<PAGE>
As filed with the Securities and Exchange Commission on September 17, 1997
Registration No. 333-30215
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------
HOPFED BANCORP, INC.
(Exact Name of Registrant as Specified in its Charter)
------------------
Delaware 6035 61-0229082
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S Employer
of Incorporation or Organization) Classification Code Number) Identification
Number)
2700 Fort Campbell Boulevard
Hopkinsville, Kentucky 42240
(502) 885-1171
(Address and telephone number of principal executive offices and principal place
of business)
(#1 moved from here; text not shown)
Bruce Thomas, President
HopFed Bancorp, Inc.
2700 Fort Campbell Boulevard
Hopkinsville, Kentucky 42240
(502) 885-1171
(Name, address, and telephone number of agent for service)
Please send copies of all communications to:
Edward B. Crosland, Esquire Lori M. Beresford, Esquire
Paul D. Borja, Esquire Muldoon Murphy & Faucette
Reinhart, Boerner, Van Deuren, 5101 Wisconsin Avenue, N.W.
Norris & Rieselbach, P.C. Washington, D.C. 20016
601 Pennsylvania Avenue, N.W. (202) 362-0840 (Phone)
North Building, Suite 750 (202) 966-9409 (Fax)
Washington, D.C. 20004
(202) 393-3636 (Phone)
(202) 393-0796 (Fax)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
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 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. [_]
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
Title of Each Class Amount to be Proposed Maximum Offering Price Proposed Maximum Aggregate Amount of Registration
of Securities to be Registered (1) Per Share (1) Offering Price (1) Fee (2)
Registered
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share 3,504,625 $ 10.00 $ 35,046,250 $10,621
====================================================================================================================================
</TABLE>
- -----------------------
(1) Estimated solely for the purpose of calculating the Registration Fee.
(2) Calculated pursuant to Rule 457(c) under the Securities Act of 1933, as
amended. Of such amount $9,618.18 was previously paid and the balance of
$1,022.82 is paid with this filing.
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
HOPFED BANCORP, INC.
(PROPOSED HOLDING COMPANY FOR
HOPKINSVILLE FEDERAL SAVINGS BANK)
Up to 3,047,500 Shares of the Common Stock
$10.00 Per Share
HopFed Bancorp, Inc. (the "Company"), a Delaware corporation, is offering
up to 3,047,500 shares, subject to adjustment, of its common stock, par value
$.01 per share (the "Common Stock"), in connection with the conversion of
Hopkinsville Federal Savings Bank (the "Bank") from a federal mutual savings
bank to a federal stock savings bank and the issuance of the Bank's capital
stock to the Company pursuant to the Plan of Conversion (the "Plan") of the
Bank. The conversion of the Bank, the acquisition of all the outstanding
capital stock of the Bank by the Company and the issuance and sale of the Common
Stock are collectively referred to herein as the "Conversion."
The shares of Common Stock are being offered pursuant to nontransferable
subscription rights ("Subscription Rights") in a subscription offering (the
"Subscription Offering"). Subscription Rights are not transferable, and persons
who attempt to transfer their Subscription Rights may lose the right to
subscribe for stock in the Conversion and may be subject to other sanctions and
penalties imposed by the Office of Thrift Supervision ("OTS"). The Company may
offer any shares of the Common Stock not subscribed for in the Subscription
Offering in a community offering (the "Community Offering") to certain members
of the general public to whom the Company delivers a copy of this Prospectus and
a stock order form (the "Stock Order Form"), with preference given to natural
persons and trusts of natural persons who are permanent residents of Calloway,
Christian, Todd and Trigg Counties, Kentucky. The Subscription Offering and the
Community Offering are hereinafter referred to as the "Offerings." The Company
and the Bank may, in their absolute discretion, reject any orders in the
Community Offering in whole or in part.
The Common Stock has been approved for quotation on the Nasdaq Stock Market
under the symbol "HFBC." See "Market for the Common Stock."
For information on how to subscribe, please call the Stock Information Center at
(502) 881-4001.
PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW AND CONSIDER THE DISCUSSION UNDER
"RISK FACTORS" BEGINNING ON PAGE 1.
_________________________
THESE SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH
COMMISSION, OFFICE OR CORPORATION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
_________________________
THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS ACCOUNTS
OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY.
<TABLE>
<CAPTION>
============================================================================================================
Estimated Net
Purchase Price (1) Estimated Fees and Expenses (2) Proceeds (3)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share (4)..................... $ 10.00 $ 0.26 $ 9.74
- ------------------------------------------------------------------------------------------------------------
Total Minimum..................... $22,525,000 $700,000 $21,825,000
- ------------------------------------------------------------------------------------------------------------
Total Midpoint.................... $26,500,000 $700,000 $25,800,000
- ------------------------------------------------------------------------------------------------------------
Total Maximum..................... $30,475,000 $700,000 $29,775,000
- ------------------------------------------------------------------------------------------------------------
Total Maximum, as adjusted (5).... $35,046,250 $700,000 $34,346,250
============================================================================================================
</TABLE>
(footnotes on following page)
INVESTMENT BANK SERVICES, INC. FRIEDMAN, BILLINGS, RAMSEY
& CO., INC.
The date of this Prospectus is ___________, 1997
<PAGE>
The total number of shares to be issued in the Conversion may be
significantly increased or decreased to reflect market and financial conditions
at the completion of the Conversion. The aggregate purchase price of all shares
of Common Stock will be based on the estimated pro forma market value of the
Bank, as converted, as determined by an independent appraisal. All shares of
Common Stock will be sold for $10.00 per share (the "Purchase Price"). With the
exception of the ESOP, which intends to purchase 8% of the total number of
shares of the Common Stock issued in the Conversion, no Eligible Account Holder,
Other Member or person in the Community Offering may purchase more than $250,000
of the shares of the Common Stock issued in the Conversion. In addition, no
person (together with associates and persons acting in concert therewith) may
purchase in the aggregate more than the $500,000 of the shares of the Common
Stock issued in the Conversion. The maximum overall purchase limitation and the
amount permitted to be subscribed for may be increased or decreased under
certain circumstances in the sole discretion of the Company and the Bank. The
minimum purchase is 25 shares. See "The Conversion -- Limitations on Purchase of
Shares."
THE SUBSCRIPTION OFFERING WILL EXPIRE AT 4:00 P.M., LOCAL TIME, ON
___________, 1997, UNLESS EXTENDED BY THE COMPANY FOR UP TO AN ADDITIONAL 45
DAYS. THE COMMUNITY OFFERING, IF ANY, MAY COMMENCE WITHOUT NOTICE AT ANY TIME
AFTER THE COMMENCEMENT OF THE SUBSCRIPTION OFFERING AND MAY TERMINATE AT
ANY TIME WITHOUT NOTICE, BUT MAY NOT TERMINATE LATER THAN , 1997. An
executed Stock Order Form, once received by the Bank, may not be modified,
amended or rescinded without the consent of the Bank. Subscriptions paid by
check, cash or money order will be held in a separate account at the Bank
established specifically for this purpose, and interest will be paid at the
Bank's passbook rate from the date payment is received until the Conversion is
completed or terminated. In the case of payments to be made through withdrawal
from deposit accounts at the Bank, all sums authorized for withdrawal will
continue to earn interest at the contract rate until the date of the completion
of the Conversion but, following completion of the Conversion, funds withdrawn
from deposit accounts and used to purchase the
(continued on following page)
________________________________
(footnotes from preceding table)
(1) The estimated aggregate value of the Common Stock is based on an independent
appraisal by National Capital Companies, LLC ("National Capital") as of
____________, 1997. See "The Conversion -- Stock Pricing and Number of
Shares to be Issued." Based on such appraisal, the Company has determined
to offer up to 3,047,500 shares, subject to adjustment, at a purchase price
of $10.00 per share (the "Purchase Price"). The final aggregate value will
be determined at the time of closing of the Conversion and is subject to
change due to changing market conditions and other factors. If a change in
the final valuation is required, an appropriate adjustment will be made in
the number of shares being offered within a range of 2,252,500 shares at the
minimum of the Estimated Valuation Range (defined herein) to 3,047,500
shares at the maximum of the Estimated Valuation Range and, with OTS
approval, to 3,504,625 shares at approximately 15% above the maximum of the
Estimated Valuation Range.
(2) Includes estimated printing, postage, legal, accounting and miscellaneous
expenses which will be incurred in connection with the Conversion. Also
includes estimated fees, sales commissions and reimbursable expenses to be
paid to the Agents of $225,000. The actual fees and expenses may vary from
the estimates. See "Pro Forma Data" for the assumptions underlying these
estimates. The Agents may each be deemed to be underwriters, and certain
amounts to be paid to the Agents may be deemed to be underwriting
compensation for purposes of the Securities Act of 1933, as amended (the
"Securities Act"). The Company and the Bank have agreed to indemnify the
Agents against certain liabilities arising out of their services in
connection with the Conversion.
(3) Includes the ESOP's expected purchase of 8% of the shares sold in the
Conversion with funds borrowed from the Company. Does not reflect a
possible purchase after the Conversion by a management recognition plan of a
number of shares equal to up to 4% of the shares to be issued in the
Conversion with funds contributed by the Bank. See "Capitalization" and "Pro
Forma Data."
(4) Based on the midpoint of the Estimated Valuation Range. At the minimum,
maximum and 15% above the maximum of the Estimated Valuation Range, the
estimated fees and expenses, including underwriting discounts and
commissions, per share are expected to be $0.31, $0.23 and $0.20,
respectively, and the estimated net proceeds per share are expected to be
$9.69, $9.77 and $9.80, respectively.
(5) Gives effect to an increase in the number of shares of up to 15% above the
maximum of the Estimated Valuation Range which could occur without a
resolicitation of subscribers or any right of cancellation and which would
be due to an increase in the Estimated Valuation Range to reflect changes in
market and financial conditions. See "The Conversion -- Stock Pricing and
Number of Shares to be Issued."
<PAGE>
(continued from preceding page)
Common Stock will no longer be deposit accounts and will not be insured by the
Federal Deposit Insurance Company ("FDIC"), the Bank Insurance Fund, the Savings
Association Insurance Fund ("SAIF") or any other governmental agency. If the
Conversion is not completed within 45 days after the last day of the
Subscription Offering (which date will be no later than __________, 1997) and
the OTS consents to an extension of time to complete the Conversion, subscribers
must affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering and may, in the alternative, modify or cancel their
subscriptions. See "The Conversion -- Subscription for Stock in Subscription
and Community Offerings."
The Bank and the Company have retained Investment Bank Services, Inc.
("IBS") and Friedman, Billings, Ramsey & Co., Inc. ("FBR") (hereinafter referred
to as the "Agents"), to provide financial and sales assistance in connection
with the Offerings. The Agents are each a broker-dealer registered with the
Securities and Exchange Commission ("SEC") and a member of the National
Association of Securities Dealers, Inc. ("NASD"). The Agents have agreed to use
their best efforts to assist the Bank and the Company with the sale of the
Common Stock in the Offerings. The Agents have no obligation to, and will not
take or purchase, any shares in the Offerings.
<PAGE>
[MAP OF KENTUCKY AND EXPANDED MAP OF COUNTIES IN BANK'S MARKET AREA,
WITH LOCATIONS NOTED OF BANK'S MAIN OFFICE AND BRANCHES]
THE BANK'S CONVERSION TO A STOCK ORGANIZATION IS CONTINGENT UPON APPROVAL OF THE
PLAN OF CONVERSION BY ITS MEMBERS, THE SALE OF AT LEAST THE MINIMUM NUMBER OF
SHARES OFFERED PURSUANT TO THE PLAN OF CONVERSION AND THE SATISFACTION OF
CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS IN ITS APPROVAL.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information, risk factors and financial
statements, including the related notes, appearing elsewhere in this Prospectus.
Terms used but not defined herein are defined elsewhere in this Prospectus.
HopFed Bancorp, Inc.
The Company was incorporated under the laws of the State of Delaware in May
1997 at the direction of the Board of Directors of the Bank for the purpose of
serving as a holding company of the Bank upon the conversion of the Bank from
mutual to stock form. Approval from the OTS to acquire control of the Bank,
subject to satisfaction of certain conditions, is pending. Prior to the
Conversion, the Company has not engaged and will not engage in any material
operations. Upon consummation of the Conversion, the Company will have no
significant assets other than the outstanding capital stock of the Bank, a
portion of the net proceeds of the Conversion and a note receivable from the
ESOP. Following the Conversion, the Company's principal business will be
overseeing and directing the business of the Bank and investing the net
Conversion proceeds retained by it, and the Company will register with the OTS
as a savings and loan holding company.
Hopkinsville Federal Savings Bank
General. The Bank is a federal mutual savings bank headquartered in
Hopkinsville with five offices: two offices in Hopkinsville (located in
Christian County) and one office in each of Murray (Calloway County), Cadiz
(Trigg County) and Elkton (Todd County), Kentucky. The Bank was chartered by
the Commonwealth of Kentucky in 1879 under the name Hopkinsville Building and
Loan Association. In 1940, the Bank converted to a federal mutual savings
association and received federal insurance of its deposit accounts. In 1983,
the Bank became a federal mutual savings bank and adopted its current name. At
June 30, 1997, the Bank had total assets of $202.5 million, total deposits of
$181.4 million and total equity of $18.3 million.
The Bank is subject to examination and comprehensive regulation by the OTS,
and the Bank's savings deposits are insured up to applicable limits by the
Savings Association Insurance Fund ("SAIF"), which is administered by the FDIC.
The Bank is a member of and owns capital stock in the Federal Home Loan Bank
("FHLB") of Cincinnati, which is one of 12 regional banks in the FHLB System.
The Bank is further subject to regulations of the Board of Governors of the
Federal Reserve System ("Federal Reserve Board") governing reserves to be
maintained and certain other matters. Regulations significantly affect the
operations of the Bank. See "Regulation -- Regulation of the Bank."
Historically, the Bank has operated as a traditional savings institution by
emphasizing the origination of loans secured by first mortgages on one-to-four
family residences. At June 30, 1997, $80.2 million, or 81.5% of the Bank's net
loan portfolio, consisted of one-to-four family residential mortgage loans, all
of which are originated on properties in its market area of Christian, Calloway,
Todd and Trigg Counties in Kentucky. See "Business of the Bank -- Market Area."
Substantially all of these loans have terms of up to 25 years, and are
adjustable rate loans.
Business Strategy. The Bank is a community-oriented savings institution
offering traditional deposit and loan products to meet the needs of its market
area. The Bank emphasizes the origination of adjustable-rate one-to-four family
residential mortgage loans secured primarily by owner-occupied properties in its
market area. Additionally, due in part to the significant competition for
lending in the Bank's market area and lower customer demand in the recent low
interest rate environment for adjustable rate one-to-four family residential
mortgage loans compared to 30-year fixed rate mortgage loans for which the Bank
generally does not compete, the Bank has invested a substantial amount of funds
in adjustable-rate mortgage-backed instruments and other securities. The need
to find alternative investment options to one-to-four family loans was
exacerbated by the Bank's practice prior to 1996 of aggressively seeking deposit
liabilities from within its market area by offering above-market deposit rates.
The resulting inflow of cash increased the Bank's total assets each year until
it reached $212.6 million at December 31, 1995. Because of the weak demand in
the Bank's market area for its loan products, the Bank invested the deposits
into lower-yielding assets such as U.S. Treasury obligations and mortgage-backed
securities. At the same time, the Bank incurred significant interest expense to
attract and retain deposits at a level deemed appropriate by the Bank. This
combination of lower overall yields and higher interest expense decreased the
Bank's profitability as reflected in the decline in its interest rate spread to
0.84% for the year ended December 31, 1995 from 1.09% for the year ended
December 31, 1994.
(i)
<PAGE>
In 1996, the Bank began repricing its deposit liabilities so that its
interest rates were more consistent with the rates offered by other financial
institutions in its market area. This resulted in a decrease in deposits of
$10.9 million at December 31, 1996 and a corresponding decrease in interest
expense during 1996, which had the effect of increasing net interest income by
$1.0 million from December 31, 1995 to December 31, 1996. The Bank intends to
continue its strategy of offering deposits at not greater than market rates
while emphasizing the ongoing shift of funds from investments in mortgage-backed
and other securities to adjustable-rate mortgage loans depending upon loan
demand in the Bank's market area. See "Business of the Bank -- Lending
Activities."
As a result of the Bank's revised business strategy, the Bank's interest
rate spread increased to 1.35% for the year ended December 31, 1996, from 0.84%
for the year ended December 31, 1995. During 1996, the Bank was required to pay
a one-time deposit insurance assessment of $1.2 million (before taxes) to the
SAIF. See Note 13 of Notes to Financial Statements and "Regulation --
Regulation of the Bank -- Federal Deposit Insurance." This special assessment
was imposed on all thrift institutions in September 1996, and the Bank's net
income, return on average assets and return on average equity for 1996 was
$193,000, 0.09% and 1.19%, respectively. Excluding the effect of this one-time
assessment, the Bank's net income, return on average assets and return on
average equity for 1996 would have been $1,007,000, 0.48% and 6.15%,
respectively. In comparison, the Bank's 1995 net income, return on average
assets and return on average equity was $412,000, 0.20% and 2.64%, respectively.
See "Selected Financial and Other Data." The Bank intends to continue this
revised business strategy while maintaining its focus as a community-based
financial institution serving the housing-related financing needs of customers
in its market area. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Highlights. Financial and operating characteristics of the Bank include
the following:
Community Orientation. The Bank has been committed to meeting the
financial needs of the community in which it has operated for over 117 years.
The Bank believes that with its long-term presence in the community, it is well
positioned to provide personalized and efficient financial services to a loyal
customer base. Management believes that the Bank can be more effective in
servicing its customers because of the Bank's ability to quickly and effectively
provide responses to customer needs and inquiries. Management plans to continue
to emphasize the community orientation of the Bank and believes that this
emphasis will represent a continuing competitive advantage to the Bank.
Capital Strength. At June 30, 1997, the Bank exceeded all of its minimum
regulatory capital requirements, with tangible and core capital of 7.7% of
adjusted total assets and risk-based capital of 21.5% of total risk-weighted
assets. See "Regulation -- Regulation of the Bank -- Regulatory Capital." As a
result of the Conversion, assuming the Company retains 50.0% of the net proceeds
of the Conversion at the midpoint of the Estimated Valuation Range, at June 30,
1997, the Bank would have had pro forma stockholders' equity of approximately
$28.0 million, or 13.0% of pro forma total assets, and the Company would have
had pro forma consolidated stockholders' equity of $40.9 million, or 17.9% of
total pro forma consolidated assets. See "Historical and Pro Forma Regulatory
Capital Compliance."
Asset Quality. As a result of the conservative application by management
of the Bank's underwriting criteria, the Bank has only experienced insignificant
losses in its loan portfolio over the past five years. Further, through its
aggressive loan management process, the Bank has significantly minimized its
non-performing assets. At December 31, 1996 and 1995 and at June 30, 1997, the
Bank's nonperforming assets to total assets were 0.13%, 0.06% and 0.11%
respectively. No loans have been accounted for on a nonaccrual basis in the
last five years, or in the six months ended June 30, 1997. In addition, the
Bank does not have any property that it has foreclosed and which would be
reflected on the Bank's financial records as real estate owned ("REO"). The
Bank's allowance for loan losses at June 30, 1997 totaled $227,000.
The Conversion
The Board of Directors of the Bank adopted the Plan of Conversion (the
"Plan") on May 21, 1997 pursuant to which the Bank will convert from a federally
chartered mutual savings bank to a federally chartered stock savings bank, and
will thereafter operate as a wholly owned subsidiary of a newly organized
holding company formed by the Bank. See "The Conversion." Upon consummation of
the Conversion, the Bank will issue all of its outstanding capital stock to the
Company in exchange for at least 50% of the net proceeds from the sale of the
Common Stock by the Company in the Conversion.
(ii)
<PAGE>
The OTS has approved the Plan, subject to approval by the members of the
Bank at a special meeting of members to be held on ____________, 1997 (the
"Special Meeting") and satisfaction of certain other conditions. The OTS has
also approved the Company's application to acquire all of the capital stock of
the Bank and thereby become a savings and loan holding company.
The Conversion is subject to certain conditions, including the prior
approval of the Plan by the members of the Bank and the OTS.
Stock Pricing and Number of Shares to be Issued
Federal regulations require that the aggregate purchase price of the Common
Stock to be issued in the Conversion be consistent with an independent appraisal
of the estimated pro forma market value of the Common Stock following the
Conversion. National Capital, a firm experienced in valuing savings
institutions, has made an independent appraisal of the estimated aggregate pro
forma market value of the Common Stock to be issued in the Conversion. National
Capital has determined that as of ______________, 1997, such estimated pro forma
market value was $26,500,000. See "The Conversion -- Stock Pricing and Number
of Shares to be Issued." The resulting valuation range in National Capital's
appraisal, which under OTS regulations extends 15% below and above the estimated
pro forma value, is from $22,525,000 to $30,475,000 (the "Estimated Valuation
Range"). The Company, in consultation with its advisors, has determined to offer
the shares of Common Stock in the Conversion at the Purchase Price of $10.00 per
share. The appraisal will be further updated immediately prior to the completion
of the Conversion and could be increased to up to $35,046,250 without a
resolicitation of subscribers based on market and financial conditions at the
completion of the Conversion.
The total number of shares to be issued in the Conversion may be increased
or decreased without a resolicitation of subscribers so long as the aggregate
purchase price is not less than the minimum or more than 15% above the maximum
of the Estimated Valuation Range. Based on the Purchase Price of $10.00 per
share, the total number of shares which may be issued without a resolicitation
of subscribers is from 2,252,500 to 3,504,625. For further information, see
"The Conversion -- Stock Pricing and Number of Shares to be Issued."
The Offerings
The shares of Common Stock to be issued in the Conversion are being offered
at the Purchase Price of $10.00 per share in the Subscription Offering pursuant
to nontransferable Subscription Rights in the following order of priority: (i)
Eligible Account Holders (i.e., depositors whose accounts in the Bank totaled
$50.00 or more on March 31, 1996); (ii) the ESOP (i.e., the Company's tax-
qualified stock benefit plan); (iii) Supplemental Eligible Account Holders
(i.e., depositors whose accounts in the Bank totaled $50.00 or more on September
30, 1997, other than Eligible Account Holders); and (iv) Other Members (i.e.,
certain depositors and borrower members of the Bank as of ___________, 1997,
other than Eligible Account Holders or Supplemental Eligible Account Holders).
Subscription Rights received in any of the foregoing categories will be
subordinated to the Subscription Rights received by those in a prior category,
with the exception that any shares of Common Stock sold in excess of the maximum
of the Estimated Valuation Range may first be sold to the ESOP.
The Company may offer any shares of Common Stock not subscribed for in the
Subscription Offering in the Community Offering at the Purchase Price to members
of the general public to whom the Company delivers a copy of this Prospectus and
the Stock Order Form. In the Community Offering, preference will be given to
natural persons and trusts of natural persons who are permanent residents of
Calloway, Todd, Christian and Trigg Counties, Kentucky. Subscription Rights will
expire if not exercised by 4:00 p.m., local time, on ____________, 1997, unless
extended (the "Expiration Date"). The Company and the Bank reserve the absolute
---------------------------------------------
right to accept or reject any orders in the Community Offering, in whole or in
- ------------------------------------------------------------------------------
part, either at the time of receipt of an order or as soon as practicable
- -------------------------------------------------------------------------
following the Expiration Date.
- ------------------------------
The Bank and the Company have engaged the Agents to consult with and advise
the Company and the Bank with respect to the Offerings, and the Agents have
agreed to solicit subscriptions and purchase orders for shares of Common Stock
in the Offerings. See "The Conversion -- Plan of Distribution and Marketing
Arrangements."
The Bank has established a Stock Information Center, which will be managed
by IBS, to coordinate the Offerings, including tabulation of orders and
answering questions about the Offerings by telephone (502-881-4001). All
(iii)
<PAGE>
subscribers will be instructed to mail payment to the Stock Information Center
or deliver payment directly to the office of the Bank. Payment for shares of
Common Stock may be made by cash (if delivered in person), check or money order
or by authorization of withdrawal from deposit accounts maintained with the
Bank. If payment is made through such deposit account authorization, funds
in the account to be used for such payment will not be available for withdrawal
and will not be released until the Conversion is completed or terminated or if
the subscriber fails to affirmatively confirm his or her order in the event of a
resolicitation. See "The Conversion -- Subscriptions for Stock in the
Offerings."
The Plan provides that the Conversion must be completed within 24 months
after the date of the approval of the Plan by the members of the Bank. The Plan
has been approved by the OTS and is subject to the approval of the Bank's
members at the Special Meeting to be held on ____________, 1997.
Purchase Limitations
With the exception of the ESOP, which intends to purchase 8% of the total
number of shares of Common Stock issued in the Conversion, no Eligible Account
Holder, Supplemental Eligible Account Holder or Other Member nor person in the
Community Offering may purchase more than $250,000 of the shares of Common Stock
offered in the Conversion. In addition, no person (together with associates and
persons acting in concert therewith) may purchase in the aggregate more than
$500,000 of the shares of Common Stock offered in the Conversion. The maximum
overall purchase limitation and the amount permitted to be subscribed for may be
increased or decreased under certain circumstances in the sole discretion of the
Company. The minimum purchase is 25 shares. See "The Conversion -- Limitations
on Purchase of Shares." In the event of an oversubscription, shares will be
allocated as provided in the Plan. See "The Conversion -- Subscription
Offering," and "-- Community Offering."
Potential Benefits of Conversion to Management
In connection with the Conversion, the Company and the Bank intend to
implement stock benefit plans, the primary effect of which is to compensate
members of the Board of Directors and senior management through the use of stock
and stock options, and enter into employment agreements with senior officers of
the Company and the Bank. Also as part of the Conversion, the Company will
adopt the ESOP for the benefit of employees of the Bank, including senior
management.
Option Plan. The Board of Directors of the Company intends to implement
the Option Plan, contingent upon receipt of OTS approval and stockholder
approval at a meeting held no earlier than six months following completion of
the Conversion. Pursuant to the Option Plan, a number of options to purchase
shares equal to 10% of the shares of Common Stock issued in the Conversion would
be reserved for future issuance by the Company. Assuming 2,650,000 shares of
Common Stock are issued in the Conversion (assuming issuance of shares for the
Purchase Price at the midpoint of the Estimated Valuation Range) and receipt of
the required approvals, the Company currently plans to grant options to purchase
265,000 shares of Common Stock, of which options to purchase 53,000 shares of
Common Stock will be granted to Bruce Thomas, President and Chief Executive
Officer of the Bank, and options to purchase 212,000 shares of Common Stock will
be granted to all executive officers and directors as a group (9 persons,
including the Chief Executive Officer), respectively, under the Option Plan in
the year following the Conversion. In addition, the Company currently plans to
grant options to purchase 53,000 shares of Common Stock to four officers of the
Bank who are not executive officers. The exercise price of the options, which
would be granted at no cost to the recipients, would be equal to the fair market
value of the underlying Common Stock on the date the option is granted. See
"Management of the Bank -- Certain Benefit Plans and Agreements -- Stock Option
Plan." The exercise of options granted under the Option Plan could have a
dilutive effect on existing stockholders. See "Risk Factors -- Possible
Dilutive Effect of MRP and Stock Options."
MRP. The Board of Directors of the Company intends to implement the HopFed
Bancorp, Inc. Management Recognition Plan ("MRP"), subject to receipt of OTS
approval and to stockholder approval at a meeting of the Company's stockholders
held no earlier than six months following the Conversion. Subject to the
receipt of such approvals, the MRP will purchase an amount of shares after the
Conversion equal to up to 4% of the shares issued in the Conversion (106,000
shares at the midpoint of the Estimated Valuation Range) for issuance to
executive officers, other officers and directors of the Bank and the Company. At
the Purchase Price in the Conversion of $10.00 per share, the shares to be
awarded under the MRP to the directors and executive officers of the Company
would have a value of $848,000.
(iv)
<PAGE>
Assuming 2,650,000 shares of Common Stock are issued in the Conversion (at the
midpoint of the Estimated Valuation Range) and receipt of the required
approvals, the Company currently plans to award 21,200 shares of Common Stock to
Bruce Thomas, President and Chief Executive Officer, and 84,800 shares of Common
Stock to all executive officers and directors as a group (9 persons, including
the Chief Executive Officer), respectively, under the MRP in the year following
the Conversion. In addition, the Company currently plans to award 21,200 shares
of Common Stock to four officers of the Bank who are not executive officers.
However, no shares will be awarded under the MRP prior to receipt of regulatory
and stockholder approval. Awards under the MRP would be granted at no cost to
the recipients thereof. See "Management of the Bank -- Certain Benefit Plans and
Agreements -- Management Recognition Plan." The award of shares of Common Stock
under the MRP could have a dilutive effect on existing stockholders. See "Risk
Factors -- Possible Dilutive Effect of MRP and Stock Options."
Employment Agreements. At the time the Conversion is consummated, the
Company and the Bank each intend to enter into separate employment agreements
with Bruce Thomas, Peggy R. Noel, and Boyd M. Clark, each of whom is currently
an executive officer of the Company and the Bank. See "Business -- Management
of the Company" and "-- Management of the Bank." Each agreement has a term of
one year, renewable annually at the discretion of the Board of Directors of the
Company or the Bank. The officers will receive their current base salary under
the employment agreements with the Bank and a guarantee of their salary under
the employment agreements with the Company. In addition, the officers will be
eligible to participate in bonus and other employee plans and benefits offered
by the Company or the Bank. Each of the agreements also provides for continued
payment to the officers or their survivors in the case of disability or death.
Further, the agreements provide that the officers will receive payments if they
are terminated without just cause, and up to 2.99 times their base salaries if
they are terminated in connection with a change in the control of the Company or
the Bank. See "Management of the Bank -- Certain Benefit Plans and Agreements -
- - Employment Agreements."
Other Benefits. In addition to the Option Plan and the MRP, the following
benefits may or will be realized as a result of the Conversion: (i) under the
ESOP, employees of the Bank, including the executive officers, will have shares
of Common Stock allocated to their respective accounts in the ESOP and (ii) the
President and Chief Executive Officer of the Bank (to be President of the
Company and the Bank following the Conversion) has entered into an employment
agreement with the Bank and the Company to serve in his post-Conversion
positions.
In addition to the possible financial benefits under the benefit plans,
management could benefit from certain statutory and regulatory provisions, as
well as certain provisions in the Company's Certificate of Incorporation and
Bylaws, that may tend to promote the continuity of existing management. See
"Management of the Bank --Director Compensation," " -- Executive Compensation"
and " -- Certain Benefit Plans and Agreements," "Certain Restrictions on
Acquisitions of the Company and the Bank" and "Certain Anti-takeover Provisions
in the Certificate of Incorporation and Bylaws."
Prospectus Delivery and Procedure for Purchasing Shares
To ensure that each subscriber receives a Prospectus at least 48 hours
prior to the Expiration Date in accordance with Rule 15c2-8 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), no Prospectus will be
mailed any later than five days prior to the Expiration Date or hand delivered
any later than two days prior to such date. Execution of a Stock Order Form will
confirm receipt or delivery in accordance with Rule 15c2-8. Stock Order Forms
will be distributed only with a Prospectus. The executed Stock Order Form along
with an executed certification form must be accompanied by payment by check,
money order, bank draft or withdrawal authorization to an existing account at
the Bank.
To ensure that Eligible Account Holders and Other Members are properly
identified as to their stock purchase priorities, as well as for purposes of
allocating shares based on subscribers' deposit balances in the event of
oversubscription, such persons must list all of their deposit accounts at the
Bank on the Stock Order Form. Failure to list all such deposit accounts may
result in the inability of the Company or the Bank to fill all or part of a
subscription order. Neither the Company, the Bank nor any of their agents shall
be responsible for any order on which all deposit accounts of the subscriber
have not been fully and accurately disclosed.
Non-transferability of Subscription Rights
Applicable federal regulations provide that prior to the completion of the
Conversion, no person shall transfer or enter into any agreement or
understanding to transfer the legal or beneficial ownership of the Subscription
Rights issued
(v)
<PAGE>
under the Plan or the shares of Common Stock to be issued upon their exercise.
Persons violating such prohibition may lose their right to subscribe for stock
in the Conversion and may be subject to sanctions by the OTS. Each person
exercising subscription rights will be required to certify that his or her
purchase of common stock is solely for the purchaser's own account and that
there is no agreement or understanding regarding the sale or transfer of such
shares.
Use of Proceeds
The proceeds retained by the Company after funding the ESOP initially will
be invested in short-term and intermediate-term securities, including cash and
cash equivalents and U.S. government and agency obligations. Also, such
proceeds will be available for a variety of corporate purposes, including
funding the MRP, if the MRP is implemented, future acquisitions and
diversification of business, additional capital contributions, dividends to
stockholders and future stock repurchases of the Common Stock to the extent
permitted by applicable regulations. The Company currently has no specific
plans, intentions, arrangements or understandings regarding any acquisitions or
repurchases.
The portion of the net proceeds from the sale of the Common Stock in the
Conversion to be distributed to the Bank by the Company will substantially
increase the Bank's capital position, which will in turn increase the amount of
funds available for lending and investment and provide greater resources to
support current operations by the Bank.
Dividends
The Company currently intends, subject to the factors noted below, to
declare and pay a regular quarterly dividend commencing after the first full
calendar quarter following completion of the Conversion. It is currently
anticipated that the annual amount of such dividends will be equal to
approximately 3% of the Purchase Price (which is equal to a quarterly dividend
of $0.075 per share). Dividends, when and if paid, will be subject to
determination and declaration by the Board of Directors in its discretion, which
will take into account the Company's consolidated financial condition and
results of operations, the Bank's regulatory capital requirements, tax
considerations, economic conditions, regulatory restrictions and other factors
that the Board of Directors deem relevant, and there can be no assurance that
dividends will be paid. See "Dividend Policy" and "Regulation -- Regulation of
the Bank -- Limitation on Capital Distributions."
Risk Factors
Investors should consider various issues that could affect the Company and
thus the value of their investment in the Common Stock, including (i) the Bank's
historically low net interest margins and returns; (ii) the anticipated low
return on equity following the Conversion; (iii) the uncertainty as to the
existence of growth opportunities for the Company and the Bank; (iv) the effect
of Fort Campbell on the economy of the Bank's market area; (v) the potential
impact of changes in government policies concerning tobacco products; (vi) the
potential effects of changes in interest rates and economic conditions; (vii)
provisions in the Company's Certificate of Incorporation and Bylaws as well as
statutory provisions that could discourage a hostile acquisition of the Company;
(viii) the appraisal of the estimated pro forma market value of the Common Stock
to be sold in the Conversion is not indicative of the future price of the Common
Stock; (ix) no assurance of an active trading market for the Common Stock and
the possibility of stock price volatility; (x) possible income tax consequences
of the distribution of subscription rights; (xi) the possible dilutive effect of
the MRP and stock options; (xii) the potential impact on voting control of
purchases by management; (xiii) the potential cost of stock benefit plans; and
(xiv) the potential cost of the unfunded portion of the Bank's pension plan.
See "Risk Factors" for a discussion of these and other issues.
(vi)
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be carefully considered before investing in the Common Stock
offered hereby.
The discussion in this Prospectus contains certain forward-looking
statements that involve risks and uncertainties, such as statements of the
Company's plans, objectives, expectations and intentions. The Company's actual
results could differ materially from those discussed here. Factors that could
cause or contribute to such differences include those discussed below, as well
as those discussed elsewhere herein or in the documents incorporated by
reference herein.
The Bank's Historically Low Net Interest Margins and Returns
The Bank has historically experienced a low return on its assets and a
low return on its equity because of its now-discontinued policy of increasing
its deposit base by paying above-market interest rates. See "Management's
Discussion and Analysis -- Current Business Strategy." This higher cost is
reflected in the Bank's low net interest margin, which in turn affects the
Bank's return on assets and return on equity. See "Selected Financial
Information and Other Data." Further, because these rates were offered on time
certificates of deposit with maturities greater than one year, the Bank's
profitability will continue to be affected by the higher interest expense of
these deposits. The average interest rate paid by the Bank on time deposits was
6.60% in 1994, 6.18% in 1995 and 5.48% in 1996. At June 30, 1997, approximately
$44.1 million of the Bank's time deposits would not mature until after at least
one year. See "Business of the Bank -- Deposit Activity and Other Sources of
Funds -- Deposits. The ability of the Bank to adjust the rates it charges on
its adjustable rate loans to offset this higher cost is limited by the Bank's
use of a lagging interest rate index, which does not readily reflect changes in
the interest rate environment. See "Business of the Bank -- Lending." Thus,
the Bank is not currently able to match the costs of attracting or maintaining
deposits with the yields it can earn on its loans. Although the Bank has since
revised its deposit policy to reflect market rates and intends to replace the
lagging interest rate index with a rate index that more rapidly reflects changes
in interest rates, it is uncertain whether the Bank's net interest margins and
returns on equity and assets will correspondingly improve.
Anticipated Low Return on Equity Following Conversion
The Company's return on equity (i.e., net income divided by average
equity for the period) following the Conversion is expected to be significantly
lower than the Bank's historical return on equity because of the infusion of
additional capital from the Offerings. At June 30, 1997, the Bank's ratio of
total equity to total assets was 9.02%, and, assuming the sale of 2,650,000
shares in the Conversion (i.e., the midpoint of the Estimated Valuation Range),
the Company's ratio of total equity to total assets is expected to be 17.9% on a
consolidated basis. See "Capitalization" and "Historical and Pro Forma
Regulatory Capital Compliance." This increase in equity will prevent the
Company from maintaining a return on equity at the levels historically
maintained by the Bank unless it is accompanied by a corresponding increase in
the Company's net income. The Company and the Bank intend to use the net
proceeds for investments and loan originations to increase earnings per share,
without assuming inappropriate risk. There can be no assurance that the Company
will be able to increase net income in future periods to the same extent as the
rate of increase in equity resulting from the Conversion. If the Company is not
able to achieve a return on equity comparable to results achieved by publicly
traded financial institutions with similar characteristics, the market price of
the Common Stock may be adversely affected.
Uncertainty as to Existence of Growth Opportunities
In order to fully deploy post-Conversion capital, the Bank may seek to
expand into suitable market areas by either establishing one or more new
branches or by acquiring another financial institution or branches of another
financial institution if sufficient growth opportunities are not available in
its market area. The Company's ability to expand internally by establishing new
branch offices is dependent on its ability to identify advantageous branch
office locations and generate new deposits and loans from those locations that
will create an acceptable level of net income for the Company. At the same
time, the Company's ability to grow through selective acquisitions of other
financial institutions or branches of such institutions is dependent on
successfully identifying, acquiring and integrating such institutions or
branches. There can be no assurance the Company will be able to generate
internal growth or to identify attractive acquisition candidates,
1
<PAGE>
acquire such candidates on favorable terms or successfully integrate any
acquired institutions or branches into the Company.
Effect of Fort Campbell on Economy of the Bank's Market Area
The economy of the Bank's market area, which consists of Calloway,
Christian, Todd and Trigg Counties, Kentucky, is affected in part by the
operations of Fort Campbell, an Army base located approximately 11 miles south
of Hopkinsville, Kentucky. For example, during the military conflict in the
Persian Gulf in 1990 through 1991, certain of the Bank's borrowers who operated
rental residential properties experienced severe vacancy rates. Further, much
of the recent housing construction in the area has been for personnel at the
base. In addition, recent international developments and budgetary constraints
within the U.S. military establishment have resulted in closures of military
facilities around the country. In the event the operations of Fort Campbell
were to be reduced or closed, or a future military conflict were to result in
the prolonged deployment of a significant number of the personnel from Fort
Campbell, the economy in the Bank's market could suffer severe adverse effects.
Although management is not aware of any plans to close or limit the operations
at Fort Campbell, there can be no assurance that such change would not occur
with little or no notice.
Potential Impact of Changes in Government Policies Concerning Tobacco Products
The economy of the Bank's primary market area is significantly
influenced by the growth and sale of tobacco and tobacco products. As a result,
the economy in the Bank's primary market area is significantly affected by
policies of federal, state and foreign governments concerning tobacco. Any
changes in governmental policies which tend to reduce financial support for
tobacco production or reduce the demand for and sale of tobacco products is
likely to have a negative impact on the economy in the Bank's primary market
area and a resulting negative impact upon the Bank's financial condition and
results of operations.
Potential Effects of Changes in Interest Rates and Economic Conditions
Effect on Net Interest Income. The results of operations of the Bank
are materially affected by general economic conditions, the monetary and fiscal
policies of the federal government and the regulatory policies of governmental
authorities. The results of operations of the Bank depend to a large extent on
its level of "net interest income," which is the difference between interest
income on interest-earning assets, such as loans, mortgage-backed securities and
investment securities, and interest expense on interest-bearing liabilities,
such as savings deposits and borrowings. The Bank has attempted to manage the
sensitivity of its earnings to interest rate fluctuations by, among other
measures, emphasizing adjustable-rate loans and investment securities and other
loans such as consumer loans that adjust more rapidly to changes in interest
rates. Nevertheless, a sustained increase in market interest rates could
adversely affect the Bank's earnings. 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."
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 and by maintaining a high level of
liquid assets. As a consequence of the fluctuation in interest rates, the
carrying value of the Bank's held-to-maturity securities, including mortgage-
backed securities, can exceed or fall below the market value of such securities.
At June 30, 1997, the fair value of such securities, including mortgage-backed
securities, was below the carrying value by $31,000. 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 borrowing
costs. Under these circumstances, the Bank is subject to reinvestment risk to
the extent that it is 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."
2
<PAGE>
Certificate of Incorporation, Bylaw and Statutory Provisions That Could
Discourage Hostile Acquisitions of Control
The Company's Certificate of Incorporation and Bylaws contain certain
provisions that could discourage non-negotiated takeover attempts that certain
stockholders might deem to be in their interests or through which stockholders
might otherwise receive a premium for their shares over the then current market
price and that may tend to perpetuate existing management. These provisions
include: the classification of the terms of the members of the Board of
Directors; supermajority provisions for the approval of certain business
combinations; elimination of cumulative voting by stockholders in the election
of directors; certain provisions relating to meetings of stockholders;
restrictions on the acquisition of the Company's equity securities; and
provisions allowing the Board of Directors to consider nonmonetary factors in
evaluating a business combination or a tender or exchange offer. The provisions
in the Company's Certificate of Incorporation requiring a supermajority vote for
the approval of certain business combinations and containing restrictions on
acquisitions of the Company's equity securities provide that the supermajority
voting requirements or acquisition restrictions do not apply to business
combinations or acquisitions meeting specified Board of Directors approval
requirements. The Certificate of Incorporation also authorizes the issuance of
500,000 shares of serial preferred stock as well as additional shares of Common
Stock up to a total of 8,000,000 outstanding shares of capital stock. These
shares could be issued without stockholder approval on terms or in circumstances
that could deter a future takeover attempt.
The Certificate of Incorporation, Bylaw and statutory provisions, as
well as certain other provisions of state and federal law and certain provisions
in the Company's and the Bank's employee benefit plans and employment agreements
and change in control severance agreements, may have the effect of discouraging
or preventing a future takeover attempt in which stockholders of the Company
otherwise might receive a substantial premium for their shares over then current
market prices. For a detailed discussion of those provisions, see "Management
of the Bank -- Certain Benefit Plans and Agreements," "Description of Capital
Stock," "Certain Restrictions on Acquisition of the Company and the Bank" and
"Certain Anti-Takeover Provisions in the Certificate of Incorporation and
Bylaws."
Valuation Not Indicative of Future Price of the Common Stock
The final aggregate purchase price of the Common Stock in the
Conversion will be based upon an independent appraisal. Such valuation is not
intended, and must not be construed, as a recommendation of any kind as to the
advisability of purchasing such shares of Common Stock. Because such valuation
is necessarily based upon estimates and projections of a number of matters, all
of which are subject to change from time to time, no assurance can be given that
persons purchasing shares of Common Stock in the Conversion will thereafter be
able to sell such shares at or above the Purchase Price. See "The Conversion --
Stock Pricing and Number of Shares to be Issued."
No Prior Public Market; Possible Stock Price Volatility
Prior to the Offerings, there has been no market for the Common Stock.
There can be no assurance that an active trading market will develop or that
purchasers of the Common Stock will be able to resell their Common Stock at
prices equal to or greater than the Purchase Price, which was determined based
upon the Company's consultations with IBS and FBR, and may not reflect the
market price of the Common Stock after the Offerings. Further, the development
of a public market with the desirable characteristics of depth, liquidity and
orderliness depends upon the presence in the marketplace of a sufficient number
of willing buyers and sellers at any given time, which is beyond the control of
the Company, the Bank or any market maker. Accordingly, there can be no
assurance that an established and liquid market for the Common Stock will
develop or be maintained. The market price of the Common Stock could be subject
to significant fluctuations in response to the Company's operating results,
interest rates, economic conditions and other factors. In addition, stock
markets in recent years have experienced extreme price and volume fluctuations
that often have been unrelated or disproportionate to the operating performance
of individual companies. Such fluctuations and general economic and market
conditions may adversely affect the market price of the Common Stock subsequent
to the Conversion. See "Market for the Common Stock" and "The Conversion --
Stock Pricing and Number of Shares to be Issued."
Possible Income Tax Consequences of Distribution of Subscription Rights
If the Subscription Rights granted to Eligible Account Holders and
Other Members are deemed to have an ascertainable value, the receipt of such
rights would be taxable to recipients who exercise the Subscription Rights in an
amount equal to such value and the Bank could recognize a gain on such
distribution. Whether Subscription Rights are considered to have ascertainable
value is an inherently factual determination. The Bank has received an opinion
of
3
<PAGE>
National Capital that such rights have no value. The opinion of National
Capital is not binding on the IRS. See "The Conversion -- Effect of Conversion
to Stock Form on Depositors and Borrowers of the Bank -- Tax Effects."
Possible Dilutive Effect of MRP and Stock Options
It is expected that, following the consummation of the Conversion, the
Company will adopt the Option Plan and the MRP, both of which would be subject
to stockholder approval, and that such plans would be considered and voted upon
at a meeting of the Company's stockholders to be held no earlier than six months
after the Conversion. Under the MRP, employees and directors could be awarded
an aggregate amount of the Common Stock equal to 4% of the shares issued in the
Conversion, and under the Option Plan, employees and directors could be granted
options to purchase an aggregate amount of the Common Stock equal to 10% of the
shares issued in the Conversion at exercise prices equal to the market price of
the Common Stock on the date of grant. Under the MRP, the shares issued to
directors and employees could be newly issued shares or shares purchased in the
open market. In the event the shares issued under the MRP and the Option Plan
consist of newly issued shares of Common Stock, the interests of existing
stockholders would be diluted. See "Pro Forma Data" and "Management of the Bank
- -- Certain Benefit Plans and Agreements -- Management Recognition Plan" and "--
Stock Option and Incentive Plan."
Potential Impact on Voting Control of Purchases by Management
The level of ownership or control of the Common Stock after the
Conversion by directors and officers of the Company is expected to be
sufficiently high such that, if each member of management were to act
consistently with each other, management as a whole would have significant
influence over the outcome of any stockholder vote requiring a majority vote and
in the election of directors, and would have veto power in matters requiring the
approval of 80% of the Company's outstanding Common Stock. Thus, such level of
ownership may tend to promote the continuity of existing management. Further,
under such circumstances, management might have the power to authorize actions
that could be viewed as contrary to the best interests of non-affiliated holders
of the Common Stock and might have veto power over actions that such holders may
deem to be in their best interests.
In particular, it is currently expected that directors and executive
officers will subscribe for approximately 261,000 shares, or 9.8% of the Common
Stock (assuming the sale of 2,650,000 shares at the midpoint of the Estimated
Valuation Range). Based upon the ESOP's purchase of 8% of the Common Stock in
the Conversion (212,000 shares at the midpoint of the Estimated Valuation Range)
and assuming the issuance to the MRP of newly issued shares of Common Stock
equal to 4% of the Common Stock issued in the Conversion (106,000 shares at the
midpoint of the Estimated Valuation Range), directors and executive officers
would initially control 21.8% of the Common Stock outstanding (based upon the
midpoint of the Estimated Valuation Range). If, in addition, all of the options
currently expected to be granted under the Option Plan (options for 265,000
shares at the midpoint of the Estimated Valuation Range) were exercised for
newly issued shares by directors and executive officers, the percentage of
shares controlled by such persons would be 31.8% of the total number of shares
of Common Stock outstanding (based upon the midpoint of the Estimated Valuation
Range). See "Pro Forma Data," "Proposed Management Purchases," "Management of
the Bank -- Certain Benefit Plans and Agreements," "The Conversion -- Regulatory
Restrictions on Acquisition of the Common Stock," "Certain Restrictions on
Acquisition of the Company and the Bank" and "Certain Anti-Takeover Provisions
in the Certificate of Incorporation and Bylaws."
Potential Cost of Stock Benefit Plans
The Company's adoption of the ESOP, the MRP and the Option Plan as
part of the Conversion will generate significant compensation expenses after the
Conversion that could depress the earnings of the Company for a number of years.
It is anticipated that the ESOP will purchase 8% of the Common Stock
sold in the Conversion with funds borrowed from the Company. The cost of
acquiring the ESOP shares will be $1,802,000, $2,120,000, $2,438,000 and
$2,803,700 at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range, respectively. Further, under American Institute of
Certified Public Accountants ("AICPA") Statement of Position ("SOP") 93-6,
"Employers' Accounting for Employee Stock Ownership Plans," an employer is
required to record compensation expense in an amount equal to the fair value of
shares committed to be released to employees from an ESOP. If shares of Common
Stock appreciate in value over time, the adoption of SOP 93-6 may increase
compensation expense relating to the
4
<PAGE>
ESOP to be established in connection with the Conversion as compared with prior
guidance which required the recognition of compensation expense based on the
cost of shares acquired by the ESOP. For an example of the effect that SOP 93-6
may have on the Company's net income, see "Pro Forma Data."
In addition, following the Conversion, and subject to regulatory and
stockholder approval, the Company intends to implement the MRP, under which
employees and directors could be awarded (at no cost to them) an aggregate
amount of the Common Stock equal to 4% of the shares issued in the Conversion.
Assuming the sale in the Conversion of the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range, and assuming the shares of
Common Stock to be awarded under the MRP have a cost equal to the Purchase Price
of $10.00 per share, the reduction to stockholders' equity of funding the MRP
would be $901,000, $1,060,000, $1,219,000 and $1,401,850, respectively. Such
amount would be in addition to the compensation expense that would be incurred
by the Company as the shares of Common Stock awarded under the MRP vest to the
recipients.
The Company may also be required to recognize compensation expense
associated with the grant of stock options in an amount equal to the excess of
the market value of the underlying shares of Common Stock and the exercise price
of the option. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Impact of New Accounting Standards."
Potential Cost of Unfunded Portion of Pension Plan
The Bank maintains a pension plan that currently does not have
sufficient assets to pay the benefits owed to participants when they retire.
See "Management of the Bank -- Certain Benefit Plans and Agreements -- Pension
Plan." At December 31, 1996, this shortfall totaled approximately $494,000 and
represented the excess of the pension plan's $1.9 million obligation to the
participants over $1.4 million, the fair value of the assets in the pension
plan. See Note 9 of Notes to the Financial Statements. If the pension plan had
been terminated at December 31, 1996, the Bank would have been required to pay
the amount of this shortfall to the plan so that the plan's obligations to its
participants could be satisfied. Such a payment would decrease the Bank's net
income by approximately $326,000 (assuming a 34% tax rate). This potential
liability is only contingent in nature since the Bank intends to maintain the
pension plan and to continue to fund the pension plan in accordance with
Internal Revenue Service ("IRS") funding requirements. It is also the Bank's
intention to eliminate the shortfall. For a description of the pension plan and
certain related potential costs, see "Management of the Bank -- Certain Benefit
Plans and Agreements -- Pension Plan."
5
<PAGE>
SELECTED FINANCIAL INFORMATION AND OTHER DATA
The following summary of selected financial information and other data
does not purport to be complete and is qualified in its entirety by reference to
the detailed information and Financial Statements and accompanying Notes
appearing elsewhere in this Prospectus. The selected financial and other data
as of and for the six months ended June 30, 1997 and 1996 are unaudited and are
derived from the Bank's internal financial statements which, in the opinion of
management, contain all adjustments (consisting only of normal recurring
adjustments) which are necessary for a fair presentation of the results for such
periods.
<TABLE>
<CAPTION>
Financial Condition and
Other Data: At June 30, At December 31,
------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
Total amount of: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets...................................... $ 202,496 $ 204,398 $212,598 $202,128 $188,826 $176,082
Loans receivable, net....................... 98,436 95,496 84,755 78,527 67,804 69,178
Cash and due from banks..................... 1,406 1,452 1,303 1,578 1,106 1,377
Time deposits and
interest-bearing deposits
in FHLB.................................... 2,003 2,000 12,550 38,200 24,425 23,525
Federal funds sold.......................... 11,146 500 7,948 1,330 10,465 3,450
Securities available for sale........... 6,048 5,125 4,053 2,955 2,859 1,387
Securities held to maturity:
FHLB securities...................... 57,971 77,962 80,990 63,002 64,982 62,687
Mortgage-backed securities............... 21,616 17,984 17,563 13,343 15,124 12,983
Deposits.................................... 181,441 183,827 194,775 185,699 173,184 162,919
FHLB advances............................... -- 1,317 -- -- -- --
Total equity................................ 18,265 16,824 16,002 14,930 14,337 12,609
- ---------------------------------------------------------------------------------------------------------------------------
Number of:
Real estate loans outstanding............... 2,172 2,151 2,074 2,026 1,932 2,064
Deposit accounts............................ 22,605 23,778 25,473 24,648 24,492 24,746
Offices open................................ 5 5 5 5 5 5
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Operating Data: Six Months Ended
June 30, Year Ended December 31,
------------------ ----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income........................ $6,643 $6,564 $13,220 $ 12,472 $ 10,434 $ 10,573 $ 11,768
Interest expense....................... 4,426 5,052 9,757 10,009 7,740 7,449 8,394
-------- -------- -------- -------- -------- -------- --------
Net interest income before
provision for loan losses........ 2,217 1,512 3,463 2,463 2,694 3,124 3,374
Provision for loan losses.............. 10 -- 100 -- -- -- 47
-------- -------- -------- -------- -------- -------- --------
Net interest income.................... 2,207 1,512 3,363 2,463 2,694 3,124 3,327
Non-interest income.................... 270 318 590 398 512 596 487
Non-interest expense................... 1,163 1,163 3,674(1) 2,246 2,339 2,226 2,120
-------- -------- -------- -------- -------- -------- --------
Income before income taxes............. 1,314 667 279 615 867 1,494 1,694
Provision for income taxes............. 444 222 84 203 287 502 531
-------- -------- -------- -------- -------- -------- --------
Net income............................. $ 870 $ 445 $ 195 $ 412 $ 580 $ 992 $ 1,163
======== ======== ======== ======== ======== ======== ========
</TABLE>
- --------------------
(1) Includes payment to the SAIF of a one-time deposit insurance special
assessment of $1.2 million pursuant to legislation enacted to recapitalize
SAIF. See Note 13 of Notes to Financial Statements. Excluding the effect
of the SAIF assessment, the Bank's net income would have been $1,007,000.
7
<PAGE>
<TABLE>
<CAPTION>
Key Operating Ratios:
At or for the Six
Months Ended June At or for the Year Ended
30, (1) December 31,
----------------------- ------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets (net income divided by average
total assets).................................................. 0.86% 0.42% 0.09% (2) 0.20% 0.29%
Return on average equity (net income divided by
average total equity).......................................... 9.99% 5.49% 1.19% 2.64% 3.93%
Interest rate spread (combined weighted average interest rate
earned less combined weighted average interest rate cost) 1.82% 1.11% 1.35% 0.84% 1.09%
Ratio of average interest-earning assets to average
interest-bearing liabilities................................... 109.35% 107.12% 107.29% 107.36% 107.58%
Ratio of non-interest expense to average total assets 1.14% 1.09% 1.76% 1.07% 1.19%
Ratio of net interest income after provision
for loan losses to non-interest expense........................ 189.77% 130.01% 91.54% 109.66% 115.18%
Efficiency ratio (noninterest expense divided by sum of net
interest income plus noninterest income)........................ 46.95% 63.55% 92.94% 78.50% 72.93%
Asset Quality Ratios:
Nonperforming assets to total assets at end of period............ 0.11% 0.11% 0.13% 0.06% 0.02%
Nonperforming loans to total loans at end of period.............. 0.23% 0.26% 0.28% 0.16% 0.05%
Allowance for loan losses to total loans at end of period........ 0.23% 0.13% 0.23% 0.14% 0.16%
Allowance for loan losses to nonperforming loans at
end of period................................................... 102.25% 49.58% 81.58% 91.04% 329.73%
Provision for loan losses to total loans receivable, net......... 0.01% N/A(3) 0.10% N/A (3) N/A (3)
Net charge-offs to average loans outstanding..................... N/A(3) 0.01% 0.005% N/A (3) N/A (3)
Capital Ratios:
Total equity to total assets at end of period................ 9.02% 7.79% 8.23% 7.53% 7.39%
Average total equity to average assets....................... 8.57% 7.59% 7.82% 7.41% 7.50%
</TABLE>
(1) Annualized as appropriate.
(2) Includes the effect of the payment of the Bank in 1996 of a one-time deposit
insurance special assessment of $1.2 million to the SAIF. Excluding the
effect of the SAIF assessment, the Bank's return on average assets would
have been 0.48% and its return on average equity would have been 6.15%.
(3) Ratio is not applicable because the Bank did not have any provision for loan
losses or net charge-offs for this period.
8
<PAGE>
<TABLE>
<CAPTION>
Regulatory Capital Ratios: June 30, 1997
------------------------
<S> <C> <C>
(Dollars in thousands)
Tangible capital............................... $15,461 7.70%
Less: Tangible capital requirement............ 2,995 1.50
------- -------
Excess......................................... $12,466 6.20%
------- -------
Core capital................................... $15,461 7.70%
Less: Core capital requirement................ 5,991 3.00
------- -------
Excess........................................ $ 9,470 4.70%
------- -------
Total risk-based capital....................... $15,688 21.50%
Less: Risk-based capital requirement.......... 5,829 8.00
------- -------
Excess........................................ $ 9,859 13.50%
------- -------
</TABLE>
9
<PAGE>
HOPFED BANCORP, INC.
HopFed Bancorp, Inc. was incorporated under the laws of the State of
Delaware in May 1997 at the direction of the Board of Directors of the Bank for
the purpose of serving as a savings and loan holding company of the Bank upon
the acquisition of all of the capital stock issued by the Bank in the
Conversion. Approval from the OTS to acquire control of the Bank, subject to
satisfaction of certain conditions, is pending. Prior to the Conversion, the
Company has not engaged and will not engage in any material operations. Upon
consummation of the Conversion, the Company will have no significant assets
other than the outstanding capital stock of the Bank, up to 50% of the net
proceeds of the Conversion (after deducting amounts infused into the Bank and
used to fund the ESOP) and a note receivable from the ESOP. Upon consummation
of the Conversion, the Company's principal business will be overseeing the
business of the Bank and investing the portion of the net Conversion proceeds
retained by it, and the Company will register with the OTS as a savings and loan
holding company. See "Regulation -- Regulation of the Company."
As a holding company, the Company will have greater flexibility than the
Bank to diversify its business activities through existing or newly formed
subsidiaries or through acquisition or merger with other financial institutions,
although the Company currently does not have any plans, agreements, arrangements
or understandings with respect to any such acquisitions or mergers. After the
Conversion, the Company will be classified as a unitary savings and loan holding
company and will be subject to regulation by the OTS.
The Company's executive offices are located at 2700 Fort Campbell
Boulevard, Hopkinsville, Kentucky 42240, and its main telephone number is (502)
885-1171.
HOPKINSVILLE FEDERAL SAVINGS BANK
The Bank is a federal mutual savings bank headquartered in Hopkinsville,
Kentucky and operating through five offices located in Hopkinsville, Murray,
Cadiz and Elkton, Kentucky. The Bank was chartered by the Commonwealth of
Kentucky in 1879 under the name Hopkinsville Building and Loan Association. In
1940, the Bank converted to a federal mutual savings association and received
federal insurance of its deposit accounts. In 1983, the Bank became a federal
mutual savings bank charter and adopted its current name. At June 30, 1997, the
Bank had total assets of $202.5 million, total deposits of $181.4 million and
total equity of $18.3 million.
The principal business of the Bank consists of attracting deposits from the
general public and investing these deposits in loans secured by first mortgages
on one-to-four family residences in the Bank's market area. The Bank derives
its income principally from interest earned on loans and, to a lesser extent,
interest earned on investment securities, mortgage-backed securities and non-
interest income. Funds for these activities are provided principally by
operating revenues, deposits and repayments of outstanding loans and maturities
of investment securities and mortgage-backed securities.
USE OF PROCEEDS
The amount of proceeds from the sale of the Common Stock in the Conversion
will depend upon the total number of shares actually sold in the Subscription
Offering and the Community Offering and the Syndicated Community Offering, if
any, and the actual expenses of the Conversion. As a result, the actual net
proceeds from the sale of the Common Stock cannot be determined until the
Conversion is completed. Based on the sale of $26,500,000 of the Common Stock
at the midpoint of the Estimated Valuation Range, the net proceeds from the sale
of the Common Stock are estimated to be approximately $25,800,000. The Company
has received regulatory approval from the OTS to purchase all of the capital
stock of the Bank to be issued in the Conversion in exchange for at least 50% of
the net proceeds. Based on the foregoing assumption and the purchase of 8% of
the shares to be issued in the Conversion by the ESOP, the Bank would receive
approximately $12,900,000 in cash, and the Company would retain approximately
$10,780,000 in cash and $2,120,000 in the form of a note receivable from the
ESOP. The ESOP note receivable will be for an eight-year term and carry a
variable interest rate, which adjusts annually, equal to the prime rate as
published in The Wall Street Journal plus 1%.
-----------------------
10
<PAGE>
The proceeds retained by the Company, after funding the ESOP, initially
will be invested in short-term and intermediate-term securities including cash
and cash equivalents and U.S. government and agency obligations. Such proceeds
will be available for a variety of corporate purposes, including funding the
MRP, if implemented, future acquisitions and diversification of business,
additional capital contributions, dividends to stockholders and future
repurchases of the Common Stock to the extent permitted by applicable
regulations. The Company currently has no specific plans, intentions,
arrangements or understandings regarding acquisitions, capital contributions, or
repurchases. Due to the limited nature of the Company's business activities,
the Company believes that the net proceeds retained after the Conversion,
earnings on such proceeds and payments on the ESOP note receivable will be
adequate to meet the Company's financial needs until dividends are paid by the
Bank. However, no assurance can be given that the Company will not have a need
for additional funds in the future. For additional information, see "Regulation
- -- Depository Institution Regulation -- Dividend Restrictions."
The proceeds contributed to the Bank will ultimately become part of the
Bank's general corporate funds to be used for its business activities, including
making loans and investments. Initially it is expected that the proceeds will
be invested in short-term and intermediate-term securities including cash and
cash equivalents and U.S. government and agency obligations. The additional
capital will also provide the Bank with additional liquidity to improve the
Bank's interest rate risk position and "cushion" the effect of a significant
increase in interest rates. The Bank ultimately plans to use such proceeds
primarily to originate loans in the ordinary course of business.
Following the one-year anniversary of the completion of the Conversion (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 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."
Set forth below are the estimated investable net proceeds from the
Conversion, assuming the sale of the Common Stock at the minimum, midpoint,
maximum and maximum, as adjusted, of the Estimated Valuation Range and assuming
that the ESOP purchases 8% of the shares issued in the Conversion and the MRP
purchases 4% of the shares issued in the Conversion.
<TABLE>
<CAPTION>
Minimum of Midpoint of Maximum of Maximum, as adjusted,
2,252,500 2,650,000 3,047,500 of 3,504,625
shares at $10.00 shares shares at $10.00 shares
per share at $10.00 per share per share at $10.00 per share
--------- ------------------- --------- -------------------
<S> <C> <C> <C> <C>
(In thousands)
Gross offering proceeds.................. $22,525 $26,500 $30,475 $35,046
Estimated offering expenses.............. (700) (700) (700) (700)
------- ------- ------- -------
Estimated net offering proceeds.......... 21,825 25,800 29,775 34,346
ESOP funded by the Company............... (1,802) (2,120) (2,438) (2,804)
MRP...................................... (901) (1,060) (1,219) (1,402)
------- ------- ------- -------
Estimated investable net proceeds........ $19,122 $22,620 $26,118 $30,140
======= ======= ======= =======
</TABLE>
11
<PAGE>
DIVIDEND POLICY
The Company currently intends, subject to the factors noted below, to
declare and pay quarterly dividends commencing after the first full calendar
quarter following completion of the Conversion. It is currently anticipated
that the annual amount of such dividend will be equal to approximately 3% of the
Purchase Price (which is equal to a quarterly dividend of $0.075 per share).
Dividends, when and if paid, will be subject to determination and declaration by
the Board of Directors in its discretion, which will take into account the
Company's consolidated financial condition and results of operations, the Bank's
regulatory capital requirements, tax considerations, economic conditions,
regulatory restrictions, other factors, and there can be no assurance that
dividends will be paid, or if paid, will continue to be paid in the future. The
Company does not intend to take any action during the first year following
consummation of the Conversion to pay a dividend that would be treated for
federal income tax purposes as a tax-free return of the Company's capital to its
stockholders.
Since the Company initially will have no significant source of income other
than dividends from the Bank, principal and interest payments on the note
payable from the ESOP and earnings from investment of the cash proceeds of the
Conversion retained by the Company, the payment of dividends by the Company will
depend in large part upon the amount of the proceeds from the Conversion
retained by the Company and the Company's earnings thereon and the receipt of
dividends from the Bank, which is subject to various tax and regulatory
restrictions on the payment of dividends. See "Regulation -- Regulation of the
Bank -- Regulatory Capital," "-- Limitations on Capital Distributions" and
"Taxation." Unlike the Bank, the Company is not subject to regulatory
restrictions on the payment of dividends to stockholders. Under the Delaware
General Corporation Law, dividends may be paid either out of surplus or, if
there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year.
MARKET FOR THE COMMON STOCK
The Company has never issued capital stock to the public. Consequently,
there is no established market for the Common Stock. The Common Stock has been
approved for quotation on the Nasdaq Stock Market ("Nasdaq") under the symbol
"HFBC." There can be no assurance that an active and liquid trading market for
the Common Stock will develop or that, if developed, it will continue, nor is
there any assurance that persons purchasing shares of Common Stock will be able
to sell them at or above the Purchase Price. The development of a liquid public
market depends on the existence of willing buyers and sellers, the presence of
which is not within the control of the Company or the Bank. The number of
active buyers and sellers of the Common Stock at any particular time may be
limited. Under such circumstances, investors in the Common Stock could have
difficulty disposing of their shares and therefore should not view the Common
Stock as a short-term investment.
12
<PAGE>
CAPITALIZATION
The following table sets forth information regarding the historical
capitalization, including deposits, of the Bank at June 30, 1997 and the pro
forma capitalization of the Company giving effect to the sale of the Common
Stock at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range based upon the assumptions set forth under "Use of
Proceeds" and below. For additional financial information regarding the Bank,
see the Financial Statements and related Notes appearing elsewhere herein.
Depending on market and financial conditions, the total number of shares to be
issued in the Conversion may be significantly increased or decreased above or
below the midpoint of the Estimated Valuation Range. No resolicitation of
subscribers and other purchasers will be made unless the aggregate purchase
price of the Common Stock sold in the Conversion is below the minimum of the
Estimated Valuation Range or is above 15% above the maximum of the Estimated
Valuation Range. A change in the number of shares to be issued in the
Conversion may materially affect the Company's pro forma capitalization. See
"Pro Forma Data" and "The Conversion -- Stock Pricing and Number of Shares to be
Issued."
<TABLE>
<CAPTION>
Pro Forma consolidated capitalization of the Company
at June 30, 1997 based on the sale of
Capitalization -------------------------------------------------------------------------------------
of the Bank at 2,252,500 shares 2,650,000 shares 3,047,500 shares 3,504,625 shares
June 30, 1997 at $10.00 per share at $10.00 per share at $10.00 per share at $10.00 per share
-------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Deposits (1)...................... $181,441 $181,441 $181,441 $181,441 $181,441
FHLB advances..................... -- -- -- -- --
-------- -------- -------- -------- --------
Total deposits and borrowed
funds........................... $181,441 $181,441 $181,441 $181,441 $181,441
Capital stock:
Preferred stock, par value
$.01 per share; authorized
- 500,000 shares; assumed
outstanding - none.............. -- -- --
Common Stock, par value
$.01 per share; authorized
- 7,500,000 shares;
shares to be outstanding
- as shown (2)(3)............... -- 23 27 30 35
Paid-in capital (2)(3)........... -- 21,802 25,773 29,745 34,311
Retained earnings (5)............ 15,461 15,461 15,461 15,461 15,461
Unrealized gain on securities
available for sale.............. 2,804 2,804 2,804 2,804 2,804
Common Stock acquired by
ESOP (4)......................... -- (1,802) (2,120) (2,438) (2,804)
Common Stock acquired by
MRP (3).......................... -- (901) (1,060) (1,219) (1,402)
-------- -------- -------- -------- --------
Total stockholders'
equity (6)....................... $ 18,265 $ 37,387 $ 40,885 $ 44,383 $ 48,405
======== ======== ======== ======== ========
(Footnotes on following page)
</TABLE>
13
<PAGE>
(1) Does not reflect withdrawals from savings accounts for the purchase of the
Common Stock in the Conversion; any withdrawals will reduce pro forma
capitalization by the amount of such withdrawals.
(2) Does not reflect additional shares of Common Stock that possibly could be
purchased by participants in the Option Plan, if implemented, under which
directors, executive officers and other employees could be granted options
to purchase an aggregate amount of the Common Stock equal to 10% of the
shares issued in the Conversion 265,000 shares at the midpoint of the
Estimated Valuation Range) at exercise prices equal to the market price of
the Common Stock on the date of grant. Implementation of the Option Plan
will require regulatory and stockholder approval. See "Management of the
Bank -- Certain Benefit Plans and Agreements -- Stock Option and Incentive
Plan" and "Risk Factors -- Possible Dilutive Effect of MRP and Stock
Options."
(3) Assumes a number of shares of Common Stock equal to 4% of the Common Stock
to be sold in the Conversion will be purchased by the MRP through open
market purchases. The dollar amount of the Common Stock to be purchased by
the MRP is based on the $10.00 per share Purchase Price in the Conversion,
represents unearned compensation and is reflected as a reduction of capital.
Such amount does not reflect possible increases or decreases in the value of
such stock relative to the Purchase Price in the Conversion. As the Bank
accrues compensation expense to reflect the vesting of such shares pursuant
to the MRP, the charge against capital will be reduced accordingly.
Implementation of the MRP will require regulatory and stockholder approval.
If the shares to fund the MRP are assumed to come from authorized but
unissued shares purchased by the MRP from the Company at the Purchase Price
within the year following the Conversion, at the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Valuation Range, the number of
outstanding shares would be 2,342,600 shares, 2,756,000 shares, 3,169,400
shares and 3,644,810 shares, respectively, and total stockholders' equity
would be $38,288,000, $41,945,000, $45,602,000 and $49,807,000,
respectively. If the MRP acquires authorized but unissued shares from the
Company, stockholders' ownership in the Company would be diluted by
approximately 3.85%. See "Management of the Bank -- Certain Benefit Plans
and Agreements --Management Recognition Plan," "Pro Forma Data" and "Risk
Factors --Possible Dilutive Effect of MRP and Stock Options."
(4) Assumes 8% of the shares of Common Stock to be sold in the Conversion are
purchased by the ESOP, and that the funds used to purchase such shares are
borrowed from the Company out of net proceeds. Although repayment of such
debt will be secured solely by the shares purchased by the ESOP, the Bank or
the Company expects to make discretionary contributions to the ESOP in an
amount at least equal to the principal and interest payments on the ESOP
debt. The approximate amount expected to be borrowed by the ESOP is not
reflected in this table as borrowed funds but is reflected as a reduction of
capital. As the Bank accrues compensation expense to reflect the allocation
of such shares pursuant to the ESOP, the charge against capital will be
reduced accordingly. See "Management of the Bank --Certain Benefit Plans and
Agreements -- Employee Stock Ownership Plan."
(5) The retained earnings of the Bank are substantially restricted. All capital
distributions by the Bank are subject to regulatory restrictions tied to its
regulatory capital level. In addition, after the Conversion, the Bank will
be prohibited from paying any dividend that would reduce its regulatory
capital below the amount in the liquidation account to be provided for the
benefit of the Bank's Eligible Account Holders and Supplemental Eligible
Account Holders at the time of the Conversion and adjusted downward
thereafter. See "Regulation -- Depository Institution Regulation --Dividend
Restrictions" and "The Conversion -- Effect of Conversion to Stock Form on
Depositors and Borrowers of the Bank --Liquidation Account."
(6) Pro forma stockholders' equity information is not intended to represent the
fair market value of the Common Stock, the current value of the Bank's
assets or liabilities or the amounts, if any, that would be available for
distribution to stockholders in the event of liquidation. Such pro forma
data may be materially affected by a change in the number of shares to be
sold in the Conversion and by other factors. See "Pro Forma Data."
14
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
The table below presents the Bank's historical and pro forma capital
position relative to its various minimum statutory and regulatory capital
requirements at June 30, 1997 at the minimum, midpoint, maximum and maximum, as
adjusted, of the Estimated Valuation Range. For a discussion of the assumptions
underlying the pro forma capital calculations presented below, see "Use of
Proceeds," "Capitalization," "Pro Forma Data" and the financial statements and
related notes appearing elsewhere herein. For a detailed description of the
regulatory capital requirements applicable to the Bank, see "Regulation --
Regulation of the Bank -- Regulatory Capital Requirements."
<TABLE>
<CAPTION>
Pro Forma at June 30, 1997 (1)
Assuming Issuance of Shares of the Common Stock at the:
----------------------------------------------------------
Historical at 2,252,500 shares 2,650,000 shares
June 30, 1997 at $10.00 per share at $10.00 per share
-------------------- ----------------------- ---------------------
Percent of Percent of Percent of
Amount Assets (2) Amount Assets (2) Amount Assets (2)
------ ---------- ------ ---------- ------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Capital and retained
earnings under generally
accepted accounting
principles................... $ 18,265 9.02% $ 26,474 12.41% $ 27,985 12.99%
========= ======= ========= ======== ======== ========
Tangible capital................ $ 15,461 7.70% $ 23,670 11.24% $ 25,181 11.84%
Tangible capital
requirement.................. 2,995 1.50% 3,159 1.50% 3,189 1.50%
--------- ------- --------- -------- -------- ---------
Excess....................... $ 12,466 6.20% $ 20,511 9.74% $ 21,992 10.34%
========= ======= ========= ========- ======== ========
Core capital.................... $ 15,461 7.70% $ 23,670 11.24% $ 25,181 11.84%
Core capital
requirement (3).............. 5,991 3.00% 6,318 3.00% 6,378 3.00%
--------- ------- --------- -------- -------- --------
Excess....................... $ 9,470 4.70% $ 17,352 8.24% $ 18,803 8.84%
========= ======= ========= ======== ======== ========
Risk-based capital.............. $ 15,688 21.50% $ 23,898 32.80% $ 25,408 34.87%
Risk-based capital
requirement.................. 5,829 8.00% 5,829 8.00% 5,829 8.00%
--------- ------- --------- -------- -------- --------
Excess....................... $ 9,859 13.50% $ 18,069 24.80% $ 19,579 26.87%
========= ======= ========= ======== ======== ========
<CAPTION>
Pro Forma at June 30, 1997 (1)
Assuming Issuance of Shares of the Common Stock at the:
-------------------------------------------------------
3,047,500 shares 3,504,625 shares
at $10.00 per share at $10.00 per share
--------------------- --------------------
Percent of Percent of
Amount Assets (2) Amount Assets (2)
------ ---------- ------ ----------
(Dollars in thousands)
<S>............................. <C> <C> <C> <C>
Capital and retained
earnings under generally
accepted accounting
principles................... $ 29,496 13.57% $ 31,232 14.22%
======== ======== ======== ========
Tangible capital................ $ 26,691 12.44% $ 28,428 13.11%
Tangible capital
requirement.................. 3,219 1.50% 3,253 1.50%
-------- -------- -------- --------
Excess....................... $ 23,472 10.94% $ 25,175 11.61%
======== ======== ======== ========
Core capital.................... $ 26,691 12.44% $ 28,428 13.11%
Core capital
requirement (3).............. 6,437 3.00% 6,506 3.00%
-------- -------- -------- --------
Excess....................... $ 20,254 9.44% $ 21,922 10.11%
======== ======== ======== ========
Risk-based capital.............. $ 26,919 36.95% $ 28,656 39.33%
Risk-based capital
requirement.................. 5,829 8.00% 5,829 8.00%
-------- -------- -------- --------
Excess....................... $ 21,090 28.95% $ 22,827 31.33%
======== ======== ======== ========
</TABLE>
(1) Assumes that the Company will purchase all of the capital stock of the Bank
to be issued upon Conversion in exchange for at least 50% of the net
Conversion proceeds. Also assumes net proceeds distributed to the Bank are
initially invested in short term U.S. government securities. Further
assumes that 8% of the Common Stock to be sold in the Conversion is
acquired by the ESOP, and that the funds used to acquire such shares are
borrowed from the Company. In accordance with generally accepted accounting
principles, the amount of the Common Stock to be purchased by the ESOP
represents unearned compensation and is reflected in this table as a
reduction of capital. Although repayment of such debt will be secured
solely by the Common Stock purchased by the ESOP, the Bank expects to make
discretionary contributions to the ESOP in an amount at least equal to the
principal and interest payments on the ESOP debt. As the Bank makes
contributions to the ESOP for simultaneous payment in an equal amount on
the ESOP debt, there will be a corresponding reduction in the charge
against capital. See "Management of the Bank -- Certain Benefit Plans and
Agreements -- Employee Stock Ownership Plan." Also assumes that the MRP
will purchase in the open market Common Stock in an amount equal to 4% of
the Common Stock issued in the Conversion. The implementation of the MRP is
subject to regulatory and stockholder approvals. For purposes of this
table, the dollar amount of the Common Stock to be purchased by the MRP is
assumed to be equal to the $10.00 price per share being offered in the
Conversion. Such price may increase or decrease between the date of
consummation of the Conversion and the date that, following receipt of
regulatory and stockholder approvals, the shares are actually purchased by
the MRP. The purchase of shares of Common Stock by the MRP following
receipt of such approvals may be from authorized but unissued shares of
Common Stock or in the open market. In accordance with generally accepted
accounting principles, the amount of the Common Stock to be purchased by
the MRP represents unearned compensation and is reflected in this table as
a reduction of capital. As the Bank accrues compensation expense over the
five year period following such purchase in accordance with generally
accepted accounting principles to reflect the vesting of such shares of
Common Stock pursuant to the MRP, there will be a corresponding reduction
in the charge against capital. See "Management of the Bank -- Certain
Benefit Plans and Agreements -- Management Recognition Plan."
(2) Based on the Bank's adjusted total assets for the purpose of the tangible
and core capital requirements and risk-weighted assets for the purpose of
the risk-based capital requirement. See "Regulation -- Regulation of the
Bank -- Regulatory Capital."
(3) Does not reflect potential increases in the Bank's core capital requirement
to between 4% and 5% of adjusted total assets in the event the OTS amends
its capital requirements to conform to the more stringent leverage ratio
adopted by the Office of the Comptroller of the Currency for national banks
as described in "Regulation."
15
<PAGE>
PRO FORMA DATA
The following table sets forth the actual and, after giving effect to
the Conversion for the periods and at the dates indicated, pro forma
consolidated income, stockholders' equity and other data of the Bank prior to
the Conversion and of the Company following the Conversion. Unaudited pro forma
consolidated income and related data have been calculated for the six months
ended June 30, 1997 and the year ended December 31, 1996 as if the Common Stock
had been sold at the beginning of such periods, and the estimated net proceeds
had been invested at 5.38% and 5.22% at the beginning of the respective periods.
The foregoing yields represent the average one-year Treasury bill rate during
such periods. The pro forma after-tax yields for the Company and the Bank are
assumed to be 3.55% and 3.45% for the six months ended June 30, 1997 and for the
year ended December 31, 1996, based on the effective tax rate of 34% in each of
the respective periods. Unaudited pro forma consolidated stockholders' equity
and related data have been calculated as if the Common Stock had been sold and
was outstanding at the end of the periods, without any adjustment of historical
or pro forma equity to reflect assumed earnings on estimated net proceeds. Per
share amounts have been computed as if the Common Stock had been outstanding at
the beginning of the period or at the dates shown, but without any adjustment of
historical or pro forma stockholders' equity to reflect the earnings on
estimated net proceeds. The pro forma data set forth below do not reflect
withdrawals from deposit accounts to purchase shares or increases in capital
and, in the case of newly issued shares, outstanding Common Stock upon the
exercise of options by participants in the Option Plan, under which an aggregate
amount of the Common Stock equal to 10% of the shares issued in the Conversion
(265,000 shares at the midpoint of the Current Valuation Range) are expected to
be reserved for issuance to directors, executive officers and employees upon the
exercise of stock options at exercise prices equal to the market price of the
Common Stock on the date of grant. See "Management of the Bank -- Certain
Benefit Plans and Agreements."
The estimated net proceeds to the Company, as set forth in the
following tables, assume the sale of the Common Stock at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range. The actual
net proceeds from the sale of the Common Stock cannot be determined until the
Conversion is completed. However, net proceeds set forth on the following
tables are estimated based upon the following assumptions: (i) 100% of the
shares of Common Stock will be sold in the Subscription and Community Offerings
as follows: (a) 8% will be sold to the ESOP and (b) the remaining shares will be
sold to others in the Subscription and Community Offerings; and (ii) total
Conversion expenses will be approximately $700,000. The foregoing assumptions
regarding estimated purchases in the Subscription and Community Offerings are
based on reasonable market assumptions, market conditions, consultations between
the Bank and the Agents and planned purchases by the ESOP. Actual expenses may
vary from those estimated.
16
<PAGE>
The stockholders' equity and related data presented herein are not
intended to represent the fair market value of the Common Stock, the current
value of assets or liabilities, or the amounts, if any, that would be available
for distribution to stockholders in the event of liquidation. For additional
information regarding the liquidation account, see "The Conversion -- Effect of
Conversion to Stock Form on Depositors and Borrowers of the Bank -- Liquidation
Account." The pro forma income and related data derived from the assumptions
set forth above should not be considered indicative of the actual results of
operations of the Bank and the Company for any period. Such pro forma data may
be materially affected by a change in the number of shares to be issued in the
Conversion and other factors. See "The Conversion -- Stock Pricing and Number
of Shares to be Issued."
<TABLE>
<CAPTION>
At or for the Six Months Ended June 30, 1997
---------------------------------------------------------------------------
2,252,500 2,650,000 3,047,500 3,504,625
shares at $10.00 shares at $10.00 shares at $10.00 shares at $10.00
--------- --------- --------- ---------
per share per share per share per share
--------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross offering proceeds............................. $ 22,525 $ 26,500 $ 30,475 $ 35,046
Estimated offering expenses......................... (700) (700) (700) (700)
------------ ------------ ------------ ------------
Estimated net proceeds.............................. 21,825 25,800 29,775 34,346
ESOP funded by the Company.......................... (1,802) (2,120) (2,438) (2,804)
MRP................................................. (901) (1,060) (1,219) (1,402)
------------ ------------ ------------ ------------
Estimated investable net proceeds................... $ 19,122 $ 22,620 $ 26,118 $ 30,140
============ ============ ============ ============
Net income:
Historical net income............................. $ 870 $ 870 $ 870 $ 870
Pro forma income on investable net proceeds....... 339 401 464 535
Pro forma ESOP adjustment (1)..................... (74) (87) (101) (116)
Pro forma MRP adjustment (2)...................... (59) (70) (80) (92)
Pro forma net income............................ $ 1,076 $ 1,114 $ 1,153 $ 1,197
============ ============ ============ ============
Net income per share:
Historical net income............................. $ 0.42 $ 0.35 $ 0.31 $ 0.27
Pro forma income on investable net proceeds....... 0.17 0.17 0.17 0.17
Pro forma ESOP adjustment (1)..................... (0.04) (0.04) (0.04) (0.04)
Pro forma MRP adjustment (2)...................... (0.03) (0.03) (0.03) (0.03)
Pro forma net income per share.................. $ 0.52 $ 0.45 $ 0.41 $ 0.37
============ ============ ============ ============
Weighted average number of shares outstanding
for earnings per share calculations............... 2,083,563 2,451,250 2,818,938 3,241,778
Stockholders' equity: (3)
Historical.......................................... $ 18,265 $ 18,265 $ 18,265 $ 18,265
Estimated net proceeds.............................. 21,825 25,800 29,775 34,346
Common Stock acquired by ESOP (1)................... (1,802) (2,120) (2,438) (2,804)
Common Stock acquired by MRP (2).................... (901) (1,060) (1,219) (1,402)
------------ ------------ ------------ ------------
Pro forma stockholders' equity...................... $ 37,387 $ 40,885 $ 44,383 $ 48,405
============ ============ ============ ============
Stockholders' equity per share: (3)
Historical........................................ $ 8.11 $ 6.89 $ 5.99 $ 5.21
Estimated net proceeds............................ 9.69 9.74 9.77 9.80
Common Stock acquired by ESOP (1)................. (0.80) (0.80) (0.80) (0.80)
Common Stock acquired by MRP (2).................. (0.40) (0.40) (0.40) (0.40)
------------ ------------ ------------ ------------
Pro forma stockholders' equity per share.......... $ 16.60 $ 15.43 $ 14.56 $ 13.81
============ ============ ============ ============
Weighted average number of shares outstanding for
stockholders' equity per share calculations (4)... 2,252,500 2,650,000 3,047,500 3,504,625
Offering price as a percentage of pro forma
stockholders' equity per share (5)................ 60.2% 64.8% 68.7% 72.4%
============ ============ ============ ============
Ratio of offering price to pro forma annualized
net income per share.............................. 9.6 11.1 12.2 13.5
============ ============ ============ ============
(Footnotes on following page)
</TABLE>
17
<PAGE>
- ------------------
(1) Assumes 8% of the shares to be sold in the Conversion are purchased by the
ESOP under all circumstances, and that the funds used to purchase such
shares are borrowed from the Company. The approximate amount expected to be
borrowed by the ESOP is not reflected as a liability but is reflected as a
reduction of capital. Although repayment of such debt will be secured
solely by the shares purchased by the ESOP, the Bank expects to make
discretionary contributions to the ESOP in an amount at least equal to the
principal and interest payments on the ESOP debt. Pro forma net income
has been adjusted to give effect to such contributions, based upon a fully
amortizing debt with an eight -year term. Because the Company will be
providing the ESOP loan, only principal payments on the ESOP loan are
reflected as employee compensation and benefits expense. For purposes of
this table the Purchase Price of $10.00 was utilized to calculate the ESOP
expense. The Bank intends to record compensation expense related to the
ESOP in accordance with American Institute of Certified Public Accountants
("AICPA") Statement of Position ("SOP") No. 93-6. As a result, to the
extent the value of the Common Stock appreciates over time, compensation
expense related to the ESOP will increase. SOP 93-6 also changes the
earnings per share computations for leveraged ESOPs to include as
outstanding only shares that have been committed to be released to
participants. For purposes of the preceding table, it was assumed that
6.25% of the ESOP shares purchased in the Conversion were committed to be
released at June 30, 1997. If it is assumed that 100% of the ESOP shares
were committed to be released at June 30, 1997, the application of SOP 93-6
would result in net income per share of $0.48, $0.42, $0.38 and $0.34
respectively, and a ratio of offering price to pro forma annualized net
income per share of 10.4 times, 11.9 times, 13.2 times and 14.7 times,
respectively, based on the sale of shares at the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Valuation Range. See "Management
of the Bank -- Certain Benefit Plans and Agreements -- Employee Stock
Ownership Plan."
(2) Assumes a number of shares of Common Stock equal to 4% of the Common Stock
to be sold in the Conversion will be purchased by the MRP in the open market
in the year following the Conversion. The dollar amount of the Common Stock
to be purchased by the MRP is based on the Purchase Price in the Conversion
and represents unearned compensation and is reflected as a reduction of
capital. Such amount does not reflect possible increases or decreases in
the value of such stock relative to the Purchase Price in the Conversion.
As the Bank accrues compensation expense to reflect the vesting of such
shares pursuant to the MRP, the charge against capital will be reduced
accordingly. MRP adjustment is based on MRP expenses for the first year
following the Conversion calculated in accordance with generally accepted
accounting principles. MRP expenses are expected to be lower in subsequent
years. Implementation of the MRP would require stockholder approval at a
meeting of the Company's stockholders to be held within one year but no
earlier than six months after the Conversion. For purposes of this table,
it is assumed that the MRP will be adopted by the Bank's Board of Directors
and approved by the Company's stockholders, and that the MRP will purchase
the shares of Common Stock in the open market within the year following the
Conversion. If the shares to be purchased by the MRP are assumed to be
newly issued shares purchased from the Company by the MRP at the Purchase
Price, at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range, the offering price as a percentage of pro forma
stockholders' equity per share would be 61.18%, 65.71%, 69.50% and 73.18%,
respectively, and pro forma net income per share would have been $0.49,
$0.44, $0.39 and $0.35, respectively. As a result of the MRP, stockholders'
interests will be diluted by approximately 3.85%. See "Management of the
Bank -- Certain Benefit Plans and Agreements -- Management Recognition Plan"
and "Risk Factors -- Possible Dilutive Effect of MRP and Stock Options."
(3) Consolidated stockholders' equity represents the excess of the carrying
value of the assets of the Company over its liabilities. The amounts shown
do not reflect the federal income tax consequences of the potential
restoration to income of the bad debt reserves for income tax purposes,
which would be required in the event of liquidation. The amounts shown also
do not reflect the amounts required to be distributed in the event of
liquidation to eligible depositors from the liquidation account which will
be established upon the consummation of the Conversion. Pro forma
stockholders' equity information is not intended to represent the fair
market value of the Common Stock, the current value of the Bank's assets or
liabilities or the amounts, if any, that would be available for distribution
to stockholders in the event of liquidation. Such pro forma data may be
materially affected by a change in the number of shares to be sold in the
Conversion and by other factors.
(4) Assumes that all shares of Common Stock held by the ESOP were committed to
be released.
(5) It is expected that following the consummation of the Conversion the Company
will adopt the Option Plan, which would be subject to stockholder approval,
and that such plan would be considered and voted upon at a meeting of the
Company's stockholders to be held within one year but no earlier than six
months after the Conversion. Upon adoption of the Option Plan, employees
and directors could be granted options to purchase an aggregate amount of
the Common Stock equal to 10% of the shares issued in the Conversion at
exercise prices equal to the market price of the Common Stock on the date of
grant. In the event the shares issued under the Option Plan consist of
newly issued shares of Common Stock and all options available for award
under the Option Plan were awarded, the interests of existing stockholders
would be diluted. At the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, if all shares under the Option
Plan were newly issued and the exercise price for the option shares were
equal to the Purchase Price in the Conversion, net income per share would be
$0.47, $0.41, $0.37 and $0.33, respectively, and the stockholders' equity
per share would be $16.00, $14.93, $14.15 and $13.47, respectively. See
"Management of the Bank -- Certain Benefit Plans and Agreements -- Stock
Option Plan."
18
<PAGE>
<TABLE>
<CAPTION>
At or for the Year Ended December 31, 1996
-----------------------------------------------------
2,252,500 2,650,000 3,047,500 3,504,625
shares shares at shares at shares at
at $10.00 $10.00 per $10.00 per $10.00 per
per share share share share
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(Dollars in thousands, except per share amounts)
Gross offering proceeds........................................... $ 22,525 $ 26,500 $ 30,475 $ 35,046
Estimated offering expenses....................................... (700) (700) (700) (700)
---------- ---------- ---------- ----------
Estimated net proceeds............................................ 21,825 25,800 29,775 34,346
ESOP funded by the Company........................................ (1,802) (2,120) (2,438) (2,804)
MRP............................................................... (901) (1,060) (1,219) (1,402)
---------- ---------- ---------- ----------
Estimated investable net proceeds................................. $ 19,122 $ 22,620 $ 26,118 $ 30,140
========== ========== ========== ==========
Net income:
Historical net income (1)....................................... $ 195 $ 195 $ 195 $ 195
Pro forma income on investable net proceeds..................... 659 779 899 1,038
Pro forma ESOP adjustment (2)................................... (149) (175) (201) (231)
Pro forma MRP adjustment (3).................................... (119) (140) (161) (185)
---------- ---------- ---------- ----------
Pro forma net income......................................... $ 586 $ 659 $ 732 $ 817
========== ========== ========== ==========
Net income per share:
Historical net income (1)....................................... $ 0.09 $ 0.08 $ 0.07 $ 0.06
Pro forma income on investable net proceeds..................... 0.32 0.32 0.32 0.32
Pro forma ESOP adjustment (2)................................... (0.07) (0.07) (0.07) (0.07)
Pro forma MRP adjustment (3).................................... (0.06) (0.06) (0.06) (0.06)
---------- ---------- ---------- ----------
Pro forma net income per share............................... $ 0.28 $ 0.27 $ 0.26 $ 0.25
========== ========== ========== ==========
Weighted average number of shares outstanding for earnings per
share calculations.............................................. 2,094,825 2,464,500 2,834,175 3,259,301
Stockholders' equity: (4)
Historical...................................................... $ 16,824 $ 16,824 $ 16,824 $ 16,824
Estimated net proceeds.......................................... 21,825 25,800 29,775 34,346
Common Stock acquired by ESOP (2)............................... (1,802) (2,120) (2,438) (2,804)
Common Stock acquired by MRP (3)................................ (901) (1,060) (1,219) (1,402)
---------- ---------- ---------- ----------
Pro forma stockholders' equity.................................. $ 35,946 $ 39,444 $ 42,942 $ 46,964
========== ========== ========== ==========
Stockholders' equity per share: (4)
Historical...................................................... $ 7.47 $ 6.35 $ 5.52 $ 4.80
Estimated net proceeds.......................................... 9.69 9.73 9.77 9.80
Common Stock acquired by ESOP (2)............................... (0.80) (0.80) (0.80) (0.80)
Common Stock acquired by MRP (3)................................ (0.40) (0.40) (0.40) (0.40)
---------- ---------- ---------- ----------
Pro forma stockholders' equity per share........................ $ 15.96 $ 14.88 $ 14.09 $ 13.40
========== ========== ========== ==========
Weighted average number of shares outstanding for stockholders'
equity per share calculations (5)............................... 2,252,500 2,650,000 3,047,500 3,504,625
Offering price as a percentage of pro forma stockholders' equity
per share (6)................................................... 62.7% 67.2% 71.0% 74.6%
========== ========== ========== ==========
Ratio of offering price to pro forma net income per share......... 35.7 37.0 38.5 40.0
========== ========== ========== ==========
</TABLE>
(Footnotes on following page)
19
<PAGE>
- -----------------------
(1) Historical net income and historical net income per share include an after-
tax charge of $812,000 taken during the year ended December 31, 1996
representing a one-time special assessment of 65.7 basis points on the
Bank's deposits held as of March 31, 1995 pursuant to legislation enacted to
recapitalize the SAIF. If the one-time special assessment had been
excluded, at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range, pro forma net income per share would have been
$0.67, $0.60, $0.54 and $0.50, respectively. See Note 13 of Notes to
Financial Statements. At the midpoint of the Estimated Valuation Range, and
excluding the effect of the one-time SAIF assessment, the Company's offering
price as a percentage of pro forma stockholders' equity would have been
65.8%, and its pro forma ratio of offering price to pro forma net income per
share would have been 16.7 times.
(2) Assumes 8% of the shares to be sold in the Conversion are purchased by the
ESOP under all circumstances, and that the funds used to purchase such
shares are borrowed from the Company. The approximate amount expected to be
borrowed by the ESOP is not reflected as a liability but is reflected as a
reduction of capital. Although repayment of such debt will be secured solely
by the shares purchased by the ESOP, the Bank expects to make discretionary
contributions to the ESOP in an amount at least equal to the principal and
interest payments on the ESOP debt. Pro forma net income has been adjusted
to give effect to such contributions, based upon a fully amortizing debt
with an eight-year term. Because the Company will be providing the ESOP
loan, only principal payments on the ESOP loan are reflected as employee
compensation and benefits expense. For purposes of this table the Purchase
Price of $10.00 was utilized to calculate the ESOP expense. The Bank intends
to record compensation expense related to the ESOP in accordance with
American Institute of Certified Public Accountants ("AICPA") Statement of
Position ("SOP") No. 93-6. As a result, to the extent the value of the
Common Stock appreciates over time, compensation expense related to the ESOP
will increase. SOP 93-6 also changes the earnings per share computations for
leveraged ESOPs to include as outstanding only shares that have been
committed to be released to participants. For purposes of the preceding
table, it was assumed that 12.5% of the ESOP shares purchased in the
Conversion were committed to be released at December 31, 1996. If it is
assumed that 100% of the ESOP shares were committed to be released at
December 31, 1996, the application of SOP 93-6 would result in net income
per share of $0.26, $0.25, $0.24 and $0.23, respectively, and a ratio of
offering price to pro forma net income per share of 38.5 times, 40.0 times,
41.7 times and 43.5 times, respectively, based on the sale of shares at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range. See "Management of the Bank -- Certain Benefit Plans and
Agreements -- Employee Stock Ownership Plan."
