<PAGE>
As filed with the Securities and Exchange Commission on July 18, 1997
Registration No. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------------------
COMMUNITY NATIONAL CORPORATION
----------------------------------------------
(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C> <C>
Tennessee 6035 Applied for
- --------------------------------- ----------------------------- ------------------------
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification number)
</TABLE>
19 Natchez Trace Drive, Lexington, Tennessee 38351
(901) 968-6624
- --------------------------------------------------------------------------------
(Address and telephone number of principal executive
offices and principal place of business)
Mr. Howard W. Tignor, President
COMMUNITY NATIONAL CORPORATION
19 Natchez Trace Drive
Lexington, Tennessee 38351
(901) 968-6624
- --------------------------------------------------------------------------------
(Name, address, and telephone number of agent for service)
Please send copies of all communications to:
Gary R. Bronstein, Esquire
Howard S. Parris, Esquire
Julie D. Keegan, Esquire
Housley Kantarian & Bronstein, P.C.
1220 19th Street, N.W., Suite 700
Washington, D.C. 20036
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Proposed
Dollar Maximum Maximum
Title of Each Class Amount Offering Aggregate Amount of
of Securities to be Price Per Offering Registration
to be Registered Registered Unit Price (1) Fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$1.00 per share............... $ 3,442,750 $10.00 $ 3,442,750 $1,043.15
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
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
COMMUNITY NATIONAL CORPORATION
(Proposed Holding Company for Community National Bank of Tennessee)
Up to 494,500 Shares of Common Stock
$10.00 Per Share
Community National Corporation (the "Company"), a Tennessee corporation, is
offering up to 494,500 shares (which may be increased to 568,675 shares under
certain circumstances described below) of its common stock, par value $1.00 per
share (the "Common Stock"), in connection with (i) the Exchange described herein
to be effected in connection with the reorganization of Lexington First Federal
Savings Bank ("Lexington First" or the "Bank") as a subsidiary of the Company
and (ii) the Offerings described herein. See "The Stock Conversion and
Reorganization -- Description of the Stock Conversion and Reorganization" and "
- -- Stock Pricing, Exchange Ratio and Number of Shares to be Issued."
Pursuant to a Plan of Conversion and Agreement and Plan of Reorganization
(the "Plan") adopted by the Company, the Bank and Lexington First Federal,
Mutual Holding Company (the "Mutual Holding Company"), the Bank will become a
subsidiary of the Company, upon consummation of the transactions described
herein (collectively, the "Stock Conversion and Reorganization"). As soon as
possible following completion of the Stock Conversion and Reorganization, the
Bank intends to convert from a federal stock savings bank to a national bank
(the "Bank Conversion") to be known as "Community National Bank of Tennessee"
(the "National Bank"). The purpose of the Bank Conversion is to provide the Bank
with additional operating flexibility and to enhance its ability to provide a
full range of banking products and services to its community. However,
completion of the Stock Conversion and Reorganization is not contingent upon the
Bank's consummation of the Bank Conversion and the Board of Directors of the
Bank may elect at any time not to proceed with the Bank Conversion. Furthermore,
there can be no assurance that the Bank and the Company will obtain regulatory
approval to consummate the Bank Conversion. A delay in the receipt of the
approvals necessary to consummate the Bank Conversion may result in a delay in
the consummation of the Stock Conversion and Reorganization, and result in a
delay in Company stockholders receiving their stock certificates. See "Risk
Factors -- Potential Delay in Completion or Denial of Bank Conversion" and " --
Risk of Delayed Offering." It is presently the intent of the Bank's Board of
Directors to proceed with both the Stock Conversion and Reorganization and the
Bank Conversion. The Stock Conversion and Reorganization and the Bank Conversion
are referred to collectively herein as the "Conversion."
For a discussion of certain factors that should be considered by each
prospective investor, see "Risk Factors" on page 1.
(continued on following page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, OR ANY OTHER FEDERAL
AGENCY OR STATE SECURITIES COMMISSION, NOR HAS SUCH COMMISSION, OFFICE OR OTHER
AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
<TABLE>
<CAPTION>
=================================================================================================================================
Estimated Fees,
Commissions Estimated
Subscription and Conversion Net
Price (1) Expenses (2) Proceeds (3)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum Per Share..................................... $10.00 $1.58 $8.42
- ---------------------------------------------------------------------------------------------------------------------------------
Midpoint Per Share.................................... $10.00 $1.34 $8.66
- ---------------------------------------------------------------------------------------------------------------------------------
Maximum Per Share..................................... $10.00 $1.17 $8.83
- ---------------------------------------------------------------------------------------------------------------------------------
Maximum Per Share, as adjusted........................ $10.00 $1.02 $8.98
- ---------------------------------------------------------------------------------------------------------------------------------
Total Minimum (1)..................................... $2,212,550 $350,000 $1,862,550
- ---------------------------------------------------------------------------------------------------------------------------------
Total Midpoint (1).................................... $2,603,000 $350,000 $2,253,000
- ---------------------------------------------------------------------------------------------------------------------------------
Total Maximum (1)..................................... $2,993,700 $350,000 $2,643,700
- ---------------------------------------------------------------------------------------------------------------------------------
Total Maximum, as adjusted (1)........................ $3,442,750 $350,000 $3,092,750
=================================================================================================================================
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by
Ferguson & Company ("Ferguson & Co."), as of June 20, 1997 (the
"Appraisal") which states that the estimated pro forma market value of the
Bank and the Mutual Holding Company, on a combined basis, was $4.3
million. The Appraisal was multiplied by the Mutual Holding Company's
percentage interest in the Bank (i.e., 60.54%) to determine a midpoint
($2,603,000) and the minimum and maximum range were set at 15% below and
above the midpoint, respectively, resulting in a range of $2,212,500 to
$2,993,700 (the "Valuation Price Range"). See "The Stock Conversion and
Reorganization -- Stock Pricing, Exchange Ratio and the Number of Shares
to be Issued." Based upon the minimum, midpoint, maximum and 15% above the
maximum of the Valuation Price Range, respectively.
(2) Consists of the estimated costs to the Primary Parties to be incurred in
connection with the Stock Conversion and Reorganization and marketing fees
and expenses of $85,000 to be paid to Trident Securities in connection
with the Offerings. See "The Conversion -- Marketing Arrangements." The
actual fees and expenses may vary from the estimates. Such fees paid to
Trident Securities may be deemed to be underwriting fees. See "Pro Forma
Data."
(3) Actual net proceeds may vary substantially from estimated amounts
depending on the number of shares sold in the Offerings and other
factors. For the effect of such purchases, see "Capitalization"
and "Pro Forma Data."
TRIDENT SECURITIES, INC.
The date of this Prospectus is ___________, 1997.
<PAGE>
The Offerings. In addition to the Exchange noted below, nontransferable
subscription rights to subscribe for up to 299,370 shares (which may be
increased to 344,275 shares under certain circumstances described below) of
Common Stock (the "Conversion Stock") have been granted to certain depositors
and borrowers of the Bank as of specified record dates, directors, officers and
employees of the Bank, and the holders of Public Bank shares, subject to the
limitations described herein (the "Subscription Offering"). The Company may
offer any shares of Common Stock not subscribed for in the Subscription Offering
(if any) in a community offering (the "Community Offering") to certain members
of the general public to whom the Company delivers a copy of this Prospectus and
a stock order form (the "Stock Order Form"). Natural persons ordering Conversion
Stock in the Community Offering will be given a preference if they are residents
of Henderson County in the State of Tennessee (the "Local Community"). The
Company, the Mutual Holding Company and the Bank (the "Primary Parties") may, in
their absolute discretion, reject orders in the Community Offering in whole or
in part. In the Exchange, those persons, other than the Mutual Holding Company
(the "Public Stockholders") owning shares of Bank Common Stock (the "Public Bank
Shares") prior to consummation of the Conversion will have their Public Bank
Shares exchanged for shares of Company Common Stock (the "Exchange Shares")
pursuant to a ratio which preserves their 39.46% aggregate ownership of Bank
Common Stock (not including shares which may be required to be divested).
It is anticipated that shares of Conversion Stock not subscribed for in
the Subscription Offering and Community Offering, if any, will be offered by the
Company to members of the general public to whom a copy of this Prospectus is
delivered by or on behalf of the Company in a syndicated community offering (the
"Syndicated Community Offering") (the Subscription Offering, any Community
Offering and any Syndicated Community Offering are referred to collectively as
the "Offerings"). The Primary Parties have engaged Trident Securities, Inc.
("Trident Securities") to consult with and advise them in the Stock Conversion
and Reorganization and Trident Securities has agreed to use its best efforts to
solicit subscription and purchase orders for shares of Conversion Stock in the
Offerings. Trident Securities is not obligated to take or purchase any shares of
Conversion Stock in the Offerings. See "The Conversion -- Marketing
Arrangements."
The Subscription Offering will terminate at 12:00 Noon, Central Time,
on _____________, 1997 (the "Expiration Date"), unless extended by the Primary
Parties, with approval of the Office of Thrift Supervision ("OTS"), if
necessary. Such extensions may not be extended beyond _________, 199_. The
Community Offering, if any, may commence without notice at any time after the
commencement of the Subscription Offering and may terminate at any time without
notice, but may not terminate later than ____________, 1997. The Community
Offering and/or any Syndicated Community Offering must be completed within 45
days after the close of the Subscription Offering, or by ____________, 1997,
unless extended by the Primary Parties with the approval of the OTS, if
necessary. Orders submitted are irrevocable until the completion of the Stock
Conversion and Reorganization; provided, however, that if the Stock Conversion
and Reorganization is not completed within the 45-day period referred to above,
unless such period has been extended with the consent of the OTS, if necessary,
all subscribers will have their funds returned promptly with interest, and all
withdrawal authorizations will be canceled. The Offerings may not be extended
beyond ____________, 199_. See "The Stock Conversion and Reorganization -- The
Offerings -- Subscription Offering."
Purchase Limitations. The Plan sets forth various purchase limitations
which are applicable in the Offerings. No person may purchase fewer than 25
shares. In the Subscription Offering, each eligible subscriber may subscribe for
up to 5,000 shares of Conversion Stock per qualifying deposit or loan account,
provided that the aggregate maximum number of shares of Conversion Stock that
may be purchased by any person, together with associates, or groups of persons
acting in concert in the Offerings is 5% of the shares sold in the Offerings, or
14,968 shares of Conversion Stock at the maximum of the Valuation Price Range.
No person, together with associates or persons acting in concert with such
person, shall, upon completion of the Stock Conversion and Reorganization
beneficially own Conversion Stock that, when combined with Exchange Shares,
exceeds 5.0% of the shares of Common Stock outstanding (this limitation may also
be increased to 9.9% under certain circumstances, as described below). The
Primary Parties reserve the right to increase the purchase limitation to allow a
limited number of purchasers to purchase in excess of 5.0% of the shares of
Conversion Stock to be sold in the Offerings, provided that, the number of
shares allocated to purchasers in excess of 5.0% of the shares may not, in the
aggregate, exceed 10.0% of the shares sold in the Offerings. Certain Bank
stockholders currently own more than 5.0% of the outstanding shares of Bank
Common Stock. Under the Plan, such stockholders will be required to divest
sufficient shares to reduce their ownership to 5.0% unless the foregoing
purchase limitation is increased. See "The Stock Conversion and Reorganization
- -- The Offerings -- Subscription Offering," " -- Community Offering" and " --
Limitation on Conversion Stock Purchases."
For additional information and how to subscribe for Common Stock,
please call the Stock Information Center at (901) ___-____.
<PAGE>
[MAP OF BANK'S MARKET AREA HERE]
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
<PAGE>
SUMMARY
This summary is qualified in its entirety by the more detailed
information regarding the Company, the Bank and the Mutual Holding Company and
the Financial Statements of the Bank appearing elsewhere in this Prospectus.
Community National Corporation
Community National Corporation is a Tennessee corporation organized in
July 1997 by the Bank for the purpose of holding all of the capital stock of the
Bank following the Stock Conversion and Reorganization and of the National Bank
following the Bank Conversion. The Company has received approval from the OTS to
acquire control of the Bank subject to satisfaction of certain conditions. Prior
to the Conversion, the Company has not engaged and will not engage in any
material operations. Upon consummation of the Stock Conversion and
Reorganization, the Company will have no significant assets other than the
outstanding capital stock of the Bank (or, following the Bank Conversion, the
National Bank), and a portion of the net proceeds of the Stock Conversion. Upon
consummation of the Conversion, the Company's principal business will be
overseeing and directing the business of the National Bank and investing the net
Stock Conversion proceeds retained by it, and the Company will register with the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board")
as a bank holding company under the Bank Holding Company Act of 1956, as amended
(the "BHCA") and deregister with the OTS as a savings and loan holding company.
See "Business of the Company" and "Regulation -- Depository Institution
Regulation and -- Regulation of the Company."
Lexington First Federal Savings Bank
Lexington First commenced operations in 1961 as a federally-chartered
mutual savings association under the name "Lexington First Federal Savings and
Loan Association" (the "Association"). Its deposits have been federally insured
up to applicable limits, and it has been a member of the Federal Home Loan Bank
("FHLB") system since that time. Lexington First's deposits are currently
insured by the Savings Association Insurance Fund ("SAIF") of the Federal
Deposit Insurance Corporation ("FDIC") and it is a member of the FHLB of
Cincinnati. Lexington First is subject to the regulation of the OTS, as well as
the FDIC. On December 14, 1992, the Association reorganized into the mutual
holding company form of organization and completed a sale of stock to the
public. To accomplish this transaction, the Association organized a federal
stock savings bank as a wholly owned subsidiary. The mutual Bank then
transferred substantially all of its assets and liabilities to the stock Bank in
exchange for 135,000 shares of Bank Common Stock, and reorganized itself into a
federally chartered mutual holding company known as Lexington First Federal
Mutual Holding Company and sold 80,000 shares of Bank Common Stock to certain
members of the Bank and members of the general public (the "MHC
Reorganization"). As of the date hereof, the Mutual Holding Company and the
Public Stockholders own an aggregate of 135,000 shares and 87,993 shares, or
60.54% and 39.46%, respectively, of the outstanding shares of Bank Common Stock,
respectively.
Lexington First's primary business, as conducted through its office
located in Lexington, Tennessee, has been the origination of mortgage loans
secured by single-family residential real estate located primarily in Henderson
County, Tennessee, with funds obtained through the attraction of savings
deposits, primarily transaction accounts, and certificate accounts with terms of
18 months or less. The Bank also makes construction loans on single-family
residences, savings account loans, and second mortgage consumer loans. In past
years, the Bank has made a limited number of loans on multi-family and
commercial real estate. The Bank also purchases mortgage-backed securities, and
invests in other liquid investment securities when warranted by the level of
excess funds. In the early 1980's, the Bank made and began to emphasize the
origination of adjustable-rate mortgage loans. However, due to customer
preference for fixed-rate mortgage loans, the Bank has been unable to originate
a significant number of adjustable-rate loans in recent years. The Bank will
continue to offer and make loans with adjustable rates, as the market allows,
although the residential loans originated by the Bank in recent months have been
mostly short-term balloon loans with terms of one, three, five and seven years.
However, it is expected that a significant percentage of the Bank's assets will
continue to be invested in mortgage-backed securities and other liquid
investment securities due to limited lending opportunities in the Bank's market
area.
(i)
<PAGE>
In February 1997, the Bank hired Howard W. Tignor as its President and
Chief Executive Officer. Mr. Tignor has over 31 years experience as a national
bank examiner, loan officer, operating officer and Chief Executive Officer of
various commercial banks located in central Tennessee. Under Mr. Tignor's
leadership, the Bank will attempt to significantly increase its origination of
commercial real estate loans, commercial business loans and consumer loans. The
offering of a wider range of loan products, the opening of a new branch office,
and the Conversion, including the Bank Conversion, are all integral parts of
Lexington First's new emphasis on commercial banking. The goals in implementing
these steps are to increase the Bank's interest rate spread, improve the Bank's
interest rate sensitivity mismatch and increase overall profitability, while
maintaining an acceptable level of risk. Although there are additional risks
inherent in pursuing a commercial banking strategy, the Board of Directors
believes that President Tignor and the new employees he has hired (including two
new lending officers) possess the requisite amount of skill, experience and
leadership to accomplish this goal over a reasonable period of time. For more
information, see "Risk Factors -- Risks Related to Commercial Real Estate,
Commercial Business and Consumer Lending," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business of the Bank --
Lending Activities."
At March 31, 1997, Lexington First's interest-bearing liabilities which
were estimated to mature or reprice within one year exceeded Lexington First's
interest-earning assets with the same characteristics by $13.8 million or 53.1%
of Lexington First's total assets. This large interest rate sensitivity gap
subjects Lexington First to significant and severe risk during periods of rising
interest rates. For more information see "Risk Factors -- The Bank's Interest
Sensitivity Mismatch and Potential Effects of Changes in Interest Rates."
At March 31, 1997, Lexington First had total assets of $25.9 million,
deposits of $20.9 million, net loans receivable of $16.4 million, cash and
investment securities of $5.6 million, mortgage-backed securities of $3.2
million and stockholders' equity of $3.9 million. The Bank's tangible capital to
assets ratio at that date was 15.02%.
Lexington First Federal Mutual Holding Company
The Mutual Holding Company is a federally chartered mutual holding
company formed in 1992 in connection with the MHC Reorganization. The Mutual
Holding Company's primary asset is 135,000 shares of Bank Common Stock which
represented 60.54% of the shares of Bank Common Stock outstanding as of the date
of this Prospectus. The Mutual Holding Company's only other asset at March 31,
1997 was approximately $92,000 in cash. As part of the Stock Conversion and
Reorganization, the Mutual Holding Company will convert to an interim federal
savings bank and simultaneously merge with and into the Bank, with the Bank
being the surviving entity.
Community National Bank of Tennessee
Upon consummation of the Bank Conversion, Community National Bank of
Tennessee will succeed to all of the assets and liabilities of the Bank and will
initially continue to conduct business in substantially the same manner as the
Bank prior to the Conversion. However, subsequent to the Bank Conversion, it is
expected that the National Bank will increase its origination of commercial real
estate, commercial business and consumer loans, including automobile loans and
home equity loans.
The deposits of the National Bank will continue to be insured by the
SAIF of the FDIC, and, as such, the National Bank will continue to be subject to
regulation and supervision by the FDIC. The National Bank will not be subject to
OTS regulation and supervision; rather, the primary regulator of the National
Bank will be the Office of the Comptroller of the Currency (the "OCC"). The
National Bank will remain a member of the FHLB of Cincinnati. As a national
bank, the National Bank also will be required to become a member of the Federal
Reserve System. For information regarding regulations applicable to the Bank and
the National Bank, see "Regulation."
(ii)
<PAGE>
Purposes of the Stock Conversion and Reorganization
In their decision to pursue the Stock Conversion and Reorganization,
the Mutual Holding Company and the Bank considered the various advantages of a
stock holding company form of organization including: (1) a stock holding
company's ability to diversify the Company's and the Bank's business activities;
(2) the larger capital base of a stock holding company; (3) the enhancement of
the Company's future access to capital markets; (4) the increase in the number
of outstanding shares of publicly traded stock (which may increase the liquidity
of the Common Stock); and (5) the greater flexibility in structuring
acquisitions. In addition, the Mutual Holding Company and the Bank considered
various regulatory uncertainties associated with the mutual holding company
structure, as well as the general uncertainty regarding the future of the thrift
charter.
Description of the Stock Conversion and Reorganization
On April 12, 1997, the Boards of Directors of the Bank and the Mutual
Holding Company adopted the Plan (which was subsequently adopted, as amended)
and in July 1997 the Bank organized the Company under Tennessee law as a
first-tier wholly owned subsidiary. Pursuant to the Plan: (i) the Mutual Holding
Company will convert to an interim federal stock savings bank and simultaneously
will merge with and into the Bank; (ii) the Mutual Holding Company will cease to
exist and the 135,000 shares or 60.54% of the outstanding Bank Common Stock held
by the Mutual Holding Company will be canceled; and (iii) a second interim
savings association ("Interim") formed by the Company solely for such purpose
will then merge with and into the Bank. As a result of the merger of Interim
with and into the Bank, the Bank will become a wholly owned subsidiary of the
Company operating under the name "Lexington First Federal Savings Bank" and the
outstanding Public Bank Shares, which amounted to 87,993 shares or 39.46% of the
outstanding Bank Common Stock at __________, 1997, will be converted into the
Exchange Shares pursuant to a ratio (the "Exchange Ratio"), which will result in
the holders of such shares (the "Public Stockholders") owning in the aggregate
approximately the same percentage of the Common Stock to be outstanding upon the
completion of the Stock Conversion and Reorganization (i.e., the Conversion
Stock and the Exchange Shares) as the percentage of Bank Common Stock owned by
them in the aggregate immediately prior to consummation of the Stock Conversion
and Reorganization, before giving effect to: (i) the exercise of dissenters'
rights of appraisal by the holders of any shares of Bank Common Stock; (ii) the
payment of cash in lieu of issuing fractional Exchange Shares; and (iii) any
shares of Conversion Stock purchased by the Bank's stockholders in the
Offerings.
(iii)
<PAGE>
The following diagram outlines the current organizational structure of
the parties and their respective ownership interests:
- ---------------------------- -------------------------------
Lexington First Federal Public Stockholders
Mutual Holding Company
- ---------------------------- -------------------------------
60.54% 39.46%
------------------------------------------------
----------------------------
Lexington First Federal
Savings Bank
----------------------------
100%
----------------------------
Community National
Corporation
----------------------------
100%
----------------------------
Interim
(to-be-formed)
----------------------------
(iv)
<PAGE>
The following diagram reflects the results of the Stock Conversion and
Reorganization, including: (i) the merger of the Mutual Holding Company
(following its conversion to an interim federal stock savings bank) with and
into the Bank; (ii) the merger of Interim with and into the Bank, pursuant to
which the Public Bank Shares will be converted into Exchange Shares; and (iii)
the Offerings of Conversion Stock. The diagram assumes that there are no shares
for which holders properly perfect dissenters' rights of appraisal, there are no
fractional shares and does not give effect to purchases of Conversion Stock by
holders of Public Bank Shares.
- ------------------------------------- -------------------------------------
Purchasers of Stock in the Holders of Exchange Shares
Stock Conversion and Reorganization (Former Public Stockholders)
- -------------------------------------- -------------------------------------
60.54% 39.46%
--------------------------------------
--------------------------------------
Community National
Corporation
--------------------------------------
100%
----------------------------------------
Lexington First
Federal Savings Bank
(to become "Community National Bank
of Tennessee" in the Bank Conversion)
----------------------------------------
In addition to shares of Common Stock to be issued pursuant to the
Exchange, pursuant to the Plan, the Company is offering shares of Conversion
Stock in the Offerings as part of the Stock Conversion and Reorganization. See "
- -- The Offerings" below and "The Stock Conversion and Reorganization -- The
Offerings."
The Bank Conversion
The Board of Directors of the Bank adopted the Plan on April 12, 1997,
which was subsequently adopted as amended, and provides for both the Stock
Conversion and Reorganization and the Bank Conversion. As soon as possible
following completion of the Stock Conversion and Reorganization, the Bank will
convert to a national bank to be known as "Community National Bank of
Tennessee." Although it is presently the intent of the Bank's Board of Directors
to proceed with both the Stock Conversion and Reorganization and the Bank
Conversion under the Plan, the Board of Directors of the Bank has the ability to
elect, at any time, not to proceed with the Bank Conversion. See "Risk Factors
- -- Potential Delay in Completion or Denial of Bank Conversion" and "The
Conversion -- General."
The OTS has approved the Plan, subject to member approval 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, as part of the Stock
Conversion and Reorganization. The Bank has notified the OTS of its intent to
convert the Bank to the National Bank and has applied for the approval of the
OCC for its Bank Conversion. In addition, the Company has applied to the Federal
Reserve Board for approval to own all of the capital
(v)
<PAGE>
stock of the National Bank and thereby become a bank holding company following
completion of the Bank Conversion. The approval of the Federal Reserve Board has
not been obtained as of the date of this Prospectus, and there can be no
assurance that such approval will be obtained. See "Risk Factors -- Potential
Delay in Completion or Denial of Bank Conversion."
Conditions to Closing of the Offerings
Pursuant to OTS regulations, consummation of the Conversion is
conditioned upon the approval of the Plan by the OTS, as well as: (i) the
approval of the holders of at least a majority of the total number of votes
eligible to be cast by the members of the Mutual Holding Company ("Members") as
of the close of business on __________, 1997 (the "Voting Record Date") at a
special meeting of Members called for the purpose of submitting the Plan for
approval (the "Members' Meeting"); and (ii) the approval of the holders of at
least two-thirds of the shares of the outstanding Bank Common Stock, including
the Mutual Holding Company (the "Stockholders"), eligible to be voted at the
special meeting of the Bank's Stockholders as of the close of business on
________________, 1997 (the "Stockholder Voting Record Date") at a special
meeting of Stockholders called for the purpose of submitting the Plan for
approval (the "Stockholders' Meeting"). In addition, the Primary Parties have
conditioned the consummation of the Conversion on: (i) the approval of the Plan
by at least a majority of the votes cast, in person or by proxy, by the Public
Stockholders at the Stockholders' Meeting; and (ii) the exercise of dissenters'
rights of appraisal by the holders of less than 10% of the outstanding shares of
Bank Common Stock. The Mutual Holding Company intends to vote its shares of Bank
Common Stock, which amount to 60.54% of the outstanding shares, in favor of the
Plan at the Stockholders' Meeting. In addition, as of ________, 1997, directors
and executive officers of the Bank as a group (9 persons) beneficially owned
48,938 shares or 21.95% of the outstanding Bank Common Stock, which shares can
also be expected to be voted in favor of the Plan at the Stockholders' Meeting.
The Exchange
Pursuant to the Plan adopted by the Company, the Bank and the Mutual
Holding Company, the Bank will become a subsidiary of the Company upon
consummation of the Stock Conversion and Reorganization. As a result of the
Stock Conversion and Reorganization, each share of Bank Common Stock held by the
Mutual Holding Company, which currently holds 135,000 shares or 60.54% of the
outstanding Bank Common Stock, will be canceled, and all Public Bank shares,
which amounted to 87,993 shares or 39.46% of the outstanding Bank Common Stock
at ________, 1997, will be converted into Exchange Shares pursuant to the
Exchange Ratio that will result in the Public Stockholders owning in the
aggregate approximately the same percentage of the Company as they owned of the
Bank, before giving effect to: (i) the exercise of dissenters' rights of
appraisal by the holders of any shares of Bank Common Stock; (ii) the payment of
cash in lieu of fractional Exchange Shares; and (iii) any shares of Common Stock
purchased by Public Stockholders in the Offerings described herein (the
"Exchange"). The final Exchange Ratio will be established so that, subject to
the Plan's ownership limitations and possible divestiture requirements (see
"Risk Factors -- Possible Divestiture Requirement for Public Stockholders"),
Public Stockholders will receive the same percentage of shares of Common Stock
to be issued in the Stock Conversion and Reorganization as they currently own in
the Bank regardless of whether the Conversion Stock is sold at the minimum,
midpoint, maximum or maximum, as adjusted of the Valuation Price Range.
The Offerings
Pursuant to the Plan and in connection with the Stock Conversion and
Reorganization, the Company is offering up to 299,370 shares of Conversion Stock
in the Offerings, as may be adjusted. Conversion Stock is first being offered in
the Subscription Offering with nontransferable subscription rights being
granted, in the following order of priority, to: (i) depositors of the Bank with
account balances of $50.00 or more as of the close of business on December 31,
1995 ("Eligible Account Holders"); (ii) depositors of the Bank with account
balances of $50.00 or more as of the close of business on June 30, 1997
("Supplemental Eligible Account Holders"); (iii) depositors of the Bank as of
the close of business on __________, 1997 (other than Eligible Account Holders
and Supplemental Eligible Account Holder(s)) and
(vi)
<PAGE>
borrowers of the Bank as of December 14, 1992 whose loans continue to be
outstanding on ____________, 1997 ("Other Members"); (iv) directors, officers
and employees of the Bank; and (v) Public Stockholders. Subscription rights will
expire if not exercised by 12:00 Noon, Central Time, on _____________, 1997,
unless extended.
Although the Plan provides for the purchase of Conversion Stock by the ESOP, the
Company currently has no plans to implement the ESOP and as a result, the ESOP
will not purchase any shares of Conversion Stock in the Stock Conversion and
Reorganization.
Subject to the prior rights of holders of subscription rights,
Conversion Stock not subscribed for in the Subscription Offering is being
offered in the Community Offering to certain members of the general public to
whom a copy of this Prospectus is delivered, with preference given to natural
persons residing in the Local Community. It is anticipated that shares not
subscribed for in the Subscription Offering and the Community Offering (if any)
will be offered to certain members of the general public in a Syndicated
Community Offering. The Primary Parties reserve the absolute right to reject or
accept any orders in the Community Offering or the Syndicated Community
Offering, in whole or in part, either at the time of receipt of an order or as
soon as practicable following the Expiration Date.
The Primary Parties have retained Trident Securities as financial
advisor and marketing agent in connection with the Offerings and to assist in
soliciting subscriptions in the Offerings. See "The Stock Conversion and
Reorganization -- The Offerings -- Subscription Offering," " -- Community
Offering," " -- Syndicated Community Offering" and " -- Marketing Arrangements."
Purchase Limitations
No person may purchase fewer than 25 shares. In the Subscription
Offering, each eligible subscriber may subscribe for up to 5,000 shares of
Conversion Stock per qualifying deposit or loan account, provided that the
aggregate maximum number of shares of the Conversion Stock that may be purchased
by any person, together with associates, or groups of persons acting in concert
in the Offerings is 5% of the shares sold in the Offerings, or 14,968 shares of
Conversion Stock at the maximum of the Valuation Price Range. The Primary
Parties may in their sole discretion increase the purchase limitation to up to
9.9% of the shares to be sold in the Offerings (29,638 shares at the maximum of
the Valuation Price Range) provided that: (i) each subscriber who has subscribed
for the maximum number of shares of Conversion Stock shall have been offered the
opportunity to increase his subscription to the new purchase limitation; and
(ii) the aggregate number of shares sold to subscribers in the Offerings in
excess of 5.0% of the total number of shares issued in the Offerings does not
exceed 10% of the number of shares sold in the Offerings. In addition, following
the Stock Conversion and Reorganization no person or entity, together with
associates and persons acting in concert may beneficially own more than 5.0% of
the total number of shares of Common Stock outstanding. The Primary Parties may
in their sole discretion increase the ownership limitation to up to 9.9% of the
Common Stock outstanding provided that: (i) each subscriber who has subscribed
for the maximum permissible number of shares of Conversion Stock shall have been
offered the opportunity to increase his subscription to such percentage of the
Conversion Stock (subject to the availability of shares and the limitations on
subscriptions in excess of 5.0% described above) and (ii) the aggregate number
of shares held by all stockholders in excess of 5.0% of the shares outstanding
does not exceed 10% of the number of shares outstanding. Certain Bank
stockholders currently own more than 5.0% of the outstanding shares of Bank
Common Stock. Under the Plan, such stockholders will be required to divest
sufficient shares to reduce their ownership to 5.0% unless the foregoing
purchase limitation is increased. The minimum purchase is 25 shares. See "The
Stock Conversion and Reorganization -- Limitations on Conversion Stock
Purchases." In the event of an oversubscription, shares will be allocated in
accordance with the Plan, as described under "The Conversion -- The Offerings --
Subscription Offering" and " -- Community Offering." Because the purchase
limitations contained in the Plan include Exchange Shares to be issued to Public
Stockholders for their Public Bank Shares, certain holders of Public Bank Shares
may be limited in their ability to purchase Conversion Stock in the Offerings.
See "Risk Factors -- Possible Divestiture Requirements for Public Stockholders."
(vii)
<PAGE>
Stock Pricing, Exchange Ratio and Number of Shares to be Issued in the Stock
Conversion and Reorganization
Federal regulations require the aggregate purchase price of the
Conversion Stock to be consistent with Ferguson & Co.'s pro forma appraisal of
the Bank and the Mutual Holding Company, which was $4.3 million as of June 20,
1997. Because the holders of the Public Bank Shares will continue to hold the
same aggregate percentage ownership interest in the Company as they held in the
Bank (before giving effect to additional purchases in the Offerings, the
exercise of dissenters' rights and fractional shares), the appraisal was
multiplied by the Mutual Holding Company's percentage interest in the Bank
(i.e., 60.54%) to determine the midpoint of the Valuation Price Range, which was
$2,603,000. In accordance with OTS regulations, the minimum and maximum of the
Valuation Price Range were set at 15% below, and above the midpoint,
respectively, resulting in a range of $2,212,550 to $2,993,700. The full text of
the appraisal report of Ferguson & Co. describes the procedures followed, the
assumptions made, limitations on the review undertaken and matters considered,
which included the trading market for the Bank Common Stock (see "Market for the
Common Stock") but was not dependent thereon. The appraisal report has been
filed as an exhibit to the Registration Statement and Application for Conversion
of which this Prospectus is a part, and is available in the manner set forth
under "Additional Information." The appraisal of the Conversion Stock is not
intended and should not be construed as a recommendation of any kind as to the
advisability of purchasing such stock. The proposed Exchange Ratio was
determined independently by the Boards of Directors of the Mutual Holding
Company and the Bank based upon, among other things, the Valuation Price Range.
Ferguson & Co. expresses no opinion on the Exchange Ratio or the exchange of
Public Bank Shares. OTS policy requires that the holders of Public Bank Shares
prior to the Stock Conversion and Reorganization receive Exchange Shares in an
amount that will result in them owning, in the aggregate, approximately the same
percentage of the Company as they owned of the Bank.
All shares of Conversion Stock will be sold at $10.00 per share (the
"Purchase Price"), which was established by the Boards of Directors of the
Primary Parties. The actual number of shares to be issued in the Offerings will
be determined by the Primary Parties based upon the final updated valuation of
the estimated pro forma market value of the Conversion Stock at the completion
of the Offerings. The number of shares of Conversion Stock to be issued is
expected to range from a minimum of 221,255 shares to a maximum of 299,370
shares. Subject to approval of the OTS, the Valuation Price Range may be
increased or decreased to reflect market and economic conditions prior to the
completion of the Offerings, and under such circumstances the Primary Parties
may increase or decrease the number of shares of Conversion Stock. No
resolicitation of subscribers will be made and subscribers will not be permitted
to modify or cancel their subscriptions unless: (i) the gross proceeds from the
sale of the Conversion Stock are less than the minimum, or more than 15% above
the maximum, of the current Valuation Price Range; or (ii) the Offerings are
extended beyond ____________, 1997. Any increase or decrease in the number of
shares of Conversion Stock will result in a corresponding change in the number
of Exchange Shares, so that upon consummation of the Stock Conversion and
Reorganization, the Conversion Stock and the Exchange Shares will represent
approximately 60.54% and 39.46%, respectively, of the Company's total
outstanding shares. See "The Stock Conversion and Reorganization -- Stock
Pricing, Exchange Ratio and Number of Shares to be Issued."
Based on 87,993 Public Bank Shares outstanding at ________, 1997, and
assuming a minimum of 221,255 and a maximum of 299,370 shares of Conversion
Stock are issued in the Offerings, the Exchange Ratio is expected to range from
approximately 1.639 to 2.218 Exchange Shares for each Public Bank Share
outstanding immediately prior to the consummation of the Stock Conversion and
Reorganization. The Exchange Ratio will be affected if any stock options to
purchase shares of Bank Common Stock are exercised between the date of this
Prospectus and consummation of the Stock Conversion and Reorganization. If any
stock options are outstanding immediately prior to consummation of the Stock
Conversion and Reorganization, they will be converted into options to purchase
shares of Common Stock, with the number of shares subject to the option and the
exercise price per share to be adjusted based upon the Exchange Ratio so that
the aggregate exercise price remains unchanged, and with the duration of the
option remaining unchanged. At ________, 1997, there were no options outstanding
to purchase shares of Bank Common Stock.
(viii)
<PAGE>
The following table sets forth, based upon the minimum, midpoint,
maximum and 15% above the maximum of the Valuation Price Range, the following:
(i) the total number of shares of Conversion Stock and Exchange Shares to be
issued in the Stock Conversion and Reorganization, (ii) the percentage of the
total Common Stock represented by the Conversion Stock and the Exchange Shares,
and (iii) the Exchange Ratio. The table assumes that no holder of Public Bank
Shares exercises dissenters' rights and that there is no cash paid in lieu of
issuing fractional Exchange Shares.
<TABLE>
<CAPTION>
Conversion Stock Exchange Shares Total
to be Issued to be Issued Common Stock to Exchange
----------------------- ------------------------
Amount Percent Amount Percent be Outstanding Ratio
------ ------- ------ ------- -------------- -----
<S> <C> <C> <C> <C> <C> <C>
Minimum.............. 221,255 60.54% 144,220 39.46% 365,475 1.639
Midpoint............. 260,300 60.54 169,650 39.46 429,950 1.928
Maximum.............. 299,370 60.54 195,170 39.46 494,540 2.218
15% above maximum 344,275 60.54 224,380 39.46 568,655 2.550
</TABLE>
The final Exchange Ratio will be determined based upon the number of
shares issued in the Offerings in order to maintain the Public Stockholders'
approximately 39.46% ownership interest in the Bank and will not be based upon
the market value of the Public Bank Shares. At the minimum, midpoint and maximum
of the Valuation Price Range, one Public Bank Share will be exchanged for 1.639,
1.928 and 2.218 shares of Common Stock, respectively (which have a calculated
equivalent estimated value of $16.39, $19.28 and $22.18 based on the $10.00
Purchase Price of a share of Common Stock in the Offerings and the
aforementioned Exchange Ratios). However, there can be no assurance as to the
actual market value of a share of Common Stock after the Stock Conversion and
Reorganization or that such shares could be sold at or above the $10.00 Purchase
Price.
Payment for Subscriptions for Conversion Stock
Payment for subscriptions may be made: (i) in cash, if delivered in
person at any office of the Bank; (ii) by check or money order; or (iii) by
authorization of withdrawal from deposit accounts maintained with the Bank.
Funds from payments made by cash, check or money order will be deposited in a
segregated account at the Bank and will earn interest at the Bank's passbook
rate of interest from the date payment is received until completion or
termination of the Stock Conversion and Reorganization. No wire transfers will
be accepted. If payment is made by authorization of withdrawal from deposit
accounts, the funds authorized to be withdrawn from the deposit account will
continue to accrue interest at the contractual rate until completion or
termination of the Stock Conversion and Reorganization, but a hold will be
placed on such funds, thereby making them unavailable to the depositor until
completion or termination of the Stock Conversion and Reorganization.
If a subscriber authorizes the Bank to withdraw the aggregate amount of
the purchase price from a deposit account, the Bank will do so as of the
effective date of the Stock Conversion and Reorganization. The Bank will waive
any applicable penalties for early withdrawal from certificate accounts. If the
remaining balance in a certificate account is reduced below the applicable
minimum balance requirement at the time that the funds actually are transferred
under the authorization, the certificate will be canceled at the time of the
withdrawal, without penalty, and the remaining balance will earn interest at the
passbook rate. See "The Stock Conversion and Reorganization -- Procedure for
Purchasing Shares in the Offerings."
Differences in Stockholder Rights
The Company is a Tennessee corporation subject to the provisions of the
Tennessee Business Corporation Act and its Charter and Bylaws and the Bank is a
federally chartered savings bank subject to federal laws and regulations and its
Charter and Bylaws. Upon consummation of the Stock Conversion and
Reorganization, the Public Stockholders of the Bank will become stockholders of
the Company and their rights will be governed by the Company's Charter and
Bylaws and Tennessee law. The rights of stockholders of the Bank are materially
different in certain respects from the
(ix)
<PAGE>
rights of stockholders of the Company. See "Comparison of Stockholders' Rights"
and "Description of Capital Stock of the Company."
Benefits of Stock Conversion and Reorganization to Directors and Officers
General. The Company intends to adopt certain stock benefit plans for
the benefit of directors, officers and employees of the Company and the Bank and
to submit such plans to stockholders for approval at a special or annual meeting
of stockholders to be held no earlier than six months after the completion of
the Stock Conversion and Reorganization. The proposed benefit plans are as
follows: (i) a 1997 Stock Option and Incentive Plan (the "1998 Option Plan"),
pursuant to which a number of authorized but unissued shares of Common Stock
equal to 10% of the Conversion Stock to be sold in the Offerings (29,337 shares
at the maximum of the Valuation Price Range) will be reserved for issuance
pursuant to the exercise of stock options and stock appreciation rights and (ii)
a 1998 Management Recognition Plan and Trust Agreement (the "1998 MRP"), which
will, following the receipt of stockholder approval, purchase a number of shares
of Common Stock, with funds contributed by the Company, either from the Company
or in the open market, equal to 4.0% of the Conversion Stock to be sold in the
Offerings (11,975 shares at the maximum of the Valuation Price Range) for
distribution to directors, officers and employees. OTS regulations permit
individual members of management to receive up to 25% of the shares of any
non-tax qualified stock benefit plan and directors who are not employees to
receive up to 5% of such stock individually and up to 30% in the aggregate of
any plan. OTS regulations also permit a qualified stock benefit plan of a
converting institution to purchase, without shareholder approval, up to 10% of
the common stock sold in the offering, however, no such qualified plan is being
implemented in conjunction with the Stock Conversion. For presentation of the
pro forma effects of the 1998 MRP on the operations of the Company and its
stockholders' equity, see "Capitalization" and "Pro Forma Data."
The Company believes that the additional plans will be in the best
interest of its stockholders. Both the 1998 MRP and the 1998 Option Plan are
designed to provide management of the Bank with an opportunity to acquire a
proprietary interest in the common stock of the Bank as an incentive to the
organization's success. The 1992 Management Recognition Plan and 1992 Stock
Option Plan were also designed to provide similar incentives. All available
awards under the 1992 Stock Option Plan and 1992 Management Recognition Plan
have been made and all outstanding options have been exercised.
The Management Recognition Plan. Upon receipt of stockholder approval
of the 1998 MRP, the Company anticipates granting stock awards for shares of
Common Stock to directors, executive officers and other key personnel. A total
of 4.0% of the number of shares of Conversion Stock to be sold in the Offerings
will be available for the award of shares of Common Stock pursuant to the 1998
MRP to directors, executive officers and key employees of the Bank. The 1998 MRP
will be administered by a committee of two or more non-employee members of the
Board of Directors of the Company who are "disinterested" within the meaning of
Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act"). The
Company has not made a determination as to specific plan share awards that it
will make if the 1998 MRP is approved by the Company's stockholders but it does
anticipate that approximately 25% of the shares reserved will be awarded to the
Company's President and that each other director of the Company will receive
approximately 3.3% of the shares. Assuming that 100% of the shares are awarded,
the aggregate value to the recipients would be approximately $119,748 based on a
$10.00 per share market value of the Common Stock (based on the issuance of
299,370 shares of Conversion Stock at the maximum of the Valuation Price Range).
The actual value of the shares awarded pursuant to the 1998 MRP will be
determined as of the date the share awards vest (at a rate not in excess of 20%
per year with the initial vesting occurring no earlier than one year from the
date the 1998 MRP is approved by the stockholders).
The Option Plan. Upon receipt of stockholder approval of the 1998
Option Plan, the Company anticipates granting stock options for shares of Common
Stock to directors, executive officers and other key employees. The 1998 Option
Plan will be administered by a committee of two or more non-employee members of
the Board of Directors of the Company who are "disinterested" within the meaning
of Rule 16b-3 under the Exchange Act. It is anticipated that grants will be made
by such committee primarily based on performance, although the committee will be
able to consider
(x)
<PAGE>
other factors determined to be relevant in its sole discretion. Pursuant to the
1998 Option Plan, 10.0% of the shares of Conversion Stock to be sold in the
Offerings will be reserved for issuance upon the exercise of stock options or
stock appreciation rights upon receipt of stockholder approval of the 1998
Option Plan. All of the stock options will be granted at no cost to the
recipients, although the recipients will be required to pay the applicable
exercise price at the time of exercise in order to receive the underlying shares
of Common Stock. The Company has not made a determination as to the specific
awards of stock options that it will make if the 1998 Option Plan is approved by
the Company's stockholders, but it does anticipate that approximately 25.0% of
the initial awards will be made to the Company's President and each other
director of the Company will receive options to purchase 3.3% of the shares
reserved under the 1998 Option Plan. See "Management of the Bank -- Certain
Benefit Plans and Agreements" and "Risk Factors -- Possible Dilutive Effect of
Issuance of Additional Shares."
Use of Proceeds
Net proceeds from the sale of the Conversion Stock are estimated to be
between $1.86 million and $2.64 million (as may be adjusted), depending on the
number of shares sold and the expenses of the Stock Conversion and
Reorganization. See "Pro Forma Data." The Company plans to contribute to the
Bank approximately 50% of the net proceeds from the Offerings. Funds retained by
the Company may be used to support the future expansion of operations and for
other business or investment purposes, including the possible acquisition of
other financial institutions and/or branch offices, although there are no
current plans, arrangements, understandings or agreements regarding such
acquisitions. The Bank also expects to use a portion of the proceeds for its new
branch office in Lexington, Tennessee, which it expects to open in the fourth
quarter of 1997. For more information see "Properties." Subject to applicable
limitations, the Company may use available funds to purchase shares of Common
Stock, to contribute funds to the 1998 MRP for the purpose of purchasing shares
of Common Stock in the open market and for the payment of dividends. The portion
of the net proceeds received by the Bank (and the National Bank) will be used
for general corporate purposes. The proceeds also will be used to support the
Bank's (and the National Bank's) lending and investment activities and thereby
enhance the Bank's (and the National Bank's) capabilities to serve the borrowing
and other financial needs of the communities it serves. See "Use of Proceeds."
Dividend Policy
The Company will consider the establishment of a dividend policy
following the Stock Conversion and Reorganization, although no such policy has,
as yet, been adopted. The Board will review its dividend policy on a quarterly
basis. The Company's ability to pay dividends in the future will depend on the
net proceeds retained from the Offerings and on dividends received from the
Bank, which is subject to various restrictions on the payment of dividends. See
"Dividend Policy" and "Regulation -- Depository Institution Regulation --
Dividend Limitations." Assuming the issuance of 299,370 shares of Conversion
Stock at the maximum of the Valuation Price Range, after deducting amounts
retained to fund the 1998 MRP, the Company estimates that it would retain
approximately 50% of the net proceeds which would be available for the payment
of dividends and for other corporate purposes and that the Bank would have at
least $2.1 million available for the payment of dividends to the Company under
current OTS regulations. During the year ended December 31, 1996 and for the
quarter ended March 31, 1997, the Bank paid quarterly dividends equal to $.20
per share. These dividends were paid to the holders of Public Bank Shares, and
were waived by the Mutual Holding Company, as approved by the OTS.
Market for the Common Stock
There is no established market for the Bank Common Stock. The Company
has never issued stock before and, consequently, there is no established market
for the Common Stock. Due to the relatively small size of the Offerings, it is
unlikely that an active and liquid trading market will develop or be maintained.
Following the completion of the Offerings, the Company anticipates that the
Common Stock will be traded on the over-the-counter market with quotations
available through the OTC "Electronic Bulletin Board." The Company has been
advised by Trident Securities that Trident Securities intends to make a market
in the Common Stock. The development of a public trading
(xi)
<PAGE>
market depends upon the existence of willing buyers and sellers, the presence of
which is not within the control of the Company, the Bank or any market maker.
There can be no assurance that an active and liquid market for the Common Stock
will develop in the foreseeable future or, once developed, will continue. Even
if a market develops, there can be no assurance that stockholders will be able
to sell their shares at or above the initial Purchase Price after the completion
of the Offerings. Purchasers of Common Stock should consider the potentially
illiquid and long-term nature of their investment in the shares being offered
hereby. See "Market for the Common Stock."
Risk Factors
See "Risk Factors" beginning on page 1 for a discussion of certain
factors that should be considered by prospective investors, including risks
relating to: the Bank's interest sensitivity mismatch and the potential effects
of changes in interest rates; future commercial banking activities, recent
management changes and dependence on key personnel; a potential delay or denial
of approval of the Bank Conversion; certain anti-takeover provisions; the effect
of regulatory changes on operations; the anticipated low return on equity
following Conversion; the possible dilutive effect of the issuance of additional
shares; the absence of a market for the Common Stock; the possible divestiture
requirements for Public Stockholders; the possible dilution to Public
Stockholders as a result of the purchase limitations; competition; and the
possible adverse tax consequences of the distribution of subscription rights.
(xii)
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The following selected financial and other data of Lexington First does
not purport to be complete and is qualified in its entirety by reference to the
more detailed financial information contained elsewhere herein. The data at
March 31, 1997 and for the three months ended March 31, 1997 and 1996 is
unaudited, but in the opinion of management reflects all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation. This
information at and for the years ended December 31, 1996 and 1995 is derived in
part from, and is qualified in its entirety by reference to, the Financial
Statements and Notes thereto included elsewhere herein. The financial data for
the three months ended March 31, 1997 is not necessarily indicative of the
operating results to be expected for the entire fiscal year.
<TABLE>
<CAPTION>
At At December 31,
March 31, ----------------------
1997 1996 1995
----------- ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
Total assets........................................... $ 25,942 $ 25,623 $ 25,945
Loans receivable, net.................................. 16,429 16,205 14,512
Cash and cash equivalents.............................. 1,823 1,392 1,761
Investment securities:
Available for sale.................................. 1,568 1,802 3,104
Held to maturity.................................... 2,257 2,257 2,351
Mortgage-backed securities:
Available for sale.................................. 2,556 2,664 2,823
Held to maturity.................................... 650 678 829
Deposits............................................... 20,884 20,638 20,982
FHLB advances.......................................... 949 955 971
Stockholders' equity................................... 3,923 3,861 3,769
- -------------------------------------------------------------------------------------------------------------------
Number of:
Real estate loans outstanding.......................... 499 506 503
Savings accounts....................................... 1,637 1,567 1,738
Offices open........................................... 1 1 1
</TABLE>
(xii)
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
--------------------------- ------------------------
1997 1996 1996 1995
------ ------ ------ ------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income..................................... $ 498 $ 505 $ 2,031 $ 1,944
Interest expense.................................... 270 279 1,103 1,091
--------- ---------- --------- ----------
Net interest income........................... 228 226 928 853
Provision for loan losses........................... 6 8 30 30
--------- ---------- ---------- ----------
Net interest income after provision
for loan losses.................................. 222 218 898 823
Noninterest income.................................. 15 8 21 17
Noninterest expense................................. 144 114 617 464
--------- ---------- ---------- ----------
Income before income tax expense.................... 93 112 302 376
Provision for income taxes.......................... 31 37 105 152
--------- ---------- ---------- ----------
Net earnings........................................ $ 62 $ 75 $ 197 $ 224
========= ========== ========== ==========
Earnings per share.................................. $ 0.28 $ 0.34 $ 0.88 $ 1.00
========= ========== ========== ==========
Dividend payout ratio............................... 28.39% 23.47% 35.74% 31.43%
========= ========== ========== ==========
</TABLE>
(xiv)
<PAGE>
<TABLE>
<CAPTION>
At or for the
Three Months Ended At or for the Year
March 31, Ended December 31,
------------------------ ------------------------
1997 1996 1996 1995
------ ------ ------ -----
<S> <C> <C> <C> <C>
Performance Ratios:
Return on assets (net earnings divided
by average total assets) ........................................... 0.96% 1.16% 0.76% 0.90%
Return on average equity (net earnings divided by
average equity) .................................................... 6.42% 8.00% 5.21% 6.27%
Interest rate spread (combined weighted
average interest rate earned less
combined weighted average interest
rate cost) ......................................................... 2.92% 3.02% 3.15% 2.86%
Net interest margin (net interest income divided
by average interest-earning assets) ................................ 3.72% 3.69% 3.84% 3.55%
Ratio of average interest-earning assets
to average interest-bearing liabilities ............................ 116.46% 115.40% 115.59% 115.54%
Ratio of noninterest expense to average
total assets ....................................................... 2.24% 1.76% 2.40% 1.86%
Asset Quality Ratios:
Nonperforming assets to total assets at end of period ................. 0.54% 0.58% 0.56% 0.51%
Nonperforming loans to total loans at end of period ................... 0.91% 1.06% 0.75% 1.03%
Allowance for loan losses to total loans at end of period ............. 0.86% 0.86% 0.86% 0.84%
Allowance for loan losses to nonperforming
loans at end of period ............................................. 94.84% 81.37% 124.56% 84.25%
Provision for loan losses to total loans receivable, net .............. 0.14% 0.21% 0.18% 0.20%
Net charge-offs to average loans outstanding .......................... -- -- 0.08% 0.01%
Capital Ratios:
Equity to total assets at end of period ............................... 15.12% 14.32% 15.07% 14.53%
Average equity to average assets ..................................... 15.02% 14.45% 14.68% 14.28%
</TABLE>
(xv)
<PAGE>
RISK FACTORS
The following factors, in addition to those discussed elsewhere in this
Prospectus, should be carefully considered by investors in deciding whether to
purchase the Common Stock offered hereby.
The Bank's Interest Sensitivity Mismatch and the Potential Effects of Changes in
Interest Rates
Effect on Net Interest Income. The operations of the Bank are
substantially dependent on its net interest income, which is the difference
between the interest income earned on its interest-earning assets and the
interest expense paid on its interest-bearing liabilities. Like most savings
institutions, the Bank's earnings are affected by changes in market interest
rates and other economic factors beyond its control. The lending activities of
savings institutions have historically emphasized long-term, fixed-rate loans
secured by single-family residences, and the primary source of funds of such
institutions has been deposits. The deposit accounts of savings associations
generally bear interest rates that reflect market rates and largely mature or
are subject to repricing within a short period of time. This factor, in
combination with substantial investments in long-term, fixed-rate loans, has
historically caused the income earned by savings associations on their loan
portfolios to adjust more slowly to changes in interest rates than their cost of
funds. At March 31, 1997, Lexington First's interest-bearing liabilities which
were estimated to mature or reprice within one year exceeded Lexington First's
interest-earning assets with the same characteristics by $13.8 million or 53.1%
of Lexington First's total assets. This large interest rate sensitivity gap
subjects Lexington First to significant and severe risk during periods of rising
interest rates. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Asset and Liability Management" and "Business of
the Bank -- Lending Activities" and " -- Deposit Activities and Other Sources of
Funds."
If an institution's interest-earning assets have longer effective
maturities than its interest-bearing liabilities, the yield on the institution's
interest-earning assets generally will adjust more slowly than the cost of its
interest-bearing liabilities and, as a result, the institution's net interest
income generally would be adversely affected by material and prolonged increases
in interest rates and positively affected by comparable declines in interest
rates. In addition, rising interest rates may negatively affect the Bank's
earnings due to diminished loan demand.
This measure indicates that the Bank is particularly vulnerable to
increases in market interest rates. Conversely, the Bank could benefit from
decreases in interest rates. While this calculation is based on numerous
assumptions, not all of which are within the control of the Bank, it is likely
that the magnitude of the mismatch for the Bank means that a prolonged and
significant increase in interest rates would have an extremely negative impact
on the Bank's net interest income and net earnings. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Interest Rate
Sensitivity Analysis and Net Portfolio Value."
Effect on Securities. In addition to affecting interest income and
expenses, changes in interest rates also can affect the value of the Bank's
investment portfolio, a substantial portion of which is comprised of fixed-rate
instruments. Generally, the value of fixed-rate instruments fluctuates inversely
with changes in interest rates. The Bank has sought to reduce the vulnerability
to changes in interest rates by managing the nature and composition of its
securities portfolio. As a consequence of the fluctuation in interest rates, the
carrying value of the Banks held-to-maturity securities, including
mortgage-backed securities can exceed the market value of such securities. At
March 31, 1997, the fair value of such securities, including mortgage-backed
securities was greater than the carrying value by $15,000. The amortized cost of
the available-for-sale securities held by the Bank exceeded the market value of
such securities by $56,000 at March 31, 1997. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Asset and Liability
Management."
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Risks Related to Commercial Real Estate, Commercial Business and Consumer
Lending
Historically, the Association operated as a traditional savings and
loan association, emphasizing the origination of loans secured by single-family
residences. Beginning in early 1997, the Board of Directors determined that the
Bank's market area was not adequately served by the existing financial
institutions and there was local demand for commercial real estate, commercial
business and consumer loans. As a result, the Board of Directors determined to
refocus the Bank's strategy. The Stock Conversion and Reorganization, the Bank
Conversion and most significantly the hiring of new President and Chief
Executive Officer Howard W. Tignor are the steps taken to implement this
strategy. Pursuant to this strategy, while continuing to pursue its existing
business of originating single-family residential mortgage loans, the Bank will
gradually expand into commercial real estate, commercial business and consumer
lending.
While commercial real estate, commercial business and consumer loans
are generally more interest rate sensitive and carry higher yields than do
residential mortgage loans, they generally carry a higher degree of credit risk
than residential mortgage loans. Consequently, the diversification of the Bank's
and the National Bank's loan portfolio may alter the National Bank's risk
profile. See "Business of the Bank -- Lending Activities -- Commercial Business
Lending" and "-- Consumer and Other Lending." The Board of Directors believes
that Mr. Tignor has the necessary experience for the expansion of commercial
business and consumer lending activities. See "Management of the Bank."
Nevertheless, the Bank's provisions for loan losses may increase in the future
as it implements the Board of Directors' strategy of seeking growth
opportunities through increasing its portfolio of commercial real estate,
commercial business and consumer loans while continuing to pursue residential
mortgage loan origination and mortgage banking activities.
Commercial real estate lending entails significant additional risks as
compared with single-family residential property lending. Commercial real estate
loans typically involve larger loan balances to single borrowers or groups of
related borrowers. The payment experience on such loans typically is dependent
on the successful operation of the real estate project, retail establishment or
business. These risks can be significantly affected by supply and demand
conditions in the market for office, retail and residential space, and, as such,
may be subject to a greater extent to adverse conditions in the economy
generally. To minimize these risks, the Bank generally limits itself to its
market area or to borrowers with which it has prior experience or who are
otherwise known to the Bank. It has recently been the Bank's policy to obtain
annual financial statements of the business of the borrower or the project for
which commercial real estate loans are made. In addition, in the case of
commercial mortgage loans made to a partnership or a corporation, the Bank
seeks, whenever possible, to obtain personal guarantees and annual financial
statements of the principals of the partnership or corporation.
Commercial business loans are often larger and may involve greater risk
than other types of lending. Because payments on such loans are often dependent
on successful operation of the business involved, repayment of such loans may be
subject to a greater extent to adverse conditions in the economy. The Bank will
seek to minimize these risks through its underwriting guidelines, which may
require certain safeguards, such as that the loan be supported by adequate cash
flow of the borrower, profitability of the business, collateral and personal
guarantees of the individuals in the business. In addition, the Bank generally
limits this type of lending to its market area and to borrowers with whom it has
prior experience or who are otherwise well known to the Bank.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of loans which are unsecured or secured by rapidly
depreciable assets. Repossessed collateral for a defaulted consumer loan may not
provide an adequate source of repayment of the outstanding loan balance as a
result of the greater likelihood of damage, loss or depreciation. The remaining
deficiency often does not warrant further substantial collection efforts against
the borrower. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
adversely affected by events such as job loss, divorce, illness or personal
bankruptcy. See "Business of the Bank -- Lending Activities -- Consumer and
Other Lending."
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Recent Management Changes and Dependence on Key Personnel
Howard W. Tignor became President of the Bank in February, 1997. Since
that time Mr. Tignor has hired two additional loan officers. Under its new
management team, the Bank has sought to become a more active competitor in its
market place and has expanded the types of lending and other financial services
offered. Although the Board of Directors believes that these recent changes have
strengthened the Bank's management team and competitive position, prospective
investors should consider the relative newness of its management in making any
decision to invest in the Common Stock.
The President and Chief Executive Officer of both the Bank and the
Company has, and will continue to have, a significant role in the development
and management of the Bank's business. Specifically, Mr. Tignor will play a
critical role in the Bank's strategy to adopt a commercial bank charter and
offer various commercial and consumer loans. No other officers or employees of
the Bank possess the level of commercial bank expertise and experience of Mr.
Tignor. Accordingly, the loss of services of Mr. Tignor could have an adverse
effect on the Bank. See "Management."
Potential Delay in Completion or Denial of Bank Conversion
The Plan permits the Board of Directors of the Bank to elect, at any
time, not to proceed with the Bank Conversion. In addition, there can be no
assurance that the OCC will approve the Bank's application to convert to a
national bank. If this election is made by the Board of Directors or if the OCC
denies such application, the Bank will only proceed with the Stock Conversion
and Reorganization and thereafter remain a savings bank regulated by the OTS. It
is currently the intent of the Bank's Board of Directors to proceed with both
the Stock Conversion and Reorganization and the Bank Conversion. See "The
Conversion -- General."
Certain Anti-Takeover Provisions
Provisions in the Company's Charter and Bylaws and Tennessee Law.
Certain provisions of the Company's Charter and Bylaws, as well as certain
provisions in Tennessee law, will assist the Company in maintaining its status
as an independent publicly owned corporation. Provisions in the Company's
Charter and Bylaws provide for, among other things, supermajority voting on
certain matters, a staggered board of directors, limits on the calling of
special meetings by stockholders and restrictions on voting rights for shares
beneficially owned in excess of 10% of the outstanding Common Stock. The above
provisions may discourage potential proxy contests and other potential takeover
attempts, particularly those which have not been negotiated with the Board of
Directors, and thus generally may serve to perpetuate current management. See
"Restrictions on Acquisition of the Company."
Voting Power of Directors and Executive Officers. Directors and
executive officers of the Company, who currently hold 48,938 shares or 21.95% of
the outstanding Bank Common Stock, expect to hold as much as 27.59% of the
shares of Common Stock outstanding upon consummation of the Stock Conversion and
Reorganization based upon the midpoint of the Valuation Price Range and assuming
no divestiture is required by the OTS. See "Beneficial Ownership of Capital
Stock."
Subject to stockholder approval following the consummation of the Stock
Conversion and Reorganization, the Company expects to acquire Common Stock on
behalf of the 1998 MRP, a non-tax qualified restricted stock plan, in an amount
equal to 4.0% of the Conversion Stock issued in the Offerings (11,975 shares
based on the maximum of the Valuation Price Range). Under the terms of the 1998
MRP, the trustees of such plan, who will also be directors of the Company, will
vote all shares held by such plan as directed by the Company's Board of
Directors. Subject to stockholder approval, the Company also intends to reserve
for future issuance pursuant to the 1998 Option Plan a number of authorized
shares of Common Stock equal to an aggregate of 10% of the Conversion Stock
issued in the Offerings 29,937 shares, based on the maximum of the Valuation
Price Range). See "Management of the Bank -- Certain Benefit Plans and
Agreements."
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Management's potential voting power could, together with additional
stockholder support, preclude or make more difficult takeover attempts which do
not have the support of the Company's Board of Directors and may tend to
perpetuate existing management.
Effect of Regulatory Changes on Operations
The Bank must receive approvals from the appropriate regulatory agency
authorities for consummation of the Conversion in accordance with applicable
laws and regulations.
The Bank is currently subject to extensive regulation, supervision and
examination by the OTS and the FDIC. Such regulation and supervision establishes
a comprehensive framework of activities in which a savings institution may
engage and is intended primarily for the protection of depositors and the SAIF,
which is administered by the FDIC. Following the Bank Conversion, the National
Bank will be subject to the regulation and supervision of the OCC and the FDIC,
and the Company will be subject to regulation and supervision by the Federal
Reserve Board. Although the primary federal regulator of the National Bank will
differ from the Bank's primary federal regulator, the Bank is already obligated
to comply with a significant portion of the regulations to which it will be
subject upon consummation of the Bank Conversion. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities. Any change in such regulation, whether
by the OCC, the FDIC, the Federal Reserve Board or the U.S. Congress, could have
a significant impact on the National Bank and its operations. See "Regulation."
The Bank is in compliance with all currently applicable regulatory
capital requirements. Savings institutions such as the Bank are subject to
significant regulatory capital requirements. Current requirements include a
"tangible" capital requirement of at least 1.5% of adjusted total assets, a
"core" capital requirement of at least 3.0% of adjusted total assets and a total
capital (core plus "supplementary" capital) requirement of at least 8.0% of
risk-weighted assets. The OTS has proposed amendments to its capital regulations
which would increase the core capital requirement to at least 4.0% of adjusted
total assets for all but the most highly rated savings institutions and would
impose additional capital requirements on savings institutions deemed to have
more than a normal level of interest rate risk. The OCC has adopted this 4.0%
capital requirement expressed as Tier 1 (or core capital) to total assets. Upon
consummation of the Bank Conversion, it is expected that the National Bank will
be in compliance with all regulatory capital requirements adopted by the OCC as
the regulator of national banks, including the 4.0% Tier 1 capital to total
assets requirement. See "Historical and Pro Forma Regulatory Capital
Compliance." The National Bank's regulatory capital compliance, however, could
be adversely affected by operating losses or the imposition of unanticipated
increases in capital requirements. If the National Bank were deemed not to be in
compliance with its minimum capital requirements, it could be required to submit
an acceptable capital plan to the OCC and would become subject to various
limitations on its operations. See "Regulation -- Depository Institution
Regulation -- Regulatory Capital Requirements."
Anticipated Low Return on Equity Following Conversion
For the year ended December 31, 1996, the Bank's ratio of average
stockholders' equity to average assets was 14.68%. On a pro forma basis, for the
year ended December 31, 1996, assuming the sale of the midpoint of 260,300
shares of Common Stock in the Stock Conversion and Reorganization at the
beginning of the year, the Bank's ratio of average stockholders' equity to
average assets would have been 21.24%. With such a high capital position as a
result of the Stock Conversion and Reorganization, it is doubtful that the
Company will be able to quickly deploy the capital raised in the Stock
Conversion and Reorganization by increasing its deposits and loans and thereby
generate earnings to support its high level of capital, and, as a result, it is
expected that the Company's return on equity initially will be lower than
historical levels and will be below industry norms. Consequently, investors
expecting a return on equity which will meet or exceed industry standards for
the foreseeable future should carefully evaluate and consider the risk of a
subpar return on equity.
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Possible Dilutive Effect of Issuance of Additional Shares
Various possible and planned issuances of Common Stock could dilute the
interests of prospective stockholders of the Company or existing stockholders of
the Company following consummation of the Stock Conversion and Reorganization,
as noted below.
The number of shares to be sold in the Stock Conversion and
Reorganization may be increased as a result of an increase in the Valuation
Price Range of up to 15% to reflect changes in market and financial conditions
following the commencement of the Offerings. In the event that the Valuation
Price Range is so increased, it is expected that the Company will issue up to
344,275 shares of Conversion Stock at the Purchase Price for an aggregate price
of up to $3,442,750, for total shares outstanding following the Stock Conversion
and Reorganization (including Exchange Shares) of up to 568,655 shares. An
increase in the number of shares will decrease net earnings per share and
stockholders' equity per share on a pro forma basis and will increase the
Company's consolidated stockholders' equity and net earnings. See
"Capitalization" and "Pro Forma Data."
If the 1998 MRP is approved by stockholders at the Company's special or
annual meeting of stockholders to be held no earlier than six months after the
completion of the Stock Conversion and Reorganization, the 1998 MRP intends to
acquire an amount of Common Stock equal to 4.0% of the shares of Conversion
Stock issued in the Offerings. Such shares of Common Stock may be acquired in
the open market with funds provided by the Company, if permissible, or from
authorized but unissued shares of Common Stock. In the event that additional
shares of Common Stock are issued to the 1998 MRP, stockholders would experience
dilution of their ownership interests (by 2.4% at the maximum of the Valuation
Price Range) and per share stockholders' equity and per share net earnings would
decrease as a result of an increase in the number of outstanding shares of
Common Stock. See "Pro Forma Data" and "Management of the Bank -- Certain
Benefit Plans and Agreement -- 1998 Management Recognition Plan and Trust."
If the Company's 1998 Option Plan is approved by stockholders at a
special or annual meeting of stockholders to be held no earlier than six months
after the completion of the Stock Conversion and Reorganization, the Company
will reserve for future issuance pursuant to such plan a number of authorized
shares of Common Stock equal to an aggregate of 10% of the Conversion Stock
issued in the Offerings (29,937 shares, based on the maximum of the Valuation
Price Range). See "Pro Forma Data" and "Management of the Bank -- Certain
Benefit Plans and Agreements -- 1997 Stock Option and Incentive Plan."
Absence of Market for Common Stock
The Company has never issued capital stock (other than 100 shares to be
issued to the Bank for organizational purposes, which will be canceled upon
consummation of the Stock Conversion and Reorganization), and to date an active
and liquid trading market has not developed for the 87,993 Public Bank Shares
outstanding prior to the Offerings. The Company does not intend to list the
Common Stock on a national securities exchange or apply to have the Common Stock
quoted on any automated quotation system upon completion of the Stock Conversion
and Reorganization. Following the completion of the Offerings, the Company
anticipates that the Common Stock will be traded on the over-the-counter market
with quotations available through the OTC "Electronic Bulletin Board." Trident
Securities intends to make a market in the Common Stock. It is anticipated that
Trident Securities will use its best efforts to match offers to buy and offers
to sell shares of Common Stock. Such efforts are expected to include
solicitation of potential buyers and sellers in order to match buy and sell
orders. However, Trident Securities will not be subject to any continuing
obligation to continue such efforts in the future.
The development of a liquid public market depends on the existence of
willing buyers and sellers, the presence of which is not within the control of
the Company, the Bank or any market maker. Due to the size of the Offerings, it
is highly unlikely that a stockholder base sufficiently large to create an
active trading market will develop and be maintained. Investors in the Common
Stock could have difficulty disposing of their shares and should not view the
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Common Stock as a short-term investment. The absence of an active and liquid
trading market for the Common Stock could affect the price and liquidity of the
Common Stock. See "Market for the Common Stock."
Possible Divestiture Requirement for Public Stockholders
In accordance with OTS policies, the Plan generally provides that the
ownership of individual Public Stockholders and their associates and persons
acting in concert with them following consummation of the Stock Conversion and
Reorganization may not exceed the percentage purchase limits in the Offerings as
applied to the total shares outstanding immediately following the Offerings.
Accordingly, Public Stockholders who would own more than 5% of the shares
outstanding would be required to divest sufficient shares to reduce their
ownership to 5% of shares outstanding. The Primary Parties have reserved the
right to increase the ownership limitation to as much as 9.9% of the shares
outstanding provided that the total shares held by all greater than 5%
stockholders in excess of 5% do not exceed 10% of the shares outstanding
immediately following the Stock Conversion and Reorganization. To the best
knowledge of the Company, the only Public Stockholders potentially affected by
this provision are _____________ ___________________ who own ____% and ____%,
respectively, of the total outstanding shares of Bank Common Stock. In the event
the Primary Parties do not increase the ownership limit, _______________ have
advised the Primary Parties that they will divest a portion of their shares to
an unaffiliated third party. In the event the ownership limit is increased to
9.9%, the purchase limitation in the Offerings will be increased as well and
each person who subscribes for the maximum in the Offerings will be afforded an
opportunity to increase their order subject to the limitation that the number of
shares subscribed for by subscribers in excess of 5% cannot exceed 10% of the
shares sold in the Offerings. Persons who are not currently Public Stockholders
who wish to increase their ownership to the maximum limit permitted by the Plan
would be required to purchase the Common Stock from existing stockholders.
Possible Dilution to Public Stockholders as a Result of Purchase Limitations
The OTS has required that the purchase limitations contained in the
Plan include Exchange Shares to be issued to Public Stockholders for their
Public Bank Stock. As a result, certain holders of Bank Common Stock may be
limited in their ability to purchase Conversion Stock in the Offerings. For
example, a Public Stockholder which receives 5.0% of the Exchange Shares (at the
maximum of the Valuation Price Range) will not be able to purchase any shares of
Conversion Stock in the Offerings, although such a stockholder will be able to
purchase shares of Common Stock thereafter. As a result, the purchase
limitations may prevent such stockholders from maintaining their current
ownership percentage of the Public Bank Shares after the Stock Conversion and
Reorganization through purchases of Conversion Stock in the Offerings. See "The
Stock Conversion and Reorganization -- Limitation on Conversion Stock
Purchases."
Competition
The Bank experiences substantial competition both in attracting and
retaining savings deposits and in the making of mortgage and other loans. Direct
competition for savings deposits comes from other savings institutions, credit
unions, regional bank holding companies and commercial banks located in its
primary market area. Significant competition for the Bank's other deposit
products and services comes from money market mutual funds, brokerage firms,
insurance companies and retail stores. The primary factors in competing for
loans are interest rates and loan origination fees and the range of services
offered by various financial institutions. Competition for origination of real
estate loans normally comes from other savings institutions, commercial banks,
mortgage bankers, mortgage brokers and insurance companies.
Possible Adverse Income Tax Consequences of the Distribution of Subscription
Rights
The Primary Parties have received the opinion of Ferguson & Co. that
subscription rights granted to Eligible Account Holders, Supplemental Eligible
Account Holders, Other Members, directors, officers and employees and Public
Stockholders have no value. However, this opinion is not binding on the Internal
Revenue Service ("IRS"). If the subscription rights granted to Eligible Account
Holders, Supplemental Eligible Account Holders, Other Members,
6
<PAGE>
directors, officers and employees and Public Stockholders are deemed to have an
ascertainable value, receipt of such rights likely would be taxable only by
those Eligible Account Holders, Supplemental Eligible Account Holders, Other
Members, directors, officers and employees and Public Stockholders who exercise
their subscription rights (either as capital gain or ordinary income) in an
amount equal to such value. Whether subscription rights are considered to have
ascertainable value is an inherently factual determination. See "The Stock
Conversion and Reorganization -- Effects of the Stock Conversion and
Reorganization" and " -- Tax Aspects."
COMMUNITY NATIONAL CORPORATION
The Company was organized under the laws of the State of Tennessee in
July 1997 at the direction of the Board of Directors of the Bank for the purpose
of serving as a savings institution holding company of the Bank upon the
acquisition of all of the capital stock issued by the Bank in the Stock
Conversion and Reorganization, and then as a bank holding company of the
National Bank following the Bank Conversion. See "Regulation -- Regulation of
the Company" and " -- Regulation of the Company Following the Bank Conversion."
The Company has received approval from the OTS to acquire control of the Bank,
subject to satisfaction of certain conditions. The Company has applied to the
Federal Reserve Board for approval to retain control of the National Bank
following the Bank Conversion. Such approval has not been obtained as of the
date of this Prospectus, and there can be no assurance that such approval will
be obtained. See "Risk Factors -- Potential Delay in Completion or Denial of
Bank Conversion." Prior to the Stock Conversion and Reorganization, the Company
has not engaged and will not engage in any material operations. Upon
consummation of the Stock Conversion and Reorganization, the Company will have
no significant assets other than the outstanding capital stock of the Bank (and
the National Bank following the Bank Conversion), and the portion of the net
proceeds from the Offerings retained by the Company. The Company will have no
significant liabilities. See "Use of Proceeds." Upon consummation of the Stock
Conversion and Reorganization, the Company's principal business will be the
overseeing business of the National Bank and investing the portion of the net
proceeds of the Offerings retained by it, and, assuming the requisite Federal
Reserve Board and OCC approvals are obtained, the Company will register with the
Federal Reserve Board as a bank holding company under the BHCA and will
deregister with the OTS as a savings and loan holding company.
The holding company structure will permit the Company to expand the
financial services currently offered through the Bank, although there are no
definitive plans or arrangements for such expansion at present. The holding
company structure will also provide the Bank with the opportunity to enhance
flexibility of operations, diversification of business opportunities through
acquiring or merging with other financial institutions and financial capability
to enable the National Bank to compete more effectively with other financial
service organizations. At the present time, however, the Company does not have
any plans, agreements, arrangements or understandings with respect to any such
acquisitions or mergers. After the Stock Conversion and Reorganization, the
Company will be classified as a unitary savings and loan holding company and
will be subject to regulation by the OTS. After the Bank Conversion, the Company
will be classified as a bank holding company and will be subject to regulation
by the Federal Reserve Board.
Initially, the management of the Company and the Bank will be
substantially similar and the Company will neither own nor lease any property,
but will instead use the premises, equipment and furniture of the Bank. At the
present time, the Company does not intend to employ any persons other than
officers who are also officers of the Bank, and the Company will utilize the
support staff of the Bank from time to time. Additional employees will be hired
as appropriate to the extent the Company expands or changes its business in the
future.
The Company's principal executive office is located at the home office
of the Bank at 19 Natchez Trace Drive, Lexington, Tennessee 40965, and its
telephone number is (901) 968-6624.
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LEXINGTON FIRST FEDERAL SAVINGS BANK
Lexington First commenced operations in 1961 as a federally-chartered
mutual savings association under the name "Lexington First Federal Savings and
Loan Association" (the "Association"). Its deposits have been federally insured
up to applicable limits, and it has been a member of the FHLB system since that
time. Lexington First's deposits are currently insured by the Savings
Association Insurance Fund of the FDIC and it is a member of the FHLB of
Cincinnati. Lexington First is subject to the regulation of the Office of Thrift
Supervision, as well as the FDIC.
On December 14, 1992, the Association reorganized into the mutual
holding company form of organization and completed a sale of stock to the
public. To accomplish this transaction, the Association organized a federal
stock savings bank as a wholly owned subsidiary. The mutual Bank then
transferred substantially all of its assets and liabilities to the stock Bank in
exchange for 135,000 shares of Bank Common Stock, and reorganized itself into a
federally chartered mutual holding company known as Lexington First Federal
Mutual Holding Company and sold 80,000 shares of Bank Common Stock to certain
members of the Bank and members of the general public. As of the date hereof,
the Mutual Holding Company and the Public Stockholders own an aggregate of
135,000 shares and 87,993 shares, or 60.54% and 39.46%, respectively, of the
outstanding shares of Bank Common Stock, respectively.
Lexington First's primary business, as conducted through its office
located in Lexington, Tennessee, is the origination of mortgage loans secured by
single-family residential real estate located primarily in Henderson County,
Tennessee, with funds obtained through the attraction of savings deposits,
primarily transaction accounts, certificate accounts with terms of 18 months or
less, and FHLB advances. The Bank also makes construction loans on single-family
residences, savings account loans, and second mortgage consumer loans. In past
years, the Bank has made a limited number of loans on multi-family and
commercial real estate. The Bank also purchases mortgage-backed securities, and
invests in other liquid investment securities when warranted by the level of
excess funds. In the early 1980's, the Bank made and began to emphasize the
origination of adjustable rate mortgage loans. However, due to customer
preference for fixed-rate mortgage loans, the Bank has been unable to originate
a significant number of adjustable-rate loans in recent years. The Bank will
continue to offer and make loans with both fixed and adjustable rates, as the
market allows, although the residential loans originated by the Bank in recent
months have mostly been short-term balloon loans with terms of one, three, five
or seven years. However, it is expected that a significant percentage of the
Bank's assets will continue to be invested in mortgage-backed securities and
other liquid investment securities due to limited lending opportunities in the
Bank's market area.
In February 1997, the Bank hired Howard W. Tignor as its President and
Chief Executive Officer. Mr. Tignor has over 31 years experience as a national
bank examiner, loan officer, operating officer and Chief Executive Officer of
various commercial banks located in central Tennessee. Under Mr. Tignor's
leadership, the Bank will attempt to significantly increase its origination of
commercial real estate loans, commercial business loans and consumer loans. The
Bank Conversion is a part of this new strategy whereby the Bank's operations are
currently expected to slowly evolve into those of a commercial bank. For more
information, see "Risk Factors -- Risks Related to Commercial Real Estate,
Commercial Business and Consumer Lending" and "Business of the Bank -- Lending
Activities."
At March 31, 1997, Lexington First's interest-bearing liabilities which
were estimated to mature or reprice within one year exceeded Lexington First's
interest-earning assets with the same characteristics by $13.8 million or 53.1%
of Lexington First's total assets. This large interest rate sensitivity gap
subjects Lexington First to significant risk during periods of rising interest
rates. For more information see "Risk Factors -- Potential Effects of Changes in
Interest Rates."
At March 31, 1997, Lexington First had total assets of $25.9 million,
deposits of $20.9 million, net loans receivable of $16.4 million, cash and
investment securities of $5.6 million, mortgage-backed securities of $3.2
million and stockholders' equity of $3.9 million. The Bank's tangible capital to
assets ratio at that date was 15.12%.
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Lexington First's principal executive offices are located 19 Natchez
Trace Drive, Lexington, Tennessee, 40965, and its telephone number is (901)
968-6624.
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
The Mutual Holding Company is a federally chartered mutual holding
company chartered in connection with the MHC Reorganization in 1992. The Mutual
Holding Company's primary asset is 135,000 shares of Bank Common Stock, which
represents 60.54% of the shares of Bank Common Stock outstanding as of the date
of this Prospectus. The Mutual Holding Company's only other asset at March 31,
1997 was approximately $92,000 in cash. As part of the Stock Conversion and
Reorganization, the Mutual Holding Company will convert to an interim federal
savings bank and simultaneously merge with and into the Bank, with the Bank
being the surviving entity.
COMMUNITY NATIONAL BANK OF TENNESSEE
Upon consummation of the Bank Conversion, the National Bank will
succeed to all of the assets and liabilities of the Bank, and initially will
continue to conduct business in substantially the same manner as the Bank prior
to the Conversion. Over time, however, management anticipates an increase in the
percentage of consumer loans in the National Bank's loan portfolio, and the Bank
therefore will continue to expand its loan mix. Diversification of the National
Bank's loan portfolio may also alter the risk profile of the National Bank. See
"Risk Factors -- Risks Related to Commercial Real Estate, Commercial Business
and Consumer Lending" and "Business of the Bank -- Lending Activities."
Management believes, however, that the continued diversification of the National
Bank's asset and deposit bases will enhance long term earnings performance.
The deposits of the National Bank will continue to be insured by the
SAIF of the FDIC, and, as such, the National Bank will continue to be subject to
regulation and supervision by the FDIC. The National Bank will not be subject to
OTS regulation and supervision; rather, the primary regulator of the National
Bank will be the OCC. The National Bank will remain a member of the FHLB of
Cincinnati. As a national bank, the National Bank will also be required to
become a member of the Federal Reserve System.
USE OF PROCEEDS
Net proceeds from the sale of the Conversion Stock are estimated to be
between $1.9 million and $2.6 million ($3.1 million assuming an increase in the
Valuation Price Range by 15%). See "Pro Forma Data" as to the assumptions used
to arrive at such amounts.
The Company plans to contribute to the Bank up to 50% of the net
proceeds of the Offerings. The net proceeds retained by the Company will be
initially used to invest primarily in high grade, short-term marketable
securities. The net proceeds retained by the Company may be used to support the
future expansion of operations and for other business or investment purposes,
including the acquisition of other financial institutions and/or branch offices,
although there are no current plans, arrangements, understandings or agreements
regarding such acquisitions. The Bank also expects to use a portion of the
proceeds for its new branch in Lexington, Tennessee, which it expects to open in
the fourth quarter of 1997. For more information see "Properties." Subject to
applicable regulatory limitations, the Company may use available funds to
repurchase shares of Common Stock and to pay dividends, although the Company
currently has no intention of effecting any such transactions following
consummation of the Stock Conversion and Reorganization and has not adopted a
dividend policy. See "The Conversion -- Certain Restrictions on Purchase or
Transfer of Shares after the Stock Conversion and Reorganization." The Company
may also use available funds or funds received from the Bank to fund a
contribution to the 1998 MRP for the purpose of purchasing a number of shares
equal to 4.0% of the Conversion Stock. Such contribution would equal $119,748 if
299,370 shares of Common Stock (4.0% of the shares of Conversion Stock that
would be sold at the maximum of the Valuation Price Range) are purchased at a
price of $10.00 per share. The portion of the net proceeds contributed to the
Bank will be used for general corporate purposes, including investment in loans
and investment securities.
9
<PAGE>
Following the one-year anniversary of the completion of the Stock
Conversion and Reorganization (or sooner if permitted by the OTS), and based
upon then existing facts and circumstances, the Company's Board of Directors may
determine to repurchase shares of Common Stock, subject to any applicable
statutory and regulatory requirements. Such facts and circumstances may include,
but are not limited to: (i) market and economic factors such as the price at
which the stock is trading in the market, the volume of trading, the
attractiveness of other investment alternatives in terms of the rate of return
and risk involved in the investment, the ability to increase the book value
and/or earnings per share of the remaining outstanding shares, and an
improvement in the Company's return on equity; (ii) the avoidance of dilution to
stockholders by not having to issue additional shares to cover the exercise of
stock options or to fund employee stock benefit plans; and (iii) any other
circumstances in which repurchases would be in the best interests of the Company
and its stockholders. Any stock repurchases will be 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 Stock
Conversion and Reorganization."
DIVIDEND POLICY
During the year ended December 31, 1996 and the quarter ended March 31,
1997, the Bank paid quarterly dividends of $.20 per share to the holders of
Public Bank Shares. The Mutual Holding Company waived its receipt of such
dividends, as approved by the OTS. Upon completion of the Stock Conversion and
Reorganization, the Board of Directors of the Company will have the authority to
declare dividends on the Common Stock, subject to statutory and regulatory
requirements. The Company will consider the establishment of a dividend policy
following the Stock Conversion and Reorganization, although no such policy has,
as yet, been adopted. The Board will, however, review its dividend policy on a
quarterly basis. Payment of dividends on the Common Stock is subject to
determination and declaration by the Company's Board of Directors. Any dividend
policy of the Company will depend, however, upon the Company's and Bank's or
National Bank's debt and equity structure, earnings, regulatory capital
requirements, as well as other factors, including economic conditions and
regulatory restrictions. Therefore, there can be no assurance that dividends
will be paid or if paid will continue to be paid in the future.
Dividend payments by the Company are subject to regulatory restriction
under Federal Reserve Board policy as well as to limitations under applicable
provisions of Tennessee corporate law. The Federal Reserve Board has issued a
policy statement on the payment of cash dividends by bank holding companies,
which expresses the Federal Reserve Board's view that a bank holding company
should pay cash dividends only to the extent that the company's net earnings for
the past year are sufficient to cover both the cash dividends and a rate of
earning retention that is consistent with the company's capital needs, asset
quality and overall financial condition. The Federal Reserve Board also
indicated that it would be inappropriate for a company experiencing serious
financial problems to borrow funds to pay dividends. Furthermore, the Federal
Reserve Board may prohibit a bank holding company from paying any dividends if
the holding company's bank subsidiary is classified as "undercapitalized". See
"Regulation -- Regulation of the Company Following the Bank Conversion --
Dividends."
Unlike the Bank, the Company is not subject to the aforementioned
regulatory restrictions on the payment of dividends to its stockholders. Under
the Tennessee Business Corporation Act, a dividend may be paid by a Tennessee
corporation unless, after giving it effect, the corporation would not be able to
meet its debts as they become due in the usual course of business or the
corporation's total assets would be less than the sum of its total liabilities
plus the amount that would be needed, if the corporation were to be dissolved at
the time of the dividend, to satisfy any preferential rights upon dissolution of
stockholders whose preferential rights are superior to those receiving the
distribution. Assuming the issuance of 221,255 and 299,370 shares of Conversion
Stock at the minimum and maximum of the Valuation Price Range, respectively, and
the retention of approximately 50% of the net proceeds from the Offerings, the
Company estimates that it would have approximately $800,000 and $1.2 million,
respectively in net proceeds which would be
10
<PAGE>
available for the payment of dividends and other corporate purposes, and that
the Bank would have at least $2.1 million available for the payment of dividends
to the Company under current OTS regulations.
MARKET FOR THE COMMON STOCK
The Company has never issued capital stock, and to date an active and
liquid trading market has not developed for the 87,993 Public Bank Shares
outstanding prior to the Offerings. Following the completion of the Offerings,
the Company anticipates that the Common Stock will be traded on the
over-the-counter market with quotations available through the OTC "Electronic
Bulletin Board." The Company has been advised by Trident Securities that Trident
Securities intends to make a market in the Common Stock. It is anticipated that
Trident Securities will use its best efforts to match offers to buy and offers
to sell shares of Common Stock. Such efforts are expected to include
solicitation of potential buyers and sellers in order to match buy and sell
orders. However, Trident Securities will not be subject to any continuing
obligation to continue such efforts in the future.
The development of a liquid public market depends on the existence of
willing buyers and sellers, the presence of which is not within the control of
the Company, the Bank or any market maker. Due to the size of the Offerings, it
is highly unlikely that a stockholder base sufficiently large to create an
active trading market will develop and be maintained. Investors in the Common
Stock could have difficulty disposing of their shares and should not view the
Common Stock as a short-term investment. The absence of an active and liquid
trading market for the Common Stock could affect the price and liquidity of the
Common Stock.
At March 31, 1997, there were 222,993 shares of Bank Common Stock
outstanding, including 87,993 Public Bank Shares, which were held of record by
approximately 33 stockholders. There is no established market for the Bank
Common Stock nor any uniformly quoted prices. The last sale price of the Bank
Common Stock of which the Bank is aware was $22.00 per share in April of 1997.
11
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Bank
at March 31, 1997, and the pro forma consolidated capitalization of the Company
after giving effect to the Stock Conversion and Reorganization, based upon the
sale of the number of shares shown below, the issuance of Exchange Shares and
the other assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
Pro Forma Consolidated Capitalization
of the Company at March 31, 1997 Based
on the Sale of:
--------------------------------------
Minimum Midpoint
Lexington 221,225 260,300
First As Of Price Of Price Of
March 31, $10.00 $10.00
1997 per share per share
-------------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Deposits (2) ............................................... $ 20,884 $ 20,884 $ 20,884
Borrowings ................................................. 949 949 949
-------- -------- --------
Total deposits and borrowings .......................... $ 21,833 $ 21,833 $ 21,833
======== ======== ========
Stockholders' equity:
Preferred stock, $1.00 and $1.00 par value;
2,000,000 shares authorized;
none to be issued .................................... $ -- $ -- $ --
Common Stock, $1.00 and $1.00 par value
8,000,000 shares authorized; shares
to be outstanding - as shown ......................... 223 366 430
Paid-in capital (4) ..................................... 483 2,203 2,529
Common Stock acquired by 1998 MRP .................. -- (89) (104)
Retained earnings - substantially restricted ............ 3,245 3,245 3,245
Net unrealized losses on available for sale securities .. (28) (28) (28)
-------- -------- --------
Total stockholders' equity ................................. $ 3,923 $ 5,697 $ 6,072
======== ======== ========
<CAPTION>
Pro Forma Consolidated Capitalization
of the Company at March 31, 1997 Based
on the Sale of:
--------------------------------------
Maximum
Maximum as adjusted
299,370 344,275
Price of Price of
$10.00 $10.00
per share per share
--------- ---------
(In thousands)
<S> <C> <C>
Deposits (2) ............................................... $ 20,884 $ 20,884
Borrowings ................................................. 949 949
-------- --------
Total deposits and borrowings .......................... $ 21,833 $ 21,833
======== ========
Stockholders' equity:
Preferred stock, $1.00 and $1.00 par value;
2,000,000 shares authorized;
none to be issued .................................... $ -- $ --
Common Stock, $1.00 and $1.00 par value
8,000,000 shares authorized; shares
to be outstanding - as shown ......................... 494 569
Paid-in capital (4) ..................................... 2,856 3,229
Common Stock acquired by 1998 MRP .................. (120) (138)
Retained earnings - substantially restricted ............ 3,245 3,245
Net unrealized losses on available for sale securities .. (28) (28)
-------- --------
Total stockholders' equity ................................. $ 6,447 $ 6,878
======== ========
</TABLE>
(footnotes on following page)
12
<PAGE>
- -------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Valuation Price Range of up to
15% to reflect changes in market and financial conditions following the
commencement of the Offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Conversion Stock in the Offerings. Such withdrawals would reduce pro
forma deposits by the amount of such withdrawals.
(3) Assumes that (i) the 87,993 Public Bank Shares outstanding at March 31,
1997 are converted into 144,226, 169,678, 195,130, and 224,399 Exchange
Shares at the minimum, midpoint, maximum and 15% above the maximum of
the Valuation Price Range, respectively; (ii) no stockholder has
exercised dissenters' rights of appraisal; and (iii) no fractional
shares of Exchange Shares will be issued by the Company.
(4) The pro forma additional paid-in capital includes the $92,000 (held in
a deposit account) to be acquired by the Bank upon the merger of the
Mutual Holding Company (following its conversion to an interim federal
stock savings bank) into the Bank.
(5) The retained earnings of the Bank will be substantially restricted
after the Stock Conversion and Reorganization by virtue of the
liquidation account to be established in connection with the Stock
Conversion and Reorganization. See "The Conversion -- Liquidation
Rights."
(6) The Company intends to adopt the 1998 MRP and to submit such plan to
stockholders at a special or annual meeting of stockholders to be held
not earlier than six months after the completion of the Stock
Conversion and Reorganization. If the Plan is approved by
stockholders, the Company intends to contribute sufficient funds to
the trust created under the 1998 MRP to enable the trust to purchase a
number of shares of Common Stock equal to 4.0% of the Conversion Stock
sold in the Offerings. The shares are reflected as a reduction of
stockholders' equity. The issuance of authorized but unissued shares
of Common Stock pursuant to the 1998 MRP in the amount of 4.0% of the
Conversion Stock would dilute the voting interests of existing
stockholders by approximately 2.4%. See "Pro Forma Data" and
"Management of the Bank -- Certain Benefit Plans and Agreements --
1998 Management Recognition Plan and Trust."
13
<PAGE>
REGULATORY CAPITAL
The Bank is currently subject to OTS regulatory capital requirements.
After the Bank Conversion, the National Bank will instead be required to satisfy
OCC regulatory capital requirements, which are similar but not identical to the
OTS capital requirements. The following table sets forth the Bank's historical
capital position relative to the various minimum OTS regulatory capital
requirements to which it is currently subject. The next table sets forth the
Bank's historical capital position relative to the OCC capital requirements to
which the National Bank will be subject, and thereafter presents pro forma data
relative to such OCC regulatory capital requirements. Because the Bank would not
be subject to OCC capital requirements except for the Bank Conversion, and
because the Bank Conversion would give rise to a tax liability from the
recapture of tax bad debt reserves, both the historical and pro forma data
relating to the OCC capital requirements reflect the impact of such tax
liability. Pro forma data assumes that the Common Stock has been sold as of
March 31, 1997 at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Valuation Range. For additional information regarding the
financial condition of the Bank and the assumptions underlying the pro forma
capital calculations set forth below, see "Use of Proceeds," "Capitalization"
and "Pro Forma Data" and the consolidated financial statements and related notes
appearing elsewhere herein.
<TABLE>
<CAPTION>
Pro Forma at March 31, 1997
----------------------------------------------------------------------
Historical Regulatory Minimum 221,255 Midpoint 260,300 Maximum 299,370
Capital at Price of $10.00 Price of $10.00 Price of $10.00
March 31, 1997 per share per share per share
------------------------ --------------------- ------------------- --------------------
% of % of % of % of
Amount Assets Amount Assets Amount Assets Amount Assets
------ ------ ------ ------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital............... $ 3,923 15.12% $ 4,766 17.79% $ 4,946 18.34% $ 5,125 18.88%
======= ===== ======== ===== ========= ===== ======== =====
Tangible capital (2)....... $ 3,951 15.21% $ 4,794 17.88% $ 4,974 18.43% $ 5,153 18.96%
Tangible requirement....... 390 1.50 402 1.50 405 1.50 408 1.50
------- ------ -------- ------ --------- ------ -------- ------
Excess................... $ 3,561 13.71% $ 4,392 16.38% $ 4,569 16.93% $ 4,745 17.46%
======= ===== ======== ===== ========= ====== ======== =====
Core capital (2)(3)........ $ 3,951 15.21% $ 4,794 17.88% $ 4,974 18.43% $ 5,153 18.96%
Core requirement........... 779 3.00 804 3.00 810 3.00 815 3.00
------- ------ -------- ------ --------- ------ -------- ------
Excess................... $ 3,172 12.21% $ 3,990 14.88% $ 4,164 15.43% $ 4,338 15.96%
======= ===== ======== ===== ========= ===== ======== =====
Total capital (4)(5)....... $ 4,093 36.07% $ 4,936 42.86% $ 5,116 44.29% $ 5,295 45.70%
Risk-based requirement..... 908 8.00 921 8.00 924 8.00 927 8.00
------- ------ -------- ------ --------- ------ -------- ------
Excess................... $ 3,185 28.07% $ 4,015 34.86% $ 4,192 36.29% $ 4,368 37.70%
======= ====== ======== ===== ========= ====== ======== ======
<CAPTION>
Maximum as adjusted
344,275 Price of
$10.00 per share
-------------------
% of
Amount Assets
------ ------
(Dollars in thousands)
<S> <C> <C>
GAAP Capital............... $ 5,312 19.49%
======= =====
Tangible capital (2)....... $ 5,360 19.58%
Tangible requirement....... 411 1.50
------- ------
Excess................... $ 4,949 18.08%
======= =====
Core capital (2)(3)........ $ 5,360 19.58%
Core requirement........... 821 3.00
------- ------
Excess................... $ 4,539 16.58%
======= ======
Total capital (4)(5)....... $ 5,502 47.31%
Risk-based requirement..... 930 8.00
------- ------
Excess................... $ 4,572 39.31%
======= =====
</TABLE>
- ------------
(1) Under OTS policy, net unrealized gains or losses on securities
classified as available for sale are excluded from regulatory capital
when computing core and risk-based capital. The net unrealized loss on
securities classified as available for sale amounted to $56,000
($28,000, net of tax effect) as of March 31, 1997.
(2) Tangible and core capital are computed as a percentage of adjusted
total assets of $26.0 million prior to the consummation of the
Offerings and $26.8 million, $27.0 million, $27.2 million and $27.4
million following the issuance of 221,255, 260,300, 299,370 and 344,275
shares in the Stock Conversion and Reorganization, respectively.
Risk-based capital is computed as a percentage of adjusted
risk-weighted assets of $11.3 million prior to the consummation of the
Offerings and $11.5 million, $11.6 million, $11.6 million and $11.6
million following the issuance of 221,255, 260,300, 299,370 and 344,275
shares in the Stock Conversion and Reorganization, respectively.
(3) Assumes a core capital requirement of 4% adjusted total assets, though
such level may be increased by the Comptroller of the Currency to as
high as 5%. See "Regulation -- Depository Institution Regulation --
Regulatory Capital Requirements."
(4) The pro forma risk-based capital ratios (i) reflect the receipt by the
Bank of the assets held by the Mutual Holding Company and all but
$100,000 of the estimated net proceeds from the Offerings and (ii)
assume the investment of the net remaining proceeds received by the
Bank in assets which have a risk-weight of 20% under applicable
regulations, as if such net proceeds had been received and so applied
at March 31, 1997.
(5) Includes the $142,000 of general allowance for loan losses that was
included in risk-based capital as of March 31, 1997.
14
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Conversion Stock cannot be
determined until the Stock Conversion and Reorganization are completed. However,
net proceeds are currently estimated to be between $1.9 million and $2.6 million
(or $3.1 million in the event the Valuation Price Range is increased by 15%)
based upon the following assumptions: (i) all shares of Conversion Stock will be
sold in the Subscription Offering and the Community Offering; and (ii) expenses,
including the marketing fees paid to Trident Securities, will approximate
$350,000. Actual expenses may vary from those estimated.
Pro forma net earnings and stockholders' equity have been calculated
for the three months ended March 31, 1997 and the year ended December 31, 1996
as if the Conversion Stock to be issued in the Offerings had been sold (and the
Exchange Shares issued) at the beginning of such periods and the net proceeds
had been invested at 6.0%, which represents the yield on one-year U.S.
Government securities at March 31, 1997 (which, in light of changes in interest
rates in recent periods, is deemed to more accurately reflect pro forma
reinvestment rates than the arithmetic average method). The effect of
withdrawals from deposit accounts for the purchase of Conversion Stock had not
been reflected. An effective federal income tax rate of 36% has been assumed for
the periods, resulting in an after-tax yield of 3.84% for the three months ended
March 31, 1997 and the year ended December 31, 1996. Historical and pro forma
per share amounts have been calculated by dividing historical and pro forma
amounts by the indicated number of shares of Common Stock. No effect has been
given in the pro forma stockholders' equity calculations for the assumed
earnings on the net proceeds. As discussed under "Use of Proceeds," the Company
intends to contribute up to 50% of the net proceeds from the Offerings to the
Bank.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma stockholders' equity represents the difference
between the stated amount of assets and liabilities of the Company computed in
accordance with generally accepted accounting principles ("GAAP"). The pro forma
stockholders' equity is not intended to represent the fair market value of the
Common Stock and may be different than amounts that would be available for
distribution to stockholders in the event of liquidation. No effect has been
given in the tables to (i) the Company's results of operations after the
Conversion or (ii) the market price of the Common Stock after the Conversion.
15
<PAGE>
The following table summarizes historical data of the Bank and
consolidated pro forma data of the Company at or for the dates and periods
indicated based on assumptions set forth above and in the table and should not
be used as a basis for projections of the market value of the Common Stock
following the Stock Conversion and Reorganization.
<TABLE>
<CAPTION>
At or for the Three Months Ended March 31, 1997
------------------------------------------------------------
221,274 260,322 299,370 344,275
Shares Sold Shares Sold Shares Sold Shares Sold
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds .............................................. $ 2,213 $ 2,603 $ 2,994 $ 3,443
Less: Offering expenses and commissions ..................... (350) (350) (350) (350)
--------- --------- --------- ---------
Estimated net conversion proceeds (1) .................... 1,863 2,253 2,644 3,093
Less: Shares purchased by the 1998 MRP ..................... (89) (104) (120) (138)
--------- --------- --------- ---------
Estimated proceeds available for investment ................. $ 1,774 $ 2,149 $ 2,524 $ 2,955
========= ========= ========= =========
Net earnings (loss):
Historical ............................................... $ 62 $ 62 $ 62 $ 62
Pro forma adjustments:
Net income from proceeds ................................. 17 21 24 28
Pro forma 1998 MRP adjustment (2) ........................ (3) (3) (4) (4)
--------- --------- --------- ---------
Pro forma net earnings (loss) ............................ $ 76 $ 79 $ 82 $ 86
========= ========= ========= =========
Net earnings (loss) per share: (3)
Historical ............................................... $ 0.17 $ 0.14 $ 0.13 $ 0.11
Pro forma income on net proceeds ......................... 0.05 0.05 0.05 0.05
Pro forma 1998 MRP adjustment (2) ........................ (0.01) (0.01) (0.01) (0.01)
--------- --------- --------- ---------
Pro forma net earnings (loss) per share (3) ................. $ 0.21 $ 0.18 $ 0.17 $ 0.15
========= ========= ========= =========
Number of shares used in calculating earnings
per share ................................................. 365,500 430,000 494,500 568,675
========= ========= ========= =========
Stockholders' equity:
Historical (4)(7) ......................................... $ 3,923 $ 3,923 $ 3,923 $ 3,923
Estimated net Conversion proceeds ......................... 1,863 2,253 2,644 3,093
Less: Common Stock acquired by the
1998 MRP (2) ..................................... (89) (104) (120) (138)
--------- --------- --------- ---------
Pro forma stockholders' equity (5) ........................ $ 5,697 $ 6,072 $ 6,447 $ 6,878
========= ========= ========= =========
Stockholders' equity per share (3):
Historical ................................................ $ 10.73 $ 9.12 $ 7.93 $ 6.90
Estimated net proceeds .................................... 5.10 5.24 5.35 5.44
Less: Common stock acquired by the
1998 MRP(2) ....................................... (0.24) (0.24) (0.24) (0.24)
--------- --------- --------- ---------
Pro forma stockholders' equity per share (5) ................ $ 15.59 $ 14.12 $ 13.04 $ 12.09
========= ========= ========= =========
Pro forma price to book value ............................... 64.2% 70.8% 76.7% 82.7%
========= ========= ========= =========
Pro forma price to earnings (P/E ratio) ..................... 11.9 13.9 14.7 16.7
========= ========= ========= =========
Number of shares used in calculating equity per share ....... 365,500 430,000 494,500 568,675
========= ========= ========= =========
</TABLE>
Note: Totals may not add due to rounding. (Footnotes on succeeding page)
16
<PAGE>
- ---------------
(1) Estimated net proceeds as adjusted, consist of the estimated net
proceeds from the Offerings less the value of the shares to be
purchased by the 1998 MRP, subject to stockholder approval, after the
Stock Conversion and Reorganization at an assumed purchase price of
$10.00 per share.
(2) Assumes that the 1998 MRP will purchase, following stockholder
approval of such plan, a number of shares of Common Stock equal to
4.0% of the Conversion Stock for issuance to officers and employees.
Funds used by the 1998 MRP to purchase the shares initially will be
contributed to the 1998 MRP by the Company. The adjustment is based
upon the assumed purchases by the 1998 MRP of 8,851, 10,413, 11,975
and 13,771 shares at the minimum, midpoint, maximum and 15% above the
maximum of the Valuation Price Range, assuming that: (i) stockholder
approval of the 1998 MRP has been received; (ii) the shares were
acquired by the 1998 MRP at the beginning of the period shown through
open market purchases at the Purchase Price; (iii) the amortized
expense for the three months ended March 31, 1997 was 5% of the amount
contributed; and (iv) the effective tax rate applicable to such
employee compensation expense was 36%. If the 1998 MRP purchases
authorized but unissued shares instead of making open market
purchases, the voting interests of existing stockholders would be
diluted by approximately 2.4% and pro forma net earnings per share for
the three months ended March 31, 1997 would be $.21, $.18, $.16 and
$.15, and pro forma stockholders' equity per share at March 31, 1997
would be $15.46, $14.02, $12.97 and $12.05, in each case at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range, respectively. See "Management of the Bank -- Certain
Benefit Plans and Agreements."
(3) The per share calculations are determined by adding the number of
shares assumed to be issued in the Stock Conversion and Reorganization.
Thus, it is assumed at March 31, 1997 that 365,500, 436,000, 494,500
and 568,675 shares of Common Stock are outstanding at the minimum,
midpoint, maximum and 15% above the maximum of the Valuation Price
Range, respectively.
(4) Includes the $92,000 (held in a deposit account) to be acquired by the
Bank upon the merger of the Mutual Holding Company (following its
conversion to an interim federal savings bank) into the Bank.
(5) The retained earnings of the Bank will be substantially restricted
after the Stock Conversion and Reorganization by virtue of the
liquidation account to be established in connection with the Stock
Conversion and Reorganization. See "Dividend Policy" and "The
Conversion -- Liquidation Rights."
(6) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Valuation Price Range of up to
15% to reflect changes in market and financial condition following the
commencement of the Offerings.
(7) The book value of the Bank does not give effect to the liquidation
account in event of liquidations or the recapture of the Bank's loan
loss reserve deduction of $672,000.
17
<PAGE>
<TABLE>
<CAPTION>
At or for the Year Ended December 31, 1996
----------------------------------------------------------------
221,274 260,322 299,370 344,275
Shares Sold Shares Sold Shares Sold Shares Sold
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds ........................................... $ 2,213 $ 2,603 $ 2,994 $ 3,443
Less: Offering expenses and commissions .................. (350) (350) (350) (350)
--------- --------- --------- ---------
Estimated net conversion proceeds (1) ................. 1,863 2,253 2,644 3,093
Less: Shares purchased by the 1998 MRP ................... (89) (104) (120) (138)
--------- --------- --------- ---------
Estimated proceeds available for investment .............. $ 1,774 $ 2,149 $ 2,524 $ 2,955
========= ========= ========= =========
Net earnings (loss):
Historical ............................................ $ 197 $ 197 $ 197 $ 197
Pro forma adjustments:
Net income from proceeds .............................. 68 83 97 113
Pro forma 1998 MRP adjustment (2) ..................... (11) (13) (15) (18)
--------- --------- --------- ---------
Pro forma net earnings (loss) ......................... $ 254 $ 266 $ 279 $ 293
========= ========= ========= =========
Net earnings (loss) per share: (3)
Historical ............................................ $ 0.54 $ 0.46 $ 0.40 $ 0.35
Pro forma income on net proceeds ...................... 0.19 0.19 0.20 0.20
Pro forma 1998 MRP adjustment (2) ..................... (0.03) (0.03) (0.03) (0.03)
--------- --------- --------- ---------
Pro forma net earnings (loss) per share (3) .............. $ 0.69 $ 0.62 $ 0.56 $ 0.51
========= ========= ========= =========
Number of shares used in calculating earnings
per share .............................................. 365,500 430,000 494,500 568,675
========= ========= ========= =========
Stockholders' equity:
Historical (4)(7) ...................................... $ 3,861 $ 3,861 $ 3,861 $ 3,861
Estimated net Conversion proceeds ...................... 1,863 2,253 2,644 3,093
Less: Common Stock acquired by the
1998 MRP (2) ....................................... (89) (104) (120) (138)
--------- --------- --------- ---------
Pro forma stockholders' equity (5) ..................... $ 5,635 $ 6,010 $ 6,385 $ 6,816
========= ========= ========= =========
Stockholders' equity per share (3):
Historical ............................................. $ 10.56 $ 8.98 $ 7.81 $ 6.79
Estimated net proceeds ................................. 5.10 5.24 5.35 5.44
Less: Common stock acquired by the
1998 MRP(2) ......................................... (0.24) (0.24) (0.24) (0.24)
--------- --------- --------- ---------
Pro forma stockholders' equity per share (5) ............. $ 15.42 $ 13.98 $ 12.91 $ 11.99
========= ========= ========= =========
Pro forma price to book value ............................ 64.9% 71.5% 77.4% 83.4%
========= ========= ========= =========
Pro forma price to earnings (P/E ratio) .................. 14.5 16.1 17.9 19.6
========= ========= ========= =========
Number of shares used in calculating equity per share .... 365,500 430,000 494,500 568,675
========= ========= ========= =========
</TABLE>
Note: Totals may not add due to rounding. (Footnotes on succeeding page)
18
<PAGE>
- ---------------
(1) Estimated net proceeds as adjusted, consist of the estimated net
proceeds from the Offerings less the value of the shares to be
purchased by the 1998 MRP, subject to stockholder approval, after the
Stock Conversion and Reorganization at an assumed purchase price of
$10.00 per share.
(2) Assumes that the 1998 MRP will purchase, following stockholder
approval of such plan, a number of shares of Common Stock equal to
4.0% of the Conversion Stock for issuance to officers and employees.
Funds used by the 1998 MRP to purchase the shares initially will be
contributed to the 1998 MRP by the Company. The adjustment is based
upon the assumed purchases by the 1998 MRP of 8,851, 10,413, 11,975
and 13,771 shares at the minimum, midpoint, maximum and 15% above the
maximum of the Valuation Price Range, assuming that: (i) stockholder
approval of the 1998 MRP has been received; (ii) the shares were
acquired by the 1998 MRP at the beginning of the period shown through
open market purchases at the Purchase Price; (iii) the amortized
expense for the year ended December 31, 1996 was 20% of the amount
contributed; and (iv) the effective tax rate applicable to such
employee compensation expense was 36%. If the 1998 MRP purchases
authorized but unissued shares instead of making open market
purchases, the voting interests of existing stockholders would be
diluted by approximately 2.4% and pro forma net earnings per share for
the year ended December 31, 1996 would be $.69, $.61, $.56 and $.51,
and pro forma stockholders' equity per share at December 31, 1996
would be $15.29, $13.88, $12.84 and $11.94, in each case at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range, respectively. See "Management of the Bank -- Certain
Benefit Plans and Agreements."
(3) The per share calculations are determined by adding the number of
shares assumed to be issued in the Stock Conversion and Reorganization.
Thus, it is assumed at December 31, 1996 that 365,500, 430,000, 494,500
and 568,675 shares of Common Stock are outstanding the minimum,
midpoint, maximum and 15% above the maximum of the Valuation Price
Range, respectively.
(4) Includes the $93,000 (held in a deposit account) to be acquired by the
Bank upon the merger of the Mutual Holding Company (following its
conversion to an interim federal savings bank) into the Bank.
(5) The retained earnings of the Bank will be substantially restricted
after the Stock Conversion and Reorganization by virtue of the
liquidation account to be established in connection with the Stock
Conversion and Reorganization. See "Dividend Policy" and "The
Conversion -- Liquidation Rights."
(6) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Valuation Price Range of up to
15% to reflect changes in market and financial condition following the
commencement of the Offerings.
(7) The book value of the Bank does not give effect to the liquidation
account in event of liquidations or the recapture of the Bank's loan
loss reserve deduction of $672,000.
19
<PAGE>
LEXINGTON FIRST FEDERAL SAVINGS BANK
STATEMENTS OF OPERATIONS
The following Consolidated Statements of Operations of Lexington First
for each of the years in the two-year period ended December 31, 1996 have been
audited by Arnold, Spain & Company, P.C., independent certified public
accountants, whose report thereon appears elsewhere herein. The Statements of
Income should be read in conjunction with the Financial Statements and related
notes included elsewhere in this Prospectus. The Statements of Income for the
three months ended March 31, 1997 and 1996 are unaudited, but in the opinion of
management, reflect all adjustments necessary for a fair presentation of the
results of such periods and such adjustments are of a normal recurring nature.
The results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results of the Bank that may be expected for the
entire fiscal year.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------------ ----------------------------
1997 1996 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
First mortgage loans .............................. $ 359,029 $ 334,561 $ 1,389,698 $ 1,302,049
Consumer and other loans .......................... 5,847 6,968 25,500 19,492
Interest and dividends on investments ............. 73,589 94,887 371,321 354,374
Interest on deposits with banks ................... 7,232 9,052 22,220 28,678
Interest on mortgage-backed securities ............ 52,231 60,024 221,964 239,175
---------- ---------- ----------- -----------
Total Interest Income ........................ $ 497,928 $ 505,492 $ 2,030,703 $ 1,943,768
---------- ---------- ----------- -----------
INTEREST EXPENSE
Interest on deposits .............................. $ 251,777 $ 260,546 $ 1,027,111 $ 1,013,499
Interest on advances from FHLB .................... 18,510 19,078 75,543 77,613
---------- ---------- ----------- -----------
Total Interest Expense ....................... $ 270,287 $ 279,624 $ 1,102,654 $ 1,091,112
---------- ---------- ----------- -----------
Net Interest Income .......................... $ 227,641 $ 225,868 $ 928,049 $ 852,656
Provision for loan losses ......................... 6,229 7,500 30,000 30,000
---------- ---------- ----------- -----------
Net Interest Income After Provision for
Loan Losses ............................... $ 221,412 $ 218,368 $ 898,049 $ 822,656
---------- ---------- ----------- -----------
OTHER INCOME
Income from real estate held for investment ....... $ 2,125 $ 760 $ 6,090 $ 3,655
Gain from sale of investment securities, net ...... -- -- 935 1,156
Service charges ................................... 12,139 5,656 8,689 4,201
Other operating income ............................ 399 1,161 5,618 8,181
---------- ---------- ----------- -----------
Total Other Income ........................... $ 14,663 $ 7,577 $ 21,332 $ 17,193
---------- ---------- ----------- -----------
GENERAL AND ADMINISTRATIVE EXPENSES
Compensation and benefits .......................... $ 97,300 $ 64,869 $ 285,773 $ 277,392
Occupancy and equipment ............................ 10,901 10,527 47,033 40,109
Federal deposit insurance premiums ................. 3,835 12,054 176,133 45,059
Losses on real estate owned ........................ -- -- 5,986 1,206
Data processing fees ............................... 6,605 7,469 33,410 24,685
Other operating expenses ........................... 25,162 19,246 68,686 75,074
---------- ---------- ----------- -----------
Total General and Administrative Expense ..... $ 143,803 $ 114,165 $ 617,021 $ 463,525
---------- ---------- ----------- -----------
Earnings Before Income Taxes ................. 92,272 111,780 302,360 376,324
Income tax expense .................................... 30,721 37,521 105,176 151,865
---------- ---------- ----------- -----------
Net Earnings ................................. $ 61,551 $ 74,259 $ 197,184 $ 224,459
========== ========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Lexington First's primary business has historically been and, following
the Conversion, will continue to be the origination of mortgage loans on
single-family residential real estate, with funds obtained through the
attraction of savings deposits, primarily transaction accounts, and certificate
accounts with terms of 18 months or less and FHLB advances. However, the Bank
anticipates increasing its portfolio of commercial business, commercial real
estate and consumer loans following the Stock Conversion and Reorganization.
Commercial and consumer loans generally carry higher yields and shorter
maturities than traditional mortgage loans and should assist the Bank in
improving the mismatch between its interest-earning assets and interest-bearing
liabilities. See " -- Risk Factors -- the Bank's Interest Sensitivity Mismatch
and the Potential Effects of Changes in Interest Rates." The Bank also makes
construction loans on single-family residences, savings account loans, and
second mortgage consumer loans. In past years, the Bank has made a limited
number of loans on multi-family and commercial real estate. Excess funds are
invested in mortgage-backed securities and other liquid investment securities.
The offering of a wider range of loan products, the opening of a new
branch office, and the Conversion, including the Bank Conversion, are all
integral parts of Lexington First's new emphasis on commercial banking. The
goals in implementing these steps are to increase the Bank's interest rate
spread, improve the Bank's interest rate sensitivity mismatch and increase
overall profitability, while maintaining an acceptable level of risk. Although
there are additional risks inherent in pursuing a commercial banking strategy,
the Board of Directors believes that President Tignor and the new employees he
has hired (including two new lending officers) possess the requisite amount of
skill, experience and leadership to accomplish this goal over a reasonable
period of time. See "Risk Factors -- Risks Related to Commercial Real Estate,
Commercial Business and Consumer Lending."
The profitability of Lexington First depends primarily on its net
interest income, which is the difference between interest and dividend income on
interest-earning assets, principally loans, mortgage-backed securities and
investment securities, and interest expense on interest-bearing deposits and
borrowings (if any). Lexington First's net earnings also are dependent, to a
lesser extent, on the level of its other income, including gains and losses on
the sale of investment securities and other assets, servicing fees and other
fees and rental income, and its general, administrative and other expenses, such
as employee compensation and benefits, occupancy and equipment expense, deposit
insurance premiums, franchise taxes and miscellaneous other expenses, as well as
income tax expense.
Asset and Liability Management
The ability to maximize net interest income is largely dependent upon
the achievement of a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates. Interest rate-sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities which either reprice or mature within a given
period of time. The difference, or the interest rate repricing "gap," provides
an indication of the extent to which an institution's interest rate spread will
be affected by changes in interest rates. A gap is considered positive when the
amount of interest rate-sensitive assets exceeds the amount of interest
rate-sensitive liabilities, and is considered negative when the amount of
interest rate-sensitive liabilities exceeds the amount of interest
rate-sensitive assets. Generally, during a period of rising interest rates, a
negative gap within shorter maturities would adversely affect net interest
income, while a positive gap within shorter maturities would result in an
increase in net interest income, and during a period of falling interest rates,
a negative gap within shorter maturities would result in an increase in net
interest income while a positive gap within shorter maturities would have the
opposite effect.
21
<PAGE>
Analysis of GAP. The following table sets forth the amounts of
interest-earning assets and interest-bearing liabilities outstanding at December
31, 1996 which are expected to mature or reprice in each of the time periods
shown.
<TABLE>
<CAPTION>
Over One Over Five Over Ten Over
One Year Through Through Through Twenty
or Less Five Years Ten Years Twenty Years Years Total
------- ---------- --------- ------------ ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
One- to four-family mortgage loans ...... $ 2,100 $ 1,078 $ 4,774 $ 6,561 $1,580 $16,093
Other mortgage loans .................... 93 39 23 9 -- 164
Consumer loans .......................... 222 74 -- -- -- 296
Investment securities ................... 1,250 1,340 618 921 -- 4,129
Mortgage-backed securities .............. 194 618 247 823 1,460 3,342
FHLB Stock .............................. 246 -- -- -- -- 246
Other interest bearing assets ........... 1,203 -- -- -- -- 1,203
-------- -------- ------- -------- ------ -------
Total ................................ 5,308 3,149 5,662 8,314 3,040 25,473
-------- -------- ------- -------- ------ -------
Interest-bearing liabilities:
Deposits ................................ 19,059 1,579 -- -- -- 20,638
FHLB Advances ........................... 26 124 139 108 558 955
-------- -------- ------- -------- ------ -------
Total ................................ 19,085 1,703 139 108 558 21,593
-------- -------- ------- -------- ------ -------
Interest sensitivity gap ................... $(13,777) $ 1,446 $ 5,523 $ 8,206 $2,482 $ 3,880
======== ======== ======= ======== ====== =======
Cumulative interest sensitivity gap ........ $(13,777) $(12,331) $(6,808) $ 1,398 $3,880 $ 3,880
======== ======== ======= ======== ====== =======
Ratio of interest-earning assets
to interest-bearing liabilities ......... 27.81% 184.91% 4073.38% 7,698.15% 544.80% 117.97%
======== ======== ======= ======== ====== =======
Ratio of cumulative gap to total assets .... (53.77)% (48.12)% (26.57)% 5.46% 15.14% 15.14%
======== ======== ======= ====== ====== =======
</TABLE>
The preceding table was prepared utilizing certain assumptions
regarding prepayment and decay rates provided by a private data processing and
consulting firm. While management believes that these assumptions are
reasonable, the actual interest rate sensitivity of the Bank's assets and
liabilities could vary significantly from the information set forth in the table
due to market and other factors. The following assumptions were used: (i)
adjustable-rate mortgages were recorded in the period in which they reprice;
(ii) fixed-rate mortgages and mortgage-backed securities will prepay at the rate
of 5%; (iii) investments are recorded in the periods in which they mature or
reprice as applicable; (iv) fixed maturity deposits are not withdrawn prior to
maturity; (v) other deposits are withdrawn or reprice in less than one year; and
(vi) FHLB advances are recorded in the period in which they contractually
mature.
22
<PAGE>
The interest rate sensitivity of the Bank's assets and liabilities
illustrated in the table above could vary substantially if different assumptions
were used or actual experience differs from the assumptions used. If passbook
and NOW accounts were assumed to mature in one year or less (which does not
reflect actual experience), the Bank's one-year gap would have been
substantially negative.
Net Portfolio Value. In recent years, the Bank has measured its
interest rate sensitivity by computing the "gap" between the assets and
liabilities which were expected to mature or reprice within certain periods,
based on assumptions regarding loan prepayment and deposit decay rates formerly
provided by the OTS. However, the OTS now requires the computation of amounts by
which the net present value of an institution's cash flows from assets,
liabilities and off balance sheet items (the institution's net portfolio value,
or "NPV") would change in the event of a range of assumed changes in market
interest rates. The OTS also requires the computation of estimated changes in
net interest income over a four-quarter period. These computations estimate the
effect of an institution's NPV and net interest income of instantaneous and
permanent 1% to 4% increases and decreases in market interest rates.
The following table sets forth the interest rate sensitivity of the
Bank's net portfolio value as of December 31, 1996 in the event of 1%, 2%, 3%
and 4% instantaneous and permanent increases and decreases in market interest
rates, respectively. These changes are set forth below as basis points, where
100 basis points equals one percentage point.
<TABLE>
<CAPTION>
Change in
Change Net Portfolio Value NPV as % of
---------------------------------------- NPV as % of Portfolio Value
in Rates $ Amount $ Change % Change Portfolio Value of Assets (1)
-------- -------- -------- -------- --------------- -------------
<S> <C> <C> <C> <C> <C>
400 bp 2,478 (2,150) (46) 10.41% (7.00)%
300 bp 3,051 (1,577) (34) 12.44 (4.97)
200 bp 3,622 (1,006) (22) 14.36 (3.06)
100 bp 4,175 (453) (10) 16.09 (1.02)
0 bp 4,628 17.42
(100) bp 4,880 252 5 18.06 0.64
(200) bp 4,944 316 7 18.10 0.69
(300) bp 5,024 396 9 18.17 0.76
(400) bp 5,155 527 11 18.37 0.95
</TABLE>
The OTS uses the above NPV calculation to monitor an institution's
interest rate risk ("IRR"). The OTS has promulgated regulations regarding a
required adjustment to an institution's risk-based capital based on IRR. The
application of the OTS' methodology quantifies IRR as the change in NPV which
results from a theoretical 200 basis point increase or decrease in market
interest rates. If the NPV from either calculation would decrease by more than
2% of the present value of the institution's assets, the institution must deduct
50% of the amount of the decrease in excess of such 2% in the calculation of
risk-based capital. The IRR regulations were originally effective as of January
1, 1994, subject to a two quarter "lag" time between the reporting date of the
data used to calculate an institution's interest rate risk and the effective
date of each quarter's interest rate risk component. However, beginning in
October 1994, the Director of the OTS indicated that it would waive the capital
deductions for institutions with a greater than "normal" risk until the OTS
publishes an appeals process.
23
<PAGE>
The following table sets forth the interest rate risk capital component
for the Bank at December 31, 1996 given a hypothetical 200 basis point rate
change in market interest rates.
<TABLE>
<S> <C>
Pre-shock NPV Ratio: NPV as % of Portfolio Value of Assets ... 17.42%
Exposure Measure: Post-Shock NPV Ratio ....................... 14.36%
Sensitivity Measure: Change in NPV Ratio ..................... (306) bp
</TABLE>
Computations of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates, loan prepayments and deposit run-offs, and should not be relied
upon as indicative of actual results. Further, the computations do not
contemplate any actions the Bank may undertake in response to changes in
interest rates.
Certain shortcomings are inherent in the method of analysis presented
in both the computation of NPV and in the analysis presented in prior tables
setting forth the maturing and repricing of interest-earning assets and
interest-bearing liabilities. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
in differing degrees to changes in market interest rates. The interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in
market interest rates, while interest rates on other types may lag behind
changes in market rates. Additionally, certain assets, such as adjustable-rate
loans, which represent the Bank's primary loan product, have features which
restrict changes in interest rates on a short-term basis and over the life of
the asset. In addition, the proportion of adjustable-rate loans in the Bank's
portfolios could decrease in future periods if market interest rates remain at
or decrease below current levels due to refinance activity. Further, in the
event of a change in interest rates, prepayment and early withdrawal levels
would likely deviate significantly from those assumed in the tables. Finally,
the ability of many borrowers to service their adjustable-rate debt may decrease
in the event of an interest rate increase.
The lending activities of savings institutions have historically
emphasized long-term, fixed-rate loans secured by single-family residences, and
the primary source of funds of such institutions has been deposits. The deposit
accounts of savings associations generally bear interest rates that reflect
market rates and largely mature or are subject to repricing within a short
period of time. This factor, in combination with substantial investments in
long-term, fixed-rate loans, has historically caused the income earned by
savings associations on their loan portfolios to adjust more slowly to changes
in interest rates than their cost of funds.
Lexington First originates both fixed- and adjustable-rate residential
real estate loans as market conditions dictate. However, these market conditions
continue to cause Lexington First to issue fixed rate financing, although the
residential loans originated by the Bank in recent months have been mostly
short-term balloon loans with terms of one, three, five and seven years.
Additionally in 1997, Lexington First began to offer consumer and commercial
loans, which reprice more rapidly.
Notwithstanding the foregoing, however, because Lexington First's
interest-bearing liabilities which mature or reprice within short periods
substantially exceed its earning assets with similar characteristics, material
and prolonged increases in interest rates generally would have a severely
adverse effect on net interest income, while material and prolonged decreases in
interest rates generally, but to a lesser extent because of their historically
low levels, would have the opposite effect.
24
<PAGE>
Average Balances, Interest and Average Yields
The following table sets forth certain information relating to the
Bank's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated and the average yields
earned and rates paid at the date and for the periods indicated. Such yields and
costs are derived by dividing income or expense by the average monthly balance
of assets or liabilities, respectively, for the periods presented. Average
balances for loans include nonaccrual loans. Average balances are derived from
month-end balances. Management does not believe that the use of month-end
balances instead of daily balances has caused any material difference in the
information presented.
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------------------------------
At March 31, 1997 1996
1997 ------------------------------- ----------------------------
------------------ Average Average
Yield/ Average Yield/ Average Yield/
Balance 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 (2)............... $ 16,429 8.89% $ 16,578 $ 365 8.81% $ 14,923 $ 342 9.17%
Investment securities:
Investment securities:
Taxable............................. 2,680 8.06 2,731 54 7.91 4,238 72 6.80
Nontaxable.......................... 1,145 8.47 1,145 24 8.47 1,145 28 9.66
Mortgage-backed securities................. 3,206 6.78 3,218 52 6.46 3,720 60 6.45
Other interest-earning assets.............. 1,919 7.25 1,592 11 2.76 1,379 13 3.77
---------- --------- ------- -------- -------
Total interest-earning assets........ 25,379 7.98 25,264 506 8.02 25,405 515 8.10
Non-interest-earning assets................ 563 443 ------- 557 -------
---------- --------- --------
Total assets......................... $ 25,942 $ 25,707 $ 25,962
========== ========= ========
Interest-bearing liabilities:
Deposits................................ $ 20,884 4.67 $ 20,335 252 4.96 $ 21,049 261 4.96
FHLB advances........................... 949 6.21 951 19 7.99 967 19 7.86
---------- --------- ------- -------- -------
Total interest-bearing liabilities... 21,833 4.96 21,407 271 5.09 22,016 280 5.09
------- -------
Non-interest-bearing liabilities........... 186 121 196
---------- --------- --------
Total liabilities.................... 22,019 21,815 22,212
Equity..................................... 3,923 3,892 3,750
---------- --------- --------
Total liabilities and equity......... $ 25,942 $ 25,707 $ 25,962
========== ========= ========
Interest income............................ 235 235
Interest rate spread....................... 3.02% 2.92% 3.02%
===== ==== ====
Tax equivalent adjustments:
Investment securities.................. 8 10
------- -------
Net yield on interest-earning assets....... 3.72% 3.69%
==== ====
Ratio of average interest-earning
assets to average interest-bearing
liabilities.............................. 116.24% 116.46% 115.40%
====== ====== ======
Net interest income........................ $ 227 $ 225
======= =======
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1996 1995
-------------------------------- ----------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost(1) Balance Interest Cost(1)
--------- -------- ------- --------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net(2)............................... $ 15,586 $ 1,416 9.09% $ 14,357 $ 1,321 9.20%
Investment securities
Taxable............................................. 4,183 283 6.77 4,431 299 6.75
Nontaxable.......................................... 1,145 111 9.66 684 61 8.86
Mortgage-backed securities............................. 3,393 222 6.54 3,676 239 6.50
Other interest-earning assets.......................... 861 37 4.30 1,407 44 3.13
--------- ------- --------- ------
Total interest-earning assets....................... 25,168 2,069 8.22 24,555 1,964 8.00
------- ------
Non-interest-earning assets............................... 591 449
--------- ---------
Total assets........................................ $ 25,759 $ 25,004
========= =========
Interest-bearing liabilities:
Deposits............................................... $ 20,814 1,027 4.93 $ 20,274 1,013 5.00
FHLB advances.......................................... 959 76 7.92 980 78 7.96
--------- ------- --------- ------
Total interest-bearing liabilities 21,773 1,103 5.07 21,254 1,091 5.13
------- ------
Non-interest-bearing liabilities.......................... 206 178
--------- ---------
Total liabilities................................... 21,979 21,432
Equity.................................................... 3,780 3,572
--------- ---------
Total liabilities and equity........................ $ 25,759 $ 25,004
========= =========
Interest income........................................... 966 873
Interest rate spread...................................... 3.15% 2.86%
====== ======
Net yield on interest-earning assets...................... 3.84 % 3.68%
======= ======
Tax equivalent adjustments:
Investment securities............................... (38) (21)
------- --------
Ratio of average interest-earning assets
to average interest-bearing liabilities 115.59% 115.54%
------ -------
Net interest income....................................... $ 928 $ 852
======= ========
</TABLE>
(1) The average yield is calculated by combining earnings on investment
securities and mortgage-backed securities in one category for
presentation in this table.
(2) Includes nonaccrual loans.
26
<PAGE>
Rate/Volume Analysis
The table below sets forth certain information regarding changes in
interest income and interest expense of the Bank for the periods indicated. For
each category of interest-earning asset and interest-bearing liability,
information is provided on changes attributable to: (i) changes in volume
(changes in volume multiplied by old rate); (ii) changes in rate (change in rate
multiplied by old volume); and (iii) rate/volume change (change in volume
multiplied by change in rate).
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
---------------------------------------- ----------------------------------------
1997 vs. 1996 1996 vs. 1995
---------------------------------------- ----------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
---------------------------------------- ----------------------------------------
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
------ ---- ------ ----- ------ ---- ------ -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable................. $ 152 $ (54) $ (5) $ 93 $ 113 $ (17) $ (1) $ 95
Investment securities:
Taxable...................... (102) 47 (17) (73) (18) (29) 2 (46)
Nontaxable................... -- (14) -- (14) 41 5 4 50
Mortgage-backed securities (32) -- -- (32) (18) 2 -- (17)
Short-term investments and
other interest-earning
assets....................... 8 (14) (5) (11) (17) 16 (6) (7)
------ ------ ------ ------- ------ ------ ------ ------
Total interest income........ 25 (34) (28) (37) 100 (22) (3) 75
------ ------ ------ ------- ------ ------ ------ ------
Interest-bearing liabilities:
Deposits......................... (35) (1) -- (36) 27 (13) -- 14
FHLB advances................... (1) 1 -- -- (2) -- -- (2)
------ ------ ------ ------- ------ ------ ------ ------
Total interest-bearing
liabilities............... (37) 1 -- (36) 25 (13) -- 12
------ ------ ------ ------- ------ ------ ------ ------
Change in net interest income $ 62 $ (34) $ (28) $ (1) $ 75 $ (9) $ (3) $ 63
====== ====== ====== ======= ====== ====== ====== ======
</TABLE>
Comparison of Financial Condition at March 31, 1997 and December 31, 1996
At March 31, 1997, Lexington First's assets totaled $25.9 million, as
compared to $25.6 million at December 31, 1996. Total assets increased
$300,000 or 1.2% from March 31, 1997 to December 31, 1996. The increase in
total assets during the quarter ended March 31, 1997 was principally the
result of increases in cash and time deposits of $400,000 or 31.0% and
loans receivable of $200,000 or 1.4%, offset by decreases in investment
securities of $200,000 or 5.8% and mortgage-backed securities of $100,000
or 4.1%.
At December 31, 1996, Lexington First's assets totaled $25.6 million,
as compared to $25.9 million at December 31, 1995. Total assets decreased
$300,000 or 1.2% from December 31, 1995 to December 31, 1996. The decrease
in total assets during 1996 was principally the result of a $1.7 million or
6.6% decrease in investment and mortgage-backed securities from $9.1
million at December 31, 1995 to $7.4 million at December 31, 1996, and a
$300,000 or 1.2% decrease in time deposits from $1.2 million at
December 31, 1995 to $900,000 at December 31, 1996. These reductions were
used to fund an increase in loans receivable, net, of $1.7 million or 6.6%.
Single-family residential loans increased $1.3 million or 9% and single-
family construction loans increased $400,000 or 3%.
27
<PAGE>
During the quarter ended March 31, 1997, total liabilities increased
$200,000 or 1.2%. This increase was primarily the result of an increase of
$200,000 or 1.2% in deposits.
During the year ended December 31, 1996, total liabilities decreased
$400,000 or 1.8% to $21.8 million. This decrease was primarily the result of a
decrease of $300,000 or 1.4% in deposits.
Comparison of Results of Operations for the Three Months Ended March 31, 1997
and 1996
General. Lexington First had net earnings (unaudited) of $62,000 for
the three months ended March 31, 1997, compared to net earnings of $74,000 for
1996. Net interest income increased $2,000 during the three month period, while
non-interest income increased $7,000, offset by an increase in non-interest
expense of $30,000.
Net Interest Income. Net interest income increased by $2,000 or 0.8%
for the three months ended March 31, 1997 compared to the three months ended
March 31, 1996.
Interest Income. Interest income decreased by $7,000 from $506,000 to
$499,000 or 1.5%, for the three months ended March 31, 1997 compared to the
three month period ended March 31, 1996. This decrease resulted in part from an
overall decrease of average interest earning assets of $141,000 from $25,405,000
in 1996 to $25,264,000 in 1997 or 0.5%. The yield on interest earning assets
decreased from 8.10% in 1996 to 8.02% in 1997.
Interest Expense. Interest expense decreased by $9,000 or 3.3% to
$270,000 for the three months ended March 31, 1997 from $279,000 for the three
months ended March 31, 1996. The decrease was due to a decrease in average
interest bearing liabilities from $22,016,000 in 1996 to $21,286,000 in 1997
coupled with a decrease in an average cost of funds from 5.09% to 4.99%.
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 allowance.
Lexington First determined that a provision of $2,500 per month or
$7,500 was adequate to provide for loan losses during the three months ended
March 31, 1996. This amount was reduced to $6,000 for the three months ended
March 31, 1997. No actual losses occurred during the three months ended March
31, 1997 and 1996. Loans past due 90 days or more amounted to $155,000 at March
31, 1997.
Non-Interest Expense. The $30,000 increase in non-interest expense in
1997 compared to 1996 was primarily attributable to a bonus totaling $20,000
paid to an officer that retired March 1997 as additional compensation for her
many years of service.
Income Taxes. Lexington First's effective tax rate for the three months
ended March 31, 1997 and 1996 was 33% and 34%, respectively. The decrease in
income tax expense of $7,000 was due to the decrease in income in 1997 compared
to 1996.
Comparison of Results of Operations for the Years Ended December 31, 1996 and
1995
General. Lexington First had net earnings of $197,000 for the year
ended December 31, 1996, compared to net earnings of $224,000 for 1995. Net
interest income increased $75,000 during the year, while noninterest income
decreased $4,000, offset by an increase in non-interest expense of $153,000.
28
<PAGE>
Net Interest Income. Net interest income increased by $75,000 or 9.1%
for the year ended December 31, 1996 compared to the year ended December 31,
1995. This increase was due primarily to an increase in the interest rate spread
from 2.86% in 1995 to 3.15% in 1996. The increase was due to an increase in the
yield on interest earning assets of 22 basis points and a reduction in the rate
paid on interest-bearing liabilities of 7 basis points.
Interest Income. Interest income increased by $87,000 from $1,944,000
to $2,031,000 or 4.5%, during 1996 compared to 1995. This increase resulted in
part from an overall increase of average interest earning assets of $613,000
from $24,555,000 in 1995 to $25,168,000 in 1996 or 2.5%. The yield on interest
earning assets increased from 8.00% in 1995 to 8.22% in 1996. This yield
increase is primarily attributable to an increase in the yield on investment
securities.
Interest Expense. Interest expense increased by $12,000 or 1.1% to
$1,103,000 for the year ended December 31, 1996 from $1,091,000 for the year
ended December 31, 1995. The increase was primarily due to an increase in
average deposits from $21,254,000 in 1995 to $21,773,000 in 1996.
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 allowance.
Lexington First determined that a provision or $2,500 per month or
$30,000 was adequate to provide for loan losses for the years ended December 31,
1996 and 1995. Actual losses incurred amounted to $12,000 for the year ended
December 31, 1996 and $1,000 for the year ended December 31, 1995. Loans past
due 90 days or more amounted to $114,000 at December 31, 1996 and $146,000 at
December 31, 1995.
Non-Interest Expense. The $153,000 increase in non-interest expense in
1996 compared to 1995 was primarily attributable to the $128,000 special SAIF
assessment paid during the third quarter (ended September 30) of 1996. The
assessment rate for the special assessment was 65.7 basis points, compared to
SAIF assessments of 5.75 basis points for the quarter ended December 31, 1996
and 1.625 basis points for the quarter ended March 31, 1997.
Income Taxes. Lexington First's effective tax rate for the years ended
December 31, 1996 and 1995 was 35% and 40%, respectively. The decrease in income
tax expense of $47,000 was due to the decrease in income in 1996 compared to
1995.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been
prepared in accordance with GAAP which require the measurement of financial
position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to
inflation.
Unlike most companies, the assets and liabilities of a financial
institution are primarily monetary in nature. As a result, interest rates have a
more significant impact on a financial institution's performance than the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or in the same magnitude as the price of goods and
services, since such prices are affected by inflation. In the current interest
rate environment, liquidity and the maturity structure of the Bank's assets and
liabilities are critical to the maintenance of acceptable performance levels.
29
<PAGE>
Liquidity and Capital Resources
The Bank is required by OTS regulations to maintain minimum levels of
specified liquid assets which are currently equal to 5% of deposits and
short-term borrowings. The Bank's liquidity ratio for the month ended March 31,
1997 was 28.7% and its liquidity ratio was 29.5% at March 31, 1997.
The Bank's principal sources of funds for investments and operations are
net earnings, deposits from its primary market area, principal and interest
payments on loans and mortgage-backed securities and proceeds from maturing
investment securities. Its principal funding commitments are for the origination
or purchase of loans and the payment of maturing deposits. Deposits are
considered a primary source of funds supporting the Bank's lending and
investment activities. Deposits were $20.9 million and $20.6 million at March
31, 1997 and December 31, 1996, respectively.
The Bank's most liquid assets are cash and cash equivalents, which are
cash on hand, amounts due from financial institutions, federal funds sold,
certificates of deposit with other financial institutions that have an original
maturity of three months or less and money market mutual funds. The levels of
such assets are dependent on the Bank's operating, financing and investment
activities at any given time. The Bank's cash and cash equivalents totaled $1.6
million at March 31, 1997 and $542,000 at December 31, 1996. The variations in
levels of cash and cash equivalents are influenced by deposit flows and
anticipated future deposit flows.
At March 31, 1997, Lexington First had $400,000 in commitments to
originate loans. At March 31, 1997, the Bank had $13.2 million in certificates
of deposit which were scheduled to mature in one year or less. It is anticipated
that the majority of these certificates will be renewed in the normal course of
operations.
Lexington First is not aware of any trends or uncertainties that will have
or are reasonably expected to have a material effect on the Bank's liquidity or
capital resources. The Bank has no current plans for material capital
improvements or other capital expenditures that would require more funds than
are currently on hand.
Recent Accounting Pronouncements
Accounting for Certain Investments in Debt and Equity Securities. The FASB
issued Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). This
Statement addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values, and all investments in
debt securities. SFAS No. 115 requires classification of investments into three
categories. Debt securities that the Bank has the positive intent and ability to
hold to maturity are classified as held to maturity and must be reported at
amortized cost. Debt and equity securities that are bought and held principally
for the purpose of selling them in the near term are classified as trading and
must be reported at fair value, with unrealized gains and losses included in
earnings. All other debt and equity securities must be considered available for
sale and must be reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of stockholder's
equity (net of tax effects). [Discuss effect of SFAS No. 115]
Accounting for Awards of Stock-Based Compensation to Employees. In
November 1995, the FASB issued Statement of Financial Accounting Standards No.
123 "Accounting for Awards of Stock-Based Compensation to Employees" ("SFAS No.
123"). SFAS No. 123 is effective for years beginning after December 15, 1995.
Earlier application is permitted. The Statement defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to continue
to measure compensation cost for those plans using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees" ("Opinion 25"). Under the fair value based method,
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period.
Under the intrinsic value based method, compensation cost is the excess, if any,
of the quoted market price of the stock at the grant date or other measurement
date over the amount an employee must pay to acquire the stock. Most fixed stock
30
<PAGE>
option plans -- the most common type of stock compensation plan -- have no
intrinsic value at grant date, and under Opinion 25 no compensation cost is
recognized for them. Compensation cost is recognized for other types of stock
based compensation plans under Opinion 25, including plans with variable,
usually performance-based, features. This Statement requires that an employer's
financial statements include certain disclosures about stock-based employee
compensation arrangements regardless of the method used to account for them.
Management has not determined when it will adopt the provisions of SFAS No. 123
and has not estimated the effect of adoption on the Company's financial
condition or results of operations.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities. In September 1996, the FASB issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities." SFAS No. 125 requires an entity to use a consistent application
of a financial components approach that focuses on control when accounting for
transfers of financial assets. Under this 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 those transactions occurring after December 31,
1996 and shall be applied prospectively. It is not expected to have a material
effect on the Bank's financial statements.
FASB Statement on Earnings Per Share. In March 1997, the Financial
Accounting Standards Board("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128. The Statement establishes standards for computing
and presenting earnings per share 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 Accounting Principles Board
("APB") Opinion No. 15, Earnings per Share ("EPS"), and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted Earnings per Share on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and the denominator of the basic EPS computation to the numerator and
denominator of the diluted Earnings per Share computation. Basic EPS excludes
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB
Opinion No. 15. This statement supersedes Opinion 15 and AICPA Accounting
Interpretation 1-102 of Opinion 15. This statement is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods. SFAS No. 128 will be adopted by the Company in fiscal 1997. The Company
does not believe the impact of adopting SFAS No. 128 will be material in our
financial statements.
FASB Statement on Disclosure of Information about Capital Structure. In
February 1997, the FASB issued SFAS No. 129. The Statement incorporates the
disclosure requirements of APB Opinion No. 15, Earnings per Share, and makes
them applicable to all public and nonpublic entities that have issued securities
addressed by the Statement. APB Opinion No. 15 requires disclosure of
descriptive information about securities that is not necessarily related to the
computation of earnings per share. This statement continues the previous
requirements to disclose certain information about an entity's capital structure
found in APB Opinions No. 10, Omnibus Opinion -- 1966, and No. 15, Earnings per
Share, and FASB Statement No. 47, Disclosure of Long-Term Obligations, for
entities that were subject to the requirements of those standards. This
Statement eliminates the exemption of nonpublic entities from certain disclosure
requirements of Opinion 15 as provided by FASB Statement No. 21, Suspension of
the Reporting of Earnings per Share and Segment Information by Nonpublic
Enterprises. It supersedes specific disclosure requirements of Opinions 10 and
15 and Statement 47 and consolidates them in this Statement for ease of
retrieval and for greater visibility to nonpublic entities. The Statement is
effective for financial statements for periods ending after December 15, 1997.
SFAS No. 129 will be adopted by the Company in fiscal 1997. The Company does not
believe the impact of adopting SFAS No. 129 will be material to the Company's
financial statements.
31
<PAGE>
BUSINESS OF THE COMPANY
The Company was organized at the direction of the Board of Directors of
the Bank for the purpose of becoming a holding company to own all of the
outstanding capital stock of the Bank upon completion of the Stock Conversion
and Reorganization. For additional information, see "Community National
Corporation."
The Company currently is not an operating company. Following the Stock
Conversion and Reorganization, the Company will be primarily engaged in the
business of directing, planning and coordinating the business activities of the
Bank. In the future, the Company may become an operating company or acquire or
organize other operating subsidiaries, including other financial institutions.
Presently, there are no agreements or understandings for an expansion of the
Company's operations. Initially, the Company will not maintain offices separate
from those of the Bank or employ any persons other than its officers, who will
not be separately compensated for such service.
BUSINESS OF THE BANK
General
Lexington First commenced operations in 1961 as a federally-chartered
mutual savings association under the name "Lexington Federal Savings and Loan
Association." Its deposits have been federally insured up to applicable limits,
and it has been a member of the Federal Home Loan Bank system since that time.
In 1992, Lexington Federal reorganized as a subsidiary of the Mutual Holding
Company issuing 135,000 shares to the Mutual Holding Company and 80,000 shares
to Public Stockholders. Lexington First's deposits are currently insured by the
Savings Association Insurance Fund of the FDIC and it is a member of the FHLB of
Cincinnati. Lexington First is subject to the regulation of the Office of Thrift
Supervision as well as the FDIC. Following the Stock Conversion and
Reorganization, the Bank will be subject to regulation by the OCC.
Lexington First's primary business has historically been and, following
the Conversion, will continue to be the origination of mortgage loans on
single-family residential real estate, with funds obtained through the
attraction of savings deposits, primarily transaction accounts, and certificate
accounts with terms of 18 months or less and FHLB advances. However, the Bank
anticipates increasing its portfolio of commercial business, commercial real
estate and consumer loans following the Stock Conversion and Reorganization. For
more information, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Commercial and consumer loans generally
carry higher yields and shorter maturities than traditional mortgage loans and
should assist the Bank in improving the mismatch between its interest-earning
assets and interest-bearing liabilities. See " -- Risk Factors --The Bank's
Interest Sensitivity Mismatch and the Potential Effects of Changes in Interest
Rates." The Bank also makes construction loans on single-family residences,
savings account loans, and second mortgage consumer loans. In past years, the
Bank has made a limited number of loans on multi-family and commercial real
estate. Excess funds are invested in mortgage-backed securities and other liquid
investment securities.
Following the Stock Conversion and Reorganization, in the fourth quarter
of 1997, the Bank plans to open a branch office in Lexington, Tennessee, on a
property which the Bank has purchased. See "Properties."
Market Area
Lexington First's office is located at 19 Natchez Trace Drive, Lexington,
Henderson County, Tennessee. The Bank's market area comprises all of Henderson
County and the neighboring counties of Decatur, Madison, Carroll and Chester in
central and southwestern Tennessee. The Bank has recently purchased a building
in Lexington which it anticipates opening as a branch office, following the
Conversion, in the last quarter of 1997. The market area is rural with the
principal segment of the work force employed in semi-skilled and unskilled jobs.
Employment in these rural communities or areas is largely in manufacturing, with
significant employment also coming from services, retail sales, transportation,
utility and construction industries. A significant number of people are employed
in Madison County
32
<PAGE>
(sometimes referred to as the hub of West Tennessee), which is in the western
part of the Bank's market area. Major employers in the area include: Magnetek,
Johnson Controls, Dayco/Mark IV Automotive, Columbus-McKinnon and Auto Zone.
Tennessee's largest park, Natchez Trace State Park, with over 43,000
acres, has its headquarters in Henderson County. The Park is located in parts of
four counties. The Park, along with the Beech River Watershed Development
Authority, which operates seven lakes, provides Henderson County with numerous
jobs and is an attraction for tourists in the use of facilities for boating,
hunting, fishing, camping and the activities associated with open space and
water.
Lending Activities
General. Lexington First, through its office in Lexington, Tennessee,
primarily originates single-family residential real estate loans secured by
property located primarily in Henderson County. At March 31, 1997, $15.9 million
or 95.8% of the Bank's gross loan portfolio consisted of single-family
residential mortgage loans. In the early 1980's, the Bank began to emphasize the
origination of adjustable rate mortgages. However, due to customer preference
for fixed-rate mortgage loans, the Bank has been unable to originate a
significant number of adjustable-rate loans in recent years. The Bank will
continue to offer and make loans with both fixed and adjustable rates, as the
market allows, with terms of ten, fifteen and twenty years. Due to customer
preferences for fixed-rate loans, however, it is expected that the majority of
loans originated by the Bank will be fixed-rate balloon loans, with terms of
one, three and five years, as well as some 7 and 10 year balloon loans, all with
a 30-year amortization, as a method of mitigating its interest rate risk.
Recently, the Bank has begun to originate some long-term fixed-rate mortgage
loans which it will sell in the secondary market. The Bank does not expect to
originate such loans without a forward commitment in place for sale, and such
loans will not become part of the Bank's loan portfolio. The Bank also makes
construction loans on single-family residences, savings account loans and second
mortgage consumer loans. In past years, the Bank has made a limited number of
loans on multi-family and commercial real estate. As noted above, following the
Conversion, it is anticipated that the Bank's consumer loan, commercial business
loan and commercial real estate loan portfolios will increase.
33
<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.
<TABLE>
<CAPTION>
At December 31,
At March 31, --------------------------------------------
1997 1996 1995
-------------------- --------------------- ------------------
Amount % Amount % Amount %
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans:
One- to four-family................. $ 15,904 95.81% $ 15,543 93.90% $ 14,264 97.21%
Commercial......................... 134 0.81 164 0.99 9 0.06
Construction:
One- to four-family................. 193 1.16 550 3.32 76 0.52
Consumer loans:
Savings account..................... 321 1.93 296 1.79 324 2.21
Automobile.......................... 7 0.04 -- -- -- --
Other consumer...................... 41 0.25 -- -- -- --
--------- -------- --------- ------ --------- ------
16,600 100.00% 16,553 100.00% 14,673 100.00%
====== ====== ======
Less:
Loans in process.................... -- 180 8
Deferred loan fees and discounts.... 26 27 30
Allowance for loan losses........... 147 141 123
--------- --------- ---------
Total............................ $ 16,427 $ 16,205 $ 14,512
========= ========= =========
</TABLE>
34
<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. The table does not include any estimate of prepayments which
significantly shorten the average life of all mortgage loans and may cause the
Bank's repayment experience to differ from that shown below.
<TABLE>
<CAPTION>
Due after Due after Due after Due after
Due during the 1 through 3 through 5 through 10 through Due after 15
Year ending 3 years after 5 years after 10 years after 15 years after years after
December 31, December 31, December 31, December 31, December 31, December 31,
1997 1996 1996 1996 1996 1996 Total
----------- ----------- -------- ---------- ----------- ----------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans:
One- to four-family $ 1,550 $ 266 $ 812 $ 4,774 $ 6,561 $ 1,580 $ 15,543
Commercial................ 93 -- 39 23 9 -- 164
Construction:
One- to four-family........ 550 -- -- -- -- -- 550
Consumer loans:
Savings account........... 222 74 -- -- -- -- 296
------- -------- --------- -------- -------- -------- --------
Total................. $ 2,415 $ 340 $ 851 $ 4,797 $ 6,570 $ 1,580 $ 16,553
======= ======== ========= ======== ======== ======== ========
</TABLE>
The next table sets forth at December 31, 1996, the dollar amount of
all loans due one year or more after December 31, 1996 which have predetermined
interest rates and have floating or adjustable interest rates.
<TABLE>
<CAPTION>
Fixed Rate Adjustable Rate
------------ ---------------
(In thousands)
<S> <C> <C>
Real estate loans:
One- to four-family............................... $ 13,074 $ 919
Commercial........................................ 71 --
Consumer loans:
Savings account................................... 74 --
--------- ---------
Total........................................... $ 13,219 $ 919
========= =========
</TABLE>
35
<PAGE>
One to Four Family Residential Real Estate Lending. The primary
emphasis of the Bank's lending activity has been and, following the Conversion,
will continue to be the origination of conventional mortgage loans on
single-family residential dwellings. Most loans are originated in amounts of
less than $100,000 on single-family properties located in the Bank's market
area. As of March 31, 1997, loans on single-family residential properties
accounted for approximately 95.8% of the Bank's loan portfolio.
The Bank's mortgage loan originations had generally been for terms of
10, 15 and 20 years, amortized on a monthly basis with interest and principal
due each month. In recent years, the Bank has emphasized the origination of
balloon loans with one, three and five years, as well as some 7 and 10 year
balloon loans. Residential real estate loans often remain outstanding for
significantly shorter periods than their contractual terms as borrowers may
refinance or prepay loans at their option, without penalty. Conventional
residential mortgage loans granted by the Bank customarily contain "due-on-sale"
clauses which permit the Bank to accelerate the indebtedness of the loan upon
transfer of ownership of the mortgaged property. The Bank's lending policies
generally limit the maximum loan-to-value ratio on mortgage loans secured by
owner-occupied properties to 90% of the lesser of the appraised value or
purchase price of the property.
The Bank historically had retained all adjustable rate mortgages it
originated, which are designed to reduce the Bank's exposure to changes in
interest rates. The Bank may sell a portion of the adjustable rate loans it
originates in the future. There is a credit risk inherent in adjustable-rate
mortgages because the borrowers payments increase as interest rates rise. The
Bank's adjustable rate mortgages include caps on increases or decreases of 2%
per year, based on an index tied to the prime rate as published in the Wall
Street Journal. The Bank has made very few adjustable rate mortgage loans within
the past few years, as there has been, and there continues to be little demand
for these mortgages in the Bank's market area.
The Bank also originates conventional fixed rate long-term mortgages.
Although the Bank had, in past years, retained these loans for its own
portfolio, the Bank plans to sell all future conventional long-term fixed rate
mortgages in the secondary market. During the year ended December 31, 1996 and
the three months ended March 31, 1997, the Bank originated $4.7 million and $1.1
million in fixed rate mortgages, respectively, while $2.4 million and $900,00 in
mortgage loans during such periods, respectively, were paid off, due to loans
which were refinanced during those periods.
Construction Lending. Lexington First engages in a limited amount of
construction lending, involving loans to qualified borrowers for construction of
single-family residential properties. These properties are primarily located in
the Bank's market area. As of March 31, 1997, the Bank's loan portfolio included
two construction loans, totaling $173,000, both of which were to convert to
permanent loans. 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 inspection warrants. Construction loans can have
either fixed or adjustable interest rates, and as permanent loans, have a
maximum loan-to-value ratio of 80%. Borrowers must satisfy all credit
requirements that apply to permanent mortgage loan financing.
Loans involving construction financing present a greater level of risk
than loans for the purchase of existing homes, since collateral value and
construction costs can only be estimated at the time the loan is approved, and
actual costs may exceed these estimates. The Bank has sought to minimize this
risk by limiting construction lending to qualified borrowers in the Bank's
market area and by limiting the number of construction loans outstanding at any
time.
Commercial Business and Commercial and Multi-Family Real Estate
Lending. Since 1988, the Bank has engaged in very little commercial real estate
lending, except to facilitate the sale of real estate owned. The Bank, at March
31, 1997, had in its portfolio three commercial real estate loans, the largest
of which was $63,000 at that date. There is very limited demand in the Bank's
market area for either commercial or multi-family real estate loans,
36
<PAGE>
however, the Bank will consider making any such loans that meet the Bank's
underwriting standards. The Bank has no multi-family real estate loans at this
time. All commercial real estate loans were current as of March 31, 1997.
As part of its strategy to become more active in commercial banking
activities, the Bank expects that it will become significantly more involved in
commercial real estate and commercial business lending in its market area.
Subject to market conditions and demand, the Bank expects to originate loans to
small retail, commercial, agricultural and manufacturing businesses in Henderson
County, Tennessee. Since President Tignor joined the Bank, the Bank has
originated or agreed to loan commitments for various commercial business and
commercial real estate loans, including a $300,000 commitment for a loan/line of
credit for the construction and permanent financing of a convenience store, and
a $135,000 loan secured by agricultural real estate. Both of these loans are in
the Bank's market area of Henderson County, Tennessee.
Multi-family residential and commercial real estate lending entails
significant additional risks as compared with single-family residential property
lending. Multi-family residential and commercial real estate loans typically
involve larger loan balances to single borrowers or groups of related borrowers.
The payment experience on such loans typically is dependent on the successful
operation of the real estate project, retail establishment or business. These
risks can be significantly affected by supply and demand conditions in the
market for office, retail and residential space, and, as such, may be subject to
a greater extent to adverse conditions in the economy generally. To minimize
these risks, the Bank generally limits itself to its market area or to borrowers
with which it has prior experience or who are otherwise known to the Bank. In
addition, in the case of commercial mortgage loans made to a partnership or a
corporation, the Bank seeks, whenever possible, to obtain personal guarantees
and annual financial statements of the principals of the partnership or
corporation.
Consumer Lending. Lexington First makes savings account loans in
amounts which may not exceed the account balance (plus accrued interest) at the
due date. The interest rate is set 2% above the rate being paid on the savings
account, and the account must be pledged as collateral to secure the loan.
The Bank also makes second mortgage loans and home equity lines of
credit on residential properties. Second mortgages may be made at the prevailing
interest rate at the time the loan is granted or may be structured as a variable
rate line of credit. The total outstanding indebtedness of the first and second
mortgages cannot exceed 90% of the appraised value of the property. The Bank
plans to continue to emphasize originations of home equity lines of credit
following the Conversion.
Following the Conversion, the Bank intends to significantly expand its
consumer lending to include automobile loans and personal loans. Consumer
lending affords the Bank the opportunity to earn yields higher than those
obtainable on single-family residential lending. However, consumer loans entail
greater risk than do residential mortgage loans, particularly in the case of
loans which are unsecured or secured by rapidly depreciable assets such as
automobiles. Repossessed collateral for a defaulted consumer loan may not
provide an adequate source of repayment of the outstanding loan balance as a
result of the greater likelihood of damage, loss or depreciation. The remaining
deficiency often does not warrant further substantial collection efforts against
the borrower. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
adversely affected by events such as job loss, divorce, illness or personal
bankruptcy. Further, the application of various state and federal laws,
including federal and state bankruptcy and insolvency law, may limit the amount
which may be recovered. In underwriting consumer loans, the Bank considers the
borrower's credit history, an analysis of the borrower's income and ability to
repay the loan, and the value of the collateral.
Loan Originations, Solicitation and Processing. Loan origination are
derived from a number of sources. Residential mortgage loan originations
primarily come from walk-in customers and referrals by realtors, depositors and
borrowers. In addition, the Bank is aggressive in its loan advertising. Real
estate loans are originated by the Bank's staff of salaried loan officers.
Applications are processed in the Bank's office, and submitted for approval, as
noted below.
37
<PAGE>
Upon receipt of a loan application from a prospective borrower, a
credit report and verifications are ordered to verify specific information
relating to the loan applicant's employment, income and credit standing. An
appraisal of the real estate intended to secure the proposed loan is undertaken
by an Bank appraiser or a fee appraiser approved by the Bank. The Board of
Directors of the Bank has the responsibility and authority for general
supervision over the lending policies of the Bank. The Board has established
written lending policies for the Bank and individual loan officers of the Bank
have been granted authority to approve loans up to varying specified dollar
amounts, depending upon the type of loan. In addition, the Officer's Loan
Committee, currently comprised of three loan officers, has the authority to
approve loans of up to $200,000. All loans in excess of $200,000 are approved by
the full Board of Directors. Loan applicants are promptly notified of the
decision of the Bank. Interest rates on approved loans are subject to change if
the loan is not funded within 30 days after approval. It has been management's
experience that substantially all approved loans are funded.
It is the Bank's policy to record a lien on the real estate securing a
loan and to obtain a title opinion that the property is free of prior
encumbrances and other possible title defects. Borrowers must also obtain hazard
insurance policies prior to closing and, when the property is in a flood plain
as designated by the Department of Housing and Urban Development, pay flood
insurance policy premiums.
Under applicable law, with certain limited exceptions, loans and
extensions of credit by a savings institution to a person outstanding at one
time shall not exceed 15% of net worth. Loans and extensions of credit fully
secured by readily marketable collateral may comprise an additional 10% of net
worth. Applicable law additionally authorizes savings institutions to make loans
to one borrower, for any purpose: (i) in an amount not to exceed $500,000; (ii)
in an amount not to exceed the lesser of $30,000,000 or 30% of net worth to
develop residential housing, provided (a) the purchase price of each
single-family dwelling in the development does not exceed $500,000 and (b) the
aggregate amount of loans made under this authority does not exceed 150% of net
worth; or (iii) loans to finance the sale of real property in satisfaction of
debts previously contracted in good faith, not to exceed 50% of net worth. Under
these limits, the Bank's loans to one borrower were limited to $588,000 at March
31, 1997. At that date, the Bank had no lending relationships in excess of the
loans-to-one-borrower limit.
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.
Set forth below is a table showing Lexington First's loan origination
and loan sales activity for the periods indicated. The Bank did not purchase
loans during these periods.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------------- -----------------------
1997 1996 1996 1995
-------- -------- -------- ------
<S> <C> <C> <C> <C>
(In thousands)
Loans originated:
Real estate loans:
One- to four-family......................... $ 1,086 $ 459 $ 3,203 $ 2,154
Multi-family................................ -- -- -- 225
Commercial.................................. -- -- 35 --
Construction:
One- to four-family.......................... -- -- 938 --
Consumer loans:
Savings account............................. 79 61 297 259
---------- ---------- ---------- ----------
Total loans originated.................. $ 1,165 $ 520 $ 4,473 $ 2,638
========== ========== ========== ==========
Loans sold..................................... $ -- $ -- $ -- $ --
========== ========== ========== ==========
</TABLE>
38
<PAGE>
Interest Rates and Loan Fees. Interest rates charged by the Bank on
mortgage loans are primarily determined by competitive loan rates offered in its
market area. Mortgage loan interest rates reflect factors such as general market
interest rate levels, the supply of money available to the financial
institutions industry and the demand for such loans. These factors are in turn
affected by general economic conditions, the monetary policies of the Federal
government, including the Federal Reserve Board, and general supply of money in
the economy.
In addition to interest earned on loans, Lexington First receives fees
in connection with loan commitments and originations, loan modifications, late
payments and for miscellaneous services related to its loans. Income from these
activities varies from period to period with the volume and type of loans
originated, which in turn is dependent on prevailing mortgage interest rates and
their effect on the demand for loans in the markets served by Lexington First.
The Bank hopes to increase its loan fee income by emphasizing the origination
and immediate sale of fixed-rate loans in the secondary mortgage market.
Non-Performing Loans and Other Problem Assets. Management reviews the
Bank's portfolio on a regular basis. The Bank's collection procedures provide
that when a loan becomes past due 30 days, the borrower is contacted in person,
by telephone, or mail and payment is requested. If payment is not promptly
received, the borrower is contacted again, and efforts are made to formulate an
affirmative plan to cure the delinquency. After a loan becomes past due 90 days,
the Bank generally initiates legal proceedings. After residential mortgage loans
become past due more than 90 days, the Bank generally establishes an allowance
for uncollectible interest for the amount which the principal balance and
uncollected interest exceeds 90% of the appraised value of the property. Loans
are charged off when management concludes that they are uncollectible.
