding Bank Common
Stock, the note evidencing the Company's loan to the ESOP and the portion of the
net proceeds from the Offerings retained by the Company. The business of the
Company will initially consist of holding the stock of the Bank. The Company has
no present plans to engage in any other activity but may in the future engage in
any activity permitted under applicable Tennessee and federal law. See "Business
of the Company" and "Regulation -- Regulation of the Company."
Middlesboro Federal Bank, Federal Savings Bank
Middlesboro Federal Bank, Federal Savings Bank is a community-oriented
financial institution which has served Middlesboro, Kentucky and its surrounding
communities in the Commonwealth of Kentucky and the State of Tennessee. The Bank
was organized in 1994 as a subsidiary of the Mutual Holding Company. Prior to
that, the Bank in mutual form (the "Mutual Bank") had operated since 1915.
Originally chartered as a Kentucky building and loan association, the Bank
converted to a federal charter and obtained federal deposit insurance in 1937.
In 1994, the Bank reorganized as a subsidiary of the Mutual Holding Company and
in the process sold 180,000 shares of Bank Common Stock to the public with the
Mutual Holding Company retaining 330,000 shares (the "MHC Reorganization"). In
connection with the MHC Reorganization, the Mutual Bank transferred
substantially all of its assets and liabilities to the Bank in exchange for
330,000 shares of Bank Common Stock and converted its charter to a federal
mutual holding company known as Cumberland Mountain Bancshares, M.H.C.
As a consequence of improvements in the local economy and the
implementation of more pro-active marketing strategies, management has been able
to substantially increase its loan originations in recent years. In addition,
the Bank has been able to increase the yields on its loan portfolio through the
origination of higher-yielding consumer and other non-mortgage loans. Management
believes that the Bank's market area will continue to offer lending and
investment opportunities and is undertaking the Conversion and Reorganization in
order to provide the capital necessary for the Bank's continued growth.
Financial highlights of the Bank include:
Recent Loan Growth. Management has been able to substantially increase
its loan originations through the implementation of a more focused marketing
strategy. Total net loans at September 30, 1996 were $69.4 million, an increase
of $9.5 million, or 15.86%, and $24.5 million, or 54.57%, respectively, from net
loans outstanding of $59.9 million and $44.9 million at June 30, 1996 and 1995,
respectively. In the past several years, the Bank has hired experienced loan
officers who receive incentive compensation based on their originations. By
emphasizing a more customer-oriented approach, the Bank has been able to develop
business relationships with local real estate agents, developers and other
parties that have been able to generate new lending business for the Bank.
Portfolio Diversification. Taking advantage of the lending authorities
available to federal savings banks and the lending opportunities in its market
area, the Bank has sought to diversify its loan portfolio through the
origination of consumer and commercial and multi-family residential real estate
loans. Multi-family residential and commercial real estate loans, as a
percentage of total loans, amounted to 18.24% at September 30, 1996, as compared
to 17.85% and 12.32% at June 30, 1996 and 1995, respectively. In addition to the
higher yields available in such
(i)
<PAGE>
lending, these loans also feature adjustable interest rates which help protect
the Bank from changes in market rates. Through disciplined underwriting and
aggressively dealing with delinquencies, the Bank has still been able to
maintain low levels of nonperforming assets.
Asset Quality. The Bank has traditionally had low levels of
nonperforming assets. At September 30, 1996, the Bank's non-performing assets
(consisting of nonaccrual loans, accruing loans 90 days or more delinquent and
repossessed assets) were 0.54% of total assets. Although the Bank has recently
moved into more diversified forms of lending including loans that carry more
risk than owner-occupied, single-family mortgages, the Bank has continued to
maintain low levels of nonperforming assets.
Earnings. The Bank has been profitable over the past several fiscal
years, earning $146,000 in the fiscal year ended June 30, 1996 and $293,000 in
fiscal year 1995. Although the Savings Association Insurance Fund ("SAIF")
special assessment caused the Bank to report a loss in the quarter ended
September 30, 1996, its net interest income grew by 38% and its fee income grew
by 110% during the three months ended September 30, 1996 as compared to the
three months ended September 30, 1995. In order to enhance earnings, management
has worked to increase the percentage of its assets invested in loans and to
develop new sources of fee income.
Capital Strength. The Bank's ratio of average equity to average assets
was 5.24% at September 30, 1996. Its tangible, core and risk-based capital
ratios as calculated under OTS regulations were 5.56%, 5.56% and 9.44%,
respectively, at that date and the Bank meets all current regulatory capital
requirements. With the additional capital to be raised in the Conversion and
Reorganization, the Bank will be positioned for continued asset growth.
Cumberland Mountain Bancshares, M.H.C.
Cumberland Mountain Bancshares, M.H.C. is a federally chartered mutual
holding company formed in 1994 in connection with the MHC Reorganization. The
Mutual Holding Company's primary asset is 330,000 shares of Bank Common Stock
which represented 64.71% of the shares of Bank Common Stock outstanding as of
the date of this Prospectus. The Mutual Holding Company's only other assets at
September 30, 1996 were all of the issued and outstanding shares of Home
Mortgage Loan Corporation ("Home"), which was formerly a wholly-owned subsidiary
of the Bank, and a deposit account. As part of the Conversion and
Reorganization, the Mutual Holding Company will convert to an interim federal
savings and loan association and simultaneously merge with and into the Bank,
with the Bank being the surviving entity. Upon consummation of the Conversion
and Reorganization, the stock of Home and the deposit account will become assets
of the Bank.
Purposes of the Conversion and Reorganization
In their decision to pursue the Conversion and Reorganization, the
Mutual Holding Company and the Bank considered the various advantages of a
holding company form of organization including: (1) a stock holding company's
ability to diversify the Company's and the Bank's business activities; (2) the
larger capital base of a stock holding company; (3) the enhancement of the
Company's future access to capital markets; (4) the increase in the number of
outstanding shares of publicly traded stock (which may increase the liquidity of
the Common Stock); and (5) the greater flexibility in structuring acquisitions.
In addition, the Mutual Holding Company and the Bank considered various
regulatory uncertainties associated with the mutual holding company structure,
as well as the general uncertainty regarding the future of the thrift charter.
Description of the Conversion and Reorganization
On December 12, 1996, the Boards of Directors of the Bank and the
Mutual Holding Company adopted the Plan and in December, 1996 the Bank organized
the Company under Tennessee law as a first-tier wholly owned subsidiary.
Pursuant to the Plan: (i) the Mutual Holding Company will convert to an interim
federal stock savings bank and simultaneously will merge with and into the Bank;
(ii) the Mutual Holding Company will cease to exist
(ii)
<PAGE>
and the 330,000 shares or 64.71% of the outstanding Bank Common Stock held by
the Mutual Holding Company will be cancelled; and (iii) a second interim savings
association ("Interim") formed by the Company solely for such purpose will then
merge with and into the Bank. As a result of the merger of Interim with and into
the Bank, the Bank will become a wholly owned subsidiary of the Company
operating under the name "Middlesboro Federal Bank, Federal Savings Bank" and
the outstanding Public Bank Shares, which amounted to 180,000 shares or 35.29%
of the outstanding Bank Common Stock at September 30, 1996, will be converted
into the Exchange Shares pursuant to a ratio (the "Exchange Ratio"), which will
result in the holders of such shares (the "Public Stockholders") owning in the
aggregate approximately the same percentage of the Common Stock to be
outstanding upon the completion of the Conversion and Reorganization (i.e., the
Conversion Stock and the Exchange Shares) as the percentage of Bank Common Stock
owned by them in the aggregate immediately prior to consummation of the
Conversion and Reorganization, before giving effect to: (i) the exercise of
dissenters' rights of appraisal by the holders of any shares of Bank Common
Stock; (ii) the payment of cash in lieu of issuing fractional Exchange Shares;
and (iii) any shares of Conversion Stock purchased by the Bank's stockholders in
the Offerings or the ESOP thereafter.
The following diagram outline the current organizational structure of
the parties' and their respective ownership interests:
Cumberland Mountain Public Stockholders
Bancshares, M.H.C.
64.71% 35.29%
Middlesboro Federal Bank,
Federal Savings Bank
100%
Cumberland Mountain
Bancshares, Inc.
100%
Interim
(to-be-formed)
(iii)
<PAGE>
The following diagram reflects the results of the Conversion and
Reorganization, including: (i) the merger of the Mutual Holding Company
(following its conversion to an interim federal stock savings association) with
and into the Bank; (ii) the merger of Interim with and into the Bank, pursuant
to which the Public Bank Shares will be converted into Exchange Shares; and
(iii) the Offerings of Conversion Stock. The diagram assumes that there are no
shares for which holders properly perfect dissenters' rights of appraisal, there
are no fractional shares and does not give effect to purchases of Conversion
Stock by holders of Public Bank Shares.
Purchasers of Stock Holders of Exchange Shares
in the Conversion (Former Public Stockholders)
64.71% 35.29%
Cumberland Mountain
Banchares, Inc.
100%
Middlesboro Federal Bank
Federal Savings Bank
In addition to shares of Common Stock to be issued pursuant to the
Exchange, pursuant to the Plan, the Company is offering shares of Conversion
Stock in the Offerings as part of the Conversion and Reorganization. See " --
The Offerings" below and "The Conversion and Reorganization -- The Offerings."
Conditions to Closing of the Offerings
Pursuant to OTS regulations, consummation of the Conversion and
Reorganization is conditioned upon the approval of the Plan by the OTS, as well
as: (i) the approval of the holders of at least a majority of the total number
of votes eligible to be cast by the members of the Mutual Holding Company
("Members") as of the close of business on __________, 1997 (the "Voting Record
Date") at a special meeting of Members called for the purpose of submitting the
Plan for approval (the "Members' Meeting"); and (ii) the approval of the holders
of at least two-thirds of the shares of the outstanding Bank Common Stock,
including the mutual holding Company (the "Stockholders"), eligible to be voted
at the special meeting of the Bank's Stockholders as of the close of business on
__________, 1997 (the "Stockholder Voting Record Date") at a special meeting of
Stockholders called for the purpose of submitting the Plan for approval (the
"Stockholders' Meeting"). In addition, the Primary Parties have conditioned the
consummation of the Conversion and Reorganization on: (i) the approval of the
Plan by at least a majority of the votes cast, in person or by proxy, by the
Public Stockholders at the Stockholders' Meeting; and (ii) the exercise of
dissenters' rights of appraisal by the holders of less than 10% of the
outstanding shares of Bank Common Stock. The Mutual Holding Company intends to
vote its shares of Bank Common Stock, which amount to 64.71% of the outstanding
shares, in favor of the Plan at the Stockholders' Meeting. In addition, as of
___________, 1997,
(iv)
<PAGE>
directors and executive officers of the Bank as a group (eight persons)
beneficially owned ______ shares or ____% of the outstanding Bank Common Stock,
which shares can also be expected to be voted in favor of the Plan at the
Stockholders' Meeting. Directors and executive officers also hold immediately
exercisable stock options for an additional ________ shares or ____% of the
outstanding Bank Common Stock.
The Exchange
Pursuant to the Plan adopted by the Company, the Bank and the Mutual
Holding Company, the Bank will become a subsidiary of the Company upon
consummation of the Conversion and Reorganization. As a result of the Conversion
and Reorganization, each share of Bank Common Stock held by the Mutual Holding
Company, which currently holds 330,000 shares or 64.71% of the outstanding Bank
Common Stock, will be cancelled, and all Public Bank shares, which amounted to
180,000 shares or 35.29% of the outstanding Bank Common Stock at September 30,
1996, will be converted into shares of Exchange Shares pursuant to the Exchange
Ratio that will result in the Public Stockholders owning in the aggregate
approximately the same percentage of the Company as they owned of the Bank,
before giving effect to: (i) the exercise of dissenters' rights of appraisal by
the holders of any shares of Bank Common Stock; (ii) the payment of cash in lieu
of fractional Exchange Shares; and (iii) any shares of Common Stock purchased by
Public Stockholders in the Offerings described herein or the Company's ESOP
thereafter (the "Exchange"). The final Exchange Ratio will be determined based
on the Public Stockholders' ownership interest and not on the market value of
the Public Bank Shares.
The Offerings
Pursuant to the Plan and in connection with the Conversion and
Reorganization, the Company is offering up to 382,375 shares of Conversion Stock
in the Offerings. Conversion Stock is first being offered in the Subscription
Offering with nontransferable subscription rights being granted, in the
following order of priority, to: (i) depositors of the Bank with account
balances of $50.00 or more as of the close of business on September 30, 1995
("Eligible Account Holders"); (ii) the ESOP; (iii) depositors of the Bank with
account balances of $50.00 or more as of the close of business on December 31,
1996 ("Supplemental Eligible Account Holders"); (iv) depositors of the Bank as
of the close of business on ______________, 1997 (other than Eligible Account
Holders and Supplemental Eligible Account Holder(s)) ("Other Members"); (v)
directors, officers and employees of the Bank; and (vi) Public Stockholders.
Subscription rights will expire if not exercised by 12:00 p.m., Eastern Time, on
________________, 1997, unless extended.
Subject to the prior rights of holders of subscription rights,
Conversion Stock not subscribed for in the Subscription Offering is being
offered in the Community Offering to certain members of the general public to
whom a copy of this Prospectus is delivered, with preference given to natural
persons residing in the Local Community. It is anticipated that shares not
subscribed for in the Subscription Offering and the Community Offering will be
offered to certain members of the general public in a Syndicated Community
Offering. The Primary Parties reserve the absolute right to reject or accept any
orders in the Community Offering or the Syndicated 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.
The Primary Parties have retained Trident Securities as financial
advisor and marketing agent in connection with the Offerings and to assist in
soliciting subscriptions in the Offerings. See "The Conversion and
Reorganization -- The Offerings -- Subscription Offering," " -- Community
Offering," " -- Syndicated Community Offering" and " -- Marketing Arrangements."
Purchase Limitations
No person or entity, together with associates and persons acting in
concert, may, directly or indirectly, subscribe for or purchase in the Offerings
more than 5.0% of the total number of shares of Conversion Stock offered (19,118
shares at the maximum of the Valuation Price Range). In addition, no person or
entity, together with associates and persons acting in concert may subscribe for
a number of shares that, when combined with Exchange
(v)
<PAGE>
Shares received, aggregate more than 5.0% of the total number of shares of
Common Stock to be issued in the Conversion and Reorganization (29,547 shares at
the maximum of the Valuation Price Range). The Primary Parties may in their sole
discretion increase the latter purchase limitation to up to 9.9% of the Common
Stock issued in the Conversion and Reorganization provided that: (i) each
subscriber who has subscribed for the maximum number of shares of Conversion
Stock shall have been offered the opportunity to increase his subscription to
the new purchase limitation and (ii) the aggregate number of shares held by all
stockholders in excess of 5.0% of the total number of shares issued in the
Conversion and Reorganization does not exceed 10% of the number of shares
issued.
Under certain circumstances, certain subscribers may be resolicited in
the event of such an increase. The minimum purchase is 25 shares. See "The
Conversion and Reorganization -- Limitations on Conversion Stock Purchases." In
the event of an oversubscription, shares will be allocated in accordance with
the Plan, as described under "The Conversion and Reorganization -- The Offerings
- -- Subscription Offering" and " -- Community Offering." Because the purchase
limitations contained in the Plan include Exchange Shares to be issued to Public
Stockholders for their Public Bank Shares, certain holders of Public Bank Shares
may be limited in their ability to purchase Conversion Stock in the Offerings.
See "Risk Factors -- Possible Divestiture Requirements for Public Stockholders."
Stock Pricing, Exchange Ratio and Number of Shares to be Issued in the
Conversion and Reorganization
Federal regulations require the aggregate purchase price of the
Conversion Stock to be consistent with RP Financial's pro forma appraisal of the
Bank and the Mutual Holding Company, which was $5.1 million as of December 13,
1996. Because the holders of the Public Bank Shares will continue to hold the
same aggregate percentage ownership interest in the Company as they held in the
Bank (before giving effect to additional purchases in the Offerings, the
exercise of dissenters' rights and fractional shares), the appraisal was
multiplied by the Mutual Holding Company's percentage interest in the Bank
(i.e., 64.71%) to determine the midpoint of the Valuation Price Range, which was
$3,325,000. In accordance with OTS regulations, the minimum and maximum of the
Valuation Price Range were set at 15% below, and above the midpoint,
respectively, resulting in a range of $2,826,250 to $3,823,750. The full text of
the appraisal report of RP Financial describes the procedures followed, the
assumptions made, limitations on the review undertaken and matters considered,
which included the trading market for the Bank Common Stock (see "Market for the
Common Stock") but was not dependent thereon. The appraisal report has been
filed as an exhibit to the Registration Statement and Application for Conversion
of which this Prospectus is a part, and is available in the manner set forth
under "Additional Information." The appraisal of the Conversion Stock is not
intended and should not be construed as a recommendation of any kind as to the
advisability of purchasing such stock. The proposed Exchange Ratio was
determined independently by the Boards of Directors of the Mutual Holding
Company and the Bank based upon, among other things, the Valuation Price Range,
and RP Financial expresses no opinion on the Exchange Ratio or the exchange of
Public Bank Shares. OTS policy requires that the holders of Public Bank Shares
prior to the Conversion and Reorganization receive Exchange Shares in an amount
that will result in them owning, in the aggregate, approximately the same
percentage of the Company as they owned of the Bank.
All shares of Conversion Stock will be sold at $10.00 per share (the
"Purchase Price"), which was established by the Boards of Directors of the
Primary Parties. The actual number of shares to be issued in the Offerings will
be determined by the Primary Parties based upon the final updated valuation of
the estimated pro forma market value of the Conversion Stock at the completion
of the Offerings. The number of shares of Conversion Stock to be issued is
expected to range from a minimum of 282,625 shares to a maximum of 382,375
shares. Subject to approval of the OTS, the Valuation Price Range may be
increased or decreased to reflect market and economic conditions prior to the
completion of the Offerings, and under such circumstances the Primary Parties
may increase or decrease the number of shares of Conversion Stock. No
resolicitation of subscribers will be made and subscribers will not be permitted
to modify or cancel their subscriptions unless: (i) the gross proceeds from the
sale of the Conversion Stock are less than the minimum, or more than 15% above
the maximum, of the current Valuation Price Range; or (ii) the Offerings are
extended beyond _________, 1997. Any increase or decrease in the number of
shares of Conversion Stock will result in a corresponding change in the number
of Exchange Shares, so that upon
(vi)
<PAGE>
consummation of the Conversion and Reorganization, the Conversion Stock and the
Exchange Shares will represent approximately 64.71% and 35.29%, respectively, of
the Company's total outstanding shares. See "The Conversion and Reorganization
- -- Stock Pricing, Exchange Ratio and Number of Shares to be Issued."
Based on 180,000 Public Bank Shares outstanding at September 30, 1996,
and assuming a minimum of 282,625 and a maximum of 382,375 shares of Conversion
Stock are issued in the Offerings, the Exchange Ratio is expected to range from
approximately 0.856 to 1.159 Exchange Shares for each Public Bank Share
outstanding immediately prior to the consummation of the Conversion and
Reorganization. The Exchange Ratio will be affected if any stock options to
purchase shares of Bank Common Stock are exercised between the date of this
Prospectus and consummation of the Conversion and Reorganization. If any stock
options are outstanding immediately prior to consummation of the Conversion and
Reorganization, they will be converted into options to purchase shares of Common
Stock, with the number of shares subject to the option and the exercise price
per share to be adjusted based upon the Exchange Ratio so that the aggregate
exercise price remains unchanged, and with the duration of the option remaining
unchanged. At September 30, 1996, there were options to purchase 10,850 shares
of Bank Common Stock outstanding, which each had an exercise price of $10.00 per
share.
The following table sets forth, based upon the minimum, midpoint,
maximum and 15% above the maximum of the Valuation Range, the following: (i) the
total number of shares of Conversion Stock and Exchange Shares to be issued in
the Conversion and Reorganization, (ii) the percentage of the total Common Stock
represented by the Conversion Stock and the Exchange Shares, and (iii) the
Exchange Ratio. The table assumes that no holder of Public Bank Shares exercises
dissenters' rights and that there is no cash paid in lieu of issuing fractional
Exchange Shares.
<TABLE>
<CAPTION>
Conversion Stock to Exchange Shares to
be Issued (1) be Issued (1) Total Shares of
------------------- --------------------- Common Stock to Exchange
Amount Percent Amount Percent be Outstanding(1) Ratio(1)
------ ------- ------ ------- ----------------- --------
<S> <C> <C> <C> <C> <C> <C>
Minimum............... 282,625 64.71% 154,159 35.29% 436,784 0.856
Midpoint.............. 332,500 64.71 181,363 35.29 513,863 1.008
Maximum............... 382,375 64.71 208,568 35.29 590,943 1.159
15% above maximum 439,731 64.71 239,853 35.29 679,584 1.333
</TABLE>
- -------------------
(1) Assumes that outstanding options to purchase 10,850 shares of Bank
Common Stock at September 30, 1996 are not exercised prior to
consummation of the Conversion and Reorganization. Assuming that all of
such options are exercised prior to such consummation, the percentage
represented by the Conversion Stock and the Exchange Shares would
amount to 63.36% and 36.64%, respectively, and the Exchange Ratio would
amount to 0.889, 1.046, 1.203 and 1.383 at the minimum, midpoint,
maximum and 15% above the maximum of the Valuation Price Range,
respectively.
The final Exchange Ratio will be determined based upon the number of
shares issued in the Offerings in order to maintain the Public Stockholders'
approximately 35.29% ownership interest in the Bank and will not be based upon
the market value of the Public Bank Shares. At the minimum, midpoint and maximum
of the Valuation Price Range, one Public Bank Share will be exchanged for 0.856,
1.008 and 1.159 shares of Common Stock, respectively (which have a calculated
equivalent estimated value of $8.56, $10.08 and $11.59 based on the $10.00
Purchase Price of a share of Common Stock in the Offerings and the
aforementioned Exchange Ratios). However, there can be no assurance as to the
actual market value of a share of Common Stock after the Conversion and
Reorganization or that such shares could be sold at or above the $10.00 Purchase
Price.
Payment for Subscriptions for Conversion Stock
Payment for subscriptions may be made: (i) in cash, if delivered in
person at any office of the Bank; (ii) by check or money order; or (iii) by
authorization of withdrawal from deposit accounts maintained with the Bank.
Funds from payments made by cash, check or money order will be deposited in a
segregated account at the Bank and will earn interest at the Bank's passbook
rate of interest from the date payment is received until completion or
termination of the Conversion and Reorganization. If payment is made by
authorization of withdrawal from deposit
(vii)
<PAGE>
accounts, the funds authorized to be withdrawn from the deposit account will
continue to accrue interest at the contractual rate until completion or
termination of the Conversion and Reorganization, but a hold will be placed on
such funds, thereby making them unavailable to the depositor until completion or
termination of the Conversion and Reorganization.
If a subscriber authorizes the Bank to withdraw the aggregate amount of
the purchase price from a deposit account, the Bank will do so as of the
effective date of the Conversion and Reorganization. The Bank will waive any
applicable penalties for early withdrawal from certificate accounts. If the
remaining balance in a certificate account is reduced below the applicable
minimum balance requirement at the time that the funds actually are transferred
under the authorization, the certificate will be cancelled at the time of the
withdrawal, without penalty, and the remaining balance will earn interest at the
passbook rate. See "The Conversion and Reorganization -- Procedure for
Purchasing Shares in the Offerings."
Differences in Stockholder Rights
The Company is a Tennessee corporation subject to the provisions of the
Tennessee Business Corporation Act and its Charter and Bylaws and the Bank is a
federally chartered savings bank subject to federal laws and regulations and its
Charter and Bylaws. Upon consummation of the Conversion and Reorganization, the
Public Stockholders of the Bank will become stockholders of the Company and
their rights will be governed by the Company's Charter and Bylaws and Tennessee
law. The rights of stockholders of the Bank are materially different in certain
respects from the rights of stockholders of the Company. See "Comparison of
Stockholders' Rights" and "Description of Capital Stock of the Company."
Benefits of Conversion and Reorganization to Directors and Officers
General. The Company intends to adopt certain stock benefit plans for
the benefit of directors, officers and employees of the Company and the Bank and
to submit such plans to stockholders for approval at a special or annual meeting
of stockholders to be held no earlier than six months after the completion of
the Conversion and Reorganization. The proposed benefit plans are as follows:
(i) a 1997 Stock Option and Incentive Plan (the "1997 Option Plan"), pursuant to
which a number of authorized but unissued shares of Common Stock equal to 10% of
the Conversion Stock to be sold in the Offerings (38,237 shares at the maximum
of the Valuation Price Range) will be reserved for issuance pursuant to the
exercise of stock options and stock appreciation rights and grants of restricted
stock to directors, officers and employees; and (ii) a 1997 Management
Recognition Plan and Trust Agreement (the "1997 MRP"), which will, following the
receipt of stockholder approval, purchase a number of shares of Common Stock,
with funds contributed by the Company, either from the Company or in the open
market, equal to 4.0% of the Conversion Stock to be sold in the Offerings
(15,295 shares at the maximum of the Valuation Price Range) for distribution to
directors, officers and employees. OTS regulations permit individual members of
management to receive up to 25% of the shares of any non-tax qualified stock
benefit plan and directors who are not employees to receive up to 5% of such
stock individually and up to 30% in the aggregate of any plan. OTS regulations
also permit a qualified stock benefit plan of a converting institution to
purchase, without shareholder approval, up to 10% of the common stock sold in
the offering. The Bank's ESOP intends to purchase 3.0% of the Common Stock to be
issued in the Conversion and Reorganization (17,728 shares at the maximum of the
Valuation Price Range). For presentation of the pro forma effects of the 1997
MRP and the ESOP on the operations of the Company and its stockholders' equity,
see "Capitalization" and "Pro Forma Data."
The foregoing plans are in addition to the 1993 Stock Option Plan
("1993 Option Plan") and the 1993 Management Recognition and Retention Plan and
Trust ("1993 MRP") which were adopted by the Bank in connection with the MHC
Reorganization and subsequently approved by the stockholders of the Bank. These
plans will continue in existence after the Conversion and Reorganization as
plans of the Company. In addition, pursuant to the terms of the 1993 Option
Plan, all outstanding stock options may be exercised in whole or in part
immediately prior to consummation of the Conversion and Reorganization. See
"Management of the Bank -- Certain Benefit
(viii)
<PAGE>
Plans and Agreements" and "The Conversion and Reorganization -- Effects of the
Conversion and Reorganization -- Effect on Existing Compensation Plans."
The Company believes that the additional plans will be in the best
interest of its stockholders and will further fulfill the purpose of the 1993
stock benefit plans. Both the 1997 MRP and the 1997 Option Plan are designed to
provide officers and employees of the Bank with an opportunity to acquire a
proprietary interest in the common stock of their employer as an incentive to
the organization's success. The 1993 Option Plan and the 1993 MRP are also
designed to provide similar incentives to those same persons.
The Management Recognition Plan. Upon receipt of stockholder approval
of the 1997 MRP, the Company anticipates granting stock awards for shares of
Common Stock to directors, executive officers and other key personnel. A total
of 4.0% of the Common Stock to be reserved for issuance pursuant to the 1997 MRP
will be available for the award of shares of Common Stock to executive officers
and key employees of the Bank. The 1997 MRP will be administered by a committee
of two or more non-employee members of the Board of Directors of the Company who
are "disinterested" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934 (the "Exchange Act"). The Company has not made a
determination as to specific plan share awards that it will make if the 1997 MRP
is approved by the Company's shareholders, but it does anticipate that
approximately ___% of the initial awards in the aggregate will be made to
directors and executive officers. Based on that percentage and assuming that
approximately 100% of the shares are awarded, the aggregate value to the
director and executive officer recipients would be approximately $_________
based on a $_____ per share market value of the Common Stock (based on the
issuance of 382,375 shares of Conversion Stock at the maximum of the Valuation
Price Range). The actual value of the shares awarded pursuant to the MRP will be
determined as of the date the share awards vest (at a rate not in excess of 20%
per year with the initial vesting occurring no earlier than one year from the
date the 1997 MRP is approved by the stockholders).
The Option Plan. Upon receipt of stockholder approval of the 1997
Option Plan, the Company anticipates granting stock options for shares of Common
Stock to directors, executive officers and other key employees. A total of ___%
of the Common Stock to be reserved for issuance pursuant to the 1997 Option Plan
will be available for the grant of stock options to executive officers and key
employees of the Bank. The 1997 Option Plan will be administered by a committee
of two or more non-employee members of the Board of Directors of the Company who
are "disinterested" within the meaning of Rule 16b-3 under the Exchange Act. It
is anticipated that grants will be made by such committee primarily based on
performance, although the committee will be able to consider other factors
determined to be relevant in its sole discretion. In addition, pursuant to the
1997 Option Plan, ___% of the shares of Common Stock to be reserved for issuance
pursuant to the 1997 Option Plan will be available for the grant of compensatory
stock options to outside directors of the Company pursuant to a formula which
complies with Rule 16b-3 under the Exchange Act and which will provide for the
grant of options covering a specified number of shares upon receipt of
stockholder approval. All of the stock options will be granted at no cost to the
recipients, although the recipients will be required to pay the applicable
exercise price at the time of exercise in order to receive the underlying shares
of Common Stock. The Company has not made a determination as to the specific
awards of stock options that it will make if the 1997 Option Plan is approved by
the Company's stockholders, but it does anticipate that approximately _____% of
the initial awards in the aggregate will be made to directors and executive
officers. Based on that percentage and assuming that approximately 100% of the
stock option shares are awarded, the aggregate value to the director and
executive officer recipients would be approximately $_________ based on a $10.00
per share market value of the Common Stock. See "Management of the Bank --
Certain Benefit Plans and Agreements" and "Risk Factors -- Possible Dilutive
Effect of Issuance of Additional Shares."
The Employee Stock Ownership Plan. The Bank's ESOP intends to purchase
3.0% of the Common Stock to be issued in the Conversion and Reorganization
(17,728 shares of Conversion Stock at the maximum of the Valuation Price Range).
These shares will be allocated over a period of approximately 10 years as the
Company's loan to the ESOP is repaid, with the allocations to be made to
executive officers and other eligible employees in
(ix)
<PAGE>
proportion to their compensation. See "Management of the Bank -- Certain Benefit
Plans and Agreements --Employee Stock Ownership Plan."
Use of Proceeds
Net proceeds from the sale of the Conversion Stock are estimated to be
between $2.5 million and $3.5 million, depending on the number of shares sold
and the expenses of the Conversion and Reorganization. See "Pro Forma Data." The
Company plans to contribute to the Bank all but $100,000 of the net proceeds
from the Offerings. A portion of the proceeds retained by the Company will be
used for a loan to the ESOP for the purpose of purchasing 3.0% of the total
number of shares to be issued in the Conversion and Reorganization. It is
anticipated the loan to the ESOP will have a term of 10 years and a fixed
interest rate at the Prime Rate as of the date of the loan. See "Management of
the Bank -- Certain Benefit Plans and Agreements -- Employee Stock Ownership
Plan." Funds retained by the Company may be used to support the future expansion
of operations and for other business or investment purposes, including the
possible acquisition of other financial institutions and/or branch offices,
although there are no current plans, arrangements, understandings or agreements
regarding such expansion or acquisitions. Subject to applicable limitations, the
Company may use available funds to purchase shares of Common Stock, to
contribute funds to the 1997 MRP for the purpose of purchasing shares of Common
Stock in the open market and for the payment of dividends. The portion of the
net proceeds received by the Bank will be used for general corporate purposes.
The proceeds also will be used to support the Bank's lending and investment
activities and thereby enhance the Bank's capabilities to serve the borrowing
and other financial needs of the communities it serves. See "Use of Proceeds."
Dividend Policy
While the Company will consider the establishment of a dividend policy
following the Conversion and Reorganization, there is no current intention to
pay dividends. The Board will review its dividend policy on a quarterly basis.
The Company's ability to pay dividends in the future will depend on the net
proceeds retained from the Offerings and on dividends received from the Bank,
which is subject to various restrictions on the payment of dividends. See
"Dividend Policy" and "Regulation -- Regulation of the Bank -- Dividend
Limitations." Assuming the issuance of 382,375 shares of Conversion Stock at the
maximum of the Valuation Price Range and the retention of $100,000 of the net
proceeds from the Offerings, after deducting amounts retained to fund the ESOP
and the 1997 MRP, the Company estimates that it would retain approximately
$100,000 in net proceeds which would be available for the payment of dividends
and for other corporate purposes and that the Bank would have at least $2.9
million available for the payment of dividends to the Company under current OTS
regulations.
Market for the Common Stock
There is no established market for the Bank Common Stock. The Company
has never issued stock before and, consequently, there is no established market
for the Common Stock. Due to the relatively small size of the Offerings, it is
unlikely that an active and liquid trading market will develop or be maintained.
The Company will request that Trident Securities undertake to match offers to
buy and offers to sell the Common Stock, and Trident Securities intends to list
the Common Stock over-the-counter through the National Daily Quotation System
"Pink Sheet" published by the National Quotation Bureau, Inc. However,
purchasers of Common Stock should have a long-term investment intent and
recognize that the absence of an active and liquid trading market may make it
difficult to sell the Common Stock, and may have an adverse effect on the price.
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, the Bank or any market maker. There can be no assurance that an active
and liquid market for the Common Stock will develop in the foreseeable future
or, once developed, will continue. Even if a market develops, there can be no
assurance that stockholders will be able to sell their shares at or above the
initial Purchase Price after the completion of the Offerings. Purchasers of
Common Stock should consider the potentially illiquid and long-term nature of
their investment in the shares being offered hereby. See "Market for the Common
Stock."
(x)
<PAGE>
Risk Factors
See "Risk Factors" on page 1 for a discussion of certain factors that
should be considered by prospective investors, including risks relating to: loan
portfolio concentrations; market area; the future of the thrift industry;
potential effects of changes in interest rates and the current interest rate
environment; certain anti-takeover provisions; the possible dilutive effect of
the issuance of additional shares; the absence of a market for the Common Stock;
the possible divestiture requirements for Public Stockholders; competition; and
the possible adverse tax consequences of the distribution of subscription
rights.
(xi)
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The following selected financial and other data of Middlesboro Federal
does not purport to be complete and is qualified in its entirety by reference to
the more detailed financial information contained elsewhere herein. The
financial data for the three months ended September 30, 1996 is not necessarily
indicative of the operating results to be expected for the entire fiscal year.
<TABLE>
<CAPTION>
At At June 30,
September 30 ----------------------
1996 1996 1995
-------------- ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
Financial Condition Data:
Total amount of:
Assets................................................. $ 83,799 $ 74,698 $ 67,453
Loans receivable, net.................................. 69,371 59,931 44,864
Cash and cash equivalents.............................. 605 874 1,796
Investment securities:
Available for sale.................................... 3,637 3,680 1,853
Held to maturity...................................... 253 639 5,631
Mortgage-backed securities.............................. 7,655 7,779 11,846
Deposits................................................ 71,906 68,976 62,595
Advances from FHLB...................................... 6,000 1,000 --
Stockholders' equity.................................... 4,385 4,596 4,608
Number of:
Real estate loans outstanding........................... 1,006 904 759
Savings accounts........................................ 2,090 2,071 2,079
Offices open............................................ 2 2 2
<CAPTION>
Three Months Ended
September 30, Year Ended June 30,
-------------------------- -----------------------------
1996 1995 1996 1995
------ ------ ------ ------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Operating Data:
Interest income..................................... $ 1,506 $ 1,233 $ 5,202 $ 4,347
Interest expense.................................... 913 803 3,317 2,445
--------- ---------- ---------- ----------
Net interest income................................. 593 430 1,885 1,902
Provision for loan losses........................... 30 3 58 18
--------- ---------- ---------- ----------
Net interest income after provision
for loan losses.................................. 563 427 1,827 1,884
Other income........................................ 135 64 312 136
Other expense....................................... (1,017) (405) (1,880) (1,576)
--------- ---------- ---------- ----------
Income (loss) before provision for income taxes..... (319) 86 259 444
Provision for income taxes (benefit)................ (97) 10 113 151
--------- ---------- ---------- ----------
Net income (loss)................................... $ (222) $ 76 $ 146 $ 293
========= ========== ========== ==========
Earnings (loss) per share........................... $ (0.44) $ 0.15 $ 0.29 $ 0.57
========= ========== ========== ==========
</TABLE>
(xii)
<PAGE>
<TABLE>
<CAPTION>
At or for the
Three Months Ended At or for the
September 30, Year Ended June 30,
------------------------ ------------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Key Operating Ratios:
Performance Ratios:
Return on assets (net income divided by average
total assets)...................................... (1.06)% 0.44% 0.19% 0.41%
Return on average equity (net income divided by
average stockholders' equity)...................... (20.25) 6.67 3.18 6.36
Net interest margin (net interest income divided
by average interest-earning assets)................ 2.99 2.50 2.46 2.77
Ratio of average interest-earning assets to
average interest-bearing liabilities............... 103.05 106.95 111.79 110.94
Ratio of noninterest expense to average total
assets............................................. 4.85 2.34 2.38 2.21
Asset Quality Ratios:
Nonperforming assets to total assets at end of
period............................................. 0.54 1.02 0.50 0.37
Nonperforming loans to total loans at end of
period............................................. 0.65 1.49 0.62 0.56
Allowance for loan losses to total loans at
end of period...................................... 0.28 0.29 0.30 0.33
Allowance for loan losses to nonperforming loans
at end of period................................... 43.33 19.38 48.26 59.20
Provision for loan losses to total loans
receivable, net.................................... 0.04 0.01 0.10 0.04
Net charge-offs to average loans
outstanding........................................ 0.09 0.11 0.04 --
Capital Ratios:
Average stockholders' equity to average assets......... 5.24 6.58 5.81 6.46
Regulatory Capital Ratios:
Tangible capital..................................... 5.56 6.96 6.53 6.92
Core capital......................................... 5.56 6.96 6.53 6.92
Total Risk-Based capital............................. 9.44 14.10 11.62 12.83
</TABLE>
(xiii)
<PAGE>
RISK FACTORS
The following factors, in addition to those discussed elsewhere in this
Prospectus, should be carefully considered by investors in deciding whether to
purchase the Common Stock offered hereby.
Loan Portfolio Concentrations
Although the Bank's primary lending activity is the origination of one-
to four-family mortgage loans (including home equity lines of credit and second
mortgages), approximately $28.8 million, or 39.71% of the Bank's gross loan
portfolio at September 30, 1996 consisted of loans other than single-family
mortgage loans. Such loans included $13.2 million in loans secured by commercial
and multi-family real estate, $4.2 million in residential and commercial
construction loans, $4.5 million in commercial business loans and $6.9 million
in consumer loans. Although these loans generally provide for higher interest
rates and shorter terms than permanent single-family residential real estate
loans, these loans generally have a higher degree of credit and other risks.
Nonresidential real estate lending often involves larger loan balances to single
borrowers or groups of related borrowers as compared to residential real estate
lending. The Bank may be exposed to risk of loss on construction loans if its
initial estimate of the property's value at completion of construction proves to
be inaccurate. At September 30, 1996, however, none of the Bank's nonresidential
real estate or construction loans were in nonaccrual status. Consumer loans also
entail greater risk than single-family residential loans, particularly in the
case of consumer loans which are unsecured or secured by rapidly depreciable
assets, such as automobiles. In such cases, any repossessed collateral for a
defaulted consumer loans 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.
Market Area
The Bank's immediate market area has historically been characterized by
a shrinking population, high levels of unemployment and low income levels. The
counties of Bell and Harlan, Kentucky in which the Bank has its offices were
adversely affected by the decline in the coal mining industry which was
traditionally the primary employer in the area. For a number of years, the Bank
responded to the economic conditions and lack of lending opportunities in its
immediate market area by investing a substantial portion of its assets in U.S.
government and agency securities, seeking lending opportunities in contiguous
markets in Tennessee and purchasing whole loans and participations in loans
secured by residential and commercial properties located in more prosperous
areas of Kentucky, primarily in Central Kentucky. Management has recently sought
to reduce out-of-market loan purchases and increase its local loan originations
through more active marketing of its residential loan products and by offering a
wider array of loan programs including various forms of consumer lending. The
Bank's immediate market area, however, continues to experience high levels of
unemployment and poverty and it is anticipated that a substantial proportion of
the Bank's lending will continue to involve lending in contiguous markets.
Future of Thrift Industry
It is currently expected that the U.S. Congress will soon take up
legislation that may eliminate savings associations as a separate industry.
Legislation enacted in September 1996 provides that the SAIF, the current
federal insurer of the Bank's deposit accounts, will be merged with the Bank
Insurance Fund (the "BIF") which insures the deposits of commercial banks on
January 1, 1999 but only if there are no thrift institutions left. The
legislation directs the Department of the Treasury to submit a report to the
Congress by March 31, 1997 with its findings with respect to the development of
a common charter for banks and thrifts. The Bank cannot predict what the
attributes of any such common charter would be or whether any legislation will
result from this study. It is possible, however, that the common charter may not
offer all the advantages which the Bank now enjoys such as unrestricted
nationwide branching and the absence of activities restrictions on savings and
loan holding companies which do not control more than one savings association.
If the Bank were to become subject to the restrictions applicable to branching
by banks headquartered in Kentucky, its branching would generally be restricted
to the county in which it has its main office. If the Company were to become
subject to the restrictions on bank holding companies, its activities would be
limited
1
<PAGE>
to activities that have been determined by the Board of Governors of the Federal
Reserve System to be so closely related to banking as to be a proper incident
thereto. If Congress fails to take action to create a common charter for banks
and thrift institutions or otherwise fails to end the thrift industry's separate
existence, the currently contemplated merger of the deposit insurance funds
would not take place and a shrinking thrift industry would be required to
support a separate deposit fund with a shrinking assessment base.
Potential Effects of Changes in Interest Rates and the Current Interest Rate
Environment
Effect on Net Interest Income. The operations of the Bank are
substantially dependent on its net interest income, which is the difference
between the interest income earned on its interest-earning assets and the
interest expense paid on its interest-bearing liabilities. Like most savings
institutions, the Bank's earnings are affected by changes in market interest
rates and other economic factors beyond its control. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Asset and Liability Management" and "Business of the Bank -- Lending Activities"
and " -- Deposit Activities and Other Sources of Funds." If an institution's
interest-earning assets have longer effective maturities than its
interest-bearing liabilities, the yield on the institution's interest-earning
assets generally will adjust more slowly than the cost of its interest-bearing
liabilities and, as a result, the institution's net interest income generally
would be adversely affected by material and prolonged increases in interest
rates and positively affected by comparable declines in interest rates. In
addition, rising interest rates may negatively affect the Bank's earnings due to
diminished loan demand and the increased risk of delinquencies due to increased
payment amounts as adjustable-rate loans reprice in a rising interest rate
environment.
Effect on Securities. In addition to affecting interest income and
expenses, changes in interest rates also can affect the value of the Bank's
investment portfolio, a substantial portion of which is comprised of fixed-rate
instruments. Generally, the value of fixed-rate instruments fluctuates inversely
with changes in interest rates. The Bank has sought to reduce the vulnerability
to changes in interest rates by managing the nature and composition of its
securities portfolio. As a consequence of the fluctuation in interest rates, the
carrying value of the Banks held-to- maturity securities, including
mortgage-backed securities can exceed the market value of such securities. At
September 30, 1996, the fair value of such securities, including mortgage-backed
securities was less than the carrying value by $248,000. The amortized cost of
the available-for-sale securities held by the Bank exceeded the market value of
such securities by $195,000 at September 30, 1996. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Asset and
Liability Management."
Prepayment Risk. Changes in interest rates also can affect the average
life of loans and mortgage-backed securities. Historically lower interest rates
in recent periods have resulted in increased prepayments of loans and
mortgage-backed securities, as borrowers refinanced to reduce borrowings cost.
Under these circumstances, the Bank is subject to reinvestment risk to the
extent that it not able to reinvest such prepayments at rates which are
comparable to the rates on the maturing loans or securities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Certain Anti-Takeover Provisions
Provisions in the Company's Governing Instruments and Tennessee Law.
Certain provisions of the Company's Charter and Bylaws, as well as certain
provisions in Tennessee law, will assist the Company in maintaining its status
as an independent publicly owned corporation. Provisions in the Company's
Charter and Bylaws provide for, among other things, supermajority voting on
certain matters, a staggered board of directors, limits on the calling of
special meetings by stockholders and restrictions on voting rights for shares
beneficially owned in excess of 10% of the outstanding Common Stock. The above
provisions may discourage potential proxy contests and other potential takeover
attempts, particularly those which have not been negotiated with the Board of
Directors, and thus generally may serve to perpetuate current management. See
"Restrictions on Acquisition of the Company."
2
<PAGE>
Voting Power of Directors and Executive Officers. Directors and
executive officers of the Company, who currently hold _______ shares (including
unexercised stock options) or ____% of the outstanding Bank Common Stock, expect
to hold approximately ____% of the shares of Common Stock outstanding upon
consummation of the Conversion and Reorganization based upon the midpoint of the
Valuation Price Range and assuming no divestiture is required by the OTS. See
"Beneficial Ownership of Capital Stock." Executive officers of the Company, as
well as other eligible employees of the Company and the Bank, also will hold
shares of Common Stock which are allocated to the accounts established for them
pursuant to the ESOP. The ESOP intends to purchase 3.0% of the Common Stock to
be issued in the Conversion and Reorganization (17,728 shares based on the
maximum of the Valuation Price Range). Under the terms of the ESOP, shares of
Common Stock which have not yet been allocated to the accounts of employee
participants in the ESOP will be voted by the trustees of the ESOP on any matter
in the same ratio as to those allocated shares for which instructions are given
to the trustees.
The 1993 MRP purchased 5,400 shares of Bank Common Stock in connection
with the MHC Reorganization. In addition, and subject to stockholder approval
following the consummation of the Conversion and Reorganization, the Company
expects to acquire Common Stock on behalf of the 1997 MRP, a non-tax qualified
restricted stock plan, in an amount equal to 4% of the Conversion Stock issued
in the Offerings (15,295 shares based on the maximum of the Valuation Price
Range). Under the terms of the 1993 MRP, executive officers are allocated shares
of Common Stock over which they have voting power and the trustees of such plan,
who also are directors of the Bank, similarly are authorized to vote unallocated
shares in the same ratio on any matter as to those allocated shares for which
instructions are given to the trustees. Under the terms of the 1997 MRP, the
trustees of such plan, who will also be directors of the Company, will have
discretionary authority to vote all shares held by such plan. Subject to
stockholder approval, the Company also intends to reserve for future issuance
pursuant to the 1997 Option Plan a number of authorized shares of Common Stock
equal to an aggregate of 10% of the Conversion Stock issued in the Offerings
(38,237 shares, based on the maximum of the Valuation Price Range). These
options are in addition to the options for 18,000 shares of Bank Common Stock
outstanding under the 1993 Option Plan adopted in connection with the MHC
Reorganization. See "Management of the Bank -- Certain Benefit Plans and
Agreements."
Management's potential voting power could, together with additional
stockholder support, preclude or make more difficult takeover attempts which do
not have the support of the Company's Board of Directors and may tend to
perpetuate existing management.
Possible Dilutive Effect of Issuance of Additional Shares
Various possible and planned issuances of Common Stock could dilute the
interests of prospective stockholders of the Company or existing stockholders of
the Company following consummation of the Conversion and Reorganization, as
noted below.
The number of shares to be sold in the Conversion and Reorganization
may be increased as a result of an increase in the Valuation Price Range of up
to 15% to reflect changes in market and financial conditions following the
commencement of the Offerings. In the event that the Valuation Price Range is so
increased, it is expected that the Company will issue up to 439,731 shares of
Conversion Stock at the Purchase Price for an aggregate price of up to
$4,397,310. An increase in the number of shares will decrease net income per
share and stockholders' equity per share on a pro forma basis and will increase
the Company's consolidated stockholders' equity and net income. See
"Capitalization" and "Pro Forma Data."
If the 1997 MRP is approved by stockholders at the Company's special or
annual meeting of stockholders to be held no earlier than six months after the
completion of the Conversion and Reorganization, the 1997 MRP intends to acquire
an amount of Common Stock equal to 4.0% of the shares of Conversion Stock issued
in the Offerings. Such shares of Common Stock may be acquired in the open market
with funds provided by the Company, if permissible, or from authorized but
unissued shares of Common Stock. In the event that additional shares of Common
Stock are issued to the 1997 MRP, stockholders would experience dilution of
their ownership interests (by
3
<PAGE>
3.85% at the maximum of the Valuation Price Range) and per share stockholders'
equity and per share net income would decrease as a result of an increase in the
number of outstanding shares of Common Stock. See "Pro Forma Data" and
"Management of the Bank -- Certain Benefit Plans and Agreement -- 1997
Management Recognition Plan and Trust."
If the Company's 1997 Option Plan is approved by stockholders at a
special or annual meeting of stockholders to be held no earlier than six months
after the completion of the Conversion and Reorganization, the Company will
reserve for future issuance pursuant to such plan a number of authorized shares
of Common Stock equal to an aggregate of 10% of the Conversion Stock issued in
the Offerings (38,237 shares, based on the maximum of the Valuation Price
Range). See "Pro Forma Data" and "Management of the Bank -- Certain Benefit
Plans and Agreements -- 1997 Stock Option and Incentive Plan."
The Bank also has adopted and maintains the 1993 Option Plan which
reserved for issuance 18,000 shares of Bank Common Stock. As of September 30,
1996, no shares had been issued as a result of the exercise of options granted
under the 1993 Option Plan. Upon consummation of the Conversion and
Reorganization, this plan will become a plan of the Company, and Common Stock
will be issued in lieu of Bank Common Stock pursuant to the terms of such plan.
See "Management of the Bank -- Certain Benefit Plans and Agreements -- 1993
Stock Option and Incentive Plan."
Absence of Market for Common Stock
The Company has never issued capital stock (other than 100 shares to be
issued to the Bank for organizational purposes, which will be cancelled upon
consummation of the Conversion and Reorganization), and to date an active and
liquid trading market has not developed for the 180,000 Public Bank Shares
outstanding prior to the Offerings. The Company does not intend to list the
Common Stock on a national securities exchange or apply to have the Common Stock
quoted on any automated quotation system upon completion of the Conversion and
Reorganization. The Company has requested that Trident Securities undertake to
match offers to buy and offers to sell the Common Stock, and Trident Securities
intends to list the Common Stock over-the-counter through the National Daily
Quotation System "Pink Sheets" published by the National Quotation Bureau, Inc.
It is anticipated that Trident Securities will use its best efforts to match
offers to buy and offers to sell shares of Common Stock. Such efforts are
expected to include solicitation of potential buyers and sellers in order to
match buy and sell orders. However, Trident Securities will not be subject to
any continuing obligation to continue such efforts in the future.
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, the Bank or any market maker. Due to the size of the Offerings, it
is highly unlikely that a stockholder base sufficiently large to create an
active trading market will develop and be maintained. Investors in the Common
Stock could have difficulty disposing of their shares and should not view the
Common Stock as a short-term investment. The absence of an active and liquid
trading market for the Common Stock could affect the price and liquidity of the
Common Stock.
Possible Divestiture Requirement for Public Stockholders
In accordance with OTS policies, the Plan generally provides that the
ownership of individual Public Stockholders and their associates and persons
acting in concert with them following consummation of the Conversion and
Reorganization may not exceed the percentage purchase limits in the Offerings as
applied to the total shares outstanding immediately following the Offerings.
Accordingly, Public Stockholders who would own more than 5% of the shares
outstanding would be required to divest sufficient shares to reduce their
ownership to 5% of shares outstanding. The Primary Parties have reserved the
right to increase the ownership limitation to as much as 9.9% of the shares
outstanding provided that the total shares held by all greater than 5%
stockholders in excess of 5% do not exceed 10% of the shares outstanding
immediately following the Conversion and Reorganization. To the best knowledge
of the Company, the only Public Stockholders potentially affected by this
provision are Messrs. J. Roy and James J. Shoffner who together own 9.9% of the
total outstanding shares of Bank Common Stock. [In the event the Primary
4
<PAGE>
Parties do not increase the ownership limit, J. Roy Shoffner has advised the
Primary Parties that he will divest a portion of his shares to the ESOP or to an
unaffiliated third party.] In the event the ownership limit is increased to
9.9%, the purchase limitation in the Offerings will be increased as well and
each person who subscribes for the maximum in the Offerings will be afforded an
opportunity to increase their order subject to the limitation that the number of
shares subscribed for by subscribers in excess of 5% cannot exceed 10% of the
shares sold in the Offerings. Persons who are not currently Public Stockholders
who wish to increase their ownership to the maximum limit permitted by the Plan
of Conversion would be required to purchase Bank Common Stock from existing
stockholders.
Competition
The Bank faces strong competition in attracting deposits and making
real estate loans. Its most direct competition for deposits has historically
come from commercial banks located in Bell and Harlan Counties, Kentucky and
surrounding counties, including larger financial institutions that have greater
financial and marketing resources available to them. In addition, the Bank has
faced additional significant competition for investors' funds from short-term
money market securities and other corporate and government securities. The
ability of the Bank to attract and retain savings deposits depends on its
ability to generally provide a rate of return, liquidity and risk comparable to
that offered by competing investment opportunities.
The Bank experiences strong competition for real estate loans
principally from other savings associations, commercial banks, and mortgage
banking companies. The Bank competes for loans principally through the interest
rates and loan fees it charges and the efficiency and quality of services it
provides borrowers. Competition may increase as a result of the continuing
reduction of restrictions on the interstate operations of financial
institutions.
Possible Adverse Income Tax Consequences of the Distribution of Subscription
Rights
The Primary Parties have received the opinion of RP Financial that
subscription rights granted to Eligible Account Holders, Supplemental Eligible
Account Holders, Other Members, directors, officers and employees and Public
Stockholders have no value. However, this opinion is not binding on the Internal
Revenue Service ("IRS"). If the subscription rights granted to Eligible Account
Holders, Supplemental Eligible Account Holders, Other Members, directors,
officers and employees and Public Stockholders are deemed to have an
ascertainable value, receipt of such rights likely would be taxable only by
those Eligible Account Holders, Supplemental Eligible Account Holders, Other
Members, directors, officers and employees and Public Stockholders who exercise
their subscription rights (either as capital gain or ordinary income) in an
amount equal to such value. Whether subscription rights are considered to have
ascertainable value is an inherently factual determination. See "The Conversion
and Reorganization -- Effects of the Conversion and Reorganization" and " -- Tax
Aspects."
CUMBERLAND MOUNTAIN BANCSHARES, INC.
The Company was organized on December 13, 1996 at the direction of the
Board of Directors of the Bank for the purpose of holding all of the capital
stock of the Bank and in order to facilitate the Conversion and Reorganization.
The Company has applied for the approval of the OTS to become a savings
institutions holding company and as such will be subject to regulation by the
OTS. After completion of the Conversion and Reorganization, the Company will
conduct business initially as a unitary savings institution holding company. See
"Regulation -- Regulation of the Company." Upon consummation of the Conversion
and Reorganization, the Company will have no significant assets other than all
of the outstanding shares of the Company, the note evidencing the Company's loan
to the ESOP and the portion of the net proceeds from the Offerings retained by
the Company, and the Company will have no significant liabilities. See "Use of
Proceeds." Initially, the management of the Company and the Bank will be
substantially similar and the Company will neither own nor lease any property,
but will instead use the premises, equipment and furniture of the Bank. At the
present time, the Company does not intend to employ any persons other than
officers who are also officers of the Bank, and the Company will utilize
5
<PAGE>
the support staff of the Bank from time to time. Additional employees will be
hired as appropriate to the extent the Company expands or changes its business
in the future.
Management believes that the holding company structure will provide the
Company with additional flexibility to diversify, should it decide to do so, its
business activities through existing or newly formed subsidiaries, or through
acquisitions of or mergers with other financial institutions and financial
services related companies. Although there are no current arrangements,
understandings or agreements regarding any such opportunities or transactions,
the Company will be in a position after the Conversion and Reorganization,
subject to regulatory limitations and the Company's financial position, to take
advantage of any such acquisition and expansion opportunities that may arise.
The initial activities of the Company are anticipated to be funded by the
proceeds to be retained by the Company and earnings thereon, as well as
dividends from the Bank. See "Dividend Policy."
The Company will be a unitary savings and loan holding company which,
under existing laws, would generally not be restricted as to the type of
business activities in which it may engage, provided that continues to be a
qualified thrift lender ("QTL"). See "Regulation -- Regulation of the Company"
for a description of certain regulations applicable to the Company. Any portion
of the net proceeds in excess of the amount retained by the Company will be
added to the Bank's general funds to be used for general corporate purposes,
including increased lending activities and purchases of investments and
mortgage-backed securities.
The Company's principal executive office is located at the home office
of the Bank at 1431 Cumberland Avenue, Middlesboro, Kentucky 40965, and its
telephone number is (606) 248-4584.
CUMBERLAND MOUNTAIN BANCSHARES, M.H.C.
The Mutual Holding Company is a federally chartered mutual holding
company chartered in connection with the MHC Reorganization in 1994. The Mutual
Holding Company's primary asset is 330,000 shares of Bank Common Stock, which
represents 64.71% of the shares of Bank Common Stock outstanding as of the date
of this Prospectus. The Mutual Holding Company's only other assets at September
30, 1996 were all of the issued and outstanding shares of Home, which was
formerly a wholly owned subsidiary of the Bank, and a deposit account. As part
of the Conversion and Reorganization, the Mutual Holding Company will convert to
an interim federal savings bank and simultaneously merge with and into the Bank,
with the Bank being the surviving entity. Upon consummation of the Conversion
and Reorganization, the stock of Home and the deposit account will become assets
of the Bank.
MIDDLESBORO FEDERAL BANK, FEDERAL SAVINGS BANK
Middlesboro Federal is a federally chartered stock savings bank that
was organized in 1994 as a subsidiary of the Mutual Holding Company. Prior to
that date, the Mutual Bank had operated since 1915 in Middlesboro, Kentucky and
since 1976 in Cumberland, Kentucky. In connection with the MHC Reorganization,
the Mutual Bank transferred substantially all of its assets and liabilities to
the Bank in exchange for 330,000 shares of Bank Common Stock and converted its
charter to a federal mutual holding company known as Cumberland Mountain
Bancshares, M.H.C. In connection with the MHC Reorganization, the Bank sold
180,000 shares of Bank Common Stock to the general public at $10.00 per share.
At September 30, 1996, the Bank had $83.8 million of total assets, $79.4 of
total liabilities, including $71.9 million of deposits, and $4.4 million of
stockholders' equity. At September 30, 1996, there were 180,000 Public Bank
Shares outstanding. The Bank Common Stock is registered with the OTS under
Section 12(g) of the Exchange Act.
Middlesboro Federal is primarily engaged in attracting deposits from
the general public through its offices and using those and other available
sources of funds to originate loans secured by single-family residences located
in the counties where its offices are located. Such loans amounted to $43.7
million or 60.3% of Middlesboro Federal's total loan portfolio (before net
items). At September 30, 1996, Middlesboro Federal held $11.4 million in
commercial real estate loans at that date, representing 15.7% of total loans
(before net items). The other
6
<PAGE>
significant areas of lending activity by Middlesboro Federal are multi-family
real estate loans, construction loans, commercial business loans and consumer
loans which, as of September 30, 1996, represented $1.9 million or 2.6%, $4.2
million or 5.8%, $4.5 million or 6.2% and $6.8 million or 9.4%, respectively, of
Middlesboro Federal's total loan portfolio. Middlesboro Federal also makes
substantial investments in United States Treasury and federal government
obligations and mortgage-backed securities which are insured by federal
agencies. As of September 30, 1996, the carrying value of U.S. Treasury and
government agency securities was $2.7 million and the carrying value of its
mortgage-backed securities portfolio, was $7.7 million.
Middlesboro Federal is subject to regulation by the OTS, as its primary
federal regulator and by the FDIC, which, through the SAIF administered by it,
insures Middlesboro Federal's deposits up to applicable limits. Middlesboro
Federal is a member of the Federal Home Loan Bank ("FHLB") of Cincinnati, which
is one of the 12 banks which comprise the FHLB System.
Middlesboro Federal's principal executive offices are located 1431
Cumberland Avenue, Middlesboro, Kentucky, 40965, and its telephone number is
(606) 248-4584.
USE OF PROCEEDS
Net proceeds from the sale of the Conversion Stock are estimated to be
between $2.5 million and $3.5 million ($4.0 million assuming an increase in the
Valuation Price Range by 15%). See "Pro Forma Data" as to the assumptions used
to arrive at such amounts.
The Company plans to contribute to the Bank all but $100,000 of the net
proceeds of the Offerings. The net proceeds retained by the Company will be
initially used to invest primarily in high grade, short-term marketable
securities and to make a loan directly to the ESOP to enable the ESOP to
purchase 3.0% of the shares of Common Stock to be issued in the Conversion and
Reorganization. Based upon the issuance of 436,784 shares and 590,943 shares at
the minimum and maximum of the Valuation Price Range, respectively, the loan to
the ESOP would be $131,036 and $177,283, respectively. It is anticipated the
loan to the ESOP will have a term of ten years and a fixed interest rate at the
Prime Rate as of the date of the loan. The net proceeds retained by the Company
may be used to support the future expansion of operations and for other business
or investment purposes, including the acquisition of other financial
institutions and/or branch offices, although there are no current plans,
arrangements, understandings or agreements regarding such expansion or
acquisitions. Subject to applicable regulatory limitations, the Company may use
available funds to repurchase shares of Common Stock and to pay dividends,
although the Company currently has no intention of effecting any such
transactions following consummation of the Conversion and Reorganization and has
not adopted a dividend policy. See "The Conversion and Reorganization -- Certain
Restrictions on Purchase or Transfer of Shares after the Conversion and
Reorganization." The Company may also use available funds to fund a contribution
to the 1997 MRP for the purpose of purchasing a number of shares equal to 4% of
the Conversion Stock. Such contribution would equal $152,950 if 382,375 shares
of Common Stock (4.0% of the shares of Conversion Stock that would be sold at
the maximum of the Valuation Price Range) are purchased at a price of $10.00 per
share. The portion of the net proceeds contributed to the Bank will be used for
general corporate purposes, including investment in loans and investment
securities.
Following the one-year anniversary of the completion of the Conversion
and Reorganization (or sooner if permitted by the OTS), and based upon then
existing facts and circumstances, the Company's Board of Directors may determine
to repurchase shares of Common Stock, subject to any applicable statutory and
regulatory requirements. Such facts and circumstances may include, but are not
limited to: (i) market and economic factors such as the price at which the stock
is trading in the market, the volume of trading, the attractiveness of other
investment alternatives in terms of the rate of return and risk involved in the
investment, the ability to increase the book value and/or earnings per share of
the remaining outstanding shares, and an improvement in the Company's return on
equity; (ii) the avoidance of dilution to stockholders by not having to issue
additional shares to cover the exercise of stock options or to fund employee
stock benefit plans; and (iii) any other circumstances in which repurchases
would be in the best interests of the Company and its stockholders. Any stock
repurchases will be
7
<PAGE>
subject to the determination of the Company's Board of Directors that the
Company and the Bank will be capitalized in excess of all applicable regulatory
requirements after any such repurchases. The payment of dividends or
repurchasing of stock, however, would be prohibited if stockholders' equity
would be reduced below the amount required for the liquidation account. See
"Dividend Policy" and "The Conversion -- Certain Restrictions on Purchase or
Transfer of Shares After the Conversion."
DIVIDEND POLICY
The Bank has not paid any dividends on the Bank Common Stock. Upon
completion of the Conversion and Reorganization, the Board of Directors of the
Company will have the authority to declare dividends on the Common Stock,
subject to statutory and regulatory requirements. While the Company will
consider the establishment of a dividend policy following the Conversion and
Reorganization, there is no current intention to pay dividends. The Board will,
however, review its dividend policy on a quarterly basis. Payment of dividends
on the Common Stock is subject to determination and declaration by the Company's
Board of Directors. Any dividend policy of the Company will depend, however,
upon the Company's debt and equity structure, earnings, regulatory capital
requirements, as well as other factors, including economic conditions and
regulatory restrictions. Therefore, there can be no assurance that dividends
will be paid. In addition, since the Company initially will have no significant
source of income other than dividends from the Bank and earnings from investment
of the net proceeds of the Offerings retained by the Company, the payment of
dividends by the Company will depend upon receipt of dividends from the Bank,
which is subject to regulatory restrictions on the payment of dividends. See
"Regulation -- Regulation of the Bank -- Dividend Limitations."
A regulation of the OTS imposes limitations on "capital distributions"
by savings institutions such as the Bank, including cash dividends, payments of
a savings institution to repurchase or otherwise acquire its stock, and payments
to stockholders of another savings institution in cash-out merger and other
distributions charged against capital. The regulation establishes a three-tiered
system, with the greatest flexibility being afforded to well- capitalized or
Tier 1 savings institutions and the least flexibility being afforded to under
capitalized or Tier 3 savings institutions. As of September 30, 1996,
Middlesboro Federal was a Tier 1 savings institution and is expected to continue
to so qualify immediately following the consummation of the Conversion and
Reorganization.
Unlike the Bank, the Company is not subject to the aforementioned
regulatory restrictions on the payment of dividends to its stockholders. Under
the Tennessee Business Corporation Act, a dividend may be paid by a Tennessee
corporation unless, after giving it effect, the corporation would not be able to
meet its debts as they become due in the usual course of business or the
corporation's total assets would be less than the sum of its total liabilities
plus the amount that would be needed, if the corporation were to be dissolved at
the time of the dividend, to satisfy any preferential rights upon dissolution of
stockholders whose preferential rights are superior to those receiving the
distribution. Assuming the issuance of 282,625 and 382,375 shares of Conversion
Stock at the minimum and maximum of the Valuation Price Range, respectively, and
the retention of $100,000 of the net proceeds from the Offerings, after
deducting the amounts retained to fund the ESOP, the Company estimates that it
would have approximately $100,000 in net proceeds which would be available for
the payment of dividends and other corporate purposes, and that the Bank would
have at least $2.9 million available for the payment of dividends to the Company
under current OTS regulations.
MARKET FOR THE COMMON STOCK
There is no established market for the Bank Common Stock. As a newly
organized company, the Company has never issued capital stock, and consequently
there is no established market for the Common Stock. The Company has requested
that Trident Securities undertake to match offers to buy and offers to sell the
Common Stock, and Trident Securities intends to list the Common Stock
over-the-counter through the National Daily Quotation System "Pink Sheets"
published by the National Quotation Bureau, Inc. It is anticipated that Trident
Securities will use its best efforts to match offers to buy and offers to sell
shares of Common Stock. Such efforts are expected to
8
<PAGE>
include solicitation of potential buyers and sellers in order to match buy and
sell orders. However, Trident Securities will not be subject to any continuing
obligation to continue such efforts in the future.
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, the Bank or any market maker. Due to the size of the Offerings, it
is highly unlikely that a stockholder base sufficiently large to create an
active trading market will develop and be maintained. Investors in the Common
Stock could have difficulty disposing of their shares and should not view the
Common Stock as a short-term investment. The absence of an active and liquid
trading market for the Common Stock could affect the price and liquidity of the
Common Stock.
At September 30, 1996, there were 510,000 shares of Bank Common Stock
outstanding, including 180,000 Public Bank Shares, which were held of record by
approximately 104 stockholders. There is no established market for the Bank
Common Stock nor any uniformly quoted prices. The last sale price of the Bank
Common Stock of which the Bank is aware was $11.68 per share. The Bank has not
paid any dividends on the Bank Common Stock since it was issued in 1994.
9
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Bank
at September 30, 1996, and the pro forma consolidated capitalization of the
Company after giving effect to the Conversion and Reorganization, based upon the
sale of the number of shares shown below, the issuance of Exchange Shares and
the other assumptions set forth under "Pro Forma Data."
Pro Forma Consolidated Capitalization of
the Company at September 30, 1996 Based on the Sale of:
------------------------------------------------------
<TABLE>
<CAPTION>
Minimum Midpoint
Middlesboro 282,625 332,500
Federal as of Price of Price of
September 30, $10.00 $10.00
1996 per share per share
-------------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Deposits (2).................................................... $ 71,906 $ 71,906 $ 71,906
Advances from the FHLB.......................................... 6,000 6,000 6,000
Other liabilities............................................... 1,508 1,508 1,508
--------- ---------- ----------
Total liabilities........................................... $ 79,414 $ 79,414 $ 79,414
========= ========== ==========
Stockholders' equity:
Preferred stock, $1.00 and $0.01 par value;
2,000,000 shares authorized
none to be issued......................................... -- -- --
Common Stock, $1.00 and $0.01 par value
8,000,000 shares authorized; shares
shares issued or to be issued as
reflected (3)............................................. 510 437 514
Additional paid-in capital (4)............................... 1,023 3,572 3,994
Retained earnings (5)........................................ 3,146 3,146 3,146
Less:
Net unrealized loss on securities
available for sale......................................... (294) (294) (294)
Common Stock held by the ESOP (6)............................ -- (131) (154)
Common Stock held by the 1997 MRP (7)........................ -- (113) (133)
--------- ---------- ----------
Total stockholders' equity...................................... $ 4,385 $ 6,617 $ 7,073
========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Consolidated Capitalization of
the Company at September 30, 1996 Based on the Sale of:
------------------------------------------------------
Maximum
Maximum as adjusted
382,375 439,731
Price of Price of
$10.00 $10.00
per share per share
--------- ---------
<S> <C> <C>
Deposits (2).................................................... $ 71,906 $ 71,906
Advances from the FHLB.......................................... 6,000 6,000
Other liabilities............................................... 1,508 1,508
---------- ----------
Total liabilities........................................... $ 79,414 $ 79,414
========== ==========
Stockholders' equity:
Preferred stock, $1.00 and $0.01 par value;
2,000,000 shares authorized
none to be issued......................................... -- --
Common Stock, $1.00 and $0.01 par value
8,000,000 shares authorized; shares
shares issued or to be issued as
reflected (3)............................................. 591 680
Additional paid-in capital (4)............................... 4,416 4,901
Retained earnings (5)........................................ 3,146 3,146
Less:
Net unrealized loss on securities
available for sale......................................... (294) (294)
Common Stock held by the ESOP (6)............................ (177) (204)
Common Stock held by the 1997 MRP (7)........................ (153) (176)
---------- ----------
Total stockholders' equity...................................... $ 7,529 $ 8,053
========== ==========
</TABLE>
(footnotes on following page)
10
<PAGE>
- -------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Valuation Price Range of up to
15% to reflect changes in market and financial conditions following the
commencement of the Offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Conversion Stock in the Offerings. Such withdrawals would reduce pro
forma deposits by the amount of such withdrawals.
(3) Assumes (i) that the 180,000 Public Bank Shares outstanding at
September 30, 1996 are converted into 154,159, 181,363, 208,568 and
239,853 Exchange Shares at the minimum, midpoint, maximum and 15% above
the maximum of the Valuation Price Range, respectively; (ii) no
stockholder has exercised dissenters' rights of appraisal; and (iii)
that no fractional shares of Exchange Shares will be issued by the
Company. Because the Bank Common Stock has a par value of $1.00 per
share and the Common Stock has a par value of $0.01 per share, the
Company's Common Stock account will be smaller than the Bank's.
(4) The pro forma additional paid-in capital includes the $33,000 to be
acquired by the Bank upon the merger of the Mutual Holding Company
(following its conversion to an interim federal stock savings bank)
into the Bank.
(5) The retained earnings of the Bank will be substantially restricted
after the Conversion and Reorganization by virtue of the liquidation
account to be established in connection with the Conversion and
Reorganization. See "The Conversion and Reorganization -- Liquidation
Rights."
(6) Assumes that 3.0% of the stock issued in the Conversion and
Reorganization will be purchased by the ESOP, which is reflected as a
reduction of stockholders' equity. The ESOP shares will be purchased
with funds loaned to the Bank by the Company. See "Pro Forma Data" and
"Management of the Bank -- Certain Benefit Plans and Agreements --
Employee Stock Ownership Plan."
(7) The Company intends to adopt the 1997 MRP and to submit such plan to
stockholders at a special or annual meeting of stockholders to be held
not earlier than six months after the completion of the Conversion and
Reorganization. If the plan is approved by stockholders, the Company
intends to contribute sufficient funds to the trust created under the
1997 MRP to enable the trust to purchase a number of shares of Common
Stock equal to 4% of the Conversion Stock sold in the Offerings. The
shares are reflected as a reduction of stockholders' equity. The
issuance of authorized but unissued shares of Common Stock pursuant to
the 1997 MRP in the amount of 4% of the Conversion Stock would dilute
the voting interests of existing stockholders by approximately 3.85%.
See "Pro Forma Data" and "Management of the Bank -- Certain Benefit
Plans and Agreements -- 1997 Management Recognition Plan and Trust."
11
<PAGE>
REGULATORY CAPITAL
The following table presents the historical regulatory capital of the
Bank at September 30, 1996, and the pro forma capital of the Bank after giving
effect to the Conversion and Reorganization, based upon the sale of the number
of shares shown below, the issuance of Exchange Shares and the other assumptions
set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
Pro Forma at September 30, 1996
--------------------------------------------
Historical Regulatory Minimum 282,625 Midpoint 332,500
Capital at Price of $10.00 Price of $10.00
September 30, 1996 per share per share
------------------ ------------------ -------------------
% of % of % of
Amount Assets Amount Assets Amount Assets
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
GAAP Capital............................ $ 4,385 5.24% $ 6,550 7.61% $ 7,006 8.09%
Tangible capital (2).................... $ 4,678 5.56% $ 6,843 7.92% $ 7,299 8.40%
Tangible requirement.................... 1,261 1.50 1,295 1.50 1,303 1.50
------- ------ -------- ------ --------- ------
Excess................................ $ 3,417 4.06% $ 5,548 6.42% $ 5,996 6.90%
======= ====== ======== ====== ========= ======
Core capital (2)(3)..................... $ 4,678 5.56% $ 6,843 7.92% $ 7,299 8.40%
Core requirement........................ 2,523 3.00 2,592 3.00 2,606 3.00
------- ------ -------- ------ --------- ------
Excess................................ $ 2,155 2.56% $ 4,251 4.92% $ 4,693 5.40%
======= ====== ======== ====== ========= ======
Total capital (4)(5).................... $ 4,873 9.44% $ 7,038 13.51% $ 7,494 14.36%
Risk-based requirement.................. 4,130 8.00 4,167 8.00 4,174 8.00
------- ------ -------- ------ --------- ------
Excess................................ $ 743 1.44% $ 2,871 5.51% $ 3,320 6.36%
======= ====== ======== ====== ========= ======
</TABLE>
<TABLE>
<CAPTION>
Pro Forma at September 30, 1996
----------------------------------------------
Maximum 382,375 Maximum as adjusted
Price of $10.00 439,731 Price of
per share $10.00 per share
------------------- -------------------
% of % of
Amount Assets Amount Assets
<S> <C> <C> <C> <C>
GAAP Capital............................ $ 7,462 8.57% $ 7,986 9.12%
Tangible capital (2).................... $ 7,755 8.88% $ 8,279 9.42%
Tangible requirement.................... 1,310 1.50 1,318 1.50
-------- ------ ------- ------
Excess................................ $ 6,445 7.38% $ 6,961 7.92%
======== ====== ======= ======
Core capital (2)(3)..................... $ 7,755 8.88% $ 8,279 9.42%
Core requirement........................ 2,621 3.00 2,637 3.00
-------- ------ ------- ------
Excess................................ $ 5,134 5.88% $ 5,642 6.42%
======== ====== ======= ======
Total capital (4)(5).................... $ 7,950 15.21% $ 8,474 16.18%
Risk-based requirement.................. 4,182 8.00 4,191 8.00
-------- ------ ------- ------
Excess................................ $ 3,768 7.21% $ 4,283 8.18%
======== ====== ======= ======
</TABLE>
- -----------------------
(1) Under the OTS policy, net unrealized gains or losses on securities
classified as available for sale are excluded from regulatory capital
when computing core and risk-based capital. The net unrealized loss on
securities classified as available for sale amounted to $443,000
($294,000, net of tax effect) as of September 30, 1996.
(2) Tangible and core capital are computed as a percentage of adjusted
total assets of $84.1 million prior to the consummation of the
Offerings and $86.4 million, $86.8 million, $87.3 million and $87.9
million following the issuance of 282,625, 332,500, 382,375 and 439,731
shares in the Conversion and Reorganization, respectively. Risk-based
capital is computed as a percentage of adjusted risk-weighted assets of
$51.6 million prior to the consummation of the Offerings and $52.1
million, $52.2 million, $52.3 million and $52.4 million following the
issuance of 282,625, 332,500, 382,375 and 439,731 shares in the
Conversion and Reorganization, respectively.
(3) Does not reflect, in the case of the core capital requirement, the 4.0%
requirement to be met in order of an institution to be "adequately
capitalized" under applicable laws and regulations. See "Regulation --
Regulation of the Bank -- Prompt Corrective Regulatory Action."
(4) The pro forma risk-based capital ratios (i) reflect the receipt by the
Bank of the assets held by the Mutual Holding Company and all but
$100,000 of the estimated net proceeds from the Offerings and (ii)
assume the investment of the net remaining proceeds received by the
Bank in assets which have a risk-weight of 20% under applicable
regulations, as if such net proceeds had been received and so applied
at September 30, 1996.
(5) Includes the $195,000 of general allowance for loan losses that was
included in risk-based capital as of September 30, 1996.
12
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Conversion Stock cannot be
determined until the Conversion and Reorganization are completed. However, net
proceeds are currently estimated to be between $2.5 million and $3.5 million (or
$4.0 million in the event the Valuation Price Range is increased by 15%) based
upon the following assumptions: (i) all shares of Conversion Stock will be sold
in the Subscription Offering and the Community Offering; and (ii) expenses,
including the marketing fees paid to Trident Securities, will approximate
$350,000. Actual expenses may vary from those estimated.
Pro forma net income and stockholders' equity have been calculated for
the three months ended September 30, 1996 and the year ended June 30, 1996 as if
the Conversion Stock to be issued in the Offerings had been sold (and the
Exchange Shares issued) at the beginning of such periods and the net proceeds
had been invested at 5.69% and 5.73%, which represent the yields on one-year
U.S. Government securities at September 30, 1996 and June 30, 1996 (which, in
light of changes in interest rates in recent periods, are deemed to more
accurately reflect pro forma reinvestment rates than the arithmetic average
method). The effect of withdrawals from deposit accounts for the purchase of
Conversion Stock had not been reflected. An effective federal income tax rate of
34.0% has been assumed for the periods, resulting in an after-tax yield of 3.76%
and 3.78% for the three months ended September 30, 1996 and the year ended June
30, 1996. Historical and pro forma per share amounts have been calculated by
dividing historical and pro forma amounts by the indicated number of shares of
Common Stock, as adjusted to give effect to the shares purchased by the ESOP.
See Note 4 to the table below. No effect has been given in the pro forma
stockholders' equity calculations for the assumed earnings on the net proceeds.
As discussed under "Use of Proceeds," the Company intends to contribute all but
$100,000 of the net proceeds from the Offerings.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma stockholders' equity represents the difference
between the stated amount of assets and liabilities of the Company computed in
accordance with generally accepted accounting principles ("GAAP"). The pro forma
stockholders' equity is not intended to represent the fair market value of the
Common Stock and may be different than amounts that would be available for
distribution to stockholders in the event of liquidation. No effect has been
given in the tables to (i) the Company's results of operations after the
Conversion and Reorganization or (ii) the market price of the Common Stock after
the Conversion and Reorganization.
13
<PAGE>
The following table summarizes historical data of the Bank and
consolidated pro forma data of the Company at or for the dates and periods
indicated based on assumptions set forth above and in the table and should not
be used as a basis for projections of the market value of the Common Stock
following the Conversion and Reorganization.
<TABLE>
<CAPTION>
At or for the Three Months Ended September 30, 1996
-----------------------------------------------------------
282,625 332,500 382,375 439,731
Shares Sold Shares Sold Shares Sold Shares Sold
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
---------- --------- ---------- ----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds......................................... $ 2,826 $ 3,325 $ 3,824 $ 4,397
Less: Offering expenses and commissions................ (350) (350) (350) (350)
---------- --------- ---------- ----------
Estimated net conversion proceeds (1)............... 2,476 2,975 3,474 4,047
Less: Shares purchased by the ESOP.................... (131) (154) (177) (204)
Shares purchased by the 1997 MRP................ (113) (133) (153) (176)
Add: Assets consolidated from the Mutual
Holding Company............................... 33 33 33 33
---------- --------- ---------- ----------
Estimated proceeds available for investment .......... $ 2,265 $ 2,721 $ 3,177 $ 3,701
========== ========= ========== ==========
Net income:
Historical.......................................... $ (222) $ (222) $ (222) $ (222)
Pro forma adjustments:
Net income from proceeds............................ 21 26 30 35
Pro forma ESOP adjustment (2)....................... (2) (3) (3) (3)
Pro forma 1997 MRP adjustment (3)................... (4) (5) (5) (6)
---------- --------- ---------- ----------
Pro forma net income.............................. $ (207) $ (204) $ (200) $ (196)
========== ========= ========== ==========
Net income per share: (4)
Historical.......................................... $ (0.52) $ (0.45) $ (0.39) $ (0.34)
Pro forma income on net proceeds.................... 0.05 0.06 0.06 0.06
Pro forma ESOP adjustment (2)....................... (0.01) (0.01) (0.01) (0.01)
Pro forma 1997 MRP adjustment (3)................... (0.01) (0.01) (0.01) (0.01)
---------- --------- ---------- ----------
Pro forma net income per share (4)..................... $ (0.49) $ (0.41) $ (0.35) $ (0.30)
========== ========= ========== ==========
Offering price to pro forma annualized
net income per share................................. (5.10)x (6.10)x (7.14)x (8.33)x
Stockholders' equity:
Historical (5)(8).................................... $ 4,418 $ 4,418 $ 4,418 $ 4,418
Estimated net proceeds............................... 2,476 2,975 3,474 4,047
Less: Common Stock acquired by the ESOP (2)........ (131) (154) (177) (204)
Common Stock acquired by the
1997 MRP (3).............................. (113) (133) (153) (176)
---------- --------- ---------- ----------
Pro forma stockholders' equity (6)................... $ 6,650 $ 7,106 $ 7,562 $ 8,086
========== ========= ========== ==========
Stockholders' equity per share (4):
Historical........................................... $ 10.11 $ 8.60 $ 7.48 $ 6.50
Estimated net proceeds............................... 5.68 5.79 5.88 5.96
Less: Common Stock acquired by the ESOP(2)......... (0.30) (0.30) (0.30) (0.30)
Common stock acquired by the
1997 MRP(3)................................ (0.26) (0.26) (0.26) (0.26)
---------- --------- ---------- ----------
Pro forma stockholders' equity per share (6)........... $ 15.23 $ 13.83 $ 12.80 $ 11.90
========== ========= ========== ==========
</TABLE>
(Footnotes on succeeding page)
14
<PAGE>
- -------------------
(1) Estimated net proceeds as adjusted, consist of the estimated net
proceeds from the Offerings less (i) the proceeds attributable to the
purchase by the ESOP and (ii) the value of the shares to be purchased
by the 1997 MRP, subject to stockholder approval, after the Conversion
and Reorganization at an assumed purchase price of $10.00 per share.
(2) Assumes that 3.0% of the shares of stock to be issued in the Conversion
and Reorganization will be purchased by the ESOP with funds loaned by
the Company. The Bank intends to make annual contributions to the ESOP
in an amount at least equal to the principal and interest requirement
of the debt. The pro forma net income assumes (i) that the loan to the
ESOP is payable over 10 years, with the ESOP shares having an average
fair value of $10.00 per share in accordance with SOP 93-6, and (ii)
the effective tax rate was 34.0% for each period. See "Management of
the Bank - - Certain Benefit Plans and Agreements -- Employee Stock
Ownership Plan."
(3) Assumes that the 1997 MRP will purchase, following stockholder approval
of such plan, a number of shares of Common Stock equal to 4% of the
Conversion Stock for issuance to officers and employees. Funds used by
the 1997 MRP to purchase the shares initially will be contributed to
the 1997 MRP by the Company. The adjustment is based upon the assumed
purchases by the 1997 MRP of 11,305, 13,300, 15,295 and 17,589 shares
at the minimum, midpoint, maximum and 15% above the maximum of the
Valuation Price Range, assuming that: (i) stockholder approval of the
1997 MRP has been received; (ii) the shares were acquired by the 1997
MRP at the beginning of the period shown through open market purchases
at the Purchase Price; (iii) the amortized expense for the three months
ended September 30, 1996 was 5.0% of the amount contributed; and (iv)
the effective tax rate applicable to such employee compensation expense
was 34.0%. If the 1997 MRP purchases authorized but unissued shares
instead of making open market purchases, the voting interests of
existing stockholders would be diluted by approximately 3.85% and pro
forma net income per share for the three months ended September 30,
1996 would be $(0.47), $(0.39), $(0.34) and $(0.29), and pro forma
stockholders' equity per share at September 30, 1996 would be $14.84,
$13.48, $12.47 and $11.60, in each case at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range,
respectively. See "Management of the Bank -- Certain Benefit Plans and
Agreements."
(4) The per share calculations are determined by adding the number of
shares assumed to be issued in the Conversion and Reorganization and,
in accordance with SOP 93-6, subtracting 97.5% of the ESOP shares which
have not been committed for release during the three months ended
September 30, 1996, respectively. Thus, it is assumed at September 30,
1996 that 424,008, 498,832, 573,658 and 659,706 shares of Common Stock
are outstanding the minimum, midpoint, maximum and 15% above the
maximum of the Valuation Price Range, respectively. The uncommitted
ESOP shares were not subtracted from shares outstanding for the purpose
of calculating stockholders' equity.
(5) Includes the $33,000 to be acquired by the Bank upon the merger of the
Mutual Holding Company (following its conversion to an interim federal
savings bank) into the Bank.
(6) The retained earnings of the Bank will be substantially restricted
after the Conversion and Reorganization by virtue of the liquidation
account to be established in connection with the Conversion and
Reorganization. See "Dividend Policy" and "The Conversion and
Reorganization -- Liquidation Rights."
(7) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Valuation Price Range of up to
15% to reflect changes in market and financial condition following the
commencement of the Offerings.
(8) The book value of the Bank does not give effect to the liquidation
account in event of liquidations.
15
<PAGE>
<TABLE>
<CAPTION>
At or for the Year Ended June 30, 1996
----------------------------------------------------------
282,625 332,500 382,375 439,731
Shares Sold Shares Sold Shares Sold Shares Sold
at $10.00 at $10.00 at $10.00 at $10.00
---------- --------- ---------- ----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds......................................... $ 2,826 $ 3,325 $ 3,824 $ 4,397
Less: Offering expenses and commissions................ (350) (350) (350) (350)
---------- --------- ---------- ----------
Estimated net conversion proceeds (1)............... 2,476 2,975 3,474 4,047
Less: Shares purchased by the ESOP.................... (131) (154) (177) (204)
Shares purchased by the 1997 MRP................ (113) (133) (153) (176)
Add: Assets consolidated from the Mutual
Holding Company............................... 33 33 33 33
---------- --------- ---------- ----------
Estimated proceeds available for investment .......... $ 2,265 $ 2,721 $ 3,177 $ 3,701
========== ========= ========== ==========
Net income:
Historical.......................................... $ 146 $ 146 $ 146 $ 146
Pro forma adjustments:
Net income from proceeds............................ 86 103 120 140
Pro forma ESOP adjustment (2)....................... (9) (10) (12) (13)
Pro forma 1997 MRP adjustment (3)................... (15) (18) (20) (23)
---------- --------- ---------- ----------
Pro forma net income.............................. $ 208 $ 221 $ 234 $ 250
========== ========= ========== ==========
Net income per share: (4)
Historical.......................................... $ 0.34 $ 0.29 $ 0.25 $ 0.22
Pro forma income net proceeds....................... 0.21 0.21 0.21 0.21
Pro forma ESOP adjustment (2)....................... (0.02) (0.02) (0.02) (0.02)
Pro forma 1997 MRP adjustment (3)................... (0.04) (0.04) (0.03) (0.03)
---------- --------- ---------- ----------
Pro forma net income per share (4)..................... $ 0.49 $ 0.44 $ 0.41 $ 0.38
========== ========= ========== ==========
Offering price to pro forma annualized
net income per share................................. 20.41x 22.73x 24.39x 26.32x
Stockholders' equity:
Historical (5)(8).................................... $ 4,629 $ 4,629 $ 4,629 $ 4,629
Estimated net proceeds............................... 2,476 2,975 3,474 4,047
Less: Common Stock acquired by the ESOP (2)........ (131) (154) (177) (204)
Common Stock acquired by the
1997 MRP (3).............................. (113) (133) (153) (176)
---------- --------- ---------- ----------
Pro forma stockholders' equity (6)................... $ 6,861 $ 7,317 $ 7,773 $ 8,297
========== ========= ========== ==========
Stockholders' equity per share (4):
Historical........................................... $ 10.60 $ 9.01 $ 7.83 $ 6.81
Estimated net proceeds............................... 5.67 5.79 5.88 5.96
Less: Common Stock acquired by the ESOP(2)......... (0.30) (0.30) (0.30) (0.30)
Common stock acquired by the
1997 MRP(3)............................... (0.26) (0.26) (0.26) (0.26)
---------- --------- ---------- ----------
Pro forma stockholders' equity per share (6)........... $ 15.71 $ 14.24 $ 13.15 $ 12.21
========== ========= ========== ==========
Offering price as a percentage of pro forma
stockholders' equity per share..................... 63.65% 70.22% 76.05% 81.90%
========== ========= ========== ==========
</TABLE>
(Footnotes on succeeding page)
16
<PAGE>
(1) Estimated net proceeds as adjusted, consist of the estimated net
proceeds from the Offerings less (i) the proceeds attributable to the
purchase by the ESOP and (ii) the value of the shares to be purchased
by the 1997 MRP, subject to stockholder approval, after the Conversion
and Reorganization at an assumed purchase price of $10.00 per share.
(2) Assumes that 3.0% of the shares of stock to be issued in the Conversion
and Reorganization will be purchased by the ESOP with funds loaned by
the Company. The Bank intends to make annual contributions to the ESOP
in an amount at least equal to the principal and interest requirement
of the debt. The pro forma net income assumes (i) that the loan to the
ESOP is payable over 10 years, with the ESOP shares having an average
fair value of $10.00 per share in accordance with SOP 93-6, and (ii)
the effective tax rate was 34.0% for each period. See "Management of
the Bank - - Certain Benefit Plans and Agreements -- Employee Stock
Ownership Plan."
(3) Assumes that the 1997 MRP will purchase, following stockholder approval
of such plan, a number of shares of Common Stock equal to 4% of the
Conversion Stock for issuance to officers and employees. Funds used by
the 1997 MRP to purchase the shares initially will be contributed to
the 1997 MRP by the Company. The adjustment is based upon the assumed
purchases by the 1997 MRP of 11,305, 13,300, 15,295 and 17,589 shares
at the minimum, midpoint, maximum and 15% above the maximum of the
Valuation Price Range, assuming that: (i) stockholder approval of the
1997 MRP has been received; (ii) the shares were acquired by the 1997
MRP at the beginning of the period shown through open market purchases
at the Purchase Price; (iii) the amortized expense for the year ended
June 30, 1996 was 20.0% of the amount contributed; and (iv) the
effective tax rate applicable to such employee compensation expense was
34.0%. If the 1997 MRP purchases authorized but unissued shares instead
of making open market purchases, the voting interests of existing
stockholders would be diluted by approximately 3.85% and pro forma net
income per share for the year ended June 30, 1996 would be $0.49,
$0.44, $0.41 and $0.38, and pro forma stockholders' equity per share at
June 30, 1996 would be $15.31, $13.88, $12.82 and $11.90, in each case
at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range, respectively. See "Management of the Bank --
Certain Benefit Plans and Agreements."
(4) The per share calculations are determined by adding the number of
shares assumed to be issued in the Conversion and Reorganization and,
in accordance with SOP 93-6, subtracting 10.0% of the ESOP shares which
have not been committed for release during the year ended June 30,
1996, respectively. Thus, it is assumed at June 30, 1996 that 424,991,
499,989, 574,988 and 661,235 shares of Common Stock are outstanding the
minimum, midpoint, maximum and 15% above the maximum of the Valuation
Price Range, respectively. The uncommitted ESOP shares were not
subtracted from shares outstanding for the purpose of calculating
stockholders' equity.
(5) Includes the $33,000 to be acquired by the Bank upon the merger of the
Mutual Holding Company (following its conversion to an interim federal
savings bank) into the Bank.
(6) The retained earnings of the Bank will be substantially restricted
after the Conversion and Reorganization by virtue of the liquidation
account to be established in connection with the Conversion and
Reorganization. See "Dividend Policy" and "The Conversion and
Reorganization -- Liquidation Rights."
(7) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Valuation Price Range of up to
15% to reflect changes in market and financial condition following the
commencement of the Offerings.
(8) The book value of the Bank does not give effect to the liquidation
account in event of liquidations.
17
<PAGE>
MIDDLESBORO FEDERAL BANK, FEDERAL SAVINGS BANK
STATEMENTS OF INCOME
The following Statements of Income of Middlesboro Federal for each of
the years in the two-year period ended June 30, 1996 have been audited by Marr,
Miller & Myers, P.S.C., independent certified public accountants, whose report
thereon appears elsewhere herein. The Statements of Income should be read in
conjunction with the Financial Statements and related notes included elsewhere
in this Prospectus. The Statements of Income for the three months ended
September 30, 1996 and 1995 are unaudited, but in the opinion of management,
reflect all adjustments necessary for a fair presentation of the results of such
periods and such adjustments are of a normal recurring nature. The results of
operations for the three months ended September 30, 1996 are not necessarily
indicative of the results of the Bank that may be expected for the entire fiscal
year.
<TABLE>
<CAPTION>
Three Months Ended
September 30, Year Ended June 30,
---------------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- ------
(In thousands)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans............................................... $ 1,319 $ 932 $ 4,149 $ 2,989
Mortgage-backed securities.......................... 121 187 635 720
Investment securities and other
interest-earning assets........................... 58 107 389 602
FHLB stock.......................................... 8 7 29 36
-------- -------- -------- --------
Total interest income........................... 1,506 1,233 5,202 4,347
INTEREST EXPENSE...................................... 913 803 3,317 2,445
-------- -------- -------- --------
NET INTEREST INCOME................................... 593 430 1,885 1,902
PROVISION FOR LOAN LOSSES............................. 30 3 58 18
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES..................................... 563 427 1,827 1,884
-------- -------- -------- --------
NONINTEREST INCOME
Loan fees and service charges....................... 135 64 272 214
Gain (loss) on sales of investment
securities........................................ -- -- 20 (96)
Other............................................... -- -- 20 18
-------- -------- -------- --------
Total noninterest income........................ 135 64 312 136
-------- -------- -------- --------
NET INTEREST AND OTHER INCOME......................... 698 491 2,139 2,020
-------- -------- -------- --------
NONINTEREST EXPENSE
Salaries and employee benefits...................... 369 220 975 789
Service bureau...................................... 32 28 100 96
SAIF deposit insurance premium...................... 427 17 144 131
Occupancy and equipment............................. 35 27 144 153
Marketing and other professional
services.......................................... 46 23 132 83
Bank share tax...................................... 18 17 96 62
Other............................................... 90 73 289 262
-------- -------- -------- --------
Total noninterest expense....................... 1,017 405 1,880 1,576
-------- -------- -------- --------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES........................................ (319) 86 259 444
PROVISION (BENEFIT) FOR INCOME TAXES.................. (97) 10 113 151
-------- -------- -------- --------
NET INCOME (LOSS)..................................... $ (222) $ 76 $ 146 $ 293
======== ======== ======== ========
PER SHARE OF BANK COMMON STOCK:
Earnings (loss)..................................... $ (.44) $ .15 $ .29 $ .57
======== ======== ======== ========
Dividends........................................... $ -- $ -- $ -- $ --
======== ======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Middlesboro Federal is primarily engaged in attracting deposits from
the general public and using those and other available sources of funds to
originate loans secured by properties located in Bell and Harlan Counties in
southeastern Kentucky, Clairborne, Knox and Union Counties in upper east
Tennessee and western Lee County in Virginia. To a lesser extent, Middlesboro
Federal also originates construction loans, multi-family and commercial real
estate loans, commercial business loans and consumer loans. It also has a
significant amount of investments in mortgage-backed securities and United
States Government and federal agency obligations.
The profitability of Middlesboro Federal depends primarily on its net
interest income, which is the difference between interest and dividend income on
its interest-earning assets, principally loans, mortgage-backed securities and
investment securities, and interest expense on its interest-bearing deposits and
borrowings. Middlesboro Federal's net earnings also are dependent, to a lesser
extent, on the level of its noninterest income (including servicing fees and
other fees) and its noninterest expenses, such as compensation and benefits,
occupancy and equipment, insurance premiums, and miscellaneous other expenses,
as well as federal income tax expense.
Asset and Liability Management
The ability to maximize net interest income is largely dependent upon
the achievement of a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates. 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 have the
opposite effect.
Net Portfolio Value. In recent years, the Bank has measured its
interest rate sensitivity by computing the "gap" between the assets and
liabilities which were expected to mature or reprice within certain periods,
based on assumptions regarding loan prepayment and deposit decay rates formerly
provided by the OTS. However, the OTS now requires the computation of amounts by
which the net present value of an institution's cash flows from assets,
liabilities and off balance sheet items (the institution's net portfolio value,
or "NPV") would change in the event of a range of assumed changes in market
interest rates. The OTS also requires the computation of estimated changes in
net interest income over a four-quarter period. These computations estimate the
effect of an institution's NPV and net interest income of instantaneous and
permanent 1% to 4% increases and decreases in market interest rates.
19
<PAGE>
The following table sets forth the interest rate sensitivity of the
Bank's net portfolio value as of September 30, 1996 in the event of 1%, 2%, 3%
and 4% instantaneous and permanent increases and decreases in market interest
rates, respectively. These changes are set forth below as basis points, where
100 basis points equals one percentage point.
<TABLE>
<CAPTION>
Net Portfolio Value NPV as % of Portfolio Value of Assets
Change ----------------------------------------------- -------------------------------------
in Rates $ Amount $ Change % Change NPV Ratio Basis Point Change
-------- -------- -------- -------- --------- ------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+ 400 bp 1,553 (4,445) (74) 1.95 (506) bp
+ 300 bp 2,848 (3,151) (53) 3.51 (350) bp
+ 200 bp 4,066 (1,933) (32) 4.91 (210) bp
+ 100 bp 5,142 (856) (14) 6.11 (91) bp
0 bp 5,998 -- -- 7.02 --
- 100 bp 6,579 581 10 7.60 59 bp
- 200 bp 6,900 902 15 7.90 89 bp
- 300 bp 7,401 1,403 23 8.39 137 bp
- 400 bp 8,150 2,152 36 9.11 209 bp
</TABLE>
The following table sets forth the interest rate risk capital component
for the Bank at September 30, 1996 given a hypothetical 200 basis point rate
change in market interest rates.
<TABLE>
<CAPTION>
September 30, 1996
------------------
<S> <C>
Pre-shock NPV Ratio: NPV as % of Portfolio Value of Assets................... 7.02%
Exposure Measure: Post-Shock NPV Ratio....................................... 4.91%
Sensitivity Measure: Change in NPV Ratio..................................... (210) bp
</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 run-offs, 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 prior tables
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
Association's portfolios 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 service their adjustable-rate
debt may decrease in the event of an interest rate increase.
The lending activities of savings associations have historically
emphasized long-term, fixed-rate loans secured by single-family residences, and
the primary source of funds of such institutions has been deposits. The deposit
accounts of savings associations generally bear interest rates that reflect
market rates and largely mature or
20
<PAGE>
are subject to repricing within a short period of time. This factor, in
combination with substantial investments in long-term, fixed-rate loans, has
historically caused the income earned by savings associations on their loan
portfolios to adjust slowly to changes in interest rates than their cost of
funds.
Middlesboro Federal originates both fixed- and adjustable-rate
residential real estate loans as market conditions dictate. Prior to the 1980s,
Middlesboro Federal, like virtually all savings associations, originated only
fixed-rate loans and held them in portfolio until maturity. As a result of the
problems caused by holding fixed-rate loans in a rapidly increasing
interest-rate environment, changes in regulations to allow for variable-rate
loans and consumer demand for such loans during periods of high interest rates,
Middlesboro Federal began to transform its portfolio into loan products the
interest rates of which adjust periodically. As a result, 83.1% of Middlesboro
Federal's loan portfolio, as of September 30, 1996 consisted of adjustable or
floating rate loans.
Notwithstanding the foregoing, however, because Middlesboro Federal's
interest-bearing liabilities which mature or reprice within short periods
substantially exceed its earning assets with similar characteristics, material
and prolonged increases in interest rates generally would adversely affect net
interest income, while material and prolonged decreases in interest rates
generally, but to a lesser extent because of their historically low levels,
would have the opposite effect.
21
<PAGE>
Average Balances, Interest and Average Yields
The following table sets forth certain information relating to the Bank's
average balance sheet and reflects the average yield on assets and average cost
of liabilities for the periods indicated and the average yields earned and rates
paid at the date and for the periods indicated. Such yields and costs are
derived by dividing income or expense by the average monthly balance of assets
or liabilities, respectively, for the periods presented. Average balances for
loans include nonaccrual loans. Average balances are derived from month-end
balances. Management does not believe that the use of month-end balances instead
of daily balances has caused any material difference in the information
presented.
<TABLE>
<CAPTION>
At September 30, Three Months Ended September 30,
1996 1996
------------------------ --------------------------------------
Average Average
Balance Rate Balance Interest Rate
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans
Consumer............................... $ 8,343 10.27% $ 7,890 $ 202 10.24%
Other.................................. 1,858 6.21 2,312 42 7.27
Mortgage............................... 59,365 7.29 56,862 1,075 7.56
---------- ---------- ----------
Total loans........................... 69,566 7.64 67,064 1,319 7.87
---------- ---------- ----------
Mortgage-backed securities............... 7,655 6.35 7,759 121 6.24
Investment securities.................... 3,890 5.85 4,103 58 5.65
FHLB stock............................... 444 7.00 436 8 7.34
---------- ---------- ----------
Total interest-earning assets............ 81,555 7.39 79,362 1,506 7.59
---------- ---------- ----------
Non-interest-earning assets.............. 2,244 4,437
---------- ----------
Total assets.......................... $ 83,799 $ 83,799
========== ==========
INTEREST EXPENSE
Savings deposits......................... $ 8,780 2.94% $ 8,814 65 2.95%
Certificates of deposit.................. 53,497 5.58 52,207 747 5.72
Demand, NOW and money market 9,629 2.13 10,123 51 2.02
---------- ---------- ----------
Total deposits...................... 71,906 4.80 71,144 863 4.85
Funds borrowed........................... 6,000 5.45 5,867 50 3.41
---------- ---------- ----------
Total interest-bearing liabilities......... 77,906 4.69 77,071 913 4.74
---------- ---------- ----------
Other non-interest-bearing liabilities..... 1,508 2,403
Total stockholders' equity................. 4,385 4,385
---------- ---------- ----------
Total liabilities and stockholders' equity $ 83,799 $ 83,799
========== ==========
Net interest income........................ $ 593
==========
Interest rate spread....................... 2.70% 2.85%
========= =========
Net yield on interest-earning assets....... n/a 2.99%
========= =========
Ratio of average interest-earning assets to
average interest-bearing liabilities..... n/a 103.05%
========= ==========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30,
1995
--------------------------------------
Average Average
Balance Interest Rate
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Loans
Consumer............................... $ 4,977 $ 130 10.45%
Other.................................. 2,415 44 7.29
Mortgage............................... 41,861 758 7.24
---------- ----------
Total loans........................... 49,253 932 7.57
---------- ----------
Mortgage-backed securities............... 12,042 187 6.21
Investment securities.................... 7,141 107 5.99
FHLB stock............................... 436 7 6.42
---------- ----------
Total interest-earning assets............ 68,872 1,233 7.16
---------- ----------
Non-interest-earning assets.............. 392
----------
Total assets.......................... $ 69,264
==========
INTEREST EXPENSE
Savings deposits......................... $ 9,572 71 2.96%
Certificates of deposit.................. 47,197 689 5.84
Demand, NOW and money market 7,625 43 2.26
---------- ----------
Total deposits...................... 64,394 803 4.99
Funds borrowed........................... - - -
---------- ----------
Total interest-bearing liabilities......... 64,394 803 4.99
----------
Other non-interest-bearing liabilities..... 311
Total stockholders' equity................. 4,559
----------
Total liabilities and stockholders' equity $ 69,264
==========
Net interest income........................ $ 430
==========
Interest rate spread....................... 2.17%
=========
Net yield on interest-earning assets....... 2.50%
=========
Ratio of average interest-earning assets to
average interest-bearing liabilities..... 106.95%
==========
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------------------------------------------
1996 1995
------------------------------------ ------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans
Consumer................................. $ 4,924 $ 528 10.72% $ 2,786 $ 290 10.41%
Other.................................... 2,355 194 8.24 2,415 178 7.37
Mortgage................................. 52,565 3,427 6.52 38,505 2,521 6.55
---------- ---------- ---------- ---------
Total................................. 59,844 4,149 6.93 43,706 2,989 6.84
---------- ---------- ---------- ---------
Mortgage-backed securities................. 10,446 635 6.08 13,683 720 5.26
Investment securities...................... 6,020 389 6.46 10,669 602 5.64
FHLB stock................................. 436 29 6.65 462 36 7.79
---------- ---------- ---------- ---------
Total interest-earning assets................ 76,746 5,202 6.78 68,520 4,347 6.34
---------- ---------
Non-interest-earning assets.................. 2,233 2,852
---------- ----------
Total assets.......................... $ 78,979 $ 71,372
========== ==========
INTEREST EXPENSE
Deposits
Savings deposits........................ $ 9,166 270 2.95 $ 9,729 268 2.75
Certificates of deposit................. 49,955 2,836 5.68 44,607 2,007 4.50
Demand, NOW, and money market........... 9,264 202 2.18 7,131 160 2.24
---------- ---------- ---------- ---------
Total deposits........................ 68,385 3,308 4.84 61,467 2,435 3.96
Funds borrowed............................ 264 9 3.41 294 10 3.40
---------- ---------- ---------- ---------
Total interest-bearing liabilities........... 68,649 3,317 4.83 61,761 2,445 3.97
---------- ---------
Other non-interest-bearing liabilities....... 5,734 5,003
Total stockholders' equity................... 4,596 4,608
---------- ----------
Total liabilities and stockholders'
equity................................ $ 78,979 $ 71,372
========== ==========
Net interest income.......................... $ 1,885 $ 1,902
========== =========
Interest rate spread......................... 1.95% 2.37%
====== ======
Net yield on interest-earning assets......... 2.46% 2.77%
====== ======
Ratio of average interest-earning assets to
average interest-bearing liabilities....... 111.79% 110.94%
====== ======
</TABLE>
23
<PAGE>
Rate/Volume Analysis
The table below sets forth certain information regarding changes in
interest income and interest expense of the Bank for the periods indicated. For
each category of interest-earning asset and interest-bearing liability,
information is provided on changes attributable to: (i) changes in volume
(changes in volume multiplied by old rate); and (ii) changes in rate (change in
rate multiplied by old volume). Changes in rate-volume (changes in rate
multiplied by the changes in volume) have been allocated proportionately between
changes in rate and changes in volume at the basis of the absolute values of
changes in rate and changes in volume.
<TABLE>
<CAPTION>
Three Months Ended
September 30, Year Ended June 30,
----------------------------------- -------------------------------
1996 vs. 1995 1996 vs. 1995
----------------------------------- -------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
----------------------------------- -------------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income
Loans:
Consumer............................ $ 76 $ (4) $ 72 $ 229 $ 9 $ 238
Other............................... (2) -- (2) (4) 20 16
Mortgage............................ 283 34 317 918 (12) 906
Mortgage-backed securities............ (62) (4) (66) (186) 101 (85)
Investment securities................. (50) 1 (49) (285) 72 (213)
FHLB stock............................ -- 1 1 (2) (5) (7)
-------- -------- ------- ------- ------- -------
Total interest income............. 245 28 273 670 185 855
-------- -------- ------- ------- ------- -------
Interest expense
Savings deposits...................... (6) -- (6) (16) 18 2
Certificates of deposit............... 72 (14) 58 261 568 829
Demand, NOW and money market.......... 13 (5) 8 46 (4) 42
Funds borrowed........................ 50 -- 50 (1) -- (1)
-------- -------- ------- ------- ------- -------
Total interest expense............ 129 (19) 110 290 582 872
-------- -------- ------- ------- ------- -------
Change in net interest income........... $ 116 $ 47 $ 163 $ 380 $ (397) $ (17)
======== ======== ======= ======= ======= =======
</TABLE>
Comparison of Financial Condition at September 30, 1996 and June 30, 1996
The Bank's total assets increased by $9.1 million, or 12.20%, from
$74.7 million at June 30, 1996 to $83.8 million at September 30, 1996. The
increase in assets was principally due to a $9.4 million, or 15.75%, increase in
the Bank's loan portfolio, as well as a $302,000, or 198.68%, increase in
prepaid expenses and other assets and a $122,000, or 13.63%, increase in
premises and equipment. These increases were partially offset by decreases of
$429,000, or 9.93%, in the investment securities portfolio, $269,000, or 30.77%,
in cash and cash equivalents and $124,000, or 1.59%, in mortgage-backed
securities.
The growth in the Bank's loan portfolio during the first quarter of
fiscal year 1997 reflects the Bank's continued focus on loan originations.
Although increased originations of one-to four-family mortgages accounted for
the most significant portion of the total increase in the loan portfolio, the
Bank experienced growth in all categories of loans.
The reduction in investment securities was due to the maturity during
the three months ended September 30, 1996 of an investment security which had
been classified as held to maturity at June 30, 1996. The decline in
24
<PAGE>
the balance of mortgage-backed securities classified as available-for-sale
reflects principal repayments on the securities.
In November 1995, the Bank purchased the property adjoining the Bank's
main office in Middlesboro and commenced construction of an addition to the
Bank's main office which is expected to be completed in December 1996. This
construction accounted for the increase in fixed assets during the first quarter
of fiscal year 1997.
The growth in the Bank's total assets was funded by an increase in
liabilities. Total liabilities at September 30, 1996 were $79.4 million, an
increase of $9.3 million, or 13.28%, from the Bank's total liabilities of $70.1
million at June 30, 1996. The most significant increase was in FHLB advances
which rose from $1.0 million at June 30, 1996 to $6.0 million at September 30,
1996. Total deposits also increased during the period from $68.9 million at June
30, 1996 to $71.9 million at September 30, 1996. The growth in deposits was
primarily centered in certificates of deposit and was attributable to increased
marketing efforts. Other liabilities rose by $967,000 to $986,000 at September
30, 1996. Included within this figure is the special SAIF assessment imposed on
all SAIF-insured institutions to help recapitalize the fund. As the legislation
was signed into law on September 30, 1996, the Bank was required to record a
liability as of that date equal to 65.7 basis points of the Bank's
SAIF-assessable deposits as of March 31, 1995. Such assessment, which amounted
to $388,000 for the Bank, was paid to the FDIC on November 27, 1996.
Total stockholders' equity declined by $211,000 from $4.6 million at
June 30, 1996 to $4.4 million at September 30, 1996. This decrease was due
directly to the net loss of $222,000 incurred for the first three months of
fiscal year 1997, offset by a decrease of $11,000 in the net unrealized loss on
investment securities designated as available-for-sale.
Comparison of Results of Operations for the Three Months Ended September 30,
1996 and 1995
Net Income. The Bank incurred a net loss of $222,000 for the three
months ended September 30, 1996 as compared to net income of $76,000 for the
three months ended September 30, 1995. The $298,000 decrease was due mainly to a
$612,000 increase in noninterest expense due primarily to the $388,000 special
assessment incurred to recapitalize the SAIF as well as a $145,000 charge
incurred to fund the Bank's director retirement plan. The increased expense
level was partially offset by a $163,000 improvement in net interest income.
Net Interest Income. Net interest income increased by $163,000 or
37.90% from $430,000 for the three months ended September 30, 1995 to $593,000
for the three months ended September 30, 1996. The increase primarily reflects
an increase in the Bank's interest rate spread from 2.17% for the three months
ended September 30, 1995 to 2.85% for the three months ended September 30, 1996.
The increased spread reflects both an increased yield on the Bank's
interest-earning assets as lower-yielding investment and mortgage-backed
securities were replaced with higher-yielding loans and a 25 basis point decline
in the average rate paid on interest-bearing liabilities. These improvements
more than offset a modest decline in the ratio of average interest-earning
assets to average interest-bearing liabilities from 106.95% for the three months
ended September 30, 1995 to 103.05% for the three months ended September 30,
1996.
Interest Income. Total interest income for the three months ended
September 30, 1996 amounted to $1.5 million, an increase of 22.15% from total
interest income of $1.2 million for the three months ended September 30, 1995.
This increase reflects the Bank's emphasis on loan originations during the
period. Interest income from loans increased by $387,000, or 41.52%, during the
three months ended September 30, 1996 as compared to the three months ended
September 30, 1995 due mainly to a $17.8 million increase in the average balance
of loans outstanding during the period as compared to the same period in the
prior year. Interest income from investment and mortgage-backed securities
decreased by $115,000 to $179,000 for the first quarter of fiscal year 1997 as
compared to $294,000 for the first quarter of fiscal year 1996 due to a decrease
of $7.3 million in the average balance of investments and mortgage-backed
securities during the three months ended September 30, 1996 as compared to the
three months
25
<PAGE>
ended September 30, 1995. The increase in the Bank's loan portfolio was
partially financed by a decrease in the Bank's investment and mortgage-backed
securities portfolio.
Interest Expense. Interest expense increased by $110,000, or 13.70%, to
$913,000 for the three months ended September 30, 1996 as compared to $803,000
for the three months ended September 30, 1995. The increase was due mainly to an
increase in the average balance of FHLB advances outstanding from zero during
the three months ended September 30, 1995 to $5.9 million during the three
months ended September 30, 1996. The borrowings were used by the Bank to help
finance the increase in its loan portfolio. The average balance of certificates
of deposit outstanding during the first quarter of fiscal year 1997 also
exceeded the average balance during the first quarter of fiscal year 1996 by
$5.0 million which also contributed to the increase in interest expense.
Partially offsetting these items were a 12 basis point decrease in the average
rate paid on certificates of deposit from 5.84% in the three months ended
September 30, 1995 to 5.72% in the three months ended September 30, 1996 and a
24 basis point decrease in the average rate paid on negotiable order of
withdrawal ("NOW") and money market accounts from 2.26% to 2.02%.
Provision for Loan Losses. Provisions for loan losses are charged to
earnings to maintain the total allowance for loan losses at a level considered
adequate by management to provide for probable loan losses, based on prior loss
experience, volume and type of lending conducted by the Bank, industry standards
and past due loans in the Bank's loan portfolio. For the three months ended
September 30, 1996, the Bank made a $30,000 provision for loan losses as
compared to a $3,000 provision in the three months ended September 30, 1995. The
increased provision was due to the growth in the Bank's loan portfolio as well
as the increase in consumer and commercial loans which are generally perceived
to be higher risk. Management anticipates that it will continue to add to the
allowance for loan losses in future periods as a result of the increase in
consumer and commercial loans. At September 30, 1996, the Bank's allowance for
loan losses totaled $195,000 and represented 43.33% of total nonperforming loans
and 0.28% of total gross loans.
Noninterest Income. Noninterest income for the three months ended
September 30, 1996 consisted entirely of loan fees and service charges. Total
noninterest income for the period amounted to $135,000, an increase of 110.94%
from total noninterest income of $64,000 for the three months ended September
30, 1995. The increase in noninterest income was due to an increased volume of
loans originated during the period as compared to the same period the prior
year.
Noninterest Expense. Noninterest expense totaled $1.0 million for the
three months ended September 30, 1996, an increase of $612,000, or 151.11%, from
a total of $405,000 for the three months ended September 30, 1995. The increase
in expenses was due to the combined effects of the SAIF special assessment
imposed on all SAIF- insured institutions such as the Bank, an increase in
salaries and employee benefit expenses and general increases in other expenses.
The Bank was required to pay a special assessment of 65.7 basis points of its
SAIF-assessable deposits at March 31, 1995. This special assessment was imposed
to recapitalize the SAIF. For the Bank, this assessment amounted to $388,000.
Total salaries and benefits for the three months ended September 30, 1996
amounted to $369,000, up from a total of $220,000 for the three months ended
September 30, 1995. The increase in 1996 was due primarily to a one-time charge
equal to $145,000 to fund a director retirement plan. Occupancy and equipment
expense rose by $8,000 to a total of $35,000 for the three months ended
September 30, 1996 due to increased repairs and maintenance.
Income Taxes. Income tax expense for the three month periods ended
September 30, 1996 and 1995 were ($97,000) and $10,000, respectively. The
decrease in 1996 as compared to 1995 was due to the net loss for the period.
26
<PAGE>
Comparison of Results of Operations for the Years Ended June 30, 1996 and 1995
Net Income. Net income for the year ended June 30, 1996 decreased by
$147,000, or 50.17%, to $146,000 from $293,000 for the year ended June 30, 1995.
The decrease was due to the combined effects of a $304,000, or 19.29%, increase
in noninterest expense and a $40,000, or 222.22%, increase in the Bank's
provision for loan losses, offset in part by an increase in noninterest income
of $176,000, or 129.41% and a $38,000, or 25.17%, decrease in the Bank's
provision for income taxes.
Net Interest Income. Net interest income stayed substantially the same
at $1.9 million for the years ended June 30, 1996 and 1995. The Bank's interest
rate spread narrowed by 42 basis points from 2.37% in fiscal year 1995 to 1.95%
in fiscal year 1996 as the improved yield on the Bank's earning assets was more
than offset by the increased rates paid on the Bank's certificates of deposit.
The ratio of average interest earning assets to average interest-bearing
liabilities remained relatively unchanged at 111.79% and 110.94% for fiscal
years 1996 and 1995, respectively.
Interest Income. Interest income totaled $5.2 million for the year
ended June 30, 1996, an increase of $855,000, or 19.67%, from fiscal year 1995's
level of $4.3 million. The increase resulted from a $16.1 million, or 36.92%,
increase in the average balance of loans outstanding from $43.7 million for
fiscal year 1995 to $59.8 million for fiscal year 1996. Mortgage loan growth
accounted for the most significant portion of the total growth. Average mortgage
loans outstanding rose from $38.5 million for fiscal year 1995 to $52.6 million
for fiscal year 1996 and reflected the Bank's increased emphasis on loan
originations during fiscal year 1996. The average balance of consumer loans also
increased year to year from $2.8 million for fiscal year 1995 to $4.9 million
for fiscal year 1996. Interest income from investment and mortgage-backed
securities declined by $298,000, or 22.54%, from $1.3 million for fiscal year
1995 to $1.0 million for fiscal year 1996 due mainly to a decrease in the
average balance of such securities of $7.9 million, offset in part by a 82 basis
point increase in the average yield on such securities. The decreased level of
the Bank's investment and mortgage-backed securities reflects the Bank's
strategy of emphasizing loan originations over investment purchases.
Interest Expense. Total interest expense increased by $872,000, or
35.66%, due primarily to the combined effects of an increase in the average rate
paid on the Bank's certificates of deposit coupled with an increase in the
average balance of such certificates during the period. The average rate paid on
the Bank's certificates of deposit for the year ended June 30, 1996 was 5.68%,
an increase of 118 basis points from an average cost of 4.50% for the year ended
June 30, 1995. The increase was due to rate competition in the Bank's market
area. The average balance of the Bank's certificates of deposit rose by $5.3
million to $50.0 million for fiscal year 1996 as compared to $44.6 million for
fiscal year 1995. Overall, the average cost of interest-bearing liabilities
increased by 86 basis points to 4.83% for the year ended June 30, 1996 as
compared to fiscal year 1995's level of 3.97% as the increase in the cost of
certificates of deposit was partially offset by a 6 basis point decrease in the
average rate paid on NOW and Money Market accounts.
Provision for Loan Losses. The provision for loan losses increased by
$40,000, or 222.22%, from $18,000 for the year ended June 30, 1995 to $58,000
for the year ended June 30, 1996. The increased provision was deemed necessary
by the Bank due to the growth in the Bank's loan portfolio and the increased
risk profile of the loan portfolio due to the growth in consumer and commercial
real estate lending during fiscal year 1996. The allowance for loan losses as a
percentage of gross loans at fiscal year end 1996 remained stable at 0.30% of
total gross loans as compared to 0.33% at fiscal year end 1995.
Noninterest Income. Noninterest income totaled $312,000 for the year
ended June 30, 1996, an increase of $176,000, or 129.41%, from $136,000 for the
year ended June 30, 1995. During fiscal year 1996, the Bank realized a net gain
of $20,000 from the sale of investment securities as compared to a net loss of
$96,000 from the sale of investment securities during fiscal year 1995. In
addition, due to the increased level of loan originations
27
<PAGE>
during the period, loan fees and other service charges rose by $58,000, or
27.10%, to a total of $272,000 for the year ended June 30, 1996 as compared to
$214,000 for the year ended June 30, 1995.
Noninterest Expense. Noninterest expense increased $304,000, or 19.29%,
from $1.6 million for the year ended June 30, 1995 to $1.9 million for the year
ended June 30, 1996. Salaries and employee benefit expenses rose by $186,000, or
23.57%, from $789,000 for fiscal year 1995 to $975,000 for fiscal year 1996. The
increase was primarily attributable to a one-time expense of $143,000, net of
the related tax effect of $49,000, which was incurred to fund a deferred
compensation agreement entered into between the Bank and an officer who retired
during the fiscal year. The remaining portion of the increase reflects normal
salary increases coupled with an increase in the Bank's staffing levels. Other
expenses increased by $27,000, or 10.30%, from $262,000 for fiscal year 1995 to
$289,000 for fiscal year 1996.
Income Tax Expense. Income tax expense decreased by $38,000 from
$151,000 for fiscal year 1995 to $113,000 for fiscal year 1996. The decrease in
income tax expense is due directly to the reduced level of earnings during
fiscal year 1996. The effective tax rates for fiscal years 1996 and 1995 were
43.6% and 34.0%, respectively. The variations in the effective tax rate are
attributable to the composition of the income base, the amount of tax exempt
income and timing differences related to the deferred compensation arrangements.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been
prepared in accordance with GAAP which require the measurement of financial
position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to
inflation.
Unlike most companies, the assets and liabilities of a financial
institution are primarily monetary in nature. As a result, interest rates have a
more significant impact on a financial institution's performance than the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or in the same magnitude as the price of goods and
services, since such prices are affected by inflation. In the current interest
rate environment, liquidity and the maturity structure of the Bank's assets and
liabilities are critical to the maintenance of acceptable performance levels.
Liquidity and Capital Resources
The Bank is required by OTS regulations to maintain minimum levels of
specified liquid assets which are currently equal to 5% of deposits and
short-term borrowings. The Bank's liquidity ratio for the month ended September
30, 1996 was 6.95% and its liquidity ratio was 7% at September 30, 1996.
The Bank's principal sources of funds for investments and operations
are net income, deposits from its primary market area, principal and interest
payments on loans and mortgage-backed securities and proceeds from maturing
investment securities. Its principal funding commitments are for the origination
or purchase of loans and the payment of maturing deposits. Deposits are
considered a primary source of funds supporting the Bank's lending and
investment activities. Deposits were $71.9 million and $69.0 million at
September 30, 1996 and June 30, 1996, respectively.
The Bank's most liquid assets are cash and cash equivalents, which are
cash on hand, amounts due from financial institutions, federal funds sold,
certificates of deposit with other financial institutions that have an original
maturity of three months or less and money market mutual funds. The levels of
such assets are dependent on the Bank's operating, financing and investment
activities at any given time. The Bank's cash and cash equivalents totaled
$605,000 at September 30, 1996 and $874,000 at June 30, 1996. The variations in
levels of cash and cash equivalents are influenced by deposit flows and
anticipated future deposit flows.
28
<PAGE>
At September 30, 1996, Middlesboro Federal had $1.4 million in
commitments to originate loans. At September 30, 1996, the Bank had $39.0
million in certificates of deposit which were scheduled to mature in one year or
less. It is anticipated that the majority of these certificates will be renewed
in the normal course of operations.
Middlesboro Federal is not aware of any trends or uncertainties that
will have or are reasonably expected to have a material effect on the Bank's
liquidity or capital resources. The Bank has no current plans for material
capital improvements or other capital expenditures that would require more funds
than are currently on hand.
Accounting Pronouncements
Disclosures About Fair Value of Financial Instruments. In December
1991, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 107, "Disclosure About Fair Value of
Financial Instruments." SFAS No. 107 requires all entities to disclose the fair
value of financial instruments (both assets and liabilities recognized and not
recognized in the financial statements) for which it is practicable to estimate
fair value, except those financial instruments specifically excluded. The
disclosure shall be either in the body of the financial statements or in the
accompanying notes and shall also include the methods and significant
assumptions used to estimate the fair value of financial instruments. Additional
information is required to be disclosed if it is not practicable for an entity
to estimate the fair value of a financial instrument or a class of financial
instruments as well as the reasons why it is not practicable to estimate fair
value. SFAS No. 107 is effective for entities with less than $150 million in
total assets in the current statement of financial condition for financial
statements issued for the fiscal year beginning July 1, 1995.
Accounting by Creditors for Impairment of a Loan. During May 1993, the
FASB issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan"
that requires impaired loans be measured based upon the present value of
expected future cash flows discounted at the loan's effective interest rate or
at the loan's market price or fair value of collateral, if the loan is
collateral dependent. Adoption of SFAS No. 114, as amended by SFAS No. 118,
occurred on June 30, 1996, and it did not have a material impact on the
financial statements.
BUSINESS OF THE COMPANY
The Company was organized at the direction of the Board of Directors of
the Bank for the purpose of becoming a holding company to own all of the
outstanding capital stock of the Bank upon completion of the Conversion and
Reorganization. For additional information, see "Cumberland Mountain Bancshares,
Inc."
The Company currently is not an operating company. Following the
Conversion and Reorganization, the Company will be primarily engaged in the
business of directing, planning and coordinating the business activities of the
Bank. In the future, the Company may become an operating company or acquire or
organize other operating subsidiaries, including other financial institutions.
Presently, there are no agreements or understandings for an expansion of the
Company's operations. 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 Mutual Bank was organized in 1915 as Middlesboro Savings and
Building Association. In 1937, the institution became federally chartered and
changed its name to Middlesboro Federal Savings and Loan Association, and in
1991, assumed its current name. In 1994, the Bank reorganized as a subsidiary of
the Mutual Holding Company issuing 330,000 shares to the Mutual Holding Company
and 180,000 shares to the Public Stockholders. The Bank operates through two
offices located in Middlesboro and Cumberland, Kentucky.
29
<PAGE>
The Bank derives its income principally from interest earned on loans
and, to a lesser extent, investment securities and interest-bearing deposits
with other banks. The Bank's principal expenses are interest expense on deposits
and noninterest expenses such as salary and employee benefits, deposit insurance
premiums and other expenses such as occupancy and data processing. Funds for
these activities are provided primarily by deposits, repayments of outstanding
loans, maturing investments and operating revenues.
Market Area
The Bank considers its primary market area for its lending and deposit
services to be Bell and Harlan Counties in southeastern Kentucky where its
branches are located and the nearby counties of Clairborne, Knox and Union in
upper east Tennessee and western Lee County in Virginia. The Bank's immediate
market areas of Bell and Harlan Counties in Kentucky and Clairborne County in
Tennessee are predominately rural and lightly populated. Bell and Harlan
Counties were severely impacted by the decline of the coal-mining industry in
the 1980s which was formerly the area's largest employer. According to 1990
Census figures, 35.9% and 32.3% of the households in Bell and Harlan Counties,
respectively, were below the federal poverty line. Between 1980 and 1990, the
population of Bell County declined by 8.2% and the population of Harlan County
declined by 12.7%. The median household income in Bell County was estimated to
$14,819 in 1996 ranking the county 110th in Kentucky in terms of household
income. Harlan County, with a median household income of $16,137, was ranked
102nd. The 1994 unemployment rate for Bell County was 7.9%. In terms of
employment, the largest industry in Bell County is currently health services.
The largest single employer in Bell County is a pork-processing plant. Coal
mining remains the largest employer in Harlan County. Knox and Union Counties in
Tennessee have more diversified economies and higher income levels than the
Bank's immediate market area, reflecting those counties' proximity to Knoxville,
the nearest population center.
Lending Activities
General. The Bank's primary lending activity is the origination of
conventional mortgage loans for the purpose of constructing, purchasing or
refinancing owner-occupied, one- to four-family residential properties in its
primary market area. At September 30, 1996, one- to four-family mortgage loans
comprised $43.7 million, or 60.29%, of the Bank's gross loan portfolio. To a
lesser extent, the Bank originates construction loans, multi-family residential
and commercial real estate loans and has purchased whole loans and loan
participations to supplement its originations. The Bank also originates secured
and unsecured commercial and consumer loans.
During recent years, the Bank has expanded the loan portfolio by
emphasizing originations in its primary market areas of Bell and Harlan
Counties, Kentucky and Claiborne, Knox and Union counties in Tennessee.
Management has also sought to diversify the loan portfolio through increased
origination of commercial mortgages and commercial loans. A significant portion
of the Bank's loan growth in recent years has involved loans secured by
properties in Knox County, Tennessee. Middlesboro Federal estimates that at
September 30, 1996 its portfolio included approximately $12.0 million in loans
secured by properties in Knox County. Approximately $10.8 million of such loans
were one- to four-family mortgages. Reflecting its prior strategy of
supplementing local originations with loan purchases from other parts of
Kentucky, the Bank's loan portfolio at September 30, 1996 also included
approximately $8.6 million in purchased mortgages secured by properties in
Central Kentucky in the Lexington area. As of the date of this Prospectus, the
Bank is attempting to sell these loans. See " -- Loan Originations, Purchases
and Sales."
30
<PAGE>
Set forth below is selected data relating to the composition of the
Bank's loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
At September 30, -------------------------------------------
1996 1996 1995
------------------- ---------------- ----------------
Amount % Amount % Amount %
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family..................... $ 43,711 60.29% $ 38,937 62.14% $ 32,778 70.17%
Multi-family............................ 1,866 2.57 1,877 3.00 -- --
Commercial.............................. 11,359 15.67 9,307 14.85 5,753 12.32
Construction:
One- to four-family...................... 3,042 4.20 2,964 4.73 1,725 3.69
Multi-family and commercial.............. 1,176 1.62 146 0.23 -- --
Commercial................................. 4,497 6.20 3,432 5.48 888 1.90
Consumer loans:
Savings account......................... 1,833 2.53 1,746 2.79 1,585 3.39
Automobile.............................. 2,342 3.23 2,165 3.46 1,737 3.72
Credit card............................. 507 0.70 448 0.72 74 0.16
Other................................... 2,169 2.99 1,634 2.60 2,172 4.65
--------- ------- --------- ------ -------- -------
Total loans........................ 72,502 100.00% 62,656 100.00% 46,712 100.00%
====== ====== ======
Less:
Loans in process........................ (2,412) (1,949) (760)
Discounts............................... (524) (596) (940)
Allowance for loan losses............... (195) (180) (148)
--------- --------- --------
Total................................ $ 69,371 $ 59,931 $ 44,864
========= ========= ========
</TABLE>
31
<PAGE>
Loan Maturity Schedule. The following table sets forth certain
information at June 30, 1996 regarding the dollar amount of loans maturing in
the Bank's portfolio based on their contractual terms to maturity, including
scheduled repayments of principal. Demand loans, loans having no stated schedule
of repayments and no stated maturity, and overdrafts are reported as due in one
year or less. 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.
<TABLE>
<CAPTION>
Due during the year ending
June 30,
-------------------------------
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
Real estate mortgage loans:
One- to four-family...... $ 297 $ 124 $ 176
Multi-family............. 14 6 9
Commercial............... 71 30 42
Construction:
One- to four-family....... 2,964 -- --
Multi-family and commercial 146 -- --
Commercial.................. 717 308 607
Consumer loans:
Savings account.......... 1,746 -- --
Automobile............... 866 195 383
Credit card.............. 448 -- --
Other.................... 341 147 288
------ ------ ------
Total.................. $7,610 $ 810 $1,505
====== ====== ======
<CAPTION>
Due after Due after Due after
3 through 5 through 10 through Due after 15
5 years after 10 years after 15 years after years after
June 30, June 30, June 30, June 30,
1996 1996 1996 1996 Total
----------- ------------ -------------- ------------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Real estate mortgage loans:
One- to four-family...... $ 314 $ 2,714 $ 6,966 $ 28,346 $ 38,937
Multi-family............. 15 131 336 1,366 1,877
Commercial............... 75 649 1,665 6,775 9,307
Construction:
One- to four-family....... -- -- -- -- 2,964
Multi-family and commercial -- -- -- -- 146
Commercial.................. 1,391 409 -- -- 3,432
Consumer loans:
Savings account.......... -- -- -- -- 1,746
Automobile............... 721 -- -- -- 2,165
Credit card.............. -- -- -- -- 448
Other.................... 663 195 -- -- 1,634
-------- -------- -------- -------- --------
Total.................. $ 3,179 $ 4,098 $ 8,967 $ 36,487 $ 62,656
======== ======== ======== ======== ========
</TABLE>
The next table sets forth at June 30, 1996 the dollar amount of all
loans due one year or more after June 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>
Real estate mortgage loans:..........................
One- to four-family............................... $ 7,766 $ 30,874
Multi-family...................................... 374 1,489
Commercial........................................ 1,856 7,380
Construction:
One- to four-family................................ -- --
Multi-family and commercial........................ -- --
Commercial........................................... 1,946 769
Consumer loans:
Savings account................................... -- --
Automobiles....................................... 1,299 --
Credit card....................................... -- --
Other............................................. 1,293 --
--------- ---------
Total........................................... $ 14,534 $ 40,512
========= =========
</TABLE>
32
<PAGE>
Scheduled contractual principal repayments of loans do not necessarily
reflect the actual life of such assets. The average life of long-term loans is
substantially less than their contractual terms due to prepayments. In addition,
due-on-sale clauses in mortgage loans generally give the Bank the right to
declare a conventional loan due and payable in the event, among other things,
that a 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 tends to decrease when current mortgage loan market rates are
substantially lower than rates on existing mortgage loans.
One-to Four-Family Real Estate Loans. The Bank's primary lending
activity consists of the origination of loans secured by owner-occupied, one- to
four-family residential properties located in its primary market area. At
September 30, 1996, $43.7 million, or 60.29%, of the Bank's loan portfolio
consisted of loans secured by one- to four-family residential properties, of
which $33.9 million or 77.4% carried adjustable interest rates. The Bank
estimates that the average size of the residential mortgages that it currently
originates is $85,000.
The Bank originates both fixed-rate mortgage loans and adjustable-rate
mortgage loans ("ARMs"). Fixed-rate mortgage loans are originated for terms of
up to 15 or 20 years. ARMs are originated for terms of up to 30 years. The
Bank's one and three-year ARMs have interest rates that adjust every one and
three years, respectively, with a maximum adjustment of two percentage points
for any adjustment period and up to six percentage points over the life of the
loan. These loans are indexed to the weekly average rate on the one-year and
three-year U.S. Treasury securities, respectively, adjusted to a constant
maturity. The current margin is three percentage points. All loans originated by
the Bank are retained in the Bank's loan portfolio. At June 30, 1996, 41.77% of
the Bank's loans had remaining terms to maturity of 15 years or less.
The Bank's lending policies generally limit the maximum loan-to-value
ratio on mortgage loans to a maximum of 89% of the lesser of the appraised value
of the underlying property or its purchase price. For loans where the
loan-to-value ratio exceeds 80%, the Bank charges an additional amount equal to
the incremental cost of private mortgage insurance. Such additional amounts are
added to the Bank's loan loss reserve. Originated loans in the Bank's portfolio
include due-on-sale clauses which provide the Bank with the contractual right to
deem the loan immediately due and payable in the event that the borrower
transfers ownership of the property without the Bank's consent.
The retention of ARMs in portfolio helps reduce the Bank's exposure to
increases in interest rates. There are, however, unquantifiable credit risks
resulting from potential increased costs to the borrower as a result of upward
repricing of ARMs. It is possible that during periods of rising interest rates,
the risk of default on ARMs may increase due to the upward adjustment of
interest costs to the borrower. The Bank does not originate ARM loans which
provide for negative amortization. Although ARMs allow the Bank to increase the
sensitivity of its asset base to changes in interest rates, the extent of this
interest sensitivity is limited by the periodic and lifetime interest rate
ceilings contained in ARM contracts. In addition, since ARM interest rates can
be adjusted no more frequently than annually, the yield on the Bank's ARM
portfolio does not adjust as rapidly as market interest rates. Accordingly,
there can be no assurance that yields on the Bank's ARMs will adjust
sufficiently to compensate for increases in its cost of funds.
Second Mortgages and Home Equity Lines of Credit. The Bank also
originates second mortgage loans and home equity lines of credit exclusively for
its existing one-to four-family first mortgage customers. At September 30, 1996
$343,000 or 0.49% of the Bank's loan portfolio consisted of second mortgage
loans and home equity lines of credit. Second mortgage loans are generally
underwritten on a fixed-rate basis with terms of up to 15 years and are fully
amortizing over the term of the loan. Second mortgages and home equity lines of
credit are generally subject to an 80% combined loan-to-value limitation,
including all other outstanding mortgages or liens. Generally, the minimum loan
amount for a second mortgage is $5,000. Home equity lines of credit permit
borrowers to borrow up to a pre-established limit during the five year term of
the line of credit. Payments of interest only are required during the term with
a balloon payment of all outstanding principal due at maturity. Home equity
lines of credit are underwritten on a variable-rate basis indexed to the prime
rate plus an increment.
33
<PAGE>
Commercial and Multi-Family Residential Real Estate Loans. At September
30, 1996, loans secured by commercial real estate and multi-family residential
real estate properties totaled $11.4 million and $1.9 million, respectively, and
represented 15.67% and 2.57%, respectively of the Bank's loan portfolio.
Commercial real estate loans are secured by churches, motels, office buildings,
retail stores, small shopping centers and other non-residential property. At
September 30, 1996, the Bank's largest outstanding commercial real estate loan
was a $624,000 loan secured by a grocery store in Hazard, Kentucky. The Bank's
multi-family residential real estate loans are secured by residential property
with up to 24 units. Substantially all of the Bank's commercial and multi-family
residential and commercial real estate loans are secured by property located
within the Bank's market area and were current and performing at September 30,
1996.
Commercial and multi-family residential real estate loans generally
have terms of up to 15 years and are underwritten on either a fixed or
adjustable-rate basis. Commercial and multi-family real estate loans are fully
amortizing over the term of the loan. Adjustable-rate commercial and
multi-family mortgages are indexed to the prime rate and adjust on a monthly or
annually basis. Loan-to-value ratios may not exceed 75% of the appraised value
of the underlying property. Commercial real estate loans which are secured by
raw land are limited to a maximum loan-to-value ratio of 65%. It is the Bank's
policy to obtain personal guarantees from all principals obtaining commercial
and multi-family real estate loans. In assessing the value of such guarantees,
the Bank reviews the individuals' personal financial statements, credit reports,
tax returns and other financial information. The Bank also obtains a security
interest in any related personal property and a standby assignment of rents and
leases.
Multi-family and commercial real estate lending entails significant
additional risks compared to residential property lending. These loans typically
involve large 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. These risks can be significantly affected
by supply and demand conditions in the market for office and retail 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 this type of
lending to its market area and to borrowers with which it has substantial
experience or who are otherwise well known to management.
With certain limited exceptions, the maximum amount that the Bank may
lend to any borrower (including certain related entities of the borrower) at any
one time may not exceed 15% of the unimpaired capital and surplus of the
institution, plus an additional 10% of unimpaired capital and surplus for loans
fully secured by readily marketable collateral. At September 30, 1996, the
maximum amount that the Bank could have loaned to any one borrower without prior
OTS approval was $730,000. Pursuant to OTS regulations, an institution may make
loans in excess of its lending limit up to an amount not to exceed the lesser of
$30.0 million or 30% of its unimpaired capital and surplus to finance the
development of residential housing units provided certain requirements are
satisfied. At September 30, 1996, the largest aggregate amount of loans that the
Bank had outstanding to any one borrower and their related interests was $1.2
million and consisted of nine loans including loans to finance the development
of residential housing units. The largest single loan outstanding was a $624,000
loan secured by a grocery store discussed above.
Construction Loans. The Bank offers construction financing to qualified
borrowers for construction primarily of single-family residential properties and
to qualified developers for construction of small residential developments. The
Bank also provides construction financing for multi-family and commercial
properties. Construction loans are limited to a maximum loan-to-value ratio of
75% of the appraised value of the property on an "as-completed" basis. The
current policy of the Bank is to charge interest rates on its residential
construction loans that convert to a permanent loan at the Bank at the same rate
as its permanent loans. Loans to finance the construction of residential
property on a speculative basis and loans to finance the construction of
commercial properties are offered on a variable-rate basis only, with the rate
indexed to the prime rate plus a negotiated increment. The Bank is currently not
originating any new construction loans to finance the construction of
speculative properties and is limiting the origination of new construction loans
to borrowers with whom the Bank has had substantial prior experience due to the
significant time and other requirements associated with originating and
monitoring construction loans.
34
<PAGE>
Loan proceeds are disbursed during the construction phase (a maximum of
180 days) according to a draw schedule based on the stage of completion.
Construction loans are underwritten on the basis of the estimated value of the
property as completed and loan-to-value ratios must conform to the requirements
for the permanent loan. At September 30, 1996, $3.0 million, or 4.20% of the
Bank's gross loan portfolio consisted of construction loans to fund the
construction of one- to four-family properties. The Bank had an additional $1.2
million, or 1.62% of the Bank's gross loan portfolio, in loans to finance the
construction of commercial and multi-family properties at September 30, 1996.
Approximately half of all construction loans originated by the Bank convert into
permanent loans upon completion of the construction phase.
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 cost proves to be
inaccurate, the Bank may be required to advance funds beyond the amount
originally committed to permit completion of the development. If the estimate of
the value proves to be inaccurate, the Bank may be confronted, at or prior to
the maturity of the loan, with a project having a value which is insufficient to
assure full repayment. The ability of a developer to sell developed lots or
completed dwelling units will depend on, among other things, demand, pricing,
availability of comparable properties and economic conditions. The Bank has
sought to minimize this risk by limiting construction lending to qualified
borrowers in the Bank's market area, limiting the aggregate amount of
outstanding construction loans and imposing a stricter loan-to-value ratio
requirement than required for one- to four-family mortgage loans.
Commercial Loans. At September 30, 1996, the Bank had $4.5 million in
commercial business loans which represented 6.20% of the Bank's gross loan
portfolio. Under recent amendments to the Home Owners' Loan Act, the Bank is
permitted to invest up to 20% of its assets in commercial loans. The Bank's
commercial business lending activities are directed towards small businesses
located in its market area. Generally, the Bank's commercial business loans are
secured by assets such as inventory, equipment or other assets and are
guaranteed by the principals of the business. On a very limited basis, the Bank
has engaged in dealer floor-plan lending with a limited number of dealerships
with which the Bank has had substantial experience. Commercial business loans
usually carry a floating rate set at an increment over the prime rate and
generally are underwritten for a maximum of 15 years. Such loans are structured
as term loans.
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 the underlying collateral value, and 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
three years of financial statements, a statement of projected cash flows,
current financial information on any guarantor and any additional information on
the collateral.
Consumer Loans. The Bank's consumer loans consist primarily of loans
secured by deposit accounts, automobile loans, unsecured personal loans and
credit cards, which represented 2.53%, 3.23%, 2.99% and 0.70% of its total loan
portfolio, respectively, at September 30, 1996. The Bank also makes boat loans
and home improvement loans pursuant to its consumer lending authority. The Bank
has recently emphasized consumer lending because of the higher yields on such
loans.
The Bank makes deposit account loans up to 80% of the depositor's
account balance. The interest rate is normally 2.0% above the rate paid on the
account and the account must be pledged as collateral to secure the loan.
Savings account loans are secured by demand notes and interest is due on a
semi-annually basis. The Bank's automobile loans are generally underwritten in
amount of up to 100% of the lesser of the purchase price of the automobile or
the loan value as published by the National Automobile Dealers Association. The
terms of such loans do not exceed 60 months and vary depending on the age of the
vehicle securing the loan. The Bank requires the borrower to insure the
automobile under a policy listing the Bank as loss payee. Boat loans are made up
to a maximum of $60,000. The maximum term of a boat loan is 60 months and will
vary depending on the age of the
35
<PAGE>
collateral. The Bank also makes unsecured personal loans of up to $25,000. The
terms of such loans do not exceed 60 months. Beginning in November 1995, the
Bank began to offer VISA (R), MasterCard (R) and VISA Gold (R) cards to
qualified customers. Processing of the Bank's credit cards is done by an
unaffiliated third party which receives a fee for such services. Equipment loans
are made in amounts of up to 100% of the purchase price and have a maximum term
of 60 months depending on the age of the equipment.
The Bank has recently increased its consumer lending by hiring an
experienced consumer loan officer. The Bank intends to continue the origination
of consumer loans, although the Bank does not anticipate that it will continue
to maintain the percentage growth rates it achieved during fiscal year 1996 and
the first quarter of fiscal year 1997. Consumer loans entail greater risk than
do residential mortgage loans, particularly in the case of consumer loans which
are unsecured or secured by rapidly depreciable assets such as automobiles. In
such cases, any 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 job loss, divorce, illness or personal bankruptcy.
Furthermore, the application of various federal and state laws, including
federal and state bankruptcy and insolvency laws, may limit the amount which can
be recovered on such loans. Such loans may also give rise to claims and defenses
by a consumer loan borrower against an assignee of such loans such as the Bank,
and a borrower may be able to assert against such assignee claims and defenses
which it has against the seller of the underlying collateral.
Loan Solicitation and Processing. The Bank's mortgage loans have
generally been originated by its loan officers, branch managers and senior
management officials. Loan originations are obtained from a number of sources,
including existing and past customers, members of the local community, and
referrals from attorneys, established builders and realtors within the Bank's
market area. In addition, the Bank purchases participations in loans originated
by other lenders and has purchased whole loans from an unaffiliated mortgage
banking firm. Upon receipt of a loan application from a prospective borrower,
the Bank reviews the information provided and makes an initial determination as
to whether certain basic underwriting standards regarding the type of property,
debt-to-income ratios and other credit concerns are satisfied. A credit report
and employment and other verifications are obtained to verify certain specific
information relating to the loan applicant's employment, income and credit
standing. For real estate loans, an appraisal of the property intended to secure
the loan is undertaken by an independent appraiser approved by the Bank. It is
the Bank's policy to obtain appropriate insurance protection on all real estate
first mortgage loans and to obtain a lawyer's opinion of title which insures
that the property is free of prior encumbrances. The borrower must also obtain
paid flood insurance when the property is located in a flood plain as designated
by the Department of Housing and Urban Development. It is the Bank's policy to
record a lien on the real estate securing the loan. Borrowers generally are
required to advance funds for certain items such as real estate taxes, flood
insurance and private mortgage insurance, when applicable.
Secured loans in amounts of up to $125,000 may be approved by
individual loan officers. Secured loans between $125,000 and $250,000 and all
unsecured loans must be approved by a loan committee which consists of at least
three persons, either officers or directors. The loan committee meets weekly to
review and approve loans. All loans in excess of $250,000 must be approved by
the Board of Directors.
Loan applicants are promptly notified in writing of the Bank's
decision. If the loan is approved, the notification will provide that the Bank's
commitment will generally terminate within 30 days of the approval. It has been
the Bank's experience that substantially all approved loans are funded.
Loan Originations, Purchases and Sales. Most loans originated by the
Bank are intended to be held in the Bank's portfolio until maturity. The Bank is
not a qualified seller/servicer for the Federal National Mortgage Association
("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC") and generally
does not sell loans in the secondary market. Although the Bank uses FNMA/FHLMC
documentation for its residential mortgages, the loans in its portfolio would
generally not qualify for sale to FNMA or FHLMC under standard programs because
36
<PAGE>
of the absence of title insurance and surveys. The Bank, however, has purchased
whole loans and participations in loans originated by other lenders which meet
FNMA/FHLMC criteria.
In prior years, the Bank regularly purchased loans to supplement
lending opportunities in its immediate market area. Such loan purchases
generally involved residential mortgages originated by a mortgage broker located
in Lexington, Kentucky. Loan purchases have decreased in recent years due to the
increased emphasis on loan originations in its primary market area. At September
30, 1996, the Bank's loan portfolio included approximately $8.6 million in
purchased mortgages secured by residential properties in the Lexington area. All
of such loans are serviced by the originating broker. As of the date of this
Prospectus, the Bank is in the process of attempting to sell these loans
although no agreement for sale has been executed. The Bank intends to use the
proceeds therefrom to pay down its FHLB advances.
Generally, the purchase of participations and whole loans involves the
same risks as would the origination of the same types of loans as well as the
additional risks related to the Bank's lower level of control over the
origination and subsequent administration of the loans. The Bank has sought to
minimize such risks by employing more stringent underwriting standards in its
underwriting of purchased loans than required by its loan policy for loans
originated by the Bank. The Bank has never had to charge off any of its
purchased loans. At September 30, 1996, all of the Bank's purchased loans were
performing in accordance with their terms.
Set forth below is a table showing the Bank's loan origination,
purchase and sales activity for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
September 30, Year Ended June 30,
---------------------------- ------------------------
1996 1995 1996 1995
-------- -------- -------- -------
(In thousands)
<S> <C> <C> <C> <C>
Loans originated:
Real estate mortgage loans:
One- to four-family......................... $ 5,429 $ 2,591 $ 13,562 $ 12,626
Multi-family................................ -- -- 339 --
Commercial.................................. 2,467 901 3,524 3,794
Construction................................... 2,494 1,340 4,885 1,689
Commercial..................................... 1,065 103 2,186 2,590
Consumer loans................................. 2,919 995 8,331 864
Other.......................................... -- -- -- 1,730
---------- ---------- ---------- ----------
Total loans originated.................. $ 14,374 $ 6,290 $ 32,827 $ 23,293
========== ========== ========== ==========
Loans purchased:
Real estate loans:
Single-family residential................ $ 190 $ -- $ 202 $ --
---------- ---------- ---------- ----------
Total loans purchased................... $ 190 $ -- $ 202 $ --
========== ========== ========== ==========
</TABLE>
Nonperforming Loans and Other Problem Assets. The Bank continuously
monitors its loan portfolio to detect signs of deterioration in credit quality
and to 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. When a loan is 10 days past due,
the borrower receives a written notification; a late charge is imposed on the
16th day of delinquency. If payment is not promptly received, the borrower is
contacted again both by telephone and in writing, and efforts are made to
formulate an affirmative plan to cure the delinquency. Loans that are 60 days
delinquent are generally referred to an attorney who contacts the borrower.
Loans generally are placed on nonaccrual status when they become 90 days past
due unless they are well secured and in the process of collection. Interest
accrued and unpaid at the time a loan was placed on nonaccrual status is charged
against interest income. The Bank will physically inspect all properties
securing nonaccrual loans. Subsequent payments would either be applied to the
outstanding principal balance or recorded as interest income, depending on the
37
<PAGE>
assessment of the ultimate collectibility of the loan based on a number of
factors, including the type of loan, the creditworthiness of the borrower, the
quality of the security and prevailing market conditions. Generally, if the loan
continues in a delinquent status for 90 days or more, the Bank may initiate
legal proceedings. Consumer loans are charged off and referred to a collection
agency after they are delinquent 120 days.
Real estate acquired by the Bank as a result of foreclosure or by deed
in lieu of foreclosure is classified as real estate owned until such time as it
is sold. When such property is acquired it is recorded at its fair market value
less costs to sell. Any write-down of the property is charged directly to the
loan loss reserve.
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 SFAS No. 15.
<TABLE>
<CAPTION>
At
September 30, At June 30,
------------------------
1996 1996 1995
-------------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis: (1)
Real estate mortgage loans:
Residential............................... $ 433 $ 176 $ 132
Nonresidential............................ -- 173 --
Construction................................. -- -- --
Commercial................................... -- -- --
Consumer..................................... -- -- 3
-------- --------- ---------
Total.................................. $ 433 $ 349 $ 135
======== ========= =========
<CAPTION>
Accruing loans which are contractually
past due 90 days or more:
<S> <C> <C> <C>
Real estate mortgage loans:
Residential............................... $ -- $ -- $ --
Nonresidential............................ -- -- --
Construction................................. -- -- --
Commercial................................... -- -- --
Consumer..................................... 17 24 115
-------- --------- ---------
Total.................................. $ 17 $ 24 $ 115
======== ========= =========
Total nonperforming loans.............. $ 450 $ 373 $ 250
======== ========= =========
Percentage of total loans...................... 0.65% 0.62% 0.57%
======== ========= =========
Other nonperforming assets..................... $ -- $ -- $ --
======== ========= =========
</TABLE>
- -----------------
(1) Nonaccrual status denotes loans on which, in the opinion of management,
the collection of additional interest is unlikely. Payments received on
a nonaccrual loan are either applied to the outstanding principal
balance or recorded as interest income, depending on management's
assessment of the collectibility of the loan.
During the three months ended September 30, 1996 and the year ended
June 30, 1996, gross interest income of $7,978 and $5,802, respectively, would
have been recorded on loans accounted for on a nonaccrual basis if the loans had
been current throughout the respective periods. Interest on such loans included
in income during such respective periods amounted to $0 and $17,407,
respectively.
At September 30, 1996, there were no loans which are not currently
classified as non-accrual, 90 days past due or restructured but where known
information about possible credit problems of borrowers causes 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 nonaccrual, 90 days past
due or restructured.
Asset Classification and Allowance for Loan Losses. Federal regulations
require savings associations to review their assets on a regular basis and to
classify them as "substandard," "doubtful" or "loss" if warranted. Assets
38
<PAGE>
classified as substandard or doubtful require the institution to establish
general allowances for loan losses. If an asset or portion thereof is classified
as loss, the insured institution must either establish specific loss allowances
in the amount of 100% of the portion of the asset classified as loss or charge
off such amount. An asset which does not currently warrant classification but
which possesses weaknesses or deficiencies deserving close attention is required
to be designated as "special mention." Currently, general loss allowances
established to cover possible losses related to assets classified substandard or
doubtful may be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses do not qualify as regulatory
capital. See "Regulation -- Regulation of the Bank -- Regulatory Capital
Requirements." OTS examiners may disagree with the insured institution's
classifications and amounts reserved. If an institution does not agree with an
examiner's classification of an asset, it may appeal this determination to the
OTS. Management of the Bank reviews assets on a quarterly basis, and at the end
of each quarter, prepares an asset classification listing in conformity with the
OTS regulations, which is reviewed by the Board of Directors. At September 30,
1996, the Bank had $408,000 in assets classified as substandard. Substandard
loans consisted of seven single-family mortgage loans, the largest of which had
a balance of $155,000 at September 30, 1996 and seven consumer loans with an
aggregate balance of $19,000.
The following table sets forth an analysis of activity in the Bank's
allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
September 30, Year Ended June 30,
------------------------- --------------------
1996 1995 1996 1995
------ ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period..................... $ 180 $ 148 $ 148 $ 131
------- ------ ------ ------
Loans charged off:
Real estate mortgage loans:
Residential................................... -- -- -- --
Commercial.................................... -- -- -- --
Construction..................................... -- -- -- --
Commercial....................................... -- -- -- --
Consumer......................................... 17 28 36 4
------- ------ ------ ------
Total charge-offs................................ 17 28 36 4
------- ------ ------ ------
Recoveries:
Real estate mortgage loans:
Residential................................... -- -- 6 --
Commercial.................................... -- -- -- --
Construction..................................... -- -- -- --
Commercial....................................... -- -- -- --
Consumer......................................... 2 14 4 3
------- ------ ------ ------
Total recoveries................................. 2 14 10 3
------- ------ ------ ------
Net loans charged off.............................. 15 14 26 1
------- ------ ------ ------
Provision for loan losses.......................... 30 3 58 18
------- ------ ------ ------
Balance at end of period........................... $ 195 $ 137 $ 180 $ 148
======= ====== ====== ======
Ratio of net charge-offs to average
loans outstanding during the period............. 0.09% 0.11% 0.04% --%
======= ====== ====== ======
</TABLE>
39
<PAGE>
In originating loans, the Bank recognizes that credit losses will occur
and that the risk of loss will vary with, among other things, the type of loan
being made, the creditworthiness of the borrower over the term of the loan,
general economic conditions and, in the case of a secured loan, the quality of
the security for the loan. It is management's policy to maintain a general
allowance for loan losses based on, among other things, regular reviews of
delinquencies and loan portfolio quality, character and size, the Bank's and the
industry's historical and projected loss experience and current and forecasted
economic conditions. The Bank increases its allowance for loan losses by
charging provisions for possible losses against the Bank's income. Federal
examiners may disagree with the savings institution as to the appropriate level
of the institution's allowance for loan losses.
General allowances are made pursuant to management's assessment of risk
in the Bank's loan portfolio as a whole. Specific allowances are provided for
individual loans when ultimate collection is considered questionable by
management after reviewing the current status of loans which are contractually
past due and considering the net realizable value of the security for the loan.
Management also reviews individual loans for which full collectibility may not
be reasonably assured and evaluates among other things the net realizable value
of the underlying collateral. Management continues to actively monitor the
Bank's asset quality and to charge off loans against the allowance for loan
losses when appropriate or provide specific loan losses when necessary. As of
September 30, 1996, the Bank's allowance for loan losses did not include any
specific loss reserves. Although management believes it uses the best
information available to make determinations with respect to the allowance for
loan losses, future adjustments may be necessary if economic conditions differ
substantially from the economic conditions in the assumptions used in making the
initial determinations.
The following table allocates the Bank's 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 June 30,
------------------------------------------------------
At September 30, 1996 1996 1995
------------------------- ------------------------- -------------------------
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
------ ------------- ------ ------------- ------ -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans............... $ 137 90.55% $ 125 90.43% $ 127 88.08%
Commercial loans......................... -- -- -- -- -- --
Consumer loans........................... 58 9.45 55 9.57 53 11.92
-------- ------- ------- ------- ------- -------
Total allowance for loan losses $ 195 100.00% $ 180 100.00% $ 180 100.00%
======== ======= ======= ======= ======= =======
</TABLE>
Mortgage-Backed Securities
The Bank maintains a significant portfolio of mortgage-backed
securities in the form of Government National Mortgage Association ("GNMA") and
FNMA participation or pass-through certificates. GNMA certificates are
guaranteed as to principal and interest by the full faith and credit of the
United States, while FNMA certificates are guaranteed by that agency only.
Mortgage-backed securities generally entitle the Bank to receive a pro rata
portion of the cash flows from an identified pool of mortgages. Although
mortgage-backed securities generally yield less than the loans for which they
are exchanged, they present substantially lower credit risk and are more liquid
than the individual mortgage loans and may be used to collateralize obligations
of the Bank. Because the Bank receives regular payments of principal and
interest from its mortgage-backed securities, these investments provide more
consistent cash flows than investments in other debt securities which generally
only pay principal at maturity. Mortgage-backed securities also help the Bank
meet certain definitional tests for favorable treatment under federal banking
laws. See "Regulation -- Regulation of the Bank -- Qualified Thrift Lender
Test."
40
<PAGE>
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 within a range and have similar maturities. The underlying pool
of mortgages can be composed of either fixed-rate or ARM loans. As a result, the
interest rate 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 is equal
to the life of the underlying mortgages.
Mortgage-backed securities, however, expose the Bank to certain unique
risks. In a declining rate environment, accelerated prepayments of loans
underlying these securities expose the Bank to the risk that it will be unable
to obtain comparable yields upon reinvestment of the proceeds. In the event the
mortgage-backed security has been funded with an interest-bearing liability with
a maturity comparable to the original estimated life of the mortgage-backed
security, the Bank's interest rate spread could be adversely affected.
Conversely, in a rising interest rate environment, the Bank may experience a
lower than estimated rate of repayment on the underlying mortgages, effectively
extending the estimated life of the mortgage-backed security and exposing the
Bank to the risk that it may be required to fund the asset with a liability
bearing a higher rate of interest.
The following table sets forth the composition of the Bank's
mortgage-backed securities portfolio at the dates indicated. At September 30 and
June 30, 1996, all of the Bank's mortgage-backed securities were designated as
available-for-sale and carried on the Bank's books at their fair market value.
At June 30, 1995, the Bank's mortgage-backed securities were classified as
held-to-maturity and carried at historical cost.
<TABLE>
<CAPTION>
At September 30, At June 30,
--------------------- ---------------------------------------------
1996 1996 1995
--------------------- --------------------- --------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
GNMA............................... $ 1,531 20.00% $ 1,572 20.21% $ 7,254 61.24%
FNMA............................... 6,124 80.00 6,207 79.79 4,592 38.76
-------- -------- -------- ------ --------- -------
$ 7,655 100.00% $ 7,779 100.00% $ 11,846 100.00%
======== ====== ======== ====== ========= ======
</TABLE>
The following table sets forth the scheduled maturities, amortized
cost, market values and weighted average yields for the Bank's mortgage-backed
securities at September 30, 1996. Expected maturities will differ from
contractual maturities due to scheduled repayments and because borrowers may
have the right to call or prepay obligations with or without prepayment
penalties. The following table does not take into consideration the effects of
scheduled repayments on the effects of possible prepayments.
<TABLE>
<CAPTION>
At September 30, 1996
---------------------------------------------------------------------------------------------
One to Five Years Greater than Five Years Total
---------------------- ----------------------- --------------------------------------
Weighted Weighted Approximate Weighted
Amortized Average Amortized Average Amortized Market Average
Cost Yield Cost Yield Cost Value Yield
----------- --------- ----------- --------- ----------- ------------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
GNMA............... $ -- -- % $ 1,546 6.21% $ 1,546 $ 1,531 6.21%
FNMA............... 2,288 5.67 4,069 6.10 6,357 6,124 5.89
--------- ---------- -------- --------
$ 2,288 $ 5,615 $ 7,903 $ 7,655
========= ========== ======== ========
</TABLE>
Investment Activities
The Bank is permitted under federal law to make certain investments,
including investments in securities issued by various federal agencies and state
and municipal governments, deposits at the FHLB of Cincinnati, certificates of
deposit in federally insured institutions, certain bankers' acceptances, federal
funds and mutual funds which only invest in securities that are permissible
investments for the Bank. The Bank may also invest, subject to
41
<PAGE>
certain limitations, in commercial paper having one of the two highest
investment ratings of a nationally recognized credit rating agency, and certain
other types of corporate debt securities and mutual funds.
The Bank invests in investment securities in order to diversify its
assets, manage cash flow, obtain yield and maintain the minimum levels of liquid
assets required by regulatory authorities. Such investments generally include
purchases of U.S. government and agency securities, mutual funds and deposits at
other financial institutions. Investment decisions are generally made by the
President in accordance with a formal investment policy adopted by the Board of
Directors. The Board of Directors ratifies all investment purchases.
Federal regulations require the Bank to maintain an investment in FHLB
stock and a minimum amount of liquid assets which may be invested in cash and
specified securities. From time to time, the OTS adjusts the percentage of
liquid assets which savings and loan associations are required to maintain. See
"Regulation -- Regulation of the Bank -- Liquidity Requirements."
The general objectives of the Bank's investment policy are to: (i)
provide and maintain liquidity; (ii) make a strong and stable contribution to
earnings without incurring undue interest rate and credit risk; and (iii)
complement the Bank's lending activities. Currently, the Bank's investment
portfolio consists of cash, U.S. government issues, federal agency issues, FHLB
stock, mortgage-backed securities and deposits in the FHLB of Cincinnati.
The following table sets forth the carrying value of the Bank's
investment securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
At At June 30,
September 30, -----------------------
1996 1996 1995
-------------- ------ -----
(Dollars in thousands)
<S> <C> <C> <C>
Securities available for sale:
U.S. government and agency securities................ $ 2,749 $ 2,795 $ 940
Franklin U.S. Government Securities Fund............. 888 885 913
Securities held to maturity:
U.S. government and agency securities................ -- -- 3,940
Certificates of deposit.............................. 190 576 1,626
Common stock and other............................... 63 63 65
---------- ---------- ----------
Total investment securities....................... 3,890 4,319 7,484
Cash and cash equivalents............................... 605 874 1,796
FHLB stock.............................................. 444 436 407
---------- ---------- ----------
Total investments................................. $ 4,939 $ 5,629 $ 9,687
========== ========== ==========
</TABLE>
42
<PAGE>
The following table sets forth the scheduled maturities, carrying
values, market values and average yields for the Bank's investment portfolio at
September 30, 1996.
<TABLE>
<CAPTION>
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
------- ------- ------- ------- ------- ------- ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. government and agency
securities............ $ -- -- % $ 1,936 4.28% $ -- -- % $ 813 6.41%
Franklin U.S. Government
Securities Fund........ -- -- 888 7.50 -- -- -- --
Securities held to maturity:
Certificates of deposit... 190 5.79 -- -- -- -- -- --
Common stock and other.... -- -- 63 -- -- -- -- --
-------- --------- --------- --------
Total................. $ 190 $ 2,887 $ -- $ 813
======== ========= ========= ========
<CAPTION>
Total Investment Portfolio
--------------------------------
Carrying Market Average
Value Value Yield
------- ----- ------
<S> <C> <C> <C>
Securities available for sale:
U.S. government and agency
securities............ $ 2,749 $ 2,749 5.35%
Franklin U.S. Government
Securities Fund........ 888 888 7.50
Securities held to maturity:
Certificates of deposit... 190 190 5.79
Common stock and other.... 63 63 --
------- -------
Total................. $ 3,890 $ 3,890
======= =======
</TABLE>
For further information regarding the Bank's investment securities, see
Note 3 to Notes to Financial Statements included elsewhere herein.
43
<PAGE>
Deposit Activities and Other Sources of Funds
General. Deposits are the primary source of the Bank's funds for
lending and other investment purposes. In addition to deposits, the Bank derives
funds from loan principal repayments and interest payments and maturing
investment securities. Loan repayments and interest payments are a relatively
stable source of funds, while deposit inflows and outflows are significantly
influenced by general interest rates and money market conditions. Borrowings may
be used to supplement the Bank's available funds and from time to time the Bank
has borrowed funds from the FHLB of Cincinnati.
Deposits. The Bank attracts deposits from its primary market area of
Bell and Harlan Counties, Kentucky, and, to a lesser extent, Clairborne, Union
and Knox Counties Tennessee and Lee County, Virginia. A wide variety of deposit
accounts are offered, including interest-bearing and non interest-bearing
checking accounts, money market accounts, passbook and statement savings
accounts, certificates of deposit and various retirement accounts. Account terms
vary as to minimum balance requirements, maturity and interest rate.
The Bank's policies are designed primarily to attract deposits from
local residents rather than to solicit deposits from areas outside its primary
market. Account terms, including rates, are reviewed on a periodic basis and are
compared to the terms offered for similar accounts by the Bank's competitors.
Determination of rates and other terms are based upon competitive concerns, the
returns on the Bank's various investments and projected liquidity needs.
Certificates of deposit in amounts of $100,000 or more constituted
11.70% of the Bank's total savings portfolio at September 30, 1996. The majority
of these certificates of deposit represent deposits by individuals. The Bank
does not actively solicit these accounts from non-deposit customers and does not
offer a premium rate for such accounts.
Savings deposits in the Bank at September 30, 1996 were represented by
the various types of savings programs described below.
<TABLE>
<CAPTION>
Interest Minimum Minimum Balances in Percentage of
Rate * Term Category Amount Thousands Total Savings
- -------- ------- -------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C>
2.75% None Passbook accounts $ -- $ 8,780 12.21%
2.78% None NOW accounts 100 7,109 9.89
3.04% None Money market deposit accounts 2,500 451 0.63
-- % None Noninterest-bearing checking accounts 100 2,069 2.88
Certificates of Deposit
-----------------------
5.06% 12-month Fixed-term, fixed-rate 1,000 39,049 54.31
5.32% 2-5 year Fixed-term, fixed-rate 1,000 14,448 20.08
---------- ------
$ 71,906 100.00%
========== ======
</TABLE>
- ----------------
* Weighted average rate.
44
<PAGE>
Time Deposits by Rates. The following table sets forth the time
deposits in the Bank classified by nominal rates at the dates indicated.
<TABLE>
<CAPTION>
At
September 30, At June 30,
----------------------
1996 1996 1995
--------------- ------ ------
(In thousands)
<S> <C> <C> <C>
3.01 - 5.00%................................ $ -- $ 7,857 $ 4,860
5.01 - 7.00%................................ 53,497 42,750 40,707
7.01 - 9.00%................................ -- -- 134
--------- --------- ---------
$ 53,497 $ 50,607 $ 45,701
========= ========= =========
</TABLE>
Time Deposit Maturity Schedule. The following table sets forth the
amount and maturities of time deposits at September 30, 1996.
<TABLE>
<CAPTION>
Amount Due
----------------------------------------------------------------------
Less Than After
Rate One Year 1-2 Years 2-3 Years 3 Years Total
- ---- -------- --------- --------- ------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
5.01 - 7.00%.................. $ 39,049 $ 10,196 $ 2,413 $ 1,839 $ 53,497
--------- ---------- ---------- ---------- ----------
$ 39,049 $ 10,196 $ 2,413 $ 1,839 $ 53,497
========= ========== ========== ========== ==========
</TABLE>
Maturity of Jumbo Certificates. 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
Maturity Period of Deposits
--------------- -----------
(In thousands)
<S> <C>
Three months or less....................... $ 3,398
Over three through six months.............. 910
Over six through 12 months................. 2,346
Over 12 months............................. 1,758
----------
Total.................................. $ 8,412
==========
</TABLE>
Savings Deposit Activity. The following table sets forth the savings
activities of the Bank for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
September 30, Year Ended June 30,
------------------------- ------------------------
1996 1995 1996 1995
------- ------ ------- -------
(In thousands)
<S> <C> <C> <C> <C>
Net deposits received less deposits
withdrawn $ 2,729 $ 1,511 $ 4,371 $ 3,486
Interest credited 201 43 2,006 1,255
------- ------- ------- --------
Net increase (decrease) in savings
deposits $ 2,930 $ 1,554 $ 6,377 $ 4,741
======= ======= ======= ========
</TABLE>
45
<PAGE>
Borrowings. Savings deposits historically have been the primary source
of funds for the Bank's lending and investment activities and for its general
business activities. The Bank is authorized, however, to use advances from the
FHLB of Cincinnati to supplement its supply of lendable funds or to meet deposit
withdrawal requirements. As a member, the Bank is required to own capital stock
in the FHLB and is authorized to apply for advances secured by such stock and by
certain of the Bank's home mortgages and other assets (principally, securities
which are obligations of, or guaranteed by, the United States) provided certain
standards related to creditworthiness have been met. See "Regulation --
Regulation of the Bank -- Federal Home Loan Bank System." Advances are made
pursuant to several different programs, each of which has its own interest rate
and range of maturity.
The following table sets forth certain information regarding the Bank's
FHLB advances (the Bank's only borrowings outstanding during the periods) at the
dates and for the periods indicated.
<TABLE>
<CAPTION>
At or for Three Months At or for Year
Ended September 30, Ended June 30,
------------------------ ----------------------
1996 1995 1996 1995
------- ------ ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Advances from FHLB:
Amounts outstanding at end of period............... $ 6,000 -- $ 1,000 --
Weighted average rate paid on...................... 3.41% -- 3.41% --
Maximum amount of borrowings outstanding
at any month end................................ $ 6,000 -- $ 1,000 --
Approximate average short-term borrowings
outstanding with respect to..................... $ 5,867 -- $ 264 --
Approximate weighted average rate paid on.......... 3.41% -- 3.41% --
</TABLE>
The Bank has a $16.0 million line of credit with the FHLB of
Cincinnati. At September 30, 1996, the Bank had $6.0 million outstanding in
advances from the FHLB. These advances carry an adjustable rate and have a
three-month term. Further asset growth may be funded through short-term
additional advances, and advances may also be obtained in order to fund
withdrawals to purchase Common Stock in the Conversion. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
Subsidiary Activities
Currently, the Bank does not have any subsidiaries. Prior to the
formation of the Mutual Holding Company, the Bank had one subsidiary, MFS&L
Service Corporation ("MFS&L"). From 1988 to June 30, 1992, MFS&L participated in
joint ventures for the purpose of acquiring, developing, constructing and
selling single family residential real estate and held stock in the Bank's data
processing provider. MFS&L discontinued such activity in June 1992. In
connection with the formation of the Mutual Holding Company, MFS&L became a
subsidiary of the Mutual Holding Company and was renamed Home Mortgage Loan
Corporation. As a result of the Conversion and Reorganization, Home will again
become a subsidiary of the Bank. Currently, Home makes commercial and commercial
real estate loans.
46
<PAGE>
Competition
The Bank experiences substantial competition both in attracting and
retaining savings deposits and in the making of mortgage and other loans. There
are approximately 10 commercial banks, three thrift institutions and one credit
union in Middlesboro Federal's market area. Although certain of the Bank's
competitors are subsidiaries of state-wide and interstate bank holding
companies, the Bank's primary competitors in the Middlesboro market are locally
owned and operated banks and thrifts. Because mortgage loans originated in the
Bank's primary market area are not generally saleable in the secondary market,
mortgage brokers and other non-portfolio lenders have not been significant
competitors in the Bank's immediate market area. In competing for lending
opportunities in Knox and Union Counties, the Bank encounters competition from
larger institutions operating throughout the State of Tennessee.
The primary factors in competing for loans are interest rates, loan
fees and other terms, convenience and the range of services offered by various
financial institutions. Management seeks to compete with other institutions in
its primary market area by offering competitive interest rates, loan fees and a
wide variety of deposit products, and by emphasizing personal customer service
and cultivating relationships with local businesses. In competing for
residential mortgage loans, the Bank particularly emphasizes its quick
turn-around on applications which are processed within ten business days. The
Bank offers a high level of personal service to all of its loan customers with
loan officers who are ready to meet with customers at times and places that are
convenient to the customer.
Personnel
As of September 30, 1996, the Bank had 25 full-time employees and no
part-time employees. The employees are not represented by a collective
bargaining unit. Management believes that the Bank enjoys good relations with
its personnel.
Properties
The following table sets forth the location and certain additional
information regarding the Bank's offices and other material property.
<TABLE>
<CAPTION>
Book Value at Deposits at
Year Owned or September 30, Approximate September 30,
Opened Leased 1996 Square Footage 1996
------ ------ -------------- -------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Main Office:
1431 Cumberland Avenue
Middlesboro, Kentucky 1915 Owned $641 11,906 $ 46,522
Branch Office:
1501 E. Main Street
Cumberland, Kentucky 1976 Leased 25 1,700 25,384
</TABLE>
The Bank is in the process of expanding its main office by constructing
an addition which will increase its square footage by 6,000 square feet. The
addition is currently expected to be ready for occupancy by December 1996 and
will be used to house the Bank's administrative offices.