(3) Assumes a number of shares of Common Stock equal to 4% of the Common Stock
to be sold in the Conversion will be purchased by the MRP in the open market
in the year following the Conversion. The dollar amount of the Common Stock
to be purchased by the MRP is based on the Purchase Price in the Conversion
and represents unearned compensation and is reflected as a reduction of
capital. Such amount does not reflect possible increases or decreases in
the value of such stock relative to the Purchase Price in the Conversion.
As the Bank accrues compensation expense to reflect the vesting of such
shares pursuant to the MRP, the charge against capital will be reduced
accordingly. MRP adjustment is based on MRP expenses for the first year
following the Conversion calculated in accordance with generally accepted
accounting principles. MRP expenses are expected to be lower in subsequent
years. Implementation of the MRP would require stockholder approval at a
meeting of the Company's stockholders to be held within one year but no
earlier than six months after the Conversion. For purposes of this table,
it is assumed that the MRP will be adopted by the Bank's Board of Directors
and approved by the Company's stockholders, and that the MRP will purchase
the shares of Common Stock in the open market within the year following the
Conversion. If the shares to be purchased by the MRP are assumed to be
newly issued shares purchased from the Company by the MRP at the Purchase
Price, at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range, the offering price as a percentage of pro forma
stockholders' equity per share would be 63.6%, 68.0%, 71.8% and 75.4%,
respectively, and pro forma net income per share would have been $0.27,
$0.26, $0.25 and $0.24, respectively. As a result of the MRP, stockholders'
interests will be diluted by approximately 3.85%. See "Management of the
Bank -- Certain Benefit Plans and Agreements -- Management Recognition Plan"
and "Risk Factors -- Possible Dilutive Effect of MRP and Stock Options."
(4) Consolidated stockholders' equity represents the excess of the carrying
value of the assets of the Company over its liabilities. The amounts shown
do not reflect the federal income tax consequences of the potential
restoration to income of the bad debt reserves for income tax purposes,
which would be required in the event of liquidation. The amounts shown also
do not reflect the amounts required to be distributed in the event of
liquidation to eligible depositors from the liquidation account which will
be established upon the consummation of the Conversion. Pro forma
stockholders' equity information is not intended to represent the fair
market value of the Common Stock, the current value of the Bank's assets or
liabilities or the amounts, if any, that would be available for distribution
to stockholders in the event of liquidation. Such pro forma data may be
materially affected by a change in the number of shares to be sold in the
Conversion and by other factors.
(5) Assumes that all shares of Common Stock held by the ESOP were committed to
be released.
(6) It is expected that following the consummation of the Conversion the Company
will adopt the Option Plan, which would be subject to stockholder approval,
and that such plan would be considered and voted upon at a meeting of the
Company's stockholders to be held within one year but no earlier than six
months after the Conversion. Upon adoption of the Option Plan, employees
and directors could be granted options to purchase an aggregate amount of
the Common Stock equal to 10% of the shares issued in the Conversion at
exercise prices equal to the market price of the Common Stock on the date of
grant. In the event the shares issued under the Option Plan consist of
newly issued shares of Common Stock and all options available for award
under the Option Plan were awarded, the interests of existing stockholders
would be diluted. At the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, if all shares under the Option
Plan were newly issued and the exercise price for the option shares were
equal to the Purchase Price in the Conversion, net income per share would be
$0.25, $0.24, $0.23 and
20
<PAGE>
$0.22, respectively, and the stockholders' equity per share would be $15.42,
$14.44, $13.72 and $13.09, respectively. See "Management of the Bank --
Certain Benefit Plans and Agreements -- Stock Option Plan."
21
<PAGE>
PROPOSED MANAGEMENT PURCHASES
The following table sets forth information regarding the approximate number
of shares of Common Stock intended to be purchased by each of the directors and
officers of the Bank and by all directors and executive officers as a group,
including their associates. For purposes of the following table, it has been
assumed that 2,650,000 shares of Common Stock (i.e., the midpoint of the
Estimated Valuation Range) will be sold at $10.00 per share (see "-- Stock
Pricing and Number of Shares to be Issued") and that sufficient shares will be
available to satisfy subscriptions in all categories.
<TABLE>
<CAPTION>
Aggregate Purchase
Price
of Proposed
Name and Position Total Shares Percent of Total Purchases
- ----------------------------------------------- -------------- ------------------ ---------------------
<S> <C> <C> <C>
WD Kelly
Chairman of the Board....................... 12,500 0.47% $ 125,000
Bruce Thomas
Director, President and Chief Executive
Officer..................................... 50,000 1.89 500,000
Peggy R. Noel
Director, Executive Vice President and
Chief Financial Officer..................... 50,000 1.89 500,000
Boyd M. Clark
Director and Senior Vice President --
Loan Administration......................... 50,000 1.89 500,000
Clifton H. Cochran
Director.................................... 20,000 0.75 200,000
Drury R. Embry
Director.................................... 1,000 0.04 10,000
Walton G. Ezell
Director.................................... 50,000 1.89 500,000
John Noble Hall, Jr.
Director.................................... 20,000 0.75 200,000
Chester K. Wood
Director.................................... 7,500 0.28 75,000
------- ----- ----------
All directors and executive officers, as a
group (9 persons) and their associates...... 261,000 9.85 2,610,000
ESOP (1)................................. 212,000 8.00 2,120,000
MRP (2).................................. 106,000 4.00 1,060,000
------- ----- ----------
Total (3)............................... 579,000 21.85% $5,790,000
======= ===== ==========
</TABLE>
(Footnotes on following page)
22
<PAGE>
- -----------------
(1) Consists of shares that could be allocated to participants in the ESOP,
under which executive officers and other employees would be allocated in the
aggregate 8.0% of the Common Stock issued in the Conversion. See
"Management of the Bank -- Certain Benefit Plans and Agreements -- Employee
Stock Ownership Plan."
(2) Consists of shares that are expected to be awarded to participants in the
MRP, if implemented, under which directors, executive officers and other
employees would be awarded an aggregate number of shares equal to 4.0% of
the Common Stock sold in the Conversion. The dollar amount of the Common
Stock to be purchased by the MRP is based on the Purchase Price in the
Conversion and does not reflect possible increases or decreases in the value
of such Stock relative to the Purchase Price per share in the Conversion.
Implementation of the MRP would require stockholder approval. See
"Management of the Bank -- Certain Benefit Plans and Agreements --
Management Recognition Plan." Such shares could be newly issued shares or
shares purchased in the open market following implementation of the MRP, in
the sole discretion of the Company's Board of Directors. The percentage
shown assumes the shares are purchased in the open market. If all shares
acquired by the MRP are newly issued shares, the percentage of the
outstanding Common Stock owned by the MRP would be 3.85%. Any sale of newly
issued shares to the MRP would be dilutive to existing stockholders. See
"Risk Factors -- Potential Benefits of Conversion to Management."
(3) Does not include shares that possibly would be purchased by participants in
an Option Plan intended to be implemented following the Conversion, under
which directors, executive officers and other employees would be granted
options to purchase an aggregate amount of the Common Stock equal to 10% of
the shares issued in the Conversion at exercise prices equal to the market
price of the Common Stock on the date of grant. Shares issued pursuant to
the exercise of options could be from treasury stock or newly issued shares.
Implementation of the Option Plan would require regulatory and stockholder
approval. See "Management of the Bank -- Certain Benefit Plans and
Agreements -- Stock Option Plan."
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company has only recently been formed and, accordingly, has no
results of operations at this time. As a result, this discussion relates to the
financial condition and results of operations of the Bank. The principal
business of the Bank consists of accepting deposits from the general public and
investing these funds primarily in loans and in investment securities and
mortgage-backed securities. The Bank's loan portfolio consists primarily of
loans secured by residential real estate located in its market area. See
"Prospectus Summary -- Hopkinsville Federal Savings Bank."
The Bank has historically been profitable. For the six months ended
June 30, 1997, the Bank recorded net income of $870,000, a return on average
assets of 0.86% and a return on average equity of 9.99%. For the year ended
December 31, 1996, the Bank recorded net income of $195,000, a return on average
assets of 0.09% and a return on average equity of 1.19%. In 1996, the Bank paid
the FDIC a special assessment of $1.2 million before taxes ($812,000 net of tax)
to recapitalize the SAIF. Excluding the effect of this one-time assessment in
1996, the Bank would have recorded net income of $1,007,000, a return on average
assets of 0.48% and a return on average equity of 6.15%.
The Bank's net income is dependent primarily on its net interest
income, which is the difference between interest income earned on its loan,
investment securities and mortgage-backed securities portfolios and interest
paid on interest-bearing liabilities. Net interest income is determined by (i)
the difference between yields earned on interest-earning assets and rates paid
on interest-bearing liabilities ("interest rate spread") and (ii) the relative
amounts of interest-earning assets and interest-bearing liabilities. The Bank's
interest rate spread is affected by regulatory, economic and competitive factors
that influence interest rates, loan demand and deposit flows. To a lesser
extent, the Bank's net income also is affected by the level of non-interest
expenses such as compensation and employee benefits and FDIC insurance premiums.
The operations of the Bank and the entire thrift industry are
significantly affected by prevailing economic conditions, competition and the
monetary, fiscal and regulatory policies of governmental agencies. Lending
activities are influenced by the demand for and supply of housing, competition
among lenders, the level of interest rates and the availability of funds.
Deposit flows and costs of funds are influenced by prevailing market rates of
interest, primarily on competing investments, account maturities and the levels
of personal income and savings in the Bank's market area.
Current Business Strategy
Until 1996, the Bank's primary focus was on asset growth by attracting
deposits. The Bank determined that deposits were the most suitable source of
funding for the Bank because of their relative stability and the opportunity for
the Bank to offer other income-producing products to its depositors. To attract
deposits, the Bank offered rates on accounts that were at or above then-
prevailing rates in its market area. As a result of this practice, the Bank's
total assets increased each year until it reached $212.6 million at December 31,
1995. This strategy substantially increased the Bank's interest expense and
reduced profitability.
The Bank, however, was unable to deploy the significant amount of
funds generated by this strategy solely through loan originations in its market
area as reflected in the Bank's loan-to-deposit ratio of 43.5% at December 31,
1995. As a result, the Bank invested these funds in securities, primarily U.S.
government and agency securities and mortgage-backed securities. See "--
Asset/Liability Management." The yields on these investments were significantly
less than the yields obtained by the Bank on its loan portfolio. The combined
lower weighted average yield on the Bank's interest-earning assets, when reduced
by the relatively high cost of the Bank's deposits due to the Bank's former
deposit pricing strategy, tended to depress the Bank's overall profitability.
For the year ended December 31, 1995, the Bank's interest rate spread
was 0.84%, a decrease from 1.09% for the year ended December 31, 1994. Although
the Bank has been profitable in each of the past five years, the reduced net
yield was reflected in the Bank's return on average assets, which was 0.20% for
the year ended December 31, 1995. See "Selected Financial Information and Other
Data."
24
<PAGE>
In 1996, the Bank revised its business strategy to emphasize increased
profitability over asset growth by attracting deposits on a less aggressive
basis through a reduction in overall deposit rates. This reduction caused a
deposit run-off during 1996 of approximately $10.9 million in higher-costing
deposits. This run-off contributed to a reduction in the Bank's total assets to
$204.4 million at December 31, 1996 from $212.6 million at December 31, 1995.
Deposits as a percentage of average assets decreased from 92.4% at December 31,
1995 to 87.8% at December 31, 1996. In addition, the Bank continued its
emphasis on origination of adjustable rate loans in its market area. In 1996,
average loans increased $9.9 million, or 12.0%, from the 1995 average resulting
in an increase in the loan to deposit ratio to 51.9% at December 31, 1996. See
" -- Asset/Liability Management" and "Business of the Bank." While the Bank's
reduced emphasis on deposit-gathering decreased its liquidity, which was 45.63%
at December 31, 1996, compared to 54.49% at December 31, 1995, the Bank remains
well positioned to meet its liquidity needs.
As a result of the Bank's revised business strategy, the Bank's
interest rate spread increased to 1.35% for the year ended December 31, 1996,
from 0.84% for the year ended December 31, 1995. During 1996, the Bank was
required to pay a one-time deposit insurance assessment of $1.2 million
($812,000 after taxes) to the FDIC. See Note 13 of Notes to Financial
Statements. This special assessment was imposed on all SAIF-insured financial
institutions in September 1996. Including this special SAIF assessment, the
Bank's net income, return on average assets and return on average equity for
1996 were $195,000, 0.09%, and 1.19%, respectively. Excluding the after-tax
effect of this one-time assessment, the Bank's 1996 net income, return on
average assets and return on average equity would have been $1,007,000, 0.48%
and 6.15%, respectively, as compared to the Bank's 1995 net income, return on
average assets and return on average equity of $412,000, 0.20% and 2.64%,
respectively.
The Bank's profitability in the six months ended June 30, 1997 also
was primarily attributable to its current business strategy. The Bank's net
income, return on average assets and return on average equity were $870,000,
0.86% and 9.99%, respectively, for the six months ended June 30, 1997, as
compared to $445,000, 0.42% and 5.49%, respectively, for the six months ended
June 30, 1996. See "Selected Financial Information and Other Data."
The Bank intends to continue to implement its revised business
strategy by further reducing its cost of deposits while continuing to emphasize
mortgage loans as well as diversifying its lending practice. See "Business of
the Bank -- Lending Activities." However, the results to date which are
attributable to the Bank's current business strategy are not necessarily
indicative of future results.
Asset/Liability Management
Key components of a successful asset/liability strategy are the
monitoring and managing of interest rate sensitivity of both the interest-
earning asset and interest-bearing liability portfolios. The Bank has employed
various strategies intended to minimize the adverse affect of interest rate risk
on future operations by providing a better match between the interest rate
sensitivity between its assets and liabilities. In particular, the Bank's
strategies are intended to stabilize net interest income for the long-term by
protecting its interest rate spread against increases in interest rates. Such
strategies include the origination of adjustable-rate mortgage loans secured by
one-to-four family residential real estate, and, to a lesser extent, multi-
family real estate loans and the origination of other loans with greater
interest rate sensitivities than long-term, fixed-rate residential mortgage
loans. For the six months and year ended June 30, 1997 and December 31, 1996,
respectively, approximately $6.7 million and $12.4 million of the one-to-four
family residential loans originated by the Bank (comprising 95.7% and 76.5%,
respectively, of such loans) had adjustable rates.
As discussed above, the Bank has used excess funds to invest in U.S.
government and agency securities and mortgage-backed securities. Such
investments have been made in order to manage interest rate risk, as well as to
diversify the Bank's assets, manage cash flow, obtain yields and maintain the
minimum levels of qualified and liquid assets required by regulatory
authorities.
The U.S. government and agency securities consist of notes issued by
the FHLB System and other government agencies. The securities generally are
purchased for a term of five years or less, and are fixed-term, fixed rate
securities, callable securities or securities which provide for interest rates
to increase at specified intervals to pre-established rates, and thus improve
the spread between the Bank's cost of funds and yield on investments. At June
30, 1997, approximately $9.0 million of the securities were due in one year or
less and approximately $49.0 million were due in one to five years. However, at
June 30, 1997, approximately $51.0 million of the securities have call
provisions which
25
<PAGE>
authorize the issuing agency to prepay the securities at face value at certain
pre-established dates. If, prior to their maturity dates, market interest rates
decline below the rates paid on the securities, the issuing agency may elect to
exercise its right to prepay the securities. At June 30, 1997, the Bank held
approximately $48.0 million of securities which are callable prior to December
31, 1997. The Bank currently anticipates that it would seek to reinvest any
funds available from a prepayment into those U.S. government and agency
securities or mortgage-backed securities which the Bank believes to be the most
appropriate investments at that time, assuming lending opportunities are not
then available. Notwithstanding their call feature, the Bank believes that it
has benefited from its investments in callable securities, which have improved
its portfolio yield over alternative fixed yield, fixed maturity
investments.
Mortgage-backed securities entitle the Bank to receive a pro rata
portion of the cash flow from an identified pool of mortgages. Although
mortgage-backed securities generally offer lesser yields than the loans for
which they are exchanged, mortgage-backed securities present lower credit risk
by virtue of the guarantees that back them, are more liquid than individual
mortgage loans, and may be used to collateralize borrowings or other obligations
of the Bank. Further, since they are primarily adjustable rate, mortgage-backed
securities are helpful in limiting the Bank's interest rate risk. For more
information regarding the Bank's investment securities, see "Business of the
Bank -- Investment Securities" and Note 2 of Notes to Financial Statements.
Interest Rate Sensitivity Analysis
The matching of assets and liabilities may be analyzed by examining
the extent to which such assets and liabilities are "interest rate sensitive"
and by monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific period if it
will mature or reprice within that period. The interest rate sensitivity gap is
defined as the difference between the amount of interest-earning assets maturing
or repricing within a specific time period and the amount of interest-bearing
liabilities maturing or repricing within that time period. 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. At June 30, 1997, the Bank had a positive one-year interest
rate sensitivity gap of 21.49% of total interest-earning assets. Generally,
during a period of rising interest rates, a negative gap position would be
expected to adversely affect net interest income while a positive gap position
would be expected to result in an increase in net interest income. Conversely
during a period of falling interest rates, a negative gap would be expected to
result in an increase in net interest income and a positive gap would be
expected to adversely affect net interest income.
26
<PAGE>
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at June 30, 1997 which are expected
to mature or reprice in each of the time periods shown.
<TABLE>
<CAPTION>
Over One Over Five Over Ten
One Year Through Through Through Over Fifteen
or Less Five Years Ten Years Fifteen Years Years Total
------- ---------- --------- ------------- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans:
One-to-four family........ $ 66,717 $ 5,846 $ 7,659 $ -- $ $ 80,222
Multi-family
residential.............. 1,858 -- -- -- 1,858
Construction.............. 4,219 -- -- -- 4,219
Non-residential........... 7,312 -- -- -- 7,312
Secured by deposits....... 3,314 -- -- -- 3,314
Other consumer............ 573 3,295 420 -- 4,288
Time deposits and
interest
bearing deposits in FHLB....... 2,003 -- -- -- -- 2,003
Federal funds sold............. 11,146 -- -- -- -- 11,146
Securities................... 64,019 -- -- -- -- 64,019
Mortgage-backed
securities.................. 17,338 1,795 2,483 -- -- 21,616
-------- -------- ------- -------------- -------------- --------
Total........................ $178,499 $ 10,936 $10,562 $ -- $ -- $199,997
-------- -------- ------- -------------- -------------- --------
Interest-bearing
liabilities:
Deposits..................... $135,528 $ 44,069 $179,597
Interest sensitivity gap.......... $ 42,971 $(33,133) $10,562 $ -- $ -- $ 20,400
======== ======== ======= ============== ============== ========
Cumulative interest
sensitivity gap.................. $ 42,971 $ 9,838 $20,400 $20,400 $20,400 $ 20,400
======== ======== ======= ============== ============== ========
Ratio of interest-earning
assets to
interest-bearing
liabilities................ 131.7% 24,8% N/A% N/A% N/A% 111.4%
======== ======== =============== ============== ============== ========
Ratio of cumulative gap to
total
interest-earning
assets..................... 21.49% 4.92% 10.20% 10.20% 10.20% 10.20%
======== ======== ======= ============== ============== ========
</TABLE>
The preceding table was prepared based upon the assumption that loans will
not be repaid before their respective contractual maturities, except for
adjustable rate loans which are classified based upon their next repricing date.
Further, it is assumed that fixed maturity deposits are not withdrawn prior to
maturity and that other deposits are withdrawn or repriced within one year.
Management of the Bank does not believe that these assumptions will be
materially different from the Bank's actual experience. However, the actual
interest rate sensitivity of the Bank's assets and liabilities could vary
significantly from the information set forth in the table due to market and
other factors.
The retention of adjustable-rate mortgage loans in the Bank's portfolio
helps reduce the Bank's exposure to changes in interest rates. However, there
are unquantifiable credit risks resulting from potential increased costs to
borrowers as a result of repricing adjustable-rate mortgage loans. It is
possible that during periods of rising interest rates, the risk of default on
adjustable-rate mortgage loans may increase due to the upward adjustment of
interest costs to the borrowers. See "Business of the Bank -- Lending
Activities -- One-to-four Family Residential Lending."
27
<PAGE>
Average Balance, Interest and Average Yields and Rates
The following table sets forth certain information relating to the Bank's
average interest-earning assets and interest-bearing liabilities and reflects
the average yield on assets and average cost of liabilities for the periods and
at the date 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 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.
The table also presents information for the periods and at the date
indicated with respect to the difference between the average yield earned on
interest-earning assets and average rate paid on interest-bearing liabilities,
or "interest rate spread," which savings institutions have traditionally used as
an indicator of profitability. Another indicator of an institution's net
interest income is its "net yield on interest-earning assets," which is its net
interest income divided by the average balance of interest-earning assets. Net
interest income is affected by the interest rate spread and by the relative
amounts of interest-earning assets and interest-bearing liabilities. When
interest-earning assets approximate or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income.
<TABLE>
<CAPTION>
Six Months Ended June 30,
At June 30, ---------------------------------------------------------------------
1997 1997 1996
---------------------------- ---------------------------------- --------------------------------
Weighted Average Average
Average Average Yield/ Average Yield/
Balance Yield/Cost Balance Interest Cost (1) Balance Interest Cost (1)
------- ---------- ------- -------- --------- ------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net...... $ 98,436 7.71% $ 97,162 $3,702 7.62% $ 87,685 $3,223 7.35%
Securities available
for sale.................. 6,048 2.81% 5,427 82 3.02% 4,095 74 3.61%
Securities held to
maturity.................. 79,587 6.16% 84,401 2,558 6.06% 99,040 2,857 5.77%
Time deposits and
other interest-
bearing cash deposits... 13,149 5.56% 11,152 301 5.40% 16,970 410 4.83%
-------- -------- -------- -------- --------
Total interest-earning
assets................... 197,220 6.79% 198,142 6,643 6.71% 207,790 6,564 6.32%
------ -------- ------ ------ -------- ------ ------
Non-interest-earning assets.... 5,276 5,062 5,759
--------
Total assets............... $202,496 $203,204 $213,549
======== ======== ========
Interest-bearing liabilities:
Deposits................... $179,597 4.86% $180,874 $4,417 4.88% $193,142 $5,029 5.21%
Borrowings................. -- --% 326 9 5.52% 841 23 5.47%
-------- -------- ------ -------- ------
Total interest-bearing
liabilities............... 179,597 4.86% 181,200 4,426 4.89% 193,983 5,052 5.21%
------
Non-interest-bearing
liabilities................... 4,634 4,591 3,351
-------- -------- --------
Total liabilities......... 184,231 185,791 197,334
Retained earnings.............. 15,461 15,000 14,594
Unrealized gain on
securities available for
sale.......................... $ 2,804 $ 2,413 $ 1,621
-------- -------- --------
Total liabilities and
retained earnings........ $202,496 $203,204 $213,549
======== ======== ========
Net interest income............ $2,217 $1,512
====== ======
Interest rate spread........... 1.93% 1.82% 1.11%
------ ------ ======
Net yield on
interest-earning assets....... 2.24% 1.46%
------ ======
Ratio of interest-earning
assets to interest-bearing
liabilities............... 109.81% 109.35% 107.12%
====== ====== ======
</TABLE>
(Continued on following page)
-----------------------------
28
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------- ------------------------------ --------------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- -------- -------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest-earning assets:
Loans receivable, net... $ 92,066 $ 6,824 7.41% $ 82,212 $ 5,840 7.10% $ 74,278 $ 5,247 7.06%
Securities available
for sale............... 4,372 151 3.45% 3,641 135 3.71% 2,919 109 3.73%
Securities held to
maturity .............. 98,139 5,624 5.73% 85,149 4,364 5.13% 74,177 3,320 4.48%
Time deposits and other
interest-bearing cash
deposits.............. 9,459 621 6.57% 35,510 2,133 6.01% 42,100 1,758 4.18%
-------- --------- -------- -------- --------- ---------
Total interest-earning
assets.............. 204,036 13,220 6.48% 206,512 12,472 6.04% 193,474 10,434 5.39%
--------- -------- -------- -------- --------- --------
Non-interest-earning assets 5,310 4,206 3,623
-------- -------- ---------
Total assets............ $209,346 $210,718 $ 197,097
======== ======== =========
Interest-bearing
liabilities:
Deposits............... $ 189,837 $ 9,732 5.13% $192,352 $ 10,009 5.20% $179,848 $ 7,740 4.30%
Borrowings............. 329 25 7.59% -- -- -- -- -- --
---------- --------- -------- -------- -------- ---------
Total interest-bearing
liabilities........ 190,166 9,757 5.13% 192,352 10,009 5.20% 179,848 7,740 4.30%
--------- -------- -------- -------- --------
Non-interest-bearing
liabilities............... 2,816 2,758 2,476
---------- -------- --------
Total liabilities.... 192,982 195,110 182,324
========== ======== ========
Retained earnings......... 14,578 14,249 13,828
========== ======== ========
Unrealized gain on
securities available for
sale..................... 1,786 1,359 945
---------- -------- --------
Total liabilities and
retained earnings.. $ 209,346 $210,718 $197.097
========== ======== ========
Net interest income....... $ 3,463 $ 2,463 $ 2,694
========= ======== =========
Interest rate spread...... 1.35% 0.84% 1.09%
======== ======== ========
Net yield on interest-
earning assets........... 1.70% 1.19% 1.39%
======== ======== ========
Ratio of average interest-
earning assets to average
interest-bearing
liabilities.............. 107.29% 107.36% 107.58%
======== ======== ========
</TABLE>
- -------------------
(1) Annualized.
29
<PAGE>
Rate/Volume Analysis
The following table 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); (ii) changes in rate (changes in
rate multiplied by new volume).
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
------------------------------------ -------------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995 1995 vs. 1994
--------------------------------- ---------------------------------- -------------------------------
Increase Increase Increase
(Decrease) due to (Decrease) due to (Decrease) due to
-------------------- ---------------------- ----------------------
Total Total Total
Increase Increase Increase
Rate Volume (Decrease) Rate Volume (Decrease) Rate Volume (Decrease)
---- ------ ---------- ---- ------ ---------- ---- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
Interest-earning assets:
Loans receivable.......... $ 131 $ 348 $ 479 $ 284 $ 700 $ 984 $ 33 $ 560 $ 593
Securities available for
sale.................... (16) 24 8 (11) 27 16 (2) 27 25
Securities held to
maturity................ 122 (421) (299) 594 666 1,260 553 491 1,044
Other interest-earning
assets.................. 32 (141) (109) 53 (1,565) (1,512) 650 (275) 375
----- ----- ----- ------ ------- ------- ------ ----- ------
Total interest-
earning assets..... $ 269 $(190) $ 79 $ 920 $ (172) $ 748 $1,234 $ 803 $2,037
----- ----- ----- ------ ------- ------- ------ ----- ------
Interest-bearing
liabilities:
Deposits.................. $(298) $(314) $(612) $ (146) $ (131) $ (277) $1,731 $ 538 $2,269
Borrowings................ -- (14) (14) -- 25 25 -- -- --
----- ----- ----- ------ ------- ------- ------ ----- ------
Total interest-
bearing
liabilities.................. $(298) $(328) $(626) $ (146) $ (106) $ (252) $1,731 $ 538 $2,269
----- ----- ----- ------ ------- ------- ------ ----- ------
Increase (decrease) in net
interest income........... $ 567 $ 138 $ 705 $1,066 $ (66) $ 1,000 $ (497) $ 265 $ (232)
===== ===== ===== ====== ======= ======= ====== ===== ======
</TABLE>
Comparison of Financial Condition at June 30, 1997 and December 31, 1996
The Bank's total assets decreased by $1.9 million, from $204.4 million at
December 31, 1996 to $202.5 million at June 30, 1997. Securities held to
maturity declined $16.4 million due to various issues maturing. Of such funds,
$10.6 million was reinvested in Federal funds sold, which increased from
$500,000 at December 31, 1996 to $11.1 million at June 30, 1997. In addition,
$1.3 million in maturing securities was utilized to repay FHLB advances,
resulting in no borrowed funds at June 30, 1997.
The decrease in assets was also due to a decrease in assets funded by
deposits as the Bank continued to price its deposits less aggressively in 1997
in an effort to reduce its overall cost of funds. At June 30, 1997 deposits
decreased to $181.4 million from $183.8 million at December 31, 1996, a net
decrease of $2.4 million. Deposits decreased as depositors sought higher
returns than those available on accounts being offered by the Bank. The Bank's
average cost of deposits for the six months ended June 30, 1997 was 4.88%,
compared to 5.13% for the year ended December 31, 1996. Management intends to
continually evaluate the investment alternatives available to the Bank's
30
<PAGE>
customers, and adjusts the pricing on its deposit products to more actively
manage its funding costs while remaining competitive in its market area.
The Bank's loan portfolio increased by $2.9 million during the six months
ended June 30, 1997. Net loans totaled $98.4 million and $95.5 million at June
30, 1997 and December 31, 1996, respectively. The increase in the loan activity
during the six months ended June 30, 1997 was due to the Bank's efforts to
increase its loan originations using funds currently held in investment
securities. For the six months ended June 30, 1997, the Bank's average yield on
loans was 7.62%, compared to 7.41% for the year ended December 31, 1996.
At June 30, 1997, the Bank's investments classified as "held to maturity"
were carried at amortized cost of $79.6 million and had an estimated fair market
value of $79.6 million, and its equity securities classified as "available for
sale" had an estimated fair market value of $6.0 million, including Federal Home
Loan Mortgage Corporation ("FHLMC") stock with an estimated fair market value of
$4.4 million. See Note 2 of Notes to Financial Statements.
The allowance for loan losses totaled $227,000 at June 30, 1997, an increase
of $10,000 from the allowance of $217,000 at December 31, 1996. At June 30,
1997, the ratio of the allowance for loan losses to loans was 0.23%, compared to
0.23% at December 31, 1996. Also at June 30, 1997, the Bank's non-performing
loans were $222,000, or 0.23% of total loans, compared to $266,000, or 0.28% of
total loans, at December 31, 1996 and the Bank's ratio of allowance for loan
losses to non-performing loans at June 30, 1997 and December 31, 1996 was
101.25% and 81.58%, respectively. The determination of the allowance for loan
losses is based on management's analysis, performed on a quarterly basis.
Various factors are considered, including the market value of the underlying
collateral, growth and composition of the loan portfolio, the relationship of
the allowance for loan losses to outstanding loans, historical loss experience,
delinquency trends and prevailing economic conditions. Although management
believes its allowance for loan losses is adequate, there can be no assurance
that additional allowances will not be required or that losses on loans will not
be incurred. The Bank has had minimal losses on loans in prior years. See Note
3 of Notes to Financial Statements.
Comparison of Financial Condition at December 31, 1996 and December 31, 1995
The Bank's total assets decreased by $8.2 million, or 3.9%, from $212.6
million at December 31, 1995 to $204.4 million at December 31, 1996, primarily
as a result of a reduction in cash and maturing investments to fund deposit
withdrawals. At December 31, 1996, deposits decreased to $183.8 million from
$194.8 million at December 31, 1995, a net decrease of $11.0 million, or 5.6%.
To reduce its overall cost of funds, the Bank began to price deposits less
aggressively in 1996. The Bank's average cost of deposits for the year ended
December 31, 1996 was 5.13%, compared to 5.20% for the year ended December 31,
1995.
The Bank's loan portfolio increased by $10.7 million, or 12.7%, during the
year ended December 31, 1996. Net loans totaled $95.5 million and $84.8 million
at December 31, 1996 and 1995, respectively. The increase in the loan activity
during the year ended December 31, 1996 was primarily due to the Bank's efforts
to expand its loan originations and reduce the proportion of its interest-
earning assets not invested in loans. For the year ended December 31, 1996, the
Bank's average yield on loans was 7.41%, compared to 7.10% for the year ended
December 31, 1995.
At December 31, 1996, the Bank's investment portfolio included mortgage-
backed and U.S. government and agency securities classified as "held to
maturity" carried at amortized cost of $95.9 million and an estimated fair
market value of $95.8 million and equity securities classified as "available for
sale" with an estimated fair market value of $5.1 million, including FHLMC stock
with a fair market value of $3.5 million.
As part of the Bank's strategy to focus on profitability and loan growth, the
Bank funded the increase in its loan portfolio internally by reducing its time
deposits with other financial institutions from $7.0 million at December 31,
1995, to $2.0 million at December 31, 1996, reduced Federal funds sold from $7.9
million at December 31, 1995, to $500,000 at December 31, 1996, and eliminating
interest-bearing deposits in the FHLB, which were $5.6 million at December 31,
1995.
The allowance for loan losses totaled $217,000 at December 31, 1996, compared
to $122,000 at December 31, 1995. As of those dates, the Bank's non-performing
loans were $266,000 and $134,000, respectively, or 0.28% and 0.16% of total
loans, respectively. At December 31, 1996, the ratio of the allowance for loan
losses to loans was .23%, compared
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<PAGE>
to .14% at December 31, 1995. The increase in the ratio was primarily
attributable to a $100,000 provision for loan losses for the year ended December
31, 1996, as a result of the increase in the loan portfolio.
Premises and equipment, net, remained unchanged at $2.3 million at December
31, 1996 and 1995. Land increased from $499,000 at December 31, 1995 to
$574,000 at December 31, 1996, due to the Bank's purchase of a real estate lot
in Cadiz, Kentucky, for $75,000 in July 1996. The Bank intends to relocate its
Cadiz branch office to a building that will be constructed on the lot. See
"Management of the Bank -- Transactions with Management," "Business of the Bank
- -- Offices and Other Material Properties" and Note 4 of Notes to Financial
Statements.
The Bank's other assets increased $227,470 to $254,989 at December 31, 1996
from $27,519 at December 31, 1995 principally due to a $248,000 increase in the
Bank's prepaid federal income taxes in 1996. The prepayment arose from the
Bank's payments of its estimated tax payments during the first three quarters of
1996, which had been computed based upon taxable income without including the
tax effect of the tax deduction that arose in the fourth quarter of 1996 because
the Bank's one-time SAIF assessment in that quarter.
Comparison of Operating Results for the Six Months Ended June 30, 1997 and
1996
Net Income. The Bank's net income for the six months ended June 30, 1997 was
$870,000 compared to $445,000 for the six months ended June 30, 1996. The
increase in net earnings for the six months resulted primarily from an
improvement in the Bank's net yield on interest-earning assets, offset in part
by a slight increase in non-interest expense and income taxes.
Net Interest Income. Net interest income for the six months ended June 30,
1997 was $2.2 million compared to $1.5 million for the six months ended June 30
1996. The increase in net interest income for the six months ended June 30,
1997 was primarily due to a lower cost of funds and a higher yield on interest-
earning assets. For the six months ended June 30, 1997, the Bank's average
yield on total interest-earning assets was 6.71%, compared to 6.32% for the six
months ended June 30, 1996 and its average cost of interest-bearing
liabilities was 4.89%, compared to 5.21% for the six months ended June 30, 1996.
As a result, the Bank's interest rate spread for the six months ended June 30,
1997 was 1.82%, compared to 1.11% for the six months ended June 30, 1996 and its
net yield on interest-earning assets was 2.24% for the six months ended June 30,
1997, compared to 1.46% for the six months ended June 30, 1996.
Interest Income. Interest income increased by $79,000 from $6.56 million to
$6.64 million, or by 1.2%, during the six months ended June 30, 1997 compared to
the same period in 1996. This increase primarily resulted from a continued
strategic shift from investment securities to higher-yielding loans. The
average balance of securities held to maturity declined $14.6 million, from
$99.0 million at June 30, 1996, to $84.4 million at June 30, 1997. In addition,
average time deposits and other interest-bearing cash deposits declined $5.8
million, from $17.0 million at June 30, 1996 to $11.2 million at June 30, 1997.
Overall, average total interest-earning assets declined $9.7 million, or 4.7%,
from June 30, 1996 to June 30, 1997. However, the strategic repositioning of
the balance sheet into higher-yielding assets resulted in an increase in the
average yield on interest-earning assets from 6.32% at June 30, 1996, to 6.71%
at June 30, 1997. In addition, the ratio of interest-earning assets to
interest-bearing liabilities increased from 107.12% for the six months ended
June 30, 1996 to 109.35% for the six months ended June 30, 1997.
Interest Expense. Interest expense decreased $626,000, or 12.4%, to $4.4
million for the six months ended June 30, 1997, compared to $5.1 million for the
same period in 1996. The decrease was attributable to the combined effect of a
lower cost of funds and a $12.3 million decline in the average balance of
interest-bearing liabilities. The average cost of average interest bearing
deposits declined from 5.21% at June 30, 1996 to 4.89% at June 30, 1997. Over
the same period, the average balance of deposits decreased $12.2 million, from
$193.1 million at June 30, 1996 to $180.9 million at June 30, 1997, or 6.3%.
Provision for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and the general economy. Such evaluation
considers numerous factors including, general economic conditions, loan
portfolio composition, prior loss experience, the estimated fair value of the
underlying collateral and other factors that warrant recognition in providing
for an adequate loan loss
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<PAGE>
allowance. The Bank determined that an additional $10,000 provision for loan
loss was required for the six months ended June 30, 1997.
Non-Interest Expense. There was no material change in total non-interest
expense in the six months ended June 30, 1997 compared to the same period in
1996. A decrease in FDIC deposit insurance premiums of $158,000 offset
increases in other non-interest expenses.
Income Taxes. The Bank's effective tax rate for the six months ended June
30, 1997 was 33.8%, compared to 33.2% for the same period in 1996. The increase
in income tax expense of $222,000 in the six month period compared to the same
period in 1996 was due to an increase in income.
Comparison of Operating Results for the Years Ended December 31, 1996 and 1995
Net Income. The Bank's net income for the year ended December 31, 1996 was
$195,000, compared to $412,000 for the year ended December 31, 1995. The
decrease in net earnings for the year resulted primarily from the special SAIF
assessment expense of $1.2 million, which negatively impacted net income by
$812,000 net of tax, for the year ended December 31, 1996. Excluding the one-
time special SAIF assessment, net income for the year ended December 31, 1996
would have been $1,007,000, an increase of $595,000, or 144.4% from net income
of $412,000 for the year ended December 31, 1995. The improvement in net income
from the year ended December 31, 1995 to December 31, 1996, was primarily the
result of the Bank's repositioning funds into higher yielding assets as well as
a decline in the cost of funds.
Net Interest Income. Net interest income for the year ended December 31,
1996 was $3.5 million, compared to $2.5 million for the year ended December 31,
1995. The increase in net interest income for the year ended December 31, 1996
was primarily due to an increase in the Bank's interest income and a decline in
the Bank's overall cost of funds. The average balance of the loan portfolio
increased $9.9 million, from $82.2 million for the year ended December 31, 1995
to $92.1 million for the year ended December 31, 1996. The average yield on
loans increased from 7.10% to 7.41% over the same periods. At the same time,
the average balance of deposits decreased from $192.4 million for the year ended
December 31, 1995 to $189.8 million for the year ended December 31, 1996.
Further, the average cost of deposits declined from 5.20% to 5.13% for the same
period resulting from the Bank's decision to reprice deposits to improve
profitability. As a result, for the year ended December 31, 1996, the Bank's
interest rate spread and net yield on interest-earning assets were 1.35% and
1.70%, respectively, an increase from 0.84% and 1.19%, respectively, for the
year ended December 31, 1995.
Interest Income. Interest income increased by $748,000 from $12.5 million to
$13.2 million, or by 6.0%, during 1996 compared to 1995. This increase
primarily resulted from an increase in the average yield on the loan portfolio,
which was 7.41% for 1996 compared to 7.10% for 1995, as well as an increase in
the average balance of loans to $92.1 million in 1996 compared to $82.2 million
in 1995.
Interest Expense. Interest expense decreased $252,000, or 2.5%, to $9.8
million for the year ended December 31, 1996 from $10.0 million for the year
ended December 31, 1995. The Bank's strategy of less aggressively pricing its
deposit products resulted in a decrease in its cost of funds as well as a
reduction in the level of interest-bearing liabilities due to an outflow of
higher cost deposits. At December 31, 1996, total deposits were $183.8 million,
compared to $194.8 million at December 31, 1995, a decrease of 5.6%.
Provision for Loan Losses. The Bank determined that a provision for loan
loss of $100,000 was appropriate for the year ended December 31, 1996. The Bank
determined to increase the level of the provision for loan losses in view of the
$10.7 million, or 12.7%, increase in the Bank's loan portfolio; the character of
the loan portfolio, particularly the Bank's efforts to originate a higher volume
and greater variety of consumer loans which may entail greater credit risk than
residential mortgage loans; the $132,000 increase in non-performing loans during
the year; and management; assessment of possible future loan losses.
Non-Interest Income. The $192,000 increase in non-interest income in the
year ended December 31, 1996 compared to the year ended December 31, 1995 was
primarily due to a $106,000 increase in loan fees due to higher loan
originations, as well as increases in NOW account fees and service charges.
33
<PAGE>
Non-Interest Expense. The $1.4 million increase in non-interest expense in
1996 compared to 1995 was primarily attributable to the $1.2 million special
SAIF assessment during 1996, as well as higher compensation and benefit
expenses. The one-time SAIF assessment was imposed on all savings institutions
in August 1996 and was payable in November 1996. See "Regulation -- Regulation
of the Bank -- Federal Deposit Insurance."
Income Taxes. The Bank's effective tax rate for the year ended December 31,
1996 was 30.3%. The decrease in income tax expense of $119,000 in 1996 compared
to 1995 was due to the decrease in income in 1996 compared to 1995.
Comparison of Operating Results for the Years Ended December 31, 1995 and 1994
Net Income. The Bank's net income for the year ended December 31, 1995 was
$412,000 compared to $580,000 for the year ended December 31, 1994. The
decrease in net earnings for the year resulted primarily from a narrowing of the
Bank's net yield on interest-earning assets, a reduction in non-interest income
and a slight increase in non-interest expense.
Net Interest Income. Net interest income for the year ended December 31,
1995 was $ 2.5 million compared to $2.7 million for the year ended December 31,
1994. The decrease in net interest income for the year ended December 31, 1995
was primarily due to an increase in interest expense which exceeded the increase
in interest income. For the year ended December 31, 1995, the Bank's average
cost of deposits was 5.20%, compared to 4.30% for the year ended December 31,
1994. For the year ended December 31, 1995, the average yield on total
interest-earning assets was 6.04%, compared to 5.39% for the year ended December
31, 1994. For the year ended December 31, 1995, the Bank's interest rate spread
and net interest margin were 0.84% and 1.19%, respectively, compared to 1.09%
and 1.39%, respectively, for the year ended December 31, 1994. During the same
period, the Bank's ratio of average interest-earning assets to average interest-
bearing liabilities remained relatively unchanged, declining to 107.36% for the
year ended December 31, 1995 from 107.58% for the year ended December 31, 1994.
Interest Income. Interest income increased by $2.1 million from $10.4
million to $12.5 million, or by 20.2%, during 1995 compared to 1994. Higher
interest income was primarily the result of a $13.0 million increase in average
interest earning assets, from $193.5 million at December 31, 1994 to $206.5
million at December 31, 1995, or 7.5%. The Bank's average loan portfolio
increased $7.9 million, or 10.7%, and the average yield on the loan portfolio
increased slightly from 7.06% to 7.10%. Over this same period, the Bank's
average portfolio of securities held to maturity increased $11.0 million, or
14.8%, while the average yield associated with these securities increased from
4.48% to 5.13%.
Interest Expense. Interest expense increased $2.3 million, or 29.3%, to
$10.0 million for the year ended December 31, 1995 from $7.7 for the year ended
December 31, 1994. The increase was primarily attributable to a higher cost of
deposits and a $12.5 million, or 7.0%, increase in average interest bearing
liabilities. The increase in average deposits and deposit costs were the direct
result of the Bank's aggressive deposit growth and pricing strategy. See " --
Current Business Strategy."
Provision for Loan Losses. Due to minimal asset quality problems, the Bank
determined that a provision for loan loss was not required for the year ended
December 31, 1995.
Non-Interest Income. Non-interest income decreased $114,000 during 1995
compared to 1994. The decrease primarily resulted from decreases in loan fees
and service charges.
Non-Interest Expense. Salaries and benefits for 1994 included $159,000 in
settlements of pension plan obligations to two employees. The $93,000 decrease
in non-interest expense in 1995 compared to 1994 was partially offset by
increased non-interest expenses primarily attributable to the opening of a new
banking facility in 1995.
Income Taxes. The Bank's effective tax rate for the year ended December 31,
1995 was 33.0%. The decrease in income tax expense of $84,000 in 1995 compared
to 1994 was due to the decrease in income in 1995 compared to 1994.
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<PAGE>
Liquidity and Capital Resources
Following the completion of the Conversion, the Company initially will have
no business other than that of the Bank and investing the net Conversion
proceeds retained by it. Management believes that the net proceeds to be
retained by the Company, earnings on such proceeds and principal and interest
payments on the ESOP loan, together with dividends that may be paid from the
Bank to the Company following the Conversion, will provide sufficient funds for
its initial operations and liquidity needs; however, no assurance can be given
that the Company will not have a need for additional funds in the future. The
Bank will be subject to certain regulatory limitations with respect to the
payment of dividends to the Company. See "Dividend Policy" and "Regulation --
Regulation of the Bank -- Limitations on Capital Distributions." The Company
intends to lend a portion of the net proceeds retained from the Conversion to
the ESOP to permit its purchase of the Common Stock in the Conversion. See "Use
of Proceeds."
At June 30, 1997, the Bank exceeded all regulatory minimum capital
requirements. For a detailed discussion of the OTS' regulatory capital
requirements, and for a tabular presentation of the Bank's compliance with such
requirements, see "Regulation -- Regulation of the Bank -- Regulatory Capital,"
and Note 13 of Notes to Financial Statements.
35
<PAGE>
The following table reconciles the Bank's retained earnings as reported in
its financial statements at June 30, 1997 to its tangible, core and risk-based
capital levels and compares such totals to the regulatory requirements. OTS
regulations eliminate the effect of unrealized gains and losses, net of tax
effect, on available for sale securities from the computation of regulatory
capital. This regulation has the effect of decreasing each of the Bank's
tangible, core and risk-based capital by $2.8 million compared to the Bank's
retained income.
<TABLE>
<CAPTION>
Amounts Reported in Minimum Regulatory Amount of
Financial Statements Requirement Excess Capital
---------------------------- --------------------------- ----------------------------
Percent of Percent of Percent of
Amount Assets (1) Amount Assets (1) Amount Assets (1)
------ ---------- ------ ---------- ------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Bank's retained earnings $18,265 9.1%
Adjustments 2,804 1.4%
Tangible capital 15,461 7.7% $2,995 1.5% $12,466 6.2%
Core capital $15,461 7.7% $5,991 3.0% $ 9,470 4.7%
Allowable portion of general
allowance for loans losses 227
Risk-based capital $15,688 21.5% $5,829 8.0% $ 9,859 13.5%
</TABLE>
(1) Based on the Bank's adjusted total assets for the purpose of the tangible
and core capital ratios and risk-weighted assets for the purpose of the
risk-based capital ratio.
The Bank's primary sources of funds consist of deposits, repayment of loans
and mortgage-backed securities, maturities of investments and interest-bearing
deposits, and funds provided from operations. While scheduled repayments of
loans and mortgage-backed securities and maturities of investment securities are
predicable sources of funds, deposit flows and loan prepayments are greatly
influenced by the general level of interest rates, economic conditions and
competition. The Bank uses its liquidity resources principally to fund existing
and future loan commitments, to fund maturing certificates of deposit and demand
deposit withdrawals, to invest in other interest-earning assets, to maintain
liquidity, and to meeting operating expenses. Management believes that loan
repayments and other sources of funds will be adequate to meet the Bank's
liquidity needs for the immediate future.
The Bank is required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which may be varied at the direction of
the OTS depending upon economic conditions and deposit flows, is based upon a
percentage of deposits and short-term borrowings. The required minimum ratio is
currently 5%. The Bank has historically maintained a level of liquid assets in
excess of regulatory requirements. The Bank's liquidity ratios at June 30, 1997
and December 31, 1996 and 1995 were 41.53%, 45.63% and 54.49%, respectively.
A major portion of the Bank's liquidity consists of cash and cash
equivalents, which include investments in highly liquid, short-term deposits.
The level of these assets is dependent on the Bank's investing, operating and
financing activities during any given period. At June 30, 1997, cash and cash
equivalents totaled $1.4 million.
Although the operating activities of the Bank have historically generated a
declining amount of cash flows, during the six months ended June 30, 1997, cash
flows from operating activities increased. For the years ended December 31,
1994, 1995 and 1996, such cash flows were $448,000, $169,000 and $112,000,
respectively, with the declines primarily attributable to lower net income as
the Bank pursued a strategy of increasing its deposit base through the payment
of above-market interest rates. See "Business of the Bank -- Current Business
Strategy." This
36
<PAGE>
higher interest expense was not offset by the Bank's adjustable rate mortgage
loans, which were offered at market rates. Further, interest rates on the loans
were adjusted based upon a lagging interest rate index, while deposit rates were
adjusted at least weekly. The Bank discontinued its deposit pricing strategy in
1996, which contributed to the increase in the Bank's interest rate spread to
1.35% for 1996, from 0.84% from 1995. However, the related increase in cash
flows from operating activities for 1996 was more than offset by a decrease in
net income as a result of the Bank's required payment of the one-time SAIF
assessment of $1.2 million. This change in pricing strategy is believed to be
more fully reflected in the Bank's cash flows of $882,000 for the six months
ended June 30, 1997, which not only exceeded its cash flows of $123,000 for the
six months ended June 30, 1996 but also the cash flows for the year ended
December 31, 1994, 1995 and 1996 combined.
The Bank's cash flows from investing activities increased and became a net
source of funds as the Bank began to emphasize the investment of available funds
in loans rather than in securities held-to-maturity. The principal source of
the Bank's cash flows in this area has been proceeds from the maturities of
held-to-maturity securities, the volume of which reflects the Bank's prior
emphasis on investments in such securities over loans. These proceeds were a
source of cash flows of $9.1 million for 1994, $51.5 million for 1995, $44.0
million for 1996, and $22.3 million for the six months ended June 30, 1997. At
the same time, the Bank's investment of cash in loans increased to $10.8 million
in 1996, from $6.2 million in 1995 and $10.7 million in 1994, while purchases of
held-to-maturity securities declined to $41.4 million in 1996 from $73.7 million
in 1995, compared to purchases of $8.0 million in 1994. Further, the Bank has
re-positioned the investment of its excess funds to enhance their availability.
For instance, the Bank's investment of funds in time deposits at other banks has
been reversed, from a net investment in 1994 of $12.0 million to net withdrawals
from time deposits as they matured of $20.0 million in 1995 and $5.0 million in
1996. Funds not immediately invested in loans are sold on the federal funds
market, which permits the Bank to earn a favorable rate of interest while
maintaining daily access to such funds. Although the Bank continues to acquire
held-to-maturity securities using funds from loan repayments and proceeds from
maturities of similar securities, the Bank's liquidity position avoids the need
to consider the sale of such securities prior to maturity to satisfy lending or
other operational commitments. At June 30, 1997, in addition to the liquidity
of its federal funds sold and other assets, which were 41.53% of deposits and
short-term borrowings, the Bank had available an unused $10.1 million line of
credit with the FHLB of Cincinnati.
The Bank's financing activities have changed from a provider of cash to a
user of cash, as the Bank has removed the emphasis on the growth of its deposit
base. As part of this strategy, which began during 1996, the Bank permitted the
run-off of higher-costing time deposits by offering only market rates of
interest on maturing deposits rather than above-market rates under its previous
pricing strategy. Prior to implementation of this strategy, time deposits
generated cash flows of $11.7 million in 1994 and $18.9 million in 1995.
However, as a result of the current strategy, cash was required to fund net
withdrawals of time deposits in amounts of $13.1 million in 1996 and $2.7
million for the six months ended June 30, 1997. Because of the Bank's ability
to generate cash flows from its financing activities and the availability of its
other liquid assets, the Bank does not anticipate any difficulty in funding
future withdrawals of such time deposits as they come due.
Liquidity management is both a daily and long-term function of business
management. If the Bank requires funds beyond its ability to generate them
internally, the Bank believes that it could borrow funds from the FHLB. At June
30, 1997, the Bank had no outstanding advances from the FHLB. See Note 6 of
Notes to Financial Statements.
At June 30, 1997, the Bank had $1.5 million in outstanding commitments to
originate loans. The Bank anticipates that it will have sufficient funds
available to meet its current loan origination commitments. Certificates of
deposit which are scheduled to mature in one year or less totaled $80.1 million
at June 30, 1997. Based on historical experience, management believes that a
significant portion of such deposits will remain with the Bank.
Another source of liquidity is anticipated net proceeds from the
Conversion. Following the completion of the Conversion, the Bank will receive
at least 50% of the net proceeds from the Conversion. These funds are expected
to be used by the Bank for its business activities.
Impact of Inflation and Changing Prices
The financial statements and notes thereto presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
37
<PAGE>
historical dollars without considering the change in the relative purchasing
power of money over time and due to inflation. The impact of inflation is
reflected in the increased cost of the Bank's operations.
Unlike most industrial companies, nearly all the assets and liabilities of
the Bank are monetary in nature. As a result, changes in interest rates have a
greater impact on the Bank's performance than do the effects of general levels
of inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the price of goods and services.
Impact of New Accounting Standards
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. In June 1996, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS 125"). SFAS 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a financial-
components approach that focuses on control. Under that approach, after a
transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred, derecognizes financial
assets when control has been surrendered, and derecognizes liabilities when
extinguished. This statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996, and is to be applied prospectively. Earlier or retroactive application is
not permitted. The Bank adopted the provisions of SFAS 125 in January 1997.
Based on the Bank's current operating activities, management does not believe
that the adoption of this statement will have a material impact on the Bank's
financial condition or results of operations.
Accounting For Earnings Per Share. In February 1997, the FASB issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"). SFAS 128 establishes standards for computing and presenting earnings per
share (EPS) and applies to entities with publicly held common stock or potential
common stock. This statement simplifies the standards for computing earnings
per share previously found in APB Opinion No. 15, "Earnings per share", and
makes them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS and requires dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation.
38
<PAGE>
SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not permitted. This statement requires restatement of all prior-period EPS
data presented. The Company will adopt the statement at fiscal year-end 1997.
Basic and diluted earnings per share under SFAS 128 would be identical to
earnings per share as presented in the financial statements and, therefore, will
not have any material effect on the Company.
Reporting of Comprehensive Income. In June 1997, the Financial
Accounting Standards Board issued Statements of Financial Accounting Standards
No. 130, "Reporting of Comprehensive Income" ("SFAS 130"), which establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of financial statements.
This statement also requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements.
This statement is effective for fiscal years beginning after December
15, 1997. Earlier application is permitted. Reclassfication of financial
statements for earlier periods provided for comparative purposes is required.
The Company does not anticipate that adoption of SFAS 130 will have a material
effect on the Company.
Disclosure about Segments and Related Information. In June 1997, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"), which establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
stockholders. This statement also establishes standards for related disclosures
about products and services, geographic areas, and major customers. This
statement requires the reporting of financial and descriptive information about
an enterprise's reportable operating segments.
This statement is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. The Company does
not anticipate that the adoption of SFAS 131 will have a material effect on the
Company.
39
<PAGE>
BUSINESS OF THE COMPANY
The Company was organized at the direction of the Board of Directors
of the Bank in May 1997 for the purpose of becoming a holding company to own all
of the outstanding capital stock of the Bank. Upon completion of the Conversion,
the Bank will become a wholly owned subsidiary of the Company. For additional
information, see "HopFed Bancorp, Inc."
The Company currently is not an operating company. Following the
Conversion, the Company will be engaged primarily in the business of directing,
planning and coordinating the business activities of the Bank. In the future,
the Company may become an operating company or acquire or organize other
operating subsidiaries, including other financial institutions, though there are
no current plans in this regard.
BUSINESS OF THE BANK
General
The Bank is a federally chartered mutual savings bank headquartered in
Hopkinsville, Kentucky, with branch offices in Hopkinsville, Murray, Cadiz and
Elkton, Kentucky. The Bank was incorporated by the Commonwealth of Kentucky in
1879 under the name Hopkinsville Building and Loan Association. In 1940, the
Bank converted to a federal mutual savings association and received federal
insurance of its deposit accounts. In 1983, the Bank became a federal mutual
savings bank and adopted its current corporate title.
The business of the Bank primarily consists of attracting deposits
from the general public and investing such deposits in loans secured by single
family residential real estate and investment securities, including U.S.
Government and agency securities and mortgage-backed securities. The Bank also
originates single-family residential/construction loans and multi-family and
commercial real estate loans, as well as loans secured by deposits and other
consumer loans. The Bank emphasizes the origination of residential real estate
loans with adjustable interest rates and other assets which are responsive to
changes in interest rates and allow the Bank to more closely match the interest
rate maturation of its assets and liabilities.
At June 30, 1997, the Bank's net loan portfolio comprised 48.6% of
total assets, and 79.3% of total loans were secured by one-to-four family
residential properties. At June 30, 1997, short-term investments and investment
securities represented 38.1% of total assets and mortgage-backed securities
represented 10.7% of total assets. At June 30, 1997, nonperforming loans
totaled 0.11% of total assets.
Market Area
The primary market area of the Bank consists of the adjacent counties
of Calloway, Christian, Todd and Trigg located in southwestern Kentucky. The
Bank's four-county market area reported a population of 122,301 in 1994. Median
household income levels in the counties of the Bank's market area are below
averages for the Commonwealth of Kentucky and the United States. The 1990
census estimated the income level for the Bank's market area in 1994 to be
approximately 90% of the state average and 69% of the national average. The
unemployment rates for the Bank's market area in June 1997 were reported by the
Pennyrile Area Development District (a government agency) at 4.7% for Christian
County, 4.8% for Calloway County, 3.8% for Trigg County and 5.9% for Todd
County.
The Bank is one of two thrift institutions headquartered in its market
area and there are six banks with headquarters in the Bank's market area. In
addition, a number of larger financial institutions have branch offices located
in the Bank's primary market area.
The market area's economy depends primarily on a number of industrial
facilities, including manufacturing operations for Dana Corporation Parish Frame
Division, Freudenberg Nonwovens, Phelps Dodge Magnet Wire Company, Thomas
Industries Lighting Fixtures, International Paper, Mitsubishi CNC Machining
Center & CNC Turning Center, Rockwell International Suspension Systems Company
U.S., Flynn Enterprises, ARDCO, Johnson Controls, Sun Chemical and Briggs and
Stratton. The market area is an agricultural community and is affected by
agriculture-related industries, including U.S. Tobacco, Southwestern Tobacco,
Wayne Feeds, Case Power and Equipment and Agri-Chem. The market area also
includes Fort Campbell Army Base, Murray State University, Western State
Hospital and Community College of
40
<PAGE>
the University of Kentucky, as well as locally-owned companies which have
achieved national recognition, including Dunlap Sales, Kentucky Derby Hosiery
and Gardner Wallcoverings.
National Capital's appraisal of the estimated pro forma market value
of the Common Stock to be sold in the Conversion included an analysis of the
Bank's primary market area and the prevailing economic conditions. In preparing
the appraisal, National Capital considered major employers and employment data,
the location of the Bank's lending operations, the Bank's deposit share and
market position, the current population and projected population growth, the
number of households, age distribution, median household income, building
permits and other housing data and occupancy rates. See "The Conversion --
Stock Pricing and Number of Shares to be Issued."
Lending Activities
General. The Bank's total gross loan portfolio totaled $101.2 million
at June 30, 1997, representing 50.0% of total assets at that date.
Substantially all loans are originated in the Bank's market area. At June 30,
1997, $80.2 million, or 79.3% of the Bank's loan portfolio, consisted of one-to-
four family, residential mortgage loans. Other loans secured by real estate
include non-residential real estate loans, which amounted to $7.3 million, or
7.2% of the Bank's loan portfolio at June 30, 1997, and multi-family residential
loans, which were $1.9 million, or 1.8% of the Bank's loan portfolio at June 30,
1997. The Bank also originates construction and consumer loans. At June 30,
1997, construction loans were $4.2 million, or 4.2% of the Bank's loan
portfolio, and consumer loans totaled $7.6 million, or 7.5% of the Bank's loan
portfolio.
41
<PAGE>
Analysis of Loan Portfolio. Set forth below is selected data relating
to the composition of the Bank's loan portfolio by type of loan at the dates
indicated. At June 30, 1997, the Bank had no concentrations of loans exceeding
10% of total loans other than as disclosed below.
<TABLE>
<CAPTION>
At June 30, 1997
------------------------------
Amount Percent
------ -------
(Dollars in thousands)
<S> <C> <C>
Type of Loan:
- ------------
Real estate loans:
One-to-four family residential................. $ 80,222 79.3%
Multi-family residential....................... 1,858 1.8%
Construction................................... 4,219 4.2%
Non-residential................................ 7,312 7.2%
-------- ---------
Total real estate loans....................... 93,611 92.5%
======== =========
Consumer loans:
Secured by deposits............................ 3,314 3.3%
Other consumer loans........................... 4,288 4.2%
-------- ---------
Total consumer loans.......................... 7,602 7.5%
======== =========
101,213 100.0%
=========
Less: Loans in process.......................... 2,550
Allowance for loan losses................. 227
--------
Total.......................................... $ 98,436
========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------ ----------------- ----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Type of Loan:
- ------------
Real estate loans:
One-to-four family
residential............. $77,318 79.6% $70,417 81.5% $66,236 82.3% $56,259 81.3% $59,277 84.8%
Multi-family residential.. 1,466 1.5% 492 0.6% 3,475 4.3% 1,391 2.0% 1,429 2.0%
Construction.............. 5,389 5.6% 4,062 4.7% 3,748 4.7% 2,963 4.3% 1,418 2.0%
Non-residential (1)....... 5,467 5.6% 5,107 5.9% 1,626 2.0% 4,523 6.5% 3,460 5.0%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total real estate loans. 89,640 92.3% 80,078 92.7% 75,085 93.3% 65,136 94.1% 65,584 93.8%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
Consumer loans:
Secured by deposits....... 3,484 3.6% 3,324 3.8% 3,135 3.9% 2,459 3.6% 2,659 3.8%
Other consumer loans...... 4,004 4.1% 3,016 3.5% 2,296 2.8% 1,596 2.3% 1,697 2.4%
------- ---- ------- -------- ------- ------- ------- ------- ------- -------
Total consumer loans.... 7,488 7.7% 6,340 7.3% 5,431 6.7% 4,055 5.9% 4,356 6.2%
------- ---- ------- -------- ------- ------- ------- ------- ------- -------
97,128 100% 86,418 100% 80,516 100% 69,191 100% 69,940 100%
==== ======== ======= ======= =======
Less: Loans in process...... 1,415 1,541 1,867 1,265 640
Allowance for loan
losses................ 217 (2) 122 122 122 122
------- ------- ------- ------- -------
Total..................... $95,496 $84,755 $78,527 $67,804 $69,178
======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Consists of loans secured by first liens on residential lots and loans
secured by first mortgages on commercial real property.
(2) Increase in allowance for loan loss reflects $100,000 provision in 1996
based upon management's assessment of risks associated with the Bank's
increased loan growth and increased emphasis on consumer lending. See "--
Nonperforming Loans and Other Assets."
42
<PAGE>
Loan Maturity Schedule. The following table sets forth certain information
at December 31, 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.
<TABLE>
<CAPTION>
Due after Due after 5 Due after 10
Due during the year ending 3 through 5 through 10 through 15 Due after 15
December 31, years after years after years after years after
-------------------------------- December 31, December 31, December 31, December 31,
1997 1998 1999 1996 1996 1996 1996 Total
---- ---- ---- ---- ---- ---- ---- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One-to-four family
residential.............. $ 1,538 $ 1,073 $ 435 $ 1,169 $ 9,324 $ 16,802 $ 46,977 $ 77,318
Multi-family residential.. 286 -- -- -- -- -- 1,180 1,466
Construction.............. 5,389 -- -- -- -- -- -- 5,389
Non-residential........... -- 76 14 102 1,922 1,923 1,430 5,467
Consumer.................. 3,737 464 1,074 2,004 209 -- -- 7,488
-------- ------- ------- ------- -------- --------- -------- --------
Total.................. $ 10,950 $ 1,613 $ 1,523 $ 3,275 $ 11,455 $ 18,725 $ 49,587 $ 97,128
======== ======= ======= ======= ======== ======== ======== ========
</TABLE>
The following table sets forth at December 31, 1996, the dollar amount of
all loans due one year or more after December 31, 1996 which had predetermined
interest rates and have floating or adjustable interest rates.
<TABLE>
<CAPTION>
Predetermined Floating or
Rate Adjustable Rate
-------------- -----------------
(In thousands)
<S> <C> <C>
One-to-four family residential........................... $ 9,022 $ 66,758
Multi-family residential................................. -- 1,180
Construction............................................. -- --
Non-residential.......................................... -- 5,467
Consumer................................................. 3,751 --
---------- ----------
Total.................................................. $ 12,773 $ 73,405
========== ==========
</TABLE>
Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of loans is substantially less than
their contractual terms because of prepayments. In addition, due-on-sale
clauses on loans generally give the Bank the right to declare a loan immediately
due and payable in the event, among other things, that the borrower sells the
real property subject to the mortgage and the loan is not repaid. The average
life of mortgage loans tends to increase when current mortgage loan market rates
are substantially higher than rates on existing mortgage loans and, conversely,
decrease when current mortgage loan market rates are substantially lower than
rates on existing mortgage loans.
Originations, Purchases and Sales of Loans. The Bank generally has
authority to originate and purchase loans secured by real estate located
throughout the United States. Consistent with its emphasis on being a
community-oriented financial institution, the Bank conducts substantially all of
its lending activities in its market area.
43
<PAGE>
The following table sets forth certain information with respect to the
Bank's loan origination activity for the periods indicated. The Bank has not
purchased or sold any loans in the periods presented.
<TABLE>
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
------------------------------ --------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(In thousands)
Loan originations:
One-to-four family residential...... $ 6,995 $ 8,297 $16,209 $11,252 $17,817
Multi-family residential............ -- 1,014 1,434 360 225
Construction........................ 3,181 2,492 5,340 3,607 6,033
Non-residential..................... 500 158 536 738 435
Consumer............................ 4,215 2,904 5,688 4,970 4,098
------- ------- ------- ------- -------
Total loans originated......... 14,891 14,865 29,207 20,927 28,608
------- ------- ------- ------- -------
Loan principal reductions:
Loan principal repayments........... 11,951 8,767 18,372 14,698 17,886
------- ------- ------- ------- -------
Net increase in loan portfolio........... $ 2,940 $ 6,098 $10,835 $ 6,229 $10,722
======= ======= ======= ======= =======
</TABLE>
The Bank's loan originations are derived from a number of sources,
including existing customers, referrals by real estate agents, depositors and
borrowers and advertising, as well as walk-in customers. The Bank's solicitation
programs consist of advertisements in local media, in addition to occasional
participation in various community organizations and events. Real estate loans
are originated by the Bank's loan personnel. All of the Bank's loan personnel
are salaried, and the Bank does not compensate loan personnel on a commission
basis for loans originated. Loan applications are accepted at any of the Bank's
branches.
Loan Underwriting Policies. The Bank's lending activities are subject to
the Bank's written, non-discriminatory underwriting standards and to loan
origination procedures prescribed by the Bank's Board of Directors and its
management. Detailed loan applications are obtained to determine the ability of
borrowers to repay, and the more significant items on these applications are
verified through the use of credit reports, financial statements and
confirmations. All loans must be reviewed by the Bank's loan committee, which is
comprised of the Bank's lending officers and branch managers. Exceptions to the
Bank's underwriting standards must be approved by the loan committee. In
addition, the full Board of Directors reviews all loans on a monthly basis.
Generally, upon receipt of a loan application from a prospective borrower,
a credit report and verifications are ordered to confirm specific information
relating to the loan applicant's employment, income and credit standing. If a
proposed loan is to be secured by a mortgage on real estate, an appraisal of the
real estate is undertaken by an appraiser approved by the Bank's Board of
Directors and licensed or certified (as necessary) by the Commonwealth of
Kentucky. In the case of one-to-four family residential mortgage loans, except
when the Bank becomes aware of a particular risk of environmental contamination,
the Bank generally does not obtain a formal environmental report on the real
estate at the time a loan is made. A formal environmental report may be required
in connection with nonresidential real estate loans.
It is the Bank's policy to record a lien on the real estate securing a loan
and to obtain a title opinion from Kentucky counsel which provides that the
property is free of prior encumbrances and other possible title defects.
Borrowers must also obtain hazard insurance policies prior to closing and, when
the property is in a flood hazard area, pay flood insurance policy premiums.
Applications for real estate loans are underwritten and closed in
accordance with the Bank's own lending guidelines, which generally do not
conform to FHLMC and FNMA guidelines. Although such loans may not be readily
saleable in the secondary market, the Bank's management believes that, if
necessary, such loans may be sold to private investors.
The Bank is permitted to lend up to 100% of the appraised value of the real
property securing a mortgage loan. The Bank is required by federal regulations
to obtain private mortgage insurance on that portion of the principal amount of
any loan that is greater than 90% of the appraised value of the property. Under
its lending policies, the Bank will originate a one-to-four family residential
mortgage loan for owner-occupied property with a loan-to-value ratio of up to
95%. For residential properties that are not owner-occupied, the Bank generally
does not lend more than 80% of the appraised value.
44
<PAGE>
For all residential mortgage loans, the Bank may increase its lending level on a
case-by-case basis, provided that the excess amount is insured with private
mortgage insurance. The federal banking agencies, including the OTS, have
adopted regulations that would establish new loan-to-value ratio requirements
for specific categories of real estate loans.
Under applicable law, with certain limited exceptions, loans and extensions
of credit outstanding by a savings institution to a person at one time shall not
exceed 15% of the institution's unimpaired capital and surplus. Loans and
extensions of credit fully secured by readily marketable collateral may comprise
an additional 10% of unimpaired capital and surplus. Applicable law additionally
authorizes savings institutions to make loans to one borrower, for any purpose,
in an amount not to exceed the lesser of $30.0 million or 30% of unimpaired
capital and surplus to develope residential housing, provided certain
requirements are satisfied. Under these limits, the Bank's loans to one borrower
were limited to $4.6 million at June 30, 1997. At that date, the Bank had no
lending relationships in excess of the loans-to-one-borrower limit. At June 30,
1997, the Bank's largest lending relationship was $2.4 million. The loans are to
a local real estate developer and his business associate and are primarily for
the development of apartments, the purchase of lots for residential
construction, and construction of one-to-four residential housing. All loans
within this relationship were current and performing in accordance with their
terms at June 30, 1997.
Interest rates charged by the Bank on loans are affected principally by
competitive factors, the demand for such loans and the supply of funds available
for lending purposes. These factors are, in turn, affected by general economic
conditions, monetary policies of the federal government, including the Federal
Reserve Board, legislative tax policies and government budgetary matters.
One-to-four family Residential Lending. The Bank historically has been and
continues to be an originator of one-to-four family residential real estate
loans in its market area. At June 30, 1997, one-to-four family residential
mortgage loans, totaled approximately $80.2 million, or 79.3% of the Bank's loan
portfolio. All loans originated by the Bank are maintained in its portfolio
rather than sold in the secondary market.
The Bank primarily originates residential mortgage loans with adjustable
rates. As of June 30, 1997, 89.9% of one-to-four family mortgage loans in the
Bank's loan portfolio carried adjustable rates. Such loans are primarily for
terms of 25 years, although the Bank does occasionally originate adjustable rate
mortgages for 15 year and 20 year terms, in each case amortized on a monthly
basis with principal and interest due each month. The interest rates on these
mortgages are adjusted once per year, with a maximum adjustment of 1% per
adjustment period and a maximum aggregate adjustment of 5% over the life of the
loan. A borrower may also obtain a loan in which the maximum annual adjustment
is 0.5% with a higher initial rate. Rate adjustments on the Bank's adjustable
rate loans are indexed to a rate which adjusts annually based upon changes in an
index based on the National Monthly Median Cost of Funds, plus a margin of
2.75%. Because the National Monthly Median Cost of Funds is a lagging index,
which results in rates changing at a slower pace than rates generally in the
marketplace, the Bank intends to change to a different index that will reflect
more current market information and thus allow the Bank to react more quickly to
changes in the interest rate environment. The adjustable rate mortgage loans
offered by the Bank also provide for initial rates of interest below the rates
that would prevail when the index used for repricing is applied. Such initial
rates, also referred to as "teaser rates," often reflect a discount from the
prevailing rate greater than the 1.0% maximum adjustment allowed each year. As
a result, the Bank may not be able to restore the interest rate of a loan with a
teaser rate to its otherwise initial loan rate until at least the second
adjustment period that occurs at the beginning of the third year of the loan.
Further, in a rising interest rate environment, the Bank may not be able to
adjust the interest rate of the loan to the prevailing market rate until an even
later period because of the combination of the teaser discount and the 1%
limitation on annual adjustments.
The retention of adjustable rate loans in the Bank's portfolio helps
reduce the Bank's exposure to increases in prevailing market interest rates.
However, there are unquantifiable credit risks resulting from potential
increases in costs to borrowers in the event of upward repricing of adjustable-
rate loans. It is possible that during periods of rising interest rates, the
risk of default on adjustable rate loans may increase due to increases in
interest costs to borrowers. Further, although adjustable rate loans allow the
Bank to increase the sensitivity of its interest-earning assets to changes in
interest rates, the extent of this interest sensitivity is limited by the
initial fixed-rate period before the first adjustment and the lifetime interest
rate adjustment limitations. This risk is heightened by the Bank's practice of
offering its adjustable rate mortgages with a discount to its initial interest
rate that is greater than the annual increase in interest rates allowed under
the terms of the loan. Accordingly, there can be no assurance that yields on
the Bank's adjustable rate loans will fully adjust to compensate for increases
in the Bank's cost of funds. Finally, adjustable rate loans increase the Bank's
exposure to decreases in
45
<PAGE>
prevailing market interest rates, although the 1% limitation on annual decreases
in the loans' interest rates tend to offset this effect.
The Bank also originates, to a limited extent, fixed-rate loans for terms
of 15 years. Such loans are secured by first mortgages on one-to-four family,
owner-occupied residential real property located in the Bank's market area.
Because of the Bank's policy to mitigate its exposure to interest rate risk
through the use of adjustable rate rather than fixed rate products, the Bank
does not emphasize fixed-rate mortgage loans. At June 30, 1997, only $9.7
million, or 9.6%, of the Bank's loan portfolio, consisted of fixed-rate mortgage
loans. To further reduce its interest rate risk associated with such loans, the
Bank may rely upon FHLB advances with similar maturities to fund such loans.
See "-- Deposit Activity and Other Sources of Funds -- Borrowing."
Neither the fixed rate or the adjustable rate residential mortgage loans
of the Bank are originated in conformity with secondary market guidelines issued
by FHLMC or FNMA. As a result, such loans may not be readily saleable in the
secondary market to institutional purchasers. However, such loans may still be
sold to private investors whose investment strategies do not depend upon loans
that satisfy FHLMC or FNMA criteria. Further, given its high liquidity, the
Bank does not currently view loan sales as a necessary funding source. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Construction Lending. The Bank engages in construction lending involving
loans to individuals for construction of one-to four- family residential housing
located within the Bank's market area, with such loans converting to permanent
financing upon completion of construction. Such loans are generally made to
individuals for construction primarily in established subdivisions within the
Bank's market area. The Bank mitigates its risk with construction loans by
imposing a maximum loan-to-value ratio of 95% for homes that will be owner-
occupied and 80% for homes being built on a speculative basis. At June 30,
1997, the Bank's loan portfolio included $4.2 million of loans secured by
properties under construction, including construction/permanent loans structured
to become permanent loans upon the completion of construction and interim
construction loans structured to be repaid in full upon completion of
construction and receipt of permanent financing.
The Bank also makes loans to qualified builders for the construction of
one-to-four family residential housing located in established subdivisions in
the Bank's market area. Because such homes are intended for resale, such loans
are generally not converted to permanent financing at the Bank. All
construction loans are secured by a first lien on the property under
construction.
Loan proceeds are disbursed in increments as construction progresses and
as inspections warrant. Construction/permanent loans may have adjustable or
fixed interest rates and are underwritten in accordance with the same terms and
requirements as the Bank's permanent mortgages. Such loans generally provide
for disbursement in stages during a construction period of up to six months,
during which period the borrower is not required to make payments as interest
accrued is added to principal. The permanent loans are typically 25-year
adjustable rate loans, with the same terms and conditions otherwise offered by
the Bank. Monthly payments of principal and interest commence the month
following the date the loan is converted to permanent financing. Borrowers must
satisfy all credit requirements that would apply to the Bank's permanent
mortgage loan financing prior to receiving construction financing for the
subject property.
Construction financing generally is considered to involve a higher degree
of risk of loss than long-term financing on improved, occupied real estate.
Risk of loss on a construction loan is dependent largely upon the accuracy of
the initial estimate of the property's value at completion of construction or
development and the estimated cost (including interest) of construction. During
the construction phase, a number of factors could result in delays and cost
overruns. If the estimate of construction costs proves to be inaccurate, 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, by
requiring the involvement of qualified builders, and by limiting the aggregate
amount of outstanding construction loans.
Multi-Family Residential and Non-Residential Real Estate Lending. The
Bank's multi-family residential loan portfolio consists of adjustable rate loans
secured by real estate. At June 30, 1997, the Bank had $1.9 million of multi-
family residential loans, which amounted to 1.8% of the Bank's loan portfolio at
such date. The Bank's non-
46
<PAGE>
residential real estate portfolio generally consists of adjustable rate loans
secured by first mortgages on residential lots and rental property. In each
case, such property is located in the Bank's market area. At June 30, 1997, the
Bank had approximately $7.3 million of such loans, which comprised 7.2% of its
loan portfolio. Multi-family residential real estate loans are underwritten with
loan-to-value ratios up to 80% of the appraised value of the property. Non-
residential real estate loans are underwritten with loan-to-value ratios up to
65% of the appraised value for raw land and 75% for land development loans. The
Bank currently does not intend to significantly expand multi-family residential
or non-residential real estate lending following the Conversion, but may do so
if opportunities arise in the future.
Multi-family residential and non-residential real estate lending entails
significant additional risks as compared with one-to-four family residential
property lending. Multi-family residential and commercial real estate loans
typically involve larger loan balances to single borrowers or groups of related
borrowers. The payment experience on such loans typically is dependent on the
successful operation of the real estate project, retail establishment or
business. These risks can be significantly impacted by supply and demand
conditions in the market for the office, retail and residential space, and, as
such, may be subject to a greater extent to adverse conditions in the economy
generally. To minimize these risks, the Bank generally limits itself to its
market area or to borrowers with which it has prior experience or who are
otherwise known to the Bank. It has been the Bank's policy to obtain annual
financial statements of the business of the borrower or the project for which
multi-family residential real estate or commercial real estate loans are made.
Consumer and Other Lending. The consumer loans currently in the Bank's
loan portfolio consist of loans secured by savings deposits and other consumer
loans. Savings deposit loans are usually made for up to 90% of the depositor's
savings account balance. The interest rate is approximately 2.0% above the rate
paid on such deposit account serving as collateral, and the account must be
pledged as collateral to secure the loan. Interest generally is billed on a
quarterly basis. At June 30, 1997, loans on deposit accounts totaled $3.3
million, or 3.3% of the Bank's loan portfolio. Other consumer loans include
automobile loans, the amount and terms of which are determined by the loan
committee, and home equity and home improvement loans, which are made for up to
95% of the value of the property but require private mortgage insurance on 100%
of the value of the property. Following the Conversion, the Bank expects to
focus its loan portfolio growth activities in this area. To prepare for such
growth activities, the Bank recently employed a new loan officer with 25 years
experience in mortgage and consumer lending.
Consumer loans may entail greater credit risk than do residential
mortgage loans, particularly in the case of consumer loans that are unsecured or
are 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. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
therefore are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. At June 30, 1997, there were $8,000 of consumer loans delinquent 90
days or more. There can be no assurance that delinquencies will not increase in
the future, particularly in light of the Bank's decision to increase its efforts
to originate a higher volume and greater variety of consumer loans.
Nonperforming Loans and Other Problem Assets
The Bank's nonperforming loans totaled 0.9% of total assets at June 30,
1997. Loans are placed on a non-accrual status when the loan is past due in
excess of 90 days and collection of principal and interest is doubtful. The
Bank places a high priority on contacting customers by telephone as a primary
method of determining the status of delinquent loans and the action necessary to
resolve any payment problem. The Bank's management performs quality reviews of
problem assets to determine the necessity of establishing additional loss
reserves.
Real estate acquired by the Bank as a result of foreclosure is classified
as real estate owned until such time as it is sold. The Bank generally tries to
sell the property at a price no less than its net book value, however, it will
consider slight discounts to the appraised value to expedite the return of the
funds to an earning status. When such property is acquired, it is recorded at
its fair value less estimated costs of sale. Any required write-down of the
loan to its appraised fair market value upon foreclosure is charged against the
allowance for loan losses. Subsequent to foreclosure, in accordance with
generally accepted accounting principles, a valuation allowance is established
if the carrying value of the property exceeds its fair value net of related
selling expenses. The Bank generally does not have any real estate owned.
47
<PAGE>
The following table sets forth information with respect to the Bank's
non-performing assets at the dates indicated. No loans were recorded as
restructured loans within the meaning of SFAS No. 15 at the dates indicated. In
addition, the Bank had no real estate acquired as a result of foreclosure.
<TABLE>
<CAPTION>
At December 31,
At June 30, --------------------------------------
1997 1996 1995 1994 1993 1992
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Accruing loans which are
contractually past due 90
days or more:
Residential real estate.... $ 214 $ 266 $ 133 $ 20 $ 80 $ 65
Consumer................... 8 -- 1 17 -- --
----- ----- ----- ----- ----- -----
Total..................... $ 222 $ 266 $ 134 $ 37 $ 80 $ 65
----- ----- ----- ----- ----- -----
Total nonperforming
loans.................... $ 222 $ 266 $ 134 $ 37 $ 80 $ 65
===== ===== ===== ===== ===== =====
Percentage of total loans... 0.23% 0.28% 0.16% 0.05% 0.12% 0.09%
===== ===== ===== ===== ===== =====
</TABLE>
At June 30, 1997, the Bank had no loans accounted for on a nonaccrual
basis, no other non-performing assets and no real estate owned.
At June 30, 1997, the Bank had no loans outstanding which were classified
as nonaccrual, 90 days past due or restructured but where known information
about possible credit problems of borrowers caused management to have serious
concerns as to the ability of the borrowers to comply with present loan
repayment terms and may result in disclosure as non-accrual, 90 days past due or
restructured. Also, the Bank had no impaired loans under SFAS 114/118. As
such, the impact of adopting these statements was not significant to the
Bank.
Federal regulations require savings institutions to classify their assets
on the basis of quality on a regular basis. An asset meeting one of the
classification definitions set forth below may be classified and still be a
performing loan. An asset is classified as substandard if it is determined to
be inadequately protected by the current retained earnings and paying capacity
of the obligor or of the collateral pledged, if any. An asset is classified as
doubtful if full collection is highly questionable or improbable. An asset is
classified as loss if it is considered uncollectible, even if a partial recovery
could be expected in the future. The regulations also provide for a special
mention designation, described as assets which do not currently expose a savings
institution to a sufficient degree of risk to warrant classification but do
possess credit deficiencies or potential weaknesses deserving management's close
attention. Such assets designated as special mention may include nonperforming
loans consistent with the above definition. Assets classified as substandard or
doubtful require a savings institution to establish general allowances for loan
losses. If an asset or portion thereof is classified loss, a savings
institution must either establish a specific allowance for loss in the amount of
the portion of the asset classified loss, or charge off such amount. Federal
examiners may disagree with a savings institution's classifications. If a
savings institution does not agree with an examiner's classification of an
asset, it may appeal this determination to the OTS Regional Director. The Bank
regularly reviews its assets to determine whether any assets require
classification or re-classification. At June 30, 1997, the Bank had no assets
classified as special mention, $222,000 in assets classified as substandard, no
assets classified as doubtful and no assets classified as loss. Special mention
assets consist primarily of residential real estate loans secured by first
mortgages. This classification is primarily used by management as a "watch list"
to monitor loans that exhibit any potential deviation in performance from the
contractual terms of the loan.
Allowance for Loan Losses. In originating loans, the Bank recognizes that
credit losses will be experienced and that the risk of loss will vary with,
among other things, the type of loan being made, the creditworthiness of the
borrower over the term of the loan, 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 an adequate allowance for loan losses based on, among other
things, the Bank's and the industry's historical loan loss experience,
evaluation of economic conditions, regular reviews of delinquencies and loan
portfolio quality and evolving standards imposed by federal bank examiners. The
Bank increases its allowance for loan losses by charging provisions for possible
loan losses against the Bank's income.
48
<PAGE>
Management will continue to actively monitor the Bank's asset quality and
allowance for loan losses. Management will charge off loans and properties
acquired in settlement of loans against the allowances for losses on such loans
and such properties when appropriate and will provide specific loss allowances
when necessary. Although management believes it uses the best information
available to make determinations with respect to the allowances for losses and
believes such allowances are adequate, future adjustments may be necessary if
economic conditions differ substantially from the economic conditions in the
assumptions used in making the initial determinations.
The Bank's methodology for establishing the allowance for loan losses takes
into consideration probable losses that have been identified in connection with
specific assets as well as losses that have not been identified but can be
expected to occur. Management conducts regular reviews of the Bank's assets and
evaluates the need to establish allowances on the basis of this review.
Allowances are established by the Board of Directors on a quarterly basis based
on an assessment of risk in the Bank's assets taking into consideration the
composition and quality of the portfolio, delinquency trends, current charge-off
and loss experience, loan concentrations, the state of the real estate market,
regulatory reviews conducted in the regulatory examination process and economic
conditions generally. Specific reserves will be provided for individual assets,
or portions of assets, when ultimate collection is considered improbable by
management based on the current payment status of the assets and the fair value
of the security. At the date of foreclosure or other repossession, the Bank
would transfer the property to real estate acquired in settlement of loans
initially at the lower of cost or estimated fair value and subsequently at the
lower of book value or fair value less estimated selling costs. Any portion of
the outstanding loan balance in excess of fair value less estimated selling
costs would be charged off against the allowance for loan losses. If, upon
ultimate disposition of the property, net sales proceeds exceed the net carrying
value of the property, a gain on sale of real estate would be recorded.
Banking regulatory agencies, including the OTS, have adopted a policy
statement regarding maintenance of an adequate allowance for loan and lease
losses and an effective loan review system. This policy includes an arithmetic
formula for determining the reasonableness of an institution's allowance for
loan loss estimate compared to the average loss experience of the industry as a
whole. Examiners will review an institution's allowance for loan losses and
compare it against the sum of: (i) 50% of the portfolio that is classified
doubtful; (ii) 15% of the portfolio that is classified as substandard; and (iii)
for the portions of the portfolio that have not been classified (including those
loans designated as special mention), estimated credit losses over the upcoming
12 months given the facts and circumstances as of the evaluation date. This
amount is considered neither a "floor" nor a "safe harbor" of the level of
allowance for loan losses an institution should maintain, but examiners will
view a shortfall relative to the amount as an indication that they should review
management's policy on allocating these allowances to determine whether it is
reasonable based on all relevant factors.
49
<PAGE>
The following table sets forth an analysis of the Bank's allowance for loan
losses for the periods indicated.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
------------------- --------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period.......... $ 217 $ 122 $ 122 $ 122 $ 122 $ 122 $ 75
Loans charged off:
Real estate mortgage:
Residential......................... -- (5) (5) -- -- -- --
----- ------ ------- ------ ------ ------ ------
Total charge-offs....................... -- (5) (5) -- -- -- --
----- ------ ------- ------ ------ ------ ------
Recoveries.............................. -- -- -- -- -- -- --
----- ------ ------- ------ ------ ------ ------
Net loans charged off................... -- (5) (5) -- -- -- --
----- ------ ------- ------ ------ ------ ------
Provision for loan losses............... 10 -- 100 -- -- -- 47
----- ------ ------- ------ ------ ------ ------
Balance at end of period................ $ 227 $ 117 $ 217 $ 122 $ 122 $ 122 $ 122
===== ====== ======= ====== ====== ====== ======
Ratio of net charge-offs to average
loans outstanding during the period.... 0% 0.0057% 0.0053% 0% 0% 0% 0%
===== ====== ======= ====== ====== ====== ======
</TABLE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category at the dates indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. 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 December 31,
--------------------------------------------------------------------------------
At June 30
1997 1996 1995 1994
----------------------- ---------------------- ----------------------- -----------------------
Percent of Percent of Percent of Percent of
Loans in Each Loans in Each Loans in Each Loans in Each
Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One-to-four family......... $ 170 79.3% $ 163 79.6% $ 94 81.5% $ 99 82.3%
Construction............... 11 4.2% 11 5.6% 5 4.7% 6 4.7%
Multi-family residential... 2 1.8% 3 1.5% 1 0.6% 5 4.3%
Non-residential............ 25 7.2% 23 5.6% 14 5.9% 5 2.0%
Secured by deposits........ -- 3.3% -- 3.6% -- 3.8% -- 3.9%
Other consumer loans....... 19 4.2% 17 4.1% 8 3.5% 7 2.8%
------- -------- ------- -------- ------- -------- ------- --------
Total allowance for
loan losses........... $ 227 100.0% $ 217 100.0% $ 122 100.0% $ 122 100.0%
======= ======== ======= ======== ======= ======== ======= ========
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------
1993 1992
------------------------ ------------------------
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
One-to-four family........ $ 94 81.3% $ 100 84.8%
Construction.............. 5 4.3% 2 2.0%
Multi-family residential.. 3 2.0% 2 2.0%
Non-residential........... 15 6.5% 12 5.0%
Secured by deposits....... -- 3.6% -- 3.8%
Other consumer loans...... 5 2.3% 6 2.4%
------- ------- ------- -------
Total allowance
for
loan losses $ 122 100.0% $ 122 100.0%
======= ======= ======= =======
</TABLE>
Investment Activities
General. 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 and federal funds. It may also invest, subject to certain
limitations, in commercial paper rated in one of the two highest investment
rating categories of a nationally recognized credit rating agency, and certain
other types of corporate debt securities and mutual funds. 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 banks are
required to maintain. See "Regulation -- Regulation of the Bank -- Liquidity
Requirements."
The Bank makes investments in order to maintain the levels of liquid assets
required by regulatory authorities and manage cash flow, diversify its assets,
obtain yield and to satisfy certain requirements for favorable tax treatment.
The investment activities of the Bank consist primarily of investments in Agency
Securities and Mortgage-Backed Securities. Typical investments include federally
sponsored agency mortgage pass-through and federally sponsored agency and
mortgage-related securities. Investment and aggregate investment limitations
and credit quality parameters of each class of investment are prescribed in the
Bank's investment policy. The Bank performs analyses on mortgage-related
securities prior to purchase and on an ongoing basis to determine the impact on
earnings and market value under various interest rate and prepayment conditions.
Securities purchases must be approved by the Bank's President. The Board of
Directors reviews all securities transactions on a monthly basis.
The principal objective of the Bank's investment policy is to earn as high
a rate of return as possible, but to consider also financial or credit risk,
liquidity risk and interest rate risk. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Asset/Liability
Management."
The Bank adopted SFAS No. 115 as of December 31, 1993. Pursuant to SFAS
No. 115, the Bank has classified securities with an amortized cost of $1.8
million and an approximate market value of $6.0 million at June 30, 1997 as
available for sale. Management of the Bank presently does not intend to sell
such securities and, based on the Bank's current liquidity level and the Bank's
access to borrowings through the FHLB of Cincinnati, management currently does
not anticipate that the Bank will be placed in a position of having to sell
securities with material unrealized losses.
Securities designated as "held to maturity" are those assets which the Bank
has both the ability and the intent to hold to maturity. Upon acquisition,
securities are classified as to the Bank's intent, and a sale would only be
effected due to deteriorating investment quality. The held to maturity
investment portfolio is not used for speculative purposes and is carried at
amortized cost. In the event the Bank sells securities from this portfolio for
other than credit quality reasons, all securities within the investment
portfolio with matching characteristics may be reclassified as assets available
for sale. Securities designated as "available for sale" are those assets which
the Bank may not hold to maturity and thus are carried at market value with
unrealized gains or losses, net of tax effect, recognized in retained earnings.
51
<PAGE>
Mortgage-Backed and Related Securities. Mortgage-backed securities
represent a participation interest in a pool of one-to-four family or multi-
family mortgages, the principal and interest payments on which are passed from
the mortgage originators through intermediaries that pool and repackage the
participation interest in the form of securities to investors such as the Bank.
Such intermediaries may include quasi-governmental agencies such as FHLMC, FNMA
and GNMA which guarantee the payment of principal and interest to investors. Of
the Bank's $21.6 million mortgage-backed security portfolio at June 30, 1997,
approximately $19.4 million were originated through GNMA and approximately $2.2
million were originated through FNMA. Mortgage-backed securities generally
increase the quality of the Bank's assets by virtue of the guarantees that back
them, are more liquid than individual mortgage loans and may be used to
collateralize borrowings or other obligations of the Bank.
Mortgage-backed securities typically are issued with stated principal
amounts and the securities are backed by pools of mortgages that have loans with
interest rates that are within a range and have similar maturities. The
underlying pool of mortgages can be composed of either fixed-rate or adjustable-
rate mortgage loans. Mortgage-backed securities generally are referred to as
mortgage participation certificates or pass-through certificates. 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.
The actual maturity of a mortgage-backed security varies, depending on when
the mortgagors prepay or repay the underlying mortgages. Prepayments of the
underlying mortgages may shorten the life of the investment, thereby adversely
affecting its yield to maturity and the related market value of the Mortgage-
backed security. The yield is based upon the interest income and the
amortization of the premium or accretion of the discount related to the
mortgage-backed security. Premiums and discounts on mortgage-backed securities
are amortized or accredited over the estimated term of the securities using a
level yield method. The prepayment assumptions used to determine the
amortization period for premiums and discounts can significantly affect the
yield of the mortgage-backed security, and these assumptions are reviewed
periodically to reflect the actual prepayment. The actual prepayments of the
underlying mortgages depend on many factors, including the type of mortgage, the
coupon rate, the age of the mortgages, the geographical location of the
underlying real estate collateralizing the mortgages and general levels of
market interest rates. The difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates is an important
determinant in the rate of prepayments. During periods of falling mortgage
interest rates, prepayments generally increase, and, conversely, during periods
of rising mortgage interest rates, prepayments generally decrease. If the
coupon rate of the underlying mortgage significantly exceeds the prevailing
market interest rates offered for mortgage loans, refinancing generally
increases and accelerates the prepayment of the underlying mortgages.
Prepayment experience is more difficult to estimate for adjustable-rate
mortgage-backed securities.
For further information regarding the Bank's mortgage-backed securities and
agency securities, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations." See also "Regulation -- Regulation of the
Bank-- Qualified Thrift Lender Test."
The following table sets forth the carrying value of the Bank's investment
securities at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
At June 30, ---------------------------------
1997 1996 1995 1994
------------- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Securities available for sale:
FHLB and FHLMC stock........ $ 6,033 $ 5,110 $ 4,053 $ 2,955
Other....................... 15 15 -- --
Securities held to maturity:
U.S. government and agency
securities (1) 57,971 77,962 80,990 63,002
Mortgage-backed securities.. 21,616 17,984 17,563 13,343
-------- -------- -------- -------
Total investment
securities............. $ 85,635 $101,071 $102,606 $ 79,300
======== ======== ======== ========
</TABLE>
- -----------------
(1) Primarily reflects debt securities purchased from the FHLB of Cincinnati.
52
<PAGE>
The following table sets forth information in the scheduled maturities,
amortized cost, market values and average yields for the Bank's investment
portfolio at June 30, 1997. A t such date, all securities in the Bank's
investment portfolio, except f or $7.0 million, were callable.
<TABLE>
<CAPTION>
One Year or Less One to Five Years Total Investment Portfolio
------------------------------ ------------------------------ --------------------------------------------
Carrying Average Carrying Average Carrying Market Average
Value Yield Value Yield Value Value Yield
----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Securities held to
maturity (1)... $ 8,998 5.61% $ 48,973 6.08% $ 57,971 $ 57,588 6.01%
</TABLE>
- ----------------
(1) Excludes mortgage-backed securities. See Note 2 of Notes to Financial
Statements.
Deposit Activity and Other Sources of Funds
General. Deposits are the primary source of the Bank's funds for lending,
investment activities and general operational purposes. In addition to deposits,
the Bank derives funds from loan principal and interest repayments, maturities
of investment securities and mortgage-backed securities and interest payments
thereon. Although loan repayments are a relatively stable source of funds,
deposit inflows and outflows are significantly influenced by general interest
rates and money market conditions. Borrowings may be used on a short-term basis
to compensate for reductions in the availability of funds, or on a longer term
basis for general corporate purposes. The Bank has access to borrow from the
FHLB of Cincinnati, and the Bank will continue to have access to FHLB of
Cincinnati advances. The Bank may rely upon retail deposits rather than
borrowings as its primary source of funding for future asset growth.
Deposits. The Bank attracts deposits principally from within its market
area by offering competitive rates on its deposit instruments, including money
market accounts, passbook savings accounts, Individual Retirement Accounts, and
certificates of deposit which range in maturity from three months to five years.