Real estate acquired by the Bank as a result of foreclosure is
classified as real estate owned until such time as it is sold. When such
property is acquired, it is recorded at the lower of its unpaid principal
balance or fair value. Any required write-down of the loan to its fair value
upon foreclosure is charged against the allowance for loan losses.
The following table sets forth information with respect to the Bank's
non-performing loans and other problem assets at the dates indicated. No loans
were recorded as restructured loans within the meaning of Statement of Financial
Accounting Standards No. 15, at the dates indicated.
<TABLE>
<CAPTION>
At At December 31,
March 31, --------------------------
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
(Dollars in thousands)
Loans accounted for on a nonaccrual basis:(1)
Real estate:
One- to four-family....................... $ -- $ -- $ --
Other mortgage loans...................... -- -- --
Consumer loans............................... -- -- --
-------- --------- ---------
Total.................................... $ -- $ -- $ --
======== ========= =========
Accruing loans which are contractually
past due 90 days or more:
Real estate loans:
One- to four-family......................... $ 155 $ 114 $ 146
Other mortgage loans........................ -- -- --
-------- --------- ---------
Total.................................... $ 155 $ 114 $ 146
======== ========= =========
Total non-performing loans............... $ 155 $ 114 $ 146
======== ========= =========
Percentage of total loans...................... 0.91% 0.75% 1.03%
======== ========= =========
Other non-performing assets.................... $ -- $ -- $ --
======== ========= =========
Loans modified in troubled debt restructurings $ 59 $ 59 $ 19
======== ========= ==========
</TABLE>
- -----------------
(1) Non-accrual status denotes loans on which, in the opinion of
management, the collection of additional interest is unlikely. Payments
received on a nonaccrual loan are either applied to the outstanding
principal balance or recorded as interest income, depending on
management's assessment of the collectibility of the loan.
39
<PAGE>
At March 31, 1997, the Bank did not have any loans which were not
currently classified as non-accrual, 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 would result in disclosure as non-accrual, 90
days past due or restructured.
At March 31, 1997, the Bank's accruing loans which were 90 days or more
past due totaled $155,000 which consisted of five residential loans with
balances outstanding ranging from $11,000 to $60,000.
Asset Classification and Allowance for Possible Losses. Federal
regulations require savings banks to review their assets on a regular basis and
to classify them as "substandard," "doubtful" or "loss," if warranted. Assets
classified as substandard or doubtful require the institution to establish
general and specific allowances for loan losses. If an asset or portion thereof
is classified loss, the insured institution must either establish a specified
allowance in the amount of the portion of the asset classified loss, or charge
off such amount. An asset which does not currently warrant classification, but
which possesses weaknesses or deficiencies deserving close attention, is
required to be designated as "special mention." Currently, general loss
allowances established to cover possible losses related to assets classified
substandard or doubtful may be included in determining an institution's
regulatory capital, while specific valuation allowances for loan losses do not
qualify as regulatory capital. See "Regulation-Regulatory Capital Requirements."
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. General allowances are made pursuant to
management's assessment of the risk in the Bank's loan portfolio as a whole.
Specific allowances are provided for individual loans when ultimate collection
is considered questionable by management after reviewing the status of loans
which are contractually past due and considering the net realizable value of the
security for the loan. Management continues to actively monitor the Bank's asset
quality and to charge off loans against the allowance for loan losses when
appropriate, or to provide specific loss reserves when necessary. In addition,
the Bank plans to increase its portfolio of consumer and commercial loans
following the Conversion which carry a higher risk of default than mortgage
loans. Based on these factors, the Bank is contributing to its general loan loss
reserve by adding an allowance of approximately $2,000 per month to the loan
loss reserve account. Although management believes it uses the best information
available to make determinations with respect to the allowance for loan losses,
future adjustments may be necessary if economic conditions vary from the
assumptions used in making the initial determinations.
40
<PAGE>
The following table sets forth an analysis of activity in the Bank's
allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
----------------------- ---------------------
1997 1996 1996 1995
------- ------ ------ ------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Balance at beginning of period..................... $ 141 $ 123 $ 123 $ 94
Loans charged off:
Real estate mortgage:
One- to four-family............................ -- -- 12 1
Multi-family................................... -- -- -- --
Consumer......................................... -- -- -- --
------- ------ ------ ------
Total charge-offs.................................. -- -- 12 1
------- ------ ------ ------
Recoveries:
Real estate mortgage:
One- to four-family............................ $ -- $ -- $ -- $ --
Multi-family................................... -- -- -- --
Consumer......................................... -- -- -- --
------- ------ ------ ------
Total recoveries................................... -- -- -- --
------- ------ ------ ------
Net loans charged off.............................. -- -- 12 1
------- ------ ------ ------
Provision for loan losses.......................... 6 8 30 30
------- ------ ------ ------
Balance at end of period........................... $ 147 $ 131 $ 141 $ 123
======= ====== ====== ======
Ratio of net charge-offs to average
loans outstanding during the period............. --% --% 0.0696% 0.0070%
======= ====== ====== ======
</TABLE>
In originating loans, the Bank recognizes that credit losses will occur
and that the risk of loss will vary with, among other things, the type of loan
being made, the creditworthiness of the borrower over the term of the loan,
general economic conditions and, in the case of a secured loan, the quality of
the security for the loan. It is management's policy to maintain a general
allowance for loan losses based on, among other things, regular reviews of
delinquencies and loan portfolio quality, character and size, the Bank's and the
industry's historical and projected loss experience and current and forecasted
economic conditions. The Bank increases its allowance for loan losses by
charging provisions for possible losses against the Bank's income. Federal
examiners may disagree with the savings institution as to the appropriate level
of the institution's allowance for loan losses.
General allowances are made pursuant to management's assessment of risk
in the Bank's loan portfolio as a whole. Specific allowances are provided for
individual loans when ultimate collection is considered questionable by
management after reviewing the current status of loans which are contractually
past due and considering the net realizable value of the security for the loan.
Management also reviews individual loans for which full collectibility may not
be reasonably assured and evaluates among other things the net realizable value
of the underlying collateral. Management continues to actively monitor the
Bank's asset quality and to charge off loans against the allowance for loan
losses when appropriate or provide specific loan losses when necessary. As of
March 31, 1997, the Bank's allowance for loan losses did not include any
specific loss reserves. Although management believes it uses the best
information available to make determinations with respect to the allowance for
loan losses, future adjustments may be necessary if economic conditions differ
substantially from the economic conditions in the assumptions used in making the
initial determinations.
41
<PAGE>
The following table allocates the Bank's allowance for loan losses by
loan category at the dates indicated. The allocation of the allowance to each
category is not necessarily indicative of future losses and does not restrict
the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------
At March 31, 1997 1996 1995
---------------------------- ------------------------ -----------------------
Percent of Percent of Percent of
Loans in Each Loans in Each Loans in Each
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Allocated to:
Real estate loans:
One- to four-family $ 85 95.81% $ 79 93.90% $ 73 97.21%
Commercial................. 10 0.81 12 0.99 -- 0.06
Construction............... -- 1.16 -- 3.32 -- 0.52
Consumer loans:
Savings account............... -- 1.93 -- 1.79 -- 2.21
Automobile.................... -- 0.04 -- -- -- --
Other consumer loans.......... 2 0.25 -- -- -- --
Unallocated...................... 50 -- 50 -- 50 --
-------- ------ -------- ------ ------- --------
Total....................... $ 147 100.00% $ 141 100.00% $ 123 100.00%
======== ====== ======== ====== ======= ========
</TABLE>
Investment Activities. Lexington First is required under federal
regulations to maintain a minimum amount of liquid assets, which can be invested
in specified short-term securities, and is also permitted to make certain other
investments. See "Regulation" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." It has generally been the Bank's policy to maintain a liquidity
portfolio substantially in excess of the amount required to satisfy regulatory
requirements. Liquidity levels may be increased or decreased depending upon the
yields on investment alternatives, Management's judgment as to the
attractiveness of the yields then available in relation to other opportunities,
its expectations of the level of yield that will be available in the future and
its projections as to the short term demand for funds to be used in the Bank's
loan origination and other activities.
The general objectives of Lexington First's investment policy are to
(i) maintain liquidity levels sufficient to meet the operating needs of the Bank
and applicable regulatory requirements, (ii) minimize interest rate risk by
managing the repricing characteristics of the Bank's assets and liabilities,
(iii) reduce credit risk by maintaining a balance of high quality diverse
investments, (iv) absorb excess liquidity when loan demand is low and/or deposit
growth is high, (v) maximize returns without compromising liquidity or creating
undue credit or interest rate risk and (vi) provide collateral for pledging
requirements. The Bank's investment activities are conducted by senior
management and supervised by the Board of Directors. Investments are governed by
an investment policy adopted by the Board, which currently provides for
maintenance of an investment portfolio for the purposes of providing earnings,
ensuring a minimum liquidity reserve and facilitating the Bank's asset/liability
management objectives (e.g., limiting the weighted average terms to maturity or
repricing of the Bank's interest-earning assets). In accordance with the policy,
management has primarily invested in government and agency securities backed by
the full faith and credit of the United States, mortgage-backed securities and
participation certificates issued by the Federal Home Loan Mortgage Corporation
("FHLMC"), Federal National Mortgage Bank ("FNMA") or Government National
Mortgage Bank ("GNMA"), federal funds sold and, to a lesser extent, federally
insured interest-bearing deposits in other banks.
The Bank holds some of its securities to maturity and others are
available for sale. Securities held to maturity are accounted for at cost as
adjusted for unamortized discounts and premiums, while securities available for
sale are carried at fair value. At March 31, 1997, the fair value of such
securities, including mortgage-backed securities was
42
<PAGE>
greater than the carrying value by $15,000. The amortized cost of the
available-for-sale securities held by the Bank exceeded the market value of such
securities by $56,000 at March 31, 1997. The Bank does not currently foresee any
conditions that would require any sales of its investments. For additional
information, see Notes 1, 3 and 4 of the Notes to Consolidated Financial
Statements.
The following table sets forth the carrying value of the Bank's
investment securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
At At December 31,
March 31, -------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
(Dollars in thousands)
Securities available-for-sale:
U.S. government agencies............................. $ 1,107 $ 1,358 $ 2,796
Obligations of state and political subdivisions...... 511 513 308
Mortgage-backed securities........................... 2,562 2,664 2,825
---------- ---------- ----------
Total investment securities....................... 4,180 4,535 5,929
---------- ---------- ----------
Securities held-to-maturity
U.S. government agencies............................. 1,600 1,600 1,694
Obligations of state and political subdivisions...... 657 657 657
Mortgage-backed securities.......................... 650 678 829
---------- ---------- ----------
2,907 2,935 3,180
---------- ---------- ----------
Cash and time deposits - interest bearing............... 1,669 1,203 1,544
---------- ---------- ----------
FHLB stock.............................................. 250 246 230
---------- ---------- ----------
Total............................................. $ 9,006 $ 8,919 $ 10,883
========== ========== ==========
</TABLE>
43
<PAGE>
The following table sets forth the scheduled maturities, carrying values,
market values and average yields for the Bank's investment portfolio at March
31, 1997.
<TABLE>
<CAPTION>
One Year or Less One to Five Years Five to Ten Years
------------------- -------------------- ---------------------
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
-------- -------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. government agencies....... $ 395 5.29% $ 250 6.55% $ 300 5.88%
Obligations of states and
political subdivisions...... -- -- 194 4.26 317 6.80
Mortgage-backed
securities.................. 376 6.08 373 6.52 243 5.78
-------- -------- --------
771 817 860
-------- -------- --------
Securities held-to-maturity:
U.S. government agencies....... 1,000 6.88 500 5.13 -- --
Obligations of states and
political subdivision....... -- -- -- -- 397 5.37
Mortgage-backed
securities.................. -- -- -- -- -- --
-------- -------- --------
1,000 500 397
-------- -------- --------
$ 1,771 $ 1,317 $ 1,257
======== ======== ========
<CAPTION>
More than Ten Years Total Investment Portfolio
-------------------- ------------------------------
Carrying Average Carrying Market Average
Value Yield Value Value Yield
-------- ------- -------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. government agencies....... $ 162 4.58% $ 1,107 $1,067 5.63%
Obligations of states and
political subdivisions...... -- -- 511 501 5.83
Mortgage-backed
securities.................. 1,570 6.07 2,562 2,556 6.11
-------- -------- ------
1,732 4,180 4,124
-------- -------- ------
Securities held-to-maturity:
U.S. government agencies....... 100 7.35 1,600 1,595 6.36
Obligations of states and
political subdivision....... 260 5.90 657 672 5.56
Mortgage-backed
securities.................. 650 6.96 650 655 6.96
------ -------- ------
1,010 2,907 2,922
------ -------- ------
$ 2,742 $ 7,087 $7,046
====== ======== ======
</TABLE>
For further information regarding the Bank's investment securities and
mortgage-backed securities, see Notes 1, 3 and 4 of Notes to Consolidated
Financial Statements included elsewhere herein.
44
<PAGE>
Deposit Activities and Other Sources of Funds
General. Deposits are a significant source of the Bank's funds for
lending and other investment purposes. In addition to deposits, the Bank derives
funds from loan principal repayments and interest payments and maturing
investment securities. Loan repayments and interest payments are a relatively
stable source of funds, while deposit inflows and outflows are significantly
influenced by general interest rates and money market conditions. Borrowings may
be used on a short-term basis to compensate for reductions in the availability
of funds from other sources, or on a longer term basis for general business
purposes. Lexington First has access to borrow from the FHLB of Cincinnati.
Following the Conversion, the Bank will continue to have access to FHLB of
Cincinnati advances.
Deposits. Deposits are attracted principally from within the Bank's
primary market area through the offering of a variety of deposit instruments,
including passbook and statement accounts and certificates of deposit ranging in
term from 91 days to 18 months. Deposit account terms vary, principally on the
basis of the minimum balance required, the time periods the funds must remain on
deposit and the interest rate. The Bank also offers individual retirement
accounts ("IRAs"). The Bank will attempt to increase its demand deposit accounts
following the Conversion.
The Bank's policies are designed primarily to attract deposits from
local residents. The Bank does not accept deposits from brokers due to the
volatility and rate sensitivity of such deposits. Interest rates paid, maturity
terms, service fees and withdrawal penalties are established by the Bank on a
periodic basis. Determination of rates and terms are predicated upon funds
acquisition and liquidity requirements, rates paid by competitors, growth goals
and federal regulations. The Bank has recently paid rates slightly above
prevailing market rates in order to attract deposits.
Savings deposits in the Bank at March 31, 1997 were represented by the
various types of savings programs described below.
<TABLE>
<CAPTION>
Interest Minimum Minimum Percentage of
Rate Term Category Amount Balances Total Savings
- -------- ------- -------- ------ -------- -------------
<S> <C> <C> <C> <C> <C>
3.00% None Passbook accounts $ 25 $ 1,372 6.57%
2.0 % None NOW accounts 200 1,248 5.98
3.05% None Super NOW accounts 1,500 3 0.01
0.00% None Noninterest-bearing checking
accounts 100 63 0.30
Certificates of Deposit
-----------------------
* 3.71 1 month or less Fixed-term, fixed-rate 500 41 0.20
* 4.74 3 months Fixed-term, fixed-rate 500 323 1.55
* 5.18 6 months Fixed-term, fixed-rate 500 9,437 45.19
* 5.15 12 months Fixed-term, fixed-rate 500 3,435 16.45
* 5.40 18 months Fixed-term, fixed-rate 500 3,734 17.88
* 5.29 18 months - IRA Fixed-term, fixed-rate 500 1,228 5.88
-------- ------
$ 20,884 100.00%
======== ======
</TABLE>
- -----------------
* Represents weighted average interest rate.
45
<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>
Increase Increase
Balance at (Decrease) Balance at (Decrease)
March 31, % of from December December 31, % of from December
1997 Deposits 31, 1996 1996 Deposits 31, 1995
---------- -------- ---------- ----------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook and regular savings............. $ 1,372 6.57% $ 10 $ 1,362 6.60% $ (311)
NOW Accounts............................. 1,248 5.98 160 1,088 5.27 38
Super NOW................................ 3 0.01 3 -- -- --
Certificates of deposit.................. 13,324 63.80 395 12,929 62.65 (136)
IRA...................................... 1,228 5.88 126 1,102 5.34 (51)
Jumbo certificates....................... 3,646 17.46 (511) 4,157 20.14 116
Other.................................... 63 0.30 63 -- -- --
---------- ------ ---------- ----------- ------- ----------
Total............................... $ 20,884 100.00% $ 246 $ 20,638 100.00% $ (344)
========== ====== ========== =========== ======= ==========
<CAPTION>
Increase
Balance at (Decrease)
December 31, % of from December
1995 Deposits 31, 1994
---------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Passbook and regular savings............. $ 1,673 7.97% $ (99)
NOW Accounts............................. 1,050 5.00 123
Super NOW................................ -- -- --
Certificates of deposit.................. 13,065 62.27 1,102
IRA...................................... 1,153 5.50 142
Jumbo certificates....................... 4,091 19.26 460
Other.................................... -- -- --
---------- ------ -----------
Total............................... $ 20,982 100.00% $ 1,728
========== ====== ===========
</TABLE>
46
<PAGE>
The following tables set forth the average balances and interest rates
based on month-end balances for interest-bearing demand deposits and time
deposits as of the dates indicated.
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
1997 1996 1996 1995
-------------------- -------------------- -------------------- --------------------
Average Average Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate
--------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Savings deposits................... $ 884 4.52% $ 1,704 3.52% $ 1,570 1.27% $ 1,594 3.76%
Interest-bearing demand
deposits........................ 1,202 2.00 1,093 2.20 1,083 2.03 987 2.53
Noninterest-bearing demand
deposits........................ 63 -- -- -- -- -- -- --
Certificates of deposit............ 18,186 5.19 18,252 5.26 18,161 5.26 17,692 5.26
--------- -------- -------- --------
Total......................... $ 20,335 $ 21,049 $ 20,814 $ 20,274
========= ======== ======== ========
</TABLE>
Time Deposits by Rates. The following table sets forth the time
deposits in the Bank classified by nominal rates at the dates indicated.
<TABLE>
<CAPTION>
At At December 31,
March 31, -------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(In thousands)
2.00 - 3.99%................................ $ 41 $ -- $ 174
4.00 - 5.99%................................ 18,157 18,189 18,086
--------- --------- ---------
$ 18,198 $ 18,189 $ 18,260
========= ========= =========
</TABLE>
Time Deposit Maturity Schedule. The following table sets forth the
amount and maturities of time deposits at March 31, 1997.
<TABLE>
<CAPTION>
Amount Due
-------------------------------------------------------
Less Than After
Rate One Year 1-2 Years 2-3 Years 3 Years Total
- ---- -------- --------- --------- ------- -----
<S> <C> <C> <C> <C> <C>
(In thousands)
2.00 - 3.99%.................. $ 41 $ -- $ -- $ -- $ 41
4.00 - 5.99%.................. 16,477 1,680 -- -- 18,157
--------- ---------- ---------- ---------- ----------
$ 16,518 $ 1,680 $ -- $ -- $ 18,198
========= ========== ========== ========== ==========
</TABLE>
47
<PAGE>
Maturity of Jumbo Certificates. The following table indicates the
amount of the Bank's certificates of deposit of $100,000 or more by time
remaining until maturity as of March 31, 1997.
<TABLE>
<CAPTION>
Certificates
Maturity Period of Deposits
--------------- -----------
(In thousands)
<S> <C>
Three months or less....................... $ 1,412
Over three through six months.............. 1,728
Over six through 12 months................. 407
Over 12 months............................. 100
----------
Total.................................. $ 3,647
==========
</TABLE>
Savings Deposit Activity. The following table sets forth the savings
activities of the Bank for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------------- -------------------------
1997 1996 1996 1995
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
(In thousands)
Deposits less withdrawals................... $ 50 $ (14) $ (1,332) $ 1,013
Interest credited........................... 196 275 988 720
---------- --------- --------- ----------
Net increase (decrease) in
savings deposits................... $ 246 $ 261 $ (344) $ 1,733
========== ========= ========= ==========
</TABLE>
Management attributes the changes in deposits for the years ended
December 31, 1996 and 1995, and the three months ended March 31, 1997 and 1996,
to management's deposit pricing strategies.
Borrowings. Savings deposits historically have been the primary source
of funds for the Bank's lending and investment activities and for its general
business activities. The Bank is authorized, however, to use advances from the
FHLB of Cincinnati to supplement its supply of lendable funds and to meet
deposit withdrawal requirements. Advances from the FHLB typically would be
secured by the Bank's stock in the FHLB and a portion of the Bank's mortgage
loans. The Bank has not obtained any borrowings other than FHLB advances in
recent years. At March 31, 1997 the Bank had $941,000 in FHLB advances
outstanding with a weighted average interest rate of 7.74%. The Bank and the
National Bank will continue to have access to FHLB of Cincinnati advances.
The FHLB of Cincinnati functions as a central reserve bank providing
credit for savings institutions and certain other member financial institutions.
As a member, Lexington First is required to own capital stock in the FHLB and is
authorized to apply for advances on the security of such stock and certain of
its home mortgages and other assets (principally, securities which are
obligations of, or guaranteed by, the United States) provided certain standards
related to creditworthiness have been met.
48
<PAGE>
Subsidiary Activities
As a federally chartered savings bank, Lexington First 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, and community development purposes; however, Lexington First makes
loans in the entire market area. No specific amount is invested in any specific
area.
The activities of the Bank's wholly owned subsidiary, Lexington First
Federal Service Corporation (the "Service Corporation") are currently not
significant.
OTS regulations require SAIF-insured savings institutions to give the
FDIC and the Director of the OTS 30 days' prior notice before establishing or
acquiring a new subsidiary, or commencing any new activity through an existing
subsidiary. Both the FDIC and the Director of the OTS have authority to order
termination of subsidiary activities determined to pose a risk to the safety or
soundness of the institution. In addition, capital requirements require savings
institutions to deduct the amount of their investments in and extensions of
credit to subsidiaries engaged in activities not permissible to national banks
from capital in determining regulatory capital compliance. Although the Service
Corporation's activities are not permissible for national banks, the Bank's
investment in the subsidiary has been minimal and the deduction of this
investment from the Bank's capital has not had a material impact on Lexington
First's capital position. See "Regulation -- Regulatory Capital Requirements."
Competition
The Bank experiences substantial competition both in attracting and
retaining savings deposits and in the making of mortgage and other loans. Direct
competition for savings deposits comes from other savings institutions, credit
unions, regional bank holding companies and commercial banks located in its
primary market area. Significant competition for the Bank's other deposit
products and services comes from money market mutual funds, brokerage firms,
insurance companies and retail stores. The primary factors in competing for
loans are interest rates and loan origination fees and the range of services
offered by various financial institutions. Competition for origination of real
estate loans normally comes from other savings institutions, commercial banks,
mortgage bankers, mortgage brokers and insurance companies.
Lexington First's primary competition comes from 16 commercial banks,
four of which have branch offices located in Henderson County, Tennessee. The
branches of the four commercial banks located in Henderson County have gross
deposits of approximately $274 million at June 30, 1996, the most recent date
for which such information is available. Lexington First had approximately $21
million in deposits as of June 30, 1996.
Lexington First Federal is able to compete effectively in its primary
market area by offering competitive interest rates and loan fees, and a wide
variety of deposit products and by emphasizing personal customer service and
cultivating relationships with the local businesses. Management believes that,
as a result of the Bank's commitment to competitive pricing, varied products and
personal service, the Bank has developed a solid base of core deposits and the
Bank's loan origination activities are an asset to the community.
Personnel
As of March 31, 1997, the Bank had nine full-time employees and no
part-time employees. The employees are not represented by a collective
bargaining unit. Management believes that the Bank enjoys good relations with
its personnel.
49
<PAGE>
Properties
The following table sets forth the location and certain additional
information regarding the Bank's offices and other material property.
<TABLE>
<CAPTION>
Book Value at Deposits at
Year Owned or March 31, Approximate March 31,
Opened Leased 1997 Square Footage 1997
------ ------ ------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Main Office:
19 Natchez Trace Drive
Lexington, Tennessee 40965 1961 Owned $251,076 6,800 $20,884,000
</TABLE>
The Bank owns three parcels of land. One parcel, the office building in
which the office of the Bank is located, is at 19 Natchez Trace Drive, and
another parcel adjoins the office building, and was purchased in 1976 for
expansion purposes. In the spring of 1997, the Bank purchased property for
$127,500 which it plans to open as a branch in the fourth quarter of 1997. The
Bank plans to remodel the building and install drive-up window facilities. The
Bank estimates these improvements will total approximately $75,000.
Intrieve, Cincinnati, Ohio, performs data processing and record keeping
for Lexington First. The Bank's fixtures and equipment include a network of
teller terminals, personal computers, miscellaneous office equipment and
satellite communications equipment.
As of March 31, 1997, the net book value of the Bank's premises,
furniture, fixtures and equipment was $263,193.
Legal Proceedings
There are currently no pending legal proceedings to which Lexington
First is a party or to which any of its property is subject, although from time
to time Lexington First is involved in routine legal proceedings occurring in
the ordinary course of business.
REGULATION
Depository Institution Regulation
As a federally chartered savings association, the Bank is subject to
extensive regulation by the OTS. The lending activities and other investments of
the Bank must comply with such regulatory requirements, and the OTS periodically
examines the Bank for compliance with various regulatory requirements. The FDIC
also has the authority to conduct special examinations. The Bank must file
reports with the OTS describing its activities and financial condition and is
also subject to certain reserve requirements promulgated by the Federal Reserve
Board. This supervision and regulation is intended primarily for the protection
of depositors. Certain of these regulatory requirements are referred to below or
appear elsewhere herein. This regulatory oversight will continue to apply to the
Bank following consummation of the Stock Conversion and Reorganization but prior
to consummation of the Bank Conversion.
Upon consummation of the Bank Conversion, the National Bank will be a
national bank and its deposit accounts will continue to be insured by the SAIF.
As a national bank, the National Bank also will be required to become a member
of the Federal Reserve System. The National Bank will be subject to supervision,
examination and regulation by the OCC (rather than the OTS) and to OCC
regulations governing such matters as capital standards, mergers,
50
<PAGE>
establishment of branch offices, subsidiary investments and activities and
general investment authority, and it will remain subject to the FDIC's authority
to conduct special examinations. The National Bank will be required to furnish
quarterly and annual reports to the OCC concerning its activities and financial
condition and will be required to obtain regulatory approvals prior to entering
into certain transactions, including mergers with, or acquisitions of, other
depository institutions or to establish or relocate branches.
As a federally insured depository institution, the Bank is, and the
National Bank will be, subject to various regulations promulgated by the Federal
Reserve Board, including Regulation B (Equal Credit Opportunity), Regulation D
(Reserve Requirements), Regulation E (Electronic Fund Transfers), Regulation Z
(Truth in Lending), Regulation CC (Availability of Funds and Collection of
Checks) and Regulation DD (Truth in Savings).
The system of regulation and supervision applicable to the Bank and the
National Bank establishes a comprehensive framework for the operations of the
Bank and the National Bank and is intended primarily for the protection of the
FDIC and the depositors of the Bank and the National Bank. Changes in the
regulatory framework could have a material effect on the Bank and the National
Bank and their respective operations that in turn, could have a material adverse
effect on the Company.
Regulatory Capital Requirements. Under OTS capital standards, savings
institutions must maintain "tangible" capital equal to 1.5% of adjusted total
assets, "core" capital equal to 3.0% of adjusted total assets and a combination
of core and "supplementary" capital equal to 8.0% of "risk-weighted" assets. In
addition, the OTS has adopted regulations which impose certain restrictions on
savings institutions that have a total risk-based capital ratio that is less
than 8.0%, a ratio of Tier 1 capital to risk-weighted assets of less than 4.0%
or a ratio of Tier 1 capital to adjusted total assets of less than 4.0% (or 3.0%
if the institution is rated Composite 1 under the OTS examination rating
system). See " -- Prompt Corrective Regulatory Action." For purposes of this
regulation, Tier 1 capital has the same definition as core capital which is
defined as common stockholders' equity (including retained earnings),
noncumulative perpetual preferred stock and related surplus, minority interests
in the equity accounts of fully consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits and "qualifying supervisory
goodwill." Core capital is generally reduced by the amount of the savings
institution's intangible assets for which no market exists. Limited exceptions
to the deduction of intangible assets are provided for purchased mortgage
servicing rights, purchased credit card relationships and qualifying supervisory
goodwill. Tangible capital is given the same definition as core capital but does
not include an exception for qualifying supervisory goodwill and is reduced by
the amount of all the savings institution's intangible assets with only a
limited exception for purchased mortgage servicing rights. Both core and
tangible capital are further reduced by an amount equal to a the savings
institution's debt and equity investments in subsidiaries engaged in activities
not permissible to national banks other than subsidiaries engaged in activities
undertaken as agent for customers or in mortgage banking activities and
subsidiary depository institutions or their holding companies. At March 31,
1997, the Bank had no such investments.
Adjusted total assets are a savings institution's total assets as
determined under generally accepted accounting principles increased by certain
goodwill amounts and by a pro rated portion of the assets of unconsolidated
includable subsidiaries in which the savings institution holds a minority
interest. Adjusted total assets are reduced by the amount of assets that have
been deducted from capital, the savings institution's investments in
unconsolidated includable subsidiaries and, for purposes of the core capital
requirement, qualifying supervisory goodwill.
In determining compliance with the risk-based capital requirement, a
savings institution is allowed to use both core capital and supplementary
capital provided the amount of supplementary capital used does not exceed the
savings institution's core capital. Supplementary capital is defined to include
certain preferred stock issues, nonwithdrawable accounts and pledged deposits
that do not qualify as core capital, certain approved subordinated debt, certain
other capital instruments and a portion of the savings institution's general
loss allowances. Total core and supplementary capital are reduced by the amount
of capital instruments held by other depository institutions pursuant to
reciprocal arrangements and by the amount of the savings institution's high
loan-to-value ratio land loans and non-residential construction loans and equity
investments other than those deducted from core and tangible capital. At March
31, 1997,
51
<PAGE>
the Bank had no high ratio land or nonresidential construction loans and had no
equity investments for which OTS regulations require a deduction from total
capital.
The risk-based capital requirement is measured against risk-weighted
assets which equal the sum of each asset and the credit-equivalent amount of
each off-balance sheet item after being multiplied by an assigned risk weight.
Under the OTS risk-weighting system, one- to four-family first mortgages not
more than 90 days past due with loan-to-value ratios under 80% are assigned a
risk weight of 50%. Consumer and residential construction loans are assigned a
risk weight of 100%. Mortgage-backed securities issued, or fully guaranteed as
to principal and interest, by the FHLMC are assigned a 20% risk weight. Cash and
U.S. Government securities backed by the full faith and credit of the U.S.
Government are given a 0% risk weight.
The table below presents the Bank's capital position relative to its
various regulatory capital requirements at March 31, 1997.
<TABLE>
<CAPTION>
Percent of
Amount Assets(1)
------ ---------
(Dollars in thousands)
<S> <C> <C>
Tangible capital............................... $ 3,951 15.21%
Tangible capital requirement................... 390 1.50
--------- ------
Excess (deficit)............................ $ 3,561 13.71%
========= =====
Core capital................................... $ 3,951 15.21%
Core capital requirement....................... 779 3.00
--------- ------
Excess (deficit)............................ $ 3,172 12.21%
========= =====
Risk-based capital............................. $ 4,093 36.07%
Risk-based capital requirement................. 908 8.00
--------- -------
Excess (deficit)........................... $ 3,185 28.07 %
========= ======
</TABLE>
--------------------
(1) Based on adjusted total assets for purposes of the tangible
capital and core capital requirements and risk-weighted assets
for purpose of the risk-based capital requirement.
The OTS calculates the sensitivity of a savings institution's net
portfolio value based on data submitted by the institution in a schedule to its
quarterly Thrift Financial Report and using the interest rate risk measurement
model adopted by the OTS. The amount of the interest rate risk component, if
any, to be deducted from a savings institution's total capital is based on the
institution's Thrift Financial Report filed two quarters earlier. Savings
institutions with less than $300 million in assets and a risk-based capital
ratio above 12% are generally exempt from filing the interest rate risk schedule
with their Thrift Financial Reports. However, the OTS will require any exempt
savings institution that it determines may have a high level of interest rate
risk exposure to file such schedule on a quarterly basis. The Bank has not been
advised that it is deemed to have more than normal level of interest rate risk.
In addition to requiring generally applicable capital standards for
savings institutions, the OTS is authorized to establish the minimum level of
capital for a savings institution at such amount or at such ratio of
capital-to-assets as the OTS determines to be necessary or appropriate for such
institution in light of the particular circumstances of the institution. Such
circumstances would include a high degree of exposure to interest rate risk,
prepayment risk, credit risk, concentration of credit risk and certain risks
arising from non-traditional activities. The OTS may treat the failure of any
savings institution to maintain capital at or above such level as an unsafe or
unsound practice and may issue a directive requiring any savings institution
which fails to maintain capital at or above the minimum level required by the
52
<PAGE>
OTS to submit and adhere to a plan for increasing capital. Such an order may be
enforced in the same manner as an order issued by the FDIC.
Upon consummation of the Bank Conversion, the National Bank will no
longer be subject to OTS capital regulations, but will be subject to the capital
regulations of the OCC. The Federal Reserve Board and the OCC have established
guidelines with respect to the maintenance of appropriate levels of capital by
bank holding companies and national banks, respectively. The regulations impose
two sets of capital adequacy requirements: minimum leverage rules, which require
bank holding companies and banks to maintain a specified minimum ratio of
capital to total assets, and risk-based capital rules, which require the
maintenance of specified minimum ratios of capital to "risk-weighted" assets.
The regulations of the Federal Reserve Board and the OCC require bank
holding companies and national banks, respectively, to maintain a minimum
leverage ratio of "Tier 1 capital" (as defined in the risk-based capital
guidelines discussed in the following paragraphs) to total assets of 3%.
Although setting a minimum 3% leverage ratio, the capital regulations state that
only the strongest bank holding companies and banks, with composite examination
ratings of 1 under the rating system used by the federal bank regulators, would
be permitted to operate at or near such minimum level of capital. All other bank
holding companies and banks are expected to maintain a leverage ratio of at
least 1% to 2% above the minimum ratio, depending on the assessment of an
individual organization's capital adequacy by its primary regulator. Any bank or
bank holding company experiencing or anticipating significant growth would be
expected to maintain capital well above the minimum levels. In addition, the
Federal Reserve Board has indicated that whenever appropriate, and in particular
when a bank holding company is undertaking expansion, seeking to engage in new
activities or otherwise facing unusual or abnormal risks, it will consider, on a
case-by-case basis, the level of an organization's ratio of tangible Tier 1
capital (after deducting all intangibles) to total assets in making an overall
assessment of capital.
The risk-based capital rules of the Federal Reserve Board and the OCC
require bank holding companies and national banks to maintain minimum regulatory
capital levels based upon a weighting of their assets and off-balance sheet
obligations according to risk. The risk-based capital rules have two basic
components: a core capital (Tier 1) requirement and a supplementary capital
(Tier 2) requirement. Core capital consists primarily of common stockholders'
equity, certain perpetual preferred stock (which must be noncumulative with
respect to banks), and minority interests in the equity accounts of consolidated
subsidiaries; less all intangible assets, except for certain purchased mortgage
servicing rights and purchased credit card relationships. Supplementary capital
elements include, subject to certain limitations, the allowance for losses on
loans and leases; perpetual preferred stock that does not qualify as Tier 1
capital and long-term preferred stock with an original maturity of at least 20
years from issuance; hybrid capital instruments, including perpetual debt and
mandatory convertible securities; and subordinated debt and intermediate-term
preferred stock.
The risk-based capital regulations assign balance sheet assets and
credit equivalent amounts of off-balance sheet obligations to one of four broad
risk categories based principally on the degree of credit risk associated with
the obligor. The assets and off-balance sheet items in the four risk categories
are weighted at 0%, 20%, 50% and 100%. These computations result in the total
risk-weighted assets.
The risk-based capital regulations require all banks and bank holding
companies to maintain a minimum ratio of total capital to total risk-weighted
assets of 8%, with at least 4% as core capital. For the purpose of calculating
these ratios: (i) supplementary capital will be limited to no more than 100% of
core capital; and (ii) the aggregate amount of certain types of supplementary
capital will be limited. In addition, the risk-based capital regulations limit
the allowance for loan losses includable as capital to 1.25% of total
risk-weighted assets.
The federal bank regulatory agencies, including the OCC, have revised
their risk-based capital requirements to ensure that such requirements provide
for explicit consideration by commercial banks of interest rate risk. Under the
rule, a bank's interest rate risk exposure is quantified using either the
measurement system set forth in the proposal or
53
<PAGE>
the bank's internal model for measuring such exposure, if such model is
determined to be adequate by the bank's examiner. If the dollar amount of a
bank's interest rate risk exposure, as measured under either measurement system,
exceeds 1% of the bank's total assets, the bank would be required under the rule
to hold additional capital equal to the dollar amount of the excess. Management
does not believe that adoption of the rule has had a material adverse effect on
the required levels of capital. Further, interest rate risk component rule would
not apply to bank holding companies on a consolidated basis.
OCC regulations classify national banks by capital levels and which
provide for the OCC to take various prompt corrective actions to resolve the
problems of any bank that fails to satisfy the capital standards. Under such
regulations, a well-capitalized bank 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 leverage ratio of 5%. An
adequately capitalized bank is one that does not qualify as well-capitalized but
meets or exceeds the following capital requirements: a total risk-based capital
ratio of 8%, a Tier 1 risk-based capital ratio of 4%, and a leverage ratio of
either (i) 4% or (ii) 3% if the bank has the highest composite examination
rating. A bank not meeting these criteria is treated as undercapitalized,
significantly undercapitalized, or critically undercapitalized depending on the
extent to which the bank's capital levels are below these standards. A national
bank that falls within any of the three undercapitalized categories established
by the prompt corrective action regulation will be subject to severe regulatory
sanctions.
Prompt Corrective Regulatory Action. Under the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), the federal banking
regulators are required to take prompt corrective action if an insured
depository institution fails to satisfy certain minimum capital requirements.
All institutions, regardless of their capital levels, are restricted from making
any capital distribution or paying any management fees if the institution would
thereafter fail to satisfy the minimum levels for any of its capital
requirements. An institution that fails to meet the minimum level for any
relevant capital measure (an "undercapitalized institution") may be: (i) subject
to increased monitoring by the appropriate federal banking regulator; (ii)
required to submit an acceptable capital restoration plan within 45 days; (iii)
subject to asset growth limits; and (iv) required to obtain prior regulatory
approval for acquisitions, branching and new lines of businesses. The capital
restoration plan must include a guarantee by the institution's holding company
that the institution will comply with the plan until it has been adequately
capitalized on average for four consecutive quarters, under which the holding
company would be liable up to 5% of the institution's total assets or the amount
necessary to bring the institution into capital compliance as of the date it
failed to comply with its capital restoration plan. A "significantly
undercapitalized" institution, as well as any undercapitalized institution that
did not submit an acceptable capital restoration plan, may be subject to
regulatory demands for recapitalization, broader application of restrictions on
transactions with affiliates, limitations on interest rates paid on deposits,
asset growth and other activities, possible replacement of directors and
officers, and restrictions on capital distributions by any bank holding company
controlling the institution. Any company controlling the institution could also
be required to divest the institution or the institution could be required to
divest subsidiaries. The senior executive officers of a significantly
undercapitalized institution may not receive bonuses or increases in
compensation without prior approval and the institution is prohibited from
making payments of principal or interest on its subordinated debt. In their
discretion, the federal banking regulators may also impose the foregoing
sanctions on an undercapitalized institution if the regulators determine that
such actions are necessary to carry out the purposes of the prompt corrective
action provisions. If an institution's ratio of tangible capital to total assets
falls below a "critical capital level," the institution will be subject to
conservatorship or receivership within 90 days unless periodic determinations
are made that forbearance from such action would better protect the deposit
insurance fund. Unless appropriate findings and certifications are made by the
appropriate federal bank regulatory agencies, a critically undercapitalized
institution must be placed in receivership if it remains critically
undercapitalized on average during the calendar quarter beginning 270 days after
the date it became critically undercapitalized.
Under regulations jointly adopted by the federal banking regulators,
including the OTS and the OCC, a depository institution's capital adequacy for
purposes of the prompt corrective action rules is determined on the basis of the
institution's total risk-based capital ratio (the ratio of its total capital to
risk-weighted assets), Tier 1 risk-based capital ratio (the ratio of its core
capital to risk-weighted assets) and leverage ratio (the ratio of its core
capital to
54
<PAGE>
adjusted total assets). Under the regulations, a depository institution that is
not subject to an order or written directive to meet or maintain a specific
capital level will be deemed "well capitalized" if it also has: (i) a total
risk-based capital ratio of 10% or greater; (ii) a Tier 1 risk-based capital
ratio of 6.0% or greater; and (iii) a leverage ratio of 5.0% or greater. An
"adequately capitalized" depository institution is a depository institution that
does not meet the definition of well capitalized and has: (i) a total risk-based
capital ratio of 8.0% or greater; (ii) a Tier 1 capital risk-based ratio of 4.0%
or greater; and (iii) a leverage ratio of 4.0% or greater (or 3.0% or greater if
the depository institution has a composite 1 CAMELS rating). An
"undercapitalized institution" is a depository institution that has: (i) a total
risk-based capital ratio less than 8.0%; (ii) a Tier 1 risk-based capital ratio
of less than 4.0%; or (iii) a leverage ratio of less than 4.0% (or 3.0% if the
institution has a composite 1 CAMELS rating). A "significantly undercapitalized"
institution is defined as a depository institution that has: (i) a total
risk-based capital ratio of less than 6.0%; (ii) a Tier 1 risk-based capital
ratio of less than 3.0%; or (iii) a leverage ratio of less than 3.0%. A
"critically undercapitalized" depository institution is defined as a depository
institution that has a ratio of "tangible equity" to total assets of less than
2.0%. Tangible equity is defined as core capital plus cumulative perpetual
preferred stock (and related surplus) less all intangibles other than qualifying
supervisory goodwill and certain purchased mortgage servicing rights. A federal
banking regulator, including the OTS and OCC, may reclassify a well capitalized
depository institution as adequately capitalized and may require an adequately
capitalized or undercapitalized institution to comply with the supervisory
actions applicable to institutions in the next lower capital category (but may
not reclassify a significantly undercapitalized institution as critically
under-capitalized) if determines, after notice and an opportunity for a hearing,
that the depository institution is in an unsafe or unsound condition or that the
institution has received and not corrected a less-than-satisfactory rating for
any CAMELS rating category.
At March 31, 1997, the Bank was classified as "well capitalized" under
OTS regulations, and management of the Bank believes that the National Bank
will, immediately after the Bank Conversion, also be classified as "well-
capitalized" under OCC regulations.
Qualified Thrift Lender Test. A savings institution that does not meet
the Qualified Thrift Lender test ("QTL Test") must either convert to a bank
charter or comply with the following restrictions on its operations: (i) the
institution may not engage in any new activity or make any new investment,
directly or indirectly, unless such activity or investment is permissible for
both a national bank and a savings institution; (ii) the branching powers of the
institution are restricted to those of a national bank located in the
institution's home state; (iii) the institution shall not be eligible to obtain
any advances from its FHLB; and (iv) payment of dividends by the institution
shall be subject to the rules regarding payment of dividends by a national bank.
In addition, any company that controls a savings institution that fails to
qualify as a QTL will be required to register as and be deemed a bank holding
company subject to all of the provisions of the Bank Holding Company Act of 1956
(the "BHCA") and other statutes applicable to bank holding companies. Upon the
expiration of three years from the date the institution ceases to be a QTL, it
must cease any activity, and not retain any investment not permissible for both
a national bank and a savings institution and immediately repay any outstanding
FHLB advances (subject to safety and soundness considerations).
To qualify as a QTL, a savings institution must either qualify as a
"domestic building and loan association" under the Internal Revenue Code or
maintain at least 65% of its "portfolio" assets in Qualified Thrift Investments.
Portfolio assets are defined as total assets less intangibles, property used by
a savings institution in its business and liquidity investments in an amount not
exceeding 20% of assets. All of the following may be included as Qualified
Thrift Investments: investments in residential mortgages, home equity loans,
loans made for educational purposes, small business loans, credit card loans and
shares of stock issued by an FHLB. Subject to a 20% of portfolio assets limit,
savings institutions are also able to treat the following as Qualified Thrift
Investments: (i) 50% of the dollar amount of residential mortgage loans subject
to sale under certain conditions, (ii) investments, both debt and equity, in the
capital stock or obligations of and any other security issued by a service
corporation or operating subsidiary, provided that such subsidiary derives at
least 80% of its annual gross revenues from activities directly related to
purchasing, refinancing, constructing, improving or repairing domestic
residential housing or manufactured housing, (iii) 200% of their investments in
loans to finance "starter homes" and loans for construction, development or
improvement of housing and community service facilities or for financing small
businesses in "credit-needy" areas, (iv) loans for the purchase,
55
<PAGE>
construction, development or improvement of community service facilities, (v)
loans for personal, family, household or educational purposes, provided that the
dollar amount treated as Qualified Thrift Investments may not exceed 10% of the
savings association's portfolio assets, and (vi) shares of stock issued by FNMA
or FHLMC.
A savings institution must maintain its status as a QTL on a monthly
basis in nine out of every 12 months. A savings institution that fails to
maintain QTL status will be permitted to requalify once, and if it fails the QTL
Test a second time, it will become immediately subject to all penalties as if
all time limits on such penalties had expired. At March 31, 1997, approximately
96.2% of the Bank's assets were invested in Qualified Thrift Investments.
National banks are not subject to the QTL Test.
Dividend Limitations. Under OTS regulations, the Bank is not permitted
to pay dividends on its capital stock if its regulatory capital would thereby be
reduced below the amount then required for the liquidation account established
for the benefit of certain depositors of the Bank at the time of the Stock
Conversion and Reorganization. In addition, savings institution subsidiaries of
savings and loan holding companies are required to give the OTS 30 days' prior
notice of any proposed declaration of dividends to the holding company.
Federal regulations impose limitations on the payment of dividends and
other capital distributions (including stock repurchases and cash mergers) by
the Bank. Under these regulations, a savings institution that, immediately prior
to, and on a pro forma basis after giving effect to, a proposed capital
distribution, has total capital (as defined by OTS regulation) that is equal to
or greater than the amount of its fully phased-in capital requirements (a "Tier
1 Association") is generally permitted without OTS approval, after notice, to
make capital distributions during a calendar year in the amount equal to the
greater of (i) 75% of net earnings for the previous four quarters, or (ii) up to
100% of its net earnings to date during the calendar year plus an amount that
would reduce by one-half the amount by which its capital-to-assets ratio
exceeded its fully phased-in capital requirement to assets ratio at the
beginning of the calendar year. A savings institution with total capital in
excess of current minimum capital requirements but not in excess of the fully
phased-in requirements (a "Tier 2 Association") is permitted, after notice, to
make capital distributions without OTS approval of up to 75% of its net earnings
for the previous four quarters, less dividends already paid for such period. A
savings institution that fails to meet current minimum capital requirements (a
"Tier 3 Association") is prohibited from making any capital distributions
without the prior approval of the OTS. Tier 1 Associations that have been
notified by the OTS that they are in need of more than normal supervision will
be treated as either a Tier 2 or Tier 3 Association. Unless the OTS determines
that the Bank is an institution requiring more than normal supervision, the Bank
is authorized to pay dividends in accordance with the provisions of the OTS
regulations discussed above as a Tier 1 Association.
Under the OTS' prompt corrective action regulations, the Bank is also
prohibited from making any capital distributions if after making the
distribution, the Bank would have: (i) a total risk-based capital ratio of less
than 8.0%; (ii) a Tier 1 risk-based capital ratio of less than 4.0%; or (iii) a
leverage ratio of less than 4.0%. The OTS, after consultation with the FDIC,
however, may permit an otherwise prohibited stock repurchase if made in
connection with the issuance of additional shares in an equivalent amount and
the repurchase will reduce the institution's financial obligations or otherwise
improve the institution's financial condition.
In addition to the foregoing, earnings of the Bank appropriated to bad
debt reserves and deducted for Federal income tax purposes are not available for
payment of cash dividends or other distributions to stockholders without payment
of taxes at the then current tax rate by the Bank on the amount of earnings
removed from the reserves for such distributions. See "Taxation."
Following the Bank Conversion, the National Bank's ability to pay
dividends will not be subject to the limitations in the OTS regulations but will
instead be governed by the National Bank Act and to OCC regulations applicable
to national banks. Under such statute and regulations, all dividends by a
national bank must be paid out of current or retained net profits, after
deducting reserves for losses and bad debts. The National Bank Act further
restricts
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the payment of dividends out of net profits by prohibiting a national bank from
declaring a dividend on its shares of common stock until the surplus fund equals
the amount of capital stock or, if the surplus fund does not equal the amount of
capital stock, until one-tenth of a bank's net profits for the preceding half
year in the case of quarterly or semi-annual dividends, or the preceding two
half-year periods in the case of annual dividends, are transferred to the
surplus fund. In addition, the prior approval of the OCC is required for the
payment of a dividend if the total of all dividends declared by a national bank
in any calendar year would exceed the total of its net profits for the year
combined with its net profits for the two preceding years, less any required
transfers to surplus or a fund for the retirement of any preferred stock. In
addition, the National Bank is prohibited by federal statute from paying
dividends or making any other capital distribution that would cause the National
Bank to fail to meet its regulatory capital requirements.
The OCC has the authority to prohibit the payment of dividends by a
national bank when it determines such payment to be an unsafe and unsound
banking practice. In addition, the National Bank would be prohibited by federal
statute and the OCC's prompt corrective action regulations from making any
capital distribution if, after giving effect to the distribution, the National
Bank would be classified as "undercapitalized" under the OCC's regulations. See
"-- Prompt Corrective Regulatory Action." Finally, the National Bank, like the
Bank, would not be able to pay dividends on its capital stock if its capital
would thereby reduced below the remaining balance of the liquidation account
established in connection with the Stock Conversion and Reorganization.
Safety and Soundness Standards. Under FDICIA, as amended by the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "CDRI Act"),
each Federal banking agency is required to establish safety and soundness
standards for institutions under its authority. On July 10, 1995, the Federal
banking agencies, including the OTS, the OCC and the Federal Reserve Board
released Interagency Guidelines Establishing Standards for Safety and Soundness
and published a final rule establishing deadlines for submission and review of
safety and soundness compliance plans. The final rule and the guidelines went
into effect on August 9, 1995. The guidelines require depository institutions to
maintain internal controls and information systems and internal audit systems
that are appropriate for the size, nature and scope of the institution's
business. The guidelines also establish certain basic standards for loan
documentation, credit underwriting, interest rate risk exposure, and asset
growth. The guidelines further provide that depository institutions should
maintain safeguards to prevent the payment of compensation, fees and benefits
that are excessive or that could lead to material financial loss, and should
take into account factors such as comparable compensation practices at
comparable institutions. If the federal banking regulator determines that a
depository institution is not in compliance with the safety and soundness
guidelines, it may require the institution to submit an acceptable plan to
achieve compliance with the guidelines. A depository institution must submit an
acceptable compliance plan to the appropriate federal banking regulator within
30 days of receipt of a request for such a plan. Failure to submit or implement
a compliance plan may subject the institution to regulatory sanctions. Under the
proposed regulations of the Federal Reserve Board, a bank holding company would
be required to ensure that its subsidiary bank will return to compliance with
the safety and soundness standards if a deficiency is detected. Management
believes that the Bank already meets substantially all the standards adopted in
the interagency guidelines, and therefore does not believe that implementation
of these regulatory standards will materially affect the Bank's or the National
Bank's operations.
Under federal banking regulations, depository institutions must also
adopt and maintain written policies that establish appropriate limits and
standards for extensions of credit that are secured by liens or interests in
real estate or are made for the purpose of financing permanent improvements to
real estate. These policies must establish loan portfolio diversification
standards, prudent underwriting standards, including loan-to-value limits, that
are clear and measurable, loan administration procedures and documentation,
approval and reporting requirements. A depository institution's real estate
lending policy must reflect consideration of the Interagency Guidelines for Real
Estate Lending Policies (the "Real Estate Lending Guidelines") that have been
adopted by the federal bank regulators. The Real Estate Lending Guidelines,
among other things, call upon depository institutions to establish internal
loan-to-value limits for real estate loans that are not in excess of the
specified loan-to-value limits for the various types of real estate loans. The
Real Estate Lending Guidelines state, however, that it may be appropriate in
individual cases to originate or purchase loans with loan-to-value ratios in
excess of the supervisory loan-to-value limits.
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Additionally, under FDICIA, as amended by the CDRI Act, the Federal
banking agencies are required to establish standards relating to the asset
quality and earnings that the agencies determine to be appropriate. On July 10,
1995, the federal banking agencies, including the OTS, OCC and Federal Reserve
Board issued proposed guidelines relating to asset quality and earnings. Under
the proposed guidelines, a depository institution should maintain systems,
commensurate with its size and the nature and scope of its operations, to
identify problem assets and prevent deterioration in those assets as well as to
evaluate and monitor earnings and ensure that earnings are sufficient to
maintain adequate capital and reserves. Management believes that the asset
quality and earnings standards, in the form proposed by the federal banking
agencies, would not have a material effect on the Bank's or the National Bank's
operations.
Deposit Insurance. The Bank is required to pay assessments based on a
percentage of its insured deposits to the FDIC for insurance of its deposits by
the FDIC through the SAIF. Under the Federal Deposit Insurance Act, the FDIC is
required to set semi-annual assessments for SAIF-insured institutions at a level
necessary to maintain the designated reserve ratio of the SAIF at 1.25% of
estimated insured deposits or at a higher percentage of estimated insured
deposits that the FDIC determines to be justified for that year by circumstances
indicating a significant risk of substantial future losses to the SAIF.
Under the FDIC's risk-based deposit insurance assessment system, the
assessment rate for an insured depository institution depends on the assessment
risk classification assigned to the institution by the FDIC, which is determined
by the institution's capital level and supervisory evaluations. Based on the
data reported to regulators for the date closest to the last day of the seventh
month preceding the semi-annual assessment period, institutions are assigned to
one of three capital groups -- well capitalized, adequately capitalized or
undercapitalized -- using the same percentage criteria as under the prompt
corrective action regulations. See " -- Prompt Corrective Regulatory Action."
Within each capital group, institutions are assigned to one of three subgroups
on the basis of supervisory evaluations by the institution's primary supervisory
authority and such other information as the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance fund. Subgroup A consists of financially sound institutions with only
a few minor weaknesses. Subgroup B consists of institutions that demonstrate
weaknesses which, if not corrected, could result in significant deterioration of
the institution and increased risk of loss to the deposit insurance fund.
Subgroup C consists of institutions that pose a substantial probability of loss
to the deposit insurance fund unless effective corrective action is taken.
Over the past years, institutions with SAIF-assessable deposits, like
the Bank, were required to pay higher deposit insurance premiums than
institutions with deposits insured by the BIF. In order to recapitalize the SAIF
and address the premium disparity, in November 1996 the FDIC imposed a one-time
special assessment on institutions with SAIF-assessable deposits based on the
amount determined by the FDIC to be necessary to increase the reserve levels of
the SAIF to the designated reserve ratio of 1.25% of insured deposits.
Institutions were assessed at the rate of 65.7 basis points based on the amount
of their SAIF-assessable deposits as of March 31, 1995. As a result of the
special assessment the Bank incurred a pre-tax expense of $128,000 during the
quarter ended September 30, 1996.
The special assessment recapitalized the SAIF, and as a result, the
FDIC lowered the SAIF deposit insurance assessment rates through the end of 1997
to zero for well capitalized institutions with the highest supervisory ratings
and 0.31% of insured deposits for institutions in the highest risk-based premium
category. Since the BIF is above its designated reserve ratio of 1.25% of
insured deposits, "well-capitalized" institutions in Subgroup A, numbering 95%
of BIF-insured institutions, pay no federal deposit insurance premiums, with the
remaining 5% of institutions paying a graduated range of rates up to 0.27% of
insured deposits for the highest risk-based premium category. Until December 31,
1999, SAIF-insured institutions will be required to pay assessments to the FDIC
at the rate of 6.5 basis points to help fund interest payments on certain bonds
issued by the Financing Corporation ("FICO") an agency of the federal government
established to finance takeovers of insolvent thrifts. During this period, BIF
members will be assessed for these obligations at the rate of 1.3 basis points.
After December 31, 1999, both BIF and SAIF members will be assessed at the same
rate for FICO payments, or sooner if the two funds are merged.
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Although the National Bank would qualify for insurance of deposits by
the BIF of the FDIC, substantial entrance and exit fees apply to conversions
from SAIF to BIF insurance and such fees may make a SAIF to BIF conversion
prohibitively expensive. Following the Bank Conversion, the National Bank
intends to remain a member of the SAIF, which will insure the deposits of the
National Bank to a maximum of $100,000 for each depositor. Because the National
Bank will continue to be a SAIF member, its deposit insurance assessments will
be determined on the same basis as the deposit insurance assessments paid by the
Bank. In the past the substantial disparity existing between deposit insurance
premiums paid by BIF and SAIF members gave BIF-insured institutions a
competitive advantage over SAIF-insured institutions like the Bank. The
reduction of SAIF deposit insurance premiums effectively eliminated this
disparity and could have the effect of increasing the net earnings of the Bank
(and the National Bank) and restoring the competitive equality between
BIF-insured and SAIF-insured institutions.
The FDIC has adopted a regulation which provides that any insured
depository institution with a ratio of Tier 1 capital to total assets of less
than 2% will be deemed to be operating in an unsafe or unsound condition, which
would constitute grounds for the initiation of termination of deposit insurance
proceedings. The FDIC, however, would not initiate termination of insurance
proceedings if the depository institution has entered into and is in compliance
with a written agreement with its primary regulator, and the FDIC is a party to
the agreement, to increase its Tier 1 capital to such level as the FDIC deems
appropriate. Tier 1 capital is defined as the sum of common stockholders'
equity, noncumulative perpetual preferred stock (including any related surplus)
and minority interests in consolidated subsidiaries, minus all intangible assets
other than mortgage servicing rights and qualifying supervisory goodwill
eligible for inclusion in core capital under OTS regulations and minus
identified losses and investments in certain securities subsidiaries. Insured
depository institutions with Tier 1 capital equal to or greater than 2% of total
assets may also be deemed to be operating in an unsafe or unsound condition
notwithstanding such capital level. The regulation further provides that in
considering applications that must be submitted to it by savings associations,
the FDIC will take into account whether the savings association is meeting with
the Tier 1 capital requirement for state non-member banks of 4% of total assets
for all but the most highly rated state non-member banks.
Transactions with Affiliates. Transactions between depository
institutions (including the Bank and National Bank) and any affiliate are
governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of a
depository institution is any company or entity which controls, is controlled by
or is under common control with the depository institution. In a holding company
context, the parent holding company of a depository institution (such as the
Company) and any companies which are controlled by such parent holding company
are affiliates of the depository institution. Generally, Sections 23A and 23B
(i) limit the extent to which the depository institution or its subsidiaries may
engage in "covered transactions" with any one affiliate to an amount equal to
10% of such institution's capital stock and surplus, and contain an aggregate
limit on all such transactions with all affiliates to an amount equal to 20% of
such capital stock and surplus, and (ii) require that all such transactions be
on terms substantially the same, or at least as favorable, to the institution or
subsidiary as those provided to a non-affiliate. The term "covered transaction"
includes the making of loans, purchase of assets, issuance of a guarantee and
similar other types of transactions. In addition to the restrictions imposed by
Sections 23A and 23B, OTS regulations provide that no savings institution may
(i) loan or otherwise extend credit to an affiliate, except for any affiliate
which engages only in activities which are permissible for bank holding
companies, or (ii) purchase or invest in any stocks, bonds, debentures, notes or
similar obligations of any affiliate, except for affiliates which are
subsidiaries of the savings institution. Section 106 of the BHCA which applies
to the Bank, and which will also apply to the National Bank, prohibits the Bank
from extending credit to or offering any other services, or fixing or varying
the consideration for such extension of credit or service, on the condition that
the customer obtain some additional service from the institution or certain of
its affiliates or not obtain services of a competitor of the institution,
subject to certain exceptions.
Loans to Directors, Executive Officers and Principal Stockholders.
Depository institutions like the Bank and National Bank are also subject to the
restrictions contained in Section 22(h) and Section 22(g) of the Federal Reserve
Act on loans to executive officers, directors and principal stockholders. Under
Section 22(h), loans to a director, executive officer and to a greater than 10%
stockholder of a depository institution, and certain affiliated entities
thereof, may not exceed, together with all other outstanding loans to such
person and affiliated entities the institution's loan to
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one borrower limit (generally equal to 15% of the institution's unimpaired
capital and surplus and an additional 10% of such capital and surplus for loans
fully secured by certain readily marketable collateral). Section 22(h) also
prohibits loans, above amounts prescribed by the appropriate federal banking
agency, to directors, executive officers and greater than 10% stockholders of a
depository institution, and their respective affiliates, unless such loan is
approved in advance by a majority of the board of directors of the institution
with any "interested" director not participating in the voting. The Federal
Reserve Board has prescribed the loan amount (which includes all other
outstanding loans to such person), as to which such prior board of director
approval is required, as being the greater of $25,000 or 5% of capital and
surplus (up to $500,000). Further, the Federal Reserve Board pursuant to Section
22(h) requires that loans to directors, executive officers and principal
stockholders be made on terms substantially the same as offered in comparable
transactions to other persons. Section 22(h) also generally prohibits a
depository institution from paying the overdrafts of any of its executive
officers or directors. Section 22(g) of the Federal Reserve Act requires that
loans to executive officers of depository institutions not be made on terms more
favorable than those afforded to other borrowers, requires approval for such
extensions of credit by the board of directors of the institution, and imposes
reporting requirements for and additional restrictions on the type, amount and
terms of credits to such officers. In addition, Section 106 of the BHCA
prohibits extensions of credit to executive officers, directors, and greater
than 10% stockholders of a depository institution by any other institution which
has a correspondent banking relationship with the institution, unless such
extension of credit is on substantially the same terms as those prevailing at
the time for comparable transactions with other persons and does not involve
more than the normal risk of repayment or present other unfavorable features.
Liquidity Requirements. The Bank is required to maintain average daily
balances of liquid assets (cash, certain time deposits, bankers' acceptances,
highly rated corporate debt and commercial paper, securities of certain mutual
funds, and specified United States government, state or federal agency
obligations) equal to the monthly average of not less than a specified
percentage (currently 5%) of its net withdrawable savings deposits plus
short-term borrowings. The Bank is also required to maintain average daily
balances of short-term liquid assets at a specified percentage (currently 1%) of
the total of its net withdrawable savings accounts and borrowings payable in one
year or less. Monetary penalties may be imposed for failure to meet liquidity
requirements. The average regulatory liquidity ratio of the Bank for the month
of March 1997 was 28.7%. The regulations of the OCC do not impose similar
liquidity requirements for national banks, such as the National Bank.
Federal Home Loan Bank System. The Bank is a member of the FHLB, which
consists of 12 Federal Home Loan Banks subject to supervision and regulation by
the Federal Housing Finance Board ("FHFB"). The FHFBs provide a central credit
facility primarily for member institutions. As a member of the FHLB of
Cincinnati, the Bank is required to acquire and hold shares of capital stock in
the FHLB of Cincinnati in an amount at least equal to 1% of the aggregate unpaid
principal of its home mortgage loans, home purchase contracts, and similar
obligations at the beginning of each year, or 1/20 of its advances from the FHLB
of Cincinnati, whichever is greater. The Bank was in compliance with this
requirement with investment in FHLB of Cincinnati stock at March 31, 1997 of
$250,000. The FHLB of Cincinnati is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System. It makes advances to
members in accordance with policies and procedures established by the FHFB and
the Board of Directors of the FHLB of Cincinnati. As of March 31, 1997, the Bank
had $941,000 in advances from the FHLB of Cincinnati outstanding with a weighted
average interest rate of 7.74%. See "Business of the Bank -- Deposit Activities
and Other Sources of Funds -- Borrowings."
Federal Reserve System. Pursuant to regulations of the Federal Reserve
Board, a depository institution must maintain average daily reserves equal to 3%
on the first $49.3 million of transaction accounts, plus 10% on the remainder.
This percentage is subject to adjustment by the Federal Reserve Board. Because
required reserves must be maintained in the form of vault cash or in a
non-interest bearing account at a Federal Reserve Bank, the effect of the
reserve requirement is to reduce the amount of the institution's
interest-earning assets. As of March 31, 1997, the Bank met its reserve
requirements.
As a national bank, the National Bank will be required to become a
member of the Federal Reserve System and subscribe for stock in the Federal
Reserve Bank of Atlanta in an amount equal to 6% of the National Bank's paid-up
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capital and surplus. The National Bank will continue to be subject to the
reserve requirements to which the Bank is presently subject under Federal
Reserve Board regulations.
The monetary policies and regulations of the Federal Reserve Board have
a significant effect on the operating results of commercial banks. The Federal
Reserve Board's policies affect the levels of bank loans, investments and
deposits through its open market operation in United States government
securities, its regulation of the interest rate on borrowings of member banks
from Federal Reserve Banks and its imposition of non-earning reserve
requirements on all depository institutions, such as the National Bank, that
maintain transaction accounts or non-personal time deposits.
Regulation of the Company
General. Following the Stock Conversion and Reorganization, the Company
will be a savings and loan holding company within the meaning of the Home
Owners' Loan Act, as amended ("HOLA"). As such the Company will be registered
with the OTS and subject to OTS regulations, examinations, supervision and
reporting requirements. As a subsidiary of a savings and loan holding company,
the Bank will be subject to certain restrictions in its dealings with the
Company and affiliates thereof. The Company also will be required to file
certain reports with, and otherwise comply with the rules and regulations of the
SEC under the federal securities laws.
Activities Restrictions. The Board of Directors of the Company
presently intends to operate the Company as a unitary savings and loan holding
company until the Bank Conversion can be completed. There are generally no
restrictions on the activities of a unitary savings and loan holding company.
However, if the Director of OTS determines that there is reasonable cause to
believe that the continuation by a savings and loan holding company of an
activity constitutes a serious risk to the financial safety, soundness, or
stability of its subsidiary savings association, the Director of OTS may impose
such restrictions as deemed necessary to address such risk including limiting:
(i) payment of dividends by the savings institution, (ii) transactions between
the savings institution and its affiliates; and (iii) any activities of the
savings institution that might create a serious risk that the liabilities of the
holding company and its affiliates may be imposed on the savings institution.
Notwithstanding the above rules as to permissible business activities of unitary
savings and loan holding companies, if the savings institution subsidiary of
such a holding company fails to meet the QTL Test, then such unitary holding
company shall also presently become subject to the activities restrictions
applicable to multiple holding companies and unless the savings institution
requalifies as a QTL within one year thereafter, register as, and become subject
to, the restrictions applicable to a bank holding company. See " -- Regulation
of the Bank -- Qualified Thrift Lender Test."
If the Company were to acquire control of another savings institution,
other than through merger or other business combination with the Bank, the
Company would thereupon become a multiple savings and loan holding company.
Except where such acquisition is pursuant to the authority to approve emergency
thrift acquisitions and where each subsidiary savings institution meets the QTL
Test, the activities of the Company and any of its subsidiaries (other than the
Bank or other subsidiary savings institutions) would thereafter be subject to
further restrictions. Among other things, no multiple savings and loan holding
company or subsidiary thereof which is not a savings institution may commence or
continue for a limited period of time after becoming a multiple savings and loan
holding company or subsidiary thereof, any business activity, upon prior notice
to, and no objection by the OTS, other than: (i) furnishing or performing
management services for a subsidiary savings institution; (ii) conducting an
insurance agency or escrow business; (iii) holding, managing, or liquidating
assets owned by or acquired from a subsidiary savings institution; (iv) holding
or managing properties used or occupied by a subsidiary savings institution; (v)
acting as trustee under deeds of trust; (vi) those activities previously
directly authorized by regulation as of March 5, 1987 to be engaged in by
multiple savings and loan holding companies; or (vii) those activities
authorized by the Federal Reserve Board as permissible for bank holding
companies, unless the Director of OTS by regulation prohibits or limits such
activities for savings and loan holding companies. Those activities described in
(vii) above must also be approved by the Director of OTS prior to being engaged
in by a multiple savings and loan holding company.
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Restrictions on Acquisitions. The HOLA generally prohibits savings and
loan holding companies from acquiring, without prior approval of the Director of
OTS, (i) control of any other savings institution or savings and loan holding
company or substantially all the assets thereof, or (ii) more than 5% of the
voting shares of a savings institution or holding company thereof which is not a
subsidiary. Except with the prior approval of the Director of OTS, no director
or officer of a savings and loan holding company or person owning or controlling
by proxy or otherwise more than 25% of such company's stock, may also acquire
control of any savings institution, other than a subsidiary savings institution,
or of any other savings and loan holding company.
The Director of OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
institutions in more than one state if: (i) the multiple savings and loan
holding company involved controls a savings institution which operated a home or
branch office in the state of the institution to be acquired as of March 5,
1987; (ii) the acquiror is authorized to acquire control of the savings
institution pursuant to the emergency acquisition provisions of the Federal
Deposit Insurance Act; or (iii) the statutes of the state in which the
institution to be acquired is located specifically permit institutions to be
acquired by state-chartered institutions or savings and loan holding companies
located in the state where the acquiring entity is located (or by a holding
company that controls such state-chartered savings institutions).
The OTS regulations permit federal associations to branch in any state
or states of the United States and its territories. Except in supervisory cases
or when interstate branching is otherwise permitted by state law or other
statutory provision, a federal association may not establish an out-of-state
branch unless (i) the federal association qualifies as a QTL or as a "domestic
building and loan association" under ss.7701(a)(19) of the Code and the total
assets attributable to all branches of the association in the state would
qualify such branches taken as a whole as a QTL or for treatment as a domestic
building and loan association and (ii) such branch would not result in (a)
formation of a prohibited multi-state multiple savings and loan holding company
or (b) a violation of certain statutory restrictions on branching by savings
institution subsidiaries of banking holding companies. Federal associations
generally may not establish new branches unless the institution meets or exceeds
minimum regulatory capital requirements. The OTS will also consider the
institution's record of compliance with the Community Reinvestment Act of 1977
in connection with any branch application.
Under the BHCA, bank holding companies are specifically authorized to
acquire control of any savings institution. Pursuant to rules promulgated by the
Federal Reserve Board, owning, controlling or operating a savings institution is
a permissible activity for bank holding companies, if the savings institution
engages only in deposit-taking activities and lending and other activities that
are permissible for bank holding companies. A bank holding company that controls
a savings institution may merge or consolidate the assets and liabilities of the
savings institution with, or transfer assets and liabilities to, any subsidiary
bank which is a member of the BIF with the approval of the appropriate federal
banking agency and the Federal Reserve Board. The resulting bank will be
required to continue to pay assessments to the SAIF at the rates prescribed for
SAIF members on the deposits attributable to the merged savings institution plus
an annual growth increment. In addition, the transaction must comply with the
restrictions on interstate acquisitions of commercial banks under the BHCA.
Regulation of the Company Following the Bank Conversion
General. Upon consummation of the Bank Conversion, the Company, as the
sole shareholder of the National Bank, will become a bank holding company and
will register as such with the Federal Reserve Board and deregister with the OTS
as a savings and loan holding company. Bank holding companies are subject to
comprehensive regulation by the Federal Reserve Board under the BHCA, and the
regulations of the Federal Reserve Board. As a bank holding company, the Company
will be required to file with the Federal Reserve Board annual reports and such
additional information as the Federal Reserve Board may require, and will be
subject to regular examinations by the Federal Reserve Board. The Federal
Reserve Board also has extensive enforcement authority over bank holding
companies, including, among other things, the ability to assess civil money
penalties, to issue cease and desist or removal orders
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and to require that a holding company divest subsidiaries (including its bank
subsidiaries). In general, enforcement actions may be initiated for violations
of law and regulations and unsafe or unsound practices.
Restrictions on Acquisitions. Under the BHCA, a bank holding company
must obtain Federal Reserve Board approval before: (i) acquiring, directly or
indirectly, ownership or control of any voting shares of another bank or bank
holding company if, after such acquisition, it would own or control more than 5%
of such shares (unless it already owns or controls the majority of such shares);
(ii) acquiring all or substantially all of the assets of another bank or bank
holding company; or (iii) merging or consolidating with another bank holding
company. In addition under the BHCA, any company must obtain approval of the
Federal Reserve Board prior to acquiring control of the Company or the National
Bank. For purposes of the BHCA, "control" is defined as ownership of more than
25% of any class of voting securities of the Company or the National Bank, the
ability to control the election of a majority of the directors, or the exercise
of a controlling influence over management or policies of the Company or the
National Bank.
The Change in Bank Control Act and the regulations of the Federal
Reserve Board thereunder require any person or persons acting in concert (except
for companies required to make application under the BHCA), to file a written
notice with the Federal Reserve Board before such person or persons may acquire
control of the Company or the National Bank. The Change in Bank Control Act
defines "control" as the power, directly or indirectly, to vote 25% or more of
any voting securities or to direct the management or policies of a bank holding
company or an insured bank.
The BHCA also prohibits a bank holding company, with certain
exceptions, from acquiring direct or indirect ownership or control of more than
5% of the voting shares of any company which is not a bank or bank holding
company, or from engaging directly or indirectly in activities other than those
of banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which, by statute or by Federal Reserve Board regulation or
order, have been identified as activities closely related to the business of
banking or managing or controlling banks. The list of activities permitted by
the Federal Reserve Board includes, among other things, operating a savings
institution, mortgage company, finance company, credit card company or factoring
company; performing certain data processing operations; providing certain
investment and financial advice; underwriting and acting as an insurance agent
for certain types of credit-related insurance; leasing property on a full-
payout, non-operating basis; selling money orders, travelers' checks and United
States Savings Bonds; real estate and personal property appraising; providing
tax planning and preparation services; and, subject to certain limitations,
providing securities brokerage services for customers. The activities of the
Company are subject to these legal and regulatory limitations under BHCA and the
Federal Reserve Board's regulations thereunder. Notwithstanding the Federal
Reserve Board's prior approval of specific nonbanking activities, the Federal
Reserve Board has the power to order a holding company or its subsidiaries to
terminate any activity, or to terminate its ownership or control of any
subsidiary, when it has reasonable cause to believe that the continuation of
such activity or such ownership or control constitutes a serious risk to the
financial safety, soundness or stability of any bank subsidiary of that holding
company. The Company has no present plans to engage in any of these activities.
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. On
September 29, 1994, the Riegle- Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Act") was enacted to ease restrictions on interstate banking.
Effective September 29, 1995, the Act allows the Federal Reserve Board to
approve an application of an adequately capitalized and adequately managed bank
holding company to acquire control of, or acquire all or substantially all of
the assets of, a bank located in a state other than such holding company's home
state, without regard to whether the transaction is prohibited by the laws of
any state. The Federal Reserve Board may not approve the acquisition of bank
that has not been in existence for the minimum time period (not exceeding five
years) specified by the statutory law of the host state. The Act also prohibits
the Federal Reserve Board from approving an application if the applicant (and
its depository institution affiliates) controls or would control more than 10%
of the insured deposits in the United States or 30% or more of the deposits in
the target bank's home state or in any state in which the target bank maintains
a branch. The Act does not affect the authority of states to limit the
percentage of total insured deposits in the state which may be held or
controlled by a bank or bank holding company to the extent such limitation does
not
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discriminate against out-of-state banks or bank holding companies. Individual
states may also waive the 30% state-wide concentration limit contained in the
Act.
Additionally, beginning on June 1, 1997, the federal banking agencies
are authorized to approve interstate merger transactions without regard to
whether such transaction is prohibited by the law of any state, unless the home
state of one of the banks opts out of the Act by adopting a law after the date
of enactment of the Act and prior to June 1, 1997, which applies equally to all
out-of-state banks and expressly prohibits merger transactions involving
out-of-state banks. Interstate acquisitions of branches will be permitted only
if the law of the state in which the branch is located permits such
acquisitions. Interstate mergers and branch acquisitions will also be subject to
the nationwide and statewide insured deposit concentration amounts described
above.
The Act authorizes the OCC and FDIC to approve interstate branching de
novo by national and state banks, respectively, only in states which
specifically allow for such branching. The Act also requires the appropriate
federal banking agencies to prescribe regulations by June 1, 1997 which prohibit
any out-of-state bank from using the interstate branching authority primarily
for the purpose of deposit production. These regulations, as currently proposed,
include guidelines to ensure that interstate branches operated by an
out-of-state bank in a host state are reasonably helping to meet the credit
needs of the communities which they serve.
Dividends. The Federal Reserve Board has issued a policy statement on
the payment of cash dividends by bank holding companies, which expresses the
Federal Reserve Board's view that a bank holding company should pay cash
dividends only to the extent that the company's net earnings for the past year
is sufficient to cover both the cash dividends and a rate of earning retention
that is consistent with the company's capital needs, asset quality and overall
financial condition. The Federal Reserve Board also indicated that it would be
inappropriate for a company experiencing serious financial problems to borrow
funds to pay dividends. Furthermore, under the prompt corrective action
regulations adopted by the Federal Reserve Board pursuant to FDICIA, the Federal
Reserve Board may prohibit a bank holding company from paying any dividends if
the holding company's bank subsidiary is classified as "undercapitalized". See
"-- Depository Institution Regulation -- Prompt Corrective Regulatory Action."
Bank holding companies are required to give the Federal Reserve Board
prior written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of the Company's
consolidated net worth. The Federal Reserve Board may disapprove such a purchase
or redemption if it determines that the proposal would constitute an unsafe or
unsound practice or would violate any law, regulation, Federal Reserve Board
order, or any condition imposed by, or written agreement with, the Federal
Reserve Board.
Capital Requirements. The Federal Reserve Board has established capital
requirements for bank holding companies with consolidated assets of $150 million
or more that generally parallel the capital requirements for national banks
under the OCC's regulations. See "--Depository Institution Regulation --
Regulatory Capital Requirements." Since the Company's consolidated assets will
be less than $150 million, the Federal Reserve Board's holding company capital
requirements would not apply to the Company.
Federal Securities Law. The Company has filed with the SEC a
Registration Statement under the Securities Act of 1933, as amended (the
"Securities Act"), for the registration of the Common Stock to be issued in the
Stock Conversion and Reorganization. Upon completion of the Stock Conversion and
Reorganization, the Common Stock will be registered with the SEC under the
Exchange Act and, under OTS regulations, generally may not be deregistered for
at least three years thereafter. The Company will be subject to the information,
proxy solicitation, insider trading restrictions and other requirements of the
Exchange Act.
The registration under the Securities Act of the Common Stock does not
cover the resale of such shares. Shares of the Common Stock purchased by persons
who are not affiliates of the Company may generally be resold without
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registration. Shares purchased by an affiliate of the Company will be subject to
the resale restrictions of Rule 144 under the Securities Act. If the Company
meets the current public information requirements of Rule 144 under the
Securities Act, each affiliate of the Company who complies with the other
conditions of Rule 144 (including those that require the affiliate's sale to be
aggregated with those of certain other persons) would be able to sell in the
public market, without registration, a number of shares not to exceed, in any
three-month period, the greater of (i) 1% of the outstanding shares of the
Company or (ii) the average weekly volume of trading in such shares during the
preceding four calendar weeks. Provision may be made in the future by the
Company to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances. There are currently no demand
registration rights outstanding. However, in the event the Company at some
future time determines to issue additional shares from its authorized but
unissued shares, the Company might offer registration rights to certain of its
affiliates who want to sell their shares.
TAXATION
Federal Taxation
The Mutual Holding Company and the Bank currently file a consolidated
federal income tax return based on a calendar year. After the Conversion, it is
expected that the Company and the National Bank, together with the National
Bank's subsidiary, will file a consolidated federal income tax return on a
calendar year basis.
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 Lexington First which met certain definitional tests and
other conditions prescribed by the Code benefitted from certain favorable
provisions regarding their deductions from taxable income for annual additions
to their bad debt reserve. For purposes of the bad debt reserve deduction, loans
were separated into "qualifying real property loans," which generally are loans
secured by interests in certain real property, and nonqualifying loans, which
are all other loans. The bad debt reserve deduction with respect to
nonqualifying loans was based on actual loss experience, however, the amount of
the bad debt reserve deduction with respect to qualifying real property loans
could be based upon actual loss experience (the "experience method") or a
percentage of taxable income determined without regard to such deduction (the
"percentage of taxable income method"). Legislation recently signed by the
President repealed the percentage of taxable income method of calculating the
bad debt reserve. Lexington First historically has elected to use the experience
method.
Earnings appropriated to an institution's bad debt reserve and claimed
as a tax deduction were not available for the payment of cash dividends or for
distribution to shareholders (including distributions made on dissolution or
liquidation), unless such amount was included in taxable income, along with the
amount deemed necessary to pay the resulting federal income tax.
Beginning with the first taxable year beginning after December 31,
1995, savings institutions, such as the Bank, will be treated the same as
commercial banks. Institutions with $500 million or more in assets will only be
able to take a tax deduction when a loan is actually charged off. Institutions
with less than $500 million in assets will still be permitted to make deductible
bad debt additions to reserves, but only using the experience method.
Lexington First's federal corporate income tax returns have not been
audited in the last five years.
Under provisions of the Revenue Reconciliation Act of 1993 ("RRA"),
enacted on August 10, 1993, the maximum federal corporate income tax rate was
increased from 34% to 35% for taxable income over $10.0 million, with a 3%
surtax imposed on taxable income over $15.0 million. Also under provisions of
RRA, a separate depreciation calculation requirement has been eliminated in the
determination of adjusted current earnings for purposes of determining
alternative minimum taxable income, rules relating to payment of estimated
corporate income taxes were revised, and certain acquired intangible assets such
as goodwill and customer-based intangibles were allowed a 15-year amortization
period. Beginning with tax years ending on or after January 1, 1993, RRA also
provides that securities dealers must use mark-to-market accounting and
generally reflect changes in value during the year or upon sale as
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taxable gains or losses. The IRS has indicated that financial institutions which
originate and sell loans will be subject to the rule.
State Income Taxation
The State of Tennessee imposes an annual franchise tax on financial
institutions regularly engaged in business in Tennessee at any time during the
calendar year. This tax is 1.1% of Lexington First's net capital. For purposes
of this tax, net capital is defined as the aggregate of the Bank's capital
stock, paid-in capital, retained earnings and net unrealized gains or losses on
securities designated as available-for-sale less an amount equal to the five
year average of the percentage that the book value of any United States
obligations held by the Bank bears to the book value of the Bank's total assets.
Financial institutions which are subject to tax both within and without
Tennessee must apportion their net capital. For the year ended December 31,
1996, the amount of such expense for Lexington First was $96,000.
MANAGEMENT OF THE COMPANY
Directors and Executive Officers
The Board of Directors consists of the same individuals who serve as
directors of the Mutual Holding Company. The Board is divided into three
classes, each of which contains approximately one-third of the Board. The Bylaws
of the Company currently authorize eleven directors. The directors shall be
elected by the stockholders of the Company for staggered three-year terms, or
until their successors are elected and qualified. Their names and biographical
information are set forth under "Management of the Bank -- Directors."
The following individuals are executive officers of the Company and
holds the offices set forth below opposite their names.
Name Position(s) with the Company
---- ----------------------------
Charlie H. Walker Chairman of the Board
Howard W. Tignor President and Chief Executive Officer
Arba M. Taylor Secretary/Treasurer
The executive officers of the Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, retirement, resignation or removal by the Board of Directors.
Since the formation of the Company, none of the executive officers,
directors or other personnel of the Company has received remuneration from the
Company. In the event that any employee of the Bank provides services to the
Company, the Company has agreed to reimburse the Bank for any costs related to
such services. Information concerning the principal occupations and employment
of the directors and officers of the Company during the past five years is set
forth under "Management of the Bank -- Directors." Directors and executive
officers of the Company initially will not be compensated by the Company but
will serve and be compensated by the Bank. See "Management of the Bank --
Director Compensation" and " -- Executive Compensation."
MANAGEMENT OF THE BANK
Upon completion of the Conversion, each director of the Bank
immediately prior to the Conversion will continue to serve as a director of the
National 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
National Bank following the Conversion, the Board of Directors of the Company
will elect the directors of the National Bank.
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The following table sets forth certain information with respect to the
persons who currently serve as directors and executive officers of the Bank.
Each director of the Bank also serves as a director of the Mutual Holding
Company. There are no arrangements or understandings between the Bank and any
such person pursuant to which such person was elected a director or executive
officer of the Bank, and, except as described below, no director or executive
officer is related to any other director or executive officer by blood, marriage
or adoption.
<TABLE>
<CAPTION>
Age as of
June 30, Position(s) with Director Term
Name 1997 the Bank or Company Since Expires
- ---- --------- --------------------------- --------- -------
<S> <C> <C> <C> <C>
Howard W. Tignor 54 Director, President and Chief 1997 2000
Executive Officer
Charlie H. Walker 68 Chairman of the Board 1962 1999
Arba Milam Taylor 64 Director, Secretary and Treasurer 1977 1998
Pope Thomas 67 Director and Vice President 1961 2000
Stephen M. Lowry 40 Director 1988 1999
Stephen M. Milam 39 Director * 1988 1998
Robert C. Thomas 37 Director 1988 2000
Richard Walker 37 Director * 1988 1998
Pat Carnal 59 Director 1997 2000
</TABLE>
- ------------
* Directors of the Mutual Holding Company only.
The principal occupation of each director and executive officer are set
forth below. Unless otherwise indicated, each director and executive officer has
served in their current position for the last five years.
Howard W. Tignor became President and Chief Executive Officer of the
Bank and Mutual Holding Company in February 1997. Mr. Tignor served as president
and chief executive officer of the Bank of Waynesboro, Waynesboro, Tennessee
from January 1995 to January 1997 and from March 1991 to December 1994 was a
self-employed bank consultant with the Southern Banking Group in Shelbyville,
Tennessee.
Charlie H. Walker served as President and Chief Executive Officer of
Lexington First from 1961 to February 1996. He is a retired attorney and is the
father of Director Richard Walker. Charlie H. Walker is Arba Milam Taylor's
brother-in-law.
Arba Milam Taylor was employed with Lexington First from 1961 to her
retirement in March 1997 at which time she was Secretary-Treasurer and office
manager of the Bank. She is the mother of Director Stephen M. Milam and the
sister-in-law of Charlie H. Walker.
Pope Thomas is a retired sales representative for a furniture
manufacturing firm. He is the father of Director Robert C. Thomas.
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Stephen M. Lowry is a plant manager and engineer for the Decaturville
Metal Works in Decaturville, Tennessee. From August 1979 to July 1996 he was
maintenance supervisor with Harding Machine, Lexington, Tennessee.
Stephen M. Milam is an attorney in general practice of law in
Lexington, Tennessee, Henderson County and the surrounding counties. He is the
son of Director Arba Milam Taylor.
Robert C. Thomas is a livestock specialist employed by the Tennessee
Department of Agriculture. He is the son of Director Pope Thomas.
Richard Walker is a practicing attorney in Henderson County and the
surrounding counties with his office located in Lexington, Tennessee. He is the
son of Chairman Charlie Walker.
Pat Carnal became a member of the Board in April 1997. He is president
and owner of the Pat Carnal Agency, Inc., an insurance agency located in
Lexington, Tennessee. Mr. Carnal is currently the treasurer for the Lexington
Rotary Club.
Board Meetings and Committees of the Board of Directors
Regular meetings of the Board of Directors of Lexington First are, and
regular meetings of the Bank will be, held on a monthly basis and special
meetings of the Board of Directors of Lexington First are, and in the case of
the Bank will be, held from time-to-time as needed. There were 15 meetings of
the Board of Directors of Lexington First held during the fiscal year ended
December 31, 1996. No director attended fewer than 75% of the total number of
meetings of the Board of Directors of Lexington First held during fiscal 1996
and the total number of meetings held by all committees of the Board on which
the director served during such year.
The Bank's Executive Committee meets on an as-needed basis to conduct
business between the Bank's regular Board meetings. This committee, which
currently includes Directors Charlie H. Walker, Arba M. Taylor, Pope Thomas and
Howard W. Tignor met 26 times during fiscal 1996.
The Audit Committee reviews the records and affairs of the Mutual
Holding Company and the Bank to determine its financial condition, reviews with
management and the independent auditors the systems of internal control, and
monitors the Bank's adherence in accounting and financial reporting to generally
accepted accounting principles. Currently, Charlie H. Walker, Arba M. Taylor and
Pope Thomas serve as members of this committee. The Audit Committee met two
times during fiscal 1996.
The Compensation Committee reviews existing compensation and makes
recommendations with respect thereto to the Board of Directors. The Compensation
Committee consists of Directors Charlie H. Walker, Arba M. Taylor, Pope Thomas
and Howard W. Tignor, and met three times in fiscal 1996.
Lexington First has no established nominating committee. A nominating
committee is appointed on a annual basis by the Board of Directors.
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Executive Compensation
Summary Compensation Table. The following table sets forth the cash and
noncash compensation for each of the last three fiscal years awarded to or
earned by the Chief Executive Officer who receives no compensation other than
his fees as director and chairman. No executive officer of the Bank earned a
salary and bonus during fiscal year 1996 exceeding $100,000 for services
rendered in all capacities to the Bank.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
----------------------------------- --------------------------
Restricted Securities
Name and Fiscal Other Annual Stock Underlying All Other
Principal Position Year Salary Bonus Compensation Award(s) Options Compensation
- ------------------ ------ ------ ----- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Tim Johnson(1) 1996 36,000 2,400 -- -- -- --
1995 34,662 2,900 -- -- -- --
1994 28,668 2,900 -- -- -- 9,585(2)
</TABLE>
- ----------------
(1) Tim Johnson was dismissed as President and Chief Executive Officer of
the Bank in December 1996 and was replaced by Howard W. Tignor in
February 1997.
(2) Consists of a distribution from the Bank's Employee Stock Ownership
Plan.
Director Compensation
Director Fees. The members of the Board of Directors receive $250 for
regular monthly Board meetings and committee meetings attended and $250 for each
special meeting attended. The Chairman receives $400 monthly for regularly
scheduled Board meetings and committee meetings.
Certain Benefit Plans and Agreements
1998 Stock Option and Incentive Plan. The Board of Directors of the
Company intends to implement the 1998 Option Plan more than six months after
completion of the Stock Conversion and Reorganization. The purpose of the 1998
Option Plan is to provide additional incentive to directors and employees by
facilitating their acquisition of Common Stock. The 1998 Option Plan will have a
term of ten years, after which no awards may be made.
A number of shares equal to 10% of the shares of Conversion Stock sold
to the public in the Offerings 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." The exercise price of shares subject to outstanding Awards
will be equitably adjusted upon a stock split, recapitalization, or similar
event (including a return of capital). 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 1998 Option
Plan.
It is expected that the 1998 Option Plan will be administered by a
committee (the "Option Committee") of at least two directors who are designated
by the Board of Directors and are "non-employee directors" within the meaning of
the federal securities laws. Directors and employees will be eligible to receive
Awards, and the Option Committee will select the recipients of Awards, the
number of shares to be subject to such Awards, and the terms and conditions of
such Awards (subject to the terms of the 1998 Option Plan). The Options to be
awarded to employees pursuant to the Option Plan may or may not qualify as
incentive stock options ("ISOs") that afford favorable tax
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treatment to recipients upon compliance with certain restrictions pursuant to
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
that do not result in tax deductions to the Company unless optionees fail to
comply with Section 422 of the Code.
Subject to the regulatory requirements explained below under the
heading "OTS Rules Applicable to the Option Plan and MRP" each Option will have
an exercise price not less than 50% of the market value of the underlying shares
on the date of the grant, will become exercisable upon terms determined by the
Option Committee, and will become immediately exercisable upon a change in
control (within the meaning of the Employment Agreement) or an optionee's
termination of employment due to retirement, death, or disability. Nevertheless,
each Option will expire no later than ten years from the date it is granted, and
will expire earlier, unless otherwise determined by the Option Committee, upon
(i) an employee's termination of employment for "just cause" (as defined in the
1998 Option Plan), (ii) the date two years after termination of such service due
to the employee's death, (iii) the date one year after an employee terminates
service due to disability, or (iv) the date one year after an employee
terminates service for a reason other than just cause, death, or disability.
Otherwise unexpired 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 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 1998 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 Committee will have the discretion to impose
transfer restrictions, such as a right of first refusal, on the Common Stock
subject to Awards. Optionees will be permitted to transfer Awards to family
members or trusts under specified circumstances, but awards 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. Upon an optionees
exercise of an Option, the Company may, if provided by the Option Committee in
the underlying Option agreement, pay to the optionee 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.
It is expected that upon the implementation of the 1998 Option Plan,
Mr. Tignor will receive an Award with respect to 25% of the shares of Conversion
Stock reserved under the 1998 Option Plan, and each director at that time who is
not then an employee will receive an Award with respect to 3.3% of such shares.
No SARs are expected to be granted when the 1998 Option Plan becomes effective.
At any time following consummation of the Stock Conversion and Reorganization,
the Bank or the Company may contribute sufficient funds to a grantor trust to
purchase, and such trust may purchase, a number of shares of Common Stock equal
to 10% of the shares sold to the public in the Offerings. Such shares would be
held by the trust for issuance to Option holders upon the exercise of Options in
the event the 1998 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.
1998 Management Recognition Plan. The Board of Directors of the
Company intends to implement the 1998 MRP more than six months after completion
of the Stock Conversion and Reorganization. The purpose of the 1998 MRP is to
enable the Company and the Bank to retain personnel of experience and ability in
key positions of responsibility.
A number of shares equal to 4% of the shares of Conversion Stock sold
in the Offerings would be reserved for future issuance under the 1998 MRP. The
same non-employee directors who are appointed to the Option Committee are
expected to act, by majority, as the committee (the "1998 MRP Committee")
responsible for selecting the directors
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and employees who will receive 1998 MRP awards, as well as making general
decisions associated with the 1998 MRP's operation. The directors serving as the
1998 MRP Committee are also expected to serve as trustee of the trust associated
with the 1998 MRP (the "1998 MRP Trust"). In that capacity, they will have the
responsibility to hold and invest all funds contributed to the 1998 MRP Trust.
Shares held in the 1998 MRP Trust will be voted by the 1998 MRP trustees as
directed by the Board of Directors of the Company, and in the absence of such
direction, at the discretion of the 1998 MRP trustees, and will be distributed
as the award vests. The compensation expense for the Company for 1998 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 Company's Board of
Directors can terminate the 1998 MRP at any time, and, if it does so, any shares
not allocated will revert to the Company.
The shares awarded pursuant to the 1998 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. Subject to the regulatory requirements explained below
under the heading "OTS Rules Applicable to the Option Plan and MRP" each 1998
MRP award will vest in accordance with conditions determined by the 1998 MRP
Committee, with an acceleration of vesting to 100% upon a participant's death,
disability, or retirement or a "change in control" within the meaning of the
Employment Agreement. Dividends on unvested shares will be held in the 1998 MRP
Trust for payment as vesting occurs. Participants in the 1998 MRP may elect to
defer all or a percentage of their 1998 MRP awards that would have otherwise
been transferred to the participants upon vesting of said awards. If, however, a
participant terminates employment before becoming fully vested in an 1998 MRP
award, he or she forfeits all rights to the allocated shares under restriction.
It is expected that upon the implementation of the 1998 MRP, Mr. Tignor
will receive an award with respect to 25% of the shares reserved for 1998 MRP
awards, and each director who is not an employee but is a director on the
effective date shall receive an award with respect to 3.3% of such shares. At
any time following consummation of the Stock Conversion and Reorganization, the
Bank or the Company will contribute sufficient funds to the 1998 MRP Trust so
that the trust can purchase a number of shares of Common Stock equal to 4% of
those sold in the Offerings. Whether those shares 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.
OTS Rules Applicable to the Option Plan and MRP. Current OTS
regulations require that, if the 1998 Option Plan or 1998 MRP is implemented
within one year following completion of the Stock Conversion and Reorganization,
(i) no employee will receive awards covering more than 25% of the shares subject
to the plan, (ii) non-employee directors will not receive awards exceeding 30%
in the aggregate, and 5% individually, of such shares, (iii) awards will vest
over a period of at least five years and vesting will not accelerate upon an
individual's retirement or a corporate change in control, (iv) the exercise
price for Options will at least equal the fair market value of the underlying
shares on its grant date, and (v) the plan will not be implemented before, or in
the absence of, its receipt of stockholder approval, and no awards will be made
prior to the receipt of such approval.
Deferred Compensation Plan. The Company's Board of Directors has
established a Deferred Compensation Plan (the "Deferred Compensation Plan") for
its directors, including Mr. Tignor. Before each calendar year begins, each non-
employee director may elect to defer receipt of all or part of the fees that the
Bank or the Company would otherwise have provided, and Mr. Tignor may elect to
defer receipt of up to 25% of his future compensation. In addition, the Company
will make a one-time credit of $207,730 to Mr. Tignor's account. Of this amount,
$100,000 will vest pro-rata over ten years of Mr. Tignor's future service, and
$107,730 will be 50% vested immediately and vest 25% per year over the following
two years of Mr. Tignor's future service. For the $107,730 portion of the credit
only, Vesting accelerates to 100% if Mr. Tignor is terminated without "just
cause" and not in connection with a "change in control" (as these terms are
defined in the Employment Agreement). In addition, Mr. Tignor will receive a
$100,000 credit to his account if he is terminated without just cause at a time
when a validly executed employment agreement is not in force between Mr. Tignor
and the Bank or the Company.
Deferred amounts will be credited at the end of the calendar year to a
bookkeeping account in the participant's name along with the investment return
which would have resulted if such deferred amounts had been invested, based upon
the participant's choice, between the measures selected by the Company's
directors. Initially,
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those measures are expected to include, at a minimum, the dividend-adjusted rate
of return on Common Stock and the Bank's highest annual rate of interest on
certificates of deposit having a one-year term. Each participant may make an
election to receive benefit distributions either in a lump sum or in annual
installments over a period up to ten years. The Company will recognize the
plan's compensation expense on a quarterly basis for both (i) the annual credits
and investment returns on Deferred Compensation Plan amounts and (ii) as vesting
occurs on the one-time credit of $207,730 to Mr. Tignor's account.
The Company expects to make annual contributions to a grantor trust in
an amount equal to the financial expense associated with the Deferred
Compensation Plan. The trust's assets would remain subject to the claims of the
Company's general creditors, and be available for eventual payments to
participants.
Employment Agreement. In February 1997, the Bank entered into an
employment agreement (the "Employment Agreement" ) with Howard W. Tignor (the
"Employee") who became the Bank's President and Chief Executive Officer. The
Employment Agreement has been restated in its entirety in connection with the
Stock Conversion and Reorganization. In addition, the Company has entered into
an agreement guaranteeing the Bank's obligations under the Employment Agreement.
Overall, the Boards of the Bank and the Company believe that these agreements
assure fair treatment of the Employee by assuring him of some financial
security. The material terms of the restated Employment Agreement are as
follows.
The term of the Employment Agreement is three years, and may be
extended for additional one-year periods, on an annual basis beyond the then
effective expiration date, upon a determination by the Board of Directors that
the performance of the Employee has met the required performance standards and
that such term should be extended. The Employment Agreement entitles the
Employee to receive an annual base salary equal to $65,000, with a salary review
by the Board of Directors not less often than annually, and with annual salary
increases at least equal to the average annual increase in the Consumer Price
Index. The Employee is entitled to participate in the Bank's plans and programs
for bonuses, retirement, medical, and customary fringe benefits. He will also be
reimbursed for his expenses incurred in moving from Waynesboro, Tennessee to
Lexington, Tennessee.
The Bank may at any time terminate the Employment Agreement for "just
cause" (as defined therein), in which case no severance benefits are available.
The Employee is able to voluntarily terminate his Employment Agreement by
providing 90 days' written notice to the Bank's Board of Directors, in which
case he will receive only his compensation, vested rights, and benefits up to
the date of termination. The Employment Agreement terminates automatically upon
the Employee's death, in which case his estate will receive his salary through
the last day of the calendar month in which the Employee's death occurred.
If the Employment Agreement is terminated due to the Employee's
"disability" (as defined in the Employment Agreement), the Employee will be
entitled to a continuation of his salary and benefits through the date of such
termination, including any period prior to the establishment of the Employee's
disability. In the event that the Employee prevails or obtains a written
settlement in any legal dispute as to the Employment Agreement, he will be
reimbursed for his legal and other expenses.
Under the Employment Agreement, the Employee will receive the greater
of $100,000, or the amount to be paid under the remaining term of the Agreement
in the event of either (i) his involuntary termination of employment other than
------
for his "disability" or "just cause" or (ii) his voluntary termination within 90
--
days due to specified events, such as a significant reduction in salary,
benefits, duties or authority.
The Employment Agreement also provides that, within 10 days of a
"Change in Control" (as defined below), the Employee will receive $50,000. In
addition, he will be paid $100,000 in the event of either (i) his involuntary
------
termination of employment other than for "just cause " during the period
beginning six months before a Change in Control and ending on the later of the
first anniversary of the Change in Control or the expiration date of the
Employment Agreement (the "Protected Period") or (ii) his voluntary termination
--
due to certain specified events within the Protected Period. The Employee also
receives the greater of $100,000, or the amount remaining to be paid under the
Agreement in the event of his involuntary termination in the event of
circumstances other than a Change in Control. The Bank will also pay for long-
term disability for the Employee, and provide medical benefits under the
provisions of COBRA for 18 months. Payments made to or on behalf of the Employee
would be limited to the extent necessary to avoid the golden parachute penalties
imposed by Code Section 280G. The term "Change in Control" generally means an
event of a nature that (I) must be reported in response to Item I of the current
report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 ("Exchange Act"); or (II) results
in a Change in Control of the Bank or the Company within the meaning of the Home
Owners' Loan Act of 1933 and associated OTS regulations, as in effect on the
date hereof; or (III) involves a transaction by which (a) any "person" is or
becomes the "beneficial owner" (as these terms are defined under the Exchange
Act) of securities of the Bank or the
72
<PAGE>
Company representing twenty percent (20%) or more of their combined voting
power. Exclusive of any securities purchased by the Bank's ESOP; or (b)
individuals who constitute the Board of the Bank or the board of directors of
the Company on the date hereof ("Incumbent Board") cease for any reason to
constitute at least a majority thereof; provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Company's stockholders was approved by the
same nominating committee serving under an Incumbent Board, shall be, for
purposes of this clause (b), considered as though he were a member of the
Incumbent Board; or (c) the occurrence of a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the Bank or the
Company or similar transaction in which the Bank or the Company is not the
resulting entity.
The Employment Agreement further provides that within ten business days
of a Change in Control, the Bank shall fund, or cause to be funded, a grantor
trust in the amount of the severance benefit, that could become payable to the
Employee. These provisions may have an anti-takeover effect by making it more
expensive for a potential acquiror to obtain control of the Company. The
aggregate payment that would be made to the Employee assuming his termination of
employment under the foregoing circumstances at December 31, 1996 would have
been approximately $150,000. For more information, see "Certain Anti-Takeover
Provisions in the Certificate of Incorporation and Bylaws".
Pension Plan
The Association annually contributes an amount to the Retirement Plan
as necessary to fund the actuarially determined minimum funding requirements in
accordance with the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). For the year ended September 30, 1991, the Retirement Plan was
completely funded. Upon the normal retirement age, at or after age 65, a
participant is entitled to an annual retirement benefit in the amount equal to
1.5% of the participant's average annual compensation (as defined in the
Retirement Plan) multiplied by the participant's years of benefit service at
normal retirement. Under the Retirement Plan, employees may participate in the
Retirement Plan after one year of employment with the Association. Benefits are
also payable under the Retirement Plan for termination due to disability, early
retirement and upon death. Benefits become vested after a participant completes
five years of service.
The following table indicates the annual retirement benefit that would
be payable under the plan upon retirement at age 65 to a participant electing to
receive his retirement benefit in the standard form of benefit, assuming various
specified levels of plan compensation and various specified years of credited
service.
<TABLE>
<CAPTION>
Highest Five 5 Years 10 Years 20 Years 25 Years 30 Years 35 Years 40 Years
Years Average Benefit Benefit Benefit Benefit Benefit Benefit Benefit
Compensation Service Service Service Service Service Service Service
------------ ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
$10,000 $1,000 $2,000 $4,000 $5,000 $6,000 $7,000 $8,000
15,000 1,500 3,000 6,000 7,500 9,000 10,500 12,000
25,000 2,500 5,000 10,000 12,500 15,000 17,500 20,000
35,000 3,500 7,000 14,000 17,500 21,000 24,500 28,000
45,000 4,500 9,000 18,000 22,500 27,000 31,500 38,000
55,000 5,500 11,000 22,000 27,500 33,000 38,500 44,000
65,000 6,500 13,000 26,000 32,500 39,000 45,500 52,000
75,000 7,500 15,000 30,000 37,500 45,000 52,500 60,000
</TABLE>
Transactions with Certain Related Persons
During the fiscal year ended December 31, 1996, certain loans made by
the Bank were outstanding in an amount exceeding $60,000 to certain directors
and executive officers and associates of directors and executive officers. All
of such loans were made in the ordinary course of business, were made on
substantially the same terms, including
73
<PAGE>
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons, and did not involve more than the normal risk
of collectibility or present other unfavorable features.
The Bank owns an office building which rents space to the law firm of
Director Richard Walker and Bank Attorney Kenneth Walker for which it charges
rent of $550 per month. This rent, which totaled $3,300 for fiscal 1996, is
consistent with rents charged in the local area. In addition, the Walker law
office received approximately $18,000 in legal fees from Bank borrowers for
services provided to them in connection with loans originated by the Bank and
for assisting the Bank with foreclosures on certain properties.
BENEFICIAL OWNERSHIP OF CAPITAL STOCK
Beneficial Ownership of Bank Common Stock
The following table includes, as of March 31, 1997, certain information
as to the Bank Common Stock beneficially owned by (i) the only persons or
entities, including any "group" as that term is used in Section 13(d)(3) of the
Exchange Act, who or which was known to the Bank to be the beneficial owner of
more than 5% of the issued and outstanding Bank Common Stock, (ii) the directors
of the Bank and (iii) all directors and executive officers of the Bank as a
group. For information concerning proposed subscriptions by directors and
executive officers and the anticipated ownership of Common Stock by such persons
upon consummation of the Stock Conversion and Reorganization, see " -- Proposed
Subscriptions by Directors and Executive Officers."
<TABLE>
<CAPTION>
Amount Percent of Total
Beneficially Outstanding
Name Owned Common Stock (1)
- ---- ----- ----------------
<S> <C> <C>
Pat Carnal 19,750 8.8568%
Stephen Lowry 2,227 0.9987
Stephen Milam 2,727 1.2229
Pope Thomas 2,727 1.2229
Robert C. Thomas 1,227 0.5502
Arba Milam Taylor 8,881 3.9826
Howard W. Tignor 2,694 1.2081
Charlie H. Walker 5,978 2.6808
Richard Walker 2,727 1.2229
------ -------
48,938 21.9460%
Lexington First Federal Mutual
Holding Company 135,000 60.54%
19 Natchez Trace Drive
Lexington, Tennessee
All Directors and Executive Officers
as a group (9 persons) 48,938 21.9460%
</TABLE>
- ---------------
(1) Shown as percent of total outstanding Lexington First Common Stock
before Conversion or 222,993 shares.
74
<PAGE>
Proposed Subscriptions by Directors and Executive Officers
The following table sets forth, for each of the Bank's directors and
executive officers and for all of the directors and executive officers as a
group, (1) the number of Exchange Shares to be held upon consummation of the
Stock Conversion and Reorganization, based upon their beneficial ownership of
Bank Common Stock as of March 31, 1997, (2) the proposed purchases of Conversion
Stock, assuming sufficient shares are available to satisfy their subscriptions,
and (3) the total amount of Common Stock to be held upon consummation of the
Stock Conversion and Reorganization, in each case assuming that 260,300 shares
of Conversion Stock are sold, which is the midpoint of the Valuation Price
Range.
<TABLE>
<CAPTION>
Proposed Purchases of Total Common Stock
Conversion Stock to be Held
Number of ------------------------ -----------------------------
Exchange Shares Number Number Percentage
Name to be Held Amount of Shares of Shares of Total
- ---- -------------------- ------ --------- --------- -----------
<S> <C>
Pat Carnal 21,497 $ %
Stephen Lowry 4,454
Stephen Milan 5,454
Pope Thomas 5,454
Robert C. Thomas 2,454
Arba Milam Taylor 17,762
Howard W. Tignor 5,388
Charlie H. Walker 11,956
Richard Walker 5,454
-------
Total 79,873
All Directors and
Executive Officers
as a group (9 persons) 79,873 $ %
</TABLE>
THE CONVERSION
The Boards of Directors of the Mutual Holding Company, the Bank and the
Company have approved the Plan of Conversion, as has the OTS, subject to
approval by the Members of the Mutual Holding Company and the Stockholders of
the Bank entitled to vote on the matter and the satisfaction of certain other
conditions. Such OTS approval, however, does not constitute a recommendation or
endorsement of the Plan by such agency.
General
The Boards of Directors of the Mutual Holding Company and the Bank
unanimously adopted the Plan as of April 12, 1997, and subsequently adopted the
Plan, as amended. The Plan has been approved by the OTS, subject to, among other
things, approval of the Plan by the Members of the Mutual Holding Company and
the Stockholders of the Bank. The Members' Meeting and the Stockholders' Meeting
have been called for this purpose on _____________, 1997.
75
<PAGE>
The following is a brief summary of the material aspects of the Plan,
the Stock Conversion and Reorganization and the Bank Conversion. The summary is
qualified in its entirety by reference to the provisions of the Plan, which is
available for inspection at Lexington First's office and at the offices of the
OTS. The Plan also is filed as an exhibit to the Registration Statement of which
this Prospectus is a part, copies of which may be obtained from the SEC. See
"Additional Information."
Business Purposes
The Mutual Holding Company, as a federally chartered mutual holding
company, does not have stockholders and has no authority to issue capital stock.
As a result of the Stock Conversion and Reorganization, and the subsequent Bank
Conversion, the Company will be structured in the form used by holding companies
of national banks, commercial banks, most business entities and a growing number
of savings institutions. The portion of the net proceeds from the sale of
Conversion Stock to be distributed to the Bank (and the National Bank) by the
Company will substantially increase the Bank's (and the National Bank's) capital
position which in turn will increase the amount of funds available for lending
and investment and provide greater resources to support both current operations
and future expansion by the National 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
National Bank to compete more effectively with other types of financial service
organizations. As a holding company, the Company will have the ability to
diversify the Company's and the National Bank's business activities through
acquisition of, or mergers with, both stock savings institutions and commercial
banks, as well as other companies. Although there are no current arrangements,
understandings or agreements regarding any such opportunities, the Company will
be in a position after the Stock Conversion and Reorganization and Bank
Conversion, subject to regulatory limitations and the Company's financial
position, to take advantage of any such opportunities that may arise.
In their decision to pursue the Conversion, the Mutual Holding Company
and the Bank considered various regulatory uncertainties associated with the
mutual holding company structure as well as the general uncertainty regarding a
possible elimination of the thrift charter.
The Conversion also will be important to the future growth and
performance of the holding company organization by providing a larger capital
base to support the operations of the Bank, the National Bank and Company and by
enhancing their future access to capital markets, ability to diversify into
other financial services related activities, and ability to provide services to
the public. Although the Bank currently has the ability to raise additional
capital through the sale of additional shares of Bank Common Stock, that ability
is limited by the mutual holding company structure which, among other things,
requires that the Mutual Holding Company hold a majority of the outstanding
shares of Bank Common Stock.
The Conversion also will result in an increase in the number of
outstanding shares of Common Stock following the Stock Conversion and
Reorganization, as compared to the number of outstanding shares of Public Bank
Shares prior to the Stock Conversion and Reorganization, which will increase the
likelihood of the development of an active and liquid trading market for the
Common Stock. See "Market for the Common Stock."
An additional benefit to the Stock Conversion and Reorganization will
be an increase in the accumulated earnings and profits of the Bank for federal
income tax purposes. When the Bank in its mutual form transferred substantially
all of its assets and liabilities to the Bank in connection with the MHC
Reorganization, its accumulated earnings and profits tax attribute was not able
to be transferred to the Bank because a non tax-free reorganization was
involved. Accordingly, this tax attribute was retained by the Bank in its mutual
form when it converted its charter to that of a mutual holding company, even
though the underlying retained earnings were transferred to the Bank. The Stock
Conversion and Reorganization has been structured to re-unite the accumulated
earnings and profits and tax attributes retained by the Mutual Holding Company
in the MHC Reorganization with the retained earnings of the Bank
76
<PAGE>
by merging the Mutual Holding Company (following its conversion to an interim
federal stock savings association) with and into the Bank in a tax-free
reorganization.
If the Bank in its mutual form had undertaken a standard conversion
involving the formation of a stock holding company in 1992, applicable OTS
regulations would have required a greater amount of Common Stock to be sold than
the amount of net proceeds raised in the Bank's initial public offering. In
addition, if a standard conversion had been conducted in 1992, management of the
Bank in its mutual form believed that it would have been difficult to profitably
invest the larger amount of capital that would have been raised, when compared
to the amount of net proceeds raised in the Bank's initial public offering. A
standard conversion in 1992 also would have immediately eliminated all aspects
of the mutual form of organization.
In light of the foregoing, the Boards of Directors of the Bank and the
Mutual Holding Company believe that the Stock Conversion and Reorganization and
the subsequent Bank Conversion are in the best interests of such companies and
their respective stockholders and Members.
Description of the Stock Conversion and Reorganization
On April 12, 1997, the Boards of Directors of the Bank and the Mutual
Holding Company adopted the Plan. The Plan was subsequently adopted as amended
on July 12, 1997. On July __, 1997 the Bank organized the Company under
Tennessee law as a first-tier wholly owned subsidiary of the Bank. Pursuant to
the Plan: (i) the Mutual Holding Company will convert to an interim Federal
stock savings bank and simultaneously will merge with and into the Bank,
pursuant to which the Mutual Holding Company will cease to exist and the shares
of Bank Common Stock held by the Mutual Holding Company will be canceled; and
(ii) Interim will then merge with and into the Bank. As a result of the merger
of Interim with and into the Bank, the Bank will become a wholly owned
subsidiary of the Company operating under the name "Lexington First Federal
Savings Bank" and the Public Bank Shares will be converted into the Exchange
Shares pursuant to the Exchange Ratio, which will result in the Public
Stockholders owning in the aggregate approximately the same percentage of the
Common Stock to be outstanding upon the completion of the Stock Conversion and
Reorganization (i.e., the Conversion Stock and the Exchange Shares) as the
percentage of Bank Common Stock owned by them in the aggregate immediately prior
to consummation of the Stock Conversion and Reorganization, before giving effect
to (a) the payment of cash in lieu of issuing fractional Exchange Shares, (b)
any shares of Conversion Stock purchased by the Public Stockholders in the
Offerings, and (c) any exercise of dissenters' rights.
77
<PAGE>
The following diagram outlines the current organizational structure of
the parties and their respective ownership interests:
- --------------------------------- ---------------------------------
Lexington First Federal
Mutual Holding Company Public Stockholders
- --------------------------------- ---------------------------------
60.54% 39.46%
---------------------------------------------------
---------------------------------
Lexington First Federal
Savings Bank
---------------------------------
100%
---------------------------------
Community National
Corporation
---------------------------------
100%
---------------------------------
Interim
(to-be-formed)
---------------------------------
78
<PAGE>
The following diagram reflects the Stock Conversion and Reorganization,
including (i) the merger of the Mutual Holding Company (following its conversion
to an interim federal stock savings association) with and into the Bank, (ii)
the merger of Interim with and into the Bank, pursuant to which the Public Bank
Shares will be converted into Exchange Shares, and (iii) the offering of
Conversion Stock. The diagram assumes that there are no dissenters' rights
exercised and fractional shares and does not give effect to purchases of
Conversion Stock by holders of Public Bank Shares or the exercise of outstanding
stock options.
- --------------------------------- ---------------------------------
Purchasers of Stock Holders of Exchange Shares
in the Conversion (Former Public Stockholders)
- --------------------------------- ---------------------------------
60.54% 39.46%
------------------------------------------
---------------------------------
Community National
Corporation
---------------------------------
100%
---------------------------------
Lexington First Federal
Savings Bank
---------------------------------
Pursuant to OTS regulations, consummation of the Stock Conversion and
Reorganization (including the offering of Conversion Stock in the Offerings, as
described below) is conditioned upon the approval of the Plan by: (i) the OTS;
(ii) at least a majority of the total number of votes eligible to be cast by
Members of the Mutual Holding Company at the Members' Meeting; and (iii) holders
of at least two-thirds of the shares of the outstanding Bank Common Stock at the
Stockholders' Meeting. In addition, the Primary Parties have conditioned the
consummation of the Stock Conversion and Reorganization on the approval of the
Plan by at least a majority of the votes cast, in person or by proxy, by the
Public Stockholders at the Stockholders' Meeting and the exercise of dissenters'
rights of appraisal by the holders of less than 10% of the outstanding shares of
Bank Common Stock.
Description of the Bank Conversion
Following consummation of the Stock Conversion and Reorganization, the
Board of Directors of the Bank intends to effectuate the Bank Conversion by
converting the Bank to the National Bank. Upon completion of the Bank
Conversion, the corporate existence of the Bank shall not cease, but the
National 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 Bank Conversion,
including but not limited to all rights and interests of the Bank in and to its
assets and properties, whether real, personal or mixed. The National Bank will
be a wholly owned subsidiary of the Company.
79
<PAGE>
As part of the Bank Conversion, national bank articles of association
and bylaws will be adopted to allow the National Bank to operate as a national
bank. By approving the Plan, the Members of the Mutual Holding Company and the
Public Stockholders will thereby approve such articles of association and
bylaws. The Company, as the sole stockholder of the Bank, shall approve the Bank
Conversion and the Bank shall take such actions as may be necessary to
consummate the Bank Conversion. The effective date of the articles of
association and bylaws of the National Bank shall be the date of the
consummation of the Bank Conversion. The Plan provides that the Board of
Directors of the Bank may, at any time, elect not to proceed with the Bank
Conversion. It is presently the intent of the Bank's Board of Directors to
proceed with both the Stock Conversion and Reorganization and the Bank
Conversion. The Bank has applied to the OTS and the OCC for approval of the
conversion of the Bank to a national bank, and the Company has applied to the
Federal Reserve Board for approval of the Company's continued ownership of 100%
of the stock of the National Bank following the Bank Conversion. Consummation of
the Bank Conversion requires the approval of the OCC and the Federal Reserve
Board. Such approvals have not been received to date, and there can be no
assurance that such approvals will be received. See "Risk Factors -- Potential
Delay in Completion or Denial of Bank Conversion."
After the Bank Conversion, the National Bank will be subject to
comprehensive examination, supervision and regulation by the OCC and the FDIC.
Each person holding a deposit account at the Bank immediately prior to the
consummation of the Bank Conversion shall have a deposit account in the National
Bank equal in dollar amount and on the same terms and conditions as in effect as
of immediately prior to the consummation of the Bank Conversion. All deposit
accounts will continue to be insured by the FDIC up to the maximum limits
provided by law. All loans shall retain the same status after the Bank
Conversion as these loans had prior to the Bank Conversion. In addition, the
National Bank will continue to be a member of the Federal Home Loan Bank System.
Effects of the Conversion
General. Prior to the Stock Conversion and Reorganization, each
depositor in the Bank has both a deposit account in the institution and a pro
rata ownership interest in the net worth of the Mutual Holding Company based
upon the balance in his account, which interest may only be realized in the
event of a liquidation of the Mutual Holding Company. However, this ownership
interest is tied to the depositor's account and has no tangible market value
separate from such deposit account. A depositor who reduces or closes his
account receives a portion or all of the balance in the account but nothing for
his ownership interest in the net worth of the Mutual Holding Company, which is
lost to the extent that the balance in the account is reduced.
Consequently, the depositors of the Bank normally have no way to
realize the value of their ownership interest in the Mutual Holding Company,
which has realizable value only in the unlikely event that the Mutual Holding
Company is liquidated. In such event, the depositors of record at that time, as
owners, would share pro rata in any residual surplus and reserves of the Mutual
Holding Company after other claims are paid.
Upon consummation of the Stock Conversion and Reorganization, permanent
nonwithdrawable capital stock will be created to represent the ownership of the
net worth of the Company. The Common Stock of the Company is separate and apart
from deposit accounts and cannot be and is not insured by the FDIC or any other
governmental agency. Certificates are issued to evidence ownership of the
permanent stock. The stock certificates are transferable, and therefore the
stock may be sold or traded if a purchaser is available with no effect on any
account the seller may hold in the Bank.
Continuity. While the Stock Conversion and Reorganization is being
accomplished, the normal business of the Bank of accepting deposits and making
loans will continue without interruption. The Bank will continue to be subject
to regulation by the OTS and the FDIC. Following the Bank Conversion, and the
National Bank will be subject to regulation by the OCC and the FDIC and the FDIC
insurance of accounts will continue without interruption. After the Conversion,
the Bank and the National Bank will continue to provide services for depositors
and borrowers under current policies by its present management and staff.
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<PAGE>
The directors and officers serving the Bank at the time of the Stock
Conversion and Reorganization will continue to serve a directors and officers of
the Bank after the Stock Conversion and Reorganization and then the National
Bank after the Bank Conversion. The directors and officers of the Company
consist of individuals currently serving as directors and officers of the Mutual
Holding Company and the Bank, and they generally will retain their positions in
the Company after the Conversion.
Effect on Public Bank Shares. Under the Plan, upon consummation of the
Stock Conversion and Reorganization, the Public Bank Shares shall be converted
into Common Stock based upon the Exchange Ratio without any further action on
the part of the holder thereof. Upon surrender of the Public Bank Shares, Common
Stock will be issued in exchange for such shares. See " -- Delivery and Exchange
of Certificates."
Upon consummation of the Stock Conversion and Reorganization, the
Public Stockholders of the Bank, a federally chartered savings bank, will become
stockholders of the Company, a Tennessee corporation. For a description of
certain changes in the rights of stockholders as a result of the Stock
Conversion and Reorganization, see "Comparison of Stockholders' Rights" below.
Effect on Deposit Accounts. Under the Plan, each depositor in the Bank
at the time of the Stock Conversion and Reorganization will automatically
continue as a depositor after the Stock Conversion and Reorganization and the
Bank Conversion, and each such deposit account will remain the same with respect
to deposit balance, interest rate and other terms, except to the extent that
funds in the account are withdrawn to purchase Conversion Stock to be issued in
the Offerings. Each such account will be insured by the FDIC to the same extent
as before the Stock Conversion and Reorganization and the Bank Conversion.
Depositors will continue to hold their existing certificates, passbooks and
other evidences of their accounts.
Effect on Loans. No loan outstanding from the Bank nor the National
Bank will be affected by the Stock Conversion and Reorganization and Bank
Conversion, respectively, and the amount, interest rate, maturity and security
for each loan will remain as they were contractually fixed prior to the Stock
Conversion and Reorganization and the Bank Conversion.
Effect on Voting Rights of Members. At present, all depositors of the
Bank and borrower members are members of, and have voting rights in, the Mutual
Holding Company as to all matters requiring membership action. Upon completion
of the Stock Conversion and Reorganization, depositors will cease to be members
and will no longer be entitled to vote at meetings of the Mutual Holding
Company. Upon completion of the Stock Conversion and Reorganization, all voting
rights in the Bank will be vested in the Company as the sole stockholder of the
Bank, and of the National Bank following the Bank Conversion. Exclusive voting
rights with respect to the Company will be vested in the holders of Common
Stock. Depositors of the Bank will not have voting rights in the Company after
the Stock Conversion and Reorganization, except to the extent that they become
stockholders of the Company. Each holder of Common Stock shall be entitled to
vote on any matter to be considered by the stockholders of the Company, subject
to the provisions of the Company's Charter.
After the Bank Conversion, exclusive voting rights with respect to the
Company shall remain vested in the holders of the Common Stock, depositors and
obligors on loans of the National 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
National Bank's capital stock.
Tax Effects. Consummation of the Stock Conversion and Reorganization is
conditioned on prior receipt by the Primary Parties of rulings or opinions with
regard to federal income taxation which indicate that the adoption and
implementation of the Plan set forth herein will not be taxable for federal
income tax purposes to the Primary Parties or the Bank's Eligible Account
Holders, Supplemental Eligible Account Holders or Other Members, Public
Shareholders except as discussed below. See " -- Tax Aspects" below.
81
<PAGE>
Effect on Liquidation Rights. Were the Mutual Holding Company to
liquidate, all claims of the Mutual Holding Company's creditors would be paid
first. Thereafter, if there were any assets remaining, members of the Mutual
Holding Company would receive such remaining assets, pro rata, based upon the
deposit balances in their deposit accounts at the Bank immediately prior to
liquidation. In the unlikely event that the Bank were to liquidate after the
Stock Conversion and Reorganization or the National Bank were to liquidate after
the Bank Conversion, all claims of creditors (including those of depositors, to
the extent of their deposit balances) also would be paid first, followed by
distribution of the "liquidation account" to certain depositors (see " --
Liquidation Rights" below), with any assets remaining thereafter distributed to
the Company as the holder of the Bank's or the National Bank's capital stock.
Pursuant to the rules and regulations of the OTS, a merger, consolidation, sale
of bulk assets or similar combination or transaction with another insured
savings institution would not be considered a liquidation for this purpose and,
in such a transaction, the liquidation account would be required to be assumed
by the surviving institution.
The Offerings
Subscription Offering. In accordance with the Plan, rights to subscribe
for the purchase of Conversion Stock have been granted under the Plan to the
following persons in the following order of descending priority: (1) Eligible
Account Holders; (2) tax-qualified employee stock benefit plans ("the ESOP");
(3) Supplemental Eligible Account Holders; (4) Other Members; (5) Directors,
Officers and Employees; and (6) Public Stockholders. Although the Plan provides
for the purchase of Conversion Stock by the ESOP, the Company currently has no
plans to implement the ESOP and as a result, the ESOP will not purchase any
shares of Conversion Stock in the Stock Conversion and Reorganization. All
subscriptions received will be subject to the availability of Conversion Stock
after satisfaction of all subscriptions by all persons having prior rights in
the Subscription Offering and to the maximum and minimum purchase limitations
set forth in the Plan and as described below under " -- Limitations on
Conversion Stock Purchases."
Priority 1: Eligible Account Holders. Each Eligible Account Holder
will receive, without payment therefor, first priority, nontransferable
subscription rights to subscribe for in the Subscription Offering up to the
greater of (i) 5,000 shares of Conversion Stock per qualifying deposit or loan
account, provided that the aggregate maximum number of shares of Conversion
Stock that may be purchased by any person, together with associates, or groups
of persons acting in concert in the Offerings is 5% of the shares sold in the
Offerings, or 14,968 shares of Conversion Stock at the maximum of the Valuation
Price Range, and which, when combined with Exchange Shares received, does not
exceed on an aggregate basis, 5% of the shares of Common Stock outstanding upon
consummation of the Conversion, (ii) one-tenth of one-percent (0.10%) of the
total offering of shares of Conversion Stock in the Subscription Offering, and
(iii) 15 times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock offered in the
Subscription Offering by a fraction, of which the numerator is the amount of the
Eligible Account Holder's qualifying deposit and the denominator of which is the
total amount of qualifying deposits for all Eligible Account Holders, in each
case as of the close of business on December 31, 1995 (the "Eligibility Record
Date"), subject to the overall purchase limitations. See " -- Limitations on
Conversion Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions of Eligible Account Holders, shares first will be allocated so as
to permit each subscribing Eligible Account Holder to purchase a number of
shares sufficient to make his total allocation equal to the lesser of the number
of shares subscribed for or 100 shares. Thereafter, unallocated shares will be
allocated to subscribing Eligible Account Holders whose subscriptions remain
unfilled in the proportion that the amounts of their respective eligible
deposits bear to the total amount of eligible deposits of all subscribing
Eligible Account Holders whose subscriptions remain unfilled, provided that no
fractional shares shall be issued. The subscription rights of Eligible Account
Holders who are also directors or officers of the Mutual Holding Company or the
Bank and their associates will be subordinated to the subscription rights of
other Eligible Account Holders to the extent attributable to increased deposits
in the year preceding the Eligibility Record Date.
Priority 2: ESOP. Had the Company implemented the ESOP, under the terms
of the Plan, the ESOP would have received, without payment therefor, second
priority, nontransferable subscription rights to purchase, in the aggregate, up
to 10% of the shares of Common Stock to be issued in the Stock Conversion and
Reorganization,
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including any increase in the number of shares of Conversion Stock after the
date hereof as a result of an increase of up to 15% in the maximum of the
Valuation Price Range.
Priority 3: Supplemental Eligible Account Holders. Each Supplemental
Eligible Account Holder will receive, without payment therefor, third priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the greater of (i) 5,000 shares of Conversion Stock per
qualifying deposit or loan account, provided that the aggregate maximum number
of shares of Conversion Stock that may be purchased by any person, together with
associates, or groups of persons acting in concert in the Offerings is 5% of the
shares sold in the Offerings, or 14,968 shares of Conversion Stock at the
maximum of the Valuation Price Range, and which, when combined with Exchange
Shares received, does not exceed on an aggregate basis, 5% of the shares of
Common Stock outstanding upon consummation of the Conversion, (ii) one-tenth of
one percent (0.10%) of the total offering of shares of Conversion Stock in the
Subscription Offering, and (iii) 15 times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of Conversion
Stock offered in the Subscription Offering by a fraction, of which the numerator
is the amount of the Supplemental Eligible Account Holder's qualifying deposit
and the denominator of which is the total amount of qualifying deposits of all
Supplemental Eligible Account Holders, in each case as of the close of business
on June 30, 1997 (the "Supplemental Eligibility Record Date"), subject to the
overall purchase limitations. See " -- Limitations on Conversion Stock
Purchases."
If there are not sufficient shares available to satisfy all
subscriptions of Supplemental Eligible Account Holders after filling all of the
subscriptions of Eligible Accounts Holders, shares first will be allocated so as
to permit each subscribing Supplemental Eligible Account Holder to purchase a
number of shares sufficient to make his total allocation equal to the lesser of
the number of shares subscribed for or 100 shares. Thereafter, unallocated
shares will be allocated to subscribing Supplemental Eligible Account Holders
whose subscriptions remain unfilled in the proportion that the amounts of their
respective eligible deposits bear to the total amount of eligible deposits of
all such subscribing Supplemental Eligible Account Holders whose subscriptions
remain unfilled, provided that no fractional shares shall be issued.
Priority 4: Other Members. To the extent that there are sufficient
shares remaining after satisfaction of subscriptions by Eligible Account Holders
and Supplemental Eligible Account Holders, each Other Member will receive,
without payment therefor, fourth priority, nontransferable subscription rights
to subscribe for Conversion Stock in the Subscription Offering up to the greater
of (i) 5,000 shares of Conversion Stock per qualifying deposit or loan account,
provided that the aggregate maximum number of shares of Conversion Stock that
may be purchased by any person, together with associates, or groups of persons
acting in concert in the Offerings is 5% of the shares sold in the Offerings, or
14,968 shares of Conversion Stock at the maximum of the Valuation Price Range,
and which, when combined with Exchange Shares received, does not exceed on an
aggregate basis, 5% of the shares of Common Stock outstanding upon consummation
of the Conversion, and (ii) one-tenth of one percent (0.10%) of the total
offering of shares of Conversion Stock in the Subscription Offering, subject to
the overall purchase limitations. See " -- Limitations on Conversion Stock
Purchases."
In the event the Other Members subscribe for a number of shares which,
when added to the shares subscribed for by Eligible Account Holders and
Supplemental Eligible Account Holders, is in excess of the total number of
shares of Conversion Stock offered in the Subscription Offering, shares first
will be allocated so as to permit each subscribing Other Member to purchase a
number of shares sufficient to make his total allocation equal to the lesser of
the number of shares subscribed for or 100 shares. Thereafter, any remaining
shares will be allocated among subscribing Other Members on a pro rata basis in
the same proportion as each Other Member's subscription bears to the total
subscriptions of all subscribing Other Members, provided that no fractional
shares shall be issued.
Priority 5: Directors, Officers and Employees. To the extent there are
sufficient shares remaining after satisfaction of all subscriptions by Eligible
Account Holders, Supplemental Eligible Account Holders and Other Members,
directors, officers and employees of the Bank will receive, without payment
therefor, fifth priority, nontransferable subscription rights to subscribe for
Conversion Stock in the Subscription Offering in an amount equal
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to 5,000 shares of Conversion Stock per qualifying deposit or loan account (or
if no account, per person), provided that the aggregate maximum number of shares
of Conversion Stock that may be purchased by any person, together with
associates, or groups of persons acting in concert in the Offerings is 5% of the
shares sold in the Offerings, or 14,968 shares of Conversion Stock at the
maximum of the Valuation Price Range, and which, when combined with Exchange
Shares received, does not exceed on an aggregate basis, 5% of the shares of
Common Stock outstanding upon consummation of the Conversion. The ability of
directors, officers and employees to purchase Conversion Stock under this
category is in addition to rights which are otherwise available to them under
the Plan, which generally allows such persons to purchase in the aggregate up to
35% of the total number of shares of Conversion Stock sold in the Offerings.
See " -- Limitations on Conversion Stock Purchases."
In the event that directors, officers and employees subscribe for a
number of shares which, when added to the shares subscribed for by Eligible
Account Holders, Supplemental Eligible Account Holders and Other Members, is in
excess of the total number of shares of Conversion Stock offered in the
Subscription Offering, shares will be allocated among the directors, officers
and employees on a point system basis, whereby such individuals will receive
subscription rights in the proportion that the number of points assigned to each
of them bears to the total points assigned to all directors, officers and
employees, provided that no fractional shares will be issued. One point will be
assigned for each year of employment and for each salary increment of $5,000 per
annum and five points for each office held in the Mutual Holding Company and the
Bank, including a directorship. If any such director, officer or employee does
not subscribe for his or her full allocation of shares, any shares not
subscribed for may be purchased by other directors, officers and employees in
proportion to their respective subscriptions, provided that no fractional shares
shall be issued. For information as to the number of shares proposed to be
purchased by certain of the directors and officers, see "Beneficial Ownership of
Capital Stock -- Proposed Subscriptions by Directors and Executive Officers."
Priority 6: Public Stockholders. To the extent that there are
sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders, Supplemental Eligible Account Holders, Other Members and
Directors, Officers and Employees, each Public Stockholder as of the Stockholder
Voting Record Date will receive, without payment therefor, sixth priority,
nontransferable subscription rights to subscribe for Conversion Stock in the
Subscription Offering up to the greater of (i) 5,000 shares of Conversion Stock
per qualifying deposit or loan account (or if no such account, per person),
provided that the aggregate number of shares of Conversion Stock that may be
purchased by any person, together with associates or groups of persons acting in
concert in the Offerings is 5% of the shares sold in the Offerings, or 14,968
shares of Conversion Stock after maximum of the Valuation Price Range and which,
when combined with Exchange Shares received, does not exceed on an aggregate
basis, 5% of the shares of Common Stock outstanding upon consummation of the
Conversion, and (ii) one-tenth of one percent (0.10%) of the total offering of
shares of Conversion Stock in the Subscription Offering, subject to the overall
purchase limitations. See " -- Limitations on Conversion Stock Purchases."
In the event the Public Stockholders as of the Stockholder Voting
Record Date subscribe for a number of shares which, when added to the shares
subscribed for by Eligible Account Holders, Supplemental Eligible Account
Holders, Other Members and Directors, Officers and Employees, is in excess of
the total number of shares of Conversion Stock offered in the Subscription
Offering, available shares will be allocated among subscribing Public
Stockholders as of the Stockholder Voting Record Date on a pro rata basis in the
same proportion as each Public Stockholder's subscription bears to the total
subscriptions of all subscribing Public Stockholders, provided that no
fractional share shall be issued.
Expiration Date for the Subscription Offering. The Subscription
Offering will expire at __:__ p.m., Central Time, on _____________, 1997, unless
extended by the Primary Parties to up to 45 days after the commencement of the
Subscription Offering or for such longer period as may be permitted by the OTS.
Such extensions may not be extended beyond ____________, 199_. Subscription
rights which have not been exercised prior to the Expiration Date will become
void.
The Primary Parties will not execute orders until at least the minimum
number of shares of Conversion Stock (221,225 shares) have been subscribed for
or otherwise sold. If all shares have not been subscribed for or sold within
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45 days after the Expiration Date, unless such period is extended with the
consent of the OTS, all funds delivered to the Bank pursuant to the Subscription
Offering will be returned promptly to the subscribers with interest and all
withdrawal authorizations will be canceled. If an extension beyond the 45-day
period following the Expiration Date is granted, the Primary Parties will notify
subscribers of the extension of time and of any rights of subscribers to modify
or rescind their subscriptions.
Community Offering. To the extent that shares remain available for
purchase after satisfaction of all subscriptions of Eligible Account Holders,
Supplemental Eligible Account Holders, Other Members, Directors, Officers and
Employees and Public Stockholders, the Primary Parties may offer shares pursuant
to the Plan to certain members of the general public, with preference given to
natural persons residing in the Local Community (such natural persons referred
to as "Preferred Subscribers"). The occurrence of the Community Offering is
subject to the availability of shares of Conversion Stock for purchase after
satisfaction of all orders received in the Subscription Offering. The Community
Offering, if any, may commence without notice at any time after the commencement
of the Subscription Offering and may terminate at any time without notice, but
may not terminate later than ____________, 1997. The right of any person to
purchase shares in the Community Offering, if any, is subject to the absolute
right of the Primary Parties to accept or reject such purchases in whole or in
part. Such persons, together with associates of and persons acting in concert
with such persons, may purchase up to 5,000 shares of Conversion Stock, provided
that the number of shares which, when combined with shares subscribed for or
purchased by associates and persons acting in concert, does not exceed 5.0% of
the shares of Conversion Stock to be sold in the Offerings (14,969 shares at the
maximum of the Valuation Price Range), and which, when combined with Exchange
Shares received, does not exceed on an aggregate basis, 5% of the shares of
Common Stock outstanding upon consummation of the Conversion, subject to the
maximum purchase limitations. See " -- Limitations on Conversion Stock
Purchases." This amount may be increased at the sole discretion of the Primary
Parties.
If there are not sufficient shares available to fill the orders of
Preferred Subscribers after completion of the Subscription and Community
Offerings, such stock will be allocated first to each Preferred Subscriber whose
order is accepted by the Primary Parties, in an amount equal to the lesser of
100 shares or the number of shares subscribed for by each such Preferred
Subscriber, if possible. Thereafter, unallocated shares will be allocated among
the Preferred Subscribers whose orders remain unsatisfied in the same proportion
that the unfilled subscription of each bears to the total unfilled subscriptions
of all Preferred Subscribers whose subscription remains unsatisfied. If there
are any shares remaining, shares will be allocated to other members of the
general public who subscribe in the Community Offering applying the same
allocation described above for Preferred Subscribers.
Syndicated Community Offering. The Plan provides that, if feasible, all
shares of Conversion Stock not purchased in the Subscription and Community
Offerings may be offered for sale to the general public in a Syndicated
Community Offering through a syndicate of registered broker-dealers to be
formed. No person will be permitted to subscribe in the Syndicated Community
Offering for more than 5,000 shares of Conversion Stock, subject to the maximum
purchase limitations. The Primary Parties have the right to reject orders in
whole or part in their sole discretion in the Syndicated Community Offering.
Neither Trident Securities nor any registered broker-dealer shall have any
obligation to take or purchase any shares of Conversion Stock in the Syndicated
Community Offering; however, Trident Securities has agreed to use its best
efforts to assist the Bank in the sale of shares in the Syndicated Community
Offering.
In addition to the foregoing, if a syndicate of broker-dealers
("selected dealers") is formed to assist in the Syndicated Community Offering, a
purchaser may pay for his shares with funds held by or deposited with a selected
dealer. If an order form is executed and forwarded to the selected dealer or if
the selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to the Bank for deposit in a segregated account on or before noon of the
business day following receipt of the order form or execution of the order form
by the selected dealer. Alternatively, selected dealers may solicit indications
of interest from their customers to place orders for shares. Such selected
dealers shall subsequently contact their customers who indicated an interest and
seek their confirmation as to their intent to purchase. The selected dealer will
acknowledge
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receipt of the order to its customer in writing on the following business day
and will debit such customer's account on the third business day after the
customer has confirmed his intent to purchase (the "debit date") and on or
before noon of the next business day following the debit date will send funds to
the Bank for deposit in a segregated account. If such alternative procedure is
employed, purchasers' funds are not required to be in their accounts with
selected dealers until the debit date.
The Syndicated Community Offering will terminate no more than 45 days
following the Expiration Date, unless extended by the Primary Parties with the
approval of the OTS. See " -- Stock Pricing, Exchange Ratio and Number of Shares
to be Issued" below for a discussion of rights of subscribers, if any, in the
event an extension is granted.
Stock Pricing, Exchange Ratio and Number of Shares to be Issued
The Plan requires that the purchase price of the Conversion Stock must
be based on the appraised pro forma market value of the Conversion Stock, as
determined on the basis of an independent valuation. The Primary Parties have
retained Ferguson & Co. to make such valuation. For its services in making such
appraisal, plus the preparation of a business plan, and any expenses incurred in
connection therewith, Ferguson & Co. will receive a maximum fee of $25,000 plus
out-of-pocket expenses. The Primary Parties have agreed to indemnify Ferguson &
Co. and its employees and affiliates against certain losses (including any
losses in connection with claims under the federal securities laws) arising out
of its services as appraiser, except where Ferguson & Co.'s liability results
from its negligence or bad faith.
The Appraisal has been prepared by Ferguson & Co. in reliance upon the
information contained in this Prospectus, including the Financial Statements.
Ferguson & Co. also considered the following factors, among others: the present
and projected operating results and financial condition of the Primary Parties
and the economic and demographic conditions in the Bank's existing market area;
certain historical, financial and other information relating to the Bank; a
comparative evaluation of the operating and financial statistics of the Bank
with those of other similarly situated publicly traded companies located in
Tennessee and other regions of the United States; the aggregate size of the
offering of the Conversion Stock; the impact of the Stock Conversion and
Reorganization on the Bank's net worth and earnings potential; the proposed
dividend policy of the Company and the Bank; and the trading market for the Bank
Common Stock and securities of comparable companies and general conditions in
the market for such securities.
On the basis of the foregoing, Ferguson & Co. has advised the Primary
Parties that in its opinion the estimated pro forma market value of the Bank and
the Mutual Holding Company on a combined basis was $4.3 million as of June 20,
1997. Because the holders of the Public Bank Shares will continue to hold the
same aggregate percentage ownership interest in the Company as they currently
hold in the Bank (before giving effect to additional purchases in the Offerings
and fractional shares), the Appraisal was multiplied by the Mutual Holding
Company's percentage interest in the Bank (i.e., 60.54%) to determine the
midpoint of the valuation ($4,300,000), and the minimum and maximum of the
valuation were set at 15% below and above the midpoint, respectively, resulting
in a range of $3,655,000 to $4,945,000. The Boards of Directors of the Primary
Parties determined that the Conversion Stock would be sold at $10.00 per share,
resulting in a range of 221,255 to 299,370 shares of Conversion Stock being
offered. Upon consummation of the Stock Conversion and Reorganization, the
Conversion Stock and the Exchange Shares will represent approximately 60.54% and
39.46%, respectively, of the Company's total outstanding shares. The Boards of
Directors of the Primary Parties reviewed Ferguson & Co.'s appraisal report,
including the methodology and the assumptions used by Ferguson & Co., and
determined that the Valuation Price Range was reasonable and adequate. The
Boards of Directors of the Primary Parties also established the formula for
determining the Exchange Ratio based on the OTS policy that requires the holders
of the Public Bank Shares prior to the Stock Conversion and Reorganization to
receive Exchange Shares in an amount that will result in them owning in the
aggregate approximately the same percentage of the Company as they owned of the
Bank. Based upon such formula and the Valuation Price Range, the Exchange Ratio
ranged from a minimum of 1.639 to a maximum of 2.218 Exchange Shares for each
Public Bank Share, with a midpoint of 1.928. Based upon these Exchange Ratios,
the Company expects to issue between 144,220 and 195,170 shares of Exchange
Shares to the holders of Public Bank Shares outstanding immediately prior to the
consummation of the Stock Conversion and Reorganization. The Valuation Price
Range and the Exchange Ratio may be amended with the approval of the OTS,
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if required or if necessitated by subsequent developments in the financial
condition of any of the Primary Parties or market conditions generally. In the
event the Appraisal is updated to below $3.65 million or above $5.68 million
(the maximum of the Valuation Price Range, as adjusted by 15%), such Appraisal
will be filed with the SEC by post-effective amendment.
Based upon current market and financial conditions and recent practices
and policies of the OTS, in the event the Company receives orders for Conversion
Stock in excess of $2.99 million (the maximum of the Valuation Price Range) and
up to $3.44 million (the maximum of the Valuation Price Range, as adjusted by
15%), the Company may be required by the OTS to accept all such orders. No
assurances, however, can be made that the Company will receive orders for
Conversion Stock in excess of the maximum of the Valuation Price Range or that,
if such orders are received, that all such orders will be accepted because the
Company's final valuation and number of shares to be issued are subject to the
receipt of an updated appraisal from Ferguson & Co. which reflects such an
increase in the valuation and the approval of such increase by the OTS. There is
no obligation or understanding on the part of management to take and/or pay for
any shares of Conversion Stock in order to complete the Offerings.
The following table sets forth, based upon the minimum, midpoint,
maximum and 15% above the maximum of the Valuation Price Range, the following:
(i) the total number of shares of Conversion Stock and Exchange Shares to be
issued in the Stock Conversion and Reorganization, (ii) the percentage of the
total Common Stock represented by the Conversion Stock and the Exchange Shares,
and (iii) the Exchange Ratio. The table assumes that there is no cash paid in
lieu of issuing fractional Exchange Shares and there are no shares for which the
holders perfect appraisal rights.
<TABLE>
<CAPTION>
Conversion Stock Exchange Shares Total
to be Issued to be Issued Common Stock to Exchange
--------------------- ---------------------
Amount Percent Amount Percent be Outstanding Ratio
------ ------- ------ ------- -------------- -----
<S> <C> <C> <C> <C> <C> <C>
Minimum.............. 221,255 60.54% 144,220 39.46% 365,475 1.639
Midpoint............. 260,300 60.54 169,650 39.46 429,950 1.928
Maximum.............. 299,370 60.54 195,170 39.46 494,540 2.218
15% above maximum 344,275 60.54 224,380 39.46 568,655 2.550
</TABLE>
Ferguson & Co.'s valuation is not intended, and must not be construed,
as a recommendation of any kind as to the advisability of purchasing such
shares. Ferguson & Co. did not independently verify the Financial Statements and
other information provided by the Bank and the Mutual Holding Company, nor did
Ferguson & Co. value independently the assets or liabilities of the Bank. The
valuation considers the Bank and the Mutual Holding Company as going concerns
and should not be considered as an indication of the liquidation value of the
Bank and the Mutual Holding Company. Moreover, because such valuation is
necessarily based upon estimates and projections of a number of matters, all of
which are subject to change from time to time, no assurance can be given that
persons purchasing Conversion Stock or receiving Exchange Shares in the Stock
Conversion and Reorganization will thereafter be able to sell such shares at
prices at or above the Purchase Price or in the range of the foregoing valuation
of the pro forma market value thereof.
No sale of shares of Conversion Stock or issuance of Exchange Shares
may be consummated unless prior to such consummation Ferguson & Co. confirms
that nothing of a material nature has occurred which, taking into account all
relevant factors, would cause it to conclude that the Purchase Price is
materially incompatible with the estimate of the pro forma market value of a
share of Common Stock upon consummation of the Stock Conversion and
Reorganization. If such is not the case, a new Valuation Price Range may be set,
a new Exchange Ratio may be determined based upon the new Valuation Price Range,
a new Subscription and Community Offering and/or Syndicated Community Offering
may be held or such other action may be taken as the Primary Parties shall
determine and the OTS may permit or require.
Depending upon market or financial conditions following the
commencement of the Subscription Offering, the total number of shares of
Conversion Stock to be issued in the Offerings may be increased or decreased
without a
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resolicitation of subscribers, provided that the product of the total number of
shares times the Purchase Price is not below the minimum or more than 15% above
the maximum of the Valuation Price Range. In the event market or financial
conditions change so as to cause the aggregate Purchase Price of the shares to
be below the minimum of the Valuation Price Range or more than 15% above the
maximum of such range purchasers will be resolicited (i.e., permitted to
continue their orders, in which case they will need to affirmatively reconfirm
their subscriptions prior to the expiration of the resolicitation offering or
their subscription funds will be promptly refunded with interest at the Bank's
passbook rate of interest, or be permitted to modify or rescind their
subscriptions). Any increase or decrease in the number of shares of Conversion
Stock will result in a corresponding change in the number of Exchange Shares, so
that upon consummation of the Stock Conversion and Reorganization the Conversion
Stock and the Exchange Shares will represent approximately 60.54% and 39.46%,
respectively, of the Company's total outstanding shares of Common Stock.
An increase in the number of shares of Conversion Stock would decrease
both a subscriber's ownership interest and the Company's pro forma net earnings
and stockholders' equity on a per share basis while increasing pro forma net
earnings and stockholders' equity on an aggregate basis. A decrease in the
number of shares of Conversion Stock would increase both a subscriber's
ownership interest and the Company's pro forma net earnings and stockholders'
equity on a per share basis while decreasing pro forma net earnings and
stockholders' equity on an aggregate basis. See "Risk Factors -- Possible
Dilutive Effect of Issuance of Additional Shares" and "Pro Forma Data."
The appraisal report of Ferguson & Co. has been filed as an exhibit to
this Registration Statement and Application for Conversion of which this
Prospectus is a part and is available for inspection in the manner set forth
under "Additional Information."
Persons in Nonqualified States or Foreign Countries
The Primary Parties will make reasonable efforts to comply with the
securities laws of all jurisdictions in the United States in which persons
entitled to subscribe for stock pursuant to the Plan reside. However, the
Primary Parties are not required to offer stock in the Subscription Offering to
any person who resides in a foreign country or resides in a jurisdiction of the
United States with respect to which all of the following apply: (i) the number
of persons otherwise eligible to subscribe for shares under the Plan who reside
in such jurisdiction is small; (ii) the granting of subscription rights or the
offer or sale of shares of Conversion Stock to such persons would require any of
the Primary Parties or their officers, directors or employees, under the laws of
such jurisdiction, to register as a broker, dealer, salesman or selling agent,
or to register or otherwise qualify its securities for sale in such jurisdiction
or to qualify as a foreign corporation or file a consent to service of process
in such jurisdiction; and (iii) such registration, qualification or filing in
the judgment of the Primary Parties would be impracticable or unduly burdensome
for reasons of cost or otherwise. Where the number of persons eligible to
subscribe for shares in one state is small, the Primary Parties will base their
decision as to whether or not to offer the Conversion Stock in such state on a
number of factors, including but not limited to the size of accounts held by
account holders in the state, the cost of registering or qualifying the shares,
or the need to register the Company, its officers, directors or employees as
brokers, dealers or salesmen.
Limitations on Conversion Stock Purchases
The Plan includes the following limitations on the number of shares of
Conversion Stock which may be purchased:
(1) No less than 25 shares of Conversion Stock may be
purchased, to the extent such shares are available;
(2) Each Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of (i) 5,000
shares of Conversion Stock per qualifying deposit or loan account,
provided that the aggregate maximum number of shares of the Common
Stock that may be purchased by any person, together
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with associates, or group of persons acting in concert in the Offerings
is 5% of the Conversion Stock (14,969 shares at the maximum of the
Valuation Price Range), (ii) one-tenth of 1% (0.10%) of the total
offering of shares of Conversion Stock in the Subscription Offering and
(iii) 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Conversion Stock
to be issued by a fraction, of which the numerator is the amount of the
qualifying deposit of the Eligible Account Holder and the denominator
is the total amount of qualifying deposits of all Eligible Account
Holders, in each case as of the close of business on the Eligibility
Record Date, subject to the overall limitation in clause (6) below;
(3) Although the Plan provides that the ESOP may purchase in
the aggregate up to 10% of the shares of Common Stock to be issued in
the Stock Conversion and Reorganization, including any additional
shares issued in the event of an increase in the Valuation Price Range,
the Company currently has no plans to implement the ESOP. As a result,
no shares of Conversion Stock will be purchased by the ESOP.
(4) Each Supplemental Eligible Account Holder may subscribe
for and purchase in the Subscription Offering up to the greater of (i)
5,000 shares of Conversion Stock per qualifying deposit or loan
account, provided that the aggregate maximum number of shares of the
Common Stock that may be purchased by any person, together with
associates, or group of persons acting in concert in the Offerings is
5% of the Conversion Stock , (ii) one-tenth of 1% (.10%) of the total
offering of shares of Conversion Stock in the Subscription Offering and
(iii) 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Conversion Stock
to be issued by a fraction, of which the numerator is the amount of the
qualifying deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of qualifying deposits of all
Supplemental Eligible Account Holders, in each case as of the close of
business on the Supplemental Eligibility Record Date, subject to the
overall limitation in clause (6) below;
(5) Each Other Member, Public Stockholder or any other
Person purchasing shares of Conversion Stock in the Subscription
Offering, Community Offering or in the Syndicated Community Offering
may subscribe for and purchase in the respective Offering up to the
greater of (i) 5,000 shares of Conversion Stock per qualifying deposit
or loan account (or 5,000 shares of Conversion Stock per person, for
persons purchasing in the Community Offering or Syndicated Community
Offering), provided that the aggregate maximum number of shares of the
Common Stock that may be purchased by any person, together with
associates, or group of persons acting in concert in the Offerings is
5% of the Conversion Stock and (ii) one-tenth of 1% (.10%) of the total
offering of shares of Conversion Stock in the Subscription Offering,
subject to the overall limitation in clause (6) below;
(6) Eligible Account Holders, Supplemental Eligible Account
Holders, Other Members and Public Stockholders may purchase stock in
the Subscription Offering, Community and Syndicated Community Offerings
subject to the purchase limitations described above, provided that, the
maximum number of shares of Common Stock subscribed for or purchased in
all categories by any person, together with associates of and groups of
persons acting in concert with such persons, shall not exceed the
number of shares of Conversion Stock that when combined with Exchange
Shares received exceed 5.0% of the total number of shares of Common
Stock outstanding upon consummation of the Conversion. Such percentage
may be increased but to no greater than 9.9% of the total number of
shares of Common Stock outstanding upon consummation of the Conversion
provided that: (a) each person who has subscribed for the maximum
number of shares of Conversion Stock shall have been offered the
opportunity to increase his subscription to such percentage of
Conversion Stock, subject to the purchase limitations by category in
the Subscription Offering and (b) the aggregate number of shares
subscribed for by all subscribers in excess of 5.0% does not exceed
10.0% of the total number of shares of Conversion Stock to be sold in
the Offerings; and
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(7) No more than 35% of the total number of shares sold in the
Offerings including Exchange Shares received may be purchased by
directors and officers of the Mutual Holding Company and the Bank and
their associates in the aggregate.
For purposes of the purchase limitations set forth in the Plan of
Conversion, Exchange Shares will be valued at the same price that shares of
Conversion Stock are issued in the Offerings.
In the event of an increase in the total number of shares of Conversion
Stock offered in the Conversion due to an increase in the Valuation Price Range
of up to 15% (the "Adjusted Maximum"), the additional shares will be allocated
in an order of priority in accordance with the Plan. Although the Plan provides
that the ESOP be granted the first priority in the allocation of the Adjusted
Maximum number of shares, the Company has no plans to implement the ESOP.
Therefore, under the terms of the Plan, the additional shares will be allocated
in the following order of priority: (i) in the event that there is an
oversubscription by Eligible Account Holders, to fill unfulfilled subscriptions
of Eligible Account Holders, inclusive of the Adjusted Maximum; (ii) in the
event that there is an oversubscription by Supplemental Eligible Account
Holders, to fill unfulfilled subscriptions of Supplemental Eligible Account
Holders, inclusive of the Adjusted Maximum; (iii) in the event that there is an
oversubscription by Other Members, to fill unfulfilled subscriptions of Other
Members, inclusive of the Adjusted Maximum; (iv) in the event that there is an
oversubscription by Public Stockholders, to fill unfulfilled subscriptions of
Public Stockholders, inclusive of the Adjusted Maximum; and (v) to fill
unfulfilled subscriptions in the Community Offering, inclusive of the Adjusted
Maximum.
The term "associate" of a person is defined to mean (i) any corporation
or other organization (other than the Primary Parties or a majority-owned
subsidiary of the Bank of the Holding Company) of which such person is a
director, officer or partner or is directly or indirectly the beneficial owner
of 10% or more of any class of equity securities; (ii) any trust or other estate
in which such person has a substantial beneficial interest or as to which such
person serves as a trustee or in a similar fiduciary capacity; and (iii) any
relative or spouse of such person, or any relative of such spouse, who either
has the same home as such person or who is a director or officer of the Primary
Parties or any of their subsidiaries.
Notwithstanding anything to the contrary contained in the Plan, no
Public Stockholder will be required to sell any Bank Common Stock or be limited
in receiving Exchange Shares provided that their aggregate ownership of Common
Stock including Conversion Stock purchased in the Offerings and Exchange Shares
received would not exceed 5.0% of the total number of shares of Common Stock
outstanding immediately following the Stock Conversion and Reorganization. Such
percentage may be increased, but to no greater than 9.9% of the total number of
shares outstanding provided: (a) each person who has subscribed for the maximum
number of shares of Conversion Stock shall have been offered the opportunity to
increase their subscriptions to such percentage of the Conversion Stock (subject
to the availability of shares and the limitations on subscriptions in excess of
5.0% described above); and (b) the aggregate number of shares held by all
stockholders in excess of 5.0% shall not exceed 10.0% of the total number of
shares of Common Stock outstanding immediately following the Stock Conversion
and Reorganization. In calculating the percentage ownership of any stockholder
for purposes of this limitation, the number of shares outstanding shall be
deemed to include any shares which the stockholder has the right to acquire
pursuant to presently exercisable options. In the event a Public Stockholder's
ownership would exceed the foregoing limitation, the Company shall have the
right to reject, limit or revoke acceptance of any subscription or order from
such person and/or the right to purchase any excess shares from such person at
$10.00 per share.
Marketing Arrangements
The Primary Parties have engaged Trident Securities as a financial
advisor and marketing agent in connection with the offering of the Conversion
Stock, and Trident Securities has agreed to use its best efforts to assist the
Bank in connection with the offering of shares of Conversion Stock. Trident
Securities is a member of the National Association of Securities Dealers, Inc.
("NASD") and a broker-dealer which is registered with the SEC. Trident
Securities will provide various services including, but not limited to: (i)
training and educating the Bank's employees who will be
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performing certain ministerial functions in the Offerings regarding the
mechanics and regulatory requirements of the stock sales process; (ii) providing
its employees to staff the Stock Information Center to assist the Bank's
customers and internal stock purchasers and to keep records of orders for shares
of Conversion Stock; (iii) targeting the Company's sales efforts, including
preparation of marketing materials; and (iv) assisting in the solicitation of
proxies of Members and Stockholders for use at the Members' Meeting and the
Stockholder's Meeting, respectively. Based upon negotiations between the Primary
Parties and Trident Securities, Trident Securities will receive a fixed fee of
$65,000. In the event that a selected dealers agreement is entered into in
connection with a Syndicated Community Offering, the Bank will pay a fee to
selected broker-dealers for shares sold by such NASD member firms pursuant to a
selected dealers agreement in an amount to be agreed upon jointly by Trident
Securities and the Bank to reflect market requirements at the time of any
Syndicated Community Offering. Fees to Trident Securities and to any other
broker-dealer may be deemed to be underwriting fees, and Trident Securities and
such broker-dealers may be deemed to be underwriters. Trident Securities also
will be reimbursed for its' reasonable legal fees and expenses not to exceed
$10,000 and its reasonable out-of-pocket expenses not to exceed $10,000. The
Primary Parties have agreed to indemnify Trident Securities for reasonable costs
and expenses in connection with certain claims or liabilities, including certain
liabilities under the Securities Act.
Directors and executive officers of the Primary Parties may participate
in the solicitation of offers to purchase Conversion Stock. Other employees of
the Bank may participate in the Offerings in ministerial capacities or providing
clerical work in effecting a sales transaction. Such other employees have been
instructed not to solicit offers to purchase Conversion Stock or provide advice
regarding the purchase of Conversion Stock. Questions of prospective purchasers
will be directed to executive officers or registered representatives. The
Company will rely on Rule 3a4-1, so as to permit officers, directors and
employees to participate in the sale of Conversion Stock. No officer, director
or employee of the Primary Parties will be compensated in connection with his
solicitations or other participation in the Offerings or the Exchange by the
payment of commissions or other remuneration based either directly or indirectly
on transactions in the Conversion Stock and Exchange Shares, respectively.
Procedure for Purchasing Shares in the Offerings
To ensure that each purchaser receives a Prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no Prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the order
form will confirm receipt or delivery of the Prospectus in accordance with Rule
15c2-8. Order forms will only be distributed with a Prospectus.
To purchase shares in the Offerings, an executed order form with the
required payment for each share subscribed for, or with appropriate
authorization for withdrawal from a deposit account at the Bank (which may be
given by completing the appropriate blanks in the order form), must be received
by the Bank at any of its offices by __:__ p.m., Central Time, on the Expiration
Date. In addition, the Primary Parties will require a prospective purchaser to
execute a certification in connection with any sale of Conversion Stock and will
not accept order forms unless such a certification is executed. Order forms
which are not received by such time or are executed defectively or are received
without full payment (or appropriate withdrawal instructions) are not required
to be accepted. In addition, the Bank will not accept orders submitted or
photocopied or facsimiled order forms nor order forms unaccompanied by an
executed certification form. The Primary Parties have the right to waive or
permit the correction of incomplete or improperly executed forms, but do not
represent that they will do so. Once received, an executed order form may not be
modified, amended or rescinded without the consent of the Primary Parties,
unless the Offerings have not been completed within 45 days after the end of the
Subscription and Community Offerings, unless such period has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priority, depositors as of the close of business on the Eligibility
Record Date (December 31, 1995) or the Supplemental Eligibility Record Date
(June 30, 1997) and depositors as of the close of business on the Voting Record
Date (__________, 1997) and borrowers as of _________, 199_ whose loans are
still
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outstanding on the Voting Record Date must list on the order form all accounts
in which they have an ownership interest, giving all names in each account and
the account numbers.
Payment for subscriptions may be made (i) in cash if delivered in
person at any office of the Bank, (ii) by check or money order or (iii) by
authorization of withdrawal from deposit accounts maintained with the Bank. The
Primary Parties also may elect to receive payment for shares of Conversion Stock
by wired funds. Funds from payments made by cash, check or money order will be
deposited in a segregated account at the Bank and will earn interest at the
Bank's passbook rate of interest from the date payment is received until
completion or termination of the Stock Conversion and Reorganization. If payment
is made by authorization of withdrawal from deposit accounts, the funds
authorized to be withdrawn from a deposit account will continue to accrue
interest at the contractual rates until completion or termination of the Stock
Conversion and Reorganization, but a hold will be placed on such funds, thereby
making them unavailable to the depositor until completion or termination of the
Stock Conversion and Reorganization.
If a subscriber authorizes the Bank to withdraw the aggregate amount of
the purchase price from a deposit account, the Bank will do so as of the
effective date of the Stock Conversion and Reorganization. The Bank will waive
any applicable penalties for early withdrawal from certificate accounts. If the
remaining balance in a certificate account is reduced below the applicable
minimum balance requirement at the time that the funds actually are transferred
under the authorization, the certificate will be canceled at the time of the
withdrawal, without penalty, and the remaining balance will earn interest at the
passbook rate.
Owners of self-directed Individual Retirement Accounts ("IRAs"), Keogh
or similar accounts may use the assets of such accounts to purchase shares of
Conversion Stock in the Offerings, provided that such accounts are not
maintained at the Bank. Persons with such accounts maintained at the Bank must
have their accounts transferred to an unaffiliated institution or broker to
purchase shares of Conversion Stock in the Subscription and Community Offerings.
In addition, ERISA provisions and IRS regulations require that officers,
directors and 10% stockholders who use self- directed IRA, Keogh and similar
account funds to purchase shares of Conversion Stock in the Subscription and
Community Offerings make such purchases for the exclusive benefit of the
accounts. Any interested parties wishing to use such funds for stock purchases
are advised to contact the Stock Information Center for additional information.