47
<PAGE>
The Bank has recently applied to open a new branch office in Pineville,
Kentucky, the county seat of Bell County, Kentucky. It is currently contemplated
that the Bank will lease space for the branch office. As of the date of hereof,
the Bank has not entered into an agreement for the leasing of such space.
Legal Proceedings
Although the Bank, from time to time, is involved in various legal
proceedings in the normal course of business, there are no material legal
proceedings to which the Bank or its subsidiary is a party or to which their
property is subject.
REGULATION
General
As a federally chartered savings association, the Bank is subject to
extensive regulation by the OTS. The lending activities and other investments of
the Bank must comply with such regulatory requirements, and the OTS periodically
examines the Bank for compliance with various regulatory requirements. The FDIC
also has the authority to conduct special examinations. The Bank must file
reports with the OTS describing its activities and financial condition and is
also subject to certain reserve requirements promulgated by the Federal Reserve
Board. This supervision and regulation is intended primarily for the protection
of depositors. Certain of these regulatory requirements are referred to below or
appear elsewhere herein.
Regulation of the Bank
Regulatory Capital Requirements. Under OTS capital standards, savings
associations must maintain "tangible" capital equal to 1.5% of adjusted total
assets, "core" capital equal to 3.0% of adjusted total assets and a combination
of core and "supplementary" capital equal to 8.0% of "risk-weighted" assets. In
addition, the OTS has recently adopted regulations which impose certain
restrictions on savings associations that have a total risk-based capital ratio
that is less than 8.0%, a ratio of Tier 1 capital to risk-weighted assets of
less than 4.0% or a ratio of Tier 1 capital to adjusted total assets of less
than 4.0% (or 3.0% if the institution is rated Composite 1 under the OTS
examination rating system). See " -- Prompt Corrective Regulatory Action." For
purposes of this regulation, Tier 1 capital has the same definition as core
capital which is defined as common stockholders' equity (including retained
earnings), noncumulative perpetual preferred stock and related surplus, minority
interests in the equity accounts of fully consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits and "qualifying supervisory
goodwill." Core capital is generally reduced by the amount of the savings
association's intangible assets for which no market exists. Limited exceptions
to the deduction of intangible assets are provided for purchased mortgage
servicing rights and qualifying supervisory goodwill. Tangible capital is given
the same definition as core capital but does not include an exception for
qualifying supervisory goodwill and is reduced by the amount of all the savings
association's intangible assets with only a limited exception for purchased
mortgage servicing rights and purchased credit card relationship. Both core and
tangible capital are further reduced by an amount equal to a the savings
association's debt and equity investments in subsidiaries engaged in activities
not permissible to national banks other than subsidiaries engaged in activities
undertaken as agent for customers or in mortgage banking activities and
subsidiary depository institutions or their holding companies. At September 30,
1996, the Bank had no such investments.
Adjusted total assets are a savings association's total assets as
determined under GAAP, adjusted for certain goodwill amounts and increased by a
pro rated portion of the assets of subsidiaries in which the savings association
holds a minority interest and which are not engaged in activities for which the
capital rules require deduction of its debt and equity investments. Adjusted
total assets are reduced by the amount of assets that have been deducted from
capital, the portion of the savings association's investments in subsidiaries
that must be netted against capital under the capital rules and, for purposes of
the core capital requirement, qualifying supervisory goodwill.
48
<PAGE>
In determining compliance with the risk-based capital requirement, a
savings association is allowed to use both core capital and supplementary
capital provided the amount of supplementary capital used does not exceed the
savings association's core capital. Supplementary capital is defined to include
certain preferred stock issues, nonwithdrawable accounts and pledged deposits
that do not qualify as core capital, certain approved subordinated debt, certain
other capital instruments and a portion of the savings association's general
loss allowances. Total core and supplementary capital are reduced by the amount
of capital instruments held by other depository institutions pursuant to
reciprocal arrangements and the savings association's high loan-to-value ratio
land loans and non-residential construction loans and equity investments other
than those deducted from core and tangible capital. At September 30, 1996, the
Bank had no high ratio land or nonresidential construction loans and had no
equity investments for which OTS regulations require a deduction from total
capital.
The risk-based capital requirement is measured against risk-weighted
assets which equal the sum of each asset and the credit-equivalent amount of
each off-balance sheet item after being multiplied by an assigned risk weight.
Under the OTS risk-weighting system, one- to four-family first mortgages not
more than 90 days past due with loan-to-value ratios under 80% are assigned a
risk weight of 50%. Consumer and residential construction loans are assigned a
risk weight of 100%. Mortgage-backed securities issued, or fully guaranteed as
to principal and interest, by the FHLMC are assigned a 20% risk weight. Cash and
U.S. Government securities backed by the full faith and credit of the U.S.
Government are given a 0% risk weight.
The table below presents the Bank's capital position relative to its
various regulatory capital requirements at September 30, 1996.
<TABLE>
<CAPTION>
Percent of
Amount Assets(1)
------ ---------
(Dollars in thousands)
<S> <C> <C>
Tangible capital................................. $ 4,678 5.56%
Tangible capital requirement..................... 1,261 1.50
--------- ----
Excess (deficit).............................. $ 3,417 4.06%
========= ====
Core capital..................................... $ 4,678 5.56%
Core capital requirement......................... 2,523 3.00
--------- ----
Excess (deficit).............................. $ 2,155 2.56%
========= ====
Risk-based capital............................... $ 4,873 9.44%
Risk-based capital requirement................... 4,130 8.00
--------- ----
Excess (deficit)............................. $ 743 1.44%
========= ====
</TABLE>
- ------------------------
(1) Based on adjusted total assets for purposes of the tangible
capital and core capital requirements and risk-weighted assets
for purpose of the risk-based capital requirement.
The OTS requires savings institutions with more than a "normal" level
of interest rate risk to maintain additional total capital. A savings
institution's interest rate risk is measured in terms of the sensitivity of its
"net portfolio value" to changes in interest rates. Net portfolio value is
defined, generally, as the present value of expected cash inflows from existing
assets and off-balance sheet contracts less the present value of expected cash
outflows from existing liabilities. A savings institution will be considered to
have a "normal" level of interest rate risk exposure if the decline in its net
portfolio value after an immediate 200 basis point increase or decrease in
market interest rates (whichever results in the greater decline) is less than
two percent of the current estimated economic value of its assets. A savings
institution with a greater than normal interest rate risk is required to deduct
49
<PAGE>
from total capital, for purposes of calculating its risk-based capital
requirement, an amount (the "interest rate risk component") equal to one-half
the difference between the institution's measured interest rate risk and the
normal level of interest rate risk, multiplied by the economic value of its
total assets.
The OTS calculates the sensitivity of a savings institution's net
portfolio value based on data submitted by the institution in a schedule to its
quarterly Thrift Financial Report and using the interest rate risk measurement
model adopted by the OTS. The amount of the interest rate risk component, if
any, to be deducted from a savings institution's total capital is based on the
institution's Thrift Financial Report filed two quarters earlier. Savings
institutions with less than $300 million in assets and a risk-based capital
ratio above 12% are generally exempt from filing the interest rate risk schedule
with their Thrift Financial Reports. However, the OTS will require any exempt
savings institution that it determines may have a high level of interest rate
risk exposure to file such schedule on a quarterly basis. The OTS has not yet
implemented these requirements. The Bank has not been advised that it is deemed
to have more than normal level of interest rate risk.
In addition to requiring generally applicable capital standards for
savings institutions, the OTS is authorized to establish the minimum level of
capital for a savings institution at such amount or at such ratio of
capital-to-assets as the OTS determines to be necessary or appropriate for such
institution in light of the particular circumstances of the institution. The OTS
may treat the failure of any savings institution to maintain capital at or above
such level as an unsafe or unsound practice and may issue a directive requiring
any savings institution which fails to maintain capital at or above the minimum
level required by the OTS to submit and adhere to a plan for increasing capital.
Such an order may be enforced in the same manner as an order issued by the FDIC.
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, as well as any undercapitalized
institution that does not submit an acceptable capital restoration plan, 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 approval and the institution is prohibited from
making payments of principal or interest on its subordinated debt. In their
discretion, the federal banking regulators may also impose the foregoing
sanctions on an undercapitalized institution if the regulators determine that
such actions are necessary to carry out the purposes of the prompt corrective
action provisions. 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. Unless appropriate findings and certifications are made by the
appropriate federal bank regulatory agencies, a critically undercapitalized
institution must be placed in receivership if it remains critically
undercapitalized on average during the calendar quarter beginning 270 days after
the date it became critically undercapitalized.
Under implementing regulations, the federal banking regulators,
including the OTS, 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
50
<PAGE>
assets) and leverage ratio (the ratio of its core capital to adjusted total
assets). Under the regulations, a savings institution that is not subject to an
order or written directive to meet or maintain a specific capital level will be
deemed "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"
savings institution is a savings 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 capital risk-based ratio of 4.0% or greater; and (iii) a
leverage ratio of 4.0% or greater (or 3.0% or greater if the savings institution
has a composite 1 CAMEL rating). An "undercapitalized institution" is a savings
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 3.0% if the institution has a composite 1 CAMEL
rating). A "significantly undercapitalized" institution is defined as a savings
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" savings institution is
defined as a savings 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 OTS may reclassify a well capitalized savings 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
the OTS determines, after notice and an opportunity for a hearing, that the
savings 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.
Qualified Thrift Lender Test. A savings institution that does not meet
the Qualified Thrift Lender test ("QTL Test") must either convert to a bank
charter or comply with the following restrictions on its operations: (i) the
institution may not engage in any new activity or make any new investment,
directly or indirectly, unless such activity or investment is permissible for a
national bank; (ii) the branching powers of the institution shall be restricted
to those of a national bank; (iii) the institution shall not be eligible to
obtain any advances from its FHLB; and (iv) payment of dividends by the
institution shall be subject to the rules regarding payment of dividends by a
national bank. Upon the expiration of three years from the date the institution
ceases to be a QTL, it must cease any activity, and not retain any investment
not permissible for a national bank and immediately repay any outstanding FHLB
advances (subject to safety and soundness considerations).
To qualify as a QTL, a savings institution must either qualify as a
"domestic building and loan association" under the Internal Revenue Code or
maintain at least 65% of its "portfolio" assets in Qualified Thrift Investments.
Portfolio assets are defined as total assets less intangibles, property used by
a savings institution in its business and liquidity investments in an amount not
exceeding 20% of assets. Qualified Thrift Investments consist of: (i) loans,
equity positions, or securities related to domestic, residential real estate or
manufactured housing, and educational, small business and credit card loans;
(ii) 50% of the dollar amount of residential mortgage loans subject to sale
under certain conditions but do not include any intangible assets. Subject to a
20% of portfolio assets limit, however, savings institutions are able to treat
as Qualified Thrift Investments 200% of their investments in loans to finance
"starter homes" and loans for construction, development or improvement of
housing and community service facilities or for financing small businesses in
"credit-needy" areas.
A savings institution must maintain its status as a QTL on a monthly
basis in nine out of every 12 months. A savings institution that fails to
maintain Qualified Thrift Lender status will be permitted to requalify once, and
if it fails the QTL Test a second time, it will become immediately subject to
all penalties as if all time limits on such penalties had expired. Failure to
qualify as a QTL results in a number of sanctions, including the imposition of
certain operating restrictions imposed on national banks and a restriction on
obtaining additional advances from the FHLB System. Upon failure to qualify as a
QTL for two years, a savings association must convert to a commercial bank. At
September 30, 1996, approximately 80.59% of the Bank's assets were invested in
Qualified Thrift Investments.
51
<PAGE>
Dividend Limitations. Under OTS regulations, the Bank is not permitted
to 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 its conversion
to stock form. In addition, savings institution subsidiaries of savings and loan
holding companies are required to give the OTS 30 days' prior notice of any
proposed declaration of dividends to the holding company.
Federal regulations impose limitations on the payment of dividends and
other capital distributions (including stock repurchases and cash mergers) by
the Bank. Under these regulations, a savings institution that, immediately prior
to, and on a pro forma basis after giving effect to, a proposed capital
distribution, has total capital (as defined by OTS regulation) that is equal to
or greater than the amount of its fully phased-in capital requirements (a "Tier
1 Association") is generally permitted without OTS approval, after notice, to
make capital distributions during a calendar year in the amount equal to the
greater of (i) 75% of net income for the previous four quarters or (ii) up to
100% of its net income to date during the calendar year plus an amount that
would reduce by one-half the amount by which its capital-to-assets ratio
exceeded its fully phased-in capital requirement to assets ratio at the
beginning of the calendar year. A savings institution with total capital in
excess of current minimum capital requirements but not in excess of the fully
phased-in requirements (a "Tier 2 Association") is permitted, after notice, to
make capital distributions without OTS approval of up to 75% of its net income
for the previous four quarters, less dividends already paid for such period. A
savings institution that fails to meet current minimum capital requirements (a
"Tier 3 Association") is prohibited from making any capital distributions
without the prior approval of the OTS. Tier 1 Associations that have been
notified by the OTS that they are in need of more than normal supervision will
be treated as either a Tier 2 or Tier 3 Association. Unless the OTS determines
that the Bank is an institution requiring more than normal supervision, the Bank
is authorized to pay dividends in accordance with the provisions of the OTS
regulations discussed above as a Tier 1 Association.
Under the OTS' prompt corrective action regulations, the Bank is also
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%. The OTS, after consultation with the FDIC,
however, may permit an otherwise prohibited stock repurchase if made in
connection with the issuance of additional shares in an equivalent amount and
the repurchase will reduce the institution's financial obligations or otherwise
improve the institution's financial condition.
In addition to the foregoing, 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 reserves for such distributions. See "Taxation."
Safety and Soundness Standards. Under FDICIA, as amended by the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "CDRI Act"),
each Federal banking agency is required to establish safety and soundness
standards for institutions under its authority. On July 10, 1995, the Federal
banking agencies, including the OTS, released Interagency Guidelines
Establishing Standards for Safety and Soundness and published a final rule
establishing deadlines for submission and review of safety and soundness
compliance plans. The final rule and the guidelines went into effect on August
9, 1995. The guidelines require savings 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 savings 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 OTS
determines that a savings 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 savings institution must
submit an acceptable compliance plan to the OTS 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
52
<PAGE>
regulatory sanctions. Management believes that the Bank already meets
substantially all the standards adopted in the interagency guidelines, and
therefore does not believe that implementation of these regulatory standards
will materially affect the Bank's operations.
Additionally, under FDICIA, as amended by the CDRI Act, the Federal
banking agencies are required to establish standards relating to the asset
quality and earnings that the agencies determine to be appropriate. On July 10,
1995, the federal banking agencies, including the OTS, issued proposed
guidelines relating to asset quality and earnings. Under the proposed
guidelines, a savings institution should maintain systems, commensurate with its
size and the nature and scope of its operations, to identify problem assets and
prevent deterioration in those assets as well as to evaluate and monitor
earnings and ensure that earnings are sufficient to maintain adequate capital
and reserves. Management believes that the asset quality and earnings standards,
in the form proposed by the banking agencies, would not have a material effect
on the Bank's operations.
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 FDIC through the SAIF. Under the Federal Deposit Insurance Act, the FDIC is
required to set semi-annual assessments for SAIF-insured institutions at a level
necessary to maintain the designated reserve ratio of the SAIF at 1.25% of
estimated insured deposits or at a higher percentage of estimated insured
deposits that the FDIC determines to be justified for that year by circumstances
indicating a significant risk of substantial future losses to 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 under 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 is taken.
For the past several semi-annual periods, institutions with
SAIF-assessable deposits, like the Bank, have been required to pay higher
deposit insurance premiums than institutions with deposits insured by the BIF.
In order to recapitalize the SAIF and address the premium disparity, the
recently-enacted Deposit Insurance Funds Act of 1996 authorized the FDIC to
impose a one-time special assessment on institutions with SAIF-assessable
deposits based on the amount determined by the FDIC to be necessary to increase
the reserve levels of the SAIF to the designated reserve ratio of 1.25% of
insured deposits. Institutions were assessed at the rate of 65.7 basis points
based on the amount of their SAIF-assessable deposits as of March 31, 1995. As a
result of the special assessment the Bank incurred a pre-tax expense of $388,000
during the quarter ended September 30, 1996.
The FDIC has proposed a new assessment schedule for SAIF deposit
insurance pursuant to which the assessment rate for well-capitalized
institutions with the highest supervisory ratings would be reduced to zero and
institutions in the lowest risk assessment classification will be assessed at
the rate of 0.27% of insured deposits. Until December 31, 1999, however, SAIF-
insured institutions, will be required to pay assessments to the FDIC at the
rate of 6.5 basis points to help fund interest payments on certain bonds issued
by the Financing Corporation ("FICO") an agency of the federal government
established to finance takeovers of insolvent thrifts. During this period, BIF
members will be assessed for these obligations at the rate of 1.3 basis points.
After December 31, 1999, both BIF and SAIF members will be assessed at the same
rate for FICO payments.
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<PAGE>
SAIF members are generally prohibited from converting to BIF, also
administered by the FDIC, or merging with or transferring assets to a BIF member
before the date on which the SAIF first meets or exceeds the designated reserve
ratio of 1.25% of insured deposits. The FDIC, however, may approve such a
transaction in the case of a SAIF member in default or if the transaction
involves an insubstantial portion of the deposits of each participant. In
addition, mergers, transfers of assets and assumptions of liabilities may be
approved by the appropriate bank regulator so long as deposit insurance premiums
continue to be paid to the SAIF for deposits attributable to the SAIF members
plus an adjustment for the annual rate of growth of deposits in the surviving
bank without regard to subsequent acquisitions. Each depository institution
participating in a SAIF-to-BIF conversion transaction is required to pay an exit
fee to SAIF equal to 0.90% of the deposits transferred and an entrance fee to
BIF based on the current reserve ratio of the BIF. A savings institution is not
prohibited from adopting a commercial bank or savings bank charter if the
resulting bank remains a SAIF member.
Transactions with Affiliates. Transactions between savings institutions
and any affiliate are governed by Sections 23A and 23B of the Federal Reserve
Act. An affiliate of a savings institution is any company or entity which
controls, is controlled by or is under common control with the savings
institution. In a holding company context, the parent holding company of a
savings institution (such as the Company) and any companies which are controlled
by such parent holding company are affiliates of the savings institution.
Generally, Sections 23A and 23B (i) limit the extent to which the savings
institution or its subsidiaries may engage in "covered transactions" with any
one affiliate to an amount equal to 10% of such 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 savings institution 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 savings institution. Section 106 of the Bank
Holding Company Act ("BHCA") which also applies to the Bank prohibits the Bank
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.
Loans to Directors, Executive Officers and Principal Stockholders.
Savings institutions are also subject to the restrictions contained in Section
22(h) of the Federal Reserve Act on loans to executive officers, directors and
principal stockholders. Under Section 22(h), loans to an executive officer and
to a greater than 10% stockholder of a savings institution, and certain
affiliated entities of either, may not exceed, together with all other
outstanding loans to such person and affiliated entities the institution's loan
to one borrower limit (generally equal to 15% of the institution's unimpaired
capital and surplus and an additional 10% of such capital and surplus for loans
fully secured by certain readily marketable collateral). 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. The Federal
Reserve Board has prescribed the loan amount (which includes all other
outstanding loans to such person), as to which such prior board of director
approval is required, as being the greater of $25,000 or 5% of capital and
surplus (up to $500,000). Further, the Federal Reserve Board pursuant to 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. Section 22(g) of the Federal Reserve Act requires that
loans to executive officers of depository institutions not be made on terms more
favorable than those afforded to other borrowers, requires approval for such
extensions of credit by the board of directors of the institution, and imposes
reporting requirements for and additional restrictions on the type, amount and
terms of credits to such officers. In addition, Section 106 of the BHCA
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
54
<PAGE>
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.
Liquidity Requirements. The Bank is required to maintain average daily
balances of liquid assets (cash, certain time deposits, bankers' acceptances,
highly rated corporate debt and commercial paper, securities of certain mutual
funds, and specified United States government, state or federal agency
obligations) equal to the monthly average of not less than a specified
percentage (currently 5%) of its net withdrawable savings deposits plus
short-term borrowings. The Bank is also required to maintain average daily
balances of short-term liquid assets at a specified percentage (currently 1%) of
the total of its net withdrawable savings accounts and borrowings payable in one
year or less. Monetary penalties may be imposed for failure to meet liquidity
requirements. The average regulatory liquidity ratio of the Bank for the month
of September 1996 was 6.95%.
Federal Home Loan Bank System. The Bank is a member of the FHLB, which
consists of 12 Federal Home Loan Banks subject to supervision and regulation by
the Federal Housing Finance Board ("FHFB"). The FHFBs provide a central credit
facility primarily for member institutions. As a member of the FHLB of
Cincinnati, the Bank is required to acquire and hold shares of capital stock in
the FHLB of Cincinnati 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 from the FHLB
of Cincinnati, whichever is greater. The Bank was in compliance with this
requirement with investment in FHLB of Cincinnati stock at September 30, 1996,
of $444,000. The FHLB of Cincinnati is funded primarily from proceeds derived
from the sale of consolidated obligations of the FHLB System. It makes advances
to members in accordance with policies and procedures established by the FHFB
and the Board of Directors of the FHLB of Cincinnati. As of September 30, 1996,
the Bank had $6.0 million in advances and other borrowings from the FHLB of
Cincinnati. See "Business of the Bank - - Deposit Activities and Other Sources
of Funds -- Borrowings."
Federal Reserve System. Pursuant to regulations of the Federal Reserve
Board, a thrift institution must maintain average daily reserves equal to 3% on
the first $49.3 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
non-interest 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.
Regulation of the Company
General. Following the Conversion and Reorganization, the Company will
be a savings and loan holding company within the meaning of the Home Owners'
Loan Act, as amended ("HOLA"). As such the Company will be registered with the
OTS and subject to OTS regulations, examinations, supervision and reporting
requirements. As a subsidiary of a savings and loan holding company, the Bank
will be subject to certain restrictions in its dealings with the Company and
affiliates thereof. The Company also will be required to file certain reports
with, and otherwise comply with the rules and regulations of the SEC under the
federal securities laws.
Activities Restrictions. The Board of Directors of the Company
presently intends to operate the Company as a unitary savings and loan holding
company. There are generally no restrictions on the activities of a unitary
savings and loan holding company. However, if the Director of OTS determines
that there is reasonable cause to believe that the continuation by a savings and
loan holding company of an activity constitutes a serious risk to the financial
safety, soundness, or stability of its subsidiary savings association, the
Director of OTS may impose such restrictions as deemed necessary to address such
risk including limiting: (i) payment of dividends by the savings institution,
(ii) transactions between the savings institution and its affiliates; and (iii)
any activities of the savings institution that might create a serious risk that
the liabilities of the holding company and its affiliates may be imposed on the
savings institution. Notwithstanding the above rules as to permissible business
activities of unitary savings and loan holding companies, if the savings
institution subsidiary of such a holding company fails to meet the QTL Test,
then such unitary holding company shall also presently become subject to the
activities restrictions applicable to multiple holding companies and unless the
savings association requalifies as a QTL within one year thereafter,
55
<PAGE>
register as, and become subject to, the restrictions applicable to a bank
holding company. See " -- Regulation of the Bank -- Qualified Thrift Lender
Test."
If the Company were to acquire control of another savings association,
other than through merger or other business combination with the Bank, the
Company would thereupon become a multiple savings and loan holding company.
Except where such acquisition is pursuant to the authority to approve emergency
thrift acquisitions and where each subsidiary savings institution meets the QTL
Test, the activities of the Company and any of its subsidiaries (other than the
Bank or other subsidiary savings institutions) would thereafter be subject to
further restrictions. Among other things, no multiple savings and loan holding
company or subsidiary thereof which is not a savings institution may commence or
continue for a limited period of time after becoming a multiple savings and loan
holding company or subsidiary thereof, any business activity, upon prior notice
to, and no objection by the OTS, other than: (i) furnishing or performing
management services for a subsidiary savings institution; (ii) conducting an
insurance agency or escrow business; (iii) holding, managing, or liquidating
assets owned by or acquired from a subsidiary savings institution; (iv) holding
or managing properties used or occupied by a subsidiary savings institution; (v)
acting as trustee under deeds of trust; (vi) those activities previously
directly authorized by regulation as of March 5, 1987 to be engaged in by
multiple holding companies; or (vii) those activities authorized by the Federal
Reserve Board as permissible for bank holding companies, unless the Director of
OTS by regulation prohibits or limits such activities for savings and loan
holding companies. Those activities described in (vii) above must also be
approved by the Director of OTS prior to being engaged in by a multiple holding
company.
Restrictions on Acquisitions. The HOLA generally prohibits savings and
loan holding companies from acquiring, without prior approval of the Director of
OTS, (i) control of any other savings institution or savings and loan holding
company or substantially all the assets thereof, or (ii) more than 5% of the
voting shares of a savings institution or holding company thereof which is not a
subsidiary. Except with the prior approval of the Director of OTS, no director
or officer of a savings and loan holding company or person owning or controlling
by proxy or otherwise more than 25% of such company's stock, may also acquire
control of any savings institution, other than a subsidiary savings institution,
or of any other savings and loan holding company.
The Director of OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
institutions in more than one state if: (i) the multiple savings and loan
holding company involved controls a savings institution which operated a home or
branch office in the state of the institution to be acquired as of March 5,
1987; (ii) the acquiror is authorized to acquire control of the savings
institution pursuant to the emergency acquisition provisions of the Federal
Deposit Insurance Act; or (iii) the statutes of the state in which the
institution to be acquired is located specifically permit institutions to be
acquired by state-chartered institutions or savings and loan holding companies
located in the state where the acquiring entity is located (or by a holding
company that controls such state-chartered savings institutions).
The OTS regulations permit federal associations to branch in any state
or states of the United States and its territories. Except in supervisory cases
or when interstate branching is otherwise permitted by state law or other
statutory provision, a federal association may not establish an out-of-state
branch unless (i) the federal association qualifies as a QTL or as a "domestic
building and loan association" under ss.7701(a)(19) of the Code and the total
assets attributable to all branches of the association in the state would
qualify such branches taken as a whole as a QTL or for treatment as a domestic
building and loan association and (ii) such branch would not result in (a)
formation of a prohibited multi-state multiple savings and loan holding company
or (b) a violation of certain statutory restrictions on branching by savings
association subsidiaries of banking holding companies. Federal associations
generally may not establish new branches unless the association meets or exceeds
minimum regulatory capital requirements. The OTS will also consider the
association's record of compliance with the Community Reinvestment Act of 1977
in connection with any branch application.
56
<PAGE>
Under the BHCA, bank holding companies are specifically authorized to
acquire control of any savings association. Pursuant to rules promulgated by the
Federal Reserve Board, owning, controlling or operating a savings institution is
a permissible activity for bank holding companies, if the savings institution
engages only in deposit- taking activities and lending and other activities that
are permissible for bank holding companies. A bank holding company that controls
a savings institution may merge or consolidate the assets and liabilities of the
savings institution with, or transfer assets and liabilities to, any subsidiary
bank which is a member of the BIF with the approval of the appropriate federal
banking agency and the Federal Reserve Board. The resulting bank will be
required to continue to pay assessments to the SAIF at the rates prescribed for
SAIF members on the deposits attributable to the merged savings institution plus
an annual growth increment. In addition, the transaction must comply with the
restrictions on interstate acquisitions of commercial banks under the BHCA.
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
Conversion and Reorganization. Upon completion of the Conversion and
Reorganization, the Common Stock will be registered with the SEC under the
Exchange Act and, under OTS regulations, generally may not be deregistered for
at least three years thereafter. The Company will 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
Federal Taxation
The Company and the Bank will file a consolidated federal income tax
return.
Thrift institutions are subject to the provisions of the Code in the
same general manner as other corporations. Prior to recent legislation,
institutions such as Middlesboro Federal which met certain definitional tests
and other conditions prescribed by the 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
were 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 was based on actual loss experience, however, the amount of
the bad debt reserve deduction with respect to qualifying real property loans
could 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"). Legislation recently signed by the
President repealed the percentage of taxable income method of calculating the
bad debt reserve. Middlesboro Federal historically has elected to use the
experience method.
Earnings appropriated to an institution's bad debt reserve and claimed
as a tax deduction were not available for the payment of cash dividends or for
distribution to shareholders (including distributions made on dissolution or
liquidation), unless such amount was included in taxable income, along with the
amount deemed necessary to pay the resulting federal income tax.
57
<PAGE>
Beginning with the first taxable year beginning after December 31,
1995, savings institutions, such as the Bank, will be treated the same as
commercial banks. Institutions with $500 million or more in assets will only be
able to take a tax deduction when a loan is actually charged off. Institutions
with less than $500 million in assets will still be permitted to make deductible
bad debt additions to reserves, but only using the experience method.
Middlesboro Federal's federal corporate income tax returns have not
been audited in the last five years.
Under provisions of the Revenue Reconciliation Act of 1993 ("RRA"),
enacted on August 10, 1993, the maximum federal corporate income tax rate was
increased from 34% to 35% for taxable income over $10.0 million, with a 3%
surtax imposed on taxable income over $15.0 million. Also under provisions of
RRA, a separate depreciation calculation requirement has been eliminated in the
determination of adjusted current earnings for purposes of determining
alternative minimum taxable income, rules relating to payment of estimated
corporate income taxes were revised, and certain acquired intangible assets such
as goodwill and customer-based intangibles were allowed a 15-year amortization
period. Beginning with tax years ending on or after January 1, 1993, RRA also
provides that securities dealers must use mark-to-market accounting and
generally reflect changes in value during the year or upon sale as taxable gains
or losses. The IRS has indicated that financial institutions which originate and
sell loans will be subject to the rule.
State Income Taxation
The Commonwealth of Kentucky imposes an annual franchise tax on
financial institutions regularly engaged in business in Kentucky at any time
during the calendar year. This tax is 1.1% of Middlesboro Federal's net capital.
For purposes of this tax, net capital is defined as the aggregate of the Bank's
capital stock, paid-in capital, retained earnings and net unrealized gains or
losses on securities designated as available-for-sale less an amount equal to
the five year average of the percentage that the book value of any United States
obligations held by the Bank bears to the book value of the Bank's total assets.
Financial institutions which are subject to tax both within and without Kentucky
must apportion their net capital. For the year ended June 30, 1996, the amount
of such expense for Middlesboro Federal was $96,000.
Stockholders of the Company who are residents of the Commonwealth of
Kentucky may be subject to a Kentucky tax on intangible property, defined for
this purpose to include shares of stock in a corporation. The tax is an ad
valorem tax based upon the fair market value of the shares held by the
individual, and is assessed at a rate of $.25 per $100 in value. Stockholders of
the Bank are not subject to this tax.
MANAGEMENT OF THE COMPANY
Directors and Executive Officers
The Board of Directors consists of the same individuals who serve as
directors of the Bank with the exception of Director George Taylor who will
continue to serve as a director of the Bank but will not serve as a director of
the Company. The Board is divided into three classes, each of which contains
approximately one-third of the Board. The Bylaws of the Company currently
authorize five directors. The directors shall be elected by the stockholders of
the Company for staggered three-year terms, or until their successors are
elected and qualified. Their names and biographical information are set forth
under "Management of the Bank -- Directors."
The following individuals are executive officers of the Company and
holds the offices set forth below opposite their names.
Name Position(s) with the Company
---- ----------------------------
J. Roy Shoffner Chairman
James J. Shoffner President
J. D. Howard Secretary/Treasurer
58
<PAGE>
The executive officers of the Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, retirement, resignation or removal by the Board of Directors.
Since the formation of the Company, none of the executive officers,
directors or other personnel of the Company has received remuneration from the
Company. In the event that any employee of the Bank provides services to the
Company, the Company has agreed to reimburse the Bank for any costs related to
such services. Information concerning the principal occupations and employment
of the directors and officers of the Company during the past five years is set
forth under "Management of the Bank -- Directors." Directors and executive
officers of the Company initially will not be compensated by the Company but
will serve and be compensated by the Bank. See "Management of the Bank --
Director Compensation" and " -- Executive Compensation."
MANAGEMENT OF THE BANK
The following table sets forth certain information with respect to the
persons who currently serve as directors and executive officers of the Bank.
Each director of the Bank also serves as a director of the Mutual Holding
Company. There are no arrangements or understandings between the Bank and any
such person pursuant to which such person was elected a director or executive
officer of the Bank, and, except as described below, no director or executive
officer is related to any other director or executive officer by blood, marriage
or adoption.
<TABLE>
<CAPTION>
Age as of
September 30, Position(s) with Director Term
Name 1996 the Bank Since Expires
- ---- ---------------- ---------------- --------- -------
<S> <C> <C> <C> <C>
J. Roy Shoffner 68 Chairman and Chief 1961 1997
Executive Officer; Director
Robert R. Long 75 Vice Chairman; Director 1965 1997
James J. Shoffner 35 President and Chief 1988 1999
Managing Officer, Director
Reecie Stagnolia, Jr. 60 Vice President; 1993 1998
Branch Manager;
Director
George Taylor 82 Director 1970 1998
Raymond C. Walker 66 Director 1985 1998
J. D. Howard 35 Vice President; n/a n/a
Chief Financial Officer;
Corporate Secretary
Diana Miracle 34 Vice President; Chief n/a n/a
Operating Officer
</TABLE>
The principal occupation of each director and executive officer are set
forth below. Unless otherwise indicated, each director and executive officer has
served in their current position for the last five years.
J. Roy Shoffner is currently Chairman of the Board and Chief Executive
Officer of Middlesboro Federal, a position he has held since 1994. He is a
graduate of Lincoln Memorial University and a veteran USAF pilot of four years.
Mr. Shoffner owns and operates Shoffner Realty, a real estate development
company and also owns JRS
59
<PAGE>
Restaurant Corporation. Mr. Shoffner is past owner of a local plastic pipe
manufacturing company and is active in real estate and business properties. Mr.
Shoffner is the father of James J. Shoffner.
Robert R. Long currently serves as Vice Chairman of the Board of
Directors. He retired as regional manager of Sterchi Brothers retail furniture
chain in 1983. Mr. Long is a graduate of Lincoln Memorial University and
Northwestern University Business School. He served in the U.S. Army Air Corps in
World War II as a B-24 Liberator Pilot.
James J. Shoffner joined Middlesboro Federal in 1994 as Vice President
and Chief Operating Officer and became President and Chief Managing Officer in
March 1996. He also has served as President of Home since 1996. Prior to joining
the Bank as a full-time officer, Mr. Shoffner was the General Manager of JRS
Restaurant Corporation, which operates four franchised restaurants in the
Middlesboro area. He graduated from Middlesboro High School and attended the
University of Kentucky. He is on the Board of Directors of the Bell County
Chamber of Commerce, the Bell County Tourism Commission and is a Deacon in the
First Baptist Church of Middlesboro. Mr. Shoffner is a member of the Middlesboro
Kiwanis Club and serves on the Advisory Board to the Debusk School of Business
at Lincoln Memorial University. He has also previously served on the Board of
the Middlesboro YMCA and as Chairman for the Bell County Chapter of the March of
Dimes. Mr. Shoffner continues to serve as Chairman and President of JRS
Restaurant Corporation. He has served on the Board of Directors of Middlesboro
Federal since June 6, 1988. Mr. Shoffner is the son of J. Roy Shoffner.
Reecie Stagnolia, Jr. is currently Vice President and the Branch
Manager and Loan Officer at the Cumberland Branch (Tri-City Office), of
Middlesboro Federal, a position he has held since 1989. He previously worked for
the Harlan County Board of Education as a teacher, Assistant Principal and
Principal, Assistant Superintendent and Superintendent from 1962 to 1988. He
attended Cumberland College, University of Kentucky and Eastern Kentucky
University.
George Taylor retired from Reams Lumber Company in 1981 after
approximately forty-four years with the company. He had previously graduated
from Eastern State University in 1932 and was manager of the Southern Hotel for
four years.
Raymond C. Walker served as president of the Mutual Holding Company's
subsidiary, Home Loan Mortgage Corporation from October, 1991 to October, 1996.
He worked for the Middlesboro Daily News as Advertising Director for 24 years,
worked at National Bank as Business Development Director for seven years and
served five years as manager of 120 units of the Section 8 Federally Funded
Housing. Mr. Walker served as mayor of the city of Middlesboro and served as
Vice President and Treasurer of the Bank.
J. D. Howard has been Vice President of the Bank since July 1996 and
was appointed Chief Financial Officer in October 1996. Prior to joining the
Bank, Mr. Howard was an internal auditor and compliance officer at Home Federal
of Middlesboro for two years. Prior to that he was Chief Financial Officer of
First Federal Savings Bank, Pineville, Kentucky for 11 years.
Diana Miracle has been Vice President and Chief Operating Officer of
the Bank since October 1996. Mrs. Miracle joined the Bank as a compliance
officer in August 1995. Prior to that time, she was employed at Security First
Network Bank in Pineville, Kentucky.
Board Meetings and Committees of the Board of Directors
The business of the Bank is conducted at regular and special meetings
of the full Board and its standing committees. The standing committees consist
of the Executive, Audit, Compensation, Finance, Insurance, Investment and Loan
Committees.
During fiscal year 1996, the Board of Directors held twelve regular
meetings and two special meetings called in accordance with the bylaws. No
director attended less than 75% of said meetings and the meetings held by all
committees of the Board of Directors on which he served.
60
<PAGE>
The Executive Committee is comprised of any three directors with one
senior officer. The Executive Committee reviews management decisions during the
intervals between the regular monthly meetings of the Board of Directors and
reports to the full Board of Directors at the regular meetings. The Executive
Committee met 28 times during the fiscal year ended June 30, 1996.
The Audit Committee consist of Directors J. Roy Shoffner, Raymond C.
Walker and George Taylor. This committee regularly meets on a quarterly basis
with the internal auditor to review audit programs and the results of audits of
specific areas as well as other regulatory compliance issues. In addition, the
Audit Committee meets with the independent certified public accountants to
review the results of the annual audit and other related matters. The Audit
Committee met six times during the fiscal year ended June 30, 1996.
The Compensation Committee is comprised of any three non-employee
directors and one senior officer who does not participate in deliberations
regarding his compensation. The Compensation Committee annually reviews the
compensation of the officers of the Bank and makes recommendations to the Board
of Directors. The Committee reports to the full Board of Directors at the
regular meetings. The Compensation Committee met one time during the fiscal year
ended June 30, 1996.
The Finance Committee is comprised of any three directors with one
senior officer. The Committee acts in an advisory capacity to management with
regard to profitability of the Bank through different interest rate cycles. They
report to the full Board of Directors at the regular meetings. The Finance
Committee met 12 times during the fiscal year ended June 30, 1996.
The Investment Committee consists of Directors Robert R. Long, James J.
Shoffner, J. Roy Shoffner and George Taylor and meets at least quarterly. The
Investment Committee is charged with oversight responsibilities of the Bank's
investment policies. The committee met six times during the fiscal year ended
June 30, 1996.
The Loan Committee is made up of any two directors and one senior
officer. The committee meets weekly to review and ratify management's approval
of loans made within the scope of its authority since the last committee meeting
and approve mortgage loans up to $250,000. The committee also approves consumer
and business loans up to $5,000. The Loan Committee met 52 times during the
fiscal year ended June 30, 1996.
Under the Bank's Bylaws, the Board of Directors serves as a nominating
committee for selecting management's nominees for election as directors. While
the Board of Directors will consider nominees recommended by stockholders, it
has not established any procedures for this purpose. The Board of Directors met
once in its capacity as the nominating committee during the fiscal year ended
June 30, 1996.
Executive Compensation
Summary Compensation Table. The following table sets forth the cash and
noncash compensation for each of the last three fiscal years awarded to or
earned by the Chief Executive Officer who receives no compensation other than
his fees as director and chairman. No executive officer of the Bank earned a
salary and bonus during fiscal year 1996 exceeding $100,000 for services
rendered in all capacities to the Bank.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
----------------------------------- ---------------------------
Restricted Securities
Name and Fiscal Other Annual Stock Underlying All Other
Principal Position Year Salary Bonus Compensation Award(s) Options Compensation(1)
- ------------------ ---- ------ ----- ------------ -------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Roy Shoffner 1996 $ -- $ -- $ -- $ -- $ -- $19,800
Chairman 1995 -- -- -- 2,336 (2) 2,120
1994 -- -- -- -- --
</TABLE>
- --------------------
(1) Consists of director's fees.
(2) Consists of 200 shares of restricted stock granted under the Bank's
1993 MRP with a fair market value of $11.68 per share at the date of
grant.
61
<PAGE>
Option Year-end Value Table. The following table sets forth
information concerning the value of options held by the Chief Executive Officer
at June 30, 1996.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End at Fiscal Year-End (1)
-------------------------------- --------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
J. Roy Shoffner 2,120 -- $ 3,562 $ --
</TABLE>
- --------------------
(1) Based on aggregate fair market value of the shares of Common Stock
underlying the options at June 30, 1996 less aggregate exercise price.
For purposes of this calculation, the fair market value of the Common
Stock at June 30, 1996 is assumed to be equal to the last reported sale
price of $11.68 per share. All options granted to Mr. Shoffner were
granted at an exercise price of $10.00 per share.
Director Compensation
Director Fees. The members of the Board of Directors receive $800 for
regular monthly Board meetings and committee meetings attended and $100 for each
special meeting attended. The Chairman receives $850 monthly for regularly
scheduled Board meetings and committee meetings. Each non-employee director is
entitled to receive options to purchase 100 shares of Bank Common Stock at its
then-current fair market value upon joining the Board of Directors.
Director Retirement Plan. The Bank has adopted the Middlesboro Federal
Bank, Federal Savings Bank Retirement Plan for Non-Employee Directors (the
"Directors' Plan") pursuant to which non-employee directors of the Bank are
entitled to receive, upon retirement, 60 monthly payments in the amount of 75%
of the average monthly fees that the respective director received for service on
the Board during the 12-month period preceding termination of service on the
Board, subject to a 20 year vesting schedule. In connection with the adoption of
the Directors' Plan, the Bank incurred an expense of $145,000 which was
recognized during the first quarter of fiscal year 1997.
In anticipation of the upcoming Conversion and Reorganization, the
Bank's Board converted the Directors' Plan from a defined benefit type of plan
to a defined contribution type. Under the Directors' Plan, as amended, a
bookkeeping account in each participants' name is credited, on an annual basis
with an amount equal to the sum of the accrual attributable to the participant
equal to the investment return which would have resulted if such deferred
amounts had been invested in either Common Stock or the Bank's highest annual
rate of interest on certificates of deposit having a one-year term.
Each participant's account has been credited with an amount equal to
the present value of the benefits in which the participant has a fully vested
interest before its amendment. This amount was determined based on the
participant's years of service and 75% of average fees paid to directors in the
year prior to the participant's retirement. In addition, beginning in 1997, each
participant's account will be credited with $1,516 for each year of service
until a maximum of 20 years worth of credits is reached, including past service
credits. Benefits are payable from the Bank's general assets, although the Bank
expects to establish a grantor trust that will purchase Common Stock (either in
the Conversion and Reorganization or the aftermarket) that will be held to help
the Bank meet its liabilities associated with the Directors' Plan.
Indemnification Agreements. The Bank and the Company has entered into
Indemnification Agreements (the "Indemnification Agreements") with all of the
Bank's and the Company's directors. The Indemnification Agreements provide for
retroactive as well as prospective indemnification to the fullest extent
permitted by law against any and all expenses (including attorneys' fees and all
other costs and obligations), judgments, fines, penalties and amounts paid in
settlement in connection with any claim or proceeding arising out of the
indemnitee's service
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as a director. The Indemnification Agreements also provide for the prompt
advancement of expenses to the director in connection with investigating,
defending or being a witness or participating in any proceeding. The
Indemnification Agreements further provide a mechanism through which the
director may seek court relief in the event the Company's or the Bank's Board of
Directors (or other person appointed by such Board) determines that the director
would not be permitted to be indemnified under applicable law. The
Indemnification Agreements impose on the Bank and the Company the burden of
proving that the director is not entitled to indemnification in any particular
case. If a change in control occurs, as defined in the Employment Agreement
entered into with James J. Shoffner, the director would be entitled to continue
on as a director emeritus or as an advisory director for three years after the
change in control.
While not requiring the maintenance of directors' liability insurance,
the Indemnification Agreements provide that the Bank or the Company may obtain
such insurance, if desired. Further, the Indemnification Agreements provide that
if the Bank or the Company pays a director pursuant to an Indemnification
Agreement, the Bank or the Company will be subrogated to such director's rights
to recover from third parties.
Certain Benefit Plans and Agreements
1993 Stock Option Plan. In connection with the MHC Reorganization, the
Bank's Board of Directors adopted the 1993 Option Plan, pursuant to which a
number of shares equal to 10% of the Bank Common Stock issued to the public in
the formation of the Mutual Holding Company (18,000 shares) were reserved for
future issuance by the Bank upon exercise of stock options to be granted to
directors and employees of the Bank from time to time under the 1993 Option
Plan. The purpose of the 1993 Option Plan is to provide additional incentive to
certain directors, officers and key employees by facilitating their purchase of
a stock interest in the Bank. The 1993 Option Plan, which became effective upon
the completion of the MHC Reorganization, has a term of ten years, unless
earlier terminated by the Board of Directors. Upon consummation of the
Conversion and Reorganization, the 1993 Option Plan will become an option plan
of the Company and each outstanding option will be converted into the right to
purchase shares of Common Stock on the same terms and conditions.
The 1993 Option Plan is administered by a committee of at least three
non-employee directors of the Bank, who are appointed by the Bank's Board of
Directors (the "Option Committee"). Directors J. Roy Shoffner, Robert R. Long
and George Taylor currently serve as members of the Option Committee. The Option
Committee selects the employees to whom options are granted and the number of
shares granted. Each of the five nonemployee members of the Board of Directors
received a grant of options to purchase 1% of the number of shares sold in the
formation of the Mutual Holding Company for a total of 5% of the number of
shares sold in the formation of the Mutual Holding Company. The Bank receives no
monetary consideration for the granting of stock options under the 1993 Option
Plan other then the option price for each share issued to optionees upon
exercise of such options. The initial grant of options under the 1993 Option
Plan took place upon completion of the MHC Reorganization, and the option
exercise price was equal the purchase price of the Bank Common Stock in the MHC
Reorganization.
The 1993 Option Plan provides that, in the event of a change in control
or offer to effect a change in control of the Bank (control being defined as the
beneficial ownership of 25% or more of the Bank's outstanding voting stock), any
option which provides for its exercise in installments shall become immediately
exercisable, and the optionee shall, at the discretion of the Option Committee,
be entitled to receive cash in an amount equal to the excess of the fair market
value of the Bank Common Stock subject to the option over the option price in
exchange for the surrender of the option.
It is intended that options granted under the 1993 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 normally result in tax deductions to the
Bank until the stock is sold) and options that do not so qualify. The option
price may not be less than 100% of the fair market value of the shares on the
date of the grant, and no option shall be exercisable after the expiration of
ten years from the date it is granted;
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provided, however, that in the case of any employee who owns more than 10% of
the outstanding Bank Common Stock at the time the option is granted, the option
price may not be less than 110% of the fair market value of the shares on the
date of the grant, and the option shall not be exercisable after the expiration
of five years from the date it is granted. For the purpose of options granted in
connection with the formation of the Mutual Holding Company, the offering price
of $10.00 per share was considered the market value of the shares subject to
such options; for the purpose of any options granted in the future, the market
value of the underlying shares on the date of grant is determined with reference
to the then-recent trading prices known to management or such other reasonable
basis as the Option Committee may select. Option shares may be paid for in cash,
shares of the Bank Common Stock or a combination of both. In the event that the
fair market value per share of the Bank Common Stock falls below the price of
previously granted options but not less than 75% of the Option Price when first
issued, the Committee shall have the authority, with the consent of the
optionee, to cancel outstanding options and to reissue new options at the then
current fair market price per share of the Bank Common Stock.
An optionee will not be deemed to have received taxable income upon
grant or exercise of any incentive stock option, provided that such shares are
not disposed of by the optionee for at least one year after the date of exercise
and two years after the date of grant. No compensation deduction may be taken by
the Bank as a result of the grant or exercise of incentive stock options. In the
case of a non-incentive stock option, an optionee will be deemed to receive
ordinary income upon exercise of the stock option in an amount equal to the
amount by which the exercise price is exceeded by the fair market value of the
Bank Common Stock purchased by exercising the option on the date of exercise.
The amount of any ordinary income deemed to be received by an optionee upon the
exercise of an incentive stock option prior to the expiration of two years from
the date the incentive option was granted and one year from the date the Bank
Common Stock was so acquired will be deductible expense for tax purposes for the
Bank.
1997 Stock Option and Incentive Plan. The Board of Directors of the
Company intends to submit the 1997 Option Plan for stockholder approval at a
meeting which is expected to be held not earlier than six months following
completion of the Conversion and Reorganization. No options shall be awarded
under the 1997 Option Plan unless stockholder approval is obtained.
The purpose of the 1997 Option Plan is to provide additional incentive
to directors and employees by facilitating their purchase of Common Stock. The
1997 Option Plan will have a term of ten 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
1997 Option Plan, a number of shares equal to 10% of the shares of Common Stock
sold to the public in the Conversion and Reorganization 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 1997 Option
Plan, unless the 1997 Option Plan shall have been terminated.
It is expected that the 1997 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. 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 1997 Option Plan). Awards will be available for grants to
directors and key employees of the Company and any subsidiaries. In accordance
with applicable regulations, no employee will receive Awards covering more than
25.0% of the shares reserved for issuance under the 1997 Option Plan, and
non-employee directors will not receive awards individually exceeding 5% of the
shares available under the 1997 Option Plan or 30% in the aggregate.
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The initial grant of Options under the 1997 Option Plan is expected to
take place on the date of its receipt of stockholder approval of the 1997 Option
Plan, and the Option exercise price would be the then fair market value of the
Common Stock subject to the Option. It is expected that Options to purchase 25%
of shares of Common Stock reserved for issuance under the 1997 Option Plan will
be granted at that time to Mr. James J. Shoffner, and that each of the Company's
and the Bank's non-employee directors will receive Options to purchase a number
of shares of Common Stock equal to the lesser of 5% of the shares reserved under
the 1997 Option Plan and the quotient obtained by dividing 30% of the shares
reserved under the 1997 Option Plan by the number of non-employee directors
entitled to receive an Option on the plan's effective date. Non-employee
directors who join the Board after the 1997 Option Plan's effective date will
receive a one-time grant of Options to purchase __% of the shares reserved for
issuance under the 1997 Option Plan. No SARs are expected to be granted when the
1997 Option Plan becomes effective, and any Options granted prior to the 1997
Option Plan's receipt of regulatory approval would be contingent thereon.
It is intended that Options granted under the 1997 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 1997 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, 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.
Options granted at the time of implementation of the 1997 Option Plan are
expected to become exercisable by participants at the rate of 20% per full year
of such participants' continued service after the date of an Award. 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. 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 1997
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 death or disability. 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 1997 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 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). The exercise price of shares subject to
outstanding Awards shall be proportionately adjusted upon the payment of any
special large and nonrecurring dividend that has the effect of a return of
capital to stockholders.
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At any time following consummation of the Conversion and
Reorganization, 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 sold to the public in the Conversion and
Reorganization. Such shares would be held by the trust for issuance to Option
holders upon the exercise of Options in the event the 1997 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.
Employment Agreement. In August, 1996, the Bank entered into an
employment agreement (the "Employment Agreement") with Mr. James J. Shoffner
(the "Employee") who serves as its President, Chief Managing Officer, and as a
director. The Board believes that the Employment Agreement assures fair
treatment of the Employee in his career with the Bank by assuring him of some
financial security. Pursuant to an amendment to the Employment Agreement entered
into on August 12, 1996, the Company became joint and severally liable with the
Bank for its obligations under the employment agreement.
The Employment Agreement provides for a term of three years, with the
Employee's annual base salary equal to $55,000. On each anniversary date of the
commencement of the Employment Agreement, 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 Agreement should be extended. The Employment Agreement provides
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 Agreement 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 Agreement). In the event of termination for just
cause, no severance benefits are available. If 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 Agreement 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 Agreement's expiration date or the cash
equivalent thereof. If the Employment Agreement is terminated due to the
Employee's "disability" (as defined in the Employment Agreement), 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 Agreement, 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 Agreement
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 first anniversary of
the change in control or the expiration date of the Employment Agreement (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
ten 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 (i) the acquisition, by any
person or entity, of the ownership or power to vote more than 20% of the Bank's
or Company's voting stock, or the exercise of a controlling influence over the
management or policies of the Bank or the Company, (ii) a plan of
reorganization/merger, consolidation, sale of all or substantially all of assets
of the Bank or similar transaction in which the Bank is not the surviving entity
or (iii) a tender offer is made for 20% or more of the voting securities of the
Bank or Company. In addition, under the Employment Agreement, a change in
control
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occurs when, during any consecutive two-year period, directors of the Company or
the Bank at the beginning of such period cease to constitute a majority of the
Board of Directors of the Company or the Bank, unless the election of
replacement directors was approved by a three-fourths vote of the initial
directors then in office. The Employment Agreement with the Bank provides that
within ten 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. These provisions may
have an anti-takeover effect by making it more expensive for a potential
acquiror to obtain control of the Company. 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.
The Employment Agreement entitles Mr. Shoffner to receive supplemental
retirement benefits upon his termination of employment with the Bank, for
reasons other than removal for "just cause" (as defined in the agreement).
Benefits are payable for his life in an annual amount equal to (i) the product
of his vested percentage (i.e., 20% per year of service under the agreement, up
to 100%) and 80% of the average of the highest compensation for three of the
five calendar years preceding termination, less (ii) the sum of the 50% joint
and survivor annuity value of his employer provided benefits under the Bank's
tax-qualified retirement plans and his annual social security benefit at age 62.
Vesting accelerates to 100% upon his death, disability, constructive discharge,
or a change-in- control. Upon Mr. Shoffner's death, his surviving spouse would
receive a lump-sum payment equal to 50% of the present value of his unpaid
retirement benefits.
The aggregate payments that would be made to Mr. Shoffner assuming his
termination of employment under the foregoing circumstances at September 30,
1996 would have been approximately $152,000.
1993 Management Recognition and Retention Plan and Trust. The Bank
established the 1993 MRP as a method of providing directors, officers and other
key employees of the Bank with a proprietary interest in the Bank in a manner
designed to encourage such persons to remain with the Bank. The Bank contributed
funds to the 1993 MRP to enable it to acquire 3% of the shares of Bank Common
Stock issued to the public in connection with the MHC Reorganization.
A committee of the nonemployee directors administers the trust and
makes awards to officers; however, awards to nonemployee directors are fixed
under the 1993 MRP. Under the 1993 MRP, awards are granted to directors and
officers in the form of shares of Bank Common Stock to be held in trust under
the 1993 MRP. Awards are nontransferable and nonassignable. Participants were
granted awards at the time of the completion of the MHC Reorganization which
awards vest on a five-year schedule at a rate of 20% per year. The Committee may
provide for a less or more rapid vesting with respect to awards granted under
the 1993 MRP. Awards will be 100% vested upon termination of employment due to
death, disability, retirement at age 70 or following a change in control of the
Bank or the Mutual Holding Company. A change in control is defined in the 1993
MRP generally to mean a change in control of the Mutual Holding Company or the
Bank, including a change in the composition of the Board of Directors of the
Mutual Holding Company whereby those individuals who constitute the Board of
Directors on the effective date of the 1993 MRP cease for any reason to
constitute a majority thereof, or a merger or other form of acquisition of the
Mutual Holding Company or the Bank whereby the Bank or the Mutual Holding
Company is not the resulting entity. In the event that an employee terminates
employment or a director ceases to serve with the Bank, the employee's or
director's nonvested awards will be forfeited. When shares become vested in
accordance with the 1993 MRP, the participants recognize income equal to the
fair market value of the Bank Common Stock at that time. The amount of income
recognized by the participants will be a deductible expense for tax purposes for
the Bank. When shares become vested and are actually distributed in accordance
with the 1993 MRP, the participants will also receive amounts equal to any
accrued dividends with respect thereto. Prior to vesting, recipients of awards
may direct the voting of the shares allocated to them. Unallocated shares will
be voted by the 1993 MRP trustees. Earned shares are distributed to recipients
as soon as practicable following the day on which they are earned.
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In connection with the MHC Reorganization, 275 shares of restricted
stock were awarded to each of Directors Raymond C. Walker and Reecie Stagnolia,
Jr., respectively under the 1993 MRP. In addition, 200 shares of restricted
stock were automatically awarded to Directors J. Roy Shoffner, James J.
Shoffner, Robert R. Long and George Taylor who were non-employee directors at
the time of the MHC Reorganization.
1997 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 Conversion and Reorganization. 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 of the Company's Board of Directors (the "MRP Committee"). The MRP
Committee act, by majority, as the trustees of the trust associated with the MRP
(the "1997 MRP Trust"). The trustees of the 1997 MRP Trust (the "MRP Trustees")
will have the responsibility to hold and invest all funds contributed to the
1997 MRP Trust. Shares held in the 1997 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 Conversion and
Reorganization, the Bank or the Company will contribute sufficient funds to the
1997 MRP Trust so that the 1997 MRP Trust can purchase a number of shares of
Common Stock equal to 4% of the number of shares of Common Stock that are sold
to the public in the Conversion and Reorganization. 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 1997 MRP will be in the form
of awards which may be transferred to family members or trusts under specified
circumstances, 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. Vesting will occur at a rate of 20% per year of
service following the award date, but will accelerate to 100% if a participant's
employment terminates due to death or disability. Dividends on unvested shares
will be held in the 1997 MRP Trust for payment as vesting occurs. If a
participant terminates employment for reasons other than death or disability, he
or she forfeits all rights to the allocated shares under restriction.
The Company's Board of Directors can terminate the 1997 MRP at any
time, and, if it does so, any shares not allocated will revert to the Company.
At the time the 1997 MRP receives stockholder approval, Mr. James J. Shoffner is
expected to receive MRP awards of 25.0% of the shares reserved for award under
the 1997 MRP, and the Company's non-employee directors will receive, in the
aggregate, awards of 30% of such shares (but not more than 5% per non-employee
director). Each non-employee director who joins the Board after the 1997 MRP's
effective date is expected to receive an award equal to ___% of the number of
plan shares reserved for award under the 1997 MRP. The initial grant of awards
under the 1997 MRP is expected to occur on the date the 1997 MRP receives
stockholder approval. No awards shall be made prior to regulatory and
stockholder approval of the 1997 MRP.
Employee Stock Ownership Plan. The Company's Board of Directors has
adopted the ESOP, effective as of July 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. The Company will submit an application to
the IRS for a letter of determination 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 3.0% of the shares of Common
Stock issued in the Conversion and Reorganization. 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
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for allocation among participants as the loan is repaid. The Bank and the
Company expect 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. Common Stock would be released from
collateral as the ESOP loan is repaid.
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 July 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 either to repay the ESOP loan or to be paid
directly 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
non-employee directors _________________, _________________ and
_________________ will be appointed as trustees of the ESOP (the "ESOP
Trustees"). Participants would vote allocated shares directly. 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. The Board of Directors would direct the voting of
unallocated shares if no voting instructions are received for allocated shares.
Incentive Compensation Plan. Effective July 1, 1996, the Company's
Board of Directors implemented an incentive compensation plan (the "Incentive
Compensation Plan"). The Incentive Compensation Plan is unfunded and benefits
are payable only in the form of cash from the Company's general assets. The
Incentive Compensation Plan is administered by the Compensation Committee (the
"Committee") consisting of the Company's non-employee directors. All employees
who are with the Bank on the first and the last day of the plan year are
eligible to participate in the Incentive Compensation Plan.
A mathematical formula set forth in the Incentive Compensation Plan,
and summarized below, determines the amount of each participant's annual cash
bonuses ("Bonuses"). Nevertheless, the Committee may in its discretion
determine, by resolution adopted before the first day of any plan year, to
change the employees participating in the Incentive Compensation Plan, and the
formula for calculating the Bonuses. Absent such action, for each plan year in
which the Incentive Compensation Plan is in effect, the bonus pool will equal
$35,000 times the return-on-average assets ("ROAA") times the Safety and
Soundness Factor ("SSF") (which takes into account the Company's nonperforming
assets ("NPA") and its CAMEL ratings). ROAA will be calculated each year on a
consolidated financial basis on a pre-dividend, pre-provision for loan loss and
pre-plan payment basis. ROAA Factor will equal the square of the ratio of (i)
the Bank's return on average assets for the plan year to (ii) 0.8%. The
Committee may adjust the Company's and the Bank's ROAA or NPA to take into
account extraordinary financial events. The aggregate amount of Bonuses payable
for any calendar year will be proportionately reduced (to zero, if necessary) to
the extent that the payment would cause the Bank to cease to be a
"well-capitalized" institution for the year. The Incentive Compensation Plan
provides that no Bonuses will be paid for any year in which ROAA is less than
0.5%. The bonus pool is expected to be divided among employees based on relative
compensation amounts and the other 20% based on the Committee's discretion.
Directors would be permitted to make deferral elections with respect to
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directors' fees, and to have the rate of return on their deferral be measured by
the highest 12-month certificate of deposit rate paid by the Bank.
The Incentive Compensation Plan has an indefinite term, and the Bank
has the right at any time to terminate or amend the Incentive Compensation Plan
for any reason; provided, that no amendment or termination shall, without the
consent of a participant or, if applicable, the participant's beneficiary,
adversely affect such participant's or beneficiary's rights with respect to
benefits accrued as of the date of such amendment or termination.
Transactions with Certain Related Persons
During the fiscal year ended June 30, 1996, certain loans made by the
Bank were outstanding in an amount exceeding $60,000 to certain directors and
executive officers and associates of directors and executive officers. All of
such loans were made in the ordinary course of business, were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, and did
not involve more than the normal risk of collectibility or present other
unfavorable features.
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<PAGE>
BENEFICIAL OWNERSHIP OF CAPITAL STOCK
Beneficial Ownership of Bank Common Stock
The following table includes, as of September 30, 1996, certain
information as to the Bank Common Stock beneficially owned by (i) the only
persons or entities, including any "group" as that term is used in Section
13(d)(3) of the Exchange Act, who or which was known to the Bank to be the
beneficial owner of more than 5% of the issued and outstanding Bank Common
Stock, (ii) the directors of the Bank and (iii) all directors and executive
officers of the Bank as a group. For information concerning proposed
subscriptions by directors and executive officers and the anticipated ownership
of Common Stock by such persons upon consummation of the Conversion and
Reorganization, see " -- Proposed Subscriptions by Directors and Executive
Officers."
<TABLE>
<CAPTION>
Amount Percent of Total
Beneficially Outstanding
Name Owned Common Stock (1)
- ---- ----- ----------------
<S> <C> <C>
J. Roy Shoffner 46,060 (2) 9.00%
Raymond C. Walker 9,805 (3) 1.92
Robert R. Long 16,924 (4) 3.31
James J. Shoffner 4,932 (5) 0.97
Reecie Stagnolia, Jr. 7,485 (6) 1.47
George Taylor 3,531 (7) 0.69
Cumberland Mountain Bancshares, M.H.C. 330,000 (8) 64.71
All Directors and Executive Officers 88,737 (9)
as a group (8 persons)
</TABLE>
- ---------------
(1) In calculating percentage ownership for a named individual or group,
the number of shares outstanding is deemed to include shares which the
named individual or group has the right to acquire pursuant to the
exercise of options.
(2) Includes 2,120 shares of Bank Common Stock which Mr. Shoffner has the
right to acquire pursuant to options exercisable within 60 days of
September 30, 1996. Does not include 160 shares held for the benefit of
Mr. Shoffner in the 1993 MRP. Does not include 4,932 shares
beneficially owned by Mr. Shoffner's adult children as to which he
disclaims beneficial ownership. Mr. Shoffner's address is 1431
Cumberland Avenue, Middlesboro, Kentucky. Mr. Shoffner has previously
filed a Notice of Change-in-Control with the OTS to seek approval to
acquire up to 24.9% of the outstanding Bank Common Stock. Such Notice
was subsequently withdrawn.
(3) Includes 8,000 shares held jointly with Mr. Walker's wife. Includes 750
shares which Mr. Walker has the right to acquire pursuant to the
exercise of options.
(4) Includes 12,100 shares held jointly with Mr. Long's children. Includes
1,884 shares which Mr. Long has the right to acquire pursuant to the
exercise of options.
(5) Includes 392 shares which Mr. Shoffner has the right to acquire
pursuant to the exercise of options.
(6) Includes 5,030 shares held jointly with Mr. Stagnolia's wife and 200
shares held jointly with Mr. Stagnolia's daughter.
Includes 500 shares which Mr. Stagnolia has the right to acquire
pursuant to the exercise of options.
(7) Includes 1,491 shares which Mr. Taylor has the right to acquire
pursuant to the exercise of options.
(8) The address of the Mutual Holding Company is 1431 Cumberland Avenue,
Middlesboro, Kentucky.
(9) Includes 7,137 shares which directors and officers have the right to
acquire pursuant to the exercise of options.
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<PAGE>
Proposed Subscriptions by Directors and Executive Officers
The following table sets forth, for each of the Bank's directors and
executive officers and for all of the directors and executive officers as a
group, (1) the number of Exchange Shares to be held upon consummation of the
Conversion and Reorganization, based upon their beneficial ownership of Bank
Common Stock as of _______________, 1997, (2) the proposed purchases of
Conversion Stock, assuming sufficient shares are available to satisfy their
subscriptions, and (3) the total amount of Common Stock to be held upon
consummation of the Conversion and Reorganization, in each case assuming that
332,500 shares of Conversion Stock are sold, which is the midpoint of the
Valuation Price Range.
<TABLE>
<CAPTION>
Proposed Purchases of Total Common Stock
Conversion Stock to be Held
Number of --------------------- ------------------
Exchange Shares Number Number Percentage
Name to be Held(1) Amount of Shares of Shares of Total
- ---- ----------------- ------ --------- --------- ---------
<S> <C> <C> <C> <C> <C>
J. Roy Shoffner 46,428
Raymond C. Walker 9,883
Robert R. Long 17,059
James J. Shoffner 4,971
Reecie Stagnolia, Jr. 7,545
George Taylor 3,559
J.D. Howard --
Diana Miracle --
All Directors and
Executive Officers
as a group (8 persons) 85,886
</TABLE>
- ----------------
(1) Assumes that all outstanding options have been exercised prior to the
Exchange. The Company is not aware of any director or executive officer
who intends to exercise his outstanding options prior to the Exchange.
For purposes of the calculation, the Exchange Ratio used does not
reflect the exercise of any options. If options were to be exercised
prior to the Exchange, the actual Exchange Ratio and the number of
Exchange Shares would be slightly higher.
THE CONVERSION AND REORGANIZATION
The Boards of Directors of the Mutual Holding Company, the Bank and the
Company have approved the Plan of Conversion, as has the OTS, subject to
approval by the Members of the Mutual Holding Company and the Stockholders of
the Bank entitled to vote on the matter and the satisfaction of certain other
conditions. Such OTS approval, however, does not constitute a recommendation or
endorsement of the Plan by such agency.
General
The Boards of Directors of the Mutual Holding Company and the Bank
unanimously adopted the Plan as of December 12, 1996. The Plan has been approved
by the OTS, subject to, among other things, approval of the Plan by the Members
of the Mutual Holding Company and the Stockholders of the Bank. The Members'
Meeting and the Stockholders' Meeting have been called for this purpose on
_____________, 1997.
The following is a brief summary of pertinent aspects of the Plan and
the Conversion and Reorganization. The summary is qualified in its entirety by
reference to the provisions of the Plan, which is available for inspection
72
<PAGE>
at each branch office of Middlesboro Federal and at the offices of the OTS. The
Plan also is 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."
Purposes of the Conversion and Reorganization
The Mutual Holding Company, as a federally chartered mutual holding
company, does not have stockholders and has no authority to issue capital stock.
As a result of the Conversion and Reorganization, the Company will be structured
in the form used by holding companies of commercial banks, most business
entities and a growing number of savings institutions. The holding company form
of organization will provide the Company with the ability to diversify the
Company's and the Bank's business activities through acquisition of, or mergers
with, both stock savings institutions and commercial banks, as well as other
companies. Although there are no current arrangements, understandings or
agreements regarding any such opportunities, the Company will be in a position
after the Conversion and Reorganization, subject to regulatory limitations and
the Company's financial position, to take advantage of any such opportunities
that may arise.
In their decision to pursue the Conversion and Reorganization, the
Mutual Holding Company and the Bank considered various regulatory uncertainties
associated with the mutual holding company structure as well as the general
uncertainty regarding a possible elimination of the thrift charter.
The Conversion and Reorganization also will be important to the future
growth and performance of the holding company organization by providing a larger
capital base to support the operations of the Bank and Company and by enhancing
their future access to capital markets, ability to diversify into other
financial services related activities, and ability to provide services to the
public. Although the Bank currently has the ability to raise additional capital
through the sale of additional shares of Bank Common Stock, that ability is
limited by the mutual holding company structure which, among other things,
requires that the Mutual Holding Company hold a majority of the outstanding
shares of Bank Common Stock.
The Conversion also will result in an increase in the number of
outstanding shares of Common Stock following the Conversion and Reorganization,
as compared to the number of outstanding shares of Public Bank Shares prior to
the Conversion and Reorganization, which will increase the likelihood of the
development of an active and liquid trading market for the Common Stock. See
"Market for the Common Stock."
An additional benefit to the Conversion and Reorganization will be an
increase in the accumulated earnings and profits of the Bank for federal income
tax purposes. When the Bank in its mutual form transferred substantially all of
its assets and liabilities to the Bank in connection with the MHC
Reorganization, its accumulated earnings and profits tax attribute was not able
to be transferred to the Bank because a non tax-free reorganization was
involved. Accordingly, this tax attribute was retained by the Bank in its mutual
form when it converted its charter to that of a mutual holding company, even
though the underlying retained earnings were transferred to the Bank. The
Conversion and Reorganization has been structured to re-unite the accumulated
earnings and profits tax attribute retained by the Mutual Holding Company in the
MHC Reorganization with the retained earnings of the Bank by merging the Mutual
Holding Company (following its conversion to an interim federal stock savings
association) with and into the Bank in a tax-free reorganization.
If the Bank in its mutual form had undertaken a standard conversion
involving the formation of a stock holding company in 1994, applicable OTS
regulations would have required a greater amount of Common Stock to be sold than
the amount of net proceeds raised in the Bank's initial public offering. In
addition, if a standard conversion had been conducted in 1994, management of the
Bank in its mutual form believed that it would have been difficult to profitably
invest the larger amount of capital that would have been raised, when compared
to the amount of net proceeds raised in the Bank's initial public offering. A
standard conversion in 1994 also would have immediately eliminated all aspects
of the mutual form of organization.
73
<PAGE>
In light of the foregoing, the Boards of Directors of the Bank and the
Mutual Holding Company believe that the Conversion and Reorganization is in the
best interests of such companies and their respective stockholders and Members.
Description of the Conversion and Reorganization
On December 12, 1996, the Boards of Directors of the Bank and the
Mutual Holding Company adopted the Plan. On December 13, 1996 the Bank organized
the Company under Tennessee law as a first-tier wholly owned subsidiary of the
Bank. Pursuant to the Plan: (i) the Mutual Holding Company will convert to an
interim Federal stock savings bank and simultaneously will merge with and into
the Bank, pursuant to which the Mutual Holding Company will cease to exist and
the shares of Bank Common Stock held by the Mutual Holding Company will be
cancelled; and (ii) Interim will then merge with and into the Bank. As a result
of the merger of Interim with and into the Bank, the Bank will become a wholly
owned subsidiary of the Company operating under the name "Middlesboro Federal
Bank, Federal Savings Bank" and the Public Bank Shares will be converted into
the Exchange Shares pursuant to the Exchange Ratio, which will result in the
Public Stockholders owning in the aggregate approximately the same percentage of
the Common Stock to be outstanding upon the completion of the Conversion and
Reorganization (i.e., the Conversion Stock and the Exchange Shares) as the
percentage of Bank Common Stock owned by them in the aggregate immediately prior
to consummation of the Conversion and Reorganization, before giving effect to
(a) the payment of cash in lieu of issuing fractional Exchange Shares, (b) any
shares of Conversion Stock purchased by the Public Stockholders in the Offerings
or the ESOP thereafter, and (c) any exercise of dissenters' rights.
74
<PAGE>
The following diagram outlines the current organizational structure of
the parties and their respective ownership interests:
Cumberland Mountain
Bancshares, M.H.C. Public Stockholders
64.71% 35.29%
Middlesboro Federal Bank,
Federal Savings Bank
100%
Cumberland Mountain
Bancshares, Inc.
100%
Interim
(to-be-formed)
75
<PAGE>
The following diagram reflects the Conversion and Reorganization,
including (i) the merger of the Mutual Holding Company (following its conversion
to an interim federal stock savings association) with and into the Bank, (ii)
the merger of Interim with and into the Bank, pursuant to which the Public Bank
Shares will be converted into Exchange Shares, and (iii) the offering of
Conversion Stock. The diagram assumes that there are no dissenters' rights
exercised and fractional shares and does not give effect to purchases of
Conversion Stock by holders of Public Bank Shares or the exercise of outstanding
stock options.
Purchasers of Stock Holders of Exchange Shares
in the Conversion (Former Public Stockholders)
64.71% 35.29%
Cumberland Mountain
Bancshares, Inc.
100%
Middlesboro Federal Bank,
Federal Savings Bank
Pursuant to OTS regulations, consummation of the Conversion and
Reorganization (including the offering of Conversion Stock in the Offerings, as
described below) is conditioned upon the approval of the Plan by: (i) the OTS;
(ii) at least a majority of the total number of votes eligible to be cast by
Members of the Mutual Holding Company at the Members' Meeting; and (iii) holders
of at least two-thirds of the shares of the outstanding Bank Common Stock at the
Stockholders' Meeting. In addition, the Primary Parties have conditioned the
consummation of the Conversion and Reorganization on the approval of the Plan by
at least a majority of the votes cast, in person or by proxy, by the Public
Stockholders at the Stockholders' Meeting and the exercise of dissenters' rights
of appraisal by the holders of less than 10% of the outstanding shares of Bank
Common Stock.
Effects of the Conversion and Reorganization
General. Prior to the Conversion and Reorganization, each depositor in
the Bank has both a deposit account in the institution and a pro rata ownership
interest in the net worth of the Mutual Holding Company based upon the balance
in his account, which interest may only be realized in the event of a
liquidation of the Mutual Holding Company. However, this ownership interest is
tied to the depositor's account and has no tangible market value separate from
such deposit account. A depositor who reduces or closes his account receives a
portion or all of the balance in the account but nothing for his ownership
interest in the net worth of the Mutual Holding Company, which is lost to the
extent that the balance in the account is reduced.
76
<PAGE>
Consequently, the depositors of the Bank normally have no way to
realize the value of their ownership interest in the Mutual Holding Company,
which has realizable value only in the unlikely event that the Mutual Holding
Company is liquidated. In such event, the depositors of record at that time, as
owners, would share pro rata in any residual surplus and reserves of the Mutual
Holding Company after other claims are paid.
Upon consummation of the Conversion and Reorganization, permanent
nonwithdrawable capital stock will be created to represent the ownership of the
net worth of the Company. The Common Stock of the Company is separate and apart
from deposit accounts and cannot be and is not insured by the FDIC or any other
governmental agency. Certificates are issued to evidence ownership of the
permanent stock. The stock certificates are transferable, and therefore the
stock may be sold or traded if a purchaser is available with no effect on any
account the seller may hold in the Bank.
Continuity. While the Conversion and Reorganization is being
accomplished, the normal business of the Bank of accepting deposits and making
loans will continue without interruption. The Bank will continue to be subject
to regulation by the OTS and the FDIC. After the Conversion and Reorganization,
the Bank will continue to provide services for depositors and borrowers under
current policies by its present management and staff.
The directors and officers of the Bank at the time of the Conversion
and Reorganization will continue to serve a directors and officers of the Bank
after the Conversion and Reorganization. The directors and officers of the
Company consist of individuals currently serving as directors and officers of
the Mutual Holding Company and the Bank, and they generally will retain their
positions in the Company after the Conversion and Reorganization.
Effect on Public Bank Shares. Under the Plan, upon consummation of the
Conversion and Reorganization, the Public Bank Shares shall be converted into
Common Stock based upon the Exchange Ratio without any further action on the
part of the holder thereof. Upon surrender of the Public Bank Shares, Common
Stock will be issued in exchange for such shares. See " -- Delivery and Exchange
of Certificates."
Upon consummation of the Conversion and Reorganization, the Public
Stockholders of the Bank, a federally chartered savings bank, will become
stockholders of the Company, a Tennessee corporation. For a description of
certain changes in the rights of stockholders as a result of the Conversion and
Reorganization, see "Comparison of Stockholders' Rights" below.
Effect on Deposit Accounts. Under the Plan, each depositor in the Bank
at the time of the Conversion and Reorganization will automatically continue as
a depositor after the Conversion and Reorganization, and each such deposit
account will remain the same with respect to deposit balance, interest rate and
other terms, except to the extent that funds in the account are withdrawn to
purchase Conversion Stock to be issued in the Offerings. Each such account will
be insured by the FDIC to the same extent as before the Conversion and
Reorganization. Depositors will continue to hold their existing certificates,
passbooks and other evidences of their accounts.
Effect on Loans. No loan outstanding from the Bank will be affected by
the Conversion and Reorganization, and the amount, interest rate, maturity and
security for each loan will remain as they were contractually fixed prior to the
Conversion and Reorganization.
Effect on Voting Rights of Members. At present, all depositors of the
Bank are members of, and have voting rights in, the Mutual Holding Company as to
all matters requiring membership action. Upon completion of the Conversion and
Reorganization, depositors will cease to be members and will no longer be
entitled to vote at meetings of the Mutual Holding Company. Upon completion of
the Conversion and Reorganization, all voting rights in the Bank will be vested
in the Company as the sole stockholder of the Bank and exclusive voting rights
with respect to the Company will be vested in the holders of Common Stock.
Depositors of the Bank will not have voting rights in the Company after the
Conversion and Reorganization, except to the extent that they become
stockholders of the Company.
77
<PAGE>
Tax Effects. Consummation of the Conversion and Reorganization is
conditioned on prior receipt by the Primary Parties of rulings or opinions with
regard to federal income taxation which indicate that the adoption and
implementation of the Plan of Conversion set forth herein will not be taxable
for federal income tax purposes to the Primary Parties or the Bank's Eligible
Account Holders, Supplemental Eligible Account Holders or Other Members, Public
Shareholders except as discussed below. See " -- Tax Aspects" below.
Effect on Liquidation Rights. Were the Mutual Holding Company to
liquidate, all claims of the Mutual Holding Company's creditors would be paid
first. Thereafter, if there were any assets remaining, members of the Mutual
Holding Company would receive such remaining assets, pro rata, based upon the
deposit balances in their deposit accounts at the Bank immediately prior to
liquidation. In the unlikely event that the Bank were to liquidate after the
Conversion and Reorganization, all claims of creditors (including those of
depositors, to the extent of their deposit balances) also would be paid first,
followed by distribution of the "liquidation account" to certain depositors (see
" -- Liquidation Rights" below), with any assets remaining thereafter
distributed to the Company as the holder of the Bank's capital stock. Pursuant
to the rules and regulations of the OTS, a merger, consolidation, sale of bulk
assets or similar combination or transaction with another insured savings
institution would not be considered a liquidation for this purpose and, in such
a transaction, the liquidation account would be required to be assumed by the
surviving institution.
The Offerings
Subscription Offering. In accordance with the Plan of Conversion,
rights to subscribe for the purchase of Conversion Stock have been granted under
the Plan of Conversion to the following persons in the following order of
descending priority: (1) Eligible Account Holders; (2) the ESOP; (3)
Supplemental Eligible Account Holders; (4) Other Members; (5) Directors,
Officers and Employees; and (6) Public Stockholders. All subscriptions received
will be subject to the availability of Conversion Stock after satisfaction of
all subscriptions by all persons having prior rights in the Subscription
Offering and to the maximum and minimum purchase limitations set forth in the
Plan of Conversion and as described below under " -- Limitations on Conversion
Stock Purchases."
Priority 1: Eligible Account Holders. Each Eligible Account Holder
will receive, without payment therefor, first priority, nontransferable
subscription rights to subscribe for in the Subscription Offering up to the
greater of (i) the number of shares which, together with shares subscribed for
by associates and persons acting in concert, does not exceed 5.0% of the shares
of Conversion Stock to be sold in the Offerings (19,118 shares at the maximum of
the Valuation Price Range), (ii) one-tenth of one-percent (0.10%) of the total
offering of shares of Conversion Stock in the Subscription Offering and (iii) 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock offered in the
Subscription Offering by a fraction, of which the numerator is the amount of the
Eligible Account Holder's qualifying deposit and the denominator of which is the
total amount of qualifying deposits for all Eligible Account Holders, in each
case as of the close of business on September 30, 1995 (the "Eligibility Record
Date"), subject to the overall purchase limitations. See " -- Limitations on
Conversion Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions of Eligible Account Holders, shares first will be allocated so as
to permit each subscribing Eligible Account Holder to purchase a number of
shares sufficient to make his total allocation equal to the lesser of the number
of shares subscribed for or 100 shares. Thereafter, unallocated shares will be
allocated to subscribing Eligible Account Holders whose subscriptions remain
unfilled in the proportion that the amounts of their respective eligible
deposits bear to the total amount of eligible deposits of all subscribing
Eligible Account Holders whose subscriptions remain unfilled, provided that no
fractional shares shall be issued. The subscription rights of Eligible Account
Holders who are also directors or officers of the Mutual Holding Company or the
Bank and their associates will be subordinated to the subscription rights of
other Eligible Account Holders to the extent attributable to increased deposits
in the year preceding the Eligibility Record Date.
78
<PAGE>
Priority 2: ESOP. The ESOP will receive, without payment therefor,
second priority, nontransferable subscription rights to purchase, in the
aggregate, up to 10% of the shares of Common Stock to be issued in the
Conversion and Reorganization, including any increase in the number of shares of
Conversion Stock after the date hereof as a result of an increase of up to 15%
in the maximum of the Valuation Price Range. The ESOP intends to purchase 3.0%
of the shares of Common Stock to be issued in the Conversion and Reorganization,
or 17,728 shares based on the maximum of the Valuation Price Range.
Subscriptions by the ESOP will not be aggregated with shares of Conversion Stock
purchased directly by or which are otherwise attributable to any other
participants in the Subscription Offering and Community Offering, including
subscriptions of any of the Bank's directors, officers, employees or associates
thereof. See "Management of the Bank -- Certain Benefit Plans and Agreements --
Employee Stock Ownership Plan."
Priority 3: Supplemental Eligible Account Holders. Each Supplemental
Eligible Account Holder will receive, without payment therefor, third priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the greater of (i) the number of shares which, together with
shares subscribed for by associates and persons acting in concert, does not
exceed 5.0% of the shares of Conversion Stock to be sold in the Offerings
(19,118 shares at the maximum of the Valuation Price Range), (ii) one-tenth of
one percent (0.10%) of the total offering of shares of Conversion Stock in the
Subscription Offering and (iii) 15 times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of Conversion
Stock offered in the Subscription Offering by a fraction, of which the numerator
is the amount of the Supplemental Eligible Account Holder's qualifying deposit
and the denominator of which is the total amount of qualifying deposits of all
Supplemental Eligible Account Holders, in each case as of the close of business
on December 31, 1996 (the "Supplemental Eligibility Record Date"), subject to
the overall purchase limitations. See " -- Limitations on Conversion Stock
Purchases."
If there are not sufficient shares available to satisfy all
subscriptions of Supplemental Eligible Account Holders after filling all of the
subscriptions of Eligible Accounts Holders and the ESOP, shares first will be
allocated so as to permit each subscribing Supplemental Eligible Account Holder
to purchase a number of shares sufficient to make his total allocation equal to
the lesser of the number of shares subscribed for or 100 shares. Thereafter,
unallocated shares will be allocated to subscribing Supplemental Eligible
Account Holders whose subscriptions remain unfilled in the proportion that the
amounts of their respective eligible deposits bear to the total amount of
eligible deposits of all such subscribing Supplemental Eligible Account Holders
whose subscriptions remain unfilled, provided that no fractional shares shall be
issued.
Priority 4: Other Members. To the extent that there are sufficient
shares remaining after satisfaction of subscriptions by Eligible Account
Holders, the ESOP and Supplemental Eligible Account Holders, each Other Member
will receive, without payment therefor, fourth priority, nontransferable
subscription rights to subscribe for Conversion Stock in the Subscription
Offering up to the greater of (i) the number of shares which, together with
shares subscribed for by associates and persons acting in concert, does not
exceed 5.0% of the shares of Conversion Stock to be sold in the Offerings
(19,118 shares at the maximum of the Valuation Price Range) and (ii) one-tenth
of one percent (0.10%) of the total offering of shares of Conversion Stock in
the Subscription Offering, subject to the overall purchase limitations. See " --
Limitations on Conversion Stock Purchases."
In the event the Other Members subscribe for a number of shares which,
when added to the shares subscribed for by Eligible Account Holders, the ESOP
and Supplemental Eligible Account Holders, is in excess of the total number of
shares of Conversion Stock offered in the Subscription Offering, shares first
will be allocated so as to permit each subscribing Other Member to purchase a
number of shares sufficient to make his total allocation equal to the lesser of
the number of shares subscribed for or 100 shares. Thereafter, any remaining
shares will be allocated among subscribing Other Members on a pro rata basis in
the same proportion as each Other Member's subscription bears to the total
subscriptions of all subscribing Other Members, provided that no fractional
shares shall be issued.
79
<PAGE>
Priority 5: Directors, Officers and Employees. To the extent there are
sufficient shares remaining after satisfaction of all subscriptions by Eligible
Account Holders, the ESOP, Supplemental Eligible Account Holders and Other
Members, directors, officers and employees of the Bank will receive, without
payment therefor, fifth priority, nontransferable subscription rights to
subscribe for Conversion Stock in the Subscription Offering up to an aggregate
of 24.25% of the shares of Conversion Stock offered in the Subscription
Offering. The ability of directors, officers and employees to purchase
Conversion Stock under this category is in addition to rights which are
otherwise available to them under the Plan, which generally allows such persons
to purchase in the aggregate up to 34.25% of the total number of shares of
Conversion Stock sold in the Offerings. See " -- Limitations on Conversion Stock
Purchases."
In the event that directors, officers and employees subscribe for a
number of shares which, when added to the shares subscribed for by Eligible
Account Holders, the ESOP, Supplemental Eligible Account Holders and Other
Members, is in excess of the total number of shares of Conversion Stock offered
in the Subscription Offering, shares will be allocated among the directors,
officers and employees on a point system basis, whereby such individuals will
receive subscription rights in the proportion that the number of points assigned
to each of them bears to the total points assigned to all directors, officers
and employees, provided that no fractional shares will be issued. One point will
be assigned for each year of employment and for each salary increment of $5,000
per annum and five points for each office held in the Mutual Holding Company and
the Bank, including a directorship. For information as to the number of shares
proposed to be purchased by certain of the directors and officers, see
"Beneficial Ownership of Capital Stock -- Proposed Subscriptions by Directors
and Executive Officers."
Priority 6: Public Stockholders. To the extent that there are
sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders, the ESOP, Supplemental Eligible Account Holders, Other Members
and Directors, Officers and Employees, each Public Stockholder as of the
Stockholder Voting Record Date will receive, without payment therefor, sixth
priority, nontransferable subscription rights to subscribe for Conversion Stock
in the Subscription Offering up to the greater of (i) the number of shares
which, together with shares subscribed for by associates and persons acting in
concert, does not exceed 5.0% of the shares of Conversion Stock to be sold in
the Offerings (19,118 at the maximum of the Valuation Price Range) and (ii) one-
tenth of one percent (0.10%) of the total offering of shares of Conversion Stock
in the Subscription Offering, subject to the overall purchase limitations. See
" -- Limitations on Conversion Stock Purchases."
In the event the Public Stockholders as of the Stockholder Voting
Record Date subscribe for a number of shares which, when added to the shares
subscribed for by Eligible Account Holders, the ESOP, Supplemental Eligible
Account Holders, Other Members and Directors, Officers and Employees, is in
excess of the total number of shares of Conversion Stock offered in the
Subscription Offering, available shares will be allocated among subscribing
Public Stockholders as of the Stockholder Voting Record Date on a pro rata basis
in the same proportion as each Public Stockholder's subscription bears to the
total subscriptions of all subscribing Public Stockholders, provided that no
fractional share shall be issued.
Expiration Date for the Subscription Offering. The Subscription
Offering will expire at 12:00 p.m., Eastern Time, on ___________________, 1997,
unless extended for up to 45 days or such additional periods by the Primary
Parties with the approval of the OTS. Such extensions may not be extended beyond
_______________, 1999. Subscription rights which have not been exercised prior
to the Expiration Date will become void.
The Primary Parties will not execute orders until at least the minimum
number of shares of Conversion Stock (282,625 shares) have been subscribed for
or otherwise sold. If all shares have not been subscribed for or sold within 45
days after the Expiration Date, unless such period is extended with the consent
of the OTS, all funds delivered to the Bank pursuant to the Subscription
Offering will be returned promptly to the subscribers with interest and all
withdrawal authorizations will be cancelled. If an extension beyond the 45-day
period following the Expiration Date is granted, the Primary Parties will notify
subscribers of the extension of time and of any rights of subscribers to modify
or rescind their subscriptions.
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Community Offering. To the extent that shares remain available for
purchase after satisfaction of all subscriptions of Eligible Account Holders,
the ESOP, Supplemental Eligible Account Holders, Other Members, Directors,
Officers and Employees and Public Stockholders, the Primary Parties may offer
shares pursuant to the Plan to certain members of the general public, with
preference given to natural persons residing in the Local Community (such
natural persons referred to as "Preferred Subscribers"). The occurrence of the
Community Offering is subject to the availability of shares of Conversion Stock
for purchase after satisfaction of all orders received in the Subscription
Offering. 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. The right of any person to purchase shares in the Community Offering, if
any, is subject to the absolute right of the Primary Parties to accept or reject
such purchases in whole or in part. Such persons, together with associates of
and persons acting in concert with such persons, may purchase up to the greater
of (i) the number of shares which, together with shares subscribed for by
associates and persons acting in concert, does not exceed 5.0% of the shares of
Conversion Stock to be sold in the Offerings (19,118 shares at the maximum of
the Valuation Price Range) and (ii) one-tenth of one percent (0.10%) of the
total offering of shares of Conversion Stock in the Subscription Offering,
subject to the maximum purchase limitations. See " -- Limitations on Conversion
Stock Purchases." This amount may be increased at the sole discretion of the
Primary Parties.
If there are not sufficient shares available to fill the orders of
Preferred Subscribers after completion of the Subscription and Community
Offerings, such stock will be allocated first to each Preferred Subscriber whose
order is accepted by the Primary Parties, in an amount equal to the lesser of
100 shares or the number of shares subscribed for by each such Preferred
Subscriber, if possible. Thereafter, unallocated shares will be allocated among
the Preferred Subscribers whose orders remain unsatisfied in the same proportion
that the unfilled subscription of each bears to the total unfilled subscriptions
of all Preferred Subscribers whose subscription remains unsatisfied. If there
are any shares remaining, shares will be allocated to other members of the
general public who subscribe in the Community Offering applying the same
allocation described above for Preferred Subscribers.
Syndicated Community Offering. The Plan provides that, if feasible, all
shares of Conversion Stock not purchased in the Subscription and Community
Offerings may be offered for sale to the general public in a Syndicated
Community Offering through a syndicate of registered broker-dealers to be
formed. No person will be permitted to subscribe in the Syndicated Community
Offering for more than 5.0% of the shares of Conversion Stock to be sold in the
Offerings (19,118 shares at the maximum of the Valuation Price Range), subject
to the maximum purchase limitations. The Primary Parties have the right to
reject orders in whole or 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 Conversion Stock in
the Syndicated Community Offering; however, Trident Securities has agreed to use
its best efforts in the sale of shares in the Syndicated Community Offering.
In addition to the foregoing, if a syndicate of broker-dealers
("selected dealers") is formed to assist in the Syndicated Community Offering, a
purchaser may pay for his shares with funds held by or deposited with a selected
dealer. If an order form is executed and forwarded to the selected dealer or if
the selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to the Bank for deposit in a segregated account on or before noon of the
business day following receipt of the order form or execution of the order form
by the selected dealer. Alternatively, selected dealers may solicit indications
of interest from their customers to place orders for shares. Such selected
dealers shall subsequently contact their customers who indicated an interest and
seek their confirmation as to their intent to purchase. The selected dealer will
acknowledge receipt of the order to its customer in writing on the following
business day and will debit such customer's account on the third business day
after the customer has confirmed his intent to purchase (the "debit date") and
on or before noon of the next business day following the debit date will send
funds to the Bank for deposit in a segregated account. If such alternative
procedure is employed, purchasers' funds are not required to be in their
accounts with selected dealers until the debit date.
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The Syndicated Community Offering will terminate no more than 45 days
following the Expiration Date, unless extended by the Primary Parties with the
approval of the OTS. See " -- Stock Pricing, Exchange Ratio and Number of Shares
to be Issued" below for a discussion of rights of subscribers, if any, in the
event an extension is granted.
Stock Pricing, Exchange Ratio and Number of Shares to be Issued
The Plan requires that the purchase price of the Conversion Stock must
be based on the appraised pro forma market value of the Conversion Stock, as
determined on the basis of an independent valuation. The Primary Parties have
retained RP Financial to make such valuation. For its services in making such
appraisal, plus the preparation of a business plan, and any expenses incurred in
connection therewith, RP Financial will receive a maximum fee of $22,500 plus
out-of-pocket expenses. The Primary Parties have agreed to indemnify RP
Financial and its employees and affiliates against certain losses (including any
losses in connection with claims under the federal securities laws) arising out
of its services as appraiser, except where RP Financial's liability results from
its negligence or bad faith.
The Appraisal has been prepared by RP Financial in reliance upon the
information contained in this Prospectus, including the Financial Statements. RP
Financial also considered the following factors, among others: the present and
projected operating results and financial condition of the Primary Parties and
the economic and demographic conditions in the Bank's existing market area;
certain historical, financial and other information relating to the Bank; a
comparative evaluation of the operating and financial statistics of the Bank
with those of other similarly situated publicly traded companies located in
Kentucky and other regions of the United States; the aggregate size of the
offering of the Conversion Stock; the impact of the Conversion and
Reorganization on the Bank's net worth and earnings potential; the proposed
dividend policy of the Company and the Bank; and the trading market for the Bank
Common Stock and securities of comparable companies and general conditions in
the market for such securities.
On the basis of the foregoing, RP Financial has advised the Primary
Parties that in its opinion the estimated pro forma market value of the Bank and
the Mutual Holding Company on a combined basis was $5.1 million as of December
13, 1996. Because the holders of the Public Bank Shares will continue to hold
the same aggregate percentage ownership interest in the Company as they
currently hold in the Bank (before giving effect to additional purchases in the
Offerings and fractional shares), the Appraisal was multiplied by the Mutual
Holding Company's percentage interest in the Bank (i.e., 64.71%) to determine
the midpoint of the valuation ($3,325,000), and the minimum and maximum of the
valuation were set at 15% below and above the midpoint, respectively, resulting
in a range of $2,826,250 to $3,823,750. The Boards of Directors of the Primary
Parties determined that the Conversion Stock would be sold at $10.00 per share,
resulting in a range of 282,625 to 382,375 shares of Conversion Stock being
offered. Upon consummation of the Conversion and Reorganization, the Conversion
Stock and the Exchange Shares will represent approximately 64.71% and 35.29%,
respectively, of the Company's total outstanding shares. The Boards of Directors
of the Primary Parties reviewed RP Financial's appraisal report, including the
methodology and the assumptions used by RP Financial, and determined that the
Valuation Price Range was reasonable and adequate. The Boards of Directors of
the Primary Parties also established the formula for determining the Exchange
Ratio based on the OTS policy that requires the holders of the Public Bank
Shares prior to the Conversion and Reorganization to receive Exchange Shares in
an amount that will result in them owning in the aggregate approximately the
same percentage of the Company as they owned of the Bank. Based upon such
formula and the Valuation Price Range, the Exchange Ratio ranged from a minimum
of 0.856 to a maximum of 1.159 Exchange Shares for each Public Bank Share, with
a midpoint of 1.008. Based upon these Exchange Ratios, the Company expects to
issue between 154,159 and 208,568 shares of Exchange Shares to the holders of
Public Bank Shares outstanding immediately prior to the consummation of the
Conversion and Reorganization. The Valuation Price Range and the Exchange Ratio
may be amended with the approval of the OTS, if required or if necessitated by
subsequent developments in the financial condition of any of the Primary Parties
or market conditions generally. In the event the Appraisal is updated to below
$4.4 million or above $6.8 million (the maximum of the Valuation Price Range, as
adjusted by 15%), such Appraisal will be filed with the SEC by post-effective
amendment.
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Based upon current market and financial conditions and recent practices
and policies of the OTS, in the event the Company receives orders for Conversion
Stock in excess of $3.8 million (the maximum of the Valuation Price Range) and
up to $4.4 million (the maximum of the Valuation Price Range, as adjusted by
15%), the Company may be required by the OTS to accept all such orders. No
assurances, however, can be made that the Company will receive orders for
Conversion Stock in excess of the maximum of the Valuation Price Range or that,
if such orders are received, that all such orders will be accepted because the
Company's final valuation and number of shares to be issued are subject to the
receipt of an updated appraisal from RP Financial which reflects such an
increase in the valuation and the approval of such increase by the OTS. There is
no obligation or understanding on the part of management to take and/or pay for
any shares of Conversion Stock in order to complete the Offerings.
The following table sets forth, based upon the minimum, midpoint,
maximum and 15% above the maximum of the Valuation Price Range, the following:
(i) the total number of shares of Conversion Stock and Exchange Shares to be
issued in the Conversion and Reorganization, (ii) the percentage of the total
Common Stock represented by the Conversion Stock and the Exchange Shares, and
(iii) the Exchange Ratio. The table assumes that there is no cash paid in lieu
of issuing fractional Exchange Shares and there are no shares for which the
holders perfect appraisal rights.
<TABLE>
<CAPTION>
Conversion Stock Exchange Shares
to be Issued to be Issued Total Shares of
--------------------- --------------------- Common Stock to Exchange
Amount Percent Amount Percent be Outstanding Ratio
------ ------- ------ ------- -------------- -----
<S> <C> <C> <C> <C> <C> <C>
Minimum............... 282,625 64.71% 154,159 35.29% 436,784 0.856
Midpoint.............. 332,500 64.71 181,363 35.29 513,863 1.008
Maximum............... 382,375 64.71 208,568 35.29 590,943 1.159
15% above maximum 439,731 64.71 239,853 35.29 679,584 1.333
</TABLE>
RP Financial's valuation is not intended, and must not be construed, as
a recommendation of any kind as to the advisability of purchasing such shares.
RP Financial did not independently verify the Financial Statements and other
information provided by the Bank and the Mutual Holding Company, nor did RP
Financial value independently the assets or liabilities of the Bank. The
valuation considers the Bank and the Mutual Holding Company as going concerns
and should not be considered as an indication of the liquidation value of the
Bank and the Mutual Holding Company. Moreover, because such valuation is
necessarily based upon estimates and projections of a number of matters, all of
which are subject to change from time to time, no assurance can be given that
persons purchasing Conversion Stock or receiving Exchange Shares in the
Conversion and Reorganization will thereafter be able to sell such shares at
prices at or above the Purchase Price or in the range of the foregoing valuation
of the pro forma market value thereof.
No sale of shares of Conversion Stock or issuance of Exchange Shares
may be consummated unless prior to such consummation RP Financial confirms that
nothing of a material nature has occurred which, taking into account all
relevant factors, would cause it to conclude that the Purchase Price is
materially incompatible with the estimate of the pro forma market value of a
share of Common Stock upon consummation of the Conversion and Reorganization. If
such is not the case, a new Valuation Price Range may be set, a new Exchange
Ratio may be determined based upon the new Valuation Price Range, a new
Subscription and Community Offering and/or Syndicated Community Offering may be
held or such other action may be taken as the Primary Parties shall determine
and the OTS may permit or require.
Depending upon market or financial conditions following the
commencement of the Subscription Offering, the total number of shares of
Conversion Stock to be issued in the Offerings may be increased or decreased
without a resolicitation of subscribers, provided that the product of the total
number of shares times the Purchase Price is not below the minimum or more than
15% above the maximum of the Valuation Price Range. In the event market or
financial conditions change so as to cause the aggregate Purchase Price of the
shares to be below the minimum of the Valuation Price Range or more than 15%
above the maximum of such range purchasers will be resolicited
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(i.e., permitted to continue their orders, in which case they will need to
affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering or their subscription funds will be promptly refunded
with interest at the Bank's passbook rate of interest, or be permitted to modify
or rescind their subscriptions). Any increase or decrease in the number of
shares of Conversion Stock will result in a corresponding change in the number
of Exchange Shares, so that upon consummation of the Conversion and
Reorganization the Conversion Stock and the Exchange Shares will represent
approximately 64.71% and 35.29%, respectively, of the Company's total
outstanding shares of Common Stock.
An increase in the number of shares of Conversion Stock would decrease
both a subscriber's ownership interest and the Company's pro forma net income
and stockholders' equity on a per share basis while increasing pro forma net
income and stockholders' equity on an aggregate basis. A decrease in the number
of shares of Conversion Stock would increase both a subscriber's ownership
interest and the Company's pro forma net income and stockholders' equity on a
per share basis while decreasing pro forma net income and stockholders' equity
on an aggregate basis. See "Risk Factors -- Possible Dilutive Effect of Issuance
of Additional Shares" and "Pro Forma Data."
The appraisal report of RP Financial has been filed as an exhibit to
this Registration Statement and Application for Conversion of which this
Prospectus is a part and is available for inspection in the manner set forth
under "Additional Information."
Persons in Nonqualified States or Foreign Countries
The Primary Parties will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons entitled to
subscribe for stock pursuant to the Plan reside. However, the Primary Parties
are not required to offer stock in the Subscription Offering to any person who
resides in a foreign country or resides in a state of the United State with
respect to which all of the following apply: (i) the number of persons otherwise
eligible to subscribe for shares under the Plan who reside in such jurisdiction
is small; (ii) the granting of subscription rights or the offer or sale of
shares of Conversion Stock to such persons would require any of the Primary
Parties or their officers, directors or employees, under the laws of such
jurisdiction, to register as a broker, dealer, salesman or selling agent, or to
register or otherwise qualify its securities for sale in such jurisdiction or to
qualify as a foreign corporation or file a consent to service of process in such
jurisdiction; and (iii) such registration, qualification or filing in the
judgment of the Primary Parties would be impracticable or unduly burdensome for
reasons of costs or otherwise. Where the number of persons eligible to subscribe
for shares in one state is small, the Primary Parties will base their decision
as to whether or not to offer the Conversion Stock in such state on a number of
factors, including but not limited to the size of accounts held by account
holders in the state, the cost of registering or qualifying the shares or the
need to register the Company, its officers, directors or employees as brokers,
dealers or salesmen.
Limitations on Conversion Stock Purchases
The Plan includes the following limitations on the number of shares of
Conversion Stock which may be purchased:
(1) No less than 25 shares of Conversion Stock may be
purchased, to the extent such shares are available;
(2) Each Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of (i) that
number of shares which, when combined with the shares subscribed for by
any affiliate or persons acting in concert, does not exceed 5.0% of the
shares of Conversion Stock sold in the Offerings (19,118 shares at the
maximum of the Valuation Price Range), (ii) one-tenth of 1% (0.10%) of
the total offering of shares of Conversion Stock in the Subscription
Offering and (iii) 15 times the product
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(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 each case as of
the close of business on the Eligibility Record Date, subject to the
overall limitation in clause (6) below;
(3) The ESOP may purchase in the aggregate up to 10% of the
shares of Common Stock to be issued in the Conversion and
Reorganization, including any additional shares issued in the event of
an increase in the Valuation Price Range, although at this time the
ESOP intends to purchase only 3.0% of such shares;
(4) Each Supplemental Eligible Account Holder may subscribe
for and purchase in the Subscription Offering up to the greater of (i)
that number of shares which, when combined with the shares subscribed
for by any affiliate or persons acting in concert, does not exceed 5.0%
of the shares of Conversion Stock sold in the Offerings (19,118 shares
at the maximum of the Valuation Price Range), (ii) one-tenth of 1%
(.10%) of the total offering of shares of Conversion Stock in the
Subscription Offering and (iii) 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 Supplemental
Eligible Account Holder and the denominator is the total amount of
qualifying deposits of all Supplemental Eligible Account Holders, in
each case as of the close of business on the Supplemental Eligibility
Record Date, subject to the overall limitation in clause (6) below;
(5) Each Other Member, Public Stockholder or any other Person
purchasing shares of Conversion Stock in the Community Offering or in
the Syndicated Community Offering may subscribe for and purchase in the
respective Offering up to the greater of (i) that number of shares
which, when combined with the shares subscribed for by any affiliate or
persons acting in concert, does not exceed 5.0% of the shares of
Conversion Stock sold in the Offerings (19,118 shares at the maximum of
the Valuation Price Range), and (ii) one-tenth of 1% (.10%) of the
total offering of shares of Conversion Stock in the Subscription
Offering, subject to the overall limitation in clause (6) below;
(6) Eligible Account Holders, Supplemental Eligible Account
Holders, Other Members and Public Stockholders may purchase stock in
the Community and Syndicated Community Offerings subject to the
purchase limitations described above, provided that, except for the
ESOP, the maximum number of shares of Conversion Stock subscribed for
or purchased in all categories by any person, together with associates
of and groups of persons acting in concert with such persons, shall not
exceed the number of shares of Conversion Stock that when combined with
Exchange Shares received exceed 5.0% of the total number of shares of
Common Stock to be issued in the Conversion and Reorganization (29,547
shares at the maximum of the Valuation Price Range). Such percentage
may be increased but to no greater than 9.9% of the total number of
shares of Common Stock to be issued in the Conversion and
Reorganization (58,503 shares at the maximum of the Valuation Price
Range) provided that: (a) each person who has subscribed for the
maximum number of shares of Conversion Stock shall have been offered
the opportunity to increase his subscription to such percentage of
Conversion Stock, subject to the purchase limitations by category in
the Subscription Offering and (b) the aggregate number of shares held
by all stockholders in excess of 5.0% does not exceed 10.0% of the
total number of shares of Common Stock to be issued in the Conversion
and Reorganization; and
(7) No more than 34.25% of the total number of shares sold in
the Offerings may be purchased by directors and officers of the Mutual
Holding Company and the Bank and their associates in the aggregate,
excluding purchases by the ESOP.
For purposes of the purchase limitations set forth in the Plan of
Conversion, Exchange Shares will be valued at the same price that shares of
Conversion Stock are issued in the Offerings.
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In the event of an increase in the total number of shares of Conversion
Stock offered in the Conversion due to an increase in the Valuation Price Range
of up to 15% (the "Adjusted Maximum"), the additional shares will be allocated
in the following order of priority in accordance with the Plan: (i) to fill the
ESOP's subscription of 3.0% of the Adjusted Maximum number of shares; (ii) in
the event that there is an oversubscription by Eligible Account Holders, to fill
unfulfilled subscriptions of Eligible Account Holders, inclusive of the Adjusted
Maximum; (iii) in the event that there is an oversubscription by Supplemental
Eligible Account Holders, to fill unfulfilled subscriptions of Supplemental
Eligible Account Holders, inclusive of the Adjusted Maximum; (iv) in the event
that there is an oversubscription by Other Members, to fill unfulfilled
subscriptions of Other Members, inclusive of the Adjusted Maximum; (v) in the
event that there is an oversubscription by Public Stockholders, to fill
unfulfilled subscriptions of Public Stockholders, inclusive of the Adjusted
Maximum; (vi) to fill unfulfilled subscriptions in the Community Offering,
inclusive of the Adjusted Maximum.
The term "associate" of a person is defined to mean (i) any corporation
or other organization (other than the Primary Parties or a majority-owned
subsidiary of the Bank) of which such person is a director, 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 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 or officer of the Primary Parties or any of their
subsidiaries.
Marketing Arrangements
The Primary Parties have engaged Trident Securities as a financial
advisor and marketing agent in connection with the offering of the Conversion
Stock, and Trident Securities has agreed to use its best efforts to solicit
subscriptions and purchase orders for shares of Conversion Stock in the
Offerings. Trident Securities is a member of the National Association of
Securities Dealers, Inc. ("NASD") and a broker-dealer which is registered with
the SEC. Trident Securities will provide various services including, but not
limited to: (i) training and educating the Bank's employees who will be
performing certain ministerial functions in the Offerings regarding the
mechanics and regulatory requirements of the stock sales process; (ii) providing
its employees to staff the Conversion Center to assist the Bank's customers and
internal stock purchasers and to keep records of orders for shares of Conversion
Stock; (iii) targeting the Company's sales efforts, including preparation of
marketing materials; and (iv) assisting in the solicitation of proxies of
Members and Stockholders for use at the Members' Meeting and the Stockholder's
Meeting, respectively. Based upon negotiations between the Primary Parties and
Trident Securities, Trident Securities will receive a fixed fee of $75,000. In
the event that a selected dealers agreement is entered into in connection with a
Syndicated Community Offering, the Bank will pay a fee of up to ____% of the
aggregate Purchase Price of Conversion Stock to selected broker-dealers, for
shares sold by such NASD member firms pursuant to a selected dealers agreement.
Fees to Trident Securities and to any other broker-dealer may be deemed to be
underwriting fees, and Trident Securities and such broker-dealers may be deemed
to be underwriters. Trident Securities also will be reimbursed for its'
reasonable out-of-pocket expenses (including legal fees and expenses) not to
exceed $25,000. The Primary Parties 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.
Directors and executive officers of the Primary Parties may participate
in the solicitation of offers to purchase Conversion Stock. Other employees of
the Bank may participate in the Offerings in ministerial capacities or providing
clerical work in effecting a sales transaction. Such other employees have been
instructed not to solicit offers to purchase Conversion Stock or provide advice
regarding the purchase of Conversion Stock. Questions of prospective purchasers
will be directed to executive officers or registered representatives. The
Company will rely on Rule 3a4-1, so as to permit officers, directors and
employees to participate in the sale of Conversion Stock. No officer, director
or employee of the Primary Parties will be compensated in connection with his
solicitations or other participation in the Offerings or the Exchange by the
payment of commissions or other remuneration based either directly or indirectly
on transactions in the Conversion Stock and Exchange Shares, respectively.
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Procedure for Purchasing Shares in the Offerings
To ensure that each purchaser receives a Prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no Prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the order
form will confirm receipt or delivery of the Prospectus in accordance with Rule
15c2-8. Order forms will only be distributed with a Prospectus.
To purchase shares in the Offerings, an executed order form with the
required payment for each share subscribed for, or with appropriate
authorization for withdrawal from a deposit account at the Bank (which may be
given by completing the appropriate blanks in the order form), must be received
by the Bank at any of its offices by 12:00 p.m., Eastern Time, on the Expiration
Date. In addition, the Primary Parties will require a prospective purchaser to
execute a certification in connection with any sale of Conversion Stock and will
not accept order forms unless such a certification is executed. Order forms
which are not received by such time or are executed defectively or are received
without full payment (or appropriate withdrawal instructions) are not required
to be accepted. In addition, the Bank will not accept orders submitted or
photocopied or facsimiled order forms nor order forms unaccompanied by an
executed certification form. The Primary Parties have the right to waive or
permit the correction of incomplete or improperly executed forms, but do not
represent that they will do so. Once received, an executed order form may not be
modified, amended or rescinded without the consent of the Primary Parties,
unless the Offerings have not been completed within 45 days after the end of the
Subscription and Community Offerings, unless such period has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priority, depositors as of the close of business on the Eligibility
Record Date (September 30, 1995) or the Supplemental Eligibility Record Date
(December 31, 1996) and depositors as of the close of business on the Voting
Record Date (______________, 1997) must list on the order form all accounts in
which they have an ownership interest, giving all names in each account and the
account numbers.
Payment for subscriptions may be made (i) in cash if delivered in
person at any office of the Bank, (ii) by check or money order or (iii) by
authorization of withdrawal from deposit accounts maintained with the Bank. The
Primary Parties also may elect to receive payment for shares of Conversion Stock
by wired funds. Funds from payments made by cash, check or money order will be
deposited in a segregated account at the Bank and will earn interest at the
Bank's passbook rate of interest from the date payment is received until
completion or termination of the Conversion and Reorganization. If payment is
made by authorization of withdrawal from deposit accounts, the funds authorized
to be withdrawn from a deposit account will continue to accrue interest at the
contractual rates until completion or termination of the Conversion and
Reorganization, but a hold will be placed on such funds, thereby making them
unavailable to the depositor until completion or termination of the Conversion
and Reorganization.
If a subscriber authorizes the Bank to withdraw the aggregate amount of
the purchase price from a deposit account, the Bank will do so as of the
effective date of the Conversion and Reorganization. The Bank will waive any
applicable penalties for early withdrawal from certificate accounts. If the
remaining balance in a certificate account is reduced below the applicable
minimum balance requirement at the time that the funds actually are transferred
under the authorization, the certificate will be cancelled at the time of the
withdrawal, without penalty, and the remaining balance will earn interest at the
passbook rate.
The ESOP will not be required to pay for the shares subscribed for at
the time it subscribes, but rather may pay for such shares of Conversion Stock
subscribed for by it at the Purchase Price upon consummation of the Offerings,
provided that there is in force from the time of its subscription until such
time, a loan commitment from an unrelated financial institution or the Company
to lend to the ESOP, at such time, the aggregate Purchase Price of the shares
for which it subscribed.
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Owners of self-directed Individual Retirement Accounts ("IRAs"), Keogh
or similar accounts may use the assets of such accounts to purchase shares of
Conversion Stock in the Offerings, provided that such accounts are not
maintained at the Bank. Persons with such accounts maintained at the Bank must
have their accounts transferred to an unaffiliated institution or broker to
purchase shares of Conversion Stock in the Subscription and Community Offerings.
In addition, ERISA provisions and IRS regulations require that officers,
directors and 10% stockholders who use self-directed IRA, Keogh and similar
account funds to purchase shares of Conversion Stock in the Subscription and
Community Offerings make such purchases for the exclusive benefit of the
accounts. Any interested parties wishing to use such funds for stock purchases
are advised to contact the Conversion Center for additional information.
Restrictions on Transfer of Subscription Rights and Shares
Pursuant to the rules and regulations of the OTS, no person with
subscription rights may 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 Conversion Stock to be issued upon their
exercise. Such rights may be exercised only by the person to whom they are
granted and only for his account. Each person exercising such subscription
rights will be required to certify that he is purchasing shares solely for his
own account and that he has no agreement or understanding regarding the sale or
transfer of such shares. Federal regulations also prohibit any person from
offering or making an announcement of an offer or intent to make an offer to
purchase such subscription rights or shares of Conversion Stock prior to the
completion of the Conversion.
The Primary Parties will 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 the transfer of such rights.
Liquidation Rights
In the unlikely event of a complete liquidation of the Mutual Holding
Company in its present mutual form, each depositor of the Bank would receive his
pro rata share of any assets of the Mutual Holding Company remaining after
payment of claims of all creditors. Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his deposit
account was to the total value of all deposit accounts in the Bank at the time
of liquidation. After the Conversion and Reorganization, each depositor, in the
event of a complete liquidation of the Bank, would have a claim as a creditor of
the same general priority as the claims of all other general creditors of the
Bank. However, except as described below, his claim would be solely in the
amount of the balance in his deposit account plus accrued interest. He would not
have an interest in the value or assets of the Bank or the Company above that
amount.
The Plan provides for the establishment, upon the completion of the
Conversion and Reorganization, of a special "liquidation account" for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders in
an amount equal to the amount of any dividends waived by the Mutual Holding
Company plus the greater of (i) the Bank's retained earnings of $3.1 million at
September 30, 1996, the date of the latest balance sheet contained in the final
offering circular utilized in the Bank's initial public offering, or (ii) 64.71%
of the Bank's total stockholders' equity as reflected in its latest balance
sheet contained in the final Prospectus utilized in the Offerings. As of the
date of this Prospectus, the initial balance of the liquidation account would be
$3.1 million. Each Eligible Account Holder and Supplemental Eligible Account
Holder, if he were to continue to maintain his deposit account at the Bank,
would be entitled, upon a complete liquidation of the Bank after the Conversion
and Reorganization, to an interest in the liquidation account prior to any
payment to the Company as the sole stockholder of the Bank. Each Eligible
Account Holder and Supplemental Eligible Account Holder would have an initial
interest in such liquidation account for each deposit account, including
passbook accounts, transaction accounts such as checking accounts, money market
deposit accounts and certificates of deposit, held in the Bank at the close of
business on the Eligibility Record Date or the Supplemental Eligibility Record
Date, as the case may be. Each Eligible Account Holder and Supplemental Eligible
Account Holder will have a pro rata interest in the total liquidation account
for
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each of his deposit accounts based on the proportion that the balance of each
such deposit account on Supplemental Eligibility Record Date, as the case may be
bore to the balance of all deposit accounts in the Bank on such date.
If, however, on any June 30 annual closing date of the Bank, commencing
June 30 for Eligible Account Holders and June 30 for Supplemental Eligible
Account Holders, the amount in any deposit account is less than the amount in
such deposit account on September 30, 1995 or December 31, 1996, as the case may
be, or any other annual closing date, then the interest in the liquidation
account relating to such deposit account would be reduced by the proportion of
any such reduction, and such interest will cease to exist if such deposit
account is closed. In addition, no interest in the liquidation account would
ever be increased despite any subsequent increase in the related deposit
account. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Company as the sole stockholder of the Bank.
Tax Aspects
Consummation of the Conversion and Reorganization is expressly
conditioned upon prior receipt of either a ruling or an opinion of counsel with
respect to federal tax laws, and either a ruling or an opinion with respect to
Kentucky tax laws, to the effect that consummation of the transactions
contemplated hereby will not result in a taxable reorganization under the
provisions of the applicable codes or otherwise result in any adverse tax
consequences to the Mutual Holding Company, the Bank, the Company or to account
holders receiving subscription rights, except to the extent, if any, that
subscription rights are deemed to have fair market value on the date such rights
are issued. This condition may not be waived by the Primary Parties.
Housley Kantarian & Bronstein, P.C., Washington, D.C., has issued an
opinion to the Company and the Bank to the effect that, for federal income tax
purposes: (1) the conversion of the Mutual Holding Company from mutual to stock
form and the simultaneous merger of the Mutual Holding Company with and into the
Bank, with the Bank being the surviving institution, will qualify as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code, (2) no
gain or loss will be recognized by the Bank upon the receipt of the assets of
the converted Mutual Holding Company in such merger, (3) the merger of Interim
with and into the Bank, with the Bank being the surviving institution, will
qualify as a reorganization within the meaning of Section 368(a)(1)(A) of the
Code, (4) no gain or loss will be recognized by Interim upon the transfer of its
assets to the Bank, (5) no gain or loss will be recognized by the Bank upon Bank
the receipt of the assets of Interim, (6) no gain or loss will be recognized by
the Company upon the receipt of Bank Common Stock solely in exchange for Common
Stock, (7) no gain or loss will be recognized by the Public Stockholders upon
the receipt of Common Stock solely in exchange for their Public Bank Shares, (8)
the basis of the Common Stock to be received by the Public Stockholders will be
the same as the basis of the Public Bank Shares surrendered in exchange
therefor, before giving effect to any payment of cash in lieu of fractional
shares, (9) the holding period of the Common Stock to be received by the Public
Stockholders will include the holding period of the Public Bank Shares, provided
that the Public Bank Shares were held as a capital asset on the date of the
exchange, (10) no gain or loss will be recognized by the Company upon the sale
of shares of Conversion Stock in the Offerings, (11) the Eligible Account
Holders and Supplemental Eligible Account Holders will recognize gain, if any,
upon the issuance to them of withdrawable savings accounts in the Bank following
the Conversion and Reorganization, interests in the liquidation account and
nontransferable subscription rights to purchase Conversion Stock, but only to
the extent of the value, if any, of the subscription rights, and (12) the tax
basis to the holders of Conversion Stock purchased in the Offerings will be the
amount paid therefor, and the holding period for the shares of Conversion Stock
will begin on the date of consummation of the Offerings if purchased through the
exercise of subscription rights and on the day after the date of purchase if
purchased in the Community Offering or Syndicated Community Offering.
Robert L. Brown III, Esq., Corbin, Kentucky has issued an opinion to
the Company and the Bank to the effect that the income tax consequences of the
Conversion and Reorganization are substantially the same under Kentucky laws as
they are under the Code.
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In the opinion of RP Financial, which opinion is not binding on 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 nontransferable and of
short duration, and afford the recipients the right only to purchase the
Conversion Stock at a price equal to its estimated fair market value, which will
be the same price as the Purchase Price for the unsubscribed shares of
Conversion Stock. If the subscription rights granted to eligible subscribers are
deemed to have an ascertainable value, receipt of such rights likely would be
taxable only to those eligible subscribers who exercise the subscription rights
(either as a capital gain or ordinary income) in an amount equal to such value,
and the Primary Parties could recognize gain on such distribution. Eligible
subscribers are encouraged to consult with their own tax advisor as to the tax
consequences in the event that such subscription rights are deemed to have an
ascertainable value.
Unlike private rulings, an opinion is not binding on the IRS and the
IRS could disagree with conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.
Delivery and Exchange of Certificates
Conversion Stock. Certificates representing Conversion Stock issued in
connection with the Offerings will be mailed by the Company's transfer agent for
the Common Stock to the persons entitled thereto at the addresses of such
persons appearing on the stock order form for Conversion Stock as soon as
practicable following consummation of the Conversion and Reorganization. Any
certificates returned as undeliverable will be held by the Company until claimed
by persons legally entitled thereto or otherwise disposed of in accordance with
applicable law. Until certificates for Conversion Stock are available and
delivered to subscribers, subscribers may not be able to sell such shares.
Exchange Shares. After consummation of the Conversion and
Reorganization, each holder of a certificate or certificates theretofore
evidencing issued and outstanding shares of Bank Common Stock (other than the
Mutual Holding Company), upon surrender of the same to an agent, duly appointed
by the Company, which is anticipated to be the transfer agent for the Common
Stock (the "Exchange Agent"), will be entitled to receive in exchange therefor a
certificate or certificates representing the number of full shares of Common
Stock for which the shares of Bank Common Stock theretofore represented by the
certificate or certificates so surrendered will have been converted based on the
Exchange Ratio. The Exchange Agent will promptly mail to each such holder of
record of an outstanding certificate which immediately prior to the consummation
of the Conversion and Reorganization evidenced shares of Bank Common Stock, and
which is to be exchanged for Common Stock based on the Exchange Ratio as
provided in the Plan, a form of letter of transmittal (which will specify that
delivery shall be effected, and risk of loss and title to such certificate shall
pass, only upon delivery of such certificate to the Exchange Agent) advising
such holder of the terms of the exchange effected by the Conversion and
Reorganization and of the procedure for surrendering to the Exchange Agent such
certificate in exchange for a certificate or certificates evidencing Common
Stock. The Bank's stockholders should not forward Bank Common Stock certificates
to the Bank or the Exchange Agent until they have received the transmittal
letter.
No holder of a certificate theretofore representing shares of Bank
Common Stock shall be entitled to receive any dividends in respect of the Common
Stock into which such shares shall have been converted by virtue of the
Conversion and Reorganization until the certificate representing such shares of
Bank Common Stock is surrendered in exchange for certificates representing
shares of Common Stock. In the event that dividends are declared and paid by the
Company in respect of Common Stock after the consummation of the Conversion and
Reorganization but prior to surrender of certificates representing shares of
Bank Common Stock, dividends payable in respect of shares of Common Stock not
then issued will accrue (without interest). Any such dividends will be paid
(without interest) upon surrender of the certificates representing such shares
of Bank Common Stock. The Company will be entitled, after the consummation of
the Conversion and Reorganization, to treat certificates representing shares of
Bank Common Stock as evidencing ownership of the number of full shares of Common
Stock into which the shares of
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Bank Common Stock represented by such certificates will have been converted,
notwithstanding the failure on the part of the holder thereof to surrender such
certificates.
The Company shall not be obligated to deliver a certificate or
certificates representing shares of Common Stock to which a holder of Bank
Common Stock would otherwise be entitled as a result of the Conversion and
Reorganization until such holder surrenders the certificate or certificates
representing the shares of Bank Common Stock for exchange as provide above, or,
in default thereof, an appropriate affidavit of loss and indemnity agreement
and/or a bond as may be required in each case by the Company. If any certificate
evidencing shares of Common Stock is to be issued in a name other than that in
which the certificate evidencing Bank Common Stock surrendered in exchange
therefor is registered, it will be a condition of the issuance thereof that the
certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer and that the person requesting such exchange pay to the
Exchange Agent any transfer or other tax required by reason of the issuance of a
certificate for shares of Common Stock in any name other than that of the
registered holder of the certificate surrendered or otherwise establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
Required Approvals
Various approvals of OTS are required in order to consummate the
Conversion and Reorganization. The OTS has approved the Plan of Conversion,
subject to approval by the Mutual Holding Company's Members and the Bank's
Stockholders. In addition, consummation of the Conversion and Reorganization is
subject to OTS approval of the application of the Company to acquire control of
the Bank and the applications with respect to the merger of the Mutual Holding
Company (following its conversion to an interim federal stock savings
association) into the Bank and the merger of Interim into the Bank, with the
Bank being the surviving entity in both mergers. Applications for these
approvals have been filed and are currently pending. There can be no assurances
that the requisite OTS approvals will be received or received in a timely
manner, in which event the consummation of the Conversion and Reorganization may
be abandoned or delayed beyond the expiration of the Offerings.
Pursuant to OTS regulations, the Plan of Conversion also must be
approved by (1) at least a majority of the total number of votes eligible to be
cast by Members of the Mutual Holding Company at the Members' Meeting, and (2)
holders of at least two-thirds of the outstanding Bank Common Stock at the
Stockholders' Meeting. In addition, the Primary Parties have conditioned the
consummation of the Conversion and Reorganization on the approval of the Plan by
at least a majority of the votes cast, in person or by proxy, by the Public
Stockholders at the Stockholders' Meeting.
Dissenters' Rights of Appraisal
Holders of Bank Common Stock are entitled to appraisal rights under
Section 552.14 of the OTS regulations as a result of the merger of the Mutual
Holding Company (following its conversion to a federal interim stock savings
institution) with and into the Bank and the merger of the Bank with and into
Interim, with the Bank to be the surviving entity in both mergers. A holder of
shares of Bank Common Stock wishing to exercise his appraisal rights must
deliver to the Secretary of the Bank, before the vote on the Plan of Conversion
at the Stockholders' Meeting, a writing which identifies such stockholder and
which states his intention to demand appraisal of and payment for his shares of
Bank Common Stock. Such demand must be in addition to and separate from any
proxy or vote against the Plan of Conversion. Any such stockholder who wishes to
exercise such appraisal rights should review carefully the discussion of such
rights in the Bank's proxy statement, including Appendix A thereto, because
failure to timely and properly comply with the procedures specified will result
in the loss of appraisal rights under Section 552.14. All written demands for
appraisal should be sent or delivered to the attention of the Secretary of the
Bank, 1431 Cumberland Avenue, Middlesboro, Kentucky 40965 so as to be received
prior to the vote at the Stockholders' Meeting with respect to the Plan of
Conversion. Pursuant to the Plan of Conversion, consummation of the Conversion
and the Reorganization is conditioned upon holders of less than 10% of the
outstanding Bank Common Stock exercising appraisal rights, which condition may,
in the sole discretion of the Primary Parties, be waived.
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In determining whether or not to exercise appraisal rights, current
Stockholders should review the comparison of their rights as Stockholders with
their rights as stockholders of the Company following consummation of the
Conversion. Such comparison is contained in the Bank's proxy statement to its
stockholders under "The Conversion and Reorganization -- Comparison of
Stockholders' Rights." Because the Company is governed by the Tennessee Business
Corporation Act and the Bank is governed by federal law, including OTS
regulations, there are material differences between the rights of stockholders
of the Bank and stockholders of the Company.
Certain Restrictions on Purchase or Transfer of Shares after the Conversion and
Reorganization
All shares of Conversion Stock purchased in connection with the
Conversion and Reorganization by a director or an executive officer of the
Primary Parties will be subject to a restriction that the shares not be sold for
a period of one year following the Conversion and Reorganization, except in the
event of the death of such director or executive officer or pursuant to a merger
or similar transaction approved by the OTS. Each certificate of restricted
shares will bear a legend giving notice of this restriction on transfer, and
appropriate stop-transfer instructions will be issued to the Company's transfer
agent. Any shares of Common Stock issued within this one-year period as a stock
dividend, stock split or otherwise with respect to such restricted stock will be
subject to the same restrictions. The directors and executive officers of the
Company will also be subject to the insider trading rules promulgated pursuant
to the Exchange Act.
Purchases of Conversion Stock of the Company by directors, executive
officers and their associates during the three-year period following completion
of the Conversion and Reorganization may be made only through a broker or dealer
registered with the SEC, except with the prior written approval of the OTS. This
restriction does not apply, however, to negotiated transactions involving more
than 1.0% of the Company's outstanding Common Stock or to the purchase of stock
pursuant to any tax qualified employee stock benefit plan, such as the ESOP, or
by any non-tax qualified employee stock benefit plan.
Pursuant to OTS regulations, the Company will generally be prohibited
from repurchasing any shares of Common Stock within one year following
consummation of the Conversion and Reorganization. During the second and third
years following consummation of the Conversion and Reorganization, the Company
may not repurchase any shares of its Common Stock other than pursuant to (i) an
offer to all stockholders on a pro rata basis which is approved by the OTS; (ii)
the repurchase of qualifying shares of a director, if any; (iii) purchases in
the open market by a tax-qualified or non-tax-qualified employee stock benefit
plan in an amount reasonable and appropriate to fund the plan; or (iv) purchases
that are part of an open-market program not involving more than 5% of its
outstanding capital stock during a 12-month period, if the repurchases do not
cause the Bank to become undercapitalized and the Bank provides to the Regional
Director of the OTS no later than ten days prior to the commencement of a
repurchase program written notice containing a full description of the program
to be undertaken and such program is not disapproved by the Regional Director.
However, the Regional Director has authority to permit repurchases during the
first year following consummation of the Conversion and Reorganization and to
permit repurchases in excess of 5% during the second and third years upon the
establishment of exceptional circumstances (i.e., where such repurchases would
be in the best interests of the institution and its stockholders).
Well-capitalized institutions have received their Regional Directors' permission
to engage in repurchases during the first year following consummation of a
Conversion.
COMPARISON OF STOCKHOLDERS' RIGHTS
General
As a result of the Conversion and Reorganization, holders of the Bank
Common Stock will become stockholders of the Company, a Tennessee corporation.
There are certain differences in stockholder rights arising from distinctions
between the Bank's and the Company's Charter and Bylaws and between Tennessee
law and federal law.
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The discussion herein is not intended to be a complete statement of the
differences affecting the rights of stockholders, but rather summarizes the more
significant differences and certain important similarities. The discussion
herein is qualified in its entirety by reference to the respective Charter and
Bylaws of the Company and Middlesboro Federal and the Tennessee Business
Corporation Act.
Authorized Capital Stock
The Company's authorized capital stock consists of 8,000,000 shares of
Common Stock and 2,000,000 shares of Preferred Stock, whereas the Bank's
authorized capital stock consists of 8,000,000 shares of Bank Common Stock and
2,000,000 shares of preferred stock (the "Bank Preferred Stock"). The shares of
Common Stock and Preferred Stock were authorized in an amount greater than that
to be issued in the Conversion and Reorganization to provide the Company's Board
of Directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and
employee stock options. However, these additional authorized shares may also be
used by the Board of Directors, consistent with its fiduciary duty, to deter
future attempts to gain control of the Company. The Board of Directors also has
sole authority to determine the terms of any one or more series of Preferred
Stock, including voting rights, conversion rates, and liquidation preferences.
As a result of the ability to fix voting rights for a series of Preferred Stock,
the Board has the power, to the extent consistent with its fiduciary duties, to
issue a series of Preferred Stock to persons friendly to management in order to
attempt to block a tender offer, merger or other transaction by which a third
party seeks control, and thereby assist management to retain its position. The
Company's Board currently has no plan for the issuance of additional shares,
other than the possible issuance of additional shares pursuant to stock benefit
plans.
Issuance of Capital Stock
Pursuant to applicable laws and regulations, the Mutual Holding Company
is required to own not less than a majority of the outstanding Bank Common
Stock. There will be no such restriction applicable to the Company following
consummation of the Conversion and Reorganization.
The Charter of the Company does not contain restrictions on the
issuance of shares of capital stock to directors, officers or controlling
persons of the Company. Thus, stock-related compensation plans such as stock
option plans could be adopted by the Company without stockholder approval and
shares of Company capital stock could be issued directly to directors or
officers without stockholder approval. Moreover, although generally not
required, stockholder approval of stock-related compensation plans may be sought
in certain instances in order to qualify such plans for favorable federal income
tax and securities law treatment under current laws and regulations. The Company
plans to submit the stock compensation plans discussed herein to it stockholders
for approval.
Voting Rights
Stockholders of the Bank currently may not cumulate votes in elections
of directors. Under Tennessee law, unless a corporation's charter so provides,
stockholders are not entitled to cumulate their votes in the election of
directors. The Company's Charter does not provide for cumulative voting. The
restriction against cumulative voting will help to ensure continuity and
stability of both the Company's and the Bank's board of Directors, respectively,
and the policies adopted by each, and possibly by delaying, deterring or
discouraging proxy contests.
Neither the Bank's Charter nor the Charter of the Company contain any
specification of or limitation on the circumstances under which separate class
voting rights may be provided to a particular class or series of either Bank or
Company Preferred Stock.
For additional information relating to voting rights, see
" -- Limitations on Acquisitions of Voting Stock and Voting Rights" below.
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Payment of Dividends
The ability of the Bank to pay dividends on its capital stock is
restricted by OTS regulations. See "Regulation -- Regulation of the Bank --
Dividend Limitations." Although the Company is not subject to these restrictions
as a Tennessee corporation, such restrictions will indirectly affect the Company
because dividends from the Bank will be a primary source of funds of the Company
for the payment of dividends to stockholders of the Company.
The Tennessee Business Corporation Act generally provides that, subject
to any restrictions in the corporation's charter, a Tennessee corporation may
make a distribution to its stockholders unless, after giving effect to such
distribution, the corporation would not be able to pay its debts as they become
due in the usual course of business or the corporation's total assets would be
less than the sum of its total liabilities plus (unless the charter permits
otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of stockholders whose preferential rights are superior to those
receiving the distribution.
Board of Directors
The Bank's Bylaws require that the Board of Directors of the Bank be
divided into three classes, as nearly equal in number as possible, with the
members of each class elected for a term of three years and until their
successors are elected and qualified. The Company's Charter also requires the
Board of Directors of the Company to be divided into three classes as nearly
equal in number as possible and that the members of each class shall be elected
for a term of three years and until their successors are elected and qualified,
with one class being elected annually.
Under the Bank's Bylaws, vacancies on the Board of Directors may be
filled by the affirmative vote of a majority vote of the then remaining
directors, even though less than a quorum. Under the Company's Charter,
vacancies are generally required to be filled by a two-thirds vote of the Board
of Directors and a majority of the Continuing Directors then in office, even
though less than a quorum of the Board of Directors, or by a sole remaining
director, and any director so chosen shall be elected for the unexpired term of
his predecessor in office and until such director's successor shall have been
elected and qualified. Any director so chosen may serve only until the next
election of one or more directors by the stockholders.
Under the Bank's Bylaws a director may be removed for cause by a vote
of the holders of a majority of the shares then entitled to vote at an election
of directors. Under the Company's Charter, directors may generally be removed
only with cause by an affirmative vote of at least 80% of the outstanding shares
entitled to vote generally in the election of directors cast at a meeting of the
stockholders called for that purpose, except as otherwise required by law.
Limitations on Liability
The Company's Charter provides that no director shall be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a directors except for: (i) any breach of the director's duty
of loyalty to the Company or its stockholders; (ii) acts or omissions that are
not in good faith or that involve intentional misconduct or a knowing violation
of law; or (iii) unlawful distributions under Section 48-18-304 of the Tennessee
Business Corporation Act. The Company's Charter further provides that if the
Tennessee Business Corporation Act is ever amended or other Tennessee law
enacted to permit further elimination of liability, then the liability of
directors of the Company shall be eliminated or limited to the fullest extent
permitted by law.
Neither the Bank's Charter nor Bylaws contains any similar provision.
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Indemnification of Directors, Officers, Employees and Agents
The Bank's Charter and Bylaws do not contain any provision relating to
indemnification of directors and officers of the Bank. The Company's Charter
provides that the Company shall indemnify any director who was or 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 the fact that such person is or was a director, if: (i) he conducted
himself in good faith; (ii) he reasonably believed, (A) in the case of conduct
in his official capacity with the Company, that his conduct was in the Company's
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. The Company's
Charter also requires that the Company indemnify any director and any officer
who was wholly successfully, on the merits or otherwise, in the defense of any
proceeding to which he was a party because he is or was a director or officer of
the Company, against reasonable expenses incurred by him in connection with the
proceeding.
Special Meetings of Stockholders
Pursuant to the Bank's Bylaws, Special Meetings of stockholders may be
called at any time by the Chairman of the Board, the President or a majority of
the Board of Directors, and must be called upon the written request of the
holders of not less than one-tenth or all the outstanding capital stock of the
Bank. The Company's Charter contains a provision pursuant to which special
meetings of stockholders of the Company only may be called by the Board of
Directors or a committee thereof. Stockholders will not have the right to call
Special Meetings.
Stockholder Nominations and Proposals
The Bank's Bylaws provide that nominations by shareholders must be made
in writing and delivered to the secretary at the principal offices of the Bank
at least five days prior to the date of the annual meeting.
The Company's Charter provides that all nominations for election to the
Board of Directors and proposals for any new business, other than those made by
the Board or a committee thereof, shall be made by a stockholder who has
complied with the notice provisions in the Charter. To be timely, a
stockholder's notice generally must be delivered to, or mailed and received at,
the principal executive offices of the Company (i) not fewer than 30 days nor
more than 60 days prior to the annual meeting of stockholders of the Company;
provided, however, that if notice or public disclosure of the meeting is
effected fewer than 40 days before the meeting, such written notice shall be
delivered or mailed, as prescribed, to the secretary of the Company not later
than the close of business on the tenth day following the date on which notice
of such meeting is first given to stockholders. Such stockholder's notice must
set forth (A) as to each person whom the stockholder proposes to nominate for
election or re-election as a director (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or employment of
such person, (iii) the number of shares of the Company's stock which are
beneficially owned by such nominee, and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies with
respect to nominees for election as directors, pursuant to Regulation 14A under
the Exchange Act, including, but not limited to, such person's written consent
to be named in the proxy statement as a nominee and to serving as a director, if
elected; and (B) as to the stockholder giving the notice (i) the name and
address, as they appear on the Company's books, of such stockholder and any
other stockholders known by such stockholder to be supporting such nominees and
(ii) the class and number of shares of the Company stock which are beneficially
owned by such stockholder.
The Company's Charter provides that stockholder proposals, other than
those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the Company and not
less than 30 nor more than 60 days prior to the annual meeting of stockholders
of the Company. Such stockholder's notice must set forth as to each matter the
stockholder proposes to bring before the annual meeting: (a) a brief description
of the proposal desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (b) the name and address, as
they appear on the Company's books, of the
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stockholder proposing such business, (c) the class and number of shares of the
Company's stock which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such proposal.
The procedures regarding stockholder nominations and proposals are
intended to provide the Board of Directors of the Company with the information
deemed necessary to evaluate a stockholder proposal or nomination and other
relevant information, such as existing stockholder support, as well as the time
necessary to consider and evaluate such information in advance of the applicable
meeting. Generally, the Company's Board of Directors determines whether there
has been compliance with these requirements. The proposed procedures will give
incumbent directors advance notice of a business proposal or nomination. This
may make it easier for the incumbent directors to defeat a stockholder proposal
or nomination, even when certain stockholders view such proposal or nomination
as in the best interests of the Company or its stockholders.
Inspectors of Election
The Bank's Bylaws provide that the Board of Directors may appoint any
persons other than nominees for office as inspectors of election. The number of
inspectors are required to be either one or three. If inspectors of election are
not so appointed, the chairman of the board or the president may, or on request
of not fewer than 10% of the votes represented at the meeting shall, make such
appointment at the meeting. If appointed at the meeting, the majority of the
votes present shall determine whether one or three inspectors are to be
appointed.
The Company's Bylaws provide that the Board of Directors may appoint
one or more inspectors of election. If for any meeting the inspector(s)
appointed by the Board of Directors shall be unable to act or the Board of
Directors shall fail to appoint any inspector, one or more inspectors may be
appointed at the meeting by the chairman thereof. Such inspectors shall conduct
the voting in each election of directors and, as directed by the Board of
Directors or chairman of the meeting, the voting on the matters voted on at such
meeting, and after the voting shall make a certificate of the vote taken.
Inspectors need not be stockholders.
Limitations on Voting Rights
Article XIV of the Company's Charter provides that, if at any time
following the consummation of the Conversion and Reorganization, any person
acquires beneficial ownership of more than 10% of any class of equity security
of the Company without the prior approval of two-thirds of the "Continuing
Directors" (as defined below), then the record holders of the voting stock of
the Company beneficially owned by such acquiring person shall have only voting
rights, with respect to each share in excess of 10%, equal to one one-hundredth
(1/100th) of a vote. The aggregate voting power of such record holders will be
allocated proportionately among such record holders by multiplying the aggregate
voting power, as so limited, of the outstanding shares of voting stock of the
Company beneficially owned by such acquiring person by a fraction whose
numerator is the number of votes represented the shares of voting stock of the
Company owned of record by such person (and which are beneficially owned by such
acquiring person) and whose denominator is the total number of votes represented
by the shares of voting stock of the Company that are beneficially owned by such
acquiring person. A person who is the record owner of shares of voting stock of
the Company that are beneficially 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 Article XIV. "Continuing
Directors" are defined in the Company's Charter to be those members of the board
of directors who are unaffiliated with any "Related Person" (as defined below)
and who were members of the board of directors prior to the time that a "Related
Person" (as defined below) became a "Related Person" and any successor to such
directors who are recommended to succeed a Continuing Director by a majority of
the Continuing Directors then on the Board of Directors. The term "Related
Person" is defined as any individual, corporation, partnership or other person
or entity which, together with its affiliates, beneficially owns in the
aggregate 10% or more of the outstanding shares of Common Stock and any
affiliate of such individual, corporation, partnership or other person or
entity.
Currently, the Charter of the Bank does not contain any provision which
imposes the same restrictions with respect to the voting of Bank Common Stock.
The Bank's Charter had included a provision which prohibited, for
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a period of three years following the MHC Reorganization, the acquisition of in
excess of 10% of the outstanding shares of Bank Common Stock. This provision
would have expired in March 1997. In October 1996, however, the stockholders of
the Bank approved an amendment to the Bank's Charter to delete this provision.
Mergers and Certain Dispositions of Assets
To approve mergers and similar transactions, the Tennessee Business
Corporation Act generally requires the approval of the Board of Directors of the
corporation and of the holders of a majority of all the votes entitled to be
cast, unless the Charter or the Board of Directors requires a greater vote. The
Tennessee Business Corporation Act permits a corporation to merge with another
corporation without obtaining the approval of its stockholders (unless the
Charter provides otherwise) if: (i) the corporation's separate corporate
existence will not cease as a result of the merger and, except for certain types
of amendments, its charter will not differ from its charter before the merger;
(ii) each stockholder of the corporation whose shares were outstanding
immediately before the effective date of the merger will hold the same number of
shares, with identical designations, preferences, limitations and relative
rights, immediately after the effective date of the merger; (iii) the voting
power of the shares outstanding immediately after the merger, plus the voting
power of the shares issuable as a result of the merger (either by the conversion
of securities issued pursuant to the merger or by the exercise of rights and
warrants issued pursuant to the merger) will not exceed by more than twenty
percent (20%) the voting power of the total shares of the corporation
outstanding immediately before the merger or exchange; and (iv) the number of
participating shares outstanding immediately after the merger, plus the number
of participating shares issuable as a result of the merger (either by the
conversion of securities issued pursuant to the merger or by the exercise of
rights and warrants issued pursuant to the merger) will not exceed more than
twenty percent (20%) the total number of participating shares outstanding
immediately before the merger.
The Tennessee Business Corporation Act also provides that any sale,
lease, exchange, or other disposition of all, or substantially all, of the
property and assets not made in the usual and regular course of business may be
made in the following manner: (i) the board of directors may adopt a resolution
recommending that such a transaction be approved by stockholders, unless the
board of directors for any reason determines that it should not make such a
recommendation, in which case the board may adopt a resolution directing that
the transaction be submitted to stockholders without a recommendation, (ii) the
board of directors may submit the proposed transaction for authorization by the
company's stockholders at an annual or special meeting of stockholders, (iii)
written notice of such meeting shall be given to stockholders of record, stating
that the purpose, or one of the purposes of the meeting is to propose the
transaction, (iv) at such meeting the stockholders may authorize the
transaction, upon the affirmative vote of a majority of all the votes entitled
to be cast on the transaction, unless the board of directors or the
corporation's charter requires a greater vote or voting by voting groups, (v)
after such authorization by vote of the stockholders, the board of directors may
nevertheless abandon such transaction, subject to the rights of third parties
under any contract, without further action or approval by the stockholders.
As holder of all the outstanding Bank Common Stock after consummation
of the Conversion and Reorganization, the Company generally will be able to
authorize a merger, consolidation or other business combination involving the
Bank without the approval of the stockholders of the Company. In addition to the
provisions of Tennessee law, the Company's Charter requires the approval of the
holders of at least 80% of the Company's outstanding shares of voting stock, and
a majority of such shares not including shares deemed beneficially owned by a
Related Person, to approve certain "Business Combinations," as defined therein.
The Charter requires the approval of the stockholders in accordance with the
increased voting requirements in connection with any such transactions except in
cases where the proposed transaction has been approved in advance by at least
two-thirds of the Company's Continuing Directors. These provisions of the
Charter apply to any "Business Combination" which generally is defined to
include: (i) any merger, share exchange or consolidation of the Company with or
into a Related Person; (ii) any sale, lease, exchange, transfer or other
disposition of, including without limitation, the granting of any mortgage, or
any other security interest in, all or any substantial part of the assets of the
Company (including, without limitation, any voting securities of a subsidiary)
or of a subsidiary to a Related Person or proposed by or on behalf of a Related
Person; (iii) any sale, lease, exchange, transfer or other disposition,
including
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without limitation, a mortgage, pledge or any other security interest in, all or
any substantial part of the assets of a Related Person to the Company or a
subsidiary; (iv) the issuance or transfer of any securities of the Company or a
subsidiary to a Related Person other than pursuant to a dividend or distribution
made pro rata to all stockholders of the Company; (v) the acquisition by the
Company or a subsidiary of any securities of a Related Person or of any
securities convertible into securities of a Related Person; (vi) any transaction
proposed by or on behalf of a Related Person or pursuant to an agreement,
arrangement or understanding with a Related Person which has the effect,
directly or indirectly, of increasing the Related Person's proportionate
ownership of voting securities of the Company or a subsidiary thereof or of
securities that are convertible to, exchangeable for or carry the right to
acquire such voting securities; (vii) the adoption of any plan or proposal of
liquidation or dissolution of the Company any reincorporation of the Company in
another state or jurisdiction, any reclassification of the Common Stock, or any
recapitalization involving the Common Stock proposed by or on behalf of a
Related Person; (viii) any loans, advances, guarantees, pledges, financial
assistance, security arrangements, restrictive covenants or any tax credits or
other tax advantages provided by, through or to the Company or any subsidiary
thereof as a result of which a Related Person receives a benefit, directly or
indirectly, other than proportionately as a stockholder; and (ix) any agreement,
contract or other arrangement providing for any of the transactions described in
(i) - (viii) above.
Neither the Bank's Charter, Bylaws nor federal laws and regulations
contains a provision which restricts business combinations between the Bank and
Related Persons in the manner set forth in the Company's Charter.
Dissenters' Rights
A federal regulation which is applicable to the Bank generally provides
that a stockholder of a federally chartered savings institution which engages in
a merger, consolidation or sale of all or substantially all of its assets shall
have the right to demand from such institution payment of the fair or appraised
value of his or her stock in the institution, subject to specified procedural
requirements. This regulation also provides, however, that the stockholders of a
federally chartered savings institution with stock which is listed on a national
securities exchange or quoted on the Nasdaq System are not entitled to
dissenters' rights in connection with a merger involving such savings
institution if the stockholder is required to accept only "qualified
consideration" for his or her stock, which is defined to include cash, shares of
stock of any institution or corporation which at the effective date of the
merger will be listed on a national securities exchange or quoted on the Nasdaq
System or any combination of such shares of stock and cash.
After the Conversion and Reorganization, the rights of appraisal of
dissenting stockholders of the Company will be governed by the Tennessee
Business Corporation Act. The Tennessee Business Corporation Act provides that
stockholders of a Tennessee corporation have a right to dissent from, and obtain
payment of the fair value of his shares in the event of any of the following
corporate actions: (i) consummation of a plan of merger requiring stockholder
approval or involving a subsidiary that is merged into its parent, (ii)
consummation of a plan of share exchange to which the corporation is a party as
the corporation whose shares will be acquired, if the stockholder is entitled to
vote on the plan; (iii) consummation of a sale or exchange of all, or
substantially all, of the property of the corporation other than in the usual
and regular course of business, if the stockholder is entitled to vote on the
sale or exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all or
substantially all of the entire proceeds of the sale will be distributed to
stockholders within one year after the date of sale; (iv) an amendment to the
charter than materially and adversely affects rights in respect of a dissenter's
shares because it: (A) alters or abolishes a preferential right of the shares;
(B) creates, alters or abolishes a right in respect of redemption, including a
provision respecting a sinking fund for the redemption or repurchase of the
shares; (C) alters or abolishes a preemptive right of the holders of the shares
to acquire shares or other securities; (D) excludes or limits the right of the
shares to vote on any matter, or to cumulate votes, other than a limitation by
dilution through issuance of shares or other securities with similar voting
rights; or (E) reduces the number of shares owned by the stockholder to a
fraction of a shares, if the fractional share is to be acquired for cash under
Section 48-16-104 of the Tennessee Business Corporation Act; or (v) any
corporation action taken pursuant to a stockholder vote to the extent the
charter, bylaws, or a resolution of the board of directors providing that voting
or nonvoting stockholders are entitled to dissent and obtain payment of their
shares. Notwithstanding the foregoing, no stockholder of a Tennessee corporation
may dissent as to any shares of a security
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which, as of the date of the effectuation of the transaction which would
otherwise give rise to dissenters' rights, is listed on an exchange registered
under Section 6 of the Exchange Act or is a "national market system security,"
as defined in rules promulgated pursuant to the Exchange Act.
Amendment of Governing Instruments
No amendment of the Company's Charter may be made unless it is first
approved by the Board of Directors of the Company, recommended to the
stockholders for approval and thereafter is approved by the holders of a
majority of the shares of the Company entitled to be cast. An 80% vote of the
shares of the Company is required to amend, adopt, alter, change or repeal any
provision inconsistent with Article VIII (setting quorum and voting
requirements), Article IX (setting the requirements for the Board of Directors,
including classification of the Board and vacancies), Article X (setting the
procedures for nomination of directors and stockholder proposals), Article XI
(removal of directors), Article XII (elimination of director liability), Article
XIII (indemnification), Article XIV (restrictions on voting rights of certain
holders), Article XV (approval of Business Combinations), Article XVI
(evaluation of Business Combinations), Article XIX (amendment of Bylaws) and
Article XX (amendment of Charter)
Statutory Anti-Takeover Provisions
The Tennessee Business Corporation Act contains several provisions
described below which may be applicable to the Company upon consummation of the
Conversion and Reorganization. The Bank, as a federally chartered institution is
governed by federal laws and regulations. There are no similar provisions
applicable to the Bank.
Business Combination Act. The Tennessee Business Combination Act (the
"Business Combination Act") generally prohibits a "business combination"
(generally defined to include mergers, share exchanges, sales and leases of
assets, issuances of securities and similar transactions) by a "resident
domestic corporation" (as defined below) or a subsidiary with an "Interested
Shareholder" (generally defined as ny person or entity which beneficially owns
10% or more of the voting power of any class or series of the corporation's
stock then outstanding) for a period of five years after the date the person
becomes an Interested Shareholder unless, prior to such date, the board of
directors approved either the business combination or the transaction which
resulted in the shareholder becoming an Interested Shareholder and the business
combination satisfies any other applicable requirements imposed by law or by the
corporation's charter or bylaws. The Business Combination Act also limits the
extent to which a "resident domestic corporation" which has a class of voting
stock traded on any national securities exchange or registered pursuant to
Section 12(g) of the Exchange Act or any of its officers or directors could be
held liable for resisting any business combination.
For purposes of the Business Combination Act, the term "resident
domestic corporation" is defined as an issuer of voting stock which, as of the
share acquisition date in question, is organized under the laws of Tennessee and
meets two or more of the following requirements: (i) the corporation has more
than 10,000 or 10% of its stockholders resident in Tennessee or more than 10% of
its shares held by stockholders who are Tennessee residents; (ii) the
corporation has its principal office or place of business located in Tennessee;
(iii) the corporation has the principal office or place of business of a
significant subsidiary, representing not less than 25% of the corporation's
consolidated net sales located in Tennessee; (iv) the corporation employs more
than 250 individuals in Tennessee or has a combined annual payroll paid to
Tennessee residents which is in excess of $5.0 million; (v) the corporation
produces goods and services in Tennessee which result in annual gross receipts
in excess of $10.0 million; or (vi) the corporation has physical assets and/or
deposits, including those of any subsidiary located within Tennessee which
exceed $10.0 million in value. The Company does not expect that it will
initially meet the definition of a resident domestic corporation although it is
possible that it will meet the definition in the future and will be entitled to
the anti-takeover protection afforded by the Business Combination Act.
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Control Share Acquisitions. The Tennessee Control Share Acquisition Act
(the "Control Share Acquisition Act") generally provides that any person or
group that acquires the power to vote more than certain specified levels
(one-fifth, one-third or a majority) of the shares of certain Tennessee
corporations will not have the right to vote such shares unless granted voting
rights by the holders of a majority of the votes entitled to be cast, excluding
"interested shares." Interested shares are those shares held by the acquiring
person, officers of the corporation and employees and directors of the
corporation. If approval of voting power for the shares is obtained at one of
the specified levels, additional stockholder approval is required when a
stockholder seeks to acquire the power to vote shares at the next level. In the
absence of such approval, the additional shares acquired by the stockholder may
not be voted until they are transferred to another person in a transaction other
than a control share acquisition.
Pursuant to the Control Share Acquisition Act, the provisions of such
Act will only apply to a Tennessee corporation if its charter or bylaws so
provides and which has: (i) 100 or more stockholders; (ii) its principal place
of business, its principal office or substantial assets within Tennessee; and
(iii) either (A) more than 10% of its stockholders resident in Tennessee, (B)
more than 10% of its shares owned by stockholders resident in Tennessee, or (C)
10,000 ore more stockholders resident in Tennessee. Neither the Company's
Charter nor its Bylaws contains a provision declaring that the Company will be
subject to the provisions of the Control Share Acquisition Act, although the
Company could amend its Charter or Bylaws in the future to include such a
provision. The Company cannot determine at this time whether it would otherwise
meet the requirements to be subject to the provisions of the Control Share
Acquisition Act.
Anti-Greenmail Statute. The Tennessee Greenmail Act (the "Greenmail
Act") prohibits a Tennessee corporation having a class of voting stock
registered or traded on a national securities exchange or registered pursuant to
Section 12(g) of the Exchange Act from purchasing, directly or indirectly, any
of its shares at a price above the market value of such shares from any person
who holds more than 3% of the class of securities to be purchased if such person
has held such shares for less than two years, unless: (i) such purchase has been
approved by the affirmative vote of a majority of the outstanding shares of each
class of voting stock issued by such corporation or (ii) the corporation makes
an offer, at least equal value per share, to al holders of shares of such class.
For purposes of the Greenmail Act, market value is defined as the average of the
highest and lowest closing market price of such shares during the 30 trading
days preceding the purchase or preceding the commencement or announcement of a
tender offer if the seller of such shares has commenced a tender offer or
announced an intention to seek control of the corporation.
The Common Stock will be registered pursuant to Section 12(g) of the
Exchange Act. As such, the Company will be subject to the restrictions of the
Greenmail Act upon consummation of the Conversion and Reorganization.
Investor Protection Act. The Tennessee Investor Protection Act (the
"Investor Protection Act") prohibits any party owning, directly or indirectly,
5% or more of any class of equity securities of an "offeree company" (as defined
below), any of which were purchased within one year before the proposed takeover
offer, unless the offeror: (i) before making such purchase, had made a public
announcement of his intention to change or influence the management or control
of the "offeree company"; (ii) has made a full, fair and effective disclosure of
such intention to the persons from whom he acquired such securities; and (iii)
has filed with the Tennessee Commissioner of Commerce and Insurance and with the
"offeree company" a statement signifying such intentions and containing such
additional information as the Commissioner may require. For purposes of the
Investor Protection Act, an "offeree company" is defined as a corporation or
other issuer of equity securities which is incorporated or organized under the
laws of Tennessee or has its principal office in Tennessee, has substantial
assets located in Tennessee and which is or may be involved in a takeover offer
relating to any class of its equity securities.
The Investor Protection Act also prohibits any offeror from making a
takeover offer which is not made to the holders of record or beneficial owners
of the equity securities of an offeree company who reside in Tennessee on
substantially the same terms as the offer is made to holders residing elsewhere.
The Investor Protection Act also
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imposes certain other restrictions on takeover offers involving offeree
companies. Although the Company is a Tennessee corporation, it is not
anticipated at this time that the Company would satisfy the requirement of
having substantial assets located in Tennessee and therefore would not be deemed
an offeree company and entitled to the protections of the Investor Protection
Act. It is possible that the Company could satisfy this requirement in the
future and parties seeking to make a takeover offer would be subject to the
requirements of the Investor Protection Act.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
Restrictions in the Company's Charter and Bylaws
Certain provisions of the Company's Charter and Bylaws which deal with
matters of corporate governance and rights of stockholders might be deemed to
have a potential anti-takeover effect. These provisions, which are described
under "Comparison of Stockholders' Rights" above, provide, among other things:
(i) that the Board of Directors of the Company shall be divided into classes;
(ii) that special meetings of stockholders may only be called by the Board of
Directors of the Company or a committee thereof; (iii) that stockholders
generally must provide the Company advance notice of stockholder nominations for
director and proposals and provide certain specified related information; (iv)
that the voting rights of any person who acquires more than 10% of the issued
and outstanding shares of any class of an equity security of the Company will be
reduced to 1/100th of a share of every share owned in excess of 10%; (v) the
authority to issue shares of authorized but unissued Common Stock and Preferred
Stock and to establish the terms of any one or more series of Preferred Stock,
including voting rights; and (vi) restrictions on the Company's ability to
engage in certain Business Combinations with "Related Persons."
The foregoing provisions of the Charter and Bylaws of the Company could
have the effect of discouraging an acquisition of the Company or stock purchases
in furtherance of an acquisition, and could accordingly, under certain
circumstances, discourage transactions which might otherwise have a favorable
effect on the price of the Common Stock.
The Board of Directors believes that the provisions described above are
prudent and will reduce vulnerability to takeover attempts and certain other
transactions that are not negotiated with and approved by the Board of Directors
of the Company. The Board of Directors believes that these provisions are in the
best interests of the Company and its future stockholders. In the Board of
Directors' judgment, the Board of Directors is in the best position to determine
the true value of the Company and to negotiate more effectively for what may be
in the best interests of its stockholders. Accordingly, the Board of Directors
believes that it is in the best interests of the Company and its future
stockholders to encourage potential acquirors to negotiate directly with the
Board of Directors and that these provisions will encourage such negotiations
and discourage hostile takeover attempts. It is also the Board of Directors'
view that these provisions should not discourage persons from proposing a merger
or other transactions at prices reflective of the true value of the Company and
where the transaction is in the best interests of all stockholders.
Restrictions in Tennessee Law
Certain provisions of the Tennessee Business Corporation Act, which may
be applicable to the Company upon consummation of the Conversion and
Reorganization or in the future may be deemed to have an anti-takeover effect.
These provisions, which are described under "Comparison of Stockholders' Rights"
above include (i) restrictions on business combinations with Interested
Shareholders; (ii) restrictions on control share acquisitions; (iii) a
prohibition on the payment of greenmail; and (iv) a prohibition on certain types
of tender offers.
Regulatory Restrictions
The Change in Bank Control Act provides that no person, acting directly
or indirectly or through or in concert with one or more persons, may acquire
control of a savings association unless the OTS has been given 60 days' prior
written notice. The HOLA provides that no company may acquire "control" of a
savings association
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without the prior approval of the OTS. Any company that acquires such control
becomes a savings and loan holding company subject to registration, examination
and regulation by the OTS. Pursuant to federal regulations, control of a savings
association is conclusively deemed to have been acquired by, among other things,
the acquisition of more than 25% of any class of voting stock of the association
or the ability to control the election of a majority of the directors of an
association. Moreover, control is presumed to have been acquired, subject to
rebuttal, upon the acquisition of more than 10% of any class of voting stock, or
of more than 25% of any class of stock, of a savings association, where certain
enumerated "control factors" are also present in the acquisition. The OTS may
prohibit an acquisition if: (i) it would result in a monopoly or substantially
lessen competition; (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the institution; or (iii) the competence,
experience or integrity of the acquiring person indicates that it would not be
in the interest of the depositors or of the public to permit the acquisition of
control by such person. The foregoing restrictions do not apply to the
acquisition of a savings association's capital stock by one or more
tax-qualified employee stock benefit plans, provided that the plan or plans do
not have beneficial ownership in the aggregate of more than 25% of any class of
equity security of the savings association.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
General
The Company is authorized to issue 8,000,000 shares of Common Stock and
2,000,000 shares of Preferred Stock. The Company currently expects to issue up
to a maximum of 590,943 shares of Common Stock, including 382,375 shares of
Conversion Stock and 208,563 Exchange Shares, and no shares of Preferred Stock
in the Conversion and Reorganization. Each share of the Common Stock will have
the same relative rights as, and will be identical in all respects with, each
other share of Common Stock. Upon payment of the Purchase Price for the
Conversion Stock and the issuance of the Exchange Shares in accordance with the
Plan, all such stock will be duly authorized, fully paid and nonassessable.
The Common 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.
Common Stock
Dividends. The Company can pay dividends if, as and when declared by
its Board of Directors, subject to compliance with limitations which are imposed
by law. See "Dividend Policy." The holders of Common Stock of the Company will
be entitled to receive and share equally in such dividends as may be declared by
the Board of Directors of the Company out of funds legally available therefor.
If the Company issues Preferred Stock, the holders thereof may have a priority
over the holders of the Common Stock with respect to dividends.
Voting Rights. Upon completion of the Conversion and Reorganization,
the holders of Common Stock of the Company will possess exclusive voting rights
in the Company. They will elect the Company's Board of Directors and act on such
matters as are required to be presented to them under Tennessee law or the
Company's Charter or as are otherwise presented to them by the Board of
Directors. Except as discussed in "Comparison of Stockholders' Rights -
Limitations on Acquisitions of Voting Stock and Voting Rights," each holder of
Common Stock will be entitled to one vote per share. Under the Company's
Charter, cumulative voting is prohibited. If the Company issues Preferred Stock,
holders of the Preferred Stock may also possess voting rights.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, the holders of its Common Stock would be entitled to receive,
after payment or provision for payment of all its debts and liabilities, all of
the assets of the Company available for distribution. If Preferred Stock is
issued, the holders thereof may have a priority over the holders of the Common
Stock in the event of liquidation or dissolution.
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Preemptive Rights. Holders of the Common Stock of the Company will not
be entitled to preemptive rights with respect to any shares which may be issued.
The Common Stock is not subject to redemption.
Preferred Stock
None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion and Reorganization. Such stock may be issued with such
preferences and designations as the Board of Directors may from time to time
determine. The Board of Directors can, without stockholder approval, issue
preferred stock with voting, dividend, liquidation and conversion rights which
could dilute the voting strength of the holders of the Common Stock and may
assist management impeding an unfriendly takeover or attempted change in
control.
EXPERTS
The Financial Statements of Middlesboro Federal at June 30, 1996 and
1995 appearing in this Prospectus and included in the registration on Form SB-2
filed with the SEC and the Application for Conversion filed with the OTS, have
been audited by Marr, Miller & Myers, PSC, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and is included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
RP Financial has consented to the publication herein of the summary of
its report to the Company and the Bank setting forth its opinion as to the
estimated pro forma market value of the Common Stock to be outstanding upon
completion of the Conversion and Reorganization and its opinion with respect to
subscription rights.
LEGAL MATTERS
The legality of the Common Stock and the federal income tax
consequences of the Conversion and Reorganization will be passed upon for the
Company and the Bank by Housley Kantarian & Bronstein, P.C., Washington, D.C.,
special counsel to the Company and the Bank. The Kentucky income tax
consequences of the Conversion and Reorganization will be passed upon for the
Company and Middlesboro Federal by Robert L. Brown, III, Esq., Corbin, Kentucky.
Certain legal matters will be passed upon for Trident Securities by Vorys,
Sater, Seymour and Pease, Cincinnati, Ohio.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement under the
Securities Act with respect to the Conversion Stock and the Exchange Shares
offered hereby. As permitted by the rules and regulations of the SEC, this
Prospectus does not contain all the information set forth in the Registration
Statement. Such information can be examined without charge at the public
reference facilities of the SEC located at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of such material can be obtained from the SEC at
prescribed rates. 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 Mutual Holding Company has filed an Application for Conversion with
the OTS with respect to the Conversion and Reorganization. This Prospectus omits
certain information contained in that application. The application may be
examined at the principal office of the OTS, 1700 G Street, N.W., Washington,
D.C. 20552 and at the Central Regional Office of the OTS located at 200 West
Madison Avenue, Suite 1300, Chicago, Illinois 60606.
In connection with the Conversion and Reorganization, the Company will
register its Common Stock with the SEC under Section 12(g) of the Exchange Act,
and, upon such registration, the Company and the holders of its stock will
become subject to the proxy solicitation rules, reporting requirements and
restrictions on stock purchases and sales by directors, officers and greater
than 10% stockholders, the annual and periodic reporting requirements and
certain other requirements of the Exchange Act. Under the Plan, the Company has
undertaken that it will not terminate such registration for a period of at least
three years following the Conversion and Regulation.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report F-1
Statements of Financial Condition as of September 30, 1996 F-2
(unaudited) and June 30, 1996 and 1995
Statements of Income for the Three Months Ended September 30, 1996 F-3
and 1995 (unaudited) and the Years Ended June 30, 1996 and 1995
Statements of Changes in Stockholders' Equity for the Three Months Ended F-5
September 30, 1996 (unaudited) and the Years Ended June 30, 1996 and 1995
Statements of Cash Flows for the Three Months Ended September 30, 1996 F-6
and 1995 (unaudited) and the Years Ended June 30, 1996 and 1995
Notes to the Financial Statements F-8
</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 Cumberland Mountain Bancshares, Inc. have been
omitted because Cumberland Mountain Bancshares, 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.
104
<PAGE>
[LETTERHEAD OF MARR, MILLER & MYERS, PSC APPEARS HERE]
INDEPENDENT AUDlTOR'S REPORT
----------------------------
July 25, 1996
To the Board of Directors and Stockholders
Middlesboro Federal Bank, F.S.B.
Middlesboro, Kentucky
We have audited the accompanying statements of financial condition of
Middlesboro Federal Bank, F.S.B. as of June 30, 1996 and 1995, and the related
statements of income, changes in stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Savings Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Middlesboro Federal Bank,
F.S.B. as of June 30, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Marr, Miller & Myers, PSC
Certified Public Accountants
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
ASSETS
------
(Unaudited) June 30,
September 30, ---------------
1996 1996 1995
------------ ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Cash and cash equivalents $ 605 $ 874 $ 1,796
Investment securities, held-to-maturity
(Market value $253 at September 30, 1996,
$639 at June 30, 1996 and $5,466 at
June 30, 1995) 253 639 5,631
Investment securities, available-for-sale,
at market value 3,637 3,680 1,853
Mortgage-backed securities, held to maturity
(Market value $11,769 at June 30, 1995) - - 11,846
Mortgage-backed securities, available for
sale, at market value 7,655 7,779 -
Loans, net of allowance for loan losses of
$195 at September 30, 1996, $180 at
June 30,1996 and $148 at June 30, 1995 69,371 59,931 44,864
Accrued interest receivable 363 312 247
Investment in capital stock of Federal Home
Loan Bank (FHLB) 444 436 407
Premises and equipment, net 1,017 895 691
Prepaid expenses and other assets 454 152 118
------ ------ ------
TOTAL ASSETS $83,799 $74,698 $67,453
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
Deposits $71,906 $68,976 $62,595
Advances from FHLB 6,000 1,000 -
Accrued interest payable 522 107 97
Other liabilities 986 19 153
------ ------ ------
Total liabilities 79,414 70,102 62,845
------ ------ ------
STOCKHOLDERS' EQUITY
Common stock, $1 par value, 8,000,000 shares
authorized, 510,000 shares issued
and outstanding 510 510 510
Preferred stock, 2,000,000 shares
authorized, none issued and outstanding - - -
Additional paid-in capital 1,023 1,023 1,023
Retained earnings 3,146 3,368 3,222
Net unrealized loss on investment securities (294) (305) (147)
------ ------ ------
Total stockholders' equity 4,385 4,596 4,608
------ ------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $83,799 $74,698 $67,453
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended Year Ended
September 30, June 30,
-------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C>
(Dollars in thousands)
INTEREST INCOME
Loans $1,319 $ 932 $4,149 $2,989
Mortgage-backed securities 121 187 635 720
Investment securities and other
interest-earning assets 58 107 389 602
FHLB stock 8 7 29 36
----- ----- ----- -----
Total interest income 1,506 1,233 5,202 4,347
INTEREST EXPENSE 913 803 3,317 2,445
----- ----- ----- -----
NET INTEREST INCOME 593 430 1,885 1,902
PROVISION FOR LOAN LOSSES 30 3 58 18
----- ----- ----- -----
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 563 427 1,827 1,884
----- ----- ----- -----
OTHER INCOME
Loan fees and service charges 135 64 272 214
Gain (loss) on sales of
investment securities - - 20 (96)
Other - - 20 18
----- ----- ----- -----
Total other income 135 64 312 136
----- ----- ----- -----
NET INTEREST AND OTHER INCOME 698 491 2,139 2,020
----- ----- ----- -----
OTHER EXPENSE
Salaries and employee benefits 369 220 975 789
Service bureau 32 28 100 96
SAIF deposit insurance premium 427 17 144 131
Occupancy and equipment 35 27 144 153
Marketing and other professional
services 46 23 132 83
Bank shares tax 18 17 96 62
Other 90 73 289 262
----- ----- ----- -----
Total other expense 1,017 405 1,880 1,576
----- ----- ----- -----
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
STATEMENTS OF INCOME (CONTINUED)
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended Year Ended
September 30, June 30,
--------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (319) 86 259 444
PROVISION FOR INCOME TAXES (BENEFIT) (97) 10 113 151
------ ------ ------ -----
NET INCOME (LOSS) $ (222) $ 76 $ 146 $ 293
====== ====== ====== =====
PER SHARE OF COMMON STOCK:
Earnings (loss) $ (.44) $ .15 $ .29 $ .57
====== ====== ====== =====
Dividends $ N/A $ N/A $ N/A $ N/A
====== ====== ====== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
Capital Stock Gain (Loss) On
------------- Paid-In Retained Investment
Shares Amount Capital Earnings Securities Total
------ ------ ------- -------- ------------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1994 510 $510 $1,023 $2,929 $(121) $4,341
For the year ended June 30, 1995:
Unrealized gain (loss) on investment
securities, net of deferred tax - - - - (26) (26)
Net income - - - 293 - 293
--- ---- ------ ----- ----- ------
Balance, June 30, 1995 510 510 1,023 3,222 (147) 4,608
For the year ended June 30, 1996:
Unrealized gain (loss) on investment
securities, net of deferred tax - - - - (158) (158)
Net income - - - 146 - 146
--- ---- ------ ----- ----- ------
Balance, June 30, 1996 510 510 1,023 3,368 (305) 4,596
For the three months ended September 30, 1996 (Unaudited):
Unrealized gain (loss) on investment
securities, net of deferred tax - - - - 11 11
Net loss - - - (222) - (222)
--- ---- ------ ----- ----- ------
Balance, September 30, 1996 (Unaudited) 510 $510 $1,023 3,146 $(294) $4,385
=== ==== ====== ===== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited) Year Ended
Three Months Ended June 30,
September 30, -----------------
1996 1996 1995
------------------ ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ (222) $ 146 $ 293
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 21 76 64
Amortization and accretion 3 10 12
FHLB stock dividend (8) (29) (36)
Provision for loan losses 30 46 18
Gain (loss) on sales of mortgage-backed
securities - (33) 11
Gain (loss) on sales of investment securities - 12 86
Deferred income tax - 14 6
Changes in assets and liabilities:
Accrued interest receivable (51) (66) (3)
Prepaid expenses and other assets (302) (34) (42)
Accrued interest payable 415 11 31
Other liabilities 946 9 91
----- ----- -----
Net cash provided by (used in) operating
activities 832 162 531
----- ----- -----
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from redemption of capital stock-FHLB - - 259
Proceeds on maturities of investment
securities 386 1,053 4,771
Purchase of mortgage-backed securities - (3,536) -
Principal collected on mortgage-backed
securities 182 1,418 1,126
Proceeds on sales of mortgage-backed
securities - 6,025 2,524
Proceeds on sales of investment securities - 1,967 2,411
Purchased loans (129) - (4,333)
Net increase in loans, exclusive of loans
purchased (9,329) (15,113) (11,716)
Purchase of land (100) (75) -
Construction in progress (41) (157) -
Purchases of equipment - (48) (345)
Net cash provided by (used in) ----- ----- -----
investing activities (9,031) (8,466) (5,303)
----- ----- -----
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
(Unaudited) Year Ended
Three Months Ended June 30,
September 30, -----------------
1996 1996 1995
------------------ ---- ----
<S> <C> <C> <C>
(Dollars in thousands)
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings from FHLB 5,000 3,600 -
Repayments to FHLB - (2,600) -
Net increase in deposits 2,930 6,382 4,737
------ ------ ------
Net cash provided by (used in) financing activities 7,930 7,382 4,737
------ ------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (269) (922) (35)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 874 1,796 1,831
------ ------ ------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 605 $ 874 $ 1,796
====== ====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payment for:
Interest $ 498 $ 3,307 $ 2,414
====== ====== ======
Income taxes $ - $ 197 $ 69
====== ====== ======
Transfers from loans to real estate acquired
in settlement of loans $ - $ - $ -
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The accounting policies that affect the significant elements of the financial
statements are summarized below:
NATURE OF OPERATIONS: The Savings Bank provides a variety of financial
--------------------
services to individuals and corporate customers through its main office in
Middlesboro and its branch in Cumberland, Kentucky. The Savings Bank's
primary deposit products are interest-bearing checking accounts and
certificates of deposit. Its primary lending products are single-family
residential loans, consumer loans and share loans.