Deposit terms vary according to the minimum balance required, the length of time
the funds must remain on deposit and the interest rate. Maturities, terms,
service fees and withdrawal penalties for its deposit accounts are established
by the Bank on a periodic basis. The Bank reviews its deposit mix and pricing on
a weekly basis. In determining the characteristics of its deposit accounts, the
Bank considers the rates offered by competing institutions, lending and
liquidity requirements, growth goals and federal regulations. The Bank does not
accept brokered deposits.
The Bank attempts to compete for deposits with other institutions in its
market area by offering competitively priced deposit instruments that are
tailored to the needs of its customers. Additionally, the Bank seeks to meet
customers' needs by providing convenient customer service to the community.
Substantially all of the Bank's depositors are Kentucky residents who reside in
the Bank's market area.
53
<PAGE>
Savings deposits in the Bank at June 30, 1997 were represented by the
various types of savings programs described below.
<TABLE>
<CAPTION>
Interest Minimum Minimum Balance Percentage of
Rate* Term Category Amount (In thousands) Total Deposits
- ---------- ------------------------ --------------------------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
0.00% None Non-interest bearing $ 100 $ 1,844 1.02%
2.50%* None Demand/NOW accounts 1.500 7,750 4.27
2.75% None Passbook accounts 10 11,731 6.47
3.75%* None Money market deposit accounts 2,500 35,934 19.80
------------- -----------
57,259 31.56
------------- -----------
Certificates of Deposit
---------------------------------
3.85% 3 months or less Fixed-term, fixed rate 500 19,012 10.48
4.70% Over 3 to 12-months Fixed-term, fixed-rate 500 61,100 33.67
5.16% Over 12 to 24-months Fixed-term, fixed-rate 500 30,250 16.67
5.29% Over 24 to 36-months Fixed-term, fixed-rate 500 9,484 5.23
5.39% Over 36 to 48-months Fixed-term, fixed-rate 500 3,371 1.86
5.44% Over 48 to 60-months Fixed-term, fixed rate 500 965 0.53
------------- -----------
124,182 68.44
------------- -----------
$ 181,441 100.00%
============= ===========
</TABLE>
- ---------------
* Represents weighted average interest rate.
The following table sets forth, for the periods indicated, the average
balances and interest rates based on month-end balances for interest-bearing
demand deposits and time deposits.
<TABLE>
<CAPTION>
Year Ended December 31,
Six Months Ended -----------------------------------------------------------------
June 30, 1997 1996 1995
----------------------------- ----------------------------- -------------------------------
Interest-bearing Time Interest-bearing Time Interest-bearing Time
demand deposits deposits demand deposits deposits demand deposits deposits
---------------- -------- --------------- -------- --------------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Average balance. $ 55,922 $124,952 $ 55,901 $133,400 $ 59,777 $ 130,460
Average rate.... 3.54% 5.47% 3.58% 5.48% 3.32% 6.18%
<CAPTION>
Year Ended December 31,
-----------------------------
1994
-----------------------------
Interest-bearing Time
demand deposits deposits
--------------- --------
(Dollars in thousands)
<S> <C> <C>
Average balance. $ 78,338 $ 115,135
Average rate.... 3.31% 6.60%
</TABLE>
54
<PAGE>
The following table sets forth the change in dollar amount of deposits in
the various types of accounts offered by the Bank between the dates indicated.
<TABLE>
<CAPTION>
Balance at Increase Balance at Increase
June 30, % of (Decrease) from December 31, % of (Decrease) from
1997 Deposits December 31, 1996 1996 Deposits December 31, 1995
---- -------- ----------------- ------------ -------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing........ $ 1,844 1.02% $ 60 $ 1,784 0.97% $ 548
Demand and NOW
accounts.................... 7,750 4.27% 147 7,603 4.14% (25)
Money market................ 35,934 19.80% (1,006) 36,940 20.09% 2,158
Passbook savings............ 11,731 6.47% 1,099 10,632 5.78% (565)
Other time deposits......... 124,182 68.44% (2,686) 126,868 69.02% (13,064)
---------- ------- ------------ --------- -------- ----------------
$ 181,441 100.00% $ (2,386) $ 183,827 100.00% $ (10,948)
========== ======= ============ ========= ======== ================
<CAPTION>
Balance at Increase Balance at
December 31, % of (Decrease) from December 31, % of
1995 Deposits December 31, 1994 1994 Deposits
---- -------- ----------------- ---- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-interest bearing........ $ 1,236 0.63% $ 102 $ 1,135 0.61%
Demand and NOW
accounts.................... 7,628 3.92% 817 6,811 3.67%
Money market................ 34,782 17.86% (10,271) 45,053 24.26%
Passbook savings............ 11,197 5.75% (516) 11,713 6.31%
Other time deposits......... 139,932 71.84% 18,944 120,988 65.15%
-------- --------- ------------- ----------- --------
Total....................... $ 194,775 100.00% $ 9,076 $ 185,700 100.00%
========== ========= ============= =========== ========
</TABLE>
The following table sets forth the time deposits in the Bank classified by
rates at the dates indicated.
<TABLE>
<CAPTION>
At June 30, At December 31,
------------------------------------------------
1997 1996 1995 1994
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
2.01 - 4.00%............... $ 41 $ 38 $ 58 $ 21,603
4.01 - 6.00%............... 103,959 103,036 79,288 78,894
6.01 - 8.00%............... 20,182 23,794 60,586 20,491
-------- -------- -------- --------
Total $124,182 $126,868 $139,932 $120,988
======== ======== ======== ========
</TABLE>
The following table sets forth the amount and maturities of time deposits
at June 30, 1997.
<TABLE>
<CAPTION>
Amount Due
--------------------------------------------------------------------------------------------
Less Than One Year 1-2 Years 2-3 Years After 3 Years Total
------------------ --------- --------- ------------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
2.01 - 4.00%............... $ 41 $ -- $ -- $ -- $ 41
4.01 - 6.00%............... 74,403 22,877 4,694 1,985 103,959
6.01 - 8.00%............... 5,668 7,373 4,783 2,358 20,182
------------ ---------- ---------- ------------ ------------
Total.................... $ 80,112 $ 30,250 $ 9,477 $ 4,343 $ 124,182
============ ========== ========== ============ ============
</TABLE>
55
<PAGE>
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 June 30,
1997.
<TABLE>
<CAPTION>
Maturity Period Certificates of Deposits
- -------------------------------------- --------------------------
(In thousands)
<S> <C>
Three months or less................ $ 914
Over three through six months....... 564
Over six through 12 months.......... 3,179
Over 12 months...................... 2,342
---------------
Total............................ $ 6,999
===============
</TABLE>
Certificates of deposit at June 30, 1997 included approximately $7.0
million of deposits with balances of $100,000 or more, compared to $7.4 million
and $12.2 million at December 31, 1996 and 1995, respectively. Such time
deposits may be risky because their continued presence in the Bank is dependent
partially upon the rates paid by the Bank rather than any customer relationship
and, therefore, may be withdrawn upon maturity if another institution offers
higher interest rates. The Bank may be required to resort to other funding
sources such as borrowing or sales of its securities held available for sale if
the Bank believes that increasing its rates to maintain such deposits would
adversely affect its operating results. At this time, the Bank does not believe
that it will need to significantly increase its deposit rates to maintain such
certificates of deposit and, therefore, does not anticipate resorting to
alternative funding sources. The Bank has reduced such time deposits by 42.7%
since December 31, 1995. See Note 5 of Notes to Financial Statements.
The following table sets forth the deposit activities of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
---------------------- ------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits.......................... $ 114,263 $ 98,360 $ 149,771 $ 140,662 $ 136,357
Withdrawals....................... (120,419) (104,048) (167,560) (139,393) (129,749)
--------- --------- --------- --------- ---------
Net increase (decrease) before
interest credited............... (6,156) (5,688) (17,789) 1,269 6,608
Interest credited................. 3,770 3,952 6,841 7,807 5,907
--------- --------- --------- --------- ---------
Net increase (decrease) in savings
deposits........................ $ (2,386) $ (1,736) $ (10,948) $ 9,076 $ 12,515
</TABLE>
In the unlikely event the Bank is liquidated after the Conversion,
depositors will be entitled to full payment of their deposit accounts prior to
any payment being made to the sole stockholder of the Bank, which is the
Company.
Borrowings. Savings deposits historically have been the primary source of
funds for the Bank's lending, investments and general operating activities. The
Bank is authorized, however, to use advances from the FHLB of Cincinnati to
supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The FHLB of Cincinnati functions as a central reserve bank
providing credit for savings institutions and certain other member financial
institutions. As a member of the FHLB System, the Bank is required to own stock
in the FHLB of Cincinnati and is authorized to apply for advances. Advances are
pursuant to several different programs, each of which has its own interest rate
and range of maturities. The Bank has entered into a Cash Management Advance
program with FHLB. See Note 6 of Notes to Financial Statements. Advances from
the FHLB of Cincinnati are secured by a $20.0 million FHLB investment security.
As of June 30, 1997, the Bank had no advances outstanding.
Subsidiary Activities
As a federally chartered savings bank, the Bank is permitted to invest an
amount equal to 2% of its assets in subsidiaries, with an additional investment
of 1% of assets where such investment serves primarily community, inner-city
56
<PAGE>
and community development purposes. Institutions meeting their applicable
minimum regulatory capital requirements may invest up to 50% of their regulatory
capital in conforming first mortgage loans to subsidiaries in which they own 10%
or more of the capital stock. The Bank does not have any subsidiaries.
Competition
The Bank faces significant competition both in originating mortgage and
other loans and in attracting deposits. The Bank competes for loans principally
on the basis of interest rates, the types of loans it originates, the deposit
products it offers and the quality of services it provides to borrowers. The
Bank also competes by offering products which are tailored to the local
community. Its competition in originating real estate loans comes primarily from
other savings institutions, commercial banks and mortgage bankers making loans
secured by real estate located in the Bank's market area. Commercial banks,
credit unions and finance companies provide vigorous competition in consumer
lending. Competition may increase as a result of the continuing reduction of
restrictions on the interstate operations of financial institutions.
The Bank attracts its deposits through its five offices primarily from the
local community. Consequently, competition for deposits is principally from
other savings institutions, commercial banks and brokers in the local community
as well as from credit unions. The Bank competes for deposits and loans by
offering what it believes to be a variety of deposit accounts at competitive
rates, convenient business hours, a commitment to outstanding customer service
and a well-trained staff. The Bank believes it has developed strong
relationships with local realtors and the community in general.
The Bank is a community and retail-oriented financial institution.
Management considers the Bank's branch network and reputation for financial
strength and quality customer service as its major competitive advantage in
attracting and retaining customers in its market area. A number of the Bank's
competitors have been acquired by statewide/nationwide banking organizations,
including Bank One, First City Bank (a wholly owned subsidiary of Area
Bancshares, Corp.) and NationsBank. While the Bank is subject to competition
from other financial institutions which may have greater financial and marketing
resources, management believes the Bank benefits by its community orientation
and its long-standing relationship with many of its customers.
57
<PAGE>
Offices and Other Material Properties
The following table sets forth information regarding the Bank's offices
at June 30, 1997.
<TABLE>
<CAPTION>
Approximate
Year Opened Owned or Leased Book Value(1) Square Footage of
----------- --------------- ---------- -----------------
Office
------
(In thousands)
<S> <C> <C> <C> <C>
Main Office:
2700 Fort Campbell Boulevard
Hopkinsville, Kentucky 42240.... 1995 Owned $ 1,923 16,575
Branch Offices:
Downtown Branch Office (2)
612 South Main Street
Hopkinsville, Kentucky........ 1966 Owned $ 228 11,926
Murray Branch Office
7th and Main Streets
Murray, Kentucky.............. 1969 Owned $ 73 4,800
Cadiz Branch Office (3)
67 Main Street
Cadiz, Kentucky............... 1974 Leased $ 2 600
Elkton Branch Office
West Main Street
Elkton, Kentucky.............. 1976 Owned $ 49 3,400
Real Estate Lot
Cadiz, Kentucky (3)........... 1996 Owned $ 75 --
----------
$ 2,350
==========
</TABLE>
(1) Represents the book value of land, building, furniture, fixtures and
equipment owned by the Bank.
(2) Currently for sale. The Bank plan is constructing a new branch office at
7th and Virginia Streets in Hopkinsville.
(3) This branch office will be relocated to a new lot in Cadiz purchased by the
Bank.
Employees
As of June 30, 1997, the Bank had 29 full-time employees, none of whom were
represented by a collective bargaining agreement. Management considers the
Bank's relationships with its employees to be good.
Legal Proceedings
From time to time, the Bank is a party to various legal proceedings
incident to its business. At June 30, 1997, there were no legal proceedings to
which the Company or the Bank was a party, or to which any of their property was
subject, which were expected by management to result in a material loss to the
Company or the Bank. There are no pending regulatory proceedings to which the
Company, the Bank or its subsidiaries is a party or to which any of their
properties is subject which are currently expected to result in a material loss.
58
<PAGE>
REGULATION
General
The Bank is chartered as a federal savings bank under the Home Owners' Loan
Act, as amended (the "HOLA"), which is implemented by regulations adopted and
administered by the OTS. As a federal savings bank, the Bank is subject to
regulation, supervision and regular examination by the OTS. The OTS also has
extensive enforcement authority over all savings institutions and their holding
companies, including the Bank and the Company. Federal banking laws and
regulations control, among other things, the Bank's required reserves,
investments, loans, mergers and consolidations, payment of dividends and other
aspects of the Bank's operations. The deposits of the Bank are insured by the
SAIF administered by the FDIC to the maximum extent provided by law ($100,000
for each depositor). In addition, the FDIC has certain regulatory and
examination authority over OTS-regulated savings institutions and may recommend
enforcement actions against savings institutions to the OTS. The supervision
and regulation of the Bank is intended primarily for the protection of the
deposit insurance fund and the Bank's depositors rather than for holders of the
Company's stock or for the Company as the holder of the stock of the Bank.
As a savings and loan holding company, the Company will be registered with
and subject to OTS regulation and supervision under the HOLA. The Company also
will be required to file certain reports with, and otherwise comply with the
rules and regulations of, the Commission under the federal securities laws.
The following discussion is intended to be a summary of certain statutes,
rules and regulations affecting the Bank and the Company. A number of other
statutes and regulations have an impact on their operations. The following
summary of applicable statutes and regulations does not purport to be complete
and is qualified in its entirety by reference to such statutes and regulations.
Regulation of the Bank
Proposed Legislation. Legislation currently pending before the United
States Congress would, if enacted, require all federal savings institutions
(such as the Bank) to convert to a national bank or a state bank or savings bank
charter. In addition, the proposed legislation would cause the Company to be
regulated not as a savings and loan holding company, but rather as a bank
holding company or a "financial services" holding company (a new regulatory
classification created by the legislation). If the pending legislation were to
be adopted in its current form, it would eliminate certain advantages now
enjoyed by federal savings institutions, such as unrestricted interstate
branching.
As consideration of the proposed legislation is in its early stages, the
Company cannot predict whether or in what form the legislation will be enacted.
However, based upon the provisions of the currently pending legislation, the
management of the Company does not believe that the enactment of such
legislation would have a material adverse effect on its financial condition or
results of operations.
Business Activities. The Bank derives its lending and investment powers
from the HOLA and the regulations of the OTS thereunder. Under these laws and
regulations, the Bank may invest in mortgage loans secured by residential and
commercial real estate, commercial and consumer loans, certain types of
commercial paper and debt securities, and certain other assets. The Bank may
also establish service corporations that may engage in activities not otherwise
permissible for the Bank, including certain real estate equity investments and
securities and insurance brokerage. These investment powers are subject to
various limitations.
Branching. Subject to certain limitations, OTS regulations currently
permit a federally chartered savings institution like the Bank to establish
branches in any state of the United States, provided that the federal savings
institution qualifies as a "domestic building and loan association" under the
Internal Revenue Code. See "-- Qualified Thrift Lender Test." The authority
for a federal savings institution to establish an interstate branch network
would facilitate a geographic diversification of the institution's activities.
However, recently proposed federal legislation could, if enacted, restrict the
Bank's ability to open branches in states other than Kentucky. See "-- Proposed
Legislation."
Regulatory Capital. The OTS has adopted capital adequacy regulations that
require savings institutions such as the Bank to meet three minimum capital
standards: a "core" capital requirement of 3% of adjusted total assets, a
"tangible" capital requirement of 1.5% of adjusted total assets, and a "risk-
based" capital requirement of 8% of total risk-based capital
59
<PAGE>
to total risk-weighted assets. In addition, the OTS has adopted regulations
imposing certain restrictions on savings institutions that have a total risk-
based capital ratio of less than 8%, a ratio of Tier 1 capital to risk-weighted
assets of less than 4% or a ratio of Tier 1 capital to total assets of less than
4% (or 3% if the institution is rated Composite 1 under the CAMEL examination
rating system). See "-- Prompt Corrective Regulatory Action."
The core capital, or "leverage ratio," requirement mandates that a savings
institution maintain core capital equal to at least 3% of its adjusted total
assets. "Core capital" includes common stockholders' equity (including retained
earnings), noncumulative perpetual preferred stock and related surplus, minority
interests in the equity accounts of fully consolidated subsidiaries and certain
nonwithdrawable accounts and pledged deposits and is generally reduced by the
amount of the savings institution's intangible assets, with limited exceptions
for permissible mortgage servicing rights ("MSRs"), purchased credit card
relationships and certain intangible assets arising from prior regulatory
accounting practices. Core capital is further reduced by the amount of a savings
institution's investments in and loans to subsidiaries engaged in activities not
permissible for national banks. At June 30, 1997, the Bank had no such
investments.
The risk-based capital standards of the OTS require maintenance of core
capital equal to at least 4% of risk-weighted assets and total capital equal to
at least 8% of risk-weighted assets. For purposes of the risk-based capital
requirement, "total capital" includes core capital plus supplementary capital,
provided that the amount of supplementary capital does not exceed the amount of
core capital. Supplementary capital includes preferred stock that does not
qualify as core capital, nonwithdrawable accounts and pledged deposits to the
extent not included in core capital, perpetual and mandatory convertible
subordinated debt and maturing capital instruments meeting specified
requirements and a portion of the institution's loan and lease loss allowance.
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,
which range from 0% to 100% as assigned by the OTS capital regulations based on
the risks the OTS believes are inherent in the type of asset. Comparable risk
weights are assigned to off-balance sheet assets.
The OTS risk-based capital regulation also includes an interest rate risk
("IRR") component that requires savings institutions with greater than normal
IRR, when determining compliance with the risk-based capital requirements, to
maintain additional total capital. The OTS has, however, indefinitely deferred
enforcement of its IRR requirements.
The following table sets forth the Bank's compliance with its regulatory
capital requirements at June 30, 1997.
<TABLE>
<CAPTION>
Capital
The Bank's Capital Requirements Excess Capital
---------------------- ---------------------- ----------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Tangible capital................. $15,461 7.70% $2,995 1.50% $12,466 6.20%
Core capital..................... $15,461 7.70% $5,991 3.00% $ 9,470 4.70%
Total Risk-based capital......... $15,668 21.50% $5,829 8.00% $ 9,859 13.50%
</TABLE>
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 in respect of depository
institutions that do not meet certain minimum capital requirements, including a
leverage limit and a risk-based capital requirement. All institutions,
regardless of their capital levels, are restricted from making any capital
distribution or paying any management fees that would cause the institution to
become undercapitalized. As required by FDICIA, banking regulators, including
the OTS, have issued regulations that classify insured depository institutions
by capital levels and provide that the applicable agency will take various
prompt corrective actions to resolve the problems of any institution that fails
to satisfy the capital standards.
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<PAGE>
Under the joint prompt corrective action regulations, a "well-capitalized"
institution is one that is not subject to any regulatory order or directive to
meet any specific capital level and that has or exceeds the following capital
levels: a total risk-based capital ratio of 10%, a Tier 1 risk-based capital
ratio of 6%, and a ratio of Tier 1 capital to total assets ('leverage ratio") of
5%. An "adequately capitalized" institution is one that does not qualify as
"well capitalized" but meets or exceeds the following capital requirements: a
total risk-based capital of 8%, a Tier 1 risk-based capital ratio of 4%, and a
leverage ratio of either (i) 4% or (ii) 3% if the institution has the highest
composite examination rating. An institution not meeting these criteria is
treated as "undercapitalized," "significantly undercapitalized," or "critically
undercapitalized" depending on the extent to which its capital levels are below
these standards. An institution that fails within any of the three
"undercapitalized" categories will be subject to certain severe regulatory
sanctions required by FDICIA and the implementing regulations. As of June 30,
1997, the Bank was "well-capitalized" as defined by the regulations.
Federal Deposit Insurance. The Bank is required to pay assessments, based
on a percentage of its insured deposits, to the FDIC for insurance of its
deposits by the SAIF.
Under the FDIC's risk-based deposit insurance assessment system, the
insurance assessment rate for an insured depository institution depends on the
assessment risk classification assigned to the institution. Institutions are
assigned by the FDIC to one of three capital groups -- well-capitalized,
adequately capitalized, or undercapitalized -- and, within each capital
category, to one of three supervisory subgroups.
In order to recapitalize the SAIF and to equalize the deposit insurance
premiums paid by SAIF-insured institutions and institutions with deposits
insured by the Bank Insurance Fund, Congress enacted the Deposit Insurance Funds
Act of 1996 (the "1996 Act"), which authorized the FDIC to impose a one-time
special assessment on all institutions with SAIF-assessable deposits in the
amount necessary to recapitalize the SAIF to the statutorily designated reserve
ratio of 1.25% of insured deposits. Institutions were assessed at the rate of
65.7 basis points per $100 of each institution's SAIF-assessable deposits as of
March 31, 1995. The 1996 Act provides the amount of the special assessment will
be deductible for federal income tax purposes for the taxable year in which the
special assessment is paid. Based on the foregoing, the Bank recorded an
accrual for the special assessment of $1.23 million at September 30, 1996. Net
of related tax effects, this reduced reported earnings by $811,800 for the year
ended December 31, 1996.
As a result of the recapitalization of the SAIF by the 1996 Act, the FDIC
reduced the insurance assessment rate for SAIF-assessable deposits for periods
beginning on October 1, 1996. For the first half of 1997, the FDIC set the
effective insurance assessment rates for SAIF-insured institutions, such as the
Bank, at zero to 27 basis points. In addition, SAIF-insured institutions will
be required, until December 31, 1999, to pay assessments to the FDIC at an
annual rate of between 6.0 and 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 recapitalize the predecessor to the SAIF.
During this period, BIF member banks will be assessed for payment of the FICO
obligations at one-fifth the annual rate applicable to SAIF member institutions.
After December 31, 1999, BIF and SAIF members will be assessed at the same rate
(currently estimated at approximately 2.4 basis points) to service the FICO
obligations.
The 1996 Act also provides that the FDIC may not assess regular insurance
assessments for the SAIF unless required to maintain or to achieve the
designated reserve ratio of 1.25%, except for such assessments on those
institutions that are not classified as "well-capitalized" or that have been
found to have "moderately severe" or "unsatisfactory" financial, operational or
compliance weaknesses. The Bank is classified as "well-capitalized" and has not
been found by the OTS to have such supervisory weaknesses.
Qualified Thrift Lender Test. The HOLA and OTS regulations require all
savings institutions to satisfy one of two Qualified Thrift Lender ("QTL") tests
or to suffer a number of sanctions, including restrictions on activities. To
qualify as a QTL, a savings institution must either (i) be deemed a "domestic
building and loan association" under the Internal Revenue Code (the "Code") by
maintaining at least 60% of its total assets in specified types of assets,
including cash, certain government securities, loans secured by and other assets
related to residential real property, educational loans, and investments in
premises of the institution or (ii) satisfy the HOLA's QTL test by maintaining
at least 65% of "portfolio assets" in certain "Qualified Thrift Investments."
For purposes of the HOLA's QTL test, 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 (a) loans, equity positions or securities related
to domestic, residential real estate or manufactured housing, (b) 50% of the
dollar amount of residential mortgage loans subject to sale under certain
conditions, and (c) loans to small businesses, student loans and credit card
loans. In addition,
61
<PAGE>
subject to a 20% of portfolio assets limit, 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 business in
"credit needy" areas.
A savings institution must maintain its status as a QTL on a monthly basis
in at least nine out of every 12 months. An initial failure to qualify as a QTL
results in a number of sanctions, including the imposition of certain operating
restrictions and a restriction on obtaining additional advances from its Federal
Home Loan Bank. If a savings institution does not requalify under the QTL test
within the three-year period after it fails the QTL test, it would be required
to terminate any activity not permissible for a national bank and repay as
promptly as possible any outstanding advances from its Federal Home Loan Bank.
In addition, the holding company of such an institution, such as the Company,
would similarly be required to register as a bank holding company with the
Federal Reserve Board. At June 30, 1997, the Bank qualified as a QTL.
Safety and Soundness Standards. FDICIA, as amended by the Riegle Community
Development and Regulatory Improvement Act of 1994, requires the OTS, together
with the other federal bank regulatory agencies, to prescribe standards, by
regulation or guideline, relating to internal controls, information systems and
internal audit systems, loan documentation, credit underwriting, interest rate
risk exposure, asset growth, asset quality, earnings, stock valuation, and
compensation, fees and benefits and such other operational and managerial
standards as the agencies deem appropriate. The OTS and the federal bank
regulatory agencies have adopted a set of guidelines prescribing safety and
soundness standards pursuant to the statute. The safety and soundness
guidelines establish general standards relating to internal controls and
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, and compensation, fees and
benefits. In general, the guidelines require, among other things, appropriate
systems and practices to identify and manage the risks and exposures specified
in the guidelines. The guidelines prohibit excessive compensation as an unsafe
and unsound practice and describe compensation as excessive when the amounts
paid are unreasonable or disproportionate to the services performed by an
executive officer, employee, director or principal stockholder.
In addition, on July 10, 1995, the OTS and the federal bank regulatory
agencies proposed guidelines for asset quality and earnings standards. Under
the proposed standards, a savings institution would be required to 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 banking agencies, would
not have a material effect on the operations of the Bank.
Limitations on Capital Distributions. OTS regulations impose limitations
upon capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to stockholders
of another institution in a cash-out merger and other distributions charged
against capital. A savings institution must give notice to the OTS at least 30
days before declaration of a proposed capital distribution to its holding
company, and capital distributions in excess of specified earnings or by certain
institutions are subject to approval by the OTS. A savings institution that has
capital in excess of all regulatory capital requirements before and after a
proposed capital distribution and that is not otherwise restricted in making
capital distributions, may, after prior notice but without the approval of the
OTS, make capital distributions during a calendar year equal to the greater of
(a) 100% of its net income to date during the calendar year plus the amount that
would reduce by one-half its "surplus capital ratio" (the excess capital over
its fully phased-in capital requirements) at the beginning of the calendar year,
or (b) 75% of its net income for the previous four quarters. Any additional
capital distributions would require prior OTS approval.
The OTS has proposed regulations that would simplify the existing
procedures governing capital distributions by savings institutions. Under the
proposed regulations, the approval of the OTS would be required only for capital
distributions by an institution that is deemed to be in troubled condition or
that is undercapitalized or would be undercapitalized after the capital
distribution. A savings institution would be able to make a capital distribution
without notice to or approval of the OTS if it is not held by a savings and loan
holding company, is not deemed to be in troubled condition, has received either
of the two highest composite supervisory ratings and would continue to be
adequately capitalized after such distribution. Notice would have to be given to
the OTS by any institution that is held by a savings and loan holding company or
that had received a composite supervisory rating below the highest two composite
supervisory ratings. An institution's capital rating would be determined under
the prompt corrective action regulations. See "--Prompt Corrective Regulatory
Action."
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<PAGE>
Under OTS regulations, the Bank would not be 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 the Conversion. In addition,
under the OTC's prompt corrective action regulations, the Bank would be
prohibited from paying dividends if the Bank were classified as
"undercapitalized" under such rules. See "-- Prompt Corrective Regulatory
Action."
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 dividends or other distributions to the Company 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."
Consumer Credit Regulation. The Bank's mortgage lending activities are
subject to the provisions of various federal and state statutes, including,
among others, the Truth in Lending Act, the Equal Credit Opportunity Act, the
Real Estate Settlement Procedures Act, the Fair Housing Act, and the regulations
promulgated thereunder. These statutes and regulations, among other provisions,
prohibit discrimination, prohibit unfair and deceptive trade practices, require
the disclosure of certain basic information to mortgage borrowers concerning
credit terms and settlement costs, and otherwise regulate terms and conditions
of credit and the procedures by which credit is offered and administered. Many
of the above regulatory requirements are designed to protect the interests of
consumers, while others protect the owners or insurers of mortgage loans.
Failure to comply with these requirements can lead to administrative enforcement
actions, class action lawsuits and demands for restitution or loan rescission.
Transactions with Affiliates. The Bank is subject to restrictions imposed
by Sections 23A and 23B of the Federal Reserve Act on extensions of credit to,
and certain other transactions with, the Company and other affiliates, and on
investments in the stock or other securities thereof. Such restrictions prevent
the Company and such other affiliates from borrowing from the Bank unless the
loans are secured by specified collateral, and require such transactions to have
terms comparable to terms of arms-length transactions with third persons.
Further, such secured loans and other transactions and investments by the Bank
are generally limited in amount as to the Company and as to any other affiliate
to 10% of the Bank's capital and surplus and as to the Company and all other
affiliates to an aggregate of 20% of the Bank's capital and surplus. These
restrictions may limit the Company's ability to obtain funds from the Bank for
its cash needs, including funds for acquisitions and for payment of dividends,
interest and operating expenses.
Loans to Directors, Executive Officers and Principal Stockholders. The
Bank's ability to extend credit to its directors, executive officers, and 10%
stockholders, as well as to entities controlled by such persons, is governed by
the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and
Regulation O of the Federal Reserve Board thereunder. Among other things, these
provisions require that an institution's extensions of credit to insiders (a) be
made on terms that are substantially the same as, and follow credit underwriting
procedures that are not less stringent than, those prevailing for comparable
transactions with unaffiliated persons and that do not involve more than the
normal risk of repayment or present other unfavorable features and (b) not
exceed certain limitations on the amount of credit extended to such persons,
individually and in the aggregate, which limits are based, in part, on the
amount of the institution's capital. In addition, extensions of credit in
excess of certain limits must be approved by the institution's Board of
Directors.
Reserve Requirements. Pursuant to regulations of the Federal Reserve
Board, all FDIC-insured depository institutions must maintain average daily
reserves against their transaction accounts. No reserves are required to be
maintained on the first $4.4 million of transaction accounts, and reserves
equal to 3% must be maintained on the next $49.3 million of transaction
accounts, plus reserves equal to 10% on the remainder. These percentages are
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 June 30,
1997, the Bank met its reserve requirements.
Liquidity Requirements. The Bank is required by OTS regulation to maintain
an average daily balance 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 average daily liquidity ratio of the Bank for the month
ended June 30, 1997 was 41.52%. The Bank is also required to maintain average
daily balances of short-term liquid assets at a specified percentage (currently
1%)
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<PAGE>
of the total of its net withdrawable savings accounts and borrowings payable in
one year or less. The Bank was in compliance with the 1% requirement at June 30,
1997. The OTS has proposed to revise its liquidity regulations to decrease the
burden of compliance with such rules. Specifically, the OTS proposal would (1)
reduce the liquidity base by excluding withdrawable accounts payable in more
than one year from the definition of "net withdrawable accounts," (2) reduce the
liquidity requirement from 5% of net withdrawable accounts and short-term
borrowings to 4%, (3) remove the 1% short-term liquidity requirement, and (4)
expand the categories of liquid assets that may count toward satisfaction of the
liquidity requirement.
Federal Home Loan Bank System. The Federal Home Loan Bank System consists
of 12 district Federal Home Loan Banks subject to supervision and regulation by
the Federal Housing Finance Board ("FHFB"). The Federal Home Loan Banks provide
a central credit facility primarily for member institutions. As a member of the
FHLB, the Bank is required to acquire and hold shares of capital stock in the
FHLB in an amount at least equal to 1% of the aggregate unpaid principal of its
home mortgage loans, home purchase contracts, and similar obligations at the
beginning of each year, or 1/20 of its advances (borrowings) from the FHLB,
whichever is greater. The Bank was in compliance with this requirement, with an
investment in FHLB stock at June 30, 1997 of $1,664,000. Long-term FHLB
advances may only be made for the purpose of providing funds for residential
housing finance. At June 30, 1997, the Bank had no total advances outstanding
from the FHLB.
Regulation of the Company
Following the Conversion, the Company will be a savings and loan holding
company under the HOLA and, as such, will be subject to OTS regulation,
supervision and examination. In addition, the OTS has enforcement authority
over the Company and its non-savings institution subsidiaries and may restrict
or prohibit activities that are determined to represent a serious risk to the
safety, soundness or stability of the Bank or any other subsidiary savings
institution.
Under the HOLA, a savings and loan holding company is required to obtain
the prior approval of the OTS before acquiring another savings institution or
savings and loan holding company. A savings and loan holding company may not
(i) acquire, with certain exceptions, more than 5% of a non-subsidiary savings
institution or a non-subsidiary savings and loan holding company; or (ii)
acquire or retain control of a depository institution that is not insured by the
FDIC. In addition, while the Bank generally may acquire a savings institution by
merger in any state without restriction by state law, the Company could acquire
control of an additional savings institution in a state other than Kentucky only
if such acquisition is permitted under the laws of the target institution's home
state.
As a unitary savings and loan holding company, the Company generally will
not be subject to any restriction as to the types of business activities in
which it may engage, provided that the Bank continues to satisfy the QTL test.
See "-- Regulation and Supervision of the Bank -- Qualified Thrift Lender
Test." Legislation currently pending in the United States Congress would, if
enacted, restrict the business activities of unitary savings and loan holding
companies; however, the legislation in its present form would grandfather the
current absence of restriction on business activities for unitary savings and
loan holding companies in existence, or for which application had been made, on
the bill's date of enactment. Since the Company has applied to become a savings
and loan holding company through the acquisition of the Bank, the Company would
qualify for such grandfathered treatment under the current form of the
legislation.
Upon any non-supervisory acquisition by the Company of another savings
institution that is held as a separate subsidiary, the Company would become a
multiple savings and loan holding company and would be subject to limitations on
the types of business activities in which it could engage. The HOLA limits the
activities of a multiple savings and loan holding company and its non-insured
institution subsidiaries primarily to activities permissible for bank holding
companies under the Bank Holding Company Act, subject to the prior approval of
the OTS, and to other activities authorized by OTS regulation.
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<PAGE>
TAXATION
General
The Bank files a federal income tax return based on a calendar year. After
the Conversion, it is expected that the Company and the Bank will file a
consolidated federal income tax return based on a year ending December 31.
Consolidated returns have the effect of deferring gain or loss on intercompany
transactions and allowing companies included within the consolidated return to
offset income against losses under certain circumstances.
Federal Income Taxation
The Company and the Bank have not yet determined whether they will file a
consolidated federal income tax return following the conversion.
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 the Bank which met certain definitional tests and other conditions
prescribed by the Code benefited 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, although 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. The
Bank historically has elected to use the percentage method.
Earnings appropriated to an institution's bad debt reserve and claimed as a
tax deduction are not available 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. For information regarding additions to the tax
bad debt reserves, see Note 10 to Financial Statements.
The Bank's federal corporate income tax returns have not been audited in
the last five years.
State Income Taxation
The State of Delaware imposes no income or franchise taxes on savings
institutions. The Bank is subject to an annual Kentucky ad valorem tax based on
a calendar year and due before the following July 1. This tax is 0.1% of the
Bank's savings accounts, common stock, capital and retained income with certain
deductions allowed for amounts borrowed by depositors and for securities
guaranteed by the U.S. Government or certain of its agencies. For the 1997
calendar year, the amount of such expense is expected to be approximately
$105,000.
65
<PAGE>
MANAGEMENT OF THE COMPANY
The Board of Directors of the Company consists of the same individuals who
serve as directors or officers of the Bank. Their biographical information is
set forth under "Management of the Bank -- Directors." The Board of Directors
of the Company is divided into three classes. Directors of the Company will
serve for three year terms or until their successors are elected and qualified,
with approximately one-third of the directors being elected at each annual
meeting of stockholders, beginning with the first annual meeting of stockholders
following the Conversion. Their terms will be identical to their terms as
directors of the Bank.
The following individuals hold the offices in the Company set forth below
opposite their names.
<TABLE>
<CAPTION>
Name Title
---- -----
<S> <C>
Bruce Thomas President and Chief Executive Officer
Peggy R. Noel Vice President, Chief Financial Officer
and Treasurer
Boyd M. Clark Vice President and Secretary
</TABLE>
The executive officers of the Company are elected annually and hold office
until their respective successors have been elected and qualified or until
death, resignation or removal by the Board of Directors of the Company.
Since the formation of the Company, none of the executive officers,
directors or other personnel have received remuneration from the Company.
Information concerning the principal occupations, employment and compensation of
the directors and officers of the Company during the past five years is set
forth under "Management of the Bank -- Directors." Executive officers and
directors of the Company will be compensated as described below under
"Management of the Bank."
MANAGEMENT OF THE BANK
Directors
Because the Bank is a mutual savings bank, its members have elected its
Board of Directors. Upon completion of the Conversion, each director of the Bank
immediately prior to the Conversion will continue to serve as a director of the
Bank. The term of each director is three years, and approximately one-third of
the members of the Board of Directors are elected each year. The Conversion will
not affect the classes or terms of the existing directors. Because the Company
will own all the issued and outstanding capital stock of the Bank following the
Conversion, the Board of Directors of the Company will elect the directors of
the Bank.
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<PAGE>
The following table sets forth certain information with respect to the
individuals who serve currently as members of the Bank's Board of Directors.
There are no arrangements or understandings between the Bank and any director
pursuant to which such person has been elected a director of the Bank, and no
director is related to any other director or executive officer by blood,
marriage or adoption.
<TABLE>
<CAPTION>
Term
Age at Director to
Name June 30, 1997 Since Expire
- ------------------------------------------------- -------------------- --------------- ------------
<S> <C> <C> <C>
WD Kelley
Chairman of the Board 77 1972 1998
Bruce Thomas
President and Chief Executive Officer 59 1990 2000
Peggy R. Noel
Executive Vice President, Chief Financial
Officer and Chief Operations Officer 59 1995 2000
Boyd M. Clark
Senior Vice President -- Loan Administration 51 1990 1999
Clifton H. Cochran 76 1977 1998
Drury R. Embry 77 1969 2000
Walton G. Ezell 63 1965 1998
John Noble Hall, Jr. 76 1962 1999
Chester K. Wood 88 1957 1999
</TABLE>
Presented below is certain information concerning the directors of the
Bank. Unless otherwise stated, all directors have held the positions indicated
for at least the past five years.
WD Kelley. Prior to his retirement in 1980, Mr. Kelley served as
Superintendent of Schools for Christian County, Kentucky. Mr. Kelley currently
serves as Chairman of the Board of Directors of the Bank, a position he has held
since 1995. He also serves as Chairman of the Board of Directors of the Company.
Bruce Thomas. Mr. Thomas has served as President and Chief Executive
Officer of the Bank since 1992. He has been an employee of the Bank since 1962.
Mr. Thomas also serves as President and Chief Executive Officer of the Company.
Peggy R. Noel. Ms. Noel has served as Executive Vice President, Chief
Financial Officer and Chief Operations Officer of the Bank since 1990. She has
been an employee of the Bank since 1966. Ms. Noel also serves as Vice President,
Chief Financial Officer and Treasurer of the Company.
Boyd M. Clark. Mr. Clark has served as Senior Vice President -- Loan
Administration of the Bank since 1995. Prior to his current position, Mr. Clark
served as First Vice President of the Bank. He has been an employee of the Bank
since 1973. Mr. Clark also serves as Vice President and Secretary of the
Company.
Clifton H. Cochran. Prior to his retirement in 1982, Mr. Cochran was in the
retail clothing business.
Drury R. Embry. Prior to his retirement in 1996, Mr. Embry was Farm
Director of WHOP, a radio station in Hopkinsville, Kentucky.
Walton G. Ezell. Mr. Ezell is a self-employed farmer engaged in the
production of grain in Christian County, Kentucky.
John Noble Hall, Jr. Prior to his retirement in 1980, Mr. Hall was a real
estate agent.
Chester K. Wood. Prior to his retirement in 1968, Mr. Wood was a
pharmacist.
67
<PAGE>
Committees of the Board of Directors
The Board of Directors of the Bank meets monthly and may have additional
special meetings. During the year ended December 31, 1996, the Board met 12
times. No director attended fewer than 75% in the aggregate of the total number
of Board meetings held during the year ended December 31, 1996 and the total
number of meetings held by committees on which he served during such fiscal
year. The Bank's Board of Directors has standing Executive, Audit and Finance,
Personal-Compensation, Investments and Building Committees.
The Bank's Executive Committee consists of directors Kelley, Thomas, Ezell
and Wood and is authorized to take actions it deems necessary or appropriate
between regular meetings of the Board. The Executive Committee was established
in 1997.
The Board of Directors' Audit and Finance Committee consists of directors
Ezell, Kelley and Cochran. The Audit and Finance Committee did not meet during
the year ended December 31, 1996. The Audit and Finance Committee is authorized
to examine and approve the audit report prepared by the independent auditors of
the Bank, to review and recommend the independent auditors to be engaged by the
Bank, to review the internal audit function and internal accounting controls,
and to review and approve conflict of interest and audit policies. Following the
Conversion, it is expected that the Audit and Finance Committee will meet at
least quarterly.
The Bank's Nominating Committee for the year ended December 31, 1996
consisted of directors Clark, Cochran and Wood, and is responsible for
considering potential nominees to the Board of Directors. During the year ended
December 31, 1996, the Nominating Committee met one time. Following the
Conversion, it is expected that the Company's full Board of Directors will act
as a nominating committee for selecting the management nominees for election as
directors of the Company in accordance with the Company's Bylaws. In its
deliberations, the Board, functioning as a nominating committee, considers the
candidate's knowledge of the banking business and involvement in community,
business and civic affairs, and also considers whether the candidate would
provide for adequate representation of its market area.
The Bank's Personnel and Compensation Committee consists of directors Hall,
Embry and Cochran. The Personnel and Compensation Committee evaluates the
compensation and benefits of the directors, officers and employees, recommends
changes, and monitors and evaluates employee performance. All compensation
decisions are made by the full Board of Directors. However, directors who are
also employees of the Bank abstain from voting and are not present during
discussions of the Board on matters relating to their employee compensation. The
Personnel and Compensation Committee met one time during the fiscal year ended
December 31, 1996.
Executive Compensation
The following table sets forth the cash and noncash compensation for the
last fiscal year awarded to or earned by the Chief Executive Officer. No
executive officer of the Company earned salary and bonus in the year ended
December 31, 1996 exceeding $100,000 for services rendered in all capacities to
the Bank.
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------------
Other Annual All Other
Name Year Salary(1) Bonus Compensation(2) Compensation
---- ---- --------- ----- --------------- ------------
<S> <C> <C> <C> <C> <C>
Bruce Thomas 1996 $70,000 $3,500 $ -- $ --
President and Chief 1995 70,900 **3 -- **4 -- --
Executive Officer 1994 70,250 -- -- --
</TABLE>
- ---------------
(1) Mr. Thomas' current base salary is $93,500. See "--Employment Agreements."
(2) Executive officers of the Bank receive indirect compensation in the form of
certain perquisites and other personal benefits. The amount of such
benefits received by the named executive officers in the year ended
December 31, 1996 did not exceed 10% of each of the executive officer's
respective salary and bonus.
68
<PAGE>
Director Compensation
The Bank's non-employee directors receive a fee of $550 per meeting
attended plus all non-employee directors receive a retainer of $250 per month.
The Chairman of the Board receives a fee of $650 per meeting attended. Non-
employee directors of the Bank also receive a fee of $275 per committee meeting
attended. During the year ended December 31, 1996, the Bank's non-employee
directors' fees totaled $69,950.
Certain Benefit Plans and Agreements
In connection with the Conversion, the Company's and the Bank's Boards of
Directors have approved certain stock incentive plans and employment agreements.
Basis for Awards of Benefits and Compensation. The Company's and the Bank's
Boards of Directors have evaluated and approved the terms of the employment
agreements and other benefits described below. In its review of the benefits and
compensation of the executive officers and the terms of the employment
agreement, the Boards of Directors considered a number of factors, including the
experience, tenure and ability of the executive officers, their performance for
the Bank during their tenure and the various legal and regulatory requirements
regarding the levels of compensation which may be paid to employees of savings
associations.
Pension Plan. The Bank maintains a non-contributory, defined benefit
pension plan (the "Pension Plan") for the benefit of employees who are 21 years
of age and have completed one year of service with the Bank. The benefits are
based on years of service and the employee's average final compensation, which
is computed using the five consecutive years prior to retirement that yield the
highest average. The normal retirement benefit is equal to 1.75% of average
final compensation, multiplied by service not in excess of 35 years. The normal
retirement date is age 65 and completion of five years of participation in the
Pension Plan or age 60 with 30 years of vesting service, if earlier. The Pension
Plan also provides for early retirement benefits beginning at age 55 and
completion of 10 years of service, and for death benefits.
The following table illustrates the maximum estimated annual benefits
payable upon retirement pursuant to the Pension Plan based upon the Pension Plan
formula for specified average final compensation and specified years of service.
<TABLE>
<CAPTION>
Years of Service
Average Final ---------------------------------------------------------------
Compensation 15 20 25 30 35
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 20,000...................... $ 5,250 $ 7,000 $ 8,750 $10,500 $12,250
40,000...................... 10,500 14,000 17,500 21,000 24,500
60,000...................... 15,750 21,000 26,250 31,500 36,750
80,000...................... 21,000 28,000 35,000 42,000 49,000
100,000...................... 26,250 35,000 43,750 52,500 61,250
</TABLE>
Benefits are hypothetical amounts only. Currently, the maximum annual
benefit payable under the Pension Plan is $98,000. Also, compensation in excess
of $160,000 is not covered under the Pension Plan. "Average final compensation
is based upon compensation that would appear under the "Salary" column of the
Summary Compensation Table. As of December 31, 1996, Mr. Thomas had 34.3 years
of credited service under the Pension Plan. Benefits set forth in the preceding
table are computed as a straight-life annuity and are unaffected by payments
expected to be made to employees by Social Security. See Note 9 of Notes to
Financial Statements.
Pursuant to the Pension Plan, employees who terminate employment or who
have qualified for normal retirement may elect to receive a lump sum payment of
vested Pension Plan benefits. Such a payment to a qualified employee may be for
either 100% or 50% of the vested amount, at the employee's discretion. As of
August 31, 1997, only Mr. Thomas had satisfied the conditions for normal
retirement. As of such date, if Mr. Thomas had elected to receive a lump sum
distribution of 100% of his vested benefit, the Bank estimates that such a
distribution would have reduced the Bank's net income by approximately $95,000,
net of tax. Two other employees of the Bank, whose vested benefits are less
than those of Mr. Thomas, will be eligible for normal retirement under the
Pension Plan in the first quarter of 1998 and 1999.
69
<PAGE>
Stock Option Plan. The Board of Directors of the Company intends to submit
the Option Plan for approval to stockholders at a meeting which is expected to
be held not earlier than six months following completion of the Conversion. No
options shall be awarded under the Option Plan unless stockholder approval is
obtained.
The purpose of the Option Plan is to provide additional incentive to
directors and employees by facilitating their purchase of the Common Stock. The
Option Plan will have a term of 10 years from the date of its approval by the
Company's stockholders, after which no awards may be made, unless the plan is
earlier terminated by the Board of Directors of the Company. Pursuant to the
Option Plan, a number of options to purchase shares equal to 10% of the shares
of Common Stock that are issued in the Conversion (265,000 shares at the
midpoint of the Estimated Valuation Range) would be reserved for future issuance
by the Company, in the form of newly issued shares or treasury shares or shares
held in a grantor trust, upon exercise of stock options ("Options") or stock
appreciation rights ("SARs"). Options and SARs are collectively referred to
herein as "Awards." If Awards should expire, become unexercisable or be
forfeited for any reason without having been exercised or having become vested
in full, the shares of Common Stock subject to such Awards would be available
for the grant of additional Awards under the Option Plan, unless the Option Plan
shall have been terminated.
It is expected that the Option Plan will be administered by a committee
(the "Option Committee") of at least two directors of the Company who (i) are
designated by the Board of Directors and (ii) are Non-employee Directors within
the meaning of the federal securities laws. The Option Committee will
select the employees to whom Awards are to be granted, the number of shares to
be subject to such Awards, and the terms and conditions of such Awards (provided
that any discretion exercised by the Option Committee must be consistent with
the terms of the Option Plan). Awards will be available for grants to directors
and key employees of the Company and any subsidiaries, except that non-employee
directors will not be eligible to receive discretionary Awards. Consistent with
applicable regulations, if the Option Plan is implemented within one year
following completion of the Conversion, no employee will receive Awards covering
more than 25% of the shares reserved for issuance under the Option Plan, and
non-employee directors will not receive awards individually exceeding 5% of the
shares available under the Option Plan or 30% in the aggregate. It is expected
that upon the implementation of the Option Plan, Bruce Thomas, Peggy R. Noel and
Boyd M. Clark will receive Awards with respect to 20%, 18% and 12%,
respectively, of the shares reserved under the Option Plan (53,000 shares,
47,700 shares and 31,800 shares, respectively, at the midpoint of the Estimated
Valuation Range) and each director who is not an employee but is a director on
the effective date will receive an Award with respect to the lesser of (i) 5% of
the shares reserved under the Option Plan, and (ii) 30% of the shares reserved
under the Option Plan divided by the number of directors eligible to receive an
Award on the effective date. In addition, the Company currently plans to grant
options to purchase 48,000 shares of Common Stock to four officers of the Bank
who are not executive officers. The initial grant of Options under the Option
Plan is expected to occur on the date the Option Plan receives stockholder
approval.
It is intended that Options granted under the Option Plan will constitute
both incentive stock options (Options that afford favorable tax treatment to
recipients upon compliance with certain restrictions pursuant to Section 422 of
the Code and that do not result in tax deductions to the Company unless
participants fail to comply with Section 422 of the Code) ("ISOs"), and Options
that do not so qualify ("Non-ISOs"). The exercise price for Options may not be
less than 100% of the fair market value of the shares on the date of the grant.
The Option Plan permits the Option Committee to impose transfer restrictions,
such as a right of first refusal, on 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 10 years from the
date it is granted; provided, however, that in the case of any employee who owns
more than 10% of the outstanding Common Stock at the time an ISO is granted, the
option price for the ISO shall not be less than 110% of the fair market value of
the shares on the date of the grant, and the ISO shall not be exercisable after
the expiration of five years from the date it is granted. If the Option Plan is
implemented within one year after completion of the Conversion, Options are
expected to become exercisable at the rate of 20% per year, beginning one year
from the date of grant. If an optionee dies or terminates service due to
disability while serving as an employee or non-employee director, all unvested
Options will become 100% vested and immediately exercisable. If the Option Plan
is implemented more than one year after the completion of the Conversion,
(i) Options may become exercisable according to a different schedule and
(ii) the Options may also accelerate to 100% upon an optionee's retirement or
termination of service in connection with a change in control. Upon a
participant's exercise of an Option, the Company may, if provided by the
Committee in the underlying Option agreement, pay to the participant a cash
amount up to but not exceeding the amount of dividends, if any, declared on the
underlying shares between the date of grant and the date of exercise of the
Option. An otherwise unexpired Option shall, unless otherwise determined by the
Option
70
<PAGE>
Committee, cease to be exercisable upon (i) an employee's termination of
employment for "just cause" (as defined in the Option Plan), (ii) the date one
year after an employee terminates service for a reason other than just cause,
death, or disability, or (iii) the date two years after termination of such
service due to the employee's death. Options granted to non-employee directors
will automatically expire one year after termination of service on the Board of
Directors (two years in the event of death).
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 at the time it was granted. Payment to the optionee
may be made in cash or shares of Common Stock, as determined by the Option
Committee.
The Company will receive no monetary consideration for the granting of
Awards under the Option Plan, and will receive no monetary consideration other
than the Option exercise price for each share issued to optionees upon the
exercise of Options. The Option exercise price may be paid in cash or Common
Stock or a combination of cash and Common Stock. Upon an optionee's exercise of
any Option, the Company intends to pay the optionee a cash amount equal to any
dividends declared on the underlying shares between the date of grant and the
date of exercise of the Option. The exercise of Options and SARs will be
subject to such terms and conditions established by the Option Committee as are
set forth in a written agreement between the Option Committee and the optionee
(to be entered into at the time an Award is granted). In the event that the
fair market value per share of the Common Stock falls below the option price of
previously granted Options or SARs, the Option Committee will have the
authority, with the consent of the optionee, to cancel outstanding Options or
SARs and to reissue new Options or SARs at the then current fair market price
per share of the Common Stock.
At any time following consummation of the Conversion, the Bank or the
Company may contribute sufficient funds to a grantor trust to purchase, and such
trust may purchase, a number of shares of Common Stock equal to 10% of the
shares issued in the Conversion. Such shares would be held by the trust for
issuance to option holders upon the exercise of options in the event the Option
Plan is implemented. Whether such shares are purchased, and the timing of such
purchases, will depend on market and other conditions and the alternative uses
of capital available to the Company.
Employee Stock Ownership Plan. In connection with the Conversion, the
Company's Board of Directors has adopted an employee stock ownership plan
("ESOP"), effective as of January 1, 1997. 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 with no cost to participants. The ESOP
intends to borrow funds from the Company in an amount sufficient to purchase
8.0% of the Common Stock issued in the Conversion. This loan will be secured by
the shares of Common Stock purchased with loan proceeds and earnings thereon.
Shares purchased with such loan proceeds will be held in a suspense account for
allocation among participants as the loan is repaid. The Company expects to
contribute sufficient funds to the ESOP to repay such loan plus such other
amounts as the Company's Board of Directors may determine in its discretion.
Contributions to the ESOP and shares released from the suspense account will be
allocated among participants on the basis of their annual wages subject to
federal income tax withholding, plus any amounts withheld under a plan qualified
under Sections 125 or 401(k) of the Code and sponsored by the Company or the
Bank. Participants must be employed at least 500 hours in a calendar year in
order to receive an allocation. A participant becomes vested in his or her
right to ESOP benefits upon his or her completion of three years of service.
For vesting purposes, a year of service means any calendar year in which an
employee completes at least 1,000 hours of service, whether before or after the
ESOP's 1997 effective date. Vesting will be accelerated to 100% upon a
participant's attainment of age 65, death, disability or a change in control of
the Company or the Bank. Forfeitures will be reallocated to participants on the
same basis as other contributions. Benefits are payable upon a participant's
retirement, death, disability, or separation from service, and will be paid in a
lump sum in whole shares of Common Stock (with cash paid in lieu of fractional
shares). Benefits paid to a participant in Common Stock that is not publicly
traded on an established securities market will be subject both to a right of
first refusal by the Company, and to a put option by the participant. Dividends
paid on allocated shares are expected to be paid to participants or used to
repay the ESOP loan, and dividends on unallocated shares are expected to be used
to repay the ESOP loan.
71
<PAGE>
It is expected that the Company will administer the ESOP and that certain
of the directors will be appointed as trustees of the ESOP (the "ESOP
Trustees"). The ESOP Trustees must vote all allocated shares held in the ESOP
in accordance with the instructions of the participants. Unallocated shares and
allocated shares for which no timely direction is received will be voted by the
ESOP Trustees in the same proportion as the participant-directed voting of
allocated shares.
Management Recognition Plan. The Company's Board of Directors intends to
submit the MRP for approval to stockholders at a meeting of the Company's
stockholders, which is expected to be held not earlier than six months following
completion of the Conversion. The purpose of the MRP is to enable the Company
and the Bank to retain personnel of experience and ability in key positions of
responsibility. Those eligible to receive benefits under the MRP will be such
directors and key employees as are selected by a committee the Company's Board
of Directors (the "MRP Committee"). Company's directors are expected to act by
majority as trustees of the trust associated with the MRP (the "MRP Trust").
The trustees of the MRP Trust (the "MRP Trustees") will have the responsibility
to hold and invest all funds contributed to the MRP Trust. Shares held in the
MRP Trust will be voted by the MRP Trustees in the same proportion as the
trustee of the Company's ESOP trust votes Common Stock held therein, and will be
distributed as the award vests.
At any time following consummation of the Conversion, the Bank or the
Company will contribute sufficient funds to the MRP Trust so that the MRP Trust
can purchase a number of shares of Common Stock equal to up to a 4.0% of the
number of shares of Common Stock issued in the Conversion (106,000 shares at the
midpoint of the Estimated Valuation Range). Whether such shares purchased will
be purchased in the open market or newly issued by the Company, and the timing
of such purchases, will depend on market and other conditions and the
alternative uses of capital available to the Company. The compensation expense
for the Company for MRP awards will equal the fair market value of the Common
Stock on the date of the grant pro rated over the years during which vesting
occurs. The shares awarded pursuant to the MRP will be in the form of awards
which may be transferred to family members or trusts under specified
circumstances, but may not otherwise be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by the laws of
descent and distribution. If the MRP is implemented within one year following
completion of the Conversion, the MRP awards will be payable over a period
specified by the Board of Directors, which shall not be faster than 20% per
year, beginning one year from the date of the award. Participants in the MRP
may elect to defer all or a percentage of their MRP awards that would have
otherwise been transferred to the participants upon the vesting of said awards.
Dividends on unvested shares will be held in the MRP trust for payment as
vesting occurs. All shares subject to an MRP award held by a participant whose
service with the Company or the Bank terminates due to death or disability,
shall be deemed 100% vested as of the participant's last day of service with the
Bank or Company. If the MRP is implemented more than one year after the closing
of the Conversion, Awards may become vested according to a different schedule,
and it is expected that the awards will also become 100% vested upon a
participant's retirement or termination of service with the Bank or the Company
in connection with a change in control of the Bank or the Company. If a
participant terminates employment for reasons other than death or disability (or
retirement or a change in control, if applicable), he or she forfeits all rights
to the allocated shares under restriction.
The Company's Board of Directors can terminate the MRP at any time, and, if
it does so, any shares not allocated will revert to the Company. If the MRP is
implemented within one year following consummation of the Conversion, no
employee will receive MRP awards covering more than 25% of the shares reserved
for issuance under the MRP, and non-employee directors will not receive awards
individually exceeding 5% of the shares available under the MRP or 30% in the
aggregate. It is expected that upon the implementation of the MRP, Bruce
Thomas, Peggy R. Noel and Boyd M. Clark will receive Awards with respect to 20%,
18% and 12%, respectively, of the shares reserved under the MRP (21,200 shares,
19,080 shares and 12,720 shares, respectively, at the midpoint of the Estimated
Valuation Range) and each director who is not an employee but is a director on
the effective date shall receive an Award with respect to the lesser of (i) 5%
of the shares reserved under the MRP, and (ii) 30% of the shares reserved under
the MRP divided by the number of directors eligible to receive an Award on the
effective date. The initial grant of awards under the MRP is expected to occur
on the date the MRP receives stockholder approval. No awards shall be made
prior to stockholder approval of the MRP.
Employment Agreements. The Company and the Bank intend to enter into
employment agreements (the "Employment Agreements") with the following officers
of the Company and the Bank: Bruce Thomas, President and Chief Executive
Officer of the Company and the Bank; Peggy R. Noel, Vice President, Chief
Financial Officer and Treasurer of the Company and Executive Vice President,
Chief Financial Officer and Chief Operations Officer of the Bank; and Boyd M.
Clark, Vice President and Secretary of the Company and Senior Vice President --
Loans Administration of the Bank
72
<PAGE>
(collectively, the "Employees"). Such Boards believe that the Employment
Agreements assure fair treatment of the Employee in his career with the Company
and the Bank by assuring him of some financial security.
The Employment Agreements will become effective for a term of one year,
with an annual base salary equal to the Employees' current base salaries. See
"-- Executive Compensation." On each anniversary date of the commencement of
the Employment Agreements, the term of each Employee's employment may 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
Employees has met the required performance standards and that such Employment
Agreements should be extended. The Employment Agreements provide the Employees
with a salary review by the Board of Directors not less often than annually, as
well as with inclusion in any discretionary bonus plans, retirement and medical
plans, customary fringe benefits, vacation and sick leave. The Employment
Agreements shall terminate upon the Employee's death, may terminate upon the
Employee's disability and are terminable by the Bank for "just cause" (as
defined in the Employment Agreements). In the event of termination for just
cause, no severance benefits are available. If the Company or the Bank
terminates any of the Employees without just cause, the Employee will be
entitled to a continuation of his or her salary and benefits from the date of
termination through the remaining term of the Employment Agreements and, at the
Employee's election, either continued participation in benefit plans which the
Employee would have been eligible to participate in through the Employment
Agreements' expiration date or the cash equivalent thereof. If the Employment
Agreements are terminated due to the Employee's "disability" (as defined in the
Employment Agreements), the Employee will be entitled to a continuation of his
or her salary and benefits through the date of such termination, including any
period prior to the establishment of the Employee's disability. In the event of
the Employee's death during the term of the Employment Agreements, his or her
estate will be entitled to receive his or her salary through the last day of the
calendar month in which the Employee's death occurred. Each of the Employees is
able to voluntarily terminate his or her Employment Agreements by providing 60
days prior written notice to the Boards of Directors of the Bank and the
Company, in which case the Employee is entitled to receive only his or her
compensation, vested rights, and benefits accrued up to the date of termination.
In the event of the Employee's involuntary termination of employment other
than for "just cause" within 12 months after a change in control of the Company
or the Bank which has not been approved in advance by a two-thirds vote of the
full Board of Directors of each of the Company and the Bank, the Employee will
be paid within 10 days of such termination 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. The term "change in control" is
defined in the Employment Agreements to mean (i) a change in the ownership,
holding or power to vote more than 25% of the Bank's or Company's voting stock,
(ii) a change in the ownership or possession of the ability to control the
election of a majority of the Bank's or Company's directors, or (iii) a change
in the ownership or possession of the ability to exercise a controlling
influence over the management or policies of the Bank or the Company by any
person or by persons acting as a group within the meaning of Section 13(d) of
the Exchange Act. The aggregate payment that would be made to Mr. Thomas
assuming his termination of employment under the foregoing circumstances at
April 1, 1997 would have been approximately $204,000. These provisions may have
an anti-takeover effect by making it more expensive for a potential acquiror to
obtain control of the Company. For more information, see "Certain Anti-Takeover
Provisions in the Certificate of Incorporation and Bylaws -- Additional Anti-
Takeover Provisions." In the event that the Employee prevails over the Company
and the Bank, or obtains a written settlement, in a legal dispute as to the
Employment Agreement, the Employee will be reimbursed for his or her legal and
other expenses.
Transactions with Management
The Bank offers loans to its directors and officers. These loans currently
are made in the ordinary course of business with the same collateral, interest
rates and underwriting criteria as those of comparable transactions prevailing
at the time and to not involve more than the normal risk of collectibility or
present other unfavorable features. Under current law, the Bank's loans to
directors and executive officers are required to be made on substantially the
same terms, including interest rates, as those prevailing for comparable
transactions and must not involve more than the normal risk of repayment or
present other unfavorable features. No loans to directors and officers have
terms more favorable than might be otherwise offered to customers. See Note 11
of Notes to Financial Statements.
In July 1996, the Bank purchased a real estate lot in Cadiz, Kentucky, from
the brother of Bruce Thomas, President and a director of the Bank. The purchase
price for the lot was $75,000 and was based on an independent appraisal of the
property. The Bank's Cadiz branch office will be relocated to a building which
will be constructed on the lot. See "Business of the Bank -- Offices and Other
Material Properties."
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THE CONVERSION
The OTS has approved the Plan, subject to the Plan's approval by the
members of the Bank entitled to vote on the matter and subject to the
satisfaction of certain other conditions imposed by the OTS in its approval.
Approval by the OTS, however, does not constitute a recommendation or
endorsement of the Plan.
General
On May 21, 1997, the Board of Directors of the Bank unanimously adopted,
subject to approval by the OTS and the members of the Bank, the Plan, pursuant
to which the Bank would convert from a federal mutual savings bank to a federal
capital stock savings bank as a wholly owned subsidiary of the Company. The OTS
has approved the Plan, subject to its approval by the members of the Bank at the
Special Meeting called for that purpose to be held on ____________, 1997.
The Plan supersedes a plan of conversion which was previously adopted by
the Board of Directors of the Bank on January 15, 1997, and terminated on May
21, 1977. The Board of Directors took such action in order to comply with
certain federal regulations.
The Conversion will be accomplished through the amendment of the Bank's
existing Federal Mutual Charter and Bylaws to read in the form of a Federal
Stock Charter and Bylaws to authorize the issuance of capital stock by the Bank,
the issuance of all the Bank's capital stock to be outstanding upon consummation
of the Conversion to the Company and the offer and sale of the Common Stock of
the Company. Upon issuance of the Bank's shares of capital stock to the
Company, the Bank will be a wholly owned subsidiary of the Company.
The Company has received approval from the OTS to become the holding
company of the Bank subject to the satisfaction of certain conditions and to
acquire all of the common stock of the Bank to be issued in the Conversion in
exchange for at least 50% of the net proceeds from the sale of the Common Stock
in the Conversion. The Conversion will be effected only upon completion of the
sale of all of the shares of Common Stock to be issued by the Company pursuant
to the Plan.
The aggregate purchase price of the Common Stock to be issued in the
Conversion will be within the Estimated Valuation Range of between $22,525,000
and $30,475,000, which may be increased to $35,046,250, based upon an
independent appraisal of the estimated pro forma market value of the Common
Stock prepared by National Capital. All shares of Common Stock to be issued and
sold in the Conversion will be sold at the same price. The independent
appraisal will be updated, if necessary, and the final aggregate purchase price
of the shares of Common Stock will be determined at the completion of the
Subscription and Community Offerings. National Capital is experienced in the
valuation and appraisal of financial institutions. For additional information,
see " -- Stock Pricing and Number of Shares to be Issued."
The following is a brief summary of material aspects of the Conversion.
The summary is qualified in its entirety by reference to the provisions of the
Plan. A copy of the Plan is available for inspection at the office of the Bank
and at the office of the OTS. The Plan is also filed as an exhibit to the
Registration Statement of which this Prospectus is a part, copies of which may
be obtained from the SEC. See "Additional Information."
Offering of the Common Stock
Under the Plan, the Company is offering shares of Common Stock first to the
Bank's Eligible Account Holders, second to the ESOP, third to Supplemental
Eligible Account Holders and fourth to its Other Members who are not Eligible
Account Holders or Supplemental Eligible Account Holders in the Subscription
Offering. Subscription Rights received in any of the foregoing categories will
be subordinated to the Subscription Rights received by those in a prior
category, with the exception that any shares of Common Stock sold in excess of
the maximum of the Estimated Valuation Range may first be sold to the ESOP. To
the extent shares remain available for purchase after the Subscription Offering,
the Company may offer any such remaining shares to the general public in the
Community Offering. In the Community Offering, preference will be given to
natural persons and trusts of natural persons who are permanent residents of the
Local Community. The term "resident" as used in relation to the preference
afforded natural persons in the Local Community means any natural person who
occupies a dwelling within the Local Community, has an intention to remain
within the Local Community for a
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period of time (manifested by establishing a physical, ongoing, nontransitory
presence within the Local Community) and continues to reside in the Local
Community at the time of the Subscription and Community Offerings. The Bank may
utilize deposit or loan records or such other evidence provided to it to make
the determination whether a person is residing in the Local Community. To the
extent the person is a corporation or other business entity, the principal place
of business or headquarters shall be within the Local Community. To the extent
the person is a personal benefit plan, the circumstance of the beneficiary shall
apply with respect to this definition. In the case of all other benefit plans,
circumstances of the trustee shall be examined for purposes of this definition.
In all cases, however, such determination shall be in the sole discretion of the
Bank. The occurrence of the Community Offering is subject to the availability of
shares of Common Stock for purchase after satisfaction of all subscriptions in
the Subscription Offering. Additionally, all purchases in the Community Offering
are subject to the maximum and minimum purchase limitations set forth in the
Plan and the right of the Company to reject any such orders, in whole or in
part.
As part of the Community Offering, the Plan provides that, if feasible, all
shares of Common Stock not purchased in the Subscription and Community
Offerings, if any, may be offered for sale to the general public in a Syndicated
Community Offering through selected dealers to be formed and managed by IBS.
See " -- Syndicated Community Offering."
If the Community Offering and Syndicated Community Offering are determined
not to be feasible, the Bank will immediately consult with the OTS to determine
the most viable alternative available to effect the completion of the
Conversion. Should no viable alternative exist, the Bank may terminate the
Conversion with the concurrence of OTS. The Plan provides that the Conversion
must be completed within 24 months after the date of the approval of the Plan by
the members of the Bank. In the event that the Conversion is not effected, the
Bank will remain a federal mutual savings bank, all subscription funds will be
promptly returned to subscribers with interest earned thereon and all withdrawal
authorizations will be canceled. The completion of the Conversion is subject to
market conditions and other factors beyond the Bank's control. No assurance can
be given as to the length of time after approval of the Plan at the Special
Meeting that will be required to complete the sale of the Common Stock to be
offered in the Conversion. If delays are experienced, significant changes may
occur in the estimated pro forma market value of the Company and the Bank upon
consummation of the Conversion, together with corresponding changes in the
offering price and the net proceeds realized by the Bank from the sale of the
Common Stock. The Bank would also incur substantial additional printing, legal
and accounting expenses in completing the Conversion. In the event the
Conversion is terminated, the Bank would be required to charge all Conversion-
related expenses against current income.
Business Purposes
The Bank's Board of Directors has formed the Company to serve upon
consummation of the Conversion as a holding company with the Bank as its
subsidiary. The portion of the net proceeds from the sale of the Common Stock
in the Conversion to be distributed to the Bank by the Company will
substantially increase the Bank's capital position which will in turn increase
the amount of funds available for lending and investment, provide a "cushion" to
compensate for the Bank's negative interest rate risk position, and provide
greater resources to support both current operations and future expansion by the
Bank, although there are no current agreements or understandings for such
expansion. The holding company structure will provide greater flexibility than
the Bank alone would have for diversification of business activities and
geographic expansion. Management believes that this increased capital and
operating flexibility will enable the Bank to compete more effectively with
other types of financial services organizations. In addition, the Conversion
will also enhance the future access of the Company and the Bank to the capital
markets.
The potential impact of Conversion upon the Bank's capital base is
significant. The Bank had total equity in accordance with generally accepted
accounting principles of $18.3 million, or 9.02% of assets, at June 30, 1997.
Assuming approximately $26.5 million (based on the sale of 2,650,000 shares of
Common Stock at the midpoint of the Estimated Valuation Range) of net proceeds
are realized from the sale of the Common Stock (see "Pro Forma Data"), and after
deducting amounts necessary to fund the ESOP and MRP, the Company's consolidated
stockholders' equity would have been approximately $40.9 million as of June 30,
1997. See "Capitalization." The Bank's ratio of tangible capital to adjusted
total assets would increase to 11.8% after the Conversion. See "Historical and
Pro Forma Regulatory Capital Compliance." The investment of the net proceeds
from the sale of the Common Stock will provide the Bank with additional income
to further increase its capital position. The additional capital may also assist
the Bank in offering new programs and expanded services to its customers.
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After completion of the Conversion, the unissued Common Stock and preferred
stock authorized by the Company's Certificate of Incorporation will permit the
Company, subject to market conditions, to raise additional equity capital
through further sales of securities and to issue securities in connection with
possible acquisitions. At the present time, the Company has no plans with
respect to additional offerings of securities, other than the issuance of
additional shares under the MRP or Option Plan, if implemented. Following
completion of Conversion, the Company also will be able to use stock-related
incentive programs to attract and retain executive and other personnel for
itself and its subsidiaries. See "Management of the Bank -- Certain Benefit
Plans and Agreements."
Effect of Conversion to Stock Form on Depositors and Borrowers of the Bank
General. Each depositor in a mutual savings institution such as the Bank
has both a deposit account and a pro rata interest in the retained earnings of
that institution based upon the balance in his or her deposit account. However,
this interest is tied to the depositor's account and has no tangible market
value separate from such deposit account. Any other depositor who opens a
deposit account obtains a pro rata interest in the retained earnings of the
institution without any additional payment beyond the amount of the deposit. A
depositor who reduces or closes his or her account receives a portion or all of
the balance in the account but nothing for his or her ownership interest, which
is lost to the extent that the balance in the account is reduced.
Consequently, depositors normally do not have a way to realize the value of
their ownership, which has realizable value only in the unlikely event that the
mutual institution is liquidated. In such event, the depositors of record at
that time, as owners, would share pro rata in any residual retained earnings
after other claims are paid.
Upon consummation of the Conversion, permanent nonwithdrawable capital
stock will be created to represent the ownership of the institution. The stock
is separate and apart from deposit accounts and is not and cannot be insured by
the FDIC. Transferable certificates will be issued to evidence ownership of the
stock, which will enable the stock to be sold or traded, if a purchaser is
available, with no effect on any account held in the Bank. Under the Plan, all
of the capital stock of the Bank will be acquired by the Company in exchange for
a portion of the net proceeds from the sale of the Common Stock in the
Conversion. The Common Stock will represent an ownership interest in the
Company and will be issued upon consummation of the Conversion to persons who
elect to participate in the Conversion by purchasing the shares being offered.
Continuity. During the Conversion process, the normal business of the Bank
of accepting deposits and making loans will continue without interruption. The
Bank will continue to be subject to regulation by the OTS and the FDIC, and FDIC
insurance of accounts will continue without interruption. After the Conversion,
the Bank will continue to provide services for depositors and borrowers under
current policies and by its present management and staff.
The Board of Directors serving the Bank at the time of the Conversion will
serve as the Board of Directors of the Bank after the Conversion. Following the
Conversion, the Board of Directors of the Company will consist of the
individuals serving on the Board of Directors of the Bank. All officers of the
Bank at the time of the Conversion will retain their positions with the Bank
after the Conversion.
Voting Rights. Upon the completion of the Conversion, depositor and
borrower members as such will have no voting rights in the Bank or the Company
and, therefore, will not be able to elect directors of the Bank or the Company
or to control their affairs. Currently these rights are accorded to depositors
of the Bank. Subsequent to the Conversion, voting rights will be vested
exclusively in the stockholders of the Company which, in turn, will own all of
the stock of the Bank. Each holder of the Common Stock shall be entitled to
vote on any matter to be considered by the stockholders of the Company, subject
to the provisions of the Company's Certificate of Incorporation.
After the Conversion, holders of savings accounts in and obligors on loans
of the Bank will not have voting rights in the Bank. Exclusive voting rights
with respect to the Company shall be vested in the holders of the Common Stock,
holders of savings accounts in and obligors on loans of the Bank and the Bank
will not have any voting rights in the Company except and to the extent that
such persons become stockholders of the Company, and the Company will have
exclusive voting rights with respect to the Bank's capital stock.
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Deposit Accounts and Loans. The Bank's deposit accounts, the balances of
individual accounts and existing federal deposit insurance coverage will not be
affected by the conversion. Furthermore, the Conversion will not affect the
loan accounts, the balances of these accounts and the obligations of the
borrowers under their individual contractual arrangements with the Bank.
Tax Effects. The Bank will receive an opinion from its special counsel,
Reinhart, Boerner, Van Deuren, Norris & Rieselbach, P.C., Washington, D.C., as
to the material federal income tax consequences of the Conversion to the Bank,
and as to the generally applicable material federal income tax consequences of
the Conversion to the Bank's account holders and to persons who purchase Common
Stock in the Conversion. The opinion will provide that the Conversion will
constitute a reorganization for federal income tax purposes under Section
368(a)(1)(F) of the Internal Revenue Code of 1986, as amended ("Code"). Among
other things, the opinion will also provide that: (i) no gain or loss will be
recognized by the Bank in its mutual or stock form by reason of the Conversion;
(ii) no gain or loss will be recognized by its account holders upon the issuance
to them of accounts in the Bank in stock form immediately after the Conversion,
in the same dollar amounts and on the same terms and conditions as their
accounts at the Bank immediately prior to the Conversion; (iii) the tax basis of
each account holder's interest in the liquidation account will be equal to the
value, if any, of that interest; (iv) the tax basis of the Common Stock
purchased in the Conversion will be equal to the amount paid therefor increased,
in the case of the Common Stock acquired pursuant to the exercise of
Subscription Rights, by the fair market value, if any, of the Subscription
Rights exercised; (v) the holding period for Common Stock purchased in the
Conversion will commence upon the exercise of such holder's Subscription Rights
and otherwise on the day following the date of such purchase; and (vi) gain or
loss will be recognized to account holders upon the receipt of liquidation
rights or the receipt or exercise of Subscription Rights in the Conversion, to
the extent such liquidation rights and Subscription Rights are deemed to have
value, as discussed below.
The opinion of Reinhart, Boerner, Van Deuren, Norris & Rieselbach, P.C.,
will be based in part upon, and subject to the continuing validity in all
material respects through the date of the Conversion of, various representations
of the Bank and upon certain assumptions and qualifications, including that the
Conversion is consummated in the manner and according to the terms provided in
the Plan. Such opinion will also be based upon the Code, regulations now in
effect or proposed thereunder, current administrative rulings and practice and
judicial authority, all of which are subject to change and such change may be
made with retroactive effect. Unlike private letter rulings received from the
IRS, an opinion is not binding upon the IRS and there can be no assurance that
the IRS will not take a position contrary to the positions reflected in such
opinion, or that such opinion will be upheld by the courts if challenged by the
IRS.
Reinhart, Boerner, Van Deuren, Norris & Rieselbach, P.C. will advise the
Bank that an interest in a liquidation account has been treated by the IRS, in a
series of private letter rulings which do not constitute formal precedent, as
having nominal, if any, fair market value and therefore it is likely that the
interests in the liquidation account established by the Bank as part of the
Conversion will similarly be treated as having nominal, if any, fair market
value. Accordingly, it is likely that such depositors of the Bank who receive
an interest in such liquidation account established by the Bank pursuant to the
Conversion will not recognize any gain or loss upon such receipt.
Reinhart, Boerner, Van Deuren, Norris & Rieselbach, P.C. will further
advise the Bank that the federal income tax treatment of the receipt of
Subscription Rights pursuant to the Conversion is uncertain, and recent private
letter rulings issued by the IRS have been in conflict. For instance, the IRS
adopted the position in one private ruling that Subscription Rights will be
deemed to have been received to the extent of the minimum pro rata distribution
of such rights, together with the rights actually exercised in excess of such
pro rata distribution, and with gain recognized to the extent of the combined
fair market value of the pro rata distribution of Subscription Rights plus the
Subscription Rights actually exercised. Persons who do not exercise their
Subscription Rights under this analysis would recognize gain upon receipt of
rights equal to the fair market value of such rights, regardless of exercise,
and would recognize a corresponding loss upon the expiration of unexercised
rights that may be available to offset the previously recognized gain. Under
another IRS private ruling, Subscription Rights were deemed to have been
received only to the extent actually exercised. This private ruling required
that gain be recognized only if the holder of such rights exercised such rights,
and that no loss be recognized if such rights were allowed to expire
unexercised. There is no authority that clearly resolves this conflict among
these private rulings, which may not be relied upon for precedential effect.
However, based upon express provisions of the Code and in the absence of
contrary authoritative guidance, Reinhart, Boerner, Van Deuren, Norris &
Rieselbach, P.C. will provide in its opinion that gain will be recognized upon
the receipt rather than the exercise of Subscription Rights. Further, also
based upon a published IRS ruling and consistent with recognition of gain upon
receipt rather than exercise of the Subscription Rights, Reinhart, Boerner, Van
Deuren, Norris & Rieselbach, P.C. will provide in its opinion that the
subsequent exercise
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of the Subscription Rights will not give rise to gain or loss. Regardless of the
position eventually adopted by the IRS, the tax consequences of the receipt of
the Subscription Rights will depend, in part, upon their valuation for federal
income tax purposes.
If the Subscription Rights are deemed to have a fair market value, the
receipt of such rights will be taxable to Eligible Account Holders, Supplemental
Eligible Account Holders and other eligible members who exercise their
Subscription Rights, even though such persons would not have received any cash
from which to pay taxes on such taxable income. The Bank could also recognize a
gain on the distribution of such Subscription Rights in an amount equal to their
aggregate value. In the opinion of National Capital, whose opinion is not
binding upon the IRS, the Subscription Rights do not have any value, based on
the fact that such rights are acquired by the recipients without cost, are non-
transferable and of short duration and afford the recipients the right only to
purchase shares of Common Stock at a price equal to its estimated fair market
value, which will be the same price as the price paid by purchasers in the
Community Offering for unsubscribed shares of Common Stock. Eligible Account
Holders, Supplemental Eligible Account Holders and Other Members are encouraged
to consult with their own tax advisors as to the tax consequences in the event
that the Subscription Rights are deemed to have a fair market value. Because the
fair market value, if any, of the Subscription Rights issued in the Conversion
depends primarily upon the existence of certain facts rather than the resolution
of legal issues, Reinhart, Boerner, Van Deuren, Norris & Rieselbach, P.C., will
neither adopt the opinion of National Capital, as its own nor incorporate such
opinion of National Capital in its opinion issued in connection with Conversion.
The Bank will also receive the opinion of York, Neel & Co.-Hopkinsville,
LLP that the Commonwealth of Kentucky will, for income tax purposes, accord the
Conversion the identical treatment which it receives for federal income tax
purposes.
The Federal And State Income Tax Discussion Set Forth Above Does Not
Purport To Consider All Aspects Of Federal And State Income Taxation Which May
Be Relevant To Each Eligible Account Holder, Supplemental Account Holder And
Other Member Entitled To Special Treatment Under The Internal Revenue Code, Such
As Trusts, Individual Retirement Accounts, Other Employee Benefit Plans,
Insurance Companies And Eligible Account Holders, Supplemental Eligible Account
Holders And Other Members Who Are Not Citizens Or Residents Of The United
States. Due To The Individual Nature Of Tax Consequences, Each Eligible Account
Holder, Supplemental Eligible Account Holder And Other Member Is Urged To
Consult His Or Her Own Tax And Financial Advisor As To The Effect Of Such
Federal And State Income Tax Consequences On His Or Her Own Particular Facts And
Circumstances, Including The Receipt And Exercise Of Subscription Rights, And
Also As To Any Other Tax Consequences Arising Out Of The Conversion.
Liquidation Account. In the unlikely event of a complete liquidation of
the Bank in its present mutual form, each holder of a deposit account in the
Bank would receive his pro rata share of any assets of the Bank remaining after
payment of claims of all creditors (including the claims of all depositors to
the withdrawal value of their accounts). His pro rata share of such remaining
assets would be the same proportion of such assets as the value of his deposit
account was to the total of the value of all deposit accounts in the Bank at the
time of liquidation.
After the Conversion, each deposit account holder on a complete liquidation
would have a claim of the same general priority as the claims of all other
general creditors of the Bank. Therefore, except as described below, a claim of
such account holder would be solely in the amount of the balance in the related
deposit account plus accrued interest, and the account holder would not have any
interest in the value of the Bank above that amount.
The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal to
the net worth of the Bank as of the date of its latest statement of financial
condition contained in the final Prospectus. Each Eligible Account Holder (a
person with a deposit account in the Bank on March 31, 1996) and each
Supplemental Eligible Account Holder (a person with a qualifying deposit in the
Bank on June 30, 1997) would be entitled, on a complete liquidation of the Bank
after completion of the Conversion, to an interest in the liquidation account.
Each Eligible Account Holder would have an initial interest in such liquidation
account for each deposit account held in the Bank on March 31, 1996 and each
Supplemental Eligible Account Holder would have an initial interest in such
liquidation account for each qualifying deposit held in the Bank on June 30,
1997. The interest as to each qualifying deposit account would be in the same
proportion of the total liquidation account as the balance of such qualifying
deposit account was to the balance in all deposit accounts of Eligible Account
Holders and Supplemental Eligible Account Holders on such respective date.
However, if the amount in
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the qualifying deposit account on any annual closing date (December 31) of the
Bank subsequent to the relevant eligibility date is less than the amount in such
account on the relevant eligibility date, or any subsequent closing date, then
the Eligible Account Holder's or Supplemental Eligible Account Holder's interest
in the liquidation account would be reduced from time to time by an amount
proportionate to any such reductions, and such interest would cease to exist if
he or she ceases to maintain an account at the Bank that has the same Social
Security number as appeared on his or her account(s) at the relevant eligibility
date. The interest in the liquidation account would never be increased,
notwithstanding any increase in the related deposit account after the
Conversion.
Any assets remaining after the above liquidation rights of Eligible Account
Holders and Supplemental Eligible Account Holders were satisfied would be
distributed to the entity or persons holding the Bank's capital stock at that
time.
A merger, consolidation, sale of bulk assets or similar combination or
transaction with an FDIC-insured institution in which the Bank is not the
surviving insured institution would not be considered to be a "liquidation"
under which distribution of the liquidation account could be made. In such a
transaction, the liquidation account would be assumed by the surviving
institution.
The creation and maintenance of the liquidation account will not restrict
the use or application of any of the capital accounts of the Bank, except that
the Bank may not declare or pay a cash dividend on, or repurchase any of, its
capital stock if the effect of such dividend or repurchase would be to cause its
retained earnings to be reduced below the aggregate amount then required for the
liquidation account.
Subscription Offering
Nontransferable Subscription Rights to subscribe for shares of Common Stock
have been issued to all persons entitled to subscribe for stock in the
Subscription Offering at no cost to such persons. The amount of the Common
Stock which these parties may subscribe for will be determined, in part, by the
total stock to be issued, and the availability of stock for purchase under the
categories set forth in the Plan.
Preference categories have been established for the allocation of the
Common Stock to the extent that shares are available. These categories are as
follows:
Subscription Category No. 1 is reserved for the Bank's Eligible Account
Holders, i.e., qualifying depositors of the Bank on March 31, 1996, who will
each receive nontransferable Subscription Rights to subscribe for Common Stock
in the Subscription Offering. Pursuant to the Plan, an Eligible Account Holder
may purchase Common Stock in the Conversion in an amount equal to the greater of
(i) $250,000, (ii) one-tenth of one percent of the total offering of shares of
Common Stock, or (iii) 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares of Common Stock to be
issued by a fraction of which the numerator is the amount of the Qualifying
Deposit of the Eligible Account Holder and the denominator is the total amount
of Qualifying Deposits of all Eligible Account Holders in the Bank in each case
on the Eligibility Record Date (i.e., March 31, 1996). The Plan further provides
that no person (together with associates and persons acting in concert
therewith) may purchase in the aggregate more than $500,000 of the aggregate
value of shares of Common Stock in the Conversion. See "-- Limitations on
Purchases of Shares." If the exercise of Subscription Rights in this category
results in an oversubscription, shares shall be allocated among subscribing
Eligible Account Holders so as to permit each such Eligible Account Holder, to
the extent possible, to purchase a number of shares sufficient to make his total
allocation equal 100 shares or the amount subscribed for, whichever is less.
Any shares not so allocated shall be allocated among the subscribing Eligible
Account Holders on an equitable basis related to the amounts of their respective
qualifying deposits, as compared to the total qualifying deposits of all
subscribing Eligible Account Holders. To ensure a proper allocation of the
Common Stock, each eligible account holder must list on his stock order form all
accounts in which he has an ownership interest. Failure to list all such
qualifying deposit accounts may result in the inability of the Company or the
Bank to fill all or part of a subscription order. Neither the Company, the Bank
nor any of their agents shall be responsible for orders on which all qualifying
deposit accounts have not been fully and accurately disclosed. A qualifying
deposit is the amount (required to be at least $50.00) contained in a deposit
account in the Bank on March 31, 1996.
Subscription Rights received by directors and officers of the Bank in this
category based on their increased deposits in the Bank in the one-year period
preceding March 31, 1996 are subordinated to the Subscription Rights of other
Eligible Account Holders.
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Subscription Category No. 2 is reserved for the Bank's tax-qualified
employee stock benefit plans, i.e., the ESOP, which shall receive
nontransferable Subscription Rights to purchase in the aggregate up to 10% of
the shares issued in the Conversion and which is expected to purchase 8% of the
Common Stock offered in the Conversion. Any shares of Common Stock sold in
excess of the maximum of the Estimated Valuation Range may be first sold to the
ESOP.
Subscription Category No. 3 is reserved for the Bank's Supplemental
Eligible Account Holders, i.e., qualifying depositors of the Bank on the last
day of the calendar quarter preceding OTS approval of the Plan (September 30,
1997) who will each receive nontransferable Subscription Rights to subscribe for
Common Stock in the Subscription Offering. Pursuant to the Plan, a Supplemental
Eligible Account Holder may purchase Common Stock in the Conversion in an amount
equal to the greater of (i) $250,000, (ii) one-tenth of one percent of the total
offering of shares of Common Stock, or (iii) 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Common 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 the Bank in each case on the Supplemental
Eligibility Record Date (i.e., September 30, 1997). The Plan further provides
that no person (together with associates and persons acting in concert
therewith) may purchase in the aggregate more than $500,000 of the aggregate
value of shares of Common Stock in the Conversion. See " -- Limitations on
Purchases of Shares." If the exercise of Subscription Rights in this category
results in an oversubscription, shares shall be allocated among subscribing
Supplemental Eligible Account Holders, so as to permit each such Supplemental
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his total allocation equal 100 shares or the amount
subscribed for, whichever is less, and any shares not so allocated shall be
allocated among the subscribing Supplemental Eligible Account Holders on an
equitable basis related to the amounts of their respective qualifying deposits,
as compared to the total qualifying deposits of all subscribing Supplemental
Eligible Account Holders. To ensure a proper allocation of the Common Stock,
each Supplemental Eligible Account Holder must list on his stock order form all
accounts in which he has an ownership interest. Failure to list all such deposit
accounts may result in the inability of the Company or the Bank to fill all or
part of a subscription order. Neither the Company, the Bank nor any of their
agents shall be responsible for orders on which all qualifying deposit accounts
have not been fully and accurately disclosed. A qualifying deposit is the
amount (required to be at least $50.00) contained in a deposit account in the
Bank on September 30, 1997. Subscriptions in this Category No. 3 will be filled
only to the extent that there are sufficient shares of Common Stock remaining
after satisfaction of subscriptions by Category Nos. 1 and 2.
Subscription Category No. 4 is reserved for Other Members, i.e., certain
depositors and borrowers who are members of the Bank as of the Voting Record
Date entitled to vote at the Special Meeting but who are not otherwise Eligible
Account Holders or Supplemental Eligible Account Holders. To the extent then
available following subscriptions by Eligible Account Holders, tax-qualified
employee stock benefit plans and Supplemental Eligible Account Holders, Other
Members will receive, without payment therefor, nontransferable Subscription
Rights to subscribe for Common Stock in the Subscription Offering up to
$250,000. See "-- Limitations on Purchases of Shares." In the event that Other
Members subscribe for a number of shares which, when added to the shares
subscribed for by Eligible Account Holders, tax-qualified employee stock benefit
plans and Supplemental Eligible Account Holders, is in excess of the total
number of shares offered in the Conversion, the subscriptions of such Other
Members will be allocated pro rata among subscribing Other Members on an
equitable basis as determined by the Board of Directors.
The Company will make reasonable efforts to comply with the securities laws
of all states in the United States in which persons entitled to subscribe for
Common Stock pursuant to the Plan reside. However, no person will be offered or
allowed to purchase any Common Stock under the Plan if he resides in a foreign
country or in a state of the United States with respect to which any or all of
the following apply: (i) a small number of persons otherwise eligible to
subscribe for shares under the Plan reside in such state or foreign country;
(ii) the granting of Subscription Rights or the offer or sale of shares of
Common Stock to such persons would require the Company or the Bank or their
employees to register, under the securities laws of such state, as a broker,
dealer, salesman or agent or to register or otherwise qualify its securities for
sale in such state or foreign country; and (iii) such registration or
qualification would be impracticable for reasons of cost or otherwise. No
payments will be made in lieu of the granting of Subscription Rights to any such
person.
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Community Offering
To the extent shares remain available for purchase after the Subscription
Offering, the Company may offer any such remaining shares of Common Stock to
members of the general public to whom the Company delivers a copy of this
Prospectus and a Stock Order Form in the Community Offering. The occurrence of
the Community Offering is subject to the availability of shares of Common Stock
for purchase after satisfaction of all orders received in the Subscription
Offering. The Community Offering, if any, may 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 Company and the Bank to accept or reject
such purchases in whole or in part. The Company presently intends to terminate
the Community Offering, if any, as soon as it has received orders for sufficient
shares available for purchase in the conversion.
If all of the Common Stock offered in the Subscription Offering is
subscribed for, there will be no Community Offering. In the event an
insufficient number of shares are available to fill orders in the Community
Offering, the available shares will be allocated by the Company in its
discretion that a preference shall be given to natural persons and trusts of
natural persons who are permanent residents of the Local Community. Orders
received in the Community Offering shall be allocated with 100 share (or lesser)
orders filled first, and remaining orders filled pro-rata, based on the size of
the order, until all orders have been filled, with a preference given to
permanent residents of the Local Community. If the Community Offering extends
beyond 45 days following the expiration of the Subscription Offering,
subscribers will have the right to increase, decrease or rescind subscriptions
for stock previously submitted. Purchasers in the Community Offering are each
eligible to purchase up to $250,000 of the Common Stock issued in the
Conversion. See "--Limitations on Purchases of Shares."
Except as noted below, cash and checks received in the Community Offering
will be placed in segregated savings accounts (each insured by the FDIC up to
the applicable $100,000 limit) established specifically for this purpose.
Interest will be paid on orders made by check, in cash or by money order at the
Bank's passbook rate from the date the payment is received by the Company until
the consummation of the Conversion. In the event that the Conversion is not
consummated for any reason, all funds submitted pursuant to the Community
Offering will be promptly refunded with interest as described above.
Syndicated Community Offering
As part of the Community Offering, all shares of Common Stock not purchased
in the Subscription and Community Offerings, if any, may be offered for sale to
the general public in a Syndicated Community Offering through selected dealers
to be formed and managed by IBS. The Syndicated Community Offering, if any,
will be conducted to achieve the widest distribution of the Common Stock subject
to the Company and the Bank having the right to reject orders in whole or in
part in their sole discretion in the Syndicated Community Offering. Neither IBS
nor any registered broker-dealer shall have any obligation to take or purchase
any shares of Common Stock in the Syndicated Community Offering. Common Stock
sold in the Syndicated Community Offering will be sold at the same price as in
the Subscription and Community Offerings.
Individual purchasers in the Syndicated Community Offering may purchase up
to $250,000 of the Common Stock in the Conversion with any associate or group of
persons acting in concert. The Bank shall be responsible for the payment of
selling commissions to other NASD firms and licensed brokers participating in
the Syndicated Community Offering. Other firms may participate under selected
dealers agreements, and IBS and such selected dealers may receive fees which are
not expected to exceed 5.0% of the amount of the stock sold by the selected
dealers in the Syndicated Community Offering. IBS would not receive a fee for
managing the Syndicated Community Offering.
During the Syndicated Community Offering, selected dealers may only solicit
indications of interest from their customers to place orders with the Company as
of a certain date ("Order Date") for the purchase of shares of common Stock.
When and if IBS and the Company believe that enough indications and orders have
been received in the Offerings to consummate the Conversion, IBS will request,
as of the Order Date, selected dealers to submit orders to purchase shares for
which they have received indications of interest from their customers. Selected
dealers will send confirmations of the orders to such customers on the next
business day after the Order Date. Selected dealers may debit the accounts of
their customers on a date which will be three business days from the Order Date
("Settlement Date"). Customers who authorize selected
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dealers to debit their brokerage accounts are required to have the funds for
payment in their account on but not before the Settlement Date. On the
Settlement Date, selected dealers will remit funds to the account that the
Company established for each selected dealer. After payment has been received by
the Company from selected dealers, funds will earn interest at the Bank's
passbook savings rate until the consummation of the Conversion. In the event the
Conversion is not consummated as described above, funds with interest will be
returned promptly to the selected dealers, who, in turn, will promptly credit
its customers' brokerage account.
The Syndicated Community Offering, if any, will terminate no more than 45
days following the completion of the Subscription Offering, unless extended by
the Company with the approval of the OTS. The Syndicated Community Offering may
run concurrently with the Subscription and Community Offerings or subsequent to
such offerings.
Subscriptions for Stock in the Offerings
Expiration Date. The Subscription Offering will expire at 4:00 p.m., local
time, on __________, 1997 unless extended by the Board of Directors of the Bank
for up to an additional 45 days, to no later than __________, 1997. Such date
and time are referred to herein as the "Expiration Date." Subscription rights
not exercised prior to the Expiration Date will be void. The Community
Offering, if any, may terminate at any time without notice, but may not
terminate later than __________, 1997.
Orders will not be executed by the Company until at least the minimum
number of shares of Common Stock offered hereby have been subscribed for or
sold. If all shares of Common Stock have not been subscribed for or sold within
45 days of the end of the Subscription Offering (unless such period is extended
with consent of the OTS), all funds delivered to the Company pursuant to the
Subscription Offering will be promptly returned to the subscribers with interest
and all charges to savings accounts will be rescinded.
Use of Stock Order Forms and Certification Forms. Rights to subscribe may
only be exercised by completion of Stock Order Forms and certification forms.
Any person receiving a Stock Order Form who desires to subscribe for shares of
stock must do so prior to the Expiration Date by delivering (by mail or in
person) to the office of the Bank a properly executed and completed Stock Order
Form and certification form, together with full payment for all shares for which
the subscription is made. All checks or money orders must be made payable to
"HopFed Bancorp, Inc." The Stock Order Form and certification form must be
received by the Expiration Date. All subscription rights under the Plan will
expire on the Expiration Date, whether or not the Company has been able to
locate each person entitled to such subscription rights. Once tendered,
subscription orders cannot be revoked.