Restrictions on Transfer of Subscription Rights and Shares
Pursuant to the rules and regulations of the OTS, no person with
subscription rights may transfer or enter into any agreement or understanding to
transfer the legal or beneficial ownership of the subscription rights issued
under the Plan or the shares of Conversion Stock to be issued upon their
exercise. Such rights may be exercised only by the person to whom they are
granted and only for his account. Each person exercising such subscription
rights will be required to certify that he is purchasing shares solely for his
own account and that he has no agreement or understanding regarding the sale or
transfer of such shares.
The Primary Parties will pursue any and all legal and equitable
remedies in the event they become aware of the transfer of subscription rights
and will not honor orders known by them to involve the transfer of such rights.
Regulation Restrictions on Acquisition of 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 Stock Conversion and
Reorganization. Further, no person may make an offer or an announcement of an
offer to purchase shares or actually acquire shares in the Company at any time
after the date of completion of the Stock Conversion and Reorganization, 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
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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 exempt. 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 Stock Conversion and Reorganization. The Charter of the Company includes a
similar 10% beneficial ownership limitation, and, moreover, provides that when
any person, directly or indirectly, acquires beneficial ownership of more than
10% of the Company's capital stock following the Stock Conversion and
Reorganization without the prior approval by a two-thirds vote of the Continuing
Directors of the Company, the shares in excess of 10% shall be counted as only a
one-hundredth (1/100th) of a vote. See "Comparison of Stockholders' Rights."
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 may be presumed under OTS or federal regulations, as the case
may be, to be acquiring control of the Company and will be required to submit
prior notice to the OTS or the Federal Reserve Board under the Change in Bank
Control Act and the Federal Reserve Board regulations thereunder. Furthermore,
following the Bank Conversion, the acquisition of control of the Company by any
company will be subject to the prior approval of the Federal Reserve Board under
the BHCA. See "Restrictions on Acquisition of the Company."
Liquidation Rights
In the unlikely event of a complete liquidation of the Mutual Holding
Company in its present mutual form, each depositor of the Bank would receive his
pro rata share of any assets of the Mutual Holding Company remaining after
payment of claims of all creditors. Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his deposit
account was to the total value of all deposit accounts in the Bank at the time
of liquidation. After the Stock Conversion and Reorganization, each depositor,
in the event of a complete liquidation of the Bank, would have a claim as a
creditor of the same general priority as the claims of all other general
creditors of the Bank. However, except as described below, his claim would be
solely in the amount of the balance in his deposit account plus accrued
interest. He would not have an interest in the value or assets of the Bank or
the Company above that amount.
The Plan provides for the establishment of a special "liquidation
account" for the benefit of Eligible Account Holders and Supplemental Eligible
Account Holders in the Bank upon the completion of the Stock Conversion and
Reorganization and in the National Bank after the Bank Conversion, in an amount
equal to the amount of any dividends waived by the Mutual Holding Company plus
the greater of (i) the Bank's retained earnings of $2.6 million at March 31,
1992, the date of the latest balance sheet contained in the final offering
circular utilized in the Bank's initial public offering, or (ii) 60.54% of the
Bank's total stockholders' equity as reflected in its latest balance sheet
contained in the final Prospectus utilized in the Offerings. As of the date of
this Prospectus, the initial balance of the liquidation account would be $3.9
million. Each Eligible Account Holder and Supplemental Eligible Account Holder,
if he were to continue to maintain his deposit account at the Bank, would be
entitled, upon a complete liquidation of the Bank after the Stock Conversion and
Reorganization or upon a complete liquidation of the National Bank after the
Bank Conversion, to an interest in the liquidation account prior to any payment
to the Company as the sole stockholder of the Bank or the National Bank. Each
Eligible Account Holder and Supplemental Eligible Account Holder would have an
initial interest in such liquidation account for each deposit account, including
passbook accounts, transaction accounts such as checking accounts, money market
deposit accounts and certificates of deposit, held in the Bank at the close of
business on the Eligibility Record Date or the Supplemental Eligibility Record
Date, as the case may be. Each Eligible Account Holder and Supplemental Eligible
Account Holder will have a pro rata interest in the total liquidation account
for each of his deposit accounts based on the proportion that the balance of
each such deposit account on Supplemental Eligibility Record Date, as the case
may be bore to the balance of all deposit accounts in the Bank (or the National
Bank) on such date.
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If, however, on any December 31 annual closing date of the Bank,
commencing December 31 for Eligible Account Holders and December 31 for
Supplemental Eligible Account Holders, the amount in any deposit account is less
than the amount in such deposit account on December 31, 1995 or June 30, 1997,
as the case may be, or any other annual closing date, then the interest in the
liquidation account relating to such deposit account would be reduced by the
proportion of any such reduction, and such interest will cease to exist if such
deposit account is closed. In addition, no interest in the liquidation account
would ever be increased despite any subsequent increase in the related deposit
account. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Company as the sole stockholder of the Bank and following the
Bank Conversion, as the sole stockholder of the National Bank.
The Bank Conversion shall not be deemed to be a complete liquidation of
the Bank for purposes of the distribution of the liquidation account. Upon
consummation of the Bank Conversion, the liquidation account, and all rights and
obligations of the Bank in connection therewith shall be assumed by the National
Bank. The liquidation account shall be maintained by the National Bank, under
the same rules and conditions applicable to the Bank, subsequent to the Bank
Conversion for the benefit of Eligible Account Holders and Supplemental Eligible
Account Holders who retain their deposit accounts in the National Bank.
Tax Aspects
Consummation of the Stock Conversion and Reorganization is expressly
conditioned upon prior receipt of either a ruling or an opinion of counsel with
respect to federal tax laws, and either a ruling or an opinion with respect to
Tennessee tax laws, to the effect that consummation of the transactions
contemplated hereby will not result in a taxable reorganization under the
provisions of the applicable codes or otherwise result in any adverse tax
consequences to the Mutual Holding Company, the Bank, the Company or to account
holders receiving subscription rights, except to the extent, if any, that
subscription rights are deemed to have fair market value on the date such rights
are issued. This condition may not be waived by the Primary Parties.
Housley Kantarian & Bronstein, P.C., Washington, D.C., has issued an
opinion to the Company and the Bank to the effect that, for federal income tax
purposes: (1) the conversion of the Mutual Holding Company from mutual to stock
form and the simultaneous merger of the Mutual Holding Company with and into the
Bank, with the Bank being the surviving institution, will qualify as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code; (2) no
gain or loss will be recognized by the Bank upon the receipt of the assets of
the converted Mutual Holding Company in such merger; (3) the merger of Interim
with and into the Bank, with the Bank being the surviving institution, will
qualify as a reorganization within the meaning of Section 368(a)(1)(A) of the
Code; (4) no gain or loss will be recognized by Interim upon the transfer of its
assets to the Bank; (5) no gain or loss will be recognized by the Bank upon the
receipt of the assets of Interim; (6) no gain or loss will be recognized by the
Company upon the receipt of Bank Common Stock solely in exchange for Common
Stock; (7) no gain or loss will be recognized by the Public Stockholders upon
the receipt of Common Stock solely in exchange for their Public Bank Shares; (8)
the basis of the Common Stock to be received by the Public Stockholders will be
the same as the basis of the Public Bank Shares surrendered in exchange
therefor, before giving effect to any payment of cash in lieu of fractional
shares; (9) the holding period of the Common Stock to be received by the Public
Stockholders will include the holding period of the Public Bank Shares, provided
that the Public Bank Shares were held as a capital asset on the date of the
exchange; (10) no gain or loss will be recognized by the Company upon the sale
of shares of Conversion Stock in the Offerings; (11) the Eligible Account
Holders and Supplemental Eligible Account Holders will recognize gain, if any,
upon the issuance to them of withdrawable savings accounts in the Bank following
the Stock Conversion and Reorganization, interests in the liquidation account
and nontransferable subscription rights to purchase Conversion Stock, but only
to the extent of the value, if any, of the subscription rights; and (12) the tax
basis to the holders of Conversion Stock purchased in the Offerings will be the
amount paid therefor, and the holding period for the shares of Conversion Stock
will begin on the date of consummation of the Offerings if purchased through the
exercise of subscription rights and on the day after the date of purchase if
purchased in the Community Offering or Syndicated Community Offering.
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Arnold, Spain & Co., P.C., Jackson, Tennessee has issued an opinion to
the Company and the Bank to the effect that the income tax consequences of the
Stock Conversion and Reorganization and Bank Conversion are substantially the
same under Tennessee laws as they are under the Code.
In the opinion of Ferguson & Co., which opinion is not binding on the
IRS, the subscription rights do not have any value, based on the fact that such
rights are acquired by the recipients without cost, are nontransferable and of
short duration, and afford the recipients the right only to purchase the
Conversion Stock at a price equal to its estimated fair market value, which will
be the same price as the Purchase Price for the unsubscribed shares of
Conversion Stock. If the subscription rights granted to eligible subscribers are
deemed to have an ascertainable value, receipt of such rights likely would be
taxable only to those eligible subscribers who exercise the subscription rights
(either as a capital gain or ordinary income) in an amount equal to such value,
and the Primary Parties could recognize gain on such distribution. Eligible
subscribers are encouraged to consult with their own tax advisor as to the tax
consequences in the event that such subscription rights are deemed to have an
ascertainable value.
Unlike private rulings, an opinion is not binding on the IRS and the
IRS could disagree with conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.
Delivery and Exchange of Certificates
Conversion Stock. Certificates representing Conversion Stock issued in
connection with the Offerings will be mailed by the Company's transfer agent for
the Common Stock to the persons entitled thereto at the addresses of such
persons appearing on the stock order form for Conversion Stock as soon as
practicable following consummation of the Stock Conversion and Reorganization.
Any certificates returned as undeliverable will be held by the Company until
claimed by persons legally entitled thereto or otherwise disposed of in
accordance with applicable law. Until certificates for Conversion Stock are
available and delivered to subscribers, subscribers may not be able to sell such
shares.
Exchange Shares. After consummation of the Stock Conversion and
Reorganization, each holder of a certificate or certificates theretofore
evidencing issued and outstanding shares of Bank Common Stock (other than the
Mutual Holding Company), upon surrender of the same to an agent, duly appointed
by the Company, which is anticipated to be the transfer agent for the Common
Stock (the "Exchange Agent"), will be entitled to receive in exchange therefor a
certificate or certificates representing the number of full shares of Common
Stock for which the shares of Bank Common Stock theretofore represented by the
certificate or certificates so surrendered will have been converted based on the
Exchange Ratio. The Exchange Agent will promptly mail to each such holder of
record of an outstanding certificate which immediately prior to the consummation
of the Stock Conversion and Reorganization evidenced shares of Bank Common
Stock, and which is to be exchanged for Common Stock based on the Exchange Ratio
as provided in the Plan, a form of letter of transmittal (which will specify
that delivery shall be effected, and risk of loss and title to such certificate
shall pass, only upon delivery of such certificate to the Exchange Agent)
advising such holder of the terms of the exchange effected by the Stock
Conversion and Reorganization and of the procedure for surrendering to the
Exchange Agent such certificate in exchange for a certificate or certificates
evidencing Common Stock. The Bank's stockholders should not forward Bank Common
Stock certificates to the Bank or the Exchange Agent until they have received
the transmittal letter.
No holder of a certificate theretofore representing shares of Bank
Common Stock shall be entitled to receive any dividends in respect of the Common
Stock into which such shares shall have been converted by virtue of the Stock
Conversion and Reorganization until the certificate representing such shares of
Bank Common Stock is surrendered in exchange for certificates representing
shares of Common Stock. In the event that dividends are declared and paid by the
Company in respect of Common Stock after the consummation of the Stock
Conversion and Reorganization but prior to surrender of certificates
representing shares of Bank Common Stock, dividends payable in respect of shares
of Common Stock not then issued will accrue (without interest). Any such
dividends will be paid (without interest) upon surrender of the certificates
representing such shares of Bank Common Stock. The Company will be entitled,
after the
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consummation of the Stock Conversion and Reorganization, to treat certificates
representing shares of Bank Common Stock as evidencing ownership of the number
of full shares of Common Stock into which the shares of Bank Common Stock
represented by such certificates will have been converted, notwithstanding the
failure on the part of the holder thereof to surrender such certificates.
The Company shall not be obligated to deliver a certificate or
certificates representing shares of Common Stock to which a holder of Bank
Common Stock would otherwise be entitled as a result of the Stock Conversion and
Reorganization until such holder surrenders the certificate or certificates
representing the shares of Bank Common Stock for exchange as provide above, or,
in default thereof, an appropriate affidavit of loss and indemnity agreement
and/or a bond as may be required in each case by the Company. If any certificate
evidencing shares of Common Stock is to be issued in a name other than that in
which the certificate evidencing Bank Common Stock surrendered in exchange
therefor is registered, it will be a condition of the issuance thereof that the
certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer and that the person requesting such exchange pay to the
Exchange Agent any transfer or other tax required by reason of the issuance of a
certificate for shares of Common Stock in any name other than that of the
registered holder of the certificate surrendered or otherwise establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
Required Approvals
Various approvals of OTS are required in order to consummate the Stock
Conversion and Reorganization. The OTS has approved the Plan, subject to
approval by the Mutual Holding Company's Members and the Bank's Stockholders. In
addition, consummation of the Stock Conversion and Reorganization is subject to
OTS approval of the application of the Company to acquire control of the Bank
and the applications with respect to the merger of the Mutual Holding Company
(following its conversion to an interim federal stock savings association) into
the Bank and the merger of Interim into the Bank, with the Bank being the
surviving entity in both mergers. Applications for these approvals have been
filed and approved by the OTS subject to certain conditions. The Bank has also
applied to the OTS and OCC for approval of the conversion of the Bank to a
national bank and the Company has applied to the Federal Reserve Board for the
Company's continued ownership of 100% of the capital stock of the National Bank.
The Bank Conversion is contingent upon the approval of the OCC and Federal
Reserve Board.
Pursuant to OTS regulations, the Plan also must be approved by (1) at
least a majority of the total number of votes eligible to be cast by Members of
the Mutual Holding Company at the Members' Meeting, and (2) holders of at least
two-thirds of the outstanding Bank Common Stock at the Stockholders' Meeting. In
addition, the Primary Parties have conditioned the consummation of the Stock
Conversion and Reorganization on the approval of the Plan by at least a majority
of the votes cast, in person or by proxy, by the Public Stockholders at the
Stockholders' Meeting.
Dissenters' Rights of Appraisal
Holders of Bank Common Stock are entitled to appraisal rights under
Section 552.14 of the OTS regulations as a result of the merger of the Mutual
Holding Company (following its conversion to a federal interim stock savings
institution) with and into the Bank and the merger of the Bank with and into
Interim, with the Bank to be the surviving entity in both mergers. A holder of
shares of Bank Common Stock wishing to exercise his appraisal rights must
deliver to the Secretary of the Bank, before the vote on the Plan at the
Stockholders' Meeting, a writing which identifies such stockholder and which
states his intention to demand appraisal of and payment for his shares of Bank
Common Stock. Such demand must be in addition to and separate from any proxy or
vote against the Plan. Any such stockholder who wishes to exercise such
appraisal rights should review carefully the discussion of such rights in the
Bank's proxy statement, including Appendix A thereto, because failure to timely
and properly comply with the procedures specified will result in the loss of
appraisal rights under Section 552.14. All written demands for appraisal should
be sent or delivered to the attention of the Secretary of the Bank, 19 Natchez
Trace Drive, Lexington, Tennessee 40965 so as to be received prior to the vote
at the Stockholders' Meeting with respect to the Plan. Pursuant to the Plan,
consummation of the Stock Conversion and the Reorganization is conditioned upon
holders of less than 10% of the
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outstanding Bank Common Stock exercising appraisal rights, which condition may,
in the sole discretion of the Primary Parties, be waived.
In determining whether or not to exercise appraisal rights, current
Public Stockholders should review the comparison of their rights as Public
Stockholders with their rights as stockholders of the Company following
consummation of the Stock Conversion and Reorganization. Such comparison is
contained in the Bank's proxy statement to its stockholders under "The
Conversion -- Comparison of Stockholders' Rights." Because the Company is
governed by the Tennessee Business Corporation Act and the Bank is governed by
federal law, including OTS regulations, there are material differences between
the rights of stockholders of the Bank and stockholders of the Company.
Certain Restrictions on Purchase or Transfer of Shares after the Stock
Conversion and Reorganization
All shares of Conversion Stock purchased in connection with the Stock
Conversion and Reorganization by a director or an executive officer of the
Primary Parties will be subject to a restriction that the shares not be sold for
a period of one year following the Stock Conversion and Reorganization, except
in the event of the death of such director or executive officer or pursuant to a
merger or similar transaction approved by the OTS. Each certificate of
restricted shares will bear a legend giving notice of this restriction on
transfer, and appropriate stop-transfer instructions will be issued to the
Company's transfer agent. Any shares of Common Stock issued within this one-year
period as a stock dividend, stock split or otherwise with respect to such
restricted stock will be subject to the same restrictions. The directors and
executive officers of the Company will also be subject to the insider trading
rules promulgated pursuant to the Exchange Act.
Purchases of Conversion Stock of the Company by directors, executive
officers and their associates during the three-year period following completion
of the Stock Conversion and Reorganization may be made only through a broker or
dealer registered with the SEC, except with the prior written approval of the
OTS. This restriction does not apply, however, to negotiated transactions
involving more than 1.0% of the Company's outstanding Common Stock or to the
purchase of stock pursuant to any tax qualified employee stock benefit plan, by
any non-tax qualified employee stock benefit plan, or to any transaction
occurring after the consummation of the Bank Conversion unless OTS approval of
the Bank Conversion otherwise requires.
If the Bank Conversion is not consummated, pursuant to OTS regulations,
the Company will generally be prohibited from repurchasing any shares of Common
Stock within one year following consummation of the Stock Conversion and
Reorganization. During the second and third years following consummation of the
Stock Conversion and Reorganization, the Company may not repurchase any shares
of its Common Stock other than pursuant to: (i) an offer to all stockholders on
a pro rata basis which is approved by the OTS; (ii) the repurchase of qualifying
shares of a director, if any; (iii) purchases in the open market by a
tax-qualified or non-tax-qualified employee stock benefit plan in an amount
reasonable and appropriate to fund the plan; or (iv) purchases that are part of
an open-market program not involving more than 5% of its outstanding capital
stock during a 12-month period, if the repurchases do not cause the Bank to
become undercapitalized and the Bank provides to the Regional Director of the
OTS no later than ten days prior to the commencement of a repurchase program
written notice containing a full description of the program to be undertaken and
such program is not disapproved by the Regional Director. However, the Regional
Director has authority to permit repurchases during the first year following
consummation of the Stock Conversion and Reorganization and to permit
repurchases in excess of 5% during the second and third years upon the
establishment of exceptional circumstances (i.e., where such repurchases would
be in the best interests of the institution and its stockholders).
Well-capitalized institutions have received their Regional Directors' permission
to engage in repurchases during the first year following consummation of a
conversion.
However, upon consummation of the Bank Conversion, the Company's
ability to repurchase its capital stock will be governed by the Federal Reserve
Board's regulations. Under the Federal Reserve Board's regulations, any bank
holding company that is not well-capitalized and not in generally satisfactory
condition must notify the Federal Reserve Board before purchasing or redeeming
its equity securities if the gross consideration for the purchase or redemption,
when aggregated with the net consideration paid by the company for all purchases
and redemptions during the preceding 12 months, is equal to 10% or more of the
company's consolidated retained earnings. The Federal Reserve Board may
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disapprove a proposed purchase or redemption if it finds that the proposal would
constitute an unsafe or unsound practice or would violate any directive of,
condition imposed by or written agreement with, the Federal Reserve Board. Under
the Federal Reserve Board's regulations, no such prior notice of repurchases is
required to be given by a bank holding company that has received one of the two
highest examination ratings at its most recent supervisory inspection, is not
the subject of any unresolved supervisory issues and is, and after giving effect
to the proposed repurchase will continue to be, well-capitalized.
COMPARISON OF STOCKHOLDERS' RIGHTS
General
As a result of the Stock Conversion and Reorganization, holders of the
Bank Common Stock will become stockholders of the Company, a Tennessee
corporation. There are certain differences in stockholder rights arising from
distinctions between the Bank's and the Company's Charter and Bylaws and between
Tennessee law and federal law.
The discussion herein is not intended to be a complete statement of the
differences affecting the rights of stockholders, but rather summarizes the
material differences and certain important similarities. The discussion herein
is qualified in its entirety by reference to the respective Charter and Bylaws
of the Company and Lexington First and the Tennessee Business Corporation Act.
Authorized Capital Stock
The Company's authorized capital stock consists of 8,000,000 shares of
Common Stock and 2,000,000 shares of Preferred Stock, whereas the Bank's
authorized capital stock consists of 8,000,000 shares of Bank Common Stock and
2,000,000 shares of preferred stock (the "Bank Preferred Stock"). The shares of
Common Stock and Preferred Stock were authorized in an amount greater than that
to be issued in the Stock Conversion and Reorganization to provide the Company's
Board of Directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and
employee stock options. However, these additional authorized shares may also be
used by the Board of Directors, consistent with its fiduciary duty, to deter
future attempts to gain control of the Company. The Board of Directors also has
sole authority to determine the terms of any one or more series of Preferred
Stock, including voting rights, conversion rates, and liquidation preferences.
As a result of the ability to fix voting rights for a series of Preferred Stock,
the Board has the power, to the extent consistent with its fiduciary duties, to
issue a series of Preferred Stock to persons friendly to management in order to
attempt to block a tender offer, merger or other transaction by which a third
party seeks control, and thereby assist management to retain its position. The
Company's Board currently has no plan for the issuance of additional shares,
other than the possible issuance of additional shares pursuant to stock benefit
plans.
Issuance of Capital Stock
Pursuant to applicable laws and regulations, the Mutual Holding Company
is required to own not less than a majority of the outstanding Bank Common
Stock. There will be no such restriction applicable to the Company following
consummation of the Stock Conversion and Reorganization.
The Charter of the Company does not contain restrictions on the
issuance of shares of capital stock to directors, officers or controlling
persons of the Company. Thus, stock-related compensation plans such as stock
option plans could be adopted by the Company without stockholder approval and
shares of Company capital stock could be issued directly to directors or
officers without stockholder approval. Moreover, although generally not
required, stockholder approval of stock-related compensation plans may be sought
in certain instances in order to qualify such plans for favorable federal income
tax and securities law treatment under current laws and regulations. In
addition, it is a condition to OTS approval of the Stock Conversion and
Reorganization that the Company not take any action that would cause the
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Common Stock to be delisted from the Nasdaq Stock Market if it were so listed.
The rules of the Nasdaq Stock Market generally require approval of new stock
benefit plans and other large stock issuances. The Company plans to submit the
new stock compensation plans discussed herein to it stockholders for approval.
Voting Rights
Stockholders of the Bank currently may cumulate votes in elections of
directors. Under Tennessee law, unless a corporation's charter so provides,
stockholders are not entitled to cumulate their votes in the election of
directors. The Company's Charter does not provide for cumulative voting. The
restriction against cumulative voting will help to ensure continuity and
stability of both the Company's and the Bank's board of Directors, respectively,
and the policies adopted by each, and possibly by delaying, deterring or
discouraging proxy contests.
Neither the Bank's Charter nor the Charter of the Company contain any
specification of or limitation on the circumstances under which separate class
voting rights may be provided to a particular class or series of either Bank or
Company Preferred Stock.
For additional information relating to voting rights, see " --
Limitations on Acquisitions of Voting Stock and Voting Rights" below.
Payment of Dividends
The ability of the Bank to pay dividends on its capital stock is
restricted by OTS regulations. See "Regulation -- Depository Institution
Regulation -- Dividend Limitations." Although the Company is not subject to
these restrictions as a Tennessee corporation, such restrictions will indirectly
affect the Company because dividends from the Bank will be a primary source of
funds of the Company for the payment of dividends to stockholders of the
Company.
The Tennessee Business Corporation Act generally provides that, subject
to any restrictions in the corporation's charter, a Tennessee corporation may
make a distribution to its stockholders unless, after giving effect to such
distribution, the corporation would not be able to pay its debts as they become
due in the usual course of business or the corporation's total assets would be
less than the sum of its total liabilities plus (unless the charter permits
otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of stockholders whose preferential rights are superior to those
receiving the distribution.
Board of Directors
The Bank's Bylaws require that the Board of Directors of the Bank be
divided into three classes, as nearly equal in number as possible, with the
members of each class elected for a term of three years and until their
successors are elected and qualified. The Company's Charter also requires the
Board of Directors of the Company to be divided into three classes as nearly
equal in number as possible and that the members of each class shall be elected
for a term of three years and until their successors are elected and qualified,
with one class being elected annually.
Under the Bank's Bylaws, vacancies on the Board of Directors may be
filled by the affirmative vote of a majority vote of the then remaining
directors, even though less than a quorum. Under the Company's Charter,
vacancies are generally required to be filled by a two-thirds vote of the
directors then in office, even though less than a quorum and any director so
chosen shall be elected for the unexpired term of his predecessor in office and
until such director's successor shall have been elected and qualified. Any
director so chosen may serve only until the next election of one or more
directors by the stockholders.
Under the Bank's Bylaws a director may be removed for cause by a vote
of the holders of a majority of the shares then entitled to vote at an election
of directors. Under the Company's Charter, directors may generally be removed
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only with cause by an affirmative vote of at least 80% of the outstanding shares
entitled to vote generally in the election of directors cast at a meeting of the
stockholders called for that purpose, except as otherwise required by law.
Limitations on Liability
The Company's Charter provides that no director shall be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a directors except for: (i) any breach of the director's duty
of loyalty to the Company or its stockholders; (ii) acts or omissions that are
not in good faith or that involve intentional misconduct or a knowing violation
of law; or (iii) unlawful distributions under Section 48-18-304 of the Tennessee
Business Corporation Act. The Company's Charter further provides that if the
Tennessee Business Corporation Act is ever amended or other Tennessee law
enacted to permit further elimination of liability, then the liability of
directors of the Company shall be eliminated or limited to the fullest extent
permitted by law.
Neither the Bank's Charter nor Bylaws contains any similar provision.
Indemnification of Directors, Officers, Employees and Agents
The Bank's Charter and Bylaws do not contain any provision relating to
indemnification of directors and officers of the Bank. Pursuant to OTS
regulations, however, the Bank is required to indemnify any person against whom
an action is brought or threatened because that person is or was a director,
officer or employee of the institution for (i) any amount for which that person
becomes liable under a judgment in such action and (ii) reasonable costs and
expenses, including reasonable attorney's, actually paid and incurred by that
person in defending or settling such action, or in enforcing his or her rights
to indemnification, provided that he or she attains a favorable judgment in such
enforcement action. In order to be eligible for such indemnification, however, a
person must obtain a final judgment in his or her favor or, in the case of (i)
settlement, (ii) final judgment against him or her or (iii) a final judgment in
his or her favor but not on the merits, indemnification will only be available
if a majority of the disinterested directors of the institution determine that
he or she was acting in good faith, within the scope of his or her employment or
authority as he or she could reasonably have perceived it under the
circumstances and for a purpose he or she could reasonably have believed under
the circumstances was in the best interests of the institution. The Bank is
permitted by regulation to authorize payment of reasonable costs and expenses,
including reasonable attorney's fees prior to the conclusion of the action upon
a finding by the majority of the directors that, in connection with an action,
the person ultimately may become entitled to indemnification under the
above-described standards. Before making such advance payment, however, the
institution must obtain an agreement that it will be repaid if the person on
whose behalf payment is made is later determined not to be entitled to
indemnification.
The Company's Charter provides that the Company shall indemnify any
director who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was a director, if: (i) he conducted himself in good faith; (ii) he
reasonably believed, (A) in the case of conduct in his official capacity with
the Company, that his conduct was in the Company's best interests and (B) in all
other cases, that his conduct was at least not opposed to its best interests;
and (iii) in the case of any criminal proceeding, he had no reasonable cause to
believe his conduct was unlawful. The Company's Charter also requires that the
Company indemnify any director and any officer who was wholly successfully, on
the merits or otherwise, in the defense of any proceeding to which he was a
party because he is or was a director or officer of the Company, against
reasonable expenses incurred by him in connection with the proceeding.
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Special Meetings of Stockholders
Pursuant to the Bank's Bylaws, Special Meetings of stockholders may be
called at any time by the Chairman of the Board, the President or a majority of
the Board of Directors, and must be called upon the written request of the
holders of not less than one-tenth or all the outstanding capital stock of the
Bank. The Company's Charter contains a provision pursuant to which special
meetings of stockholders of the Company only may be called by the Board of
Directors or a committee thereof. Stockholders will not have the right to call
Special Meetings.
Stockholder Nominations and Proposals
The Bank's Bylaws provide that nominations and proposals by
shareholders must be made in writing and delivered to the secretary at the
principal offices of the Bank at least five days prior to the date of the annual
meeting.
The Company's Charter provides that all nominations for election to the
Board of Directors and proposals for any new business, other than those made by
the Board or a committee thereof, shall be made by a stockholder who has
complied with the notice provisions in the Charter. To be timely, a
stockholder's notice generally must be delivered to, or mailed to the secretary
of the Company at the principal executive offices of the Company (i) not fewer
than 30 days nor more than 60 days prior to the annual meeting of stockholders
of the Company; provided, however, that if notice or public disclosure of the
meeting is effected fewer than 40 days before the meeting, such written notice
shall be delivered or mailed, as prescribed, to the secretary of the Company not
later than the close of business on the tenth day following the date on which
notice of such meeting is first given to stockholders. Such stockholder's notice
must set forth (A) as to each person whom the stockholder proposes to nominate
for election or re-election as a director (i) the name, age, business address
and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the number of shares of the Company's stock
which are beneficially owned by such nominee, and (iv) any other information
relating to such person that is required to be disclosed in solicitations of
proxies with respect to nominees for election as directors, pursuant to
Regulation 14A under the Exchange Act, including, but not limited to, such
person's written consent to be named in the proxy statement as a nominee and to
serving as a director, if elected; and (B) as to the stockholder giving the
notice (i) the name and address, as they appear on the Company's books and (ii)
the class and number of shares of the Company stock which are beneficially owned
by such stockholder.
The Company's Charter provides that stockholder proposals, other than
those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the secretary of the Company and not
less than 30 nor more than 60 days prior to the annual meeting of stockholders
of the Company. Such stockholder's notice must set forth as to each matter the
stockholder proposes to bring before the annual meeting: (a) a brief description
of the proposal desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (b) the name and address, as
they appear on the Company's books, of the stockholder proposing such business,
(c) the class and number of shares of the Company's stock which are beneficially
owned by the stockholder, and (d) any material interest of the stockholder in
such proposal.
The procedures regarding stockholder nominations and proposals are
intended to provide the Board of Directors of the Company with the information
deemed necessary to evaluate a stockholder proposal or nomination and other
relevant information, such as existing stockholder support, as well as the time
necessary to consider and evaluate such information in advance of the applicable
meeting. Generally, the Company's Board of Directors determines whether there
has been compliance with these requirements. The proposed procedures will give
incumbent directors advance notice of a business proposal or nomination. This
may make it easier for the incumbent directors to defeat a stockholder proposal
or nomination, even when certain stockholders view such proposal or nomination
as in the best interests of the Company or its stockholders.
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Inspectors of Election
The Bank's Bylaws provide that the Board of Directors may appoint any
persons other than nominees for office as inspectors of election. The number of
inspectors are required to be either one or three. If inspectors of election are
not so appointed, the chairman of the board or the president may, or on request
of not fewer than 10% of the votes represented at the meeting shall, make such
appointment at the meeting. If appointed at the meeting, the majority of the
votes present shall determine whether one or three inspectors are to be
appointed.
The Company's Bylaws provide that the Board of Directors may appoint
one or more inspectors of election. If for any meeting the inspector(s)
appointed by the Board of Directors shall be unable to act or the Board of
Directors shall fail to appoint any inspector, one or more inspectors may be
appointed at the meeting by the chairman of the board or president.
Limitations on Voting Rights
Article XIV of the Company's Charter provides that, if at any time
following the effective date of the completion of the Stock Conversion and
Reorganization, any person acquires beneficial ownership of more than 10% of any
class of equity security of the Company without the prior approval of two-thirds
of the "Continuing Directors" (as defined below), then the record holders of the
voting stock of the Company beneficially owned by such acquiring person shall
have only voting rights, with respect to each share in excess of 10%, equal to
one one-hundredth (1/100th) of a vote. The aggregate voting power of such record
holders will be allocated proportionately among such record holders by
multiplying the aggregate voting power, as so limited, of the outstanding shares
of voting stock of the Company beneficially owned by such acquiring person by a
fraction whose numerator is the number of votes represented the shares of voting
stock of the Company owned of record by such person (and which are beneficially
owned by such acquiring person) and whose denominator is the total number of
votes represented by the shares of voting stock of the Company that are
beneficially owned by such acquiring person. A person who is the record owner of
shares of voting stock of the Company that are beneficially simultaneously by
more than one person shall have, with respect to such shares, the right to cast
the least number of votes that such person would be entitled to cast under
Article XIV. "Continuing Directors" are defined in the Company's Charter to be
those members of the board of directors who are unaffiliated with any "Related
Person" (as defined below) and who were members of the board of directors prior
to the time that a "Related Person" (as defined below) became a "Related Person"
and any successor to such directors who are recommended to succeed a Continuing
Director by a majority of the Continuing Directors then on the Board of
Directors. The term "Related Person" is defined as any individual, corporation,
partnership or other person or entity which, together with its affiliates,
beneficially owns in the aggregate 10% or more of the outstanding shares of
Common Stock and any affiliate of such individual, corporation, partnership or
other person or entity.
Currently, the Charter of the Bank does not contain any provision which
imposes the same restrictions with respect to the voting of Bank Common Stock.
Mergers and Certain Dispositions of Assets
To approve mergers and similar transactions, the Tennessee Business
Corporation Act generally requires the approval of the Board of Directors of the
corporation and of the holders of a majority of all the votes entitled to be
cast, unless the Charter or the Board of Directors requires a greater vote. The
Tennessee Business Corporation Act permits a corporation to merge with another
corporation without obtaining the approval of its stockholders (unless the
Charter provides otherwise) if: (i) the corporation's separate corporate
existence will not cease as a result of the merger and, except for certain types
of amendments, its charter will not differ from its charter before the merger;
(ii) each stockholder of the corporation whose shares were outstanding
immediately before the effective date of the merger will hold the same number of
shares, with identical designations, preferences, limitations and relative
rights, immediately after the effective date of the merger; (iii) the voting
power of the shares outstanding immediately after the merger, plus the voting
power of the shares issuable as a result of the merger (either by the conversion
of securities issued pursuant
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to the merger or by the exercise of rights and warrants issued pursuant to the
merger) will not exceed by more than twenty percent (20%) the voting power of
the total shares of the corporation outstanding immediately before the merger or
exchange; and (iv) the number of participating shares outstanding immediately
after the merger, plus the number of participating shares issuable as a result
of the merger (either by the conversion of securities issued pursuant to the
merger or by the exercise of rights and warrants issued pursuant to the merger)
will not exceed more than twenty percent (20%) the total number of participating
shares outstanding immediately before the merger.
The Tennessee Business Corporation Act also provides that any sale,
lease, exchange, or other disposition of all, or substantially all, of the
property and assets not made in the usual and regular course of business may be
made in the following manner: (i) the board of directors may adopt a resolution
recommending that such a transaction be approved by stockholders, unless the
board of directors for any reason determines that it should not make such a
recommendation, in which case the board may adopt a resolution directing that
the transaction be submitted to stockholders without a recommendation; (ii) the
board of directors may submit the proposed transaction for authorization by the
company's stockholders at an annual or special meeting of stockholders; (iii)
written notice of such meeting shall be given to stockholders of record, stating
that the purpose, or one of the purposes of the meeting is to propose the
transaction; (iv) at such meeting the stockholders may authorize the
transaction, upon the affirmative vote of a majority of all the votes entitled
to be cast on the transaction, unless the board of directors or the
corporation's charter requires a greater vote or voting by voting groups; and
(v) after such authorization by vote of the stockholders, the board of directors
may nevertheless abandon such transaction, subject to the rights of third
parties under any contract, without further action or approval by the
stockholders.
As the holder of all the outstanding Bank Common Stock after
consummation of the Stock Conversion and Reorganization, the Company generally
will be able to authorize a merger, consolidation or other business combination
involving the Bank without the approval of the stockholders of the Company. In
addition to the provisions of Tennessee law, the Company's Charter requires the
approval of the holders of at least 80% of the Company's outstanding shares of
voting stock, and a majority of such shares not including shares deemed
beneficially owned by a Related Person, to approve certain "Business
Combinations," as defined therein. The Charter requires the approval of the
stockholders in accordance with the increased voting requirements in connection
with any such transactions except in cases where the proposed transaction has
been approved in advance by at least two-thirds of the Company's Continuing
Directors. These provisions of the Charter apply to any "Business Combination"
which generally is defined to include: (i) any merger, share exchange or
consolidation of the Company with or into a Related Person; (ii) any sale,
lease, exchange, transfer or other disposition of, including without limitation,
the granting of any mortgage, pledge or any other security interest in, all or
any substantial part of the assets of the Company (including, without
limitation, any voting securities of a subsidiary) or of a subsidiary to a
Related Person or proposed by or on behalf of a Related Person; (iii) any sale,
lease, exchange, transfer or other disposition of, including without limitation,
a mortgage, pledge or any other security interest in, all or any substantial
part of the assets of a Related Person to the Company or a subsidiary; (iv) the
issuance or transfer by the Company or a subsidiary of any securities of the
Company or a subsidiary to a Related Person other than pursuant to a dividend or
distribution made pro rata to all stockholders of the Company; (v) the
acquisition by the Company or a subsidiary of any securities of a Related Person
or of any securities convertible into securities of a Related Person; (vi) any
transaction proposed by or on behalf of a Related Person or pursuant to an
agreement, arrangement or understanding with a Related Person which has the
effect, directly or indirectly, of increasing the Related Person's proportionate
ownership of voting securities of the Company or a subsidiary thereof or of
securities that are convertible to, exchangeable for or carry the right to
acquire such voting securities; (vii) the adoption of any plan or proposal of
liquidation or dissolution of the Company any reincorporation of the Company in
another state or jurisdiction, any reclassification of the Common Stock, or any
recapitalization involving the Common Stock proposed by or on behalf of a
Related Person; (viii) any loans, advances, guarantees, pledges, financial
assistance, security arrangements, restrictive covenants or any tax credits or
other tax advantages provided by, through or to the Company or any subsidiary
thereof as a result of which a Related Person receives a benefit, directly or
indirectly, other than proportionately as a stockholder; and (ix) any agreement,
contract or other arrangement providing for any of the transactions described in
(i) - (viii) above.
Neither the Bank's Charter, Bylaws nor federal laws and regulations
contains a provision which restricts business combinations between the Bank and
Related Persons in the manner set forth in the Company's Charter.
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Dissenters' Rights
A federal regulation which is applicable to the Bank generally provides
that a stockholder of a federally chartered savings institution which engages in
a merger, consolidation or sale of all or substantially all of its assets shall
have the right to demand from such institution payment of the fair or appraised
value of his or her stock in the institution, subject to specified procedural
requirements. This regulation also provides, however, that the stockholders of a
federally chartered savings institution with stock which is listed on a national
securities exchange or quoted on the Nasdaq System are not entitled to
dissenters' rights in connection with a merger involving such savings
institution if the stockholder is required to accept only "qualified
consideration" for his or her stock, which is defined to include cash, shares of
stock of any institution or corporation which at the effective date of the
merger will be listed on a national securities exchange or quoted on the Nasdaq
System or any combination of such shares of stock and cash.
After the Stock Conversion and Reorganization, the rights of appraisal
of dissenting stockholders of the Company will be governed by the Tennessee
Business Corporation Act. The Tennessee Business Corporation Act provides that
stockholders of a Tennessee corporation have a right to dissent from, and obtain
payment of the fair value of his shares in the event of any of the following
corporate actions: (i) consummation of a plan of merger requiring stockholder
approval or involving a subsidiary that is merged into its parent; (ii)
consummation of a plan of share exchange to which the corporation is a party as
the corporation whose shares will be acquired, if the stockholder is entitled to
vote on the plan; (iii) consummation of a sale or exchange of all, or
substantially all, of the property of the corporation other than in the usual
and regular course of business, if the stockholder is entitled to vote on the
sale or exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all or
substantially all of the entire proceeds of the sale will be distributed to
stockholders within one year after the date of sale; (iv) an amendment to the
charter that materially and adversely affects rights in respect of a dissenter's
shares because it: (A) alters or abolishes a preferential right of the shares,
(B) creates, alters or abolishes a right in respect of redemption, including a
provision respecting a sinking fund for the redemption or repurchase of the
shares, (C) alters or abolishes a preemptive right of the holders of the shares
to acquire shares or other securities, (D) excludes or limits the right of the
shares to vote on any matter, or to cumulate votes, other than a limitation by
dilution through issuance of shares or other securities with similar voting
rights, or (E) reduces the number of shares owned by the stockholder to a
fraction of a shares, if the fractional share is to be acquired for cash under
(SS)48-16-104 of the Tennessee Business Corporation Act; or (v) any corporation
action taken pursuant to a stockholder vote to the extent the charter, bylaws,
or a resolution of the board of directors providing that voting or nonvoting
stockholders are entitled to dissent and obtain payment of their shares.
Notwithstanding the foregoing, no stockholder of a Tennessee corporation may
dissent as to any shares of a security which, as of the date of the effectuation
of the transaction which would otherwise give rise to dissenters' rights, is
listed on an exchange registered under Section 6 of the Exchange Act or is a
"national market system security," as defined in rules promulgated pursuant to
the Exchange Act.
Amendment of Governing Instruments
No amendment of the Company's Charter may be made unless it is first
approved by the Board of Directors of the Company, recommended to the
stockholders for approval and thereafter is approved by the holders of a
majority of the shares of the Company entitled to be cast. An 80% vote of the
shares of the Company is required to amend, adopt, alter, change or repeal any
provision inconsistent with Article VIII (setting quorum and voting
requirements), Article IX (setting the requirements for the Board of Directors,
including classification of the Board and vacancies), Article X (setting the
procedures for nomination of directors and stockholder proposals), Article XI
(removal of directors), Article XII (elimination of director liability), Article
XIII (indemnification), Article XIV (restrictions on voting rights of certain
holders), Article XV (approval of Business Combinations), Article XVI
(evaluation of Business Combinations), Article XIX (amendment of Bylaws) and
Article XX (amendment of Charter)
104
<PAGE>
Statutory Anti-Takeover Provisions
The Tennessee Business Corporation Act contains several provisions
described below which may be applicable to the Company upon consummation of the
Stock Conversion and Reorganization. The Bank, as a federally chartered
institution is governed by federal laws and regulations. There are no similar
provisions applicable to the Bank.
Business Combination Act. The Tennessee Business Combination Act (the
"Business Combination Act") generally prohibits a "business combination"
(generally defined to include mergers, share exchanges, sales and leases of
assets, issuances of securities and similar transactions) by a "resident
domestic corporation" (as defined below) or a subsidiary with an "Interested
Shareholder" (generally defined as any person or entity which beneficially owns
10% or more of the voting power of any class or series of the corporation's
stock then outstanding) for a period of five years after the date the person
becomes an Interested Shareholder unless, prior to such date, the board of
directors approved either the business combination or the transaction which
resulted in the shareholder becoming an Interested Shareholder and the business
combination satisfies any other applicable requirements imposed by law or by the
corporation's charter or bylaws. The Business Combination Act also limits the
extent to which a "resident domestic corporation" which has a class of voting
stock traded on any national securities exchange or registered pursuant to
Section 12(g) of the Exchange Act or any of its officers or directors could be
held liable for resisting any business combination.
For purposes of the Business Combination Act, the term "resident
domestic corporation" is defined as an issuer of voting stock which, as of the
share acquisition date in question, is organized under the laws of Tennessee and
meets two or more of the following requirements: (i) the corporation has more
than 10,000 or 10% of its stockholders resident in Tennessee or more than 10% of
its shares held by stockholders who are Tennessee residents; (ii) the
corporation has its principal office or place of business located in Tennessee;
(iii) the corporation has the principal office or place of business of a
significant subsidiary, representing not less than 25% of the corporation's
consolidated net sales located in Tennessee; (iv) the corporation employs more
than 250 individuals in Tennessee or has a combined annual payroll paid to
Tennessee residents which is in excess of $5.0 million; (v) the corporation
produces goods and services in Tennessee which result in annual gross receipts
in excess of $10.0 million; or (vi) the corporation has physical assets and/or
deposits, including those of any subsidiary located within Tennessee which
exceed $10.0 million in value. The Company does not expect that it will
initially meet the definition of a resident domestic corporation although it is
possible that it will meet the definition in the future and will be entitled to
the anti-takeover protection afforded by the Business Combination Act.
Control Share Acquisitions. The Tennessee Control Share Acquisition Act
(the "Control Share Acquisition Act") generally provides that any person or
group that acquires the power to vote more than certain specified levels
(one-fifth, one-third or a majority) of the shares of certain Tennessee
corporations will not have the right to vote such shares unless granted voting
rights by the holders of a majority of the votes entitled to be cast, excluding
"interested shares." Interested shares are those shares held by the acquiring
person, officers of the corporation and employees and directors of the
corporation. If approval of voting power for the shares is obtained at one of
the specified levels, additional stockholder approval is required when a
stockholder seeks to acquire the power to vote shares at the next level. In the
absence of such approval, the additional shares acquired by the stockholder may
not be voted until they are transferred to another person in a transaction other
than a control share acquisition.
Pursuant to the Control Share Acquisition Act, the provisions of such
Act will only apply to a Tennessee corporation if its charter or bylaws so
provides and which has: (i) 100 or more stockholders; (ii) its principal place
of business, its principal office or substantial assets within Tennessee; and
(iii) either (A) more than 10% of its stockholders resident in Tennessee, (B)
more than 10% of its shares owned by stockholders resident in Tennessee, or (C)
10,000 or more stockholders resident in Tennessee. Neither the Company's Charter
nor its Bylaws contains a provision declaring that the Company will be subject
to the provisions of the Control Share Acquisition Act, although the Company
could amend its Charter or Bylaws in the future to include such a provision. The
Company cannot determine at this time whether it would otherwise meet the
requirements to be subject to the provisions of the Control Share Acquisition
Act.
105
<PAGE>
Anti-Greenmail Statute. The Tennessee Greenmail Act (the "Greenmail
Act") prohibits a Tennessee corporation having a class of voting stock
registered or traded on a national securities exchange or registered pursuant to
Section 12(g) of the Exchange Act from purchasing, directly or indirectly, any
of its shares at a price above the market value of such shares from any person
who holds more than 3% of the class of securities to be purchased if such person
has held such shares for less than two years, unless: (i) such purchase has been
approved by the affirmative vote of a majority of the outstanding shares of each
class of voting stock issued by such corporation or (ii) the corporation makes
an offer, at least equal value per share, to all holders of shares of such
class. For purposes of the Greenmail Act, market value is defined as the average
of the highest and lowest closing market price of such shares during the 30
trading days preceding the purchase or preceding the commencement or
announcement of a tender offer if the seller of such shares has commenced a
tender offer or announced an intention to seek control of the corporation.
The Common Stock will be registered pursuant to Section 12(g) of the
Exchange Act. As such, the Company will be subject to the restrictions of the
Greenmail Act upon consummation of the Stock Conversion and Reorganization.
Investor Protection Act. The Tennessee Investor Protection Act (the
"Investor Protection Act") prohibits any party owning, directly or indirectly,
5% or more of any class of equity securities of an "offeree company" (as defined
below), any of which were purchased within one year before the proposed takeover
offer, unless the offeror: (i) before making such purchase, had made a public
announcement of his intention to change or influence the management or control
of the "offeree company"; (ii) has made a full, fair and effective disclosure of
such intention to the persons from whom he acquired such securities; and (iii)
has filed with the Tennessee Commissioner of Commerce and Insurance and with the
"offeree company" a statement signifying such intentions and containing such
additional information as the Commissioner may require. For purposes of the
Investor Protection Act, an "offeree company" is defined as a corporation or
other issuer of equity securities which is incorporated or organized under the
laws of Tennessee or has its principal office in Tennessee, has substantial
assets located in Tennessee and which is or may be involved in a takeover offer
relating to any class of its equity securities.
The Investor Protection Act also prohibits any offeror from making a
takeover offer which is not made to the holders of record or beneficial owners
of the equity securities of an offeree company who reside in Tennessee on
substantially the same terms as the offer is made to holders residing elsewhere.
The Investor Protection Act also imposes certain other restrictions on takeover
offers involving offeree companies. Although the Company is a Tennessee
corporation, it is not anticipated at this time that the Company would satisfy
the requirement of having substantial assets located in Tennessee and therefore
would not be deemed an offeree company and entitled to the protections of the
Investor Protection Act. It is possible that the Company could satisfy this
requirement in the future and parties seeking to make a takeover offer would be
subject to the requirements of the Investor Protection Act.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
Restrictions in the Company's Charter and Bylaws
Certain provisions of the Company's Charter and Bylaws which deal with
matters of corporate governance and rights of stockholders might be deemed to
have a potential anti-takeover effect. These provisions, which are described
under "Comparison of Stockholders' Rights" above, provide, among other things:
(i) that the Board of Directors of the Company shall be divided into classes;
(ii) that special meetings of stockholders may only be called by the Board of
Directors of the Company or a committee thereof; (iii) that stockholders
generally must provide the Company advance notice of stockholder nominations for
director and proposals and provide certain specified related information; (iv)
that the voting rights of any person who acquires more than 10% of the issued
and outstanding shares of any class of an equity security of the Company will be
reduced to 1/100th of a share of every share owned in excess of 10%; (v) the
authority to issue shares of authorized but unissued Common Stock and Preferred
Stock and to establish the terms of any one or more series of Preferred Stock,
including voting rights; and (vi) restrictions on the Company's ability to
engage in certain Business Combinations with "Related Persons."
106
<PAGE>
The foregoing provisions of the Charter and Bylaws of the Company could
have the effect of discouraging an acquisition of the Company or stock purchases
in furtherance of an acquisition, and could accordingly, under certain
circumstances, discourage transactions which might otherwise have a favorable
effect on the price of the Common Stock.
The Board of Directors believes that the provisions described above are
prudent and will reduce vulnerability to takeover attempts and certain other
transactions that are not negotiated with and approved by the Board of Directors
of the Company. The Board of Directors believes that these provisions are in the
best interests of the Company and its future stockholders. In the Board of
Directors' judgment, the Board of Directors is in the best position to determine
the true value of the Company and to negotiate more effectively for what may be
in the best interests of its stockholders. Accordingly, the Board of Directors
believes that it is in the best interests of the Company and its future
stockholders to encourage potential acquirors to negotiate directly with the
Board of Directors and that these provisions will encourage such negotiations
and discourage hostile takeover attempts. It is also the Board of Directors'
view that these provisions should not discourage persons from proposing a merger
or other transactions at prices reflective of the true value of the Company and
where the transaction is in the best interests of all stockholders.
Restrictions in Tennessee Law
Certain provisions of the Tennessee Business Corporation Act, which may
be applicable to the Company upon consummation of the Stock Conversion and
Reorganization or in the future may be deemed to have an anti-takeover effect.
These provisions, which are described under "Comparison of Stockholders' Rights"
above include (i) restrictions on business combinations with Interested
Shareholders; (ii) restrictions on control share acquisitions; (iii) a
prohibition on the payment of greenmail; and (iv) a prohibition on certain types
of tender offers.
Change in Bank Control Act and Bank Holding Company Act
In connection with the Bank Conversion, the Change in Bank Control Act
and the Bank Holding Company Act, together with the regulations of the Federal
Reserve Board under those Acts, require that the consent of the Federal Reserve
Board be obtained prior to any person or company acquiring "control" of a bank
holding company. Control is conclusively presumed to exist if an individual or
company acquires more than 25% of any class of voting stock of the bank holding
company. Control is rebuttably presumed to exist if the person acquires more
than 10% of any class of voting stock of a bank holding company if either (i)
the company has registered securities under Section 12 of the Exchange Act or
(ii) no other person will own a greater percentage of that class of voting
securities immediately after the transaction. The regulations provide a
procedure to rebut the rebuttable control presumption. Since the Common Stock
will be registered under Section 12 of the Exchange Act, any acquisition of 10%
or more of the Company's Common Stock will give rise to a rebuttable presumption
that the acquiror of such stock controls the Company, requiring the acquiror,
prior to acquiring such stock, to rebut the presumption of control to the
satisfaction of the Federal Reserve Board or obtain Federal Reserve Board
approval for the acquisition of control. Restrictions applicable to the
operations of bank holding companies may deter companies from seeking to obtain
control of the Company. See " -- Regulation of the Company Following the Bank
Conversion."
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
General
The Company is authorized to issue 8,000,000 shares of Common Stock and
2,000,000 shares of Preferred Stock. The Company currently expects to issue up
to a maximum of 568,655 shares of Common Stock, including 344,275 shares of
Conversion Stock and 224,380 Exchange Shares, and no shares of Preferred Stock
in the Stock Conversion and Reorganization. Each share of the Common Stock will
have the same relative rights as, and will be identical in all respects with,
each other share of Common Stock. Upon payment of the Purchase Price for the
107
<PAGE>
Conversion Stock and the issuance of the Exchange Shares in accordance with the
Plan, all such stock will be duly authorized, fully paid and nonassessable.
The Common Stock of the Company will represent nonwithdrawable capital,
will not be an account of an insurable type, and will not be insured by the
FDIC.
Common Stock
Dividends. The Company can pay dividends if, as and when declared by
its Board of Directors, subject to compliance with limitations which are imposed
by law. See "Dividend Policy." The holders of Common Stock of the Company will
be entitled to receive and share equally in such dividends as may be declared by
the Board of Directors of the Company out of funds legally available therefor.
If the Company issues Preferred Stock, the holders thereof may have a priority
over the holders of the Common Stock with respect to dividends.
Voting Rights. Upon completion of the Stock Conversion and
Reorganization, the holders of Common Stock of the Company will possess
exclusive voting rights in the Company. They will elect the Company's Board of
Directors and act on such matters as are required to be presented to them under
Tennessee law or the Company's Charter or as are otherwise presented to them by
the Board of Directors. Following the Bank Conversion, exclusive voting rights
in the Company shall remain vested in the holders of Common Stock. Except as
discussed in "Comparison of Stockholders' Rights -- Limitations on Acquisitions
of Voting Stock and Voting Rights," each holder of Common Stock will be entitled
to one vote per share. Under the Company's Charter, cumulative voting is
prohibited. If the Company issues Preferred Stock, holders of the Preferred
Stock may also possess voting rights.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Company, the holders of its Common Stock would be entitled to receive,
after payment or provision for payment of all its debts and liabilities, all of
the assets of the Company available for distribution. If Preferred Stock is
issued, the holders thereof may have a priority over the holders of the Common
Stock in the event of liquidation or dissolution.
Preemptive Rights. Holders of the Common Stock of the Company will
not be entitled to preemptive rights with respect to any shares which may be
issued. The Common Stock is not subject to redemption.
Preferred Stock
None of the shares of the Company's authorized Preferred Stock will be
issued in the Stock Conversion and Reorganization. Such stock may be issued with
such preferences and designations as the Board of Directors may from time to
time determine. The Board of Directors can, without stockholder approval, issue
preferred stock with voting, dividend, liquidation and conversion rights which
could dilute the voting strength of the holders of the Common Stock and may
assist management impeding an unfriendly takeover or attempted change in
control.
EXPERTS
The Financial Statements of Lexington First at December 31, 1996 and
1995 appearing in this Prospectus and included in the Registration Statement on
Form SB-2 filed with the SEC and the Application for Conversion filed with the
OTS, have been audited by Arnold, Spain & Company, P.C. independent auditors, as
set forth in their report thereon appearing elsewhere herein, and is included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
Ferguson & Co. has consented to the publication herein of the summary
of its report to the Company and the Bank setting forth its opinion as to the
estimated pro forma market value of the Common Stock to be outstanding upon
completion of the Stock Conversion and Reorganization and its opinion with
respect to subscription rights.
108
<PAGE>
LEGAL MATTERS
The legality of the Common Stock and the federal income tax
consequences of the Conversion will be passed upon for the Company and the Bank
by Housley Kantarian & Bronstein, P.C., Washington, D.C., special counsel to the
Company and the Bank. The Tennessee income tax consequences of the Stock
Conversion and Reorganization will be passed upon for the Company and Lexington
First by Arnold, Spain & Co., P.C., Jackson, Tennessee. Certain legal matters
will be passed upon for Trident Securities by Malizia, Spidi, Sloane & Fisch,
P.C.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement on Form
SB-2 (File No. 333-______) under the Securities Act with respect to the
Conversion Stock and the Exchange Shares offered hereby. As permitted by the
rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the Registration Statement. Such information can be
examined without charge at the public reference facilities of the SEC located at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Copies may be
obtained at prescribed rates from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
SEC at 75 Park Place, Fourteenth Floor, New York, New York 10007 and Room 3190,
John C. Kluczynski Building, 230 South Dearborn Street, Chicago, Illinois 60604.
Copies of such material can be obtained by mail from the SEC at prescribed rates
from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the SEC maintains a World Wide Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC, including the
Company. The address for the SEC's Website is "http://www.sec.gov". The
statements contained in this Prospectus as to the contents of any contract or
other document filed as an exhibit to the Registration Statement are, of
necessity, brief descriptions thereof and are not necessarily complete; each
such statement is qualified by reference to such contract or document.
The Mutual Holding Company has filed an Application for Conversion with
the OTS with respect to the Stock Conversion and Reorganization. This Prospectus
omits certain information contained in that application. The application may be
examined at the principal office of the OTS, 1700 G Street, N.W., Washington,
D.C. 20552 and at the Central Regional Office of the OTS located at 200 West
Madison Avenue, Suite 1300, Chicago, Illinois 60606.
In connection with the Stock Conversion and Reorganization, the Company
will register its Common Stock with the SEC under Section 12(g) of the Exchange
Act, and, upon such registration, the Company and the holders of its stock will
become subject to the proxy solicitation rules, reporting requirements and
restrictions on stock purchases and sales by directors, officers and greater
than 10% stockholders, the annual and periodic reporting requirements and
certain other requirements of the Exchange Act. Under the Plan, the Company has
undertaken that it will not terminate such registration for a period of at least
three years following the Conversion and Regulation.
109
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Page
----
<S> <C>
Independent Auditor's Report F-1
Consolidated Statements of Financial Condition as of March 31, 1997 F-2
(unaudited) and December 31, 1996 and 1995
Consolidated Statements of Operations for the Three Months Ended March 31, 1997 20
and 1996 (unaudited) and the Years Ended December 31, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the Three Months Ended F-4
March 31, 1997 (unaudited) and the Years Ended December 31, 1996 and 1995
Consolidated Statement of Cash Flows for the Three Months Ended March 31, 1997 F-5
and 1996 (unaudited) and the Years Ended December 31, 1996 and 1995
Notes to the Consolidated Financial Statements F-6
</TABLE>
Schedules - All schedules are omitted because the required information is not
applicable or is presented in the consolidated financial statements or
accompanying notes.
All financial statements of Community National Corporation have been
omitted because Community National Corporation has not yet issued any stock, has
no assets and no liabilities and has not conducted any business other than of an
organizational nature.
110
<PAGE>
ARNOLD, SPAIN & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
914 NORTH HIGHLAND AVENUE
JACKSON, TENNESSEE 38301
BILLY SPAIN, C.P.A. _____________ MEMBERS:
WINSTON TRUETT, C.P.A. AMERICAN INSTITUTE OF
MICHAEL HEWITT, C.P.A. 901- 427-8571 CERTIFIED PUBLIC ACCOUNTANTS
________________ FAX 901- 424-5701
TENNESSEE SOCIETY OF
KRISTI MCNEILL, C.P.A. CERTIFIED PUBLIC ACCOUNTANTS
AMY CREIGHTON, C.P.A.
GRADY ARNOLD, C.P.A., RETIRED
AICPA DIVISION OF FIRMS
Independent Auditor's Report
To the Board of Directors
Lexington First Federal Mutual Holding Company
Lexington, Tennessee
We have audited the accompanying consolidated balance sheets of Lexington
First Federal Mutual Holding Company and subsidiary as of December 31, 1996
and 1995, and the related consolidated statements of income, stockholders
equity, and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these consolidated 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 audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Lexington First Federal Mutual Holding Company and subsidiary as of December
31, 1996 and 1995, and the results of its operations and its cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
/s/ Arnond, Spain & Company, P.C.
Certified Public Accountants
Jackson, Tennessee
February 24, 1997
F-1
<PAGE>
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
March 31, ------------------------
1997 1 9 9 6 1 9 9 5
----------- ----------- -----------
ASSETS (Unaudited)
------
<S> <C> <C> <C>
Cash and cash equivalents $ 1,573,491 $ 542,045 $ 611,572
Time deposits 250,000 850,000 1,150,000
Investment securities:
Securities held-to-maturity
(estimated market value of
$2,266,639 (1997), $2,278,896
(1996) and $2,395,166 (1995) 2,256,989 2,256,805 2,351,056
Securities available-for-sale, at
estimated market value 1,568,434 1,802,059 3,103,833
Mortgage-backed and related securities:
Securities held-to-maturity
(estimated market value $655,141
(1997), $681,255 (1996) and
$835,178 (1996) 649,608 678,175 829,489
Securities available-for-sale, at
estimated market value 2,556,190 2,664,334 2,823,218
Loans receivable, net 16,429,207 16,205,224 14,511,627
Accrued interest receivable 127,243 105,365 116,273
Real estate held for investment 671 671 1,006
Stock in Federal Home Loan Bank,
at cost 250,100 245,900 229,700
Premises and equipment 263,193 254,702 199,412
Other assets 17,357 17,979 18,175
----------- ----------- -----------
Total Assets $25,942,483 $25,623,259 $25,945,361
============ =========== =========== ===========
</TABLE>
(Continued)
F-2
<PAGE>
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, December 31,
----------- -------------------------
1 9 9 7 1 9 9 6 1 9 9 5
----------- ----------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
LIABILITIES
Deposits $20,883,870 $20,637,964 $20,981,665
Advance from FHLB 949,283 955,393 970,700
Advances from borrowers for taxes
and insurance 3,400 2,630 1,391
Accrued interest payable 154,777 155,765 162,818
Income taxes:
Current (15,729) (26,303) 7,481
Deferred 20,434 14,326 25,108
Other liabilities 23,789 22,084 27,117
----------- ----------- -----------
Total Liabilities $22,019,824 $21,761,859 $22,176,280
----------------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY
Common stock of $1.00 par value,
authorized 8,000,000 shares,
(1997 and 1996) 222,993; (1995)
222,997 issued and outstanding $ 222,993 $ 222,993 $ 222,997
Additional paid-in capital 483,106 483,106 483,166
Retained earnings - substantially
restricted 3,244,635 3,200,683 3,073,894
Unrealized gain (loss) on securities
available-for-sale (28,075) (45,382) (10,976)
------------ ------------ ------------
Total Stockholders' Equity $ 3,922,659 $ 3,861,400 $ 3,769,081
-------------------------- ----------- ----------- -----------
Total Liabilities and
---------------------
Stockholders' Equity $25,942,483 $25,623,259 $25,945,361
-------------------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
gain (loss)
on securities
available for
sale net of
Retained Applicable
Common Stock Additional Earnings Deferred Total
---------------------- Paid-In Substantially Income Stockholders'
Shares Amount Capital Restricted Taxes Equity
--------- -------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 222,997 $222,997 $483,166 $2,919,833 $(124,912) $3,501,084
--------- -------- -------- ----------- --------- ----------
Change in unrealized gain (loss) on securities
available-for-sale, net of applicable deferred
income taxes of $58,695 113,936 113,936
Net income - year ended December 31, 1995 224,459 224,459
Cash dividends, $.20 per share, per quarter, (70,398) (70,398)
--------- -------- -------- ---------- --------- ----------
Balance at December 31, 1995 222,997 $222,997 $483,166 $3,073,894 $ (10,976) $3,769,081
Purchase and retire 4 shares of common stock (4) (4) (60) (64)
Change in unrealized gain (loss) on securities
available-for-sale, net of applicable deferred
income taxes of $23,378 (34,406) (34,406)
Net income - year ended December 31, 1996 197,184 197,184
Cash dividends, $.20 per share, per quarter (70,395) (70,395)
--------- -------- -------- ---------- --------- ----------
Balance at December 31, 1996 222,993 $222,993 $483,106 $3,200,683 $ (45,382) $3,861,400
Change in unrealized gain (loss) on securities
available-for-sale, net of applicable
deferred income taxes of $18,987 (unaudited) 17,307 17,307
Net income for the period ended March 31, 1997
(unaudited) 61,551 61,551
Cash dividends, $.20 per share, per quarter
(unaudited) (17,599) (17,599)
--------- -------- -------- ---------- --------- ----------
Balance at March 31, 1997 (unaudited) 222,993 $222,993 $483,106 $3,244,635 $ (28,075) $3,922,659
========= ======== ======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
March 31, December 31,
------------------------ -------------------------
1 9 9 7 1 9 9 6 1 9 9 6 1 9 9 5
---------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 61,551 $ 75,243 $ 197,184 $ 224,459
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 6,229 7,500 30,000 30,000
Provision for depreciation 2,263 2,512 25,742 17,879
Amortization of investment securities
premiums and discounts (net) 1,311 671 1,750 4,963
(Gain) loss on sale of investments (935) (1,156)
Stock in FHLB received as dividends (4,200) (3,900) (16,200) (14,900)
Changes in operating assets and liabilities:
(Increase) Decrease interest receivable (21,878) (5,572) 10,908 (17,233)
(Increase) Decrease in other assets 622 (11,751) 196 (3,175)
Increase (Decrease) in interest payable (988) (12,668) (7,053) 37,109
Increase (Decrease) in income taxes 21,162 30,421 (26,840) 1,009
Increase (Decrease) in other liabilities 1,705 1,253 (5,036) (8,341)
---------- ----------- ----------- -----------
Net Cash Provided by Operating Activities $ 67,777 $ 83,709 $ 209,716 $ 270,614
----------------------------------------- ---------- ----------- ----------- -----------
INVESTING ACTIVITIES
Net (increase) decrease in time deposits $ 600,000 $ 550,000 $ 300,000 $ (205,000)
Net (increase) decrease in loans (230,212) (533,273) (1,723,597) (718,300)
Additions to premises and equipment (10,754) (8,970) (81,034) (5,784)
Purchase of mortgage-backed securities (321,698) (827,573) (796,327)
Proceeds from collection of mortgage-backed securities 129,948 181,193 1,139,640 702,965
Purchase of investment securities (550,000) (1,145,000) (2,657,838)
Proceeds from maturities of investment securities 251,720 400,000 2,486,549 1,597,738
---------- ----------- ----------- -----------
Net Cash Provided by (Used in) Investing Activities $ 740,702 $ (282,748) $ 148,985 $(2,082,546)
--------------------------------------------------- ---------- ----------- ----------- -----------
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW accounts,
passbook savings accounts, and certificates of deposit $ 245,906 $ 169,300 $ (343,701) $ 1,732,281
Advances received from Federal Home Loan Bank 120,000 75,000
Payments on advances from Federal Home Loan Bank (6,110) (6,121) (135,307) (93,722)
Net increase (decrease) in mortgage escrow funds 770 2,008 1,239 (1,127)
Purchase of common stock (64)
Dividends paid (17,599) (17,599) (70,395) (70,398)
---------- ----------- ----------- -----------
Net Cash Provided by (Used in) Financing Activities $ 222,967 $ 147,588 $ (428,228) $ 1,642,034
--------------------------------------------------- ---------- ----------- ----------- -----------
Increase in Cash and Cash Equivalents $1,031,446 $ (51,451) $ (69,527) $ (169,898)
-------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 542,045 611,572 611,572 781,470
---------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,573,491 $ 560,121 $ 542,045 $ 611,572
========== =========== =========== ===========
SUPPLEMENTAL INFORMATION
Interest paid $ 292,165 $ 292,292 $ 1,109,707 $ 1,054,003
Taxes paid 9,416 7,100 131,849 150,856
Non-cash investing and financing activities
consisted of the following:
Loans transferred to real estate owned during the year 45,000 26,537
Stock dividends received from Federal Home Loan Bank 4,200 3,900 16,200 14,900
Total net increase (decrease) in unrealized loss on
securities available-for-sale (17,307) 30,802 34,406 (172,631)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996 (UNAUDITED)
DECEMBER 31, 1996, AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Lexington First Federal Savings and Loan Association ("Lexington First" or the
"Association") commenced operations in 1961 as a federally-chartered mutual
savings association. Its deposits have been federally insured up to applicable
limits, and it has been a member of the Federal Home Loan Bank ("FHLB") system
since that time.
On December 14, 1992, the Association completed its reorganization to a mutual
holding company known as "Lexington First Federal Mutual Holding Company" (the
"Mutual Holding Company"). On that date, Lexington First Federal Savings Bank
(the "Savings Bank") Completed its organization through the sale of a total of
215,000 shares of common stock, of which 135,000 shares were sold to the Mutual
Holding Company in exchange for the transfer to the Savings Bank of all but
$100,000 of the assets and liabilities of the Association, and 80,000 shares
were sold to persons other than the Mutual Holding Company at a price of $10.00
per share for gross proceeds of $800,000, and net proceeds of $626,193, after
deducting expenses of $173,807. The following is a description of the more
significant accounting policies that Lexington First Federal Mutual Holding
Company and subsidiary (the "Company") follow in presenting their consolidated
financial statements.
The consolidated statement of financial condition as of March 31, 1997 and the
related consolidated statements of income, equity and cash flows for the three
months ended March 31, 1997 and the related statements of income and cash flows
for the three months ended March 31, 1996 are unaudited and have been prepared
in accordance with the requirements for a presentation of interim financial
statements and are in accordance with generally accepted accounting principles.
In the opinion of management, all adjustments, consisting of normal recurring
adjustments, that are necessary for fair presentations of the interim periods,
have been reflected.
(a) Principles of Consolidation. The accompanying consolidated financial
---------------------------
statements include the accounts of Lexington First Federal Mutual Holding
Company and Lexington First Federal Savings Bank, its wholly-owned
subsidiary. The accounts of the bank include Lexington First Federal
Savings Corporation, the bank's wholly-owned subsidiary.
(b) Cash and Cash Equivalents. Cash consists of currency on hand and
-------------------------
demand deposits with other financial institutions. Cash equivalents are
short-term, highly liquid investments both readily convertible to known
amounts of cash and so near maturity that there is insignificant risk of
changes in value because of changes in interest rate. Only investments with
maturities of less than three months at the time of purchase are considered
as cash equivalents.
(c) Investment Securities. Effective January 1, 1994, the Savings Bank
---------------------
implemented FASB Statement 115-Accounting for Certain Investments in Debt
and Equity Securities, which required the Savings Bank to classify
F-6
<PAGE>
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
(c) Investment Securities (Cont.)
-----------------------------
its investment securities into three categories: Trading, Available-for-
Sale, and Held-to-Maturity. Investment securities that are held for short-
term resale are classified as trading securities and carried at fair value.
Debt securities that management has the ability and intent to hold to
maturity are classified as held-to-maturity and carried at cost, adjusted
for amortization of premium and accretion of discounts using the interest
method. Other marketable securities are classified as available-for-sale
and are carried at fair value. Realized and unrealized gains and losses on
trading securities are included in net income. Unrealized gains and losses
on securities available-for-sale are recognized as direct increases or
decreases in stockholders' equity. Gains and losses on the sale of
investment securities are determined using the specific-identification
method.
(d) Mortgage-Backed Securities. Effective January 1, 1994, the Savings
--------------------------
Bank implemented FASB Statement 115 and classified its mortgage-backed
securities into three categories: Trading, Available-for-Sale, and Held to
Maturity. Please see the above paragraph listed under the caption
Investment Securities for a complete discussion of the effect of this
statement.
Gains and losses on mortgage-backed securities are recognized based on the
specific identification method. All sales are made without recourse.
(e) Loans Receivable. Loans receivable are stated at unpaid principal
----------------
balances, less the allowance for possible loan losses, and net deferred
loan-origination fees.
(f) Allowance for Losses. Provision for losses on loans receivable and
--------------------
foreclosed real estate are charged to operations when the loss becomes
probable based on management's judgement. Management's periodic evaluation
of the adequacy of the allowance is based on the Company'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. Material estimates
that are particularly susceptible to significant change in the short term
are a necessary part of this process.
Uncollectible interest on loans is charged off, or an allowance is
established, when management is uncertain on the collectibility of the
loan. 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 payments are received until,
F-7
<PAGE>
LEXINGTON FIST FEDERAL MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
(f) Allowance for Losses (cont.)
----------------------------
in management's judgement, the borrower's ability to make periodic interest
and principal payments is back to normal, in which case the loan is
returned to accrual status. At March 31, 1997, and December 31, 1996 and
1995, $1,862 and $7,448 and $7,608, respectively, of interest had been
charged to the allowance per management's evaluation.
(g) Loan-Origination Fees and Related Costs. Loan fees are accounted for
---------------------------------------
in accordance with FASB Statement No. 91, Accounting for Nonrefundable Fees
and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases. Loan fees and certain direct loan origination costs are
deferred, and the net fee or cost is recognized as an adjustment to
interest income using the interest method over the contractual life of the
loans, adjusted for estimated prepayments based on the company's historical
prepayment experience.
(h) Real Estate Held for Investment and Foreclosured Real Estate. Real
------------------------------------------------------------
estate properties acquired through, or in lieu of, loan foreclosure are
initially recorded at fair value at the date of foreclosure. Real estate
properties held for investment are carried at the lower of cost, including
cost of improvements and amenities incurred subsequent to acquisition, or
net realizable value. Costs relating to development and improvement of
property are capitalized, whereas costs relating to the holding of property
are expensed.
Valuations are periodically performed by management, and an allowance for
losses is established by a charge to operations if the carrying value of a
property exceeds its estimated net realizable value.
(i) Income Taxes. Under the deferred method applied in 1992 and prior
------------
years, deferred income taxes are recognized for income and expense items
that are reported in different years for financial reporting purposes and
income-tax purposes using the tax rate applicable to the year of the
calculation. Under the deferred method, deferred taxes are not adjusted for
subsequent changes in tax rates.
In February, 1992, the Financial Accounting Standards Board (FASB) issued
SFAS No. 109, Accounting for Income Taxes, SFAS No. 109 requires a change
from the deferred method to the asset and liability method of accounting
for income taxes. Under the asset and liability method, deferred income
taxes are recognized for the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities. Under SFAS No. 109, the effect on
deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. The company has adopted SFAS No.
109 in 1993 and this change did not have a material effect on the financial
statements.
F-8
<PAGE>
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
(j) Premises and Equipment. Land is carried at cost. Buildings and
----------------------
furniture, fixtures and equipment are carried at cost, less accumulated
depreciation and amortization. Buildings and furniture, fixtures and
equipment are depreciated using the straight-line method over the estimated
useful lives of the assets.
(k) Use of Estimates. The preparation of financial statements in
----------------
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(l) Fair Value of Financial Instruments. Statement of Financing Accounting
-----------------------------------
Standards No. 107, Disclosures about Fair Value of Financial Instruments,
requires disclosure of fair value information about financial instruments,
whether or not recognized in the statement of financial condition. In cases
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used including the
discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instruments. Statement No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do
not represent the underlying value of the Bank.
The following methods and assumptions were used by the Bank in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
statement of financial condition for cash and cash equivalents
approximate those assets' fair values.
Time deposits: Fair values for time deposits are estimated using a
discounted cash flow analysis that applies interest rates currently
being offered on certificates to a schedule of aggregated contractual
maturities on such time deposits.
Investment securities (including trading account securities and
mortgage-backed securities): Fair values for investment securities are
based on quoted market prices, where available. If quoted market prices
are not available fair values are based on quoted market prices of
comparable instruments.
F-9
<PAGE>
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont.)
(l) Fair Value of Financial Instruments (Cont.)
-------------------------------------------
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
amounts. The fair values for other loans (for example, fixed rate
commercial real estate and rental property mortgage loans and
commercial and industrial loans) are estimated using discounted cash
flow analysis, based on interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality. Loan
fair value estimates include judgments regarding future expected loss
experience and risk characteristics. The carrying amount of accrued
interest receivable approximates its fair value.
Deposits: The fair values disclosed for demand deposits (for example,
interest-bearing checking accounts and passbook accounts) are, by
definition, equal to the amount payable on demand at the reporting date
(that is, their carrying amounts). The fair value for certificates of
deposit are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a
schedule of aggregated contractual maturities on such time deposits.
The carrying amount of accrued interest payable approximates fair
value.
Long-term borrowings: Rates currently available to the Bank for
borrowings with similar terms and remaining maturities are used to
estimate fair value of existing borrowings.
(m) Reclassification. Certain prior year amounts have been reclassified to
----------------
conform to the current year financial statement presentation.
NOTE 2 - CASH AND CASH EQUIVALENTS
Cash and cash equivalents are summarized below:
<TABLE>
<CAPTION>
March 31, December 31,
---------- --------------------
1 9 9 7 1 9 9 6 1 9 9 5
---------- --------- ---------
<S> <C> <C> <C>
Cash on hand $ 34,150 $ 20,150 $ 20,150
Demand deposits 120,655 169,148 197,178
Interest Bearing Deposits 1,418,686 352,747 394,244
---------- --------- ---------
$1,573,491 $ 542,045 $ 611,572
========== ========= =========
</TABLE>
F-10
<PAGE>
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 3 - INVESTMENT SECURITIES
The amortized cost and estimated market value of investments and mortgage-backed
securities are as follows:
<TABLE>
<CAPTION>
March 31, 1997
--------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Securities held-to-maturity
consist of the following:
U. S. government and
federal agencies $1,599,707 $ 961 $ (6,143) $1,594,525
Obligations of state &
political subdivisions 657,282 14,832 672,114
---------- ------------ ----------- ----------
$2,256,989 $ 15,793 $ (6,143) $2,266,639
========== ============ =========== ==========
Securities available-for-
sale consist of the following:
U.S. government and
federal agencies $1,107,054 $ 1,358 $ (40,753) $1,067,659
Obligations of states &
political subdivisions 510,942 (10,167) 500,775
---------- ------------ ----------- ----------
$1,617,996 $ 1,358 $ (50,920) $1,568,434
========== ============ =========== ==========
<CAPTION>
December 31, 1996
--------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Securities held-to-maturity
consist of the following:
U.S. government and
federal agencies $1,599,592 $ 5,082 $ (4,204) $1,600,470
Obligations of states &
political subdivisions 657,213 21,213 678,426
---------- ------------ ----------- ----------
$2,256,805 $ 26,295 $ (4,204) $2,278,896
========== ============ =========== ==========
Securities available-for-
sale consist of the
following:
U.S. government and
federal agencies $1,358,305 $ 1,159 $ (63,481) $1,295,983
Obligations of states &
political subdivisions 512,906 626 (7,456) 506,076
---------- ------------ ----------- ----------
$1,871,211 $ 1,785 $ (70,937) $1,802,059
========== ============ =========== ==========
</TABLE>
F-11
<PAGE>
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 3 - INVESTMENT SECURITIES (Cont.)
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Securities held-to-maturity
consist of the following:
U.S. Treasury securities
and obligations $1,694,122 $ 20,954 $ (471) $1,714,605
Obligations of states &
political subdivisions 656,934 23,627 680,561
---------- ---------- ---------- ----------
$2,351,056 $ 44,581 $ (471) $2,395,166
========== ========== ========== ==========
Securities available-for-
sale consist of the
following:
U.S. Government and
federal agencies $2,810,674 $ 18,338 $ (33,256) $2,795,756
Obligations of states
and political
subdivisions 307,835 242 308,077
---------- ---------- ---------- ----------
$3,118,509 $ 18,580 $ (33,256) $3,103,833
========== ========== ========== ==========
</TABLE>
The following is a summary of securities held-to-maturity and available-for-sale
as of December 31, 1996:
<TABLE>
<CAPTION>
Securities Securities
Held-to-Maturity Available-for-Sale
----------------------- -----------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Amounts maturing in:
One year or less $ 999,918 $1,005,000 $ 250,108 $ 250,000
After one year through
five years 499,674 495,470 840,350 840,062
After five years through
ten years 397,213 406,432 617,556 547,760
After ten years 360,000 371,994 163,197 164,237
---------- ---------- ---------- ----------
$2,256,805 $2,278,896 $1,871,211 $1,802,059
========== ========== ========== ==========
</TABLE>
Through March 31, 1997 and during 1996 and 1995, the Savings Bank did not sell
any investment securities.
Investment securities with a carrying amount of approximately $1,300,000 at
March 31, 1997 and December 31, 1996, and $501,000 at December 31, 1995, were
pledged to secure deposits as required or permitted by law.
F-12
<PAGE>
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 4 - MORTGAGE-BACKED SECURITIES
The amortized cost and estimated market values of mortgage-backed securities are
as follows:
<TABLE>
<CAPTION>
March 31, 1997
--------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Securities held-to-maturity
consist of the following:
GNMA $ 649,608 $ 5,533 $ $ 655,141
========== ============ =========== ==========
Securities available-for-sale
consist of the following:
FNMA $ 687,642 $ 1,785 $ (11,693) $ 677,734
GNMA 744,334 5,878 (3,754) 746,458
FHLMC 1,130,428 12,919 (11,349) 1,131,998
---------- ------------ ----------- ----------
$2,562,404 $ 20,582 $ (26,796) $2,556,190
========== ============ =========== ==========
<CAPTION>
December 31, 1996
--------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Securities held-to-maturity
consist of the following:
GNMA $ 678,175 $ 3,080 $ 0 $ 681,255
========== ============ =========== ==========
Securities available-for-
sale consist of the
following:
FNMA $ 721,067 $ 5,870 $ (9,890) $ 717,047
GNMA 767,459 4,962 (4,639) 767,782
FHLMC 1,175,259 13,384 (9,138) 1,179,505
---------- ------------ ----------- ----------
$2,663,785 $ 24,216 $ (23,667) $2,664,334
========== ============ =========== ==========
<CAPTION>
December 31, 1995
--------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Securities held-to-maturity
consist of the following:
GNMA $ 829,489 $ 5,689 $ 0 $ 835,178
========== ============ =========== ==========
Securities available-for-
sale consist of the
following:
FNMA $ 953,697 $ 9,972 $ (7,609) $ 956,060
GNMA 550,982 5,446 (2,403) 554,025
FHLMC 1,320,493 5,631 (12,991) 1,313,133
---------- ------------ ----------- ----------
$2,825,172 $ 21,049 $ (23,003) $2,823,218
========== ============ =========== ==========
</TABLE>
F-13
<PAGE>
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 4 - MORTGAGE-BACKED SECURITIES (Cont.)
Through March 31, 1997, no securities had been sold. During 1996, the Savings
Bank sold securities available-for-sale for total proceeds of approximately
$250,288, resulting in gross realized gains of approximately $935. During 1995,
the Savings Bank sold securities available-for-sale for total proceeds of
approximately $293,353, resulting in gross realized gains of approximately
$1,156.
The average yield for all mortgage-backed securities at March 31, 1997 and
December 31, 1996 and 1995, was 6.54%, 6.43% and 6.47%, respectively.
NOTE 5 - LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
----------- -------------------------
1 9 9 7 1 9 9 6 1 9 9 5
----------- ----------- -----------
<S> <C> <C> <C>
First mortgage loans (principally
conventional):
Principal balances:
Secured by one-to-four-family $15,904,497 $15,543,286 $14,263,873
Secured by other properties 134,060 164,119 8,683
Construction 193,300 550,033 75,791
----------- ----------- -----------
$16,231,857 $16,257,438 $14,348,347
Less: Net deferred loan
origination fees 26,213 27,179 30,184
Construction loans-in-
process 42 180,078 8,128
----------- ----------- -----------
$16,205,602 $16,050,181 $14,310,035
Consumer and other loans:
Principal balances:
Secured by certificates of deposit $ 321,429 $ 296,481 $ 324,273
Consumer loans 49,843
----------- ----------- -----------
$ 371,272 $ 296,481 $ 324,273
----------- ----------- -----------
Total first mortgage and consumer
loans $16,576,874 $16,346,662 $14,634,308
Less: Allowance for loan losses 147,667 141,438 122,681
----------- ----------- -----------
$16,429,207 $16,205,224 14,511,627
=========== =========== ===========
Average yield 8.82% 8.86% 9.09%
===== ===== =====
</TABLE>
F-14
<PAGE>
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 6 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
Activity in the allowance for possible loan losses is summarized as follows:
<TABLE>
<CAPTION>
Periods Ending
------------------------------------------------
March 31, December 31,
---------------------- ----------------------
1 9 9 7 1 9 9 6 1 9 9 6 1 9 9 5
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance at beginning of year $ 141,438 $ 122,681 $ 122,681 $ 93,750
Provisions charged to income 6,229 7,500 30,000 30,000
Charge-offs and recoveries, net (11,243) (1,069)
--------- --------- --------- ---------
Balance at end of year $ 147,667 $ 130,181 $ 141,438 $ 122,681
========= ========= ========= =========
</TABLE>
The bank's lending efforts have historically focused on residential real estate
loans, which comprised approximately $16.2 million, or 95% of the total loan
portfolio at March 31, 1997. At December 31, 1996, residential real estate loans
comprised $16.3 million or 98% of the total loan portfolio. Generally the loan-
to-value ratio does not exceed 80%. This has provided the bank with an adequate
collateral coverage in events of default. Nevertheless, Lexington First Federal
Mutual Holding Company, as with any lending institution, is subject to the risk
that the values of real estate could deteriorate in its primary lending area.
For Lexington First Federal Mutual Holding Company this area consists of
Henderson County and surrounding counties in the West Tennessee area. Management
of Lexington First Federal Mutual Holding Company believes that the real estate
values in its primary lending area are stable and such stability will continue
in the foreseeable future.
In the ordinary course of business, Lexington First Federal Mutual Holding
Company makes loans to officers, directors and employees and their related
business interests. Such loans are made on the same terms as those prevailing at
the time for unrelated third parties and did not involve more than the normal
risk of collectibility or present other unfavorable features. At March 31, 1997,
December 31, 1996 and 1995, the amounts of such loans were $317,595, $235,768
and $433,606, respectively.
NOTE 7 - ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
--------- --------------------
1 9 9 7 1 9 9 6 1 9 9 5
--------- --------- ---------
<S> <C> <C> <C>
Investment securities $ 80,302 $ 62,522 $ 97,589
Mortgage-backed securities 17,573 18,354 20,072
Loans receivable 29,368 24,489 (1,388)
-------- -------- --------
$127,243 $105,365 $116,273
======== ======== ========
</TABLE>
F-15
<PAGE>
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 8 - SPECIAL SAIF ASSESSMENT
The bank paid $127,849 in 1996 as its contribution to the FDIC to recapitalize
the Savings Associations' Insurance Fund (SAIF). This was required by the
Deposit Insurance Fund Act of 1996.
NOTE 9 - PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
--------- ---------------------
1 9 9 7 1 9 9 6 1 9 9 5
--------- --------- ---------
<S> <C> <C> <C>
Cost:
Land $ 110,122 $ 110,122 $ 45,122
Buildings 293,903 292,495 285,786
Furniture, fixtures and equipment 120,999 111,653 102,681
--------- --------- ---------
$ 525,024 $ 514,270 $ 433,571
Less accumulated depreciation (261,831) (259,568) (234,159)
--------- --------- ---------
$ 263,193 $ 254,702 $ 199,412
========= ========= =========
</TABLE>
NOTE 10 - DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 December 31, 1995
---------------------- ---------------------- ----------------------
Amount Percent Amount Percent Amount Percent
----------- ------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Checking accounts at 2.50% in 1997, 2.00% in 1996
and 2.25% in 1995 $ 1,313,634 6.70 $ 1,086,927 5.27 $ 1,049,007 5.00
Passbook savings at 3.00% in 1997 and 1996 and
3.75% in 1995 1,371,808 6.54 1,362,467 6.60 1,673,003 7.97
----------- ------- ----------- ------- ----------- -------
$ 2,685,442 13.24 $ 2,449,394 11.87 $ 2,722,010 12.97
----------- ------- ----------- ------- ----------- -------
Certificates of deposit:
3% to 4% $ 40,687 .19 $ $ 174,408 0.83
4% to 5% 323,234 1.54 477,531 2.31 $ 580,828 2.77
5% to 6% 17,834,507 85.03 17,711,039 85.82 $17,504,419 83.43
----------- ------- ----------- ------- ----------- -------
$18,198,428 86.76 $18,188,570 88.13 $18,259,655 87.03
----------- ------- ----------- ------- ----------- -------
$20,883,870 100.00 $20,637,964 100.00 $20,981,665 100.00
=========== ======= =========== ======= =========== =======
Weighted average cost of deposits 5.22% 5.24% 5.02%
</TABLE>
The amount of certificates of deposit with a minimum denomination of $100,000
were $3,846,217, $4,265,636, $4,041,084, respectively, at March 31, 1997,
December 31, 1996 and 1995. Deposits in excess of $100,000 are not insured by
the FDIC.
F-16
<PAGE>
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 10 - DEPOSITS (Cont.)
Maturities of outstanding certificates of deposit are summarized as follows:
<TABLE>
<CAPTION>
Time to Maturity March 31, Dec. 31, Dec. 31,
- ---------------- ----------- ----------- -----------
1 9 9 7 1 9 9 6 1 9 9 5
----------- ----------- -----------
<S> <C> <C> <C>
0 to 1 year $16,518,109 $16,609,355 $16,381,545
1 to 2 years 1,680,319 1,579,215 1,878,110
----------- ----------- -----------
$18,198,428 $18,188,570 $18,259,655
=========== =========== ===========
</TABLE>
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
------------------------ ------------------------
1 9 9 7 1 9 9 6 1 9 9 6 1 9 9 5
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NOW $ 6,357 $ 5,863 $ 22,391 $ 22,788
Passbook 10,124 14,729 50,242 59,713
Certificates of deposit 235,296 239,954 954,478 930,998
----------- ----------- ----------- -----------
$ 251,777 $ 260,546 $ 1,027,111 $ 1,013,499
=========== =========== =========== ===========
</TABLE>
NOTE 11 - ADVANCES FROM FEDERAL HOME LOAN BANK
The Savings Bank had outstanding advances from the Federal Home Loan Bank
(FHLB) at March 31, of $949,283 (1997), $955,393 (1996) and $970,700 (1995).
In addition to the FHLB stock being pledged as collateral the Savings Bank
has executed a blanket mortgage collateral agreement with the FHLB which
pledges mortgage loans equal to 1.5 times the amount of advance outstanding
or $1,423,925 at March 31, 1997, $1,433,090 at December 31, 1996 and
$1,456,049 at December 31, 1995. The above loan balance consists of eight
installment loans carrying interest rates of 6.75% to 8.85% and monthly
installments totalling $8,220 including interest.
Debt requirements, excluding interest, at March 31, 1997 for all FHLB
advances are as follows:
<TABLE>
<CAPTION>
Totals
---------
<S> <C>
1998 $ 28,062
1999 30,119
2000 32,338
2001 34,733
2002 37,317
2003-2007 134,674
2008-2012 110,325
2013-2017 163,058
2018-2022 241,402
2023-2026 137,255
--------
$949,283
========
</TABLE>
F-17
<PAGE>
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 12 - INCOME TAXES
<TABLE>
<CAPTION>
March 31, December 31,
----------------------------------------- -----------------------------------
1 9 9 7 1 9 9 6 1 9 9 6 1 9 9 5
------------------- ------------------- ---------------- ----------------
% of % of % of % of
Pretax Pretax Pretax Pretax
Amount Income Amount Income Amount Income Amount Income
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Expected income tax expense at
federal tax rates $ 31,372 34.0 $ 38,340 34.0 $ 96,755 32.0 $127,950 34.0
State income tax, net of
federal income tax effect 4,363 4.7 3,995 3.5 17,613 5.8 20,867 5.5
Increases (reductions) in taxes
resulting from:
Non-taxable income:
Municipal Bonds (6,280) (6.8) (6,280) (5.6) (20,452) (6.8) (11,568) (3.1)
Non-deductible expenses:
Other 1,266 1.4 1,466 1.3 11,260 0.4 14,616 1.2
-------- ---- -------- ---- -------- ---- -------- ----
$ 30,721 33.3 $ 37,521 33.2 $105,176 31.4 $151,865 37.6
======== ==== ======== ==== ======== ==== ======== ====
</TABLE>
Deferred tax assets have been provided for taxable temporary differences related
to unrealized losses on available-for-sale securities, uncollected interest, and
deferred loan fees. Deferred tax liabilities have been provided for temporary
differences related to book over tax depreciation and Federal Home Loan Bank
Stock Dividends.
<TABLE>
<CAPTION>
March 31, December 31,
---------- -----------------------
1 9 9 7 1 9 9 6 1 9 9 5
---------- ---------- ----------
<S> <C> <C> <C>
Stock dividends $ 49,402 $ 47,974 $ 42,466
Tax over book depreciation (395) 47
Loan fees reported in different
periods for tax and financial
statement purposes (8,912) (9,242) (9,117)
Uncollected interest - deferred
on books but reported as
income on tax return (1,069) (633) (2,634)
Unrealized losses on available-
for-sale securities (18,987) (23,378) (5,654)
---------- ---------- ----------
Net Deferred Taxes $ 20,434 $ 14,326 $ 25,108
================== ========== ========== ==========
</TABLE>
NOTE 13 - PENSION PLAN
The Savings Bank participates in the Financial Institutions Retirement Fund, a
multi-employer, defined benefit plan. Generally, all full-time salaried
employees are eligible for membership in the fund. No pension expense was paid
during the periods ended March 31, 1997 and 1996. Pension expense amounted to
$10,150, and $20,925, for the years ended December 31, 1996, and 1995,
respectively. At June 30, 1996, which is the most recent date for which this
information is available, the net assets available for benefits exceeded the
actuarial present value of accumulated plan benefits. Certain other disclosures,
which would otherwise be required, regarding the company's individual status are
not available because of the multi-employer nature of the fund.
F-18
<PAGE>
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 14 - FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 (FDICIA)
AND FINANCIAL INSTITUTIONS REFORM, RECOVERY AND ENFORCEMENT ACT OF 1989 (FIRREA)
FDICIA was signed into law on December 19, 1991. Regulations implementing the
prompt corrective action provisions of FDICIA became effective on December 19,
1992. In addition to the promptly corrective action requirements, FDICIA
includes significant changes to the legal and regulatory environment for insured
depository institutions, including reductions in insurance coverage for certain
kinds of deposits, increased supervision by the federal regulatory agencies,
increased reporting requirements for insured institutions, and new regulations
concerning internal controls, accounting, and operations.
The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in declining
order, are "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized."
Institutions categorized as "undercapitalized" or worse are subject to certain
restrictions, including the requirement to file a capital plan with their
primary federal regulator, prohibitions on the payment of dividends and
management fees, restrictions on executive compensation, and increased
supervisory monitoring, among other things. Other restrictions may be imposed on
the institution either by its primary federal regulator, the Office of Thrift
Supervision (OTS), or by the Federal Deposit Insurance Corporation (FDIC),
including requirements to raise additional capital, sell assets, or sell the
entire institution. Once an institution becomes "critically undercapitalized,"
it must generally be placed in receivership or conservatorship within 90 days.
FIRREA was signed into law on August 9, 1989; regulations for savings
institutions' minimum capital requirements went into effect on December 7, 1989.
In addition to its capital requirements, FIRREA includes provisions for changes
in the federal regulatory structure for institutions, including a new deposit
insurance system, increased deposit insurance premiums, and restricted
investment activities with respect to noninvestment grade corporate debt and
certain other investments. FIRREA also increases the required ratio of housing-
related assets in order to qualify as a savings institution.
The regulations require institutions to have a minimum regulatory tangible
capital equal to 1.5% of adjusted total assets, a minimum 4% core/leverage
capital ratio, a minimum 4% tier 1 risk-based ratio, and a minimum 8% total
risk-based capital ratio to be considered "adequately capitalized."
F-19
<PAGE>
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 14 - (Cont.)
The following is a reconciliation of capital amounts for the Savings Bank at
March 31, 1997, to the regulatory capital requirements of the bank as mandated
by FIRREA:
<TABLE>
<CAPTION>
Percentage
Amount of Assets
---------- ---------
<S> <C> <C>
Tangible Capital Requirements:
GAAP capital $3,909,920
Unrealized losses on securities
available-for-sale 28,075
----------
Tangible Capital $3,937,995 15.2
Requirements 389,130 1.5
---------- ----
Excess $3,548,865 13.7
========== ====
Core/Leverage Capital Requirements:
Tangible capital $3,937,995 15.2
Requirements 778,260 3.0
---------- ----
Core/leverage capital greater
than requirements $3,159,735 12.2
========== ====
Risk-Based Capital Requirements:
Core capital $3,937,995 34.4
Add: General loan loss valuation
allowance 147,666 1.3
---------- ----
$4,085,661 35.7
Requirements 908,000 8.0
---------- ----
Risk based capital greater than
excess $3,177,661 27.9
========== ====
</TABLE>
At March 31, 1997, the institution is in the "well capitalized" category.
NOTE 15 - LOAN COMMITMENTS
The bank had outstanding firm loan commitments as follows:
<TABLE>
<CAPTION>
March 31, December 31,
--------- --------------------
1 9 9 7 1 9 9 6 1 9 9 5
--------- --------- ---------
<S> <C> <C> <C>
Unused line of credit $ 400,000 $ $
First-mortgage loans 109,000
--------- --------- ---------
$ 400,000 $ 0 $ 109,000
========= ========= =========
</TABLE>
NOTE 16 - CONCENTRATION OF CREDIT RISK
Most of the bank's business activity is with customers located within Henderson
and surrounding counties in Tennessee. The loan portfolio is comprised of first-
mortgage loans to residential and commercial customers and consumer loans
secured by savings accounts maintained by its customers at the company.
F-20
<PAGE>
LEXINGTON FIRST FEDERAL SAVINGS MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 17 - REORGANIZATION AND CHANGE OF CORPORATION FORM
On June 6, 1992, the Board of Directors of Lexington First Federal Savings &
Loan Bank (Lexington First) adopted a Plan of Reorganization (the Plan or
Reorganization) pursuant to which Lexington First proposed to reorganize into a
federally-chartered, mutual holding company (the Reorganization). As part of the
Reorganization, Lexington First organized Lexington First Federal Savings Bank
(the Savings Bank), a federally-chartered, stock savings bank, and transferred
substantially all of its assets and liabilities to the Savings Bank.
The reorganization was accounted for as a change in corporate form with the
historical basis of Lexington First's assets, liabilities and equity unchanged
as a result. Subsequent to the reorganization, the existing rights of Lexington
First's depositors upon liquidation as of the effective date was transferred to
the company and records are maintained to ensure that such rights receive
statutory priority in the event of a future mutual to stock conversion, or in
the more unlikely event of the company's liquidation.
See Note 1 for additional information regarding the reorganization.
NOTE 18 - STOCKHOLDERS' EQUITY
Federal regulations impose limitations on the payment of dividends and other
capital distributions (including stock repurchases and cash mergers) by the
Savings Bank. Under these regulations, a savings institution that, immediately
prior to, and on a pro forma basis after giving effect to, a proposed capital
distribution, has total capital (as defined by OTS regulation) that is equal to
or greater than the amount of its fully phased-in capital requirements (a "Tier
1 Institution") is generally permitted without OTS approval to make capital
distributions in an amount of (i) up to 100% of its net income to date during
the calendar year plus (ii) an amount that would reduce by one-half the amount
by which its total capital to assets ratio exceeded its fully phased-in capital
requirements to assets ratio at the beginning of the calendar year. The Savings
Bank meets its fully phased-in capital requirements and has been authorized to
pay dividends in accordance with the provisions of the OTS regulations discussed
above as a Tier 1 Institution. In addition to the foregoing, earnings of the
Savings Bank appropriated to bad debt reserves and deducted for federal income
tax purposes are not available for payment of cash dividends or other
distributions to stockholders without payment of taxes at the then-current tax
rate by the Savings Bank on the amount of earnings deemed to be removed from the
reserves for such distribution.
NOTE 19 - EARNINGS PER SHARE
Net income per share of common stock for the periods ended March 31, 1997 and
1996 of $0.28 and $0.34, and the years ended December 31, 1996 and 1995 of
$0.88, and $1.00, was computed by dividing the net income by the weighted
average number of shares outstanding for the periods.
F-21
<PAGE>
LEXINGTON FIRST FEDERAL SAVINGS MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 20 - EMPLOYEE STOCK OPTION AND STOCK OWNERSHIP PLANS
In conjunction with the reorganization, the company established a stock option
plan under which a total of 7,997 common shares were reserved for options. The
plan establishes the exercise price of the options at least equal to the market
value of the company's common stock on the date of grant ($10). At December 31,
1995, all shares granted under the stock option plan were exercised and the
shares issued.
Also, in conjunction with the reorganization, the company established an
Employee Stock Ownership Plan (ESOP), under which the company will make annual
contributions to a trust for the benefit of eligible employees. To be eligible,
an employee must be 21 years of age and have completed at least one year of
service. The contributions may be in the form of cash, or common shares of the
company. The amount of the annual contribution is at the discretion of the Board
of Directors of the company. Initially, the ESOP acquired 6,400 shares of the
company's common stock financed by $64,000 in borrowings by the ESOP.
During the year ended December 31, 1994, the Board of Directors approved the
dissolution of the ESOP because of the high cost of administration. The
institution made contributions to the plan of $26,000 in 1994, and paid expenses
associated with the plan of approximately $12,000. The ESOP plan paid off the
note payable outstanding and distributed its assets to the participants in 1996.
NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Savings Bank's financial instruments are as
follows:
<TABLE>
<CAPTION>
March 31, 1997
---------------------------
Carrying Fair
Amount Value
------------ ------------
<S> <C> <C>
Financial Assets:
Cash & cash
equivalents $ 1,573,491 $ 1,573,491
Time deposits 250,000 250,000
Investments securities 3,825,423 3,835,073
Mortgage-backed
securities 3,205,798 3,211,331
Loans, net of
allowance 16,429,207 16,866,224
Accrued interest
receivable 127,243 127,243
Financial liabilities:
Deposits 20,883,870 20,925,861
Advances from FHLB 949,283 954,900
Accrued interest payable 154,777 154,777
</TABLE>
F-22
<PAGE>
LEXINGTON FIRST FEDERAL SAVINGS MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont.)
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
------------------------ ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash
equivalents $ 542,045 $ 542,045 $ 611,572 $ 611,572
Time deposits 850,000 850,000 1,150,000 1,150,000
Investment securities 4,058,864 4,080,955 5,454,889 5,498,999
Mortgage-backed
securities 3,342,509 3,345,589 3,652,707 3,658,396
Loans, net of
allowance 16,205,224 16,636,283 14,511,627 14,933,199
Accrued interest
receivable 105,365 105,365 116,273 116,273
Financial Liabilities:
Deposits 20,637,964 20,679,461 20,981,665 21,023,853
Advances from FHLB 955,393 1,008,458 970,700 1,024,615
Accrued interest
payable 155,765 155,765 162,818 162,818
</TABLE>
The carrying amounts in the preceding table are included in the statement of
financial condition under the applicable captions.
NOTE 22 - IMPACT OF NEW ACCOUNTING STANDARDS
Accounting by Creditors for Impairment of a Loan and Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures. The Bank adopted on
January 1, 1995 Statements of Financial Accounting Standards Nos. 118 and 114.
SFAS No. 114 requires that a certain impaired loans be measured based on the
present value of expected future cash flows discounted at each loan's original
effective interest rate. As a practical expedient, impairment may be measured
based on the loan's observable market price or the fair value of the collateral
if the loan is collateral dependent. When the measure of the impaired loan is
less than the recorded investment in the loan, the impairment is recorded
through a valuation allowance. The Bank had previously measured the allowance
for loan losses using methods similar to those prescribed in SFAS No. 114. As a
result of adopting these statements, no additional provision to the allowance
for loan losses was required as of January 1, 1995. Based on the Bank's loan
portfolio composition, which primarily consists of one-to-four family
residential mortgages, which are exempt from SFAS No. 114 when evaluated
collectively for impairment as is done by the Bank, the Bank had no loans
designated as impaired under the provisions of SFAS No. 114 at January 1, 1995.
F-23
<PAGE>
LEXINGTON FIRST FEDERAL SAVINGS MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 22 - IMPACT OF NEW ACCOUNT STANDARDS (Cont.)
Disclosure of Derivative Financial Instruments. In October, 1994, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 119 "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments". This
statement addresses the disclosures of derivative financial instruments
including the face amount, nature and terms. For derivatives held for trading,
disclosure of average and period end fair values and disaggregated gains and
losses is required. For derivatives held for purposes other than trading,
disclosure of objectives, strategies, policies on reporting and income
recognition method is required. This statement is effective for financial
statements for fiscal years ending after December 15, 1995. Currently the Bank
does not own any derivative financial instruments and therefore SFAS No. 119
should not have any impact on the financial statements.
Impairment of Long-Lived Assets. In March 1995, the "FASB" issued Statement of
Financial Accounting Standards issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
This statement establishes accounting standards for the impairment of long-lived
assets and certain identifiable intangibles, and goodwill related to those
assets to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. This statement requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicated
that the carrying amount of an asset may not be recoverable. In performing the
review for recoverability, the entity should estimate the future cash flows
expected to result from the use of the asset and its eventual disposition. If
the sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, an impairment loss is
recognized. Otherwise, an impairment loss is not recognized. Measurement of an
impairment loss for long-lived assets and identifiable intangibles that an
entity expects to hold and use should be based on the fair values of the assets.
This statement is effective for financial statements for fiscal years beginning
after December 15, 1995. The impact on the financial statements for
implementation of the statement is not expected to be material.
Mortgage Servings Rights. In May 1995, the FASB issued SFAS No. 122, "Accounting
for Mortgage Servicing Rights." This Statement amends SFAS No. 65, "Accounting
for Certain Mortgage Banking Activities" to require that a mortgage banking
enterprise recognize as separate assets, rights to service mortgage loans for
others, however those servicing rights are acquired. The total cost of the
mortgage loans to be sold should be allocated between the mortgage servicing
rights and the loans based on their relative fair values if it is practicable to
estimate those fair values. If not, the entire cost should be allocated to the
mortgage loans. This statement applies prospectively in fiscal years beginning
after December 15, 1995. The impact on the financial statements for
implementation of the Statement is not expected to be material based on the
Bank's current operating activities.
F-24
<PAGE>
LEXINGTON FIRST FEDERAL SAVINGS MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTE TO FINANCIAL STATEMENTS (CONT.)
NOTE 22 - IMPACT OF NEW ACCOUNTING STANDARDS (Cont.)
Accounting for Stock-Based Compensation. In October, 1995, the Financial
Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based
Compensation to Employees." This Statement encourages entities to adopt the fair
value based method of accounting for employee stock options or other stock
compensation plan. However, it allows an entity to measure compensation cost for
these plans using the intrinsic value based method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." Under the fair
value based method, compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period, which is usually
the vesting period. Under the intrinsic value based method, compensation cost is
the excess of the quoted market price of the stock at the grant date over the
amount an employee must pay to acquire the stock. Most fixed stock option plans-
the most common type of stock compensation plan-have no intrinsic value at grant
date and under Opinion No. 25 no compensation cost is recognized for them.
Compensation cost is recognized for other types of stock based compensation
plans under Opinion No. 25, including plans with variable, usually performance-
based features. This Statement requires that an employer's financial statements
include certain disclosures about stock-based employee compensation arrangements
regardless of the method used to account for them. This Statement is effective
for transactions entered into for fiscal years that begin after December 15,
1995. The Bank has not determined which method it will use to account for the
options at this time and has not estimated the effect of adoption on the Bank's
financial condition or results of operations.
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. In June, 1996, the Financial Accounting Standards Board issued
SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", which superseded FASB NO.122. SFAS No. 127
defers certain provisions of SFAS No. 125 for one year. FASB No. 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities based on consistent application 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 will adopt the provision of the Standard on January 1, 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.
F-25
<PAGE>
LEXINGTON FIRST FEDERAL SAVINGS MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 23 - THE CONVERSION (UNAUDITED)
On April 12, 1997, the Board of Directors of the Savings Bank and the Mutual
Holding Company adopted a Plan of Conversion and Agreement and Plan of
Reorganization (Plan). Pursuant to the Plan, (1) the Mutual Holding Company will
convert to an interim federal stock savings bank and simultaneously merge into
the Savings Bank, the Mutual Holding Company will cease to exist and the 135,000
shares or 60.5% of the outstanding shares of the Savings Bank's common stock
held by the Mutual Holding Company will be cancelled, and (2) the Savings Bank
will then merge into an interim institution (Interim) to be formed as a wholly-
owned subsidiary of Lexington First Federal Mutual Holding Company (the
Company), a newly formed Tennessee corporation formed in connection with the
reorganization, with the Bank being the surviving entity; and, (3) the
outstanding shares of the Bank's common stock (other than those held by the
Mutual Holding Company, which will be cancelled) will be converted into shares
of common stock of the Company pursuant to a ratio that will result in the
holders of such shares owning in the aggregate approximately the same percentage
of the Company as they owned of the Bank. The Company will then offer for sale
pursuant to the Plan addition shares equal to 60.5% of the common shares of the
Company. Consummation of the Plan is subject to (i) the approval of the members
of the Mutual Holding Company, (ii) the stockholders of the Bank, and (iii)
various regulatory agencies. Pursuant to the Plan, shares of the Company's
common stock are expected to be offered initially for subscription by eligible
members of the Company, eligible employee benefit plans of the Company and the
Bank, and certain other persons, including stockholders of the Bank, as of
specified dates subject to various subscription priorities as provided in the
Plan. The common stock will be offered at a price to be determined by the Board
of Directors based upon an appraisal to be made by an independent appraisal
firm. The exact number of shares to be offered will be determined by the Board
of Directors in conjunction with the determination of the price at which the
shares will be sold. Any stock not purchased in the subscription offering will
be sold in a community offering to be commenced simultaneously with the
subscription offering or, if necessary, in a syndicated community offering.
The Plan provides that when the conversion is completed, a "Liquidation Account"
will be established in an amount equal to the amount of any dividends waived by
the Mutual Holding Company plus the greater of (1) the retained earnings of the
Bank as of March 31, 1992, the date of the latest Statement of Financial
Condition contained in the final offering circular utilized in the formation of
the Mutual Holding Company or (2) 60.5% of the Bank's total stockholders' equity
as reflected in its latest statement of financial condition in the final
prospectus utilized in the conversion. The Liquidation Account is established to
provide a limited priority claim to the assets of the Bank to qualifying
depositors as of specified dates (Eligible Account Holders and Supplemental
Eligible Account Holders) who continue to maintain deposits in the Bank after
the conversion. In the unlikely event of a complete liquidation of the Bank, and
only in such an event, Eligible Account Holders and Supplemental Account Holders
would receive from the Liquidation Account a liquidation distribution based on
their proportionate share of the then total remaining qualifying deposits.
F-26
<PAGE>
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
(AND SUBSIDIARY)
NOTES TO FINANCIAL STATEMENTS (CONT.)
NOTE 23 - THE CONVERSION (Cont.)
Current regulations allow the Bank to pay dividends on its stock after the
conversion if its regulatory capital would not thereby be reduced below the
amount then required for the aforementioned Liquidation Account. Also, capital
distribution regulations limit the Bank's ability to make capital distribution
which include dividends, stock redemptions or repurchases, cash-out mergers,
interest payments on certain convertible debt, and other transactions charged to
the capital account based on their capital level and supervisory condition.
Federal regulations also preclude, (i) any repurchase of the stock of the
Company for one year after the conversion, and (ii) any repurchase of the stock
of the Company, in the second or third year after the conversion unless such
repurchase is pursuant to an offer made on a pro rata basis to all stockholders
and with prior approval of the Office of Thrift Supervision or pursuant to an
open-market stock repurchase program that complies with certain regulatory
criteria including such purchases to not more that 5% of the stock of the
Company unless otherwise approved by the Office of Thrift Supervision.
The Bank has retained the services of both a financial advisor and legal counsel
for the specific purpose of implementing the Plan. Costs relating to the
conversion will be deferred and, upon conversion, such costs and any additional
costs will be charged against the proceeds from the sale of stock. As of
March 31, 1997 the Bank had not incurred any deferred costs related to the
conversion. If the conversion is not completed, any deferred costs will be
charged to the operations.
F-27
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such information shall not be relied upon as having been authorized by the
Company, the Bank or Trident Securities. 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>
Summary................................................... (i)
Selected Financial and Other Data......................... xiii
Risk Factors.............................................. 1
Community National Corporation............................ 7
Lexington First Federal Savings Bank...................... 8
Lexington First Federal Mutual Holding Company............ 9
Community National Bank of Tennessee...................... 9
Use of Proceeds........................................... 9
Dividend Policy........................................... 10
Market for the Common Stock............................... 11
Capitalization............................................ 12
Regulatory Capital........................................ 14
Pro Forma Data............................................ 15
Lexington First Federal Savings Bank
Statements of Operations................................ 20
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 21
Business of the Company................................... 32
Business of the Bank...................................... 32
Regulation................................................ 50
Taxation.................................................. 65
Management of the Company................................. 66
Management of the Bank.................................... 66
Beneficial Ownership of Capital Stock..................... 74
The Conversion............................................ 75
Comparison of Stockholders' Rights........................ 98
Restrictions on Acquisition of the Company................ 106
Description of Capital Stock of the Company............... 107
Experts................................................... 108
Legal Matters............................................. 109
Additional Information.................................... 109
Index to Financial Statements............................. 110
</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.
COMMUNITY NATIONAL
CORPORATION
(Holding Company for
LEXINGTON FIRST FEDERAL
FEDERAL SAVINGS BANK
to become
COMMUNITY NATIONAL BANK
OF TENNESSEE)
Up to _______ Shares
COMMON STOCK
------------
PROSPECTUS
------------
TRIDENT SECURITIES, INC.
____________, 1997
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The directors and officers of the Company are entitled to
indemnification in certain circumstances. Such indemnification arises from
Article XIII of the Company's Charter and the Tennessee Business Corporation
Act. In addition, the Bank currently maintains a directors and officers
liability policy to which the Company will become party.
These provisions are described briefly below.
Article XIII of the Charter
Article XIII of the Company's Charter provides that directors,
officers, employees and agents may be indemnified in certain circumstances
against liability which they may incur in their capacities. Article XIII
requires that the Company indemnify any director who is made a party to any
threatened, pending, or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative ("proceeding"), because he is or was
a director against liability incurred in such proceeding as long as he conducted
himself in good faith, he reasonably believed, (i) in the case of conduct in his
official capacity with the Company, that his conduct was in the Company's best
interests and (ii) in all other cases, that his conduct was at least not opposed
to its best interests; and, in the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful. The Company must also
indemnify any director and any officer who is not a director if he was wholly
successful, on the merits or otherwise, in the defense of any proceedings to
which he was a party because he is or was a director or officer of the Company
against reasonable expenses incurred by him in connection with the proceeding.
However, the Company may not indemnify a director in connection with a
proceeding by or in the right of the Company in which the director was adjudged
liable to the Company or in connection with any other proceeding charging
improper personal benefit to him, whether or not involving action in his
official capacity, in which he was adjudged liable on the basis that personal
benefit was improperly received by him.
Article XIII permits the Company to pay the reasonable expenses
incurred by a director who is a party to a proceeding in advance of final
disposition of the proceeding as long as: (1) the director furnishes the Company
a written affirmation of his good faith belief that he has met the requisite
standard of conduct; (2) he provides the Company with a written undertaking to
repay such amounts if it is ultimately determined that he is not entitled to
indemnification; and (3) a determination is made based on the facts then known,
that indemnification is permissible.
The Company may not indemnify a director unless authorized in the
specific case after a determination has been made that indemnification of the
director is permissible in the circumstances because he has met the required
standards. The determination must be made: (1) by the board of directors by
majority vote of a quorum consisting of directors not at the time parties to the
proceeding; (2) if a quorum cannot be obtained, by majority vote of a committee
duly designated by the board of directors (in which designation directors who
are parties may participate), consisting solely of two or more directors not at
the time parties to the proceeding; (3) by independent special legal counsel; or
(4) by the shareholders, but shares owned by or voted under the control of
directors who are at the time parties to the proceeding may not be voted on the
determination.
The Company may indemnify and advance expenses to an officer, employee
or agent of the Company who is not a director to the same extent as a director.
Tennessee Business Corporation Act
The Tennessee Business Corporation Act requires Tennessee corporations
such as the Company to indemnify a director who was wholly successful, on the
merits or otherwise, in the defense of any proceeding to which he was a party
because he is or was a directors of the corporation against reasonable expenses
incurred by him, unless the
II-1
<PAGE>
corporation's charter provides otherwise. The Tennessee Business Corporation Act
also generally permits Tennessee corporations to indemnify directors and
officers in the same manner as Article XIII of the Company's Charter provides.
In no event, however, may a Tennessee corporation indemnify a director if a
judgment or other final adjudication adverse to the director establishes his
liability: (i) for any breach of the duty of loyalty to the corporation or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; or (iii) for the approval
of unlawful distributions.
Directors and Officers Liability Insurance
Pursuant to its Charter and Tennessee law, the Company is permitted to
purchase and maintain insurance on behalf of an individual who is or was a
director, officer, employee, or agent of the Company. The Bank currently
maintains such a policy and it is intended that the Company will become a party
to such policy.
Item 25. Other Expenses of Issuance and Distribution
<TABLE>
<S> <C>
Underwriting Fees and Expenses.................. $ 85,000
Legal Fees and Expenses......................... 90,000
Printing, Postage and Mailing................... 40,000
Accounting Fees and Expenses.................... 40,000
Appraisal and Business Plan Fees and Expenses... 30,000
Blue Sky Filing Fees and Expenses
(including legal counsel)..................... 10,000
Federal Filing Fees (OTS and SEC)............... 12,000
Conversion Agent Fees........................... 7,000
Stock Transfer Agent fees and certificates...... 5,000
Other Expenses.................................. 31,000
----------
Total....................................... $ 350,000
==========
</TABLE>
Item 26. Recent Sales of Unregistered Securities.
Not applicable.
Item 27. Exhibits:
The exhibits schedules filed as a part of this registration statement
are as follows:
<TABLE>
<S> <C>
* 1.1 Form of Agency Agreement with Trident Securities, Inc.
1.2 Engagement Letter with Trident Securities, Inc.
2 Plan of Conversion and Agreement and Plan of Reorganization
(Exhibit A to Proxy Statement filed as Exhibit 99.2)
3.1 Charter of Community National Corporation
3.2 Bylaws of Community National Corporation
4 Form of Common Stock Certificate of Community National Corporation
5 Opinion of Housley Kantarian & Bronstein, P.C. regarding
legality of securities being registered
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
8.1 Form of Federal Tax Opinion of Housley Kantarian & Bronstein, P.C.
* 8.2 State Tax Opinion
8.3 Opinion of Ferguson & Company as to the value of subscription
rights for tax purposes
10.1 Form of Employment Agreement between Lexington First Federal
Savings Bank and Howard W. Tignor as Amended and Restated
10.2 Form of Guaranty Agreement between Community National
Corporation and Howard W. Tignor
10.3 Proposed Community National Corporation Deferred Compensation Plan
10.4 Proposed Community National Corporation 1998 Stock Option and
Incentive Plan
10.5 Proposed Community National Corporation 1998 Management
Recognition Plan and Trust
23.1 Consent of Arnold, Spain & Company, P.C.
23.2 Consent of Housley Kantarian & Bronstein, P.C. (in opinion filed
as Exhibit 8.1)
23.3 Consent of Ferguson & Company
24 Power of Attorney (reference is made to the signature page)
27 Financial Data Schedule
99.1 Proxy statement and form of proxy for solicitation of
stockholders of Lexington First Federal Savings Bank
99.2 Proxy Statement and form of proxy for solicitation of members
of Lexington First Federal Mutual Holding Company
99.3 Appraisal Report
99.4 Form of Stock Order Form and Form of Certification
99.5 Miscellaneous Marketing Materials
</TABLE>
- --------------
* To be filed by amendment.
Item 28. Undertakings
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 to:
(i) Include 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 which,
individually or together, represent a fundamental
change in the information in the registration
statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered
(if the total dollar value
II-3
<PAGE>
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 additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
such post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(4) 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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act, and is therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Lexington, State of Tennessee, on July 17, 1997.
COMMUNITY NATIONAL CORPORATION
By: /s/ Howard W. Tignor
-----------------------------------------
Howard W. Tignor
President and Chief Executive Officer
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned Directors of Community National Corporation, hereby
severally constitute and appoint Howard W. Tignor with full power of
substitution, our true and lawful attorney and agent, to do any and all things
in our names in the capacities indicated below which said Howard W. Tignor may
deem necessary or advisable to enable Community National Corporation to comply
with the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with the
registration of Community National Corporation common stock, including
specifically, but not limited to, power and authority to sign for us in our
names in the capacities indicated below, the registration statement and any and
all amendments (including post-effective amendments) thereto; and we hereby
ratify and confirm all that said Howard W. Tignor shall do or cause to be done
by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Howard W. Tignor President and Chief Executive Officer July 17, 1997
- ---------------------- (Principal Executive, Financial and
Howard W. Tignor Accounting Officer)
/s/ Charlie H. Walker Chairman of the Board July 17, 1997
- ----------------------
Charlie H. Walker
/s/ Arba Milam Taylor Director, Secretary and Treasurer July 17, 1997
- ----------------------
Arba Milam Taylor
/s/ Pope Thomas Vice President and Director July 17, 1997
- ----------------------
Pope Thomas
/s/ Stephen M. Lowry Director July 17, 1997
- ----------------------
Stephen M. Lowry
/s/ Stephen M. Milam Director July 17, 1997
- ----------------------
Stephen M. Milam
/s/ Robert C. Thomas Director July 17, 1997
- ----------------------
Robert C. Thomas
/s/ Richard Walker Director July 17, 1997
- ----------------------
Richard Walker
/s/ Pat Carnal Director July 17, 1997
- ----------------------
Pat Carnal
</TABLE>
II-5
<PAGE>
EXHIBIT
1.2
TRIDENT SECURITIES, INC.
4601 SIX FORKS ROAD, SUITE 400
RALEIGH, NORTH CAROLINA 27609
TELEPHONE (919) 781-8900
FACSIMILE (919) 787-1670
June 9, 1997
Board of Directors
Lexington First Federal Savings Bank
19 Natchez Trace Drive
Lexington, Tennessee 38351
RE: Conversion Stock Marketing Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between Trident
Securities, Inc. ("Trident") and Lexington First Federal Savings Bank,
Lexington, Tennessee (the "Bank") concerning our investment banking services in
connection with the conversion of the Bank from a mutual to a capital stock form
of organization.
Trident is prepared to assist the Bank in connection with the offering of its
shares of common stock during the subscription offering and community offering
as such terms are defined in the Bank's Plan of Conversion. The specific terms
of the services contemplated hereunder shall be set forth in a definitive sales
agency agreement (the "Agreement") between Trident and the Bank to be executed
on the date the offering circular/prospectus is declared effective by the
appropriate regulatory authorities. The price of the shares during the
subscription offering and community offering will be the price established by
the Bank's Board of Directors, based upon an independent appraisal as approved
by the appropriate regulatory authorities, provided such price is mutually
acceptable to Trident and the Bank.
In connection with the subscription offering and community offering, Trident
will act as financial advisor and exercise its best efforts to assist the Bank
in the sale of its common stock during the subscription offering and community
offering. Additionally, Trident may enter into agreements with other National
Association of Securities Dealers, Inc., ("NASD") member firms to act as
selected dealers, assisting in the sale of the common stock. Trident and the
Bank will determine the selected dealers to assist the Bank during the community
offering. At the appropriate time, Trident in conjunction with its counsel,
will conduct an examination of the relevant documents and records of the Bank as
Trident deems necessary and appropriate. The Bank will make all documents,
records and other information deemed necessary by Trident or its counsel
available to them upon request.
For its services hereunder, Trident will receive the following compensation and
reimbursement from the Bank:
1. A management fee in the amount of $65,000.
<PAGE>
TRIDENT SECURITIES, INC.
Board of Directors
June 9, 1997
Page 2
2. For stock sold by other NASD member firms under selected dealer's
agreements, the commission shall not exceed a fee to be agreed
upon jointly by Trident and the Bank to reflect market
requirements at the time of the stock allocation in a Syndicated
Community Offering.
3. The foregoing fees and commissions are to be payable to Trident
at closing as defined in the Agreement to be entered into between
the Bank and Trident.
4. Trident shall be reimbursed for allocable expenses incurred by
them, including legal fees, whether or not the Agreement is
consummated. Trident's out-of-pocket expenses will not exceed
$10,000 and its legal fees will not exceed $10,000. The Bank will
forward to Trident a check in the amount of $10,000 as an advance
payment to defray the allocable expenses of Trident.
It further is understood that the Bank will pay all other expenses of the
conversion including but not limited to its attorneys' fees, NASD filing
fees, and filing and registration fees and fees of either Trident's
attorneys or the attorneys relating to any required state securities law
filings, telephone charges, air freight, rental equipment, supplies,
transfer agent charges, fees relating to auditing and accounting and costs
of printing all documents necessary in connection with the foregoing.
For purposes of Trident's obligation to file certain documents and to make
certain representations to the NASD in connection with the conversion, the
Bank warrants that: (a) the Bank has not privately placed any securities
within the last 18 months; (b) there have been no material dealings within
the last 12 months between the Bank and any NASD member or any person
related to or associated with any such member; (c) none of the officers or
directors of the Bank has any affiliation with the NASD; (d) except as
contemplated by this engagement letter with Trident, the Bank has no
financial or management consulting contracts outstanding with any other
person; (e) the Bank has not granted Trident a right of first refusal with
respect to the underwriting of any future offering of the Bank stock; and
(f) there has been no intermediary between Trident and the Bank in
connection with the public offering of the Bank's shares, and no person is
being compensated in any manner for providing such service.
The Bank agrees to indemnify and hold harmless Trident and each person, if
any, who controls the firm against all losses, claims, damages or
liabilities, joint or several and all legal or other expenses reasonably
incurred by them in connection with the investigation or defense thereof
(collectively, "Losses"), to which they may become subject under the
securities laws or under the common law, that arise out of or are based
upon the conversion or the engagement hereunder of Trident unless it is
determined by final judgment of a court having jurisdiction over the matter
that such Losses are primarily a result of Trident's willful misconduct or
gross negligence. If the foregoing indemnification is unavailable for any
reason, the Bank agrees to contribute to such Losses in the proportion that
its financial interest in the conversion bears to that of the indemnified
parties. If the Agreement is entered into with respect to the common stock
to be issued in the conversion, the Agreement will provide for
indemnification, which will be in addition to any rights that
<PAGE>
TRIDENT SECURITIES, INC.
Board of Directors
June 9, 1997
Page 3
Trident or any other indemnified party may have at common law or otherwise.
The indemnification provision of this paragraph will be superseded by the
indemnification provisions of the Agreement entered into by the Bank and
Trident.
This letter is merely a statement of intent and is not a binding legal
agreement except as to paragraph (4) above with regard to the obligation to
reimburse Trident for allocable expenses to be incurred prior to the
execution of the Agreement and the indemnity described in the preceding
paragraph. While Trident and the Bank agree in principle to the contents
hereof and propose to proceed promptly, and in good faith, to work out the
arrangements with respect to the proposed offering, any legal obligations
between Trident and the Bank shall be only as set forth in a duly executed
Agreement. Such Agreement shall be in form and content satisfactory to
Trident and the Bank, as well as their counsel, and Trident's obligations
thereunder shall be subject to, among other things, there being in
Trident's opinion no material adverse change in the condition or
obligations of the Bank or no market conditions which might render the sale
of the shares by the Bank hereby contemplated inadvisable.
Please acknowledge your agreement to the foregoing by signing below and
returning to Trident one copy of this letter along with the advance payment
of $10,000. This proposal is open for your acceptance for a period of
thirty (30) days from the date hereof.
Yours very truly,
TRIDENT SECURITIES, INC.
By: /s/ Timothy E. Lavelle
------------------------
Timothy E. Lavelle
Managing Director
Agreed and accepted to this 10th day
of June, 1997
LEXINGTON FIRST FEDERAL SAVINGS BANK
By: /s/ Howard W. Tignor
--------------------------------
Howard W. Tignor
President
RLB:cs
3-19-1
<PAGE>
EXHIBIT 3.1
CHARTER
OF
COMMUNITY NATIONAL CORPORATION
ARTICLE I
Corporate Name
The name of the corporation is Community National Corporation (the
"Corporation").
ARTICLE II
Registered Office and Agent
The street address and zip code of the Corporation's registered office are
19 Natchez Trace Drive, Lexington, Tennessee 38351. The Corporation's registered
office is located in Henderson County. The name of the Corporation's initial
registered agent at its registered office is Howard Tignor.
ARTICLE III
Principal Office
The street address and zip code of the Corporation's principal office are
19 Natchez Trace Drive, Lexington, Tennessee 38351.
ARTICLE IV
Purpose and Powers
The purpose or purposes for which the Corporation is organized are to
engage in any lawful business for which corporations may be incorporated
pursuant to the laws of Tennessee. The Corporation shall have all the powers of
a corporation organized under such laws. The Corporation is for profit.
ARTICLE V
Capital Stock
The total number of shares of all classes of capital stock which the
Corporation has authority to issue is 10,000,000, of which 8,000,000 shares
shall be common stock, par value $1.00 per share, and of which 2,000,000 shares
shall be preferred stock, par value $1.00 per share. The shares may be issued
from time to time as authorized
-1-
<PAGE>
by the board of directors without the approval of the Corporation's shareholders
except as otherwise provided in this Article V. The consideration for the
issuance of the shares shall be paid in full before their issuance and shall not
be less than the par value per share. The consideration for the shares, other
than cash, shall be determined by the board of directors in accordance with the
provisions of the Tennessee Business Corporation Act. In the absence of actual
fraud in the transaction, the judgment of the board of directors as to the value
of such consideration shall be conclusive. Upon payment of such consideration,
such shares shall be deemed to be fully paid and nonassessable. In the case of a
stock dividend, that part of the surplus of the Corporation which is transferred
to stated capital upon the issuance of shares as a share dividend shall be
deemed to be the consideration for their issuance.
A description of the different classes and series (if any) of the
Corporation's capital stock and a statement of the relative powers,
designations, preferences and rights of the shares of each class of and series
(if any) of capital stock, and the qualifications, limitations or restrictions
thereof, are as follows:
(A) Except as provided in this Article V (or in any amendments thereto) the
holders of common stock shall exclusively possess all voting power. Each holder
of shares of common stock shall be entitled to one vote for each share held by
such holder.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
dividends and of sinking fund, retirement fund or other retirement payments, if
any, to which such holders are respectively entitled in preference to the common
stock, then dividends may be paid on the common stock and on any class or series
of stock entitled to participate therewith as to dividends out of any assets
legally available for the payment of dividends, but only when and as declared by
the board of directors.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class having
preferences over the common stock in any such event, the full preferential
amounts to which they are respectively entitled, the holders of the common stock
and of any class or series of stock entitled to participate therewith, in whole
or in part, as to distribution of assets shall be entitled, after payment or
provision for payment of all debts and liabilities of the Corporation, to
receive the remaining assets of the Corporation available for distribution, in
cash or in kind.
Each share of common stock shall have the same relative powers, preferences
and rights as, and shall be identical in all respects with, all the other shares
of common stock of the Corporation.
(B) The board of directors of the Corporation is authorized to amend this
Charter, by adoption of articles of amendment effective without shareholder
approval, to provide for the issuance of serial preferred stock in series and to
fix the preferences, limitations and relative rights of each such series,
including, but not limited to, determination of any of the following:
(1) the distinctive designation for each series and the number of
shares constituting such series;
(2) the voting rights, full, conditional or limited, of shares of
such series;
(3) whether the shares of such series shall be redeemable and, if
so, the price or prices at which, and the terms and conditions upon which, such
shares may be redeemed;
(4) the dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so, from
which date(s), the payment date(s) for dividends, and the participating or other
special rights, if any, with respect to dividends;
-2-
<PAGE>
(5) the amount(s) payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(6) whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and the
manner of its application, including the price(s) at which such shares may be
redeemed or purchased through the application of such fund;
(7) whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other series of
the same or any other class or classes of stock of the Corporation and, if so
convertible or exchangeable, the conversion price(s) or the rate(s) of exchange,
and the adjustments thereof, if any, at which such conversion or exchange may be
made, and any other terms and conditions of such conversion or exchange;
(8) the price or other consideration for which the shares of such
series shall be issued;
(9) whether the shares of such series that are redeemed or converted
shall have the status of authorized but unissued shares of serial preferred
stock and whether such shares may be reissued as shares of the same or any other
series of serial preferred stock; and
(10) any other designations, preferences, limitations or rights that
are now or hereafter permitted by applicable law and are not inconsistent with
the provisions of this Charter.
Each share of each series of serial preferred stock shall have the same
preferences and relative rights as, and be identical in all respects with, all
other shares of the same series.
ARTICLE VI
Preemptive Rights
No shareholder of the Corporation shall have, as a matter of right, the
preemptive right to purchase or subscribe for shares of any class, now or
hereafter authorized, or to purchase or subscribe for securities or other
obligations convertible into or exchangeable for such shares or which by
warrants or otherwise entitle the holders thereof to subscribe for or purchase
any such shares.
ARTICLE VII
Acquisition of Shares
The Corporation may from time to time, pursuant to authorization by the
board of directors of the Corporation and without action by the shareholders,
purchase or otherwise acquire shares of any class, bonds, debentures, notes,
scrip, warrants, obligations, evidences of indebtedness or other securities of
the Corporation in such manner, upon such terms, and in such amounts as the
board of directors shall determine, subject, however, to such limitations or
restrictions, if any, as are contained in the express terms of any class of
shares of the Corporation outstanding at the time of the purchase or acquisition
in question or as are imposed by law.
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ARTICLE VIII
Shareholder Meetings; Cumulative Voting
(A) A majority of the outstanding shares of the Corporation entitled to
vote, represented in person or by proxy, shall constitute a quorum at a meeting
of shareholders. Where voting is by voting group, a majority of the votes
entitled to be cast on any matter by each voting group constitutes a quorum of
each such voting group for action on that matter. If less than a majority of
such shares is represented at a meeting, a majority of the shares so represented
may adjourn the meeting from time to time without further notice. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to constitute less than a quorum.
(B) Special meetings of shareholders may be called at any time, but only by
the board of directors or a committee of the board of directors that has been
duly designated by the board of directors.
(C) There shall be no cumulative voting by shareholders of any class or
series in the election of directors of the Corporation.
ARTICLE IX
Directors
The number of directors of the Corporation shall be such number, neither
fewer than three nor more than fifteen (exclusive of directors, if any, to be
elected by holders of preferred stock of the Corporation, voting separately as a
class), as shall be set forth from time to time in or in accordance with the
bylaws, provided that no action shall be taken to decrease or increase the
number of directors unless at least two-thirds of the directors then in office
shall concur in said action. Vacancies in the board of directors of the
Corporation, however caused, and newly created directorships shall be filled
only by a vote of at least two-thirds of the directors then in office, whether
or not a quorum, and any director so chosen shall hold office for a term
expiring at the next meeting of shareholders at which directors are elected.
At the first meeting of shareholders of the Corporation, the board of
directors of the Corporation shall be divided into three classes as nearly equal
in number as the then total number of directors constituting the entire board of
directors shall permit, which classes shall be designated Class I, Class II and
Class III. At such meeting of shareholders, directors assigned to Class I shall
be elected to hold office for a term expiring at the first succeeding annual
meeting of shareholders thereafter, directors assigned to Class II shall be
elected to hold office for a term expiring at the second succeeding annual
meeting thereafter, and directors assigned to Class III shall be elected to hold
office for a term expiring at the third succeeding annual meeting thereafter.
Thereafter, at each annual meeting of shareholders of the Corporation, directors
of classes the terms of which expire at such annual meeting shall be elected for
terms of three years. Notwithstanding the foregoing, a director whose term
shall expire at any annual meeting shall continue to serve until such time as
his successor shall have been duly elected and shall have qualified unless his
position on the board of directors shall have been abolished by action taken to
reduce the size of the board of directors prior to said meeting.
Should the number of directors of the Corporation be reduced, the
directorship(s) eliminated shall be allocated among classes as appropriate so
that the number of directors in each class is as specified in the immediately
preceding paragraph. The board of directors shall designate, by the name of the
incumbent(s), the position(s) to be abolished. Notwithstanding the foregoing, no
decrease in the number of directors shall have the effect of shortening the term
of
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any incumbent director. Should the number of directors of the Corporation be
increased, the additional directorships shall be allocated among classes as
appropriate so that the number of directors in each class is as specified in the
immediately preceding paragraph.
Whenever the holders of any one or more series of preferred stock of the
Corporation shall have the right, voting separately as a class, to elect one or
more directors of the Corporation, the board of directors shall consist of said
directors so elected in addition to the number of directors fixed as provided
above in this Article IX. Notwithstanding the foregoing, and except as otherwise
may be required by law, whenever the holders of any one or more series of
preferred stock of the Corporation shall have the right, voting separately as a
class, to elect one or more directors of the Corporation, the terms of the
director or directors elected by such holders shall expire at the next
succeeding annual meeting of shareholders.
ARTICLE X
Notice for Nominations and Proposals
(A) Nominations for the election of directors and proposals for any new
business to be taken up at any annual meeting of shareholders may be made by the
board of directors of the Corporation or by any shareholder of the Corporation
entitled to vote generally in the election of directors. Only business within
the purpose or purposes described in the notice of a special meeting may be
conducted at the special meeting. In order for a shareholder of the Corporation
to make any such nominations and/or proposals, he shall give notice thereof in
writing, delivered or mailed by first class United States mail, postage prepaid,
to the secretary of the Corporation not fewer than 30 days nor more than 60 days
prior to any such meeting; provided, however, that if notice or public
disclosure of the meeting is effected fewer than 40 days before the meeting,
such written notice shall be delivered or mailed, as prescribed, to the
secretary of the Corporation not later than the close of the 10th day following
the day on which notice of the meeting was mailed to shareholders. Each such
notice given by a shareholder with respect to nominations for the election of
directors shall set forth (1) the name, age, business address and, if known,
residence address of each nominee proposed in such notice; (2) the principal
occupation or employment of each such nominee; (3) the number of shares of stock
of the Corporation which are beneficially owned by each such nominee; (4) such
other information as would be required to be included in a proxy statement
soliciting proxies for the election of the proposed nominee pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended, including,
without limitation, such person's written consent to being named in the proxy
statement as a nominee and to serving as a director, if elected; and, (5) as to
the shareholder giving such notice, (a) his name and address as they appear on
the Corporation's books and (b) the class and number of shares of the
Corporation which are beneficially owned by such shareholder. In addition, the
shareholder making such nomination shall promptly provide any other information
reasonably requested by the Corporation.
(B) Each such notice given by a shareholder to the secretary with respect
to business proposals to bring before a meeting shall set forth in writing as to
each matter: (1) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting;
(2) the name and address, as they appear on the Corporation's books, of the
shareholder proposing such business; (3) the class and number of shares of the
Corporation which are beneficially owned by the shareholder; and (4) any
material interest of the shareholder in such business. Notwithstanding anything
in this Charter to the contrary, no business shall be conducted at the meeting
except in accordance with the procedures set forth in this Article X.
(C) The chairman of the annual meeting of shareholders may, if the facts
warrant, determine and declare to such meeting that a nomination or proposal was
not made in accordance with the foregoing procedure, and, if he should so
determine, he shall so declare to the meeting and the defective nomination or
proposal shall be disregarded and laid over for action at the next succeeding or
annual meeting of the shareholders taking place thirty days or more
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thereafter. This provision shall not require the holding of any adjourned or
special meeting of shareholders for the purpose of considering such defective
nomination or proposal.
ARTICLE XI
Removal of Directors
Notwithstanding any other provision of this Charter or the bylaws of the
Corporation, no director of the Corporation may be removed at any time unless
for cause and upon the affirmative vote of the holders of at least 80% of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class) cast at a meeting of the shareholders called for that purpose, except as
otherwise required by law.
ARTICLE XII
Elimination of Directors' Liability
Directors of the Corporation shall have no liability to the Corporation or
its shareholders for monetary damages for breach of fiduciary duty as a
director, provided that this Article XII shall not eliminate liability of a
director for: (A) any breach of the director's duty of loyalty to the
Corporation or its shareholders; (B) acts or omissions that are not in good
faith or that involve intentional misconduct or a knowing violation of law; or
(C) unlawful distributions under Section 48-18-304 of the Tennessee Business
Corporation Act.
If the Tennessee Business Corporation Act is amended or other Tennessee law
is enacted to permit further elimination or limitation of the personal liability
of directors, then the liability of directors of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Tennessee Business
Corporation Act, as so amended, or by such other Tennessee law, as so enacted.
Any repeal or modification of this Article XII or subsequent amendment of the
Tennessee Business Corporation Act or enactment of other applicable Tennessee
law shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal, modification, amendment or
enactment.
ARTICLE XIII
Indemnification
(A) (1) Except as provided in Section (B) of this Article XIII, the
Corporation shall indemnify any director who is made a party to any threatened,
pending, or completed action, suit or proceeding, whether civil, criminal,
administrative, or investigative ("proceeding"), because he is or was a director
against liability incurred in such proceeding if: (a) he conducted himself in
good faith; (b) he reasonably believed, (i) in the case of conduct in his
official capacity with the Corporation, that his conduct was in the
Corporation's best interests and (ii) in all other cases, that his conduct was
at least not opposed to its best interests; and (c) in the case of any criminal
proceeding, he had no reasonable cause to believe his conduct was unlawful.
(2) The Corporation shall further indemnify any director and any
officer who is not a director who was wholly successful, on the merits or
otherwise, in the defense of any proceedings to which he was a party because he
is or was a director or officer of the Corporation against reasonable expenses
incurred by him in connection with the proceeding.
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(B) The Corporation shall not indemnify a director in connection with a
proceeding by or in the right of the Corporation in which the director was
adjudged liable to the Corporation or in connection with any other proceeding
charging improper personal benefit to him, whether or not involving action in
his official capacity, in which he was adjudged liable on the basis that
personal benefit was improperly received by him.
(C) The Corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of final
disposition of the proceeding if: (1) the director furnishes the Corporation a
written affirmation of his good faith belief that he has met the standard of
conduct set forth in Subsection (A)(1) of this Article XIII; (2) he provides the
Corporation a written undertaking, executed personally or on his behalf, to
repay the advance if it is ultimately determined that he is not entitled to
indemnification; and (3) a determination is made that the facts then known to
those making the determination would not preclude indemnification under this
Article XIII.
(D) The Corporation may not indemnify a director under Subsection (A)(1) of
this Article XIII unless authorized in the specific case after a determination
has been made that indemnification of the director is permissible in the
circumstances because he has met the standard set forth in Subsection (A)(1) of
this Article XIII. The determination shall be made:
(1) By the board of directors by majority vote of a quorum
consisting of directors not at the time parties to the proceeding;
(2) If a quorum cannot be obtained under Subsection (1) of this
Section (D), by majority vote of a committee duly designated by the board of
directors (in which designation directors who are parties may participate),
consisting solely of two or more directors not at the time parties to the
proceeding;
(3) By independent special legal counsel;
(a) Selected by the board of directors or its committee in
the manner prescribed in Subsections (1) or (2) of this Section (D);
(b) If a quorum of the board of directors cannot be obtained
under Subsection (1) of this Section (D) and a committee cannot be designated
under Subsection (2) of this Section (D), selected by majority vote of the full
board of directors (in which selection directors who are parties may
participate); or
(4) By the shareholders, but shares owned by or voted under the
control of directors who are at the time parties to the proceeding may not be
voted on the determination.
(E) Authorization of indemnification under Subsection (A)(1) of this
Article XIII and evaluation that indemnification is permissible under Subsection
(A)(1) of this Article XIII shall be made in the same manner as the
determination that indemnification is permissible, except that, if the
determination is made by special legal counsel, authorization of indemnification
and evaluation as to reasonableness of expenses shall be made by those entitled
under Subsection (D)(3) of this Article XIII to select counsel.
(F) The Corporation may indemnify and advance expenses to an officer,
employee or agent of the Corporation who is not a director to the same extent as
a director hereunder.
(G) The Corporation may purchase and maintain insurance on behalf of an
individual who is or was a director, officer, employee, or agent of the
Corporation, or who, while a director, officer, employee, or agent of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, employee benefit plan or other
enterprise,
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against liability asserted against or incurred by him in that capacity or
arising from his status as a director, officer, employee or agent, whether or
not the Corporation would have power to indemnify him against the same liability
hereunder.
(H) It is the intention of this Article XIII to provide for indemnification
of directors and officers to the fullest extent permitted by the Tennessee
Business Corporation Act, and this Article XIII shall be interpreted
accordingly. If this Article XIII or any portion hereof shall be invalidated on
any ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each director, officer, employee, and agent of the
Corporation as to costs, charges, and expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement with respect to any proceeding,
including an action by or in the right of the Corporation, to the full extent
permitted by any applicable portion of this Article XIII that shall not have
been invalidated and to the full extent permitted by applicable law. If the
Tennessee Business Corporation Act is amended or other Tennessee law is enacted
to permit further or additional indemnification of a director, officer, employee
or agent of the Corporation, then the indemnification of such director, officer,
employee or agent shall be to the fullest extent permitted by the Tennessee
Business Corporation Act, as so amended, or by such other Tennessee law.
(I) The indemnification and advance payment of expenses provided by this
Article XIII shall not be exclusive of any other rights to which a person may be
entitled by law, bylaw, agreement, vote of stockholders or disinterested
directors, or otherwise.
(J) The indemnification provided by this Article XIII shall be deemed to be
a contract between the Corporation and the persons entitled to indemnification
thereunder, and any repeal or modification of this Article XVII shall not affect
any rights or obligations then existing with respect to any state of facts then
or theretofore existing or any action, suit or proceeding theretofore or
thereafter brought based in whole or in part upon any such state of facts. The
indemnification and advance payment provided by this Article XIII shall continue
as to a person who has ceased to be a director or officer of the Corporation and
shall inure to his heirs, executors and administrators.
ARTICLE XIV
Restrictions on Voting Rights of Certain Holders
(A) Restriction on Voting Rights of Certain Holders. If, at any time after
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the effective date of the completion of the conversion of Lexington First
Federal Mutual Holding Company from mutual to stock form, any person shall
acquire the beneficial ownership of more than 10% of any class of equity
security of the Corporation without the prior approval by a two-thirds vote of
the Continuing Directors, as defined in Article XV of this Charter, then the
record holders of voting stock of the Corporation beneficially owned by such
acquiring person shall have only the voting rights set forth in this Section (A)
on any matter requiring their vote or consent. With respect to each vote in
excess of 10% of the voting power of the outstanding shares of voting stock of
the Corporation which such record holders would otherwise be entitled to cast
without giving effect to this Section (A), such record holders in the aggregate
shall be entitled to cast only one-hundredth (1/100th) of a vote, and the
aggregate voting power of such record holders, so limited for all shares of
voting stock of the Corporation beneficially owned by such acquiring person,
shall be allocated proportionately among such record holders. For each such
record holder, this allocation shall be accomplished by multiplying the
aggregate voting power, as so limited, of the outstanding shares of voting stock
of the Corporation beneficially owned by such acquiring person by a fraction
whose numerator is the number of votes represented by the shares of voting stock
of the Corporation owned of record by such record holder (and which are
beneficially owned by such acquiring person) and whose denominator is the total
number of votes represented by the shares of voting stock of the Corporation
that are beneficially owned by such acquiring person. A person who is a record
owner of shares of voting stock of the Corporation that are beneficially owned
simultaneously by more than one person shall have, with respect to such shares,
the right to cast the least number of
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votes that such person would be entitled to cast under this Section (A) by
virtue of such shares being so beneficially owned by any of such acquiring
persons.
(B) Definitions. The term "person" means an individual, a group acting in
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concert, a corporation, a partnership, an association, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate or any
other group acting in concert formed for the purpose of acquiring, holding or
disposing of securities of the Corporation. The term "acquire" includes every
type of acquisition, whether effected by purchase, exchange, operation of law or
otherwise. The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for or request for invitation for
tenders of, a security or interest in a security for value. The term "acting in
concert" includes: (1) knowing participation in a joint activity or conscious
parallel action towards a common goal whether or not pursuant to an express
agreement; and (2) a combination or pooling of voting or other interests in the
Corporation's outstanding shares for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written or
otherwise. The term "beneficial ownership" shall have the meaning defined in
Rule 13d-3 of the General Rules and Regulations under the Securities Exchange
Act of 1934.
(C) Exclusion for Underwriters, Employee Benefit Plans and Certain Proxies.
----------------------------------------------------------------------
The restrictions contained in this Article XIV shall not apply to: (1) any
underwriter or member of an underwriting or selling group involving a public
sale or resale of securities of the Corporation or a subsidiary thereof;
provided, however, that upon completion of the sale or resale of such
securities, no such underwriter or member of such selling group is a beneficial
owner of more than 10% of any class of equity security of the Corporation; (2)
any proxy granted to one or more Continuing Directors, as defined in Article XV
of this Charter, by a shareholder of the Corporation; or (3) any employee
benefit plans of the Corporation or a subsidiary thereof. In addition, the
Continuing Directors, as defined in Article XV of this Charter, the officers and
employees of the Corporation and its subsidiaries, the directors of subsidiaries
of the Corporation, the employee benefit plans of the Corporation and its
subsidiaries, entities organized or established by the Corporation or any
subsidiary thereof pursuant to the terms of such plans and trustees and
fiduciaries with respect to such plans acting in such capacity shall not be
deemed to be a group with respect to their beneficial ownership of voting stock
of the Corporation solely by virtue of their being directors, officers or
employees of the Corporation or a subsidiary thereof or by virtue of the
Continuing Directors, as defined in Article XV of this Charter, the officers and
employees of the Corporation and its subsidiaries and the directors of
subsidiaries of the Corporation being fiduciaries or beneficiaries of an
employee benefit plan of the Corporation or a subsidiary of the Corporation.
Notwithstanding the foregoing, no director, officer or employee of the
Corporation or any of its subsidiaries, or group of any of them, shall be exempt
from the provisions of this Article XIV should any such person or group become a
beneficial owner of more than 10% of any class of equity security of the
Corporation.
(D) Determinations. A majority of the Continuing Directors, as defined in
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Article XV of this Charter, shall have the power to construe and apply the
provisions of this Article XIV and to make all determinations necessary or
desirable to implement such provisions, including but not limited to matters
with respect to: (1) the number of shares beneficially owned by any person; (2)
whether a person has an agreement, arrangement or understanding with another as
to the matters referred to in the definition of beneficial ownership; (3) the
application of any other definition or operative provision of this Article XIV
to the given facts; or (4) any other matter relating to the applicability or
effect of this Article XIV. Any constructions, applications or determinations
made by the Continuing Directors, as defined in Article XV of this Charter,
pursuant to this Article XIV in good faith and on the basis of such information
and assistance as was then reasonably available for such purpose shall be
conclusive and binding upon the Corporation and its shareholders.
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ARTICLE XV
Approval of Business Combinations
The shareholder vote required to approve a Business Combination (as
hereinafter defined) shall be as set forth in this Article XV, in addition to
any other requirements under applicable law.
(A) (1) Except as otherwise expressly provided in this Article XV, the
affirmative vote of the holders of (i) at least 80% of the outstanding shares
entitled to vote thereon (and, if any class or series of shares is entitled to
vote thereon separately, the affirmative vote of the holders of at least two-
thirds of the outstanding shares of each such class or series) and (ii) a
majority of the outstanding shares entitled to vote thereon not including shares
deemed beneficially owned by a Related Person (as hereinafter defined) shall be
required in order to authorize any of the following:
(a) any merger, share exchange or consolidation of the
Corporation or any subsidiary thereof with or into a Related Person;
(b) any sale, lease, exchange, transfer or other disposition
of (including, without limitation, the granting of any mortgage, pledge
or other security interest in) all or any Substantial Part (as
hereinafter defined) of the assets (in one transaction or in a series
of transactions) of the Corporation (including, without limitation, any
voting securities of a subsidiary) or of a subsidiary thereof to a
Related Person or proposed by or on behalf of a Related Person;
(c) any sale, lease, exchange, transfer or other disposition
of including, without limitation, any granting of a mortgage, pledge or
any other security interest in, all or any Substantial Part of the
assets (in one transaction or in a series of transactions) of a Related
Person to the Corporation or a subsidiary thereof;
(d) the issuance or transfer (in one transaction or in a
series of transactions) by the Corporation or any subsidiary thereof of
any securities of the Corporation or of a subsidiary thereof to a
Related Person other than pursuant to a dividend or distribution made
pro rata to all shareholders of the Corporation;
(e) the acquisition by the Corporation or a subsidiary
thereof of any securities of a Related Person or of any securities
convertible into securities of a Related Person;
(f) any transaction proposed by or on behalf of a Related
Person or pursuant to any agreement, arrangement or understanding with
a Related Person which has the effect, directly or indirectly, of
increasing the Related Person's proportionate ownership of voting
securities of the Corporation or of a subsidiary thereof (or of
securities that are convertible to, exchangeable for or carry the right
to acquire such voting securities);
(g) the adoption of any plan or proposal of liquidation or
dissolution of the Corporation, any reincorporation of the Corporation
in another state or jurisdiction, any reclassification of the common
stock of the Corporation, or any recapitalization involving the common
stock of the Corporation proposed by or on behalf of a Related Person;
(h) any loans, advances, guarantees, pledges, financial
assistance, security arrangements, restrictive covenants or any tax
credits or other tax advantages provided by, through
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or to the Corporation or any subsidiary thereof as a result of which a
Related Person receives a benefit, directly or indirectly, other than
proportionately as a shareholder; and
(i) any agreement, contract or other arrangement providing
for any of the transactions described in this Section (A).
(2) Such affirmative vote shall be required notwithstanding any
other provision of this Charter, any provision of law, or any agreement
with any national securities exchange or automated quotation system which
might otherwise permit a lesser vote or no vote.
(3) The term "Business Combination" as used in this Article XV shall
mean any transaction which is referred to in any one or more of Subsections
(1)(a) through (1)(i) of this Section A.
(B) The provisions of Section (A) of this Article XV shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote as is required by any other provision
of this Charter, any provisions of law or any agreement with any federal
regulatory agency, national securities exchange or automated quotation system,
if either the Business Combination or the transaction in which the Related
Person became a Related Person shall have been approved in advance by at least
two-thirds of the Continuing Directors (as hereinafter defined); provided,
however, that such approval shall be effective only if obtained at a meeting at
which a Continuing Director Quorum (as hereinafter defined) is present.
(C) For the purpose of this Article XV the following definitions apply:
(1) The term "Related Person" shall mean: (a) any individual,
corporation, partnership or other person or entity which together with its
"affiliates" (as that term is defined in Rule 12b-2 of the General Rules
and Regulations under the Securities Exchange Act of 1934) "beneficially
owns" (as that term is defined in Rule 13d-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934) in the aggregate 10%
or more of the outstanding shares of the common stock of the Corporation;
(b) any "affiliate" (as that term is defined in Rule 12b-2 under the
Securities Exchange Act of 1934) of any such individual, corporation,
partnership or other person or entity; or (c) any corporation which would
be an "affiliate" (as that term is defined in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934) of any
such individual, corporation, partnership or other person or entity
following a Business Combination. Without limitation, any shares of the
common stock of the Corporation which any Related Person has the right to
acquire pursuant to any agreement, upon exercise of conversion rights,
warrants or options or otherwise shall be deemed "beneficially owned" by
such Related Person.
(2) The term "Substantial Part" shall mean more than 10 percent of
the total assets of the Corporation or the Related Person, as the case may
be, as of the end of its most recent fiscal year ending prior to the time
the determination is made.
(3) The term "Continuing Director" shall mean any member of the
board of directors of the Corporation who is unaffiliated with a Related
Person and was a member of the board of directors prior to the time that
the Related Person became a Related Person, and any successor of a
Continuing Director who is recommended to succeed a Continuing Director by
a majority of Continuing Directors then on the board of directors.
(4) The term "Continuing Director Quorum" shall mean at least two-
thirds of the Continuing Directors capable of exercising the powers
conferred on them.
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ARTICLE XVI
Evaluation of Business Combinations
In connection with the exercise of its judgment in determining what is in
the best interests of the Corporation and of the shareholders, when evaluating a
Business Combination (as defined in Article XV of this Charter) or a tender or
exchange offer, the board of directors of the Corporation may, in addition to
considering the adequacy of the amount to be paid in connection with any such
transaction, consider all of the following factors and any other factors which
it deems relevant: (A) the social and economic effects of the transaction on the
Corporation, its subsidiaries, employees, depositors, loan and other customers
and creditors and the other elements of the communities in which the Corporation
and its subsidiaries operate or are located; (B) the business and financial
condition and earnings prospects of the acquiring person or entity, including,
but not limited to, debt service and other existing financial obligations,
financial obligations to be incurred in connection with the acquisition and
other likely financial obligations of the acquiring person or entity, and the
possible effect of such conditions upon the Corporation and its subsidiaries and
the other elements of the communities in which the Corporation and its
subsidiaries operate or are located; and (C) the competence, experience and
integrity of the acquiring person or entity and its or their management.
ARTICLE XVII
Incorporator
The name, address and zip code of the Corporation's incorporator are Howard
Tignor, 19 Natchez Trace Drive, Lexington, Tennessee 38351.
ARTICLE XVIII
Initial Directors
The names of the individuals who are to serve as initial directors of the
Corporation until the first meeting of shareholders are Charlie H. Walker,
Howard W. Tignor, Arba Milam Taylor, Stephen M. Lowry, Pope Thomas, Robert C.
Thomas, Richard Walker, Stephen M. Milam and Pat Carnal. The address of each
initial director is 19 Natchez Trace Drive, Lexington, Tennessee 38351.
ARTICLE XIX
Amendment of Bylaws
To the extent permitted by the Tennessee Business Corporation Act, the
board of directors of the Corporation is expressly authorized to repeal, alter,
amend or rescind the bylaws of the Corporation by vote of a majority of the
board of directors at a legal meeting held in accordance with the bylaws.
Notwithstanding any other provision of this Charter or the bylaws of the
Corporation (and notwithstanding the fact that some lesser percentage may be
specified by law), the bylaws shall be repealed, altered, amended or rescinded
by the shareholders of the Corporation only by vote of at least 80% of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as one
class) cast at a meeting of the shareholders called for that purpose (provided
that notice of such proposed repeal, alteration, amendment or rescission is
included in the notice of such meeting).
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ARTICLE XX
Amendment of Charter
The Corporation reserves the right to repeal, alter, amend or rescind any
provision contained in this Charter in the manner now or hereafter prescribed by
law, and all rights conferred on shareholders herein are granted subject to this
reservation. Notwithstanding the foregoing, the provisions set forth in Articles
VIII, IX, X, XI, XII, XIII, XIV, XV, XVI and XIX of this Charter and this
Article XX may not be repealed, altered, amended or rescinded in any respect
unless the same is approved by the affirmative vote of the holders at least 80%
of the outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as a single
class) cast at a meeting of the shareholders called for that purpose (provided
that notice of such proposed repeal, alteration, amendment or rescission is
included in the notice of such meeting); except that such repeal, alteration,
amendment or rescission may be made by the affirmative vote of the holders of a
majority of the outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors (considered for this purpose as a
single class) if the same is first approved by a majority of the Continuing
Directors, as defined in Article XV of this Charter.
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THE UNDERSIGNED, being the incorporator herein before named, for the
purpose of forming a corporation pursuant to the Tennessee Business Corporation
Act, does make this Charter, hereby declaring and certifying that this is his
act and deed and the facts herein stated are true, and accordingly has hereunto
set his hand as of July 9, 1997.
/s/ Howard W. Tignor
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Howard W. Tignor
Incorporator
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EXHIBIT 3.2
BYLAWS
OF
COMMUNITY NATIONAL CORPORATION
ARTICLE I - Home Office
The home office of Community National Corporation (the "Corporation") shall
be at 19 Natchez Trace Drive, Lexington, Tennessee 38351.
ARTICLE II - Shareholders
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the Corporation or at such
other place as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the
Corporation for the election of directors and for the transaction of any other
business of the Corporation shall be held annually on the third Wednesday of
April, if not a legal holiday, and if a legal holiday, then on the next day
following which is not a legal holiday, at 2:00 p.m. Central Time, or at such
other date and time as determined by the board of directors.
Section 3. Special Meetings. Special meetings of the shareholders for any
purpose or purposes may be called at any time by a majority of the board of
directors or by a committee of the board of directors that has been duly
designated by the board of directors.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with rules and procedures adopted by the board of
directors. The board of directors shall designate, when present, either the
chairman of the board or president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day and
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 10 days nor more than two (2) months before the date of
the meeting, either personally or by mail, by or at the direction of the
chairman of the board, the president, the secretary or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting;
provided, however, that with respect to meetings at which a plan of merger,
share exchange, sale of all or substantially all of the Corporation's assets or
dissolution of the Corporation is proposed to be considered, such notice shall
be provided to each shareholder of the Corporation whether or not entitled to
vote. If mailed, such notice shall be deemed to be delivered when deposited in
the mail, addressed to the shareholder at the address as it appears on the stock
transfer books or records of the Corporation as of the record date prescribed in
Section 6 of this Article II with postage prepaid. When any shareholders'
meeting, either annual or special, is adjourned for more than four months,
notice of the adjourned meeting shall be given as in the case of an original
meeting. It shall not be necessary to give any notice of the time and place of
any meeting adjourned for fewer than 30 days or of the business to be transacted
at the meeting, other than an announcement at the meeting at which such
adjournment is taken. If a meeting is adjourned to a date more than four (4)
months after the date fixed for the original meeting, a new record date for the
adjourned meeting must be fixed, and notice of the adjourned meeting must be
given to shareholders as of the new record date.
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A shareholder may waive any notice required hereunder provided the waiver
is in writing, signed by him and delivered to the Corporation for inclusion in
the minutes or filing with the corporate records. A shareholder's attendance at
a meeting (i) waives objection to lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the meeting (or promptly
upon his arrival) objects to holding the meeting or transacting business at the
meeting, and (ii) waives objection to consideration of a particular matter at a
meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder objects to considering the matter when it is
presented.
Section 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more
than 70 days and, in case of a meeting of shareholders, not fewer than 10 days
prior to the date on which the particular action requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment, except adjournment to a date
more than four (4) months after the date fixed for the original meeting, in
which case a new record date shall be set.
Section 7. Voting Lists. The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make a complete list of the
shareholders entitled to notice of such meeting, or any adjournment, arranged in
alphabetical order, with the address and the number of shares held by each.
Such list of shareholders shall be kept on file at the home office of the
Corporation and shall be subject to inspection by any shareholder, upon written
demand by such shareholder, his agent or his attorney, beginning two (2)
business days after notice of the meeting is given for which the list was
prepared and continuing through the meeting. If the right to vote at any
meeting is challenged, the person presiding thereat may rely on such list as
evidence of the right of the person challenged to vote at such meeting. A
shareholder or his agent or attorney is entitled on written demand to copy such
list, during regular business hours and at his expense, during the period it is
available for inspection, provided (i) his demand is made in good faith and for
a proper purpose, (ii) he describes with reasonable particularity his purpose
and the records he desires to inspect, and (iii) the records are directly
connected with his purpose.
Section 8. Quorum. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of
the outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
At such adjourned meeting at which a quorum shall be present or represented,
any business may be transacted which might have been transacted at the meeting
as originally notified. The shareholders present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
appoint a proxy by executing a writing which authorizes another person or
persons to vote or otherwise act on the shareholder's behalf. Execution may be
accomplished by any reasonable means, including facsimile transmission, either
personally or by an attorney-in-fact in the case of an individual shareholder or
by an authorized officer, director, employee, agent or attorney-in-fact in the
case of another shareholder. Any copy, facsimile transmission or other reliable
reproduction of such writing or transmission may be substituted or used in lieu
of the original writing or transmission for any and all purposes for which the
original writing or transmission could be used; provided, that such copy,
facsimile transmission or other reproduction shall be a complete reproduction of
the entire original writing or transmission. Proxies solicited on behalf of the
management shall be voted as directed by the shareholder or, in the absence of
such direction, as determined by a majority of the board of directors. A proxy
shall be valid for eleven months from the date of its execution unless another
period is expressly provided in the appointment form.