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.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the
allowances for losses on loans and foreclosed real estate, management
obtains independent appraisals for significant properties.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically
review the Savings Bank's allowances for losses on loans and foreclosed real
estate. Such agencies may require the Savings Bank's to recognize additions
to the allowances based on their judgements about information available to
them at the time of their examination. Because of these factors, it is
reasonably possible that the allowances for losses on loans and foreclosed
real estate may change materially in the near term.
CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, cash and cash
-------------------------
equivalents include cash and due from banks, interest bearing deposits
having maturities of 90 days or less with other financial institutions,
federal funds sold and money market mutual funds.
INVESTMENT SECURITIES: Investment securities that are held for short-term
---------------------
resale are classified as trading securities and carried at fair value. Debt
securities that management has the ability and intent to hold to maturity
are classified as held-to-maturity and carried at cost, adjusted for
amortization of premiums and accretion of discounts using methods
approximating the interest method. Other marketable securities are
classified as available-for-sale and are carried at fair value. Realized and
unrealized gains and losses on trading securities are included in net
income. Unrealized gains and losses on securities available-for-sale are
recognized as direct increases or decreases in stockholders' equity. Cost of
securities sold is recognized using the specific identification method.
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-----------------------------------------------------
MORTGAGE-BACKED SECURITIES: Mortgage-backed securities represent participating
--------------------------
interests in pools of long-term first mortgage loans originated and serviced
by issuers of the securities. Mortgage-backed securities are carried at
unpaid principal balances, adjusted for unamortized premiums and unearned
discounts. Premiums and discounts are amortized using methods approximating
the interest method over the remaining period to contractual maturity,
adjusted for anticipated prepayments. Management intends and has the ability
to hold such securities to maturity. Should any be sold, cost of securities
sold is determined using the specific identification method.
LOANS: Loans are stated at unpaid principal balances, less the allowance for
-----
loan losses and net deferred loan fees and unearned discounts.
Unearned discounts on installment loans are recognized as income over the
term of the loans using a method that approximates the interest method.
Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the lives of
the related loans using the interest method. Amortization of deferred loan
fees is discontinued when a loan is placed on nonaccrual status.
Loans are placed on nonaccrual when a loan is specifically determined to be
impaired or when principal or interest is delinquent for 90 days or more.
Any unpaid interest previously accrued on those loans is reversed from
income. Interest income generally is not recognized on specific impaired
loans unless the likelihood of further loss is remote. Interest payments
received on such loans are applied as a reduction of the loan principal
balance. Interest income or other nonaccrual loans is recognized only to the
extent of interest payments received.
The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the
loan portfolio. The amount of the allowance is based on management's
evaluation of the collectibility of the loan portfolio, including the nature
of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans, and economic conditions. Allowances for
impaired loans are generally determined based on collateral values or the
present value of estimated cash flows. The allowance is increased by a
provision for loan losses, which is charged to expense, and reduced by
charge-offs, net of recoveries.
REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS: Real estate acquired in
-------------------------------------------
settlement of loans is initially recorded at the lower of the loan balance
or the fair value of property acquired in settlement of loans by a charge to
the allowance for loan losses. Valuations are periodically performed by
management, and an allowance for losses is established by a charge to
operations if the carrying value of the property exceeds its fair value.
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
PREMISES AND EQUIPMENT: Premises and equipment are recorded at cost.
----------------------
Depreciation is provided by the straight-line method over the estimated
useful lives of the depreciable property. Estimated useful lives range from
10 to 40 years on office buildings and improvements and 3 to 5 years on
furniture, fixtures and equipment.
INCOME TAXES: Income taxes are provided for the tax effects of the
------------
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences between
the basis of available-for-sale securities, allowance for loan losses,
allowance for losses on foreclosed real estate, accumulated depreciation,
and accrued employee benefits for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
PENSION PLAN: The Savings Bank has a pension plan covering substantially all
------------
employees. It is the policy of the Savings Bank to fund the maximum amount
that can be deducted for federal income tax purposes but in amounts not less
than the minimum amounts required by law. A 401(K) plan was adopted July 1,
1996.
NET INCOME PER SHARE OF COMMON STOCK: Net income per share of common stock is
------------------------------------
computed by dividing net income by the weighted average number of shares of
common stock outstanding during the period.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS: In the ordinary course of business
---------------------------------------
the Savings Bank has entered into off-balance-sheet financial instruments
consisting of commitments to extend credit, commercial letters of credit and
standby letters of credit. Such financial instruments are recorded in the
financial statements when they become payable.
NOTE 2 - CASH AND CASH EQUIVALENTS
-------------------------
Cash and cash equivalents are summarized as follows:
<TABLE>
<CAPTION>
(Unaudited) June 30,
September 30, ---------------
1996 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Cash and due from banks $ 605 $ 874 $ 1,296
Federal funds sold - - 500
---- ---- ------
Total $ 605 $ 874 $ 1,796
==== ==== ======
</TABLE>
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3 - INVESTMENT SECURITIES
---------------------
The carrying value, unrealized gains (losses) and estimated market value of
investment securities held-to-maturity are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
September 30, 1996 (Unaudited)
- ------------------------------
Certificates of deposit $ 190 $ - $ - $ 190
U.S. League stock and other 63 - - 63
------ ------ ------ ------
$ 253 $ - $ - $ 253
====== ====== ====== ======
June 30, 1996
- -------------
Certificates of deposit $ 576 $ - $ - $ 576
U.S. League stock and other 63 - - 63
------ ------ ------ ------
$ 639 $ - $ - $ 639
====== ====== ====== ======
June 30, 1995
- -------------
U.S. Treasury and government agencies $ 3,940 $ - $ 165 $ 3,775
Certificates of deposit 1,626 - - 1,626
U.S. League stock and other 65 - - 65
------ ------ ------ ------
$ 5,631 $ - $ 165 $ 5,466
====== ====== ====== ======
The Savings Bank has the intent and ability to hold these securities to maturity.
The carrying value, unrealized gains (losses) and estimated market value of investment securities available-for-sale
are summarized as follows:
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
September 30, 1996 (Unaudited)
- ------------------------------
U.S. Treasury and government agencies $ 2,832 $ - $ 83 $ 2,749
Open-ended mutual fund 1,000 - 112 888
------ ------ ------ ------
$ 3,832 $ - $ 195 $ 3,637
====== ====== ====== ======
</TABLE>
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3 - INVESTMENT SECURITIES (CONTINUED)
---------------------------------
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
June 30, 1996
- -------------
U.S. Treasury and government agencies $ 2,853 $ 16 $ 74 $ 2,795
Open-ended mutual fund 1,000 - 115 885
------ ------ ------ ------
$ 3,853 $ 16 $ 189 $ 3,680
====== ====== ====== ======
June 30, 1995
- -------------
U.S. Treasury and government agencies $ 1,000 $ - $ 60 $ 940
Open-ended mutual fund 1,000 - 87 913
------ ------ ------ ------
$ 2,000 $ - $ 147 $ 1,853
====== ====== ====== ======
</TABLE>
The gross realized gains, losses and proceeds on sales of investment
securities are as follows:
<TABLE>
<CAPTION>
(Unaudited) June 30,
September 30, ------------------
1996 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Proceeds $ - $ 1,967 $ 2,411
====== ====== ======
Gross realized gains $ - $ 1 $ -
====== ====== ======
Gross realized losses $ - $ 13 $ 86
====== ====== ======
</TABLE>
The amortized cost and estimated market value of investment securities, by
contractual maturity, are as follows:
<TABLE>
<CAPTION>
(Unaudited)
September 30, 1996 June 30, 1996 June 30, 1995
----------------------- ----------------------- ---------------------
Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- --------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Due in one year or less $ 190 $ 190 $ 579 $ 579 $1,053 $1,053
Due after one year through five years 2,013 1,949 2,010 1,936 3,089 2,892
Due after five years through ten years - - - - 1,479 1,455
Due after ten years 832 813 853 869 960 956
------ ------ ------ ------ ------ ------
3,035 2,952 3,442 3,384 6,581 6,356
</TABLE>
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3 - INVESTMENT SECURITIES (CONTINUED)
---------------------------------
<TABLE>
<CAPTION>
(Unaudited)
September 30, 1996 June 30, 1996 June 30, 1995
----------------------- ----------------------- ---------------------
Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- --------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Open-ended mutual fund 1,000 888 1,000 885 1,000 913
U.S. League Stock 50 50 50 50 50 50
------ ------ ------ ------ ------ ------
Total investment securities $ 4,085 $ 3,890 $ 4,492 $ 4,319 $ 7,631 $ 7,319
====== ====== ====== ====== ====== ======
</TABLE>
There were no issues held at September 30, 1996, June 30, 1996 and 1995 that
exceeded 10% of stockholders' equity. There were no investment securities
pledged to secure public deposits or for any other purposes required by law.
NOTE 4 - MORTGAGE-BACKED SECURITIES
--------------------------
Mortgage-backed securities are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
September 30, 1996 (Unaudited)
- ------------------------------
GNMA $ 1,546 $ - $ 15 $ 1,531
FNMA 6,357 - 233 6,124
------- ------ ------ -------
$ 7,903 $ - $ 248 $ 7,655
======= ====== ====== =======
June 30, 1996
- -------------
GNMA $ 1,591 $ - $ 19 $ 1,572
FNMA 6,477 - 270 6,207
------- ------ ------ -------
$ 8,068 $ - $ 289 $ 7,779
======= ====== ====== =======
June 30, 1995
- -------------
GNMA $ 7,254 $ 63 $ 30 $ 7,287
FNMA 4,592 5 115 4,482
------- ------ ------ -------
$ 11,846 $ 68 $ 145 $ 11,769
======= ====== ====== =======
</TABLE>
The Savings Bank transferred all mortgage-backed securities to available-for-
sale during the fiscal year ended June 30, 1996.
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4 - MORTGAGE-BACKED SECURITIES (CONTINUED)
--------------------------------------
Mortgage-backed certificates represent participating interests in pools of
long-term first mortgage loans. Expected maturities differ from contractual
maturities because borrowers have the right to prepay obligations without
prepayment penalties.
The gross realized gains, losses and proceeds on sales of mortgage-backed
securities are as follows:
<TABLE>
<CAPTION>
(Unaudited) June 30,
September 30, ----------------
1996 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Proceeds $ - $ 6,025 $ 2,524
===== ====== ======
Gross realized gains $ - $ 37 $ 26
===== ====== ======
Gross realized losses $ - $ 5 $ 36
===== ====== ======
</TABLE>
NOTE 5 - LOANS
-----
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
(Unaudited) June 30,
September 30, ---------------
1996 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Real estate:
Loans on residential properties:
One to four units $ 43,711 $ 38,937 $ 32,778
More than four units 1,866 1,877 -
Loans on nonresidential properties 11,359 9,307 5,753
------- ------- -------
Total real estate loans 56,936 50,121 38,531
Construction 1,806 1,161 965
Commercial 4,497 3,432 888
Share 1,833 1,746 1,585
Consumer/credit cards 5,018 4,247 3,983
------- ------- -------
Total loans 70,090 60,707 45,952
Less:
Unearned discounts (524) (596) (940)
Allowance for loan losses (195) (180) (148)
------- ------- -------
Net loans $ 69,371 $ 59,931 $ 44,864
======= ======= =======
</TABLE>
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
NOTES TO THE FINANCIAL STATEMENTS
NOTE 5 - LOANS (CONTINUED)
----------------
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
(Unaudited) June 30,
September 30, --------------
1996 1996 1995
---- ---- ----
<S> <C> <C> <C>
(Dollars in thousands)
Balance, beginning of year $ 180 $ 148 $ 131
Provision for loan losses 30 58 18
Charge-offs (17) (36) (4)
Recoveries 2 10 3
----- ----- ----
Balance, end of year $ 195 $ 180 $ 148
===== ===== ====
</TABLE>
Non-accrual loans and their impact on interest income are as follows:
<TABLE>
<CAPTION>
(Unaudited) June 30,
September 30, --------------
1996 1996 1995
---- ---- ----
<S> <C> <C> <C>
(Dollars in thousands)
Non-accrual loans $ 433 $ 349 $ 135
==== ==== ====
Impact on interest income:
Interest income that would have been
recorded on non-accrual loans in
accordance with original terms $ 8 $ 6 $ -
==== ==== ====
Interest income actually received and
recorded during the period $ - $ 17 $ 20
==== ==== ====
</TABLE>
The Bank originates both adjustable and fixed rate real estate loans. The
composition of these loans was as follows:
Term to Maturity
<TABLE>
<CAPTION>
June 30,
--------------
1996 1995
---- ----
(Dollars in thousands)
Fixed Rate:
<S> <C> <C>
1 month - 1 year $ 282 $ 733
1 year - 3 years 267 371
3 years - 5 years 242 423
5 years - 10 years 1,159 1,750
10 years - 20 years 8,328 4,829
------ ------
Total $10,278 $ 8,106
====== ======
</TABLE>
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
NOTES TO THE FINANCIAL STATEMENTS
NOTE 5 - LOANS (CONTINUED)
-----------------
Term to Rate Adjustment
<TABLE>
<CAPTION>
June 30,
---------------
1996 1995
---- ----
(Dollars in thousands)
<S> <C> <C>
Adjustable Rate:
1 month - 1 year $ 100 $ 124
1 year - 3 years 116 101
3 years - 5 years 131 540
5 years - 10 years 1,927 2,009
10 years - 20 years 37,220 27,516
Non-performing 349 135
------- -------
Total $ 39,843 $ 30,425
======= =======
</TABLE>
The adjustable rate loans have interest rate adjustment limitations tied to
various indexes. Future market factors may affect the correlation of the
interest rate adjustment with the rates the Savings Bank pays on short-term
deposits which have primarily been utilized to fund these loans.
The Savings Bank is engaged principally in providing first mortgage loans
and accepting deposits. Substantially all of the Savings Bank's mortgage loan
portfolio at September 30, 1996, June 30, 1996 and 1995 represents loans to
borrowers in Southeastern Kentucky and Northeastern Tennessee. The Savings
Bank's policy is to make mortgage loans that generally do not exceed 80% of the
appraised value of the underlying property. The Savings Bank's loans on
nonresidential properties are collateralized by churches, hospitals and other
business properties.
Loans made to officers and directors of the Savings Bank and their interests
are presented below for the year ended June 30, 1996.
<TABLE>
<CAPTION>
Balance, Balance,
Beginning of Year New Loans Repayments End of Year
----------------- --------- ---------- -----------
<S> <C> <C> <C> <C>
1996 $ 445 $ 701 $ 176 $ 970
=== === === ===
</TABLE>
NOTE 6 - REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
-------------------------------------------
At September 30, 1996, June 30, 1996 and 1995, there was no real estate
acquired in settlement of loans.
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7 - ACCRUED INTEREST RECEIVABLE
---------------------------
Accrued interest receivable is comprised of the following:
<TABLE>
<CAPTION>
(Unaudited) June 30,
September 30, ----------------
1996 1996 1995
---- ---- ----
<S> <C> <C> <C>
(Dollars in thousands)
Investment securities $ 30 $ 27 $ 101
Mortgage-backed securities 41 41 63
Loans 292 244 83
---- ---- ----
Total $ 363 $ 312 $ 247
==== ==== ====
<CAPTION>
NOTE 8 - PREMISES AND EQUIPMENT
----------------------
Premises and equipment is comprised of the following:
(Unaudited) June 30,
September 30, ----------------
1996 1996 1995
---- ---- ----
<S> <C> <C> <C>
(Dollars in thousands)
Land $ 255 $ 155 $ 80
Office buildings and improvements 470 470 470
Furniture, fixtures and equipment 711 711 664
Construction in progress 199 158 -
----- ---- ----
Total premises and equipment 1,635 1,494 1,214
Less accumulated depreciation 618 599 523
----- ---- ----
Net premises and equipment $ 1,017 $ 895 $ 691
===== ==== ====
</TABLE>
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
NOTES TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NOTE 9 - DEPOSITS
--------
Deposits are summarized as follows:
Weighted
Average Amount Percent
-------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C>
September 30.1996 (Unaudited)
- -----------------------------
Balance by interest rate:
Transaction accounts:
Demand and NOW checking (including non-interest
bearing deposits of $2,069 million) 2.02% $ 9,178 12.77%
Savings 2.95% 8,780 12.21
Money market 3.04% 451 .63
------ -------
Total transaction accounts 18,409 25.61
------ -------
Certificates of deposit accounts:
5.01% - 7.00% 53,497 74.39
------ -------
Total certificates of deposit accounts 5.72% 53,497 74.39
------ -------
Total $71,906 100.00%
====== =======
Weighted average annual interest rate on total deposits 4.85%
=======
June 30, 1996
- -------------
Balance by interest rate:
Transaction accounts:
Demand and NOW checking (including non-interest
bearing deposits of $1,377 million)
Savings 2.29% $ 8,712 12.63 %
Money market 2.95% 9,146 13.26
Total transaction accounts 3.00% 511 .74
------- ------
18,369 26.63
------- ------
Certificates of deposit accounts:
3.01% - 5.00% 7,857 11.39
5.01% - 7.00% 42,750 61.98
------- ------
Total certificates of deposit accounts 5.68% 50,607 73.37
------- ------
Total $68,976 100.00%
======= ======
Weighted average annual interest rate on total deposits 4.84%
======
</TABLE>
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9 - DEPOSITS (CONTINUED)
--------------------
<TABLE>
<CAPTION>
Weighted
Average Amount Percent
------- ------ -------
(Dollars in thousands)
June 30, 1995
- -------------
<S> <C> <C> <C>
Balance by interest rate:
Transaction accounts:
Demand and NOW checking (including non-interest
bearing deposits of $938 million) 2.30% $ 6,707 10.72%
Savings 2.75% 9,747 15.57
Money market 2.99% 440 .70
------- ------ -------
Total transaction accounts 16,894 26.99
------ -------
Certificates of deposit accounts:
3.01% - 5.00% 4,860 7.76
5.01% - 7.00% 40,707 65.03
7.01% - 9.00% 134 .22
------ -------
Total certificates of deposit accounts 4.50% 45,701 73.01
------ -------
Total $62,595 100.00%
====== =======
Weighted average annual interest rate on total deposits 3.96%
=======
Remaining contractual maturity of certificates of deposit accounts:
(Unaudited)
September 30, 1996 June 30, 1996 June 30, 1995
------------------ ------------- --------------
(Dollars in thousands)
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Under one year $ 39,049 72.99% $35,575 70.30% $25,781 56.41%
One to two years 10,196 19.06 10,930 21.60 14,647 32.05
Two to three years 2,413 4.51 1,640 3.24 2,374 5.19
Three to four years 1,242 2.32 1,809 3.58 1,893 4.15
Four to six years 497 .93 557 1.10 1,006 2.20
Over six years 100 .19 96 .18 - -
------ ------- ------ ------- ------ -------
Total $ 53,497 100.00% $50,607 100.00% $45,701 100.00%
====== ======= ====== ======= ====== =======
</TABLE>
The aggregate amount of short-term jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $8,412 million, $5,153 million and
$3,683 million at September 30, 1996, June 30, 1996 and 1995, respectively.
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9 - DEPOSITS (CONTINUED)
-------------------
Interest expense on deposits consists of the following:
<TABLE>
<CAPTION>
(Unaudited)
September 30, June 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
NOW checking and money market $ 51 $ 44 $ 194 $ 160
Savings 65 70 270 268
Certificates of deposit 747 689 2,836 2,007
--- --- ----- -----
Total $ 863 $ 803 $3,300 $2,435
=== === ===== =====
</TABLE>
NOTE 10 - FEDERAL INCOME TAXES
--------------------
Net deferred tax assets (liabilities) consist of the following components:
<TABLE>
<CAPTION>
(Unaudited) June 30,
September 30, ----------------
1996 1995 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation $(57) $(57) $(46)
---- ---- ----
Deferred tax assets:
Allowance for loan loss 14 14 10
Stock options 6 6 11
Deferred compensation 48 48 -
--- --- ---
68 68 21
--- --- ---
Total $ 11 $ 11 $(25)
=== === ===
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(Unaudited)
September 30, June 30,
--------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Current tax expense (benefit) $ (97) $ 10 $ 98 $ 131
Deferred tax expense - - 15 20
---- ---- ---- ----
$ (97) $ 10 $ 113 $ 151
==== ==== ==== ====
</TABLE>
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10 - FEDERAL INCOME TAXES (CONTINUED)
-------------------------------
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income for the year ended
June 30, 1996 due to the following:
<TABLE>
<S> <C>
Statutory corporate rate 34.0%
Nondeductible expenses 2.0
Other timing differences 17.0
Nontaxable income (9.1)
----
Effective tax rate 43.9%
====
</TABLE>
NOTE 11 - FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 (FDICIA)
----------------------------------------------------------------------
AND FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT OF
------------------------------------------------------------------
1989 (FIRREA)
-------------
FDICIA was signed into law on December 19, 1991. Regulations implementing the
prompt corrective action provisions of FDICIA became effective on December 19,
1992. In addition to the prompt corrective action requirements, FDICIA includes
significant changes to the legal and regulatory environment for insured
depository institutions, including reductions in insurance coverage for certain
kinds of deposits, increased supervision by the federal regulatory agencies,
increased reporting requirements for insured institutions, and new regulations
concerning internal controls, accounting and operations.
The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in declining
order, are "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized."
Institutions categorized as "undercapitalized" or worse are subject to certain
restrictions, including the requirement to file a capital plan with their
primary federal regulator, prohibitions on the payment of dividends and
management fees, restrictions on executive compensation, and increased
supervisory monitoring, among other things. Other restrictions may be imposed on
the institution either by its primary federal regulator, the Office of Thrift
Supervision (OTS), or by the Federal Deposit Insurance Corporation (FDIC),
including requirements to raise additional capital, sell assets, or sell the
entire institution. Once an institution becomes "critically undercapitalized,"
it must generally be placed in receivership or conservatorship within 90 days.
FIRREA was signed into law August 9, 1989; regulations for savings
institutions' minimum capital requirements went into effect on December 7, 1989.
In addition to its capital requirements, FIRREA includes provisions for changes
in the federal regulatory structure for institutions, including a new deposit
insurance system, increased deposit insurance premiums, and restricted
investment activities with respect to noninvestment grade corporate debt and
certain other investments. FIRREA also increases the required ratio of housing-
related assets in order to qualify as a savings institution.
The regulations require institutions to have a minimum regulatory tangible
capital equal to 1.5% of adjusted total assets, a minimum 3% core capital ratio
and a minimum 8% total risk-based capital ratio to be considered "adequately
capitalized." An institution is deemed to be "critically undercapitalized" if it
has a tangible equity ratio of 2% or less.
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
NOTES TO THE FINANCIAL STATEMENTS
NOTE 11 - FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
-------------------------------------------------------------
(FDICIA) AND FINANCIAL INSTITUTIONS REFORM, RECOVERY AND
--------------------------------------------------------
ENFORCEMENT ACT OF 1989 (FIRREA)
--------------------------------
The following table sets out the Savings Bank's various regulatory capital
categories:
<TABLE>
<CAPTION>
(Unaudited)
September 30, 1996 June 30, 1996 June 30, 1995
------------------ ------------- -------------
Dollars Percentage Dollars Percentage Dollars Percentage
------- ---------- ------- ---------- ------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $ 4,678 5.56% $ 4,901 6.53% $ 4,668 6.92%
Core capital 4,678 5.56% 4,901 6.53% 4,668 6.92%
Total risk-based capital 4,873 9.44% 5,081 11.62% 4,802 12.83%
</TABLE>
NOTE 12 - REGULATORY CAPITAL
------------------
The following is a reconciliation of generally accepted accounting principles
(GAAP) net income and capital to regulatory capital for the Savings Bank. The
following reconciliation also compares the capital requirements as computed to
the minimum capital requirements for the Savings Bank.
<TABLE>
<CAPTION>
Net income
year ended Capital as Total
June 30, of June Tangible Core Risk-based
1996 30, 1996 Capital Capital Capital
--------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Per GAAP $ 146 $ 4,596 $ 4,901 $ 4,901 $ 4,901
==== ======
General valuation allowance - - 180
------ ------ ------
Regulatory capital measure $ 4,901 $ 4,901 $ 5,081
====== ====== ======
Total assets $74,698
======
Adjusted total assets $75,003 $75,003
====== ======
Risk-weighted assets $43,743
======
Capital ratio 6.15% 6.53% 6.53% 11.62%
==== ==== ==== =====
Regulatory capital category:
Well capitalized if equal
to or greater than 1.50% 3.00% 8.00%
==== ==== ====
</TABLE>
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13 - RETIREMENT PLAN
---------------
The Savings Bank was a participant in the Financial Institutions Retirement
Fund, a multi-employer defined benefit pension plan covering substantially all
full-time employees who have completed one year of continuous service.
Retirement expense was $45,000 and $51,000 for the years ended June 30, 1996 and
1995, respectively.
NOTE 14- COMMITMENTS AND CONTINGENCIES
-----------------------------
In the normal course of business, the Savings Bank has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying financial statements.
The Savings Bank had outstanding commitments, at June 30, 1996, to originate
loans as follows (Dollars in thousands):
<TABLE>
<S> <C>
Mortgage-one to four residential $365
Other real estate 79
Purchased loans 246
---
$690
===
</TABLE>
Commitments under standby letters of credit totalled approximately $326,000 at
June 30, 1996. Unused lines of credit totalled approximately $1,274,000 at June
30, 1996.
NOTE 15 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
-------------------------------------------------
The Savings Bank is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
standby letters of credit. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amounts recognized in
the statements of financial condition.
The Savings Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instruments for commitments to extend credit
and standby letters of credit is represented by the contractual notional amount
of those instruments. The Savings 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 not 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. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Savings Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount and type of collateral
obtained, if deemed necessary by the Savings Bank upon extension of credit,
varies and is based on management's credit evaluation of the counterparty.
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
-------------------------------------------------------------
Standby letters of credit are conditional commitments issued by the Savings
Bank to guarantee the performance of a customer to a third party. Standby
letters of credit generally have fixed expiration dates or other termination
clauses involved in extending loan facilities to customers. The Savings Bank's
policy for obtaining collateral, and the nature of such collateral, is
essentially the same as that involved in making commitments to extend credit.
NOTE 16 - LEASED FACILITIES
-----------------
The Bank has a noncancelable operating lease agreement for its branch. Rent of
$13,000 and $24,000 was expensed for the year ended June 30, 1996 and 1995,
respectively. Minimum rental commitments under this lease, as of June 30, 1996
is as follows:
<TABLE>
<S> <C>
1997 $ 13
1998 11
---
Total $ 24
===
</TABLE>
NOTE 17 - CASH RESTRICTIONS
-----------------
The average required reserve balance at June 30, 1996 and 1995 was none.
NOTE 18 - ADVANCES FROM FHLB
------------------
At June 30, 1996, the Savings Bank has an outstanding advance from the Federal
Home Loan Bank of $1,000,000. The advance bears interest at a rate of 5.8% and
matures on September 26, 1996.
NOTE 19 - DEFERRED COMPENSATION
---------------------
The Savings Bank has an unfunded deferred compensation agreement with a former
officer that provides additional benefits upon retirement. The plan will pay
Wilbur P. Creswell, Jr. $1,000 per month for fifteen years from the date of his
retirement, which was December 31, 1993. If Mr. Creswell does not live to
receive all of his deferred compensation, the unpaid balance at the time of his
death shall be forfeited. Mr. Creswell is required to perform various future
services under this agreement for the fifteen year term. A life insurance policy
has been purchased on Mr. Creswell to reimburse the Savings Bank for the net
cost of the deferred compensation. The amount expensed under this agreement at
June 30, 1996 and 1995 was $12,000.
In connection with a deferred compensation agreement between the Savings Bank
and George Cawood, provision has been made for the future compensation which is
payable over the next twenty years. At June 30, 1996, $143,000 has been accrued
under this contract and this liability and the related deferred tax asset of
$49,000 are recognized in the financial statements. The Savings Bank is the
owner and beneficiary of a life insurance policy aggregating $200,000 on the
life of this employee. The policy had an aggregate cash surrender value of
$1,100 at June 30, 1996.
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20 - MUTUAL HOLDING COMPANY
----------------------
On June 3, 1993, the Board of Directors of the Savings Bank adopted the Plan
of Reorganization and Stock Issuance in connection with formation of a Mutual
Holding Company, (the "Plan of Reorganization"). Under the Plan of
Reorganization, the Savings Bank reorganized from a federally chartered mutual
savings association into a mutual holding company (the "MHC") pursuant to the
laws of the United States of America and proposed regulations of the OTS. The
MHC is a federal mutual corporation chartered and regulated by the OTS. As part
of the reorganization into the MHC, the Savings Bank transferred substantially
all of its assets and all of its liabilities, except for $50,000 and its
subsidiaries, to a federally chartered capital stock savings bank (the "New
Savings Bank"). However, the New Savings Bank is a majority-owned subsidiary of
the MHC at all times so long as the MHC remains in existence. Immediately after
consummation of the reorganization, the MHC has not engaged in any business
activity other than to hold the outstanding stock of the New Savings Bank and
the stock of the subsidiaries.
The OTS has adopted a rule that limits capital distributions by savings
associations, such as cash dividends, payments to repurchase or otherwise
acquire a savings association's shares, payments to stockholders of another
savings association in a cash-out merger and other distributions charged against
capital. The rule established three tiers of associations (Tier I being the most
favorable; and Tier 3, the least favorable), with the most flexibility afforded
to well capitalized associations. The Savings Bank is rated a Tier I association
under these rules. These limitations may affect the amount of cash dividends
that the Savings Bank will be able to pay.
NOTE 21 - STOCK OPTION PLAN
-----------------
The Savings Bank has adopted a qualified stock option plan with 18,000 shares
of common stock reserved for the grant of options to all employees and
directors. Option prices will be the fair market value of the common stock on
the date the options are granted except for any employee or director who owns
more than 10% of the outstanding common stock at the time the option is granted.
The option price for these individuals is 110% of the fair market value. As of
June 30, 1996, none of the options had been granted. These options were not
included in computing the earnings per common share because their inclusion
would have an antidilutive effect.
NOTE 22- MANAGEMENT RECOGNITION PLAN AND TRUST
-------------------------------------
The Savings Bank has established the MRP as a method of providing directors,
officers and other key employees of the Savings Bank with a proprietary interest
in the Savings Bank in a manner designed to encourage such persons to remain
with the Savings Bank. The Savings Bank contributed funds to the MRP to enable
it to acquire 5,400 shares of common stock issued in the Offering.
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
NOTES TO THE FINANCIAL STATEMENTS
NOTE 22 - MANAGEMENT RECOGNITION PLAN AND TRUST (CONTINUED)
-------------------------------------------------
A committee of the outside directors are administrating the trust and may make
awards to officers, however, awards to outside directors are fixed under the
MRP. Under the MRP, awards are granted to directors and officers in the form of
shares of common stock to be held in trust under the MRP. Awards are
nontransferable and nonassignable. Participants were granted awards at the time
of the completion of the reorganization which will vest on a five-year schedule
at a rate of 20% per year. The Committee may provide for a less or more rapid
vesting with respect to awards granted under the MRP. Awards will be 100% vested
upon termination of employment due to death, disability, retirement at age 70 or
following a change in control of the Savings Bank or the MHC. A change in
control is defined in the MRP generally to mean a change in control of the MHC
or the Savings Bank, including a change in the composition of the Board of
Directors of the MHC whereby those individuals who constitute the Board on the
effective date of the MRP cease for any reason to constitute a majority thereof,
or a merger or other form of acquisition of the MHC or the Savings Bank whereby
the Savings Bank or the MHC is not the resulting entity. In the event that an
employee terminates employment or a director ceases to serve with the Savings
Bank for any reason other than death, disability, retirement or following a
change in control of the Savings Bank, the employee's or director's nonvested
awards will be forfeited. When shares become vested in accordance with the MRP,
the participants will recognize income equal to the fair market value of the
common stock at that time. The amount of income recognized by the participants
will be a deductible expense for tax purposes for the Savings Bank. When shares
become vested and are actually distributed in accordance with the MRP, the
participants will also receive amounts equal to any accrued dividends with
respect thereto. Prior to vesting, recipients of awards may direct the voting of
the shares allocated to them. Unallocated shares will be voted by the MRP
trustees. Earned shares are distributed to recipients as soon as practicable
following the day on which they are earned.
In order to supplement the MRP for future awards, the MRP may either purchase
authorized but unissued shares of common stock from the Savings Bank or purchase
such shares in the open market subject to the approval of the OTS, if necessary.
In the event that additional authorized but unissued shares are acquired by the
MRP after the Offering, the interests of existing stockholders will be diluted.
At June 30, 1996, options representing 5,400 shares have been exercised, of
which 3,680 shares have been issued as fully vested shares.
NOTE 23 - FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The estimated fair value of the Savings Bank's financial instruments are as
follows:
<TABLE>
<CAPTION>
1996
----------------------
Carrying Fair
Amount Value
-------- -----
(Dollars in thousands)
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 874 $ 874
Investment securities 12,098 12,098
Loans, net of allowance 59,931 52,233
</TABLE>
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
Middlesboro, Kentucky
NOTES TO THE FINANCIAL STATEMENTS
NOTE 23 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
-----------------------------------------------
<TABLE>
<CAPTION>
1996
------------------------
Carrying Fair
Amount Value
---------- ----------
(Dollars in thousands)
<S> <C> <C>
Investment in capital stock of Federal Home Loan Bank (FHLB) 436 436
Accrued interest receivable 312 312
Financial liabilities:
Deposits 68,976 68,976
Advances from FHLB 1,000 1,000
Accrued interest payable 107 107
Other liabilities-derivatives:
Deferred fees on commitments to extend credit - -
</TABLE>
The carrying amounts in the preceding table are included in the statement of
financial condition under the applicable captions.
<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
Page
----
Summary...............................................
Selected Financial and Other Data.....................
Risk Factors..........................................
Cumberland Mountain Bancshares, Inc...................
Cumberland Mountain Bancshares, M.H.C.................
Middlesboro Federal Bank, Federal Savings Bank........
Use of Proceeds.......................................
Dividend Policy.......................................
Market for the Common Stock...........................
Capitalization........................................
Regulatory Capital....................................
Pro Forma Data........................................
Middlesboro Federal Bank, Federal Savings Bank
Statements of Income................................
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................................
Beneficial Ownership of Capital Stock.................
The Conversion and Reorganization.....................
Comparison of Stockholders' Rights....................
Restrictions on Acquisition of the Company............
Description of Capital Stock of the Company...........
Experts...............................................
Legal Matters.........................................
Additional Information................................
Index to Financial Statements.........................
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.
CUMBERLAND MOUNTAIN
BANCSHARES, INC.
(Holding Company for
MIDDLESBORO FEDERAL BANK,
FEDERAL SAVINGS BANK)
Up to _________ Shares
COMMON STOCK
------------
PROSPECTUS
------------
TRIDENT SECURITIES, INC.
____________, 1997
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The directors and officers of the Company are entitled to
indemnification in certain circumstances. Such indemnification arises from
Article XIII of the Company's Charter, separate indemnification agreements
entered into between the Company and the Bank and the directors, and the
Tennessee Business Corporation Act. In addition, the Bank currently maintains a
directors and officers liability policy to which the Company will become party.
These provisions and contracts are described briefly below.
Article XIII of the Charter
Article XIII of the Company's Charter provides that directors,
officers, employees and agents may be indemnified in certain circumstances
against liability which they may incur in their capacities. Article XIII
requires that the Company indemnify any director who is made a party to any
threatened, pending, or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative ("proceeding"), because he is or was
a director against liability incurred in such proceeding as long as he conducted
himself in good faith, he reasonably believed, (i) in the case of conduct in his
official capacity with the Company, that his conduct was in the Company's best
interests and (ii) in all other cases, that his conduct was at least not opposed
to its best interests; and, in the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful. The Company must also
indemnify any director and any officer who is not a director if he was wholly
successful, on the merits or otherwise, in the defense of any proceedings to
which he was a party because he is or was a director or officer of the Company
against reasonable expenses incurred by him in connection with the proceeding.
However, the Company may not indemnify a director in connection with a
proceeding by or in the right of the Company in which the director was adjudged
liable to the Company or in connection with any other proceeding charging
improper personal benefit to him, whether or not involving action in his
official capacity, in which he was adjudged liable on the basis that personal
benefit was improperly received by him.
Article XIII permits the Company to pay the reasonable expenses
incurred by a director who is a party to a proceeding in advance of final
disposition of the proceeding as long as: (1) the director furnishes the Company
a written affirmation of his good faith belief that he has met the requisite
standard of conduct; (2) he provides the Company with a written undertaking to
repay such amounts if it is ultimately determined that he is not entitled to
indemnification; and (3) a determination is made based on the facts then known,
that indemnification is permissible.
The Company may not indemnify a director unless authorized in the
specific case after a determination has been made that indemnification of the
director is permissible in the circumstances because he has met the required
standards. The determination must be made: (1) by the board of directors by
majority vote of a quorum consisting of directors not at the time parties to the
proceeding; (2) if a quorum cannot be obtained, by majority vote of a committee
duly designated by the board of directors (in which designation directors who
are parties may participate), consisting solely of two or more directors not at
the time parties to the proceeding; (3) by independent special legal counsel; or
(4) by the shareholders, but shares owned by or voted under the control of
directors who are at the time parties to the proceeding may not be voted on the
determination.
The Company may indemnify and advance expenses to an officer, employee
or agent of the Company who is not a director to the same extent as a director.
Indemnification Agreements
The Company and the Bank also intend to enter into written
indemnification agreements (the "Indemnification Agreements") with each director
of the Company and the Bank pursuant to which the Company and the Bank will
indemnify such individuals against any and all expenses incurred by such
individuals in connection
II-1
<PAGE>
with any proceeding of any type to which such individual is made or threatened
to be made a party, as a result of or in connection with any action or inaction
on the part of a director while the director was or is a director or while the
director was or is serving at the request of the Company or the Bank as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise. Expenses covered by
such agreements include, without limitation, any judgment, amounts paid in
settlement of a proceeding, reasonable attorney's fees actually paid and
incurred in connection with a proceeding and reasonable attorneys's fees, costs
and expenses, if any, actually paid or incurred in connection with a proceeding
to enforce his rights under the Indemnification Agreement. The Indemnification
Agreements also provide for the prompt advancement of expenses to the director
in connection with investigating, defending or being a witness in any
proceeding. The Indemnification Agreements further provide a mechanism through
which a director may seek court relief in the event that the Company's or the
Bank's Board of Directors (or other person appointed by the Board) determines
that the directors would not be permitted to be indemnified under applicable
law.
Notwithstanding the foregoing, no indemnification may be made under the
Indemnification Agreements for any of the following: (i) any act or omission for
which the Bank is prohibited to provide indemnification under federal law; (ii)
to the extent indemnification is prohibited by applicable regulation or order
properly issued by the FDIC or OTS under Section 18(k) of the Federal Deposit
Insurance Act; (iii) to the extent either the Bank or the Company has received a
written objection from the OTS to indemnification of the director, which written
objection is authorized by applicable law, regulation or order relating
specifically to indemnification, until such time as it is permitted by the OTS;
(iv) for any proceeding for which the director is adjudged in a proceeding to be
liable to the Bank or the Company in the performance of his duty to the Bank,
the Company or their stockholders unless, and only to the extent that, the court
in which such proceeding is or was pending determines that, in view of the
circumstances, the director is fairly and reasonably entitled to indemnity; (v)
proceedings or claims initiated or brought voluntarily by the director and not
by way of defense, except with respect to proceedings brought to establish or
enforce a right to indemnification under the Indemnification Agreement or any
other statute or law unless otherwise determined by the Board of Directors; and
(vi) any amounts which have been paid directly to the director by an insurance
carrier under a policy of directors' liability insurance maintained by the Bank
or the Company.
Tennessee Business Corporation Act
The Tennessee Business Corporation Act requires Tennessee corporations
such as the Company to indemnify a director who was wholly successful, on the
merits or otherwise, in the defense of any proceeding to which he was a party
because he is or was a directors of the corporation against reasonable expenses
incurred by him, unless the corporation's charter provides otherwise. The
Tennessee Business Corporation Act also generally permits Tennessee corporations
to indemnify directors and officers in the same manner as Article XIII of the
Company's Charter provides. In no event, however, may a Tennessee corporation
indemnify a director if a judgment or other final adjudication adverse to the
director establishes his liability: (i) for any breach of the duty of loyalty to
the corporation or its stockholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law; or
(iii) for the approval of unlawful distributions.
Directors and Officers Liability Insurance
Pursuant to its Charter and Tennessee law, the Company is permitted to
purchase and maintain insurance on behalf of an individual who is or was a
director, officer, employee, or agent of the Company. The Bank currently
maintains such a policy and it is intended that the Company will become a party
to such policy.
II-2
<PAGE>
Item 25. Other Expenses of Issuance and Distribution
<TABLE>
<S> <C>
Underwriting Fees and Expenses...................... $ 100,000
Legal Fees and Expenses............................. 110,000
Printing, Postage and Mailing....................... 50,000
Accounting Fees and Expenses........................ 18,000
Appraisal and Business Plan Fees and Expenses....... 25,000
Blue Sky Filing Fees and Expenses
(including legal counsel)......................... 10,000
Federal Filing Fees (OTS and SEC)................... 10,459
Conversion Agent Fees............................... 6,000
Stock Transfer Agent fees and certificates.......... 3,000
Other Expenses...................................... 17,541
----------
Total........................................... $ 350,000
==========
</TABLE>
Item 26. Recent Sales of Unregistered Securities.
Not applicable.
Item 27. Exhibits:
The exhibits schedules filed as a part of this registration statement
are as follows:
* 1.1 Form of Agency Agreement with Trident Securities, Inc.
2 Plan of Conversion and Agreement and Plan of Reorganization
(Exhibit A to Proxy Statement filed as Exhibit 99.2)
3.1 Charter of Cumberland Mountain Bancshares, Inc.
3.2 Bylaws of Cumberland Mountain Bancshares, Inc.
4 Form of Common Stock Certificate of Cumberland Mountain
Bancshares, Inc.
5 Opinion of Housley Kantarian & Bronstein, P.C. regarding legality
of securities being registered
8.1 Form of Federal Tax Opinion of Housley Kantarian & Bronstein, P.C.
8.2 Form of State Tax Opinion
8.3 Opinion of RP Financial, LC. as to the value of subscription
rights for tax purposes
10.1 Employment Agreement between Middlesboro Federal Bank, Federal
Savings Bank and James J. Shoffner and amendment
10.2 Middlesboro Federal Bank, FSB 1993 Stock Option Plan
II-3
<PAGE>
10.3 Middlesboro Federal Bank, FSB 1993 Management Recognition and
Retention Plan (As Amended and Restated)
10.4 Middlesboro Federal Bank, Federal Savings Bank Retirement Plan for
Non-Employee Directors
10.5 Middlesboro Federal Bank, FSB Incentive Compensation Plan
10.6 Cumberland Mountain Bancshares, Inc. 1997 Stock Option and
Incentive Plan
10.7 Cumberland Mountain Bancshares, Inc. Management Recognition Plan
10.8 Form of indemnification agreements with directors
23.1 Consent of Marr, Miller & Myers, PSC
23.2 Consent of Housley Kantarian & Bronstein, P.C. (in opinion filed
as Exhibit 5)
23.3 Consent of Robert L. Brown III, Esq.
23.4 Consent of RP Financial, LC.
24 Power of Attorney (reference is made to the signature page)
27 Financial Data Schedule
99.1 Proxy statement and form of proxy for solicitation of stockholders
of Middlesboro Federal Bank, Federal Savings Bank
99.2 Proxy Statement and form of proxy for solicitation of members of
Cumberland Mountain Bancshares, M.H.C.
99.3 Appraisal Report
99.4 Proposed Stock Order Form and Form of Certification
* 99.5 Miscellaneous Marketing Materials
- -----------------
* To be filed by amendment.
Item 28. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act, and is therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Middlesboro, Commonwealth of Kentucky, on December 20, 1996.
CUMBERLAND MOUNTAIN BANCSHARES, INC.
By: /s/ J. Roy Shoffner
---------------------------------
J. Roy Shoffner
Chairman of the Board and Chief Executive Officer
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned Directors of Cumberland Mountain Bancshares, Inc.,
hereby severally constitute and appoint J. Roy Shoffner and James J. Shoffner,
either of whom may act, 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 J. Roy Shoffner and James J. Shoffner, either of whom
may act, may deem necessary or advisable to enable Cumberland Mountain
Bancshares, 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 Cumberland Mountain Bancshares, 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 J. Roy Shoffner and
James J. Shoffner shall do or cause to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ J. Roy Shoffner Chairman of the Board and December 20, 1996
- ---------------------------------- Chief Executive Officer
J. Roy Shoffner (Principal Executive Officer)
/s/ James J. Shoffner President and Chief Managing Officer December 20, 1996
- ---------------------------------- Director
James J. Shoffner
/s/ Robert R. Long Vice Chairman; Director December 20, 1996
- ----------------------------------
Robert R. Long
/s/ Reecie Stagnolia, Jr. Vice President; Branch Manager; December 20, 1996
- ---------------------------------- Director
Reecie Stagnolia, Jr.
/s/ Raymond C. Walker Director December 20, 1996
- ----------------------------------
Raymond C. Walker
/s/ J. D. Howard Vice President; Chief Financial December 20, 1996
- ---------------------------------- Officer; Corporate Secretary
J. D. Howard (Principal Financial and
Accounting Officer)
</TABLE>
<PAGE>
EXHIBIT 3.1
CHARTER
OF
CUMBERLAND MOUNTAIN BANCSHARES, INC.
ARTICLE I
Corporate Name
The name of the corporation is Cumberland Mountain Bancshares, Inc. (the
"Corporation").
ARTICLE II
Registered Office and Agent
The street address and zip code of the Corporation's registered office are
Gresham & Hogan, Andrew Johnson Office Plaza, 912 South Gay Street, Suite 210,
Knoxville, Tennessee 37902. The Corporation's registered office is located in
Knox County. The name of the Corporation's initial registered agent at its
registered office is Howard Hogan.
ARTICLE III
Principal Office
The street address and zip code of the Corporation's principal office are
1431 Cumberland Avenue, Middlesboro, Kentucky 40965.
ARTICLE IV
Purpose and Powers
The purpose or purposes for which the Corporation is organized are to
engage in any lawful business for which corporations may be incorporated
pursuant to the laws of Tennessee. The Corporation shall have all the powers of
a corporation organized under such laws. The Corporation is for profit.
ARTICLE V
Capital Stock
The total number of shares of all classes of capital stock which the
Corporation has authority to issue is 10,000,000, of which 8,000,000 shares
shall be common stock, par value $.01 per share, and of which 2,000,000
-1-
<PAGE>
shares shall be preferred stock, par value $.01 per share. The shares may be
issued from time to time as authorized by the board of directors without the
approval of the Corporation's shareholders except as otherwise provided in this
Article V. 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 per share.
The consideration for the shares, other than cash, shall be determined by the
board of directors in accordance with the provisions of the Tennessee Business
Corporation Act. 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, that part
of the surplus of the Corporation which is transferred to stated capital upon
the issuance of shares as a share dividend shall be deemed to be the
consideration for their issuance.
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 of and series
(if any) of capital stock, and the qualifications, limitations or restrictions
thereof, are as follows:
(A) Except as provided in this Article V (or in any amendments thereto) the
holders of common stock shall exclusively possess all voting power. Each holder
of shares of common stock shall be entitled to one vote for each share held by
such holder.
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 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.
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
preferences 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.
(B) The board of directors of the Corporation is authorized to amend this
Charter, by adoption of articles of amendment effective without shareholder
approval, to provide for the issuance of serial preferred stock in series and to
fix the preferences, limitations and relative rights of each such series,
including, but not limited to, determination of any of the following:
(1) the distinctive designation for each series and the number of
shares constituting such series;
(2) the voting rights, full, conditional or limited, of shares of such
series;
(3) 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;
(4) 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;
-2-
<PAGE>
(5) the amount(s) 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
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;
(7) whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of 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(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;
(8) the price or other consideration for which the shares of such
series shall be issued;
(9) whether the shares of such series that 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; and
(10) any other designations, preferences, limitations or rights that
are now or hereafter permitted by applicable law and are not inconsistent
with the provisions of this Charter.
Each share of each series of serial preferred stock shall have the same
preferences and relative rights as, and be identical in all respects with, all
other shares of the same series.
ARTICLE VI
Preemptive Rights
No shareholder of the Corporation shall have, as a matter of right, the
preemptive right to purchase or subscribe for shares of any class, now or
hereafter authorized, or to purchase or subscribe for securities or other
obligations convertible into or exchangeable for such shares or which by
warrants or otherwise entitle the holders thereof to subscribe for or purchase
any such shares.
ARTICLE VII
Acquisition 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 shareholders,
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.
-3-
<PAGE>
ARTICLE VIII
Shareholder Meetings; Cumulative Voting
(A) A majority of the outstanding shares of the Corporation entitled to
vote, represented in person or by proxy, shall constitute a quorum at a meeting
of shareholders. Where voting is by voting group, a majority of the votes
entitled to be cast on any matter by each voting group constitutes a quorum of
each such voting group for action on that matter. If less than a majority of
such shares is represented at a meeting, a majority of the shares so represented
may adjourn the meeting from time to time without further notice. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to constitute less than a quorum.
(B) Special meetings of shareholders may be called at any time, but only by
the board of directors or a committee of the board of directors that has been
duly designated by the board of directors.
(C) There shall be no cumulative voting by shareholders of any class or
series in the election of directors of the Corporation.
ARTICLE IX
Directors
The number of directors of the Corporation shall be such number, neither
fewer than three 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 or in accordance with 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
only by a vote of at least 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 next meeting of shareholders at which directors are elected.
At the first meeting of shareholders of the Corporation, the board of
directors of the Corporation shall be divided into three classes as nearly equal
in number as the then total number of directors constituting the entire board of
directors shall permit, which classes shall be designated Class I, Class II and
Class III. At such meeting of shareholders, directors assigned to Class I shall
be elected to hold office for a term expiring at the first succeeding annual
meeting of shareholders thereafter, directors assigned to Class II shall be
elected to hold office for a term expiring at the second succeeding annual
meeting thereafter, and directors assigned to Class III shall be elected to hold
office for a term expiring at the third succeeding annual meeting thereafter.
Thereafter, at each annual meeting of shareholders of the Corporation, directors
of classes the terms of which expire at such annual meeting shall be elected for
terms of three years. Notwithstanding the foregoing, a 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
-4-
<PAGE>
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
above in this Article IX. Notwithstanding the foregoing, and except as
otherwise may be required by law, 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 terms of the
director or directors elected by such holders shall expire at the next
succeeding annual meeting of shareholders.
ARTICLE X
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 meeting of shareholders may be made by the
board of directors of the Corporation or by any shareholder of the Corporation
entitled to vote generally in the election of directors. Only business within
the purpose or purposes described in the notice of a special meeting may be
conducted at the special meeting. In order for a shareholder of the Corporation
to make any such nominations and/or proposals, he shall give notice thereof in
writing, delivered or mailed by first class United States mail, postage prepaid,
to the secretary of the Corporation not fewer than 30 days nor more than 60 days
prior to any such meeting; provided, however, that if notice or public
disclosure of the meeting is effected fewer than 40 days before the meeting,
such written notice shall be delivered or mailed, as prescribed, to the
secretary of the Corporation not later than the close of the 10th day following
the day on which notice of the meeting was mailed to shareholders. Each such
notice given by a shareholder with respect to nominations for the election of
directors shall set forth (1) the name, age, business address and, if known,
residence address of each nominee proposed in such notice; (2) the principal
occupation or employment of each such nominee; (3) the number of shares of stock
of the Corporation which are beneficially owned by each such nominee; (4) such
other information as would be required to be included in a proxy statement
soliciting proxies for the election of the proposed nominee pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended, including,
without limitation, such person's written consent to being named in the proxy
statement as a nominee and to serving as a director, if elected; and, (5) as to
the shareholder giving such notice, (a) his name and address as they appear on
the Corporation's books and (b) the class and number of shares of the
Corporation which are beneficially owned by such shareholder. In addition, the
shareholder making such nomination shall promptly provide any other information
reasonably requested by the Corporation.
(B) Each such notice given by a shareholder to the secretary with respect
to business proposals to bring before a meeting shall set forth in writing as to
each matter: (1) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting;
(2) the name and address, as they appear on the Corporation's books, of the
shareholder proposing such business; (3) the class and number of shares of the
Corporation which are beneficially owned by the shareholder; and (4) any
material interest of the shareholder in such business. Notwithstanding anything
in this Charter to the contrary, no business shall be conducted at the meeting
except in accordance with the procedures set forth in this Article X.
(C) The chairman of the annual meeting of shareholders may, if the facts
warrant, determine and declare to such meeting that a nomination or proposal was
not made in accordance with the foregoing procedure, and, if he should so
determine, he shall so declare to the meeting and the defective nomination or
proposal shall be disregarded and laid over for action at the next succeeding or
annual meeting of the shareholders taking place
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thirty days or more thereafter. This provision shall not require the holding of
any adjourned or special meeting of shareholders for the purpose of considering
such defective nomination or proposal.
ARTICLE XI
Removal of Directors
Notwithstanding any other provision of this Charter or the bylaws of the
Corporation, no director of the Corporation may be removed at any time unless
for cause and upon 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 shareholders called for that purpose, except as
otherwise required by law.
ARTICLE XII
Elimination of Directors' Liability
Directors of the Corporation shall have no liability to the Corporation or
its shareholders for monetary damages for breach of fiduciary duty as a
director, provided that this Article XII shall not eliminate liability of a
director for: (A) any breach of the director's duty of loyalty to the
Corporation or its shareholders; (B) acts or omissions that are not in good
faith or that involve intentional misconduct or a knowing violation of law; or
(C) unlawful distributions under Section 48-18-304 of the Tennessee Business
Corporation Act.
If the Tennessee Business Corporation Act is amended or other Tennessee law
is enacted to permit further elimination or limitation of the personal liability
of directors, then the liability of directors of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Tennessee Business
Corporation Act, as so amended, or by such other Tennessee law, as so enacted.
Any repeal or modification of this Article XII or subsequent amendment of the
Tennessee Business Corporation Act or enactment of other applicable Tennessee
law shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal, modification, amendment or
enactment.
ARTICLE XIII
Indemnification
(A) (1) Except as provided in Section (B) of this Article XIII, the
Corporation shall indemnify any director who is made a party to any threatened,
pending, or completed action, suit or proceeding, whether civil, criminal,
administrative, or investigative ("proceeding"), because he is or was a director
against liability incurred in such proceeding if: (a) he conducted himself in
good faith; (b) he reasonably believed, (i) in the case of conduct in his
official capacity with the Corporation, that his conduct was in the
Corporation's best interests and (ii) in all other cases, that his conduct was
at least not opposed to its best interests; and (c) in the case of any criminal
proceeding, he had no reasonable cause to believe his conduct was unlawful.
(2) The Corporation shall further indemnify any director and any
officer who is not a director who was wholly successful, on the merits or
otherwise, in the defense of any proceedings to which he was a party because he
is or was a director or officer of the Corporation against reasonable expenses
incurred by him in connection with the proceeding.
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(B) The Corporation shall 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 any other proceeding
charging improper personal benefit to him, whether or not involving action in
his official capacity, in which he was adjudged liable on the basis that
personal benefit was improperly received by him.
(C) The Corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of final
disposition of the proceeding if: (1) the director furnishes the Corporation a
written affirmation of his good faith belief that he has met the standard of
conduct set forth in Subsection (A)(1) of this Article XIII; (2) he provides the
Corporation a written undertaking, executed personally or on his behalf, to
repay the advance if it is ultimately determined that he is not entitled to
indemnification; and (3) a determination is made that the facts then known to
those making the determination would not preclude indemnification under this
Article XIII.
(D) The Corporation may not indemnify a director under Subsection (A)(1)
of this Article XIII unless authorized in the specific case after a
determination has been made that indemnification of the director is permissible
in the circumstances because he has met the standard set forth in Subsection
(A)(1) of this Article XIII. The determination shall be made:
(1) By the board of directors by majority vote of a quorum consisting
of directors not at the time parties to the proceeding;
(2) If a quorum cannot be obtained under Subsection (1) of this
Section (D), by majority vote of a committee duly designated by the board
of directors (in which designation directors who are parties may
participate), consisting solely of two or more directors not at the time
parties to the proceeding;
(3) By independent special legal counsel;
(a) Selected by the board of directors or its committee in the
manner prescribed in Subsections (1) or (2) of this Section (D);
(b) If a quorum of the board of directors cannot be obtained
under Subsection (1) of this Section (D) and a committee cannot be
designated under Subsection (2) of this Section (D), selected by majority
vote of the full board of directors (in which selection directors who are
parties may participate); or
(4) By the shareholders, but shares owned by or voted under the
control of directors who are at the time parties to the proceeding may not
be voted on the determination.
(E) Authorization of indemnification under Subsection (A)(1) of this
Article XIII and evaluation that indemnification is permissible under Subsection
(A)(1) of this Article XIII shall be made in the same manner as the
determination that indemnification is permissible, except that, if the
determination is made by special legal counsel, authorization of indemnification
and evaluation as to reasonableness of expenses shall be made by those entitled
under Subsection (D)(3) of this Article XIII to select counsel.
(F) The Corporation may indemnify and advance expenses to an officer,
employee or agent of the Corporation who is not a director to the same extent as
a director hereunder.
(G) The Corporation may purchase and maintain insurance on behalf of an
individual who is or was a director, officer, employee, or agent of the
Corporation, or who, while a director, officer, employee, or agent of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, employee benefit plan
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or other enterprise, against liability asserted against or incurred by him in
that capacity or arising from his status as a director, officer, employee or
agent, whether or not the Corporation would have power to indemnify him against
the same liability hereunder.
(H) It is the intention of this Article XIII to provide for indemnification
of directors and officers to the fullest extent permitted by the Tennessee
Business Corporation Act, and this Article XIII shall be interpreted
accordingly. If this Article XIII 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 proceeding,
including an action by or in the right of the Corporation, to the full extent
permitted by any applicable portion of this Article XIII that shall not have
been invalidated and to the full extent permitted by applicable law. If the
Tennessee Business Corporation Act is amended or other Tennessee law is enacted
to permit further or additional indemnification of a director, officer, employee
or agent of the Corporation, then the indemnification of such director, officer,
employee or agent shall be to the fullest extent permitted by the Tennessee
Business Corporation Act, as so amended, or by such other Tennessee law.
(I) The indemnification and advance payment of expenses provided by this
Article XIII 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) The indemnification provided by this Article XIII 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 this Article XIII shall continue
as to a person who has ceased to be a director or officer of the Corporation and
shall inure to his heirs, executors and administrators.
ARTICLE XIV
Restrictions on Voting Rights of Certain Holders
(A) Restriction on Voting Rights of Certain Holders. If, at any time after
-----------------------------------------------
the effective date of the completion of the conversion of Cumberland Mountain
Bancshares, M.H.C. from mutual to stock form, 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 of this Charter, 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 Section (A) 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 Section (A), such record holders in the aggregate shall be
entitled to cast only one-hundredth (1/100th) 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, as so limited, of the outstanding shares of voting stock of the
Corporation beneficially owned by such acquiring person by a fraction whose
numerator is the number of votes represented by the shares of voting stock of
the Corporation owned of record by such record holder (and which are
beneficially owned by such acquiring person) and whose denominator is the total
number of votes represented by the shares of voting stock of the Corporation
that are beneficially owned by such acquiring person. A person who is a record
owner of shares of voting stock of the Corporation that are beneficially owned
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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 Section (A) by virtue of such shares being so beneficially
owned by any of such acquiring persons.
(B) 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 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 "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for or request for invitation for
tenders of, a security or interest in a security for value. The term "acting in
concert" includes: (1) knowing participation in a joint activity or conscious
parallel action towards a common goal whether or not pursuant to an express
agreement; and (2) a combination or pooling of voting or other interests 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 Exchange
Act of 1934.
(C) Exclusion for Underwriters, Employee Benefit Plans and Certain Proxies.
----------------------------------------------------------------------
The restrictions contained in this Article XIV shall not apply to: (1) 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; (2)
any proxy granted to one or more Continuing Directors, as defined in Article XV
of this Charter, by a shareholder of the Corporation; or (3) any employee
benefit plans of the Corporation or a subsidiary thereof. In addition, the
Continuing Directors, as defined in Article XV of this Charter, 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 of this Charter, 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, 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.
(D) Determinations. A majority of the Continuing Directors, as defined in
--------------
Article XV of this Charter, 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: (1) the number of shares beneficially owned by any person; (2)
whether a person has an agreement, arrangement or understanding with another as
to the matters referred to in the definition of beneficial ownership; (3) the
application of any other definition or operative provision of this Article XIV
to the given facts; or (4) any other matter relating to the applicability or
effect of this Article XIV. Any constructions, applications or determinations
made by the Continuing Directors, as defined in Article XV of this Charter,
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 shareholders.
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ARTICLE XV
Approval of Business Combinations
The shareholder vote required to approve a Business Combination (as
hereinafter defined) shall be as set forth in this Article XV, in addition to
any other requirements under applicable law.
(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 two-thirds of the outstanding shares of each such class or series)
and (ii) 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, share exchange or consolidation of the
Corporation or any subsidiary thereof with or into a Related Person;
(b) any sale, lease, exchange, transfer or other disposition of
(including, without limitation, the granting of any mortgage, pledge
or other security interest in) all or any Substantial Part (as
hereinafter defined) of the assets (in one transaction or in a series
of transactions) of the Corporation (including, without limitation,
any voting securities of a subsidiary) or of a subsidiary thereof to a
Related Person or proposed by or on behalf of a Related Person;
(c) any sale, lease, exchange, transfer or other disposition of
including, without limitation, any granting of a mortgage, pledge or
any other security interest in, all or any Substantial Part of the
assets (in one transaction or in a series of transactions) of a
Related Person to the Corporation or a subsidiary thereof;
(d) the issuance or transfer (in one transaction or in a series
of transactions) by the Corporation or any subsidiary thereof of any
securities of the Corporation or of a subsidiary thereof to a Related
Person other than pursuant to a dividend or distribution made pro rata
to all shareholders of the Corporation;
(e) the acquisition by the Corporation or a subsidiary thereof of
any securities of a Related Person or of any securities convertible
into securities of a Related Person;
(f) any transaction proposed by or on behalf of a Related Person
or pursuant to any agreement, arrangement or understanding with a
Related Person which has the effect, directly or indirectly, of
increasing the Related Person's proportionate ownership of voting
securities of the Corporation or of a subsidiary thereof (or of
securities that are convertible to, exchangeable for or carry the
right to acquire such voting securities);
(g) the adoption of any plan or proposal of liquidation or
dissolution of the Corporation, any reincorporation of the Corporation
in another state or jurisdiction, any reclassification of the common
stock of the Corporation, or any recapitalization involving the common
stock of the Corporation proposed by or on behalf of a Related Person;
(h) any loans, advances, guarantees, pledges, financial
assistance, security arrangements, restrictive covenants or any tax
credits or other tax advantages provided by, through
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or to the Corporation or any subsidiary thereof as a result of which a
Related Person receives a benefit, directly or indirectly, other than
proportionately as a shareholder; and
(i) any agreement, contract or other arrangement providing for
any of the transactions described in this Section (A).
(2) Such affirmative vote shall be required notwithstanding any other
provision of this Charter, any provision of law, or any agreement with any
national securities exchange or automated quotation system 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 Subsections
(1)(a) through (1)(i) of this Section A.
(B) The provisions of Section (A) of this Article XV 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 Charter, any provisions of law or any agreement with any federal
regulatory agency, national securities exchange or automated quotation system,
if either the Business Combination or the transaction in which the Related
Person became a Related Person shall have been approved in advance by at least
two-thirds of the Continuing Directors (as hereinafter defined); provided,
however, that such approval shall be effective only if obtained at a meeting at
which a Continuing Director Quorum (as hereinafter defined) is present.
(C) For the purpose of this Article XV the following definitions apply:
(1) The term "Related Person" shall mean: (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;
(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; or (c) any corporation which would
be an "affiliate" (as that term is defined in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934) of any
such individual, corporation, partnership or other person or entity
following a Business Combination. Without limitation, any shares of the
common stock of the Corporation which any Related Person has the right to
acquire pursuant to any agreement, upon exercise of 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 10 percent of
the total assets of the Corporation or the Related Person, as the case may
be, 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 a Related Person
and was a member of the board of directors prior to the time that the
Related Person became a Related Person, and any successor of a Continuing
Director who is recommended to succeed a Continuing Director by a majority
of Continuing Directors then on the board of directors.
(4) The term "Continuing Director Quorum" shall mean at least two-
thirds of the Continuing Directors capable of exercising the powers
conferred on them.
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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 of this Charter) 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: (A) the social and economic effects of the
transaction on the Corporation, its subsidiaries, employees, depositors, loan
and other customers and creditors and the other elements of the communities in
which the Corporation and its subsidiaries operate or are located; (B) 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 (C) the competence,
experience and integrity of the acquiring person or entity and its or their
management.
ARTICLE XVII
Incorporator
The name, address and zip code of the Corporation's incorporator are
James J. Shoffner, 1431 Cumberland Avenue, Middlesboro, Kentucky 40965.
ARTICLE XVIII
Initial Directors
The names of the individuals who are to serve as initial directors of
the Corporation until the first meeting of shareholders are James J. Shoffner,
J. Roy Shoffner, Reecie Stagnolia, Jr., Raymond C. Walker and Robert R. Long.
The address of each initial director is 1431 Cumberland Avenue, Middlesboro,
Kentucky 40965.
ARTICLE XIX
Amendment of Bylaws
To the extent permitted by the Tennessee Business Corporation Act, the
board of directors of the Corporation is expressly authorized to repeal, alter,
amend or rescind the bylaws of the Corporation by vote of a majority of the
board of directors at a legal meeting held in accordance with the bylaws.
Notwithstanding any other provision of this Charter or the bylaws of the
Corporation (and notwithstanding the fact that some lesser percentage may be
specified by law), the bylaws shall be repealed, altered, amended or rescinded
by the shareholders of the Corporation only by vote 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 shareholders called for that purpose (provided
that notice of such proposed repeal, alteration, amendment or rescission is
included in the notice of such meeting).
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ARTICLE XX
Amendment of Charter
The Corporation reserves the right to repeal, alter, amend or rescind
any provision contained in this Charter in the manner now or hereafter
prescribed by law, and all rights conferred on shareholders herein are granted
subject to this reservation. Notwithstanding the foregoing, the provisions set
forth in Articles VIII, IX, X, XI, XII, XIII, XIV, XV, XVI and XIX of this
Charter 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 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 a single class) cast at a meeting of the shareholders 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
Charter.
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THE UNDERSIGNED, being the incorporator herein before named, for the
purpose of forming a corporation pursuant to the Tennessee Business Corporation
Act, does make this Charter, hereby declaring and certifying that this is his
act and deed and the facts herein stated are true, and accordingly has hereunto
set his hand as of December 11, 1996.
/s/ James J. Shoffner
---------------------------------
James J. Shoffner
Incorporator
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EXHIBIT 3.2
BYLAWS
OF
CUMBERLAND MOUNTAIN BANCSHARES, INC.
ARTICLE I - Home Office
The home office of Cumberland Mountain Bancshares, Inc. (the "Corporation")
shall be at 1431 Cumberland Avenue, Middlesboro, Kentucky.
ARTICLE II - Shareholders
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the Corporation or at such
other place as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the
Corporation for the election of directors and for the transaction of any other
business of the Corporation shall be held annually on the third Wednesday of
October, if not a legal holiday, and if a legal holiday, then on the next day
following which is not a legal holiday, at 2:00 p.m. Eastern Time, or at such
other date and time as determined by the board of directors.
Section 3. Special Meetings. Special meetings of the shareholders for any
purpose or purposes may be called at any time by a majority of the board of
directors or by a committee of the board of directors that has been duly
designated by the board of directors.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with rules and procedures adopted by the board of
directors. The board of directors shall designate, when present, either the
chairman of the board or president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day and
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 10 days nor more than two (2) months before the date of
the meeting, either personally or by mail, by or at the direction of the
chairman of the board, the president, the secretary or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting;
provided, however, that with respect to meetings at which a plan of merger,
share exchange, sale of all or substantially all of the Corporation's assets or
dissolution of the Corporation is proposed to be considered, such notice shall
be provided to each shareholder of the Corporation whether or not entitled to
vote. If mailed, such notice shall be deemed to be delivered when deposited in
the mail, addressed to the shareholder at the address as it appears on the stock
transfer books or records of the Corporation as of the record date prescribed in
Section 6 of this Article II with postage prepaid. When any shareholders'
meeting, either annual or special, is adjourned for more than four months,
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 fewer than 30 days or of the business to be transacted
at the meeting, other than an announcement at the meeting at which such
adjournment is taken. If a meeting is adjourned to a date more than four (4)
months after the date fixed for the original meeting, a new record date for the
adjourned meeting must be fixed, and notice of the adjourned meeting must be
given to shareholders as of the new record date.
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A shareholder may waive any notice required hereunder provided the waiver
is in writing, signed by him and delivered to the Corporation for inclusion in
the minutes or filing with the corporate records. A shareholder's attendance at
a meeting (i) waives objection to lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the meeting (or promptly
upon his arrival) objects to holding the meeting or transacting business at the
meeting, and (ii) waives objection to consideration of a particular matter at a
meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder objects to considering the matter when it is
presented.
Section 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more
than 70 days and, in case of a meeting of shareholders, not fewer than 10 days
prior to the date on which the particular action requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment, except adjournment to a date
more than four (4) months after the date fixed for the original meeting, in
which case a new record date shall be set.
Section 7. Voting Lists. The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make a complete list of the
shareholders entitled to notice of such meeting, or any adjournment, arranged in
alphabetical order, with the address and the number of shares held by each.
Such list of shareholders shall be kept on file at the home office of the
Corporation and shall be subject to inspection by any shareholder, upon written
demand by such shareholder, his agent or his attorney, beginning two (2)
business days after notice of the meeting is given for which the list was
prepared and continuing through the meeting. If the right to vote at any
meeting is challenged, the person presiding thereat may rely on such list as
evidence of the right of the person challenged to vote at such meeting. A
shareholder or his agent or attorney is entitled on written demand to copy such
list, during regular business hours and at his expense, during the period it is
available for inspection, provided (i) his demand is made in good faith and for
a proper purpose, (ii) he describes with reasonable particularity his purpose
and the records he desires to inspect, and (iii) the records are directly
connected with his purpose.
Section 8. Quorum. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of
the outstanding shares 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 shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
appoint a proxy by executing a writing which authorizes another person or
persons to vote or otherwise act on the shareholder's behalf. Execution may be
accomplished by any reasonable means, including facsimile transmission, either
personally or by an attorney-in-fact in the case of an individual shareholder or
by an authorized officer, director, employee, agent or attorney-in-fact in the
case of another shareholder. Any copy, facsimile transmission or other reliable
reproduction of such writing or transmission may be substituted or used in lieu
of the original writing or transmission for any and all purposes for which the
original writing or transmission could be used; provided, that such copy,
facsimile transmission or other reproduction shall be a complete reproduction of
the entire original writing or transmission. Proxies solicited on behalf of the
management shall be voted as directed by the shareholder or, in the absence of
such direction, as determined by a majority of the board of directors. A proxy
shall be valid for eleven months from the date of its execution unless another
period is expressly provided in the appointment form.
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<PAGE>
Section 10. Voting. At each election for directors every shareholder
entitled to vote at such election shall be entitled to one (1) vote for each
share of stock held by him. Unless otherwise provided in the Corporation's
Charter or by applicable law, a majority of those votes cast by shareholders
entitled to vote at a lawful meeting shall be sufficient to pass on a
transaction or matter, except in the election of directors. Directors shall be
elected by a plurality of the votes cast by the shares entitled to vote at a
meeting at which a quorum is present. Where voting is by voting group, action
on a matter (other than the election of directors) by a voting group is approved
if the votes cast within the voting group favoring the action exceed the votes
cast opposing the action, unless the Corporation's Charter or applicable law
requires a greater number of affirmative votes.
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 Corporation to the contrary, at any meeting of the
shareholders of the Corporation, any one (1) or more of such shareholders may
cast, in person or by proxy, all votes to which such ownership is entitled. In
the event an attempt is made to cast conflicting votes, in person or by proxy,
by the several persons in whose names shares of stock stand, the vote or votes
to which those persons are entitled shall be cast as directed by a majority of
those holding such shares and present in person or by proxy at such meeting, but
no votes shall be cast for such stock if a majority cannot agree.
Section 12. Voting of Shares of Certain Holders. Shares standing in the
name of another corporation may be voted by an officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a
receiver may be voted by such receiver, and shares held by or under the control
of a receiver may be voted by such receiver without the transfer into his name
if authority to do so is contained in an appropriate order to the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the 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, unless such
shares are held in a fiduciary capacity.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any persons other than nominees
for office, as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one (1) or three (3). Any such
appointment shall not be altered at the meeting. If inspectors of election are
not so appointed, the chairman of the board or the president may 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 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 law, the duties of such
inspectors shall include: determining the number of shares and the voting power
of each share, the shares represented at the meeting, the existence of a quorum
and the authenticity, validity and effect of proxies; receiving votes, ballots
or consents; hearing and determining all challenges and questions in any way
arising in connection with the rights to vote; counting and tabulating all votes
or consents; determining the result; and performing such other acts as may be
proper to conduct the election or vote with fairness to all shareholders.
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Section 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. 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 shareholders are
made in writing and delivered to the secretary of the Corporation in accordance
with the provisions of the Corporation's Charter.
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 Charter.
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 Charter.
Section 16. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting. If all
shareholders entitled to vote on the action consent to taking such action
without a meeting, the affirmative vote of the number of shares that would be
necessary to authorize or take such action at a meeting is the act of the
shareholders. The action must be evidenced by one (1) or more written consents
describing the action taken, signed by each shareholder entitled to vote on the
action, in one (1) or more counterparts, indicating each signing shareholder's
vote or abstention on the action, and delivered to the Corporation for inclusion
in the minutes for filing with the corporate records.
A consent signed under this section has the effect of a meeting vote and
may be described as such in any document.
If the Tennessee Business Corporation Act or the Charter requires that
notice of the proposed action by given to nonvoting shareholders and the action
is to be taken by consent of the voting shareholders, then the Corporation must
give its nonvoting shareholders written notice of the proposed action at least
ten (10) days before the action is taken. The notice must contain or be
accompanied by the same materials that would have been required by law to be
sent to nonvoting shareholders in a notice of meeting at which the proposed
action would have been submitted to the shareholders for action.
Section 17. Shareholder Meetings Through Special Communication.
Shareholders may not participate in any annual or special meeting and no annual
or special meeting of shareholders may be conducted by means of conference
telephone or similar communications equipment by which all persons participating
in the meeting can hear each other.
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 board of directors
shall annually elect a chairman of the board and a president 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 five
(5) members. In accordance with the provisions of the Corporation's Charter, at
the first meeting of shareholders of the Corporation the board of directors
shall be divided into three classes as nearly equal in number as possible. At
succeeding annual meetings of shareholders, the members of each class shall be
elected for a term of three (3) years and until their successors are elected and
qualified. One (1) class shall be elected by ballot annually. The board of
directors
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<PAGE>
may increase or decrease the number of directors, but in no event shall such
number be increased or decreased beyond the range established in the
Corporation's Charter.
Section 3. Regular Meetings. A regular meeting of the board of directors
shall be held without other notice than this bylaw immediately after, and at the
same place as, the annual meeting of shareholders or at such other time and
place as the board of directors shall determine. 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 4. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place within the Kentucky or Tennessee 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 of Special Meeting. Written notice of any special
meeting shall be given to each director at least two (2) days previous thereto
delivered personally, by telegram, by telecopy, or 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, 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. Except as otherwise provided by the Corporation's
Charter, 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; however, 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
Corporation's Charter or applicable law.
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 all directors consent to taking such action without a meeting, the
affirmative vote of the number of directors that would be necessary to authorize
or take such action at a meeting is the act of the board. The action must be
evidenced by one (1) or more written consents describing the action taken,
signed by each director in one (1) or more counterparts, indicating each signing
director's vote or abstention on the action, and shall be included in the
minutes or filed with the corporate records reflecting the action taken. Action
taken under this section is effective when the last director signs the consent,
unless the consent specifies a different effective date.
A consent signed under this section has the effect of a meeting vote and
may be described as such in any document.
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<PAGE>
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 board of directors, the chairman of the board or the president.
Unless otherwise specified, such resignation shall take effect upon delivery.
More than three (3) consecutive absences from regular meetings of the board of
directors, unless excused by resolution of the board of directors, shall
automatically constitute a resignation, effective when such resignation is
accepted by the board of directors.
Section 10. Vacancies. Any vacancy occurring on the board of directors
shall be filled in accordance with the provisions of the Corporation's Charter.
Section 11. Compensation. Directors, as such, may receive a stated salary
for their services. By resolution of the board of directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the board of directors.
Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the board of
directors may determine.
Section 12. Presumption of Assent. A director of the Corporation who is
present at a meeting of the board of directors at which action on any
Corporation matter is taken shall be presumed to have assented to the action
taken unless (i) he objects at the beginning of the meeting (or promptly upon
his arrival) to holding the meeting or transacting business at the meeting; (ii)
his dissent or abstention from the action taken is entered in the minutes of the
meeting; or (iii) he delivers written notice of his dissent or abstention to the
presiding officer of the meeting before its adjournment or to the Corporation
immediately after adjournment of the meeting. The right of dissent or
abstention is not available to a director who votes in favor of the action
taken.
Section 13. Removal of Directors. Any director or the entire board of
directors may be removed only in accordance with the provisions of the
Corporation's Charter.
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 (1) 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 (1) or more directors of the Corporation. The board may
designate one (1) 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 of directors shall have power, by the affirmative vote of a
majority of the authorized number of directors, 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
president, one (1) or more vice presidents, a secretary and a treasurer, each of
whom shall be elected by the board of directors. The board of directors may
also designate the chairman of the board as an officer. The president shall be
the chief executive officer unless the board of directors designates the
chairman of the board as chief executive officer. The president
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<PAGE>
shall be a director of the Corporation. The offices of the secretary and
treasurer may be held by the same person, and a vice president may also be
either the secretary or treasurer. The board of directors may designate one (1)
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. The secretary of the Corporation shall be
responsible for preparing minutes of the directors' and shareholders' meetings
and for authenticating records of the Corporation.
Section 2. Election and Term of Office. The officers of the Corporation
shall be elected annually at the first meeting of the board of directors held
after each annual meeting of shareholders. If the election of officers is not
held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly
elected and qualified or until the officer's death, resignation or removal.
Election or appointment of an officer, employee or agent shall not of itself
create contractual rights. The board of directors may authorize the Corporation
to enter into an employment contract with any officer in accordance with
applicable law; however, no such contract shall impair the right of the board of
directors to remove any officer at any time in accordance with Section 3 of this
Article V.
Section 3. Removal. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the Corporation will be served
thereby, but such removal, other than for cause, shall be without prejudice to
any contractual rights of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be fixed
from time to time by the board of directors by employment contracts or
otherwise.
ARTICLE VI -- Contracts, Loans, Checks and Deposits
Section 1. Contracts. To the extent permitted by applicable law, and
except as otherwise prescribed by the Corporation's Charter or these bylaws with
respect to certificates for shares, the board of directors 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. The Corporation shall not lend money to, or guarantee
the obligation of, any officer or director unless the board of directors
determines that the loan or guarantee benefits the Corporation and either
approves the specific loan or guarantee or a general plan authorizing loans and
guarantees.
Section 3. Checks, Drafts, etc. All checks, drafts, 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 (1) or more officers, employees or agents
of the Corporation in such manner as shall from time to time be determined by
the board of directors.
Section 4. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in any
duly authorized depositories as the board of directors may select.
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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 chief executive officer or by any
other officer of the Corporation 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 signature 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 Corporation itself or one (1) 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 shares are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the Corporation. All certificates surrendered to the
Corporation for transfer shall be cancelled, and no new certificates shall be
issued until the form certificate for a like number of shares has been
surrendered and cancelled, except that in the case of a lost or destroyed
certificate a new certificate may be issued upon such terms and indemnity to the
Corporation as the board of directors may prescribe.
Section 2. Form of Certificate. Each certificate representing shares
issued by the Corporation shall state on its face the name of the Corporation,
that the Corporation is organized under the laws of Tennessee, the name of the
person to whom it is issued, the number and class of shares and the designation
of the series, if any, the certificate represents. Each certificate shall set
forth upon its face or back, or shall state conspicuously, that the Corporation
will furnish to any shareholder upon request, and without charge, a full
statement of the designations, preferences, limitations and relative rights of
each class authorized to be issued, the variations in the relative rights and
preferences between the shares of each series 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. Other matters in
regard to the form of the certificates shall be determined by the board of
directors.
Any restrictions imposed on the transfer or registration of transfer of
shares of the Corporation shall be noted conspicuously on the front or back of
each certificate representing such shares.
Section 3. 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 by the holder of record, by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of attorney and filed with the
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 for all purposes.
Section 4. Stock Ledger. The stock ledger of the Corporation shall be the
only evidence as to who are the shareholders entitled to examine the stock
ledger, the list required by Section 7 of Article II hereof or the books of the
Corporation or to vote in person or by proxy at any meeting of shareholders.
Section 5. 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.
Section 6. Record Owners. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of shares
to receive dividends, and to vote as such owner, and shall not be bound to
recognize any equitable or other claim to or interest in such shares on the part
of any other person, whether or not the Corporation shall have express or other
notice thereof, except as otherwise provided by law.
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ARTICLE VIII -- Fiscal Year; Annual Audit
The fiscal year of the Corporation shall end on the 30th day of June 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.
ARTICLE IX -- Dividends
Subject only to the terms of the Corporation's Charter and applicable law,
the board of directors may from time to time declare, and the Corporation may
pay, dividends on the outstanding classes of the Corporation's capital stock
which are eligible for dividends. Dividends may be paid in cash, in property or
in the Corporation's own stock.
ARTICLE X -- Corporate Seal
The corporate seal of the Corporation shall be in such form as the board of
directors may provide.
ARTICLE XI -- Amendments
In accordance with the Corporation's Charter, these bylaws may be repealed,
altered, amended or rescinded by the shareholders of the Corporation only by the
affirmative vote 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 (1) class) cast at a meeting of the
shareholders 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, these bylaws may be repealed, altered, amended or
rescinded by the board of directors by the affirmative vote of a majority of the
board of directors at a legal meeting held in accordance with the provisions of
these bylaws; provided, however, that an amendment to the first sentence of this
Article XI may be made only by the shareholders of the Corporation.
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<PAGE>
EXHIBIT 4
NUMBER _____ _____ SHARES
CUMBERLAND MOUNTAIN BANCSHARES, INC.
MIDDLESBORO, KENTUCKY
This certifies that
is the owner of
fully paid and non-assessable shares of common stock, par value $0.01 per share,
of
Cumberland Mountain Bancshares, Inc. (the "Corporation"), a Tennessee
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
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signature of its duly authorized officers and has executed by the facsimile
be hereunto affixed. caused a facsimile of its
corporate seal to
- ------------------------------ --------------------------------
J.D. Howard J. Roy Scoffner
Secretary Chairman of the Board
Countersigned and Registered:
-------------------------------------
Transfer Agent and Registrar
BY:
-------------------------
Authorized Signature
SEE REVERSE FOR CERTAIN RESTRICTIONS ON TRANSFER
<PAGE>
FORM OF STOCK CERTIFICATE - BACK SIDE
The shares represented by this certificate are issued subject to all
the provisions of the Charter 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, 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 request may be made in writing to the Secretary of the
Corporation.
The Charter include a provision which imposes certain restrictions on
the voting rights of beneficial owners of more than 10% of any class of equity
security of the Corporation unless the acquisition of shares in excess of 10% is
approved by a two-thirds vote of the Continuing Directors (as such term is
defined in the Corporation's Charter).
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.
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.
For value received,
-------------------------------------------------------
hereby sell, assign and transfer 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:
---------------------------------
<PAGE>
EXHIBIT 5
[LETTERHEAD OF HOUSLEY KANTARIAN & BRONSTEIN, P.C.]
December 23, 1996
Board of Directors
Cumberland Mountain Bancshares, Inc.
1431 Cumberland Avenue
Middlesboro, Kentucky 40961
RE: Registration Statement on Form SB-2
Ladies and Gentlemen:
You have requested our opinion as special counsel to Cumberland Mountain
Bancshares, Inc. (the "Corporation") in connection with the Registration
Statement on Form SB-2 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 conversion of
Cumberland Mountain Bancshares, M.H.C. from mutual form to an interim stock
savings bank, its subsequent merger with and into Middlesboro Federal Bank,
Federal Savings Bank (the "Bank") with the Bank as the surviving entity and the
subsequent reorganization of the Bank as a wholly owned subsidiary of the
Corporation (collectively the "Conversion and Reorganization").
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 Matters."
HOUSLEY KANTARIAN & BRONSTEIN, P.C.
By: /s/ James C. Stewart
--------------------------------------
James C. Stewart
<PAGE>
EXHIBIT 8.1
December __, 1996
Boards of Directors
Cumberland Mountain Bancshares, M.H.C.
Middlesboro Federal Bank, Federal Savings Bank
Cumberland Mountain Bancshares, Inc.
1431 Cumberland Avenue
Middlesboro, Kentucky 40965
Re: Certain Federal Income Tax Consequences Relating to Proposed
Mutual Holding Company Conversion to a Stock Holding Company
------------------------------------------------------------
Gentlemen:
In accordance with your request, this letter sets forth hereinbelow the
opinion of this firm relating to certain federal income tax consequences of the
two integrated transactions described below. 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
and Agreement and Plan of Reorganization as adopted by the Boards of Directors
of Cumberland Mountain Bancshares, M.H.C. (the "MHC"), and Middlesboro Federal
Bank, Federal Savings Bank (the "Bank") on December 12, 1996 and by the Board of
Directors of Cumberland Mountain Bancshares, Inc. (the "Company") on December
13, 1996 (the "Plan"); the Federal Stock Charter and Bylaws of the Bank; the
Charter and Bylaws of the Company; the Affidavit of Representations dated
___________________, 1996 provided to us by the Bank and the MHC (the
"Affidavit"); and the Prospectus (the "Prospectus") included in the Registration
Statement on Form SB-2 filed with the Securities and Exchange Commission ("SEC")
on December __, 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.
<PAGE>
Boards of Directors
Cumberland Mountain Bancshares, M.H.C.
Middlesboro Federal Bank, Federal Savings Bank
Cumberland Mountain Bancshares, Inc.
December __, 1996
Page 2
BACKGROUND
The Bank is a community-oriented financial institution which serves
Middlesboro, Kentucky and its surrounding communities in the Commonwealth of
Kentucky, the State of Tennessee, and Lee County, Virginia. The Bank was
organized in 1994 as a subsidiary of the MHC. Prior to that time, the MHC had
operated as a thrift institution in mutual form (the "Mutual Bank") in the same
area since 1915. Originally chartered as a Kentucky building and loan
association, the Mutual Bank converted to a federal charter and obtained federal
deposit insurance in 1937. In 1994, the Bank was chartered as a subsidiary of
the MHC and in the process sold 180,000 shares of common stock of the Bank, par
value $1.00 per share the "Bank Common Stock") to the public with the MHC
retaining 330,000 shares (the "MHC Reorganization"). In connection with the MHC
Reorganization, the Mutual Bank transferred substantially all of its assets and
liabilities to the Bank in exchange for 330,000 shares of Bank Common Stock.
The MHC is a federally chartered mutual holding company formed in 1994 in
connection with the MHC Reorganization. The MHC's primary asset is 330,000
shares of Bank Common Stock which represented 64.71% of the shares of Bank
Common Stock outstanding as of the date of the Prospectus. The MHC's only other
assets at September 30, 1996 were all of the issued and outstanding shares of
Home Mortgage Loan Corporation ("Home Mortgage"), which was formerly a wholly
owned subsidiary of the Bank, and a deposit account. As part of the
transactions pursuant to the Plan (collectively, the "Conversion and
Reorganization"), the MHC will convert to an interim federal savings association
and simultaneously merge into the Bank, with the Bank being the surviving
entity. Upon consummation of the Conversion and Reorganization, the stock of
Home Mortgage and the deposit account will become assets of the Bank.
As a consequence of improvements in the local economy and the
implementation of more pro-active marketing strategies, management has been able
to substantially increase its loan originations in recent years. In addition,
the Bank has been able to increase the yields on its loan portfolio through the
origination of higher yielding consumer and other non-mortgage loans. Management
believes that the Bank's market area will continue to offer lending and
investment opportunities and is undertaking the Conversion and Reorganization in
order to provide the capital necessary for the Bank's continued growth.
<PAGE>
Boards of Directors
Cumberland Mountain Bancshares, M.H.C.
Middlesboro Federal Bank, Federal Savings Bank
Cumberland Mountain Bancshares, Inc.
December __, 1996
Page 3
Pursuant to the Plan adopted by the Bank and the MHC, the Bank will become
a subsidiary of the Company upon consummation of the Conversion and
Reorganization. As a result of the Conversion and Reorganization, Bank Common
Stock held by the Bank's public stockholders (the "Public Bank Shares") will be
converted into shares of the Company's common stock, par value $0.01 per share
(the "Company Stock"), with the exception of shares for which the holders
perfect dissenters' rights of appraisal.
The Company is a Tennessee corporation organized in December, 1996 by the
Bank for the purpose of holding all of the capital stock of the Bank and in
order to facilitate the Conversion and Reorganization. The Company is offering
Company Stock in connection with the Conversion and Reorganization in a
subscription offering and a community offering (the "Offerings"). Upon
completion of the Conversion and Reorganization, the only significant assets of
the Company will be all of the outstanding Bank Common Stock, the note
evidencing the Company's loan to the Employee Stock Ownership Plan (the "ESOP")
and the portion of the net proceeds from the Offerings retained by the Company.
The business of the Company will initially consist of holding the stock of the
Bank. The Company has no present plans to engage in any other activity but may
in the future engage in any activity permitted under applicable Tennessee and
federal law.
PROPOSED TRANSACTION
On December 12, 1996, the Boards of Directors of the Bank and the MHC
adopted the Plan and in December, 1996 the Bank organized the Company under
Tennessee law and the Board of Directors of the Company adopted the Plan on
December 13, 1996. Pursuant to the Plan: (i) the Company will issue stock to
the Bank and become a wholly-owned subsidiary; (ii) the Company will form an
interim savings and loan association ("Interim"); (iii) the MHC will convert to
an interim federal stock savings association and simultaneously will merge with
and into the Bank, the MHC will cease to exist and the 330,000 shares or 64.71%
of the outstanding Bank Common Stock held by the MHC will be cancelled ("Merger
1"); and (iv) Interim will then merge with and into Bank ("Merger 2").
As a result of the merger of Interim with and into the Bank, the shares of
Interim will convert into Bank Common Stock which will be the only shares of
Bank Common Stock outstanding. The Bank thereby will become a wholly owned
subsidiary of the Company operating under the name "Middlesboro Federal Bank,
Federal Savings Bank." The outstanding Public Bank Shares, which amounted to
180,000 shares or 35.29% of the outstanding Bank
<PAGE>
Boards of Directors
Cumberland Mountain Bancshares, M.H.C.
Middlesboro Federal Bank, Federal Savings Bank
Cumberland Mountain Bancshares, Inc.
December __, 1996
Page 4
Common Stock at September 30, 1996 will be converted into shares of Company
Stock pursuant to a ratio (the "Exchange Ratio"), which will result in the
holders of such shares owning in the aggregate approximately the same percentage
of the Company Stock to be outstanding upon the completion of the Conversion and
Reorganization as the percentage of Bank Common Stock owned by them in the
aggregate immediately prior to consummation of the Conversion and
Reorganization, before giving effect to: (i) the exercise of dissenters' rights
of appraisal by the holders of any shares of Bank Common Stock; (ii) the payment
of cash in lieu of issuing fractional Company Stock; and (iii) any shares of
Conversion Stock purchased by the Bank's stockholders in the Offerings or the
ESOP thereafter. The Company will sell the remainder of the shares of Company
Stock to be outstanding in the Offerings. Pursuant to Merger 1, depositors of
the Bank with account balances of $50.00 or more as of the close of business on
September 30, 1995 (the "Eligible Account Holders") and depositors of the Bank
with account balances of $50.00 or more as of the close of business on December
31, 1996 (the "Supplemental Eligible Account Holders") will be granted interests
in a liquidation account to be established by the Bank in an amount determined
in accordance with the Plan.
OPINION
Based on and subject to the foregoing, it is our opinion that for federal
income tax purposes, under current law:
1. The conversion of MHC from mutual form to federal interim stock savings
bank form and its simultaneous merger into the Bank (Merger 1) will constitute a
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
2. No gain or loss will be recognized by MHC upon the transfer of its
assets to the Bank, or by the Bank upon the receipt of the assets of MHC,
pursuant to Merger 1.
3. The assets of MHC will have the same basis in the hands of the Bank as
in the hands of MHC immediately prior to Merger 1.
4. The holding period of the assets of MHC to be received by the Bank will
include the period during which the assets were held by MHC prior to Merger 1.
<PAGE>
Boards of Directors
Cumberland Mountain Bancshares, M.H.C.
Middlesboro Federal Bank, Federal Savings Bank
Cumberland Mountain Bancshares, Inc.
December __, 1996
Page 4
5. The merger of Interim into the Bank (Merger 2) pursuant to which shares
of Bank Common Stock will be converted into shares of Company Stock will
constitute a reorganization under Code Section 368(a).
6. No gain or loss will be recognized by Interim upon the transfer of its
assets to the Bank, or by the Bank upon the receipt of the assets of Interim,
pursuant to Merger 2.
7. No gain or loss will be recognized by the Company upon the receipt of
shares of Bank Common Stock in exchange for shares of Company Stock (i.e., upon
the automatic conversion of shares of Bank Common Stock for shares of Company
Stock) pursuant to Merger 2.
8. The assets of Interim will have the same basis in the hands of the Bank
as in the hands of Interim immediately prior to Merger 2.
9. The holding period of the assets of Interim to be received by the Bank
will include the period during which the assets were held by Interim prior to
Merger 2.
10. No gain or loss will be recognized by the stockholders of the Bank to
the extent they receive solely shares of Company Stock in exchange for their
shares of Bank Common Stock pursuant to Merger 2.
11. The gain, if any, to be realized by a Bank stockholder who receives
Company Stock and cash (in lieu of fractional shares) in exchange for Bank
Common Stock should be recognized, but not in excess of the amount of cash
received.
12. When cash is received by a dissenting stockholder of the Bank, such
cash will be treated as received by the dissenting stockholder as a distribution
in redemption of the stockholder's Bank Common Stock, subject to the provisions
and limitations of Section 302 of the Code.
13. The basis of the shares of Company Stock received by the Bank's public
stockholders pursuant to Merger 2 will be the same as the basis of the shares of
Bank Common Stock surrendered in exchange therefor, before giving effect to any
payment of cash in lieu of fractional shares.
<PAGE>
Boards of Directors
Cumberland Mountain Bancshares, M.H.C.
Middlesboro Federal Bank, Federal Savings Bank
Cumberland Mountain Bancshares, Inc.
December __, 1996
Page 6
14. The holding period of the shares of Company Stock received by the
stockholders of the Bank pursuant to Merger 2 will include the holding period of
the shares of Bank Common Stock surrendered in exchange therefor provided that
such shares of Bank Common Stock were held as a capital asset on the date of the
exchange.
15. No gain or loss will be recognized by the Company upon the sale of
shares of Company Stock pursuant to the Offerings.
16. Each depositor of the Bank will recognize gain upon the receipt of his
or her respective interest in the Liquidation Account established by the 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
form interests in the Bank other than deposit accounts. Persons who subscribe
in the Conversion and Reorganization 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 Conversion and
Reorganization would be subject to immediate recognition.
17. No gain or loss will be recognized upon the exercise of a subscription
right in the Conversion and Reorganization.
18. The basis of each Eligible account holder's interest in the Bank's
liquidation account will be equal to the value, if any, of that interest.
19. The basis to the holders of the shares of Company Stock purchased in
the Offerings will be the amount paid therefor, 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.
20. The holding period for such shares will begin on the date of the
consummation of the Offerings if such shares are purchased through the exercise
of subscription rights and on the day after the date of purchase if such shares
are purchased in the Community Offering or Syndicated Community Offering.
<PAGE>
Boards of Directors
Cumberland Mountain Bancshares, M.H.C.
Middlesboro Federal Bank, Federal Savings Bank
Cumberland Mountain Bancshares, Inc.
December __, 1996
Page 7
On September 22, 1994, the Internal Revenue Service (the "Service") issued
Notice 94- 93 in which it expressed its concern with transactions that invert
the positions of related corporations ("Inversions"), including transactions
that involve the transfer of stock of a corporation by its shareholders to a
wholly-owned subsidiary of that corporation in exchange for newly issued shares
of the subsidiary. In Notice 94-93, the Service stated that it would issue
guidance, including regulations requiring either the recognition of income or
gain or a reduction in the basis of the stock of one or more of the corporations
involved in an Inversion. Because the automatic conversion of shares of Bank
Common Stock for shares of Company Stock pursuant to Merger 2 would constitute
the transfer of Bank Common Stock by the Bank's shareholders to the Company, a
wholly-owned subsidiary of the Bank, in exchange for newly issued shares of
Company Stock, the reorganization could constitute an Inversion within the
meaning of Notice 94-93. However, the Service's concern in Notice 94-93
pertains to potential tax abuse that does not exist in such holding company
formations as Merger 2, in which the assets of Company will consist solely of
cash contributed to it by the Bank in an amount that is minimal in relation to
Bank's total assets and net worth and in which the shares of Company originally
owned by Bank will be cancelled. Accordingly, we do not believe that, applying
the reasoning of the Service set forth in Notice 94-93, realization of income or
gain by, or a reduction in the basis of the stock of, either the Bank or the
Company would be required.
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 Conversion and Reorganization. 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 MHC's Application
for Conversion. 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
<PAGE>
Boards of Directors
Cumberland Mountain Bancshares, M.H.C.
Middlesboro Federal Bank, Federal Savings Bank
Cumberland Mountain Bancshares, Inc.
December __, 1996
Page 8
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 as an exhibit to the MHC's
Application for Conversion and the Registration Statement.
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 "Legal Matters."
Very truly yours,
HOUSLEY KANTARIAN & BRONSTEIN, P.C.
By:
---------------------------------------
James C. Stewart
<PAGE>
EXHIBIT 8.2
December ___, 1996
Board of Directors
Cumberland Mountain Bancshares, M.H.C.
Middlesboro Federal Bank, F.S.B.
Cumberland Mountain Bancshares, Inc.
1431 Cumberland Avenue
Middlesboro, Kentucky 40965
RE: Certain State Income Tax Consequences Relating to
(i) the Conversion of Cumberland Mountain Bancshares, M.H.C. to an interim
Federal Stock Savings Association and simultaneous merger into Middlesboro
Federal Bank, F.S.B., (and cancellation of 330,000 shares of Bank common
stock) (the foregoing transaction referred to as "Merger 1"; and
(ii) a second interim Savings and Loan Association formation and merger
with and into the bank (the foregoing transaction referred to as "Merger
2").
Ladies and Gentlemen:
Please be advised that this letter is in response to your request
concerning an opinion as it relates to certain state income tax consequences of
the proposed merger transactions described above (collectively, the
"Conversion"). This opinion is based upon the premise that the conditions and
transactions as stated in the Prospectus, and the Federal Income Tax Opinion of
Housley Kantarian and Bronstein, P.C., dated December ______, 1996, which was
addressed and furnished to you, will be strictly complied with, and that all
oral and written representations by Middlesboro Federal Bank, or its agents, are
true and correct. Based upon this assumption, the following opinion is
rendered:
- - The Commonwealth of Kentucky will, for income tax purposes, accord the
Conversion of the identical treatment which it receives for federal income
tax purposes. Aside from potential capital gains for shareholders
receiving cash in exchange for bank common shares, no adverse Kentucky
income tax consequences will be incurred by the holding company, stock
bank, the association, the eligible account holders, depositors or
shareholders of the holding company as a result of the consummation of the
proposed conversion.
<PAGE>
The various state law and regulations on which this opinion is based are
necessarily subject to change from time to time, and such change could effect
this opinion. In addition, the opinion stated herein is based solely on the
facts mentioned above. Any changes in the facts could effect the conclusion
stated herein. Other than the Kentucky income tax consequences of the
conversion, no opinion is expressed with respect to any matter, including but
not limited to, any franchise, transfer, intangible or capital stock taxes.
Consent is hereby given to the use of this firm's name, to references to
this opinion in the Prospectus which is a part of the Registration Statement
being filed with the SEC and part of the Application for Conversion to be filed
with the OTS.
Sincerely,
Law Offices of Robert L. Brown III
By:
---------------------------------
<PAGE>
EXHIBIT 8.3
[LETTERHEAD OF RP FINANCIAL, LC.]
December 23, 1996
Board of Directors
Cumberland Mountain Bancshares, M.H.C.
Middlesboro Federal Bank, Federal Savings Bank
1431 Cumberland Avenue
Middlesboro, Kentucky 40965
Re: Plan of Conversion: Subscription Rights
---------------------------------------
Gentlemen:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan") adopted by the Boards of Directors of Middlesboro
Federal Bank, Federal Savings Bank (the "Bank") and Cumberland Mountain
Bancshares, M.H.C. (the "Mutual Holding Company"). Pursuant to the Plan,
Cumberland Mountain Bancshares, Inc. (the "Company") will offer and sell the
Conversion Stock.
We understand that "subscription rights" to purchase shares of the
Conversion Stock are to be issued to (i) Eligible Account Holders; (ii) the
ESOP; (iii) Supplemental Eligible Account Holders; (iv) Other Members; (v)
directors, officers and employees of the Mutual Holding Company and Bank; and,
(vi) Public Stockholders, collectively referred to as the "Recipients." Based
solely upon our observation that the subscription rights will be available to
such Recipients without cost, will be legally non-transferable and of short
duration, and will afford the Recipients the right only to purchase shares of
Conversion Stock at the same price as will be paid by members of the general
public in the Community Offering and Syndicated Community Offering, but without
undertaking any independent investigation of state or federal law or the
position of the Internal Revenue Service with respect to this 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 (such
as natural disasters or significant world events) may occur from time to time,
often with great unpredictability and may materially impact the value of thrift
stocks as a whole or the Company's value alone. Accordingly, no assurance can
be given that persons who subscribe to shares of Conversion Stock in the
conversion will thereafter be able to buy or sell such shares at the same price
paid in the Subscription Offering.
Sincerely,
/s/James J. Oren
-------------------------------
James J. Oren
Vice President
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT entered into this 12th day of August (the "Effective Date"),
by and between Middlesboro Federal Bank, FSB (the "Bank") and James J. Shoffner
(the "Employee").
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 Company desires to retain the services of the Employee to the
Company and as such wishes to provide the Employee with supplemental retirement
income as an added incentive to remain employed at the Company; and
WHEREAS, the Board of Directors 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) "Annual Offset Amount" shall mean the sum of (i) the
primary social security benefit payable annually to the Employee as of the
earliest date, following his termination of employment, on which he could begin
to collect such benefit (regardless of when such payment actually begins),
(ii) the annual benefit that would be payable to the Employee under the any tax-
qualified defined benefit pension plan maintained by the Bank, if such benefit
were in the form of a 50% joint and survivor annuity, with his Surviving Spouse
as contingent beneficiary, commencing upon his termination of employment
(regardless of when he actually begins to collect such benefits), and (iii) the
annual amount that would be payable to the Employee if that portion of his
account under any tax-qualified defined contribution retirement plan which are
attributable to the Bank's contributions were paid to him in the form of a 50%
joint and survivor annuity, with his Surviving Spouse as contingent beneficiary,
commencing upon his termination of employment (regardless of when he actually
begins to collect such benefits).
(b) "Average Annual Compensation" shall mean the average
of the Employee's highest Compensation for the three calendar years (whether or
not such years are consecutive) in the five calendar years immediately preceding
the calendar year in which his employment with the Company terminates for any
reason.
(c) "Change in Control" of the Bank shall mean (i) a plan
of reorganization, merger, merger conversion, consolidations or sale of all or
substantially all of the assets of the Bank or the Company or a similar
transaction occurs in which the Bank or the Company is not the resulting entity;
(ii) individuals who constitute the Board of the Bank or the board of directors
of the Company cease for any reason to constitute a majority thereof; or (iii) a
Change in Control within the meaning of 12 C.F.R. (S)574.4 occurs, as determined
by the Board of the Bank or the board of directors of the Company; provided,
--------
however, that a Change in Control shall not be deemed to occur either as the
- -------
result of acquisitions of Common Stock by Messrs. J. Roy Shoffner and James J.
Shoffner, or under 7.01(c)(i) or 7.01(c)(iii) of this Section if the transaction
constituting a Change in Control is approved by a majority of the Board of the
Bank or the board of directors of the Company, as the case may be.
<PAGE>
In the event that the Company converts from the mutual form of
organization to the stock form of organization on a stand-alone basis at any
time subsequent to the effective date of this Agreement ("Stock Company"), a
Change in Control of the Bank or the Stock Company for purposes of this Plan
shall mean an event of a nature that: (I) would be required to be reported in
response to Item I of the current report on Form 8-K, as in effect on the date
hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
("Exchange Act"); or (II) results in a Change in Control of the Bank or the
Stock Company within the meaning of the Home Owners' Loan Act of 1933 and the
Rules and Regulations promulgated by the Office of Thrift Supervision (or its
predecessor agency), as in effect on the date hereof; or (III) without
limitation, such a Change in Control shall be deemed to have occurred at such
time as (a) any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
the Bank or the Stock Company representing twenty percent (20%) or more of the
combined voting power of the Bank's or the Stock Company's outstanding
securities except for any securities of the Bank purchased by the Bank's
employee stock ownership plan and trust; or (b) individuals who constitute the
Board of the Bank or the board of directors of the Stock Company on the date
hereof ("Incumbent Board") cease for any reason to constitute at least a
majority thereof; provided that any person becoming a director subsequent to the
--------
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Stock Company's stockholders was approved by the same nominating
committee serving under an Incumbent Board, shall be, for purposes of this
clause (b), considered as though he were a member of the Incumbent Board; or
(c) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Stock Company or similar
transaction in which the Bank or the Stock Company is not the resulting entity;
or (d) a proxy statement soliciting proxies from stockholders of the Stock
Company, by someone other than the current management of the Stock Company,
seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Stock Company or Bank or similar transaction with one or
more corporations as a result of which the outstanding shares of the class of
securities then subject to the Plan are to be exchanged for or converted into
cash or property or securities not issued by the Bank or the Stock Company shall
be distributed; or (e) a tender offer is made for twenty percent (20%) or more
of the voting securities of the Bank or Stock Company.
(d) "Compensation" shall mean the amount of W-2 earnings
paid to the Employee by the Bank (plus any amounts withheld from the Employee
under a 401(k) Plan or cafeteria plan sponsored by the Bank) within a calendar
year.
(e) "Company" shall mean Cumberland Mountain Bancshares.
(f) "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.
(g) "Code (S)280G Maximum" shall mean product of 2.99 and
his "base amount" as defined in Code (S)280G(b)(3).
(h) "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 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 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
-2-
<PAGE>
served on such Board at any time during the term of this 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. In addition, "Good Reason" shall
mean an impairment of the Employee's health to an extent that it makes continued
performance of his duties hereunder hazardous to his physical or mental health.
(i) "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.
(j) "Surviving Spouse" shall mean the Employee's spouse,
if any, on the date of his death, but shall not include a spouse from whom he is
legally separated or divorced at the time of his death.
(k) "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
first annual anniversary of the Change in Control or the expiration date of this
Agreement.
(l) "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.
(m) "Vested Percentage" shall be determined based on the
number of the Employee's full years of service with the Bank following the
Effective Date, and shall be determined according to the following schedule:
Employee's Full Years of Service Employee's
After the Effective Date Vested Percentage
------------------------ -----------------
Less than 1 0%
1 20%
2 40%
3 60%
4 80%
5 or more 100%
Notwithstanding the foregoing schedule, the Employee's Vested Percentage
shall accelerate to 100% upon (i) termination of his employment due to his
death, Disability, or Good Reason, (ii) the Bank's termination of his employment
without Just Cause and without his consent, or (iii) a Change in Control.
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 by law, the business
of the Bank. The Employee's other duties shall be such as the Board of
Directors (the "Board") of the Bank 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 $55,000 per annum, payable in
cash not less frequently than monthly. The Board shall
-3-
<PAGE>
review, not less often than annually, the rate of the Employee's salary, and in
its sole discretion may decide to increase his salary. Notwithstanding the
foregoing, following a Change in Control, the Boards of Directors of the Bank
and the Company shall continue to annually review the rate of the Employee's
salary, and shall increase said rate of salary by a percentage which is not less
than the average annual percentage increase in salary that the Employee received
over the three calendar years immediately preceding the year in which the Change
in Control occurs.
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. Notwithstanding the foregoing, following a
Change in Control, the Employee shall receive discretionary bonuses that are
made no less frequently than, and in annual amounts not less than, the average
annual discretionary bonuses paid to the Employee during each of the three
calendar years immediately preceding the year in which such change in control
occurs.
5. (a) Participation in Retirement, Medical and Other Plans. 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) Employee Benefits; Expenses. 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. Upon the Employee's request, the Bank will provide him
with an automobile allowance or reimbursement for automobile expenses in an
amount not to exceed seven hundred dollars ($700) per month.
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 thirty-six months thereafter (or such earlier date as
is determined in accordance with Section 9). 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.
In the event the Employee serves the full term of this Agreement, and the
Bank does not offer to renew this Agreement upon substantially the same terms
and conditions for an additional three (3) year term, the Employee shall be
entitled to a severance allowance of six (6) months of his then current base
annual salary, plus such vested employee benefits to which the Employee may be
entitled when due and payable, and the Bank shall have no further obligations to
the Employee under this Agreement, except that in such event, the Bank shall
provide, at the Employee's request, out-placement services to the Employee
through Head Hunters Inc., or such comparable out-placement service as the
parties shall select. The Bank's costs for such services shall not exceed 50%
of the Employee's then current base annual salary.
-4-
<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 such adequate time, attention, skill, and efforts as are
required for the faithful performance of his duties hereunder; provided,
however, that the Employee may pursue personal business interests or 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 have a substantial
negative effect on the performance of Employee's duties pursuant to this
Agreement, or violate any applicable statute or regulation. The Employee
further agrees to promptly reveal to other appropriate executives of the Bank
all matters coming to his attention pertaining to the business or interest of
the Bank. All data or information concerning the business activities of the
Bank which the Employee acquires or has acquired in connection with or as a
result of the performance of services for the Bank, whether under this agreement
or prior to the effective date of this agreement, shall be kept secret and
confidential by the Employee and shall be revealed only to the Bank unless
otherwise consents. This covenant of confidentiality shall extend beyond the
term of this Agreement and shall survive the termination of this Agreement for
any reasons but shall not restrict the Employee's employment with another like
firm or company so long as the confidentiality agreement is not breached.
(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 voluntarily 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 of no
less than five weeks.
(b) The Employee shall accumulate unused vacation from one fiscal
year to the next. Notwithstanding any provision to the contrary, amounts
attributable to accrued but unused vacation shall be payable to the Employee
upon his termination of employment for any reason.
(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.
10. Termination and Termination Pay. Subject to Sections 12 and 13
-------------------------------
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.
-5-
<PAGE>
(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 one hundred eighty (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. (1) 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"), 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 participate 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) 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 (10) days of such termination.
(2) The Employee shall be entitled to receive the compensation and
benefits payable under subsection 10(d)(1) 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).
(e) 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.
(1) 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.
-6-
<PAGE>
(2) All obligations under this Agreement shall terminate, except
to the extent that continuation of this Agreement is necessary for the continued
operation of the Bank: (i) by the Director of the Office of Thrift Supervision
("Director of OTS"), or his or her designee, at the time that the Federal
Deposit Insurance Corporation ("FDIC") or the Resolution Trust Corporation
enters into an agreement to provide assistance to or on behalf of the Bank under
the authority contained in Section 13(c) of FDIA; or (ii) by the Director of the
OTS, or his or her designee, at the time that the Director of the OTS, or his or
her designee approves a supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined by the Director of the OTS
to be in an unsafe or unsound condition. Such action shall not affect any 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.
(f) Voluntary Termination by Employee. Subject to Sections 12 and
13 hereof, the Employee may voluntarily terminate employment with the Bank
during the term of this Agreement, upon at least ninety (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)(2) 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).
(g) Effect on Retirement Benefits. No provision of this Section 10
shall be construed as limiting or otherwise restricting benefits payable
pursuant to Section 13 hereof, except as required by applicable federal law.
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 (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 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) pay for long-term disability and provide such medical
benefits as are available to the Employee under the provisions of
COBRA, for eighteen (18) months (or such longer period, up to 24
months, if COBRA is amended).
-7-
<PAGE>
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, 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. 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 plus the present value of
any benefits which could become payable pursuant to Section 13 hereof, 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 Trust's
final payment of all amounts due under the following paragraph, 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.
The Employee may at any time following a Change in Control 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 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.
Upon the earlier of (i) any payment from the Trust to the Employee, or
(ii) the date twelve (12) 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. Supplemental Retirement Benefits for the Employee.
-------------------------------------------------
(a) Annual Benefit. In the event that the Employee's employment
with the Bank terminates for any reason other than death or Just Cause, the Bank
shall pay the Employee an annual payment for the remainder of his life in an
amount per year equal to (i) the product of his Vested Percentage, and 80% of
his Average Annual Compensation, less (ii) his Annual Offset Amount. The
payments due under this Section 13(a) Article shall begin on the first day of
the second month following the date of the Employee's termination of employment
with the Bank, shall thereafter be made on the annual anniversary dates of such
first payment date, and shall be in addition to any other benefits payable
pursuant to this Agreement.
(b) Reduction Under Federal Law. Notwithstanding the foregoing,
but only to the extent required under federal banking law, the amount payable
pursuant to this Section 13 shall be reduced to the extent that on the date of
the Employee's termination of employment, either (i) the present value of such
amount exceeds the limitations that are set forth in Regulatory Bulletin 27a of
the Office of Thrift Supervision, as in effect on the Effective Date, or
(ii) such reduction is necessary to avoid subjecting the Bank to liability under
Section 280G of the Internal Revenue Code of 1986, as amended. In addition, any
payments made to the Employee pursuant to this
-8-
<PAGE>
Agreement, or otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. Section 1828(k) and any regulations promulgated thereunder.
(c) Death Benefits. (1) In the event that the Employee dies
before benefit payments commence, the Company shall pay to the Employee's
- ------
Surviving Spouse (or estate, if he has no surviving spouse) a lump sum payment,
within 60 days following the Employee's death, in an amount equal to the present
value of 50% of the annual benefit that the Employee would have received under
Article II if he had terminated employment on the date of his death and then had
a Vested Percentage equal to 100%.
(2) In the event that the Employee dies after benefit payments
have commenced under Article II hereof, the Company shall pay to the Employee's
Surviving Spouse (or estate, if he has no surviving spouse) a lump sum payment,
within 60 days following the Employee's death, in an amount equal to the present
value of 50% of the annual benefit that the Employee would have received if he
had survived to collect all of the benefits payable to him under Section 13(a)
hereof.
(3) Death benefits shall commence on the first day of the first
month following the date of the Employee's death, and shall thereafter be made
on the annual anniversary dates of such first payment date.
(d) Trust. (1) The primary source of retirement benefits shall be
the general assets of the Company. However, the Company may establish and fund
an irrevocable trust, whereby assets of the Company will be held by such trust
pursuant to such Trust Agreement, subject to claims by general creditors of the
Company by appropriate judicial action as provided by such Trust.
Notwithstanding the foregoing, in the event of a change in control, the Bank
shall fund a trust in accordance with Section 12(c) hereof.
(2) Any insurance policy or any other asset acquired or held by
the Company in connection with the liabilities assumed by it hereunder, shall
not be deemed to be held under any trust for the benefit of the Employee or his
Surviving Spouse (if any), or to be security for the performance of the
obligations of the Company, but shall be, and remain, a general, unpledged,
unrestricted asset of the Company. Neither the Employee nor his Surviving Spouse
(if any) shall be named as owner of any insurance policy, if any, held in
connection with the liabilities hereunder.
(3) The trustee of the trust established hereunder shall inform
the Board annually prior to the commencement of each fiscal year as to the
manner in which trust assets shall be invested. In the event that funds from the
trust are at any time insufficient to pay retirement benefits, the obligation to
pay benefits shall constitute an unfunded, unsecured promise by the Company to
provide such payments as and to the extent such benefits become payable. In such
case, benefits shall be paid from the general assets of the Company, and no
person shall, by virtue of this Agreement, have any interest in such assets
(other than as an unsecured creditor of the Company). The rights of the Employee
and of his Surviving Spouse (if any) or estate under this Agreement shall be
solely those of an unsecured creditor of the Company except as may be provided
in this Article.
(e) Just Cause. In the event of the Employee's termination of
employment for Just Cause, no Benefits shall be payable hereunder, and the
Company shall have no further obligations hereunder, unless and to the extent
that the Company determines, in its sole and absolute discretion, to the
contrary.
(f) Supremacy. The provisions of this Section 13 shall supersede
any provisions of this Agreement to the contrary.
14. 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.
15. 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
-9-
<PAGE>
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 (10)
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.
16. 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.
17. 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. The Bank agrees that it
will not merge or consolidate with any other corporation or organization, or
permit its business activities to be taken over by any other organization,
unless and until the succeeding or continuing corporation or other organization
shall expressly assume the rights and obligations of the Bank herein set forth.
The Bank further agrees that it will not cease its business activities or
terminate its existence, other than as heretofore set forth in this paragraph,
without having made adequate provision for the fulfillment of its obligation
hereunder.
(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.
18. 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.
19. Applicable Law. Except to the extent preempted by Federal law, the
--------------
laws of the Commonwealth of Kentucky shall govern this Agreement in all
respects, whether as to its validity, construction, capacity, performance or
otherwise.
20. 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.
21. 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.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first herein above written.
ATTEST: MIDDLESBORO FEDERAL BANK, FSB
/s/ R. Stagnolia By: /s/ R.R. Long
- ------------------------------ ----------------------------------------
Secretary R.R. Long, Vice Chairman of the Board
WITNESS:
/s/ Raymond C. Walker /s/ James J. Shoffner
- ------------------------------ -------------------------------------------
James J. Shoffner
-11-
<PAGE>
EMPLOYMENT AGREEMENT
WITH
JAMES J. SHOFFNER
----------------------------
FIRST AMENDMENT
----------------------------
WHEREAS, on _________________, 1996, Middlesboro Federal Bank, Federal
Savings Bank (the "Bank") entered into an Employment Agreement (the "Agreement")
with James J. Shoffner (the "Employee"); and
WHEREAS, the Bank, Cumberland Mountain Bancshares, Inc. (the "Company"),
and the Employee have determined that it is in their respective best interests
to amend the Agreement in the manner set forth herein.
NOW, THEREFORE, the Agreement shall be amended as follows, with such
amendment to become effective immediately upon execution hereof:
1. Section 1(c) of the Agreement shall be amended by adding the
following sentence at the end thereof:
Provided, however, that a Change in Control shall not be deemed
-------- -------
to occur either as the result of acquisitions of Common Stock by
Messrs. J. Roy Shoffner and James J. Shoffner, or under 7.01(c)(i) or
7.01(c)(iii) of this Section if the transaction constituting a Change
in Control is approved by a majority of the Board of the Bank or the
Board of Directors of the Company, as the case may be.
2. The Agreement shall be amended by inserting the following new
section 22:
22. 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 hereunder. Nevertheless, the Company's
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.
3. Nothing contained herein shall be held to alter, vary, or affect
any of the terms, provisions, or conditions of the Agreement other than stated
above.
<PAGE>
First Amendment to
Employment Agreement
Page 13
WHEREFORE, the undersigned hereby approves this First Amendment to the
Agreement.
Date of Execution , 1996
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ATTEST: MIDDLESBORO FEDERAL BANK,
FEDERAL SAVINGS BANK
By:
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Its Chairman of the Board
ATTEST: CUMBERLAND MOUNTAIN BANCSHARES, INC.
By:
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Its Chairman of the Board
WITNESS:
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James J. Shoffner
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Exhibit 10
Middlesboro Federal Bank, Federal Savings Bank
1993 Stock Option plan
1. Purpose of the Plan.
The purpose of this Middlesboro Federal Bank, Federal Savings Bank 1993
Stock Option Plan (the "Plan") is to advance the interests of Middlesboro
Federal Bank, Federal Savings Bank through providing select key Employees and
Directors of the Savings Bank with the opportunity to purchase shares of Common
Stock of the Savings Bank. By encouraging such stock ownership, the Savings Bank
seeks to attract, retain and motivate the best available personnel for positions
of substantial responsibility and to provide additional incentive to key
Employees and Directors of the Savings Bank or any present or future Parent or
Subsidiary of the Savings Bank to promote the success of the business. It is
intended that options issued pursuant to this Plan may constitute either ISOs or
Non-ISOs.
2. Definitions.
As used herein, the following definitions shall apply.
(a) "Savings Bank" shall mean the Middlesboro Federal Bank, Federal
Savings Bank, Middlesboro, Kentucky.
(b) "Board" shall mean the Board of Directors of the Savings Bank.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Committee" shall mean the Stock Option Committee appointed by the
Board in accordance with paragraph 4(a) of the Plan hereof.
(e) "Common Stock" shall mean the common stock, par value $.0l per share,
of the Savings Bank.
(f) "Continuous Employment" or "Continuous Status as an Employee" shall
mean the absence of any interruption or termination of employment by the Savings
Bank or any present or future Parent or Subsidiary of the Savings Bank.
Employment shall not be considered interrupted in the case of sick leave,
military leave or any other leave of absence, approved by the Savings Bank or in
the case of transfers between payroll locations of the Savings Bank, its
Parent, its Subsidiaries or a successor.
(g) "Director" shall mean any member of the Board of Directors.
(h) "Effective Date" shall mean the date specified in paragraph 12 hereof.
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(i) "Employee" shall mean any person employed by the Savings Bank or any
present or future Parent or Subsidiary of the Savings Bank.
(j) "Option" shall mean an option to purchase Shares granted pursuant to
the Plan, whether the option is an incentive stock option within the meaning of
Section 422 of the Code (an "ISO"), or an option that does not so qualify
(a "Non-ISO")
(k) "Option Price" shall mean the price per Option Share at which an
Option may be exercised.
(l) "Optioned Shares" shall mean Shares subject to an Option granted
pursuant to this Plan.
(m) "Optionee" shall mean any person who receives an Option pursuant to
the Plan.
(n) "Parent" shall mean any present or future corporation which would be a
"parent corporation" as defined in Subsections 424(e) and (g) of the Code.
(o) "Plan" shall mean the Middlesboro Federal Bank, Federal Savings Bank
1993 Stock Option Plan.
(p) "Share" shall mean one share of Common Stock.
(q) "Subsidiary" shall mean any present or future corporation which would
be a "subsidiary corporation" as defined in Subsections 424(f) and (g) of the
Code.
3. Shares Subject to the Plan.
Except as otherwise required by the provisions of paragraph 11 hereof,
the aggregate number of Shares deliverable upon the exercise of Options pursuant
to the Plan shall not exceed _____/1/ Shares. Such Shares may either be
authorized but unissued Shares or Shares held in treasury.
If Options should expire, become unexercisable or be forfeited for any
reason without having been exercised in full, the Option Shares shall, unless
the Plan shall have been terminated, be available for the grant of additional
Options under the Plan.
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/1/ Equal to 10% of the total number of shares of Common Stock sold in the
formation of a mutual holding company by the Savings Bank.
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<PAGE>
4. Administration of the Plan.
(a) Composition of Committee. The Plan shall be administered by the
Committee, which shall consist of not less than three (3) Directors appointed by
the Board. All persons designated as members of the Committee shall be
"disinterested persons" within the meaning of Rule 16b-3 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended ("Rule
16b-3"). 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 Directors who are "disinterested persons" within the
meaning of Rule 16b-3.
(b) Powers of the Committee. The Committee shall have discretionary
authority (but only to the extent not contrary to the express provisions of the
Plan or to resolutions adopted by the Board) to interpret the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan, to
determine the form and content of Options to be issued under the Plan and to
make other determinations necessary or advisable for the administration of the
Plan, and 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 shall be deemed the action
of the Committee.
(c) Effect of Committee's Decision. All decisions, determinations and
interpretations of the Committee shall be final and conclusive on all persons
affected thereby.
5. Eligibility.
(a) General Rule. In its sole discretion, the Committee may grant Options
to Employees of the Savings Bank, or any present or future Parent or Subsidiary.
Each nonemployee director shall be granted Non-ISOs only in accordance with
paragraph 11 hereof. An Optionee who has been granted an Option may, if
otherwise eligible, be granted an additional Option or Options. However, no
Employee or Director shall have a right to be granted an Option or, having
received an option, the right to again be granted an Option.
(b) Special Rules. The aggregate fair market value (determined in
accordance with paragraph 7 hereof), as of the date the Option is granted, of
the Shares with respect to which incentive stock options 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 Savings Bank or any
present or future Parent or Subsidiary of the Savings Bank) shall not exceed
$100,000. Notwithstanding the prior provisions of this paragraph, 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 not
incentive stock options, as defined in Section 422 of the Code, pursuant to
Section 422(d) of the Code. Furthermore, in no event shall Shares subject to
Options granted to non-employee Directors under this Plan exceed in the
aggregate more than 20% of the total number of Shares authorized for issuance
pursuant to paragraph 3 hereof.
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6. Term of Plan; Term of Options.
(a) The Plan shall continue in effect for a term of ten years from the
Effective Date, unless sooner terminated pursuant to paragraph 17 hereof. No
Option shall be granted under the Plan after ten years from the Effective Date.
(b) The term of each Option 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 the Option is granted, the term of such
Option shall not exceed five (5) years.
7. Option Price.
(a) The Option Price as to any particular Option granted under the Plan
shall not be less than the fair 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 Savings Bank's outstanding Shares of Common Stock at the time an ISO is
granted, the Option Price shall not be less than 110% of the fair market value
of the Optioned Shares at the time the ISO is granted.
(b) Determination of Option Price. If the Common Stock is traded otherwise
than on a national securities exchange at the time of the granting of an Option,
then the Option Price per Share shall be not less than the mean between the bid
and asked price on the date the Option is granted or, if there is no bid and
asked price on said 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
Option Price per Share shall be determined by the Committee, in its sole and
absolute discretion. If the Common Stock is listed on a national securities
exchange (including the NASDAQ National Market System) at the time of granting
an Option, then the Option Price per share shall be not less than the average of
the highest and lowest selling price on such exchange on the date such Option
is granted or if there were no sales on said date, then the Option Price shall
be not less than the mean between the bid and asked price on such date.
(c) Reissuance of Options. Notwithstanding anything herein to the
contrary, the Committee shall have the authority to cancel outstanding Options
with the consent of the Optionee and to reissue new Options at a lower Option
Price equal to the then fair market value per share of Common Stock in the event
that the fair market value per share of Common Stock at any time prior to the
date of exercise of outstanding Options falls below the Option Price of such
Options; provided that the Option Price, of the reissued Options shall in no
event be less than 75% of the Option Price of the Option when first issued.
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<PAGE>
8. Exercise of Option.
(a) Procedure for Exercise. Any Option granted hereunder shall be
exercisable at such times and under such conditions as shall be permissible
under the terms of the Plan and of the Option granted to an Optionee. An Option
may not be exercised for a fractional Share.
An Optionee may exercise Options granted pursuant to the Plan, subject to
provisions relative to its termination and limitations on its exercise, only by
(l) written notice of intent to exercise the Option with respect to a specified
number of Shares, and (2) payment to the Savings Bank (contemporaneously with
delivery of such notice) in cash, in Common Stock, or a combination of cash and
Common Stock, of the amount of the Option Price for the number of 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 Savings Bank at the Savings Bank's executive
offices. Common Stock utilized in full or partial payment of the Option Price
shall be valued at its fair market value at the date of exercise.
(b) Exercise During Employment or Following Death or Disability. Except as
may be specifically provided for by the terms of an Option as may be authorized
by the Committee at the time of such grant, an Option may be exercised by an
Optionee only while he is an Employee and has maintained Continuous Status as an
Employee since the date of the grant of the Option or within three months after
termination of status as an Employee (but not later than the date on which the
Option would otherwise expire), except if the Savings Bank terminates his
Continuous Employment by reason of (1) "Just Cause" (which for purposes hereof
shall have the same meaning as defined in the then existing employment agreement
between the Optionee and the Savings Bank or any of its Parent or Subsidiaries
and, in the absence of any such agreement, shall have the meaning defined in
12 C.F.R. (S)563.39(b)(l) as in effect on the Effective Date), then the
Optionee's rights to exercise such Option shall expire on the date of such
termination; (2) death, then to the extent that the Optionee would have been
entitled to exercise the Option immediately prior to his death, such Option of
the deceased Optionee 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 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; or (3) Permanent and Total Disability (as such term is defined in
Section 22(e)(3) of the Code), then to the extent that the Optionee would have
been entitled to exercise the Option immediately prior to his Permanent and
Total Disability, such Option may be exercised within one year from the date of
such Permanent and Total Disability, but not later than the date on which the
Option would otherwise expire. Notwithstanding the provisions of any Option
which provides for its exercise in installments as designated by the Committee,
such Option shall become immediately exercisable upon death or Permanent and
Total Disability, as defined herein, of the Optionee.
The Committee's determination whether an Optionee's Continuous Employment
has ceased, and the effective date thereof shall be final and conclusive on all
persons affected thereby.
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<PAGE>
(c) Notwithstanding anything herein to the contrary, in no event shall any
Option granted pursuant to the Plan be exercisable for six months from the date
of grant, except in the event of the death, retirement or Permanent and Total
Disability of the Optionee.
9. Change in Control.
Notwithstanding the provisions of any Option which provides for its
exercise in installments as designated by the Committee, such Option shall
become immediately exercisable in the event of a change in control (or
immediately prior to the occurrence of a change in control of the Savings Bank
if such change would cause the optionee's rights under the Option to be
extinguished for any reason). At such time, the Optionee shall, at the
discretion of the Committee, be entitled to receive cash in an amount equal to
the excess of the fair market value of the Common Stock (determined in
accordance with paragraph 7) subject to such Option over the Option Price of
such shares, in exchange for the surrender of such Options by the Optionee. For
purposes of this paragraph, "change in control" shall mean the acquisition of
the beneficial ownership (as that term is defined in Rule 13d-3 of the General
Rules and Regulations under the Securities Exchange Act of 1934) of 25% or more
of the voting securities of the Savings Bank by any person or by persons acting
as a group within the meaning of Section 13(d) of the Securities Exchange Act of
1934. A change in control shall not be deemed to have occurred with respect to a
transaction in which the Savings Bank forms a holding company without change in
the respective beneficial ownership interests of its stockholders other than
pursuant to the exercise of any dissenter and appraisal rights or the purchase
of shares by underwriters in connection with a public offering. 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. The
decision of the Committee as to whether a change in control, or offer to effect
a change in control, has occurred shall be conclusive and binding.
10. Non-Transferability of Options.
Options granted under the Plan may not be sold, pledged, as signed,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent and distribution. An Option may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. Grants for Nonemployee Directors.
(a) Grants to Nonemployee Directors. Notwithstanding any other provisions
of this Plan, each Director who is not an Employee at the Effective Date shall
receive on the Effective Date, Options to purchase _____/2/ Shares of Common
Stock at an Option Price equal to the initial offering price of such Common
Stock, and each Director who is not an Employee and who first joins the
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/2/ To be determined as follows: 20% of the aggregate number of Shares
subject to the Plan, pursuant to paragraph 3, shall be divided in equal numbers
between all Directors who are not Employees at the Effective Date.
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<PAGE>
Board after the Effective Date shall receive, or the date he became a Director,
Options to purchase 100 Shares of common Stock at an Option Price equal to the
then fair market value of such Common Stock
(b) Terms of Exercise. Options received under the provisions of this
paragraph may be exercised by (l) written notice of intent to exercise the
Option with respect to a specified number of Shares, and (ii) payment to the
Savings Bank (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
Option Price for the number of 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 Savings
Bank at the Savings Bank's executive offices A nonemployee 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 Savings Bank withhold shares of
Common Stock, or to deliver to the Savings Bank 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 or Paragraphs 8(a) or 20 hereof. Such Options
may be exercised only while the Optionee is a Director of the Savings Bank, or
within one year after termination of the Optionee's status as a Director but not
later than the date on which such Options would otherwise expire, or in the
event of such person's death during the term of his directorship, 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. Such Options of a deceased Director 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. 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.
12. Effect or Change in Common Shares Subject to the Plan.
In the event that each of the outstanding shares of Common Stock (other
than Shares held by dissenting shareholders) shall be changed into or exchanged
for a different number or kind of shares of capital stock of the Savings Bank or
of another corporation (whether by reason of merger, consolidation,
recapitalization, reclassification, stock dividend, split-up, combination of
shares, or otherwise), then there shall be substituted for each Share of Common
Stock then under Option or available for Option the number and kind of shares of
capital stock into which each outstanding Share of Common Stock (other than
Shares held by dissenting stockholders) shall be so changed or for which each
such Share shall be so exchanged, together with an appropriate adjustment of the
Option Price.
In the event there shall be any change in the number of, or kind of, issued
shares of Common Stock, or of any capital stock or other securities into which
such Common Stock shall have been changed, or for which it shall have been
exchanged, then if the Committee shall, in its discretion, determine that such
change equitably requires an adjustment in the number, or kind, or Option Price
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<PAGE>
of Shares then subject to an Option or available for Option, such adjustment
shall be made by the Board and shall be effective and binding for a11 purposes
of the Plan.
13. Time or Granting Options.
The date of grant of an Option under the Plan shall, for all purposes, be
the date on which the Committee makes the determination of granting such Option.
Notice of the determination shall be given to each Optionee to whom an Option is
so granted within a reasonable time after the date of such grant.
14. Effective Date.
The Plan shall become effective upon the effective date of the formation of
the Mutual Holding Company by the Savings Bank. Options may be granted prior to
approval of the Plan by the stockholders of the Savings Bank if the exercise of
such Options is subject to such stockholder approval of the Plan. The Plan shall
continue in effect for a term of ten years from the Effective Date, unless
sooner terminated under paragraph 17 hereof.
15. Approval by Stockholders.
The Plan shall be approved by stockholders of the Savings Bank within
twelve (12) months before or after the Effective Date.
16. Modification of Options.
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 Option, provided no such modification, extension or renewal shall
confer on the holder of said Option any right or benefit which could not be
conferred on him by the grant of a new Option at such time, or impair the Option
without the consent of the holder of the Option.
17. Amendment and Termination of the Plan.
The Board may from time to time amend, modify or terminate the Plan, except
that no action of the Board may materially increase (other than as provided in
Paragraph 12) the maximum number of Shares permitted to be optioned or become
available for the granting of Options under the Plan, materially increase the
benefits accruing to Optionees, or materially modify the requirements for
eligibility for participation in the Plan, unless such action of the Board shall
be subject to approval or ratification by the stockholders of the Savings Bank.
No amendment, suspension or termination of the Plan shall, without the
consent of any affected Optionee, alter or impair any rights or obligations
under any Option theretofore granted to such Optionee under the Plan.
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<PAGE>
18. Conditions Upon Issuance shares.
Shares of Common Stock shall not be issued with respect to any Option
granted under the Plan 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.
The inability of the Savings Bank to obtain approval from any regulatory
body or authority deemed by the Savings Bank's counsel to be necessary to the
lawful issuance and sale of any Shares hereunder shall relieve the Savings Bank
of any liability in respect of the non-issuance or sale of such Shares. As a
condition to the exercise of an Option, the Savings Bank may require the person
exercising the Option 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.
19. Reservation or Shares.
The Savings Bank, during the term of the Plan, will reserve and keep
available a number of Shares sufficient to satisfy the requirements of the Plan.
20. Withholding Tax.
The Savings Bank's obligation to deliver shares of Common Stock upon
exercise of Options, in whole or in part, shall be subject to the Optionee's
satisfaction of all applicable federal, state and local income and employment
tax withholding obligations. The Committee, in its discretion, may permit the
Optionee to satisfy the obligation, in whole or in part, by irrevocably electing
to have the Savings Bank withhold shares of Common Stock, or to deliver to the
Savings Bank shares of Common Stock that he already owns, having a value equal
to the amount required to be withheld. The value of shares to be withheld, or
delivered to the Savings Bank, shall be based on the fair market value of the
shares as determined in accordance with procedures to be established by the
Committee, on the date the amount of tax to be withheld is to be determined,
(the "Tax Date"). The Optionee's election to have shares withheld, or delivered
to the Savings Bank, for this purpose will be subject to the following
restrictions:
(l) the election must be made prior to the Tax Date,
(2) the election must be irrevocable,
(3) the election will be subject to the disapproval of the Committee, and
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<PAGE>
(4) if an optionee is a person whose transactions in stock of the Savings
Bank are subject to Section 16(b) of the Securities Exchange Act of 1934
and the Plan is then intended to qualify under Rule 16b-3, such election
may not be made within six months of the date the Option is granted and
must be made during the period beginning on the third business day and
ending on the twelfth business day that follows the release of the Savings
Bank's quarterly or annual summary statement of sales and earnings.
21. Governing Law.
The Plan shall be governed by and construed in accordance with the laws of
the State of Kentucky, except to the extend preempted by federal law as now or
hereafter in effect.
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<PAGE>
EXHIBIT 10.3
MIDDLESBORO FEDERAL BANK, FSB
MANAGEMENT RECOGNITION AND RETENTION PLAN
(As Amended and Restated)
ARTICLE I
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 Middlesboro Federal Bank, Federal Savings Bank ("Bank") hereby
establishes this Management Recognition and Retention Plan ("Plan") upon the
terms and conditions hereinafter stated in this Management Recognition and
Retention Plan.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to reward and retain personnel of
experience and ability by providing such persons with a proprietary interest in
the Bank as compensation for their contributions to the Bank and as an incentive
to make such contributions and to promote the Bank's growth and profitability in
the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
3.01 "Bank" means Middlesboro Federal Bank, FSB.
3.02 "Beneficiary" means the person or persons designated by a Recipient to
receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, his estate.
3.03 "Board" means the board of directors of the Bank.
3.04 "Committee" means a Committee of the Board consisting of all Directors
of the Bank.
3.05 "Common Stock" means shares of the common stock of the Bank.
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3.06 "Company" means Middlesboro Federal Mutual Holding Company, the mutual
holding company of the Bank.
3.07 "Director" means a director of the Bank or the Company who is not an
Officer of the Bank or the Company.
3.08 "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of a participant to perform the work
customarily assigned to him. Additionally, a medical doctor selected or
approved by the Board must advise the Committee that it is either not possible
to determine when such Disability will terminate or that it appears probable
that such Disability will be permanent during the remainder of said
participant's lifetime.
3.09 "Employee" means any person who is currently employed by the Bank or a
subsidiary, including Officers.
3.10 "Minority Stock Offering" means one or more offerings of Common Stock
by the Bank to persons other than the Company.
3.11 "Normal Retirement" means retirement at the normal or early retirement
date as set forth in the Bank's Retirement Plan, or any successor plan.
3.12 "Disinterested Person" means any member of the Board who, at the time
discretion under the Plan is exercised, is a "disinterested person" within the
meaning of Rule 16b-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended.
3.13 "Effective Date" means the date on which the Plan first becomes
effective, as determined under Section 8.07 hereof.
3.14 "Officer" means an executive officer of the Bank, which includes the
Chief Executive Officer, President, Executive Vice Presidents, Senior Vice
Presidents, Vice Presidents in charge of principal business functions, the
Secretary, the Treasurer and any other person performing similar functions.
3.15 "Plan Shares" means shares of Common Stock held in the trust
established under the Plan and issued or issuable to a Recipient pursuant to the
Plan.
3.16 "Plan Share Award" means a right granted under this Plan to earn Plan
Shares.
3.17 "Plan Share Reserve" means the shares of Common Stock held by the
Trustee pursuant to Sections 5.03 and 5.04.
3.18 "Recipient" means an Employee or Officer who receives a Plan Share
Award under the Plan.
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3.19 "Reorganization" means the reorganization of the Bank as a mutual
holding company and the establishment of the Bank as its majority-owned
subsidiary.
3.20 "Trustee" means the person or entity nominated by the Committee and
approved by the Board pursuant to Sections 4.01 and 4.02 to hold legal title to
the Plan assets for the purposes set forth herein.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Role of the Committee. The Plan shall be administered and interpreted
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by the Committee, which shall consist of not less than three non-employee
members of the Board who are Disinterested Persons. In the absence at any time
of a duly appointed Committee, the Plan shall be administered by those members
of the Board who are Disinterested Persons, and by the Board if there are less
than three Disinterested Persons. The Committee shall have all of the powers
allocated to it in this and other Sections of the Plan. The interpretation and
construction by the Committee of any provisions of the Plan or of any Plan Share
Award granted hereunder shall be final and binding. The Committee shall act by
vote or written consent of a majority of its members. Subject to the express
provisions and limitations of the Plan, the Committee may adopt such rules,
regulations and procedures as it deems appropriate for the conduct of its
affairs. The Committee 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 shall recommend to the Board one or more
persons or entity to act as Trustee in accordance with the provisions of this
Plan and Trust.
4.02 Role of the Board. The members of the Committee shall be appointed or
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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 except as provided in Section 7.01(d), the Board
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may not revoke any Plan Share Award except in the event of revocation for Cause,
or with respect to unearned Plan Share Awards in the event a Recipient of a Plan
Share Award voluntarily terminates his employment or his directorship (as the
case may be) with the Bank prior to retirement.
4.03 Limitation on Liability. No member of the Board or the Committee or
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the Trustee 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 Bank shall indemnify such member against expense
(including reasonable attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in
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connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in the best interests of the Bank and a
subsidiary 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 Bank
to the Trust established under this Plan. Such amounts shall be paid to the
Trustees at the time of contribution. No contributions by Employees shall be
permitted.
5.02 Initial Investment. Any amounts held by the Trust prior to the
------------------
effective date of the Reorganization and the Minority Stock Offering shall be
invested by the Trustee in such interest-bearing account or accounts at the Bank
as the Trustee shall determine to be appropriate.
5.03 Investment of Trust Assets upon the Reorganization; Creation of Plan
--------------------------------------------------------------------
Share Reserve. Upon the consummation of the Reorganization and the Minority
- -------------
Stock Offering, the Trustee shall invest all of the Trust's assets exclusively
in Common Stock except as otherwise provided below; provided, however, that the
-------- -------
Trust shall not invest in more than three percent (3%) of the shares of Common
Stock issued in connection with the Minority Stock Offering which shall
constitute the Plan Share Reserve. Any earnings received with respect to Common
Stock held in the Plan Share Reserve shall be held in an interest-bearing
account. Any earnings received with respect to Common Stock subject to a Plan
Share Award shall be held in an interest-bearing account on behalf of the
individual Recipient.
5.04 Effect of Allocations, Returns and Forfeitures upon Plan Share
--------------------------------------------------------------
Reserves. Upon the allocation of Plan Share Awards under Section 6.02, or the
- --------
decision of the Committee to return Plan Shares to the Bank, the Plan Share
Reserve shall be reduced by the number of Shares subject to the Awards so
allocated or returned. Any shares subject to an Award that may not be earned
because of a forfeiture by the Recipient pursuant to Section 7.01 shall be
returned to the Plan Share Reserve.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 Eligibility. Only Employees of the Bank or a subsidiary are eligible
-----------
to receive Plan Share Awards.
6.02 Allocations. The Committee may determine which of the Employees
-----------
referenced in Section 6.01 will be granted Plan Share Awards and the number of
shares covered by each Award; provided, however, that the number of shares
-------- -------
covered by such Awards may not exceed the number of shares in the Plan Share
Reserve immediately prior to the grant of such Awards,
4
<PAGE>
and provided further, that in no event shall any Awards be made that will
-------- -------
violate the Charter, Bylaws or Plan of Reorganization and Stock Issuance of the
Bank or any applicable federal or state law or regulation. In the event Plan
Shares are forfeited for any reason, the Committee, from time to time, may
determine which of the Recipients referenced in Section 6.01 will be granted
additional Plan Share Awards to be awarded from forfeited Plan Shares. In
selecting those Recipients to whom Plan Share Awards will be granted and the
number of Plan Shares covered by such Awards, the Committee shall consider the
position and responsibilities of the eligible Recipients, the length and value
of their services to the Bank and a subsidiary, the compensation paid to the
Recipients and any other factors the Committee may deem relevant.
6.03 Form of Allocation. As promptly as practicable after a determination
------------------
is made pursuant to Section 6.02 that a Plan Share Award has been granted, the
Committee shall notify the Recipient in writing of the grant of the Award, the
number of Plan Shares covered by the Award, and the terms upon which the Plan
Shares subject to the Award may be earned. The date on which the Committee so
notifies the Recipient 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 Allocations Not Required. Notwithstanding anything to the contrary in
------------------------
Sections 6.01 and 6.02, no Recipient shall have any right or entitlement to
receive a Plan Share Award hereunder, such Awards being at the total discretion
of the Committee and the Board, nor shall the salaried Recipients as a group
have such a right. The Committee, with the approval of the Board (or if so
directed by the Board), may return all Common Stock in the Plan Share Reserve to
the Bank at any time, and cease issuing Plan Share Awards.
ARTICLE VII
EARNINGS AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earnings Plan Shares; Forfeitures.
---------------------------------
(a) General Rules. Unless the Committee shall specifically state to
-------------
the contrary at the time a Plan Share Award is granted, Plan Shares subject to
an Award shall be earned and non-forfeitable by a Recipient according to the
following schedule:
Years of Service Vested Interest
---------------- ---------------
Less than 2 0%
2 20%
3 20%
4 20%
5 20%
6 20%
5
<PAGE>
(b) Exception for Termination Due to Death, Disability and Normal
-------------------------------------------------------------
Retirement. Notwithstanding the general rule contained in Section 7.01(a), Plan
- ----------
Shares subject to a Plan Share Award held by a Recipient whose service as an
Employee, Officer or Director with the Bank or a subsidiary terminates due to
death, Disability or Normal Retirement, or any party thereof that has not
theretofore been earned, shall be deemed earned as of the Recipient's last day
of service as an Employee, Officer or Director with the Bank or a subsidiary.
(c) Exception for Terminations after a Change in Control.
----------------------------------------------------
Notwithstanding the general rule contained in Section 7.01(a), all Plan Shares
subject to a Plan Share Award held by a Recipient whose employment with or
service on the Board of the Bank or a subsidiary terminates following a Change
in Control of the Bank or the Company shall be deemed earned as of the
Recipient's last day of service as an Employee, Officer or Director with the
Bank or a subsidiary. A "Change in Control" of the Bank shall mean (i) a plan
of reorganization, merger, merger conversion, consolidations or sale of all or
substantially all of the assets of the Bank or the Company or a similar
transaction occurs in which the Bank or the Company is not the resulting entity;
(ii) individuals who constitute the Board of the Bank or the board of directors
of the Company cease for any reason to constitute a majority thereof; or (iii) a
Change in Control within the meaning of 12 C.F.R. (S)574.4 occurs, as determined
by the Board of the Bank or the board of directors of the Company; provided,
--------
however, that a Change in Control shall not be deemed to occur either as the
- -------
result of acquisitions of Common Stock by Messrs. J. Roy Shoffner and James J.
Shoffner, or under 7.01(c)(i) or 7.01(c)(iii) of this Section if the transaction
constituting a Change in Control is approved by a majority of the Board of the
Bank or the board of directors of the Company, as the case may be.
In the event that the Company converts from the mutual form of
organization to the stock form of organization on a stand-alone basis at any
time subsequent to the effective date of this Agreement ("Stock Company"), a
Change in Control of the Bank or the Stock Company for purposes of this Plan
shall mean an event of a nature that: (I) would be required to be reported in
response to Item I of the current report on Form 8-K, as in effect on the date
hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
("Exchange Act"); or (II) results in a Change in Control of the Bank or the
Stock Company within the meaning of the Home Owners' Loan Act of 1933 and the
Rules and Regulations promulgated by the Office of Thrift Supervision (or its
predecessor agency), as in effect on the date hereof; or (III) without
limitation, such a Change in Control shall be deemed to have occurred at such
time as (a) any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
the Bank or the Stock Company representing twenty percent (20%) or more of the
combined voting power of the Bank's or the Stock Company's outstanding
securities except for any securities of the Bank purchased by the Bank's
employee stock ownership plan and trust; or (b) individuals who constitute the
Board of the Bank or the board of directors of the Stock Company on the date
hereof ("Incumbent Board") cease for any reason to constitute at least a
majority thereof; provided that any person becoming a director subsequent to the
--------
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Stock Company's stockholders was
6
<PAGE>
approved by the same nominating committee serving under an Incumbent Board,
shall be, for purposes of this clause (b), considered as though he were a member
of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Bank or the Stock Company or
similar transaction in which the Bank or the Stock Company is not the resulting
entity; or (d) a proxy statement soliciting proxies from stockholders of the
Stock Company, by someone other than the current management of the Stock
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Stock Company or Bank or similar transaction with one or
more corporations as a result of which the outstanding shares of the class of
securities then subject to the Plan are to be exchanged for or converted into
cash or property or securities not issued by the Bank or the Stock Company shall
be distributed; or (e) a tender offer is made for twenty percent (20%) or more
of the voting securities of the Bank or Stock Company.
(d) Revocation for Cause. Notwithstanding anything hereinafter to the
--------------------
contrary, the Board may by resolution immediately revoke, rescind and terminate
any Plan Share Award, or portion thereof, previously awarded under this Plan, to
the extent Plan Shares have not been delivered thereunder to the Recipient,
whether or not yet earned, in the case of an Employee, Officer or Director who
is discharged from the Bank or a subsidiary for Cause (as hereinafter defined),
or who is discovered after termination of employment to have engaged in conduct
that would have justified termination for Cause. "Cause" is defined as personal
dishonesty, willful misconduct, any breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, or the willful violation
of any law, rule or regulation (other than traffic violations or similar
offenses) that results in a material loss to the Bank or a subsidiary, or a
final cease-and-desist order.
7.02 Accrual of Dividends. Whenever Plan Shares are paid to a Recipient or
--------------------
Beneficiary under Section 7.03, such Recipient or Beneficiary shall also be
entitled to receive, with respect to each Plan Share paid, an amount equal to
any cash dividends 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 is granted 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
-------------------------------------
subsection (b) below, Plan Shares shall be distributed to the Recipient or his
Beneficiary, as the case may be, as soon as practicable after they have been
earned. No fractional shares shall be distributed.
(b) Timing; Exception for Ten Percent (10%) Shareholders.
----------------------------------------------------
Notwithstanding subsection (a) above, no Plan Shares may be distributed prior to
the date that is five (5) years from the effective date of the Reorganization to
the extent the Recipient or Beneficiary, as the case may be, would after receipt
of such shares own in excess of then ten percent (10%) of the issued and
outstanding shares of Common Stock. Any Plan Shares remaining unpaid solely by
7
<PAGE>
reason of the operation of this subsection (b) shall be paid to the Recipient or
his Beneficiary on the date that is five (5) years from the effective date of
the Reorganization.
(c) Form of Distribution. All Plan Shares, together with any shares
--------------------
representing stock dividends, shall be distributed in the form of Common Stock.
One Share of Common Stock shall be given for each Plan Share earned and payable.
Payments representing accumulated cash dividends (and earnings thereon) shall be
made in cash.
(d) Withholding. The Trustee may withhold from any payment or
-----------
distribution made under this Plan sufficient amounts of cash or shares of Common
Stock to cover any applicable withholding and employment taxes, and if the
amount of such payment is insufficient, the Trustee may require the Recipient or
Beneficiary to pay to the Trustee the amount required to be withheld as a
condition of delivering the Plan Shares. The Trustee shall pay over to the Bank
or a subsidiary that employs or employed such Recipient any such amount withheld
from or paid by the Recipient or Beneficiary.
7.04 Voting of Plan Shares. After a Plan Share Award has been granted, the
---------------------
Recipient shall be entitled to direct the Trustee as to the voting of the Plan
Shares that are covered by the Plan Share Award and that have not yet been
earned and distributed to him pursuant to Section 7.03, subject to rules and
procedures adopted by the Committee for this purpose. All shares of Common
Stock held by the Trust as to which Recipients are not entitled to direct, or
have not directed, the voting, shall be voted by the Trustee in the same
proportion as Plan Shares that have been awarded and voted.
ARTICLE VIII
MISCELLANEOUS
8.01 Adjustments for Capital Changes. In the event of any change in the
-------------------------------
outstanding shares of Common Stock of the Bank by reason of any stock dividend
or split, recapitalization, merger, consolidation, spin-off, reorganization,
combination or exchange of shares, or other similar corporate change, or other
increase or decrease in such shares effected without receipt or payment of
consideration by the Bank, the Committee shall adjust the aggregate number of
Plan Shares available for issuance pursuant to the Plan and shall adjust the
number of shares to which any Plan Share Award relates to prevent dilution or
enlargement of the rights granted to the Recipient under the Plan.
8.02 Amendment and Termination of Plan. The Board may, by resolution, at
---------------------------------
any time amend or terminate the Plan. The power to amend or terminate shall
include the power to direct the Trustee to return to the Bank all or any part of
the assets of the Trust, including shares of Common Stock held in the Plan Share
Reserve, as well as shares of Common Stock and other assets subject to Plan
Share Awards but not yet earned by the Employees to whom they are allocated.
However, the termination of the Trust shall not affect a Recipient's right to
earn Plan
8
<PAGE>
Share Awards and to the distribution of Common Stock relating thereto, including
earnings thereon, in accordance with the terms of this Plan and the grant by the
Committee or Board.
8.03 Nontransferability. Plan Share Awards and rights to Plan Shares shall
------------------
not be transferable by a Recipient, and during the lifetime of the Recipient,
Plan Shares may only be earned by and paid to the Recipient who was notified in
writing of the Award by the Committee pursuant to Section 6.03.
8.04 Employment 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 on the
part of any Employee to continue in the employ of the Bank or a subsidiary
thereof, or the Company.
8.05 Voting and Dividend Rights. No Recipient shall have any voting or
--------------------------
dividend rights or other rights of a shareholder in respect of any Plan Shares
covered by a Plan Share Award, except as expressly provided in Sections 7.02 and
7.04, prior to the time said Plan Shares are actually distributed to such
Recipient.
8.06 Governing Law. The Plan and Trust and this Agreement shall be
-------------
governed by the laws of the Commonwealth of Kentucky.
8.07 Effective Date. This Plan is effective as of the effective date of
--------------
the Reorganization and Minority Stock Offering ("Effective Date").
8.08 Term of Plan. This Plan shall remain in effect until the earlier of
------------
(1) termination by the Board, or (2) 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.
8.09 Tax Status of Trust. It is intended that (i) the Trust associated
-------------------
with the Plan be treated as a grantor trust of the Bank 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 Bank, 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>
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed by its
duly authorized Officers and the corporate seal to be affixed and duly attested,
as of the _____ day of _______________, 199__.
By:
-----------------------------
Attest:
- --------------------------
IN WITNESS WHEREOF, I, _________________________ execute this Agreement, as
Trustee accepting and binding myself to undertake and perform the obligations
and duties of the Trustee hereunder and consenting to the foregoing Plan and
Trust.
By:
-----------------------------
Attest:
- --------------------------
10
<PAGE>
EXHIBIT 10.4
MIDDLESBORO FEDERAL BANK, F.S.B.
RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS
------------------------------------------
ARTICLE I
Definitions
-----------
The following words and phrases, when used in the Plan with an initial
capital letter, shall have the meanings set forth below unless the context
clearly indicates otherwise.
"Bank" shall mean Middlesboro Federal Bank, F.S.B. or any successor in
interest.
"Beneficiary" shall mean the Participant's surviving spouse, or if none,
the Participant's estate.
"Benefits" shall mean, collectively, the benefits payable under Article II
of the Plan.
"Board" shall mean the Board of Directors of the Bank.
"Change in Control" shall have the meaning provided in the Bank's
Management Recognition and Retention Plan.
"Director" shall mean a member of the Board.
"Effective Date" shall mean the date on which the Plan first becomes
effective, as determined under Article XIV hereof.
"Participant" means an individual who serves as a Director at some time on
or after the Effective Date.
"Plan" shall mean this Middlesboro Federal Bank, F.S.B. Retirement Plan for
Non-Employee Directors.
"Trust" and "Trust Agreement" shall mean that agreement entered into
pursuant to the terms hereof between the Bank and the Trustee, and "Trust" means
the trust created thereunder.
"Trustee" shall mean that person(s) or entity appointed by the Board
pursuant to the Trust Agreement to hold legal title to the Plan Assets for the
purposes set forth herein.
"Vested Percentage" shall be determined based on the number of the
Participant's full years of service on the Board, whether or not as an Employee,
and whether before or after the Plan's Effective Date, and shall be determined
according to the following schedule:
Full Years of Participant's
Service On the Board Vested Percentage
-------------------- -----------------
Less than 5 0%
5 to 9 25%
10 to 14 50%
15 to 19 75%
20 or more 100%
Notwithstanding the foregoing, a Director's Vested Percentage shall
accelerate to 100% upon his termination of service on the Board as a result of
his disability (as determined by the Board), or upon the occurrence of a Change
in Control.
<PAGE>
ARTICLE II
Retirement Benefits
-------------------
In the event that a Participant's service on the Board terminates for any
reason other than his death, the Bank shall make 60 monthly payments to the
Participant, with the amount of each payment being equal to the product of his
Vested Percentage and 75% of the average monthly fees that the Participant
received for service on the Board during the 12-month period preceeding
termination of his service on the Board. The payments due under this Article
shall begin on the first day of the second month following the date of the
Participant's termination of service on the Board, and shall thereafter be made
on the first day of each month thereafter. No Benefits shall be payable
hereunder after the death of the Participant.
Notwithstanding the foregoing, but only to the extent required under
federal banking law, the amount payable hereunder shall be reduced to the extent
that on the date of a Participant's termination of employment, either (i) the
present value of his Benefits exceeds the limitations that are set forth in
Regulatory Bulletin 27a of the Office of Thrift Supervision, as in effect on the
Effective Date, or (ii) such reduction is necessary to avoid subjecting the Bank
to liability under Section 280G of the Internal Revenue Code of 1986, as
amended.
ARTICLE III
Source of Benefits
------------------
Benefits shall constitute an unfunded, unsecured promise by the Bank to
provide such payments in the future, as and to the extent such Benefits become
payable. Benefits shall be paid from the general assets of the Bank, and no
person shall, by virtue of this Plan, have any interest in such assets (other
than as an unsecured creditor of the Bank). For any fiscal year during which a
Trust, as described herein at Article VI, is maintained, (i) the Trustee shall
inform the Board annually prior to the commencement of each fiscal year as to
the manner in which such trust assets shall be invested, and (ii) the Board
shall, as soon as practicable after the end of each fiscal year of the Bank,
provide the Trustee with a schedule specifying the amounts payable to each
Participant, and the time for making such payments.
ARTICLE IV
Assignment
----------
Except as otherwise provided by this Plan, it is agreed that neither the
Participant nor his Beneficiary nor any other person or persons shall have any
right to commute, sell, assign, transfer, encumber and pledge or otherwise
convey the right to receive any Benefits hereunder, which Benefits and the
rights thereto are expressly declared to be the and nontransferable.
ARTICLE V
No Retention of Services
------------------------
The Benefits payable under this Plan shall be independent of, and in
addition to, any other compensation payable by the Bank to a Participant,
whether in the form of fees, bonus, retirement income under employee benefit
plans sponsored or maintained by the Bank or otherwise. This Plan shall not be
deemed to constitute a contract of employment between the Bank and any
Participant.
2
<PAGE>
ARTICLE VI
Rights of Directors;
--------------------
Termination or Suspension under Federal Law
-------------------------------------------
The rights of the Directors under this Plan and of their Beneficiaries (if
any) shall be solely those of unsecured creditors of the Bank. In the event
that the Bank shall establish an irrevocable Trust to be attached as Schedule A
hereto ("Trust Plan"), such assets of the Bank may be held by such Trust
pursuant to such Trust Plan, subject to claims by general creditors of the Bank
by appropriate judicial action as provided by such Trust Plan.
If the Participant 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 Plan shall
terminate, as of the effective date of the order, but vested rights of the
parties shall not be affected.
If the Bank is in default (as defined in Section 3(x)(1) of FDIA), all
obligations under this Plan shall terminate as of the date of default; however,
this Paragraph shall not affect the vested rights of the parties.
All obligations under this Plan shall terminate, except to the extent that
continuation of this Plan is necessary for the continued operation of the Bank:
(i) by the Director of the Office of Thrift Supervision ("Director of OTS"), or
his or her designee, at the time that the Federal Deposit Insurance Corporation
("FDIC") or the Resolution Trust Corporation enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in Section
13(c) of FDIA; or (ii) by the Director of the OTS, or his or her designee, at
the time that the Director of the OTS, or his or her designee approves a
supervisory merger to resolve problems related to operation of the Bank or when
the Bank is determined by the Director of the OTS to be in an unsafe or unsound
condition. Such action shall not affect any vested rights of the parties.
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 Participant from
participating in the conduct of the Bank's affairs, the Bank's obligations under
this Plan 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 Participant 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.
ARTICLE VII
Automatic Cash-Out Upon a Change in Control
-------------------------------------------
The provisions of this Article shall supersede any provisions of this
Plan to the contrary. In the event of a Change in Control while a Participant
is serving on the Board, the Participant's Vested Percentage shall become 100%,
and the present value of his Benefits shall be due and payable to the
Participant in one lump-sum payment within 10 days following such Change in
Control. In the event of a Change in Control after a Participant terminates
service on the Board, the present value of any Benefits not yet paid to the
Participant shall be due and payable to the Participant in one lump-sum payment
within 10 days following such Change in Control.
ARTICLE VIII
Reorganization
--------------
The Bank agrees that it will not merge or consolidate with any other
corporation or organization, or permit its business activities to be taken over
by any other organization, unless and until the succeeding or continuing
corporation or other organization shall expressly assume the rights and
obligations of the Bank herein set forth. The Bank further agrees that it will
not cease its business activities or terminate its existence, other than as
heretofore set forth in this paragraph, without having made adequate provision
for the fulfillment of its obligation hereunder.
3
<PAGE>
ARTICLE IX
Amendment and Termination
-------------------------
The Board may amend or terminate the Plan at any time, provided that
no such amendment or termination shall, without the written consent of an
affected Participant, alter or impair any rights of the Participant under the
Plan.
ARTICLE X
State Law
---------
This Plan shall be construed and governed in all respects under and by
the laws of the Commonwealth of Kentucky. If any provision of this Plan shall
be held by a court of competent jurisdiction to be invalid or unenforceable, the
remaining provisions hereof shall continue to be fully effective.
ARTICLE XI
Headings; Gender
----------------
Headings and subheadings in this Plan are inserted for convenience and
reference only and constitute no part of this Plan. This Plan shall be
construed, where required, so that the masculine gender includes the feminine.
ARTICLE XII
Interpretation of the Plan
--------------------------
The Board shall have sole and absolute discretion to administer,
construe, and interpret the Plan, and the decisions of the Board shall be
conclusive and binding on all affected parties (unless such decisions are
arbitrary and capricious).
ARTICLE XIII
Legal Fees
----------
In the event any dispute shall arise between a Participant and the
Bank as to the terms or interpretation of this Plan, whether instituted by
formal legal proceedings or otherwise, including any action taken by a
Participant to enforce the terms of this Plan or in defending against any action
taken by the Bank, the Bank shall reimburse the Participant for all costs and
expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions; provided that the Participant shall return such amounts
to the Bank if he fails to obtain a final judgment by a court of competent
jurisdiction or obtain a settlement of such dispute, proceedings, or actions
substantially in his favor. Such reimbursements to a Participant shall be paid
within 10 days of the Participant 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 Participant. Any such request for
reimbursement by a Participant shall be made no more frequently than at 30 day
intervals.
ARTICLE XIV
Effective Date
--------------
The Plan shall become effective immediately upon its approval by the
Board. Unless terminated earlier in accordance with Article IX, this Plan shall
remain in effect during the term of service of the Participants and until all
Benefits payable hereunder have been made.
4
<PAGE>
MIDDLESBORO FEDERAL BANK, FEDERAL SAVINGS BANK
RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS
--------------------------
First Amendment
--------------------------
WHEREAS, Middlesboro Federal Bank, Federal Savings Bank (the "Bank")
maintains the Middlesboro Federal Bank, Federal Savings Bank Retirement Plan for
Non-Employee Directors (the "Plan") and Article IX of the Plan permits the Board
of Directors of the Bank (the "Board") to amend the Plan at any time; and
WHEREAS, the Board has determined that it is in the best interests of the
Bank to amend the Plan (i) to convert the Plan from a defined benefit pension
arrangement to a defined contribution arrangement without increasing the
financial expense associated with the Plan, and (ii) to permit Plan participants
to elect to have amounts credited to their Plan accounts appreciate or
depreciate as if such amounts were invested either in certificates of deposit of
the Bank, common stock of the Bank's holding company, or a combination thereof;
NOW THEREFORE, pursuant to Article IX of the Plan, the Plan is hereby
amended as follows, effective on the date specified below.
1. Article I of the Plan is amended by inserting the following
definitions (in a manner that continues to present them in alphabetical order):
"Account" shall mean a bookkeeping account maintained by the Bank
in the name of each Participant.
"Beneficiary" shall mean the person or persons whom a Participant
may designate as the beneficiary of the Participant's Benefits under
Articles II and III. A Participant's election of a Beneficiary shall
be made on the Election Form, shall be revocable by the Participant
during his or her lifetime, and shall be effective only upon its
delivery to an executive officer of the Bank and acceptance by the
Board (which acceptance shall be presumed unless, within ten business
days of delivery of the Participant's election, the Board provides the
Participant with a written notice detailing the reasons for its
rejection).
"Benefits" shall mean, collectively, the benefits payable under
Articles II and III of the Plan.
"Change in Control" shall have the meaning provided for in the
Cumberland Mountain Bancshares, Inc. 1993 Stock Option Plan, as said
plan may be amended from time to time, provided that a change to said
definition shall be
<PAGE>
Retirement Plan for Non-Employee Directors
First Amendment
Page 6
ineffective to the extent it is adverse to a Participant and not
consented to by the Participant.
"Election Form" shall mean the form attached hereto as Exhibit
"A."
2. Article I of the Plan is further amended by changing its name to the
Middlesboro Federal Bank, Federal Savings Bank Retirement Plan for Directors.
3. Article I of the Plan is amended further by deleting both the
definition of "Vested Percentage", and the last paragraph in its entirety.
4. Article II of the Plan is amended in its entirety to provide as
follows:
ARTICLE II
----------
Credits to Accounts
-------------------
On the Effective Date. Each Participant who is a Director on the
Effective Date shall have his or her account credited with an amount equal
to the product of $1,524 and his or her full years of service as a
Director, up to a maximum of 20 years.
After the Effective Date. On each July 1st after the Effective Date,
each Participant who is a Director on said date shall have his or her
Account credited with an amount equal to $1,524. There shall be a limit of
20 years worth of credits available to each Participant, including credits
on the Effective Date for past service. In addition, each Participant's
Account shall be credited with a rate of return equal to the Participant's
choice of (i) the highest rate of interest paid by the Bank on certificates
of deposits having a term of one year, or (ii) the dividend-adjusted rate
of return on the Company's common stock.
5. The Plan is amended by inserting new Article III immediately following
existing Article II and by renumbering Articles III through XIV as Articles IV
through XV, with all internal references adjusted accordingly to provide as
follows:
6
<PAGE>
Retirement Plan for Non-Employee Directors
First Amendment
Page 7
ARTICLE III
-----------
Distribution from Accounts; Election Forms
------------------------------------------
General Rule. Account balances shall be paid, in cash, in ten equal
annual installments beginning during the first day of the second month
which next follows the date which the Participant ceases to be a Director
for any reason, with any subsequent payments being made on each of the nine
anniversary dates until the Participant has collected the entire value of
his or her account. Notwithstanding the foregoing: (i) on his or her
Election Form, a Participant may elect within one year of becoming a
Participant to have his or her Account paid in a single lump sum
distribution, or in annual payments over a period of less than ten years;
(ii) to the extent required under federal banking law, the amounts
otherwise payable to a Participant shall be reduced to the extent that on
the date of a Participant's termination of employment, either the present
value of his or her Benefits exceeds the limitations that are set forth in
Regulatory Bulletin 27a of the Office of Thrift Supervision, as in effect
on the Effective Date, or such reduction is necessary to avoid subjecting
the Bank to liability under Section 280G of the Internal Revenue Code of
1986, as amended.
Death Benefits. If a Participant dies before receiving all Benefits
payable pursuant to the preceding paragraph (including benefits accrued by
the Participant, but not yet credited to his or her account), then the
remaining balance of the Participant's Account shall be distributed in a
lump sum to the Participant's designated Beneficiary (or estate, in the
absence of a validly-named or living Beneficiary) not later than the first
day of the second month following the date of the Participant's death;
provided that a Participant may specify on the Election Form a distribution
period of up to ten years (with payments to be made in substantially equal
annual installments). Beneficiary designations made pursuant to executed
Election Forms shall be revocable during the Participant's lifetime and a
Participant may, by submitting an effective superseding Election Form at
any time and from time to time, prospectively change the designated
Beneficiary and the manner of payment to a Beneficiary.
6. The second sentence of former Article VII of the Plan (which this
Amendment has redesignated as Article VIII) is amended in its entirety to
provide as follows:
In the event of a Change in Control while a Participant is serving on
the Board, the present value of his Benefits shall be due and payable
to the Participant in one lump-sum payment within 10 days following
such Change in Control.
7. Nothing contained herein shall be held to alter, vary or affect any of
the terms, provisions, or conditions of the Plan or any agreement entered into
thereunder, other than as stated above.
7
<PAGE>
Retirement Plan for Non-Employee Directors
First Amendment
Page 8
WHEREFORE, on this _____ day of _______, 1997, the Employer hereby executes
this First Amendment to the Plan.
MIDDLESBORO FEDERAL BANK,
FEDERAL SAVINGS BANK
By
--------------------------------
Its President
- -----------
Date
Attest: (Seal)
-----------------------------
8
<PAGE>
EXHIBIT 10.5
MIDDLESBORO FEDERAL BANK, F.S.B.
INCENTIVE COMPENSATION PLAN
-------------------
Basic Plan Document
-------------------
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
INCENTIVE COMPENSATION PLAN
---------------------------
Basic Plan Document
---------------------------
Table of Contents
Page
ARTICLE I. General Provisions............................... 1
ARTICLE II. Definitions...................................... 1
ARTICLE III. Eligibility and Participation.................... 4
ARTICLE IV. Benefits......................................... 4
ARTICLE V. Deferred Compensation............................ 8
ARTICLE VI. Plan Administration.............................. 9
ARTICLE VII. Amendment and Termination........................ 9
ARTICLE VIII. General Provisions............................... 10
<PAGE>
MIDDLESBORO FEDERAL BANK, F.S.B.
INCENTIVE COMPENSATION PLAN
-------------------
Basic Plan Document
-------------------
ARTICLE I. GENERAL PROVISIONS
1.01 Purpose. This Basic Plan Document and the Adoption Agreement
-------
executed by the Employer together establish the Plan, which is being implemented
and maintained for the purpose of providing select Directors, Key Employees, and
Employees with incentive compensation in the form of Bonuses, Stock Options, and
Restricted Stock in the event the Employer meets certain performance goals
indicative of its profitability and stability.
1.02 Construction. The Employer intends that the Plan be an unfunded
------------
plan maintained primarily for the purpose of providing Incentive Awards, and
that the Plan not constitute an "employee benefit plan" within the meaning of
---
ERISA. Notwithstanding the foregoing, it is intended that Article V of the Plan
shall be maintained primarily for the purpose of providing deferred compensation
for a select group of management or highly compensated employees within the
meaning of Section 201(2) of ERISA. The Plan shall be administered, construed,
and interpreted in a manner consistent with the purpose and intent set forth in
this Section.
1.03 Effective Date. The Plan shall become effective on July 1, 1996.
--------------
ARTICLE II. DEFINITIONS
Unless the context clearly requires otherwise, the terms defined in this
Article II shall, for all purposes of this Plan, have the respective meanings
specified in this Article II.
2.01 "Adoption Agreement" means the Adoption Agreement executed by the
------------------
Employer.
2.02 "Basic Plan Document" means this Basic Plan Document associated with
-------------------
the First Lancaster Federal Savings Bank Incentive Compensation Plan.
2.03 "Beneficiary" means the person or persons designated as a
-----------
Participant's beneficiary or beneficiaries in accordance with Section 4.07
hereof or a Participant's deferred compensation agreement.
2.04 "Board" means the Employer's Board of Directors.
-----
<PAGE>
2.05 "Bonus Pool" has the meaning set forth in the Adoption Agreement.
----------
2.06 "Bonuses" mean cash bonuses payable to Participants pursuant to
-------
Section 4.01 hereof.
2.07 "CAMEL Rating" means the most recent CAMEL rating given for its
------------
safety and soundness.
2.08 "Cause" means personal dishonesty, incompetence, willful misconduct,
-----
breach of duty involving personal profits, intentional failure to perform stated
duties, willful violation of a material provision of any law, rule or regulation
(other than traffic violations or similar offense), or a material violation of a
final cease-and-desist order or any other action which results in a substantial
financial loss to the Employer. A determination of "Cause" shall be made by the
Committee within its sole discretion.