Each subscription right may be exercised only by the person to whom it is
issued and only for his or her own account. The subscription rights granted
under the plan are nontransferable; persons who attempt to transfer their
subscription rights may lose the right to subscribe for stock in the conversion
and may be subject to other sanctions and penalties imposed by the OTS. Each
person subscribing for shares is required to represent to the Company that he or
she is purchasing such shares for his or her own account and that he or she has
no agreement or understanding with any other person for the sale or transfer of
such shares.
In the event Stock Order Forms (i) are not delivered and are returned to
the Company by the United States Postal Service or the Company is unable to
locate the addressee, or (ii) are not returned or are received after the
Expiration Date, or (iii) are defectively completed or executed, or (iv) are not
accompanied by the full required payment for the shares subscribed for
(including instances where a savings account or certificate balance from which
withdrawal is authorized is insufficient to fund the amount of such required
payment), the subscription rights of the person to whom such rights have been
granted will lapse as though such person failed to return the completed Stock
Order Form within the time period specified. However, the Company or the Bank
may, but will not be required to, waive any irregularity on any Stock Order Form
or require the submission of corrected Stock Order Forms or the remittance of
full payment for subscribed shares by such date as the Company or the Bank may
specify. The interpretation by the Company and the Bank of the terms and
conditions of the Plan and of the Stock Order Form will be final.
Payment for Shares. Payment for all subscribed shares of Common Stock will
be required to accompany all completed Stock Order Forms for subscriptions to be
valid. Payment for subscribed shares may be made (i) in cash, if delivered in
person, (ii) by check or money order, or (iii) by authorization of withdrawal
from deposit accounts maintained with the Bank. Appropriate means by which such
withdrawals may be authorized are provided in the Stock Order Form.
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Once such a withdrawal has been authorized, none of the designated withdrawal
amount may be used by a subscriber for any purpose other than to purchase stock
for which subscription has been made while the Plan remains in effect. In the
case of payments authorized to be made through withdrawal from deposit accounts,
all sums authorized for withdrawal will continue to earn interest at the
contract rate until the date of consummation of the sale. In the case of
payments made in cash or by check or money order such funds will be placed in a
segregated savings account established specifically for this purpose (each
insured by the FDIC up to the applicable $100,000 limit) and interest will be
paid at the Bank's passbook rate from the date payment is received until the
Conversion is completed or terminated. Interest penalties for early withdrawal
applicable to certificate accounts will not apply to withdrawals authorized for
the purchase of shares; however, if a partial withdrawal results in a
certificate account with a balance less than the applicable minimum balance
requirement, the certificate evidencing the remaining balance will earn interest
at the Bank's passbook rate subsequent to the withdrawal. An executed Stock
Order Form, once received by the Company, may not be modified, amended or
rescinded without the consent of the Company, unless the Conversion is not
completed within 45 days of the termination of the Subscription Offering. If an
extension of the period of time to complete the Conversion is approved by the
OTS, subscribers will be resolicited and must affirmatively reconfirm their
orders prior to the expiration of the resolicitation offering, or their
subscription funds will be promptly refunded. Subscribers may also modify or
cancel their subscriptions. Interest will be paid on such funds at the Bank's
passbook rate during the 45-day period and any approved extension period. Wired
funds will not be accepted for the payment for shares of Common Stock.
Owners of self-directed IRAs or other self-directed tax-qualified
retirement plans, may use the assets of such IRAs or plans to purchase shares of
Common Stock in the Subscription and Community Offerings, provided that such
IRAs or plans are not maintained at the Bank. Persons with IRAs or plans
maintained at the Bank must have their accounts transferred to an unaffiliated
institution or broker to purchase shares of Common Stock in the Subscription and
Community Offerings. Depositors interested in using funds in an IRA currently
with the Bank or plan to purchase Common Stock should contact the Bank's Stock
Information Center at (502) 881-4001 as soon as possible but no later than seven
days prior to closing of the offering period, so that the necessary forms may be
forwarded for execution and returned at least one week prior to the Expiration
Date of the Subscription Offering.
The ESOP will not be required to pay for the shares subscribed for at the
time it subscribes, but may pay for such shares upon consummation of the
Subscription and Community Offerings, if all shares are sold, or upon
consummation of any subsequent offering, if shares remain to be sold in such an
offering.
Shares Purchased. Certificates representing shares of Common Stock will be
delivered to subscribers as soon as practicable after closing of the Conversion.
Plan of Distribution and Marketing Arrangements
Officers of the Bank are available at the Bank's office to provide offering
materials to prospective investors, to answer their questions (but only to the
extent such information is derived from this Prospectus) and to receive
completed Stock Order Forms and certification forms from prospective investors
interested in subscribing for shares of Common Stock. None of the Bank's
directors, officers or employees will receive any commissions or other
compensation for their efforts in connection with sales of shares of Common
Stock. Although information regarding the stock offering is available at the
Bank's office, an investment in Common Stock is not a deposit, and Common Stock
is not federally insured.
The directors, officers and employees of the Bank who will be involved in
selling stock are expected to be exempt from the requirement to register with
the SEC as broker-dealers within the meaning of Rule 3a4-1 under the Exchange
Act. Such persons will qualify under the safe harbor provisions of that rule on
the basis of paragraphs (a)(4)(ii) and/or (iii), i.e., management of the Bank
expects that such persons either (x) will perform substantial duties for the
Company in its business, will not otherwise be broker-dealers and are not
expected to participate in another offering in the next twelve months or (y)
will limit their activities to preparing written communications, responding to
customer inquiries and/or performing ministerial/clerical functions.
The Bank and the Company have engaged the Agents as their exclusive
financial and marketing advisor to provide sales assistance in connection with
the Offerings. The Agents are members of the NASD and each is registered with
the SEC. The services of the Agents will include, but are 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 and the solicitation of proxies from
members, (ii) providing employees to manage the Stock
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Information Center, assisting Bank customers and interested stock purchasers and
keeping records of orders for shares of the Common Stock, and (iii) supervising
the Bank's sales efforts, including preparation of marketing materials. For
their services rendered in the Conversion, the Agents will receive a fee of
$180,000. The Agents will also be reimbursed for their reasonable out-of-pocket
expenses, including legal fees, in an amount not to exceed $45,000. The Company
and the Bank have agreed to indemnify the Agents for reasonable costs and
expenses in connection with certain claims or liabilities, including certain
liabilities under the Securities Act. The fees shall be payable upon
consummation of the Conversion.
Stock Pricing and Number of Shares to be Issued
National Capital, which is experienced in the evaluation and appraisal of
savings institutions involved in the conversion process, has been retained by
the Bank to prepare an appraisal of the estimated pro forma market value of the
Common Stock to be sold pursuant to the Conversion. Prior to the Conversion,
the Bank did not have any business relationship with National Capital. National
Capital will receive a fee of up to $30,000 for its appraisal and other
services, and reimbursement for related expenses. The Bank has agreed to
indemnify National Capital under certain circumstances against any losses,
damages, expenses or liability arising out of the Bank's engagement of National
Capital for the appraisal.
National Capital has determined as of __________, 1997 that the estimated
pro forma market value of the stock to be issued by the Company in the
Conversion was $26,500,000. In determining the reasonableness and adequacy of
the appraisal submitted by National Capital, the Boards of Directors of the Bank
and the Company reviewed with National Capital the methodology and the
appropriateness of assumptions used by National Capital in preparing the
appraisal. The Company, in consultation with IBS, has determined to offer the
shares in the Conversion at the Purchase Price of $10.00 per share. The price
per share was determined based on a number of factors, including the market
price per share of the stock of other financial institutions. Regulations
administered by the OTS require, however, that the appraiser establish a range
of value for the stock of approximately 15% on either side of the estimated
value to allow for fluctuations in the aggregate value of the stock due to
changes in the market and other factors from the time of commencement of the
Subscription Offering until completion of the Community Offering. Accordingly,
National Capital has established a range of value of from $22,525,000 to
$30,475,000 for the Conversion. National Capital will either confirm the
continuing validity of its appraisal or provide an updated appraisal immediately
prior to the completion of the Conversion.
Should it be determined at the close of the offering that the aggregate pro
forma market value of the Common Stock is higher or lower than $26,500,000, but
is nonetheless within the Estimated Valuation Range or within 15% of the maximum
of such range, the Company will make an appropriate adjustment by raising or
lowering by no more than 15% the total number of shares being offered (within a
range from 2,252,500 shares to 3,047,500 shares). Unless permitted by the
Company or otherwise required by the OTS, no resolicitation of subscribers and
other purchasers will be made because of any such change in the number of shares
to be issued unless the aggregate purchase price of the Common Stock sold in the
Conversion is below the minimum of the Estimated Valuation Range or is more than
$35,046,250 (i.e., 15% above the maximum of the Estimated Valuation Range). If
the aggregate purchase price falls outside the range of from $22,525,000 to
$35,046,250, subscribers and other purchasers will be resolicited and given the
opportunity to continue their orders, in which case they will need to
affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation, or their subscription funds will be promptly refunded with
interest at the Bank's passbook rate. Subscribers will also be given the
opportunity to increase, decrease or rescind their orders. Any change in the
Estimated Valuation Range must be approved by the OTS. The establishment of any
new price range may be effected without a resolicitation of votes from the
Bank's members to approve the conversion.
The appraisal is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing Common Stock. In
preparing the valuation, National Capital has relied upon and assumed the
accuracy and completeness of financial and statistical information provided by
the Bank and the Company. National Capital did not independently verify the
financial statements and other information provided by the Bank and the Company,
nor did National Capital value independently the assets and liabilities of the
Bank and the Company. The valuation considers the Bank and the Company only as a
going concern and should not be considered as an indication of the liquidation
value of the Bank and the Company. Moreover, because such valuation is
necessarily based upon estimates and projections of a number of matters, all of
which are subject to change from time to time, no assurance can be given that
persons purchasing Common Stock will thereafter be able to sell such shares at
prices equal to or above the price or prices paid for it. Copies of the
appraisal report of National Capital setting forth the method and assumptions
for such appraisal are on file and available for inspection at the offices set
forth in "additional information" and at the office of the Bank. Further, any
subsequent updated appraisal also will be filed with the SEC and will be
available for inspection.
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Limitations on Purchase of Shares
Purchases of shares of Common Stock are subject to limitations as set forth
in the Plan. All shares are offered to persons subscribing in the Subscription
Offering, and shares are only offered to persons in the Community Offering and
Syndicated Community Offering, if any, to the extent available after filling
subscriptions in the Subscription Offering.
Within the Subscription Offering, the maximum purchases by subscribers are
limited under the Plan. Eligible Account Holders may only subscribe up to an
amount equal to the greater (i) $250,000, (ii) one-tenth of one percent of the
total offering of shares of Common Stock, or (iii) 15 times the product (rounded
down to the next whole number) obtained by multiplying the total number of
shares of Common Stock to be issued by a fraction of which the numerator is the
amount of the Qualifying Deposit of the Eligible Account Holder and the
denominator is the total amount of Qualifying Deposits of all Eligible Account
Holders in the Bank in each case on the Eligibility Record Date (i.e., March 31,
1996). Supplemental Eligible Account Holders may only subscribe up to an amount
equal to the greater of (i) $250,000, (ii) one-tenth of one percent of the total
offering of shares of Common Stock, or (iii) 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Common 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 the Bank in each case on the Supplemental
Eligibility Record Date (i.e., September 30, 1997). The Plan further provides
that no person (together with associates and persons acting in concert
therewith) may purchase in the aggregate more than $500,000 of the aggregate
value of shares of Common Stock in the Conversion.
The Plan provides for certain additional limitations to be placed upon
the purchase of shares by eligible subscribers and others in the Conversion.
Each subscriber must subscribe for a minimum of 25 shares. The ESOP may purchase
up to an aggregate of 10% of the shares of Common Stock to be issued in the
Conversion and is expected to purchase 8% of such shares. No person, including
associates (as defined below) of and persons acting in concert (as defined
below) with such person (other than the ESOP), may purchase in the Subscription
or Community Offerings more than $500,000 or 50,000 shares of the Common Stock.
Shares purchased by the ESOP and attributable to a participant thereunder shall
not be aggregated with shares purchased by such participant or any other
purchaser of the Common Stock in the Conversion. Officers and directors and
their associates may not purchase, in the aggregate, more than 31.0% of the
shares to be issued in the Conversion. For purposes of the Plan, the directors
of the Company and the Bank are not deemed to be associates or a group acting in
concert solely by reason of their Board membership.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the Bank's
members, purchase limitations may be increased or decreased at the sole
discretion of the Company and the Bank at any time. If such amount is
increased, subscribers for the maximum amount will be given the opportunity to
increase their subscriptions up to the then applicable limit, subject to the
rights and preferences of any person who has priority Subscription Rights. In
the event that the purchase limitation is decreased after commencement of the
Subscription and Community Offerings, the orders of any person who subscribed
for the maximum number of shares of Common Stock shall be decreased by the
minimum amount necessary so that such person shall be in compliance with the
then maximum number of shares permitted to be subscribed for by such person.
The term "acting in concert" is defined in the Plan to mean (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal, whether or not pursuant to an express agreement, 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. The
Company and the Bank may presume that certain persons are acting in concert
based upon, among other things, joint account relationships and the fact that
such persons have filed joint Schedules 13D with the SEC with respect to other
companies. The term "associate" of a person is defined in the Plan to mean: (i)
any corporation or organization (other than the Bank, the Company, or a
majority-owned subsidiary of the Bank or the Company) of which such person is an
officer or partner or is directly or indirectly the beneficial owner of 10% or
more of any equity securities; (ii) any trust or other estate in which such
person has a substantial beneficial interest or as to which such person serves
as a trustee or in a similar fiduciary capacity, provided, however, such term
shall not include any employee stock benefit plan of the Bank in which such
person has a substantial beneficial interest or serves as a trustee or in a
similar fiduciary capacity; and (iii) any relative or spouse of such person, or
any relative of such spouse, who either has the same home as such person or who
is a director of the Bank or the Company or any of their subsidiaries. Directors
are not treated as associates solely because of their Board
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membership. Relatives who are neither officers nor directors of the Bank or the
Company and who do not reside in the same home are not deemed to be associates
or a group acting in concert solely as a result of their relationships.
Each person purchasing Common Stock in the Conversion shall be deemed to
confirm that such purchase does not conflict with the purchase limitations under
the Plan or otherwise imposed by law, rule or regulation. In the event that
such purchase limitations are violated by any person (including any associate or
group of persons affiliated or otherwise acting in concert with such person),
the Company shall have the right to purchase from such person at the aggregate
purchase price all shares acquired by such person in excess of such purchase
limitations or, if such excess shares have been sold by such person, to receive
the difference between the aggregate purchase price paid for such excess shares
and the price at which such excess shares were sold by such person. This right
of the Company to purchase such excess shares shall be assignable by the
Company. In addition, persons who violate the purchase limitations may be
subject to sanctions and penalties imposed by the OTS.
Stock purchased pursuant to the Conversion will be freely transferable,
except for shares purchased by directors and officers of the Bank and the
Company. See "-- Limitations on Resales by Management."
In addition, under guidelines of the NASD, members of the NASD and their
associates are subject to certain restrictions on the transfer of securities
purchased in accordance with Subscription Rights and to certain reporting
requirements upon purchase of such securities.
Depending upon market conditions, the Boards of Directors of the Company
and the Bank, with the approval of the OTS, may increase or decrease any of the
above purchase limitations. In the event of such an increase or decrease, no
further approval of members of the Bank would be required. OTS regulations
authorize a plan of conversion to provide a minimum purchase limitation of a
percentage as low as 1% and a maximum purchase limitation of a percentage not to
exceed 10%, provided that orders for shares exceeding 5% of the shares being
offered in the Conversion shall not exceed in the aggregate 10% of the shares
being offered in the Conversion.
Regulatory Restrictions on Acquisition of the Common Stock
Current federal regulations prohibit any person from making an offer,
announcing an intent to make an offer, entering into any other arrangement to
purchase Common Stock or acquiring Common Stock or Subscription Rights in the
Company from another person prior to completion of the Conversion. Further, no
person may make an offer or announcement of an offer to purchase shares or
actually acquire shares in the Company for a period of three years from the date
of the completion of the Conversion, if, upon the completion of such offer or
acquisition, that person would become the beneficial owner of more than 10% of
the Company's outstanding stock, without the prior written approval of the OTS.
The OTS has defined the word "person" to include any individual, group acting in
concert, corporation, partnership, association, joint stock company, trust,
unincorporated organization or similar company, a syndicate or any group formed
for the purpose of acquiring, holding or disposing of securities of an insured
institution. However, offers made exclusively to the Company or underwriters or
members of a selling group acting on behalf of the Company for resale to the
general public are excepted. The regulations also provide civil penalties for
willful violation or assistance of any such violation of the regulation by any
person connected with the management of the Company following the Conversion.
Moreover, when any person, directly or indirectly, acquires beneficial ownership
of more than 10% of the Company's capital stock following the conversion within
such three-year period without the prior approval of the OTS, the Company's
Common Stock beneficially owned by such person in excess of 10% shall not be
counted as shares entitled to vote and shall not be voted by any person or
counted as voting shares in connection with any matter submitted to the
stockholders for a vote. The Certificate of Incorporation of the Company
include a similar 10% beneficial ownership limitation. See "Certain Anti-
Takeover Provisions in the Certificate of Incorporation and Bylaws."
In addition to the foregoing restrictions, any person or group of persons
acting in concert who propose to acquire 10% or more of the Company's
outstanding shares will be presumed under OTS regulations, to be acquiring
control of the Company and will be required to submit prior notice to the OTS
under the Change in Control Act.
Restrictions on Repurchase of Stock
Subject to the exceptions described herein, for a period of three years
following the Conversion, the Company may not repurchase any of its stock from
any person, except (i) repurchases on a pro rata basis pursuant to an offer,
approved by the OTS, made to all stockholders, and (ii) repurchases of
qualifying shares of a director. However, upon 10 days' written
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notification to the OTS Regional Director for the Bank and the Chief Counsel of
the Business Transactions Division of the OTS, if the Regional Director and
Chief Counsel do not object, the Company may make open market repurchases of its
outstanding Common Stock, provided that: (i) no repurchases may occur in the
first year following the Conversion without OTS approval; (ii) in the second and
third years after the Conversion, repurchases must be part of an open-market
program that does not allow for the repurchase of more than 5% of the Company's
outstanding Common Stock during a 12-month period (a waiver may be obtained from
the OTS which would allow for additional purchases); (iii) the repurchases would
not cause the Bank to become "undercapitalized" (as defined for regulatory
purposes); (iv) the repurchases would not materially adversely affect the Bank's
financial condition; and (v) there is a valid business purpose for the
repurchases. The Company may not repurchase any of its stock if the effect
thereof would cause the Bank's regulatory capital to be reduced below the amount
required for the liquidation account. Regulatory dividend limitations may
provide further restrictions on stock repurchases.
Limitations on Resales by Management
Shares of the Common Stock purchased by directors or officers of the
Company and the Bank in the Conversion will be subject to the restriction that
such shares may not be sold for a period of one year following completion of the
Conversion, except in the event of the death of the original purchaser or in any
exchange of such shares in connection with a merger or acquisition of the
Company approved by the OTS. Accordingly, shares of Common Stock issued by the
Company to directors and officers shall bear a legend giving appropriate notice
of the restriction imposed upon it and, in addition, the Company will give
appropriate instructions to the transfer agent for Common Stock with respect to
the applicable restriction for transfer of any restricted stock. Any shares
issued to directors and officers as a stock dividend, stock split or otherwise
with respect to restricted stock shall be subject to the same restrictions.
Shares acquired otherwise than in the Conversion, such as under the Company's
Option Plan, would not be subject to such restrictions. To the extent directors
and officers are deemed affiliates of the Company, all shares of Common Stock
acquired by such directors and officers will be subject to certain resale
restrictions and may be resold pursuant to Rule 144 under the Securities Act.
See "Regulation -- Regulation of the Company Following the Conversion -- Federal
Securities Law."
Interpretation and Amendment of the Plan
To the extent permitted by law, all interpretations of the Plan by the Bank
will be final. The Plan provides that the Bank's Board of Directors shall have
the sole discretion to interpret and apply the provisions of the Plan to
particular facts and circumstances and to make all determinations necessary or
desirable to implement such provisions, including but not limited to matters
with respect to giving preference in the Community Offering to natural persons
and trusts of natural persons who are permanent residents of the Local
Community, and any and all interpretations, applications and determinations made
by the Board of Directors in good faith and on the basis of such information and
assistance as was then reasonably available for such purpose shall be conclusive
and binding upon the Bank and its members and subscribers in the Subscription
and Community Offerings, subject to the authority of the OTS.
The Plan provides that, if deemed necessary or desirable by the Board of
Directors, the Plan may be substantively amended by a two-thirds vote of the
Board of Directors at any time prior to submission of the Plan and proxy
materials to the Bank's members. After submission of the Plan and proxy
materials to the members, the Plan may be amended by a two-thirds vote of the
Board of Directors at any time prior to the Special Meeting and at any time
following the Special Meeting with the concurrence of the OTS. In its
discretion, the Board of Directors may generally modify or terminate the Plan
upon the order of the regulatory authorities without resoliciting proxies or
otherwise obtaining approval of the amended Plan by members at another Special
Meeting. However, any modification of the Plan that results in a material change
in the terms of the Conversion would require such a resolicitation of proxies
and another meeting of members.
The Plan further provides that in the event that mandatory new regulations
pertaining to conversions are adopted by the OTS or any successor agency prior
to completion of the Conversion, the Plan will be amended to conform to such
regulations without a resolicitation of proxies or another Special Meeting. In
the event that such new conversion regulations contain optional provisions, the
Plan may be amended to utilize such optional provisions at the discretion of the
Board of Directors without a resolicitation of proxies or another Special
Meeting. By adoption of the Plan, the Bank's members will be deemed to have
authorized amendment of the Plan under the circumstances described above.
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Conditions and Termination
Completion of the Conversion requires the approval of the Plan by the
affirmative vote of not less than a majority of the total outstanding votes of
the members of the Bank and the sale of all shares of Common Stock within 24
months following approval of the Plan by the members. If these conditions are
not satisfied, the Plan will be terminated, and the Bank will continue its
business in the mutual form of organization. The Plan may be terminated by the
Board of Directors at any time prior to the Special Meeting and, with the
approval of the OTS, by the Board of Directors at any time thereafter.
CERTAIN RESTRICTIONS ON ACQUISITION OF
THE COMPANY AND THE BANK
Conversion Regulations
OTS regulations prohibit a person from making an offer, announcing an
intent to make an offer or other arrangement to purchase stock, or acquiring
stock or subscription rights in the Bank or the Company from another person
prior to completion of the Conversion. Furthermore, without the prior written
approval of the Director of the OTS, no person may make such an offer or
announcement of an offer to purchase shares or actually acquire shares in the
Bank or the Company for a period of three years from the date of the completion
of the Conversion if, upon the completion of such offer or acquisition, that
person would become the beneficial owner of more than 10% of the stock of the
Bank or the Company. For purposes of the OTS regulations, "person" is defined to
include any individual, group acting in concert, corporation, partnership,
association, joint stock company, trust, unincorporated organization or similar
company, a syndicate or any other group formed for the purpose of acquiring,
holding or disposing of securities of the Bank or the Company. Offers made
exclusively to the Bank or the Company, however, or underwriters or members of a
selling group acting on the Bank's or Company's behalf for resale to the general
public, are excepted.
Change in Bank Control Act and Savings and Loan Holding Company Provisions of
Home Owners' Loan Act
Federal laws and regulations contain a number of provisions which govern
the acquisition of insured institutions such as the Bank, including a savings
and loan holding company such as the Company. 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 and the OTS does not issue
a notice disapproving the proposed acquisition. In addition, certain provisions
of the Home Owners' Loan Act provide that no company may acquire control of a
thrift 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 applicable 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 a savings
association or the ability to control the election of a majority of the
directors of an institution. 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 more than 25% of any class of stock, of a savings
association, where one or more enumerated "control factors" are also present in
the acquisition. The OTS may prohibit an acquisition of control if it finds,
among other things, that (i) the acquisition would result in a monopoly or
substantially lessen competition, (ii) the financial condition of the acquiring
person might jeopardize the financial stability of the savings association, or
(iii) the competence, experience, or integrity of the acquiring person indicates
that it would not be in the interest of the depositors or the public to permit
the acquisition of control by such person. The foregoing restrictions do not
apply to the acquisition of the Company'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.
Delaware General Corporation Law ("DGCL")
The DGCL contains a statute designed to provide Delaware corporations with
additional protection against hostile takeovers. The takeover statute, which is
codified in Section 203 of the DGCL, among other things, prohibits the Company
from engaging in certain business combinations (including a merger) with a
person who is the beneficial owner of 15% or more of the Company's outstanding
voting stock (an Interested Stockholder) during the three-year period following
the date such person became an Interested Stockholder. This restriction does
not apply if: (1) before such person became an Interested Stockholder, the Board
of Directors approved the transaction in which the Interested Stockholder
becomes an
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Interested Stockholder or approved the business combination; or (2) upon
consummation of the transaction which resulted in the stockholder's becoming an
Interested Stockholder, the Interested Stockholder owned at least 85% of the
voting stock of the Company outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding, those
shares owned by (i) persons who are directors and also officers and (ii)
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or (3) on or subsequent to such date,
the business combination is approved by the Board of Directors and authorized at
an annual or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least two-thirds of the outstanding voting stock which is
not owned by the Interested Stockholder. The Company may exempt itself from the
requirements of the statute by adopting an amendment to its Certificate of
Incorporation. At the present time, the Board of Directors does not intend to
propose any such amendment.
CERTAIN ANTI-TAKEOVER PROVISIONS IN
THE CERTIFICATE OF INCORPORATION AND BYLAWS
While the Boards of Directors of the Bank and the Company are not aware of
any effort that might be made to obtain control of the Company after Conversion,
the Board of Directors, as discussed below, believes that it is appropriate to
include certain provisions as part of the Company's Certificate of Incorporation
to protect the interests of the Company and its stockholders from hostile
takeovers which the Board of Directors might conclude are not in the best
interests of the Bank, the Company or the Company's stockholders. These
provisions may have the effect of discouraging a future takeover attempt which
is not approved by the Board of Directors but which individual stockholders may
deem to be in their best interests or in which stockholders may receive a
substantial premium for their shares over then current market prices. As a
result, stockholders who might desire to participate in such a transaction may
not have an opportunity to do so. Such provisions will also render the removal
of the current Board of Directors or management of the Company more difficult.
The following discussion is a general summary of the material provisions of
the Certificate of Incorporation and Bylaws of the Company which may be deemed
to have such an "anti-takeover" effect. The description of these provisions is
necessarily general and reference should be made in each case to the Certificate
of Incorporation and Bylaws of the Company. For information regarding how to
obtain a copy of these documents without charge, see "Additional Information."
Board of Directors
Certain provisions of the Company's Certificate of Incorporation and Bylaws
will impede changes in control of the Board of Directors of the Company. The
Certificate of Incorporation provides that the Board of Directors is to be
divided into three classes, as nearly equal in number as possible, which shall
be elected for staggered three-year terms.
The Company's Certificate of Incorporation provides that a director may be
removed only for cause by the affirmative vote of the holders of at least 80% of
the outstanding shares entitled to vote and that the size of the Board of
Directors may be changed only by a vote of two-thirds of the directors then in
office. The Certificate of Incorporation further provides that any vacancy
occurring in the Board of Directors, including a vacancy created by an increase
in the number of directors, shall be filled for the remainder of the unexpired
term by a two-thirds vote of the directors then in office.
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Stockholder Vote Required to Approve Business Combinations with Principal
Stockholders
The Company's Certificate of Incorporation requires the approval of the
holders of (i) at least 80% of the Company's outstanding shares of voting stock,
and (ii) at least a majority of the Company's outstanding shares of voting
stock, not including shares held by a "Related Person," to approve certain
"Business Combinations" as defined therein, and related transactions. Under the
DGCL, absent this provision, Business Combinations, including mergers,
consolidations and sales of substantially all of the assets of the Company must,
subject to certain exceptions, be approved by the vote of the holders of a
majority of the outstanding shares of Common Stock. For a discussion of an
exception to the majority approval requirement under Delaware law, see "Certain
Restrictions on Acquisition of the Company and the Bank -- Delaware General
Corporation Law." The increased voting requirements in the Company's
Certificate of Incorporation apply in connection with business combinations
involving a "Related Person," except in cases where the proposed transaction has
been approved in advance by two-thirds of those members of the Company's Board
of Directors who are unaffiliated with the Related Person and who were directors
prior to the time when the Related Person became a Related Person (the
"Continuing Directors"). The term "Related Person" is defined to include any
individual, corporation, partnership or other entity which owns beneficially or
controls, directly or indirectly, 10% or more of the outstanding shares of
voting stock of the Company. A "Business Combination" is defined to include (i)
any merger or consolidation of the Company with or into any Related Person; (ii)
any sale, lease exchange, mortgage, transfer, or other disposition of all or a
substantial part of the assets of the Company or of a subsidiary to any Related
Person (the term "substantial part" is defined to include more than 25% of the
Company's total assets); (iii) any merger or consolidation of a Related Person
with or into the Company or a subsidiary of the Company; (iv) any sale, lease,
exchange, transfer or other disposition of all or any substantial part of the
assets of a Related Person to the Company or a subsidiary of the Company; (v)
the issuance of any securities of the Company or a subsidiary of the Company to
a Related Person; (vi) the acquisition by the Company of any securities of the
Related Person; (vii) any reclassification of the Common Stock, or any
recapitalization involving Common Stock; and (viii) any agreement, contract or
other arrangement providing for any of the above transactions.
Restrictions on Acquisitions of Shares
The Certificate of Incorporation provides that for a period of five years
from the effective date of the Conversion, no person may acquire directly or
indirectly the beneficial ownership of more than 10% of any class of equity
security of the Company, unless such offer or acquisition shall have been
approved in advance by a two-thirds vote of the Company's Continuing Directors.
This provision does not apply to any employee stock benefit plan of the Company.
In addition, during such five-year period, no shares beneficially owned in
violation of the foregoing percentage limitation, as determined by the Company's
Continuing Directors, shall be entitled to vote in connection with any matter
submitted to stockholders for a vote. Additionally, the Certificate of
Incorporation provides for further restrictions on voting rights of shares owned
in excess of 10% of any class of equity security of the Company beyond five
years after the Conversion of the Bank. Specifically, the Certificate of
Incorporation provides that if, at any time after five years from the
Conversion, any person acquires the beneficial ownership of more than 10% of any
class of equity security of the Company, then, with respect to each vote in
excess of 10%, such person shall be entitled to cast only one-hundredth of one
vote. An exception from the restriction is provided if the acquisition of more
than 10% of the securities received the prior approval by a two-thirds vote of
the Company's Continuing Directors. Under the Company's Certificate of
Incorporation, the restriction on voting shares beneficially owned in violation
of the foregoing limitations is imposed automatically. In order to prevent the
imposition of such restrictions, the Board of Directors must take affirmative
action approving in advance a particular offer to acquire or acquisition.
Unless the Board took such affirmative action, the provision would operate to
restrict the voting by beneficial owners of more than 10% of the Company's
Common Stock in a proxy contest.
Board Consideration of Certain Nonmonetary Factors in the Event of an Offer by
Another Party
The Certificate of Incorporation of the Company permits the Board of
Directors, in evaluating a Business Combination or a tender or exchange offer,
to consider, in addition to the adequacy of the amount to be paid in connection
with any such transaction, certain specified factors and any other factors the
Board deems relevant, including (i) the social and economic effects of the
transaction on the Company and its subsidiaries, employees, depositors, loan and
other customers, creditors and other elements of the communities in which the
Company and its subsidiaries operate or are located; (ii) the business and
financial condition and earnings prospects of the acquiring party or parties;
and (iii) the competence, experience and integrity of the acquiring party or
parties and its or their management. By having the standards in the Certificate
of Incorporation of the Company, the Board of Directors may be in a stronger
position to oppose any proposed business combination, tender or exchange offer
if the Board concludes that the transaction would not be in the
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best interest of the Company, even if the price offered is significantly greater
than the then market price of any equity security of the Company.
Limitations on Call of Meetings of Stockholders
The Company's Certificate of Incorporation provides that special meetings
of stockholders may only be called by the Company's Board of Directors or an
appropriate committee appointed by the Board of Directors. Stockholders are not
authorized to call a special meeting, and stockholder action may be taken only
at a special or annual meeting of stockholders and not by written consent.
Absence of Cumulative Voting
The Company's Certificate of Incorporation provides that there shall not be
cumulative voting by stockholders for the election of the Company's directors.
The absence of cumulative voting rights effectively means that the holders of a
majority of the shares voted at a meeting of stockholders may, if they so
choose, elect all directors of the Company to be selected at that meeting, thus
precluding minority stockholder representation on the Company's Board of
Directors.
Authorization of Preferred Stock
The Company's Certificate of Incorporation authorizes the issuance of up to
500,000 shares of preferred stock, which conceivably would represent an
additional class of stock required to approve any proposed acquisition. The
Company is authorized to issue preferred stock from time to time in one or more
series subject to applicable provisions of law, and the Board of Directors is
authorized to fix the designations, powers, preferences and relative
participating, optional and other special rights of such shares, including
voting rights (which could be multiple or as a separate class) and conversion
rights. Issuance of the preferred stock could adversely affect the relative
voting rights of holders of the Common Stock. In the event of a proposed
merger, tender offer or other attempt to gain control of the Company that the
Board of Directors does not approve, it might be possible for the Board of
Directors to authorize the issuance of a series of preferred stock with rights
and preferences that would impede the completion of such a transaction. An
effect of the possible issuance of preferred stock, therefore, may be to deter a
future takeover attempt. The Board of Directors has no present plans or
understandings for the issuance of any preferred stock and does not intend to
issue any preferred stock except on terms which the Board of Directors deems to
be in the best interests of the Company and its stockholders. This preferred
stock, none of which has been issued by the Company, together with authorized
but unissued shares of Common Stock (the Certificate of Incorporation authorizes
the issuance of up to 7,500,000 shares of Common Stock), also could represent
additional capital required to be purchased by the acquiror.
Procedures for Stockholder Nominations
The Company's Certificate of Incorporation provides that any stockholder
desiring to make a nomination for the election of directors or a proposal for
new business at a meeting of stockholders must submit written notice to the
Secretary of the Company not less than 30 or more than 60 days in advance of the
meeting. "New business" within the meaning of this provision will be
interpreted by the Company to exclude shareholder proposals which have been
included in the Company's proxy solicitation materials pursuant to Rule 14a-8
under the Exchange Act.
Amendment of Bylaws
The Company's Certificate of Incorporation provides that the Company's
Bylaws may be amended either by a two-thirds vote of the Company's Board of
Directors or by the affirmative vote of the holders of not less than 80% of the
outstanding shares of the Company's stock entitled to vote generally in the
election of directors, after giving effect to any limits on voting rights.
Absent this provision, Delaware law provides that a corporation's bylaws may be
amended by the holders of a majority of a corporation's outstanding capital
stock. The Company's Bylaws contain numerous provisions concerning the
Company's governance, such as fixing the number of directors and determining the
number of directors constituting a quorum. By reducing the ability of a
potential corporate raider to make changes in the Company's Bylaws and to reduce
the authority of the Board of Directors or impede its ability to manage the
Company, this provision could have the effect of discouraging a tender offer or
other takeover attempt where the ability to make fundamental changes through
bylaw amendments is an important element of the takeover strategy of the
acquiror.
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Amendment of Certificate of Incorporation
The Company's Certificate of Incorporation provides that specified
provisions contained in the Certificate of Incorporation may not be repealed or
amended except upon the affirmative vote of not less than 80% of the outstanding
shares of the Company's stock entitled to vote generally in the election of
directors, after giving effect to any limits on voting rights. This requirement
exceeds the majority vote of the outstanding stock that would otherwise be
required by Delaware law for the repeal or amendment of a certificate provision.
The specific provisions are those (i) governing the calling of special meetings,
the absence of cumulative voting rights and the requirement that stockholder
action be taken only at annual or special meetings, (ii) requiring written
notice to the Company of nominations for the election of directors and new
business proposals, (iii) governing the number of the Company's Board of
Directors, the filling of vacancies on the Board of Directors and classification
of the Board of Directors, (iv) providing the mechanism for removing directors,
(v) limiting the acquisition of more than 10% of the capital stock of the
Company or the Bank (except, with the prior approval of the Continuing Directors
of the Company), (vi) governing the requirement for the approval of certain
Business Combinations involving a "Related Person," (vii) regarding the
consideration of certain nonmonetary factors in the event of an offer by another
party, (viii) providing for the indemnification of directors, officers,
employees and agents of the Company, (ix) pertaining to the elimination of the
liability of the directors to the Company and its stockholders for monetary
damages, with certain exceptions, for breach of fiduciary duty, and (x)
governing the required stockholder vote for amending the Certificate of
Incorporation or Bylaws of the Company. This provision is intended to prevent
the holders of less than 80% of the outstanding stock of the Company from
circumventing any of the foregoing provisions by amending the Certificate of
Incorporation to delete or modify one of such provisions. This provision would
enable the holders of more than 20% of the Company's voting stock to prevent
amendments to the Company's Certificate of Incorporation or Bylaws, even if such
amendments were favored by the holders of a majority of the voting stock.
Benefit Plans
In addition to the provisions of the Company's Certificate of Incorporation
and Bylaws described above, certain benefit plans of the Company and the Bank
adopted in connection with the Conversion contain provisions which also may
discourage hostile takeover attempts which the Boards of Directors of the
Company and the Bank might conclude are not in the best interests of the
Company, the Bank or the Company's stockholders. For a description of the
benefit plans and the provisions of such plans relating to changes in control of
the Company or the Bank, see "Management of the Bank -- Certain Benefit Plans
and Agreements."
The Purpose of Anti-Takeover Provisions of the Company's Certificate of
Incorporation and Bylaws
The Boards of Directors of the Company and the Bank believe that the
provisions described above reduce the Company's vulnerability to takeover
attempts and certain other transactions which have not been negotiated with and
approved by its Board of Directors. These provisions will also assist the
Company and the Bank in the orderly deployment of the net proceeds of the
Conversion into productive assets during the initial period after the
Conversion. The Boards of Directors of the Company and the Bank believe these
provisions are in the best interests of the Bank and of the Company and its
stockholders. In the judgment of the Boards of Directors of the Company and the
Bank, the Company's Board is in the best position to consider all relevant
factors and to negotiate for what is in the best interests of the stockholders
and the Company's other constituents. Accordingly, the Boards of Directors of
the Company and the Bank believe that it is in the best interests of the Company
and its stockholders to encourage potential acquirors to negotiate directly with
the Company's Board of Directors and that these provisions will encourage such
negotiations and discourage non-negotiated takeover attempts. It is also the
view of the Board of Directors that these provisions should not discourage
persons from proposing a merger or other transaction at prices reflective of the
true value of the Company and which is in the best interests of all
stockholders.
Attempts to acquire control of financial institutions and their holding
companies have recently become increasingly common. Takeover attempts which
have not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms which may be less favorable than
might otherwise be available. A transaction which is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value for the Company
and stockholders, with due consideration given to matters such as the management
and business of the acquiring corporation and maximum strategic development of
the Company's assets.
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An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause great expense. Although a tender offer or
other takeover attempt may be made at a price substantially above then current
market prices, such offers are sometimes made for less than all the outstanding
shares of a target company. As a result, stockholders may be presented with the
alternative of partially liquidating their investment at a time that may be
disadvantageous, or retaining their investment in an enterprise which is under
different management and whose objectives may not be similar to those of the
remaining stockholders.
Despite the belief of the Bank and the Company as to the benefits to
stockholders of these provisions of the Company's Certificate of Incorporation
and Bylaws, these provisions may also have the effect of discouraging a future
takeover attempt which would not be approved by the Company's Board, but
pursuant to which the stockholders may receive a substantial premium for their
shares over then current market prices. As a result, stockholders who might
desire to participate in such a transaction may not have any opportunity to do
so. Such provisions will also render the removal of the Company's Board of
Directors and management more difficult and may tend to stabilize the Company's
stock price, thus limiting gains which might otherwise be reflected in price
increases due to a potential merger or acquisition. The Board of Directors,
however, has concluded that the potential benefits of these provisions outweigh
the possible disadvantages. Pursuant to applicable regulations, at any annual
or special meeting of its stockholders after the Conversion, the Company may
adopt additional Certificate of Incorporation provisions regarding the
acquisition of its equity securities that would be permitted to a Delaware
corporation.
DESCRIPTION OF CAPITAL STOCK
General
The Company is authorized to issue 7,500,000 shares of Common Stock, par
value $0.01 per share, and 500,000 shares of serial preferred stock, par value
$0.01 per share. The Company currently expects to issue between 2,040,000 and
2,760,000 shares, subject to adjustment, of the Common Stock and no shares of
serial preferred stock in the Conversion. The Company has reserved for future
issuance under the Option Plan an amount of authorized but unissued shares of
Common Stock equal to 10% of the shares to be issued in the Conversion. The
capital stock of the Company will represent nonwithdrawable capital, will not be
an account of an insurable type, and will not be insured by the FDIC or any
other federal or state governmental agency.
Common Stock
Voting Rights. Each share of the Common Stock will have the same relative
rights and will be identical in all respects with every other share of the
Common Stock. The holders of the Common Stock will possess exclusive voting
rights in the Company, except to the extent that shares of serial preferred
stock issued in the future may have voting rights, if any. Each holder of
shares of Common Stock will be entitled to one vote for each share held of
record on all matters submitted to a vote of holders of shares of Common Stock.
For information regarding a possible reduction in voting rights, see "Certain
Anti-Takeover Provisions in the Certificate of Incorporation and Bylaws --
Restrictions on Acquisitions of Shares."
Dividends. The Company may, from time to time, declare dividends to the
holders of the Common Stock, who will be entitled to share equally in any such
dividends. For information as to cash dividends, see "Dividend Policy",
"Regulation -- Dividend Restrictions", and "Taxation."
Liquidation. In the event of any liquidation, dissolution or winding up of
the Bank, the Company, as holder of all of the Bank's capital stock, would be
entitled to receive all assets of the Bank after payment of all debts and
liabilities of the Bank and after distribution of the balance in the liquidation
account to Eligible Account Holders and Supplemental Eligible Account Holders.
In the event of a liquidation, dissolution or winding up of the Company, each
holder of shares of Common Stock would be entitled to receive, after payment of
all debts and liabilities of the Company, a pro rata portion of all assets of
the Company available for distribution to holders of the Common Stock. If any
serial preferred stock is issued, the holders thereof may have a priority in
liquidation or dissolution over the holders of the Common Stock.
93
<PAGE>
Restrictions on Acquisition of the Common Stock. For information regarding
limitations on acquisition of shares of Common Stock, see "Certain Restrictions
on Acquisition of the Company and the Bank," "Certain Anti-Takeover Provisions
in the Certificate of Incorporation and Bylaws" and "The Conversion --
Regulatory Restrictions on Acquisition of the Common Stock."
Other Characteristics. Holders of the Common Stock will not have
preemptive rights with respect to any additional shares of Common Stock which
may be issued. The Common Stock is not subject to call for redemption, and the
outstanding shares of Common Stock, when issued and upon receipt by the Company
of the full purchase price therefor, will be fully paid and nonassessable.
Transfer Agent and Registrar. The transfer agent and registrar for Common
Stock will be Registrar and Transfer Company.
Serial Preferred Stock
None of the 500,000 authorized shares of serial preferred stock of the
Company will be issued in the Conversion. After the Conversion is completed,
the Board of Directors of the Company will be authorized to issue serial
preferred stock and to fix and state voting powers, designations, preferences or
other special rights of such shares and the qualifications, limitations and
restrictions thereof. The serial preferred stock may rank prior to Common Stock
as to dividend rights or liquidation preferences, or both, and may have full or
limited voting rights. The Board of Directors has no present intention to issue
any of the serial preferred stock. Should the Board of Directors of the Company
subsequently issue serial preferred stock, no holder of any such stock shall
have any preemptive right to subscribe for or purchase any stock or any other
securities of the Company other than such, if any, as the Board of Directors, in
its sole discretion, may determine and at such price or prices and upon such
other terms as the Board of Directors, in its sole discretion, may fix.
REGISTRATION REQUIREMENTS
The Company will register its Common Stock with the SEC pursuant to the
Exchange Act upon the completion of the Conversion and will not deregister said
shares for a period of at least three years following the completion of the
Conversion. Upon such registration, the proxy and tender offer rules, insider
trading reporting and restrictions, annual and periodic reporting and other
requirements of the Exchange Act will be applicable. The Company intends to
have a December 31 fiscal year end.
LEGAL OPINIONS
The legality of the Common Stock will be passed upon for the Company by
Reinhart, Boerner, Van Deuren, Norris & Rieselbach, P.C., Washington, D.C.,
which has consented to the references herein to its opinion. Certain legal
matters will be passed upon for the Agents by Muldoon Murphy & Faucette,
Washington, D.C.
TAX OPINIONS
The federal income tax consequences of the Conversion will be passed upon
by Reinhart, Boerner, Van Deuren, Norris & Rieselbach, P.C., Washington, D.C.,
which has consented to the references herein to its opinion. The Kentucky
income tax consequences of the Conversion will be opined upon by York, Neel &
Co.-Hopkinsville, LLP, which has consented to the references herein to its
opinion.
EXPERTS
The financial statements of Hopkinsville Federal Savings Bank at December
31, 1996 and 1995 and for each of the years in the three-year period ended
December 31, 1996 have been included herein and elsewhere in the registration
statement and the Bank's application for conversion in reliance upon the report
of York, Neel & Co.-Hopkinsville, LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
94
<PAGE>
National Capital has consented to the publication herein of the summary of
its letter to the Bank setting forth its opinion as to the estimated pro forma
aggregate market value of the Common Stock to be issued in the Conversion and
the value of Subscription Rights to purchase Common Stock and to the use of its
name and statements with respect to it appearing herein.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement with respect to
Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. Such
information may be inspected at the public reference facilities maintained by
the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Copies
may be obtained at prescribed rates from the Public Reference Section of the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also maintains an
Internet address ("Web site") that contains reports, proxy and information
statements and other information regarding registrants, including the Company,
that file electronically with the SEC. The address for this Web site is
"http://www.sec.gov."
The Bank has filed with the OTS an Application for Conversion. This
document omits certain information contained in such application. The
Application for Conversion can be inspected, without charge, at the offices of
the OTS, 1700 G Street, N.W., Washington, D.C. 20552, and at the office of the
OTS Regional Director, Central Regional Office, at 200 West Madison Street,
Suite 1300, Chicago, Illinois.
95
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report F-2
Statement of Financial Condition as of June 30, 1997
(unaudited) and December 31, 1996 and 1995 F-3
Statements of Income for the Six Months Ended
June 30, 1997 and 1996 (unaudited) and for each
of the Three Years in the Period ended December 31, 1996 F-5
Statements of Equity for the Six Months ended June 30,
1997 (unaudited) and for each of the Three Years in the
Period ended December 31, 1996 F-6
Statements of Cash Flow for the Six Months Ended
June 30, 1997 and 1996 (unaudited) and for each of
the Three Years in the Period ended December 31, 1996 F-7
Notes to 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 HopFed Bancorp, Inc. have been omitted because
HopFed Bancorp, Inc. has not yet issued any stock, has no assets and no
liabilities and has not conducted any business other than of an organizational
nature.
F-1
<PAGE>
LEONARD F. ADCOCK, CPA
MICHAEL L. TOMS, CPA
JOHN M. DeANGELIS, CPA
[YORK NEEL LOGO APPEARS HERE] BRADLEY K. CORNELIUS, CPA
& CO.-HOPKINSVILLE, LLP
1113 BETHEL STREET
CERTIFIED PUBLIC ACCOUNTANTS HOPKINSVILLE, KENTUCKY 42240
BUSINESS CONSULTANTS (502) 886-0208
FAX (502)886-0875
Independent Auditor's Report
To the Board of Directors
Hopkinsville Federal Savings Bank
We have audited the accompanying statements of financial condition of
Hopkinsville Federal Savings Bank as of December 31, 1996 and 1995, and the
related statements of income, equity, and cash flows for each of the three years
in the period ended December 31, 1996. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hopkinsville Federal Savings
Bank as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
As discussed in Note 15 to the financial statements, an error resulting in
misstatements of other liabilities, deferred federal income taxes payable, and
net income for the years ended December 31, 1994, 1995, and 1996, was discovered
by management of the Company in August 1997. Accordingly, the 1994, 1995 and
1996 financial statements have been restated to correct the error.
Hopkinsville, Kentucky
February 14, 1997
(except for Note 14, as to
which the date is May 21, 1997 and Notes 9, 10, and 15, as to which the date is
August 8, 1997)
F-2
An affiliate firm of York, Neel & Company, LLP
- --------------------------------------------------------------------------------
HOPKINSVILLE . MADISONVILLE . MORGANFIELD . HENDERSON . OWENSBORO
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
ASSETS
December 31,
June 30, ---------------------------------------
1997 1996 1995
------------ ------------ ------------
(Unaudited) (Restated) (Restated)
<S> <C> <C> <C>
Cash and due from banks $ 1,405,645 $ 1,451,727 $ 1,303,030
Time deposits 2,000,000 2,000,000 7,000,000
Interest-earning deposits in
Federal Home Loan Bank 3,196 -- 5,550,000
Federal funds sold 11,146,000 500,000 7,948,000
Securities available
for sale 6,048,156 5,125,452 4,053,144
Securities held to
maturity 79,587,119 95,946,689 98,553,174
Loans receivable, net of
allowance for loan losses
of $227,444 in 1997,
$217,444 in 1996 and
$122,252 in 1995 98,436,491 95,495,890 84,755,375
Accrued interest
receivable 1,244,562 1,290,408 1,060,974
Premises and equipment,
net 2,387,904 2,332,876 2,347,113
Other assets 236,440 254,989 27,519
------------ ------------ ------------
Total assets $202,495,513 $204,398,031 $212,598,329
============ ============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-3
<PAGE>
LIABILITIES AND EQUITY
<TABLE>
<CAPTION>
December 31,
June 30, ---------------------------------------
1997 1996 1995
------------ ------------ ------------
(Unaudited) (Restated) (Restated)
<S> <C> <C> <C>
Deposits:
Noninterest-bearing
accounts $ 1,844,242 $ 1,784,472 $ 1,236,424
Interest-bearing
accounts:
Demand / NOW accounts 7,750,500 7,603,322 7,628,482
Money market accounts 35,933,724 36,939,552 34,781,597
Passbook savings 11,731,018 10,631,561 11,196,639
Other time deposits 124,181,530 126,868,459 139,932,047
------------ ------------ ------------
Total deposits 181,441,014 183,827,366 194,775,189
Advances from borrowers
for taxes and insurance 290,556 184,120 176,553
Federal income taxes payable:
Current -- -- --
Deferred 1,933,050 1,659,063 1,286,264
Other borrowed funds -- 1,317,000 --
Other liabilities 566,248 586,934 358,182
------------ ------------ ------------
Total liabilities 184,230,868 187,574,483 196,596,188
------------ ------------ ------------
Equity:
Retained earnings -
substantially
restricted 15,460,603 14,590,739 14,396,205
Net unrealized
appreciation on
available-for-sale
securities, net of tax
of $1,444,506 in 1997,
$1,150,235 in 1996
and $827,300 in 1995 2,804,042 2,232,809 1,605,936
------------ ------------ ------------
Total equity 18,264,645 16,823,548 16,002,141
------------ ------------ ------------
Total liabilities
and equity $202,495,513 $204,398,031 $212,598,329
============ ============ ============
</TABLE>
F-4
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Six Months
Ended June 30, For the Years Ended December 31,
-------------------------- --------------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Restated) (Restated) (Restated)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans receivable $3,701,252 $3,222,535 $ 6,823,842 $ 5,839,659 $ 5,247,026
Securities available for sale 81,914 73,730 150,814 134,894 109,441
Securities held to maturity 2,557,841 2,857,412 5,623,854 4,364,389 3,320,250
Time deposits 301,462 410,246 621,041 2,133,061 1,758,100
---------- ---------- ----------- ----------- -----------
Total interest income 6,642,469 6,563,923 13,219,551 12,472,003 10,434,817
---------- ---------- ----------- ----------- -----------
Interest expense:
Deposits 4,416,467 5,028,797 9,731,511 10,009,266 7,740,293
Other borrowed funds 9,336 23,174 25,022 - -
---------- ---------- ----------- ----------- -----------
Total interest expense 4,425,803 5,051,971 9,756,533 10,009,266 7,740,293
---------- ---------- ----------- ----------- -----------
Net interest income 2,216,666 1,511,952 3,463,018 2,462,737 2,694,524
Provision for loan losses 10,000 - 100,000 - -
---------- ---------- ----------- ----------- -----------
Net interest income after
provision for loan losses 2,206,666 1,511,952 3,363,018 2,462,737 2,694,524
---------- ---------- ----------- ----------- -----------
Noninterest income:
NOW account fees 75,628 73,791 156,584 115,283 102,899
Loan fees 98,495 144,310 259,665 153,681 229,082
Service charges 57,022 66,945 112,251 77,163 124,023
Other 39,121 32,848 61,363 52,064 55,849
---------- ---------- ----------- ----------- -----------
Total noninterest income 270,266 317,894 589,863 398,191 511,853
---------- ---------- ----------- ----------- -----------
Noninterest expenses:
Salaries and benefits 721,654 612,317 1,261,090 1,204,204 1,410,302
Deposit insurance premium 63,103 221,302 1,701,758 426,172 396,847
Occupancy expense 99,556 111,870 215,101 176,757 110,114
Data processing 49,651 30,097 86,674 102,334 103,533
Other 228,920 187,594 409,043 336,402 318,396
---------- ---------- ----------- ----------- -----------
Total noninterest expense 1,162,884 1,163,180 3,673,666 2,245,869 2,339,192
---------- ---------- ----------- ----------- -----------
Income before income taxes 1,314,048 666,666 279,215 615,059 867,185
Income tax expense 444,184 221,530 84,681 203,059 287,227
---------- ---------- ----------- ----------- -----------
Net income $ 869,864 $ 445,136 $ 194,534 $ 412,000 $ 579,958
========== ========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-5
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
On Available-
Retained For-Sale Total
Earnings Securities Equity
----------- ---------- -----------
<S> <C> <C> <C>
Balance,
December 31, 1993 $13,404,247 $ 933,270 $14,337,517
Net income, as restated 579,958 - 579,958
Net changes in unrealized
appreciation on
available-for-sale
securities, net of taxes
of $6,538 - 12,692 12,692
----------- ---------- -----------
Balance,
December 31, 1994 13,984,205 945,962 14,930,167
Net income, as restated 412,000 - 412,000
Net changes in unrealized
appreciation on
available-for-sale
securities, net of taxes
of $339,986 - 659,974 659,974
----------- ---------- -----------
Balance,
December 31, 1995 14,396,205 1,605,936 16,002,141
Net income, as restated 194,534 - 194,534
Net changes in unrealized
appreciation on
available-for-sale
securities, net of taxes
of $322,935 - 626,873 626,873
----------- ---------- -----------
Balance,
December 31, 1996 14,590,739 2,232,809 16,823,548
Net income (unaudited) 869,864 - 869,864
Net changes in unrealized
appreciation on
available-for-sale
securities, net of taxes
of $294,271 (unaudited) - 571,233 571,233
----------- ---------- -----------
Balance,
June 30, 1997 $15,460,603 $2,804,042 $18,264,645
=========== ========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-6
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months
Ended June 30, For the Years Ended December 31,
--------------------------- ------------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Restated) (Restated) (Restated)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 869,864 $ 445,136 $ 194,534 $ 412,000 $ 579,958
Adjustments to reconcile net
income to net cash provided by
operating activities:
Provision for loan losses 10,000 - 100,000 - -
Depreciation 49,982 57,605 117,094 97,700 37,358
Accretion of investment
security discounts (14,329) (2,732) (5,499) (4,233) (2,703)
Deferred income taxes (20,284) 34,078 49,864 51,774 (1,520)
Stock dividend (57,200) (52,500) (107,500) (97,700) (77,300)
Gain on sale of equipment - (8,265) (8,265) (400) (2,852)
(Increase) decrease in:
Accrued interest receivable 45,846 (291,649) (229,434) (267,530) (247,878)
Other assets 18,549 (179,482) (227,470) 23,561 (11,307)
Increase (decrease) in
other liabilities (20,686) 121,295 228,752 (46,386) 174,405
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities 881,742 123,486 112,076 168,786 448,161
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease
in time deposits - - 5,000,000 20,000,000 (12,000,000)
Net (increase) decrease
in interest-bearing
deposits in FHLB (3,196) 2,509,198 5,550,000 5,650,000 (1,775,000)
Net (increase) decrease in
federal funds sold (10,646,000) (625,000) 7,448,000 (6,618,000) 9,135,000
Proceeds from maturities of
held-to-maturity securities 22,306,634 38,088,591 44,010,074 51,503,438 11,773,691
Purchases of held-to-maturity
securities (5,932,735) (32,032,667) (41,398,090) (73,707,447) (8,009,818)
Purchases of available-for-
sale securities - (15,000) (15,000) - -
Net increase in loans (2,950,601) (6,097,148) (10,840,515) (6,228,670) (10,722,488)
Purchases of premises/equipment (105,010) (14,630) (108,724) (95,736) (911,452)
Proceeds from sale of equipment - 14,132 14,132 400 2,852
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities 2,669,092 1,827,476 9,659,877 (9,496,015) (12,507,215)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand
deposits, savings and
NOW deposits 300,577 3,588,243 2,115,765 (9,868,232) 809,934
Net increase (decrease)
in time deposits (2,686,929) (5,324,315) (13,063,588) 18,943,928 11,705,448
Increase (decrease) in advance
payments by borrowers
for taxes and insurance 106,436 169,669 7,567 (22,947) 15,113
Net increase (decrease) in
other borrowed funds (1,317,000) - 1,317,000 - -
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities (3,596,916) (1,566,403) (9,623,256) 9,052,749 12,530,495
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash
and cash equivalents (46,082) 384,559 148,697 (274,480) 471,441
Cash and cash equivalents,
beginning of period 1,451,727 1,303,030 1,303,030 1,577,510 1,106,069
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents,
end of period $ 1,405,645 $ 1,687,589 $ 1,451,727 $ 1,303,030 $ 1,577,510
=========== =========== =========== =========== ===========
Interest paid $ 4,689,103 $ 4,998,652 $ 9,557,312 $ 9,994,399 $ 7,691,107
=========== =========== =========== =========== ===========
Income taxes paid $ 220,074 $ 116,600 $ 285,991 $ 146,000 $ 279,046
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-7
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies of the Bank are as follows:
a. Nature of Business
Hopkinsville Federal Savings Bank (the "Bank") is a mutual
savings bank which was organized in 1879. Its principal business
consists of accepting deposits and residential mortgage loan
originations in its primary market area of Christian, Calloway,
Todd and Trigg Counties, Kentucky. The Bank is subject to the
regulations of certain federal agencies and undergoes periodic
examinations by those regulatory authorities.
b. Unaudited Interim Financial Statements
In the opinion of management, the unaudited statement of
financial condition and statement of equity as of June 30, 1997
and the unaudited statements of income and cash flows for the
six months ended June 30, 1997 and 1996 reflect all adjustments
(which include only normal recurring adjustments) necessary to
present fairly the information set forth therein. The results of
operations for the interim periods are not necessarily
indicative of the results for the full year.
c. Cash and Cash Equivalents
For the purpose of presentation in the statements of cash flows,
cash and cash equivalents are defined as those amounts included
in the balance sheet caption "cash and due from banks".
d. Securities Held to Maturity
Bonds, notes and debentures for which the Bank has the positive
intent and ability to hold to maturity are reported at cost,
adjusted for premiums and discounts that are recognized in
interest income over the period to maturity using the level
yield method.
Declines in the fair value of individual held-to-maturity
securities below their cost that are other than temporary result
in write-downs of the individual securities to their fair value.
The write-downs are included in earnings as realized losses.
Continued
F-8
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
e. Securities Available for Sale
Available-for-sale securities consist of certain equity
securities not classified as trading securities nor as
held-to-maturity securities.
Unrealized holding gains and losses, net of tax, on
available-for-sale securities are reported as a net amount in a
separate component of equity until realized.
Gains and losses on the sale of available-for-sale securities
are determined using the specific identification method.
Declines in the fair value of individual available-for-sale
securities below their cost that are other than temporary result
in write-downs of the individual securities to their fair value.
The write-downs are included in earnings as realized losses.
Premiums and discounts are recognized in interest income over
the period to maturity using the level yield method.
f. Loans Receivable
Loans receivable are stated at unpaid principal balances, less
the allowance for loan losses and discounts.
Discounts on home improvement and consumer loans are recognized
over the lives of the loans using the interest method. Loan
origination fee income is recognized as received and direct loan
origination costs are expensed as incurred. Statement of
Financial Accounting Standard ("SFAS") No. 91 requires the
recognition of loan origination fee income over the life of the
loan and the recognition of certain direct loan origination
costs over the life of the loan. However, deferral of such fees
and costs would not have a material effect on the financial
statements.
Uncollectible interest on loans that are contractually past due
is charged off, or an allowance is established based on
management's periodic evaluation. The allowance is established
by a charge to interest income equal to all interest previously
accrued, and income is subsequently recognized only to the
extent that cash payments are received while the loan is
classified as nonaccrual. Loans may be returned to accrual
Continued
F-9
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
f. Loans Receivable (continued)
status when all principal and interest amounts contractually due
(including arrearages) are reasonably assured of repayment
within an acceptable period of time, and there is a sustained
period of repayment performance by the borrower in accordance
with the contractual terms of interest and principal.
The Bank provides an allowance for loan losses and includes in
operating expenses a provision for loan losses determined by
management. Management's periodic evaluation of the adequacy of
the allowance is based on the Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, and current economic
conditions. Management believes it has established the allowance
in accordance with generally accepted accounting principles and
has taken into account the views of its regulators and the
current economic environment.
g. Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, loan
foreclosure are carried at the lower of cost or fair value less
cost to sell. Costs of developing such real estate are
capitalized, whereas costs relating to holding the property are
expensed. Valuations are periodically performed by management,
and any adjustments to value are made through an allowance for
losses.
h. Income Taxes
The Bank accounts for income taxes through the use of the asset
and liability method. Under the asset and liability method,
deferred taxes are recognized for the tax consequences of
temporary differences by applying enacted statutory rates
applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets
and liabilities. The effect on deferred taxes of a change in tax
rates would be recognized in income in the period that includes
the enactment date.
Continued
F-10
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
i. Premises and Equipment
Land is carried at cost. Land improvements, buildings, and
furniture and equipment are carried at cost, less accumulated
depreciation and amortization. Buildings and furniture and
equipment are depreciated generally by the straight-line method
over the estimated useful lives of the assets. The estimated
useful lives used to compute depreciation are as follows:
Land improvements 5-15 years
Buildings 40 years
Furniture and equipment 5-15 years
j. Financial Instruments
In the ordinary course of business the Bank entered into
off-balance-sheet financial instruments consisting of
commitments to extend credit, etc. Such financial instruments
are recorded in the financial statements when they are funded or
related fees are incurred or received.
k. Fair Values of Financial Instruments
The following methods and assumptions were used by the Bank in
estimating fair values of financial instruments as disclosed
herein:
Cash and short term instruments. The carrying amounts of cash
and short term instruments approximate their fair value.
Available-for sale and held-to-maturity securities. Fair values
for securities are based on quoted market prices.
Loans receivable. For variable rate loans that reprice annually
and have no significant change in credit risk, fair values are
based on carrying values. Fair values for fixed rate mortgage
loans and fixed rate commercial loans are estimated using
discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of
similar credit quality.
Continued
F-11
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
k. Fair Values of Financial Instruments (continued)
Deposit liabilities. The fair values disclosed for demand
deposits are, by definition, equal to the amount payable on
demand at the reporting date (that is, their carrying amounts).
The carrying amounts of variable rate, fixed-term money market
accounts approximate their fair values at the reporting date.
Fair values for fixed rate certificates of deposits (CD's) are
estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates of
deposit to a schedule of aggregated expected annual maturities
on time deposits.
Advances from borrowers for taxes and licenses. The carrying
amounts of advances from borrowers approximate their fair value.
Other borrowed funds. The carrying amounts of other borrowed
funds approximate their fair values since such borrowings mature
within 90 days.
Accrued interest. The carrying amounts of accrued interest
approximate their fair values.
Off-balance-sheet instruments. Off-balance-sheet lending
commitments approximate their fair values due to the short
period of time before the commitment expires.
l. 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.
Continued
F-12
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
2. SECURITIES
Securities, which consist of debt and equity investments, have been
classified in the statements of financial condition according to
management's intent. The carrying amount of securities and their
approximate fair values follow:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
Available-for-sale securities
June 30, 1997 (unaudited):
Restricted:
FHLB stock $ 1,664,100 $ -- $ -- $ 1,664,100
Intrieve 15,000 -- -- 15,000
----------- ----------- ---------- -----------
1,679,100 -- -- 1,679,100
Unrestricted:
FHLMC stock 120,508 4,248,548 -- 4,369,056
----------- ----------- ---------- -----------
$ 1,799,608 $ 4,248,548 $ -- $ 6,048,156
=========== =========== ========== ===========
December 31, 1996:
Restricted:
FHLB stock $ 1,606,900 $ -- $ -- $ 1,606,900
Intrieve 15,000 -- -- 15,000
----------- ----------- ---------- -----------
1,621,900 -- -- 1,621,900
Unrestricted:
FHLMC stock 120,508 3,383,044 -- 3,503,552
----------- ----------- ---------- -----------
$ 1,742,408 $ 3,383,044 $ -- $ 5,125,452
=========== =========== ========== ===========
December 31, 1995:
Restricted:
FHLB stock $ 1,499,400 $ -- $ -- $ 1,499,400
Unrestricted:
FHLMC stock 120,508 2,433,236 -- 2,553,744
----------- ----------- ---------- -----------
$ 1,619,908 $ 2,433,236 $ -- $ 4,053,144
=========== =========== ========== ===========
</TABLE>
Continued
F-13
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
2. SECURITIES (continued)
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Held-to-maturity securities
June 30, 1997 (unaudited):
U.S. government and agency securities:
FHLB investment
securities $57,971,174 $ 65,314 $ (448,970) $57,587,518
----------- ----------- ----------- -----------
Mortgage-backed
securities:
GNMA 19,380,399 389,341 (6,966) 19,762,774
FNMA 2,235,546 - (30,198) 2,205,348
----------- ----------- ----------- -----------
21,615,945 389,341 (37,164) 21,968,122
----------- ----------- ----------- -----------
$79,587,119 $ 454,655 $ (486,134) $79,555,640
=========== =========== =========== ===========
December 31, 1996:
U.S. government and agency securities:
FHLB investment
securities $77,962,421 $ 38,984 $ (512,772) $77,488,633
----------- ----------- ----------- -----------
Mortgage-backed
securities:
GNMA 17,531,921 297,278 (3,430) 17,825,769
FNMA 452,347 - (5,075) 447,272
----------- ----------- ----------- -----------
17,984,268 297,278 (8,505) 18,273,041
----------- ----------- ----------- -----------
$95,946,689 $ 336,262 $ (521,277) $95,761,674
=========== =========== =========== ===========
December 31, 1995:
U.S. government and agency securities:
FHLB investment
securities $80,990,171 $ 123,901 $ (318,122) 80,795,950
Mortgage-backed
securities:
GNMA 17,563,003 264,491 (5,511) 17,821,983
----------- ----------- ----------- -----------
$98,553,174 $ 388,392 $ (323,633) $98,617,933
=========== =========== =========== ===========
</TABLE>
Continued
F-14
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
2. SECURITIES (continued)
The scheduled maturities of securities held-to-maturity at June 30, 1997
(unaudited), were as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
----------- -----------
<S> <C> <C>
Due in one year or less $ 8,998,564 $ 8,998,300
Due in one to five years 48,972,610 48,589,218
----------- -----------
57,971,174 57,587,518
Mortgage-backed securities 21,615,945 21,968,122
----------- -----------
$79,587,119 $79,555,640
=========== ===========
</TABLE>
The scheduled maturities of securities held-to-maturity at December 31,
1996, were as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
----------- -----------
<S> <C> <C>
Due in one year or less $24,996,242 $24,949,200
Due in one to five years 52,966,179 52,539,433
----------- -----------
77,962,421 77,488,633
Mortgage-backed securities 17,984,268 18,273,041
----------- -----------
$95,946,689 $95,761,674
=========== ===========
</TABLE>
Continued
F-15
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
3. LOANS RECEIVABLE
The components of loans in the statements of financial condition were as
follows:
<TABLE>
<CAPTION>
December 31,
June 30, --------------------------------
1997 1996 1995
------------- --------- ----------
(Unaudited)
<S> <C> <C> <C>
Real estate loans:
One-to-four family $80,222,361 $77,317,997 $70,417,160
Multi-family 1,857,996 1,466,486 491,621
Construction 4,218,775 5,388,959 4,062,183
Non-residential 7,312,461 5,466,414 5,107,504
----------- ----------- -----------
Total mortgage loans 93,611,593 89,639,856 80,078,468
----------- ----------- -----------
Consumer loans:
Loans secured by
deposits 3,313,860 3,484,074 3,323,604
Other consumer loans 4,288,162 4,004,177 3,016,321
----------- ----------- -----------
Total consumer loans 7,602,022 7,488,251 6,339,925
----------- ----------- -----------
101,213,615 97,128,107 86,418,393
Less:
Undisbursed portion
of mortgage loans (2,549,680) (1,414,773) (1,540,766)
----------- ----------- -----------
Total loans 98,663,935 95,713,334 84,877,627
Less allowance for
loan losses (227,444) (217,444) (122,252)
----------- ----------- -----------
$98,436,491 $95,495,890 $84,755,375
=========== =========== ===========
</TABLE>
An analysis of the change in the allowance for loan losses follows:
<TABLE>
<CAPTION>
December 31,
June 30, ----------------------------
1997 1996 1995
------------- -------- --------
(Unaudited)
<S> <C> <C> <C>
Balance at January 1 $217,444 $122,252 $122,252
Loans charged off - (4,808) -
Recoveries - - -
-------- -------- --------
Net loans charged off - (4,808) -
Provision for loan
losses 10,000 100,000 -
-------- -------- --------
Balance at end of period $227,444 $217,444 $122,252
======== ======== ========
</TABLE>
Continued
F-16
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
4. PREMISES AND EQUIPMENT
Components of properties and equipment included in the statements of
financial condition consisted of the following:
<TABLE>
<CAPTION>
December 31,
June 30, ------------------------------
1997 1996 1995
------------ -------- --------
(Unaudited)
<S> <C> <C> <C>
Land $ 574,067 $ 570,566 $ 495,566
Land improvements 133,839 82,511 82,511
Buildings 2,033,532 2,033,532 2,026,226
Furniture and equipment 694,490 644,309 632,760
---------- ---------- ----------
3,435,928 3,330,918 3,237,063
Less accumulated
depreciation (1,048,024) (998,042) (889,950)
---------- ---------- ----------
$2,387,904 $2,332,876 $2,347,113
========== ========== ==========
</TABLE>
Depreciation expense was $49,982 and $57,605 for the six month periods
ended June 30, 1997 and 1996, respectively, and $117,094, $97,700, and
$37,358 for the years ended December 31, 1996, 1995, and 1994,
respectively.
5. DEPOSITS
At June 30, 1997, the scheduled maturities of other time deposits
(unaudited) were as follows:
<TABLE>
<S> <C>
June 30, 1998 $ 80,112,447
June 30, 1999 30,249,427
June 30, 2000 9,476,844
June 30, 2001 3,377,818
June 30, 2002 964,994
------------
$124,181,530
============
</TABLE>
At December 31, 1996, the scheduled maturities of other time deposits
were as follows:
<TABLE>
<S> <C>
1997 $ 77,287,337
1998 32,362,134
1999 10,432,949
2000 6,152,509
2001 632,156
Thereafter 1,374
------------
$126,868,459
============
</TABLE>
Continued
F-17
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
5. DEPOSITS, (continued)
The amount of other time deposits with a minimum denomination of
$100,000 was $6,999,298 at June 30, 1997 and $7,374,548 and $12,206,055
at December 31, 1996 and 1995, respectively. Deposits in excess of
$100,000 are not federally insured.
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
For the Six Months
Ended June 30, For the Years Ended December 31,
-------------------------- -------------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Demand / NOW accounts $ 98,801 $ 97,450 $ 207,088 $ 168,663 $ 149,582
Money market accounts 784,972 789,798 1,625,405 1,755,073 1,823,226
Passbook savings 151,255 158,558 302,052 329,996 329,233
Other time deposits 3,381,439 3,982,991 7,596,966 7,755,534 5,438,252
---------- ---------- ---------- ----------- ----------
$4,416,467 $5,028,797 $9,731,511 $10,009,266 $7,740,293
========== ========== ========== =========== ==========
</TABLE>
The Bank maintains clearing arrangements for its demand, NOW and money
market accounts with the Federal Home Loan Bank of Cincinnati. The Bank
is required to maintain certain cash reserves in its account to cover
average daily clearings. At June 30, 1997, average daily clearings were
approximately $492,000. At December 31, 1996, average daily clearings
were approximately $536,760.
6. OTHER BORROWED FUNDS
During 1996, the Bank entered into a Cash Management Advance (CMA)
program with the Federal Home Loan Bank. This program is a source of
overnight liquidity to address day-to-day cash needs. The program has a
term of up to 90 days and bears interest at a variable rate equal to the
FHLB cost of funds (7.15% at December 31, 1996). The Bank may borrow up
to $20,000,000 under this program and the amount is collateralized by a
$20,000,000 FHLB investment security. As of December 31, 1996, the
amount owed on the advance was $1,317,000. As of June 30, 1997, the
amount owed on the advance was zero.
7. FINANCIAL INSTRUMENTS
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest
rates. These financial instruments include commitments to extend credit
and commercial letters of credit. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the
amount recognized in the statements of financial condition. The contract
or notional amounts of those instruments reflect the extent of the
Bank's involvement in particular classes of financial instruments.
Continued
F-18
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
7. FINANCIAL INSTRUMENTS (continued)
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and commercial letters of credit is represented by the contractual
notional amount of those instruments. The Bank uses the same credit
policies in making commitments and conditional obligations as it does
for on-balance-sheet instruments.
Unless noted otherwise, the Bank does not require collateral or other
security to support financial instruments with credit risk.
Commitments to Extend Credit. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of
a fee. Since some of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank's experience has been that
most loan commitments are drawn upon by customers. The Bank has offered
standby letters of credit on a limited basis. As of June 30, 1997, the
Bank has not been requested to advance funds on any of the standby
letters of credit.
The estimated fair values of the Bank's financial instruments were as
follows at June 30, 1997:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------------ ------------
<S> <C> <C>
Financial assets:
Cash and due from banks $ 1,405,645 $ 1,405,645
Time deposits 2,000,000 2,000,000
Interest-earning deposits
in FHLB 3,196 3,196
Federal funds sold 11,146,000 11,146,000
Securities available for sale 6,048,156 6,048,156
Securities held to maturity 79,587,119 79,555,640
Loans receivable 98,436,491 98,154,333
Accrued interest receivable 1,244,562 1,244,562
Financial liabilities:
Deposit liabilities (181,441,014) (181,395,855)
Advances from borrowers for
taxes and insurance (290,556) (290,556)
Off-balance-sheet assets (liabilities):
Commitments to extend credit (1,536,300)
Commercial letters of credit (735,469)
</TABLE>
Continued
F-19
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
7. FINANCIAL INSTRUMENTS (continued)
The estimated fair values of the Bank's financial instruments were as
follows at December 31, 1996:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------------ ------------
<S> <C> <C>
Financial assets:
Cash and due from banks $ 1,451,727 $ 1,451,727
Time deposits 2,000,000 2,000,000
Federal funds sold 500,000 500,000
Securities available for sale 5,125,452 5,125,452
Securities held to maturity 95,946,689 95,761,674
Loans receivable 95,495,890 95,216,624
Accrued interest receivable 1,290,408 1,290,408
Financial liabilities:
Deposit liabilities (183,827,366) (183,910,399)
Advances from borrowers for
taxes and insurance (184,120) (184,120)
Other borrowed funds (1,317,000) (1,317,000)
Off-balance-sheet assets (liabilities):
Commitments to extend credit (919,375)
Commercial letters of credit (499,030)
</TABLE>
The estimated fair values of the Bank's financial instruments were as
follows at December 31, 1995:
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------------ ------------
<S> <C> <C>
Financial assets:
Cash and due from banks $ 1,303,030 $ 1,303,030
Time deposits 7,000,000 7,000,000
Interest-earning deposits
in FHLB 5,550,000 5,550,000
Federal funds sold 7,948,000 7,948,000
Securities available for sale 4,053,144 4,053,144
Securities held to maturity 98,553,174 98,617,933
Loans receivable 84,755,375 84,755,375
Accrued interest receivable 1,060,974 1,060,974
Financial liabilities:
Deposit liabilities (194,775,189) (195,352,312)
Advances from borrowers for
taxes and insurance (176,553) (176,553)
Off-balance-sheet assets (liabilities):
Commitments to extend credit (717,624)
Commercial letters of credit (46,250)
</TABLE>
Continued
F-20
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
8. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Most of the Bank's business activity is with customers located within
the western part of the Commonwealth of Kentucky. The majority of the
loans are collateralized by a one-to-four family residence. The Bank
requires collateral for all loans.
The distribution of commitments to extend credit approximates the
distribution of loans outstanding. The contractual amounts of
credit-related financial instruments such as commitments to extend
credit and commercial letters of credit represent the amounts of
potential accounting loss should the contract be fully drawn upon, the
customer default, and the value of any existing collateral become
worthless.
The Bank had $2,003,196, $2,001,890 and $12,618,655 of cash on deposit
with the FHLB and $11,514,808, $1,018,015 and $8,175,728 on deposit with
one financial institution and $500,000, $500,000 and $500,000 on deposit
with one financial institution at June 30, 1997, December 31, 1996 and
December 31, 1995, respectively.
9. PENSION PLAN
Hopkinsville Federal Savings Bank has a noncontributory, defined benefit
pension plan covering substantially all of its employees who satisfy
certain age and service requirements. The benefits are based on years of
service and the employee's average earnings which are computed using the
five consecutive years prior to retirement that yield the highest
average. Hopkinsville Federal's funding policy is to contribute
annually, actuarially determined amounts to finance the plan benefits.
The following table, as restated (see footnote 15), sets forth the
plan's funded status and amounts recognized in the Bank's statements of
financial condition at December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C>
Actuarial present value of benefit
obligations at December 31:
Accumulated benefit obligation:
Vested $1,497,089 $1,326,840 $ 974,870
Nonvested 2,367 2,945 5,977
---------- ---------- ----------
$1,499,456 $1,329,785 $ 980,847
========== ========== ==========
</TABLE>
Continued
F-21
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
9. PENSION PLAN (continued)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Projected benefit obligation
for service rendered to date ($1,908,695) ($1,749,959) ($1,367,099)
Plan assets at fair value 1,414,661 1,260,431 1,051,477
---------- ---------- ----------
Projected benefit obligation
in excess of plan assets (494,034) (489,528) (315,622)
Unrecognized net obligation
existing at December 31 (69,958) (77,953) (85,948)
-----------
Unrecognized prior
service cost 138,747 156,980 175,213
Unrecognized net loss 298,457 267,194 67,605
---------- ---------- ----------
Accrued pension cost $ (126,788) $ (143,307) $ (158,752)
========== ========== ==========
</TABLE>
The components of net periodic pension cost for the years ended
December 31, as restated (see footnote 15), are as follows:
----------- -----------------------------
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost $ 79,562 $ 67,543 $ 79,265
Interest cost on projected
benefit obligation 131,247 113,469 171,703
Actual return on assets (84,117) (89,989) (91,574)
Net amortization/deferral (3,541) 12,497 (60,366)
--------- --------- ---------
Net periodic pension cost $ 123,151 $ 103,520 $ 99,028
========= ========= =========
</TABLE>
Assumptions used to develop the net periodic pension cost were:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- ----
<S> <C> <C> <C>
Discount rate 7.50% 7.50% 8.30%
Expected long-term rate of
return on assets 8.00% 8.00% 8.00%
Rate of increase in
compensation levels 4.50% 4.50% 4.50%
</TABLE>
Continued
F-22
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
10. FEDERAL INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
For the Six Months
Ended June 30, For the Years Ended December 31,
---------------------- ------------------------------------
1997 1996 1996 1995 1994
-------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Current $464,468 $187,452 $34,817 $151,285 $288,747
Deferred (20,284) 34,078 49,864 51,774 (1,520)
-------- -------- ------- -------- --------
$444,184 $221,530 $84,681 $203,059 $287,227
======== ======== ======= ======== ========
</TABLE>
Total income tax expense differed from the amounts computed by applying
the U.S. federal income tax rate of 34 percent to income before income
taxes as follows:
<TABLE>
<CAPTION>
For the Six Months
Ended June 30, For the Years Ended December 31,
---------------------- ------------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Expected income tax expense
at federal tax rate $446,776 $226,666 $94,933 $209,120 $294,842
Dividends received deduction (5,858) (5,136) (10,284) (8,122) (7,019)
Other 3,266 - 32 2,061 (596)
-------- -------- ------- -------- --------
Total income tax expense $444,184 $221,530 $84,681 $203,059 $287,227
======== ======== ======= ======== ========
Effective rate 33.8% 33.2% 30.3% 33.0% 33.1%
======== ======== ======= ======== ========
</TABLE>
Deferred tax expense results from timing differences in the recognition
of income and expense for tax and financial reporting purposes. The
source and tax effect of these timing differences are as follows:
<TABLE>
<CAPTION>
For the Six Months
Ended June 30, For the Years Ended December 31,
--------------------- -----------------------------------
1997 1996 1996 1995 1994
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
FHLB stock dividends $ 19,308 $17,745 $36,631 $33,262 $26,330
Provision for bad-debts (39,592) 16,333 7,617 13,077 25,297
Pension cost - - 5,616 5,251 (53,976)
Other - - - 184 829
-------- ------- ------- ------- -------
$(20,284) $34,078 $49,864 $51,774 $(1,520)
======== ======= ======= ======= =======
</TABLE>
The components of deferred taxes are summarized as follows:
<TABLE>
<CAPTION>
December 31,
June 30, ----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Deferred tax liabilities:
FHLB stock dividends $ 306,544 $ 287,236 $ 250,605
Bad debt reserves 225,109 264,701 257,084
Unrealized appreciation
on securities
available for sale 1,444,506 1,150,235 827,300
---------- ---------- ----------
1,976,159 1,702,172 1,334,989
Deferred tax asset:
Pension cost 43,109 43,109 48,725
---------- ---------- ----------
Net deferred tax liability $1,933,050 $1,659,063 $1,286,264
========== ========== ==========
</TABLE>
Continued
F-23
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
10. FEDERAL INCOME TAXES (continued)
Thrift institutions, in determining taxable income, have historically
been allowed special bad debt deductions based on specified experience
formulae or on a percentage of taxable income before such deductions.
The bad debt deduction based on the latter has been gradually reduced to
8%. During August 1996, the President signed the Small Business
Protection Act of 1996 that will, among other things, repeal the tax bad
debt reserve method for thrifts effective for taxable years beginning
after December 31, 1995. As a result, thrifts must recapture into
taxable income the amount of their post-1987 tax bad debt reserves over
a six-year period beginning after 1995. This recapture can be deferred
for up to two years if the thrift satisfies a residential loan portfolio
test. The Bank is expected to recapture approximately $878,800 of its
tax bad debt reserves into taxable income over six years as a result of
this new law. The recapture will not have any effect on the Bank's
financial statements because the related tax expense has already been
accrued.
Because of such repeal, thrifts such as the Bank may only use the same
tax bad debt reserve that is allowed for banks. Accordingly, a thrift
with assets of $500 million or less may only add to its tax bad debt
reserves based upon its moving six-year average experience of actual
loan losses (i.e., the experience method). A thrift with assets greater
than $500 million can no longer use the reserve method and may only
deduct loan losses as they actually arise (i.e., the specific charge-off
method). The Bank expects to continue to use the reserve method.
The portion of a thrift's tax bad debt reserve that is not recaptured
(generally pre-1988 bad debt reserves) under this new law is only
subject to recapture at a later date under certain circumstances. These
include stock repurchase redemptions by the thrift or if the thrift
converts to a type of institution (such as a credit union) that is not
considered a bank for tax purposes. However, no further recapture would
be required if the thrift converted to a commercial bank charter or was
acquired by a bank. The Bank does not anticipate engaging in any
transactions at this time that would require the recapture of its
remaining tax bad debt reserves. Therefore, retained earnings at June
30, 1997, December 31, 1996 and 1995 includes approximately $4,027,400
which represents such bad debt deductions for which no deferred income
taxes have been provided.
Continued
F-24
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
11. RELATED PARTIES
The Bank has entered into transactions with its directors and their
affiliates (related parties). The aggregate amount of loans to such
related parties at June 30, 1997 and December 31, 1996, was $224,990 and
$230,490, respectively. During 1996, new loans to such related parties
amounted to $55,976 and repayments amounted to $44,323.
12. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Bank has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying financial statements.
The Bank had open loan commitments at June 30, 1997 and December 31,
1996 of $1,536,300 and $919,375, respectively. Of these amounts $385,075
and $268,600 as of June 30, 1997 and December 31, 1996, respectively,
were for fixed rate loans. The interest rates for the fixed rate loan
commitments ranged from 6.75% to 9.00% and 7.50% to 9.50% for June 30,
1997 and December 31, 1996, respectively.
13. REGULATORY MATTERS
The Financial Institutions Reform Recovery and Enforcement Act of 1989
("FIRREA"), which instituted major reforms in the operation and
supervision of the savings and loan industry, contains provisions for
capital standards. These standards require savings institutions to have
a minimum regulatory tangible capital (as defined in the regulation)
equal to 1.50% of adjusted total assets and a minimum 3.00% core capital
(as defined) of adjusted total assets. Additionally, savings
institutions are required to meet a total risk-based capital requirement
of 8.00%.
The Bank is also subject to the provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"). 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 reporting on
internal controls, accounting and operations.
FDICIA's prompt corrective action regulations define specific capital
categories based on an institutions' 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 OTS, and increased
supervisory monitoring, among other things. Other restrictions may be
imposed on the institution either by the OTS or by the FDIC, including
requirements to raise additional capital, sell assets, or sell the
entire institution.
Continued
F-25
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
13. REGULATORY MATTERS (continued)
The following chart delineates the categories as defined in the FDICIA
legislation:
<TABLE>
<CAPTION>
Tier I Risk- Total Risk-
Core Capital Based Capital Based Capital
-------------- --------------- ---------------
<S> <C> <C> <C>
"Well capitalized" 5.0% 6.0% 10.0%
"Adequately
capitalized" 4.0% 4.0% 8.0%
"Undercapitalized" Less than 4.0% Less than 4.0% Less than 8.0%
"Significantly
undercapitalized" Less than 3.0% Less than 3.0% Less than 6.0%
</TABLE>
At June 30, 1997, the Bank's core, tier I risk-based, and total
risk-based capital ratios were 7.7%, 25.1%, and 21.5%, respectively.
These ratios placed the Bank in the "well capitalized" category. The
following is a calculation of the Bank's regulatory capital (in
thousands) at June 30, 1997:
<TABLE>
<CAPTION>
Tier I Total
Risk- Risk-
GAAP Based Tangible Core Based
Capital Capital Capital Capital Capital
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
GAAP capital,
as reported $18,265 $18,265 $18,265 $18,265 $18,265
Unrealized gains
on certain
available-for-
sale securities - (2,804) (2,804) (2,804)
General valuation
allowance - - - 227
------- ------- ------- -------
Regulatory capital $18,265 15,461 15,461 15,688
=======
Minimum capital
requirement % 1.50% 3.00% 8.00%
Minimum capital
requirement $ 2,995 5,991 5,829
------- ------- -------
Regulatory capital
excess $12,466 $ 9,470 $ 9,859
======= ======= =======
</TABLE>
Continued
F-26
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
13. REGULATORY MATTERS (continued)
At December 31, 1996, the Bank's core, tier I risk-based, and total
risk-based capital ratios were 7.2%, 23.0%, and 20.3%, respectively.
These ratios placed the Bank in the "well capitalized" category. The
following is a calculation of the Bank's regulatory capital (in
thousands) at December 31, 1996:
<TABLE>
<CAPTION>
Tier I Total
Risk- Risk-
GAAP Based Tangible Core Based
Capital Capital Capital Capital Capital
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
GAAP capital,
as reported $16,824 $16,824 $16,824 $16,824 $16,824
Unrealized gains
on certain
available-for-
sale securities - (2,233) (2,233) (2,233)
General valuation
allowance - - - 217
------- ------- ------- -------
Regulatory capital $16,824 14,591 14,591 14,808
=======
Minimum capital
requirement % 1.50% 3.00% 8.00%
Minimum capital
requirement $ 3,032 6,065 5,846
------- ------- -------
Regulatory capital
excess $11,559 $ 8,526 $ 8,962
======= ======= =======
</TABLE>
Continued
F-27
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
13. REGULATORY MATTERS (continued)
At December 31, 1995, the Bank's core, tier I risk-based, and total
risk-based capital ratios were 6.8%, 22.7%, and 20.6%, respectively.
These ratios placed the Bank in the "well capitalized" category. The
following is a calculation of the Bank's regulatory capital (in
thousands) at December 31, 1995:
<TABLE>
<CAPTION>
Tier I Total
Risk- Risk-
GAAP Based Tangible Core Based
Capital Capital Capital Capital Capital
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
GAAP capital,
as reported $16,002 $16,002 $16,002 $16,002 $16,002
Unrealized gains
on certain
available-for-
sale securities - (1,606) (1,606) (1,606)
General valuation
allowance - - - 122
------- ------- ------- -------
Regulatory capital $16,002 14,396 14,396 14,518
=======
Minimum capital
requirement % 1.50% 3.00% 8.00%
Minimum capital
requirement $ 3,165 6,330 5,639
------- ------- -------
Regulatory capital
excess $11,231 $ 8,066 $ 8,879
======= ======= =======
</TABLE>
The OTS risk-based capital regulation also includes an interest rate
risk ("IRR") component that requires savings institutions with greater
than normal IRR, when determining compliance with the risk-based capital
requirements, to maintain additional total capital. The OTS has,
however, indefinitely deferred enforcement of its IRR requirements.
Under the regulation, a savings institution's IRR is measured in terms
of the sensitivity of its "net portfolio value" to changes in interest
rates. A savings institution is considered to have a "normal" level of
IRR exposure if the decline in its net portfolio value after an
immediate 200 basis point increase or decrease in market interest rates
is less than 2% of the current estimated economic value of its assets.
If the OTS determines in the future to enforce the regulation's IRR
requirements, a savings institution with a greater than normal IRR would
be required to deduct
Continued
F-28
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
13. REGULATORY MATTERS (continued)
from total capital, for purposes of calculating its risk-based capital
requirement, an amount equal to one half the difference between the
institution's measured IRR and 2%, multiplied by the economic value of
the institution's total assets. Management does not believe that this
regulation, when enforced, will have a material impact on the Bank.
The United States Congress has passed legislation that resulted in an
assessment on all Savings Association Insurance Fund ("SAIF") insured
deposits in order to recapitalize the SAIF Fund. This one-time
assessment amounted to approximately 66 basis points on SAIF assessable
deposits held as of March 31, 1995. The assessment was payable no later
than November 30, 1996 and amounted to approximately $1.23 million for
the Bank. Such amount was charged to earnings at September 30, 1996.
14. PLAN OF CONVERSION
On May 21, 1997, the Board of Directors adopted a Plan of Conversion to
convert the Bank from a federally chartered mutual savings bank to a
federally chartered stock savings bank, as a wholly-owned subsidiary of
a holding company chartered under Delaware law by the Bank for the
purpose of acquiring control of the Bank following consummation of the
Bank's conversion. The sale of stock to be issued in the conversion must
be offered first to members, and then, at the Bank's discretion, stock
not purchased by members may be sold to the general public at the same
price as is paid by members.
Costs associated with the conversion will be deducted from the proceeds
of the sale of stock. Should the conversion be abandoned, the costs of
conversion will be charged to expense in the year of abandonment.
Conversion costs incurred through June 30, 1997 totaled $175,982 and
none at December 31, 1996.
At the time of conversion, the Bank will establish a liquidation account
in the amount equal to the Bank's net worth as of the latest practicable
date prior to conversion. The liquidation account will be maintained for
the benefit of eligible deposit account holders who maintain their
deposit accounts in the Bank after conversion.
Continued
F-29
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
June 30, 1997 and 1996 (Unaudited)
14. PLAN OF CONVERSION (continued)
In the event of a complete liquidation (and only in such an event) and
prior to any payment to stockholders, each eligible deposit account
holder will be entitled to receive a liquidation distribution from the
liquidation account in an amount proportionate to the depositor's
current adjusted balance for deposit accounts held before any
liquidation. Except for the repurchase of stock and payment of dividends
by the Bank, the existence of the liquidation account will not restrict
the use or application of such net worth.
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 Bank's net worth
to be reduced below the capital requirements imposed by the OTS.
15. RESTATEMENTS
In August 1997, management determined that an error had occurred in the
calculation of the pension plan accrual. In 1994, there were settlements
of the entire pension obligations for two employees and these
settlements were not accounted for properly under SFAS 88. When
management determined there had been an error in the calculations, the
amounts were recomputed in accordance with SFAS 88. The 1994, 1995 and
1996 financial statements and the information shown in footnote 9 were
restated to reflect the correct amounts.
The effect on the statement of financial condition as of December 31,
1994 was an increase in other liabilities of $158,751, a decrease in
deferred federal income taxes payable of $53,976, and a decrease in
retained earnings of $104,775. The effect on the statement of financial
condition as of December 31, 1995 was a decrease in other liabilities of
$15,445, an increase in deferred federal income taxes payable of $5,251,
and an increase in retained earnings of $10,194. The effect on the
statement of financial condition as of December 31, 1996 was a decrease
in other liabilities of $16,518, an increase in deferred federal income
taxes payable of $5,616, and an increase in retained earnings of
$10,902.
The effects on net income were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net income as previously reported $183,632 $401,806 $684,733
(Increase) decrease in pension expense,
net of tax 10,902 10,194 (104,775)
-------- -------- --------
Net income as restated $194,534 $412,000 $579,958
======== ======== ========
</TABLE>
F-30
<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 Investment Bank Services, Inc. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby to any person in any jurisdiction in which such offer
or solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful.
Neither the delivery of this Prospectus nor any sale hereunder shall under any
circumstances create any implication that there has been no change in the
affairs of the Company or the Bank since any of the dates as of which
information is furnished herein or since the date hereof.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.............................................................i
Risk Factors...................................................................1
Selected Financial Information And Other Data..................................6
HopFed Bancorp, Inc...........................................................10
Hopkinsville Federal Savings Bank.............................................10
Use Of Proceeds...............................................................10
Dividend Policy...............................................................12
Capitalization................................................................13
Historical And Pro Forma Regulatory Capital Compliance........................15
Pro Forma Data................................................................16
Proposed Management Purchases.................................................22
Management's Discussion And Analysis Of.......................................24
Financial Condition And Results Of Operations.................................24
Business Of The Company.......................................................40
Business Of The Bank..........................................................40
Regulation....................................................................59
Taxation......................................................................65
Management Of The Company.....................................................66
Management Of The Bank........................................................66
The Conversion................................................................74
Certain Restrictions On Acquisition Of........................................88
The Company And The Bank......................................................88
Certain Anti-Takeover Provisions In...........................................89
The Certificate Of Incorporation And Bylaws...................................89
Description Of Capital Stock..................................................93
Registration Requirements.....................................................94
Legal Opinions................................................................94
Tax Opinions..................................................................94
Experts.......................................................................94
Additional Information........................................................95
Index To Financial Statements................................................F-1
</TABLE>
Until _________, 1997 (90 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
HOPFED BANCORP, INC.
(Proposed Holding Company for Hopkinsville Federal Savings Bank)
(LOGO)
Up to 3,047,500 Shares
COMMON STOCK
----------------------
PROSPECTUS
----------------------
Investment Bank Services, Inc.
Friedman, Billings, Ramsey
& Co., Inc.
, 1997
-------------------
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the expenses in connection with the sale
and distribution of the securities being registered hereby, including
underwriting discounts and commissions. All such expenses are to be paid by the
Registrant.
<TABLE>
<S> <C>
Underwriting fees and expenses ........... $225,000
Legal fees and expenses .................. 110,000
Printing, postage and mailing ............ 90,000*
Accounting fees and expenses ............. 100,000*
Appraisal and busines plan fees
and expenses ............................ 30,000*
Blue Sky filing fees and expenses
(including legal counsel) ............... 10,000*
Filing fees (OTS, SEC and NASD) .......... 39,000*
Conversion Agent fees .................... 15,000*
Stock certificates ....................... 5,000*
Transfer Agent ........................... 10,000*
Other expenses ........................... 66,000*
Total .................................. 700,000
</TABLE>
- -----------
* Estimated
Item 14. Indemnification of Directors and Officers.
Directors, officers and employees of the Company and/or the Bank may be
entitled to benefit from the indemnification provisions contained in the
Delaware General Corporation Law (the"DGCL"), the Company's Certificate of
Incorporation and federal regulations applicable to the Bank. The general effect
of these provisions is summarized below:
Delaware General Corporation Law
- --------------------------------
Section 145 of the DGCL permits a Delaware corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
proceeding of any type (other than an action by or in the right of the
corporation), by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon plea of nolo contendere or its
equivalent, may not, of itself, create a presumption that these standards have
not been met.