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Section 10. Voting. At each election for directors every shareholder
entitled to vote at such election shall be entitled to one (1) vote for each
share of stock held by him. Unless otherwise provided in the Corporation's
Charter or by applicable law, a majority of those votes cast by shareholders
entitled to vote at a lawful meeting shall be sufficient to pass on a
transaction or matter, except in the election of directors. Directors shall be
elected by a plurality of the votes cast by the shares entitled to vote at a
meeting at which a quorum is present. Where voting is by voting group, action
on a matter (other than the election of directors) by a voting group is approved
if the votes cast within the voting group favoring the action exceed the votes
cast opposing the action, unless the Corporation's Charter or applicable law
requires a greater number of affirmative votes.
Section 11. Voting of Shares in the Name of Two or More Persons. When
ownership stands in the name of two or more persons, in the absence of written
directions to the Corporation to the contrary, at any meeting of the
shareholders of the Corporation, any one (1) or more of such shareholders may
cast, in person or by proxy, all votes to which such ownership is entitled. In
the event an attempt is made to cast conflicting votes, in person or by proxy,
by the several persons in whose names shares of stock stand, the vote or votes
to which those persons are entitled shall be cast as directed by a majority of
those holding such shares and present in person or by proxy at such meeting, but
no votes shall be cast for such stock if a majority cannot agree.
Section 12. Voting of Shares of Certain Holders. Shares standing in the
name of another corporation may be voted by an officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a
receiver may be voted by such receiver, and shares held by or under the control
of a receiver may be voted by such receiver without the transfer into his name
if authority to do so is contained in an appropriate order to the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Corporation nor shares
held by another corporation, if a majority of the shares entitled to vote for
the election of directors of such other corporation are held by the Corporation,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting, unless such
shares are held in a fiduciary capacity.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any persons other than nominees
for office, as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one (1) or three (3). Any such
appointment shall not be altered at the meeting. If inspectors of election are
not so appointed, the chairman of the board or the president may make such
appointment at the meeting. In case any person appointed as inspector fails to
appear or fails or refuses to act, the vacancy may be filled by appointment by
the board of directors in advance of the meeting or at the meeting by the
chairman of the board or the president.
Unless otherwise prescribed by applicable law, the duties of such
inspectors shall include: determining the number of shares and the voting power
of each share, the shares represented at the meeting, the existence of a quorum
and the authenticity, validity and effect of proxies; receiving votes, ballots
or consents; hearing and determining all challenges and questions in any way
arising in connection with the rights to vote; counting and tabulating all votes
or consents; determining the result; and performing such other acts as may be
proper to conduct the election or vote with fairness to all shareholders.
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Section 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Provided such committee makes such nominations, no
nominations for directors except those made by the nominating committee shall be
voted upon at the annual meeting unless other nominations by shareholders are
made in writing and delivered to the secretary of the Corporation in accordance
with the provisions of the Corporation's Charter.
Section 15. New Business. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the
Corporation in accordance with the provisions of the Corporation's Charter. This
provision shall not prevent the consideration and approval or disapproval at the
annual meeting of reports of officers, directors and committees, but in
connection with such reports no new business shall be acted upon at such annual
meeting unless stated and filed as provided in the Corporation's Charter.
Section 16. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting. If all
shareholders entitled to vote on the action consent to taking such action
without a meeting, the affirmative vote of the number of shares that would be
necessary to authorize or take such action at a meeting is the act of the
shareholders. The action must be evidenced by one (1) or more written consents
describing the action taken, signed by each shareholder entitled to vote on the
action, in one (1) or more counterparts, indicating each signing shareholder's
vote or abstention on the action, and delivered to the Corporation for inclusion
in the minutes for filing with the corporate records.
A consent signed under this section has the effect of a meeting vote and
may be described as such in any document.
If the Tennessee Business Corporation Act or the Charter requires that
notice of the proposed action by given to nonvoting shareholders and the action
is to be taken by consent of the voting shareholders, then the Corporation must
give its nonvoting shareholders written notice of the proposed action at least
ten (10) days before the action is taken. The notice must contain or be
accompanied by the same materials that would have been required by law to be
sent to nonvoting shareholders in a notice of meeting at which the proposed
action would have been submitted to the shareholders for action.
Section 17. Shareholder Meetings Through Special Communication.
Shareholders may not participate in any annual or special meeting and no annual
or special meeting of shareholders may be conducted by means of conference
telephone or similar communications equipment by which all persons participating
in the meeting can hear each other.
ARTICLE III - Board of Directors
Section 1. General Powers. The business and affairs of the Corporation
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of nine
(9) members. In accordance with the provisions of the Corporation's Charter, at
the first meeting of shareholders of the Corporation the board of directors
shall be divided into three classes as nearly equal in number as possible. At
succeeding annual meetings of shareholders, the members of each class shall be
elected for a term of three (3) years and until their successors are elected and
qualified. One (1) class shall be elected by ballot annually. The board of
directors may
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increase or decrease the number of directors, but in no event shall such number
be increased or decreased beyond the range established in the Corporation's
Charter.
Section 3. Regular Meetings. A regular meeting of the board of directors
shall be held without other notice than this bylaw immediately after, and at the
same place as, the annual meeting of shareholders or at such other time and
place as the board of directors shall determine. The board of directors may
provide, by resolution, the time and place for the holding of additional regular
meetings without other notice than such resolution.
Section 4. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place within the State of Tennessee as the
place for holding any special meeting of the board of directors called by such
persons.
Members of the board of directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person.
Section 5. Notice of Special Meeting. Written notice of any special
meeting shall be given to each director at least two (2) days previous thereto
delivered personally, by telegram, by telecopy, or by mail at the address at
which the director is most likely to be reached. Such notice shall be deemed to
be delivered when deposited in the United States mail so addressed, with postage
thereon prepaid, or when delivered to the telegraph company if sent by telegram.
Any director may waive notice of any meeting by a writing filed with the
secretary. The attendance of a director at a meeting shall constitute a waiver
of notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
Section 6. Quorum. Except as otherwise provided by the Corporation's
Charter, a majority of the number of directors fixed by Section 2 of this
Article III shall constitute a quorum for the transaction of business at any
meeting of the board of directors; however, if less than such majority is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time. Notice of any adjourned meeting shall be given in
the same manner as prescribed by Section 5 of this Article III.
Section 7. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by these bylaws, the
Corporation's Charter or applicable law.
Section 8. Action Without a Meeting. Any action required or permitted to
be taken by the board of directors at a meeting may be taken without a meeting.
If all directors consent to taking such action without a meeting, the
affirmative vote of the number of directors that would be necessary to authorize
or take such action at a meeting is the act of the board. The action must be
evidenced by one (1) or more written consents describing the action taken,
signed by each director in one (1) or more counterparts, indicating each signing
director's vote or abstention on the action, and shall be included in the
minutes or filed with the corporate records reflecting the action taken. Action
taken under this section is effective when the last director signs the consent,
unless the consent specifies a different effective date.
A consent signed under this section has the effect of a meeting vote and
may be described as such in any document.
Section 9. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the home office of the Corporation
addressed to the board of directors, the chairman of the board or
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the president. Unless otherwise specified, such resignation shall take effect
upon delivery. More than three (3) consecutive absences from regular meetings
of the board of directors, unless excused by resolution of the board of
directors, shall automatically constitute a resignation, effective when such
resignation is accepted by the board of directors.
Section 10. Vacancies. Any vacancy occurring on the board of directors
shall be filled in accordance with the provisions of the Corporation's Charter.
Section 11. Compensation. Directors, as such, may receive a stated salary
for their services. By resolution of the board of directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the board of directors.
Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the board of
directors may determine.
Section 12. Presumption of Assent. A director of the Corporation who is
present at a meeting of the board of directors at which action on any
Corporation matter is taken shall be presumed to have assented to the action
taken unless (i) he objects at the beginning of the meeting (or promptly upon
his arrival) to holding the meeting or transacting business at the meeting; (ii)
his dissent or abstention from the action taken is entered in the minutes of the
meeting; or (iii) he delivers written notice of his dissent or abstention to the
presiding officer of the meeting before its adjournment or to the Corporation
immediately after adjournment of the meeting. The right of dissent or
abstention is not available to a director who votes in favor of the action
taken.
Section 13. Removal of Directors. Any director or the entire board of
directors may be removed only in accordance with the provisions of the
Corporation's Charter.
ARTICLE IV -- Committees of the Board of Directors
The board of directors may, by resolution passed by a majority of the whole
board, designate one (1) or more committees, as they may determine to be
necessary or appropriate for the conduct of the business of the Corporation, and
may prescribe the duties, constitution and procedures thereof. Each committee
shall consist of one (1) or more directors of the Corporation. The board may
designate one (1) or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the committee.
The board of directors shall have power, by the affirmative vote of a
majority of the authorized number of directors, at any time to change the
members of, to fill vacancies in and to discharge any committee of the board.
Any member of any such committee may resign at any time by giving notice to the
Corporation; provided, however, that notice to the board, the chairman of the
board, the chief executive officer, the chairman of such committee or the
secretary shall be deemed to constitute notice to the Corporation. Such
resignation shall take effect upon receipt of such notice or at any later time
specified therein; and, unless otherwise specified therein, acceptance of such
resignation shall not be necessary to make it effective. Any member of any such
committee may be removed at any time, either with or without cause, by the
affirmative vote of a majority of the authorized number of directors at any
meeting of the board called for that purpose.
ARTICLE V -- Officers
Section 1. Positions. The officers of the Corporation shall be a
president, one (1) or more vice presidents, a secretary and a treasurer, each of
whom shall be elected by the board of directors. The board of directors may
also designate the chairman of the board as an officer. The president shall be
the chief executive officer unless the board of directors designates the
chairman of the board as chief executive officer. The president shall be a
director of the Corporation. The offices of the secretary and treasurer may be
held by the same person, and a vice president may also be either the secretary
or treasurer. The board of directors may designate one (1) or more vice
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presidents as executive vice president or senior vice president. The board of
directors may also elect or authorize the appointment of such other officers as
the business of the Corporation may require. The officers shall have such
authority and perform such duties as the board of directors may from time to
time authorize or determine. In the absence of action by the board of
directors, the officers shall have such powers and duties as generally pertain
to their respective offices. The secretary of the Corporation shall be
responsible for preparing minutes of the directors' and shareholders' meetings
and for authenticating records of the Corporation.
Section 2. Election and Term of Office. The officers of the Corporation
shall be elected annually at the first meeting of the board of directors held
after each annual meeting of shareholders. If the election of officers is not
held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly
elected and qualified or until the officer's death, resignation or removal.
Election or appointment of an officer, employee or agent shall not of itself
create contractual rights. The board of directors may authorize the Corporation
to enter into an employment contract with any officer in accordance with
applicable law; however, no such contract shall impair the right of the board of
directors to remove any officer at any time in accordance with Section 3 of this
Article V.
Section 3. Removal. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the Corporation will be served
thereby, but such removal, other than for cause, shall be without prejudice to
any contractual rights of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be fixed
from time to time by the board of directors by employment contracts or
otherwise.
ARTICLE VI -- Contracts, Loans, Checks and Deposits
Section 1. Contracts. To the extent permitted by applicable law, and
except as otherwise prescribed by the Corporation's Charter or these bylaws with
respect to certificates for shares, the board of directors may authorize any
officer, employee or agent of the Corporation to enter into any contract or
execute and deliver any instrument in the name of and on behalf of the
Corporation. Such authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances. The Corporation shall not lend money to, or guarantee
the obligation of, any officer or director unless the board of directors
determines that the loan or guarantee benefits the Corporation and either
approves the specific loan or guarantee or a general plan authorizing loans and
guarantees.
Section 3. Checks, Drafts, etc. All checks, drafts, other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by one (1) or more officers, employees or agents
of the Corporation in such manner as shall from time to time be determined by
the board of directors.
Section 4. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in any
duly authorized depositories as the board of directors may select.
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ARTICLE VII -- Certificates for Shares and their Transfer
Section 1. Certificates for Shares. The shares of the Corporation shall
be represented by certificates signed by the chief executive officer or by any
other officer of the Corporation authorized by the board of directors, attested
by the secretary or an assistant secretary and sealed with the corporate seal or
a facsimile thereof. The signature of such officers upon a certificate may be
facsimiles if the certificate is manually signed on behalf of a transfer agent
or a registrar other than the Corporation itself or one (1) of its employees.
Each certificate for shares of capital stock shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the Corporation. All certificates surrendered to the
Corporation for transfer shall be cancelled, and no new certificates shall be
issued until the form certificate for a like number of shares has been
surrendered and cancelled, except that in the case of a lost or destroyed
certificate a new certificate may be issued upon such terms and indemnity to the
Corporation as the board of directors may prescribe.
Section 2. Form of Certificate. Each certificate representing shares
issued by the Corporation shall state on its face the name of the Corporation,
that the Corporation is organized under the laws of Tennessee, the name of the
person to whom it is issued, the number and class of shares and the designation
of the series, if any, the certificate represents. Each certificate shall set
forth upon its face or back, or shall state conspicuously, that the Corporation
will furnish to any shareholder upon request, and without charge, a full
statement of the designations, preferences, limitations and relative rights of
each class authorized to be issued, the variations in the relative rights and
preferences between the shares of each series so far as the same have been fixed
and determined and the authority of the board of directors to fix and determine
the relative rights and preferences of subsequent series. Other matters in
regard to the form of the certificates shall be determined by the board of
directors.
Any restrictions imposed on the transfer or registration of transfer of
shares of the Corporation shall be noted conspicuously on the front or back of
each certificate representing such shares.
Section 3. Transfer of Shares. Transfer of shares of capital stock of the
Corporation shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record, by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of attorney and filed with the
certificate for such shares. The person in whose name shares of capital stock
stand on the books of the Corporation shall be deemed by the Corporation to be
the owner for all purposes.
Section 4. Stock Ledger. The stock ledger of the Corporation shall be the
only evidence as to who are the shareholders entitled to examine the stock
ledger, the list required by Section 7 of Article II hereof or the books of the
Corporation or to vote in person or by proxy at any meeting of shareholders.
Section 5. Lost Certificates. The board of directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
certificate, or his legal representative, to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 6. Record Owners. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of shares
to receive dividends, and to vote as such owner, and shall not be bound to
recognize any equitable or other claim to or interest in such shares on the part
of any other person, whether or not the Corporation shall have express or other
notice thereof, except as otherwise provided by law.
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ARTICLE VIII -- Fiscal Year; Annual Audit
The fiscal year of the Corporation shall end on the 31st day of December of
each year. The Corporation shall be subject to an annual audit as of the end of
its fiscal year by independent public accountants appointed by and responsible
to the board of directors.
ARTICLE IX -- Dividends
Subject only to the terms of the Corporation's Charter and applicable law,
the board of directors may from time to time declare, and the Corporation may
pay, dividends on the outstanding classes of the Corporation's capital stock
which are eligible for dividends. Dividends may be paid in cash, in property or
in the Corporation's own stock.
ARTICLE X -- Corporate Seal
The corporate seal of the Corporation shall be in such form as the board of
directors may provide.
ARTICLE XI -- Amendments
In accordance with the Corporation's Charter, these bylaws may be repealed,
altered, amended or rescinded by the shareholders of the Corporation only by the
affirmative vote of at least 80% of the outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors
(considered for this purpose as one (1) class) cast at a meeting of the
shareholders called for that purpose (provided that notice of such proposed
repeal, alteration, amendment or rescission is included in the notice of such
meeting). In addition, these bylaws may be repealed, altered, amended or
rescinded by the board of directors by the affirmative vote of a majority of the
board of directors at a legal meeting held in accordance with the provisions of
these bylaws; provided, however, that an amendment to the first sentence of this
Article XI may be made only by the shareholders of the Corporation.
-9-
<PAGE>
EXHIBIT 4
NUMBER _____ _____ SHARES
COMMUNITY NATIONAL CORPORATION
LEXINGTON, TENNESSEE
This certifies that
is the owner of
fully paid and non-assessable shares of common stock, par
value $1.00 per share, of
Community National Corporation (the "Corporation"), a corporation organized
under the laws of the State of Tennessee. The shares represented by this
certificate are transferable only on the stock transfer books of the Corporation
by the holder of record hereof, or by his duly authorized attorney or legal
representative upon the surrender of this certificate properly endorsed. This
certificate is not valid until countersigned and registered by the Corporation's
transfer agent and registrar.
THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed
by the facsimile signature of its duly authorized officers and has caused a
facsimile of its corporate seal to be hereunto affixed.
- ------------------------- ---------------------------------------
Arba Milam Taylor Howard W. Tignor
Secretary President and Chief Executive Officer
(CORPORATE SEAL)
Countersigned:
----------------------
Transfer Agent
BY: ----------------------
Authorized Signature
- --------------------------------------------------------------------------------
The Charter includes a provision which imposes certain restrictions on the
voting rights of beneficial owners of more than 10% of any class of equity
security of the Corporation unless the acquisition of shares in excess of 10% is
approved by a two-thirds vote of the Continuing Directors (as such term is
defined in the Corporation's Charter). The Corporation will furnish without
charge to each stockholder who so requests information relating to the voting
restrictions on more than 10% beneficial owners.
- --------------------------------------------------------------------------------
<PAGE>
FORM OF STOCK CERTIFICATE - BACK SIDE
The shares represented by this certificate are issued subject to all
the provisions of the Charter and Bylaws of the Corporation as from time to time
amended (copies of which are on file at the principal executive office of the
Corporation), to all of which the holder by acceptance hereof assents.
The Corporation will furnish without charge to each stockholder who so
requests, the designations, relative rights, preferences and limitations,
determined for each series (and the authority of the Board of Directors to
determine variations for future series) of each class of stock or series thereof
that the Corporation is authorized to issue. Such request may be made in writing
to the Secretary of the Corporation.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants
in common
UNIF TRANSFER MIN ACT - ........Custodian.........under Uniform Transfers to
(Cust) (Minor)
Minors Act.......................
(State)
Additional abbreviations may also be used though not in the above list.
NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE
STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
For value received, ___________________________________________________
hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
/___________________/
- -----------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- ----------------------------------------------------------------- Shares
of the common stock evidenced by this certificate, and do hereby irrevocably
constitute and appoint ____________________________________________________,
Attorney, to transfer the said shares on the books of the Corporation, with full
power of substitution.
Dated
----------
-----------------------
Signature
-----------------------
Signature
In presence of:
------------------------
<PAGE>
EXHIBIT 5
[Housley Kantarian & Bronstein, P.C. Letterhead]
July 18, 1997
Board of Directors
Community National Corporation
19 Natchez Trace Drive
Lexington, Tennessee 38351
RE: Registration Statement on Form SB-2
Ladies and Gentlemen:
You have requested our opinion as special counsel to Community National
Corporation (the "Corporation") in connection with the Registration Statement on
Form SB-2 to be filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Registration Statement"). The
Registration Statement relates to shares of common stock of the Corporation (the
"Common Stock") to be issued in connection with the conversion of Lexington
First Federal Mutual Holding Company from mutual form to an interim stock
savings bank, its subsequent merger with and into Lexington First Federal
Savings Bank (the "Bank") with the Bank as the surviving entity and the
subsequent reorganization of the Bank as a wholly owned subsidiary of the
Corporation (collectively the "Stock Conversion and Reorganization").
In rendering this opinion, we understand that the Common Stock will be
offered and sold in the manner described in the Prospectus which is a part of
the Registration Statement. We have examined such records and documents and made
such examination as we have deemed relevant in connection with this opinion.
Based upon the foregoing, it is our opinion that the shares of Common
Stock will, when issued and sold as contemplated by the Registration Statement,
be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Prospectus under the
heading "Legal Matters."
HOUSLEY KANTARIAN & BRONSTEIN, P.C.
By: /s/ Howard S. Parris
-------------------------------
Howard S. Parris
<PAGE>
EXHIBIT 8.1
________, 1997
Boards of Directors
Lexington First Federal Mutual Holding Company
Lexington First Federal Savings Bank
Community National Corporation
19 Natchez Trace Drive
Lexington, Tennessee 38351
Re: Certain Federal Income Tax Consequences Relating to Proposed
Mutual Holding Company Conversion to a Stock Holding Company
------------------------------------------------------------
Ladies and Gentlemen:
In accordance with your request, this letter sets forth hereinbelow the
opinion of this firm relating to certain federal income tax consequences of the
transactions described below. For purposes of this opinion, we have examined
such documents and questions of law as we have considered necessary or
appropriate, including but not limited to the Plan of Conversion and Agreement
and Plan of Reorganization as adopted by the Boards of Directors of Lexington
First Federal Mutual Holding Company (the "MHC"), Lexington First Federal
Savings Bank (the "Bank") on April 12, 1997, and as subsequently adopted as
amended on July 12, 1997 and by the Board of Directors of Community National
Corporation (the "Company") on August __, 1997 (the "Plan"); the Federal Stock
Charter and Bylaws of the Bank; the Charter and Bylaws of the Company; the
Affidavit of Representations dated July ___, 1997 provided to us by the Bank and
the MHC (the "Affidavit"); and the Prospectus (the "Prospectus") included in the
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission ("SEC") on July ___, 1997 (the "Registration Statement"). In such
examination, we have assumed, and have not independently verified, the
genuineness of all signatures on original documents where due execution and
delivery are requirements to the effectiveness thereof. Terms used but not
defined herein, whether capitalized or not, shall have the same meaning as
defined in the Plan.
<PAGE>
Board of Directors
Lexington First Federal Mutual Holding Company
Lexington First Federal Savings Bank
Community National Corporation
____________, 1997
Page 2
BACKGROUND
Based solely upon our review of such documents, and upon such
information as the Bank, MHC, and Company have 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 factual
proposed transactions, qualified in entirety by reference to the documents cited
above.
The Bank is a community-oriented financial institution which serves
Lexington, Tennessee as well as all of Henderson County and the neighboring
counties of Decatur, Madison, Carroll, and Chester in central and southwestern
Tennessee. The Bank was organized in 1992 as a subsidiary of the MHC. Prior to
that time, the MHC had operated as a federally chartered savings association in
mutual form (the "Mutual Association") in the same area since 1961. Its deposits
have been federally insured up to applicable limits, and it has been a member of
the Federal Home Loan Bank system since that time. In 1992, the Bank was
chartered as a subsidiary of the MHC. In the MHC Reorganization (as defined
below), the Bank sold 80,000 shares of common stock, par value $1.00 per share
(the "Bank Common Stock") to the public and the Mutual Association transferred
substantially all of its assets and liabilities to the Bank in exchange for
135,000 shares of Bank Common Stock (the "MHC Reorganization"). The Bank's
business has historically been the origination of mortgage loans on
single-family residential real estate, with funds obtained through the
attraction of savings deposits, primarily transaction accounts, and certificate
accounts with terms of 18 months or less and Federal Home Loan Bank advances.
The MHC is a federally chartered mutual holding company formed in 1992
in connection with the MHC Reorganization. The MHC's primary asset is 135,000
shares of Bank Common Stock which represented 60.54% of the shares of Bank
Common Stock outstanding as of the date of the Prospectus. The MHC's only other
asset at March 31, 1997 was a nominal amount of cash. As one of the transactions
described in the Plan ( the "Stock Conversion and Reorganization"), the MHC will
convert to an interim federal savings bank and simultaneously merge with and
into the Bank, with the Bank being the surviving entity.
Pursuant to the Plan adopted by the Bank and the MHC, the Bank will
become a subsidiary of the Company upon consummation of the Stock Conversion and
Reorganization. As a result of the Stock Conversion and Reorganization, Bank
Common Stock held by the Bank's public stockholders (the "Public Bank Shares")
will be converted into shares of the Company's common
<PAGE>
Board of Directors
Lexington First Federal Mutual Holding Company
Lexington First Federal Savings Bank
Community National Corporation
____________, 1997
Page 3
stock, par value $1.00 per share (the "Company Stock"), with the exception of
shares for which the holders perfect dissenters' rights of appraisal.
Following the completion of the Stock Conversion and Reorganization,
the Bank will convert to a national bank (the "National Bank") to be known as
"Community National Bank of Tennessee" (the "Bank Conversion").
The Company is a Tennessee corporation organized in July, 1997 by the
Bank for the purpose of holding all of the capital stock of the Bank and in
order to facilitate the Stock Conversion and Reorganization. The Company is
offering Company Stock in connection with the Stock Conversion and
Reorganization in a subscription offering and a community offering (the
"Offerings"). Upon completion of the Stock Conversion and Reorganization, the
only significant assets of the Company will be all of the outstanding Bank
Common Stock, and the portion of the net proceeds from the Offerings retained by
the Company. The business of the Company will initially consist of holding the
stock of the Bank and following the consummation of the Bank Conversion, will
hold the stock of the National Bank. The Company has no present plans to engage
in any other activity but may in the future engage in any activity permitted
under applicable Tennessee and federal law.
PROPOSED TRANSACTIONS
The MHC, as a federally chartered mutual holding company, does not have
stockholders and has no authority to issue capital stock. As a result of the
Stock Conversion and Reorganization, and the subsequent Bank Conversion, the
Company will be structured in the form used by holding companies of national
banks, commercial banks, most business entities, and a growing number of savings
institutions. The portion of the net proceeds from the sale of stock to be
distributed to the Bank (and the National Bank) by the Company will
substantially increase the Bank's (and the National Bank's) capital position
which in turn will increase the amount of funds available for lending and
investment and provide greater resources to support both current operations and
future expansion by the National Bank. 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 National Bank to
compete more effectively with other types of financial service organizations. As
a holding company, the Company will have the ability to diversify the Company's
and the National Bank's business activities through acquisition of, or mergers
with, both stock savings institutions and commercial banks, as well as other
companies. Although there are no current arrangements,
<PAGE>
Board of Directors
Lexington First Federal Mutual Holding Company
Lexington First Federal Savings Bank
Community National Corporation
____________, 1997
Page 4
understandings or agreements regarding any such opportunities, the Company will
be in a position after the Stock Conversion and Reorganization and Bank
Conversion, subject to regulatory limitations and the Company's financial
position, to take advantage of any such opportunities that may arise. In their
decision to pursue the Stock Conversion and Reorganization and Bank Conversion,
the MHC and the Bank considered various regulatory uncertainties associated with
the mutual holding company structure as well as the general uncertainty
regarding a possible elimination of the thrift charter.
The proposed transactions will also be important to the future growth
and performance of the holding company organization by providing a larger
capital base to support the operations of the Bank, the National Bank, and
Company and by enhancing their future access to capital markets, ability to
diversify into other financial services related activities, and ability to
provide services to the public. Although the Bank currently has the ability to
raise additional capital through the sale of additional shares of Bank Common
Stock, that ability is limited by the mutual holding company structure which,
among other things, requires that the MHC hold a majority of the outstanding
shares of Bank Common Stock.
The Stock Conversion and Reorganization. In their decision to pursue
---------------------------------------
the Stock Conversion and Reorganization, the MHC and the Bank considered the
various advantages of a stock holding company form of organization including:
(1) a stock holding company's ability to diversify the Company's and the Bank's
business activities; (2) the larger capital base of a stock holding company; (3)
the enhancement of the Company's future access to capital markets; (4) the
increase in the number of outstanding shares of publicly traded stock (which may
increase the liquidity of the Company Stock); and (5) the greater flexibility in
structuring acquisitions. The Bank anticipates increasing its portfolio of
commercial business, commercial real estate, and consumer loans following the
Stock Conversion and Reorganization and Bank Conversion.
Pursuant to the provisions of the Stock Conversion and Reorganization
under the Plan: (i) the Company will issue stock to the Bank and become a
wholly-owned subsidiary; (ii) the Company will form an interim savings and loan
association ("Interim #1"); (iii) the MHC will convert to an interim federal
stock savings association ("Interim #2") and simultaneously will merge with and
into the Bank, the MHC will cease to exist and the 135,000 shares or 60.54% of
the outstanding Bank Common Stock held by the MHC will be cancelled ("Merger
1"); and (iv) Interim #1 will then merge with and into Bank ("Merger 2").
<PAGE>
Board of Directors
Lexington First Federal Mutual Holding Company
Lexington First Federal Savings Bank
Community National Corporation
____________, 1997
Page 5
As a result of the merger of Interim #1 with and into the Bank, the
shares of Interim #1 will convert into Bank Common Stock which will be the only
shares of Bank Common Stock outstanding. The Bank thereby will become a wholly
owned subsidiary of the Company operating under the name "Lexington First
Federal Savings Bank." The outstanding Public Bank Shares, which amounted to
87,993 shares or 39.46% of the outstanding Bank Common Stock at ____________,
1997 will be converted into shares of Company Stock pursuant to a ratio (the
"Exchange Ratio"), which will result in the holders of such shares owning in the
aggregate approximately the same percentage of the Company Stock to be
outstanding upon the completion of the Stock Conversion and Reorganization as
the percentage of Bank Common Stock owned by them in the aggregate immediately
prior to consummation of the Stock Conversion and Reorganization, before giving
effect to: (i) the exercise of dissenters' rights of appraisal by the holders of
any shares of Bank Common Stock; (ii) the payment of cash in lieu of issuing
fractional Company Stock; and (iii) any shares of conversion stock purchased by
the Bank's stockholders in the Offerings. The Company will sell the remainder of
the shares of Company Stock to be outstanding in the Offerings. Pursuant to
Merger 1, depositors of the Bank with account balances of $50.00 or more as of
the close of business on December 31, 1995 (the "Eligible Account Holders") and
depositors of the Bank with account balances of $50.00 or more as of the close
of business on June 30, 1997 (the "Supplemental Eligible Account Holders") will
be granted interests in a liquidation account (the "Liquidation Account") to be
established by the Bank in an amount determined in accordance with the Plan.
The Bank Conversion. As soon as possible following the completion of
-------------------
the Stock Conversion and Reorganization, the Company, as the sole stockholder of
the Bank, shall approve the Bank Conversion, whereby the Bank intends to convert
from a federal stock savings bank to the National Bank. Under the Plan, the
Board of Directors of the Bank may elect at any time not to proceed with the
Bank Conversion.
The purpose of the Bank Conversion is to provide the Bank with
additional operating flexibility and to enhance its ability to provide a full
range of banking products and services to its community. As with the Stock
Conversion and Reorganization, the Bank Conversion will not interrupt the
business of the Bank. The National Bank will succeed to all of the assets and
liabilities of the Bank, and initially will continue to conduct business in
substantially the same manner as the Bank prior to the Stock Conversion and
Reorganization. Over time, however, it is anticipated that the National Bank
will increase its origination of commercial real estate, commercial business and
consumer loans, including automobile loans and home equity loans.
<PAGE>
Board of Directors
Lexington First Federal Mutual Holding Company
Lexington First Federal Savings Bank
Community National Corporation
____________, 1997
Page 6
Management believes that the continued diversification of the National Bank's
asset and deposit bases will enhance long-term earnings performance.
The deposits of the National Bank will continue to be insured by the
Savings Association Insurance Fund administered by the Federal Deposit Insurance
Corporation ("FDIC"), and as such, the National Bank will continue to be subject
to regulation and supervision by the FDIC. The National Bank will be subject to
regulation and supervision of the Office of the Comptroller of the Currency
rather than the Office of Thrift Supervision and will remain a member of the
Federal Home Loan Bank of Cincinnati. As a national bank, the National Bank is
also required to become a member of the Federal Reserve System. Each depositor
will retain a withdrawable savings account or accounts equal in dollar amount
to, and on the same terms and conditions as, the withdrawable account or
accounts at the time of the Bank Conversion. All loans of the Bank will remain
unchanged and retain their same characteristics in the National Bank immediately
following the Bank Conversion.
OPINION
Based on and subject to the foregoing, it is our opinion that for
federal income tax purposes, under current law:
1. The conversion of MHC from mutual form to Interim #2 and its
simultaneous merger into the Bank (Merger 1) will constitute a reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
2. No gain or loss will be recognized by MHC upon the transfer of its
assets to the Bank, or by the Bank upon the receipt of the assets of MHC,
pursuant to Merger 1.
3. The assets of MHC will have the same basis in the hands of the
Bank as in the hands of MHC immediately prior to Merger 1.
4. The holding period of the assets of MHC to be received by the Bank
will include the period during which the assets were held by MHC prior to
Merger 1.
5. The merger of Interim #1 into the Bank (Merger 2) pursuant to
which shares of Bank Common Stock will be converted into shares of Company Stock
will constitute a reorganization under Code Section 368(a).
<PAGE>
Board of Directors
Lexington First Federal Mutual Holding Company
Lexington First Federal Savings Bank
Community National Corporation
____________, 1997
Page 7
6. No gain or loss will be recognized by Interim #1 upon the transfer
of its assets to the Bank, or by the Bank upon the receipt of the assets of
Interim #1, pursuant to Merger 2.
7. No gain or loss will be recognized by the Company upon the receipt
of shares of Bank Common Stock in exchange for shares of Company Stock (i.e.,
upon the automatic conversion of shares of Bank Common Stock for shares of
Company Stock) pursuant to Merger 2.
8. The assets of Interim #1 will have the same basis in the hands of
the Bank as in the hands of Interim #1 immediately prior to Merger 2.
9. The holding period of the assets of Interim #1 to be received by
the Bank will include the period during which the assets were held by Interim #1
prior to Merger 2.
10. No gain or loss will be recognized by the stockholders of the Bank
to the extent they receive solely shares of Company Stock in exchange for their
shares of Bank Common Stock pursuant to Merger 2.
11. The gain, if any, to be realized by a Bank stockholder who
receives Company Stock and cash (in lieu of fractional shares) in exchange for
Bank Common Stock should be recognized, but not in excess of the amount of cash
received.
12. When cash is received by a dissenting stockholder of the Bank,
such cash will be treated as received by the dissenting stockholder as a
distribution in redemption of the stockholder's Bank Common Stock, subject to
the provisions and limitations of Section 302 of the Code.
13. The basis of the shares of Company Stock received by the Bank's
public stockholders pursuant to Merger 2 will be the same as the basis of the
shares of Bank Common Stock surrendered in exchange therefor, before giving
effect to any payment of cash in lieu of fractional shares.
14. The holding period of the shares of Company Stock received by the
stockholders of the Bank pursuant to Merger 2 will include the holding period of
the shares of Bank Common Stock surrendered in exchange therefor provided that
such shares of Bank Common Stock were held as a capital asset on the date of the
exchange.
<PAGE>
Board of Directors
Lexington First Federal Mutual Holding Company
Lexington First Federal Savings Bank
Community National Corporation
____________, 1997
Page 8
15. No gain or loss will be recognized by the Company upon the sale of
shares of Company Stock pursuant to the Offerings.
16. Each depositor of the Bank will recognize gain upon the receipt of
his or her respective interest in the Liquidation Account established by the
Bank pursuant to the Plan and the receipt of his or her subscription rights
deemed to have been received for federal income tax purposes, but only to the
extent of the excess of the combined fair market value of a depositor's interest
in such Liquidation Account and subscription rights over the depositor's basis
in the former interests in the Bank other than deposit accounts. Persons who
subscribe in the Stock Conversion and Reorganization but who are not depositors
of the Bank will recognize gain upon the receipt of subscription rights deemed
to have been received for federal income tax purposes, but only to the extent of
the excess of the fair market value of such subscription rights over such
person's former interests in the Bank, if any. Any such gain realized in the
Stock Conversion and Reorganization would be subject to immediate recognition.
17. No gain or loss will be recognized upon the exercise of a
subscription right in the Stock Conversion and Reorganization.
18. The basis of each Eligible Account Holder's interest in the Bank's
Liquidation Account will be equal to the value, if any, of that interest.
19. The basis to the holders of the shares of Company Stock purchased
in the Offerings will be the amount paid therefor, increased, in the case of
such shares acquired pursuant to the exercise of subscription rights, by the
fair market value, if any, of the subscription rights exercised.
20. The holding period of the Common Stock acquired in the Stock
Conversion and Reorganization pursuant to the exercise of subscription rights
will commence on the date on which the subscription rights are exercised. The
holding period of the Common Stock acquired in the Community Offering or
Syndicated Community Offering will commence on the date following the date on
which such stock is purchased.
21. The Bank Conversion will constitute a reorganization within the
meaning of Section 368(a) of the Code.
<PAGE>
Board of Directors
Lexington First Federal Mutual Holding Company
Lexington First Federal Savings Bank
Community National Corporation
____________, 1997
Page 9
22. The assets of the Bank will have the same basis in the hands of
the National Bank as in the hands of the Bank immediately prior to the Bank
Conversion.
23. The holding period of the assets of the Bank to be received by the
National Bank will include the period during which the assets were held by the
Bank prior to the Bank Conversion.
24. In accordance with recently enacted legislation, Public Law
104-188, the Bank and its successors (including the National Bank) will no
longer be required to account for its tax bad debt reserves as under prior law.
The prior law was applied in the following manner:
Following the Bank Conversion, the Bank will not qualify
as a domestic building and loan association under the Code
(see Rev. Rul. 90-54, 1990-1 C.B. 344). Accordingly, the
---
National Bank will be required to restate the balance of
its tax bad debt reserves as of the first day of its
ineligibility year (the year in which the Bank Conversion
occurs). (Prop. Treas. Reg. (S) 1.593-12(a)). The excess
of the National Bank's actual tax bad debt reserve as of
the close of the taxable year immediately preceding its
ineligibility year over the restated balance of its tax
bad debt reserves must be included in the gross income of
the National Bank over six taxable years, beginning with
the ineligibility year. (Prop. Treas. Reg. (S) 1.593-
13(d)).
Public Law 104-188 does require the Bank and its successors
(including the National Bank) to recapture the applicable excess
reserves into gross income ratably over a six taxable year
period. The applicable excess reserves are the excess, if any, of
(1) the balance of its reserves as of the close of its last
taxable year beginning before January 1, 1996, over (2) the
greater of the balance of (a) its pre-1988 reserves, or (b) what
the National Bank's reserves would have been at the close of its
last taxable year beginning before January 1, 1996, had the Bank
always used the experience method (the six-year average method).
Code Section 593(g).
If the National Bank meets the residential loan requirement for a
taxable year beginning in 1996 or 1997, the recapture of
applicable excess reserves required to be taken into account will
be suspended for the taxable year. The test is made separately to
each taxable year and is limited to the first two taxable years
beginning after December 31, 1995. The National Bank meets the
residential loan
<PAGE>
Board of Directors
Lexington First Federal Mutual Holding Company
Lexington First Federal Savings Bank
Community National Corporation
____________, 1997
Page 10
requirement if loans made during the year are not less than its
base amount. Base amount generally is the average of the
principal amounts of residential loans made by the Bank during
the six most recent tax years beginning before January 1, 1996.
Code Section 593(g)(4).
On September 22, 1994, the Internal Revenue Service (the "Service")
issued Notice 94-93 in which it expressed its concern with transactions that
invert the positions of related corporations ("Inversions"), including
transactions that involve the transfer of stock of a corporation by its
shareholders to a wholly-owned subsidiary of that corporation in exchange for
newly issued shares of the subsidiary. In Notice 94-93, the Service stated that
it would issue guidance, including regulations requiring either the recognition
of income or gain or a reduction in the basis of the stock of one or more of the
corporations involved in an Inversion. Because the automatic conversion of
shares of Bank Common Stock for shares of Company Stock pursuant to Merger 2
would constitute the transfer of Bank Common Stock by the Bank's shareholders to
the Company, a wholly-owned subsidiary of the Bank, in exchange for newly issued
shares of Company Stock, the reorganization could constitute an Inversion within
the meaning of Notice 94-93. However, the Service's concern in Notice 94-93
pertains to potential tax abuse that does not exist in such holding company
formations as Merger 2, in which the assets of Company will consist solely of
cash contributed to it by the Bank in an amount that is minimal in relation to
Bank's total assets and net worth and in which the shares of Company originally
owned by Bank will be cancelled. Accordingly, we do not believe that, applying
the reasoning of the Service set forth in Notice 94-93, realization of income or
gain by, or a reduction in the basis of the stock of, either the Bank or the
Company would be required.
SCOPE OF OPINION
Our opinion is limited to the federal income tax matters described
above and does not address any other federal income tax considerations or any
state, local, foreign or other federal tax considerations. If any of the
information upon which we have relied is incorrect, or if changes in the
relevant facts occur after the date hereof, our opinion could be affected
thereby. Moreover, our opinion is based on the case law, Code, Treasury
Regulations thereunder, and Internal Revenue Service rulings as they now exist.
These authorities are all subject to change, and such change may be made with
retroactive effect. We can give no assurance that, after such change, our
opinion would not be different. We undertake no responsibility to update or
supplement our opinion subsequent to consummation of the Stock Conversion and
Reorganization or the Bank 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 MHC's Application for
Conversion. This opinion is not binding on the Internal Revenue Service and
there can be no assurance, and none is hereby given, that the Internal Revenue
Service will not take a position contrary to one or
<PAGE>
Board of Directors
Lexington First Federal Mutual Holding Company
Lexington First Federal Savings Bank
Community National Corporation
____________, 1997
Page 11
more of the positions reflected in the foregoing opinion, or that our opinion
will be upheld by the courts if challenged by the Internal Revenue Service.
CONSENTS
We hereby consent to the filing of this opinion as an exhibit to the
MHC's Application for Conversion and the Registration Statement.
We also hereby consent to the filing of this opinion with the SEC as an
exhibit to the Registration Statement and the reference to our firm in the
Prospectus, which is a part of the Registration Statement, under the headings
"The Conversion -- Tax Aspects" and "Legal Matters".
Very truly yours,
HOUSLEY KANTARIAN & BRONSTEIN, P.C.
By:________________________________
Howard S. Parris
<PAGE>
EXHIBIT 8.3
[LETTERHEAD OF FERGUSON & COMPANY APPEARS HERE]
June 24, 1997
Boards of Directors
Lexington First Federal Mutual Holding Company
Lexington First Federal Savings Bank
19 Natchez Trace Drive
Lexington, TN 38351
Re: Plan of Conversion: Subscription Rights
----------------------------------------
Directors:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan") adopted by the Boards of Directors of Lexington
First Federal Savings Bank (the "Bank") and Lexington First Federal Mutual
Holding Company (the "Mutual Holding Company"). Pursuant to the Plan, Community
National Corporation (the "Company") will offer and sell the Conversion Stock.
We understand that Subscription Rights to purchase shares of the Conversion
Stock are to be issued to (i) Eligible Account Holders; (ii) Supplemental
Eligible Account Holders; (iii) Other Members; (iv) Directors, Officers and
Employees of the Mutual Holding Company; and (v) Public Stockholders,
collectively referred to as the "Recipients". Based solely upon our observation
that the Subscription Rights will be available to such Recipients without cost,
will be legally non-transferable, of short duration, and will afford the
Recipients the right only to purchase shares of Conversion Stock at the same
price as will be paid by members of the general public in the Community
Offering, but without undertaking any independent investigation of state or
federal law or the position of the Internal Revenue Service with respect to this
issue, we are of the belief that:
1. the Subscription Rights will have no ascertainable market value;
and
2. the price at which the Subscription Rights are exercisable will not
be more or less than the pro forma market value of the shares upon
issuance.
<PAGE>
Boards of Directors
June 24, 1997
Page 2
Changes in the local and national economy, the legislative and regulatory
environment, the stock markets, interest rates and other external forces (such
as natural disasters or significant world events) may occur from time to time,
often with great unpredictability and may materially impact on the value of
thrift stocks as a whole or the Company's value alone. Accordingly, no
assurances can be given that persons who subscribe to shares of Common Stock in
the conversion will thereafter be able to buy or sell such shares at the same
price paid in the Subscription offering.
Sincerely,
Ferguson & Company
/s/ Robin L. Fussell
Robin L. Fussell
Principal
<PAGE>
EXHIBIT 10.1
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, originally entered into the 31st day of December, 1996
(and as amended February 8, 1997), and effective February 1, 1997 (the
"Effective Date"), is hereby amended and restated this __ day of ________, 1997,
by and between Lexington First Federal Savings Bank (the "Bank") and Howard W.
Tignor (the "Employee").
WHEREAS, the Employee has heretofore been employed by the Bank as its
President and is experienced in all phases of the business of the Bank; and
WHEREAS, the Board of Directors of the Bank (the "Board") believes it
is in the best interests of the Bank to enter into this Agreement with the
Employee in order to assure continuity of management of the Bank and to
reinforce and encourage the continued attention and dedication of the Employee
to his assigned duties; and
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Defined Terms
-------------
When used anywhere in this Agreement, the following terms shall have
the meaning set forth herein.
(a) "Change in Control" shall mean an event of a nature that: (I)
would be required to be reported in response to Item I of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 ("Exchange Act"); or (II) results in a
Change in Control of the Bank or the Company within the meaning of the Home
Owners' Loan Act of 1933 and the Rules and Regulations promulgated by the Office
of Thrift Supervision (or its predecessor agency), as in effect on the date
hereof; or (III) without limitation, such a Change in Control shall be deemed to
have occurred at such time as (a) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of the Bank or the Company representing twenty percent
(20%) or more of the combined voting power of the Bank's or the Company's
outstanding securities except for any securities of the Bank purchased by the
Bank's employee stock ownership plan and trust; or (b) individuals who
constitute the Board of the Bank or the board of directors of the Company on the
date hereof ("Incumbent Board") cease for any reason to constitute at least a
majority thereof; provided that any person becoming a director subsequent to the
--------
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Company's stockholders was approved by the same nominating committee
serving under an Incumbent Board, shall be, for purposes of this clause (b),
considered as though he were a member of the Incumbent Board; or (c) the
occurrence of a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Company or similar transaction
in which the Bank or the Company is not the resulting entity.
(b) "Company" shall mean Community National Corporation.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and as interpreted through applicable rulings and
regulations in effect from time to time.
<PAGE>
(d) "Code (S)280G Maximum" shall mean product of 2.99 and his
"base amount" as defined in Code (S)280G(b)(3).
(e) "Disability" shall mean a physical or mental infirmity which
impairs the Employee's ability to substantially perform his duties under this
Agreement and which results in the Employee becoming eligible for long-term
disability benefits under the Bank's defined benefit retirement plan.
(f) "Good Reason" shall mean any of the following events, which
has not been consented to in advance by the Employee in writing: (i) the
requirement that the Employee move his personal residence, or perform his
principal executive functions, more than thirty (30) miles from his primary
office as of the later of the Effective Date and the most recent voluntary
relocation by the Employee; (ii) a material reduction in the Employee's base
compensation as the same may be increased from time to time, unless part of an
overall reduction applied to all senior management or agreed to by the Employee;
(iii) the failure by the Bank or the Company to continue to provide the Employee
with compensation and benefits provided under this Agreement, as the same may be
increased from time to time, or with benefits substantially similar to those
provided to him under any of the employee benefit plans in which the Employee
now or hereafter becomes a participant, or the taking of any action by the Bank
or the Company which would directly or indirectly reduce any of such benefits or
deprive the Employee of any material fringe benefit enjoyed by him under this
Agreement; (iv) the permanent assignment to the Employee of duties and
responsibilities materially different from those normally associated with his
position; (v) a failure to reelect the Employee to the Board of Directors of the
Bank or the Company, if the Employee has served on such Board at any time during
the term of this Agreement; (vi) a material diminution or reduction in the
Employee's responsibilities or authority (including reporting responsibilities)
in connection with his employment with the Bank or the Company; or (vii) a
material reduction in the secretarial or other administrative support of the
Employee. In addition, "Good Reason" shall mean an impairment of the Employee's
health to an extent that it makes continued performance of his duties hereunder
hazardous to his physical or mental health.
(g) "Just Cause" shall mean, in the good faith determination of
the Bank's Board of Directors, the Employee's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law, rule
or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
The Employee shall have no right to receive compensation or other benefits for
any period after termination for Just Cause. No act, or failure to act, on the
Employee's part shall be considered "willful" unless he has acted, or failed to
act, with an absence of good faith and without a reasonable belief that his
action or failure to act was in the best interest of the Bank and the Company.
(h) "Protected Period" shall mean the period that begins on the
date six months before a Change in Control and ends on the later of the first
annual anniversary of the Change in Control or the expiration date of this
Agreement.
(i) "Trust" shall mean a grantor trust that is designed in
accordance with Revenue Procedure 92-64 and has a trustee independent of the
Bank and the Company.
2. Employment. The Employee is employed as the President of the Bank.
----------
The Employee shall render such administrative and management services for the
Bank as are currently rendered and as are customarily performed by persons
situated in a similar executive capacity. The Employee shall also promote, by
entertainment or otherwise, as and to the extent permitted by law, the business
of the Bank. The Employee's other duties shall be such as the Board may from
time to time reasonably direct, including normal duties as an officer of the
Bank.
3. Base Compensation. The Bank agrees to pay the Employee during the
-----------------
term of this Agreement a salary at the rate of $65,000 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
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<PAGE>
salary, which salary shall, subject to Board review and approval, be increased
on an annual basis by an amount which is at least equal to the annual average
increase in the Consumer Price Index, as published by the U.S. Department of
Labor's Bureau of Labor Statistics for the twelve months then most recently
reported.
4. Discretionary Bonuses. The Employee shall participate in an
---------------------
equitable manner with all other senior management employees of the Bank in
discretionary bonuses that the Board may award from time to time to the Bank's
senior management employees. No other compensation provided for in this
Agreement shall be deemed a substitute for the Employee's right to participate
in such discretionary bonuses.
5. (a) Participation in Retirement, Medical and Other Plans. During
----------------------------------------------------
the term of this Agreement, the Employee shall be eligible to participate in the
same manner as all other employees of the Bank in the following benefit plans:
group hospitalization, disability, health, dental, sick leave, life insurance,
travel and/or accident insurance, auto allowance/auto lease, retirement,
pension, and/or other present or future qualified plans provided by the Bank.
(b) Employee Benefits; Expenses. The Employee shall be
---------------------------
eligible to participate in any fringe benefits which are or may become available
to the Bank's senior management employees, including for example: any stock
option or incentive compensation plans, and any other benefits which are
commensurate with the responsibilities and functions to be performed by the
Employee under this Agreement. The Employee shall be reimbursed for all
reasonable out-of-pocket business expenses which he shall incur in connection
with his services under this Agreement upon substantiation of such expenses in
accordance with the policies of the Bank. Such expenses shall include (i) the
costs incurred by the Employee in moving the Employee and his family from
Waynesboro, Tennessee to Lexington, Tennessee, and (ii) reimbursement to the
Employee of the real estate commission (in an amount not to exceed 3% of the
sale price of his personal residence) in connection with the Employee's sale of
his personal residence in Waynesboro, Tennessee (which real estate commission
reimbursement shall be paid upon receipt of the closing statement of such sale).
6. Term. The Bank hereby employs the Employee, and the Employee hereby
----
accepts such employment under this Agreement, for the period commencing on the
Effective Date and ending thirty-six months thereafter (or such earlier date as
is determined in accordance with Section 10). Additionally, on each annual
anniversary date from the Effective Date, the Employee's term of employment
shall be extended for an additional one-year period beyond the then effective
expiration date provided the Board determines in a duly adopted resolution that
the performance of the Employee has met the Board's requirements and standards,
and that this Agreement shall be extended. Only those members of the Board of
Directors who have no personal interest in this Employment Agreement shall
discuss and vote on the approval and subsequent review of this Agreement.
7. Loyalty; Noncompetition.
-----------------------
(a) During the period of his employment hereunder and except
for illnesses, reasonable vacation periods, and reasonable leaves of absence,
the Employee shall devote such adequate time, attention, skill, and efforts as
are required for the faithful performance of his duties hereunder; provided,
however, that the Employee may pursue personal business interests or serve on
the boards of directors of, and hold any other offices or positions in,
companies or organizations, which will not present any conflict of interest with
the Bank or any of its subsidiaries or affiliates, or have a substantial
negative effect on the performance of Employee's duties pursuant to this
Agreement, or violate any applicable statute or regulation. The Employee further
agrees to promptly reveal to other appropriate executives of the Bank all
matters coming to his attention pertaining to the business or interest of the
Bank. All data or information concerning the business activities of the Bank
which the Employee acquires or has acquired in connection with or as a result of
the performance of services for the Bank, whether under this agreement or prior
to the effective date of this agreement, shall be kept secret and confidential
by the Employee and shall be revealed only to the Bank unless otherwise
consents. This covenant of confidentiality shall extend beyond the term of this
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<PAGE>
Agreement and shall survive the termination of this Agreement for any reasons
but shall not restrict the Employee's employment with another like firm or
company so long as the confidentiality agreement is not breached.
(b) Nothing contained in this Section shall be deemed to prevent or
limit the Employee's right to invest in the capital stock or other securities of
any business dissimilar from that of the Bank, or, solely as a passive or
minority investor, in any business.
8. Standards. The Employee shall perform his duties under this
---------
Agreement in accordance with such reasonable standards as the Board may
establish from time to time. The Bank will provide Employee with the working
facilities and staff customary for similar executives and necessary for him to
perform his duties.
9. Vacation and Sick Leave. At such reasonable times as the Board shall
-----------------------
in its discretion permit, the Employee shall be entitled, without loss of pay,
to absent himself voluntarily from the performance of his employment under this
Agreement, all such voluntary absences to count as vacation time, provided that:
(a) The Employee shall be entitled to an annual vacation in
accordance with the policies that the Board periodically establishes for all
other employees of the Bank.
(b) The Employee shall accumulate unused vacation from one
fiscal year to the next. Notwithstanding any provision to the contrary, amounts
attributable to accrued but unused vacation shall be payable to the Employee
upon his termination of employment for any reason.
(c) In addition to the aforesaid paid vacations, the Employee
shall be entitled without loss of pay, to absent himself voluntarily from the
performance of his employment with the Bank for such additional periods of time
and for such valid and legitimate reasons as the Board may in its discretion
determine. Further, the Board may grant to the Employee a leave or leaves of
absence, with or without pay, at such time or times and upon such terms and
conditions as such Board in its discretion may determine.
(d) In addition, the Employee shall be entitled to an annual
sick leave benefit as established by the Board for all other employees of the
Bank.
10. Termination and Termination Pay. Subject to Sections 12 and 13
-------------------------------
hereof, the Employee's employment hereunder may be terminated under the
following circumstances:
(a) Death. The Employee's employment under this Agreement
shall terminate upon his death during the term of this Agreement, in which event
the Employee's estate shall be entitled to receive the compensation due the
Employee through the last day of the calendar month in which his death occurred.
(b) 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.
(c) Termination or Suspension Under Federal Law. (1) If the
Employee is removed and/or permanently prohibited from participating in the
conduct of the Bank's affairs by an order issued under Sections 8(e)(4) or
8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. 1818(e)(4) and
(g)(1)), all obligations of the Bank under this Agreement shall terminate, as of
the effective date of the order, but vested rights of the parties shall not be
affected.
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<PAGE>
(1) If the Bank is in default (as defined in Section 3(x)(1) of
FDIA), all obligations under this Agreement shall terminate as of the date of
default; however, this Paragraph shall not affect the vested rights of the
parties.
(2) All obligations under this Agreement shall terminate,
except to the extent that continuation of this Agreement is necessary for the
continued operation of the Bank: (i) by the Director of the Office of Thrift
Supervision ("Director of OTS"), or his or her designee, at the time that the
Federal Deposit Insurance Corporation ("FDIC") or the Resolution Trust
Corporation enters into an agreement to provide assistance to or on behalf of
the Bank under the authority contained in Section 13(c) of FDIA; or (ii) by the
Director of the OTS, or his or her designee, at the time that the Director of
the OTS, or his or her designee approves a supervisory merger to resolve
problems related to operation of the Bank or when the Bank is determined by the
Director of the OTS to be in an unsafe or unsound condition. Such action shall
not affect any vested rights of the parties.
(3) If a notice served under Section 8(e)(3) or (g)(1) of
the FDIA (12 U.S.C. 1818(e)(3) or (g)(1)) suspends and/or temporarily prohibits
the Employee from participating in the conduct of the Bank's affairs, the Bank's
obligations under this Agreement shall be suspended as of the date of such
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank may in its discretion (i) pay the Employee all or part
of the compensation withheld while its contract obligations were suspended, and
(ii) reinstate (in whole or in part) any of its obligations which were
suspended.
(4) Any payments made to the Employee pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. Section 1828(k) and any regulations promulgated thereunder.
(d) Voluntary Termination by Employee. Subject to Sections
12 and 13 hereof, the Employee may voluntarily terminate employment with the
Bank during the term of this Agreement, upon at least ninety (90) days' prior
written notice to the Board of Directors, in which case the Employee shall
receive only his compensation, vested rights and employee benefits up to the
date of his termination (unless such termination occurs within the Protected
Period, in Section 12(a) hereof in which event the benefits and compensation
provided for in Section 12 shall apply).
(e) Disability. (1) The Bank may terminate the Employee's
employment after having established the Employee's Disability, in which event
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, and (ii) any
period of Disability which is prior to the Employee's termination of employment
pursuant to this Section 10(e).
(2) During any period that the Employee shall receive
disability benefits and to the extent that the Employee shall be physically and
mentally able to do so, he shall furnish such information, assistance and
documents so as to assist in the continued ongoing business of the Bank and, if
able, shall make himself available to the Bank to undertake reasonable
assignments consistent with his prior position and his physical and mental
health. The Bank shall pay all reasonable expenses incident to the performance
of any assignment given to the Employee during the disability period.
(f) Without Just Cause; Constructive Discharge; Good Reason.
The Employee shall be entitled to receive the greater of $100,000 or the salary
provided pursuant to Section 3 hereof, up to the expiration date of this
Agreement, including any renewal term (the "Expiration Date") if he terminates
employment for one of the following reasons (unless such termination occurs
during the Protected Period, in which event the benefits and compensation
provided for in Section 12 shall apply): (i) the Board, by written notice to the
Employee, immediately terminate his employment at any time for a reason other
than his Disability or Just Cause, or (ii) the Employee voluntarily terminates
employment within 90 days of an event that constitutes Good Reason.
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<PAGE>
11. No Mitigation. The Employee shall not be required to mitigate the
-------------
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Employee in any subsequent employment.
12. Change in Control.
-----------------
(a) Trigger Events. The Employee shall be entitled to collect the
severance benefits set forth in Subsection (b) hereof in the event that (i)
there is a Change in Control as defined herein, or (ii) the Bank or the Company
or their successor(s) in interest terminate the Employee's employment without
his written consent and for any reason other than Just Cause during the
Protected Period, or the Employee resigns from his employment with the Bank for
Good Reason during the Protected Period, as defined herein.
(b) Amount of Severance Benefit. If the Employee becomes entitled
to collect severance benefits pursuant to Section 12(a) hereof:
(i) Upon the trigger event outlined in Section 12(a)(i)
hereof occurring, the Bank shall pay the Employee a benefit equal to
$50,000, and
(ii) upon the trigger event outlined in Section 12(a)(ii)
herein occurring, the Bank shall pay the Employee a severance
benefit equal to $100,000, and shall pay for long-term disability
and provide such medical benefits as are available to the Employee
under the provisions of COBRA, for eighteen (18) months (or such
longer period, up to 24 months, if COBRA is amended).
In the event that the Employee, the Bank, and the Company jointly agree
that the Employee has collected an amount exceeding the Code (S)280G Maximum,
the parties may agree in writing that such excess shall be treated as a loan ab
--
initio which the Employee shall repay to the Bank, on terms and conditions
- ------
mutually agreeable to the parties, together with interest at the applicable
federal rate provided for in Section 7872(f)(2)(B) of the Code.
(c) Funding of Grantor Trust upon Change in Control. Not later
than ten business days after a Change in Control, the Bank shall (i) deposit in
a Trust an amount equal to the severance benefit provided for in Section 12(b),
unless the Employee has previously provided a written release of any claims
under this Agreement, and (ii) provide the trustee of the Trust with a written
direction to hold said amount and any investment return thereon in a segregated
account for the benefit of the Employee, and to follow the procedures set forth
in the next paragraph as to the payment of such amounts from the Trust. Upon the
later of the Trust's final payment of all amounts due under the following
paragraph or the date fifteen months after the Change in Control, the trustee of
the Trust shall pay to the Bank the entire balance remaining in the segregated
account maintained for the benefit of the Employee. The Employee shall
thereafter have no further interest in the Trust.
During the 15-consecutive month period after a Change in Control, the
Employee may provide the trustee of the Trust with a written notice requesting
that the trustee pay to the Employee an amount designated in the notice as being
payable pursuant to this Agreement. Within three business days after receiving
said notice, the trustee of the Trust shall send a copy of the notice to the
Bank via overnight and registered mail return receipt requested. On the tenth
(10th) business day after mailing said notice to the Bank, the trustee of the
Trust shall pay the Employee the amount designated therein in immediately
available funds, unless prior thereto the Bank provides the trustee with a
written notice directing the trustee to withhold such payment. In the latter
event, the trustee shall submit the dispute to non-appealable binding
arbitration for a determination of the amount payable to the Employee pursuant
to this Agreement, and the costs of such arbitration shall be paid by the Bank.
The trustee shall choose the arbitrator to settle the dispute, and such
arbitrator shall be bound by the rules of the American Arbitration Association
in making his determination. The parties and the trustee shall be bound by the
results of the arbitration and, within 3 days of the determination by the
arbitrator, the trustee shall pay from the Trust the amounts required to be paid
to the Employee
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<PAGE>
and/or the Bank, and in no event shall the trustee be liable to either party for
making the payments as determined by the arbitrator.
13. Indemnification. The Bank agrees that its Bylaws shall continue to
---------------
provide for indemnification of directors, officers, employees and agents of the
Bank, including the Employee during the full term of this Agreement, and to at
all times provide adequate insurance for such purposes.
14. Reimbursement of Employee for Enforcement Proceedings. In the event
-----------------------------------------------------
that any dispute arises between the Employee and the Bank as to the terms or
interpretation of this Agreement, whether instituted by formal legal proceedings
or otherwise, including any action that the Employee takes to defend against any
action taken by the Bank or the Company, the Employee shall be reimbursed for
all costs and expenses, including reasonable attorneys' fees, arising from such
dispute, proceedings or actions, provided that the Employee obtains either a
written settlement or a final judgement by a court of competent jurisdiction
substantially in his favor. Such reimbursement shall be paid within ten (10)
days of Employee's furnishing to the Bank written evidence, which may be in the
form, among other things, of a canceled check or receipt, of any costs or
expenses incurred by the Employee.
15. Federal Income Tax Withholding. The Bank may withhold all federal
------------------------------
and state income or other taxes from any benefit payable under this Agreement as
shall be required pursuant to any law or government regulation or ruling.
16. Successors and Assigns.
----------------------
(a) Bank. This Agreement shall not be assignable by the Bank,
provided that this Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank. The Bank agrees that it
will not merge or consolidate with any other corporation or organization, or
permit its business activities to be taken over by any other organization,
unless and until the succeeding or continuing corporation or other organization
shall expressly assume the rights and obligations of the Bank herein set forth.
The Bank further agrees that it will not cease its business activities or
terminate its existence, other than as heretofore set forth in this paragraph,
without having made adequate provision for the fulfillment of its obligation
hereunder.
(b) Employee. Since the Bank is contracting for the unique and
personal skills of the Employee, the Employee shall be precluded from assigning
or delegating his rights or duties hereunder without first obtaining the written
consent of the Bank; provided, however, that nothing in this paragraph shall
preclude (i) the Employee from designating a beneficiary to receive any benefit
payable hereunder upon his death, or (ii) the executors, administrators, or
other legal representatives of the Employee or his estate from assigning any
rights hereunder to the person or persons entitled thereunto.
(c) Attachment. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or
to exclusion, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect.
17. Amendments. No amendments or additions to this Agreement shall be
----------
binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.
18. Applicable Law. Except to the extent preempted by Federal law, the
--------------
laws of the State of Tennessee shall govern this Agreement in all respects,
whether as to its validity, construction, capacity, performance or otherwise.
19. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
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<PAGE>
20. Entire Agreement. This Agreement, together with any understanding
----------------
or modifications thereof as agreed to in writing by the parties, shall
constitute the entire agreement between the parties hereto and shall supersede
any prior agreement between the parties (including but not limited to their
agreement dated December 31, 1996, as amended February 8, 1997).
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first herein above written.
ATTEST: LEXINGTON FIRST FEDERAL SAVINGS BANK
By:
- -------------------------- -------------------------------------
Secretary Charlie Walker, Chairman of the Board
WITNESS:
- -------------------------- -----------------------------------------
Howard W. Tignor, Employee
-8-
<PAGE>
EXHIBIT 10.2
COMMUNITY NATIONAL CORPORATION
--------------------------
Guaranty Agreement
--------------------------
THIS AGREEMENT is entered into this day of __________, 1997 (the
"Effective Date"), by and between Community National Corporation (the "Company")
and Howard W. Tignor (the "Employee").
WHEREAS, the Employee has heretofore been employed by Lexington First
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 Board of Directors (the "Board") of the Company believes
it is in the best interests of the Company to enter into this Agreement with the
Employee in order to assure continuity of management of the Bank and the
Company, and to reinforce and encourage the continued attention and dedication
of the Employee to his assigned duties; and
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship between the Company and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed as the President and Chief
----------
Executive Officer of the Company. The Employee shall render such administrative
and management services for the Company as are currently rendered and as are
customarily performed by persons situated in a similar executive capacity. The
Employee shall also promote, by entertainment or otherwise, as and to the extent
permitted by law, the business of the Company. The Employee's other duties shall
be such as the Board may from time to time reasonably direct, including normal
duties as an officer of the Company.
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 the Bank for the payment of all amounts due under the
employment agreement (the "Bank Agreement") of even date herewith between the
Bank and the Employee, provided that Section 10(c) of the Bank Agreement shall
be inapplicable to this Agreement. 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
<PAGE>
often than annually, the rate of the Employee's salary, and in its sole
discretion may decide to increase his salary.
3. Discretionary Bonuses; Participation in Retirement, Medical and
---------------------------------------------------------------
Other Plans. 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, as well as in (i) in the same manner as for all other employees of
the Company for any of the following plans or programs that the Company may now
or in the future maintain: group hospitalization, disability, health, dental,
sick leave, life insurance, travel and/or accident insurance, auto
allowance/auto lease, retirement, pension, and/or other present or future
qualified plans provided by the Company; and (ii) any fringe benefits which are
or may become available to the Company's senior management employees, including
for example: any stock option or incentive compensation plans, and any other
benefits which are commensurate with the responsibilities and functions to be
performed by the Employee under this Agreement.
4. Indemnification. The Company agrees that its Bylaws shall continue to
---------------
provide for indemnification of directors, officers, employees and agents of the
Company, including the Employee, during the full term of this Agreement, and to
at all times provide adequate insurance for such purposes.
5. Successors and Assigns.
----------------------
(a) Company. This Agreement shall inure to the benefit of and be
binding upon any corporate or other successor of the Company which shall
acquire, directly or indirectly, by merger, consolidation, purchase or
otherwise, all or substantially all of the assets or stock of the Company.
(b) Employee. Since the Company is contracting for the unique and
personal skills of the Employee, the Employee shall be precluded from
assigning or delegating his rights or duties hereunder without first obtaining
the written consent of the Company; provided, however, that nothing in this
paragraph shall preclude (i) the Employee from designating a beneficiary to
receive any benefit payable hereunder upon his death, or (ii) the executors,
administrators, or other legal representatives of the Employee or his estate
from assigning any rights hereunder to the person or persons entitled thereunto.
(c) Attachment. Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion,
attachment, levy or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action shall be null, void
and of no effect.
-2-
<PAGE>
6. 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.
7. Applicable Law. Except to the extent preempted by Federal law, the laws
--------------
of the State of Tennessee shall govern this Agreement in all respects, whether
as to its validity, construc tion, capacity, performance or otherwise.
8. 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.
9. 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 hereinabove written.
ATTEST: COMMUNITY NATIONAL CORPORATION
By:
- --------------------------------- ----------------------------
Secretary Its Chairman of the Board
WITNESS:
- --------------------------------- ----------------------------
Howard W. Tignor
-3-
<PAGE>
EXHIBIT 10.3
COMMUNITY NATIONAL CORPORATION
DEFERRED COMPENSATION PLAN
The Board of Directors of Community National Corporation has adopted this
Deferred Compensation Plan, effective _________, 1997. This Plan has been
adopted in order to attract, retain, and motivate Directors and Employees, and
to encourage the long-term financial success of the Company.
ARTICLE I
Definitions
-----------
The following words and phrases, when used in the Plan with an initial
capital letter, shall have the meanings set forth below unless the context
clearly indicates otherwise.
"Account" shall mean a bookkeeping account maintained by the Company in the
name of the Participant.
"Affiliate" shall mean any "parent corporation" or "subsidiary corporation"
of the Company, as the terms are defined in Section 424(e) and (f),
respectively, of the Code.
"Bank" shall mean Lexington First Federal Savings Bank.
"Beneficiary" shall mean the person or persons whom a Participant may
designate as the beneficiary of the Participant's Benefits. A Participant's
election of a Beneficiary shall be made on the Distribution Election Form, shall
be revocable by the Participant during his or her lifetime, and shall be
effective only upon its delivery to, and acceptance by, an executive officer of
the Company, which acceptance shall be presumed unless, within ten business days
of delivery of the Participant's election, the executive officer provides the
Participant with a written notice detailing the reasons for its rejection. In
the absence of a valid election, a Participant's Beneficiary shall be his or her
estate.
"Benefits" shall mean, collectively, the benefits payable under Articles II
and III of the Plan.
"Board" shall mean the Board of Directors of the Company.
"Change in Control" shall mean an event of a nature that: (I) would be
required to be reported in response to Item I of the current report on Form 8-K,
as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 ("Exchange Act"); or (II) results in a Change in
Control of the Bank or the Company within the meaning of the Home Owners' Loan
Act of 1933 and the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date hereof; or
(III) without limitation, such a Change in Control shall be deemed to have
occurred at such time as (a) any "person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial
<PAGE>
owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly
or indirectly, of securities of the Bank or the Company representing twenty
percent (20%) or more of the combined voting power of the Bank's or the
Company's outstanding securities except for any securities of the Bank purchased
by the Bank's employee stock ownership plan and trust; or (b) individuals who
constitute the Board of the Bank or the board of directors of the Company on the
date hereof ("Incumbent Board") cease for any reason to constitute at least a
majority thereof; provided that any person becoming a director subsequent to the
--------
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Company's stockholders was approved by the same nominating committee
serving under an Incumbent Board, shall be, for purposes of this clause (b),
considered as though he were a member of the Incumbent Board; or (c) the
occurrence of a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Company or similar transaction
in which the Bank or the Company is not the resulting entity.
"Company" shall mean Community National Corporation, and any successor to
its interest.
"Deferral Election Form" shall mean the form attached as Exhibit "A".
"Director" shall mean a member of the Company's Board.
"Distribution Election Form" shall mean the form attached hereto as Exhibit
"B".
"Effective Date" shall mean the date on which the Plan first becomes
effective, as referenced in the opening paragraph of this document.
"Employee" shall mean anyone whom the Company or an Affiliate treats as an
employee for employment tax purposes.
"Investment Election Form" shall mean the form attached as Exhibit "C".
"Participant" shall mean any Director, the Bank's President (Howard
Tignor), and any other eligible Employee whom the Board selects. An Employee
shall be eligible for Plan participation only if the Employee is a member of a
select group of the Company's or the Bank's management or highly compensated
employees for purposes of Title I of the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"Plan" shall mean this Community National Corporation Deferred Compensation
Plan.
"Trust Agreement" shall mean that agreement entered into pursuant to the
terms hereof between the Company and the Trustee, and "Trust" means the trust
created thereunder.
"Trustee" shall mean that person(s) or entity appointed by the Board
pursuant to the Trust Agreement to hold legal title to the Plan assets for the
purposes set forth herein.
2
<PAGE>
"Years of Service" shall mean a calendar year after 1996 at the end of
which a Participant continues to be a Director or Employee.
ARTICLE II
Credits to Accounts
-------------------
Deferred Compensation Annual Credits. Through completion of a Deferral
Election Form before each calendar year begins, Directors may elect to defer
receipt of any portion of fees received from the Bank or the Company, and
participating Employees may elect to defer up to 25% of their income that would
otherwise become payable in cash from the Company or the Bank during the
calendar year. At the end of each calendar year, the Company will credit each
Participant's Account with the amounts deferred.
Credits to Mr. Tignor's Account. On the Effective Date, Mr. Tignor's
Account shall be credited in the amount of $207,730. Notwithstanding any
provision of this Plan to the contrary, if following the Effective Date, Mr.
Tignor's employment is terminated without just cause at a time when a validly
executed employment agreement is not in force between Mr. Tignor and the Bank or
the Company, his Account shall be immediately credited with $100,000, which
amount shall be fully vested at such time.
Investment Return. Until distributed in accordance with the terms of the
Plan, each Participant's Account shall be credited at the end of each calendar
year with a rate of return, on any amounts previously credited, equal to the
Participant's choice, on an Investment Election Form, between the dividend-
adjusted rate of return on the Company's common stock and the Bank's highest
annual rate of interest on certificates of deposit having a one-year term.
Notwithstanding the foregoing, beginning with the fiscal year following a
Participant's termination of service, the Participant's Account will receive an
investment return measured by the Participant's choice between up to two
different mutual funds (or other investment choices determined by the Board).
Short-swing Profit Rule. If a Participant elects to have his or her
deferred amounts invested in the Company's common stock fund, the effectiveness
of any investment election that the Participant makes shall be deferred until
the next following date on which said election would not result in an "opposite
way" transaction for purposes of SEC Rule 16b-3. For purposes of this
paragraph, an "opposite way" transaction shall be defined as an election that
affects a "sale" of the Company's common stock by a Participant within six
months of an election that affects a "purchase" (and vice versa), whether under
this Plan or another plan maintained by the Company or the Bank. This six-month
"opposite way" rule will not apply, however, if the Participant elects to
receive a distribution in connection with his or her death or termination of
employment.
Vesting. Any amounts credited to Participants' Accounts shall be fully
vested at all times, except the credit of $207,730 to Mr. Tignor's account on
the Effective Date shall vest as follows: (i) $100,000 will vest at the rate of
10% for each Year of Service by Mr. Tignor, and (ii) the
3
<PAGE>
remaining $107,730 will be 50% vested on the Effective Date and vest at the rate
of 25% per Year of Service by Mr. Tignor, provided that any unvested portion of
such $107,730 will become fully vested if Mr. Tignor is terminated without "just
cause" whether or not in connection with a Change in Control. In no event,
however, will Mr. Tignor's vested interest ever exceed 100%.
ARTICLE III
Distribution from Accounts; Election Forms
------------------------------------------
General Rule. Account balances shall be paid, in cash, in five equal
annual installments beginning during the first quarter of the calendar year
which next follows the calendar year in which the Participant ceases to be a
Director for any reason, with subsequent payments being made by the last day of
the first quarter of each subsequent calendar year, until the Participant has
collected the entire value of his Account. Notwithstanding the foregoing: (i)
a Participant may elect on his Distribution Election Form to have his Account
paid in a single lump sum distribution, or in annual payments over a period of
ten years or less, and (ii) to the extent required under federal banking law,
the amounts otherwise payable to a Participant shall be reduced to the extent
that on the date of a Participant's termination of employment, either (A) the
present value of his Benefits exceeds the limitations that are set forth in
Regulatory Bulletin 27a of the Office of Thrift Supervision, as in effect on the
Effective Date, or (B) such reduction is necessary to avoid subjecting the Bank
to liability under Section 280G of the Internal Revenue Code of 1986, as
amended.
Elections. In order to be effective with respect to the timing of Benefit
distributions, the Participant's Distribution Election Form must be submitted
more than one year before the date on which the Participant's service as a
Director or Employee terminates for any reason. Distribution elections made
pursuant to this Article III shall become irrevocable one year before the
Participant first becomes entitled to receive a distribution pursuant to this
Article III. Nevertheless, beneficiary designations made pursuant to the
Participant's executed Distribution Election Form shall be revocable during the
Participant's lifetime and the Participant may, by submitting an effective
superseding Distribution Election Form at any time and from time to time,
prospectively change the designated Beneficiary and the manner of payment to a
Beneficiary.
Death Benefits. If a Participant dies before receiving all Benefits
payable pursuant to the preceding paragraph, then the remaining balance of the
Participant's Account shall be distributed in a lump sum to the Participant's
designated Beneficiary (or estate, in the absence of a validly named or living
Beneficiary) not later than the first day of the second month following the date
of the Participant's death; provided that a Participant may specify on the
Distribution Election Form a distribution period that effectuates the annual
installment payments selected by the Participant (with payments made as though
the Participant survived to collect all benefits, and retired on the date of his
death if payments had not previously begun).
4
<PAGE>
ARTICLE IV
Source of Benefits
------------------
General Rule. Benefits shall constitute an unfunded, unsecured promise by
the Company to provide such payments in the future, as and to the extent such
Benefits become payable. Benefits shall be paid from the general assets of the
Company, and no person shall, by virtue of this Plan, have any interest in such
assets (other than as an unsecured creditor of the Company). For any fiscal year
during which a Trust is maintained, (i) the Trustee shall inform the Board
annually prior to the commencement of each fiscal year as to the manner in which
such Trust assets shall be invested, and (ii) the Board shall, as soon as
practicable after the end of each fiscal year of the Company, provide the
Trustee with a schedule specifying the amounts payable to each Participant, and
the time for making such payments
Change in Control. In the event of a Change in Control, the Company shall
contribute to the Trust an amount sufficient to provide the Trust with assets
having an overall value equivalent to the value of the aggregate Account
balances under the Plan.
ARTICLE V
Assignment
----------
Except as otherwise provided by this Plan, it is agreed that neither the
Participant nor his Beneficiary nor any other person or persons shall have any
right to commute, sell, assign, transfer, encumber and pledge or otherwise
convey the right to receive any Benefits hereunder, which Benefits and the
rights thereto are expressly declared to be nontransferable.
ARTICLE VI
No Retention of Services
------------------------
The Benefits payable under this Plan shall be independent of, and in
addition to, any other compensation payable by the Company to a Participant,
whether in the form of fees, bonus, retirement income under employee benefit
plans sponsored or maintained by the Company or otherwise. This Plan shall not
be deemed to constitute a contract of employment between the Company and any
Participant.
ARTICLE VII
Rights of Directors;
--------------------
Termination or Suspension under Federal Law
-------------------------------------------
The rights of the Participants under this Plan and of their Beneficiaries
(if any) shall be solely those of unsecured creditors of the Company. If the
Participant is removed and/or permanently prohibited from participating in the
conduct of the Company's affairs by an order issued under Sections 8(e)(4) or
8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. 1818(e)(4) or
(g)(1)), all obligations of the Company under this Plan shall terminate, as of
the effective date of the order, but vested rights of the parties shall not be
affected. If the Company
5
<PAGE>
is in default (as defined in Section 3(x)(1) of FDIA), all obligations under
this Plan shall terminate as of the date of default; however, this Paragraph
shall not affect the vested rights of the parties.
All obligations under this Plan shall terminate, except to the extent that
continuation of this Plan is necessary for the continued operation of the
Company: (i) by the Director of the Office of Thrift Supervision ("Director of
OTS"), or his designee, at the time that the Federal Deposit Insurance
Corporation ("FDIC") or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Company under the
authority contained in Section 13(c) of FDIA; or (ii) by the Director of the
OTS, or his designee, at the time that the Director of the OTS, or his designee
approves a supervisory merger to resolve problems related to operation of the
Company or when the Company is determined by the Director of the OTS to be in an
unsafe or unsound condition. Such action shall not affect any vested rights of
the parties.
If a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C.
1818(e)(3) or (g)(1)) suspends and/or temporarily prohibits the Participant from
participating in the conduct of the Company's affairs, the Company's obligations
under this Plan shall be suspended as of the date of such service, unless stayed
by appropriate proceedings. If the charges in the notice are dismissed, the
Company may in its discretion (i) pay the Participant all or part of the
compensation withheld while its contract obligations were suspended, and (ii)
reinstate (in whole or in part) any of its obligations which were suspended.
ARTICLE VIII
Reorganization
--------------
The Company agrees that it will not merge or consolidate with any other
corporation or organization, or permit its business activities to be taken over
by any other organization, unless and until the succeeding or continuing
corporation or other organization shall expressly assume the rights and
obligations of the Company herein set forth. The Company further agrees that it
will not cease its business activities or terminate its existence, other than as
heretofore set forth in this paragraph, without having made adequate provision
for the fulfillment of its obligation hereunder.
ARTICLE IX
Amendment and Termination
-------------------------
The Board may amend or terminate the Plan at any time, provided that no
such amendment or termination shall, without the written consent of an affected
Participant, alter or impair any vested rights of the Participant under the
Plan.
ARTICLE X
State Law
---------
This Plan shall be construed and governed in all respects under and by the
laws of the State of Tennessee, except to the extent preempted by federal law.
If any provision of this Plan shall
6
<PAGE>
be held by a court of competent jurisdiction to be invalid or unenforceable, the
remaining provisions hereof shall continue to be fully effective.
ARTICLE XI
Headings; Gender
----------------
Headings and subheadings in this Plan are inserted for convenience and
reference only and constitute no part of this Plan. This Plan shall be
construed, where required, so that the masculine gender includes the feminine.
ARTICLE XII
Interpretation of the Plan
--------------------------
The Board shall have sole and absolute discretion to administer, construe,
and interpret the Plan, and the decisions of the Board shall be conclusive and
binding on all affected parties (unless such decisions are arbitrary and
capricious).
ARTICLE XIII
Legal Fees
----------
In the event any dispute shall arise between a Participant and the Company
as to the terms or interpretation of this Plan, whether instituted by formal
legal proceedings or otherwise, including any action taken by a Participant to
enforce the terms of this Plan or in defending against any action taken by the
Company, the Company shall reimburse the Participant for all costs and expenses,
including reasonable attorneys' fees, arising from such dispute, proceedings or
actions; provided that the Participant shall return such amounts to the Company
if he fails to obtain a final judgment by a court of competent jurisdiction or
obtain a settlement of such dispute, proceedings, or actions substantially in
his favor. Such reimbursements to a Participant shall be paid within 10 days of
the Participant furnishing to the Company written evidence, which may be in the
form, among other things, of a canceled check or receipt, of any costs or
expenses incurred by the Participant. Any such request for reimbursement by a
Participant shall be made no more frequently than at 30 day intervals.
ARTICLE XIV
Duration of Plan
----------------
Unless terminated earlier in accordance with Article IX, this Plan shall
remain in effect during the term of service of the Participants and until all
Benefits payable hereunder have been made.
7
<PAGE>
Exhibit "A"
COMMUNITY NATIONAL CORPORATION
DEFERRED COMPENSATION PLAN
-------------------------------
Deferral Election Form
-------------------------------
AGREEMENT, made this __ day of _______, 199_, by and between _____________
(the "Participant"), and Community National Corporation (the "Company").
WHEREAS, the Company has established the Community National Corporation
Deferred Compensation Plan (the "Plan"), and the Participant is eligible to
participate in said Plan;
NOW THEREFORE, it is mutually agreed as follows:
1. The Participant, by the execution hereof, agrees to participate in the
Plan upon the terms and conditions set forth therein, and, in accordance
therewith, elects to defer the receipt of --
[_] ______% of the Participant's compensation.
[_] _______% of any fees that the Participant receives for services as a
director _______ of the Company, and/or of __________ the Bank.
2. This election will take effect as soon as practicable hereafter, unless
the Participant checks this space _________ thereby designating the next January
1st as this election's effective date.
3. This election will continue in force until December 31st of the
calendar year in which it becomes effective, and thereafter until either revoked
------
by the Participant in a writing sent to the Company or until the Participant
--
ceases service with the Bank or Company, or until the Plan is terminated by
--
appropriate corporate action, whichever shall first occur.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands the
day and year first above-written.
Witnessed by: PARTICIPANT
- ------------------------------- ----------------------------------------
Witnessed by: COMMUNITY NATIONAL CORPORATION
By
- ------------------------------- --------------------------------------
Its
-----------------------------------
<PAGE>
Exhibit "B"
COMMUNITY NATIONAL CORPORATION
DEFERRED COMPENSATION PLAN
-------------------------------
Distribution Election Form
-------------------------------
AGREEMENT, made this ____ day of ________, 19__, by and between the
undersigned participant (the "Participant") in the Community National
Corporation Deferred Compensation Plan (the "Plan"), and Community National
Corporation (the "Company") with respect to distribution of the Participant's
benefits under the Plan.
NOW THEREFORE, it is mutually agreed as follows:
1. Form of Payment. The Participant, by the execution hereof, agrees to
---------------
participate in the Plan upon the terms and conditions set forth therein, and, in
accordance therewith, elects to have his or her Account distributed as follows:
[_] one lump sum payment.
[_] substantially equal annual payments over a period of _____ years
(no more than 10).
The Participant must make this election at least one year before terminating
his or her service in order for it to be valid and supersede a prior election.
In the absence of a valid election, the payout will be made in five annual
installments.
2. In the event of the Participant's death, his or her Account shall be
distributed --
[_] in one lump sum payment.
[_] in accordance with the payment schedule selected in paragraph 1
hereof (with payments made as though the Participant survived to
collect all benefits, and as though the Participant terminated
service on the date of his or her death, if payments had not
already begun).
3. Designation of Beneficiary. In the event of the Participant's death
--------------------------
before he or she has collected all of the benefits payable under the Plan, the
Participant hereby directs that any survivorship benefits payable under Article
III of the Plan be distributed to the beneficiary or beneficiaries designated
under subparagraphs a and b of this paragraph 3 in the manner elected pursuant
to paragraph 2 above:
<PAGE>
Deferred Compensation Plan
Distribution Election Form
Page 2
a. Primary Beneficiary. The Participant hereby designates the person(s)
-------------------
named below to be his or her primary beneficiary and to receive the balance of
any unpaid benefits under the Plan.
=======================================================================
Name of Mailing Address Percentage of
Primary Beneficiary Death Benefit
-----------------------------------------------------------------------
%
-----------------------------------------------------------------------
%
=======================================================================
b. Contingent Beneficiary. In the event that the primary beneficiary or
----------------------
beneficiaries named above are not living at the time of the Participant's death,
the Participant hereby designates the following person(s) to be his or her
contingent beneficiary for purposes of the Plan:
=======================================================================
Name of Mailing Address Percentage of
Contingent Beneficiary Death Benefit
-----------------------------------------------------------------------
%
-----------------------------------------------------------------------
%
=======================================================================
4. Effect of Election. The elections made in section 1 hereof shall
------------------
become irrevocable one year prior to the Participant's termination of service as
a Director or Employee. The Participant may, by submitting an effective
superseding Distribution Election Form at any time and from time to time,
prospectively change the Beneficiary designation and the manner of payment to a
Beneficiary. Such elections shall, however, become irrevocable upon the
Participant's death.
5. Mutual Commitments. The Company agrees to make payment of all amounts
------------------
due the Participant in accordance with the terms of the Plan and the elections
made by the Participant herein. The Participant agrees to be bound by the terms
of the Plan, as in effect on the date hereof or properly amended hereafter.
<PAGE>
Deferred Compensation Plan
Distribution Election Form
Page 3
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands the
day and year first above-written.
Witnessed by: PARTICIPANT
- -------------------------- -------------------------------------
Participant
Witnessed by: COMPANY
COMMUNITY NATIONAL CORPORATION
- --------------------------
By
-----------------------------------
Its
----------------------------
<PAGE>
Exhibit "C"
COMMUNITY NATIONAL CORPORATION
DEFERRED COMPENSATION PLAN
-------------------------------
Investment Election Form
-------------------------------
WHEREAS, Community National Corporation (the "Company") has established the
Community National Corporation Deferred Compensation Plan (the "Plan"), and the
undersigned participant therein is eligible to make an investment election
pursuant to Article II of said Plan;
NOW THEREFORE, the Participant hereby elects as follows:
1. The Participant, by the execution hereof, agrees to participate in the
Plan upon the terms and conditions set forth therein, and in accordance
therewith, directs that any amounts credited to the Participant's account under
the Plan will appreciate or depreciate from the effective date hereof, until the
Participant terminates service as an Employee or Director, as though they were
invested as follows:
___% in a fund having the highest interest rate which Lexington First
Federal Savings Bank pays on certificates of deposit having a term
of one year.
___% in a fund having an investment return equal to the dividend-
adjusted rate of return on the Company's common stock.
2. The investment election made in the prior paragraph shall be effective
on the first day of the next following calendar year, and shall remain in effect
until the December 31st that immediately follows the Company's receipt of a
properly executed superseding investment election by the Participant.
IN WITNESS WHEREOF, the Participant has executed this form on the ___ day of
_________ 19___.
Witnessed by: PARTICIPANT
- --------------------------- ------------------------------
<PAGE>
EXHIBIT 10.4
COMMUNITY NATIONAL CORPORATION
1998 STOCK OPTION AND INCENTIVE PLAN
1. Purpose of the Plan.
The purpose of this Plan is to advance the interests of the Company through
providing select key Employees and Directors of the Bank, the Company, and their
Affiliates with the opportunity to acquire Shares. By encouraging such stock
ownership, the Company seeks to attract, retain and motivate the best available
personnel for positions of substantial responsibility and to provide additional
incentives to Directors and key Employees of the Company or any Affiliate to
promote the success of the business.
2. Definitions.
As used herein, the following definitions shall apply.
(a) "Affiliate" shall mean any "parent corporation" or "subsidiary
corporation" of the Company, as such terms are defined in Section 424(e) and
(f), respectively, of the Code.
(b) "Agreement" shall mean a written agreement entered into in accordance
with Paragraph 5(c).
(c) "Awards" shall mean, collectively, Options and SARs, unless the
context clearly indicates a different meaning.
(d) "Bank" shall mean Lexington First Federal Savings Bank.
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(g) "Committee" shall mean both the Stock Option Committee appointed by
----
the Board in accordance with Paragraph 5(a) hereof, and the Board.
---
(h) "Common Stock" shall mean the common stock of the Company.
(i) "Company" shall mean Community National Corporation.
(j) "Continuous Service" shall mean the absence of any interruption or
termination of service as an Employee or Director of the Company or an
Affiliate. Continuous Service shall not be considered interrupted in the case
of sick leave, military leave or any other leave of absence approved by the
Company, in the case of transfers between payroll locations of the Company or
between the Company, an Affiliate or a successor, or in the case of a Director's
performance of services in an emeritus or advisory capacity.
(k) "Director" shall mean any member of the Board, and any member of the
board of directors of any Affiliate that the Board has by resolution designated
as being eligible for participation in this Plan.
(l) "Disability" shall mean a physical or mental condition, which in the
sole and absolute discretion of the Committee, is reasonably expected to be of
indefinite duration and to substantially prevent a Participant from fulfilling
his or her duties or responsibilities to the Company or an Affiliate.
(m) "Effective Date" shall mean the date specified in Paragraph 14 hereof.
(n) "Employee" shall mean any person employed by the Company, the Bank, or
an Affiliate.
<PAGE>
(o) "Exercise Price" shall mean the price per Optioned Share at which an
Option or SAR may be exercised.
(p) "ISO" shall mean an option to purchase Common Stock which meets the
requirements set forth in the Plan, and which is intended to be and is
identified as an "incentive stock option" within the meaning of Section 422 of
the Code.
(q) "Market Value" shall mean the fair market value of the Common Stock,
as determined under Paragraph 7(b) hereof.
(r) "Non-Employee Director" shall have the meaning provided in Rule 16b-3.
(s) "Non-ISO" means an option to purchase Common Stock which meets the
requirements set forth in the Plan but which is not intended to be and is not
identified as an ISO.
(t) "Option" means an ISO and/or a Non-ISO.
(u) "Optioned Shares" shall mean Shares subject to an Award granted
pursuant to this Plan.
(v) "OTS Award Limitations" shall mean the following percentage
limitations, determined with respect to the total Shares reserved for awards
under this Plan and the Lexington First Federal Savings Bank 1992 Stock Option
Plan: 25% for total Awards to any particular Employee, 5% for total Awards to
any particular non-employee Director, and 30% for total Awards to the non-
employee Directors as a group.
(w) "Participant" shall mean any person who receives an Award pursuant to
the Plan.
(x) "Plan" shall mean this Community National Corporation 1998 Stock
Option and Incentive Plan.
(y) "Rule 16b-3" shall mean Rule 16b-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
(z) "Share" shall mean one share of Common Stock.
(aa) "SAR" (or "Stock Appreciation Right") means a right to receive the
appreciation in value, or a portion of the appreciation in value, of a specified
number of shares of Common Stock.
(bb) "Year of Service" shall mean a full twelve-month period, measured from
the date of an Award and each annual anniversary of that date, during which a
Participant has not terminated Continuous Service for any reason.
3. Term of the Plan and Awards.
(a) Term of the Plan. The Plan shall continue in effect for a term of ten
years from the Effective Date, unless sooner terminated pursuant to Paragraph 16
hereof. No Award shall be granted under the Plan after ten years from the
Effective Date.
(b) Term of Awards. The term of each Award granted under the Plan shall be
established by the Committee, but shall not exceed 10 years; provided, however,
that in the case of an Employee who owns Shares representing more than 10% of
the outstanding Common Stock at the time an ISO is granted, the term of such ISO
shall not exceed five years.
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4. Shares Subject to the Plan.
(a) General Rule. Except as otherwise required under Paragraph 11, the
aggregate number of Shares deliverable pursuant to Awards shall not exceed 10%
of the Shares sold by the Company to subscribers in connection with its second-
step stock offering. Such Shares may either be authorized but unissued Shares,
Shares held in treasury, or Shares held in a grantor trust created by the
Company. If any Awards should expire, become unexercisable, or be forfeited for
any reason without having been exercised, the Optioned Shares shall, unless the
Plan shall have been terminated, be available for the grant of additional Awards
under the Plan.
(b) Special Rule for SARs. The number of Shares with respect to which an
SAR is granted, but not the number of Shares which the Company delivers or could
deliver to an Employee or individual upon exercise of an SAR, shall be charged
against the aggregate number of Shares remaining available under the Plan;
provided, however, that in the case of an SAR granted in conjunction with an
Option, under circumstances in which the exercise of the SAR results in
termination of the Option and vice versa, only the number of Shares subject to
the Option shall be charged against the aggregate number of Shares remaining
available under the Plan. The Shares involved in an Option as to which option
rights have terminated by reason of the exercise of a related SAR, as provided
in Paragraph 10 hereof, shall not be available for the grant of further Options
under the Plan.
5. Administration of the Plan.
(a) Composition of the Committee. The Plan shall be administered by the
Committee, which shall consist of not less than two (2) members of the Board who
are Non-Employee Directors. Members of the Committee shall serve at the
pleasure of the Board. In the absence at any time of a duly appointed
Committee, the Plan shall be administered by the Board.
(b) Powers of the Committee. Except as limited by the express provisions
of the Plan or by resolutions adopted by the Board, the Committee shall have
sole and complete authority and discretion (i) to select Participants and grant
Awards, (ii) to determine the form and content of Awards to be issued in the
form of Agreements under the Plan, (iii) to interpret the Plan, (iv) to
prescribe, amend and rescind rules and regulations relating to the Plan, and (v)
to make other determinations necessary or advisable for the administration of
the Plan. The Committee shall have and may exercise such other power and
authority as may be delegated to it by the Board from time to time. A majority
of the entire Committee shall constitute a quorum and the action of a majority
of the members present at any meeting at which a quorum is present, or acts
approved in writing by a majority of the Committee without a meeting, shall be
deemed the action of the Committee.
(c) Agreement. Each Award shall be evidenced by a written agreement
containing such provisions as may be approved by the Committee. Each such
Agreement shall constitute a binding contract between the Company and the
Participant, and every Participant, upon acceptance of such Agreement, shall be
bound by the terms and restrictions of the Plan and of such Agreement. The
terms of each such Agreement shall be in accordance with the Plan, but each
Agreement may include such additional provisions and restrictions determined by
the Committee, in its discretion, provided that such additional provisions and
restrictions are not inconsistent with the terms of the Plan. In particular,
the Committee shall set forth in each Agreement (i) the Exercise Price of an
Option or SAR, (ii) the number of Shares subject to the Award, and its
expiration date, (iii) the manner, time, and rate (cumulative or otherwise) of
exercise or vesting of such Award, and (iv) the restrictions, if any, to be
placed upon such Award, or upon Shares which may be issued upon exercise of such
Award. The Chairman of the Committee and such other Directors and officers as
shall be designated by the Committee are hereby authorized to execute Agreements
on behalf of the Company and to cause them to be delivered to the recipients of
Awards.
(d) Effect of the Committee's Decisions. All decisions, determinations
and interpretations of the Committee shall be final and conclusive on all
persons affected thereby.
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(e) Indemnification. In addition to such other rights of indemnification
as they may have, the members of the Committee shall be indemnified by the
Company in connection with any claim, action, suit or proceeding relating to any
action taken or failure to act under or in connection with the Plan or any
Award, granted hereunder to the full extent provided for under the Company's
governing instruments with respect to the indemnification of Directors.
6. Grant of Options.
(a) General Rule. Employees and Directors shall be eligible to receive
Awards. In selecting those Employees to whom Awards will be granted and the
number of shares covered by such Awards, the Committee shall consider the
position, duties and responsibilities of the eligible individuals, the value of
their services to the Company and its Affiliates, and any other factors the
Committee may deem relevant. Notwithstanding the foregoing, the Committee shall
automatically make the Awards specified in Paragraphs 6(b) and 9 hereof, and
(ii) no Employee or non-employee Director shall receive Options in excess of the
OTS Award Limitations.
(b) Automatic Grants to Employees. On the Effective Date, each of the
following Employees shall receive an Option (in the form of an ISO, to the
extent permissible under the Code) to purchase the number of Shares listed below
(not to exceed the OTS Award Limitations), at an Exercise Price per Share equal
to the Market Value of a Share on the Effective Date; provided that such grant
shall not be made to an Employee whose Continuous Service terminates on or
before the Effective Date:
Percentage of Shares
Participant Reserved under Paragraph 4(a)
----------- -----------------------------
Howard Tignor 25%
With respect to each of the above-named Participants, the Option granted to
the Participant hereunder (i) shall vest in accordance with the general rule set
forth in Paragraph 8(a) of the Plan, (ii) shall have a term of ten years from
the Effective Date, and (iii) shall be subject to the general rule set forth in
Paragraph 8(c) with respect to the effect of a Participant's termination of
Continuous Service on the Participant's right to exercise his Options.
(c) Special Rules for ISOs. The aggregate Market Value, as of the date the
Option is granted, of the Shares with respect to which ISOs are exercisable for
the first time by an Employee during any calendar year (under all incentive
stock option plans, as defined in Section 422 of the Code, of the Company or any
present or future Affiliate of the Company) shall not exceed $100,000.
Notwithstanding the foregoing, the Committee may grant Options in excess of the
foregoing limitations, in which case Options granted in excess of such
limitation shall be Non-ISOs.
7. Exercise Price for Options.
(a) Limits on Committee Discretion. The Exercise Price as to any
particular Option shall not be less than 100% of the Market Value of the
Optioned Shares on the date of grant. In the case of an Employee who owns Shares
representing more than 10% of the Company's outstanding Shares of Common Stock
at the time an ISO is granted, the Exercise Price shall not be less than 110% of
the Market Value of the Optioned Shares at the time the ISO is granted.
(b) Standards for Determining Exercise Price. If the Common Stock is
listed on a national securities exchange (including the NASDAQ National Market
System) on the date in question, then the Market Value per Share shall be the
average of the highest and lowest selling price on such exchange on such date,
or if there were no sales on such date, then the Exercise Price shall be the
mean between the bid and asked price on such date. If the Common Stock is traded
otherwise than on a national securities exchange on the date in question, then
the Market Value per
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Share shall be the mean between the bid and asked price on such date, or, if
there is no bid and asked price on such date, then on the next prior business
day on which there was a bid and asked price. If no such bid and asked price is
available, then the Market Value per Share shall be its fair market value as
determined by the Committee, in its sole and absolute discretion.
8. Exercise of Options.
(a) Generally. Each Option shall become exercisable with respect to
twenty percent (20%) of the Optioned Shares upon the Participant's completion of
each of five Years of Service, provided that an Option shall become fully (100%)
exercisable immediately upon termination of the Participant's Continuous Service
due to the Participant's Disability or death. An Option may not be exercised
for a fractional Share. If the Plan is adopted more than one year after the
Bank's second-step conversion, Options may become exercisable according to a
different schedule, with vesting accelerated to 100% upon an Optionee's
retirement or termination of service in connection with a change in control.
(b) Procedure for Exercise. A Participant may exercise Options, subject
to provisions relative to its termination and limitations on its exercise, only
by (1) written notice of intent to exercise the Option with respect to a
specified number of Shares, and (2) payment to the Company (contemporaneously
with delivery of such notice) in cash, in Common Stock, or a combination of cash
and Common Stock, of the amount of the Exercise Price for the number of Shares
with respect to which the Option is then being exercised. Each such notice (and
payment where required) shall be delivered, or mailed by prepaid registered or
certified mail, addressed to the Treasurer of the Company at its executive
offices. Common Stock utilized in full or partial payment of the Exercise Price
for Options shall be valued at its Market Value at the date of exercise, and may
consist of Shares subject to the Option being exercised. Upon a Participant's
exercise of an Option, the Company may, if provided by the Committee in the
underlying 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.
(c) Period of Exercisability. Except to the extent otherwise provided in
the terms of an Agreement, an Option may be exercised by a Participant only
while he is an Employee and has maintained Continuous Service from the date of
the grant of the Option, or within one year after termination of such Continuous
Service (but not later than the date on which the Option would otherwise
expire), except if the Employee's Continuous Service terminates by reason of --
(1) "Just Cause" which for purposes hereof shall have the meaning set
forth in any unexpired employment or severance agreement between the
Participant and the Bank and/or the Company (and, in the absence of any
such agreement, shall mean termination because of the Employee's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order), then the
Participant's rights to exercise such Option shall expire on the date of
such termination;
(2) death, then to the extent that the Participant would have been
entitled to exercise the Option immediately prior to his death, such Option
of the deceased Participant may be exercised within two years from the date
of his death (but not later than the date on which the Option would
otherwise expire) by the personal representatives of his estate or person
or persons to whom his rights under such Option shall have passed by will
or by laws of descent and distribution;
(3) Disability, then to the extent that the Participant would have
been entitled to exercise the Option immediately prior to his or her
Disability, such Option may be exercised within one year from the date of
termination of employment due to Disability, but not later than the date on
which the Option would otherwise expire.
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(d) Effect of the Committee's Decisions. The Committee's determination
whether a Participant's Continuous Service has ceased, and the effective date
thereof, shall be final and conclusive on all persons affected thereby.
(e) Mandatory Six-Month Holding Period. Notwithstanding any other
provision of this Plan to the contrary, common stock of the Company that is
purchased upon exercise of an Option or SAR may not be sold within the six-month
period following the grant of that Option or SAR.
9. Grants of Options to Non-employee Directors
(a) Automatic Grants. Notwithstanding any other provisions of this Plan,
each Director who is not an Employee but is a Director on the Effective Date
shall receive, on said date, Non-ISOs to purchase a number of Shares (not to
exceed the OTS Award Limitations) equal to the lesser of five percent (5%) of
the number of Shares reserved under Paragraph 4(a) hereof, and the quotient
obtained by dividing --
(i) 30 percent (30%) of the number of Shares reserved under Paragraph 4(a)
hereof, by
(ii) the number of Directors entitled to receive an Option on the Effective
Date, pursuant to this Paragraph 9(a).
(b) Terms of Exercise. Options received under the provisions of this
Paragraph (i) shall become exercisable in accordance with paragraph 8(a) of the
Plan, and (ii) may be exercised from time to time by written notice of intent to
exercise the Option with respect to all or a specified number of the Optioned
Shares, and payment to the Company (contemporaneously with the delivery of such
notice), in cash, in Common Stock, or a combination of cash and Common Stock, of
the amount of the Exercise Price for the number of the Optioned Shares with
respect to which the Option is then being exercised. Each such notice and
payment shall be delivered, or mailed by prepaid registered or certified mail,
addressed to the Treasurer of the Company at the Company's executive offices.
Upon a Director's exercise of an Option, the Company may, if provided by the
Committee in the underlying Agreement (which may not be utilized to pay out such
dividends unless the Plan would maintain conformity with Rule 16b-3), pay to the
Director a cash amount up to but not exceeding the amount of dividends, if any,
declared on the underlying Shares between the date of grant and the date of
exercise of the Option. A Director who exercises Options pursuant to this
Paragraph may satisfy all applicable federal, state and local income and
employment tax withholding obligations, in whole or in part, by irrevocably
electing to have the Company withhold shares of Common Stock, or to deliver to
the Company shares of Common Stock that he already owns, having a value equal to
the amount required to be withheld; provided that to the extent not inconsistent
herewith, such election otherwise complies with those requirements of Paragraphs
8 and 19 hereof.
Options granted under this Paragraph shall have a term of ten years;
provided that Options granted under this Paragraph shall expire one year after
the date on which a Director terminates Continuous Service on the Board for a
reason other than death, but in no event later than the date on which such
Options would otherwise expire. In the event of such Director's death during
the term of his directorship, Options granted under this Paragraph shall become
immediately exercisable, and may be exercised within two years from the date of
his death by the personal representatives of his estate or person or persons to
whom his rights under such Option shall have passed by will or by laws of
descent and distribution, but in no event later than the date on which such
Options would otherwise expire. In the event of such Director's Disability
during his or her directorship, the Director's Option shall become immediately
exercisable, and such Option may be exercised within one year of the termination
of directorship due to Disability, but not later than the date that the Option
would otherwise expire. Unless otherwise inapplicable or inconsistent with the
provisions of this Paragraph, the Options to be granted to Directors hereunder
shall be subject to all other provisions of this Plan.
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(c) Effect of the Committee's Decisions. The Committee's determination
whether a Participant's Continuous Service has ceased, and the effective date
thereof, shall be final and conclusive on all persons affected thereby.
10. SARs (Stock Appreciation Rights)
(a) Granting of SARs. In its sole discretion, the Committee may from time
to time grant SARs to Employees either in conjunction with, or independently of,
any Options granted under the Plan. An SAR granted in conjunction with an
Option may be an alternative right wherein the exercise of the Option terminates
the SAR to the extent of the number of shares purchased upon exercise of the
Option and, correspondingly, the exercise of the SAR terminates the Option to
the extent of the number of Shares with respect to which the SAR is exercised.
Alternatively, an SAR granted in conjunction with an Option may be an additional
right wherein both the SAR and the Option may be exercised. An SAR may not be
granted in conjunction with an ISO under circumstances in which the exercise of
the SAR affects the right to exercise the ISO or vice versa, unless the SAR, by
its terms, meets all of the following requirements:
(1) The SAR will expire no later than the ISO;
(2) The SAR may be for no more than the difference between the Exercise
Price of the ISO and the Market Value of the Shares subject to the ISO at
the time the SAR is exercised;
(3) The SAR is transferable only when the ISO is transferable, and under
the same conditions;
(4) The SAR may be exercised only when the ISO may be exercised; and
(5) The SAR may be exercised only when the Market Value of the Shares
subject to the ISO exceeds the Exercise Price of the ISO.
(b) Exercise Price. The Exercise Price as to any particular SAR shall not
be less than the Market Value of the Optioned Shares on the date of grant.
(c) Timing of Exercise. Any election by a Participant to exercise SARs
shall be made during the period beginning on the 3rd business day following the
release for publication of quarterly or annual financial information and ending
on the 12th business day following such date. This condition shall be deemed to
be satisfied when the specified financial data is first made publicly available.
In no event, however, may an SAR be exercised within the six-month period
following the date of its grant.
The provisions of Paragraph 8(c) regarding the period of exercisability of
Options are incorporated by reference herein, and shall determine the period of
exercisability of SARs.
(d) Exercise of SARs. An SAR granted hereunder shall be exercisable at
such times and under such conditions as shall be permissible under the terms of
the Plan and of the Agreement granted to a Participant, provided that an SAR may
not be exercised for a fractional Share. Upon exercise of an SAR, the
Participant shall be entitled to receive, without payment to the Company except
for applicable withholding taxes, an amount equal to the excess of (or, in the
discretion of the Committee if provided in the Agreement, a portion of) the
excess of the then aggregate Market Value of the number of Optioned Shares with
respect to which the Participant exercises the SAR, over the aggregate Exercise
Price of such number of Optioned Shares. This amount shall be payable by the
Company, in the discretion of the Committee, in cash or in Shares valued at the
then Market Value thereof, or any combination thereof.
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(e) Procedure for Exercising SARs. To the extent not inconsistent
herewith, the provisions of Paragraph 8(b) as to the procedure for exercising
Options are incorporated by reference, and shall determine the procedure for
exercising SARs.
11. Effect of Changes in Common Stock Subject to the Plan.
(a) Recapitalizations; Stock Splits, Etc. The number and kind of shares
reserved for issuance under the Plan, and the number and kind of shares subject
to outstanding Awards, and the Exercise Price thereof, shall be proportionately
adjusted for any increase, decrease, change or exchange of Shares for a
different number or kind of shares or other securities of the Company which
results from a merger, consolidation, recapitalization, reorganization,
reclassification, stock dividend, split-up, combination of shares, or similar
event in which the number or kind of shares is changed without the receipt or
payment of consideration by the Company.
(b) Transactions in which the Company is Not the Surviving Entity. In the
event of (i) the liquidation or dissolution of the Company, (ii) a merger or
consolidation in which the Company is not the surviving entity, or (iii) the
sale or disposition of all or substantially all of the Company's assets (any of
the foregoing to be referred to herein as a "Transaction"), all outstanding
Awards, together with the Exercise Prices thereof, shall be equitably adjusted
for any change or exchange of Shares for a different number or kind of shares or
other securities which results from the Transaction.
(c) Special Rule for ISOs. Any adjustment made pursuant to subparagraphs
(a) or (b)(1) hereof shall be made in such a manner as not to constitute a
modification, within the meaning of Section 424(h) of the Code, of outstanding
ISOs.
(d) Conditions and Restrictions on New, Additional, or Different Shares or
Securities. If, by reason of any adjustment made pursuant to this Paragraph, a
Participant becomes entitled to new, additional, or different shares of stock or
securities, such new, additional, or different shares of stock or securities
shall thereupon be subject to all of the conditions and restrictions which were
applicable to the Shares pursuant to the Award before the adjustment was made.
(e) Other Issuances. Except as expressly provided in this Paragraph, the
issuance by the Company or an Affiliate of shares of stock of any class, or of
securities convertible into Shares or stock of another class, for cash or
property or for labor or services either upon direct sale or upon the exercise
of rights or warrants to subscribe therefor, shall not affect, and no adjustment
shall be made with respect to, the number, class, or Exercise Price of Shares
then subject to Awards or reserved for issuance under the Plan.
(f) Certain Special Dividends. The Exercise Price of shares subject to
outstanding Awards shall be proportionately adjusted upon the payment of a
special large and nonrecurring dividend that has the effect of a return of
capital to the stockholders, except that this subparagraph (f) shall not apply
to any dividend which is paid to the Participant pursuant to Paragraph 8(b) or
9(b) hereof.
12. Non-Transferability of Awards.
Awards may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will or by the laws of descent and
distribution. Notwithstanding the foregoing, or any other provision of this
Plan, a Participant who holds Awards may transfer such Awards (but not Incentive
Stock Options) to his or her spouse, lineal ascendants, lineal descendants, or
to a duly established trust for the benefit of one or more of these individuals.
Awards so transferred may thereafter be transferred only to the Participant who
originally received the grant or to an individual or trust to whom the
Participant could have initially transferred the Awards pursuant to this
Paragraph 12. Awards which are transferred pursuant to this Paragraph 12 shall
be exercisable by the transferee according to the same terms and conditions as
applied to the Participant.
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13. Time of Granting Awards.
The date of grant of an Award shall, for all purposes, be the later of the
date on which the Committee makes the determination of granting such Award, and
the Effective Date. Notice of the determination shall be given to each
Participant to whom an Award is so granted within a reasonable time after the
date of such grant.
14. Effective Date.
The Plan shall become effective immediately upon its approval by a
favorable vote of stockholders owning at least a majority of the total votes
eligible to be cast at a duly called meeting of the Company's stockholders held
in accordance with applicable laws, provided that the Plan shall not be
submitted for such approval within the six-month period after the close of the
Bank's second step conversion and reorganization. No Awards may be made prior
to approval of the Plan by the stockholders of the Company.
15. Modification of Awards.
At any time, and from time to time, the Board may authorize the Committee
to direct execution of an instrument providing for the modification of any
outstanding Award, provided no such modification shall confer on the holder of
said Award any right or benefit which could not be conferred on him by the grant
of a new Award at such time, or impair the Award without the consent of the
holder of the Award.
16. Amendment and Termination of the Plan.
The Board may from time to time amend the terms of the Plan and, with
respect to any Shares at the time not subject to Awards, suspend or terminate
the Plan. No amendment, suspension or termination of the Plan shall, without
the consent of any affected holders of an Award, alter or impair any rights or
obligations under any Award theretofore granted.
17. Conditions Upon Issuance of Shares.
(a) Compliance with Securities Laws. Shares of Common Stock shall not be
issued with respect to any Award unless the issuance and delivery of such Shares
shall comply with all relevant provisions of law, including, without limitation,
the Securities Act of 1933, as amended, the rules and regulations promulgated
thereunder, any applicable state securities law, and the requirements of any
stock exchange upon which the Shares may then be listed.
(b) Special Circumstances. The inability of the Company to obtain approval
from any regulatory body or authority deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder shall relieve
the Company of any liability in respect of the non-issuance or sale of such
Shares. As a condition to the exercise of an Option or SAR, the Company may
require the person exercising the Option or SAR to make such representations and
warranties as may be necessary to assure the availability of an exemption from
the registration requirements of federal or state securities law.
(c) Committee Discretion. The Committee shall have the discretionary
authority to impose in Agreements such restrictions on Shares as it may deem
appropriate or desirable, including but not limited to the authority to impose a
right of first refusal or to establish repurchase rights or both of these
restrictions.
18. Reservation of Shares.
The Company, during the term of the Plan, will reserve and keep available a
number of Shares sufficient to satisfy the requirements of the Plan.
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19. Withholding Tax.
The Company's obligation to deliver Shares upon exercise of Options and/or
SARs shall be subject to the Participant's satisfaction of all applicable
federal, state and local income and employment tax withholding obligations. The
Committee, in its discretion, may permit the Participant to satisfy the
obligation, in whole or in part, by irrevocably electing to have the Company
withhold Shares, or to deliver to the Company Shares that he already owns,
having a value equal to the amount required to be withheld. The value of the
Shares to be withheld, or delivered to the Company, shall be based on the Market
Value of the Shares on the date the amount of tax to be withheld is to be
determined. As an alternative, the Company may retain, or sell without notice,
a number of such Shares sufficient to cover the amount required to be withheld.
20. No Employment or Other Rights.
In no event shall an Employee's or Director's eligibility to participate or
participation in the Plan create or be deemed to create any legal or equitable
right of the Employee, Director, or any other party to continue service with the
Company, the Bank, or any Affiliate of such corporations. Except to the extent
provided in Paragraphs 6(b) and 9(a), no Employee or Director shall have a right
to be granted an Award or, having received an Award, the right to again be
granted an Award. However, an Employee or Director who has been granted an
Award may, if otherwise eligible, be granted an additional Award or Awards.
21. Governing Law.
The Plan shall be governed by and construed in accordance with the laws of
the State of Tennessee, except to the extent that federal law shall be deemed to
apply.
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EXHIBIT 10.5
COMMUNITY NATIONAL CORPORATION
1998 MANAGEMENT RECOGNITION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
1.01 The Company hereby establishes this Plan upon the terms and
conditions hereinafter stated.
1.02 Through acceptance of their appointment to the Committee, each member
of the Committee hereby accepts his or her appointment hereunder upon the terms
and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to reward and retain personnel of
experience and ability in key positions of responsibility by providing Employees
and Directors of the Company, the Bank, and their Affiliates with a proprietary
interest in the Company, and as compensation for their past contributions to the
Bank, and as an incentive to make such contributions in the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Plan with an initial
capital letter, shall have the meanings set forth below unless the context
clearly indicates otherwise. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
3.01 "Affiliate" shall mean any "parent corporation" or "subsidiary
corporation" of the Company, as such terms are defined in Section 424(e) and
(f), respectively, of the Internal Revenue Code of 1986, as amended.
3.02 "Bank" means Lexington First Federal Savings Bank.
3.03 "Beneficiary" means the person or persons designated by a Participant
to receive any benefits payable under the Plan in the event of such
Participant's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time to
time by similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Participant's surviving spouse, if any
or if none, his estate.
3.04 "Board" means the Board of Directors of the Company.
3.05 "Committee" means the Management Recognition Plan Committee appointed
by the Board pursuant to Article IV hereof.
3.06 "Common Stock" means shares of the common stock of the Company.
3.07 "Company" means Community National Corporation.
3.08 "Continuous Service" shall mean the absence of any interruption or
termination of service as an Employee or Director of the Company or an
Affiliate. Continuous Service shall not be considered interrupted in the case
of sick leave, military leave or any other leave of absence approved by the
Company in the case of transfers between payroll locations of the Company or
between the Company, an Affiliate or a successor, or in the case of a Director's
performance of services in an emeritus or advisory capacity.
<PAGE>
3.09 "Date of Conversion" means the date of the close of the Bank's second
step conversion and reorganization.
3.10 "Director" means a member of the Board.
3.11 "Disability" shall mean a physical or mental condition, which in the
sole and absolute discretion of the Committee, is reasonably expected to be of
indefinite duration and to substantially prevent a Participant from fulfilling
his or her duties or responsibilities to the Company or an Affiliate.
3.12 "Effective Date" means the date on which the Plan first becomes
effective, as determined under Section 8.07 hereof.
3.13 "Employee" means any person who is employed by the Company or an
Affiliate.
3.14 "Non-Employee Director" shall have the meaning provided in Rule 16b-3
of the General Rules and Regulations under the Securities Exchange Act of 1934,
as amended.
3.15 "OTS Award Limitations" shall mean the following percentage
limitations, determined with respect to the total shares reserved for awards
under this Plan and the Lexington First Federal Savings Bank 1992 Management
Recognition Plan: 25% for total Plan Share Awards to any particular Employee, 5%
for total Plan Share Awards to any particular non-employee Director, and 30% for
total Plan Share Awards to the non-employee Directors as a group.
3.16 "Participant" means an Employee or Director who holds a Plan Share
Award.
3.17 "Plan" means this Community National Corporation 1998 Management
Recognition Plan.
3.18 "Plan Shares" means shares of Common Stock held in the Trust which
are awarded or issuable to a Participant pursuant to the Plan.
3.19 "Plan Share Award" means a right granted under this Plan to receive
Plan Shares.
3.20 "Plan Share Reserve" means the shares of Common Stock held by the
Trustee pursuant to Sections 5.02 and 5.03.
3.21 "Trust" and "Trust Agreement" mean that agreement entered into
pursuant to the terms hereof between the Company and the Trustee, and "Trust"
means the trust created thereunder.
3.22 "Trustee" means that person(s) or entity appointed by the Board
pursuant to the Trust Agreement to hold legal title to the Plan assets for the
purposes set forth herein.
3.23 "Year of Service" shall mean a full twelve-month period, measured
from the date of a Plan Share Award and each annual anniversary of that date,
during which a Participant's Continuous Service has not terminated for any
reason.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Role and Powers of the Committee. The Plan shall be administered
and interpreted by the Committee, which shall consist of not less than two
members of the Board who are Non-Employee Directors. In the
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absence at any time of a duly appointed Committee, the Plan shall be
administered by those members of the Board who are Non-Employee Directors, and
by the Board if there are less than two Non-Employee Directors.
The Committee shall have all of the powers allocated to it in this and
other Sections of the Plan. Except as limited by the express provisions of the
Plan or by resolutions adopted by the Board, the Committee shall have sole and
complete authority and discretion (i) to make Plan Share Awards to such
Employees as the Committee may select, (ii) to determine the form and content of
Plan Share Awards to be issued under the Plan, (iii) to interpret the Plan, (iv)
to prescribe, amend and rescind rules and regulations relating to the Plan, and
(v) to make other determinations necessary or advisable for the administration
of the Plan. The Committee shall have and may exercise such other power and
authority as may be delegated to it by the Board from time to time. Subject to
Section 4.02, the interpretation and construction by the Committee of any
provisions of the Plan or of any Plan Share Award granted hereunder shall be
final and binding. The Committee shall act by vote or written consent of a
majority of its members, and shall report its actions and decisions with respect
to the Plan to the Board at appropriate times, but in no event less than one
time per calendar year. The Committee may recommend to the Board one or more
persons or entity to act as Trustee(s) in accordance with the provisions of this
Plan and the Trust.
4.02 Role of the Board. The members of the Committee shall be appointed
or approved by, and will serve at the pleasure of, the Board. The Board may in
its discretion from time to time remove members from, or add members to, the
Committee. The Board shall have all of the powers allocated to it in this and
other Sections of the Plan, may take any action under or with respect to the
Plan which the Committee is authorized to take, and may reverse or override any
action taken or decision made by the Committee under or with respect to the
Plan, provided, however, that the Board may not revoke any Plan Share Award
already made or impair a participant's vested rights under a Plan Share Award.
Members of the Board who are eligible for or who have been granted Plan Share
Awards (other than pursuant to Section 6.04) may not vote on any matters
affecting the administration of the Plan or the grant of Plan Shares or Plan
Share Awards (although such members may be counted in determining the existence
of a quorum at any meeting of the Board during which actions with regard thereto
are taken). Further, with respect to all actions taken by the Board in regard
to the Plan, such action shall be taken by a majority of the Board where such a
majority of the directors acting in the matter are Non-Employee Directors.
4.03 Limitation on Liability. No member of the Board or the Committee or
the Trustee(s) shall be liable for any determination made in good faith with
respect to the Plan or any Plan Shares or Plan Share Awards granted under it.
If a member of the Board or the Committee or any Trustee is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of anything done or not done by him in such capacity under or with
respect to the Plan, the Company shall indemnify such member, subject to the
indemnification provisions of 12 C.F.R. Section 545.121, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in the best interests of the Company and its
Affiliates and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
ARTICLE V
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 Amount and Timing of Contributions. The Board shall determine the
amounts (or the method of computing the amounts) to be contributed by the
Company to the Trust, provided that the Bank may also make contributions to the
Trust. Such amounts shall be paid to the Trustee at the time of contribution.
No contributions to the Trust by Employees shall be permitted.
5.02 Investment of Trust Assets; Maximum Plan Share Awards. The Trustee
shall invest Trust assets only in accordance with the Trust Agreement; provided
that the Trust shall not purchase, and Plan Share Awards shall not be made with
respect to, more than four percent (4%) of the number of Shares sold to
subscribers in the
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Company's initial stock offering on the Date of Conversion. Common stock
purchased by the Trust may be newly issued shares, treasury shares, or shares
held in a grantor trust.
5.03 Effect of Allocations, Returns and Forfeitures Upon Plan Share
Reserves. Upon the allocation of Plan Share Awards under Section 6.02, the Plan
Share Reserve shall be reduced by the number of Shares subject to the Awards so
allocated. Any Shares subject or attributable to an Award which may not be
earned because of a forfeiture by the Participant pursuant to Section 7.01 shall
be added to the Plan Share Reserve.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 Eligibility. The Committee may make Plan Share Awards to Employees
and Directors. In selecting those individuals to whom Plan Share Awards will be
granted and the number of shares covered by such Awards, the Committee shall
consider the position, duties and responsibilities of the eligible individuals,
the value of their services to the Company and its Affiliates, and any other
factors the Committee may deem relevant. Notwithstanding the foregoing, (i) the
Committee shall automatically make the Plan Share Awards specified in Sections
6.04 and 6.05 hereof; and (ii) no Employee or non-employee Director shall
receive Plan Share Awards in excess of the OTS Award Limitations.
6.02 Allocations. The Committee will determine which individuals will be
granted discretionary Plan Share Awards, and the number of Shares covered by
each Plan Share Award, provided that in no event shall any Awards be made which
will violate the governing instruments of the Bank or its Affiliates or any
applicable federal or state law or regulation. In the event Plan Shares are
forfeited for any reason or additional shares of Common Stock are purchased by
the Trustee, the Committee may, from time to time, determine which of the
individuals referenced in Section 6.01 above will be granted additional Plan
Share Awards to be awarded from the forfeited or acquired Plan Shares.
6.03 Form of Allocation. As promptly as practicable after a determination
is made pursuant to Section 6.02 that a Plan Share Award is to be made, the
Committee shall notify the Participant in writing of the grant of the Award, the
number of Plan Shares covered by the Award, and the terms upon which the Plan
Shares subject to the Award may be earned. The date on which the Committee so
notifies the Participant shall be considered the date of grant of the Plan Share
Awards. The Committee shall maintain records as to all grants of Plan Share
Awards under the Plan.
6.04 Automatic Grants to Non-Employee Directors. Notwithstanding any
other provisions of this Plan, each Director who is not an Employee but is a
Director on the Effective Date shall receive, on said date, a Plan Share Award
for a number of Shares equal to the lesser of five (5%) of the number of Plan
Shares which the Trust is authorized to purchase pursuant to Section 5.02 of the
Plan and the quotient obtained by dividing --
(i) thirty percent (30%) of the number of Plan Shares which the Trust is
authorized to purchase pursuant to Section 5.02 of the Plan, by
(ii) the number of Directors entitled to receive Plan Share Awards on the
Effective Date, pursuant to this Section 6.04.
Plan Share Awards received under the provisions of this Section shall become
vested and nonforfeitable according to the general rules set forth in
subsections (a), and (b) of Section 7.01, and the Committee shall have no
discretion to alter or accelerate said vesting requirements. Unless otherwise
inapplicable or inconsistent with the provisions of this Section, the Plan Share
Awards to be granted hereunder shall be subject to all other provisions of this
Plan.
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6.05 Automatic Grants to Employees. On the Effective Date, each of the
following individuals shall receive a Plan Share Award as to the number of Plan
Shares listed below (not to exceed the OTS Award Limitations), provided that
such award shall not be made to an individual who is not an Employee on the
Effective Date:
Employee Shares Subject to Plan Share Award
-------- ----------------------------------
Howard Tignor 25%
Plan Share Awards received under the provisions of this Section shall
become vested and nonforfeitable according to the general rules set forth in
subsections (a) and (b) of Section 7.01, and the Committee shall have no
discretion to alter said vesting requirements. Unless otherwise inapplicable or
inconsistent with the provisions of this Section, the Plan Share Awards to be
granted hereunder shall be subject to all other provisions of this Plan.
6.06 Allocations Not Required. Notwithstanding anything to the contrary
in Sections 6.01 and 6.02, but subject to Sections 6.04 and 6.05, no Employee or
Director shall have any right or entitlement to receive a Plan Share Award
hereunder, such Awards being at the total discretion of the Committee, nor shall
any Employees or Directors as a group have such a right. The Committee may,
with the approval of the Board (or, if so directed by the Board) return all
Common Stock in the Plan Share Reserve to the Company at any time, and cease
issuing Plan Share Awards.
ARTICLE VII
EARNINGS AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earning Plan Shares; Forfeitures.
(a) General Rules. Twenty percent (20%) of the Plan Shares subject to a
Plan Share Award shall be earned and become non-forfeitable by a Participant
upon his or her completion of each of five Years of Service. [May be different
if Plan receives stockholder approval more than one year after the Date of
Conversion.]
(b) Exception for Terminations Due to Death or Disability.
Notwithstanding the general rule contained in Section 7.01(a) above, all Plan
Shares subject to a Plan Share Award held by a Participant whose service with
the Company or an Affiliate terminates due to the Participant's death or
Disability, shall be deemed earned as of the Participant's last day of service
with the Company or an Affiliate and shall be distributed as soon as practicable
thereafter. [If the Plan receives stockholder approval more than one year after
the Date of Conversion, vesting would accelerate to 100% upon a Participant's
retirement or termination of service in connection with a change in control.]
7.02 Accrual of Dividends. Whenever Plan Shares are paid to a Participant
or Beneficiary under Section 7.03, such Participant or Beneficiary shall also be
entitled to receive, with respect to each Plan Share paid, an amount equal to
any cash dividends (including special large and nonrecurring dividends,
including one that has the effect of a return of capital to the Company's
stockholders) and a number of shares of Common Stock equal to any stock
dividends, declared and paid with respect to a share of Common Stock between the
date the relevant Plan Share Award was initially granted to such Participant and
the date the Plan Shares are being distributed. There shall also be distributed
an appropriate amount of net earnings, if any, of the Trust with respect to any
cash dividends so paid out.
7.03 Distribution of Plan Shares.
(a) Timing of Distributions: General Rule. Except as provided in
Subsections (c), and (d) below, the Trustee shall distribute Plan Shares and
accumulated cash from dividends and interest to the Participant or his
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Beneficiary, as the case may be, as soon as practicable after they have been
earned. No fractional shares shall be distributed.
(b) Form of Distribution. The Trustee shall distribute all Plan Shares,
together with any shares representing stock dividends, in the form of Common
Stock. One share of Common Stock shall be given for each Plan Share earned.
Payments representing cash dividends (and earnings thereon) shall be made in
cash.
(c) Withholding. The Trustee shall withhold from any cash payment made
under this Plan sufficient amounts to cover any applicable withholding and
employment taxes, and if the amount of such cash payment is not sufficient, the
Trustee shall require the Participant or Beneficiary to pay to the Trustee the
amount required to be withheld as a condition of delivering the Plan Shares.
The Trustee shall pay over to the Company or Affiliate which employs or employed
such Participant any such amount withheld from or paid by the Participant or
Beneficiary.
(d) Timing: Exception for 10% Shareholders. Notwithstanding Subsections
(a) and (b) above, no Plan Shares may be distributed prior to the date which is
five (5) years from the Date of Conversion to the extent the Participant or
Beneficiary, as the case may be, would after receipt of such Shares own in
excess of ten percent (10%) of the issued and outstanding shares of Common Stock
unless such action is approved in advance by a majority vote of non-employee
directors of the Board. To the extent this limitation would delay the date on
which a Participant receives Plan Shares, the Participant may elect to receive
from the Trust, in lieu of vested Plan Shares, a cash amount equal to the fair
market value of such Plan Shares. Any Plan Shares remaining undistributed
solely by reason of the operation of this Subsection (d) shall be distributed to
the Participant or his Beneficiary on the date which is five years from the Date
of Conversion.
(e) Regulatory Exceptions. No Plan Shares shall be distributed unless and
until all of the requirements of all applicable law and regulation shall have
been fully complied with, including the receipt of approval of the Plan by the
stockholders of the Company by such vote, if any, as may be required by
applicable law and regulations.
7.04 Voting of Plan Shares. All shares of Common Stock held by the Trust
(whether or not subject to a Plan Share Award) shall be voted by the Trustee as
directed by the Board, and in the absence of any such direction, shall be voted
in the discretion of the Trustee.
7.05. Deferral Elections by Participants. At any time that is at least
six months prior to the date on which a Participant becomes vested in the first
20% of his or her Plan Share Award, the Participant may irrevocably elect, on
the form attached hereto as Exhibit "A" (the "Election Form"), to defer the
receipt of all or a percentage of the Plan Shares that would otherwise be
transferred to the Participant upon the vesting of such award (the "Deferred
Shares"). The MRP Committee shall establish and maintain an individual account
in the name of each Participant who files an Election Form for the purpose of
tracking deferred earnings attributable to cash dividends paid on Deferred
Shares (the "Cash Account"). On the last day of each fiscal year of the
Company, the Committee shall credit to the Participant's Cash Account earnings
on the balance of the Cash Account at a rate equal to the yield on Common Stock,
as determined from time to time by the MRP Committee in its sole discretion.
The Deferred Shares, together with any cash or stock dividends attributable
thereto (the "Deferred Earnings"), will be distributed to the Participant in
accordance with the deferral schedule (the "Deferral Schedule") selected by the
Participant in his or her Election Form. The Trustees shall hold each
Participant's Deferred Shares and Deferred Earnings in the Trust until
distribution is required pursuant to the election set forth in the Participant's
Election Form.
The Trustee shall distribute a Participant's Deferred Shares and Deferred
Earnings in accordance with the Participant's Election Form, unless the
Participant terminates Continuous Service for a reason other than the
Participant's (i) death, (ii) Disability, (iii) early retirement after age 55
and completion of 10 or more years of Continuous Service, or (iv) normal
retirement after age 65. Within 90 days after receiving notice of a
Participant's
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death, the Trustee shall distribute any balance of the Participant's Deferred
Shares and Deferred Earnings to the Participant's designated beneficiary, if
living, or if such designated beneficiary is deceased or the Participant failed
to designate a beneficiary, to the Participant's estate. Notwithstanding the
preceding, at any time prior to his or her death, a Participant may elect to
have the balance of his or her Deferred Shares and Deferred Earnings distributed
to his or her beneficiary or estate over a period of time designated by the
Participant. If, on the other hand, a Participant's Continuous Service
terminates for a reason other than the Participant's death, Disability, early
retirement, or normal retirement, the Participant's Deferred Shares and Deferred
Earnings shall be distributed to the Participant in a lump sum occurring as soon
as reasonably practicable.
Notwithstanding any other provision of the Plan or a Participant's Election
Form, in the event the Participant suffers an unforeseeable emergency hardship
within the contemplation of this paragraph, the Participant may apply to the
Committee for a distribution of all or a portion of his Deferred Shares and
Deferred Earnings prior to the basis for any such distribution. The hardship
must result from a sudden and unexpected illness or accident of the Participant
or a dependent of the Participant, casualty loss of property, or other similar
conditions beyond the control of the Participant. Examples of purposes which
are not considered hardships include post-secondary school expenses or the
desire to purchase a residence. In no event will a distribution be made to the
extent the hardship could be relieved through reimbursement or compensation by
insurance or otherwise, or by liquidation of the Participant's nonessential
assets to the extent such liquidation would not itself cause a severe financial
hardship. The amount of any distribution hereunder shall be limited to the
amount necessary to relieve the Participant's financial hardship. The
determination of whether a Participant has a qualifying hardship and the amount
which qualifies for distribution, if any, shall be made by the Committee in its
sole discretion. The Committee may require evidence of the purpose and amount
of the need, and may establish such application or other procedures as it deems
appropriate.
No Participant may assign his or her claim to Deferred Shares and Deferred
Earnings during his or her lifetime, and any deferral election made hereunder
shall be irrevocable. A Participant's right to Deferred Shares and Deferred
Earnings shall at all times constitute an unsecured promise of the Company to
pay benefits as they come due. The right of the Participant or his or her
beneficiary to receive benefits hereunder shall be solely an unsecured claim
against the general assets of the Company. Neither the Participant nor his or
her beneficiary shall have any claim against or rights in any specific assets or
other fund of the Company, and any assets in the Trust shall be deemed general
assets of the Company.
All distributions made by the Company and/or the Trustees pursuant to
elections made hereunder shall be subject to applicable federal, state, and
local tax withholding and to such other deductions as shall at the time of such
payment be required under any income tax or other law, whether of the United
States or any other jurisdiction, and, in the case of payments to a beneficiary,
the delivery to the Committee and/or Trustees of all necessary waivers,
qualifications and other documentation.
ARTICLE VIII
MISCELLANEOUS
8.01 Adjustments for Capital Changes.
(a) Recapitalizations; Stock Splits, Etc. The number and kind of shares
which may be purchased under the Plan, and the number and kind of shares subject
to outstanding Plan Share Awards, shall be proportionately adjusted for any
increase, decrease, change or exchange of shares of Common Stock for a different
number or kind of shares or other securities of the Company which results from a
merger, consolidation, recapitalization, reorganization, reclassification, stock
dividend, split-up, combination of shares, or similar event in which the number
or kind of shares is changed without the receipt or payment of consideration by
the Company.
(b) Transactions in which the Company is Not the Surviving Entity. In the
event of (i) the liquidation or dissolution of the Company, (ii) a merger or
consolidation in which the Company is not the surviving entity, or
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<PAGE>
(iii) the sale or disposition of all or substantially all of the Company's
assets (any of the foregoing to be referred to herein as a "Transaction"), all
outstanding Plan Share Awards shall be adjusted for any change or exchange of
shares of Common Stock for a different number or kind of shares or other
securities which results from the Transaction.
(c) Conditions and Restrictions on New, Additional, or Different Shares or
Securities. If, by reason of any adjustment made pursuant to this Section, a
Participant becomes entitled to new, additional, or different shares of stock or
securities, such new, additional, or different shares of stock or securities
shall thereupon be subject to all of the conditions and restrictions which were
applicable to the shares pursuant to the Plan Share Award before the adjustment
was made. In addition, the Committee shall have the discretionary authority to
impose on the Shares subject to Plan Share Awards to Employees such restrictions
as the Committee may deem appropriate or desirable, including but not limited to
a right of first refusal, or repurchase option, or both of these restrictions.
(d) Other Issuances. Except as expressly provided in this Section, the
issuance by the Company or an Affiliate of shares of stock of any class, or of
securities convertible into shares of Common Stock or stock of another class,
for cash or property or for labor or services either upon direct sale or upon
the exercise of rights or warrants to subscribe therefor, shall not affect, and
no adjustment shall be made with respect to, the number or class of shares of
Common Stock then subject to Plan Share Awards or reserved for issuance under
the Plan.
8.02 Amendment and Termination of Plan. The Board may, by resolution, at
any time amend or terminate the Plan; provided that no amendment or termination
of the Plan shall, without the written consent of a Participant, impair any
rights or obligations under a Plan Share Award theretofore granted to the
Participant.
The power to amend or terminate the Plan in accordance with this Section
8.02 shall include the power to direct the Trustee to return to the Company all
or any part of the assets of the Trust, including shares of Common Stock held in
the Plan Share Reserve. However, the termination of the Trust shall not affect
a Participant's right to earn Plan Share Awards and to receive a distribution of
Common Stock relating thereto, including earnings thereon, in accordance with
the terms of this Plan and the grant by the Committee or the Board.
8.03 Nontransferability. Plan Share Awards may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent and distribution. Notwithstanding the foregoing,
or any other provision of this Plan, a Participant who holds Plan Share Awards
may transfer such Awards to his or her spouse, lineal ascendants, lineal
descendants, or to a duly established trust for the benefit of one or more of
these individuals. Plan Share Awards so transferred may thereafter be
transferred only to the Participant who originally received the grant or to an
individual or trust to whom the Participant could have initially transferred the
Awards pursuant to this Section 8.03. Plan Share Awards which are transferred
pursuant to this Section 8.03 shall be exercisable by the transferee according
to the same terms and conditions as applied to the Participant.
8.04 No Employment or Other Rights. Neither the Plan nor any grant of a
Plan Share Award or Plan Shares hereunder nor any action taken by the Trustee,
the Committee or the Board in connection with the Plan shall create any right,
either express or implied, on the part of any Employee or Director to continue
in the service of the Company, the Bank, or an Affiliate thereof.
8.05 Voting and Dividend Rights. No Participant shall have any voting or
dividend rights or other rights of a stockholder in respect of any Plan Shares
covered by a Plan Share Award prior to the time said Plan Shares are actually
distributed to him.
8.06 Governing Law. The Plan and Trust shall be governed and construed
under the laws of the State of Tennessee to the extent not preempted by Federal
law.
8.07 Effective Date. The Plan shall become effective immediately upon its
approval by a favorable vote of stockholders of the Company who own at least a
majority of the total votes eligible to be cast at a duly called
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<PAGE>
meeting of the Company's stockholders held in accordance with applicable laws,
provided that the Plan shall not be submitted for such approval within the six-
month period after the Date of Conversion. In no event shall Plan Share Awards
be made prior to the Effective Date.
8.08 Term of Plan. This Plan shall remain in effect until the earlier of
(i) termination by the Board, or (ii) the distribution of all assets of the
Trust. Termination of the Plan shall not affect any Plan Share Awards
previously granted, and such Awards shall remain valid and in effect until they
have been earned and paid, or by their terms expire or are forfeited.
8.09 Tax Status of Trust. It is intended that (i) the Trust associated
with the Plan be treated as a grantor trust of the Company under the provisions
of Section 671 et seq. of the Code, as the same may be amended from time to
-- ---
time, and (ii) that in accordance with Revenue Procedure 92-65 (as the same may
be amended from time to time), Participants have the status of general unsecured
creditors of the Company, the Plan constitutes a mere unfunded promise to make
benefit payments in the future, the Plan is unfunded for tax purposes and for
purposes of Title I of the Employee Retirement Income Security Act of 1974, as
amended, and the Trust has been and will continue to be maintained in conformity
with Revenue Procedure 92-64 (as the same may be amended from time to time).
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<PAGE>
TRUST AGREEMENT
UNDER THE COMMUNITY NATIONAL CORPORATION
1998 MANAGEMENT RECOGNITION PLAN
---------------
Trust Agreement
---------------
This Agreement made this _____ day of _________, 1998 by and between
Community National Corporation (the "Company") and Non-Employee Directors
_____________, _____________, and _______________ (acting by majority, the
"Trustee").
WHEREAS, the Company maintains the Community National Corporation 1998
Management Recognition Plan (the "Plan"), and has incurred or expects to incur
liability under the terms of the Plan with respect to the individuals
participating in the Plan ("Participants"); and
WHEREAS, the Company wishes to establish a trust (the "Trust") and to
contribute to the Trust assets that shall be held therein, subject to the claims
of the Company's general creditors in the event of Insolvency, as defined in
Section 3(a) hereof, until paid to Participants and their beneficiaries in such
manner and at such times as specified in the Plan;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974;
WHEREAS, it is the intention of the Company to make contributions to the
Trust to provide itself with a source of funds to assist it in the meeting of
its liabilities under the Plan;
NOW, THEREFORE, the parties do hereby establish this Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust
----------------------------------
(a) The Company hereby deposits, or will shortly hereafter deposit, with
the Trustee in trust (i) a number of shares of the Company's common stock
("Common Stock") equal to four percent (4%) of the number of shares of Common
Stock sold to subscribers by the Company in connection with the close of the
second step conversion and reorganization of Lexington First Federal Savings
Bank (the"Bank"), or (ii) an amount expected to be sufficient to permit the
Trust to purchase said shares. Said shares or amount shall become the initial
principal of the Trust to be held, administered and disposed of by the Trustee
as provided in this Trust Agreement.
(b) The Trust shall become irrevocable upon the effective date of the Plan.
(c) The Trust is intended to be a grantor trust, of which the Company is
the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended (the "Code"), and
shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon, shall be held
separate and apart from other funds of the Company and shall be used exclusively
for the uses and purposes of Participants and general creditors as herein set
forth. Participants and their beneficiaries shall have no preferred claim on,
or any beneficial ownership
<PAGE>
interest in, any assets of the Trust. Any rights created under the Plan and this
Trust Agreement shall be mere unsecured contractual rights of Participants and
their beneficiaries against the Company. Any assets held by the Trust will be
subject to the claims of the Company's general creditors under federal and state
law in the event of Insolvency, as defined in Section 3(a) herein.
(e) The Company, in its sole discretion, may at any time, or from time to
time, make additional deposits of cash or other property in trust with the
Trustee to augment the principal to be held, administered and disposed of by
Trustee as provided in this Trust Agreement. Neither the Trustee nor any
Participant or beneficiary shall have any right to compel such additional
deposits.
Section 2. Payments to Plan Participants and Their Beneficiaries.
-----------------------------------------------------------------
(a) The Company shall deliver to the Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable in respect of each Participant
(and his or her beneficiaries), that provides a formula or other instructions
acceptable to the Trustee for determining the amounts so payable, the form in
which such amount is to be paid (as provided for or available under the Plan),
and the time of commencement for payment of such amounts. Except as otherwise
provided herein, the Trustee shall make payments to Participants and their
beneficiaries in accordance with such Payment Schedule. The Trustee shall make
provision for the reporting and withholding of any federal, state or local taxes
that may be required to be withheld with respect to the payment of benefits
pursuant to the terms of the Plan and shall pay amounts withheld to the
appropriate taxing authorities or determine that such amounts have been
reported, withheld and paid by the Company.
(b) The entitlement of a Participant or his or her beneficiaries to
benefits under the Plan shall be determined by the Company or such party as it
shall designate under the Plan, and any claim for such benefits shall be
considered and reviewed under the procedures set out in the Plan.
(c) The Company may make payment of benefits directly to Participants or
their beneficiaries as they become due under the terms of the Plan. The Company
shall notify the Trustee of its decision to make payment of benefits directly
prior to the time amounts are payable to Participants or their beneficiaries.
In addition, if the principal of the Trust, and any earnings thereon, are not
sufficient to make payments of benefits in accordance with the terms of the
Plan, the Company shall make the balance of each such payment as it falls due.
The Trustee shall notify the Company where principal and earnings are not
sufficient.
Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary
--------------------------------------------------------------------------
When Company Is Insolvent.
-------------------------
(a) The Trustee shall cease payment of benefits to Participants and their
beneficiaries if the Company is Insolvent. The Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) the Company is unable to
pay its debts as they become due, or (ii) the Company becomes subject to a
pending proceeding as a debtor under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Company under federal and state law as set
forth below.
(c) The Board of Directors and the Chief Executive Officer of the Company
shall have the duty to inform the Trustee in writing of the Company's
Insolvency. If a person claiming to be a creditor of the Company alleges in
writing to the Trustee that the Company has become Insolvent, the Trustee shall
determine whether the Company is Insolvent and, pending such determination, the
Trustee shall discontinue payment of benefits to Participants or their
beneficiaries.
-2-
<PAGE>
(1) Unless the Trustee has actual knowledge of the Company's
Insolvency, or has received notice from the Company or a person claiming to be a
creditor alleging that the Company is Insolvent, the Trustee shall have no duty
to inquire whether the Company is Insolvent. The Trustee may in all events rely
on such evidence concerning the Company's solvency as may be furnished to the
Trustee and that provides the Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
(2) If at any time the Trustee has determined that the Company is
Insolvent, the Trustee shall discontinue payments to Plan participants or their
beneficiaries, shall liquidate the Trust's investment in Common Stock, and shall
hold the assets of the Trust for the benefit of the Company's general creditors.
Nothing in this Trust Agreement shall in any way diminish any rights of
Participants or their beneficiaries as general creditors of the Company with
respect to benefits due under the Plan or otherwise.
(3) The Trustee shall resume the payment of benefits to Participants
or their beneficiaries in accordance with Section 2 of this Trust Agreement only
after the Trustee has determined that the Company is not Insolvent (or is no
longer Insolvent).
(d) Provided that there are sufficient assets, if the Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to
Participants or their beneficiaries under the terms of the Plan for the period
of such discontinuance, less the aggregate amount of any payments made to
Participants or their beneficiaries by the Company in lieu of the payments
provided for hereunder during any such period of discontinuance.
Section 4. Payments to the Company.
-----------------------------------
Except as provided in Section 3 hereof, after the Trust has become
irrevocable, the Company shall have no right or power to direct the Trustee to
return to the Company or to divert to others any of the Trust assets before all
payment of benefits have been made to Plan Participants and their beneficiaries
pursuant to the terms of the Plan.
Section 5. Investment Authority.
--------------------------------
(a) The Trustee shall have sole discretion as to the investment of Trust
assets, except that to the extent reasonably practicable, the Trustee shall
invest all assets of the Trust in Common Stock provided that the Trust shall not
purchase from time to time a number of shares of Common Stock exceeding 4% of
the shares of Common Stock sold to subscribers in the Company's initial stock
offering.
(b) All rights associated with assets of the Trust shall be exercised by
the Trustee or the person designated by the Trustee, and shall in no event be
exercisable by or rest with Participants, except that voting rights with respect
to Common Stock will be exercised in accordance with the terms of the Plan.
(c) Subject to applicable federal and state securities laws, if for any
reason the Trustee will be selling shares of Common Stock, the Trustee shall
sell such shares by (i) giving each Beneficiary 20 business days within which to
purchase, at fair market value, all or part of the shares of Common Stock that
the Trustee holds for the benefit of the Beneficiary, and (ii) to the extent
purchases by Beneficiaries are insufficient to eliminate the Trusts' excess
holdings of Common Stock, to offer to sell, and to sell, all or any part of the
excess shares held by the Trust to the following purchasers, listed here by
order of priority: first, the Company; second, any benefit plan maintained by
the Company or the Bank; third, directors of the Bank; fourth, officers of the
Bank; fifth, members of the general public.
-3-
<PAGE>
Section 6. - Disposition of Income.
----------------------------------
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
Section 7. Accounting by Trustee.
---------------------------------
The Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between the
Company and the Trustee. Within 60 days following the close of each calendar
year and within 20 days after the removal or resignation of the Trustee, the
Trustee shall deliver to the Company a written account of its administration of
the Trust during such year or during the period from the close of the last
preceding year to the date of such removal or resignation, setting forth all
investments, receipts, disbursements and other transactions effected by it,
including a description of all securities and investments purchased and sold
with the cost or net proceeds of such purchased and sold with the cost or net
proceeds of such purchases or sales (accrued interest paid or receivable being
shown separately), and showing all cash, securities and other property held in
the Trust at the end of such year or as of the date of such removal or
resignation, as the case may be.
Section 8. Responsibility of Trustee.
-------------------------------------
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Company which is contemplated by,
and in conformity, the terms of the Plan or this Trust and is given in writing
by the Company. In the event of a dispute between the Company and a party, the
Trustee may apply to a court of competent jurisdiction to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify the Trustee against
Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments, except in those cases where the Trustee shall have been found by
a court of competent jurisdiction to have acted with gross negligence or willful
misconduct. If the Company does not pay such costs, expenses and liabilities in
a reasonably timely manner, the Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel with respect to any of its
duties or obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
the Trustee shall have no power to name a beneficiary of the policy other than
the Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor the Trustee, or to loan to any person
the proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or to applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Code.
-4-
<PAGE>
Section 9. Compensation and Expenses of Trustee.
------------------------------------------------
The Company shall pay all administrative expenses and the Trustee's fees
and expenses relating to the Plan and this Trust. If not so paid, the fees and
expenses shall be paid from the Trust.
Section 10. Resignation and Removal of Trustee.
-----------------------------------------------
The Trustee (or any individual serving as one of the trustees who act by
majority as the Trustee) may resign at any time by written notice to the
Company, which resignation shall be effective 30 days after the Company receives
such notice (unless the Company and the Trustee agree otherwise). The Trustee
(or any individual serving as one of the trustees who act by majority as the
Trustee) may be removed by the Company on 30 days notice or upon shorter notice
accepted by the Trustee.
If the Trustee (or any individual serving as one of the trustees who act by
majority as the Trustee) resigns or is removed, a successor shall be appointed,
in accordance with Section 11 hereof, by the effective date or resignation or
removal under this section. If no such appointment has been made, the Trustee
may apply to a court of competent jurisdiction for appointment of a successor or
for instructions. All expenses of the Trustee in connection with the proceeding
shall be allowed as administrative expenses of the Trust. Upon resignation or
removal of the Trustee and appointment of a successor trustee, all assets shall
subsequently be transferred to the successor trustee. The transfer shall be
completed within 60 days after receipt of notice of resignation, removal or
transfer, unless the Company extends the time limit.
Section 11. Appointment of Successor.
-------------------------------------
If the Trustee resigns or is removed in accordance with Section 10 hereof,
the Company may appoint any other party as a successor to replace the Trustee
upon resignation or removal. The appointment shall be effective when accepted
in writing by the new trustee, who shall have all of the rights and powers of
the former trustee, including ownership rights in the Trust assets. The former
trustee shall execute any instrument necessary or reasonably requested by the
Company or the successor trustee to evidence the transfer.
A successor trustee need not examine the records and acts of any prior
trustee and may retain or dispose of existing Trust assets, subject to Sections
7 and 8 hereof. The successor trustee shall not be responsible for, and the
Company shall indemnify and defend the successor trustee from, any claim or
liability resulting from any action or inaction of any prior trustee or from any
other past event, or any condition existing at the time it becomes successor
trustee.
Section 12. Amendment or Termination.
-------------------------------------
(a) This Trust Agreement may be amended by a written instrument executed by
the Trustee and the Company, provided that no such amendment shall make the
Trust revocable.
(b) The Trust shall not terminate until the date on which Participants and
their beneficiaries are no longer entitled to benefits pursuant to the terms
hereof. Upon termination of the Trust, the Trustee shall return any assets
remaining in the Trust to the Company.
(c) Upon written approval of all Participants (or their beneficiaries if
they are then entitled to payment of benefits), the Company may terminate this
Trust prior to the time all benefit payments under the Plan have been made. All
assets in the Trust at termination shall be returned to the Company.
-5-
<PAGE>
Section 13. Miscellaneous.
--------------------------
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Participants and their beneficiaries under this
Trust Agreement may not be anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process, except pursuant to the terms of
the Plan.
(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of the State of Tennessee, to the extent not preempted by federal
law.
(d) The Trustee agrees to be bound by the terms of the Plan, as in effect
from time to time.
(e) The Trustee shall act by vote or written consent of a majority of its
duly-appointed members.
IN WITNESS WHEREOF, the Company, by its duly authorized officer, has caused
this Agreement to be executed, and its corporate seal affixed, and the Trustees
have executed this Agreement, this ___ day of ___________, 1998.
ATTEST: COMMUNITY NATIONAL CORPORATION
By
- -------------- ---------------
Its President
ATTEST:
- -------------- --------------
Trustee
- -------------- ---------------
Trustee
- -------------- ---------------
Trustee
-6-
<PAGE>
EXHIBIT 23.1
ARNOLD, SPAIN & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
914 NORTH HIGHLAND AVENUE
JACKSON, TENNESSEE 38301
BILLY SPAIN, C.P.A. ------------- MEMBERS:
WINSTON TRUETT, C.P.A. AMERICAN INSTITUTE OF
MICHAEL HEWITT, C.P.A. 901- 427-8571 CERTIFIED PUBLIC ACCOUNTANTS
---------------- FAX 901- 424-5701
TENNESSEE SOCIETY OF
KRISTI MCNEILL, C.P.A. CERTIFIED PUBLIC ACCOUNTANTS
AMY CREIGHTON, C.P.A.
GRADY ARNOLD, C.P.A., RETIRED
AICPA DIVISION OF FIRMS
Board of Directors
Lexington First Federal Mutual
Holding Company
Lexington, TN 38351
INDEPENDENT AUDITOR'S CONSENT
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 24, 1997, on the consolidated financial
statements of Lexington First Federal Mutual Holding Company, to the
Registration Statement (Form SB-2), Application for Conversion (Form AC),
and related Prospectus, and any amendments thereto, of Community National
Corporation.
/s/ Arnold, Spain & Company P.C.
Certified Public Accountants
July 14, 1997
<PAGE>
EXHIBIT 23.3
[LETTERHEAD OF FERGUSON & COMPANY APPEARS HERE]
July 18, 1997
Boards of Directors
Lexington First Federal Mutual Holding company
Lexington First Federal Savings Bank
19 Natchez Trace Drive
Lexington, TN 38351
Directors:
We hereby consent to the use of our firm's name in the Form AC Application
for Conversion of Lexington First Federal Mutual Holding Company, Lexington,
Tennessee, and any amendments thereto, and in the Form SB-2 Registration
Statement of Community National Corporation and any amendments thereto. We also
hereby consent to the inclusion of, summary of, and references to our Appraisal
Report and our opinion concerning subscription rights in such filings including
the Prospectus of Community National Corporation.
Sincerely,
/s/ Robin L. Fussell
Robin L. Fussell
Principal
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,573
<INT-BEARING-DEPOSITS> 25,379
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,129
<INVESTMENTS-CARRYING> 2,907
<INVESTMENTS-MARKET> 2,922
<LOANS> 16,429
<ALLOWANCE> 148
<TOTAL-ASSETS> 25,942
<DEPOSITS> 20,884
<SHORT-TERM> 28
<LIABILITIES-OTHER> 187
<LONG-TERM> 921
0
0
<COMMON> 223
<OTHER-SE> 3,700
<TOTAL-LIABILITIES-AND-EQUITY> 25,942
<INTEREST-LOAN> 365
<INTEREST-INVEST> 126
<INTEREST-OTHER> 7
<INTEREST-TOTAL> 498
<INTEREST-DEPOSIT> 252
<INTEREST-EXPENSE> 270
<INTEREST-INCOME-NET> 228
<LOAN-LOSSES> 6
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 144
<INCOME-PRETAX> 92
<INCOME-PRE-EXTRAORDINARY> 92
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
<YIELD-ACTUAL> 7.98
<LOANS-NON> 0
<LOANS-PAST> 155
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 141
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 147
<ALLOWANCE-DOMESTIC> 97
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 50
</TABLE>
<PAGE>
EXHIBIT 99.1
LEXINGTON FIRST FEDERAL SAVINGS BANK
19 Natchez Trace Drive
Lexington, Tennessee 38351
(901) 968-6624
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be Held on ___________, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Lexington
First Federal Savings Bank (the "Bank") will be held at the Bank's main office
located at 19 Natchez Drive, Lexington, Tennessee 38351 on ___________,
____________, 1997, at __:__ __.m. Central Time, for the following purposes, as
more completely set forth in the accompanying Proxy Statement:
(1) To approve and adopt the Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan"), pursuant to which: (i) Lexington First Federal
Mutual Holding Company (the "Mutual Holding Company"), which currently owns
approximately 60.54% of the common stock of the Bank, will convert from mutual
form to a federal interim stock savings institution and simultaneously merge
with and into the Bank, with the Bank being the surviving entity; (ii) an
interim institution ("Interim") to be formed as a wholly owned subsidiary of
Community National Corporation, a Tennessee corporation recently formed as a
wholly owned subsidiary of the Bank (the "Company"), will merge with and into
the Bank, with the Bank being the surviving entity and becoming a wholly owned
subsidiary of the Company; (iii) the outstanding shares of the Bank common stock
(other than those held by the Mutual Holding Company, which will be cancelled)
will be converted into shares of common stock of the Company pursuant to a ratio
that will result in the holders of such shares owning in the aggregate
approximately the same percentage of the Company as they currently own of the
Bank, before giving effect to such stockholders purchasing additional shares in
a concurrent stock offering by the Company thereafter, receiving cash in lieu of
fractional shares or exercising dissenter's rights ("Exchange Shares"); and (iv)
in connection therewith, the Bank's charter will be amended to establish a
liquidation account in accordance with applicable regulations. Following the
Stock Conversion and Reorganization, the Bank intends to convert from a federal
stock savings bank to a national bank (the "Bank Conversion") to be known as
Community National Bank of Tennessee. In addition, the Company is offering
shares of its common stock by means of a Prospectus, and the sale of such stock
and the reorganization are referred to herein as the "Stock Conversion and
Reorganization." The Stock Conversion and Reorganization and the Bank Conversion
are referred to collectively herein as the "Conversion."
(2) To transact such other business as may properly come before the
meeting. Except with respect to procedural matters incident to the conduct of
the meeting, management of the Bank is not aware of any matters other than those
set forth above which may properly come before the meeting.
Stockholders of the Bank have the right, pursuant to 12 C.F.R. Section
522.14, to dissent from the Stock Conversion and Reorganization and to exercise
appraisal rights for their shares of the Bank common stock upon strict
compliance with the terms and conditions of 12 C.F.R. Section 552.14, a copy of
which is attached hereto as Appendix A. Failure to comply strictly with the
requirements of 12 C.F.R. Section 552.14 will result in the loss of appraisal
rights.
Stockholders of record of the Bank at the close of business on __________,
1997 are entitled to notice of and to vote at the Special Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
_________________
Arba M. Taylor
Secretary
Lexington, Tennessee
_______________ __, 1997
<PAGE>
=========================================================================
YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THIS
MEETING, YOU MAY VOTE EITHER IN PERSON OR BY YOUR PROXY. ANY
PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING OR IN PERSON AT ANY
TIME PRIOR TO THE EXERCISE THEREOF. PROXIES MUST BE RECEIVED PRIOR
TO THE COMMENCEMENT OF THE MEETING.
YOUR VOTE IS VERY IMPORTANT. VOTING ON THE PLAN DOES NOT
REQUIRE YOU TO PURCHASE STOCK IN THE OFFERINGS.
=========================================================================
<PAGE>
PROXY STATEMENT
_______________________
SPECIAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished to the holders of the common stock, par
value $1.00 per share (the "Bank Common Stock"), of Lexington First Federal
Savings Bank (the "Bank" or "Lexington First") (the "Stockholders") in
connection with the solicitation of proxies on behalf of the Board of Directors,
to be used at the Special Meeting of Stockholders ("Special Meeting") to be held
at the Bank's main office located at 19 Natchez Trace Drive, Lexington,
Tennessee on _________, ____________, 1997, at __:__ __.m., Central Time, and at
any adjournment thereof for the purpose of considering a Plan of Conversion and
Agreement and Plan of Reorganization (the "Plan") pursuant to which: (i)
Lexington First Federal Mutual Holding Company (the "Mutual Holding Company"),
which currently owns approximately 60.54% of the Bank Common Stock, will convert
from mutual form to a federal interim stock savings institution and
simultaneously merge with and into the Bank, with the Bank being the surviving
entity; (ii) an interim institution ("Interim") to be formed as a wholly owned
subsidiary of Community National Corporation, a Tennessee corporation recently
formed as a wholly owned subsidiary of the Bank (the "Company"), will merge with
and into the Bank, with the Bank being the surviving entity and becoming a
wholly owned subsidiary of the Company; (iii) the outstanding shares of the Bank
Common Stock (other than those held by the Mutual Holding Company, which will be
cancelled) will be converted into shares of common stock, $1.00 par value, of
the Company (the "Common Stock") pursuant to a ratio that will result in the
holders of such shares (the "Public Stockholders") owning in the aggregate
approximately the same percentage of the Company as they currently own of the
Bank, before giving effect to such stockholders purchasing additional shares in
a concurrent stock offering by the Company thereafter, the receipt of cash in
lieu of fractional shares or the exercise of dissenter's rights ("Exchange
Shares"); and (iv) in connection therewith, the Bank's charter will be amended
to establish a liquidation account in accordance with applicable regulations.
Following the Stock Conversion and Reorganization, the Bank intends to convert
from a federal stock savings bank to a national bank (the "Bank Conversion") to
be known as Community National Bank of Tennessee. In addition, the Company is
offering shares of Common Stock by means of a Prospectus, and the sale of such
stock and the reorganization are referred to herein as the "Stock Conversion and
Reorganization." The Stock Conversion and Reorganization and the Bank
Conversion are referred to collectively herein as the "Conversion."
Each proxy solicited hereby, if properly signed and returned to the Bank
and not revoked prior to its use, will be voted in accordance with the
instructions contained therein. If no contrary instructions are given, each
signed proxy received will be voted in favor of the Plan and, upon the
transaction of such other business as may properly come before the meeting, in
accordance with the best judgment of the persons appointed as proxies. Only
proxies that are returned can be counted and voted at the Special Meeting.
Any stockholder giving a proxy has the power to revoke it at any time
before it is exercised by (i) filing with the Secretary of the Bank (Arba M.
Taylor, Secretary and Treasurer, Lexington First Federal Savings Bank, 19
Natchez Trace Drive, Lexington, Tennessee 38351) written notice thereof; (ii)
submitting a duly executed proxy bearing a later date; or (iii) appearing at the
Special Meeting and giving the Secretary notice of his or her intention to vote
in person. Proxies solicited hereby may be exercised only at the Special Meeting
and any adjournment thereof and will not be used for any other meeting.
This Proxy Statement is expected to be mailed to stockholders on or about
____________ __, 1997.
VOTING SECURITIES AND REQUIRED VOTE
Pursuant to Office of Thrift Supervision ("OTS") regulations, consummation
of the Stock Conversion is conditioned upon the approval of the Plan by the OTS,
as well as (1) the approval of the holders of at least a majority
2
<PAGE>
of the total number of votes eligible to be cast by the members of the Mutual
Holding Company (the "Members") as of the close of business on _______________
__, 1997 (the "Voting Record Date") at a special meeting of Members called for
the purpose of considering the Plan (the "Members' Meeting"), and (2) the
approval of the holders of at least two-thirds of the shares of the outstanding
Bank Common Stock held by the Stockholders as of the voting record date at the
Special Meeting. In addition, the Company, the Mutual Holding Company and the
Bank (the "Primary Parties") have conditioned the consummation of the Stock
Conversion and Reorganization on the approval of the Plan by the holders of at
least a majority of the votes cast, in person or by proxy, by the Public
Stockholders at the Special Meeting. The Mutual Holding Company intends to vote
its shares of Bank Common Stock, which amount to 60.54% of the outstanding
shares, in favor of the Plan at the Special Meeting. In addition, as of March
31, 1997, directors and executive officers of the Bank as a group (nine persons)
beneficially owned ______ shares or ______% of the outstanding Bank Common
Stock, which shares can also be expected to be voted in favor of Plan at the
Special Meeting.
Only stockholders of record at the close of business on ____________ __,,
1997 (the "Voting Record Date") are entitled to notice of and to vote at the
Special Meeting. On the Voting Record Date, there were ________ shares of Bank
Common Stock outstanding, and the Bank had no other class of equity securities
outstanding. Each share of Bank Common Stock is entitled to one vote at the
Special Meeting on all matters properly presented at the Special Meeting.