2.09 "Change in Control" is defined in the Bank's Management Recognition
-----------------
and Retention Plan, and shall be defined in the same manner for purposes of this
Plan. Any amendment to the Bank's Management Recognition and Retention Plan
that modifies said definition shall be deemed to apply with equal force, effect,
and timing to the definition of Change in Control for purposes of this Plan,
except that a modification that may adversely affect a Participant shall be
ineffectual unless such Participant consents in writing to be bound by the
modification.
2.10 "Code" means the Internal Revenue Code of 1986, as amended from time
----
to time. References to a Code section shall include any comparable section or
sections of future legislation that amends, supplements or supersedes such
section.
2.11 "Committee" means the committee specified in the Adoption Agreement.
---------
In the absence at any time of a duly appointed committee, the Plan shall be
administered by those members of the Employer's Board who are "disinterested
persons" within the meaning of Rule 16b-3.
2.12 "Common Stock" means the common stock identified in the Adoption
------------
Agreement.
2.13 "Compensation" means (i) in the case of an Employee, the Employee's
------------
base salary for the Plan Year, as in effect on the last day of the Plan Year,
and (ii) in the case of a Director who is not an Employee, the total fees that
the Director receives for service on the Board during the Plan Year.
2.14 "CRA" means the rating that the Employer or its primary banking
---
subsidiary receives for compliance with the Community Reinvestment Act, as
amended from time to time, and for any particular Plan Year shall mean the most
recent CRA Rating as of the last day of the Plan Year.
-2-
<PAGE>
2.15 "Director" means any member of the Board.
--------
2.16 "Disability" means a physical or mental condition that is expected
----------
to be of indefinite duration and to substantially impair the ability of a
Participant to fulfill his duties to the Employer.
2.17 "Eligible Director", "Eligible Employee", and "Eligible Key
----------------- ----------------- ------------
Employee" shall have the meaning set forth in the Adoption Agreement.
- --------
2.18 "Employee" means any individual who performs service for any
--------
Employer and who is treated as an employee for payroll tax purposes.
2.19 "Employer" has the meaning set forth in the Adoption Agreement.
--------
2.20 "ERISA" means the Employee Retirement Income Security Act of 1974,
-----
as amended from time to time.
2.21 "Factors" mean, collectively, the factors identified in the Adoption
-------
Agreement as being determinant of the Bonus Pool. When used in the singular,
Factor means any Factor identified in the Adoption Agreement.
- ------
2.22 "Incentive Awards" mean any benefits provided pursuant to Article IV
----------------
hereof, as modified by the Adoption Agreement.
2.23 "Market Value" means the fair market value of a Share on the date of
------------
an Incentive Award, and shall be determined by the Committee in its discretion,
provided that --
(i) if the Common Stock is listed on a national securities
exchange (including the Nasdaq National Market System or SmallCap Market),
Market Value means the average of the highest and lowest selling prices on
the exchange on the most recent date on which a sale occurred; and
(ii) if the Common Stock is traded otherwise than on a national
securities exchange but bid and asked prices are available, Market Value
means the average of its bid and asked price on the most recent date on
which there was a bid and asked price.
2.24 "NPA Ratio" means nonperforming loans (loans over 90 days delinquent
---------
and real estate owned) as a percentage of the Employer's total assets as of the
last day of the Plan Year, as determined by the Committee in accordance with
generally accepted accounting principles.
2.25 "Option" a stock option that is granted pursuant to Section 4.03
------
hereof.
2.26 "Participant" means an individual who has received an Incentive Award
-----------
pursuant to Article IV hereof or has made a deferred compensation election
pursuant to Article V hereof.
-3-
<PAGE>
2.27 "Participant Determination Date" has the meaning set forth in the
------------------------------
Adoption Agreement.
2.28 "Peer Group" means the group of publicly-traded financial
----------
institutions identified in the Adoption Agreement.
2.29 "Peer Group Adjustment Factor" means with respect to each Factor
----------------------------
other than the NPA Factor, the ratio of the median Factor for the Peer Group for
the current Plan Year to the median Factor for the Peer Group for the
immediately preceding Plan Year, and the converse of this ratio for the NPA
Factor.
2.30 "Plan" means the Employer's Incentive Compensation Plan, as
----
established by the Employer's execution of the Adoption Agreement.
2.31 "Restricted Stock Award" means an award pursuant to Section 4.02
----------------------
hereof.
2.32 "ROAA" means return-on-average assets, as determined by the Committee
----
(i) in accordance with generally accepted accounting principles, and (ii) on a
pre-dividend, pre-loan loss reserve, and pre-Plan payment basis.
2.33 "Safety and Soundness Factor" has the meaning set forth in the
---------------------------
Adoption Agreement.
2.34 "Share" means one share of Common Stock.
-----
2.35 "Year of Service" means the number of full 12-month periods, measured
---------------
from the date of an Incentive Award and each anniversary of that date during
which a Participant has remained in the service of the Employer.
ARTICLE III. ELIGIBILITY AND PARTICIPATION
The Committee shall make determinations of eligibility and participation in
accordance with the Adoption Agreement. The Committee shall have the
discretion, before a new Plan Year begins, to change (i) the employees
participating in the Plan, and/or (ii) the formula for calculating the Bonus
Pool.
ARTICLE IV. BENEFITS
As soon as practicable after the end of the Plan Year, the Committee shall
make the Incentive Awards provided for in this Article IV.
4.01 Bonuses. In accordance with the Adoption Agreement, the Committee
-------
shall determine the Bonuses payable to Eligible Directors, Eligible Employees,
and Eligible Key Employees, and shall promptly notify the Employer of the
Bonuses to be paid to such individuals.
-4-
<PAGE>
Notwithstanding the foregoing, the Committee shall, except under extraordinary
circumstances, proportionately reduce the Bonuses paid hereunder for the Plan
Year to the extent necessary to ensure that the aggregate amount paid as Bonuses
does not jeopardize the status of the Employer (or its primary banking
subsidiary) as a well-capitalized institution.
4.02 Restricted Stock Award. To the extent, if any, required under the
----------------------
Adoption Agreement, the Committee shall make Restricted Stock Awards to Eligible
Directors and Eligible Key Employees, and shall promptly provide each recipient
of an award with a notice thereof.
(a) General Vesting Rule. The Shares subject to a Restricted Stock
Award shall become vested and nonforfeitable according to the schedule set forth
in the Adoption Agreement. The Employer shall deliver to the Committee all
Shares subject to Restricted Stock Awards, and the Committee shall hold such
Shares in escrow until they are transferred to Participants in accordance with
this Section. In this regard, the relationship of the Committee to the Employer
shall be that of agent to principal.
(b) Exception for Change in Control or Termination due to Death or
Disability. Notwithstanding the vesting schedule set forth in the Adoption
Agreement, all Shares subject to a Participant's Restricted Stock Award shall
become fully (100%) vested upon the date of a Change in Control, or the
Participant's termination of service with the Employer due to his death or
Disability. Such Shares shall be transferred to the Participant (or, in the
event of his death, his Beneficiary) as soon as practicable after the event that
accelerates vesting hereunder.
(c) Accrual of Dividends. Whenever the Committee transfers Shares to
a Participant or Beneficiary under this Section, such Participant or Beneficiary
shall also be entitled to receive, with respect to each Share transferred, both
an amount equal to any cash dividends declared and paid between the date the
relevant Restricted Stock Award was initially granted to the Participant and the
date the Shares are being transferred. The Participant shall also receive the
net earnings, if any, that are attributable to any cash dividends so paid out.
(d) Timing of Distributions. The Committee shall transfer the Shares
subject to a Restricted Stock Award to the Participant or his Beneficiary, as
the case may be, as soon as practicable after the later of (i) the date they
have become fully vested and nonforfeitable, or (ii) the date of distribution
that the Participant elects in writing on a form and in a manner that is both
acceptable to the Committee and delivered to the Committee within the 30-day
period after the Participant receives the Restricted Stock Award covering such
Shares. Any election that a Participant makes hereunder shall be irrevocable.
(e) Form of Distribution. Whenever a Participant becomes entitled to
receive Shares in accordance herewith, the Committee shall transfer such Shares,
together with any Shares representing stock dividends, in the form of Common
Stock. One Share of Common Stock shall be given for each Share earned.
Payments representing cash dividends (and earnings thereon) shall be made in
cash.
-5-
<PAGE>
(f) Voting of Shares held in Escrow. After a Restricted Stock Award
has been granted hereunder, the Committee shall vote the Shares subject thereto
in the manner directed by the Board, and otherwise in the manner determined by
the Committee in its sole discretion.
4.03 Stock Options. To the extent, if any, required under the Adoption
-------------
Agreement, the Committee shall grant Options to Eligible Directors and Eligible
Key Employees, and shall promptly provide each recipient of an Option with a
stock option agreement specifying the terms and conditions of the Option;
provided that each Option shall have an exercise price per Share equal to its
Market Value on the date of the grant, shall become exercisable in accordance
with the schedule set forth in the Adoption Agreement, and shall expire on the
earlier of ten years after the date of its grant, and --
(a) two years after a Participant's service with the Employer
terminates due to his death;
(b) immediately upon the Participant's termination of service for
Cause;
(c) three months after a Participant's service with the Employer
terminates for a reason other than death or Cause.
Notwithstanding the provision of any Option which provides for its exercise
in installments, all Options outstanding on the date of a Change in Control
shall become immediately exercisable.
4.04 Revocation for Cause. Notwithstanding anything herein to the
--------------------
contrary, if the Participant is discharged from service with the Employer for
Cause or is discovered after termination of service to have engaged in conduct
that would have justified termination for Cause, the Committee may immediately
revoke, rescind, and terminate any Incentive Award made under this Plan to the
extent a Participant has not collected a Bonus, exercised an Option, or received
Shares upon the vesting of a Restricted Stock Award.
4.05 Duty of the Committee. The Committee shall have no responsibility to
---------------------
Participants other than (i) to inform the Employer, as soon as practicable after
the end of each Plan Year, in writing, as to the Bonuses to be provided, (ii) to
provide Eligible Directors and Eligible Key Employees with stock option
agreements and Restricted Stock Awards, and (iii) to follow such reasonable
directions as the Employer shall make as to the provision of such Incentive
Awards to Participants.
4.06 Minority, Disability, or Incompetency. If any Incentive Award
-------------------------------------
becomes payable or transferable under this Plan to a minor, to a person under
legal disability or to a person not adjudicated incompetent but who the
Committee in its discretion determines to be incapable by reason of illness or
mental or physical disability of managing his financial affairs, the Committee
may direct that such Incentive Award be paid or transferred to the legal
representative or custodian of such person or to any relative or friend of such
person, or that such amount be paid
-6-
<PAGE>
directly for such person's support and maintenance. Payments so made in good
faith shall completely discharge the Committee and the Employer of any and all
obligations and liabilities with respect to such Incentive Awards.
4.07 Designation of Beneficiary. A Participant may file with the Committee
--------------------------
a written designation of a Beneficiary who is to receive his or her vested
benefits in the event of the Participant's death prior to his or her collection
of said benefits. Such designation of Beneficiary may be changed at any time by
written notice to the Committee. The designation last filed with the Committee
shall be controlling. In the event of the death of a Participant and in the
absence of a beneficiary validly designated under the Plan who is living at the
time of the Participant's death, the Participant's estate shall be deemed to be
the Beneficiary for purposes of this Plan.
4.08 Source of Benefits. To the extent required under the Adoption
------------------
Agreement, the Employer shall pay Bonuses out of its general assets, provided
that the Board may in its discretion establish and fund a grantor trust meeting
the requirements of Revenue Procedure 92-64, as amended or revised from time to
time. Nothing contained in the Plan itself shall constitute, or be treated as,
a trust or create any fiduciary relationship (other than the Committee's
retention of Shares in escrow pursuant to Section 4.02) . Except to the extent
provided in Section 4.02 the Employer, shall be under any obligation to
segregate any assets for the purpose of providing Incentive Awards, and no
person or entity which is entitled to payment under the terms of the Plan shall
have any claim, right, security interest, or other interest in any fund, trust,
account, insurance contract, or asset of the Employer. To the extent that a
Participant or any other person acquires a right to receive any Benefit under
the Plan, such right shall be limited to that of a recipient of an unfunded,
unsecured promise to pay amounts in the future and the Participant's (or other
person's) position with respect to such amounts shall be that of a general
unsecured creditor.
4.09 Shares Subject to the Plan. Except as otherwise required hereunder,
--------------------------
the aggregate number of Shares deliverable to Participants pursuant to the Plan
shall not exceed the number of Shares designated in the Adoption Agreement.
Such Shares may either be authorized but unissued Shares or Shares held in
treasury. The number and kind of shares which may be purchased or issued under
the Plan, and the number and kind of shares subject to outstanding Incentive
Awards, shall be equitably adjusted for any increase, decrease, change, or
exchange of Shares for a different number or kind of shares or other securities
of the Company or another 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 (including a transaction in which the Employer is not the surviving
entity). In addition, the Committee shall have the discretionary authority to
impose on the Shares subject to Incentive Awards 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.
-7-
<PAGE>
If an Option should expire, become unexercisable or be forfeited for any
reason without having been exercised in full, or if a Restricted Stock Award
should be forfeited for any reason, the Shares subject to such Options or
Restricted Stock Award shall, unless the Plan shall have been terminated, be
available for the grant of additional Options or Restricted Share Awards under
the Plan.
ARTICLE V. DEFERRED COMPENSATION
This Article of the Plan establishes a deferred compensation program for
Participants, subject to the terms and conditions provided in this Basic Plan
Document and in the Adoption Agreement. In addition, the terms and conditions
of the Deferred Compensation attached as Exhibit "A" are incorporated herein by
reference, and may not be changed except through affirmative Board action in
accordance with Article VII hereof.
5.01 General Deferral Procedure. In accordance with this Article, the
--------------------------
individuals specified in the Adoption Agreement may elect, within 30 days of
becoming a Participant or in advance of any July 1st, to defer all or any
portion of the fees and/or salary otherwise payable to him from any Employer, in
cash, for any Plan Year in which the Plan is in effect. Deferred amounts shall
be credited by the Employer at the end of each calendar quarter, in accordance
with the terms of the deferred compensation agreement entered into between the
Participants and the Employer that would otherwise pay the Participant cash
compensation.
The funds so credited quarter-annually shall be credited by the Employer to
a bookkeeping account ("Deferral Account") in the name of each Participant
according to the terms of the Participant's deferred compensation agreement. In
addition to the funds deferred quarter-annually and credited to the Deferral
Accounts of Participants, the Employer shall adjust each Account at the end of
each Plan Year (i) to credit the Participant's Deferral Account with the
appreciation or depreciation that would have occurred if the Deferral Account
had been invested in the manner that the Participant selects in the deferred
compensation agreement from among the measures selected by the Employer in the
Adoption Agreement.
5.02 Distributions to Participants. A Participant's Deferral Account shall
-----------------------------
be paid, in cash, in accordance with those terms set forth in his deferred
compensation agreement which are applicable to the deferred amounts. If a
Participant should die before receiving all deferred compensation benefits
payable under this Article, then such payment(s) shall be made to the
Participant's Beneficiary.
5.03 Agreements. Deferred compensation agreements made hereunder shall be
----------
prospective only and shall be irrevocable with respect to amounts deferred
pursuant thereto, except that a Participant may at any time and from time to
time (i) change the Beneficiary designated therein, (ii) prospectively change
the investment selection applicable to his Deferral Account, and/or (iii) file a
deferred compensation agreement which supersedes a prior deferred compensation
agreement as to amounts deferred on or after the July 1st which coincides with
or next follows execution of the superseding agreement. In addition, a
Participant may at any time
-8-
<PAGE>
file a written notice with the Employer pursuant to which the Participant ceases
future accruals as soon as practicable after the Employer receives such notice.
ARTICLE VI. PLAN ADMINISTRATION
6.01 The Committee. In its sole and absolute discretion, which discretion
-------------
when exercised shall be final and binding on all parties affected thereby, the
Committee shall have the authority and the responsibility to control the
administration and operation of the Plan in accordance with its terms including,
without limiting the generality of the foregoing, the powers and duties: (i) to
interpret, apply, and administer the Plan, to decide all questions of
eligibility, participation, status, benefits, and rights of Participants and
Beneficiaries under the Plan; (ii) to establish and amend such rules and
procedures as it deems necessary or appropriate to the proper administration of
the Plan; (iii) to employ or retain such agents as it deems necessary or
advisable to assist in the administration of the Plan, and to delegate to the
extent permitted by applicable law such powers and duties as it deems necessary
or advisable, (iv) to prepare and file all statements, returns, and reports
required to be filed by the Plan with any agency of government; (v) to comply
with all requirements of applicable state and federal law including applicable
securities, labor, and tax law; and (vi) to perform all functions otherwise
assigned to it under the terms of the Plan.
6.02 Claims Procedure. Claims for Benefits under the Plan shall be filed
----------------
in writing with the Committee. Written notice of the Committee's disposition of
a claim generally shall be furnished to the claimant within 60 days after the
application therefor is filed. However, if special circumstances exist of which
the Committee notifies the claimant within such 60 day period, the Committee may
extend such period to the extent necessary, but in no event beyond 180 days
after the claim is filed. In the event the claim is denied, the reasons for the
denial shall be specifically set forth in writing, pertinent provisions of the
Plan shall be cited and, where appropriate, an explanation as to how the
claimant can perfect the claim will be provided. Any claimant who has been
denied a Benefit shall be entitled, upon request to the Committee, to appeal the
denial of his claim within 60 days following the Committee's determination
described in the preceding sentence. Upon such appeal, the claimant, or his
representative, shall be entitled to examine pertinent documents, submit issues
and comments in writing to the Committee, and meet with the Committee. The
Committee shall review its decision and issue a final decision to the claimant
in writing, generally within 60 days following such appeal. However, if special
circumstances exist of which the Committee notifies the claimant within such 60
day period, the Committee may extend such period to the extent necessary, but in
no event beyond 120 days following such appeal.
ARTICLE VII. AMENDMENT AND TERMINATION
The Employer, acting by its Board, reserves the right at any time to
terminate or amend the Plan in any manner and for any reason; provided, that no
amendment or termination shall, without the consent of the Participant or, if
applicable, the Beneficiary, either (i) adversely affect such Participant's or
Beneficiary's rights with respect to Benefits accrued as of the date of such
-9-
<PAGE>
amendment or termination, or (ii) suspend or terminate the Plan during a Plan
Year without providing for both advance written notice to Participants and the
payment of Benefits for the portion of the Plan Year during which the Plan was
in effect.
ARTICLE VIII. GENERAL PROVISIONS
8.01 Prohibition Against Alienation. Benefits payable to a Participant or
------------------------------
Beneficiary under the terms of this Plan shall not be subject in any manner to
alienation, anticipation, sale, transfer, assignment, pledge, hypothecation,
attachment, receivership, or encumbrance of any kind, nor shall it pass to any
trustee in bankruptcy or be reached or applied by any legal process for the
payment of any obligations of the Participant or Beneficiary, except at such
times and in such manner as provided in this Plan.
8.02 No Enlargement of Employment Rights. Nothing contained in this Plan
-----------------------------------
shall give or be construed as giving any Employee or Director the right to be
retained in the service of any Employer, or shall interfere with the right of
any Employer to discharge or otherwise terminate any Employee's or Director's
service at any time.
8.03 Gender. Whenever any masculine terminology is used in this Plan, it
------
shall be taken to include the feminine, unless the context otherwise indicates.
8.04 Applicable Law. This Plan shall be construed and regulated, and its
--------------
validity and effect and the rights hereunder of all parties interested shall at
all times be determined, in accordance with the laws of the Commonwealth of
Kentucky, except to the extent such state law is preempted by federal law.
8.05 Titles and Headings. The titles and headings included herein are
-------------------
included for convenience only and shall not be construed as in any way affecting
or modifying the text of this Plan, which text shall control.
8.06 Withholding. The Committee and each Employer reserve the right to
-----------
withhold from payments of Bonuses and other Incentive Awards such amounts of
income, payroll, and other taxes as it deems advisable or required, and if the
amount of such cash payment is not sufficient, the Committee or any Employer may
require that the Participant or Beneficiary pay the amount required to be
withheld as a condition of delivering Bonuses or other Incentive Awards.
8.07 Stockholder Approval. The effectiveness of this Plan shall be
--------------------
contingent on its approval by the favorable vote of the holders of the Common
Stock, only to the extent required under federal or state law or the Adoption
Agreement. Any Incentive Awards made prior to the receipt of such approval
shall be contingent thereon. Section 4.01 and Article V of the Plan shall be
effective whether or not the Plan receives stockholder approval.
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<PAGE>
Exhibit "A"
MIDDLESBORO FEDERAL BANK, F.S.B.
INCENTIVE COMPENSATION PLAN
-------------------------------
Deferred Compensation Agreement
-------------------------------
AGREEMENT, made this ____ day of ________, 199 , by and between
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_______________ (the "Participant"), and Middlesboro Federal Bank, F.S.B. (the
"Employer").
WHEREAS, Middlesboro Federal Bank, F.S.B. has established the Middlesboro
Federal Bank, F.S.B. Incentive Compensation Plan (the "Plan"), and the
Participant is eligible to make a deferred compensation election pursuant to
Article V of said Plan;
NOW THEREFORE, it is mutually agreed as follows:
1. The Participant, by the execution hereof, agrees to participate in the
Plan upon the terms and conditions set forth therein, and, in accordance
therewith, makes the following elections:
a. The amount of fees/compensation which the Participant hereby
elects to defer is ______ percent (____%) of the amount otherwise earned from
the date of this Agreement forward.
b. Until distributed to the Participant, the amounts deferred
pursuant hereto shall appreciate or depreciate for each Plan Year as though they
were invested in a fund having the highest interest rate which the Employer pays
on certificates of deposit having a term of one year.
c. The amounts deferred and any related accumulated income on such
deferrals shall be distributed, in cash, beginning on the first day of the month
following the Participant's _____ termination of service with the Employer,
______ attainment of age ______, OR ______ the later to occur of these events.
d. The Participant hereby elects to have the amount deferred
hereunder and any earnings attributable thereto be distributed as follows:
_____ one lump sum, OR _____ substantially equal annual (____ monthly) payments
over a period of ______ years.
2. The Participant hereby designates _______________________ to be his or
her beneficiary and to receive the balance of any unpaid deferred compensation
and related earnings.
3. With respect to amounts deferred while this Agreement is in effect,
the elections made hereunder shall be irrevocable, except that a Participant may
at any time and from time to
<PAGE>
time prospectively change the beneficiary designation made in paragraph 2
hereof. A Participant may at any time file a new agreement that supersedes this
Agreement with respect to amounts deferred on or after the July 1st which
coincides with or next follows execution of such superseding agreement.
4. The Employer agrees to make payment of the amount due the Participant
in accordance with the terms of the Plan and the elections made by the
Participant herein.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands the
day and year first above-written.
PARTICIPANT
-------------------------------------
Participant
EMPLOYER
MIDDLESBORO FEDERAL BANK, F.S.B.
By
--------------------------------
Its
------------------------------
<PAGE>
EXHIBIT 10.6
CUMBERLAND MOUNTAIN BANCSHARES, INC.
1997 STOCK OPTION AND INCENTIVE 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 Middlesboro Federal Bank, FSB.
(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 Cumberland Mountain Bancshares, 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 1993 Stock Option 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.
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<PAGE>
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
10% of the Shares sold to the public by the Company in connection with its stock
offering. Such Shares may either be 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 not less than two (2) members of the Board
who are Non-Employee Directors. 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.
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<PAGE>
(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 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 (ii)
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).
(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)
----------- -----------------------------
Jay Shoffner 25%
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
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<PAGE>
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 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.
(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.
(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 one year from the date
of his death (but not later than the date on which the Option would
otherwise expire) 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;
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<PAGE>
(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 Option may be exercised within one year from the date of
termination of employment 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 of the Company that is
purchased upon exercise of an Option or SAR may not be sold within the six-month
period following the grant of that Option or SAR.
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.
(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. 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.
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 one year of the termination
of directorship due to Disability, but not later than the date that the Option
would otherwise expire. Unless otherwise inapplicable or
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<PAGE>
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.
In no event, however, may an SAR be exercised within the six-month period
following the date of its grant.
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.
(d) Exercise of SARs. An SAR granted hereunder shall be exercisable at
such times and under such conditions 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
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<PAGE>
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.
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 Incentive
Stock Options) 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
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<PAGE>
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 of Cumberland Mountain Bancshares, MHC.
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 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.
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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 Commonwealth of Kentucky, except to the extent that federal law shall be
deemed to apply.
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CUMBERLAND MOUNTAIN BANCSHARES, 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 Middlesboro Federal Bank, FSB.
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 Cumberland Mountain Bancshares, 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 Cumberland
Mountain Bancshares, MHC 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 Cumberland Mountain Bancshares, 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 that person(s) or entity appointed by the Board
pursuant to the Trust Agreement to hold legal title to the Plan assets for the
purposes set forth herein.
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 not less than two
members of the Board who are Non-Employee Directors. 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, and by the Board if there are less
than two Non-Employee Directors.
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
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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. Subject to Section 4.02, the interpretation and construction by the
Committee of any provisions of the Plan or of any Plan Share Award 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, subject to the
indemnification provisions of 12 C.F.R. Section 545.121, 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 sold to the
public in the Company's stock offering on the Date of Conversion.
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.
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 lesser of five (5%) of the number of Plan
Shares which the Trust is authorized to purchase pursuant to Section 5.02 of the
Plan and the quotient obtained by dividing --
(i) thirty percent (30%) 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.
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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
-------- ----------------------------------
Jay Shoffner 25%
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.
(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.
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.
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(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 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 non-employee
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.
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, 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 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
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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 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 Commonwealth of Kentucky 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
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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.
8.09 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).
8
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EXHIBIT 10.8
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made as of this ____ day of
___________________, 1997, by and between Middlesboro Federal Bank, Federal
Savings Bank (the "Bank"), Cumberland Mountain Bancshares, Inc. (the "Company")
and _____________________________ (the "Indemnitee").
WHEREAS, the Bank, Company, and the Indemnitee recognize the increasing
difficulty in obtaining directors' liability insurance, the increasing cost of
such insurance, and the trend toward reductions in the coverage of such
insurance;
WHEREAS, the Bank, Company, and the Indemnitee further recognize the
substantial increase in corporate litigation in general, which subjects
directors to a greater risk of expensive litigation at the same time as the
availability and coverage of liability insurance has been severely reduced;
WHEREAS, the Indemnitee does not regard the current protection available as
adequate under the present circumstances;
WHEREAS, the Bank and the Company desire to indemnify its current directors
individually so as to provide them with the maximum protection permitted by law.
NOW, THEREFORE, the Bank, Company, and the Indemnitee hereby agree as
follows:
1. Definitions. The following terms shall have the indicated meanings:
-----------
(a) "Change in Control" shall have the meaning provided for in the
Cumberland Mountain Bancshares, Inc. 1993 Stock Option Plan, as said plan may be
amended from time to time, provided that a change to said definition shall be
ineffective to the extent it is adverse to a Participant and not consented to by
the Participant.
(b) "Disinterested Director" shall mean a director of the Bank or the
Company qualified and in good standing who is not a party to, or an officer,
employee, significant shareholder or owner, or member of the immediate family of
any party, other than the Bank, or the Company or its subsidiaries or
affiliates, to the Proceeding for which indemnification hereunder is being
sought.
(c) "Expenses" include, without limitation, (i) any amount for which
the Indemnitee becomes liable in a judgment in a Proceeding (including, without
limitation, all judgment, fines, excise taxes assessed with respect to an
employee benefit plan, court costs), (ii) amounts paid in Settlement of a
Proceeding, (iii) reasonable attorney's fees actually paid and incurred by the
Indemnitee in connection with a Proceeding, and, (iv) if the Indemnitee
<PAGE>
commences any action or other proceeding to enforcing the Indemnitee's rights
under this Agreement, or under the Charter or Bylaws of the Bank or the Company,
and obtains a favorable judgment therein, the Indemnitee's reasonable attorney's
fees, costs and other expenses actually paid or incurred in connection
therewith.
(d) "FDIC" shall mean the Federal Deposit Insurance Corporation.
(e) "Final Judgment" means a judgment, decree or order which is not
appealable or as to which the period for appeal has expired with no appeal
taken.
(f) "OTS" shall mean the Office of Thrift Supervision of the United
States Department of the Treasury, or any successor agency.
(g) "Proceeding" means any judicial or administrative proceeding, or
other proceeding, whether civil, criminal, administrative or otherwise,
including any appeal or other proceeding for review, as a result of or in
connection with any action or inaction on the part of the Indemnitee while the
Indemnitee is or was a director or while the Indemnitee is or was serving at the
request of the Bank or the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan,
or other enterprise, to which the Indemnitee is or was a party or target or is
threatened to be made a party or target.
(h) "Settlement" shall mean any agreement or action by which a
Proceeding or other action is terminated or a complaint withdrawn before final
judgment on the merits, and shall include, without limitation, a judgment by
consent or confession or plea of guilty or nolo contendere.
2. Indemnification.
---------------
(a) Indemnification. Subject to the limitations and exceptions set
forth herein, the Bank or the Company will indemnify the Indemnitee for Expenses
incurred in connection with any and all Proceedings, provided only that:
(1) Final judgment on the merits in such Proceeding is in the
Indemnitee's favor; or
(2) In the case of Settlement or a judgment in the Indemnitee's
favor other than on the merits, a majority of the Disinterested
Directors determines that the Indemnitee was acting (i) in good faith,
(ii) within the scope of the Indemnitee's authority or employment as
the Indemnitee could have reasonably perceived it under the
circumstances, and (iii) for a purpose the Indemnitee could have
reasonably believed under the circumstances was in the best interests
of the Bank, the Company, or its shareholders.
2
<PAGE>
(b) No Presumptions Created; Defenses. The termination of any
Proceeding by Final Judgment or Settlement shall not, of itself, create a
presumption that the Indemnitee did not act (i) in good faith, (ii) in a manner
which the Indemnitee reasonably believed to be within the scope of the
Indemnitee's authority or employment, or (iii) for a purpose which the
Indemnitee could have reasonably believed to be in the best interests of the
Bank or the Company. Nothing in this Agreement is intended to require or shall
be construed as requiring the Bank or the Company to do or fail to do any act in
violation of applicable law. The Bank or the Company's inability, pursuant to
administrative order or court order, to perform its obligations under this
Agreement shall not constitute a breach of this Agreement. It shall be a
defense to any action by the Indemnitee for indemnification under this Agreement
that the Indemnitee has not met the standards of conduct which make it
permissible under applicable law for the Bank or the Company to indemnify the
Indemnitee for the amount claimed or that the Bank or the Company is prohibited
by law, regulation, or order from paying such amount, but the burden of proving
such defense shall be on the Bank or the Company except as may otherwise be
required by federal law or regulation.
(c) Bank Duty to Seek Approvals. The Bank or the Company shall act
diligently, promptly, in good faith, and at its own expense with respect to
requests for indemnification hereunder. The Bank or the Company shall
diligently, promptly, in good faith, and at its own expense pursue any
regulatory or other approvals required for indemnification of the Indemnitee
hereunder or otherwise and appeals or requests for reconsideration of any
regulatory objection to or denial of such indemnification.
(d) Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Bank or the Company for
some or a portion of any Expenses incurred by him, but not, however, for the
total amount thereof, the Bank or the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which the Indemnitee is
entitled.
3. Expenses; Indemnification Procedure.
-----------------------------------
(a) Notice/Cooperation by the Indemnitee. The Indemnitee shall, as a
condition precedent to his right to be indemnified under this Agreement, give
the Bank or the Company notice in writing as soon as practicable of any claim
made against the Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Bank or the Company shall be directed to
the President of the Bank or the Company. In addition, the Indemnitee shall
give the Bank or the Company such information and cooperation as it may
reasonably require and as shall be within the Indemnitee's power.
(b) Claims. Claims for indemnification must be made in writing and be
accompanied by evidence that the Expense for which indemnification is claimed
hereunder has been paid or incurred by the Indemnitee.
3
<PAGE>
(c) Payment Procedure for Indemnification. Any indemnification
provided for hereunder shall be paid no later than 65 days after receipt of the
written request of Indemnitee. If a claim under this Agreement, under any
statute, or under any provision of the Bank's or the Company's Charter or Bylaws
providing for indemnification, is not paid in full by the Bank or the Company
within days after a written request for payment thereof has first been received
by the Bank or the Company, the Indemnitee may, but need not, at any time
thereafter bring an action against the Bank or the Company to recover the unpaid
amount of the claim and be entitled to indemnification in accordance herewith
with respect to such action.
(d) Procedure for Advances. The Bank or the Company shall advance all
Expenses incurred by the Indemnitee, other than amounts for which the Indemnitee
becomes liable under a judgment, to the Indemnitee within 65 days following the
delivery of a written request therefor by the Indemnitee to the Bank or the
Company if the Disinterested Directors on the Board of Directors, if any, or if
there are none, then the Board of Directors of the Bank or the Company has made
a good faith determination that the Indemnitee ultimately may become entitled to
indemnification hereunder or otherwise. The Indemnitee hereby undertakes to
repay such amount advanced if, and only if and to the extent that, it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
by the Bank or the Company as authorized hereby.
4. Attorneys.
---------
(a) Selection of Counsel. In the event the Bank or the Company shall
be obligated under Section 2 hereof to pay the Expenses of any Proceeding
against the Indemnitee, the Bank, or the Company, if appropriate, shall be
entitled to assume the defense of such Proceeding with counsel approved by the
Indemnitee, which approval shall not be unreasonably withheld, upon the delivery
to the Indemnitee of written notice of its election so to do. After delivery of
such notice, approval of such counsel by the Indemnitee and the retention of
such counsel by the Bank or the Company, the Bank or the Company shall not be
liable to the Indemnitee under this Agreement for any fees of counsel
subsequently incurred by the Indemnitee with respect to the same Proceeding,
provided that (i) the Indemnitee shall have the right to employ its counsel in
- -------- ----
any such Proceeding at the Indemnitee's expense; and (ii) if (A) the employment
of counsel by the Indemnitee has been previously authorized by the Bank or the
Company, (B) the Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Bank, the Company, and the Indemnitee in the
conduct of any such defense, or (C) the Bank or the Company shall not, in fact,
have employed counsel to assume the defense of such Proceeding, then the fees
and expenses of the Indemnitee's counsel shall be at the expense of the Bank or
the Company.
(b) Attorney's Fees. In the event the Indemnitee commences any action
or other proceeding to enforce the Indemnitee's rights under this Agreement, or
under the Charter or Bylaws of the Bank or the Company, and obtains a favorable
judgment therein, the Bank or
4
<PAGE>
the Company shall indemnify the Indemnitee for the Indemnitee's Expenses
incurred in connection therewith. In the event of an action instituted by or in
the name of the Bank or the Company under this Agreement or to enforce or
interpret any of the terms of this Agreement, the Indemnitee shall be entitled
to be paid all Expenses incurred by the Indemnitee in defense of such action
(including with respect to the Indemnitee's counterclaims and cross-claims made
in such action), unless as a part of such action the court determines that each
of the Indemnitee's material defenses to such action were made in bad faith or
were frivolous or as such payments are prohibited hereby.
5. Directors' Liability Insurance.
------------------------------
(a) Maintenance of Insurance. The Bank or the Company shall, from
time to time, make the good faith determination whether or not it is practicable
to obtain and maintain a policy or policies of insurance with reputable
insurance companies providing the directors of the Bank or the Company with
coverage for losses from wrongful acts, or to ensure the Bank or the Company's
performance of its indemnification obligations under this Agreement. Among
other considerations, the Bank or the Company will weigh the costs of obtaining
such insurance against the protection afforded by such coverage. In all
policies of directors' liability insurance, the Indemnitee shall be named as an
insured in such a manner as to provide the Indemnitee the same rights and
benefits as are accorded to the most favorably insured of the Bank or the
Company's directors. Notwithstanding the foregoing, the Bank or the Company
shall have no obligation to obtain or maintain such insurance if the Bank or the
Company determines in good faith that such insurance is not reasonably
available, if the premium costs for such insurance are disproportionate to the
amount of coverage provided, if the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit, or if the
Indemnitee is covered by similar insurance maintained by a subsidiary or parent
of the Bank or the Company. The Bank and the Company is prohibited by OTS
regulations from obtaining insurance which provides payment for losses of any
person incurred as a consequence of his or her willful or criminal misconduct.
(b) Notice to Insurers. If, at the time of the receipt of a notice of
a claim hereunder, the Bank and the Company has directors' liability insurance
in effect, the Bank or the Company shall give prompt notice of the commencement
of such Proceeding to the insurers in accordance with the procedures set forth
in the respective policies. The Bank or the Company shall thereafter take all
necessary or desirable action to cause such insurers to pay, on behalf of the
Indemnitee, all amounts payable as a result of such Proceeding in accordance
with the terms of such policies.
5
<PAGE>
6. Limitations and Exceptions. The limitation and exceptions set forth
--------------------------
in this Section 6 are effective notwithstanding any other provision of this
Agreement to the contrary.
(a) Excluded Acts. The Indemnitee will not be indemnified hereunder
for any acts or omissions or transactions from which a director may not be
indemnified under federal law.
(b) Statutory Requirements. The Bank or the Company shall not be
required to pay hereunder any indemnification to the extent and for such time as
such indemnification is prohibited by applicable regulation or order properly
issued by the FDIC or OTS under Section 18(k) of the Federal Deposit Insurance
Act (12 U.S.C. (S)1828(k)). This Agreement is subject to and qualified by
Section 11(k) of the Federal Deposit Insurance Act (12 U.S.C. (S)1821(k)).
(c) Requirements of OTS Regulations. This Agreement is intended to be
in accordance with the Regulations of the Office of Thrift Supervision at 12
C.F.R. (S)545.121 in effect at the date hereof. The Bank shall not be required
to indemnify the Indemnitee to the extent the Bank has received a written
objection from the OTS to indemnification of the Indemnitee, which written
objection is authorized by applicable law, regulation or order relating
specifically to indemnification, until such time as such indemnification of the
Indemnitee is permitted by the OTS upon appeal or otherwise or by applicable
law, regulation, or order.
(d) Proceedings by or in the Right of the Bank or the Company. No
indemnification shall be made hereunder of Expenses for which the Indemnitee is
adjudged in a Proceeding to be liable to the Bank or the Company in the
performance of the Indemnitee's duty to the Bank or the Company and their
shareholders unless, and only to the extent that, the court in which such
Proceeding is or was pending determines that, in view of all the circumstances
of the case, the Indemnitee is fairly and reasonably entitled to indemnity for
Expenses and then only to the extent that the court shall determine.
(e) Claims Initiated by the Indemnitee. The Bank or the Company is
not required hereunder to indemnify or advance Expenses to the Indemnitee with
respect to proceedings or claims initiated or brought voluntarily by the
Indemnitee and not by way of defense, except with respect to proceedings brought
to establish or enforce a right to indemnification under this Agreement or any
other statute or law, but such indemnification or advancement of Expenses may be
provided by the Bank or the Company in specific cases if the Disinterested
Directors on the Board of Directors, if any, or if there are none, then the
Board of Directors has approved the initiation or bringing of such suit.
(f) Insured Claims. The Bank or the Company is not required hereunder
to indemnify the Indemnitee for Expenses which have been paid directly to the
Indemnitee by an insurance carrier under a policy of directors' liability
insurance maintained by the Bank or the Company.
6
<PAGE>
7. Scope and Nonexclusivity.
------------------------
(a) Scope. The Bank and the Company hereby agree to indemnify the
Indemnitee to the fullest extent permitted by law.
(b) Nonexclusivity. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which the Indemnitee may be
entitled under the Bank or the Company's Charter, its Bylaws, any agreement, any
vote of shareholders or Disinterested Directors, or otherwise, as to action in
the Indemnitee's official capacity and as to liability alleged to result from
holding such office. The indemnification provided under this Agreement shall
continue as to the Indemnitee for any action taken or not taken while serving in
an indemnified capacity even though he may have ceased to serve in such capacity
at the time of any action or other covered Proceeding.
8. Effect of Merger, Consolidation or Acquisition. For purposes of this
----------------------------------------------
Agreement, the term "Bank" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that if the Indemnitee is or was a
director, officer, employee or agent of such constituent corporation or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan, or other enterprise, the Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as the Indemnitee would have with respect to
such constituent corporation if its separate existence had continued.
9. Severability. The provisions of this Agreement shall be severable as
------------
provided in this Section 9. If this Agreement or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the Bank
or the Company shall nevertheless indemnify the Indemnitee to the full extent
permitted by any applicable portion of this Agreement that shall not have been
invalidated, and the balance of this Agreement not so invalidated shall be
enforceable in accordance with its terms.
10. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which taken together shall constitute an original.
11. Successors and Assigns. This Agreement shall be binding upon the Bank
----------------------
or the Company and their successors and assigns, and shall inure to the benefit
of the Indemnitee and the Indemnitee's estate, heirs, legal representatives and
assigns.
12. Notices. All notices, requests, demands and other communications
-------
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and
7
<PAGE>
receipted for by the party addressed, on the date of such receipt, or (ii) if
mailed by domestic certified or registered mail with postage prepaid, on the
third business day after the date postmarked. Addresses for notices to either
party are as shown on the signature page of this Agreement, or as subsequently
modified by written notice.
13. Choice of Law. This Agreement shall be governed by and its provisions
-------------
construed in accordance with the laws of the Commonwealth of Kentucky as applied
to contracts between residents thereof entered into and to be performed entirely
within the Commonwealth of Kentucky unless and to the extent federal law or the
Tennessee Business Corporation Act controls.
14. Titles and Headings. Titles and headings used herein are for
-------------------
convenience of reference only.
15. Subrogation. In the event of payment under this Agreement, the Bank
-----------
or the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Bank or the Company
effectively to bring suit to enforce such rights.
16. Joint and Several Liability; No Duplication of Payments. The Bank
--------------------------------------------------------
or the Company shall be jointly and severally liable under this Agreement, but
shall not be liable under this Agreement to make any payment in connection with
any claim made against Indemnitee to the extent Indemnitee has otherwise
actually received payment (under any insurance policy, Certificate of
Incorporation or Bylaws of the Bank or the Company or otherwise) of the amounts
otherwise indemnifiable hereunder.
17. Specific Performance. The parties recognize that if any provision
---------------------
of this Agreement is violated by the Bank or the Company, Indemnitee may be
without an adequate remedy at law. Accordingly, in the event of any such
violation, the Indemnitee shall be entitled, if Indemnitee so elects, to
institute proceedings, either in law or at equity, to obtain damages, to enforce
specific performance, to enjoin such violation, or to obtain any relief or any
combination of the foregoing as Indemnitee may elect to pursue.
18. Change in Control. If a Change in Control occurs, the Indemnitee
------------------
shall be entitled to continue on as a director emeritus or as an advisory
director of any successor entity for three years after the Change in Control.
19. Amendments. No supplement, modification or amendment of this
----------
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
8
<PAGE>
20. No Construction as Employment Agreement. Nothing contained herein
----------------------------------------
shall be construed as giving Indemnitee any right to be retained in the employ
of the Bank or the Company or any of its subsidiaries.
* * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
ATTEST: CUMBERLAND MOUNTAIN
BANCSHARES, INC.
BY:
- ----------------------- -----------------------
Its Prsident
ATTEST: MIDDLESBORO FEDERAL
BANK, FEDERAL SAVINGS BANK
By:
- ----------------------- -----------------------
Its President
WITNESS:
- ----------------------- -----------------------
Indemnitee
9
<PAGE>
EXHIBIT 23.1
(LETTERHEAD OF MARR, MILLER & MYERS, PSC)
CONSENT FOR INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in or made a part of this
Registration Statement.
/s/ Marr, Miller & Myers, PSC
- ------------------------------
Corbin, Kentucky
December 19, 1996
<PAGE>
EXHIBIT 23.3
December 18, 1996
CONSENT
-------
Boards of Directors
Cumberland Mountain Bancshares, M.H.C.
Middlesboro Federal Bank, FSB
Cumberland Mountain Bancshares, Inc.
1431 Cumberland Avenue
Middlesboro, Kentucky 40965
Gentlemen:
We hereby consent to the use of our firm's name in the Application for
Approval of Conversion being filed by Cumberland Mountain Bancshares, M.H.C.
(the "MHC"), with the Office of Thrift Supervision and in the Registration
Statement on Form SB-2 being filed by Cumberland Mountain Bancshares, Inc. (the
"Holding Company") with the Securities Exchange Commission, and to statements
with respect to us appearing in the Holding Company's prospectus contained
therein under the headings "The Conversion and Reorganization -- Tax Matters"
and "Legal Matters."
Very truly yours,
LAW OFFICES OF
ROBERT L. BROWN III
/s/ Robert L. Brown III
-----------------------------------
Robert L. Brown III
<PAGE>
EXHIBIT 23.4
[LETTERHEAD OF RP FINANCIAL, LC.]
December 23, 1996
Board of Directors
Cumberland Mountain Bancshares, M.H.C.
Middlesboro Federal Bank, Federal Savings Bank
1431 Cumberland Avenue
Middlesboro, Kentucky 40965
Gentlemen:
We hereby consent to the use of our firm's name in the Application for
Conversion of Cumberland Mountain Bancshares, M.H.C., the mutual holding company
for Middlesboro Federal Bank, Federal Savings Bank, Middlesboro, Kentucky and
any amendments thereto, in the Form SB-2 Registration Statement and any
amendments thereto and in the Form H(e)1-s for Cumberland Mountain Bancshares,
Inc. We also hereby consent to the inclusion of, summary of and references to
our Appraisal Report and our statement concerning subscription rights in such
filings including the Prospectus of Cumberland Mountain Bancshares, Inc.
Sincerely,
RP FINANCIAL, LC.
/s/ James J. Oren
---------------------------------
James J. Oren
Vice President
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 605
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,292
<INVESTMENTS-CARRYING> 253
<INVESTMENTS-MARKET> 253
<LOANS> 69,371
<ALLOWANCE> 195
<TOTAL-ASSETS> 83,799
<DEPOSITS> 71,906
<SHORT-TERM> 6,000
<LIABILITIES-OTHER> 1,508
<LONG-TERM> 0
0
0
<COMMON> 510
<OTHER-SE> 3,875
<TOTAL-LIABILITIES-AND-EQUITY> 83,799
<INTEREST-LOAN> 1,319
<INTEREST-INVEST> 187
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,506
<INTEREST-DEPOSIT> 913
<INTEREST-EXPENSE> 913
<INTEREST-INCOME-NET> 593
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,017
<INCOME-PRETAX> (319)
<INCOME-PRE-EXTRAORDINARY> (222)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (222)
<EPS-PRIMARY> (0.44)
<EPS-DILUTED> 0
<YIELD-ACTUAL> 2.99
<LOANS-NON> 433
<LOANS-PAST> 17
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 180
<CHARGE-OFFS> 17
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 195
<ALLOWANCE-DOMESTIC> 0.28
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
MIDDLESBORO FEDERAL BANK, FEDERAL SAVINGS BANK
1431 Cumberland Avenue
Middlesboro, Kentucky 40965
(606) 248-4584
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be Held on _____________ __, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
Middlesboro Federal Bank, Federal Savings Bank (the "Bank") will be held at the
_______________________ located at ___________________________, Kentucky on
________________ __, 1997, at __:__ __.m. Eastern Time, for the following
purposes, as more completely set forth in the accompanying Proxy Statement:
(1) To approve and adopt the Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan"), pursuant to which: (i) Cumberland Mountain
Bancshares, M.H.C. (the "Mutual Holding Company"), which currently owns
approximately 64.71% of the common stock of the Bank, will convert from mutual
form to a federal interim stock savings institution and simultaneously merge
with and into the Bank, with the Bank being the surviving entity; (ii) an
interim institution ("Interim") to be formed as a wholly owned subsidiary of
Cumberland Mountain Bancshares, Inc., a Tennessee corporation recently formed as
a wholly owned subsidiary of the Bank (the "Company"), will merge with and into
the Bank, with the Bank being the surviving entity and becoming a wholly owned
subsidiary of the Company; (iii) the outstanding shares of the Bank common stock
(other than those held by the Mutual Holding Company, which will be cancelled)
will be converted into shares of common stock of the Company pursuant to a ratio
that will result in the holders of such shares owning in the aggregate
approximately the same percentage of the Company as they currently own of the
Bank, before giving effect to such stockholders purchasing additional shares in
a concurrent stock offering by the Company or by the Company's Employee Stock
Ownership Plan ("ESOP") thereafter, receiving cash in lieu of fractional shares
or exercising dissenter's rights ("Exchange Shares"); and (iv) in connection
therewith, the Bank's charter will be amended to establish a liquidation account
in accordance with applicable regulations. In addition, the Company is offering
shares of its common stock by means of a Prospectus, and the sale of such stock
and the reorganization are referred to herein as the "Conversion and
Reorganization."
(2) To transact such other business as may properly come before the
meeting. Except with respect to procedural matters incident to the conduct of
the meeting, management of the Bank is not aware of any matters other than those
set forth above which may properly come before the meeting.
Stockholders of the Bank have the right, pursuant to 12 C.F.R. Section
522.14, to dissent from the Conversion and Reorganization and to exercise
appraisal rights for their shares of the Bank common stock upon strict
compliance with the terms and conditions of 12 C.F.R. Section 552.14, a copy of
which is attached hereto as Appendix A. Failure to comply strictly with the
requirements of 12 C.F.R. Section 552.14 will result in the loss of appraisal
rights.
Stockholders of record of the Bank at the close of business on ____________
__, 1997 are entitled to notice of and to vote at the Special Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
_________________
J.D. Howard
Secretary
Middlesboro, Kentucky
______________ __, 1997
=================================================================
YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU
ATTEND THIS MEETING, YOU MAY VOTE EITHER IN PERSON OR BY
YOUR PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN
WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE
THEREOF. PROXIES MUST BE RECEIVED PRIOR TO THE
COMMENCEMENT OF THE MEETING.
YOUR VOTE IS VERY IMPORTANT. VOTING ON THE PLAN DOES
NOT REQUIRE YOU TO PURCHASE STOCK IN THE OFFERINGS.
=================================================================
<PAGE>
PROXY STATEMENT
_______________________
SPECIAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished to the holders of the common stock, par
value $1.00 per share (the "Bank Common Stock"), of Middlesboro Federal Bank,
Federal Savings Bank (the "Bank") (the "Stockholders") in connection with the
solicitation of proxies on behalf of the Board of Directors, to be used at the
Special Meeting of Stockholders ("Special Meeting") to be held at the
______________________________________ located at ___________________________,
____________, Kentucky on _______________ __, 1997, at __:__ __.m., Eastern
Time, and at any adjournment thereof for the purpose of considering a Plan of
Conversion and Agreement and Plan of Reorganization (the "Plan") pursuant to
which: (i) Cumberland Mountain Bancshares, M.H.C. (the "Mutual Holding
Company"), which currently owns approximately 64.71% of the Bank Common Stock,
will convert from mutual form to a federal interim stock savings institution and
simultaneously merge with and into the Bank, with the Bank being the surviving
entity; (ii) an interim institution ("Interim") to be formed as a wholly owned
subsidiary of Cumberland Mountain Bancshares, Inc., a Tennessee corporation
recently formed as a wholly owned subsidiary of the Bank (the "Company"), will
merge with and into the Bank, with the Bank being the surviving entity and
becoming a wholly owned subsidiary of the Company; (iii) the outstanding shares
of the Bank Common Stock (other than those held by the Mutual Holding Company,
which will be cancelled) will be converted into shares of common stock, $0.01
par value, of the Company (the "Common Stock") pursuant to a ratio that will
result in the holders of such shares (the "Public Stockholders") owning in the
aggregate approximately the same percentage of the Company as they currently own
of the Bank, before giving effect to such stockholders purchasing additional
shares in a concurrent stock offering by the Company or by the Company's
Employee Stock Ownership Plan ("ESOP") thereafter, the receipt of cash in lieu
of fractional shares or the exercise of dissenter's rights ("Exchange Shares");
and (iv) in connection therewith, the Bank's charter will be amended to
establish a liquidation account in accordance with applicable regulations. In
addition, the Company is offering shares of Common Stock by means of a
Prospectus, and the sale of such stock and the reorganization are referred to
herein as the "Conversion and Reorganization."
Each proxy solicited hereby, if properly signed and returned to the Bank
and not revoked prior to its use, will be voted in accordance with the
instructions contained therein. If no contrary instructions are given, each
signed proxy received will be voted in favor of the Plan and, upon the
transaction of such other business as may properly come before the meeting, in
accordance with the best judgment of the persons appointed as proxies. Only
proxies that are returned can be counted and voted at the Special Meeting.
Any stockholder giving a proxy has the power to revoke it at any time
before it is exercised by (i) filing with the Secretary of the Bank (J.D.
Howard, Secretary, Middlesboro Federal Bank, Federal Savings Bank, 1431
Cumberland Avenue, Middlesboro, Kentucky 40965) written notice thereof; (ii)
submitting a duly executed proxy bearing a later date; or (iii) appearing at the
Special Meeting and giving the Secretary notice of his or her intention to vote
in person. Proxies solicited hereby may be exercised only at the Special
Meeting and any adjournment thereof and will not be used for any other meeting.
This Proxy Statement is expected to be mailed to stockholders on or about
___________ __, 1997.
VOTING SECURITIES AND REQUIRED VOTE
Pursuant to Office of Thrift Supervision ("OTS") regulations, consummation
of the Conversion and Reorganization is conditioned upon the approval of the
Plan by the OTS, as well as (1) the approval of the holders of at least a
majority of the total number of votes eligible to be cast by the members of the
Mutual Holding Company (the "Members") as of the close of business on
___________________, __, 1997 (the "Voting Record Date") at a special meeting of
Members called for the purpose of considering the Plan (the "Members' Meeting"),
and (2) the approval of the holders of at least two-thirds of the shares of the
outstanding Bank Common Stock held
<PAGE>
by the Stockholders as of the voting record date at the Special Meeting. In
addition, the Company, the Mutual Holding Company and the Bank (the "Primary
Parties") have conditioned the consummation of the Conversion and Reorganization
on the approval of the Plan by the holders of at least a majority of the votes
cast, in person or by proxy, by the Public Stockholders at the Special Meeting.
The Mutual Holding Company intends to vote its shares of Bank Common Stock,
which amount to 64.71% of the outstanding shares, in favor of the Plan at the
Special Meeting. In addition, as of ____________, 1997, directors and executive
officers of the Bank as a group (__ persons) beneficially owned ________ shares
or _____% of the outstanding Bank Common Stock, which shares can also be
expected to be voted in favor of Plan at the Special Meeting.
Only stockholders of record at the close of business on ___________ __,
1997 (the "Voting Record Date") are entitled to notice of and to vote at the
Special Meeting. On the Voting Record Date, there were 510,000 shares of Bank
Common Stock outstanding, and the Bank had no other class of equity securities
outstanding. Each share of Bank Common Stock is entitled to one vote at the
Special Meeting on all matters properly presented at the Special Meeting.
A majority of the outstanding Bank Common Stock, represented in person or
by proxy, shall constitute a quorum at the Special Meeting. Shares as to which
the "ABSTAIN" box has been marked on the proxy and any shares held by brokers in
street name for customers which are present at the Special Meeting and are not
voted in the absence of instructions from the customers ("broker non-votes")
will be counted as present for determining if a quorum is present. Because
adoption of the Plan must be approved by the holders of at least two-thirds of
the outstanding Bank Common Stock, abstentions and broker non-votes will have
the same effect as a vote against such proposal. The Plan also conditions
consummation of the Conversion and Reorganization on the approval of the Plan by
at least a majority of the votes cast, in person or by proxy, at the Special
Meeting by the Public Stockholders. Abstentions and broker non-votes will have
no effect on the required vote of the Public Stockholders.
INCORPORATION OF INFORMATION BY REFERENCE
The Prospectus of the Company is incorporated herein by reference. The
Prospectus sets forth a description of the terms and the related offering of the
Common Stock by the Company under the caption "The Conversion and
Reorganization." Such caption also describes the effects of the Conversion and
Reorganization on the stockholders of the Bank and the members of the Mutual
Holding Company, including the tax consequences of the Conversion and
Reorganization and the establishment of a liquidation account for the benefit of
certain depositors of the Bank. Upon consummation of the Conversion and
Reorganization, the charter of the Bank will be amended to provide for a
liquidation account. This amendment is being adopted to comply with applicable
regulations of the OTS. See Appendix B attached hereto.
Information regarding the Bank, the Company and the Mutual Holding Company
are set forth in the Prospectus under the captions "Middlesboro Federal Bank,
Federal Savings Bank," "Cumberland Mountain Bancshares, Inc." and "Cumberland
Mountain Bancshares, M.H.C.," respectively, as well as under the caption
"Summary." The Prospectus also describes the business and financial condition
of the Bank under the captions "Business of the Bank" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
the historical financial statements of the Bank are included in the Prospectus.
Information regarding the use of proceeds of the Offerings conducted in
connection with the Conversion and Reorganization, the historical capitalization
of the Bank and the pro forma capitalization of the Company, and other pro forma
data are set forth in the Prospectus under the captions "Use of Proceeds,"
"Capitalization" and "Pro Forma Data," respectively.
The Prospectus sets forth certain information as to the Bank Common Stock
beneficially owned by (i) the only persons or entities who or which were known
to the Bank to be the beneficial owner of more than 5% of the issued and
outstanding Bank Common Stock, (ii) the directors of the Bank, and (iii) all
directors and executive officers of the Bank as a group. See "Beneficial
Ownership of Capital Stock" in the Prospectus.
2
<PAGE>
The Prospectus also sets forth a comparison of the rights of stockholders
of the Bank with the rights of stockholders of the Company. See "Comparison of
Stockholders' Rights" in the Prospectus.
DISSENTERS' RIGHTS OF APPRAISAL
Record holders of Bank Common Stock are entitled to appraisal rights under
Section 552.14 of the OTS regulations as a result of the merger of the Mutual
Holding Company (following its conversion to a federal interim stock savings
institution) with and into the Bank and the merger of the Bank with and into
Interim, with the Bank to be the surviving entity in both mergers (the
"Mergers"). Any person having a beneficial interest in shares of Bank Common
Stock held of record in the name of another person, such as a broker or nominee,
and who wishes to exercise dissenters' rights must act promptly to cause the
record holder to follow the steps summarized below properly and in a timely
manner to perfect whatever appraisal rights the beneficial owner may have.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under Section 552.14 and is qualified in its entirety by the
full text of Section 552.14, which is reprinted as Appendix A to this Proxy
Statement.
Under Section 552.14, where a merger is to be submitted for approval at a
meeting of stockholders, as in the case of the Special Meeting, not less than 20
days prior to the meeting, the institution must notify each of the holders of
its stock for which appraisal rights are available that such appraisal rights
are available and include in each such notice a copy of Section 552.14. This
Proxy Statement shall constitute such notice to the record holders of Bank
Common Stock. Any such stockholder who wishes to exercise such appraisal rights
should review carefully the following discussion and Appendix A to this Proxy
Statement because failure to timely and properly comply with the procedures
specified will result in the loss of appraisal rights under Section 552.14.
A holder of shares of Bank Common Stock wishing to exercise his appraisal
rights must deliver to the Secretary of the Bank, before the vote on the Plan at
the Special Meeting, a writing which identifies such stockholder and which
states his intention to demand appraisal of and payment for his shares of Bank
Common Stock. Such demand must be in addition to and separate from any proxy or
vote against the Plan. A vote against the Plan does not, by itself, constitute
a demand for appraisal rights. Also, voting for the approval and adoption of
the Plan will result in the loss of appraisal rights with respect to such
shares. In addition, a holder of shares of Bank Common Stock wishing to
exercise his appraisal rights must hold of record such shares on the date the
written demand for appraisal is made and must hold such shares continuously
through the Effective Date.
Only a holder of record of shares of Bank Common Stock is entitled to
assert appraisal rights for the shares of Bank Common Stock registered in that
holder's name. A demand for appraisal should be executed by or on behalf of the
holder of record fully and correctly, as his name appears on his stock
certificates. If the shares of Bank Common Stock are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, execution of
the demand should be made in that capacity, and if the shares of Bank Common
Stock are owned of record by more than one person, as in a joint tenancy or
tenancy in common, the demand should be executed by or on behalf of all joint
owners. An authorized agent, including one or more joint owners, may execute a
demand for appraisal on behalf of a holder of record; however, the agent must
identify the record owner or owners and expressly disclose the fact that, in
executing the demand, the agent is agent for such owner or owners. A record
holder such as a broker who holds shares of Bank Common Stock as nominee for
several beneficial owners may exercise appraisal rights with respect to the
shares of Bank Common Stock held for one or more beneficial owners while not
exercising such rights with respect to the shares of Bank Common Stock held for
other beneficial owners; in such case, the written demand should set forth the
number of shares of Bank Common Stock as to which appraisal is sought and where
no number of shares of Bank Common Stock is expressly mentioned the demand will
be presumed to cover all shares of Bank Common Stock held in the name of the
record owner. Stockholders who hold their shares of Bank Common Stock in
brokerage accounts or other nominee forms and who wish to exercise appraisal
rights must take all necessary steps in order that a demand for appraisal is
made by the record holder of such shares and are urged to consult with their
brokers to determine the appropriate procedures for the making of a demand for
appraisal
3
<PAGE>
by the record holder and for surrendering the certificates for such shares to
the Bank for notation of appraisal rights as set forth below.
All written demands for appraisal should be sent or delivered to J.D.
Howard, Secretary, Middlesboro Federal Bank, Federal Savings Bank, 1431
Cumberland Avenue, Middlesboro, Kentucky 40965 so as to be received prior to the
vote of stockholders with respect to the Plan.
Within ten days after the effective date ("Effective Date") of the
Conversion and Reorganization, the Bank, as the resulting institution in the
Mergers, must: (i) send a written notice as to the Effective Date of the
Conversion and Reorganization to each person who has satisfied the appropriate
provisions of Section 552.14 and who has not voted in favor of the Plan, (ii)
make a written offer to each stockholder to pay for dissenting shares at a
specified price deemed by the Bank to be the fair value thereof, and (iii)
inform each stockholder that within 60 days of such date the stockholder must
take certain actions set forth in such notice (and summarized below). A written
offer to dissenting stockholders, if any, will be based on the circumstances
existing on the Effective Date, and the Bank has not determined the price per
share it would offer any dissenting stockholders. If, within 60 days of the
Effective Date, an agreement is reached as to the fair value between the Bank
and a dissenting stockholder, payment therefore shall be made within 90 days of
the Effective Date.
If the Bank and any holder of the Bank Common Stock who has complied with
the foregoing procedures and who is entitled to appraisal rights under Section
552.14 have not agreed as to the fair value within 60 days of the Effective
Date, the stockholder may file a petition with the OTS, with a copy of the Bank
by registered or certified mail demanding a determination of the fair value of
the stock of all dissenting stockholders. A stockholder who fails to file such
petition within 60 days of the Effective Date shall be deemed to have accepted
the Exchange Shares to which he is entitled. In addition, within 60 days of the
Effective Date, each stockholder demanding appraisal and payment under Section
552.14 must submit to the Bank the certificates for notation thereon that
appraisal and payment has been demanded and that appraisal proceedings are
pending. The failure to submit certificates for notation will result in the
loss of appraisal rights. The Bank is not under any obligation to file a
petition with respect to the appraisal of the fair value of the shares of Bank
Common Stock. Accordingly, it is the obligation of the stockholders to initiate
all necessary action to perfect their appraisal rights within the time
prescribed in Section 552.14.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Director of the OTS will determine the holders of shares of Bank
Common Stock entitled to appraisal rights and will order an appraisal of the
"fair value" of the shares of Bank Common Stock, exclusive of any element of
value arising from the accomplishment or expectation of the Conversion and
Reorganization. Such appraisal may be conducted by appropriate staff of the OTS
or such independent appraiser as the Director shall determine. If the appraisal
is conducted by an independent appraiser, then the OTS staff will review and
provide an opinion as to the suitability of the methodology and the adequacy of
the analysis and supportive data. If the Director concurs in the valuation,
then payment of the appraised value of the shares will be directed from the
resulting institution (the Bank) upon surrender of the certificates representing
the dissenting shares of Bank Common Stock, along with interest from the
Effective Date at a rate deemed equitable by the Director. Holders of shares of
Bank Common Stock considering seeking appraisal should be aware that the fair
value of their shares of Bank Common Stock as determined under Section 552.14
could be more than, the same as, or less than the value of the consideration
they would receive pursuant to the Plan if they did not seek appraisal of their
shares of Bank Common Stock.
The costs of any appraisal proceeding may be apportioned and assessed by
the Director as he or she deems equitable against all or some of the parties.
In making the determination, the Director shall consider whether any of the
parties has acted arbitrarily, vexatiously, or not in good faith.
Any holder of shares of Bank Common Stock who has duly demanded an
appraisal in compliance with Section 552.14 will not, after the Effective Date,
be entitled to vote the shares of Bank Common Stock subject to such demand for
any purpose or be entitled to the payment of dividends or other distributions on
those shares (except
4
<PAGE>
dividends or other distributions payable to, or a vote to be taken by, holders
of record of shares of Bank Common Stock as of a date prior to the Effective
Date).
If any holder of Bank Common Stock who demands appraisal of his shares
under Section 552.14 fails to perfect, or effectively withdraws or loses his
right to appraisal as provided in Section 552.14, the shares of such stockholder
will be converted into Exchange Shares in accordance with the Plan. A holder
may withdraw his demand for appraisal by delivering to the Bank a written
withdrawal of his demand for appraisal and acceptance of the Exchange Shares
(any such written withdrawal should be directed to J.D. Howard, Secretary,
Middlesboro Federal Bank, Federal Savings Bank, 1431 Cumberland Avenue,
Middlesboro, Kentucky 40965).
Failure to follow the steps required by Section 552.14 for perfecting
appraisal rights may result in the loss of such rights.
STOCKHOLDER PROPOSALS
Any proposal which a stockholder wishes to have included in the proxy
materials for the next annual meeting of stockholders of the Bank, which is
expected to be held in October 1997 if the Conversion and Reorganization is not
consummated, must have been received at the main office of the Bank, 1431
Cumberland Avenue, Middlesboro, Kentucky 40965, no later than June 10, 1997.
OTHER MATTERS
Each proxy solicited hereby also confers discretionary authority on the
Board of Directors of the Bank to vote the proxy upon such other matters as may
properly come before the Special Meeting. Management is not aware of any
business that may properly come before the Special Meeting other than those
matters described above in this Proxy Statement. However, if any other matters
should properly come before the Special Meeting, it is intended that the proxies
solicited hereby will be voted with respect to those other matters in accordance
with the judgment of the persons voting the proxies.
The cost of solicitation of the proxies will be borne by the Bank. In
addition to solicitations by mail, the directors and officers of the Bank may
solicit proxies personally or by telephone without additional compensation. The
Bank will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending the Bank's proxy
materials to the beneficial owners of the Bank Common Stock.
You may obtain a copy of the Plan, including the Charter and Bylaws of the
Company, from any office of the Bank or in writing from the Bank. Any such
requests should be directed to J.D. Howard, Secretary, Middlesboro Federal Bank,
Federal Savings Bank, 1431 Cumberland Avenue, Middlesboro, Kentucky 40965. So
that you have sufficient time to receive and review the requested materials, it
is recommended that any such requests be sent so that they are received by the
Bank by ____________ __, 1997.
YOUR VOTE IS IMPORTANT! THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR THE PLAN. WE URGE YOU TO MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AND
- ---
RETURN IT TODAY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
5
<PAGE>
APPENDIX A
SECTION 552.14 OF THE OTS REGULATIONS RELATING TO
DISSENTERS' RIGHTS OF APPRAISAL
(S)552.14 Dissenter and appraisal rights.
(a) Right to demand payment of fair or appraised value. Except as
provided in paragraph (b) of this section, any stockholder of a Federal stock
association combining in accordance with (S)552.13 of this part shall have the
right to demand payment of the fair or appraised value of his stock: Provided,
That such stockholder has not voted in favor of the combination and complies
with the provisions of paragraph (c) of this section.
(b) Exceptions. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section to
demand payment of the stock's fair or appraised value, if such stock was listed
on a national securities exchange or quoted on the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") on the date of the
meeting at which the combination was acted upon or stockholder action is not
required for a combination made pursuant to (S)552.13(h)(2) of this part.
"Qualified consideration" means cash, shares of stock of any association or
corporation which at the effective date of the combination will be listed on a
national securities exchange or quoted on NASDAQ or any combination of such
shares of stock and cash.
(c) Procedure.
(1) NOTICE. Each constituent Federal stock association shall
notify all stockholders entitled to rights under this section, not less than
twenty days prior to the meeting at which the combination agreement is to be
submitted for stockholder approval, of the right to demand payment of appraised
value of shares, and shall include in such notice a copy of this section. Such
written notice shall be mailed to stockholders of record and may be part of the
management's proxy solicitation for such meeting.
(2) DEMAND FOR APPRAISAL AND PAYMENT. Each stockholder
electing to make a demand under this section shall deliver to the Federal stock
association, before voting on the combination, a writing identifying himself or
herself and stating his or her intention thereby to demand appraisal of and
payment for his or her shares. Such demand must be in addition to and separate
from any proxy or vote against the combination by the stockholder.
(3) NOTIFICATION OF EFFECTIVE DATE AND WRITTEN OFFER. Within
ten days after the effective date of the combination, the resulting association
shall;
(i) Give written notice by mail to stockholders of
constituent Federal Stock associations who have complied with the
provisions of paragraph (c)(2) of this section and have not voted
in favor of the combination, of the effective date of the
combination;
(ii) Make a written offer to each stockholder to pay for
dissenting shares at a specified price deemed by the resulting
association to be the fair value thereof; and
(iii) Inform them that, within sixty days of such date,
the respective requirements of paragraphs (c)(5) and (6) of this
section (set out in the notice) must be satisfied.
<PAGE>
The notice and offer shall be accompanied by a balance sheet and statement
of income of the association the shares of which the dissenting stockholder
holds, for a fiscal year ending not more than sixteen months before the date of
notice and offer, together with the latest available interim financial
statements.
(4) ACCEPTANCE OF OFFER. If within sixty days of the effective
date of the combination the fair value is agreed upon between the resulting
association and any stockholder who has complied with the provisions of
paragraph (c)(2) of this section, payment therefor shall be made within ninety
days of the effective date of the combination.
(5) PETITION TO BE FILED IF OFFER NOT ACCEPTED. If within sixty
days of the effective date of the combination the resulting association and any
stockholder who has complied with the provisions of paragraph (c)(2) of this
section do not agree as to the fair value, then any such stockholder may file a
petition with the Office, with a copy by registered or certified mail to the
resulting association, demanding a determination of the fair market value of the
stock of all such stockholders. A stockholder entitled to file a petition under
this section who fails to file such petition within sixty days of the effective
date of the combination shall be deemed to have accepted the terms offered under
the combination.
(6) STOCK CERTIFICATES TO BE NOTED. Within sixty days of the
effective date of the combination, each stockholder demanding appraisal and
payment under this section shall submit to the transfer agent his certificates
of stock for notation thereon that an appraisal and payment have been demanded
with respect to such stock and that appraisal proceedings are pending. Any
stockholder who fails to submit his stock certificates for such notation shall
no longer be entitled to appraisal rights under this section and shall be deemed
to have accepted the terms offered under the combination.
(7) WITHDRAWAL OF DEMAND. Notwithstanding the foregoing, at any
time within sixty days after the effective date of the combination, any
stockholder shall have the right to withdraw his or her demand for appraisal and
to accept the terms offered upon the combination.
(8) VALUATION AND PAYMENT. The Director shall, as he or she may
elect, either appoint one or more independent persons or direct appropriate
Staff of the Office to appraise the shares to determine their fair market value,
as of the effective date of the combination, exclusive of any element of value
arising from the accomplishment or expectation of the combination. Appropriate
staff of the Office shall review and provide an opinion on appraisals prepared
by independent persons as to the suitability of the appraisal methodology and
the adequacy of the analysis and supportive data. The Director after
consideration of the appraisal report and the advice of the appropriate staff
shall, if he or she concurs in the valuation of the shares direct payment by the
resulting association of the appraised fair market value of the shares, upon
surrender of the certificates representing such stock. Payment shall be made,
together with interest from the effective date of the combination, at a rate
deemed equitable by the Director.
(9) COSTS AND EXPENSES. The costs and expenses of any proceeding
under this section may be apportioned and assessed by the Director as he or she
may deem equitable against all or some of the parties. In making this
determination the Director shall consider whether any party has acted
arbitrarily, vexatiously, or not in good faith in respect to the rights provided
by this section.
(10) VOTING AND DISTRIBUTION. Any stockholder who has demanded
appraisal rights as provided in paragraph (c)(2) of this section shall
thereafter neither be entitled to vote such stock for any purpose nor be
entitled to the payment of dividends or other distributions on the stock (except
dividends or other distribution payable to, or a vote to be taken by
stockholders of record at a date which is on or prior to, the effective date of
the combination): Provided, That if any stockholder becomes unentitled to
appraisal and payment of appraised value with respect to such stock and accepts
or is deemed to have accepted the terms offered upon the combination, such
stockholder shall thereupon be entitled to vote and receive the distributions
described above.
(11) STATUS. Shares of the resulting association into which shares
of the stockholder demanding appraisal rights would have been converted or
exchanged, had they assented to the combination, shall have the status of
authorized and unissued shares of the resulting association.
A-2
<PAGE>
APPENDIX B
Section 8. Liquidation Account. Pursuant to the requirements of 12
C.F.R. Subchapter D, the Savings Bank shall establish and maintain a liquidation
account for the benefit of its savings account holders who had an account
balance of at least $50.00 as of the close of business on either September 30,
1995 or December 31, 1996 ("eligible depositors"). In the event of a complete
liquidation of the Savings Bank, it shall comply with such regulations with
respect to the amount and the priorities on liquidation of each of the Savings
Bank's eligible depositor's inchoate interest in the liquidation account, to the
extent it is still in existence, provided that an eligible depositor's inchoate
interest in the liquidation account shall not entitle such eligible depositor to
any voting rights at meetings of the Savings Bank's stockholders.
<PAGE>
MIDDLESBORO FEDERAL BANK, FEDERAL SAVINGS BANK REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MIDDLESBORO
FEDERAL BANK, FEDERAL SAVINGS BANK FOR USE ONLY AT A SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON __________________ ___, 1997 AND ANY ADJOURNMENT
THEREOF.
The undersigned, being a stockholder of the Bank as of ___________ ___,
1997, hereby authorizes the Board of Directors of the Bank, or any of their
successors, as proxies, with full powers of substitution, to represent the
undersigned at the Special Meeting of Stockholders to be held at the
_______________________, located at, ________________________, ___________,
Kentucky, on _____________ ___, 1997, at ____:____ .m., Eastern Time, and at
any adjournment of said meeting, and thereat to act with respect to all votes
that the undersigned would be entitled to cast, if then personally present, as
follows:
(1) To approve and adopt a Plan of Conversion and Agreement and Plan of
Reorganization between Cumberland Mountain Bancshares, M.H.C. (the "Mutual
Holding Company") and the Bank (the "Plan"), pursuant to which (i) the Mutual
Holding Company, which currently owns approximately 64.1% of the outstanding
shares of common stock of the Bank, will convert from mutual form to a federal
interim stock savings institution and simultaneously merge into the Bank, with
the Bank being the surviving entity; (ii) an interim institution ("Interim") to
be formed as a first-tier wholly owned subsidiary of the Cumberland Mountain
Bancshares, Inc., a Tennessee corporation recently formed as a first-tier wholly
owned subsidiary of the Bank (the "Company"), will merge into the Bank, with the
Bank being the surviving entity and becoming a wholly owned subsidiary of the
Company; (iii) the outstanding shares of Bank Common Stock (other than those
held by the Mutual Holding Company, which will be cancelled) will be converted
into shares of common stock of the Company pursuant to an exchange ratio as
described in the Proxy Statement; (iv) the Company will sell additional shares
of its common stock pursuant to the Plan; and (v) in connection therewith the
Bank's charter will be amended as set forth in Appendix B to the Proxy
Statement.
[_] FOR [_] AGAINST [_] ABSTAIN
In their discretion, the proxies are authorized to vote with respect to
approval of the minutes of the last meeting of stockholders, matters incident to
the conduct of the meeting, and upon such other matters as may properly come
before the meeting.
This proxy may be revoked at any time before it is exercised. Shares of
common stock of the Bank will be voted as specified. If no specification is
made herein, shares will be voted FOR Proposal 1.
(Continued and to be signed on other side)
<PAGE>
The undersigned hereby acknowledges receipt of a Notice of Special Meeting
of the Stockholders of Middlesboro Federal Bank, Federal Savings Bank called for
______________ ___, 1997 and a Proxy Statement for the Special Meeting prior to
the singing of this proxy.
Dated:______________________, 199__
___________________________________
___________________________________
Signature(s)
Please sign exactly as your name(s)
appear(s) on this proxy. Only one
signature is required in the case of
a joint account. When signing in a
representative capacity, please give
title.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED
ENVELOPE.
<PAGE>
EXHIBIT 99.2
CUMBERLAND MOUNTAIN BANCSHARES, M.H.C.
1431 Cumberland Avenue
Middlesboro, Kentucky 40965
(606) 248-4584
NOTICE OF SPECIAL MEETING OF MEMBERS
Notice is hereby given that a Special Meeting of Members (the "Special
Meeting") of Cumberland Mountain Bancshares, M.H.C. (the "Mutual Holding
Company") will be held at _________________, __________________, Middlesboro,
Kentucky, on ____________, _________ __, 1997 at :__ .m., local time.
Business to be taken up at the Special Meeting shall be:
(1) To consider and vote upon a Plan of Conversion and Agreement and
Plan of Reorganization (the "Plan") among the Mutual Holding
Company, Middlesboro Federal Bank, Federal Savings Bank (the "Bank")
and Cumberland Mountain Bancshares, Inc. (the "Company") pursuant to
which: (i) the Mutual Holding Company, which currently owns
approximately 64.71% of the outstanding shares of the common stock,
$1.00 par value, of the Bank (the "Bank Common Stock"), will convert
from mutual form to a federal interim stock savings bank and
simultaneously merge into the Bank, with the Bank being the
surviving entity; (ii) the Bank will then merge with an interim
institution to be formed as a wholly owned subsidiary of the
Company, with the Bank as the surviving entity; (iii) the
outstanding shares of Bank Common Stock (other than those held by
the Mutual Holding Company, which will be cancelled) will be
converted into shares of the common stock, $0.01 par value, of the
Company (the "Common Stock") pursuant to a ratio that will result in
the holders of such shares (the "Public Stockholders") owning in the
aggregate approximately the same percentage of the Company as they
currently own of the Bank, before giving effect to such stockholders
purchasing additional shares in a concurrent stock offering by the
Company or the Company's Employee Stock Ownership Plan thereafter,
receiving cash in lieu of fractional shares or the exercise of
dissenters' rights; and (iv) the offer and sale of shares of the
Common Stock; and
(2) To consider and vote upon any other matters that may lawfully come
before the Special Meeting.
Note: 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 Mutual Holding Company at the close of business on __________,
1997, and 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
----------------------------------------
J.D. Howard
Secretary
_____________, 1997
Middlesboro, Kentucky
---------------------------------
<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
THE BANK, AS TRUSTEE FOR RETIREMENT ACCOUNTS ON DEPOSIT AT THE BANK,
WILL VOTE FOR THE PLAN UNLESS THE BENEFICIAL OWNER EXECUTES A PROXY FOR THE
SPECIAL MEETING, ATTENDS AND VOTES IN PERSON, OR OTHERWISE DIRECTS THE BANK.
---------------------------------
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CUMBERLAND MOUNTAIN BANCSHARES, M.H.C.
1431 Cumberland Avenue
Middlesboro, Kentucky 40965
(606) 248-4584
-------------------------------
PROXY STATEMENT
-------------------------------
YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF DIRECTORS
OF CUMBERLAND MOUNTAIN BANCSHARES, M.H.C. 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 AND AGREEMENT
---
AND PLAN OF REORGANIZATION.
PURPOSE OF MEETING -- SUMMARY
A Special Meeting of Members (the "Special Meeting") of Cumberland
Mountain Bancshares, M.H.C. (the "Mutual Holding Company") will be held at
________________, ________________, Middlesboro, Kentucky on ____________,
____________, 1997, at :__ .m., local time, for the purpose of considering and
voting upon a Plan of Conversion and Agreement and Plan of Reorganization (the
"Plan") among the Mutual Holding Company, Middlesboro Federal Bank, Federal
Savings Bank (the "Bank" or "Middlesboro Federal") and Cumberland Mountain
Bancshares, Inc. (the "Company") pursuant to which: (i) the Mutual Holding
Company, which currently owns approximately 64.71% of the outstanding shares of
the common stock, $1.00 par value of the Bank (the "Bank Common Stock"), will
convert from mutual form to a federal interim stock savings bank and
simultaneously merge with an into the Bank, with the Bank being the surviving
entity; (ii) the Bank will then merge with an interim institution ("Interim") to
be formed as a wholly owned subsidiary of the Company, with the Bank as the
surviving entity; (iii) the outstanding shares of Bank Common Stock (other than
those held by the Mutual Holding Company, which will be cancelled) (the "Public
Bank Shares") will be converted in to shares of the common stock, $0.01 par
value, of the Company (the "Common Stock") pursuant to a ratio (the "Exchange
Ratio") that will result in the holders of such shares (the "Public
Stockholders") owning in the aggregate approximately the same percentage of the
Company as they currently own of the Bank, before giving effect to such
stockholders purchasing additional shares in a concurrent stock offering by the
Company or by the Company's Employee Stock Ownership Plan (the "ESOP")
thereafter, receiving cash in lieu of fractional shares or the exercise of
dissenters' rights; and (iv) the offer and sale of shares of the Company's
common stock (the "Conversion Stock") pursuant to the Plan. The offer and sale
of the Conversion Stock and the reorganization are collectively referred to
herein as the "Conversion and Reorganization."
Pursuant to the Plan and in connection with the Conversion and
Reorganization, the Company is offering up to _______ shares of Conversion Stock
in a Subscription Offering with nontransferable subscription rights being
granted, in the following order of priority, to: (i) depositors of the Bank with
account balances of $50.00 or more as of the close of business on September 30,
1995 ("Eligible Account Holders"); (ii) the ESOP; (iii) depositors of the Bank
with account balances of $50.00 or more as of the close of business on December
31, 1996 ("Supplemental Eligible Account Holders"); (iv) depositors of the Bank
as of the close of business on ______________ (other than Eligible Account
Holders and Supplemental Eligible Account Holder(s) ("Other Members"); (v)
directors, officers and employees of the Bank; and (vi) Public Stockholders.
Subscription rights will expire if not exercised by 12:00 p.m., Eastern Time, on
________________, 1997, unless extended.
Subject to the prior rights of holders of subscription rights,
Conversion Stock not subscribed for in the Subscription Offering may be offered
in a Community Offering to certain members of the general public to whom a copy
of the Prospectus is delivered, with preference given to natural persons
residing in Bell and Harlan Counties in the Commonwealth of Kentucky. It is
anticipated that shares not subscribed for in the Subscription Offering and the
Community Offering will be offered to certain members of the general public in a
Syndicated Community Offering. The Mutual Holding Company, the Bank and the
Company (the "Primary Parties") reserve the absolute
<PAGE>
right to reject or accept any orders in the Community Offering or the Syndicated
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.
The Primary Parties have retained Trident Securities, Inc. as
financial advisor and marketing agent in connection with the Offerings and to
assist in soliciting subscriptions in the Offerings. See "The Conversion and
Reorganization --The Offerings -- Subscription Offering," " -- Community
Offering," " -- Syndicated Community Offering" and " --Marketing Arrangements"
in the accompanying Prospectus.
THE BOARD OF DIRECTORS OF THE MUTUAL HOLDING COMPANY UNANIMOUSLY
RECOMMENDS THAT YOU VOTE TO APPROVE THE PLAN. VOTING IN FAVOR OF THE PLAN WILL
NOT OBLIGATE ANY PERSON TO PURCHASE CONVERSION STOCK. EXCHANGE SHARES AND
- ---
SHARES OF CONVERSION STOCK ARE BEING OFFERED ONLY BY THE PROSPECTUS, WHICH IS
AVAILABLE UPON REQUEST, IF NOT INCLUDED HEREIN. SEE "HOW TO OBTAIN ADDITIONAL
INFORMATION" AND "AVAILABLE INFORMATION."
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
Depositors of the Bank, and borrowers of the Bank as of __________,
1994 who continue to be borrowers of the Bank, are members of the Mutual Holding
Company under its current charter (the "Members"). All of the Members as of the
close of business on ____________________, 1997 (the "Voting Record Date") who
continue to be Members on the date of the Special Meeting or any adjournment
thereof will be entitled to vote on the Plan. If there are not sufficient votes
for approval of the Plan at the time of the Special Meeting, the Special Meeting
may be adjourned to permit further solicitation of proxies.
At the Special Meeting, each depositor Member will be entitled to cast
one vote for every $100 or fraction thereof, of the total withdrawal value of
all of his accounts in the Bank as of the Voting Record Date. Each borrower
Member will be entitled to one vote in the aggregate for all loans with the Bank
in addition to the votes such Member may be entitled to cast as a depositor. In
no event, however, may any Member cast more than 1,000 votes.
Pursuant to Office of Thrift Supervision ("OTS") regulations,
consummation of the Conversion and Reorganization is conditioned upon the
approval of the Plan by the OTS as well as: (i) the approval of the holders of
at least a majority of the total number of votes eligible to be cast by the
Members of the Mutual Holding Company as of the Voting Record Date at the
Special Meeting; and (ii) the approval of the holders of at least two-thirds of
the shares of the outstanding Bank Common Stock as of the voting record date for
the special meeting of stockholders called for that purpose (the "Stockholders'
Meeting). In addition, the parties have conditioned the consummation of the
Conversion and Reorganization on the approval of the Plan by the holders of at
least a majority of the votes cast, in person or by proxy, by the Public
Stockholders at the Stockholders' Meeting and the exercise of dissenters' rights
of appraisal by the holders of less than 10% of the outstanding shares of Bank
Common Stock. The Mutual Holding Company intends to vote its shares of Bank
Common Stock, which amount to 64.71% of the outstanding shares, in favor of the
Plan at the Stockholders' Meeting.
This Proxy Statement and related materials are first being mailed to
Members on or about _____________, 1997.
Approval of the Plan by the Members of the Mutual Holding Company will
require the affirmative vote of at least a majority of the total outstanding
votes of the Mutual Holding Company'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.
2
<PAGE>
PROXIES
The Board of Directors of the Mutual Holding Company is soliciting the
proxy which accompanies this Proxy Statement for use at the Special Meeting.
Each proxy solicited hereby, if properly executed, duly returned before the
Special Meeting and not revoked prior to or at the Special meeting, will be
voted at the Special Meeting in accordance with the Member's instructions
indicated thereon. If no contrary instructions are given on the proxy, the
proxy, if signed, will be voted in favor of the Plan. If you do not return a
proxy or vote at the Special Meeting, it will have the same effect as a vote
against the Plan. If any other matters are properly presented before the Special
meeting, the persons named in the proxy will vote upon such matters according to
their discretion. Except with respect to procedural matters incident to the
conduct of the Special Meeting, no additional matters are expected to come
before the Special Meeting.
Any Member giving a proxy may revoke it at any time before it is voted
by delivering to the Secretary of the Mutual Holding Company either a written
revocation of the proxy or a duly executed proxy bearing a later date, or by
voting in person at the Special Meeting. Proxies are being solicited only for
use at the Special Meeting and any and all adjournments thereof and will not be
used for any other meeting.
Proxies may be solicited by officers, directors and employees of the
Mutual Holding Company personally, by telephone or further correspondence
without additional compensation.
Deposits held in a trust or other fiduciary capacity may be voted by
the trustee or other fiduciary to whom voting rights are delegated under the
trust instrument or other governing document or applicable law. In the case of
individual retirement accounts ("IRAs") and Keogh trusts established at the
Bank, the beneficiary may direct the trustee's vote on the Plan by returning a
completed proxy card to the Mutual Holding Company. For IRAs and Keogh trusts,
if no proxy card is returned, the trustee will vote in favor of approval of the
Plan on behalf of such beneficiary.
The Board of Directors urges you to mark, sign, date and return the
enclosed proxy card in the enclosed postage-paid envelope as soon as possible,
even if you do not intend to purchase Common Stock. This will ensure that your
vote will be counted.
CUMBERLAND MOUNTAIN BANCSHARES, M.H.C.
The Mutual Holding Company is a federally chartered mutual holding
company chartered in March 1994 in connection with the mutual holding company
reorganization of the Bank (the "MHC Reorganization"). The Mutual Holding
Company's primary asset is 330,000 shares of Bank Common Stock, which represents
64.71% of the shares of Bank Common Stock outstanding as of the date of this
Prospectus. The Mutual Holding Company's only other assets at September 30,
1996 were all of the issued and outstanding shares of Home Mortgage Loan
Corporation ("Home"), which was formerly a wholly owned subsidiary of the Bank,
and a deposit account. As part of the Conversion and Reorganization, the Mutual
Holding Company will convert to an interim federal savings bank and
simultaneously merge with and into the Bank, with the Bank being the surviving
entity. Upon consummation of the Conversion and Reorganization, the stock of
Home and the deposit account will become assets of the Bank.
MIDDLESBORO FEDERAL BANK, FEDERAL SAVINGS BANK
Middlesboro Federal is a federally chartered stock savings bank that
was organized in 1994 as a subsidiary of the Mutual Holding Company. Prior to
that date, the Bank in mutual form (the "Mutual Bank") had operated since 1915
in Middlesboro, Kentucky and since 1976 in Cumberland, Kentucky. In connection
with the MHC Reorganization, the Mutual Bank transferred substantially all of
its assets and liabilities to the Bank in exchange for 330,000 shares of Bank
Common Stock and converted its charter to a federal mutual holding company known
as Cumberland Mountain Bancshares, M.H.C. In connection with the MHC
Reorganization, the Bank sold 180,000
3
<PAGE>
shares of Bank Common Stock to the general public at $10.00 per share. At
September 30, 1996, the Bank had $83.8 million of total assets, $79.4 of total
liabilities, including $71.9 million of deposits, and $4.4 million of
stockholders' equity. At September 30, 1996, there were 180,000 Public Bank
Shares outstanding. The Bank Common Stock is registered with the OTS under
Section 12(g) of the Securities Exchange Act of 1934 (the "Exchange Act").
Middlesboro Federal is primarily engaged in attracting deposits from
the general public through its offices and using those and other available
sources of funds to originate loans secured by single-family residences located
in the counties where its offices are located. Such loans amounted to $43.7
million or 60.3% of Middlesboro Federal's total loan portfolio (before net
items). At September 30, 1996, Middlesboro Federal held $11.4 million in
commercial real estate loans at that date, representing 15.7% of total loans
(before net items). The other significant areas of lending activity by
Middlesboro Federal are multi-family real estate loans, construction loans,
commercial business loans and consumer loans which, as of September 30, 1996,
represented $1.9 million or 2.6%, $4.2 million or 5.8%, $4.5 million or 6.2% and
$6.8 million or 9.4%, respectively, of Middlesboro Federal's total loan
portfolio. Middlesboro Federal also makes substantial investments in United
States Treasury and federal government obligations and mortgage-backed
securities which are insured by federal agencies. As of September 30, 1996, the
book value of U.S. Treasury and government agency securities was $2.7 million
and the book value of its mortgage-backed securities portfolio, was $7.7
million.
Middlesboro Federal is subject to regulation by the OTS, as its
primary federal regulator and by the Federal Deposit Insurance Corporation
("FDIC"), which, through the Savings Association Insurance Fund ("SAIF")
administered by it, insures Middlesboro Federal's deposits up to applicable
limits. Middlesboro Federal is a member of the Federal Home Loan Bank ("FHLB")
of Cincinnati, which is one of the 12 banks which comprise the FHLB System.
Middlesboro Federal's principal executive offices are located 1431
Cumberland Avenue, Middlesboro, Kentucky, 40965, and its telephone number is
(606) 248-4584.
CUMBERLAND MOUNTAIN BANCSHARES, INC.
The Company was organized on December 13, 1996 at the direction of the
Board of Directors of the Bank for the purpose of holding all of the capital
stock of the Bank and in order to facilitate the Conversion and Reorganization.
The Company has applied for the approval of the OTS to become a savings
institutions holding company and as such will be subject to regulation by the
OTS. After completion of the Conversion and Reorganization, the Company will
conduct business initially as a unitary savings institution holding company.
See "Regulation -- Regulation of the Company" in the accompanying Prospectus.
Upon consummation of the Conversion and Reorganization, the Company will have no
significant assets other than all of the outstanding shares of the Company, the
note evidencing the Company's loan to the ESOP and the portion of the net
proceeds from the Offerings retained by the Company, and the Company will have
no significant liabilities. See "Use of Proceeds" in the accompanying
Prospectus. Initially, the management of the Company and the Bank will be
substantially similar and the Company will neither own nor lease any property,
but will instead use the premises, equipment and furniture of the Bank. At the
present time, the Company does not intend to employ any persons other than
officers who are also officers of the Bank, and the Company will utilize the
support staff of the Bank from time to time. Additional employees will be hired
as appropriate to the extent the Company expands or changes its business in the
future.
Management believes that the holding company structure will provide
the Company with additional flexibility to diversify, should it decide to do so,
its business activities through existing or newly formed subsidiaries, or
through acquisitions of or mergers with other financial institutions and
financial services related companies. Although there are no current
arrangements, understandings or agreements regarding any such opportunities or
transactions, the Company will be in a position after the Conversion and
Reorganization, subject to regulatory limitations and the Company's financial
position, to take advantage of any such acquisition and expansion
4
<PAGE>
opportunities that may arise. The initial activities of the Company are
anticipated to be funded by the proceeds to be retained by the Company and
earnings thereon, as well as dividends from the Bank. See "Dividend Policy" in
the accompanying Prospectus.
The Company will be a unitary savings and loan holding company which,
under existing laws, would generally not be restricted as to the type of
business activities in which it may engage, provided that continues to be a
qualified thrift lender ("QTL"). Any portion of the net proceeds in excess of
the amount retained by the Company will be added to the Bank's general funds to
be used for general corporate purposes, including increased lending activities
and purchases of investments and mortgage-backed securities.
The Company's principal executive office is located at the home office
of the Bank at 1431 Cumberland Avenue, Middlesboro, Kentucky 40965, and its
telephone number is (606) 248-4584.
THE CONVERSION AND REORGANIZATION
The Boards of Directors of the Mutual Holding Company, the Bank and
the Company (the "Primary Parties") have approved the Plan, as has the OTS,
subject to approval by the Members of the Mutual Holding Company and the
Stockholders of the Bank entitled to vote on the matter and the satisfaction of
certain other conditions. Such OTS approval, however, does not constitute a
recommendation or endorsement of the Plan by such agency.
General
The Boards of Directors of the Mutual Holding Company and the Bank
unanimously adopted the Plan as of December 12, 1996. The Plan has been
approved by the OTS, subject to, among other things, approval of the Plan by the
Members of the Mutual Holding Company and the Stockholders of the Bank. The
Members' Meeting and the Stockholders' Meeting have been called for this purpose
on _________, 1997.
The following is a brief summary of pertinent aspects of the Plan and
the Conversion and Reorganization. The summary is qualified in its entirety by
reference to the provisions of the Plan, which is available for inspection at
the branch office of the Bank and at the offices of the OTS. See also the
description under "The Conversion and Reorganization" in the accompanying
Prospectus. The Plan also is filed as an exhibit to the Registration Statement
of which the Prospectus is a part, copies of which may be obtained from the
Securities and Exchange Commission ("SEC"). See "Available Information."
Effects of the Conversion and Reorganization
General. Prior to the Conversion and Reorganization, each depositor
in the Bank has both a deposit account in the institution and a pro rata
ownership interest in the net worth of the Mutual Holding Company based upon the
balance in his account, which interest may only be realized in the event of a
liquidation of the Mutual Holding Company. However, this ownership interest is
tied to the depositor's account and has no tangible market value separate from
such deposit account. A depositor who reduces or closes his account receives a
portion or all of the balance in the account but nothing for his ownership
interest in the net worth of the Mutual Holding Company, which is lost to the
extent that the balance in the account is reduced.
Consequently, the depositors of the Bank normally have no way to
realize the value of their ownership interest in the Mutual Holding Company,
which has realizable value only in the unlikely event that the Mutual Holding
Company is liquidated. In such event, the depositors of record at that time, as
owners, would share pro rata in any residual surplus and reserves of the Mutual
Holding Company after other claims are paid.
5
<PAGE>
Upon consummation of the Conversion and Reorganization, permanent
nonwithdrawable capital stock will be created to represent the ownership of the
net worth of the Company. The Common Stock of the Company is separate and apart
from deposit accounts and cannot be and is not insured by the FDIC or any other
governmental agency. Certificates are issued to evidence ownership of the
permanent stock. The stock certificates are transferable, and therefore the
stock may be sold or traded if a purchaser is available with no effect on any
account the seller may hold in the Bank.
Continuity. While the Conversion and Reorganization is being
accomplished, the normal business of the Bank of accepting deposits and making
loans will continue without interruption. The Bank will continue to be subject
to regulation by the OTS and the FDIC. After the Conversion and Reorganization,
the Bank will continue to provide services for depositors and borrowers under
current policies by its present management and staff.
The directors and officers of the Bank at the time of the Conversion
and Reorganization will continue to serve a directors and officers of the Bank
after the Conversion and Reorganization. The directors and officers of the
Company consist of individuals currently serving as directors and officers of
the Mutual Holding Company and the Bank, and they generally will retain their
positions in the Company after the Conversion and Reorganization.
Effect on Public Bank Shares. Under the Plan, upon consummation of
the Conversion and Reorganization, the Public Bank Shares shall be converted
into Common Stock based upon the Exchange Ratio without any further action on
the part of the holder thereof. Upon surrender of the Public Bank Shares,
Common Stock will be issued in exchange for such shares.
Upon consummation of the Conversion and Reorganization, the Public
Stockholders of the Bank, a federally chartered savings bank, will become
stockholders of the Company, a Tennessee corporation.
Effect on Deposit Accounts. Under the Plan, each depositor in the
Bank at the time of the Conversion and Reorganization will automatically
continue as a depositor after the Conversion and Reorganization, and each such
deposit account will remain the same with respect to deposit balance, interest
rate and other terms, except to the extent that funds in the account are
withdrawn to purchase Conversion Stock to be issued in the Offerings. Each such
account will be insured by the FDIC to the same extent as before the Conversion
and Reorganization. Depositors will continue to hold their existing
certificates, passbooks and other evidences of their accounts.
Effect on Loans. No loan outstanding from the Bank will be affected
by the Conversion and Reorganization, and the amount, interest rate, maturity
and security for each loan will remain as they were contractually fixed prior to
the Conversion and Reorganization.
Effect on Voting Rights of Members. At present, all depositors of the
Bank are members of, and have voting rights in, the Mutual Holding Company as to
all matters requiring membership action. Upon completion of the Conversion and
Reorganization, depositors will cease to be members and will no longer be
entitled to vote at meetings of the Mutual Holding Company. Upon completion of
the Conversion and Reorganization, all voting rights in the Bank will be vested
in the Company as the sole stockholder of the Bank and exclusive voting rights
with respect to the Company will be vested in the holders of Common Stock.
Depositors of the Bank will not have voting rights in the Company after the
Conversion and Reorganization, except to the extent that they become
stockholders of the Company.
Tax Effects. Consummation of the Conversion and Reorganization is
conditioned on prior receipt by the Primary Parties of rulings or opinions with
regard to federal and Kentucky income taxation which indicate that the adoption
and implementation of the Plan set forth herein will not be taxable for federal
or Kentucky income tax purposes to the Primary Parties or the Bank's Eligible
Account Holders, Supplemental Eligible Account Holders or Other Members, Public
Stockholders except as discussed below.
6
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Housley Kantarian & Bronstein, P.C., Washington, D.C., has issued an
opinion to the Company and the Bank to the effect that, for federal income tax
purposes: (1) the conversion of the Mutual Holding Company from mutual to stock
form and the simultaneous merger of the Mutual Holding Company with and into the
Bank, with the Bank being the surviving institution, will qualify as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code, (2) no
gain or loss will be recognized by the Bank upon the receipt of the assets of
the converted Mutual Holding Company in such merger, (3) the merger of Interim
with and into the Bank, with the Bank being the surviving institution, will
qualify as a reorganization within the meaning of Section 368(a)(1)(A) of the
Code, (4) no gain or loss will be recognized by Interim upon the transfer of its
assets to the Bank, (5) no gain or loss will be recognized by the Bank upon Bank
the receipt of the assets of Interim, (6) no gain or loss will be recognized by
the Company upon the receipt of Bank Common Stock solely in exchange for Common
Stock, (7) no gain or loss will be recognized by the Public Stockholders upon
the receipt of Common Stock solely in exchange for their Public Bank Shares, (8)
the basis of the Common Stock to be received by the Public Stockholders will be
the same as the basis of the Public Bank Shares surrendered in exchange
therefor, before giving effect to any payment of cash in lieu of fractional
shares, (9) the holding period of the Common Stock to be received by the Public
Stockholders will include the holding period of the Public Bank Shares, provided
that the Public Bank Shares were held as a capital asset on the date of the
exchange, (10) no gain or loss will be recognized by the Company upon the sale
of shares of Conversion Stock in the Offerings, (11) the Eligible Account
Holders and Supplemental Eligible Account Holders will recognize gain, if any,
upon the issuance to them of withdrawable savings accounts in the Bank following
the Conversion and Reorganization, interests in the liquidation account and
nontransferable subscription rights to purchase Conversion Stock, but only to
the extent of the value, if any, of the subscription rights, and (12) the tax
basis to the holders of Conversion Stock purchased in the Offerings will be the
amount paid therefor, and the holding period for the shares of Conversion Stock
will begin on the date of consummation of the Offerings if purchased through the
exercise of subscription rights and on the day after the date of purchase if
purchased in the Community Offering or Syndicated Community Offering.
Robert L. Brown III, Esq., Corbin, Kentucky has issued an opinion to
the Company and the Bank to the effect that the income tax consequences of the
Conversion and Reorganization are substantially the same under Kentucky laws as
they are under the Code.
In the opinion of RP Financial, which opinion is not binding on 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 nontransferable and of
short duration, and afford the recipients the right only to purchase the
Conversion Stock at a price equal to its estimated fair market value, which will
be the same price as the Purchase Price for the unsubscribed shares of
Conversion Stock. If the subscription rights granted to eligible subscribers
are deemed to have an ascertainable value, receipt of such rights likely would
be taxable only to those eligible subscribers who exercise the subscription
rights (either as a capital gain or ordinary income) in an amount equal to such
value, and the Primary Parties could recognize gain on such distribution.
Eligible subscribers are encouraged to consult with their own tax advisor as to
the tax consequences in the event that such subscription rights are deemed to
have an ascertainable value.
Unlike private rulings, an opinion is not binding on the IRS and the
IRS could disagree with conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.
Effect on Liquidation Rights. Were the Mutual Holding Company to
liquidate, all claims of the Mutual Holding Company's creditors would be paid
first. Thereafter, if there were any assets remaining, members of the Mutual
Holding Company would receive such remaining assets, pro rata, based upon the
deposit balances in their deposit accounts at the Bank immediately prior to
liquidation. In the unlikely event that the Bank were to liquidate after the
Conversion and Reorganization, all claims of creditors (including those of
depositors, to the extent of their deposit balances) also would be paid first,
followed by distribution of the "liquidation account" to certain depositors (see
" --Liquidation Rights" below), with any assets remaining thereafter distributed
to the Company as the holder of the Bank's capital stock. Pursuant to the rules
and regulations of the OTS, a merger, consolidation, sale of bulk
7
<PAGE>
assets or similar combination or transaction with another insured savings
institution would not be considered a liquidation for this purpose and, in such
a transaction, the liquidation account would be required to be assumed by the
surviving institution.
Liquidation Rights
In the unlikely event of a complete liquidation of the Mutual Holding
Company in its present mutual form, each depositor of the Bank would receive his
pro rata share of any assets of the Mutual Holding Company remaining after
payment of claims of all creditors. Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his deposit
account was to the total value of all deposit accounts in the Bank at the time
of liquidation. After the Conversion and Reorganization, each depositor, in the
event of a complete liquidation of the Bank, would have a claim as a creditor of
the same general priority as the claims of all other general creditors of the
Bank. However, except as described below, his claim would be solely in the
amount of the balance in his deposit account plus accrued interest. He would
not have an interest in the value or assets of the Bank or the Company above
that amount.
The Plan provides for the establishment, upon the completion of the
Conversion and Reorganization, of a special "liquidation account" for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders in
an amount equal to the amount of any dividends waived by the Mutual Holding
Company plus the greater of (i) the Bank's retained earnings of $_____ million
at September 30, 1996, the date of the latest balance sheet contained in the
final offering circular utilized in the Bank's initial public offering, or (ii)
64.71% of the Bank's total stockholders' equity as reflected in its latest
balance sheet contained in the final Prospectus utilized in the Offerings. As
of the date of this Prospectus, the initial balance of the liquidation account
would be $_____ million. Each Eligible Account Holder and Supplemental Eligible
Account Holder, if he were to continue to maintain his deposit account at the
Bank, would be entitled, upon a complete liquidation of the Bank after the
Conversion and Reorganization, to an interest in the liquidation account prior
to any payment to the Company as the sole stockholder of the Bank. Each Eligible
Account Holder and Supplemental Eligible Account Holder would have an initial
interest in such liquidation account for each deposit account, including
passbook accounts, transaction accounts such as checking accounts, money market
deposit accounts and certificates of deposit, held in the Bank at the close of
business on the Eligibility Record Date or the Supplemental Eligibility Record
Date, as the case may be. Each Eligible Account Holder and Supplemental Eligible
Account Holder will have a pro rata interest in the total liquidation account
for each of his deposit accounts based on the proportion that the balance of
each such deposit account on Supplemental Eligibility Record Date, as the case
may be bore to the balance of all deposit accounts in the Bank on such date.
If, however, on any June 30 annual closing date of the Bank,
commencing June 30 for Eligible Account Holders and June 30 for Supplemental
Eligible Account Holders, the amount in any deposit account is less than the
amount in such deposit account on September 30, 1995 or December 31, 1996, as
the case may be, or any other annual closing date, then the interest in the
liquidation account relating to such deposit account would be reduced by the
proportion of any such reduction, and such interest will cease to exist if such
deposit account is closed. In addition, no interest in the liquidation account
would ever be increased despite any subsequent increase in the related deposit
account. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Company as the sole stockholder of the Bank.
Required Approvals
Various approvals of OTS are required in order to consummate the
Conversion and Reorganization. The OTS has approved the Plan of Conversion,
subject to approval by the Mutual Holding Company's Members and the Bank's
Stockholders. In addition, consummation of the Conversion and Reorganization is
subject to OTS approval of the application of the Company to acquire control of
the Bank and the applications with respect to the merger of the Mutual Holding
Company (following its conversion to an interim federal stock savings
association) into the Bank
8
<PAGE>
and the merger of Interim into the Bank, with the Bank being the surviving
entity in both mergers. Applications for these approvals have been filed and are
currently pending. There can be no assurances that the requisite OTS approvals
will be received or received in a timely manner, in which event the consummation
of the Conversion and Reorganization may be abandoned or delayed beyond the
expiration of the Offerings.
Pursuant to OTS regulations, the Plan of Conversion also must be
approved by (1) at least a majority of the total number of votes eligible to be
cast by Members of the Mutual Holding Company at the Members' Meeting, and (2)
holders of at least two-thirds of the outstanding Bank Common Stock at the
Stockholders' Meeting. In addition, the Primary Parties have conditioned the
consummation of the Conversion and Reorganization on the approval of the Plan by
at least a majority of the votes cast, in person or by proxy, by the Public
Stockholders at the Stockholders' Meeting.
Review By Administrative and Judicial Authorities
Federal law provides (i) that persons aggrieved by a final action of
the OTS which approves, with or without conditions, a plan of conversion may
obtain review of such final action only by filing a written petition in the
United States Court of Appeals for the circuit in which the principal office or
residence of such person is located, or in the United States Court of Appeals,
for the District of Columbia Circuit, requesting that the final action of the
OTS be modified, terminated or set aside, and (ii) that such petition must be
filed within 30 days after publication of notice of such final action in the
Federal Register, or 30 days after the date of mailing of the notice and proxy
statement for the meeting of the converting institution's members at which the
conversion is to be voted on, whichever is later.
HOW TO ORDER STOCK
The accompanying Prospectus contains information about the business
and financial condition of First Federal and additional information about the
Conversion and the Subscription Offering and the concurrent Community Offering.
Enclosed is an order form and a certification form to be used to subscribe for
Common Stock. You are not obligated to subscribe for Common Stock, and voting
to approve the Conversion will not obligate you to subscribe for Common Stock.
All subscription rights are nontransferable and will expire if not
exercised by returning the accompanying stock order form and a certification
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 p.m., local time, on
______________, 1997, unless extended. 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 Mutual Holding Company, the
remaining shares are concurrently being offered to the general public in the
Community Offering with preference given to natural persons and trusts of
natural persons permanently residing in the counties of Bell and Harlan within
the Commonwealth of Kentucky.
The information contained in this Proxy Statement is limited in its
scope to use in the solicitation of proxies for the Special Meeting to consider
and 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.
AVAILABLE 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 carefully review both this Proxy Statement
and the accompanying Prospectus.
The Company has filed with the SEC a Registration Statement under the
Securities Act with respect to the Conversion Stock and the Exchange Shares
offered hereby. As permitted by the rules and regulations of the SEC, this
Prospectus does not contain all the information set forth in the Registration
Statement. Such information can
9
<PAGE>
be examined without charge at the public reference facilities of the SEC located
at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such material
can be obtained from the SEC at prescribed rates. 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 Mutual Holding Company has filed an Application for Conversion
with the OTS with respect to the Conversion and Reorganization. This Prospectus
omits certain information contained in that application. The application may be
examined at the principal office of the OTS, 1700 G Street, N.W., Washington,
D.C. 20552 and at the Central Regional Office of the OTS located at 200 West
Madison Avenue, Suite 1300, Chicago, Illinois 60606.
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
---------------------------------------
J.D. Howard
Secretary
___________, 1997
Middlesboro, Kentucky
<PAGE>
Exhibit A
================================================================================
PLAN OF CONVERSION
of
CUMBERLAND MOUNTAIN BANCSHARES, M.H.C.
and
AGREEMENT AND PLAN OF REORGANIZATION
between
CUMBERLAND MOUNTAIN BANCSHARES, INC.
and
MIDDLESBORO FEDERAL BANK, FEDERAL SAVINGS BANK
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
INTRODUCTION............................................................................. A-1
I. DEFINITIONS....................................................................... A-2
II. GENERAL PROCEDURE FOR CONVERSION AND REORGANIZATION............................... A-7
III. CONVERSION STOCK.................................................................. A-9
A. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK................ A-9
B. SUBSCRIPTION OFFERING........................................................ A-10
C. COMMUNITY OFFERING, SYNDICATED COMMUNITY OFFERING AND OTHER OFFERINGS........ A-12
D. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF CONVERSION STOCK............... A-13
E. TIMING OF SUBSCRIPTION OFFERING, MANNER OF EXERCISING SUBSCRIPTION
RIGHTS AND ORDER FORMS....................................................... A-15
F. PAYMENT FOR CONVERSION STOCK................................................. A-16
G. ACCOUNT HOLDERS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES.................. A-17
IV. CERTAIN OTHER EFFECTS OF CONVERSION AND REORGANIZATION............................ A-18
A. LIQUIDATION ACCOUNT.......................................................... A-18
B. VOTING RIGHTS OF STOCKHOLDERS................................................ A-19
C. TRANSFER OF DEPOSIT ACCOUNTS................................................. A-19
D. DIRECTORS AND OFFICERS OF THE BANK........................................... A-19
E. REQUIREMENTS FOLLOWING CONVERSION AND REORGANIZATION FOR REGISTRATION,
MARKET MAKING, AND STOCK EXCHANGE LISTING.................................... A-19
V. EFFECTIVE DATE.................................................................... A-20
VI. CERTAIN RESTRICTIONS FOLLOWING CONVERSION AND REORGANIZATION...................... A-20
A. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING
THE CONVERSION AND REORGANIZATION............................................ A-20
B. RESTRICTIONS ON TRANSFER OF STOCK............................................ A-20
C. RESTRICTIONS ON ACQUISITION OF STOCK OF THE HOLDING COMPANY.................. A-21
D. DIVIDEND AND REPURCHASE RESTRICTIONS......................................... A-21
VII. MISCELLANEOUS..................................................................... A-22
A. TAX RULINGS OR OPINIONS...................................................... A-22
B. STOCK COMPENSATION PLANS..................................................... A-22
</TABLE>
ANNEX A - PLAN OF MERGER BETWEEN THE MUTUAL HOLDING COMPANY AND THE BANK
ANNEX B - PLAN OF MERGER BETWEEN THE ASSOCIATION AND INTERIM B
<PAGE>
INTRODUCTION
For purposes of this section, all capitalized terms have the meanings
ascribed to them in Article I.
On March 2, 1994, Middlesboro Federal Bank, Federal Savings Bank, a federal
mutual savings bank reorganized into the mutual holding company form of
organization and completed a sale of stock to the public. To accomplish this
transaction, the Bank organized a federal stock savings bank as a wholly owned
subsidiary. The mutual Bank then transferred substantially all of its assets
and liabilities to the stock Bank in exchange for 330,000 shares of Bank Common
Stock, and reorganized itself into a federally chartered mutual holding company
known as Cumberland Mountain Bancshares, M.H.C. and sold 180,000 shares of Bank
Common Stock to certain members of the Bank and members of the general public.
As of the date hereof, the Mutual Holding Company and the Public Stockholders
own an aggregate of 64.7% and 35.3% of the outstanding Bank Common Stock,
respectively.
The Boards of Directors of the Mutual Holding Company and the Bank believe
that a conversion of the Mutual Holding Company to stock form and reorganization
of the Bank pursuant to this Plan of Conversion is in the best interests of the
Mutual Holding Company and the Bank, as well as the best interests of their
respective Members and Stockholders. The Boards of Directors have determined
that this Plan of Conversion equitably provides for the interests of Members
through the granting of subscription rights and the establishment of a
liquidation account. The Conversion and Reorganization will result in the Bank
being wholly owned by a stock holding company, which is a more common structure
and form of ownership than a mutual holding company. In addition, the
Conversion and Reorganization will result in the raising of additional capital
for the Bank and the Holding Company and should result in a more active and
liquid market for the Holding Company Common Stock than currently exists for the
Bank Common Stock, although there can be no assurances that this will be the
case. Finally, the Conversion and Reorganization has been structured to re-
unite the accumulated earnings and profits tax attribute retained by the Mutual
Holding Company with the retained earnings of the Bank through a tax-free
reorganization. This will increase the Bank's ability to pay dividends in the
future.
If the Bank had undertaken a standard conversion involving the formation of
a stock holding company in 1994, applicable Office of Thrift Supervision ("OTS")
regulations would have required a greater amount of Bank Common Stock to be sold
than resulted in the amount of net proceeds raised in the Bank's initial public
offering. In addition, if a standard conversion had been conducted in 1994,
management of the Bank believed that it would have been difficult to profitably
invest the larger amount of capital that would have been raised, when compared
to the amount of net proceeds raised in the Bank's initial public offering. A
standard conversion in 1994 also would have immediately eliminated all aspects
of the mutual form of organization.
Subsequent to the formation of the Mutual Holding Company, there have been
certain changes in the policies of the OTS relating to mutual holding companies.
In addition, market conditions for the stocks of savings institutions and their
holding companies have improved. In light of the foregoing, the Boards of
Directors of the Mutual Holding Company and the Bank believe that it is in the
best interests of such companies and their respective Members and Stockholders
to raise additional capital at this time, and that the most feasible way to do
so is through the Conversion and Reorganization.
In connection with the Conversion and Reorganization, the Bank will form a
new first-tier, wholly owned subsidiary known as Cumberland Mountain Bancshares,
Inc. which will become the Holding Company upon consummation of the Conversion
and Reorganization. The Holding Company will in turn form Interim B as a wholly
owned subsidiary. As described in more detail in Article II, the Mutual Holding
Company will convert to an interim stock savings association and will
simultaneously merge with and into the Bank pursuant to the Plan of Merger
included as Annex A hereto, pursuant to which the Mutual Holding Company will
cease to exist and a liquidation account will be established by the Bank for the
benefit of depositor Members as of specified dates, and Interim B will then
merge with and into the Bank pursuant to the Plan of Merger included as Annex B
hereto, pursuant to which the Bank will become a wholly owned subsidiary of the
Holding Company and, in connection therewith, each share of Bank Common Stock
outstanding immediately prior to the effective time thereof (other than shares
as to which the holders thereof have properly exercised dissenters' rights of
appraisal, if any) shall be
<PAGE>
automatically converted, without further action by the holder thereof, into and
become the right to receive shares of Holding Company Common Stock based on the
Exchange Ratio, plus cash in lieu of any fractional share interest.
In connection with the Conversion and Reorganization, the Holding Company
will offer shares of Conversion Stock in the Offerings as provided herein.
Shares of Conversion Stock will be offered in a Subscription Offering in
descending order of priority to Eligible Account Holders, Tax-Qualified Employee
Stock Benefit Plans, Supplemental Eligible Account Holders, Other Members and
Public Stockholders. Any shares of Conversion Stock remaining unsold after the
Subscription Offering will be offered for sale to the public through a Community
Offering and/or Syndicated Community Offering, as determined by the Boards of
Directors of the Holding Company and the Bank in their sole discretion.
The Conversion and Reorganization is intended to provide a larger capital
base to support the Bank's lending and investment activities and thereby enhance
the Bank's capabilities to serve the borrowing and other financial needs of the
communities it serves. The use of the Holding Company will provide greater
organizational flexibility and possible diversification.
This Plan was adopted by the Boards of Directors of the Mutual Holding
Company and the Bank by at least a two-thirds vote of each such Board on
December 12, 1996.
This Plan is subject to the approval of the OTS and must be adopted by (1)
at least a majority of the total number of votes eligible to be case by Voting
Members of the Mutual Holding Company at the Special Meeting and (2) holders of
at least two-thirds of the outstanding Bank Common Stock at the Stockholders'
Meeting. In addition, the Primary Parties have conditioned the consummation of
the Conversion and Reorganization on the approval of the Plan by at least a
majority of the votes cast, in person or by proxy, by the Public Stockholders at
the Stockholders' Meeting.
After the Conversion and Reorganization, the Bank will continue to be
regulated by the OTS, as its primary federal regulator and its chartering
authority, and by the FDIC, which insures the Bank's deposits up to applicable
limits. In addition, the Bank will continue to be a member of the Federal Home
Loan Bank System and all insured savings deposits will continue to be insured by
the FDIC up to the maximum provided by law.
I. DEFINITIONS.
As used in this Plan, the terms set forth below have the following meaning:
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. A
person (as defined by Section 563b.2(a)(26) of the Regulations Applicable to All
Savings Associations) or company which acts in concert with another person or
company ("other party") shall also be deemed to be acting in concert with any
person or company 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 Stock Benefit Plan will be aggregated.
Actual Purchase Price: The term "Actual Purchase Price" means the price
---------------------
per share at which the Conversion Stock is ultimately sold by the Holding
Company in the Offerings in accordance with the terms hereof.
Affiliate: The term "Affiliate" means a Person who, directly or
---------
indirectly, through one or more intermediaries, controls or is controlled by or
is under common control with the Person specified.
A-2
<PAGE>
Associate: The term "Associate" when used to indicate a relationship with
---------
any Person, means (i) a corporation or organization (other than the Mutual
Holding Company, the Bank, a majority-owned subsidiary of the Bank or the
Holding Company) of which such Person is a director, 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, provided, however, that such term shall not
include any Tax-Qualified Employee Stock Benefit Plan of the Holding Company or
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 has the same home as such
Person or who is a director or officer of the Holding Company or the Bank or any
of the subsidiaries of the foregoing.
Bank: The term "Bank" means either Middlesboro Federal Bank, Federal
----
Savings Bank in its mutual or stock form or Middlesboro Federal Bank, Federal
Savings Bank following consummation of the Conversion and Reorganization, as the
context requires.
Bank Common Stock: The term "Bank Common Stock" means the common stock of
-----------------
the Bank, $1.00 par value per share, which stock is not and will not be insured
by the FDIC or any other governmental authority.
Bank Merger: The term "Bank Merger" means the merger of Interim B with and
-----------
into the Bank pursuant to the Plan of Merger included as Annex B hereto.
Code: The term "Code" means the Internal Revenue Code of 1986, as amended.
----
Community Offering: The term "Community Offering" means the offering for
------------------
sale by the Holding Company of any shares of Conversion Stock not subscribed for
in the Subscription Offering to (i) natural persons residing in the Local
Community, and (ii) such other Persons within or without the Commonwealth of
Kentucky as may be selected by the Holding Company and the Bank within their
sole discretion.
Control: The term "Control" (including the terms "controlling,"
-------
"controlled by," and "under common control with") means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
Conversion and Reorganization: The term "Conversion and Reorganization"
-----------------------------
means (i) the conversion of the Mutual Holding Company to an interim stock
savings association and the subsequent merger with the Bank, pursuant to which
the Mutual Holding company will cease to exist, (ii) the Bank Merger, pursuant
to which the Bank will become a wholly owned subsidiary of the Company and, in
connection therewith, each share of Bank Common Stock outstanding immediately
prior to the effective time thereof shall automatically be converted, without
further action by the holder thereof, into and become the right to receive
shares of Holding Company Common Stock based on the Exchange Ratio, plus cash in
lieu of any fractional share interest, and (iii) the issuance of Conversion
Stock by the Holding Company in the Offerings as provided herein, which will
increase the number of shares of Holding Company Common Stock outstanding and
the capitalization of the Holding Company and the Bank.
Conversion Stock: The term "Conversion Stock" means the Holding Company
----------------
Common Stock to be issued and sold in the Offerings pursuant to the Plan of
Conversion.
Deposit Account: The term "Deposit Account" means savings and demand
---------------
accounts, including passbook accounts, money market deposit accounts and
negotiable order of withdrawal accounts, and certificates of deposit and other
authorized accounts of the Bank held by a Member.
Director, Officer and Employee: The term "Director, Officer and Employee"
------------------------------
means the terms as applied respectively to any person who is a director, officer
or employee of the Mutual Holding Company, the Bank or any subsidiary thereof.
A-3
<PAGE>
Effective Date: The term "Effective Date" means the effective date of the
--------------
Conversion and Reorganization as defined in Article V hereof.
Eligibility Record Date: The term "Eligibility Record Date" means the date
-----------------------
for determining Qualifying Deposits of Eligible Account Holders and is the close
of business on September 30, 1995.
Eligible Account Holder: The term "Eligible Account Holder" means any
-----------------------
Person holding a Qualifying Deposit on the Eligibility Record Date for purposes
of determining Subscription Rights and establishing subaccount balances in the
Liquidation Account.
Estimated Price Range: The term "Estimated Price Range" means the range of
---------------------
the estimated aggregate pro forma market value of the total number of shares of
Conversion Stock to be issued in the Offerings, as determined by the Independent
Appraiser in accordance with Section IV.A hereof.
Exchange Ratio: The term "Exchange Ratio" means the rate at which shares
--------------
of Holding Company Common Stock will be exchanged for shares of Bank Common
Stock held by the Public Stockholders (other than shares as to which dissenting
Public Stockholders properly exercise appraisal rights, if any) in connection
with the Bank Merger. The exact rate shall be determined by the Primary Parties
in order to ensure that upon consummation of the Conversion and Reorganization
the Public Stockholders will own in the aggregate approximately the same
percentage of the Holding Company Common Stock to be outstanding upon completion
of the Conversion and Reorganization as the percentage of Bank Common Stock
owned by them in the aggregate immediately prior to consummation of the
Conversion and Reorganization, before giving effect to (a) cash paid in lieu of
any fractional interests of Holding Company Common Stock and (b) any shares of
Conversion Stock purchased by the Public Stockholders in the Offerings or by
Tax-Qualified Employee Stock Benefit Plans thereafter.
Exchange Shares: The term "Exchange Shares" means the shares of Holding
---------------
Company Common Stock to be issued to the Public Stockholders in connection with
the Bank Merger.
FDIC: The term "FDIC" means the Federal Deposit Insurance Corporation or
----
any successor thereto.
Holding Company: The term "Holding Company" means Cumberland Mountain
---------------
Bancshares, Inc. a corporation to be organized under the laws of the State of
Tennessee. Such corporation will be initially formed as a first-tier, wholly
owned subsidiary of the Bank. Upon completion of the Conversion and
Reorganization, the Holding Company shall hold all of the outstanding capital
stock of the Bank.
Holding Company Common Stock: The term "Holding Company Common Stock"
----------------------------
means the common stock of the Holding Company, par value $.01 per share, which
stock cannot and will not be insured by the FDIC or any other governmental
authority.
Independent Appraiser: The term "Independent Appraiser" means a person
---------------------
independent of the Holding Company and the Bank, experienced and expert in the
area of corporate appraisal, and acceptable to the OTS, retained by the Bank to
prepare an appraisal of the pro forma market value of the Conversion Stock.
Initial Purchase Price: The term "Initial Purchase Price" means the price
----------------------
per share to be paid initially by Participants for shares of Conversion Stock
subscribed for in the Subscription Offering and by Persons for shares of
Conversion Stock ordered in the Community Offering and/or Syndicated Community
Offering.
Interim A: The term "Interim A" means Middlesboro Federal M.H.C. Interim
---------
Savings Bank, an interim federal stock savings association, which will be formed
as a result of the conversion of Cumberland Mountain Bancshares, M.H.C. into the
stock form of organization.
A-4
<PAGE>
Interim B: The term "Interim B" means Middlesboro Federal Interim Savings
---------
Bank, which will be formed as a first-tier, wholly owned subsidiary of the
Holding Company to facilitate the Bank Merger.
Liquidation Account: The term "Liquidation Account" means the account to
-------------------
be maintained pursuant to Section IV.A by the Bank for the benefit of Eligible
Account Holders and Supplement Eligible Accounts who maintain Deposit Accounts
in the Bank after the Conversion and Reorganization.
Local Community: The term "Local Community" means the counties of Bell and
---------------
Harlan in the Commonwealth of Kentucky.
Member: The term "Member" means any Person qualifying as a member of the
------
Mutual Holding Company in accordance with its mutual charter and bylaws and the
laws of the United States.
M.H.C. Merger: The term "M.H.C. Merger" means the merger of Interim A with
-------------
and into the Bank pursuant to the Plan of Merger included as Annex A hereto.
Mutual Holding Company: The term "Mutual Holding Company" means Cumberland
----------------------
Mountain Bancshares, M.H.C. prior to its conversion into an interim stock
savings association.
Offerings: The term "Offerings" means the Subscription Offering, the
---------
Community Offering and the Syndicated Community Offering.
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 President, Vice Presidents in charge of principal
business functions, Secretary and Treasurer.
Order Form: The term "Order Form" means the form or forms provided by the
----------
Holding Company, containing all such terms and provisions as set forth in
Section III.E hereof, to a Participant or other Person by which Conversion Stock
may be ordered in the Offerings.
Other Member: The term "Other Member" means a Voting Member who is not an
------------
Eligible Account Holder or a Supplemental Eligible Account Holder.
OTS: The term "OTS" means the Office of Thrift Supervision within the U.S.
---
Department of Treasury or any successor thereto.
Participant: The term "Participant" means any Eligible Account Holder,
-----------
Tax-Qualified Employee Stock Benefit Plan, Supplemental Eligible Account Holder,
Other Member, Director, Officer and Employee or Public Stockholder as of the
Voting Record Date.
Person: The term "Person" means an individual, a corporation, a
------
partnership, an association, a joint stock company, a trust, an unincorporated
organization or a governmental or any political subdivision thereof.
Plan or Plan of Conversion: The term "Plan" or "Plan of Conversion" means
---- ------------------
this Plan of Conversion and Agreement and Plan of Reorganization as adopted by
the Boards of Directors of the Mutual Holding Company and the Bank of any
amendment hereto approved as provided herein. The Board of Directors of the
Holding Company shall adopt this Plan as soon as practicable following its
organization, and the Board of Directors of Interim B shall adopt the Plan of
Merger included as Annex B hereto as soon as practicable following its
organization.
Primary Parties: The term "Primary Parties" mean the Mutual Holding
---------------
Company, the Bank and Holding Company and their successors.
A-5
<PAGE>
Prospectus: The term "Prospectus" means the one or more documents to be
----------
used in offering the Conversion Stock in the Offerings.
Public Stockholders: The term "Public Stockholders" mean those Persons who
-------------------
own shares of Bank Common Stock, excluding the Mutual Holding Company, as of the
Voting Record Date.
Qualifying Deposits: The term "Qualifying Deposits" means the aggregate
-------------------
balance of all Deposit Accounts in the Bank of (i) an Eligible Account Holder at
the close of business on the Eligibility Record Date, provided such aggregate
balance is not less than $50, and (ii) a Supplemental Eligible Account Holder at
the close of business on the Supplemental Eligibility Record Date, provided such
aggregate balance is not less than $50.
Resident: The term "Resident" means any natural person subscribing for
--------
stock in the Subscription Offering who, on September 30, 1996, maintained a bona
fide residence within the Local Community. The Bank may utilize deposit or loan
records or such other evidence provided to it to make a determination as to
whether a person is a bona fide resident of the Local Community. In all cases,
however, such determination shall be in the sole and absolute discretion of the
Bank.
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
following consummation of the Conversion and Reorganization approved by the OTS
or any other federal agency having jurisdiction.
SEC: The term "SEC" means the Securities and Exchange Commission.
---
Special Meeting: The term "Special Meeting" means the Special Meeting of
---------------
Members of the Mutual Holding Company called for the purpose of submitting this
Plan to the Members for their approval, including any adjournments of such
meeting.
Stockholders: The term "Stockholders" means those Persons who own shares
------------
of Bank Common Stock.
Stockholders' Meeting: The term "Stockholders' Meeting" means the annual
---------------------
or special meeting of Stockholders of the Bank called for the purpose of
submitting this Plan to the Stockholders for their approval, including any
adjournments of such meeting.
Subscription Offering: The term "Subscription Offering" means the offering
---------------------
of the Conversion Stock to Participants.
Subscription Rights: The term "Subscription Rights" means nontransferable
-------------------
right to subscribe for Conversion Stock granted to Participants pursuant to the
terms of this Plan.
Supplemental Eligible Account Holder: The term "Supplemental Eligible
------------------------------------
Account Holder" means any Person, (other than Directors, Officers and their
respective Associates) holding a Qualifying Deposit at the close of business on
the Supplemental Eligibility Record Date.
Supplemental Eligibility Record Date: The term "Supplemental Eligibility
------------------------------------
Record Date, if applicable, means the date for determining Qualifying Deposits
of Supplemental Eligible Account Holders and shall be required if the
Eligibility Record Date is more than 15 months prior to the date of the latest
amendment to the Application for Conversion filed by the Mutual Holding Company
prior to approval of such application by the OTS. If applicable, the
Supplemental Eligibility Record Date shall be the last day of the calendar
quarter preceding OTS approval of the Application for Conversion submitted by
the Mutual Holding Company pursuant to this Plan of Conversion.
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Syndicated Community Offering: The term "Syndicated Community Offering"
-----------------------------
means the offering for sale by a syndicate of broker-dealers to the general
public of shares of Conversion Stock not purchased in the Subscription Offering
and the Community Offering.
Tax-Qualified Employee Stock Benefit Plan: The term "Tax-Qualified
-----------------------------------------
Employee Stock Benefit Plan" means any defined benefit plan or defined
contribution plan, such as an employee stock ownership plan, stock bonus plan,
profit-sharing plan or other plan, which is established for the benefit of the
employees of the Holding Company and the Bank and which, with its related trust,
meets the requirements to be "qualified" under Section 401 of the Code as from
time to time in effect. A "Non-Tax-Qualified Employee Stock Benefit Plan" is
any defined benefit plan or defined contribution stock benefit plan which is not
so qualified.
Voting Member: The term "Voting Member" means a Person who at the close of
-------------
business on the Voting Record Date is entitled to vote as a Member of the Mutual
Holding Company in accordance with its mutual charter and bylaws.
Voting Record Date: The term "Voting Record Date" means the date or dates
------------------
fixed by the Board of Directors for determining the eligibility of Members to
vote at the Special Meeting and of Stockholders to vote at the Stockholders'
Meeting, as applicable.
II. GENERAL PROCEDURE FOR CONVERSION AND REORGANIZATION.
A. An application for the Conversion and Reorganization, including the
Plan and all other requisite material (the "Application for Conversion"), shall
be submitted to the OTS for approval. The Mutual Holding Company and the Bank
also will cause notice of the adoption of the Plan by the Boards of Directors of
the Mutual Holding Company and the Bank to be given by publication in a
newspaper having general circulation in each community in which an office of the
Bank is located; and will cause copies of the Plan to be made available at each
office of the Mutual Holding Company and the Bank for inspection by Members and
Stockholders. After receipt of notice from the OTS to do so, the Mutual Holding
Company and the Bank will post the notice of the filing of the Application for
Conversion in each of their offices and will again cause to be published, in
accordance with the requirements of applicable regulations of the OTS, a notice
of the filing with the OTS of an application to convert the Mutual Holding
Company from mutual to stock form.
B. The Holding Company shall submit or cause to be submitted an
Application H-(e)1 or H-(e)1-S to the OTS for approval of the acquisition of the
Bank. Such application also shall include applications to form Interim A and
Interim B. In addition, an application to merge Interim A and the Bank and an
application to merge Interim B and the Bank shall be filed with the OTS, either
as an exhibit to the Application H-(e)1 or H-(e)1-S or as the case may be, or
separately. All notices required to be published in connection with such
applications shall be published at the times required. After the receipt of all
requisite regulatory approvals, the Holding Company will form Interim B as a
first-tier, wholly owned subsidiary the Company, and the Board of Directors of
Interim B shall adopt the Plan of Merger included as Annex B hereto by at least
a two-thirds vote. In addition, the Holding Company shall approve such Plan of
Merger in its capacity as the sole stockholder of Interim B.
C. The Holding Company shall file a Registration Statement with the SEC
to register the Holding Company Common Stock to be issued in the Conversion and
Reorganization under the Securities Act of 1933, as amended, and, if required,
shall register such Holding Company Common Stock under any applicable state
securities laws. Upon registration and after the receipt of all required
regulatory approvals, the Conversion Stock shall be first offered for sale in a
Subscription Offering to Eligible Account Holders, Tax-Qualified Employee Stock
Benefit Plans, Supplemental Eligible Account Holders, if any, Other Members,
Directors, Officers and Employees and Public Stockholders as of the Voting
Record Date. It is anticipated that any shares of Conversion Stock remaining
unsold after the Subscription Offering will be sold through a Community Offering
and/or a Syndicated Community Offering. The purchase price per share for the
Conversion Stock shall be a uniform price determined in accordance with Section
III.A hereof. The Holding Company shall contribute to the Bank an amount of the
net proceeds received
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by the Holding Company from the sale of Conversion Stock as shall be determined
by the Boards of Directors of the Holding Company and the Bank and as shall be
approved by the OTS.
D. Promptly following receipt of requisite approval of the OTS, this Plan
will be submitted to the Members for their consideration and approval at the
Special Meeting. The Mutual Holding Company may, at its option, mail to all
Members as of the Voting Record Date, at their last known address appearing on
the records of the Mutual Holding Company and the Bank, a proxy statement in
either long or summary form describing the Plan which will be submitted to a
vote of the Members at the Special Meeting. The Holding Company also shall mail
to all such Members (as well as other Participants) either a Prospectus and
Order Form for the purchase of Conversion Stock or a letter informing them of
their right to receive a Prospectus and Order Form and a postage prepaid card to
request such materials, subject to the provisions of Section III.G hereof. In
addition, all such Members will receive, or be given the opportunity to request
by returning a postage-prepaid card which will be distributed with the proxy
statement, letter or other written communication, a copy of the certificate of
incorporation and bylaws of the Holding Company. The Plan must be approved by
the affirmative vote of at least a majority of the total number of votes
eligible to be cast by Voting Members at the Special Meeting.
E. Subscription Rights to purchase shares of Conversion Stock will be
issued without payment therefor to Eligible Account Holders, Tax-Qualified
Employee Plans, Supplemental Eligible Account Holders, if any, Other Members,
Directors, Officers and Employees and Public Stockholders as of the Voting
Record Date, as set forth in Section III.B.
F. The Bank shall file preliminary proxy materials with the OTS in order
to seek the approval of the Plan by its Stockholders. Promptly following
clearance of such proxy materials and the receipt of any other requisite
approval of the OTS, the Bank will mail definitive proxy materials to all
Stockholders as of the Voting Record Date, at their last known address appearing
on the records of the Bank, for their consideration and approval of this Plan at
the Stockholders' Meeting. The Plan must be approved by the holders of at least
two-thirds of the outstanding Bank Common Stock as of the Voting Record Date.
In addition, the Primary Parties have conditioned the consummation of the
Conversion and Reorganization on the approval of the Plan by at least a majority
of the votes cast, in person or by proxy, by the Public Stockholders at the
Stockholders' Meeting.
G. The Effective Date of the Conversion and Reorganization shall be the
date set forth in Article V hereof. Upon the Effective Date, the following
transactions shall be deemed to have occurred simultaneously:
1. The Mutual Holding Company shall convert into an interim stock
savings association, Interim A, and Interim A shall simultaneously merge with
and into the Bank in the M.H.C. Merger, with the Bank being the surviving
institution. As a result of the M.H.C. Merger, (x) the shares of Bank Common
Stock currently held by the Mutual Holding Company shall be cancelled and (y)
Members of the Mutual Holding Company will be granted interests in the
Liquidation Account.
2. Interim B shall merge with and into the Bank pursuant to the Bank
Merger, with the Bank being the surviving institution. As a result of the Bank
Merger, (x) the shares of Holding Company Common Stock held by the Bank shall be
cancelled; (y) the shares of Bank Common Stock held by the Public Stockholders
(other than shares as to which the holders thereof have properly exercised
dissenters' rights of appraisal, if any) shall be converted into the right to
receive shares of Holding Company Common Stock based upon the Exchange Ratio,
plus cash in lieu of any fractional share interest based upon the Actual
Purchase Price; and (z) the shares of common stock of Interim B held by the
Holding Company shall be converted into shares of Bank Common Stock on a one-
for-one basis, with the result that the Bank shall become a wholly owned
subsidiary of the Company.
3. The Holding Company shall consummate the sale of the Conversion
Stock.
H. In the event the Holding Company Common Stock does not constitute
qualified consideration within the meaning of Section 552.14 of the Regulations
for Federal Savings Association (the "Appraisal Regulation"), the
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notice for the Stockholders' Meeting shall notify Public Stockholders of their
right to demand the payment of the appraised value of their shares upon
consummation of the Conversion and Reorganization. Such notice shall also
include a copy of the Appraisal Regulation. Within ten days after the Effective
Date, written notice shall be given to all Public Stockholders who have properly
exercised appraisal rights in accordance with the Appraisal Regulation.
Consummation of the Conversion and Reorganization is specifically conditioned on
the exercise of appraisal rights by less than 10% of the outstanding shares of
Bank Common Stock.
I. The Primary Parties may retain and pay for the services of financial
and other advisors and investment bankers to assist in connection with any or
all aspects of the Conversion and Reorganization, including in connection with
the Offerings, the payment of fees to brokers and investment bankers for
assisting Persons in completing and/or submitting Order Forms. All fees,
expenses, retainers and similar items shall be reasonable.
III. CONVERSION STOCK OFFERING
A. Total Number of Shares and Purchase Price of Conversion Stock.
--------------------------------------------------------------
1. The aggregate price at which shares of Conversion Stock shall be
sold in the Offerings shall be based on a pro forma valuation of the aggregate
market value of the Conversion Stock prepared by the Independent Appraiser. The
valuation shall be based on financial information relating to the Primary
Parties, market, financial and economic conditions, a comparison of the Primary
Parties with selected publicly held financial institutions and holding companies
and with comparable financial institutions and holding companies and such other
factors as the Independent Appraiser may deem to be important. The valuation
shall be stated in terms of an Estimated Price Range, the maximum of which shall
generally be no more than 15% above the average of the minimum and maximum of
such price range and the minimum of which shall generally be no more than 15%
below such average. The valuation shall be updated during the Conversion and
Reorganization as market and financial conditions warrant and as may be required
by the OTS.
2. Based upon the independent valuation, the Boards of Directors of
the Primary Parties shall fix the Initial Purchase Price and the number (or
range) of shares of Conversion Stock to be offered in the Subscription Offering,
Community Offering and/or Syndicated Community Offering. The Actual Purchase
Price and the total number of shares of Conversion Stock to be issued in the
Offerings shall be determined by the Boards of Directors of the Primary Parties
upon conclusion of the Offerings in consultation with the Independent Appraiser
and any financial advisor or investment banker retained by the Primary Parties
in connection therewith.
3. Subject to the approval of the OTS, the Estimated Price Range may
be increased or decreased to reflect market, financial and economic conditions
prior to completion of the Conversion and Reorganization, and under such
circumstances the Primary Parties may increase or decrease the total number of
shares of Conversion Stock to be issued in the Conversion and Reorganization to
reflect any such change. Notwithstanding anything to the contrary contained in
this Plan, no resolicitation of subscribers shall be required and subscribers
shall not be permitted to modify or cancel their subscriptions unless the gross
proceeds from the sale of the Conversion Stock issued in the Conversion and
Reorganization are less than the minimum or (excluding purchases, if any, by the
Holding Company's and the Bank's Tax-Qualified Employee Stock Benefit Plans
under Section III.B.2 hereof) more than 15% above the maximum of the Estimated
Price Range set forth in the Prospectus. In the event of an increase in the
total number of shares offered in the Conversion and Reorganization due to an
increase in the Estimated Price Range, the priority of share allocation shall be
as set forth in this Plan, provided, however, that such priorities will have no
effect whatsoever on the ability of the Tax-Qualified Employee Stock Benefit
Plans to purchase additional shares pursuant to Section III.B.2.
4. (a) In the event that Tax-Qualified Employee Stock Benefit Plans
are unable to purchase the number of shares subscribed for by such Tax-Qualified
Employee Stock Benefit Plans due to an oversubscription for shares of Conversion
Stock pursuant to Section III.B.1 hereof, Tax-Qualified Employee Stock
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<PAGE>
Benefit Plans may purchase from the Holding Company, and the Holding Company may
sell to the Tax-Qualified Employee Stock Benefit Plans, such additional shares
("Additional Shares") of Holding Company Common Stock necessary to fill the
subscriptions of the Tax-Qualified Employee Stock Benefit Plans, provided that
such Additional Shares may not exceed 10% of the total number of shares of
Conversion Stock sold in the Conversion and Reorganization. The sale of
Additional Shares, if necessary, will occur contemporaneously with the sale of
the Conversion Stock. The sale of Additional Shares to Tax-Qualified Employee
Stock Benefit Plans by the Holding Company is conditioned upon receipt by the
Holding Company of a letter from the Independent Appraiser to the effect that
such sale would not have a material effect on the Conversion and Reorganization
or the Actual Purchase Price and the approval of the OTS. The ability of the
Tax-Qualified Employee Stock Benefit Plans to purchase up to an additional 10%
of the total number of shares of Conversion Stock sold in the Conversion and
Reorganization shall not be affected or limited in any manner by the priorities
or purchase limitations otherwise set forth in this Plan of Conversion.
(b) Notwithstanding anything to the contrary contained in this Plan,
if the final valuation range of the Conversion Stock exceeds the maximum
Conversion Stock offering range, up to 10% of the total number of shares of
Conversion Stock sold in the Conversion and Reorganization may be sold to Tax-
Qualified Stock Benefit Plans prior to filling any other orders for Conversion
Stock from such shares in excess of the maximum Conversion Stock offering range.
B. 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
pursuant to priorities established by applicable regulations. 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 shall receive, without payment,
Subscription Rights to purchase up to the greater of (i) the maximum purchase
limitation established for the Community Offering and/or Syndicated Community
Offering, (ii) one-tenth of 1% of the total offering of shares of Conversion
Stock in the Subscription Offering, and (iii) 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Conversion Stock offered in the Subscription Offering by a fraction, of which
the numerator is the amount of the Qualifying Deposits of the Eligible Account
Holder and the denominator is the total amount of all Qualifying Deposits of all
Eligible Account Holders, subject to Section III.G hereof.
(b) In the event of an oversubscription for shares of Conversion
Stock pursuant to Section III.B.1, available 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 which will make
his or her total allocation equal to the lesser of the number of shares
subscribed for or 100 shares. Any available shares remaining after each
subscribing Eligible Account Holder has been allocated the lesser of the number
subscribed for or 100 shares shall be allocated among the subscribing Eligible
Account Holders in the proportion which the Qualifying Deposit of each such
subscribing Eligible Account Holder bears to the total Qualifying Deposits of
all such subscribing Eligible Account Holders, provided that no fractional
shares shall be issued. Subscription Rights of Eligible Account Holders who are
also Directors or Officers and their Associates shall be subordinated to those
of other Eligible Account Holders to the extent that they are attributable to
increased deposits during the one-year period preceding the Eligibility Record
Date.
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2. Category No. 2: Tax-Qualified Employee Stock Benefit Plans.
Notwithstanding the purchase limitations discussed below, Tax-
Qualified Employee Stock Benefit Plans of the Holding Company and the Bank shall
receive, without payment, Subscription Rights to purchase in the aggregate up to
10% of the Conversion Stock and the Exchange Stock, including any shares of
Conversion Stock to be issued in the Conversion and Reorganization as a result
of an increase in the Estimated Price Range after commencement of the
Subscription Offering and prior to completion of the Conversion and
Reorganization. Consistent with applicable laws and regulations and policies
and practices of the OTS, Tax-Qualified Employee Stock Benefit Plans may use
funds contributed by the Holding Company or the Bank and/or borrowed from an
independent financial institution to exercise such Subscription Rights, and the
Holding Company and the Bank may make scheduled discretionary contributions
thereto, provided that such contributions do not cause the Holding Company or
the Bank to fail to meet any applicable regulatory capital requirement.
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 to the Application for
Conversion filed prior to OTS approval, then, and only in such event, a
Supplemental Eligibility Record Date shall be set and each Supplemental Eligible
Account Holder shall receive, without payment, Subscription Rights to purchase
up to the greater of (i) the maximum purchase limitation established for the
Community Offering and/or Syndicated Community Offering, (ii) one-tenth of 1% of
the total offering of shares of Conversion Stock in the Subscription Offering,
and (iii) 15 times the product (rounded down to the next whole number) obtained
by multiplying the total number of shares of Conversion Stock offered in the
Subscription Offering by a fraction, of which the numerator is the amount of the
Qualifying Deposits of the Supplemental Eligible Account Holder and the
denominator is the total amount of all Qualifying Deposits of all Supplemental
Eligible Account Holders, subject to Section III.G hereof and the availability
of shares of Conversion Stock for purchase after taking into account the shares
of Conversion Stock purchased by Eligible Account Holders and Tax-Qualified
Employee Stock Benefit Plans through the exercise of Subscription Rights under
Sections III.B.1 and III.B.2 hereof.
(b) In the event of an oversubscription for shares of Conversion
Stock pursuant to Section III.B.3,, available 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 which will make his or her total allocation (including the
number of shares, if any, allocated in accordance with Section III.B.1 hereof)
equal to the lesser of the number of shares subscribed for or 100 shares. Any
available shares remaining after each subscribing Supplemental Eligible Account
Holder has been allocated the lesser of the number subscribed for or 100 shares
shall be allocated among the subscribing Supplemental Eligible Account Holders
in the proportion which the Qualifying Deposit of each such subscribing
Supplemental Eligible Account Holder bears to the total Qualifying Deposits of
all such subscribing Supplemental Eligible Account Holders, provided that no
fractional shares shall be issued.
4. Category No. 4: Other Members.
(a) Each Other Member shall receive, without payment,
Subscription Rights to purchase up to the greater of (i) maximum purchase
limitation established for the Community Offering and/or Syndicated Community
Offering) and (ii) one-tenth of 1% of the total offering of shares of Conversion
Stock in the Subscription Offering, in each case subject to Section III.G hereof
and the availability of shares of Conversion Stock for purchase after taking
into account the shares of Conversion Stock purchased by Eligible Account
Holders, Tax-Qualified Employee Stock Benefit Plans, and Supplemental Eligible
Account Holders, if any, through the exercise of Subscription Rights under
Sections III.B.1, 2 and 3 hereof.
(b) If, pursuant to this Section III.B.4, Other Members subscribe
for a number of shares of Conversion Stock in excess of the total number of
shares of Conversion Stock remaining, available shares
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shall be allocated among subscribing Other Members so as to permit each Other
Member, to the extent possible, to purchase a number of shares which will make
his or her total allocation equal to the lesser of the number of shares
subscribed for or 100 shares. Any remaining shares shall be allocated among
subscribing Other Members on a pro rata basis in the same proportion as each
such Other Member's subscription bears to the total subscriptions of all
subscribing Other Members, provided that no fractional shares shall be issued.
5. Category No. 5: Directors, Officers and Employees.
(a) To the extent that there are sufficient shares remaining
after satisfaction of all subscriptions under the above categories, Directors,
Officers and Employees of the Bank shall receive, without payment, Subscription
rights to purchase in this category up to an aggregate of 24.25% of the shares
of Conversion Stock offered in the Subscription Offering.
(b) In the event of an oversubscription for shares of Conversion
Stock pursuant to this Section III.B.5, Subscription Rights for the purchase of
such shares shall be allocated among the individual Directors, Officers and
Employees on a point system basis, whereby a point will be assigned for each
year of employment and for each salary increment of $5,000 per annum and five
points for each office held in the Mutual Holding Company and the Bank,
including a directorship. If any such Director, Officer or Employee does not
subscribe for his or her full allocation of shares, any shares not subscribed
for may be purchased by other Directors, Officers and Employees in proportion to
their respective subscriptions, provided that no fractional shares shall be
issued.
6. Category No. 6: Public Stockholders.
(a) Each Public Stockholder as of the Voting Record Date shall
receive, without payment, Subscription Rights to purchase up to the greater of
(i) the maximum purchase limitation established for the Community Offering
and/or Syndicated Community Offering and (ii) one tenth of 1% of the total
offering of shares of Conversion Stock in the Subscription Offering, in each
case subject to Section III.G hereof and the availability of shares of
Conversion Stock for purchase after taking into account the shares of Conversion
Stock purchased by Eligible Account Holders, Tax-Qualified Employee Stock
Benefit Plans, Supplemental Eligible Account Holders, if any, Other Members and
Directors, Officers and Employees.
(b) If, pursuant to this Section III.B.6, Public Stockholders as
of the Voting Record Date subscribe for a number of shares of Conversion Stock
in excess of the total number of shares of Conversion Stock remaining, available
shares shall be allocated among subscribing Public Stockholders as of the Voting
Record Date on a pro rata basis in the same proportion as each such Public
Stockholder's subscription bears to the total subscriptions of all such
subscribing Public Stockholders, provided that no fractional shares shall be
issued.
C. Community Offering, Syndicated Community Offering and Other Offerings.
---------------------------------------------------------------------
1. If less than the total number of shares of Conversion Stock are
sold in the Subscription Offering, it is anticipated that all remaining shares
of Conversion Stock shall, if practicable, be sold in a Community Offering
and/or a Syndicated Community Offering. Subject to the requirements set forth
herein, the manner in which the Conversion Stock is sold in the Community
Offering and/or the Syndicated Community Offering shall have as the objective
the achievement of the widest possible distribution of such stock.
2. In the event of a Community Offering, all shares of Conversion
Stock which are not subscribed for in the Subscription Offering shall be offered
for sale by means of a direct community marketing program, which may provide for
the use of brokers, dealers or investment banking firms experienced in the sale
of financial institution securities. Any available shares in excess of those
not subscribed for in the Subscription Offering will be available for purchase
by members of the general public to whom a Prospectus is delivered by the
Holding
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Company or on its behalf, with preference given to natural persons residing in
the Local Community ("Preferred Subscribers").
3. A Prospectus and Order Form shall be furnished to such Persons as
the Primary Parties may select in connection with the Community Offering, and
each order for Conversion Stock in the Community Offering shall be subject to
the absolute right of the Primary Parties to accept or reject any such order in
whole or in part either at the time of receipt of an order or as soon as
practicable following completion of the Community Offering. Available shares
will be allocated first to each Preferred Subscriber whose order is accepted in
an amount equal to the lesser of 100 shares or the number of shares subscribed
for by each such Preferred Subscriber, if possible. Thereafter, unallocated
shares shall be allocated among the Preferred Subscribers whose accepted orders
remain unsatisfied in the same proportion that the unfilled order of each bears
to the total unfilled orders of all Preferred Subscribers whose accepted orders
remain unsatisfied, provided that no fractional shares shall be issued. If
there are any shares remaining after all accepted orders by Preferred
Subscribers have been satisfied, any remaining shares shall be allocated to
other members of the general public who purchase in the Community Offering,
applying the same allocation described above for Preferred Subscribers.
4. The amount of Conversion Stock that any Person may purchase in
the Community Offering shall not exceed purchase limitation set forth in Section
III.D.2 hereof provided that, subject to the preferences set forth in Paragraphs
2 and 3 of this Section III.C of this Plan and to the extent applicable, orders
for Conversion Stock in the Community Offering shall first be filled to a
maximum of 2% of the total number of shares of Conversion Stock sold in the
Offerings and thereafter any remaining shares shall be allocated on an equal
number of shares basis per order until all orders have been filled. The Primary
Parties may commence the Community Offering concurrently with, at any time
during, or as soon as practicable after the end of, the Subscription Offering,
and the Community Offering must be completed within 45 days after the completion
of the Subscription Offering, unless extended by the Primary Parties with any
required regulatory approval.
5. Subject to such terms, conditions and procedures as may be
determined by the Primary Parties, all shares of Conversion Stock not subscribed
for in the Subscription Offering or ordered in the Community Offering may be
sold by a syndicate of broker-dealers to the general public in a Syndicated
Community Offering. Each order for Conversion Stock in the Syndicated Community
Offering shall be subject to the absolute right of the Primary Parties to accept
or reject any such order in whole or in part either at the time of receipt of an
order or as soon as practicable after completion of the Syndicated Community
Offering. The amount of Conversion Stock that any Person may purchase in the
Syndicated Community Offering shall not exceed purchase limitation set forth in
Section III.D.2 hereof provided that, to the extent applicable, orders for
Conversion Stock in the Syndicated Community Offering shall first be filled to a
maximum of 2% of the total number of shares of Conversion Stock sold in the
Offerings and thereafter any remaining shares shall be allocated on an equal
number of shares basis per order until all orders have been filled. The Primary
Parties may commence the Syndicated Community Offering concurrently with, at any
time during, or as soon as practicable after the end of, the Subscription
Offering and/or Community Offering, and the Syndicated Community Offering must
be completed within 45 days after the completion of the Subscription Offering,
unless extended by the Primary Parties with any required regulatory approval.
6. If for any reason a Syndicated Community Offering of shares of
Conversion Stock not sold in the Subscription Offering and the Community
Offering cannot be effected, or in the event that any insignificant residue of
shares of Conversion Stock is not sold in the Subscription Offering, Community
Offering or Syndicated Community Offering, the Primary parties shall use their
best efforts to obtain other purchasers for such shares in such manner and upon
such conditions as may be satisfactory to the OTS.
D. Limitations on Subscriptions and Purchases of Conversion Stock.
--------------------------------------------------------------
1. The maximum number of shares of Conversion Stock which may be
purchased in the Conversion by Tax-Qualified Employee Stock Benefit Plans shall
not exceed 10% of the total number of shares of
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Exchange Stock and Conversion Stock sold in the Offerings, including any shares
which may be issued in the event of an increase in the minimum of the Estimated
Price Range to reflect changes in market, financial and economic conditions
after commencement of the Subscription Offering and prior to completion of the
Offerings.
2. Except in the case of Tax-Qualified Employee Stock Benefit Plans
in the aggregate, as set forth in Section III.D.1, and subject to Section
III.D.6 and in addition to the other restrictions and limitations set forth
herein, the maximum number of shares of Holding Company Common Stock which any
Person together with any Associate or group of Persons Acting in Concert may,
directly or indirectly, subscribe for or purchase in the Conversion and
Reorganization shall not exceed 5% of the total offering of Conversion Stock in
the Conversion and Reorganization.
3. The number of shares of Conversion Stock which Directors and
Officers and their Associates may purchase in the aggregate in the Offerings
shall not exceed 34.25% of the total number of shares of Conversion Stock sold
in the Offerings, including any shares which may be issued in the event of an
increase in the maximum of the Estimated Price Range to reflect changes in
market, financial and economic conditions after commencement of the Subscription
Offering and prior to completion of the Offerings.
4. No Person may purchase fewer than 25 shares of Conversion Stock
in the Offerings, to the extent such shares are available; provided, however,
that if the Actual Purchase Price is greater than $20.00 per share, such minimum
number of shares shall be adjusted so that the aggregate Actual Purchase Price
for such minimum shares will not exceed $500.00
5. For purposes of the foregoing limitations and the determination
of Subscription Rights, (i) Directors, Officers and Employees shall not be
deemed to be Associates or a group acting in concert solely as a result of their
capacities as such, (ii) shares purchased by Tax-Qualified Employee Stock
Benefit Plans shall not be attributable to the individual trustees or
beneficiaries of any such plan for purposes of determining compliance with the
limitations set forth in Section III.D.2 hereof, (iii) shares purchased by Tax-
Qualified Employee Stock Benefit Plans shall not be attributable to the
individual trustees or beneficiaries of any such plan for purposes of
determining compliance with the limitation set forth in Section III.D.3 hereof,
and (iv) Exchange Shares shall be valued at the Actual Purchase Price.
6. Subject to any required regulatory approval and the requirements
of applicable laws and regulations, but without further approval of the Members
of the Mutual Holding Company or the Stockholders of the Bank, the Primary
Parties may increase or decrease any of the individual or aggregate purchase
limitations set forth herein whether prior to, during or after the Subscription
Offering, Community Offering and/or Syndicated Community Offering provided,
however, that in the event the individual purchase limit is increased above 5%
of the total number of shares of Conversion Stock sold in the offering, the
aggregate number of shares sold to subscribers in excess of 5% shall not exceed
10% of the total number of shares sold in the Offering. In the event that an
individual purchase limitation is increased after commencement of the
Subscription Offering or any other offering, the Primary Parties shall permit
any Person who subscribed for the maximum number of shares of Conversion Stock
to subscribe for an additional number of shares, so 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 and the allocation formula described
in the foregoing sentence. In the event that an individual purchase limitation
is decreased after commencement of the Subscription Offering or any other
offering, the orders of any Person who subscribed for more than the new purchase
limitation 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.
7. Each Person purchasing Conversion Stock in the Conversion and
Reorganization 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
A-14
<PAGE>
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.
8. The Primary Parties shall have the right to take all such action
as they may, in their sole discretion, deem necessary, appropriate or advisable
in order to monitor and enforce the terms, conditions, limitations and
restrictions contained in this Section III.D and elsewhere in this Plan and the
terms, conditions and representations contained in the Order Form, including,
but not limited to, the absolute right (subject only to any necessary regulatory
approvals or concurrences) to reject, limit or revoke acceptance of any
subscription or order and to delay, terminate or refuse to consummate any sale
of Conversion Stock which they believe might violate, or is designed to, or is
any part of a plan to, evade or circumvent such terms, conditions, limitations,
restrictions and representations. Any such action shall be final, conclusive
and binding on all persons, and the Primary Parties and their respective Boards
shall be free from any liability to any Person on account of any such action.
9. Notwithstanding anything to the contrary contained in this Plan,
no Public Stockholder will to be required to sell any Bank Common Stock or to be
limited in receiving Exchange Shares provided that their aggregate ownership of
Holding Company Common Stock including Conversion Stock purchased in the
Offering and Exchange Shares received pursuant to the Bank Merger would exceed
5.0% of the total number of shares of Holding Company Common Stock outstanding
immediately following the Conversion and Reorganization. Such percentage may be
increased but to no greater than 9.9% of the total number of shares outstanding
provided: (a) each Person who has subscribed for the maximum number of shares of
Conversion Stock shall have been offered the opportunity to increase their
subscriptions to such percentage of the Conversion Stock subject to the
provisions of Section III.D.6 hereof; and (b) the aggregate number of shares
held by all stockholders in excess of 5% shall not exceed 10% of the total
number of shares of Holding Company Common Stock outstanding immediately
following the Conversion and Reorganization. In calculating the percentage
ownership of any stockholder for purchases of this Section, the number of shares
outstanding shall be deemed to include any shares which the stockholder has the
right to acquire pursuant to presently exercisable options. In the event a
Public Stockholder's ownership would exceed the foregoing limitation, the
Holding Company shall have the right to reject, limit or revoke acceptance of
any subscription or order from such Person and/or the right to purchase any
excess shares from such Person at the Actual Purchase Price.
E. Timing of Subscription Offering, Manner of Exercising Subscription
------------------------------------------------------------------
Rights and Order Forms.
----------------------
1. The Subscription Offering may be commenced concurrently with or
at any time after the mailing to Voting Members of the Mutual Holding Company
and Stockholders of the Bank of the proxy statement(s) to be used in connection
with the Special Meeting and the Stockholders' Meeting. The Subscription
Offering may be closed before the Special Meeting and the Stockholders' Meeting,
provided that the offer and sale of the Conversion Stock shall be conditioned
upon the approval of the Plan by the Voting Members of the Mutual Holding
Company and the Stockholders of the Bank at the Special Meeting and the
Stockholders' Meeting, respectively.
2. The exact timing of the commencement of the Subscription Offering
shall be determined by the Primary Parties in consultation with the Independent
Appraiser and any financial or advisory or investment banking firm retained by
them in connection with the Conversion. The Primary Parties may consider a
number of factors, including, but not limited to, their current and projected
future earnings, local and national economic conditions, and the prevailing
market for stocks in general and stocks of financial institutions in particular.
The Primary Parties shall have the right to withdraw, terminate, suspend, delay,
revoke or modify any such Subscription Offering, at any time and from time to
time, as they in their sole discretion may determine, without liability to any
Person, subject to compliance with applicable securities laws and any necessary
regulatory approval or concurrence.
A-15
<PAGE>
3. The Primary Parties shall, promptly after the SEC has declared
the Registration Statement which includes the Prospectus effective and all
required regulatory approvals have been obtained, distribute or make available
the Prospectus, together with Order Forms for the purchase of Conversion Stock,
to all Participants for the purpose of enabling them to exercise their
respective Subscription Rights, subject to Section III.G hereof. The Primary
Parties may elect to mail a Prospectus and Order Form only to those Participants
who request such materials by returning a postage-paid card to the Primary
Parties by a date specified in the letter informing them of their Subscription
Rights. Under such circumstances, the Subscription Offering shall not be closed
until the expiration of 30 days after the mailing by the Primary parties of the
postage-paid card to Participants.
4. A single Order Form for all Deposit Accounts maintained with the
Bank by an Eligible Account Holder and any Supplemental Eligible Account Holder
may be furnished, irrespective of the number of Deposit Accounts maintained with
the Bank on the Eligibility Record Date and Supplemental Eligibility Record
Date, respectively.
5. The recipient of an Order Form shall have no less than 20 days
and no more than 45 days from the date of mailing of the Order Form (with the
exact termination date to be set forth on the Order Form) to properly complete
and execute the Order Form and deliver it to the Primary Parties. The Primary
Parties may extend such period by such amount of time as they determine is
appropriate. Failure of any Participant to deliver a properly executed Order
Form to the Primary Parties, along with payment (or authorization for payment by
withdrawal) for the shares of Conversion Stock subscribed for, within the time
limits prescribed, shall be deemed a waiver and release by such person of any
rights to subscribe for shares of Conversion Stock. Each Participant shall be
required to confirm to the Primary parties by executing an Order Form that such
person has fully complied with all of the terms, conditions, limitations and
restrictions in the Plan.
6. The Primary Parties shall have the absolute right, in their sole
discretion and without liability to any Participant or other Person, to reject
any Order Form, including, but not limited to, any Order From that is (i)
improperly completed or executed; (ii) not timely received; (iii) not
accompanied by the proper payment (or authorization of withdrawal for payment
or, in the case of institutional investors in the Community Offering, not
accompanied by an irrevocable order together with a legally binding commitment
to pay the full amount of the purchase price prior to 48 hours before the
completion of the Offerings; or (iv) submitted by a person whose representations
the Primary parties believe to be false or who they otherwise believe, either
alone, or acting in concert with others, is violating, evading or circumventing,
or intends to violate, evade or circumvent, the terms and conditions of the
Plan. The Primary Parties may, but will not be required to, waive any
irregularity on any Order Form or may require the submission of corrected Order
Forms or the remittance of full payment for shares of Conversion Stock by such
date as they may specify. The interpretation of the Primary Parties of the
terms and conditions of the Order Forms shall be final and conclusive.
7. The Primary Parties may elect to offer to pay fees on a per share
basis to securities brokers who assist purchasers of Conversion Stock in the
Offerings.
F. Payment for Conversion Stock.
----------------------------
1. Payment for shares of Conversion Stock subscribed for by
Participants in the Subscription Offering and payment for shares of Conversion
Stock ordered by Persons in the Community Offering shall be equal to the Initial
Purchase Price multiplied by the number of shares which are being subscribed for
or ordered, respectively. Such payment may be made in cash, if delivered in
person, or by check or money order at the time the Order Form is delivered to
the Primary Parties. The Primary Parties may also elect to receive payment for
shares of Conversion Stock by wire transfer. In addition, the Primary Parties
may elect to provide Participants and/or other Persons who have a Deposit
Account with the Bank the opportunity to pay for shares of Conversion Stock by
authorizing the Bank to withdraw from such Deposit Account an amount equal to
the aggregate Initial Purchase Price of such shares. If the Actual Purchase
Price is less than the Initial Purchase Price, the Primary Parties shall refund
the difference to all Participants and other Persons, unless the Primary Parties
choose to provide Participants and
A-16
<PAGE>
other Persons the opportunity on the Order Form to elect to have such difference
applied to the purchase of additional whole shares of Conversion Stock. If the
Actual Purchase Price is more than the Initial Purchase Price, the Primary
Parties shall reduce the number of shares of Conversion Stock ordered by
Participants and other Persons and refund any remaining amount which is
attributable to a fractional share interest, unless the Primary parties choose
to provide Participants and other Persons the opportunity to increase the Actual
Purchase Price submitted to them.
2. Consistent with applicable laws and regulations and policies and
practices of the OTS, payment for shares of Conversion Stock subscribed for by
Tax-Qualified Employee Stock Benefit Plans may be made with funds contributed by
the Holding Company and/or the Bank and/or funds obtained pursuant to a loan
from an unrelated financial institution pursuant to a loan commitment which is
in force from the time that any such plan submits an Order Form until the
closing of the transactions contemplated hereby.
3. If a Participant or other Person authorizes the Bank to withdraw
the amount of the Initial Purchase Price from his or her Deposit Account, the
Bank shall have the right to make such withdrawal or to place a hold on funds in
the Deposit Account equal to the aggregate Initial Purchase Price upon receipt
of the Order Form. Notwithstanding any regulatory provisions regarding
penalties for early withdrawals from certificate accounts, the Bank may allow
payment by means of withdrawal from certificate accounts without the assessment
of such penalties. In the case of an early withdrawal of only a portion of such
account, the certificate evidencing such account shall be cancelled if any
applicable minimum balance requirement ceases to be met. In such case, the
remaining balance will earn interest at the regular passbook rate. However,
where any applicable minimum balance is maintained in such certificate account,
the rate of return on the balance of the certificate account shall remain the
same as prior to such early withdrawal. This waiver of the early withdrawal
penalty applies only to withdrawals made in connection with the purchase of
Conversion Stock and is entirely within the discretion of the Primary Parties.
4. The Bank shall pay interest, at not less than the passbook rate,
for all amounts paid in cash, by check or money order to purchase shares of
Conversion Stock in the Subscription Offering and the Community Offering from
the date payment is received until the date the Conversion and Reorganization is
completed or terminated.
5. The Bank shall not knowingly loan funds or otherwise extend
credit to any Participant or other Person to purchase Conversion Stock.
6. Each share of Conversion Stock shall be non-assessable upon
payment in full of the Actual Purchase Price.
G. Account Holders in Nonqualified States or Foreign Countries.
-----------------------------------------------------------
The Primary Parties shall make reasonable efforts to comply with the
securities laws of all jurisdictions in the United States in which Participants
reside. However, no Participant will be offered or receive any Conversion Stock
under the Plan if such Participant resides in a foreign country or resides in a
jurisdiction of the United States with respect to which all of the following
apply: (a) there are few Participants otherwise eligible to subscribe for shares
under this Plan who reside in such jurisdiction; (b) the granting of
Subscription Rights or the offer or sale of shares of Conversion Stock to such
Participants would require any of the Primary Parties or their respective
Directors and Officers, under the laws of such jurisdiction, to register as a
broker-dealer, salesman or selling agent or to register or otherwise qualify the
Conversion Stock for sale in such jurisdiction, or any of the Primary Parties
would be required to qualify as a foreign corporation or file a consent to
service of process in such jurisdiction; and (c) such registration,
qualification or filing in the judgment of the Primary Parties would be
impracticable or unduly burdensome for reasons of cost or otherwise. No payments
will be made in lieu of the granting of Subscription Rights to any Person.
A-17
<PAGE>
IV. CERTAIN OTHER EFFECTS OF CONVERSION AND REORGANIZATION
A. Liquidation Account.
-------------------
1. At the time of the M.H.C. Merger, the Bank shall establish a
Liquidation Account in an amount equal to the amount of the dividends from Bank
Common Stock waived by the Mutual Holding Company plus the greater of (i) $3.2
million, which is equal to 100% of the retained earnings of the Bank as of
September 30, 1993, the date of the latest statement of financial condition
contained in the final offering circular utilized in the Bank's initial public
offering, or (ii) 64.7% of the Bank's total stockholders' equity as reflected in
its latest statement of financial condition contained in the final Prospectus
utilized in the Conversion and Reorganization. The function of the Liquidation
Account will be to preserve the rights of certain holders of Deposit Accounts in
the Bank who maintain such accounts in the Bank following the Conversion and
Reorganization to a priority to distributions in the unlikely event of a
liquidation of the Bank subsequent to the Conversion and Reorganization.
2. The Liquidation Account shall be maintained for the benefit of
Eligible Account Holders and Supplemental Eligible Account Holders, if any, who
maintain their Deposit Accounts in the Bank after the Conversion and
Reorganization. Each such account holder will, with respect to each Deposit
Account held, have a related inchoate interest in a portion of the Liquidation
Account balance, which interest will be referred to in this Section IV.A as the
"subaccount balance." All Deposit Accounts having the same social security
number will be aggregated for purposes of determining the initial subaccount
balance with respect to such Deposit Accounts, except as provided in Paragraph 4
of this Section IV.A.
3. In the event of a complete liquidation of the Bank subsequent to
the Conversion and Reorganization (and only in such event), each Eligible
Account Holder and Supplemental Eligible Account Holder, if any, shall be
entitled to receive a liquidation distribution from the Liquidation Account in
the amount of the then current subaccount balances for Deposit Accounts then
held (adjusted as described below) before any liquidation distribution may be
made with respect to the capital stock of the Bank. No merger, consolidation,
sale of bulk assets or similar combination transaction with another FDIC-insured
institution in which the Bank is not the surviving entity shall be considered a
complete liquidation for this purpose. In any merger or consolidation
transaction, the Liquidation Account shall be assumed by the surviving entity.
4. The initial subaccount balance for a Deposit Account held by an
Eligible Account Holder and Supplemental Eligible Account Holder, if any, 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 Deposits of
such account holder and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders, if any. For Deposit Accounts in existence at both the Eligibility
Record Date and the Supplemental Eligibility Record Date, if any, separate
initial subaccount balances shall be determined on the basis of the Qualifying
Deposits in such Deposit Accounts on each such record date. Initial subaccount
balances shall not be increased, and shall be subject to downward adjustment as
provided below.
5. If the aggregate deposit balance in the Deposit Account(s) of any
Eligible Account Holder or Supplemental Eligible Account Holder, if any, at the
close of business on any June 30 annual closing date, commencing June 30, 1996
for Eligible Account Holders and June 30, 1997 for Supplemental Eligible Account
Holders, is less than the lesser of (a) the aggregate deposit balance in such
Deposit Account(s) at the close of business on any other annual closing date
subsequent to such record dates or (b) the aggregate deposit balance in such
Deposit Account(s) as of the Eligibility Record Date or the Supplemental
Eligibility Record Date, the subaccount balance for such Deposit Account(s)
shall be adjusted by reducing such subaccount balance in an amount proportionate
to the reduction in such deposit balance. In the event of such a downward
adjustment, the subaccount balance shall not be subsequently increased,
notwithstanding any subsequent increase in the deposit balance of the related
Deposit Account(s). The subaccount balance of an Eligible Account Holder or
Supplemental Eligible Account Holder, if any, will be reduced to zero if such
Account Holder ceases to maintain a Deposit Account at the Bank
A-18
<PAGE>
that has the same social security number as appeared on his Deposit Account(s)
at the Eligibility Record Date or, if applicable, the Supplemental Eligibility
Record Date.
6. Subsequent to the Conversion and Reorganization, the Bank may not
pay cash dividends generally on deposit accounts and/or capital stock of the
Bank, or repurchase any of the capital stock of the Bank, if such dividend or
repurchase would reduce the Bank's regulatory capital below the aggregate amount
of the then current subaccount balances for Deposit Accounts then held;
otherwise, the existence of the liquidation account shall not operate to
restrict the use or application of any of the net worth accounts of the Bank.
7. For purposes of this Section IV.A, a Deposit Account includes a
predecessor or successor account which is held by an Account Holder with the
same social security number.
B. Voting Rights of Stockholders.
-----------------------------
Following consummation of the Conversion and Reorganization, voting rights
with respect to the Bank shall be held and exercised exclusively by the Holding
Company as holder of all of the Bank's outstanding voting capital stock, and
voting rights with respect to the Holding Company shall be held and exercised
exclusively by the holders of the Holding Company's voting capital stock.
C. Transfer of Deposit Accounts.
----------------------------
Each Deposit Account in the Bank at the time of the consummation of the
Conversion and Reorganization shall become, without further action by the
holder, a Deposit Account in the Bank equivalent in withdrawable amount to the
withdrawal value (as adjusted to give effect to any withdrawal made for the
purchase of Conversion Stock), and subject to the same terms and conditions
(except as to voting and liquidation rights) as such Deposit Account in the Bank
immediately preceding consummation of the Conversion and Reorganization.
Holders of Deposit Accounts in the Bank shall not, as such holders, have any
voting rights.