A Delaware corporation may also indemnify any person who was or is a
party or is threatened to be made a party to any proceeding by or in the right
of the corporation by reason of the fact that he is or was a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or
<PAGE>
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation. However, no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought determines upon application that
such person is fairly and reasonably entitled to be indemnified.
To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any proceeding
described above, indemnification against expenses (including attorneys' fees)
actually and reasonably incurred by him is mandatory.
Any determination that indemnification of the director, officer, employee
or agent is proper in the circumstances because he or she has met the applicable
standard of conduct noted above must be made by a majority of the board of
directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or if such quorum is not obtainable,
or, even if obtainable and a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or by the stockholders.
Expenses (including attorneys' fees) incurred by an officer or director in
defending any civil, criminal, administrative or investigative action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
or proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation.
The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section is not exclusive.
In addition, a corporation shall have power to purchase and maintain
insurance against any liability of individuals whom the corporation is required
to indemnify.
Article XV of the Certificate of Incorporation of the Company
- -------------------------------------------------------------
In addition to the statutory provision described above, Article XV of
the Company's Certificate of Incorporation also provides for indemnification.
With certain exceptions, the indemnification provided for by Article XV is
identical to the statutory provision. Article XV states explicitly, however,
that the indemnification provided by the Article shall be deemed to be a
contract between the Company and the persons entitled to indemnification
thereunder and further provides the indemnification and advance payment of
expenses provided thereunder continues even after the individual ceases to hold
a position with the Company and inures to the benefit of his or her heirs,
executors and administrators.
Federal Regulations Providing for Indemnification of Directors and Officers of
- ------------------------------------------------------------------------------
Hopkinsville Federal Savings Bank
- ---------------------------------
Federal regulations require that Hopkinsville Federal Savings Bank (the
"Bank") indemnify any person against whom an action is brought by reason of that
person's role as a director or officer of the Bank for (i) any judgments
resulting from the action; (ii) reasonable costs and expenses (including
attorney's fees) incurred in connection with the defense or settlement of such
action; and (iii) reasonable costs and expenses (including attorney's fees)
incurred in connection with enforcing the individual's indemnification rights
against the Bank, assuming a final judgment is obtained in his favor.
The mandatory indemnification provided for by federal regulations is
limited to (i) actions where a final judgment on the merits is in favor of the
officer or director and (ii) in the case of a settlement, final judgment against
the director or officer or final judgment not on the merits, except as to where
the director or officer is found negligent or to have committed misconduct in
the performance of his or her duties, where a majority of the Board of Directors
of the Bank determines that the director or officer was acting in good faith
within what he was reasonably entitled to believe was the scope of his or her
employment or authority for a purpose that was in the best interests of the Bank
or its members or stockholders.
<PAGE>
In addition, the Bank has a director and officers' liability policy
providing for insurance against certain liabilities incurred by directors and
officers of the Bank while serving in their capacities as such.
Item 15. Recent Sales of Unregistered Securities.
None.
Item 16. Exhibits and Financial Statements Schedules.
The following is the list of exhibits filed as part of this Registration
Statement and also serves as the Exhibit Schedule.
Exhibit Number Description
-------------- -----------
* 1.1 Engagement Letter with Investment Bank Services, Inc.
1.2 Agency Agreement
** 2 Plan of Conversion of Hopkinsville Federal Savings
Bank
* 3.1 Certificate of Incorporation of HopFed Bancorp, Inc.
* 3.2 Bylaws of HopFed Bancorp, Inc.
* 4 Form of Stock Certificate of HopFed Bancorp, Inc.
* 5 Opinion of Reinhart, Boerner, Van Deuren, Norris &
Rieselbach, P.C.
8.1 Federal Tax Opinion
8.2 State Tax Opinion
* 8.3 Opinion of National Capital Companies, LLC, as to the
value of subscription rights for tax purposes
** 10.1 Proposed Employment Agreement by and between
Hopkinsville Federal Savings Bank and Bruce Thomas,
Peggy Noel and Boyd Clark
** 10.2 Proposed Employment Agreement by and between HopFed
Bancorp, Inc. and Bruce Thomas, Peggy Noel and Boyd
Clark
23.1 Consent of Reinhart, Boerner, Van Deuren, Norris &
Rieselbach, P.C. (in opinion filed as Exhibit 8.1)
23.2 Consent of York, Neel & Co. -- Hopkinsville, LLP
** 23.3 Consent of National Capital Companies, LLC
24 Power of Attorney (reference is made to the signature
page)
27 Financial Data Schedule (for SEC Use Only)
99.1 Proposed Stock Order Form and Form of Certification
* 99.2 Proxy Statement for Special Meeting of Members of
Hopkinsville Federal Savings Bank; Form of Proxy
99.3 Miscellaneous Solicitation and Marketing Material
** 99.4 Appraisal Report
- ---------------
* Previously filed
** Filed herewith and supersedes version previously filed.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file during any period in which it offers or sells
securities, a post-effective amendment to this
registration statement:
<PAGE>
(i) Including any prospectus required by Section 10(a)(3) of
the Securities Act of 1933 ("Securities Act").
(ii) Reflect in the prospectus any facts or events arising after
the effective date of registration statement (or the most
recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) Include any material information with respect to the plan
of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To file a post-effective amendment to remove from registration
any of the securities being registered that remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act, and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final abjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Hopkinsville, Commonwealth of Kentucky, on the 17th day of September, 1997.
HOPFED BANCORP, INC.
By /s/ Bruce Thomas
-------------------------------------
Bruce Thomas
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Bruce Thomas Director, President and September 17, 1997
- ------------------------ Chief Executive Officer
Bruce Thomas (Principal Executive Officer)
* Chairman of the Board
- ------------------------
WD Kelly
/s/ Peggy R. Noel Director, Vice President, September 17, 1997
- ------------------------ Chief Financial Officer
Peggy R. Noel and Treasurer (Principal
Financial and Accounting Officer)
* Director and Senior Vice
- ------------------------ President--Loan Administration
Boyd M. Clark
* Director
- ------------------------
Clifton H. Cochran
* Director
- ------------------------
Drury R. Embry
* Director
- ------------------------
Walton G. Ezell
* Director
- ------------------------
John Noble Hall, Jr.
* Director
- ------------------------
Chester K. Wood
*By: /s/ Bruce Thomas September 17, 1997
-------------------
Bruce Thomas
Attorney-in-fact
</TABLE>
<PAGE>
HOPFED BANCORP, INC.
2,040,000 TO 2,760,000 Shares
Common Stock
($.01 Par Value)
$10.00 Per Share
SALES AGENCY AGREEMENT
----------------------
_______________, 1997
Friedman, Billings, Ramsey & Co., Inc.
Potomac Tower
1001 Nineteenth Street North
Arlington, VA 22209
Investment Bank Services, Inc.
The 1000 Building
6200 Dutchman's Lane
Suite 305
Louisville, Kentucky 40205
Ladies and Gentlemen:
HopFed Bancorp, Inc., a Delaware corporation (the "Company"), and
Hopkinsville Federal Savings Bank, a federally chartered and insured mutual
savings bank (the "Bank"), hereby confirm their respective agreements with
Investment Bank Services, Inc. ("IBS") and Friedman, Billings, Ramsey & Co.,
Inc. ("FBR"), broker-dealers registered with the Securities and Exchange
Commission ("Commission") and members of the National Association of Securities
Dealers, Inc. ("NASD") hereinafter referred to as the ("Agents"), as follows:
1. Introductory. The Bank intends to convert from a federally
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chartered mutual savings bank to a federally chartered stock savings bank, to be
known as Hopkinsville Federal Savings Bank, and to reorganize into a holding
company structure and become a wholly owned subsidiary of the Company (the
"Conversion") pursuant to a Plan of Conversion adopted on May 21, 1997 (the
"Plan"). In accordance with the Plan, the Company is offering shares of its
common stock, par value $.01 per share (the "Shares"), pursuant to
nontransferable subscription rights in a subscription offering (the
"Subscription Offering") to certain depositors and borrowers of the Bank and to
the Bank's Employee Stock Ownership Plan (the "ESOP"). The Company may offer
Shares not subscribed for in the Subscription Offering in a community offering
to certain members of the general public (the "Community Offering"). In the
Community Offering, first preference will be
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given to natural persons who are permanent residents of Calloway, Christian,
Todd and Trigg Counties, Kentucky. In the Subscription and Community Offerings
(the "Offerings"), the Company is offering between 2,040,000 and 2,760,000
Shares, with the possibility of offering up to 3,174,000 Shares without a
resolicitation of subscribers, as contemplated by Title 12 of the Code of
Federal Regulations, Part 563b. No person, individually or together with
associates of and persons acting in concert with such person, other than the
ESOP, may purchase more than $500,000 of the aggregate value of the Shares
offered in the Conversion; provided, however, that the maximum overall purchase
limitation may be increased or decreased and the amount permitted to be
subscribed for may be increased or decreased in the sole discretion of the
Company.
The Company and the Bank have been advised by the Agents that the
Agents will use their best efforts to assist the Company and the Bank with the
sale of the Shares in the Offerings. Prior to the execution of this Agreement,
the Company has delivered to the Agents the Prospectus dated _______________,
1997 (as hereinafter defined) and all supplements thereto to be used in the
Offerings. Such Prospectus contains information with respect to the Company,
the Bank and the Shares.
2. Representations and Warranties. The Company and the Bank jointly
------------------------------
and severally represent and warrant to Agents that:
(a) The Company has filed with the Commission a registration
statement, including exhibits and an amendment or amendments thereto, on Form
S-1(No. 333-30215), including the Prospectus, for the registration of the Shares
under the Securities Act of 1933, as amended (the "Act"); and such registration
statement has become effective under the Act, and no stop order has been issued
with respect thereto and no proceedings therefor have been initiated or
threatened by the Commission. Except as the context may otherwise require, such
registration statement, as amended or supplemented, on file with the Commission
at the time such registration statement became effective, including the
Prospectus, financial statements, schedules, exhibits and all other documents
filed as part thereof, as amended and supplemented, is herein called the
"Registration Statement," and the prospectus, as amended or supplemented, on
file with the Commission at the time the Registration Statement became effective
is herein called the "Prospectus," except that if the prospectus filed by the
Company with the Commission pursuant to Rule 424(b) of the general rules and
regulations of the Commission under the Act (the "Regulations") differs from the
form of prospectus on file at the time the Registration Statement became
effective, the term "Prospectus" shall refer to the Rule 424(b) prospectus from
and after the time it is filed with or mailed for filing to the Commission and
shall include any amendments or supplements thereto from and after their dates
of effectiveness or use, respectively.
(b) The Bank has filed an Application for Approval of Conversion
on Form AC, including exhibits (as amended or supplemented, the "Form AC" and
together with the Form H-(e)1-S referred to below, the "Conversion Application")
with the Office of Thrift Supervision (the "Office"), which Form AC has been
approved by the Office; and the Prospectus included as part of the Form AC has
been approved for use by the Office. No order has been issued by the Office
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preventing or suspending the use of the Prospectus; and no action by or before
the Office revoking such approvals is pending or, to the Bank's best knowledge,
threatened. The Company has filed with the Office the Company's application on
Form H-e(1)-S promulgated under the savings and loan holding company provisions
of the Home Owners' Loan Act, as amended and the regulations promulgated
thereunder ("HOLA") and will have received, as of the Closing Date (as defined
below), approval of its acquisition of the Bank from the Office.
(c) At the date of the Prospectus and at all times subsequent
thereto through and including the Closing Date (i) the Registration Statement
and the Prospectus (as amended or supplemented, if amended or supplemented)
complied with the Act and the Regulations, (ii) the Registration Statement (as
amended or supplemented, if amended or supplemented) did not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(iii) the Prospectus (as amended or supplemented, if amended or supplemented)
did not contain any untrue statement of material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Representations or warranties in this subsection shall not apply to
statements or omissions made in reliance upon and in conformity with written
information furnished to the Company or the Bank relating to the Agents by or on
behalf of the Agents expressly for use in the Registration Statement or
Prospectus.
(d) The Company has been duly organized as a Delaware
corporation, the Bank has been duly organized as a mutual savings bank under the
laws of the United States. Each of the Company and the Bank is validly existing
and in good standing under the laws of the jurisdiction of its organization with
full power and authority to own its property and conduct its business as
described in the Registration Statement and Prospectus; the Bank is a member in
good standing of the Federal Home Loan Bank ("FHLB") of Cincinnati; and the
deposit accounts of the Bank are insured by the Savings Association Insurance
Fund ("SAIF") administered by the Federal Deposit Insurance Corporation ("FDIC")
up to the applicable limits. Each of the Company and the Bank is not required to
be qualified to do business as a foreign corporation in any jurisdiction where
non-qualification would have a material adverse effect on the Company and the
Bank, taken as a whole. The Bank does not own equity securities of or an equity
interest in any business enterprise except as described in the Prospectus. Upon
amendment of the Bank's charter and bylaws as provided in the rules and
regulations of the Office and completion of the sale by the Company of the
Shares as contemplated by the Prospectus, (i) the Bank will be converted
pursuant to the Plan to a federally chartered capital stock savings bank with
full power and authority to own its property and conduct its business as
described in the Prospectus, (ii) all of the authorized and outstanding capital
stock of the converted Bank will be owned of record and beneficially by the
Company, and (iii) the Company will have no direct subsidiaries other than the
converted Bank. The conversion will have been effected in all material respects
in accordance with all applicable regulations, decisions and orders; and, except
with respect to the filing of certain post-conversion reports, all the terms,
conditions, requirements, and provisions relating to the conversion imposed by
the Office will have been, and, with respect to any future Office conditions,
will be complied with by the Company and the Bank in all material respects or
appropriate waivers will have been obtained.
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(e) Each of the Company and the Bank has good, marketable and
insurable title to all assets material to its business and to those assets
described in the Prospectus as owned by it, free and clear of all material
liens, charges, encumbrances or restrictions, except for liens for taxes not yet
due, except as described in the Prospectus and except as could not in the
aggregate have a material adverse effect upon the operations or financial
condition of the Company and the Bank, taken as a whole; and all of the leases
and subleases material to the operations or financial condition of the Bank
under which it holds properties, including those described in the Prospectus,
are in full force and effect as described therein.
(f) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary actions on the part of each of the Company and the
Bank, and this Agreement is a valid and binding obligation with valid execution
and delivery of each of the Company and the Bank, enforceable in accordance with
its terms (except as the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws relating to or affecting
the enforcement of creditors' rights generally or the rights of creditors of
savings and loan holding companies the accounts of whose subsidiaries are
insured by the FDIC or by general equity principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law, and except to
the extent that the provisions of Sections 8 and 9 hereof may be unenforceable
as against public policy).
(g) There is no litigation or governmental proceeding pending or,
to the best knowledge of the Company or the Bank, threatened against or
involving the Company or the Bank, or any of their respective assets which
individually or in the aggregate would reasonably be expected to have a material
adverse effect on the condition (financial or otherwise), results of operations
and business, including the assets and properties, of the Company and the Bank,
taken as a whole.
(h) The Company and the Bank have received the opinion of
Reinhart, Boerner, Van Deuren, Norris & Rieselbach, P.C. with respect to federal
tax consequences of the Conversion, and the opinion of York, Neel & Co. -
Hopkinsville, LLP with respect to Kentucky income tax consequences of the
Conversion, to the effect, respectively, that the Conversion will constitute a
tax-free reorganization under the Internal Revenue Code of 1986, as amended, and
will not be a taxable transaction for the Bank or the Company under the laws of
Kentucky, and the facts relied upon in such opinions are accurate and complete.
(i) Each of the Company and the Bank has all such corporate
power, authority, authorizations, approvals and orders as may be required to
enter into this Agreement and to carry out the provisions and conditions hereof,
subject to the satisfaction of certain conditions imposed by the Office in
connection with its approvals of the Form AC and the Application H-(e)1-S, and
except as may be required under the securities or "blue sky" laws of various
jurisdictions, and in the case of the Company, as of the Closing Date, will have
such approvals and orders to issue and sell the Shares to be sold by the Company
as provided herein, and in the case of the Bank, as of the Closing Date, will
have such approvals and orders to issue and sell the shares of its common stock
to be sold to the Company as provided in the Plan, subject to the issuance of an
amended charter in the form
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required for federally chartered stock savings banks (the "Stock Charter"), the
form of which Stock Charter has been approved by the Office.
(j) To the best of their knowledge, neither the Company nor the
Bank is in violation of any rule or regulation of the Office or the FDIC that
could reasonably be expected to result in any enforcement action against the
Company, the Bank or their officers or directors that might have a material
adverse effect on the condition (financial or otherwise), operations,
businesses, assets or properties of the Company and the Bank, taken as a whole.
(k) The consolidated financial statements and any related notes
or schedules which are included in the Registration Statement and the Prospectus
fairly present the consolidated financial condition, results of operations,
retained earnings and cash flows of the Bank at the respective dates thereof and
for the respective periods covered thereby and comply as to form with the
applicable accounting requirements of the Regulations and the applicable
accounting regulations of the Office. Such financial statements have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, and such financial
statements are consistent with the most recent financial statements and other
reports filed by the Bank with the Office and the FDIC except as such generally
accepted accounting principles may otherwise require. The tables in the
Prospectus accurately present the information purported to be shown thereby at
the respective dates thereof and for the respective periods therein.
(l) There has been no material change in the condition (financial
or otherwise), results of operations or business, including assets and
properties of the Company and the Bank, taken as a whole, since the latest date
as of which such consolidated condition is set forth in the Prospectus; and the
capitalization, assets, properties and business of each of the Company and the
Bank conform to the descriptions thereof contained in the Prospectus. None of
the Company or the Bank has any material liabilities of any kind, contingent or
otherwise, except as set forth in the Prospectus.
(m) No default exists, and no event has occurred which, with
notice or lapse of time or both, would constitute a default on the part of the
Company or the Bank in the due performance and observance of any term, covenant
or condition of any agreement which is material to the condition (financial or
otherwise), results of operations or business of the Company or the Bank, taken
as a whole; said agreements are in full force and effect, and no other party to
any such agreement which is material to the Company and the Bank, taken as a
whole, has instituted or, to the best knowledge of the Company or the Bank,
threatened any action or proceeding wherein the Company or the Bank would or
might be alleged to be in default thereunder.
(n) Neither the Company nor the Bank is in violation of its
respective certificate of incorporation, charter or bylaws or in default in the
performance of any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence or indebtedness which default is material
to the condition (financial or otherwise), results of operations or business of
the Company and the Bank taken as a whole. The execution and delivery hereof,
the fulfillment of the
5
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terms set forth herein and the consummation of the transactions contemplated
hereby shall not: (1) violate or conflict with the respective certificate of
incorporation, charter or bylaws of the Company or the Bank; (ii) violate,
conflict with or constitute a breach of, or default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, any
material agreement, indenture or other instrument by which either the Company or
the Bank is bound, or under any governmental license or permit; violate,
conflict with, or constitute a breach of any law, administrative regulation or
authorization, approval, order, court decree, injunction or order (subject to
the satisfaction of certain conditions imposed by the Office in connection with
its approval of the Form AC and the Application H-(e)1-S), or (iv) result in the
creation of any lien, charge, or encumbrance upon any property of the Company or
Bank, which would individually or in the aggregate have a material adverse
effect on the financial condition, results of operations, or assets and
properties of the Company and the Bank taken as a whole.
(o) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as otherwise may
be indicated or contemplated therein, neither the Company nor the Bank has
issued any securities which will remain issued at the Closing Date or incurred
any liability or obligation, direct or contingent, for borrowed money, except
borrowings in the ordinary course of business, or entered into any other
transaction not in the ordinary course of business and consistent with prior
practices which is material in light of the business of the Company and the
Bank, taken as a whole.
(p) Upon consummation of the Conversion, the authorized, issued
and outstanding equity capital of the Company shall be within the range as set
forth in the Prospectus under the caption "Capitalization," and no capital stock
of the Company shall be outstanding immediately prior to the Closing Date; the
issuance and the sale of the Shares has been duly authorized by all necessary
action of the Company and approved by the Office and, when issued in accordance
with the terms of the Plan and paid for, shall be validly issued, fully paid and
nonassessable and shall conform to the description thereof contained in the
Prospectus; the issuance of the Shares is not subject to preemptive rights; and
good title to the Shares will be transferred upon issuance thereof against
payment therefor subject to such claims as may be asserted against the
purchasers thereof by third party claimants. The certificates representing the
Shares will conform with the requirements of applicable laws and regulations.
The issuance and sale of the capital stock of the Bank to the Company has been
duly authorized by all necessary action of the Bank and the Company and
appropriate regulatory authorities (subject to the satisfaction of various
conditions imposed by the Office in connection with its approval of the Form H-
(e)1-S and the Form AC), and such capital stock, when issued in accordance with
the terms of the Plan, will be fully paid and nonassessable and will conform to
the description thereof contained in the Prospectus.
(q) No approval of any regulatory or supervisory or other public
authority is required in connection with the execution and delivery of this
Agreement or the issuance of the Shares, except for the declaration of
effectiveness of any required post-effective amendment to the Registration
Statement by the Commission and approval thereof by the Office and approval of
the
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Company's application on Form H-(e)1-S by the Office, the issuance of the Stock
Charter by the Office and as may be required under the securities laws of
various jurisdictions.
(r) All contracts and other documents required to be filed as
exhibits to the Registration Statement or the Conversion Application have been
filed with the Commission and/or the Office, as the case may be.
(s) York, Neel & Co. - Hopkinsville, LLP, which has audited the
financial statements of the Bank as of December 31, 1996 and 1995, and for each
of the years in the three year period ended December 31, 1996, all of which are
included in the Prospectus, are independent public accountants within the
meaning of the Code of Professional Ethics of the American Institute of
Certified Public Accountants and Title 12 of the Code of Federal Regulations,
Section 571.2(c)(3).
(t) National Capital Group, Inc., which prepared an appraisal of
the estimated pro forma market value of the Shares filed as an exhibit to the
Registration Statement and the Form AC, is independent with respect to the
Company and the Bank and has qualified as being experienced and expert in
corporate appraisals within the meaning of the Office's conversion regulations.
(u) The Company and the Bank have timely filed all required
federal, state and local franchise tax returns, and no deficiency has been
asserted with respect to such returns by any taxing authorities, and the Company
and the Bank have paid all taxes that have become due and, to the best of their
knowledge, have made adequate reserves for similar future tax liabilities.
(v) The records of account holders, depositors, borrowers and
other members of the Bank delivered to the Agents by the Bank or its agent for
use during the Conversion have been prepared or reviewed by the Bank and are
reliable and accurate.
(w) Neither the Company nor the Bank, or, to the knowledge of the
Company and the Bank, the employees of the Company and the Bank, has made any
payment of funds of the Company or the Bank as a loan for the purchase of
Shares, and no funds of the Company or the Bank have been set aside to be used
for any payment prohibited by law.
(x) The Company and the Bank are in compliance with all laws,
rules and regulations applicable to the conduct of their business, except for
violations which, if asserted, would not have a material adverse effect on the
Company and the Bank, taken as a whole. There are no actions, suits, regulatory
investigations or other proceedings pending or, to the best knowledge of the
Company or the Bank, threatened against the Company or the Bank, except for
those occurring in the ordinary course of business which, if decided adversely
to the Company or the Bank, would not have a material adverse effect on the
Company and the Bank, taken as a whole.
(y) At the Closing Date, the Company and the Bank will have
completed the conditions precedent to, and shall have conducted the Conversion
in all material respects in accordance with, the Plan, the Office's conversion
regulations and all other applicable laws,
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regulations, decisions and orders, and all terms, conditions, requirements and
provisions relating to the Conversion imposed by the Office have been or, with
respect to any future Office conditions, will be complied with by the Company
and the Bank in all material respects or appropriate waivers have been or will
be obtained.
3. Employment of the Agents; Sale and Delivery of the Shares. On the
---------------------------------------------------------
basis of the representations and warranties herein contained, but subject to the
terms and conditions herein set forth, the Company and the Bank hereby employ
the Agents as their agents to utilize their best efforts in assisting the
Company with the Company's sale of the Shares in the Subscription Offering and
Community Offering. The employment of the Agents hereunder shall terminate (a)
upon termination or abandonment of the Plan by the Company or the Bank, (b)
forty-five (45) days after the Offerings close, unless the Company and the Bank,
with the approval of the Office, are permitted to extend such period of time, or
(c) upon consummation of the Conversion, whichever date shall first occur.
In the event the Company is unable to sell a minimum of 2,040,000
Shares (or such lesser amount as the Office may permit) within the period herein
provided, this Agreement shall terminate, and the Company and the Bank shall
refund promptly to any persons who have subscribed for any of the Shares, the
full amount which it may have received from them, together with interest as
provided in the Prospectus, and no party to this Agreement shall have any
obligation to the other party hereunder, except as set forth in Sections 6, 8(a)
and 9 hereof.
Appropriate arrangements for placing the funds received from
subscriptions for Shares in segregated interest-bearing accounts with the Bank
until all Shares are sold and paid for were made prior to the commencement of
the Subscription and Community Offerings, with provision for prompt refund to
the purchasers as set forth above, or for delivery to the Company if all Shares
are sold.
If all conditions precedent to the consummation of the Conversion are
satisfied, including the sale of all Shares required by the Plan to be sold, the
Company agrees to issue or have issued such Shares and to release for delivery
certificates to subscribers thereof for such Shares on the Closing Date against
payment to the Company by any means authorized pursuant to the Prospectus, at
the principal office of the Company at 2700 Fort Campbell Boulevard,
Hopkinsville, Kentucky 42240, or at such other place as shall be agreed upon
between the parties hereto. The date upon which the Agents are paid the
compensation due hereunder is herein called the "Closing Date."
The Agents shall receive the following compensation for their services
hereunder:
(a) A non-refundable advisory fee of $25,000;
(b) A sales fee of $155,000 payable upon consummation of the
Offerings; and
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(c) The Agents shall be reimbursed for reasonable expenses
incurred by them, including legal fees, which expenses are not to exceed $45,000
whether or not the Offerings are consummated. Full payment to defray the Agents'
reimbursable expenses shall be made in next-day funds on the Closing Date or, if
the Conversion is not completed and is terminated for any reason, within 10
business days of receipt by the Company of a written request from IBS or FBR for
reimbursement of their expenses.
The Company shall pay any stock issue and transfer taxes which may be
payable with respect to the sale of the Shares. The Company and the Bank shall
also pay all other expenses of the Conversion, including but not limited to the
Company's and the Bank's attorneys' fees and expenses, NASD filing fees, filing
and registration fees, telephone charges, air freight, rental equipment,
supplies, transfer agent charges, fees relating to auditing and accounting and
costs of printing all documents necessary in connection with the Conversion.
4. Offering. Subject to the provisions of Section 7 hereof, the
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Agents are assisting the Company on a best efforts basis in offering a minimum
of 2,040,000 and a maximum of 2,760,000 Shares, with the possibility of offering
up to 3,174,000 Shares (except as the Office may permit to be decreased or
increased). The Shares are to be offered to the public at the price set forth on
the cover page of the Prospectus and the first page of this Agreement.
5.1. Further Agreements. The Company and the Bank jointly and severally
------------------
covenant and agree that:
(a) The Company shall deliver to the Agents, from time to time,
such number of copies of the Prospectus as the Agents reasonably may request.
The Company authorizes the Agents to use the Prospectus in any lawful manner in
connection with the offer and sale of the Shares. The Company shall deliver to
the Agents a copy of the Registration Statement and the Conversion Application
(including exhibits) and, following effectiveness, of all post-effective
amendments thereto.
(b) The Company will notify the Agents immediately upon
discovery, and confirm the notice in writing, (i) when any post-effective
amendment to the Registration Statement becomes effective or any supplement to
the Prospectus has been filed, (ii) of the issuance by the Commission of any
stop order relating to the Registration Statement or of the initiation or the
threat of any proceedings for that purpose, (iii) of the receipt of any notice
with respect to the suspension of the qualification of the Shares for offering
or sale in any jurisdiction, and (iv) of the receipt of any comments from the
staff of the Commission relating to the Registration Statement. If the
Commission enters a stop order relating to the Registration Statement at any
time, the Company will make every reasonable effort to obtain the lifting of
such order at the earliest possible moment.
(c) During the time when a prospectus is required to be delivered
under the Act, the Company will comply so far as it is able with all
requirements imposed upon it by the Act, as now in effect and hereafter amended,
and by the Regulations, as from time to time in force, so far
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as necessary to permit the continuance of offers and sales of or dealings in the
Shares in accordance with the provisions hereof and the Prospectus. If during
the period when the Prospectus is required to be delivered in connection with
the offer and sale of the Shares any event relating to or affecting the Company
and the Bank, taken as a whole, shall occur as a result of which it is
necessary, in the reasonable opinion of counsel for the Agents, with the
concurrence of counsel to the Company, to amend or supplement the Prospectus in
order to make the Prospectus not false or misleading in light of the
circumstances existing at the time it is delivered to a purchaser of the Shares,
the Company forthwith shall prepare and furnish to the Agents a reasonable
number of copies of an amendment or amendments or of a supplement or supplements
to the Prospectus (in form and substance satisfactory to counsel for the Agents)
which shall amend or supplement the Prospectus so that, as amended or
supplemented, the Prospectus shall not contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances existing at the time the Prospectus is
delivered to a purchaser of the Shares, not misleading. The Company will not
file or use any amendment or supplement to the Registration Statement or the
Prospectus of which the Agents have not first been furnished a copy or to which
the Agents shall reasonably object after having been furnished such copy. For
the purposes of this subsection the Company and the Bank shall furnish such
information with respect to themselves as the Agents from time to time may
reasonably request.
(d) The Company and the Bank have taken or will take all
reasonably necessary action and furnish to whomever the Agents may reasonably
direct, such information as may be required to qualify or register the Shares
for offer and sale by the Company under the securities or blue sky laws of such
jurisdictions as the Agents and either the Company or its counsel may agree
upon; provided, however, that the Company shall not be obligated to qualify as a
foreign corporation to do business under the laws of any such jurisdiction. In
each jurisdiction where such qualification or registration shall be effected,
the Company, unless the Agents agree that such action is not necessary or
advisable in connection with the distribution of the Shares, shall file and make
such statements or reports as are, or reasonably may be, required by the laws of
such jurisdiction.
(e) Appropriate entries will be made in the financial records of
the Bank sufficient to establish a liquidation account for the benefit of
eligible account holders and supplemental eligible account holders in accordance
with the requirements of the Office.
(f) The Company will file a registration statement for the Common
Stock under Section 12(g) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), prior to completion of the Conversion and shall request
that such registration statement be effective upon completion of the Conversion.
The Company shall maintain the effectiveness of such registration for a minimum
period of three years or for such shorter period as may be required by the
Office's approval of the Form AC in accordance with applicable law.
(g) The Company will make generally available to its security
holders as soon as practicable, but not later than 90 days after the close of
the period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 of the Regulations promulgated under
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the Act) covering a twelve-month period beginning not later than the first day
of the Company's fiscal quarter next following the effective date (as defined in
said Rule 158) of the Registration Statement.
(h) During the period in which the Company's common stock is
registered under the Exchange Act or for a period of three (3) years from the
date of this Agreement, whichever period is shorter, the Company will furnish to
the Agents, as soon as publicly available after the end of each fiscal year, a
copy of its annual report to shareholders for such year; and the Company will
furnish to the Agents (i) as soon as publicly available, a copy of each report
or definitive proxy statement of the Company filed with the Commission under the
Exchange Act or mailed to shareholders, and (ii) from time to time, such other
public information concerning the Company as the Agents may reasonably request.
(i) The Company shall use the net proceeds from the sale of the
Shares consistently with the manner set forth in the Prospectus as described
under the Prospectus caption "Use of Proceeds."
(j) The Company shall not deliver the Shares until each and every
condition set forth in Section 7 hereof has been satisfied, unless such
condition is waived in writing by the Agents.
(k) The Company shall advise the Agents, if necessary, as to the
allocation of deposits, in the case of eligible account holders, and votes, in
the case of other members, and of the Shares in the event of an oversubscription
and shall provide the Agents final instructions as to the allocation of the
Shares in writing ("Allocation Instructions") in such event and such information
shall be accurate and reliable. The Agents shall be entitled to rely on such
written instructions and shall have no liability in respect of their reliance
thereon, including without limitation, no liability for or related to any denial
or grant of a subscription in whole or in part.
(l) The Company and the Bank will take such actions and furnish
such information as are reasonably requested by the Agents in order for the
Agents to ensure compliance with the NASD's "Interpretation Relating to Free-
Riding and Withholding."
6. Payment of Expenses. Whether or not the Conversion is
-------------------
consummated, the Company and the Bank shall pay or reimburse the Agents for (a)
all filing fees paid or incurred by the Agents in connection with all filings
with the NASD and, (b) in addition, if the Company is unable to sell a minimum
of 2,040,000 Shares or such lesser amount as the Office may permit or the
Conversion is otherwise terminated, the Company and the Bank shall reimburse the
Agents for allocable expenses incurred by the Agents relating to the offering of
the Shares as provided in Section 3 hereof.
7. Conditions of the Agents' Obligations. Except as may be waived by
-------------------------------------
the Agents, the obligations of the Agents as provided herein shall be subject to
the accuracy of the representations and warranties contained in Section 2 hereof
as of the date hereof and as of the Closing Date, to the
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performance by the Company and the Bank of their obligations hereunder and to
the following conditions:
(a) At the Closing Date, the Agents shall receive the favorable
opinion of Reinhart, Boerner, Van Dewren, Norris & Rieselbach, P.C., special
counsel for the Company and the Bank, dated the Closing Date, addressed to the
Agents with respect to the treatment under applicable law of the Bank's past and
present practice concerning the changing of interest on loans and recent
corrective actions with respect thereto, in form and substance reasonably
satisfactory to counsel for the Agents and also to the effect that:
(i) the Company has been duly organized and is validly
existing as a corporation in good standing under the
laws of Delaware; the Bank has been organized and is
validly existing as a mutual savings bank under the
laws of the United States; upon consummation of
Conversion, the Bank will be duly organized and validly
existing as a federal stock savings bank; each of the
Company and the Bank has, and the converted Bank will
have, full power and authority to own its properties
and conduct its business as described in the
Prospectus;
(ii) each of the Company and the Bank has been duly
qualified to do business and is in good standing as a
foreign corporation in each jurisdiction where the
ownership or leasing of its properties or the conduct
of its business requires such qualification, unless the
failure to be so qualified or in good standing in one
or more of such jurisdictions would not have any
material adverse effect on the Company and the Bank,
taken as a whole;
(iii) the Bank is a member of the FHLB of Cincinnati, the
deposit accounts of the Bank are insured by the SAIF up
to the applicable limits, and no proceedings for the
termination or revocation of such insurance are pending
or, to such counsel's actual knowledge, threatened;
(iv) the activities of the Bank are permitted under federal
law to subsidiaries of a federal savings and loan
holding company and the Bank has no subsidiaries;
(v) the Bank has obtained all licenses, permits and other
governmental authorizations required for the conduct of
its business, except where the failure to hold such
licenses, permits or governmental authorizations would
not have a material adverse effect on the Company and
the Bank, taken as a whole, and all such licenses,
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permits and other governmental authorizations are in
full force and effect and the Bank is in all material
respects complying therewith;
(vi) the Plan complies in all material respects with, and
the Conversion of the Bank from a federally chartered
mutual savings bank to a federally chartered stock
savings bank and the creation of the Company as a
holding company for the Bank have been effected in all
material respects in accordance with all applicable
federal laws, rules, regulations, decisions and orders
(except for federal and state securities laws); to
such counsel's actual knowledge, all of the terms,
conditions, requirements and provisions with respect
to the Plan and the Conversion imposed by the Office,
except with respect to satisfaction of the post-
Conversion conditions imposed by the Office in its
approvals of the Conversion and the Application
H-(e)1-S, have been complied with by the Company and
the Bank in all material respects; and, to such
counsel's actual knowledge, no person has sought to
obtain regulatory or judicial review of the final
actions of the Office in approving the Plan;
(vii) as of the Closing Date, the Company and the Bank have
authorized capital stock as set forth in the
Registration Statement and the Prospectus, and the
descriptions of such stock in the Registration
Statement and Prospectus are accurate and complete in
all material respects;
(viii) the issuance and sale of the Shares have been duly and
validly authorized by all necessary corporate action
on the part of the Company and have received all
requisite regulatory approval; the Shares, upon
receipt of payment and issuance in accordance with the
terms of the Plan and this Agreement, will be validly
issued, fully paid, nonassessable and free of
preemptive rights, and to such counsel's actual
knowledge, purchasers of the Shares from the Company,
upon issuance thereof against payment therefor, will
acquire good title to such Shares from the Company,
free and clear of all claims, encumbrances, security
interests and liens whatsoever created or suffered to
be created by the Company;
(ix) the certificates for the Shares are in due and proper
form and comply with applicable law;
(x) the issuance and sale of the capital stock of the Bank
to the Company have been duly authorized by all
necessary action of the Bank and the Company and have
received the approval of the
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office, and such capital stock, upon receipt of
payment and issuance in accordance with the terms of
the Plan, will be validly issued, fully paid and
nonassessable and owned of record and, to such
counsel's actual knowledge, beneficially by the
Company;
(xi) subject to the satisfaction of the conditions to the
Office's approval of the Conversion, no further
approval, authorization, consent or other order of any
public board or body is required in connection with
the execution and delivery of this Agreement, the
issuance of the Shares and the consummation of the
Conversion, except as may be required under the
securities or blue sky laws of various jurisdictions
(as to which no opinion need be rendered) and except
as may be required under the rules and regulations of
the NASD;
(xii) the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary
action on the part of each of the Company and the
Bank; and this Agreement is a legal, valid and binding
obligation of each of the Company and the Bank,
enforceable in accordance with its terms, except as
the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium, reorganization,
receivership, conservatorship or similar laws relating
to or affecting the enforcement of creditors' rights
generally or the rights of creditors of savings and
loan holding companies, including the laws relating to
the appointment of a receiver or conservator or the
rights or powers of the Office or the FDIC, or by
general equity principles, regardless of whether such
enforceability is considered in a proceeding in equity
or at law, and except to the extent that the
provisions of Sections 8 and 9 hereof may be
unenforceable as against public policy, as to which no
opinion need be rendered;
(xiii) there is no material legal, investigation, regulatory,
administrative or governmental investigation, action,
suit or proceeding pending or, to such counsel's
actual knowledge, threatened against or involving the
assets of the Company or the Bank, except as described
in the Prospectus;
(xiv) the statements in the Prospectus under the captions
"Regulation," "Taxation," "Capitalization," "Dividend
Policy," "Certain Restrictions on Acquisition of the
Company and the Bank," "Certain Anti-takeover
Provisions in the Certificate of Incorporation and
Bylaws," "Description of Capital Stock,"
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"Registration Requirements" and "The Conversion", and
in response to Item 7(d)(1) of Form PS of the Office's
conversion regulations, insofar as they are, or refer
to, statements of federal law or legal conclusions,
have been prepared or reviewed by such counsel and are
correct in all material respects;
(xv) the Form AC has been approved by the Office, and the
Prospectus has been authorized for use by the Office;
the Registration Statement and any post effective
amendment thereto has been declared effective by the
Commission; the Office has issued its approvals, and,
except as to any necessary qualifications or
registration under the securities laws of the
jurisdictions in which the Shares were offered, no
further approval of any governmental authority is
required for the issuance and sale of the Shares, and
no proceedings are pending by or before the Commission
or the Office seeking to revoke or rescind the orders
declaring the Registration Statement effective or
approving the Conversion Application, nor, to such
counsel's actual knowledge, are any such proceedings
contemplated or threatened (provided that for this
purpose such counsel need not regard any litigation or
governmental procedure to be "threatened" unless the
potential litigant or government authority has
manifested to the management of the Company or the
Bank, or to such counsel, a present intention to
initiate such litigation or proceeding);
(xvi) the execution and delivery of this Agreement, the
incurrence of the obligations herein set forth and the
consummation of the transactions contemplated hereby
by the Company and the Bank shall not conflict with or
result in a breach of the certificate of incorporation
or charter or bylaws of the Company or the Bank (in
either mutual or stock form), nor, to such counsel's
actual knowledge, constitute a material breach of or
default (or an event which, with notice or lapse of
time or both, would constitute a default) under, give
rise to any right of termination, cancellation or
acceleration contained in, or result in the creation
or imposition of any lien, charge or other encumbrance
upon any of the properties or assets of the Company or
the Bank (other than the establishment of the
liquidation account) pursuant to any of the terms,
provisions or conditions of, any agreement, contract,
indenture, bond, debenture, note, instrument or
obligation to which the Company or the Bank is a party
or by which it or its assets or properties may be
bound or is subject, or violate any governmental
license or permit, any applicable law, administrative
regulation or order or court
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<PAGE>
order, writ, injunction or decree (subject to the
satisfaction of certain conditions imposed by the
Office in connection with its approval of the Form H-
(e)1-S and the Form AC), which breach, default,
encumbrance or violation would have a material
adverse effect on the condition (financial or
otherwise), operations, business, assets or
properties of the Company and the Bank taken as a
whole.
(xvii) to such counsel's actual knowledge, there has been no
breach of the Company's or the Bank's certificate of
incorporation, charter or bylaws, or breach or
default (or the occurrence of any event which, with
the lapse of time or action, or both, by a third
party, would result in a breach or a default) under
any agreement, contract, indenture, bond, debenture,
note, instrument or obligation to which the Company
or the Bank is a party or by which any of them or any
of their respective assets or properties may be
bound, or any governmental license or permit, or a
violation of any published law, administrative
regulation or order, or court order, writ, injunction
or decree, which breach, default, encumbrance or
violation would have a material adverse effect on the
condition (financial or otherwise), operations,
business, assets or properties of the Company and the
Bank, taken as a whole;
(xviii) the Conversion Application, the Registration
Statement and the Prospectus, in each case as
amended, comply as to form in all material respects
with the requirements of the Act and all rules,
regulations, decisions and orders of the Office and
Commission, as the case may be (except as to
financial statements, notes to financial statements,
financial tables and other financial and statistical
data, including the appraisal and stock valuation
information, included therein, as to which an opinion
need not be expressed); to such counsel's actual
knowledge, all documents and exhibits required to be
filed with the Conversion Application and the
Registration Statement have been so filed; the
descriptions in the Conversion Application and the
Registration Statement of such documents and exhibits
are accurate in all material respects and present
fairly the information required to be shown.
(xix) the Company and the Bank have good and marketable
title to all real and personal properties and assets
described in the Prospectus as owned by them and
material to their respective businesses, free and
clear of all liens, charges, encumbrances, claims,
security interests, defects or restrictions, except
(A) such
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<PAGE>
as do not materially adversely affect the value of
such properties and assets and do not interfere with
the use made or proposed to be made of such
properties and assets by the Company or the Bank and
(B) such as are described in the Prospectus; and the
real and personal property held by the Company or the
Bank under lease or sublease is held by them under
valid, subsisting and enforceable leases or
subleases, and the Company and the Bank, as the case
may be, have the peaceful and undisturbed right to
use and possession of the real or personal property
held by them under lease or sublease.
In rendering such opinion, counsel may rely as to matters of fact on
certificates of officers and directors of the Company and the Bank and
certificates of public officials delivered pursuant hereto. Such counsel's
opinion shall be limited to matters governed by federal laws and by the Delaware
General Corporate Law, as amended.
(b) At the Closing Date, the Agents shall receive the letter of
Reinhart, Boerner, Van Dewren, Norris & Rieselbach, P.C., special counsel for
the Company and the Bank, dated the Closing Date, addressed to the Agents, in
form and substance reasonably satisfactory to counsel for the Agents and to the
effect that: in connection with the preparation of the Registration Statement
and Prospectus, such counsel participated in conferences with directors,
officers, employees and other representatives of the Company and the Bank and
representatives of the independent public accountants for the Company and the
Bank at which conferences the contents of the Registration Statement and the
Prospectus and related matters were discussed and, while such counsel have not
confirmed the accuracy or completeness of or otherwise verified the information
contained in the Registration Statement or the Prospectus, nothing has come to
such counsel's attention that would lead such counsel to believe that the
Registration Statement (except as to financial statements, notes to financial
statements, financial tables and other financial and statistical data and stock
valuation information contained therein with respect to which such counsel need
not express an opinion), at the time it became effective and at the time any
post-effective amendment thereto became effective, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein not misleading,
or that the Prospectus (except as to financial statements, notes to financial
statements, financial tables and other financial and statistical data and stock
valuation information contained therein with respect to which such counsel need
not express an opinion), at the time the Registration Statement became effective
or at the time any amendment or supplement to the Prospectus was filed with the
Commission or transmitted to the Commission for filing or on the Closing Date,
contained any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(c) Counsel for the Agents shall have been furnished such
documents and opinions as they reasonably may require for the purpose of
enabling them to review or pass upon the matters required by the Agents, and for
the purpose of evidencing the accuracy, completeness or
17
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satisfaction of any of the representations, warranties or conditions herein
contained, including but not limited to, resolutions of the Board of Directors
of the Company and the Bank regarding the authorization of this Agreement and
the transactions contemplated hereby.
(d) Prior to and at the Closing Date, in the reasonable opinion
of the Agents, (i) there shall have been no material change in the condition,
financial or otherwise, business or results of operations of the Company and the
Bank, taken as a whole, since the latest date as of which such condition is set
forth in the Prospectus, except as referred to therein; (ii) there shall have
been no transaction entered into by the Company or the Bank after the latest
date as of which the consolidated financial condition of the Company is set
forth in the Prospectus other than transactions referred to or contemplated
therein, transactions in the ordinary course of business, and transactions which
are not material to the Company and the Bank, taken as a whole; (iii) none of
the Company or the Bank shall have received from the Office or Commission any
direction (oral or written) to make any change in the method of conducting their
respective businesses which is material to the business of the Company and the
Bank, taken as a whole, with which they have not complied; (iv) no action, suit
or proceeding, at law or in equity or before or by any federal or state
commission, board or other administrative agency, shall be pending or threatened
against the Company or the Bank or affecting any of their respective assets,
wherein an unfavorable decision, ruling or finding would have a material adverse
effect on the business, operations, financial condition or income of the Company
and the Bank, taken as a whole; (v) the Shares shall have been qualified or
registered for offering and sale by the Company under the securities or blue sky
laws of such jurisdictions as the Agents and the Company shall have agreed upon;
and (vi) neither the Company nor the bank shall have been in default (nor shall
an event have occurred which, with notice or lapse of time or both, would
constitute a default) under any provision of any agreement or instrument
relating to any outstanding indebtedness.
(e) At the Closing Date, the Agents shall receive a certificate
of the President and the principal financial officer of each of the Company and
the Bank, dated the Closing Date, to the effect that: (i) they have carefully
examined the Prospectus, and, in their opinion, at the time the Prospectus
became authorized for final use, the Prospectus did not contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading with respect to the Company or the Bank; (ii) since
the date the Prospectus became authorized for final use, no event has occurred
which should have been set forth in an amendment or supplement to the Prospectus
which has not been so set forth, including specifically, but without limitation,
any material change in the business, condition (financial or otherwise) or
results of operations of the Company or the Bank and, the conditions set forth
in clauses (ii) through (iv) inclusive of subsection (d) of this Section 7 have
been satisfied; (iii) to the best knowledge of such officers, no order has been
issued by the Commission or the Office to suspend the Subscription Offering or
the Community Offering or the effectiveness of the Prospectus, and no action for
such purposes has been instituted or threatened by the Commission or the Office;
(iv) to the best knowledge of such officers, no person has sought to obtain
review of the final actions of the Office and division approving the Plan; and
(v) all of the
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<PAGE>
representations and warranties contained in Section 2 of this Agreement are true
and correct, with the same force and effect as though expressly made on the
Closing Date.
(f) At the Closing Date, the Agents shall receive, among other
documents, (i) copies of the letters from the Office authorizing the use of the
Prospectus and the Proxy Statement, (ii) a copy of the order of the Commission
declaring the Registration Statement effective; (iii) copies of the letters from
the Office evidencing the corporate existence of the Bank; (iv) a copy of the
letter from the appropriate Delaware authority evidencing the good standing of
the Company; (v) a copy of the Company's certificate of incorporation certified
by the appropriate Delaware governmental authority; and (vi) a copy of the
letter from the Office approving the Bank's Stock Charter.
(g) As soon as available after the Closing Date, the Agents shall
receive a certified copy of the Bank's Stock Charter executed by the appropriate
federal governmental authority.
(h) Concurrently with the execution of this Agreement, the Agents
shall receive a letter from York, Neel & Co. - Hopkinsville, LLP, independent
certified public accountants, dated the date hereof and addressed to the Agents,
in substance and form satisfactory to counsel for the Agents, with respect to
the financial statements and certain financial information contained in the
Prospectus.
(i) At the Closing Date, the Agents shall receive a letter in
form and substance satisfactory to counsel for the Agents from York, Neel & Co.
- - Hopkinsville, LLP, independent certified public accountants, dated the Closing
Date and addressed to the Agents, confirming the statements made by them in the
letter delivered by them pursuant to the preceding subsection as of a specified
date not more than five (5) days prior to the Closing Date.
(j) At the Closing Date, the Agents shall have received a letter
from National Capital Group, Inc., dated the date of delivery, confirming the
results of their appraisal, that the appraisal conforms to the requirements of
the Office and that they are independent with respect to the Company and the
Bank and within the requirements of the Office's conversion regulations.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are, in the reasonable
opinion of the Agents and their counsel, satisfactory to the Agents and their
counsel. Any certificates signed by an officer or director of the Company or the
Bank prepared for the Agents' reliance and delivered to the Agents or to counsel
for the Agents shall be deemed a representation and warranty by the Company and
the Bank to the Agents as to the statements made thereby. If any condition to
the Agents' obligations hereunder to be fulfilled prior to or at the Closing
Date is not so fulfilled, the Agents may terminate this Agreement or, if the
Agents so elect, may waive any such conditions which have not been fulfilled, or
may extend the time of their fulfillment. If the Agents terminate this
Agreement as aforesaid, the Company and the Bank shall reimburse the Agents for
their expenses as provided in Section 3(b) hereof;
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8. Indemnification.
---------------
(a) The Company and the Bank joint and severally agree to
indemnify and hold harmless the Agents, their officers, directors, employees and
each person, if any, who controls the Agents within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act, against any and all loss,
liability, claim, damage and expense whatsoever and shall further promptly
reimburse such persons for any legal or other expenses reasonably incurred by
each or any of them in investigating, preparing to defend or defending against
any such action, proceeding or claim (whether commenced or threatened ) arising
out of or based upon any misrepresentation by the Company or the Bank in this
Agreement or any breach of warranty by the Company or the Bank with respect to
this Agreement or arising out of or based upon any untrue or alleged untrue
statement of a material fact or the omission or alleged omission of a material
fact required to be stated or necessary to make not misleading any statements
contained in (i) the Registration Statement or the Prospectus or (ii) any
application (including the Form AC and the Form H-(e)l-S) or other document or
communication (in this Section 8 collectively called "Application") prepared or
executed by or on behalf of the Company or the Bank or based upon written
information furnished by or on behalf of the Company or the Bank, with its
consent, whether or not filed in any jurisdiction, to effect the Conversion or
qualify the Shares under the securities laws thereof or filed with the Office or
Commission, unless such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company or the Bank with
respect to the Agents by or on behalf of the Agents expressly for use in the
Prospectus or any amendment or supplement thereof or in any Application, as the
case may be. This indemnity shall be in addition to any liability the Company
and the Bank may have to the Agents otherwise.
(b) The Company shall indemnify and hold the Agents harmless for
any liability whatsoever arising out of (i) the Allocation Instructions or (ii)
any records of account holders, depositors, borrowers and other members of the
Bank delivered to the Agents by the Bank or its agents for use during the
Conversion.
(c) The Agents agree to indemnify and hold harmless the Company,
the Bank, their directors, officers and employees and each person, if any, who
controls the Company and the Bank within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, to the same extent as the foregoing indemnity
from the Company and the Bank to the Agents, but only with respect to statements
or omissions, if any, made in the Prospectus or any amendment or supplement
thereof, in any Application or to a purchaser of the Shares in reliance upon,
and in conformity with, written information furnished to the Company or the Bank
with respect to the Agents by or on behalf of the Agents expressly for use in
the Prospectus or in any Application.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section 8. In case
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<PAGE>
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with the other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than the reasonable cost of investigation except as otherwise
provided herein. In the event the indemnifying party elects to assume the
defense of any such action and retain counsel acceptable to the indemnified
party, the indemnified party may retain additional counsel, but shall bear the
fees and expenses of such counsel unless (i) the indemnifying party shall have
specifically authorized the indemnified party to retain such counsel or (ii) the
parties to such suit include such indemnifying party and the indemnified party,
and such indemnified party shall have been advised by counsel that one or more
material legal defenses may be available to the indemnified party which may not
be available to the indemnifying party, in which case the indemnifying party
shall not be entitled to assume the defense of such suit notwithstanding the
indemnifying party's obligation to bear the fees and expenses of such counsel.
An indemnifying party against whom indemnity may be sought shall not be liable
to indemnify an indemnified party under this Section 8 if any settlement of any
such action is effected without such indemnifying party's consent.
9. Contribution. In order to provide for just and equitable
------------
contribution in circumstances in which the indemnity agreement provided for in
Section 8 above is for any reason held to be unavailable to the Agents other
than in accordance with its terms, the Company or the Bank and the Agents shall
contribute to the aggregate losses, liabilities, claims, damages, and expenses
of the nature contemplated by said indemnity agreement incurred by the Company
or the Bank and the Agents (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company and the Bank on the one hand and
the Agents on the other from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above, but also the relative fault of the Company or
the Bank on the one hand and the Agents on the other hand in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Bank on
the one hand and the Agents on the other shall be deemed to be in the same
proportions as the total proceeds from the Conversion (before deducting
expenses) received by the Company and the Bank bear to the total fees received
by the Agents under this Agreement. The relative fault of the Company and the
Bank on the one hand and the Agents on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Bank or by the Agents and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
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The Company and the Bank and the Agents agree that it would not be just
and equitable if contribution pursuant to this Section 9 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by an indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, the Agents shall not be
required to contribute any amount in excess of the amount by which fees owed the
Agents pursuant to this Agreement exceeds the amount of any damages which the
Agents have otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation.
10. Survival of Agreements, Representations and Indemnities. The
-------------------------------------------------------
respective indemnities of the Company and the Bank and the Agents and the
representations and warranties of the Company, the Bank and the Agents set forth
in or made pursuant to this Agreement shall remain in full force and effect,
regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of the Agents or the Company or the Bank or
any controlling person or indemnified party referred to in Section 8 hereof, and
shall survive any termination or consummation of this Agreement and/or the
issuance of the Shares, and any legal representative of The Agents, the Company,
the Bank and any such controlling persons shall be entitled to the benefit of
the respective agreements, indemnities, warranties and representations.
11. Termination. The Agents may terminate this Agreement by giving
-----------
the notice indicated below in this Section at any time after this Agreement
becomes effective as follows:
(a) If any domestic or international event or act or occurrence
has materially disrupted the United States securities markets such as to make
it, in the Agents' opinion, impracticable to proceed with the offering of the
Shares; or if trading on the New York Stock Exchange shall have suspended; or if
the United States shall have become involved in a war or major hostilities; or
if a general banking moratorium has been declared by a state or federal
authority which has material effect on the Bank or the Conversion; or if a
moratorium in foreign exchange trading by major international banks or persons
has been declared; or if there shall have been a material change in the
capitalization, condition or business of the Company, or if the Bank shall have
sustained a material or substantial loss by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act, whether or not
said loss shall have been insured; or if there shall have been a material change
in the condition or prospects of the Company or the Bank.
(b) If the Agents elect to terminate this Agreement as provided
in this Section, the Company and the Bank shall be notified promptly by the
Agents by telephone or telegram, confirmed by letter.
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(c) If this Agreement is terminated by the Agents for any of the
reasons set forth in subsection (a) above, and to fulfill their obligations, if
any, pursuant to Sections 3, 6, 8(a) and 9 of this Agreement, the Company and
the Bank shall pay the Agents upon demand, the full amount so owing thereunder.
12. Notices. All communications hereunder, except as herein otherwise
-------
specifically provided, shall be in writing and, if sent to the Agents shall be
mailed, delivered or telegraphed and confirmed to: Investment Bank Services,
Inc., The 1000 Building, 6200 Dutchman's Lane, Suite 305, Louisville, Kentucky
40205, Attention: Mr. Christopher Hargrove; and (ii) Friedman, Billings, Ramsey
& Co., Inc., Potomac Tower, 1001 Nineteenth Street North, Arlington, Virginia,
Attention: Mr. Branchard Tucker, with a copy to Muldoon, Murphy & Faucette, 5101
Wisconsin Avenue, NW, Washington, DC 20016, Attention: Lori M. Beresford, Esq.
and if sent to the Company or the Bank, shall be mailed, delivered or
telegraphed and confirmed to HopFed Bancorp, Inc. and Hopkinsville Federal
Savings and Loan Association, 2700 Fort Campbell Boulevard, Hopkinsville,
Kentucky 42240 Attention: Mr. Bruce Thomas, President and Chief Executive
Officer (with a copy to Reinhart, Boerner Van Deuren Norris & Rieselbach, P.C.,
601 Pennsylvania Avenue, NW, North Building, Suite 750, Washington, DC 20004-
2601, Attention: Edward B. Crosland, Jr., Esquire).
13. Parties. This Agreement shall inure solely to the benefit of, and
-------
shall be binding upon, the Agents, the Company, the Bank and the controlling and
other persons referred to in Section 8 hereof, and their respective successors,
legal representatives and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained.
14. Construction. Unless governed by preemptive federal law, this
------------
Agreement shall be governed by and construed in accordance with the substantive
laws of Kentucky.
15. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which when so executed and delivered shall be an original,
but all of which together shall constitute but one and the same instrument.
23
<PAGE>
Please acknowledge your agreement to the foregoing by signing below and
returning to the Company one copy of this letter.
HOPFED BANCORP, INC. HOPKINSVILLE FEDERAL SAVINGS
BANK
By: By:
--------------------------------------- --------------------------------
Bruce Thomas Bruce Thomas
President and Chief Executive Officer President and Chief
Executive Officer
Date: , 1997 Date: , 1997
--------------- ---------------
AGREED TO AND ACCEPTED:
INVESTMENT BANK SERVICES, INC.
By:
---------------------------------------
Christopher L. Hargrove
President
Date: , 1997
__________________
FRIEDMAN, BILLINGS RAMSEY & CO., INC.
By:
---------------------------------------
Date: , 1997
-------------------
24
<PAGE>
Exhibit A
---------
HOPKINSVILLE FEDERAL SAVINGS BANK
Hopkinsville, Kentucky
Plan of Conversion
From Mutual to Stock Organization
1. General.
On May 21, 1997, the Board of Directors of Hopkinsville Federal Savings
Bank, Hopkinsville, Kentucky (the "Bank"), after careful study and
consideration, adopted by unanimous vote this Plan of Conversion (the "Plan"),
which provides for the conversion of the Bank from a federally chartered mutual
savings bank to a federally chartered stock savings bank (the "Converted Bank")
as a wholly owned subsidiary of a holding company to be formed at the direction
of the Bank (the "Holding Company"). The conversion of the Bank to the Converted
Bank and the acquisition of control of the Converted Bank by the Holding Company
are collectively referred to herein as the "Conversion."
The Plan supersedes the Plan of Conversion which was adopted by the Board
of Directors on January 15, 1997, and terminated on May 21, 1997.
Pursuant to the Plan, shares of common stock in the Holding Company (the
"Conversion Stock") will be offered as part of the Conversion in a Subscription
Offering pursuant to non-transferable Subscription Rights, at a predetermined
and uniform price, first to Eligible Account Holders of record as of March 31,
-----
1996, second to Tax-Qualified Employee Stock Benefit Plans, third to
------ -----
Supplemental Eligible Account Holders of record as of the last day of the
calendar quarter preceding OTS approval of the Bank's application to convert to
stock form, and fourth to Other Members of the Bank. Concurrently with the
------
Subscription Offering, shares not subscribed for in the Subscription Offering
may be offered as part of the Conversion to the general public in a Community
Offering. Shares remaining will then be offered to the general public in an
underwritten public offering or otherwise. The aggregate Purchase Price of the
Conversion Stock will be based upon an independent appraisal of the Bank and
will reflect the estimated pro forma market value of the Converted Bank, as a
subsidiary of the Holding Company.
The Conversion is subject to regulations of the Director of the Office of
Thrift Supervision of the United States Department of the Treasury ("OTS")
pursuant to Section 5(i) of the Home Owners' Loan Act, and Part 563b of the
Rules and Regulations Applicable to All Savings Banks.
Consummation of the Conversion is subject to the approval of the Plan and
the Conversion by the OTS and by members of the Bank (the "Members") at a
special meeting of the Members to be called to consider the Conversion by the
affirmative vote of Members of the Bank holding not less than a majority of the
total votes eligible to be cast.
It is the desire of the Board of Directors to attract new capital to the
Converted Bank to increase its net worth, to support future savings growth, to
increase the amount of funds available for other lending and investment, to
provide greater resources for the expansion of customer services and to
facilitate future expansion. In addition, the Board of Directors currently
intends to implement stock option plans and other stock benefit plans following
the Conversion in order to better attract and retain qualified directors and
officers. It is the further desire of the Board of Directors to reorganize the
Converted Bank as the wholly owned subsidiary of the Holding Company to enhance
flexibility of operations, diversification of business opportunities and
financial capability for business and regulatory purposes and to enable the
Converted Bank to compete more effectively with other financial service
organizations.
No change will be made in the Board of Directors or management of the Bank
as a result of the Conversion.
<PAGE>
II. Definitions.
Acting in Concert: The term "Acting in Concert" means: (i) knowing
-----------------
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; or (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. Any
person (as defined by 12 C.F.R. (S)563b.2(a)(26)) Acting in Concert with another
person ("other party") shall also be deemed to be Acting in Concert with any
person who is also Acting in Concert with that other party, except that any Tax-
Qualified Employee Stock Benefit Plan will not be deemed to be Acting in Concert
with its trustee or a person who serves in a similar capacity solely for the
purpose of determining whether stock held by the trustee and stock held by the
Tax-Qualified Employee Benefit Plan will be aggregated.
Associate: The term "Associate," when used to indicate a relationship with
---------
any person, means: (i) any corporation or organization (other than the Bank, the
Holding Company, or a majority-owned subsidiary of the Bank or Holding Company)
of which such person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities; (ii) any
trust or other estate in which such person has a substantial beneficial interest
or as to which such person serves as trustee or in a similar fiduciary capacity,
except that, for purposes of Paragraphs VIII.F. and VIII.G.4. hereof, such term
shall not include a Tax-Qualified Employee Stock Benefit Plan in which a person
has a substantial beneficial interest or serves as a trustee in a similar
fiduciary capacity, and, for purposes of Paragraph VIII.G.1. hereof, such term
shall not include any Tax-Qualified Employee Stock Benefit Plan; and (iii) any
relative or spouse of such person, or any relative of such spouse, who has the
same home as such person or who is a director of the Bank or the Holding Company
or any of their subsidiaries.
Bank: The term "Bank" means Hopkinsville Federal Savings Bank, in its form
-----
as a federal mutual savings bank.
Capital Stock: The term "Capital Stock" means any and all authorized
--------------
shares of stock of the Converted Bank.
Community Offering: The term "Community Offering" means the offering of
-------------------
shares of Conversion Stock to the general public by the Holding Company
concurrently with the Subscription Offering, giving preference to natural
persons and trusts of natural persons (including individual retirement and Keogh
retirement accounts and personal trusts in which such natural persons have
substantial interests) who permanently reside in the Bank's Local Community.
Conversion: The term "Conversion" means: (i) the amendment of the Bank's
-----------
federal mutual charter and bylaws to authorize issuance of shares of Capital
Stock by the Converted Bank and to conform to the requirements of a federal
capital stock savings bank under the laws of the United States and applicable
regulations; (ii) the issuance and sale of Conversion Stock by the Holding
Company in the Subscription and Community Offerings and/or in an underwritten
public offering or otherwise; and (iii) the purchase by the Holding Company of
all the Capital Stock of the Converted Bank to be issued in the Conversion
immediately following or concurrently with the close of the sale of the
Conversion Stock.
Conversion Stock: The term "Conversion Stock" means the shares of common
----------------
stock to be issued and sold by the Holding Company pursuant to the Plan.
Converted Bank: The term "Converted Bank" means Hopkinsville Federal
--------------
Savings Bank in its form as a federal capital stock savings bank resulting from
the conversion of the Bank to the stock form of organization in accordance with
the terms of the Plan.
Eligibility Record Date: The term "Eligibility Record Date" means the
-----------------------
close of business on March 31, 1996.
-2-
<PAGE>
Eligible Account Holder: The term "Eligible Account Holder" means the
-----------------------
holder of a Qualifying Deposit in the Bank on the Eligibility Record Date.
FDIC: The term "FDIC" means the Federal Deposit Insurance Corporation or
----
any successor federal agency which insures deposit accounts held in savings
associations.
Form AC Application: The term "Form AC Application" means the application
-------------------
submitted to the OTS for approval of the Conversion.
H-(e)l Application: The term "H-(e)l Application" means the application to
------------------
the OTS on OTS Application H-(e)1, or OTS Application H-(e) I -S if applicable,
for approval of the Holding Company's acquisition of all of the Capital Stock.
Holding Company: The term "Holding Company" means a corporation to be
---------------
incorporated by the Bank under state law for the purpose of becoming a savings
and loan holding company for the Converted Bank through the issuance and sale of
Conversion Stock under the Plan and the concurrent acquisition of 100% of the
Capital Stock to be issued and sold pursuant to the Plan in connection with the
Conversion.
Holding Company Stock: The term "Holding Company Stock" means any and all
---------------------
authorized shares of stock of the Holding Company.
Independent Appraiser: The term "Independent Appraiser" means a person
---------------------
independent of the Bank, experienced and expert in the area of corporate
appraisal, and acceptable to the OTS, retained by the Bank to prepare an
appraisal of the pro forma market value of the Converted Bank as a subsidiary of
the Holding Company.
Local Community: The term "Local Community" means the counties in which
---------------
the Bank's offices are located.
Market Maker: The term "Market Maker" means a dealer (i.e., any person who
------------
engages, either for all or part of such person's time, directly or indirectly as
agent, broker or principal in the business of offering, buying, selling or
otherwise dealing or trading in securities issued by another person) who, with
respect to a particular security: (i)(a) regularly publishes bona fide,
competitive bid and offer quotations in a recognized interdealer quotation
system or (b) furnishes bona fide competitive bid and offer quotations on
request; and (ii) is ready, willing and able to effect transactions in
reasonable quantities at its quoted prices with other brokers or dealers.
Member: The term "Member" means any person or entity who qualifies as a
------
member of the Bank under its federal mutual charter and bylaws prior to
Conversion.
Officer: The term "Officer" means an executive officer of the Holding
-------
Company or the Bank (as applicable), including the Chairman of the Board,
President, Executive Vice Presidents, Vice Presidents in charge of principal
business functions, Secretary and Treasurer.
Order Form: The term "Order Form" means the order form or forms to be used
----------
to purchase Conversion Stock pursuant to the Plan.
Other Member: The term "Other Member" means any person, other than an
------------
Eligible Account Holder or a Supplemental Eligible Account Holder, who is a
Member as of the Voting Record Date.
OTS: The term "OTS" means the Office of Thrift Supervision of the United
---
States Department of the Treasury or any successor agency having jurisdiction
over the Conversion.
Plan: The term "Plan" means this Plan of Conversion which provides for the
----
conversion of the Bank from a federally chartered mutual savings bank to a
federally chartered stock savings bank (i.e., the Converted Bank) and the
concurrent formation of the Holding Company for the Converted Bank.
-3-
<PAGE>
Qualifying Deposit: The term "Qualifying Deposit" means a balance in any
------------------
Savings Account or other deposit account, including any non-interest bearing
demand account, in the Bank as of the close of business on the Eligibility
Record Date or the Supplemental Eligibility Record Date, as applicable, which is
equal to or greater than $50.00.
Registration Statement: The term "Registration Statement" means the
----------------------
Registration Statement on Form S-1 or SB-2 or other applicable form and any
amendments thereto filed by the Holding Company with the SEC pursuant to the
Securities Act of 1933, as amended, to register shares of Conversion Stock.
Resident: The term "Resident," as used in this Plan in relation to the
--------
preference afforded natural persons and trusts of natural persons in the Local
Community, means any natural person who occupies a dwelling within the Local
Community, has an intention to remain within the Local Community for a period of
time (manifested by establishing a physical, ongoing, non-transitory presence
within the Local Community) and continues to reside therein at the time of the
Subscription and Community Offerings. The Bank may utilize deposit or loan
records or such other evidence provided to it to make the determination as to
whether a person is residing in the Local Community. To the extent the "person"
is a corporation or other business entity, the principal place of business or
headquarters shall be within the Local Community. To the extent the "person" is
a personal benefit plan, the circumstances of the beneficiary shall apply with
respect to this definition. In the case of all other benefit plans,
circumstances of the trustee shall be examined for purposes of this definition.
In all cases, such determination shall be in the sole discretion of the Bank.
Sale: The terms "sale" and "sell" mean every contract to sell or otherwise
----
dispose of a security or an interest in a security for value, but such terms do
not include an exchange of securities in connection with a merger or acquisition
approved by the OTS or any other federal agency having jurisdiction.
Savings Account: The term "Savings Account" means a withdrawable deposit
---------------
in the Bank.
SEC: The term "SEC" means the Securities and Exchange Commission or any
---
successor agency.
Special Meeting: The term "Special Meeting" means the Special Meeting of
---------------
Members to be called for the purpose of submitting the Plan to the Members for
their approval.
Subscription Offering: The term "Subscription Offering" means the offering
---------------------
of shares of Conversion Stock to the Eligible Account Holders, Tax-Qualified
Employee Stock Benefit Plans, Supplemental Eligible Account Holders and Other
Members under the Plan, and, with respect to Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members, giving preference to
natural persons and trusts of natural persons (including individual retirement
and Keogh retirement accounts and personal trusts in which such natural persons
have substantial interests) who are permanent Residents of the Bank's Local
Community if and to the extent permitted by applicable law and approved by the
Bank's Board of Directors in its sole discretion.
Subscription and Community Prospectus: The term "Subscription and
-------------------------------------
Community Prospectus" means the final prospectus to be used in connection with
the Subscription and Community Offerings.
Subscription Rights: The term "Subscription Rights" means non-
-------------------
transferable, non-negotiable, personal rights of Eligible Account Holders, Tax-
Qualified Employee Stock Benefit Plans, Supplemental Eligible Account Holders
and Other Members to purchase Conversion Stock offered under the Plan in
connection with the Conversion.
Supplemental Eligibility Record Date: The term "Supplemental Eligibility
------------------------------------
Record Date" means the last day of the calendar quarter preceding the date of
approval of the application for conversion by the OTS.
-4-
<PAGE>
Supplemental Eligible Account Holder: The term "Supplemental Eligible
------------------------------------
Account Holder" means the holder of a Qualifying Deposit in the Bank (other than
Officers and directors of the Bank and their Associates) on the Supplemental
Eligibility Record Date.
Tax-Qualified Employee Stock Benefit Plan: The term "Tax-Qualified
-----------------------------------------
Employee Stock Benefit Plan" means any defined benefit plan or defined
contribution plan of the Bank or Holding Company, such as an employee stock
ownership plan, stock bonus plan, profit sharing plan or other plan, which, with
its related trust, meets the requirements to be "qualified" under section 401 of
the Internal Revenue Code of 1986, as amended, or any successor provision
thereof. A "non tax qualified employee stock benefit plan" means any defined
benefit plan or defined contribution plan which is not so qualified.
Voting Record Date: The term "Voting Record Date" means the date fixed by
------------------
the Board of Directors of the Bank to determine Members of the Bank entitled to
vote at the Special Meeting.
III. Steps Prior to Submission of the Plan to the Members for Approval.
Prior to submission of the Plan to its Members for approval, the Bank must
receive approvals from the appropriate regulatory authorities for consummation
of the Conversion in accordance with applicable laws and regulations. The
following steps must be taken prior to receipt of such regulatory approvals:
A. The Board of Directors shall adopt the Plan by not less than a
two-thirds vote.
B. Promptly after adoption of the Plan by the Board of Directors,
the Bank shall notify its Members of the adoption of the Plan by publishing
a statement in a newspaper having a general circulation in each community
in which the Bank maintains an office and/or by mailing a letter to each of
its Members.
C. A press release relating to the proposed Conversion may be
submitted to the local media.
D. Copies of the Plan adopted by the Board of Directors shall be
made available for inspection at each office of the Bank.
E. The Bank shall cause the Holding Company to be incorporated under
state law, and the Board of Directors of the Holding Company shall concur
in the Plan by at least a two-thirds vote.
F. As soon as practicable following the adoption of this Plan, the
Bank shall file the Form AC Application, and the Holding Company shall file
the Registration Statement and the H-(e)l Application. Upon receipt of
notification from the OTS that the Form AC Application is properly executed
and not materially incomplete, the Bank shall publish notice of the filing
of the Form AC Application in a newspaper having a general circulation in
each community in which the Bank maintains an office and/or by mailing a
letter to each of its Members, and shall publish such other notices of the
Conversion as may be required in connection with the H-(e)l Application by
the regulations and policies of the OTS.
G. The Bank shall obtain an opinion of its tax advisors or a
favorable ruling from the United States Internal Revenue Service which
shall state that the Conversion will not result in any gain or loss for
federal income tax purposes to the Bank. Receipt of a favorable opinion or
ruling is a condition precedent to completion of the Conversion.
H. The Plan shall be submitted to a vote of the Members at the
Special Meeting after approval by the OTS.
-5-
<PAGE>
IV. Meeting of Members.
Upon receipt of all regulatory approvals required for consummation of the
Conversion, the Bank shall convene the Special Meeting scheduled in accordance
with the Bank's Bylaws to vote on the Plan. Promptly after receipt of OTS
approval of the Form AC Application and at least 20 days but not more than 45
days prior to the Special Meeting, the Bank will distribute proxy solicitation
materials to all voting Members as of the Voting Record Date established for
voting at the Special Meeting. Proxy materials will also be sent to each
beneficial holder of an Individual Retirement Account where the name of the
beneficial holder is disclosed on the Bank's records. The proxy solicitation
materials will include a copy of the Proxy Statement and other documents
authorized for use by the regulatory authorities and may also include a
Subscription and Community Prospectus as provided in Paragraph VI below. The
Bank will also advise each Eligible Account Holder and Supplemental Eligible
Account Holder not entitled to vote at the Special Meeting of the proposed
Conversion and the scheduled Special Meeting and provide a postage paid card on
which to indicate whether he or she wishes to receive the Subscription and
Community Prospectus, if the Subscription Offering is not held concurrently with
the proxy solicitation of Members for the Special Meeting.
Pursuant to applicable regulations, an affirmative vote of the Members of
at least a majority of the total votes eligible to be cast will be required for
approval of the Plan. Voting may be in person or by proxy.
By voting in favor of the adoption of the Plan and the Conversion, the
Members will be voting in favor of the Conversion and the adoption by the Bank
of the Federal Stock Charter and Bylaws in the forms attached as Exhibits A and
B to this Plan.
The OTS shall be notified of the actions of the Members at the Special
Meeting promptly following the Special Meeting.
V. Summary Proxy Statement.
The Proxy Statement furnished to Members may be in summary form, provided
that a statement is made in bold-faced type that a more detailed description of
the proposed transaction may be obtained by returning an enclosed postage paid
card or other written communication requesting a supplemental information
statement. Without prior approval from the OTS, the Special Meeting shall not
be held fewer than 20 days after the last day on which the supplemental
information statement is mailed to Members requesting the same. The
supplemental information statement may be combined with the Subscription and
Community Prospectus if the Subscription Offering is commenced concurrently with
the proxy solicitation of Members for the Special Meeting.
VI. Offering Documents.
The Holding Company may commence the Subscription Offering and, provided
that the Subscription Offering has commenced, may commence the Community
Offering concurrently with or during the proxy solicitation of Members and may
close the Subscription and Community Offerings before the Special Meeting,
provided that the consummation of the sale of the Conversion Stock shall be
conditioned upon approval of the Plan by the Members at the Special Meeting.
The Bank may require Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members to return to the Bank by a reasonable date
certain a postage-paid written communication requesting receipt of a
Subscription and Community Prospectus in order to be entitled to receive a
Subscription and Community Prospectus, provided that the Subscription Offering
shall not be closed until the expiration of 30 days after mailing proxy
solicitation materials to voting Members and a postage-paid written
communication to non-voting Eligible Account Holders and Supplemental Eligible
Account Holders. If the Subscription Offering is commenced within 45 days after
the Special Meeting, the Bank shall transmit, no more than 30 days prior to the
commencement of the Subscription Offering, to each voting Member who had been
furnished with proxy solicitation materials and to each non-voting Eligible
Account Holder and Supplemental Eligible Account Holder
-6-
<PAGE>
written notice of the commencement of the Subscription Offering which shall
state that the Bank is not required to furnish a Subscription and Community
Prospectus to them unless they return by a reasonable date certain a postage-
paid written communication requesting the receipt of the Subscription and
Community Prospectus.
Prior to commencement of the Subscription and Community Offerings, the
Holding Company shall file the Registration Statement with the SEC pursuant to
the Securities Act of 1933, as amended. The Holding Company shall not
distribute the Subscription and Community Prospectus until the Registration
Statement containing the same has been declared effective by the SEC and the
Form AC has been approved by the OTS. The Subscription and Community Prospectus
may be combined with the Proxy Statement for the Special Meeting.
VII. Consummation of Conversion.
The date of consummation of the Conversion will be the effective date of
the amendment of the Bank's federal mutual charter to read in the form of a
federal stock charter, which shall be the date of the issuance and sale of the
Conversion Stock. After receipt of all orders for Conversion Stock, and
concurrently with the execution thereof, the amendment of the Bank's federal
mutual charter and bylaws to authorize the issuance of shares of Capital Stock
and to conform to the requirements of a federal capital stock savings bank will
be declared effective by the OTS, and the Bank will thereby be and become the
Converted Bank. At such time, the Conversion Stock will be issued and sold by
the Holding Company, the Capital Stock to be issued in the Conversion will be
issued and sold to the Holding Company, and the Converted Bank will become a
wholly owned subsidiary of the Holding Company. The Converted Bank will issue to
the Holding Company 100,000 shares of its common stock, representing all of the
shares of Capital Stock to be issued by the Converted Bank in the Conversion,
and the Holding Company will make payment to the Converted Bank of at least 50%
of the aggregate net proceeds realized by the Holding Company from the sale of
the Conversion Stock under the Plan, or such other portion of the aggregate net
proceeds as may be authorized or required by the OTS.
VIII. Stock Offering.
A. General.
-------
The aggregate purchase price of all shares of Conversion Stock which will
be offered and sold will be equal to the estimated pro forma market value of the
Converted Bank, as a subsidiary of the Holding Company. The exact number of
shares of Conversion Stock to be offered will be determined by the Board of
Directors of the Bank and the Board of Directors of the Holding Company, or
their respective designees, in conjunction with the determination of the
Purchase Price (as that term is defined in Paragraph VIII.B. below). The number
of shares to be offered may be subsequently adjusted prior to completion of the
Conversion as provided below.
B. Independent Evaluation and Purchase Price of Shares.
---------------------------------------------------
All shares of Conversion Stock sold in the Conversion will be sold at a
uniform price per share referred to in this Plan as the "Purchase Price." The
Purchase Price and the total number of shares of Conversion Stock to be offered
in the Conversion will be determined by the Board of Directors of the Bank and
the Board of Directors of the Holding Company, or their respective designees,
immediately prior to the simultaneous completion of all such sales contemplated
by this Plan on the basis of the estimated pro forma market value of the
Converted Bank, as a subsidiary of the Holding Company, at such time. The
estimated pro forma market value of the Converted Bank, as a subsidiary of the
Holding Company, will be determined for such purpose by an Independent Appraiser
on the basis of such appropriate factors as are not inconsistent with applicable
regulations. Immediately prior to the Subscription and Community Offerings, a
subscription price range of shares for the offerings will be established (the
"Valuation Range"), which will vary from 15% above the midpoint (the "the high
end") to 15% below the midpoint (the "low end") of the Valuation Range. The
number of shares of Conversion Stock ultimately issued and sold will be
determined at the close of the Subscription and Community Offerings and any
other offering. The subscription price range and the number of shares to be
offered may be changed subsequent to the Subscription and Community Offerings as
the result of any appraisal updates prior to the completion of the Conversion,
without notifying eligible purchasers in the Subscription and Community
Offerings and without a resolicitation of
-7-
<PAGE>
subscriptions, provided the aggregate Purchase Price is not below the low end or
more than 15% above the high end of the Valuation Range previously approved by
the OTS or if, in the opinion of the Boards of Directors of the Bank and the
Holding Company, the new Valuation Range established by the appraisal update
does not result in a materially different capital position of the Converted
Bank.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the Bank and Holding Company and to the OTS that, to the best
knowledge of the Independent Appraiser, nothing of a material nature has
occurred which, taking into account all relevant factors, would cause the
Independent Appraiser to conclude that the aggregate value of the Conversion
Stock at the Purchase Price is incompatible with its estimate of the aggregate
consolidated pro forma market value of the Converted Bank, as a subsidiary of
the Holding Company. If such confirmation is not received, the Bank may cancel
the Subscription and Community Offerings and/or any other offering, extend the
Conversion, establish a new Valuation Range, extend, reopen or hold new
Subscription and Community Offerings and/or other offerings or take such other
action as the OTS may permit.
C. Subscription Offering.
---------------------
Non-transferable Subscription Rights to purchase shares of Conversion Stock
will be issued at no cost to Eligible Account Holders, Tax-Qualified Employee
Stock Benefit Plans, Supplemental Eligible Account Holders and Other Members of
the Bank pursuant to priorities established by applicable regulations. Shares
of Conversion Stock having an aggregate value at least equal to the low end of
the Valuation Range must be sold for the Conversion to be consummated, 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 to the extent the aggregate purchase price exceeds $500. The
priorities established by OTS 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, non-
transferable Subscription Rights to purchase Conversion Stock in an amount
equal to the greater of $250,000, one-tenth of one percent of the total
offering of shares of Conversion Stock or 15 times the product (rounded
down to the next whole number) obtained by multiplying the total number of
shares of Conversion Stock to be issued by a fraction of which the
numerator is the amount of the Qualifying Deposit of the Eligible Account
Holder and the denominator is the total amount of Qualifying Deposits of
all Eligible Account Holders in the Bank in each case on the Eligibility
Record Date.
b. Non-transferable Subscription Rights to purchase Conversion Stock
received by Officers and directors of the Bank and their Associates based
on their increased deposits in the Bank in the one year period preceding
the Eligibility Record Date shall be subordinated to all other
subscriptions involving the exercise of non-transferable Subscription
Rights to purchase shares pursuant to this Category.
c. In the event of an oversubscription for shares of Conversion
Stock pursuant to this Category, shares of Conversion Stock shall be
allocated among subscribing Eligible Account Holders (giving preference to
natural persons and trusts of natural persons who are permanent Residents
of the Local Community, if such preference is both permitted by applicable
law and approved by the Bank's Board of Directors in its sole discretion),
as follows:
(I) Shares of Conversion Stock shall be allocated among
subscribing Eligible Account Holders so as to permit each such
Eligible Account Holder, to the extent possible, to purchase a number
of shares of Conversion Stock sufficient to make its total allocation
equal to 100 shares or the total amount of its subscription, whichever
is less.
(II) Any shares not so allocated shall be allocated among the
subscribing Eligible Account Holders whose subscriptions remain
unsatisfied on an equitable basis, related to the
-8-
<PAGE>
amounts of their respective Qualifying Deposits, as compared to the
total Qualifying Deposits of all subscribing Eligible Account Holders.
2. Category No. 2: Tax-Qualified Employee Stock Benefit Plans.
a. Tax-Qualified Employee Stock Benefit Plans of the Converted Bank
shall receive, without payment, non-transferable Subscription Rights to
purchase up to 10% of the shares of Conversion Stock issued in the
Conversion.
b. Subscription rights received in this Category shall be
subordinated to the Subscription Rights received by Eligible Account
Holders pursuant to Category No. 1, provided that any shares of Conversion
Stock sold in excess of the high end of the Valuation Range may be first
sold to Tax-Qualified Employee Stock Benefit Plans.
3. Category No. 3: Supplemental Eligible Account Holders.
a. In the event that the Eligibility Record Date is more than 15
months prior to the date of the latest amendment of the Form AC Application
filed prior to OTS approval then each Supplemental Eligible Account Holder
shall receive, without payment, non-transferable Subscription Rights to
purchase Conversion Stock in an amount equal to the greater of $250,000,
one-tenth of one percent of the total offering of shares of Conversion
Stock or 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of the shares of Conversion Stock
to be issued by a fraction of which the numerator is the amount of the
Qualifying Deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of the Qualifying Deposits of all
Supplemental Eligible Account Holders on the Supplemental Eligibility
Record Date.
b. Subscription Rights received pursuant to this Category shall be
subordinated to the Subscription Rights received by the Eligible Account
Holders and by Tax-Qualified Employee Stock Benefit Plans pursuant to
Category Nos. 1 and 2, respectively.
c. Any non-transferable Subscription Rights to purchase shares
received by an Eligible Account Holder in accordance with Category No. 1
shall reduce to the extent thereof the Subscription Rights to be
distributed to such Eligible Account Holder pursuant to this Category.
d. In the event of an oversubscription for shares of Conversion
Stock pursuant to this Category, shares of Conversion Stock shall be
allocated among the subscribing Supplemental Eligible Account Holders
(giving preference to natural persons and trusts of natural persons who are
permanent Residents of the Local Community, if such preference is both
permitted by applicable law and approved by the Bank's Board of Directors
in its sole discretion), as follows:
(I) Shares of Conversion Stock shall be allocated among
subscribing Supplemental Eligible Account Holders so as to permit each
such Supplemental Eligible Account Holder, to the extent possible, to
purchase a number of shares of Conversion Stock sufficient to make its
total allocation (including the number of shares of Conversion Stock,
if any, allocated in accordance with Category No. 1) equal to 100
shares of Conversion Stock or the total amount of its subscription,
whichever is less.
(II) Any shares of Conversion Stock not allocated in accordance
with subparagraph (I) above shall be allocated among the subscribing
Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied on an equitable basis, related to the amounts of their
respective Qualifying Deposits on the Supplemental Eligibility Record
Date as compared to the total Qualifying Deposits of all subscribing
Supplemental Eligible Account Holders in each case on the Supplemental
Eligibility Record Date.
-9-
<PAGE>
4. Category No. 4: Other Members.
a. Each Other Member, other than those Members who are Eligible
Account Holders or Supplemental Eligible Account Holders, shall receive,
without payment, non-transferable Subscription Rights to purchase
Conversion Stock in an amount equal to the greater of $250,000 or one-tenth
of one percent of the total offering of shares of Conversion Stock.
b. Subscription Rights received pursuant to this Category shall be
subordinated to the Subscription Rights received by Eligible Account
Holders, Tax-Qualified Employee Stock Benefit Plans and Supplemental
Eligible Account Holders pursuant to Category Nos. 1, 2 and 3,
respectively.
c. In the event of an oversubscription for shares of Conversion
Stock pursuant to this Category, the shares of Conversion Stock available
shall be allocated among subscribing Other Members as to permit each
subscribing Other Member, to the extent possible, to purchase a number of
shares sufficient to make his or her total allocation of Conversion Stock
equal to the lesser of 100 shares or the number of shares subscribed for by
the Other Member. The shares remaining thereafter will be allocated among
subscribing Other Members whose subscriptions remain unsatisfied on an
equitable basis as determined by the Board of Directors, giving preference
to natural persons and trusts of natural persons who are permanent
Residents of the Local Community, if such preference is both permitted by
applicable law and approved by the Bank's Board of Directors in its sole
discretion.
Order Forms may provide that the maximum purchase limitation shall be based
on the midpoint of the Valuation Range. In the event the aggregate Purchase
Price of the Conversion Stock issued and sold is below the midpoint of the
Valuation Range, that portion of subscriptions in excess of the maximum purchase
limitation will be refunded. In the event the aggregate Purchase Price of
Conversion Stock issued and sold is above the midpoint of the Valuation Range,
persons who have subscribed for the maximum purchase limitation shall be given
the opportunity to increase their subscriptions so as to purchase the maximum
number of shares subject to the availability of shares. The Bank will not
otherwise notify subscribers of any change in the number of shares of Conversion
Stock offered.
D. Community Offering.
------------------
1. Any shares of Conversion Stock not purchased through the exercise of
Subscription Rights in the Subscription Offering may be sold in a Community
Offering, which may commence concurrently with the Subscription Offering.
Shares of Conversion Stock will be offered in the Community Offering to the
general public, giving preference to natural persons and the trusts of natural
persons (including individual retirement and Keogh retirement accounts and
personal trusts in which such natural persons have substantial interests) who
are permanent Residents of the Local Community. The Community Offering may
commence concurrently with or as soon as practicable after the completion of the
Subscription Offering and must be completed within 45 days after the last day of
the Subscription Offering, unless extended by the Holding Company with the
approval of the OTS. The offering price of the Conversion Stock to the general
public in the Community Offering will be the same price paid for such stock in
the Subscription Offering. If sufficient shares are not available to satisfy
all orders in the Community Offering, the shares available will be allocated by
the Holding Company in its discretion. The Holding Company shall have the right
to accept or reject orders in the Community Offering in whole or in part.
2. Orders accepted in the Community Offering shall be filled up to a
maximum of 2% of the Conversion Stock, and thereafter remaining shares shall be
allocated on an equal number of shares per order basis until all orders have
been filled.
3. The Conversion Stock to be offered in the Community Offering will be
offered and sold in a manner that will achieve the widest distribution of the
Conversion Stock.
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<PAGE>
E. Other Offering.
--------------
In the event a Community Offering does not appear feasible, the Bank will
immediately consult with the OTS to determine the most viable alternative
available to effect the completion of the Conversion. Should no viable
alternative exist, the Bank may terminate the Conversion with the concurrence of
the OTS.
F. Limitations Upon Purchases of Shares of Conversion Stock.
--------------------------------------------------------
The following additional limitations and exceptions shall apply to all
purchases of Conversion Stock:
1. No Person may purchase fewer than 25 shares of Conversion Stock
in the Conversion, to the extent such shares are available, subject to the
provisions of Paragraph VIII.C herein.
2. Purchases of Conversion Stock in the Community Offering by any
person shall not exceed $250,000 of the Conversion Stock, except that Tax-
Qualified Employee Stock Benefit Plans may purchase up to 10% of the total
shares of Conversion Stock to be issued in the Conversion, and shares to be
held by the Tax-Qualified Employee Stock Benefit Plans and attributable to
a participant thereunder shall not be aggregated with shares of Conversion
Stock purchased by such participant or any other purchaser of Conversion
Stock in the Conversion.
3. Officers and directors of the Bank and the Holding Company, and
Associates thereof, may not purchase in the aggregate more than 31% of the
shares of Conversion Stock issued in the Conversion.
4. Directors of the Holding Company and the Bank shall not be deemed
to be Associates or a group Acting in Concert with other directors solely
as a result of membership on the Board of Directors of the Holding Company
or the Bank or any of their subsidiaries.
5. Relatives who are neither Officers nor directors of the Bank or
the Holding Company, or any of their subsidiaries, and who do not reside in
the same home shall not be deemed to be Associates or a group Acting in
Concert solely as a result of their relationships.
6. Purchases of shares of Conversion Stock in the Conversion by any
person, when aggregated with purchases by an Associate of that person, or a
group of persons Acting in Concert, shall not exceed $500,000 of the
Conversion Stock, except that Tax-Qualified Employee Stock Benefit Plans
may purchase up to 10% of the total shares of Conversion Stock to be issued
in the Conversion, and shares purchased by the Tax-Qualified Employee Stock
Benefit Plans and attributable to a participant thereunder shall not be
aggregated with shares purchased by such participant or any other purchaser
of Conversion Stock in the Conversion.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, the Holding Company and the Bank may increase
or decrease any of the purchase limitations set forth herein at any time. In the
event that the individual purchase limitation is increased after commencement of
the Subscription and Community Offerings, the Holding Company and the Bank shall
permit any person who subscribed for the maximum number of shares of Conversion
Stock to purchase an additional number of shares, such that such person shall be
permitted to subscribe for the then maximum number of shares permitted to be
subscribed for by such person, subject to the rights and preferences of any
person who has priority Subscription Rights. In the event that either the
individual purchase limitation or the number of shares of Conversion Stock to be
sold in the Conversion is decreased after commencement of the Subscription and
Community Offerings, the orders of any person who subscribed for the maximum
number of shares of Conversion Stock shall be decreased by the minimum amount
necessary so that such person shall be in compliance with the then maximum
number of shares permitted to be subscribed for by such person.
-11-
<PAGE>
Each person purchasing Conversion Stock in the Conversion shall, upon
submission of a validity completed and executed Order Form, be deemed to confirm
that such purchase does not conflict with the purchase limitations under the
Plan or otherwise imposed by law, rule or regulation. In the event that such
purchase limitations are violated by any person (including any Associate or
group of persons affiliated or otherwise Acting in Concert with such person),
the Holding Company shall have the right to purchase from such person at the
actual Purchase Price per share all shares acquired by such person in excess of
such purchase limitations or, if such excess shares have been sold by such
person, to receive in cash 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 or receive such cash shall be assignable by the Holding Company.
G. Restrictions on and Other Characteristics of Stock Being Sold.
-------------------------------------------------------------
1. Transferability.
---------------
Except as provided in Paragraph XIV below, Conversion Stock purchased
by persons other than directors and Officers of the Bank and directors and
Officers of the Holding Company will be transferable without restriction.
Conversion Stock purchased by such directors or Officers shall not be sold
for a period of one year from the effective date of the Conversion except
for any sale or transfer of such shares (i) following the death of the
original purchaser or (ii) resulting from an exchange of securities in a
merger or acquisition approved by the applicable regulatory authorities.
The Conversion Stock issued by the Holding Company to such directors
and Officers shall bear the following legend giving appropriate notice of
the one-year holding period restriction:
"The shares of stock evidenced by this Certificate are restricted
as to transfer for a period of one year from the date of this
Certificate pursuant to applicable regulations of the Office of
Thrift Supervision of the United States Department of the
Treasury. Except in the event of the death of the registered
holder, the shares represented by this Certificate may not be
sold prior thereto without a legal opinion of counsel for the
Holding Company that said sale is permissible under the
provisions of applicable laws and regulations."
In addition, the Holding Company shall give appropriate instructions
to the transfer agent for the Holding Company Stock with respect to the
applicable restrictions relating to the transfer of restricted stock. Any
shares of Holding Company Stock subsequently issued as a stock dividend,
stock split or otherwise, with respect to any such restricted stock, shall
be subject to the same holding period restrictions for such directors and
Officers as may be then applicable to such restricted stock. Such transfer
restrictions shall be in addition to any other restrictions on
transferability imposed by applicable laws, regulations, charter or bylaw
provisions or agreements.
2. Repurchase and Dividend Rights.
------------------------------
Subject to applicable regulations, the Holding Company may not, for a
period of three years from the date of the Conversion, repurchase Holding
Company Stock from any person, with the exception of (i) a repurchase on a
pro rata basis pursuant to an offer approved by the OTS and made to all
stockholders, or (ii) the repurchase of qualifying shares of a director.
However, upon 10 days' written notification to the OTS Regional Director
for the Converted Bank and the Chief Counsel's Office, Business
Transactions Division of the OTS, the Holding Company may make open market
repurchases of outstanding Holding Company Stock, provided that (i) such
Regional Director and Chief Counsel do not object based on a determination
that (a) the repurchases would materially adversely affect the financial
condition of the Converted Bank, (b) the information submitted by the
Converted Bank is insufficient upon which to base a conclusion as to
whether the Converted Bank's financial condition would be materially
adversely affected, or (c) the Converted Bank does not demonstrate a valid
purpose for the repurchases; (ii) no repurchases
-12-
<PAGE>
occur in the first year following the Conversion, or a waiver of such
restriction is obtained; (iii) in the second and third years following the
Conversion, the repurchases are part of an open-market stock repurchase
program that allows no more than 5% of the then-outstanding Holding Company
Stock to be purchased during any 12 month period; and (iv) the repurchases
do not cause the Converted Bank to become "undercapitalized," as defined
pursuant to 12 C.F.R. (S)565.4 or a successor regulation.
Present regulations also provide that the Converted Bank may not
declare or pay a cash dividend on or repurchase any of its Capital Stock if
the result thereof would be to reduce the regulatory capital of the
Converted Bank below the amount required for the Liquidation Account.
Further, any dividend declared or paid on, or repurchase of, the Capital
Stock shall be in compliance with the Rules and Regulations of the OTS, or
other applicable regulations. The above limitations shall not preclude
payment of dividends on, or repurchases of, Holding Company Stock in the
event applicable federal regulatory limitations are liberalized subsequent
to the Conversion.