A majority of the outstanding Bank Common Stock, represented in person or
by proxy, shall constitute a quorum at the Special Meeting. Shares as to which
the "ABSTAIN" box has been marked on the proxy and any shares held by brokers in
street name for customers which are present at the Special Meeting and are not
voted in the absence of instructions from the customers ("broker non-votes")
will be counted as present for determining if a quorum is present. Because
adoption of the Plan must be approved by the holders of at least two-thirds of
the outstanding Bank Common Stock, abstentions and broker non-votes will have
the same effect as a vote against such proposal. The Plan also conditions
consummation of the Stock Conversion and Reorganization on the approval of the
Plan by at least a majority of the votes cast, in person or by proxy, at the
Special Meeting by the Public Stockholders. Abstentions and broker non-votes
will have no effect on the required vote of the Public Stockholders.
INCORPORATION OF INFORMATION BY REFERENCE
The Prospectus of the Company is incorporated herein by reference. The
Prospectus sets forth a description of the terms and the related offering of the
Common Stock by the Company under the caption "The Stock Conversion and
Reorganization." Such caption also describes the effects of the Stock
Conversion and Reorganization on the stockholders of the Bank and the members of
the Mutual Holding Company, including the tax consequences of the Stock
Conversion and Reorganization and the establishment of a liquidation account for
the benefit of certain depositors of the Bank. Upon consummation of the Stock
Conversion and Reorganization, the charter of the Bank will be amended to
provide for a liquidation account. This amendment is being adopted to comply
with applicable regulations of the OTS. See Appendix B attached hereto. As
part of the Bank Conversion, the Bank will adopt a national bank charter and
bylaws. See Appendices C and D, attached hereto.
Information regarding the Bank, the Company and the Mutual Holding Company
are set forth in the Prospectus under the captions "Lexington First Federal
Savings Bank," "Community National Corporation" and "Lexington First Federal
Mutual Holding Company" respectively, as well as under the caption "Summary."
The Prospectus also describes the business and financial condition of the Bank
under the captions "Business of the Bank" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the historical
financial statements of the Bank are included in the Prospectus. Information
regarding the use of proceeds of the Offerings conducted in connection with the
Stock Conversion and Reorganization, the historical capitalization of the Bank
and the pro forma capitalization of the Company, and other pro forma data are
set forth in the Prospectus under the captions "Use of Proceeds,"
"Capitalization" and "Pro Forma Data," respectively.
3
<PAGE>
The Prospectus sets forth certain information as to the Bank Common Stock
beneficially owned by (i) the only persons or entities who or which were known
to the Bank to be the beneficial owner of more than 5% of the issued and
outstanding Bank Common Stock, (ii) the directors of the Bank, and (iii) all
directors and executive officers of the Bank as a group. See "Beneficial
Ownership of Capital Stock" in the Prospectus.
The Prospectus also sets forth a comparison of the rights of stockholders
of the Bank with the rights of stockholders of the Company. See "Comparison of
Stockholders' Rights" in the Prospectus.
DISSENTERS' RIGHTS OF APPRAISAL
Record holders of Bank Common Stock are entitled to appraisal rights under
Section 552.14 of the OTS regulations as a result of the merger of the Mutual
Holding Company (following its conversion to a federal interim stock savings
institution) with and into the Bank and the merger of the Bank with and into
Interim, with the Bank to be the surviving entity in both mergers (the
"Mergers"). Any person having a beneficial interest in shares of Bank Common
Stock held of record in the name of another person, such as a broker or nominee,
and who wishes to exercise dissenters' rights must act promptly to cause the
record holder to follow the steps summarized below properly and in a timely
manner to perfect whatever appraisal rights the beneficial owner may have.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under Section 552.14 and is qualified in its entirety by the
full text of Section 552.14, which is reprinted as Appendix A to this Proxy
Statement.
Under Section 552.14, where a merger is to be submitted for approval at a
meeting of stockholders, as in the case of the Special Meeting, not less than 20
days prior to the meeting, the institution must notify each of the holders of
its stock for which appraisal rights are available that such appraisal rights
are available and include in each such notice a copy of Section 552.14. This
Proxy Statement shall constitute such notice to the record holders of Bank
Common Stock. Any such stockholder who wishes to exercise such appraisal rights
should review carefully the following discussion and Appendix A to this Proxy
Statement because failure to timely and properly comply with the procedures
specified will result in the loss of appraisal rights under Section 552.14.
A holder of shares of Bank Common Stock wishing to exercise his appraisal
rights must deliver to the Secretary of the Bank, before the vote on the Plan at
the Special Meeting, a writing which identifies such stockholder and which
states his intention to demand appraisal of and payment for his shares of Bank
Common Stock. Such demand must be in addition to and separate from any proxy or
vote against the Plan. A vote against the Plan does not, by itself, constitute
a demand for appraisal rights. Also, voting for the approval and adoption of
the Plan will result in the loss of appraisal rights with respect to such
shares. In addition, a holder of shares of Bank Common Stock wishing to
exercise his appraisal rights must hold of record such shares on the date the
written demand for appraisal is made and must hold such shares continuously
through the Effective Date.
Only a holder of record of shares of Bank Common Stock is entitled to
assert appraisal rights for the shares of Bank Common Stock registered in that
holder's name. A demand for appraisal should be executed by or on behalf of the
holder of record fully and correctly, as his name appears on his stock
certificates. If the shares of Bank Common Stock are owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, execution of
the demand should be made in that capacity, and if the shares of Bank Common
Stock are owned of record by more than one person, as in a joint tenancy or
tenancy in common, the demand should be executed by or on behalf of all joint
owners. An authorized agent, including one or more joint owners, may execute a
demand for appraisal on behalf of a holder of record; however, the agent must
identify the record owner or owners and expressly disclose the fact that, in
executing the demand, the agent is agent for such owner or owners. A record
holder such as a broker who holds shares of Bank Common Stock as nominee for
several beneficial owners may exercise appraisal rights with respect to the
shares of Bank Common Stock held for one or more beneficial owners while not
exercising such rights with respect to the shares of Bank Common Stock held for
other beneficial owners; in such case, the written demand should set forth the
number
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of shares of Bank Common Stock as to which appraisal is sought and where no
number of shares of Bank Common Stock is expressly mentioned the demand will be
presumed to cover all shares of Bank Common Stock held in the name of the record
owner. Stockholders who hold their shares of Bank Common Stock in brokerage
accounts or other nominee forms and who wish to exercise appraisal rights must
take all necessary steps in order that a demand for appraisal is made by the
record holder of such shares and are urged to consult with their brokers to
determine the appropriate procedures for the making of a demand for appraisal by
the record holder and for surrendering the certificates for such shares to the
Bank for notation of appraisal rights as set forth below.
All written demands for appraisal should be sent or delivered to Arba M.
Taylor, Secretary and Treasurer, Lexington First Federal Savings Bank, 19
Natchez Trace Drive, Lexington, Tennessee 38351 so as to be received prior to
the vote of stockholders with respect to the Plan.
Within ten days after the effective date ("Effective Date") of the Stock
Conversion and Reorganization, the Bank, as the resulting institution in the
Mergers, must: (i) send a written notice as to the Effective Date of the Stock
Conversion and Reorganization to each person who has satisfied the appropriate
provisions of Section 552.14 and who has not voted in favor of the Plan, (ii)
make a written offer to each stockholder to pay for dissenting shares at a
specified price deemed by the Bank to be the fair value thereof, and (iii)
inform each stockholder that within 60 days of such date the stockholder must
take certain actions set forth in such notice (and summarized below). A written
offer to dissenting stockholders, if any, will be based on the circumstances
existing on the Effective Date, and the Bank has not determined the price per
share it would offer any dissenting stockholders. If, within 60 days of the
Effective Date, an agreement is reached as to the fair value between the Bank
and a dissenting stockholder, payment therefore shall be made within 90 days of
the Effective Date.
If the Bank and any holder of the Bank Common Stock who has complied with
the foregoing procedures and who is entitled to appraisal rights under Section
552.14 have not agreed as to the fair value within 60 days of the Effective
Date, the stockholder may file a petition with the OTS, with a copy of the Bank
by registered or certified mail demanding a determination of the fair value of
the stock of all dissenting stockholders. A stockholder who fails to file such
petition within 60 days of the Effective Date shall be deemed to have accepted
the Exchange Shares to which he is entitled. In addition, within 60 days of the
Effective Date, each stockholder demanding appraisal and payment under Section
552.14 must submit to the Bank the certificates for notation thereon that
appraisal and payment has been demanded and that appraisal proceedings are
pending. The failure to submit certificates for notation will result in the
loss of appraisal rights. The Bank is not under any obligation to file a
petition with respect to the appraisal of the fair value of the shares of Bank
Common Stock. Accordingly, it is the obligation of the stockholders to initiate
all necessary action to perfect their appraisal rights within the time
prescribed in Section 552.14.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Director of the OTS will determine the holders of shares of Bank
Common Stock entitled to appraisal rights and will order an appraisal of the
"fair value" of the shares of Bank Common Stock, exclusive of any element of
value arising from the accomplishment or expectation of the Stock Conversion and
Reorganization. Such appraisal may be conducted by appropriate staff of the OTS
or such independent appraiser as the Director shall determine. If the appraisal
is conducted by an independent appraiser, then the OTS staff will review and
provide an opinion as to the suitability of the methodology and the adequacy of
the analysis and supportive data. If the Director concurs in the valuation,
then payment of the appraised value of the shares will be directed from the
resulting institution (the Bank) upon surrender of the certificates representing
the dissenting shares of Bank Common Stock, along with interest from the
Effective Date at a rate deemed equitable by the Director. Holders of shares of
Bank Common Stock considering seeking appraisal should be aware that the fair
value of their shares of Bank Common Stock as determined under Section 552.14
could be more than, the same as, or less than the value of the consideration
they would receive pursuant to the Plan if they did not seek appraisal of their
shares of Bank Common Stock.
5
<PAGE>
The costs of any appraisal proceeding may be apportioned and assessed by
the Director as he or she deems equitable against all or some of the parties.
In making the determination, the Director shall consider whether any of the
parties has acted arbitrarily, vexatiously, or not in good faith.
Any holder of shares of Bank Common Stock who has duly demanded an
appraisal in compliance with Section 552.14 will not, after the Effective Date,
be entitled to vote the shares of Bank Common Stock subject to such demand for
any purpose or be entitled to the payment of dividends or other distributions on
those shares (except dividends or other distributions payable to, or a vote to
be taken by, holders of record of shares of Bank Common Stock as of a date prior
to the Effective Date).
If any holder of Bank Common Stock who demands appraisal of his shares
under Section 552.14 fails to perfect, or effectively withdraws or loses his
right to appraisal as provided in Section 552.14, the shares of such stockholder
will be converted into Exchange Shares in accordance with the Plan. A holder
may withdraw his demand for appraisal by delivering to the Bank a written
withdrawal of his demand for appraisal and acceptance of the Exchange Shares
(any such written withdrawal should be directed to Arba M. Taylor, Secretary and
Treasurer, Lexington First Federal Savings Bank, 19 Natchez Trace Drive,
Lexington, Tennessee 38351).
Failure to follow the steps required by Section 552.14 for perfecting
appraisal rights may result in the loss of such rights.
STOCKHOLDER PROPOSALS
Any proposal which a stockholder wishes to have included in the proxy
materials for the next annual meeting of stockholders of the Bank, which would
be held in April 1998 if the Stock Conversion and Reorganization is not
consummated, must be received at the main office of the Bank, 19 Natchez Trace
Drive, Lexington, Tennessee 38351, no later than October __, 1997.
OTHER MATTERS
Each proxy solicited hereby also confers discretionary authority on the
Board of Directors of the Bank to vote the proxy upon such other matters as may
properly come before the Special Meeting. Management is not aware of any
business that may properly come before the Special Meeting other than those
matters described above in this Proxy Statement. However, if any other matters
should properly come before the Special Meeting, it is intended that the proxies
solicited hereby will be voted with respect to those other matters in accordance
with the judgment of the persons voting the proxies.
The cost of solicitation of the proxies will be borne by the Bank. In
addition to solicitations by mail, the directors and officers of the Bank may
solicit proxies personally or by telephone without additional compensation. The
Bank will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending the Bank's proxy
materials to the beneficial owners of the Bank Common Stock.
You may obtain a copy of the Plan, including the Charter and Bylaws of the
Company, from the office of the Bank or in writing from the Bank. Any such
requests should be directed to Arba M. Taylor, Secretary and Treasurer,
Lexington First Federal Savings Bank, 19 Natchez Trace Drive, Lexington,
Tennessee 38351. So that you have sufficient time to receive and review the
requested materials, it is recommended that any such requests be sent so that
they are received by the Bank by ________ __, 1997.
YOUR VOTE IS IMPORTANT! THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR THE PLAN. WE URGE YOU TO MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AND
- ---
RETURN IT TODAY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
6
<PAGE>
APPENDIX A
SECTION 552.14 OF THE OTS REGULATIONS RELATING TO
DISSENTERS' RIGHTS OF APPRAISAL
(S)552.14 Dissenter and appraisal rights.
(a) Right to demand payment of fair or appraised value. Except as provided
in paragraph (b) of this section, any stockholder of a Federal stock association
combining in accordance with (S)552.13 of this part shall have the right to
demand payment of the fair or appraised value of his stock: Provided, That such
stockholder has not voted in favor of the combination and complies with the
provisions of paragraph (c) of this section.
(b) Exceptions. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section to
demand payment of the stock's fair or appraised value, if such stock was listed
on a national securities exchange or quoted on the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") on the date of the
meeting at which the combination was acted upon or stockholder action is not
required for a combination made pursuant to (S)552.13(h)(2) of this part.
"Qualified consideration" means cash, shares of stock of any association or
corporation which at the effective date of the combination will be listed on a
national securities exchange or quoted on NASDAQ or any combination of such
shares of stock and cash.
(c) Procedure.
(1) NOTICE. Each constituent Federal stock association shall notify
all stockholders entitled to rights under this section, not less than twenty
days prior to the meeting at which the combination agreement is to be submitted
for stockholder approval, of the right to demand payment of appraised value of
shares, and shall include in such notice a copy of this section. Such written
notice shall be mailed to stockholders of record and may be part of the
management's proxy solicitation for such meeting.
(2) DEMAND FOR APPRAISAL AND PAYMENT. Each stockholder electing to
make a demand under this section shall deliver to the Federal stock association,
before voting on the combination, a writing identifying himself or herself and
stating his or her intention thereby to demand appraisal of and payment for his
or her shares. Such demand must be in addition to and separate from any proxy
or vote against the combination by the stockholder.
(3) NOTIFICATION OF EFFECTIVE DATE AND WRITTEN OFFER. Within ten days
after the effective date of the combination, the resulting association shall;
(i) Give written notice by mail to stockholders of constituent
Federal Stock associations who have complied with the provisions
of paragraph (c)(2) of this section and have not voted in favor
of the combination, of the effective date of the combination;
(ii) Make a written offer to each stockholder to pay for
dissenting shares at a specified price deemed by the resulting
association to be the fair value thereof; and
(iii) Inform them that, within sixty days of such date, the
respective requirements of paragraphs (c)(5) and (6) of this
section (set out in the notice) must be satisfied.
<PAGE>
The notice and offer shall be accompanied by a balance sheet and statement
of income of the association the shares of which the dissenting stockholder
holds, for a fiscal year ending not more than sixteen months before the date of
notice and offer, together with the latest available interim financial
statements.
(4) ACCEPTANCE OF OFFER. If within sixty days of the effective date
of the combination the fair value is agreed upon between the resulting
association and any stockholder who has complied with the provisions of
paragraph (c)(2) of this section, payment therefor shall be made within ninety
days of the effective date of the combination.
(5) PETITION TO BE FILED IF OFFER NOT ACCEPTED. If within sixty days
of the effective date of the combination the resulting association and any
stockholder who has complied with the provisions of paragraph (c)(2) of this
section do not agree as to the fair value, then any such stockholder may file a
petition with the Office, with a copy by registered or certified mail to the
resulting association, demanding a determination of the fair market value of the
stock of all such stockholders. A stockholder entitled to file a petition under
this section who fails to file such petition within sixty days of the effective
date of the combination shall be deemed to have accepted the terms offered under
the combination.
(6) STOCK CERTIFICATES TO BE NOTED. Within sixty days of the
effective date of the combination, each stockholder demanding appraisal and
payment under this section shall submit to the transfer agent his certificates
of stock for notation thereon that an appraisal and payment have been demanded
with respect to such stock and that appraisal proceedings are pending. Any
stockholder who fails to submit his stock certificates for such notation shall
no longer be entitled to appraisal rights under this section and shall be deemed
to have accepted the terms offered under the combination.
(7) WITHDRAWAL OF DEMAND. Notwithstanding the foregoing, at any time
within sixty days after the effective date of the combination, any stockholder
shall have the right to withdraw his or her demand for appraisal and to accept
the terms offered upon the combination.
(8) VALUATION AND PAYMENT. The Director shall, as he or she may
elect, either appoint one or more independent persons or direct appropriate
Staff of the Office to appraise the shares to determine their fair market value,
as of the effective date of the combination, exclusive of any element of value
arising from the accomplishment or expectation of the combination. Appropriate
staff of the Office shall review and provide an opinion on appraisals prepared
by independent persons as to the suitability of the appraisal methodology and
the adequacy of the analysis and supportive data. The Director after
consideration of the appraisal report and the advice of the appropriate staff
shall, if he or she concurs in the valuation of the shares direct payment by the
resulting association of the appraised fair market value of the shares, upon
surrender of the certificates representing such stock. Payment shall be made,
together with interest from the effective date of the combination, at a rate
deemed equitable by the Director.
(9) COSTS AND EXPENSES. The costs and expenses of any proceeding
under this section may be apportioned and assessed by the Director as he or she
may deem equitable against all or some of the parties. In making this
determination the Director shall consider whether any party has acted
arbitrarily, vexatiously, or not in good faith in respect to the rights provided
by this section.
(10) VOTING AND DISTRIBUTION. Any stockholder who has demanded
appraisal rights as provided in paragraph (c)(2) of this section shall
thereafter neither be entitled to vote such stock for any purpose nor be
entitled to the payment of dividends or other distributions on the stock (except
dividends or other distribution payable to, or a vote to be taken by
stockholders of record at a date which is on or prior to, the effective date of
the combination): Provided, That if any stockholder becomes unentitled to
appraisal and payment of appraised value with respect to such stock and accepts
or is deemed to have accepted the terms offered upon the combination, such
stockholder shall thereupon be entitled to vote and receive the distributions
described above.
(11) STATUS. Shares of the resulting association into which shares of
the stockholder demanding appraisal rights would have been converted or
exchanged, had they assented to the combination, shall have the status of
authorized and unissued shares of the resulting association.
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APPENDIX B
Section 8. Liquidation Account. Pursuant to the requirements of 12
C.F.R. Subchapter D, the Savings Bank shall establish and maintain a liquidation
account for the benefit of its savings account holders who had an account
balance of at least $50.00 as of the close of business on either December 31,
1995 or June 30, 1997 ("eligible depositors"). In the event of a complete
liquidation of the Savings Bank, it shall comply with such regulations with
respect to the amount and the priorities on liquidation of each of the Savings
Bank's eligible depositor's inchoate interest in the liquidation account, to the
extent it is still in existence, provided that an eligible depositor's inchoate
interest in the liquidation account shall not entitle such eligible depositor to
any voting rights at meetings of the Savings Bank's stockholders.
B-1
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Appendix C
ARTICLES OF ASSOCIATION
OF
COMMUNITY NATIONAL BANK OF TENNESSEE
For the purpose of organizing an association to perform any lawful
activities of national banks, the undersigned do enter into the following
Articles of Association:
FIRST. The title of this association shall be "COMMUNITY NATIONAL
BANK OF TENNESSEE" (hereinafter referred to as the "Bank").
SECOND. The main office of the Bank shall be in the City of
Lexington, County of Henderson, State of Tennessee. The general business of the
Bank shall be conducted at its main office and its branches and facilities.
THIRD. The board of directors of this Bank shall consist of not less
than five nor more than twenty-five persons, the exact number to be fixed and
determined from time to time by resolution of a majority of the full board of
directors or by resolution of a majority of the shareholders at any annual or
special meeting thereof. Each director shall own common or preferred stock of
the Bank, or of a holding company owning the Bank, with an aggregate par, fair
market or equity value of not less than $1,000, as of either (i) the date of
purchase, (ii) the date the person became a director, or (iii) the date of that
person's most recent election to the board of directors, whichever is more
recent. Any combination of common or preferred stock of the Bank or holding
company may be used.
Any vacancy in the board of directors may be filled by action of a
majority of the remaining directors between meetings of shareholders; provided,
however, that the board of directors may not increase the number of directors
between meetings of shareholders to a number which: (1) exceeds by more than two
the number of directors last elected by shareholders where the number was 15 or
less; or (2) exceeds by more than four the number of directors last elected by
shareholders where the number was 16 or more, but in no event shall the number
of directors exceed 25.
Terms of directors, including directors selected to fill vacancies,
shall expire at the next regular meeting of shareholders at which directors are
elected, unless the directors resign or are removed from office.
Despite the expiration of a director's term, the director shall
continue to serve until his or her successor is elected and qualifies or until
there is a decrease in the number of directors and his or her position is
eliminated.
Honorary or advisory members of the board of directors, without voting
power or power of final decision in matters concerning the business of the Bank,
may be appointed by resolution of a majority of the full board of directors, or
by resolution of shareholders at any annual or special meeting. Honorary or
advisory directors shall not be counted for purposes of determining the number
of directors of the Bank or the presence of a quorum in connection with any
board action, and shall not be required to own qualifying shares.
FOURTH. There shall be an annual meeting of the shareholders to
elect directors and transact whatever other business may be brought before the
meeting. It shall be held at the main office or any other convenient place the
board of directors may designate, on the day of each year specified therefore in
the Bylaws, or if that day falls on a legal holiday in the state in which the
Bank is located, on the next following banking day. If no election is held on
the day fixed or in event of a legal holiday, on the following banking day, an
election may be held on any subsequent day within 60 days of the day fixed, to
be designated by the board of directors, or, if the directors fail to fix the
day, by shareholders representing two-thirds of the shares issued and
outstanding. In all cases at least 10 days advance notice of the meeting shall
be given to the shareholders by first class mail.
C-1
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In all elections of directors, the number of votes each common
shareholder may cast will be determined by multiplying the number of shares he
or she owns by the number of directors to be elected. Those votes may be
cumulated and cast for a single candidate or may be distributed among two or
more candidates in the manner selected by the shareholder. On all other
questions, each common shareholder shall be entitled to one vote for each share
of stock held by him or her. If the issuance of preferred stock with voting
rights has been authorized by a vote of shareholders owning a majority of the
common stock of the Bank, preferred shareholders will have cumulative voting
rights and will be included within the same class as common shareholders, for
purposes of the election of directors.
Nominations for election to the board of directors may be made by the
board of directors or by any stockholder of any outstanding class of capital
stock of the Bank entitled to vote for election of directors. Nominations other
than those made by or on behalf of the existing management shall be made in
writing and be delivered or mailed to the president of the Bank not less than 14
days nor more than 50 days prior to any meeting of shareholders called for the
election of directors; provided, however, that if less than 21 days notice of
the meeting is given to shareholders, such nominations shall be mailed or
delivered to the president of the Bank not later than the close of business on
the seventh day following the day on which the notice of meeting was mailed.
Such notification shall contain the following information to the extent known to
the notifying shareholder.
(1) The name and address of each proposed nominee.
(2) The principal occupation of each proposed nominee.
(3) The total number of shares of capital stock of the Bank that will
be voted for each proposed nominee.
(4) The name and residence address of the notifying shareholder.
(5) The number of shares of capital stock of the Bank owned by the
notifying shareholder.
Nominations not made in accordance herewith may, in his/her
discretion, be disregarded by the chairperson of the meeting, and the vote
tellers may disregard all votes cast for each such nominee. No Bylaw may
unreasonably restrict the nomination of directors by shareholders.
A director may resign at any time by delivering written notice to the
board of directors, its chairperson, or to the Bank, which resignation shall be
effective when the notice is delivered unless the notice specifies a later
effective date.
A director may be removed by shareholders at a meeting called to
remove him or her, when notice of the meeting stating that the purpose or one of
the purposes is to remove him or her is provided, if there is a failure to
fulfill one of the affirmative requirements for qualification, or for cause,
provided, however, that a director may not be removed if the number of votes
sufficient to elect him or her under cumulative voting is voted against his or
her removal.
Any action that may be taken at or may be required to be taken at any
annual or special meeting of shareholders of the Bank, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote upon such action.
FIFTH. The authorized amount of capital stock of this Bank shall be
______________ shares of common stock of the par value of one dollar ($1.00)
each; but said capital stock may be increased or decreased from time to time,
according to the provisions of the laws of the United States.
No holder of shares of the capital stock of any class of the Bank
shall have any preemptive or preferential right of subscription to any shares of
any class of stock of the Bank, whether now or hereafter authorized, or to any
C-2
<PAGE>
obligations convertible into stock of the Bank, issued, or sold, nor any right
of subscription to any thereof other than such, if any, as the board of
directors, in its discretion, may from time to time determine and at such price
as the board of directors may from time to time fix.
Unless otherwise specified in the Articles of Association or required
by law, (1) all matters requiring shareholder action, including amendments to
the Articles of Association, must be approved by shareholders owning a majority
voting interest in the outstanding voting stock, and (2) each shareholder shall
be entitled to one vote per share.
Unless otherwise specified in the Articles of Association or required
by law, all shares of voting stock shall be voted together as a class, on any
matters requiring shareholder approval. If a proposed amendment would affect
two or more classes or series in the same or a substantially similar way, all
the classes or series so affected, must vote together as a single voting group
on the proposed amendment.
Shares of the same class or series may be issued as a dividend on a
pro rata basis and without consideration. Shares of another class or series may
be issued as a share dividend in respect of a class or series of stock if
approved by a majority of the votes entitled to be cast by the class or series
to be issued unless there are no outstanding shares of the class or series to be
issued. Unless otherwise provided by the board of directors, the record date
for determining shareholders entitled to a share dividend shall be the date the
board of directors authorizes the share dividend.
Unless otherwise provided in the Bylaws, the record date for
determining shareholders entitled to notice of and to vote at any meeting is the
close of business on the day before the first notice is mailed or otherwise sent
to the shareholders, provided that in no event may a record date be more than 70
days before the meeting.
If a shareholder is entitled to fractional shares pursuant to a stock
dividend, consolidation or merger, reverse stock split or otherwise, the Bank
may: (a) issue fractional shares or; (b) in lieu of the issuance of fractional
shares, issue script or warrants entitling the holder to receive a full share
upon surrendering enough script or warrants to equal a full share; (c) if there
is an established an active market in the Bank's stock, make reasonable
arrangements to provide the shareholder with an opportunity to realize a fair
price through sale of the fraction, or purchase of the additional fraction
required for a full share; (d) remit the cash equivalent of the fraction to the
shareholder; or (e) sell full shares representing all the fractions at public
auction or to the highest bidder after having solicited and received sealed bids
from at least three licensed stock brokers; and distribute the proceeds pro rata
to shareholders who otherwise would be entitled to the fractional shares. The
holder of a fractional share is entitled to exercise the rights of a
shareholder, including the right to vote, to receive dividends, and to
participate in the assets of the Bank upon liquidation, in proportion to the
fractional interest. The holder of script or warrants is not entitled to any of
these rights unless the script or warrants explicitly provide for such rights.
The script or warrants may be subject to such additional conditions as: (1) that
the scripts or warrants will become void if not exchanged for full shares before
a specified date; and (2) that the shares for which the script or warrants are
exchangeable may be sold at the option of the Bank and the proceeds paid to
scriptholders.
The Bank, at any time and from time to time, may authorize and issue
debt obligations, whether or not subordinated, without the approval of the
shareholders. Obligations classified as debt, whether or not subordinated,
which may be issued by the association without the approval of shareholders, do
not carry voting rights on any issue, including an increase or decrease in the
aggregate number of the securities, or the exchange or reclassification of all
or part of securities into securities of another class or series.
SIXTH. The board of directors shall appoint one of its members
president of this Bank and one of its members chairman of the board, and shall
have the power to appoint one or more vice presidents, a secretary who shall
keep minutes of the directors' and shareholders' meetings and be responsible for
authenticating the records of the Bank, and such other officers and employees as
may be required to transact the business of this Bank. A duly appointed officer
may appoint one or more officers or assistant officers if authorized by the
board of directors in accordance with the Bylaws.
C-3
<PAGE>
The board of directors shall have the power to:
(1) Define the duties of the officers, employees and agents of the
Bank.
(2) Delegate the performance of its duties, but not the responsibility
for its duties, to the officers, employees, and agents of the
Bank.
(3) Fix the compensation and enter into employment contracts with its
officers and employees upon reasonable terms and conditions
consistent with applicable law.
(4) Dismiss officers and employees.
(5) Require bonds from officers and employees and to fix the penalty
thereof.
(6) Ratify written policies authorized by the Bank's management or
committees of the board.
(7) Regulate the manner in which any increase or decrease of the
capital of the Bank shall be made, provided that nothing herein
shall restrict the power of shareholders to increase or decrease
the capital of the Bank in accordance with law, and nothing shall
raise or lower from two-thirds the percentage required for
shareholder approval to increase or reduce the capital.
(8) Manage and administer the business and affairs of the Bank.
(9) Adopt initial Bylaws, not inconsistent with law or the Articles of
Association, for managing the business and regulating the affairs
of the Bank.
(10) Amend or repeal Bylaws, except to the extent that the Articles of
Association reserve this power in whole or in part to
shareholders.
(11) Make contracts.
(12) Generally to perform all acts that are legal for a board of
directors to perform.
SEVENTH. The board of directors shall have the power to change the
location of the main office to any other place within the limits of the city of
Lexington, Tennessee, without the approval of the shareholders, or with a vote
of shareholders owning two-thirds of the stock of the Bank for a relocation
outside such limits, and upon receipt of a certificate of approval from the
Comptroller of the Currency, to any other location within or outside the limits
of the city of Lexington, Tennessee but not more than thirty miles beyond such
limits. The board of directors shall have the power to establish or change the
location of any branch or branches of the Bank to any other location, without
the approval of the shareholders, subject to approval by the Office of the
Comptroller of the Currency.
EIGHTH. The corporate existence of this Bank shall continue until
termination according to the laws of the United States.
NINTH. The board of directors of this Bank, or any 15 or more
shareholders owning, in the aggregate, not less than a majority of the stock of
this Bank, may call a special meeting of shareholders at any time. Unless
otherwise provided by the laws of the United States, a notice of the time,
place, and purpose of every annual and special meeting of the shareholders shall
be given by first-class mail, postage prepaid, mailed at least 10, and no more
than 60 days prior to the date of the meeting to each shareholder of record at
his/her address as shown upon the books of this Bank. Unless otherwise provided
by the Bylaws, any action requiring approval of shareholders must be effected at
a duly called annual or special meeting.
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TENTH. Indemnification of Directors and Officers.
-----------------------------------------
A. Persons. The Bank shall indemnify, to the extent provided in
-------
paragraphs B, D or F of this Article Tenth:
(1) any person who is or was a director, officer, employee, or
agent of the Bank; and
(2) any person who serves or served at the Bank's request as a
director, officer, employee, agent, partner or trustee of another
corporation, partnership, joint venture, trust or other enterprise.
B. Extent -- Derivative Suits. In case of a threatened, pending or
--------------------------
completed action or suit by or in the right of the Bank against a person named
in paragraph A by reason of his holding a position named in paragraph A, the
Bank shall indemnify him if he satisfies the standard in paragraph C, for
expenses (including attorneys' fees but excluding amounts paid in settlement)
actually and reasonably incurred by him in connection with the defense or
settlement of the action or suit.
C. Standard -- Derivative Suits. In case of a threatened, pending or
----------------------------
completed action or suit by or in the right of the Bank, a person named in
paragraph A shall be indemnified only if:
(1) he is successful on the merits or otherwise; or
(2) he acted in good faith in the transaction which is the
subject of the suit or action, and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Bank, including, but
not limited to, the taking of any and all actions in connection with the
Bank's response to any tender offer or any offer or proposal of another
party to engage in a merger, consolidation or other business combination
not approved by the board of directors. However, he shall not be
indemnified in respect of any claim, issue or matter as to which he has
been adjudged to have been liable to the Bank unless (and only to the
extent that) the court in which the suit was brought shall determine,
upon application, that despite the adjudication but in view of all the
circumstances, he is fairly and reasonably entitled to indemnity for
such expenses as the court shall deem proper.
D. Extent -- Nonderivative Suits. In case of a threatened, pending or
-----------------------------
completed suit, action or proceeding (whether civil, criminal, administrative or
investigative), other than a suit by or in the right of the Bank, together
hereafter referred to as a nonderivative suit, against a person named in
paragraph A by reason of his holding a position named in paragraph A, the Bank
shall indemnify him if he satisfies the standard in paragraph E, for amounts
actually and reasonably incurred by him in connection with the nonderivative
suit, including, but not limited to (i) expenses (including attorneys' fees),
(ii) amounts paid in settlement, (iii) judgments, and (iv) fines.
E. Standard -- Nonderivative Suits. In case of a nonderivative suit, a
-------------------------------
person named in paragraph A shall be indemnified only if:
(1) he is successful on the merits or otherwise; or
(2) he acted in good faith in the transaction which is the
subject of the nonderivative suit and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the Bank, including,
but not limited to, the taking of any and all actions in connection with
the Bank's response to any tender offer or any offer or proposal of
another party to engage in a merger, consolidation or other business
combination not approved by the board of directors and, with respect to
any criminal action or proceeding, he had no reasonable cause to believe
his conduct was unlawful. The termination of a nonderivative suit by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent shall not, in itself, create a presumption
that the person failed to satisfy the standard of this subparagraph
E(2).
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<PAGE>
F. Determination That Standard Has Been Met. A determination that the
----------------------------------------
standard of paragraph C or E has been satisfied may be made by a court, or,
except as stated in subparagraph C(2) (second sentence), the determination may
be made:
(1) by a majority vote of the directors of the Bank who were
not parties to the action, suit or proceeding even through less than a
quorum; or
(2) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion; or
(3) by the shareholders of the Bank.
G. Proration. Anyone making a determination under paragraph F may
---------
determine that a person has met the standard as to some matters but not as to
others, and may reasonably prorate amounts to be indemnified.
H. Advance Payment. The Bank shall pay in advance any expenses
---------------
(including attorneys' fees) which may become subject to indemnification under
paragraphs A through G if:
(1) the board of directors authorizes the specific payment; and
(2) the person receiving the payment undertakes in writing to
repay the same if it is ultimately determined that he is not entitled to
indemnification by the Bank under paragraphs A through G.
I. Nonexclusive. The indemnification and advance payment of expenses
------------
provided by paragraphs A through H shall not be exclusive of any other rights to
which a person may be entitled by law, bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
J. Continuation. The indemnification and advancement of expenses
------------
provided by this Article Tenth shall be deemed to be a contract between the Bank
and the persons entitled to indemnification thereunder, and any repeal or
modification of this Article Tenth shall not affect any rights or obligations
then existing with respect to any state of facts then or theretofore existing or
any action, suit or proceeding theretofore or thereafter brought based in whole
or in part upon any such state of facts. The indemnification and advance payment
provided by paragraphs A through H shall continue as to a person who has ceased
to hold a position named in paragraph A and shall inure to his heirs, executors
and administrators.
K. Insurance. The Bank may, upon affirmative vote of a majority of its
---------
board of directors, purchase insurance to indemnify its directors, officers, and
other employees to the extent that such indemnification is allowed in these
Articles of Association. Such insurance may, but need not, be for the benefit
of all directors, officers, or employees.
L. Restriction on Indemnification in Administrative Proceedings. Any
------------------------------------------------------------
contrary provision of this Article Tenth notwithstanding, the Bank shall not
indemnify any director, officer or employee against expenses, penalties or other
payments incurred in an administrative proceeding or action instituted by an
appropriate bank regulatory agency, which proceeding or action results in a
final order assessing civil money penalties or requiring affirmative action by
an individual or individuals in the form of payments to the Bank; nor shall it
purchase insurance coverage for a formal order assessing civil money penalties
against a director, officer or employee.
M. Intention and Savings Clause. It is the intention of this Article
----------------------------
Tenth to provide for indemnification to the fullest extent permitted by the
General Corporation Law of the State of Delaware, and this Article Tenth shall
be interpreted accordingly. If this Article Tenth or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the Bank
shall nevertheless indemnify each director, officer, employee, and agent of the
Bank as to costs, charges, and expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement
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with respect to any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, including an action by or in the right of the
Bank to the full extent permitted by any applicable portion of this Article
Tenth that shall not have been invalidated and to the full extent permitted by
applicable law. If the General Corporation Law of the State of Delaware is
amended, or other Delaware law is enacted, to permit further or additional
indemnification of the persons defined in this Article Tenth. A, then the
indemnification of such persons shall be to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as so amended, or such other
Delaware law.
ELEVENTH. Duties and Liabilities of Directors and Officers.
------------------------------------------------
A. Reliance by Directors and Officers. Unless he or she has
----------------------------------
knowledge that makes reliance unwarranted, a director or officer, in discharging
his or her duties to the Bank, may rely on information, opinions, reports or
statements, any of which may be written or oral, formal or informal, including
financial statements and other financial data, if prepared or presented by any
of the following:
(1) an officer or employee of the Bank whom the director or
officer believes in good faith to be reliable and competent in the
matters presented;
(2) legal counsel, public accountants or other persons as to
matters the director or officer believes in good faith are within the
person's professional or expert competence; or
(3) in the case of reliance by a director, a committee of the
board of directors of which the director is not a member if the director
believes in good faith that the committee merits confidence.
B. Consideration of Interests in Addition to Shareholders'
-------------------------------------------------------
Interests. In discharging his or her duties to the Bank and in determining what
- ---------
he or she believes to be in the best interests of the Bank, a director or
officer may, in addition to considering the effects of any action on
shareholders, consider the following:
(1) the effects of the action on employees, depositors, and
customers of the Bank;
(2) the effects of the action on the community in which the
Bank operates; and
(3) any other factors the director or officer considers
pertinent.
C. Limitation on Liability. A director of the Bank shall not
-----------------------
be personally liable to the Bank or its shareholders for monetary damages for
breach of fiduciary duty as a director, except: (i) for any breach of the
director's duty of loyalty to the Bank or its shareholders, (ii) for acts or
omissions that are not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived any improper personal benefit. If the General Corporation Law of the
State of Delaware or other Delaware law is amended or enacted after the date of
filing of these Articles of Association to further eliminate or limit the
personal liability of directors, then the liability of a director of the Bank
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as so amended, or such other Delaware
law. Any repeal or modification of the foregoing paragraph by the shareholders
of the Bank shall not adversely affect any right or protection of a director of
the Bank existing at the time of such repeal or modification.
TWELFTH. In furtherance and not in limitation of the powers conferred
by statute, the Bank's board of directors is expressly authorized to adopt,
repeal, alter, amend and rescind the Bylaws of the Bank by a vote of a majority
of the board of directors. Notwithstanding any other provision of these Articles
of Association or the Bylaws (and notwithstanding the fact that some lesser
percentage may be specified by law), the Bylaws shall not be adopted, repealed,
altered, amended or rescinded by the shareholders of the Bank except by the
affirmative vote of the holders of not less than a majority of the outstanding
shares of capital stock of the Bank entitled to vote generally in the election
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of directors (considered for this purpose as one class) cast at a meeting of the
shareholders called for that purpose (provided that notice of such proposed
adoption, repeal, alteration, amendment or recission is included in the notice
of such meeting), or, as set forth above, by the board of directors.
THIRTEENTH. These Articles of Association may be amended at any regular
or special meeting of the shareholders by the affirmative vote of the holders of
a majority of the stock of this Bank, unless the vote of the holders of a
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount. The Bank's board of directors may propose one or
more amendments to the articles of the association for submission to the
shareholders.
IN WITNESS WHEREOF, we have hereunto set our hands this ____ day of
_____________, 1997.
- ----------------------------------- ------------------------------------
Charles H. Walker Howard W. Tignor
- ----------------------------------- ------------------------------------
Arba M. Taylor Pope Thomas
- ----------------------------------- ------------------------------------
Stephen M. Lowry Robert C. Thomas
- -----------------------------------
Pat Carnal
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<PAGE>
Appendix D
BYLAWS
OF
COMMUNITY NATIONAL BANK OF TENNESSEE
Article I
Meetings of Shareholders
Section 1.1 Annual Meeting. The regular annual meeting of the
shareholders to elect directors and transact whatever other business may
properly come before the meeting shall be held at the main office of the Bank,
19 Natchez Trace Drive, City of Lexington, State of Tennessee or such other
place as the board of directors may designate, at ______ __.m., on the [specify
day] of [specify month] of each year, or if that date falls on a legal holiday
in the state in which the Bank is located, on the next following banking day.
Notice of the meeting shall be mailed, postage prepaid, at least 10 days and no
more than 60 days prior to the date thereof, addressed to each shareholder at
his/her address appearing on the books of the Bank. If, for any cause, an
election of directors is not made on that date, or in the event of a legal
holiday, on the next following banking day, an election may be held on any
subsequent day within 60 days of the date fixed, to be designated by the board
of directors, or, if the directors fail to fix the date, by shareholders
representing two thirds of the shares.
Section 1.2 Special Meetings. Except as otherwise specifically provided
by statute, special meetings of the shareholders may be called for any purpose
at any time by the board of directors or by any 15 or more shareholders owning,
in the aggregate, not less than a majority of the stock of the Bank. Every such
special meeting, unless otherwise provided by law, shall be called by mailing,
postage prepaid, not less than 10 days nor more than 60 days prior to the date
fixed for the meeting, to each shareholder at the address appearing on the books
of the Bank a notice stating the purpose of the meeting. Any shareholder having
actual notice of a special meeting of shareholders and of the business to be
transacted at such meeting may waive formal notice of the meeting by a writing
filed with the secretary of the Bank.
The board of directors may fix a record date for determining shareholders
entitled to notice and to vote at any meeting, in reasonable proximity to the
date of giving notice to the shareholders of such meeting. The record date for
determining shareholders entitled to demand a special meeting is the date the
first shareholder signs a demand for the meeting describing the purpose or
purposes for which it is to be held.
A special meeting may be called by shareholders or the board of directors
to amend the Articles of Association or Bylaws, whether or not such Bylaws may
be amended by the board in the absence of shareholder approval.
If an annual or special shareholders' meeting is adjourned to a different
date, time, or place, notice need not be given of the new date, time or place,
if the new date, time or place is announced at the meeting before adjournment,
unless any additional items of business are to be considered, or the Bank
becomes aware of an intervening event materially affecting any matter to be
voted on more than 10 days prior to the date to which the meeting is adjourned.
If a new record date for the adjourned meeting is fixed, however, notice of the
adjourned meeting must be given to persons who are shareholders as of the new
record date.
Section 1.3 Nominations of Directors. Nominations for election to the
board of directors may be made by the board of directors or by any stockholder
of any outstanding class of capital stock of the Bank entitled to vote for the
election of directors. Nominations, other than those made by or on behalf of
the existing management of the Bank, shall be made in writing and shall be
delivered or mailed to the president of the Bank, not less than 14 days or more
than 50 days prior to any meeting of shareholders called for the election of
directors, provided, however, that if less than 21
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days' prior notice of the meeting is given to shareholders, such nominations
shall be mailed or delivered to the president of the Bank not later than the
close of business on the seventh day following the day on which the notice of
meeting was mailed. Such notification shall contain the following information
to the extent known to the notifying shareholder:
(1) The name and address of each proposed nominee.
(2) The principal occupation of each proposed nominee.
(3) The total number of shares of capital stock of the Bank that will be
voted for each proposed nominee.
(4) The name and residence address of the notifying shareholder.
(5) The number of shares of capital stock of the Bank owned by the
notifying shareholder.
Nominations not made in accordance herewith may, in his/her discretion, by
disregarded by the chairperson of the meeting, and upon his/her instructions,
the vote tellers may disregard all votes cast for each such nominee.
Section 1.4 Judges of Election. Every election of directors shall be
managed by three judges, who shall be appointed from among the shareholders by
the board of directors. The judges of election shall hold and conduct the
election at which they are appointed to serve. After the election, they shall
file with the cashier a certificate signed by them, certifying the result
thereof and the names of the directors elected. The judges of election, at the
request of the Chairperson of the meeting, shall act as tellers of any other
vote by ballot taken at such meeting, and shall certify the result thereof.
Section 1.5 Proxies. Shareholders may vote at any meeting of the
shareholders by proxies duly authorized in writing, but no officer or employee
of this association shall act as proxy. Proxies shall be valid only for one
meeting, to be specified therein, and any adjournments of such meeting. Proxies
shall be dated and filed with the records of the meeting. Proxies with rubber
stamped facsimile signatures may be used and unexecuted proxies may be counted
upon receipt of a confirming telegram from the shareholder. Proxies meeting the
above requirements submitted at any time during a meeting shall be accepted.
Section 1.6 Quorum. A majority of the outstanding capital stock,
represented in person or by proxy, shall constitute at any meeting of
shareholders, unless otherwise provided by law, or by the shareholders or
directors pursuant to Section 8.2, but less than a quorum may adjourn any
meeting, from time to time, and the meeting may be held, as adjourned, without
further notice. A majority of the votes cast shall decide every question or
matter submitted to the shareholders at any meeting, unless otherwise provided
by law or by the Articles of Association, or by the shareholders or directors
pursuant to Section 8.2.
Section 1.7 Action Without a Meeting. Any action that may be taken at
or may be required to be taken at any annual or special meeting of shareholders
of the Bank, may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by all of the shareholders entitled to vote upon such action. In
the event that the action which is consented to is one that would have required
the filing of a certificate with the Office of the Comptroller of the Currency
if such action had been voted on by shareholders at a meeting thereof, the
certificate filed shall state, in lieu of any statement concerning any vote of
shareholders, that written consent has been given in accordance with the
provisions of this Section 1.6.
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<PAGE>
Article II
Directors
Section 2.1 Board of Directors. The board of directors (board) shall
have the power to manage and administer the business and affairs of the Bank.
Except as expressly limited by law, all corporate powers of the Bank shall be
vested in and may be exercised by the board.
Section 2.2 Number. The board shall consist of not less than five nor
more than twenty-five shareholders, the exact number within such minimum and
maximum limits to be fixed and determined from time to time by resolution of a
majority of the full board or by resolution of a majority of the shareholders at
any meeting thereof.
Section 2.3 Organization Meeting. The cashier, upon receiving the
certificate of the judges of the result of any election, shall notify the
directors-elect of their election and of the time at which they are required to
meet at the main office of the Bank to organize the new board and elect and
appoint officers of the Bank for the succeeding year. Such meeting shall be
held on the day of the election or as soon thereafter as practicable, and, in
any event, within 30 days thereof. If, at the time fixed for such meeting,
there shall not be a quorum, the directors present may adjourn the meeting, from
time to time, until a quorum is obtained.
Section 2.4 Regular Meetings. The regular meetings of the board of
directors shall be held, without notice, on the ________________ of each [month]
at the main office. When any regular meeting of the board falls upon a holiday,
the meeting shall be held on the next banking business day unless the board
shall designate another day.
Section 2.5 Special Meetings. Special meetings of the board of
directors may be called by the chairman of the board or the president of the
Bank, or at the request of three or more directors. Each member of the board of
directors shall be given notice stating the time and place by telegram, letter,
or in person, of each special meeting. Any directors having actual notice of a
special meeting may waive formal notice of the meeting by a writing filed with
the secretary of the Bank.
Members of the board may participate in special meetings of the board by
means of a conference telephone or similar communications equipment by which all
person participating in the meeting can hear each other. Such participation
shall constitute presence in person.
Section 2.6 Quorum. A majority of the director positions on the board
shall constitute a quorum at any meeting, except when otherwise provided by law
or these Bylaws, but a lesser number may adjourn any meeting, from time to time,
and the meeting may be held, as adjourned without further notice. If the number
of directors is reduced below the number that would constitute a quorum, no
business may be transacted, except selecting directors to fill vacancies in
conformance with Section 2.8.
If a quorum is present, the board of directors may take action through the
vote of a majority of the directors who are in attendance.
Section 2.7 Action Without a Meeting. Any action required or permitted
to be taken by the board 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 then in office.
Section 2.8 Vacancies. When any vacancy occurs among the directors, a
majority of the remaining members of the board, according to the laws of the
United States, may appoint a director to fill such vacancy at any regular
meeting of the board, or at a special meeting called for that purpose at which a
quorum is present, or if the directors remaining in office constitute fewer than
a quorum of the board, by the affirmative vote of a majority of all the
directors remaining in office, or by shareholders at a special meeting called
for that purpose, in conformance with Section 2.2 of this Article. At any such
shareholder meeting, each shareholder entitled to vote shall have the right to
D-3
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multiply the number of votes he or she is entitled to cast by the number of
vacancies being filled and cast the product for a single candidate or distribute
the product among two or more candidates.
A vacancy that will occur at a specific later date (by reason of a
resignation effective at a later date) may be filled before the vacancy occurs
but the new director may not take office until the vacancy occurs.
Section 2.9. Removal of Directors. At a meeting of shareholders called
expressly for the purpose of removing a director, any director may be removed,
with or without cause, by the affirmative vote of the holders of a majority of
the outstanding shares entitled to vote at an election of directors; provided,
however, (i) no director shall be removed at a meeting of shareholders unless
the notice of such meeting shall state that a purpose of the meeting is to vote
upon the removal of one or more directors named in the notice and only such
named directors may be removed at such meeting and, (ii) if less than the entire
board is to be removed, no director may be removed, with or without cause, if
the vote cast against such director's removal would be sufficient to elect such
director if then cumulatively voted at an election of the entire board.
Article III
Committees of the Board
Section 3.1 General. Each committee of the board of directors shall
have one or more members, who shall serve at the pleasure of the board. The
provisions of Article II of these bylaws governing notice of meeting, quorum and
voting requirements of the board of directors shall also apply to committees of
the board.
Section 3.2 Executive Committee. There shall be an executive committee
composed of the president and two additional directors, appointed by the board
annually or more often. The executive committee shall have power to discount
and purchase bills, notes and other evidences of debt, to buy and sell bills of
exchange, to exercise authority delegated by the board regarding loans and
discounts, and generally to exercise, when the board is not in session, all
other powers of the board that may lawfully be delegated. The executive
committee shall keep minutes of its meetings, and such minutes shall be
submitted at the next regular meeting of the board of directors at which a
quorum is present, and any action taken by the board with respect thereto shall
be entered in the minutes of the board.
Section 3.3 Investment Committee. There shall be an investment
committee composed of three directors, appointed by the board annually or more
often. The investment committee shall have the power to ensure adherence to the
investment policy, to recommend amendments thereto, to purchase and sell
securities, to exercise authority regarding investments and to exercise, when
the board is not in session, all other powers of the board regarding investment
securities that may be lawfully delegated. The investment committee shall keep
minutes of its meetings, and such minutes shall be submitted at the next regular
meeting of the board of directors at which a quorum is present, and any action
taken by the board with respect thereto shall be entered in the minutes of the
board.
Section 3.4 Examining Committee. There shall be an examining committee
composed of not less than three directors, exclusive of any active officers,
appointed by the board annually or more often. The duty of the committee shall
be to examine at least once during each calendar year and within 15 months of
the last examination the affairs of the Bank or cause suitable examinations to
be made by auditors responsible only to the board of directors and to report the
result of such examination in writing to the board at the next regular meeting
thereafter. Such report shall state whether the Bank is in a sound condition,
and whether adequate internal controls and procedures are being maintained and
shall recommend to the board such changes in the manner of conducting the
affairs of the Bank as shall be deemed advisable.
Section 3.5 Other Committees. The board of directors may appoint, from
time to time, from its own members, compensation, special litigation and other
committees of one or more persons, for such purposes and with such powers as the
board may determine.
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However, a committee may not:
(1) Authorize distributions of assets for dividends.
(2) Approve action required to be approved by shareholders.
(3) Fill vacancies on the board of directors or any of its committees.
(4) Amend the Articles of Association.
(5) Adopt, amend or repeal the Bylaws.
(6) Authorize or approve issuance or sales or contract for sales of
shares, or determine the designation and relative rights, preferences
and limitations of a class or series of shares.
(7) Elect officers, appoint committees, appoint judges of election, or
increase or decrease salaries or terms of officers.
Article IV
Officers and Employees
Section 4.1 Chairman of the Board. The board of directors shall appoint
one of its members to be the chairman of the board to serve at its pleasure.
Such person shall preside at all meetings of the board of directors. The
chairman of the board shall supervise the carrying out of the policies adopted
or approved by the board; shall have general executive powers, as well as the
specific powers conferred by these Bylaws; and shall also have and may exercise
such further powers and duties as from time to time may be conferred upon, or
assigned to, him or her by the board of directors.
Section 4.2 President. The board of directors shall appoint one of its
members to be the president of the Bank. In the absence of the chairman, the
president shall preside at any meeting of the board. The president shall have
general executive powers, and shall have and may exercise any and all other
powers and duties pertaining by law, regulation, or practice, to the office of
president, or imposed by these bylaws. The president shall also have and may
exercise such further powers and duties as from time to time may be conferred
upon, or assigned to, him or her by the board of directors.
Section 4.3 Vice President. The board of directors may appoint one or
more vice presidents. Each vice president shall have such powers and duties as
may be assigned by the board of directors. One vice president shall be
designated by the board of directors, in the absence of the president, to
perform all the duties of the president.
Section 4.4 Secretary. The board of directors shall appoint a
secretary, cashier, or other designated officer who shall be secretary of the
board and of the Bank, and shall keep accurate minutes of all meetings. The
secretary shall attend to the giving of all notices required by these Bylaws;
shall be custodian of the corporate seal, records, documents and papers of the
Bank; shall provide for the keeping of proper records of all transactions of the
Bank; shall have and may exercise any and all powers and duties pertaining by
law, regulation or practice, to the office of cashier, or imposed by these
bylaws; and shall also perform such other duties as may be assigned from time to
time by the board of directors.
Section 4.5 Other Officers. The board of directors may appoint one or
more assistant vice presidents, one or more trust officers, one or more
assistant secretaries, one or more assistant cashiers, one or more managers and
assistant managers of branches and such other officers and attorneys in fact as
from time to time may appear to the board of directors to be required or
desirable to transact the business of the Bank. Such officers shall
respectively exercise
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such powers and perform such duties as pertain to their several offices, or as
may be conferred upon, or assigned to, them by the board of directors, the
chairman of the board, or the president. The board of directors may authorize
an officer to appoint one or more officers or assistant officers.
Section 4.6 Tenure of Office. The president and all other officers
shall serve at the pleasure of the board and hold office for the current year
for which the board was elected, unless they shall resign, become disqualified,
or be removed; and any vacancy occurring in the office of president shall be
filled promptly by the board of directors.
Section 4.7 Resignation. An officer may resign at any time by
delivering notice to the Bank. A resignation is effective when the notice is
given unless the notice specifies a later effective date.
Article V
Stock and Stock Certificates
Section 5.1 Transfers. Shares of stock shall be transferable on the
books of the Bank, and a transfer book shall be kept in which all transfers of
stock shall be recorded. Every person becoming a shareholder by such transfer
shall in proportion to his or her shares, succeed to all rights of the prior
holder of such shares. The board of directors may impose conditions upon the
transfer of the stock reasonably calculated to simplify the work of the Bank
with respect to stock transfers, voting at shareholder meetings, and related
matters and to protect it against fraudulent transfers.
Section 5.2 Stock Certificates. Certificates of stock shall bear the
signature of the president (which may be engraved, printed or impressed), and
shall be signed manually or by facsimile process by the secretary, assistant
secretary, cashier, assistant cashier, or any other officer appointed by the
board of directors for that purpose, to be known as an authorized officer, and
the seal of the Bank shall be engraved thereon. Each certificate shall recite
on its face that the stock represented thereby is transferable only upon the
books of the Bank properly endorsed.
The board of directors may adopt or utilize procedures for replacing lost,
stolen, or destroyed stock certificates as permitted by law.
The Bank may establish a procedure through which the beneficial owner of
shares that are registered in the name of a nominee may be recognized by the
Bank as the shareholder. The procedure may set forth:
(1) The types of nominees to which it applies.
(2) The rights or privileges that the Bank recognizes in a beneficial
owner.
(3) How the nominee may request the Bank to recognize the beneficial
owner as the shareholder.
(4) The information that must be provided when the procedure is selected.
(5) The period over which the Bank will continue to recognize the
beneficial owner as the shareholder.
(6) Other aspects of the rights and duties created.
D-6
<PAGE>
Article VI
Corporate Seal
The president, the cashier, the secretary or any assistant cashier or
assistant secretary, or other officer thereunder designated by the board of
directors, shall have authority to affix the corporate seal to any document
requiring such seal, and to attest the same. Such seal shall be substantially
in the following form:
( )
( [IMPRESSION OF SEAL APPEARS HERE] )
( )
Article VII
Miscellaneous Provisions
Section 7.1 Fiscal Year. The fiscal year of the Bank shall end on
December 31 of each year.
Section 7.2 Execution of Instruments. All agreements, indentures,
mortgages, deeds, conveyances, transfers, certificates, declarations, receipts,
discharges, releases, satisfactions, settlements, petitions, schedules,
accounts, affidavits, bonds, undertakings, proxies and other instruments or
documents may be signed, executed, acknowledged, verified, delivered or accepted
on behalf of the Bank by the chairman of the board, or the president, or any
vice president, or the secretary, or the cashier, or, if in connection with the
exercise of fiduciary powers of the Bank, by any of those officers or by any
trust officer. Any such instruments may also be executed, acknowledged,
verified, delivered or accepted on behalf of the Bank in such other manner and
by such other officers as the board of directors may from time to time direct.
The provisions of this section 7.2 are supplementary to any other provision of
these Bylaws.
Section 7.3 Records. The Articles of Association, the Bylaws and the
proceedings of all meetings of the shareholders, the board of directors, and
standing committees of the board, shall be recorded in appropriate minute books
provided for that purpose. The minutes of each meeting shall be signed by the
secretary, cashier or other officer appointed to act as secretary of the
meeting.
Article VIII
Bylaws
Section 8.1 Inspection. A copy of the Bylaws, with all amendments,
shall at all times be kept in a convenient place at the main office of the Bank,
and shall be open for inspection to all shareholders during banking hours.
Section 8.2 Amendments. The Bylaws may be amended, altered or repealed,
at any regular meeting of the board of directors, by a vote of a majority of the
total number of the directors except as provided below. The Bank's shareholders
may amend or repeal the Bylaws even though the Bylaws also may be amended or
repealed by its board of directors.
Article IX
Election of Governing Law
In accordance with 12 C.F.R. (S) 7.2000(b), the Bank hereby designates the
Delaware General Corporation Law, Del. Code Ann. tit. 8 (1991, as amended 1994,
and as amended thereafter), as the body of law for its corporate governance
procedures to the extent not inconsistent with applicable Federal banking
statues and regulations.
D-7
<PAGE>
* * *
I, _____________________________________________, certify that: (1) I
am the duly appointed secretary of Community National Bank of Tennessee and the
secretary of its board of directors, and as such officer am the official
custodian of its records; and (2) the foregoing Bylaws are the Bylaws of the
Bank, and all of them are now lawfully in force and effect.
I have hereunto affixed my official signature and the seal of the
Bank, in the City of Lexington, State of Tennessee on this _____________________
day of ______________, 1997.
------------------------------------
Secretary
<PAGE>
- --------------------------------------------------------------------------------
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
LEXINGTON FIRST FEDERAL SAVINGS BANK
FOR USE ONLY AT A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1997 AND ANY ADJOURNMENT THEREOF.
The undersigned, being a stockholder of the Bank as of , 1997,
hereby appoints , and , as attorneys-in-fact and agents
for and in the name of the undersigned, with full powers of substitution,
to vote such votes as the undersigned may cast at the Special Meeting of
Stockholders to be held at the Bank's office, located at, 19 Natchez
Trace Drive, Lexington, Tennessee, on , 1997, at .m., Central
Time, and at any adjournment of said meeting, and thereat to act with
respect to all votes that the undersigned would be entitled to cast, if
then personally present, as follows:
(1) To approve and adopt a Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan") among Lexington First Federal Mutual
Holding Company (the "Mutual Holding Company"), the Bank and
Community National Corporation, a Tennessee corporation recently
formed as a first-tier wholly owned subsidiary of the Bank (the
"Company"), pursuant to which (i) the Mutual Holding Company, which
currently owns approximately 60.54% of the outstanding shares of
common stock of the Bank, will convert from mutual form to a federal
interim stock savings bank and simultaneously merge into the Bank,
with the Bank being the surviving entity; (ii) an interim savings
institution ("Interim") to be formed as a first-tier wholly owned
subsidiary of the Company, will merge into the Bank, with the Bank
being the surviving entity and becoming a wholly owned subsidiary of
the Company; (iii) the outstanding shares of Bank common stock (other
than those held by the Mutual Holding Company, which will be
cancelled) will be converted into shares of common stock of the
Company pursuant to an exchange ratio as described in the Proxy
Statement; (iv) the Company will sell additional shares of its common
stock pursuant to the Plan; (v) in connection therewith the Bank's
charter will be amended as set forth in Appendix B to the Proxy
Statement; and (vi) the Bank will convert from a federal stock
savings bank to a national bank and adopt a national bank charter as
set forth in Appendix C to the Proxy Statement.
(2) In their discretion, the proxies are authorized to vote with respect
to approval of the minutes of the last meeting of stockholders,
matters incident to the conduct of the meeting, and upon such other
matters as may properly come before the meeting.
NOTE: The Board of Directors is not aware of any other matter that may
come before the Meeting.
PLEASE MARK, SIGN, DATE ON THE REVERSE SIDE AND PROMPTLY RETURN THIS
PROXY CARD USING THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
<PAGE>
THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED. SHARES OF
COMMON STOCK OF THE BANK WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION
IS MADE HEREIN, SHARES WILL BE VOTED FOR PROPOSAL 1.
- --------------------------------------------------------------------------------
PLEASE MARK VOTES [X] FOR AGAINST ABSTAIN
1. Approval and Adoption of the Plan of Conversion [_] [_] [_]
and Agreement and Plan of Reorganization.
- --------------------------------------------------------------------------------
The undersigned hereby acknowl-
edges receipt of a Notice of
Special Meeting of the Stock-
holders of Lexington First Fed-
eral Savings Bank called for
, 1997 and a Proxy State-
ment for the Special Meeting
prior to the signing of this
proxy.
DATE: , 1997
--------------------------------
SIGNATURE:
--------------------------------
--------------------------------
NOTE: PLEASE SIGN EXACTLY AS
YOUR NAME(S) APPEAR(S) ON THIS
PROXY. ONLY ONE SIGNATURE IS
REQUIRED IN THE CASE OF A JOINT
ACCOUNT. WHEN SIGNING IN A REP-
RESENTATIVE CAPACITY, PLEASE
GIVE TITLE.
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99.2
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
19 Natchez Trace Drive
Lexington, Tennessee 38351
(901) 968-6624
NOTICE OF SPECIAL MEETING OF MEMBERS
Notice is hereby given that a Special Meeting of Members (the "Special
Meeting") of Lexington First Federal Mutual Holding Company (the "Mutual Holding
Company") will be held at Lexington First Federal Savings Bank, 19 Natchez Trace
Drive, Lexington, Tennessee 38351, on _______, _____ __, 1997 at __:__ _.m.,
local time. Business to be taken up at the Special Meeting shall be:
(1) To consider and vote upon a Plan of Conversion and Agreement and Plan
of Reorganization (the "Plan") among the Mutual Holding Company,
Lexington First Federal Savings Bank (the "Bank" or "Lexington
First") and Community National Corporation (the "Company") pursuant
to which: (i) the Mutual Holding Company, which currently owns
approximately 60.54% of the outstanding shares of the common stock,
$1.00 par value, of the Bank (the "Bank Common Stock"), will convert
from mutual form to a federal interim stock savings bank and
simultaneously merge into the Bank, with the Bank being the surviving
entity; (ii) the Bank will then merge with an interim institution to
be formed as a wholly owned subsidiary of the Company, with the Bank
as the surviving entity; (iii) the outstanding shares of Bank Common
Stock (other than those held by the Mutual Holding Company, which
will be cancelled) will be converted into shares of the common stock,
$1.00 par value, of the Company (the "Common Stock") pursuant to a
ratio that will result in the holders of such shares (the "Public
Stockholders") owning in the aggregate approximately the same
percentage of the Company as they currently own of the Bank, before
giving effect to such stockholders purchasing additional shares in a
concurrent stock offering by the Company thereafter, receiving cash
in lieu of fractional shares or the exercise of dissenters' rights;
(iv) the Company will offer and sell shares of the Common Stock; and
(v) the Bank will convert from a federal stock savings bank to a
national bank (the "Bank Conversion"); and
(2) To consider and vote upon any other matters that may lawfully come
before the Special Meeting.
Note: The Board of Directors is not aware of any other matters that may
come before the Special Meeting.
The members entitled to vote at the Special Meeting shall be those members
of the Mutual Holding Company at the close of business on __________, 1997, and
who continue as members until the Special Meeting, and should the Special
Meeting be, from time to time, adjourned to a later time, until the final
adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
---------------------------------------------
Arba M. Taylor
Secretary
______________, 1997
Lexington, Tennessee
<PAGE>
YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THIS PROXY MATERIAL
AND, WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE SPECIAL MEETING, TO
FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) AS SOON AS POSSIBLE TO
ASSURE THAT YOUR VOTES WILL BE COUNTED. THIS WILL NOT PREVENT YOU FROM VOTING
IN PERSON IF YOU ATTEND THE SPECIAL MEETING
THE BANK, AS TRUSTEE FOR RETIREMENT ACCOUNTS ON DEPOSIT AT THE BANK, WILL
VOTE FOR THE PLAN UNLESS THE BENEFICIAL OWNER EXECUTES A PROXY FOR THE SPECIAL
MEETING, ATTENDS AND VOTES IN PERSON, OR OTHERWISE DIRECTS THE BANK.
-----------------
<PAGE>
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
19 Natchez Trace Drive
Lexington, Tennessee 38351
(901) 968-6624
-----------------
PROXY STATEMENT
-----------------
YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF
DIRECTORS OF LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY FOR USE AT A SPECIAL
MEETING OF ITS MEMBERS TO BE HELD ON ____________ __, 1997 AND ANY ADJOURNMENT
OF THAT MEETING, FOR THE PURPOSES SET FORTH IN THE FOREGOING NOTICE OF SPECIAL
MEETING. YOUR BOARD OF DIRECTORS URGES YOU TO VOTE FOR THE PLAN OF CONVERSION
---
AND AGREEMENT AND PLAN OF REORGANIZATION.
PURPOSE OF MEETING -- SUMMARY
A Special Meeting of Members (the "Special Meeting") of Lexington
First Federal Mutual Holding Company (the "Mutual Holding Company") will be held
at Lexington First Federal Savings Bank (the "Bank"), 19 Natchez Trace Drive,
Lexington, Tennessee 38351 on __________, ________, 199_, at __:__ _.m., local
time, for the purpose of considering and voting upon a Plan of Conversion and
Agreement and Plan of Reorganization (the "Plan") among the Mutual Holding
Company, Lexington First and Community National Corporation (the "Company")
pursuant to which: (i) the Mutual Holding Company, which currently owns
approximately 60.54% of the outstanding shares of the common stock, $1.00 par
value of the Bank (the "Bank Common Stock"), will convert from mutual form to a
federal interim stock savings bank and simultaneously merge with an into the
Bank, with the Bank being the surviving entity; (ii) the Bank will then merge
with an interim institution ("Interim") to be formed as a wholly owned
subsidiary of the Company, with the Bank as the surviving entity; (iii) the
outstanding shares of Bank Common Stock (other than those held by the Mutual
Holding Company, which will be cancelled) (the "Public Bank Shares") will be
converted in to shares of the common stock, $1.00 par value, of the Company (the
"Common Stock") pursuant to a ratio (the "Exchange Ratio") that will result in
the holders of such shares (the "Public Stockholders") owning in the aggregate
approximately the same percentage of the Company as they currently own of the
Bank, before giving effect to such stockholders purchasing additional shares in
a concurrent stock offering by the Company thereafter, receiving cash in lieu of
fractional shares or the exercise of dissenters' rights; (iv) the Company will
offer and sell shares of the Company's common stock (the "Conversion Stock");
and (v) the Bank will convert from a federal stock savings bank to a national
bank (the "Bank Conversion") . The offer and sale of the Conversion Stock and
the reorganization are collectively referred to herein as the "Stock Conversion
and Reorganization." The Bank Conversion and the Stock Conversion and
Reorganization are collectively referred to herein as the "Conversion."
Pursuant to the Plan and in connection with the Stock Conversion and
Reorganization, the Company is offering up to ______ shares of Conversion Stock
in a Subscription Offering with nontransferable subscription rights being
granted, in the following order of priority, to: (i) depositors of the Bank with
account balances of $50.00 or more as of the close of business on December 31,
1995 ("Eligible Account Holders"); (ii) depositors of the Bank with account
balances of $50.00 or more as of the close of business on ____________
("Supplemental Eligible Account Holders"); (iii) depositors of the Bank as of
the close of business on __________ (other than Eligible Account Holders and
Supplemental Eligible Account Holder(s) and borrowers as of December 14, 1992
whose loan continues to be outstanding on ______________ ("Other Members"); (iv)
directors, officers and employees of the Bank; and (v) Public Stockholders.
Subscription rights will expire if not exercised by 12:00 p.m., Central Time, on
___________, 1997, unless extended.
Subject to the prior rights of holders of subscription rights,
Conversion Stock not subscribed for in the Subscription Offering may be offered
in a Community Offering to certain members of the general public to whom a copy
of the Prospectus is delivered, with preference given to natural persons
residing in Henderson County, Tennessee. It is anticipated that shares not
subscribed for in the Subscription Offering and the Community Offering will be
offered to certain members of the general public in a Syndicated Community
Offering. The Mutual Holding Company, the
<PAGE>
Bank and the Company (the "Primary Parties") reserve the absolute right to
reject or accept any orders in the Community Offering or the Syndicated
Community Offering, in whole or in part, either at the time of receipt of an
order or as soon as practicable following the Expiration Date.
The Primary Parties have retained Trident Securities, Inc. as
financial advisor and marketing agent in connection with the Offerings and to
assist in soliciting subscriptions in the Offerings. See "The Stock Conversion
and Reorganization -- The Offerings -- Subscription Offering," " -- Community
Offering," " -- Syndicated Community Offering" and " -- Marketing Arrangements"
in the accompanying Prospectus.
THE BOARD OF DIRECTORS OF THE MUTUAL HOLDING COMPANY UNANIMOUSLY
RECOMMENDS THAT YOU VOTE TO APPROVE THE PLAN. VOTING IN FAVOR OF THE PLAN WILL
NOT OBLIGATE ANY PERSON TO PURCHASE CONVERSION STOCK. EXCHANGE SHARES AND
- ---
SHARES OF CONVERSION STOCK ARE BEING OFFERED ONLY BY THE PROSPECTUS, WHICH IS
AVAILABLE UPON REQUEST, IF NOT INCLUDED HEREIN. SEE "AVAILABLE INFORMATION."
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
Depositors of the Bank, and borrowers of the Bank as of December 14,
1992 whose loans continue to be outstanding, are members of the Mutual Holding
Company under its current charter (the "Members"). All of the Members as of the
close of business on ______________ (the "Voting Record Date") who continue to
be Members on the date of the Special Meeting or any adjournment thereof will be
entitled to vote on the Plan. If there are not sufficient votes for approval of
the Plan at the time of the Special Meeting, the Special Meeting may be
adjourned to permit further solicitation of proxies.
At the Special Meeting, each depositor Member will be entitled to cast
one vote for every $100 or fraction thereof, of the total withdrawal value of
all of his accounts in the Bank as of the Voting Record Date. Each borrower
Member will be entitled to one vote in the aggregate for all loans with the Bank
in addition to the votes such Member may be entitled to cast as a depositor. In
no event, however, may any Member cast more than 1,000 votes.
Pursuant to Office of Thrift Supervision ("OTS") regulations,
consummation of the Stock Conversion and Reorganization is conditioned upon the
approval of the Plan by the OTS as well as: (i) the approval of the holders of
at least a majority of the total number of votes eligible to be cast by the
Members of the Mutual Holding Company as of the Voting Record Date at the
Special Meeting; and (ii) the approval of the holders of at least two-thirds of
the shares of the outstanding Bank Common Stock as of the voting record date for
the special meeting of stockholders called for that purpose (the "Stockholders'
Meeting). In addition, the parties have conditioned the consummation of the
Stock Conversion and Reorganization on the approval of the Plan by the holders
of at least a majority of the votes cast, in person or by proxy, by the Public
Stockholders at the Stockholders' Meeting and the exercise of dissenters' rights
of appraisal by the holders of less than 10% of the outstanding shares of Bank
Common Stock. The Mutual Holding Company intends to vote its shares of Bank
Common Stock, which amount to 60.54% of the outstanding shares, in favor of the
Plan at the Stockholders' Meeting.
This Proxy Statement and related materials are first being mailed to
Members on or about ___________.
Approval of the Plan by the Members of the Mutual Holding Company will
require the affirmative vote of at least a majority of the total outstanding
votes of the Mutual Holding Company's Members eligible to be cast at the Special
Meeting. As of the Voting Record Date for the Special Meeting, there were
approximately ______ votes eligible to be cast, of which ______ votes constitute
a majority.
2
<PAGE>
PROXIES
The Board of Directors of the Mutual Holding Company is soliciting the
proxy which accompanies this Proxy Statement for use at the Special Meeting.
Each proxy solicited hereby, if properly executed, duly returned before the
Special Meeting and not revoked prior to or at the Special meeting, will be
voted at the Special Meeting in accordance with the Member's instructions
indicated thereon. If no contrary instructions are given on the proxy, the
proxy, if signed, will be voted in favor of the Plan. If you do not return a
proxy or vote at the Special Meeting, it will have the same effect as a vote
against the Plan. If any other matters are properly presented before the Special
meeting, the persons named in the proxy will vote upon such matters according to
their discretion. Except with respect to procedural matters incident to the
conduct of the Special Meeting, no additional matters are expected to come
before the Special Meeting.
Any Member giving a proxy may revoke it at any time before it is voted
by delivering to the Secretary of the Mutual Holding Company either a written
revocation of the proxy or a duly executed proxy bearing a later date, or by
voting in person at the Special Meeting. Proxies are being solicited only for
use at the Special Meeting and any and all adjournments thereof and will not be
used for any other meeting.
Proxies may be solicited by officers, directors and employees of the
Mutual Holding Company personally, by telephone or further correspondence
without additional compensation.
Deposits held in a trust or other fiduciary capacity may be voted by
the trustee or other fiduciary to whom voting rights are delegated under the
trust instrument or other governing document or applicable law. In the case of
individual retirement accounts ("IRAs") and Keogh trusts established at the
Bank, the beneficiary may direct the trustee's vote on the Plan by returning a
completed proxy card to the Mutual Holding Company. For IRAs and Keogh trusts,
if no proxy card is returned, the trustee will vote in favor of approval of the
Plan on behalf of such beneficiary.
The Board of Directors urges you to mark, sign, date and return the
enclosed proxy card in the enclosed postage-paid envelope as soon as possible,
even if you do not intend to purchase Common Stock. This will ensure that your
vote will be counted.
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
The Mutual Holding Company is a federally chartered mutual holding
company chartered in 1992 in connection with the mutual holding company
reorganization of the Bank (the "MHC Reorganization"). The Mutual Holding
Company's primary asset is 135,000 shares of Bank Common Stock, which represents
60.54% of the shares of Bank Common Stock outstanding as of the date of this
Prospectus. The Mutual Holding Company's only other asset at December 31, 1996
was approximately $93,000 in cash. As part of the Stock Conversion and
Reorganization, the Mutual Holding Company will convert to an interim federal
savings bank and simultaneously merge with and into the Bank, with the Bank
being the surviving entity. Upon consummation of the Stock Conversion and
Reorganization, the stock of Home and the deposit account will become assets of
the Bank.
LEXINGTON FIRST FEDERAL SAVINGS BANK
Lexington First commenced operations in 1961 as a federally-chartered
mutual savings association under the name "Lexington First Federal Savings and
Loan Association" (the "Association"). On December 14, 1992, the Association
reorganized into the mutual holding company form of organization and completed a
sale of stock to the public. To accomplish this transaction, the Association
organized a federal stock savings bank as a wholly owned subsidiary. The mutual
Bank then transferred substantially all of its assets and liabilities to the
stock Bank in exchange for 135,000 shares of Bank Common Stock, and reorganized
itself into a federally chartered mutual holding company known as Lexington
First Federal Mutual Holding Company and sold 80,000 shares of Bank Common Stock
to certain
3
<PAGE>
members of the Bank and members of the general public. As of the date hereof,
the Mutual Holding Company and the Public Stockholders own an aggregate of
135,000 shares and 87,993 shares, or 60.54% and 39.46%, respectively, of the
outstanding shares of Bank Common Stock, respectively.
Lexington First's primary business, as conducted through its office
located in Lexington, Tennessee, has been the origination of mortgage loans
secured by single-family residential real estate located primarily in Henderson
County, Tennessee, with funds obtained through the attraction of savings
deposits, primarily transaction accounts, and certificate accounts with terms of
18 months or less. The Bank also makes construction loans on single-family
residences, savings account loans, and second mortgage consumer loans. In past
years, the Bank has made a limited number of loans on multi-family and
commercial real estate. The Bank also purchases mortgage-backed securities, and
invests in other liquid investment securities when warranted by the level of
excess funds. Following the Conversion, the Bank will attempt to significantly
increase its origination of commercial real estate loans, commercial business
loans and consumer loans. For more information on the business of Lexington
First see "Management's Discussion and Analysis of Financial Conditions and
Results of Operations" and "Business of the Bank" in the Prospectus which
accompanies this Proxy Statement.
Lexington First is subject to regulation by the OTS, as its primary
federal regulator and by the Federal Deposit Insurance Corporation ("FDIC"),
which, through the Savings Association Insurance Fund ("SAIF") administered by
it, insures Lexington First's deposits up to applicable limits. Lexington First
is a member of the Federal Home Loan Bank ("FHLB") of Cincinnati, which is one
of the 12 banks which comprise the FHLB System.
Lexington First's principal executive offices are located 19 Natchez
Trace Drive, Lexington, Tennessee 38351, and its telephone number is (901) 968-
6624.
COMMUNITY NATIONAL CORPORATION
Community National Corporation is a Tennessee corporation organized in
July 1997 by the Bank for the purpose of holding all of the capital stock of the
Bank following the Stock Conversion and Reorganization and of the National Bank
following the Bank Conversion. The Company has received approval from the OTS
to acquire control of the Bank subject to satisfaction of certain conditions.
Prior to the Conversion, the Company has not engaged and will not engage in any
material operations. Upon consummation of the Stock Conversion and
Reorganization, the Company will have no significant assets other than the
outstanding capital stock of the Bank (or, following the Bank Conversion, the
resulting national bank), and a portion of the net proceeds of the Stock
Conversion. Upon consummation of the Conversion, the Company's principal
business will be overseeing and directing the business of the resulting national
bank and investing the net Stock Conversion proceeds retained by it, and the
Company will register with the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board") as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHCA") and deregister with the OTS as a
savings and loan holding company. See "Business of the Company" and "Regulation
- -- Depository Institution Regulation and -- Regulation of the Company" in the
Prospectus which accompanies this Proxy Statement.
The Company's principal executive office is located at the home office
of the Bank at 19 Natchez Trace Drive, Lexington, Tennessee 38351, and its
telephone number is (901) 968-6624.
THE STOCK CONVERSION AND REORGANIZATION
The Boards of Directors of the Mutual Holding Company, the Bank and
the Company (the "Primary Parties") have approved the Plan, as has the OTS,
subject to approval by the Members of the Mutual Holding Company and the
Stockholders of the Bank entitled to vote on the matter and the satisfaction of
certain other conditions. Such OTS approval, however, does not constitute a
recommendation or endorsement of the Plan by such agency.
4
<PAGE>
General
The Boards of Directors of the Mutual Holding Company and the Bank
unanimously adopted the Plan as of April 12, 1997. The Plan was subsequently
amended on July 12, 1997. The Plan has been approved by the OTS, subject to,
among other things, approval of the Plan by the Members of the Mutual Holding
Company and the Stockholders of the Bank. The Members' Meeting and the
Stockholders' Meeting have been called for this purpose on _____________, 1997.
The following is a brief summary of pertinent aspects of the Plan and
the Conversion and Reorganization. The summary is qualified in its entirety by
reference to the provisions of the Plan, which is attached hereto as Exhibit I.
See also the description under "The Stock Conversion and Reorganization" in the
accompanying Prospectus.
Effects of the Stock Conversion and Reorganization
General. Prior to the Stock Conversion and Reorganization, each
depositor in the Bank has both a deposit account in the institution and a pro
rata ownership interest in the net worth of the Mutual Holding Company based
upon the balance in his account, which interest may only be realized in the
event of a liquidation of the Mutual Holding Company. However, this ownership
interest is tied to the depositor's account and has no tangible market value
separate from such deposit account. A depositor who reduces or closes his
account receives a portion or all of the balance in the account but nothing for
his ownership interest in the net worth of the Mutual Holding Company, which is
lost to the extent that the balance in the account is reduced.
Consequently, the depositors of the Bank normally have no way to
realize the value of their ownership interest in the Mutual Holding Company,
which has realizable value only in the unlikely event that the Mutual Holding
Company is liquidated. In such event, the depositors of record at that time, as
owners, would share pro rata in any residual surplus and reserves of the Mutual
Holding Company after other claims are paid.
Upon consummation of the Stock Conversion and Reorganization,
permanent nonwithdrawable capital stock will be created to represent the
ownership of the net worth of the Company. The Common Stock of the Company is
separate and apart from deposit accounts and cannot be and is not insured by the
FDIC or any other governmental agency. Certificates are issued to evidence
ownership of the permanent stock. The stock certificates are transferable, and
therefore the stock may be sold or traded if a purchaser is available with no
effect on any account the seller may hold in the Bank.
Continuity. While the Stock Conversion and Reorganization is being
accomplished, the normal business of the Bank of accepting deposits and making
loans will continue without interruption. The Bank will continue to be subject
to regulation by the OTS and the FDIC. After the Stock Conversion and
Reorganization, the Bank will continue to provide services for depositors and
borrowers under current policies by its present management and staff.
The directors and officers of the Bank at the time of the Stock
Conversion and Reorganization will continue to serve a directors and officers of
the Bank after the Stock Conversion and Reorganization. The directors and
officers of the Company consist of individuals currently serving as directors
and officers of the Mutual Holding Company and the Bank, and they generally will
retain their positions in the Company after the Stock Conversion and
Reorganization.
Effect on Public Bank Shares. Under the Plan, upon consummation of
the Stock Conversion and Reorganization, the Public Bank Shares shall be
converted into Common Stock based upon the Exchange Ratio without any further
action on the part of the holder thereof. Upon surrender of the Public Bank
Shares, Common Stock will be issued in exchange for such shares.
Upon consummation of the Stock Conversion and Reorganization, the
Public Stockholders of the Bank, a federally chartered savings bank, will become
stockholders of the Company, a Tennessee corporation.
5
<PAGE>
Effect on Deposit Accounts. Under the Plan, each depositor in the
Bank at the time of the Stock Conversion and Reorganization will automatically
continue as a depositor after the Stock Conversion and Reorganization, and each
such deposit account will remain the same with respect to deposit balance,
interest rate and other terms, except to the extent that funds in the account
are withdrawn to purchase Conversion Stock to be issued in the Offerings. Each
such account will be insured by the FDIC to the same extent as before the Stock
Conversion and Reorganization. Depositors will continue to hold their existing
certificates, passbooks and other evidences of their accounts.
Effect on Loans. No loan outstanding from the Bank will be affected
by the Stock Conversion and Reorganization, and the amount, interest rate,
maturity and security for each loan will remain as they were contractually fixed
prior to the Stock Conversion and Reorganization.
Effect on Voting Rights of Members. At present, all depositors of the
Bank are members of, and have voting rights in, the Mutual Holding Company as to
all matters requiring membership action. Upon completion of the Stock
Conversion and Reorganization, depositors will cease to be members and will no
longer be entitled to vote at meetings of the Mutual Holding Company. Upon
completion of the Stock Conversion and Reorganization, all voting rights in the
Bank will be vested in the Company as the sole stockholder of the Bank and
exclusive voting rights with respect to the Company will be vested in the
holders of Common Stock. Depositors of the Bank will not have voting rights in
the Company after the Stock Conversion and Reorganization, except to the extent
that they become stockholders of the Company.
Tax Effects. Consummation of the Stock Conversion and Reorganization
is conditioned on prior receipt by the Primary Parties of rulings or opinions
with regard to federal and Tennessee income taxation which indicate that the
adoption and implementation of the Plan set forth herein will not be taxable for
federal or Tennessee income tax purposes to the Primary Parties or the Bank's
Eligible Account Holders, Supplemental Eligible Account Holders or Other
Members, Public Stockholders except as discussed below.
Housley Kantarian & Bronstein, P.C., Washington, D.C., has issued an
opinion to the Company and the Bank to the effect that, for federal income tax
purposes: (1) the conversion of the Mutual Holding Company from mutual to stock
form and the simultaneous merger of the Mutual Holding Company with and into the
Bank, with the Bank being the surviving institution, will qualify as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code; (2) no
gain or loss will be recognized by the Bank upon the receipt of the assets of
the converted Mutual Holding Company in such merger; (3) the merger of Interim
with and into the Bank, with the Bank being the surviving institution, will
qualify as a reorganization within the meaning of Section 368(a)(1)(A) of the
Code; (4) no gain or loss will be recognized by Interim upon the transfer of its
assets to the Bank; (5) no gain or loss will be recognized by the Bank upon the
receipt of the assets of Interim; (6) no gain or loss will be recognized by the
Company upon the receipt of Bank Common Stock solely in exchange for Common
Stock; (7) no gain or loss will be recognized by the Public Stockholders upon
the receipt of Common Stock solely in exchange for their Public Bank Shares; (8)
the basis of the Common Stock to be received by the Public Stockholders will be
the same as the basis of the Public Bank Shares surrendered in exchange
therefor, before giving effect to any payment of cash in lieu of fractional
shares; (9) the holding period of the Common Stock to be received by the Public
Stockholders will include the holding period of the Public Bank Shares, provided
that the Public Bank Shares were held as a capital asset on the date of the
exchange; (10) no gain or loss will be recognized by the Company upon the sale
of shares of Conversion Stock in the Offerings; (11) the Eligible Account
Holders and Supplemental Eligible Account Holders will recognize gain, if any,
upon the issuance to them of withdrawable savings accounts in the Bank following
the Stock Conversion and Reorganization, interests in the liquidation account
and nontransferable subscription rights to purchase Conversion Stock, but only
to the extent of the value, if any, of the subscription rights; and (12) the tax
basis to the holders of Conversion Stock purchased in the Offerings will be the
amount paid therefor, and the holding period for the shares of Conversion Stock
will begin on the date of consummation of the Offerings if purchased through the
exercise of subscription rights and on the day after the date of purchase if
purchased in the Community Offering or Syndicated Community Offering.
6
<PAGE>
Arnold, Spain & Company, P.C., Jackson, Tennessee has issued an
opinion to the Company and the Bank to the effect that the income tax
consequences of the Stock Conversion and Reorganization are substantially the
same under Tennessee laws as they are under the Code.
In the opinion of Ferguson & Company, which opinion is not binding on
the IRS, the subscription rights do not have any value, based on the fact that
such rights are acquired by the recipients without cost, are nontransferable and
of short duration, and afford the recipients the right only to purchase the
Conversion Stock at a price equal to its estimated fair market value, which will
be the same price as the Purchase Price for the unsubscribed shares of
Conversion Stock. If the subscription rights granted to eligible subscribers
are deemed to have an ascertainable value, receipt of such rights likely would
be taxable only to those eligible subscribers who exercise the subscription
rights (either as a capital gain or ordinary income) in an amount equal to such
value, and the Primary Parties could recognize gain on such distribution.
Eligible subscribers are encouraged to consult with their own tax advisor as to
the tax consequences in the event that such subscription rights are deemed to
have an ascertainable value.
Unlike private rulings, an opinion is not binding on the IRS and the
IRS could disagree with conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.
Effect on Liquidation Rights. Were the Mutual Holding Company to
liquidate, all claims of the Mutual Holding Company's creditors would be paid
first. Thereafter, if there were any assets remaining, members of the Mutual
Holding Company would receive such remaining assets, pro rata, based upon the
deposit balances in their deposit accounts at the Bank immediately prior to
liquidation. In the unlikely event that the Bank were to liquidate after the
Stock Conversion and Reorganization, all claims of creditors (including those of
depositors, to the extent of their deposit balances) also would be paid first,
followed by distribution of the "liquidation account" to certain depositors (see
" --Liquidation Rights" below), with any assets remaining thereafter distributed
to the Company as the holder of the Bank's capital stock. Pursuant to the rules
and regulations of the OTS, a merger, consolidation, sale of bulk assets or
similar combination or transaction with another insured savings institution
would not be considered a liquidation for this purpose and, in such a
transaction, the liquidation account would be required to be assumed by the
surviving institution.
Liquidation Rights
In the unlikely event of a complete liquidation of the Mutual Holding
Company in its present mutual form, each depositor of the Bank would receive his
pro rata share of any assets of the Mutual Holding Company remaining after
payment of claims of all creditors. Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his deposit
account was to the total value of all deposit accounts in the Bank at the time
of liquidation. After the Stock Conversion and Reorganization, each depositor,
in the event of a complete liquidation of the Bank, would have a claim as a
creditor of the same general priority as the claims of all other general
creditors of the Bank. However, except as described below, his claim would be
solely in the amount of the balance in his deposit account plus accrued
interest. He would not have an interest in the value or assets of the Bank or
the Company above that amount.
The Plan provides for the establishment, upon the completion of the
Stock Conversion and Reorganization, of a special "liquidation account" for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders in
an amount equal to the amount of any dividends waived by the Mutual Holding
Company plus the greater of (i) the Bank's retained earnings of $2.6 million at
March 31, 1992, the date of the latest balance sheet contained in the final
offering circular utilized in the Bank's initial public offering, or (ii) 60.54%
of the Bank's total stockholders' equity as reflected in its latest balance
sheet contained in the final Prospectus utilized in the Offerings. As of the
date of this Prospectus, the initial balance of the liquidation account would be
$3.9 million. Each Eligible Account Holder and Supplemental Eligible Account
Holder, if he were to continue to maintain his deposit account at the Bank,
would be entitled, upon a complete liquidation of the Bank after the Stock
Conversion and Reorganization, to an interest in the liquidation account prior
to any payment to the Company as the sole stockholder of the Bank. Each
Eligible Account
7
<PAGE>
Holder and Supplemental Eligible Account Holder would have an initial interest
in such liquidation account for each deposit account, including passbook
accounts, transaction accounts such as checking accounts, money market deposit
accounts and certificates of deposit, held in the Bank at the close of business
on the Eligibility Record Date or the Supplemental Eligibility Record Date, as
the case may be. Each Eligible Account Holder and Supplemental Eligible Account
Holder will have a pro rata interest in the total liquidation account for each
of his deposit accounts based on the proportion that the balance of each such
deposit account on Supplemental Eligibility Record Date, as the case may be bore
to the balance of all deposit accounts in the Bank on such date.
If, however, on any December 31 annual closing date of the Bank,
commencing December 31, 1996 for Eligible Account Holders and December 31, 1997
for Supplemental Eligible Account Holders, the amount in any deposit account is
less than the amount in such deposit account on December 31, 1995 or June 30,
1997, as the case may be, or any other annual closing date, then the interest in
the liquidation account relating to such deposit account would be reduced by the
proportion of any such reduction, and such interest will cease to exist if such
deposit account is closed. In addition, no interest in the liquidation account
would ever be increased despite any subsequent increase in the related deposit
account. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Company as the sole stockholder of the Bank.
Required Approvals
Various approvals of OTS are required in order to consummate the Stock
Conversion and Reorganization. The OTS has approved the Plan, subject to
approval by the Mutual Holding Company's Members and the Bank's Stockholders.
In addition, consummation of the Stock Conversion and Reorganization is subject
to OTS approval of the application of the Company to acquire control of the Bank
and the applications with respect to the merger of the Mutual Holding Company
(following its conversion to an interim federal stock savings association) into
the Bank and the merger of Interim into the Bank, with the Bank being the
surviving entity in both mergers. Applications for these approvals have been
filed and approved by the OTS subject to certain conditions. The Bank has also
applied to the OTS and OCC for approval of the conversion of the Bank to a
national bank and the Company has applied to the Federal Reserve Board for the
Company's continued ownership of 100% of the capital stock of the resulting
national bank. The Bank Conversion is contingent upon the approval of the OCC
and Federal Reserve Board.
Pursuant to OTS regulations, the Plan of Conversion also must be
approved by (1) at least a majority of the total number of votes eligible to be
cast by Members of the Mutual Holding Company at the Members' Meeting, and (2)
holders of at least two-thirds of the outstanding Bank Common Stock at the
Stockholders' Meeting. In addition, the Primary Parties have conditioned the
consummation of the Stock Conversion and Reorganization on the approval of the
Plan by at least a majority of the votes cast, in person or by proxy, by the
Public Stockholders at the Stockholders' Meeting.
Review By Administrative and Judicial Authorities
Federal law provides (i) that persons aggrieved by a final action of
the OTS which approves, with or without conditions, a plan of conversion may
obtain review of such final action only by filing a written petition in the
United States Court of Appeals for the circuit in which the principal office or
residence of such person is located, or in the United States Court of Appeals,
for the District of Columbia Circuit, requesting that the final action of the
OTS be modified, terminated or set aside, and (ii) that such petition must be
filed within 30 days after publication of notice of such final action in the
Federal Register, or 30 days after the date of mailing of the notice and proxy
statement for the meeting of the converting institution's members at which the
conversion is to be voted on, whichever is later.
HOW TO ORDER STOCK
The accompanying Prospectus contains information about the business
and financial condition of Lexington First and additional information about the
Stock Conversion and the Subscription Offering and the concurrent
8
<PAGE>
Community Offering. Enclosed is an order form and a certification form to be
used to subscribe for Common Stock. You are not obligated to subscribe for
Common Stock, and voting to approve the Conversion will not obligate you to
subscribe for Common Stock.
All subscription rights are nontransferable and will expire if not
exercised by returning the accompanying stock order form and a certification
form with full payment (or appropriate instructions authorizing withdrawal from
a savings or certificate account at the Bank) for all shares for which
subscription is made to the Company by 12:00 p.m., local time, on __________,
1997, unless extended. A postage-paid reply envelope is provided for this
purpose. Provided that not all of the shares are subscribed for in the
Subscription Offering by members of the Mutual Holding Company, the remaining
shares are concurrently being offered to the general public in the Community
Offering with preference given to natural persons and trusts of natural persons
permanently residing in Henderson County, Tennessee.
The information contained in this Proxy Statement is limited in its
scope to use in the solicitation of proxies for the Special Meeting to consider
and vote on the Plan. It is not intended for use in the offering of the Common
Stock. Such offering is made only by the Prospectus.
AVAILABLE INFORMATION
The information contained in the accompanying Prospectus, including a
more detailed description of the Plan, is intended to help you evaluate the
Conversion and is incorporated herein by reference. All persons eligible to
vote at the Special Meeting should carefully review both this Proxy Statement
and the accompanying Prospectus.
YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THIS PROXY
MATERIAL AND, WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE SPECIAL
MEETING, TO FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) AS SOON AS
POSSIBLE TO ASSURE THAT YOUR VOTES WILL BE COUNTED. THIS WILL NOT PREVENT YOU
FROM VOTING IN PERSON IF YOU ATTEND THE SPECIAL MEETING. YOU MAY REVOKE YOUR
PROXY BY WRITTEN INSTRUMENT DELIVERED TO THE SECRETARY OF THE BANK AT ANY TIME
PRIOR TO OR AT THE SPECIAL MEETING OR BY ATTENDING THE SPECIAL MEETING AND
VOTING IN PERSON.
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY THE COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
BY ORDER OF THE BOARD OF DIRECTORS
----------------------------------
Arba M. Taylor
Secretary
____________, 1997
Lexington, Tennessee
9
<PAGE>
EXHIBIT A
================================================================================
PLAN OF CONVERSION
of
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
and
AGREEMENT AND PLAN OF REORGANIZATION
between
COMMUNITY NATIONAL CORPORATION
and
LEXINGTON FIRST FEDERAL SAVINGS BANK
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION.............................................................................. 1
I. DEFINITIONS......................................................................... 3
II. GENERAL PROCEDURE FOR CONVERSION AND REORGANIZATION................................. 8
III. CONVERSION STOCK.................................................................... 10
A. Total Number of Shares and Purchase Price
of Conversion Stock........................................................... 10
B. Subscription Offering.......................................................... 11
C. Community Offering, Syndicated Community Offering and Other Offerings.......... 14
D. Limitations on Subscriptions and Purchases of Conversion Stock................. 15
E. Timing of Subscription Offering, Manner of Exercising Subscription
Rights and Order Forms........................................................ 17
F. Payment for Conversion Stock................................................... 18
G. Account Holders in Nonqualified States or
Foreign Countries............................................................. 19
IV. CERTAIN OTHER EFFECTS OF CONVERSION................................................. 19
A. Liquidation Account............................................................ 19
B. Voting Rights of Stockholders.................................................. 20
C. Transfer of Deposit Accounts................................................... 21
D. Directors and Officers of the Bank............................................. 21
E. Requirements Following Stock Conversion and Reorganization
for Registration, Market Making, and Stock Exchange Listing................... 21
F. Dissenting Stockholders........................................................ 21
G. Effect of Bank Conversion...................................................... 21
V. EFFECTIVE DATE...................................................................... 22
VI. CERTAIN RESTRICTIONS FOLLOWING STOCK CONVERSION AND REORGANIZATION.................. 22
A. Requirements for Stock Purchases by Directors and Officers Following
the Stock Conversion and Reorganization....................................... 22
B. Restrictions on Transfer of Stock.............................................. 22
C. Restrictions on Acquisition of Stock of the Holding Company.................... 23
D. Dividend and Repurchase Restrictions........................................... 24
VII. MISCELLANEOUS....................................................................... 24
A. Tax Rulings or Opinions........................................................ 24
B. Stock Compensation Plans....................................................... 24
C. Amendment or Termination of the Plan........................................... 25
D. Interpretation of the Plan..................................................... 25
ANNEX A - PLAN OF MERGER BETWEEN THE MUTUAL HOLDING COMPANY
AND THE BANK........................................................................... A-1
ANNEX B - PLAN OF MERGER BETWEEN THE BANK, THE HOLDING
COMPANY AND INTERIM B.................................................................. B-1
</TABLE>
<PAGE>
INTRODUCTION
For purposes of this section, all capitalized terms have the meanings
ascribed to them in Article I.
On December 14, 1992, Lexington First Federal Savings Bank, a federal
mutual savings bank reorganized into the mutual holding company form of
organization and completed a sale of stock to the public. To accomplish this
transaction, the Bank organized a federal stock savings bank as a wholly owned
subsidiary. The mutual Bank then transferred substantially all of its assets and
liabilities to the stock Bank in exchange for 200,000 shares of Bank Common
Stock, and reorganized itself into a federally chartered mutual holding company
known as Lexington First Federal Mutual Holding Company and sold 80,000 shares
of Bank Common Stock to certain members of the Bank and members of the general
public. As of the date hereof, the Mutual Holding Company and the Public
Stockholders own an aggregate of 135,000 shares and 87,993 shares, or 60.54% and
39.46% of the outstanding shares of Bank Common Stock, respectively.
The Boards of Directors of the Mutual Holding Company and the Bank
believe that a conversion of the Mutual Holding Company to stock form and
reorganization of the Bank and the subsequent conversion of the Bank from a
federally chartered stock savings bank to a national bank pursuant to this Plan
of Conversion is in the best interests of the Mutual Holding Company and the
Bank, as well as the best interests of their respective Members and
Stockholders. The conversion of the Mutual Holding Company to stock form and the
acquisition of control of the Bank by the Holding Company are referred to herein
as the "Stock Conversion and Reorganization", the conversion of the Bank to a
National Bank is referred to herein as the "Bank Conversion", and the Stock
Conversion and Reorganization and the Bank Conversion are referred to herein
collectively as the "Conversion." The Boards of Directors have determined that
this Plan of Conversion equitably provides for the interests of Members through
the granting of subscription rights and the establishment of a liquidation
account. The Stock Conversion and Reorganization will result in the Bank being
wholly owned by a stock holding company, which is a more common structure and
form of ownership than a mutual holding company. In addition, the Stock
Conversion and Reorganization will result in the raising of additional capital
for the Bank and the Holding Company and should result in a more active and
liquid market for the Holding Company Common Stock than currently exists for the
Bank Common Stock, although there can be no assurances that this will be the
case. Finally, the Stock Conversion and Reorganization has been structured to
re-unite the accumulated earnings and profits retained by the Mutual Holding
Company with the retained earnings of the Bank through a tax-free
reorganization. This will increase the Bank's ability to pay dividends in the
future.
If the Bank had undertaken a standard conversion involving the
formation of a stock holding company in 1992, applicable Office of Thrift
Supervision ("OTS") regulations would have required a greater amount of Bank
Common Stock to be sold than resulted in the amount of net proceeds raised in
the Bank's initial public offering. In addition, if a standard conversion had
been conducted in 1992, management of the Bank believed that it would have been
difficult to profitably invest the larger amount of capital that would have been
raised, when compared to the amount of net proceeds raised in the Bank's initial
public offering. A standard conversion in 1992 also would have immediately
eliminated all aspects of the mutual form of organization.
Subsequent to the formation of the Mutual Holding Company, there have
been certain changes in the policies of the OTS relating to mutual holding
companies. In addition, market conditions for the stocks of savings institutions
and their holding companies have improved. In light of the foregoing, the Boards
of Directors of the Mutual Holding Company and the Bank believe that it is in
the best interests of such companies and their respective Members and
Stockholders to raise additional capital at this time, and that the most
feasible way to do so is through the Stock Conversion and Reorganization.
In connection with the Stock Conversion and Reorganization, the Bank
will form a new first-tier, wholly owned subsidiary known as Community National
Corporation which will become the Holding Company upon consummation of the Stock
Conversion and Reorganization. The Holding Company will in turn form Interim B
as a wholly owned subsidiary. As described in more detail in Article II, the
Mutual Holding Company will convert to an interim stock
A-1
<PAGE>
savings association and will simultaneously merge with and into the Bank
pursuant to the Plan of Merger included as Annex A hereto, pursuant to which the
Mutual Holding Company will cease to exist and a liquidation account will be
established by the Bank for the benefit of depositor Members as of specified
dates, and Interim B will then merge with and into the Bank pursuant to the Plan
of Merger included as Annex B hereto, pursuant to which the Bank will become a
wholly owned subsidiary of the Holding Company and, in connection therewith,
each share of Bank Common Stock outstanding immediately prior to the effective
time thereof (other than shares as to which the holders thereof have properly
exercised dissenters' rights of appraisal, if any) shall be automatically
converted, without further action by the holder thereof, into and become the
right to receive shares of Holding Company Common Stock based on the Exchange
Ratio, plus cash in lieu of any fractional share interest.
In connection with the Stock Conversion and Reorganization, the Holding
Company will offer shares of Conversion Stock in the Offerings as provided
herein. Shares of Conversion Stock will be offered in a Subscription Offering in
descending order of priority to Eligible Account Holders, Tax-Qualified Employee
Stock Benefit Plans, Supplemental Eligible Account Holders, Other Members,
Directors, Officers and Employees and Public Stockholders. Any shares of
Conversion Stock remaining unsold after the Subscription Offering will be
offered for sale to the public through a Community Offering and/or Syndicated
Community Offering, as determined by the Boards of Directors of the Holding
Company and the Bank in their sole discretion.
The Stock Conversion and Reorganization is intended to provide a larger
capital base to support the Bank's lending and investment activities and thereby
enhance the Bank's capabilities to serve the borrowing and other financial needs
of the communities it serves. The use of the Holding Company will provide
greater organizational flexibility and possible diversification. The purpose of
the Bank Conversion is to provide the Bank with additional operating flexibility
and enhance its ability to provide a full range of banking products and services
to its community. It is the further desire of the Board of Directors to
reorganize the Bank (or the National Bank upon the Bank Conversion) as the
wholly owned subsidiary of the Holding Company to enhance flexibility of
operations, diversification of business opportunities and financial capability
for business and regulatory purposes and to enable the National Bank to compete
more effectively with other financial service organizations.
This Plan was adopted by the Boards of Directors of the Mutual Holding
Company and the Bank by at least a two-thirds vote of each such Board on April
12, 1997, and was adopted as amended on July 12, 1997.
This Plan is subject to the approval of the OTS and must be adopted by
(1) at least a majority of the total number of votes eligible to be case by
Voting Members of the Mutual Holding Company at the Special Meeting and (2)
holders of at least two-thirds of the outstanding Bank Common Stock at the
Stockholders' Meeting. In addition, the Primary Parties have conditioned the
consummation of the Stock Conversion and Reorganization on the approval of the
Plan by at least a majority of the votes cast, in person or by proxy, by the
Public Stockholders at the Stockholders' Meeting. Either prior to or immediately
following the consummation of the Stock Conversion and Reorganization, the
Holding Company, as the sole stockholder of the Bank, shall approve the Bank
Conversion and the Bank shall take such actions as may be necessary to
consummate the Bank Conversion. Consummation of the Bank Conversion also
requires the approval of the Office of the Comptroller of the Currency and the
Board of Governors of the Federal Reserve System.
After the Stock Conversion and Reorganization, the Bank will continue
to be regulated by the OTS, as its primary federal regulator and its chartering
authority, and by the FDIC, which insures the Bank's deposits up to applicable
limits. After the Bank Conversion, the Bank will be subject to comprehensive
examination, supervision and regulation by the OCC and the FDIC. In addition,
the Bank will continue to be a member of the Federal Home Loan Bank System and
all insured savings deposits will continue to be insured by the FDIC up to the
maximum provided by law.
A-2
<PAGE>
I. DEFINITIONS.
As used in this Plan, the terms set forth below have the following
meaning:
Acting in Concert: The term "Acting in Concert" means: (i) knowing
-----------------
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; or (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. A
person (as defined by Section 563b.2(a)(26) of the Regulations Applicable to All
Savings Associations) or company which acts in concert with another person or
company ("other party") shall also be deemed to be acting in concert with any
person or company who is also acting in concert with that other party, except
that any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be
acting in concert with its trustee or a person who serves in a similar capacity
solely for the purpose of determining whether stock held by the trustee and
stock held by the Tax-Qualified Employee Stock Benefit Plan will be aggregated.
Actual Purchase Price: The term "Actual Purchase Price" means the price
---------------------
per share at which the Conversion Stock is ultimately sold by the Holding
Company in the Offerings in accordance with the terms hereof.
Affiliate: The term "Affiliate" means a Person who, directly or
---------
indirectly, through one or more intermediaries, controls or is controlled by or
is under common control with the Person specified.
Associate: The term "Associate" when used to indicate a relationship
---------
with any Person, means (i) a corporation or organization (other than the Mutual
Holding Company, the Bank, a majority-owned subsidiary of the Bank or the
Holding Company) of which such Person is a director, officer or partner or is,
directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities, (ii) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar fiduciary capacity, provided, however, that such term shall not
include any Tax-Qualified Employee Stock Benefit Plan of the Holding Company or
the Bank in which such Person has a substantial beneficial interest or serves as
a trustee or in a similar fiduciary capacity, and (iii) any relative or spouse
of such Person, or any relative of such spouse, who has the same home as such
Person or who is a director or officer of the Holding Company or the Bank or any
of the subsidiaries of the foregoing.
Bank: The term "Bank" means either Lexington First Federal Savings Bank
----
in its mutual or stock form or Lexington First Federal Savings Bank following
consummation of the Stock Conversion and Reorganization, as the context
requires.
Bank Common Stock: The term "Bank Common Stock" means the common stock
-----------------
of the Bank, $1.00 par value per share, which stock is not and will not be
insured by the FDIC or any other governmental authority.
Bank Conversion: The term "Bank Conversion" means the conversion of the
---------------
Bank from a federally chartered stock savings bank to a national bank.
Bank Merger: The term "Bank Merger" means the merger of Interim B with
-----------
and into the Bank pursuant to the Plan of Merger included as Annex B hereto.
Capital Stock: The term "Capital Stock" means any and all authorized
-------------
shares of stock of the Bank after the Stock Conversion and Reorganization and of
the National Bank after the Bank Conversion.
Code: The term "Code" means the Internal Revenue Code of 1986, as
----
amended.
A-3
<PAGE>
Community Offering: The term "Community Offering" means the offering for
------------------
sale by the Holding Company of any shares of Conversion Stock not subscribed for
in the Subscription Offering, with preference given in the Community Offering to
natural persons residing in the Local Community.
Control: The term "Control" (including the terms "controlling,"
-------
"controlled by," and "under common control with") means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
Conversion: The term "Conversion" means the Stock Conversion and
----------
Reorganization and the Bank Conversion.
Conversion Stock: The term "Conversion Stock" means the Holding Company
----------------
Common Stock to be issued and sold in the Offerings pursuant to the Plan of
Conversion.
Deposit Account: The term "Deposit Account" means savings and demand
---------------
accounts, including passbook accounts, money market deposit accounts and
negotiable order of withdrawal accounts, and certificates of deposit and other
authorized accounts of the Bank held by a Member.
Director, Officer and Employee: The term "Director, Officer and
------------------------------
Employee" means the terms as applied respectively to any person who is a
director, officer or employee of the Mutual Holding Company, the Bank or any
subsidiary thereof.
Effective Date: The term "Effective Date" means the effective date of
--------------
the Stock Conversion and Reorganization as defined in Article V hereof.
Eligibility Record Date: The term "Eligibility Record Date" means the
-----------------------
date for determining Qualifying Deposits of Eligible Account Holders and is the
close of business on December 31, 1995.
Eligible Account Holder: The term "Eligible Account Holder" means any
-----------------------
Person holding a Qualifying Deposit on the Eligibility Record Date for purposes
of determining Subscription Rights and establishing subaccount balances in the
Liquidation Account.
Estimated Price Range: The term "Estimated Price Range" means the range
---------------------
of the estimated aggregate pro forma market value of the total number of shares
of Conversion Stock to be issued in the Offerings, as determined by the
Independent Appraiser in accordance with Section IV.A hereof.
Exchange Ratio: The term "Exchange Ratio" means the rate at which shares
--------------
of Holding Company Common Stock will be exchanged for shares of Bank Common
Stock held by the Public Stockholders (other than shares as to which dissenting
Public Stockholders properly exercise appraisal rights, if any) in connection
with the Bank Merger. The exact rate shall be determined by the Primary Parties
in order to ensure that upon consummation of the Stock Conversion and
Reorganization the Public Stockholders will own in the aggregate approximately
the same percentage of the Holding Company Common Stock to be outstanding upon
completion of the Stock Conversion and Reorganization as the percentage of Bank
Common Stock owned by them in the aggregate immediately prior to consummation of
the Stock Conversion and Reorganization, before giving effect to (a) cash paid
in lieu of any fractional interests of Holding Company Common Stock and (b) any
shares of Conversion Stock purchased by the Public Stockholders in the Offerings
or by Tax-Qualified Employee Stock Benefit Plans thereafter.
Exchange Shares: The term "Exchange Shares" means the shares of Holding
---------------
Company Common Stock to be issued to the Public Stockholders in connection with
the Bank Merger.
FDIC: The term "FDIC" means the Federal Deposit Insurance Corporation
----
or any successor thereto.
A-4
<PAGE>
Federal Reserve Board: The term "Federal Reserve Board" means the Board
---------------------
of Governors of the Federal Reserve System.
Holding Company: The term "Holding Company" means Community National
---------------
Corporation a corporation to be organized under the laws of the State of
Tennessee. Such corporation will be initially formed as a first-tier, wholly
owned subsidiary of the Bank. Upon completion of the Stock Conversion and
Reorganization, the Holding Company shall hold all of the outstanding Capital
Stock of the Bank and, following the Bank Conversion, the Holding Company shall
be a bank holding company and shall hold all of the outstanding Capital Stock of
the National Bank.
Holding Company Common Stock: The term "Holding Company Common Stock"
----------------------------
means the common stock of the Holding Company, par value $1.00 per share,
including the Conversion Stock and the Exchange Shares, which stock cannot and
will not be insured by the FDIC or any other governmental authority.
Independent Appraiser: The term "Independent Appraiser" means a person
---------------------
independent of the Holding Company and the Bank, experienced and expert in the
area of corporate appraisal, and acceptable to the OTS, retained by the Bank to
prepare an appraisal of the pro forma market value of the Conversion Stock.
Initial Purchase Price: The term "Initial Purchase Price" means the
----------------------
price per share to be paid initially by Participants for shares of Conversion
Stock subscribed for in the Subscription Offering and by Persons for shares of
Conversion Stock ordered in the Community Offering.
Interim A: The term "Interim A" means Lexington First Federal M.H.C.
---------
Interim Savings Bank, an interim federal stock savings association, which will
be formed as a result of the conversion of Lexington First Federal Mutual
Holding Company into the stock form of organization.
Interim B: The term "Interim B" means Lexington First Federal Interim
---------
Savings Bank, which will be formed as a first-tier, wholly owned subsidiary of
the Holding Company to facilitate the Bank Merger.
Liquidation Account: The term "Liquidation Account" means the account to
-------------------
be maintained pursuant to Section IV.A by the Bank or the National Bank for the
benefit of Eligible Account Holders and Supplement Eligible Accounts who
maintain Deposit Accounts in the Bank after the Stock Conversion and
Reorganization or in the National Bank after the Bank Conversion.
Local Community: The term "Local Community" means Henderson County in
---------------
the State of Tennessee.
Member: The term "Member" means any Person qualifying as a member of the
------
Mutual Holding Company in accordance with its mutual charter and bylaws and the
laws of the United States.
M.H.C. Merger: The term "M.H.C. Merger" means the merger of Interim A
-------------
with and into the Bank pursuant to the Plan of Merger included as Annex A
hereto.
Mutual Holding Company: The term "Mutual Holding Company" means
----------------------
Lexington First Federal Mutual Holding Company prior to its conversion into an
interim stock savings association.
National Bank: The term "National Bank" means Community National Bank of
-------------
Tennessee, the national bank resulting from the Bank Conversion.
OCC: The term "OCC" means the Office of the Comptroller of the Currency
---
of the United States Department of the Treasury or any successor agency having
jurisdiction over the Bank Conversion.
A-5
<PAGE>
OCC Conversion Application: The term "OCC Conversion Application" means
--------------------------
the application submitted to the OCC for approval of the Bank Conversion.
Offerings: The term "Offerings" means the Subscription Offering, the
---------
Community Offering and the Syndicated Community Offering.
Officer: The term "Officer" means an executive officer of the Holding
-------
Company or the Bank (as applicable), including the Chairman of the Board,
President, Executive Vice President, Vice Presidents in charge of principal
business functions, Secretary and Treasurer.
Order Form: The term "Order Form" means the form or forms provided by
----------
the Holding Company, containing all such terms and provisions as set forth in
Section III.E hereof, to a Participant or other Person by which Conversion Stock
may be ordered in the Offerings.
Other Member: The term "Other Member" means a Voting Member who is not
------------
an Eligible Account Holder or a Supplemental Eligible Account Holder.
OTS: The term "OTS" means the Office of Thrift Supervision within the
---
U.S. Department of Treasury or any successor thereto.
OTS Bank Conversion Application: The term "OTS Bank Conversion
-------------------------------
Application" means the application submitted to the OTS for approval of the Bank
Conversion.
Participant: The term "Participant" means any Eligible Account Holder,
-----------
Tax-Qualified Employee Stock Benefit Plan, Supplemental Eligible Account Holder,
Other Member, Director, Officer and Employee or Public Stockholder as of the
Voting Record Date.
Person: The term "Person" means an individual, a corporation, a
------
partnership, an association, a joint stock company, a trust, an unincorporated
organization or a governmental or any political subdivision thereof.
Plan or Plan of Conversion: The term "Plan" or "Plan of Conversion"
---- ------------------
means this Plan of Conversion and Agreement and Plan of Reorganization as
adopted by the Boards of Directors of the Mutual Holding Company and the Bank or
any amendment hereto approved as provided herein. The Board of Directors of the
Holding Company shall adopt this Plan as soon as practicable following its
organization, and the Board of Directors of Interim B shall adopt the Plan of
Merger included as Annex B hereto as soon as practicable following its
organization.
Primary Parties: The term "Primary Parties" mean the Mutual Holding
---------------
Company, the Bank and Holding Company and their successors.
Prospectus: The term "Prospectus" means the one or more documents to be
----------
used in offering the Conversion Stock in the Offerings.
Public Stockholders: The term "Public Stockholders" mean those Persons
-------------------
who own shares of Bank Common Stock, excluding the Mutual Holding Company, as of
the Voting Record Date.
Qualifying Deposits: The term "Qualifying Deposits" means the aggregate
-------------------
balance of all Deposit Accounts in the Bank of (i) an Eligible Account Holder at
the close of business on the Eligibility Record Date, provided such aggregate
balance is not less than $50, and (ii) a Supplemental Eligible Account Holder at
the close of business on the Supplemental Eligibility Record Date, provided such
aggregate balance is not less than $50.
A-6
<PAGE>
Resident: The term "Resident" means any natural person subscribing for
--------
stock in the Subscription Offering or submitting an order in the Community
Offering who maintains a bona fide residence within the Local Community. The
Bank may utilize deposit or loan records or such other evidence provided to it
to make a determination as to whether a person is a bona fide resident of the
Local Community. In all cases, however, such determination shall be in the sole
and absolute discretion of the Bank.
Sale: The terms "sale" and "sell" mean every contract to sell or
----
otherwise dispose of a security or an interest in a security for value, but such
terms do not include an exchange of securities in connection with a merger or
acquisition following consummation of the Stock Conversion and Reorganization
approved by the OTS or any other federal agency having jurisdiction.
Savings Account: The term "Savings Account" means a withdrawable deposit
---------------
in the Bank after the Stock Conversion and Reorganization and a withdrawable
deposit in the National Bank after the Bank Conversion.
SEC: The term "SEC" means the Securities and Exchange Commission.
---
Special Meeting: The term "Special Meeting" means the Special Meeting
---------------
of Members of the Mutual Holding Company called for the purpose of submitting
this Plan to the Members for their approval, including any adjournments of such
meeting.
Stock Conversion and Reorganization: The term "Stock Conversion and
-----------------------------------
Reorganization" means (i) the conversion of the Mutual Holding Company to an
interim stock savings association and the subsequent merger with the Bank,
pursuant to which the Mutual Holding company will cease to exist, (ii) the Bank
Merger, pursuant to which the Bank will become a wholly owned subsidiary of the
Company and, in connection therewith, each share of Bank Common Stock
outstanding immediately prior to the effective time thereof shall automatically
be converted, without further action by the holder thereof, into and become the
right to receive shares of Holding Company Common Stock based on the Exchange
Ratio, plus cash in lieu of any fractional share interest, and (iii) the
issuance of Conversion Stock by the Holding Company in the Offerings as provided
herein, which will increase the number of shares of Holding Company Common Stock
outstanding and the capitalization of the Holding Company and the Bank.
Stockholders: The term "Stockholders" means those Persons who own shares
------------
of Bank Common Stock.
Stockholders' Meeting: The term "Stockholders' Meeting" means the annual
---------------------
or special meeting of Stockholders of the Bank called for the purpose of
submitting this Plan to the Stockholders for their approval, including any
adjournments of such meeting.
Subscription Offering: The term "Subscription Offering" means the
---------------------
offering of the Conversion Stock to Participants.
Subscription Rights: The term "Subscription Rights" means
-------------------
nontransferable rights to subscribe for Conversion Stock granted to Participants
pursuant to the terms of this Plan.
Supplemental Eligible Account Holder: The term "Supplemental Eligible
------------------------------------
Account Holder" means any Person, (other than Directors, Officers and their
respective Associates) holding a Qualifying Deposit at the close of business on
the Supplemental Eligibility Record Date.
Supplemental Eligibility Record Date: The term "Supplemental Eligibility
------------------------------------
Record Date, if applicable, means the date for determining Qualifying Deposits
of Supplemental Eligible Account Holders and shall be required if the
Eligibility Record Date is more than 15 months prior to the date of the latest
amendment to the Application for Conversion filed by the Mutual Holding Company
prior to approval of such application by the OTS. If applicable, the
A-7
<PAGE>
Supplemental Eligibility Record Date shall be the last day of the calendar
quarter preceding OTS approval of the Application for Conversion submitted by
the Mutual Holding Company pursuant to this Plan of Conversion.
Syndicated Community Offering: The term "Syndicated Community Offering"
-----------------------------
means the offering for sale by a syndicate of broker-dealers to the general
public of shares of Conversion Stock not purchased in the Subscription Offering
and the Community Offering.
Tax-Qualified Employee Stock Benefit Plan: The term "Tax-Qualified
-----------------------------------------
Employee Stock Benefit Plan" means any defined benefit plan or defined
contribution plan, such as an employee stock ownership plan, stock bonus plan,
profit-sharing plan or other plan, which is established for the benefit of the
employees of the Holding Company and the Bank and which, with its related trust,
meets the requirements to be "qualified" under Section 401 of the Code as from
time to time in effect. A "Non-Tax-Qualified Employee Stock Benefit Plan" is any
defined benefit plan or defined contribution stock benefit plan which is not so
qualified.
Voting Member: The term "Voting Member" means a Person who at the close
-------------
of business on the Voting Record Date is entitled to vote as a Member of the
Mutual Holding Company in accordance with its mutual charter and bylaws.
Voting Record Date: The term "Voting Record Date" means the date or
------------------
dates fixed by the Board of Directors for determining the eligibility of Members
to vote at the Special Meeting and of Stockholders to vote at the Stockholders'
Meeting, as applicable.
Y-3 Application: The term "Y-3 Application" means the application
---------------
submitted to the Federal Reserve Board on the Federal Reserve Board Form FR Y-3
for approval for the Holding Company to maintain control of the National Bank.
II. GENERAL PROCEDURE FOR CONVERSION AND REORGANIZATION
A. An application for the Stock Conversion and Reorganization,
including the Plan and all other requisite material (the "Application for
Conversion"), shall be submitted to the OTS for approval. The Mutual Holding
Company and the Bank also will cause notice of the adoption of the Plan by the
Boards of Directors of the Mutual Holding Company and the Bank to be given by
publication in a newspaper having general circulation in each community in which
an office of the Bank is located; and will cause copies of the Plan to be made
available at each office of the Mutual Holding Company and the Bank for
inspection by Members and Stockholders. After receipt of notice from the OTS to
do so, the Mutual Holding Company and the Bank will post the notice of the
filing of the Application for Conversion in each of their offices and will again
cause to be published, in accordance with the requirements of applicable
regulations of the OTS, a notice of the filing with the OTS of an application to
convert the Mutual Holding Company from mutual to stock form.
B. Also promptly following the adoption of this Plan, the Bank shall
file the OCC Conversion Application and the OTS Bank Conversion Application and
the Holding Company shall file a draft Y-3 Application.
C. The Holding Company shall submit or cause to be submitted an
Application H-(e)1 or H-(e)1-S to the OTS for approval of the acquisition of the
Bank and shall file the final Y-3 Application. Such application also shall
include applications to form Interim A and Interim B. In addition, an
application to merge Interim A and the Bank and an application to merge Interim
B and the Bank shall be filed with the OTS, either as an exhibit to the
Application H- (e)1 or H-(e)1-S or as the case may be, or separately. All
notices required to be published in connection with such applications shall be
published at the times required. After the receipt of all requisite regulatory
approvals, the Holding Company will form Interim B as a first-tier, wholly owned
subsidiary the Company, and the Board of Directors of Interim B shall adopt the
Plan of Merger included as Annex B hereto by at least a two-thirds vote. In
addition, the Holding Company shall approve such Plan of Merger in its capacity
as the sole stockholder of Interim B.
A-8
<PAGE>
D. The Holding Company shall file a Registration Statement with the
SEC to register the Holding Company Common Stock to be issued in the Stock
Conversion and Reorganization under the Securities Act of 1933, as amended, and,
if required, shall register such Holding Company Common Stock under any
applicable state securities laws. Upon registration and after the receipt of all
required regulatory approvals, the Conversion Stock shall be first offered for
sale in a Subscription Offering to Eligible Account Holders, Tax-Qualified
Employee Stock Benefit Plans, Supplemental Eligible Account Holders, if any,
Other Members, Directors, Officers and Employees and Public Stockholders as of
the Voting Record Date. It is anticipated that any shares of Conversion Stock
remaining unsold after the Subscription Offering will be sold through a
Community Offering and/or a Syndicated Community Offering. The purchase price
per share for the Conversion Stock shall be a uniform price determined in
accordance with Section III.A hereof. The Holding Company shall contribute to
the Bank an amount of the net proceeds received by the Holding Company from the
sale of Conversion Stock as shall be determined by the Boards of Directors of
the Holding Company and the Bank and as shall be approved by the OTS.
E. Promptly following receipt of requisite approval of the OTS, this
Plan will be submitted to the Members for their consideration and approval at
the Special Meeting. The Mutual Holding Company may, at its option, mail to all
Members as of the Voting Record Date, at their last known address appearing on
the records of the Mutual Holding Company and the Bank, a proxy statement in
either long or summary form describing the Plan which will be submitted to a
vote of the Members at the Special Meeting. The Holding Company also shall mail
to all such Members (as well as other Participants) either a Prospectus and
Order Form for the purchase of Conversion Stock or a letter informing them of
their right to receive a Prospectus and Order Form and a postage prepaid card to
request such materials, subject to the provisions of Section III.G hereof. In
addition, all such Members will receive, or be given the opportunity to request
by returning a postage-prepaid card which will be distributed with the proxy
statement, letter or other written communication, a copy of the certificate of
incorporation and bylaws of the Holding Company. The Plan must be approved by
the affirmative vote of at least a majority of the total number of votes
eligible to be cast by Voting Members at the Special Meeting.
F. Subscription Rights to purchase shares of Conversion Stock will be
issued without payment therefor to Eligible Account Holders, Tax-Qualified
Employee Plans, Supplemental Eligible Account Holders, if any, Other Members,
Directors, Officers and Employees and Public Stockholders as of the Voting
Record Date, as set forth in Section III.B.
G. The Bank shall file preliminary proxy materials with the OTS in
order to seek the approval of the Plan by its Stockholders. Promptly following
clearance of such proxy materials and the receipt of any other requisite
approval of the OTS, the Bank will mail definitive proxy materials to all
Stockholders as of the Voting Record Date, at their last known address appearing
on the records of the Bank, for their consideration and approval of this Plan at
the Stockholders' Meeting. The Plan must be approved by the holders of at least
two-thirds of the outstanding Bank Common Stock as of the Voting Record Date. In
addition, the Primary Parties have conditioned the consummation of the Stock
Conversion and Reorganization on the approval of the Plan by at least a majority
of the votes cast, in person or by proxy, by the Public Stockholders at the
Stockholders' Meeting.
H. The Effective Date of the Stock Conversion and Reorganization shall
be the date set forth in Article V hereof. Upon the Effective Date, the
following transactions shall be deemed to have occurred simultaneously:
1. The Mutual Holding Company shall convert into an interim
stock savings association, Interim A, and Interim A shall simultaneously merge
with and into the Bank in the M.H.C. Merger, with the Bank being the surviving
institution. As a result of the M.H.C. Merger, (x) the shares of Bank Common
Stock currently held by the Mutual Holding Company shall be canceled and (y)
Members of the Mutual Holding Company will be granted interests in the
Liquidation Account.
2. Interim B shall merge with and into the Bank pursuant to the
Bank Merger, with the Bank being the surviving institution. As a result of the
Bank Merger: (x) the shares of Holding Company Common Stock
A-9
<PAGE>
held by the Bank shall be canceled; (y) the shares of Bank Common Stock held by
the Public Stockholders (other than shares as to which the holders thereof have
properly exercised dissenters' rights of appraisal, if any) shall be converted
into the right to receive shares of Holding Company Common Stock based upon the
Exchange Ratio, plus cash in lieu of any fractional share interest based upon
the Actual Purchase Price; and (z) the shares of common stock of Interim B held
by the Holding Company shall be converted into shares of Bank Common Stock on a
one-for-one basis, with the result that the Bank shall become a wholly owned
subsidiary of the Company.
3. The Holding Company shall consummate the sale of the
Conversion Stock.
I. In the event the Holding Company Common Stock does not constitute
qualified consideration within the meaning of Section 552.14 of the Regulations
for Federal Savings Associations (the "Appraisal Regulation"), the notice for
the Stockholders' Meeting shall notify Public Stockholders of their right to
demand the payment of the appraised value of their shares upon consummation of
the Stock Conversion and Reorganization. Such notice shall also include a copy
of the Appraisal Regulation. Within ten days after the Effective Date, written
notice shall be given to all Public Stockholders who have properly exercised
appraisal rights in accordance with the Appraisal Regulation. Consummation of
the Stock Conversion and Reorganization is specifically conditioned on the
exercise of appraisal rights by less than 10% of the outstanding shares of Bank
Common Stock.
J. The Primary Parties may retain and pay for the services of
financial and other advisors and investment bankers to assist in connection with
any or all aspects of the Stock Conversion and Reorganization, including in
connection with the Offerings, the payment of fees to brokers and investment
bankers for assisting Persons in completing and/or submitting Order Forms. All
fees, expenses, retainers and similar items shall be reasonable.
K. The Bank Conversion shall be deemed to occur and shall be effective
upon completion of all actions necessary or appropriate under applicable federal
statutes and regulations and the policies of the OCC and the OTS to complete the
conversion of the Bank to a national bank, including without limitation the
approval of the Bank Conversion by the Holding Company, as the sole stockholder
of the Bank, and the Bank will thereby be and become the National Bank. The Bank
Conversion shall be consummated as soon as practicable following the
consummation of the Stock Conversion as described in this Paragraph II.
L. The Board of Directors of the Bank may, at any time, elect not to
proceed with the Bank Conversion, in which event the OCC Conversion Application,
the OTS Bank Conversion Application and the Y-3 Application shall be withdrawn.
In the event the Bank Conversion is not pursued, any references to the Bank
Conversion in this Plan shall be deemed to constitute references to the Stock
Conversion and Reorganization and references to the National Bank shall be
deemed to constitute references to the Bank.
III. CONVERSION STOCK OFFERING
A. Total Number of Shares and Purchase Price of Conversion Stock.
--------------------------------------------------------------
1. The aggregate price at which shares of Conversion Stock shall
be sold in the Offerings shall be based on a pro forma valuation of the
aggregate market value of the Conversion Stock prepared by the Independent
Appraiser. The valuation shall be based on financial information relating to the
Primary Parties, market, financial and economic conditions, a comparison of the
Primary Parties with selected publicly held financial institutions and holding
companies and with comparable financial institutions and holding companies and
such other factors as the Independent Appraiser may deem to be important. The
valuation shall be stated in terms of an Estimated Price Range, the maximum of
which shall generally be no more than 15% above the average of the minimum and
maximum of such price range and the minimum of which shall generally be no more
than 15% below such average. The valuation shall be updated during the Stock
Conversion and Reorganization as market and financial conditions warrant and as
may be required by the OTS.
A-10
<PAGE>
2. Based upon the independent valuation, the Boards of Directors
of the Primary Parties shall fix the Initial Purchase Price and the number (or
range) of shares of Conversion Stock to be offered in the Subscription Offering,
Community Offering and/or Syndicated Community Offering. The Actual Purchase
Price and the total number of shares of Conversion Stock to be issued in the
Offerings shall be determined by the Boards of Directors of the Primary Parties
upon conclusion of the Offerings in consultation with the Independent Appraiser
and any financial advisor or investment banker retained by the Primary Parties
in connection therewith.
3. Subject to the approval of the OTS, the Estimated Price Range
may be increased or decreased to reflect market, financial and economic
conditions prior to completion of the Stock Conversion and Reorganization, and
under such circumstances the Primary Parties may increase or decrease the total
number of shares of Conversion Stock to be issued in the Stock Conversion and
Reorganization to reflect any such change. Notwithstanding anything to the
contrary contained in this Plan, no resolicitation of subscribers shall be
required and subscribers shall not be permitted to modify or cancel their
subscriptions unless the gross proceeds from the sale of the Conversion Stock
issued in the Stock Conversion and Reorganization are less than the minimum or
(excluding purchases, if any, by the Holding Company's and the Bank's Tax-
Qualified Employee Stock Benefit Plans under Section III.B.2 hereof) more than
15% above the maximum of the Estimated Price Range set forth in the Prospectus.
In the event of an increase in the total number of shares offered in the Stock
Conversion and Reorganization due to an increase in the Estimated Price Range,
the priority of share allocation shall be as set forth in this Plan, provided,
however, that such priorities will have no effect whatsoever on the ability of
the Tax-Qualified Employee Stock Benefit Plans to purchase additional shares
pursuant to Section III.B.2.
4. (a) In the event that Tax-Qualified Employee Stock Benefit
Plans are unable to purchase the number of shares subscribed for by such
Tax-Qualified Employee Stock Benefit Plans due to an oversubscription for shares
of Conversion Stock pursuant to Section III.B.1 hereof, Tax-Qualified Employee
Stock Benefit Plans may purchase from the Holding Company, and the Holding
Company may sell to the Tax-Qualified Employee Stock Benefit Plans, such
additional shares ("Additional Shares") of Holding Company Common Stock
necessary to fill the subscriptions of the Tax-Qualified Employee Stock Benefit
Plans, provided that such Additional Shares may not exceed 10% of the total
number of shares of Conversion Stock sold in the Stock Conversion and
Reorganization. The sale of Additional Shares, if necessary, will occur
contemporaneously with the sale of the Conversion Stock. The sale of Additional
Shares to Tax-Qualified Employee Stock Benefit Plans by the Holding Company is
conditioned upon receipt by the Holding Company of a letter from the Independent
Appraiser to the effect that such sale would not have a material effect on the
Stock Conversion and Reorganization or the Actual Purchase Price and the
approval of the OTS. The ability of the Tax-Qualified Employee Stock Benefit
Plans to purchase up to an additional 10% of the total number of shares of
Conversion Stock sold in the Stock Conversion and Reorganization shall not be
affected or limited in any manner by the priorities or purchase limitations
otherwise set forth in this Plan of Conversion.
(b) Notwithstanding anything to the contrary contained in this
Plan, if the final valuation range of the Conversion Stock exceeds the maximum
Conversion Stock offering range, up to 10% of the total number of shares of
Conversion Stock sold in the Stock Conversion and Reorganization may be sold to
Tax-Qualified Stock Benefit Plans prior to filling any other orders for
Conversion Stock from such shares in excess of the maximum Conversion Stock
offering range.
B. Subscription Offering.
---------------------
Non-transferable Subscription Rights to purchase shares of Conversion
Stock will be issued at no cost to Eligible Account Holders, Tax-Qualified
Employee Stock Benefit Plans, Supplemental Eligible Account Holders and Other
Members pursuant to priorities established by applicable regulations. All shares
must be sold, and, to the extent that Conversion Stock is available, no
subscriber will be allowed to purchase fewer than 25 shares of Conversion Stock,
provided that this number shall be decreased if the aggregate purchase price
exceeds $500. The priorities established by applicable regulations for the
purchase of shares are as follows:
A-11
<PAGE>
1. Category No. 1: Eligible Account Holders.
(a) Each Eligible Account Holder shall receive, without
payment, Subscription Rights to purchase up to the greater of (i) 5,000 shares
of Conversion Stock per qualifying deposit or loan account, provided that the
aggregate maximum number of shares of Conversion Stock that may be purchased by
any person, together with associates, or groups of persons acting in concert in
the Offerings is 5% of the shares sold in the Offerings, and provided that when
such shares are combined with Exchange Shares, such person, together with
Associates and persons acting in concert, does not own in excess of 5% of the
Shares of Holding Company Common Stock Outstanding upon consummation of the
Conversion, (ii) one-tenth of 1% of the total offering of shares of Conversion
Stock in the Subscription Offering, and (iii) 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Conversion Stock offered in the Subscription Offering by a fraction, of which
the numerator is the amount of the Qualifying Deposits of the Eligible Account
Holder and the denominator is the total amount of all Qualifying Deposits of all
Eligible Account Holders, subject to Section III.G hereof .
(b) In the event of an oversubscription for shares of
Conversion Stock pursuant to Section III.B.1, available shares shall be
allocated among subscribing Eligible Account Holders so as to permit each such
Eligible Account Holder, to the extent possible, to purchase a number of shares
which will make his or her total allocation equal to the lesser of the number of
shares subscribed for or 100 shares. Any available shares remaining after each
subscribing Eligible Account Holder has been allocated the lesser of the number
subscribed for or 100 shares shall be allocated among the subscribing Eligible
Account Holders in the proportion which the Qualifying Deposit of each such
subscribing Eligible Account Holder bears to the total Qualifying Deposits of
all such subscribing Eligible Account Holders, provided that no fractional
shares shall be issued. Subscription Rights of Eligible Account Holders who are
also Directors or Officers and their Associates shall be subordinated to those
of other Eligible Account Holders to the extent that they are attributable to
increased deposits during the one-year period preceding the Eligibility Record
Date.
2. Category No. 2: Tax-Qualified Employee Stock Benefit Plans.
Notwithstanding the purchase limitations discussed below,
Tax-Qualified Employee Stock Benefit Plans of the Holding Company and the Bank
shall receive, without payment, Subscription Rights to purchase in the aggregate
up to 10% of the Conversion Stock and the Exchange Stock, including any shares
of Conversion Stock to be issued in the Stock Conversion and Reorganization as a
result of an increase in the Estimated Price Range after commencement of the
Subscription Offering and prior to completion of the Stock Conversion and
Reorganization. Consistent with applicable laws and regulations and policies and
practices of the OTS, Tax-Qualified Employee Stock Benefit Plans may use funds
contributed by the Holding Company or the Bank and/or borrowed from an
independent financial institution to exercise such Subscription Rights, and the
Holding Company and the Bank may make scheduled discretionary contributions
thereto, provided that such contributions do not cause the Holding Company or
the Bank to fail to meet any applicable regulatory capital requirement. The
purchase of shares of Conversion Stock by Tax-Qualified Employee Stock Benefit
Plans shall be in the sole discretion of the Boards of Directors of the Holding
Company and the Bank.
3. Category No. 3: Supplemental Eligible Account Holders.
(a) In the event that the Eligibility Record Date is more
than 15 months prior to the date of the latest amendment to the Application for
Conversion filed prior to OTS approval, then, and only in such event, a
Supplemental Eligibility Record Date shall be set and each Supplemental Eligible
Account Holder shall receive, without payment, Subscription Rights to purchase
up to the greater of (i) 5,000 shares of Conversion Stock per qualifying deposit
or loan account, provided that the aggregate maximum number of shares of
Conversion Stock that may be purchased by any person, together with associates,
or groups of persons acting in concert in the Offerings is 5% of the shares sold
in the Offerings, and provided that when such shares are combined with Exchange
Shares, such person, together with Associates and persons acting in concert,
does not own in excess of 5% of the Shares of Holding Company Common Stock
Outstanding upon consummation of the Conversion, (ii) one-tenth of 1% of the
total offering
A-12
<PAGE>
of shares of Conversion Stock in the Subscription Offering, and (iii) 15 times
the product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Conversion Stock offered in the Subscription Offering
by a fraction, of which the numerator is the amount of the Qualifying Deposits
of the Supplemental Eligible Account Holder and the denominator is the total
amount of all Qualifying Deposits of all Supplemental Eligible Account Holders,
subject to Section III.G hereof and the availability of shares of Conversion
Stock for purchase after taking into account the shares of Conversion Stock
purchased by Eligible Account Holders and Tax-Qualified Employee Stock Benefit
Plans through the exercise of Subscription Rights under Sections III.B.1 and
III.B.2 hereof.
(b) In the event of an oversubscription for
shares of Conversion Stock pursuant to Section III.B.3, available shares shall
be allocated among subscribing Supplemental Eligible Account Holders so as to
permit each such Supplemental Eligible Account Holder, to the extent possible,
to purchase a number of shares which will make his or her total allocation
(including the number of shares, if any, allocated in accordance with Section
III.B.1 hereof) equal to the lesser of the number of shares subscribed for or
100 shares. Any available shares remaining after each subscribing Supplemental
Eligible Account Holder has been allocated the lesser of the number subscribed
for or 100 shares shall be allocated among the subscribing Supplemental Eligible
Account Holders in the proportion which the Qualifying Deposit of each such
subscribing Supplemental Eligible Account Holder bears to the total Qualifying
Deposits of all such subscribing Supplemental Eligible Account Holders, provided
that no fractional shares shall be issued.
4. Category No. 4: Other Members.
(a) Each Other Member shall receive, without
payment, Subscription Rights to purchase up to the greater of (i) 5,000 shares
of Conversion Stock per qualifying deposit or loan account, provided that the
aggregate maximum number of shares of Conversion Stock that may be purchased by
any person, together with associates, or groups of persons acting in concert in
the Offerings is 5% of the shares sold in the Offerings, and provided that when
such shares are combined with Exchange Shares, such person, together with
Associates and persons acting in concert, does not own in excess of 5% of the
Shares of Holding Company Common Stock Outstanding upon consummation of the
Conversion, and (ii) one-tenth of 1% of the total offering of shares of
Conversion Stock in the Subscription Offering, in each case subject to Section
III.G hereof and the availability of shares of Conversion Stock for purchase
after taking into account the shares of Conversion Stock purchased by Eligible
Account Holders, Tax-Qualified Employee Stock Benefit Plans, and Supplemental
Eligible Account Holders, if any, through the exercise of Subscription Rights
under Sections III.B.1, 2 and 3 hereof.
(b) If, pursuant to this Section III.B.4, Other
Members subscribe for a number of shares of Conversion Stock in excess of the
total number of shares of Conversion Stock remaining, available shares shall be
allocated among subscribing Other Members so as to permit each Other Member, to
the extent possible, to purchase a number of shares which will make his or her
total allocation equal to the lesser of the number of shares subscribed for or
100 shares. Any remaining shares shall be allocated among subscribing Other
Members on a pro rata basis in the same proportion as each such Other Member's
subscription bears to the total subscriptions of all subscribing Other Members,
provided that no fractional shares shall be issued.
5. Category No. 5: Directors, Officers and Employees.
(a) To the extent that there are sufficient
shares remaining after satisfaction of all subscriptions under the above
categories, Directors, Officers and Employees of the Bank shall receive, without
payment, Subscription rights to purchase in this category 5,000 shares of
Conversion Stock per qualifying deposit or loan account or, if no account per
person, provided that the aggregate maximum number of shares of Conversion Stock
that may be purchased by any person, together with associates, or groups of
persons acting in concert in the Offerings is 5% of the shares sold in the
Offerings, and provided that when such shares are combined with Exchange Shares,
such person, together with Associates and persons acting in concert, does not
own in excess of 5% of the Shares of Holding Company
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<PAGE>
Common Stock Outstanding upon consummation of the Conversion, and provided that
all Directors shall be allowed to purchase up to an aggregate of 35% of the
shares of Conversion Stock offered in the Subscription Offering.
(b) In the event of an oversubscription for
shares of Conversion Stock pursuant to this Section III.B.5, Subscription Rights
for the purchase of such shares shall be allocated among the individual
Directors, Officers and Employees on a point system basis, whereby a point will
be assigned for each year of employment and for each salary increment of $5,000
per annum and five points for each office held in the Mutual Holding Company and
the Bank, including a directorship. If any such Director, Officer or Employee
does not subscribe for his or her full allocation of shares, any shares not
subscribed for may be purchased by other Directors, Officers and Employees in
proportion to their respective subscriptions, provided that no fractional shares
shall be issued.
6. Category No. 6: Public Stockholders.
(a) Each Public Stockholder as of the Voting
Record Date shall receive, without payment, Subscription Rights to purchase up
to the greater of (i) 5,000 shares of Conversion Stock, provided that the
aggregate maximum number of shares of Conversion Stock that may be purchased by
any person, together with associates, or groups of persons acting in concert in
the Offerings is 5% of the shares sold in the Offerings, and provided that when
such shares are combined with Exchange Shares, such person, together with
Associates and persons acting in concert, does not own in excess of 5% of the
Shares of Holding Company Common Stock Outstanding upon consummation of the
Conversion; and (ii) one tenth of 1% of the total offering of shares of
Conversion Stock in the Subscription Offering, in each case subject to Section
III.G hereof and the availability of shares of Conversion Stock for purchase
after taking into account the shares of Conversion Stock purchased by Eligible
Account Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental
Eligible Account Holders, if any, Other Members and Directors, Officers and
Employees.
(b) If, pursuant to this Section III.B.6, Public
Stockholders as of the Voting Record Date subscribe for a number of shares of
Conversion Stock in excess of the total number of shares of Conversion Stock
remaining, available shares shall be allocated among subscribing Public
Stockholders as of the Voting Record Date on a pro rata basis in the same
proportion as each such Public Stockholder's subscription bears to the total
subscriptions of all such subscribing Public Stockholders, provided that no
fractional shares shall be issued.
C. Community Offering, Syndicated Community Offering and Other
-----------------------------------------------------------
Offerings.
---------
1. If less than the total number of shares of Conversion
Stock are sold in the Subscription Offering, it is anticipated that all
remaining shares of Conversion Stock shall, if practicable, be sold in a
Community Offering and/or Syndicated Community Offering. Subject to the
requirements set forth herein, the manner in which the Conversion Stock is sold
in the Community Offering and/or Syndicated Community Offering shall have as the
objective the achievement of the widest possible distribution of such stock.
2. In the event of a Community Offering, all shares of
Conversion Stock which are not subscribed for in the Subscription Offering shall
be offered for sale by means of a direct community marketing program, which may
provide for the use of brokers, dealers or investment banking firms experienced
in the sale of financial institution securities. Any available shares in excess
of those not subscribed for in the Subscription Offering will be available for
purchase by members of the general public to whom a Prospectus is delivered by
the Holding Company or on its behalf, with preference given to natural persons
residing in the Local Community ("Preferred Subscribers").
3. A Prospectus and Order Form shall be furnished to such
Persons as the Primary Parties may select in connection with the Community
Offering, and each order for Conversion Stock in the Community Offering shall be
subject to the absolute right of the Primary Parties to accept or reject any
such order in whole or in part either at the time of receipt of an order or as
soon as practicable following completion of the Community Offering. Available
shares will be allocated first to each Preferred Subscriber whose order is
accepted in an amount equal to the lesser of
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<PAGE>
100 shares or the number of shares subscribed for by each such Preferred
Subscriber, if possible. Thereafter, unallocated shares shall be allocated among
the Preferred Subscribers whose accepted orders remain unsatisfied in the same
proportion that the unfilled order of each bears to the total unfilled orders of
all Preferred Subscribers whose accepted orders remain unsatisfied, provided
that no fractional shares shall be issued. If there are any shares remaining
after all accepted orders by Preferred Subscribers have been satisfied, any
remaining shares shall be allocated to other members of the general public who
purchase in the Community Offering, applying the same allocation described above
for Preferred Subscribers.
4. The amount of Conversion Stock that any Person may
purchase in the Community Offering shall not exceed the purchase limitation set
forth in Section III.D.2 hereof provided that, subject to the preferences set
forth in Paragraphs 2 and 3 of this Section III.C of this Plan and to the extent
applicable, orders for Conversion Stock in the Community Offering shall first be
filled to a maximum of 2% of the total number of shares of Conversion Stock sold
in the Offerings and thereafter any remaining shares shall be allocated on an
equal number of shares basis per order until all orders have been filled. The
Primary Parties may commence the Community Offering concurrently with, at any
time during, or as soon as practicable after the end of, the Subscription
Offering, and the Community Offering must be completed within 45 days after the
completion of the Subscription Offering, unless extended by the Primary Parties
with any required regulatory approval.
5. Subject to such terms, conditions and procedures as
may be determined by the Primary Parties, all shares of Conversion Stock not
subscribed for in the Subscription Offering or ordered in the Community Offering
may be sold by a syndicate of broker-dealers to the general public in a
Syndicated Community Offering. Each order for Conversion Stock in the Syndicated
Community Offering shall be subject to the absolute right of the Primary Parties
to accept or reject any such order in whole or in part either at the time of
receipt of an order or as soon as practicable after completion of the Syndicated
Community Offering. The amount of Conversion Stock that any Person may purchase
in the Syndicated Community Offering shall not exceed the purchase limitation
set forth in Section III.D.2 hereof provided that, to the extent applicable,
orders for Conversion Stock in the Syndicated Community Offering shall first be
filled to a maximum of 2% of the total number of shares of Conversion Stock sold
in the Offering and thereafter any remaining shares shall be allocated on an
equal number of shares basis per order until all orders have been filled. The
Primary Parties may commence the Syndicated Community Offering concurrently
with, at any time during, or as soon as practicable after the end of, the
Subscription Offering and/or Community Offering, and the Syndicated Community
Offering must be completed within 45 days after the completion of the
Subscription Offering, unless extended by the Primary Parties with any required
regulatory approval.
6. If for any reason a Syndicated Community Offering of
shares of Conversion Stock not sold in the Subscription Offering and the
Community Offering cannot be effected, or in the event that any insignificant
residue of shares of Conversion Stock is not sold in the Subscription Offering,
Community Offering or the Syndicated Community Offering, the Primary Parties
shall use their best efforts to obtain other purchasers for such shares in such
manner and upon such conditions as may be satisfactory to the OTS.
D. Limitations on Subscriptions and Purchases of Conversion
--------------------------------------------------------
Stock.
-----
1. The maximum number of shares of Conversion Stock which
may be purchased in the Conversion by Tax-Qualified Employee Stock Benefit Plans
shall not exceed 10% of the total number of shares of Exchange Stock and
Conversion Stock sold in the Offerings, including any shares which may be issued
in the event of an increase in the minimum of the Estimated Price Range to
reflect changes in market, financial and economic conditions after commencement
of the Subscription Offering and prior to completion of the Offerings.
2. Except in the case of Tax-Qualified Employee Stock
Benefit Plans in the aggregate, as set forth in Section III.D.1, and subject to
Section III.D.6 and in addition to the other restrictions and limitations set
forth herein, the maximum number of shares of Holding Company Common Stock which
any Person may, directly or indirectly, subscribe for or purchase in the Stock
Conversion and Reorganization shall not exceed 5,000 shares of
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<PAGE>
Conversion Stock per qualifying deposit or loan account (or if no such account,
per person), provided that the aggregate maximum number of shares of Conversion
Stock that may be purchased by any person, together with associates, or groups
of persons acting in concert in the Offerings is 5% of the shares sold in the
Offerings, and that when such shares are combined with Exchange Shares, such
person, together with Associates and persons acting in concert shall not own in
excess of 5% of the shares of Holding Company Common Stock outstanding upon the
consummation of the Conversion.
3. The number of shares of Conversion Stock which
Directors and Officers and their Associates may purchase in the aggregate in the
Offerings shall not exceed 35% of the total number of shares of Conversion Stock
sold in the Offerings, including any shares which may be issued in the event of
an increase in the maximum of the Estimated Price Range to reflect changes in
market, financial and economic conditions after commencement of the Subscription
Offering and prior to completion of the Offerings.
4. No Person may purchase fewer than 25 shares of
Conversion Stock in the Offerings, to the extent such shares are available;
provided, however, that if the Actual Purchase Price is greater than $20.00 per
share, such minimum number of shares shall be adjusted so that the aggregate
Actual Purchase Price for such minimum shares will not exceed $500.00
5. For purposes of the foregoing limitations and the
determination of Subscription Rights, (i) Directors, Officers and Employees
shall not be deemed to be Associates or a group Acting in Concert solely as a
result of their capacities as such, (ii) shares purchased by Tax-Qualified
Employee Stock Benefit Plans shall not be attributable to the individual
trustees or beneficiaries of any such plan for purposes of determining
compliance with the limitations set forth in Section III.D.2 hereof, (iii)
shares purchased by Tax-Qualified Employee Stock Benefit Plans shall not be
attributable to the individual trustees or beneficiaries of any such plan for
purposes of determining compliance with the limitation set forth in Section
III.D.3 hereof, and (iv) Exchange Shares shall be valued at the Actual Purchase
Price.
6. Subject to any required regulatory approval and the
requirements of applicable laws and regulations, but without further approval of
the Members of the Mutual Holding Company or the Stockholders of the Bank, the
Primary Parties may increase or decrease any of the individual or aggregate
purchase limitations set forth herein whether prior to, during or after the
Subscription Offering, Community Offering and/or Syndicated Community Offering
provided, however, that in the event the individual purchase limit is increased
above 5% of the total number of shares of Conversion Stock sold in the offering,
the aggregate number of shares sold to subscribers in excess of 5% shall not
exceed 10% of the total number of shares sold in the Offering. In the event that
an individual purchase limitation is increased after commencement of the
Subscription Offering or any other Offering, the Primary Parties shall permit
any Person who subscribed for the maximum number of shares of Conversion Stock
to subscribe for an additional number of shares, so that such Person shall be
permitted to subscribe for the then maximum number of shares permitted to be
subscribed for by such Person, subject to the rights and preferences of any
Person who has priority Subscription Rights and the allocation formula described
in the foregoing sentence. In the event that an individual purchase limitation
is decreased after commencement of the Subscription Offering or any other
offering, the orders of any Person who subscribed for more than the new purchase
limitation shall be decreased by the minimum amount necessary so that such
Person shall be in compliance with the then maximum number of shares permitted
to be subscribed for by such Person.
7. Each Person purchasing Conversion Stock in the Stock
Conversion and Reorganization shall be deemed to confirm that such purchase does
not conflict with the purchase limitations under the Plan or otherwise imposed
by law, rule or regulation. In the event that such purchase limitations are
violated by any Person (including any Associate or group of Persons affiliated
or otherwise Acting in Concert with such person), the Holding Company shall have
the right to purchase from such Person at the Actual Purchase Price per share
all shares acquired by such Person in excess of such purchase limitations or, if
such excess shares have been sold by such person, to receive the difference
between the Actual Purchase Price per share paid for such excess shares and the
price at which such excess
A-16
<PAGE>
shares were sold by such Person. This right of the Holding Company to purchase
such excess shares shall be assignable by the Holding Company.
8. The Primary Parties shall have the right to take all
such action as they may, in their sole discretion, deem necessary, appropriate
or advisable in order to monitor and enforce the terms, conditions, limitations
and restrictions contained in this Section III.D and elsewhere in this Plan and
the terms, conditions and representations contained in the Order Form,
including, but not limited to, the absolute right (subject only to any necessary
regulatory approvals or concurrences) to reject, limit or revoke acceptance of
any subscription or order and to delay, terminate or refuse to consummate any
sale of Conversion Stock which they believe might violate, or is designed to, or
is any part of a plan to, evade or circumvent such terms, conditions,
limitations, restrictions and representations. Any such action shall be final,
conclusive and binding on all persons, and the Primary Parties and their
respective Boards shall be free from any liability to any Person on account of
any such action.
9. Notwithstanding anything to the contrary contained in
this Plan, no Public Stockholder will be required to sell any Bank Common Stock
or be limited in receiving Exchange Shares provided that their aggregate
ownership of Holding Company Common Stock including Conversion Stock purchased
in the Offerings and Exchange Shares received pursuant to the Bank Merger would
not exceed 5.0% of the total number of shares of Holding Company Common Stock
outstanding immediately following the Stock Conversion and Reorganization. Such
percentage may be increased but to no greater than 9.9% of the total number of
shares outstanding provided: (a) each Person who has subscribed for the maximum
number of shares of Conversion Stock shall have been offered the opportunity to
increase their subscriptions to such percentage of the Conversion Stock subject
to the provisions of Section III.D.6 hereof; and (b) the aggregate number of
shares held by all stockholders in excess of 5% shall not exceed 10% of the
total number of shares of Holding Company Common Stock outstanding immediately
following the Stock Conversion and Reorganization. In calculating the percentage
ownership of any stockholder for purposes of this Section, the number of shares
outstanding shall be deemed to include any shares which the stockholder has the
right to acquire pursuant to presently exercisable options. In the event a
Public Stockholder's ownership would exceed the foregoing limitation, the
Holding Company shall have the right to reject, limit or revoke acceptance of
any subscription or order from such Person and/or the right to purchase any
excess shares from such Person at the Actual Purchase Price.
E. Timing of Subscription Offering, Manner of Exercising
-----------------------------------------------------
Subscription Rights and Order Forms.
-----------------------------------
1. The Subscription Offering may be commenced
concurrently with or at any time after the mailing to Voting Members of the
Mutual Holding Company and Stockholders of the Bank of the proxy statement(s) to
be used in connection with the Special Meeting and the Stockholders' Meeting.
The Subscription Offering may be closed before the Special Meeting and the
Stockholders' Meeting, provided that the offer and sale of the Conversion Stock
shall be conditioned upon the approval of the Plan by the Voting Members of the
Mutual Holding Company and the Stockholders of the Bank at the Special Meeting
and the Stockholders' Meeting, respectively.
2. The exact timing of the commencement of the
Subscription Offering shall be determined by the Primary Parties in consultation
with the Independent Appraiser and any financial or advisory or investment
banking firm retained by them in connection with the Conversion. The Primary
Parties may consider a number of factors, including, but not limited to, their
current and projected future earnings, local and national economic conditions,
and the prevailing market for stocks in general and stocks of financial
institutions in particular. The Primary Parties shall have the right to
withdraw, terminate, suspend, delay, revoke or modify any such Subscription
Offering, at any time and from time to time, as they in their sole discretion
may determine, without liability to any Person, subject to compliance with
applicable securities laws and any necessary regulatory approval or concurrence.
3. The Primary Parties shall, promptly after the SEC has
declared the Registration Statement which includes the Prospectus effective and
all required regulatory approvals have been obtained, distribute or make
available the Prospectus, together with Order Forms for the purchase of
Conversion Stock, to all Participants for the purpose of enabling them to
exercise their respective Subscription Rights, subject to Section III.G hereof.
The Primary
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<PAGE>
Parties may elect to mail a Prospectus and Order Form only to those Participants
who request such materials by returning a postage-paid card to the Primary
Parties by a date specified in the letter informing them of their Subscription
Rights. Under such circumstances, the Subscription Offering shall not be closed
until the expiration of 30 days after the mailing by the Primary Parties of the
postage-paid card to Participants.
4. A single Order Form for all Deposit Accounts
maintained with the Bank by an Eligible Account Holder and any Supplemental
Eligible Account Holder may be furnished, irrespective of the number of Deposit
Accounts maintained with the Bank on the Eligibility Record Date and
Supplemental Eligibility Record Date, respectively.
5. The recipient of an Order Form shall have no less than
20 days and no more than 45 days from the date of mailing of the Order Form
(with the exact termination date to be set forth on the Order Form) to properly
complete and execute the Order Form and deliver it to the Primary Parties. The
Primary Parties may extend such period by such amount of time as they determine
is appropriate. Failure of any Participant to deliver a properly executed Order
Form to the Primary Parties, along with payment (or authorization for payment by
withdrawal) for the shares of Conversion Stock subscribed for, within the time
limits prescribed, shall be deemed a waiver and release by such person of any
rights to subscribe for shares of Conversion Stock. Each Participant shall be
required to confirm to the Primary Parties by executing an Order Form that such
person has fully complied with all of the terms, conditions, limitations and
restrictions in the Plan.
6. The Primary Parties shall have the absolute right, in
their sole discretion and without liability to any Participant or other Person,
to reject any Order Form, including, but not limited to, any Order From that is
(i) improperly completed or executed; (ii) not timely received; (iii) not
accompanied by the proper payment (or authorization of withdrawal for payment
or, in the case of institutional investors in the Community Offering, not
accompanied by an irrevocable order together with a legally binding commitment
to pay the full amount of the purchase price prior to 48 hours before the
completion of the Offerings; or (iv) submitted by a person whose representations
the Primary Parties believe to be false or who they otherwise believe, either
alone, or Acting in Concert with others, is violating, evading or circumventing,
or intends to violate, evade or circumvent, the terms and conditions of the
Plan. The Primary Parties may, but will not be required to, waive any
irregularity on any Order Form or may require the submission of corrected Order
Forms or the remittance of full payment for shares of Conversion Stock by such
date as they may specify. The interpretation of the Primary Parties of the terms
and conditions of the Order Forms shall be final and conclusive.
7. The Primary Parties may elect to offer to pay fees on
a per share basis to securities brokers who assist purchasers of Conversion
Stock in the Offerings.
F. Payment for Conversion Stock.
----------------------------
1. Payment for shares of Conversion Stock subscribed for
by Participants in the Subscription Offering and payment for shares of
Conversion Stock ordered by Persons in the Community Offering shall be equal to
the Initial Purchase Price multiplied by the number of shares which are being
subscribed for or ordered, respectively. Such payment may be made in cash, if
delivered in person, or by check or money order at the time the Order Form is
delivered to the Primary Parties. The Primary Parties may also elect to receive
payment for shares of Conversion Stock by wire transfer. In addition, the
Primary Parties may elect to provide Participants and/or other Persons who have
a Deposit Account with the Bank the opportunity to pay for shares of Conversion
Stock by authorizing the Bank to withdraw from such Deposit Account an amount
equal to the aggregate Initial Purchase Price of such shares. If the Actual
Purchase Price is less than the Initial Purchase Price, the Primary Parties
shall refund the difference to all Participants and other Persons, unless the
Primary Parties choose to provide Participants and other Persons the opportunity
on the Order Form to elect to have such difference applied to the purchase of
additional whole shares of Conversion Stock. If the Actual Purchase Price is
more than the Initial Purchase Price, the Primary Parties shall reduce the
number of shares of Conversion Stock ordered by Participants and other Persons
and refund any remaining amount
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<PAGE>
which is attributable to a fractional share interest, unless the Primary Parties
choose to provide Participants and other Persons the opportunity to increase the
Actual Purchase Price submitted to them.
2. Consistent with applicable laws and regulations and
policies and practices of the OTS, payment for shares of Conversion Stock
subscribed for by Tax-Qualified Employee Stock Benefit Plans may be made with
funds contributed by the Holding Company and/or the Bank and/or funds obtained
pursuant to a loan from an unrelated financial institution pursuant to a loan
commitment which is in force from the time that any such plan submits an Order
Form until the closing of the transactions contemplated hereby.
3. If a Participant or other Person authorizes the Bank
to withdraw the amount of the Initial Purchase Price from his or her Deposit
Account, the Bank shall have the right to make such withdrawal or to place a
hold on funds in the Deposit Account equal to the aggregate Initial Purchase
Price upon receipt of the Order Form. Notwithstanding any regulatory provisions
regarding penalties for early withdrawals from certificate accounts, the Bank
may allow payment by means of withdrawal from certificate accounts without the
assessment of such penalties. In the case of an early withdrawal of only a
portion of such account, the certificate evidencing such account shall be
canceled if any applicable minimum balance requirement ceases to be met. In such
case, the remaining balance will earn interest at the regular passbook rate.
However, where any applicable minimum balance is maintained in such certificate
account, the rate of return on the balance of the certificate account shall
remain the same as prior to such early withdrawal. This waiver of the early
withdrawal penalty applies only to withdrawals made in connection with the
purchase of Conversion Stock and is entirely within the discretion of the
Primary Parties.
4. The Bank shall pay interest, at not less than the
passbook rate, for all amounts paid in cash, by check or money order to purchase
shares of Conversion Stock in the Subscription Offering and the Community
Offering from the date payment is received until the date the Stock Conversion
and Reorganization is completed or terminated.
5. The Bank shall not knowingly loan funds or otherwise
extend credit to any Participant or other Person to purchase Conversion Stock.
6. Each share of Conversion Stock shall be non-assessable
upon payment in full of the Actual Purchase Price.
G. Account Holders in Nonqualified States or Foreign Countries.
-----------------------------------------------------------
The Primary Parties shall make reasonable efforts to comply with the
securities laws of all jurisdictions in the United States in which Participants
reside. However, no Participant will be offered or receive any Conversion Stock
under the Plan if such Participant resides in a foreign country or resides in a
jurisdiction of the United States with respect to which all of the following
apply: (a) there are few Participants otherwise eligible to subscribe for shares
under this Plan who reside in such jurisdiction; (b) the granting of
Subscription Rights or the offer or sale of shares of Conversion Stock to such
Participants would require any of the Primary Parties or their respective
Directors and Officers, under the laws of such jurisdiction, to register as a
broker-dealer, salesman or selling agent or to register or otherwise qualify the
Conversion Stock for sale in such jurisdiction, or any of the Primary Parties
would be required to qualify as a foreign corporation or file a consent to
service of process in such jurisdiction; and (c) such registration,
qualification or filing in the judgment of the Primary Parties would be
impracticable or unduly burdensome for reasons of cost or otherwise. No payments
will be made in lieu of the granting of Subscription Rights to any Person.