D. Directors and Officers of the Bank.
----------------------------------
Each person serving as a Director or Officer of the Bank at the time of the
Conversion and Reorganization shall continue to serve as a Director or Officer
of the Bank for the balance of the term for which the person was elected prior
to the Conversion and Reorganization, and until a successor is elected and
qualified. The number, names, business addresses and terms of the Directors of
the Bank are set forth in the Plans of Merger included as Annexes A and B
hereto.
E. Requirements Following Conversion and Reorganization for Registration,
----------------------------------------------------------------------
Market Making, and Stock Exchange Listing.
-----------------------------------------
In connection with the Conversion and Reorganization, the Holding Company
shall register the Holding Company Common Stock pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended, and shall undertake not to
deregister such stock for a period of three years thereafter. The Holding
Company also shall use its best efforts to (i) encourage and assist a market
maker to establish and maintain a market for the Holding Company Common Stock
and (ii) list the Holding Company Common Stock on a national or regional
securities exchange or to have quotations for such stock disseminated on the
National Association of Securities Dealers Automated Quotation System.
F. Dissenting Stockholders.
-----------------------
If any Stockholders of the Bank dissent from the Conversion and
Reorganization and exercise and perfect the right to obtain valuation of and
payment for their shares of Bank Common Stock ("Dissenting Shares") pursuant to
the Appraisal Regulation, then (a) the Dissenting Shares, if any, will be deemed
to have been retired and
A-19
<PAGE>
cancelled immediately prior to consummation of the Conversion and
Reorganization, with the effect that such shares will not be exchanged for
Holding Company Common Stock pursuant to Section II.G.2 hereof, and (b) all
payments to be made to the holders of such Dissenting Shares will be made
directly by the Bank. Consummation of the Conversion and Reorganization is
conditioned upon the number of Dissenting Shares being less than 10.0% of the
shares of Bank Common Stock issued and outstanding immediately prior to
consummation of the Conversion and Reorganization.
V. EFFECTIVE DATE
The effective date of the Conversion and Reorganization shall be the date
upon which the last of the following actions occurs: (i) the filing of Articles
of Combination with the OTS with respect to the Mutual Holding Company Merger,
(ii) the filing of Articles of Combination with the OTS with respect to the Bank
Merger, (iii) the closing of the issuance of the shares of Conversion Stock in
the Offerings, and (iv) compliance with any conditions imposed by the OTS that
is required to be complied with prior to the Effective Date. The filing of
Articles of Combination relating to the Mutual Holding Company Merger and the
Bank Merger and the closing of the issuance of shares of Conversion Stock in the
Offerings shall not occur until all requisite regulatory, Member and Stockholder
approvals have been obtained, all applicable waiting periods have expired and
sufficient subscriptions and orders for the Conversion Stock have been received.
It is intended that the closing of the Mutual Holding Company Merger, the Bank
Merger and the sale of shares of Conversion Stock in the Offerings shall occur
consecutively and substantially simultaneously.
VI. CERTAIN RESTRICTIONS FOLLOWING CONVERSION AND REORGANIZATION
A. Requirements for Stock Purchases by Directors and Officers Following
--------------------------------------------------------------------
the Conversion and Reorganization.
---------------------------------
For a period of three years following the Conversion and Reorganization,
the Directors and Officers of the Holding Company and the Bank and their
Associates may not purchase, without the prior written approval of the OTS,
Holding Company Common Stock except from a broker-dealer registered with the
SEC. This prohibition shall not apply, however, to (i) a negotiated transaction
arrived at by direct negotiation between buyer and seller and involving more
than 1% of the outstanding Holding Company Common Stock and (ii) purchases of
stock made by and held by any Tax-Qualified Employee Stock Benefit Plan (and
purchases of stock made by and held by any Non-Tax-Qualified Employee Stock
Benefit Plan following the receipt of stockholder approval of such plan) which
may be attributable to individual officers or directors.
The foregoing restriction on purchases of Holding Company Common Stock
shall be in addition to any restrictions that may be imposed by federal and
state securities laws.
B. Restrictions on Transfer of Stock by Directors and Officers.
-----------------------------------------------------------
All shares of the Conversion Stock which are purchased by Persons other
than Directors and Officers shall be transferable without restriction, except in
connection with a transaction proscribed by Section V.C of this Plan. Shares of
Conversion Stock purchased by Directors and Officers of the Holding Company and
the Bank on original issue from the Holding Company (by subscription or
otherwise) shall be subject to the restriction that such shares shall not be
sold or otherwise disposed of for value for a period of one year following the
date of purchase, except for any disposition of such shares following the death
of the original purchaser or pursuant to any merger or similar transaction
approved by the OTS. The shares of Conversion Stock issued by the Holding
Company to Directors and Officers shall bear the following legend giving
appropriate notice of such one-year 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 Part 563b of the Rules and Regulations of the Office of Thrift
Supervision of the United States Department of the Treasury. Except in the
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<PAGE>
event of the death of the registered holder of this Certificate, such
shares may not be transferred during such one-year period without a legal
opinion of counsel for the Company that said transfer is permissible under
the provisions of applicable law and regulation. This restrictive legend
shall be deemed null and void after one year from the date of this
Certificate.
In addition, the Holding Company shall give appropriate instructions to the
transfer agent for the Holding Company Common Stock with respect to the
applicable restrictions relating to the transfer of retired stock. Any shares
issued at a later date as a stock dividend, stock split or otherwise with
respect to any such restricted stock shall be subject to the same holding period
restrictions as may then be applicable to such restricted stock.
The foregoing restriction on transfer shall be in addition to any
restrictions on transfer that may be imposed by federal and state securities
laws.
C. Restrictions on Acquisition of Stock of the Holding Company.
-----------------------------------------------------------
The articles of incorporation of the Holding Company may prohibit any
Person together with Associates or group of Persons Acting in Concert from
offering to acquire or acquiring, directly or indirectly, beneficial ownership
of more than 10% of any class of equity securities of the Holding Company, or of
securities convertible into more than 10% of any such class, for up to five
years following completion of the Conversion and Reorganization. The articles
of incorporation of the Holding Company also may provide that all equity
securities beneficially owned by any Person in excess of 10% of any class of
equity securities during such period shall be considered "excess shares," and
that excess shares 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
matters submitted to the stockholders for a vote. If included in the articles
of incorporation, the foregoing restrictions shall not apply to (i) any offer
with a view toward public resale made exclusively to the Holding Company by
underwriters or a selling group acting on its behalf, (ii) the purchase of
shares by a Tax-Qualified Employee Stock Benefit Plan established for the
benefit of the employees of the Holding Company and its subsidiaries which is
exempt from approval requirements under Section 574.3(c)(1)(vi) of the
Regulations Applicable to All Savings Associations or any successor thereto, and
(iii) any offer or acquisition approved in advance by the affirmative vote of
two-thirds of the entire Board of Directors of the Holding Company. Directors,
Officers or Employees of the Holding Company or the Bank or any subsidiary
thereof shall not be deemed to be Associates or a group Acting in Concert with
respect to their individual acquisitions of any class of equity securities of
the Holding Company solely as a result of their capacities as such.
D. Dividend and Repurchase Restrictions.
------------------------------------
1. Except as may otherwise may be permitted by the OTS, the Holding
Company may not repurchase any shares of its capital stock during the first year
following consummation of the Conversion and Reorganization. During the second
and third years following consummation of the Conversion and Reorganization, the
Holding Company may not repurchase any of its capital stock from any person,
other than pursuant to (i) an offer to repurchase made by the Holding Company on
a pro rata basis to all of its stockholders and which is approved by the OTS,
(ii) the repurchase of qualifying shares of a director, if any, (iii) purchases
in the open market by a Tax-Qualified or Non-Tax-Qualified Employee Stock
Benefit Plan in an amount reasonable and appropriate to fund the plan, or (iv) a
repurchase program approved by the OTS.
2. The Bank may not declare or pay a cash dividend on, or repurchase
any of, its capital stock if the effect thereof would cause the regulatory
capital of the Bank to be reduced below the amount required for the Liquidation
Account. Any dividend declared or paid on, or repurchase of, the Bank's capital
stock also shall be in compliance with Section 563.134 of the Regulations
Applicable to All Savings Associations, or any successor thereto.
3. Notwithstanding anything to the contrary set forth herein, the
Holding Company may repurchase its capital stock to the extent and subject to
the requirements set forth in Section 563b.3(g)(3) of the
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<PAGE>
Regulations Applicable to All Savings Associations, or any successor thereto, or
as otherwise may be approved by the OTS.
VII. MISCELLANEOUS
A. Tax Rulings or Opinions.
-----------------------
Consummation of the Conversion and Reorganization is conditioned upon prior
receipt by the Primary Parties of either a ruling or an opinion of counsel with
respect to federal tax law, and either a ruling or an opinion of counsel with
respect to Kentucky tax law, to the effect that consummation of the transactions
contemplated hereby will not result in a taxable reorganization under the
provisions of the applicable codes or otherwise result in any adverse tax
consequences to the Primary Parties or to account holders receiving Subscription
Rights before or after the Conversion and Reorganization, except in each case to
the extent, if any, that Subscription Rights are deemed to have fair market
value on the date such rights are issued.
B. Stock Compensation Plans.
------------------------
1. The Holding Company and the Bank are authorized to adopt Tax-
Qualified Employee Stock Benefit Plans in connection with the Conversion and
Reorganization, including without limitation an employee stock ownership plan.
2. The Holding Company and the Bank also are authorized to adopt
stock option plans, restricted stock grant plans and other Non-Tax-Qualified
Employee Stock Benefit Plans, provided that no stock options shall be granted,
and no shares of Conversion Stock shall be purchased, pursuant to any of such
plans prior to the earlier of (i) the one-year anniversary of the consummation
of the Conversion and Reorganization or (ii) the receipt of stockholder approval
of such plans at either the annual or special meeting of stockholders of the
Holding Company to be held not earlier than six months after the completion of
the Conversion and Reorganization.
3. Existing as well as any newly created Tax-Qualified Employee
Stock Benefit Plans may purchase shares of Conversion Stock in the Offerings, to
the extent permitted by the terms of such benefit plans and this Plan.
C. Amendment or Termination of the Plan.
------------------------------------
If deemed necessary or desirable by the Boards of Directors of the Primary
Parties, this Plan may be substantively amended, as a result of comments from
regulatory authorities or otherwise, at any time prior to the solicitation of
proxies from Members and Stockholders to vote on the Plan and at any time
thereafter with the concurrence of the OTS. Any amendment to this Plan made
after approval by the Members and Stockholders with the concurrence of the OTS
shall not necessitate further approval by the members or Stockholders unless
otherwise required by the OTS. Any amendment to this Plan which may be required
in connection with changes associated with the preference afforded to Persons in
the Local Community shall not be deemed to be a material change to the Plan, the
Primary Parties shall not resolicit subscribers and orders shall be filled in
accordance with any such revisions to the Local Community preference. This Plan
shall terminate if the sale of all shares of Conversion Stock is not completed
within 24 months from the date of the Special Meeting. Prior to the earlier of
the Special Meeting and the Stockholders' Meeting, this Plan may be terminated
by the Boards of Directors of the Primary Parties without approval of the OTS;
after the Special Meeting or the Stockholders' Meeting, the Boards of Directors
may terminate this Plan only with the approval of the OTS.
D. Interpretation of the Plan.
--------------------------
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of each of the Boards of Directors of the
Primary Parties shall be final, subject to the authority of the OTS. Nothing
A-22
<PAGE>
expressed or referred to herein is intended to create any contractual rights in
any parties other than the parties hereto, their successors and permitted
assigns.
IN WITNESS WHEREOF, the parties have caused this Plan to be executed by
their duly authorized officers as of this __th day of December 1996.
CUMBERLAND MOUNTAIN BANCSHARES,
M.H.C.
Attest: By:
-------------------- ------------------------------------
Secretary J. Roy Shoffner
Chairman and Chief Executive Officer
MIDDLESBORO FEDERAL BANK, FEDERAL
SAVINGS BANK
Attest: By:
------------------- -----------------------------------
Secretary J. Roy Shoffner
Chairman and Chief Executive Officer
CUMBERLAND MOUNTAIN BANCSHARES, INC.
Attest: By:
------------------- ------------------------------------
Secretary J. Roy Shoffner
Chairman and Chief Executive Officer
A-23
<PAGE>
ANNEX A
PLAN OF MERGER
Plan of Merger, dated as of December __, 1996, between Cumberland Mountain
Bancshares, M.H.C. (the "Mutual Holding Company"), a federally-chartered mutual
holding company, and Middlesboro Federal Bank, Federal Savings Bank (the "Bank"
or the "Surviving Corporation"), a federally-chartered savings bank.
WITNESSETH:
WHEREAS, the Mutual Holding Company and the Bank have adopted a Plan of
Conversion of the Mutual Holding Company and Agreement and Plan of
Reorganization between Cumberland Mountain Bancshares, Inc. (the "Holding
Company") and the Bank (the "Plan of Conversion"), pursuant to which (i) the
Mutual Holding Company will convert to a federally-chartered interim stock
savings bank and simultaneously merge with and into the Bank, (ii) the Bank and
a newly-formed interim savings bank will merge, pursuant to which the Bank will
become a wholly-owned subsidiary of the Holding Company (the "Bank Merger"), and
(iii) the Holding Company will offer shares of its common stock in the manner
set forth in the Plan of Conversion; and
WHEREAS, the Mutual Holding Company, which owns 64.7% of the outstanding
common stock of the Bank, $1.00 par value per share ("Bank Common Stock"), will
convert to a federally-chartered interim stock savings bank pursuant to the Plan
of Conversion and merge with and into the Bank pursuant to this Plan of Merger
(the "Mutual Holding Company Merger"), pursuant to which, among other things,
all interests of members in the Mutual Holding Company and all shares of Bank
Common Stock held by the Mutual Holding Company will be cancelled; and
WHEREAS, the Mutual Holding Company and the Bank (the "Constituent
Corporations") desire to provide for the terms and conditions of the Mutual
Holding Company Merger;
NOW, THEREFORE, the Mutual Holding Company and the Bank hereby agree as
follows:
1. Effective Date. The Mutual Holding Company Merger shall become
effective on the date specified in the endorsement of the Articles of
Combination relating to the Mutual Holding Company Merger by the Secretary of
the Office of Thrift Supervision ("OTS") pursuant to 12 C.F.R. (S) 552.13(k), or
any successor thereto (the "Effective Date").
2. The Mutual Holding Company Merger and Effect Thereof. Subject to the
terms and conditions set forth herein and the prior approval of the OTS of the
Conversion and Reorganization, as defined in the Plan of Conversion, and the
expiration of all applicable waiting periods, the Mutual Holding Company shall
convert from the mutual form to a federal interim stock savings bank and
simultaneously merge with and into the Bank, which shall be the Surviving
Corporation. Upon consummation of the Mutual Holding Company Merger, the
Surviving Corporation shall be considered the same business and corporate entity
as each of the Constituent Corporations and thereupon and thereafter all the
property, rights, powers and franchises of each of the Constituent Corporations
shall vest in the Surviving Corporation and the Surviving Corporation shall be
subject to and be deemed to have assumed all of the debts, liabilities,
obligations and duties of each of the Constituent Corporations and shall have
succeeded to all of each of their relationships, fiduciary or otherwise, as
fully and to the same extent as if such property, rights, privileges, powers,
franchises, debts, obligations, duties and relationships had been originally
acquired, incurred or entered into by the Surviving Corporation. In addition,
any reference to either of the Constituent Corporations in any contract, will or
document, whether executed or taking effect before or after the Effective Date,
shall be considered a reference to the Surviving Corporation if not inconsistent
with the other provisions of the contract, will or document; and any pending
action or other judicial proceeding to which either of the Constituent
Corporations
A-1
<PAGE>
is a party shall not be deemed to have abated or to have been discontinued by
reason of the Mutual Holding Company Merger, but may be prosecuted to final
judgment, order or decree in the same manner as if the Mutual Holding Company
Merger had not occurred or the Surviving Corporation may be substituted as a
party to such action or proceeding, and any judgment, order or decree may be
rendered for or against it that might have been rendered for or against either
of the Constituent Corporations if the Mutual Holding Company Merger had not
occurred.
3. Cancellation of Bank Common Stock held by the Mutual Holding Company
and Member Interests; Liquidation Account
(a) On the Effective Date, (i) each share of Bank Common Stock issued and
outstanding immediately prior to the Effective Date and held by the Mutual
Holding Company shall, by virtue of the Mutual Holding Company Merger and
without any action on the part of the holder thereof, be cancelled, (ii) the
interests in the Mutual Holding Company of any person, firm or entity who or
which qualified as a member of the Mutual Holding Company in accordance with its
mutual charter and bylaws and the laws of the United States prior to the Mutual
Holding Company's conversion from mutual to stock form (the "Members") shall, by
virtue of the Mutual Holding Company Merger and without any action on the part
of the holder thereof, be cancelled, and (iii) the Bank shall establish a
liquidation account on behalf of each depositor member of the Mutual Holding
Company, as defined in the Plan of Conversion, in accordance with Section IV.B
of the Plan of Conversion.
(b) At or after the Effective Date and prior to the Bank Merger, each
certificate or certificates theretofore evidencing issued and outstanding shares
of Bank Common Stock, other than any such certificate or certificates held by
the Mutual Holding Company, which shall be cancelled, shall continue to
represent issued and outstanding shares of Bank Common Stock.
4. Dissenting Shares. No Member of the Mutual Holding Company shall have
any dissenter or appraisal rights in connection with the Mutual Holding Company
Merger. However, stockholders of the Bank shall have dissenter or appraisal
rights in accordance with the Plan of Conversion and 12 C.F.R. (S) 552.14.
5. Name of Surviving Corporation. The name of the Surviving Corporation
shall be "Middlesboro Federal Bank, Federal Savings Bank."
6. Directors of the Surviving Corporation. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Corporation and applicable law, the number of directors of the Surviving
Corporation shall be six. The names of those persons who, upon and after the
Effective Date, shall be directors of the Surviving Corporation are set forth
below. Each such director shall serve for the term which expires at the annual
meeting of stockholders of the Surviving Corporation in the year set forth after
his respective name, and until a successor is elected and qualified.
<TABLE>
<CAPTION>
Name Term Expires
---- ------------
<S> <C>
J. Roy Shoffner 1997
R. R. Long 1997
George Taylor 1997
Reecie Stagnolia 1998
Raymond Walker 1998
James J. Shoffner 1999
</TABLE>
The address of each such director is c/o Middlesboro Federal Bank, Federal
Savings Bank, 1431 Cumberland Avenue, Middlesboro, Kentucky 40965.
A-2
<PAGE>
7. Officers of the Surviving Corporation. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Corporation and applicable law, the officers of the Bank immediately prior to
the Effective Date shall be the officers of the Surviving Corporation.
8. Offices. Upon the Effective Date, all offices of the Bank shall be
offices of the Surviving Corporation. As of the Effective Date, the home office
of the Surviving Corporation shall remain at 1431 Cumberland Avenue,
Middlesboro, Kentucky 40965 and the location of the other deposit-taking offices
of the Surviving Corporation shall be as set forth below, except for the
addition of deposit-taking offices authorized or the deletion of the deposit-
taking offices closed subsequent to the date hereof and the Effective Date:
1520 East Main Street
Cumberland, Kentucky 40823
9. Charter and Bylaws. On and after the Effective Date, the Charter of
the Bank as in effect immediately prior to the Effective Date shall be the
Charter of the Surviving Corporation until amended in accordance with the terms
thereof and applicable law, except that the Charter shall be amended to provide
for the establishment of a liquidation account in accordance with applicable law
and regulation.
On or after the Effective Date, the Bylaws of the Bank as in effect
immediately prior to the Effective Date shall be the Bylaws of the Surviving
Corporation until amended in accordance with the terms thereof and applicable
law.
10. Stockholders and Member Approvals. The affirmative votes of the
holders of the Bank Common Stock set forth in Section II.F of the Plan of
Conversion and the Members set forth in Section II.D of the Plan of Conversion
shall be required to approve the Plan of Conversion, of which this Plan of
Merger is a part, on behalf of the Bank and the Mutual Holding Company,
respectively.
11. Abandonment of Agreement. This Plan of Merger may be abandoned by
either the Mutual Holding Company or the Bank at any time before the Effective
Date in the manner set forth in Section VI.D of the Plan of Conversion.
12. Amendments. This Plan of Merger may be amended in the manner set
forth in Section VI.D of the Plan of Conversion by a subsequent writing signed
by the parties hereto upon the approval of the Board of Directors of each of the
parties hereto.
13. Successors. This Agreement shall be binding on the successors of the
Mutual Holding Company and the Bank.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the United States of America.
A-3
<PAGE>
IN WITNESS WHEREOF, the Mutual Holding Company and the Bank have caused
this Plan of Merger to be executed by their duly authorized officers as of the
day and year first above written.
CUMBERLAND MOUNTAIN
BANCSHARES, M.H.C.
Attest:
By:
- ------------------------- ------------------------
J.D. Howard James J. Shoffner
Secretary President
MIDDLESBORO FEDERAL BANK, FEDERAL
SAVINGS BANK
Attest:
By:
- ------------------------ -----------------------
J.D. Howard James J. Shoffner
Secretary President
A-4
<PAGE>
ANNEX B
PLAN OF MERGER
Plan of Merger, dated as of ____________ __, 199__, among Middlesboro
Federal Bank, Federal Savings Bank (the "Bank" or the "Surviving Bank"), a
federally-chartered savings bank, Cumberland Mountain Bancshares, Inc. (the
"Holding Company"), a Tennessee corporation, and Middlesboro Federal Interim
Savings Bank ("Interim"), a federally-chartered interim savings bank.
WITNESSETH:
WHEREAS, the Bank has organized the Holding Company as a first-tier,
wholly-owned subsidiary for the purpose of becoming the stock holding company of
the Bank upon completion of the Conversion and Reorganization, as defined in the
Plan of Conversion of Cumberland Mountain Bancshares, M.H.C. (the "Mutual
Holding Company") and Agreement and Plan of Reorganization between the Holding
Company and the Bank (the "Plan of Conversion"); and
WHEREAS, the Mutual Holding Company, a federally-chartered mutual holding
company which owns 64.7% of the common stock of the Bank, $1.00 par value per
share ("Bank Common Stock"), will convert to a federally-chartered interim stock
savings bank and simultaneously merge with and into the Bank pursuant to the
Plan of Conversion and the Plan of Merger included as Annex A thereto (the
"Mutual Holding Company Merger"), pursuant to which all shares of Bank Common
Stock held by the Mutual Holding Company will be cancelled; and
WHEREAS, the formation of a stock holding company by the Bank will be
facilitated by causing the Holding Company to become the sole stockholder of a
newly-formed interim federally-chartered stock savings bank and then merging the
interim savings bank with an into the Bank (the "Bank Merger"), pursuant to
which the Bank will become a wholly-owned subsidiary of the Holding Company and,
in connection therewith, all outstanding shares of Bank Common Stock will be
converted automatically into and become shares of common stock of the Holding
Company, $.01 par value per share ("Holding Company Common Stock"); and
WHEREAS, Interim is being organization by the officers of the Bank as an
interim federally-chartered stock savings bank with the Holding Company as its
sole stockholder in order to effect the Bank Merger; and
WHEREAS, the Bank and Interim (the "Constituent Banks") desire to provide
for the terms and conditions of the Bank Merger.
NOW, THEREFORE, the Bank and Interim hereby agree as follows:
1. Effective Date. The Bank Merger shall become effective on the date
specified in the endorsement of the Articles of Combination relating to the Bank
Merger by the Secretary of the Office of Thrift Supervision ("OTS") pursuant to
12 C.F.R. (S) 552.13(k), or any successor thereto (the "Effective Date").
2. The Bank Merger and Effect Thereof. Subject to the terms and
conditions set forth herein and the prior approval of the OTS of the
Conversation and Reorganization, as defined in the Plan of Conversion, and the
expiration of all applicable waiting periods. Interim shall merge with and into
the Bank, which shall be the Surviving Bank. Upon consummation of the Bank
Merger, the Surviving Bank shall be considered the same business and corporate
entity as each of the Constituent Banks and thereupon and thereafter all the
property, rights, powers and franchises of each of the Constituent Banks shall
vest in the Surviving Bank and the Surviving Bank shall be subject to and be
deemed to have assumed all of the debts, liabilities, obligations and duties of
each of the Constituent Banks and shall have succeeded to all of each of their
relationships, fiduciary or otherwise, as fully and to the same extent as if
such property, rights, privileges, powers, franchises, debts, obligations,
duties and relationships had been originally acquired, incurred or entered into
by the Surviving Bank. In addition, any reference
B-1
<PAGE>
to either of the Constituent Banks in any contract, will or document, whether
executed or taking effect before or after the Effective Date, shall be
considered a reference to the Surviving Bank if not inconsistent with the other
provision of the contract, will or document; and any pending action or other
judicial proceeding to which either of the Constituent Banks is a party shall
not be deemed to have abated or to have been discontinued by reason of the Bank
Merger, but may be prosecuted to final judgment, order or decree in the same
manner as if the Bank Merger had not occurred or the Surviving Bank may be
substituted as a party to such action or proceeding, and any judgement, order or
decree may be rendered for or against it that might have been rendered for or
against either of the Constituent Banks if the Bank Merger had not occurred.
3. Conversion of Stock.
(a) On the Effective Date, (i) each share of Bank Common Stock issued and
outstanding immediately prior to the Effective Date (other than shares as to
which the holders thereof have properly exercised dissenter's rights of
appraisal, if any) shall, by virtue of the Bank Merger and without any action on
the part of the holder thereof, be converted into the right to receive Holding
Company Common Stock based on the Exchange Ratio, as defined in the Plan of
Conversion, plus the right to receive cash in lieu of any fractional share
interest, as determined in accordance with Section 3(c) hereof, (ii) each share
of common stock, $1.00 par value per share, of Interim ("Interim Common Stock")
issued and outstanding immediately prior to the Effective Date shall, by virtue
of the Bank Merger and without any action on the part of the holder thereof, be
converted into one share of Bank Common Stock, and (iii) each share of Holding
Company Common Stock issued and outstanding immediately prior to the Effective
Date shall, by virtue of the Bank Merger and without any action on the part of
the holder thereof, be cancelled. By voting in favor of this Plan of Merger,
the Holding Company, as the sole stockholder of Interim, shall have agreed to
(i) issue shares of Holding Company Common Stock in accordance with the terms
hereof, and (ii) cancel all previously issued and outstanding shares of Holding
Company Common Stock upon the effectiveness of the Bank Merger.
(b) On and after the Effective Date, there shall be no registrations of
transfers on the stock transfer books of Interim or the Bank of shares of
Interim Common Stock or Bank Common Stock which were outstanding immediately
prior to the Effective Date.
(c) Notwithstanding any other provision hereof, no fractional shares of
Holding Company Common Stock shall be issued to holders of Bank Common Stock.
In lieu thereof, each holder of shares of Bank Common Stock entitled to a
fraction of a share of Holding Company Common Stock shall, at the time of
surrender of the certificate or certificates representing such holder's shares,
receive an a mount of cash equal to the product arrived at by multiplying such
fraction of a share of Holding Company Common Stock by the Actual Purchase
Price, as defined in the Plan of Conversion. No such holder shall be entitled
to dividends, voting rights or any other rights in respect of any fractional
share.
4. Exchange of Shares.
(a) At or after the Effective Date, each holder of a certificate or
certificates therefore evidencing issued and outstanding shares of Bank Common
Stock (other than shares as to which the holders thereof have properly exercised
dissenter's rights of appraisal, if any), upon surrender of the same to an
agent, duly appointed by the Holding Company ("Exchange Agent"), shall be
entitled to receive in exchange thereof a certificate or certificates
representing the number of full shares of Holding Company Common Stock for which
the shares of Bank Common Stock therefore represented by the certificate or
certificates so surrendered shall have been converted as provided in Section
3(a) hereof. The Exchange Agent shall mail to each holder of record of an
outstanding certificate which immediately prior to the Effective Date evidenced
shares of Bank Common Stock, and which is to be exchanged for Holding Company
Common Stock as provided in Section 3(a) hereof, a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to such certificate shall pass, only upon delivery of such certificate to the
Exchange Agent) advising such holder of the terms of the exchange effected by
the Bank
B-2
<PAGE>
Merger and of the procedure for surrendering to the Exchange agent such
certificate in exchange for a certificate or certificates evidencing Holding
Company Common Stock.
(b) No holder of a certificate therefore representing shares of Bank Common
Stock shall be entitled to receive any dividends in respect of the Holding
Company Common Stock into which such shares shall have been converted by virtue
of the Bank Merger until the certificate representing such shares of Bank Common
Stock is surrendered in exchange for certificates representing shares of Holding
Company Common Stock. In the event that dividends are declared and paid by the
Holding Company in respect of Holding Company Common Stock after the Effective
Date but prior to surrender of certificates rep[resenting shares of Bank Common
Stock, dividends payable in respect of shares of Holding Company Common Stock
not then issued shall accrue (without interest). Any such dividends shall be
paid (without interest) upon surrender of the certificates representing such
shares of Bank Common Stock. The Holding Company shall be entitled, after the
Effective Date, to treat certificates representing shares of Bank Common Stock
as evidencing ownership of the number of full shares of Holding Company Common
Stock into which the shares of Bank Common Stock represented by such
certificates shall have been converted, notwithstanding the failure on the part
of the holder thereof to surrender such certificates.
(c) The Holding Company shall not be obligated to deliver a certificate or
certificates representing shares of Holding Company Common Stock to which a
holder of Bank Common Stock would otherwise be entitled as a result of the Bank
Merger until such holder surrenders the certificate or certificates representing
the shares of Bank Common Stock for exchange as provided in this Section 4, or,
in default thereof, an appropriate Affidavit of Loss and Indemnity Agreement
and/or a bond as may be required in each case by the Holding Company. If any
certificate evidencing shares of Holding Company Common Stock is to be issued in
a name other than that in which the certificate evidencing Bank Common Stock
surrendered in exchange therefor is registered, it shall be a condition of the
issuance thereof that the certificate so surrendered shall be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange pay to the Exchange agent any transfer or other tax required by reason
of the issuance of a certificate for shares of Holding Company Common Stock in
any name other than that of the registered holder of the certificate surrendered
or otherwise establish to the satisfaction of the Exchange Agent that such tax
has been paid or is not payable.
(d) If, between the date hereof and the Effective Date, the shares of Bank
Common Stock shall be changed into a different number or class of shares by
reason of any reclassification, recapitalization, split-up, combination,
exchange of shares or readjustment, or a stock dividend thereon shall be
declared with a record date within said period, the Exchange Ratio specified in
Section 3(a) hereof shall be adjusted accordingly.
5. Dissenting Shares. Holders of shares of Bank Common Stock shall have
dissenter or appraisal rights in connection with the Bank Merger in accordance
with Section VI.D of the Plan of Conversion and 12 C.F.R. (S) 552.14(b).
6. Name of Surviving Bank. The name of the Surviving Bank shall be
"Middlesboro Federal Bank, Federal Savings Bank"
B-3
<PAGE>
7. Directors of the Surviving Bank. Upon and after the Effective Date,
until changed in accordance with the Charter and Bylaws of the Surviving Bank
and applicable law, the number of directors of the Surviving Bank shall be six.
The names of those persons who, upon and after the Effective Date, shall be
directors of the Surviving Bank are set forth below. Each such director shall
service for the term which expires at the annual meeting of stockholders of the
Surviving Bank in the year set forth after his respective name, and until a
successor is elected and qualified.
<TABLE>
<CAPTION>
Name Term Expires
---- ------------
<S> <C>
J. Roy Shoffner 1997
R. R. Long 1997
George Taylor 1997
Reecie Stagnolia 1998
Raymond Walker 1998
James J. Shoffner 1999
</TABLE>
The address of each such director is c/o Middlesboro Federal Bank, Federal
Savings Bank, 1431 Cumberland Avenue, Middlesboro, Kentucky 40965.
8. Officers of the Surviving Bank. Upon and after the Effective Date,
until changed in accordance with the Charter and Bylaws of the Surviving Bank
and applicable law, the officers of the Bank immediately prior to the Effective
Date shall be the officers of the Surviving Bank.
9. Offices. Upon the Effective Date, all offices of the Bank shall be
offices of the Surviving Bank. As of the Effective Date, the home office of the
Surviving Bank shall remain at 1431 Cumberland Avenue, Middlesboro, Kentucky
40965 and the location of the other deposit-taking offices of the Surviving Bank
shall be as set forth below, except for the addition of deposit-taking offices
authorized or the deletion of deposit-taking offices closed subsequent to the
date hereof and the Effective Date:
1520 East Main Street
Middlesboro, Kentucky 40823
10. Charter and Bylaws. On and after the Effective Date, the Charter and
Bylaws of the Bank as in effect immediately prior to the Effective Date shall be
the Charter and Bylaws of the Surviving Bank until amended in accordance with
the terms thereof and applicable laws.
11. Savings Accounts. Upon the Effective Date, any savings accounts of
Interim, without reissue, shall be and become savings accounts of the Surviving
Bank without change in their respective terms, including, without limitation,
maturity, minimum required balances or withdrawal value.
12. Stock Compensation Plans. By voting in favor of this Plan of Merger,
the Holding Company shall have approved adoption of the Bank's existing 1993
Stock Option Plan and 1993 Management Recognition and Retention Plan
(collectively, the "Plans") as plans of the Holding Company and shall have
agreed to issue Holding Company Common Stock in lieu of Bank Common Stock
pursuant to the terms of such Plans. As of the Effective Date, rights
outstanding under the Plans shall be assumed by the Holding Company and
thereafter shall be rights only for shares of Holding Company Common Stock, with
each such right being for a number of shares of Holding Company Common Stock
equal to the number of shares of Bank Common Stock that were available
thereunder immediately prior to the Effective Date times the Exchange Ratio, as
defined in the Plan of Conversion, and the price of each such right shall be
adjusted to reflect the Exchange Ratio and so that the aggregate purchase price
of the right is unaffected, but with no change in any other term or condition of
such right. The Holding Company shall make appropriate amendments to the Plans
to reflect the adoption of the Plans by the Holding Company without adverse
effect upon the rights outstanding thereunder.
B-4
<PAGE>
13. Stockholder Approval. The affirmative votes of the holders of Bank
Common Stock set forth in Section II.F of the Plan of Conversion shall be
required to approve the Plan of Conversion, of which this Plan of Merger is a
part, on behalf of the Bank. The approval of the Holding Company, as the sole
holder of the Interim Common Stock, shall be required to approve the Plan of
Conversion, of which this Plan of Merger is a part, on behalf of Interim.
14. Registration; Other Approvals. In addition to the approvals set forth
in Section 1 and 13 hereof and the Plan of Conversion, the parties' obligations
to consummate the Bank Merger shall be subject to the Holding Company Common
Stock to be issued hereunder in exchange for Bank Common Stock being registered
under the Securities Act of 1933, as amended, and registered or qualified under
applicable state securities laws, as well as the receipt of all other approvals,
consents or waivers as the parties may deem necessary or advisable.
15. Abandonment of Agreement. This Plan of Merger may be abandoned by
either the Bank or Interim at any time before the Effective Date in the manner
set forth in Section VI.D of the Plan of Conversion.
16. Amendments. This Plan of Merger may be amended in the manner set
forth in Section VI.D of the Plan of Conversion by a subsequent writing signed
by the parties hereto upon the approval of the board of Directors of each of the
parties hereto.
17. Successors. This Agreement shall be binding on the successors of the
Bank and Interim.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the United States of America.
IN WITNESS WHEREOF, the Bank and Interim have caused this Plan of Merger to
be executed by their duly authorized officers as of the day and year first above
written.
MIDDLESBORO FEDERAL BANK, FEDERAL
SAVINGS BANK
Attest:
By:
- ------------------- --------------------------
J.D. Howard James J. Shoffner
Secretary President
MIDDLESBORO FEDERAL INTERIM SAVINGS BANK
(In Organization)
Attest:
By:
- ------------------- --------------------------
J.D. Howard James J. Shoffner
Secretary President
B-5
<PAGE>
REVOCABLE PROXY
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
CUMBERLAND MOUNTAIN BANCSHARES, M.H.C.
FOR A SPECIAL MEETING OF MEMBERS
TO BE HELD ON ______________, 1997)
The undersigned member of Cumberland Mountain Bancshares, M.H.C. hereby
appoints the Proxy Committee of the Board of Directors 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 of
Cumberland Mountain Bancshares, M.H.C. to be held at ___________________,
_______________, Middlesboro, Kentucky, 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 ABSTAIN
--- ------- -------
Adoption of the Plan of Conversion
and Agreement and Plan of
Reorganization among Cumberland
Mountain Bancshares, M.H.C. (the
"Mutual Holding Company"),
Middlesboro Federal Bank, Federal
Savings Bank (the "Bank") and
Cumberland Mountain Bancshares,
Inc. (the "Company") pursuant to
which (i) the Mutual Holding
Company, which currently owns
approximately 64.71% of the
outstanding shares of the common
stock $1.00 par value, of the Bank,
(the "Bank Common Stock"), will
convert from mutual form to a
federal interim stock savings bank
and simultaneously merge with and
into the Bank, with the Bank as the
surviving entity; (ii) the Bank
will subsequently merge with an
interim institution to be formed as
a wholly owned subsidiary of the
Company, with the Bank as the
surviving entity; (iii) the
outstanding shares of Bank Common
Stock (other than those held by the
Mutual Holding Company, which will
be cancelled) will be converted
into shares of the common stock,
$0.01 par value, of the Company
(the "Common Stock") pursuant to a
ratio that will result in the
holders of such shares owning in
the aggregate approximately the
same percentage of the Company as
they currently own of the Bank,
before giving effect of such
stockholders purchasing additional
shares in a concurrent stock
offering by the Company or the
Company's Employee Stock Ownership
Plan thereafter, the receipt of
cash in lieu of fractional shares
or the exercise of dissenters'
rights; and (iv) the offer and sale
of shares of Common Stock by the
Company. [ ] [ ] [ ]
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 the Mutual
Holding Company at the Special 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 Cumberland Mountain Bancshares, M.H.C. to be held on ____________ __,
1997 and a Proxy Statement and a Prospectus from Cumberland Mountain Bancshares,
Inc. 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>
RP FINANCIAL, LC.
- ----------------------------------------
Financial Services Industry Consultants
December 13, 1996
Board of Directors
Cumberland Mountain Bancshares, M.H.C.
Middlesboro Federal Bank, Federal Savings Bank
1431 Cumberland Avenue
Middlesboro, Kentucky 40965
Gentlemen:
At your request, we have completed and hereby provide an independent
appraisal of the estimated pro forma market value of the common stock which is
to be issued by Cumberland Mountain Bancshares, Inc., Middlesboro, Kentucky
("Cumberland Mountain" or the "Company"), in connection with the mutual-to-stock
conversion of Cumberland Mountain Bancshares, M.H.C. (the "Mutual Holding
Company"). The Mutual Holding Company currently has a majority ownership
interest in, and its principal asset consists of, the common stock of
Middlesboro Federal Bank, Federal Savings Bank, Middlesboro, Kentucky
("Middlesboro Federal" or the "Bank"). It is our understanding that the Company
will offer its stock in Subscription, Community and Syndicated Community
offerings to the Bank's Eligible Account Holders, to the Bank's employee stock
ownership plan ("ESOP"), to Supplemental Eligible Account Holders of the Bank,
to Other Members of the Bank, to Directors, Officers and Employees of the Bank,
to Public Stockholders, and to the community (the "Subscription and Community
Offerings").
This Appraisal is furnished pursuant to the conversion regulations
promulgated by the Office of Thrift Supervision ("OTS"). This Appraisal has been
prepared in accordance with the written valuation guidelines promulgated by the
OTS, most recently updated as of October 21, 1994. Specifically, this Appraisal
has been prepared in accordance with the "Guidelines for Appraisal Reports for
the Valuation of Savings and Loan Associations Converting from Mutual to Stock
Form of Organization" of the OTS, as successor to the Federal Home Loan Bank
Board ("FHLBB"), dated as of October 21, 1994; and applicable regulatory
interpretations thereof.
Description of Reorganization
- -----------------------------
On December 12, 1996, the Board of Directors of the Bank and the Mutual
Holding Company adopted the Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan") pursuant to which the Mutual Holding Company will
convert from a federally chartered mutual holding company to an Tennessee stock
corporation. In the reorganization process, to become effective concurrent with
the completion of the stock sale, which is targeted for the second calendar
quarter of 1997: (1) the Mutual Holding Company, which currently owns
approximately 64.7 percent of the Bank, will convert from mutual to stock form
and simultaneously merge with and into the Bank, with the Bank being the
surviving entity; (2) an interim savings bank ("Interim") formed by the Company
will then merge into the Bank; (3) as a result of the merger of Interim into the
Bank, the Bank will become a wholly-owned subsidiary of the Company operating
under the name Middlesboro Federal Bank, Federal Savings Bank; and, (4) the
outstanding shares of Bank common stock, (other than those held by the Mutual
Holding Company, which will be cancelled) (the "Public Shares"), will be
- --------------------------------------------------------------------------------
Washington Headquarters
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
<PAGE>
RP Financial, LC.
Board of Directors
December 13, 1996
Page 2
converted into shares of common stock of Cumberland Mountain (the "Exchange
Shares") pursuant to a ratio that will result in the holders of such shares
owning the same percentage of the Company as they currently own of the Bank.
Pursuant to the reorganization, Cumberland Mountain will issue shares in
the Subscription and Community Offerings that will represent an ownership
interest in the Company of approximately 64.7 percent (the same percentage
ownership that the Mutual Holding Company currently maintains in the Bank). Also
pursuant to the reorganization, Cumberland Mountain will issue the Exchange
Shares to the current minority stockholders of the Bank in exchange for the
Public Shares pursuant to an exchange ratio determined by the Board of Directors
that will maintain the current minority stockholders' existing ownership
interest (the "Exchange Ratio").
RP Financial, LC.
- -----------------
RP Financial, LC. ("RP Financial") is a financial consulting firm that
specializes in financial valuations and analyses of business enterprises and
securities. The background and experience of RP Financial are detailed in
Exhibit V-1. We believe that, except for the fee we will receive for our
appraisal of the shares to be issued by the Company, and the preparation of and
the fee received for the regulatory business plan filed with the application, we
are independent of the Bank, the Mutual Holding Company, the Company and other
parties engaged by the Bank to assist in the stock issuance process.
Valuation Methodology
- ---------------------
In preparing our appraisal, we have reviewed the Mutual Holding Company's
Application for Approval of Conversion, including the Proxy Statement, as filed
with the OTS and the Company's Form S-1 registration statement as filed with the
Securities and Exchange Commission ("SEC"). We have conducted an analysis of the
Bank and the Mutual Holding Company (hereinafter, collectively referred to as
the "Bank") that has included due diligence related discussions with the Bank's
management; Marr, Miller & Myers, PSC, the Bank's independent auditor; Housley
Kantarian & Bronstein, P.C., the Bank's conversion counsel; and Trident
Securities, Inc., which has been retained by the Bank as a financial and
marketing advisor in connection with the Company's stock offering. All
conclusions and assumptions set forth in the appraisal were reached
independently from such discussions. In addition, where appropriate, we have
considered information based on other available published sources that we
believe are reliable. While we believe the information and data gathered from
all these sources are reliable we cannot guarantee the accuracy and completeness
of such information.
We have investigated the competitive environment within which the Bank
operates, and have assessed the Bank's relative strengths and weaknesses. We
have kept abreast of the changing regulatory and legislative environment and
analyzed the potential impact on the Bank and the industry as a whole. We have
analyzed the potential effects of the stock offering on the Bank's operating
characteristics and financial performance as they relate to the pro forma market
value of the Bank. We have reviewed the economy in the Bank's primary market
area and have compared the Bank's financial performance and condition with
selected publicly-traded thrift institutions in the Midwest region of the U.S.
We have reviewed conditions in the securities markets in general and for thrift
stocks in particular, including the market for existing thrift issues (including
both full stock institutions and institutions organized as mutual holding
companies), initial public offerings by thrifts and second step conversion
offerings.
<PAGE>
RP Financial, LC.
Board of Directors
December 13, 1996
Page 3
Our appraisal is based on the Bank's representation that the information
contained in the regulatory applications and additional information 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 the Bank and its independent auditors, nor did we independently
value the individual assets or liabilities of the Bank. The valuation considers
the Bank only as a publicly-held going concern and should not be considered as
an indication of the liquidation or control values of the Bank.
Our appraised value is predicated on a continuation of the current
operating environment for the Bank and for all thrifts. Changes in the local and
national economy, the legislative and regulatory environment, the stock market,
interest rates, and other external forces (such as natural disasters) may occur
from time to time, often with great unpredictability and may materially impact
the value of thrift stocks as a whole or the Bank's value alone. To the extent
that such factors can be foreseen, they have been factored into our analysis.
Pro forma market value is defined as the price at which the Company's
shares would change hands between a willing buyer and a willing seller, neither
being under any compulsion to buy or sell and both having reasonable knowledge
of relevant facts.
Valuation Conclusion
- --------------------
It is our opinion that, as of December 13, 1996, the aggregate pro forma
market value of the Bank and the Mutual Holding Company, inclusive of the sale
of an approximate 64.7 percent ownership interest in the Subscription and
Community Offerings, was $5,138,636 at the midpoint. Based on the range of value
set forth in the OTS conversion guidelines, the resultant valuation range equals
$4,367,841 at the minimum and $5,909,432 at the maximum. Based on this valuation
and the approximate 64.7 percent ownership interest being sold in the
Subscription and Community Offerings, the midpoint of the Company's stock
offering was $3,325,000, equal to 332,500 shares offered at a per share value of
$10.00. The resultant offering range includes a minimum of $2,826,250 and a
maximum of $3,823,750. Based on the $10.00 per share offering price, this range
equates to an offering of 282,625 shares at the minimum to 382,375 shares at the
maximum. The Company's offering also includes a provision for a super range,
which if exercised, based on a market value of $6,795,847, would result in an
offering size of $4,397,310, equal to 439,731 shares at the $10.00 per share
offering price.
Establishment of Exchange Ratio
- -------------------------------
OTS regulations provide that in a conversion of a mutual holding company,
the minority stockholders are entitled to exchange their shares of the Bank's
common stock for common stock of the Company. The Board of Directors of the
Mutual Holding Company has independently established a formula to determine the
exchange ratio. The formula has been designed to preserve the current aggregate
percentage ownership in the Bank represented by the Public Shares, which is an
approximate 35.3 percent ownership interest. Pursuant to the formula, the
Exchange Ratio will be determined at the end of the Company's stock offering
based on the total number of shares sold in the Subscription and Community
Offerings. Based upon this formula, and the valuation conclusion and offering
range concluded above, the Exchange Ratio would be 0.8564 shares, 1.0076 shares,
1.1587 shares and 1.3325 shares of Cumberland Mountain stock issued for each
Public Share, at the minimum, midpoint, maximum and super range of the offering,
respectively.
<PAGE>
RP Financial, LC.
Board of Directors
December 13, 1996
Page 4
Limiting Factors and Considerations
- -----------------------------------
Our valuation is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing shares of the
common stock. Moreover, because such valuation is necessarily based upon
estimates and projections of a number of matters, all of which are subject to
change from time to time, no assurance can be given that persons who purchase
shares of common stock in the initial offering will thereafter be able to sell
such shares at prices related to the foregoing valuation of the pro forma market
value. The appraisal does not take into account any trading activity with
respect to the purchase and sale of common stock in the secondary market, and
reflects only a valuation range as of this date for the pro forma market value
of the Bank immediately upon issuance of the stock.
RP Financial's valuation was determined based on the financial condition,
operations and shares outstanding as of September 30, 1996, the date of the
financial data included in the Company's Prospectus. The proposed Exchange Ratio
and the exchange of Public Shares for newly issued Company shares was determined
independently by the Boards of Directors of the Mutual Holding Company and the
Bank. RP Financial expresses no opinion on the proposed Exchange Ratio and the
exchange of Public Shares for newly issued Company shares.
RP Financial is not a seller of securities within the meaning of any
federal and state securities laws and any report prepared by RP Financial shall
not be used as an offer or solicitation with respect to the purchase or sale of
any securities. RP Financial maintains a policy which prohibits the company, its
principals or employees from purchasing stock of its client institutions.
The valuation will be updated should market conditions or changes in
Middlesboro Federal's operating results warrant. The valuation will also be
updated at the completion of the Company's stock offering. These updates will
consider, among other things, any developments or changes in the Bank's
financial performance and condition, management policies, and current conditions
in the equity markets for thrift shares, both existing issues and new issues.
Also, these updates will consider changes in other external factors which impact
value including, but not limited to: various changes in the legislative and
regulatory environment (including changes in the appraisal guidelines), the
stock market and the market for thrift stocks, and interest rates. Should any
such new developments or changes be material, in our opinion, to the valuation
of the shares, appropriate adjustments to the estimated pro forma market value
will be made. The reasons for any such adjustments will be explained in the
update at the date of the release of the update.
Respectfully submitted,
RP FINANCIAL, LC.
/s/ Ronald S. Riggins
Ronald S. Riggins
Managing Director
/s/ James J. Oren
James J. Oren
Vice President
JJO:lsl
<PAGE>
RP Financial, LC.
TABLE OF CONTENTS
MIDDLESBORO FEDERAL BANK, FEDERAL SAVINGS BANK
Middlesboro, Kentucky
PAGE
DESCRIPTION NUMBER
----------- ------
CHAPTER ONE OVERVIEW AND FINANCIAL ANALYSIS
- -----------
Plan of Conversion and Holding Company Reorganization 1.2
Strategic Discussion 1.3
Balance Sheet Trends 1.5
Income and Expense Trends 1.9
Interest Rate Risk Management 1.12
Lending Activities and Strategy 1.12
Asset Quality 1.14
Funding Composition and Strategy 1.15
Subsidiary Operations 1.15
Legal Proceedings 1.15
CHAPTER TWO MARKET AREA
- -----------
Introduction 2.1
National Economic Factors 2.2
Market Area Demographics 2.4
Economy 2.5
Deposit Trends and Competition 2.7
Summary 2.9
CHAPTER THREE PEER GROUP ANALYSIS
- -------------
Selection of Peer Group 3.1
Financial Condition 3.5
Income and Expense Components 3.7
Loan Composition 3.10
Credit Risk 3.10
Interest Rate Risk 3.13
Summary 3.13
<PAGE>
RP Financial, LC.
TABLE OF CONTENTS
MIDDLESBORO FEDERAL BANK, FEDERAL SAVINGS BANK
Middlesboro, Kentucky
(continued)
PAGE
DESCRIPTION NUMBER
----------- ------
CHAPTER FOUR VALUATION ANALYSIS
- ------------
Introduction 4.1
Appraisal Guidelines 4.1
Valuation Analysis 4.2
1. Financial Condition 4.2
2. Profitability, Growth and Viability of Earnings 4.3
3. Asset Growth 4.4
4. Primary Market Area 4.4
5. Dividends 4.6
6. Liquidity of the Shares 4.7
7. Marketing of the Issue 4.7
A. The Public Market 4.8
B. The New Issue Market 4.12
C. Secondary Step Conversion Offerings 4.15
D. The Acquisition Market 4.15
E. Market for Middlesboro Federal Stock 4.15
8. Management 4.19
9. Effect of Government Regulation and Regulatory Reform 4.19
Summary of Adjustments 4.20
Valuation Approaches 4.20
1. Price-to-Tangible Book ("P/TB") 4.22
2. Price-to-Earnings ("P/E") 4.22
3. Price-to-Assets ("P/A") 4.23
Valuation Conclusion 4.23
Establishment of Exchange Ratio 4.24
<PAGE>
RP Financial, LC.
LIST OF TABLES
MIDDLESBORO FEDERAL BANK, FEDERAL SAVINGS BANK
Middlesboro, Kentucky
TABLE
NUMBER DESCRIPTION PAGE
- ------ ----------- ------
1.1 Historical Balance Sheets 1.6
1.2 Historical Income Statements 1.10
2.1 Major Employers 2.6
2.2 Market Area Unemployment Trends 2.6
2.3 Deposit Summary 2.8
3.1 Peer Group of Publicly-Traded Thrifts 3.3
3.2 Balance Sheet Composition and Growth Rates 3.6
3.3 Income as a Percent of Average Assets
and Yields, Costs, Spreads 3.8
3.4 Loan Portfolio Composition & Related Info. 3.11
3.5 Credit Risk Measures & Related Information 3.12
3.6 Interest Rate Risk Comparative Analysis 3.14
4.1 Peer Group Primary Market Area Demographics/
Competition Trends 4.5
4.2 Recent Conversions: Market Pricing Comparatives 4.13
4.3 Market Pricing Comparatives 4.14
4.4 Completed Second Step Conversions 4.16
4.5 MHC Institutions - Implied Pricing Ratios 4.17
4.6 Calculation of Exchange Ratios 4.24
4.7 Public Market Pricing: Valuation Conclusion 4.25
<PAGE>
RP Financial, LC.
Page 1.1
I. Overview and Financial Analysis
Middlesboro Federal Bank, Federal Savings Bank ("Middlesboro Federal" or
the "Bank") is a federally-chartered stock savings bank headquartered in
Middlesboro, Bell County, Kentucky. The Bank also operates a branch in the town
of Cumberland, Harlan County, Kentucky. The Bank considers its primary market
for deposits to consist of Bell and Harlan Counties, which are along the
Tennessee and Virginia borders. Lending activities are concentrated in the two
market area counties, and in Knox (including Knoxville), Union and Clairborne
Counties in upper east Tennessee, and to a lesser extent in western Lee County,
Virginia (see Exhibit I-1). The Bank was chartered as a Kentucky mutual building
and loan association in 1915, and in 1937 converted to a federal charter and
obtained federal deposit insurance. The Bank is currently a member of the
Federal Home Loan Bank ("FHLB") system and is regulated by the Office of Thrift
Supervision ("OTS"). The Bank's deposits are insured up to the regulatory
maximums by the Savings Association Insurance Fund ("SAIF") of the Federal
Deposit Insurance Corporation ("FDIC"). As of September 30, 1996, the Bank
maintained $83.8 million in assets, $71.9 million in deposits and $4.4 million
in stockholders' equity, equal to 5.2 percent of assets.
In March 1994, the Bank completed a reorganization from a mutual savings
bank to a stock savings bank concurrent with the reorganization as a federal
mutual holding company. Pursuant to the reorganization, Middlesboro Federal
transferred substantially all of its assets and liabilities to a newly-formed
stock association in exchange for 330,000 shares of stock issued to Cumberland
Mountain Bancshares, M.H.C. (the "Mutual Holding Company" or "MHC").
Simultaneously, the Bank sold 180,000 shares of stock to the public in a
subscription and community offering. As of September 30, 1996 there were 510,000
total shares of the Bank common stock issued and outstanding, of which 330,000
shares, or 64.71 percent, were owned by the Mutual Holding Company and 180,000
shares, or 35.29 percent, were owned by the public. Other than the ownership of
stock in the Bank, the MHC's only other assets are the exclusive ownership of
Home Mortgage Loan Corporation ("Home"), which was formerly a wholly-owned
subsidiary of the Bank, and a deposit account. As a result of the proposed
reorganization and offering, Home and the deposit account will again be merged
with the Bank (Home will be held as a subsidiary).
The Chairman of the Bank recently filed a change of control application
in order to acquire up to 24.9 percent of the shares. In view of the subsequent
conversion application, such change of control application is being withdrawn
and the Chairman's pro forma ownership will not exceed 9.9 percent immediately
following conversion. If the closing conversion value results in pro forma
ownership of the Company, then the Chairman will be required to divest shares
either to the ESOP or an unaffiliated third party.
<PAGE>
RP Financial, LC.
Page 1.2
Plan of Conversion and Holding Company Reorganization
- -----------------------------------------------------
On December 12, 1996, the Board of Directors of the Bank and the Mutual
Holding Company adopted the Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan") pursuant to which the Mutual Holding Company will
convert from mutual to stock form and simultaneously merge with and into the
Bank. A newly formed Tennessee corporation, Cumberland Mountain Bancshares, Inc.
("Cumberland Mountain" or the "Company"), will be formed as a unitary savings
and loan holding company to facilitate the reorganization. In the reorganization
process, to become effective concurrent with the completion of the stock sale
which is targeted for the second calendar quarter of 1997: (1) the Mutual
Holding Company, which currently owns approximately 64.7 percent of the Bank,
will convert from mutual to stock form and simultaneously merge with and into
the Bank, with the Bank being the surviving entity; (2) an interim institution
("Interim") to be formed as a wholly-owned subsidiary of the Company will then
merge into the Bank, with the Bank being the surviving entity (hereinafter
"Middlesboro Federal" or the "Bank"); (3) the publicly-owned shares of Bank
common stock (the "Public Shares") will be converted into shares of common stock
of the Company (the "Exchange Shares") pursuant to a ratio that will result in
the holders of such shares owning the same percentage of the Company as they
currently own of the Bank. Upon consummation of the conversion and
reorganization, the stock of Home and the deposit account will become assets of
the Bank.
Pursuant to the reorganization, Cumberland Mountain will issue shares in
a subscription and community offering that will represent an ownership interest
in the Company of approximately 64.7 percent (the same percentage ownership that
the Mutual Holding Company currently maintains in the Bank). Cumberland Mountain
will also issue the Exchange Shares to the current minority stockholders of the
Bank. The number of exchange shares issued by the Company will be calculated
pursuant to an exchange ratio determined by the Board of Directors that will
maintain the current minority stockholders' existing ownership interest (the
"Exchange Ratio").
The Company anticipates granting common stock awards to directors,
officers and other key personnel (1997 Management Recognition Plan or "1997
MRP") up to 4 percent of the shares being offered publicly, supplementing stock
awards granted in the mutual holding company reorganization (1993 MRP). The
Bank's Employee Stock Ownership Plan ("ESOP") intends to purchase 3.0 percent of
the common stock to be issued and outstanding following the conversion and
reorganization, funded by a loan from the Company.
At this time, no other activities are contemplated for Cumberland
Mountain other than the ownership of the Bank, although in the future Cumberland
Mountain may acquire or organize other operating subsidiaries. Cumberland
Mountain plans to retain a portion of the net proceeds from the sale of common
stock and infuse the remaining proceeds into the Bank.
<PAGE>
RP Financial, LC.
Page 1.3
Strategic Discussion
- --------------------
The Bank is a community-oriented financial institution dedicated to
meeting the borrowing and savings needs of its market area. The Bank has enjoyed
rapid loan growth in recent years, reflecting competitive pricing, increased
marketing and prompt loan approval. Loan growth has been facilitated through
hiring experienced loan officers on an incentive basis, developing a more
customer-oriented approach and developing business relations with real estate
brokers. The Bank has generally pursued a traditional thrift operating strategy
of 1-4 family mortgage lending primarily in Bell and Harlan Counties, Kentucky,
supplementing originations with other loan types such as commercial real estate,
construction and non-mortgage loans. Since local lending opportunities were
limited historically due to poor economic conditions and resultant population
shrinkage in the local area, the Bank increased the level of cash and
investments and mortgage-backed securities ("MBS") held in portfolio. In
addition, the Bank has originated loans in markets where it does not have a
branch location as well as purchased out-of-market loans (including Lexington,
Kentucky). Middlesboro Federal, through Home and the Bank, has originated loans
in several eastern Tennessee counties for many years, particularly in the
Knoxville, Tennessee metropolitan area and the region between Knoxville and
Middlesboro (encompassing Clairborne, Union and Knox Counties, Tennessee).
Approximately $12 million of the Bank's loans were secured by properties in Knox
County, of which $10.8 million were 1-4 family loans. In addition, approximately
$6.8 million in purchased mortgages were secured by properties in central
Kentucky, in the Lexington area. The Bank expects the majority of its loan
activity in the future to be outside Bell and Harden Counties in contiguous
markets, capitalizing on the Bank's reputation in eastern Tennessee.
In recent years, following a management change, Middlesboro Federal has
significantly increased both the level of loan originations and the
diversification of the loan portfolio to include higher levels of commercial
real estate, construction, commercial business and consumer loans. The recent
increase in loan originations has been funded internally through a reduction in
cash and investments and MBS, and externally through deposit growth and borrowed
funds (primarily FHLB advances). The Bank's recent growth is seen as completing
a major phase of balance sheet and market area repositioning, and the Bank
anticipates much slower growth in the future. Prior to the recent increase in
loan originations, Middlesboro Federal also periodically purchased out-of-market
residential and commercial real estate loans for portfolio, although such
purchases have been minimal in recent periods. The Bank intends to sell a
portion of these previously purchased out-of-market loans and repay a portion of
outstanding FHLB advances in early 1997. The Bank retains essentially all loans
for portfolio, as loans originated do not meet agency secondary market standards
due to the lack of title insurance on the property.
The Bank's lending strategies historically have contributed to good asset
quality in recent years, despite the severity of local economic conditions and
population shrinkage. The Bank's allowance for loan loss
<PAGE>
RP Financial, LC.
Page 1.4
relative to loans is comparatively low by industry standards, particularly in
view of the recent rapid growth (the portfolio has grown 140 percent since June
30, 1994), increased proportion of higher risk weight loans (an increase from 30
to 40 percent in the last 15 months while total loans grew by 55 percent), and
increased percent of loans outside the markets served by the branch offices
(approximately 59 percent). The ratio of non-performing assets ("NPAs",
consisting of real estate owned and other repossessed assets, non-accruing
loans, delinquent accruing loans and restructured loans) to assets has stayed
below 0.75 percent of assets during the last two fiscal years. The majority of
the NPAs are secured by residential mortgages or residential real estate.
The Bank's lending strategies to limit exposure to interest rate risk
have involved originating adjustable rate residential mortgage loans ("ARMs"),
adjustable rate commercial real estate loans and shorter-term construction,
commercial business and consumer loans. Liability strategies have involved
attempts to lengthen the maturity of deposits, but short-term advances required
in recent months to meet loan demand have countered the impact. The Bank's net
portfolio value ("NPV"), prepared by the OTS as of September 30, 1996, projects
the NPV would decline by 32 percent in the event of an instantaneous 200 basis
point increase in interest rates. Middlesboro Federal anticipates the conversion
proceeds will facilitate improvement in the NPV analysis as the capital will
increase the ratio of interest-earning assets ("IEA") to interest-bearing
liabilities ("IBL") and the proceeds will increase the proportion of shorter-
term or adjustable rate assets. Further, the proceeds from the pending loan sale
are targeted to repay the short-term advances.
The Bank's core profitability has improved with the asset growth and
repositioning which has taken place over the last few years. There has been
improvement from a break-even position in fiscal 1992 to low to moderate core
profitability more recently (ranging from 25 to 35 basis points), primarily due
to an increase in the net interest margin. Further improvement in core
profitability has been limited by competitive pricing to stimulate growth, and
increases in the operating expense ratio despite the rapid growth in assets.
Non-operating losses over the last couple of years have contributed to lower
reported profitability, with the most recent trailing 12 month period reflecting
a loss due to one-time compensation expenses and the special SAIF assessment.
Future core profitability is projected to improve moderately with the
reinvestment benefit of the new capital raised, income benefits of recently
expanded products and services and moderate growth in assets without a
commensurate increase in operating expenses. As a result of the recent loss,
low profitability and the negative impact of assets designated available for
sale ("AFS"), the Bank's equity at September 30, 1996 is very similar to the
level at June 30, 1994, and no interim dividends have been paid on the publicly-
held shares of common stock.
Middlesboro Federal's Board of Directors has determined that a full
conversion to stock form is an attractive business strategy for several reasons.
First, the new structure will provide the ability to diversify business
activities, provide greater flexibility in structuring acquisitions and increase
the future access to capital
<PAGE>
RP Financial, LC.
Page 1.5
markets. Second, it will provide the capital necessary to improve the overall
competitive position of the Bank in its market area, with regard to rates and
services offered and ability to expand. Third, an increase in the publicly-held
shares may increase the stock liquidity (there is currently very limited trading
in Middlesboro Federal's stock). Fourth, the conversion may provide the
opportunity for expanded local stock ownership which could enhance the financial
success of the Bank as local shareholders promote the Bank's products and
services. Furthermore, the new structure is being pursued in view of certain
regulatory uncertainties regarding the MHC structure and thrift industry as a
whole. As disclosed in the prospectus, the proceeds from stock conversion are
anticipated to be invested as follows.
. Company. Approximately $100,000 of cash conversion proceeds will
--------
be retained by Cumberland Mountain, with the balance to be invested
in the Bank. Such holding company funds are anticipated to be
invested initially into high-quality short- to intermediate-term
securities and a loan to the Bank's ESOP to fund stock purchases in
the conversion. The Company funds will be utilized for various
corporate purposes, including funding expansion through
diversification or acquisition, stock repurchase programs, funding
stock purchases for the MRP and/or payment of regular or special
dividends, although there are no specific plans at present.
. Middlesboro Federal. The net proceeds infused into the Bank will
--------------------
be exchanged for all of the Bank's newly issued stock. The Bank's
proceeds are anticipated to initially be held in short-term cash
and investments until such funds are redeployed into lending and
investment activities consistent with the Bank's plan.
On a pro forma basis, Middlesboro Federal is expected to have a capital
ratio well above regulatory requirements but moderately below industry averages.
The Board of Directors has determined to pursue a strategy of controlled growth
in order to maintain well-capitalized status, with growth expected to be funded
primarily through local retail deposit growth.
Balance Sheet Trends
- --------------------
Table 1.1 shows key balance sheet items at the close of the last five
fiscal years and at September 30, 1996. Middlesboro Federal's audited financial
statements are incorporated by reference as Exhibit I-2, while historical key
operating ratios are presented in Exhibit I-3. From June 30, 1992 through
September 30, 1996, Middlesboro Federal exhibited annual asset growth of 9.0
percent, with the asset growth channelled into increases in loans receivable. A
majority of the loan growth occurred subsequent to June 30, 1994, when the new
current President became more involved in the Bank's operations and began
diversifying the loan portfolio into higher originations of commercial real
estate and non-mortgage loans. The MBS balance has decreased by approximately 50
percent since 1992, as repayments and sales of MBS have been used for additional
loan originations. The balance of cash and investments declined more rapidly
over the same time period, with funds
<PAGE>
RP Financial, LC.
Table 1.1
Middlesboro Federal Bank, Federal Savings Bank
Historical Balance Sheets (1)
(Amount and Percent of Assets)
<TABLE>
<CAPTION>
For the Fiscal Year Ended June 30,
-----------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
----------------- ----------------- ----------------- ----------------- -----------------
Amount Pct Amount Pct Amount Pct Amount Pct Amount Pct
($000) (%) ($000) (%) ($000) (%) ($000) (%) ($000) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Amount of:
Assets $58,043 100.00% $59,683 100.00% $62,319 100.00% $67,453 100.00% $74,698 100.00%
Loans Receivable (net) 23,233 40.03% 24,794 41.54% 28,833 46.27% 44,854 66.51% 59,931 80.23%
Mortgage-Backed Securities 15,567 26.82% 15,112 25.32% 15,520 24.90% 11,846 17.56% 7,779 10.41%
Cash and Investment Securities 18,385 31.68% 18,819 31.53% 16,607 26.65% 9,687 14.36% 5,629 7.54%
Deposits 55,066 94.87% 56,414 94.52% 57,858 92.84% 62,595 92.80% 68,976 92.34%
FHLB Advances, Other Borrowed Funds 0 0.00% 0 0.00% 0 0.00% 0 0.00% 1,000 1.34%
Stockholders Equity 2,866 4.94% 3,139 5.26% 4,340 6.96% 4,608 6.83% 4,596 6.15%
AFS Adjustment N/A N/A N/A N/A (121) -0.19% (147) -0.22% (305) -0.41%
End of Period Shares Outstanding N/A N/A 510,000 510,000 510,000
Wghtd Avg Shrs for EPS Calculations(2) N/A N/A N/A 510,000 510,000
Book Value/Share N/A N/A $8.51 $9.03 $9.01
Offices Open 3 3 3 3 2
<CAPTION>
6/30/92-
9/30/96
As of September 30, Annualized
1996 Growth Rate
------------------- -----------
Amount Pct Pct
------ ---
($000) (%) (%)
Total Amount of:
Assets $83,799 100.00% 9.03%
Loans Receivable (net) 69,371 82.78% 29.35%
Mortgage-Backed Securities 7,655 9.13% -15.38%
Cash and Investment Securities 4,939 5.89% -26.60%
Deposits 71,906 85.81% 6.48%
FHLB Advances, Other Borrowed Funds 6,000 7.16% N/A
Stockholders Equity 4,385 5.23% 10.52%
AFS Adjustment (294) -0.35%
End of Period Shares Outstanding 510,000
Wghtd Avg Shrs for EPS Calculations(2) 510,000
Book Value/Share $8.60
Offices Open 2
</TABLE>
(1) Ratios are as a percent of ending assets.
(2) The Bank's minority sale of stock was completed during fiscal 1994.
Source: Middlesboro Federal's audited financial statements.
<PAGE>
RP Financial, LC.
Page 1.7
utilized in the lending operations. Middlesboro Federal's annual deposit growth
totaled 6.5 percent, as the Bank has attracted new funds through a combination
of additional advertising and competitive rate offerings. Borrowings (primarily
FHLB advances) have been used as a supplemental funding source in fiscal 1996 to
support lending operations.
The balance of loans receivable increased consistently since fiscal 1992,
although the balance increased at an annual rate of 48 percent since June 30,
1994. Since that time, the Bank has been successful in expanding its loan
origination efforts in the local market and in Tennessee, particularly the
Knoxville area. The Bank has increased the level of commercial real estate,
commercial business and consumer loans, with most of those loan types originated
in Bell and Harlan Counties. At September 30, 1996, loans receivable totaled
$69.4 million, or 82.8 percent of total assets. The composition of the loan
portfolio reflects the more recent diversified lending strategy, as 1-4 family
permanent loans constituted $43.7 million, or 60.3 percent of the gross loan
portfolio, at September 30, 1996, a decline from 70 percent of the loan
portfolio as of one year earlier. At the same date, construction loans totaled
$4.2 million, or 5.8 percent of the loan portfolio. The largest expansion in
the loan portfolio has occurred in commercial real estate, including multi-
family loans, which totaled $13.2 million, or 18.2 percent of the loan
portfolio. These loans are attractive for their higher yields and shorter-
terms. Non-mortgage loans totaled $11.3 million, or 15.6 percent of gross loans
receivable, including $4.5 million of commercial business loans. The Bank has
primarily originated commercial business loans with local businesses in Bell and
Harlan Counties.
MBS totaled $7.7 million at September 30, 1996, the second largest
component of interest-earning assets. The decline of the MBS balance since
fiscal year end 1992 highlights the Bank's strategy of investing funds into
whole loans receivable in order to improve asset yields, as funds from the
repayment, pre-payment and sale of MBS have been utilized for lending
activities. The MBS portfolio consists of FNMA and GNMA pass-through
certificates, of which approximately 57 percent carried adjustable rates. The
entire MBS portfolio was classified as "available for sale" ("AFS") at September
30, 1996, and is carried on the balance sheet at market value. Pursuant to FAS
122, the unrealized pretax loss on the MBS portfolio of $248,000 was tax-
adjusted and deducted from stated equity on the Bank's audited financial
statements. The Bank utilizes a portion of its MBS portfolio to satisfy
regulatory liquidity requirements, preferring to maintain such funds in MBS
instead of lower yielding cash and investments. Going forward, the Bank intends
to continue a focus on investment into whole loans, although MBS may be
purchased with available funds.
The portfolio of cash and investment securities totaled $4.9 million, or
5.9 percent of assets, at September 30, 1996 (see Exhibit I-4). The cash and
investments portfolio consisted of cash and equivalents, including interest-
earning deposits in other financial institutions ($0.8 million), U.S. Government
and agency securities ($2.7 million), investment in a U.S Government Securities
Fund ($0.9 million), FHLB stock ($0.4
<PAGE>
RP Financial, LC.
Page 1.8
million) and other investments ($0.1 million). Over the past four fiscal years,
the Bank has used cash flow from maturing investments or sales of investment
securities to fund loan originations, and the cash and investments portfolio has
declined to current levels from $18.4 million at June 30, 1992. Management
utilizes the portfolio of cash and investments for liquidity purposes and as
part of the asset-liability management strategy, as the investments portfolio
consists of short- to intermediate-term instruments. The Bank classifies the
portfolio of U.S. government and agency obligations as "available-for-sale", and
as of September 30, 1996, an unrealized pretax loss of $195,000 was tax adjusted
and deducted from stated equity on the Bank's audited financial statements.
Going forward, the Bank intends to continue to purchase generally low risk
investments and the composition of the cash and investments portfolio is not
anticipated to change significantly, although the level will initially increase
on a post-conversion basis.
As noted previously, deposits have traditionally met most of the Bank's
funding needs, and all of the Bank's deposits are generated through its two
office locations. In the last several years, the Bank achieved growth in
deposits by attempting to be more visible in the local market area through
advertising and other marketing efforts and by offering competitive rates. This
strategy facilitated deposit growth, but also eroded spreads as higher cost
deposits increased funding costs. Currently, savings rates offered by
Middlesboro Federal are generally in line with the local competition, with
certificates of deposits ("CDs") accounting for the majority of total deposits.
The Bank has a portfolio of core deposits totaling approximately 26 percent of
deposits, providing a base of lower costing deposits for operations.
Borrowings have also been used by the Bank in recent periods for the
purpose of funding loan originations. During fiscal 1996, the Bank borrowed
approximately $1.0 million in short- to intermediate-term advances from the FHLB
of Cincinnati to meet the strong demand for loans. An additional $5.0 million
was borrowed during the most recent three month period, and FHLB advances
totaled $6.0 million, or 7.2 percent of assets, at September 30, 1996. All of
the borrowings are short term in nature, repricing on a daily basis. Going
forward, the Bank intends to continue using borrowings to support operations,
although deposits are expected to continue to comprise the majority of funding
liabilities.
Positive earnings from fiscal 1992 to fiscal 1994 and proceeds from the
minority stock offering concurrent with the MHC reorganization in fiscal 1994
resulted in an increase in the Bank's capital ratio to $4.3 million, or 7.0
percent of assets, as of June 30, 1996. Since that date, the expansion of the
asset base, coupled with the lower profitability, a negative adjustment to
equity for FAS 122, and a net loss recorded for the twelve months ended
September 30, 1996 caused the Bank's capital ratio to decline to 5.2 percent
(the Bank's reported capital had increased by only $40,000, or 0.9 percent since
June 30, 1994). Middlesboro Federal is currently in compliance with respect to
all of its fully phased-in capital requirements. The addition of
<PAGE>
RP Financial, LC.
Page 1.9
conversion proceeds will enhance the Bank's capital position and strengthen
Middlesboro Federal's competitive posture within its market area.
Income and Expense Trends
- -------------------------
Table 1.2 displays the Bank's earnings over the past five fiscal years
and for the twelve months ended September 30, 1996. The Bank recorded low to
moderate profitable operations through fiscal 1996, and a loss of $152,000 for
the twelve months ended September 30, 1996, reflecting several non-operating
expense items. Earnings for the past five fiscal years have fluctuated between
0.20 and 0.45 percent of average assets, and declined to 0.20 percent for fiscal
1996 from the higher level in fiscal 1995. The more recent lower earnings have
been attributable to a lower net interest margin, adversely affected by higher
interest expense. The reinvestment of offering proceeds should improve net
interest income in future periods.
Exhibit I-5 highlights the changes in the Bank's asset yields and cost of
funds over the past two fiscal years and the three months ended September 30,
1996, which have influenced the level of net interest income. Spreads narrowed
by 42 basis points between fiscal 1995 and 1996, as the more aggressive pricing
of CDs and higher costing FHLB advances (in order to fund additional loan
demand) increased the Bank's cost of funds by 86 basis points, while asset
yields increased by only 44 basis points. The change in balance sheet
composition towards higher yielding loans increased the yield/cost spread for
the three months ended September 30, 1996 to 2.85 percent, 68 basis points
higher than the year earlier period. The effect of the higher ratio of loans
receivable is also evident in the most recent twelve month period (see Table
1.2), as the Bank's net interest income improved to 2.76 percent of average
assets versus 1.96 percent for fiscal 1992. These trends indicate that the Bank
has been successful improving the net interest margin, even while funding costs
have risen substantially. Despite balance sheet repositioning, the Bank's net
interest income is still highly influenced by changes in interest rates.
The Bank has increasingly derived more income from non-interest sources,
which has provided some protection from changes in the net interest margin due
to interest rate fluctuations. For the most recent twelve month period, non-
interest operating income totaled $0.363 million, or 0.49 percent of average
assets, a 0.20 percent of average assets improvement from fiscal 1992. A
majority of this income results from the Bank's lending operations, whereby loan
origination income is recognized at the time of origination (the Bank generally
does not charge points, and had no deferred loan origination fees on the books
as of September 30, 1996). This loan origination income is directly related to
the Bank's lending volume and was substantial for the most recent period due to
high lending volumes. Such income may likely decline during periods of lower
lending volume. Other operating income consists of various loan and deposit fees
and charges and other
<PAGE>
Table 1.2
Middlesboro Federal Bank, Federal Savings Bank
Historical Income Statements
(Amount and Percent of Assets)(1)
<TABLE>
<CAPTION>
For the Fiscal Year Ended June 30,
---------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
----------------- ------------------ ------------------ ------------------ ------------------
Amount Pct Amount Pct Amount Pct Amount Pct Amount Pct
------ --- ------ --- ------ --- ------ --- ------ ---
($000) (%) ($000) (%) ($000) (%) ($000) (%) ($000) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income $4,368 7.65% $3,940 6.77% $3,820 6.26% $4,347 6.70% $5,202 7.32%
Interest Expense (3,249) -5.69% (2,402) -4.13% (2,188) -3.59% (2,445) -3.77% (3,317) -4.67%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Interest Income $1,119 1.96% $1,537 2.64% $1,632 2.67% $1,902 2.93% $1,885 2.65%
Provision for Loan Losses (35) -0.06% (38) -0.07% (32) -0.05% (18) -0.03% (58) -0.08%
--- ------ --- ------ --- ------ --- ------ --- ------
Net Interest Income after
Provisions $1,084 1.90% $1,499 2.58% $1,600 2.62% $1,884 2.90% $1,827 2.57%
Other Income $167 0.29% $189 0.33% $216 0.35% $233 0.36% $292 0.41%
Operating Expense (1,316) -2.31% (1,394) -2.40% (1,589) -2.60% (1,576) -2.43% (1,737) -2.44%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Operating Income ($64) -0.11% $294 0.51% $227 0.37% $541 0.83% $382 0.54%
Gain(Loss) on Sale of Inv. Sec.\MBS $194 0.34% $92 0.16% $7 0.01% ($96) -0.15% $20 0.03%
Deferred Compen. Agree.--
Retired Officer 0 0.00% 0 0.00% 0 0.00% 0 0.00% (143) -0.20%
Director's Retirement Plan 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00%
SAIF Special Assessment 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00%
- ----- - ----- - ----- - ----- - -----
Total Non-Operating Inc.\Exp. $194 0.34% $92 0.16% $7 0.01% ($96) -0.15% ($123) -0.17%
Net Income Before Tax $130 0.23% $386 0.66% $234 0.38% $444 0.68% $260 0.37%
Income Taxes (16) -0.03% (124) -0.21% (84) -0.14% (151) -0.23% (114) -0.16%
--- ------ ---- ------ --- ------ ---- ------ ---- ------
Net Inc(Loss) Before Extraordinary
Items $114 0.20% $262 0.45% $150 0.25% $293 0.45% $146 0.20%
Cumulative Effect of Change in
Accounting For Income Taxes $0 0.00% $0 0.00% $0 0.00% $0 0.00% 0 0.00%
-- ----- -- ----- -- ----- -- ----- - -----
Net Income (Loss) $114 0.20% $262 0.45% $150 0.25% $293 0.45% $146 0.20%
Earnings Excluding Non-Operating and Extraord. Items:
- -----------------------------------------------------
Pre-Tax Net Inc. Before Extraordinary
Items $130 0.23% $386 0.66% $234 0.38% $444 0.68% $260 0.37%
Addback(Deduct): Non-Recurring
(Inc)/Exp (194) -0.34% (92) -0.16% (7) -0.01% 96 0.15% 123 0.17%
Tax Effect (34.00%) 22 0.04% (100) -0.17% (77) -0.13% (184) -0.28% (130) -0.18%
-- ----- ---- ------ --- ------ ---- ------ ---- ------
Earnings Excl. Non-Op./Extraord
Items: ($42) -0.07% $194 0.33% $150 0.25% $357 0.55% $252 0.36%
Earnings Per Share:
Reported N/A N/A N/A $0.57 $0.29
Earnings Excl. Non-Op./Extraord
Items: N/A N/A N/A 0.70 0.49
Dividends:
Amount N/A N/A $0.00 $0.00 $0.00
Payout Ratio N/A N/A 0.00% 0.00% 0.00%
Memo:
Expense Coverage Ratio 85.04% 110.29% 102.69% 120.69% 108.54%
Efficiency Ratio 105.14% 82.57% 87.51% 74.45% 81.96%
<CAPTION>
12 Months Ended
Sept. 30, 1996
----------------
Amount Pct
------ ---
($000) (%)
<S> <C> <C>
Interest Income $5,475 7.37%
Interest Expense (3,427) -4.61%
------ ------
Net Interest Income $2,048 2.76%
Provision for Loan Losses (85) -0.11%
--- ------
Net Interest Income after Provisions $1,963 2.64%
Other Income $363 0.49%
Operating Expense (1,816) -2.44%
------ ------
Net Operating Income $510 0.69%
Gain(Loss) on Sale of Inv. Sec.\MBS $20 0.03%
Deferred Compen. Agree.- Retired Officer (143) -0.19%
Director's Retirement Plan (145) -0.20%
SAIF Special Assessment (388) -0.52%
---- ------
Total Non-Operating Inc.\Exp. ($656) -0.88%
Net Income Before Tax ($145) -0.20%
Income Taxes (7) -0.01%
-- ------
Net Inc(Loss) Before Extraordinary Items ($152) -0.20%
Cumulative Effect of Change in
Accounting For Income Taxes 0 0.00%
- -----
Net Income (Loss) ($152) -0.20%
Earnings Excluding Non-Operating and Extraord. Items:
- -----------------------------------------------------
Pre-Tax Net Inc. Before Extraordinary Items ($145) -0.20%
Addback(Deduct): Non-Recurring (Inc)/Exp 656 0.88%
Tax Effect (34.00%) (174) -0.23%
---- ------
Earnings Excl. Non-Op./Extraord Items: $337 0.45%
Earnings Per Share:
Reported ($0.30)
Earnings Excl. Non-Op./Extraord Items: 0.66
Dividends:
Amount $0.00
Payout Ratio 0.00%
Memo:
Expense Coverage Ratio 112.79%
Efficiency Ratio 78.06%
</TABLE>
(1) Ratios are as a percent of average assets. Average assets calculated based
on annual average.
Source: Middlesboro Federal's audited financial statements.
<PAGE>
RP Financial, LC.
Page 1.11
miscellaneous sources of income. Going forward, the Bank anticipates that non-
interest income will remain primarily related to loan origination volume, as
other income sources are not expected to be developed (the Bank does not have a
loans serviced for others portfolio, and does not intend to sell loans servicing
released).
Middlesboro Federal's operating expenses have increased in the time
period shown in Table 1.2 due to the growth in the asset base. Despite the
strong asset growth and utilization of FHLB advances to partially fund such
growth, the operating expense ratio has ratcheted up to a higher level as a
percent of average assets. The Bank's operating expenses are expected to
initially increase following the conversion as a result of the following items.
First, the Bank is in process of completing an expansion of the main office to
house additional staff and equipment required to support the current higher
asset level, which is expected to result in higher depreciation expense. Second,
Middlesboro Federal expects to open a branch office in Pineville, Bell County,
Kentucky in the near future following regulatory approval. Although this branch
will be a "supermarket branch" requiring lower investment than a free-standing
facility, equipment and personnel expenses will increase, particularly until an
adequate deposit base can be generated. Third, the ESOP and MRP purchases in the
offering and in the year following conversion, respectively, will increase
annual expenses. In addition, as a full stock institution, the Bank may incur
additional legal, accounting, printing/mailing and related costs. The lower
deposit insurance premium in 1997 should help to offset some of these increases.
Loan loss provisions have generally had a small impact on earnings in
recent years, peaking during the twelve months ended September 30, 1996, as the
Bank recorded provisions for loan losses of $0.085 million, or 0.11 percent of
average assets. The Bank is budgeting provisions of $30,000 per quarter for the
next three calendar quarters, a higher quarterly amount than the last 12 months,
in order to improve the general valuation allowance ("GVA") ratio as a percent
of loans receivable. As of September 30, 1996 the GVA balance was equal to
$195,000, or 0.28 percent of net loans receivable and 43.33 percent of NPLs
(including restructured loans), as compared to $148,000, or 0.33 percent of net
loans and 59.20 percent of NPLs at fiscal year end 1995 (see Exhibit I-6).
Historically, non-operating gains and losses have been limited to gains
or losses on the sale of investment securities or MBS that were sold to fund
loan originations (see Table 1.2). During the most recent twelve month period,
Middlesboro Federal has experienced a number of non-operating expenses that
resulted in a reported loss for the twelve months ended September 30, 1996. The
Bank funded a deferred compensation agreement in the amount of $143,000 for a
former officer who retired during fiscal 1996. Middlesboro Federal also funded a
directors retirement plan ("DRP") during the most recent three month period,
resulting in a charge to income of $145,000. This DRP is fully funded as of
September 30, 1996, except for three directors who will receive additional
percentage vesting after a number of years of service. Finally, the Bank
incurred a pre-tax charge of $388,000 for the special SAIF insurance premium
assessment fee at September 30, 1996.
<PAGE>
RP Financial, LC.
Page 1.12
Interest Rate Risk Management
- -----------------------------
Middlesboro Federal attempts to manage exposure to interest rate
fluctuations primarily on the asset side of the balance sheet, and has attempted
to enhance the interest sensitivity of its operations through several means,
including: (1) increasing the portfolio of ARMs held in the loan portfolio; (2)
originating shorter-term fixed-rate residential mortgages (10 to 15 year terms)
and fixed-rate balloon loans for portfolio; (3) maintaining an MBS portfolio
containing securities that reprice on an annual basis; (4) holding short-term
investment securities; (5) increasing the balance of short-term to maturity
commercial business loans and consumer loans; and (6) increasing the proportion
of transaction accounts in the deposit base which are believed to be less
interest rate sensitive funds. Exhibit I-7 displays the distribution of the
Bank's fixed and adjustable rate loans.
Middlesboro Federal monitors its exposure to interest rate risk using the
net portfolio value ("NPV") analysis provided by the OTS on a quarterly basis.
As shown in Exhibit I-8, according to the most recent NPV report provided by the
OTS, the Bank's NPV would decline by approximately 32 percent in the event of a
200 basis point instantaneous and sustained rise in interest rates. In the event
interest rates declined by 200 basis points, the Bank's NPV would increase by 15
percent. Although these measures are within the Board-established limits of the
Bank, the Bank is seeking to reduce exposure to interest rate risk, and the
reinvestment of conversion proceeds is expected to contribute to reduced
exposure.
Lending Activities and Strategy
- -------------------------------
The Bank's historical lending activities emphasize the origination of 1-4
family mortgage loans (see Exhibits I-9 and I-10, loan composition and
maturity). However, the Bank has also concentrated on loan portfolio
diversification by building portfolios of commercial real estate loans,
construction loans and non-mortgage loans. Underscoring the change in portfolio
composition, while gross loans increased from $46.7 million at June 30, 1995 to
$72.5 million at September 30, 1996, the proportion of 1-4 family loans dropped
from 70.2 percent to 60.3 percent. The Bank's credit risk profile has increased
over that time period through limited seasoning on a large portion of the
portfolio and increased concentration of higher risk weight loans.
As of September 30, 1996, residential mortgage loans secured by 1-4
family properties totaled $43.7 million, or 60.3 percent of total loans
receivable. The estimated average balance is $85,000. The Bank originates both
ARMs and fixed-rate residential mortgages. Fixed-rate mortgages are offered with
maturities of up to 15 or 20 years, with essentially all of these loans held in
portfolio.
Approximately 77.4 percent of the Bank's 1-4 family residential mortgages
consisted of ARMs at September 30, 1996. Middlesboro Federal offers ARMs with
one-, three-, five- or seven-year adjustment
<PAGE>
RP Financial, LC.
Page 1.13
periods that are indexed to the weekly average rate on the corresponding U.S.
Treasury securities, adjusted to a constant maturity. The majority of ARMs are
originated with annual adjustment caps of 2.0 percent, and lifetime adjustment
caps of up to 6.0 percentage points. The current margin is 3.0 percentage
points. ARMs are retained for portfolio as part of asset/liability management
strategy.
Residential loans made by the Bank are generally originated with maximum
loan-to-value ("LTV") ratios of 80 percent. The Bank recently began originating
loans with LTV ratios in excess of 80 percent provided that the borrower pays a
fee to the Bank that equals the private mortgage insurance ("PMI") premium
payment. Thus, the Bank is not requiring PMI coverage for these loans, but is
receiving a fee which is not recognized as income immediately but is placed in
GVAs. Middlesboro Federal has incurred minimal losses from this practice to
date.
Middlesboro Federal has recently increased the level of originations of
commercial real estate loans, primarily non-residential real estate. As of
September 30, 1996, multi-family real estate loans totaled $1.9 million, while
non-residential real estate loans totaled $11.4 million, for a total of $13.2
million, or 18.2 percent of gross loans receivable. The Bank's commercial real
estate portfolio consists of loans secured by churches, motels, office
buildings, retail stores, small shopping centers and other non-residential
property. Commercial real estate loans originated by Middlesboro Federal are
predominantly adjustable rate loans that generally have terms of up to 15 years,
and are indexed to the prime rate of interest. LTVs on income property loans
typically do not exceed 75 percent, while loans on raw land do not exceed 65
percent LTV. The Bank seeks to manage credit risk on such loans by lending
primarily on local property, to borrowers with whom management is familiar, and
obtaining personal guarantees. The largest aggregate amount of loans to any one
borrower was $1.2 million, consisting of 9 loans secured by residential
properties. The largest single loan outstanding was an $850,000 loan secured by
a grocery store.
Construction loans totaled $4.2 million, or 5.8 percent of gross loans
receivable, at September 30, 1996, for both residential property ($3.0 million)
and multi-family/non-residential property ($1.2 million). The Bank has recently
been active in construction lending, in particular to builders for the
construction of speculative homes, although going forward construction lending
is expected to decline substantially, as the Bank has determined to concentrate
on permanent residential property. Construction loans are structured as
interest-only during the construction period, which generally equals six months.
Approximately one half of the construction loans originated by the Bank convert
into permanent loans upon completion of the construction phase. Construction
loans have maximum LTV ratios equal to the requirements of the permanent loans.
Middlesboro Federal has also actively originated consumer loans, which
totaled $6.9 million, or 9.5 percent of gross loans receivable, at September 30,
1996. The Bank offers a variety of types of consumer loans,
<PAGE>
RP Financial, LC.
Page 1.14
including loans secured by deposit accounts, automobile, secured and unsecured
personal loans and credit card loans. The most prominent type of consumer loan
in the portfolio is automobile. The Bank considers automobile loans attractive
due to generally higher yields and shorter terms, despite the higher credit
risk. Credit risk is managed by limiting the maximum terms on automobile loans
and other security.
Commercial business loans also represent an area of loan portfolio
diversification for Middlesboro Federal. As of September 30, 1996, the Bank had
$4.5 million of commercial business loans, a dramatic increase from $0.9 million
as of June 30, 1995. These loans are primarily made to local small businesses
in Bell and Harlan Counties, and are attractive due to the higher yields. The
Bank has been able to increase the portfolio of such loans due to personal
contacts by Bank employees in the local communities, although the level of such
loans is not projected to increase substantially in the future. Commercial
business loans usually carry a floating rate indexed to the prime rate and
generally have a 15 year term, and are secured by assets such as inventory,
equipment or other assets and guaranteed by the principals.
As shown in Exhibit I-11, Middlesboro Federal's overall loan origination
volume increased from $23.3 million in 1995 to $40.9 million for the most recent
twelve months. The table highlights the Bank's increased emphasis on commercial
real estate, construction, commercial business and consumer lending, with
originations increasing from $10.7 million, or 45.6 percent, of loan
originations in fiscal 1995 to $24.5 million, or 60.0 percent of loan
originations for the twelve months ended September 30, 1996. In prior years, the
Bank supplemented originations with purchases, particularly from a single
mortgage broker in Lexington, Kentucky. Purchases declined with an increase in
the Bank's originations and applying more stringent standards than for
originated loans.
Asset Quality
- -------------
Exhibit I-12 displays Middlesboro Federal's NPLs from fiscal 1995 to
September 30, 1996, and shows that the level of NPLs has remained between 0.57
and 0.67 percent of total loans, although the absolute balance has increased.
Since the Bank had no real estate owned ("REO") at September 30, 1996, the
balance of NPAs and NPLs was the same. As of September 30, 1996, the ratio of
NPAs to assets equaled 0.54 percent of assets, up from 0.20 percent of assets at
fiscal year end 1995. At September 30, 1996, NPAs totaled $450,000 and consisted
of residential loans and a small balance of consumer loans ($17,000) greater
than 90 days delinquent. As of September 30, 1996, the Bank maintained valuation
allowances of $195,000, equal to 0.27 percent of gross loans receivable and
43.33 percent of NPLs. Middlesboro Federal had classified assets of $408,000 at
September 30, 1996 (see Exhibit I-13), similar to the balance of NPLs.
<PAGE>
RP Financial, LC.
Page 1.15
Funding Composition and Strategy
- --------------------------------
Exhibits I-14 and I-15 provide data pertaining to Middlesboro Federal's
deposit composition and costs at fiscal year ends 1995 and 1996 and as of
September 30, 1996. Exhibit I-16 displays information regarding the Bank's
borrowings. Middlesboro Federal's deposits consist of CD accounts, which totaled
$53.5 million, or 74.4 percent of total deposits, and a base of core deposits
(passbook accounts, NOW accounts, non-interest checking accounts, and MMDAs)
which totaled $18.4 million, or 25.6 percent of total deposits. Passbook
accounts were the largest component of core deposits and totaled $8.8 million,
or 12.2 percent of total deposits, at September 30, 1996, followed by NOW
accounts totaling $7.1 million, and non-interest bearing checking accounts
totaling $2.1 million. Going forward, the Bank intends to try to increase the
deposit base to fund lending operations.
CDs accounted for the majority of Middlesboro Federal's deposit base
(74.4 percent) at September 30, 1996. Approximately 48 percent of the CD
portfolio was scheduled to mature in one year or less. Jumbo CDs, which tend to
be more rate sensitive than lower balance CDs, accounted for $9.6 million, or
18.0 percent of deposits, at September 30, 1996. The level of jumbo CDs in the
Bank's CD portfolio is significant in that jumbo CDs tend to be more rate
sensitive than smaller denomination CDs, increasing the Bank's interest rate
risk to a degree.
Subsidiary Operations
- ---------------------
The Bank currently does not have any subsidiary operations. Prior to the
formation of the Mutual Holding Company, the Bank had one subsidiary, MFS&L
Service Corporation ("MFS&L"). From 1988 to June 30, 1992, MFS&L participated in
joint ventures for the purpose of acquiring, developing, constructing and
selling single family residential real estate and held stock in the Bank's data
processing provider. MFS&L discontinued such activity in June 1992. In
connection with the MHC formation, MFS&L became a MHC subsidiary and was renamed
Home Mortgage Loan Corporation ("Home"). As a result of the proposed formation
of the Company and conversion, Home will again become a subsidiary of the Bank.
Activities of Home are limited at present and the primary assets consist of
seasoned loans made prior to June 1992.
Legal Proceedings
- -----------------
Other than the routine legal proceedings that occur in the Bank's
ordinary course of business, the Bank is not involved in litigation which is
expected to have a material impact on the Bank's financial condition or
operations.
<PAGE>
RP Financial, LC.
Page 2.1
II. MARKET AREA
Introduction
- ------------
Middlesboro Federal conducts operations out of its headquarters office in
Middlesboro, Bell County, Kentucky, and a branch office in Cumberland, Harlan
County, Kentucky. Both counties are located in extreme southeastern Kentucky
along the Kentucky, Virginia and Tennessee borders, with Harlan County located
northeast of Bell County. The Bank had previously operated a small branch
office located in an enclosed mall in Middlesboro which was closed during fiscal
year 1995. Exhibit I-1 details the locations of the Bank's offices, while
Exhibit II-1 details the general characteristics of the Bank's offices. The
Bank plans to open a new branch office facility in Pineville, Kentucky during
1997. This branch office will be a "supermarket branch" facility in Pineville,
the county seat of Bell County. The city of Middlesboro, containing
approximately 12,000 residents or one-third of the total Bell County population,
serves as the economic and employment center of Bell County, while Cumberland,
Harlan County, is a smaller town of approximately 3,000 residents. Both
counties are rural in nature, with Harlan County maintaining a significant
concentration of employment in coal mining and Bell County having a more
diversified employment base. Both counties experienced economic distress in the
past fifteen years due to the decline in employment in the coal mining industry,
and have thus decreased the dependence on coal mining for employment.
Bell and Harlan Counties represent the Bank's primary market area for
deposit generation as most of Middlesboro Federal's depositors live in these
counties. Lending activities are concentrated in these two counties and in
Clairborne, Union and Knox Counties in upper east Tennessee and in western Lee
County in Virginia. Knox County, Tennessee is the location of the city of
Knoxville, the largest metropolitan area in proximity to Middlesboro Federal,
while Union County is a growing suburban and rural area to the north of
Knoxville. To a lesser extent, lending activities are also pursued in Sullivan
and Washington Counties, Tennessee, which contain the cities of Kingsport,
Johnson City and Bristol. Bell and Harlan Counties, the location of the Bank's
offices, are not included in any regional metropolitan statistical area ("MSA").
The Bank's offices operate in a market area with declining levels of
population and households. The Bell and Harlan County economies, historically
based on coal mining, were severely impacted by the decline of the coal mining
industry in the 1980s as the coal industry became more mechanized and required
fewer laborers. The two county areas have historically reported high
unemployment levels and high poverty rates in comparison to national averages.
The Bell County economy has diversified in recent years to include employment in
manufacturing, health care, education, and local/state government. Harlan County
continues to have significant employment in coal mining although some
diversification has occurred.
<PAGE>
RP Financial, LC.
Page 2.2
Competition from other financial institutions operating in Bell and Harlan
Counties includes four commercial banks and three other savings institutions,
with three of the commercial banks and one of the savings institutions having a
larger presence than Middlesboro Federal. The Bank maintains a market share of
approximately eight percent of overall financial institution deposits in Bell
County and twelve percent of deposits in Harlan County. Similar to the Bank,
the other financial institutions are locally-owned community-oriented banks and
savings institutions. Middlesboro Federal has experienced growth in deposits
and market share in recent years due in part to an increased emphasis on
marketing the Bank's products and services. However, competition remains high
in the marketplace.
Future business and growth opportunities for Middlesboro Federal will be
partially influenced by economic and demographic characteristics of the market
served, particularly the future growth and stability of the regional economy,
demographic growth trends, and the nature and intensity of the competitive
environment for financial institutions. These factors have been briefly
examined in the following pages to help determine the growth potential that
exists for the Bank and the relative economic health of the market area, and the
related impact on value.
National Economic Factors
- -------------------------
Over the past year, national economic growth has been mixed. Economic data
through most of the fourth quarter of 1995 suggested that the economy was on
track for a soft landing, as indicated by modest retail sales growth and a
stable inflation picture. Weak retail sales during the holiday shopping season
and a slight increase in the November unemployment rate provided indications of
a slowing national economy at the end of the fourth quarter. Economic data
released in January 1996 continued to indicate a generally sluggish economy, as
highlighted by the Federal Reserve's mid-January "Beige Book" report which
indicated slowing economic growth in its latest nationwide survey of economic
conditions. Record-breaking winter weather conditions further slowed the
economy in January of 1996. Unemployment declined sharply in February, although
the January figures were skewed by the weather and by striking GM workers. A
stronger than expected March 1996 employment report served to rekindle inflation
fears, while other economic indicators suggested that the pace of economic
growth was moderate and inflation was under control.
<PAGE>
RP Financial, LC.
Page 2.3
Higher oil and commodity prices heightened inflation concerns in late-April
1996; however, wages, which account for most of the inflation measures, did not
signal that inflation was heating up. Unemployment data for both May and June
suggested a strong pace of economic growth, with the stronger than expected job
growth pushing interest rates higher. Second quarter GDP increased at a healthy
4.7 percent annual rate, however, other economic measures, such as consumer and
producer prices, reflected a more modest pace of economic growth.
The third quarter of 1996 started with a continuation of second quarter
trends, although mid-July Congressional testimony by the Federal Reserve
Chairman hinted of expectations that the economy would taper off slightly in the
second half of 1996. However, much of the economic data released during July and
August continued to indicate a fairly robust pace of economic growth. Such
economic data included a stronger than expected increase in July durable good
orders, the consumer confidence index hitting a six year high and a decline in
the August unemployment rate. Comparatively, for the balance of the third
quarter, economic data, such as a decline in August durable good orders and
smaller than expected increases in August retail sales and consumer prices,
suggested that the economy was cooling off. A slight increase in the September
unemployment rate further signaled a slowing economy.
Economic data released in the beginning of the fourth quarter generally
confirmed that the national economy was slowing. October unemployment remained
at 5.2 percent, although the number of new jobs being added to the economy was
lower compared to job growth recorded during the late-spring and the summer.
Third quarter GDP growth fell to a 2.2 percent annual rate, versus a comparative
4.7 percent rate in the second quarter. Wage data indicated that inflation was
under control, as wages remained flat for production and nonsupervisory workers
in October, despite a $0.50 increase in the minimum wage becoming effective on
October 1, 1996. Modest increases in the October consumer price index and
October retail sales provided further indications that the national economy was
slowing. While the November unemployment rate climbed to 5.4 percent from 5.2
percent in October, inflation concerns were heightened somewhat by an
unexpectedly sharp $0.09 jump in average hourly earnings. Subsequent data for
November and early December continued to reflect a slow growth economy, although
retail sales for the 1996 holiday season are expected to exceed the prior year
levels.
Consistent with the mixed economic activity, interest rate trends have been
varied as well over the past year. Interest rates generally trended lower in
the fourth quarter of 1995, due to the slowing of the economy. The sluggish
economy and a 0.25 percent cut in short-term interest rates by the Federal
Reserve pushed the yield on 30-year U.S. Government bond to slightly below 6.0
percent at year end 1995. Following another 0.25 percent rate cut by the
Federal Reserve in January 1996, interest rates moved higher during the balance
of
<PAGE>
RP Financial, LC.
Page 2.4
the first quarter. The upward trend in interest rates reflected generally
improving economic conditions and indications that the Fed would not cut
interest rates further due to mixed inflation signals.
Interest rates continued to edge higher during the second quarter and the
30-year U.S. Government bond yield climbed above 7.0 percent following the
stronger than expected May job growth reported in early-June. The favorable June
employment report had a more severe effect on bond prices, as the large drop in
unemployment provided for one of the largest one day declines in bond prices
with the yield on the 30-year benchmark bond increasing from 6.93 percent to
7.18 percent. During the balance of third quarter, economic data which contained
mixed inflation signals provided for an uneven interest rate environment. After
trending lower for a brief period in July and August, another spike in interest
rates was experienced in late-August and early-September as inflation concerns
were raised by the stronger than expected economic growth. Comparatively, aided
by the Federal Reserve's decision not to raise interest rates at its October and
November meetings, along with economic data providing indications of a cooling
economy, interest rates declined in late-September and October. Interest rates
continued to edge lower through early December, as the October economic data
suggested that inflationary pressures were non-threatening. Bond prices declined
slightly in early-December, as investors focused on weakness in the dollar and
rising oil prices. As of December 13, 1996, one- and thirty-year U.S. Government
bonds were yielding 5.43 percent and 6.57 percent, respectively. Exhibit II-2
provides historical interest rate trends from 1991 through December 13, 1996.
Market Area Demographics
- ------------------------
Demographic growth trends in the Bank's primary market area of Bell and
Harlan Counties have been measured by changes in population, number of
households and median household income and other data, with trends in those
areas summarized by the data presented in Exhibit II-3. Kentucky and U.S. data
is provided for comparative purposes, and trends in this data provide some
indication of future levels of business activities for financial institutions.
The Bank offices are located in a relatively small market area in terms of
population, as Bell and Harlan Counties reported a total population of
approximately 67,000 as of 1996. Since 1980, both Bell and Harlan Counties have
experienced declines in population and households, in part reflecting the
decline of the coal mining industry. The rural nature of the two counties also
restricts employment opportunities and resultant attractiveness for residents,
and the decline in population and households is projected to continue through
the year 2001. The Commonwealth of Kentucky has reported population and
household growth rates in line with national averages of approximately 1.0
percent annually. Growth in these demographic areas is projected to continue
through the year 2001.
<PAGE>
RP Financial, LC.
Page 2.5
The rural nature of the primary market area also results in lower income
levels in comparison to statewide and national averages. Estimated per capita
annual income for 1996 in Bell and Harlan Counties is less than $8,500, over 35
percent less that statewide averages and approximately one-half of the national
average of $16,738. Age distribution figures show that the two market area
counties have a higher proportion of residents over 65 years of age, although
the median ages for Bell and Harlan Counties approximate the Kentucky average.
Income distribution levels are similar to per capita income figures, revealing
that the two market area counties have a higher proportion of lower income
households (below $15,000 annually), reflecting the more rural nature of the
area. Median household income levels are approximately 40 percent lower than the
state averages and 60 percent less than national averages. Based on the
declining population trends and lower income levels, growth opportunities in the
primary market area counties can be expected to be limited, with growth
achievable only through increased market share of local financial institution
deposits.
Economy
- -------
As most of the Bank's deposit gathering activities and a portion of the
lending operations are conducted in Bell and Harlan Counties, the Bank's market
area economy is dominated by these two counties. Employment in Bell County is
generally diversified, containing employment in retail trade, services, state
and local government, mining and manufacturing. Employment in Harlan County
continues to be led by mining, followed by services, state and local government
and retail trade. Reflecting the decline in the coal mining industry, between
1989 and 1994, mining employment in Harlan County dropped by approximately 30
percent, or over 1,000 jobs, although a portion of these jobs have been lost
through increased mechanization of the coal mining process. Recent data
indicates that mining employment totaled over 20 percent of Harlan County's
employment base. Table 2.1 displays a list of manufacturing and other employers
in Bell and Harlan Counties, and Exhibit II-4 presents additional data
concerning sources of personal income and employment sectors. Major coal mining
employers in Harlan County include Manalapan Mining, Arch Minerals and Gray's
Knob Coal Company. The Bank also pursues lending activities in the Knoxville,
Tennessee area (Knox County), including Union County to the north of Knoxville.
This area represents a substantially larger population base for lending
opportunities and economic activity. For example, the total population of Knox
County, Tennessee approximated 336,000 as of 1996. Knoxville is a large
metropolitan area in eastern Tennessee along a major transportation route.
<PAGE>
RP Financial, LC.
Page 2.6
Table 2.1
Major Employers
<TABLE>
<CAPTION>
Employer Industry Employees
-------- -------- ---------
<S> <C> <C>
Bell County
Pineville Community Hospital Health Care 338
Appalachian Regional Hospital Health Care 297
Cumberland Gap Provision Company Meat Processing 175
M. Fine & Sons Denim Jeans 150
Middlesboro Coca Cola Soft Drinks 92
Dura Line Corporation Plastic Pipe, Fiber Optic Conduit 85
Kentucky Leather Company Leather Tanning 72
J.R. Hoe and Sons, Inc. Fabricated Structural Steel 45
Middlesboro Daily News Newspaper 35
Bell Concrete Industries Concrete Products 35
Martin Manufacturing Corporation Yarn Bleaching 25
Swanson Plating and Machine of Kentucky Chrome Plating 24
Harlan County
Appalachian Regional Hospital Health Care 121
P.L. Bayne Furniture Manufacturing 110
Forestry Products Company Lumber 30
United Gloves Apparel 20
</TABLE>
Source: Local Area Chambers of Commerce.
Table 2.2 displays unemployment data in the local market area as of
September 1996 and September 1995. The unemployment rates for Bell and Harlan
Counties remain well above state and national averages, although the employment
situation has improved in the most recent twelve month period. This data
reflects in part the continued decline of the coal mining industry in the
primary market area, and the overall lack of employment opportunities in the
rural market area. The higher unemployment rates in Bell and Harlan Counties are
also significant in light of the ongoing population declines in the two market
area counties. Such lower population figures would be expected to reduce upward
pressure on the unemployment rate as residents leave the local area for other
employment opportunities.
Table 2.2
Market Area Unemployment Trends
Region September 1995 September 1996
------ --------------- ---------------
United States 5.4% 5.0%
Kentucky 5.3 4.5
Bell County 7.9 7.3
Harlan County 19.5 10.7
Source: U.S. Bureau of Labor Statistics.
<PAGE>
RP Financial, LC.
Page 2.7
Deposit Trends and Competition
- ------------------------------
Middlesboro Federal's market area (defined as Bell and Harlan Counties for
deposits), is characterized by the presence of a number of locally-based and
locally-owned financial institutions, including commercial banks and savings
institutions. There are two commercial banks in Bell County, both of which are
slightly larger in overall deposits than Middlesboro Federal, and two commercial
banks in Harlan County, one moderately larger and one moderately smaller than
the Bank. A total of three other savings institutions operate in both Bell and
Harlan Counties.
Table 2.3 displays deposit market trends for the state of Kentucky and the
primary market area from June 30, 1993 to June 30, 1995. Overall, financial
institution deposits showed an increase statewide, with commercial banks showing
growth while savings institutions lost deposits. This trend of minimal
increases in overall deposits, similar to the rest of the nation, reflects in
part disintermediation whereby banking customers have also placed available
funds into other types of financial intermediaries such as mutual funds,
investment firms, brokerage houses, and insurance companies. The significant
shrinkage in SAIF-insured thrift deposits in Kentucky was due to a number of
thrift acquisitions by commercial banks during this time period coupled with the
impact of disintermediation.
Deposit trends in Bell and Harlan Counties exhibited a stronger rate of
deposit increase, as total deposits increased by 2.9 percent and 4.7 percent
annually over the two year period, respectively. The increase in deposits was
recorded by both commercial banks and savings institutions in the two market
area counties. The relatively strong deposit growth in Bell and Harlan Counties
is believed to be attributable to the dramatic reduction in unemployment rates
in recent years as more people were working despite the population shrinkage.
Also, there is only one local brokerage office, which may limit the potential
for disintermediation impacting the nation's financial institutions. Middlesboro
Federal, similar to the other local financial institutions, has recorded
increases in deposits over the time period shown in Table 2.3, and recorded
higher rates of deposit growth than commercial banks and savings institutions
overall. This has resulted in an increase in deposit market share in both market
area counties since June 30, 1993. Data available subsequent to June 30, 1995
for the Bank reveals a continued increase in deposit funds, to $71.9 million at
September 30, 1996, an increase of $9.3 million, or approximately 15 percent
over the fifteen month period. This increase in deposits reveals success in
raising additional retail deposit funds for business operations. The Bank
intends to open a "supermarket branch" office facility in Pineville, Kentucky
during 1997 that is expected to provide additional deposit funds for operations.
<PAGE>
----------------------------------------------
Table 2.3
Middlesboro Federal Bank, Federal Savings Bank
Deposit Summary
----------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
As of June 30,
-------------------------------------------------------------------------------------
1993 1995
---------------------------------------- ----------------------------------------- Deposit
Market Number of Market Number of Growth Rate
Deposits Share Branches Deposits Share Branches 1993-1995
-------- ------ --------- -------- ------ ---------- -----------
(Dollars In Thousands) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
A. Deposit Summary
- ------------------
State of Kentucky $40,130,672 100.0% 1,459 $41,418,743 100.0% 1,483 1.6%
Commercial Banks 33,714,298 84.0% 1,218 36,661,024 88.5% 1,308 4.3%
Savings Institutions 6,416,374 16.0% 241 4,757,719 11.5% 175 -13.9%
Bell County $296,598 100.0% 16 $314,215 100.0% 16 2.9%
Commercial Banks 167,659 56.5% 10 176,206 56.1% 10 2.5%
Credit Unions 9,382 3.2% 1 10,554 3.4% 1 8.2%
Savings Institutions 119,557 40.3% 5 127,455 40.6% 5 3.3%
Middlesboro Federal 36,056 12.2% 2 39,757 12.7% 1 5.0%
Harlan County $241,801 100.0% 9 $265,163 100.0% 10 4.7%
Commercial Banks 148,102 61.2% 6 163,210 61.6% 6 5.0%
Credit Unions 0 0.0% 0 0 0.0% 0 0.0%
Savings Institutions 93,699 38.8% 3 101,953 38.4% 4 4.3%
Middlesboro Federal 20,358 8.4% 1 22,859 8.6% 1 6.0%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: FDIC; OTS; Thompson Credit Union Directory.
<PAGE>
RP Financial, LC.
Page 2.9
Summary
- -------
The overall condition of the Bank's market area can be characterized as
stable with a slowly declining population and household base. The local Bell
County economy has diversified in recent years, while the Harlan County economy
maintains a concentration in coal mining. Unemployment rates remain above state
and national averages, notwithstanding the population declines being
experienced. In order to support the Bank's desired level of business
operations, lending activities have been pursued in larger metropolitan areas
such as Knoxville, Tennessee. Going forward, in view of the local demographic
and economic trends and the numbers and types of competitors in the two market
area counties, the competition for deposits is expected to remain substantial,
which will result in Middlesboro Federal having to pay competitive deposit rates
to maintain and/or increase local market share. The Bank's current deposit
market share in the range of eight to ten percent indicates that some gains in
deposit market share may be achievable. The reinvestment of stock proceeds from
the conversion may mitigate to some extent the potentially higher funding costs
to attract deposits through anticipated loyalty of local shareholders and
referrals from local shareholders.
<PAGE>
RP Financial, LC.
Page 3.1
III. PEER GROUP ANALYSIS
This chapter presents an analysis of Middlesboro Federal's operations
versus a group of comparable public companies (the "Peer Group") selected from
the universe of all publicly-traded savings institutions. The primary basis of
the pro forma market valuation of the Bank is provided by these public
companies. Factors affecting Middlesboro Federal's pro forma market value such
as financial condition, credit risk, interest rate risk, and recent operating
results can be readily assessed in relation to the Peer Group. Current market
pricing of the Peer Group, subject to appropriate adjustments to account for
differences between the Middlesboro Federal and the Peer Group, will then be
used as a basis for the valuation of the Bank's to-be-issued common stock.
Selection of Peer Group
- -----------------------
We consider the appropriate Peer Group to be comprised of only those
publicly-traded savings institutions whose common stock is either listed on a
national exchange or is NASDAQ listed, since the market for companies trading in
this fashion is regular and reported. We believe non-listed institutions are
inappropriate since the trading activity for thinly-traded stocks is typically
highly irregular in terms of frequency and price and may not be a reliable
indicator of market value. We have excluded from the Peer Group all publicly-
traded subsidiary institutions of mutual holding companies, because their
pricing ratios are distorted by the minority issuance of their shares. We have
also excluded from the Peer Group those companies under acquisition and/or
companies whose market prices appear to be distorted by speculative factors or
unusual operating conditions. The universe of all publicly-traded institutions
is included as Exhibit III-1. Pricing characteristics of all thrift institutions
are included as Exhibit IV-2 (institutions excluded from the calculation of
averages are denoted with a footnote (8)).
Under ideal circumstances, the Peer Group would be comprised of a minimum
of ten small publicly-traded Kentucky thrifts with capital, earnings, asset
sizes, balance sheet composition, risk profiles, operating strategies and market
areas comparable to the Bank. Since 10 such institutions do not exist, it was
necessary to expand the search beyond state boundaries and with search criteria
for smaller, moderately-capitalized thrift institutions located in Midwestern or
Southeastern states. Thus, in the selection process we applied three primary
"screens" to the universe of all public companies as follows:
. Screen #1. Midwestern institutions with assets less than $250 million,
-----------------------------------------------------------------------
equity-to-asset ratios between 7.0 and 12.0 percent, core ROA between
---------------------------------------------------------------------
0.20 and 1.00 percent of average assets and core ROE less than 9.00
-------------------------------------------------------------------
percent. Nine companies met the criteria for Screen #1 and all nine
--------
were included in the Peer Group (see Exhibit III-2).
<PAGE>
RP Financial, LC.
Page 3.2
. Screen #2. Southeastern institutions with assets less than $250
----------------------------------------------------------------
million, equity-to-asset ratios between 7.0 and 10.0 percent, core ROA
----------------------------------------------------------------------
between 0.20 and 1.00 percent of average assets and core ROE less than
----------------------------------------------------------------------
11.00 percent. After all qualifying Midwestern institutions were
--------------
considered, we expanded our selection process to consider other
institutions in the Southeast. A total of 2 institutions met the
foregoing screening criteria, Pinnacle Bank of AL and First Georgia
Holding Corp. of GA. As indicated in Exhibit III-3, Pinnacle Bank of
AL was included in the Peer Group. First Georgia was excluded due to
unusual pricing characteristics.
. Screen #3. Kentucky institutions with assets less than $250 million,
---------------------------------------------------------------------
equity-to-asset ratios less than 15 percent. We also examined
--------------------------------------------
Kentucky institutions for similar characteristics and selected one
additional thrift, Classic Bancshares, Inc., that met the above
criteria, as shown in Exhibit III-4.
Table 3.1 lists key characteristics of the Peer Group companies. In
general, the Peer Group is comprised of institutions operating with moderate
capital ratios and earnings. While the Peer Group is not exactly comparable to
the Bank, we believe that it provides a reasonable representation of publicly-
traded thrifts with operations comparable to those of the Bank and thus forms a
sound basis for valuation. A summary description of the key characteristics of
each of the Peer Group companies selected is detailed below.
. Community Bank Shares of IN. Community, the largest member of the Peer
Group with $235 million in assets, operates seven offices in southeastern
Indiana. Community operates in a partly rural market area outside a large
metropolitan area (New Albany is located across the Ohio River from
Louisville, Kentucky). Community maintains a higher level of investment in
cash and investments than the Peer Group average and recorded a high level
of non-operating income. Community reported strong asset quality and
reserve coverage ratios.
. First Franklin Corporation of Ohio. First Franklin is a $218 million
institution operating seven offices in Cincinnati, Ohio. First Franklin
converted to stock form in January 1988, and is a well-seasoned public
company. First Franklin was included in the Peer Group because of its
moderate profitability and high cost of funds. First Franklin reported a
high proportion of assets held in MBS, and a correspondingly low risk-asset
ratio.
. OHSL Financial Corporation of Ohio. OHSL, a $218 million thrift operates
four offices in Cincinnati, Ohio, and is a well-seasoned public company
which converted to stock form in February 1993. OHSL currently operates
with a strong capital position (11.6 percent of assets) and a concentration
of residential assets (64.0 percent of loans). OHSL recorded relatively
higher earnings than the Peer Group as a whole due to higher net interest
income.
. Pinnacle Bank of AL. Pinnacle is a $192 million institution operating five
offices in northwestern Alabama. Pinnacle is also a seasoned thrift that
converted in 1986. Pinnacle operates with a low capital level (7.5
percent, the lowest in the Peer Group). Pinnacle is diversified primarily
into construction and commercial real estate lending, which makes its risk-
asset ratio similar to Middlesboro Federal's.
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 3.1
Peer Group of Publicly-Traded Thrifts
December 18, 1996(1)
<TABLE>
<CAPTION>
Primary Operating Total Fiscal Conv. Stock Market
Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value
- ------ ---------------------------------- ------ ----------------- --------- ------ ------- ------ ----- ----- -------
($) ($Mil)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CBIN Community Bank Shares of IN OTC Southeast IN Thrift 235 7 12-31 04/95 12.50 25
FFHS First Franklin Corp. of OH OTC Cincinnati OH Thrift 218 7 12-31 01/88 16.00 19
OHSL OHSL Financial Corp. of OH OTC Cincinnati OH Thrift 218 4 12-31 02/93 20.75 25
PLE Pinnacle Bank of AL AMEX Central AL Thrift 192 5 06-30 12/86 17.00 15
LSBI LSB Fin. Corp. of Lafayette IN OTC Central IN Thrift 178 3 12-31 02/95 18.75 17
CLAS Classic Bancshares of KY OTC Eastern KY Thrift 136 1 03-31 12/95 11.62 15
PTRS The Potters S&L Co. of OH OTC Northeast OH Thrift 125 4 12-31 12/93 18.75 9
BDJI First Fed. Bancorp. of MN OTC Northern MN Thrift 107 5 09-30 04/95 18.00 13
FFBI First Financial Bancorp of IL OTC Northern IL M.B. 97 2 12-31 10/93 15.87 7
CIBI Community Inv. Bancorp of OH OTC NorthCentral OH Thrift 95 3 06-30 02/95 16.75 11
HZFS Horizon Fin'l. Services of IA OTC Central IA Thrift 77 3 06-30 06/94 14.50 6
</TABLE>
NOTES: (1) Or most recent date available (M=March, S=September, D=December,
J=June, E=Estimated, and P=Pro Forma)
(2) Operating strategies are: Thrift=Traditional Thrift,
M.B.=Mortgage Banker, R.E.=Real Estate Developer,
Div.=Diversified, and Ret.=Retail Banking.
(3) FDIC savings bank institution.
Source: Corporate offering circulars, data derived from information
published in SNL Securities Quarterly Thrift Report, and financial
reports of publicly-traded thrifts.
Date of Last Update: 12/18/96
<PAGE>
RP Financial, LC.
Page 3.4
. LSB Financial Corporation of IN. LSB is a $178 million thrift operating
three branches in the city of Lafayette, IN. LSB has a high portion of
earning assets in loans receivable, and relies on borrowed funds to a
greater extent. LSB has also recorded similar asset growth and earning
asset trends as Middlesboro Federal, and has a high net interest margin due
to high yields on earning assets. LSB's loan portfolio reveals a
concentration of commercial real estate and construction loans.
. Classic Bancshares of Ashland, KY. Classic is the only Kentucky thrift
included in the Peer Group, and operates a single office in northeastern
Kentucky. Classic reported a high investment in cash and investments,
resulting in a low net interest margin. Classic reported less loan
portfolio diversification than the other Peer Group members and a
correspondingly low risk-asset ratio.
. The Potters S&L Company of OH. The Potters is located in a small town in
eastern Ohio, operating from four offices. The Potters maintains
substantial portfolios of cash and investments and MBS, which result in low
net interest income. While Potters has a high level of non-performing
assets, it also has a high level of reserves.
. First Federal Bancorp of MN. First Federal is a $107 million asset company
operating out of five offices in west-central Minnesota. First Federal
diversifies its earning assets by maintaining a relatively high proportion
of cash and investments. Net interest income is maintained by a low cost
of funds. The loan portfolio is diversified into commercial real estate
and consumer loans.
. First Financial Bancorp of IL. First Financial has $97 million in assets
and operates out of two offices in northern Illinois. First Financial
converted in 1993 and thus is well seasoned in the marketplace. Operations
are supported by a high level of borrowed funds, and profitability is
affected by a high level of operating expenses. First Financial has a loan
portfolio concentrated in residential lending.
. Community Investment Bancorp of OH. Community Investment has $95 million
in asset and operates out of three offices in northcentral Ohio. Community
Investment operates with the strongest net interest margin of the Peer
Group, due to residential and consumer lending. Reserve coverage levels
are relatively low.
. Horizon Financial Services of Oskaloosa, Iowa. Horizon Financial is a $77
million thrift operating from three office locations in southcentral Iowa.
Horizon Financial is a seasoned thrift, having converted in June 1994, and
has the lowest market value of the Peer Group companies. Horizon Financial
reported moderate earnings and capital levels.
In aggregate, the Peer Group companies have an average capital ratio that
is lower than the industry average (10.23 percent of assets versus 12.79 percent
for the all SAIF average), and lower core profitability (0.64 percent versus
0.83 percent for all SAIF-insured publicly-traded thrifts). The Peer Group's
only moderately lower capital ratio combined with lower earnings results in a
lower core ROE of 5.66 percent versus 7.41 percent for the all SAIF average. In
terms of pricing, the Peer Group on average trades at a lower price/book ("P/B")
multiple and a similar price/earnings ("P/E") multiple relative to the industry
(see the following table). This pricing differential on a book basis indicates
that the thrift market is establishing the market value of these stocks based on
the price/earnings ratio. The much lower earnings performance of these thrifts
reduces ROE, given the only slightly lower equity/assets ratio. Given the
expected similarity of the
<PAGE>
RP Financial, LC.
Page 3.5
Bank's pro forma capitalization and earnings to the Peer Group, we anticipate
the stock will reflect pricing similarities as well before adjustments discussed
herein.
<TABLE>
<CAPTION>
As of December 13, 1996
-------------------------
Peer All SAIF
Group Insured
----- --------
<S> <C> <C>
Equity-to-Assets 10.23% 12.79%
Return on Assets ("ROA")-Core 0.64% 0.83%
Return on Equity ("ROE")-Core 5.66% 7.41%
Market Capitalization ($Mil) $14.85 $142.09
Price-to-Tangible Book Ratio ("P/TB") 96.99% 119.53%
Price-to-Earnings Multiple ("P/E")-Core 16.47x 15.51x
Price-to-Assets Ratio ("P/A") 9.68% 14.06%
Source: Chapter IV tables.
</TABLE>
The following sections present a comparison of the Bank's financial
condition, income and expense trends, loan composition, interest rate risk and
credit risk versus the Peer Group. The conclusions drawn from the comparative
analysis are then factored into the valuation analysis discussed in the final
chapter.
Financial Condition
- -------------------
Table 3.2 shows comparative balance sheet measures for the Bank and the
Peer Group, reflecting the expected similarities and some differences given the
selection procedures outlined above. Information for Middlesboro Federal and the
Peer Group is as of September 30, 1996. The Bank's pre-conversion net worth of
5.2 percent was well below the Peer Group's average net worth ratio of 10.2
percent, although the Bank's capital level can be expected to more closely
approximate the Peer Group average on a pro forma basis. The increase in the
Bank's capital on a pro forma basis can also be expected to reduce its ROE. The
Bank had no goodwill whereas the Peer Group on average had minimal goodwill. The
Bank and all of the Peer Group companies were in compliance with all fully
phased-in regulatory capital requirements and were considered to be well-
capitalized by FDICIA standards.
In terms of asset composition, the Bank's ratio of loans to assets exceeded
the Peer Group's ratio (82.8 percent of assets versus 65.1 percent for the Peer
Group), while the Peer Group recorded a lower level of MBS (7.5 percent versus
9.1 percent for the Bank). The Bank maintains a relatively low balance of cash
and investments as part of its operating strategy, and the portfolio totaled 5.9
percent of total assets. In contrast, the Peer Group maintained a substantially
higher ratio of cash and investments (24.3 percent of assets).
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 3.2
Balance Sheet Composition and Growth Rates
Comparable Institution Analysis
As of September 30, 1996
<TABLE>
<CAPTION>
Balance Sheet as a Percent of Assets
----------------------------------------------------------------------------------------
Cash and Borrowed Subd. Net Goodwill Tng Net MEMO:
Investments Loans MBS Deposits Funds Debt Worth & Intang Worth Pref.Stock
----------- ------ ------ -------- -------- ------- -------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Middlesboro Fed. Bk, FSB of KY
- ------------------------------
September 30, 1996 5.9 82.8 9.1 85.8 7.2 0.0 5.2 0.0 5.2 0.0
SAIF-Insured Thrifts 18.1 66.2 12.4 71.4 14.1 0.1 12.7 0.2 12.5 0.0
Comparable Group Average 24.3 65.1 7.5 76.0 12.6 0.0 10.2 0.2 10.0 0.0
Mid-West Companies 25.2 64.9 6.9 74.9 13.5 0.0 10.5 0.2 10.2 0.0
Other Comparative Companies 15.1 67.0 13.6 86.8 3.5 0.0 7.7 0.3 7.5 0.0
Comparable Group
- ----------------
Mid-West Companies
- ------------------
CLAS Classic Bancshares of KY 36.8 56.8 0.5 73.0 12.3 0.0 13.8 2.3 11.5 0.0
CBIN Community Bank Shares of IN 37.9 57.8 1.7 78.8 9.1 0.0 10.9 0.0 10.8 0.0
CIBI Community Inv. Bancorp of OH 22.9 73.4 2.3 74.0 13.0 0.0 11.9 0.0 11.9 0.0
BDJI First Fed. Bancorp. of MN 39.8 47.6 9.0 75.6 11.1 0.0 11.5 0.0 11.5 0.0
FFBI First Financial Bancorp of IL 15.0 75.2 7.3 67.8 23.2 0.0 7.7 0.0 7.7 0.0
FFHS First Franklin Corp. of OH 11.0 68.0 18.6 86.7 3.3 0.0 9.1 0.1 9.0 0.0
HZFS Horizon Fin'l. Services of IA 30.9 66.0 0.0 72.0 16.5 0.0 10.7 0.0 10.7 0.0
LSBI LSB Fin. Corp. of Lafayette IN 6.7 87.8 2.2 65.4 24.9 0.0 9.4 0.0 9.4 0.0
OHSL OHSL Financial Corp. of OH 19.8 71.5 6.5 77.8 9.3 0.0 11.6 0.0 11.6 0.0
PTRS The Potters S&L Co. of OH 31.5 44.7 20.9 78.1 12.7 0.0 8.2 0.0 8.2 0.0
South-East Companies
- --------------------
PLE Pinnacle Bank of AL 15.1 67.0 13.6 86.8 3.5 0.0 7.7 0.3 7.5 0.0
<CAPTION>
Balance Sheet Annual Growth Rates Regulatory Capital
------------------------------------------------------------ -------------------------
Cash and Loans Borrows. Net Tng Net
Assets Investments & MBS Deposits & Subdebt Worth Worth Tangible Core Reg.Cap.
------ ----------- ------ -------- --------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Middlesboro Fed. Bk, FSB of KY
- ------------------------------
September 30, 1996 18.96 -41.66 27.76 11.73 0.00 -3.89 -3.89 5.56 5.56 9.44
SAIF-Insured Thrifts 11.62 6.29 13.21 5.64 16.00 -0.21 -0.51 10.57 10.65 22.61
Comparable Group Average 11.48 0.72 15.36 3.79 31.78 -4.85 -4.92 8.85 8.83 18.07
Mid-West Companies 12.87 3.07 16.76 3.90 48.39 -5.52 -5.63 8.85 8.96 18.54
Other Comparative Companies -1.04 -18.14 1.41 2.84 -51.26 1.19 1.53 0.00 7.60 13.40
Comparable Group
- ----------------
Mid-West Companies
- ------------------
CLAS Classic Bancshares of KY NM NM 63.53 NM NM NM NM 10.85 10.85 24.00
CBIN Community Bank Shares of IN 15.41 22.77 10.59 14.71 41.86 1.90 1.69 9.79 10.83 22.60
CIBI Community Inv. Bancorp of OH 11.22 3.05 13.56 -0.97 NM -9.15 -9.15 10.30 10.30 21.50
BDJI First Fed. Bancorp. of MN 7.77 8.94 6.55 -1.24 NM -18.34 -18.34 9.55 9.55 19.39
FFBI First Financial Bancorp of IL 28.99 -15.73 41.92 -1.17 NM -7.18 -7.18 7.21 7.21 14.46
FFHS First Franklin Corp. of OH 4.13 -20.76 7.52 3.17 31.10 -0.15 -1.00 6.40 6.40 14.47
HZFS Horizon Fin'l. Services of IA 9.36 NM -10.47 5.75 45.30 -4.40 -4.40 7.80 7.80 14.70
LSBI LSB Fin. Corp. of Lafayette IN 17.95 -41.68 27.36 6.32 98.72 -7.79 -7.79 8.84 8.84 13.93
OHSL OHSL Financial Corp. of OH 10.49 32.95 5.32 9.74 24.95 0.48 0.48 9.55 9.55 19.51
PTRS The Potters S&L Co. of OH 10.51 35.05 1.71 -1.23 NM -5.00 -5.00 8.24 8.24 20.85
South-East Companies
- --------------------
PLE Pinnacle Bank of AL -1.04 -18.14 1.41 2.84 -51.26 1.19 1.53 NM 7.60 13.40
</TABLE>
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP Financial, Inc. calculations. The information
provided in this table has been obtained from sources we believe are
reliable, but we cannot guarantee the accuracy or completeness of such
information.
Copyright (c) 1995 by RP Financial, LC.
<PAGE>
RP Financial, LC.
Page 3.7
Following the conversion, the Bank's level of cash and investments is expected
to initially increase, pending the Bank's deployment of the proceeds into loans.
Overall, the Bank's IEA totaled 97.8 percent of assets, which was higher than
the Peer Group's ratio of 96.9 percent.
While both the Bank and the Peer Group have relied on deposits as the
primary source of funds, the Peer Group on average has utilized borrowings to a
greater extent as reflected in the current deposits to assets ratios of 85.8
percent and 76.0 percent, respectively, and borrowings to assets ratios of 7.2
percent and 12.6 percent, respectively. Total interest-bearing liabilities
("IBL") maintained by the Bank and the Peer Group equaled 93.0 percent and 88.6
percent, respectively, with the Peer Group's lower ratio attributable to its
higher capital ratio. On a pro forma basis, the Bank's IBL ratio is expected to
decline as a result of the Bank's enhanced capital base and potential deposit
withdrawals to fund stock purchases. Furthermore, the pending loan sale and
partial repayment of advances should further improve the IBL ratio.
The growth rate section of Table 3.2 shows growth rates for key balance
sheet items. The growth rates for the Bank are for the fifteen months ended
September 30, 1996 while growth rates for the Peer Group are for the latest
trailing twelve months available. The Bank reported an increase in assets of
nearly 19 percent (annualized) since June 30, 1995, while the Peer Group
reported asset growth equal to 11.5 percent. The Bank's balance sheet expansion
occurred in the area of loans receivable, with cash and investments declining to
fund additional increases in loans receivable. Asset growth was support by
growth in deposits, borrowings and equity (the NM for borrowings indicates a
growth rate above 100 percent). The Peer Group funded asset growth through a
combination of deposits and borrowings (the average borrowings growth rate shown
for the Peer Group in Table 3.2 is not meaningful since growth rates in excess
of 100 percent are shown as "NMs" and are not included in the average). Capital
growth rates for the Bank and the Peer Group were not directly comparable since
many of the Peer Group companies were paying regular/special dividends,
implementing stock repurchase programs or had converted during the past 12
months.
Income and Expense Components
- -----------------------------
For the twelve months ended September 30, 1996, the Bank's net income
amounted to a net loss of 0.20 percent of average assets, below the 0.37 percent
average return posted by the Peer Group (see Table 3.3). Net interest income was
the primary component of the Bank's and the Peer Group's earnings. The Bank
maintained a lower level of net interest income relative to the Peer Group (2.76
percent of average assets versus 3.12 percent for the Peer Group), which was
primarily attributable to substantially higher interest expense (4.61 percent of
average assets versus 4.14 percent for the Peer Group), reflecting the Bank's
higher IBL ratio and recent aggressive posture on growth. The Bank's higher
interest expense ratio more than offsets
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 3.3
Income as a Percent of Average Assets and Yields, Costs, Spreads
Comparable Institution Analysis
For the Twelve Months Ended September 30, 1996
<TABLE>
<CAPTION>
Net Interest Income Other Income G&A/Other Exp.
----------------------------- -------------------- ---------------
Loss NII Total
Net Provis. After Loan R.E. Other Other G&A Goodwill
Income Income Expense NII on IEA Provis. Fees Oper. Income Income Expense Amort.
------ ------ ------- ------ ------- ------- ---- ----- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Middlesboro Fed. Bk, FSB of KY
- ------------------------------
September 30, 1996 -0.20 7.37 4.61 2.76 0.11 2.65 0.00 0.00 0.49 0.49 2.44 0.00
SAIF-Insured Thrifts 0.62 7.36 4.14 3.22 0.13 3.09 0.12 0.00 0.31 0.43 2.24 0.02
Comparable Group Average 0.37 7.26 4.14 3.12 0.17 2.95 0.07 -0.01 0.25 0.32 2.30 0.00
Mid-West Companies 0.36 7.22 4.11 3.11 0.18 2.93 0.06 -0.02 0.25 0.29 2.30 0.00
Other Comparable Companies 0.50 7.66 4.46 3.20 0.13 3.07 0.20 0.09 0.26 0.00 2.35 0.02
Comparable Group
- ----------------
Mid-West Companies
- ------------------
CLAS Classic Bancshares of KY 0.37 5.84 3.32 2.53 0.10 2.42 0.03 0.03 0.04 0.11 1.71 0.00
CBIN Community Bank Shares of IN 0.59 7.06 4.15 2.91 0.02 2.89 0.24 0.00 0.38 0.62 2.05 0.00
CIBI Community Inv. Bancorp of OH 0.68 7.81 4.15 3.66 0.17 3.49 0.00 -0.10 0.13 0.03 2.01 0.00
BDJI First Fed. Bancorp. of MN 0.31 7.24 3.92 3.33 0.00 3.33 0.00 0.01 0.51 0.52 2.75 0.00
FFBI First Financial Bancorp of IL 0.12 7.02 4.06 2.96 0.15 2.81 0.21 0.00 0.28 0.49 2.84 0.00
FFHS First Franklin Corp. of OH 0.28 7.23 4.54 2.69 0.04 2.65 0.05 0.00 0.14 0.19 1.91 0.01
HZFS Horizon Fin'l. Services of IA 0.13 7.61 4.34 3.27 0.57 2.70 0.00 -0.09 0.45 0.36 2.57 0.00
LSBI LSB Fin. Corp. of Lafayette IN 0.50 7.74 4.37 3.36 0.49 2.88 0.05 0.00 0.25 0.30 2.44 0.00
OHSL OHSL Financial Corp. of OH 0.57 7.69 4.42 3.27 0.00 3.27 0.00 0.00 0.13 0.13 2.10 0.00
PTRS The Potters S&L Co. of OH 0.03 7.01 3.85 3.16 0.25 2.91 0.00 -0.04 0.23 0.19 2.60 0.00
South-East Companies
- --------------------
PLE Pinnacle Bank of AL 0.50 7.66 4.46 3.20 0.13 3.07 0.20 0.09 0.26 0.56 2.35 0.02
<CAPTION>
Non-Op. Items Yields, Costs, and Spreads
------------- --------------------------
MEMO: MEMO:
Net Extrao. Yield Cost Yld-Cost Assets/ Effective
Gains Items On Assets Of Funds Spread FTE Emp. Tax Rate
------- ------- --------- -------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Middlesboro Fed. Bk, FSB of KY
- ------------------------------
September 30, 1996 -0.88 0.00 6.90 4.77 2.13 3,352 34.00
SAIF-Insured Thrifts -0.33 0.00 7.63 4.83 2.80 4,113 35.24
Comparable Group Average -0.40 0.00 7.47 4.74 2.72 4,167 33.10
Mid-West Companies -0.40 0.00 7.42 4.72 2.69 4,331 32.43
Other Comparable Companies -0.44 0.00 7.94 4.93 3.02 2,522 38.45
Comparable Group
- ----------------
Mid-West Companies
- ------------------
CLAS Classic Bancshares of KY -0.40 0.00 6.05 4.24 1.81 13,622 11.76
CBIN Community Bank Shares of IN -0.47 0.00 7.23 4.73 2.50 2,861 40.58
CIBI Community Inv. Bancorp of OH -0.45 0.00 7.92 4.84 3.08 4,309 36.07
BDJI First Fed. Bancorp. of MN -0.57 0.00 7.50 4.62 2.88 2,750 40.60
FFBI First Financial Bancorp of IL -0.38 0.00 7.19 4.52 2.67 2,776 NM
FFHS First Franklin Corp. of OH -0.51 0.00 7.37 5.04 2.34 4,549 31.50
HZFS Horizon Fin'l. Services of IA -0.30 0.00 7.85 4.96 2.90 3,194 26.15
LSBI LSB Fin. Corp. of Lafayette IN 0.07 0.00 8.00 4.92 3.08 3,014 37.94
OHSL OHSL Financial Corp. of OH -0.43 0.00 7.84 5.10 2.75 3,510 34.79
PTRS The Potters S&L Co. of OH -0.55 0.00 7.22 4.29 2.93 2,728 NM
South-East Companies
- --------------------
PLE Pinnacle Bank of AL -0.44 0.00 7.94 4.93 3.02 2,522 38.45
</TABLE>
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP Financial, Inc. calculations. The information
provided in this table has been obtained from sources we believe are
reliable, but we cannot guarantee the accuracy or completeness of such
information.
Copyright (c) 1995 by RP Financial, LC.
<PAGE>
RP Financial, LC.
Page 3.9
its higher interest income ratio (7.37 percent for the Bank versus 7.26 percent
for the Peer Group). Middlesboro Federal's interest income was supported by the
higher proportion of earning assets in whole loans receivable and the greater
loan portfolio diversification into higher yielding commercial real estate,
construction and consumer loans. The reinvestment of the net conversion
proceeds may serve to initially dilute the Bank's asset yields due to current
market rates on short- to intermediate-term investment securities but the net
interest margin should increase with an increase in the IEA/IBL ratio.
In another key area of core earnings strength, the Bank operates with a
higher operating expense ratio than the Peer Group (2.44 percent versus 2.30
percent of assets for the Peer Group), which is attributable to its recent
office expansion and additional personnel hired to support the higher asset
base. These features have inflated the Bank's staffing requirements and
compensation expenses, as evidenced by the Bank's lower assets per employee
ratio relative to the Peer Group median ($3.352 million and $4.167 million,
respectively). Going forward, Middlesboro Federal's operating expenses will be
subject to increase related to operations as a publicly-held company, stock plan
expenses and the prospective new branch.
When viewed together, net interest income and operating expenses provide
insight into an institution's earnings strength, since those sources of income
and expense are typically the most prominent components of earnings and are
generally more predictable than losses and gains realized from the sale of
assets or other non-recurring activities. An expense coverage ratio of greater
than 1.0x indicates that an institution is able to sustain pre-tax profitability
with less reliance on non-interest sources of income. In this regard, as
measured by their expense coverage ratios (net interest income divided by
operating expenses), the Peer Group enjoys an advantage over the Bank based on
expense coverage ratios of 1.36 and 1.13 times, respectively. Taking into
account non-interest operating income along with net interest income and
operating expenses, the Bank's efficiency ratio of 75.1 percent compares less
favorably to the Peer Group's ratio of 66.9 percent.
Non-interest operating income made a higher contribution to the Bank's
earnings than the Peer Group's earnings, offsetting some of the disadvantage in
core earnings. For the trailing twelve months ended September 30, 1996, the Bank
recorded non-interest operating income of 0.49 percent of average assets versus
a level of 0.32 percent recorded by the Peer Group. Going forward, the Bank
anticipates that non-interest operating income will continue to contribute
similar levels to overall revenues.
During the most recent fiscal year, Middlesboro Federal and the Peer Group
recorded a significant level of non-operating income or expense. Both
Middlesboro Federal and the Peer Group's earnings were affected by the SAIF
assessment charge to income during the quarter ended September 30, 1996.
However, the Bank also recorded non-operating expenses in the form of a deferred
compensation agreement for a retired former senior officer and a charge for
implementation of a director's retirement plan. The Bank also recorded
<PAGE>
RP Financial, LC
Page 3.10
a small amount of gains on the sale of securities. As a result, net non-
operating items contributed a pre-tax reduction to earnings of 0.88 percent of
average assets versus 0.40 percent of average assets for the Peer Group. Loan
loss provisions for the Peer Group and Middlesboro Federal were similar at 0.11
and 0.17 percent of average assets, respectively.
Loan Composition
- ----------------
Table 3.4 presents data related to the loan composition of the Bank and the
Peer Group. An emphasis on residential lending was apparent in both the Bank's
and the Peer Group's loan portfolios, with 1-4 family permanent mortgage loans
and MBS accounting for 64.1 percent and 74.5 percent of the Bank's and the Peer
Group's total loan and MBS portfolios, respectively. Unlike the Bank, several of
the Peer Group sell loans in the secondary market with servicing retained,
thereby deriving fee income through loans serviced for others. The Bank
maintained a lower level of 1-4 family residential mortgages and MBS than the
Peer Group.
The Bank's loan portfolio exhibited greater diversification into higher
risk weight loans than the Peer Group's average loan portfolio. Commercial real
estate lending is the Bank's primary method of lending diversification, and such
loans comprised 15.5 percent of the total loan and MBS portfolio at September
30, 1996. The Peer Group achieved most of their loan portfolio diversification
through a combination of income property lending and consumer lending, which
averaged 12.1 percent and 6.9 percent of total loans and MBS, respectively.
Overall, however, the Bank's loan portfolio diversification was above that of
the Peer Group, as the Bank's commercial real estate, construction, consumer and
commercial business loans totaled 35.9 percent of total loans and MBS, while the
Peer Group's combined level of these loan categories totaled only 27.8 percent.
The Bank's greater diversification into higher risk-weight loans was reflected
in the higher risk-weighted asset base than was recorded by the Peer Group
(61.59 percent risk-weighted assets for Middlesboro Federal versus 51.73 percent
for the Peer Group).
Credit Risk
- -----------
Middlesboro Federal's credit risk exposure appears to be higher than the
Peer Group's exposure based on the Bank's higher level of risk weight assets,
reasonable portfolio growth and lower reserve coverage ratios. As shown in Table
3.5, as of September 30, 1996, the Bank recorded NPAs of 0.54 percent of assets,
lower than the Peer Group average of 0.82 percent, and maintained a lower ratio
of non-performing loans ("NPLs") to loans of 0.62 percent versus 0.95 percent
for the Peer Group. Most of the Bank's and Peer Group's NPAs consist of non-
accruing loans, although the Peer Group reported a level of real estate owned.
The Bank
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 3.4
Loan Portfolio Composition and Related Information
Comparable Institution Analysis
As of September 30, 1996
<TABLE>
<CAPTION>
Portfolio Composition as a Percent of MBS and Loans
---------------------------------------------------------
1-4 Constr. 5+Unit Commerc. RWA/ Serviced Servicing
Institution MBS Family & Land Comm RE Business Consumer Assets For Others Assets
----------- --- ------ ------ ------- -------- -------- ------ ---------- ------
(%) (%) (%) (%) (%) (%) (%) ($000) ($000)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Middlesboro Fed. Bk, FSB of KY 9.55 54.53 6.26 15.50 5.61 8.55 61.59 0 0
SAIF-Insured Thrifts 15.74 61.48 5.15 11.54 1.61 6.34 51.08 431,340 3,100
Comparable Group Average 12.03 62.48 5.22 12.12 3.64 6.86 51.73 28,496 24
<CAPTION>
Comparable Group
----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLAS Classic Bancshares of KY 1.65 86.48 2.35 6.81 1.84 1.43 46.12 0 0
CBIN Community Bank Shares
of IN 5.29 69.46 3.10 9.10 12.18 2.40 48.86 50,815 0
CIBI Community Inv. Bancorp
of OH 3.31 75.40 3.85 7.18 1.19 10.44 49.06 650 0
BDJI First Fed. Bancorp.
of MN 17.14 44.60 0.44 19.58 3.36 16.37 50.67 192 0
FFBI First Financial Bancorp
of IL 9.40 73.30 1.48 6.64 0.34 9.73 52.88 53,186 91
FFHS First Franklin Corp.
of OH 22.33 62.00 5.30 10.38 0.00 2.15 45.34 54,227 33
HZFS Horizon Fin'l. Services
of IA 12.38 57.46 2.46 8.04 8.37 12.59 54.14 924 0
LSBI LSB Fin. Corp.
of Lafayette IN 2.61 59.87 10.61 23.24 3.00 5.25 69.70 31,517 64
OHSL OHSL Financial Corp.
of OH 6.82 63.96 8.78 18.55 0.98 5.12 48.65 23,707 15
PLE Pinnacle Bank of AL 18.05 45.87 18.56 11.93 6.69 5.86 61.41 97,624 63
PTRS The Potters S&L Co.
of OH 33.31 48.90 0.51 11.85 2.07 4.13 42.22 615 0
</TABLE>
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP Financial, Inc. calculations. The information
provided in this table has been obtained from sources we believe are
reliable, but we cannot guarantee the accuracy or completeness of such
information.
Copyright (c) 1995 by RP Financial, LC.
<PAGE>
R RES; FTMD 15; FONT 36; EXIT;
RP FINANCIAL, LC.
__________________________________________
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
<TABLE>
<CAPTION>
Table 3.5
Credit Risk Measures and Related Information
Comparable Institution Analysis
As of September 30, 1996 or Most Recent Date Available
NPAs & Rsrves/
REO/ 90+Del/ NPLs/ Rsrves/ Rsrves/ NPAs & Net Loan NLCs/
Institution Assets Assets Loans Loans NPLs 90+Del Chargoffs Loans
___________ ______ ______ ______ ______ ______ ________ _________ __________
(%) (%) (%) (%) (%) (%) ($000) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Middlesboro Fed. Bk, FSB of KY 0.00 0.54 0.62 0.28 45.03 43.33 25 0.04
SAIF-Insured Thrifts 0.19 0.87 0.94 0.85 177.70 125.59 263 0.10
Comparable Group Average 0.15 0.82 0.95 1.01 211.84 84.22 53 0.08
Comparable Group
________________
CLAS Classic Bancshares of KY 0.29 0.86 0.57 1.06 185.71 71.29 11 0.00
CBIN Community Bank Shares of IN 0.03 0.22 0.17 0.46 266.52 117.84 0 0.00
CIBI Community Inv. Bancorp of OH 0.11 0.88 1.04 0.64 61.45 53.98 57 0.33
BDJI First Fed. Bancorp. of MN 0.18 0.38 0.11 0.88 825.45 112.10 16 0.13
FFBI First Financial Bancorp of IL 0.00 0.43 0.29 0.61 206.02 106.97 3 0.02
FFHS First Franklin Corp. of OH 0.11 0.52 0.47 0.62 130.61 81.80 29 0.08
HZFS Horizon Fin'l. Services of IA 0.44 1.12 1.01 0.76 75.00 45.26 26 0.21
LSBI LSB Fin. Corp. of Lafayette IN 0.00 1.37 1.55 1.09 70.21 70.21 2 0.01
OHSL OHSL Financial Corp. of OH 0.00 0.22 0.02 0.33 NA 107.97 2 0.01
PLE Pinnacle Bank of AL 0.52 0.83 0.46 1.01 221.04 82.73 42 0.13
PTRS The Potters S&L Co. of OH 0.01 2.20 4.73 3.61 76.43 76.26 397 -0.04
</TABLE>
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP Financial, Inc. calculations. The
information provided in this table has been obtained from sources
we believe are reliable, but we cannot guarantee the accuracy or
completeness of such information.
Copyright (c) 1995 by RP Financial, LC.
<PAGE>
RP Financial, LC.
Page 3.13
maintained a much lower level of loss reserves as a percent of non-accruing
loans (45.03 percent versus 211.84 percent for the Peer Group).
Interest Rate Risk
- ------------------
Table 3.6 reflects the relative interest rate risk exposure of Middlesboro
Federal and the Peer Group. The Bank's lower capital level was the key factor
contributing to its lower IEA/IBL ratio relative to the Peer Group (105.2
percent versus 109.4 percent, respectively). The Bank's lower capital and
IEA/IBL ratios increases its funding costs relative to the Peer Group. However,
the Bank's capital ratio and IEA/IBL ratio will increase on a post-conversion
basis. The Bank maintained a lower ratio of non-interest earning assets, which
is more favorable from an interest rate risk perspective as it increases the
proportion of assets repricing upward in a rising rate environment.
In the absence of available or comparable gap and rate shock analyses for
the Peer Group, the change in the quarterly net interest income ratio to average
assets for the Bank and the Peer Group has been examined in relation to the
change in market interest rates. As shown in Table 3.6, the Bank's net interest
margin has recently shown more sensitivity to changing market interest rates
than the Peer Group's average net interest margin. On a pro forma basis, the
Bank's higher capital position and reinvestment of proceeds in short- to
intermediate-term securities can be expected to lower exposure to changes in
interest rates.
Summary
- -------
Based on the above analysis and the criteria employed by in the Peer Group
selection process, the Peer Group appears to form a reasonable basis for
determining the pro forma market value of the Bank, subject to the adjustments
noted in the following section.
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 3.6
Interest Rate Risk Measures and Net Interest Income Volatility
Comparable Institution Analysis
As of September 30, 1996 or Most Recent Date Available
<TABLE>
<CAPTION>
Balance Sheet Measures Quarterly Change in Net Interest Income
-------------------------- ---------------------------------------------------------
Non-Earn.
Equity/ IEA/ Assets/
Institution Assets IBL Assets 09/30/96 06/30/96 03/31/96 12/31/95 09/30/95 06/30/95
- ----------- ------ ------ ------ -------- -------- -------- -------- -------- --------
(%) (%) (%) (change in net interest income is annualized in basis points)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Middlesboro Fed. Bk, FSB of KY 5.2 105.2 2.2 52 -5 -48 89 NM NM
SAIF-Insured Thrifts 12.5 113.8 3.3 -2 8 4 4 -1 -6
Comparable Group Average 10.0 109.4 3.1 -21 5 7 6 -7 -3
Comparable Group
- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLAS Classic Bancshares of KY 11.5 110.4 5.9 -98 -1 81 41 -19 -57
CBIN Community Bank Shares of IN 10.8 110.7 2.6 4 7 -3 7 -8 30
CIBI Community Inv. Bancorp of OH 11.9 113.2 1.4 -49 21 11 31 -6 18
BDJI First Fed. Bancorp. of MN 11.5 111.1 3.7 -30 8 -12 2 -9 51
FFBI First Financial Bancorp of IL 7.7 107.1 2.5 -13 3 -12 -13 -30 -12
FFHS First Franklin Corp. of OH 9.0 108.6 2.3 5 8 -5 4 -18 -11
HZFS Horizon Fin'l. Services of IA 10.7 109.5 3.1 6 6 -6 14 -7 -29
LSBI LSB Fin. Corp. of Lafayette IN 9.4 107.0 3.4 -6 -23 12 5 3 2
OHSL OHSL Financial Corp. of OH 11.6 112.4 2.1 -22 13 8 -21 -3 4
PLE Pinnacle Bank of AL 7.5 105.9 4.3 -8 13 10 5 16 -11
PTRS The Potters S&L Co. of OH 8.2 107.0 2.9 -21 2 -9 -6 4 -19
</TABLE>
NA=Change is greater than 100 basis points during the quarter.
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP Financial, Inc. calculations. The information
provided in this table has been obtained from sources we believe are
reliable, but we cannot guarantee the accuracy or completeness of such
information.
Copyright (c) 1995 by RP Financial, LC.
<PAGE>
RP Financial, LC.
Page 4.1
IV. VALUATION ANALYSIS
Introduction
- ------------
This chapter presents the valuation analysis, consistent with current
valuation methodology promulgated by the OTS, and key valuation factors and
assumptions considered in estimating pro forma market value of the common stock
to be issued in conjunction with the conversion of the MHC. The MHC is
converting to a Tennessee stock corporation pursuant to the Plan. The valuation
has been prepared utilizing the same general pro forma valuation methodology
that has been used in the valuation of standard conversions since 1983. The pro
forma valuation methodology has been modified to reflect the unique
characteristics of the conversion of the MHC, specifically the fact that the MHC
will be selling only a partial ownership interest in the Subscription and
Community Offerings, instead of a 100 percent ownership interest as would be the
case in a standard conversion.
Appraisal Guidelines
- --------------------
The OTS appraisal guidelines, originally released in October 1983, specify
the methodology for estimating the pro forma market value of an institution. The
methodology included: (1) selection of a peer group of comparable seasoned
publicly-traded institutions whose pricing is not distorted due to a variety of
factors; (2) a fundamental analysis of the subject company to the peer group;
and (3) a pro forma valuation analysis of the subject company based on the
market pricing of the peer group as of the date of valuation. The amended
valuation guidelines also limit the amount of a new issue discount which may be
incorporated into the valuation and thereby curtail the potential price
appreciation in the after-market.
RP Financial's valuation analysis complies with the October 1983 OTS
appraisal guidelines as revised on October 21, 1994, incorporating a
"fundamental analysis" relative to the Peer Group and a "technical analysis" of
final conversion pricing and trading levels of recently completed conversions
(given the emphasis of limiting after-market appreciation). It should be noted
that such analysis cannot possibly fully account for all the market forces which
impact after-market trading activity and pricing characteristics of a stock on a
given day.
The pro forma market value determined herein is a preliminary value for the
Company's to-be-issued stock. Throughout the conversion process, RP Financial
will: (1) review changes in the Bank's operations and financial condition; (2)
monitor the Bank's operations and financial condition relative to the Peer Group
to identify any fundamental changes; (3) monitor the external factors affecting
value including, but not limited to, local and national economic conditions,
interest rates, and the stock market environment, including the market
<PAGE>
RP Financial, LC.
Page 4.2
for thrift stocks; and (4) monitor pending initial and second step conversion
offerings (including those in the offering phase) both regionally and
nationally. If material changes should occur during the conversion process, RP
Financial will prepare updated valuation reports reflecting such changes and
their related impact on value, if any, over the course of the conversion
process. RP Financial will also prepare a final valuation update at the closing
of the conversion offering to determine if the preliminary range of value
continues to be appropriate.
The appraised value determined herein is based on the current market and
operating environment for the Bank and for all thrifts. Subsequent changes in
the local and national economy, the legislative and regulatory environment, the
stock market, interest rates, and other external forces (such as natural
disasters or major world events), which may occur from time to time (often with
great unpredictability), may materially impact the market value of all thrift
stocks, including Middlesboro Federal, or Middlesboro Federal's value alone. To
the extent a change in factors impacting the Bank's value can be reasonably
anticipated and/or quantified, RP Financial has incorporated the estimated
impact into its analysis.
Valuation Analysis
- ------------------
A fundamental analysis discussing similarities and differences relative to
the Peer Group was presented in Chapter III. The following sections summarize
such differences between the Bank and the Peer Group and how those differences
affect the pro forma valuation. Emphasis is placed on the specific strengths and
weaknesses of the Bank relative to the Peer Group in such key areas as financial
condition, profitability, growth and viability of earnings, asset growth,
primary market area, dividends, liquidity of the issue, marketing of the issue,
management, and the effect of government regulations and/or regulatory reform.
We have also considered the market for thrift stocks, and in particular new
issues, including second step conversions, to assess the impact on value of
Middlesboro Federal coming to market at this time.
1. Financial Condition
-------------------
The financial strength of an institution is an important determinant in pro
forma market value, because investors typically look to such factors as
liquidity, capital, asset composition and quality, and funding sources in
assessing investment attractiveness. The similarities and differences in the
Bank's financial strength can be summarized as follows:
. Overall A/L Composition. Permanent residential mortgage loans and MBS
-----------------------
funded by retail deposits were the primary components of both
Middlesboro Federal's and the Peer Group's balance sheets. The Bank
maintains a higher proportion of overall loans receivable than the Peer
Group, offset by a lower level of cash and investments. Middlesboro
Federal also reported a higher level of diversification into higher
credit risk types of loans relative to the Peer Group, indicating higher
yield potential. The Peer Group relied on borrowed funds to a
<PAGE>
RP Financial, LC.
Page 4.3
greater extent than the Bank, although retail deposits comprised the
major portion of the respective funding needs.
. Credit Risk. Middlesboro Federal maintains comparatively lower
-----------
NPAs/assets and NPLs/loans ratios, despite a higher credit risk profile.
Further, the Bank has a higher loans assets ratio than the Peer Group,
and a significant portion of the loan portfolio has been originated
within the past one to two years, resulting in a generally unseasoned
loan portfolio.
. Liquidity. Middlesboro Federal maintained a significantly lower level
---------
of cash and investments than the Peer Group and a higher proportion of
MBS. The Bank's proportion of cash and investments is likely to
initially increase on a pro forma basis. Borrowings were utilized to a
slightly higher degree by the Peer Group, and both maintain ample
borrowings capacity. The Bank's loans typically do not meet secondary
market standards for sale, in general due to the lack of a title policy
and property surveys. Overall, Middlesboro Federal appears to have less
balance sheet liquidity than the Peer Group.
. Capital. While the Bank maintains a lower capital position in relation
-------
to the Peer Group, following the infusion of conversion proceeds, the
Bank's capital position will approach but still remain below the Peer
Group average. As a result, the Bank has less leverage capacity than the
Peer Group. Despite a lower pro forma equity position, the Bank's return
on equity ("ROE") is not expected to exceed the Peer Group average due
to lower profitability.
On balance, RP Financial applied a moderate downward adjustment for
financial condition.
2. Profitability, Growth and Viability of Earnings
-----------------------------------------------
Earnings are an important factor in determining pro forma market value, as
the level and risk characteristics of an institution's earnings stream and the
prospects and ability to generate future earnings are typically heavily factored
into an investment decision. The historical income statements of Middlesboro
Federal and the Peer Group were generally reflective of traditional thrift
operating strategies, with net interest income and operating expenses being the
major determinants of their respective core earnings. The specific factors
considered in the valuation include:
. Reported Earnings. The Bank reported a net loss of 0.20 percent of
-----------------
average assets for the most recent twelve month period versus earnings
of 0.37 percent for the Peer Group, with both reflecting the special
SAIF assessment. The differential in reported earnings is due to the
Bank's higher non-operating expenses, lower net interest margin and
higher operating expenses.
. Core Earnings. The Bank also maintains a less favorable core earnings
-------------
posture relative to the Peer Group. The Bank operated with less
favorable net interest income, more favorable non-interest operating
income and less favorable operating expenses than the Peer Group. While
redeployment of conversion proceeds into interest-earning assets should
enhance Middlesboro Federal's net interest income, operating expenses
for the Bank are expected to increase as well. On a pro forma basis,
Middlesboro Federal's core profitability is expected to remain below
that of the Peer Group.
<PAGE>
RP Financial, LC.
Page 4.4
. Interest Rate Risk. Middlesboro Federal's NPV measures indicated
------------------
relatively high exposure to rising interest rates. Although gap and NPV
data was not available for the Peer Group, other analyses indicated a
comparable advantage for the Peer Group. The pro forma increase in the
IEA/IBL ratio can be expected to reduce the Bank's interest rate risk
exposure, but the Bank is expected to remain at a disadvantage.
. Credit Risk. Loss provisions had a lower impact on the earnings of the
-----------
Bank in comparison to the Peer Group. In terms of credit quality related
losses, the Bank maintained much lower reserve coverage ratios as a
percent of loans receivable, non-accruing loans and total NPAs. The
Bank's higher risk loan portfolio exposes it to potentially greater
credit risk than the Peer Group, which adds a higher risk of earnings
volatility relative to the Peer Group with a lower reserve position.
. Earnings Growth Potential. Several factors were considered in assessing
-------------------------
earnings growth potential. Middlesboro Federal's recent loan demand has
been in excess of available funds, requiring the third party borrowings
and a liquidity reduction. The Bank's intention to slow asset growth
should limit earnings growth and past rapid growth has narrowed interest
spreads. With lower pro forma capital and expectations of continued
growth in operating expenses with the opening of a new office, the
Bank's earnings appear to have less upside potential than the Peer
Group.
. Return on Equity. On a pro forma basis the Bank's pro forma return on
----------------
equity will be similar to the Peer Group average, as the lower pro forma
profitability is measured against a comparatively lower capital
position.
Overall, RP Financial made a moderate downward adjustment for
profitability, growth and viability of earnings.
3. Asset Growth
------------
The Bank's asset growth in recent periods has been higher than the Peer
Group's, which has resulted in higher funds costs and a lower net interest
margin for the Bank. The Bank intends to grow at a slower rate in future periods
and repay some FHLB advances with the proceeds from a pending loan sale. The
Bank's profitability has shown the strain of growth. We concluded that a slight
downward adjustment was warranted for the Bank's asset growth potential.
4. Primary Market Area
-------------------
The general condition of a financial institution's market area has an
impact on value, as future success is in part dependent upon opportunities for
profitable activities in the local market area. Summary demographic and deposit
market share data for the Bank and the Peer Group is included in Table 4.1. The
Bank's market area of Bell County, Kentucky is a rural market that has been
experiencing population declines during recent years, while the Peer Group
companies operate on average in larger growing and more prosperous markets. The
per capita income in the Bank's market falls well below the average of the
primary
<PAGE>
Table 4.1
Peer Group Primary Market Area Demographic/Competition Trends
<TABLE>
<CAPTION>
Population Proj. 9/96
--------------------- Pop. 1990-96 1996-2001 Unemp.
Institution County 1990 1996 2001 % Change % Change Rate
- ----------- ------ ---- ----- ---- -------- --------- ------
(000) (000)
<S> <C> <C> <C> <C> <C> <C> <C>
Classic Bancshares of KY Boyd 51 50 49 -2.1% -1.9% 5.6%
Community Bank Shares of IN Floyd 64 71 76 9.9% 6.9% 3.5%
Community Inv. Bancorp of OH Crawford 48 47 47 -1.1% -1.2% 5.9%
First Fed. Bancorp of MN Beltrami 34 39 42 12.4% 9.0% 6.6%
First Financial Bancorp of IL Boone 31 36 41 18.3% 12.7% 3.1%
First Franklin Corp. of OH Hamilton 866 866 864 -0.0% -0.3% 6.0%
Horizon Financial Services of IA Mahaska 22 22 22 1.5% 0.9% 2.5%
LSB Financial Corp. of IN Tippecanoe 131 136 141 4.4% 3.6% 2.5%
OHSL Financial Corp. of OH Hamilton 866 866 864 -0.0% -0.3% 6.0%
Pinnacle Bank of AL Walker 68 70 71 3.1% 2.4% 6.0%
The Potters S&L Co. of OH Columbiana 108 113 116 3.9% 2.7% 5.3%
--- ---- ---- ---- ---- ----
Averages: 208 211 212 4.6% 3.1% 4.8%
Medians: 64 70 71 3.1% 2.4% 5.6%
Middlesboro FB, FSB of KY Bell 32 30 30 -3.4% -2.9% 7.3%
<CAPTION>
Per Capita Income
------------------------- Deposit
Median % State Market
Institution County Age Amount Average Share(1)
- ----------- ------ ------ ------ ------- --------
(Yrs.)
<S> <C> <C> <C> <C> <C>
Classic Bancshares of KY Boyd 38.8 15,637 102.2% 6.2%
Community Bank Shares of IN Floyd 35.6 18,006 103.5% 18.3%
Community Inv. Bancorp of OH Crawford 36.0 14,197 81.0% 11.9%
First Fed. Bancorp of MN Beltrami 29.8 11,754 63.1% 14.1%
First Financial Bancorp of IL Boone 34.2 15,290 77.6% 18.7%
First Franklin Corp. of OH Hamilton 34.0 20,703 118.1% 1.2%
Horizon Financial Services of IA Mahaska 35.9 13,028 82.7% 14.3%
LSB Financial Corp. of IN Tippecanoe 27.9 17,597 101.2% 7.1%
OHSL Financial Corp. of OH Hamilton 34.0 20,703 118.1% 1.0%
Pinnacle Bank of AL Walker 36.8 13,075 84.0% 16.9%
The Potters S&L Co. of OH Columbiana 36.5 13,496 77.0% 9.4%
---- ------ ------ -----
Averages: 34.5 15,771 91.7% 10.8%
Medians: 35.6 15,290 84.0% 11.9%
Middlesboro FB, FSB of KY Bell 35.2 $10,048 65.6% 13.1%
</TABLE>
(1) Total institution deposits in headquarters county as percent of total county
deposits.
Source: SNL Securities, Inc.; FDIC; OTS.
<PAGE>
RP Financial, LC.
Page 4.6
markets of the Peer Group members. The Bank's competitive position is not
dissimilar from the average position of the Peer Group institutions in their
primary market areas. Middlesboro Federal's primary market area has a higher
level of unemployment, which has contributed to the subsequent population
decline. On balance, RP Financial concluded that a moderate downward adjustment
was warranted for market area.
5. Dividends
---------
While the Company intends to periodically consider the establishment of a
dividend policy following completion of the conversion, there is no current
intention to pay a dividend. The ability to pay a dividend will be based on
numerous factors including growth objectives, financial condition, the amount of
net proceeds retained by Company in the conversion, investment opportunities
available to the Company and the Bank, profitability, tax considerations,
minimum capital requirements, regulatory limitations, stock market
characteristics and general economic conditions.
Historically, thrifts typically have not established dividend policies at
the time of their conversion to stock ownership. Newly converted institutions,
in general, have preferred to gain market seasoning, establish an earnings track
record and more fully invest the conversion proceeds before establishing a
dividend policy. However, during the late 1980s and early 1990s, with negative
publicity surrounding the thrift industry, there was a tendency for more thrifts
to initiate moderate dividend policies concurrent with their conversion as a
means of increasing the attractiveness of the stock offering. Today, fewer
institutions are compelled to initially establish dividend policies at the time
of their conversion offering to increase the attractiveness of the stock issue
as: (1) industry profitability has improved, (2) the number of problem thrift
institutions has declined, and (3) the stock market cycle for thrift stocks is
generally more favorable than in the early 1990s. At the same time, with ROE
ratios under pressure, due to high equity levels, well-capitalized institutions
are subject to increased competitive pressures to offer dividends and a number
of institutions have instituted special dividends.
As publicly-traded thrifts' capital levels and profitability have improved
and as weakened institutions have been resolved, the proportion of institutions
with cash dividend policies has increased. Nine of the eleven institutions in
the Peer Group presently pay regular cash dividends, with implied dividend
yields ranging from 1.49 percent to 4.24 percent. The average dividend yield on
the stocks of the Peer Group institutions was 2.04 percent as of December 13,
1996, representing an average earnings payout ratio of 37.10 percent. As of
December 13, 1996, approximately 80 percent of all publicly-traded SAIF-insured
thrifts had adopted cash dividend policies (see Exhibit IV-1), exhibiting an
average yield of 2.34 percent and an average payout ratio of 41.72 percent. The
dividend paying thrifts generally maintain higher than average profitability
ratios,
<PAGE>
RP Financial, LC.
Page 4.7
facilitating their ability to pay cash dividends, which supports a market
pricing premium on average relative to non-dividend paying thrifts.
In MHC form, it has been unusual that the Bank has not paid dividends. The
Company's ability following the completion of the second step conversion to pay
a dividend would appear to be more limited relative to the Peer Group based on
lower pro forma capital and earnings. The Company's stated intention to not
implement a dividend shortly after completion of the conversion is an
unfavorable comparison to the Peer Group companies, particularly in view of the
lower core profitability and capital, and thus a slight downward adjustment is
warranted for this valuation factor.
6. Liquidity of the Shares
-----------------------
The Peer Group is by definition composed of companies that are traded in
the public markets, ten of which trade on the NASDAQ system and one that trades
on the AMEX. Typically, the number of shares outstanding and market
capitalization provides an indication of how much liquidity there will be in a
particular stock. The market capitalization of the Peer Group companies ranged
from $6.5 million to $25.4 million as of December 13, 1996, with an average
market value of $14.9 million. The shares outstanding of the Peer Group members
ranged from 0.5 million to 2.0 million, with average shares outstanding of
approximately 0.9 million. The Bank's pro forma market value and shares
outstanding will be considerably less than the comparative Peer Group averages,
and the majority of individual Peer Group members. Although the Bank's stock may
be listed on the NASDAQ "pink sheets", we further anticipate that the Bank will
attract a low level of ongoing investor and institutional interest. Accordingly,
we anticipate the liquidity of the Bank's shares will be lower than that of the
Peer Group on average, and thus we have applied a slight downward adjustment for
this factor.
7. Marketing of the Issue
----------------------
We believe that four separate markets exists for thrift stocks coming to
market such as Middlesboro Federal: (A) the after-market for public companies,
in which trading activity is regular and investment decisions are made based
upon financial condition, earnings, capital, ROE and dividends; (B) the new
issue market in which converting thrifts are evaluated on the basis of the same
factors but on a pro forma basis without the benefit of a stock trading history
and reporting quarterly operating results as a publicly-held company; (C) the
market for second step conversions by MHCs; (D) the acquisition market for
thrift franchises in Kentucky; and (E) the market for the public stock of
Middlesboro Federal. All of these markets were considered in the valuation of
the Bank's second step conversion.
<PAGE>
RP Financial, LC.
Page 4.8
A. Public Market
-------------
The value of publicly-traded thrift stocks is easily measurable, and
is tracked by most investment houses and related organizations. In general,
thrift stock values react to market stimuli such as interest rates, inflation,
perceived industry health, projected rates of economic growth, regulatory issues
and stock market conditions in general. Exhibit IV-2 displays historical stock
market trends for various indices and includes historical stock price index
values for thrifts and commercial banks. Exhibit IV-3 displays historical stock
price indices for thrifts only.
In terms of assessing general stock market conditions, the stock
market has generally trended higher over the past year. The Dow Jones
Industrial Average ("DJIA") rallied to new highs in early- and mid-November
1995, with the rally being initially led by transportation issues, and continued
strength in the bond market. Investors poured into defensive issues during the
first budget impasse, with the DJIA posting several consecutive highs in mid-
November. The DJIA surged past the 5000 mark in late-November, reflecting
strength in blue chip issues and a mild rebound in the technology sector amid
increasing expectations that the Federal Reserve would cut short-term interest
rates. Defensive issues sustained the rally through early-December, while
weakness in the technology sector provided for a slight pull-back in the stock
market in mid-December. At the close of 1995, market activity was mixed.
Favorable inflation data led to a 0.25 percent cut in short-term interest rates
by the Federal Reserve in late-December, which served to initially lift stock
prices. However, the second budget impasse and weak holiday retail sales
quickly erased the positive impact of the interest rate cut, as the DJIA dropped
sharply shortly after the Federal Reserve action. Bond prices rallied on news
of the sagging economy, as the 30-year bond yield fell below 6.0 percent in
late-December.
The stock market began 1996 on a down note, reflecting concern over
the budget stalemate in Washington. A sell-off in technology stocks further
sustained the decline in the stock market, as investors dumped technology stocks
on profit concerns. However, favorable inflation data and strong fourth quarter
earnings by some blue chip issues served to abbreviate the decline in the stock
market, with the DJIA posting several new highs in the second half of January.
Stock prices were further boosted by increasing expectations of another rate cut
by the Federal Reserve, which occurred at the end of January. The stock market
moved sharply higher in early-February, as the cut in short-term interest rates
and strong fourth quarter earnings posted by some large technology companies
served to renew investor interest in technology stocks. Low inflation and
modest economic growth translated into renewed interest for cyclical stocks as
well, with the DJIA posting five consecutive all-time highs during the week
ended February 9. Congressional testimony by the Federal Reserve Chairman
provided for significant swings in the stock market in mid-February, reflecting
changing investor sentiment regarding the possibility of future rate cuts. The
volatility continued through the end of February, reflecting turbulence in the
bond market and general uncertainty over future interest rate
<PAGE>
RP Financial, LC.