3. Voting Rights.
-------------
After the Conversion, holders of Savings Accounts in and obligors on
loans of the Bank will not have voting rights in the Converted Bank. The
Holding Company will have exclusive voting rights with respect to the
Capital Stock. Exclusive voting rights with respect to the Holding Company
shall be vested in the holders of Holding Company Stock, and holders of
Savings Accounts in and obligors on loans of the Converted Bank will not
have any voting rights in the Holding Company except and to the extent that
such persons become stockholders of the Holding Company. Subject to notice
and record holder provisions of the Holding Company's bylaws, each
stockholder of the Holding Company will be entitled to vote on any matters
coming before the stockholders of the Holding Company for consideration and
will be entitled to one vote for each share of Holding Company Stock owned
by said stockholder.
4. Purchases by Officers, Directors and Associates Following
---------------------------------------------------------
Conversion.
----------
Without the prior written approval of the OTS, Officers and directors
of the Converted Bank and Officers and directors of the Holding Company,
and their Associates, shall be prohibited for a period of three years
following completion of the Conversion from purchasing outstanding shares
of Holding Company Stock, except from a broker or dealer registered with
the SEC. Notwithstanding this restriction, negotiated transactions
involving more than 1% of the total outstanding shares of Holding Company
Stock and purchases made and shares held by a Tax-Qualified Employee Stock
Benefit Plan or non-tax-qualified employee stock benefit plans which may be
attributable to Officers or directors may be made without OTS permission or
the use of such broker or dealer.
H. Mailing of Offering Materials and Collation of Subscriptions.
------------------------------------------------------------
The sale of all shares of Conversion Stock offered pursuant to the
Plan must be completed within 24 months after approval of the Plan at the
Special Meeting. After approval of the Plan by the appropriate regulatory
authorities, the approval of the Form AC by the OTS and the declaration of
the effectiveness of the Registration Statement containing the Subscription
and Community Prospectus by the SEC, the Holding Company shall distribute
such Subscription and Community Prospectus and Order Forms for the purchase
of shares in accordance with the terms of the Plan.
The recipient of an Order Form will be provided neither fewer than 20
days nor more than 45 days from the date of mailing, unless extended, to
complete, execute and return properly the Order Form to the Holding Company
or the Bank. Self-addressed, postage paid return envelopes will accompany
these forms when mailed. The Bank or Holding Company will collate the
returned executed Order Forms upon completion of the Subscription Offering.
Failure of any eligible subscriber to return a properly completed and
executed Order Form within the prescribed time limits shall be deemed a
waiver and a release by such person of any rights to purchase shares of
Conversion Stock hereunder.
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<PAGE>
The sale of all shares of Conversion Stock shall be completed within 45
days after the last day of the Subscription Offering unless extended by the
Holding Company and the Bank with the approval of the OTS.
I. Method of Payment.
-----------------
Payment for all shares of Conversion Stock subscribed for in the
Subscription and Community Offerings must be received in full by the Bank or the
Holding Company, together with properly completed and executed Order Forms,
indicating thereon the number of shares being subscribed for and such other
information as may be required thereon, and, in the case of orders submitted at
an office of the Bank, executed Forms of Certification as required by OTS
regulations, on or prior to the expiration date specified on the Order Form,
unless such date is extended by the Holding Company and the Bank; provided,
however, that payment by Tax-Qualified Employee Stock Benefit Plans for
Conversion Stock may be made to the Bank concurrently with the completion of the
Conversion.
Payment for all shares of Conversion Stock may be made in cash (if
delivered in person) or by check or money order, or, if the subscriber has a
Savings Account in the Bank (including a certificate of deposit), the subscriber
may authorize the Bank to charge the subscriber's Savings Account for the
purchase amount. The Bank shall pay interest at not less than the passbook rate
on all amounts paid in cash or by check or money order to purchase shares of
Conversion Stock in the Subscription and Community Offerings from the date
payment is received until the Conversion is completed or terminated. The Bank
shall not knowingly loan funds or otherwise extend credit to any person for the
purpose of purchasing Conversion Stock.
If a subscriber authorizes the Bank to charge its Savings Account, the
funds may remain in the subscriber's Savings Account and continue to earn
interest, but may not be used by the subscriber until all Conversion Stock has
been sold or the Conversion is terminated, whichever is earlier. The withdrawal
will be given effect only concurrently with the sale of all shares of Conversion
Stock in the Conversion and only to the extent necessary to satisfy the
subscription at a price equal to the Purchase Price. The Bank will allow
subscribers to purchase shares of Conversion Stock by withdrawing funds from
certificate accounts without the assessment of early withdrawal penalties. In
the case of early withdrawal of only a portion of such account, the certificate
evidencing such account shall be cancelled if the remaining balance of the
account is less than the applicable minimum balance requirement. In that event,
the remaining balance will earn interest at the passbook rate. This waiver of
the early withdrawal penalty is applicable only to withdrawals made in
connection with the purchase of Conversion Stock under the Plan.
Tax-Qualified Employee Stock Benefit Plans may subscribe for shares by
submitting an Order Form, and in the case of an employee stock ownership plan
together with evidence of a loan commitment from the Holding Company or an
unrelated financial institution for the purchase of the shares of the Conversion
Stock, during the Subscription Offering and by making payment for the shares of
Conversion Stock on the date of the closing of the Conversion.
J. Undelivered, Defective or Late Order Forms; Insufficient Payment.
----------------------------------------------------------------
In the event an Order Form: (i) is not delivered and is returned to the
Holding Company or the Bank by the United States Postal Service (or the Holding
Company or the Bank is unable to locate the addressee); (ii) is not received by
the Holding Company or the Bank, or is received by the Holding Company or the
Bank after termination of the date specified thereon; (iii) is defectively
completed or executed; or (iv) is not accompanied by the total required payment
for the shares of Conversion Stock subscribed for (including cases in which the
subscribers' Savings Accounts are insufficient to cover the authorized
withdrawal for the required payment), the Subscription Rights of the person to
whom such rights have been granted will not be honored and will be treated as
though such person failed to return the completed Order Form within the time
period specified therein. Alternatively, the Holding Company or the Bank may,
but will not be required to, waive any irregularity relating to any Order Form
or require the
-14-
<PAGE>
submission of a corrected Order Form or the remittance of full payment for
subscribed shares of Conversion Stock by such date as the Holding Company
or the Bank may specify. Subscription orders, once tendered, cannot be
revoked. The Holding Company's and Bank's interpretation of the terms and
conditions of this Plan and acceptability of the Order Forms will be final
and conclusive.
K. Members in Non-Qualified States or in Foreign Countries.
-------------------------------------------------------
The Holding Company will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons
entitled to subscribe for Conversion Stock pursuant to the Plan reside.
However, no such person will be offered or receive any Conversion Stock
under this Plan who resides in a foreign country or who resides in a state
of the United States with respect to which any or all of the following
apply: (i) a small number of persons otherwise eligible to subscribe for
shares of Conversion Stock under this Plan reside in such state or foreign
country; (ii) the granting of Subscription Rights or the offer or sale of
shares of Conversion Stock to such person would require the Holding Company
or the Bank or their employees to register, under the securities laws of
such state, as a broker, dealer, salesman or agent or to register or
otherwise qualify its securities for sale in such state or foreign country;
and (iii) such registration or qualification would be impracticable for
reasons of cost or other-wise. No payments will be made in lieu of the
granting of Subscription Rights to any such person.
L. Sales Commissions.
-----------------
Sales commissions may be paid as determined by the Boards of Directors
of the Bank and the Holding Company or their designees to securities
dealers assisting subscribers in making purchases of Conversion Stock in
the Subscription Offering or in the Community Offering, if the securities
dealer is named by the subscriber on the Order Form. In addition, a sales
commission may be paid to a securities dealer for advising and consulting
with respect to, or for managing the sale of Conversion Stock in, the
Subscription Offering, the Community Offering or any other offering.
IX. Federal Stock Charter and Bylaws.
As part of the Conversion, a federal stock charter and bylaws shall be
adopted to authorize the Converted Bank to operate as a federal capital stock
savings bank. By approving the Plan, the Members of the Bank will thereby
approve amending the Bank's federal mutual charter and bylaws to read in the
form of a federal stock charter and bylaws. Prior to completion of the
Conversion, the proposed federal stock charter and bylaws may be amended in
accordance with the provisions and limitations for amending the Plan under
Paragraph XV below. The effective date of the amendment of the Bank's federal
mutual charter and bylaws to read in the form of a federal stock charter and
bylaws shall be the date of the issuance of the Conversion Stock, which shall be
the date of consummation of the Conversion.
X. Registration and Market Making.
In connection and concurrently with the Conversion, the Holding Company
shall register the Holding Company Stock with the SEC pursuant to the Securities
Exchange Act of 1934, as amended, and shall undertake not to deregister the
Holding Company Stock for a period of three years thereafter.
The Holding Company shall use its best efforts to encourage and assist
various Market Makers to establish and maintain a market for the Holding Company
Stock. The Holding Company shall also use its best efforts to have the Holding
Company Stock quoted on the National Association of Securities Dealers, Inc.
Automated Quotation System or listed on a national or regional securities
exchange.
-15-
<PAGE>
XI. Status of Savings Accounts and Loans Subsequent to Conversion.
All Savings Accounts in the Bank will retain the same status after
Conversion as these accounts had prior to the Conversion. Subject to Paragraph
VIII.I. hereof, each holder of a Savings Account in the Bank shall retain,
without payment, a withdrawable Savings Account or Savings Accounts in the
Converted Bank, equal in dollar amount and on the same terms and conditions
(except with respect to voting and liquidation rights) as in effect prior to
consummation of the Conversion. All Savings Accounts will continue to be insured
by the FDIC up to the applicable limits of insurance coverage. All loans shall
retain the same status after the Conversion as these loans had prior to
Conversion.
After the Conversion, holders of Savings Accounts in and obligors on
loans of the Bank will not have voting rights in the Converted Bank. Exclusive
voting rights with respect to the Holding Company shall be vested in the holders
of the Conversion Stock. Holders of Savings Accounts in and obligors on loans of
the Converted Bank will not have any voting rights in the Holding Company except
and to the extent that such persons become stockholders of the Holding Company,
and the Holding Company will have exclusive voting rights with respect to the
Capital Stock.
XII. Effect of Conversion.
Upon consummation of the Conversion, the corporate existence of the Bank
shall not cease, but the Converted Bank shall be deemed to be a continuation of
the Bank, and shall succeed to all the rights, interests, duties and obligations
of the Bank as in existence as of immediately prior to the consummation of the
Conversion as described in Paragraph VII herein, including but not limited to
all rights and interests of the Bank in and to its assets and properties,
whether real, personal or mixed.
XIII. Liquidation Account.
After the Conversion, holders of Savings Accounts will not be entitled to
share in the residual assets after liquidation of the Converted Bank. However,
pursuant to applicable regulations, the Bank shall, at the time of the
Conversion, establish a Liquidation Account in an amount equal to its net worth
as of the date of the latest statement of financial condition contained in the
final prospectus to be used in connection with the Conversion. The function of
the Liquidation Account is to establish a priority on liquidation, and, except
as provided in Paragraph VIII.G.2. above, the existence of the Liquidation
Account shall not operate to restrict the use or application of any of the net
worth accounts of the Converted Bank.
The Liquidation Account shall be maintained by the Converted Bank
subsequent to the Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders who retain their Savings Accounts in the
Converted Bank. Each Eligible Account Holder and Supplemental Eligible Account
Holder shall, with respect to each Savings Account held, have a related inchoate
interest in a portion of the Liquidation Account ("subaccount balance").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder and/or a Supplemental Eligible Account Holder shall be determined
by multiplying the opening balance in the Liquidation Account by a fraction of
which the numerator is the amount of the qualifying deposit in the related
Savings Account and the denominator is the total amount of the qualifying
deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders in the Bank. Such initial subaccount balance shall not be increased but
shall be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account
Holder or Supplemental Eligible Account Holder to which the subaccount relates
at the close of business on any annual closing date subsequent to the
Eligibility Record Date or Supplemental Eligibility Record Date is less than the
lesser of (i) the deposit balance in such Savings Account at the close of
business on any annual closing date subsequent to the Eligibility Record Date or
the Supplemental Eligibility Record Date, or (ii) the amount of the Qualifying
Deposit in such Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, then the subaccount balance
-16-
<PAGE>
for such savings account shall be adjusted by reducing such subaccount balance
in an amount proportionate to the reduction in such deposit balance. In the
event of a downward adjustment, the subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. If any such Savings Account is closed, the related subaccount
balance shall be reduced to zero.
In the event of a complete liquidation of the Converted Bank (and only in
such event), each Eligible Account Holder and Supplemental Eligible Account
Holder shall be entitled to receive a liquidation distribution from the
Liquidation Account in the amount of the then-current adjusted subaccount
balances for Savings Accounts then held before any liquidation distribution may
be made to stockholders. No merger, consolidation, sale of bulk assets or
similar combination or transaction with another institution insured by the FDIC
shall be considered to be a complete liquidation for these purposes. In such
transactions, the Liquidation Account shall be assumed by the surviving
institution.
XIV. Restrictions on Acquisition of Holding Company.
A. For a period of three years following completion of the
Conversion, no person (i.e., an individual, a group Acting in Concert, a
corporation, a partnership, an Bank, a joint stock company, a trust or any
unincorporated organization or similar company, a syndicate or any other
group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution or its holding company) shall
directly, or indirectly, offer to purchase or actually acquire the
beneficial ownership of more than 10% of any class of Holding Company Stock
without the prior approval of the OTS. However, approval is not required
for purchases directly from the Holding Company or underwriters or a
selling group acting on their behalf with a view towards public resale, for
purchases not exceeding 1% per annum of the shares outstanding or for the
acquisition of securities by one or more Tax-Qualified Employee Stock
Benefit Plans of the Holding Company or the Converted Bank, provided that
the plan or plans do not have beneficial ownership in the aggregate of more
than 25% of any class of Holding Company Stock. Civil penalties may be
imposed by the OTS for willful violation or assistance of any violation.
Where any person, directly or indirectly, acquires beneficial ownership of
more than 10% of any class of Holding Company Stock within such three-year
period, without the prior approval of the OTS, Holding Company Stock
beneficially owned by such person in excess of 10% shall not be counted as
shares entitled to vote and shall not be voted by any person or counted as
voting shares in connection with any matter submitted to the stockholders
for a vote.
B. The Holding Company may provide in its charter a provision that,
for a specified period of up to five years following the date of the
completion of the Conversion, no person shall directly or indirectly offer
to acquire or actually acquire the beneficial ownership of more than 10% of
any class of Holding Company Stock except with respect to purchases by one
or more Tax-Qualified Employee Stock Benefit Plans of the Holding Company
or Converted Bank. The Holding Company may provide in its charter for such
other provisions affecting the acquisition of Holding Company Stock as
shall be determined by its Board of Directors.
XV. Interpretation and Amendment or Termination of the Plan.
The Bank's Board of Directors shall have the sole discretion to interpret
and apply the provisions of the Plan to particular facts and circumstances and
to make all determinations necessary or desirable to implement such provisions,
including but not limited to matters with respect to giving preference to
natural persons and trusts of natural persons who are permanent Residents of the
Bank's Local Community, and any and all interpretations, applications and
determinations made by the Board of Directors in good faith and on the basis of
such information and assistance as was then reasonably available for such
purpose shall be conclusive and binding upon the Bank and its Members and
subscribers in the Subscription and Community Offerings, subject to the
authority of the OTS.
If deemed necessary or desirable, the Plan may be substantively amended at
any time prior to submission of the Plan and proxy materials to the Members by a
two-thirds vote of the Bank's Board of Directors. After
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<PAGE>
submission of the Plan and proxy materials to the Members, the Plan may be
amended by a two-thirds vote of the Bank's Board of Directors at any time prior
to the Special Meeting and at any time following such Special Meeting with the
concurrence of the OTS. In its discretion, the Board of Directors may modify or
terminate the Plan upon the order of the regulatory authorities without a
resolicitation of proxies or another Special Meeting.
In the event that mandatory new regulations pertaining to the Conversion
are adopted by the OTS or any successor agency, prior to the completion of the
Conversion, the Plan will be amended to conform to the new mandatory regulations
without a resolicitation of proxies or another Special Meeting. In the event
that new conversion regulations adopted by the OTS or any successor agency,
prior to completion of the Conversion contain optional provisions, the Plan may
be amended to utilize such optional provisions at the discretion of the Board of
Directors without a resolicitation of proxies or another Special Meeting.
By adoption of the Plan, the Bank's Members authorize the Board of
Directors to amend and/or terminate the Plan under the circumstances set forth
above.
XVI. Expenses of the Conversion.
The Holding Company and the Bank will use their best efforts to assure
that expenses incurred in connection with the Conversion shall be reasonable.
XVII. Contributions to Tax-Qualified Employee Stock Benefit Plans.
The Holding Company and the Converted Bank may make scheduled
discretionary contributions to their Tax-Qualified Employee Stock Benefit Plans,
provided such contributions do not cause the Converted Bank to fail to meet
then-applicable regulatory capital requirements.
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<PAGE>
Exhibit B
---------
HOPKINSVILLE FEDERAL SAVINGS BANK
FEDERAL STOCK CHARTER
Section 1. Corporate title. The full corporate title of the savings bank is
Hopkinsville Federal Savings Bank (the "Bank").
Section 2. Office. The home office shall be located in the City of
Hopkinsville, County of Christian, Commonwealth of Kentucky.
Section 3. Duration. The duration of the Bank is perpetual.
Section 4. Purpose and powers. The purpose of the Bank is to pursue any or all
of the lawful objectives of a Federal savings bank chartered under section 5 of
the Home Owners' Loan Act and to exercise all of the express, implied, and
incidental powers conferred thereby and by all acts amendatory thereof and
supplemental thereto, subject to the Constitution and laws of the United States
as they are now in effect, or as they may hereafter be amended, and subject to
all lawful and applicable rules, regulations, and orders of the Office of Thrift
Supervision ("Office").
Section 5. Capital stock. The total number of shares of all classes of the
capital stock that the Bank has the authority to issue is 5,000,000, of which
4,000,000 shares shall be common stock of par value of $0.01 per share and of
which 1,000,000 shares shall be serial preferred stock of par value of $0.01 per
share. The shares may be issued from time to time as authorized by the board of
directors without further approval of shareholders, except as otherwise provided
in this Section 5 or to the extent that such approval is required by governing
law, rule, or regulation. The consideration for the issuance of the shares
shall be paid in full before their issuance and shall not be less than the par
value. Neither promissory notes nor future services shall constitute payment or
part payment for the issuance of shares of the Bank. The consideration for the
shares shall be cash, tangible or intangible property (to the extent direct
investment in such property would be permitted), labor, or services actually
performed for the Bank, or any combination of the foregoing. In the absence of
actual fraud in the transaction, the value of such property, labor, or services,
as determined by the board of directors of the Bank, shall be conclusive. In
the case of a stock dividend, that part of the surplus of the Bank that is
transferred to common stock or paid-in capital accounts upon the issuance of
shares as a stock dividend shall be deemed to be the consideration for their
issuance.
Except for shares issued in the initial organization of the Bank or in
connection with the conversion of the Bank from the mutual to the stock form of
capitalization, no shares of capital stock (including shares issuable upon
conversion, exchange or exercise of other securities) shall be issued, directly
or indirectly, to officers, directors, or controlling persons of the Bank other
than as part of a general public offering or as qualifying shares to a director,
unless the issuance or the plan under which they would be issued has been
approved by a majority of the total votes eligible to be cast at a legal
meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, except as
to the cumulation of votes for the election of directors: Provided, That this
restriction on voting separately by class or series shall not apply:
<PAGE>
(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the board of
directors, less than a majority thereof, in the event of default in the payment
of dividends on any class or series of preferred stock;
(ii) To any provision that would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation of the Bank
with another corporation or the sale, lease, or conveyance (other than by
mortgage or pledge) of properties or business in exchange for securities of a
corporation other than the Bank if the preferred stock is exchanged for
securities of such other corporation: Provided, That no provision may require
such approval for transactions undertaken with the assistance or pursuant to the
direction of the Office or the Federal Deposit Insurance Corporation;
(iii) To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Section 5 (or in any
supplementary sections hereto), including any amendment which would create or
enlarge any class or series ranking prior thereto in rights and preferences. An
amendment which increases the number of authorized shares of any class or series
of capital stock, or substitutes the surviving association in a merger or
consolidation for the Bank, shall not be considered to be such an adverse
change.
A description of the different classes and series (if any) of the Bank's
capital stock and a statement of the designations, and the relative rights,
preferences and limitations of the shares of each class of and series (if any)
of capital stock are as follows:
A. Common stock. Except as provided in this Section 5 (or in any
supplementary sections thereto), the holders of common stock shall exclusively
possess all voting power. Each holder of shares of the common stock shall be
entitled to one vote for each share held by such holder, except as to the
cumulation of votes for the election of directors, unless the charter otherwise
provides that there shall be no such cumulative voting.
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.
In the event of any liquidation, dissolution, or winding up of the Bank,
the holders of the common stock (and the holders of any class or series of stock
entitled to participate with the common stock in the distribution of assets)
shall be entitled to receive, in cash or in kind, the assets of the Bank
available for distribution remaining after: (i) Payment or provision for payment
of the Bank's debts and liabilities; (ii) distributions or provision for
distributions in settlement of its liquidation account; and (iii) distributions
or provisions for distributions to holders of any class or series of stock
having preference over the common stock in the liquidation, dissolution, or
winding up of the Bank. Each share of common stock shall have the same relative
rights as and be identical in all respects with all the other shares of common
stock.
B. Preferred stock. The Bank may provide in supplementary sections to
its charter for one or more classes of preferred stock, which shall be
separately identified. The shares of any class may be divided into and issued in
series, with each series separately designated so as to distinguish the shares
thereof from the shares of all other series and classes. The terms of each
series shall be set forth in a
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<PAGE>
supplementary section to the charter. All shares of the same class shall be
identical except as to the following relative rights and preferences, as to
which there may be variations between different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the shares
of such series, whether dividends shall be cumulative and, if so, from which
date(s) the payment date(s) for dividends, and the participating or other
special rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of shares of such series;
(d) Whether the shares of such series shall be redeemable and, if so, the
price(s) at which, and the terms and conditions on which, such shares may be
redeemed;
(e) The amount(s) payable upon the shares of such series in the event of
voluntary or involuntary liquidation, dissolution, or winding up of the Bank;
(f) Whether the shares of such series shall be entitled to the benefit of
a sinking or retirement fund to be applied to the purchase or redemption of such
shares, and if so entitled, the amount of such fund and the manner of its
application, including the price(s) at which such shares may be redeemed or
purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of the Bank and,
if so, the conversion price(s) or the rate(s) of exchange, and the adjustments
thereof, if any, at which such conversion or exchange may be made, and any other
terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such series
shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial preferred
stock and whether such shares may be reissued as shares of the same or any other
series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The board of directors shall have authority to divide, by the adoption of
supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established by a
supplementary charter section adopted by the board of directors, the Bank shall
file with the Secretary to the Office a dated copy of that supplementary section
of this charter establishing and designating the series and fixing and
determining the relative rights and preferences thereof.
Section 6. Preemptive rights. Holders of the capital stock of the Bank shall
not be entitled to preemptive rights with respect to any shares of the Bank
which may be issued.
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<PAGE>
Section 7. Liquidation account. Pursuant to the requirements of the Office's
regulations (12 C.F.R. Subchapter D), the Bank shall establish and maintain a
liquidation account for the benefit of its savings account holders as of March
31, 1996 and as of the last day of the calendar quarter preceding the Office's
approval of the Bank's Plan of Conversion dated as of January 15, 1997
(collectively, "eligible savers"). In the event of a complete liquidation of
the Bank, it shall comply with such regulations with respect to the amount and
the priorities on liquidation of each of the Bank's eligible savers' inchoate
interest in the liquidation account, to the extent it is still in existence;
provided, that an eligible saver's inchoate interest in the liquidation account
shall not entitle such eligible saver to any voting rights at meetings of the
Bank's stockholders.
Section 8. Directors. The Bank shall be under the direction of a board of
directors. The authorized number of directors, as stated in the Bank's bylaws,
shall not be fewer than five nor more than fifteen except when a greater or
lesser number is approved by the Director of the Office, or his or her delegate.
Section 9. Amendment of charter. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this charter shall be
made, unless such is first proposed by the board of directors of the Bank,
approved by the shareholders by a majority of the votes eligible to be cast at a
legal meeting, unless a higher vote is otherwise required, and approved or
preapproved by the Office.
HOPKINSVILLE FEDERAL SAVINGS BANK
Attest: By:
---------------------------- -----------------------------
Bruce Thomas
----------------------------
Secretary President
Director of the Office of Thrift
Supervision
Attest: By:
---------------------------- -----------------------------
Secretary of the Office of
Thrift Supervision
Effective Date:
--------------------
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<PAGE>
Exhibit C
---------
HOPKINSVILLE FEDERAL SAVINGS BANK
BYLAWS
Article I - Home Office
The home office of the savings bank shall be at 2700 Fort Campbell
Boulevard, Hopkinsville, in the County of Christian, in the State of 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 savings bank or at such
other convenient place as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the savings
bank for the election of directors and for the transaction of any other business
of the savings bank shall be held annually within 150 days after the end of the
savings bank's fiscal year on the third Wednesday of each April if not a legal
holiday, and if a legal holiday, then on the next day following which is not a
legal holiday, at 1:00 p.m., or at such other date and time within such 150-day
period as the board of directors may determine.
Section 3. Special Meetings. Special meetings of the shareholders for any
purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office"), may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the savings bank entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the savings bank addressed to the
chairman of the board, the president, or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the Office or these bylaws or the
board of directors adopts another written procedure for the conduct of meetings.
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 20 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, or the secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the savings bank as of the record date prescribed in section
6 of this article II with postage prepaid. When any shareholders' meeting,
either annual or special, is adjourned for 30 days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting. It shall
not be necessary to give any notice of the time and place of any meeting
adjourned for less than 30 days or of the business to be transacted at the
meeting, other than an announcement at the meeting at which such adjournment is
taken.
<PAGE>
Section 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
60 days and, in case of a meeting of shareholders, not fewer than 10 days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the savings bank shall make a complete list of the shareholders of
record entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address and the number of shares held by each. This
list of shareholders shall be kept on file at the home office of the savings
bank and shall be subject to inspection by any shareholder of record or the
shareholder's agent at any time during usual business hours for a period of 20
days prior to such meeting. Such list shall also be produced and kept open at
the time and place of the meeting and shall be subject to inspection by any
shareholder of record or any shareholder's agent during the entire time of the
meeting. The original stock transfer book shall constitute prima facie evidence
of the shareholders entitled to examine such list or transfer books or to vote
at any meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures prescribed in (S) 552.6(d) of the Office's
regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the savings bank
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum. If a quorum is present, the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the shareholders,
unless the vote of a greater number of shareholders voting together or voting by
classes is required by law or the charter. Directors, however, are elected by a
plurality of the votes cast at an election of directors.
Section 9. Proxies. At all meetings of shareholders, a shareholder may vote
by proxy executed in writing by the shareholder or by his or her duly authorized
attorney in fact. Proxies may be given telephonically or electronically as long
as the holder uses a procedure for verifying the identity of the shareholder.
Proxies solicited on behalf of the management shall be voted as directed by the
shareholder or, in the absence of such direction, as determined by a majority of
the board of directors. No proxy shall be valid more than eleven months from the
date of its execution except for a proxy coupled with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
ownership stands in the name of two or more persons, in the absence of written
directions to the savings bank to the
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<PAGE>
contrary, at any meeting of the shareholders of the savings bank any one or more
of such shareholders may cast, in person or by proxy, all votes to which such
ownership is entitled. In the event an attempt is made to cast conflicting
votes, in person or by proxy, by the several persons in whose names shares of
stock stand, the vote or votes to which those persons are entitled shall be cast
as directed by a majority of those holding such and present in person or by
proxy at such meeting, but no votes shall be cast for such stock if a majority
cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares held in trust in an IRA or Keogh Account, however, may be voted by the
savings bank if no other instructions are received. 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 or her name if authority to do so is contained in an appropriate order of
the court or other public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the savings bank nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the savings
bank, shall be voted at any meeting or counted in determining the total number
of outstanding shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Every shareholder entitled to vote at an
election for directors shall have the right to vote, in person or by proxy, the
number of shares owned by the shareholder for as many persons as there are
directors to be elected and for whose election the shareholder has a right to
vote, or to cumulate the votes by giving one candidate as many votes as the
number of such directors to be elected multiplied by the number of shares shall
equal or by distributing such votes on the same principle among any number of
candidates.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any person other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the
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<PAGE>
meeting, the existence of a quorum, and the authenticity, validity and effect of
proxies; receiving votes, ballots, or consents; hearing and determining all
challenges and questions in any way arising in connection with the rights to
vote; counting and tabulating all votes or consents; determining the result; and
such acts as may be proper to conduct the election or vote with fairness to all
shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of 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. Upon delivery, such nominations shall be posted in a conspicuous
place in each office of the savings bank. 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 savings bank at least five days prior to the date of the
annual meeting. Upon delivery, such nominations shall be posted in a conspicuous
place in each office of the savings bank. Ballots bearing the names of all
persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least 20 days prior to the annual meeting,
nominations for directors may be made at the annual meeting by any shareholder
entitled to vote and shall be voted upon.
Section 15. New Business. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the savings
bank at least five days before the date of the annual meeting, and all business
so stated, proposed, and filed shall be considered at the annual meeting; but no
other proposal shall be acted upon at the annual meeting. Any shareholder may
make any other proposal at the annual meeting and the same may be discussed and
considered, but unless stated in writing and filed with the secretary at least
five days before the meeting, such proposal shall be laid over for action at an
adjourned, special, or annual meeting of the shareholders taking place 30 days
or more thereafter. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors,
and committees; but in connection with such reports, no new business shall be
acted upon at such annual meeting unless stated and filed as herein provided.
Section 16. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
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<PAGE>
Article III - Board of Directors
Section 1. General Powers. The business and affairs of the savings bank
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board 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 ten
members, and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be elected
by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of directors
shall be held without other notice than this bylaw following the annual meeting
of shareholders. 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. Directors may participate in a meeting by means of a conference
telephone or similar communications device through which all persons
participating can hear each other at the same time. Participation by such means
shall constitute presence in person for all purposes.
Section 4. Qualification. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the savings
bank unless the savings bank is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors may
be called by or at the request of the chairman of the board, the president, or
one-third of the directors. The persons authorized to call special meetings of
the board of directors may fix any place, within the savings bank's normal
lending territory, as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person for all purposes.
Section 6. Notice. Written notice of any special meeting shall be given to
each director at least 24 hours prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed, when delivered to the telegraph company if sent by telegram,
or when the savings bank receives notice of delivery if electronically
transmitted. Any director may waive notice of any meeting by a writing filed
with the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by section 2
of this article III shall constitute a quorum for the transaction of business at
any meeting of the board of directors; but
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<PAGE>
if less than such majority is present at a meeting, a majority of the directors
present may adjourn the meeting from time to time. Notice of any adjourned
meeting shall be given in the same manner as prescribed by section 6 of this
article III.
Section 8. 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 regulation of the Office
or by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted to be
taken by the board of directors at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors.
Section 10. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the home office of the savings bank
addressed to the chairman of the board or the president. Unless otherwise
specified, such resignation shall take effect upon receipt by the chairman of
the board or the president. More than three 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 11. Vacancies. Any vacancy occurring on the board of directors may
be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve only until the next election of
directors by the shareholders. Any directorship to be filled by reason of an
increase in the number of directors may be filled by election by the board of
directors for a term of office continuing only until the next election of
directors by the shareholders.
Section 12. Compensation. Directors, as such, may receive 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
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
attendance at committee meetings as the board of directors may determine.
Section 13. Presumption of Assent. A director of the savings bank who is
present at a meeting of the board of directors at which action on any savings
bank matter is taken shall be presumed to have assented to the action taken
unless his or her dissent or abstention shall be entered in the minutes of the
meeting or unless he or she shall file a written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the secretary of the savings
bank within five days after the date a copy of the minutes of the meeting is
received. Such right to dissent shall not apply to a director who voted in favor
of such action.
Section 14. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, any director may be removed only for cause by a vote
of the holders of a majority of the shares then entitled to vote at an election
of directors. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of the
shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in
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<PAGE>
respect to the removal of a director or directors so elected, to the vote of the
holders of the outstanding shares of that class and not to the vote of the
outstanding shares as a whole.
Article IV - Executive and Other Committees
Section 1. Appointment. The board of directors, by resolution adopted by a
majority of the full board, may designate the chief executive officer and two or
more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of directors
is not in session, shall have and may exercise all of the authority of the board
of directors except to the extent, if any, that such authority shall be limited
by the resolution appointing the executive committee; and except also that the
executive committee shall not have the authority of the board of directors with
reference to: the declaration of dividends; the amendment of the charter or
bylaws of the savings bank, or recommending to the shareholders a plan of
merger, consolidation, or conversion; the sale, lease, or other disposition of
all or substantially all of the property and assets of the savings bank
otherwise than in the usual and regular course of its business; a voluntary
dissolution of the savings bank; a revocation of any of the foregoing; or the
approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
Section 3. Tenure. Subject to the provisions of section 8 of this article
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted to be
taken by the executive committee at a meeting may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be filled
by a resolution adopted by a majority of the full board of directors.
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<PAGE>
Section 8. Resignations and Removal. Any member of the executive committee
may be removed at any time with or without cause by resolution adopted by a
majority of the full board of directors. Any member of the executive committee
may resign from the executive committee at any time by giving written notice to
the president or secretary of the savings bank. Unless otherwise specified, such
resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceeding and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
establish an audit, loan, or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
savings bank and may prescribe the duties, constitution, and procedures thereof.
Article V - Officers
Section 1. Positions. The officers of the savings bank shall be a
president, one or more vice presidents, a secretary, and a treasurer or
comptroller, 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
offices of the secretary and treasurer or comptroller may be held by the same
person and a vice president may also be either the secretary or the treasurer or
comptroller. The board of directors may designate one or more vice presidents as
executive vice president or senior vice president. The board of directors may
also elect or authorize the appointment of such other officers as the business
of the savings bank may require. The officers shall have such authority and
perform such duties as the board of directors may from time to time authorize or
determine. In the absence of action by the board of directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
Section 2. Election and Term of Office. The officers of the savings bank
shall be elected annually at the first meeting of the board of directors held
after each annual meeting of the shareholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly elected
and qualified or until the officer's death, resignation, or removal in the
manner hereinafter provided. Election or appointment of an officer, employee, or
agent shall not of itself create contractual rights. The board of directors may
authorize the savings bank to enter into an employment contract with any officer
in accordance with regulations of the Office; but no such contract shall impair
the right of the board of directors to remove any officer at any time in
accordance with section 3 of this article V.
Section 3. Removal. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the savings bank will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
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<PAGE>
Section 5. Remuneration. The remuneration of the officers shall be fixed
from time to time by the board of directors.
Article VI - Contracts, Loans, Checks, and Deposits
Section 1. Contracts. To the extent permitted by regulations of the Office,
and except as otherwise prescribed by these bylaws with respect to certificates
for shares, the board of directors may authorize any officer, employee, or agent
of the savings bank to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the savings bank. Such authority may
be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the savings
bank and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
Section 3. Checks, Drafts, etc. All checks, drafts, or other orders for the
payment of money, notes, or other evidences of indebtedness issued in the name
of the savings bank shall be signed by one or more officers, employees or agents
of the savings bank in such manner as shall from time to time be determined by
the board of directors.
Section 4. Deposits. All funds of the savings bank not otherwise employed
shall be deposited from time to time to the credit of the savings bank in any
duly authorized depositories as the board of directors may select.
Article VII - Certificates for Shares and Their Transfer
Section 1. Certificates for Shares. Certificates representing shares of
capital stock of the savings bank shall be in such form as shall be determined
by the board of directors and approved by the Office. Such certificates shall be
signed by the chief executive officer or by any other officer of the savings
bank authorized by the board of directors, attested by the secretary or an
assistant secretary, and sealed with the corporate seal or a facsimile thereof.
The signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the savings bank itself or one of its employees. Each certificate for
shares of capital stock shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares are issued, with the
number of shares and date of issue, shall be entered on the stock transfer books
of the savings bank. All certificates surrendered to the savings bank for
transfer shall be cancelled and no new certificate shall be issued until the
former certificate for a like number of shares 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 savings bank as
the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
savings bank shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the savings bank. Such transfer shall be made only on surrender for cancellation
of the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the savings bank shall be deemed by the savings bank
to be the owner for all purposes.
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<PAGE>
Article VIII - Fiscal Year
The fiscal year of the savings bank shall end on the 31st day of December
of each year. The appointment of accountants shall be subject to annual
ratification by the shareholders.
Article IX - Dividends
Subject to the terms of the savings bank's charter and the regulations and
orders of the Office, the board of directors may, from time to time, declare,
and the savings bank may pay, dividends on its outstanding shares of capital
stock.
Article X - Corporate Seal
The board of directors shall provide an savings bank seal which shall be
two concentric circles between which shall be the name of the savings bank. The
year of incorporation or an emblem may appear in the center.
Article XI - Amendments
These bylaws may be amended in a manner consistent with regulations of the
Office and shall be effective after: (i) approval of the amendment by a majority
vote of the authorized board of directors, or by a majority vote of the votes
cast by the shareholders of the savings bank at any legal meeting, and (ii)
receipt of any applicable regulatory approval. When an savings bank fails to
meet its quorum requirements, solely due to vacancies on the board, then the
affirmative vote of a majority of the sitting board will be required to amend
the bylaws.
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<PAGE>
[Letterhead of Reinhart, Boerner, Van Deuren, Norris & Rieselbach, P.C.]
September 11, 1997
Board of Directors
Hopkinsville Federal Savings Bank
2700 Fort Campbell Boulevard
Hopkinsville, Kentucky 42240
Re: Certain Federal Income Tax Consequences
Relating to Proposed Holding Company Conversion
-----------------------------------------------
Madame and Gentlemen:
In accordance with your request, set forth hereinbelow is the opinion of
this firm relating to certain federal income tax consequences of the proposed
conversion of Hopkinsville Federal Savings Bank (the "Bank") from a federally
chartered mutual savings bank to a federally chartered stock savings bank (the
"Stock Bank") (the "Conversion") and the concurrent acquisition of 100% of the
outstanding capital stock of the Stock Bank by HopFed Bancorp, Inc. (the
"Holding Company"), a Delaware corporation formed at the direction of the Board
of Directors of the Bank to become the parent holding company of the Stock Bank.
For purposes of this opinion, we have examined such documents and questions
of law as we have considered necessary or appropriate, including but not limited
to the Plan of Conversion as adopted by the Bank's Board of Directors on May 21,
1997 (the "Plan"); the federal mutual charter and bylaws of the Bank, as
amended; the certificate of incorporation and bylaws of the Holding Company; the
Affidavit of Representations dated September 10, 1997 provided to us by the Bank
(the "Affidavit"), and the Prospectus (the "Prospectus") included in Amendment
No. 1 to the Registration Statement on Form S-1 expected to be filed with the
Securities and Exchange Commission ("SEC") on September 10, 1997 (the
"Registration Statement"). In such examination, we have assumed, and have not
<PAGE>
Board of Directors
Hopkinsville Federal Savings Bank
September 11, 1997
Page 2
independently verified, the genuineness of all signatures on original documents
where due execution and delivery are requirements to the effectiveness thereof.
Terms used but not defined herein, whether capitalized or not, shall have the
same meaning as defined in the Plan.
BACKGROUND
----------
Based solely upon our review of such documents, and upon such information
as the Bank has provided to us (which we have not attempted to verify in any
respect), and in reliance upon such documents and information, we set forth
hereinbelow a general summary of the relevant facts and proposed transaction,
qualified in its entirety by reference to the documents cited above.
The Bank is a federally chartered mutual savings Bank which was initially
formed in 1879 as a Kentucky-chartered building and loan association and is in
the process of converting to a federally chartered stock savings bank. It is
currently a member of the Federal Home Loan Bank System and its deposits are
insured by the Federal Deposit Insurance Corporation ("FDIC") up to the
applicable limits. The Bank is subject to comprehensive regulation and
supervision by the FDIC and the Office of Thrift Supervision ("OTS") and to
examination by the OTS. The Bank operates branch offices in Hopkinsville,
Murray, Cadiz and Elkton, Kentucky.
The Bank is principally engaged in the business of accepting deposits from
the general public and investing such funds in mortgage loans secured by one-to
four-family residential properties located in its market area and in investment
securities. The Bank also originates single-family residential/construction
loans and multi-family and commercial real estate loans, loans secured by
deposits and other consumer loans. The Bank derives its income principally from
interest earned on loans and mortgage-backed and other securities and, to a
lesser extent, interest-bearing deposits with other banks. The Bank's principal
expenses are interest expense on deposits and non-interest expenses such as
salary and employee benefits, deposit insurance premiums, office building and
equipment expense, and other expenses such as data processing. At June 30, 1997,
the Bank
<PAGE>
Board of Directors
Hopkinsville Federal Savings Bank
September 11, 1997
Page 3
had total assets of $202.5 million, deposits of $181.4 million, net loans
receivable of $98.4 million and retained earnings (including unrealized
appreciation on securities available for sale) of $18.3 million.
As a federally chartered mutual savings bank, the Bank has no authorized
capital stock. Instead, the Bank, in mutual form, has a unique equity structure.
A savings depositor of the Bank is entitled to payment of interest on his
account balance as declared and paid by the Bank, but has no right to a
distribution of any earnings of the Bank except for interest paid on his
deposit. Rather, such earnings become retained earnings of the Bank. However, a
savings depositor does have a right to share pro rata, with respect to the
--- ----
withdrawal value of his respective savings account, in any liquidation proceeds
distributed if the Bank is ever liquidated.
Further, savings depositors and certain borrowers are members of the Bank
and thereby have voting rights in the Bank. Under the Bank's federal mutual
charter, each savings depositor is entitled to cast one vote for each $100 or
fraction thereof held in a withdrawal deposit account of the Bank, and each
borrower member (hereinafter "borrower") is entitled to one vote in addition to
the votes (if any) to which such person is otherwise entitled in such borrower's
capacity as a savings depositor of the Bank. Also under such federal mutual
charter, no member is entitled to cast more than 1,000 votes. All of the
interest held by a savings depositor in the Bank cease when such depositor
closes his accounts with the Bank.
The Holding Company was incorporated in May 1997 under the laws of the
State of Delaware to act as the savings and loan holding company of the Stock
Bank upon consummation of the Conversion. Prior to consummation of the
Conversion, the Holding Company has not been engaged in, and is not expected to
engage in, any material operations. After the Conversion, the Holding Company's
principal business will be the business of the Stock Bank. The Holding Company
has an authorized capital structure of 7,500,000 shares of common stock (the
"Common Stock") and 500,000 shares of serial preferred stock.
<PAGE>
Board of Directors
Hopkinsville Federal Savings Bank
September 11, 1997
Page 4
PROPOSED TRANSACTION
--------------------
The Board of Directors of the Bank has decided that in order to attract new
capital to the Bank to increase its net worth, to support future savings growth,
to increase the amount of funds available for other lending and investment, to
provide greater resources for the expansion of customer services and to
facilitate future expansion, it would be advantageous for the Bank to undertake
the Conversion.
Further, the Board of Directors of the Bank has determined that in order to
enhance flexibility of operations, diversification of business activities and
geographic operations, financial capability for business and regulatory
purposes, and to enable the Stock Bank to more effectively compete with other
types of financial services organizations, it would be advantageous to have the
stock of the Stock Bank held by a parent holding company. The Board of Directors
has also determined that the Conversion would enhance the future access of the
Holding Company and the Stock Bank to the capital markets.
Accordingly, pursuant to the Plan, the Bank will be converted from a
federally chartered mutual savings bank to a federally chartered stock savings
bank. The Stock Bank will then issue to the Holding Company 100,000 shares of
the Stock Bank's common stock, representing all of the shares of capital stock
to be issued by the Stock Bank in the Conversion, in return for a payment by the
Holding Company of an amount equal to at least 50% of the aggregate net proceeds
realized by the Holding Company from the sale of its Common Stock sold pursuant
to the Plan, or such other portion of the aggregate net proceeds as may be
authorized or required by the OTS. The Holding Company currently anticipates
paying an amount equal to 50% of the aggregate net proceeds from the sale of the
Common Stock, without any reduction for the amount necessary to fund the
Company's Employee Stock Ownership Plan ("ESOP").
Also pursuant to the Plan, the Holding Company will offer its shares of
Common Stock for sale in a Subscription Offering and a concurrent Community
Offering. The purchase price per share and total number of shares of Common
Stock to be offered and sold pursuant to the Plan will be determined by the
Board
<PAGE>
Board of Directors
Hopkinsville Federal Savings Bank
September 11, 1997
Page 5
of Directors of the Holding Company on the basis of the estimated pro forma
--- -----
market value of the Stock Bank, which will in turn be determined by an
independent appraiser. The aggregate purchase price for all shares of the Common
Stock will be equal to such estimated pro forma market value. Pursuant to the
Plan, all such shares of Common Stock will be issued and sold at a uniform price
per share. The conversion of the Bank from mutual to stock form and the sale of
newly issued shares of the stock of the Stock Bank to the Holding Company (i.e.,
the Conversion) will be deemed effective concurrently with the closing of the
sale of the Common Stock.
Under the Plan and in accordance with regulations of the OTS, the shares of
Common Stock will first be offered through the Subscription Offering pursuant to
non-transferable subscription rights on the basis of preference categories in
the following order of priority:
(1) Eligible Account Holders;
(2) Tax-Qualified Employee Stock Benefit Plans (i.e., the ESOP);
(3) Supplemental Eligible Account Holders; and
(4) Other Members.
However, any shares of Common Stock sold in excess of the high end of the
Valuation Range may be first sold to Tax-Qualified Employee Stock Benefit Plans
set forth in category (2) above.
Any shares of Common Stock not subscribed for in the Subscription Offering
will be offered in the Community Offering in the following order of priority:
(a) Natural persons and trusts of natural persons who are permanent
Residents of the Local Community; and
<PAGE>
Board of Directors
Hopkinsville Federal Savings Bank
September 11, 1997
Page 6
(b) The general pubic.
The Plan also provides for the establishment of a Liquidation Account by
the Stock Bank for the benefit of all Eligible Account Holders and Supplemental
Eligible Account Holders in an amount equal to the net worth of the Bank as of
the date of the latest statement of financial condition contained in the final
prospectus issued in connection with the Conversion. The establishment of the
Liquidation Account will not operate to restrict the use of application of any
of the net worth accounts of the Stock Bank, except that the Stock Bank may not
declare or pay cash dividends on or repurchase any of its stock if the result of
doing so would be to reduce its net worth below the amount required to maintain
the Liquidation Account. All such account holders will have an inchoate
interest in a proportionate amount of the Liquidation Account with respect to
each savings account held and will be paid by the Stock Bank in the event of its
liquidation prior to any liquidating distribution being made with respect to
capital stock.
Following the Conversion, voting rights in the Stock Bank will rest
exclusively with the sole holder of stock in the Stock Bank, which will be the
Holding Company. Voting rights in the Holding Company will rest exclusively in
the holders of the Common Stock. The Conversion will not interrupt the business
of the Bank. The Stock Bank will, after the Conversion, engage in the same
business as that of the Bank immediately prior to the Conversion, and will
continue to be subject to regulation and supervision by the OTS. Further, the
deposits of the Stock Bank will continue to be insured by the FDIC. Each
depositor will retain a withdrawable savings account or accounts equal in dollar
amount to, and on the same terms and conditions as, the withdrawable account or
accounts at the time of Conversion except to the extent funds on deposit are
used to pay for Common Stock purchased in connection with the Conversion. All
loans of the Bank will remain unchanged and retain their same characteristics in
the Stock Bank immediately following the Conversion.
The Plan has been approved by the OTS and must be approved by an
affirmative vote of at least a majority of the total votes eligible to be cast
at a meeting of the Bank's members called to vote on the Plan.
<PAGE>
Board of Directors
Hopkinsville Federal Savings Bank
September 11, 1997
Page 7
Immediately prior to the Conversion, the Bank will have a positive net
worth determined in accordance with generally accepted accounting principles.
OPINION
-------
Based on the foregoing and in reliance thereon, and subject to the
conditions stated herein, it is our opinion that the following federal income
tax consequences will result from the proposed transaction.
1. The Conversion will constitute a reorganization within the meaning of
section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the
"Code"), and no gain or loss will be recognized to either the Bank or to
the Stock Bank as a result of the Conversion (see Rev. Rul. 80-105, 1980-1
---
C.B. 78).
2. The assets of the Bank will have the same basis in the hands of the Stock
Bank as in the hands of the Bank immediately prior to the Conversion
(Section 362(b) of the Code).
3. The holding period of the assets of the Bank to be received by the Stock
Bank will include the period during which the assets were held by the Bank
prior to the Conversion (Section 1223(2) of the Code).
4. No gain or loss will be recognized by the Stock Bank upon its receipt of
money from the Holding Company in exchange for shares of common stock of
Stock Bank (Section 1032(a) or the Code). The Holding Company will be
transferring solely cash to the Stock Bank in exchange for all the
outstanding capital stock of the Stock Bank and therefore will not
recognize any gain or loss upon such transfer. (Section 351(a) of the
Code; see Rev. Rul. 69-357, 1969-1 C.B. 101).
---
<PAGE>
Board of Directors
Hopkinsville Federal Savings Bank
September 11, 1997
Page 8
5. No gain or loss will be recognized by the Holding Company upon its receipt
of money in exchange for shares of the Common Stock (Section 1032(a) of the
Code).
6. No gain or loss will be recognized by the Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members of the Bank upon the
issuance to them of deposit accounts in the Stock Bank in the same dollar
amount and on the same terms and conditions in exchange for their deposit
accounts in the Bank held immediately prior to the Conversion. (Section
1001(a) of the Code; Treas. Reg. (S)1.1001-(a)).
7. The tax basis of the savings accounts of the Eligible Account Holders,
Supplemental Eligible Account Holders, and Other Members in the Stock Bank
received as part of the Conversion will equal the tax basis of such account
holders' corresponding deposit accounts in the Association surrendered in
exchange therefor (Section 1012 of the Code).
8. Each depositor of the Bank will recognize gain upon the receipt of his or
her respective interest in the Liquidation Account established by the Stock
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
depositor's basis in the former interest in the Bank other than deposit
accounts. Persons who subscribe in the Conversion but who are not
depositors of the Bank will recognize gain upon the receipt of subscription
rights deemed to have been received for federal income tax purposes, but
only to the extent of the excess of the fair market value of such
subscription rights over such person's former interests in the Bank if any.
Any such gain realized in the Conversion would be subject to immediate
recognition.
9. The basis of each account holder's interest in the Liquidation Account
received in the Conversion will be equal to the value, if any, of that
interest.
<PAGE>
Board of Directors
Hopkinsville Federal Savings Bank
September 11, 1997
Page 9
10. No gain or loss will be recognized upon the exercise of a subscription
right in the Conversion. (Rev. Rul. 56-572, 1956-2 C.B. 182).
11. The basis of the shares of Common Stock acquired in the Conversion will be
equal to the purchase price of such shares, increased, in the case of such
shares acquired pursuant to the exercise of subscription rights, by the
fair market value, if any, of the subscription rights exercised (Section
1012 of the Code).
12. The holding period of the Common Stock acquired in the Conversion pursuant
to the exercise of subscription rights will commence on the date on which
the subscription rights are exercised (Section 1223(6) of the Code). The
holding period of the Common Stock acquired in the Community Offering will
commence on the date following the date on which such stock is purchased
(Rev. Rul. 70-598, 1970-2 C.B. 168; Rev. Rul. 66-97, 1966-1 C.B. 190).
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 federal,
state, local, foreign, or other 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. Prior to that time, we undertake to update or
supplement our opinion in the event of a material change in the federal income
tax consequences set forth above and to file such revised opinion as an exhibit
to the Registration Statement and the Bank's Application for Conversion on Form
AC ("Form AC"). This opinion is not binding on the Internal Revenue Service and
<PAGE>
Board of Directors
Hopkinsville Federal Savings Bank
September 11, 1997
Page 10
there can be no assurance, and none is hereby given, that the Internal Revenue
Service will not take a position contrary to one or more of the positions
reflected in the foregoing opinion, or that our opinion will be upheld by the
courts if challenged by the Internal Revenue Service.
CONSENTS
--------
We hereby consent to the filing of this opinion as an exhibit to the
Application H-(e)1-S filed by the Company with the OTS in connection with the
Conversion and the reference to our firm in the Application H-(e)1-S under Item
110.55 therein.
We also hereby consent to the filing of this opinion with the SEC and the
OTS as exhibits to the Registration Statement and Form AC, respectively, and the
references to our firm in the Prospectus, which is a part of both the
Registration Statement and Form AC, under the headings "The Conversion -- Effect
of Conversion to Stock Form on Depositors and Borrowers of the Bank -- Tax
Effects" and "Tax Opinions".
Very truly yours,
REINHART, BOERNER, VAN DEUREN
NORRIS & RIESELBACH, P.C.
By: /s/ Edward B. Crosland, Jr.
----------------------------
Edward B. Crosland, Jr.
<PAGE>
[Letterhead of York, Neel & Co.-Hopkinsville, LLP]
September 10, 1997
Mr. Bruce Thomas, President
Hopkinsville Federal Savings Bank
2700 Fort Campbell Boulevard
Hopkinsville, KY 42240
Dear Mr. Thomas:
You have requested our opinion as to the Commonwealth of Kentucky income tax
consequences to be accorded a transaction whereby Hopkinsville Federal Savings
Bank (the "Bank"), a federally chartered mutual savings bank, will convert to a
federally chartered stock savings bank (the "Stock Bank"), and concurrently be
acquired by HopFed Bancorp, Inc. (the "Holding Company").
You have previously received a favorable opinion of legal counsel stating that
the proposed transaction would result in no adverse federal income tax
consequences to the Bank, Stock Bank, Holding Company, or the eligible account
holders and other preference categories of the Bank or the shareholders of the
Holding Company under the Internal Revenue Code of 1986, as amended ("Code").
The federal tax opinion provides that based upon the facts of the proposed
transaction, the conversion of the Bank from a federally chartered mutual
savings bank to a federally chartered stock savings bank will constitute a
reorganization as that term is defined in Section 368(a)(1)(F) of the Code.
Furthermore, the opinion states that the Stock Bank, Holding Company, and the
shareholders of the Holding Company will recognize no gain or loss as a result
of the acquisition of 100% of Stock Bank's stock by Holding Company.
The statement of facts and representations and declarations of the management of
the Holding Company and the Bank included in the federal tax opinion are
incorporated herein by reference. No party to the proposed transaction has any
net operating loss or credit carryovers.
<PAGE>
Mr. Bruce Thomas
Hopkinsville Federal Savings Bank
September 10, 1997
Page 2
The Commonwealth of Kentucky will, for income tax purposes, accord the
transaction the identical treatment which it receives for federal income tax
purposes. Based on the facts attendant to the proposed transaction, it is our
opinion that under the laws and administrative provisions of the Commonwealth of
Kentucky, including Kentucky Revised Statutes ("KRS") 141.010(3), KRS
141.050(1), and Rev. Pol. 41P260, no adverse Kentucky income tax consequences
will be incurred by the Bank, Stock Bank, Holding Company, the eligible account
holders or the shareholders of the Holding Company as a result of the
consummation of the proposed transaction.
No opinion is expressed with respect to any matter other than the Commonwealth
of Kentucky income tax consequences, including but not limited to any franchise
or capital stock taxes which might result from the consummation of the proposed
transaction.
We hereby consent to the filing of this opinion with the Securities and Exchange
Commission and the OTS as exhibits to the Registration Statement and Form AC,
respectively, and the references to our firm in the Prospectus, which is a part
of both the Registration Statement and Form AC, under the headings "The
Conversion -- Effect of Conversion to Stock Form on Depositors and Borrowers of
the Bank -- Tax Effects" and "Tax Opinions".
Sincerely,
York, Neel & Co.-Hopkinsville, LLP
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is entered into as of the ___ day of _______, l997, by and
between Hopkinsville Federal Savings Bank (the "Bank") and Bruce Thomas (the
"Employee").
WHEREAS, the Employee has heretofore been employed by the Bank as its
President and Chief Executive Officer and is experienced in all phases of the
business of the Bank; and
WHEREAS, the parties desire by this writing to establish and to set forth
the continuing employment relationship between the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is hereby employed as the President and
----------
Chief Executive Officer of the Bank. Except to the extent that the Board of
Directors of the Bank (the "Board") shall have delegated a portion of such
authority to one or more other officers, the Employee shall have general charge
and direction of the business of the Bank, shall see that all orders and
resolutions of the Board are carried into effect, and shall perform such other
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.
2. Base Compensation. The Bank agrees to pay the Employee during the
-----------------
term of this Agreement a salary at the rate of $__________ per annum, payable in
cash not less frequently than monthly. The Board shall review, not less often
than annually, the rate of the Employee's salary, and in its sole discretion may
decide to increase his salary.
3. 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.
4. (a) Participation in Retirement, Medical and Other Plans. The
----------------------------------------------------
Employee shall be entitled to participate in any plan that the Bank maintains
for the benefit of its employees if the plan relates to (i) pension, profit-
sharing, or other retirement benefits, (ii) medical insurance or the
reimbursement of medical or dependent care expenses, or (iii) other group
benefits, including disability and life insurance plans.
(b) Employee Benefits; Expenses. The Employee shall participate in
---------------------------
any fringe benefits that 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 that are commensurate with the
responsibilities and functions to be performed by the Employee under this
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is entered into as of the ___ day of _______, l997, by and
between Hopkinsville Federal Savings Bank (the "Bank") and ________________ (the
"Employee").
WHEREAS, the Employee has heretofore been employed by the Bank as its
__________________________ and is experienced in all phases of the business of
the Bank; and
WHEREAS, the parties desire by this writing to establish and to set forth
the continuing employment relationship between the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is hereby employed as the ___________________
----------
___________ 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 of the Bank (the "Board") may from time to time
reasonably direct, including normal duties as an officer of the Bank.
2. Base Compensation. The Bank agrees to pay the Employee during the
-----------------
term of this Agreement a salary at the rate of $__________ per annum, payable in
cash not less frequently than monthly. The Board shall review, not less often
than annually, the rate of the Employee's salary, and in its sole discretion may
decide to increase his salary.
3. 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.
4. (a) Participation in Retirement, Medical and Other Plans. The
----------------------------------------------------
Employee shall be entitled to participate in any plan that the Bank maintains
for the benefit of its employees if the plan relates to (i) pension, profit-
sharing, or other retirement benefits, (ii) medical insurance or the
reimbursement of medical or dependent care expenses, or (iii) other group
benefits, including disability and life insurance plans.
(b) Employee Benefits; Expenses. The Employee shall participate in
---------------------------
any fringe benefits that are or may become available to the Bank's senior
management employees, including, for example: any stock option or incentive
compensation plans, club memberships, and any other benefits that 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-
<PAGE>
Agreement. The Employee shall be reimbursed for all reasonable out-of-pocket
business expenses that shall incur in connection with his services under this
Agreement upon substantiation of such expenses in accordance with the policies
of the Bank.
5. 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 of the Federal Stock Charter of the Bank (the "Effective Date")
and ending twelve (12) months thereafter (or such earlier date as is determined
in accordance with Section 9 hereof). Additionally, on each annual anniversary
date from the Effective Date, this Agreement and the Employee's term of
employment shall be extended for an additional one-year period beyond the then
effective expiration date, provided that 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.
6. Loyalty; Full Time and Attention.
--------------------------------
(a) During the period of his employment hereunder and except for
illness, reasonable vacation periods, and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill, and efforts
to the faithful performance of his duties hereunder; provided that, from time to
time, the Employee may serve on the board of directors of, and hold any other
offices or positions in, companies or organizations, that will not present any
conflict of interest with the Bank or any of its subsidiaries or affiliates, or
unfavorably affect the performance of Employee's duties pursuant to this
Agreement, or will not violate any applicable statute or regulation. "Full
business time" is hereby defined as that amount of time usually devoted to like
companies by similarly situated executive officers. During the term of his
employment under this Agreement, the Employee shall not engage in any business
or activity contrary to the business affairs or interests of the Bank, or be
gainfully employed in any other position or job other than as provided above.
(b) Nothing contained in this Section 6 shall be deemed to prevent
or limit the Employee's right to invest in the capital stock or other securities
of any business dissimilar from that of the Bank, or, solely as a passive or
minority investor, in any business.
7. 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 the Employee with the working facilities
and staff customary for similar executive officers and necessary for him to
perform his duties.
8. Vacation and Sick Leave. The Employee shall be entitled, without loss
-----------------------
of pay, to absent himself voluntarily from the performance of his duties under
this Agreement in accordance with the terms set forth below, all such voluntary
absences to count as vacation time; provided that:
(a) The Employee shall be entitled to an annual vacation in
accordance with the policies periodically established by the Board for senior
management employees of the Bank.
2
<PAGE>
pocket business expenses that shall incur in connection with his services under
this Agreement upon substantiation of such expenses in accordance with the
policies of the Bank.
5. 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 of the Federal Stock Charter of the Bank (the "Effective Date")
and ending twelve (12) months thereafter (or such earlier date as is determined
in accordance with Section 9 hereof). Additionally, on each annual anniversary
date from the Effective Date, this Agreement and the Employee's term of
employment shall be extended for an additional one-year period beyond the then
effective expiration date, provided that 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.
6. Loyalty; Full Time and Attention.
--------------------------------
(a) During the period of his employment hereunder and except for
illness, reasonable vacation periods, and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill, and efforts
to the faithful performance of his duties hereunder; provided that, from time to
time, the Employee may serve on the board of directors of, and hold any other
offices or positions in, companies or organizations, that will not present any
conflict of interest with the Bank or any of its subsidiaries or affiliates, or
unfavorably affect the performance of Employee's duties pursuant to this
Agreement, or will not violate any applicable statute or regulation. "Full
business time" is hereby defined as that amount of time usually devoted to like
companies by similarly situated executive officers. During the term of his
employment under this Agreement, the Employee shall not engage in any business
or activity contrary to the business affairs or interests of the Bank, or be
gainfully employed in any other position or job other than as provided above.
(b) Nothing contained in this Section 6 shall be deemed to prevent or
limit the Employee's right to invest in the capital stock or other securities of
any business dissimilar from that of the Bank, or, solely as a passive or
minority investor, in any business.
7. 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 the Employee with the working facilities and
staff customary for similar executive officers and necessary for him to perform
his duties.
8. Vacation and Sick Leave. The Employee shall be entitled, without loss
-----------------------
of pay, to absent himself voluntarily from the performance of his duties under
this Agreement in accordance with the terms set forth below, all such voluntary
absences to count as vacation time; provided that:
(a) The Employee shall be entitled to an annual vacation in
accordance with the policies periodically established by the Board for senior
management employees of the Bank.
2
<PAGE>
(b) The Employee shall not receive any additional compensation from
the Bank on account of his failure to take a vacation, and the Employee shall
not accumulate unused vacation from one fiscal year to the next, except in
either case to the extent authorized by the Board.
(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 obligations with the Bank for such additional
periods of time and for such valid and legitimate reasons as the Board may in
its discretion approve. 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 the 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.
9. Termination and Termination Pay. Subject to Section 11 hereof, the
-------------------------------
Employee's employment hereunder may be terminated under the following
circumstances:
(a) Death. The Employee's employment under this Agreement shall
-----
terminate upon his death during the term of this Agreement, in which event the
Employee's estate shall be entitled to receive the compensation due the Employee
through the last day of the calendar month in which his death occurred.
(b) Disability. The Bank may terminate the Employee's employment
----------
after having established, through a determination by the Board, the Employee's
Disability. For purposes of this Agreement, "Disability" means a physical or
mental infirmity that impairs the Employee's ability to substantially perform
his duties under this Agreement and that 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, that 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 that is prior to
the Employee's termination of employment pursuant to this Section 9(b); provided
that any benefits paid pursuant to the Bank's long-term disability plan will
continue as provided in such plan.
(c) For 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. Termination for "Just Cause" shall
mean termination because of, in the good faith determination of the Board, 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
3
<PAGE>
(b) The Employee shall not receive any additional compensation from
the Bank on account of his failure to take a vacation, and the Employee shall
not accumulate unused vacation from one fiscal year to the next, except in
either case to the extent authorized by the Board.
(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 obligations with the Bank for such additional
periods of time and for such valid and legitimate reasons as the Board may in
its discretion approve. 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 the 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.
9. Termination and Termination Pay. Subject to Section 11 hereof, the
-------------------------------
Employee's employment hereunder may be terminated under the following
circumstances:
(a) Death. The Employee's employment under this Agreement shall
-----
terminate upon his death during the term of this Agreement, in which event the
Employee's estate shall be entitled to receive the compensation due the Employee
through the last day of the calendar month in which his death occurred.
(b) Disability. The Bank may terminate the Employee's employment
----------
after having established, through a determination by the Board, the Employee's
Disability. For purposes of this Agreement, "Disability" means a physical or
mental infirmity that impairs the Employee's ability to substantially perform
his duties under this Agreement and that 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, that 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 that is prior to
the Employee's termination of employment pursuant to this Section 9(b); provided
that any benefits paid pursuant to the Bank's long-term disability plan will
continue as provided in such plan.
(c) For 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. Termination for "Just Cause" shall mean
termination because of, in the good faith determination of the Board, 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. Notwithstanding
3
<PAGE>
cease-and-desist order, or material breach of any provision of this Agreement.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated for Just Cause unless there shall have been delivered to the Employee
a copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the entire membership of the Board (excluding the Employee if a
member of the Board) at a meeting of the Board called and held for the purpose
(after reasonable notice to the Employee and an opportunity for the Employee to
be heard before the Board), finding that in the good faith opinion of the Board
the Employee was guilty of conduct set forth above in the second sentence of
this Subsection (c) and specifying the particulars thereof in detail.
(d) Without Just Cause. Subject to the provisions of Section 11
------------------
hereof, the Board may, by written notice to the Employee, immediately terminate
his employment at any time for any reason; provided that, if such termination is
for any reason other than pursuant to Sections 9(a), (b) or (c) above, the
Employee shall be entitled to receive the following compensation and benefits:
(i) the salary provided pursuant to Section 2 hereof, up to the date of
expiration of the term (including any renewal term then in effect) of this
Agreement (the "Termination Date") and (ii) the cost to the Employee of
obtaining all health, life, disability and other benefits (excluding any bonus,
stock option or other compensation benefits) in which the Employee would have
been eligible to participate through the Termination Date based upon the benefit
levels substantially equal to those that the Bank provided for the Employee at
the date of termination of employment. Said sum shall be paid, at the option of
the Employee, either (I) in periodic payments over the remaining term of this
Agreement, as if the Employee's employment had not terminated, or (II) in one
lump sum within ten (10) days of such termination.
(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. (S) 1818(e)(4) or (g)(1)), all obligations of the Bank under this
Agreement shall terminate, as of the effective date of the order, but vested
rights of the parties shall not be affected.
(2) If the Bank is in default (as defined in Section 3(x)(1)
of FDIA), all obligations under this Agreement shall terminate as of the date of
default; however, this Paragraph 9(e)(2) shall not affect the vested rights of
the parties.
(3) 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: (A) by the Director of the Office of Thrift
Supervision ("OTS"), or his or her designee, at the time that the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
FDIA; or (B) 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.
4
<PAGE>
the foregoing, the Employee shall not be deemed to have been terminated for Just
Cause unless there shall have been delivered to the Employee a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the entire membership of the Board (excluding the Employee if a member of the
Board) at a meeting of the Board called and held for the purpose (after
reasonable notice to the Employee and an opportunity for the Employee to be
heard before the Board), finding that in the good faith opinion of the Board the
Employee was guilty of conduct set forth above in the second sentence of this
Subsection (c) and specifying the particulars thereof in detail.
(d) Without Just Cause. Subject to the provisions of Section 11
------------------
hereof, the Board may, by written notice to the Employee, immediately terminate
his employment at any time for any reason; provided that, if such termination is
for any reason other than pursuant to Sections 9(a), (b) or (c) above, the
Employee shall be entitled to receive the following compensation and benefits:
(i) the salary provided pursuant to Section 2 hereof, up to the date of
expiration of the term (including any renewal term then in effect) of this
Agreement (the "Termination Date") and (ii) the cost to the Employee of
obtaining all health, life, disability and other benefits (excluding any bonus,
stock option or other compensation benefits) in which the Employee would have
been eligible to participate through the Termination Date based upon the benefit
levels substantially equal to those that the Bank provided for the Employee at
the date of termination of employment. Said sum shall be paid, at the option of
the Employee, either (I) in periodic payments over the remaining term of this
Agreement, as if the Employee's employment had not terminated, or (II) in one
lump sum within ten (10) days of such termination.
(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. (S) 1818(e)(4) or (g)(1)), all obligations of the Bank under this
Agreement shall terminate, as of the effective date of the order, but vested
rights of the parties shall not be affected.
(2) If the Bank is in default (as defined in Section 3(x)(1) of
FDIA), all obligations under this Agreement shall terminate as of the date of
default; however, this Paragraph 9(e)(ii) shall not affect the vested rights of
the parties.
(3) 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: (A) by the Director of the Office of Thrift Supervision
("OTS"), or his or her designee, at the time that the Federal Deposit Insurance
Corporation ("FDIC") enters into an agreement to provide assistance to or on
behalf of the Bank under the authority contained in Section 13(c) of the FDIA;
or (B) 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.
4
<PAGE>
(4) If a notice served under Section 8(e)(3) or (g)(1) of the
FDIA (12 U.S.C. (S) 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 (A) pay the Employee all or part
of the compensation withheld while its contract obligations were suspended, and
(B) reinstate (in whole or in part) any of its obligations that were suspended.
(5) If any of the provisions of this Paragraph 9(e) conflict
with 12 C.F.R. (S) 563.39(b), the latter shall prevail.
(f) Voluntary Termination by Employee. Subject to the provisions of
---------------------------------
Section 11 hereof, the Employee may voluntarily terminate employment with the
Bank during the term of this Agreement, upon at least sixty (60) days' prior
written notice to the Board, in which case the Employee shall receive only his
compensation, vested rights and employee benefits accrued up to the date of his
termination.
(g) Limitation by Section 18(k) of the FDIA. Notwithstanding any-
---------------------------------------
thing herein to the contrary, any payments made to the Employee pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with Section 18(k) of the FDIA (12 U.S.C. (S) 1828(k)) and any regulations
promulgated thereunder.
10. 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.
11. Change in Control.
-----------------
(a) Notwithstanding any provision herein to the contrary, if the
Employee's employment under this Agreement is terminated by the Bank, without
the Employee's prior written consent and for a reason other than for Just Cause,
death or disability in connection with or twelve (12) months after any change in
control of the Bank or HopFed Bancorp, Inc. (the "Company") which has not been
approved in advance by a two-thirds vote of the full Board of Directors of each
of the Bank and the Company, the Employee shall be paid an amount equal to the
difference between (i) the product of 2.99 times his "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code")
and regulations promulgated thereunder, and (ii) the sum of any other "parachute
payments" (as defined under Section 280G(b)(2) of the Code) that the Employee
receives on account of the change in control. Said sum shall be paid in one
lump sum within ten (10) days of such termination. The term "change in control"
shall mean (1) a change in the ownership, holding or power to vote more than 25%
of the Bank's or Company's voting stock, (2) a change in the ownership or
possession of the ability to control the election of a majority of the Bank's or
Company's directors, or (3) a change in the ownership or possession of the
ability to exercise a controlling influence over the
5
<PAGE>
(4) If a notice served under Section 8(e)(3) or (g)(1) of the
FDIA (12 U.S.C. (S) 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 (A) pay the Employee all or part
of the compensation withheld while its contract obligations were suspended, and
(B) reinstate (in whole or in part) any of its obligations that were suspended.
(f) Voluntary Termination by Employee. Subject to the provisions
---------------------------------
of Section 11 hereof, the Employee may voluntarily terminate employment with the
Bank during the term of this Agreement, upon at least sixty (60) days' prior
written notice to the Board, in which case the Employee shall receive only his
compensation, vested rights and employee benefits accrued up to the date of his
termination.
(G) LIMITATION BY SECTION 18(K) OF THE FDIA. NOTWITHSTANDING ANYTHING
---------------------------------------
HEREIN TO THE CONTRARY, ANY PAYMENTS MADE TO THE EMPLOYEE PURSUANT TO THIS
AGREEMENT, OR OTHERWISE, ARE SUBJECT TO AND CONDITIONED UPON THEIR COMPLIANCE
WITH SECTION 18(K) OF THE FDIA (12 U.S.C. (S) 1828(K)) AND ANY REGULATIONS
PROMULGATED THEREUNDER.
10. 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.
11. Change in Control.
-----------------
(a) Notwithstanding any provision herein to the contrary, if the
Employee's employment under this Agreement is terminated by the Bank, without
the Employee's prior written consent and for a reason other than for Just Cause,
death or disability in connection with or twelve (12) months after any change in
control of the Bank or HopFed Bancorp, Inc. (the "Company") which has not been
approved in advance by a two-thirds vote of the full Board of Directors of each
of the Bank and the Company, the Employee shall be paid an amount equal to the
difference between (i) the product of 2.99 times his "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code")
and regulations promulgated thereunder, and (ii) the sum of any other "parachute
payments" (as defined under Section 280G(b)(2) of the Code) that the Employee
receives on account of the change in control. Said sum shall be paid in one lump
sum within ten (10) days of such termination. The term "change in control" shall
mean (1) a change in the ownership, holding or power to vote more than 25% of
the Bank's or Company's voting stock, (2) a change in the ownership or
possession of the ability to control the election of a majority of the Bank's or
Company's directors, or (3) a change in the ownership or possession of the
ability to exercise a controlling influence over the management or policies of
the Bank or the Company by any person or by persons acting as a "group" (within
the meaning of Section 13(d) of the Securities and Exchange Act of 1934) (except
that, in the case of (1), (2) and (3) hereof, ownership or control of the Bank
or its directors by the Company itself shall not constitute a change in control.
The term "person" means
5
<PAGE>
management or policies of the Bank or the Company by any person or by persons
acting as a "group" (within the meaning of Section 13(d) of the Securities and
Exchange Act of 1934) (except that, in the case of (1), (2) and (3) hereof,
ownership or control of the Bank or its directors by the Company itself shall
not constitute a change in control. The term "person" means an individual other
than the Employee, or a corporation, partnership, trust, association, joint
venture, pool, syndicate, sole proprietorship, unincorporated organization or
any other form of entity not specifically listed herein.
(b) Notwithstanding the foregoing, but only to the extent required
under federal banking law, the amount payable under Section 11(a) hereof shall
be reduced to the extent that on the date of the Employee's termination of
employment, the amount payable under Section 11(a) exceeds the limitation on
severance benefits set forth in Regulatory Bulletin 27a of the OTS, as in effect
on such termination date.
(c) In the event that any dispute arises between the Employee and
the Bank as to the terms or interpretation of this Agreement, including this
Section 11, whether instituted by formal legal proceedings or otherwise,
including an action that Employee takes to enforce the terms of this Section 11
or to defend against any action taken by the Bank, the Employee shall be
reimbursed for all costs and expenses, including reasonable attorneys' fees,
arising from such disputes or proceedings, provided that the Employee shall have
obtained a final judgment by a court of competent jurisdiction in his favor.
Such reimbursement shall be paid within ten (10) days of Employee's providing
the Bank with written evidence, which may be in the form, among others, of a
canceled check or receipt, of any costs or expenses incurred by the Employee.
12. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank that shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the corporation.
(b) Since the Bank is contracting for the unique and personal skills
of the Employee, the Employee shall be precluded from assigning or delegating
his rights or duties hereunder without first obtaining the written consent of
the Bank.
13. 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.
14. Applicable Law. This Agreement shall be governed in all respects,
--------------
whether as to its validity, construction, capacity, performance or otherwise, by
the laws of the Commonwealth of Kentucky, except to the extent that Federal law
shall be deemed to apply.
6
<PAGE>
an individual other than the Employee, or a corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein.
(b) Notwithstanding the foregoing, but only to the extent required
under federal banking law, the amount payable under Section 11(a) hereof shall
be reduced to the extent that on the date of the Employee's termination of
employment, the amount payable under Section 11(a) exceeds the limitation on
severance benefits set forth in Regulatory Bulletin 27a of the Office of Thrift
Supervision, as in effect on such termination date.
(c) In the event that any dispute arises between the Employee and the
Bank as to the terms or interpretation of this Agreement, including this Section
11, whether instituted by formal legal proceedings or otherwise, including an
action that Employee takes to enforce the terms of this Section 11 or to defend
against any action taken by the Bank, the Employee shall be reimbursed for all
costs and expenses, including reasonable attorneys' fees, arising from such
disputes or proceedings, provided that the Employee shall have obtained a final
judgment by a court of competent jurisdiction in his favor. Such reimbursement
shall be paid within ten (10) days of Employee's providing the Bank with written
evidence, which may be in the form, among others, of a canceled check or
receipt, of any costs or expenses incurred by the Employee.
12. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank that shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the corporation.
(b) Since the Bank is contracting for the unique and personal skills
of the Employee, the Employee shall be precluded from assigning or delegating
his rights or duties hereunder without first obtaining the written consent of
the Bank.
13. 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.
14. Applicable Law. This Agreement shall be governed in all
--------------
whether as to its validity, construction, capacity, performance or otherwise, by
the laws of the Commonwealth of Kentucky, except to the extent that Federal law
shall be deemed to apply.
15. 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.
6
<PAGE>
15. 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.
16. 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.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
ATTEST: HOPKINSVILLE FEDERAL SAVINGS BANK
By:
- --------------------------- ------------------------------------------
Secretary Its:
WITNESS:
- --------------------------- ------------------------------------------
("Employee")
-----------------------------
7
<PAGE>
16. 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.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
ATTEST: HOPKINSVILLE FEDERAL SAVINGS BANK
_____________________________ By:_______________________________
Secretary Its:
WITNESS:
_____________________________ __________________________________
_____________________("Employee")
7
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is entered into as of the ___ day of _______, 1997, by and
between Hopkinsville Federal Savings Bank (the "Bank") and Peggy R. Noel (the
"Employee").
WHEREAS, the Employee has heretofore been employed by the Bank as its
Executive Vice President, Chief Financial Officer and Chief Operations Officer
and is experienced in all phases of the business of the Bank; and
WHEREAS, the parties desire by this writing to establish and to set forth
the continuing employment relationship between the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is hereby employed as the Executive Vice
----------
President, Chief Financial Officer and Chief Operations Officer of the Bank.
Except to the extent that the Board of Directors of the Bank (the "Board") shall
have delegated a portion of such authority to one or more other officers, 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. As Executive Vice President, the Employee
shall act in the case of the absence or disability of the President. As Chief
Financial Officer, the Employee shall render to the President and the Board
accounts of the financial condition and results of operations of the Bank. As
Chief Operations Officer, the Employee shall provide general supervision of the
operations of the Bank to insure that assigned duties and responsibilities are
carried out. The Employee shall also promote, by entertainment or otherwise, as
and to the extent permitted by law, the business of the Bank.
2. Base Compensation. The Bank agrees to pay the Employee during the
-----------------
term of this Agreement a salary at the rate of $__________ per annum, payable in
cash not less frequently than monthly. The Board shall review, not less often
than annually, the rate of the Employee's salary, and in its sole discretion may
decide to increase his salary.
3. 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.
4. (a) Participation in Retirement, Medical and Other Plans. The
----------------------------------------------------
Employee shall be entitled to participate in any plan that the Bank maintains
for the benefit of its employees if the plan relates to (i) pension, profit-
sharing, or other retirement benefits, (ii) medical insurance or the
reimbursement of medical or dependent care expenses, or (iii) other group
benefits, including disability and life insurance plans.
<PAGE>
(b) Employee Benefits; Expenses. The Employee shall participate in
---------------------------
any fringe benefits that 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 that 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 that shall incur in connection with his services under this
Agreement upon substantiation of such expenses in accordance with the policies
of the Bank.
5. 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 of the Federal Stock Charter of the Bank (the "Effective Date")
and ending twelve (12) months thereafter (or such earlier date as is determined
in accordance with Section 9 hereof). Additionally, on each annual anniversary
date from the Effective Date, this Agreement and the Employee's term of
employment shall be extended for an additional one-year period beyond the then
effective expiration date, provided that 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.
6. Loyalty; Full Time and Attention.
--------------------------------
(a) During the period of his employment hereunder and except for
illness, reasonable vacation periods, and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill, and efforts
to the faithful performance of his duties hereunder; provided that, from time to
time, the Employee may serve on the board of directors of, and hold any other
offices or positions in, companies or organizations, that will not present any
conflict of interest with the Bank or any of its subsidiaries or affiliates, or
unfavorably affect the performance of Employee's duties pursuant to this
Agreement, or will not violate any applicable statute or regulation. "Full
business time" is hereby defined as that amount of time usually devoted to like
companies by similarly situated executive officers. During the term of his
employment under this Agreement, the Employee shall not engage in any business
or activity contrary to the business affairs or interests of the Bank, or be
gainfully employed in any other position or job other than as provided above.
(b) Nothing contained in this Section 6 shall be deemed to prevent or
limit the Employee's right to invest in the capital stock or other securities of
any business dissimilar from that of the Bank, or, solely as a passive or
minority investor, in any business.
7. 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 the Employee with the working facilities
and staff customary for similar executive officers and necessary for him to
perform his duties.
8. Vacation and Sick Leave. The Employee shall be entitled, without loss
-----------------------
of pay, to absent himself voluntarily from the performance of his duties under
this Agreement in accordance
2
<PAGE>
with the terms set forth below, all such voluntary absences to count as vacation
time; provided that:
(a) The Employee shall be entitled to an annual vacation in
accordance with the policies periodically established by the Board for senior
management employees of the Bank.
(b) The Employee shall not receive any additional compensation from
the Bank on account of his failure to take a vacation, and the Employee shall
not accumulate unused vacation from one fiscal year to the next, except in
either case to the extent authorized by the Board.
(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 obligations with the Bank for such additional
periods of time and for such valid and legitimate reasons as the Board may in
its discretion approve. 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 the 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.
9. Termination and Termination Pay. Subject to Section 11 hereof, the
-------------------------------
Employee's employment hereunder may be terminated under the following
circumstances:
(a) Death. The Employee's employment under this Agreement shall
-----
terminate upon his death during the term of this Agreement, in which event the
Employee's estate shall be entitled to receive the compensation due the Employee
through the last day of the calendar month in which his death occurred.
(b) Disability. The Bank may terminate the Employee's employment
----------
after having established, through a determination by the Board, the Employee's
Disability. For purposes of this Agreement, "Disability" means a physical or
mental infirmity that impairs the Employee's ability to substantially perform
his duties under this Agreement and that 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, that 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 that is prior to
the Employee's termination of employment pursuant to this Section 9(b); provided
that any benefits paid pursuant to the Bank's long-term disability plan will
continue as provided in such plan.
(c) For 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
3
<PAGE>
right to receive compensation or other benefits for any period after termination
for Just Cause. Termination for "Just Cause" shall mean termination because of,
in the good faith determination of the Board, 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. Notwithstanding the foregoing, the Employee shall not be
deemed to have been terminated for Just Cause unless there shall have been
delivered to the Employee a copy of a resolution duly adopted by the affirmative
vote of not less than a majority of the entire membership of the Board
(excluding the Employee if a member of the Board) at a meeting of the Board
called and held for the purpose (after reasonable notice to the Employee and an
opportunity for the Employee to be heard before the Board), finding that in the
good faith opinion of the Board the Employee was guilty of conduct set forth
above in the second sentence of this Subsection (c) and specifying the
particulars thereof in detail.
(d) Without Just Cause. Subject to the provisions of Section 11
------------------
hereof, the Board may, by written notice to the Employee, immediately terminate
his employment at any time for any reason; provided that, if such termination is
for any reason other than pursuant to Sections 9(a), (b) or (c) above, the
Employee shall be entitled to receive the following compensation and benefits:
(i) the salary provided pursuant to Section 2 hereof, up to the date of
expiration of the term (including any renewal term then in effect) of this
Agreement (the "Termination Date") and (ii) the cost to the Employee of
obtaining all health, life, disability and other benefits (excluding any bonus,
stock option or other compensation benefits) in which the Employee would have
been eligible to participate through the Termination Date based upon the benefit
levels substantially equal to those that the Bank provided for the Employee at
the date of termination of employment. Said sum shall be paid, at the option of
the Employee, either (I) in periodic payments over the remaining term of this
Agreement, as if the Employee's employment had not terminated, or (II) in one
lump sum within ten (10) days of such termination.
(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. (S)1818(e)(4) or (g)(1)), all obligations of the Bank under this
Agreement shall terminate, as of the effective date of the order, but vested
rights of the parties shall not be affected.
(2) If the Bank is in default (as defined in Section 3(x)(1) of
FDIA), all obligations under this Agreement shall terminate as of the date of
default; however, this Paragraph 9(e)(2) shall not affect the vested rights of
the parties.
(3) 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: (A) by the Director of the Office of Thrift Supervision
("OTS"), or his or her designee, at the time that the Federal Deposit Insurance
Corporation enters into an agreement to provide assistance to
4
<PAGE>
or on behalf of the Bank under the authority contained in Section 13(c) of the
FDIA; or (B) 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.
(4) If a notice served under Section 8(e)(3) or (g)(1) of the FDIA
(12 U.S.C. (S)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 (A) pay the Employee all or part
of the compensation withheld while its contract obligations were suspended, and
(B) reinstate (in whole or in part) any of its obligations that were suspended.
(5) If any of the provisions of this Paragraph 9(e) conflict with
12 C.F.R. (S)563.39(b), the latter shall prevail.
(f) Voluntary Termination by Employee. Subject to the provisions of
---------------------------------
Section 11 hereof, the Employee may voluntarily terminate employment with the
Bank during the term of this Agreement, upon at least sixty (60) days' prior
written notice to the Board, in which case the Employee shall receive only his
compensation, vested rights and employee benefits accrued up to the date of his
termination.
(g) Limitation by Section 18(k) of the FDIA. Notwithstanding anything
---------------------------------------
herein to the contrary, any payments made to the Employee pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with Section 18(k) of the FDIA (12 U.S.C. (S)1828(k)) and any regulations
promulgated thereunder.
10. 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.
11. Change in Control.
-----------------
(a) Notwithstanding any provision herein to the contrary, if the
Employee's employment under this Agreement is terminated by the Bank, without
the Employee's prior written consent and for a reason other than for Just Cause,
death or disability in connection with or twelve (12) months after any change in
control of the Bank or HopFed Bancorp, Inc. (the "Company") which has not been
approved in advance by a two-thirds vote of the full Board of Directors of each
of the Bank and the Company, the Employee shall be paid an amount equal to the
difference between (i) the product of 2.99 times his "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code")
and regulations promulgated thereunder, and (ii) the sum of any other "parachute
payments" (as defined under Section 280G(b)(2) of the Code) that the Employee
receives on account of the change in control.
5
<PAGE>
Said sum shall be paid in one lump sum within ten (10) days of such termination.
The term "change in control" shall mean (1) a change in the ownership, holding
or power to vote more than 25% of the Bank's or Company's voting stock, (2) a
change in the ownership or possession of the ability to control the election of
a majority of the Bank's or Company's directors, or (3) a change in the
ownership or possession of the ability to exercise a controlling influence over
the management or policies of the Bank or the Company by any person or by
persons acting as a "group" (within the meaning of Section 13(d) of the
Securities and Exchange Act of 1934) (except that, in the case of (1), (2) and
(3) hereof, ownership or control of the Bank or its directors by the Company
itself shall not constitute a change in control. The term "person" means an
individual other than the Employee, or a corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein.
(b) Notwithstanding the foregoing, but only to the extent required
under federal banking law, the amount payable under Section 11(a) hereof shall
be reduced to the extent that on the date of the Employee's termination of
employment, the amount payable under Section 11(a) exceeds the limitation on
severance benefits set forth in Regulatory Bulletin 27a of the OTS, as in effect
on such termination date.
(c) In the event that any dispute arises between the Employee and the
Bank as to the terms or interpretation of this Agreement, including this Section
11, whether instituted by formal legal proceedings or otherwise, including an
action that Employee takes to enforce the terms of this Section 11 or to defend
against any action taken by the Bank, the Employee shall be reimbursed for all
costs and expenses, including reasonable attorneys' fees, arising from such
disputes or proceedings, provided that the Employee shall have obtained a final
judgment by a court of competent jurisdiction in his favor. Such reimbursement
shall be paid within ten (10) days of Employee's providing the Bank with written
evidence, which may be in the form, among others, of a canceled check or
receipt, of any costs or expenses incurred by the Employee.
12. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank that shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the corporation.
(b) Since the Bank is contracting for the unique and personal skills
of the Employee, the Employee shall be precluded from assigning or delegating
his rights or duties hereunder without first obtaining the written consent of
the Bank.
13. 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.
6
<PAGE>
14. Applicable Law. This Agreement shall be governed in all respects,
--------------
whether as to its validity, construction, capacity, performance or otherwise, by
the laws of the Commonwealth of Kentucky, except to the extent that Federal law
shall be deemed to apply.
15. 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.
16. 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.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
ATTEST: HOPKINSVILLE FEDERAL SAVINGS BANK
By:
- ----------------------------- ---------------------------------------
Secretary Its:
WITNESS:
- ----------------------------- ---------------------------------------
("Employee")
---------------------------
7
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is entered into as of the ___ day of _______, l997, by and
between Hopkinsville Federal Savings Bank (the "Bank") and Boyd M. Clark (the
"Employee").
WHEREAS, the Employee has heretofore been employed by the Bank as its
Senior Vice President-Loan Administration and is experienced in all phases of
the business of the Bank; and
WHEREAS, the parties desire by this writing to establish and to set forth
the continuing employment relationship between the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is hereby employed as the Senior Vice
----------
President-Loan Administration of the Bank. Except to the extent that the Board
of Directors of the Bank (the "Board") shall have delegated a portion of such
authority to one or more other officers, the Employee shall (i) direct,
coordinate, manage and control Bank activities concerned with extensions of
credit, (ii) direct compliance with applicable laws and regulations, as well as
the Bank's policies and procedures, and (iii) render such other 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.
2. Base Compensation. The Bank agrees to pay the Employee during the
-----------------
term of this Agreement a salary at the rate of $__________ per annum, payable in
cash not less frequently than monthly. The Board shall review, not less often
than annually, the rate of the Employee's salary, and in its sole discretion may
decide to increase his salary.
3. 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.
4. (a) Participation in Retirement, Medical and Other Plans. The
----------------------------------------------------
Employee shall be entitled to participate in any plan that the Bank maintains
for the benefit of its employees if the plan relates to (i) pension, profit-
sharing, or other retirement benefits, (ii) medical insurance or the
reimbursement of medical or dependent care expenses, or (iii) other group
benefits, including disability and life insurance plans.
(b) Employee Benefits; Expenses. The Employee shall participate in
---------------------------
any fringe benefits that 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 that are commensurate with the
responsibilities and functions to be performed by the Employee under this
<PAGE>
Agreement. The Employee shall be reimbursed for all reasonable out-of-pocket
business expenses that shall incur in connection with his services under this
Agreement upon substantiation of such expenses in accordance with the policies
of the Bank.
5. 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 of the Federal Stock Charter of the Bank (the "Effective Date")
and ending twelve (12) months thereafter (or such earlier date as is determined
in accordance with Section 9 hereof). Additionally, on each annual anniversary
date from the Effective Date, this Agreement and the Employee's term of
employment shall be extended for an additional one-year period beyond the then
effective expiration date, provided that 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.
6. Loyalty; Full Time and Attention.
--------------------------------
(a) During the period of his employment hereunder and except for
illness, reasonable vacation periods, and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill, and efforts
to the faithful performance of his duties hereunder; provided that, from time to
time, the Employee may serve on the board of directors of, and hold any other
offices or positions in, companies or organizations, that will not present any
conflict of interest with the Bank or any of its subsidiaries or affiliates, or
unfavorably affect the performance of Employee's duties pursuant to this
Agreement, or will not violate any applicable statute or regulation. "Full
business time" is hereby defined as that amount of time usually devoted to like
companies by similarly situated executive officers. During the term of his
employment under this Agreement, the Employee shall not engage in any business
or activity contrary to the business affairs or interests of the Bank, or be
gainfully employed in any other position or job other than as provided above.
(b) Nothing contained in this Section 6 shall be deemed to prevent or
limit the Employee's right to invest in the capital stock or other securities of
any business dissimilar from that of the Bank, or, solely as a passive or
minority investor, in any business.
7. 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 the Employee with the working facilities
and staff customary for similar executive officers and necessary for him to
perform his duties.
8. Vacation and Sick Leave. The Employee shall be entitled, without loss
-----------------------
of pay, to absent himself voluntarily from the performance of his duties under
this Agreement in accordance with the terms set forth below, all such voluntary
absences to count as vacation time; provided that:
(a) The Employee shall be entitled to an annual vacation in
accordance with the policies periodically established by the Board for senior
management employees of the Bank.
2
<PAGE>
(b) The Employee shall not receive any additional compensation from
the Bank on account of his failure to take a vacation, and the Employee shall
not accumulate unused vacation from one fiscal year to the next, except in
either case to the extent authorized by the Board.
(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 obligations with the Bank for such additional
periods of time and for such valid and legitimate reasons as the Board may in
its discretion approve. 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 the 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.
9. Termination and Termination Pay. Subject to Section 11 hereof, the
-------------------------------
Employee's employment hereunder may be terminated under the following
circumstances:
(a) Death. The Employee's employment under this Agreement shall
-----
terminate upon his death during the term of this Agreement, in which event the
Employee's estate shall be entitled to receive the compensation due the Employee
through the last day of the calendar month in which his death occurred.
(b) Disability. The Bank may terminate the Employee's employment
----------
after having established, through a determination by the Board, the Employee's
Disability. For purposes of this Agreement, "Disability" means a physical or
mental infirmity that impairs the Employee's ability to substantially perform
his duties under this Agreement and that 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, that 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 that is prior to
the Employee's termination of employment pursuant to this Section 9(b); provided
that any benefits paid pursuant to the Bank's long-term disability plan will
continue as provided in such plan.
(c) For 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. Termination for "Just Cause" shall
mean termination because of, in the good faith determination of the Board, 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
3
<PAGE>
cease-and-desist order, or material breach of any provision of this Agreement.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated for Just Cause unless there shall have been delivered to the Employee
a copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the entire membership of the Board (excluding the Employee if a
member of the Board) at a meeting of the Board called and held for the purpose
(after reasonable notice to the Employee and an opportunity for the Employee to
be heard before the Board), finding that in the good faith opinion of the Board
the Employee was guilty of conduct set forth above in the second sentence of
this Subsection (c) and specifying the particulars thereof in detail.
(d) Without Just Cause. Subject to the provisions of Section 11
------------------
hereof, the Board may, by written notice to the Employee, immediately terminate
his employment at any time for any reason; provided that, if such termination is
for any reason other than pursuant to Sections 9(a), (b) or (c) above, the
Employee shall be entitled to receive the following compensation and benefits:
(i) the salary provided pursuant to Section 2 hereof, up to the date of
expiration of the term (including any renewal term then in effect) of this
Agreement (the "Termination Date") and (ii) the cost to the Employee of
obtaining all health, life, disability and other benefits (excluding any bonus,
stock option or other compensation benefits) in which the Employee would have
been eligible to participate through the Termination Date based upon the benefit
levels substantially equal to those that the Bank provided for the Employee at
the date of termination of employment. Said sum shall be paid, at the option of
the Employee, either (I) in periodic payments over the remaining term of this
Agreement, as if the Employee's employment had not terminated, or (II) in one
lump sum within ten (10) days of such termination.
(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. (S)1818(e)(4) or (g)(1)), all obligations of the Bank under this
Agreement shall terminate, as of the effective date of the order, but vested
rights of the parties shall not be affected.
(2) If the Bank is in default (as defined in Section 3(x)(1) of
FDIA), all obligations under this Agreement shall terminate as of the date of
default; however, this Paragraph 9(e)(2) shall not affect the vested rights of
the parties.
(3) 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: (A) by the Director of the Office of Thrift Supervision
("OTS"), or his or her designee, at the time that the Federal Deposit Insurance
Corporation enters into an agreement to provide assistance to or on behalf of
the Bank under the authority contained in Section 13(c) of the FDIA; or (B) 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.
4
<PAGE>
(4) If a notice served under Section 8(e)(3) or (g)(1) of the FDIA
(12 U.S.C. (S)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 (A) pay the Employee all or part
of the compensation withheld while its contract obligations were suspended, and
(B) reinstate (in whole or in part) any of its obligations that were suspended.
(5) If any of the provisions of this Paragraph 9(e) conflict with
12 C.F.R. (S)563.39(b), the latter shall prevail.
(f) Voluntary Termination by Employee. Subject to the provisions of
---------------------------------
Section 11 hereof, the Employee may voluntarily terminate employment with the
Bank during the term of this Agreement, upon at least sixty (60) days' prior
written notice to the Board, in which case the Employee shall receive only his
compensation, vested rights and employee benefits accrued up to the date of his
termination.
(g) Limitation by Section 18(k) of the FDIA. Notwithstanding anything
---------------------------------------
herein to the contrary, any payments made to the Employee pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with Section 18(k) of the FDIA (12 U.S.C. (S)1828(k)) and any regulations
promulgated thereunder.
10. 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.