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<PAGE>
IV. CERTAIN OTHER EFFECTS OF CONVERSION
A. Liquidation Account.
-------------------
1. At the time of the M.H.C. Merger, the Bank shall
establish a Liquidation Account in an amount equal to the amount of the
dividends from Bank Common Stock waived by the Mutual Holding Company plus the
greater of (i) $2.6 million, which is equal to 100% of the retained earnings of
the Bank as of March 31, 1992, the date of the latest statement of financial
condition contained in the final offering circular utilized in the Bank's
initial public offering, or (ii) 60.54% of the Bank's total stockholders' equity
as reflected in its latest statement of financial condition contained in the
final Prospectus utilized in the Stock Conversion and Reorganization. The
function of the Liquidation Account will be to preserve the rights of certain
holders of Deposit Accounts in the Bank who maintain such accounts in the Bank
following the Stock Conversion and Reorganization to a priority to distributions
in the unlikely event of a liquidation of the Bank subsequent to the Stock
Conversion and Reorganization.
2. The Liquidation Account shall be maintained for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders,
if any, who maintain their Deposit Accounts in the Bank after the Stock
Conversion and Reorganization and in the National Bank after the Bank
Conversion. Each such account holder will, with respect to each Deposit Account
held, have a related inchoate interest in a portion of the Liquidation Account
balance, which interest will be referred to in this Section IV.A as the
"subaccount balance." All Deposit Accounts having the same social security
number will be aggregated for purposes of determining the initial subaccount
balance with respect to such Deposit Accounts, except as provided in Paragraph 4
of this Section IV.A.
3. In the event of a complete liquidation of the Bank
subsequent to the Stock Conversion and Reorganization or in the event of a
complete liquidation of the National Bank after the Bank Conversion (and only in
such event), each Eligible Account Holder and Supplemental Eligible Account
Holder, if any, shall be entitled to receive a liquidation distribution from the
Liquidation Account in the amount of the then current subaccount balances for
Deposit Accounts then held (adjusted as described below) before any liquidation
distribution may be made with respect to the Capital Stock of the Bank or the
National Bank. No merger, consolidation, sale of bulk assets or similar
combination transaction with another FDIC-insured institution in which the Bank
is not the surviving entity shall be considered a complete liquidation for this
purpose. In any merger or consolidation transaction, the Liquidation Account
shall be assumed by the surviving entity.
4. The initial subaccount balance for a Deposit Account
held by an Eligible Account Holder and Supplemental Eligible Account Holder, if
any, shall be determined by multiplying the opening balance in the Liquidation
Account by a fraction, of which the numerator is the amount of the Qualifying
Deposits of such account holder and the denominator is the total amount of
Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible
Account Holders, if any. For Deposit Accounts in existence at both the
Eligibility Record Date and the Supplemental Eligibility Record Date, if any,
separate initial subaccount balances shall be determined on the basis of the
Qualifying Deposits in such Deposit Accounts on each such record date. Initial
subaccount balances shall not be increased, and shall be subject to downward
adjustment as provided below.
5. If the aggregate deposit balance in the Deposit
Account(s) of any Eligible Account Holder or Supplemental Eligible Account
Holder, if any, at the close of business on any December 31 annual closing date,
commencing December 31, 1995 for Eligible Account Holders and June 30, 1997 for
Supplemental Eligible Account Holders, is less than the lesser of (a) the
aggregate deposit balance in such Deposit Account(s) at the close of business on
any other annual closing date subsequent to such record dates or (b) the
aggregate deposit balance in such Deposit Account(s) as of the Eligibility
Record Date or the Supplemental Eligibility Record Date, the subaccount balance
for such Deposit Account(s) shall be adjusted by reducing such subaccount
balance in an amount proportionate to the reduction in such deposit balance. In
the event of such a downward adjustment, the subaccount balance shall not be
subsequently increased, notwithstanding any subsequent increase in the deposit
balance of the related Deposit Account(s). The subaccount balance of an Eligible
Account Holder or Supplemental Eligible Account Holder, if any,
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<PAGE>
will be reduced to zero if such Account Holder ceases to maintain a Deposit
Account at the Bank that has the same social security number as appeared on his
Deposit Account(s) at the Eligibility Record Date or, if applicable, the
Supplemental Eligibility Record Date.
6. Subsequent to the Stock Conversion and Reorganization,
the Bank may not pay cash dividends generally on deposit accounts and/or Capital
Stock of the Bank, or repurchase any of the Capital Stock of the Bank, if such
dividend or repurchase would reduce the Bank's regulatory capital below the
aggregate amount of the then current subaccount balances for Deposit Accounts
then held; otherwise, the existence of the liquidation account shall not operate
to restrict the use or application of any of the net worth accounts of the Bank.
7. For purposes of this Section IV.A, a Deposit Account
includes a predecessor or successor account which is held by an Account Holder
with the same social security number.
8. The Bank Conversion shall not be deemed to be a
complete liquidation of the Bank for purposes of the distribution of the
Liquidation Account. Upon consummation of the Bank Conversion, the Liquidation
Account, and all rights and obligations of the Bank in connection therewith,
shall be assumed by the National Bank.
The Liquidation Account shall be maintained by the National Bank, under
the same rules and conditions applicable to the Bank, subsequent to the Bank
Conversion for the benefit of Eligible Account Holders and Supplemental Eligible
Account Holders who retain their Savings Accounts in the National Bank.
B. Voting Rights of Stockholders.
-----------------------------
Following consummation of the Stock Conversion and Reorganization,
voting rights with respect to the Bank shall be held and exercised exclusively
by the Holding Company as holder of all of the Bank's outstanding voting Capital
Stock, and voting rights with respect to the Holding Company shall be held and
exercised exclusively by the holders of the Holding Company's voting capital
stock. Following the consummation of the Bank Conversion, voting rights with
respect to the National Bank shall be held and exercised exclusively by the
Holding Company as holder of all of the National Bank's outstanding voting
Capital Stock and voting rights with respect to the Holding Company shall be
held and exercised exclusively by the holders of the Holding Company's voting
capital stock.
C. Transfer of Deposit Accounts.
----------------------------
Each Deposit Account in the Bank at the time of the consummation of the
Stock Conversion and Reorganization shall become, without further action by the
holder, a Deposit Account in the Bank equivalent in withdrawable amount to the
withdrawal value (as adjusted to give effect to any withdrawal made for the
purchase of Conversion Stock), and subject to the same terms and conditions
(except as to voting and liquidation rights) as such Deposit Account in the Bank
immediately preceding consummation of the Stock Conversion and Reorganization.
Holders of Deposit Accounts in the Bank shall not, as such holders, have any
voting rights.
D. Directors and Officers of the Bank.
----------------------------------
Each person serving as a Director or Officer of the Bank at the time of
the Stock Conversion and Reorganization or of the National Bank at the time of
the Bank Conversion shall continue to serve as a Director or Officer of the Bank
or the National Bank for the balance of the term for which the person was
elected prior to the Stock Conversion and Reorganization and the Bank
Conversion, and until a successor is elected and qualified. The number, names,
business addresses and terms of the Directors of the Bank are set forth in the
Plans of Merger included as Annexes A and B hereto.
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<PAGE>
E. Requirements Following Stock Conversion and Reorganization for
--------------------------------------------------------------
Registration, Market Making, and Stock Exchange Listing.
-------------------------------------------------------
In connection with the Stock Conversion and Reorganization, the Holding
Company shall register the Holding Company Common Stock pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended, and shall undertake
not to deregister such stock for a period of three years thereafter. The Holding
Company also shall use its best efforts to (i) encourage and assist a market
maker to establish and maintain a market for the Holding Company Common Stock
and (ii) list the Holding Company Common Stock on a national or regional
securities exchange or to have quotations for such stock disseminated on the
National Association of Securities Dealers Automated Quotation System.
F. Dissenting Stockholders.
-----------------------
If any Stockholders of the Bank dissent from the Stock
Conversion and Reorganization and exercise and perfect the right to obtain
valuation of and payment for their shares of Bank Common Stock ("Dissenting
Shares") pursuant to the Appraisal Regulation, then (a) the Dissenting Shares,
if any, will be deemed to have been retired and canceled immediately prior to
consummation of the Stock Conversion and Reorganization, with the effect that
such shares will not be exchanged for Holding Company Common Stock pursuant to
Section II.G.2 hereof, and (b) all payments to be made to the holders of such
Dissenting Shares will be made directly by the Bank. Consummation of the Stock
Conversion and Reorganization is conditioned upon the number of Dissenting
Shares being less than 10.0% of the shares of Bank Common Stock issued and
outstanding immediately prior to consummation of the Stock Conversion and
Reorganization.
G. Effect of Bank Conversion
-------------------------
Upon completion of the Bank Conversion, the corporate existence of the
Bank shall not cease, but the National 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 Bank Conversion as described in Paragraph II.K. 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.
As part of the Bank Conversion, a national bank articles of association
and bylaws will be adopted to allow the National Bank to operate as a national
bank. By approving the Plan, the Members of the Mutual Holding Company and the
Public Stockholders will thereby approve such articles of association and
bylaws. Prior to completion of the Bank Conversion, the articles of association
and bylaws may be amended in accordance with the provisions and limitations for
amending the Plan under Paragraph VII.C. below. The effective date of the
articles of association and bylaws of the National Bank shall be the date of the
consummation of the Bank Conversion.
Each Person holding a Savings Account at the Bank as of immediately
prior to consummation of the Bank Conversion as set forth in Paragraph II.K.
herein shall receive, without payment, a withdrawable Savings Account or Savings
Accounts in the National Bank equal in dollar amount and on the same terms and
conditions as in effect as of immediately prior to the consummation of the Bank
Conversion. All Savings Accounts will continue to be insured by the FDIC up to
the applicable limits of insurance coverage. All loans shall retain the same
status after the Bank Conversion as these loans had prior to Bank Conversion.
V. EFFECTIVE DATE
The effective date of the Stock Conversion and Reorganization shall be
the date upon which the last of the following actions occurs: (i) the filing of
Articles of Combination with the OTS with respect to the Mutual Holding Company
Merger, (ii) the filing of Articles of Combination with the OTS with respect to
the Bank Merger, (iii) the closing of the issuance of the shares of Conversion
Stock in the Offerings, and (iv) compliance with any conditions imposed by the
OTS that is required to be complied with prior to the Effective Date. The filing
of Articles of
A-22
<PAGE>
Combination relating to the Mutual Holding Company Merger and the Bank Merger
and the closing of the issuance of shares of Conversion Stock in the Offerings
shall not occur until all requisite regulatory, Member and Stockholder approvals
have been obtained, all applicable waiting periods have expired and sufficient
subscriptions and orders for the Conversion Stock have been received. It is
intended that the closing of the Mutual Holding Company Merger, the Bank Merger
and the sale of shares of Conversion Stock in the Offerings shall occur
consecutively and substantially simultaneously.
VI. CERTAIN RESTRICTIONS FOLLOWING STOCK CONVERSION AND REORGANIZATION
A. Requirements for Stock Purchases by Directors and Officers
----------------------------------------------------------
Following the Stock Conversion and Reorganization.
-------------------------------------------------
For a period of three years following the Stock Conversion and
Reorganization, the Directors and Officers of the Holding Company and the Bank
and their Associates may not purchase, without the prior written approval of the
OTS, Holding Company Common Stock except from a broker-dealer registered with
the SEC. This prohibition shall not apply, however, to (i) a negotiated
transaction arrived at by direct negotiation between buyer and seller and
involving more than 1% of the outstanding Holding Company Common Stock and (ii)
purchases of stock made by and held by any Tax-Qualified Employee Stock Benefit
Plan (and purchases of stock made by and held by any Non-Tax-Qualified Employee
Stock Benefit Plan following the receipt of stockholder approval of such plan)
which may be attributable to individual officers or directors; and (iii) any
transaction occurring after the consummation of the Bank Conversion as set forth
in Paragraph II.K. herein unless OTS approval of the Bank Conversion otherwise
requires.
The foregoing restriction on purchases of Holding Company Common Stock
shall be in addition to any restrictions that may be imposed by federal and
state securities laws.
B. Restrictions on Transfer of Stock by Directors and Officers.
-----------------------------------------------------------
All shares of the Conversion Stock which are purchased by Persons other
than Directors and Officers shall be transferable without restriction, except in
connection with a transaction proscribed by Section V.C of this Plan. Shares of
Conversion Stock purchased by Directors and Officers of the Holding Company and
the Bank on original issue from the Holding Company (by subscription or
otherwise) shall be subject to the restriction that such shares shall not be
sold or otherwise disposed of for value for a period of one year following the
date of purchase, except for any disposition of such shares following the death
of the original purchaser or pursuant to any merger or similar transaction
approved by the OTS, or following consummation of the Bank Conversion unless the
OTS approval of the Bank Conversion otherwise requires. The shares of Conversion
Stock issued by the Holding Company to Directors and Officers shall bear the
following legend giving appropriate notice of such one-year restriction:
The shares of stock evidenced by this Certificate are
restricted as to transfer for a period of one year from the date of
this Certificate pursuant to Part 563b of the Rules and Regulations of
the Office of Thrift Supervision of the United States Department of the
Treasury. Except in the event of the death of the registered holder of
this Certificate, such shares may not be transferred during such
one-year period without a legal opinion of counsel for the Company that
said transfer is permissible under the provisions of applicable law and
regulation. This restrictive legend shall be deemed null and void after
one year from the date of this Certificate.
In addition, the Holding Company shall give appropriate instructions to
the transfer agent for the Holding Company Common Stock with respect to the
applicable restrictions relating to the transfer of retired stock. Any shares
issued at a later date as a stock dividend, stock split or otherwise with
respect to any such restricted stock shall be subject to the same holding period
restrictions as may then be applicable to such restricted stock.
The foregoing restriction on transfer shall be in addition to any
restrictions on transfer that may be imposed by federal and state securities
laws.
A-23
<PAGE>
C. Restrictions on Acquisition of Stock of the Holding Company.
-----------------------------------------------------------
The articles of incorporation of the Holding Company may prohibit any
Person together with Associates or group of Persons Acting in Concert from
offering to acquire or acquiring, directly or indirectly, beneficial ownership
of more than 10% of any class of equity securities of the Holding Company, or of
securities convertible into more than 10% of any such class, for up to five
years following completion of the Stock Conversion and Reorganization. The
articles of incorporation of the Holding Company also may provide that all
equity securities beneficially owned by any Person in excess of 10% of any class
of equity securities during such period shall be considered "excess shares," and
that excess shares shall not be counted as shares entitled to vote and shall not
be voted by any Person or counted as voting shares in connection with any
matters submitted to the stockholders for a vote. If included in the articles of
incorporation, the foregoing restrictions shall not apply to (i) any offer with
a view toward public resale made exclusively to the Holding Company by
underwriters or a selling group acting on its behalf, (ii) the purchase of
shares by a Tax-Qualified Employee Stock Benefit Plan established for the
benefit of the employees of the Holding Company and its subsidiaries which is
exempt from approval requirements under Section 574.3(c)(1)(vi) of the
Regulations Applicable to All Savings Associations or any successor thereto, and
(iii) any offer or acquisition approved in advance by the affirmative vote of
two-thirds of the entire Board of Directors of the Holding Company. Directors,
Officers or Employees of the Holding Company or the Bank or any subsidiary
thereof shall not be deemed to be Associates or a group Acting in Concert with
respect to their individual acquisitions of any class of equity securities of
the Holding Company solely as a result of their capacities as such.
Upon consummation of the Bank Conversion, no person (i.e., an
individual, a group Acting in Concert, a corporation, a partnership, an
association, a joint stock company, a trust or any unincorporated organization
or similar company, a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of securities of an insured institution or its
holding company) shall directly, or indirectly, offer to purchase or actually
acquire the beneficial ownership of more than 10% of any class of Holding
Company Stock without the prior approval of the Federal Reserve Board.
D. Dividend and Repurchase Restrictions.
------------------------------------
1. Except as may otherwise may be permitted by the OTS,
the Holding Company may not repurchase any shares of its Capital Stock during
the first year following consummation of the Stock Conversion and
Reorganization. During the second and third years following consummation of the
Stock Conversion and Reorganization, the Holding Company may not repurchase any
of its Capital Stock from any person, other than pursuant to (i) an offer to
repurchase made by the Holding Company on a pro rata basis to all of its
stockholders and which is approved by the OTS, (ii) the repurchase of qualifying
shares of a director, if any, (iii) purchases in the open market by a Tax-
Qualified or Non-Tax-Qualified Employee Stock Benefit Plan in an amount
reasonable and appropriate to fund the plan, or (iv) a repurchase program
approved by the OTS. These restrictions and limitations upon repurchases shall
not apply following consummation of the Bank Conversion as set forth in
Paragraph II.K. herein unless the OTS approval of the Bank Conversion otherwise
requires.
2. The Bank may not declare or pay a cash dividend on, or
repurchase any of, its Capital Stock if the effect thereof would cause the
regulatory capital of the Bank to be reduced below the amount required for the
Liquidation Account. Any dividend declared or paid on, or repurchase of, the
Bank's Capital Stock also shall be in compliance with Section 563.134 of the
Regulations Applicable to All Savings Associations, or any successor thereto.
Further, such restrictions and limitations upon repurchases of Capital Stock and
upon the declaration and payment of cash dividends thereon shall not apply
following consummation of the Bank Conversion as set forth in Paragraph II.K.
herein unless the OTS approval of the Bank Conversion otherwise requires.
3. Notwithstanding anything to the contrary set forth
herein, the Holding Company may repurchase its Capital Stock to the extent and
subject to the requirements set forth in Section 563b.3(g)(3) of the
A-24
<PAGE>
Regulations Applicable to All Savings Associations, or any successor thereto, or
as otherwise may be approved by the OTS.
VII. MISCELLANEOUS
A. Tax Rulings or Opinions.
-----------------------
Consummation of the Stock Conversion and Reorganization is conditioned
upon prior receipt by the Primary Parties of either a ruling or an opinion of
counsel with respect to federal tax law, and either a ruling or an opinion of
counsel with respect to Tennessee tax law, to the effect that consummation of
the transactions contemplated hereby will not result in a taxable reorganization
under the provisions of the applicable codes or otherwise result in any adverse
tax consequences to the Primary Parties or to account holders receiving
Subscription Rights before or after the Stock Conversion and Reorganization,
except in each case to the extent, if any, that Subscription Rights are deemed
to have fair market value on the date such rights are issued.
B. Stock Compensation Plans.
------------------------
1. The Holding Company, the Bank and the National Bank,
at the discretion of their respective Board of Directors, are authorized to
adopt Tax-Qualified Employee Stock Benefit Plans in connection with the Stock
Conversion and Reorganization, including without limitation an employee stock
ownership plan.
2. The Holding Company, the Bank and the National Bank
also are authorized to adopt stock option plans, restricted stock grant plans
and other Non-Tax-Qualified Employee Stock Benefit Plans, provided that no stock
options shall be granted, and no shares of Conversion Stock shall be purchased,
pursuant to any of such plans prior to the earlier of (i) the one-year
anniversary of the consummation of the Stock Conversion and Reorganization or
(ii) the receipt of stockholder approval of such plans at either the annual or
special meeting of stockholders of the Holding Company to be held not earlier
than six months after the completion of the Stock Conversion and Reorganization.
3. Existing as well as any newly created Tax-Qualified
Employee Stock Benefit Plans may purchase shares of Conversion Stock in the
Offerings, to the extent permitted by the terms of such benefit plans and this
Plan.
C. Amendment or Termination of the Plan.
------------------------------------
If deemed necessary or desirable by the Boards of Directors of the
Primary Parties, this Plan may be substantively amended, as a result of comments
from regulatory authorities or otherwise, at any time prior to the solicitation
of proxies from Members and Stockholders to vote on the Plan and at any time
thereafter with the concurrence of the OTS. Any amendment to this Plan made
after approval by the Members and Stockholders with the concurrence of the OTS
shall not necessitate further approval by the members or Stockholders unless
otherwise required by the OTS. Any amendment to this Plan which may be required
in connection with changes associated with the preference afforded to Persons in
the Local Community shall not be deemed to be a material change to the Plan, the
Primary Parties shall not resolicit subscribers and orders shall be filled in
accordance with any such revisions to the Local Community preference. This Plan
shall terminate if the sale of all shares of Conversion Stock is not completed
within 24 months from the date of the Special Meeting. Prior to the earlier of
the Special Meeting and the Stockholders' Meeting, this Plan may be terminated
by the Boards of Directors of the Primary Parties without approval of the OTS;
after the Special Meeting or the Stockholders' Meeting, the Boards of Directors
may terminate this Plan only with the approval of the OTS.
D. Interpretation of the Plan.
--------------------------
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of each of the Boards of Directors of the
Primary Parties shall be final, subject to the authority of the OTS, the Federal
A-25
<PAGE>
Reserve Board, the OCC, or any successor agency. Nothing expressed or referred
to herein is intended to create any contractual rights in any parties other than
the parties hereto, their successors and permitted assigns.
IN WITNESS WHEREOF, the parties have caused this Plan to be executed by
their duly authorized officers as of this 12th day of April, 1997.
LEXINGTON FIRST FEDERAL MUTUAL HOLDING
COMPANY
Attest: By:
------------------ -----------------------
Secretary Howard Tignor
President
LEXINGTON FIRST FEDERAL SAVINGS BANK
Attest: By:
------------------ -----------------------
Secretary Howard Tignor
President
COMMUNITY NATIONAL CORPORATION
Attest: By:
------------------ -----------------------
Secretary Howard Tignor
President
A-26
<PAGE>
ANNEX A
PLAN OF MERGER
Plan of Merger, dated as of ____________, 1997, between Lexington First
Federal Mutual Holding Company (the "Mutual Holding Company"), a federally-
chartered mutual holding company, and Lexington First Federal Savings Bank (the
"Bank" or the "Surviving Corporation"), a federally-chartered savings bank.
WITNESSETH:
WHEREAS, the Mutual Holding Company and the Bank have adopted a Plan of
Conversion of the Mutual Holding Company and Agreement and Plan of
Reorganization between Community National Corporation (the "Holding Company")
and the Bank (the "Plan of Conversion"), pursuant to which (i) the Mutual
Holding Company will convert to a federally-chartered interim stock savings bank
and simultaneously merge with and into the Bank, (ii) the Bank and a
newly-formed interim savings bank will merge, pursuant to which the Bank will
become a wholly-owned subsidiary of the Holding Company (the "Bank Merger"), and
(iii) the Holding Company will offer shares of its common stock in the manner
set forth in the Plan of Conversion; and
WHEREAS, the Mutual Holding Company, which owns 60.54% of the
outstanding common stock of the Bank, $1.00 par value per share ("Bank Common
Stock"), will convert to a federally-chartered interim stock savings bank
pursuant to the Plan of Conversion and merge with and into the Bank pursuant to
this Plan of Merger (the "Mutual Holding Company Merger"), pursuant to which,
among other things, all interests of members in the Mutual Holding Company and
all shares of Bank Common Stock held by the Mutual Holding Company will be
canceled; and
WHEREAS, the Mutual Holding Company and the Bank (the "Constituent
Corporations") desire to provide for the terms and conditions of the Mutual
Holding Company Merger;
NOW, THEREFORE, the Mutual Holding Company and the Bank hereby agree as
follows:
1. Effective Date. The Mutual Holding Company Merger shall become
effective on the date specified in the endorsement of the Articles of
Combination relating to the Mutual Holding Company Merger by the Secretary of
the Office of Thrift Supervision ("OTS") pursuant to 12 C.F.R. (S) 552.13(k), or
any successor thereto (the "Effective Date").
2. The Mutual Holding Company Merger and Effect Thereof. Subject
to the terms and conditions set forth herein and the prior approval of the OTS
of the Stock Conversion and Reorganization, as defined in the Plan of
Conversion, and the expiration of all applicable waiting periods, the Mutual
Holding Company shall convert from the mutual form to a federal interim stock
savings bank and simultaneously merge with and into the Bank, which shall be the
Surviving Corporation. Upon consummation of the Mutual Holding Company Merger,
the Surviving Corporation shall be considered the same business and corporate
entity as each of the Constituent Corporations and thereupon and thereafter all
the property, rights, powers and franchises of each of the Constituent
Corporations shall vest in the Surviving Corporation and the Surviving
Corporation shall be subject to and be deemed to have assumed all of the debts,
liabilities, obligations and duties of each of the Constituent Corporations and
shall have succeeded to all of each of their relationships, fiduciary or
otherwise, as fully and to the same extent as if such property, rights,
privileges, powers, franchises, debts, obligations, duties and relationships had
been originally acquired, incurred or entered into by the Surviving Corporation.
In addition, any reference to either of the Constituent Corporations in any
contract, will or document, whether executed or taking effect before or after
the Effective Date, shall be considered a reference to the Surviving Corporation
if not inconsistent with the other provisions of the contract, will or document;
and any pending action or other judicial proceeding to which either of the
Constituent Corporations is a party shall not be deemed to have
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<PAGE>
abated or to have been discontinued by reason of the Mutual Holding Company
Merger, but may be prosecuted to final judgment, order or decree in the same
manner as if the Mutual Holding Company Merger had not occurred or the Surviving
Corporation may be substituted as a party to such action or proceeding, and any
judgment, order or decree may be rendered for or against it that might have been
rendered for or against either of the Constituent Corporations if the Mutual
Holding Company Merger had not occurred.
3. Cancellation of Bank Common Stock held by the Mutual Holding
Company and Member Interests; Liquidation Account
(a) On the Effective Date, (i) each share of Bank Common Stock
issued and outstanding immediately prior to the Effective Date and held by the
Mutual Holding Company shall, by virtue of the Mutual Holding Company Merger and
without any action on the part of the holder thereof, be canceled, (ii) the
interests in the Mutual Holding Company of any person, firm or entity who or
which qualified as a member of the Mutual Holding Company in accordance with its
mutual charter and bylaws and the laws of the United States prior to the Mutual
Holding Company's conversion from mutual to stock form (the "Members") shall, by
virtue of the Mutual Holding Company Merger and without any action on the part
of the holder thereof, be canceled, and (iii) the Bank shall establish a
liquidation account on behalf of each depositor member of the Mutual Holding
Company, as defined in the Plan of Conversion, in accordance with Section IV.B
of the Plan of Conversion.
(b) At or after the Effective Date and prior to the Bank Merger,
each certificate or certificates theretofore evidencing issued and outstanding
shares of Bank Common Stock, other than any such certificate or certificates
held by the Mutual Holding Company, which shall be canceled, shall continue to
represent issued and outstanding shares of Bank Common Stock.
4. Dissenting Shares. No Member of the Mutual Holding Company
shall have any dissenter or appraisal rights in connection with the Mutual
Holding Company Merger. However, stockholders of the Bank shall have dissenter
or appraisal rights in accordance with the Plan of Conversion and 12 C.F.R. (S)
552.14.
5. Name of Surviving Corporation. The name of the Surviving
Corporation shall be "Lexington First Federal Savings Bank."
6. Directors of the Surviving Corporation. Upon and after the
Effective Date, until changed in accordance with the Charter and Bylaws of the
Surviving Corporation and applicable law, the number of directors of the
Surviving Corporation shall be nine. The names of those persons who, upon and
after the Effective Date, shall be directors of the Surviving Corporation are
set forth below. Each such director shall serve for the term which expires at
the annual meeting of stockholders of the Surviving Corporation in the year set
forth after his respective name, and until a successor is elected and qualified.
<TABLE>
<CAPTION>
Name Term Expires
---- ------------
<S> <C>
Pat Carnal
Stephen Lowry
Stephen Milan
Pope Thomas
Rob Thomas
Arba Milam Taylor
Howard W. Tignor
Charlie H. Walker
Richard Walker
</TABLE>
A-2
<PAGE>
The address of each such director is c/o Lexington First Federal
Savings Bank, 19 Natchez Trace Drive, Lexington, Tennessee 38351.
7. Officers of the Surviving Corporation. Upon and after the
Effective Date, until changed in accordance with the Charter and Bylaws of the
Surviving Corporation and applicable law, the officers of the Bank immediately
prior to the Effective Date shall be the officers of the Surviving Corporation.
8. Offices. Upon the Effective Date, all offices of the Bank
shall be offices of the Surviving Corporation. As of the Effective Date, the
home office of the Surviving Corporation shall remain at 19 Natchez Trace Drive,
Lexington, Tennessee 38351, except for the addition of deposit-taking offices
authorized or the deletion of the deposit-taking offices closed subsequent to
the date hereof and the Effective Date:
9. Charter and Bylaws. On and after the Effective Date, the
Charter of the Bank as in effect immediately prior to the Effective Date shall
be the Charter of the Surviving Corporation until amended in accordance with the
terms thereof and applicable law, except that the Charter shall be amended to
provide for the establishment of a liquidation account in accordance with
applicable law and regulation.
On or after the Effective Date, the Bylaws of the Bank as in
effect immediately prior to the Effective Date shall be the Bylaws of the
Surviving Corporation until amended in accordance with the terms thereof and
applicable law.
10. Stockholders and Member Approvals. The affirmative votes of
the holders of the Bank Common Stock set forth in Section II.F of the Plan of
Conversion and the Members set forth in Section II.D of the Plan of Conversion
shall be required to approve the Plan of Conversion, of which this Plan of
Merger is a part, on behalf of the Bank and the Mutual Holding Company,
respectively.
11. Abandonment of Agreement. This Plan of Merger may be abandoned
by either the Mutual Holding Company or the Bank at any time before the
Effective Date in the manner set forth in Section VI.D of the Plan of
Conversion.
12. Amendments. This Plan of Merger may be amended in the manner
set forth in Section VI.D of the Plan of Conversion by a subsequent writing
signed by the parties hereto upon the approval of the Board of Directors of each
of the parties hereto.
13. Successors. This Agreement shall be binding on the successors
of the Mutual Holding Company and the Bank.
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the United States of America.
A-3
<PAGE>
IN WITNESS WHEREOF, the Mutual Holding Company and the Bank have caused
this Plan of Merger to be executed by their duly authorized officers as of the
day and year first above written.
LEXINGTON FIRST FEDERAL MUTUAL
HOLDING COMPANY
Attest:
By:
- ------------------------- --------------------------
Howard Tignor
Secretary President
LEXINGTON FIRST FEDERAL SAVINGS BANK
Attest:
By:
- ------------------------- --------------------------
Howard Tignor
Secretary President
A-4
<PAGE>
ANNEX B
PLAN OF MERGER
Plan of Merger, dated as of ______ __, 1997, among Lexington First
Federal Savings Bank (the "Bank" or the "Surviving Bank"), a federally-chartered
savings bank, Community National Corporation (the "Holding Company"), a
Tennessee corporation, and Lexington Federal Interim Savings Bank ("Interim"), a
federally-chartered interim savings bank.
WITNESSETH:
WHEREAS, the Bank has organized the Holding Company as a first-tier,
wholly-owned subsidiary for the purpose of becoming the stock holding company of
the Bank upon completion of the Stock Conversion and Reorganization, as defined
in the Plan of Conversion of Lexington First Federal Mutual Holding Company (the
"Mutual Holding Company") and Agreement and Plan of Reorganization between the
Holding Company and the Bank (the "Plan of Conversion"); and
WHEREAS, the Mutual Holding Company, a federally-chartered mutual
holding company which owns 60.54% of the common stock of the Bank, $1.00 par
value per share ("Bank Common Stock"), will convert to a federally-chartered
interim stock savings bank and simultaneously merge with and into the Bank
pursuant to the Plan of Conversion and the Plan of Merger included as Annex A
thereto (the "Mutual Holding Company Merger"), pursuant to which all shares of
Bank Common Stock held by the Mutual Holding Company will be canceled; and
WHEREAS, the formation of a stock holding company by the Bank will be
facilitated by causing the Holding Company to become the sole stockholder of a
newly-formed interim federally-chartered stock savings bank and then merging the
interim savings bank with an into the Bank (the "Bank Merger"), pursuant to
which the Bank will become a wholly-owned subsidiary of the Holding Company and,
in connection therewith, all outstanding shares of Bank Common Stock will be
converted automatically into and become shares of common stock of the Holding
Company, $.01 par value per share ("Holding Company Common Stock"); and
WHEREAS, Interim is being organization by the officers of the Bank as
an interim federally-chartered stock savings bank with the Holding Company as
its sole stockholder in order to effect the Bank Merger; and
WHEREAS, the Bank and Interim (the "Constituent Banks") desire to
provide for the terms and conditions of the Bank Merger.
NOW, THEREFORE, the Bank and Interim hereby agree as follows:
1. Effective Date. The Bank Merger shall become effective on the
date specified in the endorsement of the Articles of Combination relating to the
Bank Merger by the Secretary of the Office of Thrift Supervision ("OTS")
pursuant to 12 C.F.R. (S) 552.13(k), or any successor thereto (the "Effective
Date").
2. The Bank Merger and Effect Thereof. Subject to the terms and
conditions set forth herein and the prior approval of the OTS of the Stock
Conversion and Reorganization, as defined in the Plan of Conversion, and the
expiration of all applicable waiting periods. Interim shall merge with and into
the Bank, which shall be the Surviving Bank. Upon consummation of the Bank
Merger, the Surviving Bank shall be considered the same business and corporate
entity as each of the Constituent Banks and thereupon and thereafter all the
property, rights, powers and franchises of each of the Constituent Banks shall
vest in the Surviving Bank and the Surviving Bank shall be subject to and be
deemed to have assumed all of the debts, liabilities, obligations and duties of
each of the Constituent Banks and shall have succeeded to all of each of their
relationships, fiduciary or otherwise, as fully and to the same extent as if
such property, rights, privileges, powers, franchises, debts, obligations,
duties and relationships had been originally
B-1
<PAGE>
acquired, incurred or entered into by the Surviving Bank. In addition, any
reference to either of the Constituent Banks in any contract, will or document,
whether executed or taking effect before or after the Effective Date, shall be
considered a reference to the Surviving Bank if not inconsistent with the other
provision of the contract, will or document; and any pending action or other
judicial proceeding to which either of the Constituent Banks is a party shall
not be deemed to have abated or to have been discontinued by reason of the Bank
Merger, but may be prosecuted to final judgment, order or decree in the same
manner as if the Bank Merger had not occurred or the Surviving Bank may be
substituted as a party to such action or proceeding, and any judgement, order or
decree may be rendered for or against it that might have been rendered for or
against either of the Constituent Banks if the Bank Merger had not occurred.
3. Conversion of Stock.
(a) On the Effective Date, (i) each share of Bank Common Stock
issued and outstanding immediately prior to the Effective Date (other than
shares as to which the holders thereof have properly exercised dissenter's
rights of appraisal, if any) shall, by virtue of the Bank Merger and without any
action on the part of the holder thereof, be converted into the right to receive
Holding Company Common Stock based on the Exchange Ratio, as defined in the Plan
of Conversion, plus the right to receive cash in lieu of any fractional share
interest, as determined in accordance with Section 3(c) hereof, (ii) each share
of common stock, $1.00 par value per share, of Interim ("Interim Common Stock")
issued and outstanding immediately prior to the Effective Date shall, by virtue
of the Bank Merger and without any action on the part of the holder thereof, be
converted into one share of Bank Common Stock, and (iii) each share of Holding
Company Common Stock issued and outstanding immediately prior to the Effective
Date shall, by virtue of the Bank Merger and without any action on the part of
the holder thereof, be canceled. By voting in favor of this Plan of Merger, the
Holding Company, as the sole stockholder of Interim, shall have agreed to (i)
issue shares of Holding Company Common Stock in accordance with the terms
hereof, and (ii) cancel all previously issued and outstanding shares of Holding
Company Common Stock upon the effectiveness of the Bank Merger.
(b) On and after the Effective Date, there shall be no
registrations of transfers on the stock transfer books of Interim or the Bank of
shares of Interim Common Stock or Bank Common Stock which were outstanding
immediately prior to the Effective Date.
(c) Notwithstanding any other provision hereof, no fractional
shares of Holding Company Common Stock shall be issued to holders of Bank Common
Stock. In lieu thereof, each holder of shares of Bank Common Stock entitled to a
fraction of a share of Holding Company Common Stock shall, at the time of
surrender of the certificate or certificates representing such holder's shares,
receive an a mount of cash equal to the product arrived at by multiplying such
fraction of a share of Holding Company Common Stock by the Actual Purchase
Price, as defined in the Plan of Conversion. No such holder shall be entitled to
dividends, voting rights or any other rights in respect of any fractional share.
4. Exchange of Shares.
(a) At or after the Effective Date, each holder of a certificate
or certificates therefore evidencing issued and outstanding shares of Bank
Common Stock (other than shares as to which the holders thereof have properly
exercised dissenter's rights of appraisal, if any), upon surrender of the same
to an agent, duly appointed by the Holding Company ("Exchange Agent"), shall be
entitled to receive in exchange thereof a certificate or certificates
representing the number of full shares of Holding Company Common Stock for which
the shares of Bank Common Stock therefore represented by the certificate or
certificates so surrendered shall have been converted as provided in Section
3(a) hereof. The Exchange Agent shall mail to each holder of record of an
outstanding certificate which immediately prior to the Effective Date evidenced
shares of Bank Common Stock, and which is to be exchanged for Holding Company
Common Stock as provided in Section 3(a) hereof, a form of letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to such certificate shall pass, only upon delivery of such certificate to the
Exchange Agent) advising such holder of the terms of the exchange effected by
the Bank Merger and of the procedure for
B-2
<PAGE>
surrendering to the Exchange agent such certificate in exchange for a
certificate or certificates evidencing Holding Company Common Stock.
(b) No holder of a certificate therefore representing shares of
Bank Common Stock shall be entitled to receive any dividends in respect of the
Holding Company Common Stock into which such shares shall have been converted by
virtue of the Bank Merger until the certificate representing such shares of Bank
Common Stock is surrendered in exchange for certificates representing shares of
Holding Company Common Stock. In the event that dividends are declared and paid
by the Holding Company in respect of Holding Company Common Stock after the
Effective Date but prior to surrender of certificates representing shares of
Bank Common Stock, dividends payable in respect of shares of Holding Company
Common Stock not then issued shall accrue (without interest). Any such dividends
shall be paid (without interest) upon surrender of the certificates representing
such shares of Bank Common Stock. The Holding Company shall be entitled, after
the Effective Date, to treat certificates representing shares of Bank Common
Stock as evidencing ownership of the number of full shares of Holding Company
Common Stock into which the shares of Bank Common Stock represented by such
certificates shall have been converted, notwithstanding the failure on the part
of the holder thereof to surrender such certificates.
(c) The Holding Company shall not be obligated to deliver a
certificate or certificates representing shares of Holding Company Common Stock
to which a holder of Bank Common Stock would otherwise be entitled as a result
of the Bank Merger until such holder surrenders the certificate or certificates
representing the shares of Bank Common Stock for exchange as provided in this
Section 4, or, in default thereof, an appropriate Affidavit of Loss and
Indemnity Agreement and/or a bond as may be required in each case by the Holding
Company. If any certificate evidencing shares of Holding Company Common Stock is
to be issued in a name other than that in which the certificate evidencing Bank
Common Stock surrendered in exchange therefor is registered, it shall be a
condition of the issuance thereof that the certificate so surrendered shall be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange pay to the Exchange agent any transfer or other tax
required by reason of the issuance of a certificate for shares of Holding
Company Common Stock in any name other than that of the registered holder of the
certificate surrendered or otherwise establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
(d) If, between the date hereof and the Effective Date, the shares
of Bank Common Stock shall be changed into a different number or class of shares
by reason of any reclassification, recapitalization, split-up, combination,
exchange of shares or readjustment, or a stock dividend thereon shall be
declared with a record date within said period, the Exchange Ratio specified in
Section 3(a) hereof shall be adjusted accordingly.
5. Dissenting Shares. Holders of shares of Bank Common Stock
shall have dissenter or appraisal rights in connection with the Bank Merger in
accordance with Section VI.D of the Plan of Conversion and 12 C.F.R. ss.
552.14(b).
6. Name of Surviving Bank. The name of the Surviving Bank shall
be "Lexington First Federal Savings Bank"
B-3
<PAGE>
7. Directors of the Surviving Bank. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Bank and applicable law, the number of directors of the Surviving Bank shall be
seven. The names of those persons who, upon and after the Effective Date, shall
be directors of the Surviving Bank are set forth below. Each such director shall
service for the term which expires at the annual meeting of stockholders of the
Surviving Bank in the year set forth after his respective name, and until a
successor is elected and qualified.
<TABLE>
<CAPTION>
Name Term Expires
------------- ------------
<S> <C>
Pat Carnal
Stephen Lowry
Pope Thomas
Rob Thomas
Arba Milam Taylor
Howard W. Tignor
Charlie H. Walker
</TABLE>
The address of each such director is c/o Lexington First Federal
Savings Bank, 19 Natchez Trace Drive, Lexington, Tennessee 38351.
8. Officers of the Surviving Bank. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Bank and applicable law, the officers of the Bank immediately prior to the
Effective Date shall be the officers of the Surviving Bank.
9. Offices. Upon the Effective Date, all offices of the Bank
shall be offices of the Surviving Bank. As of the Effective Date, the home
office of the Surviving Bank shall remain at 19 Natchez Trace Drive, Lexington,
Tennessee 38351, except for the addition of deposit-taking offices authorized or
the deletion of deposit-taking offices closed subsequent to the date hereof and
the Effective Date:
10. Charter and Bylaws. On and after the Effective Date, the
Charter and Bylaws of the Bank as in effect immediately prior to the Effective
Date shall be the Charter and Bylaws of the Surviving Bank until amended in
accordance with the terms thereof and applicable laws.
11. Savings Accounts. Upon the Effective Date, any savings
accounts of Interim, without reissue, shall be and become savings accounts of
the Surviving Bank without change in their respective terms, including, without
limitation, maturity, minimum required balances or withdrawal value.
12. Stock Compensation Plans. By voting in favor of this Plan of
Merger, the Holding Company shall have approved adoption of the Bank's existing
1992 Stock Option Plan and Management Recognition Plan (collectively, the
"Plans") as plans of the Holding Company and shall have agreed to issue Holding
Company Common Stock in lieu of Bank Common Stock pursuant to the terms of such
Plans. As of the Effective Date, rights outstanding under the Plans shall be
assumed by the Holding Company and thereafter shall be rights only for shares of
Holding Company Common Stock, with each such right being for a number of shares
of Holding Company Common Stock equal to the number of shares of Bank Common
Stock that were available thereunder immediately prior to the Effective Date
times the Exchange Ratio, as defined in the Plan of Conversion, and the price of
each such right shall be adjusted to reflect the Exchange Ratio and so that the
aggregate purchase price of the right is unaffected, but with no change in any
other term or condition of such right. The Holding Company shall make
appropriate amendments to the Plans to reflect the adoption of the Plans by the
Holding Company without adverse effect upon the rights outstanding thereunder.
B-4
<PAGE>
13. Stockholder Approval. The affirmative votes of the holders of
Bank Common Stock set forth in Section II.F of the Plan of Conversion shall be
required to approve the Plan of Conversion, of which this Plan of Merger is a
part, on behalf of the Bank. The approval of the Holding Company, as the sole
holder of the Interim Common Stock, shall be required to approve the Plan of
Conversion, of which this Plan of Merger is a part, on behalf of Interim.
14. Registration; Other Approvals. In addition to the approvals
set forth in Section 1 and 13 hereof and the Plan of Conversion, the parties'
obligations to consummate the Bank Merger shall be subject to the Holding
Company Common Stock to be issued hereunder in exchange for Bank Common Stock
being registered under the Securities Act of 1933, as amended, and registered or
qualified under applicable state securities laws, as well as the receipt of all
other approvals, consents or waivers as the parties may deem necessary or
advisable.
15. Abandonment of Agreement. This Plan of Merger may be abandoned
by either the Bank or Interim at any time before the Effective Date in the
manner set forth in Section VI.D of the Plan of Conversion.
16. Amendments. This Plan of Merger may be amended in the manner
set forth in Section VI.D of the Plan of Conversion by a subsequent writing
signed by the parties hereto upon the approval of the board of Directors of each
of the parties hereto.
17. Successors. This Agreement shall be binding on the successors
of the Bank and Interim.
18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the United States of America.
IN WITNESS WHEREOF, the Bank and Interim have caused this Plan of
Merger to be executed by their duly authorized officers as of the day and year
first above written.
COMMUNITY NATIONAL CORPORATION
By:
------------------------
Howard Tignor
President
LEXINGTON FIRST FEDERAL SAVINGS BANK
Attest:
By:
- ------------------------- ------------------------
Howard Tignor
Secretary President
LEXINGTON FEDERAL INTERIM SAVINGS BANK
(In Organization)
Attest:
By:
- ------------------------- ------------------------
Howard Tignor
Secretary
B-5
<PAGE>
- -------------------------------------------------------------------------------
REVOCABLE PROXY
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
FOR A SPECIAL MEETING OF MEMBERS TO BE HELD ON , 1997)
The undersigned member of Lexington First Federal Mutual Holding
Company hereby appoints , and as attorneys-in-
fact and agents for and in the name of the undersigned, to vote such
votes as the undersigned may be entitled to cast at the Special Meeting
of Members of Lexington First Federal Mutual Holding Company to be held
at Lexington First Federal Savings Bank, 19 Natchez Trace Drive,
Lexington, Tennessee 38351, on , , 1997, at .m., Central
Time, and at any adjournments thereof. They are authorized to cast all
votes to which the undersigned is entitled, as follows:
1. Adoption of the Plan of Conversion and Agreement and Plan of
Reorganization among Lexington First Federal Mutual Holding Company
(the "Mutual Holding Company"), Lexington First Federal Savings Bank
(the "Bank") and Community National Corporation (the "Company"),
pursuant to which (i) the Mutual Holding Company, which currently owns
approximately 60.54% of the outstanding shares of the common stock,
$1.00 par value, of the Bank (the "Bank Common Stock"), will convert
from mutual form to a federal interim stock savings bank and
simultaneously merge with and into the Bank, with the Bank as the
surviving entity; (ii) the Bank will subsequently merge with an
interim savings institution to be formed as a wholly owned subsidiary
of the Company, with the Bank as the surviving entity; (iii) the
outstanding shares of Bank Common Stock (other than those held by the
Mutual Holding Company, which will be cancelled) will be converted
into shares of the common stock, $1.00 par value, of the Company (the
"Common Stock") pursuant to a ratio that will result in the holders of
such shares owning in the aggregate approximately the same percentage
of the Company as they currently own of the Bank, before giving effect
to such stockholders purchasing additional shares in a concurrent
stock offering by the Company, the receipt of cash in lieu of
fractional shares or the exercise of dissenters' rights; (iv) the
offer and sale of shares of Common Stock by the Company; and (v) the
Bank will convert from a stock savings bank to a national bank.
2. In their discretion, on any other matters that may lawfully come
before the Meeting.
NOTE: The Board of Directors is not aware of any other matter that may
come before the Meeting.
PLEASE VOTE, DATE, AND SIGN ON THE REVERSE SIDE
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED FOR THE PLAN IF NO CHOICE IS MADE HEREON
Should the undersigned be present and elect to vote at said Meeting or
at any adjournment thereof and, after notification to the Secretary of
the Mutual Holding Company at the Special Meeting of the member's
decision to terminate this Proxy, then the power of said attorneys-in-
fact or agents shall be deemed terminated and of no further force and
effect. The undersigned hereby revokes any and all proxies heretofore
given.
PLEASE MARK VOTES [X] FOR AGAINST ABSTAIN
1. Adoption of the Plan of Conversion and Agreement [_] [_] [_]
and Plan of Reorganization.
- --------------------------------------------------------------------------------
The undersigned acknowledges
receipt of a Notice of Special
Meeting of the Members of Lex-
ington First Federal Mutual
Holding Company to be held on
, 1997 and a Proxy State-
ment and a Prospectus from Com-
munity National Corporation
dated , 1997 prior to the
execution of this Proxy.
DATE:
--------------------------------
SIGNATURE:
--------------------------------
NOTE: ONLY ONE SIGNATURE IS RE-
QUIRED IN THE CASE OF A JOINT
ACCOUNT.
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99.3
Conversion Valuation Report
=============================
Valued as of June 20, 1997
LEXINGTON FIRST FEDERAL MUTUAL HOLDING COMPANY
LEXINGTON FIRST FEDERAL SAVINGS BANK
Lexington, Tennessee
Prepared By:
Ferguson & Company
Suite 550
122 W. John Carpenter Freeway
Irving, TX 75039
972/869-1177
<PAGE>
[LETTERHEAD OF FERGUSON & COMPANY APPEARS HERE]
STATEMENT OF APPRAISER'S INDEPENDENCE
Lexington First Federal Mutual Holding Company
----------------------------------------------
Lexington, Tennessee
--------------------
We are the appraiser for Lexington First Federal Mutual Holding Company
("Company")in connection with its conversion, reorganization and second stage
issuance of Public Shares. We are submitting our independent estimate of the
pro forma market value of the Company's stock to be issued in the conversion and
reorganization. In connection with our appraisal of the to-be-issued stock, we
have received a fee which was not related to the estimated final value. The
estimated pro forma market value is solely the opinion of our company and it was
not unduly influenced by the Company, its conversion counsel, its selling agent,
or any other party connected with the conversion.
The Company has agreed to indemnify Ferguson & Company under certain
circumstances against liabilities arising out of our services. Specifically, we
are indemnified against liabilities arising from our appraisal except to the
extent such liabilities are determined to have arisen because of our negligence
or willful conduct.
Ferguson & Company
/s/ Robin L. Fussell
Robin L. Fussell
Principal
June 24, 1997
<PAGE>
[LETTERHEAD OF FERGUSON & COMPANY APPEARS HERE]
June 24, 1997
Boards of Directors
Lexington First Federal Mutual Holding Company
Lexington First Federal Savings Bank
19 Natchez Trace Drive
Lexington, TN 38351
Dear Directors:
We have completed and hereby provide, as of June 20, 1997, an
independent appraisal of the estimated pro forma market value of the common
stock which is to be issued by Community National Corporation ("Community" or
the "Holding Company"), in connection with the conversion and reorganization of
Lexington First Federal Mutual Holding Company ("LFFMHC" or the "MHC"). The MHC
currently has a majority ownership interest in, and its principal asset consists
of, the common stock of Lexington First Federal Savings Bank ("Lexington First
Federal" or the "Bank"). It is our understanding that the Holding Company is to
offer its stock in a subscription and community offering to the Bank's Eligible
Account Holders, to Supplemental Eligible Account Holders of the Bank, to Other
Members of the Bank, to directors, officers and employees of the Bank, to
certain Public Shareholders, and to the community. This appraisal report is
furnished pursuant to the regulatory filing of the Bank's Application for
Conversion ("Form AC") with the Office of Thrift Supervision ("OTS").
Ferguson & Company ("F&C") is a consulting firm that specializes in
providing financial, economic, and regulatory services to financial
institutions. The background and experience of F&C is presented in Exhibit I.
We believe that, except for the fees we will receive for preparing the
appraisal, we are independent. F&C personnel are prohibited from owning stock
in conversion clients for a period of at least one year after conversion.
In preparing our appraisal, we have reviewed the Application for
Approval of Conversion, including the Proxy Statement as filed with the OTS. We
conducted an analysis of LFFMHC that included discussions with Arnold, Spain &
Company, P. C., the Bank's independent auditors, and with Housley Kantarian &
Bronstein, P.C., the Bank's conversion counsel. In addition, where appropriate,
we considered information based on other available published sources that we
believe is reliable; however, we cannot guarantee the accuracy or completeness
of such information.
We also reviewed the economy in Lexington First Federal's primary
market area and compared the Bank's financial condition and operating results
with that of selected publicly traded thrift institutions. We reviewed
conditions in the securities markets in general and in the market for thrifts
stocks in particular.
<PAGE>
Boards of Directors
June 24, 1997
Page 2
Our appraisal is based on LFFMHC's representation that the information
contained in the Form AC and additional evidence furnished to us by the MHC and
its independent auditors are truthful, accurate, and complete. We did not
independently verify the financial statements and other information provided by
LFFMHC and its auditors, nor did we independently value the assets or
liabilities of the MHC or the Bank. The valuation considers LFFMHC only as a
going concern and should not be considered an indication of its liquidation
value.
It is our opinion that, as of June 20, 1997, the estimated pro forma
market value of Lexington First Federal Mutual Holding Company was $4,300,000,
or 430,000 shares at $10.00 per share. The resultant valuation range was
$3,655,000 at the minimum (365,500 shares at $10.00 per share) to $4,945,000 at
the maximum (494,500 shares at $10.00 per share), based on a range of 15 percent
below and above the midpoint valuation. The supermaximum was $5,686,750
(568,675 shares at $10.00 per share).
Our valuation is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing shares of common
stock in the conversion. Moreover, because such valuation is necessarily based
upon estimates and projections of a number of matters, all of which are subject
to change from time to time, no assurance can be given that persons who purchase
shares of common stock in the conversion will thereafter be able to sell such
shares at prices related to the foregoing estimate of the MHC's pro forma market
value. F&C is not a seller of securities within the meaning of any federal or
state securities laws and any report prepared by F&C shall not be used as an
offer or solicitation with respect to the purchase or sale of any securities.
Our opinion is based on circumstances as of the date hereof, including
current conditions in the United States securities markets. Events occurring
after the date hereof, including, but not limited to, changes affecting the
United States securities markets and subsequent results of operations of LFFMHC
could materially affect the assumptions used in preparing this appraisal.
The valuation reported herein will be updated as provided in the OTS
conversion regulations and guidelines. Any updates will consider, among other
things, any developments or changes in LFFMHC's financial performance and
condition, management policies, and current conditions in the equity markets for
thrift shares. Should any such new developments or changes be material, in our
opinion, to the valuation of the shares, appropriate adjustments will be made to
the estimated pro forma market value. The reasons for any such adjustments will
be explained in detail at the time.
Respectfully,
FERGUSON & COMPANY
/s/ Robin L. Fussell
Robin L. Fussell
Principal
<PAGE>
FERGUSON & COMPANY
- ------------------
TABLE OF CONTENTS
Lexington First Federal Savings Bank
Lexington, Tennessee
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION 1
SECTION I. - FINANCIAL CHARACTERISTICS 2
PAST & PROJECTED ECONOMIC CONDITIONS 2
FINANCIAL CONDITION OF INSTITUTION 2
Balance Sheet Trends 2
Asset/Liability Management 2
Income and Expense Trends 2
Regulatory Capital Requirements 3
Lending 3
Nonperforming Assets 3
Classified Assets 3
Loan Loss Allowance 3
Mortgage-Backed Securities and Investments 3
Savings Deposits 3
Borrowings 4
Subsidiaries 4
Legal Proceedings 4
EARNINGS CAPACITY OF THE INSTITUTION 4
Asset-Size-Efficiency of Asset Utilization 4
Intangible Values 4
Effect of Government Regulations 5
Office Facilities 5
SECTION II - MARKET AREA 1
DEMOGRAPHICS 1
</TABLE>
i
<PAGE>
FERGUSON & COMPANY
- ------------------
TABLE OF CONTENTS - CONTINUED
Lexington First Federal Savings Bank
Lexington, Tennessee
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION III - COMPARISON WITH PUBLICLY TRADED THRIFTS 1
COMPARATIVE DISCUSSION 1
Selection Criteria 1
Profitability 2
Balance Sheet Characteristics 2
Risk Factors 2
Summary of Financial Comparison 3
FUTURE PLANS 3
SECTION IV - CORRELATION OF MARKET VALUE 1
MARKETABILITY & LIQUIDITY OF STOCK TO BE ISSUED 1
Financial Aspects 1
Market Area 2
Management 2
Dividends 2
Liquidity 3
Thrift Equity Market Conditions 3
TENNESSEE ACQUISITIONS 3
EFFECT OF INTEREST RATES ON THRIFT STOCK 3
Adjustments Conclusion 6
Valuation Approach 6
Conversion to Bank and Comparison to Banks 7
Valuation Conclusion 7
</TABLE>
ii
<PAGE>
FERGUSON & COMPANY
- ------------------
TABLE OF CONTENTS - CONTINUED
Lexington First Federal Savings Bank
Lexington, Tennessee
<TABLE>
<CAPTION>
TABLE
NUMBER TABLE TITLE PAGE
- ------ ----------- ----
<C> <S> <C>
SECTION I - FINANCIAL CHARACTERISTICS
1 Selected Financial Data 6
2 Selected Financial Ratios 7
3 Interest Rate Shock 8
4 Capital Compliance 9
5 Loan Portfolio Composition 10
6 Loan Maturities 11
7 Loan Origination, Purchase, and Sales Activity 12
8 Average Balances, Rates, and Yields 13
9 Rate/Volume Analysis 15
10 Non-Performing Assets 16
11 Analysis of the Allowance for Loan Losses 17
12 Allocation of the Allowance for Loan Losses 18
13 Investments 19
14 Investment Maturities 20
15 Deposit Portfolio 22
16 Time Deposits by Rate 22
17 Savings Flows 23
18 Time Deposit Maturities 23
19 Jumbo CD Maturities 23
20 Offices 24
SECTION II - MARKET AREA
1 Demographic Trends 3
2 Percent Employment by Industry 4
3 Market Area Deposits 5
SECTION III - COMPARISON WITH PUBLICLY
TRADED THRIFTS
1 Comparatives General 4
2 Key Financial Indicators 5
3 Pro Forma Comparisons 6
</TABLE>
iii
<PAGE>
FERGUSON & COMPANY
- ------------------
TABLE OF CONTENTS - CONTINUED
Lexington First Federal Savings Bank
Lexington, Tennessee
<TABLE>
<CAPTION>
TABLE
NUMBER TABLE TITLE PAGE
- ------ ----------- ----
<C> <S> <C>
SECTION IV - CORRELATION OF MARKET VALUE
1 Appraisal Earnings Adjustments 2
2 Tennessee Acquisitions 8
3 Recent Conversions 11
4 Recent Pink Sheet Conversions 14
5 Comparison of Pricing Ratios 17
6 Comparison of Pricing Ratios - Banking 18
7 Exchange Ratios 19
<CAPTION>
FIGURE
NUMBER LIST OF FIGURES PAGE
- ------ --------------- ----
<C> <S> <C>
SECTION IV - CORRELATION OF MARKET VALUE
1 SNL Index 20
2 Interest Rates 21
</TABLE>
EXHIBIT TITLE
-------------
Exhibit I - Ferguson & Company Qualifications
Exhibit II - Selected Region, State, and Comparatives Information
Exhibit III - Lexington First Federal Savings Bank TAFS Report
Exhibit IV - Comparative Group TAFS and BankSource Reports
Exhibit V - Selected Publicly Traded Thrifts
Exhibit VI - Comparative Group Selection
Exhibit VII - Pro Forma Calculations
Pro Forma Assumptions
Pro Forma Effect of Conversion Proceeds At the Minimum of the Range
Pro Forma Effect of Conversion Proceeds At the Midpoint of the Range
Pro Forma Effect of Conversion Proceeds At the Maximum of the Range
Pro Forma Effect of Conversion Proceeds At the SuperMax of the Range
Pro Forma Analysis Sheet
Exhibit VIII - Pink Sheet Banks
Exhibit IX - Other Thrifts Converting to Stock and Commercial Bank
iv
<PAGE>
SECTION I
FINANCIAL CHARACTERISTICS
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
INTRODUCTION
Lexington First Federal Savings Bank ("Lexington First Federal" or
"Bank") is a federally chartered, federally insured stock savings bank located
in Lexington (Henderson County), Tennessee. It was chartered in 1961 as
Lexington First Federal Savings and Loan Association. Lexington First Federal
received its federal charter and insurance of accounts and joined the Federal
Home Loan Bank system in 1961. It completed the first step of a mutual holding
company conversion in December 1992, at which time it sold 80,000 shares of
stock to the public and contributed 135,000 shares to a mutual holding company,
Lexington First Federal Mutual Holding Company ("LFFMHC" or the "MHC"). Since
December 1992, the Bank has issued 7,997 shares of stock through stock option
exercises and redeemed 4 shares of stock. Thus, there are currently outstanding
222,993 shares, of which 87,993 (39.46%) are owned by public stockholders and
135,000 shares (60.54%) are owned by the MHC. In April 1997, the Board of
Directors adopted a plan of reorganization that provides for the merger of MHC
into the Bank, formation of a new holding company, Community National
Corporation, and a sale of the remaining interest in the Bank to the public
through a second step mutual holding company conversion. Upon completion of the
conversion and reorganization, Lexington First Federal will convert to a
national bank charter to be known as Community National bank of Tennessee.
At March 31, 1997, Lexington First Federal had total assets of $25.9
million, loans of $16.4 million, mortgage-backed securities of $3.2 million,
interest-bearing deposits in other banks of $1.8 million, investment securities
of $3.8 million, deposits of $20.9 million, borrowings of $.9 million, and net
worth of $3.9 million, or 15.1% of assets.
The bank has one office, which is located in Lexington (Henderson
County), Tennessee. Tennessee is in the southeastern portion of the United
States. Henderson County is located in the southwestern section of Tennessee.
Lexington First Federal is a traditional thrift with significant
emphasis on passive investments. It invests primarily in (1) 1-4 family loans,
(2) mortgage backed securities, (3) investment securities, and (4) temporary
cash investments. It is funded principally by savings deposits and existing net
worth. It has utilized minor amounts of borrowings recently.
The Bank offers a full spectrum of real estate loan products to
accommodate its customer base and single family loans dominate the Bank's loan
portfolio. At March 31, 1997, loans on 1-4 family dwellings made up 61.3% of
total assets and 95.8% of the loan portfolio. Consumer loans were 2.2% of the
loan portfolio and construction loans were 1.2% of the loan portfolio. Mortgage
backed securities made up 12.4% of total assets. Cash and cash equivalents made
up 7.0% and investment securities made up 14.7% of Lexington First Federal's
assets at March 31, 1997.
Lexington First Federal had $155,000 in non-performing assets at March
31, 1997, as compared to $114,000 at December 31, 1996, and $146,000 at December
31, 1995.
Savings deposits decreased $98 thousand during the period from
December 31, 1995, to March 31, 1997, a compound annual rate of decline of .37%.
Savings decreased $344 thousand (1.64%) from December 31, 1995, to December 31,
1996, and increased $249 thousand (1.21%) from December 31, 1996, to March 31,
1997. Lexington First Federal has not relied extensively on borrowings during
recent years. It had $949 thousand in borrowings at March 31, 1997, $955
thousand at December 31, 1996, and $971 thousand at December 31, 1995.
The Bank's capital to assets ratio has increased slightly during the
period of one year and three months ending March 31, 1997. Equity capital, as a
percentage of assets, has increased from 14.53% at December 31, 1995, to 15.12%
at March 31, 1997. The compound annual asset growth rate was .00% during the
period (assets increased $3 thousand), while the compound annual rate of growth
for equity was 3.25%.
Lexington First Federal's profitability, as measured by return on
average assets ("ROAA"), has been at the top of its peer group average of
thrifts filing TFR's with the OTS, consisting of OTS supervised thrifts with
assets under $25 million for 1993 and 1994 and between $25 million and $50
million for 1995 and 1996. For the years ending December 31, 1993, 1994, 1995,
and 1996, Lexington First Federal ranked in the 94th, 90th, 75th, and 91st
percentile,
1
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
respectively, in ROAA, based on information derived from the TAFS thrift
database published by Sheshunoff Information Services Inc. (See Exhibit III,
page 2). In return on equity for the same periods, Lexington First Federal
ranked in the 60th, 80th, 51st, and 80th percentile, respectively.
I. FINANCIAL CHARACTERISTICS
PAST & PROJECTED ECONOMIC CONDITIONS
Fluctuations in thrift earnings in recent years have occurred within
the time frames as a result of changing temporary trends in interest rates and
other economic factors. However, the year-to-year results have been upward
while the general trends in the thrift industry have been improving as interest
rates declined. Interest rates began a general upward movement during late
1993, followed by a decline in interest margins and profitability. Rates began
a general decline in mid 1995 and then leveled off on the short end and
increased on the long end. Lexington First Federal's spread was 2.87% for the
year ended December 31, 1995 and 3.15% for the year ended December 31, 1996. It
increased to 3.02% for the three months ended March 31, 1997.
The thrift industry generally is better equipped to cope with changing
interest rates than it was in the past, and investors have recognized the
demonstrated ability of the thrift industry to maintain interest margins in
spite of rising interest rates. However, rate increases and the shortening of
the time elapsed between increases during 1994 placed pressure on portfolio
managers to shorten maturities, which negatively impacts the future earnings of
financial institutions. Lexington First Federal has a much higher exposure to
interest rate risk than the thrift industry in general.
FINANCIAL CONDITION OF INSTITUTION
Balance Sheet Trends
As Table I.1 shows, Lexington First Federal experienced no growth in
assets during the period of one year and three months ending March 31, 1997.
Assets increased $3 thousand during the period. Loans increased $1.9 million,
or 13.2%. Mortgage-backed securities, interest-earning cash, and investments
securities combined decreased $2.0 million, or 18.5% during the period. Savings
deposits decreased by $98 thousand, or .5%. Equity increased $154 thousand, or
4.1%.
Asset/Liability Management
Managing interest rate risk is a major component of the strategy used
in operating a thrift. Most of a thrift's interest earning assets are long-
term, while most of the interest bearing liabilities have short to intermediate
terms to contractual maturity. To compensate, asset/liability management
techniques include (1) making long term loans with interest rates that adjust to
market periodically, (2) investing in assets with shorter terms to maturity, (3)
lengthening the terms to maturities of savings deposits, and (4) seeking to
employ any combination of the aforementioned techniques artificially through the
use of synthetic hedge instruments. Table I.3 provides rate shock information
at varying levels of interest rate change. The Bank has significant exposure to
interest rate increases, but its exposure will be reduced through the equity
raised in the conversion.
Lexington First Federal's basic approach to interest rate risk
management has been to emphasize shorter term mortgage loans, and short and
intermediate term liquid investments. Lexington First Federal currently is not
utilizing synthetic hedge instruments and has not used borrowings extensively in
recent years. Lexington First Federal's business plan calls for emphasis on
shorter term and adjustable consumer and commercial non real estate loans.
Income and Expense Trends
Lexington First Federal was profitable for the two fiscal years ended
December 31, 1996, and the three months ended March 31, 1997. Fluctuations in
income over the period have resulted principally from (1) changes in non-
interest expense, principally the SAIF assessment of approximately $128,000 in
1996, and (2) severance payments of $20,000 during the three months ended March
31, 1997.
Net interest income increased in the year ended December 31, 1996,
principally as a result of growth, and remained flat during the three months
ended March 31, 1997 versus 1996.
2
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Regulatory Capital Requirements
As Table I.4 demonstrates, Lexington First Federal meets all
regulatory capital requirements, and meets the regulatory definition of a "Well
Capitalized" institution. Moreover, the additional capital raised in the stock
conversion will add to the existing capital cushion.
Lending
Table I.5 provides an analysis of the Bank's loan portfolio by type of
loan and security. This analysis shows that, from December 31, 1995, through
March 31, 1997, Lexington First Federal's loan composition has been dominated by
1-4 family dwelling loans. Table I.6 provides information on loan maturities
and repricing opportunities at December 31, 1996. The schedule shows that, at
that date, approximately 78% of the portfolio was scheduled to mature in more
than five years and 49% was scheduled to mature in more than ten years.
Table I.7 provides information with respect to loan originations. It
indicates that loan origination activity increased 69.6% from 1995 to 1996 and
that 1997 has started out on pace with 1996.
Table I.8 provides rates, yields, and average balances for each of the
two years ended December 31, 1996 and the three months ended March 31, 1997 and
1996. Interest rates earned on interest-earning assets increased from 8.00% in
1995 to 8.22% in 1996, and decreased to 8.01% for the three months ended March
31, 1997. Interest rates paid on interest-bearing liabilities decreased from
5.13% in 1995 to 5.07% in 1996, and decreased to 4.99% for the three months
ended March 31, 1997. Lexington First Federal's spread increased from 2.87% in
1995 to 3.15% in 1996, and decreased to 3.02% for the three months ended March
31, 1997.
Table I.9 provides a rate volume analysis, measuring differences in
interest earning assets and interest costing liabilities and the interest rates
thereon during the years ended December 31, 1995 versus 1996, and the period of
three months ended March 31, 1996 versus 1997. The table shows that most of the
increase in net interest income from the year ended December 31, 1995 to 1996
resulted from volume, while there was no change from the three months ended
March 31, 1996 to 1997.
Non-performing Assets
As shown in Table I.10, the Bank had $155,000 in loans that were over
90 days delinquent at March 31, 1997. The Bank was continuing to accrue interest
on these loans at March 31, 1997. As shown in Table I.10, Lexington First
Federal had $114 thousand in nonperforming assets at December 31, 1996, and $146
thousand at December 31, 1995.
Classified Assets
Lexington First Federal had $155 thousand in classified assets at
March 31, 1997. All of the classified assets were classified as substandard.
The Bank had a loan loss allowance of $147,000, or 94.8% of classified assets at
March 31, 1997.
Loan Loss Allowance
Table I.11 provides an analysis of Lexington First Federal's loan loss
allowance. Table I.12 shows the allocation of the loan loss allowance among the
various loan categories as of December 31, 1995 and 1996, and March 31, 1997.
Mortgage-Backed Securities and Investments
Table I.13 provides a breakdown of investments as of December 31, 1995
and 1996, and March 31, 1997. Table I.14 provides maturity information for
investments as of March 31, 1997.
Savings Deposits
At March 31, 1997, Lexington First Federal's deposit portfolio was
composed as follows: Checking accounts--$1.314 million or 6.29%; passbook
accounts--$1.372 million or 6.57%; and certificate accounts--$18.198 million or
87.14% (see Table I.15). Table I.16 provides a break down of time deposits by
rate ranges as of December 31, 1995 and 1996, and March 31, 1997. Table I.17
provides savings flow information for the years ended December
3
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
31, 1995 and 1996, and the period of three months ended March 31, 1997. It shows
that the bank experienced healthy deposit growth rate for the year ended
December 31, 1995, but experienced no growth in deposits for the period of
fifteen months ended March 31, 1997. Table I.18 provides maturity information by
rate ranges for time deposits as of March 31, 1997. It shows that 90.77% of all
time deposits mature within one year and 100.00% mature within two years.
Lexington First Federal is not overly dependent on jumbo certificates
of deposit. March 31, 1997, the Bank had $3.647 million in certificates that
were issued for $100 thousand or more, or 17.46% of its total deposits (see
Table I.19).
Borrowings
Lexington First Federal has had only minor borrowings in recent years.
Subsidiaries
Lexington First Federal has one inactive subsidiary.
Legal Proceedings
From time to time, Lexington First Federal becomes involved in legal
proceedings principally related to the enforcement of its security interest in
real estate loans. In the opinion of Management of the Bank, no legal
proceedings are in process or pending that would have a material effect on
Lexington First Federal's financial position, results of operations, or
liquidity.
EARNINGS CAPACITY OF THE INSTITUTION
As in any interest sensitive industry, the future earnings capacity of
Lexington First Federal will be affected by the interest rate environment.
Historically, the thrift industry has performed at less profitable levels in
periods of rising interest rates. This performance is due principally to the
general composition of the assets and the limited repricing opportunities
afforded even the adjustable rate loans. The converse earnings situation
(falling rates) does not afford the same degree of profitability potential for
thrifts due to the tendency of borrowers to refinance both high rate fixed rate
loans and adjustable loans as rates decline.
Lexington First Federal is no exception to the aforementioned
phenomenon. With its current asset and liability structure, however, its
exposure to rising interest rates is significant.
The addition of capital through the conversion will encourage
Lexington First Federal to grow. The business plan projects asset growth over
the three year period ending March 31, 2000 between 15% and 22% annually. As
growth is attained, the leverage of that new capital should, from a ratio of
expenses to total assets standpoint, reduce the operating expense ratio.
Asset-Size-Efficiency of Asset Utilization
At its current size and in its current asset configuration, Lexington
First Federal is a moderately efficient operation. With total assets of
approximately $25.9 million at March 31, 1997, Lexington First Federal has
approximately 10 full time equivalent employees. The business plan projects
that operating expense levels as a percentage of average assets will stay in
line with pre-conversion rates. The projected operating expense ratio to
average assets for the year ending March 31, 2000, is 1.89% in the business
plan.
Intangible Values
Lexington First Federal's greatest intangible value lies in its loyal
deposit base. Lexington First Federal has a 36 year history of sound
operations, controlled growth, and consistent earnings. At June 30, 1996, the
Bank had 7.60% of the deposit market in its area (down from 7.71% at June 30,
1994), and it has the ability to increase market share. Lexington First Federal
has maintained its market share in recent years without making any significant
efforts. Its turn around in strategic direction is expected to help Lexington
First Federal increase its market share significantly.
4
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Lexington First Federal has no significant intangible values that
could be attributed to unrecognized asset gains on investments and real estate.
Effect of Government Regulations
Lexington First Federal's business plan calls for significant change
in its strategies. The changes will involve the types of loans sought and the
efforts expended to acquire deposits. Government regulations will have the
greatest impact in the area of cost of compliance and reporting. The conversion
will create an additional layer of regulations and reporting and thereby
increase the cost to the Bank.
Office Facilities
Lexington First Federal's office is a well maintained facility that
was built in 1976. It has limited drive-up services. Table I.20 provides
information on Lexington First Federal's office. The facilities are marginally
adequate for the convenience and needs of the Bank's customer base. The
business plan projects that the Bank will open a branch office in Lexington
during the June 1998 quarter.
5
<PAGE>
FERGUSON & COMPANY Section 1.
- ------------------ ---------
Table I.1 - Selected Financial Data
<TABLE>
<CAPTION>
Compound
March 31, December 31, Growth
----------- -------------------------
1997 1996 1995 Rate
---- ---- ---- ----
($000's)
<S> <C> <C> <C> <C>
Selected Financial Condition Data:
- ---------------------------------
Total assets 25,942 25,623 25,945 NM
Loans receivable, net 16,429 16,205 14,512 10.35%
Cash and cash equivalents 1,823 1,392 1,761 2.80%
Investment securities:
Available for sale 1,568 1,802 3,104 -43.35%
Held to maturity 2,257 2,257 2,351 -3.23%
Mortgage-backed securities:
Available for sale 2,556 2,664 2,823 -7.68%
Held to maturity 650 678 829 -17.90%
Savings deposits 20,884 20,638 20,982 -0.37%
Borrowings 949 955 971 -1.80%
Stockholders' equity - substantially restricted 3,923 3,861 3,769 3.25%
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
-------------------- -----------------------
1997 1996 1996 1995
---- ---- ---- ----
($000's)
<S> <C> <C>
Selected Operations Data:
- ------------------------
Interest income 498 505 2,031 1,944
Interest expense 270 279 1,103 1,091
-------------------- -----------------------
Net interest income 228 226 928 853
Provision for loan losses 6 8 30 30
-------------------- -----------------------
Net interest income after
provision for loan losses 222 218 898 823
-------------------- -----------------------
Noninterest income 15 8 21 17
-------------------- -----------------------
Sub-total 237 226 919 840
-------------------- -----------------------
Noninterest expense 144 114 617 464
-------------------- -----------------------
Income (loss) before taxes 93 112 302 376
Income tax expense 31 37 105 152
-------------------- -----------------------
Net income (loss) 62 75 197 224
==================== =======================
Earnings per share $0.28 $0.34 $0.88 $1.00
==================== =======================
Dividend payout ratio 28.39% 23.47% 35.74% 31.43%
==================== =======================
</TABLE>
6
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.2 - Selected Financial Ratios
<TABLE>
<CAPTION>
At or for the Three Months At or For the Year
Ended March 31, Ended December 31,
-------------------------- ----------------------
1997 1996 1996 (1) 1995
---- ---- -------- ----
<S> <C> <C> <C> <C>
Performance Ratios:
- -------------------
Return on assets (ratio of net earnings
to average total assets) 0.96% 1.16% 0.76% 0.90%
Return on equity (ratio of net earnings
to average equity) 6.42% 8.00% 5.21% 6.27%
Ratio of average interest-earning assets to
average interest-bearing liabilities 116.29% 115.40% 115.59% 115.54%
Net interest rate spread 3.03% 3.02% 3.15% 2.86%
Net yield on average interest-earning assets 3.72% 3.69% 3.84% 3.55%
Ratio of noninterest expense to assets 2.24% 1.76% 2.40% 1.86%
Efficiency ratio 59.26% 48.72% 65.02% 53.33%
Quality Ratios:
- ---------------
Non-performing assets to total assets
at end of period 0.54% 0.58% 0.56% 0.51%
Non-performing loans to total loans
at end of period 0.91% 1.06% 0.75% 1.03%
Allowance for loan losses to non-performing
loans at end of period 94.84% 81.37% 124.56% 84.25%
Allowance for loan losses to total loans, net 0.86% 0.86% 0.86% 0.84%
Capital Ratios:
- ---------------
Equity to total assets at end of period 15.12% 14.32% 15.07% 14.53%
Average equity to average assets 15.02% 14.45% 14.68% 14.28%
</TABLE>
(1) Operations for 1996 includes the SAIF assessment, which was $128,000
($82,000 after taxes). Factoring out the SAIF assessment, the return on assets
would be 1.08%, the return on equity would be 7.38%, the ratio of noninterest
expense to average assets would be 1.88%, and the efficiency ratio would be
51.53%.
7
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.3 - Interest Rate Shock
<TABLE>
<CAPTION>
Net Portfolio Value
December 31, 1996
---------------------------------------------------------------
Estimated
NPV as a
Estimated Percent
Change in Rates NPV of Assets $ Change % Change
- --------------------------- -------------- ------------- -------- -------------
($000's)
<S> <C> <C> <C> <C>
+400 bp $ 2,478 10.41% (2,150) -46%
+300 bp 3,051 12.44% (1,577) -34%
+200 bp 3,622 14.36% (1,006) -22%
+100 bp 4,175 16.09% (453) -10%
0 bp 4,628 17.42% - -
- --100 bp 4,880 18.06% 252 5%
- --200 bp 4,944 18.10% 316 7%
- --300 bp 5,024 18.17% 396 9%
- --400 bp 5,155 18.37% 527 11%
</TABLE>
8
<PAGE>
FERGUSON & COMPANY Section 1.
- ------------------ ----------
Table I.4 - Capital Compliance
<TABLE>
<CAPTION>
March 31, 1997
---------------------------------
Amount Percent
($000's) of Assets
--------------- --------------
<S> <C> <C>
Capital under generally accepted accounting principals 3,923 15.12%
=============== ==============
Tangible capital 3,951 15.21%
Tangible capital requirement 390 1.50%
--------------- --------------
Excess 3,561 13.71%
=============== ==============
Core capital 3,951 15.21%
Core capital requirement 779 3.00%
--------------- --------------
Excess 3,172 12.21%
=============== ==============
Total regulatory capital 4,093 36.07%
Risk-based capital requirement 908 8.00%
--------------- --------------
Excess 3,185 28.07%
=============== ==============
</TABLE>
9
<PAGE>
FERGUSON & COMPANY Section 1.
- ------------------ ---------
Table I.5 - Loan Portfolio Composition
<TABLE>
<CAPTION>
At March 31, At December 31,
------------------ -----------------------------------
1997 1996 1995
----------------- ----------------- ----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
($000's)
<S> <C> <C> <C>
Mortgage Loans:
1-4 family 15,904 95.8% 15,543 93.9% 14,264 97.2%
Non-residential 134 0.8% 164 1.0% 9 0.1%
Construction--1-4 family 193 1.2% 550 3.3% 76 0.5%
------------------ ----------------- -----------------
Total real estate loans 16,231 97.8% 16,257 98.2% 14,349 97.8%
------------------ ----------------- -----------------
Consumer Loans:
Deposit account loans 321 1.9% 296 1.8% 324 2.2%
Car 7 0.0% - 0.0% - 0.0%
Other 41 0.2% - 0.0% - 0.0%
------------------ ----------------- ----------------
Total consumer loans 369 2.2% 296 1.8% 324 2.2%
------------------ ----------------- ----------------
Total loans 16,600 100.0% 16,553 100.0% 14,673 100.0%
================== ================= ================
Less:
Loans in process - 180 8
Deferred fees and discounts 26 27 30
Allowance for losses 147 141 123
-------- -------- -------
Loan portfolio, net 16,427 16,205 14,512
======== ======== =======
</TABLE>
10
<PAGE>
FERGUSON & COMPANY Table I.6 - Loan Maturities Section 1.
- ------------------ ----------
The following table sets forth certain information at December 31, 1996,
regarding the amount of loans maturing in the loan portfolio, based on
contractual terms to maturity.
<TABLE>
<CAPTION>
Under One to Three to Over Five to Over
One Year Three Years Five Years Ten Years Ten Years Total
---------- ------------- ------------ -------------- ----------- -----------
($000's)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans
1-4 family 1,550 266 812 4,774 8,141 15,543
Commercial 93 - 39 23 9 164
Construction 550 - - - - 550
Consumer deposit loans 222 74 - - - 296
---------- ------------- ------------ -------------- ----------- -----------
Total 2,415 340 851 4,797 8,150 16,553
========== ============= ============ ============== =========== ===========
</TABLE>
The following table sets forth the dollar amount of all loans for which final
payment is not due until after December 31, 1997. The Bank had no adjustable
rate loans.
<TABLE>
<CAPTION>
Fixed Rate Adjustable
Loans Loans
------------ ------------
($000's)
<S> <C> <C>
Real estate loans:
1-4 family 13,074 919
Commercial 71
Consumer deposit loans 74
------------ ------------
Total 13,219 919
============ ============
</TABLE>
11
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.7 - Loan Origination, Purchase, and Sales Activity
<TABLE>
<CAPTION>
Three Months
Ended
March 31, Year Ended December 31,
--------------- --------------------------
1997 1996 1995
---- ---- ----
($000's)
<S> <C> <C> <C>
Originations by type:
- ---------------------
Real estate:
One- to four-family 1,086 3,203 2,154
Multi family - - 225
Commercial - 35 -
Construction--1-4 family - 938 -
Consumer:
Deposit account loans 79 297 259
-------------- ----------- ----------
Total loans originated 1,165 4,473 2,638
-------------- ----------- ----------
Purchases:
Participations, one- to four-family - - -
-------------- ----------- ----------
Total loans originated and purchases 1,165 4,473 2,638
============== =========== ==========
Loans sold - - -
============== =========== ==========
</TABLE>
12
<PAGE>
FERGUSON & COMPANY Table I.8 - Average Balances, Rates, and Yields Section I.
- ------------------ ----------
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------------------------------------------------------
1997 1996
------------------------------------------------------------------------------------
Average Interest Average Interest
Outstanding Earned/ Average Outstanding Earned/ Average
Balance Paid Yield/Rate Balance Paid Yield/Rate
---------------------------------------- --------------------------------------
($000's) ($000's)
Interest-earning assets:
- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Loans 16,578 365 8.81% 14,923 342 9.17%
Investment securities:
Taxable 2,731 54 7.91% 4,238 72 6.80%
Nontaxable 1,145 24 8.38% 1,145 28 9.78%
Mortgage-backed securities 3,218 52 6.46% 3,720 60 6.45%
Other interest-earning assets 1,592 11 2.76% 1,379 13 3.77%
---------------------------------------- --------------------------------------
Total interest-earning assets 25,264 506 8.01% 25,405 515 8.11%
---------------------------------------- --------------------------------------
Non-interest earning assets 443 557
-------------- --------------
Total assets 25,707 25,962
============== ==============
Interest-bearing liabilities:
- -----------------------------
Deposits 20,774 252 4.85% 21,049 261 4.96%
Borrowings 951 19 7.99% 967 19 7.86%
---------------------------------------- --------------------------------------
Total interest-bearing liabilities 21,725 271 4.99% 22,016 280 5.09%
---------------------------------------- --------------------------------------
Non-interest bearing liabilities 90 196
-------------- --------------
Total liabilities 21,815 22,212
Equity 3,892 3,750
-------------- --------------
Total liabilities and equity 25,707 25,962
============== ==============
FTE net interest income 235 235
------------ -----------
Net interest rate spread 3.02% 3.02%
============== =============
Net average earning assets 3,539 3,389
============== ==============
Net interest margin 3.72% 3.70%
============== =============
Tax equivalent adjustments (8) (10)
------------ -----------
Net interest income 227 225
============ ===========
Average interest-earning assets to
average interest-bearing liabilities 116.29% 115.39%
============== ==============
</TABLE>
13
<PAGE>
FERGUSON & COMPANY Table 1.8 - Average Balances, Rates, and Yields Section I.
- ------------------ ----------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
1996 1995
-------------------------------------- -------------------------------------
Average Interest Average Interest
Outstanding Earned/ Average Outstanding Earned/ Average
Balance Paid Yield/Rate Balance Paid Yield/Rate
-------------------------------------- -------------------------------------
($000's)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
- ------------------------
Loans 15,586 1,416 9.09% 14,357 1,321 9.20%
Investment securities:
Taxable 4,183 283 6.77% 4,431 299 6.75%
Nontaxable 1,145 111 9.69% 684 61 8.92%
Mortgage-backed securities 3,393 222 6.54% 3,676 239 6.50%
Other interest-earning assets 861 37 4.30% 1,407 44 3.13%
-------------------------------------- -------------------------------------
Total interest-earning assets 25,168 2,069 8.22% 24,555 1,964 8.00%
-------------------------------------- -------------------------------------
Non-interest earning assets 591 449
-------------- --------------
Total assets 25,759 25,004
============== ==============
Interest-bearing liabilities:
- -----------------------------
Deposits 20,814 1,027 4.93% 20,274 1,013 5.00%
Borrowings 959 76 7.92% 980 78 7.96%
-------------------------------------- -------------------------------------
Total interest-bearing liabilities 21,773 1,103 5.07% 21,254 1,091 5.13%
-------------------------------------- -------------------------------------
Non-interest bearing liabilities 206 178
-------------- --------------
Total liabilities 21,979 21,432
Equity 3,780 3,572
-------------- --------------
Total liabilities and equity 25,759 25,004
============== ==============
FTE net interest income 966 873
---------- ------------
Net interest rate spread 3.15% 2.87%
============= ===========
Net average earning assets 3,395 3,301
============== ==============
Net interest margin 3.84% 3.56%
============= ===========
Tax equivalent adjustments (38) (21)
---------- ------------
Net interest income 928 852
========== ============
Average interest-earning assets to
average interest-bearing liabilities 115.59% 115.53%
============== ==============
</TABLE>
14
<PAGE>
FERGUSON & COMPANY Table I.9 - Rate/Volume Analysis Section 1.
- ------------------ ----------
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
1997 vs. 1996 1996 vs. 1995
---------------------------------------------- -------------------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Due to
--------------------------------- Total ----------------------------- Total
Rate/ Increase Rate/ Increase
Volume Rate Volume (Decrease) Volume Rate Volume (Decrease)
------ ---- ------ ---------- ------ ---- ------ ----------
($000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans 152 (54) (5) 93 113 (17) (1) 95
Investment securities:
Taxable (102) 47 (17) (72) (18) (29) 2 (45)
Nontaxable - (14) - (14) 41 5 4 50
Mortgage-backed securities (32) - - (32) (18) 2 - (16)
Other 8 (14) (5) (11) (17) 16 (6) (7)
---------------------------------------------- -------------------------------------------
Total interest-earning assets 26 (35) (27) (36) 101 (23) (1) 77
============================================== ===========================================
Interest-bearing liabilities:
Deposits (14) (23) - (37) 27 (13) - 14
Borrowings (1) 1 - - (2) - - (2)
---------------------------------------------- -------------------------------------------
Total interest-bearing liabilities (15) (22) - (37) 25 (13) - 12
============================================== ===========================================
Increase (decrease) in
net interest income 1 65
========== ===========
</TABLE>
15
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.10 - Non-Performing Assets
The table below sets forth the amounts and categories of non-performing assets.
Loans are placed on non-accrual status when the collection of principal or
interest becomes doubtful.
<TABLE>
<CAPTION>
March 31, December 31,
------------- -------------------
1997 1996 1995
---- ---- ----
($000's)
<S> <C> <C> <C>
Non-accruing loans:
Real estate:
One- to four-family - - -
Other mortgage - - -
Consumer - - -
------------- -------------------
Total - - -
------------- -------------------
Accruing loans delinquent 90 days or more - - -
Real estate:
One- to four-family 155 114 146
Other mortgage - - -
Consumer - - -
------------- -------------------
Total 155 114 146
------------- -------------------
Total non-performing loans 155 114 146
------------- -------------------
Foreclosed real estate owned - - -
------------- -------------------
Total non-performing assets 155 114 146
============= ===================
Total non-performing loans as a
percentage of total net loans 0.91% 0.75% 1.03%
============= ===================
Total non-performing assets as a
percentage of total assets 0.60% 0.44% 0.56%
============= ===================
</TABLE>
16
<PAGE>
FERGUSON & COMPANY Section 1.
- ------------------ ----------
Table I.11 - Analysis of the Allowance for Loan Losses
<TABLE>
<CAPTION>
Three Months
ended
March 31, Year ended December 31,
---------------- -------------------------
1997 1996 1995
---- ---- ----
($000's)
<S> <C> <C> <C>
Balance at beginning of period 141 123 94
---------------- ----------- ----------
Charge-offs:
One- to four-family - 12 1
---------------- ----------- ----------
Total - 12 1
---------------- ----------- ----------
Recoveries:
One- to four-family - - -
----------------
Total - - -
---------------- ----------- ----------
Net charge-offs - 12 1
---------------- ----------- ----------
Additions charged to operations 6 30 30
---------------- ----------- ----------
Balance at end of period 147 141 123
================ =========== ==========
Allowance for loan losses to total
loans at end of period 0.89% 0.87% 0.85%
================ =========== ==========
Net loans charged off as a percent of average
loans outstanding NA 0.0696% 0.0070%
================ =========== ==========
</TABLE>
17
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.12 - Allocation of Allowance for Loan Losses
<TABLE>
<CAPTION>
At March 31, At December 31,
------------------------ -----------------------------------------------------
1997 1996 1995
------------------------ -------------------------- -----------------------
Percent Percent Percent
of Loans of Loans of Loans
in Each in Each in Each
Amount of Category Amount of Category Amount of Category
Loan Loss to Gross Loan Loss to Gross Loan Loss to Gross
Allowance Loans Allowance Loans Allowance Loans
--------- --------- --------- --------- --------- --------
($000's)
<S> <C> <C> <C> <C> <C> <C>
Real estate:
1-4 family 85 95.8% 79 93.9% 73 97.2%
Commercial 10 0.8% 12 1.0% - 0.6%
Construction - 1.2% - 3.3% - 0.5%
Consumer 2 2.2% - 1.8% - 2.2%
Unallocated 50 50 50
------------------------ -------------------------- -----------------------
147 100.0% 141 100.0% 123 100.0%
------------------------ -------------------------- -----------------------
</TABLE>
18
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ---------
Table I.13 - Investments
<TABLE>
<CAPTION>
March 31, December 31,
------------------- ----------------------------------------
1997 1996 1995
------------------- ------------------ -------------------
Carrying % of Carrying % of Carrying % of
Value Total Value Total Value Total
----- ----- ----- ----- ----- -----
($000's)
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. government agencies 1,107 26.5% 1,358 29.9% 2,796 47.2%
Tax exempt securities 511 12.2% 513 11.3% 308 5.2%
Mortgage-backed securities 2,562 61.3% 2,664 58.7% 2,825 47.6%
--------- --------- --------- -------- -------- --------
Total available for sale 4,180 100.0% 4,535 100.0% 5,929 100.0%
========= ========= ========= ======== ======== ========
HELD TO MATURITY:
U.S. government agencies 1,600 55.0% 1,600 54.5% 1,694 53.3%
Tax exempt securities 657 22.6% 657 22.4% 657 20.7%
Mortgage-backed securities 650 22.4% 678 23.1% 829 26.1%
--------- --------- --------- -------- -------- --------
Total held to maturity 2,907 100.00% 2,935 100.00% 3,180 100.00%
========= ========= ========= ======== ======== ========
Total Investment and
Mortgage-backed securities 7,087 7,470 9,109
========= ========= ========
Cash and time deposits -
interest bearing 1,669 1,203 1,544
========= ========= ========
FHLB stock 250 246 230
========= ========= ========
Total of all investments and
interest earning cash 9,006 8,919 10,883
========= ========= ========
</TABLE>
19
<PAGE>
FERGUSON & COMPANY Table I.14-Investment Maturities Section I.
- ------------------ March 31, 1997 ----------
<TABLE>
<CAPTION>
One Year or Less One to Five Years Five to Ten Years
--------------------- -------------------- --------------------
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
---- ----- ---- ----- ---- -----
($000's)
--------
<S> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. government agencies 395 5.29% 250 6.55% 300 5.88%
Tax exempt securities - 194 4.26% 317 6.80%
Mortgage-backed securities 376 6.08% 373 6.52% 243 5.78%
-------- -------- --------
Total available for sale 771 817 860
-------- -------- --------
HELD TO MATURITY:
U.S. government agencies 1,000 6.88% 500 5.13% -
Tax exempt securities - - 397 5.37%
Mortgage-backed securities - - -
-------- -------- --------
Total held to maturity 1,000 500 397
-------- -------- --------
Total 1,771 1,317 1,257
======== ======== ========
</TABLE>
20
<PAGE>
FERGUSON & COMPANY Table I.14 - Investment Maturities Section I.
- ------------------ ----------
March 31, 1997
<TABLE>
<CAPTION>
Over Ten Years Total Portfolio
------------------- -----------------------------
Amortized Average Amortized Market Average
Cost Yield Cost Value Yield
----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. government agencies 162 4.58% 1,107 1,067 5.63%
Tax exempt securities - 511 501 5.83%
Mortgage-backed securities 1,570 6.07% 2,562 2,556 6.11%
---------- ---------------------
Total available for sale 1,732 4,180 4,124
---------- ---------------------
HELD TO MATURITY:
U.S. government agencies 100 7.35% 1,600 1,595 6.36%
Tax exempt securities 260 5.90% 657 672 5.56%
Mortgage-backed securities 650 6.96% 650 655 6.96%
---------- ---------------------
Total held to maturity 1,010 2,907 2,922
---------- ---------------------
Total 2,742 7,087 7,046
========== =====================
</TABLE>
21
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.15 - Deposit Portfolio
<TABLE>
<CAPTION>
Balance Percent
Interest Minimum March 31, of
Category Term Rate (1) Balance 1997 Deposits
- -------- ---- -------- ------- ---- --------
($000's)
--------
<S> <C> <C> <C> <C> <C>
Savings and transactions accounts
- ---------------------------------
Passbook accounts None 3.00% 25 1,372 6.57%
NOW accounts None 2.00% 200 1,248 5.98%
Super NOW accounts None 3.05% 1,500 3 0.01%
Non-interest checking None 0.00% 100 63 0.30%
---------- ---------
2,686 12.86%
---------- ---------
Certificates of deposit
- ---------------------------------
Fixed term, fixed rate 1 month or less 3.71% 500 41 0.20%
Fixed term, fixed rate 3 months 4.74% 500 323 1.55%
Fixed term, fixed rate 6 months 5.18% 500 9,437 45.19%
Fixed term, fixed rate 12 months 5.15% 500 3,435 16.45%
Fixed term, fixed rate 18 months 5.40% 500 3,734 17.88%
Fixed term, fixed rate 18 month IRA 5.29% 500 1,228 5.88%
---------- ---------
Total certificates of deposit 18,198 87.14%
---------- ---------
Total savings deposits 20,884 100.00%
========== =========
</TABLE>
(1) Indicates weighted average interest rate at March 31, 1997.
Table I.16 - Time Deposits by Rate
<TABLE>
<CAPTION>
At December 31,
At March 31, ---------------------
1997 1996 1995
------------ -------- --------
<S> <C> <C> <C>
Interest rate ($000's)
- -------------
2.00 - 3.99% 41 - 174
4.00 - 5.99% 18,157 18,189 18,086
------------ -------- --------
Total 18,198 18,189 18,260
============ ======== ========
</TABLE>
22
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.17 - Savings Flows
The following table sets forth the savings flows for the periods indicated.
<TABLE>
<CAPTION>
3 Months
Ended
March 31, Year Ended December 31,
---------- -------------------------
1997 1996 1995
---- ---- ----
($000's)
<S> <C> <C> <C>
Opening balance 20,638 20,982 19,249
Net increase (decrease)
before interest credited 50 (1,332) 1,013
Interest credited 196 988 720
----------- --------- ----------
Ending Balance 20,884 20,638 20,982
=========== ========= ==========
Net increase (decrease) 246 (344) 1,733
=========== ========= ==========
Percent increase (decrease) 1.19% -1.64% 9.00%
=========== ========= ==========
Table I.18 - Time Deposit Maturities
<CAPTION>
Amount Due During Year Ending March 31, Due After
Interest -------------------------------------------------------- March 31,
Rate 1998 1999 2000 2001 2001 Total
- ---- ---- ---- ---- ---- ---- -----
($000's)
<S> <C> <C> <C> <C> <C> <C>
2.00 - 3.99% 41 - - - - 41
4.00 - 5.99% 16,477 1,680 - - - 18,157
------------- ------------- ------------- ------------- ------------- -------------
Total 16,518 1,680 - - - 18,198
============= ============= ============= ============= ============= =============
Percent 90.77% 9.23% 0.00% 0.00% 0.00% 100.00%
============= ============= ============= ============= ============= =============
Table I.19 - Jumbo CD Maturities ($000's)
<CAPTION>
Maturity Period
- ---------------
<S> <C>
Within three months 1,412
Three through six months 1,728
Six through twelve months 407
Over twelve months 100
---------
Total 3,647
=========
</TABLE>
23
<PAGE>
FERGUSON & COMPANY Section I.
- ------------------ ----------
Table I.20 - Offices
<TABLE>
<CAPTION>
Net Book Owned or Approximate
Physical address Value Leased Square Footage
- ---------------- ----- ------ --------------
($000's)
<S> <C> <C> <C>
Main Office:
19 Natchez Trace Drive 251 Owned 6,800
==========
Lexington, TN 38351
</TABLE>
24
<PAGE>
SECTION II
MARKET AREA
<PAGE>
FERGUSON & COMPANY Section II.
- ------------------ -----------
II. MARKET AREA
DEMOGRAPHICS
Lexington First Federal Savings Bank ("Lexington First Federal" or
"Bank") conducts its operations through one office located in Lexington,
Henderson County, Tennessee. Tennessee is in the southeastern region of the
United States. Henderson County is in the southwestern section of Tennessee.
Lexington First Federal has determined that its principal trade area is
Henderson County. Table II.1 presents historical and projected trends for the
United States, Tennessee, Henderson County, and zip code 38351, which includes
the city of Lexington. The information addresses population, income, employment,
and housing trends.
As indicated in Table II.1, population growth rates for Tennessee,
Henderson County, and zip code 38351 are all above the United States growth
rate. Household income growth for Tennessee, Henderson County, and zip code
38351 is projected to be above that of the United States for the period 1996 to
2001.
In the period from 1990 until 1996, the population of the State of
Tennessee grew 9.39%. During the same period, the Henderson County population
increased 8.19%, zip code 38351 increased 9.28%, and the United States
population increased 6.67%. Projections of population growth from 1996 through
2001 indicate that the State of Tennessee will increase 6.87%, while Henderson
County is projected to increase by 6.04%, zip code 38351 is projected to
increase 6.54%, and the United States population is projected to increase by
5.09%.
Household income is projected to increase by 4.80% for Henderson County
from 1996 to 2001. For the same period, household income is projected to
increase by .98% for the State of Tennessee, increase by 5.00% for zip code
38351, and decline by 3.88% for the United States. Per capita and household
income levels for the State of Tennessee are below those of the United States,
and per capita and household income levels for Henderson County and zip code
38351 are well below the State of Tennessee.
The 2001 estimate shows that, for Henderson County, households with
incomes less than $15,000 are expected to be 26%; those with incomes between
$15,000 and $25,000 are estimated at 20%; those with incomes between $25,000 and
$50,000 are estimated at 38%; those with incomes between $50,000 and $100,000
are estimated at 14%; and households with incomes in excess of $100,000 are
projected to be 1%. The 2001 estimates for Tennessee are 23%, 18%, 34%, 20%, and
5%, respectively. The 2001 estimate for zip code 38351 is 26%, 20%, 38%, 14%,
and 2%, respectively.
The number of households in Henderson County is projected to increase
by 6.25% from 1996 to 2001, below the projection for the State of Tennessee
which calls for an increase of 6.94% and below the projected growth rate for zip
code 38351 at 6.75%. Household growth rate for Henderson County, the State of
Tennessee, and zip code 38351 all exceed the projected growth rate for the U.S.,
which is 5.14%.
With projections of a growth in population and number of households,
combined with projections of a growing household income, the market for housing
units will be good. Zip code 38351 has approximately 5,800 housing units, of
which 70.19% are owner occupied, and a vacancy rate of 7.84%. Henderson County
has approximately 9,300 housing units, of which 73.28% are owner occupied, and a
vacancy rate of 8.09%.
The principal sources of employment in Henderson County are
manufacturing--46.9%; trade--19.0%; public administration--13.5%; and
services--13.1%.
Analysis of the data presented above presents a picture of ample
economic opportunity, suggesting that WSB's growth opportunities within its
current market area will be good.
Based on information publicly available on deposits as of June 30, 1996
(see Table II.3), Henderson County had $273.5 million in deposits and Lexington
First Federal had 7.60% of the deposit market, down from 7.71% of the market at
June 30, 1994. The Bank's recent deposit growth rate has been moderate, in line
with the overall market. Lexington First Federal's competition consists of 7
commercial bank offices and 1 credit union office. The
1
<PAGE>
FERGUSON & COMPANY Section II.
- ------------------ -----------
Bank's growth rate is expected to accelerate as a result of a recent change in
Management and the strategic direction of the Board of Directors. Table II.3
shows that from June 30, 1994 to 1996, Lexington First Federal's deposits
increased by $1.306 million (6.7%), while the overall market increased $20.781
million in deposits (8.2%). The Bank's business plan projects that its deposits
will grow at an accelerated pace in the future. The Plan projects that deposits
will increase by $13.709 million (65.6%) from March 31, 1997, to March 31, 2000,
after an estimated withdrawal of approximately $800,000 of deposits for stock
purchases. The Bank intends to market its services and products more
aggressively, including opening a branch.
Building permit information was not available. However, projected
population and household income growth rates in Lexington First Federal's market
area portend ample lending opportunities.
Growth opportunities for Lexington First Federal can be assessed by
reviewing economic factors in its market area. The salient factors include
growth trends, economic trends, and competition from other financial
institutions. We have reviewed these factors to assess the potential for the
market area. In assessing the growth potential of the Bank, we must also assess
the willingness and flexibility of Management to respond to the competitive
factors that exist in the market area. Our analysis of the economic potential
and the potential of Management affects the valuation of the Bank. The Board of
Directors has demonstrated its flexibility through its decision to restructure
its Executive Management, complete its stock conversion, and convert to a
national bank charter.
2
<PAGE>
FERGUSON & COMPANY Section II.
- ------------------ -----------
Table II.1-Demographic Trends
Key Economic Indicator
United States, Tennessee, Henderson County, and Zip Code 38351
<TABLE>
<CAPTION>
=======================================================================================================
United Henderson Zip Code
Key Economic Indicator States Tennessee County 38351
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Population, 2001 Est. 278,802,003 5,701,304 25,061 15,781
1996 - 2001 Percent Change, Est. 5.09 6.87 6.04 6.54
Total Population, 1996 Est. 265,294,885 5,335,034 23,633 14,812
1990 - 96 Percent Change, Est. 6.67 9.39 8.19 9.28
Total Population, 1990 248,709,873 4,877,185 21,844 13,554
- -------------------------------------------------------------------------------------------------------
Household Income, 2001 Est. 33,189 30,044 27,420 27,432
1996 - 2001 Percent Change, Est. (3.88) 0.98 4.80 5.00
Household Income, 1996 Est. 34,530 29,752 26,165 26,125
- -------------------------------------------------------------------------------------------------------
Per Capita Income, 1990 16,738 15,058 11,972 12,237
- -------------------------------------------------------------------------------------------------------
Household Income Distribution-2001 Est. (%)
$15,000 and less 20 23 26 26
$15,000 - $25,000 16 18 20 20
$25,000 - $50,000 34 34 38 38
$50,000 - $100,000 24 20 14 14
$100,000 - $150,000 4 3 1 2
$150,000 and over 2 2 0 0
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Unemployment rate, 1990 6.24 6.34 5.06 5.10
- -------------------------------------------------------------------------------------------------------
Median Age of Population, 1996 Est. 34.3 35.2 37.1 37.2
Median Age of Population, 1990 32.9 33.6 35.6 35.8
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Average Housing Value, 1990 79,098 70,769 47,701 49,740
- -------------------------------------------------------------------------------------------------------
Total Households, 2001 Est. 103,293,062 2,173,336 9,846 6,294
1996 - 2001 Percent Change, Est. 5.14 6.94 6.25 6.75
Total Households, 1996 98,239,161 2,032,277 9,267 5,896
1990 - 96 Percent Change, Est. 6.84 9.63 8.68 9.75
Total Households, 1990 91,947,410 1,853,752 8,527 5,372
- -------------------------------------------------------------------------------------------------------
Total Housing Units, 1990 101,641,260 2,026,067 9,278 5,831
% Vacant 10.07 8.51 8.09 7.84
% Occupied 89.93 91.49 91.91 92.16
% By Owner 57.78 62.24 73.28 70.19
% By Renter 32.15 29.25 18.62 21.97
=======================================================================================================
</TABLE>
3
<PAGE>
FERGUSON & COMPANY SECTION II.
- ------------------ -----------
Table II - Percent Employment by Industry
United States, Tennessee, and Henderson County
<TABLE>
<CAPTION>
United Henderson
Industry States Tennessee County
================================== ========== ============ ==============
<S> <C> <C> <C>
Construction/Agriculture/Mining 9.5 5.0 2.2
Manufacturing 17.7 20.6 46.9
Transportation/Utilities 7.1 6.0 2.5
Trade 21.2 23.0 19.0
Finance/Insurance 6.9 4.5 2.8
Services 32.7 25.9 13.1
Public Administration 4.9 15.0 13.5
</TABLE>
4
<PAGE>
FERGUSON & COMPANY Section II.
- ------------------ ----------
Table II.3 - Market Area Deposits
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------
(in Thousands)
Henderson County, Tennessee
---------------------------
<S> <C> <C> <C>
Lexington First FSB $ 20,778 $ 20,022 $ 19,472
-----------------------------------------
Number of Branches 1 1 1
Total Bank Deposits $ 251,687 $ 243,315 $ 232,337
-----------------------------------------
Number of Banks $ 3 $ 4 $ 4
Number of Branches 7 8 8
Total Credit Union Deposits $ 1,029 $ 946 $ 904
-----------------------------------------
Number of Credit Unions $ 1 $ 1 $ 1
Number of Branches 1 1 1
Total Market Area Deposits $ 273,494 $ 264,283 $ 252,713
=========================================
Lexington First FSB - Market Share
To Total Market Area Deposits 7.60% 7.58% 7.71%
=========================================
</TABLE>
5
<PAGE>
SECTION III
COMPARISON WITH PUBLICLY
TRADED THRIFTS
<PAGE>
FERGUSON & COMPANY SECTION III.
- ------------------ ------------
III. COMPARISON WITH PUBLICLY TRADED THRIFTS
COMPARATIVE DISCUSSION
This section presents an analysis of Lexington First Federal Savings
Bank ("Lexington First Federal" or the "Bank") relative to a group of twelve
publicly traded thrift institutions ("comparative group"). Such analysis is
necessary to determine the adjustments that must be made to the pro forma market
value of Lexington First Federal's stock. Table III.1 presents a listing of the
comparative group with general information about the group. Table III.2
presents key financial indicators relative to profitability, balance sheet
composition and strength, and risk factors. Table III.3 presents a pro forma
comparison of Lexington First Federal to the comparative group. Exhibits III
and IV contain selected financial information on Lexington First Federal and the
comparative group. This information is derived from quarterly TFR's filed with
the OTS and call reports filed with the FDIC. The selection criteria and
comparison with the comparative group are discussed below.
Selection Criteria
Ideally, the comparative group would consist of thrifts in the same
geographic region with identical local economies, asset size, capital level,
earnings performance, asset quality, etc. However, there are few comparably
sized institutions with stock that is liquid enough to provide timely,
meaningful market values. Therefore, we have selected a group of comparatives
that are either listed on the New York Stock Exchange ("NYSE"), the American
Stock Exchange ("AMEX"), or Nasdaq. We excluded companies that are apparent
takeover targets and companies with unusual characteristics that tend to distort
both mean and median calculations. For example, we have excluded all companies
with losses during the trailing twelve months. We have also excluded mutual
holding companies (see Exhibit VI).
Because of the limited number of similar size thrifts with sufficient
trading volume, we looked for members of the comparative group among thrifts
with assets up to $75 million. The Southeast Region, which includes Tennessee,
had 4 thrifts that met the size requirements. We found 25 thrifts that met the
asset size requirements in the entire country (we consider 10 to be the minimum
number), and we retained 12 and eliminated 13 for the following reasons: (a) One
was BIF insured; (b) Two had not been stock owned long enough to file a
financial statement as a stock owned company; (c) One had agreed to be acquired;
(d) Four had non-performing assets in excess of 1.5% of assets; (e) Three had
loans to assets ratios below 50%; and (f) One had loans serviced in excess of
40% of assets. After eliminating the thrifts described above, there were
fifteen left. We then eliminated the three remaining with the most recent
conversion dates.
The principal source of data was SNL Securities, Charlottesville,
Virginia. There are approximately 420 publicly traded thrifts listed on NYSE,
AMEX, or Nasdaq. In developing statistics for the entire country, we eliminated
certain institutions that skewed the results, in order to make the data more
meaningful:
. We eliminated companies with losses,
. We eliminated indicated acquisition targets,
. We eliminated companies with price/earnings ratios in excess of 25,
and
. We eliminated companies that had not reported as a stock
institution for one complete year.
The resulting group of 254 publicly traded thrifts is included in Exhibit V.
The selected group of comparatives has sufficient trading volume to
provide meaningful price data. Nine of the comparative group members are located
in the Midwest and the others are located in the Southeast (1), Western (1), and
Northeast (1) Regions. With total assets of approximately $25.9 million,
Lexington First Federal is well below the group selected, which has average
assets of $55.0 million and
1
<PAGE>
FERGUSON & COMPANY SECTION III.
- ------------------ ------------
median assets of $54.9 million. Lexington First Federal's assets after
conversion will be continue to be much smaller than the comparative group. Pro
forma assets at the midpoint are $28.1 million.
Profitability
Using the comparison of profitability components as a percentage of
average assets, Lexington First Federal was below the comparative group in net
income, .71% to .79%; net interest income, 3.57% to 3.80%; loss provisions, .11%
to .06%; and noninterest income, .11% to .21%. Lexington First Federal was above
the comparative group in operating expense, 1.92% to 2.35%; efficiency ratio,
52.11% to 60.53%; and core income, 1.07% to 1.02%. Lexington First Federal's
operating expense minus other income was 1.81% versus 2.14% for the comparative
group. After conversion, deployment of the proceeds will provide additional
income, and Lexington First Federal will compare more favorably with the
comparative group in terms of return on average assets, with a return of 1.23%
at the midpoint of the appraisal range. Pro forma return on average equity is
5.82% at the midpoint, versus a mean of 4.40% and median of 4.55% for the
comparative group.
As compared with the comparative group, Lexington First Federal has a
lower level of operating expense. Lexington First Federal is inferior (albeit
not to a significant extent) to the comparative group in all other areas of
operations shown on Table III.2. Lexington First Federal has no serious
impediments to earnings relative to the comparative group. The proceeds from
the stock sale will improve most of Lexington First Federal's operating ratios.
Balance Sheet Characteristics
The general asset composition of Lexington First Federal is similar to
that of the comparative group. Lexington First Federal has a slightly higher
level of passive investments with 34.13% of its assets invested in cash,
investments, and mortgage-backed securities, versus 31.13% for the comparative
group. Lexington First Federal has a lower percentage of its assets in loans, at
63.33% versus 66.84% for the comparative group. Lexington First Federal's
percentage of earning assets to interest costing liabilities is much lower than
that of the group. Lexington First Federal has 116.24% and the comparative
group averages 133.34%. After conversion, Lexington First Federal's ratio will
continue to be much lower than that of the group of comparatives.
The liability side differs mainly in that Lexington First Federal has
a lower percentage of borrowings, a higher percentage of deposits, and a lower
percentage of equity. Lexington First Federal has borrowings equal to 3.66% of
assets versus 6.95% for the comparative group and deposits equal to 80.50% of
assets versus 68.75% for the comparative group. Lexington First Federal's equity
is 15.12% of assets versus 23.29% for the comparative group. Lexington First
Federal's equity ratio after conversion will be in line with that of the
comparative group. Lexington First Federal's pro forma equity ratio at the
midpoint is 21.6%.
Risk Factors
Lexington First Federal and the comparative group have similar levels
of non-performing assets. Lexington First Federal's loan loss allowance is .86%
of net loans, which compares favorably with the comparative group at .60%.
Substantially all of Lexington First Federal's loans are fixed rate. Its one
year gap to assets is negative 53.77%, versus positive 3.40% for the comparative
group. The average for the comparative group is based on only three members that
reported their gap. Based on the Bank's rate shock analysis (see Rate Shock
analysis in Section I), its net portfolio value ("NPV") would decline 22% at a
200 basis point increase in rates and its NPV would decline 46% at a 400 basis
point increase in rates. Overall, we believe that Lexington First Federal's
interest rate risk management is inferior to that of the comparative group.
2
<PAGE>
FERGUSON & COMPANY SECTION III.
- ------------------ ------------
Summary of Financial Comparison
Based on the above discussion of operational, balance sheet, and risk
characteristics of Lexington First Federal compared with the group, we believe
that Lexington First Federal's performance is level with that of the comparative
group. The conversion proceeds will improve several of Lexington First
Federal's financial aspects, and, after conversion, the Bank should exceed its
comparative group in most financial areas.
FUTURE PLANS
Lexington First Federal's future plans are to be a well capitalized
but leveraged, profitable institution with good asset quality and a commitment
to serving the needs of its trade area. The business plan projects that the
Bank will grow significantly, quickly leveraging the capital.
In recent years, Lexington First Federal has experienced moderate
growth. The Bank's business plan projects that it will experience significant
growth in loans, savings deposits, and liquidity. The rate of growth is
projected to range between 15% and 22% per year. The additional capital raised
by the sale of Common Stock will initially be used to purchase short term
investment securities.
Lexington First Federal's business plan calls for opening a new branch
during the June 1998 quarter. Increasing market penetration by increasing the
number of services and products available and the number of locations is the
most likely method to be employed to achieve growth on a long-term basis.
3
<PAGE>
FERGUSON & COMPANY Table III.1 Section III.
- ------------------ Comparative General Characteristics ------------
<TABLE>
<CAPTION>
Total Current Current
Number Assets Stock Market
Type of ($000) Price Value
Ticker Short Name City State Thrift (1) Offices MRQ IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CKFB CKF Bancorp Inc. Danville KY Traditional 1 60,197 01/04/95 19.250 17.85
CRZY Crazy Woman Creek Bancorp Buffalo WY Traditional 1 52,042 03/29/96 13.500 13.57
CSBF CSB Financial Group Inc. Centralia IL Traditional 2 47,996 10/09/95 12.500 11.77
HBBI Home Building Bancorp Washington IN Traditional 2 46,804 02/08/95 21.000 6.54
HZFS Horizon Financial Svcs Corp. Oskaloosa IA Traditional 3 78,368 06/30/94 19.250 8.19
JOAC Joachim Bancorp Inc. De Soto MO Traditional 1 35,656 12/28/95 14.500 11.03
LONF London Financial Corporation London OH Traditional 1 37,937 04/01/96 14.875 7.66
MCBN Mid-Coast Bancorp Inc. Waldoboro ME Traditional 2 57,838 11/02/89 19.500 4.49
MIVI Mississippi View Holding Co. Little Falls MN Traditional 1 69,755 03/24/95 14.625 11.97
NSLB NS&L Bancorp Inc. Neosho MO Traditional 2 58,089 06/08/95 16.500 11.67
RELI Reliance Bancshares Inc. Milwaukee WI Traditional 1 46,836 04/19/96 8.250 20.86
SSB Scotland Bancorp Inc Laurinburg NC Traditional 2 68,924 04/01/96 16.250 29.90
Maximum 3 78,368 21.000 29.90
Minimum 1 35,656 8.250 4.49
Average 2 55,037 15.833 12.96
Median 2 54,940 15.563 11.72
</TABLE>
(1) Made determination by reference to TAFS and BankSource reports. TAFS reports
are derived from quarterly reports filed with the OTS and BankSource reports are
derived from call reports filed with the FDIC. TAFS and BankSource are published
by Sheshunoff Information Services, Austin, Texas.
4
<PAGE>
FERGUSON & COMPANY Section III.
- ------------------ ------------
Table III.2 - Key Financial Indicators
<TABLE>
<CAPTION>
Lexington
First Federal
Savings Comparative
Bank Group
-------------- ------------
<S> <C> <C>
Profitability
(% of average assets)
Net income 0.71 0.79
Net interest income 3.57 3.80
Loss (recovery) provisions 0.11 0.06
Other operating income 0.11 0.21
Operating expense (2) 1.92 2.35
Efficiency ratio (2) 52.11 60.53
Core income ( excluding gains
and losses on asset sales) (1) 1.07 1.02
Balance Sheet Factors
(% of assets)
Cash and investments 21.77 26.76
Mortgage-backed securities 12.36 4.37
Loans 63.33 66.84
Savings deposits 80.50 68.75
Borrowings 3.66 6.95
Equity 15.12 23.29
Tangible equity 15.12 20.94
Risk Factors
(%)
Earning assets/costing liabilities 116.24 133.34
Non-performing assets/assets 0.54 0.43
Loss allowance/non performing assets 94.84 142.96
Loss allowance/loans 0.86 0.60
One year gap/assets (3) (53.77) 3.40
</TABLE>
(1) Used appraisal earnings.
(2) Excluded $128,000 SAIF assessment and $20,000 abnormal retirement expense.
(3) Only three of the comparative group provided gap information.
5
<PAGE>
FERGUSON & COMPANY Table III.3-Pro Forma Comparisons Section III.
- ------------------ Lexington First FSB ------------
As of June 20, 1997
<TABLE>
<CAPTION>
Ticker Name Price Mk Value PE P/Book P/TBook P/Assets Div Yld
($) ($Mil) (X) (%) (%) (%) (%)
<C> <S> <C> <C> <C> <C> <C> <C> <C>
Lexington First Federal
-----------------------
Before Conversion N/A N/A N/A N/A N/A N/A N/A
Pro Forma Supermax 10.000 5.69 15.2 82.7 82.7 19.7 TBA
Pro Forma Maximum 10.000 4.95 13.7 76.7 76.7 17.4 TBA
Pro Forma Midpoint 10.000 4.30 12.3 70.8 70.8 15.3 TBA
Pro Forma Minimum 10.000 3.66 10.9 64.2 64.2 13.2 TBA
Comparative Group
-----------------
Averages 15.833 12.96 25.2 101.4 101.9 24.1 1.84
Medians 15.563 11.72 22.4 100.2 101.3 22.4 1.75
Tennessee Public Thrifts
------------------------
Averages 19.000 16.22 19.0 120.1 120.1 15.5 3.37
Medians 19.000 16.22 19.0 120.1 120.1 15.5 3.37
Southeast Region Thrifts
------------------------
Averages 21.633 91.93 17.1 145.3 152.2 17.1 2.46
Medians 20.875 69.84 16.7 140.0 141.2 15.4 2.41
All Public Thrifts
------------------
Averages 22.611 189.54 16.2 142.8 150.2 14.4 1.98
Medians 19.875 54.61 15.6 135.1 142.0 13.3 1.98
Comparative Group
-----------------
CKFB CKFBancorp-KY 19.250 17.85 22.9 116.0 116.0 29.7 2.29
CRZY CrazyWomanCreek-WY 13.500 13.57 19.9 93.6 93.6 26.1 2.96
CSBF CSBFinancialGrp-IL 12.500 11.77 52.1 97.8 103.7 24.5 -
HBBI HomeBldngBncrp-IN 21.000 6.54 15.9 105.6 105.6 14.0 1.43
HZFS HorizonFinSvcs-IA 19.250 8.19 13.8 99.6 99.6 10.5 1.66
JOAC JoachimBancorp-MO 14.500 11.03 51.8 106.7 106.7 30.9 3.45
LONF LondonFinCorp-OH 14.875 7.66 21.9 101.7 101.7 20.2 1.61
MCBN Mid-Coast Bncp-ME 19.500 4.49 10.0 90.2 90.2 7.8 2.67
MIVI MissViewHoldCo-MN 14.625 11.97 17.4 94.1 94.1 17.2 1.09
NSLB NS&LBancorp-MO 16.500 11.67 22.9 100.9 100.9 20.1 3.03
RELI RelianceBncshrs-WI 8.250 20.86 29.5 92.8 92.8 44.6 -
SSB ScotlandBancorp-NC 16.250 29.90 23.9 118.3 118.3 43.4 1.85
</TABLE>
TBA - To be announced.
6
<PAGE>
FERGUSON & COMPANY Table III.3 - Pro Forma Comparisons Section III.
- ------------------ -----------
Lexington First FSB
<TABLE>
<CAPTION>
As of June 20, 1997
Ticker Name Assets Eq/A TEq/A EPS ROAA ROAE
($000) (%) (%) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
Lexington First Federal
-----------------------
Before Conversion 25,942 15.1 15.1 N/A 1.07 7.28
Pro Forma Supermax 28,897 23.8 23.8 0.66 1.29 5.52
Pro Forma Maximum 28,466 22.7 22.7 0.73 1.26 5.67
Pro Forma Midpoint 28,091 21.6 21.6 0.81 1.23 5.82
Pro Forma Minimum 27,716 20.6 20.6 0.92 1.21 5.99
Comparative Group
-----------------
Averages 55,037 23.3 23.2 0.83 1.02 4.40
Medians 54,940 21.8 21.8 0.70 0.90 4.55
Tennessee Public Thrifts
------------------------
Averages 104,488 12.9 12.9 1.00 0.79 6.08
Medians 104,488 12.9 12.9 1.00 0.79 6.08
Southeast Region Thrifts
------------------------
Averages 609,421 12.2 11.9 1.34 1.08 9.01
Medians 352,376 11.0 10.8 1.27 0.97 8.71
All Public Thrifts
------------------
Averages 1,448,618 10.6 10.3 1.50 0.98 9.83
Medians 404,982 9.2 8.9 1.28 0.92 9.03
Comparative Group
-----------------
CKFB CKFBancorp-KY 60,197 23.7 23.7 0.84 1.29 5.05
CRZY CrazyWomanCreek-WY 52,042 27.8 27.8 0.68 1.25 4.20
CSBF CSBFinancialGrp-IL 47,996 25.1 24.0 0.24 0.65 2.39
HBBI HomeBldngBncrp-IN 46,804 12.1 12.1 1.32 0.50 3.77
HZFS HorizonFinSvcs-IA 78,368 10.5 10.5 1.40 0.60 5.41
JOAC JoachimBancorp-MO 35,656 29.0 29.0 0.28 0.78 2.68
LONF LondonFinCorp-OH 37,937 19.9 19.9 0.68 1.08 5.10
MCBN Mid-Coast Bncp-ME 57,838 8.6 8.6 1.96 0.64 7.05
MIVI MissViewHoldCo-MN 69,755 18.3 18.3 0.84 1.01 5.54
NSLB NS&LBancorp-MO 58,089 19.9 19.9 0.72 0.74 3.45
RELI RelianceBncshrs-WI 46,836 48.0 48.0 0.28 1.88 3.30
SSB ScotlandBancorp-NC 68,924 36.7 36.7 0.68 1.77 4.89
Note: Stock prices are closing prices or last trade. Pro forma
calculations for Lexington First Fed. are based on sales at $10 a share
with a midpoint at full value of $4,300,000, minimum of $3,655,000, and
maximum of $4,945,000.
</TABLE>
7
<PAGE>
SECTION IV
CORRELATION OF MARKET
VALUE
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
IV. CORRELATION OF MARKET VALUE
MARKETABILITY & LIQUIDITY OF STOCK TO BE ISSUED
Certain factors must be considered to determine whether adjustments are
required in correlating Lexington First Federal's market value to the
comparative group. Those factors include financial aspects, market area,
management, dividends, liquidity, thrift equity market conditions, and
subscription interest.
This section addresses the aforementioned factors and the estimated pro
forma market value of the to-be-issued common shares and compares the resulting
market value of the Bank to the members of its comparative group and the
selected group of publicly held thrifts.
Financial Aspects
Section III includes a discussion regarding a comparison of Lexington
First Federal's earnings, balance sheet characteristics, and risk factors with
its comparative group. Table III.2 presents a comparison of certain key
indicators, and Table III.3 presents certain key indicators on a pro forma basis
after conversion.
As shown in Table III.2, from an earnings viewpoint, Lexington First
Federal is below its comparative group in net income, net interest income, loss
provisions, and noninterest income as a percentage of average assets. Lexington
First Federal is ahead of its comparative group in operating expense, efficiency
ratio, and core income as a percentage of average assets. Lexington First
Federal's core income is based on appraisal earnings which factors out unusual
or nonrecurring items and the comparative group's core income is computed on the
same basis, to the extent that the information is known. Lexington First
Federal's net interest income as a percent of assets is 3.57% versus 3.80% for
the comparatives. The difference is attributable to the relative capital levels
(i.e., Lexington First Federal has less in capital), which results in a
difference in the earning assets to costing liabilities ratio (116.24% for
Lexington First Federal versus 133.34% for the comparative group).
Lexington First Federal's loan loss provisions are above its
comparative group, with loss provisions of .11% of assets versus .06% of assets
for the comparative group. Lexington First Federal's other operating income is
.11% of average assets, versus .21% for the comparative group.
Lexington First Federal's operating expense ratio, at 1.92% of average
assets, is well below that of the comparative group, which is 2.35%. Lexington
First Federal's operating expense minus noninterest income is 1.81% versus 2.14%
for the comparative group.
After Lexington First Federal completes its stock conversion, its core
income as a percentage of average assets will increase. Table III.3 projects
that Lexington First Federal's return on assets will be 1.23% at the midpoint,
versus a mean of 1.02% and median of .90% for the comparative group.
Lexington First Federal's pro forma equity to assets ratio at the
midpoint is 21.6%, versus a mean of 23.3% and median of 21.8% for the
comparative group, also making it difficult for the Bank to achieve a reasonable
return on equity. Lexington First Federal's pro forma return on equity is 5.82%
at the midpoint versus a mean of 4.40% and median of 4.55% for the comparative
group. Return on equity for the comparative group and pro forma return on equity
for Lexington First Federal is low because of the inordinately high capital
level of the group.
Lexington First Federal's recorded earnings have been adjusted for
appraisal purposes. The Bank recorded severance expenses and the SAIF resolution
assessment.
1
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
Table IV.1 - Appraisal Earnings Adjustments
<TABLE>
<S> <C>
Net income, year ended March 31, 1997 $184,000
Plus SAIF assessment 128,000
Plus severance paid to retiring officer 20,000
Less applicable taxes on above adjustments at 36.0% -53,000
---------------
Appraisal earnings, year ended March 31, 1997 $279,000
===============
</TABLE>
Lexington First Federal's asset composition is slightly more passive
than the comparative group. Lexington First Federal has a slightly lower ratio
of loans to assets, slightly higher ratio of investments and mortgage-backed
securities to assets, higher ratio of deposits to assets, lower ratio of
borrowings to assets, and lower ratio of equity to assets. From the risk factor
viewpoint, Lexington First Federal is inferior to the comparative group.
Lexington First Federal and the comparative group have similar levels of non
performing assets. Lexington First Federal's loan loss allowance is .86% of net
loans, comparing favorably with the comparative group, which is 0.60%. Its ratio
of interest earning assets to interest bearing liabilities (116.24%) is well
below the comparative group (133.34%). Lexington First Federal's ratio will
continue to be below the comparative group after conversion. From an interest
rate risk factor, Lexington First Federal probably has more exposure than the
comparative group.
We believe that no adjustment is necessary relative to financial
-------------
aspects of Lexington First Federal.
Market Area
Section II describes Lexington First Federal's market area.
We believe that an upward adjustment is required for Lexington First
-----------------
Federal's market area.
Management
The President, who functions as CEO, joined Lexington First Federal in
early 1997. He had 30 years of commercial banking experience prior to joining
Lexington First Federal. He has served as CEO of three commercial banks and
served as a bank examiner for 10 years.
We believe that no adjustment is required for Lexington First Federal's
-------------
management.
Dividends
Table III.3 provides dividend information relative to the comparative
group and the thrift industry as a whole. The comparative group is paying a mean
yield on price of 1.84% and a median of 1.75%, while all public thrifts are
paying a mean of 1.98% and median of 1.98%. Lexington First Federal has not yet
determined what its dividend policy will be. However, based on its history of
paying dividends since the first step of the mutual holding conversion, we
assume that the Bank will pay a market rate dividend.
We believe that no adjustment is required relative to Lexington First
-------------
Federal's intention to pay dividends.
2
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
Liquidity
The first step of the holding company conversion was completed in 1992,
with a limitation of 35 on the number of stockholders. With the small number of
stockholders and shares outstanding, no market for the common stock currently
exists. Although the Holding Company expects its shares to be quoted through the
OTC Electronic Bulletin Board, there can be no assurance that a liquid trading
market will develop.
A public market having the desirable characteristics of depth,
liquidity, and orderliness depends upon the presence, in the market place, of
both willing buyers and sellers of the Common Stock. These characteristics are
not within the control of the Bank or the market.
The peer group includes companies with sufficient trading volume to
develop meaningful pricing characteristics for the stock. The market value of
the comparative group ranges from $4.49 million to $29.90 million, with a mean
value of $12.96 million. The midpoint of Lexington First Federal's valuation
range is $4.3 million at $10 a share, or 430,000 shares.
We believe a slight downward adjustment is required relative to the
-------------------
liquidity of Lexington First Federal's stock.
Thrift Equity Market Conditions
The SNL Thrift Index is summarized in Figure IV.1. As the table
demonstrates, the Thrift Index has performed well since the end of 1990. The
Index has grown as follows: Year ended December 31, 1991--increased 49.0% from
96.6 to 143.9; Year ended December 31, 1992--increased 39.7% to 201.1; Year
ended December 31, 1993--increased 25.6% to 252.5; Year ended December 31,
1994--decreased 3.1% to 244.7; Year ended December 31, 1995--increased 53.9% to
376.5; Year ended December 31, 1996--increased 28.4% to 483.6; and Period ended
June 20, 1997--increased 29.4% to 625.9. It is market value weighted with a base
value of 100 as of March 31, 1984.
As shown in Figure IV.1, which is a graph of the SNL Thrift Index
covering from December 31, 1990 through June 20, 1997, the market, as depicted
by the index, has experienced fluctuations recently. It dipped in the latter
part of 1994, but recovered during the first quarter of 1995. During 1995, the
Index continued a more robust increase and moved from 244.7 at year end 1994 to
376.5 by December 31, 1995, an increase of 53.9%. However, the Index was flat
for the first six months of 1996, experiencing a decline during the June 30,
1996 quarter, but it has picked up since June 30, 1996.
TENNESSEE ACQUISITIONS
Table IV.2 provides information relative to acquisitions of financial
institutions in Tennessee between January 1, 1996 and May 30, 1997. There were 3
thrift acquisitions and 6 bank acquisitions announced during that time frame.
Currently, there is 1 publicly held thrift in the State of Tennessee. There are
60 publicly held thrifts in the Southeast region of the country. Bank
acquisitions in Tennessee since January 1, 1996, have averaged 193.7% of
tangible book value and 22.5 times earnings. The median price has been 174.4% of
tangible book value and 21.5 times earnings. Thrifts generally sell at lower
price/book multiples than do banks. Thrifts in Tennessee during that period have
averaged 200.4% of tangible book value and 18.0 times earnings. The relationship
between bank and thrift acquisitions was skewed during the period because of the
small number of acquisitions and the fact that one thrift acquisition, Leader
Financial, was much larger is size than the other eight acquisitions combined.
EFFECT OF INTEREST RATES ON THRIFT STOCK
The current interest rate environment and the anticipated rate
environment will affect the pricing of thrift stocks and all other interest
sensitive stocks. As the economy continues to expand, the fear of inflation can
return. The Federal Reserve, in its resolve to curb inflation, has increased
rates in the past, but has more
3
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
recently relented to vagaries of the economy and passed several opportunities to
increase rates, until March 25, 1997, when the Federal Open Market Committee
("FOMC") increased the discount rate 25 basis points. In some minds, this was an
attempt to head off inflation. According to the FOMC, "This action was taken in
light of persisting strength in demand, which is progressively increasing the
risk of inflationary imbalances developing in the economy that would eventually
undermine the long expansion."/1/ This increase was clearly telegraphed by
Chairman Greenspan, who voiced concern about the levels of the equity markets.
Following the March 25 increase, unemployment rates were announced at the 5.2%
level, down from the 5.5% level at the beginning of 1996 and significantly down
from the 6.7% level at the beginning of 1994./2/ The good news about
unemployment gave way to speculation that the March 25 increase was just the
first of at least two or three increases, and the speculation was given some
credence at that time by rises in the Employment Cost Index, increases in Unit
Labor Cost and an upward trend in the price of crude oil. By April 1, 1997,
following the rate increase, the equities markets had lost all of the gains
registered since the first of the year. By the end of April 1997, the market had
begun a rebound and has trended upward since then. There have been specific days
of price adjustment, but the overall trend it up. During this last market rally,
the market has adjusted for rate increases that have not materialized, and has
overcome good economic news that caused inflation to be discussed once again.
However, the current economic news has produced no indications that inflation is
a problem, and the Federal Reserve has been curiously silent on the subject of
rates. Perhaps the lack of bad economic news, a growing economy, no inflation
indicated, and Fed rhetoric articulates the possibility that interest rates will
not be increased at the next opportunity, allowing the markets to continue their
upward trend toward new record highs.
The thrift equities market is following the market in general. However,
the thrift equities market can continue to be influenced by the speculation that
there will eventually be a buyout, and the fact that thrift IPO stock can be
purchased at significant discounts from book value. These two facts could keep
the thrift equities market from falling as much as the other general markets.
However, if the merger and acquisition levels drop, if there were another sharp
and sustained rise in the interest rates, or if other equity markets have
protracted adjustments, the market in thrift equities would also adjust.
What is likely to happen in the short to intermediate term is that
rates will float around current levels and trend upward. The yield curve will
continue to be of normal configuration. Most economists feel that a rise of
three quarters of one percent on the short side and less on the long side could
severely dampen the economy. However, the March increase in rates has not
produced any slowing of the economy or general equity market performance.
Currently, we are in the second longest post-war expansion on record. The last
decision to raise rates had an immediate and significant impact upon the stock
market, but within a short period of time, the market regained its losses and
then continued to set new records. The Fed, by taking no action on the rising
value of the dollar against other currencies, is probably slowing the economy
furtively, without raising rates. The Federal Reserve Bank is allowing the U. S.
Dollar to remain strong against the Yen and European currencies. Although not as
effective as a rate increase, a continuing strong dollar will have a natural
economic "braking effect" on the U.S. economy. Goods and services produced by
countries with weaker currencies would become cheaper on the global economy and
more competitive to U.S. produced goods. The net result would be a market
induced slowing of the economy--until the U.S. Dollar loses its strength and
values of currencies are adjusted.
Thrift net interest margins will narrow if the cost of funds starts to
rise more quickly than currently anticipated. Since 1993, thrifts have enjoyed
profitability without having to stray from their traditional lending roles and
without developing new loan products. Access to mortgage-backed securities and
derivatives has made it possible for many to be profitable without making loans
in significant volumes. With
- --------
/1/ US Financial Data, published by the Research Division of the Federal Reserve
Bank of St. Louis, MO.
/2/ National Economic Trends, The Federal Reserve Bank of St. Louis, MO.
4
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
reduced deposit insurance premiums, perhaps they will be more willing to compete
for customer deposits. However, even with portfolios replete with adjustable
rate loans and adjustable mortgage-backed securities, there is a fear that a
quickly rising rate environment can cause the cost of funds to rise faster than
the adjustable assets can accommodate, and accordingly, spreads would narrow. If
rates rise in a slow and orderly manner, then the negative impact on spreads
will be less and the adjustable rate assets will have time to rise and protect
rate spreads.
As clearly illustrated, the SNL Thrift Index has performed well over
the last six years. It moved in tandem with all interest sensitive stocks and
reflected the weakness in the market as investors began to consider the
importance of increases in rates and their impact on the net interest margins of
thrifts. The clear implication is that rising interest rates will have a
negative impact on earnings.
Figure IV.2 graphically displays the rate environment since
November 18, 1996. At that time, the yield curve was relatively flat, with only
a 125 basis point ("BP") difference between the federal funds rate and the 30
year treasury at November 18, 1996. Since that time, the yield curve has changed
very little with a 108 BP spread between the federal funds rate and the 30 year
treasury rate at June 20, 1997.
At November 18, 1996, the spread between the 1 year T-Bill and the 5
year T-Note was 57 BP, and the spread between the 5 year T-Note and the 30 year
bond was 50 BP. On June 20, 1997, the spreads were 77 and 41 BP, respectively.
From November 18, 1996 to June 20, 1997, the Fed Funds rate increased
41 BP and the Prime Rate increased 25 BP.
Increased cost of funds will serve to narrow the net interest margins
of thrifts. A thrift's ability to maintain net interest margins through business
cycles is important to investors, unless thrifts can offset the decline in net
interest income by other sources of revenue or reductions in noninterest
expense. The former is difficult and the latter is unlikely.
Lexington First Federal, with its interest rate risk position combined
with its equity position (even on a pro forma basis), is more vulnerable to
rising rates than most.
During 1993, conversion stocks often experienced first day 30% or more
increases in value. As Table IV.3 shows, recent price appreciation has
approached the 1993 levels. Table IV.3 provides information on 15 conversions
completed since November 30, 1996. The average change in price since conversion
is a gain of 48.0% and the median change is a gain of 42.5%. Within that group,
all have increased in value with a range of a low of 29.4% to a high of 100.0%.
The average increase in value at one day, one week, and one month after
conversion has been 31.5%, 34.3%, and 39.5%, respectively. The median increase
in value at one day, one week, and one month after conversion has been 29.7%,
32.0%, and 37.5%, respectively.
Because of the lack of complete earnings information on recent
conversions, a meaningful comparison of the price earnings ratios is difficult
to make. However, there is sufficient information to review the price to book
ratio. The average price-to-book ratio, as of June 20, 1997, is 103.8% and the
median is 99.6%. That compares to the offering price to pro forma book, where
the average was 71.7% and the median was 72.0%.
Table IV.4 provides information on the 9 pink sheet conversions
completed since May 31, 1996. Within that group, all have increased in value
with a range of a low of 22.5% to a high of 65.0%. The average increase in value
at one day, one week, and one month after conversion has been 16.6%, 19.0%, and
19.8%, respectively. The median increase in value at one day, one week, and one
month after conversion has been 15.0%, 22.5%, and 17.5%, respectively.
We believe a downward adjustment is required for the new issue
-------------------
discount.
5
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
Adjustments Conclusion
Adjustments Summary
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
No Change Upward Down
<S> <C> <C> <C>
Financial Aspects X
Market Area X
Management X
Dividends X
Liquidity X
Thrift Equity Market Conditions X
- -------------------------------------------------------------------------------
</TABLE>
Valuation Approach
Typically, investors rely on the price/earnings ratio as the most
appropriate indicator of value. We consider price/earnings to be one of the
important pricing methods in valuing a thrift stock. Price/book is a well
recognized yardstick for measuring the value of financial institution stocks in
general. Another method of viewing thrift values is price/assets, which is more
meaningful in situations where the subject is thinly capitalized. Given the
healthy condition of the thrift industry today, more emphasis is placed on
price/earnings and price/book. Generally, price/earnings and price/book should
be considered in tandem.
Table III.3 presents Lexington First Federal's pro forma ratios and
compares them to the ratios of its comparative group and the publicly held
thrift industry as a whole. Lexington First Federal's net earnings for the
twelve months ended March 31, 1997, were approximately $184,000, with
adjustments of $95,000 required to determine appraisal earnings of $279,000.
The comparative group traded at an average of 25.2 times earnings at
June 20, 1997, and at 101.4% of book value. The comparative group traded at a
median of 22.4 times earnings and a median of 100.2% of book value. At the
midpoint of the valuation range, Lexington First Federal is priced at 12.3 times
earnings and 70.8% of book value. At the maximum end of the range, Lexington
First Federal is priced at 13.7 times earnings and 76.7% of book value. At the
supermaximum, Lexington First Federal is priced at 15.2 times earnings and 82.7%
of book value.
The midpoint valuation of $4,300,000 represents a discount of 30.2%
from the average and a discount of 29.3% from the median of the comparative
group on a price/book basis. The price/earnings ratio for Lexington First
Federal at the midpoint represents a discount of 51.2% from the comparative
group's mean and a discount of 45.1% from the median price/earnings ratio.
The maximum valuation of $4,945,000 represents a discount of 24.4% from
the average and 23.5% from the median of the comparative group on a price/book
basis. The price/earnings ratio for Lexington First Federal at the maximum
represents a discount of 45.6% from the average and a discount of 38.8% from the
median of the comparative group.
As shown in Table IV.3, conversions closing since November 30, 1996,
have closed at an average price to book ratio of 71.7% and median of 72.0%.
Lexington First Federal's pro forma price to book ratio is 70.8% at the
midpoint, 76.7% at the maximum, and 82.7% at the supermaximum of the range. At
the midpoint, Lexington First Federal is 1.3% below the average and 1.7% below
the median. At the maximum of the range, Lexington First Federal is 7.0% above
the average and 6.5% above the median. At the
6
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
supermaximum of the range, Lexington First Federal's pro forma price to book
ratio is 15.3% above the average and 14.9% above the median.
As shown in Table IV.4, pink sheet conversions closing since May 31,
1996, have closed at an average price to book ratio of 67.4% and median of
68.8%. Lexington First Federal's pro forma price to book ratio is 70.8% at the
midpoint, 76.7% at the maximum, and 82.7% at the supermaximum of the range. At
the midpoint, Lexington First Federal is 5.0% above the average and 2.9% above
the median. At the maximum of the range, Lexington First Federal is 13.8% above
the average and 11.5% above the median. At the supermaximum of the range,
Lexington First Federal's pro forma price to book ratio is 22.7% above the
average and 20.2% above the median.
Conversion to Bank and Comparison to Banks
Part of Lexington First Federal's plan is the conversion to a national
bank charter. We have conducted some analysis work on other thrifts that
converted to stock and to national bank charters at the time of stock
conversion. They include Community of Olney, Illinois, Heartland of Herrin,
Illinois, and IFB ("Investors") of Chillicothe, Missouri (see Exhibit IX).
At the time of conversion, Community had already made much progress in
converting its balance sheet structure to a bank. Its loan portfolio was only
47% real estate, with the balance in consumer, agricultural, and commercial
non-real estate loans. It apparently was having difficulty meeting the qualified
thrift lender test. Heartland looked much more like a traditional thrift, with
96% of its loans in real estate loans. IFB also looked more like a traditional
thrift, with 87.6% of its loans in real estate. Since conversion, however,
Heartland's stock has performed much better than Community. IFB is doing well;
however, it completed its conversion six months ago, while Community completed
its conversion two years ago. Part of the performance differences relates to
acquisition interest.
Lexington First Federal's loan portfolio is 97.8% real estate. Its
assets are those of a traditional thrift. We developed the valuation for
Lexington First Federal as a thrift, and we believe that its pricing ratios
should be commensurate with other thrifts, based on an analysis of the
institution.
Table IV.6 provides a comparison of Lexington First Federal's pricing
ratios to those of other charter flips (Community, Heartland, and IFB) on both
current pricing ratios and conversion pricing ratios, all pink sheet banks,
Southeast Region pink sheet banks, and Tennessee pink sheet banks. Lexington
First Federal's price to earnings ratio compares well with four of the five
groups of banks. Its price to book ratio compares well with the conversion
pricing of the other charter flips.
Valuation Conclusion
We believe that as of June 20, 1997, the estimated pro forma market
value of Lexington First Federal was $4,300,000. The resulting valuation range
was $3,655,000 at the minimum to $4,945,000 at the maximum, based on a range of
15% below and 15% above the midpoint valuation. The supermaximum is $5,686,750,
based on 1.15 times the maximum. Pro forma comparisons with the comparative
group are presented in Table III.3 based on calculations shown in Exhibit VII.
Based on the midpoint value, the approximate 60.54% (135,000 divided by
222,993) ownership interest being sold in the current offering amounts to
$2,603,220, which will provide for the sale of 260,322 shares at $10.00 per
share. The remaining 169,678 shares (39.46%) will be exchanged for stock
currently outstanding. This would preserve the ownership percentage in Lexington
First Federal represented by Public shares. The exchange ratio would be 1.928 at
the midpoint (see Table IV.7).
7
<PAGE>
FERGUSON & COMPANY Table IV.2 - Tennessee Acquisitions Section IV.
- ------------------ -----------
(Announced Since January 1, 1996)
<TABLE>
<CAPTION>
Bank/
Buyer City ST Thrift Seller City ST
- ----- ---- -- ------ ------ ---- --
<S> <C> <C> <C> <C> <C> <C>
Southeast Bancorp Inc. Corbin KY Bank First Bank of East Tennessee La Follette TN
Union Planters Corporation Memphis TN Bank Citizens of Hardeman County Financial Services Whiteville TN
First American Corporation Nashville TN Bank Hartsville Bancshares Hartsville TN
Union Planters Corporation Memphis TN Bank SBT Bancshares, Inc. Selmer TN
First Commercial Corporation Little Rock AR Bank W.B.T. Holding Company Memphis TN
Chester County Bancshares, Inc. Henderson TN Bank Southwest Tennessee Bancshares Adamsville TN
Union Planters Corporation Memphis TN Bank Leader Financial Corp. Memphis TN
Union Planters Corporation Memphis TN Bank Franklin Financial Group, Inc. Morristown TN
Peoples First Corporation Paducah KY Bank Guaranty Federal Savings Bank Clarksville TN
Maximum--combined
Minimum--combined
Average--combined
Median--combined
Average--banks
Median--banks
Average--thrifts
Median--thrifts
</TABLE>
8
<PAGE>
FERGUSON & COMPANY Table IV.2 - Tennessee Acquisitions Section IV.
- ------------------ (Announced Since January 1, 1996) -----------
<TABLE>
<CAPTION>
Buyer Seller Ann'd Ann'd
Total Total Completed/ Deal Deal
Bank/ Assets Assets Announce Terminated Value Pr/Bk
Seller Thrift ($000) ($000) Date Status Date ($M) (%)
- ------ ------ ------ ------ ---- ------ ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Bank of East Tennessee Bank 216,301 82,065 2/4/97 Pending NA 18.80 161.6
Citizens of Hardeman County Financial Services Bank 11,499,785 57,751 12/13/96 Pending NA NA NA
Hartsville Bancshares Bank 9,873,845 91,447 10/11/96 Completed 1/1/97 12.00 209.7
SBT Bancshares, Inc. Bank 11,367,625 97,432 10/9/96 Pending NA 21.70 174.4
W.B.T. Holding Company Bank 5,221,391 274,150 10/4/96 Completed 2/13/97 45.00 NA
Southwest Tennessee Bancshares Bank 33,653 32,414 4/5/96 Pending NA 2.80 NA
Leader Financial Corp. Thrift 11,277,116 3,098,577 3/8/96 Completed 10/1/96 504.70 192.5
Franklin Financial Group, Inc. Thrift 11,277,116 135,822 3/6/96 Completed 10/1/96 20.80 152.5
Guaranty Federal Savings Bank Thrift 1,269,003 54,875 2/20/96 Completed 8/30/96 6.60 219.7
Maximum--combined 11,499,785 3,098,577 504.70 219.7
Minimum--combined 33,653 32,414 2.80 152.5
Average--combined 6,892,871 436,059 79.05 185.1
Median--combined 9,873,845 91,447 19.80 183.5
Average--banks 6,368,767 105,877 20.06 181.9
Median--banks 7,547,618 86,756 18.80 174.4
Average--thrifts 7,941,078 1,096,425 177.37 188.2
Median--thrifts 11,277,116 135,822 20.80 192.5
</TABLE>
9
<PAGE>
FERGUSON & COMPANY Table IV.2 - Tennessee Acquisitions Section IV.
- ------------------ -----------
(Announced Since January 1, 1996)
<TABLE>
<CAPTION>
Ann'd Ann'd Final Final Final Final
Deal Pr/ Deal Pr/ Deal Deal Deal Pr/ Deal Pr/
Tg Bk 4-Qtr Value Pr/Bk Tg Bk 4-Qtr
Seller (%) EPS (x) ($M) (%) (%) EPS (x)
- ------ --------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
First Bank of East Tennessee 161.6 29.8 NA NA NA NA
Citizens of Hardeman County Financial Services NA NA NA NA NA NA
Hartsville Bancshares 245.2 21.5 12.40 216.2 252.7 22.2
SBT Bancshares, Inc. 174.4 16.2 NA NA NA NA
W.B.T. Holding Company NA NA 52.80 NA NA NA
Southwest Tennessee Bancshares NA NA NA NA NA NA
Leader Financial Corp. 192.5 13.1 571.10 202.2 202.2 12.4
Franklin Financial Group, Inc. 188.9 23.3 23.60 196.1 NA NA
Guaranty Federal Savings Bank 219.7 17.6 6.50 204.1 204.1 13.2
Maximum--combined 245.2 29.8 571.10 216.2 252.7 22.2
Minimum--combined 161.6 13.1 6.50 196.1 202.2 12.4
Average--combined 203.9 21.6 206.25 206.9 227.9 17.5
Median--combined 190.7 19.5 23.60 203.1 204.1 13.2
Average--banks 193.7 22.5 32.60 216.2 252.7 22.2
Median--banks 174.4 21.5 32.60 216.2 252.7 22.2
Average--thrifts 200.4 18.0 200.40 200.8 203.1 12.8
Median--thrifts 192.5 17.6 23.60 202.2 203.1 12.8
</TABLE>
10
<PAGE>
FERGUSON & COMPANY Table IV.3 - Recent Conversions Section IV.
- ------------------ (Completed since November 30, 1996) -----------
<TABLE>
<CAPTION>
Conversion Gross Offering
Assets Proceeds Price
Ticker Short Name State IPO Date ($000) ($000) ($)
<S> <C> <C> <C> <C> <C> <C>
HCBB HCB Bancshares Inc. AR 05/07/97 171,241 26,450 10.000
PSFC Peoples-Sidney Financial Corp. OH 04/28/97 86,882 17,854 10.000
NSBC NewSouth Bancorp, Inc. NC 04/08/97 194,139 43,643 15.000
HMLK Hemlock Federal Financial Corp IL 04/02/97 146,595 20,763 10.000
GSLA GS Financial Corp. LA 04/01/97 86,521 34,385 10.000
MRKF Market Financial Corporation OH 03/27/97 45,547 13,357 10.000
EFBC Empire Federal Bancorp Inc. MT 01/27/97 86,810 25,921 10.000
FAB FirstFed America Bancorp Inc. MA 01/15/97 723,778 87,126 10.000
RSLN Roslyn Bancorp Inc. NY 01/13/97 1,596,744 423,714 10.000
AFBC Advance Financial Bancorp WV 01/02/97 91,852 10,845 10.000
HCFC Home City Financial Corp. OH 12/30/96 55,728 9,522 10.000
CENB Century Bancorp Inc. NC 12/23/96 81,304 20,367 50.000
SCBS Southern Community Bancshares AL 12/23/96 64,381 11,374 10.000
BFFC Big Foot Financial Corp. IL 12/20/96 194,624 25,128 10.000
RIVR River Valley Bancorp IN 12/20/96 86,604 11,903 10.000
Maximum 1,596,744 423,714 50.000
Minimum 45,547 9,522 10.000
Average 247,517 52,157 13.000
Median 86,882 20,763 10.000
</TABLE>
11
<PAGE>
FERGUSON & COMPANY Table IV.3 - Recent Conversions Section IV.
- ------------------ -----------
(Completed since November 30, 1996)
<TABLE>
<CAPTION>
Conversion Pricing Ratios
-------------------------------------------------------------
Price/ Price/ Price/ Price/ Current Current Current
Pro-Forma Pro-Forma Pro-Forma Adjusted Stock Price/ Price/ Tang
Book Value Tang. Book Earnings Assets Price Book Value Book Value
Ticker (%) (%) (x) (%) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
HCBB 72.0 72.0 29.0 13.4 12.938 NA NA
PSFC 71.2 71.2 11.5 17.0 13.625 NA NA
NSBC 78.7 78.7 22.1 18.4 24.500 NA NA
HMLK 71.6 71.6 37.5 12.4 13.250 NA NA
GSLA 63.8 63.8 38.7 28.4 15.250 NA NA
MRKF 71.1 71.1 26.2 22.7 13.000 89.1 89.1
EFBC 68.1 68.1 21.5 23.0 13.500 88.0 88.0
FAB 72.0 72.0 13.6 10.7 17.000 121.2 121.2
RSLN 72.0 72.0 9.3 21.0 20.000 142.1 142.8
AFBC 71.1 71.1 16.8 10.6 14.250 96.6 96.6
HCFC 71.2 71.2 13.7 14.6 14.000 87.2 87.2
CENB 72.1 72.1 18.9 20.0 69.250 94.3 94.3
SCBS 74.4 74.4 14.5 15.0 14.250 105.2 105.2
BFFC 72.7 72.7 33.1 11.4 16.000 111.5 111.5
RIVR 73.0 73.0 15.2 12.1 14.750 102.6 104.2
Maximum 78.7 78.7 38.7 28.4 69.250 142.1 142.8
Minimum 63.8 63.8 9.3 10.6 12.938 87.2 87.2
Average 71.7 71.7 21.4 16.7 19.038 103.8 104.0
Median 72.0 72.0 18.9 15.0 14.250 99.6 100.4
</TABLE>
12
<PAGE>
FERGUSON & COMPANY Table IV.3 - Recent Conversions Section IV.
- ------------------ -----------
(Completed since November 30, 1996)
<TABLE>
<CAPTION>
Post Conversion Increase (Decrease)
Price One Price One Price One -------------------------------------------------------------
Day After Week After Month After One One One To
Conversion Conversion Conversion Day Week Month Date
Ticker ($) ($) ($) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
HCBB 12.625 12.750 12.875 26.3 27.5 28.8 29.4
PSFC 12.563 12.875 13.250 25.6 28.8 32.5 36.3
NSBC 20.250 22.000 23.875 35.0 46.7 59.2 63.3
HMLK 12.875 12.875 13.000 28.8 28.8 30.0 32.5
GSLA 13.375 13.750 14.000 33.8 37.5 40.0 52.5
MRKF 12.938 12.250 12.625 29.4 22.5 26.3 30.0
EFBC 13.250 13.500 13.750 32.5 35.0 37.5 35.0
FAB 13.625 14.125 14.875 36.3 41.3 48.8 70.0
RSLN 15.000 15.938 16.000 50.0 59.4 60.0 100.0
AFBC 12.875 12.938 14.000 28.8 29.4 40.0 42.5
HCFC NA 12.500 13.500 NA 25.0 35.0 40.0
CENB 62.625 66.000 65.125 25.3 32.0 30.3 38.5
SCBS 13.000 13.750 13.500 30.0 37.5 35.0 42.5
BFFC 12.313 12.500 13.875 23.1 25.0 38.8 60.0
RIVR 13.688 13.875 15.000 36.9 38.8 50.0 47.5
Maximum 62.625 66.000 65.125 50.0 59.4 60.0 100.0
Minimum 12.313 12.250 12.625 23.1 22.5 26.3 29.4
Average 17.214 17.442 17.950 31.5 34.3 39.5 48.0
Median 13.125 13.500 13.875 29.7 32.0 37.5 42.5
</TABLE>
13
<PAGE>
FERGUSON & COMPANY Table IV.4 - Recent Pink Sheet Conversions Section IV.
- ------------------ -----------
(Completed since May 31, 1996)
<TABLE>
<CAPTION>
Conversion
Assets IPO Proceeds IPO Price
Ticker Short Name State IPO Date ($000) ($000) ($)
<S> <C> <C> <C> <C> <C> <C>
SFBK SFB Bancorp Inc. TN 05/30/97 46,579 7,670 10.000
RFFC Rocky Ford Financial Inc. CO 05/22/97 20,388 4,232 10.000
VBAS Vermilion Bancorp Inc. IL 03/26/97 35,459 3,968 10.000
IFBH IFB Holdings Inc. MO 12/30/96 52,587 5,925 10.000
FALN First Allen Parish Bncp Inc. LA 09/30/96 29,605 2,645 10.000
MDWB Midwest Savings Bank IL 09/23/96 36,354 1,918 10.000
LNXC Lenox Bancorp Incorporated OH 07/18/96 43,149 4,256 10.000
ALGC Algiers Bancorp Incorporated LA 07/09/96 42,450 6,480 10.000
FFFB First Federal Finl Bncp Inc. OH 06/04/96 51,296 6,718 10.000
Maximum 52,587 7,670 10.000
Minimum 20,388 1,918 10.000
Average 39,763 4,868 10.000
Median 42,450 4,256 10.000
</TABLE>
14
<PAGE>
FERGUSON & COMPANY Table IV.4 - Recent Pink Sheet Conversions Section IV.
- ------------------ -----------
(Completed since May 31, 1996)
<TABLE>
<CAPTION>
Conversion Pricing Ratios
----------------------------------------------------
Price/ Price/ Price/ Price/ Current Current Current Current
Pro-Forma Pro-Forma Pro-Forma Adjusted Stock Price/ Price/ Tang Price/
Book Value Tang. Book Earnings Assets Price Book Value Book Value Earnings
Ticker (%) (%) (x) (%) ($) (%) (%) (x)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SFBK 69.6 69.6 17.7 14.1 14.000 NA NA NA
RFFC 68.8 68.8 17.7 17.2 13.500 NA NA NA
VBAS 71.4 71.4 NA 10.1 12.250 78.1 78.1 NA
IFBH 73.1 73.1 14.3 10.1 12.500 86.9 86.9 13.0
FALN 65.5 65.5 8.8 8.2 16.500 101.0 101.0 14.7
MDWB 65.1 65.1 NA 5.0 14.500 96.0 96.0 12.5
LNXC 59.6 59.6 40.9 9.0 14.875 87.6 87.6 20.7
ALGC 69.0 69.0 18.8 13.2 13.000 86.5 86.5 32.5
FFFB 64.5 64.5 13.2 11.6 13.500 84.7 84.7 24.1
Maximum 73.1 73.1 40.9 17.2 16.500 101.0 101.0 32.5
Minimum 59.6 59.6 8.8 5.0 12.250 78.1 78.1 12.5
Average 67.4 67.4 18.8 10.9 13.847 88.7 88.7 19.6
Median 68.8 68.8 17.7 10.1 13.500 86.9 86.9 17.7
</TABLE>
15
<PAGE>
FERGUSON & COMPANY Table IV.4 - Recent Pink Sheet Conversions Section IV.
- ------------------ -----------
(Completed since May 31, 1996)
<TABLE>
<CAPTION>
Post Conversion Increase (Decrease)
Price One Price One Price One ---------------------------------------------------------------
Day After Week After Month After One One One To
Conversion Conversion Conversion Day Week Month Date
Ticker ($) ($) ($) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
SFBK 13.813 13.750 NA 38.1 37.5 NA 40.0
RFFC NA 13.125 13.500 NA 31.3 35.0 35.0
VBAS 12.375 12.250 12.125 23.8 22.5 21.3 22.5
IFBH 12.250 12.500 12.375 22.5 25.0 23.8 25.0
FALN 13.250 13.500 13.750 32.5 35.0 37.5 65.0
MDWB 10.250 11.000 11.125 2.5 10.0 11.3 45.0
LNXC 9.875 10.000 11.375 (1.3) -- 13.8 48.8
ALGC 10.750 10.250 11.063 7.5 2.5 10.6 30.0
FFFB 10.750 10.750 10.500 7.5 7.5 5.0 35.0
Maximum 13.813 13.750 13.750 38.1 37.5 37.5 65.0
Minimum 9.875 10.000 10.500 (1.3) -- 5.0 22.5
Average 11.664 11.903 11.977 16.6 19.0 19.8 38.5
Median 11.500 12.250 11.750 15.0 22.5 17.5 35.0
</TABLE>
16
<PAGE>
FERGUSON & COMPANY Table IV.5 Section IV.
- ------------------ -----------
Comparison of Pricing Ratios
<TABLE>
<CAPTION>
Group Percent Premium
Lexington Compared to (Discount) Versus
First --------------------------------- ---------------------------------
Federal Average Median Average Median
------------- --------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Comparison of PE ratio at
midpoint to:
- ----------------------------------------------
Comparative group 12.3 25.2 22.4 (51.2) (45.1)
Tennessee thrifts 12.3 19.0 19.0 (35.3) (35.3)
Southeast Region thrifts 12.3 17.1 16.7 (28.1) (26.3)
All public thrifts 12.3 16.2 15.6 (24.1) (21.2)
Recent conversions 12.3 21.4 18.9 (42.5) (34.9)
Comparison of PE ratio at
maximum to:
- ----------------------------------------------
Comparative group 13.7 25.2 22.4 (45.6) (38.8)
Tennessee thrifts 13.7 19.0 19.0 (27.9) (27.9)
Southeast Region thrifts 13.7 17.1 16.7 (19.9) (18.0)
All public thrifts 13.7 16.2 15.6 (15.4) (12.2)
Recent conversions 13.7 21.4 18.9 (36.0) (27.5)
Comparison of PE ratio at
supermaximum to:
- ----------------------------------------------
Comparative group 15.2 25.2 22.4 (39.7) (32.1)
Tennessee thrifts 15.2 19.0 19.0 (20.0) (20.0)
Southeast Region thrifts 15.2 17.1 16.7 (11.1) (9.0)
All public thrifts 15.2 16.2 15.6 (6.2) (2.6)
Recent conversions 15.2 21.4 18.9 (29.0) (19.6)
Comparison of PB ratio at
midpoint to:
- ----------------------------------------------
Comparative group 70.8 101.4 100.2 (30.2) (29.3)
Tennessee thrifts 70.8 120.1 120.1 (41.0) (41.0)
Southeast Region thrifts 70.8 145.3 140.0 (51.3) (49.4)
All public thrifts 70.8 142.8 135.1 (50.4) (47.6)
Recent conversions 70.8 71.7 72.0 (1.3) (1.7)
Comparison of PB ratio at
maximum to:
- ----------------------------------------------
Comparative group 76.7 101.4 100.2 (24.4) (23.5)
Tennessee thrifts 76.7 120.1 120.1 (36.1) (36.1)
Southeast Region thrifts 76.7 145.3 140.0 (47.2) (45.2)
All public thrifts 76.7 142.8 135.1 (46.3) (43.2)
Recent conversions 76.7 71.7 72.0 7.0 6.5
Comparison of PB ratio at
supermaximum to:
- ----------------------------------------------
Comparative group 82.7 101.4 100.2 (18.4) (17.5)
Tennessee thrifts 82.7 120.1 120.1 (31.1) (31.1)
Southeast Region thrifts 82.7 145.3 140.0 (43.1) (40.9)
All public thrifts 82.7 142.8 135.1 (42.1) (38.8)
Recent conversions 82.7 71.7 72.0 15.3 14.9
</TABLE>
17
<PAGE>
FERGUSON & COMPANY Table IV.6 Section IV.