Page 4.9
trends. An unexpectedly large drop in the February unemployment rate provided
for a sharp one day sell-off in the stock market on March 8, as bond prices
plunged on news of the strong job growth and the possibility that an
accelerating economy may lead to higher inflation. However, the stock market
recovered the following week, as inflation fears were somewhat alleviated by
additional economic data which indicated a more modest pace of economic growth
than suggested by the unemployment data, including a 0.2 percent drop in
February wholesale prices. After trading in a narrow range through the end of
March, merger activity and a jump in IBM's stock price propelled the DJIA to a
new record in early-April. The upturn was brief, as bond and stock prices
slumped following the stronger than expected March employment report which
served to rekindle inflation fears.
Earnings reports dominated the stock market in mid-April 1996, with
day-to-day fluctuations in the market reflecting changing investor sentiment
regarding the strength of first quarter earnings and future earnings
expectations. Favorable earnings among technology issues pushed the NASDAQ
Composite Index to new highs in late-April and early-May, while blue chip stocks
lagged the overall market. Stronger than expected first quarter GDP growth
reported in early-May stirred major sell-offs in stocks and bonds, resulting in
the 30-year bond edging above 7.0 percent and a one day drop in the DJIA of
almost 77 points. Inflation concerns receded somewhat following a mid-May
report by the Federal Reserve, which indicated that inflation remained in check
and near term rate increases were not likely. The positive reading on inflation
by the Federal Reserve, along with the Federal Reserve's decision to leave
interest rates unchanged at its late-May meeting, served to strengthen bond and
stock prices, with the DJIA posting new highs in late-May and the 30-year bond
dropping below 7.0 percent. However, signs of an accelerating economy and
revised upward estimates of second quarter GDP growth provided for a pullback in
the stock market at the end of May. Stronger than expected job growth in May
further depressed bond prices in early-June, which served to stall the stock
market as well.
Expectations that the Federal Reserve would not tighten interest rates
at its July 1996 meeting provided for a rally in the bond market in late-June,
as the 30-year bond yield dropped below 7.0 percent. The positive interest rate
outlook also served to boost the stock market in early-July, but the rally was
cut short by a larger than expected drop in June unemployment. Bond and stock
prices tumbled following the June unemployment report, as highlighted by a 115
point decline in the DJIA and an increase in the 30-year bond yield to 7.18
percent. The release of second quarter earnings reports provided for a volatile
stock market in mid-July, especially among the technology stocks. Overall, the
stock market declined due to earnings disappointments, with a more severe
decline occurring in the technology driven NASDAQ Composite Index. At the same
time bond prices recovered, as the 30-year bond yield dropped below 7.0 percent
following statements by the Federal Reserve Chairman which indicated he expected
the economy to slow down in the
<PAGE>
RP Financial, LC.
Page 4.10
second half of 1996. Stocks and bonds rallied in late-July and early-August, as
economic data indicated a healthy but moderating economy. However, higher
interest rates pushed stocks lower in late-August, reflecting increasing
expectations that the Federal Reserve would tighten interest rates in September.
The decline in the stock market was reversed in early-September, as investors
reacted positively to the inflation data contained in the August employment
report. Oil stocks sustained the upward trend in the stock market in early-
September, as renewed tension between the U.S. and Iraq pushed crude oil prices
to their highest level in five years. Both bond and stock prices surged higher
in mid-September, as most of the economic data for August indicated that economy
was moderating and investors became more optimistic that the Federal Reserve
would not raise interest rates in September.
The Federal Reserve's decision not to raise interest rates at its
September 1996 meeting, and generally healthy third quarter earnings results
sustained the upward momentum in the stock market during the beginning of the
fourth quarter. Favorable inflation data and lower interest rates further
spurred the upward trend in the stock market prior to the election. Investors
were cheered by the "status quo" election results, as stocks rallied strongly
immediately following the election with the DJIA posting ten consecutive
advances through mid-November. Economic stability and a rising bond market
sustained the stock market rally through the end of November. For the entire
month of November, the DJIA increased 492.3 points, or 8.2 percent. Following
the rapid rise in the stock market during November, stocks retreated in early
December. Profit taking, concern about speculative excesses in the stock market
and higher interest rates all contributed to the decline in the stock market.
On December 13, 1996, the DJIA closed at 6304.87, translating into an increase
of 23.2 percent from year end 1995.
Similar to the overall stock market, the market for thrift stocks has
generally been favorable during the past twelve months. Sustained by
acquisition activity and relatively low interest rates, thrift stocks edged
higher during the first half of November 1995. A tax law change in the new
congressional budget, which would provide for the elimination of back taxes on
bad-debt reserves taken before 1988, served to push thrift stocks higher in
late-November, as investors speculated that the removal of the potential back
taxes would accelerate the pace of mergers and acquisitions in the thrift
industry. Uncertainty regarding the Federal Reserve's intentions on cutting
short-term interest rates provided for a relatively narrow trading range for
thrift stocks during the first half of December. The rate cut by the Fed and
reports of sluggish retail sales led to a rally in the bond market in late-
December, which, in turn, bolstered prices for thrift and bank issues.
Thrift stocks followed the stock market in general lower in early-
1996, reflecting concern that the absence of a budget agreement would lead to
higher interest rates. The downturn in thrift stocks was brief, as thrift
prices trended higher in the second half of January. Economic data which
indicated that inflation was low supported the recovery in thrift prices, as the
favorable inflation news served to calm the credit markets
<PAGE>
RP Financial, LC.
Page 4.11
and increased expectations that interest rates would remain low. Thrift prices
were further boosted by the Federal Reserve's move to cut short-term interest
rates at the end of January and generally favorable fourth quarter earnings.
Mixed indications on the future direction of interest rates translated into a
relatively narrow trading range for thrift stocks throughout February.
Interest sensitive issues were among the stocks most severely affected
by the sell-off precipitated by the decline in the February 1996 unemployment
rate, as prospects for further near-term rate cuts by the Federal Reserve were
substantially eliminated by the explosive job growth. However, thrift prices
rebounded in late-March and early-April as interest rates stabilized. A bullish
outlook on the financial institution sector in general served to further bolster
prices in early-April, as a number of analysts forecasted healthy first quarter
earnings for thrift and bank stocks and that the financial institution sector
would outperform the market in general during the balance of 1996. However,
thrift prices declined following the release of the March employment report, as
interest sensitive stocks were pulled lower by the unfavorable interest rate
outlook. The downturn was abbreviated by the generally strong first quarter
earnings posted by bank and thrift issues, which provided for a mild upward
trend in thrift stocks in mid-April. Paralleling the stock market in general,
thrift prices dropped sharply in early-May following the rise in interest rates
caused by the strong first quarter GDP growth. Thrift prices rebounded in mid-
May, as interest rates declined slightly on the strength of tame inflation news.
At the end of May and through mid-June, uncertainty over future interest rate
trends provided for a flat thrift stock market.
The Supreme Court's ruling in favor of thrifts seeking damages for
goodwill served to boost thrift prices in the beginning of July, but the upturn
was abbreviated by a sharp increase in interest rates in early-July. The sharp
rise in interest rates, which was prompted by the stronger than expected June
unemployment report, pushed interest-sensitive issues in general lower.
Generally favorable second quarter earnings and lower interest rates supported a
modest recovery in thrift prices in mid-July, although concerns about future
interest rate trends moderated the impact of the healthy second quarter
earnings. Lower interest rates and the announced acquisitions of two large
California thrifts, American Savings with $20 billion in assets and CalFed
Bancorp with $14 billion in assets, pushed the SNL Index higher in late-July and
through mid-August. Thrift stocks settled into a narrow trading range in late-
August and early-September, as higher interest rates dampened interest in the
thrift sector. For the balance of September, trading activity in thrift stocks
was somewhat mixed. Higher thrift prices were recorded in mid-September, as the
yield on the 30-year U.S. Treasury bond briefly dropped below 7.0 percent.
However, the rally in financial services stocks faltered in late-September,
reflecting renewed fears about higher interest rates and rising bad debt on
credit cards.
Thrift prices generally moved higher during October and November
1996. The upward trend in thrift prices was supported by lower interest rates,
with the slow down in economic growth pushing the 30-
<PAGE>
RP Financial, LC.
Page 4.12
year U.S. bond rate below 6.5 percent during the second half of November.
Investors also reacted positively to the SAIF rescue legislation, in light of
the reduction in deposit insurance premiums to be paid by SAIF-insured thrifts
following the one time special assessment. Similar to the overall stock market,
thrift prices traded lower in early-December. Profit taking and expectations of
higher interest rates were factors contributing to the pull back in thrift
issues. The SNL Index for all publicly-traded thrifts closed at 473.6 on
December 13, 1996, an increase of 27.0 percent from one year ago.
B. New Issue Market
----------------
In addition to thrift stock market conditions in general, the new
issue market for converting thrifts is also an important consideration in
determining the Bank's pro forma market value. Demand for converting issues was
strong in the first quarter of 1996, with most offerings being oversubscribed
and posting healthy increases in near term aftermarket trading. Comparatively,
offerings completed in the second quarter reflected a cooling interest in thrift
IPOs, as indicated by fewer oversubscriptions and generally weak aftermarket
trading performance. The most recently completed offerings, offerings which
have closed during the past three months, have generally been well received in
the market place. Fewer offerings, more attractive pricing, lower interest
rates, and the general positive trend in thrift prices have been among the most
prominent factors contributing to the renewed investor interest shown for
converting thrift issues. As shown in Table 4.2, the median one week change in
price for offerings completed during the latest three months equaled positive
25.0 percent, illustrating market strength for new issues.
In examining the current pricing characteristics of institutions
completing their conversions during the last three months (see Table 4.3), we
note there exists a considerable difference in pricing ratios compared to the
universe of all publicly-traded thrifts. Specifically, the current average P/B
ratio of the conversions completed in the most recent three month period of
90.44 percent reflects a discount of 22.4 percent from the average P/B ratio of
all publicly-traded SAIF-insured thrifts (equal to 116.52 percent), and the
average core P/E ratio of 18.54 times reflects a premium of 19.5 percent from
the all SAIF-insured public average core P/E ratio of 15.51 times. The pricing
ratios of the better capitalized but lower earning (based on return on equity
measures) recently converted thrifts suggest that the investment community has
determined to discount their stocks on a book basis until the earnings improve
through redeployment and leveraging of the proceeds over the longer term.
In determining our valuation adjustment for marketing of the issue, we
considered trends in both the overall thrift market and the new issue market.
The overall market for thrift stocks is considered to be healthy, as thrift
stocks are currently exhibiting pricing ratios that are approaching historically
high levels.
<PAGE>
RP Financial, LC.
- --------------------------------------------------------------------------------
Table 4.2
Recent Conversions (Last Three Months)
Conversion Pricing Characteristics: Sorted Chronologically
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional Information Pre-Conversion Data
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Info. Asset Quality
- ------------------------------------------------------------------------------------------------------------------------------------
Conversion Equity/ NP As/ Res.
Institution State Date Ticker Assets Assets Assets Cov.
- ----------- ----- ---- ------ ------ ------- ------ ----
($Mil) (%) (%)(2) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PS Financial IL 11/27/96 PSFI $55 22.48% 1.06% 32%
Carolina Fincorp(1) NC 11/25/96 CFNC 94 9.18% 0.06% 659%
Delphos Citizens Bancorp OH 11/21/96 DCBI 92 12.65% 1.04% 10%
Fulton Bancorp MO * 10/18/96 FTNB 90 10.33% 0.54% 276%
Chester Bancorp IL * 10/08/96 CNBA 137 8.81% 0.16% 179%
South Street Fin. Corp.(1) NC 10/03/96 SSFC 168 12.33% 0.36% 73%
AFSALA Bancorp NY 10/01/96 AFED 137 6.08% 0.56% 105%
CBES Bancorp MO * 09/30/96 CBES 90 9.00% 0.73% 59%
First Allen Parish Bancorp LA 09/30/96 P. Sheet 30 7.30% 0.43% 242%
Westwood Hmstd.(1) OH * 09/30/96 WEHO 98 14.59% 0.00% NM
Home Bancorp of Elgin IL * 09/27/96 HBEI 300 12.38% 0.49% 60%
Foundation Bancorp OH 09/26/96 P. Sheet 31 9.06% 0.00% NA
Midwest SB IL * 09/23/96 P. Sheet 36 4.33% 0.60% 83%
Peoples Financial Corp. OH 09/13/96 PFFC 78 12.88% 0.77% 32%
Averages: $103 10.81% 0.49% 151%
Medians: 91 9.76% 0.52% 78%
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Offering Insider Purchases
Information
- ------------------------------------------------------------------------------------------------------------------------------------
Benefit Plans
-------------
Conversion Gross % of Exp./ Recog. Mgmt.
Institution State Date Ticker Proc. Mid. Proc. ESOP Plans & Dirs.
- ----------- ----- ---- ------ ---- --- ---- ---- ----- ------
($Mil) (%) (%) (%) (%) (%)(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PS Financial IL 11/27/96 PSFI $21.8 132% 2.7% 8.0% 4.0% 4.8%
Carolina Fincorp(1) NC 11/25/96 CFNC 18.5 132% 4.8% 8.0% 4.0% 7.0%
Delphos Citizens Bancorp OH 11/21/96 DCBI 20.4 132% 2.7% 8.0% 4.0% 3.3%
Fulton Bancorp MO * 10/18/96 FTNB 17.2 132% 3.2% 8.0% 4.0% 7.4%
Chester Bancorp IL * 10/08/96 CNBA 21.8 132% 3.0% 8.0% 4.0% 18.2%
South Street Fin. Corp.(1) NC 10/03/96 SSFC 45.0 132% 3.1% 8.0% 4.0% 2.1%
AFSALA Bancorp NY 10/01/96 AFED 14.5 132% 4.9% 8.0% 4.0% 4.7%
CBES Bancorp MO * 09/30/96 CBES 10.3 98% 5.1% 8.0% 4.0% 10.3%
First Allen Parish Bancorp LA 09/30/96 P. Sheet 2.6 106% 13.2% 8.0% 4.0% 19.3%
Westwood Hmstd.(1) OH * 09/30/96 WEHO 28.4 132% 2.5% 8.0% 4.0% 11.9%
Home Bancorp of Elgin IL * 09/27/96 HBEI 70.1 132% 2.7% 8.0% 4.0% 2.0%
Foundation Bancorp OH 09/26/96 P. Sheet 4.6 132% 5.4% 8.0% 4.0% 16.0%
Midwest SB IL * 09/23/96 P. Sheet 1.9 132% 19.8% 7.0% 3.0% 12.7%
Peoples Financial Corp. OH 09/13/96 PFFC 14.9 100% 3.9% 4.0% 4.0% 6.4%
Averages: $20.9 126% 5.5% 7.6% 3.9% 9.0%
Medians: 17.9 132% 3.5% 8.0% 4.0% 7.2%
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Pro Forma Data
- ------------------------------------------------------------------------------------------------------------------------------------
Pricing Ratios(4) Asset Quality
- ------------------------------------------------------------------------------------------------------------------------------------
Conversion
Institution State Date Ticker P/TB P/E P/A ROA TE/A ROE
- ----------- ----- ---- ------ ---- --- --- --- ---- ---
(%) (x) (%) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PS Financial IL 11/27/96 PSFI 70.5% 14.2 29.7% 2.1% 42.1% 5.0%
Carolina Fincorp(1) NC 11/25/96 CFNC 77.0% 19.3 16.9% 0.9% 22.0% 4.0%
Delphos Citizens Bancorp OH 11/21/96 DCBI 70.2% 13.6 18.6% 1.4% 26.5% 5.2%
Fulton Bancorp MO * 10/18/96 FTNB 71.9% 15.0 16.4% 1.1% 22.8% 4.8%
Chester Bancorp IL * 10/08/96 CNBA 71.3% 15.7 14.1% 0.9% 19.7% 4.6%
South Street Fin. Corp.(1) NC 10/03/96 SSFC 76.1% 16.2 21.6% 1.3% 28.4% 4.7%
AFSALA Bancorp NY 10/01/96 AFED 71.2% 16.3 9.7% 0.6% 13.7% 4.4%
CBES Bancorp MO * 09/30/96 CBES 61.9% 13.3 10.4% 0.8% 16.9% 4.6%
First Allen Parish Bancorp LA 09/30/96 P. Sheet 63.5% 8.4 8.3% 1.0% 13.0% 7.6%
Westwood Hmstd.(1) OH * 09/30/96 WEHO 73.5% 36.5 23.2% 0.6% 31.5% 2.0%
Home Bancorp of Elgin IL * 09/27/96 HBEI 72.3% 24.0 19.5% 0.8% 26.9% 3.0%
Foundation Bancorp OH 09/26/96 P. Sheet 70.0% 28.2 13.4% 0.5% 19.1% 2.5%
Midwest SB IL * 09/23/96 P. Sheet 66.6% 18.4 5.3% 0.3% 7.9% 3.6%
Peoples Financial Corp. OH 09/13/96 PFFC 64.2% 27.6 16.3% 0.6% 25.4% 2.3%
Averages: 70.0% 19.0 15.9% 0.9% 22.6% 4.2%
Medians: 70.8% 16.2 16.3% 0.8% 22.4% 4.5%
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional Information Post-IPO Pricing Trends
- ------------------------------------------------------------------------------------------------------------------------------------
Closing Price:
---------------------------------------------------
First After After
Conversion IPO Trading % First % First %
Institution State Date Ticker Price Day Chg. Week(5) Chg. Month(6) Chg.
- ----------- ----- ---- ------ ----- --- ---- ------ ---- ------- ----
($) ($) (%) ($) (%) ($) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PS Financial IL 11/27/96 PSFI $10.00 $11.64 16.4% $11.88 18.8% $12.00 20.0%
Carolina Fincorp(1) NC 11/25/96 CFNC 10.00 13.00 30.0% 13.00 30.0% 13.13 31.3%
Delphos Citizens Bancorp OH 11/21/96 DCBI 10.00 12.13 21.2% 12.50 25.0% 11.88 18.8%
Fulton Bancorp MO * 10/18/96 FTNB 10.00 12.50 25.0% 12.88 28.8% 14.75 47.5%
Chester Bancorp IL * 10/08/96 CNBA 10.00 12.94 29.4% 12.88 28.8% 12.88 28.8%
South Street Fin. Corp.(1) NC 10/03/96 SSFC 10.00 12.75 27.5% 12.50 25.0% 12.25 22.5%
AFSALA Bancorp NY 10/01/96 AFED 10.00 11.38 13.8% 11.31 13.1% 12.13 21.2%
CBES Bancorp MO * 09/30/96 CBES 10.00 12.63 26.3% 13.44 34.4% 13.50 35.0%
First Allen Parish Bancorp LA 09/30/96 P. Sheet 10.00 NT NA NT NA NT NA
Westwood Hmstd.(1) OH * 09/30/96 WEHO 10.00 10.75 7.5% 10.63 6.3% 10.63 6.3%
Home Bancorp of Elgin IL * 09/27/96 HBEI 10.00 11.81 18.1% 12.19 21.9% 12.63 26.3%
Foundation Bancorp OH 09/26/96 P. Sheet 10.00 NT NA NT NA NT NA
Midwest SB IL * 09/23/96 P. Sheet 10.00 NT NA NT NA NT NA
Peoples Financial Corp. OH 09/13/96 PFFC 10.00 10.88 8.7% 11.50 15.0% 12.75 27.5%
Averages: $10.00 $12.04 20.4% $12.24 20.4% $12.59 25.9%
Medians: 10.00 12.13 21.2% 12.50 21.2% 12.63 26.3%
</TABLE>
Note: * - Appraisal performed by RP Financial; "NT" - Not Traded; "NA" - Not
Applicable, Not Available.
(1) Non-OTS regulated thrifts.
(2) As reported in summary pages of prospectus. December 13, 1996
(3) As reported in prospectus.
(4) Does not take into account the adoption of SOP 93-6.
(5) Latest price if offering less than one week old.
(6) Latest price if offering more than one week but less than one month old.
(7) Second-step conversions.
- --------------------------------------------------------------------------------
<PAGE>
RP Financial, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 4.3
Market Pricing Comparatives
Prices As of December 13, 1996
<TABLE>
<CAPTION>
Market Per Share Data
Capitalization -------------- Pricing Ratios(3)
--------------- Book ---------------------------------------
Price/ Market 12-Mth Value/
Financial Institution Share(1) Value EPS(2) Share P/E P/B P/A P/TB P/CORE
- --------------------- -------- -------- ------- ------- ------- ------- ------- ------ -------
($) ($Mil) ($) ($) (X) (%) (%) (%) (x)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAIF-Insured Thrifts 18.72 142.09 0.87 16.03 17.22 116.52 14.06 119.53 15.51
Special Selection Grouping(8) 12.96 34.15 0.47 14.41 19.88 90.44 21.73 90.44 18.54
Comparable Group
- ----------------
Special Comparative Group(8)
- ----------------------------
AFED AFSALA Bancorp of NY 11.50 16.73 0.61 14.05 18.85 81.85 11.20 81.85 18.85
CBES CBES Bancorp of MO 13.75 14.09 0.70 16.56 19.64 83.03 14.57 83.03 13.61
CFNC Carolina Fincorp of NC 13.12 24.30 0.52 12.99 NM 101.00 22.18 101.00 NM
DCBI Delphos Citizens Bancorp of OH 11.94 24.35 0.73 14.26 16.36 83.73 22.19 83.73 16.36
FTNB Fulton Bancorp of MO 14.87 25.56 0.67 13.92 22.19 106.82 24.36 106.82 22.88
HBEI Home Bancorp of Elgin IL 12.81 89.79 0.06 14.12 NM 90.72 24.23 90.72 NM
PFFC Peoples Fin. Corp. of OH 13.00 19.38 0.36 15.57 NM 83.49 21.21 83.49 NM
SSFC South Street Fin. Corp. of NC 13.87 62.37 0.62 13.15 22.37 105.48 29.99 105.48 21.02
WEHO Westwood Hmstd Fin Corp of OH 11.75 30.74 -0.03 15.10 NM 77.81 25.64 77.81 NM
Financial Characteristics(6)
Dividends(4) --------------------------------------------------------
---------------------- Reported Core
Amount/ Payout Total Equity/ NPAs/ --------------- ---------------
Financial Institution Share Yield Ratio(5) Assets Assets Assets ROA ROE ROA ROE
- --------------------- ------- ------ -------- ------ ------ ------ ------- ------ ------- -------
($) (%) (%) ($Mil) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAIF-Insured Thrifts 0.37 1.98 33.16 1,353 12.79 0.87 0.62 5.36 0.83 7.41
Special Selection Grouping(8) 0.00 0.00 0.00 151 24.00 0.46 0.75 3.68 0.91 4.74
Comparable Group
- ----------------
Special Comparative Group(8)
- ----------------------------
AFED AFSALA Bancorp of NY 0.00 0.00 0.00 149 13.68 0.59 0.59 4.34 0.59 4.34
CBES CBES Bancorp of MO 0.00 0.00 0.00 97 17.55 NA 0.80 7.42 1.15 10.70
CFNC Carolina Fincorp of NC 0.00 0.00 0.00 110 21.96 0.06 0.88 4.00 0.88 4.00
DCBI Delphos Citizens Bancorp of OH 0.00 0.00 0.00 110 26.51 0.40 1.36 5.12 1.36 5.12
FTNB Fulton Bancorp of MO 0.00 0.00 0.00 105 22.80 0.92 1.10 4.81 1.06 4.67
HBEI Home Bancorp of Elgin IL 0.00 0.00 0.00 371 26.71 0.49 0.13 0.80 0.68 4.14
PFFC Peoples Fin. Corp. of OH 0.00 0.00 0.00 91 25.40 0.76 0.59 2.31 0.67 2.63
SSFC South Street Fin. Corp. of NC 0.00 0.00 0.00 208 28.43 NA 1.34 4.71 1.43 5.02
WEHO Westwood Hmstd Fin Corp of OH 0.00 0.00 NM 120 32.96 0.03 -0.08 -0.38 0.41 2.03
</TABLE>
(1) Average of High/Low or Bid/Ask price per share.
(2) EPS (earnings per share) is based on actual trailing twelve month data
and is not shown on a pro forma basis.
(3) P/E = Price to earnings; P/B = Price to book; P/A = Price to assets;
P/TB = Price to tangible book value; and P/CORE = Price to estimated
core earnings.
(4) Indicated twelve month dividend, based on last quarterly dividend
declared.
(5) Indicated dividend as a percent of trailing twelve month earnings.
(6) ROA (return on assets) and ROE (return on equity) are indicated ratios
based on trailing twelve month earnings and average equity and assets
balances.
(7) Excludes from averages those companies the subject of actual or rumored
acquisition activities or unusual operating characteristics.
(8) Includes Converted Last 3 Mths (no MHC);
Source: Corporate reports, offering circulars, and RP Financial, Inc.
calculations. The information provided in this report has been
obtained from sources we believe are reliable, but we cannot
guarantee the accuracy or completeness of such information.
Copyright (c) 1995 by RP Financial, Inc.
<PAGE>
RP Financial, LC.
Page 4.15
Investor interest in the new issue market has been favorable, as most of the
recently completed offerings have been oversubscribed and have recorded price
increases in initial post-conversion trading activity.
C. Secondary Step Conversion Market
--------------------------------
There is a pronounced difference in the pricing of second step
conversions relative to full conversion offerings in which 100 percent of the
shares are issued. As noted in Table 4.4, during the past 12 months, the median
pro forma price/tangible book ratios of second step conversions exceeded 80
percent, as compared to the median price/tangible book of conversions over the
last three months which just exceeds 70 percent, perhaps reflecting the smaller
offering and some seasoning as a public company for second steps. Furthermore,
as shown in Table 4.5, assuming the publicly-traded MHCs completed second step
conversions (utilizing standard assumptions for each MHC) at their current
market prices, the implied median price/tangible book is computed at
approximately 79 percent -- apparently the investment community is factoring in
the potential impact of a second step conversion into the market price of MHCs
today.
Accordingly, before adjusting Middlesboro Federal's value for
fundamental differences, it would be expected that the pro forma price/tangible
book would share more pricing similarity with the second step transactions than
the 100 percent stock conversion offerings.
D. Acquisition Market
------------------
Also considered in the valuation was the potential impact on
Middlesboro Federal's stock price of recently completed and pending acquisitions
of other thrifts operating in Middlesboro Federal's market area. As shown in
Exhibit IV-4, there were six Kentucky thrifts acquired or under announced
acquisition in 1996. The recent acquisition activity involving Kentucky thrifts
may imply a certain degree of acquisition speculation for the Bank's stock, but
the Bank's characteristics and market area are very different than this group.
To the extent that acquisition speculation may impact the Bank's offering, we
have largely taken this into account in selecting primarily Midwestern thrifts
that also experience a degree of thrift acquisition activity. The Chairman of
the Bank recently filed a change of control application in order to acquire up
to 24.9 percent of the shares. In view of the subsequent conversion
application, such change of control application is being withdrawn and the
Chairman's pro forma ownership will not exceed 9.9 percent immediately following
conversion.
E. Market for Middlesboro Federal Stock
------------------------------------
Middlesboro Federal's minority shares of stock are not traded on
NASDAQ or any other exchange and trade very infrequently. Since completion of
the minority stock offering in 1994, management is
<PAGE>
------------------------------------
Table 4.4
Completed Second Step Conversions(1)
------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional Information Pre-Conversion Data
--------------------------------------------------
Financial Info. Asset Quality
- ------------------------------------------------------------------------------------------------------------------------------------
NPA +
Conversion Equity/ 90 Day/ Res.
Institution State Charter Date Ticker Assets Assets Assets Cov.
- ----------- ----- ------- ---- ------ ------ ------ ------ ----
(State/Fed.) ($Mil) (%) (%)(2) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kenwood Bancorp OH * F 07/01/96 P.Sheet $48 6.88% 0.00% NM
Commonwealth Bancorp PA * F 06/17/96 CMSB 2,054 6.71% 0.51% 109%
Westwood Financial Corp. NJ F 06/07/96 WWFC 85 7.05% 0.00% NM
Jacksonville Bancorp TX F 04/01/96 JXVL 198 10.47% 1.41% 36%
North Central Bancshares IA F 03/21/96 FFFD 180 16.47% 0.17% 562%
Fidelity Financial of Ohio OH * F 02/04/96 FFOH 227 13.23% 0.50% 69%
First Colorado Bancorp CO * F 01/02/96 FFBA 1,400 12.71% 0.31% 20%
Charter Financial IL * F 12/29/95 CBSB 293 12.17% 0.27% 281%
American National Bancorp MD * F 11/03/95 ANBK 426 6.80% 2.23% 67%
First Defiance Fin. Corp. OH * F 10/02/95 FDEF 476 15.27% 0.24% 135%
Community Bank Shares IN * F 04/10/95 CBIN 205 7.00% 0.33% 80%
Fed One Bancorp WV * F 01/19/95 FOBC 305 9.25% 0.32% 142%
Home Financial Corp. FL * F 10/25/94 HOFL 1,005 13.43% 0.91% 44%
Jefferson Bancorp LA * F 08/18/94 JEBC 257 6.26% 0.91% 25%
Averages: $511 10.26% 0.58% 131%
Medians: 275 9.86% 0.33% 75%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional Information Offering Information Insider Purchases
- ------------------------------------------------------------------------------------------------------------------------------------
Benefit Plans
% of
Conversion Gross Original Exp./ Recog. Mgmt.
Institution State Charter Date Ticker Proceeds Midpoint Proc. ESOP Plans & Dirs.
- ----------- ----- ------- ---- ------ -------- -------- ----- ---- ------ -------
(State/Fed.) ($000) (%) (%) (%) (%) (%)(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Kenwood Bancorp OH * F 07/01/96 P.Sheet $1,577 101.7% 22.2% 8.0% 4.0% 6.4%
Commonwealth Bancorp PA * F 06/17/96 CMSB 98,721 109.7% 1.9% 8.0% 4.0% 0.1%
Westwood Financial Corp. NJ F 06/07/96 WWFC 3,853 99.4% 9.9% 0.0% 0.0% 2.5%
Jacksonville Bancorp TX F 04/01/96 JXVL 16,184 106.4% 4.4% 8.0% 4.0% 2.0%
North Central Bancshares IA F 03/21/96 FFFD 26,255 105.6% 3.5% 3.2% 0.0% 0.5%
Fidelity Financial of Ohio OH * F 02/04/96 FFOH 22,781 132.1% 3.2% 8.0% 4.0% 5.6%
First Colorado Bancorp CO * F 01/02/96 FFBA 134,076 105.3% 1.9% 10.0% 2.0% 2.0%
Charter Financial IL * F 12/29/95 CBSB 29,205 115.7% 3.4% 3.3% 0.0% 0.1%
American National Bancorp MD * F 11/03/95 ANBK 21,821 132.3% 3.3% 8.0% 4.0% 0.6%
First Defiance Fin. Corp. OH * F 10/02/95 FDEF 64,769 132.3% 2.3% 8.0% 4.0% 0.9%
Community Bank Shares IN * F 04/10/95 CBIN 10,117 132.3% 4.4% 8.0% 0.0% 17.9%
Fed One Bancorp WV * F 01/19/95 FOBC 16,124 85.0% 7.7% 7.0% 4.0% 0.9%
Home Financial Corp. FL * F 10/25/94 HOFL 175,580 111.6% 3.1% 8.0% 4.0% 0.6%
Jefferson Bancorp LA * F 08/18/94 JEBC 16,116 107.4% 3.9% 7.0% 3.0% 1.5%
Averages: $45,513 112.6% 5.4% 6.8% 2.6% 3.0%
Medians: 22,301 108.6% 3.4% 8.0% 4.0% 1.2%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional Information Pro Forma Data
---------------------------------------------------
Pricing Ratios(4) Fin. Characteristics
- ------------------------------------------------------------------------------------------------------------------------------------
Conversion
Institution State Charter Date Ticker P/TB P/E P/A ROA TE/A ROE
- ----------- ----- ------- ---- ------ ---- --- ---- --- ---- ---
(State/Fed.) (%) (%) (%) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Kenwood Bancorp OH * F 07/01/96 P.Sheet 67.6% NM 6.0% 0.1% 8.8% 1.7%
Commonwealth Bancorp PA * F 06/17/96 CMSB 109.3% 12.1 8.4% 0.7% 6.7% 10.4%
Westwood Financial Corp. NJ F 06/07/96 WWFC 80.0% 10.1 7.3% 0.7% 9.2% 7.9%
Jacksonville Bancorp TX F 04/01/96 JXVL 77.7% 14.9 12.6% 0.8% 16.2% 5.2%
North Central Bancshares IA F 03/21/96 FFFD 74.2% 12.1 19.7% 1.6% 26.5% 6.1%
Fidelity Financial of Ohio OH * F 02/04/96 FFOH 82.6% 18.1 16.6% 0.9% 20.0% 4.6%
First Colorado Bancorp CO * F 01/02/96 FFBA 87.0% 12.7 13.2% 1.0% 15.2% 6.9%
Charter Financial IL * F 12/29/95 CBSB 81.4% 12.3 15.5% 1.3% 19.1% 6.6%
American National Bancorp MD * F 11/03/95 ANBK 83.9% 17.7 9.0% 0.5% 10.7% 4.7%
First Defiance Fin. Corp. OH * F 10/02/95 FDEF 85.6% 18.2 20.6% 1.1% 24.1% 4.7%
Community Bank Shares IN * F 04/10/95 CBIN 85.5% 10.3 9.3% 0.9% 10.9% 8.3%
Fed One Bancorp WV * F 01/19/95 FOBC 67.9% 9.0 8.8% 1.0% 13.0% 7.6%
Home Financial Corp. FL * F 10/25/94 HOFL 86.4% 10.6 21.3% 2.0% 24.6% 8.2%
Jefferson Bancorp LA * F 08/18/94 JEBC 71.7% 10.2 7.9% 0.8% 11.1% 7.0%
Averages: 81.5% 12.9 12.6% 1.0% 15.4% 6.4%
Medians: 82.0% 12.1 10.9% 0.9% 14.1% 6.7%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
December 9, 1996
Note: An asterisk (*) signifies conversion appraisals performed by RP
Financial.
(1) Includes only those companies who offered stock when the MHC was formed.
(2) As indicated in prospectus.
(3) As indicated in prospectus. Does not include stock options.
(4) Does not account for the adoption of SOP 93-6.
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 4.5
MHC INSTITUTIONS -- IMPLIED PRICING RATIOS FULL CONVERSION BASIS
Comparable Institution Analysis
As of December 13, 1996
<TABLE>
<CAPTION>
Fully Converted
Implied Value Per Share (8)
---------------- --------------- Pricing Ratios(3)
Implied Book ---------------------------------------
Price/ Market 12-Mth Value/
Share(1) Val(8) EPS(2) Share P/E P/B P/A P/TB P/CORE
-------- ------- ------- ------- ------- ------- ------- ------- -------
($) ($Mil) ($) ($) (X) (%) (%) (%) (X)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAIF-Insured Thrifts(7)
- -----------------------
Averages 18.72 142.09 0.87 16.03 17.22 116.52 14.06 119.53 15.51
Medians --- --- --- --- 18.61 111.11 12.43 113.24 15.29
Publicly-Traded MHC Institutions, Full Conversion Basis
- -------------------------------------------------------
Averages 18.06 128.58 0.92 22.61 16.70 78.62 13.65 79.74 15.35
Medians --- --- --- --- 14.88 76.25 13.15 78.79 14.82
Publicly-Traded MHC Institutions, Full Conversion Basis
- -------------------------------------------------------
CHSV County. Svgs, MHC of FL (47.6) 18.25 89.04 1.29 23.24 14.15 78.53 13.40 78.53 13.93
FFFL Fidelity FSB, MHC of FL (47.2) 17.25 115.99 0.68 19.60 NM 88.01 12.76 88.55 17.60
FFSX First FS&LA, MHC of IA (45.0) 30.25 56.96 1.35 34.60 22.41 87.43 11.70 87.88 14.83
FSNJ First SB of NJ, MHC (45.0) 17.25 52.82 0.60 24.07 NM 71.67 7.82 71.67 16.12
FSLA First SB, SLA MHC of NJ (37.6) 18.00 128.99 0.92 23.49 19.57 76.63 12.25 82.08 12.59
GDVS Greater DV SB, MHC of PA (19.9) 10.00 32.72 0.03 15.03 NM 66.53 12.87 66.53 NM
GFED Guaranty FS&LA, MHC of MO (31.1) 11.37 35.53 0.55 15.66 20.67 72.61 17.28 72.61 23.69
HARB Harbor FSB, MHC of FL (45.7) 32.00 157.89 2.15 31.87 14.88 100.41 13.97 102.73 11.59
HARS Harris SB, MHC of PA (23.1) 18.12 203.23 0.35 24.98 NM 72.54 10.95 79.06 19.48
JKSB Jcksnville SB, MHC of IL (43.3%) 12.50 15.90 0.37 18.90 NM 66.14 10.52 66.24 18.36
LFED Leeds FSB, MHC of MD (35.3) 16.00 55.28 0.82 21.39 19.51 74.80 18.16 74.80 14.81
NWSB Northwest SB, MHC of PA (29.9) 13.25 309.73 0.78 17.50 16.99 75.71 14.59 77.44 12.62
PBCT Peoples Bank, MHC of CT (32.3) 27.25 1104.06 2.35 30.97 11.60 87.99 13.99 88.05 13.83
PERT Perpetual of SC, MHC (46.8%) 22.00 33.11 1.63 29.00 13.50 75.86 15.26 75.86 13.50
PFSL Pocahnts Fed, MHC of AR (46.4) 17.25 28.03 1.42 21.78 12.15 79.20 7.11 79.20 9.43
PULB Pulaski SB, MHC of MO (29.0) 14.12 29.57 0.99 19.39 14.26 72.82 15.00 72.82 15.18
RVSB Rvrview SB, FSB MHC of WA (40.3) 16.75 36.78 1.19 19.76 14.08 84.77 15.39 89.91 12.41
SBFL SB Fing. Lakes MHC of NY (33.0) 13.50 24.10 -0.37 18.81 NM 71.77 11.42 71.77 NM
WAYN Wayne S&L Co., MHC of OH (46.7) 23.00 34.45 0.70 25.85 NM 88.97 12.90 88.97 17.83
WCFB Webster City FSB, MHC of IA (45.2) 13.06 27.43 0.56 16.31 23.32 80.07 25.60 80.07 18.39
<CAPTION>
Financial Characteristics(6)
Dividends(4) -------------------------------------------------------
------------------------ Reported Core
Amount/ Payout Total Equity/ NPAs/ --------------- ---------------
Share Yield Ratio(5) Assets Assets Assets ROA ROE ROA ROE
------- ------- -------- ------- ------- ------- ------- ------- ------- -------
($) (%) (%) ($Mil) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAIF-Insured Thrifts(7)
- -----------------------
Averages 0.37 1.98 33.16 1,353 12.79 0.87 0.62 5.36 0.83 7.41
Medians --- --- --- --- --- --- --- --- --- ---
Publicly-Traded MHC Institutions, Full Conversion Basis
- -------------------------------------------------------
Averages 0.61 3.47 43.19 967 17.48 0.76 0.68 3.86 0.89 5.12
Medians --- --- --- --- --- --- --- --- --- ---
Publicly-Traded MHC Institutions, Full Conversion Basis
- -------------------------------------------------------
CHSV County. Svgs, MHC of FL (47.6) 0.80 4.38 62.02 664 17.07 0.53 1.00 5.61 1.01 5.70
FFFL Fidelity FSB, MHC of FL (47.2) 0.80 4.64 NM 909 14.50 0.40 0.54 3.47 0.77 5.00
FFSX First FS&LA, MHC of IA (45.0) 0.72 2.38 53.33 487 13.38 0.13 0.54 3.91 0.81 5.91
FSNJ First SB of NJ, MHC (45.0) 0.50 2.90 NM 675 10.91 0.91 0.29 2.43 0.52 4.32
FSLA First SB, SLA MHC of NJ (37.6) 0.36 2.00 39.13 1,053 15.99 0.75 0.64 3.92 0.99 6.10
GDVS Greater DV SB, MHC of PA (19.9) 0.36 3.60 NM 254 19.34 2.91 0.04 0.19 0.32 1.62
GFED Guaranty FS&LA, MHC of MO (31.1) 0.36 3.17 65.45 206 23.81 1.57 0.84 3.51 0.73 3.06
HARB Harbor FSB, MHC of FL (45.7) 1.20 3.75 55.81 1,130 13.92 0.50 1.03 6.87 1.32 8.82
HARS Harris SB, MHC of PA (23.1) 0.58 3.20 NM 1,856 15.09 0.75 0.26 1.39 0.68 3.70
JKSB Jcksnville SB, MHC of IL (43.3%) 0.40 3.20 NM 151 15.90 0.37 0.32 1.95 0.58 3.58
LFED Leeds FSB, MHC of MD (35.3) 0.68 4.25 NM 304 24.28 0.02 0.96 3.87 1.26 5.10
NWSB Northwest SB, MHC of PA (29.9) 0.32 2.42 41.03 2,123 19.26 0.86 0.92 4.46 1.24 6.01
PBCT Peoples Bank, MHC of CT (32.3) 0.88 3.23 37.45 7,893 15.90 1.42 1.24 7.86 1.04 6.59
PERT Perpetual of SC, MHC (46.8%) 0.00 0.00 0.00 217 20.12 NA 1.13 5.62 1.13 5.62
PFSL Pocahnts Fed, MHC of AR (46.4) 0.84 4.87 59.15 394 8.98 0.32 0.61 6.68 0.78 8.60
PULB Pulaski SB, MHC of MO (29.0) 1.00 7.08 NM 197 20.59 0.53 1.04 5.18 0.98 4.86
RVSB Rvrview SB, FSB MHC of WA (40.3) 0.22 1.31 18.49 239 18.15 0.20 1.14 6.12 1.29 6.94
SBFL SB Fing. Lakes MHC of NY (33.0) 0.40 2.96 NM 211 15.91 1.15 -0.34 -1.94 0.28 1.63
WAYN Wayne S&L Co., MHC of OH (46.7) 0.92 4.00 NM 267 14.50 0.61 0.40 2.70 0.73 4.97
WCFB Webster City FSB, MHC of IA (45.2) 0.80 6.13 NM 107 31.97 0.45 1.08 3.44 1.37 4.36
</TABLE>
(1) Current stock price of minority stock. Average of High/Low or Bid/Ask price
per share.
(2) EPS (earnings per share) is based on reported trailing twelve month data and
is shown on a pro forma basis. Public MHC data reflects additional earnings
from reinvestment of proceeds of second step conversion.
(3) P/E = Price to Earnings; P/B = Price to Book; P/A = Price to Assets; P/TB =
Price to Tangible Book; and P/CORE = Price to Core Earnings. Ratios are pro
forma assuming a second step conversion to full stock form.
(4) Indicated twelve month dividend, based on last quarterly dividend declared.
(5) Indicated twelve month dividend as a percent of trailing twelve month
earnings (earnings adjusted to reflect second step conversion).
(6) ROA (return on assets) and ROE (return on equity) are indicated ratios based
on trailing twelve month earnings and average equity and assets balances.
(7) Excludes from averages and medians those companies the subject of actual or
rumored acquisition activities or unusual operating characteristics.
(8) Figures estimated by RP Financial to reflect a second step conversion of the
MHC to full stock form.
Source: Corporate reports, offering circulars, and RP Financial, Inc.
calculations. The information provided in this report has been obtained
from sources we believe are reliable, but we cannot guarantee the
accuracy or completeness of such information.
Copyright (c) 1995 by RP Financial, LC.
<PAGE>
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 4.5 (Cont.)
Calculation of Implied Per Share Data -- Incorporating MHC Second Step
Conversion
Comparable Institution Analysts
For the Twelve Months Ended September 30, 1996
<TABLE>
<CAPTION>
Current Ownership Current Per Share Data (MHC Ratios)
------------------------------ ------------------------------------------------------
Total Public MHC Core Book Tangible
Shares Shares Shares EPS EPS Value Book Assets
------ ------ ------ -------- -------- --------- -------- -------
(000) (000) (000) ($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Publicly-Traded MHC Institutions
- --------------------------------
CMSV Commty. Svgs, MHC of FL (47.6) 4,879 2,380 2,499 1.08 1.10 15.39 15.39 128.31
FFFL Fidelity FSB, MHC of FL (47.2) 6,724 3,168 3,556 0.47 0.77 11.94 11.82 127.51
FFSX First FS&LA, MHC of IA (45.0) 1,883 756 1,127 0.94 1.63 19.39 19.21 243.31
FSLA First SB, SLA MHC of NJ (37.6) 7,166 2,000 5,166 0.63 1.14 12.59 11.03 136.03
FSNJ First SB of NJ, MHC (45.0) 3,062 1,358 1,704 0.38 0.85 16.01 16.01 212.49
GDVS Greater DV SB, MHC of PA (19.9) 3,272 650 2,622 -0.15 0.07 8.30 8.30 70.99
GFED Guaranty FS&LA, MHC of MO (31.1) 3,125 778 2,347 0.36 0.29 8.49 8.49 58.61
HARB Harbor FSB, MHC of FL (45.7) 4,934 2,240 2,694 1.75 2.36 17.19 16.47 214.32
HARS Harris SB, MHC of PA (23.1) 11,216 2,500 8,716 0.03 0.61 13.15 11.09 153.68
JXSB Jcksnville SB, MHC of IL (43.3%) 1,272 558 714 0.21 0.52 13.01 12.98 112.98
LFED Leeds FSB, MHC of MO (35.3) 3,455 1,248 2,207 0.59 0.85 12.80 12.80 79.51
NWSB Northwest SB, MHC of PA (29.9) 23,376 3,450 19,926 0.52 0.79 8.01 7.62 81.35
PBCT Peoples Bank, MHC of CT (32.3) 40,516 11,815 28,701 1.91 1.53 14.76 14.74 178.61
PERT Perpetual of SC, MHC (46.8%) 1,505 705 800 1.36 1.36 19.18 19.18 134.33
PFSL Pocahnts Fed, MHC of AR (46.4) 1,625 748 877 1.21 1.62 13.96 13.96 234.81
PULB Pulaski SB, MHC of MO (29.0) 2,094 600 1,494 0.76 0.70 10.93 10.93 85.70
RVSB Rvrview SB, FSB MHC of MA (40.3) 2,196 786 1,410 0.95 1.11 10.73 9.60 99.83
SBFL SB Fing. Lakes MHC of NY (33.0) 1,785 590 1,195 -0.58 0.10 11.22 11.22 110.61
WAYN Wayne S&L Co., MHC of OH (46.7) 1,498 660 838 0.41 1.00 15.04 15.04 167.46
WCFB Webster City FSB, MHC of IA (45.2) 2,100 950 1,150 0.40 0.55 10.30 10.30 45.00
<CAPTION>
Impact of Second Step Conversion Pro Forma Per Share Data (Fully Converted)
--------------------------------------------- -------------------------------------------
Share Gross Net Incr. Net Incr. Core Book Tangible
Price Procds(1) Capital(2) Income(3) EPS EPS Value Book Assets
--------- --------- ---------- ---------- ------ ------ ------- -------- --------
($000) ($000) ($000) ($000) ($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Publicly-Traded MHC Institutions
- --------------------------------
CMSV Commty. Svgs, MHC of FL (47.6) 18.25 45,607 38,310 1,035 1.29 1.31 23.24 23.24 136.16
FFFL Fidelity FSB, MHC of FL (47.2) 17.25 61,341 51,526 1,393 0.68 0.98 19.60 19.48 135.17
FFSX First FS&LA, MHC of IA (45.0) 30.25 34,092 28,637 774 1.35 2.04 34.60 34.42 258.52
FSLA First SB, SLA MHC of NJ (37.6) 18.00 92,988 78,110 2,111 0.92 1.43 23.49 21.93 146.93
FSNJ First SB of NJ, MHC (45.0) 17.25 29,394 24,691 667 0.60 1.07 24.07 24.07 220.55
GDVS Greater DV SB, MHC of PA (19.9) 10.00 26,220 22,025 595 0.03 0.25 15.03 15.03 77.72
GFED Guaranty FS&LA, MHC of MO (31.1) 11.37 26,685 22,416 606 0.55 0.48 15.66 15.66 65.78
HARB Harbor FSB, MHC of FL (45.7) 32.00 86,208 72,415 1,957 2.15 2.76 31.87 31.15 229.00
HARS Harris SB, MHC of PA (23.1) 18.12 157,934 132,664 3,586 0.35 0.93 24.98 22.92 165.51
JXSB Jcksnville SB, MHC of IL (43.3%) 12.50 8,925 7,497 203 0.37 0.68 18.90 18.87 118.87
LFED Leeds FSB, MHC of MO (35.3) 16.00 35,312 29,662 802 0.82 1.08 21.39 21.39 88.10
NWSB Northwest SB, MHC of PA (29.9) 13.25 264,020 221,776 5,994 0.78 1.05 17.50 17.11 90.84
PBCT Peoples Bank, MHC of CT (32.3) 27.25 782,102 656,966 17,757 2.35 1.97 30.97 30.95 194.82
PERT Perpetual of SC, MHC (46.8%) 22.00 17,600 14,784 400 1.63 1.63 29.00 29.00 144.15
PFSL Pocahnts Fed, MHC of AR (46.4) 17.25 15,128 12,708 343 1.42 1.83 21.78 21.78 242.63
PULB Pulaski SB, MHC of MO (29.0) 14.12 21,095 17,720 479 0.99 0.93 19.39 19.39 94.16
RVSB Rvrview SB, FSB MHC of MA (40.3) 16.75 23,618 19,839 536 1.19 1.35 19.76 18.63 108.86
SBFL SB Fing. Lakes MHC of NY (33.0) 13.50 16,133 13,551 366 -0.37 0.31 18.81 18.81 118.20
WAYN Wayne S&L Co., MHC of OH (46.7) 23.00 19,274 16,190 438 0.70 1.29 25.85 25.85 178.27
WCFB Webster City FSB, MHC of IA (45.2) 13.06 15,019 12,616 341 0.56 0.71 16.31 16.31 51.01
</TABLE>
(1) Gross proceeds calculated as stock price multiplied by the number of shares
owned by the mutual holding company (i.e., non-public shares).
(2) Net increase in capital reflects gross proceeds less offering expenses,
contra-equity account for leveraged ESOP and deferred compensation account
for restricted stock plan:
Offering expense percent 4.00
ESOP percent purchase 8.00
Recognition plan percent 4.00
(3) Net increase in earnings reflects after-tax reinvestment income (assumes
ESOP and recognition plan do not generate reinvestment income), less after-
tax ESOP amortization and recognition plan vesting:
After-tax reinvestment 3.96
ESOP loan term (years) 10
Recog. plan vesting (yrs) 5
Effective tax rate 34.00
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP Financial, Inc. calculations. The
information provided in this table has been obtained from sources we
believe are reliable, but we cannot guarantee the accuracy or
completeness of such information.
Copyright (c) 1995 by RP Financial, LC.
<PAGE>
aware of only a few trades involving the Bank's stock, with the most recent
trade completed at a price of $11.68 per share. Due to the absence of an active
trading market for Middlesboro Federal's minority shares, the trading activity
of the stock has been heavily discounted in this valuation analysis.
* * * * * * * * * * *
Taking these factors and trends into account, RP Financial concluded that a
slight upward adjustment was appropriate in the valuation analysis for purposes
of marketing of the issue.
8. Management
----------
Middlesboro Federal's management team has experience and expertise in all
of the key areas of the Bank's operations. Exhibit IV-5 lists Middlesboro
Federal's Board of Directors and executive management with summary resumes. The
Bank's operations to date indicates that Middlesboro Federal's management team,
in conjunction with the Board, has developed and implemented an effective
operating philosophy. Middlesboro Federal has no apparent senior management or
Board vacancies and there appears to be a well-defined organizational structure.
Similarly, the financial results of the Peer Group companies indicate that
they have been effectively managed, as all of the Peer Group companies
maintained healthy capital positions, solid core earnings and favorable credit
quality measures. We have therefore concluded that, in general, Middlesboro
Federal is currently being operated at least as effectively as the Peer Group
companies and no adjustment for this factor was necessary.
9. Effect of Government Regulation and Regulatory Reform
-----------------------------------------------------
The Bank and most of the Peer Group companies were similarly impacted by
the recently enacted SAIF rescue legislation, as the affected institutions are
SAIF-insured and subject to the same one time assessment and their deposits will
be assessed at the same rate going forward. In summary, as a fully-converted
SAIF-insured savings bank, Middlesboro Federal will operate in substantially the
same regulatory environment as the Peer Group members -- all of whom are
adequately capitalized institutions and are operating with no apparent
restrictions. Exhibit IV-6 reflects the Bank's pro forma regulatory capital
ratios. On balance, RP Financial concluded that no adjustment to the Bank's
value was warranted for this factor.
<PAGE>
RP Financial, LC.
Page 4.20
Summary of Adjustments
- ----------------------
Overall, we believe the Bank's pro forma market value should take into
account the valuation adjustments relative to the Peer Group:
Key Valuation Parameters: Valuation Adjustment
------------------------ --------------------
Financial Condition Moderate Downward
Profitability, Growth and Viability of Earnings Moderate Downward
Asset Growth Slight Downward
Primary Market Area Slight Downward
Dividends Slight Downward
Liquidity of the Shares Slight Downward
Marketing of the Issue Slight Upward
Management No Adjustment
Effect of Government Regulations and Regulatory Reform No Adjustment
Valuation Approaches
- --------------------
In applying the accepted valuation methodology promulgated by the OTS,
i.e., the pro forma market value approach, we considered the three key pricing
ratios in valuing Middlesboro Federal's to-be-issued stock -- the price/earnings
("P/E"), price/book ("P/B"), and price/assets ("P/A") approaches -- all
performed on a pro forma basis including the effects of the conversion proceeds
from selling the MHC's interest to the public. In computing the pro forma impact
of the conversion and the related pricing ratios, we have incorporated the
assumptions disclosed in Middlesboro Federal's prospectus for offering expenses,
and the effective tax rate and stock benefit plan assumptions (summarized in
Exhibits IV-7 and IV-8). We have utilized the reinvestment rate set forth in the
prospectus, the one year T-Bill rate as of September 30, 1996 of 5.69 percent,
after comparing this rate to the rate derived from the OTS's suggested formula
(6.10 percent), and the blended rate reflecting the Bank's business plan (6.22
percent). With regard to the employee stock ownership plan and stock reward
plans, we have performed the valuation assuming the ESOP purchases an amount
equal to 3.0 percent of the fully converted value (10 year amortization) and the
MRP acquires 4.0 percent of the second step offering. In our estimate of value,
we assessed the relationship of the pro forma pricing ratios relative to the
Peer Group and the recent conversions.
In addition to the three valuation methodologies specified by the OTS, RP
Financial also considered the recent prices for trades of the Bank's stock.
Overall, however, we heavily discounted the price of Middlesboro Federal's stock
as an indication of value given the absence of regular trading activity and
market makers.
<PAGE>
RP Financial, LC.
Page 4.21
RP Financial's valuation placed emphasis on the following:
. P/E Approach. The P/E approach is generally the best indicator of long-
------------
term value for a stock. Since the Bank and the Peer Group reported pro
forma core profitability, the P/E approach was considered in this
valuation. In applying this approach, we took into account primarily
estimated core earnings.
. P/B Approach. P/B ratios have generally served as a useful benchmark in
------------
the valuation of thrift stocks, with the greater determinant of long
term value being earnings. We have also modified the P/B approach to
exclude the impact of intangible assets (i.e., price/tangible book value
or "P/TB"). RP Financial considered the P/TB approach to be a reliable
indicator of value given current market conditions, particularly the
market for new conversions, which often exhibit a willingness to pay
premium P/E multiples in the expectation that such institutions will
implement leveraging strategies to promote earnings growth. At the same
time, with lower ROE ratios, new conversions are typically discounted on
a book value basis relative to the market at least until there is
partial realization of leveraging strategies.
. P/A Approach. P/A ratios are generally a less reliable indicator of
------------
market value, as investors do not place exclusive weight simply on the
size of total assets as a determinant of market value. Furthermore, this
approach does not take into account the amount of stock purchases funded
by deposit withdrawals, thus understating the pro forma P/A ratio.
Investors place significantly greater weight on book value and earnings
-- which have received greater weight in our valuation analysis. At the
same time, the P/A ratio is an indicator of franchise value and, in the
case of a highly capitalized institution, a high P/A ratio limits the
investment community's willingness to pay average market multiples for
earnings and book value when ROE is low.
. Trading of Middlesboro Federal Stock. Middlesboro Federal has public
------------------------------------
shares outstanding due to the mutual holding company form of ownership.
Because there is no liquid market for Middlesboro Federal's minority
shares of common stock, this valuation method was deemed to be less
relevant than the other valuation methodologies and therefore was
heavily discounted in our valuation.
The Bank intends to adopt Statement of Position ("SOP" 93-6), which will
cause earnings per share computations to be based on shares issued and
outstanding excluding shares owned by an ESOP where there is not a commitment to
release such shares. For the purpose of preparing the pro forma pricing tables
and exhibits, we have reflected all shares issued in the offering including
shares purchased by the ESOP as outstanding to capture the full dilutive impact
of such stock to the Bank's shareholders. However, we have considered the impact
of adoption of SOP 93-6 on the Bank in the determination of the Bank's pro forma
value.
Based on the application of the OTS valuation approaches, taking into
consideration the valuation adjustments discussed above, and placing the
greatest weight on the P/TB and P/E approaches, followed by the
<PAGE>
RP Financial, LC.
Page 4.22
P/A approach, and heavily discounting the recent trading activity in Middlesboro
Federal's stock, RP Financial concluded that the pro forma market value of the
Bank's conversion stock is $5,138,636 at the midpoint at this time.
1. Price-to-Tangible Book ("P/TB"). The application of the P/TB valuation
-------------------------------
method requires calculating the Bank's pro forma market value by applying a
valuation P/TB ratio to Middlesboro Federal's pro forma tangible book value.
The pre-conversion book value for Middlesboro Federal of $4,418,000 was equal to
the Bank's reported capital at September 30, 1996, plus the $33,000 of mutual
holding company assets which will be consolidated with the Company as a result
of the conversion. Based on the $5,138,636 midpoint valuation, Middlesboro
Federal's pro forma P/TB ratio was 72.32 percent. In comparison to the average
P/TB ratio for the Peer Group of 96.99 percent, Middlesboro Federal's valuation
reflected a discount of 25.44 percent. RP Financial considered the discount
under the P/TB approach to be reasonable in light of the valuation adjustments
discussed previously. Given the historically high P/TB pricing for thrifts in
today's market, a valuation discount under the P/TB approach could only be
expected and is consistent with the aftermarket trading of new conversion
issues.
Given the emphasis on limiting near term aftermarket trading in the revised
appraisal guidelines, RP Financial also considered the pro forma P/TB ratios of
recent conversions in its valuation analysis. It is these companies that
provide a proxy for aftermarket trading for new thrift issues. At the midpoint
value of $5,138,636, Middlesboro Federal's pro forma P/TB ratio of 72.32 percent
represented a discount of 20.0 percent from the 90.44 percent average P/TB ratio
of the recently converted thrifts (see Table 4.3). At the super maximum of the
valuation range, Middlesboro Federal's pro forma P/B ratio of 84.05 percent is
discounted by approximately 7.1 percent from the new conversions.
2. Price-to-Earnings ("P/E"). The application of the P/E valuation method
-------------------------
requires calculating the Bank's pro forma market value by applying a valuation
P/E multiple times the pro forma earnings base. Ideally, the pro forma earnings
base is composed principally of the Bank's recurring earnings base, that is,
earnings adjusted to exclude any one-time non-operating items, plus the
estimated after-tax earnings benefit of the reinvestment of net conversion
proceeds. Middlesboro Federal reported a net loss of $152,000 for the twelve
months ended September 30, 1996. As shown below, the Bank recorded four non-
operating income items during the twelve month period which were all deemed non-
operating and not included in the core earnings base. The Bank's core earnings
were calculated to equal the following (Note: the adjustments applied to the
Peer Group's earnings in the calculation of core earnings are shown in Exhibit
IV-9, including the SAIF assessment):
<PAGE>
RP Financial, LC.
Page 4.23
<TABLE>
<CAPTION>
Amount
------
($000)
<S> <C>
Income Before Taxes (145)
Less: Gains of Sale of Investments (20)
Plus: SAIF Assessment Fee 388
Plus: Deferred Comp. Agreement 145
Plus: Director Retirement Plan 143
-----
Adjusted (Core) Income
Before Tax $511
Estimated Income Taxes @ 34% (174)
-----
Adjusted (Core) Income After Tax $337
</TABLE>
Based on Middlesboro Federal's trailing twelve month core earnings, and
incorporating the impact of the pro forma assumptions previously discussed, the
Bank's pro forma core P/E multiple at the $5,138,636 midpoint value equaled
12.53 times. Comparatively, the Peer Group posted an average core P/E multiple
of 16.47 times, which indicates a discount of 23.92 percent in the Bank's pro
forma earnings multiple. In reaching the valuation conclusion, we also
evaluated the Bank's price/earnings multiple on the basis of projected earnings
as reflected in the business plan.
3. Price-to-Assets ("P/A"). The P/A valuation methodology determines
-----------------------
market value by applying a valuation P/A ratio to the Bank's pro forma asset
base, conservatively assuming no deposit withdrawals are made to fund stock
purchases. In all likelihood there will be deposit withdrawals, which results
in understating the pro forma P/A ratio which is computed herein. At the
midpoint of the valuation range, Middlesboro Federal's value equaled 5.94
percent of pro forma assets. Comparatively, the Peer Group companies exhibited
an average P/A ratio of 9.68 percent, which implies a 38.64 percent discount
being applied to the Bank's pro forma P/A ratio.
Valuation Conclusion
- --------------------
It is our opinion that, as of December 13, 1996, the aggregate pro forma
market value of the Bank, inclusive of the sale of the MHC's ownership interest
in the Subscription and Community Offering was $5,138,636 at the midpoint. Based
on this valuation and the approximate 64.71 percent ownership interest being
sold in the Subscription and Community Offerings, the midpoint value of the
Company's stock offering was $3,325,000 (i.e., 0.6471 x $5,138,636), equal to
332,500 shares at a per share value of $10.00. Pursuant to OTS conversion
guidelines, the 15 percent offering range includes a minimum value of $2,826,250
and a maximum value of $3,823,750. Based on the $10.00 per share offering price,
this range equates to an offering of 282,625 shares at the minimum to 382,375
shares at the maximum. The Company's offering also includes a provision for a
superrange, which if exercised, would result in an offering size of $4,397,313,
equal to 439,731
<PAGE>
RP Financial, LC.
Page 4.24
shares at the $10.00 per share offering price. The comparative pro forma
valuation ratios relative to the Peer Group are shown in Table 4.6, and the key
valuation assumptions are detailed in Exhibit IV-7. The pro forma calculations
for the range are detailed in Exhibit IV-8.
Establishment of Exchange Ratio
- -------------------------------
OTS regulations provide that in a conversion of a mutual holding company,
the minority stockholders are entitled to exchange their shares of the Bank's
common stock for common stock of the Company. The Board of Directors of the
Mutual Holding Company has independently established a formula to determine the
exchange ratio. The formula has been designed to preserve the current aggregate
percentage ownership in the Bank represented by the Public Shares, which is an
approximate 35.29 percent ownership interest. Pursuant to the formula, the
Exchange Ratio will be determined at the end of the Company's stock offering
based on the total number of shares sold in the Subscription and Community
offerings. Based upon this formula, and the valuation conclusion and offering
range concluded above, the Exchange Ratio would be 0.8564 shares, 1.0076 shares,
1.1587 shares and 1.3325 shares of Cumberland Mountain stock issued for each
Public Share, at the minimum, midpoint, maximum and supermaximum of the
offering, respectively.
The Exchange Ratio formula and share exchange procedures were determined
independently by the Board of Directors. RP Financial expresses no opinion on
the proposed exchange of Company shares for the Public Shares or on the proposed
Exchange Ratio.
Table 4.6
Middlesboro Federal Bank, Federal Savings Bank
Calculation of Exchange Ratios
<TABLE>
<CAPTION>
Shares Price/ Exchange Implied
Offered Share Shares(1) Exch. Ratio(2)
------- ------ ----------- --------------
($000)
<S> <C> <C> <C> <C>
Minimum 282,625 $10.00 154,159 0.8564
Midpoint 332,500 10.00 181,363 1.0076
Maximum 382,375 10.00 208,568 1.1587
Super Maximum 439,731 10.00 239,853 1.3325
</TABLE>
(1) Calculated to preserve the Public Shares percentage ownership in the
Company at 35.29 percent (180,000 existing shares outstanding divided
by 510,000 total shares outstanding).
(2) Calculated as pro forma exchange shares divided by 180,000 existing
Public Shares outstanding.
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Table 4.7
Public Market Pricing
Middlesboro Fed. Bk, FSB of KY and the Comparables
As of December 13, 1996
<TABLE>
<CAPTION>
Market Per Share Data
Capitalization --------------- Pricing Ratios(3) Dividends(4)
--------------- --------------------------------------- ----------------------
Book
Price/ Market 12-Mth Value/ Amount/ Payout
Share(1) Value EPS(2) Share P/E P/B P/A P/TB P/CORE Share Yield Ratio(5)
-------- -------- ------ -------- ------- ------- ----- -------- ------ ------ ------- -------
($) ($Mil) ($) ($) (X) (%) (%) (%) (X) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Middlesboro Fed. Bk, FSB of KY
- ------------------------------
Superrange 10.00 6.80 (0.07) 11.90 (133.40) 84.05 7.77 84.05 15.51 0.00 0.00 0.00%
Range Maximum 10.00 5.91 (0.11) 12.80 (89.76) 78.15 6.79 78.15 13.96 0.00 0.00 0.00%
Range Midpoint 10.00 5.14 (0.15) 13.83 (65.22) 72.32 5.94 72.32 12.53 0.00 0.00 0.00%
Range Minimum 10.00 4.37 (0.21) 15.23 (47.61) 65.68 5.08 65.68 11.00 0.00 0.00 0.00%
SAIF-Insured Thrifts(7)
- -----------------------
Averages 18.72 142.09 0.87 16.03 17.22 116.52 14.06 119.53 15.51 0.37 1.98 33.16
Medians --- --- --- --- 18.61 111.11 12.43 113.24 15.29 --- --- ---
Comparable Group Averages
- -------------------------
Averages 16.41 14.85 0.56 17.23 19.15 95.11 9.68 96.99 16.47 0.34 2.04 37.10
Medians --- --- --- --- 18.94 97.43 9.68 97.73 18.00 --- --- ---
Comparable Group
- ----------------
CLAS Classic Bancshares of KY 11.62 15.36 0.23 14.22 NM 81.72 11.28 97.73 NM 0.24 2.07 NM
CBIN Community Bank Shares of IN 12.50 24.80 0.66 12.83 18.94 97.43 10.57 97.58 12.38 0.34 2.72 51.52
CIBI Community Inv. Bancorp of OH 16.75 11.16 0.90 17.00 18.61 98.53 11.77 98.53 12.88 0.40 2.39 44.44
BDJI First Fed. Bancorp. of MN 18.00 12.62 0.45 17.58 NM 102.39 11.76 102.39 18.00 0.00 0.00 0.00
FFBI First Financial Bancorp of IL 15.87 7.17 0.22 16.62 NM 95.49 7.38 95.49 22.67 0.00 0.00 0.00
FFHS First Franklin Corp. of OH 16.00 18.53 0.52 17.07 NM 93.73 8.49 94.56 13.91 0.32 2.00 61.54
HZFS Horizon Fin'l. Services of IA 14.50 6.50 0.21 18.36 NM 78.98 8.47 78.98 NM 0.32 2.21 NM
LSBI LSB Fin. Corp. of Lafayette IN 18.75 17.21 0.90 18.21 20.83 102.97 9.68 102.97 22.87 0.32 1.71 35.56
OHSL OHSL Financial Corp. of OH 20.75 25.38 0.96 20.58 21.61 100.83 11.66 100.83 14.41 0.76 3.66 NM
PLE Pinnacle Bank of AL 17.00 15.13 1.08 16.65 15.74 102.10 7.89 105.79 10.00 0.72 4.24 66.67
PTRS The Potters S&L Co. of OH 18.75 9.49 0.06 20.36 NM 92.09 7.56 92.09 21.07 0.28 1.49 NM
<CAPTION>
Financial Characteristics(6)
-------------------------------------------------------
Reported Core
Total Equity/ NPAs/ --------------- ---------------
Assets Assets Assets ROA ROE ROA ROE
------- ------- ------- ------- ------- ------- -------
($Mil) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
Middlesboro Fed. Bk, FSB of KY
- ------------------------------
Superrange 87 9.24 0.51 (0.06) (0.63) 0.50 5.42
Range Maximum 87 8.69 0.52 (0.08) (0.87) 0.49 5.60
Range Midpoint 87 8.21 0.52 (0.09) (1.11) 0.47 5.77
Range Minimum 86 7.73 0.52 (0.11) (1.38) 0.46 5.97
SAIF-Insured Thrifts(7)
- -----------------------
Averages 1,353 12.79 0.87 0.62 5.36 0.83 7.41
Medians --- --- --- --- --- --- ---
Comparable Group Averages
- -------------------------
Averages 153 10.23 0.82 0.37 3.24 0.64 5.66
Medians --- --- --- --- --- --- ---
Comparable Group
- ----------------
CLAS Classic Bancshares of KY 136 13.80 0.86 0.38 1.79 0.64 3.04
CBIN Community Bank Shares of IN 235 10.85 0.22 0.59 5.15 0.90 7.88
CIBI Community Inv. Bancorp of OH 95 11.94 0.88 0.68 5.05 0.98 7.29
BDJI First Fed. Bancorp. of MN 107 11.49 0.38 0.31 2.22 0.68 4.94
FFBI First Financial Bancorp of IL 97 7.73 0.43 0.12 1.27 0.37 4.03
FFHS First Franklin Corp. of OH 218 9.05 0.52 0.28 2.99 0.62 6.61
HZFS Horizon Fin'l. Services of IA 77 10.73 1.12 0.13 1.11 0.33 2.85
LSBI LSB Fin. Corp. of Lafayette IN 178 9.40 1.37 0.50 4.76 0.46 4.33
OHSL OHSL Financial Corp. of OH 218 11.57 0.22 0.57 4.63 0.85 6.95
PLE Pinnacle Bank of AL 192 7.73 0.83 0.50 6.42 0.79 10.11
PTRS The Potters S&L Co. of OH 125 8.21 2.20 0.03 0.28 0.39 4.17
</TABLE>
(1) Average of high/low or bid/ask price per share.
(2) EPS (common earnings per share) is based on actual trailing twelve month
data and is shown on a pro forma basis.
(3) P/E = Price to Earnings; P/B = Price to Book; P/A = Price to Assets;
P/TB = Price to Tangible Book; and P/CORE = Price to Core Earnings.
(4) Indicated twelve month dividend, based on last quarterly dividend declared.
(5) Indicated twelve month dividend as a percent of trailing twelve month
earnings.
(6) ROA (return on assets) and ROE (return on equity) are indicated ratios based
on trailing twelve month common earnings and average common equity and total
assets balances.
(7) Excludes from averages and medians those companies the subject of actual
or rumored acquisition activities or unusual operating characteristics.
Source: Corporate reports, offering circulars, and RP Financial, Inc.
calculations. The information provided in this report has been obtained
from sources we believe are reliable, but we cannot guarantee the
accuracy or completeness of such information.
Copyright (c) 1995 by RP Financial, Inc.
<PAGE>
EXHIBITS
<PAGE>
RP Financial LC.
LIST OF EXHIBITS
Exhibit
Number Description
- ------- -----------
I-1 Map of Office Location
I-2 Middlesboro Federal's Audited Financial Statements
I-3 Key Operating Ratios
I-4 Investment Portfolio Composition
I-5 Yields and Costs
I-6 Loan Loss Allowance Activity
I-7 Fixed Rate and Adjustable Rate Loans
I-8 NPV Analysis
I-9 Loan Portfolio Composition
I-10 Contractual Maturity By Loan Type
I-11 Loan Originations, Purchases, and Sales
I-12 Non-Performing Assets
I-13 Classified Assets
I-14 Deposit Composition
I-15 Time Deposit Rate/Maturity
I-16 Borrowings
II-1 List of Branch Offices
II-2 Historical Interest Rates
II-3 Demographic/Economic Reports
II-4 Sources of Personal Income/Employment Sectors
III-1 General Characteristics of Publicly-Traded
Institutions
III-2 Midwestern Peer Thrifts
<PAGE>
RP Financial, LC.
LIST OF EXHIBITS(continued)
III-3 Southeastern Peer Thrifts
III-4 Kentucky Thrifts
IV-1 Stock Prices: December 13, 1996
IV-2 Historical Stock Price Indices
IV-3 Historical Thrift Stock Indices
IV-4 Market Area Acquisition Activity
IV-5 Directors and Management Summary Resumes
IV-6 Pro Forma Regulatory Capital Ratios
IV-7 Pro Forma Analysis Sheet
IV-8 Pro Forma Effect of Conversion Proceeds
IV-9 Peer Group Core Earnings Analysis
V-1 Firm Qualifications Statement
<PAGE>
EXHIBIT I-1
Middlesboro Federal Bank, Federal Savings Bank
Map of Office Location
<PAGE>
[MAP OF THE STATE OF KENTUCKY APPEARS HERE]
<PAGE>
EXHIBIT I-2
Middlesboro Federal Bank, Federal Savings Bank
Audited Financial Statements
[Incorporated by Reference]
<PAGE>
EXHIBIT I-3
Middlesboro Federal Bank, Federal Savings Bank
Key Operating ratios
<TABLE>
<CAPTION>
At or for the
Three Months Ended At of for the
September 30, Year Ended June 30,
-------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Key Operating Ratios:
Performance Ratios:
Return on assets (net income divided
by average total assets).......................... (1.06)% 0.44% 0.19% 0.41%
Return on average equity (net income divided by
average stockholders' equity).................... (20.25) 6.67 3.18 6.36
Net interest margin (net interest income divided
by average interest-earning assets).............. 2.99 2.50 2.46 2.77
Ratio of average interest-earning
assets to average interest-bearing
liabilities...................................... 103.05 106.95 111.79 110.94
Ratio of noninterest expense to average
total assets..................................... 4.85 2.34 2.38 2.21
Asset Quality Ratios:
Nonperforming assets to total assets
at end of period................................. 0.54 1.02 0.50 0.37
Nonperforming loans to total loans
at end of period................................. 0.65 1.49 0.62 0.56
Allowance for loan losses to total
loans at end of period........................... 0.28 0.29 0.30 0.33
Allowance for loan losses to nonperforming
loans at end of period........................... 43.33 19.38 48.26 59.20
Provisions for loan losses to total
loans receivable, net............................ 0.04 0.01 0.10 0.04
Net charge-offs to average loans
outstanding...................................... 0.09 0.11 0.04 --
Capital Ratios:
Average stockholders' equity to average assets.... 5.24 6.58 5.81 6.46
Regulatory Capital ratios:
Tangible capital................................. 5.56 6.96 6.53 6.92
Core capital..................................... 5.56 6.96 6.53 6.92
Total Risk-Based capital......................... 9.44 14.10 11.62 12.83
</TABLE>
<PAGE>
EXHIBIT I-4
Middlesboro Federal Bank, Federal Savings bank
Investment Portfolio Composition
<TABLE>
<CAPTION>
At At June 30,
September 30, ------------------
1996 1996 1995
------------ ---- ----
<S> <C> <C> <C>
(Dollars in thousands)
Securities available for sale:
U.S. government and agency securities........ $ 2,749 $ 2,795 $ 940
Franklin U.S. Government Securities Fund..... 888 885 913
Securities held to maturity:
U.S. government and agency securities........ -- -- 3,940
Certificates of deposit...................... 190 576 1,626
Common stock and other....................... 63 63 65
------ ------- -------
Total investment securities................ 3,890 4,319 7,484
Cash and cash equivalents...................... 605 874 1,796
FHLB stock..................................... 444 436 407
------- ------- -------
Total investments.......................... $ 4,939 5,629 $ 9,687
======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 1-5
Middlesboro Federal Bank, Federal Savings Bank
Yields and Costs
<TABLE>
<CAPTION>
Three Months Ended September 30,
At September 30, --------------------------------------------------------------------------
1996 1996 1995
----------------- ------------------------------------ ------------------------------
Average Average Average Average
Balance Rate Balance Interest Rate Balance Interest Rate
------- ----- ------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans
Consumer..................... $ 8,343 10.27% $ 7,890 $ 202 10.24% $ 4,977 $ 130 10.45%
Other........................ 1,858 6.21 2,312 42 7.27 2,415 44 7.29
Mortgage..................... 59,365 7.29 56,862 1,075 7.56 41,861 758 7.24
--------- ---------- --------- --------- --------
Total loans................. 69,566 7.64 67,064 1,319 7.87 49,253 932 7.57
--------- ---------- --------- --------- --------
Mortgage-backed securities... 7,655 6.35 7,759 121 6.24 12,042 187 6.21
Investment securities........ 3,890 5.85 4,103 58 5.65 7,141 107 5.99
FHLB stock................... 444 7.00 436 8 7.34 436 7 6.42
--------- ---------- --------- --------- --------
Total interest-earning
assets..................... 81,555 7.39 79,362 1,506 7.59 68,872 1,233 7.16
--------- --------
Non-interest-earning assets.. 2,244 4,437 392
--------- --------- ---------
Total assets................ $ 83,799 $ 83,799 $ 69,264
========= ========= =========
INTEREST EXPENSE
Savings deposits.............. $ 8,780 2.94% $ 8,814 65 2.95% $ 9,572 71 2.96%
Certificates of deposit....... 53,497 5.58 52,207 747 5.72 47,197 689 5.84
Demand, NOW and money market.. 9,629 2.13 10,123 51 2.02 7,625 43 2.26
--------- ---------- --------- --------- --------
Total deposits.............. 71,906 4.80 71,144 863 4.85 64,394 803 4.99
Funds borrowed................ 6,000 5.45 5,867 50 3.41 -- -- --
--------- ---------- --------- --------- --------
Total interest-bearing
liabilities.................. 77,906 4.69 77,071 913 4.74 64,394 803 4.99
--------- --------- --------
Other non-interest-bearing
liabilities.................. 1,508 2,403 311
Total stockholders' equity..... 4,385 4,385 4,559
--------- --------- ---------
Total liabilities and
stockholders' equity...... $ 83,799 $ 83,799 $ 69,264
========= ========= =========
Net interest income............ $ 593 $ 430
========= ========
Interest rate spread........... 2.70% 2.85% 2.17%
====== ====== ======
Net yield on interest-
earning assets............... n/a 2.99% 2.50%
====== ====== ======
Ratio of average interest-
earning assets to average
interest-earning liabilities. n/a 103.05% 106.95%
====== ====== ======
</TABLE>
<PAGE>
EXHIBIT 1-5 (continued)
Middlesboro Federal Bank, Federal Savings Bank
Yields and Costs
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------------------------------------------
1996 1995
------------------------------------- --------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans
Consumer.................................. $ 4,924 $ 528 10.72% $ 2,786 $ 290 10.41%
Other..................................... 2,355 194 8.24 2,415 178 7.37
Mortgage.................................. 52,565 3,427 6.52 38,505 2,521 6.55
---------- ---------- -------- ----------
Total................................... 59,844 4,149 6.93 43,706 2,989 6.84
---------- ---------- -------- ----------
Mortgage-backed securities.................. 10,446 635 6.08 13,683 720 5.26
Investment securities....................... 6,020 389 6.46 10,669 602 5.64
FHLB stock.................................. 436 29 6.65 462 36 7.79
---------- ---------- -------- ----------
Total interest-earning assets................. 76,746 5,202 6.78 68,520 4,347 6.34
---------- ---------- -------- ----------
Non-interest-earning assets................... 2,233 2,852
---------- --------
Total assets.............................. $ 78,979 $ 71,372
========== ========
INTEREST EXPENSE
Deposits
Savings deposits.......................... $ 9,166 270 2.95 $ 9,729 268 2.75
Certificates of deposits.................. 49,955 2,836 5.68 44,607 2,007 4.50
Demand, NOW, and money market............. 9,264 202 2.18 7,131 160 2.24
---------- ---------- -------- ----------
Total deposits.......................... 68,385 3,308 4.84 61,467 2,435 3.96
Funds borrowed.............................. 264 9 3.41 294 10 3.40
---------- ---------- -------- ----------
Total interest-bearing liabilities............ 68,649 3,317 4.83 61,761 2,445 3.97
---------- ----------
Other non-interest-bearing liabilities........ 5,734 5,003
Total stockholders' equity.................... 4,596 4,608
---------- --------
Total liabilities and stockholders' equity $ 78,979 $ 71,372
========== ========
Net interest income........................... $ 1,885 $ 1,902
========== ==========
Interest rate spread.......................... 1.95% 2.37%
====== ======
Net yield on interest-earning assets.......... 2.46% 2.77%
====== ======
Ratio of average interest-earning assets to
average interest-bearing liabilities........ 111.79% 110.94%
====== ======
</TABLE>
<PAGE>
EXHIBIT I-6
Middlesboro Federal Bank, Federal Savings Bank
Loan Loss Allowance Activity
<TABLE>
<CAPTION>
Three Months Ended
September 30, Year Ended June 30,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period......... $ 180 $ 148 $ 148 $ 131
----- ----- ----- -----
Loans charged off:
Real estate mortgage loans:
Residential......................... -- -- -- --
Commercial.......................... -- -- -- --
Construction.......................... -- -- -- --
Commercial............................ -- -- -- --
Consumer.............................. 17 28 36 4
----- ----- ----- -----
Total charge-offs..................... 17 28 36 4
----- ----- ----- -----
Recoveries:
Real estate mortgage loans:
Residential......................... -- -- 6 --
Commercial.......................... -- -- -- --
Construction.......................... -- -- -- --
Commercial............................ -- -- -- --
Consumer.............................. 2 14 4 3
----- ----- ----- -----
Total recoveries...................... 2 14 10 3
----- ----- ----- -----
Net loans charged off.................. 15 14 26 1
----- ----- ----- -----
Provision for loan losses.............. 30 3 58 18
----- ----- ----- -----
Balance at end of period............... $ 195 $ 137 $ 180 $ 148
===== ===== ===== =====
Ratio of net charge-offs to average
loans outstanding during the period... 0.09% 0.11% 0.04% --%
===== ===== ===== =====
</TABLE>
<PAGE>
EXHIBIT I-7
Middlesboro Federal Bank, Federal Savings Bank
Fixed Rate and Adjustable Rate Loans
<TABLE>
<CAPTION>
Predetermined Floating or
Rate Adjustable Rates
------------- ----------------
(In thousands)
<S> <C> <C>
Real estate mortgage loans:
One- to four-family............. $ 7,766 $ 30,874
Multi-family.................... 374 1,489
Commercial...................... 1,856 7,380
Construction:
One- to four-family............. -- --
Multi-family and commercial..... -- --
Commercial........................ 1,946 769
Consumer loans:
Savings account................. -- --
Automobiles..................... 1,299 --
Credit card..................... -- --
Other........................... 1,293 --
-------- --------
Total......................... $ 14,534 $ 40,512
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION> Net Portfolio Value NPV as % of Portfolio Value of Assets
Change -------------------------------------- -------------------------------------
in Rates $ Amounts $ Change % Change NPV Ratio Basis Point Change
- -------- --------- -------- -------- --------- ------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+400 bp 1,553 (4,445) (74) 1.95 (506) bp
+300 bp 2,848 (3,151) (53) 3.51 (350) bp
+200 bp 4,066 (1,933) (32) 4.91 (210) bp
+100 bp 5,142 (856) (14) 6.11 (91) bp
0 bp 5,998 -- -- 7.02 --
- -100 bp 6,579 581 10 7.60 59 bp
- -200 bp 6,900 902 15 7.90 89 bp
- -300 bp 7,401 1,403 23 8.39 137 bp
- -400 bp 8,150 2,152 36 9.11 209 bp
</TABLE>
The following table sets forth the interest rate risk capital component
for the Bank at September 30, 1996 given a hypothetical 200 basis point rate
change in the market interest rates.
<TABLE>
<CAPTION>
September 30, 1996
------------------
<S> <C>
Pre-shock NPV Ratio: NPV as % of Portfolio Value of Assets ......... 7.02%
Exposure Measure: Post-Shock NPV Ratio .............................. 4.91%
Sensitivity Measure: Change in NPV Ratio ............................ (210) bp
</TABLE>
<PAGE>
EXHIBIT 1-9
Middlesboro Federal Bank, Federal Savings Bank
Loan Portfolio Composition
<TABLE>
<CAPTION>
At June 30,
At September 30, ----------------------------------------------------
1996 1996 1995
--------------------- --------------------- -------------------
Amount % Amount % Amount %
------ ------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family.................. $ 43,711 60.29% $ 38,937 62.14% $ 32,778 70.17%
Multi-family......................... 1,866 2.57 1,877 3.00 - -
Commercial........................... 11,359 15.67 9,307 14.85 5,753 12.32
Construction:
One- to four-family.................. 3,042 4.20 2,964 4.73% 1,725 3.69
Multi-family and commercial.......... 1,176 1.62 146 0.23 - -
Commercial............................. 4,497 6.20 3,432 5.48 888 1.90
Consumer loans:
Savings account...................... 1,833 2.53 1,746 2.79 1,585 3.39
Automobile........................... 2,342 3.23 2,165 3.46 1,737 3.72
Credit card.......................... 507 0.70 448 0.72 74 0.16
Other................................ 2,169 2.99 1,634 2.60 2,172 4.65
--------- ------ --------- ------ --------- ------
Total loans...................... 72,502 100.00% 62,656 100.00% 46,712 100.00%
====== ====== ======
Less:
Loans in process..................... (2,412) (1,949) (760)
Discounts............................ (524) (596) (940)
Allowance for loan losses............ (195) (180) (148)
--------- --------- ---------
Total............................ $ 69,371 $ 59,931 $ 44,864
========= ========= =========
</TABLE>
<PAGE>
EXHIBIT I-10
Middlesboro Federal Bank, Federal Savings Bank
Contractual Maturity By Loan Type
<TABLE>
<CAPTION>
Due after Due after Due after
Due during the year ending 3 through 5 through 10 through Due after 15
June 30, 5 years after 10 years after 15 years after years after
-------------------------- June 30, June 30, June 30, June 30,
1997 1998 1999 1996 1996 1996 1996 Total
---- ---- ---- -------- -------- -------- -------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans:
One- to four-family....... $ 297 $ 124 $ 176 $ 314 $ 2,714 $ 6,966 $ 28,346 $ 38,937
Multi-family.............. 14 6 9 15 131 336 1,366 1,877
Commercial................ 71 30 42 75 649 1,665 6,775 9,307
Construction:
One- to four-family....... 2,964 -- -- -- -- -- -- 2,964
Multi-family and commercial 146 -- -- -- -- -- -- 146
Commercial.................. 717 308 607 1,391 409 -- -- 3,432
Consumer loans:
Savings account........... 1,746 -- -- -- -- -- -- 1,746
Automobile................ 866 195 383 721 -- -- -- 2,165
Credit card............... 448 -- -- -- -- -- -- 448
Other..................... 341 147 288 663 195 -- -- 1,634
------ ------ ------ ------- --------- --------- -------- --------
Total................... $7,610 $ 810 $1,505 $ 3,179 $ 4,098 $ 8,967 $ 36,487 $ 62,656
====== ====== ====== ======= ========= ========= ======== ========
</TABLE>
<PAGE>
EXHIBIT I-11
Middlesboro Federal Bank, Federal Savings Bank
Loan Originations, Purchases, and Sales
<TABLE>
<CAPTION>
Three Months Ended
September 30, Year Ended June 30,
--------------------- ------------------------
1996 1995 1996 1995
------- ------- ------ ------
(In thousands)
<S> <C> <C> <C> <C>
Loans originated:
Real estate mortgage loans:
One- to four-family................................. $ 5,429 $ 2,591 $13,562 $12,626
Multi-family........................................ --- --- 339 ---
Commercial.......................................... 2,467 901 3,524 3,794
Construction.......................................... 2,494 1,340 4,885 1,689
Commercial............................................ 1,065 103 2,186 2,590
Consumer loans........................................ 2,919 995 8,331 864
Other................................................. --- --- --- 1,730
-------- -------- -------- --------
Total loans originated........................... $14,374 $ 6,290 $32,827 $ 23,293
======== ======== ======== ========
Loans purchased:
Real estate loans:
Single-family residential......................... $ 190 $ --- $ 202 $ ---
-------- -------- -------- --------
Total loans purchased............................. $ 190 $ --- $ 202 $ ---
======== ======== ======== =========
</TABLE>
<PAGE>
EXHIBIT I-12
Middlesboro Federal Bank, Federal Savings Bank
Non-Performing Assets
<TABLE>
<CAPTION>
At At June 30,
September 30, ----------------------
1996 1996 1995
------ ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis: (1)
Real estate mortgage loans:
Residential.................................. $ 433 $ 176 $ 132
Nonresidential............................... --- 173 ---
Construction................................... --- --- ---
Commercial..................................... --- --- ---
Consumer....................................... --- --- 3
------- ------- -------
Total $ 433 $ 349 $ 135
======= ======= =======
Accruing loans which are contractually
past due 90 days or more:
Real estate mortgage loans:
Residential.................................. $ --- $ --- $ ---
Nonresidential............................... --- --- ---
Construction................................... --- --- ---
Commercial..................................... --- --- ---
Consumer....................................... 17 24 115
------- ------- -------
Total...................................... $ 17 $ 24 $115
======= ======= =======
Total nonperforming loans.................. $450 $373 $250
======= ======= =======
Percentage of total loans....................... 0.65% 0.56% 0.57%
======= ======= =======
Other nonperforming assets...................... $--- $--- $---
======= ======= =======
</TABLE>
<PAGE>
EXHIBIT I-13
Middlesboro Federal Bank, Federal Savings Bank
Classified Assets
Asset Classification and Allowance for Loan Loses. Federal regulations
require savings associations to review their assets on a regular basis and to
classify them as "substandard," "doubtful" or "loss" if warranted. Assets
classified as substandard or doubtful require the institution to establish
general allowances for loan losses. If an asset or portion thereof is classified
as loss, the insured institution must either establish specific loss allowances
in the amount of 100% of the portion of the asset classified as loss or charge
off such amount. An asset which does not currently warrant classification but
which possesses weaknesses or deficiencies deserving close attention is
required to be designated as "special mention." Currently, general loss
allowances established to cover possible losses related to assets classified
substandard or doubtful may be included in determining an institution's
regulatory capital, while specific valuation allowances for loan losses do not
qualify as regulatory capital. See "Regulation -- Regulation of the Bank --
Regulatory Capital Requirements." OTS examiners may disagree with the insured
institution's classifications and amounts reserved. If an institution does not
agree with an examiner's classification of an asset, it may appeal this
determination to the OTS. Management of the Bank reviews assets on a quarterly
basis, and at the end of each quarter, prepares an asset classification listing
in conformity with the OTS regulations, which is reviewed by the Board of
Directors. At September 30, 1996, the Bank had $408,000 in assets classified as
substandard. Substandard loans consisted of seven single-family mortgage loans,
the largest of which had a balance of $155,000 at September 30, 1996 and seven
consumer loans with an aggregate balance of $19,000.
<PAGE>
EXHIBIT I-14
Middlesboro Federal Bank, Federal Savings Bank
Deposit Composition
<TABLE>
<CAPTION>
Interest Minimum Minimum Balances in Percentage of
Rate* Term Category Amount Thousands Total Savings
- -------- ------- -------- ------- --------- -------------
<S> <C> <C> <C> <C> <C>
2.75% None Passbook accounts $ -- $ 8,780 12.21%
2.78% None NOW accounts 100 7,109 9.89
3.04% None Money market deposit accounts 2,500 451 0.63
-- % None Noninterest-bearing checking accounts 100 2,069 2.88
Certificates of Deposit
-----------------------
5.06% 12-month Fixed-term, fixed-rate 1,000 39,049 54.31
5.32% 2-5 year Fixed-term, fixed-rate 1,000 14,448 20.08
---------- -------
$71,906 100.00%
========== =======
- ---------------
* Weighted average rate.
</TABLE>
<PAGE>
EXHIBIT I-15
Middlesboro Federal Bank, Federal Savings Bank
Time Deposit Rate/Maturity
Time Deposits by Rates. The following table sets forth the time deposits in
the Bank classified by nominal rates at the dates indicated.
<TABLE>
<CAPTION>
At At June 30,
September 30, ----------------
1996 1996 1995
------------- ------ -------
(In thousands)
<S> <C> <C> <C>
3.01 - 5.00% .................... $ -- $ 7,857 $ 4,860
5.01 - 7.00% .................... 53,497 42,750 40,707
7.01 - 9.00% .................... -- -- 134
------- ------- -------
$53,497 $50,607 $45,701
======= ======= =======
</TABLE>
Time Deposit Maturity Schedule. The following table sets forth the amount
and maturities of time deposits at September 30, 1996.
<TABLE>
<CAPTION>
Amount Due
---------------------------------------------------
Less Than After
Rate One Year 1-2 Years 2-3 Years 3 Years Total
- ---- --------- --------- --------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
5.01 - 7.00% ............. $ 39,049 $ 10,196 $ 2,413 $ 1,839 $53,497
-------- -------- ------- ------- -------
$ 39,049 $ 10,196 $ 2,413 $ 1,839 $53,497
======== ======== ======= ======= =======
</TABLE>
<PAGE>
EXHIBIT I-16
Middlesboro Federal Bank, Federal Savings Bank
Borrowings
<TABLE>
<CAPTION>
At or for Three Months At or for Year
Ended September 30, Ended June 30,
--------------------------- -------------------------
1996 1995 1996 1995
------- -------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Advances from FHLB:
Amounts outstanding at end of period..... $6,000 --- $1,000 ---
Weighted average rate paid on............ 3.41% --- 3.41% ---
Maximum amount of borrowing outstanding
at any month end......................... $6,000 --- $1,000 ---
Approximate average short-term borrowings
outstanding with respect to.............. $5,867 --- $ 264 ---
Approximate weighted average rate paid on.. 3.41% --- 3.41% ---
</TABLE>
<PAGE>
EXHIBIT II-1
Middlesboro Federal Bank, Federal Savings Bank
List of Office Locations
<PAGE>
<TABLE>
<CAPTION>
Book Value at Deposits at
Year Owned or September 30, Approximate September 30,
Opened Leased 1996 Square Footage 1996
------ ------ ------------- -------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Main Office:
1431 Cumberland Avenue
Middlesboro, Kentucky 1915 Owned $641 11,906 $46,522
Branch Office:
1501 E. Main Street
Cumberland, Kentucky 1976 Leased 25 1,700 25,384
</TABLE>
<PAGE>
EXHIBIT II-2
Historical Interest Rates
<PAGE>
Historical Interest Rates(1)
<TABLE>
<CAPTION>
Prime 90 Day One Year 30 Year
Year/Qtr. Ended Rate T-Bill T-Bill T-Bond
- --------------- ------ ------ -------- ------
<S> <C> <C> <C> <C>
1991: Quarter 1 8.75% 5.92% 6.24% 8.26%
Quarter 2 8.50% 5.72% 6.35% 8.43%
Quarter 3 8.00% 5.22% 5.38% 7.80%
Quarter 4 6.50% 3.95% 4.10% 7.47%
1992: Quarter 1 6.50% 4.15% 4.53% 7.97%
Quarter 2 6.50% 3.65% 4.06% 7.79%
Quarter 3 6.00% 2.75% 3.06% 7.38%
Quarter 4 6.00% 3.15% 3.59% 7.40%
1993: Quarter 1 6.00% 2.95% 3.18% 6.93%
Quarter 2 6.00% 3.09% 3.45% 6.67%
Quarter 3 6.00% 2.97% 3.36% 6.03%
Quarter 4 6.00% 3.06% 3.59% 6.34%
1994: Quarter 1 6.25% 3.56% 4.44% 7.09%
Quarter 2 7.25% 4.22% 5.49% 7.61%
Quarter 3 7.75% 4.79% 5.94% 7.82%
Quarter 4 8.50% 5.71% 7.21% 7.88%
1995: Quarter 1 9.00% 5.86% 6.47% 7.43%
Quarter 2 9.00% 5.57% 5.63% 6.63%
Quarter 3 8.75% 5.42% 5.68% 6.51%
Quarter 4 8.50% 5.09% 5.14% 5.96%
1996: Quarter 1 8.25% 5.14% 5.38% 6.67%
1996: Quarter 2 8.25% 5.16% 5.68% 6.87%
1996: Quarter 3 8.25% 5.03% 5.69% 6.92%
December 13, 1996 8.25% 4.77% 5.50% 6.58%
</TABLE>
(1) End of period data.
Source: SNL Securities.
<PAGE>
EXHIBIT II-3
Demographic/Economic Reports
<PAGE>
===============================================================================
STATE DEMOGRAPHIC REPORT
===============================================================================
State 00
State Name UNITED STATES
<TABLE>
<CAPTION>
Population
- ----------
<S> <C>
1980 226,542,204
1990 248,709,873
1996 265,294,885
2001 278,802,003
Population Growth Rate 1.0
<CAPTION>
Households
- ----------
<S> <C>
1990 91,947,410
1996 98,239,161
2001 103,293,062
Household Growth Rate 1.1
Average Household Size 2.63
<CAPTION>
Families
- --------
<S> <C>
1990 64,517,947
1996 68,967,945
Family Growth Rate 1.1
<CAPTION>
Race 1990 1996
- ---- ---- ----
<S> <C> <C>
% White 80.3 78.6
% Black 12.1 12.3
% Asian
/Pacific Isl. 2.9 3.8
% Hispanic* 9.0 10.4
<CAPTION>
1996 Age Distribution
- ---------------------
<C> <C>
0-4 7.5
5-9 7.3
10-14 7.2
15-19 6.9
20-24 6.8
25-44 31.6
45-64 19.9
65-84 11.4
85+ 1.4
18+ 74.0
<CAPTION>
Median Age
- ----------
<S> <C>
1990 32.9
1996 34.3
Male/Female Ratio 95.6
Per Capita Income $16,738
<CAPTION>
1996 Household Income
- ---------------------
<S> <C>
Base 98,238,455
% less than $15K 19.7
% $15K-25K 15.6
% $25K-50K 34.0
% $50K-100K 24.4
% $100K-150K 4.3
% greater than $150K 2.1
<CAPTION>
Median Household Income
- -----------------------
<S> <C>
1996 $34,530
2001 $33,189
<CAPTION>
1996 Average Disposable Income
- ------------------------------
<S> <C>
Total $33,213
Householder less than 35 $29,095
Householder 35-44 $38,643
Householder 45-54 $43,775
Householder 55-64 $34,976
Householder 65+ $21,850
<CAPTION>
Spending Potential Index*
- -------------------------
<S> <C>
Auto Loan 100
Home Loan 100
Investments 100
Retirement Plans 100
Home Repair 100
Lawn & Garden 100
Remodeling 100
Appliances 100
Electronics 100
Furniture 100
Restaurants 100
Sporting Goods 100
Theater/Concerts 100
Toys & Hobbies 100
Travel 100
Video Rental 100
Apparel 100
Auto Aftermarket 100
Health Insurance 100
Pets & Supplies 100
</TABLE>
- -------------------------------------------------------------------------------
* Persons of Hispanic Origin may be of any race.
* Income amounts are expressed in current dollars for 1996.
* The Spending Potential Index (SPI) is calculated by CACI from the Consumer
Expenditure Survey, Bureau of Labor Statistics. The index represents the
ratio of the average amount spent locally to the average U.S. spending for a
product or service, multiplied by 100.
- -------------------------------------------------------------------------------
Copyright 1996 CACI (800) 292-CACI FAX: (703) 243-6272 12/4/96
<PAGE>
================================================================================
STATE DEMOGRAPHIC REPORT
================================================================================
State 21
State Name Kentucky
<TABLE>
<CAPTION>
Population 1996 Age Distribution 1996 Average Disposable Income
- ---------- --------------------- -------------------------------
<S> <C> <C>
1980 3,660,324 0-4 6.9 Total $26,128
1990 3,685,296 5-9 6.7 Householder less than 35 $22,795
1996 3,895,554 10-14 7.1 Householder 35-44 $32,586
2001 4,063,325 15-19 7.5 Householder 45-54 $34,788
Population Growth Rate 0.9 20-24 6.9 Householder 55-64 $25,494
25-44 30.7 Householder 65+ $16,947
45-64 20.9
Households 65-84 11.7
- ---------- 85+ 1.4
1990 1,379,782 18+ 74.8 Spending Potential Index*
1996 1,462,541 -------------------------
2001 1,527,071 Median Age Auto Loan 97
---------- Home Loan 85
Household Growth Rate 0.9 1990 33.0 Investments 90
Average Household Size 2.59 1996 34.9 Retirement Plans 86
Home Repair 96
Families Male/Female Ratio 94.2 Lawn & Garden 100
- -------- Remodeling 94
1990 1,015,998 Per Capita Income $12,744 Appliances 99
1996 1,074,880 Electronics 95
Furniture 92
Family Growth Rate 0.9 Restaurants 91
1996 Household Income Sporting Goods 96
--------------------- Theater/Concerts 92
Race 1990 1996 Base 1,462,540 Toys & Hobbies 96
- ---- ---- ---- % less than $15K 29.9 Travel 88
% White 92.0 91.7 % $15K-25K 18.5 Video Rental 97
% Black 7.1 7.3 % $25K-50K 32.7 Apparel 92
% Asian % $50K-100K 16.0 Auto Aftermarket 92
/Pacific Isl.0.5 0.6 % $100K-150K 2.0 Health Insurance 100
% greater than $150K 1.0 Pets & Supplies 99
% Hispanic* 0.6 0.7 Median Household Income
-----------------------
1996 $25,703
2001 $24,407
</TABLE>
- --------------------------------------------------------------------------------
* Persons of Hispanic Origin may be of any race.
* Income amounts are expressed in current dollars for 1996.
* The Spending Potential Index (SPI) is calculated by CACI from the Consumer
Expenditure Survey, Bureau of Labor Statistics. The index represents the
ratio of the average amount spent locally to the average U.S. spending for a
product or service, multiplied by 100.
- --------------------------------------------------------------------------------
Copyright 1996 CACI (800) 292-CACI FAX: (703) 243-6272 12/4/96
<PAGE>
----------------------------------------------
COUNTY DEMOGRAPHIC REPORT
----------------------------------------------
State/County 21013
County Name BELL
<TABLE>
<CAPTION>
Population 1996 Age Distribution 1996 Average Disposable Income
- ---------- --------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
1980 34,330 0-4 6.8 Total $17,625
1990 31,506 5-9 6.4 Householder less than 35 $16,472
1996 30,304 10-14 7.3 Householder 35-44 $22,379
2001 29,373 15-19 7.6 Householder 45-54 $20,954
<CAPTION> 20-24 7.3 Householder 55-64 $16,548
Population Growth Rate -0.6 25-44 29.3 Householder 65+ $13,444
45-64 21.5
Households 65-84 12.3
- ---------- 85+ 1.4
<S> <C> 18+ 78.8 <CAPTION>
1990 11,512 Spending Potential Index*
1996 11,104 -------------------------
2001 10,769 <S> <C>
Auto Loan 93
<CAPTION> Home Loan 69
Median Age Investments 68
---------- Retirement Plans 69
<S> <C> <C> <C> Home Repair 91
Household Growth Rate -0.6 1990 33.0 Lawn & Garden 98
Average Household Size 2.68 1996 35.2 Remodeling 83
<CAPTION> Appliances 97
Families Male/Female Ratio 92.8 Electronics 89
- -------- Furniture 80
<S> <C> <C> Restaurants 79
1990 8,796 Sporting Goods 89
1996 8,454 Per Capita Income $8,003 Theater/Concerts 80
<CAPTION> Toys & Hobbies 88
Family Growth Rate -0.6 1996 Household Income Travel 74
------------------------- Video Rental 93
<S> <C> <C> <C> <C> Apparel 78
Base 11,104 Auto Aftermarket 83
Race 1990 1996 % less than $15K 50.6 Health Insurance 100
- ---- ---- ---- % $15K-25K 19.1 Pets & Supplies 95
% White 97.0 96.9 % $25K-50K 22.3
% Black 2.6 2.7 % $50K-100K 6.7
% Asian % $100K-150K 0.9
/Pacific |s|. 0.3 0.3 % greater than $150K 0.3
% Hispanic* 0.2 0.2
<CAPTION>
Median Household Income
-----------------------
<S> <C>
1996 $14,819
2001 $13,659
</TABLE>
- --------------------------------------------------------------------------------
* Persons of Hispanic Origin may be of any race.
* Income amounts are expressed in current dollars for 1996.
* The Spending Potential Index (SPI) is calculated by CACI from the Consumer
Expenditure Survey, Bureau of Labor Statistics. The index represents the
ratio of the average amount spent locally to the average U.S. spending for a
product or service, multiplied by 100.
- --------------------------------------------------------------------------------
Copyright 1996 CACI (800) 292-CACI FAX: (703) 243-6272 12/4/96
<PAGE>
COUNTY DEMOGRAPHIC REPORT
State/County 21095
County Name HARLAN
Population
- ----------
1980 41,889
1990 36,574
1996 36,243
2001 36,128
Population Growth Rate -0.1
Households
- ----------
1990 13,269
1996 13,189
2001 13,160
Household Growth Rate -0.1
Average Household Size 2.73
Families
- --------
1990 10,197
1996 10,095
Family Growth Rate -0.2
Race 1990 1996
- ---- ---- ----
% White 96.4 96.4
% Black 3.3 3.3
% Asian
/Pacific Isl. 0.1 0.2
% Hispanic* 0.3 0.3
1996 Age Distribution
- ---------------------
0-4 7.2
5-9 6.7
10-14 7.7
15-19 8.2
20-24 7.2
25-44 29.0
45-64 20.7
65-84 11.9
85+ 1.4
18+ 73.1
Median Age
- ----------
1990 32.6
1996 34.8
Male/Female Ratio 93.7
Per Capita Income $8,371
1996 Household Income
- ---------------------
Base 13,189
%less than
$15K 46.7
%$15K-25K 19.4
%$25K-50K 25.0
%$50K-100K 7.9
%$100K-150K 0.8
%>$150K 0.3
Median Household Income
- -----------------------
1996 $16,137
2001 $14,858
1996 Average Disposable Income
- ------------------------------
Total $18,795
Householder
less than 35 $17,385
Householder 35-44 $25,534
Householder 45-54 $22,589
Householder 55-64 $16,077
Householder 65+ $13,380
Spending Potential Index*
- -------------------------
Auto Loan 94
Home Loan 69
Investments 70
Retirement Plans 70
Home Repair 90
Lawn & Garden 100
Remodeling 84
Appliances 97
Electronics 89
Furniture 80
Restaurants 80
Sporting Goods 89
Theater/Concerts 80
Toys & Hobbies 88
Travel 74
Video Rental 93
Apparel 79
Auto Aftermarket 83
Health Insurance 102
Pets & Supplies 96
- --------------------------------------------------------------------------------
*Persons of Hispanic Origin may be of any race.
*Income amounts are expressed in current dollars for 1996.
*The Spending Potential Index (SPI) is calculated by CACI from the Consumer
Expenditure Survey, Bureau of Labor Statistics. The index represents the ratio
of the average amount spent locally to the average U.S. spending for a product
or service, multiplied by 100.
- --------------------------------------------------------------------------------
Copyright 1996 CACI (800)292-CACI FAX:(703)243-6272 12/4/96
<PAGE>
EXHIBIT II-4
Sources of Personal Income/Employment Sectors
<PAGE>
December 06, 1996
PERSONAL INCOME BY MAJOR SOURCE AND EARNINGS BY INDUSTRY 1/
For counties and Metropolitan Areas
(thousands of dollars)
<TABLE>
<CAPTION>
(21-000) KENTUCKY
- ------------------------------------------------------------------------------------------------------------------------------------
Item 1989 1990 1991 1992 1993 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income by place of residence
Total personal income ($000) 50,585,785 54,453,863 57,327,136 61,709,011 64,096,264 76,814,39
Nonfarm personal income 49,559,816 53,441,008 56,275,523 60,441,731 62,977,237 66,665,58
Farm income 2/ 1,025,969 1,012,855 1,051,613 1,267,280 1,119,027 1,148,80
Population (thousands) 3/ 3,677.3 3,692.5 3,715.4 3,752.7 3,794.0 3,826.
Per capital personal income (dollars) 13,756 14,747 15,429 16,444 16,894 17,72
Derivation of total personal income
Earnings by place of work 35,726,348 38,256,483 39,938,396 43,528,557 45,520,710 48,479,46
Less: Personal cont. for social insur. 4/ 2,187,644 2,366,820 2,551,330 2,697,731 2,862,620 3,103,41
Plus: Adjustment for residence 5/ -10,470 22,555 -23,810 -167,040 -198,449 -289,52
Equals: Net earn. by place of residence 33,528,234 35,912,218 37,363,256 40,663,786 42,459,641 45,086,52
Plus: Dividends, interest, and rent 5/ 8,259,252 8,860,561 8,962,176 8,938,207 8,961,006 9,472,46
Plus: Transfer payments 8,798,299 9,681,084 11,001,704 12,107,018 12,675,617 13,255,40
Earnings by place of work
Components of Earnings:
Wages and salaries 28,519,644 30,590,413 31,800,093 34,430,340 35,888,350 38,091,60
Other labor income 3,112,927 3,458,689 3,785,299 4,286,466 4,683,618 5,063,86
Proprietors' income 7/ 4,093,777 4,207,381 4,353,004 4,811,751 4,948,742 5,323,99
Farm proprietors' income 867,454 829,768 873,877 1,092,575 933,093 972,15
Nonfarm proprietors' income 3,226,323 3,377,613 3,479,127 3,719,176 4,015,649 4,351,83
Earnings by Industry:
Farm earnings 1,025,969 1,012,855 1,051,613 1,267,280 1,119,027 1,148,80
Nonfarm earnings 34,700,379 37,243,628 38,886,783 42,261,277 44,401,683 47,330,65
Private earnings 28,539,823 30,639,800 31,693,342 34,406,595 36,400,420 39,042,90
Ag. serv., for., fish., and other 8/ 199,333 221,370 245,945 250,531 263,711 289,15
Mining 1,418,742 1,531,248 1,437,332 1,418,308 1,369,664 1,453,17
Construction 2,046,184 2,120,822 2,067,469 2,292,871 2,484,401 2,723,683
Manufacturing 8,166,278 8,688,009 8,759,168 9,542,766 10,000,287 10,784,122
Nondurable goods 3,397,589 3,568,300 3,744,688 4,079,452 4,187,702 4,433,642
Durable goods 4,768,689 5,119,709 5,014,480 5,463,314 5,812,585 6,350,480
Transportation and public utilities 2,539,759 2,751,202 2,931,892 3,136,116 3,293,924 3,537,846
Wholesale trade 1,874,054 1,985,843 2,080,041 2,237,382 2,293,440 2,480,704
Retail trade 3,762,138 3,956,488 4,137,043 4,420,273 4,739,091 5,072,952
Finance, insurance, and real estate 1,605,556 1,706,916 1,785,303 1,996,156 2,194,583 2,221,050
Services 6,927,779 7,677,902 8,249,149 9,112,192 9,761,319 10,480,215
Government and government enterprises 6,160,556 6,603,828 7,193,441 7,854,682 8,001,263 8,287,752
Federal, civilian 1,200,360 1,322,799 1,395,905 1,455,632 1,500,797 1,538,873
Military 905,642 839,380 870,095 1,100,428 1,043,258 1,035,634
State and local 4,054,554 4,441,649 4,927,441 5,298,622 5,457,208 5,713,245
</TABLE>
See footnotes at end of table. REGIONAL ECONOMIC INFORMATION SYSTEM
Table CA05 June 1996 BUREAU OF ECONOMIC ANALYSIS
<PAGE>
December 06, 1996
PERSONAL INCOME BY MAJOR SOURCE AND EARNINGS BY INDUSTRY 1/
For Counties and Metropolitan Areas
(thousands of dollars)
(21-013)BELL KENTUCKY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Item 1989 1990 1991 1992 1993 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income by place of residence
Total personal income ($000) 303,907 327,498 349,248 371,909 382,539 395,849
Nonfarm personal income 303,421 327,098 348,686 371,472 382,009 395,450
Farm income 2/ 486 400 562 437 530 399
Population (thousands) 3/ 31.7 31.5 31.1 30.8 30.8 30.8
Per capita personal income (dollars) 9,587 10,408 11,220 12,069 12,408 12,866
Derivation of total personal income
Earnings by place of work 211,207 221,406 221,605 232,424 245,845 252,915
Less: Personal cont. for social insur. 4/ 13,953 14,609 15,184 15,630 16,741 17,626
Plus: Adjustment for residence 5/ -37,223 -37,839 -38,680 -39,033 -43,048 -42,383
Equals: Net earn. by place of residence 160,031 168,958 167,741 177,761 186,056 192,906
Plus: Dividends, interest, and rent 6/ 44,067 49,214 54,546 51,364 49,356 52,079
Plus: Transfer payments 99,809 109,326 126,961 142,784 147,127 150,864
Earnings by place of work
Components of Earnings:
Wages and salaries 169,564 177,409 176,076 184,769 192,600 196,611
Other labor income 22,297 23,936 24,860 26,650 29,993 31,813
Proprietors' income 7/ 19,346 20,061 20,669 21,005 23,252 24,491
Farm proprietors' income 472 383 546 422 513 383
Nonfarm proprietors' income 18,874 19,678 20,123 20,583 22,739 24,108
Earnings by Industry:
Farm earnings 486 400 562 437 530 399
Nonfarm earnings 210,721 221,006 221,043 231,987 245,315 252,516
Private earnings 175,384 182,212 179,870 188,442 200,255 205,070
Ag. serv., for., fish., and other 8/ 259 216 197 206 211 217
Mining 49,092 50,625 43,727 37,963 43,257 46,657
Construction 8,048 8,263 11,768 15,899 16,312 8,211
Manufacturing 19,558 19,467 18,821 20,650 21,159 22,828
Nondurable goods 15,243 15,083 14,385 16,708 15,991 16,879
Durable goods 4,315 4,384 4,436 3,942 5,168 5,949
Transportation and public utilities 14,406 14,304 14,917 15,219 15,484 16,595
Wholesale trade 7,897 8,672 7,865 10,957 8,876 10,393
Retail trade 28,686 30,151 30,460 31,746 34,286 35,998
Finance insurance, and real estate 7,865 7,594 7,195 7,781 8,108 8,331
Services 39,573 42,920 44,920 48,021 52,562 55,841
Government and government enterprises 35,337 38,794 41,173 43,545 45,060 47,446
Federal, civilian 4,784 5,060 5,142 5,165 5,253 5,233
Military 904 906 873 933 959 948
State and local 29,649 32,828 35,158 37,447 38,848 41,265
</TABLE>
See footnotes at end of table. REGIONAL ECONOMIC INFORMATION SYSTEM
Table CA05 June 1996 BUREAU OF ECONOMIC ANALYSIS
<PAGE>
December 06, 1996
PERSONAL INCOME BY MAJOR SOURCE AND EARNINGS BY INDUSTRY 1/
For Counties and Metropolitan Areas
(thousands of dollars)
(21-095) HARLAN KENTUCKY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Item 1989 1990 1991 1992 1993 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income by place of residence
Total personal income ($000) 373,197 407,332 419,513 446,661 445,446 468,243
Nonfarm personal income 373,163 407,327 419,511 446,638 445,431 468,214
Farm income 2/ (L) (L) (L) (L) (L) (L)
Population (thousands) 3/ 37.2 36.5 36.5 36.3 36.3 36.3
Per capita personal income (dollars) 10,039 11,150 11,491 12,303 12,283 12,903
Derivation of total person income
Earnings by place of work 262,104 283,586 274,083 278,902 271,886 288,994
Less: Personal cont. for social insur. 4/ 16,708 17,951 17,995 17,929 18,016 19,465
Plus: Adjustment for residence 5/ -34,124 -39,053 -35,968 -36,860 -32,253 -34,787
Equals: Net earn. by place of residence 211,272 226,582 220,120 224,113 221,617 234,742
Plus: Dividends, interest, and rent 6/ 44,498 54,248 54,621 60,413 54,677 57,726
Plus: Transfer payments 117,427 126,502 144,772 162,135 169,152 175,775
Earnings by place of work
Components of Earnings:
Wages and salaries 215,244 232,023 222,370 224,162 217,479 229,443
Other labor income 35,636 39,887 40,648 43,464 42,314 46,666
Proprietors' income 7/ 11,224 11,676 11,065 11,276 12,093 12,885
Farm proprietors' income (L) (L) (L) (L) (L) (L)
Nonfarm proprietors' income 11,196 11,678 11,070 11,259 12,085 12,863
Earnings by Industry:
Farm earnings (L) (L) (L) (L) (L) (L)
Nonfarm earnings 262,070 283,581 274,081 278,879 271,871 288,965
Private earnings 225,258 243,141 229,311 230,638 221,237 237,194
Ag. serv., for., fish., and other 8/ 73 153 217 244 255 (D)
Mining 129,460 142,613 128,559 122,226 106,262 116,663
Construction 6,259 7,852 8,355 9,092 7,547 (D)
Manufacturing 4,631 4,131 3,809 4,135 4,749 5,011
Nondurable goods 898 994 838 872 934 1,017
Durable goods 3,733 3,137 2,971 3,263 3,815 3,994
Transportation and public utilities 13,100 14,122 13,979 15,108 16,153 16,167
Wholesale trade 9,696 9,767 9,654 10,002 10,763 11,033
Retail trade 23,104 23,786 23,541 24,536 25,400 26,078
Finance, insurance, and real estate 5,174 5,069 4,948 5,001 5,307 7,908
Services 33,761 35,648 36,249 40,294 44,801 45,529
Government and government enterprises 36,812 40,440 44,770 48,241 50,634 51,771
Federal, civilian 4,140 4,715 4,772 4,763 4,491 4,663
Military 1,060 1,048 1,025 1,099 1,128 1,119
State and local 31,612 34,677 38,973 42,379 45,015 45,989
</TABLE>
See footnotes at end of table. REGIONAL ECONOMIC INFORMATION SYSTEM
Table CA05 June 1996 BUREAU OF ECONOMIC ANALYSIS
<PAGE>
Footnotes for Table CA05
1/ 1969-74 based on 1967 SIC. 1975-87 based on 1972 SIC. 1988-94 based on
1987 SIC.
2/ Farm income consists of proprietors' net farm income, the wages of hired
farm labor, the pay-in-kind of hired farm labor, and the salaries of
officers of corporate farms.
3/ Census Bureau midyear population estimates. Estimates for 1990-94 reflect
county population estimates available as of October 1995.
4/ Personal contributions for social insurance are included in earnings by type
and industry but excluded from personal income.
5/ U.S. adjustment for residence consists of adjustments for border workers:
income of U.S. residents commuting outside U.S. borders to work less income
of foreign residents commuting inside U.S. borders to work plus certain
Caribbean seasonal workers.
6/ Includes the capital consumption adjustment for rental income of persons.
7/ Includes the inventory valuation and capital consumption adjustments.
8/ "Other" consists of wages and salaries of U.S. residents employed by
international organizations and foreign embassies and consulates in the U.S.
13/ Estimates for 1979 forward reflect Alaska Census Areas as defined in the
1980 Decennial Census; those for prior years reflect Alaska Census
Divisions as defined in the 1970 Decennial Census, Estimates from 1988
forward separate Aleutian Islands Census Area into Aleutians East Borough
and Aleutians West Census Area. Denali and Lake + Peninsula Boroughs begin
in 1991. Estimates from 1993 forward separate Skagway-Yakutat-Angoon Census
Area into Skagway-Hoonah-Angoon Census Area and Yakutat Borough.
14/ Cibola, NM was separated from Valencia in June 1981, but in these
estimates, Valencia includes Cibola through the end of 1981.
15/ La Paz county, AZ was separated from Yuma county on January 1, 1983.
E The estimate shown here constitutes the major portion of the true
estimate.
(D) Not shown to avoid disclosure of confidential information.
(L) Less than $50,000. Estimates are included in totals.
(N) Data not available for this year.
Table CA05 June 1996 REGIONAL ECONOMIC INFORMATION SYSTEM
BUREAU OF ECONOMIC ANALYSIS
<PAGE>
December 06, 1996
FULL-TIME AND PART-TIME EMPLOYEES BY MAJOR INDUSTRY 1/
For Counties and Metropolitan Areas
(number of jobs)
<TABLE>
<CAPTION>
(21-000) KENTUCKY
- -----------------------------------------------------------------------------------------------------------------------------
Item 1989 1990 1991 1992 1993 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Employment by Place of Work
Total full- & part-time employment 1,863,254 1,912,850 1,915,123 1,962,472 2,007,711 2,063,321
By Type:
Wage and salary employment 1,541,590 1,576,123 1,571,136 1,616,479 1,657,344 1,709,892
Proprietors' employment 321,664 336,727 343,987 345,993 350,367 353,429
Farm proprietors' employment 105,900 102,899 101,118 100,737 100,036 97,857
Nonfarm proprietors' employment 2/ 215,764 233,828 242,869 245,256 250,331 255,572
By Industry:
Farm employment 127,076 125,162 119,403 122,185 119,857 113,602
Nonfarm employment 1,736,178 1,787,688 1,795,720 1,840,287 1,887,854 1,949,719
Private employment 1,438,062 1,486,341 1,490,079 1,523,928 1,571,180 1,630,159
Ag,serv.,for.,fish., and other 3/ 17,020 18,527 19,344 18,827 20,171 21,612
Mining 38,542 39,374 35,755 33,094 31,678 31,732
Construction 98,782 100,630 98,721 106,202 109,258 113,593
Manufacturing 290,764 294,545 288,831 293,114 302,685 314,834
Transportation and public utilities 91,346 95,605 96,963 96,533 100,949 106,916
Wholesale trade 75,630 76,564 77,520 79,593 77,829 80,391
Retail trade 321,000 327,717 327,555 334,936 346,345 359,024
Finance, insurance, and real estate 94,960 97,141 98,410 97,947 101,128 102,630
Services 410,018 436,138 446,980 463,682 481,137 499,427
Government and government enterprises 298,116 301,347 305,641 316,359 316,674 319,560
Federal, civilian 43,504 45,643 44,105 44,082 42,430 41,848
Military 57,104 51,310 47,590 54,241 50,885 50,072
State and local 197,508 204,394 213,946 218,036 223,359 227,640
</TABLE>
See footnotes at end of table. REGIONAL ECONOMIC INFORMATION SYSTEM
Table CA25 June 1996 BUREAU OF ECONOMIC ANALYSIS
<PAGE>
December 06, 1996
FULL-TIME AND PART-TIME EMPLOYEES BY MAJOR INDUSTRY 1/
For Counties and Metropolitan Areas
(number of jobs)
<TABLE>
<CAPTION>
(21-013) BELL KENTUCKY
- -----------------------------------------------------------------------------------------------------------------------------
Item 1989 1990 1991 1992 1993 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Employment by Place of Work
Total full- & part-time employment 11,472 11,682 11,436 11,255 11,567 11,728
By Type:
Wage and salary employment 10,034 10,124 9,918 9,788 10,069 1O,200
Proprietors' employment 1,438 1,558 1,518 1,467 1,498 1,528
Farm proprietors' employment 59 58 57 57 56 55
Nonfarm proprietors' employment 2/ 1,379 1,500 1,461 1,410 1,442 1,473
By Industry:
Farm employment 63 63 61 61 59 58
Nonfarm employment 11,409 11,619 11,375 11,194 11,508 11,670
Private employment 9,627 9,778 9,461 9,227 9,522 9,676
Ag.serv.,for.,fish., and other 3/ 30 31 25 23 25 26
Mining 1,383 1,390 1,156 956 987 1,046
Construction 524 539 615 716 721 507
Manufacturing 1,074 1,036 1,001 981 944 994
Transportation and public utilities 651 635 622 589 616 658
Wholesale trade 395 429 395 381 410 442
Retail trade 2,635 2,645 2,562 2,535 2,667 2,788
Finance, Insurance, and real estate 489 484 461 432 432 434
Services 2,446 2,589 2,624 2,614 2,720 2,781
Government and government enterprises 1,782 1,841 1,914 1,967 1,986 1,994
Federal, civilian 171 176 160 157 153 151
Military 148 140 134 137 131 123
State and local 1,463 1,525 1,620 1,673 1,702 1,720
</TABLE>
See footnotes at end of table. REGIONAL ECONOMIC INFORMATION SYSTEM
Table CA25 June 1996 BUREAU OF ECONOMIC ANALYSIS
<PAGE>
December 06, 1996
FULL-TIME AND PART-TIME EMPLOYEES BY MAJOR INDUSTRY 1/
For Counties and Metropolitan Areas
(number of jobs)
<TABLE>
<CAPTION>
(21-095) HARLAN KENTUCKY
- -----------------------------------------------------------------------------------------------
Item 1989 1990 1991 1992 1993 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Employment by Place of Work
Total full- & part-time employment 11,825 12,092 11,367 11,239 11,021 11,248
By Type:
Wage and salary employment 10,778 11,013 10,292 10,186 9,947 10,152
Proprietors' employment 1,047 1,079 1,075 1,053 1,074 1,096
Farm proprietors' employment 26 26 25 25 25 24
Nonfarm proprietors' employment 2/ 1,021 1,053 1,050 1,028 1,049 1,072
By Industry:
Farm employment 29 29 28 28 28 27
Nonfarm employment 11,796 12,063 11,339 11,211 10,993 11,221
Private employment 9,735 9,919 9,137 8,932 8,715 8,894
Ag.serv.,for.,fish., and other 3/ (L) 10 11 14 11 (D)
Mining 3,283 3,448 2,950 2,637 2,271 2,263
Construction 360 407 359 354 312 (D)
Manufacturing 249 209 199 193 216 237
Transportation and public utilities 597 602 566 575 619 593
Wholesale trade 436 439 419 420 411 420
Retail trade 2,244 2,217 2,103 2,214 2,255 2,217
Finance, insurance, and real estate 332 335 326 331 324 397
Services 2,229 2,252 2,204 2,194 2,296 2,395
Government and government enterprises 2,061 2,144 2,202 2,279 2,278 2,327
Federal, civilian 140 150 139 134 123 127
Military 173 162 157 151 154 145
State and local 1,748 1,832 1,906 1,984 2,001 2,055
</TABLE>
See footnotes at end of table. REGIONAL ECONOMIC INFORMATION SYSTEM
File CA25 June 1996 BUREAU OF ECONOMIC ANALYSIS
Table CA25
<PAGE>
Footnotes for Table CA25
1/ 1969-74 based on 1967 SIC. 1975-87 based on 1972 SIC. 1988-94 based on
1987 SIC.
2/ Excludes limited partners.
3/ "Other" consists of the number of jobs held by U.S. residents employed by
international organizations and foreign embassies and consulates in the
United States.
4/ Cibola, MM was separated from Valencia in June 1981, but in these estimates
Valencia includes Cibola through the end of 1981.
5/ La Paz county, AZ was separated from Yuma county on January 1, 1983.
6/ Estimates for 1979 forward reflect Alaska Census Areas as defined in the
1980 Decennial Census; those for prior years reflect Alaska Census Divisions
as defined in the 1970 Decennial Census. Estimates from 1988 forward
separate Aleutian Islands Census Area into Aleutians East Bor, and Aleutians
West Census Area. Denali and Lake + Peninsula Boroughs begin In 1991.
Estimates from 1993 forward separate Skagway-Yakutat-Angoon Census Area into
Skagway-Hoonah-Angoon Census Area and Yakutat Borough.
E Estimate shown constitutes the major portion of the true estimate.
(D) Net shown to avoid disclosure of confidential information.
(L) Less than 10 jobs. Estimates are included in totals.
(N) Data not available for this year.
REGIONAL ECONOMIC INFORMATION SYSTEM
Table CA25 June 1996 BUREAU OF ECONOMIC ANALYSIS
<PAGE>
December 06, 1996
REGIONAL ECONOMIC PROFILE
For Counties and Metropolitan Areas
<TABLE>
<CAPTION>
(21-000) KENTUCKY
- -----------------------------------------------------------------------------------------------------------------------------------
Item 1989 1990 1991 1992 1993 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Place of Residence Profile
Total personal income ($000) 50,585,785 54,453,863 57,327,136 61,709,011 64,096,264 67,814,391
Nonfarm personal income 49,559,816 53,441,008 56,275,523 60,441,731 62,977,237 66,665,588
Farm income 1,025,969 1,012,855 1,051,613 1,267,280 1,119,027 1,148,803
Derivation of Total Personal Income
Net earnings 1/ 33,528,234 35,912,218 37,363,256 40,663,786 42,459,641 45,086,525
Transfer payments 8,798,299 9,681,084 11,001,704 12,107,018 12,675,617 13,255,400
Income maintenance 2/ 868,923 987,100 1,135,670 1,319,611 1,381,243 1,415,493
Unemployment insurance 168,104 224,188 313,183 378,881 343,649 263,131
Retirement and other 7,761,272 8,469,796 9,552,851 10,408,526 10,950,725 11,576,776
Dividends, interest, and rent 8,259,252 8,860,561 8,962,176 8,938,207 8,961,006 9,472,466
Population (thousands) 3/ 3,677.3 3,692.5 3,715.4 3,752.7 3,794.0 3,826.8
Per Capita Incomes ($) 4/
Per capita personal income 13,756 14,747 15,429 16,444 16,894 17,721
Per capita net earnings 9,118 9,726 10,056 10,836 11,191 11,782
Per capita transfer payments 2,393 2,622 2,961 3,226 3,341 3,464
Per capita income maintenance 236 267 306 352 364 370
Per capita unemployment insurance 46 61 84 101 91 69
Per capita retirement & other 2,111 2,294 2,571 2,774 2,886 3,025
Per capita dividends, interest, & rent 2,246 2,400 2,412 2,382 2,362 2,475
Place of Work Profile
Total earnings (place of work, $000) 35,726,348 38,256,483 39,938,396 43,528,557 45,520,710 48,479,461
Wages and salaries 28,519,644 30,590,413 31,800,093 34,430,340 35,888,350 38,091,606
Other labor income 3,112,927 3,458,689 3,785,299 4,286,466 4,683,618 5,063,865
Proprietors' income 4,093,777 4,207,381 4,353,004 4,811,751 4,948,742 5,323,990
Nonfarm proprietors' income 3,226,323 3,377,613 3,479,127 3,719,176 4,015,649 4,351,838
Farm proprietors' income 867,454 829,768 873,877 1,092,575 933,093 972,152
Total employment (full & part-time) 1,863,254 1,912,850 1,915,123 1,962,472 2,007,711 2,063,321
Wage and salary jobs 1,541,590 1,576,123 1,571,136 1,616,479 1,657,344 1,709,892
Number of proprietors 321,664 336,727 343,987 345,993 350,367 353,429
Number of nonfarm proprietors /5 215,764 233,828 242,869 245,256 250,331 255,572
Number of farm proprietors 105,900 102,899 101,118 100,737 100,036 97,857
Average earnings per job ($) 19,174 20,000 20,854 22,180 22,673 23,496
Wage & salary earnings per job ($) 18,500 19,409 20,240 21,300 21,654 22,277
Average earnings per nonfarm proprietor ($) 14,953 14,445 14,325 15,164 16,041 17,028
See footnotes at end of table. REGIONAL ECONOMIC INFORMATION SYSTEM
Table CA30 June 1996 BUREAU OF ECONOMIC ANALYSIS
</TABLE>
<PAGE>
December 06, 1996
REGIONAL ECONOMIC PROFILE
For Counties and Metropolitan Areas
<TABLE>
<CAPTION>
(21-013) BELL KENTUCKY
- ----------------------------------------------------------------------------------------------------------------------------------
Item 1989 1990 1991 1992 1993 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Place of Residence Profile
Total personal income ($000) 303,907 327,498 349,248 371,909 382,539 395,849
Nonfarm personal income 303,421 327,098 348,686 371,472 382,009 395,450
Farm income 486 400 562 437 530 399
Derivation of Total Personal Income
Net earnings 1/ 160,031 168,958 167,741 177,761 186,056 192,906
Transfer payments 99,809 109,326 126,961 142,784 147,127 150,864
Income maintenance 2/ 15,684 17,635 20,327 24,582 26,582 26,455
Unemployment insurance 1,422 1,805 2,636 3,007 2,603 1,880
Retirement and other 82,703 89,886 103,998 115,195 117,942 122,529
Dividends, interest, and rent 44,067 49,214 54,546 51,364 49,356 52,079
Population (thousands) 3/ 31.7 31.5 31.1 30.8 30.8 30.8
Per Capita Incomes ($) 4/
Per capita personal income 9,587 10,408 11,220 12,069 12,408 12,866
Per capita net earnings 5,048 5,370 5,389 5,768 6,035 6,270
Per capita transfer payments 3,148 3,474 4,079 4,633 4,772 4,904
Per capita income maintenance 495 560 653 798 862 860
Per capita unemployment insurance 45 57 85 98 84 61
Per capita retirement & other 2,609 2,857 3,341 3,738 3,826 3,983
Per capita dividends, interest, & rent 1,390 1,564 1,752 1,657 1,601 1,693
Place of Work Profile
Total earnings (place of work, $000) 211,207 221,406 221,605 232,424 245,845 252,915
Wages and salaries 169,564 177,409 176,076 184,769 192,600 196,611
Other labor income 22,297 23,936 24,860 26,650 29,993 31,813
Proprietors' income 19,346 20,061 20,669 21,005 23,252 24,491
Nonfarm proprietors' income 18,874 19,678 20,123 20,583 22,739 24,108
Farm proprietors' income 472 383 546 422 513 383
Total employment (full & part-time) 11,472 11,682 11,436 11,255 11,567 11,728
Wage and salary jobs 10,034 10,124 9,918 9,788 10,069 10,200
Number of proprietors 1,438 1,558 1,518 1,467 1,498 1,528
Number of nonfarm proprietors /5 1,379 1,500 1,461 1,410 1,442 1,473
Number of farm proprietors 59 58 57 57 56 55
Average earnings per job ($) 18,411 18,953 19,378 20,651 21,254 21,565
Wage & salary earnings per job ($) 16,899 17,524 17,753 18,877 19,128 19,276
Average earnings per nonfarm proprietor ($) 13,687 13,119 13,773 14,598 15,769 16,367
</TABLE>
See Footnotes at end of table. REGIONAL ECONOMIC INFORMATION SYSTEM
Table CA30 June 1996 BUREAU OF ECONOMIC ANALYSIS
<PAGE>
December 06, 1996
REGIONAL ECONOMIC PROFILE
For Counties And Metropolitan Areas
<TABLE>
<CAPTION>
(21-095) HARLAN KENTUCKY
- ------------------------------------------------------------------------------------------------------------------------------------
Item 1989 1990 1991 1992 1993 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Place of Residence Profile
Total personal income ($000) 373,197 407,332 419,513 446,661 445,661 468,243
Nonfarm personal income 373,163 407,327 419,511 446,638 445,431 468,214
Farm income (L) (L) (L) (L) (L) (L)
Derivation of Total Personal Income
Net earnings 1/ 211,272 226,582 220,120 224,113 221,617 234,742
Transfer payments 117,427 126,502 144,772 162,135 169,152 175,775
Income maintenance 2/ 16,607 18,149 21,116 25,614 27,734 27,650
Unemployment insurance 1,205 1,408 2,602 3,153 2,316 1,891
Retirement and other 99,615 106,945 121,054 133,368 139,102 146,234
Dividends, interest, and rent 44,498 54,248 54,621 60,413 54,677 57,726
Population (thousands) 3/ 37.2 36.5 36.5 36.3 36.3 36.3
Per Capita Incomes ($) 4/
Per capita personal income 10,039 11,150 11,491 12,303 12,283 12,903
Per capita net earnings 5,683 6,202 6,030 6,173 6,111 6,469
Per capita transfer payments 3,159 3,463 3,966 4,466 4,664 4,844
Per capita income maintenance 447 497 578 706 765 762
Per capita unemployment insurance 32 39 71 87 64 52
Per capita retirement & other 2,680 2,927 3,316 3,673 3,836 4,030
Per capita dividends, interest & rent 1,197 1,485 1,496 1,664 1,508 1,591
Place of Work Profile
Total earnings (place of work, $000) 262,104 283,586 274,083 278,902 271,886 288,994
Wages and salaries 215,244 232,023 222,370 224,162 217,479 229,443
Other labor income 35,636 39,887 40,648 43,464 42,314 46,666
Proprietors' income 11,224 11,676 11,065 11,276 12,093 12,885
Nonfarm proprietors' income 11,196 11,678 11,070 11,259 12,085 12,863
Farm proprietors' income (L) (L) (L) (L) (L) (L)
Total employment (full & part-time) 11,825 12,092 11,367 11,239 11,021 11,248
Wage and salary jobs 10,778 11,013 10,292 10,186 9,947 10,152
Number of proprietors 1,047 1,079 1,075 1,053 1,074 1,096
Number or nonfarm proprietors /5 1,021 1,053 1,050 1,028 1,049 1,072
Number or farm proprietors 26 26 25 25 25 24
Average earnings per job ($) 22,165 23,452 24,112 24,816 24,670 25,693
Wage & salary earnings per job ($) 19,971 21,068 21,606 22,007 21,864 22,601
Average earnings per nonfarm
proprietor ($) 10,966 11,090 10,543 10,952 11,520 11,999
footnotes at end of table. REGIONAL ECONOMIC INFORMATION SYSTEM
s CA30 June 1996 BUREAU OF ECONOMIC ANALYSIS
</TABLE>
<PAGE>
Footnotes for Table CA30
1/ Total earnings less personal contributions for social insurance adjusted to
place of residence.
2/ Includes supplemental security income payments, payments to families with
dependent children (AFDC), general assistance payments, food stamp payments,
and other assistance payments, including emergency assistance.
3/ Census Bureau midyear population estimates. Estimates for 1990-94 reflect
county population estimates available as of October 1995.
4/ Type of income divided by population yields a per capita for that type of
income.
5/ Excludes limited partners.
6/ Cibola, NM was separated from Valencia in June 1981, but in these estimates
Valencia includes Cibola through the end of 1981.
7/ La Paz county, AZ was separated from Yuma county on January 1, 1983.
8/ Estimates for 1979 forward reflect Alaska Census Areas as defined in the
1980 Decennial Census; those for prior years reflect Alaska Census Divisions
as defined in the 1970 Decennial Census. Estimates from 1988 forward
separate Aleutian Islands Census Area Into Aleutians East Bor. and Aleutians
West Census Area. Denali and Lake + Peninsula Boroughs begin in 1991.
Estimates from 1993 forward separate Skagway-Yakutat-Angoon Census Area into
Skagway-Hoonah-Angoon Census Area and Yakutat Borough.
(L) Less than $50,000 or less than 10 jobs, as appropriate. Estimates are
included in totals.
(N) Data not available for this year.
REGIONAL ECONOMIC INFORMATION SYSTEM
Table CA30 June 1996 BUREAU OF ECONOMIC ANALYSIS
<PAGE>
EXHIBIT III-1
General Characteristics of Publicly-Traded Institutions
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit III-1
Characteristics of Publicly-Traded Thrifts
December 14, 1996(1)
<TABLE>
<CAPTION>
Primary Operating Total Fiscal Conv. Stock Market
Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value
- ------ ----------------------------------- ------ ----------------- -------- ------ ------- ---- ----- ------ ------
($Mil) ($) ($Mil)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
California Companies
- --------------------
AHM Ahmanson and Co. H.F. of CA NYSE Nationwide M.B. 50,588 345 12-31 10/72 31.75 3,349
GWF Great Western Fin. Corp. of CA NYSE CA,FL Div. 43,548 416 12-31 / 30.00 4,123
GDW Golden West Fin. Corp. of CA NYSE Nationwide M.B. 37,012 232 12-31 05/59 64.25 3,686
GLN Glendale Fed. Bk, FSB of CA NYSE CA Div. 15,104 150 06-30 10/83 21.25 1,002
CAL CalFed Inc. of Los Angeles CA NYSE CA,NV Div. 14,127 124 12-31 03/83 24.25 1,199
CSA Coast Savings Financial of CA NYSE California R.E. 8,549 89 12-31 12/85 34.75 646
DSL Downey Financial Corp. of CA NYSE Southern CA Thrift 4,954 52 12-31 01/71 27.87 473
FED FirstFed Fin. Corp. of CA NYSE Los Angeles CA R.E. 4,197 25 12-31 12/83 22.25 234
BVFS Bay View Capital Corp. of CA OTC San Francisco CA M.B. 3,428 27 12-31 05/86 39.00 259
BPLS Bank Plus Corp. of CA OTC Los Angeles CA R.E. 3,323 33 12-31 / 11.25 205
WES Westcorp Inc. of Orange CA NYSE California Div. 3,181 25 12-31 05/86 22.50 585
PFFB PFF Bancorp of Pomona CA OTC Southern CA Thrift 2,486 22 03-31 03/96 14.12 280
AFFFZ America First Fin. Fund of CA OTC San Francisco CA Div. 2,228 36 12-31 / 29.12 175
CENF CENFED Financial Corp. of CA OTC Los Angeles CA Thrift 2,161 18 12-31 10/91 28.75 147
FRC First Republic Bancorp of CA (3) NYSE CA,NV M.B. 2,122 11 12-31 / 17.00 125
CFHC California Fin. Hld. Co. of CA OTC Central CA Thrift 1,339 22 12-31 04/83 29.00 137
HEMT HF Bancorp of Hemet CA OTC Southern CA Thrift 1,004 12 06-30 06/95 11.00 69
REDF RedFed Bancorp of Redlands CA OTC Southern CA Thrift 866 14 12-31 04/94 13.16 93
HTHR Hawthorne Fin. Corp. of CA OTC Southern CA Thrift 828 9 12-31 / 7.37 19
QCBC Quaker City Bancorp of CA OTC Los Angeles CA R.E. 738 8 06-30 12/93 16.37 62
ITLA Imperial Thrift & Loan of CA (3) OTC Los Angeles CA R.E. 736 11 12-31 / 14.50 113
PROV Provident Fin. Holdings of CA OTC M.B. 580 0 06-30 06/96 13.87 71
HBNK Highland Federal Bank of CA OTC Los Angeles CA R.E. 469 11 12-31 / 17.25 40
SGVB SGV Bancorp of W. Covina CA OTC Los Angeles CA Thrift 345 6 06-30 06/95 11.00 29
MBBC Monterey Bay Bancorp of CA OTC West Central CA Thrift 327 6 12-31 02/95 14.75 48
PCCI Pacific Crest Capital of CA (3) OTC Southern CA R.E. 265 4 12-31 / 11.75 35
BYFC Broadway Fin. Corp. of CA OTC Los Angeles CA Thrift 117 3 12-31 01/96 9.25 8
FSSB First FS&LA of San Bern. CA OTC San Bernard. CA Thrift 100 4 06-30 12/92 9.00 3
Florida Companies
- -----------------
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit III-1
Characteristics of Publicly-Traded Thrifts
December 20, 1996(1)
<TABLE>
<CAPTION>
Primary Operating Total Fiscal Conv. Stock Market
Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value
- ------ ----------------------------------- ------ ----------------- --------- ------ ------- ---- ----- ------ ------
($Mil) ($) ($Mil)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Florida Companies (continued)
- -----------------------------
BANC BankAtlantic Bancorp of FL OTC Southeastern FL M.B. 2,170 43 12-31 11/83 12.62 186
FFPB First Palm Beach Bancorp of FL OTC Southeast FL Thrift 1,494 31 09-30 09/93 24.87 127
HARB Harbor FSB, MHC of FL (45.7) OTC Eastern FL Thrift 1,057 22 09-30 01/94 33.00 163
FFFL Fidelity FSB, MHC of FL(47.2) OTC Southeast FL Thrift 857 20 12-31 01/94 17.25 116
BKUNA BankUnited SA of FL OTC Miami FL Thrift 824 7 09-30 12/85 9.00 51
CMSV Commty. Svgs, MHC of FL(47.6) OTC Southeast FL Thrift 626 J 17 09-30 10/94 18.37 90
FFLC FFLC Bancorp of Leesburg FL OTC Central FL Thrift 336 8 12-31 01/94 20.00 51
FFFG F.F.O. Financial Group of FL OTC Central FL R.E. 311 11 12-31 10/88 2.75 23
FFPC Florida First Bancorp of FL OTC Northwestern FL Thrift 297 9 12-31 11/86 11.37 39
FFML First Family Fin. Corp. of FL OTC Central FL Thrift 156 5 06-30 10/92 22.50 12
Mid-Atlantic Companies
- ----------------------
DME Dime Savings Bank, FSB of NY (3) NYSE NY,NJ,FL M.B. 19,683 87 12-31 08/86 14.87 1,583
GPT GreenPoint Fin. Corp. of NY (3) NYSE New York City NY Thrift 13,410 82 06-30 01/94 48.12 2,293
SVRN Sovereign Bancorp of PA OTC PA,NJ,DE M.B. 9,365 120 12-31 08/86 12.75 629
ASFC Astoria Financial Corp. of NY OTC New York City NY Thrift 7,266 46 12-31 11/93 35.00 753
COFD Collective Bancorp Inc. of NJ OTC Southern NJ Thrift 5,253 79 06-30 02/84 33.37 680
LISB Long Island Bancorp of NY OTC Long Island NY M.B. 5,221 J 36 09-30 04/94 30.75 758
RCSB RCSB Financial, Inc. of NY (3) OTC NY M.B. 4,049 J 34 11-30 04/86 29.31 451
ALBK ALBANK Fin. Corp. of Albany NY OTC NY,MA Thrift 3,510 63 06-30 04/92 31.62 414
ROSE TR Financial Corp. of NY OTC New York, NY Thrift 3,141 15 12-31 06/93 30.25 271
NYB New York Bancorp, Inc. of NY AMEX Southeastern NY Thrift 2,941 29 09-30 01/88 33.62 373
GRTR Greater New York SB of NY (3) OTC New York NY Div. 2,567 14 12-31 06/87 14.31 192
BKCO Bankers Corp. of NJ (3) OTC Central NJ Thrift 2,330 15 12-31 03/90 19.50 241
CMSB Cmnwealth Bancorp of PA OTC Philadelphia PA M.B. 2,085 39 06-30 06/96 14.12 253
NWSB Northwest SB, MHC of PA(29.9) OTC Pennsylvania Thrift 1,902 53 06-30 11/94 13.25 310
MLBC ML Bancorp of Villanova PA OTC Philadelphia PA M.B. 1,889 18 03-31 08/94 14.62 174
RELY Reliance Bancorp of NY OTC NYC NY Thrift 1,829 28 06-30 03/94 18.62 166
HARS Harris SB, MHC of PA (23.1) OTC Southeast PA Thrift 1,724 31 12-31 01/94 18.50 207
NSBK Northside SB of Bronx NY (3) OTC New York NY Thrift 1,639 17 09-30 04/86 52.50 255
HAVN Haven Bancorp of Woodhaven NY OTC New York City NY Thrift 1,565 9 12-31 09/93 28.69 124
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit III-1
Characteristics of Publicly-Traded Thrifts
December 14, 1996(1)
<TABLE>
<CAPTION>
Primary Operating Total Fiscal Conv. Stock Market
Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value
- ------ ----------------------------------- ------ ----------------- -------- ------ ------- ---- ----- ------ ------
($Mil) ($) ($Mil)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mid-Atlantic Companies (continued)
- ----------------------------------
JSBF JSB Financial, Inc. of NY OTC New York City R.E. 1,519 13 12-31 06/90 36.25 354
QCSB Queens County SB of NY (3) OTC New York City NY R.E. 1,326 9 12-31 11/93 48.00 368
WSFS WSFS Financial Corp. of DE (3) OTC DE Div. 1,307 14 12-31 11/86 9.87 137
DIME Dime Community Bancorp of NY OTC Thrift 1,226 0 06-30 06/96 14.50 211
OCFC Ocean Fin. Corp. of NJ OTC Thrift 1,190 0 12-31 07/96 25.87 234
YFED York Financial Corp. of PA OTC PA,MD Thrift 1,154 22 06-30 02/84 16.75 124
PFSB PennFed Fin. Services of NJ OTC Northern NJ Thrift 1,142 17 06-30 07/94 20.12 98
MFSL Maryland Fed. Bancorp of MD OTC MD Thrift 1,128 J 25 02-28 06/87 33.50 105
PVSA Parkvale Financial Corp of PA OTC Southwestern PA Thrift 924 28 06-30 07/87 26.25 106
PSBK Progressive Bank, Inc. of NY (3) OTC Eastern NY Thrift 886 17 12-31 08/84 34.50 90
PKPS Poughkeepsie SB of NY OTC Poughkeepsie NY R.E. 861 9 12-31 11/85 5.12 64
MBB MSB Bancorp of Middletown NY (3) OTC Southeastern NY Thrift 848 17 09-30 08/92 19.12 54
FFIC Flushing Fin. Corp. of NY (3) OTC New York, NY Thrift 770 7 12-31 11/95 18.25 156
IBSF IBS Financial Corp. of NJ OTC Southwest NJ Thrift 742 8 09-30 10/94 15.44 166
PWBC PennFirst Bancorp of PA OTC Western PA Thrift 701 9 12-31 06/90 13.50 53
PSAB Prime Bancorp, Inc. of PA OTC Southeastern PA Thrift 677 18 12-31 11/88 19.37 72
FCIT First Cit. Fin. Corp of MD OTC DC Metro Area Thrift 668 14 12-31 12/86 18.44 54
FSFI First State Fin. Serv. of NJ OTC Northeastern NJ Thrift 666 J 13 09-30 12/87 15.00 59
THRD TF Financial Corp. of PA OTC Philadelphia PA Thrift 663 11 06-30 07/94 15.87 68
SFIN Statewide Fin. Corp. of NJ OTC Northern NJ Thrift 662 16 03-31 10/95 13.94 70
FSNJ First SB of NJ, MHC (45.0) OTC Northern NJ Thrift 651 J 4 05-31 01/95 17.00 52
BFSI BFS Bankorp, Inc. of NY OTC New York NY R.E. 643 5 09-30 05/88 49.50 81
GAF GA Financial Corp. of PA AMEX Pittsburgh PA Thrift 589 10 12-31 03/96 14.75 131
FBBC First Bell Bancorp of PA OTC Pittsburgh PA Thrift 577 7 12-31 06/95 17.06 132
TSBS Trenton SB, FSB MHC of NJ(35.0) OTC Central NJ Thrift 524 10 12-31 08/95 15.63 141
FMCO FMS Financial Corp. of NJ OTC Southern NJ Thrift 519 16 12-31 12/88 17.12 42
PULS Pulse Bancorp of S. River NJ OTC Central NJ Thrift 502 4 09-30 09/86 16.00 49
AHCI Ambanc Holding Co. of NY (3) OTC East-Central NY Thrift 496 9 12-31 12/95 10.62 52
PBIX Patriot Bank Corp. of PA OTC Southeast PA Thrift 490 7 12-31 12/95 13.50 60
FSPG First Home SB, SLA of NJ OTC NJ,DE Thrift 487 10 12-31 04/87 18.25 37
ANBK American Nat'l Bancorp of MD OTC Baltimore MD R.E. 487 9 07-31 11/95 12.12 44
IROQ Iroquois Bancorp of Auburn NY (3) OTC Central NY Thrift 474 9 12-31 01/86 16.50 39
LVSB Lakeview SB of Paterson NJ OTC Northern NJ Thrift 473 8 07-31 12/93 23.25 58
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit III-1
Characteristics of Publicly-Traded Thrifts
December 14, 1996(1)
<TABLE>
<CAPTION>
Primary Operating Total Fiscal Conv. Stock Market
Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value
- ------ ----------------------------------- ------ ----------------- -------- ------ ------- ---- ----- ------ ------
($Mil) ($) ($Mil)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mid-Atlantic Companies (continued)
- ----------------------------------
CJFC Central Jersey Fin. Corp of NJ OTC Central NJ Thrift 464 6 03-31 09/84 37.50 100
CNSK Covenant Bank for Svgs. of NJ (3) OTC Southern NJ Thrift 387 12 12-31 / 12.50 34
SHEN First Shenango Bancorp of PA OTC Western PA Thrift 384 4 12-31 04/93 22.87 52
PFNC Progress Financial Corp. of PA OTC Southeastern PA M.B. 367 9 12-31 07/83 8.50 32
CARV Carver FSB of New York, NY OTC New York, NY Thrift 365 8 03-31 10/94 8.00 19
PBCI Pamrapo Bancorp, Inc. of NJ OTC Northern NJ Thrift 363 8 12-31 10/89 18.87 61
RARB Raritan Bancorp. of Raritan NJ (3) OTC Central NJ Thrift 354 5 12-31 03/87 23.00 35
FFWM First Fin. Corp of Western MD OTC Western MD Thrift 346 9 06-30 01/92 31.75 67
FOBC Fed One Bancorp of Wheeling WV OTC Northern WV,OH Thrift 342 9 12-31 01/95 15.87 40
FSBI Fidelity Bancorp, Inc. of PA OTC Southwestern PA Thrift 318 8 09-30 06/88 19.75 27
HARL Harleysville SA of PA OTC Southeastern PA Thrift 315 4 09-30 08/87 18.25 24
FKFS First Keystone Fin. Corp of PA OTC Philadelphia PA Thrift 294 5 09-30 01/95 19.25 25
CVAL Chester Valley Bancorp of PA OTC Southeastern PA Thrift 284 6 06-30 03/87 18.50 30
CATB Catskill Fin. Corp. of NY (3) OTC Albany NY Thrift 284 3 09-30 04/96 13.87 79
LFBI Little Falls Bancorp of NJ OTC New Jersey Thrift 281 7 12-31 01/96 12.50 36
LFED Leeds FSB, MHC of MD (35.3) OTC Baltimore MD Thrift 275 1 06-30 03/94 15.25 53
EQSB Equitable FSB of Wheaton MD OTC Central MD Thrift 268 J 4 09-30 09/93 27.50 17
FIBC Financial Bancorp of NY OTC New York, NY Thrift 267 5 09-30 08/94 14.50 26
WVFC WVS Financial Corp. of PA (3) OTC Pittsburgh PA Thrift 266 5 06-30 11/93 23.00 40
YFCB Yonkers Fin. Corp. of NY OTC Yonkers NY Thrift 260 4 09-30 04/96 12.12 43
FBER First Bergen Bancorp of NJ OTC Northern NJ Thrift 250 2 09-30 04/96 12.00 38
IFSB Independence FSB of DC OTC Washington DC Ret. 248 2 12-31 06/85 7.62 10
WSB Washington SB, FSB of MD AMEX Southeastern MD Thrift 247 J 3 07-31 / 4.94 21
CTBK Center Banks, Inc. of NY (3) OTC Central NY Thrift 242 7 12-31 05/86 16.25 15
WYNE Wayne Bancorp of NJ OTC Thrift 240 0 12-31 06/96 14.19 32
GDVS Greater DV SB,MHC of PA(19.9) (3) OTC Southeast PA Thrift 232 7 12-31 03/95 10.12 33
ESBK Elmira SB of Elmira NY (3) OTC NY,PA Ret. 221 6 12-31 03/85 16.75 12
HRBF Harbor Federal Bancorp of MD OTC Baltimore MD Thrift 214 6 03-31 08/94 15.50 27
LARL Laurel Capital Group of PA OTC Southwestern PA Thrift 202 6 06-30 02/87 16.00 24
SBFL SB Fing. Lakes MHC of NY(33.0) OTC Western NY Thrift 197 4 04-30 11/94 13.50 24
PHFC Pittsburgh Home Fin. of PA OTC Pittsburgh PA Thrift 195 6 09-30 04/96 13.25 29
PEEK Peekskill Fin. Corp. of NY OTC Southeast NY Thrift 186 3 06-30 12/95 13.37 51
SFED SFS Bancorp of Schenectady NY OTC Eastern NY Thrift 166 3 12-31 06/95 15.00 19
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit III-1
Characteristics of Publicly-Traded Thrifts
December 14, 1996(1)
<TABLE>
<CAPTION>
Primary Operating Total Fiscal Conv. Stock Market
Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value
- ------ ----------------------------------- ------ ----------------- -------- ------ ------- ---- ----- ------ ------
($Mil) ($) ($Mil)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mid-Atlantic Companies (continued)
- ----------------------------------
TPNZ Tappan Zee Fin. Corp. of NY OTC Southeast NY Thrift 120 1 03-31 10/95 14.00 22
PRBC Prestige Bancorp of PA OTC Thrift 104 0 12-31 06/96 12.87 12
THBC Troy Hill Bancorp of PA OTC Pittsburgh PA Thrift 99 2 06-30 06/94 20.00 21
WHGB WHG Bancshares of MD OTC Baltimore MD Thrift 98 J 5 09-30 04/96 12.69 21
WWFC Westwood Fin. Corp. of NJ OTC Northern NJ Thrift 94 2 03-31 06/96 15.25 10
ALBC Albion Banc Corp. of Albion NY OTC Western NY Thrift 60 2 09-30 07/93 17.37 4
BRFC Bridgeville SB, FSB of PA OTC Western PA Thrift 55 1 12-31 10/94 16.00 18
PWBK Pennwood SB of PA (3) OTC Pittsburgh PA Thrift 46 3 12-31 07/96 12.50 8
FSLA First SB, SLA MHC of NJ (37.6) OTC Eastern NJ Thrift 0 17 12-31 06/92 18.00 0
Mid-West Companies
- ------------------
SFB Standard Fed. Bancorp of MI NYSE MI,IN,OH M.B. 15,354 166 12-31 01/87 56.12 1,750
COFI Charter One Financial of OH OTC OH,MI Div. 13,826 155 12-31 01/88 41.00 1,917
RFED Roosevelt Fin. Grp. Inc. of MO OTC MO,IL,KS Div. 9,048 79 12-31 01/87 18.62 785
TCB TCF Financial Corp. of MN NYSE MN,IL,MI,WI,OH Div. 7,115 184 12-31 06/86 43.00 1,499
CFB Commercial Federal Corp. of NE NYSE NE,CO,KS,OK M.B. 6,668 98 06-30 12/84 45.75 634
FFHC First Financial Corp. of WI OTC WI,IL Div. 5,596 129 12-31 12/80 28.00 838
SPBC St. Paul Bancorp, Inc. of IL OTC Chicago IL Div. 4,276 52 12-31 05/87 27.62 499
SECP Security Capital Corp. of WI OTC Wisconsin Div. 3,494 42 06-30 01/94 71.00 654
MAFB MAF Bancorp of IL OTC Chicago IL Thrift 3,163 13 06-30 01/90 34.75 364
GTFN Great Financial Corp. of KY OTC Kentucky M.B. 2,831 41 12-31 03/94 29.30 416
CTZN CitFed Bancorp of Dayton OH OTC Dayton OH M.B. 2,748 33 03-31 01/92 28.25 242
STND Standard Fin. of Chicago IL OTC Chicago IL Thrift 2,340 13 12-31 08/94 19.87 322
ABCW Anchor Bancorp Wisconsin of WI OTC Wisconsin M.B. 1,892 33 03-31 07/92 34.87 161
FISB First Indiana Corp. of IN OTC Central IN M.B. 1,485 28 12-31 08/83 25.37 210
FTFC First Fed. Capital Corp. of WI OTC Southern WI M.B. 1,469 44 12-31 11/89 24.00 148
DNFC D&N Financial Corp. of MI OTC MI,WI Ret. 1,408 35 12-31 02/85 14.87 113
STFR St. Francis Cap. Corp. of WI OTC Milwaukee WI Thrift 1,404 13 09-30 06/93 26.50 145
JSBA Jefferson Svgs Bancorp of MO OTC St. Louis MO,TX Thrift 1,128 21 12-31 04/93 23.50 98
FFSW First Fed Fin. Serv. of OH OTC Northeastern OH Thrift 1,111 18 12-31 04/87 37.75 136
AADV Advantage Bancorp of WI OTC WI,IL Thrift 1,016 15 09-30 03/92 31.75 108
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit III-1
Characteristics of Publicly-Traded Thrifts
December 14, 1996(1)
<TABLE>
<CAPTION>
Primary Operating Total Fiscal Conv. Stock Market
Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value
- ------ ----------------------------------- ------ ----------------- -------- ------ ------- ---- ----- ------ ------
($Mil) ($) ($Mil)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mid-West Companies (continued)
- ------------------------------
OFCP Ottawa Financial Corp. of MI OTC Western MI Thrift 827 26 12-31 08/94 16.75 87
CFSB CFSB Bancorp of Lansing MI OTC Central MI Thrift 812 18 12-31 06/90 18.25 88
IFSL Indiana Federal Corp. of IN OTC Northwestern IN Thrift 809 15 12-31 02/87 21.75 103
NASB North American SB of MO OTC KS,MO M.B. 740 J 8 09-30 09/85 31.00 70
FFEC First Fed. Bancshares of WI OTC Northwest WI Thrift 729 20 12-31 10/94 18.37 126
MSBK Mutual SB, FSB of Bay City MI OTC Michigan M.B. 678 22 12-31 07/92 5.75 25
LBCI Liberty Bancorp of Chicago IL OTC Chicago IL Thrift 664 4 12-31 12/91 24.25 60
GSBC Great Southern Bancorp of MO OTC Southwest MO Div. 658 25 06-30 12/89 16.75 146
HNFC Hinsdale Financial Corp. of IL OTC Chicago IL M.B. 651 10 09-30 07/92 25.87 70
HOMF Home Fed Bancorp of Seymour IN OTC Southern IN Thrift 633 15 06-30 01/88 35.25 78
AVND Avondale Fin. Corp. of IL OTC Chicago IL Ret. 613 6 03-31 04/95 16.87 61
FNGB First Northern Cap. Corp of WI OTC Northeast WI Thrift 608 20 12-31 12/83 16.00 70
FFDP FirstFed Bancshares of IL OTC Chicago IL Thrift 603 3 12-31 07/92 17.00 56
FFYF FFY Financial Corp. of OH OTC Youngstown OH Thrift 603 10 06-30 06/93 25.75 132
SFSL Security First Corp. of OH OTC Northeastern OH R.E. 600 13 03-31 01/88 15.50 77
HMNF HMN Financial, Inc. of MN OTC Southeast MN Thrift 565 7 12-31 06/94 18.00 84
HFFC HF Financial Corp. of SD OTC South Dakota Thrift 554 19 06-30 04/92 17.25 50
SSBK Strongsville SB of OH OTC Cleveland OH Thrift 542 13 12-31 / 22.50 57
FDEF First Defiance Fin.Corp. of OH OTC Northwest OH Thrift 524 9 06-30 10/95 12.25 121
FFBH First Fed. Bancshares of AR OTC Northern AR Thrift 510 8 12-31 05/96 16.00 82
CBCI Calumet Bancorp of Chicago IL OTC Chicago IL Thrift 493 5 06-30 02/92 32.75 78
FBCI Fidelity Bancorp of Chicago IL OTC Chicago IL Thrift 476 5 09-30 12/93 17.00 49
FFSX First FS&LA. MHC of IA (45.0) OTC Western IA Thrift 458 12 06-30 06/92 28.00 53
PERM Permanent Bancorp of IN OTC Southwest IN Thrift 422 11 03-31 04/94 18.50 39
ASBI Ameriana Bancorp of IN OTC Eastern IN,OH Thrift 400 8 12-31 02/87 15.75 52
PMFI Perpetual Midwest Fin. of IA OTC EastCentral IA Thrift 396 4 12-31 03/94 19.06 37
SFSB SuburbFed Fin. Corp. of IL OTC IL,IN Thrift 391 12 12-31 02/92 20.37 26
HALL Hallmark Capital Corp. of WI OTC Milwaukee WI Thrift 388 3 06-30 01/94 17.50 25
PFSL Pocahnts Fed, MHC of AR (46.4) OTC Northeast AR Thrift 382 5 09-30 04/94 17.25 28
CAFI Camco Fin. Corp. of OH OTC Eastern OH M.B. 378 7 12-31 / 16.00 33
SWBI Southwest Bancshares of IL OTC Chicago IL Thrift 376 5 12-31 06/92 18.50 49
HBEI Home Bancorp of Elgin IL OTC Northern IL Thrift 371 5 12-31 09/96 12.87 90
CBSB Charter Financial Inc. of IL OTC Southern IL Thrift 367 J 6 09-30 12/95 13.00 63
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit III-1
Characteristics of Publicly-Traded Thrifts
December 14, 1996(1)
<TABLE>
<CAPTION>
Primary Operating Total Fiscal Conv. Stock Market
Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value
- ------ ----------------------------------- ------ ----------------- -------- ------ ------- ---- ----- ------ ------
($Mil) ($) ($Mil)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mid-West Companies (continued)
- ------------------------------
FFKY First Fed. Fin. Corp. of KY OTC Central KY Thrift 357 7 06-30 07/87 20.25 85
FFHH FSF Financial Corp. of MN OTC Southern MN Thrift 355 11 09-30 10/94 14.25 50
KNK Kankakee Bancorp of IL AMEX Illinois Thrift 353 10 03-31 12/92 24.75 35
HVFD Haverfield Corp. of OH OTC Cleveland OH Thrift 351 10 12-31 03/85 19.25 37
PVFC PVF Capital Corp. of OH OTC Cleveland OH R.E. 345 9 06-30 12/92 14.50 34
CASH First Midwest Fin. Corp. of IA OTC IA,SD R.E. 342 J 9 09-30 09/93 24.75 44
HMCI Homecorp, Inc. of Rockford IL OTC Northern IL Thrift 340 9 12-31 06/90 18.00 20
MCBS Mid Continent Bancshares of KS OTC Central KS M.B. 340 7 09-30 06/94 23.37 47
WOFC Western Ohio Fin. Corp. of OH OTC Western OH Thrift 333 J 6 12-31 07/94 20.31 44
INBI Industrial Bancorp of OH OTC Northern OH Thrift 320 10 12-31 08/95 12.50 69
FMBD First Mutual Bancorp of IL OTC Central IL Thrift 316 7 12-31 07/95 14.37 55
HBFW Home Bancorp of Fort Wayne IN OTC Northeast IN Thrift 316 J 8 09-30 03/95 18.50 53
WCBI WestCo Bancorp of IL OTC Chicago IL Thrift 308 1 12-31 06/92 21.50 56
SMFC Sho-Me Fin. Corp. of MO OTC Southwest MO Thrift 292 7 12-31 06/94 21.62 36
WFCO Winton Financial Corp. of OH OTC Cincinnati OH R.E. 283 J 4 09-30 08/88 11.50 23
PFDC Peoples Bancorp of Auburn IN OTC Northeastern IN Thrift 280 6 09-30 07/87 20.50 48
GFCO Glenway Financial Corp. of OH OTC Cincinnati OH Thrift 279 J 6 06-30 11/90 19.87 23
FCBF FCB Fin. Corp. of Neenah WI OTC Eastern WI Thrift 269 6 03-31 09/93 19.25 47
CBK Citizens First Fin.Corp. of IL AMEX Central IL Thrift 266 6 12-31 05/96 13.62 38
FFED Fidelity Fed. Bancorp of IN OTC Southwestern IN Thrift 262 4 06-30 08/87 10.00 25
FBCV 1st Bancorp of Vincennes IN OTC Southwestern IN M.B. 258 1 06-30 04/87 30.50 20
FFOH Fidelity Financial of OH OTC Cincinnati OH Thrift 256 4 12-31 03/96 11.19 46
WAYN Wayne S&L Co., MHC of OH(46.7) OTC Central OH Thrift 251 6 03-31 06/93 23.00 34
OSBF OSB Fin. Corp. of Oshkosh WI OTC Eastern WI Thrift 250 7 12-31 06/92 27.00 31
CBIN Community Bank Shares of IN OTC Southeast IN Thrift 235 7 12-31 04/95 12.50 25
DFIN Damen Fin. Corp. of Chicago IL OTC Chicago IL Thrift 235 3 11-30 10/95 12.25 46
CAPS Capital Savings Bancorp of MO OTC Central MO Thrift 231 7 06-30 12/93 13.50 25
MBLF MBLA Financial Corp. of MO OTC Northeast MO Thrift 227 2 06-30 06/93 20.00 27
FFHS First Franklin Corp. of OH OTC Cincinnati OH Thrift 218 7 12-31 01/88 17.00 20
OHSL OHSL Financial Corp. of OH OTC Cincinnati, OH Thrift 218 4 12-31 02/93 20.37 25
EFBI Enterprise Fed. Bancorp of OH OTC Cincinnati OH Thrift 214 J 5 09-30 10/94 15.75 33
LARK Landmark Bancshares of KS OTC Central KS Thrift 214 5 09-30 03/94 16.50 31
MFBC MFB Corp. of Mishawaka IN OTC Northern IN Thrift 211 J 4 09-30 03/94 17.00 34
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit III-1
Characteristics of Publicly-Traded Thrifts
December 14, 1996(1)
<TABLE>
<CAPTION>
Primary Operating Total Fiscal Conv. Stock Market
Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value
- ------ ----------------------------------- ------ ----------------- -------- ------ ------- ---- ----- ------ ------
($Mil) ($) ($Mil)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mid-West Companies (continued)
- ------------------------------
SBCN Suburban Bancorp. of OH OTC Cincinnati OH Thrift 210 8 06-30 09/93 15.25 22
WEFC Wells Fin. Corp. of Wells MN OTC Southcentral MN Thrift 201 7 12-31 04/95 12.56 26
CBCO CB Bancorp of Michigan City IN OTC Northwest IN Thrift 200 3 03-31 12/92 23.00 27
FFFD North Central Bancshares of IA OTC Central IA Thrift 198 4 12-31 03/96 13.37 51
MWFD Midwest Fed. Fin. Corp of WI OTC Central WI Thrift 195 9 12-31 07/92 21.50 34
FFBZ First Federal Bancorp of OH OTC Eastern OH Thrift 184 6 09-30 06/92 14.75 23
GFED Guaranty FS&LA,MHC of MO(31.1) OTC Southwest MO Thrift 183 4 06-30 04/95 11.00 34
MFFC Milton Fed. Fin. Corp. of OH OTC Southwest OH Thrift 181 2 09-30 10/94 14.62 33
PULB Pulaski SB, MHC of MO (29.0) OTC St. Louis MO Thrift 179 J 5 09-30 05/94 14.75 31
LSBI LSB Fin. Corp. of Lafayette IN OTC Central IN Thrift 178 3 12-31 02/95 19.50 18
PFED Park Bancorp of Chicago IL OTC Chicago IL Thrift 177 3 12-31 08/96 11.75 32
CMRN Cameron Fin. Corp. of MO OTC Northwest MO Thrift 176 J 3 09-30 04/95 15.63 45
MARN Marion Capital Holdings of IN OTC Central IN Thrift 175 2 06-30 03/93 20.50 38
EGLB Eagle BancGroup of IL OTC Central IL Thrift 164 1 12-31 07/96 13.50 18
NEIB Northeast Indiana Bncrp of IN OTC Northeast IN Thrift 160 3 12-31 06/95 13.50 26
SMBC Southern Missouri Bncrp of MO OTC Southeast MO Thrift 160 J 8 06-30 04/94 14.19 23
FFWC FFW Corporation of Wabash IN OTC Central IN Thrift 155 3 06-30 03/93 20.75 15
FBSI First Bancshares of MO OTC Southcentral MO Thrift 154 5 06-30 12/93 16.50 20
FFWD Wood Bancorp of OH OTC Northern OH Thrift 152 6 06-30 08/93 16.37 25
SJSB SJS Bancorp of St. Joseph MI OTC Southwest MI Thrift 152 4 06-30 02/95 25.25 23
QCFB QCF Bancorp of Virginia MN OTC Northeast MN Thrift 148 2 06-30 04/95 16.25 23
JXSB Jcksnville SB,MHC of IL(43.3%) OTC Central IL Thrift 144 4 12-31 04/95 12.00 15
BWFC Bank West Fin. Corp. of MI OTC Southeast MI Thrift 140 2 06-30 03/95 11.00 22
MWBI Midwest Bancshares, Inc. of IA OTC Southeast IA Thrift 138 4 12-31 11/92 27.00 9
CLAS Classic Bancshares of KY OTC Eastern KY Thrift 136 1 03-31 12/95 11.87 16
FKKY Frankfort First Bancorp of KY OTC Frankfort KY Thrift 129 3 06-30 07/95 11.37 39
PTRS The Potters S&L Co. of OH OTC Northeast OH Thrift 125 4 12-31 12/93 18.91 10
MFCX Marshalltown Fin. Corp. of IA OTC Central IA Thrift 124 3 09-30 03/94 15.25 22
WEHO Westwood Hmstd Fin Corp of OH OTC Cincinnati OH Thrift 120 2 12-31 09/96 11.50 30
GTPS Great American Bancorp of IL OTC East Central IL Thrift 120 J 3 09-30 06/95 14.75 29
NBSI North Bancshares of Chicago IL OTC Chicago IL Thrift 117 2 06-30 12/93 16.00 17
MIFC Mid Iowa Financial Corp. of IA OTC Central IA Thrift 115 J 6 09-30 10/92 6.37 11
ASBP ASB Financial Corp. of OH OTC Southern OH Thrift 114 1 06-30 04/95 17.75 30
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit III-1
Characteristics of Publicly-Traded Thrifts
December 14, 1996(1)
<TABLE>
<CAPTION>
Primary Operating Total Fiscal Conv. Stock Market
Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value
- ------ ----------------------------------- ------ ----------------- -------- ------ ------- ---- ----- ------ ------
($Mil) ($) ($Mil)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mid-West Companies (continued)
- ------------------------------
DCBI Delphos Citizens Bancorp of OH OTC Northwest OH Thrift 110 P 1 09-30 11/96 11.87 24
HFFB Harrodsburg 1st Fin Bcrp of KY OTC Central KY Thrift 110 J 2 09-30 10/95 18.25 39
FFSL First Independence Corp. of KS OTC Southeast KS Thrift 109 1 09-30 10/93 19.62 11
BDJI First Fed. Bancorp. of MN OTC Northern MN Thrift 107 5 09-30 04/95 17.87 13
FTNB Fulton Bancorp of MO OTC Central MO Thrift 105 P 2 04-30 10/96 14.12 24
CNSB CNS Bancorp of MO OTC Central MO Thrift 99 5 12-31 06/96 14.62 24
FFBI First Financial Bancorp of IL OTC Northern IL M.B. 97 2 12-31 10/93 15.87 7
CBES CBES Bancorp of MO OTC Western MO Thrift 97 2 06-30 09/96 14.00 14
NWEQ Northwest Equity Corp. of WI OTC Northwest WI Thrift 96 3 03-31 10/94 11.25 10
CIBI Community Inv. Bancorp of OH OTC NorthCentral OH Thrift 95 3 06-30 02/95 16.50 11
WCFB Webster CityFSB,MHC of IA(45.2 OTC Central IA Thrift 95 1 12-31 08/94 13.50 28
PFFC Peoples Fin. Corp. of OH OTC Northeast OH Thrift 91 P 2 09-30 09/96 13.00 19
INCB Indiana Comm. Bank, SB of IN OTC Central IN Ret. 91 3 06-30 12/94 15.50 14
FTSB Fort Thomas Fin. Corp. of KY OTC Northern KY Thrift 89 J 2 09-30 06/95 14.25 22
HFSA Hardin Bancorp of Hardin MO OTC Western MO Thrift 88 3 03-31 09/95 12.00 12
THR Three Rivers Fin. Corp. of MI AMEX Southwest MI Thrift 87 4 06-30 08/95 13.62 12
KYF Kentucky First Bancorp of KY AMEX Central KY Thrift 86 2 06-30 08/95 11.50 16
FFDF FFD Financial Corp. of OH OTC Northeast OH Thrift 85 1 06-30 04/96 13.50 20
GFSB GFS Bancorp of Grinnell IA OTC Central IA Thrift 85 1 06-30 01/94 20.75 10
AMFC AMB Financial Corp. of IN OTC Northwest IN Thrift 84 4 12-31 04/96 12.50 14
SFFC StateFed Financial Corp. of IA OTC Des Moines IA Thrift 81 2 06-30 01/94 16.50 13
SOBI Sobieski Bancorp of S. Bend IN OTC Northern IN Thrift 81 3 06-30 03/95 15.00 13
PCBC Perry Co. Fin. Corp. of MO OTC EastCentral MO Thrift 80 J 1 09-30 02/95 17.25 15
LOGN Logansport Fin. Corp. of IN OTC Northern IN Thrift 80 1 12-31 06/95 11.75 16
HZFS Horizon Fin'l. Services of IA OTC Central IA Thrift 77 3 06-30 06/94 14.94 7
HHFC Harvest Home Fin. Corp. of OH OTC Southwest OH Thrift 76 J 3 09-30 10/94 9.87 9
ATSB AmTrust Capital Corp. of IN OTC Northcentral IN Thrift 72 J 3 06-30 03/95 10.37 5
GWBC Gateway Bancorp of KY OTC Eastern KY Thrift 69 2 06-30 01/95 14.00 16
MIVI Miss. View Hold. Co. of MN OTC Central MN Thrift 69 J 1 09-30 03/95 12.75 12
MSBF MSB Financial Corp. of MI OTC Southcentral MI Thrift 63 2 06-30 02/95 19.25 13
LXMO Lexington B&L Fin. Corp. of MO OTC West Central MO Thrift 61 J 1 09-30 06/96 12.87 16
CKFB CKF Bancorp of Danville KY OTC Central KY Thrift 60 1 12-31 01/95 19.75 19
NSLB NS&L Bancorp of Neosho MO OTC Southwest MO Thrift 57 J 2 09-30 06/95 14.00 12
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit III-1
Characteristics of Publicly-Traded Thrifts
December 14, 1996(1)
<TABLE>
<CAPTION>
Primary Operating Total Fiscal Conv. Stock Market
Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value
- ------ ----------------------------------- ------ ----------------- -------- ------ ------- ---- ----- ------ ------
($Mil) ($) ($Mil)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mid-West Companies (continued)
- ------------------------------
RELI Reliance Bancshares Inc of WI (3) OTC Milwaukee WI Thrift 48 1 June 04/96 7.00 18
HBBI Home Building Bancorp of IN OTC Southwest IN Thrift 43 2 09-30 02/95 18.00 6
CSBF CSB Financial Group Inc of IL OTC Centralia IL Thrift 42 J 1 09-30 10/95 10.00 10
HWEN Home Financial Bancorp of IN OTC Central IN Thrift 39 0 06-30 07/96 13.12 7
FLKY First Lancaster Bncshrs of KY OTC Thrift 38 0 06-30 07/96 16.00 15
LONF London Financial Corp. of OH OTC Central OH Thrift 37 J 1 09-30 04/96 13.00 7
JOAC Joachim Bancorp of MO OTC Eastern MO Thrift 36 1 03-31 12/95 14.50 11
New England Companies
- ---------------------
PBCT Peoples Bank, MHC of CT(32.3) (3) OTC Southwestern CT Div. 7,237 84 12-31 07/88 27.87 1,129
PHBK Peoples Heritage Fin Grp of ME (3) OTC ME,NH Div. 4,456 82 12-31 12/86 27.25 687
WBST Webster Financial Corp. of CT OTC Central CT Thrift 3,984 64 12-31 12/86 37.12 301
CFX Cheshire Fin. Corp. of NH (3) AMEX S.W. NH,MA M.B. 1,521 23 12-31 02/87 15.25 187
EGFC Eagle Financial Corp. of CT OTC Western CT Thrift 1,407 19 09-30 02/87 30.25 137
SISB SIS Bank of Springfield MA (3) OTC Central MA Div. 1,285 21 12-31 02/95 23.94 137
DSBC DS Bancor Inc. of Derby CT (3) OTC Southwestern CT Thrift 1,259 22 12-31 12/85 42.44 129
ANDB Andover Bancorp, Inc. of MA (3) OTC Northeastern MA M.B. 1,199 11 12-31 05/86 25.37 130
WLDN Walden Bancorp of MA (3) OTC Eastern MA M.B. 1,049 17 04-30 12/85 34.50 176
MDBK Medford Savings Bank of MA (3) OTC Eastern MA Thrift 1,008 16 12-31 03/86 25.00 113
AFCB Affiliated Comm BC, Inc of MA OTC MA Thrift 1,005 10 12-31 / 22.62 115
FFES First FS&LA of E. Hartford CT OTC Central CT Thrift 943 12 12-31 06/87 22.75 59
FMLY Family Bancorp of Haverhill MA (3) OTC MA,NH Div. 918 21 12-31 11/86 34.38 148
MASB MassBank Corp. of Reading MA (3) OTC Eastern MA Thrift 879 14 12-31 05/86 37.50 101
FESX First Essex Bancorp of MA (3) OTC MA,NH Div. 869 10 12-31 08/87 13.75 83
EBCP Eastern Bancorp of NH OTC VT, NH M.B. 869 25 09-30 11/83 22.12 81
BFD BostonFed Bancorp of MA AMEX Boston MA M.B. 797 8 12-31 10/95 14.75 97
MECH Mechanics SB of Hartford CT (3) OTC Hartford CT Thrift 710 0 12-31 06/96 15.87 84
NSSB Norwich Financial Corp. of CT (3) OTC Southeastern CT Thrift 694 18 12-31 11/86 19.50 105
DIBK Dime Financial Corp. of CT (3) OTC Central CT Thrift 692 10 12-31 07/86 17.75 91
NSSY Norwalk Savings Society of CT (3) OTC Southwest CT Thrift 637 8 12-31 06/94 24.25 58
GROV GroveBank for Savings of MA (3) OTC Eastern MA Thrift 599 7 12-31 08/86 49.12 76
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit III-1
Characteristics of Publicly-Traded Thrifts
December 14, 1996(1)
<TABLE>
<CAPTION>
Primary Operating Total Fiscal Conv. Stock Market
Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value
- ------ ----------------------------------- ------ ----------------- -------- ------ ------- ---- ----- ------ ------
($Mil) ($) ($Mil)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
New England Companies (continued)
- ---------------------------------
CBNH Community Bankshares Inc of NH (3) OTC Southcentral NH M.B. 549 9 06-30 05/86 20.12 49
BKC American Bank of Waterbury CT (3) AMEX Western CT Thrift 548 15 12-31 12/81 29.00 66
PBKB People's SB of Brockton MA (3) OTC Southeastern MA Thrift 513 14 12-31 10/86 10.62 36
SOSA Somerset Savings Bank of MA (3) OTC Eastern MA R.E. 511 5 12-31 07/86 1.97 33
MWBX Metro West of MA (3) OTC Eastern MA Thrift 499 9 12-31 10/86 4.62 64
ABBK Abington Savings Bank of MA (3) OTC Southeastern MA M.B. 484 7 12-31 06/86 19.25 36
SWCB Sandwich Co-Op. Bank of MA (3) OTC Southeastern MA Thrift 461 11 04-30 07/86 29.62 56
PBNB Peoples Sav. Fin. Corp. of CT (3) OTC Central CT Thrift 460 8 12-31 08/86 27.50 52
PETE Primary Bank of NH (3) OTC Southern NH Ret. 414 8 12-31 10/93 13.87 27
BKCT Bancorp Connecticut of CT (3) OTC Central CT Thrift 402 3 12-31 07/86 22.50 60
EIRE Emerald Island Bancorp, MA (3) OTC Eastern MA R.E. 392 7 12-31 09/86 18.00 32
MIDC Midconn Bank of Kensington CT (3) OTC Central CT Thrift 358 10 09-30 09/86 20.25 39
WRNB Warren Bancorp of Peabody MA (3) OTC Eastern MA R.E. 354 6 12-31 07/86 14.87 54
LSBX Lawrence Savings Bank of MA (3) OTC Northeastern MA Thrift 330 6 12-31 05/86 8.13 35
CEBK Central Co-Op. Bank of MA (3) OTC Eastern MA Thrift 326 11 04-30 10/86 17.50 34
NMSB Newmil Bancorp. of CT (3) OTC Eastern CT Thrift 306 12 06-30 02/86 8.50 34
POBS Portsmouth Bank Shrs Inc of NH (3) OTC Southeastern NH Thrift 269 3 12-31 02/88 14.00 80
NHTB NH Thrift Bancshares of NH OTC Central NH Thrift 264 10 12-31 05/86 11.75 20
NEBC Northeast Bancorp of ME (3) OTC Eastern ME Thrift 230 8 06-30 08/87 13.50 17
TBK Tolland Bank of CT (3) AMEX Northern CT Thrift 228 7 12-31 12/86 12.00 14
HIFS Hingham Inst. for Sav. of MA (3) OTC Eastern MA Thrift 193 4 12-31 12/88 18.25 24
HPBC Home Port Bancorp, Inc. of MA (3) OTC Southeastern MA Thrift 189 2 12-31 08/88 16.75 31
BSBC Branford SB of CT (3) OTC New Haven CT R.E. 176 5 12-31 11/86 4.12 27
IPSW Ipswich SB of Ipswich MA (3) OTC Northwest MA Thrift 158 4 12-31 05/93 11.37 13
AFED AFSALA Bancorp of NY OTC Central NY Thrift 149 P 4 09-30 10/96 12.00 17
KSBK KSB Bancorp of Kingfield ME (3) OTC Western ME M.B. 133 J 8 12-31 06/93 26.00 11
MFLR Mayflower Co-Op. Bank of MA (3) OTC Southeastern MA Thrift 116 4 04-30 12/87 15.25 14
NTMG Nutmeg FS&LA of CT OTC CT M.B. 94 3 12-31 / 7.25 5
FCB Falmouth Co-Op Bank of MA (3) AMEX Southeast MA Thrift 88 J 1 09-30 03/96 13.25 19
MCBN Mid-Coast Bancorp of ME OTC Eastern ME Thrift 56 2 03-31 11/89 18.75 4
GLBK Glendale Co-op. Bank of MA (3) OTC Boston MA Thrift 37 J 1 04-30 01/94 20.00 5
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit III-1
Characteristics of Publicly-Traded Thrifts
December 14, 1996(1)
<TABLE>
<CAPTION>
Primary Operating Total Fiscal Conv. Stock Market
Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value
- ------ ----------------------------------- ------ ----------------- -------- ------ ------- ---- ----- ------ ------
($Mil) ($) ($Mil)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WAMU Washington Mutual Inc. of WA (3) OTC WA,OR,ID,UT,MT Div. 22,414 290 12-31 03/83 40.37 2,913
WFSL Washington FS&LA of Seattle WA OTC Western US Thrift 5,115 89 09-30 11/82 25.75 1,048
IWBK Interwest SB of Oak Harbor WA OTC Western WA Div. 1,712 31 12-31 / 32.25 255
STSA Sterling Financial Corp. of WA OTC WA,OR M.B. 1,531 41 06-30 / 13.75 76
FWWB First Savings Bancorp of WA (3) OTC Central WA Thrift 947 16 03-31 11/95 18.37 200
MSEA Metropolitan Bancorp of WA OTC Western WA R.E. 753 10 03-31 01/90 19.25 70
KFBI Klamath First Bancorp of OR OTC Southern OR Thrift 672 7 09-30 10/95 14.87 173
HRZB Horizon Financial Corp. of WA (3) OTC Northwest WA Thrift 500 12 03-31 08/86 12.25 80
FMSB First Mutual SB of Bellevue WA (3) OTC Western WA M.B. 401 6 12-31 12/85 18.00 44
CASB Cascade SB of Everett WA OTC Seattle WA Thrift 340 6 06-30 08/92 14.37 29
RVSB Rvrview SB,FSB MHC of WA(40.3) OTC Southwest WA M.B. 219 9 03-31 10/93 16.75 37
South-East Companies
- --------------------
FFCH First Fin. Holdings Inc. of SC OTC CHARLESTON SC Div. 1,546 32 09-30 11/83 23.00 146
LIFB Life Bancorp of Norfolk VA OTC Southeast VA Thrift 1,405 20 12-31 10/94 18.00 177
AMFB American Federal Bank of SC OTC Northwest SC Thrift 1,395 41 12/31 01/89 19.00 208
MGNL Magna Bancorp of MS OTC MS,AL M.B. 1,302 62 06-30 03/91 18.50 254
FLFC First Liberty Fin. Corp. of GA OTC Georgia M.B. 991 J 29 9-30 12/83 20.06 120
HFNC HFNC Financial Corp. of NC OTC Charlotte NC Thrift 845 8 06-30 12/95 17.44 300
VFFC Virginia First Savings of VA OTC Petersburg VA M.B. 781 23 06-30 01/78 12.75 73
ISBF ISB Financial Corp. of LA OTC SouthCentral LA Thrift 686 16 12-31 04/95 17.12 121
PALM Palfed, Inc. of Aiken SC OTC Southwest SC Thrift 660 19 12-31 12/85 14.50 76
CNIT Cenit Bancorp of Norfolk VA OTC Southeastern VA Thrift 656 J 15 12-31 08/92 39.00 64
EBSI Eagle Bancshares of Tucker GA OTC Atlanta GA Thrift 642 10 03-31 04/86 15.00 68
VABF Va. Beach Fed. Fin. Corp of VA OTC Southeast VA M.B. 604 12 12-31 11/80 9.38 47
FFFC FFVA Financial Corp. of VA OTC Southern VA Thrift 530 11 12-31 10/94 20.50 103
CFCP Coastal Fin. Corp. of SC OTC SC Thrift 453 J 9 09-30 09/90 20.00 69
TSH Teche Holding Company of LA AMEX Southern LA Thrift 380 8 09-30 04/95 13.00 46
FSFC First So.east Fin. Corp. of SC OTC Northwest SC Thrift 329 11 06-30 10/93 9.62 42
FFRV Fid. Fin. Bkshrs. Corp. of VA OTC Southern VA Thrift 329 7 12-31 05/86 24.56 56
COOP Cooperative Bk.for Svgs. of NC OTC Eastern NC Thrift 327 17 03-31 08/91 20.75 31
ANA Acadiana Bancshares of LA (3) AMEX Southern LA Thrift 265 4 12-31 07/96 14.62 40
UFRM United FS&LA of Rocky Mount NC OTC Eastern NC M.B. 264 9 12-31 07/80 8.37 26
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit III-1
Characteristics of Publicly-Traded Thrifts
December 14, 1996(1)
<TABLE>
<CAPTION>
Primary Operating Total Fiscal Conv. Stock Market
Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value
- ------ ----------------------------------- ------ ----------------- -------- ------ ------- ---- ----- ------ ------
($Mil) ($) ($Mil)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
South-East Companies (continued)
- --------------------------------
SOPN First SB, SSB, Moore Co. of NC OTC Central NC Thrift 263 5 06-30 01/94 18.50 69
MERI Meritrust FSB of Thibodaux LA OTC Southeast LA Thrift 231 8 12-31 / 31.50 24
FLAG Flag Financial Corp of GA OTC Western GA M.B. 229 4 12-31 12/86 11.12 23
SSFC South Street Fin. Corp. of NC (3) OTC South Central NC Thrift 208 P 2 09-30 10/96 14.00 63
CFTP Community Fed. Bancorp of MS OTC Northeast MS Thrift 204 1 09-30 03/96 17.25 74
PERT Perpetual of SC, MHC (46.8%) OTC Northwest SC Thrift 202 P 5 09-30 10/96 21.37 32
PLE Pinnacle Bank of AL AMEX Central AL Thrift 192 5 06-30 12/86 17.00 15
GSFC Green Street Fin. Corp. of NC OTC Southern NC Thrift 176 3 09-30 04/96 15.50 67
ESX Essex Bancorp of VA AMEX VA,NC M.B. 172 12 12-31 / 2.00 2
FTF Texarkana Fst. Fin. Corp of AR AMEX Southwest AR Thrift 164 J 5 09-30 07/95 14.25 28
NFSL Newnan SB, FSB of Newnan GA OTC Western GA M.B. 162 J 8 03-31 03/86 25.25 40
CFFC Community Fin. Corp. of VA OTC Central VA Thrift 161 3 03-31 03/88 21.25 27
FGHC First Georgia Hold. Corp of GA OTC Southeastern GA Thrift 144 J 7 09-30 02/87 8.00 16
PDB Piedmont Bancorp of NC AMEX Central NC Thrift 132 2 06-30 12/95 17.87 49
BFSB Bedford Bancshares of VA OTC Southern VA Thrift 127 3 09-30 08/94 17.75 20
FFBS FFBS Bancorp of Columbus MS OTC Columbus MS Thrift 126 3 06-30 06/93 23.00 36
GSLC Guaranty Svgs & Loan FA of VA OTC Charltsvl VA M.B. 115 3 06-30 / 8.75 8
CFNC Carolina Fincorp of NC (3) OTC Southcentral NC Thrift 110 P 4 06-30 11/96 13.00 24
SRN Southern Banc Company of AL AMEX Northeast AL Thrift 108 4 06-30 10/95 13.50 19
TWIN Twin City Bancorp of TN OTC Northeast TN Thrift 107 3 12-31 01/95 17.50 15
SSM Stone Street Bancorp of NC AMEX Central NC Thrift 106 2 12-31 04/96 19.50 36
KSAV KS Bancorp of Kenly NC OTC Central NC Thrift 96 3 12-31 12/93 20.87 14
SZB SouthFirst Bancshares of AL AMEX Central AL Thrift 91 J 2 09-30 02/95 12.87 11
CCFH CCF Holding Company of GA OTC Atlanta GA Thrift 79 J 3 09-30 07/95 14.50 16
CZF Citisave Fin. Corp. of LA AMEX Baton Rouge LA Thrift 76 5 12-31 07/95 13.50 13
SSB Scotland Bancorp of NC AMEX S. Central NC Thrift 69 2 09-30 04/96 14.00 26
SCCB S. Carolina Comm. Bnshrs of SC OTC Central SC Thrift 43 1 06-30 07/94 15.25 11
MBSP Mitchell Bancorp of NC (3) OTC Western NC Thrift 35 1 12-31 07/96 13.87 14
South-West Companies
- --------------------
CBSA Coastal Bancorp of Houston TX OTC Houston TX M.B. 2,859 40 12-31 / 23.75 118
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit III-1
Characteristics of Publicly-Traded Thrifts
December 14, 1996(1)
<TABLE>
<CAPTION>
Primary Operating Total Fiscal Conv. Stock Market
Ticker Financial Institution Exchg. Market Strat.(2) Assets Offices Year Date Price Value
- ------ ----------------------------------- ------ ----------------- -------- ------ ------- ---- ----- ------ ------
($Mil) ($) ($Mil)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
South-West Companies (continued)
- --------------------------------
FBHC Fort Bend Holding Corp. of TX OTC Eastcentral TX M.B. 282 5 03-31 06/93 25.25 21
JXVL Jacksonville Bancorp of TX OTC East Central TX Thrift 218 6 09-30 04/96 14.50 38
LBFI L&B Financial of S. Springs TX OTC Northeast TX Thrift 145 6 06-30 09/94 17.00 27
LOAN Horizon Bancorp, Inc of TX (3) OTC Austin TX R.E. 141 J 8 04-30 / 18.50 26
ETFS East Texas Fin. Serv. of TX OTC Northeast TX Thrift 115 J 2 09-30 01/95 16.12 18
AABC Access Anytime Bancorp of NM OTC Eastern NM Thrift 109 3 12-31 08/86 5.75 4
GUPB GFSB Bancorp of Gallup NM OTC Northwest NM Thrift 80 1 06-30 06/95 15.25 14
Western Companies (Excl CA)
- ---------------------------
FFBA First Colorado Bancorp of Co OTC Denver CO Thrift 1,501 J 26 12-31 01/96 16.87 321
WSTR WesterFed Fin. Corp. of MT OTC MT Thrift 566 20 06-30 01/94 18.62 82
GBCI Glacier Bancorp of MT OTC Western MT Div. 412 13 06-30 03/84 24.50 83
SFBM Security Bancorp of MT OTC Southcentral MT Thrift 382 16 06-30 11/86 30.25 45
UBMT United SB, FA of MT OTC Central MT Thrift 108 4 12-31 09/86 19.75 24
TRIC Tri-County Bancorp of WY OTC Southeastern WY Thrift 79 2 12-31 09/93 18.25 11
MORG Morgan Financial Corp. of CO OTC Northeast CO Thrift 75 1 06-30 01/93 12.00 9
CRZY Crazy Woman Creek Bncorp of WY OTC Northeast WY Thrift 52 1 09-30 03/96 11.50 12
</TABLE>
Other Areas
- -----------
NOTES: (1) Or most recent date available (M=March, S=September, D=December,
J=June, E=Estimated, and P=Pro Forma)
(2) Operating strategies are: Thrift=Traditional Thrift, M.B.=Mortgage
Banker, R.E.=Real Estate Developer, Div.=Diversified, and Ret.=Retail
Banking.