11. Change in Control.
-----------------
(a) Notwithstanding any provision herein to the contrary, if the
Employee's employment under this Agreement is terminated by the Bank, without
the Employee's prior written consent and for a reason other than for Just Cause,
death or disability in connection with or twelve (12) months after any change in
control of the Bank or HopFed Bancorp, Inc. (the "Company") which has not been
approved in advance by a two-thirds vote of the full Board of Directors of each
of the Bank and the Company, the Employee shall be paid an amount equal to the
difference between (i) the product of 2.99 times his "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code")
and regulations promulgated thereunder, and (ii) the sum of any other "parachute
payments" (as defined under Section 280G(b)(2) of the Code) that the Employee
receives on account of the change in control. Said sum shall be paid in one
lump sum within ten (10) days of such termination. The term "change in control"
shall mean (1) a change in the ownership, holding or power to vote more than 25%
of the Bank's or Company's voting stock, (2) a change in the ownership or
possession of the ability to control the election of a majority of the Bank's or
Company's directors, or (3) a change in the ownership or possession of the
ability to exercise a controlling influence over the
5
<PAGE>
management or policies of the Bank or the Company by any person or by persons
acting as a "group" (within the meaning of Section 13(d) of the Securities and
Exchange Act of 1934) (except that, in the case of (1), (2) and (3) hereof),
ownership or control of the Bank or its directors by the Company itself shall
not constitute a change in control. The term "person" means an individual other
than the Employee, or a corporation, partnership, trust, association, joint
venture, pool, syndicate, sole proprietorship, unincorporated organization or
any other form of entity not specifically listed herein.
(b) Notwithstanding the foregoing, but only to the extent required
under federal banking law, the amount payable under Section 11(a) hereof shall
be reduced to the extent that on the date of the Employee's termination of
employment, the amount payable under Section 11(a) exceeds the limitation on
severance benefits set forth in Regulatory Bulletin 27a of the OTS, as in effect
on such termination date.
(c) In the event that any dispute arises between the Employee and the
Bank as to the terms or interpretation of this Agreement, including this Section
11, whether instituted by formal legal proceedings or otherwise, including an
action that Employee takes to enforce the terms of this Section 11 or to defend
against any action taken by the Bank, the Employee shall be reimbursed for all
costs and expenses, including reasonable attorneys' fees, arising from such
disputes or proceedings, provided that the Employee shall have obtained a final
judgment by a court of competent jurisdiction in his favor. Such reimbursement
shall be paid within ten (10) days of Employee's providing the Bank with written
evidence, which may be in the form, among others, of a canceled check or
receipt, of any costs or expenses incurred by the Employee.
12. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank that shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the corporation.
(b) Since the Bank is contracting for the unique and personal skills
of the Employee, the Employee shall be precluded from assigning or delegating
his rights or duties hereunder without first obtaining the written consent of
the Bank.
13. 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.
14. Applicable Law. This Agreement shall be governed in all respects,
--------------
whether as to its validity, construction, capacity, performance or otherwise, by
the laws of the Commonwealth of Kentucky, except to the extent that Federal law
shall be deemed to apply.
6
<PAGE>
15. 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.
16. 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.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
ATTEST: HOPKINSVILLE FEDERAL SAVINGS BANK
By:
- -------------------------- ------------------------------
Secretary Its:
WITNESS:
- -------------------------- ------------------------------
("Employee")
------------------
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is entered into as of the ___ day of _______, 1997, by and
between HopFed Bancorp, Inc. (the "Company") and Bruce Thomas (the "Employee").
WHEREAS, the Employee has heretofore been employed by Hopkinsville Federal
Savings Bank (the "Bank") as its President and Chief Executive Officer, is
experienced in all phases of the business of the Bank, and has become the
President and Chief Executive Officer of the Company; and
WHEREAS, the parties desire by this writing to establish and to set forth
the continuing employment relationship between the Company and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is hereby employed as the President and
----------
Chief Executive Officer of the Company. Except to the extent that the Board of
Directors of the Company (the "Board") shall have delegated a portion of such
authority to one or more other officers, the Employee shall have general charge
and direction of the business of the Company, shall see that all orders and
resolutions of the Board are carried into effect, and shall perform such other
administrative and management services for the Company as are currently rendered
and as are customarily performed by persons situated in a similar executive
capacity. The Employee shall also promote, by entertainment or otherwise, as
and to the extent permitted by law, the business of the Company.
2. 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 its subsidiary, the Bank, for the payment of all amounts
due under the employment agreement of even date herewith between the Bank and
the Employee. Nevertheless, the Board may in its discretion at any time during
the term of this Agreement agree to pay the Employee a base salary for the
remaining term of this Agreement. If the Board agrees to pay such salary, the
Board shall thereafter review, not less often than annually, the rate of the
Employee's salary, and in its sole discretion may decide to increase his salary.
3. Discretionary Bonuses. The Employee shall participate in an equitable
---------------------
manner with all other senior management employees of the Company in
discretionary bonuses that the Board may award from time to time to the
Company's senior management employees. No other compensation provided for in
this Agreement shall be deemed a substitute for the Employee's right to
participate in such discretionary bonuses.
4. (a) Participation in Retirement, Medical and Other Plans. The
----------------------------------------------------
Employee shall be entitled to participate in any plan that the Company maintains
for the benefit of its employees if the plan relates to (i) pension, profit-
sharing, or other retirement benefits, (ii) medical insurance or
<PAGE>
the reimbursement of medical or dependent care expenses, or (iii) other group
benefits, including disability and life insurance plans.
(b) Employee Benefits; Expenses. The Employee shall participate in
---------------------------
any fringe benefits that are or may become available to the Company's senior
management employees, including, for example: any stock option or incentive
compensation plans and any other benefits that 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 that shall incur in connection with his services under this
Agreement upon substantiation of such expenses in accordance with the policies
of the Company.
5. Term. The Company hereby employs the Employee, and the Employee
----
hereby accepts such employment under this Agreement, for the period commencing
on the effective date of the Federal Stock Charter of the Bank (the "Effective
Date") and ending twelve (12) months thereafter (or such earlier date as is
determined in accordance with Section 9 hereof). Additionally, on each annual
anniversary date from the Effective Date, this Agreement and the Employee's term
of employment shall be extended for an additional one-year period beyond the
then effective expiration date, provided that 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.
6. Loyalty; Full Time and Attention.
--------------------------------
(a) During the period of his employment hereunder and except for
illness, reasonable vacation periods, and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill, and efforts
to the faithful performance of his duties hereunder to the Company and its
subsidiaries; provided that, from time to time, the Employee may serve on the
board of directors of, and hold any other offices or positions in, companies or
organizations, that will not present any conflict of interest with the Company
or any of its subsidiaries or affiliates, or unfavorably affect the performance
of Employee's duties pursuant to this Agreement, or will not violate any
applicable statute or regulation. "Full business time" is hereby defined as
that amount of time usually devoted to like companies by similarly situated
executive officers. During the term of his employment under this Agreement, the
Employee shall not engage in any business or activity contrary to the business
affairs or interests of the Company, or be gainfully employed in any other
position or job other than as provided above.
(b) Nothing contained in this Section 6 shall be deemed to prevent or
limit the Employee's right to invest in the capital stock or other securities of
any business dissimilar from that of the Company, or, solely as a passive or
minority investor, in any business.
7. Standards. The Employee shall perform his duties under this Agreement
---------
in accordance with such reasonable standards as the Board may establish from
time to time. The Company will provide the Employee with the working facilities
and staff customary for similar executive officers and necessary for him to
perform his duties.
2
<PAGE>
8. Vacation and Sick Leave. The Employee shall be entitled, without loss
-----------------------
of pay, to absent himself voluntarily from the performance of his duties under
this Agreement in accordance with the terms set forth below, all such voluntary
absences to count as vacation time; provided that:
(a) The Employee shall be entitled to an annual vacation in
accordance with the policies periodically established by the Board for senior
management employees of the Company.
(b) The Employee shall not receive any additional compensation from
the Company on account of his failure to take a vacation, and the Employee shall
not accumulate unused vacation from one fiscal year to the next, except in
either case to the extent authorized by the Board.
(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 obligations with the Company for such additional
periods of time and for such valid and legitimate reasons as the Board may in
its discretion approve. 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 the 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.
9. Termination and Termination Pay. Subject to Section 11 hereof, the
-------------------------------
Employee's employment hereunder may be terminated under the following
circumstances:
(a) Death. The Employee's employment under this Agreement shall
-----
terminate upon his death during the term of this Agreement, in which event the
Employee's estate shall be entitled to receive the compensation due the Employee
through the last day of the calendar month in which his death occurred.
(b) Disability. The Company may terminate the Employee's employment
----------
after having established, through a determination by the Board, the Employee's
Disability. For purposes of this Agreement, "Disability" means a physical or
mental infirmity that impairs the Employee's ability to substantially perform
his duties under this Agreement and that results in the Employee becoming
eligible for long-term disability benefits under the Company's long-term
disability plan (or, if the Company has no such plan in effect, that 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 that is prior
to the Employee's termination of employment pursuant to this Section 9(b);
provided that any benefits paid pursuant to the Company's long-term disability
plan will continue as provided in such plan.
3
<PAGE>
(c) For 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. Termination for "Just Cause" shall
mean termination because of, in the good faith determination of the Board, 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. Notwithstanding the foregoing, the
Employee shall not be deemed to have been terminated for Just Cause unless there
shall have been delivered to the Employee a copy of a resolution duly adopted by
the affirmative vote of not less than a majority of the entire membership of the
Board (excluding the Employee if a member of the Board) at a meeting of the
Board called and held for the purpose (after reasonable notice to the Employee
and an opportunity for the Employee to be heard before the Board), finding that
in the good faith opinion of the Board the Employee was guilty of conduct set
forth above in the second sentence of this Subsection (c) and specifying the
particulars thereof in detail.
(d) Without Just Cause. Subject to the provisions of Section 11
------------------
hereof, the Board may, by written notice to the Employee, immediately terminate
his employment at any time for any reason; provided that, if such termination is
for any reason other than pursuant to Sections 9(a), (b) or (c) above, the
Employee shall be entitled to receive the following compensation and benefits:
(i) the salary provided pursuant to Section 2 hereof, up to the date of
expiration of the term (including any renewal term then in effect) of this
Agreement (the "Termination Date") and (ii) the cost to the Employee of
obtaining all health, life, disability and other benefits (excluding any bonus,
stock option or other compensation benefits) in which the Employee would have
been eligible to participate through the Termination Date based upon the benefit
levels substantially equal to those that the Company provided for the Employee
at the date of termination of employment. Said sum shall be paid, at the option
of the Employee, either (I) in periodic payments over the remaining term of this
Agreement, as if the Employee's employment had not terminated, or (II) in one
lump sum within ten (10) days of such termination.
(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. (S)1818(e)(4) or (g)(1)), all obligations of the Company under this
Agreement shall terminate, as of the effective date of the order, but vested
rights of the parties shall not be affected.
(2) If the Bank is in default (as defined in Section 3(x)(1) of
FDIA), all obligations under this Agreement shall terminate as of the date of
default; however, this Paragraph 9(e)(2) shall not affect the vested rights of
the parties.
4
<PAGE>
(3) All obligations under this Agreement shall terminate, except to
the extent that continuation of this Agreement is necessary for the continued
operation of the Company and the Bank: (A) by the Director of the Office of
Thrift Supervision ("OTS"), or his or her designee, at the time that the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
FDIA; or (B) 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.
(4) If a notice served under Section 8(e)(3) or (g)(1) of the FDIA
(12 U.S.C. (S)1818(e)(3) or (g)(1)) suspends and/or temporarily prohibits the
Employee from participating in the conduct of the Bank's affairs, the Company'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 Company may in its discretion (A) pay the Employee all or
part of the compensation withheld while its contract obligations were suspended,
and (B) reinstate (in whole or in part) any of its obligations that were
suspended.
(5) If any of the provisions of this Paragraph 9(e) conflict with
12 C.F.R. (S)563.39(b), the latter shall prevail.
(f) Voluntary Termination by Employee. Subject to the provisions of
---------------------------------
Section 11 hereof, the Employee may voluntarily terminate employment with the
Company during the term of this Agreement, upon at least sixty (60) days' prior
written notice to the Board, in which case the Employee shall receive only his
compensation, vested rights and employee benefits accrued up to the date of his
termination.
(g) Limitation by Section 18(k) of the FDIA. Notwithstanding
---------------------------------------
anything herein to the contrary, any payments made to the Employee pursuant to
this Agreement, or otherwise, are subject to and conditioned upon their
compliance with Section 18(k) of the FDIA (12 U.S.C. (S)1828(k)) and any
regulations promulgated thereunder.
10. 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.
11. Change in Control.
-----------------
(a) Notwithstanding any provision herein to the contrary, if the
Employee's employment under this Agreement is terminated by the Company, without
the Employee's prior written consent and for a reason other than for Just Cause,
death or disability in connection with or within twelve (12) months after any
change in control of the Bank or the Company, which has not been approved in
advance by a two-thirds vote of the full Board of Directors of each of the
5
<PAGE>
Bank and the Company, the Employee shall be paid an amount equal to the
difference between (i) the product of 2.99 times his "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code")
and regulations promulgated thereunder, and (ii) the sum of any other "parachute
payments" (as defined under Section 280G(b)(2) of the Code) that the Employee
receives on account of the change in control. Said sum shall be paid in one lump
sum within ten (10) days of such termination. The term "change in control" shall
mean (1) a change in the ownership, holding or power to vote more than 25% of
the Bank's or the Company's voting stock, (2) a change in the ownership or
possession of the ability to control the election of a majority of the Bank's or
the Company's directors, or (3) a change in the ownership or possession of the
ability to exercise a controlling influence over the management or policies of
the Bank or the Company by any person or by persons acting as a "group" (within
the meaning of Section 13(d) of the Securities and Exchange Act of 1934) (except
that, in the case of (1), (2) and (3) hereof, ownership or control of the Bank
or its directors by the Company itself shall not constitute a change in control.
The term "person" means an individual other than the Employee, or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) Notwithstanding the foregoing, but only to the extent required
under federal banking law, the amount payable under Section 11(a) hereof shall
be reduced to the extent that on the date of the Employee's termination of
employment, the amount payable under Section 11(a) exceeds the limitation on
severance benefits set forth in Regulatory Bulletin 27a of the OTS, as in effect
on such termination date.
(c) In the event that any dispute arises between the Employee and the
Company as to the terms or interpretation of this Agreement, including this
Section 11, whether instituted by formal legal proceedings or otherwise,
including an action that Employee takes to enforce the terms of this Section 11
or to defend against any action taken by the Company, the Employee shall be
reimbursed for all costs and expenses, including reasonable attorneys' fees,
arising from such disputes or proceedings, provided that the Employee shall have
obtained a final judgment by a court of competent jurisdiction in his or her
favor. Such reimbursement shall be paid within ten (10) days of Employee's
providing the Company with written evidence, which may be in the form, among
others, of a canceled check or receipt, of any costs or expenses incurred by the
Employee.
12. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Company that shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the corporation.
(b) Since the Company is contracting for the unique and personal
skills of the Employee, the Employee shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Company.
6
<PAGE>
13. 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.
14. Applicable Law. This Agreement shall be governed in all respects,
--------------
whether as to its validity, construction, capacity, performance or otherwise, by
the laws of the Commonwealth of Kentucky, except to the extent that Federal law
shall be deemed to apply.
15. 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.
16. 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.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
ATTEST: HOPFED BANCORP, INC.
By:
- ----------------------------- -------------------------------
Secretary Its:
WITNESS:
- ----------------------------- -------------------------------
("Employee")
------------------
7
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is entered into as of the ___ day of _______, l997, by and
between HopFed Bancorp, Inc. (the "Company") and Peggy R. Noel (the "Employee").
WHEREAS, the Employee has heretofore been employed by Hopkinsville Federal
Savings Bank (the "Bank") as its Executive Vice President, Chief Financial
Officer and Chief Operations Officer, is experienced in all phases of the
business of the Bank, and has become the Vice President, Chief Financial Officer
and Treasurer of the Company; and
WHEREAS, the parties desire by this writing to establish and to set forth
the continuing employment relationship between the Company and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is hereby employed as the Vice President,
----------
Chief Financial Officer and Treasurer of the Company. Except to the extent that
the Board of Directors of the Company (the "Board") shall have delegated a
portion of such authority to one or more other officers, the Employee shall (i)
have custody of the Company's corporate funds and securities and shall keep full
and accurate accounts of receipts and disbursements; (ii) render to the
President and the Board of Directors accounts of all transactions and of the
financial condition and results of operations of the Company; (iii) and perform
such other administrative and management services for the Company as are
currently rendered and as are customarily performed by persons situated in a
similar executive capacity. The Employee shall also promote, by entertainment
or otherwise, as and to the extent permitted by law, the business of the
Company.
2. 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 its subsidiary, the Bank, for the payment of all amounts
due under the employment agreement of even date herewith between the Bank and
the Employee. Nevertheless, the Board may in its discretion at any time during
the term of this Agreement agree to pay the Employee a base salary for the
remaining term of this Agreement. If the Board agrees to pay such salary, the
Board shall thereafter review, not less often than annually, the rate of the
Employee's salary, and in its sole discretion may decide to increase his salary.
3. Discretionary Bonuses. The Employee shall participate in an equitable
---------------------
manner with all other senior management employees of the Company in
discretionary bonuses that the Board may award from time to time to the
Company's senior management employees. No other compensation provided for in
this Agreement shall be deemed a substitute for the Employee's right to
participate in such discretionary bonuses.
4. (a) Participation in Retirement, Medical and Other Plans. The
----------------------------------------------------
Employee shall be entitled to participate in any plan that the Company maintains
for the benefit of its employees if
<PAGE>
the plan relates to (i) pension, profit-sharing, or other retirement benefits,
(ii) medical insurance or the reimbursement of medical or dependent care
expenses, or (iii) other group benefits, including disability and life insurance
plans.
(b) Employee Benefits; Expenses. The Employee shall participate in
---------------------------
any fringe benefits that are or may become available to the Company's senior
management employees, including, for example: any stock option or incentive
compensation plans and any other benefits that 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 that shall incur in connection with his services under this
Agreement upon substantiation of such expenses in accordance with the policies
of the Company.
5. Term. The Company hereby employs the Employee, and the Employee
----
hereby accepts such employment under this Agreement, for the period commencing
on the effective date of the Federal Stock Charter of the Bank (the "Effective
Date") and ending twelve (12) months thereafter (or such earlier date as is
determined in accordance with Section 9 hereof). Additionally, on each annual
anniversary date from the Effective Date, this Agreement and the Employee's term
of employment shall be extended for an additional one-year period beyond the
then effective expiration date, provided that 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.
6. Loyalty; Full Time and Attention.
--------------------------------
(a) During the period of his employment hereunder and except for
illness, reasonable vacation periods, and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill, and efforts
to the faithful performance of his duties hereunder to the Company and its
subsidiaries; provided that, from time to time, the Employee may serve on the
board of directors of, and hold any other offices or positions in, companies or
organizations, that will not present any conflict of interest with the Company
or any of its subsidiaries or affiliates, or unfavorably affect the performance
of Employee's duties pursuant to this Agreement, or will not violate any
applicable statute or regulation. "Full business time" is hereby defined as
that amount of time usually devoted to like companies by similarly situated
executive officers. During the term of his employment under this Agreement, the
Employee shall not engage in any business or activity contrary to the business
affairs or interests of the Company, or be gainfully employed in any other
position or job other than as provided above.
(b) Nothing contained in this Section 6 shall be deemed to prevent or
limit the Employee's right to invest in the capital stock or other securities of
any business dissimilar from that of the Company, or, solely as a passive or
minority investor, in any business.
7. Standards. The Employee shall perform his duties under this Agreement
---------
in accordance with such reasonable standards as the Board may establish from
time to time. The Company will provide the Employee with the working facilities
and staff customary for similar executive officers and necessary for him to
perform his duties.
2
<PAGE>
8. Vacation and Sick Leave. The Employee shall be entitled, without loss
-----------------------
of pay, to absent himself voluntarily from the performance of his duties under
this Agreement in accordance with the terms set forth below, all such voluntary
absences to count as vacation time; provided that:
(a) The Employee shall be entitled to an annual vacation in
accordance with the policies periodically established by the Board for senior
management employees of the Company.
(b) The Employee shall not receive any additional compensation from
the Company on account of his failure to take a vacation, and the Employee shall
not accumulate unused vacation from one fiscal year to the next, except in
either case to the extent authorized by the Board.
(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 obligations with the Company for such additional
periods of time and for such valid and legitimate reasons as the Board may in
its discretion approve. 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 the 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.
9. Termination and Termination Pay. Subject to Section 11 hereof, the
-------------------------------
Employee's employment hereunder may be terminated under the following
circumstances:
(a) Death. The Employee's employment under this Agreement shall
-----
terminate upon his death during the term of this Agreement, in which event the
Employee's estate shall be entitled to receive the compensation due the Employee
through the last day of the calendar month in which his death occurred.
(b) Disability. The Company may terminate the Employee's employment
----------
after having established, through a determination by the Board, the Employee's
Disability. For purposes of this Agreement, "Disability" means a physical or
mental infirmity that impairs the Employee's ability to substantially perform
his duties under this Agreement and that results in the Employee becoming
eligible for long-term disability benefits under the Company's long-term
disability plan (or, if the Company has no such plan in effect, that 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 that is prior
to the Employee's
3
<PAGE>
termination of employment pursuant to this Section 9(b);provided that any
benefits paid pursuant to the Company's long-term disability plan will continue
as provided in such plan.
(c) For 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. Termination for "Just Cause" shall
mean termination because of, in the good faith determination of the Board, 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. Notwithstanding the foregoing, the
Employee shall not be deemed to have been terminated for Just Cause unless there
shall have been delivered to the Employee a copy of a resolution duly adopted by
the affirmative vote of not less than a majority of the entire membership of the
Board (excluding the Employee if a member of the Board) at a meeting of the
Board called and held for the purpose (after reasonable notice to the Employee
and an opportunity for the Employee to be heard before the Board), finding that
in the good faith opinion of the Board the Employee was guilty of conduct set
forth above in the second sentence of this Subsection (c) and specifying the
particulars thereof in detail.
(d) Without Just Cause. Subject to the provisions of Section 11
------------------
hereof, the Board may, by written notice to the Employee, immediately terminate
his employment at any time for any reason; provided that, if such termination is
for any reason other than pursuant to Sections 9(a), (b) or (c) above, the
Employee shall be entitled to receive the following compensation and benefits:
(i) the salary provided pursuant to Section 2 hereof, up to the date of
expiration of the term (including any renewal term then in effect) of this
Agreement (the "Termination Date") and (ii) the cost to the Employee of
obtaining all health, life, disability and other benefits (excluding any bonus,
stock option or other compensation benefits) in which the Employee would have
been eligible to participate through the Termination Date based upon the benefit
levels substantially equal to those that the Company provided for the Employee
at the date of termination of employment. Said sum shall be paid, at the option
of the Employee, either (I) in periodic payments over the remaining term of this
Agreement, as if the Employee's employment had not terminated, or (II) in one
lump sum within ten (10) days of such termination.
(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. (S) 1818(e)(4) or (g)(1)), all obligations of the Company under this
Agreement shall terminate, as of the effective date of the order, but vested
rights of the parties shall not be affected.
(2) If the Bank is in default (as defined in Section 3(x)(1) of
FDIA), all obligations under this Agreement shall terminate as of the date of
default; however, this Paragraph 9(e)(2) shall not affect the vested rights of
the parties.
4
<PAGE>
(3) All obligations under this Agreement shall terminate, except
to the extent that continuation of this Agreement is necessary for the continued
operation of the Company and the Bank: (A) by the Director of the Office of
Thrift Supervision ("OTS"), or his or her designee, at the time that the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
FDIA; or (B) 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.
(4) If a notice served under Section 8(e)(3) or (g)(1) of the
FDIA (12 U.S.C. (S) 1818(e)(3) or (g)(1)) suspends and/or temporarily prohibits
the Employee from participating in the conduct of the Bank's affairs, the
Company'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 Company may in its discretion (A) pay the Employee all
or part of the compensation withheld while its contract obligations were
suspended, and (B) reinstate (in whole or in part) any of its obligations that
were suspended.
(5) If any of the provisions of this Paragraph 9(e) conflict with
12 C.F.R. (S) 563.39(b), the latter shall prevail.
(f) Voluntary Termination by Employee. Subject to the provisions of
---------------------------------
Section 11 hereof, the Employee may voluntarily terminate employment with the
Company during the term of this Agreement, upon at least sixty (60) days' prior
written notice to the Board, in which case the Employee shall receive only his
compensation, vested rights and employee benefits accrued up to the date of his
termination.
(g) Limitation by Section 18(k) of the FDIA. Notwithstanding
---------------------------------------
anything herein to the contrary, any payments made to the Employee pursuant to
this Agreement, or otherwise, are subject to and conditioned upon their
compliance with Section 18(k) of the FDIA (12 U.S.C. (S) 1828(k)) and any
regulations promulgated thereunder.
10. 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.
11. Change in Control.
-----------------
(a) Notwithstanding any provision herein to the contrary, if the
Employee's employment under this Agreement is terminated by the Company, without
the Employee's prior written consent and for a reason other than for Just Cause,
death or disability in connection with or within twelve (12) months after any
change in control of the Bank or the Company, which has
5
<PAGE>
not been approved in advance by a two-thirds vote of the full Board of
Directors of each of the Bank and the Company, the Employee shall be paid an
amount equal to the difference between (i) the product of 2.99 times his "base
amount" as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986,
as amended (the "Code") and regulations promulgated thereunder, and (ii) the sum
of any other "parachute payments" (as defined under Section 280G(b)(2) of the
Code) that the Employee receives on account of the change in control. Said sum
shall be paid in one lump sum within ten (10) days of such termination. The
term "change in control" shall mean (1) a change in the ownership, holding or
power to vote more than 25% of the Bank's or the Company's voting stock, (2) a
change in the ownership or possession of the ability to control the election of
a majority of the Bank's or the Company's directors, or (3) a change in the
ownership or possession of the ability to exercise a controlling influence over
the management or policies of the Bank or the Company by any person or by
persons acting as a "group" (within the meaning of Section 13(d) of the
Securities and Exchange Act of 1934) (except that, in the case of (1), (2) and
(3) hereof, ownership or control of the Bank or its directors by the Company
itself shall not constitute a change in control. The term "person" means an
individual other than the Employee, or a corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein.
(b) Notwithstanding the foregoing, but only to the extent required
under federal banking law, the amount payable under Section 11(a) hereof shall
be reduced to the extent that on the date of the Employee's termination of
employment, the amount payable under Section 11(a) exceeds the limitation on
severance benefits set forth in Regulatory Bulletin 27a of the OTS, as in effect
on such termination date.
(c) In the event that any dispute arises between the Employee and the
Company as to the terms or interpretation of this Agreement, including this
Section 11, whether instituted by formal legal proceedings or otherwise,
including an action that Employee takes to enforce the terms of this Section 11
or to defend against any action taken by the Company, the Employee shall be
reimbursed for all costs and expenses, including reasonable attorneys' fees,
arising from such disputes or proceedings, provided that the Employee shall have
obtained a final judgment by a court of competent jurisdiction in his or her
favor. Such reimbursement shall be paid within ten (10) days of Employee's
providing the Company with written evidence, which may be in the form, among
others, of a canceled check or receipt, of any costs or expenses incurred by the
Employee.
12. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Company that shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the corporation.
(b) Since the Company is contracting for the unique and personal
skills of the Employee, the Employee shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Company.
6
<PAGE>
13. 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.
14. Applicable Law. This Agreement shall be governed in all respects,
--------------
whether as to its validity, construction, capacity, performance or otherwise, by
the laws of the Commonwealth of Kentucky, except to the extent that Federal law
shall be deemed to apply.
15. 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.
16. 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.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
ATTEST: HOPFED BANCORP, INC.
By:
- ------------------------------- -------------------------------------
Secretary Its:
------------------------------------
WITNESS:
- ------------------------------- -------------------------------------
("Employee")
-------------------------
7
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is entered into as of the ___ day of _______, l997, by and
between HopFed Bancorp, Inc. (the "Company") and Boyd M. Clark (the "Employee").
WHEREAS, the Employee has heretofore been employed by Hopkinsville Federal
Savings Bank (the "Bank") as its Senior Vice President - Loan Administration, is
experienced in all phases of the business of the Bank, and has become the Vice
President and Secretary of the Company; and
WHEREAS, the parties desire by this writing to establish and to set forth
the continuing employment relationship between the Company and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is hereby employed as the Vice President and
----------
Secretary of the Company. Except to the extent that the Board of Directors of
the Company (the "Board") shall have delegated a portion of such authority to
one or more other officers, the Employee shall (i) record all the proceedings of
the Board and the Company's stockholders, (ii) give notice of meetings of the
Board and stockholders, (iii) direct compliance with applicable laws and
regulations, as well as the Company's policies and procedures, and (iv) render
such other administrative and management services for the Company as are
currently rendered and as are customarily performed by persons situated in a
similar executive capacity. The Employee shall also promote, by entertainment
or otherwise, as and to the extent permitted by law, the business of the
Company.
2. 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 its subsidiary, the Bank, for the payment of all amounts
due under the employment agreement of even date herewith between the Bank and
the Employee. Nevertheless, the Board may in its discretion at any time during
the term of this Agreement agree to pay the Employee a base salary for the
remaining term of this Agreement. If the Board agrees to pay such salary, the
Board shall thereafter review, not less often than annually, the rate of the
Employee's salary, and in its sole discretion may decide to increase his salary.
3. Discretionary Bonuses. The Employee shall participate in an equitable
---------------------
manner with all other senior management employees of the Company in
discretionary bonuses that the Board may award from time to time to the
Company's senior management employees. No other compensation provided for in
this Agreement shall be deemed a substitute for the Employee's right to
participate in such discretionary bonuses.
4. (a) Participation in Retirement, Medical and Other Plans. The
----------------------------------------------------
Employee shall be entitled to participate in any plan that the Company maintains
for the benefit of its employees if
<PAGE>
the plan relates to (i) pension, profit-sharing, or other retirement benefits,
(ii) medical insurance or the reimbursement of medical or dependent care
expenses, or (iii) other group benefits, including disability and life insurance
plans.
(b) Employee Benefits; Expenses. The Employee shall participate in
---------------------------
any fringe benefits that are or may become available to the Company's senior
management employees, including, for example: any stock option or incentive
compensation plans and any other benefits that 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 that shall incur in connection with his services under this
Agreement upon substantiation of such expenses in accordance with the policies
of the Company.
5. Term. The Company hereby employs the Employee, and the Employee
----
hereby accepts such employment under this Agreement, for the period commencing
on the effective date of the Federal Stock Charter of the Bank (the "Effective
Date") and ending twelve (12) months thereafter (or such earlier date as is
determined in accordance with Section 9 hereof). Additionally, on each annual
anniversary date from the Effective Date, this Agreement and the Employee's term
of employment shall be extended for an additional one-year period beyond the
then effective expiration date, provided that 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.
6. Loyalty; Full Time and Attention.
--------------------------------
(a) During the period of his employment hereunder and except for
illness, reasonable vacation periods, and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill, and efforts
to the faithful performance of his duties hereunder to the Company and its
subsidiaries; provided that, from time to time, the Employee may serve on the
board of directors of, and hold any other offices or positions in, companies or
organizations, that will not present any conflict of interest with the Company
or any of its subsidiaries or affiliates, or unfavorably affect the performance
of Employee's duties pursuant to this Agreement, or will not violate any
applicable statute or regulation. "Full business time" is hereby defined as
that amount of time usually devoted to like companies by similarly situated
executive officers. During the term of his employment under this Agreement, the
Employee shall not engage in any business or activity contrary to the business
affairs or interests of the Company, or be gainfully employed in any other
position or job other than as provided above.
(b) Nothing contained in this Section 6 shall be deemed to prevent
or limit the Employee's right to invest in the capital stock or other securities
of any business dissimilar from that of the Company, or, solely as a passive or
minority investor, in any business.
7. Standards. The Employee shall perform his duties under this Agreement
---------
in accordance with such reasonable standards as the Board may establish from
time to time. The Company will provide the Employee with the working facilities
and staff customary for similar executive officers and necessary for him to
perform his duties.
2
<PAGE>
8. Vacation and Sick Leave. The Employee shall be entitled, without loss
-----------------------
of pay, to absent himself voluntarily from the performance of his duties under
this Agreement in accordance with the terms set forth below, all such voluntary
absences to count as vacation time; provided that:
(a) The Employee shall be entitled to an annual vacation in
accordance with the policies periodically established by the Board for senior
management employees of the Company.
(b) The Employee shall not receive any additional compensation from
the Company on account of his failure to take a vacation, and the Employee shall
not accumulate unused vacation from one fiscal year to the next, except in
either case to the extent authorized by the Board.
(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 obligations with the Company for such additional
periods of time and for such valid and legitimate reasons as the Board may in
its discretion approve. 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 the 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.
9. Termination and Termination Pay. Subject to Section 11 hereof, the
-------------------------------
Employee's employment hereunder may be terminated under the following
circumstances:
(a) Death. The Employee's employment under this Agreement shall
-----
terminate upon his death during the term of this Agreement, in which event the
Employee's estate shall be entitled to receive the compensation due the Employee
through the last day of the calendar month in which his death occurred.
(b) Disability. The Company may terminate the Employee's employment
----------
after having established, through a determination by the Board, the Employee's
Disability. For purposes of this Agreement, "Disability" means a physical or
mental infirmity that impairs the Employee's ability to substantially perform
his duties under this Agreement and that results in the Employee becoming
eligible for long-term disability benefits under the Company's long-term
disability plan (or, if the Company has no such plan in effect, that 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 that is prior
to the Employee's
3
<PAGE>
termination of employment pursuant to this Section 9(b); provided that any
benefits paid pursuant to the Company's long-term disability plan will continue
as provided in such plan.
(c) For 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. Termination for "Just Cause" shall
mean termination because of, in the good faith determination of the Board, 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. Notwithstanding the foregoing, the
Employee shall not be deemed to have been terminated for Just Cause unless there
shall have been delivered to the Employee a copy of a resolution duly adopted by
the affirmative vote of not less than a majority of the entire membership of the
Board (excluding the Employee if a member of the Board) at a meeting of the
Board called and held for the purpose (after reasonable notice to the Employee
and an opportunity for the Employee to be heard before the Board), finding that
in the good faith opinion of the Board the Employee was guilty of conduct set
forth above in the second sentence of this Subsection (c) and specifying the
particulars thereof in detail.
(d) Without Just Cause. Subject to the provisions of Section 11
------------------
hereof, the Board may, by written notice to the Employee, immediately terminate
his employment at any time for any reason; provided that, if such termination is
for any reason other than pursuant to Sections 9(a), (b) or (c) above, the
Employee shall be entitled to receive the following compensation and benefits:
(i) the salary provided pursuant to Section 2 hereof, up to the date of
expiration of the term (including any renewal term then in effect) of this
Agreement (the "Termination Date") and (ii) the cost to the Employee of
obtaining all health, life, disability and other benefits (excluding any bonus,
stock option or other compensation benefits) in which the Employee would have
been eligible to participate through the Termination Date based upon the benefit
levels substantially equal to those that the Company provided for the Employee
at the date of termination of employment. Said sum shall be paid, at the option
of the Employee, either (I) in periodic payments over the remaining term of this
Agreement, as if the Employee's employment had not terminated, or (II) in one
lump sum within ten (10) days of such termination.
(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. (S) 1818(e)(4) or (g)(1)), all obligations of the Company under this
Agreement shall terminate, as of the effective date of the order, but vested
rights of the parties shall not be affected.
(2) If the Bank is in default (as defined in Section 3(x)(1)
of FDIA), all obligations under this Agreement shall terminate as of the date of
default; however, this Paragraph 9(e)(2) shall not affect the vested rights of
the parties.
4
<PAGE>
(3) All obligations under this Agreement shall terminate,
except to the extent that continuation of this Agreement is necessary for the
continued operation of the Company and the Bank: (A) by the Director of the
Office of Thrift Supervision ("OTS"), or his or her designee, at the time that
the Federal Deposit Insurance Corporation enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in Section
13(c) of the FDIA; or (B) 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.
(4) If a notice served under Section 8(e)(3) or (g)(1) of the
FDIA (12 U.S.C. (S) 1818(e)(3) or (g)(1)) suspends and/or temporarily prohibits
the Employee from participating in the conduct of the Bank's affairs, the
Company'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 Company may in its discretion (A) pay the Employee all
or part of the compensation withheld while its contract obligations were
suspended, and (B) reinstate (in whole or in part) any of its obligations that
were suspended.
(5) If any of the provisions of this Paragraph 9(e) conflict with
12 C.F.R. (S) 563.39(b), the latter shall prevail.
(f) Voluntary Termination by Employee. Subject to the provisions of
---------------------------------
Section 11 hereof, the Employee may voluntarily terminate employment with the
Company during the term of this Agreement, upon at least sixty (60) days' prior
written notice to the Board, in which case the Employee shall receive only his
compensation, vested rights and employee benefits accrued up to the date of his
termination.
(g) Limitation by Section 18(k) of the FDIA. Notwithstanding any-
---------------------------------------
thing herein to the contrary, any payments made to the Employee pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with Section 18(k) of the FDIA (12 U.S.C. (S) 1828(k)) and any regulations
promulgated thereunder.
10. 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.
11. Change in Control.
-----------------
(a) Notwithstanding any provision herein to the contrary, if the
Employee's employment under this Agreement is terminated by the Company, without
the Employee's prior written consent and for a reason other than for Just Cause,
death or disability in connection with or within twelve (12) months after any
change in control of the Bank or the Company, which has
5
<PAGE>
not been approved in advance by a two-thirds vote of the full Board of Directors
of each of the Bank and the Company, the Employee shall be paid an amount equal
to the difference between (i) the product of 2.99 times his "base amount" as
defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended
(the "Code") and regulations promulgated thereunder, and (ii) the sum of any
other "parachute payments" (as defined under Section 280G(b)(2) of the Code)
that the Employee receives on account of the change in control. Said sum shall
be paid in one lump sum within ten (10) days of such termination. The term
"change in control" shall mean (1) a change in the ownership, holding or power
to vote more than 25% of the Bank's or the Company's voting stock, (2) a change
in the ownership or possession of the ability to control the election of a
majority of the Bank's or the Company's directors, or (3) a change in the
ownership or possession of the ability to exercise a controlling influence over
the management or policies of the Bank or the Company by any person or by
persons acting as a "group" (within the meaning of Section 13(d) of the
Securities and Exchange Act of 1934) (except that, in the case of (1), (2) and
(3) hereof, ownership or control of the Bank or its directors by the Company
itself shall not constitute a change in control. The term "person" means an
individual other than the Employee, or a corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein.
(b) Notwithstanding the foregoing, but only to the extent required
under federal banking law, the amount payable under Section 11(a) hereof shall
be reduced to the extent that on the date of the Employee's termination of
employment, the amount payable under Section 11(a) exceeds the limitation on
severance benefits set forth in Regulatory Bulletin 27a of the OTS, as in effect
on such termination date.
(c) In the event that any dispute arises between the Employee and
the Company as to the terms or interpretation of this Agreement, including this
Section 11, whether instituted by formal legal proceedings or otherwise,
including an action that Employee takes to enforce the terms of this Section 11
or to defend against any action taken by the Company, the Employee shall be
reimbursed for all costs and expenses, including reasonable attorneys' fees,
arising from such disputes or proceedings, provided that the Employee shall have
obtained a final judgment by a court of competent jurisdiction in his or her
favor. Such reimbursement shall be paid within ten (10) days of Employee's
providing the Company with written evidence, which may be in the form, among
others, of a canceled check or receipt, of any costs or expenses incurred by the
Employee.
12. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Company that shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the corporation.
(b) Since the Company is contracting for the unique and personal
skills of the Employee, the Employee shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Company.
6
<PAGE>
13. 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.
14. Applicable Law. This Agreement shall be governed in all respects,
--------------
whether as to its validity, construction, capacity, performance or otherwise, by
the laws of the Commonwealth of Kentucky, except to the extent that Federal law
shall be deemed to apply.
15. 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.
16. 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.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
ATTEST: HOPFED BANCORP, INC.
By:
- -------------------------- ------------------------------------------
Secretary Its:
WITNESS:
- -------------------------- ------------------------------------------
("Employee")
-----------------------
7
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use of our report on the financial statements of
Hopkinsville Federal Savings Bank in the Form AC Application for Approval of
Conversion filed by HopFed Bancorp, Inc. with the Office of Thrift Supervision
and in the Registration Statement on Form S-1 filed by HopFed Bancorp, Inc. with
the Securities and Exchange Commission and to the reference to our firm under
the heading "Experts" in the Prospectus constituting part of such Form AC and
Form S-1.
/s/ York, Neel & Co.-Hopkinsville, LLP
York, Neel & Co.-Hopkinsville, LLP
September 10, 1997
<PAGE>
CONSENT
-------
We hereby consent to the use of our firm's name, to the references to our
updated Independent Appraisal of the Estimated Proforma Fair Market Value under
the headings "Prospectus Summary -- Stock Pricing and Number of Shares to the
Issued" and "The Conversion -- Stock Pricing and Number of Shares to be Issued"
and to the reference to our opinion regarding the value of Subscription Rights
under the heading "The Conversion -- Effect of Conversion to Stock Form on
Depositors of the Bank -- Tax Effects" in the Application for Approval of
Conversion filed by Hopkinsville Federal Savings Bank with the Office of Thrift
Supervision and in the Registration Statement on Form S-1 filed by HopFed
Bancorp, Inc. with the Securities and Exchange Commission.
/s/ Stephen Clinton
-----------------------------------------
Stephen Clinton, President
NATIONAL CAPITAL COMPANIES, LLC
September 11, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,405,645
<INT-BEARING-DEPOSITS> 2,003,196
<FED-FUNDS-SOLD> 11,146,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,048,156
<INVESTMENTS-CARRYING> 79,587,119
<INVESTMENTS-MARKET> 79,555,640
<LOANS> 98,436,491
<ALLOWANCE> 227,444
<TOTAL-ASSETS> 202,495,513
<DEPOSITS> 181,441,014
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,789,854
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 18,264,645
<TOTAL-LIABILITIES-AND-EQUITY> 202,495,513
<INTEREST-LOAN> 3,701,252
<INTEREST-INVEST> 2,639,755
<INTEREST-OTHER> 301,462
<INTEREST-TOTAL> 6,642,469
<INTEREST-DEPOSIT> 4,416,467
<INTEREST-EXPENSE> 4,425,803
<INTEREST-INCOME-NET> 2,216,666
<LOAN-LOSSES> 10,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,162,884
<INCOME-PRETAX> 1,314,048
<INCOME-PRE-EXTRAORDINARY> 1,314,048
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 869,864
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 2.24
<LOANS-NON> 0
<LOANS-PAST> 222,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 217,444
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 227,444
<ALLOWANCE-DOMESTIC> 227,444
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,451,727
<INT-BEARING-DEPOSITS> 2,000,000
<FED-FUNDS-SOLD> 500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,125,452
<INVESTMENTS-CARRYING> 95,946,689
<INVESTMENTS-MARKET> 95,761,674
<LOANS> 95,495,890
<ALLOWANCE> 217,444
<TOTAL-ASSETS> 204,398,031
<DEPOSITS> 183,827,366
<SHORT-TERM> 1,317,000
<LIABILITIES-OTHER> 2,430,117
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 16,823,548
<TOTAL-LIABILITIES-AND-EQUITY> 204,398,031
<INTEREST-LOAN> 6,823,842
<INTEREST-INVEST> 5,774,668
<INTEREST-OTHER> 621,041
<INTEREST-TOTAL> 13,219,551
<INTEREST-DEPOSIT> 9,731,511
<INTEREST-EXPENSE> 9,756,533
<INTEREST-INCOME-NET> 3,463,018
<LOAN-LOSSES> 100,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,673,666
<INCOME-PRETAX> 279,215
<INCOME-PRE-EXTRAORDINARY> 279,215
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 194,534
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 1.70
<LOANS-NON> 0
<LOANS-PAST> 266,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 122,252
<CHARGE-OFFS> 4,808
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 217,444
<ALLOWANCE-DOMESTIC> 217,444
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
HOPKINSVILLE FEDERAL SAVINGS BANK HOPFED BANCORP, INC.
STOCK INFORMATION CENTER STOCK ORDER FORM
2700 Fort Campbell Boulevard EXPIRATION DATE for Stock
Hopkinsville, KY 42240 Order Forms: , 1997
502-881-4001 4:00 p.m., Local Time
IMPORTANT--PLEASE NOTE: A properly completed original stock order form must be
used to subscribe for common stock. Copies of this form will not be accepted.
Please read the Stock Ownership Guide and Stock Order Form Instructions as you
complete this Form.
- --------------------------------------------------------------------------------
(1) NUMBER OF SHARES SUBSCRIPTION 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 25,000 shares and no person, together with associates of
the persons acting in concert with such person, may purchase in the
aggregate more than 50,000 shares of Common Stock, except for the
Hopkinsville Federal Savings Bank Employee Stock Ownership Plan. The
maximum purchase limit is subject to change.
- --------------------------------------------------------------------------------
EMPLOYEE/OFFICER/DIRECTOR INFORMATION
(3) [_] Check here if you are a director, officer or employee of Hopkinsville
Federal Savings Bank or a member of such person's immediate family.
METHOD OF PAYMENT/CHECK
Check Amount
--------------------- Enclosed is a check or money order made
(4) $ payable to Hopkinsville Federal
--------------------- Savings Bank, in the amount of:
METHOD OF PAYMENT/WITHDRAWAL
(5) The undersigned authorizes withdrawal from the following account(s) at
Hopkinsville Federal. If you would like to use an Individual Retirement Account
maintained at Hopkinsville Federal, please contact the Stock Information Center
by , 1997 for special instructions. There is no penalty for early
withdrawal used for this payment.
Account Number(s) Withdrawal Amount(s)
- ------------------------------------------------------------------------------
$
- ------------------------------------------------------------------------------
$
- ------------------------------------------------------------------------------
$
- ------------------------------------------------------------------------------
Total Withdrawal Amount $
----------------------------------
PURCHASER INFORMATION
(6) a.[_] Eligible Account Holder --Check here if you were a depositor of at
least $50.00 at Hopkinsville Federal on March 31, 1996. Enter information below
for all deposit accounts that you had at Hopkinsville Federal on
March 31, 1996.
Account Title (Names on Accounts) Account Number(s)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
b.[_]Supplemental Eligible Account Holder--Check here if you were a depositor of
at least $50.00 at Hopkinsville Federal on June 30, 1997 but are not an Eligible
Account Holder. Enter information below for all deposit accounts that you had at
Hopkinsville Federal on June 30, 1997.
Account Title (Names on Accounts) Account Number(s)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
c.[_]Other Member -- Check here if you held a deposit at Hopkinsville Federal as
of , but are not an Eligible Account Holder or Supplemental Eligible
Account Holder or had a loan at Hopkinsville Federal on April 14, 1997 which
was still outstanding on , 199 . Enter information below for all deposit
accounts that you had at Hopkinsville Federal on , 1997.
Account Title (Names on Accounts) Account Number(s)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Enter information below for all loan accounts that you had at Hopkinsville
Federal on , .
Account Title (Names on Accounts) Account Number(s)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PLEASE NOTE: FAILURE TO LIST ALL YOUR ACCOUNTS MAY RESULT IN THE LOSS OF PART OR
ALL OF YOUR SUBSCRIPTION RIGHTS. IF ADDITIONAL SPACE IS NEEDED, PLEASE UTILIZE
THE BACK OF THIS STOCK ORDER FORM.
d.[_]Check here if you are a permanent resident of Calloway, Christian, Todd or
Trigg Counties Kentucky.
(7)Stock Registration/Form of Stock Ownership
[_] Individual [_] Joint Tenants [_] Tenants in Common
[_] Uniform Gift to Minors Act [_] Fiduciary (i.e. trust, estate, etc.)
[_] Corporation or Partnership [_] Uniform Transfers to Minors Act
[_] Other _______________
- --------------------------------------------------------------------------------
(8)Name(s) in which stock is to be registered (Please print clearly)
- --------------------------------------------------------------------------------
Social Security # or Tax ID
- --------------------------------------------------------------------------------
Name(s) continued
- --------------------------------------------------------------------------------
Social Security # or Tax ID
- --------------------------------------------------------------------------------
Street Address City State Zip Code
- --------------------------------------------------------------------------------
(9)Telephone Daytime Evening County of
Information ( ) ( ) Residence
--------------------- -------------------- ------------------
NASD AFFILIATION
(10)[_]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.
ASSOCIATE--ACTING IN CONCERT
(11)[_]Check here, and complete in the space below, if you or any associates
(as defined below) or persons acting in concert with you have submitted other
orders for shares in the Subscription and/or Community Offerings.
- --------------------------------------------------------------------------------
Name(s) listed on other Number of Shares
Stock Order Forms Ordered
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
"Associate" is defined as: (i) any corporation or organization (other than
Hopkinsville Federal, or a majority-owned subsidiary of Hopkinsville Federal) of
which such person is an officer, director 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; provided, however, such term shall not
include Hopkinsville Federal's employee benefit plans 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 Hopkinsville Federal or any subsidiaries thereof.
ACKNOWLEDGMENT
(12)To be effective, this fully completed Stock Order Form must be actually
received, no later than 4:00 p.m., Local 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 Hopkinsville Federal 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 (the
"Plan") described in the accompanying Prospectus. If the Plan is not approved
by the voting members of Hopkinsville Federal Savings Bank at a Special
Meeting to be held on , 1997, or any adjournment thereof, all orders will
be cancelled and funds received as payment, with accrued interest, will be
returned promptly.
The undersigned agrees that after receipt by Hopkinsville Federal, this Stock
Order Form may not be modified, withdrawn or cancelled (unless the conversion
is not completed within 45 days after the completion of the Subscription
Offering) without the consent of Hopkinsville Federal, and if authorization to
withdraw from deposit accounts at Hopkinsville 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 8 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.
The subscriber hereby acknowledges that the subscriber possesses sufficient
knowledge and experience in business and financial matters, or competent
professional advice concerning Hopkinsville Federal, to evaluate the risks of
the prospective investment in the Common Stock. In this regard, the
subscriber's approximate annual income is [check one] [_] under $25,000,
[_] $25,000 to $50,000, [_] $50,001 to $75,000, [_] $75,001 to $125,000,
and the subscriber's approximate net worth is [_] under $50,000,[_] $50,000
to $100,000, [_] $100,001 to $250,000, [_] $250,001 to $500,000 or [_] over
$500,000.
PRIMARY INVESTMENT OBJECTIVE
[_] Income [_] Tax-Free [_] Long-term growth [_] Short-term growth
[_] Speculative [_] Other [_] Tax Bracket:_____________________________
[_] Date of Birth: ______________________ [_] Occupation: _______________
[_] Employer and Address: _______________________
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
SIGNATURE DATE SIGNATURE DATE DATE REC'D _________
- -------------------------- -------------------------- CATEGORY ___________
ORDER # __ BATCH ___
- -------------------------- -------------------------- DEPOSIT ____________
A SIGNED CERTIFICATION FORM MUST ACCOMPANY ALL STOCK ORDER FORMS
<PAGE>
HOPFED BANCORP, INC.
================================================================================
- ----------------------
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 GIFT TO MINORS ACT ("UGMA") AND (UNIFORM TRANSFERS TO MINORS ACT
("UTMA")
Stock may be held in the name of a custodian for a minor under the Uniform
Gift to Minors Act or 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 Gift to
Minors Act is "UGMA" and the Uniform Transfers to Minors Act is "UTMA".
Standard U.S. Postal Service state abbreviations should be used to describe
the appropriate state. For example, stock held by John Doe as custodian for
Susan Doe under the Kentucky Uniform Transfers to Minors Act will be
abbreviated John Doe, CUST Susan Doe UTMA, 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
a living trust agreement or court order. Documentation establishing a
fiduciary relationship may be required to register your stock 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.
STOCK ORDER FORM INSTRUCTIONS
- -----------------------------
ITEMS 1 AND 2--
Fill in the number of shares that you wish to purchase and the total payment
due. The amount due is determined by multiplying the number of shares
purchased by the Purchase Price of $10.00 per share. The minimum purchase is
25 shares. No Eligible Account Holder, Supplemental Eligible Account Holder or
Other Member, may purchase in their capacity as such in the Subscription or
Community Offering more than 25,000 shares, or $250,000, of Common Stock. No
person or entity, together with associates or persons acting in concert, may
purchase more than 50,000 shares, or $500,000, of the Common Stock in the
Conversion. HopFed Bancorp, Inc. and Hopkinsville 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--
Please check this box to indicate whether you are a director, officer or
employee of Hopkinsville Federal or a member of such person's immediate
family.
ITEM 4--
Payment for shares may be made in cash (only if delivered by you in person) or
by check, or money order made payable to Hopkinsville Federal Savings Bank.
Your funds will earn interest at the Bank's passbook rate of interest until
the Conversion is completed. DO NOT MAIL CASH TO PURCHASE STOCK! Please check
this box if your method of payment is by check or money order.
ITEM 5--
If you pay for your stock by a withdrawal from a deposit account at
Hopkinsville Federal, 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 6--
Please check the appropriate box if you were;
(a) A depositor at Hopkinsville Federal on March 31, 1996 (the "Eligibility
Record Date") with at least $50.00 on deposit.
(b) A depositor at Hopkinsville Federal on June 30, 1997 (the "Supplemental
Eligibility Record Date") with at least $50.00 on deposit.
(c) A depositor on , 1997 (the "Voting Record Date") or loan customer at
Hopkinsville Federal on April 14, 1997.
(d) A permanent resident of Calloway, Christlan, Todd or Trigg Counties,
Kentucky.
ITEMS 7, 8 AND 9--
The stock transfer industry has developed a uniform system of shareholder
registrations that we will use in the issuance of your HopFed Bancorp, Inc.
Common Stock. Please complete items 7, 8 and 9 as fully and accurately as
possible, and be certain to supply your social security or Tax I.D. number(s)
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 regarding the
registration of your stock, please consult your legal advisor. Stock ownership
must be registered in one of the ways described above under "Stock Ownership
Guide."
ITEM 10--
Please check this box if your are a member of the NASD or if this item
otherwise applies to you.
ITEM 11--
Please check this box if you or any associate (as defined on the front side of
the Stock Order Form) or person acting in concert with you has submitted
another order for shares and complete the front side of the Stock Order Form.
ITEM 12--
Please sign and date the Stock Order Form and Certification Form where
indicated. Before you sign, review the Stock Order Form, including the
acknowledgement, and the Certification Form. 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.
You may mail your completed Stock Order Form and Certification Form in the
envelope that has been provided, or you may deliver your Stock Order Form and
Certification Form directly to Hopkinsville Federal. Your Stock Order Form and
Certification Form, properly completed, and payment in full (or withdrawal
authorization) at the subscription price must be received by Hopkinsville
Federal no later than 4:00 p.m., Local Time, on , 1997 or it will become
void. Stock Order Forms and Certification Forms shall be deemed received only
upon actual receipt at Hopkinsville Federal. 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 502-881-4001. The Stock
Information Center will be open between the hours of 9:00 a.m. and 4:00 p.m.,
Local Time, Monday through Friday.
<PAGE>
YOU MUST SIGN THE FOLLOWING CERTIFICATION IN ORDER TO PURCHASE STOCK
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 HOPKINSVILLE FEDERAL SAVINGS 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 HopFed Bancorp, Inc., the proposed holding company for
Hopkinsville Federal, I/we received a Prospectus dated , 1997 (the
"Prospectus").
The Prospectus that I/we received contains disclosure concerning the nature
of the security being offered and describes the risks involved in the
investment, including but not limited to:
PAGE
1. The Bank's Historically Low Net Interest Margins and Returns
2. Anticipated Low Return on Equity Following Conversion
3. Uncertainty as to Existence of Growth Opportunities
4. Effect of Fort Campbell on Economy of the Bank's Market Area
5. Potential Impact of Changes in Government Policies Concerning Tobacco
Products
6. Potential Effect of Changes in Interest Rates and Economic Conditions
7. Certificate of Incorporation, Bylaw and Statutory Provisions That Could
Discourage Hostile Acquisitions of Control
8. Valuation Not Indicative of Future Price of Stock
9. No Prior Public Market; Possible Stock Price Volatility
10. Possible Income Tax Consequences of Distribution of Subscription Rights
11. Possible Dilutive Effect of MRP and Stock Options
12. Possible Impact on Voting Control of Purchases by Management
13. Potential Cost of Stock Benefit Plans
14. Potential Cost of Unfunded Portion of Pension Plan
Signature(s):
--------------------------- ---------------------------
Date:
--------------------------- ---------------------------
Name(s) (Please Print):
----------------- ---------------------------
<PAGE>
Hopkinsville Federal Savings Bank
is going public
YOU ARE CORDIALLY INVITED
to a Community Informational Meeting
and Reception
to learn more about the Hopkinsville Federal Savings Bank
stock conversion and HopFed Bancorp, Inc. stock offering
at 7:00 P.M.
Tuesday, October __, 1997
at
Hopkinsville Federal Savings Bank
2700 Fort Campbell Boulevard
Hopkinsville, Kentucky
Senior executives of Hopkinsville Federal Savings Bank and HopFed Bancorp, Inc.
will present information and answer questions about the Hopkinsville Federal
Savings Bank stock conversion and the concurrent Subscription and Community
Offering of HopFed Bancorp, Inc. common stock.
SEATING IS LIMITED
Call to make your reservation
(502) 881-4001
This invitation is neither an offer to sell nor a solicitation of an offer to
buy these securities. The offer is made only by the Prospectus. The shares of
common stock offered are not savings accounts or savings deposits and are not
insured by the Federal Deposit Insurance Corporation, the Savings Association
Insurance Fund, or any government agency.
<PAGE>
(IBS Letterhead)
Dear Customer of Hopkinsville Federal Savings Bank:
At the request of Hopkinsville Federal Savings Bank ("Hopkinsville Federal" or
the "Bank"), we enclose certain materials regarding the conversion of
Hopkinsville Federal from a federally-chartered, mutual savings bank to a
federally-chartered, stock savings bank. As part of the conversion process, the
Bank will become a wholly owned subsidiary of HopFed Bancorp, Inc., which is a
recently organized Delaware corporation and which will conduct an initial public
offering of its common stock. The materials include a Prospectus, a Question and
Answer Brochure, and a Stock Order Form which offer you the opportunity to
subscribe for shares of common stock being offered by HopFed Bancorp, Inc.
If you decide to subscribe for shares, we must receive your properly completed
Stock Order Form, together with the full required payment for the shares (or
appropriate instructions authorizing withdrawal in such amount from your deposit
account at Hopkinsville Federal), no later than 4:00 p.m., Local Time, on
October ___, 1997. Subscriptions received after that date will be returned. A
postage-paid envelope is enclosed for your convenience. Please allow adequate
time for postal delivery. If you have any questions or would like additional
information, please call the Stock Information Center at (502) 881-4001. The
Stock Information Center is open Monday through Friday from 9:00 a.m. to 4:00
p.m. Local Time.
Hopkinsville Federal has asked us to forward these documents to you in view of
certain requirements of the securities laws of your jurisdiction. We are not
recommending or soliciting in any way any actions by you with respect to the
enclosed materials.
Sincerely,
INVESTMENT BANK SERVICES, INC.
The shares of common stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
This letter is not an offer to sell or a solicitation of an offer to buy common
stock. The offer is made only by the Prospectus.
<PAGE>
(FBR Letterhead)
Dear Customer of Hopkinsville Federal Savings Bank:
At the request of Hopkinsville Federal Savings Bank ("Hopkinsville Federal" or
the "Bank"), we enclose certain materials regarding the conversion of
Hopkinsville Federal from a federally-chartered, mutual savings bank to a
federally-chartered, stock savings bank. As part of the conversion process, the
Bank will become a wholly owned subsidiary of HopFed Bancorp, Inc., which is a
recently organized Delaware corporation and which will conduct an initial public
offering of its common stock. The materials include a Prospectus, a Question and
Answer Brochure, and a Stock Order Form which offer you the opportunity to
subscribe for shares of common stock being offered by HopFed Bancorp, Inc.
If you decide to subscribe for shares, we must receive your properly completed
Stock Order Form, together with the full required payment for the shares (or
appropriate instructions authorizing withdrawal in such amount from your deposit
account at Hopkinsville Federal), no later than 4:00 p.m., Local Time, on
October __, 1997. Subscriptions received after that date will be returned. A
postage-paid envelope is enclosed for your convenience. Please allow adequate
time for postal delivery. If you have any questions or would like additional
information, please call the Stock Information Center at (502) 881-4001. The
Stock Information Center is open Monday through Friday from 9:00 a.m. to 4:00
p.m. Local Time.
Hopkinsville Federal has asked us to forward these documents to you in view of
certain requirements of the securities laws of your jurisdiction. We are not
recommending or soliciting in any way any actions by you with respect to the
enclosed materials.
Sincerely,
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
The shares of common stock offered in the conversion are not savings accounts or
deposits and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
This letter is not an offer to sell or a solicitation of an offer to buy common
stock. The offer is made only by the Prospectus.
<PAGE>
Hopkinsville Federal Savings Bank
2700 Fort Campbell Boulevard
Hopkinsville, Kentucky 42240
Dear Valued Friend:
We appreciate the opportunity to provide you with information regarding the
conversion of Hopkinsville Federal Savings Bank, ("Hopkinsville Federal" or the
"Bank") from a federally-chartered, mutual savings bank to a federally-
chartered, stock savings bank (the "Conversion"). As part of the Conversion, the
Bank will become a wholly owned subsidiary of HopFed Bancorp, Inc., which is a
recently organized Delaware corporation and which will conduct an initial public
offering of its common stock. The enclosed information packet includes a
Prospectus, a Question and Answer Brochure and a Stock Order Form. Please review
the Prospectus carefully before making an investment decision.
If you wish to purchase stock, please complete the Stock Order Form and return
it to us with payment in the postage-paid envelope that is enclosed. Payment may
be made by cash, check, bank draft, money order or authorization for withdrawal
from your account with Hopkinsville Federal. If paying with cash, please hand
deliver your Stock Order Form to any Hopkinsville Federal office. Do not send
cash through the mail. We must receive your Stock Order Form and payment no
later than 4:00 p.m. Local Time, on October ___, 1997. Subscriptions received
after that date will be returned. Please allow adequate time for postal
delivery.
If you have any questions, please call the Stock Information Center at (502) 881
4001 between 9:00 a.m. and 4:00 p.m., Local Time, Monday through Friday.
Sincerely,
Bruce Thomas
President and Chief Executive Officer
This letter is neither an offer to sell nor a solicitation of an offer to buy
any securities. The offer is made only by the Prospectus. The shares of common
stock offered in connection with the Conversion are not savings accounts or
deposits and are not insured by the Federal Deposit Insurance Corporation or any
other government agency.
<PAGE>
Hopkinsville Federal Savings Bank
2700 Fort Campbell Boulevard
Hopkinsville, Kentucky 42240
Date
Dear Member:
I am pleased to inform you that the Board of Directors has unanimously approved
a Plan of Conversion whereby Hopkinsville Federal Savings Bank (the "Bank") will
convert from a federally chartered mutual savings bank to a federally chartered
stock savings bank. As part of the conversion process, the Bank will become a
wholly owned subsidiary of HopFed Bancorp, Inc., which is a recently organized
Delaware corporation. The Office of Thrift Supervision has approved the Plan of
Conversion subject to a favorable vote of our members.
Also as part of the Conversion, HopFed Bancorp, Inc. will be offering its Common
Stock in an initial public offering, with priority given to members of the Bank
and certain others.
As a member of the Bank, you are affected in two ways:
FIRST you are entitled to vote on whether the Plan of Conversion should be
- -----
approved. The vote will be taken at a Special Meeting of Members to be held on
October ____, 1997. The Board of Directors of the Bank urges that you vote FOR
approval of the Plan of Conversion. A Proxy Statement is enclosed that explains
the conversion in greater detail, and you can obtain any further information
from us by calling our Stock Information Center at (502) 881-4001. Voting for
the Plan of Conversion will not obligate you to purchase any stock as part of
the conversion.
In addition, a Proxy Card is enclosed so that you can cast your vote by
appointing the Board of Directors as your proxy to approve the Plan of
Conversion. You can return the completed Proxy Card to us at our main office in
Hopkinsville or by using the enclosed reply envelope. Please note that we must
receive your Proxy Card by the date of the Special Meeting, October ____, 1997,
- -------
for your vote to be counted if you do not plan to attend.
SECOND, you will be able to purchase the Common Stock of HopFed Bancorp, Inc. if
- ------
you wish and without paying any commission or fee. The Common Stock is being
offered in the initial public offering of HopFed Bancorp, Inc. Information
regarding the Common Stock is contained in the enclosed Prospectus of HopFed
Bancorp, Inc. Additional information is also contained in the enclosed Question
and Answer Brochure.
If you wish to purchase the Common Stock, you must use the enclosed Stock Order
Form and return it, together with the enclosed Certification Form and your full
payment (either enclosed or through an authorization of withdrawal from your
deposit account) for the Common Stock, to our Stock Information Center at our
main office. Please note that if you wish to order Common Stock, we must receive
-------
your completed Stock Order Form, Certification Form and full payment not later
than 4:00 p.m., Local Time, on October _____, 1997.
<PAGE>
You may purchase the Common Stock by a withdrawal from your savings or
certificate account without any penalty for early withdrawals. Interest at the
rate paid on our passbook savings accounts will be paid on all subscription
funds received. Authorized withdrawals from existing accounts will continue to
earn interest at the contractual rate until the completion of the Conversion.
Please call the Stock Information Center at least ten days before the
October __, 1997 deadline if you wish to purchase Common Stock using your IRA at
the Bank, as IRA-related procedures require additional processing time.
If you have any questions, please call the Stock Information Center at (502)
881-4001, from 9:00 a.m. to 4:00 p.m., Local Time Monday through Friday.
We hope that you will take advantage of this opportunity to join us as a charter
stockholder of HopFed Bancorp, Inc.
Sincerely,
Bruce Thomas
President and Chief Executive Officer
THIS STOCK IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY STOCK, THE
OFFER WILL BE MADE ONLY BY MEANS OF THE PROSPECTUS ACCOMPANIED BY A STOCK ORDER
FORM AND CERTIFICATION FORM.
<PAGE>
Hopkinsville Federal Savings Bank
2700 Fort Campbell Boulevard
Hopkinsville, Kentucky 42240
Date
Dear Friend:
I am pleased to inform you that the Board of Directors has unanimously approved
a Plan of Conversion whereby Hopkinsville Federal Savings Bank ("Hopkinsville
Federal" or the "Bank") will convert from a federally-chartered, mutual savings
bank to a federally-chartered, stock savings bank. As part of the conversion
process, the Bank will become a wholly owned subsidiary of HopFed Bancorp, Inc.,
which is a recently organized Delaware corporation.
AS A DEPOSITOR OF HOPKINSVILLE FEDERAL AS OF MARCH 31, 1996 OR JUNE 30, 1997,
YOU HAVE A RIGHT TO BUY COMMON STOCK BEFORE STOCK IS OFFERED TO THE GENERAL
PUBLIC.
Enclosed with this letter you will find a Prospectus, a Stock Order Form,
including a Form of Certification, and a Question and Answer Brochure. You are
not required to purchase Common Stock in Hopkinsville Federal. If you are
interested in purchasing Common Stock after reviewing the Prospectus, your
completed Stock Order Form accompanied by your full payment, must be received by
Hopkinsville Federal by 4:00 p.m., Local Time, on October ___, 1997. No
commission or fee will be charged for your stock purchase.
If you have any questions, please call the Stock Information Center at (502)
881-4001 from 9:00 a.m. to 4:00 p.m., Local Time, Monday through Friday.
We hope that you will take advantage of this opportunity to join us as a charter
stockholder of HopFed Bancorp, Inc.
Sincerely,
Bruce Thomas
President and Chief Executive Officer
THIS STOCK IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY STOCK, THE
OFFER WILL BE MADE ONLY BY MEANS OF THE PROSPECTUS ACCOMPANIED BY A STOCK ORDER
FORM AND CERTIFICATION FORM.
<PAGE>
- --------------------------------------------------------------------------------
Questions and Answers
about the Mutual-to-Stock Conversion of
Hopkinsville Federal Savings Bank
- --------------------------------------------------------------------------------
Answers to frequently asked questions about our stock conversion and your
opportunity to invest in HopFed Bancorp, Inc.
<PAGE>
QUESTIONS AND ANSWERS ABOUT
THE STOCK CONVERSION OF
HOPKINSVILLE FEDERAL SAVINGS BANK
Soon Hopkinsville Federal Savings Bank ("Hopkinsville Federal" or the "Bank")
will be converting to the stock form of ownership (the "Conversion"). Now you
have the opportunity to become one of our charter stockholders by investing in
HopFed Bancorp, Inc., the company that has been organized by the Bank to become
the holding company for the Bank in connection with the Bank's Conversion
("HopFed Bancorp" or the "Holding Company"). This pamphlet, which accompanies
the Prospectus, answers some of the most frequently asked questions about the
Conversion and about your opportunity to invest in HopFed Bancorp, Inc.
I. GENERAL
Q. What is meant by Conversion?
A. Conversion is a change in the legal form of organization. Hopkinsville
Federal is presently a federally-chartered, mutual savings bank with no
stockholders. After the Conversion, Hopkinsville Federal will become a
federally-chartered, stock savings bank and a wholly owned subsidiary of
the Holding Company, which will be owned by stockholders. The holding
company structure was chosen for several reasons, including the advantages
this type of organization may provide in facilitating future growth and
performance of the Bank.
Q. Why is Hopkinsville Federal converting to the stock form of ownership?
A. The Conversion and the sale of the Holding Company's Common Stock will
increase Hopkinsville Federal's ability to take advantage of business
opportunities, including:
. Allowing customers and community members to become equity owners so
they can share in the future of the Holding Company and the Bank;
. Providing additional funds for lending and investment activities; and
. Enhancing the ability of HopFed Bancorp and the Bank to diversify
operations and expand into other markets.
Q. What steps are involved in completing the Conversion?
A. . A Plan of Conversion has been adopted by the Board of Directors;
. The Office of Thrift Supervision has approved the Plan of Conversion;
. Proxies are being solicited from member savers and borrowers for approval
of the Plan of Conversion;
. A Subscription and Community Offering has commenced in which selected
persons have the right, but not the obligation, to subscribe for Common
Stock.
. A Special Meeting of members will be held to approve the Plan of
Conversion; and
<PAGE>
. After the Subscription Offering and the Community Offering, if any, are
completed, the Common Stock will be issued to subscribers.
Q. How does the Holding Company plan to use the proceeds raised from the sale
of Common Stock?
A. The net proceeds from the sale of Common Stock will be used for general
corporate purposes and will increase the Bank's total capital to support
internal growth and possible external growth.
Q. Will the Conversion have any effect on deposit accounts, certificates, or
loans with Hopkinsville Federal?
A. No. The Conversion will not affect the balance, interest rate or withdrawal
rights of your savings or certificate account. Also, the rights and
obligations of borrowers under their loan agreements with the Bank will not
be affected.
Q. What effect will the Conversion have on Hopkinsville Federal's operations?
A. After the Conversion, Hopkinsville Federal will continue to offer its range
of financial services to customers. The Bank's principal business of
accepting deposits and making mortgage and other loans will continue
without interruption.
Q. Who is eligible to buy during the Subscription Offering and the Community
Offering?
A. Non-transferable rights to subscribe for the Common Stock in the
Subscription Offering have been granted to Eligible Account Holders (i.e.,
qualifying depositors of the Bank), the Bank's tax-qualified Employee Stock
Ownership Plan (the "ESOP"), Supplemental Eligible Account Holders (i.e.,
qualifying depositors of the Bank as of June 30, 1997) and depositors and
certain borrowers of the Bank as of __________,1997 ("Other Members"). A
qualifying deposit is the amount (required to be at least $50.00) contained
in a deposit account in the Bank on March 31, 1996 and June 30, 1997.
Subject to the prior rights of holders of subscription rights, shares of
Common Stock may be offered and sold thereafter in a Community Offering to
certain members of the general public, with preference given to natural
persons and trusts of natural persons residing in Calloway, Christian, Todd
and Trigg Counties, Kentucky. The Holding Company reserves the right, in
its sole discretion, to reject in whole or in part any orders received in
the Community Offering.
Q. Are depositors and borrowers who are eligible to buy Common Stock obligated
to do so?
A. No. There is no obligation whatsoever to purchase shares of Common Stock.
<PAGE>
Q. As a depositor or borrower eligible to buy Common Stock, may my
subscription rights be sold or assigned?
A. No. Any transfer of subscription rights is prohibited by law. However,
subject to availability, shares of Common Stock may be purchased by persons
who do not have subscription rights during the Community Offering, which
may be conducted at the discretion of the Holding Company during or
following the Subscription Offering.
Q. Will my deposit accounts still be federally insured?
A. Yes. Insurance of deposit accounts up to the maximum legal limit by the
FDIC will continue without change.
Q. Did Hopkinsville Federal's Board of Directors approve the Conversion?
A. Yes. The Conversion was unanimously approved by the Board of Directors of
the Bank.
Q. Will the Conversion have any tax consequences to the Bank?
A. The Bank has received an opinion from its legal counsel that the Conversion
will be treated for tax purposes as a non-taxable reorganization. It is
anticipated that no gain or loss will be recognized by the Bank or its
members as a result of the Conversion.
Q. Will there be any changes in management or personnel?
A. No. Directors, officers and employees will continue in their same positions
at the Bank. Our day-to-day activities will not change.
II. VOTING RIGHTS
Q. What vote is necessary to approve the Plan of Conversion?
A. The Conversion cannot be undertaken without the approval of the Bank's
members. The Plan of Conversion must be approved by a majority of the total
votes eligible to be cast at the Special Meeting of members. Therefore,
your vote is very important.
Q. Am I required to vote if I receive Proxy Cards?
A. No. Members are not required to vote. However, because your vote is
important, management urges that you take advantage of this opportunity to
vote "FOR" the Plan of Conversion.
Q. Why did I get several proxy cards?
A. If you have more than one account or loan, you could receive more than one
proxy card, depending on the ownership structure of your accounts. Please
vote, sign and return all cards received by you.
<PAGE>
Q. If a deposit account is owned in joint names, must the signatures of both
parties be on the proxy card?
A. No. The signature of only one owner is required, unless the account
requires more than one signature to withdraw.
Q. May I vote in person at the Special Meeting?
A. Yes. If you attend the Special Meeting, you may revoke your proxy and vote
in person.
III. PURCHASING COMMON STOCK
Q. Are officers and directors of the Bank planning to purchase Common Stock?
A. Yes. Hopkinsville Federal's executive officers and directors presently
expect to purchase in the aggregate, approximately $2,610,000 of Common
Stock. The amount is subject to change.
Q. How do I order Common Stock during the Subscription Offering or the
Community Offering?
A. Complete and return the enclosed Form of Certification and Stock Order Form
together with payment in full or a withdrawal authorization for the full
amount. Please use the enclosed postage-paid envelope or deliver the Stock
Order Form with full payment or withdrawal authorization to our main office
in Hopkinsville. Orders may be received up to 4:00 p.m. Local Time, on
October ____,1997. The Community Offering, if any, once commenced may
terminate at any time thereafter but not later than _______________, 1997,
unless extended with the approval of the OTS. Photocopies of Stock Order
Forms will not be accepted by the Bank.
Q. How much Common Stock may I order?
A. No person may purchase more than 25,000 shares. No person together with
associates of and persons acting in concert with such person may purchase
more than 50,000 shares. The minimum purchase is 25 shares.
Q. May shares be registered in someone else's name?
A. No. Common Stock purchased in the Subscription Offering initially must be
registered in the name(s) of the eligible purchaser(s). You may later
register the Common Stock in other names.
Q. Must I pay a commission?
A. No. You will not be charged any commission or fee on your purchase of
shares during the Conversion.
Q. What is the price per share?
A. The subscription price is $10.00 per share in both the Subscription
Offering and the Community Offering.
<PAGE>
Q. As a depositor or borrower, will I get a better price on the Common Stock
than someone who is not a depositor or borrower?
A. No. The price to depositors and borrowers is the same for purchasers of
Common Stock during the Subscription Offering and the Community Offering.
Q. Who determines the offering range of HopFed Bancorp Common Stock and the
price per share?
A. The offering range is based on an independent appraisal of the pro forma
market value of the Common Stock by National Capital Companies, LLC, an
appraisal firm experienced in appraisals of thrift institutions. National
Capital Companies, LLC has estimated that in its opinion, as of _______,
1997, the aggregate pro forma market value of the Common Stock ranged
between $22,525,000 and $30,475,000 (with a mid-point of $26,500,000). The
price per share, which was determined by the Company, will be $10.00.
Q. Will dividends be paid?
A. HopFed Bancorp currently intends, subject to the factors noted below, to
declare and pay quarterly dividends commencing after the first full
calendar quarter following completion of the Conversion. It is currently
anticipated that the annual amount of such dividend will be equal to
approximately 3% of the $10.00 purchase price per share (which is equal to
a quarterly dividend of $0.075 per share). Dividends, when and if paid,
will be subject to determination and declaration by the Board of Directors
in its discretion, which will take into account HopFed Bancorp's
consolidated financial condition and results of operations, the Bank's
regulatory capital requirements, tax considerations, economic conditions,
regulatory restrictions, and other factors. There can be no assurance that
dividends will be paid, or if paid, will continue to be paid in the future.
Q. How will the Common Stock be traded?
A. The Common Stock has been approved for quotation on the Nasdaq Stock Market
under the symbol "HFBC".
Q. When will I receive my Common Stock certificate(s)?
A. Common Stock certificates will be mailed by the transfer agent after the
Conversion is completed. Please be aware that you may not be able to sell
shares purchased until receipt of a Common Stock certificate.
Q. Once I have ordered shares, may I later change my mind and get a refund?
A. No. Your subscription may not be canceled or withdrawn once it has been
received. Refunds will only be issued if your order cannot be completely
filled or if the stock offering is significantly revised. You may, however,
subject to availability, order additional shares by completing another
Stock Order Form.
<PAGE>
Q. Will the Common Stock I purchase be insured by the Federal Deposit
Insurance Corporation?
A. No. Common Stock is never insured by the Federal Deposit Insurance
Corporation or any other government agency.
Q. In the future, how may I purchase additional shares or sell shares?
A. You may purchase or sell shares through private transactions with other
investors or through your stockbroker. If you use a stockbroker, a
commission will be charged for trades.
Q. How do I pay for Common Stock?
A. Payment may be made by (i) cash, if delivered in person, (ii) check or
-- ------
money order or (iii) authorization for withdrawal from your deposit
accounts at the Bank (no early withdrawal penalty will apply for this
purpose). If you pay for your subscription by authorizing a withdrawal from
you deposit account(s), those funds will be kept in you account(s) and
continue to earn interest at the contractual rate until the Conversion is
completed or terminated, but will be unavailable to the depositor until
then. If you pay for your subscription using a check or money order, your
funds will earn interest at Hopkinsville Federal's passbook savings account
rate until the Conversion is completed or terminated. Neither payment from
private third parties nor electronic transfers of funds will be accepted by
the Bank.
Q. How does a Hopkinsville Federal IRA account holder exercise their
subscription rights?
A. For federal tax reasons, you cannot purchase stock using funds from your
IRA unless you first transfer your IRA to another institution. You should
do this as a direct transfer (i.e., a "rollover") into a self-directed IRA
account for you. Consult your tax advisor if you have any questions on
transferring an IRA without incurring a tax penalty. Please call the Stock
Information Center at least ten days prior to the end of the Conversion
offering period for a complete description of the IRA procedures.
This brochure is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer will be made only by means of the Prospectus accompanied
by a stock order form and certification. This stock is not a deposit or account
and is not federally insured or guaranteed.
Stock Information Center
HopFed Bancorp, Inc.
2700 Fort Campbell Boulevard
Hopkinsville, Kentucky 42240
(502) 881-4001
<PAGE>
- -------------------------------------------------------------------------------
P R O X Y R E M I N D E R
HOPKINSVILLE FEDERAL SAVINGS BANK
YOUR VOTE ON OUR STOCK CONVERSION PLAN HAS NOT BEEN RECEIVED.
YOUR VOTE IS VERY IMPORTANT, PARTICULARLY SINCE FAILURE TO VOTE IS EQUIVALENT
TO VOTING AGAINST THE PLAN.
VOTING FOR CONVERSION WILL NOT AFFECT THE INSURANCE OF YOUR ACCOUNTS, DEPOSIT
ACCOUNTS WILL CONTINUE TO BE FEDERALLY INSURED UP TO THE APPLICABLE LIMITS.
YOU MAY PURCHASE STOCK IF YOU WISH, BUT VOTING DOES NOT OBLIGATE YOU TO BUY
STOCK.
PLEASE ACT PROMPTLY! SIGN THE ENCLOSED PROXY CARD AND MAIL, OR DELIVER, THE
PROXY CARD TO HOPKINSVILLE FEDERAL TODAY. PLEASE VOTE ALL PROXY CARDS
RECEIVED.
WE RECOMMEND THAT YOU VOTE TO APPROVE THE PLAN OF CONVERSION. THANK YOU.
THE BOARD OF DIRECTORS AND MANAGEMENT OF HOPKINSVILLE
FEDERAL SAVINGS BANK
- -------------------------------------------------------------------------------
IF YOU RECENTLY MAILED THE PROXY,
PLEASE ACCEPT OUR THANKS AND DISREGARD THIS REQUEST.
FOR FURTHER INFORMATION CALL (502) 881-4001.
<PAGE>
NATIONAL
CAPITAL
COMPANIES, LLC
Stephen Clinton
President
August 29, 1997
Board of Directors
Hopkinsville Federal Savings Bank
2700 Fort Campbell Boulevard
Hopkinsville, Kentucky 41192
Ladies and Gentlemen:
We have prepared an updated independent appraisal report of the estimated
proforma fair market value (the "update") of the to-be-issued common shares of
HopFed Bancorp, Inc. (the "Company") that are to be issued in connection with
the conversion to stock form of Hopkinsville Federal Savings Bank ("Hopkinsville
Federal" or the "Bank"). The common shares are to be issued pursuant to the
Bank's Plan of Conversion (the "Plan") by which Hopkinsville Federal will
convert from a federally-chartered mutual savings bank to a federally-chartered
stock savings bank (the "Conversion"), all the common stock of the Bank which
will be acquired by the Company in exchange for approximately 50% of the net
conversion proceeds. Concurrently, the Company will offer common stock to
eligible depositors and others subject to certain priorities and limitations as
noted in the Plan. Our original report of the estimated proforma fair market
value of Hopkinsville Federal was dated May 29, 1997 (the "original valuation").
This update of our original valuation considers changes in Hopkinsville
Federal's financial condition and operating performance as of June 30, 1997, as
well as changes in the overall stock market conditions and changes in the market
for publicly-traded thrift institutions as of August 29, 1997. Our original
valuation, dated May 29, 1997, is incorporated herein by reference.
The Conversion, subject to regulatory approval and satisfaction of all other
conditions precedent to the Conversion, will be accomplished as detailed in the
Plan. The Plan provides for a subscription offering whereby nontransferable
rights to subscribe for shares of the Company's common stock will be granted
first to eligible account holders of record, or those persons holding qualifying
savings deposits in the Bank, as of March 31, 1996, second to the Bank's
Employee Stock Ownership Plan, a tax-qualified employee stock benefit plan,
third to supplemental eligible account holders of record, or savings depositors
of the Bank with account balance of $50 or more as of the last day of the
calendar quarter preceding OTS approval of the Bank's application to convert to
stock form, and fourth to other members of the Bank, or all member of the Bank
entitled to vote at the special meeting called to approve the Plan under the
Bank's mutual charter and bylaws.
The Park Avenue Centre
4600 N. Park Avenue, Suite 100, Chase, MD 20815 (301)657-0850 FAX (301)657-0856
<PAGE>
Board of Directors
August 29, 1997
Page 2
National Capital Companies, LLC ("National Capital") is a financial advisory
services company that specializes in financial valuations. National Capital also
advises financial services companies on operations, mergers, acquisitions and
capital strategies. Our experience in these transactions has been applied in
this valuation, including our expertise in the application of current
regulations and legislative matters affecting the thrift industry. We believe
that, except for the fees received by National Capital, we are independent of
the Bank and the Company.
In preparing our original valuation and this update, we reviewed, among other
matters, information to be included in the Bank's Plan, Prospectus and Business
Plan filed with the OTS and performed an analysis of the Bank that included
interviews with the Bank's management, inquiries with the Bank's independent
accountant's York, Neel & Company, LLP and its investment banker, Investment
Bank Services, Inc. and discussions with special legal counsel representatives
of the firm of Reinhart, Boerner, Van Deuren, Norris & Rieselbach, P.C. In
addition, we used information from publicly-available published sources that we
believe is reliable. However, we have not examined or otherwise tested this
publicly-available information and therefore we cannot and do not express an
opinion as to the accuracy of this information.
We have analyzed, among other factors, the economic conditions in the Bank's
primary market area and have compared the Bank's financial performance and
condition with that of other savings institutions and with that of selected
publicly traded savings institutions. We reviewed conditions in the securities
market in general and the market for savings institution securities specifically
and considered the implications of the stock offering upon the operating
characteristics and financial performance of the Bank. We analyzed the
competitive environment within the Bank's primary market area and assessed the
Bank's relative strengths and weaknesses.
Our valuation is based upon the Bank's representations that the information
contained in the Bank's Plan and Prospectus to be filed with the OTS and other
evidential matter and documents provided to us as of August 29, 1997 by the
Bank, its independent accountant, investment banker and special legal counsel
are accurate and complete. We did not examine or otherwise test this information
provided to us and therefore we cannot and do not express an opinion as to the
accuracy of this information, nor did we independently value the assets or
liabilities of the Bank. This valuation considers the Bank as a going concern
and should not be considered an indication of the liquidation value of the Bank.
We also did not independently verify and have relied on and assumed that the
allowance for loan losses set forth in the balance sheet of Hopkinsville Federal
at June 30, 1997 was adequate and complied fully with applicable law, regulatory
policy and sound banking practice as of the date of such financial statements.
Thrift market prices have increased since the date of our original valuation. As
evidenced by the thrift stock market index calculated by SNL Securities, L.P.,
--------------------
the market values for all publicly traded thrift stocks has increased from May
29, 1997 through August 29, 1997 by approximately 17.46%. The strong market for
thrift stock is further evidenced by the after market pricing of thrifts which
have completed conversions from the mutual to stock form. In the first half of
1997, 14 standard conversions were completed where data was available. The
average increase in stock price from their initial public offering price for
those thrifts that converted in the first half of was 57.05% as of August 29,
1997. This is significantly higher than the after-market results for 1995 and
1996 conversions.
<PAGE>
Board of Directors
August 29, 1997
Page 3
It is our opinion that, as of August 29, 1997 the estimated proforma fair market
value of one hundred percent of the Company's to-be-issued common shares was
$26,500,000, based on 2,650,000 shares outstanding at a price of $10.00 per
common share. As determined by the Company's Board of Directors, the offering of
the to-be-issued common shares will range from $22,525,000 to $30,475,000 or
2,252,500 shares to 3,047,500 shares or from 15% below to 15% above the
valuation midpoint, respectively, at a price of $10.00 per common share. In the
event of a high level of investor interest, the Plan provides for a sale of
shares up to an additional 15% above the $30,475,000 (the "supermax") which
would total $35,046,250 or 3,504,625 shares.
Our valuation is not a recommendation of any kind as to the desirability of
purchasing shares of common stock of the Company. This valuation is necessarily
based upon financial estimates and conditions and courses of action by the Bank
that are possible, although not necessarily probable. Future conditions and
courses of action could differ substantially from those assumed in this
valuation. A valuation based upon a different set of conditions and courses of
action could differ substantially from the accompanying valuation. Users of this
valuation should be aware that some of the conditions and courses of action by
the Bank assumed in this valuation inevitably will not materialize and
unanticipated events and circumstances may occur and the variations may be
material. Accordingly, there is no assurance that the purchasers of common stock
of the Company will thereafter be able to sell such common shares at prices
related to the foregoing valuation of the estimated proforma fair market value
of the common stock of the Company.
The valuation will be updated at the closing of the stock offering and as
appropriate. These updates will consider, among other factors, any development
or changes in the Bank's financial performance and condition, management
policies and procedures and current changes in the securities markets for thrift
common stock.
Should any such new development or changes be material, in our opinion, to the
valuation of the estimated proforma fair market value of the Company's
to-be-issued common stock, appropriate adjustments to this update will be made.
The reasons for any such adjustment will be explained in detail at that time.
Yours truly,
NATIONAL CAPITAL COMPANIES, LLC
Stephen Clinton
President
<PAGE>
National Capital Companies, LLC
Updated Appraisal
of the Estimated
Proforma Fair
Market Value
Prepared for
Hopkinsville Federal
Savings Bank
Hopkinsville, Kentucky
August 29, 1997
<PAGE>
National Capital Companies, LLC
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
I-1 Market Data - For Selected Publicly-Held Thrifts
I-1a Market Data - For Selected Publicly-Held Thrifts
I-1b Selected Financial and Market Statistics - Selected
Publicly-Held Thrifts Located in Kentucky
I-1c 1997 Announced Merger and Acquisition Activity for Kentucky
I-1d Recent Conversion Activity
II Index Values
III-1 Selected Financial Data - Hopkinsville Federal Savings Bank
III-1a Selected Financial Data - Ameriana Bancorp
III-1b Selected Financial Data - First Bancshares, Inc.
III-1c Selected Financial Data - FFW Corporation
III-1d Selected Financial Data - Wood Bancorp, Inc.
III-1e Selected Financial Data - Industrial Bancorp, Inc.
III-1f Selected Financial Data - Landmark Bancshares, Inc.
III-1g Selected Financial Data - MBLA Financial Corp.
III-1h Selected Financial Data - MFB Corp.
III-1i Selected Financial Data - Milton Federal Financial Corp.
III-1j Selected Financial Data - Midwest Bancshares Inc.
IV-1 Selected Publicly-Traded Stock Detail
IV-2 Comparative Group - Selected Financial and Market Statistics
IV-2a Comparative Group - Selected Financial and Market Statistics
V-1 Standard Conversion Valuation Analysis
V-2 Proforma Effect of Standard Conversion
V-3 Proforma Effect of Standard Conversion
V-4 Proforma Effect of Standard Conversion
</TABLE>
<PAGE>
National Capital Companies, LLC
INTRODUCTION
- ------------
National Capital Companies, LLC ("National Capital") prepared an independent
appraisal for Hopkinsville Federal Savings Bank ("Hopkinsville Federal" or the
"Bank") dated May 29, 1997 to determine the estimated proforma fair market value
(the "original valuation") of the to-be-issued common stock pursuant to a plan
by which Hopkinsville Federal would convert from the mutual to the stock form of
organization.
The original valuation used financial information through the period ended March
31, 1997, including the results of operations for the years ended December 31,
1992, 1993, 1994, 1995 and 1996. This updated valuation (the "update")
incorporates the financial results of the Bank through June 30, 1997. Our
original valuation dated May 29, 1997 is incorporated herein by reference.
Our original valuation employed common stock prices for selected comparable
publicly traded thrifts as of May 29, 1997 and this update incorporates the
market performance of those companies and thrift stock pricing multiples as of
August 29, 1997. As in our original valuation, our valuation methodology will
estimate the proforma fair market value of Hopkinsville Federal under a scenario
by which the Bank will conduct a standard stock conversion and include the
proforma income resulting from the net proceeds of the Offering.
STOCK MARKET PERFORMANCE
- ------------------------
Our original valuation utilized the closing stock market prices as of May 29,
1997. Since May 29, 1997 the general market for common stocks has increased. The
Dow Jones Industrial Average has increased approximately 3.97% from the date of
our original valuation to the date of this update. The Standard and Poors 500
index has increased approximately 6.03% over the same period.
Thrift market prices have increased since the date of our original valuation. As
evidenced by the thrift stock market index calculated by SNL Securities, L.P.,
--------------------
the market values for all publicly traded thrift stocks has increased from May
29, 1997 through August 29, 1997 by approximately 17.46%. The increase in thrift
stock pricing multiples is further demonstrated by a comparison of the
information on Exhibit I-1 and Exhibit I-1a which reflects higher values than
those shown on Table 29 and Table 30 in our original valuation.
The average tangible price to book ("P/B") value of the thrift industry has
increased 11.62% from May 29, 1997 to August 29, 1997. This compares to an
increase in the average price to assets ("P/A") multiple for the industry of
12.23%. The price to earnings ("P/E") multiple for the thrift industry has
increased over the period from May 29, 1997 to August 29, 1997. The average last
twelve months ("LTM") P/E multiple adjusted to exclude the SAIF assessment
increased 11.98% from the date of our original appraisal to the date of this
update.
A review of Exhibit I-1 shows that the market pricing multiples have increased
less from May 29, 1997 through August 29, 1997 for overcapitalized thrifts
(those with 10% and greater equity ratios) than for the thrift industry in
general. The increase in the median P/B multiple for the overcapitalized group
was only 7.8% for that period compared to 9.2% for all thrifts. The increase
Page 1
<PAGE>
National Capital Companies, LLC
for the median P/E multiple was similar at 10.1% for the overcapitalized group
and 10.3% for the entire thrift industry. The median P/A multiple for the
overcapitalized thrifts recorded an increase of 8.5% compared to 10.6% for all
thrifts.
A review of Exhibit I-1a shows that the market pricing multiples have increased
less from May 29, 1997 through August 29, 1997 for Midwestern thrifts than for
the thrift industry in general. The increase in the average P/B multiple was
only 7.6% for that period for the Midwestern thrifts compared to 14.4% for the
district average. The increase for the P/E multiple was also lower at 7.5% for
the Midwestern thrifts compared to 9.1% for the district average. The median P/A
multiple for the Midwestern thrifts recorded an increase of 5.3% compared to
21.2% for the district average.
The strong market for thrift stock is further evidenced by the after market
pricing of thrifts which have completed conversions from the mutual to stock
form. In 1995 there were 71 completed conversions and 55 thrifts completed
conversions in 1996. In the first half of 1997, 14 standard conversions were
completed where data was available. The capital markets are receptive to thrifts
choosing the public form of ownership. The average increase in stock price from
their initial public offering price for those thrifts that converted in the
first half of 1997 was 57.1% as of August 29, 1997, as shown in Exhibit I-1d.
This is significantly higher than the after-market results for 1995 and 1996
conversions. Most of these conversions were sold at the "super-max" which
further demonstrates the market receptiveness of conversions.
COMPARABLE GROUP MARKET PERFORMANCE UPDATE
- ------------------------------------------
A group of ten publicly-held savings institutions (the "comparables") was
selected for comparison purposes in our original valuation. The selection
process used to identify the comparables was designed to develop market pricing
applicable to Hopkinsville Federal to develop an estimate of the Bank's
estimated proforma fair market value. Our selection process limited the universe
of publicly-traded thrift stocks to those of less than $500 million in assets.
Our selection criteria sought comparables with historical profitability and
strong capital positions which operate in non-metropolitan markets. Our
selection process eliminated thrifts which were involved in announced mergers or
acquisitions that significantly impacted their market prices. The comparables
were re-evaluated for inclusion in this update and there did not appear to be
any reason to eliminate any of the companies.
Our original valuation included a financial analysis of the comparables through
March 31, 1997. Since June 30, 1997 financial information is now available for
the comparables, we have evaluated this updated financial information compared
to Hopkinsville Federal's June 30, 1997 financial condition to consider the
appropriateness of the market value adjustments used in the original valuation.
A detailed analysis of the Bank and the comparables financial results for the
quarter ended June 30, 1997 compared to March 31, 1997 is provided in Exhibits
III-1 through Exhibits III-1j.
A summary of the comparable group and Hopkinsville Federal as of June 30, 1997
is provided below to evaluate the appropriateness of market value adjustments
including: level and stability of earnings, asset quality and credit risk,
taxation, dividend payments, management, market area, liquidity and placement of
the issue and prevailing stock market conditions.
Page 2
<PAGE>
National Capital Companies, LLC
Level and Stability of Earnings
- -------------------------------
The level and quality of Hopkinsville Federal's profitability is a function of
the amount and stability of the Bank's net interest margin, the level of
noninterest income, amount of operating expenses and income tax level.
Components impacting these variables include asset composition, asset-liability
structure, interest rate risk structure, management, staffing, operating
efficiency, actions of competitors and other factors.
This update recognizes the amendment made to the Bank's reported income for the
years ended December 31, 1994, 1995 and 1996. The 1994 income was reduced from
$685,000 to $580,000 in recognition of pension-related expenses that were not
properly recorded originally. Income for the Bank in 1995 and 1996 was increased
by approximately $12 thousand for the same reason.
Hopkinsville Federal recorded an increase in net income for the quarter ended
June 30, 1997 resulting primarily from an improvement in the Bank's net yield on
interest-earning assets, a decrease in non-interest expenses and higher
non-interest income, offset by higher income taxes. The Bank's interest margin
for the three months ended June 30, 1997 was 2.34% compared to 2.02 for the
quarter ended March 31, 1997. A major factor in the recent improvement in the
Bank's interest income is the re-deployment of a $20 million investment security
which matured in the first quarter of 1997. The investment was a floating rate
security which had been purchased by the Bank in 1992 and provided a lower level
of return than available when reinvested by the Bank upon its maturity.
Hopkinsville Federal has a conservative asset structure primarily composed of
one-to-four family mortgages and liquid investments with a portfolio yield below
that of the comparables. The Bank's cost of funds is higher than the
comparables. The result is that the Bank's net interest margin is lower than the
comparables. For the quarter ended June 30, 1997, the Bank recorded a 14.06%
increase in net interest income after loan loss provisions from the quarter
ended March 31, 1997, but the Bank's net interest income percentage remains
significantly lower than the comparables and the thrift industry in general.