- ------------------ -----------
Comparison of Pricing Ratios - Banking
<TABLE>
<CAPTION>
Lexington Group Percent Premium
First Compared to (Discount) Versus
--------------------------- ---------------------------
Federal Average Median Average Median
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Comparison of PE ratio at
midpoint to:
- ------------------------------------
Other charter flips-Current 12.3 24.6 20.7 (50.0) (40.6)
Other charter flips-Conversion 12.3 15.3 14.3 (19.6) (14.0)
All pink sheet banks 12.3 12.7 12.5 (3.1) (1.6)
SE Region pink sheet banks 12.3 12.7 11.9 (3.1) 3.4
Tennessee pink sheet banks 12.3 11.1 11.1 10.8 10.8
Comparison of PE ratio at
maximum to:
- ------------------------------------
Other charter flips-Current 13.7 24.6 20.7 (44.3) (33.8)
Other charter flips-Conversion 13.7 15.3 14.3 (10.5) (4.2)
All pink sheet banks 13.7 12.7 12.5 7.9 9.6
SE Region pink sheet banks 13.7 12.7 11.9 7.9 15.1
Tennessee pink sheet banks 13.7 11.1 11.1 23.4 23.4
Comparison of PE ratio at
supermaximum to:
- ------------------------------------
Other charter flips-Current 15.2 24.6 20.7 (38.2) (26.6)
Other charter flips-Conversion 15.2 15.3 14.3 (0.7) 6.3
All pink sheet banks 15.2 12.7 12.5 19.7 21.6
SE Region pink sheet banks 15.2 12.7 11.9 19.7 27.7
Tennessee pink sheet banks 15.2 11.1 11.1 36.9 36.9
Comparison of PB ratio at
midpoint to:
- ------------------------------------
Other charter flips-Current 70.8 100.7 101.9 (29.7) (30.5)
Other charter flips-Conversion 70.8 73.4 73.1 (3.5) (3.1)
All pink sheet banks 70.8 159.2 153.9 (55.5) (54.0)
SE Region pink sheet banks 70.8 153.5 151.1 (53.9) (53.1)
Tennessee pink sheet banks 70.8 125.3 125.3 (43.5) (43.5)
Comparison of PB ratio at
maximum to:
- ------------------------------------
Other charter flips-Current 76.7 100.7 101.9 (23.8) (24.7)
Other charter flips-Conversion 76.7 73.4 73.1 4.5 4.9
All pink sheet banks 76.7 159.2 153.9 (51.8) (50.2)
SE Region pink sheet banks 76.7 153.5 151.1 (50.0) (49.2)
Tennessee pink sheet banks 76.7 125.3 125.3 (38.8) (38.8)
Comparison of PB ratio at
supermaximum to:
- ------------------------------------
Other charter flips-Current 82.7 100.7 101.9 (17.9) (18.8)
Other charter flips-Conversion 82.7 73.4 73.1 12.7 13.1
All pink sheet banks 82.7 159.2 153.9 (48.1) (46.3)
SE Region pink sheet banks 82.7 153.5 151.1 (46.1) (45.3)
Tennessee pink sheet banks 82.7 125.3 125.3 (34.0) (34.0)
</TABLE>
18
<PAGE>
FERGUSON & COMPANY Section IV.
- ------------------ -----------
Table IV.7 - Exchange Ratios
<TABLE>
<CAPTION>
Minimum Midpoint Maximum Supermaximum
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Full value $3,655,000 $4,300,000 $4,945,000 $5,686,750
Per share price $ 10.00 $ 10.00 $ 10.00 $ 10.00
Total shares 365,500 430,000 494,500 568,675
Shares currently owned by
Public shareholders 87,993 87,993 87,993 87,993
Total shares outstanding 222,993 222,993 222,993 222,993
Percent owned by public 39.46% 39.46% 39.46% 39.46%
Percent to be sold in this
offering 60.54% 60.54% 60.54% 60.54%
Number of shares being sold 221,274 260,322 299,370 344,276
Number of shares being
exchanged for existing shares 144,226 169,678 195,130 224,399
Exchange ratio 1.6391 1.9283 2.2176 2.5502
</TABLE>
19
<PAGE>
FERGUSON & COMPANY Figure IV.1 - SNL Index Section IV.
- ------------------ -----------
<TABLE>
<CAPTION>
% CHANGE SINCE
-------------------------------
SNL PREVIOUS
DATE INDEX DATE 12/31/95 12/31/96
---- ----- ---- -------- --------
<S> <C> <C> <C> <C>
12/31/90 96.6
12/31/91 143.9 49.0%
12/31/92 201.1 39.7%
12/31/93 252.5 25.6%
12/31/94 244.7 -3.1%
12/31/95 376.5 53.9%
3/31/96 382.1 1.5% 1.5%
6/30/96 377.2 -1.3% 0.2%
9/30/96 429.3 13.8% 14.0%
12/31/96 483.6 12.6% 28.4%
3/31/97 527.7 9.1% 40.2% 9.1%
4/30/97 537.2 1.8% 42.7% 11.1%
5/30/97 577.9 7.6% 53.5% 19.5%
6/20/97 625.9 8.3% 66.2% 29.4%
</TABLE>
[LINE GRAPH APPEARS HERE]
20
<PAGE>
FERGUSON & COMPANY Figure IV.2-Interest Rates Section IV.
- ------------------ -----------
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
1 Year 5 Year 10 Year 30 Year
Fed Fds (*) T-bill Treas. Treas. Treas.
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
11/18/96 5.21 5.39 5.96 6.19 6.46
11/29/96 5.30 5.41 5.90 6.12 6.41
12/13/96 5.22 5.45 6.03 6.27 6.53
12/20/96 5.38 5.51 6.15 6.40 6.63
12/31/96 5.18 5.48 6.12 6.34 6.58
1/17/97 5.19 5.60 6.33 6.56 6.81
1/31/97 5.18 5.60 6.36 6.62 6.89
2/14/97 5.05 5.48 6.14 6.37 6.65
2/27/97 5.16 5.52 6.25 6.45 6.71
3/14/97 5.19 5.69 6.41 6.58 6.85
3/31/97 5.40 5.91 6.75 6.96 7.15
4/4/97 5.86 5.99 6.75 6.90 7.10
4/18/97 5.48 6.00 6.80 6.92 7.13
4/30/97 5.45 5.89 6.57 6.71 6.95
5/16/97 5.49 5.85 6.54 6.68 6.90
5/30/97 5.43 5.85 6.60 6.75 6.99
6/6/97 5.54 5.76 6.50 6.64 6.89
6/20/97 5.62 5.64 6.29 6.41 6.70
---------------------------------------------------------------------------------------------
</TABLE>
(*) Seven-day average for week ending two days earlier than date shown.
Rates From November 18, 1996 Through June 20, 1997
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
1 Year 5 Year 10 Year 30 Year
Fed Fds (*) T-bill Treas. Treas. Treas.
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
6/20/97 5.62 5.64 6.29 6.41 6.70
----------------------------------------------------------------------------------------------
</TABLE>
Current Yield Curve
[LINE GRAPH APPEARS HERE]
21
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT I
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit I - Firm Qualifications
Ferguson & Company (F&C), is a financial, economic, and regulatory
consulting firm providing services to financial institutions. It is located in
Irving, Texas. Its services to financial institutions include:
. Mergers and acquisition services
. Business plans
. Fairness opinions and conversion appraisals
. Litigation support
. Operational and efficiency consulting
. Human resources evaluation and management
F&C developed several financial institution databases of information
derived from periodic financial reports filed with regulatory authorities by
financial institutions. For example, F&C developed TAFS and BankSource. TAFS
includes thrifts filing TFR's with the OTS and BankSource includes banks and
savings banks filing call reports with the FDIC. Both databases include
information from the periodic reports plus numerous calculations derived from
F&C's analysis. In addition, both databases are interactive, permitting the user
to conduct merger analysis, do peer group comparisons, and a number of other
items. In 1994, F&C sold its electronic publishing segment to Sheshunoff
Information Services Inc., Austin, Texas.
Brief biographical information is presented below on F&C's principals:
WILLIAM C. FERGUSON, MANAGING PARTNER
- -------------------------------------
Mr. Ferguson has approximately 30 years of experience providing various
services to financial institutions. He was a partner in a CPA firm prior to
founding F&C in 1984. Mr. Ferguson is a frequent speaker for financial
institution seminars and he has testified before Congressional Committees
several times on his analysis of the state of the thrift industry. Mr. Ferguson
has a B.A. degree from Austin Peay University and an M.S. degree from the
University of Tennessee. He is a CPA.
1
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit I- Firm Qualifications
CHARLES M. HEBERT, PRINCIPAL
- ----------------------------
Mr. Hebert has over 30 years of experience providing services to and managing
financial institutions. He spent 7 years as a national bank examiner, 14 years
in bank management, 5 years in thrift management, and has spent the last 8 years
on the F&C consulting staff. Mr. Hebert holds a B.S. degree from Louisiana State
University.
ROBIN L. FUSSELL, PRINCIPAL
- ---------------------------
Mr. Fussell has over 25 years of experience providing professional services to
and managing financial institutions. He worked on the audit staff of a "Big Six"
accounting firm for 12 years, served as CFO of a thrift for 3 years, and has
worked in financial institution consulting for the last 13 years. He is a co-
founder of F&C. He holds a B.S. degree from East Carolina University. He is a
CPA.
2
<PAGE>
EXHIBIT II
<PAGE>
FERGUSON & COMPANY Exhibit II.1 - Selected Publicly Held Southeast Thrifts
- ------------------
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FFDB FirstFed Bancorp Incorporated Bessemer AL SE SAIF NASDAQ 11/19/91 16.750
FTF Texarkana First Financial Corp Texarkana AR SE SAIF AMSE 07/07/95 18.000
PFSL Pocahontas FS&LA, MHC Pocahontas AR SE SAIF NASDAQ 04/05/94 20.750
BANC BankAtlantic Bancorp Inc. Fort Lauderdale FL SE SAIF NASDAQ 11/29/83 14.125
BKUNA BankUnited Financial Corp. Coral Gables FL SE SAIF NASDAQ 12/11/85 9.625
CMSV Community Savings, MHC North Palm Beach FL SE SAIF NASDAQ 10/24/94 21.750
FFFL Fidelity Bankshares Inc., MHC West Palm Beach FL SE SAIF NASDAQ 01/07/94 19.375
FFLC FFLC Bancorp Inc. Leesburg FL SE SAIF NASDAQ 01/04/94 28.500
HARB Harbor Federal Savings Bk, MHC Fort Pierce FL SE SAIF NASDAQ 01/06/94 40.750
EBSI Eagle Bancshares Tucker GA SE SAIF NASDAQ 04/01/86 17.875
FGHC First Georgia Holding Inc. Brunswick GA SE SAIF NASDAQ 02/11/87 7.250
FLFC First Liberty Financial Corp. Macon GA SE SAIF NASDAQ 12/06/83 21.750
FSTC First Citizens Corporation Newnan GA SE SAIF NASDAQ 03/01/86 24.750
CFTP Community Federal Bancorp Tupelo MS SE SAIF NASDAQ 03/26/96 17.625
FFBS FFBS BanCorp Inc. Columbus MS SE SAIF NASDAQ 07/01/93 23.000
HBS Haywood Bancshares Inc. Waynesville NC SE BIF AMSE 12/18/87 16.938
HFNC HFNC Financial Corp. Charlotte NC SE SAIF NASDAQ 12/29/95 16.750
KSAV KS Bancorp Inc. Kenly NC SE SAIF NASDAQ 12/30/93 25.500
SOPN First Savings Bancorp Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 24.000
FFCH First Financial Holdings Inc. Charleston SC SE SAIF NASDAQ 11/10/83 29.500
FSFC First Southeast Financial Corp Anderson SC SE SAIF NASDAQ 10/08/93 10.125
PALM Palfed, Inc. Aiken SC SE SAIF NASDAQ 12/15/85 16.688
PERT Perpetual Bank, MHC Anderson SC SE SAIF NASDAQ 10/26/93 29.500
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/95 19.000
BFSB Bedford Bancshares Inc. Bedford VA SE SAIF NASDAQ 08/22/94 20.750
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88 22.500
CNIT CENIT Bancorp Inc. Norfolk VA SE SAIF NASDAQ 08/06/92 44.500
FFFC FFVA Financial Corp. Lynchburg VA SE SAIF NASDAQ 10/12/94 26.750
LIFB Life Bancorp Inc. Norfolk VA SE SAIF NASDAQ 10/11/94 23.625
FOBC Fed One Bancorp Wheeling WV SE SAIF NASDAQ 01/19/95 21.000
Maximum 44.500
Minimum 7.250
Average 21.633
Median 20.875
</TABLE>
1
<PAGE>
FERGUSON & COMPANY Exhibit 11.1 - Selected Publicly Held Southeast Thrifts
- ------------------
<TABLE>
<CAPTION>
Tangible
Current Price/ Current Current Current Total Equity/ Equity/ Core Core Core
Market LTM Price/ Price/T Price/ Dividend Assets Assets T Assets EPS ROAA ROAE
Value Core EPS Book V Book V Assets Yield ($000) (%) (%) ($) (%) (%)
Ticker ($M) (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FFDB 20.53 13.2 116.9 128.0 11.6 2.99 176,496 10.0 9.2 1.27 0.93 9.10
FTF 32.84 11.1 122.5 122.5 19.6 2.50 168,094 16.0 16.0 1.62 1.71 9.71
PFSL 33.80 13.9 142.0 142.0 9.1 4.34 373,262 6.4 6.4 1.49 0.67 11.02
BANC 335.10 18.1 171.6 210.8 9.5 0.82 2,773,085 5.5 4.5 0.78 0.71 11.07
BKUNA 82.44 18.2 131.3 163.4 5.9 - 1,453,152 6.8 6.0 0.53 0.62 7.72
CMSV 107.02 17.4 139.7 139.7 15.7 4.14 682,314 11.2 11.2 1.25 0.96 8.19
FFFL 131.08 24.5 160.4 161.7 14.1 4.13 926,891 8.8 8.8 0.79 0.61 6.43
FFLC 66.64 20.8 128.6 128.6 18.6 1.68 358,538 14.5 14.5 1.37 1.01 6.25
HARB 202.19 16.0 222.7 231.4 18.3 3.44 1,104,924 8.2 7.9 2.54 1.21 14.59
EBSI 81.37 15.5 140.3 140.3 12.2 3.36 666,166 8.7 8.7 1.15 0.80 8.97
FGHC 22.13 20.1 177.7 194.9 15.0 0.74 147,094 8.5 7.8 0.36 0.77 9.28
FLFC 168.01 15.1 183.2 204.8 13.5 1.84 1,248,033 7.3 6.6 1.44 0.91 12.24
FSTC 40.03 9.8 163.0 207.3 15.3 1.78 257,288 9.4 7.5 2.52 2.03 19.20
CFTP 75.48 22.3 109.3 109.3 36.6 1.70 206,049 33.5 33.5 0.79 1.70 5.11
FFBS 35.82 18.7 135.2 135.2 27.8 2.17 128,676 19.4 19.4 1.23 1.49 7.62
HBS 21.20 14.0 102.5 106.5 14.5 3.31 146,331 14.1 13.7 1.21 1.12 7.43
HFNC 287.97 23.3 181.5 181.5 34.2 1.67 842,917 18.8 18.8 0.72 1.38 4.71
KSAV 16.91 14.3 121.4 121.5 16.8 2.35 100,754 13.8 13.8 1.79 1.21 8.44
SOPN 88.73 21.2 133.0 133.0 32.7 3.33 271,121 24.6 24.6 1.13 1.68 6.59
FFCH 186.72 14.7 189.5 189.5 11.7 2.44 1,602,018 6.2 6.2 2.01 0.83 13.37
FSFC 44.43 14.3 129.8 129.8 13.3 2.37 334,751 10.2 10.2 0.71 0.90 7.30
PALM 88.08 23.8 165.7 165.7 13.4 0.72 655,707 8.1 8.1 0.70 0.56 6.94
PERT 44.39 18.9 148.9 148.9 18.1 4.75 245,671 12.1 12.1 1.56 1.15 9.73
TWIN 16.22 19.0 120.1 120.1 15.5 3.37 104,488 12.9 12.9 1.00 0.79 6.08
BFSB 23.71 13.3 119.1 119.1 18.0 2.70 131,506 14.3 14.3 1.56 1.33 9.05
CFFC 28.63 13.3 124.7 124.7 17.2 2.49 166,664 13.8 13.8 1.69 1.31 9.44
CNIT 73.03 15.8 145.5 159.1 10.3 2.25 706,797 7.1 6.5 2.82 0.70 9.75
FFFC 120.92 19.0 157.5 161.1 22.0 1.79 549,771 13.0 12.7 1.41 1.33 9.00
LIFB 232.63 18.6 153.2 158.0 16.5 2.03 1,407,861 10.8 10.5 1.27 0.86 7.73
FOBC 49.71 15.4 123.0 129.2 14.8 2.76 346,214 11.6 11.1 1.36 0.98 8.25
Maximum 335.10 24.5 222.7 231.4 36.6 4.75 2,773,085 33.5 33.5 2.82 2.03 19.20
Minimum 16.22 9.8 102.5 106.5 5.9 - 100,754 5.5 4.5 0.36 0.56 4.71
Average 91.93 17.1 145.3 152.2 17.1 2.46 609,421 12.2 11.9 1.34 1.08 9.01
Median 69.84 16.7 140.0 141.2 15.4 2.41 352,376 11.0 10.8 1.27 0.97 8.71
</TABLE>
2
<PAGE>
FERGUSON & COMPANY Exhibit II.1 - Selected Publicly Held Southeast Thrifts
- ------------------
<TABLE>
<CAPTION>
NPAs/ Price/ Core Core Core
Merger Current Assets Core EPS ROAA ROAE
Target? Pricing (%) EPS ($) (%) (%)
Ticker (Y/N) Date MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C>
FFDB N 06/20/97 0.77 10.74 0.39 1.11 11.36
FTF N 06/20/97 0.13 10.71 0.42 1.70 10.61
PFSL N 06/20/97 0.22 13.30 0.39 0.69 10.90
BANC N 06/20/97 0.75 18.59 0.19 0.66 11.55
BKUNA N 06/20/97 0.70 20.05 0.12 0.55 7.42
CMSV N 06/20/97 0.57 20.14 0.27 0.81 7.05
FFFL N 06/20/97 0.30 26.91 0.18 0.55 6.02
FFLC N 06/20/97 0.27 17.81 0.40 1.10 7.35
HARB N 06/20/97 0.47 15.21 0.67 1.23 14.96
EBSI N 06/20/97 0.88 15.96 0.28 0.77 8.71
FGHC N 06/20/97 1.35 45.31 0.04 0.35 4.16
FLFC N 06/20/97 0.75 15.54 0.35 0.91 11.92
FSTC N 06/20/97 1.26 11.05 0.56 1.51 16.44
CFTP N 06/20/97 0.35 22.03 0.20 1.70 5.05
FFBS N 06/20/97 0.03 16.91 0.34 1.62 8.37
HBS N 06/20/97 2.09 16.94 0.25 0.89 6.02
HFNC N 06/20/97 0.99 24.63 0.17 1.15 4.36
KSAV N 06/20/97 0.42 14.17 0.45 1.24 9.06
SOPN N 06/20/97 0.12 20.69 0.29 1.73 6.96
FFCH N 06/20/97 1.77 13.41 0.55 0.88 14.32
FSFC N 06/20/97 0.11 12.05 0.21 1.08 10.56
PALM N 06/20/97 2.52 18.14 0.23 0.75 9.43
PERT N 06/20/97 NA 15.69 0.47 1.20 9.46
TWIN N 06/20/97 0.08 19.79 0.24 0.76 5.93
BFSB N 06/20/97 0.00 13.65 0.38 1.26 8.79
CFFC N 06/20/97 0.35 12.23 0.46 1.41 10.21
CNIT N 06/20/97 0.61 16.60 0.67 0.65 9.17
FFFC N 06/20/97 0.10 17.15 0.39 1.38 10.17
LIFB N 06/20/97 0.49 20.37 0.29 0.79 7.30
FOBC N 06/20/97 0.13 15.91 0.33 0.96 8.23
Maximum 2.52 45.31 0.67 1.73 16.44
Minimum - 10.71 0.04 0.35 4.16
Average 0.64 17.72 0.34 1.05 9.06
Median 0.47 16.76 0.34 1.02 8.93
</TABLE>
3
<PAGE>
FERGUSON & COMPANY Exhibit II.2 - Selected Publicly Held Tennessee Thrifts
- ------------------
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/95 19.000
Maximum 19.000
Minimum 19.000
Average 19.000
Median 19.000
</TABLE>
4
<PAGE>
FERGUSON & COMPANY Exhibit II.2 - Selected Publicly Held Tennessee Thrifts
- ------------------
<TABLE>
<CAPTION>
Tangible
Current Price/ Current Current Current Total Equity/ Equity/ Core Core Core
Market LTM Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS ROAA ROAE
Value Core EPS Book V Book V Assets Yield ($000) (%) (%) ($) (%) (%)
Ticker ($M) (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TWIN 16.22 19.0 120.1 120.1 15.5 3.37 104,488 12.9 12.9 1.00 0.79 6.08
Maximum 16.22 19.0 120.1 120.1 15.5 3.37 104,488 12.9 12.9 1.00 0.79 6.08
Minimum 16.22 19.0 120.1 120.1 15.5 3.37 104,488 12.9 12.9 1.00 0.79 6.08
Average 16.22 19.0 120.1 120.1 15.5 3.37 104,488 12.9 12.9 1.00 0.79 6.08
Median 16.22 19.0 120.1 120.1 15.5 3.37 104,488 12.9 12.9 1.00 0.79 6.08
</TABLE>
5
<PAGE>
FERGUSON & COMPANY Exhibit II.2 - Selected Publicly Held Tennessee Thrifts
- ------------------
<TABLE>
<CAPTION>
NPAs/ Price/ Core Core Core
Merger Current Assets Core EPS ROAA ROAE
Target? Pricing (%) EPS ($) (%) (%)
Ticker (Y/N) Date MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C>
TWIN N 06/20/97 0.08 19.79 0.24 0.76 5.93
Maximum 0.08 19.79 0.24 0.76 5.93
Minimum 0.08 19.79 0.24 0.76 5.93
Average 0.08 19.79 0.24 0.76 5.93
Median 0.08 19.79 0.24 0.76 5.93
</TABLE>
6
<PAGE>
FERGUSON & COMPANY Exhibit II.3 - Comparatives General
- ------------------
<TABLE>
<CAPTION>
Total Current Current
Number Assets Stock Market
of ($000) Price Value
Ticker Short Name City State Offices MRQ IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CKFB CKF Bancorp Inc. Danville KY 1 60,197 01/04/95 19.250 17.85
CRZY Crazy Woman Creek Bancorp Buffalo WY 1 52,042 03/29/96 13.500 13.57
CSBF CSB Financial Group Inc. Centralia IL 2 47,996 10/09/95 12.500 11.77
HBBI Home Building Bancorp Washington IN 2 46,804 02/08/95 21.000 6.54
HZFS Horizon Financial Svcs Corp. Oskaloosa IA 3 78,368 06/30/94 19.250 8.19
JOAC Joachim Bancorp Inc. De Soto MO 1 35,656 12/28/95 14.500 11.03
LONF London Financial Corporation London OH 1 37,937 04/01/96 14.875 7.66
MCBN Mid-Coast Bancorp Inc. Waldoboro ME 2 57,838 11/02/89 19.500 4.49
MIVI Mississippi View Holding Co. Little Falls MN 1 69,755 03/24/95 14.625 11.97
NSLB NS&L Bancorp Inc. Neosho MO 2 58,089 06/08/95 16.500 11.67
RELI Reliance Bancshares Inc. Milwaukee WI 1 46,836 04/19/96 8.250 20.86
SSB Scotland Bancorp Inc Laurinburg NC 2 68,924 04/01/96 16.250 29.90
Maximum 3 78,368 21.000 29.90
Minimum 1 35,656 8.250 4.49
Average 2 55,037 15.833 12.96
Median 2 54,940 15.563 11.72
</TABLE>
7
<PAGE>
FERGUSON & COMPANY Exhibit II.4 - Comparatives Balance Sheets
- ------------------
<TABLE>
<CAPTION>
Total Mortgage- Investment & Loan
Total Cash and Backed Net Foreclosed Servicing Total Other Total
Assets Investments Securities Loans Real Estate Rights Intangibles Assets Deposits
($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000)
Short Name MRQ MRQ MRQ MRQ MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CKF Bancorp Inc. 60,197 5,004 456 54,035 186 - - 972 42,853
Crazy Woman Creek Bancorp 52,042 23,478 6,347 27,582 - - - 982 28,131
CSB Financial Group Inc. 47,996 18,766 - 27,404 - - 691 1,135 35,733
Home Building Bancorp 46,804 17,480 5,200 28,195 - - - 1,129 37,110
Horizon Financial Svcs Corp. 78,368 24,161 - 51,923 549 - - 1,735 56,434
Joachim Bancorp Inc. 35,656 11,066 85 23,772 126 - - 692 24,825
London Financial Corporation 37,937 8,416 3,761 28,958 - - - 563 29,309
Mid-Coast Bancorp Inc. 57,838 7,637 173 47,865 92 - - 2,059 42,440
Mississippi View Holding Co. 69,755 23,944 4,942 43,978 34 - - 1,750 55,943
NS&L Bancorp Inc. 58,089 24,353 5,025 31,919 - - - 1,754 42,637
Reliance Bancshares Inc. 46,836 19,130 713 NA - NA NA 507 18,045
Scotland Bancorp Inc 68,924 20,252 450 47,322 - - - 1,350 42,497
Maximum 78,368 24,353 6,347 54,035 549 - 691 2,059 56,434
Minimum 35,656 5,004 - 23,772 - - - 507 18,045
Average 55,037 16,974 2,263 37,541 82 - 63 1,219 37,996
Median 54,940 18,948 585 31,919 - - - 1,132 39,775
<CAPTION>
Total
Borrowings
($000)
Short Name MRQ
<S> <C>
CKF Bancorp Inc. 2,243
Crazy Woman Creek Bancorp 9,007
CSB Financial Group Inc. -
Home Building Bancorp 3,700
Horizon Financial Svcs Corp. 13,117
Joachim Bancorp Inc. -
London Financial Corporation 800
Mid-Coast Bancorp Inc. 10,190
Mississippi View Holding Co. -
NS&L Bancorp Inc. 3,000
Reliance Bancshares Inc. 6,000
Scotland Bancorp Inc -
Maximum 13,117
Minimum -
Average 4,005
Median 2,622
</TABLE>
8
<PAGE>
FERGUSON & COMPANY Exhibit II.4 - Comparative Balance Sheets
- ------------------
<TABLE>
<CAPTION>
Regulatory Regulatory Regulatory
Subordinated Other Total Preferred Common Total Tangible Core Total
Debt Liabilities Liabilities Equity Equity Equity Capital Capital Capital
($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000) ($000)
Short Name MRQ MRQ MRQ MRQ MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CKF Bancorp Inc. - 847 45,943 - 14,254 14,254 12,224 12,224 12,353
Crazy Woman Creek Bancorp - 414 37,552 - 14,490 14,490 10,413 10,413 10,688
CSB Financial Group Inc. - 230 35,963 - 12,033 12,033 NA NA NA
Home Building Bancorp - 345 41,155 - 5,649 5,649 4,446 4,446 4,525
Horizon Financial Svcs Corp. - 592 70,143 - 8,225 8,225 6,100 6,100 6,401
Joachim Bancorp Inc. - 497 25,322 - 10,334 10,334 7,564 7,564 7,638
London Financial Corporation - 291 30,400 - 7,537 7,537 5,633 5,633 5,820
Mid-Coast Bancorp Inc. - 233 52,863 - 4,975 4,975 4,937 4,937 5,233
Mississippi View Holding Co. - 1,077 57,020 - 12,735 12,735 10,848 10,848 11,280
NS&L Bancorp Inc. - 878 46,515 - 11,574 11,574 8,475 8,475 8,518
Reliance Bancshares Inc. - 317 24,362 - 22,474 22,474 NA NA NA
Scotland Bancorp Inc - 1,142 43,639 - 25,285 25,285 NA 16,476 16,983
Maximum - 1,142 70,143 - 25,285 25,285 12,224 16,476 16,983
Minimum - 230 24,362 - 4,975 4,975 4,446 4,446 4,525
Average - 572 42,573 - 12,464 12,464 7,849 8,712 8,944
Median - 456 42,397 - 11,804 11,804 7,564 8,020 8,078
</TABLE>
9
<PAGE>
FERGUSON & COMPANY Exhibit II.4 - Comparatives Balance Sheets
- ------------------
<TABLE>
<CAPTION>
Tangible Core Risk-Based NPAs/ Reserves/
Capital/ Capital/ Capital/ Assets Assets
Tangible Adj Tangible Risk-Weightd (%) (%)
Short Name Assets (%) Assets (%) Assets (%) MRQ MRQ
<S> <C> <C> <C> <C> <C>
CKF Bancorp Inc. 20.91 20.91 36.79 0.89 0.18
Crazy Woman Creek Bancorp 20.45 20.45 52.24 0.23 0.55
CSB Financial Group Inc. NA NA NA NA 0.31
Home Building Bancorp 10.07 10.07 20.95 0.52 0.17
Horizon Financial Svcs Corp. 7.78 7.78 14.59 1.02 0.37
Joachim Bancorp Inc. 22.06 22.06 44.81 0.68 0.21
London Financial Corporation 15.64 15.64 30.22 0.79 0.49
Mid-Coast Bancorp Inc. 8.60 8.60 15.45 0.40 0.51
Mississippi View Holding Co. 14.92 14.92 31.72 0.21 1.24
NS&L Bancorp Inc. 13.83 13.83 38.51 - 0.07
Reliance Bancshares Inc. NA NA NA - 0.30
Scotland Bancorp Inc NA NA NA - 0.34
Maximum 22.06 22.06 52.24 1.02 1.24
Minimum 7.78 7.78 14.59 - 0.07
Average 14.92 14.92 31.70 0.43 0.40
Median 14.92 14.92 31.72 0.40 0.33
<CAPTION>
Loan Loss Publicly Tangible
Reserves/ Reported Publicly Rep
NPLs Book Value Book Value
(%) ($) ($)
Short Name MRQ MRQ MRQ
<S> <C> <C> <C>
CKF Bancorp Inc. 30.66 16.59 16.59
Crazy Woman Creek Bancorp 240.34 14.42 14.42
CSB Financial Group Inc. NA 12.78 12.05
Home Building Bancorp 32.51 19.88 19.88
Horizon Financial Svcs Corp. 66.14 19.33 19.33
Joachim Bancorp Inc. 63.25 13.59 13.59
London Financial Corporation 62.54 14.63 14.63
Mid-Coast Bancorp Inc. 212.95 21.61 21.61
Mississippi View Holding Co. 772.32 15.55 15.55
NS&L Bancorp Inc. NM 16.36 16.36
Reliance Bancshares Inc. NM 8.89 NA
Scotland Bancorp Inc NM 13.74 13.74
Maximum 772.32 21.61 21.61
Minimum 30.66 8.89 12.05
Average 185.09 15.61 16.16
Median 64.70 15.09 15.55
</TABLE>
10
<PAGE>
FERGUSON & COMPANY Exhibit II.4 - Comparatives Balance Sheets
- ------------------
<TABLE>
<CAPTION>
Earn Assets/ Full-Time Loans Cash &
Int Bearing Equivalent Serviced Investments MBS/
Liabilities Employees For Others (ex MBS)/ Assets
(%) (Actual) ($000) Assets (%) (%)
Short Name MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C>
CKF Bancorp Inc. 132.43 8 - 7.56 0.76
Crazy Woman Creek Bancorp 140.36 10 79 32.92 12.20
CSB Financial Group Inc. 129.77 NA NA 39.10 -
Home Building Bancorp 108.55 14 - 26.24 11.11
Horizon Financial Svcs Corp. 110.56 27 1,636 30.83 -
Joachim Bancorp Inc. 141.81 14 - 30.80 0.24
London Financial Corporation 125.88 NA - 12.27 9.91
Mid-Coast Bancorp Inc. 105.20 22 6,941 12.91 0.30
Mississippi View Holding Co. 123.03 21 - 27.24 7.08
NS&L Bancorp Inc. 125.18 17 - 33.27 8.65
Reliance Bancshares Inc. 197.41 NA NA 39.32 1.52
Scotland Bancorp Inc 159.86 14 - 28.73 0.65
Maximum 197.41 27 6,941 39.32 12.20
Minimum 105.20 8 - 7.56 -
Average 133.34 16 866 26.76 4.37
Median 127.83 14 - 29.76 1.14
</TABLE>
11
<PAGE>
FERGUSON & COMPANY Exhibit II.5 - Comparatives Operations
- ------------------
<TABLE>
<CAPTION>
Net Income ROAA
Average Before Before Core
Assets Net Income Extra Items ROAA Extra ROAA
($000) ($000) ($000) (%) (%) (%)
Short Name LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C>
CKF Bancorp Inc. 59,529 775 775 1.30 1.30 1.29
Crazy Woman Creek Bancorp 51,347 514 514 1.00 1.00 1.25
CSB Financial Group Inc. 45,918 202 202 0.44 0.44 0.65
Home Building Bancorp 43,518 85 85 0.20 0.20 0.50
Horizon Financial Svcs Corp. 74,864 319 319 0.43 0.43 0.60
Joachim Bancorp Inc. 36,218 183 183 0.51 0.51 0.78
London Financial Corporation 37,266 277 277 0.74 0.74 1.08
Mid-Coast Bancorp Inc. 54,978 222 222 0.40 0.40 0.64
Mississippi View Holding Co. 69,608 474 474 0.68 0.68 1.01
NS&L Bancorp Inc. 58,533 292 292 0.50 0.50 0.74
Reliance Bancshares Inc. 46,910 827 827 1.76 1.76 1.88
Scotland Bancorp Inc 69,132 1,019 1,019 1.47 1.47 1.77
Maximum 74,864 1,019 1,019 1.76 1.76 1.88
Minimum 36,218 85 85 0.20 0.20 0.50
Average 53,985 432 432 0.79 0.79 1.02
Median 53,163 306 306 0.60 0.60 0.90
<CAPTION>
ROAE
Before Core
ROAE Extra ROAE
(%) (%) (%)
Short Name LTM LTM LTM
<S> <C> <C> <C>
CKF Bancorp Inc. 5.08 5.08 5.05
Crazy Woman Creek Bancorp 3.36 3.36 4.20
CSB Financial Group Inc. 1.62 1.62 2.39
Home Building Bancorp 1.48 1.48 3.77
Horizon Financial Svcs Corp. 3.87 3.87 5.41
Joachim Bancorp Inc. 1.74 1.74 2.68
London Financial Corporation 3.51 3.51 5.10
Mid-Coast Bancorp Inc. 4.42 4.42 7.05
Mississippi View Holding Co. 3.74 3.74 5.54
NS&L Bancorp Inc. 2.31 2.31 3.45
Reliance Bancshares Inc. 3.09 3.09 3.30
Scotland Bancorp Inc 4.07 4.07 4.89
Maximum 5.08 5.08 7.05
Minimum 1.48 1.48 2.39
Average 3.19 3.19 4.40
Median 3.44 3.44 4.55
</TABLE>
12
<PAGE>
FERGUSON & COMPANY Exhibit II.5 - Comparatives Operations
- ------------------
<TABLE>
<CAPTION>
Loan Total Total Net Loan Common Dividend
Loss Noninterest Noninterest Chargeoffs/ LTM EPS Dividends Payout
Provision Income Expense Avg Loans After Extra Per Share Ratio
($000) ($000) ($000) (%) ($) ($) (%)
Short Name LTM LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C>
CKF Bancorp Inc. 1 57 1,071 - 0.87 1.44 165.52
Crazy Woman Creek Bancorp - 72 1,053 (0.02) 0.52 0.35 67.31
CSB Financial Group Inc. 74 81 1,140 0.18 0.22 - -
Home Building Bancorp 52 109 1,047 1.43 0.31 0.30 96.77
Horizon Financial Svcs Corp. 131 330 1,948 0.33 0.77 0.32 41.56
Joachim Bancorp Inc. 12 54 1,052 0.04 0.25 0.50 200.00
London Financial Corporation - 65 863 - NA NA NA
Mid-Coast Bancorp Inc. 93 184 1,634 0.04 0.93 0.51 54.84
Mississippi View Holding Co. 1 187 1,687 0.04 0.58 0.24 41.38
NS&L Bancorp Inc. (1) 203 1,357 - 0.44 0.50 113.64
Reliance Bancshares Inc. 23 8 750 NA NA NA NA
Scotland Bancorp Inc 25 72 1,297 0.02 NA NA NA
Maximum 131 330 1,948 1.43 0.93 1.44 200.00
Minimum (1) 8 750 (0.02) 0.22 - -
Average 34 119 1,242 0.19 0.54 0.46 86.78
Median 18 77 1,106 0.04 0.52 0.35 67.31
</TABLE>
13
<PAGE>
FERGUSON & COMPANY Exhibit II.5 - Comparatives Operations
- ------------------
<TABLE>
<CAPTION>
Interest Interest Net Interest Gain on Real Noninterest G&A
Income/ Expense/ Income/ Sale/ Estate Income/ Expense/
Avg Assets Avg Assets Avg Assets Avg Assets Expense Avg Assets Avg Assets
(%) (%) (%) (%) ($000) (%) (%)
Short Name LTM LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C>
CKF Bancorp Inc. 7.39 3.69 3.69 0.47 42 0.10 1.73
Crazy Woman Creek Bancorp 7.27 3.47 3.79 (0.02) - 0.14 2.05
CSB Financial Group Inc. 6.71 3.21 3.50 0.08 - 0.18 2.40
Home Building Bancorp 7.50 4.18 3.32 0.01 (1) 0.25 2.41
Horizon Financial Svcs Corp. 7.63 4.36 3.27 0.18 70 0.44 2.51
Joachim Bancorp Inc. 7.00 2.96 4.05 0.04 - 0.15 2.90
London Financial Corporation 7.56 3.83 3.72 - - 0.17 2.32
Mid-Coast Bancorp Inc. 8.23 4.40 3.82 0.07 22 0.33 2.93
Mississippi View Holding Co. 7.39 3.63 3.76 0.02 (15) 0.27 2.45
NS&L Bancorp Inc. 6.43 3.35 3.08 0.10 - 0.35 2.32
Reliance Bancshares Inc. 7.30 2.22 5.08 - - 0.02 NA
Scotland Bancorp Inc 7.42 2.86 4.56 - - 0.10 1.88
Maximum 8.23 4.40 5.08 0.47 70 0.44 2.93
Minimum 6.43 2.22 3.08 (0.02) (15) 0.02 1.73
Average 7.32 3.51 3.80 0.08 10 0.21 2.35
Median 7.39 3.55 3.74 0.03 - 0.18 2.40
</TABLE>
14
<PAGE>
FERGUSON & COMPANY Exhibit II.5 - Comparatives Operations
- ------------------
<TABLE>
<CAPTION>
Noninterest Net Oper Total Amortization
Expense/ Expenses/ Nonrecurring of
Avg Assets Avg Assets Expense Intangibles
(%) (%) ($000) ($000)
Short Name LTM LTM LTM LTM
<S> <C> <C> <C> <C>
CKF Bancorp Inc. 1.80 1.63 274 -
Crazy Woman Creek Bancorp 2.05 1.91 187 -
CSB Financial Group Inc. 2.48 2.23 188 36
Home Building Bancorp 2.41 2.16 224 -
Horizon Financial Svcs Corp. 2.60 2.07 331 -
Joachim Bancorp Inc. 2.90 2.76 167 -
London Financial Corporation 2.32 2.14 193 -
Mid-Coast Bancorp Inc. 2.97 2.60 241 -
Mississippi View Holding Co. 2.42 2.18 363 -
NS&L Bancorp Inc. 2.32 1.97 281 -
Reliance Bancshares Inc. 1.60 NM 87 -
Scotland Bancorp Inc 1.88 1.77 321 -
Maximum 2.97 2.76 363 36
Minimum 1.60 1.63 87 -
Average 2.31 2.13 238 3
Median 2.37 2.14 233 -
<CAPTION>
Extra and
Tax After Tax Efficiency
Provision Items Ratio
($000) ($000) (%)
Short Name LTM LTM LTM
<S> <C> <C> <C>
CKF Bancorp Inc. 416 - 45.63
Crazy Woman Creek Bancorp 254 - 52.13
CSB Financial Group Inc. 125 - 65.33
Home Building Bancorp 169 - 67.44
Horizon Financial Svcs Corp. 186 - 67.58
Joachim Bancorp Inc. 119 - 69.21
London Financial Corporation 120 - 59.39
Mid-Coast Bancorp Inc. 134 - 70.52
Mississippi View Holding Co. 291 - 60.70
NS&L Bancorp Inc. 136 - 67.65
Reliance Bancshares Inc. 522 - NA
Scotland Bancorp Inc 566 - 40.20
Maximum 566 - 70.52
Minimum 119 - 40.20
Average 253 - 60.53
Median 178 - 65.33
</TABLE>
15
<PAGE>
FERGUSON & COMPANY Exhibit II.5 - Comparatives Operations
- ------------------
<TABLE>
<CAPTION>
Yield on Cost of Interest Loan Loss
Preferred Int Earning Int Bearing Effective Yield Provision/
Dividends Assets Liabilities Tax Rate Spread Avg Assets
($000) (%) (%) (%) (%) (%)
Short Name LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C>
CKF Bancorp Inc. - 7.50 5.07 34.93 2.43 0.00
Crazy Woman Creek Bancorp - 7.40 5.04 33.07 2.36 -
CSB Financial Group Inc. - 6.91 4.44 38.23 2.47 0.16
Home Building Bancorp - 7.82 4.74 66.54 3.08 0.12
Horizon Financial Svcs Corp. - 8.02 4.96 36.83 3.06 0.17
Joachim Bancorp Inc. - 7.14 4.24 39.40 2.90 0.03
London Financial Corporation - 7.64 4.90 30.23 2.74 -
Mid-Coast Bancorp Inc. - 8.70 4.96 37.64 3.74 0.17
Mississippi View Holding Co. - 7.48 4.50 38.04 2.98 0.00
NS&L Bancorp Inc. - 6.59 4.37 31.78 2.22 (0.00)
Reliance Bancshares Inc. NA 7.36 5.25 38.70 2.11 0.05
Scotland Bancorp Inc - 7.63 4.59 35.71 3.04 0.04
Maximum - 8.70 5.25 66.54 3.74 0.17
Minimum - 6.59 4.24 30.23 2.11 (0.00)
Average - 7.52 4.76 38.43 2.76 0.06
Median - 7.49 4.82 37.24 2.82 0.03
</TABLE>
16
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.6 - Comparatives Pricing Characteristics
<TABLE>
<CAPTION>
Current Current Price/ Current
Stock Market LTM Price/
Abbreviated Price Value Core EPS Book V
Ticker Name City State ($) ($M) (x) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
CKFB CKFBancorp-KY Danville KY 19.250 17.85 22.4 116.0
CRZY CrazyWomanCreek-WY Buffalo WY 13.500 13.57 20.8 93.6
CSBF CSBFinancialGrp-IL Centralia IL 12.500 11.77 39.1 97.8
HBBI HomeBldngBncrp-IN Washington IN 21.000 6.54 28.0 105.6
HZFS HorizonFinSvcs-IA Oskaloosa IA 19.250 8.19 18.2 99.6
JOAC JoachimBancorp-MO De Soto MO 14.500 11.03 37.2 106.7
LONF LondonFinCorp-OH London OH 14.875 7.66 NA 101.7
MCBN Mid-Coast Bncp-ME Waldoboro ME 19.500 4.49 13.0 90.2
MIVI MissViewHoldCo-MN Little Falls MN 14.625 11.97 17.2 94.1
NSLB NS&LBancorp-MO Neosho MO 16.500 11.67 28.5 100.9
RELI RelianceBncshrs-WI Milwaukee WI 8.250 20.86 NA 92.8
SSB ScotlandBancorp-NC Laurinburg NC 16.250 29.90 NA 118.3
Maximum 21.000 29.90 39.1 118.3
Minimum 8.250 4.49 13.0 90.2
Average 15.833 12.96 24.9 101.4
Median 15.563 11.72 22.4 100.2
</TABLE>
17
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.6 - Comparatives Pricing Characteristics
<TABLE>
<CAPTION>
Tangible
Current Current Total Equity/ Equity/ Core Core
Price/ T Price/ Dividend Assets Assets T Assets EPS ROAA
Book V Assets Yield ($000) (%) (%) ($) (%)
Ticker (%) (%) (%) MRQ MRQ MRQ LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CKFB 116.0 29.7 2.29 60,197 23.7 23.7 0.86 1.29
CRZY 93.6 26.1 2.96 52,042 27.8 27.8 0.65 1.25
CSBF 103.7 24.5 - 47,996 25.1 24.0 0.32 0.65
HBBI 105.6 14.0 1.43 46,804 12.1 12.1 0.75 0.50
HZFS 99.6 10.5 1.66 78,368 10.5 10.5 1.06 0.60
JOAC 106.7 30.9 3.45 35,656 29.0 29.0 0.39 0.78
LONF 101.7 20.2 1.61 37,937 19.9 19.9 NA 1.08
MCBN 90.2 7.8 2.67 57,838 8.6 8.6 1.50 0.64
MIVI 94.1 17.2 1.09 69,755 18.3 18.3 0.85 1.01
NSLB 100.9 20.1 3.03 58,089 19.9 19.9 0.58 0.74
RELI NA 44.6 - 46,836 48.0 NA NA 1.88
SSB 118.3 43.4 1.85 68,924 36.7 36.7 NA 1.77
Maximum 118.3 44.6 3.45 78,368 48.0 36.7 1.50 1.88
Minimum 90.2 7.8 - 35,656 8.6 8.6 0.32 0.50
Average 102.8 24.1 1.84 55,037 23.3 20.9 0.77 1.02
Median 101.7 22.4 1.75 54,940 21.8 19.9 0.75 0.90
<CAPTION>
ROACE
Core Before
ROAE Extra Merger
(%) (%) Target?
Ticker LTM LTM (Y/N)
<S> <C> <C> <C>
CKFB 5.05 5.08 N
CRZY 4.20 3.36 N
CSBF 2.39 1.62 N
HBBI 3.77 1.48 N
HZFS 5.41 3.87 N
JOAC 2.68 1.74 N
LONF 5.10 3.51 N
MCBN 7.05 4.42 N
MIVI 5.54 3.74 N
NSLB 3.45 2.31 N
RELI 3.30 NA N
SSB 4.89 4.07 N
Maximum 7.05 5.08
Minimum 2.39 1.48
Average 4.40 3.20
Median 4.55 3.51
</TABLE>
18
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit II.6 - Comparatives Pricing Characteristics
<TABLE>
<CAPTION>
NPAs/ Price/ Core Core Core
Current Assets Core EPS ROAA ROAE
Pricing (%) EPS ($) (%) (%)
Ticker Date MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C>
CKFB 06/20/97 0.89 22.9 0.21 1.21 4.96
CRZY 06/20/97 0.23 19.9 0.17 1.29 4.60
CSBF 06/20/97 NA 52.1 0.06 0.48 1.90
HBBI 06/20/97 0.52 15.9 0.33 0.81 6.63
HZFS 06/20/97 1.02 13.8 0.35 0.76 7.11
JOAC 06/20/97 0.68 51.8 0.07 0.63 2.13
LONF 06/20/97 0.79 21.9 0.17 0.86 4.17
MCBN 06/20/97 0.40 10.0 0.49 0.80 8.48
MIVI 06/20/97 0.21 17.4 0.21 1.01 5.86
NSLB 06/20/97 - 22.9 0.18 0.80 3.93
RELI 06/20/97 - 29.5 0.07 1.54 3.14
SSB 06/20/97 - 23.9 0.17 1.73 4.70
Maximum 1.02 52.1 0.49 1.73 8.48
Minimum - 10.0 0.06 0.48 1.90
Average 0.43 25.2 0.21 0.99 4.80
Median 0.40 22.4 0.18 0.84 4.65
</TABLE>
19
<PAGE>
FERGUSON & COMPANY Exhibit II.7 - Comparatives Risk Characteristice
<TABLE>
<CAPTION>
NPAs + Loans Net Loan
NPAs/ 90+ Pst Due/ NPAs/ Reserves/ Reserves/ Chargeoffs/
Assets Assets Equity Loans NPAs Avg Loans
(%) (%) (%) (%) (%) (%)
Short Name MRQ MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C>
CKF Bancorp Inc. 0.89 1.48 3.75 0.20 20.00 -
Crazy Woman Creek Bancorp 0.23 0.23 0.82 1.03 240.34 -
CSB Financial Group Inc. NA 0.74 NA 0.53 NA 0.10
Home Building Bancorp 0.52 0.52 4.30 0.28 32.51 -
Horizon Financial Svcs Corp. 1.02 1.02 9.73 0.56 36.63 0.10
Joachim Bancorp Inc. 0.68 0.68 2.35 0.31 30.45 0.13
London Financial Corporation 0.79 0.79 3.97 0.64 62.54 -
Mid-Coast Bancorp Inc. 0.40 0.40 4.62 0.61 128.70 0.02
Mississippi View Holding Co. 0.21 0.25 1.15 1.93 592.47 0.11
NS&L Bancorp Inc. - 0.06 - 0.13 NM -
Reliance Bancshares Inc. - - - 0.52 NM -
Scotland Bancorp Inc - - - 0.50 NM -
Maximum 1.02 1.48 9.73 1.93 592.47 0.13
Minimum - - - 0.13 20.00 -
Average 0.43 0.51 2.79 0.60 142.96 0.04
Median 0.40 0.46 2.35 0.53 49.59 -
</TABLE>
20
<PAGE>
FERGUSON & COMPANY Exhibit II.7 - Comparatives Risk Characteristics
- ------------------
<TABLE>
<CAPTION>
Intangible One Year Earn Assets/
Loans/ Assets/ Cum Gap/ Net Int Bearing
Assets Equity Assets Loans Liabilities
(%) (%) (%) ($000) (%)
Short Name MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C>
CKF Bancorp Inc. 89.94 - NA 54,035 132.43
Crazy Woman Creek Bancorp 53.55 - NA 27,582 140.36
CSB Financial Group Inc. 57.40 5.74 NA 27,404 129.77
Home Building Bancorp 60.41 - NA 28,195 108.55
Horizon Financial Svcs Corp. 66.63 - 7.55 51,923 110.56
Joachim Bancorp Inc. 66.88 - NA 23,772 141.81
London Financial Corporation 76.82 - NA 28,958 125.88
Mid-Coast Bancorp Inc. 83.59 - (11.49) 47,865 105.20
Mississippi View Holding Co. 64.36 - NA 43,978 123.03
NS&L Bancorp Inc. 55.13 - NA 31,919 125.18
Reliance Bancshares Inc. 58.38 NA 14.13 NA 197.41
Scotland Bancorp Inc 69.00 - NA 47,322 159.86
Maximum 89.94 5.74 14.13 54,035 197.41
Minimum 53.55 - (11.49) 23,772 105.20
Average 66.84 0.52 3.40 37,541 133.34
Median 65.50 - 7.55 31,919 127.83
</TABLE>
21
<PAGE>
EXHIBIT III
<PAGE>
FERGUSON & COMPANY Exhibit III
- ------------------
LEXINGTON FIRST FSB
LEXINGTON, TN
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
1993 1994 1995 1996
($000's)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 23,073 23,878 25,964 25,691
% Change in Assets 7.00 3.49 8.74 (1.05)
Total Loans 12,086 13,809 14,510 16,229
Deposits 19,264 19,345 21,074 20,731
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 3,587 3,389 3,719 3,814
Tangible Capital 3,587 3,389 3,736 3,883
Core Capital 3,587 3,389 3,736 3,883
Risk-Based Capital 3,656 3,389 3,844 4,009
Equity Capital/Total Assets 15.55 14.19 14.32 14.85
Core Capital/Risk Based Assets 43.23 36.17 37.73 33.97
Core Capital/Adj Tang Assets 15.55 14.19 14.38 15.07
Tangible Cap/Tangible Assets 15.55 14.19 14.38 15.07
Risk-Based Cap/Risk-Wt Assets 44.06 36.17 38.82 35.07
PROFITABILITY:
Net Income(Loss) 374 367 228 217
Ret on Avg Assets Bef Ext Item 1.68 1.56 0.91 0.84
Return on Average Equity 10.63 10.52 6.38 5.77
Net Interest Income/Avg Assets 4.75 4.45 3.29 3.44
Noninterest Income/Avg Assets 0.19 0.12 0.18 0.22
Noninterest Expense/Avg Assets 2.13 2.28 1.82 2.33
Yield/Cost Spread 4.43 4.09 2.73 2.89
LIQUIDITY:
Int Earn Assets/Int Bear Liab 115.88 114.38 114.57 114.95
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 1.28 0.36 1.13 1.05
Nonaccrual Loans/Gross Loans - 0.28 - -
Nonaccrual Lns/Ln Loss Reserve - 41.49 - -
Repos Assets/Tot Assets - - - -
Net Chrg-Off/Av Adj Lns - - - 0.10
Nonmtg 1-4 Constr&Conv Lns/TA 1.37 1.20 0.03 0.02
</TABLE>
1
<PAGE>
FERGUSON & COMPANY Exhibit III
- ------------------
LEXINGTON FIRST FSB
LEXINGTON, TN
<TABLE>
<CAPTION>
SELECTED PEER GROUP RATIOS & RANKINGS
1993 1994 1995 1996
<S> <C> <C> <C> <C>
Peer Group Category 1 1 2 2
CAPITAL:
Equity Capital/Total Assets 15.55 14.19 14.32 14.85
Peer Group Percentile 87 72 81 83
Core Cap/Adj Tangible Assets 15.55 14.19 14.38 15.07
Peer Group Percentile 87 72 83 86
Tangible Cap/Tangible Assets 15.55 14.19 14.38 15.07
Peer Group Percentile 87 72 83 86
Risk-Based Cap/Risk-Wt Assets 44.06 36.17 38.82 35.07
Peer Group Percentile 89 75 89 84
ASSET QUALITY:
Risk Assets/Total Assets 1.37 1.20 0.03 0.02
Peer Group Percentile 77 73 97 97
Risk Weighted Assts/Tot Assts 35.96 39.24 38.14 44.49
Peer Group Percentile 81 75 88 70
Nonaccrual Loans/Gross Loans - 0.28 - -
Peer Group Percentile 100 32 100 100
Repos Assets/Tot Assets - - - -
Peer Group Percentile 100 100 100 100
90+ Day Del Loans/Gross Loans 1.27 0.08 1.00 0.68
Peer Group Percentile 14 45 18 26
90Day P Due+NonAccr-(1-4)/LLR - - - -
Peer Group Percentile 100 100 100 100
LIQUIDITY:
Avg Reg Liquidity Ratio 35.40 25.46 25.25 24.41
Peer Group Percentile 83 67 77 79
PROFITABILITY:
Ret on Avg Assets Bef Ext Item 1.68 1.56 0.91 0.84
Peer Group Percentile 94 90 75 91
Return on Equity Capital 10.43 10.83 6.13 5.69
Peer Group Percentile 60 80 51 80
Int Earn Assets/Int Bear Liab 115.88 114.38 114.57 114.95
Peer Group Percentile 86 75 84 83
Yield on Earning Assts 8.05 7.85 7.89 7.94
Peer Group Percentile 74 76 64 66
Cost of Funds 3.62 3.76 5.16 5.05
Peer Group Percentile 77 53 20 29
Yield/Cost Spread 4.43 4.09 2.73 2.89
Peer Group Percentile 86 77 38 42
</TABLE>
2
<PAGE>
FERGUSON & COMPANY Exhibit III
- ------------------
LEXINGTON FIRST FSB
LEXINGTON, TN
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
3/31/96 6/30/96 9/30/96 12/31/96
($000's)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 26,173 25,709 25,724 25,691
% Change in Assets 0.81 (1.77) 0.06 (0.13)
Total Loans 15,041 15,309 15,818 16,229
Deposits 21,242 20,778 20,713 20,731
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 3,746 3,774 3,757 3,814
Tangible Capital 3,793 3,850 3,824 3,883
Core Capital 3,793 3,850 3,824 3,883
Risk-Based Capital 3,908 3,973 3,954 4,009
Equity Capital/Total Assets 14.31 14.68 14.61 14.85
Core Capital/Risk Based Assets 37.79 36.98 35.35 33.97
Core Capital/Adj Tang Assets 14.47 14.93 14.83 15.07
Tangible Cap/Tangible Assets 14.47 14.93 14.83 15.07
Risk-Based Cap/Risk-Wt Assets 38.94 38.16 36.55 35.07
PROFITABILITY:
Net Income(Loss) 76 75 (10) 76
Ret on Avg Assets Bef Ext Item 1.17 1.16 (0.16) 1.18
Return on Average Equity 8.14 7.98 (1.06) 8.03
Net Interest Income/Avg Assets 3.39 3.48 3.36 3.53
Noninterest Income/Avg Assets 0.18 0.22 0.22 0.25
Noninterest Expense/Avg Assets 1.73 1.87 3.80 1.93
Yield/Cost Spread 2.85 2.95 2.78 2.98
LIQUIDITY:
Int Earn Assets/Int Bear Liab 114.25 115.15 115.08 114.95
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 1.19 1.17 1.01 1.05
Nonaccrual Loans/Gross Loans - - - -
Nonaccrual Lns/Ln Loss Reserve - - - -
Repos Assets/Tot Assets - - - -
Net Chrg-Off/Av Adj Lns - - - 0.37
Nonmtg 1-4 Constr&Conv Lns/TA 0.03 0.16 0.03 0.02
</TABLE>
3
<PAGE>
FERGUSON & COMPANY Exhibit III
- ------------------
<TABLE>
<CAPTION>
LEXINGTON FIRST FSB
LEXINGTON, TN
SELECTED PEER GROUP RATIOS & RANKINGS
3/31/96 6/30/96 9/30/96 12/31/96
<S> <C> <C> <C> <C>
Peer Group Category 2 2 2 2
CAPITAL:
Equity Capital/Total Assets 14.31 14.68 14.61 14.85
Peer Group Percentile 83 83 81 83
Core Cap/Adj Tangible Assets 14.47 14.93 14.83 15.07
Peer Group Percentile 86 85 84 86
Tangible Cap/Tangible Assets 14.47 14.93 14.83 15.07
Peer Group Percentile 86 85 84 86
Risk-Based Cap/Risk-Wt Assets 38.94 38.16 36.55 35.07
Peer Group Percentile 90 87 84 84
ASSET QUALITY:
Risk Assets/Total Assets 0.03 0.16 0.03 0.02
Peer Group Percentile 97 96 96 97
Risk Weighted Assts/Tot Assts 38.35 40.50 42.05 44.49
Peer Group Percentile 86 81 76 70
Nonaccrual Loans/Gross Loans - - - -
Peer Group Percentile 100 100 100 100
Repos Assets/Tot Assets - - - -
Peer Group Percentile 100 100 100 100
90+ Day Del Loans/Gross Loans 1.06 1.02 0.88 0.68
Peer Group Percentile 16 17 20 26
90Day P Due+NonAccr-(1-4)/LLR - - - -
Peer Group Percentile 100 100 100 100
LIQUIDITY:
Avg Reg Liquidity Ratio 29.34 28.89 28.19 24.41
Peer Group Percentile 84 83 84 79
PROFITABILITY:
Ret on Avg Assets Bef Ext Item 1.17 1.16 (0.16) 1.18
Peer Group Percentile 88 84 88 82
Return on Equity Capital 8.12 7.95 (1.06) 7.97
Peer Group Percentile 70 64 88 58
Int Earn Assets/Int Bear Liab 114.25 115.15 115.08 114.95
Peer Group Percentile 84 85 80 83
Yield on Earning Assts 7.91 7.92 7.92 8.02
Peer Group Percentile 65 67 64 71
Cost of Funds 5.06 4.97 5.14 5.04
Peer Group Percentile 33 32 23 30
Yield/Cost Spread 2.85 2.95 2.78 2.98
Peer Group Percentile 44 48 35 43
</TABLE>
4
<PAGE>
EXHIBIT IV
<PAGE>
FERGUSON & COMPANY Exhibit IV
- ------------------
<TABLE>
<CAPTION>
CENTRAL KENTUCKY FSB
DANVILLE, KY
TICKER CKFB FINANCIAL HIGHLIGHTS
- -----------
1993 1994 1995 1996
($000's)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 50,050 56,377 56,545 60,014
% Change in Assets 3.51 12.64 0.30 6.13
Total Loans 41,974 45,441 49,997 53,544
Deposits 43,599 44,273 43,126 44,762
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 5,664 11,290 12,295 12,431
Tangible Capital 5,664 10,989 11,781 11,967
Core Capital 5,664 10,989 11,781 11,967
Risk-Based Capital 5,740 11,065 11,881 12,074
Equity Capital/Total Assets 11.32 20.03 21.74 20.71
Core Capital/Risk Based Assets 21.41 39.04 33.63 35.07
Core Capital/Adj Tang Assets 11.32 19.65 21.03 20.10
Tangible Cap/Tangible Assets 11.32 19.65 21.03 20.10
Risk-Based Cap/Risk-Wt Assets 21.70 39.31 33.92 35.38
PROFITABILITY:
Net Income(Loss) 560 542 764 827
Ret on Avg Assets Bef Ext Item 1.29 1.02 1.37 1.40
Return on Average Equity 11.78 6.39 6.47 6.55
Net Interest Income/Avg Assets 3.21 2.98 3.87 3.71
Noninterest Income/Avg Assets 0.16 0.16 0.16 0.65
Noninterest Expense/Avg Assets 1.35 1.60 1.89 2.27
Yield/Cost Spread 2.93 2.46 3.11 2.87
LIQUIDITY:
Int Earn Assets/Int Bear Liab 110.09 123.66 125.92 123.97
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 1.41 1.48 1.09 1.25
Nonaccrual Loans/Gross Loans 0.25 - 0.00 0.16
Nonaccrual Lns/Ln Loss Reserve 136.84 - 2.00 81.31
Repos Assets/Tot Assets 0.07 - - 0.38
Net Chrg-Off/Av Adj Lns - - - -
Nonmtg 1-4 Constr&Conv Lns/TA 10.59 10.51 13.09 12.79
</TABLE>
1
<PAGE>
FERGUSON & COMPANY Exhibit IV
- ------------------
<TABLE>
<CAPTION>
BUFFALO FS&LA
BUFFALO, WY
TICKER CRZY FINANCIAL HIGHLIGHTS
- -----------
1993 1994 1995 1996
($000's)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 33,015 35,836 38,217 52,595
% Change in Assets 2.46 8.54 6.64 37.62
Total Loans 20,718 23,177 23,907 26,822
Deposits 26,510 29,114 29,028 29,146
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 5,134 5,513 5,982 10,747
Tangible Capital 5,134 5,513 5,961 10,743
Core Capital 5,134 5,513 5,961 10,743
Risk-Based Capital 5,272 5,607 6,185 11,007
Equity Capital/Total Assets 15.55 15.38 15.65 20.43
Core Capital/Risk Based Assets 32.35 32.02 33.42 50.76
Core Capital/Adj Tang Assets 15.55 15.38 15.61 20.43
Tangible Cap/Tangible Assets 15.55 15.38 15.61 20.43
Risk-Based Cap/Risk-Wt Assets 33.22 32.56 34.67 52.00
PROFITABILITY:
Net Income(Loss) 498 465 395 281
Ret on Avg Assets Bef Ext Item 1.53 1.35 1.07 0.56
Return on Average Equity 10.19 8.73 6.81 2.83
Net Interest Income/Avg Assets 3.96 3.93 3.29 3.08
Noninterest Income/Avg Assets 0.21 0.56 0.54 0.24
Noninterest Expense/Avg Assets 2.35 2.41 2.27 2.44
Yield/Cost Spread 3.57 3.52 2.70 2.23
LIQUIDITY:
Int Earn Assets/Int Bear Liab 114.74 116.28 116.44 123.70
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 4.07 0.01 0.33 0.33
Nonaccrual Loans/Gross Loans 1.17 0.01 0.33 0.33
Nonaccrual Lns/Ln Loss Reserve 104.66 1.40 28.57 31.47
Repos Assets/Tot Assets 1.53 - - -
Net Chrg-Off/Av Adj Lns 0.46 (0.09) (0.10) (0.03)
Nonmtg 1-4 Constr&Conv Lns/TA 8.50 8.83 6.73 4.37
</TABLE>
2
<PAGE>
FERGUSON & COMPANY Exhibit IV
- ------------------
<TABLE>
<CAPTION>
CENTRALIA SVGS BK
CENTRALIA, IL
TICKER CSBF FINANCIAL HIGHLIGHTS
- -----------
1993 1994 1995 1996
($000's)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 34,134 33,660 37,826 45,119
% Change in Assets - (1.39) 12.38 19.28
Securities-Book Value 12,030 14,697 12,740 13,185
Securities-Fair Value 12,774 14,363 12,871 13,181
Total Loans & Leases 17,756 17,360 20,890 27,832
Total Deposits 28,961 28,053 28,357 35,514
Loan/Deposit Ratio 61.31 61.88 73.67 78.37
Provision for Loan Losses 24 48 96 63
CAPITAL:
Equity Capital 4,945 5,352 8,562 8,699
Total Qualifying Capital(Est) 5,005 5,448 8,639 8,125
Equity Capital/Average Assets 14.49 15.79 23.41 21.53
Tot Qual Cap/Rk Bsd Asts(Est) 42.13 46.46 55.30 40.44
Tier 1 Cap/Rsk Bsed Asts(Est) 41.62 45.73 54.41 39.79
T1 Cap/Avg Assets(Lev Est) 14.53 16.08 21.09 17.76
Dividends Declared/Net Income - - - -
PROFITABILITY:
Net Income(Loss) 464 419 282 147
Return on Average Assets 1.36 1.24 0.77 0.36
Return on Average Equity Cap 9.38 8.14 4.79 1.71
Net Interest Margin 4.48 4.08 3.87 3.74
Net Int Income/Avg Assets 4.39 3.99 3.54 3.46
Noninterest Income/Avg Assets 0.18 0.17 0.19 0.17
Noninterest Exp/Avg Assets 1.81 2.07 2.15 2.81
ASSET QUALITY:
NPL+Frcl RE/Lns+Frcl RE 0.29 2.64 1.62 1.33
NPA's/Equity + LLR 1.02 8.44 3.90 4.20
LLR/Nonperf & Restrcd Lns 117.65 18.98 41.30 35.31
Foreclosed RE/Total Assets - 0.02 - -
90+ Day Del Loans/Total Loans 0.29 2.61 0.03 0.49
Loan Loss Reserves/Total Lns 0.34 0.50 0.67 0.47
Net Charge-Offs/Average Loans 0.06 0.13 0.22 0.30
Dom Risk R/E Lns/Tot Dom Lns 5.08 3.96 8.36 7.75
LIQUIDITY:
Brokered Dep/Total Dom Deps - - - -
$100M+ Time Dep/Total Dom Dep 5.31 6.76 5.22 4.49
Int Earn Assets/Int Bear Liab 116.72 118.73 130.07 122.45
Pledged Sec/Total Sec - - - -
Fair Value Sec/Amort Cost Sec 106.18 97.63 101.84 99.98
</TABLE>
3
<PAGE>
FERGUSON & COMPANY Exhibit IV
- ------------------
HOME BUILDING SVGS BK FSB
WASHINGTON, IN
TICKER HBBI FINANCIAL HIGHLIGHTS
- -----------
<TABLE>
<CAPTION>
1993 1994 1995 1996
($000's)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 42,816 42,107 42,796 44,337
% Change in Assets 4.22 (1.66) 1.64 3.60
Total Loans 30,583 29,944 29,177 28,500
Deposits 37,235 36,629 33,283 35,589
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 2,795 3,090 4,639 4,335
Tangible Capital 2,795 3,090 4,611 4,338
Core Capital 2,795 3,090 4,611 4,338
Risk-Based Capital 2,840 3,167 4,688 4,417
Equity Capital/Total Assets 6.53 7.34 10.84 9.78
Core Capital/Risk Based Assets 12.92 13.65 20.99 20.19
Core Capital/Adj Tang Assets 6.53 7.35 10.79 9.78
Tangible Cap/Tangible Assets 6.53 7.35 10.79 9.78
Risk-Based Cap/Risk-Wt Assets 13.13 13.99 21.35 20.56
PROFITABILITY:
Net Income(Loss) 436 327 421 (138)
Ret on Avg Assets Bef Ext Item 1.04 0.77 1.01 (0.32)
Return on Average Equity 16.92 11.11 9.69 (3.15)
Net Interest Income/Avg Assets 3.25 3.21 3.47 3.18
Noninterest Income/Avg Assets 0.31 0.24 0.39 0.34
Noninterest Expense/Avg Assets 1.94 2.10 2.27 2.86
Yield/Cost Spread 3.36 3.32 3.39 3.18
LIQUIDITY:
Int Earn Assets/Int Bear Liab 101.41 102.72 105.49 103.42
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.27 0.68 0.32 1.60
Nonaccrual Loans/Gross Loans 0.09 0.67 0.20 1.59
Nonaccrual Lns/Ln Loss Reserve 64.44 263.64 77.92 577.22
Repos Assets/Tot Assets - - 0.08 -
Net Chrg-Off/Av Adj Lns 0.01 0.03 - 1.44
Nonmtg 1-4 Constr&Conv Lns/TA 0.80 0.53 0.81 0.69
</TABLE>
4
<PAGE>
FERGUSON & COMPANY Exhibit IV
- ------------------
<TABLE>
<CAPTION>
HORIZON FSB
OSKALOOSA, IA
TICKER HZFS FINANCIAL HIGHLIGHTS
- -----------
1993 1994 1995 1996
($000's)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 57,544 63,008 71,498 72,514
% Change in Assets 5.82 9.50 13.47 1.42
Total Loans 38,155 43,162 48,886 51,591
Deposits 51,772 50,378 53,947 55,861
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 4,356 6,496 6,562 5,838
Tangible Capital 4,356 6,725 6,535 5,703
Core Capital 4,356 6,725 6,535 5,703
Risk-Based Capital 4,687 6,968 6,781 5,953
Equity Capital/Total Assets 7.57 10.31 9.18 8.05
Core Capital/Risk Based Assets 14.98 19.97 16.39 13.70
Core Capital/Adj Tang Assets 7.57 10.64 9.14 7.88
Tangible Cap/Tangible Assets 7.57 10.64 9.14 7.88
Risk-Based Cap/Risk-Wt Assets 16.12 20.70 17.00 14.30
PROFITABILITY:
Net Income(Loss) 477 460 411 75
Ret on Avg Assets Bef Ext Item 0.85 0.76 0.61 0.10
Return on Average Equity 11.56 8.48 6.42 1.21
Net Interest Income/Avg Assets 3.47 3.43 3.07 2.99
Noninterest Income/Avg Assets 0.49 0.46 0.47 0.59
Noninterest Expense/Avg Assets 2.62 2.68 2.54 2.87
Yield/Cost Spread 3.44 3.35 2.88 2.84
LIQUIDITY:
Int Earn Assets/Int Bear Liab 104.11 107.83 107.16 104.89
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 1.61 1.81 2.53 2.57
Nonaccrual Loans/Gross Loans 1.57 0.87 2.49 1.27
Nonaccrual Lns/Ln Loss Reserve 161.05 130.58 427.34 225.17
Repos Assets/Tot Assets 0.01 0.35 0.01 0.47
Net Chrg-Off/Av Adj Lns (0.01) 0.22 0.03 0.78
Nonmtg 1-4 Constr&Conv Lns/TA 8.33 7.12 6.57 5.98
</TABLE>
5
<PAGE>
FERGUSON & COMPANY Exhibit IV
- ------------------
<TABLE>
<CAPTION>
JOACHIM FS&LA
DE SOTO, MO
TICKER JOAC FINANCIAL HIGHLIGHTS
- -----------
1993 1994 1995 1996
($000's)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 31,101 29,034 33,539 32,329
% Change in Assets (0.22) (6.65) 15.52 (3.61)
Total Loans 22,939 22,242 21,968 24,158
Deposits 26,904 24,652 25,345 24,075
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 3,780 4,030 7,286 7,427
Tangible Capital 3,780 4,030 7,286 7,427
Core Capital 3,780 4,030 7,286 7,427
Risk-Based Capital 3,827 4,088 7,356 7,502
Equity Capital/Total Assets 12.15 13.88 21.72 22.97
Core Capital/Risk Based Assets 21.68 25.83 44.85 45.42
Core Capital/Adj Tang Assets 12.16 13.88 21.73 22.97
Tangible Cap/Tangible Assets 12.16 13.88 21.73 22.97
Risk-Based Cap/Risk-Wt Assets 21.95 26.20 45.28 45.88
PROFITABILITY:
Net Income(Loss) 255 251 210 88
Ret on Avg Assets Bef Ext Item 0.82 0.83 0.68 0.26
Return on Average Equity 6.93 6.43 4.65 1.20
Net Interest Income/Avg Assets 3.74 3.77 3.56 3.71
Noninterest Income/Avg Assets 0.45 0.38 0.29 0.27
Noninterest Expense/Avg Assets 2.60 2.82 2.77 3.59
Yield/Cost Spread 3.76 3.76 3.35 3.04
LIQUIDITY:
Int Earn Assets/Int Bear Liab 108.50 109.88 123.18 125.87
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 2.80 3.20 0.13 1.56
Nonaccrual Loans/Gross Loans 0.51 0.37 0.07 0.66
Nonaccrual Lns/Ln Loss Reserve 248.94 141.38 21.43 213.33
Repos Assets/Tot Assets 0.81 1.07 - 0.31
Net Chrg-Off/Av Adj Lns 0.01 0.02 0.02 0.00
Nonmtg 1-4 Constr&Conv Lns/TA 4.56 5.92 4.55 6.64
</TABLE>
6
<PAGE>
FERGUSON & COMPANY Exhibit IV
- ------------------
CITIZENS L&SC
LONDON, OH
TICKER LONF FINANCIAL HIGHLIGHTS
- -----------
<TABLE>
<CAPTION>
1993 1994 1995 1996
<S> <C> <C> <C> <C>
($000's)
BALANCE SHEET:
Total Assets 30,915 32,226 34,615 35,289
% Change in Assets 6.42 4.24 7.41 1.95
Total Loans 25,018 26,717 27,877 28,003
Deposits 27,684 28,754 30,989 28,795
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 2,879 3,123 3,267 5,524
Tangible Capital 2,879 3,123 3,267 5,524
Core Capital 2,879 3,123 3,267 5,524
Risk-Based Capital 3,062 3,315 3,454 5,712
Equity Capital/Total Assets 9.31 9.69 9.44 15.65
Core Capital/Risk Based Assets 17.19 18.01 18.11 28.82
Core Capital/Adj Tang Assets 9.31 9.69 9.44 15.65
Tangible Cap/Tangible Assets 9.31 9.69 9.44 15.65
Risk-Based Cap/Risk-Wt Assets 18.28 19.12 19.15 29.80
PROFITABILITY:
Net Income(Loss) 308 244 144 225
Ret on Avg Assets Bef Ext Item 1.03 0.77 0.43 0.64
Return on Average Equity 11.30 8.13 4.48 4.18
Net Interest Income/Avg Assets 3.69 3.28 2.86 3.51
Noninterest Income/Avg Assets 0.24 0.25 0.24 0.21
Noninterest Expense/Avg Assets 2.35 2.38 2.43 2.78
Yield/Cost Spread 3.51 3.10 2.60 2.94
LIQUIDITY:
Int Earn Assets/Int Bear Liab 107.43 107.79 107.36 116.24
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.61 0.09 0.16 1.06
Nonaccrual Loans/Gross Loans 0.59 0.08 0.16 1.00
Nonaccrual Lns/Ln Loss Reserve 79.79 11.46 24.06 159.04
Repos Assets/Tot Assets - - - -
Net Chrg-Off/Av Adj Lns - - 0.02 (0.00)
Nonmtg 1-4 Constr&Conv Lns/TA 16.60 16.87 15.78 14.37
</TABLE>
7
<PAGE>
FERGUSON & COMPANY Exhibit IV
- ------------------
WALDOBORO BANK FSB
WALDOBORO, ME
TICKER MCBN FINANCIAL HIGHLIGHTS
- -----------
<TABLE>
<CAPTION>
1993 1994 1995 1996
($000's)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 50,035 52,508 55,423 57,851
% Change in Assets 7.49 4.94 5.55 4.38
Total Loans 42,698 44,093 44,092 48,340
Deposits 35,398 38,161 41,932 42,490
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 4,212 4,472 4,857 4,937
Tangible Capital 4,212 4,472 4,857 4,937
Core Capital 4,212 4,472 4,857 4,937
Risk-Based Capital 4,418 4,650 5,077 5,233
Equity Capital/Total Assets 8.42 8.52 8.76 8.53
Core Capital/Risk Based Assets 15.02 15.23 15.64 14.37
Core Capital/Adj Tang Assets 8.42 8.52 8.76 8.53
Tangible Cap/Tangible Assets 8.42 8.52 8.76 8.53
Risk-Based Cap/Risk-Wt Assets 15.76 15.84 16.35 15.24
PROFITABILITY:
Net Income(Loss) 558 428 385 228
Ret on Avg Assets Bef Ext Item 1.06 0.83 0.71 0.41
Return on Average Equity 12.88 9.86 8.22 4.68
Net Interest Income/Avg Assets 3.73 3.61 3.47 3.72
Noninterest Income/Avg Assets 0.44 0.36 0.41 0.45
Noninterest Expense/Avg Assets 2.32 2.43 2.66 3.32
Yield/Cost Spread 3.61 3.57 3.44 3.80
LIQUIDITY:
Int Earn Assets/Int Bear Liab 105.48 104.69 104.43 103.47
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 1.77 1.00 1.39 0.60
Nonaccrual Loans/Gross Loans 1.63 0.24 1.19 0.41
Nonaccrual Lns/Ln Loss Reserve 328.11 59.55 240.00 67.57
Repos Assets/Tot Assets 0.10 0.65 0.16 0.16
Net Chrg-Off/Av Adj Lns 0.04 0.45 0.06 0.09
Nonmtg 1-4 Constr&Conv Lns/TA 6.13 8.01 10.06 12.14
</TABLE>
8
<PAGE>
FERGUSON & COMPANY Exhibit IV
- ------------------
<TABLE>
<CAPTION>
COMMUNITY FS&LA
LITTLE FALLS, MN
TICKER MIVI FINANCIAL HIGHLIGHTS
- -----------
1993 1994 1995 1996
($000's)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 64,942 62,111 69,212 70,306
% Change in Assets (2.47) (4.36) 11.43 1.58
Total Loans 44,315 44,310 43,438 44,095
Deposits 58,783 55,312 54,689 56,426
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 5,646 6,137 10,912 11,504
Tangible Capital 5,634 6,043 10,692 10,639
Core Capital 5,634 6,043 10,692 10,639
Risk-Based Capital 5,985 6,419 11,092 11,068
Equity Capital/Total Assets 8.69 9.88 15.77 16.36
Core Capital/Risk Based Assets 17.01 18.90 32.13 31.25
Core Capital/Adj Tang Assets 8.68 9.74 15.50 15.32
Tangible Cap/Tangible Assets 8.68 9.74 15.50 15.32
Risk-Based Cap/Risk-Wt Assets 18.07 20.08 33.33 32.51
PROFITABILITY:
Net Income(Loss) 748 414 837 520
Ret on Avg Assets Bef Ext Item 1.14 0.65 1.22 0.74
Return on Average Equity 14.19 7.03 8.46 4.81
Net Interest Income/Avg Assets 3.25 3.40 3.63 3.47
Noninterest Income/Avg Assets 0.39 0.40 0.53 0.43
Noninterest Expense/Avg Assets 2.05 2.40 2.17 2.70
Yield/Cost Spread 3.06 3.23 3.21 2.94
LIQUIDITY:
Int Earn Assets/Int Bear Liab 108.19 108.61 115.61 118.25
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.55 0.09 0.22 0.59
Nonaccrual Loans/Gross Loans 0.01 0.05 - 0.38
Nonaccrual Lns/Ln Loss Reserve 0.58 2.06 - 19.73
Repos Assets/Tot Assets 0.11 - 0.02 -
Net Chrg-Off/Av Adj Lns 0.19 (0.03) 0.33 0.02
Nonmtg 1-4 Constr&Conv Lns/TA 4.64 5.96 2.47 2.85
</TABLE>
9
<PAGE>
FERGUSON & COMPANY Exhibit IV
- ------------------
NEOSHO S&LA, FA
NEOSHO, MO
TICKER NSLB FINANCIAL HIGHLIGHTS
- -----------
<TABLE>
<CAPTION>
1993 1994 1995 1996
($000's)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 52,078 49,738 53,156 56,645
% Change in Assets (0.43) (4.49) 6.87 6.56
Total Loans 22,758 25,095 28,013 31,762
Deposits 46,092 43,274 41,964 44,062
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 5,531 6,018 9,947 8,339
Tangible Capital 5,531 6,018 9,947 8,339
Core Capital 5,531 6,018 9,947 8,339
Risk-Based Capital 5,552 6,036 9,945 8,381
Equity Capital/Total Assets 10.62 12.10 18.71 14.72
Core Capital/Risk Based Assets 31.27 34.70 51.58 38.31
Core Capital/Adj Tang Assets 10.62 12.10 18.71 14.72
Tangible Cap/Tangible Assets 10.62 12.10 18.71 14.72
Risk-Based Cap/Risk-Wt Assets 31.39 34.81 51.57 38.50
PROFITABILITY:
Net Income(Loss) 590 471 471 186
Ret on Avg Assets Bef Ext Item 1.27 0.93 0.88 0.33
Return on Average Equity 12.68 8.16 5.59 1.97
Net Interest Income/Avg Assets 3.32 3.04 2.95 2.80
Noninterest Income/Avg Assets 0.63 0.59 0.53 0.43
Noninterest Expense/Avg Assets 2.02 2.17 2.24 2.79
Yield/Cost Spread 3.25 2.94 2.58 2.32
LIQUIDITY:
Int Earn Assets/Int Bear Liab 109.01 110.37 119.53 114.10
Brokered Deposits/Tot Deposits - - - -
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.08 0.04 0.12 0.14
Nonaccrual Loans/Gross Loans - - 0.12 0.14
Nonaccrual Lns/Ln Loss Reserve - - 89.74 107.14
Repos Assets/Tot Assets - - - -
Net Chrg-Off/Av Adj Lns - - (0.02) -
Nonmtg 1-4 Constr&Conv Lns/TA 0.53 0.42 0.33 0.20
</TABLE>
10
<PAGE>
FERGUSON & COMPANY Exhibit IV
- ------------------
<TABLE>
<CAPTION>
RELIANCE SVGS BK
MILWAUKEE, WI
TICKER RELI FINANCIAL HIGHLIGHTS
- -----------
1993 1994 1995 1996
($000's)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 33,093 32,639 32,150 40,442
% Change in Assets - (1.37) (1.50) 25.79
Securities-Book Value 3,951 10,711 8,769 12,786
Securities-Fair Value 4,105 10,691 8,857 12,838
Total Loans & Leases 18,251 20,340 22,235 25,222
Total Deposits 23,816 22,914 21,460 17,932
Loan/Deposit Ratio 76.63 88.77 103.61 140.65
Provision for Loan Losses 22 22 22 22
CAPITAL:
Equity Capital 9,052 9,282 9,969 19,652
Total Qualifying Capital(Est) 9,126 9,399 9,821 19,410
Equity Capital/Average Assets 27.35 28.24 30.39 51.69
Tot Qual Cap/Rk Bsd Asts(Est) 61.14 45.16 45.62 81.73
Tier 1 Cap/Rsk Bsed Asts(Est) 60.65 44.71 45.09 81.16
T1 Cap/Avg Assets(Lev Est) 26.97 27.95 30.19 44.56
Dividends Declared/Net Income - - - -
PROFITABILITY:
Net Income(Loss) 381 373 400 497
Return on Average Assets 1.15 1.13 1.22 1.31
Return on Average Equity Cap 4.21 4.07 4.15 3.16
Net Interest Margin 4.71 4.63 4.28 4.92
Net Int Income/Avg Assets 3.73 4.12 4.16 4.68
Noninterest Income/Avg Assets (0.07) 0.04 0.04 0.02
Noninterest Exp/Avg Assets 1.65 2.20 2.13 2.28
ASSET QUALITY:
NPL+Frcl RE/Lns+Frcl RE 0.37 - - -
NPA's/Equity + LLR 0.73 - - -
LLR/Nonperf & Restrcd Lns 110.45 - - -
Foreclosed RE/Total Assets - - - -
90+ Day Del Loans/Total Loans 0.37 - - -
Loan Loss Reserves/Total Lns 0.41 0.46 0.52 0.55
Net Charge-Offs/Average Loans - 0.01 - -
Dom Risk R/E Lns/Tot Dom Lns 40.15 34.08 36.80 33.82
LIQUIDITY:
Brokered Dep/Total Dom Deps - - - -
$100M+ Time Dep/Total Dom Dep 6.88 9.10 10.41 7.20
Int Earn Assets/Int Bear Liab 137.66 138.79 144.61 196.95
Pledged Sec/Total Sec - - - -
Fair Value Sec/Amort Cost Sec 103.90 99.45 106.26 105.54
</TABLE>
11
<PAGE>
FERGUSON & COMPANY Exhibit IV
- ------------------
<TABLE>
<CAPTION>
SCOTLAND SVGS BK
LAURINBURG, NC
TICKER SSB FINANCIAL HIGHLIGHTS
- ----------
1993 1994 1995 1996
($000's)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 55,357 57,740 58,049 60,714
% Change in Assets (1.10) 4.30 0.54 4.59
Securities-Book Value 5,247 14,250 11,806 11,018
Securities-Fair Value 5,815 14,086 11,912 11,081
Total Loans & Leases 39,671 37,296 42,003 46,305
Total Deposits 47,653 49,124 48,346 42,432
Loan/Deposit Ratio 83.25 75.92 86.88 109.13
Provision for Loan Losses 5 25 12 24
CAPITAL:
Equity Capital 7,093 7,921 8,860 17,136
Total Qualifying Capital(Est) 7,270 7,897 8,609 16,834
Equity Capital/Average Assets 12.74 14.01 15.02 26.95
Tot Qual Cap/Rk Bsd Asts(Est) 26.33 30.02 30.65 57.41
Tier 1 Cap/Rsk Bsed Asts(Est) 25.69 29.25 29.89 56.62
T1 Cap/Avg Assets(Lev Est) 14.44 13.05 14.11 27.12
Dividends Declared/Net Income - - - 30.14
PROFITABILITY:
Net Income(Loss) 465 577 700 647
Return on Average Assets 0.84 1.02 1.19 1.02
Return on Average Equity Cap 6.78 7.69 8.36 4.08
Net Interest Margin 4.07 3.89 3.80 4.30
Net Int Income/Avg Assets 4.01 3.82 3.66 4.11
Noninterest Income/Avg Assets 0.10 0.27 0.11 0.09
Noninterest Exp/Avg Assets 1.93 2.44 1.92 2.58
ASSET QUALITY:
NPL+Frcl RE/Lns+Frcl RE 0.29 - - 0.07
NPA's/Equity + LLR 1.60 - - 0.18
LLR/Nonperf & Restrcd Lns 152.59 - - 745.16
Foreclosed RE/Total Assets - - - -
90+ Day Del Loans/Total Loans 0.29 - - 0.07
Loan Loss Reserves/Total Lns 0.45 0.54 0.51 0.50
Net Charge-Offs/Average Loans - - - 0.02
Dom Risk R/E Lns/Tot Dom Lns 8.13 7.58 6.59 6.50
LIQUIDITY:
Brokered Dep/Total Dom Deps - - - -
$100M+ Time Dep/Total Dom Dep 6.02 7.36 8.60 6.66
Int Earn Assets/Int Bear Liab 114.75 115.85 118.12 142.09
Pledged Sec/Total Sec 10.04 2.55 6.02 5.95
Fair Value Sec/Amort Cost Sec 110.83 101.29 107.31 108.53
</TABLE>
12
<PAGE>
EXHIBIT V
<PAGE>
FERGUSON & COMPANY Exhibit V - Selected Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<C> <S> <C> <C> <C> <C> <C> <C> <C>
AADV Advantage Bancorp Inc. Kenosha WI MW SAIF NASDAQ 03/23/92 39.000
ABBK Abington Bancorp Inc. Abington MA NE BIF NASDAQ 06/10/86 25.000
ABCL Alliance Bancorp Inc. Hinsdale IL MW SAIF NASDAQ 07/07/92 29.875
ABCW Anchor BanCorp Wisconsin Madison WI MW SAIF NASDAQ 07/16/92 50.000
AFCB Affiliated Community Bancorp Waltham MA NE SAIF NASDAQ 10/19/95 24.375
AHM Ahmanson & Company (H.F.) Irwindale CA WE SAIF NYSE 10/25/72 47.125
ALBC Albion Banc Corp. Albion NY MA SAIF NASDAQ 07/26/93 22.000
ALBK ALBANK Financial Corporation Albany NY MA SAIF NASDAQ 04/01/92 39.813
ANBK American National Bancorp Baltimore MD MA SAIF NASDAQ 10/31/95 16.125
ANDB Andover Bancorp Inc. Andover MA NE BIF NASDAQ 05/08/86 29.375
ASBI Ameriana Bancorp New Castle IN MW SAIF NASDAQ 03/02/87 15.625
ASBP ASB Financial Corp. Portsmouth OH MW SAIF NASDAQ 05/11/95 12.000
ASFC Astoria Financial Corporation Lake Success NY MA SAIF NASDAQ 11/18/93 45.625
BANC BankAtlantic Bancorp Inc. Fort Lauderdale FL SE SAIF NASDAQ 11/29/83 14.125
BDJI First Federal Bancorporation Bemidji MN MW SAIF NASDAQ 04/04/95 18.750
BFD BostonFed Bancorp Inc. Burlington MA NE SAIF AMSE 10/24/95 17.688
BFSB Bedford Bancshares Inc. Bedford VA SE SAIF NASDAQ 08/22/94 20.750
BKC American Bank of Connecticut Waterbury CT NE BIF AMSE 12/01/81 35.500
BKCT Bancorp Connecticut Inc. Southington CT NE BIF NASDAQ 07/03/86 25.500
BKUNA BankUnited Financial Corp. Coral Gables FL SE SAIF NASDAQ 12/11/85 9.625
BSBC Branford Savings Bank Branford CT NE BIF NASDAQ 11/04/86 4.688
BVCC Bay View Capital Corp. San Mateo CA WE SAIF NASDAQ 05/09/86 26.625
CAFI Camco Financial Corp. Cambridge OH MW SAIF NASDAQ NA 18.000
CAPS Capital Savings Bancorp Inc. Jefferson City MO MW SAIF NASDAQ 12/29/93 16.625
CASB Cascade Financial Corp. Everett WA WE SAIF NASDAQ 09/16/92 18.500
CASH First Midwest Financial Inc. Storm Lake IA MW SAIF NASDAQ 09/20/93 15.125
CBCI Calumet Bancorp Inc. Dolton IL MW SAIF NASDAQ 02/20/92 39.500
CBSA Coastal Bancorp Inc. Houston TX SW SAIF NASDAQ NA 28.750
CBSB Charter Financial Inc. Sparta IL MW SAIF NASDAQ 12/29/95 17.063
CEBK Central Co-operative Bank Somerville MA NE BIF NASDAQ 10/24/86 18.125
CENF CENFED Financial Corp. Pasadena CA WE SAIF NASDAQ 10/25/91 32.750
CFB Commercial Federal Corporation Omaha NE MW SAIF NYSE 12/31/84 37.500
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88 22.500
CFSB CFSB Bancorp Inc. Lansing MI MW SAIF NASDAQ 06/22/90 23.250
CFTP Community Federal Bancorp Tupelo MS SE SAIF NASDAQ 03/26/96 17.625
CFX CFX Corporation Keene NH NE BIF AMSE 02/12/87 18.125
CIBI Community Investors Bancorp Bucyrus OH MW SAIF NASDAQ 02/07/95 13.500
CKFB CKF Bancorp Inc. Danville KY MW SAIF NASDAQ 01/04/95 19.250
CMRN Cameron Financial Corp Cameron MO MW SAIF NASDAQ 04/03/95 16.750
CMSV Community Savings, MHC North Palm Beach FL SE SAIF NASDAQ 10/24/94 21.750
CNIT CENIT Bancorp Inc. Norfolk VA SE SAIF NASDAQ 08/06/92 44.500
COFI Charter One Financial Cleveland OH MW SAIF NASDAQ 01/22/88 51.000
CRZY Crazy Woman Creek Bancorp Buffalo WY WE SAIF NASDAQ 03/29/96 13.500
CSA Coast Savings Financial Los Angeles CA WE SAIF NYSE 12/23/85 46.000
CTZN CitFed Bancorp Inc. Dayton OH MW SAIF NASDAQ 01/23/92 37.563
CVAL Chester Valley Bancorp Inc. Downingtown PA MA SAIF NASDAQ 03/27/87 21.000
DFIN Damen Financial Corp. Schaumburg IL MW SAIF NASDAQ 10/02/95 14.375
DIBK Dime Financial Corp. Wallingford CT NE BIF NASDAQ 07/09/86 23.000
DME Dime Bancorp Inc. New York NY MA BIF NYSE 08/19/86 19.000
DNFC D & N Financial Corp. Hancock MI MW SAIF NASDAQ 02/13/85 19.063
DSL Downey Financial Corp. Newport Beach CA WE SAIF NYSE 01/01/71 23.250
EBSI Eagle Bancshares Tucker GA SE SAIF NASDAQ 04/01/86 17.875
EFBI Enterprise Federal Bancorp West Chester OH MW SAIF NASDAQ 10/17/94 18.250
EGFC Eagle Financial Corp. Bristol CT NE SAIF NASDAQ 02/03/87 30.750
EIRE Emerald Isle Bancorp Inc. Quincy MA NE BIF NASDAQ 09/08/86 18.500
EMLD Emerald Financial Corp. Strongsville OH MW SAIF NASDAQ NA 14.063
EQSB Equitable Federal Savings Bank Wheaton MD MA SAIF NASDAQ 09/10/93 36.250
</TABLE>
1
<PAGE>
FERGUSON & COMPANY Exhibit V - Selected Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Deposit
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ESBK Elmira Savings Bank (The) Elmira NY MA BIF NASDAQ 03/01/85 19.250
FBBC First Bell Bancorp Inc. Pittsburgh PA MA SAIF NASDAQ 06/29/95 16.000
FBCI Fidelity Bancorp Inc. Chicago IL MW SAIF NASDAQ 12/15/93 19.000
FBHC Fort Bend Holding Corp. Rosenberg TX SW SAIF NASDAQ 06/30/93 28.750
FBSI First Bancshares Inc. Mountain Grove MO MW SAIF NASDAQ 12/22/93 20.000
FCME First Coastal Corporation Westbrook ME NE BIF NASDAQ NA 9.125
FED FirstFed Financial Corp. Santa Monica CA WE SAIF NYSE 12/16/83 30.625
FESX First Essex Bancorp Inc. Andover MA NE BIF NASDAQ 08/04/87 16.500
FFBA First Colorado Bancorp Inc. Lakewood CO SW SAIF NASDAQ 01/02/96 18.875
FFBI First Financial Bancorp Inc. Belvidere IL MW SAIF NASDAQ 10/04/93 18.750
FFBS FFBS BanCorp Inc. Columbus MS SE SAIF NASDAQ 07/01/93 23.000
FFBZ First Federal Bancorp Inc. Zanesville OH MW SAIF NASDAQ 07/13/92 18.250
FFCH First Financial Holdings Inc. Charleston SC SE SAIF NASDAQ 11/10/83 29.500
FFDB FirstFed Bancorp Incorporated Bessemer AL SE SAIF NASDAQ 11/19/91 16.750
FFES First Federal of East Hartford East Hartford CT NE SAIF NASDAQ 06/23/87 29.750
FFFC FFVA Financial Corp. Lynchburg VA SE SAIF NASDAQ 10/12/94 26.750
FFFD North Central Bancshares Inc. Fort Dodge IA MW SAIF NASDAQ 03/21/96 15.250
FFFL Fidelity Bankshares Inc., MHC West Palm Beach FL SE SAIF NASDAQ 01/07/94 19.375
FFHH FSF Financial Corp. Hutchinson MN MW SAIF NASDAQ 10/07/94 17.438
FFHS First Franklin Corporation Cincinnati OH MW SAIF NASDAQ 01/26/88 20.000
FFIC Flushing Financial Corp. Flushing NY MA BIF NASDAQ 11/21/95 19.875
FFKY First Federal Financial Corp. Elizabethtown KY MW SAIF NASDAQ 07/15/87 18.500
FFLC FFLC Bancorp Inc. Leesburg FL SE SAIF NASDAQ 01/04/94 28.500
FFOH Fidelity Financial of Ohio Cincinnati OH MW SAIF NASDAQ 03/04/96 15.000
FFSL First Independence Corp. Independence KS MW SAIF NASDAQ 10/08/93 11.188
FFSX First Fed SB of Siouxland, MHC Sioux City IA MW SAIF NASDAQ 07/13/92 23.750
FFWC FFW Corp. Wabash IN MW SAIF NASDAQ 04/05/93 26.000
FFWD Wood Bancorp Inc. Bowling Green OH MW SAIF NASDAQ 08/31/93 16.875
FFYF FFY Financial Corp. Youngstown OH MW SAIF NASDAQ 06/28/93 25.875
FGHC First Georgia Holding Inc. Brunswick GA SE SAIF NASDAQ 02/11/87 7.250
FIBC Financial Bancorp Inc. Long Island City NY MA SAIF NASDAQ 08/17/94 17.250
FKFS First Keystone Financial Media PA MA SAIF NASDAQ 01/26/95 23.000
FLFC First Liberty Financial Corp. Macon GA SE SAIF NASDAQ 12/06/83 21.750
FMCO FMS Financial Corporation Burlington NJ MA SAIF NASDAQ 12/14/88 23.500
FMSB First Mutual Savings Bank Bellevue WA WE BIF NASDAQ 12/17/85 17.250
FNGB First Northern Capital Corp. Green Bay WI MW SAIF NASDAQ 12/29/83 21.250
FOBC Fed One Bancorp Wheeling WV SE SAIF NASDAQ 01/19/95 21.000
FRC First Republic Bancorp San Francisco CA WE BIF NYSE NA 21.500
FSBI Fidelity Bancorp Inc. Pittsburgh PA MA SAIF NASDAQ 06/24/88 20.000
FSFC First Southeast Financial Corp Anderson SC SE SAIF NASDAQ 10/08/93 10.125
FSLA First Savings Bank, MHC Woodbridge NJ MA SAIF NASDAQ 07/10/92 24.000
FSPG First Home Bancorp Inc. Pennsville NJ MA SAIF NASDAQ 04/20/87 19.375
FSTC First Citizens Corporation Newnan GA SE SAIF NASDAQ 03/01/86 24.750
FTF Texarkana First Financial Corp Texarkana AR SE SAIF AMSE 07/07/95 18.000
FTFC First Federal Capital Corp. La Crosse WI MW SAIF NASDAQ 11/02/89 22.000
FTSB Fort Thomas Financial Corp. Fort Thomas KY MW SAIF NASDAQ 06/28/95 10.500
FWWB First SB of Washington Bancorp Walla Walla WA WE SAIF NASDAQ 11/01/95 21.500
GAF GA Financial Inc. Pittsburgh PA MA SAIF AMSE 03/26/96 18.938
GBCI Glacier Bancorp Inc. Kalispell MT WE SAIF NASDAQ 03/30/84 17.750
GDW Golden West Financial Oakland CA WE SAIF NYSE 05/29/59 73.250
GFCO Glenway Financial Corp. Cincinnati OH MW SAIF NASDAQ 11/30/90 25.750
GFSB GFS Bancorp Inc. Grinnell IA MW SAIF NASDAQ 01/06/94 13.250
GLN Glendale Federal Bank FSB Glendale CA WE SAIF NYSE 10/01/83 25.375
GPT GreenPoint Financial Corp. New York NY MA BIF NYSE 01/28/94 66.375
GSBC Great Southern Bancorp Inc. Springfield MO MW SAIF NASDAQ 12/14/89 17.000
GTFN Great Financial Corporation Louisville KY MW SAIF NASDAQ 03/31/94 34.750
GUPB GFSB Bancorp Inc. Gallup NM SW SAIF NASDAQ 06/30/95 19.000
</TABLE>
2
<PAGE>
FERGUSON & COMPANY Exhibit V - Selected Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SIAF) Exchange IPO Date ($)
<C> <S> <C> <C> <C> <C> <C> <C> <C>
HALL Hallmark Capital Corp. West Allis WI MW SAIF NASDAQ 01/03/94 21.625
HARB Harbor Federal Savings Bk, MHC Fort Pierce FL SE SAIF NASDAQ 01/06/94 40.750
HARL Harleysville Savings Bank Harleysville PA MA SAIF NASDAQ 08/04/87 22.000
HARS Harris Savings Bank, MHC Harrisburg PA MA SAIF NASDAQ 01/25/94 21.250
HAVN Haven Bancorp Inc. Woodhaven NY MA SAIF NASDAQ 09/23/93 37.000
HBFW Home Bancorp Fort Wayne IN MW SAIF NASDAQ 03/30/95 20.625
HBNK Highland Federal Bank FSB Burbank CA WE SAIF NASDAQ NA 23.875
HBS Haywood Bancshares Inc. Waynesville NC SE BIF AMSE 12/18/87 16.938
HFFB Harrodsburg First Fin Bancorp Harrodsburg KY MW SAIF NASDAQ 10/04/95 15.000
HFFC HF Financial Corp. Sioux Falls SD MW SAIF NASDAQ 04/08/92 19.750
HFGI Harrington Financial Group Richmond IN MW SAIF NASDAQ NA 12.250
HFNC HFNC Financial Corp. Charlotte NC SE SAIF NASDAQ 12/29/95 16.750
HFSA Hardin Bancorp Inc. Hardin MO MW SAIF NASDAQ 09/29/95 14.625
HHFC Harvest Home Financial Corp. Cheviot OH MW SAIF NASDAQ 10/10/94 10.500
HIFS Hingham Instit. for Savings Hingham MA NE BIF NASDAQ 12/20/88 19.875
HMCI HomeCorp Inc. Rockford IL MW SAIF NASDAQ 06/22/90 14.250
HMNF HMN Financial Inc. Spring Valley MN MW SAIF NASDAQ 06/30/94 23.000
HOMF Home Federal Bancorp Seymour IN MW SAIF NASDAQ 01/23/88 27.750
HPBC Home Port Bancorp Inc. Nantucket MA NE BIF NASDAQ 08/25/88 20.250
HRBF Harbor Federal Bancorp Inc. Baltimore MD MA SAIF NASDAQ 08/12/94 18.000
HRZB Horizon Financial Corp. Bellingham WA WE BIF NASDAQ 08/01/86 16.125
HZFS Horizon Financial Svcs Corp. Oskaloosa IA MW SAIF NASDAQ 06/30/94 19.250
IFSB Independence Federal Savings Washington DC MA SAIF NASDAQ 06/06/85 9.000
INBI Industrial Bancorp Bellevue OH MW SAIF NASDAQ 08/01/95 13.438
IPSW Ipswich Savings Bank Ipswich MA NE BIF NASDAQ 05/26/93 16.250
ISBF ISB Financial Corporation New Iberia LA SW SAIF NASDAQ 04/07/95 23.250
ITLA ITLA Capital Corp. La Jolla CA WE BIF NASDAQ 10/24/95 16.000
IWBK InterWest Bancorp Inc. Oak Harbor WA WE SAIF NASDAQ NA 36.000
JSBA Jefferson Savings Bancorp Ballwin MO MW SAIF NASDAQ 04/08/93 29.875
JSBF JSB Financial Inc. Lynbrook NY MA BIF NASDAQ 06/27/90 43.875
KFBI Klamath First Bancorp Klamath Falls OR WE SAIF NASDAQ 10/05/95 18.750
KNK Kankakee Bancorp Inc. Kankakee IL MW SAIF AMSE 01/06/93 29.000
KSAV KS Bancorp Inc. Kenly NC SE SAIF NASDAQ 12/30/93 25.500
KSBK KSB Bancorp Inc. Kingfield ME NE BIF NASDAQ 06/24/93 35.000
KYF Kentucky First Bancorp Inc. Cynthiana KY MW SAIF AMSE 08/29/95 11.000
LARK Landmark Bancshares Inc. Dodge City KS MW SAIF NASDAQ 03/28/94 20.125
LARL Laurel Capital Group Inc. Allison Park PA MA SAIF NASDAQ 02/20/87 21.500
LFED Leeds Federal Savings Bk, MHC Baltimore MD MA SAIF NASDAQ 05/02/94 19.000
LIFB Life Bancorp Inc. Norfolk VA SE SAIF NASDAQ 10/11/94 23.625
LISB Long Island Bancorp Inc. Melville NY MA SAIF NASDAQ 04/18/94 36.125
LOGN Logansport Financial Corp. Logansport IN MW SAIF NASDAQ 06/14/95 14.000
LSBI LSB Financial Corp. Lafayette IN MW BIF NASDAQ 02/03/95 20.875
LSBX Lawrence Savings Bank North Andover MA NE BIF NASDAQ 05/02/86 10.750
LVSB Lakeview Financial West Paterson NJ MA SAIF NASDAQ 12/22/93 32.250
MAFB MAF Bancorp Inc. Clarendon Hills IL MW SAIF NASDAQ 01/12/90 41.375
MARN Marion Capital Holdings Marion IN MW SAIF NASDAQ 03/18/93 22.625
MASB MASSBANK Corp. Reading MA NE BIF NASDAQ 05/28/86 46.750
MBB MSB Bancorp Inc. Goshen NY MA BIF AMSE 09/03/92 19.250
MBB MSB Bancorp, Inc. Goshen NY MA BIF AMSE NA 19.250
MBLF MBLA Financial Corp. Macon MO MW SAIF NASDAQ 06/24/93 24.000
MCBN Mid-Coast Bancorp Inc. Waldoboro ME NE SAIF NASDAQ 11/02/89 19.500
MCBS Mid Continent Bancshares Inc. El Dorado KS MW SAIF NASDAQ 06/27/94 27.500
MDBK Medford Savings Bank Medford MA NE BIF NASDAQ 03/18/86 30.500
MERI Meritrust Federal SB Thibodaux LA SW SAIF NASDAQ NA 38.000
MFBC MFB Corp. Mishawaka IN MW SAIF NASDAQ 03/25/94 19.750
MFFC Milton Federal Financial Corp. West Milton OH MW SAIF NASDAQ 10/07/94 14.000
MFLR Mayflower Co-operative Bank Middleboro MA NE BIF NASDAQ 12/23/87 18.000
</TABLE>
3
<PAGE>
FERGUSON & COMPANY Exhibit V - Selected Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<C> <S> <C> <C> <C> <C> <C> <C> <C>
MFSL Maryland Federal Bancorp Hyattsville MD MA SAIF NASDAQ 06/02/87 44.250
MIVI Mississippi View Holding Co. Little Falls MN MW SAIF NASDAQ 03/24/95 14.625
MLBC ML Bancorp Inc. Villanova PA MA SAIF NASDAQ 08/11/94 19.063
MSBF MSB Financial Inc. Marshall MI MW SAIF NASDAQ 02/06/95 22.000
MWBI Midwest Bancshares Inc. Burlington IA MW SAIF NASDAQ 11/12/92 31.500
MWBX MetroWest Bank Framingham MA NE BIF NASDAQ 10/10/86 5.563
MWFD Midwest Federal Financial Baraboo WI MW SAIF NASDAQ 07/08/92 19.750
NASB North American Savings Bank Grandview MO MW SAIF NASDAQ 09/27/85 44.000
NBN Northeast Bancorp Portland ME NE BIF AMSE 08/19/87 14.375
NEIB Northeast Indiana Bancorp Huntington IN MW SAIF NASDAQ 06/28/95 15.000
NHTB New Hampshire Thrift Bncshrs New London NH NE SAIF NASDAQ 05/22/86 15.250
NMSB NewMil Bancorp Inc. New Milford CT NE BIF NASDAQ 02/01/86 10.250
NSSB Norwich Financial Corp. Norwich CT NE BIF NASDAQ 11/14/86 22.625
NTMG Nutmeg Federal S&LA Danbury CT NE SAIF NASDAQ NA 8.250
NWEQ Northwest Equity Corp. Amery WI MW SAIF NASDAQ 10/11/94 14.750
NWSB Northwest Savings Bank, MHC Warren PA MA SAIF NASDAQ 11/07/94 15.250
NYB New York Bancorp Inc. Douglaston NY MA SAIF NYSE 01/28/88 34.750
OFCP Ottawa Financial Corp. Holland MI MW SAIF NASDAQ 08/19/94 22.500
OHSL OHSL Financial Corp. Cincinnati OH MW SAIF NASDAQ 02/10/93 25.250
PALM Palfed, Inc. Aiken SC SE SAIF NASDAQ 12/15/85 16.688
PBCI Pamrapo Bancorp Inc. Bayonne NJ MA SAIF NASDAQ 11/14/89 19.750
PBCT People's Bank, MHC Bridgeport CT NE BIF NASDAQ 07/06/88 26.500
PBIX Patriot Bank Corp. Pottstown PA MA SAIF NASDAQ 12/04/95 16.313
PBKB People's Bancshares Inc. South Easton MA NE BIF NASDAQ 10/23/86 15.125
PCBC Perry County Financial Corp. Perryville MO MW SAIF NASDAQ 02/13/95 19.750
PCCI Pacific Crest Capital Agoura Hills CA WE BIF NASDAQ NA 13.375
PEEK Peekskill Financial Corp. Peekskill NY MA SAIF NASDAQ 12/29/95 15.000
PERT Perpetual Bank, MHC Anderson SC SE SAIF NASDAQ 10/26/93 29.500
PFDC Peoples Bancorp Auburn IN MW SAIF NASDAQ 07/07/87 22.250
PFNC Progress Financial Corporation Blue Bell PA MA SAIF NASDAQ 07/18/83 9.500
PFSB PennFed Financial Services Inc West Orange NJ MA SAIF NASDAQ 07/15/94 27.375
PFSL Pocahontas FS&LA, MHC Pocahontas AR SE SAIF NASDAQ 04/05/94 20.750
PHBK Peoples Heritage Finl Group Portland ME NE BIF NASDAQ 12/04/86 35.750
PSBK Progressive Bank Inc. Fishkill NY MA BIF NASDAQ 08/01/84 29.625
PTRS Potters Financial Corp. East Liverpool OH MW SAIF NASDAQ 12/31/93 21.547
PULS Pulse Bancorp South River NJ MA SAIF NASDAQ 09/18/86 19.625
PVFC PVF Capital Corp. Bedford Heights OH MW SAIF NASDAQ 12/30/92 19.125
PVSA Parkvale Financial Corporation Monroeville PA MA SAIF NASDAQ 07/16/87 28.375
PWBC PennFirst Bancorp Inc. Ellwood City PA MA SAIF NASDAQ 06/13/90 15.000
QCBC Quaker City Bancorp Inc. Whittier CA WE SAIF NASDAQ 12/30/93 17.000
QCFB QCF Bancorp Inc. Virginia MN MW SAIF NASDAQ 04/03/95 20.500
QCSB Queens County Bancorp Inc. Flushing NY MA BIF NASDAQ 11/23/93 46.125
RARB Raritan Bancorp Inc. Raritan NJ MA BIF NASDAQ 03/01/87 30.000
RELY Reliance Bancorp Inc. Garden City NY MA SAIF NASDAQ 03/31/94 26.875
ROSE TR Financial Corp. Garden City NY MA BIF NASDAQ 06/29/93 23.500
RVSB Riverview Savings Bank, MHC Camas WA WE SAIF NASDAQ 10/26/93 22.000
SFED SFS Bancorp Inc. Schenectady NY MA SAIF NASDAQ 06/30/95 16.500
SFFC StateFed Financial Corporation Des Moines IA MW SAIF NASDAQ 01/05/94 19.125
SFIN Statewide Financial Corp. Jersey City NJ MA SAIF NASDAQ 10/02/95 17.125
SFSB SuburbFed Financial Corp. Flossmoor IL MW SAIF NASDAQ 03/04/92 24.500
SFSL Security First Corp. Mayfield Heights OH MW SAIF NASDAQ 01/22/88 21.375
SGVB SGV Bancorp Inc. West Covina CA WE SAIF NASDAQ 06/29/95 14.000
SISB SIS Bancorp Inc. Springfield MA NE BIF NASDAQ 02/08/95 29.625
SKAN Skaneateles Bancorp Inc. Skaneateles NY MA BIF NASDAQ 06/02/86 18.750
SMBC Southern Missouri Bancorp Inc. Poplar Bluff MO MW SAIF NASDAQ 04/13/94 17.625
SMFC Sho-Me Financial Corp. Mt. Vernon MO MW SAIF NASDAQ 07/01/94 40.250
SOPN First Savings Bancorp Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 24.000
</TABLE>
4
<PAGE>
FERGUSON & COMPANY Exhibit V - Selected Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SOSA Somerset Savings Bank Somerville MA NE BIF NASDAQ 07/09/86 2.656
SPBC St. Paul Bancorp Inc. Chicago IL MW SAIF NASDAQ 05/18/87 33.875
STFR St. Francis Capital Corp. Milwaukee WI MW SAIF NASDAQ 06/21/93 33.250
STSA Sterling Financial Corp. Spokane WA WE SAIF NASDAQ NA 19.000
SWBI Southwest Bancshares Hometown IL MW SAIF NASDAQ 06/24/92 20.500
SWCB Sandwich Co-operative Bank Sandwich MA NE BIF NASDAQ 07/25/86 31.000
TBK Tolland Bank Tolland CT NE BIF AMSE 12/19/86 19.125
THR Three Rivers Financial Corp. Three Rivers MI MW SAIF AMSE 08/24/95 15.750
THRD TF Financial Corporation Newtown PA MA SAIF NASDAQ 07/13/94 18.375
TPNZ Tappan Zee Financial Inc. Tarrytown NY MA SAIF NASDAQ 10/05/95 16.500
TRIC Tri-County Bancorp Inc. Torrington WY WE SAIF NASDAQ 09/30/93 21.250
TSH Teche Holding Co. Franklin LA SW SAIF AMSE 04/19/95 18.688
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/95 19.000
UBMT United Financial Corp. Great Falls MT WE SAIF NASDAQ 09/23/86 19.500
WAYN Wayne Savings & Loan Co. MHC Wooster OH MW SAIF NASDAQ 06/25/93 17.000
WBST Webster Financial Corporation Waterbury CT NE SAIF NASDAQ 12/12/86 43.875
WCBI Westco Bancorp Westchester IL MW SAIF NASDAQ 06/26/92 24.250
WEFC Wells Financial Corp. Wells MN MW SAIF NASDAQ 04/11/95 14.250
WFCO Winton Financial Corp. Cincinnati OH MW SAIF NASDAQ 08/04/88 13.125
WFSL Washington Federal Inc. Seattle WA WE SAIF NASDAQ 11/17/82 27.688
WRNB Warren Bancorp Inc. Peabody MA NE BIF NASDAQ 07/09/86 18.000
WSB Washington Savings Bank, FSB Waldorf MD MA SAIF AMSE NA 5.250
WSFS WSFS Financial Corporation Wilmington DE MA BIF NASDAQ 11/26/86 13.625
WSTR WesterFed Financial Corp. Missoula MT WE SAIF NASDAQ 01/10/94 20.625
WVFC WVS Financial Corporation Pittsburgh PA MA SAIF NASDAQ 11/29/93 25.750
YFED York Financial Corp. York PA MA SAIF NASDAQ 02/01/84 19.500
Maximum 73.250
Minimum 2.656
Average 22.611
Median 19.875
</TABLE>
5
<PAGE>
FERGUSON & COMPANY Exhibit V - Selected Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Tangible
Current Price/ Current Current Current Total Equity/ Equity/ Core Core
Market LTM Price/ Price/T Price/ Dividend Assets Assets T Assets EPS ROAA
Value Core EPS Book V Book V Assets Yield ($000) (%) (%) ($) (%)
Ticker ($M) (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AADV 126.03 16.1 139.6 150.8 12.3 1.03 1,021,439 8.8 8.2 2.42 0.86
ABBK 47.34 15.2 140.0 156.4 9.6 1.60 492,058 6.9 6.2 1.65 0.67
ABCL 159.20 17.4 130.3 132.0 12.1 2.18 1,313,141 9.3 9.2 1.72 0.74
ABCW 229.07 13.7 194.3 198.3 12.2 1.12 1,884,983 6.3 6.1 3.66 0.98
AFCB 157.57 14.8 150.2 151.1 14.9 1.97 1,054,997 9.8 9.7 1.65 1.07
AHM 4,740.57 18.6 247.4 293.1 9.7 1.87 48,697,126 4.9 4.3 2.54 0.65
ALBC 5.79 23.4 93.1 93.1 8.3 1.41 66,316 8.9 8.9 0.94 0.38
ALBK 509.03 16.2 158.6 182.9 14.6 1.51 3,496,331 9.2 8.1 2.46 1.01
ANBK 58.26 18.5 123.3 123.3 11.5 0.74 505,318 9.0 9.0 0.87 0.65
ANDB 151.24 11.3 154.9 154.9 12.5 2.32 1,209,604 8.1 8.1 2.59 1.12
ASBI 50.63 15.3 116.8 116.9 12.7 3.84 402,163 10.9 10.8 1.02 0.84
ASBP 20.66 20.3 113.0 113.0 18.9 3.33 109,414 15.7 15.7 0.59 0.86
ASFC 969.19 17.0 165.9 199.3 12.6 1.32 7,689,409 7.6 6.4 2.68 0.77
BANC 335.10 18.1 171.6 210.8 9.5 0.82 2,773,085 5.5 4.5 0.78 0.71
BDJI 13.14 18.2 109.1 109.1 12.2 - 107,716 11.2 11.2 1.03 0.65
BFD 105.46 20.3 117.8 122.0 11.2 1.58 941,007 8.9 8.6 0.87 0.65
BFSB 23.71 13.3 119.1 119.1 18.0 2.70 131,506 14.3 14.3 1.56 1.33
BKC 81.72 13.8 174.1 182.1 13.9 4.06 588,583 8.0 7.7 2.57 1.11
BKCT 65.18 14.5 151.7 151.7 15.8 3.45 413,729 10.4 10.4 1.76 1.21
BKUNA 82.44 18.2 131.3 163.4 5.9 - 1,453,152 6.8 6.0 0.53 0.62
BSBC 30.75 16.2 181.7 181.7 17.3 1.71 177,425 9.5 9.5 0.29 1.11
BVCC 345.33 18.0 179.7 189.0 11.3 1.20 3,044,610 6.3 6.0 1.48 0.63
CAFI 55.11 12.7 120.3 130.8 11.7 2.89 472,430 9.7 9.0 1.42 0.86
CAPS 31.45 15.0 152.7 152.7 13.2 1.44 237,915 8.7 8.7 1.11 0.92
CASB 38.01 21.0 174.7 174.7 10.8 - 352,321 6.2 6.2 0.88 0.58
CASH 42.76 10.8 99.6 112.6 11.6 2.38 370,177 11.6 10.4 1.40 0.97
CBCI 83.51 15.0 112.1 112.1 17.9 - 494,557 15.9 15.9 2.64 1.35
CBSA 142.85 12.6 148.6 176.0 5.0 1.67 2,852,767 3.4 2.9 2.29 0.41
CBSB 72.01 16.6 129.1 147.1 18.2 1.88 394,815 14.1 12.6 1.03 1.21
CEBK 35.62 16.6 107.0 120.6 11.0 1.77 324,297 10.3 9.2 1.09 0.66
CENF 188.66 12.3 163.3 163.7 8.3 1.00 2,263,399 5.1 5.1 2.66 0.71
CFB 807.45 13.7 197.5 221.9 11.7 0.75 6,901,835 5.9 5.3 2.74 0.91
CFFC 28.63 13.3 124.7 124.7 17.2 2.49 166,664 13.8 13.8 1.69 1.31
CFSB 119.50 16.0 188.7 188.7 14.4 2.58 834,252 7.6 7.6 1.45 1.00
CFTP 75.48 22.3 109.3 109.3 36.6 1.70 206,049 33.5 33.5 0.79 1.70
CFX 236.53 13.4 176.8 189.8 13.6 4.86 1,744,449 7.7 7.2 1.35 1.00
CIBI 12.82 13.6 114.2 114.2 13.2 1.98 97,446 11.5 11.5 0.99 0.99
CKFB 17.85 22.4 116.0 116.0 29.7 2.29 60,197 23.7 23.7 0.86 1.29
CMRN 44.40 16.8 99.0 99.0 22.7 1.67 197,693 23.0 23.0 1.00 1.38
CMSV 107.02 17.4 139.7 139.7 15.7 4.14 682,314 11.2 11.2 1.25 0.96
CNIT 73.03 15.8 145.5 159.1 10.3 2.25 706,797 7.1 6.5 2.82 0.70
COFI 2,363.27 14.3 248.4 267.0 16.8 1.96 14,040,397 6.8 6.3 3.58 1.23
CRZY 13.57 20.8 93.6 93.6 26.1 2.96 52,042 27.8 27.8 0.65 1.25
CSA 855.26 20.6 196.2 198.9 9.7 - 8,797,075 5.0 4.9 2.23 0.50
CTZN 323.53 15.3 174.0 195.3 11.0 0.85 2,937,269 6.3 5.7 2.45 0.79
CVAL 43.13 16.5 165.1 165.1 14.1 2.10 305,187 8.6 8.6 1.27 0.92
DFIN 46.67 23.6 101.8 101.8 20.5 1.67 227,400 20.2 20.2 0.61 0.89
DIBK 118.13 8.8 185.3 192.3 14.5 1.74 814,431 7.8 7.6 2.61 1.88
DME 1,999.93 14.4 189.8 191.5 10.8 - 18,464,786 5.7 5.7 1.32 0.72
DNFC 158.52 13.4 180.5 182.6 10.4 - 1,528,468 5.8 5.8 1.42 0.84
DSL 621.57 16.5 155.2 157.5 11.3 1.38 5,484,473 7.3 7.2 1.41 0.76
EBSI 81.37 15.5 140.3 140.3 12.2 3.36 666,166 8.7 8.7 1.15 0.80
EFBI 36.70 19.0 116.0 116.1 14.3 5.48 256,704 12.3 12.3 0.96 0.79
EGFC 140.25 13.0 134.2 178.3 9.3 2.99 1,512,036 6.9 5.3 2.36 0.79
EIRE 41.36 12.3 144.2 144.2 10.0 1.51 412,141 7.0 7.0 1.51 0.85
EMLD 71.18 14.7 161.1 163.9 12.1 1.71 588,634 7.5 7.4 0.96 0.89
EQSB 21.83 10.9 145.5 145.5 7.4 - 296,002 5.1 5.1 3.33 0.76
</TABLE>
6
<PAGE>
FERGUSON & COMPANY Exhibit V - Selected Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Tangible
Current Price/ Current Current Current Total Equity/ Equity/ Core Core
Market LTM Price/ Price/T Price/ Dividend Assets Assets T Assets EPS ROAA
Value Core EPS Book V Book V Assets Yield ($000) (%) (%) ($) (%)
Ticker ($M) (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ESBK 13.60 22.4 95.3 99.5 6.1 3.33 222,618 6.3 6.1 0.86 0.28
FBBC 108.84 13.6 150.5 150.5 15.4 2.50 709,011 10.2 10.2 1.18 1.40
FBCI 53.05 15.6 107.1 107.4 10.9 1.68 486,010 10.2 10.2 1.22 0.75
FBHC 23.64 17.8 128.3 138.4 8.0 0.97 295,080 6.3 5.8 1.62 0.51
FBSI 22.86 13.6 101.0 101.2 14.5 1.00 160,048 14.4 14.3 1.47 1.12
FCME 12.39 1.9 92.3 92.3 8.2 - 151,143 8.9 8.9 4.71 4.17
FED 323.41 16.6 165.7 167.9 7.8 - 4,129,737 4.7 4.7 1.85 0.48
FESX 123.49 12.8 147.3 171.0 10.8 2.91 1,146,854 7.3 6.4 1.29 0.91
FFBA 312.60 17.6 162.7 165.0 20.7 2.33 1,509,514 12.7 12.6 1.07 1.24
FFBI 7.79 19.3 107.1 107.1 8.4 - 93,156 7.8 7.8 0.97 0.45
FFBS 35.82 18.7 135.2 135.2 27.8 2.17 128,676 19.4 19.4 1.23 1.49
FFBZ 28.68 17.1 217.8 218.0 15.0 1.32 191,686 7.7 7.7 1.07 1.00
FFCH 186.72 14.7 189.5 189.5 11.7 2.44 1,602,018 6.2 6.2 2.01 0.83
FFDB 20.53 13.2 116.9 128.0 11.6 2.99 176,496 10.0 9.2 1.27 0.93
FFES 79.12 12.2 129.4 129.4 8.1 2.02 974,693 6.3 6.3 2.44 0.69
FFFC 120.92 19.0 157.5 161.1 22.0 1.79 549,771 13.0 12.7 1.41 1.33
FFFD 50.62 14.3 104.5 104.5 25.7 1.64 203,497 24.6 24.6 1.07 1.97
FFFL 131.08 24.5 160.4 161.7 14.1 4.13 926,891 8.8 8.8 0.79 0.61
FFHH 53.40 19.0 109.9 109.9 14.7 2.87 367,312 11.8 11.8 0.92 0.82
FFHS 23.57 18.0 118.1 119.0 10.4 1.60 226,235 8.8 8.8 1.11 0.61
FFIC 160.74 24.0 123.8 123.8 19.8 1.21 811,189 16.0 16.0 0.83 0.86
FFKY 76.97 14.5 152.1 162.0 20.7 2.81 372,300 13.6 12.9 1.28 1.49
FFLC 66.64 20.8 128.6 128.6 18.6 1.68 358,538 14.5 14.5 1.37 1.01
FFOH 83.91 20.0 124.7 141.9 16.4 1.87 513,079 13.1 11.7 0.75 0.96
FFSL 11.13 15.1 98.1 98.1 10.3 2.24 109,230 10.5 10.5 0.74 0.76
FFSX 67.14 20.1 178.3 179.9 14.5 2.02 462,829 8.1 8.1 1.18 0.73
FFWC 18.12 10.9 114.3 114.3 11.4 2.77 158,441 10.0 10.0 2.39 1.10
FFWD 25.19 13.3 121.3 121.3 15.4 2.37 163,498 12.7 12.7 1.27 1.23
FFYF 108.24 16.3 132.7 132.7 18.7 2.71 598,667 14.1 14.1 1.59 1.26
FGHC 22.13 20.1 177.7 194.9 15.0 0.74 147,094 8.5 7.8 0.36 0.77
FIBC 29.63 11.8 115.1 115.7 11.2 2.32 269,197 9.7 9.7 1.46 0.95
FKFS 28.24 11.7 126.9 126.9 9.0 0.87 314,637 7.1 7.1 1.96 0.77
FLFC 168.01 15.1 183.2 204.8 13.5 1.84 1,248,033 7.3 6.6 1.44 0.91
FMCO 56.08 11.4 161.1 164.5 10.1 0.85 553,599 6.3 6.2 2.06 0.98
FMSB 46.55 12.6 163.5 163.5 10.9 1.16 426,292 6.7 6.7 1.37 0.98
FNGB 93.91 18.2 132.1 132.1 15.2 3.01 617,899 11.5 11.5 1.17 0.88
FOBC 49.71 15.4 123.0 129.2 14.8 2.76 346,214 11.6 11.1 1.36 0.98
FRC 214.84 16.8 132.8 132.9 9.8 - 2,183,453 7.4 7.4 1.28 0.58
FSBI 30.85 12.1 135.0 135.0 9.4 1.80 327,896 7.0 7.0 1.66 0.84
FSFC 44.43 14.3 129.8 129.8 13.3 2.37 334,751 10.2 10.2 0.71 0.90
FSLA 173.94 20.0 184.6 208.3 17.0 2.00 1,024,715 9.2 8.2 1.20 0.89
FSPG 52.48 10.9 156.8 159.6 10.3 2.07 508,243 6.6 6.5 1.78 0.99
FSTC 40.03 9.8 163.0 207.3 15.3 1.78 257,288 9.4 7.5 2.52 2.03
FTF 32.84 11.1 122.5 122.5 19.6 2.50 168,094 16.0 16.0 1.62 1.71
FTFC 200.77 14.9 206.6 220.4 13.1 2.18 1,530,237 6.4 6.0 1.48 0.86
FTSB 14.86 22.3 103.0 103.0 16.6 2.38 94,681 16.1 16.1 0.47 0.77
FWWB 226.16 20.3 141.0 153.2 22.4 1.30 1,007,633 14.8 13.7 1.06 1.17
GAF 151.22 21.5 126.8 128.1 23.8 2.11 670,342 17.3 17.1 0.88 1.19
GBCI 120.71 14.6 228.4 235.1 21.9 2.41 552,372 9.6 9.3 1.22 1.56
GDW 4,191.25 9.4 173.6 173.6 10.9 0.60 38,530,009 6.3 6.3 7.80 1.24
GFCO 29.45 15.3 111.7 113.4 10.5 2.64 280,813 9.6 9.4 1.68 0.68
GFSB 13.09 12.7 128.3 128.3 14.9 1.51 88,154 11.6 11.6 1.04 1.20
GLN 1,276.50 19.1 165.7 178.2 8.3 - 15,393,708 6.4 6.0 1.33 0.62
GPT 3,112.19 21.9 192.0 335.1 23.5 1.51 13,261,221 10.8 6.5 3.03 0.96
GSBC 138.22 14.3 231.3 231.3 20.8 2.35 679,153 9.0 9.0 1.19 1.54
GTFN 482.50 24.5 175.2 183.2 16.3 1.73 3,002,142 9.3 8.9 1.42 0.71
GUPB 15.28 22.6 112.6 112.6 18.4 2.11 86,911 16.3 16.3 0.84 0.93
</TABLE>
7
<PAGE>
FERGUSON & COMPANY Exhibit V - Selected Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Tangible
Current Price/ Current Current Current Total Equity/ Equity/ Core Core
Market LTM Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS ROAA
Value Core EPS Book V Book V Assets Yield ($000) (%) (%) ($) (%)
Ticker ($M) (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HALL 31.20 13.6 109.1 109.1 7.6 - 409,287 7.0 7.0 1.59 0.59
HARB 202.19 16.0 222.7 231.4 18.3 3.44 1,104,924 8.2 7.9 2.54 1.21
HARL 36.33 12.1 171.6 171.6 10.9 1.82 332,558 6.4 6.4 1.82 0.98
HARS 238.45 23.1 155.0 179.6 12.3 2.73 1,943,327 7.9 6.9 0.92 0.59
HAVN 160.31 11.2 160.0 160.6 9.3 1.62 1,727,798 5.8 5.8 3.30 0.90
HBFW 54.10 18.4 118.3 118.3 16.5 0.97 327,789 14.0 14.0 1.12 0.89
HBNK 54.49 23.9 152.1 152.1 11.4 - 480,192 7.5 7.5 1.00 0.50
HBS 21.20 14.0 102.5 106.5 14.5 3.31 146,331 14.1 13.7 1.21 1.12
HFFB 30.37 20.3 98.2 98.2 28.1 2.67 108,187 26.4 26.4 0.74 1.35
HFFC 59.04 13.5 119.6 119.9 10.6 1.82 561,287 9.2 9.2 1.46 0.81
HFGI 39.90 16.3 161.8 161.8 7.7 0.98 515,360 4.8 4.8 0.75 0.48
HFNC 287.97 23.3 181.5 181.5 34.2 1.67 842,917 18.8 18.8 0.72 1.38
HFSA 12.57 17.6 95.2 95.2 12.2 3.28 103,354 12.8 12.8 0.83 0.81
HHFC 9.61 21.0 94.5 94.5 11.8 3.81 83,103 12.5 12.5 0.50 0.55
HIFS 25.91 11.5 131.7 131.7 12.6 2.01 205,667 9.6 9.6 1.73 1.17
HMCI 24.13 20.1 113.8 113.8 7.2 - 336,447 6.3 6.3 0.71 0.38
HMNF 96.87 19.7 122.9 122.9 17.5 - 553,021 14.2 14.2 1.17 0.91
HOMF 94.09 12.7 167.8 173.4 14.2 1.80 663,658 8.5 8.2 2.18 1.18
HPBC 37.30 12.1 182.3 182.3 19.7 3.95 189,204 10.8 10.8 1.68 1.70
HRBF 31.58 21.2 111.9 111.9 14.4 2.22 219,462 12.9 12.9 0.85 0.68
HRZB 119.31 15.8 152.0 152.0 23.2 2.16 515,341 15.2 15.2 1.02 1.52
HZFS 8.19 18.2 99.6 99.6 10.5 1.66 78,368 10.5 10.5 1.06 0.60
IFSB 11.52 13.9 67.2 76.7 4.4 2.44 262,753 6.5 5.8 0.65 0.33
INBI 72.70 17.0 117.8 117.8 21.8 3.57 333,846 18.5 18.5 0.79 1.27
IPSW 19.31 14.1 189.2 189.2 11.7 1.48 165,510 6.2 6.2 1.15 0.93
ISBF 160.45 21.0 133.2 157.1 17.3 1.72 938,968 12.2 10.5 1.11 0.92
ITLA 125.27 11.8 135.9 136.5 15.5 - 810,494 11.4 11.3 1.36 1.45
IWBK 288.66 15.7 243.1 248.8 16.3 1.67 1,771,523 6.7 6.6 2.30 1.11
JSBA 148.52 15.2 128.7 168.9 11.5 1.34 1,296,929 8.2 6.4 1.97 0.70
JSBF 431.69 17.8 127.1 127.1 28.2 3.19 1,530,902 22.2 22.2 2.47 1.68
KFBI 186.79 22.1 121.8 121.8 27.3 1.60 683,830 20.4 20.4 0.85 1.29
KNK 41.18 15.4 112.7 120.3 12.0 1.66 342,379 10.7 10.1 1.88 0.77
KSAV 16.91 14.3 121.4 121.5 16.8 2.35 100,754 13.8 13.8 1.79 1.21
KSBK 14.55 9.4 144.0 153.0 10.3 0.69 139,993 7.2 6.8 3.72 1.09
KYF 14.51 15.9 101.3 101.3 16.3 4.55 88,923 16.1 16.1 0.69 1.07
LARK 36.39 16.5 111.1 111.1 16.3 1.99 223,799 14.6 14.6 1.22 1.04
LARL 31.00 11.9 148.2 148.2 15.4 2.05 208,577 10.4 10.4 1.80 1.43
LFED 65.64 21.4 143.8 143.8 23.3 4.00 281,899 16.2 16.2 0.89 1.12
LIFB 232.63 18.6 153.2 158.0 16.5 2.03 1,407,861 10.8 10.5 1.27 0.86
LISB 875.25 21.8 167.1 168.7 15.1 1.66 5,814,296 9.0 8.9 1.66 0.73
LOGN 17.62 15.6 112.8 112.8 22.2 2.86 79,298 19.7 19.7 0.90 1.51
LSBI 19.73 24.0 107.5 107.5 10.5 1.55 188,027 9.1 9.1 0.87 0.42
LSBX 45.76 8.4 152.3 152.3 13.4 - 342,037 8.8 8.8 1.28 1.66
LVSB 74.25 18.4 162.0 202.6 15.4 0.78 481,646 9.5 7.8 1.75 0.95
MAFB 431.51 13.1 169.2 194.8 13.3 1.02 3,236,449 7.9 6.9 3.15 1.08
MARN 41.36 15.2 102.9 102.9 23.7 3.89 174,415 23.1 23.1 1.49 1.59
MASB 125.66 14.3 139.6 139.6 13.9 2.31 901,117 10.0 10.0 3.28 1.02
MBB 54.61 19.1 97.6 227.3 6.7 3.12 810,679 8.4 4.7 1.01 0.48
MBB 54.61 19.1 97.6 227.3 6.7 3.12 810,679 8.4 4.7 1.01 0.48
MBLF 31.58 18.8 111.6 111.6 15.1 1.67 209,783 13.5 13.5 1.28 0.85
MCBN 4.49 13.0 90.2 90.2 7.8 2.67 57,838 8.6 8.6 1.50 0.64
MCBS 53.85 13.8 141.3 141.3 14.5 1.46 371,169 10.0 10.0 1.99 1.17
MDBK 138.46 14.1 149.3 161.3 13.1 2.36 1,054,075 8.8 8.2 2.17 1.01
MERI 29.42 13.9 162.8 162.8 12.9 1.84 228,591 7.9 7.9 2.74 0.97
MFBC 34.26 19.8 100.8 100.8 14.6 1.62 234,290 14.5 14.5 1.00 0.85
MFFC 32.58 24.6 114.6 114.6 18.2 4.29 178,757 14.7 14.7 0.57 0.72
MFLR 16.03 14.6 136.3 138.7 12.9 3.33 124,688 9.4 9.3 1.23 0.93
</TABLE>
8
<PAGE>
FERGUSON & COMPANY Exhibit V - Selected Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Tangible
Current Price/ Current Current Current Total Equity/ Equity/ Core Core
Market LTM Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS ROAA
Value Core EPS Book V Book V Assets Yield ($000) (%) (%) ($) (%)
Ticker ($M) (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MFSL 142.04 14.0 146.4 148.3 12.3 1.81 1,157,445 8.4 8.3 3.17 0.89
MIVI 11.97 17.2 94.1 94.1 17.2 1.09 69,755 18.3 18.3 0.85 1.01
MLBC 198.55 17.8 146.3 NA 10.1 2.10 1,959,847 6.9 NA 1.07 0.65
MSBF 13.84 13.9 110.3 110.3 18.3 2.55 75,630 16.6 16.6 1.58 1.49
MWBI 10.97 11.5 113.8 113.8 7.9 1.91 139,006 6.9 6.9 2.74 0.74
MWBX 77.56 11.4 190.5 190.5 14.0 2.16 554,921 7.3 7.3 0.49 1.37
MWFD 32.09 16.5 185.3 192.9 16.0 1.72 201,070 8.6 8.3 1.20 1.09
NASB 99.19 11.7 180.7 186.8 14.4 1.82 689,246 8.0 7.7 3.75 1.18
NBN 18.33 21.8 106.6 123.3 7.4 2.23 247,525 7.8 6.9 0.66 0.50
NEIB 26.44 13.9 100.9 100.9 15.3 2.13 172,874 15.2 15.2 1.08 1.22
NHTB 31.13 21.5 133.1 157.1 9.9 3.28 313,038 7.5 6.4 0.71 0.51
NMSB 39.85 18.0 126.1 126.1 12.6 2.34 317,013 10.0 10.0 0.57 0.80
NSSB 122.20 18.6 158.6 176.8 17.4 2.48 701,234 11.0 10.0 1.22 0.98
NTMG 5.98 24.3 112.2 112.2 6.4 - 93,645 6.2 6.2 0.34 0.38
NWEQ 12.37 13.9 104.0 104.0 13.0 3.25 95,097 11.4 11.4 1.06 0.99
NWSB 356.48 18.2 183.7 195.8 17.9 2.10 1,997,563 9.7 9.2 0.84 1.00
NYB 563.40 15.0 354.2 354.2 17.9 1.73 3,174,997 5.1 5.1 2.31 1.36
OFCP 110.71 19.1 149.3 186.6 13.2 1.78 858,934 8.8 7.2 1.18 0.73
OHSL 30.50 17.2 120.2 120.2 13.3 3.49 229,812 11.0 11.0 1.47 0.86
PALM 88.08 23.8 165.7 165.7 13.4 0.72 655,707 8.1 8.1 0.70 0.56
PBCI 56.15 14.7 120.2 121.2 15.4 5.06 367,360 12.8 12.7 1.34 1.19
PBCT 1,616.94 24.8 255.1 255.3 21.5 2.52 7,538,100 8.4 8.4 1.07 0.90
PBIX 68.94 20.7 128.5 128.5 11.7 2.15 594,055 8.1 8.1 0.79 0.63
PBKB 54.33 19.9 176.5 184.2 9.9 2.91 548,774 5.6 5.4 0.76 0.51
PCBC 15.97 15.2 109.4 109.4 20.0 2.03 79,714 18.3 18.3 1.30 1.03
PCCI 39.29 15.4 158.7 158.7 11.5 - 342,750 7.2 7.2 0.87 0.90
PEEK 48.05 20.3 102.9 102.9 26.3 2.40 182,594 25.6 25.6 0.74 1.38
PERT 44.39 18.9 148.9 148.9 18.1 4.75 245,671 12.1 12.1 1.56 1.15
PFDC 50.72 12.2 118.0 118.0 17.9 2.70 283,242 15.2 15.2 1.82 1.45
PFNC 36.23 17.6 172.1 196.3 9.1 0.84 400,366 5.2 4.6 0.54 0.55
PFSB 131.98 13.4 129.1 156.5 10.5 1.02 1,252,387 7.5 6.3 2.05 0.84
PFSL 33.80 13.9 142.0 142.0 9.1 4.34 373,262 6.4 6.4 1.49 0.67
PHBK 997.11 15.3 226.8 268.8 18.6 2.01 5,458,036 8.2 7.0 2.34 1.29
PSBK 113.31 12.0 154.5 174.5 12.9 2.30 877,667 8.4 7.5 2.46 1.07
PTRS 10.49 13.6 100.7 100.7 9.0 1.67 116,921 8.9 8.9 1.58 0.68
PULS 60.19 12.1 149.4 149.4 11.6 3.57 515,936 7.8 7.8 1.62 1.07
PVFC 44.43 7.7 177.6 177.6 12.5 - 356,251 7.0 7.0 2.48 1.38
PVSA 115.21 11.9 158.4 159.8 11.9 1.83 972,597 7.5 7.4 2.38 1.06
PWBC 58.67 13.5 117.5 128.8 8.3 2.40 706,237 7.1 6.5 1.11 0.64
QCBC 80.70 18.7 116.8 116.9 10.4 - 780,843 8.9 8.9 0.91 0.57
QCFB 29.24 11.5 108.0 108.0 19.5 - 149,637 18.1 18.1 1.79 1.66
QCSB 513.70 22.5 217.4 217.4 37.4 1.73 1,373,295 15.0 15.0 2.05 1.72
RARB 47.71 13.6 159.6 162.5 12.3 2.40 375,138 7.7 7.6 2.21 1.02
RELY 235.52 15.4 153.1 218.3 12.3 2.38 1,926,800 8.0 5.8 1.75 0.84
ROSE 411.68 15.2 184.0 184.0 12.2 2.21 3,404,326 6.2 6.2 1.55 0.86
RVSB 53.16 20.4 212.4 234.0 23.7 0.99 224,385 11.2 10.2 1.08 1.17
SFED 20.39 14.9 95.6 95.6 12.4 1.70 168,841 13.0 13.0 1.11 0.82
SFFC 14.99 14.2 100.7 100.7 17.7 2.09 85,282 17.6 17.6 1.35 1.29
SFIN 81.44 13.4 129.6 129.9 12.1 2.34 677,384 9.3 9.3 1.28 0.87
SFSB 30.89 15.5 115.4 115.9 7.6 1.31 407,800 6.6 6.5 1.58 0.54
SFSL 106.94 14.5 179.9 183.2 16.9 2.25 634,761 9.4 9.2 1.47 1.35
SGVB 32.79 23.7 112.8 114.9 8.2 - 399,776 7.3 7.2 0.59 0.37
SISB 166.40 8.9 162.5 162.5 12.0 1.62 1,403,745 7.2 7.2 3.32 1.45
SKAN 17.85 12.3 107.7 111.3 7.4 2.13 241,425 6.9 6.7 1.52 0.62
SMBC 28.87 17.3 111.2 111.2 17.4 2.84 165,688 15.7 15.7 1.02 1.01
SMFC 60.34 20.6 191.8 191.8 20.1 - 304,496 9.5 9.5 1.95 1.08
SOPN 88.73 21.2 133.0 133.0 32.7 3.33 271,121 24.6 24.6 1.13 1.68
</TABLE>
9
<PAGE>
FERGUSON & COMPANY Exhibit V - Selected Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Tangible
Current Price/ Current Current Current Total Equity/ Equity/ Core Core
Market LTM Price/ Price/ T Price/ Dividend Assets Assets T Assets EPS ROAA
Value Core EPS Book V Book V Assets Yield ($000) (%) (%) ($) (%)
Ticker ($M) (x) (%) (%) (%) (%) MRQ MRQ MRQ LTM LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SOSA 44.23 14.0 143.6 143.6 8.5 - 522,150 5.9 5.9 0.19 0.59
SPBC 773.71 18.4 197.4 198.0 17.3 1.42 4,484,882 8.7 8.7 1.84 1.00
STFR 179.09 18.6 139.2 158.2 11.3 1.44 1,578,969 8.1 7.2 1.79 0.70
STSA 105.32 23.5 173.0 204.1 6.8 - 1,557,216 5.6 5.0 0.81 0.43
SWBI 54.10 15.1 135.0 135.0 14.6 3.71 371,563 10.8 10.8 1.36 1.04
SWCB 59.08 14.0 150.9 158.2 12.4 3.87 475,245 8.2 7.9 2.22 0.96
TBK 22.42 13.8 140.3 144.8 9.5 1.05 237,311 6.7 6.5 1.39 0.75
THR 12.97 16.9 103.4 103.8 14.2 2.29 91,165 13.8 13.7 0.93 0.83
THRD 75.11 16.7 99.3 113.9 11.7 2.18 644,368 10.8 9.6 1.10 0.75
TPNZ 25.31 20.1 119.2 119.2 20.8 1.21 121,841 17.4 17.4 0.82 1.01
TRIC 12.94 16.6 98.2 98.2 15.1 2.82 85,975 15.3 15.3 1.28 0.99
TSH 64.24 16.4 122.7 122.7 16.3 2.68 393,556 13.3 13.3 1.14 1.00
TWIN 16.22 19.0 120.1 120.1 15.5 3.37 104,488 12.9 12.9 1.00 0.79
UBMT 23.85 16.8 97.8 97.8 22.1 4.92 107,723 22.7 22.7 1.16 1.34
WAYN 36.30 23.6 167.5 167.5 15.3 3.61 250,057 9.1 9.1 0.72 0.65
WBST 525.69 14.5 185.0 219.8 9.4 1.82 5,583,619 5.1 4.3 3.03 0.70
WCBI 61.94 15.5 128.4 128.4 20.0 2.47 309,921 15.6 15.6 1.57 1.40
WEFC 28.06 14.0 100.4 100.4 14.3 - 201,886 14.2 14.2 1.02 1.01
WFCO 26.07 10.8 118.7 121.4 8.5 3.51 307,174 7.2 7.0 1.22 0.88
WFSL 1,313.99 13.1 196.4 218.0 22.7 3.18 5,788,992 11.6 10.5 2.11 1.83
WRNB 67.44 11.5 182.2 182.2 18.4 2.89 361,273 10.1 10.1 1.57 1.74
WSB 22.16 12.5 103.8 103.8 8.6 1.91 256,632 8.3 8.3 0.42 0.74
WSFS 170.72 10.5 225.2 227.5 11.6 - 1,478,119 5.1 5.1 1.30 1.33
WSTR 114.49 18.4 111.9 141.6 12.3 2.04 932,440 11.0 8.9 1.12 0.84
WVFC 44.99 12.8 125.6 125.6 16.0 3.11 279,894 12.7 12.7 2.01 1.32
YFED 135.94 16.1 139.4 139.4 11.8 3.08 1,157,356 8.4 8.4 1.21 0.76
Maximum 4,740.57 24.8 354.2 354.2 37.4 5.48 48,697,126 33.5 33.5 7.80 4.17
Minimum 4.49 1.9 67.2 76.7 4.4 - 52,042 3.4 2.9 0.19 0.28
Average 189.54 16.2 142.8 150.2 14.4 1.98 1,448,618 10.6 10.3 1.50 0.98
Median 54.61 15.6 135.1 142.0 13.3 1.98 404,982 9.2 8.9 1.28 0.92
</TABLE>
10
<PAGE>
FERGUSON & COMPANY Exhibit V - Selected Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Core NPAs/ Price/ Core Core Core
ROAE Merger Current Assets Core EPS ROAA ROAE
(%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM (Y/N) Date MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AADV 9.33 N 06/20/97 0.56 14.34 0.68 0.93 10.41
ABBK 10.06 N 06/20/97 0.24 13.59 0.46 0.76 11.02
ABCL 8.51 N 06/20/97 0.18 16.24 0.46 0.75 8.21
ABCW 15.31 N 06/20/97 0.75 13.59 0.92 0.96 14.65
AFCB 10.83 N 06/20/97 0.46 13.54 0.45 1.12 11.50
AHM 12.37 N 06/20/97 2.06 16.14 0.73 0.71 14.61
ALBC 3.90 N 06/20/97 NA 12.22 0.45 0.69 7.68
ALBK 10.83 N 06/20/97 0.74 14.86 0.67 1.07 11.62
ANBK 6.68 N 06/20/97 NA 14.40 0.28 0.79 8.70
ANDB 14.30 N 06/20/97 1.14 11.84 0.62 1.06 13.29
ASBI 7.59 N 06/20/97 0.38 15.63 0.25 0.80 7.32
ASBP 4.31 N 06/20/97 1.56 21.43 0.14 0.85 5.43
ASFC 9.62 N 06/20/97 0.45 16.07 0.71 0.82 10.35
BANC 11.07 N 06/20/97 0.75 18.59 0.19 0.66 11.55
BDJI 5.35 N 06/20/97 0.21 23.44 0.20 0.46 4.01
BFD 5.81 N 06/20/97 0.63 13.82 0.32 0.81 8.36
BFSB 9.05 N 06/20/97 0.00 13.65 0.38 1.26 8.79
BKC 12.89 N 06/20/97 1.97 11.83 0.75 1.23 14.72
BKCT 11.53 N 06/20/97 1.11 13.28 0.48 1.25 12.21
BKUNA 7.72 N 06/20/97 0.70 20.05 0.12 0.55 7.42
BSBC 12.32 N 06/20/97 1.94 14.65 0.08 1.20 12.92
BVCC 10.22 N 06/20/97 0.76 19.02 0.35 0.62 9.73
CAFI 9.55 N 06/20/97 0.36 12.50 0.36 0.92 9.52
CAPS 10.27 N 06/20/97 0.16 14.33 0.29 0.93 10.89
CASB 9.43 N 06/20/97 0.59 23.13 0.20 0.54 8.80
CASH 8.40 N 06/20/97 0.79 13.50 0.28 0.90 7.68
CBCI 8.36 N 06/20/97 1.40 13.91 0.71 1.38 8.72
CBSA 12.27 N 06/20/97 0.57 11.23 0.64 0.45 13.53
CBSB 7.51 N 06/20/97 0.51 16.41 0.26 1.15 7.85
CEBK 6.66 N 06/20/97 1.67 10.30 0.44 1.06 10.59
CENF 14.04 N 06/20/97 1.40 17.06 0.48 0.51 9.88
CFB 15.29 N 06/20/97 1.01 12.67 0.74 0.95 16.14
CFFC 9.44 N 06/20/97 0.35 12.23 0.46 1.41 10.21
CFSB 12.72 N 06/20/97 0.09 13.84 0.42 1.08 14.22
CFTP 5.11 N 06/20/97 0.35 22.03 0.20 1.70 5.05
CFX 11.48 N 06/20/97 0.61 13.73 0.33 1.09 12.92
CIBI 8.18 N 06/20/97 0.72 12.50 0.27 1.01 8.86
CKFB 5.05 N 06/20/97 0.89 22.92 0.21 1.21 4.96
CMRN 5.52 N 06/20/97 0.28 18.21 0.23 1.20 5.11
CMSV 8.19 N 06/20/97 0.57 20.14 0.27 0.81 7.05
CNIT 9.75 N 06/20/97 0.61 16.60 0.67 0.65 9.17
COFI 18.12 N 06/20/97 0.26 13.71 0.93 1.26 18.65
CRZY 4.20 N 06/20/97 0.23 19.85 0.17 1.29 4.60
CSA 9.99 N 06/20/97 1.34 18.25 0.63 0.56 11.43
CTZN 12.14 N 06/20/97 0.45 13.61 0.69 0.86 13.34
CVAL 10.26 N 06/20/97 0.47 15.44 0.34 0.96 10.98
DFIN 3.85 N 06/20/97 0.20 27.64 0.13 0.81 3.48
DIBK 22.83 N 06/20/97 0.44 8.10 0.71 1.94 23.80
DME 13.84 N 06/20/97 2.36 15.83 0.30 0.66 12.14
DNFC 14.62 N 06/20/97 0.37 12.54 0.38 0.88 14.98
DSL 9.62 N 06/20/97 1.11 12.92 0.45 0.92 12.22
EBSI 8.97 N 06/20/97 0.88 15.96 0.28 0.77 8.71
EFBI 5.69 N 06/20/97 0.01 17.55 0.26 0.83 6.43
EGFC 10.87 N 06/20/97 1.21 12.81 0.60 0.78 10.75
EIRE 12.61 N 06/20/97 0.62 10.76 0.43 0.97 14.08
EMLD 11.25 N 06/20/97 0.16 12.56 0.28 0.98 12.85
EQSB 14.87 N 06/20/97 0.68 9.06 1.00 0.88 17.51
</TABLE>
11
<PAGE>
FERGUSON & COMPANY Exhibit V - Selected Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Core NPAs/ Price/ Core Core Core
ROAE Merger Current Assets Core EPS ROAA ROAE
(%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM (Y/N) Date MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ESBK 4.32 N 06/20/97 0.82 20.92 0.23 0.29 4.53
FBBC 8.44 N 06/20/97 0.09 14.29 0.28 1.14 9.70
FBCI 6.93 N 06/20/97 0.70 13.19 0.36 0.82 7.90
FBHC 7.64 N 06/20/97 NA 21.14 0.34 0.41 6.41
FBSI 7.33 N 06/20/97 0.08 12.82 0.39 1.14 7.96
FCME 67.90 N 06/20/97 1.62 17.55 0.13 0.49 5.53
FED 10.34 N 06/20/97 1.74 15.95 0.48 0.50 10.61
FESX 12.11 N 06/20/97 0.62 17.19 0.24 0.67 9.01
FFBA 8.26 N 06/20/97 0.19 16.27 0.29 1.27 9.48
FFBI 5.63 N 06/20/97 0.27 18.75 0.25 0.43 5.54
FFBS 7.62 N 06/20/97 0.03 16.91 0.34 1.62 8.37
FFBZ 13.08 N 06/20/97 0.52 18.25 0.25 0.91 11.86
FFCH 13.37 N 06/20/97 1.77 13.41 0.55 0.88 14.32
FFDB 9.10 N 06/20/97 0.77 10.74 0.39 1.11 11.36
FFES 11.18 N 06/20/97 0.41 13.28 0.56 0.64 10.00
FFFC 9.00 N 06/20/97 0.10 17.15 0.39 1.38 10.17
FFFD 7.28 N 06/20/97 0.22 14.12 0.27 1.74 7.15
FFFL 6.43 N 06/20/97 0.30 26.91 0.18 0.55 6.02
FFHH 6.13 N 06/20/97 0.10 17.44 0.25 0.79 6.51
FFHS 6.64 N 06/20/97 0.50 17.86 0.28 0.60 6.70
FFIC 4.92 N 06/20/97 0.27 19.88 0.25 0.97 5.69
FFKY 10.72 N 06/20/97 0.11 12.50 0.37 1.65 12.16
FFLC 6.25 N 06/20/97 0.27 17.81 0.40 1.10 7.35
FFOH 6.07 N 06/20/97 0.18 18.75 0.20 0.89 6.69
FFSL 6.54 N 06/20/97 0.46 17.48 0.16 0.61 5.62
FFSX 8.87 N 06/20/97 0.12 19.79 0.30 0.73 8.97
FFWC 10.78 N 06/20/97 0.22 10.48 0.62 1.12 10.98
FFWD 9.24 N 06/20/97 0.02 11.72 0.36 1.37 10.72
FFYF 7.53 N 06/20/97 0.72 13.76 0.47 1.28 9.07
FGHC 9.28 N 06/20/97 1.35 45.31 0.04 0.35 4.16
FIBC 9.46 N 06/20/97 2.77 9.38 0.46 1.15 11.60
FKFS 10.01 N 06/20/97 2.45 11.06 0.52 0.77 10.73
FLFC 12.24 N 06/20/97 0.75 15.54 0.35 0.91 11.92
FMCO 14.96 N 06/20/97 1.07 10.68 0.55 1.00 15.69
FMSB 14.75 N 06/20/97 NA 12.32 0.35 0.94 14.17
FNGB 7.48 N 06/20/97 0.13 17.71 0.30 0.87 7.65
FOBC 8.25 N 06/20/97 0.13 15.91 0.33 0.96 8.23
FRC 9.96 N 06/20/97 1.25 17.34 0.31 0.61 9.32
FSBI 12.04 N 06/20/97 0.35 12.82 0.39 0.80 11.47
FSFC 7.30 N 06/20/97 0.11 12.05 0.21 1.08 10.56
FSLA 9.56 N 06/20/97 0.57 17.65 0.34 0.98 10.65
FSPG 15.16 N 06/20/97 0.79 10.53 0.46 1.00 15.12
FSTC 19.20 N 06/20/97 1.26 11.05 0.56 1.51 16.44
FTF 9.71 N 06/20/97 0.13 10.71 0.42 1.70 10.61
FTFC 13.11 N 06/20/97 0.17 16.67 0.33 0.87 13.73
FTSB 3.83 N 06/20/97 2.02 17.50 0.15 0.97 5.58
FWWB 7.04 N 06/20/97 0.31 17.92 0.30 1.17 7.76
GAF 5.64 N 06/20/97 0.12 20.58 0.23 1.12 6.00
GBCI 16.51 N 06/20/97 0.15 15.30 0.29 1.47 15.17
GDW 19.61 N 06/20/97 1.44 12.72 1.44 0.87 13.82
GFCO 7.14 N 06/20/97 0.16 13.41 0.48 0.79 8.23
GFSB 10.24 N 06/20/97 1.54 11.83 0.28 1.27 11.06
GLN 9.70 N 06/20/97 1.66 15.10 0.42 0.74 11.57
GPT 8.96 N 06/20/97 2.84 20.49 0.81 1.04 9.35
GSBC 15.89 N 06/20/97 1.83 12.50 0.34 1.66 18.62
GTFN 7.13 N 06/20/97 0.38 21.72 0.40 0.80 8.13
GUPB 4.89 N 06/20/97 NA 22.62 0.21 0.81 4.74
</TABLE>
12
<PAGE>
FERGUSON & COMPANY Exhibit V - Selected Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Core NPAs/ Price/ Core Core Core
ROAE Merger Current Assets Core EPS ROAA ROAE
(%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM (Y/N) Date MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HALL 8.28 N 06/20/97 0.01 11.75 0.46 0.66 9.37
HARB 14.59 N 06/20/97 0.47 15.21 0.67 1.23 14.96
HARL 15.27 N 06/20/97 0.11 11.00 0.50 1.04 16.42
HARS 6.48 N 06/20/97 0.67 17.14 0.31 0.78 9.03
HAVN 14.67 N 06/20/97 0.78 12.50 0.74 0.82 14.18
HBFW 6.04 N 06/20/97 0.00 15.63 0.33 0.98 7.03
HBNK 6.70 N 06/20/97 3.23 23.88 0.25 0.47 6.51
HBS 7.43 N 06/20/97 2.09 16.94 0.25 0.89 6.02
HFFB 4.90 N 06/20/97 0.00 19.74 0.19 1.32 4.96
HFFC 8.80 N 06/20/97 0.40 12.99 0.38 0.85 9.18
HFGI 10.32 N 06/20/97 0.23 21.88 0.14 0.35 7.28
HFNC 4.71 N 06/20/97 0.99 24.63 0.17 1.15 4.36
HFSA 5.14 N 06/20/97 0.36 16.62 0.22 0.74 5.38
HHFC 3.91 N 06/20/97 0.15 14.58 0.18 0.78 6.27
HIFS 11.92 N 06/20/97 0.55 10.14 0.49 1.25 12.95
HMCI 6.13 N 06/20/97 3.25 19.79 0.18 0.40 6.44
HMNF 5.93 N 06/20/97 0.08 18.55 0.31 0.87 5.96
HOMF 14.20 N 06/20/97 0.43 12.39 0.56 1.22 14.54
HPBC 15.83 N 06/20/97 0.04 12.35 0.41 1.65 15.23
HRBF 5.10 N 06/20/97 0.13 18.75 0.24 0.72 5.62
HRZB 9.68 N 06/20/97 0.00 14.40 0.28 1.59 10.36
HZFS 5.41 N 06/20/97 1.02 13.75 0.35 0.76 7.11
IFSB 4.92 N 06/20/97 NA 11.25 0.20 0.39 5.96
INBI 6.69 N 06/20/97 0.18 14.00 0.24 1.48 7.91
IPSW 15.41 N 06/20/97 1.94 12.31 0.33 1.04 16.85
ISBF 6.15 N 06/20/97 NA 20.04 0.29 0.77 6.29
ITLA 12.48 N 06/20/97 1.78 11.11 0.36 1.42 12.81
IWBK 16.43 N 06/20/97 0.69 15.25 0.59 1.09 16.41
JSBA 9.29 N 06/20/97 0.52 12.88 0.58 0.85 10.53
JSBF 7.73 N 06/20/97 1.00 17.41 0.63 1.69 7.65
KFBI 5.42 N 06/20/97 0.10 17.36 0.27 1.48 6.99
KNK 7.65 N 06/20/97 0.57 14.22 0.51 0.88 8.37
KSAV 8.44 N 06/20/97 0.42 14.17 0.45 1.24 9.06
KSBK 15.50 N 06/20/97 NA 9.83 0.89 1.01 13.96
KYF 5.23 N 06/20/97 0.00 13.75 0.20 1.17 7.02
LARK 6.69 N 06/20/97 0.11 16.77 0.30 0.97 6.58
LARL 13.48 N 06/20/97 0.51 11.68 0.46 1.41 13.36
LFED 6.93 N 06/20/97 0.02 19.00 0.25 1.23 7.61
LIFB 7.73 N 06/20/97 0.49 20.37 0.29 0.79 7.30
LISB 7.57 N 06/20/97 1.04 20.07 0.45 0.73 8.10
LOGN 6.80 N 06/20/97 0.45 14.58 0.24 1.49 7.56
LSBI 4.44 N 06/20/97 1.34 14.50 0.36 0.68 7.38
LSBX 20.48 N 06/20/97 0.36 9.27 0.29 1.51 17.71
LVSB 9.52 N 06/20/97 NA 14.66 0.55 1.14 11.56
MAFB 14.28 N 06/20/97 0.44 12.17 0.85 1.14 14.54
MARN 6.87 N 06/20/97 0.76 11.78 0.48 2.06 9.01
MASB 10.08 N 06/20/97 0.19 14.61 0.80 0.99 9.41
MBB 5.76 N 06/20/97 0.70 19.25 0.25 0.49 5.53
MBB 5.76 N 06/20/97 0.70 19.25 0.25 0.49 5.53
MBLF 6.32 N 06/20/97 0.25 20.00 0.30 0.77 5.77
MCBN 7.05 N 06/20/97 0.40 9.95 0.49 0.80 8.48
MCBS 10.54 N 06/20/97 0.19 13.75 0.50 1.07 10.33
MDBK 11.38 N 06/20/97 0.45 13.62 0.56 1.01 11.38
MERI 12.70 N 06/20/97 0.25 11.31 0.84 1.20 15.23
MFBC 5.10 N 06/20/97 0.00 16.46 0.30 0.90 6.09
MFFC 4.14 N 06/20/97 0.17 26.92 0.13 0.62 4.16
MFLR 9.66 N 06/20/97 1.02 12.16 0.37 1.08 11.33
</TABLE>
13
<PAGE>
FERGUSON & COMPANY Exhibit V - Selected Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Core NPAs/ Price/ Core Core Core
ROAE Merger Current Assets Core EPS ROAA ROAE
(%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM (Y/N) Date MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MFSL 10.76 N 06/20/97 NA 15.58 0.71 0.81 9.61
MIVI 5.54 N 06/20/97 0.21 17.41 0.21 1.01 5.86
MLBC 8.57 N 06/20/97 NA 23.83 0.20 0.48 6.42
MSBF 7.55 N 06/20/97 0.15 13.75 0.40 1.41 7.83
MWBI 10.69 N 06/20/97 0.82 11.93 0.66 0.72 10.23
MWBX 17.58 N 06/20/97 0.78 11.59 0.12 1.32 17.72
MWFD 12.42 N 06/20/97 0.14 15.43 0.32 1.11 12.90
NASB 16.39 N 06/20/97 3.34 10.68 1.03 1.30 17.21
NBN 6.24 N 06/20/97 1.37 13.82 0.26 0.66 8.48
NEIB 7.06 N 06/20/97 0.49 12.50 0.30 1.15 7.49
NHTB 6.82 N 06/20/97 0.74 13.15 0.29 0.89 11.96
NMSB 7.51 N 06/20/97 1.27 17.08 0.15 0.82 7.82
NSSB 9.14 N 06/20/97 1.00 16.16 0.35 1.17 10.33
NTMG 6.31 N 06/20/97 1.11 18.75 0.11 0.49 7.99
NWEQ 7.91 N 06/20/97 NA 13.17 0.28 0.92 7.76
NWSB 9.92 N 06/20/97 0.84 19.06 0.20 0.95 9.66
NYB 25.36 N 06/20/97 1.14 14.01 0.62 1.36 26.10
OFCP 7.63 N 06/20/97 0.18 17.05 0.33 0.78 8.74
OHSL 7.28 N 06/20/97 0.01 15.03 0.42 0.94 8.32
PALM 6.94 N 06/20/97 2.52 18.14 0.23 0.75 9.43
PBCI 7.86 N 06/20/97 2.28 12.34 0.40 1.37 9.32
PBCT 11.01 N 06/20/97 0.91 23.66 0.28 0.87 10.76
PBIX 5.80 N 06/20/97 0.13 21.46 0.19 0.52 6.06
PBKB 8.94 N 06/20/97 0.88 18.91 0.20 0.54 8.99
PCBC 5.45 N 06/20/97 0.05 15.93 0.31 1.18 6.34
PCCI 11.08 N 06/20/97 1.23 12.38 0.27 1.01 13.23
PEEK 4.78 N 06/20/97 0.74 22.06 0.17 1.15 4.43
PERT 9.73 N 06/20/97 NA 15.69 0.47 1.20 9.46
PFDC 9.42 N 06/20/97 0.40 12.36 0.45 1.46 9.59
PFNC 10.45 N 06/20/97 1.36 19.79 0.12 0.47 9.15
PFSB 10.45 N 06/20/97 0.69 12.44 0.55 0.85 11.30
PFSL 11.02 N 06/20/97 0.22 13.30 0.39 0.69 10.90
PHBK 15.68 N 06/20/97 0.83 14.90 0.60 1.26 15.32
PSBK 13.23 N 06/20/97 0.82 13.72 0.54 0.94 11.30
PTRS 7.54 N 06/20/97 0.83 6.12 0.88 1.53 16.55
PULS 12.54 N 06/20/97 0.59 10.90 0.45 1.11 14.26
PVFC 20.48 N 06/20/97 0.90 9.76 0.49 1.39 20.03
PVSA 14.68 N 06/20/97 0.24 11.63 0.61 1.06 14.76
PWBC 8.73 N 06/20/97 0.58 12.50 0.30 0.67 9.11
QCBC 6.21 N 06/20/97 1.49 15.18 0.28 0.67 7.48
QCFB 8.76 N 06/20/97 NA 11.39 0.45 1.55 8.53
QCSB 11.02 N 06/20/97 0.61 17.47 0.66 2.12 14.19
RARB 13.32 N 06/20/97 0.46 12.93 0.58 1.06 13.56
RELY 10.00 N 06/20/97 0.73 14.61 0.46 0.86 10.47
ROSE 13.75 N 06/20/97 0.38 14.69 0.40 0.85 13.69
RVSB 10.66 N 06/20/97 0.10 18.33 0.30 1.28 11.56
SFED 6.26 N 06/20/97 0.68 21.71 0.19 0.54 4.19
SFFC 6.99 N 06/20/97 0.70 13.66 0.35 1.27 7.18
SFIN 8.80 N 06/20/97 0.41 13.38 0.32 0.82 8.57
SFSB 8.08 N 06/20/97 0.25 13.92 0.44 0.57 8.69
SFSL 13.81 N 06/20/97 0.26 13.70 0.39 1.38 14.86
SGVB 4.26 N 06/20/97 0.61 25.00 0.14 0.31 3.97
SISB 19.94 N 06/20/97 0.36 13.72 0.54 0.87 11.85
SKAN 9.13 N 06/20/97 1.52 12.02 0.39 0.62 9.00
SMBC 6.29 N 06/20/97 1.10 17.63 0.25 0.96 6.06
SMFC 10.28 N 06/20/97 0.08 16.23 0.62 1.29 13.07
SOPN 6.59 N 06/20/97 0.12 20.69 0.29 1.73 6.96
</TABLE>
14
<PAGE>
FERGUSON & COMPANY Exhibit V - Selected Publicly Held Thrifts
- ------------------
<TABLE>
<CAPTION>
Core NPAs/ Price/ Core Core Core
ROAE Merger Current Assets Core EPS ROAA ROAE
(%) Target? Pricing (%) EPS ($) (%) (%)
Ticker LTM (Y/N) Date MRQ (x) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SOSA 10.32 N 06/20/97 6.50 11.07 0.06 0.76 12.96
SPBC 11.18 N 06/20/97 0.36 16.61 0.51 1.10 12.36
STFR 7.59 N 06/20/97 0.26 16.30 0.51 0.74 8.48
STSA 7.62 N 06/20/97 0.43 16.38 0.29 0.57 10.08
SWBI 9.52 N 06/20/97 0.18 14.24 0.36 1.04 9.81
SWCB 11.82 N 06/20/97 1.08 14.90 0.52 0.88 10.78
TBK 11.53 N 06/20/97 2.30 12.92 0.37 0.79 11.40
THR 5.71 N 06/20/97 1.21 17.90 0.22 0.77 5.49
THRD 6.23 N 06/20/97 0.33 16.41 0.28 0.69 6.26
TPNZ 5.46 N 06/20/97 NA 22.92 0.18 0.88 4.91
TRIC 6.66 N 06/20/97 0.05 14.36 0.37 1.04 6.74
TSH 6.93 N 06/20/97 0.27 15.07 0.31 0.99 7.48
TWIN 6.08 N 06/20/97 0.08 19.79 0.24 0.76 5.93
UBMT 5.74 N 06/20/97 NA 16.25 0.30 1.39 5.81
WAYN 6.91 N 06/20/97 0.69 25.00 0.17 0.62 6.79
WBST 12.75 N 06/20/97 0.94 15.23 0.72 0.66 12.18
WCBI 9.01 N 06/20/97 0.84 15.95 0.38 1.37 8.79
WEFC 7.11 N 06/20/97 0.21 12.28 0.29 1.10 7.77
WFCO 12.04 N 06/20/97 NA 8.63 0.38 1.01 13.97
WFSL 15.76 N 06/20/97 0.90 12.59 0.55 1.82 15.72
WRNB 18.61 N 06/20/97 1.32 12.86 0.35 1.57 15.73
WSB 8.91 N 06/20/97 NA 26.25 0.05 0.38 4.53
WSFS 22.77 N 06/20/97 2.09 10.64 0.32 1.15 21.25
WSTR 6.16 N 06/20/97 0.09 19.83 0.26 0.73 5.69
WVFC 10.14 N 06/20/97 0.31 12.38 0.52 1.33 10.31
YFED 9.30 N 06/20/97 1.43 13.18 0.37 0.91 11.15
Maximum 67.90 6.50 45.31 1.44 2.12 26.10
Minimum 3.83 - 6.12 0.04 0.29 3.48
Average 9.83 0.73 15.61 0.39 0.98 9.97
Median 9.03 0.52 14.66 0.35 0.94 9.36
</TABLE>
15
<PAGE>
EXHIBIT VI
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VI - Comparative Group Selection
To search for a comparative group for Lexington, we selected all thrifts from
the entire U.S. with assets under $75 million that have sufficient trading
volume to produce meaningful market information. All of these thrifts are listed
on either AMEX, NYSE, or Nasdaq.