(3) FDIC savings bank.
Source: Corporate offering circulars, SNL Securities Quarterly Thrift Report,
and financial reports of publicly Traded Thrifts.
Date of Last Update: 12/14/96
14
<PAGE>
EXHIBIT III-2
Midwestern Peer Thrifts
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit III-2
Market Pricing Comparatives
Prices As of December 13, 1996
<TABLE>
<CAPTION>
Per Share Data
Market ---------------
Capitalization Pricing Ratios(3)
--------------- Book ---------------------------------------
Price/ Market 12-Mth Value/
Financial Institution Share(1) Value EPS(2) Share P/E P/B P/A P/TB P/CORE
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
($) ($Mil) ($) ($) (X) (%) (%) (%) (x)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAIF-Insured Thrifts 18.72 142.09 0.87 16.03 17.22 116.52 14.06 119.53 15.51
Special Selection Grouping(8) 17.09 15.53 0.92 16.39 15.88 108.08 10.42 108.57 14.62
Comparable Group
- ----------------
Special Comparative Group(8)
- ----------------------------
ATSB AmTrust Capital Corp. of IN 10.12 5.34 0.63 13.66 16.06 74.08 7.43 74.08 NM
CBCO CB Bancorp of Michigan City IN 24.25 28.18 1.88 16.68 12.90 145.38 14.09 145.38 10.92
CAPS Capital Savings Bancorp of MO 14.00 26.26 0.69 10.41 20.29 134.49 11.36 134.49 13.59
CBIN Community Bank Shares of IN 12.50 24.80 0.66 12.83 18.94 97.43 10.57 97.58 12.38
- --------------------------------------------------------------------------------------------------------------
CIBI Community Inv. Bancorp of OH 16.75 11.16 0.90 17.00 18.61 98.53 11.77 98.53 12.88
- --------------------------------------------------------------------------------------------------------------
FFWC FFW Corporation of Wabash IN 22.00 15.44 1.89 22.04 11.64 99.82 9.99 99.82 9.65
BDJI First Fed. Bancorp. of MN 18.00 12.62 0.45 17.58 NM 102.39 11.76 102.39 18.00
- --------------------------------------------------------------------------------------------------------------
FFBZ First Federal Bancorp of OH 16.00 25.12 0.91 8.92 17.58 179.37 13.62 179.78 13.01
FFBI First Financial Bancorp of IL 15.87 7.17 0.22 16.62 NM 95.49 7.38 95.49 22.67
- --------------------------------------------------------------------------------------------------------------
FFHS First Franklin Corp. of OH 16.00 18.53 0.52 17.07 NM 93.73 8.49 94.56 13.91
- --------------------------------------------------------------------------------------------------------------
FFSL First Independence Corp. of KS 19.62 11.44 1.40 22.30 14.01 87.98 10.54 87.98 10.38
GFSB GFS Bancorp of Grinnell IA 20.75 10.44 1.47 19.59 14.12 105.92 12.25 105.92 10.70
HZFS Horizon Fin'l. Services of IA 14.50 6.50 0.21 18.36 NM 78.98 8.47 78.98 NM
- --------------------------------------------------------------------------------------------------------------
JXSB Jcksnville SB,MHC of IL(43.3%) 12.50 6.98 0.21 13.01 NM 96.08 11.06 96.30 24.04
LSBI LSB Fin. Corp. of Lafayette IN 18.75 17.21 0.90 18.21 20.83 102.97 9.68 102.97 22.87
- --------------------------------------------------------------------------------------------------------------
MIFC Mid Iowa Financial Corp. of IA 6.25 10.52 0.62 6.42 10.08 97.35 9.13 97.50 10.08
MWBI Midwest Bancshares, Inc. of IA 26.50 9.25 2.58 25.98 10.27 102.00 6.72 102.00 6.87
MWFD Midwest Fed. Fin. Corp of WI 18.00 28.87 1.17 10.19 15.38 176.64 14.83 184.80 15.79
OHSL OHSL Financial Corp. of OH 20.75 25.38 0.96 20.58 21.61 100.83 11.66 100.83 14.41
- --------------------------------------------------------------------------------------------------------------
SJSB SJS Bancorp of St. Joseph MI(7) 25.50 23.41 0.28 17.23 NM 148.00 15.41 148.00 NM
PTRS The Potters S&L Co. of OH 18.75 9.49 0.06 20.36 NM 92.09 7.56 92.09 21.07
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Dividends(4) Financial Characteristics(6)
----------------------- ------------------------------------------------------
Amount/ Payout Total Equity/ NPAs/ Reported Core
---------------- -----------
Share Yield Ratio(5) Assets Assets Assets ROA ROE ROA ROE
-------- ------ ------- ------ ------- ------- ------- ------- ------- ------
($) (%) (%) ($Mil) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAIF-Insured Thrifts 0.37 1.98 33.16 1,353 12.79 0.87 0.62 5.36 0.83 7.41
Special Selection Grouping(8) 0.37 1.99 29.54 149 9.81 0.79 0.58 5.76 0.78 7.74
Comparable Group
- ----------------
Special Comparative Group(8)
- ----------------------------
ATSB AmTrust Capital Corp. of IN 0.00 0.00 0.00 72 10.03 2.58 0.47 4.40 0.03 0.28
CBCO CB Bancorp of Michigan City IN 1.30 5.36 69.15 200 9.69 1.70 1.11 11.72 1.31 13.84
CAPS Capital Savings Bancorp of MO 0.24 1.71 34.78 231 8.45 0.20 0.63 6.34 0.93 9.47
CBIN Community Bank Shares of IN 0.34 2.72 51.52 235 10.85 0.22 0.59 5.15 0.90 7.88
- ---------------------------------------------------------------------------------------------------------------------
CIBI Community Inv. Bancorp of OH 0.40 2.39 44.44 95 11.94 0.88 0.68 5.05 0.98 7.29
- ---------------------------------------------------------------------------------------------------------------------
FFWC FFW Corporation of Wabash IN 0.60 2.73 31.75 155 10.01 0.10 0.90 8.36 1.08 10.09
BDJI First Fed. Bancorp. of MN 0.00 0.00 0.00 107 11.49 0.38 0.31 2.22 0.68 4.94
- ---------------------------------------------------------------------------------------------------------------------
FFBZ First Federal Bancorp of OH 0.24 1.50 26.37 184 7.59 0.50 0.81 10.59 1.10 14.32
FFBI First Financial Bancorp of IL 0.00 0.00 0.00 97 7.73 0.43 0.12 1.27 0.37 4.03
- ---------------------------------------------------------------------------------------------------------------------
FFHS First Franklin Corp. of OH 0.32 2.00 61.54 218 9.05 0.52 0.28 2.99 0.62 6.61
- ---------------------------------------------------------------------------------------------------------------------
FFSL First Independence Corp. of KS 0.40 2.04 28.57 109 11.98 0.57 0.78 6.21 1.06 8.39
GFSB GFS Bancorp of Grinnell IA 0.40 1.93 27.21 85 11.56 1.63 0.91 7.59 1.20 10.02
HZFS Horizon Fin'l. Services of IA 0.32 2.21 NM 77 10.73 1.12 0.13 1.11 0.33 2.85
- ---------------------------------------------------------------------------------------------------------------------
JXSB Jcksnville SB,MHC of IL(43.3%) 0.40 3.20 NM 144 11.52 0.37 0.19 1.60 0.47 3.96
LSBI LSB Fin. Corp. of Lafayette IN 0.32 1.71 35.56 178 9.40 1.37 0.50 4.76 0.46 4.33
- ---------------------------------------------------------------------------------------------------------------------
MIFC Mid Iowa Financial Corp. of IA 0.08 1.28 12.90 115 9.38 0.05 0.93 9.97 0.93 9.97
MWBI Midwest Bancshares, Inc. of IA 0.60 2.26 23.26 138 6.58 0.47 0.66 9.61 0.99 14.37
MWFD Midwest Fed. Fin. Corp of WI 0.30 1.67 25.64 195 8.39 0.24 1.04 11.36 1.01 11.07
OHSL OHSL Financial Corp. of OH 0.76 3.66 NM 218 11.57 0.22 0.57 4.63 0.85 6.95
- ---------------------------------------------------------------------------------------------------------------------
SJSB SJS Bancorp of St. Joseph MI(7) 0.44 1.73 NM 152 10.41 0.35 0.17 1.51 0.49 4.26
PTRS The Potters S&L Co. of OH 0.28 1.49 NM 125 8.21 2.20 0.03 0.28 0.39 4.17
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Average of High/Low or Bid/Ask price per share.
(2) EPS (earnings per share) is based on actual trailing twelve month data and
is not shown on a pro forma basis.
(3) P/E = Price to earnings; P/B = Price to book; P/A = Price to assets;
P/TB = Price to tangible book value; and P/CORE = Price to estimated core
earnings.
(4) Indicated twelve month dividend, based on last quarterly dividend declared.
(5) Indicated dividend as a percent of trailing twelve month earnings.
(6) ROA (return on assets) and ROE (return on equity) are indicated ratios based
on trailing twelve month earnings and average equity and assets balances.
(7) Excludes from averages those companies the subject of actual or rumored
acquisition activities or unusual operating characteristics.
(8) Includes Mid-West Companies; Assets less than $250 Million; Equity/Assets
6-12%;
Source: Corporate reports, offering circulars, and RP Financial, Inc.
calculations. The information provided in this report has been obtained
from sources we believe are reliable, but we cannot guarantee the
accuracy or completeness of such information.
Copyright (c) 1995 by RP Financial, Inc.
<PAGE>
EXHIBIT III-3
Southeastern Peer Thrifts
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit III-3
Market Pricing Comparatives
Prices As of December 13, 1996
<TABLE>
<CAPTION>
Per Share Data
Market ---------------
Capitalization Pricing Ratios(3)
--------------- Book ---------------------------------------
Price/ Market 12-Mth Value/
Financial Institution Share(1) Value EPS(2) Share P/E P/B P/A P/TB P/CORE
- --------------------- -------- ------- ------- ------- ------- ------- ------- ------- -------
($) ($Mil) ($) ($) (X) (%) (%) (%) (x)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAIF-Insured Thrifts 18.72 142.09 0.87 16.03 17.22 116.52 14.06 119.53 15.51
Special Selection Grouping(8) 17.06 19.86 0.80 13.53 16.66 126.27 10.10 131.70 12.03
Comparable Group
- ----------------
Special Comparative Group(8)
- ----------------------------
FGHC First Georgia Hold. Corp of GA 8.62 17.45 0.60 5.91 14.37 145.85 12.11 163.88 14.37
FLAG Flag Financial Corp of GA 11.00 22.41 -0.08 9.89 NM 111.22 9.79 111.22 NM
MERI Meritrust FSB of Thibodaux LA 31.62 24.47 1.59 21.67 19.89 145.92 10.59 145.92 11.71
PLE Pinnacle Bank of AL 17.00 15.13 1.08 16.65 15.74 102.10 7.89 105.79 10.00
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
Dividends(4) Financial Characteristics(6)
----------------------- -------------------------------------------------------
Amount/ Payout Total Equity/ NPAs/ Reported Core
------------- ---------------
Financial Institution Share Yield Ratio(5) Assets Assets Assets ROA ROE ROA ROE
- --------------------- ------- ----- -------- ------ ------ ------ ----- ----- ----- -----
($) (%) (%) ($Mil) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAIF-Insured Thrifts 0.37 1.98 33.16 1,353 12.79 0.87 0.62 5.36 0.83 7.41
Special Selection Grouping(8) 0.46 2.62 41.34 199 8.02 1.95 0.46 5.94 0.67 8.62
Comparable Group
- ----------------
Special Comparative Group(8)
- ----------------------------
FGHC First Georgia Hold. Corp of GA 0.08 0.93 13.33 144 8.31 1.34 0.87 10.71 0.87 10.71
FLAG Flag Financial Corp of GA 0.34 3.09 NM 229 8.80 3.67 -0.07 -0.77 0.11 1.15
MERI Meritrust FSB of Thibodaux LA 0.70 2.21 44.03 231 7.26 NA 0.55 7.37 0.93 12.52
PLE Pinnacle Bank of AL 0.72 4.24 66.67 192 7.73 0.83 0.50 6.42 0.79 10.11
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Average of High/Low or Bid/Ask price per share.
(2) EPS (earnings per share) is based on actual trailing twelve month data and
is not shown on a pro forma basis.
(3) P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB =
Price to tangible book value; and P/CORE = Price to estimated core earnings.
(4) Indicated twelve month dividend, based on last quarterly dividend declared.
(5) Indicated dividend as a percent of trailing twelve month earnings.
(6) ROA (return on assets) and ROE (return on equity) are indicated ratios based
on trailing twelve month earnings and average equity and assets balances.
(7) Excludes from averages those companies the subject of actual or rumored
acquisition activities or unusual operating characteristics.
(8) Includes South-East Companies; Assets less than $250 Million; Equity/Assets
6-12%;
Source: Corporate reports, offering circulars, and RP Financial, Inc.
calculations. The information provided in this report has been obtained
from sources we believe are reliable, but we cannot guarantee the
accuracy or completeness of such information.
Copyright (c) 1995 by RP Financial, Inc.
<PAGE>
EXHIBIT III-4
Kentucky Thrifts
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Exhibit III-4
Market Pricing Comparatives
Prices As of December 13, 1996
<TABLE>
<CAPTION>
Market Per Share Data
Capitalization --------------- Pricing Ratios(3)
---------------- Book ---------------------------------------
Price/ Market 12-Mth Value/
Financial Institution Share(1) Value EPS(2) Share P/E P/B P/A P/TB P/CORE
- --------------------- -------- ------- ------- ------- ------- ------- ------- ------- -------
($) ($Mil) ($) ($) (X) (%) (%) (%) (x)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAIF-Insured Thrifts 18.72 142.09 0.87 16.03 17.22 116.52 14.06 119.53 15.51
State of KY 16.54 67.63 0.63 14.27 21.60 115.47 25.27 118.87 19.96
Comparable Group
- ----------------
State of KY
- -----------
CKFB CKF Bancorp of Danville KY 19.75 18.58 0.79 16.05 25.00 123.05 31.03 123.05 25.00
CLAS Classic Bancshares of KY 11.62 15.36 0.23 14.22 NM 81.72 11.28 97.73 NM
FFKY First Fed. Fin. Corp. of KY 19.25 80.79 1.03 11.75 18.69 163.83 22.61 175.32 16.45
FLKY First Lancaster Bncshrs of KY 15.50 14.86 0.27 14.08 NM 110.09 39.28 110.09 NM
FTSB Fort Thomas Fin. Corp. of KY 14.25 22.43 0.74 13.75 19.26 103.64 25.24 103.64 19.26
FKKY Frankfort First Bancorp of KY 11.37 39.11 0.32 9.84 NM 115.55 30.38 115.55 NM
GWBC Gateway Bancorp of KY 14.50 16.15 0.54 15.64 NM 92.71 23.24 92.71 19.59
GTFN Great Financial Corp. of KY 29.12 413.04 1.27 19.27 22.93 151.12 14.59 157.58 22.57
HFFB Harrodsburg 1st Fin Bcrp of KY 18.50 39.94 0.57 14.28 NM 129.55 36.45 129.55 NM
KYF Kentucky First Bancorp of KY 11.50 15.97 0.52 13.78 22.12 83.45 18.57 83.45 16.91
<CAPTION>
Dividends(4) Financial Characteristics(6)
----------------------- -------------------------------------------------------
Reported Core
Amount/ Payout Total Equity/ NPAs/ --------------- ---------------
Financial Institution Share Yield Ratio(5) Assets Assets Assets ROA ROE ROA ROE
- --------------------- ------- ------ -------- ------ ------- ------- ------- ------- ------- -------
($) (%) (%) ($Mil) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SAIF-Insured Thrifts 0.37 1.98 33.16 1,353 12.79 0.87 0.62 5.36 0.83 7.41
State of KY 0.36 2.26 45.45 390 22.43 0.95 0.93 4.28 1.09 4.92
Comparable Group
- ----------------
State of KY
- -----------
CKFB CKF Bancorp of Danville KY 0.44 2.23 55.70 60 25.22 1.47 1.28 4.72 1.28 4.72
CLAS Classic Bancshares of KY 0.24 2.07 NM 136 13.80 0.86 0.38 1.79 0.64 3.04
FFKY First Fed. Fin. Corp. of KY 0.48 2.49 46.60 357 13.80 0.54 1.24 8.81 1.41 10.01
FLKY First Lancaster Bncshrs of KY 0.00 0.00 0.00 38 35.68 0.83 0.70 1.52 0.99 2.14
FTSB Fort Thomas Fin. Corp. of KY 0.25 1.75 33.78 89 24.35 1.27 1.33 5.37 1.33 5.37
FKKY Frankfort First Bancorp of KY 0.36 3.17 NM 129 26.30 0.16 0.81 2.52 1.09 3.39
GWBC Gateway Bancorp of KY 0.40 2.76 74.07 69 25.07 0.45 0.83 3.26 1.14 4.47
GTFN Great Financial Corp. of KY 0.48 1.65 37.80 2,831 9.66 3.23 0.70 6.47 0.71 6.57
HFFB Harrodsburg 1st Fin Bcrp of KY 0.40 2.16 70.18 110 28.14 0.58 1.17 4.61 1.17 4.61
KYF Kentucky First Bancorp of KY 0.50 4.35 NM 86 22.25 0.09 0.90 3.71 1.17 4.85
</TABLE>
(1) Average of High/Low or Bid/Ask price per share.
(2) EPS (earnings per share) is based on actual trailing twelve month data and
is not shown on a pro forma basis.
(3) P/E = Price to earnings; P/B = Price to book; P/A = Price to assets; P/TB =
Price to tangible book value; and P/CORE = Price to estimated core earnings.
(4) Indicated twelve month dividend, based on last quarterly dividend declared.
(5) Indicated dividend as a percent of trailing twelve month earnings.
(6) ROA (return on assets) and ROE (return on equity) are indicated ratios based
on trailing twelve month earnings and average equity and assets balances.
(7) Excludes from averages those companies the subject of actual or rumored
acquisition activities or unusual operating characteristics.
Source: Corporate reports, offering circulars, and RP Financial, Inc.
calculations. The information provided in this report has been obtained
from sources we believe are reliable, but we cannot guarantee the
accuracy or completeness of such information.
Copyright (c) 1995 by RP Financial, Inc.
<PAGE>
EXHIBIT IV-1
Stock Prices:
As of December 13, 1996
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
<TABLE>
<CAPTION>
Exhibit IV-1A
Weekly Thrift Market Line - Part One
Prices As Of December 13, 1996
Market Capitalization Price Change Data
----------------------- -----------------------------------------------
Shares Market 52 Week (1) % Change From
--------------- -----------------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- --------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Market Averages. SAIF-Insured Thrifts(no MHC)
- ---------------------------------------------
SAIF-Insured Thrifts(322) 18.76 6,033 149.0 19.98 14.87 18.76 0.06 154.89 13.68
NYSE Traded Companies(12) 35.23 46,176 1,615.4 37.27 25.34 35.44 -0.18 272.38 25.15
AMEX Traded Companies(17) 15.39 3,208 57.7 17.19 12.45 15.36 0.28 241.19 5.37
NASDAQ Listed OTC Companies(293) 18.30 4,586 95.5 19.44 14.59 18.28 0.06 139.87 13.58
California Companies(25) 21.67 21,784 649.1 22.94 15.84 21.63 0.37 84.73 21.78
Florida Companies(7) 13.55 7,295 86.5 14.50 11.14 13.85 -1.21 48.08 15.13
Mid-Atlantic Companies(66) 18.97 6,153 126.9 19.95 14.72 18.91 0.41 141.93 16.28
Mid-West Companies(151) 18.92 4,075 107.1 20.13 15.32 18.89 0.21 171.88 11.70
New England Companies(10) 19.58 3,449 84.0 20.44 15.22 19.69 -0.61 233.00 17.95
North-West Companies(6) 19.94 13,563 315.9 21.62 15.35 20.20 -1.81 87.95 15.05
South-East Companies(42) 17.05 3,794 64.5 18.79 13.78 17.08 -0.28 189.23 10.17
South-West Companies(7) 16.52 1,866 34.6 17.52 12.54 16.77 -0.99 -16.59 13.89
Western Companies (Excl CA)(8) 17.11 4,353 78.2 17.93 13.80 17.36 -1.23 297.58 17.92
Thrift Strategy(249) 17.45 3,541 69.2 18.63 14.07 17.45 0.03 121.25 11.82
Mortgage Banker Strategy(39) 22.50 12,295 379.2 23.96 17.32 22.52 -0.35 244.04 18.75
Real Estate Strategy(15) 20.40 7,577 148.7 21.41 15.33 20.18 1.32 130.65 19.13
Diversified Strategy(15) 30.56 30,284 898.4 32.11 22.39 30.62 -0.18 209.65 22.84
Retail Banking Strategy(4) 14.06 3,348 50.5 14.50 10.94 13.72 2.28 178.33 10.20
Companies Issuing Dividends(259) 19.48 6,340 164.9 20.78 15.45 19.48 0.03 170.87 13.62
Companies Without Dividends(63) 15.74 4,744 82.7 16.59 12.45 15.73 0.17 76.53 14.07
Equity/Assets
less than 6%(34) 22.14 17,981 494.6 23.50 16.17 22.04 -0.08 150.82 20.10
Equity/Assets 6-12%(152) 20.35 6,191 160.2 21.73 15.99 20.40 -0.11 160.68 15.45
Equity/Assets
greater than 12%(136) 16.18 2,963 53.0 17.17 13.31 16.14 0.29 125.24 8.96
Converted Last 3 Mths (no MHC)(7) 12.80 2,479 31.5 13.14 11.62 12.77 0.24 0.00 0.00
Actively Traded Companies(51) 27.02 17,902 563.7 28.55 20.42 26.99 0.33 188.15 20.28
Market Value Below $20 Million(77) 14.48 954 12.9 15.56 12.31 14.50 -0.05 81.79 3.43
Holding Company Structure(279) 19.16 6,050 155.3 20.39 15.20 19.16 0.12 145.44 13.61
Assets Over $1 Billion(67) 27.61 18,350 537.0 28.99 20.40 27.54 0.33 197.51 24.84
Assets $500 Million-$1 Billion(54) 18.06 5,305 86.1 19.06 14.30 18.03 0.10 184.17 15.42
Assets $250-$500 Million(71) 17.49 2,688 42.6 18.83 14.19 17.56 -0.33 101.63 12.17
Assets less than $250 Million(130) 14.93 1,437 20.6 16.07 12.47 14.92 0.11 100.71 6.44
Goodwill Companies(133) 21.72 10,197 262.7 22.99 16.52 21.74 0.00 186.61 19.57
Non-Goodwill Companies(189) 16.74 3,194 71.6 17.92 13.75 16.72 0.10 97.23 8.93
Acquirors of FSLIC Cases(14) 29.81 33,382 1,146.1 31.40 22.21 29.84 0.63 267.48 14.59
</TABLE>
<TABLE>
<CAPTION>
Current Per Share Financials
----------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
EPS(3) EPS(3) Share Share(4) Share
-------- ------- ------- ------- -------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
SAIF-Insured Thrifts(322) 0.88 1.19 16.19 15.77 163.46
NYSE Traded Companies(12) 1.73 2.63 20.88 19.42 374.11
AMEX Traded Companies(17) 0.71 0.95 14.71 14.55 109.18
NASDAQ Listed OTC Companies(293) 0.86 1.15 16.09 15.69 158.18
California Companies(25) 0.42 1.03 17.32 16.88 275.94
Florida Companies(7) 0.41 0.63 12.37 12.04 150.89
Mid-Atlantic Companies(66) 1.07 1.42 16.29 15.61 173.31
Mid-West Companies(151) 0.92 1.18 16.81 16.48 149.04
New England Companies(10) 1.20 1.41 17.31 16.00 234.86
North-West Companies(6) 0.94 1.28 12.45 11.85 168.46
South-East Companies(42) 0.76 1.05 13.98 13.79 119.40
South-West Companies(7) 0.54 1.01 15.88 15.07 223.55
Western Companies (Excl CA)(8) 0.86 1.06 15.68 15.65 99.11
Thrift Strategy(249) 0.78 1.07 16.11 15.76 143.75
Mortgage Banker Strategy(39) 1.41 1.60 16.21 15.26 245.01
Real Estate Strategy(15) 0.83 1.38 15.98 15.80 206.98
Diversified Strategy(15) 1.37 2.15 18.55 18.01 236.03
Retail Banking Strategy(4) 0.56 0.77 12.94 12.46 161.93
Companies Issuing Dividends(259) 1.00 1.31 16.39 15.89 163.17
Companies Without Dividends(63) 0.37 0.70 15.37 15.22 164.68
Equity/Assets
less than 6%(34) 0.81 1.41 15.26 14.12 306.43
Equity/Assets 6-12%(152) 1.11 1.47 16.38 15.80 198.33
Equity/Assets
greater than 12%(136) 0.64 0.83 16.21 16.13 90.16
Converted Last 3 Mths (no MHC)(7) 0.44 0.55 14.80 14.80 67.41
Actively Traded Companies(51) 1.58 2.20 18.55 17.71 260.66
Market Value Below $20 Million(77) 0.55 0.79 15.67 15.53 132.28
Holding Company Structure(279) 0.89 1.20 16.62 16.18 162.08
Assets Over $1 Billion(67) 1.34 1.91 19.11 17.80 269.19
Assets $500 Million-$1 Billion(54) 1.02 1.31 15.01 14.67 164.15
Assets $250-$500 Million(71) 0.88 1.11 15.84 15.59 160.31
Assets less than $250 Million(130) 0.58 0.79 15.26 15.19 107.68
Goodwill Companies(133) 1.04 1.47 16.62 15.57 214.72
Non-Goodwill Companies(189) 0.77 1.00 15.90 15.90 128.53
Acquirors of FSLIC Cases(14) 1.61 2.46 18.37 17.09 307.80
</TABLE>
(1) Average of high/low or bid/ask price per share.
(2) Or since offering price if converted or first listed in 1994 or 1995.
Percent change figures are actual year-to-date and are not annualized
(3) EPS (earnings per share) is based on actual trailing twelve month data and
is not shown on a pro forma basis.
(4) Excludes intangibles (such as goodwill, value of core deposits, etc.).
(5) ROA (return on assets) and ROE (return on equity) are indicated ratios based
on trailing twelve month common earnings and average common equity and
assets balances.
(6) Annualized, based on last regular quarterly cash dividend announcement.
(7) Indicated dividend as a percent of trailing twelve month earnings.
(8) Excluded from averages due to actual or rumored acquisition activities or
unusual operating characteristics.
(9) For MHC institutions, market value reflects share price multiplied by public
(non-MHC) shares.
* All thrifts are SAIF insured unless otherwise noted with an asterisk.
Parentheses following market averages indicate the number of institutions
included in the respective averages. All figures have been adjusted for
stock splits, stock dividends, and secondary offerings.
Source: Corporate reports and offering circulars for publicly traded companies,
and RP Financial, Inc. calculations. The information provided in this
report has been obtained from sources we believe are reliable, but we
cannot guarantee the accuracy or completeness of such information.
Copyright (c) 1995 by RP Financial, LC.
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
(continued)
Weekly Thrift Market Line - Part One
Prices As Of December 13, 1996
<TABLE>
<CAPTION>
Market Capitalization Price Change Data
----------------------- -----------------------------------------------
52 Week (1) % Change From
Shares Market ------------- -----------------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- --------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Market Averages. BIF-Insured Thrifts(no MHC)
- --------------------------------------------
BIF-Insured Thrifts(75) 18.73 7,963 188.6 19.67 13.64 18.74 0.07 131.52 26.59
NYSE Traded Companies(3) 27.04 53,821 1,349.3 28.16 15.71 26.66 0.60 162.20 47.02
AMEX Traded Companies(5) 16.80 3,978 67.3 17.75 13.50 16.82 -0.20 50.05 10.60
NASDAQ Listed OTC Companies(67) 18.46 5,899 138.2 19.39 13.54 18.49 0.06 136.47 26.33
California Companies(3) 14.25 6,047 89.8 14.96 10.33 14.42 -1.15 277.78 35.31
Mid-Atlantic Companies(20) 20.54 13,333 310.6 21.48 14.95 20.49 0.22 89.09 20.58
New England Companies(42) 18.20 4,117 73.2 19.15 13.22 18.31 -0.30 148.40 28.40
North-West Companies(4) 23.03 22,995 847.2 24.38 15.46 22.25 3.46 86.40 30.66
South-East Companies(4) 13.87 2,515 34.9 14.34 11.75 13.87 0.05 0.00 0.00
Thrift Strategy(48) 18.23 4,563 111.7 19.02 13.43 18.16 0.49 127.57 27.10
Mortgage Banker Strategy(10) 20.36 18,983 319.7 21.81 14.93 20.74 -1.07 171.31 24.48
Real Estate Strategy(8) 18.50 5,072 103.6 19.23 12.48 18.54 -0.53 196.38 37.20
Diversified Strategy(7) 21.35 22,737 706.4 22.87 14.71 21.58 -1.98 80.09 23.62
Retail Banking Strategy(2) 15.81 1,341 20.4 16.69 13.25 15.31 3.45 18.30 3.26
Companies Issuing Dividends(55) 20.50 7,185 206.1 21.55 14.72 20.50 0.13 132.20 26.63
Companies Without Dividends(20) 14.11 9,994 142.9 14.76 10.82 14.15 -0.10 125.09 26.43
Equity/Assets
less than 6%(8) 13.75 19,561 285.6 14.77 10.30 13.88 -0.96 117.50 19.44
Equity/Assets 6-12%(51) 19.85 7,327 206.9 20.89 14.23 19.89 -0.19 137.16 28.21
Equity/Assets
greater than 12%(16) 17.72 4,164 82.6 18.27 13.44 17.54 1.37 -1.34 23.78
Converted Last 3 Mths (no MHC)(2) 13.50 3,175 43.3 14.00 12.56 13.50 0.00 0.00 0.00
Actively Traded Companies(28) 20.39 12,338 291.9 21.56 14.71 20.39 -0.05 163.99 28.63
Market Value Below $20 Million(12) 15.24 892 12.7 16.27 11.66 15.52 -1.12 67.00 19.76
Holding Company Structure(47) 19.25 7,175 180.7 20.22 14.18 19.22 0.37 138.29 28.23
Assets Over $1 Billion(17) 25.57 24,941 692.0 27.06 17.27 25.58 -0.23 125.60 30.82
Assets $500 Million-$1 Billion(18) 19.58 5,037 91.2 20.55 15.05 19.59 0.07 130.52 18.39
Assets $250-$500 Million(22) 16.65 3,351 44.9 17.24 11.94 16.46 1.42 155.76 31.75
Assets less than $250 Million(18) 14.55 1,616 19.1 15.41 11.26 14.80 -1.37 101.53 23.19
Goodwill Companies(38) 21.27 12,058 321.9 22.44 15.31 21.29 -0.09 134.71 24.87
Non-Goodwill Companies(37) 16.42 4,229 67.1 17.14 12.11 16.41 0.21 126.34 28.64
<CAPTION>
Current Per Share Financials
----------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
EPS(3) EPS(3) Share Share(4) Share
-------- ------- ------- ------- -------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
BIF-Insured Thrifts(75) 1.32 1.32 14.91 14.08 165.58
NYSE Traded Companies(3) 1.55 1.66 18.47 13.99 251.54
AMEX Traded Companies(5) 0.91 0.74 15.01 14.57 143.93
NASDAQ Listed OTC Companies(67) 1.35 1.36 14.71 14.04 162.95
California Companies(3) 1.23 1.15 11.73 11.73 157.31
Mid-Atlantic Companies(20) 1.29 1.37 16.26 14.63 184.96
New England Companies(42) 1.46 1.40 14.58 14.01 168.57
North-West Companies(4) 1.52 1.57 14.11 13.34 159.52
South-East Companies(4) 0.22 0.33 14.55 14.55 59.54
Thrift Strategy(48) 1.20 1.20 15.40 14.32 153.27
Mortgage Banker Strategy(10) 1.71 1.71 15.17 14.78 225.79
Real Estate Strategy(8) 1.38 1.37 12.10 12.10 117.06
Diversified Strategy(7) 2.00 2.03 13.24 12.66 190.13
Retail Banking Strategy(2) 0.27 0.25 16.69 16.24 261.20
Companies Issuing Dividends(55) 1.54 1.52 15.63 14.48 183.16
Companies Without Dividends(20) 0.77 0.82 13.02 13.01 119.65
Equity/Assets
less than 6%(8) 1.01 1.07 10.43 10.17 184.41
Equity/Assets 6-12%(51) 1.55 1.53 15.15 13.99 186.69
Equity/Assets
greater than 12%(16) 0.76 0.80 16.39 16.31 89.80
Converted Last 3 Mths (no MHC)(2) 0.57 0.59 13.07 13.07 52.70
Actively Traded Companies(28) 1.67 1.68 15.31 14.58 189.10
Market Value Below $20 Million(12) 1.03 0.99 15.82 15.35 169.30
Holding Company Structure(47) 1.41 1.44 15.09 14.32 160.44
Assets Over $1 Billion(17) 1.98 2.04 16.64 15.20 211.20
Assets $500 Million-$1 Billion(18) 1.44 1.30 15.81 14.52 175.09
Assets $250-$500 Million(22) 1.05 1.12 13.55 13.10 146.67
Assets less than $250 Million(18) 0.99 0.97 14.24 13.91 140.37
Goodwill Companies(38) 1.52 1.52 16.22 14.48 210.40
Non-Goodwill Companies(37) 1.14 1.14 13.71 13.71 124.71
</TABLE>
(1) Average of high/low or bid/ask price per share.
(2) Or since offering price if converted or first listed in 1994 or 1995.
Percent change figures are actual year-to-date and are not annualized
(3) EPS (earnings per share) is based on actual trailing twelve month data and
is not shown on a pro forma basis.
(4) Excludes intangibles (such as goodwill, value of core deposits, etc.).
(5) ROA (return on assets) and ROE (return on equity) are indicated ratios based
on trailing twelve month common earnings and average common equity and
assets balances.
(6) Annualized, based on last regular quarterly cash dividend announcement.
(7) Indicated dividend as a percent of trailing twelve month earnings.
(8) Excluded from averages due to actual or rumored acquisition activities or
unusual operating characteristics.
(9) For MHC institutions, market value reflects share price multiplied by
public (non-MHC) shares.
* All thrifts are SAIF insured unless otherwise noted with an asterisk.
Parentheses following market averages indicate the number of institutions
included in the respective averages. All figures have been adjusted for stock
splits, stock dividends, and secondary offerings.
Source: Corporate reports and offering circulars for publicly traded companies,
and RP Financial, Inc. calculations. The information provided in this
report has been obtained from sources we believe are reliable, but we
cannot guarantee the accuracy or completeness of such information.
Copyright (c) 1995 by RP Financial, LC.
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
(continued)
Weekly Thrift Market Line - Part One
Prices As Of December 13, 1996
<TABLE>
<CAPTION>
Price Change Data
Market Capitalization -----------------------------------------------
----------------------- 52 Week (1) % Change From
Shares Market --------------- -----------------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- --------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Market Averages. MHC Institutions
- ---------------------------------
SAIF-Insured Thrifts(19) 18.00 4,661 25.8 19.11 14.60 17.87 0.65 141.25 4.88
BIF-Insured Thrifts(2) 18.63 21,894 164.2 21.06 13.94 19.00 -1.71 246.25 13.38
NASDAQ Listed OTC Companies(21) 18.06 6,384 39.6 19.31 14.53 17.99 0.41 176.25 5.77
Florida Companies(3) 22.50 5,512 56.6 23.87 16.67 22.87 -1.23 0.00 9.96
Mid-Atlantic Companies(8) 15.16 7,619 26.4 16.86 12.49 15.09 0.45 80.00 -0.20
Mid-West Companies(7) 17.36 1,942 12.5 18.30 14.32 17.07 1.15 202.50 3.23
New England Companies(1) 27.25 40,516 322.0 29.12 18.62 27.87 -2.22 246.25 43.42
North-West Companies(1) 16.75 2,196 13.2 17.25 14.09 16.75 0.00 0.00 15.20
South-East Companies(1) 22.00 1,505 15.5 22.00 20.25 21.37 2.95 0.00 0.00
Thrift Strategy(19) 17.62 4,721 25.4 18.87 14.33 17.51 0.58 141.25 3.00
Mortgage Banker Strategy(1) 16.75 2,196 13.2 17.25 14.09 16.75 0.00 0.00 15.20
Diversified Strategy(1) 27.25 40,516 322.0 29.12 18.62 27.87 -2.22 246.25 43.42
Companies Issuing Dividends(20) 17.85 6,641 40.9 19.16 14.23 17.81 0.28 176.25 5.77
Companies Without Dividends(1) 22.00 1,505 15.5 22.00 20.25 21.37 2.95 0.00 0.00
Equity/Assets
less than 6%(1) 17.25 1,625 12.9 17.25 14.25 17.25 0.00 0.00 8.70
Equity/Assets 6-12%(14) 19.10 8,127 51.1 20.54 14.93 19.04 0.32 176.25 6.74
Equity/Assets
greater than 12%(6) 15.31 2,456 13.0 16.25 13.47 15.17 0.74 0.00 1.67
Actively Traded Companies(1) 18.00 7,166 36.0 18.50 13.18 18.00 0.00 80.00 20.00
Market Value Below $20 Million(1) 12.50 1,272 7.0 14.12 11.50 12.00 4.17 0.00 -9.88
Holding Company Structure(1) 18.00 7,166 36.0 18.50 13.18 18.00 0.00 80.00 20.00
Assets Over $1 Billion(4) 22.66 20,011 121.2 24.41 16.97 23.16 -1.83 246.25 14.93
Assets $500 Million-$1 Billion(5) 17.69 5,458 39.4 18.59 13.30 17.66 0.20 80.00 8.38
Assets $250-$500 Million(4) 21.63 2,115 17.7 22.06 16.90 20.88 3.24 202.50 12.58
Assets less than $250 Million(8) 14.16 2,169 10.0 15.73 12.75 14.12 0.22 0.00 -4.84
Goodwill Companies(10) 20.60 11,031 68.7 21.75 15.56 20.51 0.54 176.25 12.84
Non-Goodwill Companies(11) 15.98 2,582 15.9 17.31 13.69 15.92 0.30 0.00 -0.59
MHC Institutions(21) 18.06 6,384 39.6 19.31 14.53 17.99 0.41 176.25 5.77
MHC Converted Last 3 Months(1) 22.00 1,505 15.5 22.00 20.25 21.37 2.95 0.00 0.00
<CAPTION>
Current Per Share Financials
----------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
EPS(3) EPS(3) Share Share(4) Share
-------- ------- ------- ------- -------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
SAIF-Insured Thrifts(19) 0.64 0.96 13.30 12.95 134.77
BIF-Insured Thrifts(2) 0.88 0.80 11.53 11.52 124.80
NASDAQ Listed OTC Companies(21) 0.66 0.95 13.12 12.81 133.77
Florida Companies(3) 1.10 1.41 14.84 14.56 156.71
Mid-Atlantic Companies(8) 0.20 0.63 11.73 11.15 120.67
Mid-West Companies(7) 0.61 0.90 13.02 12.99 135.41
New England Companies(1) 1.91 1.53 14.76 14.74 178.61
North-West Companies(1) 0.95 1.11 10.73 9.60 99.83
South-East Companies(1) 1.36 1.36 19.18 19.18 134.33
Thrift Strategy(19) 0.58 0.91 13.16 12.88 133.17
Mortgage Banker Strategy(1) 0.95 1.11 10.73 9.60 99.83
Diversified Strategy(1) 1.91 1.53 14.76 14.74 178.61
Companies Issuing Dividends(20) 0.62 0.93 12.80 12.47 133.74
Companies Without Dividends(1) 1.36 1.36 19.18 19.18 134.33
Equity/Assets
less than 6%(1) 1.21 1.62 13.96 13.96 234.81
Equity/Assets 6-12%(14) 0.61 0.97 13.34 12.89 145.53
Equity/Assets
greater than 12%(6) 0.69 0.75 12.34 12.34 80.63
Actively Traded Companies(1) 0.63 1.14 12.59 11.03 136.03
Market Value Below $20 Million(1) 0.21 0.52 13.01 12.98 112.98
Holding Company Structure(1) 0.63 1.14 12.59 11.03 136.03
Assets Over $1 Billion(4) 1.05 1.32 13.28 12.48 156.99
Assets $500 Million-$1 Billion(5) 0.64 0.97 13.98 13.56 151.09
Assets $250-$500 Million(4) 0.79 1.28 15.30 15.25 181.27
Assets less than $250 Million(8) 0.41 0.59 11.52 11.38 89.76
Goodwill Companies(10) 0.82 1.16 13.42 12.73 149.74
Non-Goodwill Companies(11) 0.53 0.77 12.87 12.87 120.71
MHC Institutions(21) 0.66 0.95 13.12 12.81 133.77
MHC Converted Last 3 Months(1) 1.36 1.36 19.18 19.18 134.33
</TABLE>
(1) Average of high/low or bid/ask price per share.
(2) Or since offering price if converted or first listed in 1994 or 1995.
Percent change figures are actual year-to-date and are not annualized
(3) EPS (earnings per share) is based on actual trailing twelve month data and
is not shown on a pro forma basis.
(4) Excludes intangibles (such as goodwill, value of core deposits, etc.).
(5) ROA (return on assets) and ROE (return on equity) are indicated ratios
based on trailing twelve month common earnings and average common equity
and assets balances.
(6) Annualized, based on last regular quarterly cash dividend announcement.
(7) Indicated dividend as a percent of trailing twelve month earnings.
(8) Excluded from averages due to actual or rumored acquisition activities or
unusual operating characteristics.
(9) For MHC institutions, market value reflects share price multiplied by
public (non-MHC) shares.
* All thrifts are SAIF insured unless otherwise noted with an asterisk.
Parentheses following market averages indicate the number of institutions
included in the respective averages. All figures have been adjusted for
stock splits, stock dividends, and secondary offerings.
Source: Corporate reports and offering circulars for publicly traded companies,
and RP Financial, Inc. calculations. The information provided in this
report has been obtained from sources we believe are reliable, but we
cannot guarantee the accuracy or completeness of such information.
Copyright (c) 1995 by RP Financial, LC.
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
(continued)
Weekly Thrift Market Line - Part One
Prices As Of December 13, 1996
<TABLE>
<CAPTION>
Price Change Data
Market Capitalization -----------------------------------------------
----------------------- 52 Week (1) % Change From
Shares Market --------------- -----------------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- --------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NYSE Traded Companies
- ---------------------
AHM Ahmanson and Co. H.F. of CA 31.50 105,496 3,323.1 33.50 21.88 31.75 -0.79 68.00 18.87
CAL CalFed Inc. of Los Angeles CA(8) 24.25 49,427 1,198.6 24.37 14.87 24.25 0.00 20.11 53.97
CSA Coast Savings Financial of CA 35.50 18,584 659.7 36.37 26.50 34.75 2.16 207.09 2.54
CFB Commercial Federal Corp. of NE 46.00 13,857 637.4 48.50 35.00 45.75 0.55 ***.** 21.85
DME Dime Savings Bank, FSB of NY* 14.75 106,447 1,570.1 16.50 10.87 14.87 -0.81 46.62 26.94
DSL Downey Financial Corp. of CA 18.87 25,459 480.4 19.33 13.50 18.17 3.85 65.09 30.14
FRC First Republic Bancorp of CA* 17.00 7,361 125.1 17.87 12.25 17.00 0.00 277.78 29.57
FED FirstFed Fin. Corp. of CA 22.25 10,518 234.0 24.25 12.37 22.25 0.00 37.77 57.58
GLN Glendale Fed. Bk, FSB of CA 22.25 47,166 1,049.4 22.50 15.63 21.25 4.71 36.92 26.28
GDW Golden West Fin. Corp. of CA 62.00 57,376 3,557.3 67.50 49.50 64.25 -3.50 136.73 12.22
GWF Great Western Fin. Corp. of CA 29.50 137,432 4,054.2 31.12 21.12 30.00 -1.67 69.83 16.28
GPT GreenPoint Fin. Corp. of NY* 49.37 47,656 2,352.8 50.12 24.00 48.12 2.60 N.A. 84.56
SFB Standard Fed. Bancorp of MI 56.50 31,192 1,762.3 58.00 37.75 56.12 0.68 506.87 43.51
TCB TCF Financial Corp. of MN 41.75 34,870 1,455.8 45.00 29.25 43.00 -2.91 529.71 26.06
WES Westcorp Inc. of Orange CA 21.37 25,985 555.3 23.87 16.19 22.50 -5.02 191.54 21.28
AMEX Traded Companies
- ---------------------
ANA Acadiana Bancshares of LA* 14.25 2,731 38.9 15.12 11.69 14.62 -2.53 N.A. N.A.
BKC American Bank of Waterbury CT* 28.75 2,291 65.9 29.87 24.00 29.00 -0.86 53.33 5.50
BFD BostonFed Bancorp of MA 14.87 6,590 98.0 15.12 11.50 14.75 0.81 N.A. 26.55
CFX Cheshire Fin. Corp. of NH* 16.25 12,257 199.2 16.50 12.50 15.25 6.56 36.55 3.97
CZF Citisave Fin. Corp. of LA 14.00 962 13.5 16.50 13.00 13.50 3.70 N.A. -5.08
CBK Citizens First Fin. Corp. of IL 13.87 2,817 39.1 13.87 9.50 13.62 1.84 N.A. N.A.
ESX Essex Bancorp of VA(8) 2.25 1,053 2.4 4.75 1.62 2.00 12.50 -86.57 19.68
FCB Falmouth Co-Op Bank of MA* 13.12 1,455 19.1 14.00 10.25 13.25 -0.98 N.A. N.A.
GAF GA Financial Corp. of PA 14.75 8,900 131.3 15.37 10.25 14.75 0.00 N.A. N.A.
KNK Kankakee Bancorp of IL 24.00 1,415 34.0 26.37 18.37 24.75 -3.03 140.00 27.19
KYF Kentucky First Bancorp of KY 11.50 1,389 16.0 15.25 11.25 11.50 0.00 N.A. -7.03
NYB New York Bancorp, Inc. of NY 33.87 11,099 375.9 36.25 20.50 33.62 0.74 377.72 50.53
PDB Piedmont Bancorp of NC 10.87 2,751 29.9 19.12 10.37 10.87 0.00 N.A. -13.04
PLE Pinnacle Bank of AL 17.00 890 15.1 18.87 15.50 17.00 0.00 151.85 -5.56
SSB Scotland Bancorp of NC 14.25 1,840 26.2 14.25 11.62 14.00 1.79 N.A. N.A.
SZB SouthFirst Bancshares of AL 12.50 863 10.8 16.00 11.37 12.87 -2.87 N.A. -19.35
SRN Southern Banc Company of AL 13.37 1,382 18.5 13.75 11.37 13.50 -0.96 N.A. 3.89
SSM Stone Street Bancorp of NC 19.62 1,825 35.8 20.12 16.25 19.50 0.62 N.A. N.A.
TSH Teche Holding Company of LA 13.25 3,541 46.9 14.12 12.00 13.00 1.92 N.A. -3.64
FTF Texarkana Fst. Fin. Corp of AR 14.50 1,885 27.3 16.87 13.50 14.25 1.75 N.A. 2.69
THR Three Rivers Fin. Corp. of MI 13.62 851 11.6 14.37 12.00 13.62 0.00 N.A. 11.18
TBK Tolland Bank of CT* 11.62 1,157 13.4 13.25 9.06 12.00 -3.17 60.28 22.32
WSB Washington SB, FSB of MD 4.94 4,220 20.8 5.69 4.38 4.94 0.00 295.20 -1.20
NASDAQ Listed OTC Companies
- ---------------------------
FBCV 1st Bancorp of Vincennes IN 30.50 671 20.5 31.50 26.00 30.50 0.00 N.A. 4.56
AFED AFSALA Bancorp of NY 11.50 1,455 16.7 12.12 11.31 12.00 -4.17 N.A. N.A.
ALBK ALBANK Fin. Corp. of Albany NY 31.00 13,100 406.1 32.81 22.92 31.62 -1.96 33.33 24.00
AMFC AMB Financial Corp. of IN 12.87 1,124 14.5 12.94 9.75 12.50 2.96 N.A. N.A.
ASBP ASB Financial Corp. of OH 17.50 1,714 30.0 18.25 13.75 17.75 -1.41 N.A. 10.27
ABBK Abington Savings Bank of MA(8)* 19.62 1,887 37.0 21.25 14.50 19.25 1.92 196.37 13.74
AABC Access Anytime Bancorp of NM 5.63 732 4.1 7.00 5.25 5.75 -2.09 -16.59 -16.59
AADV Advantage Bancorp of WI 31.87 3,393 108.1 34.50 29.60 31.75 0.38 246.41 5.53
AFCB Affiliated Comm BC, Inc of MA 22.62 5,095 115.2 23.00 16.06 22.62 0.00 N.A. 30.22
<CAPTION>
Current Per Share Financials
----------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
Financial Institution EPS(3) EPS(3) Share Share(4) Share
- --------------------- -------- ------- ------- ------- -------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
NYSE Traded Companies
- ---------------------
AHM Ahmanson and Co. H.F. of CA 0.62 2.07 18.86 15.82 479.53
CAL CalFed Inc. of Los Angeles CA(8) 1.01 1.60 13.24 13.24 285.81
CSA Coast Savings Financial of CA 0.54 2.12 22.24 21.89 460.02
CFB Commercial Federal Corp. of NE 2.89 4.14 25.95 23.19 481.18
DME Dime Savings Bank, FSB of NY* 0.71 1.20 9.60 9.50 184.91
DSL Downey Financial Corp. of CA 0.80 1.28 15.07 14.82 194.60
FRC First Republic Bancorp of CA* 1.45 1.36 16.04 16.02 288.30
FED FirstFed Fin. Corp. of CA 0.23 1.15 17.49 17.21 399.00
GLN Glendale Fed. Bk, FSB of CA -0.14 1.14 16.87 15.65 320.24
GDW Golden West Fin. Corp. of CA 6.18 7.59 39.57 39.57 645.07
GWF Great Western Fin. Corp. of CA 1.35 2.18 17.84 15.69 316.87
GPT GreenPoint Fin. Corp. of NY* 2.48 2.42 29.76 16.44 281.40
SFB Standard Fed. Bancorp of MI 2.86 3.85 28.72 23.37 492.23
TCB TCF Financial Corp. of MN 2.40 2.84 14.98 14.35 204.03
WES Westcorp Inc. of Orange CA 1.30 0.52 12.10 12.06 122.43
AMEX Traded Companies
- ---------------------
ANA Acadiana Bancshares of LA* -0.43 -0.40 17.03 17.03 97.06
BKC American Bank of Waterbury CT* 2.76 1.87 19.96 19.01 239.19
BFD BostonFed Bancorp of MA 0.34 0.55 13.48 13.48 120.92
CFX Cheshire Fin. Corp. of NH* 0.62 0.82 10.55 9.79 124.07
CZF Citisave Fin. Corp. of LA 0.63 0.84 12.58 12.57 78.62
CBK Citizens First Fin. Corp. of IL 0.21 0.44 14.32 14.32 94.57
ESX Essex Bancorp of VA(8) -7.61 -4.57 0.54 -0.23 162.87
FCB Falmouth Co-Op Bank of MA* 0.39 0.39 15.06 15.06 62.21
GAF GA Financial Corp. of PA 0.44 0.69 14.26 14.26 66.17
KNK Kankakee Bancorp of IL 1.05 1.49 24.99 23.25 249.42
KYF Kentucky First Bancorp of KY 0.52 0.68 13.78 13.78 61.92
NYB New York Bancorp, Inc. of NY 2.88 3.16 13.69 13.69 264.97
PDB Piedmont Bancorp of NC 0.57 0.70 13.54 13.54 48.01
PLE Pinnacle Bank of AL 1.08 1.70 16.65 16.07 215.35
SSB Scotland Bancorp of NC 0.41 0.53 13.47 13.47 37.29
SZB SouthFirst Bancshares of AL 0.57 0.76 15.12 15.12 104.92
SRN Southern Banc Company of AL 0.17 0.46 14.22 14.07 78.06
SSM Stone Street Bancorp of NC 0.67 0.83 20.48 20.48 58.29
TSH Teche Holding Company of LA 0.71 1.03 14.76 14.76 107.20
FTF Texarkana Fst. Fin. Corp of AR 1.27 1.57 14.02 14.02 87.93
THR Three Rivers Fin. Corp. of MI 0.52 0.78 14.87 14.80 102.67
TBK Tolland Bank of CT* 1.19 1.03 12.43 11.94 197.11
WSB Washington SB, FSB of MD 0.56 0.51 5.10 5.10 58.47
NASDAQ Listed OTC Companies
- ---------------------------
FBCV 1st Bancorp of Vincennes IN 6.92 -0.65 31.52 31.52 384.44
AFED AFSALA Bancorp of NY 0.61 0.61 14.05 14.05 102.70
ALBK ALBANK Fin. Corp. of Albany NY 1.89 2.41 23.97 20.58 267.92
AMFC AMB Financial Corp. of IN 0.33 0.52 14.40 14.40 74.33
ASBP ASB Financial Corp. of OH 0.37 0.58 14.79 14.79 66.68
ABBK Abington Savings Bank of MA(8)* 1.80 1.51 17.17 15.27 256.53
AABC Access Anytime Bancorp of NM -0.90 -0.34 6.82 6.82 148.79
AADV Advantage Bancorp of WI 0.89 2.34 26.19 24.16 299.55
AFCB Affiliated Comm BC, Inc of MA 1.17 1.69 19.25 19.11 197.33
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
(continued)
Weekly Thrift Market Line - Part One
Prices As Of December 13, 1996
<TABLE>
<CAPTION>
Market Capitalization Price Change Data
----------------------- -----------------------------------------------
52 Week (1) % Change From
Shares Market --------------- -----------------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- --------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
ALBC Albion Banc Corp. of Albion NY 17.50 250 4.4 18.00 15.87 17.37 0.75 34.62 6.06
ATSB AmTrust Capital Corp. of IN 10.12 528 5.3 11.25 8.50 10.37 -2.41 N.A. -1.27
AHCI Ambanc Holding Co. of NY* 11.00 4,880 53.7 11.00 9.38 10.62 3.58 N.A. 8.80
ASBI Ameriana Bancorp of IN 15.63 3,278 51.2 16.00 12.87 15.75 -0.76 69.34 9.68
AFFFZ America First Fin. Fund of CA 29.37 6,011 176.5 30.75 25.87 29.12 0.86 56.64 -1.28
AMFB American Federal Bank of SC 19.00 10,955 208.1 19.45 14.25 19.00 0.00 300.00 24.59
ANBK American Nat'l Bancorp of MD 12.25 3,604 44.1 12.62 9.50 12.12 1.07 N.A. 25.64
ABCW Anchor Bancorp Wisconsin of WI 34.75 4,629 160.9 36.25 30.25 34.87 -0.34 18.32 -3.12
ANDB Andover Bancorp, Inc. of MA* 25.75 5,118 131.8 27.87 17.08 25.37 1.50 139.53 46.31
ASFC Astoria Financial Corp. of NY 35.00 21,511 752.9 37.75 22.16 35.00 0.00 33.33 53.44
AVND Avondale Fin. Corp. of IL 16.75 3,603 60.4 17.12 12.50 16.87 -0.71 N.A. 15.52
BFSI BFS Bankorp, Inc. of NY 49.50 1,635 80.9 55.00 35.25 49.50 0.00 446.36 40.43
BKCT Bancorp Connecticut of CT* 22.25 2,665 59.3 23.75 14.17 22.50 -1.11 154.29 50.44
BPLS Bank Plus Corp. of CA 11.25 18,243 205.2 11.75 8.00 11.25 0.00 N.A. 25.00
BWFC Bank West Fin. Corp. of MI 10.75 1,981 21.3 12.25 8.94 11.00 -2.27 N.A. 6.23
BANC BankAtlantic Bancorp of FL 13.00 14,720 191.4 13.75 10.08 12.62 3.01 150.00 8.33
BKUNA BankUnited SA of FL 8.75 5,706 49.9 9.25 6.12 9.00 -2.78 61.14 42.97
BKCO Bankers Corp. of NJ* 20.00 12,378 247.6 20.37 16.25 19.50 2.56 220.00 23.08
BVFS Bay View Capital Corp. of CA 41.50 6,640 275.6 41.87 26.50 39.00 6.41 110.13 45.61
BFSB Bedford Bancshares of VA 18.00 1,144 20.6 18.25 16.00 17.75 1.41 71.43 3.63
BSBC Branford SB of CT* 3.87 6,559 25.4 4.25 2.62 4.12 -6.07 82.55 34.84
BRFC Bridgeville SB, FSB of PA(8) 16.00 1,124 18.0 16.00 13.00 16.00 0.00 12.28 10.34
BYFC Broadway Fin. Corp. of CA 9.12 893 8.1 11.00 9.00 9.25 -1.41 N.A. N.A.
CBCO CB Bancorp of Michigan City IN 24.25 1,162 28.2 25.50 16.25 23.00 5.43 120.45 34.72
CBES CBES Bancorp of MO 13.75 1,025 14.1 14.25 12.62 14.00 -1.79 N.A. N.A.
CCFH CCF Holding Company of GA 15.00 1,131 17.0 15.12 11.31 14.50 3.45 N.A. 17.65
CENF CENFED Financial Corp. of CA 28.00 5,101 142.8 30.37 20.45 28.75 -2.61 78.57 28.32
CFSB CFSB Bancorp of Lansing MI 19.25 4,826 92.9 21.82 17.73 18.25 5.48 113.89 -1.53
CKFB CKF Bancorp of Danville KY 19.75 941 18.6 20.75 18.00 19.75 0.00 N.A. 2.60
CNSB CNS Bancorp of MO 15.00 1,653 24.8 15.25 11.00 14.62 2.60 N.A. N.A.
CSBF CSB Financial Group Inc of IL 10.56 1,035 10.9 10.56 8.81 10.00 5.60 N.A. 11.16
CFHC California Fin. Hld. Co. of CA 28.94 4,721 136.6 29.00 18.87 29.00 -0.21 175.62 41.17
CBCI Calumet Bancorp of Chicago IL 32.62 2,377 77.5 33.87 27.50 32.75 -0.40 61.09 17.55
CAFI Camco Fin. Corp. of OH 16.25 2,076 33.7 19.29 15.75 16.00 1.56 N.A. -5.19
CMRN Cameron Fin. Corp. of MO 15.50 2,850 44.2 16.00 13.50 15.63 -0.83 N.A. 7.86
CAPS Capital Savings Bancorp of MO 14.00 1,876 26.3 14.75 8.87 13.50 3.70 5.66 51.35
CFNC Carolina Fincorp of NC* 13.12 1,852 24.3 13.37 13.00 13.00 0.92 N.A. N.A.
CARV Carver FSB of New York, NY 8.00 2,314 18.5 9.50 7.37 8.00 0.00 28.00 -11.11
CASB Cascade SB of Everett WA 13.00 2,051 26.7 17.50 12.40 14.37 -9.53 1.56 -2.26
CATB Catskill Fin. Corp. of NY* 13.87 5,687 78.9 14.37 9.87 13.87 0.00 N.A. N.A.
CNIT Cenit Bancorp of Norfolk VA 39.25 1,633 64.1 40.50 31.75 39.00 0.64 147.17 6.80
CTBK Center Banks, Inc. of NY* 16.12 946 15.2 16.75 13.12 16.25 -0.80 46.55 14.65
CEBK Central Co-Op. Bank of MA* 18.37 1,965 36.1 18.50 12.50 17.50 4.97 249.90 22.47
CJFC Central Jersey Fin. Corp of NJ(8) 37.50 2,668 100.1 39.25 22.50 37.50 0.00 302.36 50.00
CBSB Charter Financial Inc. of IL 12.50 4,874 60.9 13.00 10.68 13.00 -3.85 N.A. 15.63
COFI Charter One Financial of OH 39.12 46,765 1,829.4 44.00 27.14 41.00 -4.59 123.54 34.11
CVAL Chester Valley Bancorp of PA 18.50 1,636 30.3 20.00 17.26 18.50 0.00 63.28 0.93
CTZN CitFed Bancorp of Dayton OH 29.75 8,582 255.3 32.50 21.75 28.25 5.31 230.56 29.35
CLAS Classic Bancshares of KY 11.62 1,322 15.4 12.12 10.37 11.87 -2.11 N.A. -1.11
CMSB Cmnwealth Bancorp of PA 14.25 17,953 255.8 14.50 9.75 14.12 0.92 N.A. 27.12
CBSA Coastal Bancorp of Houston TX 22.62 4,964 112.3 24.75 16.50 23.75 -4.76 N.A. 29.26
CFCP Coastal Fin. Corp. of SC 21.00 3,436 72.2 22.00 12.48 20.00 5.00 110.00 66.14
COFD Collective Bancorp Inc. of NJ 34.00 20,372 692.6 36.37 22.50 33.37 1.89 346.19 34.02
CMSV Commty. Svgs, MHC of FL(47.6) 18.25 4,879 43.4 19.37 14.25 18.37 -0.65 N.A. 7.35
CBIN Community Bank Shares of IN 12.50 1,984 24.8 14.75 12.00 12.50 0.00 N.A. -12.28
<CAPTION>
Current Per Share Financials
----------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
Financial Institution EPS(3) EPS(3) Share Share(4) Share
- --------------------- -------- ------- ------- ------- -------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
ALBC Albion Banc Corp. of Albion NY -0.24 0.47 23.07 23.07 239.44
ATSB AmTrust Capital Corp. of IN 0.63 0.04 13.66 13.66 136.16
AHCI Ambanc Holding Co. of NY* 0.23 0.22 14.42 14.42 101.74
ASBI Ameriana Bancorp of IN 0.71 1.06 13.27 13.25 121.94
AFFFZ America First Fin. Fund of CA 1.73 2.92 25.54 25.02 370.59
AMFB American Federal Bank of SC 1.29 1.61 9.88 9.13 127.33
ANBK American Nat'l Bancorp of MD 0.19 0.68 12.36 12.36 135.03
ABCW Anchor Bancorp Wisconsin of WI 2.57 3.54 23.88 23.24 408.64
ANDB Andover Bancorp, Inc. of MA* 2.31 2.38 18.10 18.10 234.23
ASFC Astoria Financial Corp. of NY 1.61 2.44 26.32 21.56 337.79
AVND Avondale Fin. Corp. of IL 0.64 0.67 16.31 16.31 170.09
BFSI BFS Bankorp, Inc. of NY 5.65 6.64 30.71 30.71 393.38
BKCT Bancorp Connecticut of CT* 1.74 1.72 16.38 16.38 150.99
BPLS Bank Plus Corp. of CA -3.71 -3.08 8.66 8.64 182.16
BWFC Bank West Fin. Corp. of MI 0.46 0.25 12.21 12.21 70.43
BANC BankAtlantic Bancorp of FL 0.95 0.96 9.49 8.82 147.45
BKUNA BankUnited SA of FL 0.08 0.38 7.85 7.42 144.47
BKCO Bankers Corp. of NJ* 1.74 1.98 15.15 14.87 188.25
BVFS Bay View Capital Corp. of CA -0.39 2.62 29.17 27.53 516.29
BFSB Bedford Bancshares of VA 1.14 1.46 15.93 15.93 111.33
BSBC Branford SB of CT* 0.26 0.26 2.45 2.45 26.83
BRFC Bridgeville SB, FSB of PA(8) 0.48 0.61 14.12 14.12 48.79
BYFC Broadway Fin. Corp. of CA -0.21 0.27 14.11 14.11 131.30
CBCO CB Bancorp of Michigan City IN 1.88 2.22 16.68 16.68 172.12
CBES CBES Bancorp of MO 0.70 1.01 16.56 16.56 94.36
CCFH CCF Holding Company of GA 0.68 0.65 14.86 14.86 70.14
CENF CENFED Financial Corp. of CA 2.14 2.68 21.35 21.31 423.64
CFSB CFSB Bancorp of Lansing MI 1.12 1.58 13.02 13.02 168.25
CKFB CKF Bancorp of Danville KY 0.79 0.79 16.05 16.05 63.65
CNSB CNS Bancorp of MO 0.20 0.35 14.60 14.60 59.83
CSBF CSB Financial Group Inc of IL 0.36 0.36 12.40 12.40 40.12
CFHC California Fin. Hld. Co. of CA 1.00 1.71 18.32 18.26 283.71
CBCI Calumet Bancorp of Chicago IL 2.07 2.71 33.48 33.48 207.31
CAFI Camco Fin. Corp. of OH 1.32 1.50 13.81 13.81 182.12
CMRN Cameron Fin. Corp. of MO 0.97 0.95 16.26 16.26 61.70
CAPS Capital Savings Bancorp of MO 0.69 1.03 10.41 10.41 123.26
CFNC Carolina Fincorp of NC* 0.52 0.52 12.99 12.99 59.15
CARV Carver FSB of New York, NY -0.05 0.38 14.96 14.28 157.76
CASB Cascade SB of Everett WA 0.77 0.77 10.04 10.04 165.96
CATB Catskill Fin. Corp. of NY* 0.58 0.58 14.49 14.49 49.90
CNIT Cenit Bancorp of Norfolk VA 1.91 2.13 29.22 28.18 401.57
CTBK Center Banks, Inc. of NY* 1.48 1.41 16.78 16.78 255.71
CEBK Central Co-Op. Bank of MA* 0.85 0.92 16.30 14.36 165.86
CJFC Central Jersey Fin. Corp of NJ(8) 1.41 1.94 21.04 19.69 174.09
CBSB Charter Financial Inc. of IL 0.74 0.73 13.09 12.17 75.29
COFI Charter One Financial of OH 0.56 3.34 19.48 17.99 295.65
CVAL Chester Valley Bancorp of PA 1.00 1.50 15.36 15.36 173.83
CTZN CitFed Bancorp of Dayton OH 1.38 2.12 20.39 17.86 320.16
CLAS Classic Bancshares of KY 0.23 0.39 14.22 11.89 103.04
CMSB Cmnwealth Bancorp of PA 0.43 0.62 12.67 9.72 116.13
CBSA Coastal Bancorp of Houston TX 1.32 2.23 18.26 15.04 576.04
CFCP Coastal Fin. Corp. of SC 1.29 1.13 8.04 8.04 131.78
COFD Collective Bancorp Inc. of NJ 2.24 2.77 17.87 16.73 257.83
CMSV Commty. Svgs, MHC of FL(47.6) 1.08 1.10 15.39 15.39 128.31
CBIN Community Bank Shares of IN 0.66 1.01 12.83 12.81 118.25
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
(continued)
Weekly Thrift Market Line - Part One
Prices As Of December 13, 1996
<TABLE>
<CAPTION>
Price Change Data
Market Capitalization -----------------------------------------------
----------------------- 52 Week (1) % Change From
Shares Market --------------- -----------------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- --------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
CBNH Community Bankshares Inc of NH* 20.25 2,429 49.2 20.25 17.12 20.12 0.65 440.00 7.31
CFTP Community Fed. Bancorp of MS 17.12 4,282 73.3 17.25 12.25 17.25 -0.75 N.A. N.A.
CFFC Community Fin. Corp. of VA 21.00 1,272 26.7 22.50 16.00 21.25 -1.18 200.00 16.67
CIBI Community Inv. Bancorp of OH 16.75 666 11.2 18.25 14.25 16.50 1.52 N.A. 9.84
COOP Cooperative Bk.for Svgs. of NC 20.50 1,492 30.6 20.87 16.50 20.75 -1.20 105.00 0.00
CNSK Covenant Bank for Svgs. of NJ* 12.00 2,742 32.9 13.44 10.88 12.50 -4.00 N.A. -3.77
CRZY Crazy Woman Creek Bncorp of WY 11.75 1,058 12.4 12.00 10.00 11.50 2.17 N.A. N.A.
DNFC D&N Financial Corp. of MI 15.37 7,587 116.6 15.50 12.00 14.87 3.36 75.66 26.82
DSBC DS Bancor Inc. of Derby CT(8)* 42.50 3,032 128.9 42.56 24.00 42.44 0.14 158.36 66.67
DFIN Damen Fin. Corp. of Chicago IL 12.87 3,771 48.5 12.87 11.00 12.25 5.06 N.A. 13.19
DCBI Delphos Citizens Bancorp of OH 11.94 2,039 24.3 12.50 11.87 11.87 0.59 N.A. N.A.
DIME Dime Community Bancorp of NY 14.87 14,547 216.3 14.87 11.69 14.50 2.55 N.A. N.A.
DIBK Dime Financial Corp. of CT* 17.50 5,129 89.8 18.37 12.00 17.75 -1.41 66.67 29.63
EGLB Eagle BancGroup of IL 13.25 1,303 17.3 13.75 10.50 13.50 -1.85 N.A. N.A.
EBSI Eagle Bancshares of Tucker GA 13.62 4,552 62.0 19.00 13.62 15.00 -9.20 87.86 -28.32
EGFC Eagle Financial Corp. of CT 28.75 4,534 130.4 30.50 22.25 30.25 -4.96 228.57 9.52
ETFS East Texas Fin. Serv. of TX 16.25 1,134 18.4 16.75 14.25 16.12 0.81 N.A. 0.00
EBCP Eastern Bancorp of NH(8) 22.62 3,652 82.6 24.00 15.17 22.12 2.26 80.24 26.86
ESBK Elmira SB of Elmira NY* 17.00 706 12.0 18.75 14.75 16.75 1.49 18.30 -9.33
EIRE Emerald Island Bancorp, MA* 18.50 1,766 32.7 19.00 14.00 18.00 2.78 142.78 13.85
EFBI Enterprise Fed. Bancorp of OH 14.50 2,074 30.1 16.00 12.75 15.75 -7.94 N.A. -1.69
EQSB Equitable FSB of Wheaton MD 26.75 600 16.1 27.50 21.00 27.50 -2.73 N.A. 7.00
FFFG F.F.O. Financial Group of FL 2.75 8,430 23.2 3.13 2.31 2.75 0.00 -66.91 7.42
FCBF FCB Fin. Corp. of Neenah WI 18.75 2,460 46.1 19.50 17.00 19.25 -2.60 N.A. 1.35
FFBS FFBS Bancorp of Columbus MS 23.00 1,570 36.1 24.25 16.50 23.00 0.00 N.A. 35.29
FFDF FFD Financial Corp. of OH 13.12 1,455 19.1 13.75 10.00 13.50 -2.81 N.A. N.A.
FFLC FFLC Bancorp of Leesburg FL 20.25 2,525 51.1 20.87 17.25 20.00 1.25 N.A. 8.00
FFFC FFVA Financial Corp. of VA 21.25 5,023 106.7 21.75 13.37 20.50 3.66 N.A. 54.55
FFWC FFW Corporation of Wabash IN 22.00 702 15.4 22.00 16.50 20.75 6.02 N.A. 11.39
FFYF FFY Financial Corp. of OH 25.87 5,117 132.4 25.87 20.81 25.75 0.47 N.A. 23.19
FMCO FMS Financial Corp. of NJ 17.37 2,468 42.9 17.75 14.75 17.12 1.46 93.00 2.18
FFHH FSF Financial Corp. of MN 14.87 3,478 51.7 14.87 11.37 14.25 4.35 N.A. 14.38
FMLY Family Bancorp of Haverhill MA(8)* 34.38 4,310 148.2 35.50 17.25 34.38 0.00 559.88 92.39
FOBC Fed One Bancorp of Wheeling WV 16.12 2,493 40.2 16.62 13.25 15.87 1.58 61.20 6.61
FFRV Fid. Fin. Bkshrs. Corp. of VA(8) 24.25 2,299 55.8 25.25 12.00 24.56 -1.26 177.14 74.84
FBCI Fidelity Bancorp of Chicago IL 17.12 2,866 49.1 17.25 14.50 17.00 0.71 N.A. 11.39
FSBI Fidelity Bancorp, Inc. of PA 19.00 1,373 26.1 20.50 15.00 19.75 -3.80 145.80 26.67
FFFL Fidelity FSB, MHC of FL(47.2) 17.25 6,724 54.6 18.00 12.00 17.25 0.00 N.A. 6.15
FFED Fidelity Fed. Bancorp of IN 9.50 2,494 23.7 14.77 9.25 10.00 -5.00 34.75 -35.68
FFOH Fidelity Financial of OH 11.37 4,077 46.4 11.50 9.62 11.19 1.61 N.A. 4.41
FIBC Financial Bancorp of NY 14.50 1,791 26.0 16.25 12.37 14.50 0.00 N.A. 5.45
FBSI First Bancshares of MO 16.50 1,206 19.9 16.81 15.00 16.50 0.00 29.41 3.13
FBBC First Bell Bancorp of PA 16.00 7,758 124.1 17.37 13.12 17.06 -6.21 N.A. 19.67
FBER First Bergen Bancorp of NJ 12.00 3,174 38.1 12.12 9.00 12.00 0.00 N.A. N.A.
FCIT First Cit. Fin. Corp of MD 18.75 2,927 54.9 19.09 15.57 18.44 1.68 115.77 8.57
FFBA First Colorado Bancorp of Co 17.50 19,031 333.0 17.75 10.47 16.87 3.73 430.30 59.24
FDEF First Defiance Fin. Corp. of OH 12.06 9,912 119.5 12.50 9.87 12.25 -1.55 N.A. 19.17
FESX First Essex Bancorp of MA* 13.37 6,059 81.0 14.50 10.00 13.75 -2.76 122.83 17.59
FFES First FS&LA of E. Hartford CT 23.00 2,615 60.1 23.75 16.50 22.75 1.10 253.85 15.00
FSSB First FS&LA of San Bern. CA 9.00 328 3.0 12.50 9.00 9.00 0.00 -10.00 -28.00
FFSX First FS&LA. MHC of IA (45.0) 30.25 1,883 22.9 30.25 21.36 28.00 8.04 202.50 24.38
FFML First Family Fin. Corp. of FL(8) 22.00 545 12.0 23.00 19.00 22.50 -2.22 238.46 4.76
FFSW First Fed Fin. Serv. of OH 39.00 3,612 140.9 39.00 21.59 37.75 3.31 129.41 80.64
BDJI First Fed. Bancorp. of MN 18.00 701 12.6 18.00 12.25 17.87 0.73 N.A. 30.91
FFBH First Fed. Bancshares of AR 16.00 5,154 82.5 16.37 12.75 16.00 0.00 N.A. N.A.
<CAPTION>
Current Per Share Financials
----------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
Financial Institution EPS(3) EPS(3) Share Share(4) Share
- --------------------- -------- ------- ------- ------- -------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
CBNH Community Bankshares Inc of NH* 1.72 1.40 16.18 16.18 225.91
CFTP Community Fed. Bancorp of MS 0.50 0.63 15.68 15.68 47.65
CFFC Community Fin. Corp. of VA 1.28 1.62 17.59 17.59 126.41
CIBI Community Inv. Bancorp of OH 0.90 1.30 17.00 17.00 142.34
COOP Cooperative Bk.for Svgs. of NC -2.41 -0.16 16.89 16.89 219.30
CNSK Covenant Bank for Svgs. of NJ* 0.36 0.64 7.55 7.55 141.20
CRZY Crazy Woman Creek Bncorp of WY 0.34 0.44 14.62 14.62 48.69
DNFC D&N Financial Corp. of MI 1.19 1.55 10.30 10.16 185.60
DSBC DS Bancor Inc. of Derby CT(8)* 3.05 2.84 28.53 27.72 415.38
DFIN Damen Fin. Corp. of Chicago IL 0.47 0.61 14.02 14.02 62.20
DCBI Delphos Citizens Bancorp of OH 0.73 0.73 14.26 14.26 53.80
DIME Dime Community Bancorp of NY 0.46 0.58 14.79 12.86 84.25
DIBK Dime Financial Corp. of CT* 2.29 2.47 11.58 11.10 134.89
EGLB Eagle BancGroup of IL -0.52 -0.10 16.75 16.75 125.66
EBSI Eagle Bancshares of Tucker GA 0.85 1.13 12.62 12.62 141.07
EGFC Eagle Financial Corp. of CT 3.06 1.88 22.31 16.36 310.23
ETFS East Texas Fin. Serv. of TX 0.83 0.76 19.24 19.24 101.71
EBCP Eastern Bancorp of NH(8) 0.90 1.22 17.41 16.44 237.86
ESBK Elmira SB of Elmira NY* 0.58 0.54 19.93 19.06 312.61
EIRE Emerald Island Bancorp, MA* 1.19 1.28 15.18 15.18 222.19
EFBI Enterprise Fed. Bancorp of OH 0.90 0.62 15.23 15.21 103.12
EQSB Equitable FSB of Wheaton MD 3.30 3.28 23.64 23.64 446.29
FFFG F.F.O. Financial Group of FL 0.07 0.22 2.23 2.23 36.90
FCBF FCB Fin. Corp. of Neenah WI 0.95 1.17 18.92 18.92 109.47
FFBS FFBS Bancorp of Columbus MS 0.85 1.10 15.69 15.69 80.08
FFDF FFD Financial Corp. of OH 0.34 0.47 14.72 14.72 58.72
FFLC FFLC Bancorp of Leesburg FL 0.82 1.26 21.58 21.58 133.07
FFFC FFVA Financial Corp. of VA 1.06 1.34 15.68 15.35 105.53
FFWC FFW Corporation of Wabash IN 1.89 2.28 22.04 22.04 220.16
FFYF FFY Financial Corp. of OH 0.93 1.43 19.98 19.98 117.76
FMCO FMS Financial Corp. of NJ 1.07 1.79 13.71 13.40 210.11
FFHH FSF Financial Corp. of MN 0.48 0.67 13.70 13.70 101.97
FMLY Family Bancorp of Haverhill MA(8)* 1.78 1.86 16.92 15.65 212.95
FOBC Fed One Bancorp of Wheeling WV 0.95 1.35 15.99 15.18 136.99
FFRV Fid. Fin. Bkshrs. Corp. of VA(8) 0.92 1.31 12.07 12.06 143.21
FBCI Fidelity Bancorp of Chicago IL 0.75 1.12 17.04 16.98 166.04
FSBI Fidelity Bancorp, Inc. of PA 0.96 1.68 15.86 15.83 231.52
FFFL Fidelity FSB, MHC of FL(47.2) 0.47 0.77 11.94 11.82 127.51
FFED Fidelity Fed. Bancorp of IN 0.34 0.44 5.03 5.03 104.99
FFOH Fidelity Financial of OH 0.36 0.54 12.46 12.46 62.76
FIBC Financial Bancorp of NY 0.64 1.19 14.40 14.32 148.95
FBSI First Bancshares of MO 0.78 1.12 18.90 18.86 127.95
FBBC First Bell Bancorp of PA 0.99 1.14 13.71 13.71 74.37
FBER First Bergen Bancorp of NJ 0.09 0.45 13.41 13.41 78.76
FCIT First Cit. Fin. Corp of MD 0.99 1.41 13.51 13.51 228.38
FFBA First Colorado Bancorp of Co 0.83 0.83 12.88 12.72 78.89
FDEF First Defiance Fin. Corp. of OH 0.49 0.64 12.17 12.17 52.89
FESX First Essex Bancorp of MA* 1.34 1.15 10.67 10.67 143.45
FFES First FS&LA of E. Hartford CT 1.54 2.34 22.05 22.00 360.48
FSSB First FS&LA of San Bern. CA -3.34 -3.89 14.36 13.71 305.90
FFSX First FS&LA. MHC of IA (45.0) 0.94 1.63 19.39 19.21 243.31
FFML First Family Fin. Corp. of FL(8) 1.19 0.05 16.92 16.92 286.04
FFSW First Fed Fin. Serv. of OH 2.05 2.27 16.50 13.48 307.51
BDJI First Fed. Bancorp. of MN 0.45 1.00 17.58 17.58 153.00
FFBH First Fed. Bancshares of AR 0.58 0.88 16.17 16.17 98.88
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
(continued)
Weekly Thrift Market Line - Part One
Prices As Of December 13, 1996
<TABLE>
<CAPTION>
Market Capitalization Price Change Data
----------------------- -----------------------------------------------
52 Week (1) % Change From
Shares Market --------------- -----------------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- --------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
FFEC First Fed. Bancshares of WI(8) 18.37 6,855 125.9 18.37 13.62 18.37 0.00 N.A. 20.46
FTFC First Fed. Capital Corp. of WI 24.00 6,169 148.1 24.00 17.87 24.00 0.00 113.33 33.33
FFKY First Fed. Fin. Corp. of KY 19.25 4,197 80.8 22.00 15.25 20.25 -4.94 22.22 25.24
FFBZ First Federal Bancorp of OH 16.00 1,570 25.1 16.00 10.00 14.75 8.47 60.00 58.10
FFWM First Fin. Corp of Western MD 31.75 2,124 67.4 32.25 17.75 31.75 0.00 217.50 60.76
FFCH First Fin. Holdings Inc. of SC 23.25 6,358 147.8 24.25 17.50 23.00 1.09 89.80 20.78
FFBI First Financial Bancorp of IL 15.87 452 7.2 16.25 15.50 15.87 0.00 N.A. -0.81
FFHC First Financial Corp. of WI 28.50 29,915 852.6 30.25 19.50 28.00 1.79 80.95 23.91
FFHS First Franklin Corp. of OH 16.00 1,158 18.5 17.25 13.50 17.00 -5.88 21.95 0.82
FGHC First Georgia Hold. Corp of GA 8.62 2,024 17.4 9.25 6.00 8.00 7.75 125.07 12.39
FSPG First Home SB, SLA of NJ 19.50 2,030 39.6 19.50 17.50 18.25 6.85 225.00 2.63
FFSL First Independence Corp. of KS 19.62 583 11.4 21.25 17.62 19.62 0.00 N.A. 4.64
FISB First Indiana Corp. of IN 25.50 8,294 211.5 26.00 19.79 25.37 0.51 88.89 18.83
FKFS First Keystone Fin. Corp of PA 20.00 1,292 25.8 20.87 16.75 19.25 3.90 N.A. -4.17
FLKY First Lancaster Bncshrs of KY 15.50 959 14.9 16.25 13.12 16.00 -3.13 N.A. N.A.
FLFC First Liberty Fin. Corp. of GA 18.50 6,003 111.1 21.50 13.50 20.06 -7.78 264.17 30.56
CASH First Midwest Fin. Corp. of IA 24.75 1,779 44.0 24.75 21.75 24.75 0.00 N.A. 5.32
FMBD First Mutual Bancorp of IL 14.87 3,845 57.2 14.87 11.62 14.37 3.48 N.A. 9.18
FMSB First Mutual SB of Bellevue WA* 18.00 2,453 44.2 19.00 11.46 18.00 0.00 132.26 32.94
FNGB First Northern Cap. Corp of WI 16.00 4,381 70.1 18.62 15.25 16.00 0.00 9.89 -3.03
FFPB First Palm Beach Bancorp of FL 23.00 5,093 117.1 25.50 19.94 24.87 -7.52 N.A. 8.90
FSNJ First SB of NJ, MHC (45.0) 17.25 3,062 23.4 18.50 13.75 17.00 1.47 N.A. 0.00
FSLA First SB, SLA MHC of NJ (37.6) 18.00 7,166 36.0 18.50 13.18 18.00 0.00 80.00 20.00
SOPN First SB, SSB, Moore Co. of NC 18.00 3,744 67.4 19.25 16.75 18.50 -2.70 N.A. 1.07
FWWB First Savings Bancorp of WA* 18.50 10,878 201.2 19.00 12.37 18.37 0.71 N.A. 41.01
SHEN First Shenango Bancorp of PA 22.50 2,258 50.8 23.75 20.00 22.87 -1.62 N.A. 9.76
FSFC First So.east Fin. Corp. of SC 9.50 4,388 41.7 20.12 9.12 9.62 -1.25 N.A. -50.00
FSFI First State Fin. Serv. of NJ(8) 15.00 3,929 58.9 15.37 10.00 15.00 0.00 269.46 10.13
FFDP FirstFed Bancshares of IL 16.75 3,277 54.9 17.62 14.00 17.00 -1.47 151.50 18.21
FLAG Flag Financial Corp of GA 11.00 2,037 22.4 14.75 9.75 11.12 -1.08 12.24 -20.00
FFPC Florida First Bancorp of FL(8) 11.37 3,396 38.6 11.50 7.00 11.37 0.00 504.79 54.27
FFIC Flushing Fin. Corp. of NY* 18.75 8,575 160.8 18.87 14.12 18.25 2.74 N.A. 21.99
FBHC Fort Bend Holding Corp. of TX 24.25 819 19.9 25.75 16.87 25.25 -3.96 N.A. 34.72
FTSB Fort Thomas Fin. Corp. of KY 14.25 1,574 22.4 17.75 11.50 14.25 0.00 N.A. 17.57
FKKY Frankfort First Bancorp of KY 11.37 3,440 39.1 15.87 10.00 11.37 0.00 N.A. -14.19
FTNB Fulton Bancorp of MO 14.87 1,719 25.6 14.87 12.50 14.12 5.31 N.A. N.A.
GFSB GFS Bancorp of Grinnell IA 20.75 503 10.4 21.00 19.00 20.75 0.00 N.A. 3.75
GUPB GFSB Bancorp of Gallup NM 15.87 901 14.3 15.87 13.00 15.25 4.07 N.A. 11.37
GWBC Gateway Bancorp of KY 14.50 1,114 16.2 15.25 13.00 14.00 3.57 N.A. 1.75
GBCI Glacier Bancorp of MT 23.37 3,374 78.9 25.25 17.73 24.50 -4.61 383.85 26.94
GLBK Glendale Co-op. Bank of MA* 20.00 247 4.9 21.00 16.50 20.00 0.00 N.A. 6.67
GFCO Glenway Financial Corp. of OH 19.00 1,151 21.9 23.33 17.86 19.87 -4.38 N.A. -18.56
GTPS Great American Bancorp of IL 14.50 1,950 28.3 15.12 13.19 14.75 -1.69 N.A. -0.41
GTFN Great Financial Corp. of KY 29.12 14,184 413.0 29.87 22.62 29.30 -0.61 N.A. 23.91
GSBC Great Southern Bancorp of MO 17.25 8,730 150.6 17.75 11.50 16.75 2.99 490.75 39.45
GDVS Greater DV SB,MHC of PA(19.9)* 10.00 3,272 6.5 13.00 9.25 10.12 -1.19 N.A. -16.67
GRTR Greater New York SB of NY* 13.50 13,440 181.4 14.37 10.12 14.31 -5.66 45.01 12.50
GSFC Green Street Fin. Corp. of NC 15.37 4,298 66.1 16.12 12.12 15.50 -0.84 N.A. N.A.
GROV GroveBank for Savings of MA(8)* 49.12 1,542 75.7 49.12 24.25 49.12 0.00 453.78 98.46
GFED Guaranty FS&LA,MHC of MO(31.1) 11.37 3,125 8.8 12.50 9.75 11.00 3.36 N.A. -4.21
GSLC Guaranty Svgs & Loan FA of VA 8.25 919 7.6 9.50 7.12 8.75 -5.71 N.A. 6.45
HEMT HF Bancorp of Hemet CA 11.00 6,282 69.1 11.37 9.25 11.00 0.00 N.A. 11.45
HFFC HF Financial Corp. of SD 16.50 2,909 48.0 17.50 13.44 17.25 -4.35 230.00 8.20
HFNC HFNC Financial Corp. of NC 17.87 17,192 307.2 18.25 13.12 17.44 2.47 N.A. 36.20
HMNF HMN Financial, Inc. of MN 18.25 4,674 85.3 18.25 14.50 18.00 1.39 N.A. 14.06
<CAPTION>
Current Per Share Financials
----------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
Financial Institution EPS(3) EPS(3) Share Share(4) Share
- --------------------- -------- ------- ------- ------- -------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
FFEC First Fed. Bancshares of WI(8) 0.67 0.88 14.27 13.73 106.32
FTFC First Fed. Capital Corp. of WI 1.56 1.72 15.10 14.24 238.19
FFKY First Fed. Fin. Corp. of KY 1.03 1.17 11.75 10.98 85.13
FFBZ First Federal Bancorp of OH 0.91 1.23 8.92 8.90 117.49
FFWM First Fin. Corp of Western MD 1.34 1.86 19.01 19.01 162.67
FFCH First Fin. Holdings Inc. of SC 1.11 1.85 14.91 14.91 243.18
FFBI First Financial Bancorp of IL 0.22 0.70 16.62 16.62 214.92
FFHC First Financial Corp. of WI 1.66 2.33 13.41 12.95 187.05
FFHS First Franklin Corp. of OH 0.52 1.15 17.07 16.92 188.54
FGHC First Georgia Hold. Corp of GA 0.60 0.60 5.91 5.26 71.16
FSPG First Home SB, SLA of NJ 2.09 2.54 15.50 15.15 240.00
FFSL First Independence Corp. of KS 1.40 1.89 22.30 22.30 186.17
FISB First Indiana Corp. of IN 1.62 1.86 16.30 16.07 179.10
FKFS First Keystone Fin. Corp of PA 0.68 1.47 17.87 17.87 227.74
FLKY First Lancaster Bncshrs of KY 0.27 0.38 14.08 14.08 39.46
FLFC First Liberty Fin. Corp. of GA 1.60 1.28 11.39 9.65 165.12
CASH First Midwest Fin. Corp. of IA 1.76 1.74 21.94 20.49 192.30
FMBD First Mutual Bancorp of IL 0.35 0.54 16.40 16.40 82.28
FMSB First Mutual SB of Bellevue WA* 1.55 1.49 10.79 10.79 163.31
FNGB First Northern Cap. Corp of WI 0.70 1.08 15.84 15.84 138.78
FFPB First Palm Beach Bancorp of FL 0.11 0.32 20.70 20.15 292.56
FSNJ First SB of NJ, MHC (45.0) 0.38 0.85 16.01 16.01 212.49
FSLA First SB, SLA MHC of NJ (37.6) 0.63 1.14 12.59 11.03 136.03
SOPN First SB, SSB, Moore Co. of NC 0.87 1.08 17.90 17.90 70.30
FWWB First Savings Bancorp of WA* 0.66 0.66 13.73 12.60 87.06
SHEN First Shenango Bancorp of PA 1.18 1.60 20.42 20.42 170.10
FSFC First So.east Fin. Corp. of SC -0.03 0.67 7.55 7.55 75.05
FSFI First State Fin. Serv. of NJ(8) 0.02 -0.19 10.17 9.61 169.49
FFDP FirstFed Bancshares of IL 0.44 0.54 15.76 15.02 183.98
FLAG Flag Financial Corp of GA -0.08 0.12 9.89 9.89 112.38
FFPC Florida First Bancorp of FL(8) 0.52 0.77 6.12 6.12 87.53
FFIC Flushing Fin. Corp. of NY* 0.71 0.67 15.73 15.73 89.81
FBHC Fort Bend Holding Corp. of TX 0.82 1.78 21.24 19.62 343.95
FTSB Fort Thomas Fin. Corp. of KY 0.74 0.74 13.75 13.75 56.46
FKKY Frankfort First Bancorp of KY 0.32 0.43 9.84 9.84 37.42
FTNB Fulton Bancorp of MO 0.67 0.65 13.92 13.92 61.05
GFSB GFS Bancorp of Grinnell IA 1.47 1.94 19.59 19.59 169.40
GUPB GFSB Bancorp of Gallup NM 0.62 0.79 16.37 16.37 88.47
GWBC Gateway Bancorp of KY 0.54 0.74 15.64 15.64 62.38
GBCI Glacier Bancorp of MT 1.61 1.81 11.54 11.53 122.12
GLBK Glendale Co-op. Bank of MA* 1.16 0.97 23.71 23.71 149.55
GFCO Glenway Financial Corp. of OH 1.34 1.36 23.27 22.77 242.23
GTPS Great American Bancorp of IL 0.42 0.41 17.09 17.09 61.37
GTFN Great Financial Corp. of KY 1.27 1.29 19.27 18.48 199.57
GSBC Great Southern Bancorp of MO 1.02 1.16 7.62 7.62 75.33
GDVS Greater DV SB,MHC of PA(19.9)* -0.15 0.07 8.30 8.30 70.99
GRTR Greater New York SB of NY* 0.80 0.71 11.40 11.40 190.97
GSFC Green Street Fin. Corp. of NC 0.48 0.60 14.47 14.47 41.00
GROV GroveBank for Savings of MA(8)* 3.37 3.16 25.21 25.20 388.14
GFED Guaranty FS&LA,MHC of MO(31.1) 0.36 0.29 8.49 8.49 58.61
GSLC Guaranty Svgs & Loan FA of VA 0.50 0.58 6.90 6.90 125.39
HEMT HF Bancorp of Hemet CA -0.10 -0.13 12.70 12.70 159.88
HFFC HF Financial Corp. of SD 1.15 1.45 17.12 17.07 190.49
HFNC HFNC Financial Corp. of NC 0.46 0.58 14.41 14.41 49.16
HMNF HMN Financial, Inc. of MN 0.94 1.10 17.90 17.90 120.96
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
(continued)
Weekly Thrift Market Line - Part One
Prices As Of December 13, 1996
<TABLE>
<CAPTION>
Market Capitalization Price Change Data
----------------------- -----------------------------------------------
52 Week (1) % Change From
Shares Market --------------- -----------------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- --------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
HALL Hallmark Capital Corp. of WI 17.62 1,443 25.4 17.75 14.50 17.50 0.69 N.A. 13.68
HARB Harbor FSB, MHC of FL (45.7) 32.00 4,934 71.7 34.25 23.75 33.00 -3.03 N.A. 16.36
HRBF Harbor Federal Bancorp of MD 15.12 1,754 26.5 15.87 12.37 15.50 -2.45 51.20 4.28
HFSA Hardin Bancorp of Hardin MO 12.37 1,005 12.4 12.75 11.00 12.00 3.08 N.A. -2.98
HARL Harleysville SA of PA 18.75 1,292 24.2 20.00 15.00 18.25 2.74 5.63 25.00
HARS Harris SB, MHC of PA (23.1) 18.12 11,216 45.3 20.50 14.75 18.50 -2.05 N.A. -9.40
HFFB Harrodsburg 1st Fin Bcrp of KY 18.50 2,159 39.9 19.00 13.25 18.25 1.37 N.A. 23.33
HHFC Harvest Home Fin. Corp. of OH 9.87 935 9.2 13.75 9.25 9.87 0.00 N.A. -19.43
HAVN Haven Bancorp of Woodhaven NY 28.50 4,323 123.2 29.12 21.88 28.69 -0.66 N.A. 20.66
HVFD Haverfield Corp. of OH 18.50 1,907 35.3 19.75 13.50 19.25 -3.90 19.35 37.04
HTHR Hawthorne Fin. Corp. of CA 7.44 2,599 19.3 9.25 4.38 7.37 0.95 -72.95 48.80
HBNK Highland Federal Bank of CA 17.12 2,296 39.3 17.50 12.00 17.25 -0.75 N.A. 10.45
HIFS Hingham Inst. for Sav. of MA* 17.50 1,297 22.7 18.25 13.00 18.25 -4.11 283.77 18.64
HNFC Hinsdale Financial Corp. of IL 24.25 2,695 65.4 27.75 21.00 25.87 -6.26 142.50 12.79
HBEI Home Bancorp of Elgin IL 12.81 7,009 89.8 13.12 11.81 12.87 -0.47 N.A. N.A.
HBFW Home Bancorp of Fort Wayne IN 18.50 2,887 53.4 19.00 13.75 18.50 0.00 N.A. 21.31
HBBI Home Building Bancorp of IN 18.00 312 5.6 21.25 16.25 18.00 0.00 N.A. 9.09
HOMF Home Fed Bancorp of Seymour IN 35.25 2,226 78.5 35.25 24.50 35.25 0.00 135.00 33.02
HWEN Home Financial Bancorp of IN 13.00 506 6.6 13.75 9.87 13.12 -0.91 N.A. N.A.
HPBC Home Port Bancorp, Inc. of MA* 16.87 1,842 31.1 17.00 11.25 16.75 0.72 110.88 43.57
HMCI Homecorp, Inc. of Rockford IL 17.75 1,129 20.0 19.87 16.50 18.00 -1.39 77.50 6.80
LOAN Horizon Bancorp, Inc of TX(8)* 19.00 1,387 26.4 19.50 8.25 18.50 2.70 N.A. 111.11
HZFS Horizon Fin'l. Services of IA 14.50 448 6.5 16.37 14.00 14.94 -2.95 N.A. -4.92
HRZB Horizon Financial Corp. of WA* 13.25 6,493 86.0 14.00 11.75 12.25 8.16 -1.34 1.92
IBSF IBS Financial Corp. of NJ 15.63 10,754 168.1 16.25 12.50 15.44 1.23 N.A. 14.59
ISBF ISB Financial Corp. of LA 17.50 7,051 123.4 18.50 13.62 17.12 2.22 N.A. 16.67
ITLA Imperial Thrift & Loan of CA* 14.00 7,820 109.5 15.25 11.75 14.50 -3.45 N.A. 14.29
IFSB Independence FSB of DC 7.62 1,280 9.8 8.62 6.75 7.62 0.00 281.00 -9.72
INCB Indiana Comm. Bank, SB of IN 16.50 922 15.2 16.75 12.50 15.50 6.45 N.A. 8.20
IFSL Indiana Federal Corp. of IN(8) 21.75 4,737 103.0 23.00 16.25 21.75 0.00 188.46 2.35
INBI Industrial Bancorp of OH 12.37 5,554 68.7 16.00 9.87 12.50 -1.04 N.A. -10.04
IWBK Interwest SB of Oak Harbor WA 32.25 7,918 255.4 33.00 19.37 32.25 0.00 222.50 58.32
IPSW Ipswich SB of Ipswich MA* 11.62 1,183 13.7 12.62 7.00 11.37 2.20 N.A. 40.85
IROQ Iroquois Bancorp of Auburn NY* 16.75 2,361 39.5 17.00 13.00 16.50 1.52 139.29 28.85
JSBF JSB Financial, Inc. of NY 36.50 9,764 356.4 37.12 31.62 36.25 0.69 217.39 15.43
JXVL Jacksonville Bancorp of TX 14.50 2,644 38.3 15.00 9.38 14.50 0.00 N.A. 24.57
JXSB Jcksnville SB, MHC of IL(43.3%) 12.50 1,272 7.0 14.12 11.50 12.00 4.17 N.A. -9.88
JSBA Jefferson Svgs Bancorp of MO 22.87 4,182 95.6 30.75 22.25 23.50 -2.68 N.A. -17.59
JOAC Joachim Bancorp of MO 14.37 760 10.9 15.25 11.50 14.50 -0.90 N.A. 6.44
KSAV KS Bancorp of Kenly NC 20.87 663 13.8 21.00 17.12 20.87 0.00 N.A. 19.26
KSBK KSB Bancorp of Kingfield ME* 23.00 411 9.5 26.00 16.59 26.00 -11.54 N.A. 31.43
KFBI Klamath First Bancorp of OR 14.94 11,612 173.5 15.12 12.56 14.87 0.47 N.A. 8.65
LBFI L&B Financial of S. Springs TX(8) 17.00 1,584 26.9 17.75 13.87 17.00 0.00 N.A. 19.30
LSBI LSB Fin. Corp. of Lafayette IN 18.75 918 17.2 19.50 14.50 19.50 -3.85 N.A. 8.70
LVSB Lakeview SB of Paterson NJ 23.50 2,487 58.4 24.32 15.19 23.25 1.08 N.A. 51.71
LARK Landmark Bancshares of KS 17.00 1,853 31.5 17.00 13.50 16.50 3.03 N.A. 23.64
LARL Laurel Capital Group of PA 15.87 1,514 24.0 16.25 14.50 16.00 -0.81 23.98 2.39
LSBX Lawrence Savings Bank of MA* 8.25 4,250 35.1 8.87 4.62 8.13 1.48 139.83 78.57
LFED Leeds FSB, MHC of MD (35.3) 16.00 3,455 20.0 16.75 13.00 15.25 4.92 N.A. 12.28
LXMO Lexington B&L Fin. Corp. of MO 13.50 1,265 17.1 13.50 9.50 12.87 4.90 N.A. N.A.
LBCI Liberty Bancorp of Chicago IL(8) 25.50 2,477 63.2 26.50 22.25 24.25 5.15 155.00 0.99
LIFB Life Bancorp of Norfolk VA 18.37 9,847 180.9 18.37 14.00 18.00 2.06 N.A. 22.47
LFBI Little Falls Bancorp of NJ 12.50 2,890 36.1 13.50 9.50 12.50 0.00 N.A. N.A.
LOGN Logansport Fin. Corp. of IN 11.75 1,322 15.5 14.75 11.25 11.75 0.00 N.A. -9.62
LONF London Financial Corp. of OH 13.50 529 7.1 13.50 9.75 13.00 3.85 N.A. N.A.
<CAPTION>
Current Per Share Financials
----------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
EPS(3) EPS(3) Share Share(4) Share
-------- ------- ------- ------- ---------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
HALL Hallmark Capital Corp. of WI 0.98 1.32 18.84 18.84 268.66
HARB Harbor FSB, MHC of FL (45.7) 1.75 2.36 17.19 16.47 214.32
HRBF Harbor Federal Bancorp of MD 0.28 0.59 15.67 15.67 121.90
HFSA Hardin Bancorp of Hardin MO 0.37 0.66 14.66 14.66 87.37
HARL Harleysville SA of PA 1.21 1.95 15.18 15.18 244.19
HARS Harris SB, MHC of PA (23.1) 0.03 0.61 13.15 11.09 153.68
HFFB Harrodsburg 1st Fin Bcrp of KY 0.57 0.57 14.28 14.28 50.75
HHFC Harvest Home Fin. Corp. of OH 0.57 0.57 13.66 13.66 81.71
HAVN Haven Bancorp of Woodhaven NY 1.99 3.01 21.73 21.60 361.95
HVFD Haverfield Corp. of OH 0.72 1.52 14.47 14.45 183.85
HTHR Hawthorne Fin. Corp. of CA 2.42 1.67 12.25 12.25 318.50
HBNK Highland Federal Bank of CA -0.18 0.43 14.57 14.57 204.34
HIFS Hingham Inst. for Sav. of MA* 1.49 1.49 14.45 14.45 148.95
HNFC Hinsdale Financial Corp. of IL 1.14 1.71 20.58 19.99 241.52
HBEI Home Bancorp of Elgin IL 0.06 0.31 14.12 14.12 52.87
HBFW Home Bancorp of Fort Wayne IN 0.91 0.91 16.96 16.96 109.42
HBBI Home Building Bancorp of IN -0.44 0.03 17.62 17.62 136.41
HOMF Home Fed Bancorp of Seymour IN 2.69 3.19 23.21 22.36 284.54
HWEN Home Financial Bancorp of IN 0.36 0.52 15.31 15.31 76.45
HPBC Home Port Bancorp, Inc. of MA* 1.64 1.65 10.66 10.66 102.41
HMCI Homecorp, Inc. of Rockford IL 0.29 0.99 18.09 18.09 301.55
LOAN Horizon Bancorp, Inc of TX(8)* 1.29 0.99 8.38 8.13 101.32
HZFS Horizon Fin'l. Services of IA 0.21 0.54 18.36 18.36 171.10
HRZB Horizon Financial Corp. of WA* 1.14 1.11 12.28 12.28 77.06
IBSF IBS Financial Corp. of NJ 0.42 0.68 13.42 13.42 69.00
ISBF ISB Financial Corp. of LA 0.73 0.99 15.93 15.45 97.27
ITLA Imperial Thrift & Loan of CA* 1.17 1.17 11.06 11.06 94.06
IFSB Independence FSB of DC 0.26 0.39 13.03 11.28 193.66
INCB Indiana Comm. Bank, SB of IN 0.15 0.48 12.10 12.10 98.37
IFSL Indiana Federal Corp. of IN(8) 1.07 1.50 14.77 13.78 170.81
INBI Industrial Bancorp of OH 0.42 0.78 10.92 10.92 57.68
IWBK Interwest SB of Oak Harbor WA 1.37 1.98 14.02 13.66 216.24
IPSW Ipswich SB of Ipswich MA* 1.56 1.29 7.90 7.90 133.66
IROQ Iroquois Bancorp of Auburn NY* 1.25 1.69 12.02 10.77 200.63
JSBF JSB Financial, Inc. of NY 2.60 2.60 33.60 33.60 155.55
JXVL Jacksonville Bancorp of TX 0.54 0.81 13.34 13.34 82.34
JXSB Jcksnville SB, MHC of IL(43.3%) 0.21 0.52 13.01 12.98 112.98
JSBA Jefferson Svgs Bancorp of MO 0.62 1.65 19.53 16.10 269.81
JOAC Joachim Bancorp of MO 0.19 0.33 14.05 14.05 47.54
KSAV KS Bancorp of Kenly NC 1.13 1.58 20.84 20.82 145.02
KSBK KSB Bancorp of Kingfield ME* 2.76 2.76 22.00 20.37 322.46
KFBI Klamath First Bancorp of OR 0.53 0.76 13.21 13.21 57.87
LBFI L&B Financial of S. Springs TX(8) 0.59 0.79 15.51 15.51 91.29
LSBI LSB Fin. Corp. of Lafayette IN 0.90 0.82 18.21 18.21 193.73
LVSB Lakeview SB of Paterson NJ 2.25 1.54 19.47 15.51 190.07
LARK Landmark Bancshares of KS 0.76 1.01 17.48 17.48 115.34
LARL Laurel Capital Group of PA 1.36 1.80 13.88 13.88 133.36
LSBX Lawrence Savings Bank of MA* 1.09 1.09 6.38 6.38 77.71
LFED Leeds FSB, MHC of MD (35.3) 0.59 0.85 12.80 12.80 79.51
LXMO Lexington B&L Fin. Corp. of MO 0.43 0.43 14.81 14.81 48.45
LBCI Liberty Bancorp of Chicago IL(8) 0.86 1.66 25.55 25.48 268.11
LIFB Life Bancorp of Norfolk VA 0.77 1.11 14.77 14.28 142.66
LFBI Little Falls Bancorp of NJ 0.16 0.43 14.45 13.31 97.09
LOGN Logansport Fin. Corp. of IN 0.71 0.89 12.05 12.05 60.31
LONF London Financial Corp. of OH 0.52 0.52 15.02 15.02 70.30
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
<TABLE>
<CAPTION>
(continued)
Weekly Thrift Market Line - Part One
Prices As Of December 13, 1996
Market Capitalization Price Change Data
----------------------- -----------------------------------------------
52 Week (1) % Change From
Shares Market --------------- -----------------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- --------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
LISB Long Island Bancorp of NY 30.87 24,644 760.8 32.87 24.50 30.75 0.39 N.A. 17.06
MAFB MAF Bancorp of IL 34.62 10,485 363.0 35.25 22.25 34.75 -0.37 307.29 38.48
MBLF MBLA Financial Corp. of MO(8) 19.00 1,354 25.7 26.00 18.00 20.00 -5.00 N.A. -1.91
MFBC MFB Corp. of Mishawaka IN 16.50 1,974 32.6 19.25 13.75 17.00 -2.94 N.A. 11.86
MLBC ML Bancorp of Villanova PA 14.56 11,869 172.8 14.75 10.62 14.62 -0.41 N.A. 30.94
MBB MSB Bancorp of Middletown NY* 19.12 2,834 54.2 22.00 15.00 19.12 0.00 91.20 3.35
MSBF MSB Financial Corp. of MI 19.25 654 12.6 19.75 15.75 19.25 0.00 N.A. 1.32
MGNL Magna Bancorp of MS 18.00 13,741 247.3 22.50 14.25 18.50 -2.70 260.00 25.26
MARN Marion Capital Holdings of IN 20.37 1,843 37.5 21.50 19.25 20.50 -0.63 N.A. 1.85
MFCX Marshalltown Fin. Corp. of IA(8) 14.50 1,411 20.5 16.75 14.50 15.25 -4.92 N.A. -7.94
MFSL Maryland Fed. Bancorp of MD 34.25 3,137 107.4 34.87 26.91 33.50 2.24 226.19 19.88
MASB MassBank Corp. of Reading MA* 37.37 2,684 100.3 38.75 30.75 37.50 -0.35 203.08 17.70
MFLR Mayflower Co-Op. Bank of MA* 14.75 889 13.1 15.75 10.75 15.25 -3.28 195.00 34.09
MECH Mechanics SB of Hartford CT* 15.50 5,290 82.0 16.37 11.00 15.87 -2.33 N.A. N.A.
MDBK Medford Savings Bank of MA* 25.00 4,534 113.4 27.00 19.75 25.00 0.00 257.14 16.28
MERI Meritrust FSB of Thibodaux LA 31.62 774 24.5 34.00 29.25 31.50 0.38 N.A. 2.00
MWBX Metro West of MA* 4.87 13,889 67.6 4.87 3.50 4.62 5.41 18.20 18.20
MSEA Metropolitan Bancorp of WA(8) 19.25 3,634 70.0 19.50 12.50 19.25 0.00 164.79 48.08
MCBS Mid Continent Bancshares of KS 23.75 2,017 47.9 24.25 17.37 23.37 1.63 N.A. 28.38
MIFC Mid Iowa Financial Corp. of IA 6.25 1,683 10.5 7.87 6.00 6.37 -1.88 25.00 -19.35
MCBN Mid-Coast Bancorp of ME 18.75 230 4.3 20.25 17.12 18.75 0.00 228.37 9.52
MIDC Midconn Bank of Kensington CT* 19.31 1,936 37.4 20.25 13.50 20.25 -4.64 83.90 37.93
MWBI Midwest Bancshares, Inc. of IA 26.50 349 9.2 27.00 24.50 27.00 -1.85 165.00 2.91
MWFD Midwest Fed. Fin. Corp of WI 18.00 1,604 28.9 24.50 9.56 21.50 -16.28 260.00 67.44
MFFC Milton Fed. Fin. Corp. of OH 14.12 2,269 32.0 16.25 11.50 14.62 -3.42 N.A. -13.11
MIVI Miss. View Hold. Co. of MN 11.75 910 10.7 12.75 10.75 12.75 -7.84 N.A. 3.34
MBSP Mitchell Bancorp of NC* 14.25 980 14.0 14.25 10.19 13.87 2.74 N.A. N.A.
MBBC Monterey Bay Bancorp of CA 14.87 3,259 48.5 15.63 11.00 14.75 0.81 N.A. 27.97
MORG Morgan Financial Corp. of CO 11.25 778 8.8 13.00 10.50 12.00 -6.25 N.A. -10.00
MSBK Mutual SB, FSB of Bay City MI 5.69 4,274 24.3 6.81 5.12 5.75 -1.04 -34.97 -5.17
NHTB NH Thrift Bancshares of NH 11.75 1,698 20.0 13.37 9.25 11.75 0.00 154.33 16.11
NSLB NS&L Bancorp of Neosho MO 13.75 843 11.6 14.00 12.00 14.00 -1.79 N.A. 3.77
NMSB Newmil Bancorp. of CT* 8.75 4,042 35.4 9.25 6.37 8.50 2.94 37.36 25.00
NFSL Newnan SB, FSB of Newnan GA 25.25 1,587 40.1 26.75 15.37 25.25 0.00 102.00 46.38
NASB North American SB of MO 33.75 2,268 76.5 33.75 29.25 31.00 8.87 694.12 5.47
NBSI North Bancshares of Chicago IL 15.75 1,072 16.9 16.50 13.37 16.00 -1.56 N.A. 16.67
FFFD North Central Bancshares of IA 13.37 3,811 51.0 13.50 10.12 13.37 0.00 N.A. 26.73
NEBC Northeast Bancorp of ME* 13.50 1,231 16.6 14.00 11.00 13.50 0.00 14.89 17.39
NEIB Northeast Indiana Bncrp of IN 13.50 1,954 26.4 14.00 11.50 13.50 0.00 N.A. 12.50
NSBK Northside SB of Bronx NY(8)* 52.00 4,854 252.4 53.75 29.00 52.50 -0.95 226.02 70.49
NWEQ Northwest Equity Corp. of WI 12.25 929 11.4 12.25 9.87 11.25 8.89 N.A. 12.70
NWSB Northwest SB, MHC of PA(29.9) 13.25 23,376 45.7 13.75 10.75 13.25 0.00 N.A. 9.32
NSSY Norwalk Savings Society of CT* 24.25 2,392 58.0 24.87 18.50 24.25 0.00 N.A. 27.63
NSSB Norwich Financial Corp. of CT* 19.50 5,385 105.0 20.50 12.25 19.50 0.00 178.57 51.52
NTMG Nutmeg FS&LA of CT 7.25 712 5.2 8.00 6.25 7.25 0.00 N.A. 8.70
OHSL OHSL Financial Corp. of OH 20.75 1,223 25.4 22.00 19.25 20.37 1.87 N.A. -3.49
OSBF OSB Fin. Corp. of Oshkosh WI(8) 27.25 1,160 31.6 27.75 22.75 27.00 0.93 136.96 14.74
OCFC Ocean Fin. Corp. of NJ 25.50 9,059 231.0 26.50 19.62 25.87 -1.43 N.A. N.A.
OFCP Ottawa Financial Corp. of MI 16.75 5,179 86.7 16.75 15.37 16.75 0.00 N.A. 7.17
PFFB PFF Bancorp of Pomona CA 14.25 19,837 282.7 14.25 10.37 14.12 0.92 N.A. N.A.
PVFC PVF Capital Corp. of OH 15.00 2,323 34.8 15.75 11.17 14.50 3.45 240.91 23.25
PCCI Pacific Crest Capital of CA* 11.75 2,960 34.8 11.75 7.00 11.75 0.00 N.A. 62.07
PALM Palfed, Inc. of Aiken SC 14.50 5,228 75.8 14.75 11.37 14.50 0.00 -5.66 22.16
PBCI Pamrapo Bancorp, Inc. of NJ 18.87 3,231 61.0 22.50 18.25 18.87 0.00 235.17 -12.23
PFED Park Bancorp of Chicago IL 12.37 2,701 33.4 12.50 10.19 11.75 5.28 N.A. N.A.
</TABLE>
<TABLE>
<CAPTION>
Current Per Share Financials
----------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
EPS(3) EPS(3) Share Share(4) Share
-------- ------- ------- ------- -------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
LISB Long Island Bancorp of NY 1.87 1.70 21.17 21.17 211.86
MAFB MAF Bancorp of IL 1.21 2.11 23.07 19.73 301.63
MBLF MBLA Financial Corp. of MO(8) 0.85 1.12 20.67 20.67 167.94
MFBC MFB Corp. of Mishawaka IN 0.71 0.70 19.09 19.09 106.67
MLBC ML Bancorp of Villanova PA 1.11 1.04 11.63 11.26 159.14
MBB MSB Bancorp of Middletown NY* 0.44 0.49 19.59 7.70 299.31
MSBF MSB Financial Corp. of MI 1.22 1.50 19.26 19.26 96.07
MGNL Magna Bancorp of MS 1.25 1.54 9.16 8.72 94.77
MARN Marion Capital Holdings of IN 1.09 1.37 21.49 21.49 94.74
MFCX Marshalltown Fin. Corp. of IA(8) 0.05 0.36 13.71 13.71 88.01
MFSL Maryland Fed. Bancorp of MD 2.81 1.97 30.17 29.70 359.72
MASB MassBank Corp. of Reading MA* 3.46 3.26 32.59 32.59 327.55
MFLR Mayflower Co-Op. Bank of MA* 1.15 1.10 12.90 12.65 130.78
MECH Mechanics SB of Hartford CT* -0.44 -0.42 13.48 13.48 134.22
MDBK Medford Savings Bank of MA* 2.22 2.19 19.97 18.32 222.36
MERI Meritrust FSB of Thibodaux LA 1.59 2.70 21.67 21.67 298.52
MWBX Metro West of MA* 0.45 0.45 2.76 2.76 35.91
MSEA Metropolitan Bancorp of WA(8) 1.08 1.64 14.01 12.72 207.22
MCBS Mid Continent Bancshares of KS 1.55 1.78 18.25 18.24 168.43
MIFC Mid Iowa Financial Corp. of IA 0.62 0.62 6.42 6.41 68.48
MCBN Mid-Coast Bancorp of ME 0.82 1.39 21.37 21.37 243.29
MIDC Midconn Bank of Kensington CT* 0.96 1.20 18.00 15.16 185.14
MWBI Midwest Bancshares, Inc. of IA 2.58 3.86 25.98 25.98 394.58
MWFD Midwest Fed. Fin. Corp of WI 1.17 1.14 10.19 9.74 121.39
MFFC Milton Fed. Fin. Corp. of OH 0.50 0.65 14.75 14.75 79.70
MIVI Miss. View Hold. Co. of MN 0.99 0.93 14.01 14.01 76.18
MBSP Mitchell Bancorp of NC* 0.18 0.55 15.02 15.02 35.69
MBBC Monterey Bay Bancorp of CA 0.13 0.39 14.04 13.91 100.38
MORG Morgan Financial Corp. of CO 0.68 0.90 12.19 12.19 96.47
MSBK Mutual SB, FSB of Bay City MI 0.12 -0.08 9.23 9.23 158.53
NHTB NH Thrift Bancshares of NH 0.60 0.90 11.31 11.31 155.49
NSLB NS&L Bancorp of Neosho MO 0.66 0.60 15.84 15.84 67.96
NMSB Newmil Bancorp. of CT* 0.58 0.57 7.96 7.96 75.75
NFSL Newnan SB, FSB of Newnan GA 2.36 2.05 13.08 13.01 102.20
NASB North American SB of MO 3.68 3.48 22.21 21.37 326.41
NBSI North Bancshares of Chicago IL 0.36 0.66 16.50 16.50 109.03
FFFD North Central Bancshares of IA 0.74 0.88 14.71 14.71 51.93
NEBC Northeast Bancorp of ME* 0.66 0.63 13.16 11.14 186.76
NEIB Northeast Indiana Bncrp of IN 0.75 0.90 14.29 14.29 81.90
NSBK Northside SB of Bronx NY(8)* 3.99 3.49 26.27 26.05 337.68
NWEQ Northwest Equity Corp. of WI 0.66 0.86 12.48 12.48 102.80
NWSB Northwest SB, MHC of PA(29.9) 0.52 0.79 8.01 7.62 81.35
NSSY Norwalk Savings Society of CT* 1.90 1.56 19.21 18.43 266.37
NSSB Norwich Financial Corp. of CT* 1.12 1.09 13.90 12.59 128.96
NTMG Nutmeg FS&LA of CT 0.34 0.41 7.08 7.08 131.92
OHSL OHSL Financial Corp. of OH 0.96 1.44 20.58 20.58 177.95
OSBF OSB Fin. Corp. of Oshkosh WI(8) 0.08 1.01 26.76 26.76 215.92
OCFC Ocean Fin. Corp. of NJ -0.36 1.08 27.23 27.23 131.37
OFCP Ottawa Financial Corp. of MI 0.48 0.98 14.55 11.50 159.74
PFFB PFF Bancorp of Pomona CA -0.06 0.32 14.46 14.30 125.30
PVFC PVF Capital Corp. of OH 1.30 1.68 9.67 9.67 148.63
PCCI Pacific Crest Capital of CA* 1.08 0.92 8.10 8.10 89.57
PALM Palfed, Inc. of Aiken SC 0.45 0.73 10.10 9.63 126.22
PBCI Pamrapo Bancorp, Inc. of NJ 0.97 1.38 16.91 16.77 112.34
PFED Park Bancorp of Chicago IL 0.29 0.47 15.38 15.38 65.43
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
(continued)
Weekly Thrift Market Line - Part One
Prices As Of December 13, 1996
<TABLE>
<CAPTION>
Price Change Data
Market Capitalization -----------------------------------------------
----------------------- 52 Week (1) % Change From
Shares Market --------------- -----------------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- --------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
PVSA Parkvale Financial Corp of PA 25.15 4,042 102.1 26.50 19.60 26.25 -3.81 204.95 14.77
PBIX Patriot Bank Corp. of PA 13.17 4,457 59.6 13.85 10.26 13.50 -0.96 N.A. 24.60
PEEK Peekskill Fin. Corp. of NY 13.14 3,820 51.3 14.50 11.12 13.37 0.52 N.A. 10.89
PFSB PennFed Fin. Services of NJ 20.12 4,853 97.6 20.75 14.50 20.12 0.00 N.A. 36.41
PWBC PennFirst Bancorp of PA 13.50 3,909 52.8 14.75 11.87 13.50 0.00 69.17 0.00
PWBK Pennwood SB of PA* 12.62 610 7.7 12.62 9.00 12.50 0.96 N.A. N.A.
PBKB People's SB of Brockton MA* 10.62 3,395 36.1 11.62 8.00 10.62 0.00 78.79 1.14
PFDC Peoples Bancorp of Auburn IN 20.00 2,325 46.5 21.50 18.75 20.50 -2.44 14.29 -3.01
PBCT Peoples Bank, MHC of CT(32.3)* 27.25 40,516 322.0 29.12 18.62 27.87 -2.22 246.25 43.42
PFFC Peoples Fin. Corp. of OH 13.00 1,491 19.4 13.25 10.87 13.00 0.00 N.A. N.A.
PHBK Peoples Heritage Fin Grp of ME* 25.75 25,200 648.9 28.25 19.00 27.25 -5.50 68.19 13.19
PBNB Peoples Sav. Fin. Corp. of CT* 27.75 1,905 52.9 30.19 19.00 27.50 0.91 181.16 44.16
PERM Permanent Bancorp of IN 20.25 2,130 43.1 20.25 14.00 18.50 9.46 N.A. 24.62
PMFI Perpetual Midwest Fin. of IA 18.75 1,917 35.9 22.00 16.00 19.06 -1.63 N.A. 13.64
PERT Perpetual of SC, MHC (46.8%) 22.00 1,505 15.5 22.00 20.25 21.37 2.95 N.A. N.A.
PCBC Perry Co. Fin. Corp. of MO 17.00 853 14.5 20.00 15.50 17.25 -1.45 N.A. -12.82
PHFC Pittsburgh Home Fin. of PA 13.12 2,182 28.6 13.62 9.50 13.25 -0.98 N.A. N.A.
PFSL Pocahnts Fed, MHC of AR (46.4) 17.25 1,625 12.9 17.25 14.25 17.25 0.00 N.A. 8.70
POBS Portsmouth Bank Shrs Inc of NH(8)* 13.62 5,740 78.2 15.20 12.62 14.00 -2.71 30.84 -9.62
PKPS Poughkeepsie SB of NY 5.25 12,552 65.9 5.63 4.75 5.12 2.54 -32.26 0.00
PRBC Prestige Bancorp of PA 13.00 963 12.5 13.75 9.75 12.87 1.01 N.A. N.A.
PETE Primary Bank of NH* 14.62 1,975 28.9 14.62 11.75 13.87 5.41 N.A. 15.85
PSAB Prime Bancorp, Inc. of PA 20.25 3,725 75.4 20.68 17.50 19.37 4.54 191.79 0.00
PFNC Progress Financial Corp. of PA 8.37 3,730 31.2 8.75 5.12 8.50 -1.53 -23.98 48.67
PSBK Progressive Bank, Inc. of NY* 23.00 3,899 89.7 24.00 17.17 23.02 -0.09 72.03 16.93
PROV Provident Fin. Holdings of CA 14.25 5,125 73.0 14.37 10.12 13.87 2.74 N.A. N.A.
PULB Pulaski SB, MHC of MO (29.0) 14.12 2,094 8.5 16.50 12.25 14.75 -4.27 N.A. -5.87
PULS Pulse Bancorp of S. River NJ 15.75 3,050 48.0 18.00 14.50 16.00 -1.56 27.32 -7.35
QCFB QCF Bancorp of Virginia MN 17.69 1,426 25.2 17.75 13.87 16.25 8.86 N.A. 19.93
QCBC Quaker City Bancorp of CA 16.50 3,801 62.7 17.50 12.62 16.37 0.79 120.00 18.96
QCSB Queens County SB of NY* 47.25 7,670 362.4 49.37 29.25 48.00 -1.56 N.A. 59.25
RCSB RCSB Financial, Inc. of NY* 27.87 15,386 428.8 30.50 21.56 29.31 -4.91 126.40 17.35
RARB Raritan Bancorp. of Raritan NJ* 23.25 1,531 35.6 23.50 20.25 23.00 1.09 138.46 8.14
REDF RedFed Bancorp of Redlands CA 13.25 7,083 93.8 13.50 8.37 13.16 0.68 N.A. 30.93
RELY Reliance Bancorp of NY 18.75 8,912 167.1 19.50 13.12 18.62 0.70 N.A. 28.25
RELI Reliance Bancshares Inc of WI(8)* 6.75 2,562 17.3 10.12 6.50 7.00 -3.57 N.A. N.A.
RFED Roosevelt Fin. Grp. Inc. of MO 18.94 42,158 798.5 19.75 15.63 18.62 1.72 385.64 -2.22
RVSB Rvrview SB,FSB MHC of WA(40.3) 16.75 2,196 13.2 17.25 14.09 16.75 0.00 N.A. 15.20
SCCB S. Carolina Comm. Bnshrs of SC 15.00 735 11.0 18.12 15.00 15.25 -1.64 N.A. -17.22
SBFL SB Fing. Lakes MHC of NY(33.0) 13.50 1,785 8.0 17.00 12.75 13.50 0.00 N.A. -16.92
SFED SFS Bancorp of Schenectady NY 14.87 1,278 19.0 16.00 11.50 15.00 -0.87 N.A. 14.38
SGVB SGV Bancorp of W. Covina CA 11.00 2,591 28.5 11.62 7.75 11.00 0.00 N.A. 12.82
SISB SIS Bank of Springfield MA* 23.25 5,723 133.1 24.25 16.12 23.94 -2.88 N.A. 42.03
SJSB SJS Bancorp of St. Joseph MI(8) 25.50 918 23.4 25.87 18.50 25.25 0.99 N.A. 29.11
SWCB Sandwich Co-Op. Bank of MA* 29.62 1,889 56.0 30.25 17.00 29.62 0.00 243.62 62.30
SFBM Security Bancorp of MT(8) 30.00 1,485 44.6 30.25 20.00 30.25 -0.83 287.10 42.86
SECP Security Capital Corp. of WI 73.25 9,205 674.3 73.25 54.75 71.00 3.17 N.A. 21.58
SFSL Security First Corp. of OH 16.62 4,972 82.6 17.00 11.50 15.50 7.23 5.52 16.63
SMFC Sho-Me Fin. Corp. of MO 21.62 1,646 35.6 22.00 14.50 21.62 0.00 N.A. 44.13
SOBI Sobieski Bancorp of S. Bend IN 14.25 884 12.6 16.00 11.75 15.00 -5.00 N.A. 9.62
SOSA Somerset Savings Bank of MA(8)* 2.00 16,652 33.3 2.12 1.12 1.97 1.52 -60.94 45.99
SSFC South Street Fin. Corp. of NC* 13.87 4,497 62.4 14.62 12.12 14.00 -0.93 N.A. N.A.
SMBC Southern Missouri Bncrp of MO 14.25 1,638 23.3 16.25 13.50 14.19 0.42 N.A. -5.00
SWBI Southwest Bancshares of IL 18.25 2,655 48.5 18.58 17.33 18.50 -1.35 82.50 3.28
SVRN Sovereign Bancorp of PA 13.00 49,334 641.3 13.62 9.29 12.75 1.96 190.83 34.85
<CAPTION>
Current Per Share Financials
----------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
Financial Institution EPS(3) EPS(3) Share Share(4) Share
- --------------------- -------- ------- ------- ------- -------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
PVSA Parkvale Financial Corp of PA 1.65 2.32 16.96 16.90 228.69
PBIX Patriot Bank Corp. of PA 0.31 0.52 11.53 11.53 109.84
PEEK Peekskill Fin. Corp. of NY 0.52 0.67 14.38 14.38 48.82
PFSB PennFed Fin. Services of NJ 1.12 1.76 18.58 14.91 235.42
PWBC PennFirst Bancorp of PA 0.73 1.11 12.52 11.35 179.28
PWBK Pennwood SB of PA* 0.24 0.24 15.17 15.17 75.78
PBKB People's SB of Brockton MA* 0.97 0.61 8.49 8.06 151.23
PFDC Peoples Bancorp of Auburn IN 1.38 1.81 18.36 18.36 120.44
PBCT Peoples Bank, MHC of CT(32.3)* 1.91 1.53 14.76 14.74 178.61
PFFC Peoples Fin. Corp. of OH 0.36 0.41 15.57 15.57 61.29
PHBK Peoples Heritage Fin Grp of ME* 1.72 1.88 14.96 13.46 176.84
PBNB Peoples Sav. Fin. Corp. of CT* 2.10 2.16 23.62 22.00 241.45
PERM Permanent Bancorp of IN 0.27 0.81 18.74 18.53 197.96
PMFI Perpetual Midwest Fin. of IA 0.36 0.76 17.68 17.68 206.42
PERT Perpetual of SC, MHC (46.8%) 1.36 1.36 19.18 19.18 134.33
PCBC Perry Co. Fin. Corp. of MO 0.80 0.90 17.69 17.69 94.25
PHFC Pittsburgh Home Fin. of PA 0.35 0.58 13.92 13.92 89.52
PFSL Pocahnts Fed, MHC of AR (46.4) 1.21 1.62 13.96 13.96 234.81
POBS Portsmouth Bank Shrs Inc of NH(8)* 1.06 0.86 11.66 11.66 46.80
PKPS Poughkeepsie SB of NY 0.98 1.56 5.59 5.59 68.58
PRBC Prestige Bancorp of PA 0.03 0.38 15.77 15.77 108.39
PETE Primary Bank of NH* -0.04 -0.05 13.45 13.41 209.79
PSAB Prime Bancorp, Inc. of PA 1.22 1.59 15.44 14.49 181.83
PFNC Progress Financial Corp. of PA 0.56 0.69 5.01 4.98 98.44
PSBK Progressive Bank, Inc. of NY* 2.36 2.43 18.65 16.33 227.25
PROV Provident Fin. Holdings of CA 0.23 -0.01 16.57 16.57 113.20
PULB Pulaski SB, MHC of MO (29.0) 0.76 0.70 10.93 10.93 85.70
PULS Pulse Bancorp of S. River NJ 1.14 1.73 12.61 12.61 164.75
QCFB QCF Bancorp of Virginia MN 1.32 1.32 18.35 18.35 104.01
QCBC Quaker City Bancorp of CA 0.40 0.91 17.54 17.48 194.16
QCSB Queens County SB of NY* 2.92 2.92 26.95 26.95 172.86
RCSB RCSB Financial, Inc. of NY* 2.56 2.25 18.08 17.47 263.14
RARB Raritan Bancorp. of Raritan NJ* 1.89 2.09 18.13 17.76 231.34
REDF RedFed Bancorp of Redlands CA -0.94 -0.57 9.86 9.86 122.30
RELY Reliance Bancorp of NY 0.89 1.46 16.78 11.33 205.28
RELI Reliance Bancshares Inc of WI(8)* 0.25 0.25 11.44 11.44 18.73
RFED Roosevelt Fin. Grp. Inc. of MO 0.83 1.79 10.46 9.91 214.61
RVSB Rvrview SB,FSB MHC of WA(40.3) 0.95 1.11 10.73 9.60 99.83
SCCB S. Carolina Comm. Bnshrs of SC 0.51 0.68 16.85 16.85 58.82
SBFL SB Fing. Lakes MHC of NY(33.0) -0.58 0.10 11.22 11.22 110.61
SFED SFS Bancorp of Schenectady NY 0.58 1.05 16.57 16.57 129.91
SGVB SGV Bancorp of W. Covina CA -0.01 0.33 12.07 12.07 133.10
SISB SIS Bank of Springfield MA* 4.06 4.07 16.96 16.96 224.46
SJSB SJS Bancorp of St. Joseph MI(8) 0.28 0.79 17.23 17.23 165.45
SWCB Sandwich Co-Op. Bank of MA* 2.09 2.04 19.93 18.82 243.98
SFBM Security Bancorp of MT(8) 1.32 1.57 20.83 17.94 257.45
SECP Security Capital Corp. of WI 3.07 4.14 60.32 60.32 379.62
SFSL Security First Corp. of OH 0.93 1.32 11.19 10.97 120.64
SMFC Sho-Me Fin. Corp. of MO 1.12 1.48 18.10 18.10 177.46
SOBI Sobieski Bancorp of S. Bend IN 0.10 0.41 15.62 15.62 91.23
SOSA Somerset Savings Bank of MA(8)* 0.14 0.14 1.74 1.74 30.67
SSFC South Street Fin. Corp. of NC* 0.62 0.66 13.15 13.15 46.25
SMBC Southern Missouri Bncrp of MO 0.90 0.84 16.01 16.01 97.59
SWBI Southwest Bancshares of IL 1.12 1.54 14.71 14.71 141.72
SVRN Sovereign Bancorp of PA 0.85 1.18 7.37 5.05 189.82
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
<TABLE>
<CAPTION>
(continued)
Weekly Thrift Market Line - Part One
Prices As Of December 13, 1996
Market Capitalization Price Change Data
----------------------- -----------------------------------------------
52 Week (1) % Change From
Shares Market --------------- -----------------------
Price/ Outst- Capital- Last Last Dec 31, Dec 31,
Financial Institution Share(1) anding ization(9) High Low Week Week 1994(2) 1995(2)
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- --------
($) (000) ($Mil) ($) ($) ($) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
STFR St. Francis Cap. Corp. of WI 26.50 5,476 145.1 28.00 22.25 26.50 0.00 N.A. 13.98
SPBC St. Paul Bancorp, Inc. of IL 27.62 18,082 499.4 28.75 22.25 27.62 0.00 63.72 8.31
STND Standard Fin. of Chicago IL 21.00 16,197 340.1 21.25 13.50 19.87 5.69 N.A. 43.64
SFFC StateFed Financial Corp. of IA 16.50 789 13.0 18.25 15.00 16.50 0.00 N.A. -8.94
SFIN Statewide Fin. Corp. of NJ 13.87 4,995 69.3 14.00 11.25 13.94 -0.50 N.A. 6.20
STSA Sterling Financial Corp. of WA 13.75 5,537 76.1 15.00 12.75 13.75 0.00 51.27 0.00
SSBK Strongsville SB of OH 22.50 2,531 56.9 22.50 18.50 22.50 0.00 N.A. 15.38
SFSB SuburbFed Fin. Corp. of IL 19.00 1,253 23.8 20.50 16.00 20.37 -6.73 184.86 15.15
SBCN Suburban Bancorp. of OH 15.00 1,475 22.1 18.50 14.25 15.25 -1.64 N.A. -18.92
THRD TF Financial Corp. of PA 16.00 4,288 68.6 16.25 13.75 15.87 0.82 N.A. 4.10
ROSE TR Financial Corp. of NY 31.62 8,957 283.2 31.62 23.37 30.25 4.53 N.A. 24.00
TPNZ Tappan Zee Fin. Corp. of NY 13.75 1,539 21.2 14.12 11.37 14.00 -1.79 N.A. 8.95
PTRS The Potters S&L Co. of OH 18.75 506 9.5 19.50 15.50 18.91 -0.85 N.A. 9.91
TSBS Trenton SB, FSB MHC of NJ(35.0(8) 16.00 9,037 49.9 16.12 12.37 15.63 2.37 N.A. 23.08
TRIC Tri-County Bancorp of WY 19.00 609 11.6 19.00 16.50 18.25 4.11 N.A. 15.15
THBC Troy Hill Bancorp of PA(8) 20.00 1,068 21.4 20.12 12.75 20.00 0.00 N.A. 53.85
TWIN Twin City Bancorp of TN 17.25 861 14.9 18.25 16.00 17.50 -1.43 N.A. 1.47
UFRM United FS&LA of Rocky Mount NC 7.75 3,065 23.8 8.50 7.00 8.37 -7.41 138.46 3.33
UBMT United SB, FA of MT 18.75 1,223 22.9 19.75 17.50 19.75 -5.06 78.57 7.14
VABF Va. Beach Fed. Fin. Corp of VA 9.25 4,967 45.9 9.50 6.81 9.38 -1.39 97.23 19.35
VFFC Virginia First Savings of VA 12.87 5,743 73.9 14.62 10.75 12.75 0.94 ***.** 13.19
WHGB WHG Bancshares of MD 12.81 1,620 20.8 13.75 10.87 12.69 0.95 N.A. N.A.
WSFS WSFS Financial Corp. of DE* 9.87 13,842 136.6 10.37 6.75 9.87 0.00 36.14 9.67
WVFC WVS Financial Corp. of PA* 24.25 1,737 42.1 24.25 18.62 23.00 5.43 N.A. 26.83
WLDN Walden Bancorp of MA(8)* 34.81 5,115 178.1 35.50 18.00 34.50 0.90 388.90 83.21
WRNB Warren Bancorp of Peabody MA* 15.63 3,654 57.1 15.75 10.25 14.87 5.11 363.80 38.93
WFSL Washington FS&LA of Seattle WA 25.75 40,695 1,047.9 27.50 19.69 25.75 0.00 76.49 10.52
WAMU Washington Mutual Inc. of WA* 42.37 72,155 3,057.2 45.50 26.25 40.37 4.95 128.29 46.76
WYNE Wayne Bancorp of NJ 14.37 2,231 32.1 14.75 10.75 14.19 1.27 N.A. N.A.
WAYN Wayne S&L Co., MHC of OH(46.7) 23.00 1,498 15.2 24.00 19.00 23.00 0.00 N.A. 4.97
WCFB Webster CityFSB,MHC of IA(45.2 13.06 2,100 12.4 13.50 12.12 13.50 -3.26 N.A. 4.48
WBST Webster Financial Corp. of CT 37.75 8,108 306.1 37.87 26.75 37.12 1.70 299.89 27.97
WEFC Wells Fin. Corp. of Wells MN 13.00 2,078 27.0 13.25 10.00 12.56 3.50 N.A. 18.18
WCBI WestCo Bancorp of IL 21.50 2,601 55.9 22.25 17.83 21.50 0.00 115.00 20.58
WSTR WesterFed Fin. Corp. of MT 18.12 4,395 79.6 18.75 13.87 18.62 -2.69 N.A. 9.03
WOFC Western Ohio Fin. Corp. of OH 21.00 2,187 45.9 24.00 19.50 20.31 3.40 N.A. -9.68
WWFC Westwood Fin. Corp. of NJ 16.00 647 10.4 16.00 10.25 15.25 4.92 N.A. N.A.
WEHO Westwood Hmstd Fin Corp of OH 11.75 2,616 30.7 11.87 10.37 11.50 2.17 N.A. N.A.
WFCO Winton Financial Corp. of OH(8) 12.00 1,986 23.8 15.00 10.87 11.50 4.35 N.A. 10.40
FFWD Wood Bancorp of OH 16.50 1,498 24.7 17.25 11.83 16.37 0.79 N.A. 37.50
YFCB Yonkers Fin. Corp. of NY 12.87 3,571 46.0 13.00 9.31 12.12 6.19 N.A. N.A.
YFED York Financial Corp. of PA 16.37 7,416 121.4 18.41 14.54 16.75 -2.27 73.23 6.71
</TABLE>
<TABLE>
<CAPTION>
Current Per Share Financials
----------------------------------------
Tangible
Trailing 12 Mo. Book Book
12 Mo. Core Value/ Value/ Assets/
EPS(3) EPS(3) Share Share(4) Share
-------- ------- ------- ------- -------
($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
STFR St. Francis Cap. Corp. of WI 1.91 1.88 22.86 21.79 256.41
SPBC St. Paul Bancorp, Inc. of IL 1.37 2.08 20.55 20.48 236.49
STND Standard Fin. of Chicago IL 0.74 1.01 16.26 16.23 144.45
SFFC StateFed Financial Corp. of IA 0.93 1.17 18.48 18.48 102.74
SFIN Statewide Fin. Corp. of NJ 0.47 1.09 13.08 13.05 132.55
STSA Sterling Financial Corp. of WA 0.05 0.69 10.78 8.83 276.56
SSBK Strongsville SB of OH 1.28 1.68 16.56 16.24 214.22
SFSB SuburbFed Fin. Corp. of IL 0.66 1.42 20.26 20.15 311.98
SBCN Suburban Bancorp. of OH 0.23 0.83 17.21 17.21 142.33
THRD TF Financial Corp. of PA 0.77 1.07 16.72 14.51 154.64
ROSE TR Financial Corp. of NY 3.24 2.60 22.26 22.26 350.62
TPNZ Tappan Zee Fin. Corp. of NY 0.52 0.48 13.96 13.96 77.88
PTRS The Potters S&L Co. of OH 0.06 0.89 20.36 20.36 248.02
TSBS Trenton SB, FSB MHC of NJ(35.0(8) 0.95 0.74 11.24 11.00 57.99
TRIC Tri-County Bancorp of WY 0.78 1.08 20.80 20.80 130.50
THBC Troy Hill Bancorp of PA(8) 0.82 0.96 16.87 16.87 93.14
TWIN Twin City Bancorp of TN 0.94 1.19 15.58 15.58 124.35
UFRM United FS&LA of Rocky Mount NC 0.23 0.41 6.44 6.44 86.00
UBMT United SB, FA of MT 1.05 1.28 19.89 19.89 88.26
VABF Va. Beach Fed. Fin. Corp of VA 0.04 0.27 8.03 8.03 121.61
VFFC Virginia First Savings of VA 1.78 1.78 10.64 10.32 136.05
WHGB WHG Bancshares of MD 0.43 0.43 14.36 14.36 60.23
WSFS WSFS Financial Corp. of DE* 1.34 1.36 5.83 5.77 94.40
WVFC WVS Financial Corp. of PA* 1.76 2.16 19.72 19.72 153.03
WLDN Walden Bancorp of MA(8)* 2.09 2.32 18.58 16.00 205.16
WRNB Warren Bancorp of Peabody MA* 1.68 1.65 8.88 8.88 96.86
WFSL Washington FS&LA of Seattle WA 1.96 2.18 14.20 13.52 125.69
WAMU Washington Mutual Inc. of WA* 2.72 3.01 19.63 17.69 310.63
WYNE Wayne Bancorp of NJ 0.02 0.13 16.10 16.10 107.40
WAYN Wayne S&L Co., MHC of OH(46.7) 0.41 1.00 15.04 15.04 167.46
WCFB Webster CityFSB,MHC of IA(45.2 0.40 0.55 10.30 10.30 45.00
WBST Webster Financial Corp. of CT 2.33 2.88 24.86 19.24 491.42
WEFC Wells Fin. Corp. of Wells MN 0.52 0.88 13.36 13.36 96.88
WCBI WestCo Bancorp of IL 1.17 1.58 18.34 18.34 118.33
WSTR WesterFed Fin. Corp. of MT 0.75 1.10 17.81 17.81 128.81
WOFC Western Ohio Fin. Corp. of OH 1.05 0.86 25.44 23.93 152.05
WWFC Westwood Fin. Corp. of NJ 0.06 1.02 14.75 12.93 144.74
WEHO Westwood Hmstd Fin Corp of OH -0.03 0.16 15.10 15.10 45.82
WFCO Winton Financial Corp. of OH(8) 1.11 0.94 10.62 10.34 142.41
FFWD Wood Bancorp of OH 0.85 1.10 13.40 13.40 101.72
YFCB Yonkers Fin. Corp. of NY 0.43 0.64 13.72 13.72 72.68
YFED York Financial Corp. of PA 0.89 1.22 12.37 12.37 155.67
</TABLE>
<PAGE>
RP FINANCIAL, LC.
_________________________________________
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
<TABLE>
<CAPTION>
Weekly Thrift Market Line - Part Two
Prices As Of December 13, 1996
Key Financial Ratios Asset Quality Ratios
__________________________________________________________ _______________________
Tang. Reported Earnings Core Earnings
Equity/ Equity/ ______________________ _______________ NPAs Resvs/ Resvs/
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans
_____________________ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Market Averages. SAIF-Insured Thrifts(no MHCs)
______________________________________________
SAIF-Insured Thrifts(322) 12.89 12.70 0.63 5.40 4.52 0.84 7.42 0.89 123.90 0.85
NYSE Traded Companies(12) 6.03 5.67 0.51 7.43 4.17 0.70 11.28 1.43 65.78 1.26
AMEX Traded Companies(17) 17.38 17.30 0.73 5.36 4.56 0.97 6.98 0.63 110.41 0.65
NASDAQ Listed OTC Companies(293) 12.91 12.71 0.63 5.32 4.53 0.83 7.29 0.87 127.14 0.85
California Companies(25) 7.39 7.26 0.06 0.72 3.20 0.25 3.67 2.15 56.07 1.31
Florida Companies(7) 8.24 8.05 0.34 3.88 3.06 0.55 6.81 1.20 84.57 1.17
Mid-Atlantic Companies(66) 11.11 10.74 0.62 6.62 5.18 0.87 9.14 1.05 90.20 1.02
Mid-West Companies(151) 14.39 14.25 0.69 5.47 4.59 0.88 7.13 0.62 148.82 0.69
New England Companies(10) 8.26 7.91 0.51 6.49 5.60 0.61 7.75 0.75 86.86 0.98
North-West Companies(6) 10.11 9.83 0.78 7.35 4.34 1.01 10.10 0.49 148.74 0.70
South-East Companies(42) 15.05 14.91 0.78 6.15 4.37 1.02 8.02 0.98 122.95 0.89
South-West Companies(7) 11.26 11.09 0.37 1.90 0.99 0.59 5.22 0.79 74.50 0.83
Western Companies (Excl CA)(8) 17.25 17.22 0.92 6.28 4.92 1.12 7.55 0.42 244.04 0.61
Thrift Strategy(249) 14.39 14.21 0.64 4.85 4.28 0.86 6.70 0.78 131.60 0.78
Mortgage Banker Strategy(39) 7.39 7.04 0.63 8.22 5.70 0.70 9.52 1.20 91.45 0.99
Real Estate Strategy(15) 8.47 8.38 0.48 3.76 5.55 0.79 8.29 1.92 103.62 1.42
Diversified Strategy(15) 7.89 7.69 0.71 8.75 4.59 1.00 13.22 0.87 100.09 1.19
Retail Banking Strategy(4) 8.54 8.30 0.34 4.87 3.97 0.50 6.71 0.69 108.06 0.93
Companies Issuing Dividends(259) 12.93 12.70 0.71 6.22 4.91 0.92 8.16 0.78 123.52 0.83
Companies Without Dividends(63) 12.74 12.66 0.29 1.94 2.80 0.50 4.34 1.30 125.35 0.93
Equity/Assets
greater than 6%(34) 5.03 4.72 0.24 4.67 4.78 0.43 8.21 1.63 80.42 1.05
Equity/Assets 6-12%(152) 8.58 8.30 0.58 6.75 5.09 0.79 9.09 0.99 127.59 0.99
Equity/Assets
less than 12%(136) 19.58 19.50 0.77 4.08 3.82 0.99 5.38 0.58 130.76 0.65
Converted Last 3 Mths (no MHC)(7) 23.66 23.66 0.64 3.49 3.43 0.85 4.80 0.53 127.19 0.54
Actively Traded Companies(51) 8.35 8.08 0.72 8.76 6.15 0.97 12.15 1.31 89.29 0.95
Market Value Below $20 Million(77) 15.01 14.91 0.53 3.56 4.02 0.73 5.06 0.93 112.38 0.71
Holding Company Structure(279) 13.45 13.26 0.62 5.20 4.39 0.84 7.22 0.85 124.43 0.82
Assets Over $1 Billion(67) 7.97 7.47 0.56 6.95 4.89 0.78 10.11 1.03 85.87 1.01
Assets $500 Million-$1 Billion(54) 10.90 10.70 0.66 6.70 5.59 0.88 8.77 1.20 127.81 0.97
Assets $250-$500 Million(71) 11.22 11.07 0.58 5.46 4.50 0.80 7.44 0.82 156.15 0.84
Assets less than $250 Million(130) 17.23 17.18 0.67 4.02 3.90 0.87 5.43 0.70 125.48 0.72
Goodwill Companies(133) 8.88 8.39 0.59 6.46 5.01 0.79 9.03 0.95 103.99 0.94
Non-Goodwill Companies(189) 15.63 15.63 0.65 4.68 4.18 0.87 6.33 0.84 138.21 0.79
Acquirors of FSLIC Cases(14) 6.80 6.42 0.64 8.35 5.60 0.95 13.30 1.43 52.85 0.84
</TABLE>
<TABLE>
<CAPTION>
Pricing Ratios Dividend Data(6)
_________________________________________ _______________________
Price/ Price/ Ind. Divi-
Price/ Price/ Price/ Tang. Core Div./ dend Payout
Earning Book Assets Book Earnings Share Yield Ratio(7)
_______ _______ _______ _______ _______ _______ _______ _______
(X) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SAIF-Insured Thrifts(322) 17.23 115.38 14.01 118.28 15.33 0.35 1.89 33.60
NYSE Traded Companies(12) 17.85 158.36 10.40 172.21 14.78 0.46 1.33 25.08
AMEX Traded Companies(17) 18.13 105.48 17.10 106.26 15.62 0.40 2.68 51.99
NASDAQ Listed OTC Companies(293) 17.15 114.39 13.98 117.00 15.34 0.35 1.87 32.89
California Companies(25) 15.01 120.34 8.57 124.07 14.09 0.26 0.96 19.34
Florida Companies(7) 19.19 115.34 9.08 119.32 16.28 0.19 0.97 16.14
Mid-Atlantic Companies(66) 15.45 116.00 12.19 120.16 13.93 0.35 1.85 34.60
Mid-West Companies(151) 17.71 111.98 15.15 113.50 15.96 0.35 1.89 30.73
New England Companies(10) 17.81 109.86 8.78 120.12 14.34 0.47 2.31 39.70
North-West Companies(6) 17.85 156.30 14.80 164.97 16.91 0.34 1.41 27.55
South-East Companies(42) 17.71 122.14 17.45 124.84 15.42 0.42 2.48 47.07
South-West Companies(7) 18.36 101.78 11.05 107.77 16.63 0.30 1.69 38.27
Western Companies (Excl CA)(8) 19.75 114.06 18.14 114.33 15.87 0.49 2.82 45.67
Thrift Strategy(249) 17.75 108.33 14.94 110.46 15.70 0.35 2.00 36.29
Mortgage Banker Strategy(39) 14.79 136.13 9.95 143.82 14.25 0.33 1.49 22.65
Real Estate Strategy(15) 11.94 125.46 10.25 126.70 13.21 0.18 0.85 17.96
Diversified Strategy(15) 19.38 173.38 14.06 179.29 13.84 0.69 2.39 45.65
Retail Banking Strategy(4) 12.92 111.69 9.71 114.47 18.15 0.14 1.25 0.00
Companies Issuing Dividends(259) 17.37 118.64 14.42 121.94 15.17 0.44 2.34 41.72
Companies Without Dividends(63) 16.08 101.84 12.30 103.18 16.33 0.00 0.00 0.00
Equity/Assets
greater than 6%(34) 15.68 141.12 7.13 145.94 14.12 0.28 1.18 17.82
Equity/Assets 6-12%(152) 16.22 123.95 10.64 128.92 13.90 0.40 1.94 33.33
Equity/Assets
less than 12%(136) 19.23 99.78 19.41 100.37 17.68 0.33 2.02 38.09
Converted Last 3 Mths (no MHC)(7) 19.26 86.78 20.49 86.78 17.92 0.00 0.00 0.00
Actively Traded Companies(51) 15.84 144.24 11.80 150.95 12.96 0.53 2.04 29.22
Market Value Below $20 Million(77) 17.50 92.65 13.91 93.73 16.24 0.28 1.87 34.56
Holding Company Structure(279) 17.63 114.69 14.48 117.48 15.52 0.37 1.93 34.62
Assets Over $1 Billion(67) 17.00 145.98 11.31 155.25 14.41 0.49 1.75 33.05
Assets $500 Million-$1 Billion(54) 16.21 119.47 12.84 122.66 14.39 0.31 1.69 29.85
Assets $250-$500 Million(71) 17.11 112.72 12.37 114.38 15.21 0.33 1.94 30.93
Assets less than $250 Million(130) 17.95 98.87 16.80 99.51 16.53 0.31 2.02 37.06
Goodwill Companies(133) 17.01 131.21 11.32 138.70 14.47 0.41 1.86 33.30
Non-Goodwill Companies(189) 17.42 104.62 15.85 104.62 16.07 0.32 1.91 33.83
Acquirors of FSLIC Cases(14) 16.67 145.58 10.44 157.38 13.46 0.47 1.91 28.08
</TABLE>
(1) Average of high/low or bid/ask price per share.
(2) Or since offering price if converted or first listed in 1994 or 1995.
Percent change figures are actual year-to-date and are not annualized
(3) EPS (earnings per share) is based on actual trailing twelve month data and
is not shown on a pro forma basis.
(4) Excludes intangibles (such as goodwill, value of core deposits, etc.).
(5) ROA (return on assets) and ROE (return on equity) are indicated ratios
based on trailing twelve month common earnings and average common equity
and assets balances; ROI (return on investment) is current EPS divided by
current price.
(6) Annualized, based on last regular quarterly cash dividend announcement.
(7) Indicated dividend as a percent of trailing twelve month earnings.
(8) Excluded from averages due to actual or rumored acquisition activities or
unusual operating characteristics.
* All thrifts are SAIF insured unless otherwise noted with an asterisk.
Parentheses following market averages indicate the number of institutions
included in the respective averages. All figures have been adjusted for
stock splits, stock dividends, and secondary offerings.