The following schedule provides an analysis of the comparables' net interest
margin for the quarters ended March 31, 1997 and June 30, 1997. As the schedule
shows, the comparables net interest margin has not been significantly impacted
on an overall basis by the general decrease in interest rates while Hopkinsville
Federal's net interest margin increased significantly for the quarter ended June
30, 1997. As mentioned, the Bank was afforded the opportunity to re-deploy $20
million upon the maturity of an investment security in the first quarter of 1997
which impacted the Bank's level of interest income in the second quarter.
Page 3
<PAGE>
National Capital Companies, LLC
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Net Interest Margin Analysis
- -----------------------------------------------------------------------------------
Quarter Ended Quarter Ended
Comparable March 31, 1997 June 30, 1997 % Change
<S> <C> <C> <C>
Ameriana Bancorp 3.14% 3.16% 0.64%
First Bancshares, Inc. 3.58% 3.52% -1.68%
FFW Corporation 3.31% 3.25% -1.81%
Wood Bancorp, Inc. 4.25% 4.26% 0.24%
Industrial Bancorp, Inc. 4.19% 4.09% -2.39%
Landmark Bancshares, Inc. 3.16% 3.12% -1.27%
MBLA Financial Corp. 1.96% 2.19% 11.73%
MFB Corp. 3.28% 3.19% -2.74%
Milton Federal Financial Corp. 3.15% 3.08% -2.22%
Midwest Bancshares Inc. 2.92% 2.91% -0.34%
Average 3.29% 3.28% -0.52%
Hopkinsville Federal Savings Bank 2.07% 2.58% 24.64%
Source: SNL Securities, L.C. and Unaudited Bank Financial Statements
- -----------------------------------------------------------------------------------
</TABLE>
Hopkinsville Federal's noninterest income has made a similar contribution to
the Bank's profitability as that of the comparables. For the quarter ended June
30, 1997, noninterest income to average assets totaled .29%. This is slightly
higher than the .25% recorded for the quarter ended March 31, 1997. This level
of noninterest income is similar to the comparables' average of .31% for the
quarter ended June 30, 1997.
Hopkinsville Federal's ratio of operating expenses to assets has grown
moderately over the last four years. Expenses have grown, in relative terms,
from 1.18% of assets in 1993 to 1.21% of assets for the quarter ended March 31,
1997. However, operating expenses for the quarter ended June 30, 1997 were 1.08%
of assets. The relatively low operating expense ratio for Hopkinsville Federal
provides the Bank additional profitability. The comparables' average operating
expense ratio was 1.82% for the June 30, 1997 quarter.
The Bank's tax rate for the quarter ended June 30, 1997 was approximately 34%.
The average of the comparables was 37.44% as of June 30, 1997. Our inquiries
with the Bank's accountants and management did not disclose any particular
reason for the lower tax rate and management projects that Hopkinsville
Federal's tax rate will be closer to the comparables in the future.
Page 4
<PAGE>
National Capital Companies, LLC
The following schedule provides an analysis of Hopkinsville Federal's most
recent quarterly profit performance compared to the comparables.
- --------------------------------------------------------------------------------
Return on Average Assets Analysis
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
Company March 31, 1997 June 30, 1997 % Change
<S> <C> <C> <C>
Ameriana Bancorp 0.88% 0.89% 1.14%
First Bancshares, Inc. 1.13% 1.02% -9.73
FFW Corporation 1.13% 0.94% -16.81
Wood Bancorp, Inc. 1.43% 1.44% 0.70%
Industrial Bancorp, Inc. 1.48% 1.51% 2.03%
Landmark Bancshares, Inc. 1.05% 1.11% 5.71%
MBLA Financial Corp. 0.70% 0.79% 12.86%
MFB Corp. 0.91% 0.84% -7.69
Milton Federal Financial Corp. 0.64% 0.74% 15.62%
Midwest Bancshares Inc. 0.72% 0.81% 12.50%
Average 1.01% 1.01% 0.20%
Hopkinsville Federal Savings Bank 0.70% 1.01% 44.29%
Source: SNL Securities, L.C.
- --------------------------------------------------------------------------------
</TABLE>
As mentioned, Hopkinsville Federal's net interest margin is lower than the
comparables. This lower net interest margin is primarily the result of its high
level of investment securities and its holdings of primarily one-to-four family
mortgages in the Bank's loan portfolio. In the quarter ended June 30, 1997 the
Bank recorded a return on average assets equal to the comparable average. The
Bank's lower level of operating expenses in conjunction with its improvement in
net interest margin has enabled the Bank to reach the average return on assets
level of the comparables.
Page 5
<PAGE>
National Capital Companies, LLC
The following schedule provides an analysis of the return on average equity for
the comparables for the last twelve months and the quarter ended June 30, 1997.
The schedule compares the actual return on average equity recorded by the
comparables to the proforma post-conversion results for the Bank upon completion
on the conversion.
- --------------------------------------------------------------------------------
Return on Average Equity Analysis
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter Ended LTM Ended
Company June 30, 1997 June 30, 1997 *
<S> <C> <C>
Ameriana Bancorp 8.16% 9.84%
First Bancshares, Inc. 7.35% 11.89%
FFW Corporation 9.50% 9.07%
Wood Bancorp, Inc. 11.53% 8.92%
Industrial Bancorp, Inc. 8.43% 8.84%
Landmark Bancshares, Inc. 7.81% 7.07%
MBLA Financial Corp. 6.21% 6.41%
MFB Corp. 5.99% 13.57%
Milton Federal Financial Corp. 5.44% 5.65%
Midwest Bancshares Inc. 11.75% 11.55%
Average 8.22% 9.28%
Hopkinsville Federal Savings Bank ** 4.91% 4.91%
* Adjusted to exclude the SAIF assessment
** Proforma - Please refer to the midpoint value in Exhibit V-3
Source: SNL Securities, L.C.
- --------------------------------------------------------------------------------
</TABLE>
As shown, the Bank is anticipated to record a lower return on average equity
post-conversion than the comparables. The Bank, at the midpoint, is projected to
have a net worth ratio of over 18%, which is significantly higher than the
comparables average of 12.14%. The high level of capitalization projected for
the Bank contributes to the lower level of proforma return on average equity
compared to the comparables. The Bank, due to the limited market growth
opportunities, may require some time to leverage its capital position to bring
its return on average equity to that of the comparables.
Based upon the foregoing, we continue to apply a discount to the comparables
market pricing related to level and stability of earnings. Accordingly, a
downward adjustment to the pricing multiples of the comparables is warranted to
reflect the Bank's lower proforma earnings prospects relative to the comparable
group, and our update will continue to apply a discount to the comparables
market pricing multiples.
Asset Quality and Credit Risk
- -----------------------------
The Bank holds less than half of its total assets in net loans and a
considerably higher level of cash and investment securities than the
comparables. The Bank reported unrealized gains on securities available for sale
of $2.8 million at June 30, 1997 compared to $2.2 million at March 31, 1997. The
Bank's holdings of Federal Home Loan Mortgage Stock increased in value in the
second quarter of
Page 6
<PAGE>
National Capital Companies, LLC
1997 which represents the majority of the unrealized gains noted. The Bank
categorizes the majority of its investment portfolio in the "held to maturity"
category. At June 30, 1997 the Bank held a book value of $79.6 million of
investments in the held to maturity category.
The market value of the held to maturity investment portfolio as of June 30,
1997 was $32 thousand below the Bank's carrying value. This compares to a
unrealized loss of $722 thousand as of March 31, 1997 on the Bank's $77.7
million held to maturity investment portfolio. The improvement in market value
is also due primarily to the decrease in interest rates which has occurred since
our original valuation and the resulting higher market value of certain
securities. The following table demonstrates the decrease in interest rates from
the end of the first quarter of 1997 to the end of the second quarter of 1997.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
March 31, 1997 June 30, 1997
<S> <C> <C>
Prime Rate 8.50% 8.50%
90-Day Treasury Bill 5.30% 4.99%
1 Year Treasury Note 5.83% 5.65%
30 Year Treasury Note 7.08% 6.73%
--------------------------------------------------------------------------
</TABLE>
As mentioned in our original valuation, we believe that Hopkinsville Federal's
asset quality is superior to the comparables. The following provides an analysis
of nonperforming assets for Hopkinsville Federal and the comparables as of June
30, 1997:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Non-Performing Assets
--------------------------------------------------------------------------------------------------------
Quarter Ended Quarter Ended
Company March 31, 1997 June 30, 1997 % Change
<S> <C> <C> <C>
Ameriana Bancorp 0.43% 0.40% -6.98
First Bancshares, Inc. 0.32% 0.56% 75.00%
FFW Corporation 0.22% 0.16% -27.27
Wood Bancorp, Inc. 0.10% 0.24% 140.00%
Industrial Bancorp, Inc. 0.42% 0.30% -28.57
Landmark Bancshares, Inc. 0.60% 0.31% -48.33
MBLA Financial Corp. 0.25% 0.25% 0.00
MFB Corp. 0.03% 0.08% 166.67%
Milton Federal Financial Corp. 0.32% 0.32% 0.00
Midwest Bancshares Inc. 0.82% 0.77% -6.10
Average 0.35% 0.34% -3.42
Hopkinsville Federal Savings Bank 0.09% 0.11% 22.22%
Source: SNL Securities, L.C.
--------------------------------------------------------------------------------------------------------
</TABLE>
Our analysis of Hopkinsville Federal related to asset quality and credit risk is
that the Bank's risk related to credit losses is lower than the comparable
group. As a result we will continue to apply an upward adjustment to the
comparables market pricing multiples concerning asset quality and credit risk.
Page 7
<PAGE>
National Capital Companies, LLC
Taxation
- --------
Our inquiries with the Bank's accountants and management did not disclose any
reason for a tax rate different than the comparables. Our expectation is that
the future tax rates for the comparables and Hopkinsville Federal will be
similar. The differences that exist among the comparables and Hopkinsville
Federal's are minimal. Hence, no adjustment in the Bank's estimated proforma
fair market value will be made for taxation.
Dividend Payments
- -----------------
Hopkinsville Federal has indicated that it intends to establish a policy of
paying dividends initially at an annual rate of 3% of the purchase price of the
stock beginning with the first full quarter following the conversion. The Bank
will consider such factors including capital requirements, financial
performance, tax considerations and general economic conditions in determining
future dividend adjustments.
Thrift stock historically has not traded on the basis of current or potential
dividend yields. However, the rise in industry profitability and the improved
level of capitalization has enabled many thrifts the ability to pay out modest
dividends. This trend is evident in the comparable group. All of the ten
selected members of the comparable group are paying regular dividends.
Because Hopkinsville Federal has stated that it will pay a dividend on the
common stock, no adjustment will be made to the proforma fair market value in
consideration of dividends, which was also the case in the original valuation.
Management
- ----------
Hopkinsville Federal's management has responded well in this era of uncertainty
and constant change related to the thrift industry. The Bank has remained
profitable, improved its net interest margin, held operating expenses under
control, increased its franchise value and maintained asset quality. The Bank
has also developed an alternative investment strategy of investments and
mortgage-backed securities to offset the lower level of loan production
available in the current market.
Hopkinsville Federal's management understands their deposit and lending markets,
responds well to competition and has initiated the organizational and structural
changes necessary to remain competitive, including the pursuit of a conversion.
The most important measure of management is their ability to earn a profit.
Management has done this consistently, due in part to the reasons mentioned
above. Based upon our analysis of the comparables, we believe that they also
possess quality management. The best indication of the comparables' management
capabilities is the consistent level of earnings recorded by the group. Based
upon this assessment, we believe that no market adjustment is necessary for the
quality of management.
Market Area
- -----------
As discussed in our original valuation, Hopkinsville Federal's primary deposit
area encompasses the southwestern area of Kentucky. The Bank's lending
activities are also concentrated in this same market. The local economy is
stable, however, the economic prospects for the Bank's primary market area are
lower than for the state of Kentucky and for the nation as a whole.
Page 8
<PAGE>
National Capital Companies, LLC
Summary of Market Value Adjustments
- -----------------------------------
We concluded in our original valuation that Hopkinsville Federal warranted a
downward adjustment for level and stability of earnings and market area and an
upward adjustment for assets quality and credit risk. Our analysis found that
the Bank did not significantly differ in any of the other market value
adjustment criteria. It should be noted that Hopkinsville Federal may have
several other positive and negative factors, but in relation to the comparable
group these conditions are not materially different.
The preparation of this update included a review of the market value adjustments
discussed above. Our assessment of the market factors is the same as in our
original valuation. We believe that the following market value adjustments are
appropriate upon the application of the comparables' market pricing multiples
for Hopkinsville Federal:
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Summary of Market Value Adjustments
---------------------------------------------------------------------
Market Factor Adjustment
<S> <C>
Level and Stability of Earnings Downward
Asset Quality and Credit Risk Upward
Taxation None
Dividend Payments None
Management None
Market Area Downward
Liquidity and Placement of the Issue None
Prevailing Stock Market Conditions None
---------------------------------------------------------------------
</TABLE>
MARKET PERFORMANCE
- ------------------
The market valuation of total equity for the comparables increased 18.29% from
May 29, 1997, the market date for our original valuation, to August 29, 1997,
the date of this update. As shown below, the performance of individual companies
varied widely. All of the comparables experienced an increase in market value
except one. The percentage change in the market value for the comparables ranged
from a decline of 1.89% to an increase of 47.36%. The percentage change in the
median value of the comparables market value of equity was a positive 12.42%.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Market Value of Equity
------------------------------------------------------------------------------------------------------------
Company August 29, 1997 May 29, 1997 % Change
<S> <C> <C> <C>
Ameriana Bancorp $63.8 $50.6 26.09%
First Bancshares, Inc. 26.6 21.7 22.44%
FFW Corporation 20.8 18.1 14.92%
Wood Bancorp, Inc. 35.2 23.9 47.36%
Industrial Bancorp, Inc. 77.8 68.3 13.95%
Landmark Bancshares, Inc. 41.5 35.3 17.51%
MBLA Financial Corp. 30.8 27.3 12.97%
MFB Corp. 39.7 33.6 18.21%
Milton Federal Financial Corp. 31.7 32.3 -1.89%
Midwest Bancshares Inc. 12.3 10.3 18.93%
Median 33.5 29.8 12.42%
Source: Quarterly Financial Statements, SNL Securities, L.P. and National Capital Calculations
Dollars shown in thousands
-----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
National Capital Companies, LLC
Exhibit IV-2 details the P/E, P/B and P/A multiples of the comparables as of
August 29, 1997. The median percentage change from the market multiples as of
May 29, 1997 is shown below. The comparable group recorded increases in the P/E
multiple ranging from .72% to 42.51%. The comparable P/E median was 17.67x as of
August 29, 1997 compared to the median of 14.72x as of May 29, 1997. This 20.04%
increase compares to a 11.98% increase in the average P/E multiple for all
publicly-traded thrifts. The median P/B multiple for the comparable group
increased 14.74% as compared to a 11.62% increase in the average P/B multiple
for all publicly-traded thrifts. The median P/A multiple increased for the
comparable group a total of 13.48% while the average P/A multiple for all
publicly-traded thrifts increased 12.23% from May 29, 1997 to August 29, 1997.
Additional information on these multiples for the industry is provided in
Exhibit I-1 and Exhibit I-1a. In recognition of the enhanced market pricing of
the comparables and the thrift industry in general, an upward adjustment in our
estimate of the fair market value of the to-be-issued common stock of the Bank
would appear to be appropriate.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
P/B Multiples
--------------------------------------------------------------------------------------------------
Company August 29, 1997 May 29, 1997 % Change
<S> <C> <C> <C>
Ameriana Bancorp 146.51 116.87 25.36%
First Bancshares, Inc. 119.81 96.11 24.66%
FFW Corporation 134.61 114.29 17.78%
Wood Bancorp, Inc. 174.63 115.03 51.81%
Industrial Bancorp, Inc. 126.83 110.65 14.62%
Landmark Bancshares, Inc. 131.87 107.68 22.46%
MBLA Financial Corp. 108.05 96.47 12.00%
MFB Corp. 117.21 98.90 18.51%
Milton Federal Financial Corp. 112.15 113.54 -1.22%
Midwest Bancshares Inc. 123.88 106.58 16.23%
Median 125.30 109.20 14.74%
Source: SNL Securities, L.P. and National Capital Calculations
--------------------------------------------------------------------------------------------------
<CAPTION>
--------------------------------------------------------------------------------------------------
P/A Multiple
--------------------------------------------------------------------------------------------------
Company August 29, 1997 May 29, 1997 % Change
<S> <C> <C> <C>
Ameriana Bancorp 16.04 12.67 26.60%
First Bancshares, Inc. 16.20 13.77 17.65%
FFW Corporation 11.55 11.44 0.96%
Wood Bancorp, Inc. 21.49 14.61 47.09%
Industrial Bancorp, Inc. 22.46 20.46 9.78%
Landmark Bancshares, Inc. 18.19 15.75 15.49%
MBLA Financial Corp. 13.13 13.02 0.84%
MFB Corp. 16.00 14.34 11.58%
Milton Federal Financial Corp. 15.89 18.07 -12.06%
Midwest Bancshares Inc. 8.56 7.39 15.83%
Median 16.00 14.10 13.48%
Source: SNL Securities, L.P. and National Capital Calculations
- ---------------------------------------------------------------------------------------------------
</TABLE>
Page 11
<PAGE>
National Capital Companies, LLC
As detailed in our original valuation, we believe that the P/E method is the
most direct and appropriate method of determining Hopkinsville Federal's
estimated proforma fair market value of the to-be-issued common shares. Our
original valuation used Hopkinsville Federal's trailing LTM earnings as of March
31, 1997 of $1.2 million adjusted to exclude the SAIF assessment to apply to the
market P/E multiple. The LTM earnings for the Bank as of June 30, 1997 adjusted
to exclude the SAIF assessment was approximately $1.4 million.
VALUATION METHODOLOGY
- ---------------------
The market pricing multiples of the comparable group members are presented in
Exhibit IV-2 and 2a. All three valuation methodologies will be examined: P/E,
P/B, and P/A, although the central valuation methodology will be the P/E method.
Since Hopkinsville Federal and all of the comparable group members have been
consistently profitable, the P/E method is the most direct and appropriate
method of valuation. Investors consider earnings an important factor for the
determination of the value of a newly converted thrift. The factors affecting
earnings were addressed in the market value adjustment section. Hopkinsville
Federal's LTM earnings adjusted to exclude the SAIF assessment will provide the
basis for calculation of proforma values for the Bank. As noted earlier,
Hopkinsville Federal's LTM earnings as of June 30, 1997 excluding the SAIF
assessment totaled approximately $1.4 million, which is $200 thousand higher
than the Bank's March 31, 1997 LTM earnings.
The P/B and the P/A methods will be applied as secondary measures of
Hopkinsville Federal's estimated proforma fair market value. These methods are
more appropriately employed in situations where the P/E method would not be
appropriate. These methods have limitations caused by historical cost
accounting, goodwill and the inability to distinguish the affects these factors
have on the subject and comparable group.
P/E Multiple Calculation
- -------------------------
As indicated in Exhibit IV-2 the adjusted P/E market multiples for the
comparable group range from 12.06x to 22.43x. The average and median for the
comparable group's P/E multiples are 17.26x and 17.67x, respectively. In order
to derive a multiple to apply to Hopkinsville Federal's LTM earnings,
adjustments to these multiples were made. The multiples applied were adjusted
downward to reflect the lower earnings prospects for the Bank and the weaker
market area that the Bank operates in and adjusted upward for the Bank's
stronger level of asset quality and credit risk. The proforma P/E for the
minimum, midpoint, maximum and "super-max" as shown in Exhibit V-3 was 11.75x,
13.20x, 14.51x and 15.89x, respectively.
Assuming pre-conversion earnings of $1.4 million, Hopkinsville Federal's LTM
actual earnings adjusted to exclude the SAIF assessment, and applying the
formula in Exhibit V-1, the resulting range of estimated proforma fair market
values are as follows:
Page 12
<PAGE>
National Capital Companies, LLC
-------------------------------------------------------------------------------
P/E Valuation
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
P/E multiple Calculated Proforma Fair Market Value
<S> <C>
12.50 $23,992,588
15.25 $29,270,957
Please refer to Exhibit V-1
-------------------------------------------------------------------------------
</TABLE>
P/B Multiple Calculation
- ------------------------
The P/B value method considers a company's financial condition, but does not as
readily evaluate the future operating results. Accordingly, this valuation
method is less meaningful than the P/E method. The P/B method must be
considered, however, because it is a method which many investors and analysts
use in evaluating the value of thrift common stock.
As indicated in Exhibit IV-2 the P/B market multiples for the comparable group
range from 108.05% to 174.63%. The comparables' average and median P/B multiples
are 129.56% and 125.30%, respectively. Downward adjustments are required in the
application of the comparables' values for lower earnings capacity and market
area and an upward adjustment for asset quality and credit risk. Our update
applied a discount of approximately 50% to the comparables' average values for
P/B at the midpoint estimate of value. The proforma P/B for the minimum,
midpoint, maximum and super-max as shown in Exhibit V-3 was 60.25%, 64.82%,
68.66% and 72.40%, respectively.
The following schedule provides the calculated estimated proforma fair market
values derived from the application of the above mentioned P/B multiples. The
value shown represents the range of values calculated using the formula shown on
Exhibit V-1 based upon the Bank's pre-conversion net worth as of June 30, 1997
of $18.3 million.
-------------------------------------------------------------------------------
P/B Valuation
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
P/B multiple Calculated Proforma Fair Market Value
<S> <C>
63.50 $25,025,959
66.50 $28,237,222
Please refer to Exhibit V-1
-------------------------------------------------------------------------------
</TABLE>
P/A Multiple Calculation
- ------------------------
The third method of valuation considered is the P/A method. This method is
generally the least desirable of the valuation methods considered. This method
fails to consider either the financial strength or the earnings capacity of the
Bank. This method is generally reserved for circumstances where core earnings
are nonexistent or where a financial institution holds a minimal level of
capital.
As indicated in Table IV-2, the P/A market multiples for the comparables range
from 8.56% to 22.46%. The average and median comparables' P/A multiples are
15.95% and 16.00%, respectively. The comparables' values were adjusted downward
in this valuation for consideration of the cited factors of lower earnings
capacity and market area and upward for asset quality and credit risk. Our
valuation applied approximately a 30% discount to the comparables' average value
for P/A.
Page 13
<PAGE>
National Capital Companies, LLC
The calculated estimated proforma fair market values derived from the
application of the above mentioned P/A multiples are provided in the schedule
below. The value shown represents the range of values calculated using the
formula shown on Exhibit V-1 based upon the Bank's pre-conversion assets as of
June 30, 1997 of $202.5 million.
-------------------------------------------------------------------------------
P/A Valuation
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
P/A multiple Calculated Proforma Fair Market Value
<S> <C>
11.00 $24,941,079
12.50 $28,342,135
Please refer to Exhibit V-1
-------------------------------------------------------------------------------
</TABLE>
VALUATION ANALYSIS
- ------------------
The primary valuation approaches discussed in the determination of the estimated
proforma fair market value of Hopkinsville Federal indicated the following
ranges as shown below:
-------------------------------------------------------------------------------
Summary of Valuation Approaches
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Valuation Method Calculated Low Value Calculated High Value
<S> <C> <C>
P/E $23,992,588 $29,270,957
P/B $25,025,959 $28,237,222
P/A $24,941,079 $28,342,135
Please refer to Exhibits V-1
---------------------------------------------------------------------------------------
</TABLE>
Based upon the analysis performed, it is our opinion that as of August 29, 1997,
the estimated proforma fair market value midpoint of Hopkinsville Federal in
connection with the Bank's to-be-issued common stock in an assumed standard
conversion was $26,500,000 based upon 2,650,000 shares of stock offered at a
price of $10.00 per common share. The proforma valuation calculations are shown
in Exhibits V-1, V-2, V-3 and V-4. The resultant valuation range was $22,525,000
to $35,046,250.
This conclusion is based on the P/E method with secondary consideration of the
P/B and P/A calculations as included in Exhibits V-1 through V-4. As stated
previously, we believe that the P/E method is the most appropriate methodology
based upon the conditions and characteristics analyzed throughout this
valuation.
Exhibit V-3 includes proforma ratios for P/A, P/B and P/E for the minimum,
midpoint, maximum and super-max ranges of value. Also included is a proforma
calculation for tangible net worth to assets.
Our original valuation estimated the fair market value at the midpoint of
Hopkinsville Federal in connection with the Bank's to-be-issued common stock in
an assumed standard conversion at $24,000,000. The updated midpoint value
estimate of $26,500,000 reflects an increase of 10.4%. This increase is similar
to the median increase in the market value of equity for the comparables, which
increased 12.4% since the original valuation date. The increase in our value
estimate is similar to the increase in the median P/E multiple for all thrifts
which
Page 14
<PAGE>
National Capital Companies, LLC
was 10.3% since the original valuation and exceeds the increase over the period
for the market pricing multiples of overcapitalized thrifts and Midwestern
thrifts.
Exhibit I-1b illustrates the market pricing for publicly traded Kentucky thrifts
of similar size to the Bank. The Kentucky thrifts traded at a median P/E
multiple of 18.7x. Based upon our proforma P/E multiples at the minimum,
midpoint, maximum and super-max, the Bank would have a P/E multiple at the
following discounts to the Kentucky thrifts: 37.2%, 29.4%, 22.4% and 15.0%,
respectively.
Based upon factors cited in the update, it is our opinion that as of August 29,
1997 the estimated proforma fair market value of Hopkinsville Federal in
connection with the Bank's to-be-issued common stock in an assumed standard
conversion was $26,500,000 based upon 2,650,000 shares of stock offered at a
price of $10.00 per common share. This higher estimate than the $24 million
estimated in our original valuation, we believe, properly reflects the change in
market conditions which has occurred since May 29, 1997.
Page 15
<PAGE>
Exhibit I-1
Hopkinsville Federal Savings Bank
Hopkinsville, Kentucky
Market Data for Selected Publicly-Traded Thrift Institutions *
Selected Groups Excluding Mutual Holding Companies
As of August 29, 1997
<TABLE>
<CAPTION>
-------------------------------------------------
Price to Price to Price to
Book LTM EPS ** Assets
(%) (x) (%)
-------------------------------------------------
<S> <C> <C> <C>
Segment Description:
All Thrift - Medians 136.36 16.69 14.96
All Thrift - Averages 153.76 18.97 17.25
Thrifts with Assets (greater than) $500 million
Medians 170.43 16.49 13.63
Averages 182.89 18.82 14.81
Thrifts with Assets (less than) $500 million
Medians 120.42 16.96 15.89
Averages 134.73 19.09 18.86
Equity-to-Asset Groups*
Over 10%
Medians 115.35 18.48 18.56
Averages 123.53 20.77 22.47
From 7% to 10%
Medians 139.44 13.89 11.61
Averages 154.12 16.53 11.85
Under 7%
Medians 156.45 15.47 9.20
Averages 166.66 15.46 10.23
</TABLE>
* Selected publicly traded companies include those with assets less than $500
million.
** Adjusted to exclude SAIF assessment where applicable
Source: SNL Securities, L.P. and National Capital calculations
<PAGE>
Exhibit I-1a
Hopkinsville Federal Savings Bank
Hopkinsville, Kentucky
Market Data for Selected Publicly-Traded Thrift Institutions *
Excluding Mutual Holding Companies
Geographic Regional Averages
As of August 29, 1997
<TABLE>
<CAPTION>
-----------------------------------------------
Price to Price to Price to
Book LTM EPS ** Assets
(%) (x) (%)
-----------------------------------------------
<S> <C> <C> <C>
Mid-Atlantic 136.63 18.57 14.53
Midwestern 121.23 19.67 18.18
Northeastern 160.23 15.39 15.21
Southeastern 157.87 20.74 25.82
Southwestern 122.45 17.88 18.40
Western 149.41 19.87 23.97
District Average 141.30 18.69 19.35
</TABLE>
* Selected publicly traded thrifts with assets less than $500 million.
** Reflects adjustment to exclude SAIF assessment where applicable.
Source: SNL Securities, L.P. and National Capital calculations
<PAGE>
Exhibit I - 1b
SELECTED FINANCIAL AND MARKET STATISTICS
Selected Publicly Traded Thrifts
Located in Kentucky
As of August 29, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Current * Current Current Total
Stock Price/ Price/ Tang Price/ Assets
Price LTM EPS Book Value Assets ($000)
Ticker Short Name City IPO Date ($) (x) (%) (%) Mst RctQ
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CKFB CKF Bancorp Inc. Danville 01/04/95 19.00 13.48 111.96 28.91 60,812
CLAS Classic Bancshares Inc. Ashland 12/29/95 14.13 18.72 112.37 14.12 130,525
FFKY First Federal Financial Corp. Elizabethtown 07/15/87 21.50 15.39 184.23 23.76 377,380
FKKY Frankfort First Bancorp Inc. Frankfort 07/10/95 10.88 NM 156.70 26.93 132,451
FLKY First Lancaster Bancshares Lancaster 07/01/96 15.69 31.38 108.64 37.19 40,448
FTSB Fort Thomas Financial Corp. Fort Thomas 06/28/95 12.00 25.27 115.38 18.51 96,940
HFFB Harrodsburg First Fin Bancorp Harrodsburg 10/04/95 15.25 20.24 97.26 28.34 108,950
KYF Kentucky First Bancorp Inc. Cynthiana 08/29/95 12.50 16.35 112.01 18.54 88,959
-------------------------------------------------------------------------
AVERAGE 15.12 20.12 124.82 24.54 129,558
MEDIAN 14.69 18.72 112.19 25.35 102,945
-------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Tangible
Equity/ NPAs/ * Return on * Return on
Tang Assets Assets Avg Assets Avg Equity
(%) (%) (%) (%)
Ticker Short Name City Mst RctQ Mst RctQ LTM LTM
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CKFB CKF Bancorp Inc. Danville 23.96 0.63 2.08 8.72
CLAS Classic Bancshares Inc. Ashland 12.87 0.66 0.71 4.82
FFKY First Federal Financial Corp. Elizabethtown 13.01 0.23 1.56 11.43
FKKY Frankfort First Bancorp Inc. Frankfort 17.18 0.00 0.00 0.00
FLKY First Lancaster Bancshares Lancaster 34.24 0.45 1.40 3.92
FTSB Fort Thomas Financial Corp. Fort Thomas 16.04 1.42 0.77 4.79
HFFB Harrodsburg First Fin Bancorp Harrodsburg 26.92 0.00 1.35 5.06
KYF Kentucky First Bancorp Inc. Cynthiana 16.55 0.00 1.11 6.82
------------------------------------------------------
20.10 0.42 1.12 5.70
16.87 0.34 1.23 4.94
------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Current 1 Month Avg
Dividend Weekly Vol/ Three Month
Yield Shares Out Price Change
Ticker Short Name City (%) (%) (%)
- -----------------------------------------------------------------------------------------------------------
CKFB CKF Bancorp Inc. Danville 2.63 0.10 (1.30)
CLAS Classic Bancshares Inc. Ashland 1.98 0.58 (2.59)
FFKY First Federal Financial Corp. Elizabethtown 2.60 0.07 13.91
FKKY Frankfort First Bancorp Inc. Frankfort 3.31 1.45 4.82
FLKY First Lancaster Bancshares Lancaster 3.19 0.65 2.87
FTSB Fort Thomas Financial Corp. Fort Thomas 2.08 0.62 17.07
HFFB Harrodsburg First Fin Bancorp Harrodsburg 2.62 0.26 0.00
KYF Kentucky First Bancorp Inc. Cynthiana 4.00 0.72 17.65
--------------------------------------------------
2.80 0.56 6.55
2.63 0.60 3.85
--------------------------------------------------
</TABLE>
* Reflects adjustment for SAIF special assessment
Source: SNL Securities, L.P. National Capital Companies, LLC
<PAGE>
Exhibit I -1c
1997 Announced Merger and Acquisition Activity
As of August 29, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Buyer: Seller: Seller:
1:Total 1:Total 1:Total
Bank/ Bank/ Assets Assets Deposits
Buyer ST Thrift Seller City ST Thrift ($000) ($000) ($000)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Citizens Nat'l Corp KY Bank Josephine Bancshares Prestonburg KY Bank 150,367 114,426 96,776
Area Bancshares Corp KY Bank Cardinal Bancshares Lexington KY Bank 1,170,838 631,349 548,777
Peoples Bancorp OH Bank Gateway Bancorp Catlettsburg KY Thrift 616,635 66,439 49,195
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Seller: Seller: Seller:
1:Tang 1:YTD 1:YTD
Bank/ Bank/ Eqty/ ROAA* ROAE*
Buyer ST Thrift Seller City ST Thrift Assets (%) (%) (%)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Citizens Nat'l Corp KY Bank Josephine Bancshares Prestonburg KY Bank 11.06 1.13 10.92
Area Bancshares Corp KY Bank Cardinal Bancshares Lexington KY Bank 7.34 1.03 12.65
Peoples Bancorp OH Bank Gateway Bancorp Catlettsburg KY Thrift 25.63 0.75 2.99
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Seller:
1:NPAs/
Bank/ Bank/ Assets Announce
Buyer ST Thrift Seller City ST Thrift (%) Date Status
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Citizens Nat'l Corp KY Bank Josephine Bancshares Prestonburg KY Bank 4.26 05/29/97 Pending
Area Bancshares Corp KY Bank Cardinal Bancshares Lexington KY Bank 0.16 05/01/97 Pending
Peoples Bancorp OH Bank Gateway Bancorp Catlettsburg KY Thrift 0.12 04/25/97 Pending
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Ann'd
Completed/ Deal Pr/
Bank/ Bank/ Terminated Consider Tg Bk
Buyer ST Thrift Seller City ST Thrift Date Type (%)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Citizens Nat'l Corp KY Bank Josephine Bancshares Prestonburg KY Bank NA ND NA
Area Bancshares Corp KY Bank Cardinal Bancshares Lexington KY Bank NA Com Stock 208.95
Peoples Bancorp OH Bank Gateway Bancorp Catlettsburg KY Thrift NA Mixture 118.45
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Ann'd
Deal Pr/
Bank/ Bank/ 4-Qtr
Buyer ST Thrift Seller City ST Thrift EPS (x)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Citizens Nat'l Corp KY Bank Josephine Bancshares Prestonburg KY Bank NA
Area Bancshares Corp KY Bank Cardinal Bancshares Lexington KY Bank 16.93
Peoples Bancorp OH Bank Gateway Bancorp Catlettsburg KY Thrift 39.06
</TABLE>
Source: SNL Securities, L.P.
National Capital Companies,
<PAGE>
Exhibit I - 1d
Recent Conversion Activity
Selected Publicly Traded Thrifts
Original Offering Statistics and Current Market Pricing
As of August 29, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Current
Total Stock
Shares IPO Price Price Increase
Ticker Short Name City State IPO Date Issued ($) ($) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AFBC Advance Financial Bancorp Wellsburg WV 01/02/97 1,084,450 10.00 16.25 62.50%
EFBC Empire Federal Bancorp Inc. Livingston MT 01/27/97 2,592,100 10.00 15.50 55.00%
FAB FirstFed America Bancorp Inc. Fall River MA 01/15/97 8,712,630 10.00 20.06 100.63%
GSLA GS Financial Corp. Metairie LA 04/01/97 3,438,500 10.00 15.75 57.50%
HCBB HCB Bancshares Inc. Camden AR 05/07/97 2,645,000 10.00 13.75 37.50%
HMLK Hemlock Federal Financial Corp Oak Forest IL 04/02/97 2,076,325 10.00 15.38 53.75%
MRKF Market Financial Corp. Mount Healthy OH 03/27/97 1,335,725 10.00 14.19 41.88%
PSFC Peoples-Sidney Financial Corp. Sidney OH 04/28/97 1,785,375 10.00 16.00 60.00%
RFFC Rocky Ford Financial Inc. Rocky Ford CO 05/22/97 423,200 10.00 13.50 35.00%
RSLN Roslyn Bancorp Inc. Roslyn NY 01/13/97 42,371,359 10.00 22.75 127.50%
SCYT Security Bancorp, Inc. McMinnville TN 06/30/97 436,425 10.00 15.50 55.00%
SFBK SFB Bancorp Inc. Elizabethton TN 05/30/97 767,000 10.00 14.63 46.25%
SVBC Sistersville Bancorp Inc. Sistersville WV 06/26/97 661,428 10.00 13.88 38.75%
VBAS Vermilion Bancorp Inc. Danville IL 03/26/97 396,750 10.00 12.75 27.50%
-----------------------------------------------------------------------
AVERAGE 4,909,019 10.000 15.705 57.05%
MEDIAN 1,560,550 10.000 15.438 54.38%
-----------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Price/ Price/ Price/
Gross Pro-Forma Pro-Forma Adjusted Conversion
Proceeds Tang. Book Earnings Assets Assets
Ticker Short Name City State IPO Date ($000) (%) (%) (x) ($000)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AFBC Advance Financial Bancorp Wellsburg WV 01/02/97 10,845 71.09 16.80 10.60 91,852
EFBC Empire Federal Bancorp Inc. Livingston MT 01/27/97 25,921 68.09 21.50 23.00 86,810
FAB FirstFed America Bancorp Inc. Fall River MA 01/15/97 87,126 72.02 13.60 10.70 723,778
GSLA GS Financial Corp. Metairie LA 04/01/97 34,385 63.75 38.70 28.40 86,521
HCBB HCB Bancshares Inc. Camden AR 05/07/97 26,450 71.95 29.00 13.40 171,241
HMLK Hemlock Federal Financial Corp Oak Forest IL 04/02/97 20,763 71.62 37.50 12.40 146,595
MRKF Market Financial Corp. Mount Healthy OH 03/27/97 13,357 71.07 26.20 22.70 45,547
PSFC Peoples-Sidney Financial Corp. Sidney OH 04/28/97 17,854 71.24 11.50 17.00 86,882
RFFC Rocky Ford Financial Inc. Rocky Ford CO 05/22/97 4,232 68.79 17.70 17.20 20,388
RSLN Roslyn Bancorp Inc. Roslyn NY 01/13/97 423,714 71.98 9.30 21.00 1,596,744
SCYT Security Bancorp, Inc. McMinnville TN 06/30/97 4,364 72.86 18.10 9.00 44,121
SFBK SFB Bancorp Inc. Elizabethton TN 05/30/97 7,670 69.57 17.70 14.10 46,579
SVBC Sistersville Bancorp Inc. Sistersville WV 06/26/97 6,614 65.39 26.70 20.10 26,258
VBAS Vermilion Bancorp Inc. Danville IL 03/26/97 3,968 71.36 0.00 10.10 35,459
--------------------------------------------------------------------------
AVERAGE 49,090 70.06 20.31 16.41 229,198
MEDIAN 15,606 71.17 17.90 15.55 86,666
--------------------------------------------------------------------------
</TABLE>
Source: SNL Securities, L.P.
National Capital Companies, LLC
<PAGE>
National Capital Companies, LLC
Exhibit II
Thrift Index Values
<TABLE>
<CAPTION>
Price Change (%) Total Return (%)
Value ---------------- ---------------
Index 07/31/97 1 Month YTD LTM 1 Month YTD LTM
- ----- -------- ------- --- --- ------- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
All Publicly Traded Thrifts 684.5 9.60 41.54 75.56 9.72 42.23 76.75
SAIF Thrifts 608.2 9.59 38.47 69.96 9.72 40.40 73.01
BIF Thrifts 908.5 9.18 47.28 86.93 9.28 47.28 88.07
Stock Exchange Indices
AMEX Thrifts 197.0 2.20 26.10 48.24 2.25 28.27 56.40
NYSE Thrifts 421.4 14.41 51.96 90.83 14.50 53.28 94.07
OTC Thrifts 779.9 8.05 36.89 68.02 8.19 38.11 69.85
Geographic Indices
Mid-Atlantic Thrifts 1,342.6 5.94 38.31 80.44 6.16 39.46 79.29
Midwestern Thrifts 1,455.2 6.26 25.52 52.06 6.35 26.97 55.58
New England Thrifts 592.0 7.00 38.02 79.15 7.16 39.82 83.28
Southeastern Thrifts 608.6 8.40 36.10 62.16 8.63 42.71 71.57
Southwestern Thrifts 416.4 -0.82 31.84 62.44 -0.80 33.06 70.57
Western Thrifts 730.2 14.97 53.83 85.75 15.03 54.18 87.77
Asset Size Indices
Less than $500M 453.8 6.80 25.99 44.46 6.99 28.07 48.16
$500M to $1B 672.1 5.15 28.82 53.88 5.32 33.19 60.35
$1B to $5B 747.6 6.08 36.92 73.49 6.20 37.90 71.86
$5B to $10B 430.3 8.04 28.98 68.57 8.31 30.80 72.29
More than $10B 263.3 13.79 56.24 93.15 13.85 57.46 96.41
Comparative Indices
Dow Jones Industrials 8,222.6 7.17 27.52 48.72 NA NA NA
S&P 500 954.3 7.81 28.83 49.12 7.96 30.21 52.03
</TABLE>
All SNL indices are market-value weighted; i.e., an institution's effect on an
index is proportional to that institution's market capitalization. All SNL
thrift indices began at 100 on March 30, 1984. On that date, the S&P 500 closed
at 159.2 and the Dow Jones Industrials closed at 1,164.9.
<TABLE>
<S> <C>
Mid-Atlantic: DE, DC, MD, NJ, NY, PA, PR Midwest: IA, IL, IN, KS, KY, MI, MN, MO, ND, NE, OH, SD, WI
New England: CT, ME, MA, NH, RI, VT Southeast: AL, AR, FL, GA, MS, NC, SC, TN, VA, WV
Southwest: CO, LA, NM, TX, UT West: AZ, AK, CA, HI, ID, MT, NV, OR, WA, WY
Source: SNL Monthly Market Report
</TABLE>
<PAGE>
National Capital Companies, LLC
Exhibit III-1
SELECTED FINANCIAL DATA
Hopkinsville Federal Savings Bank
Hopkinsville, Kentucky
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended Quarterly Percent
Income Statement Data March 31, 1997 June 30, 1997 Change Change
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $ 3,271 $ 3,372 $ 101 3.09%
Interest Expense 2,240 2,186 -54 -2.41%
-------- -------- -------- ------
Net Interest Income 1,031 1,186 155 15.03%
Operating Expenses 616 547 -69 -11.20%
Noninterest Income 125 145 20 16.00%
Provision for Loan Losses 0 10 10 NA
Income Taxes 181 263 82 45.30%
-------- -------- -------- ------
Net Income $ 359 $ 511 $ 152 42.34%
======== ======== ======== ======
Other Financial Information and Ratios
Average Assets $203,728 $202,777 ($ 951) -0.47%
Average Equity 17,072 17,751 679 3.98%
Return on Average Assets * 0.70% 1.01% 0.30% 43.01%
Return on Average Equity * 8.41% 11.51% 3.10% 36.90%
Operating Expenses to Average Assets * 1.21% 1.08% -0.13% -10.78%
Interest Income to Average Assets * 6.42% 6.65% 0.23% 0.03%
Interest Expense to Average Assets * 4.40% 4.31% -0.08% -0.02%
Net Interest Income to Average Assets * 2.02% 2.34% 0.32% 0.16%
Noninterest Income to Average Assets * 0.25% 0.29% 0.04% 0.17%
</TABLE>
* Annualized
Dollars in thousands
Source: Unaudited Financial Statements and National Capital calculations
<PAGE>
National Capital Companies, LLC
Exhibit III-1a
SELECTED FINANCIAL DATA
Ameriana Bancorp
New Castle, Indiana
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended Quarterly Percent
Income Statement Data March 31, 1997 June 30, 1997 Change Change
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $7,297 $7,413 $116 1.59%
Interest Expense 4,291 4,384 93 2.17%
----- ----- -- -----
Net Interest Income 3,006 3,029 23 0.77%
Operating Expenses 2,190 2,216 26 1.19%
Noninterest Income 597 639 42 7.04%
Noninterest Expense 1 3 2 200.00%
Provision for Loan Losses 36 51 15 41.67%
Income Taxes 499 509 10 2.00%
--- --- -- -----
Net Income $877 $889 $12 1.37%
==== ==== === =====
Other Financial Information and Ratios
Average Assets $399,459 $399,947 $488 0.12%
Average Equity 43,787 43,601 (186) -0.42%
Return on Average Assets * 0.88% 0.89% 0.01% 1.24%
Return on Average Equity * 8.01% 8.16% 0.14% 1.80%
Operating Expenses to Average Assets * 2.19% 2.22% 0.02% 1.06%
Interest Income to Average Assets * 7.31% 7.41% 0.11% 0.01%
Interest Expense to Average Assets * 4.30% 4.38% 0.08% 0.02%
Net Interest Income to Average Assets * 3.01% 3.03% 0.01% 0.00%
Noninterest Income to Average Assets * 0.60% 0.64% 0.04% 0.06%
</TABLE>
* Annualized
Dollars in thousands
Source: SNL Securities, L.P. and National Capital calculations
<PAGE>
National Capital Companies, LLC
Exhibit III-1b
SELECTED FINANCIAL DATA
First Bancshares Inc.
Mountain Grove, Missouri
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended Quarterly Percent
Income Statement Data March 31, 1997 June 30, 1997 Change Change
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $2,991 $3,054 $63 2.11%
Interest Expense 1,642 1,710 68 4.14%
----- ----- -- -----
Net Interest Income 1,349 1,344 -5 -0.37%
Operating Expenses 726 835 109 15.01%
Other Noninterest Expenses -18 7 25 -138.89%
Noninterest Income 108 137 29 26.85%
Nonrecurring Income -3 28 31 -1,033.33%
Provision for Loan Losses 20 21 1 5.00%
Income Taxes 278 238 -40 -14.39%
--- --- --- -------
Net Income $448 $408 ($40) -8.93%
==== ==== ===== ======
Other Financial Information and Ratios
Average Assets $157,997 $160,314 $2,317 1.47%
Average Equity 22,605 22,217 (388) -1.72%
Return on Average Assets * 1.13% 1.02% -0.12% -10.24%
Return on Average Equity * 7.93% 7.35% -0.58% -7.34%
Operating Expenses to Average Assets * 1.84% 2.08% 0.25% 13.35%
Interest Income to Average Assets * 7.57% 7.62% 0.04% 0.00%
Interest Expense to Average Assets * 4.16% 4.27% 0.11% 0.02%
Net Interest Income to Average Assets * 3.42% 3.35% -0.06% -0.01%
Noninterest Income to Average Assets * 0.27% 0.34% 0.06% 0.25%
</TABLE>
* Annualized
Dollars in thousands
Source: SNL Securities, L.P. and National Capital calculations
<PAGE>
National Capital Companies, LLC
Exhibit III-1c
SELECTED FINANCIAL DATA
FFW Corp.
Wabash, Indiana
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended Quarterly Percent
Income Statement Data March 31, 1997 June 30, 1997 Change Change
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $ 3,075 $3,197 $122 3.97%
Interest Expense 1,799 1,886 87 4.84%
----- ----- -- -----
Net Interest Income 1,276 1,311 35 2.74%
Operating Expenses 730 854 124 16.99%
Noninterest Income 150 190 40 26.67%
Nonrecurring Income 7 9 2 28.57%
Provision for Loan Losses 35 50 15 42.86%
Income Taxes 221 215 -6 -2.71%
--- --- -- ------
Net Income $447 $391 ($56) -12.53%
==== ==== ==== =======
Other Financial Information and Ratios
Average Assets $158,321 $166,242 $7,921 5.00%
Average Equity 16,100 16,470 370 2.30%
Return on Average Assets * 1.13% 0.94% -0.19% -16.70%
Return on Average Equity * 11.11% 9.50% -1.61% -14.49%
Operating Expenses to Average Assets* 1.84% 2.05% 0.21% 11.41%
Interest Income to Average Assets * 7.77% 7.69% -0.07% -0.00%
Interest Expense to Average Assets * 4.55% 4.54% -0.00% -0.00%
Net Interest Income to Average Assets * 3.22% 3.15% -0.06% -0.02%
Noninterest Income to Average Assets * 0.38% 0.46% 0.07% 0.21%
</TABLE>
* Annualized
Dollars in thousands
Source: SNL Securities, L.P. and National Capital calculations
<PAGE>
National Capital Companies, LLC
Exhibit III-1d
SELECTED FINANCIAL DATA
Wood Bancorp, Inc.
Bowling Green, Ohio
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended Quarterly Percent
Income Statement Data March 31, 1997 June 30, 1997 Change Change
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $3,220 $3,311 $91 2.83%
Interest Expense 1,560 1,628 68 4.36%
----- ----- -- -----
Net Interest Income 1,660 1,683 23 1.39%
Operating Expenses 867 929 62 7.15%
Noninterest Income 132 195 63 47.73%
Provision for Loan Losses 30 30 0 0.00%
Income Taxes 318 329 11 3.46%
--- --- -- -----
Net Income $577 $590 $13 2.25%
==== ==== === =====
Other Financial Information and Ratios
Average Assets $161,596 $163,728 $2,132 1.32%
Average Equity 20,588 20,464 (124) -0.60%
Return on Average Assets * 1.43% 1.44% 0.01% 0.92%
Return on Average Equity * 11.21% 11.53% 0.32% 2.87%
Operating Expenses to Average Assets * 2.15% 2.27% 0.12% 5.76%
Interest Income to Average Assets * 7.97% 8.09% 0.12% 0.01%
Interest Expense to Average Assets * 3.86% 3.98% 0.12% 0.03%
Net Interest Income to Average Assets * 4.11% 4.11% 0.00% 0.00%
Noninterest Income to Average Assets * 0.33% 0.48% 0.15% 0.46%
</TABLE>
* Annualized
Dollars in thousands
Source: SNL Securities, L.P. and National Capital calculations
<PAGE>
National Capital Companies, LLC
Exhibit III-1e
SELECTED FINANCIAL DATA
Industrial Bancorp
Bellevue, Ohio
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended Quarterly Percent
Income Statement Data March 31, 1997 June 30, 1997 Change Change
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $6,581 $6,846 $265 4.03%
Interest Expense 3,187 3,423 236 7.41%
----- ----- --- -----
Net Interest Income 3,394 3,423 29 0.85%
Operating Expenses 1,565 1,530 -35 -2.24%
Noninterest Income 111 111 0 0.00%
Provision for Loan Losses 49 47 -2 -4.08%
Income Taxes 671 674 3 0.45%
--- --- - -----
Net Income $1,220 $1,283 $63 5.16%
====== ====== === =====
Other Financial Information and Ratios
Average Assets $330,099 $340,987 $10,888 3.30%
Average Equity 61,704 60,843 (861) -1.40%
Return on Average Assets * 1.48% 1.51% 0.02% 1.81%
Return on Average Equity * 7.91% 8.43% 0.53% 6.65%
Operating Expenses to Average Assets * 1.90% 1.79% -0.10% -5.36%
Interest Income to Average Assets * 7.97% 8.03% 0.05% 0.00%
Interest Expense to Average Assets * 3.86% 4.02% 0.15% 0.04%
Net Interest Income to Average Assets * 4.11% 4.02% -0.09% -0.02%
Noninterest Income to Average Assets * 0.13% 0.13% -0.00% -0.03%
</TABLE>
* Annualized
Dollars in thousands
Source: SNL Securities, L.P. and National Capital calculations
<PAGE>
National Capital Companies, LLC
Exhibit III-1f
SELECTED FINANCIAL DATA
Landmark Bancshares Inc.
Dodge City, Kansas
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended Quarterly Percent
Income Statement Data March 31, 1997 June 30, 1997 Change Change
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $4,088 $4,224 $136 3.33%
Interest Expense 2,373 2,487 114 4.80%
----- ----- --- -----
Net Interest Income 1,715 1,737 22 1.28%
Operating Expenses 887 838 -49 -5.52%
Noninterest Expense 1 3 2 200.00%
Noninterest Income 143 259 116 81.12%
Nonrecurring Income 64 0 -64 -100.00%
Provision for Loan Losses 55 110 55 100.00%
Income Taxes 398 418 20 5.03%
--- --- -- -----
Net Income $581 $627 $46 7.92%
==== ==== === =====
Other Financial Information and Ratios
Average Assets $221,576 $225,950 $4,374 1.97%
Average Equity 32,559 32,103 (456) -1.40%
Return on Average Assets * 1.05% 1.11% 0.06% 5.83%
Return on Average Equity * 7.14% 7.81% 0.67% 9.45%
Operating Expenses to Average Assets * 1.60% 1.48% -0.12% -7.35%
Interest Income to Average Assets * 7.38% 7.48% 0.09% 0.01%
Interest Expense to Average Assets * 4.28% 4.40% 0.12% 0.02%
Net Interest Income to Average Assets * 3.10% 3.08% -0.02% -0.00%
Noninterest Income to Average Assets * 0.26% 0.46% 0.20% 0.78%
</TABLE>
* Annualized
Dollars in thousands
Source: SNL Securities, L.P. and National Capital calculations
<PAGE>
National Capital Companies, LLC
Exhibit III-1g
SELECTED FINANCIAL DATA
MBLA Financial Corp.
Macon, Missouri
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended Quarterly Percent
Income Statement Data March 31, 1997 June 30, 1997 Change Change
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $3,539 $3,936 $397 11.22%
Interest Expense 2,511 2,722 211 8.40%
----- ----- --- -----
Net Interest Income 1,028 1,214 186 18.09%
Operating Expenses 329 358 29 8.81%
Noninterest Expense 4 0 -4 -100.00%
Noninterest Income 5 2 -3 -60.00%
Nonrecurring Income -59 0 59 -100.00%
Provision for Loan Losses 15 55 40 266.67%
Income Taxes 255 361 106 41.57%
--- --- --- ------
Net Income $371 $442 $71 19.14%
==== ==== === ======
Other Financial Information and Ratios
Average Assets $211,701 $224,272 $12,571 5.94%
Average Equity 28,357 28,458 101 0.36%
Return on Average Assets * 0.70% 0.79% 0.08% 12.46%
Return on Average Equity * 5.23% 6.21% 0.98% 18.71%
Operating Expenses to Average Assets * 0.62% 0.64% 0.01% 2.72%
Interest Income to Average Assets * 6.69% 7.02% 0.33% 0.05%
Interest Expense to Average Assets * 4.74% 4.85% 0.11% 0.02%
Net Interest Income to Average Assets * 1.94% 2.17% 0.22% 0.11%
Noninterest Income to Average Assets * 0.009% 0.003% -0.00% -0.62%
</TABLE>
* Annualized
Dollars in thousands
Source: SNL Securities, L.P. and National Capital calculations
<PAGE>
National Capital Companies, LLC
Exhibit III-1h
SELECTED FINANCIAL DATA
MFB Corp.
Mishawaka, Indiana
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended Quarterly Percent
Income Statement Data March 31, 1997 June 30, 1997 Change Change
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $4,270 $4,511 $241 5.64%
Interest Expense 2,427 2,612 185 7.62%
----- ----- --- -----
Net Interest Income 1,843 1,899 56 3.04%
Operating Expenses 1,055 1,155 100 9.48%
Noninterest Income 82 108 26 31.71%
Provision for Loan Losses 8 7 -1 -12.50%
Nonrecurring Income 3 -2 -5 -166.67%
Income Taxes 343 336 -7 -2.04%
--- --- -- ------
Net Income $522 $507 ($15) -2.87%
==== ==== ===== ======
Other Financial Information and Ratios
Average Assets $230,515 $241,266 $10,751 4.66%
Average Equity 34,163 33,939 (224) -0.66%
Return on Average Assets * 0.91% 0.84% -0.06% -7.20%
Return on Average Equity * 6.11% 5.98% -0.14% -2.23%
Operating Expenses to Average Assets * 1.83% 1.91% 0.08% 4.60%
Interest Income to Average Assets * 7.41% 7.48% 0.06% 0.00%
Interest Expense to Average Assets * 4.21% 4.33% 0.12% 0.02%
Net Interest Income to Average Assets * 3.20% 3.15% -0.05% -0.01%
Noninterest Income to Average Assets * 0.14% 0.18% 0.03% 0.26%
</TABLE>
* Annualized
Dollars in thousands
Source: SNL Securities, L.P. and National Capital calculations
<PAGE>
National Capital Companies, LLC
Exhibit III-1i
SELECTED FINANCIAL DATA
Milton Federal Financial Corp.
West Milton, Ohio
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended Quarterly Percent
Income Statement Data March 31, 1997 June 30, 1997 Change Change
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $3,223 $3,517 $294 9.12%
Interest Expense 1,871 2,086 215 11.49%
----- ----- --- ------
Net Interest Income 1,352 1,431 79 5.84%
Operating Expenses 970 963 -7 -0.72%
Nonrecurring Income 12 34 22 183.33%
Noninterest Income 54 64 10 18.52%
Noninterest Expense 0 -5 -5 NA
Provision for Loan Losses 21 32 11 52.38%
Income Taxes 144 183 39 27.08%
--- --- -- ------
Net Income $283 $356 $73 25.80%
==== ==== === ======
Other Financial Information and Ratios
Average Assets $177,220 $191,419 $14,199 8.01%
Average Equity 26,457 26,154 (303) -1.15%
Return on Average Assets * 0.64% 0.74% 0.11% 16.46%
Return on Average Equity * 4.28% 5.44% 1.17% 27.25%
Operating Expenses to Average Assets * 2.19% 2.01% -0.18% -8.09%
Interest Income to Average Assets * 7.27% 7.35% 0.07% 0.01%
Interest Expense to Average Assets * 4.22% 4.36% 0.14% 0.03%
Net Interest Income to Average Assets * 3.05% 2.99% -0.06% -0.02%
Noninterest Income to Average Assets * 0.12% 0.13% 0.01% 0.09%
</TABLE>
* Annualized
Dollars in thousands
Source: SNL Securities, L.P. and National Capital calculations
<PAGE>
National Capital Companies, LLC
Exhibit III-1j
SELECTED FINANCIAL DATA
Midwest Bancshares Inc.
Burlington, Iowa
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended Quarterly Percent
Income Statement Data March 31, 1997 June 30, 1997 Change Change
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $2,544 $2,676 $132 5.19%
Interest Expense 1,568 1,663 95 6.06%
----- ----- -- -----
Net Interest Income 976 1,013 37 3.79%
Operating Expenses 661 621 -40 -6.05%
Noninterest Income 87 78 -9 -10.34%
Noninterest Expense -2 0 2 -100.00%
Provision for Loan Losses 12 12 0 0.00%
Income Taxes 145 168 23 15.86%
--- --- -- ------
Net Income $247 $290 $43 17.41%
==== ==== === ======
Other Financial Information and Ratios
Average Assets $137,657 $143,335 $5,678 4.12%
Average Equity 9,662 9,875 213 2.20%
Return on Average Assets * 0.72% 0.81% 0.09% 12.76%
Return on Average Equity * 10.23% 11.75% 1.52% 14.88%
Operating Expenses to Average Assets * 1.92% 1.73% -0.19% -9.77%
Interest Income to Average Assets * 7.39% 7.47% 0.07% 0.01%
Interest Expense to Average Assets * 4.56% 4.64% 0.08% 0.01%
Net Interest Income to Average Assets * 2.84% 2.83% -0.00% -0.00%
Noninterest Income to Average Assets * 0.25% 0.22% -0.03% -0.14%
</TABLE>
* Annualized
Dollars in thousands
Source: SNL Securities, L.P. and National Capital calculations
<PAGE>
Exhibit IV-1
SELECTED FINANCIAL AND MARKET STATISTICS
Publicly Traded Thrift Institutions Excluding Mutual Holding Companies
In the Midwestern Region with Assets Less Than $500 Million and IPO Date
Before September 30, 1995
As of August 29, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
* Adjusted
Current Current Current Current
Stock Price/ Price/ Price/Tang
Price LTM EPS LTM EPS Book Value
Ticker Short Name City State Exchange IPO Date ($) (x) (x) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASBI Ameriana Bancorp New Castle IN NASDAQ 03/02/87 19.75 26.23 17.75 146.51
ASBP ASB Financial Corp. Portsmouth OH NASDAQ 05/11/95 13.13 26.69 20.87 129.31
ATSB AmTrust Capital Corp. Peru IN NASDAQ 03/28/95 13.00 30.56 16.18 95.80
BDJI First Federal Bancorporation Bemidji MN NASDAQ 04/04/95 21.00 17.03 18.49 119.25
BWFC Bank West Financial Corp. Grand Rapids MI NASDAQ 03/30/95 17.06 18.86 24.33 132.48
CAPS Capital Savings Bancorp Inc. Jefferson City MO NASDAQ 12/29/93 15.75 231.25 13.67 139.63
CASH First Midwest Financial Inc. Storm Lake IA NASDAQ 09/20/93 18.19 56.43 14.64 131.42
CBCI Calumet Bancorp Inc. Dolton IL NASDAQ 02/20/92 42.50 13.91 14.17 116.53
CIBI Community Investors Bancorp Bucyrus OH NASDAQ 02/07/95 16.00 66.30 16.70 133.78
CKFB CKF Bancorp Inc. Danville KY NASDAQ 01/04/95 19.00 23.58 13.48 111.96
CMRN Cameron Financial Corp Cameron MO NASDAQ 04/03/95 17.38 17.93 17.87 101.14
EFBI Enterprise Federal Bancorp West Chester OH NASDAQ 10/17/94 20.00 23.71 17.22 126.74
FBCI Fidelity Bancorp Inc. Chicago IL NASDAQ 12/15/93 21.25 20.05 16.00 116.89
FBCV 1ST Bancorp Vincennes IN NASDAQ 04/07/87 35.75 20.28 14.91 114.04
FBSI First Bancshares Inc. Mountain Grove MO NASDAQ 12/22/93 24.25 15.96 15.30 119.81
FFBI First Financial Bancorp Inc. Belvidere IL NASDAQ 10/04/93 18.88 23.13 NM 107.12
FFBZ First Federal Bancorp Inc. Zanesville OH NASDAQ 07/13/92 18.50 NA 16.35 210.23
FFED Fidelity Federal Bancorp Evansville IN NASDAQ 08/31/87 9.25 21.30 21.97 178.92
FFHH FSF Financial Corp. Hutchinson MN NASDAQ 10/07/94 17.75 16.07 17.70 110.66
FFHS First Franklin Corporation Cincinnati OH NASDAQ 01/26/88 19.75 18.95 19.71 115.77
FFKY First Federal Financial Corp. Elizabethtown KY NASDAQ 07/15/87 21.50 21.73 15.39 184.23
FFSL First Independence Corp. Independence KS NASDAQ 10/08/93 13.00 17.69 18.82 112.07
FFWC FFW Corp. Wabash IN NASDAQ 04/05/93 29.25 15.39 12.06 134.61
FFWD Wood Bancorp Inc. Bowling Green OH NASDAQ 08/31/93 16.63 22.84 17.80 174.63
FKKY Frankfort First Bancorp Inc. Frankfort KY NASDAQ 07/10/95 10.88 22.47 NM 156.70
FMBD First Mutual Bancorp Inc. Decatur IL NASDAQ 07/05/95 15.00 18.95 46.20 118.39
FTSB Fort Thomas Financial Corp. Fort Thomas KY NASDAQ 06/28/95 12.00 NM 25.27 115.38
GFCO Glenway Financial Corp. Cincinnati OH NASDAQ 11/30/90 25.00 28.89 13.72 106.07
GFSB GFS Bancorp Inc. Grinnell IA NASDAQ 01/06/94 14.25 22.14 13.75 133.68
GTPS Great American Bancorp Champaign IL NASDAQ 06/30/95 18.00 38.60 43.83 98.04
GWBC Gateway Bancorp Inc. Catlettsburg KY NASDAQ 01/18/95 17.63 19.56 NA 109.81
HALL Hallmark Capital Corp. West Allis WI NASDAQ 01/03/94 22.25 19.44 12.90 108.22
HBBI Home Building Bancorp Washington IN NASDAQ 02/08/95 20.50 20.87 25.40 101.69
HBFW Home Bancorp Fort Wayne IN NASDAQ 03/30/95 22.00 16.73 19.17 124.86
HFSA Hardin Bancorp Inc. Hardin MO NASDAQ 09/29/95 16.50 18.33 18.64 105.23
HHFC Harvest Home Financial Corp. Cheviot OH NASDAQ 10/10/94 11.75 16.76 22.78 103.89
HMCI HomeCorp Inc. Rockford IL NASDAQ 06/22/90 15.25 30.92 15.03 119.05
HVFD Haverfield Corp. Cleveland OH NASDAQ 03/19/85 26.75 22.88 14.81 172.47
HZFS Horizon Financial Svcs Corp. Oskaloosa IA NASDAQ 06/30/94 18.88 89.58 16.27 95.47
INBI Industrial Bancorp Bellevue OH NASDAQ 08/01/95 14.75 57.76 17.59 126.83
INCB Indiana Community Bank SB Lebanon IN NASDAQ 12/15/94 15.75 33.96 32.53 128.36
KNK Kankakee Bancorp Inc. Kankakee IL AMSE 01/06/93 29.00 23.96 12.55 116.05
KYF Kentucky First Bancorp Inc. Cynthiana KY AMSE 08/29/95 12.50 15.82 16.35 112.01
LARK Landmark Bancshares Inc. Dodge City KS NASDAQ 03/28/94 24.25 27.76 17.46 131.87
LOGN Logansport Financial Corp. Logansport IN NASDAQ 06/14/95 14.50 18.63 16.22 114.53
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Tangible
Equity/
Total Tang NPAs/
Price/ Assets Assets Assets
Assets ($000) (%) (%)
Ticker Short Name City State Exchange IPO Date (%) Mst RctQ Mst RctQ Mst RctQ
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASBI Ameriana Bancorp New Castle IN NASDAQ 03/02/87 16.04 397,730 10.95 0.40
ASBP ASB Financial Corp. Portsmouth OH NASDAQ 05/11/95 20.13 112,264 15.56 0.88
ATSB AmTrust Capital Corp. Peru IN NASDAQ 03/28/95 9.64 71,031 10.07 2.84
BDJI First Federal Bancorporation Bemidji MN NASDAQ 04/04/95 12.96 110,589 10.87 0.23
BWFC Bank West Financial Corp. Grand Rapids MI NASDAQ 03/30/95 19.22 155,675 14.51 0.28
CAPS Capital Savings Bancorp Inc. Jefferson City MO NASDAQ 12/29/93 12.29 242,518 8.80 0.17
CASH First Midwest Financial Inc. Storm Lake IA NASDAQ 09/20/93 13.27 374,824 10.23 0.85
CBCI Calumet Bancorp Inc. Dolton IL NASDAQ 02/20/92 18.07 496,561 15.50 1.16
CIBI Community Investors Bancorp Bucyrus OH NASDAQ 02/07/95 16.11 92,304 12.04 0.63
CKFB CKF Bancorp Inc. Danville KY NASDAQ 01/04/95 28.91 60,812 23.96 0.63
CMRN Cameron Financial Corp Cameron MO NASDAQ 04/03/95 21.93 208,105 21.69 0.24
EFBI Enterprise Federal Bancorp West Chester OH NASDAQ 10/17/94 15.14 264,266 11.95 0.03
FBCI Fidelity Bancorp Inc. Chicago IL NASDAQ 12/15/93 12.11 489,843 10.37 0.80
FBCV 1ST Bancorp Vincennes IN NASDAQ 04/07/87 9.22 270,490 8.10 0.94
FBSI First Bancshares Inc. Mountain Grove MO NASDAQ 12/22/93 16.20 163,973 13.53 0.10
FFBI First Financial Bancorp Inc. Belvidere IL NASDAQ 10/04/93 9.27 84,531 8.65 0.39
FFBZ First Federal Bancorp Inc. Zanesville OH NASDAQ 07/13/92 14.45 201,262 7.54 0.47
FFED Fidelity Federal Bancorp Evansville IN NASDAQ 08/31/87 9.20 250,285 5.14 0.12
FFHH FSF Financial Corp. Hutchinson MN NASDAQ 10/07/94 14.23 378,233 11.35 0.03
FFHS First Franklin Corporation Cincinnati OH NASDAQ 01/26/88 10.37 226,944 8.97 0.41
FFKY First Federal Financial Corp. Elizabethtown KY NASDAQ 07/15/87 23.76 377,380 13.01 0.23
FFSL First Independence Corp. Independence KS NASDAQ 10/08/93 11.69 110,876 10.43 0.37
FFWC FFW Corp. Wabash IN NASDAQ 04/05/93 11.55 180,056 8.66 0.16
FFWD Wood Bancorp Inc. Bowling Green OH NASDAQ 08/31/93 21.49 163,918 12.30 0.02
FKKY Frankfort First Bancorp Inc. Frankfort KY NASDAQ 07/10/95 26.93 132,451 17.18 0.00
FMBD First Mutual Bancorp Inc. Decatur IL NASDAQ 07/05/95 12.59 417,695 10.04 0.10
FTSB Fort Thomas Financial Corp. Fort Thomas KY NASDAQ 06/28/95 18.51 96,940 16.04 1.42
GFCO Glenway Financial Corp. Cincinnati OH NASDAQ 11/30/90 9.93 287,088 9.37 0.11
GFSB GFS Bancorp Inc. Grinnell IA NASDAQ 01/06/94 15.30 92,063 11.45 NA
GTPS Great American Bancorp Champaign IL NASDAQ 06/30/95 23.13 136,977 21.44 0.01
GWBC Gateway Bancorp Inc. Catlettsburg KY NASDAQ 01/18/95 29.71 63,828 27.04 0.76
HALL Hallmark Capital Corp. West Allis WI NASDAQ 01/03/94 7.83 409,820 7.24 0.15
HBBI Home Building Bancorp Washington IN NASDAQ 02/08/95 14.18 45,064 12.81 0.38
HBFW Home Bancorp Fort Wayne IN NASDAQ 03/30/95 16.59 334,862 13.29 0.00
HFSA Hardin Bancorp Inc. Hardin MO NASDAQ 09/29/95 13.13 108,018 12.48 0.09
HHFC Harvest Home Financial Corp. Cheviot OH NASDAQ 10/10/94 12.27 87,596 11.81 0.11
HMCI HomeCorp Inc. Rockford IL NASDAQ 06/22/90 7.79 331,608 6.54 2.91
HVFD Haverfield Corp. Cleveland OH NASDAQ 03/19/85 14.73 346,157 8.54 1.04
HZFS Horizon Financial Svcs Corp. Oskaloosa IA NASDAQ 06/30/94 9.34 85,969 9.79 0.96
INBI Industrial Bancorp Bellevue OH NASDAQ 08/01/95 22.46 346,596 17.70 0.22
INCB Indiana Community Bank SB Lebanon IN NASDAQ 12/15/94 15.90 91,329 12.39 NA
KNK Kankakee Bancorp Inc. Kankakee IL AMSE 01/06/93 12.10 341,678 10.49 0.61
KYF Kentucky First Bancorp Inc. Cynthiana KY AMSE 08/29/95 18.54 88,959 16.55 0.00
LARK Landmark Bancshares Inc. Dodge City KS NASDAQ 03/28/94 18.19 228,100 13.79 0.04
LOGN Logansport Financial Corp. Logansport IN NASDAQ 06/14/95 21.98 83,152 19.19 0.61
<CAPTION>
Return on
Avg Return on
Assets Avg Equity
(%) (%)
Ticker Short Name City State Exchange IPO Date LTM LTM
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASBI Ameriana Bancorp New Castle IN NASDAQ 03/02/87 0.91 8.37
ASBP ASB Financial Corp. Portsmouth OH NASDAQ 05/11/95 0.92 5.91
ATSB AmTrust Capital Corp. Peru IN NASDAQ 03/28/95 0.56 5.59
BDJI First Federal Bancorporation Bemidji MN NASDAQ 04/04/95 0.64 5.94
BWFC Bank West Financial Corp. Grand Rapids MI NASDAQ 03/30/95 0.84 5.72
CAPS Capital Savings Bancorp Inc. Jefferson City MO NASDAQ 12/29/93 0.90 10.36
CASH First Midwest Financial Inc. Storm Lake IA NASDAQ 09/20/93 0.95 8.31
CBCI Calumet Bancorp Inc. Dolton IL NASDAQ 02/20/92 1.46 9.46
CIBI Community Investors Bancorp Bucyrus OH NASDAQ 02/07/95 0.93 7.98
CKFB CKF Bancorp Inc. Danville KY NASDAQ 01/04/95 2.08 8.72
CMRN Cameron Financial Corp Cameron MO NASDAQ 04/03/95 1.26 5.65
EFBI Enterprise Federal Bancorp West Chester OH NASDAQ 10/17/94 0.88 7.22
FBCI Fidelity Bancorp Inc. Chicago IL NASDAQ 12/15/93 0.76 7.30
FBCV 1ST Bancorp Vincennes IN NASDAQ 04/07/87 0.62 7.65
FBSI First Bancshares Inc. Mountain Grove MO NASDAQ 12/22/93 1.14 8.23
FFBI First Financial Bancorp Inc. Belvidere IL NASDAQ 10/04/93 (0.09) (1.10)
FFBZ First Federal Bancorp Inc. Zanesville OH NASDAQ 07/13/92 0.96 12.75
FFED Fidelity Federal Bancorp Evansville IN NASDAQ 08/31/87 0.43 8.35
FFHH FSF Financial Corp. Hutchinson MN NASDAQ 10/07/94 0.82 7.06
FFHS First Franklin Corporation Cincinnati OH NASDAQ 01/26/88 0.52 5.80
FFKY First Federal Financial Corp. Elizabethtown KY NASDAQ 07/15/87 1.56 11.43
FFSL First Independence Corp. Independence KS NASDAQ 10/08/93 0.68 6.51
FFWC FFW Corp. Wabash IN NASDAQ 04/05/93 1.03 10.35
FFWD Wood Bancorp Inc. Bowling Green OH NASDAQ 08/31/93 1.29 10.32
FKKY Frankfort First Bancorp Inc. Frankfort KY NASDAQ 07/10/95 0.00 0.00
FMBD First Mutual Bancorp Inc. Decatur IL NASDAQ 07/05/95 0.29 2.26
FTSB Fort Thomas Financial Corp. Fort Thomas KY NASDAQ 06/28/95 0.77 4.79
GFCO Glenway Financial Corp. Cincinnati OH NASDAQ 11/30/90 0.73 7.71
GFSB GFS Bancorp Inc. Grinnell IA NASDAQ 01/06/94 1.17 10.21
GTPS Great American Bancorp Champaign IL NASDAQ 06/30/95 0.52 2.43
GWBC Gateway Bancorp Inc. Catlettsburg KY NASDAQ 01/18/95 1.17 4.39
HALL Hallmark Capital Corp. West Allis WI NASDAQ 01/03/94 0.61 8.55
HBBI Home Building Bancorp Washington IN NASDAQ 02/08/95 0.52 4.12
HBFW Home Bancorp Fort Wayne IN NASDAQ 03/30/95 0.87 6.48
HFSA Hardin Bancorp Inc. Hardin MO NASDAQ 09/29/95 0.76 5.90
HHFC Harvest Home Financial Corp. Cheviot OH NASDAQ 10/10/94 0.56 4.65
HMCI HomeCorp Inc. Rockford IL NASDAQ 06/22/90 0.53 8.31
HVFD Haverfield Corp. Cleveland OH NASDAQ 03/19/85 1.00 11.59
HZFS Horizon Financial Svcs Corp. Oskaloosa IA NASDAQ 06/30/94 0.60 5.93
INBI Industrial Bancorp Bellevue OH NASDAQ 08/01/95 1.29 7.21
INCB Indiana Community Bank SB Lebanon IN NASDAQ 12/15/94 0.51 4.05
KNK Kankakee Bancorp Inc. Kankakee IL AMSE 01/06/93 0.99 9.17
KYF Kentucky First Bancorp Inc. Cynthiana KY AMSE 08/29/95 1.11 6.82
LARK Landmark Bancshares Inc. Dodge City KS NASDAQ 03/28/94 1.12 7.99
LOGN Logansport Financial Corp. Logansport IN NASDAQ 06/14/95 1.41 7.28
</TABLE>
<PAGE>
================================================================================
Exhibit IV-1
SELECTED FINANCIAL AND MARKET STATISTICS
Publicly Traded Thrift Institutions Excluding Mutual Holding Companies
In the Midwestern Region with Assets Less Than $500 Million and IPO Date
Before September 30, 1995
As of August 29, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
* Adjusted
Current Current Current Current
Stock Price/ Price/ Price/ Tang
Price LTM EPS LTM EPS Book Value
Ticker Short Name City State Exchange IPO Date ($) (x) (x) (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LSBI LSB Financial Corp. Lafayette IN NASDAQ 02/03/95 20.69 44.81 12.93 104.48
MARN Marion Capital Holdings Marion IN NASDAQ 03/18/93 23.00 21.91 14.61 104.12
MBLF MBLA Financial Corp. Macon MO NASDAQ 06/24/93 23.75 32.74 18.16 108.05
MCBS Mid Continent Bancshares Inc. El Dorado KS NASDAQ 06/27/94 29.75 45.19 13.40 149.27
MFBC MFB Corp. Mishawaka IN NASDAQ 03/25/94 23.50 17.93 21.87 117.21
MFCX Marshalltown Financial Corp. Marshalltown IA NASDAQ 03/31/94 16.75 21.74 27.73 117.79
MFFC Milton Federal Financial Corp. West Milton OH NASDAQ 10/07/94 13.75 105.00 22.43 112.15
MIFC Mid-Iowa Financial Corp. Newton IA NASDAQ 10/14/92 9.25 15.57 44.53 132.33
MIVI Mississippi View Holding Co. Little Falls MN NASDAQ 03/24/95 15.50 NA 17.64 96.33
MSBF MSB Financial Inc. Marshall MI NASDAQ 02/06/95 13.25 12.93 16.49 130.29
MWBI Midwest Bancshares Inc. Burlington IA NASDAQ 11/12/92 36.00 19.78 12.18 123.88
MWFD Midwest Federal Financial Baraboo WI NASDAQ 07/08/92 20.75 24.24 12.64 191.95
NBSI North Bancshares Inc. Chicago IL NASDAQ 12/21/93 22.00 60.29 25.46 129.72
NEIB Northeast Indiana Bancorp Huntington IN NASDAQ 06/28/95 16.75 22.27 14.56 110.27
NSLB NS&L Bancorp Inc. Neosho MO NASDAQ 06/08/95 18.47 25.83 27.14 111.87
NWEQ Northwest Equity Corp. Amery WI NASDAQ 10/11/94 16.50 29.55 14.17 115.95
OHSL OHSL Financial Corp. Cincinnati OH NASDAQ 02/10/93 23.25 28.95 14.88 109.62
PCBC Perry County Financial Corp. Perryville MO NASDAQ 02/13/95 21.38 32.81 16.97 113.64
PERM Permanent Bancorp Inc. Evansville IN NASDAQ 04/04/94 22.75 51.37 18.82 116.97
PFDC Peoples Bancorp Auburn IN NASDAQ 07/07/87 23.50 21.99 13.06 122.20
PMFI Perpetual Midwest Financial Cedar Rapids IA NASDAQ 03/31/94 21.50 17.81 28.92 119.44
PTRS Potters Financial Corp. East Liverpool OH NASDAQ 12/31/93 24.00 36.21 12.15 109.24
PVFC PVF Capital Corp. Bedford Heights OH NASDAQ 12/30/92 21.38 22.30 12.18 218.34
QCFB QCF Bancorp Inc. Virginia MN NASDAQ 04/03/95 26.00 31.25 14.67 136.99
SFFC StateFed Financial Corporation Des Moines IA NASDAQ 01/05/94 22.00 41.98 15.28 113.17
SFSB SuburbFed Financial Corp. Flossmoor IL NASDAQ 03/04/92 27.50 19.86 13.50 125.92
SMBC Southern Missouri Bancorp Inc. Poplar Bluff MO NASDAQ 04/13/94 17.25 16.75 16.76 108.83
SMFC Sho-Me Financial Corp. Mt. Vernon MO NASDAQ 07/01/94 38.00 37.50 15.86 175.76
SOBI Sobieski Bancorp Inc. South Bend IN NASDAQ 03/31/95 16.44 94.74 26.33 95.35
SWBI Southwest Bancshares Hometown IL NASDAQ 06/24/92 20.25 125.00 14.20 129.15
THR Three Rivers Financial Corp. Three Rivers MI AMSE 08/24/95 15.75 NM 16.69 103.82
WCBI Westco Bancorp Westchester IL NASDAQ 06/26/92 25.75 31.38 15.42 134.25
WEFC Wells Financial Corp. Wells MN NASDAQ 04/11/95 16.50 24.23 15.29 112.78
WFI Winton Financial Corp. Cincinnati OH AMSE 08/04/88 16.00 20.83 10.16 143.88
WOFC Western Ohio Financial Corp. Springfield OH NASDAQ 07/29/94 23.75 27.50 28.82 108.94
-----------------------------------------------------------------
AVERAGE 20.38 33.05 18.54 125.20
MEDIAN 19.75 22.86 16.35 117.09
-----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Tangible
Total Equity/ NPAs/ Return on Return on
Price/ Assets Tang Assets Assets Avg Assets Avg Equity
Assets ($000) (%) (%) (%) (%)
Ticker Short Name City State (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LSBI LSB Financial Corp. Lafayette IN 9.93 194,117 8.85 1.17 0.77 8.34
MARN Marion Capital Holdings Marion IN 23.47 173,304 22.54 0.81 1.69 7.43
MBLF MBLA Financial Corp. Macon MO 13.13 234,824 12.15 0.25 0.80 6.34
MCBS Mid Continent Bancshares Inc. El Dorado KS 14.26 408,590 9.39 0.15 1.14 11.40
MFBC MFB Corp. Mishawaka IN 16.00 248,241 13.65 0.00 0.80 5.75
MFCX Marshalltown Financial Corp. Marshalltown IA 18.54 127,528 15.74 0.00 0.68 4.32
MFFC Milton Federal Financial Corp. West Milton OH 15.89 199,886 13.14 0.15 0.72 5.30
MIFC Mid-Iowa Financial Corp. Newton IA 12.35 125,541 9.34 0.02 1.24 13.43
MIVI Mississippi View Holding Co. Little Falls MN 18.19 69,775 18.88 0.28 1.03 6.00
MSBF MSB Financial Inc. Marshall MI 22.15 74,698 16.99 0.06 1.33 7.85
MWBI Midwest Bancshares Inc. Burlington IA 8.56 146,542 6.91 0.77 0.75 10.83
MWFD Midwest Federal Financial Baraboo WI 16.31 207,050 8.52 0.12 1.37 15.77
NBSI North Bancshares Inc. Chicago IL 18.33 119,586 14.14 0.00 0.74 5.18
NEIB Northeast Indiana Bancorp Huntington IN 16.75 176,309 15.19 0.40 1.16 7.62
NSLB NS&L Bancorp Inc. Neosho MO 21.88 59,711 19.56 0.02 0.80 4.07
NWEQ Northwest Equity Corp. Amery WI 14.28 96,891 11.45 1.25 1.01 8.95
OHSL OHSL Financial Corp. Cincinnati OH 12.09 230,035 11.03 0.01 0.84 7.74
PCBC Perry County Financial Corp. Perryville MO 21.82 81,105 19.20 0.00 1.25 6.64
PERM Permanent Bancorp Inc. Evansville IN 10.56 433,239 9.04 1.09 0.60 6.56
PFDC Peoples Bancorp Auburn IN 18.58 287,564 15.20 0.34 1.44 9.52
PMFI Perpetual Midwest Financial Cedar Rapids IA 10.19 397,229 8.53 0.39 0.36 4.23
PTRS Potters Financial Corp. East Liverpool OH 9.64 121,189 8.83 0.50 0.83 9.23
PVFC PVF Capital Corp. Bedford Heights OH 15.33 356,251 7.02 0.90 1.33 19.20
QCFB QCF Bancorp Inc. Virginia MN 24.78 149,637 18.09 0.27 1.65 9.11
SFFC StateFed Financial Corporation Des Moines IA 20.12 85,679 17.78 NA 1.30 7.34
SFSB SuburbFed Financial Corp. Flossmoor IL 8.13 426,705 6.46 0.48 0.63 9.74
SMBC Southern Missouri Bancorp Inc. Poplar Bluff MO 17.05 165,688 15.67 1.10 1.02 6.34
SMFC Sho-Me Financial Corp. Mt. Vernon MO 17.32 328,803 9.03 0.13 1.17 12.70
SOBI Sobieski Bancorp Inc. South Bend IN 15.58 81,754 15.12 0.15 0.64 4.21
SWBI Southwest Bancshares Hometown IL 14.20 378,325 11.00 0.30 1.03 9.59
THR Three Rivers Financial Corp. Three Rivers MI 14.23 91,165 13.71 1.21 0.85 6.05
WCBI Westco Bancorp Westchester IL 20.46 311,613 15.24 0.60 1.46 9.62
WEFC Wells Financial Corp. Wells MN 16.00 202,035 14.19 0.21 1.06 7.46
WFI Winton Financial Corp. Cincinnati OH 10.01 317,392 6.97 0.29 1.00 13.99
WOFC Western Ohio Financial Corp. Springfield OH 14.01 396,492 12.98 0.34 0.48 3.56
-----------------------------------------------------------------
15.73 214,311 12.76 0.46 0.92 7.56
15.32 187,087 12.10 0.28 0.89 7.39
-----------------------------------------------------------------
</TABLE>
Source: SNL Securities, L.P. National Capital Companies, LLC
================================================================================
<PAGE>
Exhibit IV-2
Hopkinsville Federal Savings Bank
Hopkinsville, Kentucky
SELECTED FINANCIAL AND MARKET STATISTICS
Comparable Group
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Current Tangible
Market Price/ * Price/ Price/ Price/Tang Price/ Publicly Rep
Price Value LTM EPS LTM EPS Book Value Book Value Assets Book Value
Short Name ($) ($M) (x) (x) (%) (%) (%) ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ameriana Bancorp 19.75 63.80 26.69 17.75 146.40 146.51 16.04 13.48
First Bancshares Inc. 24.25 26.57 19.56 15.30 119.63 119.81 16.20 20.24
FFW Corp. 29.25 20.80 15.39 12.06 121.32 134.61 11.55 21.73
Wood Bancorp Inc. 16.63 35.22 22.47 17.80 174.63 174.63 21.49 9.52
Industrial Bancorp 14.75 77.83 31.38 17.59 126.83 126.83 22.46 11.63
Landmark Bancshares Inc. 24.25 41.48 22.88 17.46 131.87 131.87 18.19 18.39
MBLA Financial Corp. 23.75 30.84 22.84 18.16 108.05 108.05 13.13 21.98
MFB Corp. 23.50 39.72 30.92 21.87 117.21 117.21 16.00 20.05
Milton Federal Financial Corp. 13.75 31.69 32.74 22.43 112.15 112.15 15.89 12.26
Midwest Bancshares Inc. 36.00 12.25 21.30 12.18 123.88 123.88 8.56 29.06
- --------------------------------------------------------------------------------------------------------------------------------
AVERAGE 22.59 38.02 24.62 17.26 128.20 129.56 15.95 17.83
MEDIAN 23.63 33.46 22.86 17.67 122.60 125.36 16.02 19.22
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Reflects estimated adjustment for SAIF special assessment.
Current pricing information as of August 29, 1997
Financial information as of June 30, 1997
Source: SNL Securities, L.P.
<PAGE>
Exhibit IV-2a
Hopkinsville Federal Savings Bank
Hopkinsville, Kentucky
SELECTED FINANCIAL AND MARKET STATISTICS
Comparable Group
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Current Current 1 Month Avg One Year Avg
Net Dividend Annualized Weekly Vol/ Weekly Vol/
Income Yield Dividend Shares Out Shares Out
Short Name ($000) (%) ($) (%) (%)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ameriana Bancorp 2,428 3.24 0.64 0.46 0.48
First Bancshares Inc. 1,413 0.82 0.20 0.36 0.91
FFW Corp. 1,344 2.46 0.72 0.09 0.96
Wood Bancorp Inc. 1,675 2.41 0.40 0.43 0.33
Industrial Bancorp 2,398 3.25 0.48 1.55 1.32
Landmark Bancshares Inc. 1,929 1.65 0.40 0.56 0.85
MBLA Financial Corp. 1,441 1.68 0.40 0.47 0.42
MFB Corp. 1,309 1.36 0.32 1.15 1.46
Milton Federal Financial Corp. 912 4.36 0.60 0.35 1.01
Midwest Bancshares Inc. 631 1.67 0.60 0.89 0.68
- ---------------------------------------------------------------------------------------------
AVERAGE 1,548 2.29 0.48 0.63 0.84
MEDIAN 1,427 2.05 0.44 0.47 0.88
- ---------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------
LTM * LTM
Insider Institutional Shares Return on Return on
Ownership Ownership Outstanding Avg Equity Avg Equity
Short Name (%) (%) (Actual) (%) (%)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ameriana Bancorp 15.30 16.85 3,230,246 0.61 0.91
First Bancshares Inc. 11.90 4.52 1,095,554 0.91 1.14
FFW Corp. 25.05 15.35 711,234 0.85 1.03
Wood Bancorp Inc. 18.90 9.06 2,118,538 1.07 1.29
Industrial Bancorp 7.70 22.73 5,276,775 0.73 1.29
Landmark Bancshares Inc. 23.70 31.65 1,710,666 0.88 1.12
MBLA Financial Corp. 28.41 3.61 1,298,412 0.66 0.80
MFB Corp. 18.40 24.43 1,690,217 0.57 0.80
Milton Federal Financial Corp. 6.20 14.48 2,309,836 0.50 0.72
Midwest Bancshares Inc. 33.68 0.00 348,339 0.45 0.75
- ---------------------------------------------------------------------------------------------------
AVERAGE 18.92 14.27 1,978,982 0.72 0.98
MEDIAN 18.65 14.92 1,700,442 0.70 0.97
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Reflects estimated adjustment for SAIF special assessment.
Current pricing information as of August 29, 1997
Financial information as of June 30, 1997
Source: SNL Securities, L.P.
<PAGE>
Exhibit V-1
Hopkinsville Federal Savings Bank
STANDARD CONVERSION ANALYSIS
Page 1
As of August 29, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Comparable All Publicly
Group Traded Thrifts
PRICE MULTIPLE: Symbol Subject (As of 8/29/97) (As of 8/29/97)
Low High Average Median Average Median
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Price-to-Earnings ratio P/E 12.50 15.25 17.26 17.67 18.97 16.69
Price-to-Book ratio P/B 63.50 66.25 128.20 122.60 153.76 136.36
Price-to-Assets P/A 11.00 12.50 15.95 16.02 17.25 14.96
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
PARAMETERS SYMBOL VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
Proforma Value after Conversion "V"
Pre-conversion earnings /(1)/ "Y" $1,426,000
Est ESOP Borrowings (8%) "E" 2,120,000
Est ESOP Borrowing Rate /(2)/ "S" 5.61%
Est Amort. of ESOP Borrowings "T" 8
Pre-Conversion Tangible Book Value /(3)/ "B" 18,265,000
Pre-Conversion Assets /(3)/ "A" 202,496,000
Reinvestment Rate /(4)/ "R" 4.29%
Est Conversion Expenses /(5)/ "X" 700,000
Management Recognition Plan Amount (4%) "M" 1,060,000
Management Recognition Plan Expense "N" 212,000
Proceeds not Reinvested "Z" 2,570,000
Projected Dividend Amount "DA" 0
Projected Dividend Yield "DY" 0.00%
Tax Rate (State and Federal) 34.00%
</TABLE>
/(1)/ LTM earnings as of June 30, 1997 (w/o SAIF assessment).
/(2)/ Based upon prime at 8.5% rate less the effective tax rate.
/(3)/ As of June 30, 1997.
/(4)/ Net return assumes a reinvestment rate of 6.5%, the estimated incremental
net assets yield for the Company for the most recent period, less the an
estimated tax effect.
/(5)/ Estimated total costs for the conversion.
- --------------------------------------------------------------------------------
Hopkinsville Federal Savings Bank
STANDARD CONVERSION ANALYSIS
Page 2
<TABLE>
<CAPTION>
Formula
<S> <C> <C> <C>
PRICE-TO-EARNINGS CALCULATION
low 23,992,588 P/E [Y-R(X+Z)-ES-(1-Tax)E/T-(1-Tax)N)]
high 29,270,957 V = --------------------------------------
average 26,631,772 1-(P/E)R
PRICE-TO-BOOK CALCULATION
low 25,025,959 P/B (B-X-E-M)
high 28,237,222 V = -------------
average 26,631,591 1-P/B
PRICE-TO-ASSETS CALCULATION
low 24,941,079 P/A (A-X)
high 28,342,135 V = -------------
average 26,641,607 1-P/A
</TABLE>
<TABLE>
<CAPTION>
SUMMARY ESTIMATE
==================================================================
<S> <C> <C>
As of August 29, 1997 $26,500,000
==================================================================
Allowable Range
from 85% ----- $22,525,000
to 115% or ----- $30,475,000
==================================================================
</TABLE>
<PAGE>
================================================================================
Exhibit V-2
Hopkinsville Federal Savings Bank
PROFORMA EFFECT OF CONVERSION PROCEEDS
<TABLE>
<CAPTION>
<S> <C>
Estimated Conversion Proceeds $26,500,000
(Midpoint of conversion range)
Less
Selling Expenses ($700,000)
-----------
Conversion Proceeds $25,800,000
ESOP Deduction ($2,120,000)
MRP Deduction ($1,060,000)
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Estimated Net Capital Addition from Conversion $22,620,000
Estimated Additional Income from Conversion Process
Conversion Proceeds (1) $23,680,000
Estimated Incremental Rate of Return 4.29%
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$1,015,872
Less Amortization of ESOP Borrowing, net of taxes ($174,900)
Less ESOP Borrowing Expense, net of taxes (118,932)
Less Management Recognition Program Expense ($139,920)
-----------
Estimated Net Earnings Increase $582,120
</TABLE>
(1) less ESOP
<TABLE>
<CAPTION>
-----------------------------------------------
Before Conversion After Conversion
-----------------------------------------------
<S> <C> <C>
ESTIMATED PROFORMA EARNINGS
Normalized Earnings (annualized) $1,426,000 $2,008,120
Return on Assets 0.70% 0.89%
<CAPTION>
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ESTIMATED PROFORMA NET WORTH Before Conversion Conversion Proceeds After Conversion
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<S> <C> <C> <C>
As of June 30, 1997 $18,265,000 $22,620,000 $40,885,000
<CAPTION>
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ESTIMATED PROFORMA ASSETS Before Conversion Conversion Proceeds After Conversion
---------------------------------------------------------------------
<S> <C> <C> <C>
As of June 30, 1997 $202,496,000 $22,620,000 $225,116,000
</TABLE>
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Exhibit V-3
Hopkinsville Federal Savings Bank
PROFORMA EFFECT OF STANDARD CONVERSION
<TABLE>
<CAPTION>
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Minimum Midpoint Maximum Super Max
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Estimated Gross Stock Sale Proceeds 22,525,000 26,500,000 30,475,000 35,046,250
Estimated Expenses (1) 700,000 700,000 700,000 700,000
--------------- ---------------- ------------------ ----------------
Estimated Net Conversion Proceeds 21,825,000 25,800,000 29,775,000 34,346,250
ESTIMATED PROFORMA NET WORTH
Tangible Net Worth as of June 30, 1997 18,265,000 18,265,000 18,265,000 18,265,000
Conversion Proceeds 21,825,000 25,800,000 29,775,000 34,346,250
--------------- ---------------- ------------------ ----------------
Total 40,090,000 44,065,000 48,040,000 52,611,250
Less ESOP Debt (2) 1,802,000 2,120,000 2,438,000 2,803,700
Less MRP Obligation (2) 901,000 1,060,000 1,219,000 1,401,850
--------------- ---------------- ------------------ ----------------
Est. Proforma Tangible Net Worth 37,387,000 40,885,000 44,383,000 48,405,700
ESTIMATED PROFORMA EARNINGS
Normalized Earnings (annualized) 1,426,000 1,426,000 1,426,000 1,426,000
Incremental Earnings (3) 858,987 1,015,872 1,172,757 1,353,175
--------------- ---------------- ------------------ ----------------
Sub-total 2,284,987 2,441,872 2,598,758 2,779,176
Less ESOP Adjustment (4) 249,757 293,832 337,907 388,593
Less MRP Adjustment (4) 118,932 139,920 160,908 185,044
--------------- ---------------- ------------------ ----------------
Estimated Proforma Annual Earnings 1,916,298 2,008,120 2,099,943 2,205,539
ESTIMATED PROFORMA NET ASSETS
Total as of June 30, 1997 202,496,000 202,496,000 202,496,000 202,496,000
Conversion Proceeds 21,825,000 23,680,000 29,775,000 34,346,250
Less MRP Obligation 901,000 1,060,000 1,219,000 1,401,850
--------------- ---------------- ------------------ ----------------
Estimated Proforma Assets 223,420,000 225,116,000 231,052,000 235,440,400
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ESTIMATED PROFORMA RATIOS, PRICE TO:
Tangible Net Worth 60.25% 64.82% 68.66% 72.40%
Earnings 11.75 13.20 14.51 15.89
Assets 10.08% 11.77% 13.19% 14.89%
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EST. PROFORMA RETURN ON ASSETS 0.86% 0.89% 0.91% 0.94%
EST. PROFORMA TANGIBLE NET WORTH to ASSETS 16.73% 18.16% 19.21% 20.56%
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</TABLE>
(1) Estimated issuance costs including legal, accounting and other direct
expenses
(2) Estimated
(3) Estimated 6.5% incremental net return on earning assets less the effective
tax rate
(4) Tax effected