We found 25 thrifts in the asset size described above. We eliminated 13 and
retained a group of 12. Normally, we consider 10 to 12 as the desired sample
size.
We eliminated thrifts for the following reasons: 1) BIF insured; 2) Less than a
full quarter as a reporting stock; 3) Inordinately high PE ratio; 4) Merger
agreement has been executed; 5) Nonperforming assets of 1.50% or more of total
assets; 6) Loans less than 50% of total assets; and 7) Loans serviced more than
40% of assets. After eliminating thrifts for the reasons listed above, we still
had 15 remaining. To reduce the group to 12, we eliminated the three most recent
conversions from the remaining 15.
The group of 25 from which the comparative group was selected is listed on
Exhibit VI.1 and the selected comparative group is listed on Exhibit VI.2. On
Exhibit VI.1, we have highlighted the cells that indicate which ones were not
selected and why. Set forth below is a legend for the column summarizing reasons
individual thrifts were not selected.
A BIF insured.
B The three most recently completed conversions after eliminating others for
operational reasons.
C Albion Bancorp, with a PE of 151.0 coupled with a PB of 78.6%, both of which
are well out of the normal range.
D Less than one full quarter as a reporting stock.
E Announced acquisition target.
F Non-performing assets of 1.50% or more of total assets.
G Loans are less than 50% of assets.
H Loans serviced exceeds 40% of assets.
1
<PAGE>
FERGUSON & COMPANY Exhibit VI.1 - Comparatives Selection
- ------------------
<TABLE>
<CAPTION>
Deposit Current Current Price/
Insurance Stock Market LTM
Agency Price Value Core EPS
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALBC Albion Banc Corp. Albion NY MA SAIF NASDAQ 07/26/93 18.125 4.53 41.2
ATSB AmTrust Capital Corp. Peru IN MW SAIF NASDAQ 03/28/95 12.250 6.51 47.1
CKFB CKF Bancorp, Inc. Danville KY MW SAIF NASDAQ 01/04/95 18.000 16.69 22.0
CRZY Crazy Woman Creek Bancorp Buffalo WY WE SAIF NASDAQ 03/29/96 13.750 14.55 NA
CSBF CSB Financial Group, Inc. Centralia IL MW SAIF NASDAQ 10/09/95 11.063 10.42 31.6
FLKY First Lancaster Bancshares Lancaster KY MW SAIF NASDAQ 07/01/96 15.750 15.10 NA
GLBK Glendale Co-Operative Bank Everett MA NE BIF NASDAQ 01/10/94 26.000 6.43 24.3
GWBC Gateway Bancorp, Inc. Catlettsburg KY MW SAIF NASDAQ 01/18/95 14.500 15.60 21.3
HBBI Home Building Bancorp Washington IN MW SAIF NASDAQ 02/08/95 21.000 6.54 NM
HCFC Home City Financial Corp. Springfield OH MW SAIF NASDAQ 12/30/96 14.000 13.33 NA
HWEN Home Financial Bancorp Spencer IN MW SAIF NASDAQ 07/02/96 15.375 7.78 NA
HZFS Horizon Financial Svcs Corp. Oskaloosa IA MW SAIF NASDAQ 06/30/94 17.750 7.55 32.3
JOAC Joachim Bancorp, Inc. De Soto MO MW SAIF NASDAQ 12/28/95 14.625 11.12 37.5
LONF London Financial Corporation London OH MW SAIF NASDAQ 04/01/96 15.750 8.33 NA
LXMO Lexington B&L Financial Corp. Lexington MO MW SAIF NASDAQ 06/06/96 15.500 19.61 NA
MBSP Mitchell Bancorp, Inc. Spruce Pine NC SE SAIF NASDAQ 07/12/96 16.000 15.68 NA
MCBN Mid-Coast Bancorp, Inc. Waldoboro ME NE SAIF NASDAQ 11/02/89 19.000 4.37 12.7
MIVI Mississippi View Holding Co. Little Falls MN MW SAIF NASDAQ 03/24/95 15.125 12.93 18.2
MSBF MSB Financial, Inc. Marshall MI MW SAIF NASDAQ 02/06/95 21.500 13.82 13.7
NSLB NS&L Bancorp, Inc. Neosho MO MW SAIF NASDAQ 06/08/95 16.000 11.78 30.8
PWBK Pennwood Bancorp, Inc. Pittsburgh PA MA SAIF NASDAQ 07/15/96 14.000 8.54 NA
RELI Reliance Bancshares, Inc. Milwaukee WI MW SAIF NASDAQ 04/19/96 7.250 18.33 NA
SCBS Southern Community Bancshares Cullman AL SE SAIF NASDAQ 12/23/96 13.500 15.35 NA
SCCB S. Carolina Community Bancshrs Winnsboro SC SE SAIF NASDAQ 07/07/94 19.938 14.06 27.3
SSB Scotland Bancorp, Inc Laurinburg NC SE SAIF AMSE 04/01/96 16.000 29.44 NA
Maximum 26.000 29.44 47.1
Minimum 7.250 4.37 12.7
Average 16.070 12.34 27.7
Median 15.750 12.93 27.3
</TABLE>
2
<PAGE>
FERGUSON & COMPANY Exhibit VI.1 - Comparatives Selection
- ------------------
<TABLE>
<CAPTION>
Price/ Current Current Current Total Equity/
Core Price/ Price/ T Price/ Dividend Assets Assets
EPS Book V Book V Assets Yield ($000) (%)
Ticker (x) (%) (%) (%) (%) MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C>
ALBC 151.0 78.6 78.6 7.6 1.71 59,860 9.6
ATSB 38.3 88.3 89.2 9.0 1.63 72,219 10.2
CKFB 20.5 105.8 105.8 27.8 2.44 60,038 25.2
CRZY 21.5 93.0 93.0 27.7 2.91 52,593 29.8
CSBF 30.7 87.2 92.7 21.9 -- 47,527 25.2
FLKY 24.6 110.3 110.3 41.0 -- 36,858 37.1
GLBK 26.0 106.3 106.3 17.4 -- 36,927 16.4
GWBC 20.1 91.6 91.6 23.5 2.76 66,439 25.6
HBBI 21.9 110.1 110.1 14.7 1.43 44,564 12.5
HCFC NA 95.4 95.4 19.6 2.29 68,140 20.5
HWEN 18.3 99.0 99.0 19.9 1.30 39,030 20.1
HZFS 15.3 93.3 93.3 10.2 1.80 74,043 10.9
JOAC 33.2 103.9 103.9 31.7 3.42 35,110 30.5
LONF 19.7 104.2 104.2 22.3 1.52 37,313 21.4
LXMO 21.5 103.1 103.1 31.8 -- 61,650 30.8
MBSP 26.7 105.3 105.3 45.9 5.00 34,203 43.6
MCBN 9.7 87.9 87.9 7.6 2.74 57,838 8.6
MIVI 18.0 99.2 99.2 18.4 1.06 70,329 18.5
MSBF 13.1 109.7 109.7 20.9 2.33 66,541 19.1
NSLB 28.6 99.0 99.0 20.8 3.13 58,394 21.0
PWBK 15.2 91.1 91.1 18.3 2.00 46,707 20.1
RELI 18.1 82.1 NA 41.1 -- 44,605 50.1
SCBS NA 96.2 96.2 21.3 -- 72,151 22.1
SCCB 24.9 118.3 118.3 30.6 3.01 45,919 25.9
SSB 22.2 117.3 117.3 43.3 1.88 68,067 36.9
Maximum 151.0 118.3 118.3 45.9 5.00 74,043 50.1
Minimum 9.7 78.6 78.6 7.6 -- 34,203 8.6
Average 27.8 99.0 100.0 23.8 1.77 54,283 23.7
Median 21.5 99.0 99.1 21.3 1.80 57,838 21.4
<CAPTION>
Tangible ROAA ROAA ROACE ROACE
Equity/ Core Core Before Before Before Before
T Assets EPS EPS Extra Extra Extra Extra
(%) ($) ($) (%) (%) (%) (%)
MRQ LTM MRQ LTM MRQ LTM MRQ
<S> <C> <C> <C> <C> <C> <C> <C>
ALBC 9.6 0.44 0.03 (0.10) (1.14) (1.00) (11.45)
ATSB 10.1 0.26 0.08 0.30 0.33 3.00 3.30
CKFB 25.2 0.82 0.22 1.30 1.31 4.87 5.19
CRZY 29.8 NA 0.16 0.83 1.23 2.86 4.12
CSBF 24.0 0.35 0.09 0.51 0.89 1.78 3.49
FLKY 37.1 NA 0.16 0.98 1.52 NA 4.18
GLBK 16.4 1.07 0.25 0.74 0.75 4.63 4.58
GWBC 25.6 0.68 0.18 0.76 1.10 2.99 4.34
HBBI 12.5 (0.06) 0.24 (0.36) 0.63 (2.60) 4.92
HCFC 20.5 NA NA NA 1.22 NA 7.96
HWEN 20.1 NA 0.21 0.57 0.91 NA 4.51
HZFS 10.9 0.55 0.29 0.14 0.83 1.27 7.70
JOAC 30.5 0.39 0.11 0.49 0.85 1.66 2.84
LONF 21.4 NA 0.20 0.75 1.03 3.77 4.78
LXMO 30.8 NA 0.18 0.88 1.33 NA 4.34
MBSP 43.6 NA 0.15 NA 1.62 NA 3.72
MCBN 8.6 1.50 0.49 0.40 0.87 4.42 9.16
MIVI 18.5 0.83 0.21 0.68 0.98 3.63 5.32
MSBF 19.1 1.57 0.41 1.29 1.54 6.07 7.93
NSLB 21.0 0.52 0.14 0.51 0.85 2.29 4.04
PWBK 20.1 NA 0.23 0.53 1.09 NA 5.44
RELI NA NA 0.10 NA 2.19 NA 3.92
SCBS 22.1 NA NA NA 0.94 NA 5.91
SCCB 25.9 0.73 0.20 0.90 1.20 3.21 4.42
SSB 36.9 NA 0.18 1.31 1.77 3.86 4.84
Maximum 43.6 1.57 0.49 1.31 2.19 6.07 9.16
Minimum 8.6 (0.06) 0.03 (0.36) (1.14) (2.60) (11.45)
Average 22.5 0.69 0.20 0.64 1.03 2.75 4.38
Median 21.2 0.62 0.18 0.68 1.03 3.00 4.51
</TABLE>
3
<PAGE>
FERGUSON & COMPANY EXHIBIT VI.1 - Comparatives Selection
- ------------------
<TABLE>
<CAPTION>
Loans Loans
NPAs/ Loans/ Loans/ Deposits/ Borrowings/ Serviced Serviced/
Merger Current Assets Deposits Assets Assets Assets For Others Assets
Target? Pricing (%) (%) (%) (%) (%) ($000) (%) Reasons for Exclusion
Ticker (Y/N) Date MRQ MRQ MRQ MRQ MRQ MRQ MRQ ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALBC N 03/20/97 0.37 100.37 78.98 78.69 10.49 11,367 19.0 C
ATSB N 03/20/97 2.59 103.00 70.99 68.93 20.30 28,300 39.2 F
CKFB N 03/20/97 0.52 124.50 88.82 71.34 2.09 - - SELECTED
CRZY N 03/20/97 0.17 92.62 51.19 55.27 14.23 80 0.2 SELECTED
CSBF N 03/20/97 0.78 78.77 58.56 74.35 - - - SELECTED
FLKY N 03/20/97 0.36 149.63 88.27 58.99 2.55 NA NA B
GLBK Y 03/20/97 - 47.28 39.49 83.53 - NA NA A, E, G
GWBC N 03/20/97 0.12 38.94 28.83 74.05 - - - G
HBBI N 03/20/97 1.14 81.84 63.83 77.99 8.93 - - SELECTED
HCFC N 03/20/97 0.34 102.82 74.78 72.73 6.02 2,410 3.5 D
HWEN N 03/20/97 0.62 122.38 76.47 62.48 17.17 - - B
HZFS N 03/20/97 1.35 92.92 69.58 74.88 13.68 1,688 2.3 SELECTED
JOAC N 03/20/97 0.74 100.16 68.65 68.54 - - - SELECTED
LONF N 03/20/97 0.80 97.40 75.16 77.17 0.80 - - SELECTED
LXMO N 03/20/97 0.92 107.66 73.93 68.67 - NA NA B
MBSP N 03/20/97 2.28 146.70 78.81 53.72 - - - F
MCBN N 03/20/97 0.40 113.92 83.59 73.38 17.62 6,941 12.0 SELECTED
MIVI N 03/20/97 0.26 79.40 63.61 80.11 - - - SELECTED
MSBF N 03/20/97 0.47 151.88 94.31 62.10 18.03 33,183 49.9 H
NSLB N 03/20/97 - 74.65 54.19 72.60 5.14 - - SELECTED
PWBK N 03/20/97 0.95 61.45 46.06 74.96 3.17 152 0.3 G
RELI N 03/20/97 - 140.69 56.55 40.19 8.97 NA NA SELECTED
SCBS N 03/20/97 2.20 70.87 55.02 77.64 - - - D, F
SCCB N 03/20/97 1.83 106.77 77.89 72.95 - NA NA F
SSB N 03/20/97 0.05 110.81 68.03 61.39 - - - SELECTED
Maximum 2.59 151.88 94.31 83.53 20.30 33,183 49.9
Minimum - 38.94 28.83 40.19 - - -
Average 0.77 99.90 67.42 69.47 5.97 4,206 6.3
Median 0.52 100.37 69.58 72.73 2.55 - -
</TABLE>
4
<PAGE>
FERGUSON & COMPANY Exhibit VI.2 - Comparatives Selected
- ------------------
<TABLE>
<CAPTION>
Deposit
Insurance
Agency
Ticker Short Name City State Region (BIF/SAIF) Exchange
<S> <C> <C> <C> <C> <C> <C>
CKFB CKF Bancorp, Inc. Danville KY MW SAIF NASDAQ
CRZY Crazy Woman Creek Bancorp Buffalo WY WE SAIF NASDAQ
CSBF CSB Financial Group, Inc. Centralia IL MW SAIF NASDAQ
HBBI Home Building Bancorp Washington IN MW SAIF NASDAQ
HZFS Horizon Financial Svcs Corp. Oskaloosa IA MW SAIF NASDAQ
JOAC Joachim Bancorp, Inc. De Soto MO MW SAIF NASDAQ
LONF London Financial Corporation London OH MW SAIF NASDAQ
MCBN Mid-Coast Bancorp, Inc. Waldoboro ME NE SAIF NASDAQ
MIVI Mississippi View Holding Co. Little Falls MN MW SAIF NASDAQ
NSLB NS&L Bancorp, Inc. Neosho MO MW SAIF NASDAQ
RELI Reliance Bancshares, Inc. Milwaukee WI MW SAIF NASDAQ
SSB Scotland Bancorp, Inc Laurinburg NC SE SAIF AMSE
Maximum
Minimum
Average
Median
<CAPTION>
Current Current Price/
Stock Market LTM
Price Value Core EPS
Ticker IPO Date ($) ($M) (x)
<S> <C> <C> <C> <C>
CKFB 01/04/95 18.000 16.69 22.0
CRZY 03/29/96 13.750 14.55 NA
CSBF 10/09/95 11.063 10.42 31.6
HBBI 02/08/95 21.000 6.54 NM
HZFS 06/30/94 17.750 7.55 32.3
JOAC 12/28/95 14.625 11.12 37.5
LONF 04/01/96 15.750 8.33 NA
MCBN 11/02/89 19.000 4.37 12.7
MIVI 03/24/95 15.125 12.93 18.2
NSLB 06/08/95 16.000 11.78 30.8
RELI 04/19/96 7.250 18.33 NA
SSB 04/01/96 16.000 29.44 NA
Maximum 21.000 29.44 37.5
Minimum 7.250 4.37 12.7
Average 15.443 12.67 26.4
Median 15.875 11.45 30.8
</TABLE>
5
<PAGE>
FERGUSON & COMPANY Exhibit VI.2 - Comparatives Selected
- ------------------
<TABLE>
<CAPTION>
Tangible
Price/ Current Current Current Total Equity/ Equity/
Core Price/ Price/ T Price/ Dividend Assets Assets T Assets
EPS Book V Book V Assets Yield ($000) (%) (%)
Ticker (x) (%) (%) (%) (%) MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CKFB 20.5 105.8 105.8 27.8 2.44 60,038 25.2 25.2
CRZY 21.5 93.0 93.0 27.7 2.91 52,593 29.8 29.8
CSBF 30.7 87.2 92.7 21.9 - 47,527 25.2 24.0
HBBI 21.9 110.1 110.1 14.7 1.43 44,564 12.5 12.5
HZFS 15.3 93.3 93.3 10.2 1.80 74,043 10.9 10.9
JOAC 33.2 103.9 103.9 31.7 3.42 35,110 30.5 30.5
LONF 19.7 104.2 104.2 22.3 1.52 37,313 21.4 21.4
MCBN 9.7 87.9 87.9 7.6 2.74 57,838 8.6 8.6
MIVI 18.0 99.2 99.2 18.4 1.06 70,329 18.5 18.5
NSLB 28.6 99.0 99.0 20.8 3.13 58,394 21.0 21.0
RELI 18.1 82.1 NA 41.1 - 44,605 50.1 NA
SSB 22.2 117.3 117.3 43.3 1.88 68,067 36.9 36.9
Maximum 33.2 117.3 117.3 43.3 3.42 74,043 50.1 36.9
Minimum 9.7 82.1 87.9 7.6 - 35,110 8.6 8.6
Average 21.6 98.6 100.6 23.9 1.86 54,202 24.2 21.8
Median 21.0 99.1 99.2 22.1 1.84 55,216 23.3 21.4
<CAPTION>
ROAA ROAA ROACE ROACE
Core Core Before Before Before Before
EPS EPS Extra Extra Extra Extra
($) ($) (%) (%) (%) (%)
Ticker LTM MRQ LTM MRQ LTM MRQ
<S> <C> <C> <C> <C> <C> <C>
CKFB 0.82 0.22 1.30 1.31 4.87 5.19
CRZY NA 0.16 0.83 1.23 2.86 4.12
CSBF 0.35 0.09 0.51 0.89 1.78 3.49
HBBI (0.06) 0.24 (0.36) 0.63 (2.60) 4.92
HZFS 0.55 0.29 0.14 0.83 1.27 7.70
JOAC 0.39 0.11 0.49 0.85 1.66 2.84
LONF NA 0.20 0.75 1.03 3.77 4.78
MCBN 1.50 0.49 0.40 0.87 4.42 9.16
MIVI 0.83 0.21 0.68 0.98 3.63 5.32
NSLB 0.52 0.14 0.51 0.85 2.29 4.04
RELI NA 0.10 NA 2.19 NA 3.92
SSB NA 0.18 1.31 1.77 3.86 4.84
Maximum 1.50 0.49 1.31 2.19 4.87 9.16
Minimum (0.06) 0.09 (0.36) 0.63 (2.60) 2.84
Average 0.61 0.20 0.60 1.12 2.53 5.03
Median 0.54 0.19 0.51 0.94 2.86 4.81
</TABLE>
6
<PAGE>
FERGUSON & COMPANY Exhibit VI.2 - Comparatives Selected
- ------------------
<TABLE>
<CAPTION>
Loans Loans
NPAs/ Loans/ Loans/ Deposits/ Borrowings/ Serviced Serviced/
Merger Current Assets Deposits Assets Assets Assets For Others Assets
Target? Pricing (%) (%) (%) (%) (%) ($000) (%)
Ticker (Y/N) Date MRQ MRQ MRQ MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CKFB N 03/20/97 0.52 124.50 88.82 71.34 2.09 - -
CRZY N 03/20/97 0.17 92.62 51.19 55.27 14.23 80 0.2
CSBF N 03/20/97 0.78 78.77 58.56 74.35 - - -
HBBI N 03/20/97 1.14 81.84 63.83 77.99 8.93 - -
HZFS N 03/20/97 1.35 92.92 69.58 74.88 13.68 1,688 2.3
JOAC N 03/20/97 0.74 100.16 68.65 68.54 - - -
LONF N 03/20/97 0.80 97.40 75.16 77.17 0.80 - -
MCBN N 03/20/97 0.40 113.92 83.59 73.38 17.62 6,941 12.0
MIVI N 03/20/97 0.26 79.40 63.61 80.11 - - -
NSLB N 03/20/97 - 74.65 54.19 72.60 5.14 - -
RELI N 03/20/97 - 140.69 56.55 40.19 8.97 NA NA
SSB N 03/20/97 0.05 110.81 68.03 61.39 - - -
Maximum 1.35 140.69 88.82 80.11 17.62 6,941 12.0
Minimum - 74.65 51.19 40.19 - - -
Average 0.52 98.97 66.81 68.93 5.96 792 1.3
Median 0.46 95.16 65.93 72.99 3.62 - -
</TABLE>
7
<PAGE>
EXHIBIT VII
<PAGE>
FERGUSON & COMPANY Exhibit VII
- ------------------ Pro Forma Assumptions
1. Net proceeds from the conversion were invested at the beginning of the
period at 6.0%, which was the approximate rate on the one-year treasury
bill on March 31, 1997. This rate was selected because it is considered
more representative of the rate the Bank is likely to earn.
2. Lexington First Federal does not intend to adopt an ESOP.
3. The Bank's RP will acquire 4% of the stock through open market purchases
at $10 per share and the expense is recognized ratably over five years as
the shares vest.
4. All pro forma income and expense items are adjusted for income taxes at
a combined state and federal rate of 36.0%.
5. In calculating the pro forma adjustments to net worth, the RP is
deducted in accordance with generally accepted accounting principles.
1
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VII
Pro Forma Effect of Conversion Proceeds
At the Minimum of the Conversion Valuation Range
Valuation Date as of June 20, 1997
<TABLE>
<CAPTION>
Lexington First Federal Savings Bank
- --------------------------------------------------------------------------------
<S> <C> <C>
1. Conversion Proceeds
Pro Forma Market Value $ 2,212,738
Less: Estimated Expenses (350,000)
------------------
Net Conversion Proceeds $ 1,862,738
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 1,862,738
Less: ESOP Contributions -
RP Contributions (88,510)
------------------
Net Conversion Proceeds after ESOP & RP $ 1,774,228
Estimated Incremental Rate of Return(1) 3.84%
------------------
Estimated Additional Income $ 68,130
Less: ESOP Expense NA
RP Expense (11,329)
------------------
$ 56,801
==================
3. Pro Forma Calculations
Before Conversion After
Period Conversion Results Conversion
--------------------------------------------------------------
<S> <C> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
March 31, 1997 $ 279,000 $ 56,801 $ 335,801
b. Pro Forma Net Worth
March 31, 1997 $ 3,923,000 $ 1,774,228 $ 5,697,228
c. Pro Forma Net Assets
March 31, 1997 $ 25,942,000 $ 1,774,228 $ 27,716,228
</TABLE>
(1) Assumes Proceeds can be reinvested at 6.0 percent and earnings taxed at a
rate of 36.0 percent.
2
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VII
Pro Forma Effect of Conversion Proceeds
At the Midpoint of the Conversion Valuation Range
Valuation Date as of June 20, 1997
<TABLE>
<CAPTION>
Lexington First Federal Savings Bank
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
1. Conversion Proceeds
Pro Forma Market Valuation $ 2,603,221
Less: Estimated Expenses (350,000)
------------------------
Net Conversion Proceeds $ 2,253,221
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 2,253,221
Less: ESOP Contributions -
RP Contributions (104,129)
------------------------
Net Conversion Proceeds after ESOP & RP $ 2,149,092
Estimated Incremental Rate of Return(1) 3.84%
------------------------
Estimated Additional Income TRUE $ 82,525
Less: ESOP Expense NA
RP Expense (13,328)
------------------------
$ 69,197
========================
3. Pro Forma Calculations
<CAPTION>
Before Conversion After
Period Conversion Results Conversion
--------------------------------------------------------------------------------
<S> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
March 31, 1997 $ 279,000 $ 69,197 $ 348,197
b. Pro Forma Net Worth
March 31, 1997 $ 3,923,000 $ 2,149,092 $ 6,072,092
c. Pro Forma Net Assets
March 31, 1997 $ 25,942,000 $ 2,149,092 $ 28,091,092
</TABLE>
(1) Assumes Proceeds can be reinvested at 6.0 percent and earnings taxed at a
rate of 36.0 percent.
3
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VII
Pro Forma Effect of Conversion Proceeds
At the Maximum of the Conversion Valuation Range
Valuation Date as of June 20, 1997
<TABLE>
<CAPTION>
Lexington First Federal Savings Bank
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Conversion Proceeds
Pro Forma Market Valuation $ 2,993,704
Less: Estimated Expenses (350,000)
------------------------
Net Conversion Proceeds $ 2,643,704
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 2,643,704
Less: ESOP Contributions -
RP Contributions (119,748)
------------------------
Net Conversion Proceeds after ESOP & RP $ 2,523,956
Estimated Incremental Rate of Return(1) 3.84%
------------------------
Estimated Additional Income $ 96,920
Less: ESOP Expense NA
RP Expense (15,328)
------------------------
$ 81,592
========================
3. Pro Forma Calculations
<CAPTION>
Before Conversion After
Period Conversion Results Conversion
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
March 31, 1997 $ 279,000 $ 81,592 $ 360,592
b. Pro Forma Net Worth
March 31, 1997 $ 3,923,000 $ 2,523,956 $ 6,446,956
c. Pro Forma Net Assets
March 31, 1997 $ 25,942,000 $ 2,523,956 $ 28,465,956
</TABLE>
(1) Assumes Proceeds can be reinvested at 6.0 percent and earnings taxed at a
rate of 36.0 percent.
4
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VII
Pro Forma Effect of Conversion Proceeds
At the SuperMax of the Conversion Valuation Range
Valuation Date as of June 20, 1997
<TABLE>
<CAPTION>
Lexington First Federal Savings Bank
- --------------------------------------------------------------------------
<S> <C> <C>
1. Conversion Proceeds
Pro Forma Market Valuation $ 3,442,759
Less: Estimated Expenses $ (350,000)
--------------------------
Net Conversion Proceeds $ 3,092,759
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 3,092,759
Less: ESOP Contributions $ -
RP Contributions $ (137,710)
--------------------------
Net Conversion Proceeds after ESOP & RP $ 2,955,049
Estimated Incremental Rate of Return(1) 3.84%
--------------------------
Estimated Additional Income $ 113,474
Less: ESOP Expense NA
RP Expense $ (17,627)
--------------------------
$ 95,847
==========================
<CAPTION>
3. Pro Forma Calculations
Before Conversion After
Period Conversion Results Conversion
------------------------------------------------------------------
<S> <C> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
March 31, 1997 $ 279,000 $ 95,847 $ 374,847
b. Pro Forma Net Worth
March 31, 1997 $ 3,923,000 $ 2,955,049 $ 6,878,049
c. Pro Forma Net Assets
March 31, 1997 $ 25,942,000 $ 2,955,049 $ 28,897,049
</TABLE>
(1) Assumes Proceeds can be reinvested at 6.0 percent and earnings taxed at a
rate of 36.0 percent.
5
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VII
Pro Forma Analysis Sheet
Name of Association: Lexington First Federal Savings Bank
Date of Market Prices: June 20, 1997
<TABLE>
<CAPTION>
Tennessee Publicly All Publicly
Comparatives Held Thrifts Held Thrifts
------------ ------------ ------------
Symbols Value Mean Median Mean Median Mean Median
------------------ ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price-Earnings Ratio P/E
- --------------------
Last Twelve Months N/A
At Minimum of Range 10.9
At Midpoint of Range 12.3 25.2 22.4 19.0 19.0 16.2 15.6
At Maximum of Range 13.7
At Supermax of Range 15.2
Price-Book Ratio P/B
- ----------------
At Minimum of Range 64.2%
At Midpoint of Range 70.8% 101.4 100.2 120.1 120.1 142.8 135.1
At Maximum of Range 76.7%
At Supermax of Range 82.7%
Price-Asset Ratio P/A
- -----------------
At Minimum of Range 13.2%
At Midpoint of Range 15.3% 24.1 22.4 15.5 15.5 14.4 13.3
At Maximum of Range 17.4%
At Supermax of Range 19.7%
</TABLE>
6
<PAGE>
FERGUSON & COMPANY
- ------------------
Exhibit VII
Pro Forma Analysis Sheet
<TABLE>
<CAPTION>
Description Symbol Value
- ----------------------------------------------- -------- -----------
<S> <C> <C> <C> <C> <C>
Full Value FV 4,300,000 P/B= 70.8%
Remaining Value to Sell RV 2,603,221 P/A= 15.3%
Pro Forma Earnings PFE 348,197 P/E= 12.3
Pro Forma Book Value PFBV 6,072,092
Pro Forma Assets PFA 28,091,092
Pre-conversion Earnings Y 279,000
Pre-conversion Book Value B 3,923,000
Pre-conversion Assets A 25,942,000
Reinvestment Rate (1) R 3.840%
Conversion Expenses 350,000
Conversion Expenses/Proceeds X 13.445%
Tax Rate TAX 36.00%
ESOP Stock Purchases E 0.00%
ESOP Amortization Period T NA
RP Stock Purchases M 4.00%
RP Amortization Period N 5 Years
Percentage Sold PS 60.540%
</TABLE>
(1) Assumes Proceeds can be reinvested at 6.0 percent and earnings taxed at a
rate of 36.0 percent.
<TABLE>
<CAPTION>
Estimated Value at Midpoint of Range (Full Value):
- -------------------------------------------------
<S> <C> <C>
V= P/A*A 4,300,000
1-P/A*PS*(1-X-M)
V= P/B*B 4,300,000
1-P/B*PS*(1-X-M)
V= P/E*PFE 4,300,000
1-P/E*PS*((1-X-M)*R-(1-TAX)*M/N)
<CAPTION>
Value Per
Estimated Value Share Total Shares Date
--------------- ----- ------------ ----
<S> <C> <C> <C> <C>
$ 4,300,000 $ 10.00 430,000 June 20, 1997
Range of Value:
- ----------------------------------------------------------
$4,300,000 x 1.15=$4,945,000 or 494,500 shares
$4,300,000 x 0.85=$3,655,000 or 365,500 shares
</TABLE>
7
<PAGE>
EXHIBIT VIII
<PAGE>
FERGUSON & COMPANY Exhibit VIII.1 - Selected Publicly Held Pink Sheet Banks
- ------------------
<TABLE>
<CAPTION>
Current
Stock
Price
Ticker Short Name City State Region Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C>
AANB Abigail Adams National Bancorp Washington DC MA OTC Bul NA 26.000
ABCU Alliance Bank Culver City CA WE OTC Bul NA 0.750
ACNB ACNB Corp. Gettysburg PA MA OTC Bul NA 18.750
AMNB American National Bankshares Danville VA SE OTC Bul NA 26.250
ASTXX Bank of Astoria Astoria OR WE Pink Sh NA 13.000
ATLV Antelope Valley Bank Lancaster CA WE OTC Bul NA 36.438
BALX Bank of Alexandria Alexandria VA SE OTC Bul NA 13.000
BATH Bath National Corp. Bath NY MA OTC Bul NA 38.500
BCDO Bank of Coronado Coronado CA WE OTC Bul NA 4.500
BCNB Berlin City Bank Berlin NH NE OTC Bul NA 316.000
BCSV Bay Commercial Services San Leandro CA WE Pink Sh NA 12.750
BDGE Bridge Bancorp Inc. Bridgehampton NY MA OTC Bul NA 20.667
BHBS Bar Harbor Bankshares Bar Harbor ME NE OTC Bul NA 40.250
BKHB Blackhawk Bancorp Inc. Beloit WI MW OTC Bul NA 11.750
BKTI Bank of Tidewater Virginia Beach VA SE OTC Bul NA 20.000
BLCA Borel Bank & Trust Co. San Mateo CA WE OTC Bul NA 27.875
BMRC Bank of Marin Corte Madera CA WE OTC Bul NA 24.500
BNKA Bank of Amador Jackson CA WE OTC Bul NA 10.625
BPLU Bank of Petaluma Petaluma CA WE OTC Bul NA 23.500
BSMR BSM Bancorp Santa Maria CA WE OTC Bul NA 16.875
BVNC Beverly National Corp. Beverly MA NE OTC Bul NA 26.500
BWCF BWC Financial Corp. Walnut Creek CA WE OTC Bul NA 24.875
BWCK Brunswick Bancorp New Brunswick NJ MA OTC Bul NA 23.500
BWND Bank of South Windsor South Windsor CT NE Pink Sh NA 8.500
BYAR Bay Area Bancshares Redwood City CA WE OTC Bul NA 20.000
BYLK Baylake Corp. Sturgeon Bay WI MW OTC Bul NA 24.500
CADL Cardinal Bancorp Inc. Everett PA MA OTC Bul NA 21.000
CAFP Carolina First Bancshares Lincolnton NC SE Pink Sh NA 38.000
CAPXX Capital Bank NA Rockville MD MA Pink Sh NA 8.000
CBAN Colony Bankcorp Inc. Fitzgerald GA SE Pink Sh NA 24.000
CBIV Community Bankshares Inc. Petersburg VA SE OTC Bul NA 17.750
CBTN CB&T Inc. McMinnville TN SE OTC Bul NA 115.000
CCBN Central Coast Bancorp Salinas CA WE OTC Bul NA 22.750
CCFN CCFNB Bancorp Inc. Bloomsburg PA MA OTC Bul NA 18.750
CCNE CNB Financial Corp. Clearfield PA MA OTC Bul NA 36.500
CESR Central Sierra Bank San Andreas CA WE OTC Bul NA 13.000
CFCXX C&F Financial Corp. West Point VA SE Pink Sh NA 20.250
CHMG Chemung Financial Corporation Elmira NY MA OTC Bul NA 33.875
CIBN California Independent Bancorp Yuba City CA WE OTC Bul NA 22.000
CIWV Citizens Financial Corp. Elkins WV SE OTC Bul NA 26.000
CLDB Cortland Bancorp Cortland OH MW OTC Bul NA 48.500
CMTV Community Bancorp. Derby VT NE Pink Sh NA 19.250
CNAF Commercial National Fincl Corp Latrobe PA MA OTC Bul NA 23.500
CNBB CNB Bancorp Inc. Gloversville NY MA OTC Bul NA 28.750
CNBC Center Bancorp, Inc. Union NJ MA OTC Bul NA 32.250
CNBD CNBC Bancorp Worthington OH MW Pink Sh NA 31.500
CPKF Chesapeake Financial Shares Kilmarnock VA SE OTC Bul NA 15.000
CSBB CSB Bancorp Inc. Millersburg OH MW Pink Sh NA 45.500
CSVG Commercial Bancshares Inc. Upper Sandusky OH MW Pink Sh NA 59.000
</TABLE>
1
<PAGE>
FERGUSON & COMPANY Exhibit VIII.1 - Selected Publicly Held Pink Sheet Banks
- ------------------
<TABLE>
<CAPTION>
Current
Stock
Price
Ticker Short Name City State Region Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C>
CTLN Cortland First Financial Corp. Cortland NY MA OTC Bul NA 24.500
CTVN Shore Bancshares Inc. Centreville MD MA Pink Sh NA 30.000
CTZV Citizens Savings Bank & Trust St. Johnsbury VT NE OTC Bul NA 45.000
CVIC Clovis Community Bank Clovis CA WE OTC Bul NA 20.875
CVLY Codorus Valley Bancorp Inc. Glen Rock PA MA OTC Bul NA 30.000
CWBS Commonwealth Bankshares Inc. Norfolk VA SE OTC Bul NA 10.500
CYBK County Bank Corp. Lapeer MI MW OTC Bul NA 52.500
CYFN Century Financial Corporation Rochester PA MA OTC Bul NA 15.750
CZFS Citizens Financial Services Mansfield PA MA OTC Bul NA 28.000
CZNC Citizens & Northern Corp. Wellsboro PA MA OTC Bul NA 29.500
DCBF DCB Financial Corp Delaware OH MW OTC Bul NA 20.500
DEBC Delta National Bancorp Manteca CA WE OTC Bul NA 29.250
DIMC Dimeco Inc. Honesdale PA MA OTC Bul NA 26.000
DNBF DNB Financial Corp. Downingtown PA MA OTC Bul NA 40.375
DROV Drovers Bancshares Corp. York PA MA OTC Bul NA 22.750
EMBM Empire Banc Corp. Traverse City MI MW OTC Bul NA 41.000
EPNB Ephrata National Bank Ephrata PA MA OTC Bul NA 35.750
EVGS EvergreenBank Seattle WA WE Pink Sh NA 17.750
EVNXX Evans Bancorp Inc. Angola NY MA Pink Sh NA 21.000
FBMI Firstbank Corp. Alma MI MW OTC Bul NA 41.500
FBSYA First Busey Corp. Urbana IL MW OTC Bul NA 24.250
FBTT First Bankers Trustshares Inc. Quincy IL MW OTC Bul NA 33.750
FCBN First Citizens Bancorp. of SC Columbia SC SE OTC Bul NA 221.000
FCFT FCFT Inc. Princeton WV SE OTC Bul NA 31.000
FDDB Fidelity Deposit & Discount Dunmore PA MA OTC Bul NA 49.000
FDNM First National Community Bank Dunmore PA MA OTC Bul NA 33.000
FETM Fentura Bancorp Inc. Fenton MI MW OTC Bul NA 49.750
FGYH First Guaranty Bank Hammond LA SW Pink Sh NA 7.000
FINN First National of Nebraska Omaha NE MW OTC Bul NA 4,035.000
FIOW First Financial Bancorp. Iowa City IA MW OTC Bul NA 33.250
FIVR First Evergreen Corp. Evergreen Park IL MW Pink Sh NA 430.000
FJMY First Jermyn Corp. (The) Jermyn PA MA OTC Bul NA 48.000
FKYS First Keystone Corp. Berwick PA MA OTC Bul NA 40.625
FLHI First Lehigh Corp. Allentown PA MA OTC Bul NA 5.125
FLLC First Financial Bancorp Lodi CA WE OTC Bul NA 9.875
FMBH First Mid-Illinois Bancshares Mattoon IL MW OTC Bul NA 44.500
FMNB Farmers National Banc Corp. Canfield OH MW OTC Bul NA 27.000
FNAN First NB of Anchorage Anchorage AK WE OTC Bul NA 1,845.000
FNBB FNB Financial Corporation McConnellsburg PA MA Pink Sh NA 40.500
FNBL First Litchfield Financial Litchfield CT NE Pink Sh NA 29.000
FNBP FNB Corp. Christiansburg VA SE Pink Sh NA 40.000
FNLB First National Bancorp Inc. Joliet IL MW Pink Sh NA 48.000
FOBT Four Oaks Bank & Trust Co. Four Oaks NC SE OTC Bul NA 26.500
FPHN First Philson Financial Corp. Berlin PA MA OTC Bul NA 59.000
FRAF Franklin Financial Services Chambersburg PA MA OTC Bul NA 35.000
FRMS Farmers & Merchants Bancorp Archbold OH MW Pink Sh NA 61.500
FWCC First West Chester Corp. West Chester PA MA OTC Bul NA 30.750
FWEH First Bank of West Hartford West Hartford CT NE OTC Bul NA 10.250
FXNC First National Corp. Strasburg VA SE OTC Bul NA 21.750
</TABLE>
2
<PAGE>
FERGUSON & COMPANY Exhibit VIII.1 - Selected Publicly Held Pink Sheet Banks
- ------------------
<TABLE>
<CAPTION>
Current
Stock
Price
Ticker Short Name City State Region Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C>
GABS Georgia Bancshares Inc. Tucker GA SE Pink Sh NA 12.000
GBFP Georgia Bank Financial Corp. Augusta GA SE Pink Sh NA 19.625
GFLS Greater Community Bancorp Totowa NJ MA OTC Bul NA 18.000
GLBT Glastonbury Bank and Trust Co Glastonbury CT NE OTC Bul NA 10.625
GRBC GreatBanc Inc. Aurora IL MW Pink Sh NA 9.500
GREXX Greer State Bank Greer SC SE Pink Sh NA 23.000
GRGN Grange National Banc Corp. Tunkhannock PA MA OTC Bul NA 38.500
GRYB Guaranty State Bancorp Durham NC SE OTC Bul NA 22.375
HABN Harbor Bancorp Long Beach CA WE OTC Bul NA 16.500
HBKS Heritage Bankshares Inc. Norfolk VA SE OTC Bul NA 12.500
HBNC Horizon Bancorp Michigan City IN MW OTC Bul NA 55.000
HBSI Highlands Bankshares Inc. Petersburg WV SE OTC Bul NA 45.000
HEOP Heritage Oaks Bancorp Paso Robles CA WE OTC Bul NA 15.500
HOVB Hanover Bancorp Inc. Hanover PA MA OTC Bul NA 17.250
HRFD Harford National Bank Aberdeen MD MA OTC Bul NA 54.000
HTLF Heartland Financial USA Inc. Dubuque IA MW Pink Sh NA 26.000
IBDB Ironbound Bank Newark NJ MA Pink Sh NA 14.000
IBNC International Bancshares Corp. Laredo TX SW OTC Bul NA 51.000
IFNC Intrust Financial Corp. Wichita KS MW OTC Bul NA 72.000
IFST Iowa First Bancshares Corp. Muscatine IA MW OTC Bul NA 22.000
JFBC Jeffersonville Bancorp Jeffersonville NY MA Pink Sh NA 22.000
JUVF Juniata Valley Financial Corp. Mifflintown PA MA OTC Bul NA 44.750
LAYB Lafayette Bancorp. Lafayette IN MW OTC Bul NA 28.000
LKFN Lakeland Financial Corp. Warsaw IN MW OTC Bul NA 35.750
LNBB LNB Bancorp Inc. Lorain OH MW OTC Bul NA 29.500
LNBS Lanier Bankshares Inc. Gainesville GA SE OTC Bul NA 19.500
MBKT Monroe Bank and Trust Monroe MI MW OTC Bul NA 33.000
MCBF MCB Financial Corp. San Rafael CA WE OTC Bul NA 12.375
MFRM Mechanics and Farmers Bank Durham NC SE OTC Bul NA 15.000
MGNB Mahoning National Bancorp Inc. Youngstown OH MW OTC Bul NA 22.000
MIPN Mid Penn Bancorp Inc. Millersburg PA MA OTC Bul NA 34.750
MMBI Merchants and Manufacturers New Berlin WI MW OTC Bul NA 32.875
MSHN Merchants of Shenandoah BnCorp Shenandoah PA MA OTC Bul NA 27.000
MTMB Maritime Bank & Trust Co. Essex CT NE OTC Bul NA 16.000
MTTB Mid-State Bank Arroyo Grande CA WE OTC Bul NA 20.000
NBOH National Bancshares Corp. Orrville OH MW OTC Bul NA 38.625
NECA New Canaan Bank & Trust Co. New Canaan CT NE OTC Bul NA 55.000
NKSH National Bankshares Inc. Blacksburg VA SE OTC Bul NA 24.500
NOAB North American Bank & Trust Waterbury CT NE Pink Sh NA 3.250
NOTW Northwest Bank & Trust Co. Davenport IA MW OTC Bul NA 34.000
NOVB North Valley Bancorp Redding CA WE OTC Bul NA 27.500
OHSB Ohio State Bankshares Inc. Marion OH MW Pink Sh NA 33.500
ORRB Orrstown Financial Services Shippensburg PA MA OTC Bul NA 31.000
PABN Pacific Capital Bancorp Salinas CA WE OTC Bul NA 25.875
PACXX Pacific Northwest Bank Seattle WA WE Pink Sh NA 63.000
PAHC Pioneer American Holding Co. Carbondale PA MA OTC Bul NA 24.250
PCHB Pocahontas Bankshares Corp. Bluefield WV SE OTC Bul NA 19.000
PCLF Pinnacle Financial Corp. Elberton GA SE Pink Sh NA 62.500
PFCY Peoples Financial Corp. Ford City PA MA Pink Sh NA 28.500
</TABLE>
3
<PAGE>
FERGUSON & COMPANY Exhibit VIII.1 - Selected Publicly Held Pink Sheet Banks
- ------------------
<TABLE>
<CAPTION>
Current
Stock
Price
Ticker Short Name City State Region Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C>
PLBA Plumas Bank Quincy CA WE OTC Bul NA 14.000
PNBF PNB Financial Group Newport Beach CA WE OTC Bul NA 13.000
PPBK Peoples Bank of Oxford Oxford PA MA OTC Bul NA 22.250
PRFS PennRock Financial Services Blue Ball PA MA OTC Bul NA 18.875
PSBT Penn Security B&TC Scranton PA MA OTC Bul NA 92.250
PSEB Peoples State Bank (The) East Berlin PA MA OTC Bul NA 18.125
PSHR Pioneer Bancshares Inc. Chattanooga TN SE OTC Bul NA 38.500
PWOD Penns Woods Bancorp Inc. Jersey Shore PA MA OTC Bul NA 57.700
QNBC QNB Corp. Quakertown PA MA OTC Bul NA 32.375
RBNF Rurban Financial Corp. Defiance OH MW OTC Bul NA 30.750
SBGA Summit Bank Corporation Atlanta GA SE OTC Bul NA 14.750
SBHC Security Bank Holding Company Coos Bay OR WE OTC Bul NA 8.250
SBTL Salisbury Bank & Trust Co. Lakeville CT NE OTC Bul NA 67.000
SBVA Salem Bank and Trust NA Salem VA SE OTC Bul NA 16.000
SFBC Slade's Ferry Bancorp Somerset MA NE OTC Bul NA 9.375
SLFI Sterling Financial Corp. Lancaster PA MA OTC Bul NA 25.375
SLNB Santa Lucia National Bank Atascadero CA WE Pink Sh NA 19.750
SMAL Summit Bancshares Inc. Oakland CA WE OTC Bul NA 37.500
SMTB Smithtown Bancorp Inc. Smithtown NY MA OTC Bul NA 37.000
SOJB Southern Jersey Bancorp of DE Bridgeton NJ MA OTC Bul NA 44.500
SOMC Southern Michigan Bancorp Inc. Coldwater MI MW OTC Bul NA 48.250
SOVY Sonoma Valley Bank Sonoma CA WE OTC Bul NA 27.500
SRCK Slippery Rock Financial Corp. Slippery Rock PA MA OTC Bul NA 34.250
SRTB Saratoga Bancorp Saratoga CA WE OTC Bul NA 16.000
STYB Security Banc Corp. Springfield OH MW OTC Bul NA 47.000
TBLC Timberline Bancshares Inc. Yreka CA WE OTC Bul NA 14.125
TOBC Tower Bancorp Inc. Greencastle PA MA OTC Bul NA 36.500
TRIXX Tri City Bankshares Corp. Oak Creek WI MW Pink Sh NA 22.500
UBFO United Security Bank NA Fresno CA WE Pink Sh NA 32.000
UNBO UNB Corp. Canton OH MW OTC Bul NA 37.500
UPBN Upbancorp Inc. Chicago IL MW OTC Bul NA 80.000
UVSP Univest Corporation of PA Souderton PA MA OTC Bul NA 41.500
VADO Valle de Oro Bank NA El Cajon CA WE OTC Bul NA 23.250
VCBA Virginia Commerce Bank Arlington VA SE OTC Bul NA 13.125
VNBC Vineyard National Bancorp Rancho Cucamonga CA WE OTC Bul NA 3.625
VRBA VRB Bancorp Rogue River OR WE OTC Bul NA 15.500
VTGB Vintage Bank Napa CA WE OTC Bul NA 32.000
WIBW Wilton Bank Wilton CT NE OTC Bul NA 24.500
WMFR West Michigan National Bank Frankfort MI MW Pink Sh NA 17.000
WNNB Wayne Bancorp Wooster OH MW OTC Bul NA 29.000
YAVY Yadkin Valley Bank & Trust Co. Elkin NC SE Pink Sh NA 31.000
YOBK Yosemite Bank Mariposa CA WE OTC Bul NA 15.000
Maximum 4,035.000
Minimum 0.750
Average 64.432
Median 26.250
</TABLE>
4
<PAGE>
FERGUSON & COMPANY Exhibit VIII.1 - Selected Publicly Held Pink Sheet Banks
- ------------------
<TABLE>
<CAPTION>
Price/ Price/ Price/ Price/ Tangible
Current Current Current Current Core Core LTM LTM Total Equity/ Equity/
Market Price/ Price/T Dividend EPS EPS Core EPS Core EPS Assets Assets T Assets
Value Book V Book V Yield (x) (x) (x) (x) ($000) (%) (%)
Ticker ($M) (%) (%) (%) MRQ LTM MRQ LTM MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AANB 7.41 109.1 109.1 3.85 7.4 7.0 7.0 7.0 88,889 7.6 7.6
ABCU 2.64 75.8 75.8 - 9.4 8.3 8.3 8.3 52,315 6.7 6.7
ACNB 98.50 199.7 199.7 3.84 13.0 12.2 12.2 12.2 462,499 10.7 10.7
AMNB 86.09 163.4 176.7 3.20 12.5 11.2 11.2 11.2 430,900 12.2 11.4
ASTXX 15.03 172.2 172.2 5.39 8.7 8.6 8.6 8.6 79,894 10.9 10.9
ATLV 27.96 156.6 206.7 - 16.8 14.5 14.5 14.5 184,506 9.7 7.5
BALX 8.92 122.1 122.1 - 14.5 16.1 16.1 16.1 75,024 9.7 9.7
BATH 52.58 171.2 173.0 2.08 15.4 14.6 14.6 14.6 266,765 11.5 11.4
BCDO 3.39 96.6 96.6 - 3.6 4.8 4.8 4.8 38,666 9.1 9.1
BCNB 20.00 92.4 97.9 2.22 6.0 7.6 7.6 7.6 243,466 8.9 8.4
BCSV 13.73 143.6 143.6 2.35 18.3 15.5 15.5 15.5 101,597 9.4 9.4
BDGE 29.10 168.9 168.9 2.42 9.6 9.3 9.3 9.3 215,796 8.0 8.0
BHBS 69.25 178.0 178.0 2.98 10.1 10.1 10.1 10.1 345,183 11.3 11.3
BKHB 26.92 120.8 120.8 3.40 14.8 15.2 15.2 15.2 152,142 14.7 14.7
BKTI 35.97 231.8 231.8 5.00 19.0 17.7 17.7 17.7 148,091 10.5 10.5
BLCA 39.67 215.4 215.4 4.84 10.3 11.6 11.6 11.6 222,439 8.3 8.3
BMRC 30.56 183.0 183.0 - 13.5 12.2 12.2 12.2 204,204 8.2 8.2
BNKA 14.12 160.7 161.7 4.52 11.2 11.2 11.2 11.2 76,346 11.5 11.4
BPLU 14.40 153.9 156.5 0.85 10.9 11.4 11.4 11.4 130,903 7.2 7.0
BSMR 50.21 153.8 163.8 3.56 8.9 9.4 9.4 9.4 302,422 10.1 9.5
BVNC 19.99 128.8 128.8 2.42 11.8 11.5 11.5 11.5 184,798 8.4 8.4
BWCF 27.93 165.2 165.2 - 12.7 14.0 14.0 14.0 182,990 9.2 9.2
BWCK 16.97 90.1 90.1 - 20.3 18.2 18.2 18.2 92,826 20.3 20.3
BWND 8.00 86.8 86.8 - 10.6 10.9 10.9 10.9 145,865 6.3 6.3
BYAR 16.92 174.4 174.4 1.80 10.2 12.3 12.3 12.3 107,357 9.0 9.0
BYLK 60.23 152.9 173.4 3.92 13.7 13.4 13.4 13.4 390,721 10.1 9.0
CADL 20.79 136.0 136.0 1.91 11.1 12.7 12.7 12.7 129,608 11.8 11.8
CAFP 78.08 216.4 218.1 1.26 12.3 13.2 13.2 13.2 443,571 8.1 8.1
CAPXX 7.77 80.6 80.6 - 4.3 4.4 4.4 4.4 130,560 7.4 7.4
CBAN 34.77 131.8 134.9 1.25 7.3 9.9 9.9 9.9 322,822 8.2 8.0
CBIV 33.74 175.6 175.6 1.13 11.7 11.0 11.0 11.0 173,331 11.1 11.1
CBTN 30.42 96.1 96.1 8.70 7.1 7.4 7.4 7.4 265,427 11.9 11.9
CCBN 97.79 258.8 270.8 - 13.6 13.3 13.3 13.3 430,316 8.8 8.4
CCFN 25.92 124.6 124.6 2.48 13.0 13.1 13.1 13.1 169,205 12.3 12.3
CCNE 62.88 157.9 171.1 3.73 19.2 15.8 15.8 15.8 340,472 11.7 10.9
CESR 10.63 133.1 133.1 4.62 9.0 9.6 9.6 9.6 95,225 8.4 8.4
CFCXX 42.79 130.2 139.2 3.16 13.7 16.6 16.6 16.6 253,675 13.0 12.2
CHMG 70.20 125.9 144.7 3.66 12.3 12.0 12.0 12.0 534,094 10.4 9.2
CIBN 31.93 163.7 163.7 2.00 12.5 12.0 12.0 12.0 216,952 9.3 9.3
CIWV 17.77 117.1 NA 1.54 12.5 11.2 11.2 11.2 128,000 11.9 NA
CLDB 53.15 144.7 NA 2.06 11.7 12.0 12.0 12.0 378,385 9.7 NA
CMTV 28.27 145.7 145.7 5.82 13.8 12.6 12.6 12.6 204,401 9.5 9.5
CNAF 42.30 126.3 126.3 2.72 10.5 10.5 10.5 10.5 267,064 12.5 12.5
CNBB 46.00 164.4 164.4 2.78 13.8 14.0 14.0 14.0 216,552 12.9 12.9
CNBC 48.51 172.6 172.6 3.72 9.9 11.3 11.3 11.3 376,852 7.5 7.5
CNBD 16.63 193.0 193.0 1.59 15.4 16.2 16.2 16.2 109,361 7.9 7.9
CPKF 12.59 103.8 104.4 2.13 9.2 7.9 7.9 7.9 141,360 8.6 8.5
CSBB 59.20 241.5 241.5 1.50 13.1 13.8 13.8 13.8 265,737 9.2 9.2
CSVG 61.45 430.0 NA 1.13 16.7 15.3 15.3 15.3 184,746 7.7 NA
</TABLE>
5
<PAGE>
FERGUSON & COMPANY Exhibit VIII.1 - Selected Publicly Held Pink Sheet Banks
- ------------------
<TABLE>
<CAPTION>
Price/ Price/ Price/ Price/ Tangible
Current Current Current Current Core Core LTM LTM Total Equity/ Equity/
Market Price/ Price/T Dividend EPS EPS Core EPS Core EPS Assets Assets T Assets
Value Book V Book V Yield (x) (x) (x) (x) ($000) (%) (%)
Ticker ($M) (%) (%) (%) MRQ LTM MRQ LTM MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CTLN 49.39 196.0 196.0 2.29 15.9 14.8 14.8 14.8 225,862 11.2 11.2
CTVN 30.22 136.8 137.4 5.20 11.4 11.6 11.6 11.6 146,899 15.0 15.0
CTZV 6.84 75.9 75.9 3.67 7.7 8.1 8.1 8.1 89,204 10.1 10.1
CVIC 22.90 133.4 135.4 3.83 8.7 10.5 10.5 10.5 147,194 11.7 11.5
CVLY 32.93 145.0 145.0 2.41 14.0 11.4 11.4 11.4 237,329 9.6 9.6
CWBS 10.55 109.8 109.8 - 16.8 14.5 14.5 14.5 104,117 9.2 9.2
CYBK 31.14 156.8 156.8 2.13 7.7 8.0 8.0 8.0 177,786 11.2 11.2
CYFN 53.11 165.6 166.5 3.30 10.1 10.5 10.5 10.5 381,331 8.4 8.4
CZFS 38.47 160.9 167.4 3.18 14.9 12.3 12.3 12.3 282,871 8.5 8.2
CZNC 149.34 211.3 211.3 2.44 14.6 14.4 14.4 14.4 605,679 11.7 11.7
DCBF 87.60 264.5 264.5 0.38 14.8 14.6 14.6 14.6 328,697 10.1 10.1
DEBC 11.02 101.1 101.1 2.39 9.5 10.1 10.1 10.1 90,728 12.0 12.0
DIMC 18.83 140.2 140.2 2.77 12.3 11.2 11.2 11.2 135,343 9.9 9.9
DNBF 27.92 167.5 167.5 1.98 8.9 9.2 9.2 9.2 204,845 8.1 8.1
DROV 63.91 165.7 165.7 2.64 12.1 12.8 12.8 12.8 474,969 8.1 8.1
EMBM 71.73 217.2 NA 3.42 16.5 16.3 16.3 16.3 401,283 8.2 NA
EPNB 107.25 263.5 263.5 1.34 21.7 22.9 22.9 22.9 295,343 13.8 13.8
EVGS 12.38 105.0 105.0 1.13 10.2 10.8 10.8 10.8 145,593 8.1 8.1
EVNXX 7.14 45.8 NA 2.95 4.1 4.3 4.3 4.3 150,961 10.3 NA
FBMI 67.78 201.0 226.2 2.51 13.1 13.6 13.6 13.6 416,465 8.1 7.3
FBSYA 140.37 225.0 254.5 2.80 18.2 17.8 17.8 17.8 866,924 8.6 7.7
FBTT 10.69 107.6 120.0 1.54 4.8 5.2 5.2 5.2 178,644 6.1 5.6
FCBN 197.31 152.3 NA - 9.8 9.7 9.7 9.7 2,018,266 6.8 NA
FCFT 175.15 193.3 202.2 3.61 12.2 11.7 11.7 11.7 833,058 10.9 10.5
FDDB 40.79 159.6 159.6 2.25 11.7 12.5 12.5 12.5 274,501 9.3 9.3
FDNM 35.98 130.0 130.0 3.27 7.9 8.6 8.6 8.6 386,556 7.2 7.2
FETM 34.02 137.9 137.9 3.06 10.6 9.6 9.6 9.6 253,230 9.7 9.7
FGYH 18.01 153.9 153.9 5.71 7.8 7.3 7.3 7.3 207,830 7.7 7.7
FINN 1,399.20 280.8 NA 0.84 21.9 17.3 17.3 17.3 7,068,470 7.1 NA
FIOW 77.72 145.0 146.6 2.65 13.3 12.9 12.9 12.9 492,372 10.9 10.8
FIVR 172.64 94.0 96.2 3.95 9.4 8.7 8.7 8.7 1,916,642 9.6 9.4
FJMY 42.46 143.8 147.5 2.71 12.4 12.2 12.2 12.2 317,197 9.3 9.1
FKYS 39.73 144.9 144.9 3.45 7.7 8.0 8.0 8.0 250,351 11.0 11.0
FLHI 10.25 156.7 156.7 - 5.7 12.2 12.2 12.2 110,642 11.3 11.3
FLLC 12.94 108.3 108.3 2.03 9.9 15.9 15.9 15.9 139,585 8.6 8.6
FMBH 42.42 112.0 148.1 2.11 9.1 9.5 9.5 9.5 534,563 7.6 6.0
FMNB 90.22 250.7 253.1 2.07 22.2 21.5 21.5 21.5 343,259 10.5 10.4
FNAN 369.00 106.7 106.7 2.71 9.1 9.9 9.9 9.9 1,467,345 23.6 23.6
FNBB 16.20 150.7 153.5 1.68 15.0 13.9 13.9 13.9 100,967 10.6 10.5
FNBL 14.83 119.5 119.5 3.31 11.9 10.1 10.1 10.1 188,966 6.6 6.6
FNBP 66.48 175.0 175.0 3.50 12.8 12.1 12.1 12.1 391,282 9.5 9.5
FNLB 116.73 162.1 189.0 3.13 11.6 13.2 13.2 13.2 814,721 8.8 7.7
FOBT 22.26 152.1 154.0 2.11 10.1 10.3 10.3 10.3 167,635 8.7 8.6
FPHN 25.70 118.3 118.3 2.37 8.9 9.6 9.6 9.6 199,438 10.9 10.9
FRAF 65.78 185.1 197.4 2.29 15.3 15.7 15.7 15.7 338,710 10.4 9.9
FRMS 79.95 180.4 180.4 1.63 11.6 14.0 14.0 14.0 503,256 8.8 8.8
FWCC 70.35 211.1 211.1 2.47 14.1 14.4 14.4 14.4 407,802 8.2 8.2
FWEH 15.80 177.0 177.0 1.95 20.3 16.8 16.8 16.8 81,544 10.9 10.9
FXNC 16.86 112.4 112.4 3.22 11.4 10.9 10.9 10.9 148,890 10.1 10.1
</TABLE>
6
<PAGE>
FERGUSON & COMPANY Exhibit VIII.1 - Selected Publicly Held Pink Sheet Banks
- ------------------
<TABLE>
<CAPTION>
Price/ Price/ Price/ Price/ Tangible
Current Current Current Current Core Core LTM LTM Total Equity/ Equity/
Market Price/ Price/ T Dividend EPS EPS Core EPS Core EPS Assets Assets T Assets
Value Book V Book V Yield (x) (x) (x) (x) ($000) (%) (%)
Ticker ($M) (%) (%) (%) MRQ LTM MRQ LTM MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GABS 7.01 115.9 115.9 1.67 15.8 13.3 13.3 13.3 58,920 10.3 10.3
GBFP 30.27 183.1 192.4 - 15.3 15.2 15.2 15.2 236,892 7.0 6.7
GFLS 33.95 155.6 NA 1.78 17.1 15.7 15.7 15.7 267,097 8.2 NA
GLBT 19.44 127.6 127.6 - 8.5 4.9 4.9 4.9 230,106 6.6 6.6
GRBC 12.69 77.6 77.6 5.90 19.5 9.5 9.5 9.5 462,132 5.3 5.3
GREXX 14.40 165.7 165.7 - 14.6 14.8 14.8 14.8 95,433 9.1 9.1
GRGN 13.72 122.0 123.6 - 10.0 9.7 9.7 9.7 111,039 10.1 10.0
GRYB 19.72 186.9 186.9 1.61 22.4 19.7 19.7 19.7 97,946 10.8 10.8
HABN 23.35 145.4 147.3 3.03 14.2 16.0 16.0 16.0 205,173 7.8 7.7
HBKS 9.86 156.3 156.3 - 9.4 10.0 10.0 10.0 82,746 7.6 7.6
HBNC 39.55 116.9 116.9 3.27 11.4 9.5 9.5 9.5 375,217 8.9 8.9
HBSI 22.59 113.4 113.4 2.22 12.0 10.9 10.9 10.9 181,476 11.0 11.0
HEOP 10.49 150.3 154.2 3.23 10.4 11.0 11.0 11.0 84,896 8.2 8.0
HOVB 51.18 162.4 162.4 2.78 16.1 16.6 16.6 16.6 369,234 8.5 8.5
HRFD 17.50 151.7 151.7 1.33 7.9 9.4 9.4 9.4 109,427 10.5 10.5
HTLF 123.15 173.8 180.1 2.00 18.2 16.5 16.5 16.5 771,113 9.2 8.9
IBDB 14.58 138.5 140.9 1.43 10.5 12.5 12.5 12.5 109,169 9.7 9.5
IBNC 561.01 194.1 NA 0.78 10.1 11.1 11.1 11.1 3,407,238 8.5 NA
IFNC 158.48 126.2 NA 1.94 8.7 11.3 11.3 11.3 1,770,582 7.1 NA
IFST 38.63 150.1 154.3 3.46 10.5 10.4 10.4 10.4 287,046 9.0 8.8
JFBC 26.02 123.6 123.6 3.00 13.4 13.7 13.7 13.7 208,295 10.1 10.1
JUVF 49.99 183.0 183.0 1.79 16.9 16.9 16.9 16.9 216,006 12.6 12.6
LAYB 55.02 156.9 161.3 1.71 12.3 13.0 13.0 13.0 399,332 8.8 8.6
LKFN 103.76 240.7 240.7 1.68 13.8 15.0 15.0 15.0 667,925 6.5 6.5
LNBB 124.56 276.5 276.5 2.17 20.3 20.7 20.7 20.7 445,448 10.1 10.1
LNBS 12.05 140.5 140.5 1.28 9.4 9.8 9.8 9.8 82,799 10.4 10.4
MBKT 165.00 150.7 NA 2.18 10.5 10.1 10.1 10.1 938,941 11.7 NA
MCBF 11.85 112.8 112.8 - 14.2 12.4 12.4 12.4 134,945 7.7 7.7
MFRM 8.54 58.4 58.7 5.20 6.1 6.5 6.5 6.5 129,048 11.3 11.3
MGNB 138.60 178.1 178.1 2.91 11.9 11.9 11.9 11.9 785,348 9.9 9.9
MIPN 45.32 182.5 183.7 4.17 12.1 12.0 12.0 12.0 209,037 11.9 11.8
MMBI 28.26 107.7 107.7 2.43 25.0 16.6 16.6 16.6 273,130 9.6 9.6
MSHN 7.86 126.8 127.0 1.85 15.0 17.8 17.8 17.8 58,127 10.7 10.7
MTMB 7.52 127.2 127.2 3.00 12.4 11.6 11.6 11.6 74,273 8.0 8.0
MTTB 131.54 203.9 203.9 - 9.7 18.3 18.3 18.3 790,608 8.2 8.2
NBOH 44.22 175.5 180.0 1.76 19.9 20.0 20.0 20.0 177,078 14.2 13.9
NECA 18.05 139.6 139.6 - 12.7 11.9 11.9 11.9 146,223 8.8 8.8
NKSH 92.92 176.9 180.3 2.69 16.3 16.1 16.1 16.1 392,878 13.4 13.2
NOAB 8.37 71.4 71.4 - 10.7 17.7 17.7 17.7 131,176 8.9 8.9
NOTW 28.90 168.8 168.8 6.77 14.5 13.6 13.6 13.6 152,927 11.2 11.2
NOVB 50.15 201.3 NA 2.55 10.9 11.1 11.1 11.1 264,011 9.4 NA
OHSB 4.06 124.5 124.5 - 13.7 13.8 13.8 13.8 44,133 7.4 7.4
ORRB 30.28 190.0 196.7 2.45 13.6 13.4 13.4 13.4 166,055 9.6 9.3
PABN 70.64 156.9 156.9 2.32 13.1 14.0 14.0 14.0 412,510 10.9 10.9
PACXX 24.47 176.6 176.6 0.95 15.5 14.2 14.2 14.2 164,292 8.4 8.4
PAHC 68.60 237.1 242.3 2.80 20.7 19.7 19.7 19.7 356,890 8.4 8.2
PCHB 38.00 153.9 156.3 3.16 15.8 13.7 13.7 13.7 277,611 8.9 8.8
PCLF 48.00 143.1 143.1 2.88 9.9 9.9 9.9 9.9 241,786 13.9 13.9
PFCY 25.08 87.0 87.7 3.37 12.1 14.5 14.5 14.5 219,249 13.2 13.1
</TABLE>
7
<PAGE>
FERGUSON & COMPANY Exhibit VIII.1 - Selected Publicly Held Pink Sheet Banks
- ------------------
<TABLE>
<CAPTION>
Price/ Price/ Price/
Current Current Current Current Core Core LTM
Market Price/ Price/T Dividend EPS EPS Core EPS
Value Book V Book V Yield (x) (x) (x)
Ticker ($M) (%) (%) (%) MRQ LTM MRQ
<S> <C> <C> <C> <C> <C> <C> <C>
PLBA 18.73 155.6 NA - 13.0 12.7 12.7
PNBF 28.50 152.9 152.9 - 8.0 6.8 6.8
PPBK 60.61 196.6 196.6 1.44 16.7 18.5 18.5
PRFS 114.21 213.5 217.0 2.54 14.2 16.0 16.0
PSBT 49.54 121.1 121.1 3.47 10.6 10.8 10.8
PSEB 26.68 148.1 148.1 1.99 13.1 14.0 14.0
PSHR 144.76 154.6 165.7 2.39 14.5 14.9 14.9
PWOD 73.70 212.9 212.9 2.08 13.6 13.6 13.6
QNBC 46.21 202.9 202.9 1.98 15.8 16.3 16.3
RBNF 70.35 166.9 170.9 2.34 14.0 14.5 14.5
SBGA 20.76 132.3 130.0 2.17 17.6 13.0 13.0
SBHC 22.79 164.3 171.2 2.42 9.9 10.2 10.2
SBTL 17.33 90.5 90.5 2.99 7.8 8.7 8.7
SBVA 21.30 150.1 150.1 1.81 12.7 13.7 13.7
SFBC 26.23 130.0 155.0 2.13 12.2 11.2 11.2
SLFI 157.93 224.2 224.2 3.00 15.7 16.6 16.6
SLNB 7.79 104.7 104.7 10.13 9.6 9.2 9.2
SMAL 16.10 132.0 132.0 4.00 10.1 10.4 10.4
SMTB 16.03 109.6 109.6 3.78 4.7 6.6 6.6
SOJB 48.34 118.8 118.8 2.47 9.0 9.2 9.2
SOMC 46.06 194.2 209.2 2.07 14.9 14.2 14.2
SOVY 14.84 187.8 187.8 - 11.2 11.4 11.4
SRCK 47.20 229.1 253.5 1.75 16.2 16.6 16.6
SRTB 16.80 135.8 135.8 1.25 15.5 14.6 14.6
STYB 284.72 281.3 326.4 1.79 20.0 19.6 19.6
TBLC 13.52 194.6 194.6 - 13.8 12.5 12.5
TOBC 30.96 167.7 167.7 1.26 13.6 14.0 14.0
TRIXX 56.05 112.6 112.6 3.78 9.2 9.2 9.2
UBFO 53.94 283.9 303.6 2.00 15.2 13.3 13.3
UNBO 216.24 300.5 328.1 1.71 21.7 22.8 22.8
UPBN 17.66 91.8 93.0 2.50 9.6 11.1 11.1
UVSP 160.89 163.5 167.5 2.22 12.6 12.0 12.0
VADO 28.69 183.8 183.8 1.03 13.8 13.9 13.9
VCBA 13.85 133.7 134.6 - 10.0 11.2 11.2
VNBC 6.75 85.5 85.5 - 29.2 23.3 23.3
VRBA 55.48 266.8 NA - 16.9 16.5 16.5
VTGB 20.51 167.5 167.5 - 17.1 13.4 13.4
WIBW 9.84 144.5 144.5 2.86 5.7 5.8 5.8
WMFR 7.00 84.5 84.5 1.65 14.5 14.3 14.3
WNNB 114.14 285.4 292.9 1.31 17.8 18.6 18.6
YAVY 108.55 365.6 NA 1.16 22.0 22.3 22.3
YOBK 10.03 124.8 124.8 - 14.3 12.9 12.9
Maximum 1,399.20 430.0 328.1 10.13 29.2 23.3 23.3
Minimum 2.64 45.8 58.7 - 3.6 4.3 4.3
Average 58.52 159.2 159.1 2.24 12.8 12.7 12.7
Median 30.56 153.9 155.6 2.18 12.5 12.5 12.5
<CAPTION>
Price/ Tangible
LTM Total Equity/ Equity/
Core EPS Assets Assets T Assets
(x) ($000) (%) (%)
Ticker LTM MRQ MRQ MRQ
<S> <C> <C> <C> <C>
PLBA 12.7 150,532 8.0 NA
PNBF 6.8 186,704 10.5 10.5
PPBK 18.5 199,010 15.5 15.5
PRFS 16.0 593,849 9.0 8.9
PSBT 10.8 396,528 10.3 10.3
PSEB 14.0 230,385 7.8 7.8
PSHR 14.9 897,535 10.4 9.8
PWOD 13.6 262,065 13.2 13.2
QNBC 16.3 288,415 7.9 7.9
RBNF 14.5 442,336 9.5 9.3
SBGA 13.0 140,869 11.1 11.3
SBHC 10.2 170,278 8.1 7.9
SBTL 8.7 174,935 11.0 11.0
SBVA 13.7 122,207 11.6 11.6
SFBC 11.2 290,802 6.9 5.9
SLFI 16.6 759,185 9.3 9.3
SLNB 9.2 76,031 9.8 9.8
SMAL 10.4 94,452 12.9 12.9
SMTB 6.6 191,915 7.6 7.6
SOJB 9.2 448,599 9.1 9.1
SOMC 14.2 235,354 10.1 9.4
SOVY 11.4 95,994 8.2 8.2
SRCK 16.6 194,155 10.6 9.7
SRTB 14.6 122,944 9.9 9.9
STYB 19.6 832,508 12.2 10.7
TBLC 12.5 79,264 8.8 8.8
TOBC 14.0 153,079 11.9 11.9
TRIXX 9.2 436,499 11.4 11.4
UBFO 13.3 189,630 10.0 9.4
UNBO 22.8 799,676 9.1 8.4
UPBN 11.1 223,454 8.6 8.5
UVSP 12.0 916,687 10.7 10.5
VADO 13.9 194,800 8.0 8.0
VCBA 11.2 129,241 8.0 8.0
VNBC 23.3 120,002 6.6 6.6
VRBA 16.5 179,354 11.6 NA
VTGB 13.4 127,729 9.6 9.6
WIBW 5.8 73,724 9.2 9.2
WMFR 14.3 25,992 31.9 31.9
WNNB 18.6 334,692 12.0 11.7
YAVY 22.3 290,558 10.2 NA
YOBK 12.9 80,379 10.0 10.0
Maximum 23.3 7,068,470 31.9 31.9
Minimum 4.3 25,992 5.3 5.3
Average 12.7 352,247 9.9 9.9
Median 12.5 209,037 9.6 9.4
</TABLE>
8
<PAGE>
FERGUSON & COMPANY Exhibit VIII.1 - Selected Publicly Held Pink Sheet Banks
- ------------------
<TABLE>
<CAPTION>
ROAA ROACE ROAA ROACE
Core Before Before NPAs/ Core Before Before
EPS Extra Extra Merger Current Assets EPS Extra Extra
($) (%) (%) Target? Pricing (%) ($) (%) (%)
Ticker LTM LTM LTM (Y/N) Date MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AANB 1.18 1.20 15.85 N 05/22/96 3.04 0.28 1.09 14.20
ABCU 0.09 0.62 9.29 N 06/20/97 1.72 0.02 0.52 8.00
ACNB 1.36 1.53 14.95 N 06/20/97 0.41 0.32 1.46 13.82
AMNB 2.09 1.61 13.26 N 06/20/97 0.06 0.47 1.43 11.72
ASTXX 1.46 2.16 20.83 N 05/30/97 NA 0.36 2.15 20.07
ATLV 2.40 1.23 10.61 N 06/20/97 0.33 0.52 0.91 8.50
BALX 0.83 0.80 7.89 N 06/20/97 4.03 0.23 0.80 8.37
BATH 2.53 1.33 11.61 N 06/20/97 0.22 0.60 1.23 10.83
BCDO 0.75 1.55 17.43 N 06/20/97 3.56 0.25 2.02 22.51
BCNB 41.50 1.13 13.35 N 06/20/97 1.11 13.20 1.31 14.61
BCSV 0.71 1.02 10.58 N 06/20/97 0.38 0.15 0.73 7.61
BDGE 2.23 1.55 19.39 N 06/20/97 0.54 0.54 1.44 17.73
BHBS 3.79 1.99 18.37 N 06/20/97 1.01 0.94 1.82 16.40
BKHB 0.74 1.22 8.36 N 06/20/97 0.14 0.19 1.19 8.16
BKTI 1.24 1.56 15.65 N 06/20/97 0.07 0.29 1.45 14.17
BLCA 2.07 1.39 15.13 N 06/20/97 0.86 0.58 1.58 18.15
BMRC 1.68 1.15 13.93 N 06/20/97 0.01 0.38 1.01 12.07
BNKA 0.96 1.76 15.67 N 06/20/97 NA 0.24 1.66 14.36
BPLU 1.88 0.94 13.37 N 06/20/97 0.04 0.49 0.91 12.84
BSMR 1.33 1.33 12.89 N 06/20/97 0.72 0.35 1.30 12.74
BVNC 2.35 1.11 13.42 N 06/20/97 NA 0.57 0.92 11.22
BWCF 1.56 1.29 12.92 N 06/20/97 0.13 0.43 1.35 14.19
BWCK 1.11 0.83 4.36 N 06/20/97 5.87 0.25 0.75 3.86
BWND 0.78 0.58 8.55 N 06/16/97 1.54 0.20 0.62 8.95
BYAR 1.33 1.44 16.30 N 06/20/97 1.43 0.40 1.49 16.52
BYLK 1.89 1.26 12.48 N 06/20/97 0.89 0.46 1.23 12.18
CADL 1.61 1.19 10.12 N 06/20/97 0.61 0.46 1.40 11.88
CAFP 2.57 1.22 15.02 N 06/20/97 0.18 0.69 1.33 15.90
CAPXX 1.13 0.92 12.04 N 06/16/97 NA 0.29 0.88 11.86
CBAN 2.28 1.08 13.33 N 06/16/97 2.45 0.77 1.43 17.15
CBIV 1.57 1.86 17.83 N 06/20/97 0.43 0.37 1.61 14.68
CBTN 15.61 1.57 13.05 N 06/20/97 NA 4.05 1.64 13.51
CCBN 1.23 1.45 15.95 N 06/20/97 0.30 0.30 1.44 15.71
CCFN 1.39 1.14 9.61 N 06/20/97 0.06 0.35 1.17 9.66
CCNE 2.28 1.28 10.40 N 06/20/97 0.28 0.47 1.05 8.97
CESR 1.24 1.12 13.13 N 06/20/97 1.44 0.33 1.15 13.72
CFCXX 1.22 1.78 13.78 N 06/16/97 0.37 0.37 1.84 14.43
CHMG 2.93 1.17 11.20 N 06/20/97 0.33 0.71 1.11 10.57
CIBN 1.91 1.60 17.66 N 05/22/96 1.52 0.46 1.47 15.88
CIWV 2.33 1.26 11.04 N 06/20/97 0.28 0.52 1.24 10.59
CLDB 3.81 1.12 11.97 N 06/20/97 NA 0.98 1.13 11.75
CMTV 1.53 1.10 12.31 N 06/20/97 1.57 0.35 1.02 10.91
CNAF 2.08 1.43 11.57 N 05/22/96 0.14 0.52 1.41 11.07
CNBB 1.90 1.43 11.20 N 06/20/97 0.32 0.48 1.44 11.12
CNBC 1.92 1.20 15.83 N 05/22/96 - 0.55 1.36 17.63
CNBD 1.94 1.17 14.39 N 06/20/97 - 0.51 1.19 15.88
CPKF 1.90 1.19 14.00 N 06/20/97 0.48 0.41 0.99 11.70
CSBB 3.04 1.68 17.88 N 06/20/97 0.19 0.80 1.81 19.59
CSVG 1.26 0.78 9.60 N 06/16/97 0.76 0.29 0.69 8.78
</TABLE>
9
<PAGE>
FERGUSON & COMPANY Exhibit VIII.1 - Selected Publicly Held Pink Sheet Banks
- ------------------
<TABLE>
<CAPTION>
ROAA ROACE ROAA ROACE
Core Before Before NPAs/ Core Before Before
EPS Extra Extra Merger Current Assets EPS Extra Extra
($) (%) (%) Target? Pricing (%) ($) (%) (%)
Ticker LTM LTM LTM (Y/N) Date MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CTLN 1.42 1.30 11.49 N 06/20/97 0.17 0.33 1.20 10.38
CTVN 2.16 1.63 10.67 N 06/16/97 0.59 0.55 1.52 10.05
CTZV 5.46 1.07 10.72 N 06/16/97 NA 1.43 0.99 9.74
CVIC 1.69 1.40 11.78 N 06/20/97 1.32 0.51 1.64 13.96
CVLY 2.41 1.15 12.38 N 04/24/97 1.20 0.49 1.02 10.81
CWBS 0.74 0.74 8.43 N 06/20/97 6.17 0.16 0.60 6.73
CYBK 5.02 1.73 15.80 N 06/20/97 0.42 1.30 1.76 15.81
CYFN 1.35 1.22 14.75 N 05/22/96 0.27 0.35 1.24 14.77
CZFS 2.23 1.25 15.45 N 06/20/97 0.55 0.46 1.72 20.70
CZNC 1.82 1.62 14.42 N 06/20/97 NA 0.45 1.82 15.54
DCBF 1.10 1.55 15.44 N 06/20/97 0.26 0.27 1.47 14.54
DEBC 2.89 1.19 10.55 N 06/20/97 3.82 0.77 1.24 10.53
DIMC 2.18 1.21 12.69 N 06/20/97 NA 0.50 1.07 11.05
DNBF 3.60 1.24 16.03 N 06/20/97 1.86 0.93 1.24 15.58
DROV 1.70 1.20 13.67 N 06/20/97 0.54 0.45 1.22 14.33
EMBM 2.55 1.21 14.86 N 06/20/97 0.78 0.63 1.19 14.39
EPNB 1.52 1.57 11.57 N 06/20/97 NA 0.40 1.62 11.79
EVGS 1.20 0.65 7.69 N 06/20/97 NA 0.32 0.63 7.68
EVNXX 4.94 1.21 11.16 N 06/16/97 0.14 1.29 1.20 11.26
FBMI 2.71 1.25 15.26 N 06/20/97 0.10 0.70 1.21 14.85
FBSYA 1.35 1.11 13.43 N 06/20/97 0.09 0.33 1.11 12.97
FBTT 5.31 1.07 18.40 N 06/20/97 0.15 1.46 1.11 18.99
FCBN 20.57 1.04 16.04 N 06/20/97 0.18 5.13 0.97 14.38
FCFT 2.71 1.75 16.21 N 06/20/97 1.19 0.65 1.79 16.34
FDDB 3.60 1.14 12.43 N 06/20/97 0.58 0.96 1.20 12.82
FDNM 3.65 1.19 16.05 N 06/20/97 NA 1.00 1.40 19.35
FETM 4.49 1.29 13.69 N 06/20/97 NA 1.02 1.16 12.09
FGYH 1.03 1.68 24.34 N 06/16/97 0.76 0.24 1.50 20.99
FINN 211.56 1.13 15.64 N 06/20/97 NA 41.73 0.83 11.74
FIOW 2.67 1.28 11.70 N 06/20/97 0.12 0.65 1.31 11.66
FIVR 49.09 1.05 10.98 N 06/20/97 NA 11.33 0.95 9.78
FJMY 3.73 0.97 10.91 N 06/20/97 0.86 0.92 1.02 11.07
FKYS 4.41 1.79 16.32 N 06/20/97 0.16 1.15 1.83 16.13
FLHI 0.43 2.79 48.68 N 06/20/97 6.53 0.23 3.81 62.97
FLLC 0.62 0.78 7.29 N 06/20/97 0.79 0.25 1.11 11.41
FMBH 4.43 0.85 11.12 N 06/20/97 0.40 1.16 0.99 11.96
FMNB 1.24 1.26 11.64 N 06/20/97 0.17 0.30 1.18 11.42
FNAN 155.10 2.18 9.23 N 06/20/97 0.45 42.36 2.35 9.90
FNBB 2.37 0.97 9.09 N 06/16/97 1.22 0.55 0.87 8.13
FNBL 2.88 0.83 11.81 N 06/16/97 1.06 0.61 0.68 10.12
FNBP 3.13 1.35 14.58 N 06/20/97 0.27 0.74 1.29 13.77
FNLB 3.56 1.09 12.44 N 06/20/97 NA 1.01 1.20 13.67
FOBT 2.34 1.24 13.79 N 06/20/97 0.20 0.60 1.25 13.78
FPHN 5.85 1.28 12.29 N 06/20/97 0.34 1.58 1.39 12.82
FRAF 2.18 1.29 12.03 N 06/20/97 0.34 0.56 1.35 12.84
FRMS 4.41 1.15 13.61 N 06/20/97 0.60 1.33 1.38 15.80
FWCC 1.88 1.13 13.71 N 06/20/97 0.45 0.48 1.11 13.17
FWEH 0.58 1.60 16.13 N 06/20/97 1.13 0.12 1.50 13.99
FXNC 1.92 1.07 10.37 N 06/20/97 0.63 0.46 1.01 9.81
</TABLE>
10
<PAGE>
FERGUSON & COMPANY Exhibit VIII.1 - Selected Publicly Held Pink Sheet Banks
- ------------------
<TABLE>
<CAPTION>
ROAA ROACE ROAA ROACE
Core Before Before NPAs/ Core Before Before
EPS Extra Extra Merger Current Assets EPS Extra Extra
($) (%) (%) Target? Pricing (%) ($) (%) (%)
Ticker LTM LTM LTM (Y/N) Date MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GABS 0.90 0.95 8.79 N 06/16/97 0.30 0.19 0.73 7.05
GBFP 1.25 0.99 13.43 N 06/20/97 0.66 0.31 0.87 11.82
GFLS 1.22 0.98 12.31 N 05/20/97 1.50 0.28 1.02 12.41
GLBT 1.87 0.80 14.95 N 05/22/96 0.89 0.27 0.86 12.91
GRBC 1.31 0.67 12.22 N 06/20/97 0.57 0.16 0.44 7.28
GREXX 1.62 1.18 12.44 N 06/16/97 NA 0.41 1.10 11.83
GRGN 4.01 1.45 14.12 N 06/16/97 0.20 0.97 1.35 13.05
GRYB 1.18 1.10 10.30 N 06/20/97 0.16 0.26 1.03 9.35
HABN 0.92 0.68 8.76 N 06/20/97 1.93 0.26 0.79 9.44
HBKS 1.16 1.28 16.13 N 06/20/97 0.57 0.31 1.26 16.23
HBNC 5.09 0.99 11.36 N 06/20/97 0.23 1.06 0.81 9.11
HBSI 4.09 1.14 10.29 N 06/20/97 0.08 0.93 1.07 9.57
HEOP 1.37 1.20 13.97 N 06/20/97 1.54 0.36 1.21 14.48
HOVB 1.05 1.03 11.33 N 06/20/97 0.10 0.27 0.97 10.91
HRFD 5.07 1.52 15.29 N 06/20/97 1.32 1.50 1.80 17.19
HTLF 1.55 1.08 11.22 N 06/20/97 0.32 0.35 1.04 10.74
IBDB 0.94 0.96 9.90 N 06/20/97 0.19 0.28 1.10 11.70
IBNC 3.98 1.45 16.89 N 06/20/97 NA 1.10 1.50 17.70
IFNC 5.62 0.14 1.81 N 06/20/97 NA 1.83 1.04 14.71
IFST 1.98 1.28 14.56 N 06/20/97 0.50 0.49 1.23 13.73
JFBC 1.64 1.02 9.82 N 06/20/97 2.45 0.42 0.99 9.54
JUVF 2.49 1.32 10.66 N 06/20/97 0.18 0.62 1.30 10.31
LAYB 1.96 1.07 12.40 N 06/20/97 0.11 0.52 1.10 12.80
LKFN 2.24 1.08 17.61 N 06/20/97 NA 0.61 1.10 17.17
LNBB 1.41 1.40 13.98 N 06/20/97 0.13 0.36 1.38 13.67
LNBS 2.00 1.48 14.98 N 06/16/97 0.17 0.52 1.55 15.32
MBKT 3.31 1.88 16.07 N 06/20/97 0.54 0.79 1.72 14.62
MCBF 1.01 0.94 12.18 N 06/20/97 0.06 0.22 0.75 9.55
MFRM 2.17 0.98 8.77 N 06/20/97 0.13 0.58 1.04 9.05
MGNB 1.91 1.57 15.93 N 06/20/97 0.43 0.48 1.63 15.98
MIPN 2.70 1.69 14.60 N 06/20/97 1.04 0.67 1.67 14.13
MMBI 1.93 0.51 5.20 N 06/20/97 0.28 0.32 0.45 4.63
MSHN 1.45 0.73 7.01 N 06/20/97 0.15 0.43 0.85 8.13
MTMB 1.50 1.05 11.93 N 06/20/97 0.30 0.35 0.92 10.94
MTTB 0.91 0.80 9.99 N 06/20/97 1.47 0.43 1.42 17.44
NBOH 1.95 1.28 9.05 N 06/20/97 0.27 0.49 1.27 8.95
NECA 4.54 1.21 13.84 N 06/20/97 NA 1.06 1.09 12.22
NKSH 1.62 1.61 14.15 N 06/20/97 0.21 0.40 1.57 11.74
NOAB 0.17 0.37 4.22 N 06/16/97 5.93 0.07 0.58 6.48
NOTW 2.42 1.34 12.23 N 06/20/97 2.42 0.57 1.27 11.47
NOVB 2.16 1.66 17.97 N 06/20/97 0.67 0.55 1.68 17.98
OHSB 2.42 0.69 9.44 N 06/20/97 0.16 0.61 0.69 9.25
ORRB 2.32 1.46 14.88 N 06/20/97 NA 0.57 1.41 14.11
PABN 1.87 1.39 11.93 N 12/13/96 0.80 0.50 1.35 12.06
PACXX 4.36 1.24 14.65 N 06/16/97 0.03 1.00 1.16 12.97
PAHC 1.22 1.12 12.74 N 06/20/97 1.68 0.29 0.98 11.18
PCHB 1.39 1.01 11.52 N 06/20/97 1.16 0.30 0.87 9.81
PCLF 6.30 2.07 15.05 N 06/20/97 0.39 1.58 2.02 14.48
PFCY 1.96 1.13 8.79 N 06/16/97 0.29 0.59 1.46 11.28
</TABLE>
11
<PAGE>
FERGUSON & COMPANY Exhibit VIII.1 - Selected Publicly Held Pink Sheet Banks
- ------------------
<TABLE>
<CAPTION>
ROAA ROACE ROAA ROACE
Core Before Before NPAs/ Core Before Before
EPS Extra Extra Merger Current Assets EPS Extra Extra
($) (%) (%) Target? Pricing (%) ($) (%) (%)
Ticker LTM LTM LTM (Y/N) Date MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PLBA 1.10 1.11 13.70 N 06/20/97 NA 0.27 0.96 11.97
PNBF 1.69 2.06 21.31 N 06/20/97 5.94 0.36 2.03 19.39
PPBK 1.23 1.74 11.30 N 06/20/97 NA 0.34 1.87 12.09
PRFS 1.06 1.28 13.43 N 06/20/97 0.09 0.30 1.37 13.97
PSBT 8.54 1.15 11.38 N 06/20/97 0.41 2.18 1.17 11.46
PSEB 1.16 0.76 10.11 N 06/20/97 1.19 0.31 0.86 11.43
PSHR 2.49 1.11 10.46 N 06/20/97 0.24 0.64 1.10 10.30
PWOD 3.69 2.48 20.18 N 06/20/97 0.35 0.92 3.02 24.09
QNBC 1.90 1.03 12.92 N 06/20/97 1.16 0.49 1.18 14.30
RBNF 2.27 1.19 12.23 N 06/20/97 0.32 0.59 1.22 12.61
SBGA 1.19 1.84 16.14 N 10/18/96 0.11 0.22 1.33 11.88
SBHC 0.86 1.39 16.17 N 09/13/96 0.55 0.22 1.47 17.66
SBTL 7.34 1.29 11.86 N 06/20/97 NA 2.05 1.19 10.96
SBVA 1.11 1.15 10.50 N 06/20/97 0.67 0.30 1.34 11.82
SFBC 0.87 0.92 12.96 N 06/20/97 2.02 0.20 0.87 12.67
SLFI 1.55 1.33 14.71 N 06/20/97 0.21 0.41 1.36 14.83
SLNB 2.09 1.10 11.52 N 06/20/97 2.10 0.50 1.04 10.68
SMAL 3.19 1.63 12.49 N 06/20/97 1.37 0.82 1.63 12.66
SMTB 5.29 1.30 17.11 N 06/20/97 2.95 1.84 1.74 22.23
SOJB 4.50 1.21 13.24 N 06/20/97 1.33 1.15 1.14 12.46
SOMC 3.28 1.45 14.36 N 06/20/97 0.14 0.78 1.26 13.77
SOVY 2.19 1.39 16.07 N 06/20/97 0.48 0.56 1.28 15.24
SRCK 2.07 1.51 14.08 N 06/20/97 0.71 0.53 1.46 13.86
SRTB 1.02 1.06 10.16 N 06/20/97 1.17 0.24 0.92 9.21
STYB 2.24 1.82 14.50 N 06/20/97 0.51 0.55 1.64 13.40
TBLC 0.97 1.12 13.74 N 06/16/97 0.38 0.22 0.91 10.37
TOBC 2.60 1.69 14.40 N 06/20/97 0.52 0.67 1.90 15.90
TRIXX 2.44 1.44 12.94 N 06/16/97 0.17 0.61 1.40 12.38
UBFO 1.92 2.04 18.60 N 06/20/97 3.86 0.42 1.77 16.25
UNBO 1.45 1.07 11.96 N 06/20/97 0.20 0.38 1.12 12.33
UPBN 6.42 0.62 7.37 N 06/20/97 1.12 1.85 0.75 8.80
UVSP 3.22 1.33 12.67 N 06/20/97 0.61 0.77 1.32 12.32
VADO 1.23 0.84 10.30 N 06/20/97 1.01 0.31 0.81 9.96
VCBA 1.08 1.00 11.70 N 06/20/97 0.06 0.30 1.01 12.30
VNBC 0.15 0.21 3.25 N 06/20/97 0.89 0.03 0.18 2.69
VRBA 0.94 2.00 17.17 N 06/20/97 0.07 0.23 1.89 16.18
VTGB 2.24 1.42 14.85 N 06/20/97 0.90 0.44 1.56 15.63
WIBW 2.51 1.40 15.37 N 06/20/97 1.27 0.64 1.39 15.06
WMFR 1.26 1.94 6.33 N 06/20/97 - 0.31 1.89 6.09
WNNB 1.34 1.50 12.81 N 12/31/96 - 0.35 1.56 13.10
YAVY 1.34 1.65 16.87 N 06/20/97 NA 0.34 1.67 16.60
YOBK 0.93 0.87 8.96 N 06/20/97 0.41 0.21 0.86 8.80
Maximum 211.56 2.79 48.68 6.53 42.36 3.81 62.97
Minimum 0.09 0.14 1.81 - 0.02 0.18 2.69
Average 4.76 1.26 13.08 0.89 1.17 1.27 13.03
Median 1.92 1.21 12.92 0.45 0.48 1.23 12.41
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
FERGUSON & COMPANY Exhibit VIII.2 - Selected Publicly Held Southeast Pink Sheet Banks
- ------------------
Current
Stock
Price
Ticker Short Name City State Region Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C>
CBAN Colony Bankcorp Inc. Fitzgerald GA SE Pink Sh NA 24.000
GABS Georgia Bancshares Inc. Tucker GA SE Pink Sh NA 12.000
GBFP Georgia Bank Financial Corp. Augusta GA SE Pink Sh NA 19.625
LNBS Lanier Bankshares Inc. Gainesville GA SE OTC Bul NA 19.500
PCLF Pinnacle Financial Corp. Elberton GA SE Pink Sh NA 62.500
SBGA Summit Bank Corporation Atlanta GA SE OTC Bul NA 14.750
CAFP Carolina First Bancshares Lincolnton NC SE Pink Sh NA 38.000
FOBT Four Oaks Bank & Trust Co. Four Oaks NC SE OTC Bul NA 26.500
GRYB Guaranty State Bancorp Durham NC SE OTC Bul NA 22.375
MFRM Mechanics and Farmers Bank Durham NC SE OTC Bul NA 15.000
YAVY Yadkin Valley Bank & Trust Co. Elkin NC SE Pink Sh NA 31.000
FCBN First Citizens Bancorp. of SC Columbia SC SE OTC Bul NA 221.000
GREXX Greer State Bank Greer SC SE Pink Sh NA 23.000
CBTN CB&T Inc. McMinnville TN SE OTC Bul NA 115.000
PSHR Pioneer Bancshares Inc. Chattanooga TN SE OTC Bul NA 38.500
AMNB American National Bankshares Danville VA SE OTC Bul NA 26.250
BALX Bank of Alexandria Alexandria VA SE OTC Bul NA 13.000
BKTI Bank of Tidewater Virginia Beach VA SE OTC Bul NA 20.000
CBIV Community Bankshares Inc. Petersburg VA SE OTC Bul NA 17.750
CFCXX C&F Financial Corp. West Point VA SE Pink Sh NA 20.250
CPKF Chesapeake Financial Shares Kilmarnock VA SE OTC Bul NA 15.000
CWBS Commonwealth Bankshares Inc. Norfolk VA SE OTC Bul NA 10.500
FNBP FNB Corp. Christiansburg VA SE Pink Sh NA 40.000
FXNC First National Corp. Strasburg VA SE OTC Bul NA 21.750
HBKS Heritage Bankshares Inc. Norfolk VA SE OTC Bul NA 12.500
NKSH National Bankshares Inc. Blacksburg VA SE OTC Bul NA 24.500
SBVA Salem Bank and Trust NA Salem VA SE OTC Bul NA 16.000
VCBA Virginia Commerce Bank Arlington VA SE OTC Bul NA 13.125
CIWV Citizens Financial Corp. Elkins WV SE OTC Bul NA 26.000
FCFT FCFT Inc. Princeton WV SE OTC Bul NA 31.000
HBSI Highlands Bankshares Inc. Petersburg WV SE OTC Bul NA 45.000
PCHB Pocahontas Bankshares Corp. Bluefield WV SE OTC Bul NA 19.000
Maximum 221.000
Minimum 10.500
Average 32.949
Median 22.063
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
FERGUSON & COMPANY Exhibit VIII.2 - Selected Publicly Held Southeast Pink Sheet Banks
- ------------------
Price/ Price/ Price/ Price/
Current Current Current Current Core Core LTM LTM
Market Price/ Price/T Dividend EPS EPS Core EPS Core EPS
Value Book V Book V Yield (x) (x) (x) (x)
Ticker ($M) (%) (%) (%) MRQ LTM MRQ LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CBAN 34.77 131.8 134.9 1.25 7.3 9.9 9.9 9.9
GABS 7.01 115.9 115.9 1.67 15.8 13.3 13.3 13.3
GBFP 30.27 183.1 192.4 - 15.3 15.2 15.2 15.2
LNBS 12.05 140.5 140.5 1.28 9.4 9.8 9.8 9.8
PCLF 48.00 143.1 143.1 2.88 9.9 9.9 9.9 9.9
SBGA 20.76 132.3 130.0 2.17 17.6 13.0 13.0 13.0
CAFP 78.08 216.4 218.1 1.26 12.3 13.2 13.2 13.2
FOBT 22.26 152.1 154.0 2.11 10.1 10.3 10.3 10.3
GRYB 19.72 186.9 186.9 1.61 22.4 19.7 19.7 19.7
MFRM 8.54 58.4 58.7 5.20 6.1 6.5 6.5 6.5
YAVY 108.55 365.6 NA 1.16 22.0 22.3 22.3 22.3
FCBN 197.31 152.3 NA - 9.8 9.7 9.7 9.7
GREXX 14.40 165.7 165.7 - 14.6 14.8 14.8 14.8
CBTN 30.42 96.1 96.1 8.70 7.1 7.4 7.4 7.4
PSHR 144.76 154.6 165.7 2.39 14.5 14.9 14.9 14.9
AMNB 86.09 163.4 176.7 3.20 12.5 11.2 11.2 11.2
BALX 8.92 122.1 122.1 - 14.5 16.1 16.1 16.1
BKTI 35.97 231.8 231.8 5.00 19.0 17.7 17.7 17.7
CBIV 33.74 175.6 175.6 1.13 11.7 11.0 11.0 11.0
CFCXX 42.79 130.2 139.2 3.16 13.7 16.6 16.6 16.6
CPKF 12.59 103.8 104.4 2.13 9.2 7.9 7.9 7.9
CWBS 10.55 109.8 109.8 - 16.8 14.5 14.5 14.5
FNBP 66.48 175.0 175.0 3.50 12.8 12.1 12.1 12.1
FXNC 16.86 112.4 112.4 3.22 11.4 10.9 10.9 10.9
HBKS 9.86 156.3 156.3 - 9.4 10.0 10.0 10.0
NKSH 92.92 176.9 180.3 2.69 16.3 16.1 16.1 16.1
SBVA 21.30 150.1 150.1 1.81 12.7 13.7 13.7 13.7
VCBA 13.85 133.7 134.6 - 10.0 11.2 11.2 11.2
CIWV 17.77 117.1 NA 1.54 12.5 11.2 11.2 11.2
FCFT 175.15 193.3 202.2 3.61 12.2 11.7 11.7 11.7
HBSI 22.59 113.4 113.4 2.22 12.0 10.9 10.9 10.9
PCHB 38.00 153.9 156.3 3.16 15.8 13.7 13.7 13.7
Maximum 197.31 365.6 231.8 8.70 22.4 22.3 22.3 22.3
Minimum 7.01 58.4 58.7 - 6.1 6.5 6.5 6.5
Average 46.32 153.5 149.7 2.13 13.0 12.7 12.7 12.7
Median 26.43 151.1 150.1 1.96 12.5 11.9 11.9 11.9
<CAPTION>
Tangible
Total Equity/ Equity/
Assets Assets T Assets
($000) (%) (%)
Ticker MRQ MRQ MRQ
<S> <C> <C> <C>
CBAN 322,822 8.2 8.0
GABS 58,920 10.3 10.3
GBFP 236,892 7.0 6.7
LNBS 82,799 10.4 10.4
PCLF 241,786 13.9 13.9
SBGA 140,869 11.1 11.3
CAFP 443,571 8.1 8.1
FOBT 167,635 8.7 8.6
GRYB 97,946 10.8 10.8
MFRM 129,048 11.3 11.3
YAVY 290,558 10.2 NA
FCBN 2,018,266 6.8 NA
GREXX 95,433 9.1 9.1
CBTN 265,427 11.9 11.9
PSHR 897,535 10.4 9.8
AMNB 430,900 12.2 11.4
BALX 75,024 9.7 9.7
BKTI 148,091 10.5 10.5
CBIV 173,331 11.1 11.1
CFCXX 253,675 13.0 12.2
CPKF 141,360 8.6 8.5
CWBS 104,117 9.2 9.2
FNBP 391,282 9.5 9.5
FXNC 148,890 10.1 10.1
HBKS 82,746 7.6 7.6
NKSH 392,878 13.4 13.2
SBVA 122,207 11.6 11.6
VCBA 129,241 8.0 8.0
CIWV 128,000 11.9 NA
FCFT 833,058 10.9 10.5
HBSI 181,476 11.0 11.0
PCHB 277,611 8.9 8.8
Maximum 2,018,266 13.9 13.9
Minimum 58,920 6.8 6.7
Average 296,981 10.2 10.1
Median 170,483 10.3 10.3
</TABLE>
14
<PAGE>
FERGUSON & COMPANY Exhibit VIII.2 - Selected Publicly Held Southeast Pink Sheet
- ------------------ Banks
<TABLE>
<CAPTION>
ROAA ROACE ROAA ROACE
Core Before Before NPAs/ Core Before Before
EPS Extra Extra Merger Current Assets EPS Extra Extra
($) (%) (%) Target? Pricing (%) ($) (%) (%)
Ticker LTM LTM LTM (Y/N) Date MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CBAN 2.28 1.08 13.33 N 06/16/97 2.45 0.77 1.43 17.15
GABS 0.90 0.95 8.79 N 06/16/97 0.30 0.19 0.73 7.05
GBFP 1.25 0.99 13.43 N 06/20/97 0.66 0.31 0.87 11.82
LNBS 2.00 1.48 14.98 N 06/16/97 0.17 0.52 1.55 15.32
PCLF 6.30 2.07 15.05 N 06/20/97 0.39 1.58 2.02 14.48
SBGA 1.19 1.84 16.14 N 10/18/96 0.11 0.22 1.33 11.88
CAFP 2.57 1.22 15.02 N 06/20/97 0.18 0.69 1.33 15.90
FOBT 2.34 1.24 13.79 N 06/20/97 0.20 0.60 1.25 13.78
GRYB 1.18 1.10 10.30 N 06/20/97 0.16 0.26 1.03 9.35
MFRM 2.17 0.98 8.77 N 06/20/97 0.13 0.58 1.04 9.05
YAVY 1.34 1.65 16.87 N 06/20/97 NA 0.34 1.67 16.60
FCBN 20.57 1.04 16.04 N 06/20/97 0.18 5.13 0.97 14.38
GREXX 1.62 1.18 12.44 N 06/16/97 NA 0.41 1.10 11.83
CBTN 15.61 1.57 13.05 N 06/20/97 NA 4.05 1.64 13.51
PSHR 2.49 1.11 10.46 N 06/20/97 0.24 0.64 1.10 10.30
AMNB 2.09 1.61 13.26 N 06/20/97 0.06 0.47 1.43 11.72
BALX 0.83 0.80 7.89 N 06/20/97 4.03 0.23 0.80 8.37
BKTI 1.24 1.56 15.65 N 06/20/97 0.07 0.29 1.45 14.17
CBIV 1.57 1.86 17.83 N 06/20/97 0.43 0.37 1.61 14.68
CFCXX 1.22 1.78 13.78 N 06/16/97 0.37 0.37 1.84 14.43
CPKF 1.90 1.19 14.00 N 06/20/97 0.48 0.41 0.99 11.70
CWBS 0.74 0.74 8.43 N 06/20/97 6.17 0.16 0.60 6.73
FNBP 3.13 1.35 14.58 N 06/20/97 0.27 0.74 1.29 13.77
FXNC 1.92 1.07 10.37 N 06/20/97 0.63 0.46 1.01 9.81
HBKS 1.16 1.28 16.13 N 06/20/97 0.57 0.31 1.26 16.23
NKSH 1.62 1.61 14.15 N 06/20/97 0.21 0.40 1.57 11.74
SBVA 1.11 1.15 10.50 N 06/20/97 0.67 0.30 1.34 11.82
VCBA 1.08 1.00 11.70 N 06/20/97 0.06 0.30 1.01 12.30
CIWV 2.33 1.26 11.04 N 06/20/97 0.28 0.52 1.24 10.59
FCFT 2.71 1.75 16.21 N 06/20/97 1.19 0.65 1.79 16.34
HBSI 4.09 1.14 10.29 N 06/20/97 0.08 0.93 1.07 9.57
PCHB 1.39 1.01 11.52 N 06/20/97 1.16 0.30 0.87 9.81
Maximum 20.57 2.07 17.83 6.17 5.13 2.02 17.15
Minimum 0.74 0.74 7.89 0.06 0.16 0.60 6.73
Average 2.94 1.30 12.99 0.76 0.73 1.26 12.38
Median 1.76 1.21 13.38 0.28 0.41 1.26 11.86
</TABLE>
15
<PAGE>
FERGUSON & COMPANY Exhibit VIII.3 - Selected Publicly Held Tennessee
- ------------------ Pink Sheet Banks
<TABLE>
<CAPTION>
Current
Stock
Price
Ticker Short Name City State Region Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C>
CBTN CB&T Inc. McMinnville TN SE OTC Bul NA 115.000
PSHR Pioneer Bancshares Inc. Chattanooga TN SE OTC Bul NA 38.500
Maximum 115.000
Minimum 38.500
Average 76.750
Median 76.750
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
FERGUSON & COMPANY Exhibit VIII.3 - Selected Publicly Held Tennessee Pink Sheet Banks
- ------------------
Price/ Price/ Price/ Price/
Current Current Current Current Core Core LTM LTM
Market Price/ Price/ T Dividend EPS EPS Core EPS Core EPS
Value Book V Book V Yield (x) (x) (x) (x)
Ticker ($M) (%) (%) (%) MRQ LTM MRQ LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CBTN 30.42 96.1 96.1 8.70 7.1 7.4 7.4 7.4
PSHR 144.76 154.6 165.7 2.39 14.5 14.9 14.9 14.9
Maximum 144.76 154.6 165.7 8.70 14.5 14.9 14.9 14.9
Minimum 30.42 96.1 96.1 2.39 7.1 7.4 7.4 7.4
Average 87.59 125.3 130.9 5.54 10.8 11.1 11.1 11.1
Median 87.59 125.3 130.9 5.54 10.8 11.1 11.1 11.1
<CAPTION>
Tangible
Total Equity/ Equity/
Assets Assets T Assets
($000) (%) (%)
Ticker MRQ MRQ MRQ
<S> <C> <C> <C>
CBTN 265,427 11.9 11.9
PSHR 897,535 10.4 9.8
Maximum 897,535 11.9 11.9
Minimum 265,427 10.4 9.8
Average 581,481 11.2 10.9
Median 581,481 11.2 10.9
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
FERGUSON & COMPANY Exhibit VIII.3 - Selected Publicly Held Tennessee Pink Sheet Banks
- ------------------
ROAA ROACE ROAA ROACE
Core Before Before NPAs/ Core Before Before
EPS Extra Extra Merger Current Assets EPS Extra Extra
($) (%) (%) Target? Pricing (%) ($) (%) (%)
Ticker LTM LTM LTM (Y/N) Date MRQ MRQ MRQ MRQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CBTN 15.61 1.57 13.05 N 06/20/97 NA 4.05 1.64 13.51
PSHR 2.49 1.11 10.46 N 06/20/97 0.24 0.64 1.10 10.30
Maximum 15.61 1.57 13.05 0.24 4.05 1.64 13.51
Minimum 2.49 1.11 10.46 0.24 0.64 1.10 10.30
Average 9.05 1.34 11.76 0.24 2.35 1.37 11.91
Median 9.05 1.34 11.76 0.24 2.35 1.37 11.91
</TABLE>
18
<PAGE>
EXHIBIT IX
<PAGE>
FERGUSON & COMPANY Exhibit IX - Other Thrifts Converting
- ------------------ to Stock and Commercial Banks
<TABLE>
<CAPTION>
Heartland Community
IFB Bancshares, Financial
Holdings, Inc. Incorporated Corp.
Chillicothe, Herrin, Olney,
Missouri Illinois Illinois Average
---------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Ticker IFBH HLAG CFIC
Stock conversion date 12/30/96 6/28/96 6/29/95
Conversion assets $ 52,587,000 $ 61,309,000 $ 164,633,000 $ 92,843,000
Conversion pricing ratios:
Price to book 73.1% 70.8% 76.4% 73.4%
Price to earnings 14.3 21.3 10.3 15.3
Price to assets 10.1% 12.8% 13.8% 12.2%
Conversion loan composition:
Non-real estate loans/loans 12.4% 3.7% 53.0% 23.0%
Loans/assets 54.1% 57.2% 67.6% 59.6%
Stock issue:
Shares issued 592,523 876,875 2,645,000 1,371,466
Price per share $ 10.00 $ 10.00 $ 10.00 $ 10.00
Gross proceeds $ 5,925,000 $ 8,768,750 $ 26,450,000 $ 13,714,583
Price June 20, 1997 $ 12.50 $ 16.00 $ 14.50 $ 14.33
Price appreciation:
One day 22.50% 0.00% 15.00% 12.5%
One week 25.00% 3.75% 16.25% 15.0%
One month 23.75% 1.25% 12.50% 12.5%
To date 25.00% 60.00% 45.00% 43.3%
Current pricing ratios:
Price to book 86.9% 113.3% 101.9% 100.7%
Price to earnings 13.0 40.0 20.7 24.6
</TABLE>
1
<PAGE>
Exhibit 99.4
Community National Corporation
Stock Order Form
------------------------------------
LEXINGTON FIRST EXPIRATION DATE
FEDERAL SAVINGS for Stock Order
BANK STOCK Forms:
INFORMATION CENTER , 1997
19 Natchez Trace 12:00 Noon,
Drive Central Time
Lexington,
Tennessee 38351
(901)
================================================================================
IMPORTANT--PLEASE NOTE: A properly completed original stock order form must
be used to subscribe for common stock. Copies of this form are not required
to 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 the number of shares that, when combined with the number of
shares received in exchange for shares of common stock of Lexington First
Federal Savings Bank (if any), equals 5% of the shares to be sold for any
individuals together with associates or persons acting in concert.
================================================================================
[_](3) EMPLOYEE/OFFICER/DIRECTOR INFORMATION
Check here if you are a director, officer or employee of Lexington First
or a member of such person's immediate family.
================================================================================
(4) METHOD OF PAYMENT/CHECK Check Amount
-----------------------------------
Enclosed is a check, bank draft or
money order made payable to Lexington
First, in the amount of: -----------------------------------
================================================================================
(5) METHOD OF PAYMENT/WITHDRAWAL
The undersigned authorizes withdrawal from the following account(s) at
Lexington First. If you would like to use an Individual Retirement Account
maintained at Lexington First 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
---------------------------------
================================================================================
(6) PURCHASER INFORMATION
a. [_] Eligible Account Holder -- Check here if you were a depositor of at
least $50.00 at Lexington First on December 31, 1995. Enter
information below for all deposit accounts that you had at Lexington
First on December 31, 1995.
b. [_] Supplemental Eligible Account Holder -- Check here if you were a
depositor of at least $50.00 at Lexington First on June 30, 1997 but
are not an Eligible Account Holder. Enter information below for all
deposit accounts that you had at Lexington First on June 30, 1997.
c. [_] Other Member -- Check here if you held a deposit at Lexington First
as of , 1997 but are not an Eligible Account Holder or
Supplemental Eligible Account Holder or had a loan at Lexington
First on , 1994 which was still outstanding on , 1997.
d. [_] Local Community Resident -- Check here if you are a permanent
resident of Henderson County Tennessee.
e. [_] Public Stockholder -- Check here if you are a stockholder of
Lexington First Federal Savings Bank.
--------------------------------------------------------------------------
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.
================================================================================
(7) STOCK REGISTRATION/FORM OF STOCK OWNERSHIP
[_] Individual [_] Joint Tenants [_] Tenants in Common
[_] 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 INFORMATION Daytime Evening County of Residence
--------------------------- ---------- ----------------------------
( ) ( )
--------------------------- ---------- ----------------------------
================================================================================
[_](10) NASD AFFILIATION
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.
================================================================================
[_](11) ASSOCIATE--ACTING IN CONCERT
Check here, and complete the reverse side of this Form, if you or any
associates (as defined on the reverse side of this Form) or persons acting in
concert with you have submitted other orders for shares in the Subscription
and/or Community Offerings.
================================================================================
(12) ACKNOWLEDGMENT
To be effective, this fully completed Stock Order Form must be actually
received, no later than 12:00 p.m. noon, Central 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
Lexington First 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 and
Agreement and Plan of Reorganization (the "Plan") described in the
accompanying Prospectus. If the Plan is not approved by the voting members
of Lexington First Federal Mutual Holding Company at a Special Meeting to be
held on , 1997, or any adjournment thereof, and the stockholders of
Lexington First 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 Community National Corporation,
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, and if authorization to withdraw
from deposit accounts at Lexington First 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.
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 (SEE REVERSE SIDE)
- --------------------------------------------------------------------------------
<PAGE>
ITEM (6)A, B, C--(CONTINUED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Account Title (Names on Accounts) Account Number(s)
- --------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------
- --------------------------------------------------------------
- --------------------------------------------------------------
</TABLE>
ITEM (11)--(CONTINUED)
List below all other orders submitted by you or your Associates (as defined) or
by persons acting in concert with you.
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Number of
Name(s) listed on other Shares
Stock Order Forms Ordered
- -----------------------------------------------------------
<S> <C>
- -----------------------------------------------------------
- -----------------------------------------------------------
- -----------------------------------------------------------
- -----------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Account Title (Names on Accounts) Account Number(s)
- --------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------
- --------------------------------------------------------------
- --------------------------------------------------------------
</TABLE>
"Associate" is defined as: (i) any corporation or organization (other than
Lexington First, Community National Corporation or Lexington First Federal
Mutual Holding Company, or a majority-owned subsidiary of Lexington First,
Community National Corporation or Lexington First Federal Mutual Holding
Company, 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, that such term shall not
include Community National Corporation's or Lexington First'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 Lexington First or Community National
Corporation or any subsidiaries thereof.
- --------------------------------------------------------------------------------
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 LEXINGTON FIRST FEDERAL SAVINGS
BANK (THE "BANK") OR BY THE FEDERAL GOVERNMENT.
If anyone asserts that this security is federally insured or guaranteed, or
is as safe as an insured deposit, I should call the Office of Thrift
Supervision Regional Director Ronald Karr at (312) 917-5000.
I/We further certify that, before purchasing the common stock, par value
$1.00 per share, of Community National Corporation, the proposed holding
company for the Bank, 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:
<TABLE>
<S> <C>
1. The Bank's Interest Sensitivity Mismatch and the Potential
Effects of Changes in Interest Rates (page )
2. Risks Related to Commercial Real Estate, Commercial Business
and Consumer Lending (page )
3. Recent Management Changes and Dependence on Key Personnel (page )
4. Potential Delay in Completion or Denial of Bank Conversion (page )
5. Certain Anti-Takeover Provisions (page )
6. Effect of Regulatory Changes on Operations (page )
7. Anticipated Low Return on Equity Following Conversion (page )
8. Possible Dilutive Effect of Issuance of Additional Shares (page )
9. Absence of Market for Common Stock (page )
10. Possible Divestiture Requirements for Public Stockholders (page )
11. Possible Dilution to Public Stockholders as a Result of
Purchase Limitations (page )
12. Competition (page )
13. Possible Adverse Income Tax Consequences of the Distribution
of Subscription Rights (page )
</TABLE>
<TABLE>
<S> <C>
Signature Date Signature Date
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
Name (Please Print) Name (Please Print)
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
COMMUNITY NATIONAL CORPORATION
STOCK OWNERSHIP GUIDE
INDIVIDUAL
Include the first name, middle initial and last name of the shareholder.
Avoid the use of two initials. Please omit words that do not affect ownership
rights, such as "Mrs.", "Mr.", "Dr.", "special account", "single person",
etc.
- --------------------------------------------------------------------------------
JOINT TENANTS
Joint tenants with right of survivorship may be specified to identify two or
more owners. When stock is held by joint tenants with right of survivorship,
ownership is intended to pass automatically to the surviving joint tenant(s)
upon the death of any joint tenant. All parties must agree to the transfer or
sale of shares held by joint tenants.
- --------------------------------------------------------------------------------
TENANTS IN COMMON
Tenants in common may also be specified to identify two or more owners. When
stock is held by tenants in common, upon the death of one co-tenant,
ownership of the stock will be held by the surviving co-tenant(s) and by the
heirs of the deceased co-tenant. All parties must agree to the transfer or
sale of shares held by tenants in common.
- --------------------------------------------------------------------------------
UNIFORM TRANSFERS TO MINORS ACT ("UTMA")
Stock may be held in the name of a custodian for a minor under the Uniform
Transfers to Minors Act of each state. There may be only one custodian and
one minor designated on a stock certificate. The standard abbreviation for
Custodian is "CUST", while the Uniform 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 and the maximum purchase in the Subscription Offerings by any
person, together with associates or groups acting in concert is that number
of shares which, when combined with shares received in exchange for shares of
Lexington First, if any, equals 5.0% of the shares sold. Community National
Corporation, Lexington First Federal Mutual Holding Company and Lexington
First 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 Lexington First 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, bank draft or money order made payable to Lexington First
Federal Savings Bank. Your funds will earn interest at the Bank's passbook
rate of interest until the Stock Conversion and Reorganization is completed.
DO NOT MAIL CASH TO PURCHASE STOCK! Please check this box if your method of
payment is by check, bank draft or money order.
- --------------------------------------------------------------------------------
ITEM 5--
If you pay for your stock by a withdrawal from a deposit account at Lexington
First, 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 Lexington First on December 31, 1995 (the "Eligibility
Record Date") with at least $50.00 on deposit.
(b) A depositor at Lexington First on June 30, 1997 (the "Supplemental
Eligibility Record Date") with at least $50.00 on deposit.
(c) A depositor on , 1997 other than an eligible account holder or
supplemental eligible account holder or borrower as of , 199 whose
loan continues to be outstanding on , 1997.
(d) A permanent resident of Henderson County Tennessee.
(e)A stockholder of Lexington First Federal Savings Bank.
- --------------------------------------------------------------------------------
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 Community National
Corporation 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 reverse side
of the Stock Order Form) or person acting in concert with you has submitted
another order for shares and complete the reverse 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 to Lexington First. Your Stock Order Form and
Certification Form, properly completed, and payment in full (or withdrawal
authorization) at the subscription price must be received by Lexington First
no later than 12:00 Noon, Central time, on , 1997 or it will become
void. 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 (901) . The Stock Information Center will be open Monday through
Friday during regular Bank hours.
<PAGE>
EXHIBIT 99.5
Community National Corporation
Proposed Holding Company for
Lexington First Federal Savings Bank
Lexington, Tennessee
Proposed Marketing Materials
DRAFT
7/10/97
<PAGE>
Marketing Materials for
Community National Corporation
Lexington, Tennessee
Table of Contents
-----------------
I. Press Release
A. Explanation
B. Schedule
C. Distribution List
D. Press Release Examples
II. Advertisements
A. Explanation
B. Schedule
C. Advertisement Examples
III. Question and Answer Brochure
A. Explanation
B. Method of Distribution
C. Example
IV. Officer and Director Brochure
A. Explanation
B. Method of Distribution
C. Example
V. IRA Mailing
A. Explanation
B. Quantity
C. IRA Mailing Example
VI. Counter Cards and Lobby Posters
A. Explanation
B. Quantity
VII. Invitations
A. Explanation
B. Quantity - Method of Distribution
C. Examples
VIII. Letters
A. Explanation
B. Method of Distribution
C. Examples
<PAGE>
IX. Proxygram
A. Explanation
B. Example
<PAGE>
I. Press Releases
A. Explanation
In an effort to assure that all customers, community members and other
interested investors receive prompt accurate information in a simultaneous
manner, Trident advises the Bank to forward press releases to area
newspapers, radio stations, etc. at various points during the conversion
process.
Only press releases approved by Conversion Counsel and the OTS will be
forwarded for publication in any manner.
B. Schedule
1. OTS Approval of Conversion
2. Close of Stock Offering
<PAGE>
National and Local Distribution List
------------------------------------
The Bank should provide a supplemental distribution list which includes all
local newspapers that it considers to be within their market area.
(TO BE PROVIDED)
<PAGE>
Press Release FOR IMMEDIATE RELEASE
---------------------
For More Information Contact:
Howard Tignor
(901) 968-6624
LEXINGTON FIRST FEDERAL SAVINGS BANK,
--------------------------------------
REORGANIZATION FROM MUTUAL HOLDING COMPANY TO STOCK
---------------------------------------------------
HOLDING COMPANY APPROVED
-------------------------
Howard Tignor, President of Lexington First Federal Savings Bank, (the
"Bank"), Lexington, Tennessee, announced today that the Bank has received
approval from the Office of Thrift Supervision of the U. S. Department of the
Treasury to reorganize from the mutual holding company form of organization to
the stock holding company form of organization. In connection with the
reorganization, the Bank has formed a new stock company, Community National
Corporation (the "Company"), to serve as the stock holding company of the Bank.
Pursuant to a plan of conversion and agreement and plan of reorganization,
the Company is offering up to 382,375 shares, subject to adjustment of its
common stock, at a price of $10.00 per share. Certain depositors and borrowers
as of specified record dates, the Bank's Employee Stock Ownership Plan,
directors, officers and employees and public stockholders of the Bank will have
an opportunity to purchase stock through a Subscription Offering that will close
on __________, 1997. Stock may be offered to the general public in a Community
Offering with first preference given to natural persons who reside in _________
Counties, Tennessee. The Subscription offering and the Community Offering
(together, the "Offering") will be managed by Trident Securities, Inc. of
Raleigh, North Carolina. In addition, public stockholders of the Bank as of the
effective date of the reorganization will receive shares of common stock in the
Company in exchange for their common shares of the Bank at an exchange ratio
specified in the Prospectus. Offering Materials describing,
<PAGE>
among other things, the terms of the Offering will be mailed to certain
customers and stockholders of the Bank and certain local community members on or
about __________, 1997.
As a result of the reorganization, the Bank will operate as a subsidiary of
the Company. According to Mr. Tignor, "Our day to day operations will not
change as a result of the reorganization and deposits will continue to be
insured by the FDIC up to the applicable legal limits."
Customers or stockholders with questions concerning the reorganization
should call the Conversion Center at (901) ________________, or visit the Bank's
main office at ___________, Lexington, Tennessee.
This is neither an offer to sell nor a solicitation of an offer to buy the stock
of Community National Corporation The offer is made only by the Prospectus.
The shares of Common Stock are not deposits or savings accounts and will not be
---
insured by the Federal Deposit Insurance Corporation or any other government
agency.
<PAGE>
Press Release FOR IMMEDIATE RELEASE
---------------------
For More Information Contact:
Howard Tignor
(901) 968-6624
COMMUNITY NATIONAL CORPORATION COMPLETES STOCK OFFERING
-------------------------------------------------------
Lexington, Tennessee - (________, 1997) Howard Tignor, President of
Lexington First Federal Savings Bank (the "Bank"), announced today that
Community National Corporation (the "Company"), the proposed stock holding
company for the Bank, will complete its initial stock offering on _________,
1997, in connection with the Bank's conversion and reorganization from the
mutual holding company corporate structure to the stock holding company
corporate structure. ___________ shares were sold at $10.00 per share in
connection with the stock offering, and _____________ shares are expected to be
issued in exchange for shares of common stock of the Bank.
On______________, 1997, the Bank's Plan of Conversion and Agreement and
Plan of Reorganization was also approved by the voting members of Lexington
Federal, and the members of the Bank at a Special Meeting of Stockholders and a
Special Meeting of Members, respectively.
Mr. Tignor indicated that the officers and board of directors of the
Company and the Bank want to express their thanks for the response to the stock
offering and that the Bank looks forward to serving the needs of its customers
and new stockholders as a community-based stock institution. The offering was
managed by Trident Securities, Inc. The stock will be listed in the National
Daily Quotation Bureau "Pink Sheets" under the symbol "_________" commencing on
________, 1997.
<PAGE>
II. Advertisements
A. Explanation
The intended use of the attached advertisement "A" is to notify the Bank's
customers, stockholders and members of the local community that the
conversion offering is underway.
The intended use of advertisement "B" is to remind the Bank's customers and
stockholders of the closing date of the subscription offering.
B. Media Schedule
1. Advertisement A - To be run immediately following OTS approval and run
weekly for the first three weeks.
2. Advertisement B - To be run during the last week of the subscription
offering.
Trident may feel it is necessary to run more ads in order to remind
customers, stockholders and community members of the close of the
Subscription/Community Offering.
Alternatively, Trident may, depending upon the response from the customer
and stockholder base, choose to run fewer ads or no ads at all.
<PAGE>
Advertisement (A)
- --------------------------------------------------------------------------------
This announcement is neither an offer to sell nor a solicitation of an offer
to buy these securities. The offer is made only by the Prospectus. These
shares have not been approved or disapproved by the Securities and Exchange
Commission, the Office of Thrift Supervision or the Savings Association
Insurance Fund of the Federal Deposit Insurance Corporation, nor has such
commission, office or corporation passed upon the accuracy or adequacy of the
prospectus. Any representation to the contrary is unlawful.
New Issue _______, 1997
- ---------
_______ Shares
These shares are being offered pursuant
to a Plan of Conversion whereby
Lexington First Federal Savings Bank,
Federal Savings Bank
Lexington, Tennessee will
convert from the mutual holding company form of organization
to a federal stock holding company form of organization
and become a wholly-owned subsidiary of
Community National Corporation
Common Stock
_______________
Price $10.00 Per Share
_______________
Trident Securities, Inc.
For a copy of the prospectus call (901) ________.
Copies of the Prospectus may be obtained in any State in which this
announcement
is circulated from the undersigned or such other brokers and dealers
as may legally offer these securities in such state.
- --------------------------------------------------------------------------------
<PAGE>
Advertisement (B)
- --------------------------------------------------------------------------------
LEXINGTON FIRST FEDERAL SAVINGS BANK'S CUSTOMERS,
STOCKHOLDERS
AND MEMBERS OF THE GENERAL PUBLIC
_____________, IS THE DEADLINE TO
ORDER STOCK OF COMMUNITY NATIONAL CORPORATION
Shareholders and certain customers of Lexington First Federal Savings Bank,
Federal Savings Bank (the "Bank") and members of the general public have the
opportunity to invest in the Bank by subscribing
for common stock in its proposed stock holding company
COMMUNITY NATIONAL CORPORATION
A Prospectus relating to these securities is
available at our office or by calling our
Stock Information Center at (901) _____________.
This announcement is not an offer to sell or a
solicitation of an offer to buy the stock of Community National Corporation. The
offer is made only by the Prospectus. The shares of Common Stock are not
deposits or savings accounts and will not be insured
by the Federal Deposit Insurance Corporation
or any other government agency.
- --------------------------------------------------------------------------------
<PAGE>
III. Question and Answer Brochure
A. Explanation
The Question and Answer brochure is an essential marketing piece in any
conversion. It serves to answer some of the most commonly asked questions
in "plain, everyday language". Although most of the answers are taken
verbatim from the Prospectus, it saves the individual from searching for
the answer to a simple question.
B. Method of Distribution
There are four primary methods of distribution of the Question and Answer
brochure. However, regardless of the method the brochures are always
accompanied by a Prospectus.
1. A Question and Answer brochure is sent out in the initial mailing to
all members and stockholders of the Bank.
2. Question and Answer brochures are available at the Bank.
3. Question and Answer brochures are distributed in information packets
at community meetings.
4. Question and Answer brochures are sent out in a standard information
packet to all interested investors who phone the Stock Information
Center requesting information.
<PAGE>
QUESTIONS AND ANSWERS
REGARDING
THE PLAN OF CONVERSION
On ___________, the Boards of Directors of Lexington First Federal Savings
Bank, (the "Bank") and Community National Corporation (the "company) unanimously
adopted the Plan of Conversion and Agreement and Plan of Reorganization (the
"Plan") pursuant to which the Mutual Holding Company will convert from mutual to
stock form and the Bank will reorganize as a wholly-owned subsidiary of
Community National Corporation (the "Company").
This brochure is provided to answer basic questions regarding the
Conversion and Reorganization (herein after defined). Following the Conversion
and reorganization, the Bank will continue to provide financial services to its
depositors, borrowers and other customers and will operate with its existing
management and employees. The Conversion and reorganization will not affect the
terms, balances, interest rates or existing federal insurance coverage on the
Bank's deposits or the terms or conditions of any loans to existing borrowers
under their individual contract arrangements with the Bank.
For complete information regarding the Conversion and Reorganization, see
the Prospectus dated _________________, 1997. Copies of the Prospectus may be
obtained by calling the Conversion Center at (901) ________________________.
Background
- ----------
In ____, the Bank reorganized into the mutual holding company structure.
In connection with this transaction, the Mutual Holding Company was formed, and
the Bank became a public company through an offering of its common stock.
The primary business of the Mutual Holding Company has been to hold shares
of the Bank's common stock (the "Bank Common Stock"). As majority shareholder
of the Bank, the Mutual Holding Company holds _______ shares or _______ of the
outstanding shares of Bank Common Stock. The remaining shares (the "Public Bank
Shares") are traded publicly. They are owned by the Bank's management,
customers and members of the general public (collectively, the "Public
Stockholders").
In connection with the Conversion and Reorganization, the Company intends
to issue up to ________ shares (which may be increased to __________ shares) of
Company common stock (the "Conversion Stock") at a purchase price of $10.00 per
share (the "Purchase Price") in a Subscription Offering and Community Offering,
if needed, and, if necessary, a Syndicated Community Offering (collectively, the
"Offerings"). In addition the shares of the Bank Common Stock held by the
Public Stockholders as of the effective date of the Conversion (the "Effective
Date") will be converted into shares of Company common stock (the "Exchange
Shares") at a stated Exchange Ratio (the "Exchange"). The Public Stockholders
will be mailed instructions with regard to effecting the Exchange. The
Conversion of the Mutual Holding Company, the Offerings and the Exchange are
referred to collectively herein as the "Conversion and Reorganization." As
required by Office of Thrift Supervision regulations, members of the
<PAGE>
Mutual Holding Company and the Bank's stockholders are being asked to approve
the Plan as addressed below in the section entitled "Voting."
1. Q. What will be the effect of the Conversion and Reorganization?
A. . The Company will replace the Mutual Holding Company as the holding
company for the Bank.
. The Public Stockholders will receive common stock of the Company
in exchange for their Bank Common Stock.
. The Company's common stock will be publicly held and will be traded
on the over-the-counter "Electronic Bulletin Board" under the symbol
"_________."
. The Company will issue shares of common stock.
2. Q. What is the reason for the Conversion and Reorganization?
A. In ____, the Bank reorganized into the mutual holding company structure
for a number of reasons, including the ability to raise capital on an
incremental basis so that new capital could be invested in a controlled
manner. If the Bank had undertaken a standard conversion involving the
formation of a stock holding company in ____, applicable Office of
Thrift Supervision regulations would have required a greater amount of
common stock to be sold, resulting in more proceeds than could not have
been effectively utilized at the time.
A principal purpose of the Conversion and Reorganization is to
structure the Company in the stock form of organization which is used
by most other holding companies of savings institutions and commercial
banks. This structure, along with the increased capital resulting from
the Offerings, will facilitate possible diversification into other
banking-related businesses and will provide the Company with additional
flexibility.
Additionally, the Conversion and Reorganization will result in an
increase in the number of outstanding shares of common stock which will
increase the likelihood of the development of a more active and liquid
trading market.
The Board of Directors believes that the conversion of the Mutual
Holding Company from the mutual to the stock form of organization and
the related Offerings and Exchange are consistent with the goal of
enhancing value for stockholders and customers.
<PAGE>
3. Q. Will the Conversion and Reorganization have any effect on my savings
account or loan account with the Bank?
A. No. Customers will be served in the same offices by the same staff. The
Conversion and Reorganization will not affect the amount, interest rate
or withdrawal rights of deposit accounts, which will continue to be
insured by the Savings Association Insurance Fund of the Federal
Deposit Insurance Corporation to the maximum legal limit. Likewise, the
loan accounts and rights of borrowers will not be affected.
4. Q. Will there be changes in directors, officers or employees as a
result of the Conversion and Reorganization?
A. No. Officers and employees of the Bank will continue in their current
capacities. The directors of the Bank will serve as the initial
directors of the Company.
5. Q. Does the Company anticipate paying cash dividends on the Company's
common stock?
A. While the Company will consider the establishment of a dividend policy
following the conversion and reorganization, there is no current
intention to pay dividends. The Board will review its dividend policy
on a quarterly basis. The Company's ability to pay dividends in the
future will depend on the net proceeds retained from the Offerings and
on dividends received from the Bank, which is subject to various
regulatory restrictions on the payment of dividends.
6. Q. How will the proceeds of the Offerings be used?
A. Net proceeds from the sale of the Conversion Stock are estimated to be
between $___ million and $____ million. The Company plans to contribute
to the Bank all but $_________ of the net proceeds from the Offerings
and retain the remainder of the net proceeds. The Company intends to
use the net proceeds retained by the Company will initially be to
invested in short-term interest-bearing deposits and marketable
securities. Funds retained by the Company may be used to support the
future expansion of operations and for other business or investment
purposes, including the acquisition of other financial institutions
and/or branch offices, although there are no current plans,
arrangements, understandings or agreements regarding such expansion or
acquisitions. Subject to applicable limitations, such funds also may be
used in the future to repurchase shares of common stock. Funds
contributed to the Bank from the Company will be used for general
business purposes. The proceeds will be used to support the Bank's
lending and investment activities and thereby enhance the Bank's
capabilities to service the borrowing and other financial needs of the
communities it serves.
VOTING - YOUR VOTE IS IMPORTANT
<PAGE>
The Mutual Holding Company's Members (as defined below) are being asked to
approve the Plan, which was adopted by the Boards of Directors of the Bank, the
Mutual Holding Company and the Company and approved by the Office of Thrift
Supervision. The Bank's shareholders are also being asked to approve the Plan.
A copy of the Plan of Conversion may be obtained from any Bank office or by
calling the Conversion Center.
Voting on the Plan does not affect deposit or loan accounts at the Bank, and
does not obligate customers or shareholders to purchase stock in the Offerings.
7. Q. Which customers of the Bank are being asked to vote on the Plan?
A. Depositors of the Bank as of _____________, 1997 and borrowers of the
Bank as of __________ who continue to be borrowers as of ___________,
1997 (the "Members"). The Members have been provided with Proxy Cards
and Proxy Statements describing the Plan.
Each depositor Member will be entitled to cast one vote for each $100
or fraction thereof of the withdrawable value of any savings accounts
in the Bank as of _____________, 1997. Each borrower Member will be
entitled to cast one vote, in addition to any number of votes to which
such Member is entitled to as holder of a savings account. The
maximum number of votes eligible to be cast by a Member may not exceed
1,000. The affirmative vote of a majority of the total votes eligible
to be cast is required for approval of the Plan.
In accordance with Office of Thrift Supervision regulations, Members
are being solicited to vote. The Board of Directors urges Members to
vote FOR the Plan. Not voting will have the same effect as a vote
against the Plan. Without sufficient favorable votes, the Conversion
and Reorganization cannot be completed. In that event, funds
submitted by investors in connection with the Offerings would be
promptly returned, with interest.
8. Q. Which stockholders of the Bank may vote on the Plan?
A. Public Stockholders of the Bank as of __________, 1997. These
stockholders have been provided with a Proxy Statement describing the
Plan of Conversion and Reorganization and have also received Proxy
Cards. The affirmative vote of at least a majority of the votes cast
by Public Stockholders and two thirds of the outstanding Bank Common
Stock (including shares held by the Mutual Holding Company) is
required for approval of the Plan. The Board of Directors urges
stockholders to vote FOR the Plan.
9. Q. How do I vote by proxy?
A. Please read the Proxy Statement that you received. You may vote by
completing, signing and returning the Proxy Card in the Proxy Return
Envelope provided.
<PAGE>
Please respond promptly.
10. Q. Why may I have received several Proxy Cards?
A. If you have more than one deposit or loan account at the Bank, you
could receive more than one informational packet and each packet should
-----
contain a separate Proxy Card, depending on the ownership structure of
your accounts.
If you owned shares of the Bank Common Stock under more than one
registration, you will receive more than one informational packet and
each packet should contain a separate Proxy Card. PLEASE VOTE, SIGN
AND PROMPTLY RETURN ALL PROXY CARDS.
11. Q. Am I obligated to purchase stock if I vote in favor of the Plan?
A. No. To purchase stock in the Offerings, you must place an order and
make a payment.
THE OFFERINGS
Investment in common stock involves certain risks. Before making an investment
decision, please carefully read the enclosed Prospectus, including the section
entitled "Risk Factors."
12. Q. Who may purchase Conversion Stock in the Offerings?
A. The Offerings consist of (i) a Subscription Offering to certain past
and current customers of the Bank, directors, officers and employees of
the Mutual Holding Company and the Bank and the Public Stockholders and
(ii) Community Offering, if needed, to certain members of the general
public, with preference given to natural persons residing in
___________ Counties, Tennessee.
The Conversion Stock is being offered in the following order of
priority: (i) depositors of the Bank with account balances of $50.00
or more as of the close of business on _______________ ("Eligible
Account Holders"); (ii) depositors of the Bank with account balances
of $50.00 or more as of the close of business on _____________
("Supplemental Eligible Account Holders"); (iv) depositors of the Bank
as of the close of business on _________, 1997 (other than Eligible
Account Holders and Supplemental Eligible Account Holders) ("Other
Members"); (v) directors, officers and employees of the Bank ; and
(vi) Public Stockholders.
To the extent that share remain available for purchase, a Community
Offering, if any, may commence without notice at any time after the
commencement of the Subscription Offering and may terminate at any
time without notice but may not terminate later than _______, 1997.
The right of any person to purchase shares in the Community Offering,
if any, is subject to the absolute right of the primary parties to
accept or reject such purchases in whole or in part. Preference will
be
<PAGE>
given in the Community Offering to permanent residents of
____________ Counties, Tennessee.
13. Q. What is the price per share?
A. The shares of Conversion Stock are being offered at a Purchase Price
of $10.00 per share. All subscribers will pay the same price per
share. No commission will be charged.
14. Q. How was the offering range and Purchase Price of the Conversion Stock
determined?
A. Federal regulations require that the aggregate purchase price of the
---------
common stock in the Offerings be consistent with an independent
appraisal of the pro forma value of the Bank and the Company. The
appraisal, dated ___________, 1997 was conducted by Ferguson & Co., a
firm experienced in valuations of financial institutions. The
appraisal indicated an estimated aggregate pro forma market value of
$__________ (the "Independent Valuation"). Because the Public
Stockholders will continue to hold the same aggregate percentage
ownership interest in the Company as they held in the Bank, the
Appraisal was multiplied by the Company's percentage interest in the
Bank to determine the midpoint of the valuation price range (the
"Valuation Price Range"), of $________. The Board of Directors of the
Band and the Company have determined to offer the common stock at a
purchase price of $10.00 per share. Based on this price and the
independent valuation, the Company is offering a range of between
approximately $_________ and $_________ of common stock, or between
________ shares and ________ shares of common stock, subject to a
potential ____ increase to ________ shares.
Upon consummation of the Conversion and Reorganization, shares issued
in the Offerings will represent approximately ______ of shares
outstanding, while shares issued pursuant to the Exchange will
represent approximately _______ of outstanding shares. Assuming the
sale of ________ shares, the midpoint of the Valuation Price Range, it
is anticipated that there will be _________ shares of common stock
outstanding upon consummation of the Conversion including shares to be
issued in the Exchange.
The Independent Valuation will be updated at the conclusion of the
Offerings. In the event that less than 282,625 shares are sold in the
Offerings, a resolicitation of subscribers may be necessary.
Resolicitation will also be necessary in the event that more than
439,731 shares are issued in the Offerings.
15. Q. When does the Subscription Offering and, if any, the Community
Offering terminate?
A. The Subscription Offering will terminate at 12:00 p.m. Central Time,
on __________, 1997, unless the Offerings are extended. The Community
Offering
<PAGE>
may not terminate later than ______, 1997.
16. Q. How do I purchase Conversion Stock in the Offerings?
A. Please carefully read and complete the Stock Order Form. The Bank is
not required to accept copies of Stock Order Forms. You may hand
deliver the Stock Order Form to any Bank office, or you may use the
enclosed Order Form Reply Envelope. Your stock order form must be
received by the Bank no later than 12:00 PM, Central time on
__________, 1997. Payment may be made by check or money order or by
authorization of withdrawal from your Bank passbook or certificate of
deposit account(s). A hold will be placed on the designated
account(s) for the authorized amount(s). Withdrawal will be made at
the consummation of the Conversion. Any applicable penalty for early
withdrawal will be waived.
17. Q. Will I receive interest on funds I submit?
A. Yes. Funds received will be placed in a segregated account at the
Bank, and interest will be paid at the Bank's passbook rate until the
Offerings are consummated. With respect to authorized account
withdrawals, interest will continue to accrue at the account's
contractual rate until the Offerings are consummated.
18. Q. How may I purchase the common stock through a Bank IRA?
A. If you have an IRA at the Bank, you will need to transfer your
existing relationship to an independent trustee authorized to hold
self-directed IRA accounts. Please call the Conversion Center for
assistance in transferring your account or establishing a new self-
directed IRA for the purchase of stock. Because IRA-related
procedures take time, you must contact the Conversion Center by
______, 1997 to facilitate your request.
19. Q. What is the minimum and maximum number of shares that I may subscribe
for in the Offerings?
A. The minimum purchase is 25 shares. No person of entity, together with
associates and persons acting in convert, may, directly or indirectly
subscribe for or purchase in the offerings more than 5.0% of the
total number of shares offered (19,118 shares at the maximum of the
valuation price range).
20. Q. What will happen to my order if orders are received for more stock
than is available?
A. In the event of an oversubscription, shares will be allocated
according to federal regulations and the Bank's Plan of Conversion.
<PAGE>
Because qualifying deposits are utilized in allocating shares, each
Eligible Account Holder and Supplemental Eligible Account Holder
should be sure to list on the Stock Order Form all deposit accounts in
which he or she had an ownership interest at the applicable date.
21. Q. Will the Company's common stock be insured by the Federal Deposit
Insurance Corporation?
A. No. Stock cannot be insured by the Federal Deposit Insurance
Corporation.
22. Q. Are directors and officers purchasing conversion stock in the
Offerings?
A. Yes. In the Offerings, they expect to purchase an aggregate of
_______ shares. After exchange of their Bank common stock for Company
common stock, directors and executive officers are expected to own
_____% of the outstanding common stock of the Company, assuming the
sale of ___________ shares in the Offerings.
23. Q. When will I receive my stock certificate for shares I purchased in the
Offerings?
A. Stock certificates will be mailed as soon as practicable after the
Offerings are consummated. Please be aware that you may not be able
to sell the shares you purchased until you have received a stock
certificate.
24. Q. How may I purchase or sell shares in the future?
A. You may purchase or sell shares through a stockbroker. The Company
anticipates that the Common Stock will be traded on the over-the-
counter market through the OTS "Electronic Bulletin Board" under the
symbol "_________." It is expected that the Company's common stock
will be more liquid than the Bank's common stock has been, because
there will be a significantly larger number of shares owned by the
public. There can be no assurance, however, than an active and liquid
market for the common stock will be maintained.
<PAGE>
THE EXCHANGE
Upon the Effective Date, trading in the Bank Common Stock will cease. Each
Public Stockholder as of the Effective Date will be contacted for the purpose of
exchanging Public Bank Shares for shares of Company common stock. Please refer
to the Prospectus for a detailed discussion of the Exchange.
25. Q. What is the Exchange?
A. Each share of Bank Common Stock owned by Public Stockholders on the
Effective Date will automatically be converted into shares of the
Company's common stock pursuant to an exchange ratio ("Exchange
Ratio").
26. Q. How was the Exchange Ratio determined?
A. The Exchange Ratio was derived to ensure that each Public Stockholder
will own approximately the same percentage of the Company's common
stock as he owned of the Bank's Common Stock. The Public Stockholders
currently own ____% of the Bank Common Stock. Based on this
percentage and on the midpoint of the offering range of _______
shares, the Exchange Ratio is expected to be ______ shares, of the
Company's common stock for each share of the Bank's Common Stock. If
the offering range is increased to __% above the maximum to
__________1 shares, the Exchange Ratio would increase to ______.
27. Q. How will the Exchange be accomplished?
A. As of the Effective Date, the shares of the Bank Common Stock held by
the Mutual Holding Company will be canceled, and the shares of Bank
Common Stock owned by Public Stockholders will no longer be accepted
for transfer on the Bank's books. As soon as practicable, the Bank
will send transmittal forms to Public Stockholders. The transmittal
forms are expected to be mailed promptly following the Effective Date
and will contain instructions with respect to the surrender of
certificates representing the Bank Common Stock to be exchanged for
the Company's common stock. It is expected that certificates for
shares of the Company's common stock will be distributed promptly
after receipt of the properly executed transmittal forms. Cash will
be issued in lieu of fractional shares.
Shareholders should not forward certificates until they receive
instructions.
MUTUAL TO STOCK CONVERSION
--------------------------
28. Q. How can I get further information concerning the Conversion?
A. You may call the Stock Information Center at ( ) __________________
for further information or to request a copy of the Prospectus, a
Stock Order Form or a Proxy Card.
<PAGE>
THIS INFORMATION DOES NOT CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF
AN OFFER TO BUY COMMUNITY NATIONAL CORPORATION COMMON STOCK. OFFERS TO BUY OR
TO SELL MAY BE MADE ONLY BY THE PROSPECTUS. PLEASE READ THE PROSPECTUS PRIOR TO
MAKING AN INVESTMENT DECISION. COPIES OF THE PROSPECTUS MAY BE OBTAINED BY
CALLING THE CONVERSION CENTER AT ( ) _______________.
THE SHARES OF COMMUNITY NATIONAL CORPORATION COMMON STOCK BEING OFFERED IN
THE OFFERINGS ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE
SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENTAL AGENCY.
<PAGE>
IV. Officer and Director Support Brochure
A. Explanation
An Officer and Director Brochure merely highlights in brochure form the
investment commitments shown in the Prospectus.
B. Quantity
An Officer and Director brochure is proposed to be sent out in the initial
mailing to all customers and stockholders of the Bank along with the
Prospectus.
<PAGE>
DIRECTOR AND EXECUTIVE OFFICER
INVESTMENT COMMITMENT
<TABLE>
<CAPTION>
Proposed Purchases of Total Common Stock
Conversion Stock to be Held
---------------- ----------
Number of Exchange Number of Number of Percentage
Name Shares to be Held(1) Amount Shares Shares of Total
- ---- -------------------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
All directors and
executive officers of
the Bank as a group
(eight persons)
</TABLE>
See page 79 in SB-2
<PAGE>
V. IRA Mailing
A. Explanation
A special IRA mailing is proposed to be sent to all IRA customers of the
Bank in order to alert the customers and stockholders that funds held in an
IRA can be used to purchase stock. Since this transaction is not as simple
as designating funds from a certificate of deposit like a normal stock
purchase, this letter informs the customer or stockholder that this process
is slightly more detailed and involves a personal visit to the Bank.
B. Quantity
One IRA letter is proposed to be mailed to each IRA customer or
stockholders of the Bank. These letters would be mailed following OTS
approval for the conversion and after each customer or stockholder has
received the initial mailing containing a Proxy Statement and a Prospectus.
C. Example - See following page.
<PAGE>
Lexington First Federal Savings Bank Letterhead
________, 1997
Dear Individual Retirement Account Participant:
As you know, Lexington First Federal Savings Bank (the "Bank") is in the
process of converting from the mutual holding company form of organization and
has formed a new stock company, Community National Corporation (the "Company")
to hold all of the stock of the Bank. Through the conversion, certain current
and former customers and stockholders have the opportunity to purchase shares of
common stock of the Company in a Subscription Offering. The Company currently is
offering up to _______ shares, subject to adjustment, of the Company at a price
of $10.00 per share.
As the holder of an individual retirement account ("IRA") at the Bank, you
have an opportunity to become a shareholder in the Company using some or all of
the funds being held in your IRA. If you desire to purchase shares of common
stock of the Company through your IRA, the Bank can assist you in self-directing
those funds. This process can be done without an early withdrawal penalty and
generally without a negative tax consequence to your retirement account.
If you are interested in receiving more information on self-directing your
IRA, please contact our Conversion Center at (901) ___________________. Because
it may take several days to process the necessary IRA forms, you must contact
the Conversion Center by _______, 1997 to accommodate your interest.
Sincerely,
Howard Tignor
President
This letter is neither an offer to sell nor a solicitation of an offer to buy
Community National Corporation, Common Stock. The offer is made only by the
Prospectus, which was recently mailed to you. The shares of Community National
Corporation, Common Stock are not deposits and will not be insured by the
---
Federal Deposit Insurance Corporation or any other governmental agency.
<PAGE>
VI. Counter Cards and Lobby Posters
A. Explanation
Counter cards and lobby posters serve two purposes: (1) As a notice to the
Bank's customers, stockholders and members of the local community that the
stock sale is underway and (2) to remind the customers and stockholders of
the end of the Subscription Offering. Trident has learned in the past that
many people forget the deadline for subscribing and therefore we suggest
the use of these simple reminders.
B. Quantity
Approximately 2 - 3 Counter cards will be used at teller windows and on
customer service representatives' desk.
Approximately 1 - 2 Lobby posters will be used at the office of the Bank
C. Example
<PAGE>
C. POSTER
OR
COUNTER CARD
Community National Corporation
Proposed Stock Holding Company for
Lexington First Federal Savings Bank
"STOCK OFFERING MATERIALS
AVAILABLE HERE"
Subscription Offering Ends
________, 1997
<PAGE>
VII. Invitations
A. Explanation
In order to educate the public about the stock offering, Trident may hold
several Community Meetings in various locations. In an effort to target a
group of interested investors Trident requests that each Director of the
Bank submit a list of friends that he would like to invite to a Community
Meeting.
Prospectuses are given to each prospect at the Community meeting.
B. Quantity and Method of Distribution
Each Director submits a list of their prospects. An invitation is mailed
to each director's prospect.
<PAGE>
The Directors, Officers & Employees
of
Lexington First Federal Savings Bank
cordially invite you
to attend a brief presentation
regarding the stock offering of
the Bank's proposed stock holding company,
Community National Corporation
Please join us at
Place
Address
on
Date
at Time
for hors d'oeuvres
R.S.V.P.
(901) _________________
<PAGE>
VIII. Letters
A. Explanation
Once the application for conversion has been approved by the OTS, Trident
will send out a series of three letters to the Officer's and Director's
targeted prospects. These letters are used to help facilitate the
marketing effort to this group. All prospects will receive a Prospectus as
soon as they are available.
B. Method of Distribution
Each Director submits his list of prospects. Each prospect is sent the
series of three letters all during the Subscription and Community Offering.
C. Examples
1. Introductory letter
2. A. Thank you letter
or
B. Sorry you were unable to attend letter
3. Final reminder letter
<PAGE>
Example 1
(Introductory Letter)
(Lexington First Federal Savings Bank Letterhead)
_______, 1997
Name
Address
City, State, Zip
Dear Name:
You have probably read recently in the newspaper that Lexington First
Federal Savings Bank (the "Bank") will soon be converting from the mutual
holding company form of organization to full stock holding company form. This
conversion is the biggest step in the history of the Bank in that it allows
customers, community members, employees and directors the opportunity to
subscribe for stock in our new holding company - Community National
Corporation(the "Company").
I have enclosed a Prospectus and a Stock Order Form which will allow you to
subscribe for shares and possibly become a stockholder of the Company should you
so desire. In addition, we will be holding several presentations for friends of
the Bank in order to review the Conversion and Reorganization and the merits of
becoming a stockholder of the Company. You will receive an invitation shortly.
I hope that if you have any questions you will feel free to call me or the
Bank's Conversion Center at (901) _____________. I look forward to seeing you at
our presentation.
Sincerely,
Director
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, the Savings Association Insurance Fund or any other
governmental agency.
This is not an offer to sell nor a solicitation of an offer to buy stock.
The offer will be made only by the Prospectus.
<PAGE>
Example 2A
(Thank You Letter)
(Lexington First Federal Savings Bank Letterhead)
___________, 1997
Name
Address
City, State, Zip
Dear Name:
On behalf of the Board of Directors and management of Lexington First
Federal Savings Bank, I would like to thank you for attending our recent
presentation regarding the stock offering of Community National Corporation. We
are enthusiastic about the stock offering and look forward to completing the
Subscription Offering and the Community Offering on _______, 1997.
As discussed at our meeting, the Board of Directors and management are
committed to the goal of a profitable future as a local community financial
institution.
I hope that you will join me in being a stockholder, and once again thank
you for your interest.
Sincerely,
Howard Tignor
President
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, the Savings Association Insurance Fund or any other
governmental agency.
This is not an offer to sell nor a solicitation of an offer to buy stock.
The offer will be made only by the Prospectus.
<PAGE>
Example 2B
(Sorry You Were Unable to Attend)
(Lexington First Federal Savings Bank Letterhead)
_______________, 1997
Name
Address
City, State, Zip
Dear Name:
I am sorry you were unable to attend our recent presentation regarding
Lexington First Federal Savings Bank (the "Bank") from the mutual holding
company form of organization to stock form. The Board of Directors and
management are committed to building long term stockholder value, and as a group
we will own approximately ______ shares of Community National Corporation We are
enthusiastic about the stock offering and look forward to completing the
Subscription offering and the Community Offering on _______, 1997.
We have established a Conversion Center to answer any questions regarding
the conversion and stock offering. Should you require any assistance between now
and _______, I encourage you either to stop by any office of the Bank or to call
our Conversion Center at (901) ____________.
I hope you will join me in becoming a stockholder of Community National
Corporation.
Sincerely,
Howard Tignor
President
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, the Savings Association Insurance Fund or any other
governmental agency.
This is not an offer to sell or a solicitation of an offer to buy stock.
The offer will be made only by the Prospectus.
<PAGE>
Example 3
(Final Reminder Letter)
(Lexington First Federal Savings Bank Letterhead)
___________, 1997
Name
Address
City, State, Zip
Dear Name:
Just a quick note to remind you that the deadline is quickly approaching
for purchasing stock in Community National Corporation, the proposed stock
holding company for Lexington First Federal Savings Bank, I hope you will join
me in becoming a stockholder in Tennessee's newest publicly owned financial
institution holding company.
The deadline for subscribing for shares to become a stockholder is _______,
1997. If you have any questions, I hope you will call our Conversion Center at
(901) __________________.
Once again, I look forward to having you join me as a stockholder of
Community National Corporation.
Sincerely,
Howard Tignor
President
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, the Savings Association Insurance Fund or any other
governmental agency.
This is not an offer to sell or a solicitation of an offer to buy stock.
The offer will be made only by the Prospectus.
<PAGE>
IX. Proxygram
A. Explanation
A proxygram is used when the majority of votes needed to adopt the Plan of
Conversion is still outstanding. The proxygram is mailed to those "target
vote" depositors and stockholders who have not previously returned their
signed proxy.
The target vote depositors and stockholders are determined by the
conversion agent and registrar.
B. Example
<PAGE>
B. Example
- --------------------------------------------------------------------------------
P R O X Y G R A M
Lexington First Federal Savings Bank
YOUR VOTE ON OUR PLAN OF CONVERSION AND AGREEMENT AND PLAN OF REORGANIZATION HAS
- --------- ---
NOT BEEN RECEIVED.
- -----------------
YOUR VOTE IS VERY IMPORTANT, PARTICULARLY SINCE FAILURE TO VOTE IS EQUIVALENT TO
- ---------------------------
VOTING AGAINST THE PLAN.
VOTING FOR THE CONVERSION WILL NOT AFFECT THE INSURANCE OF YOUR ACCOUNT. IT
--
WILL CONTINUE TO BE INSURED UP TO $100,000 BY THE FEDERAL DEPOSIT INSURANCE
- ---------------------------------------------------------------------------
CORPORATION.
- -----------
YOU MAY PURCHASE STOCK IF YOU WISH, BUT VOTING DOES NOT OBLIGATE YOU TO BUY
STOCK.
PLEASE ACT PROMPTLY! SIGN THE ENCLOSED PROXY CARD AND MAIL, OR DELIVER, THE
----------------------------
PROXY CARD TO LEXINGTON FIRST FEDERAL SAVINGS BANK TODAY. PLEASE VOTE ALL PROXY
---
CARDS RECEIVED.
WE RECOMMEND THAT YOU VOTE "FOR" THE PLAN OF CONVERSION AND AGREEMENT AND PLAN
OF REORGANIZATION. THANK YOU.
THE BOARD OF DIRECTORS AND MANAGEMENT OF
LEXINGTON FIRST FEDERAL SAVINGS BANK
- --------------------------------------------------------------------------------
IF YOU RECENTLY MAILED THE PROXY,
PLEASE ACCEPT OUR THANKS AND DISREGARD THIS REQUEST.
FOR FURTHER INFORMATION CALL ( ) __________.