Source: Corporate reports and offering circulars for publicly traded companies,
and RP Financial, Inc. calculations. The information provided in this
report has been obtained from sources we believe are reliable, but we
cannot guarantee the accuracy or completeness of such information.
Copyright (c) 1995 by RP Financial, LC.
<PAGE>
RP FINANCIAL, LC.
_________________________________________
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
<TABLE>
<CAPTION> (continued)
Weekly Thrift Market Line - Part Two
Prices As Of December 13, 1996
Key Financial Ratios Asset Quality Ratios
__________________________________________________________ _______________________
Tang. Reported Earnings Core Earnings
Equity/ Equity/ ______________________ _______________ NPAs Resvs/ Resvs/
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans
_____________________ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Market Averages. BIF-Insured Thrifts(no MHCs)
_____________________________________________
BIF-Insured Thrifts(75) 10.75 10.39 0.89 9.89 6.96 0.90 9.92 1.36 114.68 1.41
NYSE Traded Companies(3) 7.11 5.51 0.58 8.33 6.12 0.65 9.83 2.53 29.93 1.19
AMEX Traded Companies(5) 12.98 12.73 0.56 6.17 4.72 0.52 5.54 1.37 94.31 1.46
NASDAQ Listed OTC Companies(67) 10.75 10.44 0.93 10.30 7.20 0.95 10.30 1.29 120.90 1.42
California Companies(3) 8.79 8.79 1.05 13.18 8.69 0.98 12.20 2.23 50.97 1.43
Mid-Atlantic Companies(20) 10.47 9.88 0.77 8.52 6.12 0.83 9.35 1.75 73.94 1.33
New England Companies(42) 9.11 8.81 0.95 11.19 7.89 0.92 10.76 1.23 103.68 1.58
North-West Companies(4) 11.16 10.68 1.11 11.18 6.80 1.12 11.36 0.23 383.36 0.99
South-East Companies(4) 27.51 27.51 0.56 1.30 1.67 0.85 2.07 1.06 278.93 0.72
Thrift Strategy(48) 12.28 11.81 0.85 8.55 6.45 0.87 8.54 1.24 108.51 1.37
Mortgage Banker Strategy(10) 6.81 6.63 0.81 11.42 8.05 0.83 11.83 1.17 165.59 1.16
Real Estate Strategy(8) 10.25 10.25 1.28 13.35 7.94 1.25 13.00 1.56 110.68 1.70
Diversified Strategy(7) 6.99 6.73 1.16 16.92 10.01 1.17 17.02 2.27 109.49 1.92
Retail Banking Strategy(2) 6.39 6.24 0.08 1.30 1.57 0.07 1.16 1.17 59.03 1.03
Companies Issuing Dividends(55) 9.24 8.74 0.95 10.70 7.59 0.94 10.53 1.26 115.61 1.40
Companies Without Dividends(20) 14.69 14.68 0.74 7.78 5.32 0.81 8.30 1.64 112.08 1.44
Equity/Assets
greater than 6%(8) 5.66 5.52 0.62 10.90 7.47 0.64 11.35 2.56 47.53 1.32
Equity/Assets 6-12%(51) 8.37 7.88 0.95 11.43 7.89 0.94 11.31 1.31 111.09 1.53
Equity/Assets
less than 12%(16) 20.79 20.69 0.85 4.56 3.79 0.94 4.82 0.81 177.52 1.08
Converted Last 3 Mths (no MHC)(2) 25.20 25.20 1.11 4.36 4.22 1.15 4.51 0.06 659.32 0.48
Actively Traded Companies(28) 8.44 8.08 0.99 11.85 8.38 1.00 11.88 1.13 93.85 1.45
Market Value Below $20 Million(12) 13.73 13.52 0.66 7.66 6.63 0.71 7.22 1.43 59.43 1.18
Holding Company Structure(47) 11.69 11.34 0.98 10.28 7.24 1.02 10.50 1.11 123.57 1.45
Assets Over $1 Billion(17) 7.97 7.39 1.03 12.89 8.15 1.07 13.59 1.85 84.38 1.48
Assets $500 Million-$1 Billion(18) 10.06 9.48 0.94 9.87 7.15 0.87 8.92 1.10 111.81 1.53
Assets $250-$500 Million(22) 10.28 10.05 0.80 9.19 6.25 0.84 9.71 1.26 128.14 1.44
Assets less than $250 Million(18) 14.42 14.27 0.83 8.17 6.64 0.87 7.89 1.26 129.71 1.21
Goodwill Companies(38) 7.97 7.21 0.81 10.17 7.21 0.81 10.27 1.35 89.01 1.38
Non-Goodwill Companies(37) 13.28 13.28 0.96 9.64 6.74 0.99 9.60 1.36 141.21 1.44
</TABLE>
<TABLE>
<CAPTION>
Pricing Ratios Dividend Data(6)
________________________________________ _______________________
Price/ Price/ Ind. Divi-
Price/ Price/ Price/ Tang. Core Div./ dend Payout
Earning Book Assets Book Earnings Share Yield Ratio(7)
_______ _______ _______ _______ _______ _______ _______ _______
(X) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BIF-Insured Thrifts(75) 13.16 127.62 12.99 133.38 13.53 0.37 1.82 24.11
NYSE Traded Companies(3) 17.47 141.84 10.47 130.69 15.06 0.27 0.54 10.75
AMEX Traded Companies(5) 10.09 112.47 13.36 117.07 15.49 0.52 2.59 36.88
NASDAQ Listed OTC Companies(67) 13.02 128.20 13.10 134.91 13.31 0.37 1.82 24.15
California Companies(3) 11.52 125.88 11.30 125.92 12.41 0.00 0.00 0.00
Mid-Atlantic Companies(20) 14.42 126.05 12.56 135.07 13.82 0.38 1.63 19.21
New England Companies(42) 12.52 128.93 11.49 133.76 13.35 0.44 2.29 30.71
North-West Companies(4) 12.94 156.33 15.78 165.26 12.70 0.44 1.87 28.40
South-East Companies(4) 22.37 96.26 26.69 96.26 21.02 0.00 0.00 0.00
Thrift Strategy(48) 13.62 119.86 13.88 126.64 14.04 0.38 1.88 26.64
Mortgage Banker Strategy(10) 12.32 138.32 9.46 141.76 12.84 0.40 1.91 15.25
Real Estate Strategy(8) 13.13 150.47 15.70 150.47 13.29 0.30 1.42 19.12
Diversified Strategy(7) 11.75 156.35 10.90 163.78 11.90 0.39 1.66 22.61
Retail Banking Strategy(2) 0.00 97.00 6.20 99.11 0.00 0.32 1.88 0.00
Companies Issuing Dividends(55) 12.97 132.37 12.10 140.40 13.40 0.52 2.52 32.33
Companies Without Dividends(20) 13.95 115.23 15.32 115.44 14.03 0.00 0.00 0.00
Equity/Assets
greater than 6%(8) 13.53 135.50 7.64 139.02 14.13 0.15 1.16 13.77
Equity/Assets 6-12%(51) 12.44 133.53 11.18 141.39 12.83 0.47 2.24 28.39
Equity/Assets
less than 12%(16) 17.52 105.13 21.36 105.99 17.48 0.20 0.85 16.84
Converted Last 3 Mths (no MHC)(2) 22.37 103.24 26.09 103.24 21.02 0.00 0.00 0.00
Actively Traded Companies(28) 12.85 135.22 11.28 141.70 12.69 0.50 2.36 29.97
Market Value Below $20 Million(12) 12.42 99.36 13.00 102.72 13.64 0.23 1.55 19.87
Holding Company Structure(47) 12.78 129.15 14.27 137.45 12.93 0.42 2.00 24.77
Assets Over $1 Billion(17) 13.38 151.52 12.24 156.37 13.26 0.51 1.87 21.78
Assets $500 Million-$1 Billion(18) 11.37 125.08 12.55 139.79 13.11 0.44 2.17 27.75
Assets $250-$500 Million(22) 14.13 128.06 12.36 131.66 13.75 0.34 1.69 26.47
Assets less than $250 Million(18) 13.30 108.55 14.86 110.86 13.94 0.24 1.62 20.16
Goodwill Companies(38) 13.49 131.56 10.52 143.98 13.71 0.50 2.28 29.77
Non-Goodwill Companies(37) 12.82 124.03 15.25 124.03 13.35 0.26 1.40 19.34
</TABLE>
(1) Average of high/low or bid/ask price per share.
(2) Or since offering price if converted or first listed in 1994 or 1995.
Percent change figures are actual year-to-date and are not annualized
(3) EPS (earnings per share) is based on actual trailing twelve month data and
is not shown on a pro forma basis.
(4) Excludes intangibles (such as goodwill, value of core deposits, etc.).
(5) ROA (return on assets) and ROE (return on equity) are indicated ratios based
on trailing twelve month common earnings and average common equity and
assets balances; ROI (return on investment) is current EPS divided by
current price.
(6) Annualized, based on last regular quarterly cash dividend announcement.
(7) Indicated dividend as a percent of trailing twelve month earnings.
(8) Excluded from averages due to actual or rumored acquisition activities or
unusual operating characteristics.
* All thrifts are SAIF insured unless otherwise noted with an asterisk.
Parentheses following market averages indicate the number of institutions
included in the respective averages. All figures have been adjusted for
stock splits, stock dividends, and secondary offerings.
Source: Corporate reports and offering circulars for publicly traded companies,
and RP Financial, Inc. calculations. The information provided in this
report has been obtained from sources we believe are reliable, but we
cannot guarantee the accuracy or completeness of such information.
Copyright (c) 1995 by RP Financial, LC.
<PAGE>
RP FINANCIAL, LC.
_________________________________________
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
<TABLE>
<CAPTION> (continued)
Weekly Thrift Market Line - Part Two
Prices As Of December 13, 1996
Key Financial Ratios Asset Quality Ratios
__________________________________________________________ _______________________
Tang. Reported Earnings Core Earnings
Equity/ Equity/ ______________________ _______________ NPAs Resvs/ Resvs/
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans
_____________________ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Market Averages. MHC Institutions
_________________________________
SAIF-Insured Thrifts(19) 11.13 10.88 0.53 4.72 3.35 0.77 7.13 0.59 152.96 0.83
BIF-Insured Thrifts(2) 9.98 9.97 0.45 6.13 2.75 0.49 6.00 2.17 65.43 2.02
NASDAQ Listed OTC Companies(21) 11.02 10.78 0.52 4.86 3.29 0.75 7.01 0.76 143.74 0.95
Florida Companies(3) 9.79 9.65 0.73 7.20 4.70 0.92 9.30 0.48 114.11 0.79
Mid-Atlantic Companies(8) 10.45 10.02 0.20 1.71 1.10 0.59 5.30 1.05 186.31 1.11
Mid-West Companies(7) 12.08 12.06 0.53 4.77 3.60 0.71 6.62 0.57 119.04 0.76
New England Companies(1) 8.26 8.25 1.10 13.97 7.01 0.88 11.19 1.42 85.13 1.82
North-West Companies(1) 10.75 9.62 0.99 9.12 5.67 1.16 10.65 0.20 166.22 0.52
South-East Companies(1) 14.28 14.28 1.01 7.09 6.18 1.01 7.09 0.00 0.00 1.08
Thrift Strategy(19) 11.18 10.99 0.46 4.11 2.95 0.72 6.58 0.75 145.87 0.92
Mortgage Banker Strategy(1) 10.75 9.62 0.99 9.12 5.67 1.16 10.65 0.20 166.22 0.52
Diversified Strategy(1) 8.26 8.25 1.10 13.97 7.01 0.88 11.19 1.42 85.13 1.82
Companies Issuing Dividends(20) 10.85 10.60 0.49 4.74 3.14 0.73 7.01 0.76 143.74 0.94
Companies Without Dividends(1) 14.28 14.28 1.01 7.09 6.18 1.01 7.09 0.00 0.00 1.08
Equity/Assets
greater than 6%(1) 5.95 5.95 0.54 9.00 7.01 0.72 12.04 0.32 141.55 1.25
Equity/Assets 6-12%(14) 9.56 9.23 0.41 4.37 2.67 0.69 7.08 0.82 102.35 0.99
Equity/Assets
less than 12%(6) 16.10 16.10 0.83 5.40 4.30 0.92 5.83 0.64 289.16 0.77
Actively Traded Companies(1) 9.26 8.11 0.47 5.02 3.50 0.86 9.08 0.75 70.10 1.01
Market Value Below $20 Million(1) 11.52 11.49 0.19 1.60 1.68 0.47 3.96 0.37 131.69 0.59
Holding Company Structure(1) 9.26 8.11 0.47 5.02 3.50 0.86 9.08 0.75 70.10 1.01
Assets Over $1 Billion(4) 8.67 8.13 0.68 7.81 4.14 0.91 9.96 0.88 109.33 1.25
Assets $500 Million-$1 Billion(5) 9.54 9.23 0.49 4.59 3.59 0.71 6.97 0.65 64.01 0.81
Assets $250-$500 Million(4) 9.75 9.73 0.49 5.32 3.90 0.78 8.46 0.27 357.67 0.62
Assets less than $250 Million(8) 13.56 13.42 0.47 3.28 2.42 0.67 4.84 1.03 86.73 1.02
Goodwill Companies(10) 9.28 8.77 0.57 6.20 3.69 0.83 8.72 0.60 128.74 0.89
Non-Goodwill Companies(11) 12.44 12.44 0.48 3.76 2.96 0.68 5.62 0.90 157.25 0.99
MHC Institutions(21) 11.02 10.78 0.52 4.86 3.29 0.75 7.01 0.76 143.74 0.95
MHC Converted Last 3 Months(1) 14.28 14.28 1.01 7.09 6.18 1.01 7.09 0.00 0.00 1.08
</TABLE>
<TABLE>
<CAPTION>
Pricing Ratios Dividend Data(6)
_________________________________________ _______________________
Price/ Price/ Ind. Divi-
Price/ Price/ Price/ Tang. Core Div./ dend Payout
Earning Book Assets Book Earnings Share Yield Ratio(7)
_______ _______ _______ _______ _______ _______ _______ _______
(X) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SAIF-Insured Thrifts(19) 16.97 135.43 14.84 140.09 18.38 0.61 3.48 50.56
BIF-Insured Thrifts(2) 14.27 152.55 14.67 152.68 17.81 0.62 3.41 46.07
NASDAQ Listed OTC Companies(21) 16.58 137.14 14.82 141.35 18.34 0.61 3.47 50.00
Florida Companies(3) 17.59 149.74 14.23 152.94 17.52 0.93 4.26 71.32
Mid-Atlantic Companies(8) 0.00 131.39 13.69 139.14 17.92 0.46 3.05 59.34
Mid-West Companies(7) 16.42 131.21 15.64 131.45 20.03 0.72 4.40 69.42
New England Companies(1) 14.27 184.62 15.26 184.87 17.81 0.88 3.23 46.07
North-West Companies(1) 17.63 156.10 16.78 174.48 15.09 0.22 1.31 23.16
South-East Companies(1) 16.18 114.70 16.38 114.70 16.18 0.00 0.00 0.00
Thrift Strategy(19) 16.84 133.45 14.69 137.09 18.61 0.61 3.61 55.12
Mortgage Banker Strategy(1) 17.63 156.10 16.78 174.48 15.09 0.22 1.31 23.16
Diversified Strategy(1) 14.27 184.62 15.26 184.87 17.81 0.88 3.23 46.07
Companies Issuing Dividends(20) 16.65 138.32 14.74 142.76 18.49 0.64 3.66 57.14
Companies Without Dividends(1) 16.18 114.70 16.38 114.70 16.18 0.00 0.00 0.00
Equity/Assets
greater than 6%(1) 14.26 123.57 7.35 123.57 10.65 0.84 4.87 69.42
Equity/Assets 6-12%(14) 16.77 142.12 13.40 148.13 18.54 0.60 3.14 55.09
Equity/Assets
less than 12%(6) 17.38 125.92 20.28 125.92 19.73 0.57 4.12 0.00
Actively Traded Companies(1) 0.00 142.97 13.23 163.19 15.79 0.36 2.00 57.14
Market Value Below $20 Million(1) 0.00 96.08 11.06 96.30 24.04 0.40 3.20 0.00
Holding Company Structure(1) 0.00 142.97 13.23 163.19 15.79 0.36 2.00 57.14
Assets Over $1 Billion(4) 16.28 168.50 14.57 179.11 16.05 0.75 3.15 58.73
Assets $500 Million-$1 Billion(5) 16.90 128.44 12.28 133.86 18.77 0.62 3.48 65.61
Assets $250-$500 Million(4) 14.26 139.38 13.41 139.74 17.76 0.79 3.87 69.42
Assets less than $250 Million(8) 17.46 124.70 16.93 127.02 19.84 0.44 3.43 11.58
Goodwill Companies(10) 16.73 152.18 13.92 161.54 18.00 0.61 2.90 51.30
Non-Goodwill Companies(11) 16.48 124.84 15.56 124.84 18.68 0.61 3.94 47.83
MHC Institutions(21) 16.58 137.14 14.82 141.35 18.34 0.61 3.47 50.00
MHC Converted Last 3 Months(1) 16.18 114.70 16.38 114.70 16.18 0.00 0.00 0.00
</TABLE>
(1) Average of high/low or bid/ask price per share.
(2) Or since offering price if converted or first listed in 1994 or 1995.
Percent change figures are actual year-to-date and are not annualized
(3) EPS (earnings per share) is based on actual trailing twelve month data and
is not shown on a pro forma basis.
(4) Excludes intangibles (such as goodwill, value of core deposits, etc.).
(5) ROA (return on assets) and ROE (return on equity) are indicated ratios
based on trailing twelve month common earnings and average common equity
and assets balances; ROI (return on investment) is current EPS divided by
current price.
(6) Annualized, based on last regular quarterly cash dividend announcement.
(7) Indicated dividend as a percent of trailing twelve month earnings.
(8) Excluded from averages due to actual or rumored acquisition activities or
unusual operating characteristics.
* All thrifts are SAIF insured unless otherwise noted with an asterisk.
Parentheses following market averages indicate the number of institutions
included in the respective averages. All figures have been adjusted for
stock splits, stock dividends, and secondary offerings.
Source: Corporate reports and offering circulars for publicly traded companies,
and RP Financial, Inc. calculations. The information provided in this
report has been obtained from sources we believe are reliable, but we
cannot guarantee the accuracy or completeness of such information.
Copyright (c) 1995 by RP Financial, LC.
<PAGE>
RP FINANCIAL, LC.
_________________________________________
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
<TABLE>
<CAPTION>
(continued)
Weekly Thrift Market Line - Part Two
Prices As Of December 13, 1996
Key Financial Ratios Asset Quality Ratios
__________________________________________________________ _______________________
Tang. Reported Earnings Core Earnings
Equity/ Equity/ ______________________ _______________ NPAs Resvs/ Resvs/
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans
_____________________ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NYSE Traded Companies
_____________________
AHM Ahmanson and Co. H.F. of CA 3.93 3.30 0.13 2.91 1.97 0.44 9.73 2.14 36.71 1.23
CAL CalFed Inc. of Los Angeles CA(8) 4.63 4.63 0.35 7.84 4.16 0.56 12.42 1.16 103.40 1.66
CSA Coast Savings Financial of CA 4.83 4.76 0.12 2.40 1.52 0.47 9.42 1.53 48.84 1.08
CFB Commercial Federal Corp. of NE 5.39 4.82 0.62 10.78 6.28 0.88 15.44 1.07 69.60 1.01
DME Dime Savings Bank, FSB of NY* 5.19 5.14 0.38 7.63 4.81 0.65 12.90 2.45 24.13 1.09
DSL Downey Financial Corp. of CA 7.74 7.62 0.43 5.30 4.24 0.69 8.48 1.36 44.87 0.68
FRC First Republic Bancorp of CA* 5.56 5.56 0.54 9.54 8.53 0.51 8.95 2.22 38.76 0.97
FED FirstFed Fin. Corp. of CA 4.38 4.31 0.06 1.27 1.03 0.29 6.34 2.15 83.45 2.42
GLN Glendale Fed. Bk, FSB of CA 5.27 4.89 -0.04 -0.86 -0.63 0.36 6.98 1.76 66.28 1.56
GDW Golden West Fin. Corp. of CA 6.13 6.13 1.00 15.50 9.97 1.23 19.03 1.37 35.24 0.59
GWF Great Western Fin. Corp. of CA 5.63 4.95 0.42 7.48 4.58 0.68 12.07 1.79 41.34 1.03
GPT GreenPoint Fin. Corp. of NY* 10.58 5.84 0.82 7.83 5.02 0.80 7.64 2.91 26.91 1.52
SFB Standard Fed. Bancorp of MI 5.83 4.75 0.63 9.71 5.06 0.85 13.07 0.59 53.01 0.43
TCB TCF Financial Corp. of MN 7.34 7.03 1.17 16.06 5.75 1.39 19.01 0.76 132.47 1.36
WES Westcorp Inc. of Orange CA 9.88 9.85 1.09 11.13 6.08 0.44 4.45 1.16 111.77 2.49
AMEX Traded Companies
_____________________
ANA Acadiana Bancshares of LA* 17.55 17.55 -0.47 -4.71 -3.02 -0.44 -4.39 0.56 159.79 1.32
BKC American Bank of Waterbury CT* 8.34 7.95 1.24 14.18 9.60 0.84 9.61 2.39 38.52 1.42
BFD BostonFed Bancorp of MA 11.15 11.15 0.32 2.87 2.29 0.52 4.64 0.54 97.04 0.63
CFX Cheshire Fin. Corp. of NH* 8.50 7.89 0.72 7.72 3.82 0.95 10.21 0.74 140.78 1.47
CZF Citisave Fin. Corp. of LA 16.00 15.99 0.78 4.47 4.50 1.04 5.97 0.22 40.85 0.15
CBK Citizens First Fin.Corp. of IL 15.14 15.14 0.25 2.32 1.51 0.52 4.87 0.53 35.95 0.24
ESX Essex Bancorp of VA(8) 0.33 -0.14 -2.71 NM NM -1.63 -40.51 3.44 51.87 2.16
FCB Falmouth Co-Op Bank of MA* 24.21 24.21 0.68 3.44 2.97 0.68 3.44 0.02 NA 1.22
GAF GA Financial Corp. of PA 21.55 21.55 0.72 4.10 2.98 1.13 6.43 0.19 85.78 0.42
KNK Kankakee Bancorp of IL 10.02 9.32 0.42 4.14 4.38 0.60 5.87 0.90 74.47 0.99
KYF Kentucky First Bancorp of KY 22.25 22.25 0.90 3.71 4.52 1.17 4.85 0.09 486.84 0.81
NYB New York Bancorp, Inc. of NY 5.17 5.17 1.14 20.41 8.50 1.25 22.40 1.32 49.76 1.04
PDB Piedmont Bancorp of NC 28.20 28.20 1.28 4.82 5.24 1.57 5.92 0.76 62.96 0.66
PLE Pinnacle Bank of AL 7.73 7.46 0.50 6.42 6.35 0.79 10.11 0.83 82.73 1.01
SSB Scotland Bancorp of NC 36.12 36.12 1.16 4.04 2.88 1.50 5.22 NA NA 0.50
SZB SouthFirst Bancshares of AL 14.41 14.41 0.57 3.47 4.56 0.75 4.63 0.52 53.93 0.41
SRN Southern Banc Company of AL 18.22 18.02 0.22 1.24 1.27 0.58 3.36 NA NA 0.24
SSM Stone Street Bancorp of NC 35.13 35.13 1.22 4.38 3.41 1.51 5.42 0.17 272.78 0.61
TSH Teche Holding Company of LA 13.77 13.77 0.72 4.30 5.36 1.04 6.24 NA NA 1.00
FTF Texarkana Fst. Fin. Corp of AR 15.94 15.94 1.47 7.51 8.76 1.81 9.28 0.17 403.17 0.84
THR Three Rivers Fin. Corp. of MI 14.48 14.42 0.52 3.44 3.82 0.78 5.17 1.22 42.90 0.79
TBK Tolland Bank of CT* 6.31 6.06 0.63 10.20 10.24 0.54 8.83 3.16 38.16 1.87
WSB Washington SB, FSB of MD 8.72 8.72 0.91 11.57 11.34 0.83 10.54 0.95 49.34 0.96
NASDAQ Listed OTC Companies
___________________________
FBCV 1st Bancorp of Vincennes IN 8.20 8.20 1.72 22.62 22.69 -0.16 -2.12 0.44 79.07 0.51
AFED AFSALA Bancorp of NY 13.68 13.68 0.59 4.34 5.30 0.59 4.34 0.59 96.04 1.10
ALBK ALBANK Fin. Corp. of Albany NY 8.95 7.68 0.77 7.76 6.10 0.98 9.90 1.15 69.91 1.12
AMFC AMB Financial Corp. of IN 19.37 19.37 0.49 3.04 2.56 0.76 4.79 0.43 98.60 0.56
ASBP ASB Financial Corp. of OH 22.18 22.18 0.57 2.44 2.11 0.89 3.83 1.89 40.89 1.25
ABBK Abington Savings Bank of MA(8)* 6.69 5.95 0.72 10.94 9.17 0.61 9.18 0.27 135.80 0.59
AABC Access Anytime Bancorp of NM 4.58 4.58 -0.57 -12.10 -15.99 -0.22 -4.57 1.58 24.19 0.97
AADV Advantage Bancorp of WI 8.74 8.07 0.31 3.22 2.79 0.80 8.47 0.47 119.85 1.02
AFCB Affiliated Comm BC, Inc of MA 9.76 9.68 0.64 6.09 5.17 0.93 8.80 0.62 119.38 1.19
ALBC Albion Banc Corp. of Albion NY 9.63 9.63 -0.10 -1.00 -1.37 0.20 1.96 0.37 139.82 0.65
</TABLE>
<TABLE>
<CAPTION>
Pricing Ratios Dividend Data(6)
_________________________________________ _______________________
Price/ Price/ Ind. Divi-
Price/ Price/ Price/ Tang. Core Div./ dend Payout
Earning Book Assets Book Earnings Share Yield Ratio(7)
_______ _______ _______ _______ _______ _______ _______ _______
(X) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NYSE Traded Companies
_____________________
AHM Ahmanson and Co. H.F. of CA NM 167.02 6.57 199.12 15.22 0.88 2.79 NM
CAL CalFed Inc. of Los Angeles CA(8) 24.01 183.16 8.48 183.16 15.16 0.00 0.00 0.00
CSA Coast Savings Financial of CA NM 159.62 7.72 162.17 16.75 0.00 0.00 0.00
CFB Commercial Federal Corp. of NE 15.92 177.26 9.56 198.36 11.11 0.42 0.91 14.53
DME Dime Savings Bank, FSB of NY* 20.77 153.65 7.98 155.26 12.29 0.00 0.00 0.00
DSL Downey Financial Corp. of CA 23.59 125.22 9.70 127.33 14.74 0.32 1.70 40.00
FRC First Republic Bancorp of CA* 11.72 105.99 5.90 106.12 12.50 0.00 0.00 0.00
FED FirstFed Fin. Corp. of CA NM 127.22 5.58 129.29 19.35 0.00 0.00 0.00
GLN Glendale Fed. Bk, FSB of CA NM 131.89 6.95 142.17 19.52 0.00 0.00 NM
GDW Golden West Fin. Corp. of CA 10.03 156.68 9.61 156.68 8.17 0.44 0.71 7.12
GWF Great Western Fin. Corp. of CA 21.85 165.36 9.31 188.02 13.53 1.00 3.39 74.07
GPT GreenPoint Fin. Corp. of NY* 19.91 165.89 17.54 NM 20.40 0.80 1.62 32.26
SFB Standard Fed. Bancorp of MI 19.76 196.73 11.48 241.76 14.68 0.80 1.42 27.97
TCB TCF Financial Corp. of MN 17.40 NM 20.46 NM 14.70 0.75 1.80 31.25
WES Westcorp Inc. of Orange CA 16.44 176.61 17.45 177.20 NM 0.40 1.87 30.77
AMEX Traded Companies
_____________________
ANA Acadiana Bancshares of LA* NM 83.68 14.68 83.68 NM 0.00 0.00 NM
BKC American Bank of Waterbury CT* 10.42 144.04 12.02 151.24 15.37 1.36 4.73 49.28
BFD BostonFed Bancorp of MA NM 110.31 12.30 110.31 NM 0.20 1.34 58.82
CFX Cheshire Fin. Corp. of NH* NM 154.03 13.10 165.99 19.82 0.92 5.66 NM
CZF Citisave Fin. Corp. of LA 22.22 111.29 17.81 111.38 16.67 0.40 2.86 63.49
CBK Citizens First Fin.Corp. of IL NM 96.86 14.67 96.86 NM 0.00 0.00 0.00
ESX Essex Bancorp of VA(8) NM NM 1.38 NM NM 0.00 0.00 NM
FCB Falmouth Co-Op Bank of MA* NM 87.12 21.09 87.12 NM 0.20 1.52 51.28
GAF GA Financial Corp. of PA NM 103.44 22.29 103.44 21.38 0.32 2.17 72.73
KNK Kankakee Bancorp of IL 22.86 96.04 9.62 103.23 16.11 0.40 1.67 38.10
KYF Kentucky First Bancorp of KY 22.12 83.45 18.57 83.45 16.91 0.50 4.35 NM
NYB New York Bancorp, Inc. of NY 11.76 247.41 12.78 247.41 10.72 0.80 2.36 27.78
PDB Piedmont Bancorp of NC 19.07 80.28 22.64 80.28 15.53 0.48 4.42 NM
PLE Pinnacle Bank of AL 15.74 102.10 7.89 105.79 10.00 0.72 4.24 66.67
SSB Scotland Bancorp of NC NM 105.79 38.21 105.79 NM 0.30 2.11 73.17
SZB SouthFirst Bancshares of AL 21.93 82.67 11.91 82.67 16.45 0.50 4.00 NM
SRN Southern Banc Company of AL NM 94.02 17.13 95.02 NM 0.35 2.62 NM
SSM Stone Street Bancorp of NC NM 95.80 33.66 95.80 23.64 0.44 2.24 65.67
TSH Teche Holding Company of LA 18.66 89.77 12.36 89.77 12.86 0.50 3.77 70.42
FTF Texarkana Fst. Fin. Corp of AR 11.42 103.42 16.49 103.42 9.24 0.45 3.10 35.43
THR Three Rivers Fin. Corp. of MI NM 91.59 13.27 92.03 17.46 0.36 2.64 69.23
TBK Tolland Bank of CT* 9.76 93.48 5.90 97.32 11.28 0.12 1.03 10.08
WSB Washington SB, FSB of MD 8.82 96.86 8.45 96.86 9.69 0.10 2.02 17.86
NASDAQ Listed OTC Companies
___________________________
FBCV 1st Bancorp of Vincennes IN 4.41 96.76 7.93 96.76 NM 0.40 1.31 5.78
AFED AFSALA Bancorp of NY 18.85 81.85 11.20 81.85 18.85 0.00 0.00 0.00
ALBK ALBANK Fin. Corp. of Albany NY 16.40 129.33 11.57 150.63 12.86 0.60 1.94 31.75
AMFC AMB Financial Corp. of IN NM 89.38 17.31 89.38 24.75 0.24 1.86 72.73
ASBP ASB Financial Corp. of OH NM 118.32 26.24 118.32 NM 0.40 2.29 NM
ABBK Abington Savings Bank of MA(8)* 10.90 114.27 7.65 128.49 12.99 0.40 2.04 22.22
AABC Access Anytime Bancorp of NM NM 82.55 3.78 82.55 NM 0.00 0.00 NM
AADV Advantage Bancorp of WI NM 121.69 10.64 131.91 13.62 0.32 1.00 35.96
AFCB Affiliated Comm BC, Inc of MA 19.33 117.51 11.46 118.37 13.38 0.60 2.65 51.28
ALBC Albion Banc Corp. of Albion NY NM 75.86 7.31 75.86 NM 0.31 1.77 NM
</TABLE>
<PAGE>
RP FINANCIAL, LC.
_________________________________________
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
<TABLE>
<CAPTION>
(continued)
Weekly Thrift Market Line - Part Two
Prices As Of December 13, 1996
Key Financial Ratios Asset Quality Ratios
__________________________________________________________ _______________________
Tang. Reported Earnings Core Earnings
Equity/ Equity/ ______________________ _______________ NPAs Resvs/ Resvs/
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans
_____________________ _______ _______ _______ _______ _______ _______ _______ _______ _______ _______
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
_______________________________________
ATSB AmTrust Capital Corp. of IN 10.03 10.03 0.47 4.40 6.23 0.03 0.28 2.58 26.59 0.95
AHCI Ambanc Holding Co. of NY* 14.17 14.17 0.26 1.73 2.09 0.25 1.66 3.63 26.16 1.70
ASBI Ameriana Bancorp of IN 10.88 10.87 0.61 5.14 4.54 0.91 7.67 0.48 58.85 0.39
AFFFZ America First Fin. Fund of CA 6.89 6.75 0.45 6.64 5.89 0.75 11.21 0.58 54.76 0.50
AMFB American Federal Bank of SC 7.76 7.17 1.04 13.07 6.79 1.30 16.31 0.51 150.52 1.25
ANBK American Nat'l Bancorp of MD 9.15 9.15 0.15 1.44 1.55 0.54 5.14 NA NA 1.59
ABCW Anchor Bancorp Wisconsin of WI 5.84 5.69 0.67 10.05 7.40 0.92 13.84 0.75 157.67 1.54
ANDB Andover Bancorp, Inc. of MA* 7.73 7.73 1.03 13.57 8.97 1.06 13.98 1.30 77.05 1.40
ASFC Astoria Financial Corp. of NY 7.79 6.38 0.51 6.06 4.60 0.77 9.18 0.66 29.39 0.55
AVND Avondale Fin. Corp. of IL 9.59 9.59 0.39 3.71 3.82 0.41 3.88 0.71 103.55 1.46
BFSI BFS Bankorp, Inc. of NY 7.81 7.81 1.57 20.19 11.41 1.84 23.72 1.04 90.39 1.03
BKCT Bancorp Connecticut of CT* 10.85 10.85 1.17 10.76 7.82 1.16 10.64 1.45 84.76 1.98
BPLS Bank Plus Corp. of CA 4.75 4.74 -2.04 -38.41 NM -1.69 -31.88 3.35 56.47 2.24
BWFC Bank West Fin. Corp. of MI 17.34 17.34 0.66 3.39 4.28 0.36 1.84 0.10 126.57 0.18
BANC BankAtlantic Bancorp of FL 6.44 5.98 0.75 10.73 7.31 0.76 10.85 0.76 118.19 1.52
BKUNA BankUnited SA of FL 5.43 5.14 0.06 1.28 0.91 0.30 6.07 0.85 30.71 0.33
BKCO Bankers Corp. of NJ* 8.05 7.90 1.05 11.58 8.70 1.20 13.18 1.20 25.55 0.43
BVFS Bay View Capital Corp. of CA 5.65 5.33 -0.08 -1.25 -0.94 0.55 8.38 0.72 157.67 1.49
BFSB Bedford Bancshares of VA 14.31 14.31 1.09 7.00 6.33 1.40 8.97 0.54 95.03 0.59
BSBC Branford SB of CT* 9.13 9.13 0.97 11.21 6.72 0.97 11.21 2.19 96.45 2.95
BRFC Bridgeville SB, FSB of PA(8) 28.94 28.94 0.98 3.41 3.00 1.25 4.33 0.21 128.21 0.74
BYFC Broadway Fin. Corp. of CA 10.75 10.75 -0.17 -1.88 -2.30 0.21 2.42 2.24 43.23 1.17
CBCO CB Bancorp of Michigan City IN 9.69 9.69 1.11 11.72 7.75 1.31 13.84 1.70 54.83 2.02
CBES CBES Bancorp of MO 17.55 17.55 0.80 7.42 5.09 1.15 10.70 NA NA NA
CCFH CCF Holding Company of GA 21.19 21.19 0.96 5.14 4.53 0.92 4.92 0.92 59.37 0.89
CENF CENFED Financial Corp. of CA 5.04 5.03 0.51 10.37 7.64 0.64 12.98 1.34 49.80 0.94
CFSB CFSB Bancorp of Lansing MI 7.74 7.74 0.70 8.57 5.82 0.98 12.09 0.20 271.42 0.64
CKFB CKF Bancorp of Danville KY 25.22 25.22 1.28 4.72 4.00 1.28 4.72 1.47 13.42 0.22
CNSB CNS Bancorp of MO 24.40 24.40 0.36 2.18 1.33 0.63 3.82 0.33 111.42 0.62
CSBF CSB Financial Group Inc of IL 30.91 30.91 0.92 3.77 3.41 0.92 3.77 0.70 37.37 0.47
CFHC California Fin. Hld. Co. of CA 6.46 6.44 0.37 5.50 3.46 0.62 9.40 1.21 45.60 0.76
CBCI Calumet Bancorp of Chicago IL 16.15 16.15 0.98 5.93 6.35 1.28 7.76 1.29 86.03 1.45
CAFI Camco Fin. Corp. of OH 7.58 7.58 0.78 9.70 8.12 0.88 11.02 0.57 50.44 0.34
CMRN Cameron Fin. Corp. of MO 26.35 26.35 1.60 5.81 6.26 1.56 5.69 0.96 74.48 0.85
CAPS Capital Savings Bancorp of MO 8.45 8.45 0.63 6.34 4.93 0.93 9.47 0.20 141.28 0.38
CFNC Carolina Fincorp of NC* 21.96 21.96 0.88 4.00 3.96 0.88 4.00 0.06 659.32 0.57
CARV Carver FSB of New York, NY 9.48 9.05 -0.03 -0.33 -0.63 0.24 2.52 1.54 16.92 1.03
CASB Cascade SB of Everett WA 6.05 6.05 0.49 7.79 5.92 0.49 7.79 0.51 168.34 1.19
CATB Catskill Fin. Corp. of NY* 29.04 29.04 1.18 6.57 4.18 1.18 6.57 0.61 106.20 1.47
CNIT Cenit Bancorp of Norfolk VA 7.28 7.02 0.50 6.96 4.87 0.55 7.76 0.82 71.39 1.03
CTBK Center Banks, Inc. of NY* 6.56 6.56 0.64 9.21 9.18 0.61 8.77 1.59 54.86 1.03
CEBK Central Co-Op. Bank of MA* 9.83 8.66 0.52 5.32 4.63 0.56 5.76 1.69 53.35 1.25
CJFC Central Jersey Fin. Corp of NJ(8) 12.09 11.31 0.81 6.81 3.76 1.11 9.36 1.39 46.80 1.43
CBSB Charter Financial Inc. of IL 17.39 16.16 1.17 6.86 5.92 1.15 6.77 0.52 130.13 0.94
COFI Charter One Financial of OH 6.59 6.08 0.21 3.26 1.43 1.28 19.42 0.37 129.94 0.84
CVAL Chester Valley Bancorp of PA 8.84 8.84 0.60 6.54 5.41 0.90 9.81 0.76 127.23 1.14
CTZN CitFed Bancorp of Dayton OH 6.37 5.58 0.46 6.84 4.64 0.71 10.50 0.91 71.24 1.12
CLAS Classic Bancshares of KY 13.80 11.54 0.38 1.79 1.98 0.64 3.04 0.86 71.29 1.06
CMSB Cmnwealth Bancorp of PA 10.91 8.37 0.44 4.47 3.02 0.64 6.45 0.41 116.96 0.94
CBSA Coastal Bancorp of Houston TX 3.17 2.61 0.24 7.11 5.84 0.40 12.02 0.59 39.07 0.54
CFCP Coastal Fin. Corp. of SC 6.10 6.10 1.04 17.09 6.14 0.91 14.97 0.15 598.96 1.06
COFD Collective Bancorp Inc. of NJ 6.93 6.49 0.89 12.89 6.59 1.11 15.94 0.43 55.96 0.47
CMSV Commty. Svgs, MHC of FL(47.6) 11.99 11.99 0.89 7.13 5.92 0.90 7.27 0.53 68.77 0.63
CBIN Community Bank Shares of IN 10.85 10.83 0.59 5.15 5.28 0.90 7.88 0.22 117.84 0.46
CBNH Community Bankshares Inc of NH* 7.16 7.16 0.86 11.90 8.49 0.70 9.69 0.38 178.91 1.02
CFTP Community Fed. Bancorp of MS 32.91 32.91 1.14 4.32 2.92 1.44 5.44 0.35 80.00 0.48
</TABLE>
<TABLE>
<CAPTION>
Pricing Ratios Dividend Data(6)
_________________________________________ _______________________
Price/ Price/ Ind. Divi-
Price/ Price/ Price/ Tang. Core Div./ dend Payout
Earning Book Assets Book Earnings Share Yield Ratio(7)
_______ _______ _______ _______ _______ _______ _______ _______
(X) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ATSB AmTrust Capital Corp. of IN 16.06 74.08 7.43 74.08 NM 0.00 0.00 0.00
AHCI Ambanc Holding Co. of NY* NM 76.28 10.81 76.28 NM 0.00 0.00 0.00
ASBI Ameriana Bancorp of IN 22.01 117.78 12.82 117.96 14.75 0.60 3.84 NM
AFFFZ America First Fin. Fund of CA 16.98 115.00 7.93 117.39 10.06 1.60 5.45 NM
AMFB American Federal Bank of SC 14.73 192.31 14.92 208.11 11.80 0.40 2.11 31.01
ANBK American Nat'l Bancorp of MD NM 99.11 9.07 99.11 18.01 0.12 0.98 63.16
ABCW Anchor Bancorp Wisconsin of WI 13.52 145.52 8.50 149.53 9.82 0.50 1.44 19.46
ANDB Andover Bancorp, Inc. of MA* 11.15 142.27 10.99 142.27 10.82 0.60 2.33 25.97
ASFC Astoria Financial Corp. of NY 21.74 132.98 10.36 162.34 14.34 0.44 1.26 27.33
AVND Avondale Fin. Corp. of IL NM 102.70 9.85 102.70 25.00 0.00 0.00 0.00
BFSI BFS Bankorp, Inc. of NY 8.76 161.19 12.58 161.19 7.45 0.00 0.00 0.00
BKCT Bancorp Connecticut of CT* 12.79 135.84 14.74 135.84 12.94 0.80 3.60 45.98
BPLS Bank Plus Corp. of CA NM 129.91 6.18 130.21 NM 0.00 0.00 NM
BWFC Bank West Fin. Corp. of MI 23.37 88.04 15.26 88.04 NM 0.28 2.60 60.87
BANC BankAtlantic Bancorp of FL 13.68 136.99 8.82 147.39 13.54 0.15 1.15 15.79
BKUNA BankUnited SA of FL NM 111.46 6.06 117.92 23.03 0.00 0.00 0.00
BKCO Bankers Corp. of NJ* 11.49 132.01 10.62 134.50 10.10 0.64 3.20 36.78
BVFS Bay View Capital Corp. of CA NM 142.27 8.04 150.74 15.84 0.60 1.45 NM
BFSB Bedford Bancshares of VA 15.79 112.99 16.17 112.99 12.33 0.44 2.44 38.60
BSBC Branford SB of CT* 14.88 157.96 14.42 157.96 14.88 0.08 2.07 30.77
BRFC Bridgeville SB, FSB of PA(8) NM 113.31 32.79 113.31 NM 0.32 2.00 66.67
BYFC Broadway Fin. Corp. of CA NM 64.64 6.95 64.64 NM 0.20 2.19 NM
CBCO CB Bancorp of Michigan City IN 12.90 145.38 14.09 145.38 10.92 1.30 5.36 69.15
CBES CBES Bancorp of MO 19.64 83.03 14.57 83.03 13.61 0.00 0.00 0.00
CCFH CCF Holding Company of GA 22.06 100.94 21.39 100.94 23.08 0.40 2.67 58.82
CENF CENFED Financial Corp. of CA 13.08 131.15 6.61 131.39 10.45 0.36 1.29 16.82
CFSB CFSB Bancorp of Lansing MI 17.19 147.85 11.44 147.85 12.18 0.48 2.49 42.86
CKFB CKF Bancorp of Danville KY 25.00 123.05 31.03 123.05 25.00 0.44 2.23 55.70
CNSB CNS Bancorp of MO NM 102.74 25.07 102.74 NM 0.20 1.33 NM
CSBF CSB Financial Group Inc of IL NM 85.16 26.32 85.16 NM 0.00 0.00 0.00
CFHC California Fin. Hld. Co. of CA NM 157.97 10.20 158.49 16.92 0.44 1.52 44.00
CBCI Calumet Bancorp of Chicago IL 15.76 97.43 15.73 97.43 12.04 0.00 0.00 0.00
CAFI Camco Fin. Corp. of OH 12.31 117.67 8.92 117.67 10.83 0.46 2.83 34.85
CMRN Cameron Fin. Corp. of MO 15.98 95.33 25.12 95.33 16.32 0.28 1.81 28.87
CAPS Capital Savings Bancorp of MO 20.29 134.49 11.36 134.49 13.59 0.24 1.71 34.78
CFNC Carolina Fincorp of NC* NM 101.00 22.18 101.00 NM 0.00 0.00 0.00
CARV Carver FSB of New York, NY NM 53.48 5.07 56.02 21.05 0.00 0.00 NM
CASB Cascade SB of Everett WA 16.88 129.48 7.83 129.48 16.88 0.00 0.00 0.00
CATB Catskill Fin. Corp. of NY* 23.91 95.72 27.80 95.72 23.91 0.00 0.00 0.00
CNIT Cenit Bancorp of Norfolk VA 20.55 134.33 9.77 139.28 18.43 1.00 2.55 52.36
CTBK Center Banks, Inc. of NY* 10.89 96.07 6.30 96.07 11.43 0.40 2.48 27.03
CEBK Central Co-Op. Bank of MA* 21.61 112.70 11.08 127.92 19.97 0.32 1.74 37.65
CJFC Central Jersey Fin. Corp of NJ(8) NM 178.23 21.54 190.45 19.33 1.26 3.36 NM
CBSB Charter Financial Inc. of IL 16.89 95.49 16.60 102.71 17.12 0.24 1.92 32.43
COFI Charter One Financial of OH NM 200.82 13.23 217.45 11.71 0.92 2.35 NM
CVAL Chester Valley Bancorp of PA 18.50 120.44 10.64 120.44 12.33 0.44 2.38 44.00
CTZN CitFed Bancorp of Dayton OH 21.56 145.90 9.29 166.57 14.03 0.32 1.08 23.19
CLAS Classic Bancshares of KY NM 81.72 11.28 97.73 NM 0.24 2.07 NM
CMSB Cmnwealth Bancorp of PA NM 112.47 12.27 146.60 22.98 0.24 1.68 55.81
CBSA Coastal Bancorp of Houston TX 17.14 123.88 3.93 150.40 10.14 0.40 1.77 30.30
CFCP Coastal Fin. Corp. of SC 16.28 NM 15.94 NM 18.58 0.44 2.10 34.11
COFD Collective Bancorp Inc. of NJ 15.18 190.26 13.19 203.23 12.27 1.00 2.94 44.64
CMSV Commty. Svgs, MHC of FL(47.6) 16.90 118.58 14.22 118.58 16.59 0.80 4.38 74.07
CBIN Community Bank Shares of IN 18.94 97.43 10.57 97.58 12.38 0.34 2.72 51.52
CBNH Community Bankshares Inc of NH* 11.77 125.15 8.96 125.15 14.46 0.64 3.16 37.21
CFTP Community Fed. Bancorp of MS NM 109.18 35.93 109.18 NM 0.30 1.75 60.00
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
<TABLE>
<CAPTION>
(continued)
Weekly Thrift Market Line - Part Two
Prices As Of December 13, 1996
Key Financial Ratios Asset Quality Ratios
---------------------------------------------------------- -----------------------
Tang. Reported Earnings Core Earnings
Equity/ Equity/ ---------------------- --------------- NPAs Resvs/ Resvs/
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
CFFC Community Fin. Corp. of VA 13.92 13.92 1.03 7.49 6.10 1.30 9.48 0.20 317.33 0.72
CIBI Community Inv. Bancorp of OH 11.94 11.94 0.68 5.05 5.37 0.98 7.29 0.88 53.98 0.64
COOP Cooperative Bk. for Svgs. of NC 7.70 7.70 -1.14 -12.66 -11.76 -0.08 -0.84 0.42 56.37 0.31
CNSK Covenant Bank for Svgs. of NJ* 5.35 5.35 0.29 5.54 3.00 0.52 9.85 1.62 48.97 1.35
CRZY Crazy Woman Creek Bncorp of WY 30.03 30.03 0.80 3.09 2.89 1.04 3.99 0.12 452.46 1.06
DNFC D&N Financial Corp. of MI 5.55 5.47 0.71 12.74 7.74 0.93 16.60 0.66 112.57 0.94
DSBC DS Bancor Inc. of Derby CT(8)* 6.87 6.67 0.74 11.24 7.18 0.69 10.46 2.02 28.99 0.83
DFIN Damen Fin. Corp. of Chicago IL 22.54 22.54 0.77 3.66 3.65 1.00 4.75 0.15 98.29 0.38
DCBI Delphos Citizens Bancorp of OH 26.51 26.51 1.36 5.12 6.11 1.36 5.12 0.40 25.92 0.14
DIME Dime Community Bancorp of NY 17.55 15.26 0.52 3.13 3.09 0.65 3.94 1.03 68.42 1.41
DIBK Dime Financial Corp. of CT* 8.58 8.23 1.76 21.77 13.09 1.89 23.48 1.01 197.32 3.33
EGLB Eagle BancGroup of IL 13.33 13.33 -0.44 -5.05 -3.92 -0.08 -0.97 1.76 31.80 0.87
EBSI Eagle Bancshares of Tucker GA 8.95 8.95 0.65 7.91 6.24 0.87 10.51 1.06 53.91 0.84
EGFC Eagle Financial Corp. of CT 7.19 5.27 1.03 14.06 10.64 0.63 8.64 1.22 50.16 1.04
ETFS East Texas Fin. Serv. of TX 18.92 18.92 0.81 4.18 5.11 0.74 3.82 0.23 106.64 0.62
EBCP Eastern Bancorp of NH(8) 7.32 6.91 0.39 5.21 3.98 0.53 7.06 1.38 23.81 0.58
ESBK Elmira SB of Elmira NY* 6.38 6.10 0.18 2.90 3.41 0.17 2.70 0.93 72.34 0.89
EIRE Emerald Island Bancorp, MA* 6.83 6.83 0.59 8.77 6.43 0.63 9.43 0.23 281.89 1.04
EFBI Enterprise Fed. Bancorp of OH 14.77 14.75 0.92 5.37 6.21 0.63 3.70 0.04 510.67 0.27
EQSB Equitable FSB of Wheaton MD 5.30 5.30 0.78 14.99 12.34 0.78 14.90 1.00 21.61 0.31
FFFG F.F.O. Financial Group of FL 6.04 6.04 0.20 3.17 2.55 0.62 9.95 2.94 55.67 2.35
FCBF FCB Fin. Corp. of Neenah WI 17.28 17.28 0.91 4.91 5.07 1.11 6.04 0.11 408.42 0.52
FFBS FFBS Bancorp of Columbus MS 19.59 19.59 1.08 5.51 3.70 1.40 7.13 0.63 83.16 0.77
FFDF FFD Financial Corp. of OH 25.07 25.07 0.68 3.69 2.59 0.95 5.10 0.15 116.80 0.29
FFLC FFLC Bancorp of Leesburg FL 16.22 16.22 0.63 3.72 4.05 0.97 5.72 0.23 133.73 0.48
FFFC FFVA Financial Corp. of VA 14.86 14.55 1.03 6.31 4.99 1.31 7.97 0.44 143.89 1.04
FFWC FFW Corporation of Wabash IN 10.01 10.01 0.90 8.36 8.59 1.08 10.09 0.10 312.66 0.48
FFYF FFY Financial Corp. of OH 16.97 16.97 0.82 4.56 3.59 1.26 7.01 0.84 69.96 0.78
FMCO FMS Financial Corp. of NJ 6.53 6.38 0.52 7.93 6.16 0.87 13.26 1.18 45.42 0.91
FFHH FSF Financial Corp. of MN 13.44 13.44 0.51 3.25 3.23 0.71 4.54 0.06 354.34 0.36
FMLY Family Bancorp of Haverhill MA(8)* 7.95 7.35 0.86 11.09 5.18 0.90 11.59 0.68 112.19 1.48
FOBC Fed One Bancorp of Wheeling WV 11.67 11.08 0.70 5.75 5.89 1.00 8.17 0.27 151.30 1.07
FFRV Fid. Fin. Bkshrs. Corp. of VA(8) 8.43 8.42 0.66 7.78 3.79 0.94 11.07 1.14 84.83 1.16
FBCI Fidelity Bancorp of Chicago IL 10.26 10.23 0.50 4.18 4.38 0.74 6.24 0.67 25.45 0.23
FSBI Fidelity Bancorp, Inc. of PA 6.85 6.84 0.44 5.99 5.05 0.77 10.47 0.53 90.64 1.00
FFFL Fidelity FSB, MHC of FL(47.2) 9.36 9.27 0.39 3.94 2.72 0.65 6.45 0.40 65.32 0.34
FFED Fidelity Fed. Bancorp of IN 4.79 4.79 0.31 6.17 3.58 0.40 7.99 0.17 415.56 0.83
FFOH Fidelity Financial of OH 19.85 19.85 0.60 3.45 3.17 0.91 5.18 0.42 77.55 0.43
FIBC Financial Bancorp of NY 9.67 9.61 0.46 4.29 4.41 0.85 7.98 3.44 17.16 1.11
FBSI First Bancshares of MO 14.77 14.74 0.66 3.98 4.73 0.95 5.72 0.65 52.74 0.43
FBBC First Bell Bancorp of PA 18.43 18.43 1.41 6.72 6.19 1.63 7.74 0.10 114.26 0.13
FBER First Bergen Bancorp of NJ 17.03 17.03 0.12 0.91 0.75 0.59 4.55 NA NA 2.71
FCIT First Cit. Fin. Corp of MD 5.92 5.92 0.46 7.45 5.28 0.66 10.62 2.58 41.67 1.50
FFBA First Colorado Bancorp of Co 16.33 16.12 1.09 8.24 4.74 1.09 8.24 0.22 102.47 0.32
FDEF First Defiance Fin.Corp. of OH 23.01 23.01 0.93 3.75 4.06 1.21 4.90 0.23 168.53 0.49
FESX First Essex Bancorp of MA* 7.44 7.44 0.97 13.15 10.02 0.84 11.29 0.55 140.92 1.18
FFES First FS&LA of E. Hartford CT 6.12 6.10 0.44 6.92 6.70 0.67 10.51 0.65 42.48 1.53
FSSB First FS&LA of San Bern. CA 4.69 4.48 -1.07 -20.30 NM -1.24 -23.65 3.02 35.25 1.49
FFSX First FS&LA. MHC of IA (45.0) 7.97 7.90 0.40 4.87 3.11 0.69 8.44 0.13 288.03 0.54
FFML First Family Fin. Corp. of FL(8) 5.92 5.92 0.41 7.44 5.41 0.02 0.31 0.46 95.51 0.63
FFSW First Fed Fin. Serv. of OH 5.37 4.38 0.74 13.47 5.26 0.82 14.91 0.16 155.53 0.35
BDJI First Fed. Bancorp. of MN 11.49 11.49 0.31 2.22 2.50 0.68 4.94 0.38 112.10 0.88
FFBH First Fed. Bancshares of AR 16.35 16.35 0.63 5.48 3.63 0.95 8.32 0.15 159.31 0.31
FFEC First Fed. Bancshares of WI(8) 13.42 12.91 0.69 4.76 3.65 0.91 6.25 0.03 398.60 0.16
FTFC First Fed. Capital Corp. of WI 6.34 5.98 0.70 10.32 6.50 0.77 11.38 0.12 467.72 0.76
FFKY First Fed. Fin. Corp. of KY 13.80 12.90 1.24 8.81 5.35 1.41 10.01 0.54 92.15 0.57
<CAPTION>
Pricing Ratios Dividend Data(6)
---------------------------------------- -------------------------
Price/ Price/ Ind. Divi-
Price/ Price/ Price/ Tang. Core Div./ dend Payout
Financial Institution Earning Book Assets Book Earnings Share Yield Ratio(7)
- --------------------- ------- ------- -------- ------ -------- ------ ------- ---------
(X) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CFFC Community Fin. Corp. of VA 16.41 119.39 16.61 119.39 12.96 0.52 2.48 40.63
CIBI Community Inv. Bancorp of OH 18.61 98.53 11.77 98.53 12.88 0.40 2.39 44.44
COOP Cooperative Bk. for Svgs. of NC NM 121.37 9.35 121.37 NM 0.00 0.00 NM
CNSK Covenant Bank for Svgs. of NJ* NM 158.94 8.50 158.94 18.75 0.00 0.00 0.00
CRZY Crazy Woman Creek Bncorp of WY NM 80.37 24.13 80.37 NM 0.40 3.40 NM
DNFC D&N Financial Corp. of MI 12.92 149.22 8.28 151.28 9.92 0.00 0.00 0.00
DSBC DS Bancor Inc. of Derby CT(8)* 13.93 148.97 10.23 153.32 14.96 0.24 0.56 7.87
DFIN Damen Fin. Corp. of Chicago IL NM 91.80 20.69 91.80 21.10 0.24 1.86 51.06
DCBI Delphos Citizens Bancorp of OH 16.36 83.73 22.19 83.73 16.36 0.00 0.00 0.00
DIME Dime Community Bancorp of NY NM 100.54 17.65 115.63 NM 0.00 0.00 0.00
DIBK Dime Financial Corp. of CT* 7.64 151.12 12.97 157.66 7.09 0.32 1.83 13.97
EGLB Eagle BancGroup of IL NM 79.10 10.54 79.10 NM 0.00 0.00 NM
EBSI Eagle Bancshares of Tucker GA 16.02 107.92 9.65 107.92 12.05 0.60 4.41 70.59
EGFC Eagle Financial Corp. of CT 9.40 128.87 9.27 175.73 15.29 0.92 3.20 30.07
ETFS East Texas Fin. Serv. of TX 19.58 84.46 15.98 84.46 21.38 0.20 1.23 24.10
EBCP Eastern Bancorp of NH(8) NM 129.93 9.51 137.59 18.54 0.56 2.48 62.22
ESBK Elmira SB of Elmira NY* NM 85.30 5.44 89.19 NM 0.64 3.76 NM
EIRE Emerald Island Bancorp, MA* 15.55 121.87 8.33 121.87 14.45 0.28 1.51 23.53
EFBI Enterprise Fed. Bancorp of OH 16.11 95.21 14.06 95.33 23.39 0.00 0.00 0.00
EQSB Equitable FSB of Wheaton MD 8.11 113.16 5.99 113.16 8.16 0.00 0.00 0.00
FFFG F.F.O. Financial Group of FL NM 123.32 7.45 123.32 12.50 0.00 0.00 0.00
FCBF FCB Fin. Corp. of Neenah WI 19.74 99.10 17.13 99.10 16.03 0.72 3.84 NM
FFBS FFBS Bancorp of Columbus MS NM 146.59 28.72 146.59 20.91 0.50 2.17 58.82
FFDF FFD Financial Corp. of OH NM 89.13 22.34 89.13 NM 0.20 1.52 58.82
FFLC FFLC Bancorp of Leesburg FL 24.70 93.84 15.22 93.84 16.07 0.40 1.98 48.78
FFFC FFVA Financial Corp. of VA 20.05 135.52 20.14 138.44 15.86 0.40 1.88 37.74
FFWC FFW Corporation of Wabash IN 11.64 99.82 9.99 99.82 9.65 0.60 2.73 31.75
FFYF FFY Financial Corp. of OH NM 129.48 21.97 129.48 18.09 0.70 2.71 NM
FMCO FMS Financial Corp. of NJ 16.23 126.70 8.27 129.63 9.70 0.20 1.15 18.69
FFHH FSF Financial Corp. of MN NM 108.54 14.58 108.54 22.19 0.50 3.36 NM
FMLY Family Bancorp of Haverhill MA(8)* 19.31 203.19 16.14 219.68 18.48 0.48 1.40 26.97
FOBC Fed One Bancorp of Wheeling WV 16.97 100.81 11.77 106.19 11.94 0.58 3.60 61.05
FFRV Fid. Fin. Bkshrs. Corp. of VA(8) NM 200.91 16.93 201.08 18.51 0.20 0.82 21.74
FBCI Fidelity Bancorp of Chicago IL 22.83 100.47 10.31 100.82 15.29 0.24 1.40 32.00
FSBI Fidelity Bancorp, Inc. of PA 19.79 119.80 8.21 120.03 11.31 0.32 1.68 33.33
FFFL Fidelity FSB, MHC of FL(47.2) NM 144.47 13.53 145.94 22.40 0.80 4.64 NM
FFED Fidelity Fed. Bancorp of IN NM 188.87 9.05 188.87 21.59 0.80 8.42 NM
FFOH Fidelity Financial of OH NM 91.25 18.12 91.25 21.06 0.20 1.76 55.56
FIBC Financial Bancorp of NY 22.66 100.69 9.73 101.26 12.18 0.30 2.07 46.88
FBSI First Bancshares of MO 21.15 87.30 12.90 87.49 14.73 0.20 1.21 25.64
FBBC First Bell Bancorp of PA 16.16 116.70 21.51 116.70 14.04 0.40 2.50 40.40
FBER First Bergen Bancorp of NJ NM 89.49 15.24 89.49 NM 0.12 1.00 NM
FCIT First Cit. Fin. Corp of MD 18.94 138.79 8.21 138.79 13.30 0.00 0.00 0.00
FFBA First Colorado Bancorp of Co 21.08 135.87 22.18 137.58 21.08 0.32 1.83 38.55
FDEF First Defiance Fin.Corp. of OH 24.61 99.10 22.80 99.10 18.84 0.28 2.32 57.14
FESX First Essex Bancorp of MA* 9.98 125.30 9.32 125.30 11.63 0.48 3.59 35.82
FFES First FS&LA of E. Hartford CT 14.94 104.31 6.38 104.55 9.83 0.60 2.61 38.96
FSSB First FS&LA of San Bern. CA NM 62.67 2.94 65.65 NM 0.00 0.00 NM
FFSX First FS&LA. MHC of IA (45.0) NM 156.01 12.43 157.47 18.56 0.72 2.38 NM
FFML First Family Fin. Corp. of FL(8) 18.49 130.02 7.69 130.02 NM 0.00 0.00 0.00
FFSW First Fed Fin. Serv. of OH 19.02 236.36 12.68 NM 17.18 0.48 1.23 23.41
BDJI First Fed. Bancorp. of MN NM 102.39 11.76 102.39 18.00 0.00 0.00 0.00
FFBH First Fed. Bancshares of AR NM 98.95 16.18 98.95 18.18 0.00 0.00 0.00
FFEC First Fed. Bancshares of WI(8) NM 128.73 17.28 133.79 20.88 0.28 1.52 41.79
FTFC First Fed. Capital Corp. of WI 15.38 158.94 10.08 168.54 13.95 0.64 2.67 41.03
FFKY First Fed. Fin. Corp. of KY 18.69 163.83 22.61 175.32 16.45 0.48 2.49 46.60
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
(continued)
Weekly Thrift Market Line - Part Two
Prices As Of December 13, 1996
<TABLE>
<CAPTION>
Key Financial Ratios Asset Quality Ratios
---------------------------------------------------------- -----------------------
Tang. Reported Earnings Core Earnings
Equity/ Equity/ ---------------------- ---------------- NPAs Resvs/ Resvs/
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
FFBZ First Federal Bancorp of OH 7.59 7.58 0.81 10.59 5.69 1.10 14.32 0.50 174.92 1.00
FFWM First Fin. Corp of Western MD 11.69 11.69 0.86 7.04 4.22 1.19 9.77 1.75 129.77 2.82
FFCH First Fin. Holdings Inc. of SC 6.13 6.13 0.48 7.44 4.77 0.81 12.41 1.28 56.63 0.87
FFBI First Financial Bancorp of IL 7.73 7.73 0.12 1.27 1.39 0.37 4.03 0.43 106.97 0.61
FFHC First Financial Corp. of WI 7.17 6.92 0.90 12.68 5.82 1.27 17.80 0.29 147.30 0.67
FFHS First Franklin Corp. of OH 9.05 8.97 0.28 2.99 3.25 0.62 6.61 0.52 81.80 0.62
FGHC First Georgia Hold. Corp of GA 8.31 7.39 0.87 10.71 6.96 0.87 10.71 1.34 51.51 0.82
FSPG First Home SB, SLA of NJ 6.46 6.31 0.91 14.05 10.72 1.11 17.07 0.78 98.58 1.42
FFSL First Independence Corp. of KS 11.98 11.98 0.78 6.21 7.14 1.06 8.39 0.57 112.38 1.01
FISB First Indiana Corp. of IN 9.10 8.97 0.90 10.21 6.35 1.03 11.72 1.76 63.33 1.34
FKFS First Keystone Fin. Corp of PA 7.85 7.85 0.31 3.74 3.40 0.67 8.09 2.28 39.11 1.52
FLKY First Lancaster Bncshrs of KY 35.68 35.68 0.70 1.52 1.74 0.99 2.14 0.83 31.75 0.31
FLFC First Liberty Fin. Corp. of GA 6.90 5.84 1.03 15.28 8.65 0.83 12.23 1.22 66.75 1.09
CASH First Midwest Fin. Corp. of IA 11.41 10.66 1.05 8.17 7.11 1.03 8.07 0.20 268.44 0.81
FMBD First Mutual Bancorp of IL 19.93 19.93 0.47 1.94 2.35 0.72 2.99 0.14 275.66 0.46
FMSB First Mutual SB of Bellevue WA* 6.61 6.61 1.02 15.36 8.61 0.98 14.77 0.12 723.09 1.07
FNGB First Northern Cap. Corp of WI 11.41 11.41 0.53 4.29 4.38 0.82 6.62 0.12 377.58 0.51
FFPB First Palm Beach Bancorp of FL 7.08 6.89 0.04 0.51 0.48 0.12 1.48 NA NA 1.16
FSNJ First SB of NJ, MHC (45.0) 7.53 7.53 0.19 2.28 2.20 0.43 5.10 0.91 51.83 1.27
FSLA First SB, SLA MHC of NJ (37.6) 9.26 8.11 0.47 5.02 3.50 0.86 9.08 0.75 70.10 1.01
SOPN First SB, SSB, Moore Co. of NC 25.46 25.46 1.26 4.87 4.83 1.57 6.05 0.10 224.72 0.33
FWWB First Savings Bancorp of WA* 15.77 14.47 1.01 5.45 3.57 1.01 5.45 0.21 311.17 1.08
SHEN First Shenango Bancorp of PA 12.00 12.00 0.75 5.69 5.24 1.02 7.72 0.50 140.23 1.04
FSFC First So.east Fin. Corp. of SC 10.06 10.06 -0.04 -0.24 -0.32 0.85 5.30 0.07 577.21 0.50
FSFI First State Fin. Serv. of NJ(8) 6.00 5.67 0.01 0.19 0.13 -0.12 -1.79 4.24 32.21 1.67
FFDP FirstFed Bancshares of IL 8.57 8.16 0.24 2.62 2.63 0.29 3.21 0.14 167.24 0.37
FLAG Flag Financial Corp of GA 8.80 8.80 -0.07 -0.77 -0.73 0.11 1.15 3.67 52.67 2.77
FFPC Florida First Bancorp of FL(8) 6.99 6.99 0.58 8.57 4.57 0.86 12.69 0.78 149.50 2.01
FFIC Flushing Fin. Corp. of NY* 17.51 17.51 0.85 5.06 3.79 0.80 4.78 0.71 95.82 1.46
FBHC Fort Bend Holding Corp. of TX 6.18 5.70 0.27 3.82 3.38 0.58 8.29 1.31 43.41 1.29
FTSB Fort Thomas Fin. Corp. of KY 24.35 24.35 1.33 5.37 5.19 1.33 5.37 1.27 28.12 0.42
FKKY Frankfort First Bancorp of KY 26.30 26.30 0.81 2.52 2.81 1.09 3.39 0.16 48.04 0.09
FTNB Fulton Bancorp of MO 22.80 22.80 1.10 4.81 4.51 1.06 4.67 0.92 99.36 1.02
GFSB GFS Bancorp of Grinnell IA 11.56 11.56 0.91 7.59 7.08 1.20 10.02 1.63 49.75 0.92
GUPB GFSB Bancorp of Gallup NM 18.50 18.50 0.81 3.56 3.91 1.03 4.53 0.25 159.18 0.75
GWBC Gateway Bancorp of KY 25.07 25.07 0.83 3.26 3.72 1.14 4.47 0.45 25.80 0.44
GBCI Glacier Bancorp of MT 9.45 9.44 1.37 14.32 6.89 1.54 16.10 0.29 173.40 0.70
GLBK Glendale Co-op. Bank of MA* 15.85 15.85 0.79 4.97 5.80 0.66 4.16 0.30 96.33 0.70
GFCO Glenway Financial Corp. of OH 9.61 9.40 0.56 5.90 7.05 0.57 5.99 0.41 52.03 0.27
GTPS Great American Bancorp of IL 27.85 27.85 0.69 2.42 2.90 0.68 2.36 0.13 192.81 0.35
GTFN Great Financial Corp. of KY 9.66 9.26 0.70 6.47 4.36 0.71 6.57 3.23 14.46 0.65
GSBC Great Southern Bancorp of MO 10.12 10.12 1.35 13.44 5.91 1.54 15.28 1.83 121.83 2.59
GDVS Greater DV SB, MHC of PA(19.9)* 11.69 11.69 -0.21 -1.72 -1.50 0.10 0.80 2.91 45.73 2.22
GRTR Greater New York SB of NY* 5.97 5.97 0.42 7.32 5.93 0.37 6.50 7.90 9.80 1.94
GSFC Green Street Fin. Corp. of NC 35.29 35.29 1.18 5.35 3.12 1.48 6.68 0.20 68.31 0.19
GROV GroveBank for Savings of MA(8)* 6.50 6.49 0.90 14.23 6.86 0.84 13.34 0.58 100.00 0.77
GFED Guaranty FS&LA,MHC of MO(31.1) 14.49 14.49 0.62 4.23 3.17 0.50 3.41 1.57 73.15 1.47
GSLC Guaranty Svgs & Loan FA of VA 5.50 5.50 0.44 7.28 6.06 0.51 8.44 NA NA 0.91
HEMT HF Bancorp of Hemet CA 7.94 7.94 -0.08 -0.74 -0.91 -0.10 -0.97 0.95 64.23 1.37
HFFC HF Financial Corp. of SD 8.99 8.96 0.60 6.61 6.97 0.75 8.33 0.59 127.45 0.96
HFNC HFNC Financial Corp. of NC 29.31 29.31 1.02 3.72 2.57 1.28 4.68 1.15 80.19 1.39
HMNF HMN Financial, Inc. of MN 14.80 14.80 0.80 4.93 5.15 0.94 5.77 0.08 531.92 0.65
HALL Hallmark Capital Corp. of WI 7.01 7.01 0.41 5.32 5.56 0.56 7.17 0.05 715.63 0.56
HARB Harbor FSB, MHC of FL (45.7) 8.02 7.68 0.90 10.52 5.47 1.21 14.19 0.50 208.24 1.41
HRBF Harbor Federal Bancorp of MD 12.85 12.85 0.27 1.71 1.85 0.56 3.60 0.43 41.21 0.28
HFSA Hardin Bancorp of Hardin MO 16.78 16.78 0.44 2.40 2.99 0.78 4.28 0.19 90.18 0.29
<CAPTION>
Pricing Ratios Dividend Data(6)
----------------------------------------- -----------------------
Price/ Price/ Ind. Divi-
Price/ Price/ Price/ Tang. Core Div./ dend Payout
Financial Institution Earning Book Assets Book Earnings Share Yield Ratio(7)
- --------------------- ------- ------- ------- ------- ------- ------- ------- -------
(X) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FFBZ First Federal Bancorp of OH 17.58 179.37 13.62 179.78 13.01 0.24 1.50 26.37
FFWM First Fin. Corp of Western MD 23.69 167.02 19.52 167.02 17.07 0.48 1.51 35.82
FFCH First Fin. Holdings Inc. of SC 20.95 155.94 9.56 155.94 12.57 0.72 3.10 64.86
FFBI First Financial Bancorp of IL NM 95.49 7.38 95.49 22.67 0.00 0.00 0.00
FFHC First Financial Corp. of WI 17.17 212.53 15.24 220.08 12.23 0.75 2.63 45.18
FFHS First Franklin Corp. of OH NM 93.73 8.49 94.56 13.91 0.32 2.00 61.54
FGHC First Georgia Hold. Corp of GA 14.37 145.85 12.11 163.88 14.37 0.08 0.93 13.33
FSPG First Home SB, SLA of NJ 9.33 125.81 8.13 128.71 7.68 0.48 2.46 22.97
FFSL First Independence Corp. of KS 14.01 87.98 10.54 87.98 10.38 0.40 2.04 28.57
FISB First Indiana Corp. of IN 15.74 156.44 14.24 158.68 13.71 0.56 2.20 34.57
FKFS First Keystone Fin. Corp of PA NM 111.92 8.78 111.92 13.61 0.20 1.00 29.41
FLKY First Lancaster Bncshrs of KY NM 110.09 39.28 110.09 NM 0.00 0.00 0.00
FLFC First Liberty Fin. Corp. of GA 11.56 162.42 11.20 191.71 14.45 0.40 2.16 25.00
CASH First Midwest Fin. Corp. of IA 14.06 112.81 12.87 120.79 14.22 0.54 2.18 30.68
FMBD First Mutual Bancorp of IL NM 90.67 18.07 90.67 NM 0.32 2.15 NM
FMSB First Mutual SB of Bellevue WA* 11.61 166.82 11.02 166.82 12.08 0.20 1.11 12.90
FNGB First Northern Cap. Corp of WI 22.86 101.01 11.53 101.01 14.81 0.60 3.75 NM
FFPB First Palm Beach Bancorp of FL NM 111.11 7.86 114.14 NM 0.40 1.74 NM
FSNJ First SB of NJ, MHC (45.0) NM 107.75 8.12 107.75 20.29 0.50 2.90 NM
FSLA First SB, SLA MHC of NJ (37.6) NM 142.97 13.23 163.19 15.79 0.36 2.00 57.14
SOPN First SB, SSB, Moore Co. of NC 20.69 100.56 25.60 100.56 16.67 0.68 3.78 NM
FWWB First Savings Bancorp of WA* NM 134.74 21.25 146.83 NM 0.20 1.08 30.30
SHEN First Shenango Bancorp of PA 19.07 110.19 13.23 110.19 14.06 0.48 2.13 40.68
FSFC First So.east Fin. Corp. of SC NM 125.83 12.66 125.83 14.18 0.20 2.11 NM
FSFI First State Fin. Serv. of NJ(8) NM 147.49 8.85 156.09 NM 0.22 1.47 NM
FFDP FirstFed Bancshares of IL NM 106.28 9.10 111.52 NM 0.40 2.39 NM
FLAG Flag Financial Corp of GA NM 111.22 9.79 111.22 NM 0.34 3.09 NM
FFPC Florida First Bancorp of FL(8) 21.87 185.78 12.99 185.78 14.77 0.24 2.11 46.15
FFIC Flushing Fin. Corp. of NY* NM 119.20 20.88 119.20 NM 0.16 0.85 22.54
FBHC Fort Bend Holding Corp. of TX NM 114.17 7.05 123.60 13.62 0.28 1.15 34.15
FTSB Fort Thomas Fin. Corp. of KY 19.26 103.64 25.24 103.64 19.26 0.25 1.75 33.78
FKKY Frankfort First Bancorp of KY NM 115.55 30.38 115.55 NM 0.36 3.17 NM
FTNB Fulton Bancorp of MO 22.19 106.82 24.36 106.82 22.88 0.00 0.00 0.00
GFSB GFS Bancorp of Grinnell IA 14.12 105.92 12.25 105.92 10.70 0.40 1.93 27.21
GUPB GFSB Bancorp of Gallup NM NM 96.95 17.94 96.95 20.09 0.40 2.52 64.52
GWBC Gateway Bancorp of KY NM 92.71 23.24 92.71 19.59 0.40 2.76 74.07
GBCI Glacier Bancorp of MT 14.52 202.51 19.14 202.69 12.91 0.64 2.74 39.75
GLBK Glendale Co-op. Bank of MA* 17.24 84.35 13.37 84.35 20.62 0.00 0.00 0.00
GFCO Glenway Financial Corp. of OH 14.18 81.65 7.84 83.44 13.97 0.68 3.58 50.75
GTPS Great American Bancorp of IL NM 84.84 23.63 84.84 NM 0.40 2.76 NM
GTFN Great Financial Corp. of KY 22.93 151.12 14.59 157.58 22.57 0.48 1.65 37.80
GSBC Great Southern Bancorp of MO 16.91 226.38 22.90 226.38 14.87 0.40 2.32 39.22
GDVS Greater DV SB, MHC of PA(19.9)* NM 120.48 14.09 120.48 NM 0.36 3.60 NM
GRTR Greater New York SB of NY* 16.88 118.42 7.07 118.42 19.01 0.20 1.48 25.00
GSFC Green Street Fin. Corp. of NC NM 106.22 37.49 106.22 NM 0.40 2.60 NM
GROV GroveBank for Savings of MA(8)* 14.58 194.84 12.66 194.92 15.54 0.72 1.47 21.36
GFED Guaranty FS&LA,MHC of MO(31.1) NM 133.92 19.40 133.92 NM 0.36 3.17 NM
GSLC Guaranty Svgs & Loan FA of VA 16.50 119.57 6.58 119.57 14.22 0.10 1.21 20.00
HEMT HF Bancorp of Hemet CA NM 86.61 6.88 86.61 NM 0.00 0.00 NM
HFFC HF Financial Corp. of SD 14.35 96.38 8.66 96.66 11.38 0.36 2.18 31.30
HFNC HFNC Financial Corp. of NC NM 124.01 36.35 124.01 NM 0.28 1.57 60.87
HMNF HMN Financial, Inc. of MN 19.41 101.96 15.09 101.96 16.59 0.00 0.00 0.00
HALL Hallmark Capital Corp. of WI 17.98 93.52 6.56 93.52 13.35 0.00 0.00 0.00
HARB Harbor FSB, MHC of FL (45.7) 18.29 186.15 14.93 194.29 13.56 1.20 3.75 68.57
HRBF Harbor Federal Bancorp of MD NM 96.49 12.40 96.49 NM 0.40 2.65 NM
HFSA Hardin Bancorp of Hardin MO NM 84.38 14.16 84.38 18.74 0.40 3.23 NM
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
(continued)
Weekly Thrift Market Line - Part Two
Prices As Of December 13, 1996
<TABLE>
<CAPTION>
Key Financial Ratios Asset Quality Ratios
---------------------------------------------------------- ------------------------
Tang. Reported Earnings Core Earnings
Equity/ Equity/ ---------------------- ---------------- NPAs Resvs/ Resvs/
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans)
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
HARL Harleysville SA of PA 6.22 6.22 0.54 8.12 6.45 0.88 13.09 0.09 602.74 0.75
HARS Harris SB, MHC of PA (23.1) 8.56 7.22 0.02 0.23 0.17 0.49 4.58 0.75 63.17 0.84
HFFB Harrodsburg 1st Fin Bcrp of KY 28.14 28.14 1.17 4.61 3.08 1.17 4.61 0.58 46.70 0.39
HHFC Harvest Home Fin. Corp. of OH 16.72 16.72 0.74 4.13 5.78 0.74 4.13 0.19 75.00 0.26
HAVN Haven Bancorp of Woodhaven NY 6.00 5.97 0.57 9.09 6.98 0.86 13.74 1.01 64.99 1.38
HVFD Haverfield Corp. of OH 7.87 7.86 0.40 4.91 3.89 0.84 10.36 0.28 276.81 0.94
HTHR Hawthorne Fin. Corp. of CA 3.85 3.85 0.82 21.28 32.53 0.57 14.69 10.58 17.32 2.16
HBNK Highland Federal Bank of CA 7.13 7.13 -0.09 -1.31 -1.05 0.22 3.12 3.30 46.96 2.00
HIFS Hingham Inst. for Sav. of MA* 9.70 9.70 1.07 10.69 8.51 1.07 10.69 0.78 88.21 0.90
HNFC Hinsdale Financial Corp. of IL 8.52 8.28 0.45 5.68 4.70 0.68 8.52 0.17 211.76 0.41
HBEI Home Bancorp of Elgin IL 26.71 26.71 0.13 0.80 0.47 0.68 4.14 0.49 50.03 0.35
HBFW Home Bancorp of Fort Wayne IN 15.50 15.50 0.84 5.00 4.92 0.84 5.00 0.04 NA 0.57
HBBI Home Building Bancorp of IN 12.92 12.92 -0.32 -2.31 -2.44 0.02 0.16 0.35 51.68 0.27
HOMF Home Fed Bancorp of Seymour IN 8.16 7.86 0.98 12.02 7.63 1.16 14.25 0.46 108.25 0.58
HWEN Home Financial Bancorp of IN 20.03 20.03 0.50 4.10 2.77 0.72 5.92 0.96 44.47 0.58
HPBC Home Port Bancorp, Inc. of MA* 10.41 10.41 1.73 15.77 9.72 1.74 15.87 0.40 307.31 1.54
HMCI Homecorp, Inc. of Rockford IL 6.00 6.00 0.10 1.59 1.63 0.33 5.44 3.64 11.70 0.53
LOAN Horizon Bancorp, Inc of TX(8)* 8.27 8.02 1.42 16.41 6.79 1.09 12.60 0.38 135.94 0.72
HZFS Horizon Fin'l. Services of IA 10.73 10.73 0.13 1.11 1.45 0.33 2.85 1.12 45.26 0.76
HRZB Horizon Financial Corp. of WA* 15.94 15.94 1.52 9.43 8.60 1.48 9.18 0.01 NA 0.81
IBSF IBS Financial Corp. of NJ 19.45 19.45 0.61 2.97 2.69 0.98 4.81 0.11 123.82 0.55
ISBF ISB Financial Corp. of LA 16.38 15.88 0.81 4.38 4.17 1.09 5.94 NA NA 1.03
ITLA Imperial Thrift & Loan of CA* 11.76 11.76 1.43 14.06 8.36 1.43 14.06 2.24 61.01 1.64
IFSB Independence FSB of DC 6.73 5.82 0.13 1.97 3.41 0.20 2.96 NA NA 0.38
INCB Indiana Comm. Bank, SB of IN 12.30 12.30 0.15 1.06 0.91 0.48 3.41 NA NA NA
IFSL Indiana Federal Corp. of IN(8) 8.65 8.07 0.68 7.23 4.92 0.96 10.14 1.32 64.27 1.12
INBI Industrial Bancorp of OH 18.93 18.93 0.73 3.38 3.40 1.36 6.27 0.46 101.75 0.54
IWBK Interwest SB of Oak Harbor WA 6.48 6.32 0.77 11.23 4.25 1.11 16.23 0.54 87.60 0.82
IPSW Ipswich SB of Ipswich MA* 5.91 5.91 1.33 21.97 13.43 1.10 18.17 1.81 47.96 1.19
IROQ Iroquois Bancorp of Auburn NY* 5.99 5.37 0.65 10.80 7.46 0.88 14.61 0.92 72.68 0.91
JSBF JSB Financial, Inc. of NY 21.60 21.60 1.66 7.56 7.12 1.66 7.56 1.37 24.80 0.61
JXVL Jacksonville Bancorp of TX 16.20 16.20 0.68 4.84 3.72 1.02 7.26 NA NA NA
JXSB Jcksnville SB,MHC of IL(43.3%) 11.52 11.49 0.19 1.60 1.68 0.47 3.96 0.37 131.69 0.59
JSBA Jefferson Svgs Bancorp of MO 7.24 5.97 0.23 3.21 2.71 0.61 8.55 1.02 48.29 0.67
JOAC Joachim Bancorp of MO 29.55 29.55 0.41 1.53 1.32 0.71 2.66 0.33 63.87 0.32
KSAV KS Bancorp of Kenly NC 14.37 14.36 0.82 5.34 5.41 1.15 7.47 0.55 55.53 0.37
KSBK KSB Bancorp of Kingfield ME* 6.82 6.32 0.89 13.40 12.00 0.89 13.40 1.38 47.56 0.90
KFBI Klamath First Bancorp of OR 22.83 22.83 0.98 3.78 3.55 1.40 5.42 0.04 356.92 0.20
LBFI L&B Financial of S. Springs TX(8) 16.99 16.99 0.65 3.72 3.47 0.87 4.98 0.51 103.00 1.08
LSBI LSB Fin. Corp. of Lafayette IN 9.40 9.40 0.50 4.76 4.80 0.46 4.33 1.37 70.21 1.09
LVSB Lakeview SB of Paterson NJ 10.24 8.16 1.24 11.79 9.57 0.85 8.07 1.21 55.15 1.73
LARK Landmark Bancshares of KS 15.16 15.16 0.69 4.20 4.47 0.92 5.58 0.19 193.45 0.59
LARL Laurel Capital Group of PA 10.41 10.41 1.06 10.06 8.57 1.40 13.31 0.64 148.64 1.27
LSBX Lawrence Savings Bank of MA* 8.21 8.21 1.46 18.83 13.21 1.46 18.83 0.85 129.65 2.42
LFED Leeds FSB, MHC of MD (35.3) 16.10 16.10 0.76 4.69 3.69 1.10 6.76 0.02 942.86 0.25
LXMO Lexington B&L Fin. Corp. of MO 30.57 30.57 1.04 5.72 3.19 1.04 5.72 0.98 33.39 0.49
LBCI Liberty Bancorp of Chicago IL(8) 9.53 9.50 0.32 3.31 3.37 0.62 6.40 0.10 508.37 0.72
LIFB Life Bancorp of Norfolk VA 10.35 10.01 0.63 4.95 4.19 0.91 7.14 0.38 196.63 1.76
LFBI Little Falls Bancorp of NJ 14.88 13.71 0.17 1.44 1.28 0.45 3.86 1.18 28.24 0.84
LOGN Logansport Fin. Corp. of IN 19.98 19.98 1.23 4.85 6.04 1.54 6.08 0.36 81.47 0.42
LONF London Financial Corp. of OH 21.37 21.37 0.78 5.39 3.85 0.78 5.39 0.21 242.86 0.68
LISB Long Island Bancorp of NY 9.99 9.99 0.93 8.80 6.06 0.85 8.00 NA NA 1.08
MAFB MAF Bancorp of IL 7.65 6.54 0.53 7.80 3.50 0.92 13.60 0.47 119.22 0.74
MBLF MBLA Financial Corp. of MO(8) 12.31 12.31 0.57 4.07 4.47 0.75 5.36 0.19 127.59 0.50
MFBC MFB Corp. of Mishawaka IN 17.90 17.90 0.72 3.67 4.30 0.71 3.62 0.06 258.14 0.24
MLBC ML Bancorp of Villanova PA 7.31 7.08 0.74 9.25 7.62 0.69 8.67 0.61 129.89 1.81
<CAPTION>
Pricing Ratios Dividend Data(6)
------------------------------------------ -----------------------
Price/ Price/ Ind. Divi-
Price/ Price/ Price/ Tang. Core Div./ dend Payout
Financial Institution Earning Book Assets Book Earnings Share Yield Ratio(7
- --------------------- ------- ------- ------- ------- ------- ------- ------- -------
(X) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HARL Harleysville SA of PA 15.50 123.52 7.68 123.52 9.62 0.44 2.35 36.36
HARS Harris SB, MHC of PA (23.1) NM 137.79 11.79 163.39 NM 0.58 3.20 NM
HFFB Harrodsburg 1st Fin Bcrp of KY NM 129.55 36.45 129.55 NM 0.40 2.16 70.18
HHFC Harvest Home Fin. Corp. of OH 17.32 72.25 12.08 72.25 17.32 0.40 4.05 70.18
HAVN Haven Bancorp of Woodhaven NY 14.32 131.16 7.87 131.94 9.47 0.60 2.11 30.15
HVFD Haverfield Corp. of OH NM 127.85 10.06 128.03 12.17 0.54 2.92 NM
HTHR Hawthorne Fin. Corp. of CA 3.07 60.73 2.34 60.73 4.46 0.00 0.00 0.00
HBNK Highland Federal Bank of CA NM 117.50 8.38 117.50 NM 0.00 0.00 NM
HIFS Hingham Inst. for Sav. of MA* 11.74 121.11 11.75 121.11 11.74 0.36 2.06 24.16
HNFC Hinsdale Financial Corp. of IL 21.27 117.83 10.04 121.31 14.18 0.00 0.00 0.00
HBEI Home Bancorp of Elgin IL NM 90.72 24.23 90.72 NM 0.00 0.00 0.00
HBFW Home Bancorp of Fort Wayne IN 20.33 109.08 16.91 109.08 20.33 0.20 1.08 21.98
HBBI Home Building Bancorp of IN NM 102.16 13.20 102.16 NM 0.30 1.67 NM
HOMF Home Fed Bancorp of Seymour IN 13.10 151.87 12.39 157.65 11.05 0.60 1.70 22.30
HWEN Home Financial Bancorp of IN NM 84.91 17.00 84.91 25.00 0.20 1.54 55.56
HPBC Home Port Bancorp, Inc. of MA* 10.29 158.26 16.47 158.26 10.22 0.80 4.74 48.78
HMCI Homecorp, Inc. of Rockford IL NM 98.12 5.89 98.12 17.93 0.00 0.00 0.00
LOAN Horizon Bancorp, Inc of TX(8)* 14.73 226.73 18.75 233.70 19.19 0.16 0.84 12.40
HZFS Horizon Fin'l. Services of IA NM 78.98 8.47 78.98 NM 0.32 2.21 NM
HRZB Horizon Financial Corp. of WA* 11.62 107.90 17.19 107.90 11.94 0.40 3.02 35.09
IBSF IBS Financial Corp. of NJ NM 116.47 22.65 116.47 22.99 0.32 2.05 NM
ISBF ISB Financial Corp. of LA 23.97 109.86 17.99 113.27 17.68 0.34 1.94 46.58
ITLA Imperial Thrift & Loan of CA* 11.97 126.58 14.88 126.58 11.97 0.00 0.00 0.00
IFSB Independence FSB of DC NM 58.48 3.93 67.55 19.54 0.22 2.89 NM
INCB Indiana Comm. Bank, SB of IN NM 136.36 16.77 136.36 NM 0.35 2.12 NM
IFSL Indiana Federal Corp. of IN(8) 20.33 147.26 12.73 157.84 14.50 0.72 3.31 67.29
INBI Industrial Bancorp of OH NM 113.28 21.45 113.28 15.86 0.40 3.23 NM
IWBK Interwest SB of Oak Harbor WA 23.54 230.03 14.91 236.09 16.29 0.52 1.61 37.96
IPSW Ipswich SB of Ipswich MA* 7.45 147.09 8.69 147.09 9.01 0.20 1.72 12.82
IROQ Iroquois Bancorp of Auburn NY* 13.40 139.35 8.35 155.52 9.91 0.32 1.91 25.60
JSBF JSB Financial, Inc. of NY 14.04 108.63 23.47 108.63 14.04 1.20 3.29 46.15
JXVL Jacksonville Bancorp of TX NM 108.70 17.61 108.70 17.90 0.50 3.45 NM
JXSB Jcksnville SB,MHC of IL(43.3%) NM 96.08 11.06 96.30 24.04 0.40 3.20 NM
JSBA Jefferson Svgs Bancorp of MO NM 117.10 8.48 142.05 13.86 0.32 1.40 51.61
JOAC Joachim Bancorp of MO NM 102.28 30.23 102.28 NM 0.50 3.48 NM
KSAV KS Bancorp of Kenly NC 18.47 100.14 14.39 100.24 13.21 0.60 2.87 53.10
KSBK KSB Bancorp of Kingfield ME* 8.33 104.55 7.13 112.91 8.33 0.20 0.87 7.25
KFBI Klamath First Bancorp of OR NM 113.10 25.82 113.10 19.66 0.28 1.87 52.83
LBFI L&B Financial of S. Springs TX(8) NM 109.61 18.62 109.61 21.52 0.40 2.35 67.80
LSBI LSB Fin. Corp. of Lafayette IN 20.83 102.97 9.68 102.97 22.87 0.32 1.71 35.56
LVSB Lakeview SB of Paterson NJ 10.44 120.70 12.36 151.52 15.26 0.25 1.06 11.11
LARK Landmark Bancshares of KS 22.37 97.25 14.74 97.25 16.83 0.40 2.35 52.63
LARL Laurel Capital Group of PA 11.67 114.34 11.90 114.34 8.82 0.44 2.77 32.35
LSBX Lawrence Savings Bank of MA* 7.57 129.31 10.62 129.31 7.57 0.00 0.00 0.00
LFED Leeds FSB, MHC of MD (35.3) NM 125.00 20.12 125.00 18.82 0.68 4.25 NM
LXMO Lexington B&L Fin. Corp. of MO NM 91.15 27.86 91.15 NM 0.00 0.00 0.00
LBCI Liberty Bancorp of Chicago IL(8) NM 99.80 9.51 100.08 15.36 0.60 2.35 69.77
LIFB Life Bancorp of Norfolk VA 23.86 124.37 12.88 128.64 16.55 0.44 2.40 57.14
LFBI Little Falls Bancorp of NJ NM 86.51 12.87 93.91 NM 0.10 0.80 62.50
LOGN Logansport Fin. Corp. of IN 16.55 97.51 19.48 97.51 13.20 0.40 3.40 56.34
LONF London Financial Corp. of OH NM 89.88 19.20 89.88 NM 0.24 1.78 46.15
LISB Long Island Bancorp of NY 16.51 145.82 14.57 145.82 18.16 0.40 1.30 21.39
MAFB MAF Bancorp of IL NM 150.07 11.48 175.47 16.41 0.36 1.04 29.75
MBLF MBLA Financial Corp. of MO(8) 22.35 91.92 11.31 91.92 16.96 0.40 2.11 47.06
MFBC MFB Corp. of Mishawaka IN 23.24 86.43 15.47 86.43 23.57 0.32 1.94 45.07
MLBC ML Bancorp of Villanova PA 13.12 125.19 9.15 129.31 14.00 0.38 2.61 34.23
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
(continued)
Weekly Thrift Market Line - Part Two
Prices As Of December 13, 1996
<TABLE>
<CAPTION>
Key Financial Ratios Asset Quality Ratios
---------------------------------------------------------- -----------------------
Tang. Reported Earnings Core Earnings
Equity/ Equity/ ---------------------- -------------- NPAs Resvs/ Resvs/
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
_______________________________________
MBB MSB Bancorp of Middletown NY* 6.55 2.57 0.18 2.32 2.30 0.20 2.58 0.78 26.77 0.54
MSBF MSB Financial Corp. of MI 20.05 20.05 1.40 6.17 6.34 1.72 7.59 0.78 72.91 0.61
MGNL Magna Bancorp of MS 9.67 9.20 1.36 13.84 6.94 1.67 17.05 3.81 19.52 1.09
MARN Marion Capital Holdings of IN 22.68 22.68 1.14 4.80 5.35 1.43 6.03 0.95 121.70 1.37
MFCX Marshalltown Fin. Corp. of IA(8) 15.58 15.58 0.06 0.36 0.34 0.41 2.63 NA NA 0.19
MFSL Maryland Fed. Bancorp of MD 8.39 8.26 0.79 9.63 8.20 0.56 6.75 0.48 84.24 0.46
MASB MassBank Corp. of Reading MA* 9.95 9.95 1.07 10.64 9.26 1.01 10.02 0.27 100.30 0.94
MFLR Mayflower Co-Op. Bank of MA* 9.86 9.67 0.92 9.28 7.80 0.88 8.88 1.16 80.27 1.50
MECH Mechanics SB of Hartford CT* 10.04 10.04 -0.34 -4.95 -2.84 -0.32 -4.73 2.06 56.89 1.71
MDBK Medford Savings Bank of MA* 8.98 8.24 1.03 11.54 8.88 1.02 11.38 0.53 139.29 1.34
MERI Meritrust FSB of Thibodaux LA 7.26 7.26 0.55 7.37 5.03 0.93 12.52 NA NA NA
MWBX Metro West of MA* 7.69 7.69 1.31 17.51 9.24 1.31 17.51 2.21 46.46 1.39
MSEA Metropolitan Bancorp of WA(8) 6.76 6.14 0.52 7.73 5.61 0.80 11.73 NA NA 1.76
MCBS Mid Continent Bancshares of KS 10.84 10.83 1.05 8.54 6.53 1.21 9.81 0.15 82.23 0.23
MIFC Mid Iowa Financial Corp. of IA 9.38 9.36 0.93 9.97 9.92 0.93 9.97 0.05 513.21 0.44
MCBN Mid-Coast Bancorp of ME 8.78 8.78 0.34 3.85 4.37 0.58 6.53 0.41 120.43 0.60
MIDC Midconn Bank of Kensington CT* 9.72 8.19 0.51 5.40 4.97 0.64 6.75 1.96 27.19 0.68
MWBI Midwest Bancshares, Inc. of IA 6.58 6.58 0.66 9.61 9.74 0.99 14.37 0.47 103.85 0.82
MWFD Midwest Fed. Fin. Corp of WI 8.39 8.02 1.04 11.36 6.50 1.01 11.07 0.24 322.17 1.04
MFFC Milton Fed. Fin. Corp. of OH 18.51 18.51 0.66 3.25 3.54 0.86 4.22 0.34 79.06 0.42
MIVI Miss. View Hold. Co. of MN 18.39 18.39 1.30 6.73 8.43 1.22 6.33 0.51 249.15 2.04
MBSP Mitchell Bancorp of NC* 42.08 42.08 0.50 1.20 1.26 1.54 3.66 2.56 17.67 0.60
MBBC Monterey Bay Bancorp of CA 13.99 13.86 0.13 0.89 0.87 0.39 2.68 0.48 83.49 0.56
MORG Morgan Financial Corp. of CO 12.64 12.64 0.74 5.16 6.04 0.97 6.83 1.29 12.36 0.22
MSBK Mutual SB, FSB of Bay City MI 5.82 5.82 0.07 1.30 2.11 -0.05 -0.87 0.13 208.44 0.73
NHTB NH Thrift Bancshares of NH 7.27 7.27 0.40 5.27 5.11 0.60 7.90 1.10 58.61 0.79
NSLB NS&L Bancorp of Neosho MO 23.31 23.31 0.97 4.06 4.80 0.88 3.69 0.02 390.91 0.14
NMSB Newmil Bancorp. of CT* 10.51 10.51 0.77 7.14 6.63 0.76 7.02 1.86 86.77 3.07
NFSL Newnan SB, FSB of Newnan GA 12.80 12.73 2.24 19.70 9.35 1.95 17.11 NA NA 1.41
NASB North American SB of MO 6.80 6.55 1.25 17.53 10.90 1.18 16.58 3.12 24.45 0.89
NBSI North Bancshares of Chicago IL 15.13 15.13 0.34 1.96 2.29 0.62 3.60 NA NA 0.30
FFFD North Central Bancshares of IA 28.33 28.33 1.50 6.26 5.53 1.79 7.44 0.21 474.69 1.19
NEBC Northeast Bancorp of ME* 7.05 5.96 0.37 4.96 4.89 0.35 4.73 1.36 79.76 1.43
NEIB Northeast Indiana Bncrp of IN 17.45 17.45 1.01 4.97 5.56 1.22 5.96 0.20 320.13 0.73
NSBK Northside SB of Bronx NY(8)* 7.78 7.71 1.21 15.88 7.67 1.05 13.89 0.41 85.58 1.02
NWEQ Northwest Equity Corp. of WI 12.14 12.14 0.70 5.17 5.39 0.91 6.73 1.19 39.21 0.58
NWSB Northwest SB, MHC of PA(29.9) 9.85 9.37 0.69 6.52 3.92 1.05 9.90 0.86 80.78 0.93
NSSY Norwalk Savings Society of CT* 7.21 6.92 0.81 10.33 7.84 0.67 8.48 2.21 38.08 1.18
NSSB Norwich Financial Corp. of CT* 10.78 9.76 0.87 8.07 5.74 0.85 7.86 1.66 134.62 3.29
NTMG Nutmeg FS&LA of CT 5.37 5.37 0.28 4.82 4.69 0.33 5.81 NA NA 0.51
OHSL OHSL Financial Corp. of OH 11.57 11.57 0.57 4.63 4.63 0.85 6.95 0.22 107.97 0.33
OSBF OSB Fin. Corp. of Oshkosh WI(8) 12.39 12.39 0.04 0.29 0.29 0.46 3.66 0.17 249.07 0.63
OCFC Ocean Fin. Corp. of NJ 20.73 20.73 -0.29 -2.66 -1.41 0.88 7.99 0.80 62.07 0.91
OFCP Ottawa Financial Corp. of MI 9.11 7.20 0.40 3.14 2.87 0.83 6.42 0.32 113.73 0.44
PFFB PFF Bancorp of Pomona CA 11.54 11.41 -0.06 -0.55 -0.42 0.30 2.92 1.93 53.40 1.42
PVFC PVF Capital Corp. of OH 6.51 6.51 0.93 14.19 8.67 1.21 18.34 0.68 107.66 0.82
PCCI Pacific Crest Capital of CA* 9.04 9.04 1.19 15.95 9.19 1.02 13.59 2.24 53.13 1.69
PALM Palfed, Inc. of Aiken SC 8.00 7.63 0.37 4.51 3.10 0.59 7.31 3.44 34.31 1.51
PBCI Pamrapo Bancorp, Inc. of NJ 15.05 14.93 0.85 5.46 5.14 1.21 7.77 3.45 23.22 1.35
PFED Park Bancorp of Chicago IL 23.51 23.51 0.50 3.51 2.34 0.81 5.69 0.15 188.68 0.76
PVSA Parkvale Financial Corp of PA 7.42 7.39 0.73 9.98 6.53 1.03 14.04 0.26 596.13 2.23
PBIX Patriot Bank Corp. of PA 10.50 10.50 0.40 2.96 2.32 0.67 4.97 0.15 247.00 0.70
PEEK Peekskill Fin. Corp. of NY 29.46 29.46 1.08 3.90 3.87 1.40 5.03 1.31 25.21 1.42
PFSB PennFed Fin. Services of NJ 7.89 6.33 0.53 5.88 5.57 0.84 9.24 0.86 28.23 0.38
PWBC PennFirst Bancorp of PA 6.98 6.33 0.42 5.51 5.41 0.64 8.38 0.59 75.76 1.46
PWBK Pennwood SB of PA* 20.02 20.02 0.33 2.73 1.90 0.33 2.73 NA NA 1.60
<CAPTION>
Pricing Ratios Dividend Data(6)
----------------------------------------- -------------------------
Price/ Price/ Ind. Divi-
Price/ Price/ Price/ Tang. Core Div./ dend Payout
Financial Institution Earning Book Assets Book Earnings Share Yield Ratio(7)
- --------------------- ------- ------- ------- ------- ------- ------- ------- ---------
(X) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MBB MSB Bancorp of Middletown NY* NM 97.60 6.39 248.31 NM 0.60 3.14 NM
MSBF MSB Financial Corp. of MI 15.78 99.95 20.04 99.95 12.83 0.50 2.60 40.98
MGNL Magna Bancorp of MS 14.40 196.51 18.99 206.42 11.69 0.60 3.33 48.00
MARN Marion Capital Holdings of IN 18.69 94.79 21.50 94.79 14.87 0.80 3.93 73.39
MFCX Marshalltown Fin. Corp. of IA(8) NM 105.76 16.48 105.76 NM 0.00 0.00 0.00
MFSL Maryland Fed. Bancorp of MD 12.19 113.52 9.52 115.32 17.39 0.66 1.93 23.49
MASB MassBank Corp. of Reading MA* 10.80 114.67 11.41 114.67 11.46 0.96 2.57 27.75
MFLR Mayflower Co-Op. Bank of MA* 12.83 114.34 11.28 116.60 13.41 0.48 3.25 41.74
MECH Mechanics SB of Hartford CT* NM 114.99 11.55 114.99 NM 0.00 0.00 NM
MDBK Medford Savings Bank of MA* 11.26 125.19 11.24 136.46 11.42 0.68 2.72 30.63
MERI Meritrust FSB of Thibodaux LA 19.89 145.92 10.59 145.92 11.71 0.70 2.21 44.03
MWBX Metro West of MA* 10.82 176.45 13.56 176.45 10.82 0.10 2.05 22.22
MSEA Metropolitan Bancorp of WA(8) 17.82 137.40 9.29 151.34 11.74 0.00 0.00 0.00
MCBS Mid Continent Bancshares of KS 15.32 130.14 14.10 130.21 13.34 0.40 1.68 25.81
MIFC Mid Iowa Financial Corp. of IA 10.08 97.35 9.13 97.50 10.08 0.08 1.28 12.90
MCBN Mid-Coast Bancorp of ME 22.87 87.74 7.71 87.74 13.49 0.52 2.77 63.41
MIDC Midconn Bank of Kensington CT* 20.11 107.28 10.43 127.37 16.09 0.60 3.11 62.50
MWBI Midwest Bancshares, Inc. of IA 10.27 102.00 6.72 102.00 6.87 0.60 2.26 23.26
MWFD Midwest Fed. Fin. Corp of WI 15.38 176.64 14.83 184.80 15.79 0.30 1.67 25.64
MFFC Milton Fed. Fin. Corp. of OH NM 95.73 17.72 95.73 21.72 0.56 3.97 NM
MIVI Miss. View Hold. Co. of MN 11.87 83.87 15.42 83.87 12.63 0.16 1.36 16.16
MBSP Mitchell Bancorp of NC* NM 94.87 39.93 94.87 NM 0.00 0.00 0.00
MBBC Monterey Bay Bancorp of CA NM 105.91 14.81 106.90 NM 0.10 0.67 NM
MORG Morgan Financial Corp. of CO 16.54 92.29 11.66 92.29 12.50 0.24 2.13 35.29
MSBK Mutual SB, FSB of Bay City MI NM 61.65 3.59 61.65 NM 0.00 0.00 0.00
NHTB NH Thrift Bancshares of NH 19.58 103.89 7.56 103.89 13.06 0.50 4.26 NM
NSLB NS&L Bancorp of Neosho MO 20.83 86.81 20.23 86.81 22.92 0.50 3.64 NM
NMSB Newmil Bancorp. of CT* 15.09 109.92 11.55 109.92 15.35 0.24 2.74 41.38
NFSL Newnan SB, FSB of Newnan GA 10.70 193.04 24.71 194.08 12.32 0.44 1.74 18.64
NASB North American SB of MO 9.17 151.96 10.34 157.93 9.70 0.63 1.87 17.12
NBSI North Bancshares of Chicago IL NM 95.45 14.45 95.45 23.86 0.40 2.54 NM
FFFD North Central Bancshares of IA 18.07 90.89 25.75 90.89 15.19 0.25 1.87 33.78
NEBC Northeast Bancorp of ME* 20.45 102.58 7.23 121.18 21.43 0.32 2.37 48.48
NEIB Northeast Indiana Bncrp of IN 18.00 94.47 16.48 94.47 15.00 0.32 2.37 42.67
NSBK Northside SB of Bronx NY(8)* 13.03 197.94 15.40 199.62 14.90 1.00 1.92 25.06
NWEQ Northwest Equity Corp. of WI 18.56 98.16 11.92 98.16 14.24 0.40 3.27 60.61
NWSB Northwest SB, MHC of PA(29.9) NM 165.42 16.29 173.88 16.77 0.32 2.42 61.54
NSSY Norwalk Savings Society of CT* 12.76 126.24 9.10 131.58 15.54 0.20 0.82 10.53
NSSB Norwich Financial Corp. of CT* 17.41 140.29 15.12 154.88 17.89 0.48 2.46 42.86
NTMG Nutmeg FS&LA of CT 21.32 102.40 5.50 102.40 17.68 0.15 2.07 44.12
OHSL OHSL Financial Corp. of OH 21.61 100.83 11.66 100.83 14.41 0.76 3.66 NM
OSBF OSB Fin. Corp. of Oshkosh WI(8) NM 101.83 12.62 101.83 NM 0.64 2.35 NM
OCFC Ocean Fin. Corp. of NJ NM 93.65 19.41 93.65 23.61 0.00 0.00 NM
OFCP Ottawa Financial Corp. of MI NM 115.12 10.49 145.65 17.09 0.36 2.15 NM
PFFB PFF Bancorp of Pomona CA NM 98.55 11.37 99.65 NM 0.00 0.00 NM
PVFC PVF Capital Corp. of OH 11.54 155.12 10.09 155.12 8.93 0.00 0.00 0.00
PCCI Pacific Crest Capital of CA* 10.88 145.06 13.12 145.06 12.77 0.00 0.00 0.00
PALM Palfed, Inc. of Aiken SC NM 143.56 11.49 150.57 19.86 0.08 0.55 17.78
PBCI Pamrapo Bancorp, Inc. of NJ 19.45 111.59 16.80 112.52 13.67 0.90 4.77 NM
PFED Park Bancorp of Chicago IL NM 80.43 18.91 80.43 NM 0.00 0.00 0.00
PVSA Parkvale Financial Corp of PA 15.30 148.88 11.04 149.41 10.88 0.52 2.06 31.52
PBIX Patriot Bank Corp. of PA NM 115.96 12.17 115.96 NM 0.32 2.39 NM
PEEK Peekskill Fin. Corp. of NY NM 93.46 27.53 93.46 20.06 0.36 2.68 69.23
PFSB PennFed Fin. Services of NJ 17.96 108.29 8.55 134.94 11.43 0.28 1.39 25.00
PWBC PennFirst Bancorp of PA 18.49 107.83 7.53 118.94 12.16 0.36 2.67 49.32
PWBK Pennwood SB of PA* NM 83.19 16.65 83.19 NM 0.00 0.00 0.00
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
(continued)
Weekly Thrift Market Line - Part Two
Prices As Of December 13, 1996
<TABLE>
<CAPTION>
Key Financial Ratios Asset Quality Ratios
---------------------------------------------------------- -----------------------
Tang. Reported Earnings Core Earnings
Equity/ Equity/ ---------------------- --------------- NPAs Resvs/ Resvs/
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
PBKB People's SB of Brockton MA* 5.61 5.33 0.75 13.51 9.13 0.47 8.50 1.02 90.38 1.79
PFDC Peoples Bancorp of Auburn IN 15.24 15.24 1.15 7.54 6.90 1.51 9.89 0.40 79.14 0.40
PBCT Peoples Bank, MHC of CT(32.3)* 8.26 8.25 1.10 13.97 7.01 0.88 11.19 1.42 85.13 1.82
PFFC Peoples Fin. Corp. of OH 25.40 25.40 0.59 2.31 2.77 0.67 2.63 0.76 32.38 0.47
PHBK Peoples Heritage Fin Grp of ME* 8.46 7.61 1.19 13.96 6.68 1.30 15.26 1.14 120.91 1.89
PBNB Peoples Sav. Fin. Corp. of CT* 9.78 9.11 0.95 9.01 7.57 0.97 9.27 0.61 55.81 0.61
PERM Permanent Bancorp of IN 9.47 9.36 0.15 1.40 1.33 0.44 4.19 1.71 31.61 1.07
PMFI Perpetual Midwest Fin. of IA 8.57 8.57 0.18 1.94 1.92 0.39 4.11 0.46 147.80 0.88
PERT Perpetual of SC, MHC (46.8%) 14.28 14.28 1.01 7.09 6.18 1.01 7.09 NA NA 1.08
PCBC Perry Co. Fin. Corp. of MO 18.77 18.77 0.88 4.37 4.71 0.99 4.92 NA NA 0.09
PHFC Pittsburgh Home Fin. of PA 15.55 15.55 0.43 4.07 2.67 0.71 6.74 1.22 47.30 0.83
PFSL Pocahnts Fed, MHC of AR (46.4) 5.95 5.95 0.54 9.00 7.01 0.72 12.04 0.32 141.55 1.25
POBS Portsmouth Bank Shrs Inc of NH(8)* 24.91 24.91 2.27 9.02 7.78 1.85 7.32 0.29 89.58 0.76
PKPS Poughkeepsie SB of NY 8.15 8.15 1.48 18.01 18.67 2.36 28.68 4.49 21.98 1.33
PRBC Prestige Bancorp of PA 14.55 14.55 0.03 0.28 0.23 0.38 3.52 0.18 170.81 0.43
PETE Primary Bank of NH* 6.41 6.39 -0.02 -0.31 -0.27 -0.02 -0.39 1.40 45.71 1.16
PSAB Prime Bancorp, Inc. of PA 8.49 7.97 0.73 7.98 6.02 0.95 10.41 1.34 45.65 1.00
PFNC Progress Financial Corp. of PA 5.09 5.06 0.59 11.76 6.69 0.73 14.50 0.98 61.67 0.96
PSBK Progressive Bank, Inc. of NY* 8.21 7.19 1.14 13.10 10.26 1.17 13.49 1.05 94.69 1.53
PROV Provident Fin. Holdings of CA 14.64 14.64 0.21 2.06 1.61 -0.01 -0.09 1.95 46.19 1.08
PULB Pulaski SB, MHC of MO (29.0) 12.75 12.75 0.88 7.12 5.38 0.81 6.56 0.53 47.67 0.31
PULS Pulse Bancorp of S. River NJ 7.65 7.65 0.74 7.33 7.24 1.12 11.12 1.23 39.65 1.79
QCFB QCF Bancorp of Virginia MN 17.64 17.64 1.24 6.25 7.46 1.24 6.25 NA NA NA
QCBC Quaker City Bancorp of CA 9.03 9.00 0.22 2.25 2.42 0.49 5.11 1.81 61.38 1.30
QCSB Queens County SB of NY* 15.59 15.59 1.77 10.50 6.18 1.77 10.50 0.72 98.47 0.83
RCSB RCSB Financial, Inc. of NY* 6.87 6.64 1.01 12.24 9.19 0.88 10.76 0.74 94.44 1.37
RARB Raritan Bancorp. of Raritan NJ* 7.84 7.68 0.83 11.06 8.13 0.92 12.23 0.44 183.19 1.26
REDF RedFed Bancorp of Redlands CA 8.06 8.06 -0.77 -12.38 -7.09 -0.46 -7.51 3.94 29.77 1.40
RELY Reliance Bancorp of NY 8.17 5.52 0.52 5.16 4.75 0.85 8.46 0.97 25.31 0.54
RELI Reliance Bancshares Inc of WI(8)* 61.08 61.08 1.33 2.19 3.70 1.33 2.19 NA NA 0.56
RFED Roosevelt Fin. Grp. Inc. of MO 4.87 4.62 0.38 8.07 4.38 0.83 17.41 0.83 28.67 0.51
RVSB Rvrview SB,FSB MHC of WA(40.3) 10.75 9.62 0.99 9.12 5.67 1.16 10.65 0.20 166.22 0.52
SCCB S. Carolina Comm. Bnshrs of SC 28.65 28.65 0.85 2.94 3.40 1.14 3.92 NA NA 0.87
SBFL SB Fing. Lakes MHC of NY(33.0) 10.14 10.14 -0.57 -5.05 -4.30 0.10 0.87 1.15 49.69 1.27
SFED SFS Bancorp of Schenectady NY 12.75 12.75 0.45 3.23 3.90 0.81 5.85 0.66 59.05 0.55
SGVB SGV Bancorp of W. Covina CA 9.07 9.07 -0.01 -0.08 -0.09 0.27 2.64 0.92 31.65 0.39
SISB SIS Bank of Springfield MA* 7.56 7.56 2.02 27.49 17.46 2.03 27.56 0.59 203.71 2.55
SJSB SJS Bancorp of St. Joseph MI(8) 10.41 10.41 0.17 1.51 1.10 0.49 4.26 0.35 129.05 0.66
SWCB Sandwich Co-Op. Bank of MA* 8.17 7.71 0.90 10.86 7.06 0.88 10.60 0.77 100.59 1.13
SFBM Security Bancorp of MT(8) 8.09 6.97 0.53 6.24 4.40 0.63 7.42 0.39 86.91 0.61
SECP Security Capital Corp. of WI 15.89 15.89 0.84 5.04 4.19 1.13 6.79 0.10 NA 1.51
SFSL Security First Corp. of OH 9.28 9.09 0.90 9.98 5.60 1.28 14.16 0.21 377.44 0.89
SMFC Sho-Me Fin. Corp. of MO 10.20 10.20 0.69 5.99 5.18 0.92 7.91 0.06 980.22 0.70
SOBI Sobieski Bancorp of S. Bend IN 17.12 17.12 0.11 0.62 0.70 0.47 2.56 0.11 222.22 0.37
SOSA Somerset Savings Bank of MA(8)* 5.67 5.67 0.46 8.38 7.00 0.46 8.38 8.41 14.61 1.58
SSFC South Street Fin. Corp. of NC* 28.43 28.43 1.34 4.71 4.47 1.43 5.02 NA NA 0.39
SMBC Southern Missouri Bncrp of MO 16.41 16.41 0.94 5.51 6.32 0.88 5.15 0.71 56.68 0.64
SWBI Southwest Bancshares of IL 10.38 10.38 0.82 6.91 6.14 1.13 9.49 0.22 93.24 0.30
SVRN Sovereign Bancorp of PA 3.88 2.66 0.49 12.20 6.54 0.68 16.93 0.68 53.74 0.57
STFR St. Francis Cap. Corp. of WI 8.92 8.50 0.81 7.87 7.21 0.80 7.75 NA NA 0.82
SPBC St. Paul Bancorp, Inc. of IL 8.69 8.66 0.59 6.56 4.96 0.90 9.95 0.57 149.12 1.19
STND Standard Fin. of Chicago IL 11.26 11.24 0.55 4.41 3.52 0.75 6.02 0.16 176.36 0.47
SFFC StateFed Financial Corp. of IA 17.99 17.99 0.97 4.98 5.64 1.22 6.27 1.27 23.88 0.37
SFIN Statewide Fin. Corp. of NJ 9.87 9.85 0.38 3.40 3.39 0.89 7.89 0.92 57.17 1.09
STSA Sterling Financial Corp. of WA 3.90 3.19 0.02 0.44 0.36 0.25 6.02 0.58 93.09 0.88
SSBK Strongsville SB of OH 7.73 7.58 0.64 7.81 5.69 0.83 10.26 0.42 62.45 0.34
<CAPTION>
Pricing Ratios Dividend Data(6)
----------------------------------------- ------------------------
Price/ Price/ Ind. Divi-
Price/ Price/ Price/ Tang. Core Div./ dend Payout
Financial Institution Earning Book Assets Book Earnings Share Yield Ratio(7)
- --------------------- ------- ------- ------- ------- ------- ------- ------- ---------
(X) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PBKB People's SB of Brockton MA* 10.95 125.09 7.02 131.76 17.41 0.32 3.01 32.99
PFDC Peoples Bancorp of Auburn IN 14.49 108.93 16.61 108.93 11.05 0.60 3.00 43.48
PBCT Peoples Bank, MHC of CT(32.3)* 14.27 184.62 15.26 184.87 17.81 0.88 3.23 46.07
PFFC Peoples Fin. Corp. of OH NM 83.49 21.21 83.49 NM 0.00 0.00 0.00
PHBK Peoples Heritage Fin Grp of ME* 14.97 172.13 14.56 191.31 13.70 0.68 2.64 39.53
PBNB Peoples Sav. Fin. Corp. of CT* 13.21 117.49 11.49 126.14 12.85 0.92 3.32 43.81
PERM Permanent Bancorp of IN NM 108.06 10.23 109.28 25.00 0.30 1.48 NM
PMFI Perpetual Midwest Fin. of IA NM 106.05 9.08 106.05 24.67 0.30 1.60 NM
PERT Perpetual of SC, MHC (46.8%) 16.18 114.70 16.38 114.70 16.18 0.00 0.00 0.00
PCBC Perry Co. Fin. Corp. of MO 21.25 96.10 18.04 96.10 18.89 0.30 1.76 37.50
PHFC Pittsburgh Home Fin. of PA NM 94.25 14.66 94.25 22.62 0.20 1.52 57.14
PFSL Pocahnts Fed, MHC of AR (46.4) 14.26 123.57 7.35 123.57 10.65 0.84 4.87 69.42
POBS Portsmouth Bank Shrs Inc of NH(8)* 12.85 116.81 29.10 116.81 15.84 0.60 4.41 56.60
PKPS Poughkeepsie SB of NY 5.36 93.92 7.66 93.92 3.37 0.10 1.90 10.20
PRBC Prestige Bancorp of PA NM 82.44 11.99 82.44 NM 0.00 0.00 0.00
PETE Primary Bank of NH* NM 108.70 6.97 109.02 NM 0.00 0.00 NM
PSAB Prime Bancorp, Inc. of PA 16.60 131.15 11.14 139.75 12.74 0.68 3.36 55.74
PFNC Progress Financial Corp. of PA 14.95 167.07 8.50 168.07 12.13 0.08 0.96 14.29
PSBK Progressive Bank, Inc. of NY* 9.75 123.32 10.12 140.85 9.47 0.53 2.30 22.46
PROV Provident Fin. Holdings of CA NM 86.00 12.59 86.00 NM 0.00 0.00 0.00
PULB Pulaski SB, MHC of MO (29.0) 18.58 129.19 16.48 129.19 20.17 1.00 7.08 NM
PULS Pulse Bancorp of S. River NJ 13.82 124.90 9.56 124.90 9.10 0.70 4.44 61.40
QCFB QCF Bancorp of Virginia MN 13.40 96.40 17.01 96.40 13.40 0.00 0.00 0.00
QCBC Quaker City Bancorp of CA NM 94.07 8.50 94.39 18.13 0.00 0.00 0.00
QCSB Queens County SB of NY* 16.18 175.32 27.33 175.32 16.18 1.00 2.12 34.25
RCSB RCSB Financial, Inc. of NY* 10.89 154.15 10.59 159.53 12.39 0.60 2.15 23.44
RARB Raritan Bancorp. of Raritan NJ* 12.30 128.24 10.05 130.91 11.12 0.60 2.58 31.75
REDF RedFed Bancorp of Redlands CA NM 134.38 10.83 134.38 NM 0.00 0.00 NM
RELY Reliance Bancorp of NY 21.07 111.74 9.13 165.49 12.84 0.56 2.99 62.92
RELI Reliance Bancshares Inc of WI(8)* NM 59.00 36.04 59.00 NM 0.00 0.00 0.00
RFED Roosevelt Fin. Grp. Inc. of MO 22.82 181.07 8.83 191.12 10.58 0.62 3.27 74.70
RVSB Rvrview SB,FSB MHC of WA(40.3) 17.63 156.10 16.78 174.48 15.09 0.22 1.31 23.16
SCCB S. Carolina Comm. Bnshrs of SC NM 89.02 25.50 89.02 22.06 0.60 4.00 NM
SBFL SB Fing. Lakes MHC of NY(33.0) NM 120.32 12.21 120.32 NM 0.40 2.96 NM
SFED SFS Bancorp of Schenectady NY NM 89.74 11.45 89.74 14.16 0.24 1.61 41.38
SGVB SGV Bancorp of W. Covina CA NM 91.14 8.26 91.14 NM 0.00 0.00 NM
SISB SIS Bank of Springfield MA* 5.73 137.09 10.36 137.09 5.71 0.00 0.00 0.00
SJSB SJS Bancorp of St. Joseph MI(8) NM 148.00 15.41 148.00 NM 0.44 1.73 NM
SWCB Sandwich Co-Op. Bank of MA* 14.17 148.62 12.14 157.39 14.52 1.20 4.05 57.42
SFBM Security Bancorp of MT(8) 22.73 144.02 11.65 167.22 19.11 0.68 2.27 51.52
SECP Security Capital Corp. of WI 23.86 121.44 19.30 121.44 17.69 0.90 1.23 29.32
SFSL Security First Corp. of OH 17.87 148.53 13.78 151.50 12.59 0.44 2.65 47.31
SMFC Sho-Me Fin. Corp. of MO 19.30 119.45 12.18 119.45 14.61 0.00 0.00 0.00
SOBI Sobieski Bancorp of S. Bend IN NM 91.23 15.62 91.23 NM 0.00 0.00 0.00
SOSA Somerset Savings Bank of MA(8)* 14.29 114.94 6.52 114.94 14.29 0.00 0.00 0.00
SSFC South Street Fin. Corp. of NC* 22.37 105.48 29.99 105.48 21.02 0.00 0.00 0.00
SMBC Southern Missouri Bncrp of MO 15.83 89.01 14.60 89.01 16.96 0.50 3.51 55.56
SWBI Southwest Bancshares of IL 16.29 124.07 12.88 124.07 11.85 0.76 4.16 67.86
SVRN Sovereign Bancorp of PA 15.29 176.39 6.85 NM 11.02 0.08 0.62 9.41
STFR St. Francis Cap. Corp. of WI 13.87 115.92 10.34 121.62 14.10 0.48 1.81 25.13
SPBC St. Paul Bancorp, Inc. of IL 20.16 134.40 11.68 134.86 13.28 0.48 1.74 35.04
STND Standard Fin. of Chicago IL NM 129.15 14.54 129.39 20.79 0.32 1.52 43.24
SFFC StateFed Financial Corp. of IA 17.74 89.29 16.06 89.29 14.10 0.40 2.42 43.01
SFIN Statewide Fin. Corp. of NJ NM 106.04 10.46 106.28 12.72 0.40 2.88 NM
STSA Sterling Financial Corp. of WA NM 127.55 4.97 155.72 19.93 0.00 0.00 0.00
SSBK Strongsville SB of OH 17.58 135.87 10.50 138.55 13.39 0.48 2.13 37.50
</TABLE>
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
(continued)
Weekly Thrift Market Line - Part Two
Prices As Of December 13, 1996
<TABLE>
<CAPTION>
Key Financial Ratios Asset Quality Ratios
---------------------------------------------------------- -----------------------
Tang. Reported Earnings Core Earnings
Equity/ Equity/ ---------------------- --------------- NPAs Resvs/ Resvs/
Financial Institution Assets Assets ROA(5) ROE(5) ROI(5) ROA(5) ROE(5) Assets NPAs Loans
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ Listed OTC Companies (continued)
- ---------------------------------------
SFSB SuburbFed Fin. Corp. of IL 6.49 6.46 0.22 3.20 3.47 0.48 6.89 0.28 84.20 0.42
SBCN Suburban Bancorp. of OH 12.09 12.09 0.17 1.30 1.53 0.61 4.70 0.13 NA 1.84
THRD TF Financial Corp. of PA 10.81 9.38 0.62 4.46 4.81 0.87 6.19 0.32 79.91 0.57
ROSE TR Financial Corp. of NY 6.35 6.35 0.97 14.97 10.25 0.78 12.01 NA NA 0.86
TPNZ Tappan Zee Fin. Corp. of NY 17.93 17.93 0.69 4.16 3.78 0.64 3.84 2.12 26.73 1.22
PTRS The Potters S&L Co. of OH 8.21 8.21 0.03 0.28 0.32 0.39 4.17 2.20 76.26 3.61
TSBS Trenton SB, FSB MHC of NJ(35.0)(8) 19.38 18.97 1.66 8.70 5.94 1.29 6.78 0.36 91.15 0.52
TRIC Tri-County Bancorp of WY 15.94 15.94 0.66 3.67 4.11 0.92 5.08 0.07 801.92 1.19
THBC Troy Hill Bancorp of PA(8) 18.11 18.11 1.01 4.92 4.10 1.18 5.76 1.39 49.75 0.81
TWIN Twin City Bancorp of TN 12.53 12.53 0.78 5.80 5.45 0.99 7.34 0.53 37.63 0.27
UFRM United FS&LA of Rocky Mount NC 7.49 7.49 0.28 3.47 2.97 0.49 6.19 1.20 93.51 1.62
UBMT United SB, FA of MT 22.54 22.54 1.20 5.25 5.60 1.46 6.40 0.70 9.92 0.22
VABF Va. Beach Fed. Fin. Corp of VA 6.60 6.60 0.03 0.49 0.43 0.21 3.29 1.42 51.34 1.00
VFFC Virginia First Savings of VA 7.82 7.59 1.40 18.18 13.83 1.40 18.18 2.32 44.65 1.17
WHGB WHG Bancshares of MD 23.84 23.84 0.75 4.87 3.36 0.75 4.87 0.60 30.56 0.24
WSFS WSFS Financial Corp. of DE* 6.18 6.11 1.47 25.09 13.58 1.49 25.47 2.86 65.77 2.95
WVFC WVS Financial Corp. of PA* 12.89 12.89 1.24 8.73 7.26 1.52 10.71 0.36 204.24 1.31
WLDN Walden Bancorp of MA(8)* 9.06 7.80 1.09 11.91 6.00 1.21 13.22 0.89 120.99 1.79
WRNB Warren Bancorp of Peabody MA* 9.17 9.17 1.73 19.58 10.75 1.70 19.23 1.75 73.15 2.03
WFSL Washington FS&LA of Seattle WA 11.30 10.76 1.63 13.52 7.61 1.81 15.03 0.79 37.73 0.41
WAMU Washington Mutual Inc. of WA* 6.32 5.69 0.90 14.48 6.42 0.99 16.03 0.56 115.82 0.98
WYNE Wayne Bancorp of NJ 14.99 14.99 0.02 0.18 0.14 0.14 1.16 1.17 61.42 1.26
WAYN Wayne S&L Co., MHC of OH(46.7) 8.98 8.98 0.25 2.71 1.78 0.60 6.61 0.61 58.24 0.42
WCFB Webster CityFSB,MHC of IA(45.2) 22.89 22.89 0.87 3.89 3.06 1.20 5.35 0.45 92.96 0.73
WBST Webster Financial Corp. of CT 5.06 3.92 0.53 10.21 6.17 0.65 12.61 0.85 110.74 1.45
WEFC Wells Fin. Corp. of Wells MN 13.79 13.79 0.55 3.80 4.00 0.93 6.44 0.34 87.34 0.33
WCBI WestCo Bancorp of IL 15.50 15.50 0.99 6.36 5.44 1.33 8.58 0.53 54.54 0.40
WSTR WesterFed Fin. Corp. of MT 13.83 13.83 0.57 4.24 4.14 0.84 6.23 0.23 155.72 0.54
WOFC Western Ohio Fin. Corp. of OH 16.73 15.74 0.89 3.89 5.00 0.73 3.19 NA NA 0.55
WWFC Westwood Fin. Corp. of NJ 10.19 8.93 0.04 0.40 0.38 0.71 6.86 0.14 155.97 0.54
WEHO Westwood Hmstd Fin Corp of OH 32.96 32.96 -0.08 -0.38 -0.26 0.41 2.03 0.03 459.38 0.18
WFCO Winton Financial Corp. of OH(8) 7.46 7.26 0.93 12.27 9.25 0.78 10.39 0.44 70.82 0.37
FFWD Wood Bancorp of OH 13.17 13.17 0.89 6.32 5.15 1.15 8.18 0.29 120.40 0.45
YFCB Yonkers Fin. Corp. of NY 18.88 18.88 0.68 5.24 3.34 1.01 7.80 1.30 27.74 1.07
YFED York Financial Corp. of PA 7.95 7.95 0.61 7.26 5.44 0.84 9.95 2.45 25.75 0.73
<CAPTION>
Pricing Ratios Dividend Data(6)
----------------------------------------- -----------------------
Price/ Price/ Ind. Divi-
Price/ Price/ Price/ Tang. Core Div./ dend Payout
Financial Institution Earning Book Assets Book Earnings Share Yield Ratio(7)
- --------------------- ------- ------- ------- ------- ------- ------- ------- -------
(X) (%) (%) (%) (x) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SFSB SuburbFed Fin. Corp. of IL NM 93.78 6.09 94.29 13.38 0.32 1.68 48.48
SBCN Suburban Bancorp. of OH NM 87.16 10.54 87.16 18.07 0.60 4.00 NM
THRD TF Financial Corp. of PA 20.78 95.69 10.35 110.27 14.95 0.32 2.00 41.56
ROSE TR Financial Corp. of NY 9.76 142.05 9.02 142.05 12.16 0.80 2.53 24.69
TPNZ Tappan Zee Fin. Corp. of NY NM 98.50 17.66 98.50 NM 0.20 1.45 38.46
PTRS The Potters S&L Co. of OH NM 92.09 7.56 92.09 21.07 0.28 1.49 NM
TSBS Trenton SB, FSB MHC of NJ(35.0)(8) 16.84 142.35 27.59 145.45 21.62 0.35 2.19 36.84
TRIC Tri-County Bancorp of WY 24.36 91.35 14.56 91.35 17.59 0.50 2.63 64.10
THBC Troy Hill Bancorp of PA(8) 24.39 118.55 21.47 118.55 20.83 0.40 2.00 48.78
TWIN Twin City Bancorp of TN 18.35 110.72 13.87 110.72 14.50 0.64 3.71 68.09
UFRM United FS&LA of Rocky Mount NC NM 120.34 9.01 120.34 18.90 0.20 2.58 NM
UBMT United SB, FA of MT 17.86 94.27 21.24 94.27 14.65 0.92 4.91 NM
VABF Va. Beach Fed. Fin. Corp of VA NM 115.19 7.61 115.19 NM 0.16 1.73 NM
VFFC Virginia First Savings of VA 7.23 120.96 9.46 124.71 7.23 0.10 0.78 5.62
WHGB WHG Bancshares of MD NM 89.21 21.27 89.21 NM 0.20 1.56 46.51
WSFS WSFS Financial Corp. of DE* 7.37 169.30 10.46 171.06 7.26 0.00 0.00 0.00
WVFC WVS Financial Corp. of PA* 13.78 122.97 15.85 122.97 11.23 0.80 3.30 45.45
WLDN Walden Bancorp of MA(8)* 16.66 187.35 16.97 217.56 15.00 0.64 1.84 30.62
WRNB Warren Bancorp of Peabody MA* 9.30 176.01 16.14 176.01 9.47 0.44 2.82 26.19
WFSL Washington FS&LA of Seattle WA 13.14 181.34 20.49 190.46 11.81 0.92 3.57 46.94
WAMU Washington Mutual Inc. of WA* 15.58 215.84 13.64 239.51 14.08 0.96 2.27 35.29
WYNE Wayne Bancorp of NJ NM 89.25 13.38 89.25 NM 0.00 0.00 0.00
WAYN Wayne S&L Co., MHC of OH(46.7) NM 152.93 13.73 152.93 23.00 0.92 4.00 NM
WCFB Webster CityFSB,MHC of IA(45.2) NM 126.80 29.02 126.80 23.75 0.80 6.13 NM
WBST Webster Financial Corp. of CT 16.20 151.85 7.68 196.21 13.11 0.72 1.91 30.90
WEFC Wells Fin. Corp. of Wells MN 25.00 97.31 13.42 97.31 14.77 0.00 0.00 0.00
WCBI WestCo Bancorp of IL 18.38 117.23 18.17 117.23 13.61 0.60 2.79 51.28
WSTR WesterFed Fin. Corp. of MT 24.16 101.74 14.07 101.74 16.47 0.38 2.10 50.67
WOFC Western Ohio Fin. Corp. of OH 20.00 82.55 13.81 87.76 24.42 1.00 4.76 NM
WWFC Westwood Fin. Corp. of NJ NM 108.47 11.05 123.74 15.69 0.20 1.25 NM
WEHO Westwood Hmstd Fin Corp of OH NM 77.81 25.64 77.81 NM 0.00 0.00 NM
WFCO Winton Financial Corp. of OH(8) 10.81 112.99 8.43 116.05 12.77 0.42 3.50 37.84
FFWD Wood Bancorp of OH 19.41 123.13 16.22 123.13 15.00 0.36 2.18 42.35
YFCB Yonkers Fin. Corp. of NY NM 93.80 17.71 93.80 20.11 0.20 1.55 46.51
YFED York Financial Corp. of PA 18.39 132.34 10.52 132.34 13.42 0.60 3.67 67.42
</TABLE>
<PAGE>
EXHIBIT IV-2
Historical Stock Price Indices
<PAGE>
<TABLE>
<CAPTION>
Historical Stock Price Indices(1)
SNL SNL
NASDAQ Thrift Bank
Year/Qtr. Ended DJIA S&P 500 Composite Index Index
- --------------- ---- ------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
1991: Quarter 1 2881.1 375.2 482.3 125.5 66.0
Quarter 2 2957.7 371.2 475.9 130.5 82.0
Quarter 3 3018.2 387.9 526.9 141.8 90.7
Quarter 4 3168.0 417.1 586.3 144.7 103.1
1992: Quarter 1 3235.5 403.7 603.8 157.0 113.3
Quarter 2 3318.5 408.1 563.6 173.3 119.7
Quarter 3 3271.7 417.8 583.3 167.0 117.1
Quarter 4 3301.1 435.7 677.0 201.1 136.7
1993: Quarter 1 3435.1 451.7 690.1 228.2 151.4
Quarter 2 3516.1 450.5 704.0 219.8 147.0
Quarter 3 3555.1 458.9 762.8 258.4 154.3
Quarter 4 3754.1 466.5 776.8 252.5 146.2
1994: Quarter 1 3625.1 445.8 743.5 241.6 143.1
Quarter 2 3625.0 444.3 706.0 269.6 152.6
Quarter 3 3843.2 462.6 764.3 279.7 149.2
Quarter 4 3834.4 459.3 752.0 244.7 137.6
1995: Quarter 1 4157.7 500.7 817.2 278.4 152.1
Quarter 2 4556.1 544.8 933.5 313.5 171.7
Quarter 3 4789.1 584.4 1,043.5 362.3 195.3
Quarter 4 5117.1 615.9 1,052.1 376.5 207.6
1996: Quarter 1 5587.1 645.5 1,101.4 382.1 225.1
Quarter 2 5654.6 670.6 1,185.0 387.2 224.7
Quarter 3 5882.2 687.3 1,226.9 429.3 249.2
December 13, 1996 6304.9 728.6 1,284.9 473.6 271.9
</TABLE>
(1) End of period data.
Sources: SNL Securities; Wall Street Journal.
<PAGE>
EXHIBIT IV-3
Historical Thrift Stock Indices
<PAGE>
MONTHLY MARKET REPORT
Index Values
<TABLE>
<CAPTION>
Index Values Percent Change
------------------------------------- ---------------------------
11/29/96 10/31/96 12/29/95 11/30/95 1 Month YTD 52 Week
-------- -------- -------- -------- ------- --- -------
<S> <C> <C> <C> <C> <C> <C> <C>
All Pub. Traded Thrifts 485.8 456.7 376.5 370.2 6.4 29.0 31.2
MHC Index 520.4 476.5 458.5 479.4 9.2 13.5 8.6
Insurance Indices
- ---------------------------------------------------------------------------------------------------
SAIF Thrifts 441.9 414.5 356.4 349.9 6.6 24.0 26.3
BIF Thrifts 617.6 583.5 436.9 431.0 5.8 41.4 43.3
Stock Exchange Indices
- ---------------------------------------------------------------------------------------------------
AMEX Thrifts 156.5 148.5 137.7 136.0 5.4 13.7 15.1
NYSE Thrifts 285.1 265.9 257.6 249.4 7.2 10.7 14.3
OTC Thrifts 564.9 533.0 449.5 445.0 6.0 25.7 26.9
Geographical Indices
- ---------------------------------------------------------------------------------------------------
New England Thrifts 424.9 386.6 316.1 315.6 9.9 34.4 34.6
Mid-Atlantic Thrifts 967.8 911.9 720.1 715.1 6.1 34.4 35.3
Southwestern Thrifts 318.9 298.2 241.7 249.8 6.9 31.9 27.7
Midwestern Thrifts 1,149.0 1,085.4 951.5 927.5 5.9 20.8 23.9
Southeastern Thrifts 454.5 433.9 367.2 366.2 4.7 23.8 24.1
Western Thrifts 484.6 455.0 380.4 370.1 6.5 27.4 30.9
Asset Size Indices
- ---------------------------------------------------------------------------------------------------
Less than $250M 586.6 570.6 538.4 535.5 2.8 9.0 9.5
$250M to $500M 778.0 738.1 680.3 673.3 5.4 14.4 15.6
$500M to $1B 517.5 489.0 431.4 427.0 5.8 20.0 21.2
$1B to $5B 541.9 508.9 421.7 416.8 6.5 28.5 30.0
Over $5B 310.8 290.3 233.5 227.6 7.1 33.1 36.6
Comparative Indices
- ---------------------------------------------------------------------------------------------------
Dow Jones Industrials 6,521.7 6,029.4 5,117.1 5,074.5 8.2 27.4 28.5
S&P 500 757.0 705.3 615.9 605.4 7.3 22.9 25.0
</TABLE>
All SNL indices are market-value weighed: i.e. an institution's effect on
an index is proportionate to that institution's market capitalization. All
SNL thrift indices, except for the SNL MHC index began at 100 on March
30, 1984. The SNL MHC index began at 201.082 on Dec. 31, 1992, the level of
the SNL Thrift Index on that date. On March 30, 1984, the S&P 500 closed
159.2 and the Dow Jones Industrials stood at 1,164.9.
New England: CT, ME, MA, NH, RI, VT; Mid-Atlantic: DE, DC, PA, MD, NJ, NY,
PR; Southwest: CO, LA, NM, OK, TX, UT; Midwest: IA, IL, IN, KS, KY, MI, MN,
MO, ND, NE, OH, SD, WI; Southeast: AL, AR, FL, GA, MS, NC, SC, TN, VA, WV;
West: AZ, AK, CA, HI, ID, MT, NV, OR, WA, WY
DECEMBER 1996
<PAGE>
EXHIBIT IV-4
Middlesboro Federal Bank, Federal Savings Bank
Market Area Acquisition Activity
<PAGE>
RP Financial, LC.
----------------------------------------------------------------
Exhibit IV-4
Completed/Pending Acquisitions of Kentucky Thrifts, 1996
----------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Transactions Target Company's Financial Data
At Completion Date
- ------------------------------------------------------------------------------------------------------------------------------------
Date Announced/ Target/State Pooling/ Equity/ T.T. T.T. NPAs/(1) Reserves/
Completed Acquiror/State Purchase Assets Assets ROAA ROAE Assets NPAs
--------- -------------- -------- ------ ------ ---- ---- ------ ----
($000) (%) (%) (%) (%) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pending Transactions
10/07/96 First Federal SB/KY Purchase $39,261 9.42% 0.50% 5.33% 0.03% NM
National City Bancshares/IN
08/19/96 Russell Fed Svgs Bank/KY Purchase $28,762 28.03% 0.76% 2.63% 1.89% 18.42%
Peoples Bancorp/OH
03/26/96 Lincoln Fin. Bancorp, Stanford/KY Purchase $47,312 12.71% 0.50% 3.91% 0.18% 304.08%
First Southern Bancorp/KY
1996 Completed Transactions
03/26/96 First Ashland Fin. Corp./KY Purchase $90,216 26.34% 0.83% 3.13% 0.58% 22.04%
10/04/96 Camco Financial Corp./OH
11/24/95 LFS Bancorp/KY Purchase $233,737 28.41% 0.77% 2.69% 0.00% NA
05/15/96 Great Financial Corp./KY
08/28/95 Kentucky Enterprise Bncrp/KY Pooling $276,098 18.48% 0.30% 18.34% 0.09% 199.20%
03/15/96 Fifth Third Bancorp/OH
1996 Averages: $119,231 20.56% 0.61% 6.01% 0.46% 135.94%
1996 Medians: $68,764 22.41% 0.63% 3.52% 0.14% 108.81%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Transactions Acquisition Terms
- -----------------------------------------------------------------------------------------------------------------
Total Offer Cash
Date Announced/ Target/State Pooling/ Deal Price/ Debt
Completed Acquiror/State Purchase Value Share Stock
--------- -------------- -------- ----- ----- -----
($Mil) ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pending Transactions
10/07/96 First Federal SB/KY Purchase NA NA Cash
National City Bancshares/IN
08/19/96 Russell Fed Svgs Bank/KY Purchase $9.3 NA Stock
Peoples Bancorp/OH
03/26/96 Lincoln Fin. Bancorp, Stanford/KY Purchase $10.0 $22.01 Cash
First Southern Bancorp/KY
1996 Completed Transactions
03/26/96 First Ashland Fin. Corp./KY Purchase $32.5 $21.59 Cash &
10/04/96 Camco Financial Corp./OH Stock
11/24/95 LFS Bancorp/KY Purchase $75.5 $19.50 Cash
05/15/96 Great Financial Corp./KY
08/28/95 Kentucky Enterprise Bncrp/KY Pooling $94.2 $21.41 Stock
03/15/96 Fifth Third Bancorp/OH
1996 Averages: $44.3 $21.13
1996 Medians: $32.5 $21.50
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Transactions Control Premium Acquisition Pricing
At Completion Date
- ------------------------------------------------------------------------------------------------------------------------------
Offer
Price/
One Day
Date Announced/ Target/State Pooling/ Pre-Offer
Completed Acquiror/State Purchase Price P/B P/TB P/A P/E
--------- -------------- -------- ----- --- ---- --- ---
(x) (%) (%) (%) (x)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Pending Transactions
10/07/96 First Federal SB/KY Purchase NA NA NA NA NA
National City Bancshares/IN
08/19/96 Russell Fed Svgs Bank/KY Purchase NA 115% 115% 32.16% 39.03
Peoples Bancorp/OH
03/26/96 Lincoln Fin. Bancorp, Stanford/KY Purchase NA 127% 127% 20.19% NA
First Southern Bancorp/KY
1996 Completed Transactions
03/26/96 First Ashland Fin. Corp./KY Purchase 1.26 132% 132% 37.18% NM
10/04/96 Camco Financial Corp./OH
11/24/95 LFS Bancorp/KY Purchase 1.04 109% 109% 32.30% 37.50
05/15/96 Great Financial Corp./KY
08/28/95 Kentucky Enterprise Bncrp/KY Pooling 0.96 176% 176% 34.12% NA
03/15/96 Fifth Third Bancorp/OH
1996 Averages: 1.09 132% 132% 31.19% 38.27
1996 Medians: 1.04 127% 127% 32.30% 38.27
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) NPAs consist of REO, non-accruing loans, and loans 90+ days delinquent.
Source: SNL Securities; American Banker.
<PAGE>
[CAPTION]
EXHIBIT IV-5
Middlesboro Federal Bank, Federal Savings Bank
Directors and Management Summary Resumes
J. Roy Shoffner is currently Chairman of the Board and Chief Executive
Officer of Middlesboro Federal, a position he has held since 1994. He is a
graduate of Lincoln Memorial University and a veteran USAF pilot of four years.
Mr. Shoffner owns and operates Shoffner Realty, a real estate development
company and also owns JRS Restaurant Corporation. Mr. Shoffner is past owner of
a local plastic pipe manufacturing company and is active in real estate and
business properties. Mr. Shoffner is the father of James J. Shoffner.
Robert R. Long currently serves as Vice Chairman of the Board of Directors.
He retired as regional manager of Sterchi Brothers retail furniture chain in
1983. Mr. Long is a graduate of Lincoln Memorial University and Northwestern
University Business School. He served in the U.S. Army Air Corps in World War
II as a B-24 Liberator Pilot.
James J. Shoffner joined Middlesboro Federal in 1994 as Vice President and
Chief Operating Officer and became President and Chief Managing Officer in March
1996. He also has served as President of Home since 1996. Prior to joining the
Bank as a full-time officer. Mr. Shoffner was the General Manager of JRS
Restaurant Corporation, which operates four franchised restaurants in the
Middlesboro area. He graduated from Middlesboro High School and attended the
University of Kentucky. He is the Board of Directors of the Bell County Chamber
of Commerce, the Bell County Tourism Commission and is a Deacon in the First
Baptist Church of Middlesboro. Mr. Shoffner is a member of the Middlesboro
Kiwanis Club and serves on the Advisory Board to the Debusk School of Business
at Lincoln Memorial University. He has also previously served on the Board of
Middlesboro YMCA and as Chairman for the Bell County of the March of Dimes. Mr.
Shoffner continues to serve as Chairman and President of JRS Restaurant
Corporation. He has served on the Board of Directors of Middlesboro Federal
since June 6, 1988. Mr. Shoffner is the son of J. Roy Shoffner.
Reecie Stagnolia, Jr. is currently Vice President and the Branch Manager
and Loan Officer at the Cumberland Branch (Tri-City Office), of Middlesboro
Federal, a position he has held since 1989. He previously worked for the Harlan
County Board of Education as a teacher, Assistant Principal and Principal.
Assistant Superintendent and Superintendent from 1962 to 1988. He attended
Cumberland College, University of Kentucky and Eastern Kentucky University.
George Taylor retired from Reams Lumber Company in 1981 after approximately
forty-four years with the company. He had previously graduated from Eastern
State University in 1932 and was manager of the Southern Hotel for four years.
Raymond C. Walker served as president of the Mutual Holding Company's
subsidiary, Home Loan Mortgage Corporation from October, 1991 to October, 1996.
He worked for the Middlesboro Daily News as Advertising Director for 24 years,
worked at National Bank as Business Development Director for seven years and
served five years as manager of 120 units of the Section 8 Federally Funded
Housing. Mr. Walker served as mayor of the city of Middlesboro and served as
Vice President and Treasurer of the Bank.
J.D. Howard has been Vice President of the Bank since July 1996 and was
appointed Chief Financial Officer in October 1996. Prior to joining the Bank,
Mr. Howard was an internal auditor and compliance officer at Home Federal of
Middlesboro for two years. Prior to that he was Chief Financial Officer of First
Federal Savings Bank, Pineville, Kentucky for 11 years.
Diana Miracle has been Vice President and Chief Operating Officer of the
Bank since October 196. Mrs. Miracle joined the Bank as a compliance officer in
August 1995. Prior to that time, she was employed at Security First Network Bank
in Pineville, Kentucky.
<PAGE>
EXHIBIT IV-6
Middlesboro Federal Bank, Federal Savings Bank
Pro Forma Regulatory Capital Ratios
<PAGE>
REGULATORY CAPITAL
The following table presents the historical regulatory capital of the Bank
at September 30, 1996, and the pro forma capital of the Bank after giving effect
to the Conversion and Reorganization, based upon the sale of the number of
shares shown below, the issuance of Exchange Shares and the other assumptions
set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
Pro Forma at December 31,
-----------------------------------------------------------------------
Historical Regulatory Minimum 282,625 Midpoint 332,500 Maximum 382,375 Maximum as adjusted
Capital at Price of $10.00 Price of $10.00 Price of $10.00 439,731 Price of
September 30, 1996 per share per share per share $10.00 per share
-------------------- --------------- ---------------- --------------- -------------------
% of % of % of % of % of
Amount Assets Amount Assets Amount Assets Amount Assets Amount Assets
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital...................... $ 4,385 5.23% $ 6,550 7.61% $ 7,006 8.09% $ 7,462 8.57% $ 7,986 9.12%
Tangible capital (2).............. $ 4,678 5.56% $ 6,843 7.92% $ 7,299 8.40% $ 7,755 8.88% $ 8,279 9.42%
Tangible requirement.............. 1,261 1.50 1,295 1.50 1,303 1.50 1,310 1.50 1,318 1.50
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess............................ $ 3,417 4.06% $ 5,548 6.42% $ 5,996 6.90% $ 6,445 7.38% $ 6,961 7.92%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Core capital (2)(3)............... $ 4,678 5.56% $ 6,843 7.92% $ 7,299 8.40% $ 7,755 8.88% $ 8,279 9.42%
Core requirement.................. 2,523 3.00 2,592 3.00 2,606 3.00 2,621 3.00 2,637 3.00
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess............................ $ 2,155 2.56% $ 4,251 4.92% $ 4,693 5.40% $ 5,134 5.88% $ 5,642 6.42%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Total capital(4)(5)............... $ 4,873 9.44% $ 7,038 13.51% $ 7,494 14.36% $ 7,950 15.21% $ 8,474 16.18%
Risk-based requirement............ 4,130 8.00 4,167 8.00 4,174 8.00 4,182 8.00 4,191 8.00
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess............................ $ 743 1.44% $ 2,871 5.51% $ 3,320 6.36% $ 3,768 7.21% $ 4,283 8.18%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
- --------------------
(1) Under the OTS policy, net unrealized gains or losses on securities
classified as available for sale are excluded from regulatory capital when
computing core and risk-based capital. The net unrealized loss on
securities classified as available for sale amounted to $443,000 ($294,000,
net of tax effect) as of September 30, 1996.
(2) Tangible and core capital are computed as a percentage of adjusted total
assets of $84.1 million prior to the consummation of the Offerings and
$86.4 million, $86.8 million, $87.3 million and $87.9 million following the
issuance of 282,625, 332,500, 382,375 and 439,731 shares in the Conversion
and Reorganization, respectively. Risk-based capital is computed as a
percentage of adjusted risk-weighted assets of $51.6 million prior to the
consummation of the Offerings and $52.1 million, $52.2 million, $52.3
million and $52.4 million following the issuance of 282,625, 332,500,
382,375 and 439,731 shares in the Conversion and Reorganization,
respectively.
(3) Does not reflect, in the case of the core capital requirement, the 4.0%
requirement to be met in order of an institution to be "adequately
capitalized" under applicable laws and regulations. See "Regulation --
Regulation of the Bank -- Prompt Corrective Regulatory Action."
(4) The pro forma risk-based capital ratios (i) reflect the receipt by the
Bank of the assets held by the Mutual Holding Company and all but $100,000
of the estimated net proceeds from the Offerings and (ii) assume the
investment of the net remaining proceeds received by the Bank in assets
which have a risk-weight of 20% under applicable regulations, as if such
net proceeds had been received and so applied at September 30, 1996.
(5) Includes the $195,000 of general allowance for loan losses that was
included in risk-based capital as of September 30, 1996.
<PAGE>
EXHIBIT IV-7
Pro Forma Analysis Sheet
<PAGE>
EXHIBIT IV-7
PRO FORMA ANALYSIS SHEET
Middlesboro Federal Bank, Federal Savings Bank
Prices as of December 13, 1996
<TABLE>
<CAPTION>
Peer Group Kentucky Companies All SAIF Insured
-------------------- --------------------- -------------------
Price Multiple Symbol Subject (1) Mean Median Mean Median Mean Median
-------------- ------ ----------- ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price-earnings ratio P/E (65.22)x 19.15x 18.94x 21.60x 22.12x 17.22x 18.61x
Price-book ratio = P/B 72.32% 95.11% 97.43% 115.47% 112.82% 116.52% 111.11%
Price-assets ratio = P/A 5.94% 9.68% 9.68% 25.27% 23.93% 14.06% 12.43%
</TABLE>
<TABLE>
<CAPTION>
Valuation Parameters
--------------------
<S> <C> <C> <C>
Pre-Conversion Earnings (Y) ($152,000) ESOP Stock Purchases (E) 3.00% (5)
Pre-Conversion Book Value (B) $4,418,000 Cost of ESOP Borrowings (S) 0.00% (4)
Pre-Conv. Tang. Book Value (B) $4,418,000 ESOP Amortization (T) 10.00 years
Pre-Conversion Assets (A) $83,832,000 RRP Amount (M) 4.00%
Reinvestment Rate (2)(R) 3.76% MRP Vesting (N) 5.00 years (5)
Est. Conversion Expenses (3)(X) 10.53% Percentage Sold (PCT) 64.71%
Tax rate (TAX) 34.00%
</TABLE>
<TABLE>
<CAPTION>
Calculation of Pro Forma Value After Conversion
-----------------------------------------------
<S> <C> <C> <C>
1. V= P/E * (Y) V= $5,138,636
------------------------------------------------------------------
1 - P/E * PCT * ((1-X-E-M)*R - (1-TAX)*E/T - (1-TAX)*M/N)
2. V= P/B * B V= $5,138,636
-------------------------------
1 - P/B * PCT * (1-X-E-M)
3. V= P/A * A V= $5,138,636
-------------------------------
1 - P/A * PCT * (1-X-E-M)
</TABLE>
<TABLE>
<CAPTION>
Full
Gross Exchange Conversion
Conclusion Proceeds Ratio Value
----------- -------- ------- -----
<S> <C> <C> <C>
Minimum $2,826,250 0.8564 $4,367,841
Midpoint $3,325,000 1.0076 $5,138,636
Maximum $3,823,750 1.1587 $5,909,432
Supermaximum $4,397,313 1.3325 $6,795,847
</TABLE>
-------------------------------------------------------------------------
(1) Pricing ratios shown reflect the midpoint value.
(2) Net return reflects a reinvestment rate of 5.69 percent, and a tax rate
of 34.00 percent.
(3) $0.350 million of estimated expense at the midpoint of
offering range.
(4) No cost is applicable since holding company will fund
the ESOP loan.
(5) ESOP and MRP amortize over 10 years and 5 years,
respectively; amortizationexpenses tax effected at 34.0 percent.
<PAGE>
EXHIBIT IV-8
Pro Forma Effect of Conversion Proceeds
<PAGE>
Exhibit IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
Middlesboro Federal Bank, Federal Savings Bank
At the Minimum of the Range
<TABLE>
<CAPTION>
<S> <C>
1. Conversion Proceeds
Full Conversion Value $4,367,841
Exchange Ratio 0.8564
Offering Proceeds $2,826,250
Less: Estimated Offering Expenses 350,000
-------
Net Conversion Proceeds $2,476,250
2. Estimated Additional Income from Conversion Proceeds
Net Conversion Proceeds $2,476,250
Less: Non-Cash Stock Purchases (1) 244,085
-------
Net Proceeds Reinvested $2,232,165
Estimated net incremental rate of return 3.76%
-----
Earnings Increase $83,827
Less: Estimated cost of ESOP borrowings (2) 0
Less: Amortization of ESOP borrowings (3) 8,648
Less: Recognition Plan Vesting (4) 14,923
------
Net Earnings Increase $60,256
</TABLE>
<TABLE>
Net
Before Earnings After
3. Pro Forma Earnings Conversion Increase Conversion
---------- -------- ----------
<S> <C> <C> <C>
12 Months ended September 30, 1996 (reported) ($152,000) $60,256 ($91,744)
12 Months ended September 30, 1996 (core) $337,000 $60,256 $397,256
Before Net Cash After
4. Pro Forma Net Worth Conversion Proceeds Conversion
---------- -------- ----------
September 30, 1996 $4,418,000 $2,232,165 $6,650,165
September 30, 1996(Tangible) $4,418,000 $2,232,165 $6,650,165
Before Net Cash After
5. Pro Forma Assets Conversion Proceeds Conversion
---------- -------- ----------
September 30, 1996 $83,832,000 $2,232,165 $86,064,165
</TABLE>
(1) Includes ESOP stock purchases equal to 3.0 percent of the full conversion
value and MRP stock purchases equal to 4.0 percent of the second step
offering.
(2) ESOP stock purchases are internally financed by a loan from the holding
company.
(3) ESOP borrowings are amortized over 10 years, amortization expense is tax-
effected at a 34.00 percent rate.
(4) MRP is amortized over 5 years, and amortization expense is tax effected at
34.00 percent.
<PAGE>
Exhibit IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
Middlesboro Federal Bank, Federal Savings Bank
At the Midpoint of the Range
<TABLE>
<CAPTION>
<S> <C>
1. Conversion Proceeds $5,138,636
Full Conversion Value 1.0076
Exchange Ratio
Offering Proceeds $3,325,000
Less: Estimated Offering Expenses 350,000
-------
Net Conversion Proceeds $2,975,000
2. Estimated Additional Income from Conversion Proceeds
Net Conversion Proceeds $2,975,000
Less: Non-Cash Stock Purchases (1) 287,159
-------
Net Proceeds Reinvested $2,687,841
Estimated net incremental rate of return 3.76%
-----
Earnings Increase $100,939
Less: Estimated cost of ESOP borrowings (2) 0
Less: Amortization of ESOP borrowings (3) 10,175
Less: Recognition Plan Vesting (4) 17,556
------
Net Earnings Increase $73,209
<CAPTION>
Net
Before Earnings After
3. Pro Forma Earnings Conversion Increase Conversion
---------- -------- ----------
<S> <C> <C> <C>
12 Months ended September 30, 1996 (reported) ($152,000) $73,209 ($78,791)
12 Months ended September 30, 1996 (core) $337,000 $73,209 $410,209
Before Net Cash After
4. Pro Forma Net Worth Conversion Proceeds Conversion
---------- -------- ----------
September 30, 1996 $4,418,000 $2,687,841 $7,105,841
September 30, 1996(Tangible) $4,418,000 $2,687,841 $7,105,841
Before Net Cash After
5. Pro Forma Assets Conversion Proceeds Conversion
---------- -------- ----------
September 30, 1996 $83,832,000 $2,687,841 $86,519,841
</TABLE>
(1) Includes ESOP stock purchases equal to 3.0 percent of the full conversion
value and MRP stock purchases equal to 4.0 percent of the second step
offering.
(2) ESOP stock purchases are internally financed by a loan from the holding
company.
(3) ESOP borrowings are amortized over 10 years, amortization expense is tax-
effected at a 34.00 percent rate.
(4) MRP is amortized over 5 years, and amortization expense is tax effected at
34.00 percent.
<PAGE>
Exhibit IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
Middlesboro Federal Bank, Federal Savings Bank
At the Maximum of the Range
<TABLE>
<CAPTION>
<S> <C>
1. Conversion Proceeds
Full Conversion Value $5,909,432
Exchange Ratio 1.1587
Offering Proceeds $3,823,750
Less: Estimated Offering Expenses 350,000
-------
Net Conversion Proceeds $3,473,750
<CAPTION>
2. Estimated Additional Income from Conversion Proceeds
Net Conversion Proceeds $3,473,750
Less: Non-Cash Stock Purchases (1) 330,233
-------
Net Proceeds Reinvested $3,143,517
Estimated net incremental rate of return 3.76%
-----
Earnings Increase $118,052
Less: Estimated cost of ESOP borrowings (2) 0
Less: Amortization of ESOP borrowings (3) 11,701
Less: Recognition Plan Vesting (4) 20,189
------
Net Earnings Increase $86,162
</TABLE>
<TABLE>
<CAPTION>
Net
Before Earnings After
3. Pro Forma Earnings Conversion Increase Conversion
---------- -------- ----------
<S> <C> <C> <C>
12 Months ended September 30, 1996 (reported) ($152,000) $86,162 ($65,838)
12 Months ended September 30, 1996 (core) $337,000 $86,162 $423,162
<CAPTION>
Before Net Cash After
4. Pro Forma Net Worth Conversion Proceeds Conversion
---------- -------- ----------
September 30, 1996 $4,418,000 $3,143,517 $7,561,517
September 30, 1996(Tangible) $4,418,000 $3,143,517 $7,561,517
<CAPTION>
Before Net Cash After
5. Pro Forma Assets Conversion Proceeds Conversion
---------- -------- ----------
September 30, 1996 $83,832,000 $3,143,517 $86,975,517
</TABLE>
(1) Includes ESOP stock purchases equal to 3.0 percent of the full conversion
value and MRP stock purchases equal to 4.0 percent of the second step
offering.
(2) ESOP stock purchases are internally financed by a loan from the holding
company.
(3) ESOP borrowings are amortized over 10 years, amortization expense is tax-
effected at a 34.00 percent rate.
(4) MRP is amortized over 5 years, and amortization expense is tax effected at
34.00 percent.
<PAGE>
Exhibit IV-8
PRO FORMA EFFECT OF CONVERSION PROCEEDS
Middlesboro Federal Bank, Federal Savings Bank
At the Superrange Maximum
<TABLE>
<CAPTION>
1. Conversion Proceeds
<S> <C>
Full Conversion Value $6,795,847
Exchange Ratio 1.3325
Offering Proceeds $4,397,313
Less: Estimated Offering Expenses 350,000
-------
Net Conversion Proceeds $4,047,313
<CAPTION>
2. Estimated Additional Income from Conversion Proceeds
Net Conversion Proceeds $4,047,313
Less: Non-Cash Stock Purchases (1) 379,768
-------
Net Proceeds Reinvested $3,667,545
Estimated net incremental rate of return 3.76%
-----
Earnings Increase $137,731
Less: Estimated cost of ESOP borrowings (2) 0
Less: Amortization of ESOP borrowings (3) 13,456
Less: Recognition Plan Vesting (4) 23,218
------
Net Earnings Increase $101,057
</TABLE>
<TABLE>
<CAPTION>
Net
Before Earnings After
3. Pro Forma Earnings Conversion Increase Conversion
---------- -------- ----------
<S> <C> <C> <C>
12 Months ended September 30, 1996 (reported) ($152,000) $101,057 ($50,943)
12 Months ended September 30, 1996 (core) $337,000 $101,057 $438,057
<CAPTION>
Before Net Cash After
4. Pro Forma Net Worth Conversion Proceeds Conversion
---------- -------- ----------
September 30, 1996 $4,418,000 $3,667,545 $8,085,545
September 30, 1996(Tangible) $4,418,000 $3,667,545 $8,085,545
<CAPTION>
Before Net Cash After
5. Pro Forma Assets Conversion Proceeds Conversion
---------- -------- ----------
September 30, 1996 $83,832,000 $3,667,545 $87,499,545
</TABLE>
(1) Includes ESOP stock purchases equal to 3.0 percent of the full conversion
value and MRP stock purchases equal to 4.0 percent of the second step
offering.
(2) ESOP stock purchases are internally financed by a loan from the holding
company.
(3) ESOP borrowings are amortized over 10 years, amortization expense is tax-
effected at a 34.00 percent rate.
(4) MRP is amortized over 5 years, and amortization expense is tax effected at
34.00 percent.
<PAGE>
EXHIBIT IV-9
Peer Group Core Earnings Analysis
<PAGE>
RP FINANCIAL, LC.
- -----------------------------------------
Financial Services Industry Consultants
1700 North Moore Street, Suite 2210
Arlington, Virginia 22209
(703) 528-1700
Core Earnings Analysis
Comparable Institution Analysis
For the Twelve Months Ended September 30, 1996
<TABLE>
<CAPTION>
Estimated
Net Income Less: Net Tax Effect Less: Extd Core Income Estimated
to Common Gains(Loss) @ 34% Items to Common Shares Core EPS
---------- ----------- ---------- ---------- ----------- ---------- ---------
($000) ($000) $000) ($000) ($000) ($000) ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Comparable Group
- ----------------
CLAS Classic Bancshares of KY 300 318 -108 0 510 1,322 0.39
CBIN Community Bank Shares of IN 1,309 1,039 -353 0 1,995 1,984 1.01
CIBI Community Inv. Bancorp of OH 599 402 -137 0 864 666 1.30
BDJI First Fed. Bancorp. of MN 316 583 -198 0 701 701 1.00
FFBI First Financial Bancorp of IL 101 326 -111 0 316 452 0.70
FFHS First Franklin Corp. of OH 598 1,103 -375 0 1,326 1,158 1.15
HZFS Horizon Fin'l. Services of IA 96 222 -75 0 243 448 0.54
LSBI LSB Fin. Corp. of Lafayette IN 826 -116 39 0 749 918 0.82
OHSL OHSL Financial Corp. of OH 1,175 885 -301 0 1,759 1,223 1.44
PLE Pinnacle Bank of AL 959 837 -285 0 1,511 890 1.70
PTRS The Potters S&L Co. of OH 30 639 -217 0 452 506 0.89
</TABLE>
Source: Audited and unaudited financial statements, corporate reports and
offering circulars, and RP Financial, Inc. calculations. The information
provided in this table has been obtained from sources we believe are
reliable, but we cannot guarantee the accuracy or completeness of such
information.
Copyright (c) 1995 by RP Financial, LC.
<PAGE>
EXHIBIT V-1
RP Financial, LC.
Firm Qualifications Statement
<PAGE>
FIRM QUALIFICATION STATEMENT
RP Financial provides financial and management consulting and valuation services
to the financial services industry nationwide, particularly federally-insured
financial institutions. RP Financial establishes long-term client relationships
through its wide array of services, emphasis on quality and timeliness, hands-on
involvement by our principals and senior consulting staff, and careful
structuring of strategic plans and transactions. RP Financial's staff draws
from backgrounds in consulting, regulatory agencies and investment banking,
thereby providing our clients with considerable resources.
STRATEGIC AND CAPITAL PLANNING
RP Financial's strategic and capital planning services are designed to provide
effective workable plans with quantifiable results. Through a program referred
to as SAFE, Strategic Alternatives Financial Evaluations, RP Financial analyzes
strategic options which will enhance shareholder value or otherwise achieve
desired results. Our planning services involve conducting situation analyses
and establishing mission statements, strategic goals and objectives, with
overall emphasis on enhancement of franchise value, capital management and
planning, earnings improvement and operational issues. Our planning services
include the development of strategies in the following areas: capital formation
and management, asset/liability targets, profitability and return on equity.
Our proprietary financial simulation model provides the basis for evaluating the
financial impact of alternative strategies as well as assessing the feasibility
and compatibility of such strategies with regulations and/or other guidelines.
MERGER AND ACQUISITION SERVICES
RP Financial's merger and acquisition (M&A) services include targeting
candidates and potential acquirors, assessing acquisition merit, conducting
detailed due diligence, negotiating and structuring transactions, preparing
merger business plans and financial simulations, rendering fairness opinions and
assisting in implementing post-acquisition strategies. Through our financial
simulations, comprehensive in-house data bases, valuation expertise and
regulatory knowledge, RP Financial's M&A consulting focuses on structuring
transactions to enhance shareholder returns.
VALUATION SERVICES
RP Financial's extensive valuation practice includes valuations for a variety of
purposes including mergers and acquisitions, mutual-to-stock conversions, ESOPs,
subsidiary and related industry companies, mark-to-market transactions, loan and
servicing portfolios, non-traded securities, deposit portfolios and core
deposits. Our principals and staff are highly experienced in performing
valuation appraisals which conform with regulatory guidelines and appraisal
industry standards. RP Financial is the nation's leading valuation firm for
mutual-to-stock conversions of thrift institutions.
OTHER CONSULTING SERVICES AND DATA BASES
RP Financial offers a variety of other services including branching strategies,
feasibility studies and special research studies, which are complemented by our
quantitative and computer skills. RP Financial's consulting services are aided
by its in-house data base resources for commercial banks and savings
institutions and proprietary valuation and financial simulation models.
RP Financial's Key Personnel (Years of Relevant Experience)
Ronald S. Riggins, Managing Director (16)
William E. Pommerening, Managing Director (11)
Gregory E. Dunn, Senior Vice President (15)
James P. Hennessey, Senior Vice President (10)
James J. Oren, Vice President (9)
Timothy M. Biddle, Vice President (7)
Alan P. Carruthers, Director-Community Banking (15)
<PAGE>
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 CUMBERLAND MOUNTAIN BANCSHARES, INC.
(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 Office of Thrift Supervision
Regional Director, Ronald Karr at (312) 917-5000.
I/We further certify that, before purchasing the common stock, par value
$.01 per share, of Cumberland Mountain Bancshares, Inc., the proposed holding
company for Middlesboro Federal Bank, Federal Savings Bank, (I/We received a
Prospectus dated February __, 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:
<TABLE>
<CAPTION>
<S> <C> <C>
1. Loan Portfolio Concentrations (page 1)
2. Market Area (page 1)
3. Future of Thrift Industry (page 1)
4. Potential Effects of Changes in Interest Rates and
the Current Interest Rate Environment (page 2)
5. Certain Anti-Takeover Provisions (page 2)
6. Possible Dilutive Effect of Issuance of Additional Shares (page 3)
7. Absence of Market for Common Stock (page 4)
8. Possible Divestiture Requirements for Public Stockholders (page 4)
9. Competition (page 5)
10. Possible Adverse Income Tax Consequences of the Distribution
of Subscription Rights (page 5)
</TABLE>
PRINT NAME:
---------------------------
SIGNATURE:
----------------------------
PRINT NAME:
---------------------------
SIGNATURE:
----------------------------
DATE:
---------------------------------
<PAGE>
+++ +++ CUMBERLAND MOUNTAIN BANCSHARES, INC.
+ + (HOLDING COMPANY FOR MIDDLESBORO
FEDERAL BANK, FEDERAL SAVINGS BANK)
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 $10.00 =
- -------------------------- --------------------------
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 Middlesboro Federal on
Middlesboro Federal. September 30, 1995. Enter information
below for all deposit accounts that
you had at Home Savings on September
30, 1995.
(5)b [ ] Supplemental Eligible Account Holder-
Check here if you were a depositor of
at least $50.00 at Middlesboro
Federal on December 31, 1996. Enter
information below for all deposit
accounts that you had at Middlesboro
Federal at that date.
----------- Cash can be
$ used only (5)c [ ] 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 Middlesboro Federal an Eligible Account Holder or
office. Supplemental Eligible Account Holder.
(4)[ ] The undersigned (5)d [ ] Local Community Resident -- Check
authorizes withdrawal here if you are a permanent resident
from this (these) of Bell or Harlan Counties, Kentucky.
account(s) at Middlesboro
Federal.
(5)e [ ] Public Stockholder -- Check here if
you are a stockholder of Middlesboro
Federal.
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 Cumberland Mountain, 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
Cumberland Mountain 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 described
in the accompanying Prospectus. If the Plan of is not approved by the voting
members of Cumberland Mountain Bancshares, M.H.C. at a Special Meeting to be
held on , 1997, or any adjournment thereof and the stockholders
of Middlesboro Federal, all orders will be cancelled and funds received as
payment, with accrued interest, will be returned promptly.
The undersigned agrees that after receipt by Cumberland Mountain, 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 consent, and if authorization to withdraw from deposit accounts at
Middlesboro Federal 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. THE PARTIES 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
MIDDLESBORO FEDERAL BANK, FEDERAL
SAVINGS BANK 1431 CUMBERLAND AVENUE
Date Rec'd ____/___/_____ MIDDLESBORO, KENTUCKY 40965
Order # _________________ (606) -
Category_________________
Batch # _________________
Deposit _________________
Date Input____/____/_____
<PAGE>
CUMBERLAND MOUNTAIN BANCSHARES, 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 Kentucky Uniform Transfer to Minors
Act will be abbreviated John Doe, CUST Susan Doe Unif Tran Min Act, KY (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 Middlesboro Federal 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 Cumberland
Mountain 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
Cumberland Mountain. If you need further assistance, please call the Stock
Information Center at (606) -. We will be pleased to help you with the
completion of your Stock Order Form or answer any questions you may have.
ITEM INSTRUCTIONS
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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 $10.00 per share. The minimum purchase is
25 shares and the maximum purchase in the Subscription Offering is ______
shares. The maximum purchase in the Community Offering by any person, together
with associates or groups acting in concert is ______ shares. Cumberland
Mountain Bancshares, Inc., Cumberland Mountain Bancshares, N.H.C and Middlesboro
Federal Bank, Federal Savings Bank 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 Middlesboro Federal on September 30, 1995 (the "Eligibility
Record Date") with at least $50.00 on deposit.
(b) A depositor at Middlesboro Federal on December 31, 1996 (the "Supplemental
Eligibility Record Date") with at least $50.00 on deposit.
(c) A depositor or borrower at Middlesboro Federal on , 1997 (the "Voting
Record Date").
(d) A permanent resident of Ben or Marlan Counties, Kentucky.
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.
